THE TAX-EXEMPT FUND OF CALIFORNIA
Annual Report for the year ended August 31, 1997
[The American Funds Group(R)]
[Photo collage: Outline of state superimposed over photos of hibiscus flower,
ocean, orange grove, mountains, vineyard]
THE TAX-EXEMPT FUND OF CALIFORNIA(SM)
About our cover: California's geographic diversity, from beautiful seascapes to
ripening vineyards to mountain lakes, symbolizes the breadth of opportunity and
hope for the future that has drawn people to the Golden State for decades.
OBJECTIVE: SEEKS A HIGH LEVEL OF CURRENT INCOME FREE FROM FEDERAL AND
CALIFORNIA INCOME TAXES, WITH THE ADDITIONAL OBJECTIVE OF PRESERVATION OF
CAPITAL.
The Tax-Exempt Fund of California is one of the 28 funds in The American Funds
Group,(R) managed by Capital Research and Management Company. Since 1931,
Capital has invested with a long-term focus based on thorough research and
attention to risk.
[mountain chart]
$22,634 /1/
Lehman Brothers Municipal Bond Index
$21,072 /2/
The fund at net asset value
(not including sales charge)
$20,847 /3/
Lipper California Municipal Debt Funds Average
$20,070 /4/
The fund at maximum offering price
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
The fund
at net Lehman Lipper
The fund asset value Brothers California
at maximum (not Municipal Municipal
offering including Bond Debt Funds
Year price sales charge) Index Average
1986 9,525 10,000 10,000 10,000
1987 9,562 10,039 10,260 10,010
1988 10,089 10,593 10,966 10,644
1989 11,140 11,696 12,170 11,838
1990 11,581 12,159 12,951 12,439
1992 14,258 14,970 16,095 15,310
1993 16,123 16,928 18,059 17,252
1994 16,144 16,950 18,084 17,030
1995 17,461 18,333 19,687 18,229
1996 18,447 19,368 20,718 19,264
1997 20,070 21,072 22,634 20,847
</TABLE>
Year ended August 31
/1/With interest compounded. The index is a national index not limited to
California bonds. It is unmanaged and does not reflect sales charges,
commissions or expenses.
/2/Includes reinvested dividends of $8,820 and reinvested capital gain
distributions of $168.
/3/With dividends reinvested. The average does not reflect sales charges.
/4/Includes reinvested dividends of $8,399 and reinvested capital gain
distributions of $160. The net amount invested was $9,525.
/#/For the period October 28, 1986 through August 31, 1987.
Past results are not predictive of future results.
[end chart]
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the average annual compound returns over various
periods with all distributions reinvested and assuming payment of the 4.75%
maximum sales charge at the the beginning of the stated periods. Sales charges
are lower for accounts of $25,000 or more.
AVERAGE ANNUAL COMPOUND RETURNS
FOR PERIODS 8/31/97 9/30/97
ENDED (FISCAL YEAR-END) (LATEST CALENDAR QUARTER)
Ten Years +7.18% +7.88%
Five Years +6.04 +6.26
One Year +3.61 +3.42
The fund's 30-day yield as of September 30, 1997, calculated in accordance with
the Securities and Exchange Commission formula, was 4.24%. The fund's
distribution rate as of that date was 4.84%. 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.
[Sidebar]
INVESTMENT HIGHLIGHTS
through 8/31/97
12-month total return +8.8%*
(income plus capital changes, with dividends reinvested)
Tax-free distribution rate for August 4.9%
(income return only, reflecting maximum sales charge)
Taxable equivalent distribution rate 8.9%
(for August, assuming a 45.2% maximum combined
state and federal tax rate)
SEC 30-day yield as of August 31 4.2%
(reflecting maximum sales charge)
* Does not include 4.75% sales charge.
For current yield information, please call toll-free: 800/421-0180.
[End sidebar]
FELLOW SHAREHOLDERS:
This was a special year for The Tax-Exempt Fund of California; in October 1996,
the fund marked its 10-year anniversary. We are pleased to report that for the
fiscal year ended August 31, the fund produced a solid total return well above
its historical average while continuing to provide generous tax-free income.
During the period, shareholders who reinvested their monthly dividends totaling
82.8 cents a share and the November 1996 capital gain distribution of 8.5 cents
saw the value of their investments rise 8.8%. That is well above the fund's
lifetime average annual compound return of 7.1%.
Shareholders who took their dividends in cash saw the value of their holding
increase 3.3% and earned an income return of 5.3%, free of both state and
federal taxes. Taxpayers in the maximum 45.2% combined state and federal tax
bracket would have had to earn a 9.7% return in a taxable fund to equal their
income return from the fund.
The fund's total return matched the 8.8% increase reported by the Lipper
California Municipal Debt Funds Index, which measures the average of
California's 30 largest municipal bond funds. It trailed the 9.2% increase
recorded by the unmanaged Lehman Brothers Municipal Bond Index, which measures
the national investment-grade municipal market and includes no expenses.
This November the fund expects to pay a capital gain distribution of about 7
cents a share.
BONDS' ZIGZAG COURSE
During the year, bond prices followed a zigzag course, ending higher than a
year earlier as interest rates in the municipal bond market neared 20-year
lows.
As the year began, we were not convinced the favorable momentum would continue
and we held a somewhat cautious stance. This led us to concentrate on bonds
with shorter maturities. Our caution during the year proved rather
counterproductive as interest rates declined and the prices of longer term
bonds rose more quickly than the prices of short-term bonds.
Still, your fund has now enjoyed three consecutive years of solid total returns
and it appears that the investment climate is favorable for the near term.
Interest rates are low in the municipal bond market and inflation appears to be
in check. During the past year, the state's broad-based economic expansion
continued, unemployment fell and state tax revenues, which often are a good
barometer of the financial health of municipalities, remained high.
California's Legislative Analyst's Office forecasts the state's revenues to
increase 6.8% this year.
With a strong economy and low interest rates, the future looks bright, but we
wish to caution our shareholders against expecting good results or such a
favorable economic climate to continue indefinitely. Shareholders should
remember that change, not maintenance of the status quo, has been the hallmark
of the financial markets over the long run. Interest rates often respond to
unexpected economic or political shocks that occur well beyond the state's
borders and can move bond prices suddenly.
CALIFORNIA'S STRONG ECONOMY
California's strong economy created some solid investments, especially in the
areas of real estate development and infrastructure projects such as roads and
sewers. The success of these types of development and infrastructure bonds
relies as much on the underlying strength of the economy as the level of
interest rates. Finding good opportunities requires thorough research and solid
judgment about the prospects for the project as well as the state's economy. We
believe our extensive research efforts have uncovered many potentially
rewarding investments, especially among bonds others considered somewhat risky.
Over the past year we increased our holdings in bonds rated below
investment-grade to 13% of the portfolio from 5% a year ago. These investments
were made after thoroughly researching each issue. In addition to providing a
higher yield, the price of these bonds may go up if they are upgraded.
In the coming pages we look at the ups and downs of California's economy and
The Tax-Exempt Fund of California during the past 10 years.
We look forward to reporting to you again in six months.
Cordially,
/s/ Paul G. Haaga, Jr. /s/ Abner D. Goldstine
PAUL G. HAAGA, JR ABNER D. GOLDSTINE
Chairman of the Board President
October 15, 1997
[pie chart]
Portfolio Quality Rating
Aaa/AAA 38%
Aa/AA 11%
A/A 20%
Baa/BBB 18%
Below investment- grade 13%
[end pie chart]
[sidebar]
WHY DOUBLE TAX-FREE INVESTING CAN BE WORTHWHILE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
THE FUND'S 4.9% TAX-EXEMPT
CURRENT FEDERAL DISTRIBUTION RATE IN AUGUST/2/
YOUR TAXABLE INCOME CALIFORNIA TAX IS EQUIVALENT TO A TAXABLE
SINGLE JOINT RATE/1/ DISTRIBUTION RATE OF:
$18,761-24,650 $37,522-41,200 20.1% 6.1%
24,651-26,045 41,201-52,090 32.3 7.2
26,046-32,916 52,091-65,832 33.8 7.4
32,917-59,750 65,833-99,600 34.7 7.5
59,751-124,650 99,601-151,750 37.4 7.8
124,651-271,050 151,751-271,050 42.0 8.4
Over 271,050 Over 271,050 45.2 8.9
</TABLE>
/1/ Based on 1997 federal and 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.
[end bar chart]
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 4.9% TAX-EXEMPT DISTRIBUTION RATE IN AUGUST.
BECAUSE OF TAX INCREASES IN RECENT YEARS, MANY HIGH-INCOME INVESTORS ARE
FINDING THAT THEIR RETURNS ON TAXABLE FIXED-INCOME ISSUES HAVE TO BE EVEN
HIGHER TO MATCH THOSE CURRENTLY OFFERED BY TAX-EXEMPT MUNICIPALS. FOR INSTANCE,
A COUPLE WITH A TAXABLE INCOME OF $152,000 FACES A COMBINED FEDERAL AND
CALIFORNIA TAX RATE OF 42.0%. IN THIS BRACKET, THE FUND'S CURRENT 4.9%
DISTRIBUTION RATE WOULD BE EQUIVALENT TO A RETURN ON A TAXABLE FIXED-INCOME
INVESTMENT OF 8.4%.
[End sidebar]
[Sidebar]
CALIFORNIA'S AEROSPACE AND DEFENSE INDUSTRIES WERE HIT HARD BY THE END OF THE
COLD WAR BUT PRODUCTION OF PARTS AND EQUIPMENT FOR CIVILIAN AIRCRAFT REMAINS AN
IMPORTANT INDUSTRY TO THE STATE.
[End sidebar]
[photos: parts of airplane]
THE FUND'S FIRST DECADE: A TIME OF DARK CLOUDS AND SUNNY DAYS
Early in this fiscal year, The Tax-Exempt Fund of California celebrated its
tenth anniversary. It has been a tumultuous decade for California; one of
growth, deep recession and broad-based recovery. Like the state itself, the
fund also has seen dark clouds and sunny days. Through it all, though,
shareholders have fared well, earning an average annual return of 7.1% over the
fund's lifetime if they reinvested their dividends, as most shareholders do.
For its part, the state appears to have overcome its recent problems and faces
a brighter future.
Although the outlook is good for both the state and the nation, the two have
often marched to different drummers during the past 10 years. The last
recession hit California harder than the rest of the nation and the state's
economy took longer to recover. Still, a close look at the past 10 fiscal years
- - The Tax-Exempt Fund of California began in October 1986 - shows that the fund
has weathered the ups and downs in the state and nation quite well.
There were few places in the nation that looked better than California in late
1986. The gross state product, the sum of all goods and services produced in
California, grew an inflation-adjusted 5.9%* in 1987 as the state's economic
expansion entered its fifth year. But 1987 also was a turbulent time in the
financial markets. Interest rates rose through most of the year, and in October
the stock market crashed.
[Footnote]
*Based on 1992 dollars
[End footnote]
[Sidebar]
THE TAX-EXEMPT FUND OF CALIFORNIA HAS SEEN A TUMULTUOUS FIRST DECADE: ONE OF
GROWTH, DEEP RECESSION AND BROAD-BASED RECOVERY.
[End sidebar]
CHANGING FORTUNES
The state's economy seemed to take the stock market crash in stride and
continued to grow rapidly through the end of the decade. By 1990, however, the
Golden State's economic growth began to slow. The end of the Cold War
accelerated the downturn, with spending on defense and aerospace declining.
California's construction industry, one of its most important, suffered as
demand for new office space and housing dropped. Agriculture and manufacturing
also saw employment rolls shrink. The state's jobless rate rose from 5.1% in
1989 to 9.4% in 1993. During the three-year recession, the state lost more than
400,000 jobs.
The state also has endured its share of natural disasters. In 1989, just before
the recession began, a 7.1-magnitude earthquake struck the San Francisco Bay
area, causing widespread damage. Then in January 1994, a 6.9 quake hit Southern
California. Together these disasters disrupted business, damaged the state's
infrastructure and inflicted hundreds of millions of dollars in losses on
private and public property.
BOUNCING BACK
The state began recovering in 1994. But in December of that year, Orange
County, believed to be one of the most prosperous counties in the nation,
declared bankruptcy, casting a pall over the state's recovery. Since then the
county has reorganized its debts, growth has been widespread and the state has
added one million new jobs. California's gross state product now tops $1
trillion, making it the seventh-largest economy in the world.
Unfortunately, just as the outlook for the state brightened, the strong
national economy spurred fears of inflation, which pushed interest rates higher
and bond prices lower.
During the last decade, the fund has often changed its investment focus as
interest rates rose or fell and the state's economy slumped or soared. When the
state's economy began to falter, the fund shifted its portfolio to favor
"essential service" bonds, such as water and sewer districts and electric
utilities, which are backed by steady revenue streams.
Then, as the state's economy picked up steam, the fund increased its emphasis
on real estate development and other projects that depend more directly on
economic growth and steady employment.
STRONG FISCAL FIVE-YEAR RESULTS
Relying on extensive research to find its investment opportunities, the fund
has produced solid returns relative to its peers over the past five fiscal
years, which includes the end of the recession and recovery. During that time,
the fund has produced an average annual compound return of 7.1% for
shareholders who reinvested their distributions. The California Municipal Debt
Funds Index, calculated by Lipper Analytical Services, earned an average annual
return of 6.6% over the same time.
Today the state's economy depends less on defense and aerospace and more on
high-wage jobs in a variety of industries, such as entertainment, computer
manufacturing and software development. California is on the leading edge of
the computer animation and entertainment industries. The state remains an
agricultural powerhouse and continues to lead the nation in farm production.
At the same time, the state's population growth has picked up. Recent data from
the Census Bureau predicts the state's population will increase 18 million, or
about 56%, by 2025. Housing starts are rising and construction jobs increased
10% between July 1996 and July 1997.
Despite California's recent success, the state could face problems in the
future, says Joel Kotkin, a senior fellow at the Pepperdine Institute for
Public Policy. One problem Kotkin points out is that the expansion has been
uneven, just as the recession was, with Northern California enjoying a more
widespread and robust recovery.
The analysts and portfolio counselors for The Tax-Exempt Fund of California
also see potential problems coexisting with the state's great promise. Through
the state's initiative process, voters have dictated the state's fiscal policy
by limiting their legislators' ability to raise taxes or decide how revenues
will be spent. This process leaves little room for political leaders to act
during financially hard times in the future. Additionally, changes in the
state's income tax structure could pose problems if growth slows again.
As The Tax-Exempt Fund of California enters its second decade, it's difficult
to know which direction the state's economy will take. It could be a time of
unparalleled growth or a mix of progress and setbacks. It will be a time when
bond investors may welcome the guidance of investment professionals who have
the knowledge and research capabilities to find investment opportunities
throughout the state and the experience to judge them in a variety of economic
environments.
[Sidebar]
CALIFORNIA IS HOME TO THE LARGEST AGRICULTURAL ECONOMY IN THE UNITED STATES.
FROM GRAPES AND PEACHES TO WHEAT AND HAY, CALIFORNIA'S FARM RECEIPTS TOTALED
$24.5 BILLION IN 1996.
[End sidebar]
[photo: vineyard]
[photo: peaches]
[Sidebar]
[bar chart]
UNEMPLOYMENT RATES
1987 - 1996
U.S.
California
<TABLE>
<CAPTION>
<S> <C> <C>
Year U.S. California
1987 6.2 5.8
1988 5.5 5.3
1989 5.3 5.1
1990 5.6 5.8
1991 6.8 7.7
1992 7.5 9.3
1993 6.9 9.4
1994 6.1 8.6
1995 5.6 7.8
1996 5.4 7.2
</TABLE>
Source: U.S. Department of Labor, Bureau of Labor Statistics and the California
Employment Development Department
[End sidebar]
[Sidebar]
COMPUTER MANUFACTURING, SOFTWARE AND TELECOMMUNICATIONS ARE JUST THREE OF THE
HIGH-TECH FIELDS THAT HAVE HELPED FUEL THE STATE'S ECONOMIC RECOVERY.
[End sidebar]
[photo: satellites]
[photo: computer part]
[Sidebar]
ANNUAL PERCENT CHANGE IN
CALIFORNIA'S GROSS STATE PRODUCT
<TABLE>
<CAPTION>
<S> <C>
Year % Change
1987 5.9
1988 6.0
1989 4.7
1990 2.7
1991 -1.8
1992 -.06
1993 -.09
1994 1.8
1995 3.4
1996 * 4.6
</TABLE>
[end bar chart]
*Estimated
Based on 1992 dollars
Source: U.S. Department of Commerce, Bureau of Economic Analysis
Estimate: California Department of Finance
[End sidebar]
<PAGE>
<TABLE>
THE TAX-EXEMPT FUND OF CALIFORNIA
Investment Portfolio, August 31, 1997
<S> <C> <C>
Principal Market
Amount Value
(000) (000)
Tax-Exempt Securities Maturing in More than
One Year - 94.79%
Educational Facilities Authority, Revenue Bonds
(University of San Francisco), Series 1996, MBIA
Insured, 5.70% 2011 $1,190 $1,282
Health Facilities Financing Authority:
Hospital Revenue Bonds:
Downey Community Hospital, Series 1993, 5.75% 2015 6400 6443
Kaiser Permanente Medical Care Program, Semi-Annual
Tender Revenue Bonds, 1985 Tender Bonds, 5.55% 2025 2000 1978
Pacific Presbyterian Medical Center, Insured
Variable Rate Demand, 1985 Series B,
6.75% 2015 (Prerefunded 2002) 4000 4377
St. Joseph Health System:
Series 1989 A, 6.90% 2014 (Prerefunded 1999) 1250 1337
Series 1991 A, 6.75% 2021 (Prerefunded 2001) 4000 4430
Hospital Revenue Refunding Bonds (Saint Francis
Memorial Hospital), Series 1993A, 5.75% 2005 1150 1210
Housing Finance Agency:
Home Mortgage Revenue Bonds:
1991 Series A, 7.35% 2011 550 582
1991 Series G, 6.95% 2011 780 818
1995 Series K, 5.55% 2021 905 923
1997 Series H, MBIA Insured, 5.50% 2017 3250 3261
Single Family Mortgage Purchase Bonds, Series B2,
AMBAC Insured, 5.70% 2007 3420 3493
Maritime Infrastructure Authority,
Airport Revenue Bonds (San Diego Unified Port
District Airport Project-Lindbergh Field), Series 1995,
AMBAC Insured, 5.00% 2020 2265 2106
Pollution Control Financing Authority:
Pollution Control Revenue Bonds (Pacific Gas and
Electric Co.):
1992 Series B, 6.35% 2009 4400 4708
1993 Series B, AMBAC Insured, 5.85% 2023 1000 1016
Resource Recovery Revenue Bonds, Waste Management Inc.
Guarantee Bond, Series A, 7.15% 2011 4500 4896
Solid Waste Disposal Revenue Bonds (CanFibre
of Riverside Project), Series 1997A,
9.00% 2019 4000 4038
Solid Waste Revenue Bonds (Keller Canyon Landfill
Co. Project), BFI Corp. Guarantee, Series 1992:
5.80% 2016 1250 1271
6.875% 2027 5200 5730
Public Works Board, Lease Revenue Bonds:
California Community Colleges (Various Community
College Projects), 1994 Series B, 6.75% 2005 1000 1137
The Regents of the University of California,
Various University of California Projects:
1993 Series B, MBIA Insured, 5.50% 2014 1500 1561
1993 Series A, 5.50% 2021 1000 986
Department of Corrections, State Prison:
Imperial County, 1991 Series A, 6.50% 2017 1000 1139
Lassen County (Susanville), 1993 Series D:
5.25% 2015 2000 2010
5.375% 2018 1600 1558
Refunding Revenue Bonds (1989 Multiple Purpose
Projects), Series C, AMBAC Insured, 5.00% 2023 2000 1870
1991 Certificates of Participation (UCLA Central
Chiller/Cogeneration Facility), 7.00% 2015
(Prerefunded 1999) 1250 1349
Rural Home Mortgage Finance Authority, Single Family
Mortgage Revenue Bonds (Mortgage-Backed Securities
Program):
1995 Series B, 7.75% 2026 2845 3231
1996 Series A, 7.75% 2027 1205 1373
Statewide Communities Development Authority:
Certificates of Participation, J. Paul Getty Trust,
5.00% 2015 1000 965
Hospital Revenue Certificates of Participation,
Cedars-Sinai Medical Center, Series 1992, 6.50% 2012 1900 2152
St. Joseph Health System Obligated Group,
Certificates of Participation, 5.50% 2014 3000 3009
Sisters of Charity of Leavenworth Health Services
Corp., Certificates of Participation, Series 1994,
5.00% 2023 2000 1857
Department of Water Resources, Central Valley Project,
Water System Revenue Bonds:
Series F, 7.25% 2010 500 520
Series O, MBIA Insured, 5.00% 2022 2000 1890
Series H, 6.90% 2025 (Prerefunded 2000) 2000 2173
Alameda Public Financing Authority, 1997 Revenue Bonds
(Marina Village Assessment District Bond Refinancing):
6.05% 2008 1110 1135
6.125% 2009 1340 1370
6.375% 2014 1100 1124
County of Alameda, 1993 Refunding Certificates of
Participation (Santa Rita Jail Project), MBIA Insured,
5.375% 2009 1500 1577
Anaheim Public Financing Authority, Lease Revenue Bonds
(Anaheim Public Improvements Project), Senior Lease
Revenue Bonds, 1997 Series A, FSA Insured, 6.00% 2024 1500 1643
Association of Bay Area Governments Finance Authority
For Nonprofit Corporations, Certificates of Participation
(Stanford University Hospital), Series 1993:
5.75% 2005 2240 2388
5.50% 2013 2500 2513
Redevelopment Agency of the City of Burbank
(Golden State Redevelopment Project), Tax
Allocation Bonds, 1993 Series A:
6.00% 2013 1500 1549
6.00% 2023 1000 1022
Castaic Lake Water Agency Financing Corp., Refunding
Revenue Certificates of Participation (Water System
Improvement Projects), MBIA Insured, Series 1994A,
7.25% 2010 1400 1715
Central Valley Financing Authority, Cogeneration
Project Revenue Bonds (Carson Ice-Gen Project),
Series 1993:
6.10% 2013 3000 3117
6.20% 2020 5000 5194
Del Mar Race Track Authority, Revenue Refunding Bonds,
Series 1996, 6.00% 2001 1750 1808
East Bay Municpal Utility District (Alameda and Contra
Costa Counties), Wastewater System Subordinated Revenue
Refunding Bonds, Series 1996, FGIC Insured, 5.00% 2026 2230 2091
Foothill/Eastern Transportation Corridor Agency, Toll
Road Revenue Bonds, Series 1995A, 6.00% 2016 2500 2597
City of Fremont, Multifamily Housing Revenue Refunding
Bonds (Durham Greens Project), Issue A of 1995,
5.40% 2026 3000 3120
City of Fresno, Sewer System Revenue Bonds, Series 1993A
AMBAC Insured, 5.25% 2019 1000 988
Kern High School District (County of Kern), General
Obligation Refunding Bonds, Series 1996A,
MBIA Insured, 6.60% 2016 1000 1155
City of Long Beach:
Financing Authority Revenue Bonds,
Series 1992, AMBAC Insured, 6.00% 2017 750 821
Harbor Revenue Bonds, Series 1993, 5.125% 2018 1000 943
City of Los Angeles:
Convention and Exhibition Center Authority,
Certificates of Participation:
7.375% 2018 (Prerefunded 1999) 2500 2696
7.00% 2020 (Prerefunded 1999) 2000 2143
Harbor Department Revenue Bonds:
Issue 1988, 7.60% 2018 (Escrowed to Maturity) 1750 2190
Issue 1995, Series B, 6.625% 2025 4750 5118
Metropolitan Transportation Authority:
Proposition A Sales Tax Revenue Refunding Bonds,
Series 1993-A, FGIC Insured, 5.00% 2021 2000 1876
Proposition C Sales Tax Revenue Bonds, Second
Senior Bonds, Series 1995-A, AMBAC Insured,
5.00% 2025 1000 935
Multifamily Housing Revenue Bonds (GNMA Collateralized -
Ridgecroft Apartments Project), Series 1997E,
6.125% 2027 2005 2049
Transportation Commission, Sales Tax Revenue Bonds:
Series 1989, 7.00% 2019 2250 2401
Series 1991-A, 6.75% 2020 (Prerefunded 2001) 2500 2773
Waste Water System Revenue Bonds, Series 1990-B,
7.15% 2020 (Prerefunded 2000) 1000 1097
Department of Water and Power, Electric Plant Revenue Bonds,
Issue of 1990:
7.125% 2030 (Subject to Crossover Refunding 2000) 2500 2711
7.10% 2031 (Subject to Crossover Refunding 2001) 3000 3275
County of Los Angeles, Capital Asset Leasing Corp.,
Certificates of Participation (Marina del Rey), Series A:
6.25% 2003 4635 4952
6.50% 2008 6000 6368
Marin Municipal Water District Water Revenue Bonds,
Series 1993, 5.65% 2023 1000 1006
Northern California Public Power Agency, Geothermal Project
#3, Special Revenue Bonds, 1993 Refunding Series A,
5.60% 2006 3725 3835
Port of Oakland, Revenue Bonds,
1992 Series E, MBIA Insured, 6.40% 2022 1670 1787
County of Orange:
Aliso Viejo Special Tax Bonds of Community
Facilities District No. 88-1, Series A of 1992:
7.25% 2008 (Prerefunded 2002) 1500 1726
7.35% 2018 (Prerefunded 2002) 4250 4908
Local Transportation Authority, First Senior Fixed-Rate Bonds:
AMBAC Insured, 6.00% 2007 1000 1101
MBIA Insured, 6.00% 2009 1500 1657
Recovery Certificates of Participation, 1996 Series A,
MBIA Insured, 6.00% 2008 3000 3285
City of Oxnard, Assessment District No.97-1-R
(Pacific Commerce Center), Limited Obligation
Refunding Bonds:
5.50% 2004 1500 1524
5.60% 2005 2920 2971
5.70% 2006 1215 1241
South Orange County, Public Financing Authority,
Special Tax Revenue Bonds, Series B (Junior Lien
Bonds):
6.55% 2002 1565 1623
6.85% 2005 2715 2825
7.00% 2006 1310 1366
City of Pasadena, Certificates of Participation (1990
Capital Improvements Project), 7.00% 2003
(Prerefunded 2000) 1000 1098
Redevelopment Agency of the City of Pittsburg, Los
Medanos Community Development Project, Tax Allocation
Refunding Bonds, AMBAC Insured, Series 1993A,
5.25% 2015 2195 2140
Pleasanton Joint Powers Financing Authority,
Reassessment Revenue Bonds, 1993 Series A:
5.70% 2001 3855 3997
6.15% 2012 1870 1966
Redding Joint Powers Financing Authority, Solid Waste
and Corporation Yard Revenue Bonds, 1993 Series A:
5.00% 2018 4000 3701
5.00% 2023 2000 1826
Sacramento City Financing Authority, 1991 Revenue
Bonds, 6.80% 2020 (Prerefunded 2001) 5500 6151
Sacramento Cogeneration Authority, Cogeneration
Project Revenue Bonds:
(Campbell Soup Project), 1995 Series:
6.00% 2003 1500 1595
6.50% 2005 1100 1198
(Proctor & Gamble Project), 1995 Series:
7.00% 2005 1700 1905
6.375% 2010 3500 3792
6.50% 2014 1000 1080
6.50% 2021 4000 4279
Sacramento Municipal Utility District,
Electric Revenue Bonds, 1997 Series K, AMBAC Insured,
5.70% 2017 2500 2639
County of Sacramento:
Laguna Creek Ranch/Elliott Ranch Community
Facilities District No.1, Improvement Area
No.2 Special Tax Refunding Bonds (Elliott Ranch):
6.00% 2012 440 433
6.30% 2021 500 500
Single Family Mortgage Revenue Bonds
(GNMA Mortgage-Backed Securities Program),
Issue A of 1987, 9.00% 2019 1500 2161
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 (Prerefunded 2001) 2435 2718
County of San Bernardino, Certificates of
Participation, Series B (Capital Facilities
Project), 6.25% 2019 (Prerefunded 2001) 2000 2152
City of San Diego/MTDB Authority (San Diego Old Town
Light Rail Transit Extension), 1993 Lease Revenue
Bonds, 5.375% 2023 1500 1464
County of San Diego, Reassessment District No. 97-1
(4-S Ranch), Limited Obligation Improvement Bonds:
5.90% 2007 1435 1427
5.90% 2008 1000 990
City and County of San Francisco:
Airports Commission, San Francisco International Airport
Second Series Revenue Bonds, Issue 9B, 5.25% 2020 1000 965
Port Commission Revenue Refunding Bonds,
Series 1994, 5.90% 2009 1500 1552
Redevelopment Agency:
Lease Revenue Bonds, Series 1992 (George R. Moscone
Convention Center), 5.50% 2018 2560 2516
Residential Facility Revenue Bonds (Coventry Park
Project), 1996 Series A, 8.50% 2026 5000 5184
County of San Joaquin, Certificates of Participation
(1993 General Hospital Project), 6.625% 2020 2235 2406
San Joaquin Hills Transportation Corridor Agency
(Orange County), Senior Lien Toll Road Revenue
Bonds, 6.75% 2032 1500 1615
Redevelopment Agency of the City of San Jose,
Multifamily Housing Revenue Bonds
(GNMA Collateralized - The Miraido Village), Series 1997A:
5.30% 2012 1000 995
5.65% 2022 1500 1490
Santa Ana Financing Authority, Police Administration
and Holding Facility Lease Revenue Bonds, MBIA
Insured, Series 1994A, 6.25% 2019 1000 1116
Santa Clara County Financing Authority, Lease Revenue
Bonds (VMC Facility Replacement Project), AMBAC
Insured, 1994 Series A, 7.75% 2009 2200 2794
Shafter Joint Powers Financing Authority Lease Revenue
Bonds, 1997 Series A (Community Correctional Facility
Acquisition Project):
5.50% 2006 1535 1585
5.95% 2011 1700 1768
South Tahoe Joint Powers Financing Authority, Refunding
Revenue Bonds (South Tahoe Redevelopment Project Area
No. 1), 1995 Series B, 6.25% 2020 3250 3363
Southern California Home Financing Authority, Single
Family Mortgage Revenue Bonds (GNMA and FNMA
Mortgage-Backed Securities Program), 1992 Series A,
6.75% 2022 1105 1158
City of Stockton, Mello-Roos Revenue Bonds,
Series 1997A, Community Facilities District
No. 90-2 (Brookside Estates)(1):
5.50% 2005 1560 1562
5.75% 2008 1840 1843
5.95% 2010 1000 1001
---------
274113
---------
Tax-Exempt Securities Maturing in
One Year or Less - 5.64%
County of Contra Costa, 1997-1998 Tax and Revenue
Anticipation Notes, Series A, 4.50% 7/1/98 7400 7442
City of Los Angeles:
State Building Authority, Lease Revenue Bonds,
Department of General Services Lease,
Series 1988 A, 7.50% 2011 (Prerefunded 1998) 3500 3634
Waste Water System Revenue Bonds,
Series 1987, 8.125% 2017 (Prerefunded 1997) 1000 1027
County of Los Angeles, 1997-98 Tax and Revenue
Anticipation Notes, Series A, 4.50% 6/30/98 3500 3520
Pollution Control Financing Authority,
Pollution Control Refunding Revenue Bonds
(Shell Oil Co. Project), 1991 Series A,
3.35% 2010(2) 700 700
---------
16323
---------
TOTAL TAX-EXEMPT SECURITIES (cost:$271,382,000) 290436
Excess of payables over cash and receivables 1270
---------
$289,166
NET ASSETS =========
(1)Represents a when-issued security.
(2)Coupon rate changes periodically.
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
The Tax-Exempt Fund of California
Financial Statements
<S> <C> <C>
Statement of Assets and Liabilities
at August 31, 1997 (dollars in thousands)
Assets:
Tax-exempt securities (cost: $271,382) $290,436
Cash 20
Receivables for--
Sales of fund's shares $ 217
Accrued interest 3,837 4,054
--------------- -----------
294,510
Liabilities:
Payables for--
Purchases of investments 4,400
Repurchases of fund's shares 99
Dividends payable 584
Management services 98
Accrued expenses 163 5,344
--------------- -----------
Net Assets at August 31, 1997--
Equivalent to $16.22 per share on
17,825,514 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $289,166
=========
Statement of Operations
for the year ended August 31, 1997
(dollars in thousands)
Investment Income:
Income:
Interest on tax-exempt securities $15,762
Expenses:
Management services fee $1,088
Distribution expenses 614
Transfer agent fee 66
Reports to shareholders 50
Registration statement and prospectus 22
Postage, stationery and supplies 23
Trustees' fees 16
Auditing and legal fees 34
Custodian fee 13
Taxes other than federal income tax 4
Other expenses 14 1,944
--------------- -----------
Net investment income 13,818
-----------
Realized Gain and Increase in Unrealized
Appreciation on Investments:
Net realized gain 1,397
Net unrealized appreciation:
Beginning of year 11,753
End of year 19,054
---------------
Net increase in unrealized appreciation 7,301
-----------
Net realized gain and increase in
unrealized appreciation on investments 8,698
-----------
Net Increase in Net Assets Resulting
from Operations $22,516
=========
See Notes to Financial Statements
Statement of Changes in Net Assets
(dollars in thousands)
Year ended August 31
1997 1996
--------- ---------
Operations:
Net investment income $ 13,818 $ 12,984
Net realized gain on investments 1,397 1,373
Net change in unrealized appreciation
on investments 7,301 (944)
------------------ -----------
Net increase in net assets
resulting from operations 22,516 13,413
------------------ -----------
Dividends and Distributions Paid to
Shareholders:
Dividends paid from net investment income (13,821) (12,978)
Distributions from net realized gain
on investments (1,382) -
------------------ -----------
Total dividends and distributions (15,203) (12,978)
------------------ -----------
Capital Share Transactions:
Proceeds from shares sold:
3,438,562 and 3,016,709
shares, respectively 55,139 48,021
Proceeds from shares issued in reinvestment of net
investment income dividends and distributions of
net realized gain on investments:
535,942 and 439,139 shares, respectively 8,594 6,983
Cost of shares repurchased:
2,150,063 and 2,264,964 shares,
respectively (34,412) (36,022)
------------------ -----------
Net increase in net assets
resulting from capital share transactions 29,321 18,982
------------------ -----------
Total Increase in Net Assets 36,634 19,417
Net Assets:
Beginning of year 252,532 233,115
------------------ -----------
End of year $289,166 $252,532
=========== ===========
See Notes to Financial Statements
</TABLE>
<PAGE>
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, with the
additional objective of preservation of 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. Securities for which
market quotations are not readily available are valued at fair value by the
Board of Trustees or a committee thereof. All securities with 60 days or less
to maturity are valued at amortized cost, which approximates market value.
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. 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.
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 taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of August 31, 1997, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $19,054,000, of which $19,211,000
related to appreciated securities and $157,000 related to depreciated
securities.
There was no difference between book and tax realized gains on securities
transactions for the year ended August 31, 1997. The cost of portfolio
securities for book and federal income tax purposes was $271,382,000 at August
31, 1997.
3. The fee of $1,088,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Trustees of the trust are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.30% of the first $60 million of average net assets;
0.21% of such assets in excess of $60 million; and 3.00% of the fund's monthly
gross investment income.
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Trustees. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended August 31, 1997,
distribution expenses under the Plan were $614,000. As of August 31, 1997,
accrued and unpaid distribution expenses were $123,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $66,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $131,000 (after allowances to
dealers) as its portion of the sales charges paid by purchasers of the fund's
shares. Such sales charges are not an expense of the fund and, hence, are not
reflected in the accompanying statement of operations.
Trustees who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of August 31,
1997, aggregate amounts deferred and earnings thereon were $41,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Trustees and officers of the trust
are or may be considered to be affiliated with CRMC, AFS and AFD. No such
persons received any remuneration directly from the fund.
4. As of August 31, 1997, accumulated undistributed net realized gain on
investments was $1,345,000 and paid-in capital was $268,767,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $71,331,000 and $39,857,000, respectively, during the
year ended August 31, 1997. Pursuant to the custodian agreement, the fund may
receive credits against its custodian fee for imputed interest on certain
balances with the custodian bank. The custodian fee of $13,000 includes $6,000
paid by these credits rather than in cash.
<PAGE>
<TABLE>
Per-Share Data and Ratios
<S> <C> <C> <C> <C> <C>
Year ended August 31
1997 1996 1995 1994 1993
Net Asset Value, Beginning
of Year $15.78 $15.74 $15.40 $16.30 $15.21
--------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income .83 .84 .86 .84 .84
Net realized and
unrealized gain
(loss) on investments .53 .04 .34 (.84) 1.09
--------- ------- ------- ------- -------
Total income from
investment operations 1.36 .88 1.20 .00 1.93
--------- ------- ------- ------- -------
Less Distributions:
Dividends from net
investment income (.83) (.84) (.86) (.84) (.84)
Distributions from net
realized gains (.09) - - (.06) -
--------- ------- ------- ------- -------
Total distributions (.92) (.84) (.86) (.90) (.84)
--------- ------- ------- ------- -------
Net Asset Value, End of Year $16.22 $15.78 $15.74 $15.40 $16.30
========= ======= ======= ======= =======
Total Return* 8.80% 5.65% 8.16% 0.13% 13.08%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $289 $253 $233 $226 $223
Ratio of expenses to average
net assets .72% .73% .73% .71% .71%
Ratio of net income to
average net assets 5.15% 5.25% 5.65% 5.28% 5.36%
Portfolio turnover rate 15.68% 27.60% 41.36% 15.08% 16.82%
*Calculated without deducting a sales charge. The maximum
sales charge is 4.75% of the fund's offering price.
</TABLE>
Independent Auditors' Report
To the Board of Trustees of The American Funds
Tax-Exempt Series II and Shareholders of
The Tax-Exempt Fund of California:
We have audited the accompanying statement of assets and liabilities of
The American Funds Tax-Exempt Series II-- The Tax-Exempt Fund of California
(the "fund"), including the schedule of portfolio investments, as of August 31,
1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the per-share data and ratios for each of the five years in the
period then ended. These financial statements and per-share data and ratios
are the responsibility of the fund's management. Our responsibility is to
express an opinion on these financial statements and per-share data and ratios
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of August 31, 1997 by correspondence with the custodian and brokers;
where replies were not received, we performed other procedures. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of The American Funds Tax-Exempt Series II -- The Tax-Exempt Fund of
California as of August 31, 1997, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the per-share data and ratios for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles.
/s/Deloitte & Touche LLP
Los Angeles, California
September 25, 1997
Tax Information (unaudited)
During the fiscal year ended August 31, 1997, the fund paid 82.8 cents per
share of exempt-interest distributions within the meaning of Section
852(b)(5)(A) of the Internal Revenue Code and 8.5 cents per share of capital
gain distributions within the meaning of Section 852(b)(3)(C) of the Internal
Revenue Code.
This information is given to meet certain requirements of the Internal Revenue
Code and should not be used by shareholders for preparing their income tax
returns. For tax return preparation purposes, please refer to the calendar
year-end information you receive from the fund's transfer agent.
Printed on recycled paper
Litho in USA KBD/ALI/3218
Lit. No. TEFCA-011-1097
Photos of Yosemite, Napa Valley and Lake Tahoe by Robert Holmes; courtesy of
the California Division of Tourism.
[The American Funds Group(R)]
THE TAX-EXEMPT FUND OF CALIFORNIA
BOARD OF TRUSTEES
H. FREDERICK CHRISTIE
Rolling Hills Estates, California
Private investor; former President and
Chief Executive Officer, The Mission Group; former President, Southern
California Edison Company
DON R. CONLAN
South Pasadena, California
President (retired), The Capital Group Companies, Inc.
DIANE C. CREEL
Long Beach, California
Chief Executive Officer and President,
The Earth Technology Corporation
(international consulting engineering)
MARTIN FENTON, JR.
San Diego, California
Chairman of the Board, Senior Resource Group, Inc. (senior living centers
management)
LEONARD R. FULLER
Marina del Rey, California
President, Fuller & Company, Inc.
(financial management consulting)
ABNER D. GOLDSTINE
Los Angeles, California
President of the fund
Senior Vice President and Director,
Capital Research and Management Company
PAUL G. HAAGA, JR.
Los Angeles, California
Chairman of the Board of the fund
Executive Vice President and Director,
Capital Research and Management Company
HERBERT HOOVER III
San Marino, California
Private investor
RICHARD G. NEWMAN
Los Angeles, California
Chairman of the Board, President and
Chief Executive Officer,
AECOM Technology Corporation
(architectural engineering)
PETER C. VALLI
Long Beach, California
Retired; former Chairman of the Board, BW/IP International, Inc.
(industrial manufacturing)
OTHER OFFICERS
NEIL L. LANGBERG
Los Angeles, California
Senior Vice President of the fund
Vice President - Investment Management Group, Capital Research and Management
Company
MICHAEL J. DOWNER
Los Angeles, California
Vice President of the fund
Senior Vice President - Fund Business Management Group, Capital Research and
Management Company
MARY C. HALL
Brea, California
Vice President of the fund
Senior Vice President - Fund Business
Management Group, Capital Research and Management Company
JULIE F. WILLIAMS
Los Angeles, California
Secretary of the fund
Vice President - Fund Business Management Group, Capital Research and
Management Company
ANTHONY W. HYNES, JR.
Brea, California
Treasurer of the fund
Vice President - Fund Business Management Group, Capital Research and
Management Company
KIMBERLY S. VERDICK
Los Angeles, California
Assistant Secretary of the fund
Assistant Vice President - Fund Business Management Group, Capital Research and
Management Company
TODD L. MILLER
Brea, California
Assistant Treasurer of the fund
Assistant Vice President - Fund Business Management Group, Capital Research and
Management Company
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 92821-5804
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
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
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
55 South Flower Street
Los Angeles, California 90071-2371
INDEPENDENT AUDITORS
Deloitte & Touche llp
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
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 FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
This report is for the information of shareholders 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 December 31, 1997, this report must be accompanied by an
American Funds Group Statistical Update for the most recently completed
calendar quarter.
