[THE AMERICAN FUNDS GROUP(R)]
THE TAX-EXEMPT FUND OF CALIFORNIA
[photo collage: outline of state superimposed over photos of hibiscus flower,
ocean, orange grove, mountains, vineyard]
Semi-Annual Report for the six months ended February 28, 1998
THE TAX-EXEMPT FUND OF CALIFORNIA(SM)
SEEKS A HIGH LEVEL OF CURRENT INCOME FREE FROM FEDERAL AND CALIFORNIA INCOME
TAXES, WITH THE ADDITIONAL OBJECTIVE OF PRESERVATION OF CAPITAL.
The Tax-Exempt Fund of California is one of the 28 mutual funds in The American
Funds Group,(r) managed by Capital Research and Management Company. Since 1931,
Capital has invested with a long-term focus based on thorough research and
attention to risk.
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are returns, with all distributions reinvested,
through March 31, 1998 (the most recent calendar quarter), assuming payment of
the 4.75% maximum sales charge at the beginning of the stated periods:
<TABLE>
<CAPTION>
<S> <C> <C>
Total Average Annual
Return Compound Return
Ten Years +104.17% +7.40%
Five Years +31.91 +5.70
One Year +4.78 -
</TABLE>
Sales charges are lower for accounts of $25,000 or more. The fund's 30-day
tax-exempt yield as of March 31, 1998, calculated in accordance with the
Securities and Exchange Commission formula, was 3.93%. The fund's distribution
rate as of that date was 4.56%. The SEC yield reflects income the fund expects
to earn based on its current portfolio of securities, while the distribution
rate is based solely on the fund's past dividends. Accordingly, the fund's SEC
yield and distribution rate may differ.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS AND ARE NOT PREDICTIVE OF
FUTURE RESULTS. SHARE PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY BY
INVESTING IN THE FUND. THE SHORTER THE TIME PERIOD OF YOUR INVESTMENT, THE
GREATER THE POSSIBILITY OF LOSS. FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR INSURED OR GUARANTEED BY, THE U.S. GOVERNMENT, ANY FINANCIAL
INSTITUTION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER AGENCY,
ENTITY OR PERSON. Income may be subject to federal alternative minimum taxes.
Also, distributions from gains on the sale of certain bonds purchased at less
than par value and capital gain distributions, if any, are taxable.
Fellow Shareholders:
The Tax-Exempt Fund of California enjoyed solid returns in the first half of
its 1998 fiscal year, a period marked by low inflation and rising bond prices.
Shareholders who reinvested their distributions saw the value of their holdings
rise 4.5% in the six months ended February 28, 1998. The fund's results trailed
the 5.0% total return of the unmanaged Lehman Brothers Municipal Bond Index,
which measures results in the national municipal bond market. The average
California municipal bond fund rose 5.1%, according to Lipper Analytical
Services, a leading mutual fund tracking service.
The fund paid monthly dividends totaling 40.5 cents a share and an 8.4 cents a
share capital gain distribution during the period. Shareholders who took their
dividends in cash saw the value of their holdings rise 1.9% and had an income
return of 2.5% (5.0% annualized), free of state and federal taxes. Investors in
the 45.2% combined federal and state tax bracket would have had to earn 4.6%
(9.2% annualized) in taxable income to equal the 2.5% income return provided by
The Tax-Exempt Fund of California.
It was an interesting and eventful six months. The fiscal year began last
September just as the bond market was rebounding from a downturn in prices. The
market gained strength through most of the six months as investors' confidence
increased that although the economy would remain strong, inflation would stay
subdued. Rising housing prices and falling unemployment also contributed to
California's strengthening economy.
Concern that the economy could become too robust and cause the Federal Reserve
Board to raise interest rates prompted the fund's portfolio counselors to adopt
a slightly more conservative stance during the six months and shorten the
average maturity of the portfolio. Typically, the longer a bond's maturity the
higher its yield, so a 30-year bond usually has a higher yield than a 10-year
bond. But, as a bond's average maturity increases so does the volatility. In
the current environment, your fund's managers believe the risk is far greater
in longer-term bonds and that caution is warranted.
The fund's managers never base an investment decision simply on yield. Instead,
they rely on thorough research to uncover potentially rewarding opportunities
in all types of markets. The value of this thorough research can be seen in the
decision to increase the fund's holdings of special assessment bonds before the
state's economy picked up steam. These bonds are typically used to build roads,
schools, parks, and water and sewer systems and are secured by the value of
their real estate. As the California economy strengthened, the price of land
has appreciated and the value of these special assessment bonds has risen.
We will continue to search for good long-term opportunities such as these while
closely monitoring the outlook for inflation, interest rates and the economy.
We look forward to reporting to you again in six months.
Cordially,
/s/Paul G. Haaga, Jr. /s/Abner D. Goldstine
Paul G. Haaga, Jr. Abner D. Goldstine
Chairman of the Board President
April 17, 1998
INVESTMENT HIGHLIGHTS
through 2/28/98
6-month total return +4.5%
(income plus capital changes,
with distributions reinvested)
12-month total return +8.8%
(income plus capital changes,
with distributions reinvested)
Tax-free distribution rate for February 4.7%
(income return only, reflecting maximum
sales charge)
Taxable equivalent distribution rate 8.6%
(for February, assuming a 45.2%
combined state and federal tax rate)
SEC 30-day yield as of February 28 3.9%
(reflecting maximum sales charge)
For current yield information, please call toll-free: 800/421-0180.
<TABLE>
<S> <C> <C>
THE TAX-EXEMPT FUND OF CALIFORNIA
Investment Portfolio, February 28, 1998
(unaudited) Principal Market
Amount Value
(000) (000)
Tax-Exempt Securities Maturing in More than
One Year - 96.24%
Educational Facilities Authority, Revenue Bonds
(University of San Francisco), Series 1996, MBIA
Insured, 5.70% 2011 $1,190 $1,323
Health Facilities Financing Authority:
Hospital Revenue Bonds:
Downey Community Hospital, Series 1993:
5.625% 2008 1500 1569
5.75% 2015 6400 6589
Kaiser Permanente Medical Care Program, Semi-Annual
Tender Revenue Bonds, 1985 Tender Bonds, 5.55% 2025 2000 2032
Pacific Presbyterian Medical Center, Insured
Variable Rate Demand, 1985 Series B,
6.75% 2015 (Prerefunded 2002) 4000 4368
St. Joseph Health System:
Series 1989 A, 6.90% 2014 (Prerefunded 1999) 1250 1324
Series 1991 A, 6.75% 2021 (Prerefunded 2001) 4000 4417
Hospital Revenue Refunding Bonds (Saint Francis
Memorial Hospital), Series 1993A, 5.75% 2005
(Prerefunded 2003) 1150 1264
Housing Finance Agency:
Home Mortgage Revenue Bonds:
1991 Series A, 7.35% 2011 495 528
1991 Series G AMT, 6.95% 2011 780 804
1997 Series H, MBIA Insured, 5.50% 2017 3250 3336
1995 Series K AMT, AMBAC Insured, 5.55% 2021 825 849
Single Family Mortgage Purchase Bonds, Series B2 AMT,
AMBAC Insured, 5.70% 2007 3265 3366
Single Family Mortgage Revenue Bonds:
1998 Series C-4, Class I:
4.90% 2004 * 2695 2753
5.10% 2007 * 1000 1026
5.15% 2008 * 4650 4782
1997 Series C-1, Class III, MBIA Insured, 5.05% 2011 5500 5628
Maritime Infrastructure Authority,
Airport Revenue Bonds (San Diego Unified Port
District Airport Project-Lindbergh Field), Series 1995 AMT,
AMBAC Insured, 5.00% 2020 2265 2193
Pollution Control Financing Authority:
Pollution Control Revenue Bonds (Pacific Gas and
Electric Co.):
1992 Series B AMT, 6.35% 2009 4400 4766
1993 Series B AMT, AMBAC Insured, 5.85% 2023 1000 1053
Resource Recovery Revenue Bonds, Waste Management Inc.
Guarantee Bond, Series A AMT, 7.15% 2011 3500 3800
Solid Waste Disposal Revenue Bonds (CanFibre
of Riverside Project), Series 1997A AMT,
9.00% 2019 4000 4240
Solid Waste Revenue Bonds (Keller Canyon Landfill
Co. Project), BFI Corp. Guarantee, Series 1992 AMT:
5.80% 2016 1250 1310
6.875% 2027 6200 6868
Public Works Board, Lease Revenue Bonds:
California Community Colleges (Various Community
College Projects), 1994 Series B, 6.75% 2005 1000 1150
Trustees of The California State University
(Various University Projects):
1996 Series A, AMBAC Insured, 5.50% 2014 3500 3684
1997 Series B, 5.25% 2010 1500 1577
The Regents of the University of California,
Various University of California Projects:
1993 Series B, MBIA Insured, 5.50% 2014 1500 1621
1993 Series A, 5.50% 2021 1000 1021
Department of Corrections, State Prison:
Imperial County, 1991 Series A, 6.50% 2017 1000 1189
Lassen County (Susanville), 1993 Series D:
FSA Insured, 5.25% 2015 2000 2095
5.375% 2018 1600 1617
1991 Certificates of Participation (UCLA Central
Chiller/Cogeneration Facility), 7.00% 2015
(Prerefunded 1999) 1250 1338
Rural Home Mortgage Finance Authority, Single Family
Mortgage Revenue Bonds (Mortgage-Backed Securities
Program):
1995 Series B AMT, 7.75% 2026 2845 3288
1996 Series A AMT, 7.75% 2027 1205 1393
Statewide Communities Development Authority:
Certificates of Participation, J. Paul Getty Trust,
5.00% 2015 1000 1001
Hospital Revenue Certificates of Participation,
Cedars-Sinai Medical Center, Series 1992, 6.50% 2012 1900 2201
St. Joseph Health System Obligated Group,
Certificates of Participation, 5.50% 2014 3000 3076
Sisters of Charity of Leavenworth Health Services
Corp., Certificates of Participation, Series 1994,
5.00% 2023 2000 1932
Department of Water Resources, Central Valley Project,
Water System Revenue Bonds:
Series F, 7.25% 2010 500 511
Series O, MBIA Insured, 5.00% 2022 2000 1947
Series H, 6.90% 2025 (Prerefunded 2000) 2000 2162
Alameda Public Financing Authority, 1997 Revenue Bonds
(Marina Village Assessment District Bond Refinancing):
6.05% 2008 1110 1137
6.125% 2009 1340 1373
6.375% 2014 1100 1132
County of Alameda, 1993 Refunding Certificates of
Participation (Santa Rita Jail Project), MBIA Insured,
5.375% 2009 1500 1618
Anaheim Public Financing Authority, Lease Revenue Bonds
(Anaheim Public Improvements Project), Senior Lease
Revenue Bonds, 1997 Series A, FSA Insured, 6.00% 2024 1500 1717
Association of Bay Area Governments Finance Authority
For Nonprofit Corporations, Certificates of Participation:
American Baptist Homes of the West, Series 1997 A, 5.25% 2007 2760 2834
Stanford University Hospital, Series 1993:
5.75% 2005 2240 2436
5.50% 2013 2500 2572
Redevelopment Agency of the City of Burbank
(Golden State Redevelopment Project), Tax
Allocation Bonds, 1993 Series A:
6.00% 2013 1500 1582
6.00% 2023 1000 1047
Capistrano Unified School District, Certificates of
Participation, Series 1997, 5.20% 2018 2100 2117
Central Valley Financing Authority, Cogeneration
Project Revenue Bonds (Carson Ice-Gen Project),
Series 1993:
6.10% 2013 3000 3185
6.20% 2020 5000 5308
City of Commerce, Community Development Commission,
Redevelopment Project No. 1, Subordinate Lien Tax
Allocation Refunding Bonds, Series 1997 B, 5.50% 2008 2490 2590
Del Mar Race Track Authority, Revenue Refunding Bonds,
Series 1996, 6.00% 2001 2000 2067
Delta Counties Home Mortgage Finance Authority,
Single Family Mortgage Revenue Bonds (Mortgage-Backed
Securities Program), 1998 Series A AMT, MBIA Insured,
4.85% 2008 800 800
Foothill/Eastern Transportation Corridor Agency, Toll
Road Revenue Bonds, Series 1995A, 6.00% 2016 2500 2684
City of Fremont, Multifamily Housing Revenue Refunding
Bonds (Durham Greens Project), Issue A of 1995,
5.40% 2026 3000 3152
City of Fresno, Sewer System Revenue Bonds, Series 1993A,
AMBAC Insured, 5.25% 2019 1000 1034
Kern High School District (County of Kern), General
Obligation Refunding Bonds, Series 1996A,
MBIA Insured, 6.60% 2016 1000 1180
City of Long Beach:
Financing Authority Revenue Bonds,
Series 1992, AMBAC Insured, 6.00% 2017 750 849
Harbor Revenue Bonds, Series 1993 AMT, 5.125% 2018 1000 984
City of Los Angeles:
Community Redevelopment Agency, Central Business
District Redevelopment Project, Tax Allocation Refunding
Bonds, Series I, 5.00% 2001 8275 8471
Convention and Exhibition Center Authority, Certificates
of Participation, 7.375% 2018 (Prerefunded 1999) 2500 2667
Harbor Department Revenue Bonds:
Issue 1988, 7.60% 2018 (Escrowed to Maturity) 1750 2230
Issue 1995, Series B AMT, 6.625% 2025 3000 3267
Multifamily Housing Revenue Bonds (GNMA Collateralized -
Ridgecroft Apartments Project), Series 1997E AMT,
6.125% 2027 2005 2104
Transportation Commission, Sales Tax Revenue Bonds,
Series 1991-A, 6.75% 2020 (Prerefunded 2001) 2500 2766
Department of Water and Power, Electric Plant Revenue Bonds,
Issue of 1990:
7.125% 2030 (Subject to Crossover Refunding 2000) 1000 1081
7.10% 2031 (Subject to Crossover Refunding 2001) 3000 3303
County of Los Angeles:
Capital Asset Leasing Corp., Certificates of Participation
(Marina del Rey), Series A:
6.25% 2003 4635 5023
6.50% 2008 6000 6518
Metropolitan Transportation Authority:
Proposition A Sales Tax Revenue Refunding Bonds,
Series 1993-A, FGIC Insured, 5.00% 2021 2000 1954
Proposition C Sales Tax Revenue Bonds, Second
Senior Bonds, Series 1995-A, AMBAC Insured,
5.00% 2025 1000 975
Public Works Financing Authority, Regional Park and Open
Space District, District A, Series 1997 A, 5.50% 2011 5000 5326
Marin Municipal Water District Water Revenue Bonds,
Series 1993, 5.65% 2023 1000 1036
Northern California Public Power Agency, Geothermal Project
#3, Special Revenue Bonds, 1993 Refunding Series A,
5.60% 2006 3725 3959
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 1724
7.35% 2018 (Prerefunded 2002) 4250 4901
Local Transportation Authority, First Senior Fixed-Rate Bonds:
AMBAC Insured, 6.00% 2007 1000 1126
MBIA Insured, 6.00% 2009 1500 1702
City of Oxnard, Assessment District No.97-1-R
(Pacific Commerce Center), Limited Obligation
Refunding Bonds:
5.50% 2004 1495 1544
5.60% 2005 2920 3017
5.70% 2006 1210 1250
City of Pasadena, Certificates of Participation (1990
Capital Improvements Project), 7.00% 2003
(Prerefunded 2000) 1000 1093
Redevelopment Agency of the City of Pittsburg, Los
Medanos Community Development Project, Tax Allocation
Refunding Bonds, AMBAC Insured, Series 1993A,
5.25% 2015 2195 2229
Pleasanton Joint Powers Financing Authority,
Reassessment Revenue Bonds, 1993 Series A:
5.70% 2001 3830 4003
6.15% 2012 1850 1984
Redding Joint Powers Financing Authority, Solid Waste
and Corporation Yard Revenue Bonds, 1993 Series A:
5.00% 2018 4000 3849
5.00% 2023 1000 957
Sacramento City Financing Authority, 1991 Revenue
Bonds, 6.80% 2020 (Prerefunded 2001) 5500 6137
Sacramento Cogeneration Authority, Cogeneration
Project Revenue Bonds:
(Campbell Soup Project), 1995 Series:
6.00% 2003 1500 1616
6.50% 2005 1100 1226
(Proctor & Gamble Project), 1995 Series:
7.00% 2005 1700 1956
6.375% 2010 3500 3859
6.50% 2014 1000 1097
6.50% 2021 4000 4379
Sacramento Municipal Utility District,
Electric Revenue Bonds, 1997 Series K, AMBAC Insured,
5.70% 2017 2500 2731
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 880 912
6.10% 2013 665 694
6.30% 2021 500 526
Single Family Mortgage Revenue Bonds
(GNMA Mortgage-Backed Securities Program),
Issue A of 1987 AMT, 9.00% 2019 (Escrowed to Maturity) 1500 2229
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 2706
County of San Bernardino:
Certificates of Participation, Series B (Capital
Facilities Project), 6.25% 2019 (Prerefunded 2001) 2000 2150
Housing Authority, Multifamily Housing Revenue Bonds,
(Fannie Mae Program - Villa Serena Project), Series 1985,
4.95% 2007 2090 2106
City of San Diego/MTDB Authority (San Diego Old Town
Light Rail Transit Extension), 1993 Lease Revenue
Bonds, 5.375% 2023 1500 1505
County of San Diego:
Poway Unified School District, Community Facilities
District No. 1, Series 1998 Special Tax Bonds, MBIA Insured:
5.00% 2009 2000 2088
5.00% 2010 3000 3107
Reassessment District No. 97-1 (4-S Ranch),
Limited Obligation Improvement Bonds:
5.90% 2007 1435 1481
5.90% 2008 1000 1032
City and County of San Francisco:
Port Commission Revenue Refunding Bonds,
Series 1994, 5.90% 2009 1500 1587
Redevelopment Agency, Residential Facility Revenue
Bonds (Coventry Park Project), 1996 Series A AMT,
8.50% 2026 5000 5610
County of San Joaquin, Certificates of Participation
(1993 General Hospital Project), 6.625% 2020 2235 2438
San Joaquin Hills Transportation Corridor Agency:
Senior Lien Toll Road Revenue Bonds, 6.75% 2032
(Prerefunded 2003) 1500 1701
Recovery Certificates of Participation, 1996 Series A,
MBIA Insured, 6.00% 2008 1500 1700
Redevelopment Agency of the City of San Jose,
Multifamily Housing Revenue Bonds
(GNMA Collateralized - The Miraido Village), Series 1997A AMT:
5.30% 2012 1000 1014
5.65% 2022 1500 1521
Santa Ana Financing Authority, Police Administration
and Holding Facility Lease Revenue Bonds, MBIA
Insured, Series 1994A, 6.25% 2019 1000 1164
Santa Clara County Financing Authority, Lease Revenue
Bonds (VMC Facility Replacement Project), AMBAC
Insured, 1994 Series A, 7.75% 2009 2200 2865
Shafter Joint Powers Financing Authority Lease Revenue
Bonds, 1997 Series A (Community Correctional Facility
Acquisition Project):
5.50% 2006 1535 1631
5.95% 2011 1700 1835
South Orange County, Public Financing Authority,
Special Tax Revenue Bonds, Series B (Junior Lien
Bonds):
6.55% 2002 1565 1612
6.85% 2005 2715 2804
South Tahoe Joint Powers Financing Authority, Refunding
Revenue Bonds (South Tahoe Redevelopment Project Area
No. 1), 1995 Series B, 6.25% 2020 3250 3470
Southern California Home Financing Authority, Single
Family Mortgage Revenue Bonds (GNMA and FNMA
Mortgage-Backed Securities Program), 1992 Series A AMT,
6.75% 2022 1105 1166
Stanislaus Waste-to-Energy Finance Agency, Solid Waste
Facility Refunding Revenue Certificates (Ogden Martin
Systems of Stanislaus, Inc. Project), Series 1990,
7.625% 2010 3210 3442
City of Stockton:
Mello-Roos Revenue Bonds, Series 1997A. Community
Facilities District, No. 90-2 (Brookside Estates) *:
5.50% 2005 1560 1603
5.75% 2008 1840 1902
5.95% 2010 1000 1041
Public Financing Authority, Certificates of Participation,
(Wastewater System Project), 1998 Series A, MBIA Insured,
5.125% 2009 1060 1119
---------
311210
---------
Tax-Exempt Securities Maturing in
One Year or Less - 5.89%
State of California, 1997 Revenue Anticipation Notes,
4.50% 6/30/98 6210 6230
County of Contra Costa, 1997-1998 Tax and Revenue
Anticipation Notes, Series A, 4.50% 7/1/98 7400 7423
City of Los Angeles:
State Building Authority, Lease Revenue Bonds,
Department of General Services Lease,
Series 1988 A, 7.50% 2011 (Prerefunded 1998) 3500 3571
County of Los Angeles, 1997-98 Tax and Revenue
Anticipation Notes, Series A, 4.50% 6/30/98 1800 1806
---------
19030
---------
TOTAL TAX-EXEMPT SECURITIES (cost:$307,520,000) 330240
Excess of payables over cash and receivables 6885
---------
$323,355
NET ASSETS =========
*Represents a when-issued security.
See Notes to Financial Statements
</TABLE>
<TABLE>
The Tax-Exempt Fund of California
Financial Statements (Unaudited)
Statement of Assets and Liabilities
at February 28, 1998 (dollars in thousands)
<S> <C> <C>
Assets:
Tax-exempt securities (cost: $307,520) $330,240
Cash 75
Receivables for--
Sales of investments $ 3,651
Sales of fund's shares 350
Accrued interest 4,793 8,794
--------------- ---------------
339,109
Liabilities:
Payables for--
Purchases of investments 14,561
Repurchases of fund's shares 276
Dividends payable 642
Management services 101
Accrued expenses 174 15,754
--------------- ---------------
Net Assets at February 28, 1998--
Equivalent to $16.45 per share on
19,659,957 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $323,355
=========
Statement of Operations
for the six months ended February 28, 1998
(dollars in thousands)
Investment Income:
Income:
Interest on tax-exempt securities $8,739
Expenses:
Management services fee $610
Distribution expenses 362
Transfer agent fee 33
Reports to shareholders 43
Registration statement and prospectus 12
Postage, stationery and supplies 10
Trustees' fees 8
Auditing and legal fees 36
Custodian fee 4
Taxes other than federal income tax 4
Other expenses 7 1,129
--------------- ---------------
Net investment income 7,610
---------------
Realized Gain and Increase in Unrealized
Appreciation on Investments:
Net realized gain 2,101
Net unrealized appreciation:
Beginning of period 19,054
End of period 22,720
---------------
Net increase in unrealized appreciation 3,666
---------------
Net realized gain and increase in
unrealized appreciation on investments 5,767
---------------
Net Increase in Net Assets Resulting
from Operations $13,377
=========
See Notes to Financial Statements
Statement of Changes in Net Assets
(dollars in thousands) Six months ended Year ended
February 28, August 31,
1998* 1997
--------- ---------
Operations:
Net investment income $ 7,610 $ 13,818
Net realized gain on investments 2,101 1,397
Net increase in unrealized appreciation
on investments 3,666 7,301
------------------ ------------------
Net increase in net assets
resulting from operations 13,377 22,516
------------------ ------------------
Dividends and Distributions Paid to
Shareholders:
Dividends paid from net investment income (7,647) (13,821)
Distributions from net realized gain
on investments (1,579) (1,382)
------------------ ------------------
Total dividends and distributions (9,226) (15,203)
------------------ ------------------
Capital Share Transactions:
Proceeds from shares sold:
2,769,136 and 3,438,562
shares, respectively 45,364 55,139
Proceeds from shares issued in reinvestment of net
investment income dividends and distributions of
net realized gain on investments:
323,568 and 535,942 shares, respectively 5,294 8,594
Cost of shares repurchased:
1,258,261 and 2,150,063 shares,
respectively (20,620) (34,412)
------------------ ------------------
Net increase in net assets
resulting from capital share transactions 30,038 29,321
------------------ ------------------
Total Increase in Net Assets 34,189 36,634
Net Assets:
Beginning of period 289,166 252,532
------------------ ------------------
End of period $323,355 $289,166
=========== ===========
*Unaudited
See Notes to Financial Statements
</TABLE>
Notes to Financial Statements (Unaudited)
1. The American Funds Tax-Exempt Series II (the "trust") is
registered under the Investment Company Act of 1940 as an open-end, diversified
management investment company and has initially issued one series of shares,
The Tax-Exempt Fund of California (the "fund"). The fund seeks a high level of
current income free from federal and California income taxes,with the
additional objective of preservation of capital. The following paragraphs
summarize the significant accounting policies consistently followed by the fund
in the preparation of its financial statements:
Tax-exempt securities 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. Securities and assets
for which representative market quotations are not readily available are valued
at fair value as determined in good faith by the Board of Trustees.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. Realized gains and losses from
securities transactions are reported on an identified cost basis. Interest
income is reported on the accrual basis. Premiums and original issue discounts
on securities purchased are amortized. Amortization of market discounts on
securities is recognized upon disposition, subject to applicable tax
requirements. Dividends to shareholders are declared daily after determination
of the fund's net investment income and paid to shareholders monthly.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of February 28, 1998, net unrealized appreciation on investments for
book and federal income tax purposes aggregated $22,720,000, of which
$22,858,000 related to appreciated securities and $138,000 related to
depreciated securities.
The cost of portfolio securities for book and federal income tax purposes was
$307,520,000 at February 28, 1998.
3. The fee of $610,000 for management services was incurred pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Trustees of the trust are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.30% of the first $60 million of average net assets;
0.21% of such assets in excess of $60 million; plus 3.00% of the fund's monthly
gross investment income.
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Trustees. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. As of February 28, 1998, accrued and
unpaid distribution expenses were $131,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $33,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $83,000 (after allowances to
dealers) as its portion of the sales charges paid by purchasers of the fund's
shares. Such sales charges are not an expense of the fund and, hence, are not
reflected in the accompanying statement of operations.
Trustees who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of February 28,
1998, aggregate amounts deferred and earnings thereon were $48,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Trustees and officers of the trust
are or may be considered to be affiliated with CRMC, AFS and AFD. No such
persons received any remuneration directly from the fund.
4. As of February 28, 1998, accumulated undistributed net realized gain on
investments was $1,867,000 and paid-in capital was $298,805,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $58,143,000 and $27,851,000, respectively, during the
six months ended February 28, 1998.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $4,000 includes $2,000 paid by these credits rather than
in cash.
<TABLE>
Per-Share Data and Ratios
<S> -----------<C> <C> <C> <C> <C>
Six months
ended Year ended August 31
February 28-----------------------------------------
1998(1) 1997 1996 1995 1994 1993
Net Asset Value, Beginning
of Period $16.22 $15.78 $15.74 $15.40 $16.30 $15.21
------------------ ------- ------- ------- -------
Income from Investment
Operations:
Net investment income .41 .83 .84 .86 .84 .84
Net realized and
unrealized gain
(loss) on investments .31 .53 .04 .34 (.84) 1.09
-------------------------- ------- ------- -------
Total income from
investment operations .72 1.36 .88 1.20 - 1.93
-------------------------- ------- ------- -------
Less Distributions:
Dividends from net
investment income (.41) (.83) (.84) (.86) (.84) (.84)
Distributions from net
realized gains (.08) (.09) - - (.06) -
-------------------------- ------- ------- -------
Total distributions (.49) (.92) (.84) (.86) (.90) (.84)
-------------------------- ------- ------- -------
Net Asset Value, End of Period $16.45 $16.22 $15.78 $15.74 $15.40 $16.30
========================== ======= ======= =======
Total Return(2) 4.49%(3) 8.80% 5.65% 8.16% 0.13% 13.08%
Ratios/Supplemental Data:
Net assets, end of period
(in millions) $323 $289 $253 $233 $226 $223
Ratio of expenses to average
net assets .37%(3) .72% .73% .73% .71% .71%
Ratio of net income to
average net assets 2.47%(3) 5.15% 5.25% 5.65% 5.28% 5.36%
Portfolio turnover rate 5.75%(3) 15.68% 27.60% 41.36% 15.08% 16.82%
(1)Unaudited
(2)Excludes maximum sales charge of 4.75%.
(3)Based on operations for the period shown and,
accordingly, not representative
of a full year's operations.
</TABLE>
[THE AMERICAN FUNDS GROUP(R)]
OFFICES OF THE FUND AND OF THE
INVESTMENT ADVISER, CAPITAL RESEARCH
AND MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
This report is for the information of shareholders of The Tax-Exempt Fund of
California, but it may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details about charges,
expenses, investment objectives and operating policies of the fund. If used as
sales material after June 30, 1998, this report must be accompanied by an
American Funds Group Statistical Update for the most recently completed
calendar quarter.
Litho in USA KBD/INS/3747
Lit. No. TEFCA-013-0498
Printed on recycled paper
