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. 15
and
Registration Statement
Under
The Investment Company Act of 1940
Amendment No. 17
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
(Exact Name of Registrant as specified in charter)
333 South Hope Street
Los Angeles, California 90071
(Address of principal executive offices)
Registrant's telephone number, including area code:
(213) 486-9200
JULIE F. WILLIAMS
333 South Hope Street
Los Angeles, California 90071
(name and address of agent for service)
Copies to:
Robert E. Carlson, Esq.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 S. Flower Street, 23rd Floor
Los Angeles, CA 90071-2371
(Counsel for the Registrant)
Title of Securities being Registered: Shares of beneficial interest
Approximate date of proposed public offering:
It is proposed that this filing become effective on November 1, 1997, pursuant
to paragraph (b) 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 POLICIES DESCRIPTION OF CERTAIN SECURITIES; FUNDAMENTAL POLICIES AND INVESTMENT
RESTRICTIONS
14. MANAGEMENT OF THE REGISTRANT TRUST OFFICERS AND TRUSTEES
15. CONTROL PERSONS AND PRINCIPAL HOLDERS TRUST OFFICERS AND TRUSTEES; FUND ORGANIZATION AND MANAGMENT (PART "A")
16. INVESTMENT ADVISORY AND OTHER SERVICES TRUST OFFICERS AND TRUSTEES; FUND ORGANIZATION AND MANAGEMENT (PART "A");
GENERAL INFORMATION; MANAGEMENT
17. BROKERAGE ALLOCATION AND OTHER PRACTICES EXECUTION OF PORTFOLIO TRANSACTIONS; FUND ORGANIZATION AND MANAGEMENT
(PART "A")
18. CAPITAL STOCK AND OTHER SECURITIES N/A
19. PURCHASE, REDEMPTION AND PRICING OF PURCHASE OF SHARES; REDEEMING SHARES; SHAREHOLDER
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>
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
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The Tax-Exempt Fund of California(SM)
Prospectus
NOVEMBER 1, 1997
<PAGE>
THE TAX-EXEMPT FUND OF CALIFORNIA
333 South Hope Street
Los Angeles, CA 90071
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expenses 3 Investment Results 10
................................ .............................................
Financial Highlights 4 Dividends, Distributions and Taxes 11
................................ .............................................
Investment Policies and Fund Organization and Management 13
Risks 5
................................ .............................................
Securities and Investment Shareholder Services 16
Techniques 5
................................
Multiple Portfolio
Counselor System 9
- --------------------------------------------------------------------------------
</TABLE>
The fund's investment objective is to provide investors with a high level of
current income exempt from federal and California income taxes. Consistent with
this primary objective is the additional objective of preservation of capital.
It seeks to achieve its objectives by investing primarily in investment grade
tax-exempt securities issued by the State of California, its political
subdivisions, municipalities and public authorities.
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
20-010-1197
<PAGE>
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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EXPENSES
The effect of the expenses described below is reflected in the fund's share
price and return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. 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. There is 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.
FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Management fees 0.41%
................................................................................
12b-1 expenses 0.23%/1/
................................................................................
Other expenses 0.08%
................................................................................
Total fund operating expenses 0.72%
</TABLE>
/1/ 12b-1 expenses may not exceed 0.25% of the fund's average net assets
annually.
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 total expenses over the following periods:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
One year $ 55
................................................................................
Three years $ 69
................................................................................
Five years $ 86
................................................................................
Ten years $133
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY TO PURCHASE
SHARES AT A REDUCED OR NO SALES CHARGE.
3
<PAGE>
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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FINANCIAL HIGHLIGHTS
The following information has been audited by Deloitte & Touche llp,
independent auditors. This table should be read together with the financial
statements which are included in the statement of additional information and
annual report.
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
....................
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $15.78 $15.74 $15.40 $16.30 $15.21 $14.59 $13.87 $14.16 $13.63 $13.72
- --------------------------------------------------------------------------------------------------------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .83 .84 .86 .84 .84 .85 .85 .84 .86 .82
........................................................................................................
Net realized and
unrealized gain (loss)
on investments .53 .04 .34 (.84) 1.09 .62 .72 (.29) .53 (.09)
........................................................................................................
Total income from
investment operations 1.36 .88 1.20 .00 1.93 1.47 1.57 .55 1.39 .73
- --------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.83) (.84) (.86) (.84) (.84) (.85) (.85) (.84) (.86) (.82)
........................................................................................................
Distributions from net
realized gains (.09) -- -- (.06) -- -- -- -- -- --
........................................................................................................
Total distributions (.92) (.84) (.86) (.90) (.84) (.85) (.85) (.84) (.86) (.82)
........................................................................................................
Net asset value, end
of period $16.22 $15.78 $15.74 $15.40 $16.30 $15.21 $14.59 $13.87 $14.16 $13.63
........................................................................................................
Total return /1/ 8.80% 5.65% 8.16% 0.13% 13.08% 10.36% 11.56% 3.96% 10.41% 5.51%
- --------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in millions) $289 $ 253 $ 233 $ 226 $ 223 $ 148 $ 111 $ 86 $ 68 $ 42
........................................................................................................
Ratio of expenses to
average net assets .72% .73% .73% .71% .71% .74% .85% .93% 1.00% .93%
........................................................................................................
Ratio of net income to
average net assets 5.15% 5.25% 5.65% 5.28% 5.36% 5.66% 5.89% 5.92% 6.06% 6.02%
........................................................................................................
Portfolio turnover rate 15.68% 27.60% 41.36% 15.08% 16.82% 20.28% 33.72% 20.19% 44.56% 80.15%
</TABLE>
/1/ Excludes maximum sales charge of 4.75%.
4
<PAGE>
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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INVESTMENT POLICIES AND RISKS
The investment objective of the fund is to provide 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. ("Moody's") or
Standard & Poor's Corporation ("S&P") 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 federal 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. Limits on the fund's investment policies are
determined at the time of purchase and are based on the fund's net assets
unless otherwise stated. The fund's fundamental investment restrictions
(described in the statement of additional information) and objectives may not
be changed without shareholder approval. MORE INFORMATION ON THE FUND'S
INVESTMENT POLICIES IS CONTAINED IN ITS STATEMENT OF ADDITIONAL INFORMATION.
THE FUND MAY NOT ACHIEVE ITS INVESTMENT OBJECTIVES DUE TO MARKET CONDITIONS AND
OTHER FACTORS. IN ADDITION, THE FUND MAY EXPERIENCE DIFFICULTY LIQUIDATING
CERTAIN PORTFOLIO SECURITIES DURING SIGNIFICANT MARKET DECLINES OR PERIODS OF
HEAVY REDEMPTIONS.
- --------------------------------------------------------------------------------
SECURITIES AND INVESTMENT TECHNIQUES
DEBT SECURITIES
Bonds and other debt securities are used by issuers to borrow money. Issuers
pay investors interest and generally 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. The prices of
debt securities fluctuate depending on such factors as interest rates, credit
quality and maturity. In general, their prices decline when interest rates rise
and vice versa.
5
<PAGE>
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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The fund may invest up to 20% of its assets in debt securities rated Ba and BB
or below by Moody's or S&P or in unrated securities that are determined to be
of equivalent quality by Capital Research and Management Company, the fund's
investment adviser. These securities are commonly known as "high-yield, high-
risk" or "junk" bonds. High-yield, high-risk bonds are described by the rating
agencies as speculative and involve greater risk of default or price changes
due to changes in the issuer's creditworthiness than higher rated bonds, or
they may already be in default. The market prices of these securities may
fluctuate more than higher quality securities and may decline significantly in
periods of general economic difficulty. It may be more difficult to dispose of,
or to determine the value of, high-yield, high-risk bonds. The fund may invest
in bonds rated as low as Ca or CC which are described by the rating 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 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.
MUNICIPAL BONDS
Municipal bonds are debt obligations generally issued to obtain funds for
various public purposes, including the construction of public facilities. The
interest on these obligations is generally not included in gross income for
federal income tax purposes.
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. Limited obligation or revenue bonds are secured by 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. 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.
There are, in addition, a variety of hybrid and special types of municipal
obligations, such as zero coupon and pre-refunded bonds, as well as numerous
differences in the security of municipal bonds, both within and between the two
primary classifications described above.
6
<PAGE>
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
- --------------------------------------------------------------------------------
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.
PORTFOLIO COMPOSITION
The average monthly composition of the fund's portfolio as a percentage of its
average net assets based on the higher of Moody's or S&P ratings for the fiscal
year ended August 31, 1997 was as follows:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Aaa/AAA 39.63%
................................................................................
Aa/AA 11.71%
................................................................................
A/A 18.04%
................................................................................
Baa/BBB 13.73%
................................................................................
Non-rated 10.94%
</TABLE>
Some or all of these non-rated securities were determined to be equivalent to
securities rated by Moody's or S&P as follows:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Baa/BBB 4.14%
................................................................................
Ba/BB 5.17%
................................................................................
B/B 1.63%
</TABLE>
Money market instruments and cash made up an average of 5.95% of the fund's
portfolio.
MUNICIPAL LEASE OBLIGATIONS
The fund may invest in municipal lease revenue obligations, some of which may
be considered illiquid. The fund may purchase, without limitation, 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 issuers
and lessees, the terms of the lease, the frequency and volume of trading and
the number of dealers trading the securities.
FORWARD COMMITMENTS
The fund may enter into commitments to purchase or sell securities at a future
date. When the fund agrees to purchase such securities, it assumes the risk of
any decline in value of the securities beginning on the date of the agreement.
7
<PAGE>
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
- --------------------------------------------------------------------------------
When the fund agrees to sell such securities, it does not participate in
further gains or losses with respect to the securities. If the other party to
such a transaction 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 interest
rates change. 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.
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. The fund may, however,
invest more than an aggregate of 25% of its assets in industrial development
bonds.
8
<PAGE>
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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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 a 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 a fund's objective(s) and policies and by
Capital Research and Management Company's investment committee). In addition,
Capital Research and Management Company's research professionals may make
investment decisions with respect to a portion of a fund's portfolio. The
primary individual portfolio counselors for the fund are listed below.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
.........................
YEARS OF EXPERIENCE WITH CAPITAL
AS PORTFOLIO COUNSELOR RESEARCH AND
PORTFOLIO COUNSELORS FOR THE TAX-EXEMPT MANAGEMENT
FOR THE TAX-EXEMPT FUND OF CALIFORNIA COMPANY OR
FUND OF CALIFORNIA PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES TOTAL YEARS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEIL L. Senior Vice 11 years (since 19 years 19 years
LANGBERG President the fund began
of the fund. operations)
Vice
President--
Investment
Management
Group, Capital
Research and
Management
Company
- ----------------------------------------------------------------------------------------
MARK R. Vice 3 years 3 years 12 years
MACDONALD President--
Investment
Management
Group, Capital
Research and
Management
Company
- ----------------------------------------------------------------------------------------
DAVID A. Vice President, 4 years 6 years 9 years
HOAG Capital
Research
Company*
- ----------------------------------------------------------------------------------------
</TABLE>
The fund began operations on October 28, 1986
* A wholly owned subsidiary of Capital Research and Management Company
9
<PAGE>
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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INVESTMENT RESULTS
The fund may compare investment results on a taxable and tax equivalent basis
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.
[X] 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.
[X] YIELD is computed by dividing the net investment income per share earned by
the fund over a given period of time by the maximum offering price per share
on the last day of the period, according to a formula mandated by the
Securities and Exchange Commission. A yield calculated using this formula
may be different than the income actually paid to shareholders.
[X] 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.
INVESTMENT RESULTS
(FOR PERIODS ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL THE FUND THE FUND AT
TOTAL AT NET MAXIMUM
RETURNS: ASSET VALUE/1/ SALES CHARGE1,2 LEHMAN3 LIPPER/4/
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One year 8.54% 3.42% 9.02% 8.84%
................................................................................
Five years 7.31% 6.26% 7.17% 6.79%
................................................................................
Ten years 8.41% 7.88% 8.77% 8.35%
................................................................................
Lifetime/5/ 7.18% 6.70% 7.88% 7.09%
- --------------------------------------------------------------------------------
</TABLE>
Yield1,2: 4.24%
Distribution Rate2: 4.84%
/1/ These fund results were calculated according to a standard formula that is
required for all stock and bond funds.
/2/ The maximum sales charge has been deducted.
/3/ Lehman Brothers Municipal Bond Index represents the long-term investment
grade municipal bond market. This index is unmanaged and does not reflect
sales charges, commissions or expenses.
/4/ Lipper California Municipal Debt Funds Average is comprised of funds that
limit their assets to those securities that are exempt from taxation in
California.
/5/ The fund began investment operations on October 28, 1986.
10
<PAGE>
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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Here are the fund's annual total returns calculated without a sales charge.
This information is being supplied on a calendar year basis.
[BAR CHART]
1987 -2.51
1988 8.46
1989 9.97
1990 5.6
1991 10.1
1992 8.25
1993 12.87
1994 -5.08
1995 17.59
1996 4.27
[END BAR CHART]
Past results are not an indication of future results.
- --------------------------------------------------------------------------------
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.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
11
<PAGE>
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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TAXES
In any fiscal year in which the fund qualifies as a regulated investment
company 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. 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, distributions of capital gains
and dividends on gains from the disposition of certain market discount bonds
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 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
12
<PAGE>
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
- --------------------------------------------------------------------------------
law also requires the fund to withhold 30% or the applicable tax treaty rate
from certain dividends paid to nonresident alien, non-U.S. partnership and non-
U.S. corporation shareholder accounts.
This is a brief summary of some 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. Members of the board who are not
employed by Capital Research and Management Company or its affiliates are paid
certain fees for services rendered to the fund as described in the statement of
additional information. They may elect to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund. The fund does not
hold annual meetings of shareholders. However, significant 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.
At the request of the holders of at least 10% of the shares, the fund will hold
a meeting at which any member of the board could be removed by a majority vote.
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, a wholly owned subsidiary of The Capital Group
Companies, Inc., 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 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 as a percentage of average net assets for the
previous fiscal year is discussed above under "Expenses."
13
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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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. This policy has also been
incorporated into the fund's code of ethics.
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. The 12b-1 fee paid by the fund
as a percentage of average net assets for the previous fiscal year is discussed
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 dealer, 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 (either directly or
through their correspondent clearing agents) 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.
14
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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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 AREAS
CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
(8 a.m. to 8 p.m. ET):
800/421-0180
WESTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2205
Brea, California 92822-2205
Fax: 714/671-7080
WESTERN CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 659522
San Antonio, Texas 78265-9522
Fax: 210/530-4050
EASTERN CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 6007
Indianapolis, Indiana 46206-6007
Fax: 317/735-6620
EASTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2280
Norfolk, Virginia 23501-2280
Fax: 804/670-4773
15
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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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 is available by
writing or calling American Funds Service Company.
THE SERVICES DESCRIBED MAY NOT BE AVAILABLE THROUGH SOME RETIREMENT PLANS OR
ACCOUNTS HELD BY INVESTMENT DEALERS. IF YOU ARE INVESTING IN SUCH A MANNER, YOU
SHOULD CONTACT YOUR PLAN ADMINISTRATOR/TRUSTEE OR DEALER ABOUT WHAT SERVICES
ARE AVAILABLE AND WITH QUESTIONS ABOUT YOUR ACCOUNT.
- --------------------------------------------------------------------------------
PURCHASING SHARES
HOW TO PURCHASE SHARES
Generally, 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, computer,
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.
The fund and American Funds Distributors reserve the right to reject any
purchase order for any reason. This includes exchange purchase orders that may
place an unfair burden on other shareholders due to their frequency.
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
[X] Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
[X] 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.
16
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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[X] Cross-Reinvestment
You may invest your dividends and capital gain distributions into any other
fund in The American Funds Group.
[X] Exchange Privilege
You may exchange your shares into other funds in The American Funds Group
generally 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), by computer using American FundsLine OnLineSM (see below), or
by fax. EXCHANGES HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND
PURCHASES.
[X] Retirement Plans
Tax-exempt funds should not serve as retirement plan investments.
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,
generally using market prices, 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
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
To establish an account $1,000
To add to an account $ 50
</TABLE>
17
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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SALES CHARGES
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF
...................
DEALER
NET CONCESSION AS
OFFERING AMOUNT % OF OFFERING
INVESTMENT PRICE INVESTED PRICE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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 100 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. Investments by retirement plans, foundations or endowments with $50
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 the fund from its Plan of Distribution and/or by American Funds
Distributors on all investments described above. 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 the current fiscal year, 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.
18
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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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.
[X] 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 business account solely "controlled
by", as well as any retirement plan or 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.
[X] 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.
[X] 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.
[X] Statement of Intention
You may enter into a non-binding commitment to invest a certain amount
(which at your request, may include purchases made during the previous
90 days) 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 the applicable sales charge reduction.
19
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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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) or American FundsLine OnLineSM (see below). In addition, you may
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 in good order by American Funds Service Company. Sale requests may be
made in writing, by telephone, including American FundsLine(R), by computer
using American FundsLine OnLineSM, or by fax. Sales by telephone, computer or
fax are limited to $50,000 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
checks) for shares purchased have cleared (which may take up to 15 calendar
days from the purchase date). Except for delays relating to clearance of checks
for share purchases or in extraordinary circumstances (and as permissible under
the Investment Company Act of 1940), sale proceeds will be paid on or before
the seventh day following receipt and acceptance of an order. Interest will not
accrue or be paid on amounts that represent uncashed distribution or redemption
checks.
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 member firm of a domestic stock exchange or
the National Association of Securities Dealers, Inc., that is an eligible
guarantor institution, bank, savings association or credit union. 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, and 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.
20
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
- --------------------------------------------------------------------------------
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. 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) AND AMERICAN FUNDSLINE ONLINESM
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(R) or American
FundsLine OnLineSM. To use these services, call 800/325-3590 from a
TouchTone(TM) telephone or access The American Funds Web site on the Internet
at www.americanfunds.com.
TELEPHONE AND COMPUTER PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone or computer (including American
FundsLine(R) or American FundsLine OnLineSM) 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 liabilities
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
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.)
ACCOUNT STATEMENTS
You will receive regular confirmation statements reflecting transactions in
your account. Dividend and capital gain reinvestments and purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
21
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
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NOTES
22
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THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
- --------------------------------------------------------------------------------
NOTES
23
<PAGE>
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<TABLE>
<CAPTION>
FOR SHAREHOLDER SERVICES FOR DEALER SERVICES
<C> <S>
American Funds American Funds
Service Company Distributors
800/421-0180 ext. 1 800/421-9900 ext. 11
FOR 24-HOUR INFORMATION
American American Funds
FundsLine(R) Internet Web site
800/325-3590 http://www.americanfunds.com
</TABLE>
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
------------------------------------------------------------
MULTIPLE TRANSLATIONS
This prospectus may be translated into other languages. In
the event of any inconsistency or ambiguity as to the
meaning of any word or phrase contained in a translation,
the English text shall prevail.
------------------------------------------------------------
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance
information, portfolio holdings, a statement from portfolio
management and the independent accountants' report (in the
annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more detailed information on all aspects of the
fund, including the fund's financial statements.
A current SAI has been filed with the Securities and
Exchange Commission ("SEC"). It is incorporated by
reference into this prospectus and is available along with
other related materials on the SEC's Internet Web site at
http://www.sec.gov.
CODE OF ETHICS
Includes a description of the fund's personal investing
policy.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary
Service Company of the fund
800/421-0180 ext. 1 333 South Hope Street
Los Angeles, CA 90071
This prospectus has been printed on recycled paper.
[LOGO RECYCLED PAPER]
24
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
THE TAX-EXEMPT FUND OF CALIFORNIA
PART B
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 1997
This document is not a prospectus but should be read in conjunction with the
current Prospectus dated November 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 Techniques 1
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 33
Investment Results 35
Description of Ratings for Debt Securities 38
Financial Statements attached
</TABLE>
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
THE DESCRIPTIONS BELOW ARE INTENDED TO SUPPLEMENT THE MATERIAL IN THE
PROSPECTUS UNDER "INVESTMENT POLICIES AND RISKS."
INVESTMENT POLICIES -- Up to 20% of the fund's total assets may be invested in
tax-exempt securities that are rated Ba and BB or 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
"high-yield, high-risk" bonds or "junk" 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 political and corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers 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 will decrease in a rising interest rate
market as will the value of the fund's assets.
LIQUIDITY AND VALUATION -- There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
Subsequent to its purchase by the fund, an issue of municipal bonds or notes
may cease to be rated or its rating may be reduced below the minimum rating
required for its purchase. Neither event requires the elimination of such
obligation from the fund's portfolio, but Capital Research and Management
Company (the "Investment Adviser") will consider such an event in its
determination of whether the fund should continue to hold such obligation in
its portfolio. If, however, as a result of downgrades or otherwise, the fund
holds more than 20% of its net assets in high-yield, high-risk bonds, the fund
will dispose of the excess as expeditiously as possible.
MUNICIPAL BONDS -- Municipal bonds are debt obligations generally issued to
obtain funds for various public purposes, including the construction of public
facilities. 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.
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% of assets, 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).
MUNICIPAL INFLATION-INDEXED BONDS -- The fund may invest in inflation-indexed
bonds issued by municipalities. Interest payments are made to bondholders
semi-annually and are made up of two components: a fixed "real coupon" or
spread, and a variable coupon linked to an inflation index. Accordingly,
payments will increase or decrease each period as a result of changes in the
inflation index. In the period of deflation payments may decrease to zero, but
in any event will not be less than zero.
ZERO COUPON BONDS -- Municipalities may issue zero coupon securities which are
debt obligations that do not entitle the holder to any periodic payments of
interest prior to maturity or a specified date when the securities begin paying
current interest. They are issued and traded at a discount from their face
amount or par value, which discount varies depending on the time remaining
until cash payments begin, prevailing interest rates, liquidity of the
security, and the perceived credit quality of the issuer.
PRE-REFUNDED BONDS -- From time to time, a municipality may refund a bond that
it has already issued prior to the original bond's call date by issuing a
second bond, the proceeds of which are used to purchase securities. The
securities are placed in an escrow account pursuant to an agreement between the
municipality and an independent escrow agent. The principal and interest
payments on the securities are then used to pay off the original bondholders.
For the purposes of diversification, pre-refunded bonds will be treated as
governmental issues.
FORWARD COMMITMENTS -- The fund may enter into commitments to purchase or sell
securities at a future date. When a fund agrees to purchase such securities,
it assumes the risk of any decline in value of the security beginning on the
date of the agreement. When the fund agrees to sell such securities, it does
not participate in further gains or losses with respect to the securities
beginning on the date of the agreement. If the other party to such
transaction fails to deliver or pay for the securities, the fund could miss a
favorable price or yield opportunity, or could experience a loss.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly increases. The fund will not use their
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily 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 segregated assets the fund
temporarily could be in a leveraged position (because it may 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 to do so
during the next 12 months, it may enter on a temporary basis into repurchase
agreements, under which it 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 Capital Research and
Management Company. 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, liquidation of 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 will 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 relating to debt obligations of California issuers. This
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.
Proposition 62 was approved by the voters in 1986 and fully activated in 1995
by a state Supreme Court ruling. Proposition 62 took away general law cities'
and counties' authority to impose other general purpose taxes without voter
approval.
On November 5, 1996, Proposition 218 was accepted by a majority of California
voters. Proposition 218 constrains local governments' ability to impose
"property-related" fees, assessments and taxes. This measure applies to all
cities, counties, special districts, redevelopment agencies and school
districts in California. This amendment basically extends to charter cities
the same voter approval requirements now imposed under Proposition 62 on
general law cities and counties.
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, William M.
Mercer, Incorporated ("Mercer") prepared a study dated August 1997 ("1997
Actuarial Study") to evaluate, among other matters, (1) the reserve sufficiency
of the Health Facility Construction Loan Insurance Fund ("HFCLIF") as of June
30, 1996 and (2) the risk to the State General Fund from the California Health
Facility Construction Loan Insurance Program. In the 1997 Actuarial Study,
Mercer concluded that the HFCLIF, on a cash flow basis, under normal and
expected conditions, should maintain a positive balance over the next 15 years
whether or not it insures new loans. Mercer ran a number of simulations,
however, varying the parameters of the normal and expected conditions and
incorporating the possibility of extraordinary events. Under all the scenarios
tested, the HFCLIF balance remained positive in the short term of three to five
years, but could become negative in the long term of 10 to 15 years depending
on the likelihood of extraordinary events and on whether new loans were
insured. The actual HFCLIF reserve as of June 30, 1996 was $140.5 million.
The 1997 Actuarial Study reports that under the California Division of
Insurance fully funded or accrual basis standard for financial guaranty
insurance companies, to which the HFCLIF is not subject, the required HFCLIF
balance would be $237.5 million. In the event of a default, any debenture
payable form the HFCLIF would become payable on a par with general obligations
bonds issued by the State.
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.
From 1990 to 1993, California (the "State") faced the worst economic, fiscal
and budget conditions since the 1930s. Construction, manufacturing (especially
aerospace), exports and financial services, among others, were severely
affected. Job losses were the worst of any post-war recession and have been
estimated to have exceeded 800,000. California's economy has been recovering
and growing steadily stronger since the start of 1994. The rate of economic
growth in California in 1996, in terms of job gains, exceeded that of the rest
of the United States. The State added nearly 350,000 jobs during 1996,
surpassing its pre-recession employment peak of 12.7 million jobs. Another
380,000 jobs are expected to be created in 1997. The unemployment rate, while
still higher than the national average, fell to the low 6 percent rage in
mid-1997, compared to over 10 percent during the recession. Many of the new
jobs were created in such industries as computer services, software design,
motion pictures and high technology manufacturing. Business services, export
trade and other manufacturing also experienced growth. All major economic
regions of the State grew, with particularly large gains in the Silicon Valley
region of Northern California. Personal income grew by over 7 percent or $55
billion in 1996. The residential construction sector of the State's economy
remained weak in 1996, with permits for new housing increasing modestly from
the previous year. In addition, the restructuring and consolidation occurring
in California's aerospace and financial services industries, while aimed at
making the companies involved more efficient and competitive in the longer
term, has produced some negative economic consequences in the shorter term,
including an uncertain job outlook for many workers.
The recession affected State tax revenues, which mirror economic conditions.
It has also caused increased expenditures for health and welfare programs. The
State has also been facing a structural imbalance in its budget with the
largest programs supported by the General Fund (K-12 schools and community
colleges, health, welfare and corrections) growing at rates higher than the
growth rates for the principal revenue sources of the General Fund. (The
General Fund, the State's main operating fund, consists of revenues which are
not required to be credited to any other fund.) As a result, the State
experienced recurring budget deficits. With the end of the recession, the
State's financial condition has improved in the 1995-96 and 1996-97 fiscal
years, with a combination of better than expected revenues, slowdown in growth
of social welfare programs, and continued spending restraint. As of June 30,
1997, the State's budget reserve had a positive cash balance of $281 million.
No deficit borrowing has occurred at the end of the last two fiscal years and
the State's cash flow borrowing was limited to $3 billion in 1996-97.
On December 6, 1994, Orange County, California (the "County"), together with
its pooled investment funds (the "Pools"), filed for protection under Chapter 9
of the federal Bankruptcy Code. On June 12, 1996, Orange County emerged from
bankruptcy after the successful sale of $880 million in municipal bonds allowed
the County to pay off the last of its creditors. On January 7, 1997, Orange
County returned to the municipal bond market with a $136 million bond issue
maturing in 13 years at an insured yield of 7.23 percent.
Los Angeles County, the nation's largest county, is also experiencing
financial difficulty. In August, 1995 the credit rating of the County's
long-term bonds was downgraded for the third time since 1992 as a result of,
among other things, severe operating deficits for the County's health care
system. In addition, the County was affected by an ongoing loss of revenue
caused by state property tax shift initiatives in 1993 through 1995. In June,
1997, the Los Angeles County Board of Supervisors approved an approximately $12
billion 1997-98 budget containing measures to eliminate a $157 million deficit.
The County's budgetary difficulties have continued and their effect, as well as
the effect of the improving California economy, on the 1997-1998 budget is
still uncertain.
1997-98 Fiscal Year Budget
On August 18, 1997, the Governor signed the 1997-98 Budget Act. The Budget
Act anticipates General Fund revenues and transfers of $52.5 billion (a 6.8
percent increase over the final 1996-97 levels), and expenditures of $52.8
billion (an 8.0 percent increase from the 1996-97 levels). On a budgetary
basis, the budget reserve (SFEU) is projected to decrease from $408 million at
June 30, 1997 to $112 million at June 30, 1998. (The expenditure figure
assumes restoration of $200 million of vetoed funding.) The Budget Act also
includes Special Fund expenditures of $14.4 billion (as against estimated
Special Fund revenues of $14.0 billion), and $2.1 billlion of expenditures from
various Bond Funds. Following enactment of the Budget Act, the State
implemented its annual cash flow borrowing program, issuing $3 billion of notes
which mature on June 30, 1998.
The following are major features of the 1997-98 Budget Act:
1. For the second year in a row, the Budget contains a large increase in
funding for K-14 education, reflecting strong revenues which have exceeded
initial budgeted amounts. Part of the nearly $1.75 billion in increased
spending is allocated to prior fiscal years.
2. The Budget Act reflects a $1.235 billion pension case judgment payment, and
returns funding of the State's pension contribution to the quarterly basis
existing prior to the deferral actions invalidated by the courts. In May,
1997, the California Supreme Court in PERS V. WILSON made final a judgment
against the State requiring an immediate payment from the General Fund to the
Public Employees Retirement Fund ("PERF") to make up certain deferrals in
annual retirement fund contributions which had been legislated in earlier years
for budget savings, and which the courts found to be unconstitutional. On July
30, 1997, at the Governor's direction, the Controller transferred $1.235
billion from the General Fund to the PERF in satisfaction of the judgment,
representing the principal amount of the improperly deferred payments from
1995-96 and 1996-97. No provision exists for any additional payments relating
to this court case.
3. Continuing the third year of a four-year "compact" which the State
Administration has made with higher education units, funding from the General
Fund for the University of California and California State University has
increased by about 6 percent ($121 million and $107 million, respectively), and
there was no increase in student fees.
4. Because of the effect of the pension payment, most other State programs
were continued at 1996-97 levels.
5. Health and welfare costs are contained, continuing generally the grant
levels from prior years, as part of the initial implementation of the new
CalWORKs welfare reform program.
6. Unlike prior years, this Budget Act does not depend on uncertain federal
budget actions. About $300 million in federal funds, already included in the
federal FY 1997 and 1998 budgets, are included in the Budget Act to offset
incarceration costs for illegal immigrants.
7. The Budget Act contains no tax increases, and no tax reductions. The
Renters Tax Credit was suspended for another year, saving approximately $500
million.
Subsequent to the adoption and signature of the Budget Act, the Governor and
Legislature reached certain agreements related to State expenditures and taxes,
including support, on an annual basis, for a $931 million (by full
implementation in the 1999-2000 fiscal year) tax cut aimed primarily at middle
income families but also including businesses, $480 million to provide health
insurance for uninsured children, $450 million to pay for county courts, $300
million for pay raises for State employees, and $52 million for tuition cuts
for California public universities and community colleges. These agreements
mostly will affect budgets in future fiscal years and their impact on the
State's budget and the State's support for local governments is uncertain.
THE FOREGOING DISCUSSION OF THE 1997-98 FISCAL YEAR BUDGET IS BASED IN LARGE
PART ON STATEMENTS MADE IN A RECENT "PRELIMINARY OFFICIAL STATEMENT"
DISTRIBUTED BY THE STATE OF CALIFORNIA. IN THAT DOCUMENT, THE STATE INDICATED
THAT ITS DISCUSSION OF THE FISCAL YEAR BUDGET IS BASED ON ESTIMATES AND
PROJECTIONS OF REVENUES AND EXPENDITURES FOR THE CURRRENT FISCAL YEAR AND MUST
NOT BE CONSTRUED AS STATEMENTS OF FACT. THE STATE NOTED FURTHER THAT THE
ESTIMATES AND PROJECTIONS ARE BASED UPON VARIOUS ASSUMPTIONS WHICH MAY BE
AFFECTED BY NUMEROUS FACTORS, INCLUDING FUTURE ECONOMIC CONDITIONS IN THE STATE
AND THE NATION, AND THAT THERE CAN BE NO ASSURANCE THAT THE ESTIMATES WILL BE
ACHIEVED.
State Indebtedness
As of August 1, 1997, the State had over $17.82 billion aggregate amount of
its general obligation bonds outstanding. General obligation bond
authorizations in an aggregate amount of aprpoximately $8.26 billion remained
unissued as of Augst 1, 1997. The State also builds and acquires capital
facilities through the use of lease purchase borrowing. As of August 1, 1997,
the State had approximately $6.17 billion of outstanding Lease-Purchase
Debt.
In addition to the general obligation bonds, State agencies and authorities
had approximately $19.09 billion aggregate principal amount of revenue bonds
and notes outstanding as of June 30, 1997. Revenue bonds represent both
obligations payable from State revenue-producing enterprises and projects,
which are not payable from the General Fund, and conduit obligations payable
only from revenues paid by private users of facilities financed by such revenue
bonds. Such enterprises and projects include transportation projects, various
public works and exposition projects, educational facilities (including the
California State University and University of California systems), housing,
health facilities and pollution control facilities.
Litigation
The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations. In addition, the State is involved in
certain other legal proceedings that, if decided against the State, might
require the State to make significant future expenditures or impair future
revenue sources.
Ratings
Because of the State's continuing budget problems, the State's General
Obligation bonds were downgraded in July 1994 to A1 from Aa by Moody's, to A
from A+ by Standard & Poor's, and to A from AA by Fitch. All three rating
agencies expressed uncertainty in the State's ability to balance the budget by
1996. However, in 1996, citing California's improving economy and budget
situation, both Fitch and Standard & Poor's raised their ratings from A to
A+.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES -- 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. None of the following investment
restrictions involving a maximum percentage of assets will be considered
violated unless the excess occurs immediately after, and is caused by, an
acquisition [or encumbrance of securities or assets of, or borrowings] by the
fund. 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, POSITION WITH PRINCIPAL OCCUPATION(S) AGGREGATE COMPENSATION TOTAL COMPENSATION TOTAL NUMBER OF
ADDRESS REGISTRANT DURING PAST 5 YEARS (INCLUDING VOLUNTARILY (INCLUDING VOLUNTARILY FUND BOARDS ON
AND AGE (POSITIONS WITHIN THE DEFERRED COMPENSATION/1/) DEFERRED WHICH TRUSTEE
ORGANIZATIONS LISTED MAY FROM THE FUND DURING COMPENSATION/1/) FROM SERVES/2/
HAVE CHANGED DURING THIS FISCAL YEAR ENDED ALL FUNDS MANAGED BY
PERIOD) AUGUST 31, 1997 CAPITAL RESEARCH AND
MANAGEMENT
COMPANY/2/ FOR THE YEAR
ENDED AUGUST 31, 1997
<S> <C> <C> <C> <C> <C>
H. Frederick Christie Trustee Private Investor. Former $2,300 /3/ $163,500 18
P.O. Box 144 President and Chief
Palos Verdes Estates, CA 90274 Executive Officer, The
Age: 64 Mission Group (non-utility
holding Company, subsidiary
of Southern California
Edison Company)
+Don R. Conlan Trustee President (retired), The none/4/ none/4/ 12
1630 Milan Avenue Capital Group Companies,
South Pasadena, CA 91030 Inc.
Age: 61
Diane C. Creel Trustee CEO and President, $2,300 $43,000 12
100 W. Broadway The Earth Technology
Suite 5000 Corporation (international
Long Beach, CA 90802 consulting engineering)
Age: 48
Martin Fenton, Jr. Trustee Chairman, Senior Resource $2,700 /3/ $132,600 16
4350 Executive Drive Group (management of
Suite 101 senior living centers)
San Diego, CA 92121-2116
Age: 62
Leonard R. Fuller Trustee President, Fuller & $2,300/3/ $46,200 12
4337 Marina City Drive Company, Inc.
Suite 841 ETN (financial management
Marina del Rey, CA 90292 consulting
Age: 51 firm)
+* Abner D. Goldstine President, Senior Vice President and none/4/ none/4/ 12
Age: 67 PEO and Director, Capital Research
Trustee and Management Company
+** Paul G. Haaga, Jr. Chairman of Executive Vice President none/4/ none/4/ 14
Age: 48 the Board and Director, Capital
Research and Management
Company
Herbert Hoover III Trustee Private Investor $1,900 $68,000 14
1520 Circle Drive
San Marino, CA 91108
Age: 69
Richard G. Newman Trustee Chairman, President and $2,700/3/ $98,000 13
3250 Wilshire Boulevard CEO,
Los Angeles, CA 90010-1599 AECOM Technology
Age: 62 Corporation
(architectural engineering)
Peter Valli Trustee Retired. Former Chairman $2,700/3/ $46,200 12
45 Sea Isle Drive and CEO, BW/IP
Long Beach, CA 90803 International Inc. (industrial
Age: 70 manufacturing)
</TABLE>
+ Trustees who are considered "interested persons" of the fund 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.
* 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 ($4,005), Martin Fenton, Jr. ($8,945), Leonard
R. Fuller ($1,081), Richard G. Newman ($15,213) and Peter C. Valli
($11,431).
/4/ Don R. Conlan, 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)#
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) HELD PRINCIPAL OCCUPATION(S) DURING
WITH THE FUND PAST 5 YEARS
<S> <C> <C> <C>
Neil L. Langberg 44 Senior Vice Vice President - Investment Management
11100 Santa Monica Blvd. President Group, Capital Research and Management
Los Angeles, CA 90025 Company
Michael J. Downer 43 Vice President Senior Vice President - Fund Business
333 South Hope Street Management Group, Capital Research and
Los Angeles, CA 90071 Management Company
Mary C. Hall 39 Vice President Senior Vice President - Fund Business
135 South State College Blvd. Management Group, Capital Research and
Brea, CA 92821 Management Company
Julie F. Williams 49 Secretary Vice President - Fund Business
333 South Hope Street Management Group, Capital Research and
Los Angeles, CA 90071 Management Company
Anthony W. Hynes, Jr. 34 Treasurer Vice President - Fund Business
135 South State College Blvd. Management Group, Capital Research and
Brea, CA 92821 Management Company
Kimberly S. Verdick 32 Assistant Assistant Vice President - Fund Business
333 South Hope Street Secretary Management Group, Capital Research and
Los Angeles, CA 90071 Management Company
Todd L. Miller 38 Assistant Assistant Vice President - Fund Business
135 South State College Blvd. Treasurer Management Group, Capital Research and
Brea, CA 92821 Management Company
</TABLE>
# Positions within the organizations listed may have changed during this period
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, 1997, 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 serves 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, 1998, unless sooner terminated,
and may be renewed from year to year thereafter, provided that any such renewal
has been specifically approved at least annually 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).
The Investment Adviser receives a fee at an annual rate of 0.30% on the first
$60 million of average net assets, plus 0.21% on net assets over $60 million,
plus 3% of gross investment income. Assuming net assets of $290million and
gross investment income levels of 4%, 5%, 6%, 7% and 8% management fees would
be 0.35%, 0.38%, 0.41%, 0.44% and 0.47%, respectively. For the purpose of such
computations under the Agreement, the fund's gross investment income does not
reflect any net realized gains or losses on the sale of portfolio securities
but does include original-issue discount as defined for federal income tax
purposes.
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of
qualified persons to perform the executive and related administrative, clerical
and bookkeeping functions of the fund, and provides suitable office space,
necessary small office equipment and utilities, as well as general purpose
accounting forms, supplies, and postage to be used at the offices of the fund.
The fund pays all expenses not assumed by the Investment Adviser, including,
but not limited to, custodian, stock transfer and dividend disbursing fees and
expenses; costs of designing, printing and mailing reports, prospectuses,
proxy statements, and notices to its shareholders; taxes; expenses of issuance
and redemption of shares (including stock certificates, registration and
qualification fees and expenses); legal and auditing expenses; compensation,
fees, and expenses paid to Trustees unaffiliated with the Investment Adviser;
association dues; costs of stationery and forms prepared exclusively for the
fund; and costs of assembling and storing shareholder account data
During the fiscal years ended August 31, 1997, 1996, and 1995, the Investment
Adviser's total fees amounted to $1,088,000, $1,018,000, and $943,000,
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, 1997 amounted to $131,000 after allowance of $520,000 to dealers.
During the fiscal years ended August 31, 1996 and 1995 the Principal
Underwriter retained $138,000 and $100,000, respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by a majority of the entire 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 due
to present or past affiliations with the Investment Adviser and related
companies may be considered to have a direct or indirect financial interest in
the operation of the Plan. 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 is committed to the
discretion of the Trustees who are not "interested persons" during the
existence of the Plan. Plan expenditures are 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 100
or more eligible employees). During the Trust's fiscal year ended August 31,
1997, the fund paid or accrued $614,000 under the Plan as compensation to
dealers. As of August 31, 1997, accrued and unpaid distribution expenses were
$123,000.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit federally chartered or supervised banks from engaging in the
business of underwriting, selling or distributing securities, but permit banks
to make shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer 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
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 original issue discount or market 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 private activity 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; and (b) 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 certain tax-exempt
obligations. Not later than 60 days after the close of its taxable year, the
fund will notify each shareholder in writing 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 will 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 the 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
would 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
might 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 on assets held more than 18 months is 20%; and on assets held
more than one year and not more than 18 months 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.
In most cases, 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% (20% on capital gains with respect to assets held more than 18
months) 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.
Under the Code, distributions of net investment income by the fund 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, but
with the additional requirement that it derive less than 30% of its gross
income from the gains on sale or other disposition of stock or securities held
for less than three months..
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 (but not
California franchise 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 in writing 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 capital gain
distributions or ordinary dividends as appropriate. Under California law,
ordinary income and capital gains currently are taxed at the same rate.
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
<TABLE>
<CAPTION>
<S> <C> <C>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and $50 minimum (except where a lower minimum is
Fund Numbers" for initial investment noted under "Investment Minimums and Fund
minimums. Numbers").
BY CONTACTING Visit any investment dealer who is Mail directly to your investment
YOUR registered in the state where the dealer's address printed on your
INVESTMENT purchase is made and who has a account statement.
DEALER sales agreement with American
Funds Distributors.
BY MAIL Make your check payable to the Fill out the account additions form at the bottom of a
fund and mail to the address recent account statement, make your check payable
indicated on the account to the fund, write your account number on your
application. Please indicate an check, and mail the check and form in the envelope
investment dealer on the account provided with your account statement.
application.
BY TELEPHONE Please contact your investment Complete the "Investments by Phone" section on
dealer to open account, then follow the account application or American FundsLink
the procedures for additional Authorization Form. Once you establish the
investments. 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 and
Computer Purchases, Redemptions and
Exchanges" below).
BY COMPUTER Please contact your investment Complete the American FundsLink Authorization
dealer to open account, then follow Form. Once you establish the privilege, you, your
the procedures for additional financial advisor or any person with your account
investments. information may access American FundsLine
OnLine(SM) on the Internet and make investments
by computer (subject to conditions noted in
"Telephone and Computer Purchases, Redemptions
and Exchanges" below).
BY WIRE Call 800/421-0180 to obtain your Your bank should wire your additional investments
account number(s), if necessary. in the same manner as described under "Initial
Please indicate an 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 FUND AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER.
</TABLE>
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) $1,000 02
American Balanced Fund(R) 500 11
American Mutual Fund(R) 250 03
Capital Income Builder(R) 1,000 12
Capital World Growth and Income Fund(SM) 1,000 33
EuroPacific Growth Fund(R) 250 16
Fundamental Investors(SM) 250 10
The Growth Fund of America(R) 1,000 05
The Income Fund of America(R) 1,000 06
The Investment Company of America(R) 250 04
The New Economy Fund(R) 1,000 14
New Perspective Fund(R) 250 07
SMALLCAP World Fund(R) 1,000 35
Washington Mutual Investors Fund(SM) 250 01
BOND FUNDS
American High-Income Municipal Bond Fund(R) 1,000 40
American High-Income Trust(SM) 1,000 21
The Bond Fund of America(SM) 1,000 08
Capital World Bond Fund(R) 1,000 31
Intermediate Bond Fund of America(SM) 1,000 23
Limited Term Tax-Exempt Bond Fund of 1,000 43
America(SM)
The Tax-Exempt Bond Fund of America(R) 1,000 19
The Tax-Exempt Fund of California(R)* 1,000 20
The Tax-Exempt Fund of Maryland(R)* 1,000 24
The Tax-Exempt Fund of Virginia(R)* 1,000 25
U.S. Government Securities Fund(SM) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of America(R) 2,500 09
The Tax-Exempt Money Fund of America(SM) 2,500 39
The U.S. Treasury Money Fund of America(SM) 2,500 49
___________
*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).
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 $100,000 4.71 4.50 3.75
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than $50,000 4.71 4.50 3.75
$50,000 but less than $100,000 4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000 3.63 3.50 2.75
$250,000 but less than $500,000 2.56 2.50 2.00
$500,000 but less than $1,000,000 2.04 2.00 1.60
$1,000,000 or more none none (see below)
</TABLE>
Commissions of up to 1% will be paid, to dealers who initiate and are
responsible for purchases of $1 million or more, for purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 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 the current fiscal year, 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 100 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.") Investments by
retirement plans, foundations or endowments with $50 million or more in assets
may be made with no sales charge and are not subject to a 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 $50
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.
STATEMENT OF INTENTION -- The reduced sales charges and offering prices set
forth in the prospectus apply to purchases of $50,000 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 on 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 is 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.
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 1940 Act, 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.
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 money market
funds normally will remain constant at $1.00 based on the fund's current
practice of valuing their shares using the penny-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, Martin Luther King, Jr.'s Birthday,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day.
All portfolio securities of funds managed by Capital Research and Management
Company are valued, and the net asset value per share is determined, as
follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Securities with original maturities of one year or less having 60 days or
less to maturity are amortized to maturity based on their cost if acquired
within 60 days of maturity or, if already held on the 60th day, based on the
value determined on the 61st day. Forward currency contracts are valued at the
mean of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board. The fair value of all other assets is
added to the value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. 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.
REDEEMING SHARES
<TABLE>
<CAPTION>
<S> <C>
By writing to American Funds Service Send a letter of instruction specifying the name of the fund,
Company (at the appropriate address the number of shares or dollar amount to be sold, your name
indicated under "Fund Organization and account number. You should also enclose any share
and Management - Principal certificates you wish to redeem. For redemptions over
Underwriter and Transfer Agent" in the $50,000 and for certain redemptions of $50,000 or less (see
prospectus) below), your signature must be guaranteed by a member firm
of a domestic stock exchange or the National Association of
Securities Dealers, Inc. that is an eligible guarantor
institution, bank, savings association, or credit union. 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 investment dealer If you redeem shares through your 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 redemption check You may use this option, provided the account is registered
sent to you by using American in the name of an individual(s), a UGMA/UTMA custodian, or
FundsLine (R) or American FundsLine a non-retirement plan trust. These redemptions may not
Online(SM) or by telephoning, faxing, exceed $50,000 per shareholder per day per fund account
or telegraphing American Funds and the check must be made payable to the shareholder(s) of
Service Company (subject to the record and be sent to the address of record provided the
conditions noted in this section and in address has been used with the account for at least 10 days.
"Telephone and Computer Purchases See "Fund Organization and Management - Principal
Redemptions and Exchanges" below) Underwriter and Transfer Agent" in the prospectus and
"Exchange Privilege" below for the appropriate telephone or
fax number.
In the case of the money market funds, Upon request (use the account application for the money
you may have redemptions wired to market funds) you may establish telephone redemption
your bank by telephoning American privileges (which will enable you to have a redemption sent to
Funds Service Company ($1,000 or your bank account) and/or check writing privileges. If you
more) or by writing a check ($250 or request check writing privileges, you will be provided with
more) checks that you may use to draw against your account.
These checks may be made payable to anyone you
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, AND 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 100 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 you to make
regular monthly or quarterly investments in shares through automatic charges to
your 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 dates you select. Bank accounts will be charged
on the day or a few days before investments are credited, depending on the
bank's capabilities, and you 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. You 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 your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- You 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 your 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 will
have the right, if you fail 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 you. 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) or American FundsLine Online(SM)(see "American FundsLine(R) and
American FundsLine Online(SM)" 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 and Computer
Purchases, 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.
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 your account. The Transfer Agent
arranges for the redemption by the fund of sufficient shares, deposited by you
with the Transfer Agent, to provide the withdrawal payment specified.
ACCOUNT STATEMENTS -- Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments , will be reflected on regular confirmation statements from
American Funds Service Company. Dividend and capital gain reinvestments and
purchases through automatic investment plans and certain retirement plans will
be confirmed at least quarterly.
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE(SM) -- You may check your
share balance, the price of your shares, or your most recent account
transaction, redeem shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(R) and American
FundsLine Online(SM). To use this service, call 800/325-3590 from a
TouchTone(TM) telephone or access the American Funds Website on the Internet at
www.americanfunds.com. Redemptions and exchanges through American FundsLine(R)
and American FundsLine Online(SM) are subject to the conditions noted above and
in "Redeeming Shares--Telephone and Computer Purchases, 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 AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES -- By using the
telephone (including American FundsLine(R) and American FundsLine Online(SM)),
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 your shares if the shares owned by you
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 you before
the involuntary redemption provision is made effective with respect to your
account. You 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
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through its
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not consider that it has
an obligation to obtain the lowest available commission rate to the exclusion
of price, service and qualitative considerations.
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 underwritings, for the fiscal years ended August 31, 1997 and
1996 amounted to $244,000 and $82,000, respectively.
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, One Chase Manhattan Plaza, New
York, NY 10081, as Custodian.
TRANSFER AGENT -- American Funds Service Company (AFS), a wholly owned
subsidiary of the Investment Adviser, maintains the record of each
shareholder's account, processes purchases and redemptions of the fund's
shares, acts as dividend and capital gain distribution disbursing agent, and
performs other related shareholder service functions. It was paid a fee of
$66,000 for the fiscal year ended August 31, 1997.
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 by Deloitte & Touche LLP whose
selection is determined annually by the Board of Trustees.
PERSONAL INVESTING POLICY -- The Investment Adviser 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. You may obtain a summary of the personal investing policy by
contacting the Secretary of the fund.
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, 1997
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $16.22
Offering price per share (100/95.25 of per share
net asset value, which takes into account the $17.03
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 will 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 will 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 was 4.17% based on a 30-day (or one month) period ended
August 31, 1997 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 45.2% for the 30-day
(or one month) period ended August 31, 1997 was 7.61%.
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 ten-year periods ending on August 31, 1997
were 3.61%, 6.04% and 7.18%, 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 100.7%.
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, 1997
<S> <C> <C>
| |
Periods
Number of Years 9/1-8/31 Value
1 1996-1997 $10,361
2 1995 - 1997 10,952
3 1994 - 1997 11,840
4 1993 - 1997 11,849
5 1992 - 1997 13,407
6 1991 - 1997 14,795
7 1990 - 1997 16,510
8 1989 - 1997 17,156
9 1988 - 1997 18,947
10 1987 - 1997 19,998
lifetime 1986*- 1997 20,070
</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, 1997)
<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
1997 996 8,399 18,399 10,813 161 9,096 20,070
</TABLE>
* From inception on October 28, 1986
** Results assume deduction of the maximum sales charge of 4.75% from the
initial purchase payment.
The dollar amount of capital gain distributions during the period was $160.
Note that past results are not an indication of future investment results.
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>
<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>
<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>
<PAGE>
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.
<PAGE>
PART C
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS:
Included in Prospectus - Part A
Condensed Financial Information
Included in Statement of Additional Information - Part B
Investment Portfolio Notes to Financial Statements
Statement of Assets and Liabilities Selected Per-Share Data and Ratios
Statement of Operations Report of Independent Accountants
Statement of Changes in Net Assets
(B) EXHIBITS:
1. Copy of Declaration of Trust (May 1986) and Certificate of Amendment of
Declaration of Trust (October 1986).
2. Copy of By-laws.
3. None.
4. Copy of specimen share certificate.
5. Copy of Investment Advisory and Service Agreement dated November 1, 1988.
6. Copy of Principal Underwriting Agreement dated June 1, 1989, form of
Selling Group Agreement, Supplemental Selling Group Agreement, Bank Selling
Group Agreement, Hold Harmless Agreement, and State Addendum to Selling Group
Agreement.
7. None.
8. Copy of form of Global Custody Agreement.
9. On file (see SEC file Nos. 811-4694 and 33-6180)
10. On file (see SEC file Nos. 811-4694 and 33-6180)
11. Consent of independent auditors
12. None.
13. Copy of investment letter from the Investment Adviser relating to initial
shares dated August 22, 1986.
14. None.
15. Copy of Plan of Distribution (12b-1) dated June 1, 1989.
16. On file (see SEC file Nos. 811-4694 and 33-6180)
17. Financial data schedule.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
Item 26. NUMBER OF HOLDERS OF SECURITIES.
As of August 31, 1997.
<TABLE>
<CAPTION>
Number of
Title of Class Record-Holders
<S> <C>
Shares of Beneficial 4,292
Interest (no par value)
</TABLE>
ITEM 27. INDEMNIFICATION.
Registrant is a joint-insured under Investment Advisor/Mutual Fund Errors and
Omissions Policies 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 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
27. INDEMNIFICATION (CONTINUED)
such person reasonably believed to be in or not opposed to the best interests
of the Trust, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of such person's duty
to the Trust unless and only to the extent that the court in which such action
or suit was brought, or any other court having jurisdiction in the premises,
shall determine upon application that, despite the adjudication of liability
but in view of all circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which such court shall deem
proper.
(c) To the extent that a Trustee or officer of the Trust has been successful
on the merits in defense of any action, suit or proceeding referred to in
subparagraphs (a) or (b) above or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith, without the necessity for the determination as to the standard of
conduct as provided in subparagraph (d).
(d) Any indemnification under subparagraph (a) or (b) (unless ordered by a
court) shall be made by the Trust only as authorized in the specific case upon
a determination that indemnification of the Trustee or officer is proper under
the standard of conduct set forth in subparagraph (a) or (b). Such
determination shall be made (i) by the Board by a majority vote of a quorum
consisting of Trustees who were not parties to such action, suit or proceeding,
and are disinterested Trustees or (ii) if such a quorum of disinterested
Trustees so directs, by independent legal counsel in a written opinion.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition of such
action, suit or proceeding, as authorized in the particular case, upon receipt
of an undertaking and security by or on behalf of the Trustee or officer to
repay such amount unless it shall ultimately be determined that such person is
entitled to be indemnified by the Trust as authorized herein.
(f) Agents and employees of the Trust who are not Trustees or officers of the
Trust may be indemnified under the same standards and procedures set forth
above, in the discretion of the Board.
(g) Any indemnification pursuant to this Article shall not be deemed exclusive
of any other rights to which those indemnified may be entitled and shall
continue as to a person who has ceased to be Trustee or officer and shall inure
to the benefit of the heirs, executors and administrators of such person.
(h) Nothing in the Declaration of Trust or in these By-Laws shall be deemed to
protect any Trustee, officer, distributor, investment adviser or controlling
shareholder of the Trust against any liability to the Trust or to its
shareholders to which such person would otherwise be subject by reason of
willful malfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such person's office.
(i) The Trust shall have power to purchase and maintain insurance on behalf of
any person against any liability asserted against or incurred by such person,
whether or not the Trust would have the power to indemnify such person against
such liability under the provisions of this Article.
Nevertheless, insurance will not be purchased or maintained by the Trust if
the purchase or maintenance of such insurance would result in the
indemnification of any person in contravention of any rule or regulation of the
SEC. Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition of such
action, suit or proceeding, as authorized in the particular case, upon receipt
of an undertaking by or on behalf of the Trustee or officer to repay such
amount unless it shall ultimately be deter mined that such person is entitled
to be indemnified by the Trust as authorized herein. Such determination must
be made by disinterested Trustees or independent legal counsel.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Trustee, officer of
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such Trustee, officer of controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
None.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) American Funds Distributors, Inc. is also the Principal Underwriter of
shares of: AMCAP Fund, Inc., American Balanced Fund, Inc., The American Funds
Income Series, The American Funds Tax-Exempt Series I, American High-Income
Municipal Bond Fund, Inc., American High-Income Trust, American Mutual Fund,
Inc., The Bond Fund of America, Inc., Capital Income Builder, Inc., Capital
World Bond Fund, Inc., Capital World Growth and Income Fund, Inc., The Cash
Management Trust of America, EuroPacific Growth Fund, Fundamental Investors,
Inc., The Growth Fund of America, Inc., The Income Fund of America, Inc.,
Intermediate Bond Fund of America, The Investment Company of America, Limited
Term Tax-Exempt Bond Fund of America, The New Economy Fund, New Perspective
Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America, The
Tax-Exempt Money Fund of America, The U.S. Treasury Money Fund of America and
Washington Mutual Investors Fund, Inc.
<TABLE>
<CAPTION>
(B) (1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
<S> <C> <C> <C>
David L. Abzug Regional Vice President None
27304 Park Vista Road
Van Nuys, CA 91301
John A. Agar Regional Vice President None
1501 N. University, Suite 227A
Little Rock AR 72207
Robert B. Aprison Vice President None
2983 Bryn Wood Drive
Madison, WI 53711
S Richard L. Armstrong Assistant Vice President None
L William W. Bagnard Vice President None
Steven L. Barnes Senior Vice President None
8000 Town Line Avenue South
Suite 204
Minneapolis, MN 55438
B Carl R. Bauer Assistant Vice President None
Michelle A. Bergeron Vice President None
4160 Gateswalk Drive
Smyrna, GA 30080
Joseph T. Blair Senior 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
P.O. Box 1665
Brentwood, TN 37024-1665
Michael L. Brethower Vice President None
2320 North Austin Avenue
Georgetown, TX 78626
C. Alan Brown Regional Vice President None
4129 Laclede Avenue
St. Louis, MO 63108
Daniel C. Brown Senior Vice President None
H J. Peter Burns Vice President None
Brian C. Casey Regional Vice President None
9508 Cable Drive
Kensington, MD 20895
Victor C. Cassato Senior Vice President None
609 W. Littleton Blvd., Suite 310
Littleton, CO 80121
Christopher J. Cassin Senior Vice President None
111 W. Chicago Avenue, Suite G3
Hinsdale, IL 60521
Denise M. Cassin Vice President None
1301 Stoney Creek Drive
San Ramon, CA 94538
L Larry P. Clemmensen Director None
L Kevin G. Clifford Director, Senior Vice President None
Ruth M. Collier Vice President None
145 West 67th St. Ste. 12K
New York, NY 10023
S David Coolbaugh Assistant Vice President None
Thomas E. Cournoyer Vice President None
2333 Granada Boulevard
Coral Gables, FL 33134
Douglas A. Critchell Senior Vice President None
4116 Woodbine Street
Chevy Chase, MD 20815
L Carl D. Cutting Vice President None
Daniel J. Delianedis Regional Vice President None
8689 Braxton Drive
Eden Prairie, MN 55347
Michael A. Dilella Vice President None
P. O. Box 661
Ramsey, NJ 07446
G. Michael Dill Senior Vice President None
505 E. Main Street
Jenks, OK 74037
Kirk D. Dodge Senior Vice President None
325 E. Eisenhower Parkway
Suite 106, #16
Ann Arbor, MI 48108
Peter J. Doran Senior Vice President None
1205 Franklin Avenue
Garden City, NY 11530
L Michael J. Downer Secretary Vice President
Robert W. Durbin Vice President None
74 Sunny Lane
Tiffin, OH 44883
I Lloyd G. Edwards Vice President None
L Paul H. Fieberg Senior Vice President None
John Fodor Vice President None
15 Latisquama Road
Southborough, MA 01772
L Mark P. Freeman, Jr. Director, President None
Clyde E. Gardner Senior Vice President None
Route 2, Box 3162
Osage Beach, MO 65065
B Evelyn K. Glassford Vice President None
Jeffrey J. Greiner Vice President None
12210 Taylor Road
Plain City, OH 43064
L Paul G. Haaga, Jr. Director Chairman of the Board
B Mariellen Hamann Assistant Vice President None
David E. Harper Senior Vice President None
R.D. 1, Box 210, Rte 519
Frenchtown, NJ 08825
Ronald R. Hulsey Vice President None
6744 Avalon
Dallas, TX 75214
Robert S. Irish Regional Vice President None
1225 Vista Del Mar Drive
Delray Beach, FL 33483
L Robert L. Johansen Vice President, Controller None
Michael J. Johnston Chairman of the Board None
630 Fifth Avenue, 36th Floor
New York, NY 10111
B Damien M. Jordan 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
B Karl A. Lewis Assistant Vice President None
T. Blake Liberty Regional Vice President None
1940 Blake Street, #303
Denver, CO 80202
L Lorin E. Liesy Assistant Vice President None
L Susan G. Lindgren Vice President - Institutional None
Investment Services
S Stella Lopez Vice President None
LW Robert W. Lovelace Director None
Steve A. Malbasa Vice President None
13405 Lake Shore Blvd.
Cleveland, OH 44110
Steven M. Markel Senior Vice President None
5241 South Race Street
Littleton, CO 80121
L J. Clifton Massar Director, Senior Vice President None
L E. Lee McClennahan Senior Vice President None
L Jamie R. McCrary Assistant Vice President None
S John V. McLaughlin Senior Vice President None
Terry W. McNabb Vice President None
2002 Barrett Station Road
St. Louis, MO 63131
L R. William Melinat Vice President - Institutional None
Investment Services
David R. Murray Vice President None
25701 S.E. 32nd Place
Issaquah, WA 98027
Stephen S. Nelson Vice President None
P. O. Box 470528
Charlotte, NC 28247-0528
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 Vice President None
32 Ridge Avenue
Newton Centre, MA 02159
B Candance D. Pilgrim Assistant Vice President None
Carl S. Platou Regional Vice President None
4021 96th Avenue, S.E.
Mercer Island, WA 98040
L John O. Post, Jr. Vice President None
S Richard P. Prior Assistant Vice President None
Steven J. Reitman Vice President None
212 The Lane
Hinsdale, IL 60521
Brian A. Roberts Vice President None
12025 Delmahoy Drive
Charlotte, NC 28277
George S. Ross Senior Vice President None
55 Madison Avenue
Morristown, NJ 07962
L Julie D. Roth Vice President None
L James F. Rothenberg Director None
Douglas F. Rowe Regional Vice President None
30008 Oakland Hills Drive
Georgetown, TX 78628
Christopher Rowey Regional Vice President None
9417 Beverlywood Street
Los Angeles, CA 90034
Dean B. Rydquist Vice President None
1080 Bay Pointe Crossing
Alpharetta, GA 30005
Richard R. Samson Vice President None
4604 Glencoe Avenue, Ste. 4
Marina del Rey, CA 90292
Joseph D. Scarpitti Regional Vice President None
31465 St. Andrews
Westlake, OH 44145
L Daniel B. Seivert Assistant Vice President None
L R. Michael Shanahan Director None
David W. Short Director, Senior Vice President None
1000 RIDC Plaza, Suite 212
Pittsburgh, PA 15238
William P. Simon, Jr. Senior Vice President None
554 Canterbury Lane
Berwyn, PA 19312
L John C. Smith Vice President - Institutional Investment Services None
L Mary E. Smith Vice President - Institutional Investment Services None
Rodney G. Smith Vice President None
100 N. Central Expressway, Suite 1214
Richardson, TX 75080
Nicholas D. Spadaccini Regional Vice President None
855 Markley Woods Way
Cincinnati, OH 45230
L Kristen J. Spazafumo Assistant Vice President None
Daniel S. Spradling Senior Vice President None
4 West Fourth Avenue, Suite 406
San Mateo, CA 94402
B Max D. Stites Vice President None
Thomas A. Stout Regional Vice President None
12913 Kendale Lane
Bowie, MD 20715
Craig R. Strauser Regional Vice President None
3 Dover Way
Lake Oswego, OR 97034
Francis N. Strazzeri Vice President None
31641 Saddletree Drive
Westlake Village, CA 91361
L Drew W. Taylor Assistant Vice President None
S James P. Toomey Vice President None
I Christopher E. Trede Vice President None
George F. Truesdail Vice President None
400 Abbotsford Court
Charlotte, NC 28270
Scott W. Ursin-Smith Regional Vice President None
60 Reedland Woods Way
Tiburon, CA 94920
H Andrew J. Ward Vice President None
L David M. Ward Vice President - Institutional Investment Services
None
Thomas E. Warren Regional Vice President None
1701 Starling Drive
Sarasota, FL 34231
L J. Kelly Webb Senior Vice President, Treasurer None
Gregory J. Weimer Vice President None
125 Surrey Drive
Canonsburg, PA 15317
B Timothy W. Weiss Director None
N. Dexter Williams Senior Vice President None
25 Whitside Court
Danville, CA 94526
Timothy J. Wilson Regional Vice President None
113 Farmview Place
Venetia, PA 15367
B Laura L. Wimberly Vice President None
H Marshall D. Wingo Director, Senior Vice President None
L Robert L. Winston Director, Senior Vice President None
Laurie B. Wood Regional Vice President None
3500 W. Camino de Urania
Tucson, AZ 85741
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
320 Robinson Drive
Tustin Ranch, CA 92782
</TABLE>
L Business Address, 333 South Hope Street, Los Angeles, CA 90071
LW Busines Address, 11100 Santa Monica Boulevard, Los Angeles, CA 90025
B Business Address, 135 South State College Boulevard, Brea, CA 92821
S Business Address, 8000 IH-10 West, Suite 1400, San Antonio, TX 78230
H Business Address, 5300 Robin Hood Road, Norfolk, VA 23513
I Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240
(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 92821.
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 certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, and State of California, on the 27th
day of October, 1997.
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
By/s/ Paul G. Haaga, Jr.
(Paul G. Haaga, Jr., Chairman of the Board)
Pursuant to the requirements of the Securities Act of 1933, this amendment to
registration statement has been signed below on October 27, 1997, by the
following persons in the capacities indicated.
SIGNATURE TITLE
(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
Don R. Conlan*/1/ Trustee
Diane C. Creel* Trustee
Martin Fenton, Jr.* Trustee
Leonard R. Fuller* Trustee
/s/ Abner D. Goldstine President and Trustee
(Abner D. Goldstine)
/s/ Paul G. Haaga, Jr. Chairman of the Board
(Paul G. Haaga, Jr.)
Herbert Hoover III* Trustee
Richard G. Newman* Trustee
Peter C. Valli* Trustee
*By /s/ Julie F. Williams
Julie F. Williams, Attorney-in-Fact
/1/ Power of Attorney attached hereto.
Counsel represents that this amendment does not contain disclosures that would
make the amendment ineligible for effectiveness under the provisions of Rule
485(b).
/s/ Michael J. Downer
Michael J. Downer
<PAGE>
POWER OF ATTORNEY
I, Don R. Conlan, the undersigned Trustee of The American Funds Tax-Exempt
Series II, a Massachusetts business trust, revoking all prior powers of
attorney given as a Trustee of The American Funds Tax-Exempt Series II do
hereby constitute and appoint Michael J. Downer, Paul G. Haaga, Jr., Mary C.
Hall, Anthony W. Hynes, Jr., Kimberly S. Verdick and Julie F. Williams, or any
of them, to act as attorneys-in-fact for and in my name, place and stead (1) to
sign my name as Trustee of said Trust to any and all Registration Statements of
The American Funds Tax-Exempt Series II, File No. 33-6180, under the Securities
Act of 1933 as amended and/or the Investment Company Act of 1940, as amended,
and any and all amendments thereto, said Registration Statements and amendments
to be filed with the Securities and Exchange Commission, and to any and all
reports, applications or renewal of applications required by any State in the
United States of America in which this Trust is registered to sell shares, and
(2) to deliver any and all such Registration Statements and amendments, so
signed, for filing with the Securities and Exchange Commission under the
provisions of the Securities Act of 1933 as amended and/or the Investment
Company Act of 1940, as amended, granting to said attorneys-in-fact, and each
of them, full power and authority to do and perform every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully to all intents and purposes as the undersigned might or could do if
personally present, hereby ratifying and approving the acts of said
attorneys-in-fact.
EXECUTED at Los Angeles, California, this 16th day of January, 1997.
/s/ Don R. Conlan
Don R. Conlan, Trustee
DECLARATION OF TRUST
OF
THE AMERICAN FUNDS
CALIFORNIA TAX-EXEMPT SERIES
TABLE OF CONTENTS
Article Page
I. NAME AND DEFINITIONS 2
1.1 Name 2
1.2 Definitions 2
1.3 Purpose 5
II. TRUSTEES 5
2.1 Number of Trustees 5
2.2 Term and Election 6
2.3 Resignation and Removal by Trustees 6
2.4 Removal by Shareholders 6
2.5 Vacancies 7
2.6 Delegation of Power to Other Trustees 8
III. POWERS OF TRUSTEES 8
3.1 General 8
3.2 Investments 9
3.3 Legal Title 10
3.4 Issuance and Repurchase of Shares 11
3.5 Delegation; Committees 11
3.6 Collection and Payment 11
3.7 Expenses 11
3.8 Manner of Acting 11
3.9 By-Laws 12
3.10 Miscellaneous Powers 12
3.11 Principal Transactions 13
3.12 Trustees and Officers as Shareholders 13
3.13 Litigation 13
IV. CONTRACTS 14
4.1 Underwriting Contract 14
4.2 Investment Advisory or Management Contract 14
4.3 Transfer Agent 15
Article Page
4.4 Affiliations of Trustees or Officers, etc. 15
V. LIMITATIONS OF LIABILITY OF
SHAREHOLDERS, TRUSTEES AND OTHERS 16
5.1 No Personal Liability of Shareholders,
Trustees, etc 16
5.2 Non-Liability of Trustees, etc. 16
5.3 No Bond Required of Trustees 17
5.4 No Duty of Investigation; Notice in Trust
Instruments, etc. 17
5.5 Reliance on Experts, etc. 17
VI. SHARES OF BENEFICIAL INTEREST 18
6.1 Beneficial Interest 18
6.2 Rights of Shareholders 19
6.3 Trust Only 19
6.4 Issuance of Shares 19
6.5 Register of Shares; Share Certificates 20
6.6 Transfer of Shares 20
6.7 Notices 21
6.8 Treasury Shares 21
6.9 Voting Powers 21
6.10 Establishment of Fund; Series or Classes
of Shares 21
VII. REDEMPTION, REPURCHASE, AND REDUCTION OF SHARES 25
7.1 Redemption of Shares 25
7.2 Price 25
7.3 Payment 26
7.4 Repurchase by Agreement 26
7.5 Redemption of Shareholder's Interest;
Redemption of Shares to Qualify as a
Regulated Investment Company; Disclosure
of Holdings 26
7.6 Suspension of Right of Redemption 27
7.7 Effect of Suspension of Determination of
Net Asset Value 28
Article Page
7.8 Reductions of Shares 28
VIII. DETERMINATION OF NET ASSET VALUE, NET INCOME,
AND DISTRIBUTIONS 28
8.1 Net Asset Value 28
8.2 Distributions With Respect to Outstanding
Shares 29
8.3 Determination of Net Income; Constant Net
Asset Value of Shares of Certain Series or
Classes; Reduction of Outstanding Shares 30
8.4 Power to Modify Foregoing Procedures 31
IX. DURATION; TERMINATION OF TRUST; AMENDMENT;
MERGERS; ETC. 31
9.1 Duration 31
9.2 Termination of Trust 31
9.3 Amendment Procedure 32
9.4 Merger, Consolidation or Sale of Assets 33
9.5 Incorporation 33
X. MISCELLANEOUS 34
10.1 Filing 34
10.2 Resident Agent 34
10.3 Governing Law 34
10.4 Counterparts 34
10.5 Reliance by Third Parties 35
10.6 Provisions in Conflict With Law or Regulations 35
10.7 Index and Heading for Reference Only 36
(iii)
DECLARATION OF TRUST
OF
THE AMERICAN FUNDS
CALIFORNIA TAX-EXEMPT SERIES
Dated May 30, 1986
DECLARATION OF TRUST made May 30, 1986 by Michael J. Downer, David M.
Elwood and Thomas E. Terry, (the "Trustees");
WHEREAS, it is desired that the trust established hereby (the "Trust") be
managed and operated as a trust with transferable shares under the laws of
Massachusetts, of the type commonly known as and referred to as a Massachusetts
business trust, in accordance with the provisions hereinafter set forth;
WHEREAS, it is proposed that the assets held by the Trustees may be
divided into separate funds, each with its own separate investment portfolio,
investment objectives, policies and purposes, and that the beneficial interest
in each such fund when and if established shall be divided into transferable
Shares of Beneficial Interest, a separate Series of Shares for each fund, all
in accordance with the provisions hereinafter set forth; and
WHEREAS, it is proposed that the shares of the Trust of each separate
Series may be further divided into classes of Shares, with each such Class
differing from other classes representing interests in the same Fund in respect
of expenses and fees or such other matters as the Trustees shall determine;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of the holders, from time to time, of the Shares of
Beneficial Interest issued hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.1 - Name.
The name of the Trust created hereby is "The American Funds California
Tax-Exempt Series."
SECTION 1.2 - Definitions.
Wherever they are used herein, the following terms have the following
respective meanings:
(a) "By-Laws" means the By-Laws referred to in Section 3.9 hereof,
as such By-Laws may be amended from time to time.
(b) A "Class of Shares" means all Shares of Beneficial Interest
representing interests in the same Fund and subject to the same fees and
expenses charged against the income of the Fund and such other provisions as
may be designated by the Trustees in establishing such Class. Classes may be
established from time to time by the Trustees hereunder and may differ from
other Classes in the same Fund with respect to the expenses and fees charged to
each such Class or as to such other matters as the Trustees shall determine in
establishing each such Class, but Classes in the same Fund shall in each case
represent interests in the same Trust Property.
(c) The terms "Commission" and "Interested Person", have the
meanings given them in the 1940 Act.
(d) "Custodian" means any Person other than the Trust who has
custody of any Trust Property as required by Section 17(f) of the 1940 Act.
(e) "Declaration" means this Declaration of Trust as amended from
time to time. Reference in this Declaration to "Declaration", "hereof",
"herein" and "hereunder" shall be deemed to refer to this Declaration rather
than exclusively to the article or section in which such words appear.
(f) "Distributor" means the other person to any contract entered
into by the Trust pursuant to Section 4.1 hereof.
(g) "Fund" or "Funds" means one or more of the separate components
of the Trust Property which are now or hereafter established and designated
under or in accordance with the provisions of Article 6.10 hereof.
(h) "Fundamental Policies" means the investment restrictions set
forth and identified as such in the current registration statement of the Trust
under the 1940 Act.
(i) "His" shall be deemed to include the feminine and neuter, as
well as the masculine, genders.
(j) "Investment Adviser" means the other Person to any contract
entered into by the Trust pursuant to Section 4.2 hereof.
(k) The "1940 Act" means the Investment Company Act of 1940, and the
rules and regulations thereunder, both as amended from time to time, and any
order or orders thereunder which may from time to time be applicable to the
Trust.
(l) "Majority Shareholder Vote" as used with respect to the election
of any Trustee at a meeting of Shareholders, shall mean the vote for the
election of such Trustee of a plurality of all outstanding Shares of the Trust,
without regard to Series or Class, represented in person or by proxy and
entitled to vote thereon, provided that a quorum (as determined in accordance
with the By-Laws) is present, and as used with respect to any other action
required or permitted to be taken by Shareholders, shall mean the vote for such
action of the holders of that majority of all outstanding Shares of the Trust
(or, where a separate vote of Shares of any particular Series or Class is to be
taken, the affirmative vote of that majority of the outstanding Shares of that
Series or Class) which consists of: (i) a majority of all Shares (or of Shares
of the particular Series or Class) represented in person or by proxy and
entitled to vote on such action at the meeting of Shareholders at which such
action is to be taken, provided that a quorum (as determined in accordance with
the By-Laws) is present; or (ii) if such action is to be taken by written
consent of Shareholders, a majority of all Shares (or of Shares of the
particular Class or Series) issued and outstanding and entitled to vote on such
action; provided, that (iii) as used with respect to any action requiring the
affirmative vote of "a majority of the outstanding voting securities", as the
quoted phrase is defined in the 1940 Act, of the Trust or of any Series or
Class, "Majority Shareholder Vote" means the vote for such action at a meeting
of Shareholders of the smallest majority of all outstanding Shares of the Trust
(or of Shares of the particular Class or Series entitled to vote on such
action) which satisfies such 1940 Act voting requirement.
(m) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures, and other entities, whether
or not legal entities, governments and agencies and instrumentalities and
political subdivisions thereof, and quasi-governmental agencies and
instrumentalities.
(n) "Prospectus" means the prospectus of the Trust effective from
time to time under the Securities Act of 1933, as amended from time to time.
(o) "Securities" shall include, without limitation, common and
preferred stocks; American Depository Receipts, futures and related options,
options on securities or indices of securities, certificates of deposit,
finance paper, commercial paper, bankers' acceptances; all kinds of repurchase
agreements and reverse repurchase debentures; bills; notes; other evidences of
indebtedness; negotiable or non-negotiable instruments; government securities,
including, without limitation, securities of the United States or any other
government, any state, municipality or other political subdivision thereof, or
any governmental or quasi-governmental agency or instrumentality.
(p) "Series" means one or more of the series of Shares authorized by
the Trustees to represent the entire beneficial interest in one or more of the
Funds. Shares of any Series may be classified or reclassified by the Trustees
into one or more Classes of Shares.
(q) "Shareholder" means a record owner of outstanding Shares of
Beneficial Interest of any Class of any Series.
(r) "Shares" means the equal proportionate transferable units of
interest of each Class and of each Series into which the beneficial interest in
the Trust shall be classified or reclassified from time to time by the Trustees
acting under this Declaration of Trust, or in the absence of such action, means
the equal proportionate transferable units of interest into which the entire
beneficial interest in the Trust shall be divided from time to time, and
includes fractions of Shares as well as whole Shares. All references herein to
"Shares" which are not accompanied by a reference to any particular Series or
Class shall be deemed to apply to outstanding shares without regard to Series
or Class. "Outstanding" Shares means those Shares shown from time to time on
the books of the Trust or its Transfer Agent as then issued and outstanding,
but shall not include Shares which have been redeemed or repurchased by the
Trust and which are at the time held in the Treasury of the Trust.
(s) "Transfer Agent" means the other Person to any contract entered
into by the Trust pursuant to Section 4.3 hereof.
(t) "Trust" means the Trust created by this Declaration.
(u) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees as such, without regard to the Fund to which such
property is allocated, but shall not include property owned by the Trustees as
individuals.
(v) "Trustees" means the persons who have signed this Declaration,
so long as they shall continue in office in accordance with the terms hereof,
and all other persons who may from time to time be serving as Trustees in
accordance with the provisions of Article II hereof, and reference herein to a
Trustee or the Trustees shall refer to such Person or Persons in his capacity
as Trustee or their capacities as Trustees hereunder and not in his or their
individual capacities except where the context otherwise requires.
SECTION 1.3 - Purpose.
The purpose of the Trust shall be to engage in the business of being an
investment company, and as such of subscribing for, purchasing or otherwise
acquiring, holding for investment or trading in, borrowing, lending and selling
short, selling, assigning, negotiating or exchanging and otherwise disposing
of, and turning to account, realizing upon and generally dealing in and with,
in any manner, Securities of all kinds, and all as the Trustees in their
discretion shall determine to be necessary, desirable or appropriate, and to
exercise and perform any and every act, thing or power necessary, suitable or
desirable for the accomplishment of such purpose, the attainment of any of the
objectives or the furtherance of any of the powers given hereby which are
lawful purposes, objectives or powers of a trust with transferable shares of
the type commonly termed a Massachusetts business trust; and to do every other
act or acts or thing or things incidental or appurtenant to or growing out of
or in connection with the aforesaid objectives, purposes or powers, or any of
them, which a trust of the type commonly termed a Massachusetts business trust
is not now or hereafter prohibited from doing, exercising or performing.
ARTICLE II
TRUSTEES
SECTION 2.1 - Number of Trustees.
The number of Trustees shall be such number as shall be fixed from time to
time by written instrument signed by a majority of the Trustees, provided,
however, that the number of Trustees shall in no event be reduced to less than
three by such an instrument.
SECTION 2.2 - Term and Election.
The Trustees shall (except in the event of resignations or removals or
vacancies pursuant to Sections 2.3 or 2.4 or 2.5 hereof) hold office during the
lifetime of the Trust and until its termination as hereinafter provided. The
Trustees shall be elected by the Shareholders of the Trust at the first meeting
of Shareholders prior to the initial public offering of Shares of the Trust,
and the term of office of any Trustees in office before such election shall
terminate at the time of such election. Subject to Section 16(a) of the 1940
Act and to the preceding sentence of this Section, the Trustees shall have the
power to set and alter the terms of office of the Trustees, and at any time to
lengthen or shorten their own terms or make their terms of unlimited duration,
to elect their own successors and, pursuant to Section 2.5 hereof, to appoint
Trustees to fill vacancies; provided, that Trustees shall be elected by
Majority Shareholder Vote at any such time or times as the Trustees shall
determine that such action is required under Section 16(a) of the 1940 Act or,
if not so required, that such action is advisable; and, further provided that
after the initial election of Trustees by the Shareholders, the term of office
of any incumbent Trustee shall continue until the termination of this Trust or
such Trustee's removal, replacement or until the election of such Trustee's
successor in office has become effective in accordance with this section.
SECTION 2.3 - Resignation and Removal by Trustees.
Any Trustee may resign as such (without need for prior or subsequent
accounting) by an instrument in writing signed by him and delivered to the
other Trustees and such resignation shall be effective upon such delivery, or
at a later date according to the terms of the instrument. Any of the Trustees
may be removed (provided the aggregate number of Trustees after such removal
shall not be less than the minimum number required by this Declaration) for
cause by the action of two-thirds of the remaining Trustees. Upon the
resignation or removal of a Trustee, or his otherwise ceasing to be a Trustee,
he shall execute and deliver such documents as the remaining Trustees shall
require for the purpose of conveying to the Trust or the remaining Trustees any
Trust Property held in the name of the resigning or removed Trustee. Upon the
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require as
provided in the preceding sentence.
SECTION 2.4 - Removal by Shareholders.
The Shareholders shall have the power to remove a Trustee by Majority
Shareholder Vote, either by declaration in writing filed with the transfer
agent or by votes cast in person or by proxy at a meeting called for the
purpose of removal under this section. The Trustees shall promptly call such a
meeting of shareholders when requested to do so by the record holders of not
less than 10 per cent of such outstanding Shares.
Whenever ten or more Shareholders of record who have been Shareholders at
least six months preceding the date of application, and who hold in the
aggregate either Shares having a net asset value of at least $25,000 or at
least 1 per centum of the outstanding shares of all Series and all Classes in
the aggregate, whichever is less, shall apply to the Trustees in writing,
stating that they wish to communicate with other Shareholders with a view to
obtaining signatures to a request for a meeting pursuant to this Section 2.4
and accompanied by a form of communication and request which they wish to
transmit, the Trustees shall within five business days after receipt of such
application either:
(a) Afford to such applicants access to a list of the names and addresses
of all Shareholders as recorded on the books of the Trust; or
(b) Inform such applicants as to the approximate number of Shareholders
of record, and the approximate cost of mailing to them the proposed
communication and form of request.
SECTION 2.5 - Vacancies.
The term of office of a Trustee shall terminate and a vacancy shall occur
in the event of his death, resignation, removal, bankruptcy, adjudicated
incompetence or other permanent incapacity as two-thirds of the remaining
Trustees deem to have rendered him unable to perform the duties of the office
of a Trustee. No such vacancy shall operate to annul this Declaration or to
revoke any existing agency created pursuant to the terms of this Declaration.
In the case of an existing vacancy, including a vacancy existing by reason of
an increase in the number of Trustees, the remaining Trustees shall fill,
subject to the provisions of the 1940 Act, such vacancy by the appointment of
such other Person as they in their discretion shall see fit, made by a written
instrument signed by a majority of the Trustees then in office. No such
appointment shall become effective until the Person named in the written
instrument of appointment shall have accepted such appointment in writing and
agreed in writing to be bound by the terms of this Declaration. An appointment
of a Trustee may be made in anticipation of a vacancy to occur at a later date
by reason of retirement, resignation or increase in the number of Trustees,
provided that such appointment shall not become effective prior to such
retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.5, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by this Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy.
SECTION 2.6 - Delegation of Power to Other Trustees.
Any Trustee may, by power of attorney, delegate his power for a period not
exceeding six (6) months at any one time to any other Trustee or Trustees,
provided that in no case shall less than two (2) Trustees personally exercise
the powers granted to the Trustees under this Declaration except as herein
otherwise expressly provided, and provided further that this Section shall in
no way be deemed to limit the provisions of Section 3.5.
ARTICLE III
POWERS OF TRUSTEES
SECTION 3.1 - General.
The Trustees shall have exclusive and absolute control over the Trust
Property and over the business of the Trust to the same extent as if the
Trustees were the sole owners of the Trust Property and business in their own
right.
The Trustees are responsible for the general policies of the Trust and for
such general supervision of the business of the Trust conducted by all
officers, employees, agents, Investment Advisers, Distributors, Custodians,
Transfer Agents or independent contractors of the Trust as may be necessary to
insure that such business conforms to the provisions of this Declaration.
However, the Trustees are not and shall not be required personally to conduct
the business of the Trust and, consistent with their ultimate responsibility as
stated above, the Trustees shall have the power to appoint, employ or contract
with any Person or Persons (including one or more of themselves or any Person
of which one or more of them may be directors, officers, agents, employees,
stockholders, partners or Trustees or with which one or more of them may be
otherwise affiliated) as the Trustees may deem necessary or proper for the
transaction of the business of the Trust, and for such purpose may grant or
delegate such authority to any such Person as the Trustees may in their sole
discretion deem necessary or desirable without regard to whether such authority
is normally granted or delegated by Trustees. The Trustees shall have the
power to determine the terms and compensation of any such Person and may
exercise broad discretion in allowing such Person to administer and regulate
the operations of the Trust, to act as agent for the Trust, to execute
documents on behalf of the Trustees or the Trust, and to make executive
decisions which conform to the general policies and general principles
previously established by the Trustees.
The Trustees shall have power to conduct the business of the Trust and
carry on its operations in any and all of its branches and maintain offices
both within and without the Commonwealth of Massachusetts, in any and all
states of the United States of America, in the District of Columbia, and in any
and all commonwealths, territories, dependencies, colonies, and possessions of
the United States of America and of foreign governments, and to do all such
other things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust in addition to those
things which are specifically mentioned herein. Any determination as to what
is in the interests of the Trust or as to the existence of powers or
authorities hereunder made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Declaration, the presumption shall be in
favor of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid powers. Such powers of the Trustees may be exercised
without order of or resort to any court.
SECTION 3.2 - Investments.
The Trustees shall have the power, subject to the Fundamental Policies:
(a) To operate as and carry on the business of an investment company
and exercise all the powers necessary and appropriate to the conduct of such
business;
(b) To invest in, hold for investment, and reinvest in Securities or
in "when issued" or delayed delivery contracts for any Securities or retain all
or any part of the Trust Property in cash and at any time and from time to time
to change the investments of the Trust Property;
(c) To acquire (by purchase, subscription or otherwise), to hold, to
trade in and deal in, to sell or otherwise dispose of, to lend, and to pledge,
Securities;
(d) To exercise all rights, powers and privileges of ownership or
interest in all Securities included in the Trust Property, including the right
to vote thereon and otherwise act with respect thereto and to do all acts for
the preservation, protection, improvement and enhancement in value of all Trust
Property;
(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, tangible or intangible, including, without limitation, cash, and any
interest therein;
(f) To borrow money and in connection therewith to issue notes or
other evidences of indebtedness; to secure borrowings by mortgaging, pledging
or otherwise subjecting as security the Trust Property or any portion thereof;
to endorse, guarantee, or undertake the performance of any obligation or
engagement of any other Person and to lend Trust Property;
(g) To aid by further investment any Person, any Security of or
interest in which is included in the Trust Property or in the affairs of which
the Trustee, as such, have any direct or indirect interest; to do all acts and
things designed to protect, preserve, improve or enhance the value of such
Security or interest; to guarantee or become surety on any or all of the
contracts, stocks, bonds, notes, debentures and other obligations of any such
Person; and
(h) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power herein set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
SECTION 3.3 - Legal Title.
Legal title to all the Trust Property shall be vested in the Trustees as
joint tenants except that the Trustees shall have power to cause legal title to
any Trust Property to be held by or in the name of one or more of the Trustees,
or in the name of the Trust, or in the name of any other Person as nominee, on
such terms as the Trustees may determine. The right, title and interest of the
Trustees in the Trust Property shall vest automatically in each Person who may
become a Trustee. Upon the termination of a Trustee's term of office, he shall
automatically cease to have any right, title, or interest in any of the Trust
Property, and the right, title and interest of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents
have been executed and delivered.
SECTION 3.4 - Issuance and Repurchase of Shares.
The Trustees shall have the power to issue, sell, repurchase, redeem,
retire, cancel, acquire, hold, resell, reissue, dispose of, transfer, and
otherwise deal in Shares of any Series or Class and, subject to the provisions
set forth in Articles VII, VIII and IX, to apply to any such repurchase,
redemption, retirement, cancellation or acquisition of Shares of any Series or
Class, any of the Fund Assets belonging to the Fund to which such Series or
Class relates, whether constituting capital or surplus or otherwise, to the
full extent now or hereafter not prohibited by the laws of the Commonwealth of
Massachusetts.
SECTION 3.5 - Delegation; Committees.
The Trustees shall have power to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
in the names of the Trustees or otherwise as the Trustees may deem expedient,
except as may be prohibited by the 1940 Act.
SECTION 3.6 - Collection and Payment.
The Trustees shall have power to collect all property due to the Trust; to
pay all claims, including, without limitation, taxes, against the Trust
Property; to prosecute, defend, compromise or abandon any claims relating to
the Trust Property; to foreclose any security interest securing any
obligations, by virtue of which any property is owed to the Trust; and to enter
into releases, agreements and other instruments.
SECTION 3.7 - Expenses.
The Trustees shall have the power to incur and pay any expenses which, in
the opinion of the Trustees, are necessary or incidental to carrying out any of
the purposes of this Declaration, to pay themselves reasonable compensation and
to reimburse themselves for expenses incurred in the performance of their
duties as Trustees from the Trust Property. The Trustees shall fix the
compensation of all officers, employees, agents and Trustees.
SECTION 3.8 - Manner of Acting.
Except as otherwise provided herein or in the By-Laws, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees at which a quorum is present, including any meeting held by
means of a conference telephone circuit or similar communications equipment by
means of which all persons participating in the meeting can hear each other, or
by written consents of the entire number of Trustees then in office.
SECTION 3.9 - By-Laws.
The Trustees may adopt By-Laws not inconsistent with this Declaration to
provide for the conduct of the business of the Trust and may amend or repeal
such By-Laws to the extent such power is not reserved to the Shareholders.
SECTION 3.10 - Miscellaneous Powers.
The Trustees shall have the power to:
(a) Employ or contract with such Person or Persons as the Trustees
may deem desirable for the transaction of the business of the Trust;
(b) Enter into joint ventures, partnerships and any other
combinations or associations;
(c) Remove Trustees or fill vacancies in or add to their number,
elect and remove such officers and appoint and terminate such agents or
employees as they consider appropriate, and appoint from their own number, and
terminate, any one or more committees which may exercise some or all of the
power and authority of the Trustees as the Trustees may determine;
(d) Purchase, and pay for out of Trust Property insurance policies
insuring the Shareholders, Trustees, officers, employees, agents, Investment
Advisers, Distributors, Transfer Agents, Custodians, selected dealers or
independent contractors of the Trust against any and all claims and liabilities
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such claim or liability;
(e) Establish pension, profit-sharing, share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers, employees
and agents of the Trust;
(f) To the extent not prohibited by law, indemnify any Person with
whom the Trust has dealings, including any Investment Adviser, Distributor,
Transfer Agent and selected dealers, to such extent as the Trustees shall
determine;
(g) Guarantee indebtedness or contractual obligations of others;
(h) Determine and change the fiscal year of the Trust and the method
by which its accounts shall be kept; and
(i) Adopt a seal for the Trust, but the absence of such seal shall
not impair the validity of any instrument executed on behalf of the Trust.
SECTION 3.11 - Principal Transactions.
Except in transactions permitted by the 1940 Act or any order of exemption
issued by the Commission, or effected to implement the provisions of any
agreement to which the Trust is a party, the Trustees shall not, on behalf of
the Trust, buy any securities (other than Shares of any Series or Class) from
or sell any securities (other than Shares of any Series or Class) to, or lend
any assets of the Trust to, any Trustee or officer of the Trust or any firm of
which any such Trustee or officer is a member acting as principal, or have any
such dealings with the Manager, Distributor or Transfer Agent or with any
Affiliated Person of such person; but the Trust may employ any such Person, or
firm or company in which such Person is an Interested Person, as broker, legal
counsel, registrar, transfer agent, dividend disbursing agent or custodian upon
customary terms.
SECTION 3.12 - Trustees and Officers as Shareholders.
Any Trustee, officer, employee or agent of the Trust may acquire, own and
dispose of Shares to the same extent as if he were not such a Trustee, officer,
employee or agent; and the Trustees may issue and sell or cause to be issued
and sold Shares to and buy Shares from any such Person or any firm or company
in which he is an Interested Person.
SECTION 3.13 - Litigation.
The Trustees shall have the power to engage in and to prosecute, defend,
compromise, abandon, or adjust, by arbitration, or otherwise, any actions,
suits, proceedings, disputes, claims, and demands relating to the Trust, and
out of the assets of the Trust to pay or to satisfy any debts, claims or
expenses incurred in connection therewith, including those of litigation, and
such power shall include without limitation the power of the Trustees or any
appropriate committee thereof, in the exercise of their or its good faith
business judgment, to dismiss any action, suit, proceeding, dispute, claim, or
demand, derivative or otherwise, brought by any person, including a Shareholder
in its own name or the name of the Trust, whether or not the Trust or any of
the Trustees may be named individually therein or the subject matter arises by
reason of business for or on behalf of the Trust.
ARTICLE IV
CONTRACTS
SECTION 4.1 - Underwriting Contract.
Subject to the provisions of the 1940 Act, the Trustees may, in their
discretion, from time to time enter into, renew, amend, or modify an exclusive
or non-exclusive underwriting contract or contracts providing for the sale of
Shares of any one or more Series or Classes to net the Trust an amount per
Share not less than the amount provided for in Section 8.1 hereof, whereby the
Trustees may agree to sell the Shares to the other party to the contract and/or
appoint such other party sales agent of the Trust for the Shares, on such terms
and conditions as may be prescribed in the By-Laws, if any, and such further
terms and conditions as the Trustees may, in their discretion, determine not
inconsistent with the provisions of this Declaration or the By-Laws; and any
such contract may also provide for the repurchase of the Shares by such other
party as agent of the Trust and may provide that such other party may enter
into selected dealer agreements with registered securities dealers to further
the purpose of the distribution or repurchase of such Shares.
SECTION 4.2 - Investment Advisory or Management Contract.
Subject to the provisions of the 1940 Act, the Trustees may, in their
discretion, from time to time enter into, renew, amend, or modify an investment
advisory or management contract or contracts whereby the other party or parties
to such contract or contracts shall undertake to furnish to the Trust such
management, investment advisory, statistical, and research facilities and
services and such other facilities and services, if any, and all upon such
terms and conditions as the Trustees may, in their discretion, determine,
including the grant of authority to such other party to determine what
Securities shall be purchased or sold by the Trust and what portion of its
assets shall be uninvested, which authority shall include the power to make
changes in the Trust's investments. Notwithstanding any provisions of this
Declaration, the Trustees may authorize the Investment Adviser (subject to such
general or specific instructions as the Trustees may from time to time adopt)
to effect purchases, sales, loans or exchanges of Securities of the Trust on
behalf of the Trustees and may authorize any officer, employee or Trustee to
effect such purchases, sales, loans or exchanges pursuant to recommendations of
the Investment Adviser, all without further action by the Trustees. Any such
activities shall be deemed to have been authorized by all of the Trustees.
SECTION 4.3 - Transfer Agent.
The Trustees may in their discretion from time to time enter into a
transfer agency and shareholder service contract or contracts whereby the other
party or parties to such contract or contracts shall undertake to furnish
transfer agency and shareholder services to the Trust. Any such contract shall
have such terms and conditions not inconsistent with this Declaration or the
By-Laws as the Trustees may, in their discretion, determine. Such services may
be provided by one or more Persons.
SECTION 4.4 - Affiliations of Trustees or Officers, etc.
Any Shareholder, Trustee or officer of the Trust, individually, or any
firm of which any Shareholder, Trustee or officer of the Trust may be a member,
or any Person of which any Shareholder, Trustee or officer of the Trust may be
an officer or director or in which any Shareholder, Trustee or officer of the
Trust may be directly or indirectly interested as the holder of any amount of
its capital stock or otherwise, may be a party to, or may be financially or
otherwise interested in, any contract or transaction of the Trust, and in the
absence of fraud no contract or other transaction shall be thereby affected or
invalidated by reason of the existence of any such relationship; nor shall any
Person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust under or by reason of said
contract or accountable for any profit realized directly or indirectly
therefrom, provided that the fact of any such interests or relationships shall
be disclosed or shall have been known to the Trustees or a majority thereof.
Any such Shareholder, Trustee or officer of the Trust may be counted in
determining the existence of a quorum at the meeting of the Trustees of the
Trust which shall authorize any such contract or transaction and may vote
thereat to authorize any such contract or transaction, with like force and
effect as if such other interests or relationships did not exist. In
furtherance and not in limitation of the foregoing, the Trustees of the Trust
are expressly authorized to contract for investment advisory and management
services of any nature, as described in Section 4.2, with any Person affiliated
with any Trustee or parent or affiliate or Interested Person of any such
Person, on such terms as the Trustees may deem desirable. The Trustees are
further expressly authorized to contract with any such Person or parent or
affiliate or Interested Person of any such Person on such terms as the Trustees
may deem desirable for the distribution of shares of the Trust as described in
Section 4.1 and to contract for other services, including, without limitation
services as Transfer Agent for the Trust's shares as described in Section 4.3
above with any such Person on such terms as the Trustees may deem desirable.
Any such Person or parent or affiliate or Interested Person of any such Person
which enters into one or more of such contracts may also perform similar or
identical services for other investment companies and other Persons without
restriction by reason of the relationship with the Trust.
ARTICLE V
LIMITATIONS OF LIABILITY OF
SHAREHOLDERS, TRUSTEES AND OTHERS
SECTION 5.1 - No Personal Liability of Shareholders, Trustees, etc.
No Shareholder as such shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or the acts,
omissions, obligations or affairs of the Trust. No Trustee, officer, employee
or agent of the Trust as such shall be subject to any Personal liability
whatsoever to any Person in connection with Trust Property or the affairs of
the Trust, save only that to which they would be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of their duties,
or by reason of their reckless disregard of their obligations and duties with
respect to such Person; and all Persons shall look solely to the Trust Property
for satisfaction of claims of any nature arising directly or indirectly in
connection with the affairs of the Trust. If any Shareholder, Trustee,
officer, employee, or agent, as such, of the Trust is made a party to any suit
or proceeding to enforce any such liability of the Trust, he shall not, on
account thereof, be held to any personal liability. The Trust shall indemnify
and hold each Shareholder harmless from and against all claims and liabilities
to which such Shareholder may become subject by reason of his being or having
been a Shareholder, and shall reimburse such Shareholder for all legal and
other expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall
not exclude any other right to which such Shareholder may be lawfully entitled,
nor shall anything herein contained restrict the right of the Trust to
indemnify or reimburse a Shareholder in any appropriate situation even though
not specifically provided herein, provided that a Shareholder of any Series
shall be indemnified only from the assets belonging to the Fund to which such
Series relates.
SECTION 5.2 - Non-Liability of Trustees, etc.
No trustee, officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee, officer, employee, or
agent thereof for any action or failure to act (including without limitation
the failure to compel in any way any former or acting Trustee to redress any
breach of Trust) except for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
SECTION 5.3 - No Bond Required of Trustees.
No Trustee shall be obligated to give any bond or other security for the
performance of any of his duties hereunder.
SECTION 5.4 - No Duty of Investigation; Notice in Trust Instruments, etc.
No purchaser, lender, Transfer Agent, Custodian or other Person dealing
with the Trustees or any officer, employee or agent of the Trust shall be bound
to make any inquiry concerning the validity of any transaction purporting to be
made by the Trustees or by said officer, employee or agent or be liable for the
application of Trust Property paid, loaned, or delivered to or on the order of
the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking, and every other act or thing whatsoever executed in connection
with or on behalf of the Trust shall be conclusively presumed to have been
executed or done by the executors thereof only in their capacity as Trustees
under this Declaration or in their capacity as officers, employees or agents of
the Trust. Every written obligation, contract, instrument, certificate, Share,
other security of the Trust or undertaking made or issued by the Trustees may
recite, in substance, that the same is executed or made by them not
individually, but as Trustees under the Declaration, and that the obligations
of the Trust under any such instrument are not binding upon any of the Trustees
or Shareholders individually, but bind only the Trust estate, and may contain
any further recital which they or he may deem appropriate, but the omission of
such recital shall not operate to bind the Trustee or Shareholders
individually. The Trustees may maintain insurance for the protection of the
Trust Property, its Shareholders, Trustees, officers, employees, and agents in
such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment
shall deem advisable.
SECTION 5.5 - Reliance on Experts, etc.
Each Trustee, officer, employee, or agent of the Trust shall, in the
performance of his duties, be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust, upon an opinion of
counsel, or upon reports made to the Trust by any of its officers, employees,
agents or by the Investment Adviser, the Distributor, Transfer Agent,
Custodian, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers, or
employees of the Trust, regardless of whether any such Person may also be a
Trustee or an Interested Person of the Trust.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 6.1 - Beneficial Interest.
The interest of the beneficiaries of the Trust shall be divided into
transferable shares and fractions of shares of beneficial interest without par
value. The number of shares of beneficial interest is unlimited. Initially
the shares of beneficial interest shall be of one series and of one class. The
Trustees shall have authority in their sole discretion to create one or more
separate, distinct and independent Funds into which assets of the Trust shall
be divided, and to authorize a separate Series of shares of beneficial interest
for such Fund (each of which Series, including without limitation, the Series
authorized in Section 6.10 hereof, shall represent interests only in the Fund
with respect to which such Series was authorized), or one or more additional
Classes of shares of beneficial interest, on such terms and conditions as they
may determine, without vote of the shareholders. The Trustees shall have
authority, in their sole discretion, to combine Series of shares of beneficial
interest or a Class of shares of beneficial interest with another Series of
shares of beneficial interest or another Class of shares of beneficial
interest, without vote of the shareholders, either
(a) through an exchange of shares of beneficial interest in one
Series of shares of beneficial interest or Class of shares of beneficial
interest for shares of beneficial interest in another Series of shares of
beneficial interest or Class of shares of beneficial interest, or
(b) by amendment of the terms of and conditions applicable to a
Series of shares of beneficial interest or to a Class of shares of beneficial
interest to conform such terms and conditions to the terms and conditions
applicable to the other Series of shares of beneficial interest or to the other
Class of shares of beneficial interest;
provided that any such combination of two or more Series of shares of
beneficial interest or two or more Classes of shares of beneficial interest
shall always be effected in a way which will preserve the relative net asset
value of the shares of beneficial interest affected. All shares of beneficial
interest issued hereunder including, without limitation, shares of beneficial
interest issued in connection with any dividend declared and paid in shares of
beneficial interest or any split of shares of beneficial interest, shall be
fully paid and non-assessable.
SECTION 6.2 - Rights of Shareholders.
The ownership of the Trust Property of every description and the right to
conduct any business hereinbefore described are vested exclusively in the
Trustees, and the Shareholders shall have no interest in the Trust Property or
in the business of the Trust other than the beneficial interest conferred by
their Shares, and they shall have no right to call for any partition,
divisions, dividend or distribution of any property, profits, rights or
interests of the Trust nor can they be called upon personally to share or
assume any losses of the Trust or suffer an assessment of any kind by virtue of
their ownership of Shares. The Shares of any Series or Class shall be personal
property giving only the rights specifically set forth in this Declaration.
The Shares of any Series or Class shall not entitle the holder to preference,
preemptive, appraisal, conversion or exchange rights except as the Trustees may
determine with respect to any Series or Class of shares.
SECTION 6.3 - Trust Only.
It is the intention of the Trustees to create only the relationship of
trustee and beneficiary between the Trustees and each Shareholder from time to
time. It is not the intention of the Trustees to create a general partnership,
limited partnership, joint stock association, joint venture, corporation,
bailment or any form of legal relationship other than a trust. Nothing in this
Declaration shall be construed to make the Shareholders, either by themselves
or with the Trustees, partners or members of a joint stock association.
SECTION 6.4 - Issuance of Shares.
The Trustees, in their discretion, may at any time and from time to time
without vote of the Shareholders, issue Shares of any Series or Class to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times, and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of liabilities) and
businesses. In connection with any issuance of Shares of any Series or Class,
the Trustees may issue fractional Shares. The Trustees may from time to time
divide or combine the Shares of any Series or Class into a greater or lesser
number without thereby changing the proportionate beneficial interests in the
Trust and may classify or reclassify any unissued shares, or any shares of any
Series or Class previously issued and reacquired by the Trust, into shares of
one or more other Funds that may be established and designated from time to
time. The Trustees may also reduce the number of outstanding Shares of any
Series. Contributions to the Trust may be accepted for, and Shares of any
Series shall be redeemed as, whole Shares and/or 1/1,000ths of a Share or
integral multiples thereof.
SECTION 6.5 - Register of Shares; Share Certificates.
A register shall be kept at the principal office of the Trust or an office
of the Transfer Agent which books shall be maintained separately for the shares
of each Series that has been authorized and shall contain the names and
addresses of the Shareholders and the number of Shares held by them
respectively and a record of all transfers thereof. Such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, or to have notice given to him as herein or in the
By-Laws provided, until he has given his address to the Transfer Agent or such
other officer or agent of the Trustees as shall keep the said register for
entry thereon. It is not contemplated that certificates will be issued for
Shares; however, the Trustees, in their discretion, may authorize the issuance
of share certificates and promulgate appropriate rules and regulations as to
their use.
SECTION 6.6 - Transfer of Shares.
All Shares shall be transferable on the register of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing,
upon delivery to the Trustees or the Transfer Agent of a duly executed
instrument of transfer, together with such evidence of the genuineness of each
such execution and authorization and of such other matters as may reasonably be
required. Upon such delivery, the transfer shall be recorded on the register
of the Trust. Until such record is made, the Shareholder of record shall be
deemed to be the holder of such Shares for all purposes hereunder and neither
the Trustees nor any Transfer Agent or registrar, if any, nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any Person becoming entitled to Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, except as may otherwise be provided in the laws of the Commonwealth of
Massachusetts, shall be recorded on the register of Shares as the holder of
such Shares upon production of the proper evidence thereof to the Trustees or
the Transfer Agent, but until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar, if any, nor any
officer or agent of the Trust shall be affected by any notice of such death,
bankruptcy or incompetence, or other operation of law. Nothing in this
Declaration shall impose on the Trustees or a Transfer Agent a duty, or limit
their rights, to inquire into adverse claims.
SECTION 6.7 - Notices.
Any and all notices to which any Shareholder may be entitled and any and
all communications shall be deemed duly served or given if mailed, postage
prepaid, addressed to any Shareholder of record at his last known address as
recorded on the registrar of the Trust.
SECTION 6.8 - Treasury Shares.
Shares held in the treasury shall, until reissued pursuant to Section 6.4,
not confer any voting rights on the Trustees, nor shall such Shares be entitled
to any dividends or other distributions declared with respect to the Shares.
SECTION 6.9 - Voting Powers.
The Shareholders shall have power to vote with respect to such matters
relating to the Trust as may be required by law, this Declaration, the By-Laws,
the 1940 Act, any registration of Trust with the Commission (or any successor
agency) or any state, or as the Trustees may consider necessary or desirable.
Each whole Share shall be entitled to one vote as to any matter on which
it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares shall not entitle the Shareholders to preference,
appraisal, conversion, exchange or preemptive rights of any kind. Until Shares
are issued, the Trustees may exercise all rights of Shareholders and may take
any action required by law, this Declaration or the By-Laws to be taken by
Shareholders. The By-Laws may include further provisions for Shareholder's
votes and meetings, setting of record dates, and related matters.
SECTION 6.10 - Establishment of Fund; Series or Classes of Shares.
Without limiting the authority of the Trustees as set forth herein to
establish and designate further Funds and/or Classes, the following Fund and
Class is hereby established and designated: The Tax-Exempt Fund of California,
all of the Shares of which shall initially be issued in a single Class. If the
Trustees shall establish additional Funds and divide the Shares of the Trust
into two or more Series or two or more Classes of any Series, as provided in
Section 6.1 hereof, the following provisions shall be applicable:
(a) Each Fund established hereunder shall be a separate component of
the assets of the Trust, and the holders of Shares of the Series representing
the beneficial interest in the assets of that Fund shall be considered
Shareholders of such Fund, but such Shareholders shall also be considered
Shareholders of the Trust for purposes of receiving reports and notices and,
except as otherwise provided herein or in the Certificate of Designation of a
particular Fund as to such Fund, or as required by the 1940 Act or other
applicable law, the right to vote, all without distinction by Series. The
Trustees shall have exclusive power without the requirement of Shareholder
approval to establish and designate such separate and distinct Funds and to fix
and determine the relative rights and preferences as between the Shares of the
respective Funds as to rights of redemption and the price, terms and manner of
redemption, special and relative rights as to dividends and other distributions
and on liquidation, sinking or purchase fund provisions, conversion rights, and
conditions under which the Shareholders of the several Funds shall have
separate voting rights or no voting rights. Within each Fund so established
the Trustees shall have the exclusive power without the requirement of
shareholder approval to establish one or more Classes of Shares and to fix and
determine the relative rights and preferences as between Shares of the
respective Classes of a Fund as to rights of redemption and the price, terms
and manner of redemption, special and relative rights as to dividends and other
distributions and on liquidation, sinking or purchase fund provisions,
conversion rights, and conditions under which the Shareholders of the several
Classes shall have separate voting rights or no voting rights.
(b) All provisions herein relating to the Trust shall apply equally
to each Series of the Trust except as the context otherwise requires.
(c) The power of the Trustees to invest and reinvest the Trust
Property shall be governed by Section 3.2 of this Declaration with respect to
any one or more Series which represents the interests in the assets of the
Trust immediately prior to the establishment of two or more Series and the
power of the Trustees to invest and reinvest assets applicable to any other
Series shall be as set forth in the instrument of the Trustees establishing
such Series which is hereinafter described.
(d) All consideration received by the Trust for the issue or sale of
shares of a particular Series together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the rights
of creditors, and shall be so recorded upon the books of account of the Trust.
In the event that there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular Series, the Trustees shall allocate them among any one or more
of the Series established and designated from time to time in such manner and
on such basis as they, in their sole discretion, deem fair and equitable. Each
such allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series for all purposes.
(e) The assets belonging to each particular Series shall be charged
with the liabilities of the Trust in respect of that Series and all expenses,
costs, charges and reserves attributable to that Series, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series shall be allocated
and charged by the Trustees to and among any one or more of the Series
established and designated from time to time in such manner and on such basis
as the Trustees in their sole discretion deem fair and equitable. The Trustees
may further allocate such liabilities, expenses, costs, charges and reserves of
a Series among various Classes of Shares of that Series. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of Shares of Classes of all Series for
all purposes. The Trustees shall have full discretion, to the extent not
inconsistent with the 1940 Act, to determine which items shall be treated as
income and which items as capital; and each such determination and allocation
shall be conclusive and binding upon the Shareholders. The assets of a
particular Series of the Trust shall under no circumstances be charged with
liabilities attributable to any other Series of the Trust. All persons
extending credit to, or contracting with or having any claim against a
particular Series of the Trust shall look only to the assets of that particular
Series for payment of such credit, contract or claim.
(f) Each Share of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series which shall be equal to the interest
of all other Shares of the same Class. Each holder of Shares of a Class shall
be entitled to receive his pro rata share of distribution of income and capital
gains made with respect to such Class. Upon redemption of his Shares or
indemnification for liabilities incurred by reason of his being or having been
a Shareholder of a Series, such Shareholder shall be paid solely out of the
funds and property of such Series of the Trust. Upon liquidation or
termination of a Series of the Trust, Shareholders of such Series of each Class
shall be entitled to receive a pro rata share of the net assets of such Series
equal to that of all other Shareholders of such Class. A Shareholder of a
particular Series of the Trust shall not be entitled to participate in a
derivative or class action on behalf of any other Series or the Shareholders of
any other Series of the Trust.
(g) Notwithstanding any other provision hereof, on any matter
submitted to a vote of Shareholders of the Trust, all Shares then entitled to
vote shall be voted by individual Series, except that (1) when required by the
1940 Act, Shares shall be voted in the aggregate and not by individual Series,
and (2) when the Trustees have determined that the matter affects only the
interests of Shareholders of a limited number of Series of a particular Class
of a Series, then only the Shareholders of such Series (or Class, as the case
may be) shall be entitled to vote thereon.
(h) The power of the Trustees to pay dividends and make
distributions shall be governed by Section 8.2 of this Declaration with respect
to any one or more Series or Classes which represents the interests in the
assets of the Trust immediately prior to the establishment of two or more
Series or Classes. With respect to any other Series or Class, dividends and
distributions on shares of a particular Series or Class may be paid with such
frequency as the Trustees may determine, which may be daily or otherwise,
pursuant to a standing resolution or resolutions adopted only once or with such
frequency as the Trustees may determine, to the holders of shares of that
Series or Class, from such of the income and capital gains, accrued or
realized, from the assets belonging to that series, as the Trustees may
determine, after providing for actual and accrued liabilities belonging to that
Series or Class. All dividends and distributions on shares of a particular
Series or Class shall be distributed pro rata to the holders of that Series or
Class in proportion to the number of shares of that Series or Class held by
such holders at the date and time of record established for the payment of such
dividends or distributions.
(i) The Trustees shall have the power to determine the designations,
preferences, privileges, limitations and rights, including voting and dividend
rights, of each Class and Series of Shares.
(j) The establishment and designation of any Series or Class in
addition to the Series and Class established and designated in section 6.10
hereof and the authorization of the Shares thereof shall be effective upon the
execution by a majority of the Trustees of an instrument setting forth such
establishment and designation and the relative rights and preferences of the
Shares of such Fund or such Class and the manner in which the same may be
amended (a "Certificate of Designation"), and may provide that the number of
Shares of such Fund or Class which may be issued is unlimited, or may limit the
number issuable. At any time that there are no Shares or Class outstanding of
any particular Fund or Class previously established and designated, including
any Fund or Class established and designated in Section 6.10 hereof, the
Trustees may by an instrument executed by a majority of the Trustees, terminate
such Fund or Class and the establishment and designation thereof and the
authorization of its Shares (a "Certificate of Termination"). Each Certificate
of Designation, Certificate of Termination and any instrument amending a
Certificate of Designation shall have the status of an amendment to this
Declaration of Trust, and shall be filed and become effective as provided in
Section 10.1 hereof.
(k) In the event of the liquidation or dissolution of the Trust, the
Shareholders of each Fund of which Shares are outstanding shall be entitled to
receive, when and as declared by the Trustees, the excess of the Fund Assets
over the liabilities of such Fund divided among the Classes of Shares of the
Fund in accordance with Certificate(s) of Designation of the Fund and of any
such Class. The assets so distributable to the Shareholders of any particular
Fund or Class shall be distributed among such Shareholders in proportion to the
number of Shares of that Fund or Class held by them and recorded on the books
of the Trust. The liquidation of any particular Fund may be authorized by vote
of a majority of the Trustees, subject to the affirmative vote of "a majority
of the outstanding voting securities" of that Fund of all Classes voting
together, as the quoted phrase is defined in the 1940 Act, determined in
accordance with clause (iii) of the definition of "Majority Shareholder Vote"
in Section 1.2 hereof.
ARTICLE VII
REDEMPTION, REPURCHASE, AND REDUCTION OF SHARES
SECTION 7.1 - Redemption of Shares.
All Shares of any Series or Class of the Trust shall be redeemable, at the
redemption price determined in the manner set out in this Declaration.
Redeemed or repurchased Shares may be reissued by the Trust.
The Trust shall redeem the Shares of any Series or Class at the price
determined as hereinafter set forth, upon the appropriately verified written
application of the record holder thereof (or upon such other form of request as
the Trustees may determine) at such office or agency as may be designated from
time to time for that purpose by the Trustees. The Trustees may from time to
time specify additional conditions not inconsistent with the 1940 Act regarding
the redemption of Shares.
SECTION 7.2 - Price.
Shares shall be redeemed at their net asset value determined as set forth
in Section 8.1 hereof as of such time as the Trustees shall have theretofore
prescribed by resolution. In the absence of such resolution, the redemption
price of Shares deposited shall be the net asset value of such Shares next
determined as set forth in Section 8.1 after receipt of the application
required by Section 7.1.
SECTION 7.3 - Payment.
Payment for redeemed Shares shall be made at such time and in the manner,
not inconsistent with the 1940 Act or other applicable law, as may be specified
from time to time in the Prospectus, subject to the provision of Section 7.4
hereof.
SECTION 7.4 - Repurchase by Agreement.
The Trust may repurchase Shares of any Series or Class directly, or
through the Distributor or another agent designated for the purpose, by
agreement with the owner thereof at a price not exceeding the net asset value
per Share next determined after the time when the purchase or contract is made
or the net asset value as of any time which may be later determined pursuant to
Section 8.1 hereof, provided payment is not made for the Shares prior to the
time as of which such net asset value is determined.
SECTION 7.5 - Redemption of Shareholder's Interest; Redemption of Shares to
Qualify as a Regulated Investment Company; Disclosure of Holdings.
The Trust shall have the right at any time to redeem the Shares of any
Shareholder for their then current net asset value per Share if at such time
the Shareholder owns of record, Shares of any Series or Class having an
aggregate net asset value of less than the minimum initial investment amount
required of new Shareholders of that Series or Class, subject to such terms and
conditions as the Trustee may approve and subject to the Trust's giving general
notice to all Shareholders of the existence of such right, either by
publication in the Trust's Prospectus, if any, or by such other means as the
Trustees may determine.
If the Trustees shall, at any time and in good faith, be of the opinion
that direct or indirect ownership of Shares or other securities of the Trust
has or may become concentrated in any Person to an extent which would
disqualify the Trust as a regulated investment company under the Internal
Revenue Code, then the Trustees shall have the power by lot or other means
deemed equitable by them to:
(a) Call for redemption by any such Person a number, or principal
amount, of Shares or other securities of the Trust sufficient to maintain or
bring the direct or indirect ownership of Shares or other securities of the
Trust into conformity with the requirements for such qualification, and
(b) Refuse to transfer or issue Shares or other securities of the
Trust to any Person whose acquisition of the Shares or other securities of the
Trust in question would, in the judgment of the Trustees, be likely to result
in such disqualification.
The redemption shall be effected at the redemption price.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or
to comply with the requirements of any other taxing authority.
SECTION 7.6 - Suspension of Right of Redemption.
The Trust may declare a suspension with respect to one or more Series or
Classes of Shares of the right of redemption or postpone the date of payment of
redemption for the whole or any part of any period:
(a) During which the New York Stock Exchange is closed other than
customary weekend and holiday closings;
(b) During which trading on the New York Stock Exchange is
restricted;
(c) During which an emergency exists as a result of which disposal
by the Trust of Securities owned by the Trust within a Fund is not reasonably
practicable or it is not reasonably practicable for the Trust fairly to
determine the value of the net assets of a Fund; or
(d) During any other period when the Commission may for the
protection of Shareholders of the Trust by order permit suspension of the right
of redemption or postponement of the date of payment or redemption; provided
that applicable rules and regulations of the Commission shall govern as to
whether the conditions prescribed in subparagraphs (b), (c) or (d) exist. Such
suspension shall take effect at such time as the Trust shall specify but not
later than the close of business on the business day next following the
declaration of suspension, and thereafter there shall be no right of redemption
or payment on redemption until the Trust shall declare the suspension at an
end, except that the suspension shall terminate in any event on the first day
on which said stock exchange shall have reopened or the period specified in
subparagraphs (b) or (c) above shall have expired (as to which in the absence
of an official ruling by the Commission, the determination of the Trust shall
be conclusive). In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the net asset value next determined after the termination of the
suspension.
SECTION 7.7 - Effect of Suspension of Determination of Net Asset Value.
If, pursuant to Section 8.1, the Trustees shall declare a suspension of
the determination of net asset value, the rights of Shareholders (including
those who shall have applied for redemption pursuant to Section 7.1, but who
shall not yet have received payment) to have Shares redeemed and paid for by
the Trust and the right of the Trust to redeem Shares at its option set forth
in Section 7.5, shall be suspended until the termination of such suspension is
declared. Any record holder who shall have his redemption right so suspended
may, during the period of such suspension, by appropriate written notice of
revocation at the office or agency where application was made, revoke any
application for redemption not honored and withdraw any certificates on
deposit. The redemption price of Shares for which redemption applications have
not been revoked shall be the net asset value of such Shares next determined as
set forth in Section 7.1 hereof after the termination of such suspension, and
payment shall be made within seven (7) days after the date upon which the
application was made plus the period after such application during which the
determination of net asset value was suspended.
SECTION 7.8 - Reductions of Shares.
The Trust may also reduce the number of outstanding Shares of any Series
or Class.
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME, AND DISTRIBUTIONS
SECTION 8.1 - Net Asset Value.
The net asset value per Share of any Class of any Series shall be
determined as follows: the value of the Securities and other assets owned by
the Fund corresponding to that Series shall be valued by methods, reflecting
their fair value, as determined by the Trustees in good faith.
From the total value of said assets, there shall be deducted the
liabilities of the Fund attributable to each Class, including proper accruals
of interest, taxes and other expense items, amounts determined and declared as
dividends or distributions, and reserves for contingent or undetermined
liabilities. The net assets of the Fund attributable to each Class so obtained
shall then be divided by the total number of Shares of the Fund of that Class
outstanding and the result, rounded to the nearest cent, shall be the net asset
value per Share of the Fund of that Class. The net asset value of the Shares of
that Fund of that Class shall be determined once on each business day, as of
the close of trading on the New York Stock Exchange or as of such other time or
times as the Trustees shall determine. The power and duty to make the daily
calculations may be delegated by the Trustees to the Investment Adviser, the
Custodian, the Transfer Agent, or such other Person as the Trustees by
resolution may determine. The Trustees may suspend the daily determination of
net asset value if to do so is not prohibited by the 1940 Act.
SECTION 8.2 - Distributions With Respect to Outstanding Shares.
The Trustees shall from time to time distribute ratably among the
Outstanding Shares of a Series and/or of a Class of a Series, such proportion
of the net profits, surplus (including paid-in surplus), capital, or assets
held by the Trustees as they may deem proper. Such distribution may be made in
cash or property (including, without limitation, any type of obligation of the
Trust or any assets thereof), and the Trustees may distribute ratably among the
Outstanding Shares of such Series or Class additional Shares of such Series or
Class or another Series or Class issuable hereunder in such manner, at such
times, and on such terms as the Trustees may deem proper. Such distributions
may be among the Outstanding Shares at the time of declaring a distribution or
among the Outstanding Shares at such later date as the Trustees shall
determine. The Trustees may in their discretion determine that, solely for the
purposes of such distributions, Outstanding Shares shall exclude Shares for
which orders have been placed subsequent to a specified time and date. The
Trustees may always retain from the net profits of the Trust such amount as
they may deem necessary to pay the debts or expenses of the Trust or to meet
the obligations of the Trust, or as they may deem desirable to use in the
conduct of its affairs or to retain for future requirements or extensions of
the business. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans, or other plans as the Trustees
shall deem appropriate.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books of the Trust, the
above provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
At such time as the Trustees divide the Shares of the Trust into two or
more Series and/or two or more Classes of a Series, the distributions provided
for herein will be determined separately for the outstanding Shares of each
Class of each Series as set forth in Section 6.10(h) hereof.
SECTION 8.3 - Determination of Net Income; Constant Net Asset Value of Shares
of Certain Series or Classes; Reduction of Outstanding Shares.
The Trustees shall have the power to determine the net income of each
Series of Shares of the Trust one or more times on each business day and at
each such determination declare such net income as dividends in additional
Shares of such Series. The determination of net income and the resultant
declaration of dividends shall be as set forth in the Prospectus. In the event
that any Series or Class of the Trust attempts to maintain a constant net asset
value per Share, if, for any reason, the net income of such Series of the Trust
determined at any time is a negative amount, the Trustees shall have the power
(i) to offset each Shareholder's pro rata share of such negative amount from
the accrued dividend account of such Shareholder, or (ii) to reduce the number
of outstanding shares of such Series or Class of the Trust by reducing the
number of Shares in the account of such Shareholder by that number of full and
fractional Shares which represents the amount of such excess negative net
income, or (iii) to cause to be recorded on the books of the Trust an asset
account in the amount of such negative net income, which account may be reduced
by the amount, provided that the same shall thereupon become the property of
the Trust and shall not be paid to any Shareholder, of dividends declared
thereafter upon the outstanding Shares on the day such negative net income is
experienced, until such asset account is reduced to zero, or (iv) to combine
the methods described in clauses (i) and (ii) and (iii) of this sentence, in
order to cause the net asset value per Share of such Series or Class of the
Trust to remain at a constant amount per outstanding Share immediately after
each such determination and declaration. The Trustees shall also have the
power to fail to declare a dividend out of net income for the purpose of
causing the net asset value per Share of any such Series or Class to be
increased to a constant amount. The Trustees shall have full discretion to
determine whether any cash or property received shall be treated as income or
as principal and whether any item of expense shall be charged to the income or
the principal account, and their determination made in good faith shall be
conclusive upon the Shareholders. In the case of stock dividends received, the
Trustees shall have full discretion to determine, in the light of the
particular circumstances, how much, if any, of the value thereof shall be
treated as income, the balance, if any, to be treated as principal. The
Trustees shall not be required to adopt, but may at any time adopt, discontinue
or amend the practice of maintaining the net asset value per Share of any
Series or Class of the Trust at a constant amount.
SECTION 8.4 - Power to Modify Foregoing Procedures.
Notwithstanding any of the foregoing provisions of this Article VIII, the
Trustees may prescribe, in their absolute discretion, such other bases and
times for determining the per Share net asset value of any Series or Class of
the Trust's Shares or net income, or the declaration and payment of dividends
and distributions as they may deem necessary or desirable.
ARTICLE IX
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS; ETC.
SECTION 9.1 - Duration.
The Trust shall continue without limitation of time, subject to the
provisions of this Article IX.
SECTION 9.2 - Termination of Trust.
(a) the Trust may be terminated by the vote of a majority of the
Shares outstanding and entitled to vote of each Fund of the Trust voting
separately at any meeting of Shareholders or by an instrument in writing,
without a meeting, signed by a majority of the Trustees and consented to by the
holders of not less than a majority of such Shares, or by such greater or
different vote of Shareholders of any Series as may be established by the
Certificate of Designation by which such Series was authorized. Upon the
termination of the Trust,
(i) the Trust shall carry on no business except for the
purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this Declaration shall
continue until the affairs of the Trust shall have been wound up, including,
without limitation, the power to fulfill or discharge the contracts of the
Trust, collect its assets, sell, convey, assign, exchange, transfer or
otherwise dispose of all or any part of the remaining Trust Property to one or
more Persons at public or private sale for consideration which may consist in
whole or in part of cash, Securities or other property of any kind, discharge
or pay its liabilities, and do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange, transfer or
other disposition of all or substantially all the Trust Property shall require
Shareholder approval in accordance with Section 9.4 hereof; and
(iii) after paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary, the Trustees may distribute the remaining
Trust Property, if any, in cash or in kind or partly each, among the
Shareholders in conformity with Section 6.10(k) hereof.
(b) After termination of the Trust and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination, and the Trustees shall thereupon be discharged from
all further duties hereunder, and the rights and interests of all Shareholders
shall thereupon cease.
SECTION 9.3 - Amendment Procedure.
(a) This Declaration may be amended by a majority shareholder vote,
with each Series or Class voting separately if such amendment shall have a
materially different effect on one or more particular Series or Classes and
otherwise by all Shares voting together, or by any instrument in writing,
without a meeting, signed by a majority of the Trustees and consented to by the
holders of a majority of the Shares outstanding and entitled to vote either
separately by Series or Classes or together, as appropriate. The Trustees may
also amend this Declaration without the vote or consent of Shareholders to
change the name of the Trust, to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, to
establish and distinguish separate and distinct Funds and separate and distinct
Classes as provided in Section 6.10(a) hereof, or if they deem it necessary to
conform this Declaration to the requirements of, or to reduce or eliminate the
payment of taxes by the Trust or any Series thereof under applicable federal or
state laws or regulations or the requirements of the regulated investment
company provisions of the Internal Revenue Code, but the Trustees shall not be
held liable for failing to do so;
(b) No amendment may be made under this Section 9.3 which would
change any rights with respect to any Shares of the Trust by reducing the
amount payable thereon upon liquidation of the Trust or by diminishing or
eliminating any voting rights pertaining thereto, except with a majority vote
of the Shares of the affected Series or Class. Nothing contained in this
Declaration shall permit the amendment of this Declaration to impair the
exemption from personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments upon Shareholders;
and
(c) A certificate signed by a majority of the Trustees setting forth
an amendment and reciting that it was duly adopted by the Shareholders or by
the Trustees as aforesaid or a copy of the Declaration, as amended, and
executed by a majority of the Trustees, shall be conclusive evidence of such
amendment when lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares shall have become effective, this
Declaration may be terminated or amended in any respect by the affirmative vote
of a majority of the Trustees or by an instrument signed by a majority of the
Trustees.
SECTION 9.4 - Merger, Consolidation or Sale of Assets.
The Trust may merge or consolidate with any other Person or may sell,
lease or exchange all or substantially all of the Trust Property, including its
goodwill, if any, upon such terms and conditions and for such consideration
when and as authorized, at any meeting of Shareholders called for the purpose,
by the affirmative vote of the holders of not less than two-thirds of the
Shares outstanding and entitled to vote, or by an instrument or instruments in
writing without a meeting, consented to by the holders of not less than
two-thirds of the Shares outstanding and entitled to vote or by such other vote
as may be established by the Trustees with respect to any series or class of
shares; provided, however, that if such merger, consolidation, sale, lease or
exchange is recommended by the Trustees, a majority shareholder vote shall be
sufficient authorization.
SECTION 9.5 - Incorporation.
With a Majority Shareholder Vote, the Trustees may cause to be organized
or assist in organizing a corporation or corporations under the laws of any
jurisdiction, or any other trust, partnership, association or other
organization to take over all or substantially all of the Trust Property or to
carry on any business in which the Trust shall directly or indirectly have any
interest, and to sell, convey and transfer all or substantially all of the
Trust Property to any such corporation, trust, association or organization in
exchange for securities thereof or other wise, and to lend money to, subscribe
for securities of, and enter into any contracts with any such corporation,
trust, partnership, association, or organization, or any corporation,
partnership, trust, association or organization in which the Trust holds or is
about to acquire Securities or any other interest. The Trustees may also cause
a merger or consolidation between the Trust or any successor thereto and any
such corporation, trust, partnership, association or other organization if and
to the extent not prohibited by applicable law then in effect. Nothing
contained herein shall be construed as requiring approval of Shareholders for
the Trustees to organize or assist in organizing one or more corporations,
trusts, partnerships, associations or other organizations, and selling,
conveying or transferring a portion of the Trust Property to such organization
or entities.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 - Filing.
This Declaration and any amendment hereto (including each Certificate of
Designation and Certificate of Determination) shall be filed in the office of
the Secretary of the Commonwealth of Massachusetts and in such other places as
may be required under the laws of Massachusetts and may also be filed or
recorded in such other places as the Trustees deem appropriate. Each amendment
so filed shall be accompanied by a certificate signed and acknowledged by a
Trustee stating that such action was duly taken in a manner provided herein,
and unless such amendment or such certificate sets forth some later time for
the effectiveness of such amendment, such amendment shall be effective upon its
filing. A restated Declaration, integrating into a single instrument all of
the provisions of the Declaration which are then in effect and operative, may
be executed from time to time by a majority of the Trustees and shall, upon
filing with the Secretary of the Commonwealth of Massachusetts, be conclusive
evidence of all amendments contained therein and may thereafter be referred to
in lieu of the original Declaration and the various amendments thereto.
SECTION 10.2 - Resident Agent.
The name of the Trust's resident agent is CT Corporation System, and its
post office address is 2 Oliver Street, Boston, Massachusetts 02109.
SECTION 10.3 - Governing Law.
This Declaration is executed by the Trustees and delivered in the
Commonwealth of Massachusetts and with reference to the laws thereof, and the
rights of all parties and the validity and construction of every provision
hereof shall be subject to and construed according to the laws of said State.
SECTION 10.4 - Counterparts.
This Declaration may be simultaneously executed in several counterparts,
each of which shall be deemed to be an original, and such counterparts,
together, shall constitute one and the same instrument, which shall be
sufficiently evidenced by any such original counterpart.
SECTION 10.5 - Reliance by Third Parties.
Any certificate executed by an individual who, according to the records of
the Trust appears to be a Trustee hereunder or an officer of the Trust
appointed by the Trustees, certifying to:
(a) The number or identity of Trustees or Shareholders or agents or
employees;
(b) The due authorization of the execution of any instrument in
writing;
(c) The form of any vote passed at a meeting of Trustees or
committees thereof or Shareholders;
(d) The fact that the number of Trustees or Shareholders present at
any meeting or executing any written instrument satisfies the requirements of
this Declaration;
(e) The form of any By-Laws adopted by or the identity of any
officers, Trustees, agents or employees; or
(f) The existence of any fact or facts which in any manner relate to
the affairs of the Trust; shall be conclusive evidence as to the matters so
certified in favor of any person dealing with the Trustees or their successors
or the Trust.
SECTION 10.6 - Provisions in Conflict With Law or Regulations.
(a) The provisions of this Declaration are severable and, if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have
constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination; and
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
SECTION 10.7 - Index and Heading for Reference Only.
The Index and headings preceding the text, articles and sections hereof
have been inserted for convenience and reference only and shall not be
construed to affect the meaning, construction or effect of this Declaration.
IN WITNESS WHEREOF, the undersigned have executed this instrument this
20th day of May, 1986.
_________________________________
Michael J. Downer, as Trustee
and not individually
_________________________________
Thomas E. Terry, as Trustee
and not individually
Address: 333 South Hope Street
50th Floor
Los Angeles, CA 90071
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
Before me, Angela M. Mitchell, a Notary Public in and for the County of
Los Angeles, State of California, personally appeared this day Michael J.
Downer and Thomas E. Terry, to me known and known to me to be the same persons
whose names are signed to the foregoing instrument, and who acknowledged to me
that they executed the same as their free and voluntary act and deed.
WITNESS, my hand and notarial seal this 20th day of May, 1986.
_______________________________
Notary Public in and for said County and State
IN WITNESS WHEREOF, the undersigned has executed this instrument on this
30th day of May, 1986.
David M. Elwood, as Trustee
and not individually
Address: One Federal Street
Boston, MA 02110
COMMONWEALTH OF MASSACHUSETTS )
)
) SS.
)
COUNTY OF SUFFOLK )
Before me, Judith B. Bonaffini, a Notary Public in and for the County of
Suffolk, State of Massachusetts, personally appeared this day David M. Elwood,
to me known and known to me to be the same person whose name is signed to the
foregoing instrument, and who acknowledged to me that he executed the same as
his free and voluntary act and deed.
WITNESS, my hand and notarial seal this 30th day of May, 1986.
Notary Public in and for said County and State
CERTIFICATE OF AMENDMENT
OF
DECLARATION OF TRUST
OF
THE AMERICAN FUNDS CALIFORNIA TAX-EXEMPT SERIES
The undersigned, ABNER D. GOLDSTINE, R. J. MUNZER, WILLIAM C. NEWTON,
JAMES W. RATZLAFF and HUGH J. SHUMAKER, certify that they constitute a majority
of the Board of Trustees of The American Funds California Tax-Exempt Series, a
Massachusetts Business Trust, and further that:
(1) Section 1.1 of Article I of the Declaration of Trust has been amended
to read as follows:
"Section 1.1 - Name.
The name of the Trust created hereby is 'The American Funds Tax-Exempt
Series II.'"
(2) The Amendment was unanimously approved by the Board of Trustees.
IN WITNESS WHEREOF, the undersigned have executed this instrument this
15th day of October, 1986.
Abner D. Goldstine, as Trustee James W. Ratzlaff, as Trustee
and not individually and not individually
R. J. Munzer, as Trustee and Hugh J. Shumaker, as Trustee
not individually and not individually
William C. Newton, as Trustee
and not individually
Address: 333 South Hope Street
50th Floor
Los Angeles, CA 90071
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
Before me, Julie F. Williams, a Notary Public in and for the County of Los
Angeles, State of California, personally appeared this day Abner D. Goldstine,
R. J. Munzer, William C. Newton, James W. Ratzlaff and Hugh J. Shumaker, to me
known and known to me to be the same persons whose names are signed to the
foregoing instrument, and who acknowledged to me that they executed the same at
their free and voluntary act and deed.
WITNESS my hand and notarial seal this 15th day of October, 1986.
Notary Public in and for said
County and State
BY-LAWS
OF
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
BY-LAWS
I N D E X
Section and Title Page
Article I. SHAREHOLDERS 1
1.01 Annual Meetings 1
1.02 Special Meetings 1
1.03 Place of Meetings 1
1.04 Notice of Meetings 1
1.05 Quorum 2
1.06 Votes Required 2
1.07 Proxies 2
1.08 List of Shareholders 2
1.09 Voting 2
1.10 Action by Shareholders Other than
at a Meeting 3
Article II. BOARD OF TRUSTEES 3
2.01 Powers 3
2.02 Number of Trustees 3
2.03 Regular Meetings 4
2.04 Special Meetings 4
2.05 Notice of Meetings 4
2.06 Quorum 4
2.07 Compensation and Expenses 5
2.08 Action by Trustees Other than
at a Meeting 5
2.09 Committees 5
2.10 Holding of Meetings by Conference
Telephone Call 5
Article III. OFFICERS 6
3.01 Executive Officers 6
3.02 Chairman and Vice Chairman of the Board 6
3.03 President 6
3.04 Vice Presidents 6
3.05 Secretary and Assistant Secretaries 7
3.06 Treasurer and Assistant Treasurers 7
3.07 Subordinate Officers 8
3.08 Removal 8
Article IV. SHARES OF BENEFICIAL INTEREST 8
4.01 Certificates 8
4.02 Record Dates 9
Article V. GENERAL PROVISIONS 9
5.01 Checks 9
5.02 Custodian 9
5.03 Bonds 10
5.04 Inspection of Records 10
5.05 Representation of Shares 10
5.06 Offices of the Trust 10
Article VI. INDEMNIFICATION 10
Article VII. AMENDMENT OF BY-LAWS 13
BY-LAWS
OF
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
ARTICLE I.
SHAREHOLDERS
Section 1.01. Annual Meetings. Unless otherwise required by law, the
Declaration of Trust as amended from time to time (the "Declaration") or by
these By-Laws, the Trust shall not be required to hold an annual meeting of
shareholders unless the Board of Trustees of the Trust (the "Board") determines
to hold an annual meeting. If the Board makes such a determination, the annual
meeting of shareholders shall be held at such date and time as may be
designated from time to time by the Board for the election of Trustees and the
transaction of any business within the powers of the Trust. Any business of
the Trust may be designated in the notice, except such business as is
specifically required by statute or by the Declaration to be stated in the
notice. Failure to hold an annual meeting at the designated time shall not,
however, invalidate the existence of the Trust or affect otherwise valid acts
of the Trust.
Section 1.02. Special Meetings. At any time in the interval between
annual meetings, special meetings of the shareholders may be called by the
Chairman of the Board or the President or by a majority of the Board by vote at
a meeting or in writing with or without a meeting, or, in writing by those
shareholders holding a majority of the outstanding shares of beneficial
interest of the Trust.
Section 1.03. Place of Meetings. Meetings of the shareholders for the
election of Trustees shall be held at such place either within or without the
State of Massachusetts as shall be designated from time to time by the Board of
Trustees and stated in the notice of the meeting. Meetings of shareholders for
any other purpose may be held at such time and place, within or without the
State of Massachusetts, as shall be stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
Section 1.04. Notice of Meetings. Not less than ten days nor more than
ninety days before the date of every shareholders' meeting, the Secretary shall
give to each shareholder entitled to vote at such meeting, written or printed
notice stating the time and place of the meeting and, in case of a special
meeting, the purpose or purposes for which the meeting is called, either by
mail or by presenting it to the shareholder personally or by leaving it at the
shareholder's residence or usual place of business. If mailed, such notice
shall be deemed to be given when deposited in the United States mail addressed
to the shareholder at his post office address as it appears on the records of
the Trust, with postage thereon prepaid. Notwithstanding the foregoing
provision, a waiver of notice in writing, signed by the person or persons
entitled to such notice and filed with the records of the meeting, whether
before or after the holding thereof, or actual attendance at the meeting in
person or by proxy, shall be deemed equivalent to the giving of such notice to
such persons. Any meeting of shareholders, annual or special, may adjourn from
time to time to reconvene at the same or some other place, and no notice need
be given of any such adjourned meeting other than by announcement at the
meeting.
Section 1.05. Quorum. At any meeting of shareholders the presence in
person or by proxy of shareholders entitled to cast a majority of the votes
thereat shall constitute a quorum; but this Section shall not affect any
requirement under statute or under the Declaration for the vote necessary for
the adoption of any measure. In the absence of a quorum the shareholders
present in person or by proxy, by majority vote and without notice, may adjourn
the meeting from time to time until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
called.
Section 1.06. Votes Required. A majority of the votes cast at a meeting
of shareholders, duly called and at which a quorum is present, shall be
sufficient to take or authorize action upon any matter which may properly come
before the meeting, unless more than a majority of votes cast is required by
statute or by the Declaration.
Section 1.07. Proxies. A shareholder may vote the shares owned of record
by him either in person or by proxy executed in writing by the shareholder or
by the shareholder's duly authorized attorney-in-fact. No proxy shall be valid
after eleven months from its date, unless otherwise provided in the proxy.
Every proxy shall be in writing, subscribed by the shareholder or the
shareholder's duly authorized attorney, and dated, but need not be sealed,
witnessed or acknowledged.
Section 1.08. List of Shareholders. At each meeting of shareholders, a
full, true and complete list in alphabetical order of all shareholders entitled
to vote at such meeting, certifying the number of shares held by each, shall be
made available by the Secretary.
Section 1.09. Voting. In all elections for Trustees every shareholder
shall have the right to vote, in person or by proxy, the shares owned of record
by the shareholder, for as many persons as there are Trustees to be elected and
for whose election the shareholder has a right to vote. At all meetings of
shareholders, unless the voting is conducted by inspectors, the proxies and
ballots shall be received, and all questions regarding the qualification of
voters and the validity of proxies and the acceptance or rejection of votes
shall be decided by the chairman of the meeting. If demanded by shareholders,
present in person or by proxy, entitled to cast 10% in number of votes, or if
ordered by the chairman, the vote upon any election or question shall be taken
by ballot. Upon like demand or order, the voting shall be conducted by two
inspectors in which event the proxies and ballots shall be received, and all
questions regarding the qualification of voters and the validity of proxies and
the acceptance or rejection of votes shall be decided, by such inspectors.
Unless so demanded or ordered, no vote need be by ballot, and voting need not
be conducted by inspectors. Inspectors may be elected by the shareholders at
their annual meeting, to serve until the close of the next annual meeting and
their election may be held at the same time as the election of Trustees. In
case of a failure to elect inspectors, or in case an inspector shall fail to
attend, or refuse or be unable to serve, the shareholders at any meeting may
choose an inspector or inspectors to act at such meeting, and in default of
such election the chairman of the meeting may appoint an inspector or
inspectors.
Section 1.10. Action by Shareholders Other than at a Meeting. Any action
required or permitted to be taken at any meeting of shareholders may be taken
without a meeting, if a consent in writing, setting forth such action, is
signed by all the shareholders entitled to vote on the subject matter thereof
and any other shareholders entitled to notice of a meeting of shareholders (but
not to vote thereat) have waived in writing any rights which they may have to
dissent from such action, and such consent and waiver are filed with the
records of the Trust.
ARTICLE II.
BOARD OF TRUSTEES
Section 2.01. Powers. The Board may exercise all the powers of the
Trust, except such as are by statute or the Declaration or these By-Laws
conferred upon or reserved to the shareholders. The Board shall keep full and
fair accounts of its transactions.
Section 2.02. Number of Trustees. The number of Trustees shall be such
number as shall be fixed from time to time by a written instrument signed by a
majority of the Trustees; provided, however, the number of Trustees shall in no
event be reduced to less than three by such an instrument. The tenure of
office of a Trustee shall not be affected by any decrease in the number of
Trustees made by the Board.
Section 2.03. Regular Meetings. After each meeting of shareholders at
which a Board of Trustees shall have been elected, the Board so elected shall
meet as soon as practicable for the purpose of organization and the transaction
of other business. No notice of such first meeting shall be necessary if held
immediately after the adjournment, and at the site, of such meeting of
shareholders. Other regular meetings of the Board shall be held without notice
on such dates and at such places within or without the State of Massachusetts
as may be designated from time to time by the Board.
Section 2.04. Special Meetings. Special meetings of the Board may be
called at any time by the Chairman of the Board, the President or the Secretary
of the Trust, or by a majority of the Board by vote at a meeting, or in writing
with or without a meeting. Such special meetings shall be held at such place
or places within or without the State of Massachusetts as may be designated
from time to time by the Board. In the absence of such designation such
meetings shall be held at such places as may be designated in the calls.
Section 2.05. Notice of Meetings. Except as provided in Section 2.03,
notice of the place, day and hour of every regular and special meeting shall be
given to each Trustee two days (or more) before the meeting, by delivering the
same personally, or by sending the same by telegraph, or by leaving the same at
the Trustee's residence or usual place of business, or, in the alternative, by
mailing such notice three days (or more) before the meeting, postage prepaid,
and addressed to the Trustee at the Trustee's last known business or residence
post office address, according to the records of the Trust. Unless required by
these By-Laws or by resolution of the Board, no notice of any meeting of the
Board need state the business to be transacted thereat. No notice of any
meeting of the Board need be given to any Trustee who attends, or to any
Trustee who in writing executed and filed with the records of the meeting
either before or after the holding thereof, waives such notice. Any meeting of
the Board, regular or special, may adjourn from time to time to reconvene at
the same or some other place, and no notice need be given of any such adjourned
meeting other than by announcement at the adjourned meeting.
Section 2.06. Quorum. At all meetings of the Board, one-third of the
entire Board (but in no event fewer than two Trustees) shall constitute a
quorum for the transaction of business. Except in cases in which it is by
statute, by the Declaration or by these By-Laws otherwise provided, the vote of
a majority of such quorum at a duly constituted meeting shall be sufficient to
elect and pass any measure. In the absence of a quorum, the Trustees present
by majority vote and without notice other than by announcement at the meeting
may adjourn the meeting from time to time until a quorum shall attend. At any
such adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 2.07. Compensation and Expenses. Trustees may, pursuant to
resolution of the Board, be paid fees for their services, which fees may
consist of an annual fee or retainer and/or a fixed fee for attendance at
meetings. In addition, Trustees may in the same manner be reimbursed for
expenses incurred in connection with their attendance at meetings or otherwise
in performing their duties as Trustees. Members of committees may be allowed
like compensation and reimbursement. Nothing herein contained shall preclude
any Trustee from serving the Trust in any other capacity and receiving
compensation therefor.
Section 2.08. Action by Trustees Other than at a Meeting. Any action
required or permitted to be taken at any meeting of the Board, or of any
committee thereof, may be taken without a meeting, if a written consent to such
action is signed by all members of the Board or of such committee, as the case
may be, and such written consent is filed with the minutes of proceedings of
the Board or committee.
Section 2.09. Committees. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee
to consist of two or more of the Trustees. The Board may designate one or more
Trustees as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to
the extent provided in the resolution, shall have and may exercise the powers
of the Board in the management of the business and affairs of the Trust,
provided, however, that in the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute
a quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any such absent or disqualified member. Such committee
or committees shall have such name or names as may be determined from time to
time by resolution adopted by the Board. Each committee shall keep regular
minutes of its meetings and report the same to the Board when required.
Section 2.10. Holding of Meetings by Conference Telephone Call. At any
regular or special meeting of the Board or any committee thereof, members
thereof may participate in such meeting by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting pursuant to this
section shall constitute presence in person at such meeting.
ARTICLE III
OFFICERS
Section 3.01. Executive Officers. The Board of Trustees shall choose a
President and may choose a Chairman of the Board and a Vice Chairman of the
Board from among the Trustees, and shall choose a Secretary and a Treasurer who
need not be Trustees. The Board of Trustees shall designate as principal
executive officer of the Trust either the Chairman of the Board, the Vice
Chairman of the Board, or the President. The Board of Trustees may choose an
Executive Vice President, one or more Senior Vice Presidents, one or more
Vice-Presidents, one or more Assistant Secretaries and one or more Assistant
Treasurers, none of whom need be a Trustee. Any two or more of the
above-mentioned offices, except those of President and a Vice-President, may be
held by the same person, but no officer shall execute, acknowledge or verify
any instrument in more than one capacity if such instrument be required by law,
by the Declaration of Trust, by the By-Laws or by resolution of the Board of
Trustees to be executed by any two or more officers. Each such officer shall
hold office until his successor shall have been duly chosen and qualified, or
until he shall have resigned or shall have been removed. Any vacancy in any of
the above offices may be filled for the unexpired portion of the term of the
Board of Trustees at any regular or special meeting.
Section 3.02. Chairman and Vice Chairman of the Board. The Chairman of
the Board, if one be elected, shall preside at all meetings of the Board of
Trustees and of the shareholders at which he is present. He shall have and may
exercise such powers as are, from time to time, assigned to him by the Board of
Trustees. The Vice Chairman of the Board, if one be elected, shall, when
present and in the absence of the Chairman of the Board, preside at all
meetings of the shareholders and Trustees, and he shall perform such other
duties as may from time to time be assigned to him by the Board of Trustees or
as may be required by law.
Section 3.03. President. In the absence of the Chairman or Vice
Chairman of the Board, the President shall preside at all meetings of the
shareholders and of the Board at which the President is present; and in
general, shall perform all duties incident to the office of a president of a
trust, and such other duties, as from time to time, may be assigned to him by
the Board.
Section 3.04. Vice Presidents. The Vice President or Vice Presidents,
including any Executive or Senior Vice President or Presidents, at the request
of the President or in President's absence or during the President's inability
or refusal to act, shall perform the duties and exercise the functions of the
President, and when so acting shall have the powers of the President. If there
be more than one Vice President, the Board may determine which one or more of
the Vice Presidents shall perform any of such duties or exercise any of such
functions, or if such determination is not made by the Board, the President may
make such determination. The Vice President or Vice Presidents shall have such
other powers and perform such other duties as may be assigned by the Board, the
Chairman of the Board, or the President.
Section 3.05. Secretary and Assistant Secretaries. The Secretary shall:
keep the minutes of the meetings of the shareholders, of the Board and of any
committees, in books provided for the purpose; shall see that all notices are
duly given in accordance with the provisions of these By-Laws or as required by
law; be custodian of the records of the Trust; see that the corporate seal is
affixed to all documents the execution of which, on behalf of the Trust, under
its seal, is duly authorized, and when so affixed may attest the same; and in
general perform all duties incident to the office of a secretary of a trust,
and such other duties as, from time to time, may be assigned to him by the
Board, the Chairman of the Board, or the President.
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board, the President or the Chairman
of the Board, shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as the Board may from time to time prescribe.
Section 3.06. Treasurer and Assistant Treasurers. The Treasurer shall:
have charge of and be responsible for all funds, securities, receipts and
disbursements of the Trust, and shall deposit, or cause to be deposited in the
name of the Trust, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by the
Board in accordance with Section 5.04 of these By-Laws; render to the
President, the Chairman of the Board and to the Board, whenever requested, an
account of the financial condition of the Trust; and in general, perform all
the duties incident to the office of a treasurer of a trust, and such other
duties as may be assigned to him by the Board, the President or the Chairman of
the Board.
The Assistant Treasurer, or if there shall be more than one, the Assistant
Treasurers in the order determined by the Board, the President or the Chairman
of the Board shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform other duties and have such other
powers as the Board may from time to time prescribe.
Section 3.07. Subordinate Officers. The Board may from time to time
appoint such subordinate officers as it may deem desirable. Each such officer
shall hold office for such period and perform such duties as the Board, the
President or the Chairman of the Board may prescribe. The Board may, from time
to time, authorize any committee or officer to appoint and remove subordinate
officers and prescribe the duties thereof.
Section 3.08. Removal. Any officer or agent of the Trust may be removed
by the Board whenever, in its judgment, the best interests of the Trust will be
served thereby, but such removal shall be without prejudice to the contractual
rights, if any, of the person so removed.
ARTICLE IV
SHARES OF BENEFICIAL INTEREST
4.01. Certificates. If the Board authorizes the issuance of certificates
representing the shares of beneficial interest, such certificates shall be
signed by the President, the Chairman of the Board or a Vice President and
countersigned by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, and sealed with the seal of the Trust. The signatures may
be either manual or facsimile signatures and the seal may be either facsimile
or any other form of seal. No certificates shall be issued for fractional
shares. Such certificates shall be in such form, not inconsistent with law or
with the Declaration, as shall be approved by the Board. In case any officer of
the Trust who has signed any certificate ceases to be an officer of the Trust,
whether because of death, resignation or otherwise, before such certificate is
issued, the certificate may nevertheless be issued and delivered by the Trust
as if the officer had not ceased to be such officer as of the date of its
issue. Certificates need not be issued except to shareholders who request such
issuance in writing.
The Board may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the Trust
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such owner's legal representative, to advertise the same in
such manner as it shall require and/or to give the Trust a bond in such sum as
it may direct as indemnity against any claim that may be made against the Trust
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4.02. Record Dates. The Board is hereby empowered to fix, in
advance, a date as the record date for the purpose of determining shareholders
entitled to notice of, or to vote at, any meeting of shareholders, or
shareholders entitled to receive payment of any dividend, capital gains
distribution or the allotment of any rights, or in order to make a
determination of shareholders for any other proper purpose. Such date in any
case shall be not more than sixty days, and in case of a meeting of
shareholders, not less than ten days, prior to the date on which the particular
action, requiring such determination of shareholders, is to be taken.
ARTICLE V
GENERAL PROVISIONS
Section 5.01. Checks. All checks or demands for money and notes of the
Trust shall be signed by such officer or officers or such other person or
persons as the Board may from time to time designate.
Section 5.02. Custodian. All securities and cash of the Trust shall be
placed in the custody of a bank or trust company ("Custodian") having
(according to its last published report) not less than $2,000,000 aggregate
capital, surplus and undivided profits, provided such a Custodian can be found
ready and willing to act (or maintained in such other manner as is consistent
with Section 17(f) of the Investment Company Act of 1940 and the rules and
regulations promulgated thereunder.) The Trust shall enter into a written
contract with the Custodian regarding the powers, duties and compensation of
the Custodian with respect to the cash and securities of the Trust held by the
Board of Trustees of the Trust. The Trust shall upon the resignation or
inability to serve of the Custodian use its best efforts to obtain a successor
custodian; require that the cash and securities owned by the Trust be delivered
directly to the successor custodian; and in the event that no successor
custodian can be found, submit to the shareholders, before permitting delivery
of the cash and securities owned by the Trust to other than a successor
custodian, the question whether or not the Trust shall be liquidated or shall
function without a custodian.
The Trustees may direct the Custodian to deposit all or any part of the
securities owned by the Trust in a system for the central handling of
securities established by a national securities exchange or a national
securities association registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, or such other person as may be
permitted by the Securities and Exchange Commission, or otherwise in accordance
with applicable law, pursuant to which system all securities of any particular
class or series of any issuer deposited within the system are treated as
fungible and may be transferred or pledged by bookkeeping entry without
physical delivery of such securities, provided that all such deposits shall be
subject to withdrawal only upon the order of the Trust.
The Trustees may direct the Custodian to accept written receipts or other
written evidences indicating purchases of securities held in book-entry form in
the Federal Reserve System in accordance with regulations promulgated by the
Board of Governors of the Federal Reserve System and the local Federal Reserve
Banks in lieu of receipt of certificates representing such securities.
Section 5.03. Bonds. The Board may require any officer, agent or
employee of the Trust to give a bond to the Trust, conditioned upon the
faithful discharge of such person's duties, with one or more sureties and in
such amount as may be satisfactory to the Board.
Section 5.04. Inspection of Records. The records of the Trust shall be
open to inspection by shareholders to the same extent as is permitted
shareholders of a Massachusetts business corporation.
Section 5.05. Representation of Shares. Any officer of the Trust is
authorized to vote, represent and exercise of the Trust any and all rights
incident to any shares of any corporation or other business enterprise owned by
the Trust.
Section 5.06. Offices of the Trust. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk. The principal executive office of the
Trust is hereby fixed and located at 333 South Hope Street, Los Angeles,
California 90071. The Trustees are granted full power and authority to change
from time to time the respective locations of said principal executive office.
Any such change shall be noted on the By-Laws opposite this Section, or this
Section may be amended to state the new location. Branch or subordinate
offices may be established at any time by the Trustees at any place or places.
ARTICLE VI
INDEMNIFICATION
The Trust shall provide any indemnification required by applicable law and
shall indemnify directors, officers, agents and employees as follows:
(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 of
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
in or not 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
attorney's 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
in 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,
or (ii) if such a quorum of disinterested Trustees so directs, by independent
legal counsel in a written opinion; and any determination so made shall be
conclusive.
(e) Expenses incurred in defending a civil or criminal action, writ 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 determined 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.
(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 a Trustee or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
(h) Nothing in the Declaration or in these By-Laws shall be deemed to
protect any Trustee or officer 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 Securities and Exchange
Commission. Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition in 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 determined 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.
ARTICLE VII
AMENDMENT OF BY-LAWS
These By-Laws of the Trust may be altered, amended, added to or repealed
by the shareholders or by majority vote of the entire Board.
004132
NUMBER SHARES
(Void)
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
A MASSACHUSETTS BUSINESS TRUST
THE TAX-EXEMPT FUND OF CALIFORNIA
This Certifies that is the owner of
*SEE REVERSE FOR CERTAIN ABBREVIATIONS
CUSIP 026308 10 9
fully paid Shares of Beneficial Interest in The Tax-Exempt Fund of California,
without par value, transferable on the books of the Trust by the holder thereof
in person or by duly authorized attorney upon surrender of this certificate
properly endorsed. This certificate is not valid unless countersigned by the
Transfer Agent.
Witness, the facsimile signatures of its duly authorized officers.
Dated:
/s/ Julie F. Williams /s/ Abner D. Goldstine
Secretary President
COUNTERSIGNED
AMERICAN FUNDS SERVICE COMPANY
TRANSFER AGENT
BY---------------------------
AUTHORIZED SIGNATURE
------------------------------------------------------------------------------
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
CERTIFICATE THE TAX-EXEMPT FUND OF CALIFORNIA
NUMBER SHARES
ACCOUNT NO. ALPHA CODE DEALER NUMBER TRADE DATE
CHANGE NOTICE: IF THE ABOVE INFORMATION IS INCORRECT OR MISSING,
PLEASE PRINT THE CORRECT INFORMATION BELOW AND RETURN TO:
--------------------------------------------------------------
--------------------------------------------------------------
TAXPAYER I.D. NUMBER------------------------------------------
EXPLANATION OF ABBREVIATIONS
* The following abbreviations, when used in the registration on the face of
this certificate, shall have the meanings assigned below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ADM --Administratrix FBO --For the benefit of TTEE --Trustee
--Administrator
COM PROP --Community Property GDN --Guardian U/A --Under Agreement
CUST --Custodian JT TEN --Joint tenants UGMA/ --Gift to minors act in effect in the state
with right of (State) indicated
survivorship
DTD --Dated LIFE TEN --Life tenant UTMA/ --Transfers to minors act in effect in the state
(State) indicated
EST --Estate TR --Trust U/W --Last will and testament
--Of Estate of --Under last will and testament of
--Of will of
--Under the will of
--Of the will of
ET AL --(and) Others TEN COM --Tenants in common
EXEC --Executor TEN ENT --Tenants by the entireties
--Executrix
</TABLE>
Note: Abbreviations refer where appropriate to the singular or plural, male or
female. Other abbreviations may also be used, including U.S. Post Office
Department two-letter state abbreviations.
NOTE: AS STATED IN THE FUND'S ARTICLES OF INCORPORATION, THIS CERTIFICATE
REPRESENTING SHARES OF CAPITAL STOCK OF THE FUND MAY BE REDEEMED WITHOUT THE
CONSENT OR APPROVAL OF THE SHAREHOLDER FOR THE THEN CURRENT NET ASSET VALUE PER
SHARE IF AT SUCH TIME THE SHAREHOLDER OWNS OF RECORD SHARES HAVING AN AGGREGATE
NET ASSET VALUE OF LESS THAN THE MINIMUM INITIAL INVESTMENT AMOUNT.
REQUIREMENTS: The signature(s) on this assignment must correspond exactly with
the name(s) as written upon the face of the certificate in every particular.
Except as described below, in order to redeem shares, 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 prior toobtaining the signature guarantee.
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. However, the fund
reserves the right to require signature guarantee(s) on all redemptions.
For value received, the undersigned hereby sell, assign, and transfer
- --------- shares of capital stock represented by this certificate to:
- ------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
and do hereby irrevocably constitute and appoint -------- attorney to transfer
the said stock on the books of the corporation with full power
of substitution.
Dated: ----------------------
----------------------------------------
Owner
----------------------------------------
Signature of Co-Owner, if any
IMPORTANT: BEFORE SIGNING, PLEASE READ AND COMPLY WITH REQUIREMENTS PRINTED
ABOVE.
Signatures(s) guaranteed by:
INVESTMENT ADVISORY AND SERVICE AGREEMENT
THIS AGREEMENT, dated and effective as of the 1st day of November, 1988,
is made and entered into by and between THE AMERICAN FUNDS TAX-EXEMPT SERIES
II, a Massachusetts business trust (hereinafter called the "Trust"), and
CAPITAL RESEARCH AND MANAGEMENT COMPANY, a Delaware corporation (hereinafter
called the "Adviser"). The parties agree as follows:
1.
The Trust is authorized to issue shares in separate series, with each such
series representing interests in a separate portfolio of securities and other
assets and intends initially to offer shares of a single series designated The
Tax-Exempt Fund of California (the "Fund"). The Fund and all other series
subsequently established by the Trust with respect to which the Adviser has
been appointed to render services hereunder pursuant to this section are
collectively referred to herein as the "Funds."
In the event the Trust establishes one or more series other than the Fund
with respect to which it desires to retain the Adviser to render services
hereunder, it shall notify the Adviser in writing, such writing to specify the
compensation with respect to such services pursuant to section 7 hereof, as
well as any other terms or conditions with respect to such series which shall
differ from those set forth herein. Upon acceptance of such appointment by the
Adviser and approval thereof by the vote of a majority of the outstanding
voting securities (as defined in the Investment Company Act of 1940, as
amended, (the "1940 Act")) of such series and by the Board of Trustees of the
Trust, including a majority of the Trustees who are not parties to this
Agreement nor interested persons (as defined in the 1940 Act) of any such party
(the "non-interested Trustees"), such series shall become a Fund hereunder.
2.
The Trust hereby employs the Adviser to furnish advice to the Trust with
respect to the investment and reinvestment of the assets of the Fund(s). The
Adviser hereby accepts such employment and agrees to render the services and to
assume the obligations to the extent herein set forth, for the compensation
herein provided. The Adviser shall, for all purposes herein, be deemed an
independent contractor and not an agent of the Trust or the Fund(s).
3.
The Adviser agrees to provide supervision of the portfolio of the Fund(s)
and to determine what securities or other property shall be purchased or sold
by the Fund(s), giving due consideration to the policies of the Fund(s) as
expressed in the Trust's Declaration of Trust, Registration Statement under the
1940 Act, Registration Statement under the Securities Act of 1933, as amended
(the "1933 Act"), and prospectus as in use from time to time, as well as to the
factors affecting the Trust's status as a regulated investment company under
the Internal Revenue Code of 1954, as amended.
The Adviser shall provide adequate facilities and qualified personnel for
the placement of orders for the purchase, or other acquisition, and sale, or
other disposition, of portfolio securities for the Fund(s). With respect to
such transactions, the Adviser may place orders with broker-dealer firms which
have sold shares of the Fund(s) or of other mutual funds or insurance contracts
for which American Funds Distributors, Inc. serves as underwriter or which
furnish statistical and other information to the Adviser. Neither receipt by
the Adviser of any such statistical and other information or services, nor any
consideration given to sales of shares of the Fund(s) or such other mutual
funds or insurance contracts in selecting broker-dealer firms, shall be deemed
to give rise to any requirement for abatement of the advisory fee payable
pursuant to section 7 hereof.
4.
The Adviser shall (a) furnish to the Trust the services of qualified
personnel (i) to manage the investments of the Fund(s), (ii) to perform the
executive and related administrative functions of the Trust, and (iii) if
desired by the Trust, to serve as Trustees of the Trust, in all cases without
additional compensation of such persons by the Trust; (b) pay the expenses of
all persons whose services are to be furnished by the Adviser under this
section; (c) provide necessary office space, furniture, small office equipment,
and telephone facilities and utilities, all of which may be the same as are
occupied or used by the Adviser relating to the services to be furnished by the
Adviser under this section and sections 2 and 3 hereof; and (d) provide general
purpose forms, supplies, stationery and postage used at the offices of the
Trust relating to the services to be furnished by the Adviser under this
section and sections 2 and 3 hereof.
5.
Except to the extent expressly assumed by the Adviser herein, and subject
to the expense reimbursement fee agreement described in section 8 below or the
expense limitation described in section 9 below, the Trust shall pay all costs
and expenses in connection with its operations. Without limiting the
generality of the foregoing, such costs and expenses shall include the
following: 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 of
Trustees who are not interested persons of the Trust; association dues; and
costs of stationery, forms and certificates prepared exclusively for the Trust.
6.
The Adviser agrees to pay the expenses incurred in connection with the
organization of the Trust, its qualification to do business as a foreign
corporation in the State of California, and its registration as an investment
company under the 1940 Act, and all fees and expenses including fees of legal
counsel to the Trust which would otherwise be required to be paid by the Trust
pursuant to section 5 and which are incurred by the Trust prior to the initial
effective date of its Registration Statements under the 1933 Act and the 1940
Act except for the costs of any share certificates and transfer agent fees and
costs.
7.
The Trust shall pay to the Adviser on or before the tenth (10th) day of
each month, as compensation for the services rendered by the Adviser during the
preceding month, the sum of the following amounts:
(a) 0.3% per annum of the Fund's average daily net assets during the
month ("Net Asset Portion"); plus
(b) 0.21% per annum on the portion of such net assets in excess of $60
million; plus
(c) 3% of the Fund's gross investment income for the preceding month
("Investment Income Portion").
The Net Asset Portion shall be accrued daily at 1/365th of the applicable
annual rate set forth above. The net assets of the Fund shall be determined in
the manner and on the dates set forth in the prospectus of the Trust and, on
days on which the net assets are not determined, shall be as of the last
preceding day on which the net assets shall have been determined.
The Investment Income Portion shall be accrued daily and "gross investment
income" for this purpose shall include accrual of discount as defined for
Federal income tax purposes but shall not include net gains from the sale of
securities.
Upon any termination of this Agreement on a day other than the last day of
the month, the fee for the period from the beginning of the month in which
termination occurs to the date of termination shall be prorated according to
the proportion which such period bears to the full month.
8.
The Adviser agrees to pay the expenses of the Fund referred to in section
5 above (with the exclusion of interest, taxes, brokerage costs and
extraordinary expenses such as litigation and acquisitions) for a period ending
not later than October 17, 1996, all subject to reimbursement by the Fund. To
accomplish such reimbursement, the Fund shall pay the Adviser an expense
reimbursement fee which on an annual basis is equivalent to the difference
between the fees of the Adviser described in section 7 above and 1% of the
average daily net assets of the Fund. The expense reimbursement fees are for
reimbursement of actual expenses incurred by or on behalf of the Fund and have
the effect of assuring that the total normal operating of the Fund during the
expense reimbursement period will not exceed 1%. Such expense reimbursement
fee agreement will terminate either (1) when all of such reimbursable expenses
of the Trust which have been paid by the Adviser pursuant thereto have been
reimbursed by the Trust, or (2) on October 17, 1996, whichever is earlier.
9.
The fee payable pursuant to section 7 with respect to the Fund will be
reduced by the amount that the Fund's annual ordinary net operating expenses
for any fiscal year exceed the most restrictive applicable expense limitation
(if any) in those states in which the Fund's shares currently are being offered
for sale. Expenses which are not subject to this limitation include, interest,
taxes, distribution expenses, extraordinary items such as litigation and, with
respect to state expense limitation provisions, any items excludable under such
provisions. 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.
10.
Nothing contained in this Agreement shall be construed to prohibit the
Adviser from performing investment advisory, management, or distribution
services for other investment companies and other persons or companies nor to
prohibit affiliates of the Adviser from engaging in such businesses or in other
related or unrelated businesses.
11.
The Adviser shall have no liability to the Trust, or its shareholders or
creditors, for any error of judgment, mistake of law, or for any loss arising
out of any investment, or for any other act or omission in the performance of
its obligations to the Trust not involving willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations and duties hereunder.
12.
This Agreement shall continue in effect until the close of business on
October 16, 1988. It may thereafter be renewed from year to year with respect
to each Fund by mutual consent, provided that such renewal shall be
specifically approved at least annually (i) by the Trustees of the Trust, or by
the vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of each Fund with respect to which renewal is to be effected, and
(ii) by a majority of the non-interested Trustees by vote cast in person at a
meeting called for the purpose of voting on such renewal. Any approval of this
Agreement or the renewal thereof with respect to a Fund by the vote of a
majority of the outstanding voting securities of that Fund, by the Trustees of
the Trust or by a majority of the non-interested Trustees, shall be effective
to continue this Agreement with respect to that Fund notwithstanding (A) that
this Agreement or the renewal thereof has not been so approved as to any other
Fund or (B) that this Agreement or the renewal thereof has not been approved by
the vote of a majority of the outstanding voting securities of the Trust as a
whole.
13.
The obligations of the Trust under this Agreement are not binding upon any
of the Trustees, officers, agents or shareholders of the Trust individually,
but bind only the Trust estate. The Adviser agrees to look solely to the
assets of the Trust or each Fund for the satisfaction of any liability in
respect of the Trust or such Fund under this Agreement and will not seek
recourse against such Trustees, officers, agents or shareholders, or any of
them, or any of their personal assets for such satisfaction.
14.
It is understood that the name "American Funds" or any derivative thereof
or logo associated with that name is the valuable property of the Adviser and
its affiliates, and that the Trust and/or the Fund(s) have the right to use
such name (or derivative or logo) only so long as this Agreement shall continue
with respect to the Trust and/or each such Fund. Upon termination of this
Agreement with respect to the Trust or any Fund, the Trust and each such Fund
shall forthwith cease to use such name (or derivative or logo) and, in the case
of the Trust, shall promptly amend its Declaration of Trust to change its name.
15.
This Agreement may be terminated at any time as to a Fund or the Trust),
without payment of any penalty, by the Trustees or by the vote of a majority of
the outstanding voting securities (as defined in the 1940 Act) of such Fund (or
the Trust), on 60 days' written notice to the Adviser, or by the Adviser on
like notice to the Trust. This Agreement shall automatically terminate in the
event of its assignment (as defined in the 1940 Act).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate originals by their officers thereunto duly authorized as
of the day and year first above written.
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
By /s/ Abner D. Goldstine
Abner D. Goldstine, President
By /s/ Julie F. Williams
Julie F. Williams, Secretary
CAPITAL RESEARCH AND MANAGEMENT COMPANY
By /s/ James W. Ratzlaff
James W. Ratzlaff, President
By /s/ Thomas E. Terry
Thomas E. Terry, Vice President
and Secretary
PRINCIPAL UNDERWRITING AGREEMENT
THIS PRINCIPAL UNDERWRITING AGREEMENT, between THE AMERICAN FUNDS
TAX-EXEMPT SERIES II, a Massachusetts business trust (the "Trust"), and
AMERICAN FUNDS DISTRIBUTORS, INC., a California corporation ("AFD").
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end investment company which initially
offers shares of beneficial interest of a single series, The Tax-Exempt Fund of
California (the "Fund"), and may offer shares of additional series in the
future, and it is a part of the business of the Trust, and affirmatively in the
interest of the Trust, to offer shares of the Fund and shares of future series
for sale, either continuously, or from time to time by means of such
arrangements as are determined by its Trustees to be appropriate; and
WHEREAS, AFD is engaged in the business of promoting the distribution of
shares of investment companies through securities dealers; and
WHEREAS, the Trust and AFD wish to enter into an agreement with each other
to promote the distribution of the shares of the Fund and of all series which
may be established in the future;
NOW, THEREFORE, the parties agree as follows:
1. (a) AFD shall be the exclusive principal underwriter for the sale of
the shares of the Fund and of each series of the Trust which may be established
in the future, except as otherwise provided pursuant to the following
subsection (b). The terms "shares of Trust" or "shares" as used herein shall
mean shares of beneficial interest of the Fund and each series which may be
established in the future and become covered by this Agreement in accordance
with Section 22.
(b) The Trust may, upon 60 days' written notice to AFD, from time to
time designate other principal underwriters of its shares with respect to areas
other than the North American continent, Hawaii, Puerto Rico, and such
countries or other jurisdictions as to which the Trust may have expressly
waived in writing its right to make such designation. In the event of such
designation, the right of AFD under this Agreement to sell shares in the areas
so designated shall terminate, but this Agreement shall remain otherwise in
full force and effect until terminated in accordance with the other provisions
hereof.
2. In the sale of shares of the Trust, AFD shall act as agent of the
Trust except in any transaction in which AFD sells such shares as a dealer to
the public, in which event AFD shall act as principal for its own account.
3. The Trust shall sell shares only through AFD, except that the Trust
may, to the extent permitted by the 1940 Act and the rules and regulations
promulgated thereunder or pursuant thereto, at any time:
(a) issue shares to any corporation, association, trust, partnership or
other organization, or its, or their, security holders, beneficiaries or
members, in connection with a merger, consolidation or reorganization to which
the Trust is a party, or in connection with the acquisition of all or
substantially all the property and assets of such corporation, association,
trust, partnership or other organization;
(b) issue shares at net asset value to the holders of shares of capital
stock or beneficial interest of other investment companies served as investment
adviser by any affiliated company or companies of The Capital Group, Inc., to
the extent of all or any portion of amounts received by such shareholders upon
redemption or repurchase of their shares by the issuing corporation;
(c) issue shares at net asset value to its shareholders in connection
with the reinvestment of dividends paid and other distributions made by the
Trust;
(d) issue shares at net asset value to trustees and officers of the
Trust, its Investment Adviser, any principal underwriter of the Trust, and
their affiliates, including any trust, pension, profit sharing or other benefit
plan established for such persons, and to other persons as permitted by
applicable rules adopted by the Securities and Exchange Commission (the
"Commission") under the 1940 Act, as in effect from time to time or pursuant to
any exemptive order received by the Trust from the Commission pursuant to
Section 6(c) of the 1940 Act;
(e) issue shares at net asset value to the sponsor organization,
custodian, or depositary of a periodic or single payment plan, or similar plan
for the purchase of shares of the Trust, purchasing for such plan;
(f) issue shares in the course of any other transaction specifically
provided for in the Prospectus of the Trust (as defined in Section 5 hereof) or
upon obtaining the written consent of AFD thereto; and
(g) sell shares outside of the North American continent, Hawaii and
Puerto Rico through such other principal underwriter or principal underwriters
as may be designated from time to time by the Trust, pursuant to Section 1
hereof.
4. AFD shall devote its best efforts to the sale of shares of the Trust
and shares of any other mutual funds served as investment adviser by affiliated
companies of The Capital Group, Inc., and insurance contracts funded by shares
of such mutual funds, for which AFD has been authorized to act as a principal
underwriter for the sale of shares. AFD shall maintain a sales organization
suited to the sale of shares of the Trust and shall use its best efforts to
effect such sales in countries as to which the Trust shall have expressly
waived in writing its right to designate another principal underwriter pursuant
to subsection 1(b) hereof, and shall effect and maintain appropriate
qualification to do so in all those jurisdictions in which it sells or offers
shares for sale and in which qualification is required.
5. Within the United States of America, all dealers to whom AFD shall
offer and sell shares must be duly licensed and qualified to sell shares of the
Fund. Shares sold to dealers shall be for resale by such dealers only at the
public offering price set forth in the effective prospectus which is part of
the Trust's Registration Statement in effect under the Securities Act of 1933,
as amended, for each series issued by the Trust at the time of such offer or
sale (herein the "Prospectus"). AFD shall not, without the consent of the
Trust, sell or offer for sale any shares of a series issued by the Trust other
than pursuant to this Agreement.
6. In its sales to dealers, it shall be the responsibility of AFD to
insure that such dealers are appropriately qualified to transact business in
the shares under applicable laws, rules and regulations promulgated by such
national, state, local or other governmental or quasi-governmental authorities
as may in a particular instance have jurisdiction.
7. The applicable public offering price of shares shall be the price
which is equal to the net asset value per share plus such sales charge as may
be provided for in the Prospectus. Net asset value per share shall be
determined by the Trust in the manner and at the time or times set forth in and
subject to the provisions of the Prospectus of the Trust.
8. All orders for shares received by AFD shall, unless rejected by AFD or
the Trust, be accepted by AFD immediately upon receipt and confirmed at an
offering price determined in accordance with the provisions of the Prospectus
and the 1940 Act, and applicable rules in effect thereunder. AFD shall not
hold orders subject to acceptance nor otherwise delay their execution. The
provisions of this Section shall not be construed to restrict the right of the
Trust to withhold shares from sale under Section 16 hereof.
9. The Trust or its transfer agent shall be promptly advised of all
orders received, and shall cause shares to be issued upon payment therefor in
New York or Los Angeles Clearing House Funds.
10. AFD shall adopt and follow procedures as approved by the officers of
the Trust for the confirmation of sales to dealers, the collection of amounts
payable by dealers on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
Commission or the National Association of Securities Dealers ("NASD"), as such
requirements may from time to time exist.
11. The compensation for the services of AFD as a principal underwriter
under this Agreement shall be (i) that part of the sales charge which is
retained by AFD after allowance of discounts to dealers as set forth in the
effective prospectus which is part of the Trust's Registration Statement in
effect under the Securities Act of 1933, as amended, and (ii) amounts payable
to AFD as reimbursement of distribution expenses pursuant to the Trust's Plan
of Distribution under Rule 12b-1 under the 1940 Act, payable in arrears as of
the 10th day following each month-end.
12. The Trust agrees to use its best efforts to maintain its registration
as a diversified open-end management investment company under the 1940 Act.
13. The Trust agrees to use its best efforts to maintain an effective
Prospectus under the Securities Act of 1933, as amended, and warrants that such
Prospectus will contain all statements required by and will conform with the
requirements of such Securities Act of 1933 and the rules and regulations
thereunder, and that no part of any such Prospectus, at the time the
Registration Statement of which it is a part becomes effective, will contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein not
misleading. AFD agrees and warrants that it will not in the sale of shares use
any Prospectus, advertising or sales literature not approved by the Trust or
its officers nor make any untrue statement of a material fact nor omit the
stating of a material fact necessary in order to make the statements made, in
the light of the circumstances under which they are made, not misleading. AFD
agrees to indemnify and hold the Trust harmless from any and all loss, expense,
damage and liability resulting from a breach of the agreements and warranties
in this Section contained, or from the use of any sales literature,
information, statistics or other aid or device employed in connection with the
sale of shares.
14. The expense of each printing of each Prospectus and each revision
thereof or addition thereto deemed necessary by the Trust's officers to meet
the requirements of applicable laws shall be divided between the Trust, AFD and
any other principal underwriter of the shares of the Trust as follows:
(a) the Trust shall pay the typesetting and make-ready charges;
(b) the printing charges shall be prorated between the Trust, AFD, and
any other principal underwriter(s) in accordance with the number of copies each
receives; and
(c) expenses incurred in connection with the foregoing, other than to
meet the requirements of the Securities Act of 1933, as amended, or other
applicable laws, shall be borne by AFD, except in the event such incremental
expenses are incurred at the request of any other principal underwriter(s) in
which case such incremental expenses shall be borne by the principal
underwriter(s) making the request.
15. The Trust agrees to use its best efforts to qualify and maintain the
qualification of an appropriate number of the shares of each series it offers
for sale under the securities laws of such states as AFD and the Trust may
approve. Any such qualification for any series may be withheld, terminated or
withdrawn by the Trust at any time in its discretion. The expense of
qualification and maintenance of qualification shall be borne by the Trust, but
AFD shall furnish such information and other material relating to its affairs
and activities as may be required by the Trust or its counsel in connection
with such qualifications.
16. The Trust may withhold shares of any series from sale in any
jurisdiction temporarily or permanently if, in the opinion of its counsel, such
offer or sale would be contrary to law or if the Trustees or the President or
any Vice President of the Trust determines that such offer or sale is not in
the best interest of the Trust. The Trust will give prompt notice to AFD of
any withholding and will indemnify it against any loss suffered by AFD as a
result of such withholding by reason of nondelivery of shares of any series
after a good faith confirmation by AFD of sales thereof prior to receipt of
notice of such withholding.
17. (a) This Agreement may be terminated at any time, without payment of
any penalty, as to the Trust or any series on sixty (60) days' written notice
by AFD to the Trust.
(b) This Agreement may be terminated as to the Trust or any series by
either party upon five (5) days' written notice to the other party in the event
that the Securities and Exchange Commission has issued an order or obtained an
injunction or other court order suspending effectiveness of the Registration
Statement covering the shares of the Trust or such series.
(c) This Agreement may be terminated as to any series upon five (5)
days' written notice to AFD provided either of the following events has
occurred:
(i) The NASD has expelled AFD or suspended its membership in that
organization;
(ii) the qualification, registration, license or right of AFD to
sell shares of any series in a particular state has been suspended or cancelled
by the State of California or any other state in which sales of the shares of
the Trust or such series during the most recent 12-month period exceeded 10% of
all shares of such series sold by AFD during such period.
(d) This Agreement may be terminated as to the Trust or any series at
any time on sixty (60) days' written notice to AFD without the payment of any
penalty, by vote of a majority of the members of the Board of Trustees of the
Trust who are not interested persons of the Trust and have no direct or
indirect financial interest in the operation of the Distribution Plan or this
Agreement or any other agreements related to the Distribution Plan (the
"Qualified Trustees") or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Trust or such series.
AFD shall inform the Trust promptly of the institution of any proceedings
against it by the Commission, the NASD, or any state regulatory authority.
18. This Agreement shall not be assignable by either party hereto and in
the event of assignment shall automatically terminate forthwith. The term
"assignment" shall have the meaning set forth in the 1940 Act.
19. No provision of this Agreement shall protect or purport to protect
AFD against any liability to the Fund or holders of its shares for which AFD
would otherwise be liable by reason of willful misfeasance, bad faith, or gross
negligence.
20. The obligations of the Trust under this Agreement are not binding
upon any of the Trustees, officers, agents or shareholders of the Fund, or any
other series, individually, but bind only the Trust Estate. AFD agrees to look
solely to the assets of the Trust for the satisfaction of any liability of the
Trust in respect of this Agreement and will not seek recourse against such
Trustees, officers, agents or shareholders or any of them, or any of their
personal assets for such satisfaction.
21. This Agreement becomes effective on June 1, 1989. Unless sooner
terminated in accordance with the other provisions hereof, this Agreement shall
continue in effect until May 31, 1990, and shall continue in effect from year
to year thereafter but only so long as such continuance is specifically
approved at least annually by votes of the majority of both (a) the Board of
Trustees of the Trust and (b) the Qualified Trustees, cast in person at a
meeting called for the purpose of voting on this Agreement.
22. This Agreement shall take effect with respect to each series of the
Trust which may be established in the future at such time as it has been
approved as to such series by vote of the Board of Trustees and the Qualified
Trustees in accordance with Section 21. The Agreement as approved with respect
to any series shall specify the compensation payable to AFD pursuant to Section
11, as well as any provisions which may differ from those herein with respect
to such series, subject to approval in writing by AFD.
This Agreement may be approved, amended, continued or renewed with respect
to a series as provided herein notwithstanding such approval, amendment,
continuance or renewal has not been effected with respect to any one or more
other series of the Trust.
This Agreement shall be construed under and shall be governed by the laws
of the State of California, and the parties hereto agree that proper venue of
any action with respect hereto shall be Los Angeles County, California.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in duplicate original by their officers thereunto duly authorized, as
of June 1, 1989.
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
By /s/ Abner D. Goldstine
Abner D. Goldstine, President
By /s/ Julie F. Williams
Julie F. Williams, Secretary
AMERICAN FUNDS DISTRIBUTORS, INC.
By /s/ E. Graham Holloway
E. Graham Holloway, Chairman
By /s/ James R. Zukor
James R. Zukor, Secretary
This Agreement shall be construed under and shall be governed by the laws
of the State of California, and the parties hereto agree that proper venue of
any action with respect hereto shall be Los Angeles County, California.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in duplicate original by their officers thereunto duly authorized, as
of June 1, 1989.
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
By
Abner D. Goldstine, President
By
Julie F. Williams, Secretary
AMERICAN FUNDS DISTRIBUTORS, INC.
By
E. Graham Holloway, Chairman
By
James R. Zukor, Secretary
American Funds Distributors(sm)
American Funds Distributors
333 South Hope Street
Los Angeles, California 90071
Telephone 800/421-9900; ext. 11
SELLING GROUP AGREEMENT
Gentlemen:
We have entered into principal underwriting agreements with each of the Funds
in The American Funds Group (hereafter called the "Companies") under which we
are appointed exclusive agent for the respective Companies for the sale of
their shares. As such agent we offer to sell to you as a member of a Selling
Group, shares of such of the Companies as are qualified for sale in your state,
on the terms set forth below. We are acting as an underwriter within the
meaning of Article 111, Section 26 of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
You are to offer and sell shares only at the regular public price currently
determined by the respective Companies in the manner described in their
offering Prospectuses. This Agreement on your part runs to us and to the
respective Companies and is for the benefit of and enforceable by each. The
offering Prospectuses and this Agreement set forth the terms applicable to
members of the Selling Group and all other representations or documents are
subordinate.
2. On sales of shares of Companies listed in Category I on the attached
Schedule A you will be paid dealer commissions as follows:
<TABLE>
<CAPTION>
SALES DEALER SALES
COMMISSION CHARGE
AS PERCENTAGE OF AS PERCENTAGE OF
THE OFFERING PRICE THE OFFERING PRICE
<S> <C> <C>
Less than $50,000 5.00% 5.75%
$50,000 but less than 3.75% 4.50%
$100,000
$100,000 but less than $250,000 2.75% 3.50%
$250,000 but less than $500,000 2.00% 2.50%
$500,000 but less than S1,000,000 1.60% 2.00%
$1,000,000 or more see below none
</TABLE>
If you initiate and are responsible for sales of shares a) amounting to $1
million or more or b) made at net asset value to retirement plans of
organizations with collective retirement plan assets of $100 million or more,
you will be paid a dealer commission of 1.00% on sales to $2 million, plus
0.80% on amounts over $2 million up to $3 million, plus 0.50% on amounts over
$3 million up to $50 million, plus 0.25% on amounts over $50 million up to $100
million, plus 0. 15% on amounts over $100 million. For each account of a
shareholder of the respective Companies (and accounts related by the fight of
accumulation), only such net asset value sales made over a 12 month period
(commencing from the date of the first such sale) will be considered for
purposes of determinin the level of dealer commissions to be paid during that
period with respect to such account(s). No dealer commissions are paid on any
other sales of shares at net asset value, except that commissions may be paid
to dealers on their sales of fund shares to accounts managed by affiliates of
The Capital Group, Inc. as set forth in this Agreement. Sales of shares of
Washington Mutual Investors Fund below $1 million made in connection with
certain accounts established prior to September 1, 1969 are subject to reduced
dealer commissions and sales charges as described in the Washington Mutual
Investors Fund Prospectus.
The schedule of sales charges above applies to single purchases, concurrent
purchases of two or more of the Companies (except those listed in Category 3 on
the attached Schedule A). and purchases made under a statement of intention and
pursuant to the right of accumulation. both of which are described in the
Prospectuses.
3. On sales of shares of Companies listed in Category 2 on the attached
Schedule A you will be paid the same dealer commissions indicated in paragraph
2 above except as follows:
<TABLE>
<CAPTION>
SALES DEALER SALES
COMMISSION CHARGE
AT PERCENTAGE OF AT PERCENTAGE OF
THE OFFERING PRICE THE OFFERING PRICE
<S> <C> <C>
Less than $25,000 4.00% 4.75%
$25,000 but less than $50,000 3.75% 4.50%
$50,000 but less than $100,000 3.25% 4.00%
</TABLE>
With respect to sales of shares of any tax-exempt fund, the commission schedule
for sales of shares to retirement plans of organizations with assets of $100
million or more is inapplicable.
4. On sales of shares of Companies listed in Category 3 on the attached
Schedule A no dealer commissions
will be paid.
5. We are also authorized to pay you continuing service fees with respect to
the shares of all the Companies to promote selling efforts and to compensate
you for providing certain services for your clients such as processing purchase
and redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the Companies, provided you
meet certain service-related criteria and have executed a "Supplemental Selling
Group Agreement" available from us upon request.
6. Any order by you for the purchase of shares of the respective Companies
through us shall be accepted at the time when it is received by us (or any
clearinghouse agency that we may designate from time to time), and at the
offering and sale price next determined, unless rejected by us or the
respective Companies. In addition to the right to reject any order, the
Companies have reserved the right to withhold shares from sale temporarily or
permanently. We will not accept any order from you which is placed on a
conditional basis or subject to any delay or contingency prior to execution.
The procedure relating to the handling of orders shall be subject to
instructions which we shall forward from time to time to all members of the
Selling Group. The shares purchased will be issued by the respective Companies
only against receipt of the purchase price, in collected New York or Los
Angeles Clearging House funds subject to deduction of all commissions on such
sale (reallowance of any commissions to which you are entitled on purchases at
net asset value will be paid through our direct purchase commission system).
If payment for the shares purchased is not received within seven days after the
date of confirmation the sale may be canceled forthwith, by us or by the
respective Companies, without any responsibility or liability on our part or on
the part of the Companies, and we and/or the respective Companies may hold you
responsible for any loss, expense, liability or damage, including loss of
profit suffered by us and/or the respective Companies resulting from your delay
or failure to make payment as aforesaid.
7. You are obliged to date and time stamp all orders received by you and
promptly to transmit all orders to us in time to provide for processing at the
price next determined after receipt by you, in accordance with the
Prospectuses. You are not to withhold placing with us orders received from any
customers for the purchase of shares so as to profit yourself as a result of
such withholding. You shall not purchase shares through us except for the
purpose of covering purchase orders already received by you, or for your bona
fide investment.
8. If any share is repurchased by any of the respective Companies or is
tendered thereto for redemption within seven business days after confirmation
by us of the original purchase order from you for such security you shall
forthwith refund to us the full commissions paid to vou on the original sale.
9. You shall not, if acting as principal, purchase any share of any of the
respective Companies from a record holder at a price lower than the net asset
value next determined by or for the respective Companies' shares. You shall,
however. be permitted to sell any shares for the account of a shareholder of
the respective
Companies at the net asset value currently quoted by or for the respective
Companies' shares, and may charge a fair service fee for handling the
transaction provided you disclose the fee to the record owner.
10. We shall furnish you without charge reasonable quantities of offering
Prospectuses, with any supplements currently in effect, and copies of current
shareholder reports of the respective Companies, and sales materials issued by
us from time to time. In the purchase of shares through us, you are entitled
to rely only on the information contained in the offering Prospectus(es). You
may not publish any advertisement or distribute sales literature or other
written material to the public which makes reference to us or any of the
Companies (except material which we furnished to you) without our prior written
approval.
11. This Agreement is in all respects subject to statements regarding the sale
and repurchase or redemption of shares made in the offering Prospectuses of the
respective Companies, and to the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., which shall control and override any
provision to the contrary in this Agreement.
12. You shall make available shares of the respective Companies only through
us. In no transaction (whether of purchase or sale) shall you have any
authority to act as agent for, partner of, or participant in a joint venture
with us or with the respective Companies or any other entity having, either a
Selling Group Agreement or other Agreement with us.
13. We act solely as agent for the Companies, and are not responsible for
qualifying the Companies or their shares for sale IN any jurisdiction. Upon
written request we will provide you with a list of the jurisdictions in which
the respective Companies or their shares are qualified for sale. We also are
not responsible for the issuance, form, validity, enforceability or value of
shares of the Companies.
14. You represent that you are a properly registered or licensed broker or
dealer under applicable federal and state securities laws and regulations and a
member in good standing of the National Association of Securities Dealers,
Inc., and agree to notify us immediately if you cease to be so registered or
licensed or a member in good standing of that Association. (The provisions of
the preceding sentence do not apply to a broker or dealer located in a foreign
country and doing business outside the jurisdiction of the United States.)
15. Either of us may cancel this Agreement at any time by written notice to the
other.
16. All communications to us should be sent to the above address. Any notice
to you shall be duly given if
mailed or telegraphed to you at the address specified by you below.
Execute this Agreement in duplicate and return one of the duplicate originals
to us for our file. This Agreement (I) may be amended by notification from us
and orders received following such notification shall be deemed to be an
acceptance of any such amendment and (ii) shall be construed in accordance with
the laws of the State of California.
Accepted: Very truly yours,
- ----------------
Firm AMERICAN FUNDS DISTRIBUTORS, INC.
By------------- By /s/ Mark Freeman
Officer or Partner
--------------
Print Name of Officer or Partner
Address:-----
Date:--------
(06/96)
SCHEDULE A
SEPTEMBER 26, 1994
(SUPERSEDES SCHEDULE A DATED
OCTOBER 5, 1993)
CATEGORY 1
AMCAP Fund
American Balanced Fund
American Mutual Fund
Capital Income Builder
Capital World Growth and Income Fund
EuroPacific Growth Fund
Fundamental Investors
Growth Fund of America
Income Fund of America
Investment Company of America
New Economy Fund
New Perspective Fund
SMALLCAP World Fund
Washington Mutual Investors Fund
CATEGORY 2
American High-Income Trust
American High-Income Municipal Bond Fund
Bond Fund of America
Capital World Bond Fund
Intermediate Bond Fund of America
Limited Term Tax-Exempt Bond Fund of America
Tax-Exempt Bond Fund of America
Tax-Exempt Fund of California
Tax-Exempt Fund of Maryland
Tax-Eempt Fund of Virginia
U.S. Government Securities Fund
CATEGORY 3
Cash Management Trust of America
Tax-Exempt Money Fund of America
U.S. Treasury Money Fund of America
American Funds Distributors(sm)
American Funds Distributors
333 South Hope Street
Los Angeles, California 90071
Telephone 800/421-9900; ext. 11
HOLD HARMLESS AGREEMENT
WHEREAS, (the "Employer") is eligible to establish a 403(b) custodial account
for its employees pursuant to Section 403(b)(7)(A) of the Internal Revenue Code
("Code"); and
WHEREAS, Section 403(b)(7) of the Code provides that amounts paid by an
eligible employer to a custodial account which satisfies the requirements of
Section 401(f)(2) of the Code shall be treated as amounts contributed by the
Employer for an annuity contract (as described in Section 403(b) of the Code)
for the employee if the amounts are to be paid to provide a retirement benefit
for that employee and are to be invested in shares of regulated investment
companies to be held in that custodial account; and
WHEREAS, the Employer desires to make available to its employees custodial
accounts eligible to comply with Section 403(b)(7) of the Code; and
WHEREAS, the Employer is willing to permit its employees to select AMCAP Fund,
Inc., American Balanced 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., Inter-mediate Bond Fund of America, The Investment Company of America,
The New Economy Fund, New Perspective Fund, Inc., SMALLCAP World Fund, Inc.,
U.S. Government Securities Fund, The U.S. Treasury Money Fund of America, and
Washington Mutual Investors Fund, Inc., each of which is a regulated investment
company advised by Capital Research and Management Company ("Investment
Companies"); and
WHEREAS, American Funds Distributors, Inc. is the principal underwriter for
each of the Investment Companies; and
WHEREAS, the Investment Companies are regulated investment companies within the
meaning of Sections 403(b)(7)(C) and 851(a) of the Code; and
WHEREAS, the Investment Companies are described as regulated investment
companies in their current Prospectuses declared effective under the Securities
Act of 1933; and
WHEREAS, the Investment Companies are authorized for sale in all 50 states; and
WHEREAS, Capital Guardian Trust Company, a bank, shall be the custodian, within
the meaning of Section 401(f)(2), of the custodial accounts; and
WHEREAS, the Investment Companies are offered to the public by independent
broker-dealers;
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. The Investment Companies are eligible investments for 403(b) custodial
accounts.
2. If any of such Investment Companies should no ton,,er be a regulated
investment company, or permitted to be offered for sale under the securities
laws of the United States or any state, American Funds Distributors, Inc. will
inform the Employer and such Investment Companies will immediately cease
accepting investments from the employees.
3. American Funds Distributors, Inc. shall comply with all pertinent written
directives regarding the solicitation of employees and the purchase of
investment company shares.
4. Capital Research and Management Company, the Investment Companies and
American Funds Distributors, Inc. are not and shall not be regarded as the
agent or employee of the Employer, of the Board of Education of the Employer,
or any Board member individually, or of any officer, agent or employee of any
of the foregoing, or of any legal successor of any of the foregoing, or of any
combination thereof.
Neither the Employer, the Board, any Board members individually, the officers,
agents and employees of any of the foregoing, the legal successors of any of
the foregoing, nor any combination thereof are or shall be regarded as the
agents or employees of Capital Research and Management Company, the Investment
Companies or American Funds Distributors, Inc.
5. Payments for the purchase of shares of the Investment Companies shall be
sent to Capital Guardian Trust Company, at the address indicated on the 403(b)
account application or to such other address as may be designated in writing to
the Employer.
6. Any notice to the Employer shall be in duplicate and sent to:
- -------------------------------------------------------------
- -------------------------------------------------------------
Notices to the Investment Companies or American Funds Distributors, Inc. shall
be sent to 135 South State College Boulevard, Brea, CA 92621, Attention: Dealer
Support Department.
7. American Funds Distributors, Inc. or any Investment Company reserves the
right upon 30 days' written notice to the Employer, to discontinue making such
shares available for purchase by the Employer or the employees of the Employer.
Such termination shall in no manner affect any rights of the Employer incurred
prior to such termination.
8. The Employer reserves the right upon 30 days' written notice to American
Funds Distributors, Inc. or any Investment Company, to terminate this agreement
or any other agreement in which this agreement might be or is incorporated, but
such termination shall in no manner affect any rights of the Employer incurred
prior to such termination.
9. No alteration or variation of the terms of this agreement shall be valid
unless made in writing and signed by the
parties hereto.
10. American Funds Distributors, Inc. hereby agrees to hold Employer harmless
for any loss sustained by Employer
by virtue of the breach of this agreement by American Funds Distributors, Inc.
11. This agreement supersedes and replaces any and all such agreements
heretofore executed by the parties.
AMERICAN FUNDS DISTRIBUTORS, INC.
Print Name of Employer
By /s/ Mark F. Freeman
By
Title
Date
[American Funds Distributors(SM) logo]
American Funds Distributors
- ------------------------------------------------------------------------------
- --------------------------------------
333 South Hope Street - Los Angeles, California 90071
Telephone 800/421-9900, ext. 11
BANK SELLING GROUP AGREEMENT
Gentlemen:
We have entered into principal underwriting agreements with each of the Funds
in The American Funds Group (hereafter called the "Companies") under which we
are appointed exclusive agent for the respective Companies for the sale of
their shares. You have indicated that you wish to act as agent for your
customers in connection with the purchase, sale and redemption of shares of
such Companies as are qualified for sale in your state. We agree to honor your
request, subject to the terms set forth below.
1. In placing orders for the purchase and sale of shares of the Companies,
you will be acting as agent for your customers. We shall execute transactions
for each of your customers only upon your authorization, at the regular public
price currently determined by the respective Companies in the manner described
in their offering Prospectuses. This Agreement on your part runs to us and to
the respective Companies and is for the benefit of and enforceable by each.
The offering Prospectuses and this Agreement set forth the terms applicable to
sales of shares of the Companies through you and all other representations or
documents are subordinate.
2. On each order for shares of Companies listed in Category 1 on the attached
Schedule A that is accepted by us, you will be entitled to receive the
applicable commission as set forth below:
<TABLE>
<CAPTION>
Purchases Commission as Sales Charge as
Percentage of Percentage of
Offering Price Offering Price
<S> <C> <C>
Less than $50,000 5.00% 5.75%
$50,000 but less than $100,000 3.75% 4.50%
$100,000 but less than $250,000 2.75% 3.50%
$250,000 but less than $500,000 2.00% 2.50%
$500,000 but less than $1,000,000 1.60% 2.00%
$1,000,000 or more see below none
</TABLE>
For purchases a) amounting to $1 million or more or b) made at net asset value
to retirement plans of organizations with collective retirement plan assets of
$100 million or more, you will be paid a commission of 1.00% on sales to $2
million, plus 0.80% on amounts over $2 million up to $3 million, plus 0.50% on
amounts over $3 million up to $50 million, plus 0.25% on amounts over $50
million up to $100 million, plus 0.15% on amounts over $100 million. For each
account of a shareholder of the respective Companies (and accounts related by
the right of accumulation), only such net asset value sales made over a 12
month period (commencing from the date of the first such sale) will be
considered for purposes of determining the level of commissions to be paid
during that period with respect to such account(s). No commissions are paid on
any other sales of shares at net asset value, except that commissions may be
paid on sales of fund shares to accounts managed by affiliates of The Capital
Group, Inc. as set forth in this agreement. Sales of shares of Washington
Mutual Investors Fund below $1 million made in connection with certain accounts
established before September 1, 1969 are subject to reduced commissions and
sales charges as described in the Washington Mutual Investors Fund Prospectus.
The schedule of sales charges above applies to single purchases, concurrent
purchases of two or more of the Companies (except those listed in Category 3 on
the attached Schedule A), and purchases made under a statement of intention and
pursuant to the right of accumulation, both of which are described in the
Prospectuses.
3. On sales of shares of Companies listed in Category 2 on the attached
Schedule A you will be paid the same commissions indicated in paragraph 2 above
except as follows:
<TABLE>
<CAPTION>
Purchases Commission as Sale
Percentage of Charge
Offering Price as Percentage of
Offering Price
<S> <C> <C>
Less than $25,000 4.00% 4.75%
$25,000 but less than $50,000 3.75% 4.50%
$50,000 but less than $100,000 3.25% 4.00%
</TABLE>
With respect to sales of shares of any tax-exempt fund, the commission
schedule for sales of shares to retirement plans of organizations with assets
of $100 million or more is inapplicable.
4. On sales of shares of Companies listed in Category 3 on the attached
Schedule A no commission will be paid.
5. We are also authorized to pay you continuing service fees with respect to
the shares of all the Companies to compensate you for providing certain
services for your clients such as processing purchase and redemption
transactions, establishing shareholder accounts and providing certain
information and assistance with respect to the Companies, provided you meet
certain service-related criteria and have executed a "Supplemental Selling
Group Agreement" available from us upon request.
6. Any order by you for the purchase of shares of the respective Companies
through us shall be accepted at the time when it is received by us (or any
clearinghouse agency that we may designate from time to time), and at the
offering and sale price next determined, unless rejected by us or the
respective Companies. In addition to the right to reject any order, the
Companies have reserved the right to withhold shares from sale temporarily or
permanently. We will not accept any order from you which is placed on a
conditional basis or subject to any delay or contingency prior to execution.
The procedure relating to the handling of orders shall be subject to
instructions which we shall forward from time to time to you. The shares
purchased will be issued by the respective Companies only against receipt of
the purchase price, in collected New York or Los Angeles Clearing House funds
subject to deduction of all commissions on such sale (reallowance of any
commissions to which you are entitled on purchases at net asset value will be
paid through our direct purchase commission system). If payment for the shares
purchased is not received within seven days after the date of confirmation the
sale may be cancelled forthwith, by us or by the respective Companies, without
any responsibility or liability on our part or on the part of the Companies,
and we and/or the respective Companies may hold you responsible for any loss,
expense, liability or damage, including loss of profit suffered by us and/or
the respective Companies resulting from your delay or failure to make payment
as aforesaid.
7. You are obliged to date and time stamp all orders received by you and
promptly to transmit all orders to us in time to provide for processing at the
price next determined after receipt by you, in accordance with the
Prospectuses. You are not to withhold placing with us orders received from any
customers for the purchase of shares so as to profit yourself as a result of
such withholding. You shall not purchase shares through us except for the
purpose of covering purchase orders already received by you, or for your bona
fide investment.
8. If any share is repurchased by any of the respective Companies or is
tendered thereto for redemption within seven business days after confirmation
by us of the original purchase order from you for such security you shall
forthwith refund to us the full commissions paid to you on the original sale.
9. You shall not, if acting as principal, purchase any share of any of the
respective Companies from a record holder at a price lower than the net asset
value next determined by or for the respective Companies' shares. You shall,
however, be permitted to sell any shares for the account of a shareholder of
the respective Companies at the net asset value currently quoted by or for the
respective Companies' shares, and may charge a fair service fee for handling
the transaction provided you disclose the fee to the record owner.
10. We shall furnish you without charge reasonable quantities of offering
Prospectuses, with any supplements currently in effect, and copies of current
shareholder reports of the respective Companies, and sales materials issued by
us from time to time. In the purchase of shares through us, you are entitled
to rely only on the information contained in the offering Prospectus(es). You
may not publish any advertisement or distribute sales literature or other
written material to the public which makes reference to us or any of the
Companies (except material which we furnished to you) without prior written
approval.
11. This Agreement is in all respects subject to statements regarding the
sale and repurchase or redemption of shares made in offering Prospectuses of
the respective Companies, which shall control and override any provision to the
contrary in this Agreement.
12. You shall make available shares of the respective Companies only through
us. In no transaction (whether of purchase or sale) shall you have any
authority to act as agent for, partner of, or participant in a joint venture
with us or with the respective Companies or any other entity having either a
Selling Group Agreement or other Agreement with us.
13. We act solely as agent for the Companies, and are not responsible for
qualifying the Companies or their shares for sale in any jurisdiction. Upon
written request we will provide you with a list of the jurisdictions in which
the respective Companies or their shares are qualified for sale. We also are
not responsible for the issuance, form, validity, enforceability or value of
shares of the Companies.
14. You represent that you are (a) properly registered or licensed broker or
dealer under applicable federal and state securities laws and regulations and a
member in good standing of the National Association of Securities Dealers,
Inc., or (b) a "bank" as defined in Section 3(a)(6) of the Securities Exchange
Act of 1934 (or other financial institution) and not otherwise required to
register as a broker or dealer under such Act or any state laws. You agree to
notify us immediately in writing if this representation ceases to be true. You
also agree that, if you are a bank or other financial institution as set forth
above, you will maintain adequate records with respect to your customers and
their transactions, and that such transactions will be without recourse against
you by your customers. We recognize that, in addition to applicable provisions
of state and federal securities laws, you may be subject to the provisions of
the Glass-Steagall Act and other laws governing, among other things, the
conduct of activities by federal and state chartered and supervised financial
institutions and their affiliated organizations. Because you will be the only
entity having a direct relationship with the customer in connection with
securities purchases hereunder, you will be responsible in that relationship
for insuring compliance with all laws and regulations, including those of all
applicable federal and state regulatory authorities and bodies having
jurisdiction over you or your customers to the extent applicable to securities
purchases hereunder.
15. Either of us may cancel this Agreement at any time by written notice to
the other.
16. All communications to us should be sent to the above address. Any notice
to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
Execute this Agreement in duplicate and return one of the duplicate originals
to us for our file. This Agreement (i) may be amended by notification from us
and orders received following such notification shall be deemed to be an
acceptance of any such amendment and (ii) shall be construed in accordance with
the laws of the State of California.
Very truly yours,
AMERICAN FUNDS DISTRIBUTORS, INC.
By: /s/ Mark Freeman
Accepted:
________________________________________
Firm
By _____________________________________
Officer or Partner
________________________________________
Print Name of Officer or Partner
Address: ________________________________
Date: __________________________________
SCHEDULE A
October 5, 1993
(supersedes Schedule A dated
February 1, 1991)
Category 1
AMCAP Fund
American Balanced Fund
American Mutual Fund
Capital Income Builder
Capital World Growth and Income Fund
EuroPacific Growth Fund
Fundamental Investors
Growth Fund of America
Income Fund of America
Investment Company of America
New Economy Fund
New Perspective Fund
SMALLCAP World Fund
Washington Mutual Investors Fund
Category 2
American High-Income Trust
Bond Fund of America
Capital World Bond Fund
Intermediate Bond Fund of America
Limited Term Tax-Exempt Bond Fund of America
Tax-Exempt Bond Fund of America
Tax-Exempt Fund of California
Tax-Exempt Fund of Maryland
Tax-Exempt Fund of Virginia
U.S. Government Securities Fund
Category 3
Cash Management Trust of America
Tax-Exempt Money Fund of America
U.S. Treasury Money Fund of America
[American Funds Distributors(SM) logo]
American Funds Distributors
- ------------------------------------------------------------------------------
- --------------------------------------
333 South Hope Street - Los Angeles, California 90071
Telephone 800/421-9900, ext. 11
SUPPLEMENTAL SELLING GROUP AGREEMENT
Gentlemen:
You have entered into a Selling Group Agreement with us with respect to each
of the Funds in The American Funds Group (hereafter called the Companies). We
are authorized to pay you certain service fees each quarter in connection with
your sales of shares of the Companies, subject to the terms set forth below
which will be revised by us from time-to-time. your participation in this
service fee program will be evaluated at specific time intervals. Initial
qualification does not assure continued participation and this Agreement may be
amended or terminated by us at any time as indicated below. The offering
Prospectuses and this Agreement set forth the terms applicable to service fees
and all other representations and documents are subordinate.
1. You have met the minimum aggregate assets requirement set forth on the
attached Schedule 1.
2. You agree to cooperate as requested with programs that we provide to
enhance shareholder service. You also agree to assume an active role in
providing shareholder services such as processing purchase and redemption
transactions, establishing shareholder accounts and providing certain
information and assistance with respect to the Companies. Redemption levels of
shareholder accounts assigned to you will be considered in evaluating your
continued participation in this service fee program.
3. You agree to support our marketing efforts by granting reasonable requests
for visits to your offices by our wholesalers and, to the extent applicable, by
including all Companies covered by this Agreement on your "approved" list.
4. You agree to assign an individual broker to each shareholder account on
your books and to reassign the account should that broker leave your firm. You
agree to instruct each such broker to regularly contact shareholders having
accounts so assigned.
5. You agree to pass through to your brokers a share of the service fees paid
to you pursuant to this Agreement.
6. You acknowledge that (i) all service fee payments are subject to the
limitations contained in each Company's Plan of Distribution and may be varied
or discontinued at any time, (ii) in order to receive a service fee for a
particular quarter, the fee must amount to at least $100, and (iii) with
respect to shares of the Companies listed in Categories A and B, no service
fees will be paid on shares sold at net asset value (except on shares
attributable to sales (i) amounting to $1 million or more, (ii) made to
retirement plans of organizations with collective retirement plan assets of
$100 million or more or (iii) made to accounts managed by affiliates of The
Capital Group, Inc. which you initiated and for which you were responsible).
7. On shares of Companies listed in Category A on the attached Schedule 2
you will be paid a service fee each quarter based on the aggregate net asset
value of each account assigned to you (including accounts entitled to the right
of accumulation) as of the last day of the quarter for which payment is being
made at the following annual rates:
ANNUAL SERVICE FEE RATE
All Shares Acquired Through
June 30, 1988 0.15%
All Shares Acquired After
June 30, 1988 0.25% (accrual
of fee commencing after
after such shares are
held 12 months)
8. On shares of Companies listed in Category B on the attached Schedule 2 you
will be paid a service fee each quarter based on the aggregate net asset value
of each account assigned to you (including accounts entitled to the right of
accumulation) as of the last day of the quarter for which payment is being made
at the following annual rates:
ANNUAL SERVICE FEE RATE
All Shares 0.25% (accrual of fee
commencing after such
shares are held 12
months
9. On shares of Companies listed in Category C on the attached Schedule 2 you
will be paid a service fee each quarter based on the aggregate net asset value
of each account assigned to you (including accounts entitled to the right of
accumulation) as of the last day of the quarter for which payment is being made
at the following annual rates:
ANNUAL SERVICE FEE RATE
All Shares 0.15% (accrual of fee
commencing after such
shares are held 12
months
10. Either of us may cancel this Agreement at any time by written notice to
the other.
11. All communications to us should be sent to the above address. Any notice
to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
Execute this Agreement in duplicate and return one of the duplicate originals
to us for our file. This Agreement (i) may be amended by notification from us
and orders received following such notification shall be deemed to be an
acceptance of any such amendment and (ii) shall be construed with the laws of
the State of California.
Very truly yours,
AMERICAN FUNDS DISTRIBUTORS, INC.
By: /s/ Mark Freeman
Accepted:
________________________________________
Firm
By _____________________________________
Officer or Partner
________________________________________
Print Name of Officer or Partner
Address: ________________________________
Date: __________________________________
SCHEDULE 1
SEPTEMBER 1, 1988
Your eligibility is conditioned on verification by us of accounts of shares of
the Companies assigned to you having an aggregate net asset value amounting to
at least $750,000.
---------------------
SCHEDULE 2
September 26, 1994
(supersedes Schedule 2 dated
October 5, 1993)
Category A
AMCAP Fund
American Balanced Fund
American Mutual Fund
Bond Fund of America
EuroPacific Growth Fund
Fundamental Investors
Growth Fund of America
Income Fund of America
Investment Company of America
New Economy Fund
New Perspective Fund
Tax-Exempt Bond Fund of America
Washington Mutual Investors Fund
Category B
American High-Income Municipal Bond Fund
American High-Income Trust
Capital Income Builder
Capital World Bond Fund
Capital World Growth and Income Fund
Intermediate Bond Fund of America
Limited Term Tax-Exempt Bond Fund of America
SMALLCAP World Fund
Tax-Exempt Fund of California
Tax-Exempt Fund of Maryland
Tax-Exempt Fund of Virginia
U.S. Government Securities Fund
Category C
Cash Management Trust of America
Tax-Exempt Money Fund of America
U.S. Treasury Money Fund of America
American Funds Distributors (SM)
AMERICAN FUNDS DISTRIBUTORS
333 South Hope Street - Los Angeles, California 90071
Telephone 800/421-9900, ext. 11
ADDENDUM TO SELLING GROUP AGREEMENT
FOR THE STATE OF___________________
This Addendum to the SELLING GROUP AGREEMENT ("Agreement") among AMERICAN
FUNDS DISTRIBUTORS, INC. ("AFD"), THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
("LNL"), and the broker-dealer firm identified below ("Dealer") is effective
upon execution by all parties.
AFD, LNL and Dealer hereby agree that LNL shall pay all compensation due any
agents of the Dealer for business transacted on behalf of LNL directly to, and
in the name of a compensation manager appointed by Dealer, such compensation
manager being a duly licensed insurance agent in the state referenced above.
Dealer shall appoint its compensation manager in writing, signed by an
officer or partner of Dealer who has the authority to bind Dealer. LNL shall
direct all pavments for business transacted by agents of Dealer to the named
compensation manager until such time as Dealer notifies LNL, in writing, that
another compensation manager has been appointed.
It is agreed that payment of compensation payable by LNL to the agents of
Dealer shall be the responsibility of the compensation manager and shall not be
the responsibility of LNL. Furthermore, Dealer represents and warrants that
all monies received from LNL shall be distributed by the compensation manager
only to duly licensed agents appointed with LNL in accordance with the
Agreement and all applicable laws of the above referenced state.
It is further agreed that Dealer shall indemnify and hold harmless LNL, AFD,
and any of their affiliates, their respective officers, directors, employees or
agents ("Indemnified Party") from any and all claims, and demands or causes of
action that arise out of the compensation manager's negligence, or failure to
properly perform the responsibilities set forth in this Addendum or the
Agreement. Dealer, at its own cost, shall defend any legal proceeding that may
be brought against an Indemnified Party on any such claim or demand in respect
to which such Indemnified Party is indemnified and held harmless hereunder, and
shall satisfy any judgment that may be rendered against such Indemnified Party
with respect to any such claim or demand. Dealer shall notify LNL and AFD
promptly upon receipt of any such claim or demand which it receives.
Dealer agrees that this Addendum constitutes written consent by Dealer to
allow LNL to pay the compensation to the compensation manager as required by
Rule 3060 of the Rules of the NASD.
Any party to this Addendum may cancel this Addendum at any time upon written
notice to all other parties, effective upon receipt.
Three originals of the Addendum should be executed. Two of the originals
should be returned to AFD.
In WITNESS WHEREOF, the undersigned have executed this Addendum to the
Selling Group Agreement on the date written below.
AMERICAN FUNDS DISTRIBUTORS, INC. THE LINCOLN NATIONAL LIFE
133 South Hope Street INSURANCE COMPANY
Los Angeles, CA 90071 1300 South Clinton Street
Fort Wayne, IN 46801
By_______________________________ By________________________
_________________________________
(Name of Broker-Dealer Firm)
By_______________________________
Print Name_______________________
Title____________________________
Date_____________________________
Please state the name and the tax identification number of the compensation
manager who is licensed in THE above referenced state with The Lincoln National
Life Insurance Company.
Compensation Manager ____________________________________
Print Name
____________________________________
Signature
Social Security No. ____________________________________
9/96
FORM OF GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective _______________ and is between THE CHASE
MANHATTAN BANK (the "Bank") and [fund name] (the "Customer").
1. Customer Accounts.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer ("Custody Account")
for any and all stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase or subscribe for the same or evidencing or representing any other
rights or interests therein and other similar property whether certificated or
uncertificated as may be received by the Bank or its Subcustodian (as defined
in Section 3) for the account of the Customer ("Securities"); and
(b) A deposit account in the name of the Customer ("Deposit Account")
for any and all cash in any currency received by the Bank or its Subcustodian
for the account of the Customer, which cash shall not be subject to withdrawal
by draft or check.
The Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts. The Bank may deliver securities of the
same class in place of those deposited in the Custody Account.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional Accounts
under the terms of this Agreement.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to
the Bank:
(a) Securities will be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and the Bank can comply with such
Instructions, the Bank is authorized to maintain cash balances on deposit for
the Customer with itself or one of its affiliates at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as the Customer may direct, if acceptable to the Bank.
If the Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3
(or their securities depositories), such arrangement must be authorized by a
written agreement, signed by the Bank and the Customer.
3. Subcustodians and Securities Depositories.
The Bank may act under this Agreement through the subcustodians listed in
Schedule A of this Agreement with which the Bank has entered into subcustodial
agreements ("Subcustodians"). The Customer authorizes the Bank to hold Assets
in the Accounts in accounts which the Bank has established with one or more of
its branches or Subcustodians. The Bank and Subcustodians are authorized to
hold any of the Securities in their account with any securities depository in
which they participate.
The Bank reserves the right to add new, replace or remove Subcustodians.
The Customer will be given reasonable notice by the Bank of any amendment to
Schedule A. Upon request by the Customer, the Bank will identify the name,
address and principal place of business of any Subcustodian of the Customer's
Assets and the name and address of the governmental agency or other regulatory
authority that supervises or regulates such Subcustodian.
4. Use of Subcustodian.
(a) The Bank will identify such Assets on its books as belonging to
the Customer.
(b) A Subcustodian will hold such Assets together with assets
belonging to other customers of the Bank in accounts identified on such
Subcustodian's books as special custody accounts for the exclusive benefit of
customers of the Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject
only to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only to
the instructions of such Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian for holding
its customer's assets shall provide that such assets will not be subject to any
right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
ownership of such assets will be freely transferable without the payment of
money or value other than for safe custody or administration. The foregoing
shall not apply to the extent of any special agreement or arrangement made by
the Customer with any particular Subcustodian.
5. Deposit Account Transactions.
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information required by
the Bank.
(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, the Bank, in its
discretion, may advance the Customer such excess amount which shall be deemed a
loan payable on demand, bearing interest at the rate customarily charged by the
Bank on similar loans.
(c) If the Bank credits the Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation to the Deposit Account,
with interest, dividends, redemptions or any other amount due, the Customer
will promptly return any such amount upon oral or written notification: (i)
that such amount has not been received in the ordinary course of business or
(ii) that such amount was incorrectly credited. If the Customer does not
promptly return any amount upon such notification, the Bank shall be entitled,
upon oral or written notification to the Customer, to reverse such credit by
debiting the Deposit Account for the amount previously credited. The Bank or
its Subcustodian shall have no duty or obligation to institute legal
proceedings, file a claim or a proof of claim in any insolvency proceeding or
take any other action with respect to the collection of such amount, but may
act for the Customer upon Instructions after consultation with the Customer.
6. Custody Account Transactions.
(a) Securities will be transferred, exchanged or delivered by the Bank
or its Subcustodian upon receipt by the Bank of Instructions which include all
information required by the Bank. Settlement and payment for Securities
received for, and delivery of Securities out of, the Custody Account may be
made in accordance with the customary or established securities trading or
securities processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation, delivery of
Securities to a purchaser, dealer or their agents against a receipt with the
expectation of receiving later payment and free delivery. Delivery of
Securities out of the Custody Account may also be made in any manner
specifically required by Instructions acceptable to the Bank.
(b) The Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions will be
credited or debited to the Accounts on the date cash or Securities are actually
received by the Bank and reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a reasonable
period, determined by the Bank in its discretion, after the contractual
settlement date for the related transaction.
(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, the Bank may reverse the credits and debits
of the particular transaction at any time.
7. Actions of the Bank.
The Bank shall follow Instructions received regarding assets held in the
Accounts. However, until it receives Instructions to the contrary, the Bank
will:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items
which call for payment upon presentation, to the extent that the Bank or
Subcustodian is actually aware of such opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian.
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any transfers
of Assets to or from the Accounts. Such statements, advices or notifications
shall indicate the identity of the entity having custody of the Assets. Unless
the Customer sends the Bank a written exception or objection to any Bank
statement within sixty (60) days of receipt, the Customer shall be deemed to
have approved such statement. In such event, or where the Customer has
otherwise approved any such statement, the Bank shall, to the extent permitted
by law, be released, relieved and discharged with respect to all matters set
forth in such statement or reasonably implied therefrom as though it had been
settled by the decree of a court of competent jurisdiction in an action where
the Customer and all persons having or claiming an interest in the Customer or
the Customer's Accounts were parties.
All collections of funds or other property paid or distributed in respect
of Securities in the Custody Account shall be made at the risk of the Customer.
The Bank shall have no liability for any loss occasioned by delay in the actual
receipt of notice by the Bank or by its Subcustodians of any payment,
redemption or other transaction regarding Securities in the Custody Account in
respect of which the Bank has agreed to take any action under this Agreement.
8. Corporate Actions; Proxies.
Whenever the Bank receives information concerning the Securities which
requires discretionary action by the beneficial owner of the Securities (other
than a proxy), such as subscription rights, bonus issues, stock repurchase
plans and rights offerings, or legal notices or other material intended to be
transmitted to securities holders ("Corporate Actions"), the Bank will give the
Customer notice of such Corporate Actions to the extent that the Bank's central
corporate actions department has actual knowledge of a Corporate Action in time
to notify its customers.
When a rights entitlement or a fractional interest resulting from a rights
issue, stock dividend, stock split or similar Corporate Action is received
which bears an expiration date, the Bank will endeavor to obtain Instructions
from the Customer or its Authorized Person, but if Instructions are not
received in time for the Bank to take timely action, or actual notice of such
Corporate Action was received too late to seek Instructions, the Bank is
authorized to sell such rights entitlement or fractional interest and to credit
the Deposit Account with the proceeds or take any other action it deems, in
good faith, to be appropriate in which case it shall be held harmless for any
such action.
The Bank will deliver proxies to the Customer or its designated agent
pursuant to special arrangements which may have been agreed to in writing.
Such proxies shall be executed in the appropriate nominee name relating to
Securities in the Custody Account registered in the name of such nominee but
without indicating the manner in which such proxies are to be voted; and where
bearer Securities are involved, proxies will be delivered in accordance with
Instructions.
9. Nominees.
Securities which are ordinarily held in registered form may be registered
in a nominee name of the Bank, Subcustodian or securities depository, as the
case may be. The Bank may without notice to the Customer cause any such
Securities to cease to be registered in the name of any such nominee and to be
registered in the name of the Customer. In the event that any Securities
registered in a nominee name are called for partial redemption by the issuer,
the Bank may allot the called portion to the respective beneficial holders of
such class of security in any manner the Bank deems to be fair and equitable.
The Customer agrees to hold the Bank, Subcustodians, and their respective
nominees harmless from any liability arising directly or indirectly from their
status as a mere record holder of Securities in the Custody Account.
10. Authorized Persons.
As used in this Agreement, the term "Authorized Person" means employees or
agents including investment managers as have been designated by written notice
from the Customer or its designated agent to act on behalf of the Customer
under this Agreement. Such persons shall continue to be Authorized Persons
until such time as the Bank receives Instructions from the Customer or its
designated agent that any such employee or agent is no longer an Authorized
Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information system
acceptable to the Bank which the Bank believes in good faith to have been given
by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Bank may specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the Customer will hold
the Bank harmless for the failure of an Authorized Person to send such
confirmation in writing, the failure of such confirmation to conform to the
telephone instructions received or the Bank's failure to produce such
confirmation at any subsequent time. The Bank may electronically record any
Instructions given by telephone, and any other telephone discussions with
respect to the Custody Account. The Customer shall be responsible for
safeguarding any testkeys, identification codes or other security devices which
the Bank shall make available to the Customer or its Authorized Persons.
12. Standard of Care; Liabilities.
(a) The Bank shall be responsible for the performance of only such
duties as are set forth in this Agreement or expressly contained in
Instructions which are consistent with the provisions of this Agreement as
follows:
(i) The Bank will use reasonable care with respect to its obligations
under this Agreement and the safekeeping of Assets. The Bank shall be liable
to the Customer for any loss which shall occur as the result of the failure of
a Subcustodian to exercise reasonable care with respect to the safekeeping of
such Assets to the same extent that the Bank would be liable to the Customer if
the Bank were holding such Assets in New York. In the event of any loss to the
Customer by reason of the failure of the Bank or its Subcustodian to utilize
reasonable care, the Bank shall be liable to the Customer only to the extent of
the Customer's direct damages, to be determined based on the market value of
the property which is the subject of the loss at the date of discovery of such
loss and without reference to any special conditions or circumstances.
(ii) The Bank will not be responsible for any act, omission, default or
for the solvency of any broker or agent which it or a Subcustodian appoints
unless such appointment was made negligently or in bad faith.
(iii) The Bank shall be indemnified by, and without liability to the
Customer for any action taken or omitted by the Bank whether pursuant to
Instructions or otherwise within the scope of this Agreement if such act or
omission was in good faith, without negligence. In performing its obligations
under this Agreement, the Bank may rely on the genuineness of any document
which it believes in good faith to have been validly executed.
(iv) The Customer agrees to pay for and hold the Bank harmless from any
liability or loss resulting from the imposition or assessment of any taxes or
other governmental charges, and any related expenses with respect to income
from or Assets in the Accounts.
(v) The Bank shall be entitled to rely, and may act, upon the advice
of counsel (who may be counsel for the Customer) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
(vi) The Bank need not maintain any insurance for the benefit of the
Customer.
(vii) Without limiting the foregoing, the Bank shall not be liable for
any loss which results from: 1) the general risk of investing, or 2) investing
or holding Assets in a particular country including, but not limited to, losses
resulting from nationalization, expropriation or other governmental actions;
regulation of the banking or securities industry; currency restrictions,
devaluations or fluctuations; and market conditions which prevent the orderly
execution of securities transactions or affect the value of Assets.
(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear fusion,
fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to the Customer or
an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments or
the retention of Securities;
(iii) advise the Customer or an Authorized Person regarding any default
in the payment of principal or income of any security other than as provided in
Section 5(c) of this Agreement;
(iv) evaluate or report to the Customer or an Authorized Person
regarding the financial condition of any broker, agent or other party to which
Securities are delivered or payments are made pursuant to this Agreement;
(v) review or reconcile trade confirmations received from brokers.
The Customer or its Authorized Persons (as defined in Section 10) issuing
Instructions shall bear any responsibility to review such confirmations against
Instructions issued to and statements issued by the Bank.
(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or affiliates may have a
material interest in a transaction, or circumstances are such that the Bank may
have a potential conflict of duty or interest including the fact that the Bank
or any of its affiliates may provide brokerage services to other customers, act
as financial advisor to the issuer of Securities, act as a lender to the issuer
of Securities, act in the same transaction as agent for more than one customer,
have a material interest in the issue of Securities, or earn profits from any
of the activities listed herein.
13. Fees and Expenses.
The Customer agrees to pay the Bank for its services under this Agreement
such amount as may be agreed upon in writing, together with the Bank's
reasonable out-of-pocket or incidental expenses, including, but not limited to,
legal fees. The Bank shall have a lien on and is authorized to charge any
Accounts of the Customer for any amount owing to the Bank under any provision
of this Agreement.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration
of the Customer's trading and investment activity, the Bank is authorized to
enter into spot or forward foreign exchange contracts with the Customer or an
Authorized Person for the Customer and may also provide foreign exchange
through its subsidiaries, affiliates or Subcustodians. Instructions, including
standing instructions, may be issued with respect to such contracts but the
Bank may establish rules or limitations concerning any foreign exchange
facility made available. In all cases where the Bank, its subsidiaries,
affiliates or Subcustodians enter into a foreign exchange contract related to
Accounts, the terms and conditions of the then current foreign exchange
contract of the Bank, its subsidiary, affiliate or Subcustodian and, to the
extent not inconsistent, this Agreement shall apply to such transaction.
(b) Certification of Residency, etc. The Customer certifies that it
is a resident of the United States and agrees to notify the Bank of any changes
in residency. The Bank may rely upon this certification or the certification
of such other facts as may be required to administer the Bank's obligations
under this Agreement. The Customer will indemnify the Bank against all losses,
liability, claims or demands arising directly or indirectly from any such
certifications.
(c) Access to Records. The Bank shall allow the Customer's
independent public accountant reasonable access to the records of the Bank
relating to the Assets as is required in connection with their examination of
books and records pertaining to the Customer's affairs. Subject to
restrictions under applicable law, the Bank shall also obtain an undertaking to
permit the Customer's independent public accountants reasonable access to the
records of any Subcustodian which has physical possession of any Assets as may
be required in connection with the examination of the Customer's books and
records.
(d) Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Bank.
(e) Entire Agreement; Applicable Riders. Customer represents that the
Assets deposited in the Accounts are (Check one):
Employee Benefit Plan or other assets subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA");
X Mutual Fund assets subject to certain Securities and Exchange
Commission ("SEC") rules and regulations;
Neither of the above.
This Agreement consists exclusively of this document together with
Schedule A, and the following Rider(s) [Check applicable rider(s)]:
ERISA
X MUTUAL FUND
X SPECIAL TERMS AND CONDITIONS
There are no other provisions of this Agreement and this Agreement
supersedes any other agreements, whether written or oral, between the parties.
Any amendment to this Agreement must be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions of this
Agreement are held invalid, illegal or enforceable in any respect on the basis
of any particular circumstances or in any jurisdiction, the validity, legality
and enforceability of such provision or provisions under other circumstances or
in other jurisdictions and of the remaining provisions will not in any way be
affected or impaired.
(g) Waiver. Except as otherwise provided in this Agreement, no
failure or delay on the part of either party in exercising any power or right
under this Agreement operates as a waiver, nor does any single or partial
exercise of any power or right preclude any other or further exercise, or the
exercise of any other power or right. No waiver by a party
of any provision of this Agreement, or waiver of any breach or default, is
effective unless in writing and signed by the party against whom the waiver is
to be enforced.
(h) Notices. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may be required
under this Agreement are to be sent to the parties at the following addresses
or such other addresses as may subsequently be given to the other party in
writing:
Bank: The Chase Manhattan Bank
4 Chase MetroTech Center
Brooklyn, NY 11245
Attention: Global Custody Division
or telex:
Customer: Capital Research and Management Company
135 South State College Blvd.
Brea, CA 92821
or telex:
(i) Termination. This Agreement may be terminated by the Customer or
the Bank by giving sixty (60) days written notice to the other, provided that
such notice to the Bank shall specify the names of the persons to whom the Bank
shall deliver the Assets in the Accounts. If notice of termination is given by
the Bank, the Customer shall, within sixty (60) days following receipt of the
notice, deliver to the Bank Instructions specifying the names of the persons to
whom the Bank shall deliver the Assets. In either case the Bank will deliver
the Assets to the persons so specified, after deducting any amounts which the
Bank determines in good faith to be owed to it under Section 13. If within
sixty (60) days following receipt of a notice of termination by the Bank, the
Bank does not receive Instructions from the Customer specifying the names of
the persons to whom the Bank shall deliver the Assets, the Bank, at its
election, may deliver the Assets to a bank or trust company doing business in
the State of New York to be held and disposed of pursuant to the
provisions of this Agreement, or to Authorized Persons, or may continue to hold
the Assets until Instructions are provided to the Bank.
CUSTOMER
By:____________________________________________
Title:
THE CHASE MANHATTAN BANK
By:____________________________________________
Title:
SSA/AOA02F60.WP5-052693/020497
STATE OF )
: ss.
COUNTY OF )
On this day of , 19 , before me personally came
, to me known, who being by me duly sworn, did
depose and say that he/she resides in at
;
that he/she is of
, the entity described in and which executed the foregoing
instrument; that he/she knows the seal of said entity, that the seal affixed to
said instrument is such seal, that it was so affixed by order of said entity,
and that he/she signed his/her name thereto by like order.
Sworn to before me this
day of , 19 .
Notary
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this day of ,19 ,
before me personally came , to me known, who being by me
duly sworn, did depose and say that he/she resides in
at
; that he/she is a Vice
President of THE CHASE MANHATTAN BANK, the corporation described in and which
executed the foregoing instrument; that he/she knows the seal of said
corporation, that the seal affixed to said instrument is such corporate seal,
that it was so affixed by order of the Board of Directors of said corporation,
and that he/she signed his/her name thereto by like order.
Sworn to before me this
day of , 19 .
Notary
Mutual Fund Rider to Global Custody Agreement
Between The Chase Manhattan Bank and
[fund name]
effective _________________
Customer represents that the Assets being placed in the Bank's custody are
subject to the Investment Company Act of 1940 (the Act), as the same may be
amended from time to time.
Except to the extent that the Bank has specifically agreed to comply with
a condition of a rule, regulation, interpretation promulgated by or under the
authority of the SEC or the Exemptive Order applicable to accounts of this
nature issued to the Bank (Investment Company Act of 1940, Release No. 12053,
November 20, 1981), as amended, or unless the Bank has otherwise specifically
agreed, the Customer shall be solely responsible to assure that the maintenance
of Assets under this Agreement complies with such rules, regulations,
interpretations or exemptive order promulgated by or under the authority of the
Securities Exchange Commission.
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities Depositories.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used in this
Agreement shall mean a branch of a qualified U.S. bank, an eligible foreign
custodian or an eligible foreign securities depository, which are further
defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined
in Rule 17f-5 under the Investment Company Act of 1940;
(b) "eligible foreign custodian" shall mean (i) a banking institution
or trust company incorporated or organized under the laws of a country other
than the United States that is regulated as such by that country's government
or an agency thereof and that has shareholders' equity in excess of $200
million in U.S. currency (or a foreign currency equivalent thereof), (ii) a
majority owned direct or indirect subsidiary of a qualified U.S. bank or bank
holding company that is incorporated or organized under the laws of a country
other than the United States and that has shareholders' equity in excess of
$100 million in U.S. currency (or a foreign currency equivalent thereof)(iii) a
banking institution or trust company incorporated or organized under the laws
of a country other than the United States or a majority owned direct or
indirect subsidiary of a qualified U.S. bank or bank holding company that is
incorporated or organized under the laws of a country other than the United
States which has such other qualifications as shall be specified in
Instructions and approved by the Bank; or (iv) any other entity that shall have
been so qualified by exemptive order, rule or other appropriate action of the
SEC; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws of a
country other than the United States, which operates (i) the central system for
handling securities or equivalent book-entries in that country, or (ii) a
transnational system for the central handling of securities or equivalent
book-entries.
The Customer represents that its Board of Directors has approved each of
the Subcustodians listed in Schedule A to this Agreement and the terms of the
subcustody agreements between the Bank and each Subcustodian, and further
represents that its Board has determined that the use of each Subcustodian and
the terms of each subcustody agreement are consistent with the best interests
of the Fund(s) and its (their) shareholders. The Bank will supply the Customer
with any amendment to Schedule A for approval. The Customer has supplied or
will supply the Bank with certified copies of its Board of Directors
resolution(s) with respect to the foregoing prior to placing Assets with any
Subcustodian so approved.
Section 11. Instructions.
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account Transactions made pursuant to
Section 5 and 6 of this Agreement may be made only for the purposes listed
below. Instructions must specify the purpose for which any transaction is to
be made and Customer shall be solely responsible to assure that Instructions
are in accord with any limitations or restrictions applicable to the Customer
by law or as may be set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise
become payable;
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory
fees, distributions or operating expenses;
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed;
(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer;
(i) For the purpose of redeeming shares of the capital stock of the
Customer and the delivery to, or the crediting to the account of, the Bank, its
Subcustodian or the Customer's transfer agent, such shares to be purchased or
redeemed;
(j) For the purpose of redeeming in kind shares of the Customer
against delivery to the Bank, its Subcustodian or the Customer's transfer agent
of such shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement
among the Customer, the Bank and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Customer;
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Bank of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or at
expiration, the Bank will receive from brokers the Securities previously
deposited. The Bank will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no responsibility or
liability for any such Securities which are not returned promptly when due
other than to make proper request for such return;
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related transactions;
(n) For other proper purposes as may be specified in Instructions
issued by an officer of the Customer which shall include a statement of the
purpose for which the delivery or payment is to be made, the amount of the
payment or specific Securities to be delivered, the name of the person or
persons to whom delivery or payment is to be made, and a certification that the
purpose is a proper purpose under the instruments governing the Customer; and
(o) Upon the termination of this Agreement as set forth in Section
14(i).
Section 12. Standard of Care; Liabilities.
Add the following subsection (c) to Section 12:
(c) The Bank hereby warrants to the Customer that in its opinion,
after due inquiry, the established procedures to be followed by each of its
branches, each branch of a qualified U.S. bank, each eligible foreign custodian
and each eligible foreign securities depository holding the Customer's
Securities pursuant to this Agreement afford protection for such Securities at
least equal to that afforded by the Bank's established procedures with respect
to similar securities held by the Bank and its securities depositories in New
York.
Section 14. Access to Records.
Add the following language to the end of Section 14(c):
Upon reasonable request from the Customer, the Bank shall furnish the
Customer such reports (or portions thereof) of the Bank's system of internal
accounting controls applicable to the Bank's duties under this Agreement. The
Bank shall endeavor to obtain and furnish the Customer with such similar
reports as it may reasonably request with respect to each Subcustodian and
securities depository holding the Customer's assets.
Global Custody Agreement
With: [fund name]
Dated: __________________
Special Terms and Conditions
1. Add the following new paragraph to the end of Section 1:
"The Bank shall be accountable under the terms of this agreement to the
Customer for all Assets held in the accounts and shall take prompt and
appropriate action to remedy any discrepancies with respect to such Assets."
2. Add to the end of Section 6 (b) (i):
"; provided however that prior to taking action, the Bank will use every
reasonable effort to give Customer written notice of any such reversal which
may include back valuation."
3. Amend the second sentence of the second paragraph of Section 7 to read:
"Unless the Customer sends the Bank a written exception or objection to
certain bank statements as shall be mutually agreed upon in writing within 180
days of receipt,..."
4. Amend the first paragraph of Section 8 as follows:
"Whenever the Bank,...("Corporate Actions"), the Bank will give the
Customer prompt notice of such Corporate Actions to the extent that the Bank's
central corporate actions department has actual knowledge of a Corporate Action
in time to notify its customers.
5. In the first sentence of paragraph 13, after "legal fees", insert
"incurred on behalf of the Customer".
6. Add the following new sentence to the end of Section 14 (c):
"The Bank shall not unreasonably refuse to furnish to the Customer such
reports (or portions thereof) of the Bank's external auditors as they relate
directly to the Bank's system of internal accounting controls applicable to the
Bank's duties under this Agreement. The Bank shall endeavor to obtain and
furnish the Customer with such similar reports as the Customer may reasonably
request with respect to each Subcustodian holding Assets of the Customer.
Expenses of the Bank and any Subcustodians under this provision shall be paid
by the Customer."
7. Amend the last paragraph of Section 3 of the Mutual Fund Rider to read:
"The Customer represents that its Board of Directors will approve each of
the Subcustodians listed in Schedule A to this Agreement before Assets are
held by such Subcustodian and the form of the subcustody agreements between
the Bank and each Subcustodian, and further represents that its Board will
determine that the use of such Subcustodian and the terms of each subcustody
agreement are consistent with the best interests of the customer's fund(s) and
its (their) shareholders prior to placing Assets with any such Subcustodian.
The Bank will supply the Customer with any amendment to Schedule A for
approval within such reasonable period of time as agreed to by the Bank and the
Customer. Upon request, the Customer has supplied or will supply the Bank with
certified copies of its Board of Directors resolutions with respect to the
foregoing prior to placing Assets with any Subcustodian so approved."
8. Add as a new section to the end of Section 3 of the Mutual Fund Rider:
"The Bank shall furnish annually to the Customer information concerning
Subcustodians employed by the Bank. Such information shall be similar in kind
and scope to that furnished to the Customer in connection with the initial
approval of the subcustodian by the Customer's Board of Directors. In
addition, the Bank will promptly inform the Customer in the event that the
Bank learns of a material adverse change in the financial condition of a
Subcustodian or is notified by a foreign banking institution employed as a
Subcustodian that there appears to be a substantial likelihood that its
shareholders's equity as required by Rule 17f-5 or any order thereunder. With
regard to the foregoing paragraphs, the Bank shall not be deemed to have
assumed any fiduciary duties imposed upon Customer by law.
The Bank will supply periodically, as mutually agreed upon, a statement in
respect of any Securities and cash, including indentification of the foreign
entities having custody of the Securities and cash and descriptions thereof."
CONSENT OF INDEPENDENT AUDITORS
The American Funds Tax-Exept Series II - The Tax-Exempt Fund of California
We consent to (a) the use in this Post-Effective Amendment No. 15 to
Registration Statement No. 33-6180 on Form N-1A of our report dated September
25, 1997 appearing in the Financial Statements, which are included in Part B,
the Statement of Additional Information of such Registration Statement, (b) the
reference to us under the heading "General Information" in such Statement of
Additional Information and (c) the reference to us under the heading "Financial
Highlights" in the Prospectus, which is a part of such Registration Statement.
DELOITTE & TOUCHE LLP
Los Angeles, California
October 27, 1997
August 22, 1986
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071
Re: Investment Letter
Gentlemen:
The American Funds California Tax-Exempt Series, a Massachusetts business
trust (the "Trust"), hereby offers to sell to you 6999.125 shares of beneficial
interest of the Tax-Exempt Fund of California, with no par value, (the
"Shares") at a price of $14.2875 per share upon the following terms and
conditions:
You agree to pay to the Trust the aggregate purchase price of $100,000
against delivery of a statement confirming the registration of the 6999.125
Shares in your name.
You represent to the Trust that you are purchasing the Shares for your own
account for investment purposes and not with the present intention of redeeming
or reselling the Shares and that the purchase price of such Shares is in
payment for an equity interest and does not represent a loan or temporary
advance by you.
You understand that you are obligated to pay certain expenses incurred in
connection with the organization of the Trust, as shall be reflected in an
Investment Advisory and Service Agreement between you and the Trust. You agree
that you will not redeem any of the Shares while any portion of such
organizational expenses has not been paid by you.
Very truly yours,
THE AMERICAN FUNDS CALIFORNIA
TAX-EXEMPT SERIES
By
Julie F. Williams, Secretary
Confirmed and agreed to August 22, 1986
CAPITAL RESEARCH AND MANAGEMENT COMPANY
By
Thomas E. Terry, Vice President and
Secretary
PLAN OF DISTRIBUTION
OF
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
WHEREAS, The American Funds Tax-Exempt Series II (the "Trust") is a
Massachusetts business trust which offers shares of beneficial interest of a
single series, The Tax-Exempt Fund of California (the "Fund"), and may offer
shares of additional series in the future;
WHEREAS, American Funds Distributors, Inc. ("AFD") will serve as
distributor of the shares of beneficial interest of the Fund and of all series
which may be established in the future, and the Trust and AFD are parties to a
principal underwriting agreement (the "Agreement");
WHEREAS, the purpose of this Plan of Distribution (the "Plan") is to
authorize the Trust to bear expenses of distribution of its shares, including
reimbursement of AFD for its expenses in the promotion of the sale of shares of
the Fund, pursuant to the Agreement;
WHEREAS, the Board of Trustees of the Trust has determined that there is a
reasonable likelihood that this Plan will benefit the Trust and its
shareholders:
NOW, THEREFORE, the Trust adopts this Plan as follows:
1. The Trust may expend pursuant to this Plan amounts not to exceed .25
of 1% of the average daily net assets of the Fund per annum.
2. Subject to the limit in paragraph 1, the Trust shall pay or reimburse
AFD for amounts to finance any activity which is primarily intended to result
in the sale of shares of the Fund including, but not limited to, payments to
dealers, advertising, salaries and other expenses of AFD relating to selling or
servicing efforts, expenses of organizing and conducting sales seminars,
printing of prospectuses and reports for other than existing shareholders and
preparation and distribution of advertising material and sales literature;
provided, (i) that the Board of Trustees of the Trust shall approve categories
of expenses for which payment or reimbursement shall be made pursuant to this
paragraph 2, (ii) that reimbursement shall be made in accordance with the terms
of the Distribution Agreement, and (iii) that there shall be no reimbursement
for any amounts which were expended by AFD in a prior fiscal year of the Trust
but were not reimbursed in such year due to the limitations in paragraph 1.
3. This Plan shall not take effect until it has been approved by vote of
a majority of the outstanding voting securities of the Fund (as defined in the
Investment Company Act of 1940 (the "1940 Act")) and shall take effect with
respect to any series of the Trust which may be established in the future upon
approval by vote of a majority of the outstanding voting securities (as defined
in the 1940 Act) of such series as provided in this paragraph 3 and by the
Board of Trustees as provided in paragraph 4. The Plan as adopted with respect
to any additional series shall specify the expense limit applicable to such
series pursuant to Section 1 hereof and the expenses payable by or with respect
to such series pursuant to paragraph 2 hereof.
4. This Plan shall not take effect until it has been approved, together
with any related agreement, by votes of the majority of both (i) the Board of
Trustees of the Trust and (ii) those Trustees of the Trust who are not
"interested persons" of the Trust (as defined in the 1940 Act) and have no
direct or indirect financial interest in the operation of this Plan or any
agreement related to it (the "Qualified Trustees"), cast in person at a meeting
called for the purpose of voting on this Plan and/or such agreement.
5. At least quarterly, the Board of Trustees shall be provided by any
person authorized to direct the disposition of monies paid or payable by the
Trust pursuant to this Plan or any related agreement, and the Board shall
review a written report of the amounts expended pursuant to the Plan and the
purposes for which such expenditures were made.
6. This Plan may be terminated as to the Trust or any series of the Trust
at any time by vote of a majority of the Qualified Trustees, or by vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Trust or such series. Unless sooner terminated in accordance with this
provision, this Plan shall continue in effect until May 31, 1990. It may
thereafter be renewed from year to year in the manner provided for in paragraph
4 hereof.
7. Any agreement related to this Plan shall be in writing, and shall
provide:
A. that such agreement may be terminated as to the Trust or any
series thereof at any time, without payment of any penalty, by vote of a
majority of the Qualified Trustees or by a vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Trust or such
series, on not more than sixty (60) days' written notice to any other party to
the agreement; and
B. that such agreement shall terminate automatically in the event of
its assignment.
8. This Plan may not be amended to increase materially the maximum amount
of fee or other distribution expenses provided for in paragraph 1 hereof with
respect to a series unless such amendment is approved by the voting securities
of that series in the manner provided in paragraph 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in paragraph 4 hereof.
9. While this Plan is in effect, the selection and nomination of Trustees
of the Trust who are not "interested persons" of the Trust (as defined in the
1940 Act) shall be committed to the discretion of the Trustees who are not
interested persons.
10. This Plan may be adopted, amended, continued or renewed with respect
to a series as provided herein notwithstanding such adoption, amendment,
continuance or renewal has not been effected with respect to any one or more
other series of the Trust.
11. The Trust shall preserve copies of this Plan and any related
agreement and all reports made pursuant to paragraph 5 hereof for a period of
not less than six (6) years from the date of this Plan, or such agreement or
reports, as the case may be, the first two (2) years of which such records
shall be stored in an easily accessible place.
IN WITNESS WHEREOF, the Trust has caused this Plan to be executed by its
officers thereunto duly authorized, as of June 1, 1989.
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
By /s/ Abner D. Goldstine
Abner D. Goldstine, President
By /s/ Julie F. Williams
Julie F. Williams, Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-1-1996
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 271,382
<INVESTMENTS-AT-VALUE> 290,436
<RECEIVABLES> 4,054
<ASSETS-OTHER> 20
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 294,510
<PAYABLE-FOR-SECURITIES> 4,400
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 944
<TOTAL-LIABILITIES> 5,344
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 268,767
<SHARES-COMMON-STOCK> 17,825,514
<SHARES-COMMON-PRIOR> 16,001,073
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,345
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,054
<NET-ASSETS> 289,166
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15,762
<OTHER-INCOME> 0
<EXPENSES-NET> 1,944
<NET-INVESTMENT-INCOME> 13,818
<REALIZED-GAINS-CURRENT> 1,397
<APPREC-INCREASE-CURRENT> 7,301
<NET-CHANGE-FROM-OPS> 22,516
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,821)
<DISTRIBUTIONS-OF-GAINS> (1,382)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,438,562
<NUMBER-OF-SHARES-REDEEMED> 2,150,063
<SHARES-REINVESTED> 535,942
<NET-CHANGE-IN-ASSETS> 36,634
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,330
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,088
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,944
<AVERAGE-NET-ASSETS> 268,336
<PER-SHARE-NAV-BEGIN> 15.78
<PER-SHARE-NII> .83
<PER-SHARE-GAIN-APPREC> .53
<PER-SHARE-DIVIDEND> .83
<PER-SHARE-DISTRIBUTIONS> .09
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.22
<EXPENSE-RATIO> .007
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
