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. 19
and
Registration Statement
Under
The Investment Company Act of 1940
Amendment No. 21
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, Secretary
The American Funds Tax-Exempt Series II
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)
Approximate date of proposed public offering:
It is proposed that this filing become effective on March 15, 2000, pursuant to
paragraph (b) of rule 485.
<PAGE>
The Tax-Exempt Fund of California(R)
Prospectus
MARCH 15, 2000
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED
OR DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
---------------------------------------------------------
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
THE TAX-EXEMPT FUND OF CALIFORNIA
333 South Hope Street
Los Angeles, California 90071
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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<S> <C>
Risk/Return Summary 2
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Fees and Expenses of the Fund 5
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Investment Objectives, Strategies and Risks 6
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Management and Organization 8
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Shareholder Information 10
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Choosing a Share Class 11
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Purchase and Exchange of Shares 12
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Sales Charges 13
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Sales Charge Reductions and Waivers 15
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Plans of Distribution 16
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How to Sell Shares 17
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Distributions and Taxes 18
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Financial Highlights 20
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Appendix 21
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</TABLE>
1
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
TEFCA-010-0300/B
<PAGE>
---------------------------------------------------------
RISK/RETURN SUMMARY
The fund's primary objective is to provide you with a high level of current
income exempt from regular federal and California income taxes. Its secondary
objective is to preserve your investment. It invests primarily in municipal
bonds, including lower quality bonds, issued by municipalities in the state of
California, including counties, cities, towns, and various regional or special
districts.
The fund is designed for investors seeking income exempt from federal and state
taxes, and capital preservation over the long term. An investment in the fund
is subject to risks, including the possibility that the fund may decline in
value in response to economic, political or social events in the U.S. or
abroad. Because the fund invests in securities issued by California
municipalities, the fund is more susceptible to factors adversely affecting
issuers of California securities than a comparable municipal bond mutual fund
that does not concentrate in a single state. The values of debt securities may
be affected by changing interest rates and credit risk assessments. Lower
quality and longer maturity bonds may be subject to greater price fluctuations
than higher quality and shorter maturity bonds.
Your investment in the fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency, entity or person.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME.
2
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
INVESTMENT RESULTS
The following information provides some indication of the risks of investing in
the fund by showing changes in the fund's investment results from year to year
and by showing how the fund's average annual returns for various periods
compare with those of a broad measure of market performance. Past results are
not an indication of future results.
CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES
(Results do not include a sales charge; if one were included, results would
be lower.)
------------------------------------------------------------------------------
[bar chart]
1990 5.60%
1991 10.10%
1992 8.25%
1993 12.87%
1994 -5.08%
1995 17.59%
1996 4.27%
1997 8.54%
1998 6.13%
1999 -1.97%
[end bar chart]
The fund's highest/lowest quarterly results during this time period were:
<TABLE>
<CAPTION>
<S> <C> <C>
HIGHEST 7.46% (quarter ended March 31, 1995)
LOWEST -4.68% (quarter ended March 31, 1994)
</TABLE>
3
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
For periods ended December 31, 1999:
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN ONE YEAR FIVE YEARS TEN YEARS LIFETIME
<S> <C> <C> <C> <C>
Class A/1/
(with the maximum sales charge -5.66% 5.91% 6.04% 6.11%
deducted)
------------------------------------------------------------------------------
Class B/2/ N/A N/A N/A N/A
------------------------------------------------------------------------------
Lehman Brothers Municipal -2.06% 6.91% 6.89% 7.05%
Bond Index/3/
------------------------------------------------------------------------------
</TABLE>
Class A yield: 4.76%
(For current yield information, please call American FundsLine/r/ at
1-800-325-3590)
1 The fund began investment operations for Class A shares on October 28, 1986.
2 The fund is beginning investment operations for Class B shares on March 15,
2000.
3 The 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. The lifetime figure is from the date
the fund's Class A shares began investment operations.
Unlike the bar chart on the previous page, this table reflects the fund's
investment results with the maximum initial or deferred sales charge deducted,
as required by Securities and Exchange Commission rules. Class A share results
are shown with the maximum initial sales charge of 3.75% deducted. Sales
charges are reduced for purchases of $100,000 or more. Results would be higher
if they were calculated at net asset value. All fund results reflect the
reinvestment of dividend and capital gain distributions.
Class B shares are subject to a maximum deferred sales charge of 5.00% if
shares are redeemed within the first year of purchasing them. The deferred
sales charge declines thereafter until it reaches 0% after six years. Class B
shares convert to Class A shares after eight years. Since the fund's Class B
shares begin investment operations on March 15, 2000, no results are available
as of the date of this prospectus.
4
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
---------------------------------------------------------
FEES AND EXPENSES OF THE FUND
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(fees paid directly from your investment) CLASS A CLASS B
--------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge imposed on purchases 3.75%/1/ 0.00%
(as a percentage of offering price)
--------------------------------------------------------------------------
Maximum sales charge imposed on reinvested dividends 0.00% 0.00%
--------------------------------------------------------------------------
Maximum deferred sales charge 0.00%/2/ 5.00%/3/
--------------------------------------------------------------------------
Redemption or exchange fees 0.00% 0.00%
</TABLE>
1 Sales charges are reduced or eliminated for purchases of $100,000 or more.
2 A contingent deferred sales charge of 1% applies on certain redemptions made
within 12 months following purchases of $1 million or more made without a
sales charge.
3 Deferred sales charges are reduced after 12 months and eliminated after six
years.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets) CLASS A CLASS B/1/
-----------------------------------------------
<S> <C> <C>
Management Fees 0.38% 0.38%
Distribution and/or Service (12b-1) Fees 0.25%/2/ 1.00%/3/
Other Expenses 0.07% 0.07%
Total Annual Fund Operating Expenses 0.70% 1.45%
</TABLE>
1 Based on estimated amounts for the current fiscal year.
2 Class A 12b-1 expenses may not exceed 0.25% of the fund's average net assets
annually.
3 Class B 12b-1 expenses may not exceed 1.00% of the fund's average net assets
annually.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the fund for the time periods indicated, that your investment
has a 5% return each year and that the fund's operating expenses remain the
same as shown above. The Class A example reflects the maximum initial sales
charge in Year One. The Class B-assuming redemption example reflects applicable
contingent deferred sales charges through Year Six (after which time they are
eliminated). Both Class B examples reflect Class A expenses for Years 9 and 10
since Class B shares automatically convert to Class A after eight years.
Although your actual costs may be higher or lower, based on these assumptions
your cumulative expenses would be:
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR
ONE THREE FIVE TEN
<S> <C> <C> <C> <C>
Class A $444 $590 $750 $1,213
----------------------------------------------------------------------------
Class B - assuming redemption $648 $859 $992 $1,531
Class B - assuming no redemption $148 $459 $792 $1,531
</TABLE>
5
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
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INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The fund's primary investment objective is to provide you with a high level of
current income exempt from regular federal and California income taxes. Its
secondary objective is preservation of capital. The fund seeks to achieve
these objectives by investing primarily in municipal bonds, including lower
quality bonds, issued by municipalities in the state of California. Municipal
bonds are debt obligations generally issued to obtain funds for various public
purposes, including the construction of public facilities.
Because the fund invests in securities of issuers within the State of
California, the fund is more susceptible to factors adversely affecting issuers
of California securities than a comparable municipal bond mutual fund which
does not concentrate in a single state. For example, in the past, California
voters have passed amendments to the state's constitution and other measures
that limit the taxing and spending authority of California governmental
entities and future voter initiatives may adversely affect California municipal
bonds. More detailed information about the risks of investing in California is
contained in the statement of additional information.
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 fund may invest up to 20% of its
assets in securities that may subject you to federal alternative minimum taxes.
The fund will invest primarily in debt securities rated Baa or BBB or better by
Moody's Investors Service, Inc. or Standard & Poor's Corporation (or unrated
but determined to be of equivalent quality) and may invest up to 20% of its
assets in debt securities rated Ba and BB or below.
The values of most debt securities held by the fund may be affected by changing
interest rates, and individual securities by changes in their effective
maturities and credit ratings. For example, the values of bonds in the fund's
portfolio generally will decline when interest rates rise and vice versa. Debt
securities are also subject to credit risk, which is the possibility that the
credit strength of an issuer will weaken and/or an issuer of a debt security
will fail to make timely payments of principal or interest and the security
will go into default. The values of lower quality and longer maturity bonds
will be subject to greater price fluctuations than higher quality and shorter
maturity bonds. The fund's investment adviser attempts to reduce these risks
through diversification of the portfolio and with ongoing credit analysis of
each issuer as well as by monitoring economic and legislative developments.
The fund may also hold cash or money market instruments or taxable debt
securities. The size of the fund's cash position will vary and will depend on
various
6
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
factors, including market conditions and purchases and redemptions of fund
shares. A larger cash position could detract from the achievement of the fund's
objectives, but it also would reduce the fund's exposure in the event of a
market downturn and provide liquidity to make additional investments or to meet
redemptions.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of the investment adviser is to
seek undervalued securities that represent good long-term investment
opportunities. Securities may be sold when the investment adviser believes they
no longer represent good long-term value.
ADDITIONAL INVESTMENT RESULTS
For periods ended December 31, 1999:
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN/1/ ONE YEAR FIVE YEARS TEN YEARS LIFETIME
<S> <C> <C> <C> <C>
Class A/2/ -1.97% 6.72% 6.44% 6.41%
(with no sales charge deducted)
----------------------------------------------------------------------------
Class B/3/ N/A N/A N/A N/A
----------------------------------------------------------------------------
Lipper California Municipal -5.16% 6.10% 6.12% 6.09%
Debt Average/4/
----------------------------------------------------------------------------
</TABLE>
Class A distribution rate/5/: 4.87%
1 These fund results were calculated at net asset value according to a formula
that is required for all stock and bond funds and include the reinvestment of
dividend and capital gain distributions.
2 The fund began investment operations for Class A shares on October 28, 1986.
3 The fund is beginning investment operations for Class B shares on March 15,
2000.
4 The Lipper California Municipal Debt Funds Average represents funds that
limit their assets to those securities that provide income that is exempt from
taxation in California. This average is unmanaged and does not reflect sales
charges, commissions or expenses. The lifetime figure is from the date the
fund's Class A shares began investment operations.
5 The distribution rate represents actual distributions paid by the fund. It
was calculated at net asset value by annualizing dividends paid by the fund
over one month and dividing that number by the fund's average net asset value
for the month.
7
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
The following chart illustrates the quality ratings of the various bonds held
in the portfolio as of the end of the fund's fiscal year, August 31, 1999.
See the Appendix for a description of quality ratings.
[pie chart]
AAA 33.4%
AA 8.4%
A 13.3%
BBB 20.7%
BB 13.3%
B 3.9%
Cash and Short-Term Securities 7.0%
[end pie chart]
Because the fund is actively managed, its holdings will change from time to
time.
------------------------------------------------------------------------------
---------------------------------------------------------
MANAGEMENT AND ORGANIZATION
INVESTMENT ADVISER
Capital Research and Management Company, an experienced investment management
organization founded in 1931, serves as 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 total management fee paid by the fund, as a percentage
of average net assets, for the previous fiscal year is discussed earlier under
"Fees and Expenses of the Fund."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report 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.
8
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Capital Research and Management Company uses a system of multiple portfolio
counselors in managing mutual fund assets. Under this approach 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 Tax-Exempt Fund of California are listed below.
<TABLE>
<CAPTION>
APPROXIMATE YEARS OF EXPERIENCE
YEARS OF EXPERIENCE AS AN INVESTMENT PROFESSIONAL
AS PORTFOLIO COUNSELOR (INCLUDING THE LAST FIVE YEARS)
PORTFOLIO (AND RESEARCH PROFESSIONAL, -----------------------------------
COUNSELORS FOR IF APPLICABLE) FOR WITH CAPITAL
THE TAX-EXEMPT THE TAX-EXEMPT FUND RESEARCH AND
FUND OF CALIFORNIA MANAGEMENT
OF CALIFORNIA PRIMARY TITLE(S) (APPROXIMATE) COMPANY
------------------------------------------------------------------------- OR AFFILIATES TOTAL YEARS
-----------------------------------
<S> <C> <C> <C> <C>
NEIL L. Senior Vice President 13 years (since the fund 22 years 22 years
LANGBERG of the fund. Vice began operations)
President - Investment
Management Group, Capital
Research and Management
Company
------------------------------------------------------------------------------------------------------------
DAVID A. Vice President of the 7 years 9 years 12 years
HOAG fund. Vice President and
Director, Capital
Research Company*
------------------------------------------------------------------------------------------------------------
EDWARD B. Vice President, Capital 1 year 4 years 4 years
NAHMIAS Research Company*
The fund began investment operations on October 28, 1986.
* Company affiliated with Capital Research and Management Company
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
---------------------------------------------------------
SHAREHOLDER INFORMATION
SHAREHOLDER SERVICES
American Funds Service Company, the fund's transfer agent, offers you a wide
range of services you can use to alter your investment program should your
needs and circumstances change. These services may be terminated or modified at
any time upon 60 days' written notice. For your convenience, American Funds
Service Company has four service centers across the country.
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
[map of the United States]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Western Western Central Eastern Central Eastern
Service Center Service Center Service Center Service Center
American Funds American Funds American Funds American Funds
Service Company Service Company Service Company Service Company
P.O. Box 2205 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280
Brea, California San Antonio, Texas Indianapolis, Indiana Norfolk, Virginia
92822-2205 78265-9522 46206-6007 23501-2280
Fax: 714/671-7080 Fax: 210/474-4050 Fax: 317/735-6620 Fax: 757/670-4773
</TABLE>
A COMPLETE DESCRIPTION OF THE SERVICES WE OFFER IS INCLUDED 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.
TAX-EXEMPT FUNDS SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS.
Additionally, accounts held by investment dealers may not offer certain
services. If you have any questions, please contact your dealer.
10
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
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CHOOSING A SHARE CLASS
The fund offers both Class A and Class B shares. Each share class has its own
sales charge and expense structure, allowing you to choose the class that best
meets your situation.
Factors you should consider in choosing a class of shares include:
- How long you expect to own the shares
- How much you intend to invest
- The expenses associated with owning shares of each class
- Whether you qualify for any reduction or waiver of sales charges (for
example, Class A shares may be a less expensive option over time if you
qualify for a sales charge reduction or waiver)
EACH INVESTOR'S FINANCIAL CONSIDERATIONS ARE DIFFERENT. YOU SHOULD SPEAK WITH
YOUR FINANCIAL ADVISER TO HELP YOU DECIDE WHICH SHARE CLASS IS BEST FOR YOU.
Differences between Class A and Class B shares include:
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------------------------------------
<S> <S>
Initial sales charge of up to No initial sales charge.
3.75%. Sales charges are reduced
for purchases of $100,000 or more
(see "Sales Charges - Class A").
------------------------------------------------------------------------------
Distribution and service (12b-1) Distribution and service (12b-1) fees
fees of up to 0.25% annually. of up to 1.00% annually.
------------------------------------------------------------------------------
Higher dividends than Class B Lower dividends than Class A shares due
shares due to lower annual to higher distribution fees and other
expenses. expenses.
------------------------------------------------------------------------------
No contingent deferred sales charge A contingent deferred sales charge if
(except on certain redemptions on you sell shares within six years of
purchases of $1 million or more buying them. The charge starts at 5%
bought without an initial sales and declines thereafter until it
charge). reaches 0% after six years. (see "Sales
Charges - Class B").
------------------------------------------------------------------------------
No purchase maximum. Maximum purchase of $100,000.
------------------------------------------------------------------------------
Automatic conversion to Class A shares
after eight years, reducing future
annual expenses.
------------------------------------------------------------------------------
</TABLE>
11
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
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PURCHASE AND EXCHANGE OF SHARES
PURCHASE
Generally, you may open an account by contacting any investment dealer (who may
impose transaction charges in addition to those described in this prospectus)
authorized to sell the fund's shares. You may purchase additional shares using
various options described in the statement of additional information and
"Welcome to the Family."
EXCHANGE
You may exchange your shares into shares of the same class of other funds in
The American Funds Group generally without a sales charge. For purposes of
computing the contingent deferred sales charge on Class B shares, the length of
time you have owned your shares will be measured from the date of original
purchase and will not be affected by any exchange.
Exchanges of shares from the money market funds initially purchased without a
sales charge generally will be subject to the appropriate sales charge.
Exchanges have the same tax consequences as ordinary sales and purchases. See
"Transactions by Telephone..." for information regarding electronic exchanges.
THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S PRINCIPAL UNDERWRITER,
RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. ALTHOUGH THERE
IS CURRENTLY NO SPECIFIC LIMIT ON THE NUMBER OF EXCHANGES YOU CAN MAKE IN A
PERIOD OF TIME, THE FUND AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO
REJECT ANY PURCHASE ORDER AND MAY TERMINATE THE EXCHANGE PRIVILEGE OF ANY
INVESTOR WHOSE PATTERN OF EXCHANGE ACTIVITY THEY HAVE DETERMINED INVOLVES
ACTUAL OR POTENTIAL HARM TO THE FUND.
<TABLE>
<CAPTION>
PURCHASE MINIMUMS FOR CLASS A AND B SHARES
<S> <C>
To establish an account $ 1,000
To add to an account $ 50
PURCHASE MAXIMUM FOR CLASS B SHARES $100,000
</TABLE>
12
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
SHARE PRICE
The fund calculates its share price, also called net asset value, as of
approximately 4:00 p.m. New York time, which is the normal close of trading on
the New York Stock Exchange, every day the Exchange is open. In calculating net
asset value, market prices are used when available. If a market price for a
particular security is not available, the fund will determine the appropriate
price for the security.
Your shares will be purchased at the net asset value plus any applicable sales
charge in the case of Class A shares, or sold at the net asset value next
determined after American Funds Service Company receives and accepts your
request. Sales of certain Class A and B shares may be subject to contingent
deferred sales charges.
---------------------------------------------------------
SALES CHARGES
CLASS A
The initial sales charge you pay when you buy Class A shares differs depending
upon the amount you invest and may be reduced for larger purchases as indicated
below.
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF
----------------------------------
DEALER
NET COMMISSION
OFFERING AMOUNT AS % OF
INVESTMENT PRICE INVESTED OFFERING PRICE
------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 3.75% 3.90% 3.00%
------------------------------------------------------------------------------
$100,000 but less than 3.50% 3.63% 2.75%
$250,000
------------------------------------------------------------------------------
$250,000 but less than 2.50% 2.56% 2.00%
$500,000
------------------------------------------------------------------------------
$500,000 but less than 2.00% 2.04% 1.60%
$750,000
------------------------------------------------------------------------------
$750,000 but less than $1
million 1.50% 1.52% 1.20%
------------------------------------------------------------------------------
$1 million or more and certain other
investments described below see below see below see below
</TABLE>
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGE
Investments of $1 million or more are sold with no initial sales charge.
HOWEVER, A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE IMPOSED IF REDEMPTIONS
ARE MADE WITHIN ONE YEAR OF PURCHASE. Employer-sponsored defined
contribution-type plans investing $1 million or more, or with 100 or more
eligible employees, and Individual Retirement Account rollovers involving
retirement plan assets invested in the American Funds, may invest with no sales
charge and are not
13
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
subject to a contingent deferred sales charge. Investments made through
retirement plans, endowments or foundations with $50 million or more in assets,
or through certain qualified fee-based programs may also be made with no sales
charge and are not subject to a contingent deferred sales charge. The fund may
pay a dealer concession of up to 1% under its Plan of Distribution on
investments made with no initial sales charge.
CLASS B
Class B shares are sold without any initial sales charge. However, a
contingent deferred sales charge may be applied to shares you redeem within six
years of purchase, as shown in the table below.
<TABLE>
<CAPTION>
Contingent deferred sales charge
on shares sold within year as a % of shares being sold
---------------------------------------------------------------
<S> <S>
1 5.00%
2 4.00%
3 4.00%
4 3.00%
5 2.00%
6 1.00%
</TABLE>
Shares acquired through reinvestment of dividends or capital gain distributions
are not subject to a contingent deferred sales charge. In addition, the
contingent deferred sales charge may be waived in certain circumstances. See
"Contingent Deferred Sales Charge Waivers for Class B Shares" below. The
contingent deferred sales charge is based on the original purchase cost or the
current market value of the shares being sold, whichever is less. For purposes
of determining the contingent deferred sales charge, if you sell only some of
your shares, shares that are not subject to any contingent deferred sales
charge will be sold first and then shares that you have owned the longest.
CLASS B CONVERSION TO A SHARES
Class B shares automatically convert to Class A shares in the month of the
eight-year anniversary of the purchase date. The Internal Revenue Service
currently takes the position that this automatic conversion is not taxable.
Should their position change, shareholders would still have the option of
converting but may face certain tax consequences. Please see the statement of
additional information for more information.
14
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
---------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
You must let your investment dealer or American Funds Service Company know if
you qualify for a reduction in your Class A sales charge or waiver of your
Class B contingent deferred sales charge using one or any combination of the
methods described below, in the statement of additional information and
"Welcome to the Family."
REDUCING YOUR CLASS A SALES CHARGES
You and your "immediate family" (your spouse and your children under the age of
21) may combine investments to reduce your Class A sales charge.
AGGREGATING ACCOUNTS
To receive a reduced Class A sales charge, investments made by you and your
immediate family (see above) may be aggregated if made for their own account(s)
and/or:
- trust accounts established by the above individuals. However, if the
person(s) who established the trust is deceased, the trust account may be
aggregated with accounts of the person who is the primary beneficiary of
the trust.
- solely controlled business accounts.
- single-participant retirement plans.
Other types of accounts may also be aggregated. You should check with your
financial adviser or consult the statement of additional information or
"Welcome to the Family" for more information.
CONCURRENT PURCHASES
You may combine simultaneous purchases of Class A and/or B shares of two or
more American Funds, as well as individual holdings in various American Legacy
variable annuities or variable life insurance policies, to qualify for a
reduced Class A sales charge. Direct purchases of money market funds are
excluded.
RIGHTS OF ACCUMULATION
You may take into account the current value of your existing Class A and B
holdings in the American Funds, as well as individual holdings in various
American Legacy variable annuities or variable life insurance policies, to
determine your Class A sales charge. Direct purchases of money market funds are
excluded.
STATEMENT OF INTENTION
You can reduce the sales charge you pay on your Class A share purchases by
establishing a Statement of Intention. A Statement of Intention allows you to
15
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
combine all Class A and B share non-money market fund purchases, as well as
individual American Legacy variable annuity and life insurance policies you
intend to make over a 13-month period, to determine the applicable sales
charge. At your request purchases made during the previous 90 days may be
included; however, capital appreciation and reinvested dividends and capital
gains do not apply toward these combined purchases. A portion of your account
may be held in escrow to cover additional Class A sales charges which may be
due if your total investments over the 13-month period do not qualify for the
applicable sales charge reduction.
CONTINGENT DEFERRED SALES CHARGE WAIVERS FOR CLASS B SHARES
The contingent deferred sales charge on Class B shares may be waived in the
following cases:
- to receive payments through systematic withdrawal plans (up to 12% of the
value of your account);
- to receive certain distributions, such as required minimum distributions
from retirement accounts; or
- for redemptions due to death or post-purchase disability of the
shareholder.
For more information, please consult your financial adviser, the statement of
additional information or "Welcome to the Family."
---------------------------------------------------------
PLANS OF DISTRIBUTION
The fund has Plans of Distribution or "12b-1 Plans" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the fund's board of trustees. The plans
provide for annual expenses of up to 0.25% for Class A shares and up to 1.00%
for Class B shares. Up to 0.25% of these payments are used to pay service fees
to qualified dealers for providing certain shareholder services. The remaining
0.75% expense for Class B shares is used for financing commissions paid to your
dealer. The 12b-1 fees paid by the fund, as a percentage of average net assets,
for the previous fiscal year is indicated above under "Fees and Expenses of the
Fund." Since these fees are paid out of the fund's assets or income on an
ongoing basis, over time they will increase the cost and reduce the return of
an investment. The higher fees for Class B shares may cost you more over time
than paying the initial sales charge for Class A shares.
OTHER COMPENSATION TO DEALERS
American Funds Distributors may provide additional compensation to, or sponsor
informational meetings for, dealers as described in the statement of additional
information.
16
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
---------------------------------------------------------
HOW TO SELL SHARES
Once a sufficient period of time has passed to reasonably assure that checks or
drafts (including certified or cashiers' checks) for shares purchased have
cleared (normally 15 calendar days), you may sell (redeem) those shares in any
of the following ways:
THROUGH YOUR DEALER (CERTAIN CHARGES MAY APPLY)
- Shares held for you in your dealer's name must be sold through the dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- Requests must be signed by the registered shareholder(s).
- A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address other than the address of record, or an address of
record which has been changed within the last 10 days.
- Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE/(R)/ OR AMERICAN FUNDSLINE ONLINE/(R)/:
- Redemptions by telephone or fax (including American FundsLine and American
FundsLine OnLine) are limited to $50,000 per shareholder each day.
- Checks must be made payable to the registered shareholder.
- Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
TRANSACTIONS BY TELEPHONE, FAX, AMERICAN FUNDSLINE OR FUNDSLINE ONLINE
Generally, you are automatically eligible to use these services for redemptions
and exchanges unless you notify us in writing that you do not want any or all
of these services. You may reinstate these services at any time.
Unless you decide not to have telephone, fax, or computer services on your
account(s), 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.
17
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
---------------------------------------------------------
DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The fund declares dividends from net investment income daily and distributes
the accrued dividends, which may fluctuate, 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 dividend or capital gain is
distributed, the net asset value per share is reduced by the amount of the
payment.
You may elect to reinvest dividends and/or capital gain distributions to
purchase additional shares of this fund or any other fund in The American Funds
Group or you may elect to receive them in cash. Most shareholders do not elect
to take capital gain distributions in cash because these distributions reduce
principal value.
TAX CONSEQUENCES
Interest on municipal bonds is generally not included in gross income for
federal income tax purposes. The fund is permitted to pass through to its
shareholders federally 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.
TAXES ON DISTRIBUTIONS
Distributions you receive from the fund may be subject to income tax and may
also be subject to state or local taxes to the extent they include income from
debt securities that are not exempt from tax - unless you are exempt from
taxation.
For federal tax purposes, any taxable dividends and distributions of short-term
capital gains are treated as ordinary income. The fund's distributions of net
long-term capital gains are taxable to you as long-term capital gains. Any
taxable distributions you receive from the fund will normally be taxable to you
when made, regardless of whether you reinvest distributions or receive them in
cash.
It is anticipated that federal exempt-interest dividends paid by the fund and
derived from interest on bonds exempt from California income tax 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 such state's state income tax even though the
dividends may be exempt from federal income tax.
18
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
TAXES ON TRANSACTIONS
Your redemptions, including exchanges, may result in a capital gain or loss for
federal tax purposes. A capital gain or loss on your investment in the fund is
the difference between the cost of your shares, including any sales charges,
and the price you receive when you sell them.
Please see the statement of additional information, the "Welcome to the Family"
guide, and your tax adviser for further information.
19
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
---------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's
results for the past five years and is currently only shown for Class A shares.
A similar table will be shown for Class B shares beginning with the fund's
2000 fiscal year end. Certain information reflects financial results for a
single fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Deloitte & Touche LLP, whose report, along with the fund's financial
statements, is included in the statement of additional information, which is
available upon request.
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31
---------------------------
1999 1998 1997 1996 1995
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, $16.60 $16.22 $15.78 $15.74 $15.40
Beginning of Year
------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .74 .79 .83 .84 .86
Net gains or losses on
securities (both (.65) .47 .53 .04 .34
realized and unrealized)
------------------------------------------------------------------------------
Total from investment .09 1.26 1.36 .88 1.20
operations
------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends (from net
investment income) (.74) (.80) (.83) (.84) (.86)
Distributions (from capital (.23) (.08) (.09) - -
gains)
------------------------------------------------------------------------------
Total distributions (.97) (.88) (.92) (.84) (.86)
------------------------------------------------------------------------------
Net Asset Value, $15.72 $16.60 $16.22 $15.78 $15.74
End of Year
------------------------------------------------------------------------------
Total Return* 0.47% 7.98% 8.80% 5.65% 8.16%
------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in $379 $358 $289 $253 $233
millions)
------------------------------------------------------------------------------
Ratio of expenses to .70% .71% .72% .73% .73%
average net assets
------------------------------------------------------------------------------
Ratio of net income 4.55% 4.83% 5.15% 5.25% 5.65%
to average net assets
------------------------------------------------------------------------------
Portfolio turnover rate 22.68% 27.78% 15.68% 27.60% 41.36%
* Excludes maximum sales charge.
</TABLE>
20
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
---------------------------------------------------------
APPENDIX
Moody's Investors Service, Inc. rates the long-term debt securities issued by
various entities in categories ranging from "Aaa" to "C," according to quality
as described below.
"Aaa - Best quality. These securities 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 shares."
"Aa - High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A - Upper medium grade obligations. These bonds possess many favorable
investment attributes. 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."
"Baa - Medium grade obligations. 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."
"Ba - Have speculative elements; future cannot be considered as well assured.
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.
Bonds in this class are characterized by uncertainty of position."
"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."
"Caa - Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"Ca - Speculative in a high degree; often in default or having other marked
shortcomings."
"C - Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
21
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
Moody's supplies numerical indicators, 1, 2 and 3 to rating categories. The
modifier 1 indicates that the obligation ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and 3 indicates
a ranking toward the lower end of that generic category.
Standard & Poor's Corporation rates the long-term debt securities issued by
various entities in categories ranging from "AAA" to "D," according to quality
as described below.
"AAA - Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA - High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A - Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB - Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt 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 protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions."
"C1 - Reserved for income bonds on which interest is being paid."
"D - In default and payment of interest and/or repayment of principal is in
arrears."
Standard & Poor's applies indicators "+", no character and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
22
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FOR SHAREHOLDER SERVICES American Funds Service Company
800/421-0180
FOR RETIREMENT PLAN SERVICES Call your employer or plan administrator
FOR DEALER SERVICES American Funds Distributors
800/421-9900 Ext. 11
FOR 24-HOUR INFORMATION American FundsLine(R)
800/325-3590
American FundsLine OnLine(R)
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.
If there is any inconsistency or ambiguity as to the meaning of any word or
phrase in a translation, the English text will prevail.
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS Contains additional information
about the fund including financial statements, investment results, portfolio
holdings, a statement from portfolio management discussing market conditions
and the fund's investment strategies, and the independent accountants' report
(in the annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI) AND CODES OF ETHICS The SAI contains
more detailed information on all aspects of the fund, including the fund's
financial statements and is incorporated by reference into this prospectus.
The codes of ethics describe the personal investing policies adopted by the
fund and the fund's investment adviser and its affiliated companies.
The codes of ethics and current SAI have been filed with the Securities and
Exchange Commission ("SEC"). These and other related materials about the fund
are available for review or to be copied at the SEC's Public Reference Room in
Washington, D.C. (202/942-8090) or on the EDGAR database on the SEC's Internet
Web site at http://www.sec.gov, or, after payment of a duplicating fee, via
e-mail request to [email protected] or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-0102.
HOUSEHOLD MAILINGS Each year you are automatically sent an updated
prospectus, annual and semi-annual report for the fund. In order to reduce the
volume of mail you receive, when possible, only one copy of these documents
will be sent to shareholders that are part of the same family and share the
same residential address.
If you would like to receive individual copies of these documents, or a free
copy of the SAI or Codes of Ethics, please call American Funds Service Company
at 800/421-0180 or write to the Secretary of the fund at 333 South Hope
Street, Los Angeles, California 90071.
Investment Company File No. 811-4694
Printed on recycled paper
<PAGE>
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
THE TAX-EXEMPT FUND OF CALIFORNIA
Part B
Statement of Additional Information
March 15, 2000
This document is not a prospectus but should be read in conjunction with the
current prospectus of The Tax-Exempt Fund of California (the "fund" or "TEFCA")
dated March 15, 2000. The prospectus may be obtained from your investment dealer
or financial planner or by writing to the fund at the following address:
The American Funds Tax-Exempt Series II
The Tax-Exempt Fund of California
Attention: Secretary
333 South Hope Street Los Angeles, California 90071
(213) 486-9200
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page No.
- ---- --------
<S> <C>
Certain Investment Limitations and Guidelines . . . . . . . . . . . 2
Description of Certain Securities and Investment Techniques . . . . 2
Fundamental Policies and Investment Restrictions. . . . . . . . . . 12
Fund Organization and Voting Rights . . . . . . . . . . . . . . . . 13
Fund Trustees and Officers. . . . . . . . . . . . . . . . . . . . . 15
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . . . 21
Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 27
Sales Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Sales Charge Reductions and Waivers . . . . . . . . . . . . . . . . 31
Individual Retirement Account (IRA) Rollovers . . . . . . . . . . . 34
Price of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Selling Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Shareholder Account Services and Privileges . . . . . . . . . . . . 37
Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 40
General Information . . . . . . . . . . . . . . . . . . . . . . . . 40
Class A Share Investment Results and Related Statistics . . . . . . 42
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Financial Statements
</TABLE>
The Tax-Exempt Fund of California - Page 1
<PAGE>
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES
The following limitations and guidelines are considered at the time of purchase,
under normal market conditions, and are based on a percentage of the fund's net
assets unless otherwise noted. This summary is not intended to reflect all of
the fund's investment limitations.
. 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 fund may invest up to 20% of its assets in
securities subject to alternative minimum taxes.
. The fund will invest at least 65% of its assets in debt securities rated
BBB by Standard & Poor's Corporation (S&P) or Baa by Moody's Investors
Services, Inc. (Moody's) or better or unrated but determined to be of
equivalent quality.
. The fund may invest up to 20% of its assets in straight debt securities
rated BB by S&P and Ba by Moody's or below or unrated but determined to be
of equivalent quality.
. The fund will invest substantially in securities with maturities in excess
of three years.
The fund may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions.
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The descriptions below are intended to supplement the material in the prospectus
under "Investment Objectives, Strategies and Risks."
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.
Lower quality, lower rated bonds rated Ba or below by Standard & Poor's
Corporation and BB or below by Moody's Investors Services, Inc. (or unrated but
considered to be of equivalent quality) 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, lower quality, lower rated bonds.
Certain risk factors relating to "lower quality, lower rated bonds" are
discussed below.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - Lower quality, lower
rated bonds can be sensitive to adverse economic changes and political and
corporate developments and may be less sensitive to interest rate changes.
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. In addition, periods of economic uncertainty and
changes can be expected to result in increased volatility of market prices
and yields of lower quality, lower rated bonds.
The Tax-Exempt Fund of California - Page 2
<PAGE>
PAYMENT EXPECTATIONS - Lower quality, lower rated bonds, like other bonds,
may contain redemption or call provisions. If an issuer exercises 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. 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.
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 lower quality, lower rated bonds,
especially in a thin market.
The Investment Adviser 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, but there can be no assurance that it will be successful in doing
so.
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, their
exclusion from gross income for federal income tax purposes and, where
applicable, state and local income tax are rendered by bond counsel to the
issuing authorities at the time of issuance.
The two principal classifications of municipal bonds are general obligation
bonds 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 by the
revenues of the authority derived from payments by
The Tax-Exempt Fund of California - Page 3
<PAGE>
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.
MUNICIPAL LEASE OBLIGATIONS - The fund may invest, without limitation, in
municipal lease revenue obligations that are determined to be liquid by the
Investment Adviser. In determining whether these securities are liquid, the
Investment Adviser 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.
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 a 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.
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 (the "State") 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 Tax-Exempt Fund of California - Page 4
<PAGE>
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. During the severe recession California
experienced from 1991 to 1993, the state legislature eliminated significant
components of its aid to local governments. The State has since increased aid
to local governments and reduced certain mandates for local services. Whether
legislation will be enacted in the future to either increase or reduce the
redistribution of state revenues to local governments, or to make them less
dependent on state budget decisions, cannot be predicted. 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
The Tax-Exempt Fund of California - Page 5
<PAGE>
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 non-emergency 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 (the Health
Facility Construction Loan Insurance Fund or "HFCLIF") or from unappropriated
State funds. In the event of a default, any debenture payable from 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
The Tax-Exempt Fund of California - Page 6
<PAGE>
"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 anti-deficiency 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 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 unemployment rate, while still higher
than
The Tax-Exempt Fund of California - Page 7
<PAGE>
the national average, fell to an average of 5.9% in 1998, 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. The unsettled financial situation
occurring in certain Asian economies and its spillover effects elsewhere may
continue to adversely affect the State's export-related industries, and
therefore, the State's rate of economic growth.
The recession severely affected State revenues while the State's health and
welfare costs were increasing. Consequently, the State had a lengthy period of
budget imbalance; the State's accumulated budget deficit approached $2.8 billion
at its peak at June 30, 1993. The large budget deficits depleted the State's
available cash resources and it had to use a series of external borrowings to
meet its cash needs. With the end of the recession, the State's financial
condition improved in the 1995-96 through 1998-99 fiscal years, with a
combination of better than expected revenues, slowdown in growth of social
welfare programs, and continued spending restraint. The accumulated budget
deficit from the recession years was eliminated. No deficit borrowing has
occurred at the end of the last four fiscal years and the State's cash flow
borrowing was limited to $1.7 billion in 1998-99. The State issued $1.0 billion
of revenue anticipation notes for the 1999-2000 fiscal year.
Some local governments in California have experienced notable financial
difficulties. 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. In
December 1997 Moody's raised its ratings on $325 billion of Orange County
pension obligation bonds to Baa3 from Ba. In February 1998 Fitch assigned
outstanding Orange County pension obligation bonds a BBB rating. In September
1999, Moody's assigned the County an issuer (implied general obligation) rating
of Aa3 and, among other things, upgraded the ratings on the County's pension
obligation bonds to A1.
Los Angeles County, the nation's largest county, has also experienced financial
difficulty. Between 1992 and 1995, the County's long term bonds were downgraded
three times. This occurred 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. The County's improving financial condition has
been reflected in improved general obligation bond ratings. In June 1999, the
Los Angeles County Board of Supervisors approved a budget of approximately $15
billion for 1999-2000, up from the $13.6 billion approved for the previous
fiscal year. The County's financial condition will continue to be affected by
the large number of County residents who are dependent on government services
and by a structural deficit in its health department.
On June 29, 1999, the Governor of California signed the 1999-2000 Budget Act.
The Budget Act estimated General Fund revenues and transfers of $63.0 billion,
and contained expenditures totaling $63.7 billion. The Budget Act also
contained expenditures of $16.1 billion from special funds and $1.5 billion from
bond funds. The Administration estimated a budget reserve balance at June 30,
2000, of approximately $880 million. Not included in this amount was an
additional $300 million which (after the Governor's vetoes) was "set aside" to
provide funds for employee salary increases (to be negotiated in bargaining with
employee unions), and for litigation
The Tax-Exempt Fund of California - Page 8
<PAGE>
reserves. The Budget Act anticipates normal cash flow borrowing during the
fiscal year. Continued State economic expansion and large revenue increases
enabled the Governor and State legislature to provide increases in spending
programs in the 1999-2000 budget. These included large increases in education
and health and human services funding.
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 CURRENT 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 October 1, 1999, the State had over $19.6 billion aggregate amount of its
general obligation bonds outstanding. General obligation bond authorizations in
an aggregate amount of approximately $12.8 billion remained unissued as of
October 1, 1999. The State also builds and acquires capital facilities through
the use of lease purchase borrowing. As of October 1, 1999, the State had
approximately $6.6 billion of outstanding Lease-Purchase Debt.
In addition to the general obligation bonds, State agencies and authorities had
approximately $26 billion aggregate principal amount of revenue bonds and notes
outstanding as of June 30, 1999. 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+.
In October, 1997, Fitch raised its rating from A+ to AA- referring to
California's fundamental strengths, the extent of economic recovery and the
return of financial stability. In October 1998, Moody's raised its rating from
At to Aa3 citing the State's continuing economic recovery and a number of
actions taken to
The Tax-Exempt Fund of California - Page 9
<PAGE>
improve the State's credit condition, including the rebuilding of cash and
budget reserves. In August 1999, Standard & Poor's raised its rating from A+ to
AA- citing the State's strong economic performance and its return to structural
fiscal balance.
SECURITIES SUBJECT TO ALTERNATIVE MINIMUM TAXES - The fund may invest in
tax-exempt securities believed to pay interest constituting an item of tax
preference subject to alternative minimum taxes; therefore, while the fund's
distributions from tax-exempt securities are not subject to regular federal
income tax, a portion or all may be included in determining a shareholder's
federal alternative minimum tax.
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 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 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.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly increases. The fund will not use these
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.
VARIABLE AND FLOATING RATE OBLIGATIONS - The interest rates payable on certain
securities in which the fund may invest may not be fixed but may fluctuate based
upon changes in market rates. Variable and floating rate obligations bear coupon
rates that are adjusted at designated intervals, based on the then current
market rates of interest. Variable and floating rate obligations permit the fund
to "lock in" the current interest rate for only the period until the next
scheduled rate adjustment, but the rate adjustment feature tends to limit the
extent to which the market value of the obligation will fluctuate.
TEMPORARY INVESTMENTS - The fund may invest in short-term municipal obligations
of up to one year in maturity during periods of temporary defensive strategy
resulting from abnormal market conditions, or when such investments are
considered advisable for liquidity. Generally, the income from all such
securities is exempt from federal income tax. Further, a portion of the fund's
assets, which will normally be less than 20%, may be held in cash or invested in
high-quality taxable short-term securities of up to one year in maturity. Such
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.
The Tax-Exempt Fund of California - Page 10
<PAGE>
ADJUSTMENT OF MATURITIES - The Investment Adviser seeks to anticipate movements
in interest rates and adjusts the maturity distribution of the portfolio
accordingly. Keeping in mind the fund's objective, 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. Correspondingly,
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
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.
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).
The fund may also engage in the following investment practices, although it has
no current intention to do so over the next twelve months:
REPURCHASE AGREEMENTS - The fund may enter 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 the Investment Adviser. The fund will only enter
into repurchase agreements involving securities in which it could otherwise
invest and with selected banks and securities dealers whose financial condition
is monitored by the Investment Adviser. If the seller under the repurchase
agreement defaults, the fund may incur a loss if the value of the collateral
securing the repurchase agreement has declined and may incur disposition costs
in connection with liquidating the collateral. If bankruptcy proceedings are
commenced with respect to the seller, realization upon the collateral by the
fund may be delayed or limited.
* * * * * *
PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the length
of time particular investments may have been held. Short-term trading profits
are not the fund's objective and changes in its investments are generally
accomplished gradually, though short-term transactions may occasionally be made.
High portfolio turnover (100% or more) 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 Tax-Exempt Fund of California - Page 11
<PAGE>
The fund's portfolio turnover rate would equal 100% if each security in the
fund's portfolio were replaced once per year. See "Financial Highlights" in the
prospectus for the fund's annual portfolio turnover for each of the last five
fiscal periods.
CONCENTRATION OF INVESTMENTS - The fund may invest more than 25% of its assets
in municipal obligations of issuers located in the same state . This may make
the fund more susceptible to similar economic, political, or regulatory
occurrences such as changes in healthcare regulations, environmental
considerations related to construction, construction cost increases and labor
problems, failure of healthcare facilities to maintain adequate occupancy
levels, and inflation. As the similarity in issuers increases, the potential for
fluctuations in the fund's share price may increase. The fund may invest more
than 25% of its assets in industrial development bonds.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES - The fund has adopted the following fundamental policies
and investment restrictions which may not be changed without approval by holders
of a majority of its outstanding shares. Such majority is defined in the
Investment Company Act of 1940 ("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.
All percentage limitations are considered at the time securities are purchased
and are based on the fund's net assets unless otherwise indicated. 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 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. 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;
3. Make loans to others, except for the purchase of debt securities or
entering into repurchase agreements;
4. 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;
5. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases or sales;
6. 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;
The Tax-Exempt Fund of California - Page 12
<PAGE>
7. 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;
8. Invest in companies for the purpose of exercising control or management;
9. Buy or sell commodities or commodity contracts or oil, gas or other mineral
exploration or development programs;
10. Write, purchase or sell puts, calls, straddles, spreads or any combination
thereof;
11. 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 #9, the term "oil, gas or other mineral
exploration or development programs" includes oil, gas or other mineral
exploration or development leases.
NON-FUNDAMENTAL POLICIES - The following non-fundamental policy(ies) may be
changed without shareholder approval:
The fund may not:
(a) 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.
(b) invest more than 15% of its value of its net assets in illiquid
securities.
(c) invest in securities of other investment companies, except as
permitted by the Investment Company Act of 1940, as amended.
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a Massachusetts business trust on May 30, 1986.
All fund operations are supervised by the fund's Board of Trustees which meets
periodically and performs 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 "Trustees and Trustee Compensation" below. They may elect
to defer all or a portion of these fees through a deferred compensation plan in
effect for the fund.
The Tax-Exempt Fund of California - Page 13
<PAGE>
The fund has two classes of shares - Class A and Class B. The shares of each
class represent an interest in the same investment portfolio. Each class has
equal rights as to voting, redemption, dividends and liquidation, except that
each class bears different distribution expenses and may bear different transfer
agent fees and other expenses properly attributable to the particular class as
approved by the Board of Trustees. Class A and Class B shareholders have
exclusive voting rights with respect to the rule 12b-1 Plans adopted in
connection with the distribution of shares and on other matters in which the
interests of one class are different from interests in another class. Shares of
all classes of the fund vote together on matters that affect all classes in
substantially the same manner. Each class votes as a class on matters that
affect that class alone.
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 Tax-Exempt Fund of California - Page 14
<PAGE>
FUND TRUSTEES AND OFFICERS
Trustees and Trustee Compensation
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
(INCLUDING VOLUNTARILY
DEFERRED
COMPENSATION/1/)
FROM THE FUND
POSITION DURING FISCAL YEAR
WITH PRINCIPAL OCCUPATION(S) DURING ENDED
NAME, ADDRESS AND AGE REGISTRANT PAST 5 YEARS AUGUST 31, 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard G. Capen, Jr. Trustee Corporate Director and author; former $1,250/4/
6077 San Elijo, Box 2494 United States Ambassador to Spain;
Rancho Santa Fe, CA 92067 former Vice Chairman of the Board,
Age: 65 Knight-Ridder, Inc., former Chairman
and Publisher, The Miami Herald
----------------
- ---------------------------------------------------------------------------------------------------------------
H. Frederick Christie Trustee Private Investor. Former President and $2,500/4/
P.O. Box 144 Chief Executive Officer, The Mission
Palos Verdes Estates, CA Group (non-utility holding company,
90274 subsidiary of Southern California
Age: 65 Edison Company
- ---------------------------------------------------------------------------------------------------------------
+Don R. Conlan Trustee President (Retired), The Capital Group none/3/
1630 Milan Avenue Companies, Inc.
South Pasadena, CA 91030
Age: 64
- ---------------------------------------------------------------------------------------------------------------
Diane C. Creel Trustee CEO and President, The Earth Technology $2,500/4/
100 W. Broadway Corporation (international consulting
Suite 5000 engineering)
Long Beach, CA 90802
Age: 51
- ---------------------------------------------------------------------------------------------------------------
Martin Fenton Trustee Managing Director, Senior Resource $3,300/4/
4660 La Jolla Village Group LLC (development and management
Drive of senior living communities)
Suite 725
San Diego, CA 92122
Age: 64
- ---------------------------------------------------------------------------------------------------------------
Leonard R. Fuller Trustee President, Fuller Consulting (financial $2,500/4/
4337 Marina City Drive management consulting firm)
Suite 841 ETN
Marina del Rey, CA 90292
Age: 53
- ---------------------------------------------------------------------------------------------------------------
+*Abner D. Goldstine President, Senior Vice President and Trustee, none/3/
Age: 70 PEO and Capital Research and Management Company
Trustee
- ---------------------------------------------------------------------------------------------------------------
+**Paul G. Haaga, Jr. Chairman Executive Vice President and Director, none/3/
Age: 51 of Capital Research and Management Company
the Board
- ---------------------------------------------------------------------------------------------------------------
Richard G. Newman Trustee Chairman, President and CEO, AECOM $2,900/4/
3250 Wilshire Boulevard Technology Corporation (architectural
Los Angeles, CA 90010-1599 engineering)
Age: 65
- ---------------------------------------------------------------------------------------------------------------
Frank M .Sanchez Trustee President, The Sanchez Family $1,450/4/
5234 Via San Delarro, #1 Corporation dba McDonald's Restaurants
Los Angeles, CA 90022 (McDonald's licensee)
Age: 56
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL COMPENSATION
(INCLUDING VOLUNTARILY
DEFERRED
COMPENSATION/1/) FROM TOTAL NUMBER
ALL FUNDS MANAGED BY OF FUND
CAPITAL RESEARCH AND BOARDS
MANAGEMENT COMPANY ON WHICH
OR ITS AFFILIATES/2/ FOR THE TRUSTEE
NAME, ADDRESS AND AGE YEAR ENDED AUGUST 31, 1999 SERVES/2/
- --------------------------------------------------------------------------
<S> <C> <C>
Richard G. Capen, Jr. $43,700/4/ 14
6077 San Elijo, Box 2494
Rancho Santa Fe, CA 92067
Age: 65
- --------------------------------------------------------------------------
H. Frederick Christie $206,600/4/ 19
P.O. Box 144
Palos Verdes Estates, CA
90274
Age: 65
- --------------------------------------------------------------------------
+Don R. Conlan none/3/ 12
1630 Milan Avenue
South Pasadena, CA 91030
Age: 64
- --------------------------------------------------------------------------
Diane C. Creel $48,000/4/ 12
100 W. Broadway
Suite 5000
Long Beach, CA 90802
Age: 51
- --------------------------------------------------------------------------
Martin Fenton $131,600/4/ 15
4660 La Jolla Village
Drive
Suite 725
San Diego, CA 92122
Age: 64
- --------------------------------------------------------------------------
Leonard R. Fuller $51,600/4/ 13
4337 Marina City Drive
Suite 841 ETN
Marina del Rey, CA 90292
Age: 53
- --------------------------------------------------------------------------
+*Abner D. Goldstine none/3/ 12
Age: 70
- --------------------------------------------------------------------------
+**Paul G. Haaga, Jr. none/3/ 15
Age: 51
- --------------------------------------------------------------------------
Richard G. Newman $107,100/4/ 13
3250 Wilshire Boulevard
Los Angeles, CA 90010-1599
Age: 65
- --------------------------------------------------------------------------
Frank M .Sanchez $4,000/4/ 12
5234 Via San Delarro, #1
Los Angeles, CA 90022
Age: 56
- --------------------------------------------------------------------------
</TABLE>
The Tax-Exempt Fund of California - Page 15
<PAGE>
The Tax-Exempt Fund of California - Page 16
<PAGE>
+ "Interested persons" within the meaning of the 1940 Act on the basis of their
affiliation with the fund's Investment Adviser, Capital Research and
Management Company, or the parent company of the Investment Adviser, The
Capital Group Companies, Inc.
* 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 1993. 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 Trustees.
2 Capital Research and Management Company manages The American Funds Group
consisting of 29 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., New World 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
Endowments, whose shareholders are limited to (i) any entity exempt from
taxation under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended ("501(c)(3) organization"); (ii) any trust, the present or future
beneficiary of which is a 501(c)(3) organization, and (iii) any other entity
formed for the primary purpose of benefiting a 501(c)(3) organization. An
affiliate of Capital Research and Management Company, Capital International,
Inc., manages Emerging Markets Growth Fund, Inc.
3 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.
4 Since the deferred compensation plan's adoption, the total amount of deferred
compensation accrued by the fund (plus earnings thereon) during the 1999
fiscal year for participating Trustees is as follows: Richard G. Capen, Jr.
($1,294), H. Frederick Christie ($4,855), Diane C. Creel ($1,677), Martin
Fenton ($12,522), Leonard R. Fuller ($3,496), Richard G. Newman ($25,536) and
Frank M. Sanchez ($443). Amounts deferred and accumulated earnings thereon are
not funded and are general unsecured liabilities of the fund until paid to the
Trustees.
The Tax-Exempt Fund of California - Page 17
<PAGE>
OFFICERS
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S) DURING
NAME AND ADDRESS AGE WITH REGISTRANT PAST 5 YEARS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Neil L. Langberg 46 Senior Vice Vice President - Investment
11100 Santa Monica President Management Group, Capital
Blvd. Research and Management Company
Los Angeles, CA 90025
- -------------------------------------------------------------------------------
Michael J. Downer 45 Vice President Senior Vice President - Fund
333 South Hope Street Business Management Group,
Los Angeles, CA 90071 Capital Research and Management
Company
- -------------------------------------------------------------------------------
David A. Hoag 34 Vice President Director and Vice President,
11100 Santa Monica Capital Research Company*
Blvd.
Los Angeles, CA 90025
- -------------------------------------------------------------------------------
Julie F. Williams 51 Secretary Vice President - Fund Business
333 South Hope Street Management Group, Capital
Los Angeles, CA 90071 Research and Management Company
- -------------------------------------------------------------------------------
Anthony W. Hynes, Jr. 37 Treasurer Vice President - Fund Business
135 South State Management Group, Capital
College Blvd. Research and Management Company
Brea, CA 92821
- -------------------------------------------------------------------------------
Kimberly S. Verdick 35 Assistant Assistant Vice President - Fund
333 South Hope Street Secretary Business Management Group,
Los Angeles, CA 90071 Capital Research and Management
Company
- -------------------------------------------------------------------------------
Todd L. Miller 41 Assistant Assistant Vice President - Fund
135 South State Treasurer Business Management Group,
College Blvd. Capital Research and Management
Brea, CA 92821 Company
- -------------------------------------------------------------------------------
</TABLE>
* Company affiliated with Capital Research and Management Company.
All of the officers listed are officers, and/or directors/trustees of one or
more of the other funds for which Capital Research and Management Company serves
as Investment Adviser.
No compensation is paid by the fund to any officer or Trustee who is a director,
officer or employee of the Investment Adviser or affiliated companies. 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. No
pension or retirement benefits are accrued as part of fund expenses. The
Trustees may elect, on a voluntary basis, to defer all or a portion of their
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 February 15, 2000 the officers and Trustees of the
fund and their families, as a group, owned beneficially or of record less than
1% of the outstanding shares of the fund.
The Tax-Exempt Fund of California - Page 18
<PAGE>
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, Hong Kong, Singapore and Tokyo), with a staff
of professionals, many of whom have a number of 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.
The Investment Adviser is responsible for managing more than $300 billion of
stocks, bonds and money market instruments and serves over 11 million
shareholder accounts 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 fund and the Investment Adviser will
continue in effect until May 31, 2000, 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 fund for its acts or omissions in the performance of its
obligations to the fund 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 it, 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, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, and provides suitable office space, necessary small office equipment
and utilities, general purpose accounting forms, supplies, and postage 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 the designing, printing and
mailing of reports, prospectuses, proxy statements, and notices to its
shareholders; taxes; expenses of the issuance and redemption of shares of the
fund (including stock certificates, registration and qualification fees and
expenses); expenses pursuant to the fund's Plans of Distribution (described
below); legal and auditing expenses; compensation, fees, and expenses paid to
directors 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.
The management fee is based upon the net assets of the fund and monthly gross
investment income. Gross investment income means gross income, computed without
taking account of gains or losses from sales of capital assets, but including
original issue discount as defined for
The Tax-Exempt Fund of California - Page 19
<PAGE>
federal income tax purposes. The Internal Revenue Code in general defines
original issue discount to mean the difference between the issue price and the
stated redemption price at maturity of certain debt obligations. The holder of
such indebtedness is in general required to treat as ordinary income the
proportionate part of the original issue discount attributable to the period
during which the holder held the indebtedness.
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 $290 million 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.
The Investment Adviser has agreed that in the event the expenses of Class A
shares of the fund (with the exclusion of interest, taxes, brokerage costs,
extraordinary expenses such as litigation and acquisitions or other expenses
excludable under applicable state securities laws or regulations) for any fiscal
year ending on a date on which the Agreement is in effect, exceed the expense
limitations, if any, applicable to the fund pursuant to state securities laws or
any regulations thereunder, it will reduce its fee by the extent of such excess
and, if required pursuant to any such laws or any regulations thereunder, will
reimburse the fund in the amount of such excess. To the extent the fund's
management fee must be waived due to Class A share expense ratios exceeding the
above limit, management fees will be reduced similarly for all classes of shares
of the fund or other Class A fees will be waived in lieu of management fees.
For the fiscal years ended August 31, 1999, 1998, and 1997, the Investment
Adviser received advisory fees of $1,459,000, $1,262,000, and $1,088,000,
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, 3500 Wiseman Boulevard, San
Antonio, TX 78251, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240,
and 5300 Robin Hood Road, Norfolk, VA 23513. The fund has adopted Plans of
Distribution (the Plans), pursuant to rule 12b-1 under the 1940 Act. The
Principal Underwriter receives amounts payable pursuant to the Plans (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 Class A shares during the 1999 fiscal year
amounted to $205,000 after allowance of $794,000 to dealers.
During the fiscal years ended 1998 and 1997 the Principal Underwriter retained
$183,000 and $131,000, respectively on sales of Class A shares after an
allowance of $713,000 and $520,000 to dealers, respectively.
As required by rule 12b-1 and the 1940 Act, the Plans (together with the
Principal Underwriting Agreement) have been approved by the full Board of
Trustees and separately by a majority of the trustees who are not "interested
persons" of the fund and who have no direct or indirect financial interest in
the operation of the Plans or the Principal Underwriting Agreement. The officers
and trustees who are "interested persons" of the fund may be considered to have
a direct or indirect financial interest in the operation of the Plans due to
present or past affiliations with the Investment Adviser and related companies.
Potential benefits of the Plans to the fund include 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
The Tax-Exempt Fund of California - Page 20
<PAGE>
assets and maintenance of a financially healthy management organization. The
selection and nomination of trustees who are not "interested persons" of the
fund are committed to the discretion of the trustees who are not "interested
persons" during the existence of the Plans. Plan expenses are reviewed quarterly
and the Plans must be renewed annually by the Board of Trustees.
Under the Plans the fund may expend up to 0.25% of its net assets annually for
Class A shares and up to 1.00% of its net assets annually for Class B shares to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Trustees has approved the category of
expenses for which payment is being made. For Class A shares these include up to
0.25% in service fees for qualified dealers and dealer commissions and
wholesaler compensation on sales of shares exceeding $1 million purchased
without a sales charge (including purchases by employer-sponsored defined
contribution-type retirement plans investing $1 million or more or with 100 or
more eligible employees, rollover IRA accounts as described in "Individual
Retirement Account (IRA) Rollovers" below, and retirement plans, endowments or
foundations with $50 million or more in assets). For Class B shares these
include 0.25% in service fees for qualified dealers and 0.75% in payments to the
Principal Underwriter for financing commissions paid to qualified dealers
selling Class B shares.
Commissions on sales of Class A 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 any
"401(k)" plan with 100 or more eligible employees) in excess of the Class A Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarters, these commissions are not recoverable.
During the 1999 fiscal year, distribution expenses under the Plan for Class A
shares were limited to $945,000 for compensation to dealers or the Principal
Underwriter. Had no limitation been in effect, the fund would have paid $988,000
in distribution expenses under the Plan for Class A shares. As of August 31,
1999, accrued and unpaid distribution expenses were $151,000.
OTHER COMPENSATION TO DEALERS - The Principal Underwriter, at its expense (from
a designated percentage of its income), currently provides additional
compensation to dealers. Currently these payments are limited to the top 100
dealers who have sold shares of the fund or other funds in The American Funds
Group. These payments will be based principally on a pro rata share of a
qualifying dealer's sales. The Principal Underwriter will, on an annual basis,
determine the advisability of continuing these payments.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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.
The Tax-Exempt Fund of California - Page 21
<PAGE>
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
The Tax-Exempt Fund of California - Page 22
<PAGE>
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 except as
indicated above. The fund will have no tax liability with respect to such
distributed 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 except as indicated above. 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. Any such income distributed
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
The Tax-Exempt Fund of California - Page 23
<PAGE>
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. Except as
indicated 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 one year is 20% 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
The Tax-Exempt Fund of California - Page 24
<PAGE>
"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.
The Tax-Exempt Fund of California - Page 25
<PAGE>
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.
The Tax-Exempt Fund of California - Page 26
<PAGE>
PURCHASE OF SHARES
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
- -------------------------------------------------------------------------------
<S> <C> <C>
See "Purchase $50 minimum (except where a
Minimums" for initial lower minimum is noted under
investment minimums. "Purchase Minimums").
- -------------------------------------------------------------------------------
By contacting Visit any investment Mail directly to your
your investment dealer dealer who is investment dealer's address
registered in the printed on your account
state where the statement.
purchase is made and
who has a sales
agreement with
American Funds
Distributors.
- -------------------------------------------------------------------------------
By mail Make your check Fill out the account additions
payable to the fund form at the bottom of a recent
and mail to the account statement, make your
address indicated on check payable to the fund,
the account write your account number on
application. Please your check, and mail the check
indicate an investment and form in the envelope
dealer on the account provided with your account
application. statement.
- -------------------------------------------------------------------------------
By telephone Please contact your Complete the "Investments by
investment dealer to Phone" section on the account
open account, then application or American
follow the procedures FundsLink Authorization Form.
for additional 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
"Shareholder Account Services
and Privileges - Telephone and
Computer Purchases, Redemptions
and Exchanges" below).
- -------------------------------------------------------------------------------
By computer Please contact your Complete the American FundsLink
investment dealer to Authorization Form. Once you
open account, then established the privilege, you,
follow the procedures your financial advisor or any
for additional person with your account
investments. information may access American
FundsLine OnLine(R) on the
Internet and make investments
by computer (subject to
conditions noted in
"Shareholder Account Services
and Privileges - Telephone and
Computer Purchases, Redemptions
and Exchanges" below).
- -------------------------------------------------------------------------------
By wire Call 800/421-0180 to Your bank should wire your
obtain your account additional investments in the
number(s), if same manner as described under
necessary. Please "Initial Investment."
indicate an investment
dealer on the account.
Instruct your bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street,
Sixth Floor
San Francisco, CA
94106
(ABA#121000248)
For credit to the
account of:
American Funds Service
Company a/c#
4600-076178
(fund name)
(your fund acct. no.)
- -------------------------------------------------------------------------------
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY
PURCHASE ORDER.
- -------------------------------------------------------------------------------
</TABLE>
PURCHASE MINIMUMS - The minimum initial investment for all funds in The American
Funds Group, except the money market funds and the state tax-exempt funds, is
$250. The minimum initial investment for the money market funds (The Cash
Management Trust of America, The Tax--
The Tax-Exempt Fund of California - Page 27
<PAGE>
Exempt Money Fund of America, and The U.S. Treasury Money Fund of America) and
the state tax-exempt funds (The Tax-Exempt Fund of California, The Tax-Exempt
Fund of Maryland, and The Tax-Exempt Fund of Virginia) is $1,000. Purchase
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).
PURCHASE MAXIMUM FOR CLASS B SHARES - The maximum purchase order for Class B
shares for all American Funds is $100,000. For investments above $100,000 Class
A shares are generally a less expensive option over time due to sales charge
reductions or waivers.
FUND NUMBERS - Here are the fund numbers for use with our automated phone line,
American FundsLine/(R)/ (see description below):
<TABLE>
<CAPTION>
FUND FUND
NUMBER NUMBER
FUND CLASS A CLASS B
---- ------- -------
<S> <C> <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund/(R)/ . . . . . . . . . . . . . . . . . . . . 02 202
American Balanced Fund/(R)/ . . . . . . . . . . . . . . 11 211
American Mutual Fund/(R)/ . . . . . . . . . . . . . . . 03 203
Capital Income Builder/(R)/ . . . . . . . . . . . . . . 12 212
Capital World Growth and Income Fund/SM/ . . . . . . . 33 233
EuroPacific Growth Fund/(R)/ . . . . . . . . . . . . . 16 216
Fundamental Investors/SM/ . . . . . . . . . . . . . . . 10 210
The Growth Fund of America/(R)/ . . . . . . . . . . . . 05 205
The Income Fund of America/(R)/ . . . . . . . . . . . . 06 206
The Investment Company of America/(R)/ . . . . . . . . 04 204
The New Economy Fund/(R)/ . . . . . . . . . . . . . . . 14 214
New Perspective Fund/(R)/ . . . . . . . . . . . . . . . 07 207
New World Fund/SM/ . . . . . . . . . . . . . . . . . . 36 236
SMALLCAP World Fund/(R)/ . . . . . . . . . . . . . . . 35 235
Washington Mutual Investors Fund/SM/ . . . . . . . . . 01 201
BOND FUNDS
American High-Income Municipal Bond Fund/(R)/ . . . . . 40 240
American High-Income Trust/SM/ . . . . . . . . . . . . 21 221
The Bond Fund of America/SM/ . . . . . . . . . . . . . 08 208
Capital World Bond Fund/(R)/ . . . . . . . . . . . . . 31 231
Intermediate Bond Fund of America/SM/ . . . . . . . . . 23 223
Limited Term Tax-Exempt Bond Fund of America/SM/ . . . 43 243
The Tax-Exempt Bond Fund of America/(R)/ . . . . . . . 19 219
The Tax-Exempt Fund of California/(R)/* . . . . . . . . 20 220
The Tax-Exempt Fund of Maryland/(R)/* . . . . . . . . . 24 224
The Tax-Exempt Fund of Virginia/(R)/* . . . . . . . . . 25 225
U.S. Government Securities Fund/SM/ . . . . . . . . . . 22 222
MONEY MARKET FUNDS
The Cash Management Trust of America/(R)/ . . . . . . . 09 209
The Tax-Exempt Money Fund of America/SM/ . . . . . . . 39 N/A
The U.S. Treasury Money Fund of America/SM/ . . . . . . 49 N/A
___________
*Available only in certain states.
</TABLE>
The Tax-Exempt Fund of California - Page 28
<PAGE>
SALES CHARGES
CLASS A SALES CHARGES - The sales charges you pay when purchasing Class A shares
of 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 "Fund Numbers" for a listing of the funds.)
<TABLE>
<CAPTION>
DEALER
SALES CHARGE AS CONCESSION
PERCENTAGE OF THE: AS PERCENTAGE
------------------ OF THE
AMOUNT OF PURCHASE
AT THE OFFERING PRICE NET AMOUNT OFFERING OFFERING
-INVESTED- PRICE PRICE
- ------------------------------------------ -------- ----- -----
<S> <C> <C> <C>
STOCK AND STOCK/BOND FUNDS
Less than $25,000 . . . . . . . . . 6.10% 5.75% 5.00%
$25,000 but less than $50,000 . . . 5.26 5.00 4.25
$50,000 but less than $100,000. . 4.71 4.50 3.75
BOND FUNDS
Less than $100,000 . . . . . . . . 3.90 3.75 3.00
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 $750,000 . 2.04 2.00 1.60
$750,000 but less than $1 million 1.52 1.50 1.20
$1 million or more . . . . . . . . . . none none (see below)
- -----------------------------------------------------------------------------
</TABLE>
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGES - Investments of $1 million or
more are sold with no initial sales charge. HOWEVER, A 1% CONTINGENT DEFERRED
SALES CHARGE (CDSC) MAY BE IMPOSED IF REDEMPTIONS ARE MADE WITHIN ONE YEAR OF
PURCHASE. Employer-sponsored defined contribution-type plans investing $1
million or more, or with 100 or more eligible employees, and Individual
Retirement Account rollovers from retirement plan assets invested in the
American
The Tax-Exempt Fund of California - Page 29
<PAGE>
Funds (see "Individual Retirement Account (IRA) Rollovers" below) may invest
with no sales charge and are not subject to a contingent deferred sales charge.
Investments made by investors in certain qualified fee-based programs, and
retirement plans, endowments or foundations with $50 million or more in assets
may also be made with no sales charge and are not subject to a CDSC. A dealer
concession of up to 1% may be paid by the fund under its Plan of Distribution on
investments made with no initial sales charge.
In addition, Class A shares of the stock, stock/bond and bond funds may be sold
at net asset value to:
(1) current or retired directors, trustees, officers and advisory board members
of, and certain lawyers who provide services to, the funds managed by Capital
Research and Management Company, current or retired employees of Washington
Management Corporation, current or retired employees and partners of The Capital
Group Companies, Inc. and its affiliated companies, certain family members and
employees 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 the
Principal Underwriter (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.
CONTINGENT DEFERRED SALES CHARGE ON CLASS A SHARES - A contingent deferred
sales charge of 1% applies to redemptions made from funds, other than the money
market funds, within 12 months following Class A share purchases of $1 million
or more made without an initial sales charge. 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 the longest
are assumed to be redeemed first for purposes of calculating this CDSC. The CDSC
may be waived in certain circumstances. See "CDSC Waivers for Class A Shares"
below.
DEALER COMMISSIONS ON CLASS A SHARES - The following commissions (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 defined contribution plan
investing $1 million or more, or with 100 or more eligible employees, IRA
rollover accounts (as described in "Individual Retirement Account (IRA)
Rollovers" below), and for purchases made at net asset value by certain
retirement plans, endowments and foundations with collective assets of $50
million or more: 1.00% on amounts of
The Tax-Exempt Fund of California - Page 30
<PAGE>
$1 million to $4 million, 0.50% on amounts over $4 million to $10 million, and
0.25% on amounts over $10 million.
CLASS B SALES CHARGES - Class B shares are sold without any initial sales
charge. However, a CDSC may be applied to shares you sell within six years of
purchase, as shown in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE ON
SHARES SOLD WITHIN YEAR AS A % OF SHARES BEING SOLD
------------------------------------------------------------------------------
<S> <C>
1 5.00%
2 4.00%
3 4.00%
4 3.00%
5 2.00%
6 1.00%
</TABLE>
There is no CDSC on appreciation in share value above the initial purchase price
or on shares acquired through reinvestment of dividends or capital gain
distributions. In addition, the CDSC may be waived in certain circumstances.
See "CDSC Waivers for Class B shares" below. The CDSC is based on the original
purchase cost or the current market value of the shares being sold, whichever is
less. In processing redemptions of Class B shares, shares that are not subject
to any CDSC will be redeemed first and then shares that you have owned the
longest during the six-year period. CLASS B SHARES ARE NOT AVAILABLE TO CERTAIN
RETIREMENT PLANS, INCLUDING GROUP RETIREMENT PLANS SUCH AS 401(K) PLANS,
EMPLOYER-SPONSORED 403(B) PLANS, AND MONEY PURCHASE PENSION AND PROFIT SHARING
PLANS.
Compensation equal to 4% of the amount invested is paid by the Principal
Underwriter to dealers who sell Class B shares.
CONVERSION OF CLASS B SHARES TO CLASS A SHARES - Class B shares automatically
convert to Class A shares in the month of the eight-year anniversary of the
purchase date. The conversion of Class B shares to Class A shares after eight
years is subject to the Internal Revenue Service's continued position that the
conversion of Class B shares is not subject to federal income tax. In the event
the Internal Revenue Service no longer takes this position, the automatic
conversion feature may be suspended, in which event no further conversions of
Class B shares would occur while such suspension remained in effect. At your
option, Class B shares may still be exchanged for Class A shares on the basis of
relative net asset value of the two classes, without the imposition of a sales
charge or fee; HOWEVER, SUCH AN EXCHANGE COULD CONSTITUTE A TAXABLE EVENT FOR
YOU, AND ABSENT SUCH AN EXCHANGE, CLASS B SHARES WOULD CONTINUE TO BE SUBJECT TO
HIGHER EXPENSES FOR LONGER THAN EIGHT YEARS.
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGE - You and your "immediate family" (your
spouse and your children under age 21) may combine investments to reduce your
costs. You must let your investment dealer or American Funds Service Company
(the "Transfer Agent") know if you
The Tax-Exempt Fund of California - Page 31
<PAGE>
qualify for a reduction in your sales charge using one or any combination of the
methods described below.
STATEMENT OF INTENTION - You may enter into a non-binding commitment to
purchase shares of a fund(s) over a 13-month period and receive the same
sales charge as if all shares had been purchased at once. This includes
purchases made during the previous 90 days, but does not include
appreciation of your investment or reinvested distributions. The reduced
sales charges and offering prices set forth in the Prospectus apply to
purchases of $25,000 or more made within a 13-month period subject to the
following statement of intention (the "Statement"). The Statement is not a
binding obligation to purchase the indicated amount. When a shareholder
elects to use a 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 any 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 by the close of
the period, 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. Existing holdings eligible for rights
of accumulation (see below), as well as purchases of Class B shares, and
any individual investments in American Legacy variable annuities and
variable life insurance policies (American Legacy, American Legacy II and
American Legacy III variable annuities, American Legacy Life, American
Legacy Variable Life, and American Legacy Estate Builder) 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.
When the trustees of certain retirement plans purchase shares 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, and
any individual investments in American Legacy variable annuities and
variable life insurance policies are added to the figure determined above.
The sum is the Statement amount and applicable breakpoint level. On the
first investment and all other investments made pursuant to the Statement,
a sales charge will be assessed according to the sales charge breakpoint
thus determined. There will be no retroactive adjustments in sales charges
on investments 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.
The Tax-Exempt Fund of California - Page 32
<PAGE>
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 accounts and/or:
. employee benefit plan(s), such as an IRA, individual-type 403(b) plan,
or single-participant Keogh-type plan;
. business accounts solely controlled by these individuals (for example,
the individuals own the entire business);
. trust accounts established by the above individuals. However, if the
person(s) who established the trust is deceased, the trust account may
be aggregated with accounts of the person who is the primary
beneficiary of the trust.
Individual purchases by a trustee(s) or other fiduciary(ies) may also be
aggregated if the investments are:
. for a single trust estate or fiduciary account, including an employee
benefit plan other than those described above;
. 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
. 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.
CONCURRENT PURCHASES - You may combine purchases of Class A and/or B shares
of two or more funds in The American Funds Group, as well as individual
holdings in American Legacy variable annuities and variable life insurance
policies. Direct purchases of the money market funds are excluded. Shares
of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHTS OF ACCUMULATION - You may take into account the current value of
your existing Class A and B holdings in The American Funds Group, as well
as your holdings in Endowments (shares of which may be owned only by
tax-exempt organizations), to determine your sales charge on investments in
accounts eligible to be aggregated, or when making a gift to an individual
or charity. When determining your sales charge, you may also take into
account the value of your individual holdings, as of the end of the week
prior to your investment, in various American Legacy variable annuities and
variable life insurance policies. Direct purchases of the money market
funds are excluded.
CDSC WAIVERS FOR CLASS A SHARES - Any CDSC on Class A shares may be waived in
the following cases:
The Tax-Exempt Fund of California - Page 33
<PAGE>
(1) Exchanges (except if shares acquired by exchange are then redeemed within
12 months of the initial purchase).
(2) Distributions from 403(b) plans or IRAs due to death, post-purchase
disability or attainment of age 59-1/2.
(3) Tax-free returns of excess contributions to IRAs.
(4) Redemptions through systematic withdrawal plans (see "Automatic
Withdrawals" below), not exceeding 12% of the net asset value of the account
each year.
CDSC WAIVERS FOR CLASS B SHARES - Any CDSC on Class B shares may be waived in
the following cases:
(1) Systematic withdrawal plans (SWPs) - investors who set up a SWP (see
"Automatic Withdrawals" below) may withdraw up to 12% of the net asset value of
their account each year without incurring any CDSC. Shares not subject to a
CDSC (such as shares representing reinvestment of distributions) will be
redeemed first and will count toward the 12% limitation. If there are
insufficient shares not subject to a CDSC, shares subject to the lowest CDSC
will be redeemed next until the 12% limit is reached.
The 12% fee from CDSC limit is calculated on a pro rata basis at the time the
first payment is made and is recalculated thereafter on a pro rata basis at the
time of each SWP payment. Shareholders who establish a SWP should be aware that
the amount of that payment not subject to a CDSC may vary over time depending on
fluctuations in net asset value of their account. This privilege may be revised
or terminated at any time.
(2) Required minimum distributions taken from retirement accounts upon the
attainment of age 70-1/2.
(3) Distributions due to death or post-purchase disability of a shareholder. In
the case of joint tenant accounts, if one joint tenant dies, the surviving joint
tenant(s), at the time they notify the Transfer Agent of the decedent's death
and remove his/her name from the account, may redeem shares from the account
without incurring a CDSC. Redemptions subsequent to the notification to the
Transfer Agent of the death of one of the joint owners will be subject to a
CDSC.
INDIVIDUAL RETIREMENT ACCOUNT (IRA) ROLLOVERS
Assets from an employer-sponsored retirement plan (plan assets) may be invested
in any class of shares of the American Funds (except as described below) through
an IRA rollover plan. All such rollover investments will be subject to the terms
and conditions for Class A and B shares contained in the fund's current
prospectus and statement of additional information. In the case of an IRA
rollover involving plan assets from a plan that offered the American Funds, the
assets may only be invested in Class A shares of the American Funds. Such
investments will be at net asset value and will not be subject to a contingent
deferred sales charge. Dealers who initiate and are responsible for such
investments will be compensated pursuant to the schedule applicable to
investments of $1 million or more (see "Dealer Commissions on Class A Shares"
above).
The Tax-Exempt Fund of California - Page 34
<PAGE>
PRICE OF SHARES
Shares are purchased at the offering price next determined after the purchase
order is received and accepted by the fund or the Transfer Agent; 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 the case of orders sent
directly to the fund or the Transfer Agent, 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 do not always indicate 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 price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily as of approximately 4:00 p.m. New
York time, which is the normal close of trading on the New York Stock Exchange
each day the Exchange is open. If, for example, the Exchange closes at 1:00
p.m., the fund's share price would still be determined as of 4:00 p.m. New York
time. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
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 (other than money market funds) 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.
Short-term securities maturing within 60 days are valued at amortized cost which
approximates market value.
Assets or liabilities initially expressed in terms of non-U.S. 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
The Tax-Exempt Fund of California - Page 35
<PAGE>
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 fund.
The Principal Underwriter will not knowingly sell shares of the fund directly or
indirectly to any person or entity, where, after the sale, such person or entity
would own beneficially directly or indirectly more than 4.5% of the outstanding
shares of the fund without the consent of a majority of the fund's Board of
Trustees.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by the Transfer Agent. Sales of certain Class A and B
shares may be subject to deferred sales charges. You may sell (redeem) shares
in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- Shares held for you in your dealer's street name must be sold through
the dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- Requests must be signed by the registered shareholder(s)
- A signature guarantee is required if the redemption is:
- Over $50,000;
- Made payable to someone other than the registered
shareholder(s); or
- Sent to an address other than the address of record, or an
address of record which has been changed within the last 10 days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution.
- Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
- You must include any shares you wish to sell that are in certificate
form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE/(R)/ OR AMERICAN FUNDSLINE ONLINE/(R)/
- Redemptions by telephone or fax (including American FundsLine/(R)/ and
American FundsLine OnLine/(R)/) are limited to $50,000 per shareholder each
day.
- Checks must be made payable to the registered shareholder(s).
The Tax-Exempt Fund of California - Page 36
<PAGE>
- Checks must be mailed to an address of record that has been used
with the account for at least 10 days.
MONEY MARKET FUNDS
- You may have redemptions of $1,000 or more wired to your bank by writing
American Funds Service Company.
- You may establish check writing privileges (use the money market funds
application).
- If you request check writing privileges, you will be provided with
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 or registered shareholders exactly as indicated on
your checking account signature card.
- Check writing is not available for Class B shares of The Cash
Management Trust.
If you sell Class B shares and request a specific dollar amount to be sold, we
will sell sufficient shares so that the sale proceeds, after deducting any
contingent deferred sales charge, equals the dollar amount requested.
Redemption 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 1940 Act), 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.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution of Class A or Class B shares without a sales charge in the Class A
shares of any fund in The American Funds Group within 90 days after the date of
the redemption or distribution (any contingent deferred sales charge on Class A
shares will be credited to your account). Redemption proceeds of shares
representing direct purchases in the money market funds are excluded. Proceeds
will be reinvested at the next calculated net asset value after your request is
received and accepted by the Transfer Agent.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - An automatic investment plan enables you to make
monthly or quarterly investments into the American Funds through automatic
debits from your bank account. To set up a plan you must fill out an account
application and specify the amount you would like to invest ($50 minimum) and
the date on which you would like your investments to occur. The plan will begin
within 30 days after your account application is received. Your bank account
will be debited on the day or a few days before your investment is made,
depending on the bank's capabilities. The Transfer Agent will then invest your
money into the fund you specified on or around the date you specified. If your
bank account cannot be debited due to insufficient funds, a
The Tax-Exempt Fund of California - Page 37
<PAGE>
stop-payment or the closing of the 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 to 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, the Transfer Agent or your
investment dealer.
If you have elected to receive dividends and/or capital gain distributions in
cash, and the postal or other delivery service is unable to deliver checks to
your address of record, or you do not respond to mailings from American Funds
Service Company with regard to uncashed distribution checks, your distribution
option will automatically be converted to having all dividends and other
distributions reinvested in additional shares.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - You may cross-reinvest
dividends and capital gains ("distributions") into any other fund in The
American Funds Group at net asset value, subject to the following conditions:
(a) The aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5,000 (this is waived if the value of the account in the fund
receiving the distributions equals or exceeds that fund's minimum initial
investment requirement),
(b) If the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, distributions must be automatically
reinvested,
(c) If you discontinue the cross-reinvestment of distributions, the value of
the account of the fund receiving distributions must equal or exceed the minimum
initial investment requirement. If you do not meet this requirement within 90
days of notification, the fund has the right to automatically redeem the
account.
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 the Transfer Agent (see "Selling Shares"),
by contacting your investment dealer, by using American FundsLine and American
FundsLine OnLine (see "American FundsLine and American FundsLine OnLine" below),
or by telephoning 800/421-0180 toll-free, faxing (see "Principal Underwriter and
Transfer Agent" in the prospectus for the appropriate fax numbers) or
telegraphing the Transfer Agent. (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, computer, 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.
The Tax-Exempt Fund of California - Page 38
<PAGE>
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.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
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 the Transfer Agent.
Dividend and capital gain reinvestments and purchases through automatic
investment plans and certain retirement plans will be confirmed at least
quarterly.
AMERICAN FUNDSLINE AND AMERICAN FUNDSLINE ONLINE - 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 and American FundsLine OnLine. 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. Redemptions
and exchanges through American FundsLine and American FundsLine OnLine are
subject to the conditions noted above and in "Shareholder Account Services and
Privileges - 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) or computer (including American
FundsLine OnLine), fax or telegraph purchase, redemption and/or exchange
options, you agree to hold the fund, the Transfer Agent, 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 the Transfer Agent (you may also reinstate them
at any time by writing the Transfer Agent). If the Transfer Agent does not
employ reasonable procedures to confirm that the instructions received from any
person with appropriate account information are genuine, the fund may be liable
for losses due to unauthorized or fraudulent instructions. In the event that
shareholders are unable to reach the fund by telephone because of technical
difficulties, market conditions, or a natural disaster, redemption and exchange
requests may be made in writing only.
REDEMPTION OF SHARES - The fund's Declaration of Trust permits the fund to
direct the Transfer Agent to redeem the shares of any shareholder for their 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 required of new shareholders as set forth in the
The Tax-Exempt Fund of California - Page 39
<PAGE>
fund's current registration statement under the 1940 Act, and subject to such
further terms and conditions as the Board of Trustees of the fund may from time
to time adopt. We will give you prior notice of at least 60 days 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.
SHARE CERTIFICATES - Shares are credited to your account and certificates are
not issued unless you request them by writing to the Transfer Agent.
EXECUTION OF PORTFOLIO TRANSACTIONS
The Investment Adviser places orders for the fund's portfolio securities
transactions. The Investment Adviser strives to obtain the best available prices
in its portfolio transactions taking into account the costs and quality of
executions. When, in the opinion of the Investment Adviser, two or more brokers
(either directly or through their correspondent clearing agents) are in a
position to obtain the best price and execution, preference may be given to
brokers who have sold shares of the fund or who have provided investment
research, statistical, or other related services to 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. The fund will not pay a mark-up for research in principal
transactions.
Dealer concessions paid on underwriting transactions for the fiscal years ended
August 31, 1999, 1998 and 1997, amounted to $318,000, $358,000 and $244,000,
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. If the fund holds non-U.S. securities, the Custodian may
hold these securities pursuant to sub-custodial arrangements in non-U.S. banks
or non-U.S. branches of U.S. banks.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records 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. American Funds Service Company was paid a fee of
$81,000 for the 1999 fiscal year.
INDEPENDENT ACCOUNTANTS - Deloitte & Touche LLP, 1000 Wilshire Boulevard, 15th
Floor, Los Angeles, CA 90017, serves as the fund's independent accountants
providing audit services, preparation of tax returns and review of certain
documents to be filed with the Securities and
The Tax-Exempt Fund of California - Page 40
<PAGE>
Exchange Commission. The financial statements included in this Statement of
Additional Information from the Annual Report have been so included in reliance
on the report of Deloitte & Touche LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing. The selection of
the fund's independent accountants is reviewed and determined annually by the
Board of Trustees.
PROSPECTUSES AND REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on August
31. Shareholders are provided updated prospectuses annually. In addition,
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 the fund's independent accountants,
Deloitte & Touche LLP. In an effort to reduce the volume of mail shareholders
receive from the fund when a household owns more than one account, the Transfer
Agent has taken steps to eliminate duplicate mailings of prospectuses and
shareholder reports. To receive additional copies of a prospectus or report,
shareholders should contact the Transfer Agent.
PERSONAL INVESTING POLICY - The fund, Capital Research and Management Company
and its affiliated companies, including the fund's principal underwriter, have
adopted codes of ethics which allow for personal investments. The personal
investing policy is 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; 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.
SHAREHOLDER AND TRUSTEE RESPONSIBILITY - Under the laws of certain states,
including Massachusetts where the fund was organized and California where the
fund'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 fund. However, the risk of a shareholder incurring
any financial loss on account of shareholder liability is limited to
circumstances in which a fund itself would be unable to meet its obligations.
The Declaration of Trust contains an express disclaimer of shareholder liability
for acts, omissions, obligations or affairs of the fund and provides that notice
of the disclaimer may be given in each agreement, obligation, or instrument
which is entered into or executed by the fund or Trustees. The Declaration of
Trust provides for indemnification out of fund property of any shareholder held
personally liable for the obligations of the fund and also provides for the fund
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, officers, employees or agents of
the fund 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.
OTHER INFORMATION - The financial statements including the investment portfolio
and the report of Independent Accountants contained in the Annual Report are
included in this Statement of Additional Information. The following information
is not included in the Annual Report:
The Tax-Exempt Fund of California - Page 41
<PAGE>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE FOR CLASS A SHARES -- AUGUST 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) . . . . . . . . . $15.72
Maximum offering price per share
(100/96.25 of net asset value per share,
which takes into account the fund's current maximum
sales charge). . . . . . . . . . . . . . . . . . . . . . . . $16.33
</TABLE>
CLASS A SHARE INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield was 4.39% based on a 30-day (or one month) period ended August
31, 1999, 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's one year total return and average annual total return for the five-
and ten-year periods ended August 31, 1999 were -3.32%, 5.36% and 6.52%,
respectively. The fund's average annual total return at net asset value for the
one-, five- and ten-year periods ended on August 31, 1999 were 0.47%, 6.17% and
6.93%, respectively.
The average 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.
In calculating average annual total return, the fund assumes: (1) deduction of
the maximum sales load of 3.75% 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. In addition, the fund will provide lifetime
average total return figures. From time to time, the fund may calculate
investment results for Class B shares.
The fund may also, at times, calculate total return based on net asset value per
share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the
The Tax-Exempt Fund of California - Page 42
<PAGE>
computation. Consequently, total return calculated in this manner will be
higher. These total returns may be calculated over periods in addition to those
described above. Total return for the unmanaged indices will be calculated
assuming reinvestment of dividends and interest, but will not reflect any
deductions for advisory fees, brokerage costs or administrative expenses.
The fund may include information on its investment results and/or comparisons of
its investment results to various unmanaged indices (such as the Dow Jones
Average of 30 Industrial Stocks and the Standard and Poor's 500 Composite Stock
Index) or results of other mutual funds or investment or savings vehicles in
advertisements or in reports furnished to present or prospective shareholders.
The fund may also, from time to time, combine its results with those of other
funds in The American Funds Group for purposes of illustrating investment
strategies involving multiple funds.
The fund may refer to results and surveys compiled by organizations such as CDA/
Wiesenberger, Ibbotson Associates, Lipper Analytical Services, Morningstar,
Inc., and by the U.S. Department of Commerce. Additionally, the fund may refer
to results published in various newspapers and periodicals, including Barron's,
Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine,
Money, U.S. News and World Report and The Wall Street Journal.
The fund may illustrate the benefits of tax-deferral by comparing taxable
investments to investments made through tax-deferred retirement plans.
The fund may compare its investment results with the Consumer Price Index, which
is a measure of the average change in prices over time in a fixed market basket
of goods and services (e.g. food, clothing, and fuels, transportation, and other
goods and services that people buy for day-to-day living).
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, 1999 was 8.01%.
The Tax-Exempt Fund of California - Page 43
<PAGE>
APPENDIX
Description of Bond Ratings
BOND RATINGS - The ratings of Moody's Investors Service, Inc. (Moody's) and
Standard & Poor's Corporation (S&P) 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 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 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."
The Tax-Exempt Fund of California - Page 44
<PAGE>
"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 have 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."
S & P 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:
"Debt rated 'AAA' has the highest rating assigned by S & P. 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."
"Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or impled 'BBB-' rating.
"Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating."
"The rating 'CC' is typically applied to debt subordinated to senior debt that
is assigned an actual or implied 'CCC' rating."
"The rating 'C' is typically applied to debt subordinated to senior debt which
is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued."
"The rating 'C1' is reserved for income bonds on which no interest is being
paid."
The Tax-Exempt Fund of California - Page 45
<PAGE>
"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."
The Tax-Exempt Fund of California - Page 46
PART C
OTHER INFORMATION
THE TAX-EXEMPT FUND OF CALIFORNIA
ITEM 23. EXHIBITS
(a) Establishment and Designation of Class of Shares of Beneficial Interest
Without Par Value dated January 10, 2000
(b) Previously filed (see Post-Effective Amendment No. 15 filed 10/29/97)
(c) Share Certificate
(d) Amended Investment Advisory and Service Agreement dated March 1, 2000
(e) Amended and Restated Principal Underwriting Agreement dated December 14,
1999
(f) None
(g) Previously filed (see Post-Effective Amendment No. 15 filed 10/29/97)
(h) None
(i) Legal Opinion for Class B Shares
(j) Consent of Independent Auditors
(k) None
(l) Previously filed (see Post-Effective Amendment No. 15 filed 10/29/97)
(m) Plan of Distribution relating to Class B Shares dated December 14, 1999
(n) Multiple Class Plan dated December 14, 1999
(o) None
(p) Codes of Ethics
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 25. 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.
ITEM 25. INDEMNIFICATION (CONTINUED)
Article VI of the Trust's By-Laws states:
(a) The Trust shall indemnify any Trustee or officer of the Trust who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than action by or in the right of the Trust) by reason
of the fact that such person is or was such Trustee or officer or an employee
or agent of the Trust, or is or was serving at the request of the Trust as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe such
person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith or in a manner reasonably believed to be
opposed to the best interests of the Trust, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that such person's
conduct was unlawful.
(b) The Trust shall indemnify any Trustee or officer of the Trust who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Trust to procure a judgment
in its favor by reason of the fact that such person is or was such Trustee or
officer or an employee or agent of the Trust, or is or was serving at the
request of the Trust as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Trust, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of such person's duty to the Trust unless and
only to the extent that the court in which such action or suit was brought, or
any other court having jurisdiction in the premises, shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
(c) To the extent that a Trustee or officer of the Trust has been successful
on the merits in defense of any action, suit or proceeding referred to in
subparagraphs (a) or (b) above or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith, without the necessity for the determination as to the standard of
conduct as provided in subparagraph (d).
ITEM 25. INDEMNIFICATION (CONTINUED)
(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 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.
ITEM 25. INDEMNIFICATION (CONTINUED)
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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
None
ITEM 27. 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., The
Investment Company of America, Intermediate Bond Fund of America, Limited Term
Tax-Exempt Bond Fund of America, The New Economy Fund, New Perspective Fund,
Inc., New World Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund
of America, Inc., The Tax-Exempt Money Fund of America, 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
Agoura Hills, CA 91301
John A. Agar Vice President None
#61 Point West Circle
Little Rock, AR 72211
Robert B. Aprison Vice President None
2983 Bryn Wood Drive
Madison, WI 53711
L William W. Bagnard Vice President None
Steven L. Barnes Senior Vice President None
5400 Mount Meeker Road
Suite 1
Boulder, CO 80301-3508
B Carl R. Bauer Assistant Vice President None
Michelle A. Bergeron Senior Vice President None
4160 Gateswalk Drive
Smyrna, GA 30080
J. Walter Best, Jr. Regional Vice President None
9013 Brentmeade Blvd.
Brentwood, TN 37027
Joseph T. Blair Senior Vice President None
148 E. Shore Ave.
Groton Long Point, CT 06340
John A. Blanchard 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
Mick L. Brethower Senior Vice President None
29003 Colonial Drive
Georgetown, TX 78628
Alan Brown Regional Vice President None
4129 Laclede Avenue
St. Louis, MO 63108
B J. Peter Burns Vice President None
Brian C. Casey Regional Vice President None
8002 Greentree Road
Bethesda, MD 20817
Victor C. Cassato Senior Vice President None
609 W. Littleton Blvd., Suite 310
Greenwood Village, CO 80120
Christopher J. Cassin Senior Vice President None
19 North Grant Street
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, President and None
Co-Chief
Executive Officer
Ruth M. Collier Senior Vice President None
29 Landsdowne Drive
Larchmont, NY 10538
S David Coolbaugh Assistant Vice President None
H Carlo O. Cordasco Assistant Vice President None
Thomas E. Cournoyer Vice President None
2333 Granada Boulevard
Coral Gables, FL 33134
Douglas A. Critchell Senior Vice President None
3521 Rittenhouse Street, N.W.
Washington, D.C. 20015
L Carl D. Cutting Vice President None
William Daugherty Regional Vice President None
1216 Highlander Way
Mechanicsburg, PA 17055
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
633 Menlo Avenue, Suite 210
Menlo Park, CA 94025
Peter J. Doran Director, Executive Vice None
President
100 Merrick Road, Suite 216W
Rockville Centre, NY 11570
L Michael J. Downer Secretary Vice President
Robert W. Durbin Vice President None
74 Sunny Lane
Tiffin, OH 44883
I Lloyd G. Edwards Senior Vice President None
L Paul H. Fieberg Senior Vice President None
John Fodor Vice President None
15 Latisquama Road
Southborough, MA 01772
Daniel B. Frick Regional Vice President None
845 Western Avenue
Glen Ellyn, IL 60137
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 and Trustee
B Mariellen Hamann Assistant Vice President None
David E. Harper Senior Vice President None
150 Old Franklin School Road
Pittstown, NJ 08867
H Mary Pat Harris Assistant Vice President None
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
Michael J. Johnston Director None
630 Fifth Avenue, 36th Floor
New York, NY 10111
B Damien M. Jordan Vice President None
Arthur J. Levine Senior Vice President None
12558 Highlands Place
Fishers, IN 46038
B Karl A. Lewis Assistant Vice President None
T. Blake Liberty Regional Vice President None
5506 East Mineral Lane
Littleton, CO 80122
Mark J. Lien Regional Vice President None
5570 Beechwood Terrace
West Des Moines, IA 50266
L Lorin E. Liesy Assistant Vice President None
L Susan G. Lindgren Vice President - None
Institutional
Investment Services
LW Robert W. Lovelace Director None
Stephen 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 None
President
L E. Lee McClennahan Senior 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 - None
Institutional
Investment Services
David R. Murray Vice President None
60 Briant Drive
Sudbury, MA 01776
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 Vice President None
3084 Wilds Ridge Court
Prior Lake, MN 55372
Eric P. Olson Vice President None
62 Park Drive
Glenview, IL 60025
Gary A. Peace Regional Vice President None
291 Kaanapali Drive
Napa, CA 94558
Samuel W. Perry Regional Vice President None
6133 Calle del Paisano
Scottsdale, AZ 85251
Fredric Phillips Senior Vice President None
175 Highland Avenue, 4th Floor
Needham, MA 02494
B Candance D. Pilgrim Assistant Vice President None
Carl S. Platou Vice President None
7455 80th Place, S.E.
Mercer Island, WA 98040
L John O. Post Senior Vice President None
S Richard P. Prior Vice President None
Steven J. Reitman Senior Vice President None
212 The Lane
Hinsdale, IL 60521
Brian A. Roberts Vice President None
244 Lambeau Lane
Glenville, NC 28736
George S. Ross Senior Vice President None
55 Madison Avenue
Morristown, NJ 07960
L Julie D. Roth Vice President None
L James F. Rothenberg Director None
Douglas F. Rowe Vice President None
414 Logan Ranch Road
Georgetown, TX 78628
Christopher S. Rowey Regional Vice President None
9417 Beverlywood Street
Los Angeles, CA 90034
Dean B. Rydquist Senior Vice President None
1080 Bay Pointe Crossing
Alpharetta, GA 30005
Richard R. Samson Senior Vice President None
4604 Glencoe Avenue, #4
Marina del Rey, CA 90292
Joseph D. Scarpitti Vice President None
31465 St. Andrews
Westlake, OH 44145
L R. Michael Shanahan Director None
Brad W. Short Regional Vice President None
306 15th Street
Seal Beach, CA 90740
David W. Short Chairman of the Board None
and
1000 RIDC Plaza, Suite 212 Co-Chief Executive
Officer
Pittsburgh, PA 15238
William P. Simon Senior Vice President None
912 Castlehill Lane
Devon, PA 19333
L John C. Smith Assistant Vice President None
-
Institutional Investment
Services
Rodney G. Smith Vice President None
100 N. Central Expressway
Suite 1214
Richardson, TX 75080
S Sherrie L. Snyder-Senft Assistant Vice President None
Anthony L. Soave Regional Vice President None
8831 Morning Mist Drive
Clarkston, MI 48348
Therese L. Souiller Assistant Vice President None
2652 Excaliber Court
Virginia Beach, VA 23454
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
181 Second Avenue
Suite 228
San Mateo, CA 94401
LW Eric H. Stern Director None
B Max D. Stites Vice President None
Thomas A. Stout Regional Vice President None
1004 Ditchley Road
Virginia Beach, VA 23451
Craig R. Strauser Vice President None
3 Dover Way
Lake Oswego, OR 97034
Francis N. Strazzeri Senior 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 Vice President None
60 Reedland Woods Way
Tiburon, CA 94920
J. David Viale Regional Vice President None
7 Gladstone Lane
Laguna Niguel, CA 92677
Thomas E. Warren Regional Vice President None
119 Faubel Street
Sarasota, FL 34242
L J. Kelly Webb Senior Vice President, None
Treasurer and Controller
Gregory J. Weimer Vice President None
206 Hardwood Drive
Venetia, PA 15367
B Timothy W. Weiss Director None
George J. Wenzel Regional Vice President None
3406 Shakespeare Drive
Troy, MI 48084
J. D. Wiedmaier Assistant Vice President None
3513 Riverstone Way
Chesapeake, VA 23325
Timothy J. Wilson Vice President None
113 Farmview Place
Venetia, PA 15367
B Laura L. Wimberly Vice President None
H Marshall D. Wingo Director, Senior Vice None
President
L Robert L. Winston Director, Senior Vice None
President
William R. Yost 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
2887 Player Lane
Tustin Ranch, CA 92782
</TABLE>
__________
L Business Address, 333 South Hope Street, Los Angeles, CA 90071
LW Business Address, 11100 Santa Monica Boulevard, 15th Floor, Los Angeles, CA
90025
B Business Address, 135 South State College Boulevard, Brea, CA 92821
S Business Address, 3500 Wiseman Boulevard, San Antonio, TX 78251
H Business Address, 5300 Robin Hood Road, Norfolk, VA 23513
I Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240
(c) None
ITEM 28. 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 held in the
offices of its investment adviser, Capital Research and Management Company, 333
South Hope Street, Los Angeles, California 90071, and/or 135 South State
College Boulevard, Brea, California 92821.
Registrant's records covering shareholder accounts are maintained and kept by
its transfer agent, American Funds Service Company, 135 South State College
Boulevard, Brea, California 92821, 8332 Woodfield Crossing Boulevard,
Indianapolis, IN 46240, 3500 Wiseman Boulevard, San Antonio, Texas 78251 and
5300 Robin Hood Road, Norfolk, VA 23513.
Registrant's records covering portfolio transactions are maintained and kept
by its custodian, The Chase Manhattan Bank, One Chase Manhattan Plaza, New
York, New York 10081.
ITEM 29. MANAGEMENT SERVICES
None
ITEM 30. UNDERTAKINGS
n/a
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 amended
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
7/th/ day of March, 2000.
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 March 7, 2000, by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
(1) Principal Executive Officer:
/s/ Abner D. Goldstine President and Trustee
(Abner D. Goldstine)
(2) Principal Financial Officer
and Principal Accounting Officer:
/s/ Anthony W. Hynes Treasurer
(Anthony W. Hynes, Jr.)
(3) Trustees:
Richard G. Capen, Jr. * Trustee
H. Frederick Christie* Trustee
Don R. Conlan* Trustee
Diane C. Creel* Trustee
Martin Fenton* Trustee
Leonard R. Fuller* Trustee
/s/ Abner D. Goldstine President and Trustee
(Abner D. Goldstine)
/s/ Paul G. Haaga, Jr. Chairman and Trustee
(Paul G. Haaga, Jr.)
Richard G. Newman* Trustee
Frank M. Sanchez* Trustee
</TABLE>
*By /s/ Julie F. Williams
Julie F. Williams, Attorney-in-Fact
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)
The Tax-Exempt Fund of California -- C-15
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
Figure Box 0
Figure Box 0
Establishment and Designation of Classes
of Shares of Beneficial Interest Without Par Value
(the "Instrument")
The undersigned, being a majority of the Trustees of The American Funds
Tax-Exempt Series II, a Massachusetts business trust (the "Trust"), acting
pursuant to Section 6.1 of the Trust's Declaration of Trust dated May 20, 1986,
as amended on October 15, 1986, (the "Declaration of Trust"), hereby further
divide and classify the authorized and unissued shares of beneficial interest
(together with the shares of beneficial interest without par value, now
outstanding, the "Shares") of the Trust, into the two classes of shares
designated below in paragraph 1 (each a "Class" and, collectively, the
"Classes"). Each Class (including all currently issued and outstanding Shares,
which shall be redesignated "Class A Shares") shall be unlimited in number and
have the special and relative rights specified in this Instrument:
1. The Classes shall be designated as follows:
Class A
Class B
2. Each Share shall represent a pro rata beneficial interest in the assets
attributable to its Class, and shall be entitled to receive its pro rata share
of net assets attributable to that Class of Shares of the Trust upon
liquidation of the Trust, all as provided in or not inconsistent with the
Declaration of Trust. Unless otherwise provided in this Instrument, each Share
shall have the voting, dividend, liquidation and other rights, preferences,
powers, restrictions, limitations, qualifications, terms and conditions, as set
forth in the Declaration of Trust.
3. Upon the effective date of this Instrument:
a. Each Share of each Class of the Trust shall be entitled to one vote (or
fraction thereof in respect of a fractional Share) on matters which those
Shares (or Class of Shares) shall be entitled to vote. Shareholders of the
Trust shall vote together on any matter, except to the extent otherwise
required by the Investment Company Act of 1940 (the "Investment Company Act"),
and the rules thereunder, in which case only the Shareholders of that Class or
those Classes shall be entitled to vote thereon.
b. Class A Shares and Class B Shares may be issued and sold subject to
different sales loads or charges, whether initial, deferred or contingent, or
any combination thereof, as may be established from time to time by the
Trustees of the Trust in accordance with the Investment Company Act and
applicable rules and regulations of self-regulatory organizations and as shall
be set forth in the applicable prospectus for the Shares.
c. Liabilities, expenses, costs, charges or reserves that should be properly
allocated to the Shares of a particular Class of the Trust may, pursuant to a
Plan adopted by the Trustees to conform with Rule 18f-3 under the Investment
Company Act, or a similar rule, provision, interpretation or order under the
Investment Company Act, be charged to and borne solely by that Class and the
bearing of expenses solely by a Class of Shares may be appropriately reflected
and cause differences in net asset value attributable to, and the dividend,
redemption and liquidation rights of, the Shares of different Classes.
d. Except as otherwise provided hereinafter, on the first Friday of the first
calendar month following the expiration of a 96-month period commencing on the
first day of the calendar month during which Class B Shares were purchased by a
holder thereof (if such Friday is not a business day, on the next succeeding
business day), such Shares (as well as a pro rata portion of any Class B Shares
purchased through the reinvestment of dividends or other distributions paid on
all Class B Shares held by such holder) shall automatically convert to Class A
Shares on the basis of the respective net asset values of the Class B Shares
and the Class A Shares on the conversion date; PROVIDED, HOWEVER, that the
Trustees, in their sole discretion, may suspend the conversion of Class B
Shares if any conversion of such Shares would constitute a taxable event under
federal income tax law (in which case the holder of such Class B Shares shall
have the right to exchange from time to time any or all of such Class B Shares
held by such holder for Class A Shares on the basis of the respective net asset
values of the Class B Shares and the Class A Shares on the applicable exchange
date and without the imposition of a sales charge or fee); and PROVIDED,
FURTHER, that conversion (or exchange) of Class B Shares represented by share
certificates shall be subject to tender of such certificates; and
e. Subject to the foregoing paragraph, Class A Shares and Class B Shares may
have such different exchange rights as the Trustees shall determine in
compliance with the Investment Company Act.
4. The Trustees (including any successor Trustees) of the Trust shall have
the right at any time and from time to time to reallocate assets, liabilities
and expenses or to change the designation of any Class now or hereafter
created, or to otherwise change the special and relative rights of any Class,
provided that no change shall adversely affect the rights of Shareholders of
such Class.
Except as otherwise provided in this Instrument, the foregoing shall be
effective as of the date set forth below.
<TABLE>
<CAPTION>
<S> <C>
Richard G. Capen, Jr., as Trustee Abner D. Goldstine, as Trustee
H. Frederick Christie, as Trustee Paul G. Haaga, Jr., as Trustee
Don R. Conlan, as Trustee Richard G. Newman, as Trustee
Diane C. Creel, as Trustee Frank M. Sanchez, as Trustee
Martin Fenton, as Trustee Dated: January 10, 2000
Leonard R. Fuller, as Trustee
</TABLE>
[fund logo]
NUMBER (certificate number)
SHARES (number of shares)
CUSIP (cusip number)
CLASS (class of shares)
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
THE TAX-EXEMPT FUND OF CALIFORNIA
A MASSACHUSETTS BUSINESS TRUST
This Certifies that (shareholder name and address) is the owner of (number of
shares) fully paid Shares of Beneficial Interest, of the Class and number
indicated above, of The American Funds Tax-Exempt Series I, 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. (See reverse for certain abbreviations.)
Witness, the facsimile signatures of duly authorized officers of the Trust.
Dated: (date issued)
S/Julie F. Williams
Secretary
S/Abner D. Goldstine
President
Countersigned
AMERICAN FUNDS SERVICE COMPANY
TRANSFER AGENT
BY ___________________
AUTHORIZED SIGNATURE
THE ISSUER OF THE SHARES REPRESENTED BY THIS CERTIFICATE WILL FURNISH TO ANY
SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE A FULL STATEMENT OF THE
DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE SHARES OF
EACH CLASS AND SERIES AUTHORIZED TO BE ISSUED, THE VARIATIONS IN THE RELATIVE
RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH CLASS AND SERIES INSOFAR AS
THE SAME HAVE BEEN FIXED AND DETERMINED, AND THE AUTHORITY OF THE BOARD OF
DIRECTORS OR TRUSTEES TO FIX AND DETERMINE THE RELATIVE RIGHTS AND PREFERENCES
OF CLASSES AND SERIES OF SHARES OF THE ISSUER. IF YOU WOULD LIKE A COPY OF THE
FULL STATEMENT, PLEASE WRITE TO THE SECRETARY OF THE ISSUER OR ITS TRANSFER
AGENT.
CLASS B AND SERIES B SHARES REDEEMED WITHIN SIX YEARS OF THEIR PURCHASE ARE
SUBJECT TO A DEFERRED SALES CHARGE OF UP TO 5%. IN ADDITION, DURING THE MONTH
FOLLOWING THE 96-MONTH PERIOD THAT BEGINS ON THE FIRST DAY OF THE MONTH IN
WHICH SUCH SHARES ARE PURCHASED, CLASS B AND SERIES B SHARES (ALONG WITH SHARES
OF THE SAME CLASS AND SERIES PURCHASED THROUGH REINVESTMENT OF DIVIDENDS AND
OTHER DISTRIBUTIONS ON SUCH SHARES) WILL AUTOMATICALLY CONVERT TO CLASS A
SHARES (OR COMMON SHARES) ON THE BASIS OF THEN CURRENT RELATIVE NET ASSET
VALUES PER SHARE. THE ISSUER MAY SUSPEND SUCH CONVERSION IN CERTAIN LIMITED
CIRCUMSTANCES, IN WHICH CASE AN EXCHANGE PRIVILEGE WILL APPLY. THE ISSUER MAY
REQUIRE TENDER OF THIS CERTIFICATE PRIOR TO ANY CONVERSION OR EXCHANGE. IF
SUCH TENDER IS NOT REQUIRED, THE NUMBER OF SHARES REPRESENTED BY THIS
CERTIFICATE AFTER SUCH CONVERSION OR EXCHANGE WILL BE DIFFERENT THAN THE NUMBER
INDICATED ON THE FACE OF THIS CERTIFICATE. SHAREHOLDERS MAY RETURN THIS
CERTIFICATE AFTER ANY CONVERSION OR EXCHANGE AND OBTAIN A NEW CERTIFICATE (OR
CERTIFICATES) REPRESENTING THE ACTUAL NUMBER AND TYPE OF SHARES OWNED.
NOTE: SHARES REPRESENTED BY THIS CERTIFICATE 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.
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> <C> <C> <C>
ADM __ Administratrix FBO __ For the benefit of TTEE __ Trustee
Administrator GDN __ Guardian U/A __ Under agreement
COM PROP __ Community property JT TEN __ Joint tenants with right of UGMA/(State) __ Uniform Gift to Minors
Act in
CUST __ Custodian survivorship effect in the state indicated
DTD __ Dated LIFE TEN __ Life tenant UTMA/(State) __ Uniform Transfers to Minors Act
EST __ Estate (State)/TOD __ Uniform Transfer on Death in effect in the state
indicated
Of the estate of Act in effect in the state U/W __ Last will and testament
ET AL __ And others indicated Under last will and testament of
EXEC __ Executor TR __ Trust Under the will of
Executrix TEN COM __ Tenants in common
TEN ENT __ Tenants by the entireties
Note: Abbreviations refer where appropriate to the isngular or plural, male or female. Other abbreviations may also be used,
including U.S. Postal Service two-letter state abbreviations.
</TABLE>
REQUIREMENTS: THE SIGNATURE(S) ON THIS ASSIGNMENT MUST CORRESPOND EXACTLY WITH
THE NAME(S) WRITTEN ON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR.
SIGNATURE(S) MUST BE GUARANTEED BY AN "ELIGIBLE GUARANTOR," SUCH AS A BANK,
SAVINGS ASSOCIATION OR CREDIT UNION THAT IS FEDERALLY INSURED OR A MEMBER FIRM
OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. A NOTARY PUBLIC IS NOT
AN ACCEPTABLE GUARANTOR.
FOR VALUE RECEIVED, THE UNDERSIGNED HEREBY SELL, ASSIGN, AND TRANSFER
SHARES OF THE ISSUER REPRESENTED BY THIS
CERTIFICATE TO:
______________________________________________________________________________
____________________________________________________
(PLEASE PRINT OR TYPE NAME AND ADDRESS OF ASSIGNEE)
AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT
_____________________________________________________ ATTORNEY TO TRANSFER
THESE SHARES ON THE BOOKS OF THE ISSUER WITH FULL POWER OF
SUBSTITUTION._________________________________________________________________
__________________________ _______________________________
Signature of owner Date
______________________________________________________________________________
_____________ _______________________________ Signature of
co-owner, if any Date
IMPORTANT: BEFORE SIGNING, PLEASE READ AND COMPLY WITH THE REQUIREMENTS
PRINTED ABOVE.
SIGNATURE(S) GUARANTEED BY:
_______________________________________________________________________
AMENDED INVESTMENT ADVISORY AND SERVICE AGREEMENT
THIS AGREEMENT, dated and effective as of the 1st day of March, 2000, 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 1986, 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 such net assets in excess of $60 million; plus
(c) 3% of the Fund's gross investment income for such period ("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 be determined in accordance with Generally
Accepted Accounting Principles, 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. The expense limitation described in section 9 shall apply only to Class A
shares of beneficial interest in the Fund and shall not apply to any other
class(es) of shares the Trust may issue in the future. Any new class(es) of
shares issued by the Trust will not be subject to an expense limitation.
However, notwithstanding the foregoing, to the extent the Adviser is required
to reduce its fee pursuant to provisions contained in section 9 due to the
expenses of the Class A shares of beneficial interest in the Fund exceeding the
stated limit, the Adviser will either (i) reduce its fee similarly for other
classes of shares of beneficial interest in the Fund, or (ii) reimburse the
Trust on behalf of the Fund for other expenses to the extent necessary to
result in an expense reduction only for Class A shares of beneficial interest
in the Fund.
11. 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.
12. 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.
13. This Agreement shall continue in effect until the close of business on May
31, 2000. 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.
14. 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.
15. 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.
16. 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 CAPITAL RESEARCH AND
TAX-EXEMPT SERIES II MANAGEMENT COMPANY
By /s/Paul G. Haaga, Jr. By: /s/James F. Rothenberg
Paul G. Haaga, Jr. James F. Rothenberg
Chairman of the Board President
By /s/Julie F. Williams By: /s/Michael J. Downer
Julie F. Williams Michael J. Downer
Secretary Secretary
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
AMENDED AND RESTATED PRINCIPAL UNDERWRITING AGREEMENT
THIS PRINCIPAL UNDERWRITING AGREEMENT, between THE AMERICAN FUNDS TAX-EXEMPT
SERIES II, a Massachusetts business trust (the "Fund"), which has a single
series, The Tax-Exempt Fund of California (the "Fund"), and AMERICAN FUNDS
DISTRIBUTORS, INC., a California corporation ("the Distributor").
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 diversified investment company and the
Fund offers two classes of shares of beneficial interest, designated as Class A
shares and Class B shares, 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 either
from time to time or continuously as determined by the Trust's officers subject
to authorization by its Board of Trustees; and
WHEREAS, the Distributor is engaged in the business of promoting the
distribution of shares of investment companies through securities
broker-dealers; and
WHEREAS, the Trust and the Distributor wish to enter into an agreement with
each other to promote the distribution of the shares of the Fund and of all
series or classes of the Fund which may be established in the future;
NOW, THEREFORE, the parties agree as follows:
1. (a) The Distributor shall be the exclusive principal underwriter for the
sale of the shares of the Fund and of each series or class of the Fund which
may be established in the future, except as otherwise provided pursuant to the
following subsection (b). The terms "shares of Fund" or "shares" as used
herein shall mean shares of beneficial interest of the Fund and each series or
class which may be established in the future and become covered by this
Agreement in accordance with Section 23 of this Agreement..
(b) The Fund may, upon 60 days' written notice to the Distributor, 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 Fund may have expressly waived
in writing its right to make such designation. In the event of such
designation, the right of the Distributor 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 Fund, the Distributor shall act as agent of the
Fund except in any transaction in which the Distributor sells such shares as a
dealer to the public, in which event the Distributor shall act as principal for
its own account.
3. The Fund shall sell shares only through the Distributor, except that the
Fund 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 Companies,
Inc., to the extent of all or any portion of amounts received by such
shareholders upon redemption or repurchase of their shares by the other
investment companies;
(c) issue shares at net asset value to its shareholders in connection with the
reinvestment of dividends paid and other distributions made by the Fund;
(d) issue shares at net asset value to persons entitled to purchase shares at
net asset value without sales charge or contingent deferred sales charge as
described in the current 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 (the
"Prospectus").
4. The Distributor shall devote its best efforts to the sale of shares of the
Fund and shares of any other mutual funds served as investment adviser by
affiliated companies of The Capital Group Companies, Inc., and insurance
contracts funded by shares of such mutual funds, for which the Distributor has
been authorized to act as a principal underwriter for the sale of shares. The
Distributor shall maintain a sales organization suited to the sale of shares of
the Fund and shall use its best efforts to effect such sales in jurisdictions
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 the Distributor
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 current Prospectus. The
Distributor shall not, without the consent of the Trust, sell or offer for sale
any shares of a series or class issued by the Trust other than as principal
underwriter pursuant to this Agreement.
6. In its sales to dealers, it shall be the responsibility of the Distributor
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, as shall be determined by the Fund in
the manner and at the time or times set forth in and subject to the provisions
of the Prospectus of the Fund.
8. All orders for shares received by the Distributor shall, unless rejected by
the Distributor or the Fund, be accepted by the Distributor 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. The Distributor 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 Fund to withhold shares from sale under
Section 18 hereof.
9. The Fund 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. The Distributor 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
Securities and Exchange Commission or the National Association of Securities
Dealers, Inc. ("NASD"), as such requirements may from time to time exist.
11. The Distributor, as a principal underwriter under this Agreement for Class
A shares, shall receive (i) that part of the sales charge which is retained by
the Distributor after allowance of discounts to dealers, unless waived by the
Distributor for certain qualified fee-based programs, as set forth in the
Prospectus of the Fund, and (ii) amounts payable to the Distributor pursuant to
the Trust's Plan of Distribution under Rule 12b-1 under the 1940 Act relating
to its Class A shares.
12. The Distributor, as principal underwriter under this agreement for Class B
shares shall receive (i) distribution fees as commissions for the sale of Class
B shares and contingent deferred sales charges ("CDSC") (as defined below), as
set forth in the Fund's Prospectus, and (ii) shareholder service fees at the
rate of 0.25% per annum of the average net asset value of Class B shares
pursuant to the Trust's Plan of Distribution under Rule 12b-1 under the 1940
Act relating to its Class B shares (the "Plan").
13. (a) In accordance with the Plan, the Fund shall pay to the Distributor
or, at the Distributor's direction, to a third-party, monthly in arrears on or
prior to the 10/th/ business day of the following calendar month, the
Distributor's Allocable Portion (as defined below) of a fee (the "Distribution
Fee") which shall accrue daily in an amount equal to the product of (A) the
daily equivalent of 0.75% per annum multiplied by (B) the net asset value of
the Class B shares of the Fund outstanding on such day. The Fund agrees to
withhold from redemption proceeds of the Class B shares, the Distributor's
Allocable Portion of any CDSCs payable with respect to the Class B shares, as
provided in the Fund's Prospectus, and to pay the same over to the Distributor
or, at the Distributor's direction to a third-party, at the time the redemption
proceeds are payable to the holder of such shares redeemed. Payment of these
CDSC amounts to the Distributor is not contingent upon the adoption or
continuation of any Plan.
(b) For purposes of this Agreement, the term "Allocable Portion" of
Distribution Fees and CDSCs payable with respect to Class B shares shall mean
the portion of such Distribution Fees and CDSC allocated to the Distributor in
accordance with the Allocation Schedule attached hereto as Schedule A.
(c) The Distributor shall be considered to have completely earned the right to
the payment of its Allocable Portion of the Distribution Fees and the right to
payment of its Allocable Portion of the CDSCs with respect to each "Commission
Share" (as defined in the Allocation Schedule attached hereto as Schedule A)
upon the settlement date of such Commission Share taken into account in
determining the Distributor's Allocable Portion of Distribution Fees.
(d) The provisions set forth in Section 1 of the Plan (in effect on the date
hereof) relating to Class B shares, together with the related definitions are
hereby incorporated into this Section 13 by reference with the same force and
effect as if set forth herein in their entirety.
14. The Trust agrees to use its best efforts to maintain its registration as a
diversified open-end management investment company under the 1940 Act.
15. The Fund 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 (excluding any
information provided by the Distributor in writing for inclusion in the
Prospectus). The Distributor 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. The Distributor 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 contained in this Section, or from the use of any
sales literature, information, statistics or other aid or device employed in
connection with the sale of shares.
16. 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 Fund, the
Distributor and any other principal underwriter of the shares of the Fund as
follows:
(a) the Fund shall pay the typesetting and make-ready charges;
(b) the printing charges shall be prorated between the Fund, the Distributor,
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 the Distributor, 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.
17. The Trust agrees to use its best efforts to qualify and maintain the
qualification of an appropriate number of the shares of each series or class it
offers for sale under the securities laws of such states as the Distributor and
the Trust may approve. Any such qualification for any series or class 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 Fund, but the Distributor 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.
18. The Trust may withhold shares of any series or class from sale to any
person or persons or 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 Fund. The Trust will
give prompt notice to the Distributor of any withholding and will indemnify it
against any loss suffered by the Distributor as a result of such withholding by
reason of nondelivery of shares of any series or class after a good faith
confirmation by the Distributor of sales thereof prior to receipt of notice of
such withholding.
19. (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
the Distributor to the Trust.
(b) This Agreement may be terminated as to the Trust or any series or class 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 Fund or such series or class.
(c) This Agreement may be terminated as to the Trust or any series or class by
the Trust upon five (5) days' written notice to the Distributor provided either
of the following events has occurred:
(i) The NASD has expelled the Distributor or suspended its membership in that
organization; or
(ii) the qualification, registration, license or right of the Distributor to
sell shares of any series in a particular state has been suspended or canceled
by the State of California or any other state in which sales of the shares of
the Fund or such series during the most recent 12-month period exceeded 10% of
all shares of such series sold by the Distributor during such period.
(d) This Agreement may be terminated as to the Trust or any series or class at
any time on sixty (60) days' written notice to the Distributor without the
payment of any penalty, by vote of a majority of the Independent Trustees or by
vote of a majority of the outstanding voting securities (as defined in the 1940
Act) of the Fund or such series or class.
20. 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. Notwithstanding
this Section, this Agreement, with respect to the Fund's Class B shares, has
been approved in accordance with Section 22 in anticipation of the
Distributor's transfer of its Allocable Portion (but not its obligations under
this Agreement) to a third-party pursuant to a "Purchase and Sale Agreement" in
order to raise funds to cover distribution expenditures, and such transfer will
not cause of a termination of this Agreement.
21. No provision of this Agreement shall protect or purport to protect the
Distributor against any liability to the Fund or holders of its shares for
which the Distributor would otherwise be liable by reason of willful
misfeasance, bad faith, or gross negligence.
22. This Agreement shall become effective on March 1, 2000. Unless sooner
terminated in accordance with the other provisions hereof, this Agreement shall
continue in effect until May 31, 2000, and shall continue in effect from year
to year thereafter but only so long as such continuance is specifically
approved at least annually by (i) the vote of a majority of the Independent
Trustees of the Trust cast in person at a meeting called for the purpose of
voting on such approval, and (ii) the vote of either a majority of the entire
Board of Trustees of the Trust or a majority (within the meaning of the 1940
Act) of the outstanding voting securities of the Fund.
23. If the Trust shall at any time issue shares in more than one series or
class, this Agreement shall take effect with respect to such series or class of
the Trust which may be established in the future at such time as it has been
approved as to such series or class by vote of the Board of Trustees and the
Independent Trustees in accordance with Section 22. The Agreement as approved
with respect to any series or class shall specify the compensation payable to
the Distributor pursuant to Sections 11 and 12, as well as any provisions which
may differ from those herein with respect to such series, subject to approval
in writing by the Distributor.
This Agreement may be approved, amended, continued or renewed with respect to
a series or class as provided herein notwithstanding such approval, amendment,
continuance or renewal has not been effected with respect to any one or more
other series or class 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 December 14, 1999.
AMERICAN FUNDS DISTRIBUTORS, INC. THE AMERICAN FUNDS TAX-EXEMPT SERIES II
By: /s/ Kevin G. Clifford By: /s/ Paul G. Haaga, Jr.
Kevin G. Clifford Paul G. Haaga, Jr.
President Chairman of the Board
By: /s/ Michael J. Downer By: /s/ Julie F. Williams
Michael J. Downer Julie F. Williams
Secretary Secretary
SCHEDULE A
TO THE
AMENDED AND RESTATED PRINCIPAL UNDERWRITING AGREEMENT
ALLOCATION SCHEDULE
The following relates solely to Class B shares.
The Distributor's Allocable Portion of Distribution Fees and CDSCs in respect
of Class B shares shall be 100% until such time as the Distributor shall cease
to serve as exclusive distributor of Class B shares; thereafter, collections
that constitute CDSCs and Distribution Fees relating to Class B shares shall be
allocated among the Distributor and any successor distributor ("Successor
Distributor") in accordance with this Schedule.
Defined terms used in this Schedule and not otherwise defined herein shall have
the meanings assigned to them in the Amended and Restated Principal
Underwriting Agreement (the "Distribution Agreement"), of which this Schedule
is a part. As used herein the following terms shall have the meanings
indicated:
"Commission Share" means each B share issued under circumstances which would
normally give rise to an obligation of the holder of such share to pay a CDSC
upon redemption of such share (including, without limitation, any B share
issued in connection with a permitted free exchange), and any such share shall
continue to be a Commission Share of the applicable Fund prior to the
redemption (including a redemption in connection with a permitted free
exchange) or conversion of such share, even though the obligation to pay the
CDSC may have expired or conditions for waivers thereof may exist.
"Date of Original Issuance" means in respect of any Commission Share, the date
with reference to which the amount of the CDSC payable on redemption thereof,
if any, is computed.
"Free Share" means, in respect of a Fund, each B share of the Fund, other than
a Commission Share (including, without limitation, any B share issued in
connection with the reinvestment of dividends or capital gains).
"Inception Date" means in respect of a Fund, the first date on which the Fund
issued shares.
"Net Asset Value" means the net asset value determined as set forth in the
Prospectus of each Fund.
"Omnibus Share" means, in respect of a Fund, a Commission Share or Free Share
sold by one of the selling agents listed on [Exhibit I]. If, subsequent to the
Successor Distributor becoming exclusive distributor of the Class B shares, the
Distributor reasonably determines that the transfer agent is able to track all
Commission Shares and Free Shares sold by any of the selling agents listed on
Exhibit I in the same manner as Commission Shares and Free Shares are currently
tracked in respect of selling agents not listed on Exhibit I, then Exhibit I
shall be amended to delete such selling agent from Exhibit I so that Commission
Shares and Free Shares sold by such selling agent will no longer be treated as
Omnibus Shares.
PART I: ATTRIBUTION OF CLASS B SHARES
Class B shares that are outstanding from time to time, shall be attributed to
the Distributor and each Successor Distributor in accordance with the following
rules;
(1) Commission Shares other than Omnibus Shares:
(a) Commission Shares that are not Omnibus Shares ("Non-Omnibus Commission
Shares") attributed to the Distributor shall be those Non-Omnibus Commission
Shares the date of Original Issuance of which occurred on or after the
Inception Date of the applicable Fund and on or prior to the date the
Distributor ceased to be exclusive distributor of Class B shares of the Fund.
(b) Non-Omnibus Commission Shares attributable to each Successor Distributor
shall be those Non-Omnibus Commission Shares the Date of Original Issuance of
which occurs after the date such Successor Distributor became the exclusive
distributor of Class B shares of the Fund and on or prior to the date such
Successor Distributor ceased to be the exclusive distributor of Class B shares
of the Fund.
(c) A Non-Omnibus Commission Share of a Fund issued in consideration of the
investment of proceeds of the redemption of a Non-Omnibus Commission Share of
another Fund (the "Redeeming Fund") in connection with a permitted free
exchange, is deemed to have a Date of Original Issuance identical to the Date
of Original Issuance of the Non-Omnibus Commission Share of the Redeeming Fund,
and any such Commission Share will be attributed to the Distributor or
Successor Distributor based upon such Date of Original Issuance in accordance
with rules (a) and (b) above.
(2) Free Shares:
Free Shares that are not Omnibus Shares ("Non-Omnibus Free Shares") of a Fund
outstanding on any date shall be attributed to the Distributor or a Successor
Distributor, as the case may be, in the same proportion that the Non-Omnibus
Commission Shares of a Fund outstanding on such date are attributed to each on
such date; provided that if the Distributor and its transferees reasonably
determines that the transfer agent is able to produce monthly reports that
track the Date of Original Issuance for such Non-Omnibus Free Shares, then such
Free Shares shall be allocated pursuant to clause 1(a), (b) and (c) above.
(3) Omnibus Shares:
Omnibus Shares of a Fund outstanding on any date shall be attributed to the
Distributor or a Successor Distributor, as the case may be, in the same
proportion that the Non-Omnibus Commission Shares of the applicable Fund
outstanding on such date are attributed to it on such date; provided that if
the Distributor reasonably determines that the transfer agent is able to
produce monthly reports that track the Date of Original Issuance for the
Omnibus Shares, then the Omnibus Shares shall be allocated pursuant to clause
1(a), (b) and (c) above.
PART II: ALLOCATION OF CDSCs
(1) CDSCs Related to the Redemption of Non-Omnibus Commission Shares:
CDSCs in respect of the redemption of Non-Omnibus Commission Shares shall be
allocated to the Distributor or a Successor Distributor depending upon whether
the related redeemed Commission Share is attributable to the Distributor or
such Successor Distributor, as the case may be, in accordance with Part I
above.
(2) CDSCs Related to the Redemption of Omnibus Shares:
CDSCs in respect of the redemption of Omnibus Shares shall be allocated to the
Distributor or a Successor Distributor in the same proportion that CDSCs
related to the redemption of Commission Shares are allocated to each thereof;
provided, that if the Distributor reasonably determines that the transfer agent
is able to produce monthly reports which track the Date of Original Issuance
for the Omnibus Shares, then the CDSCs in respect of the redemption of Omnibus
Shares shall be allocated among the Distributor and any Successor Distributor
depending on whether the related redeemed Omnibus Share is attributable to the
Distributor or a Successor Distributor, as the case may be, in accordance with
Part I above.
PART III: ALLOCATION OF DISTRIBUTION FEE
Assuming that the Distribution Fee remains constant over time so that Part IV
hereof does not become operative:
(1) The portion of the aggregate Distribution Fee accrued in respect of all
Class B shares of a Fund during any calendar month allocable to the
Distributor or a Successor Distributor is determined by multiplying the total
of such Distribution Fee by the following fraction:
(A + C)/2
(B + D)/2where:
A= The aggregate Net Asset Value of all Class B shares of a Fund attributed to
the Distributor or such Successor Distributor, as the case may be, and
outstanding at the beginning of such calendar month
B= The aggregate Net Asset Value of all Class B shares of a Fund at the
beginning of such calendar month
C= The aggregate Net Asset Value of all Class B shares of a Fund attributed to
the Distributor or such Successor Distributor, as the case may be, and
outstanding at the end of such calendar month
D= The aggregate Net Asset Value of all Class B shares of a Fund at the end of
such calendar month
(2) If the Distributor reasonably determines that the transfer agent is able
to produce automated monthly reports that allocate the average Net Asset Value
of the Commission Shares (or all Class B shares if available) of a Fund among
the Distributor and any Successor Distributor in a manner consistent with the
methodology detailed in Part I and Part III(1) above, the portion of the
Distribution Fee accrued in respect of all such Class B shares of a Fund during
a particular calendar month will be allocated to the Distributor or a Successor
Distributor by multiplying the total of such Distribution Fee by the following
fraction:
(A)/(B)
where:
A= Average Net Asset Value of all such Class B shares of a Fund for such
calendar month attributed to the Distributor or a Successor Distributor, as the
case may be
B= Total average Net Asset Value of all such Class B shares of a Fund for such
calendar month
PART IV: ADJUSTMENT OF THE DISTRIBUTOR'S ALLOCABLE PORTION AND EACH SUCCESSOR
DISTRIBUTOR'S ALLOCABLE PORTION
The parties to the Distribution Agreement recognize that, if the terms of any
distributor's contract, any distribution plan, any prospectus, the Conduct
Rules or any other applicable law change so as to disproportionately reduce, in
a manner inconsistent with the intent of this Distribution Agreement, the
amount of the Distributor's Allocable Portion or any Successor Distributor's
Allocable Portion had no such change occurred, the definitions of the
Distributor's Allocable Portion and/or the Successor Distributor's Allocable
Portion in respect of the Class B shares relating to a Fund shall be adjusted
by agreement among the relevant parties; provided, however, if the Distributor,
the Successor Distributor and the Fund cannot agree within thirty (30) days
after the date of any such change in applicable laws or in any distributor's
contract, distribution plan, prospectus or the Conduct Rules, they shall submit
the question to arbitration in accordance with the commercial arbitration rules
of the American Arbitration Association and the decision reached by the
arbitrator shall be final and binding on each of them.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 South Flower Street
Los Angeles, California 90071
(213) 683-6000
March 7, 2000
The American Funds Tax-Exempt Series II
333 South Hope Street
Los Angeles, CA 90071
Ladies and Gentlemen:
We have acted as counsel to The American Funds Tax-Exempt Series II, a
Massachusetts business trust (the "Fund") in connection with Post-Effective
Amendment No. 19 to the Fund's Registration Statement on Form N-1A
(Registration No. 33-6180) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Registration Statement"),
relating to the issuance by the Fund of an indefinite number of Class B shares
of beneficial interest of the Fund (the "Shares").
In our capacity as counsel for the Fund, we have examined the Agreement and
Declaration of Trust of the Fund dated May 20, 1986 as amended (the
"Declaration of Trust"), the bylaws of the Fund, as amended, and originals or
copies of actions of the Board of Trustees of the Fund, as furnished to us by
the Fund, certificates of public officials, and such other documents, records
and certificates as we have deemed necessary for the purposes of this opinion.
Our opinion below is limited to the federal law of the United States of
America and the business trust law of the Commonwealth of Massachusetts. We
are not licensed to practice law in the Commonwealth of Massachusetts, and we
have based our opinion solely on our review of Chapter 182 of the Massachusetts
General Laws and the case law interpreting such Chapter as reported in the
Annotated Laws of Massachusetts (Aspen Law & Business, supp. 1999). We have
not undertaken a review of other Massachusetts law or of any administrative or
court decisions in connection with rendering this opinion. We disclaim any
opinion as to any law other than as described above, and we disclaim any
opinion as to any statute, rule, regulation, ordinance, order or other
promulgation of any regional or local governmental authority.
However, we also note that Article V, Section 5.1 of the Declaration of Trust
provides that no shareholder of the Fund as such shall be subject to any
personal liability whatsoever to any person in connection with the affairs of
the Fund, and that all persons shall look solely to the property of the Fund
for satisfaction of claims of any nature arising directly or indirectly in
connection with the affairs of the Fund. Further, the Fund is required to
indemnify and hold each shareholder harmless from and against all claims and
liabilities to which the shareholder may become subject by reason of the
shareholder's being or having been a shareholder. This indemnification
provision requires the Fund to reimburse the shareholder for all legal and
other expenses reasonably incurred in connection with any such claim or
liability. In addition, Article V, Section 5.4 of the Declaration of Trust
provides that every written obligation, contract, instrument, or other
undertaking of the Fund may recite that the obligations of the Fund thereunder
are not binding upon any shareholder individually, but bind only the Fund.
Based on the foregoing and our examination of such questions of law as we
have deemed necessary and appropriate for the purpose of this opinion, we are
of the opinion that the Shares of the Fund are duly authorized and, when
purchased and paid for as described in the Registration Statement, will be
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion of counsel as an exhibit to
the Registration Statement.
Very truly yours,
s/ PAUL, HASTINGS, JANOFSKY & WALKER LLP
INDEPENDENT AUDITORS' CONSENT
The American Funds Tax-Exempt Series II <UNDEF> The Tax-Exempt Fund of
California:
We consent to (a) the use in this Post-Effective Amendment No. 19 to
Registration Statement No. 33-6180 on Form N-1A of our report dated September
30, 1999 appearing in the Financial Statements, which are included in Part B,
the Statement of Additional Information of such Registration Statement, (b) the
references 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
March 6, 2000
PLAN OF DISTRIBUTION
OF
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
RELATING TO ITS
CLASS B SHARES
WHEREAS, The American Funds Tax-Exempt Series II (the "Trust") is a
Massachusetts business trust which has a single series, The Tax-Exempt Fund of
California (the "Fund"), which Fund offers two classes of shares of beneficial
interest, designated as Class A shares and Class B shares;
WHEREAS, American Funds Distributors, Inc. ("AFD") or any successor entity
designated by the Fund (AFD and any such successor collectively are referred to
as "Distributor") will serve as distributor of the shares of beneficial
interest of the Fund, and the Fund and Distributor are parties to a principal
underwriting agreement (the "Agreement");
WHEREAS, the purpose of this Plan of Distribution (the "Plan") is to authorize
the Fund to bear expenses of distribution of its Class B shares; and
WHEREAS, the Board of Trustees of the Trust has determined that there is a
reasonable likelihood that this Plan will benefit the Fund and its
shareholders;
NOW, THEREFORE, the Fund adopts this Plan as follows:
1. PAYMENTS TO DISTRIBUTOR. The Fund may expend pursuant to this Plan and as
set forth below an aggregate amount not to exceed 1.00% per annum of the
average net assets of the Fund's Class B shares.
A. SERVICE FEES. The Fund shall pay to the Distributor monthly in arrears a
shareholder servicing fee (the "Shareholder Servicing Fee") at the rate of
0.25% per annum on the Fund's Class B shares outstanding for less than one
year. The Fund shall also pay to the Distributor quarterly a Shareholder
Servicing Fee at the rate of 0.25% per annum on Class B shares that are
outstanding for one year or more. The Shareholder Servicing Fee is designed to
compensate Distributor for paying Service Fees to broker-dealers with whom
Distributor has an agreement.
B. DISTRIBUTION FEES. The Fund shall pay to the Distributor monthly in
arrears its "Allocable Portion" (as described in Schedule A to this Plan
"Allocation Schedule", and until such time as the Fund designates a successor
to AFD as distributor, the Allocable Portion shall equal 100%) of a fee (the
"Distribution Fee"), which shall accrue each day in an amount equal to the
product of (A) the daily equivalent of 0.75% per annum multiplied by (B) the
net asset value of the Fund's Class B shares outstanding on each day.
The Distributor may sell and assign its right to its Allocable Portion (but
not its obligations to the Fund under the Agreement) of the Distribution Fee to
a third party, and such transfer shall be free and clear of offsets or claims
the Fund may have against the Distributor, it being understood that the Fund is
not releasing the Distributor from any of its obligations to the Fund under the
Agreement or any of the assets the Distributor continues to own. The Fund may
agree, at the request of the Distributor, to pay the Allocable Portion of the
Distribution Fee directly to the third party transferee.
Any Agreement between the Fund and the Distributor relating to the Fund's
Class B shares shall provide that:
(i) the Distributor will be deemed to have performed all services required to
be performed in order to be entitled to receive its Allocable Portion of the
Distribution Fee payable in respect of each "Commission Share" (as defined in
the Allocation Schedule) upon the settlement date of each sale of such
Commission Share taken into account in determining such Distributor's Allocable
Portion of the Distribution Fee;
(ii) notwithstanding anything to the contrary in this Plan or the Agreement,
the Fund's obligation to pay the Distributor its Allocable Portion of the
Distribution Fee shall not be terminated or modified (including without
limitation, by change in the rules applicable to the conversion of the Class B
shares into shares of another class) for any reason (including a termination of
this Plan or the Agreement between such Distributor and the Fund) except:
(a) to the extent required by a change in the Investment Company Act of 1940
(the "1940 Act"), the rules and regulations under the 1940 Act, the Conduct
Rules of the National Association of Securities Dealers, Inc. (the "NASD"), or
any judicial decisions or interpretive pronouncements by the Securities and
Exchange Commission, which is either binding upon the Distributor or generally
complied with by similarly situated distributors of mutual fund shares, in each
case enacted, promulgated, or made after March 15, 2000,
(b) on a basis which does not alter the Distributor's Allocable Portion of
the Distribution Fee computed with reference to Commission Shares of the Fund,
the Date of Original Issuance (as defined in the Allocation Schedule) of which
occurs on or prior to the adoption of such termination or modification and with
respect to Free Shares (as defined in the Allocation Schedule) which would be
attributed to the Distributor under the Allocation Schedule with reference to
such Commission Shares, or
(c) in connection with a Complete Termination (as defined below) of this Plan
by the Fund;
(iii) the Fund will not take any action to waive or change any contingent
deferred sales charge ("CDSC") in respect to the Class B shares, the Date of
Original Issuance of which occurs on or prior to the taking of such action
except as provided in the Fund's prospectus or statement of additional
information on the date such Commission Share was issued, without the consent
of the Distributor or its assigns;
(iv) notwithstanding anything to the contrary in this Plan or the Agreement,
none of the termination of the Distributor's role as principal underwriter of
the Class B shares of the Fund, the termination of the Agreement or the
termination of this Plan will terminate the Distributor's right to its
Allocable Portion of the CDSCs in respect of Class B shares of the Fund;
(v) except as provided in (ii) above and notwithstanding anything to the
contrary in this Plan or the Agreement, the Fund's obligation to pay the
Distributor's Allocable Portion of the Distribution Fees and CDSCs payable in
respect of the Class B shares of the Fund shall be absolute and unconditional
and shall not be subject to dispute, offset, counterclaim or any defense
whatsoever, at law or equity, including, without limitation, any of the
foregoing based on the insolvency or bankruptcy of the Distributor; and
(vi) until the Distributor has been paid its Allocable Portion of the
Distribution Fees in respect of the Class B shares of the Fund, the Fund will
not adopt a plan of liquidation in respect of the Class B shares without the
consent of the Distributor and its assigns. For purposes of this Plan, the
term Allocable Portion of the Distribution Fees or CDSCs payable in respect of
the Class B shares as applied to any Distributor shall mean the portion of such
Distribution Fees or CDSCs payable in respect of such Class B shares of the
Fund allocated to the Distributor in accordance with the Allocation Schedule as
it relates to the Class B shares of the Fund, and until such time as the Fund
designates a successor to AFD as distributor, the Allocable Portion shall equal
100% of the Distribution Fees and CDSCs. For purposes of this Plan, the term
"Complete Termination" in respect of this Plan as it relates to the Class B
shares means a termination of this Plan involving the complete cessation of the
payment of Distribution Fees in respect of all Class B shares, the termination
of the distribution plans and principal underwriting agreements, and the
complete cessation of the payment of any asset based sales charge (within the
meaning of the Conduct Rules of the NASD) or similar fees in respect of the
Fund and any successor mutual fund or any mutual fund acquiring a substantial
portion of the assets of the Fund (the Fund and such other mutual funds
hereinafter referred to as the "Affected Funds") and in respect of the Class B
shares and every future class of shares (other than future classes of shares
established more than eight years after the date of such termination) which has
substantially similar characteristics to the Class B shares (all such classes
of shares the "Affected Classes of Shares") of such Affected Funds taking into
account the manner of payment and amount of asset based sales charge, CDSC or
other similar charges borne directly or indirectly by the holders of such
shares; provided that
(a) the Board of Trustees of such Affected Funds, including the Independent
Trustees (as defined below) of the Affected Funds, shall have determined that
such termination is in the best interest of such Affected Funds and the
shareholders of such Affected Funds, and
(b) such termination does not alter the CDSC as in effect at the time of such
termination applicable to Commission Shares of the Fund, the Date of Original
Issuance of which occurs on or prior to such termination.
2. APPROVAL BY THE BOARD. 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 Fund and (ii) those Trustees of the Fund who
are not "interested persons" of the Fund (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 "Independent Trustees"), cast in person at a
meeting called for the purpose of voting on this Plan and/or such agreement.
3. REVIEW OF EXPENDITURES. 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 Fund pursuant to this Plan or any related agreement, and the
Board shall review, a written report of the amounts expended pursuant to this
Plan and the purposes for which such expenditures were made.
4. TERMINATION OF PLAN. This Plan may be terminated as to the Fund's Class B
shares at any time by vote of a majority of the Independent Trustees, or by
vote of a majority of the outstanding Class B shares of the Fund. Unless
sooner terminated in accordance with this provision, this Plan shall continue
in effect until May 31, 2000. It may thereafter be continued from year to year
in the manner provided for in paragraph 2 hereof.
Notwithstanding the foregoing or paragraph 6, below, any amendment or
termination of this Plan shall not affect the rights of the Distributor to
receive its Allocable Portion of the Distribution Fee, unless the termination
constitutes a Complete Termination of this Plan as described in paragraph 1
above.
5. REQUIREMENTS OF AGREEMENT. Any Agreement related to this Plan shall be in
writing, and shall provide:
(c) that such agreement may be terminated as to the Fund at any time, without
payment of any penalty by the vote of a majority of the Independent Trustees or
by a vote of a majority of the outstanding Class B shares of the Fund, 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.
6. AMENDMENT. 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 the Class B shares of the Fund unless such amendment is
approved by vote of a majority of the outstanding voting securities of the
Class B shares of the Fund and as provided in paragraph 2 hereof, and no other
material amendment to this Plan shall be made unless approved in the manner
provided for in paragraph 2 hereof.
7. NOMINATION OF TRUSTEES. While this Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Independent Trustees of the Fund.
8. ISSUANCE OF SERIES OF SHARES. If the Fund shall at any time issue shares
in more than one series, this Plan may be adopted, amended, continued or
renewed with respect to a series as provided herein, notwithstanding that such
adoption, amendment, continuance or renewal has not been effected with respect
to any one or more other series of the Fund.
9. RECORD RETENTION. The Fund shall preserve copies of this Plan and any
related agreement and all reports made pursuant to paragraph 3 hereof for 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 Fund has caused this Plan to be executed by its
officers thereunto duly authorized, as of December 14, 1999.
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
By /s/ Paul G. Haaga, Jr.
Paul G. Haaga, Jr., Chairman
By /s/ Julie F. Williams
Julie F. Williams, Secretary
SCHEDULE A
TO THE
PLAN OF DISTRIBUTION OF
THE AMERICAN FUNDS TAX-EXEMPT SERIES II - THE TAX-EXEMPT FUND OF CALIFORNIA
RELATING TO ITS CLASS B SHARES
ALLOCATION SCHEDULE
The following relates solely to Class B shares.
The Distributor's Allocable Portion of Distribution Fees and CDSCs in respect
of Class B shares shall be 100% until such time as the Distributor shall cease
to serve as exclusive distributor of Class B shares; thereafter, collections
that constitute CDSCs and Distribution Fees relating to Class B shares shall be
allocated among the Distributor and any successor distributor ("Successor
Distributor") in accordance with this Schedule.
Defined terms used in this Schedule and not otherwise defined herein shall
have the meanings assigned to them in the Amended and Restated Principal
Underwriting Agreement (the "Distribution Agreement"), of which this Schedule
is a part. As used herein the following terms shall have the meanings
indicated:
"Commission Share" means each B share issued under circumstances which would
normally give rise to an obligation of the holder of such share to pay a CDSC
upon redemption of such share (including, without limitation, any B share
issued in connection with a permitted free exchange), and any such share shall
continue to be a Commission Share of the applicable Fund prior to the
redemption (including a redemption in connection with a permitted free
exchange) or conversion of such share, even though the obligation to pay the
CDSC may have expired or conditions for waivers thereof may exist.
"Date of Original Issuance" means in respect of any Commission Share, the date
with reference to which the amount of the CDSC payable on redemption thereof,
if any, is computed.
"Free Share" means, in respect of a Fund, each B share of the Fund, other than
a Commission Share (including, without limitation, any B share issued in
connection with the reinvestment of dividends or capital gains).
"Inception Date" means in respect of a Fund, the first date on which the Fund
issued shares.
"Net Asset Value" means the net asset value determined as set forth in the
Prospectus of each Fund.
"Omnibus Share" means, in respect of a Fund, a Commission Share or Free Share
sold by one of the selling agents listed on [Exhibit I]. If, subsequent to the
Successor Distributor becoming exclusive distributor of the Class B shares, the
Distributor reasonably determines that the transfer agent is able to track all
Commission Shares and Free Shares sold by any of the selling agents listed on
Exhibit I in the same manner as Commission Shares and Free Shares are currently
tracked in respect of selling agents not listed on Exhibit I, then Exhibit I
shall be amended to delete such selling agent from Exhibit I so that Commission
Shares and Free Shares sold by such selling agent will no longer be treated as
Omnibus Shares.
PART I: ATTRIBUTION OF CLASS B SHARES
Class B shares that are outstanding from time to time, shall be attributed to
the Distributor and each Successor Distributor in accordance with the following
rules;
(1) Commission Shares other than Omnibus Shares:
(a) Commission Shares that are not Omnibus Shares ("Non-Omnibus Commission
Shares") attributed to the Distributor shall be those Non-Omnibus Commission
Shares the date of Original Issuance of which occurred on or after the
Inception Date of the applicable Fund and on or prior to the date the
Distributor ceased to be exclusive distributor of Class B shares of the Fund.
(b) Non-Omnibus Commission Shares attributable to each Successor Distributor
shall be those Non-Omnibus Commission Shares the Date of Original Issuance of
which occurs after the date such Successor Distributor became the exclusive
distributor of Class B shares of the Fund and on or prior to the date such
Successor Distributor ceased to be the exclusive distributor of Class B shares
of the Fund.
(c) A Non-Omnibus Commission Share of a Fund issued in consideration of the
investment of proceeds of the redemption of a Non-Omnibus Commission Share of
another Fund (the "Redeeming Fund") in connection with a permitted free
exchange, is deemed to have a Date of Original Issuance identical to the Date
of Original Issuance of the Non-Omnibus Commission Share of the Redeeming Fund,
and any such Commission Share will be attributed to the Distributor or
Successor Distributor based upon such Date of Original Issuance in accordance
with rules (a) and (b) above.
(2) Free Shares:
Free Shares that are not Omnibus Shares ("Non-Omnibus Free Shares") of a Fund
outstanding on any date shall be attributed to the Distributor or a Successor
Distributor, as the case may be, in the same proportion that the Non-Omnibus
Commission Shares of a Fund outstanding on such date are attributed to each on
such date; provided that if the Distributor and its transferees reasonably
determines that the transfer agent is able to produce monthly reports that
track the Date of Original Issuance for such Non-Omnibus Free Shares, then such
Free Shares shall be allocated pursuant to clause 1(a), (b) and (c) above.
(3) Omnibus Shares:
Omnibus Shares of a Fund outstanding on any date shall be attributed to the
Distributor or a Successor Distributor, as the case may be, in the same
proportion that the Non-Omnibus Commission Shares of the applicable Fund
outstanding on such date are attributed to it on such date; provided that if
the Distributor reasonably determines that the transfer agent is able to
produce monthly reports that track the Date of Original Issuance for the
Omnibus Shares, then the Omnibus Shares shall be allocated pursuant to clause
1(a), (b) and (c) above.
PART II: ALLOCATION OF CDSCs
(1) CDSCs Related to the Redemption of Non-Omnibus Commission Shares:
CDSCs in respect of the redemption of Non-Omnibus Commission Shares shall be
allocated to the Distributor or a Successor Distributor depending upon whether
the related redeemed Commission Share is attributable to the Distributor or
such Successor Distributor, as the case may be, in accordance with Part I
above.
(2) CDSCs Related to the Redemption of Omnibus Shares:
CDSCs in respect of the redemption of Omnibus Shares shall be allocated to the
Distributor or a Successor Distributor in the same proportion that CDSCs
related to the redemption of Commission Shares are allocated to each thereof;
provided, that if the Distributor reasonably determines that the transfer agent
is able to produce monthly reports which track the Date of Original Issuance
for the Omnibus Shares, then the CDSCs in respect of the redemption of Omnibus
Shares shall be allocated among the Distributor and any Successor Distributor
depending on whether the related redeemed Omnibus Share is attributable to the
Distributor or a Successor Distributor, as the case may be, in accordance with
Part I above.
PART III: ALLOCATION OF DISTRIBUTION FEE
Assuming that the Distribution Fee remains constant over time so that Part IV
hereof does not become operative:
(1) The portion of the aggregate Distribution Fee accrued in respect of all
Class B shares of a Fund during any calendar month allocable to the Distributor
or a Successor Distributor is determined by multiplying the total of such
Distribution Fee by the following fraction:
(A + C)/2
(B + D)/2
where:
A= The aggregate Net Asset Value of all Class B shares of a Fund attributed to
the Distributor or such Successor Distributor, as the case may be, and
outstanding at the beginning of such calendar month
B= The aggregate Net Asset Value of all Class B shares of a Fund at the
beginning of such calendar month
C= The aggregate Net Asset Value of all Class B shares of a Fund attributed to
the Distributor or such Successor Distributor, as the case may be, and
outstanding at the end of such calendar month
D= The aggregate Net Asset Value of all Class B shares of a Fund at the end of
such calendar month
(2) If the Distributor reasonably determines that the transfer agent is able
to produce automated monthly reports that allocate the average Net Asset Value
of the Commission Shares (or all Class B shares if available) of a Fund among
the Distributor and any Successor Distributor in a manner consistent with the
methodology detailed in Part I and Part III(1) above, the portion of the
Distribution Fee accrued in respect of all such Class B shares of a Fund during
a particular calendar month will be allocated to the Distributor or a Successor
Distributor by multiplying the total of such Distribution Fee by the following
fraction:
(A)/(B)
where:
A= Average Net Asset Value of all such Class B shares of a Fund for such
calendar month attributed to the Distributor or a Successor Distributor, as the
case may be
B= Total average Net Asset Value of all such Class B shares of a Fund for such
calendar month
PART IV: ADJUSTMENT OF THE DISTRIBUTOR'S ALLOCABLE PORTION AND EACH SUCCESSOR
DISTRIBUTOR'S ALLOCABLE PORTION
The parties to the Distribution Agreement recognize that, if the terms of any
distributor's contract, any distribution plan, any prospectus, the Conduct
Rules or any other applicable law change so as to disproportionately reduce, in
a manner inconsistent with the intent of this Distribution Agreement, the
amount of the Distributor's Allocable Portion or any Successor Distributor's
Allocable Portion had no such change occurred, the definitions of the
Distributor's Allocable Portion and/or the Successor Distributor's Allocable
Portion in respect of the Class B shares relating to a Fund shall be adjusted
by agreement among the relevant parties; provided, however, if the Distributor,
the Successor Distributor and the Fund cannot agree within thirty (30) days
after the date of any such change in applicable laws or in any distributor's
contract, distribution plan, prospectus or the Conduct Rules, they shall submit
the question to arbitration in accordance with the commercial arbitration rules
of the American Arbitration Association and the decision reached by the
arbitrator shall be final and binding on each of them.
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
MULTIPLE CLASS PLAN
WHEREAS, The American Funds Tax-Exempt Series II (the "Trust), a Massachusetts
business trust has a single series, The Tax-Exempt Fund of California (the
"Fund"), and is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management investment company that offers
shares of beneficial interest;
WHEREAS, American Funds Distributors, Inc. ("the Distributor") serves as the
principal underwriter for the Fund;
WHEREAS, the Trust has adopted Plans of Distribution (each a "12b-1 Plan")
under which the Fund may bear expenses of distribution of its shares, including
payment and/or reimbursement to the Distributor for certain of its expenses
incurred in connection with the Fund;
WHEREAS, the Fund is authorized to issue two classes of shares of beneficial
interest, designated as Class A shares and Class B shares;
WHEREAS, Rule 18f-3 under the 1940 Act permits open-end management investment
companies to issue multiple classes of voting stock representing interests in
the same portfolio if, among other things, an investment company adopts a
written Multiple Class Plan (the "Plan") setting forth the separate
arrangement and expense allocation of each class and any related conversion
features or exchange privileges; and
WHEREAS, the Board of Trustees of the Trust has determined, that it is in the
best interest of each class of shares of the Fund individually, and the Fund as
a whole, to adopt this Plan;
NOW THEREFORE, the Fund adopts this Plan as follows:
1. Each class of shares will represent interests in the same portfolio of
investments of the Fund, and be identical in all respects to each other class,
except as set forth below. The differences among the various classes of shares
of the Fund will relate to: (i) distribution, service and other charges and
expenses as provided for in paragraph 3 of this Plan; (ii) the exclusive right
of each class of shares to vote on matters submitted to shareholders that
relate solely to that class or the separate voting right of each class on
matters for which the interests of one class differ from the interests of
another class; (iii) such differences relating to eligible investors as may be
set forth in the Fund's prospectus and statement of additional information
("SAI"), as the same may be amended or supplemented from time to time; (iv) the
designation of each class of shares; (v) conversion features; and (vi) exchange
privileges.
2. (a) Certain expenses may be attributable to the Fund, but not a particular
class of shares thereof. All such expenses will be borne by each class on the
basis of the relative aggregate net assets of the classes. Notwithstanding the
foregoing, the Distributor, the investment adviser or other provider of
services to the Fund may waive or reimburse the expenses of a specific class or
classes to the extent permitted by Rule 18f-3 under the 1940 Act and any other
applicable law.
(b) A class of shares may be permitted to bear expenses that are directly
attributable to that class, including: (i) any distribution fees associated
with any rule 12b-1 Plan for a particular class and any other costs relating to
implementing or amending such rule 12b-1 Plan; (ii) any service fees associated
with any rule 12b-1 Plan attributable to such class; and (iii) any shareholder
servicing fees attributable to such class.
(c) Any additional incremental expenses not specifically identified above
that are subsequently identified and determined to be applied properly to one
class of shares of the Fund shall be so applied upon approval 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) ("Independent Trustees").
3. Each class of the Fund shall differ in the amount of, and the manner in
which distribution costs are borne by shareholders and in the costs associated
with transfer agency services as follows:
(a) Class A shares
(i) Class A shares are sold at net asset value plus a front-end sales
charge, at net asset value without a front-end sales charge but subject to a
contingent deferred sales charge ("CDSC"), and at net asset value without any
sales charge, as set forth in the Fund's prospectus and SAI.
(ii) Class A shares are subject to an annual distribution expense under the
Fund's Class A Plan of Distribution of up to 0.25% of average net assets, as
set forth in the Fund's prospectus, SAI, and Plan of Distribution. This
expense consists of a service fee of up to 0.25% plus certain other
distribution costs.
(b) Class B shares
(i) Class B shares shall be sold at net asset value without a front-end
sales charge, but are subject to a CDSC and maximum purchase limits as set
forth in the Fund's prospectus and SAI.
(ii) Class B shares shall be subject to an annual distribution expense under
the Fund's Class B Plan of Distribution of up to 1.00% of average net assets,
as set forth in the Fund's prospectus, SAI, and Class B Plan of Distribution.
This expense shall consist of a distribution fee of approximately 0.75% and a
service fee of approximately 0.25% of such net assets.
(iii) Class B shares will automatically convert to Class A shares of the
Fund approximately eight years after purchase, subject to the limitations
described in the Fund's prospectus and SAI. All conversions shall be effected
on the basis of the relative net asset values of the two classes of shares
without the imposition of any sales load or other charge.
(iv) Class B shares shall be subject to a fee (included within the transfer
agency expense) for additional costs associated with tracking the age of each
Class B share.
All other rights and privileges of Fund shareholders are identical regardless
of which class of shares are held.
4. This Plan shall not take effect until it has been approved by votes of the
majority of both (i) the Board of Trustees of the Trust; and (ii) the
Independent Trustees.
5. This Plan shall become effective with respect to any class of shares of the
Fund, other than Class A or Class B shares, upon the commencement of the
initial public offering thereof (provided that the Plan has previously been
approved with respect to such additional class by votes of the majority of both
(i) the Board of Trustees of the Trust; and (ii) Independent Trustees prior to
the offering of such additional class of shares), and shall continue in effect
with respect to such additional class or classes until terminated in accordance
with paragraph 7. An addendum setting forth such specific and different terms
of such additional class or classes shall be attached to and made part of this
Plan.
6. No material amendment to the Plan shall be effective unless it is approved
by the votes of the majority of both (i) the Board of Trustees of the Trust;
and (ii) Independent Trustees.
7. This Plan may be terminated at any time with respect to the Fund as a whole
or any class of shares individually, by the votes of the majority of both (i)
the Board of Trustees of the Trust; and (ii) Independent Trustees. This Plan
may remain in effect with respect to a particular class or classes of shares of
the Fund even if it has been terminated in accordance with this paragraph with
respect to any other class of shares.
IN WITNESS WHEREOF, the Trust has caused this Plan to be executed by its
officers thereunto duly authorized, as of December 14, 1999.
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
By /s/ Paul G. Haaga, Jr.
Paul G. Haaga, Jr., Chairman
By /s/ Julie F. Williams
Julie F. Williams, Secretary
FORM OF
FUND CODE OF ETHICS
(as adopted by the Fund's Board of Directors/Trustees)
1. No Director/Trustee shall use his or her position or the knowledge gained
therefrom as to create a conflict between his or her personal interest and that
of the Fund. No Director/Trustee shall seek or accept gifts, favors,
preferential treatment, or valuable consideration of any kind offered because
of his or her association with the Fund.
2. Each non-affiliated Director/Trustee shall report to the Secretary of the
Fund not later than ten (10) days after the end of each calendar quarter any
transaction in securities which such Director/Trustee has effected during the
quarter which the Director/Trustee then knows to have been effected within
fifteen (15) days before or after a date on which the Fund purchased or sold,
or considered the purchase or sale of, the same security.
3. For purposes of this Code of Ethics, transactions involving United States
Government securities as defined in the Investment Company Act of 1940,
bankers' acceptances, bank certificates of deposit, commercial paper, or shares
of registered open-end investment companies are exempt from reporting as are
non-volitional transactions such as dividend reimbursement programs and
transactions over which the Director/Trustee exercises no control.
THE CAPITAL GROUP COMPANIES
CODE OF CONDUCT
(as of October 1, 1999)
All of us within the Capital organization are responsible for maintaining the
very highest ethical standards when conducting business. In keeping with these
standards, we must never allow our own interests to be placed ahead of our
shareholders' and clients' interests.
Over the years we have earned a reputation for the highest integrity.
Regardless of lesser standards that may be followed through business or
community custom, we must observe exemplary standards of honesty and integrity.
REPORTING VIOLATIONS
If you know of any violation of our Code of Conduct, you have a responsibility
to report it. Deviations from controls or procedures that safeguard the
company, including the assets of shareholders and clients, should also be
reported.
You can report confidentially to:
- - Your manager or department head
- - CGC Audit Committee:
Donnalisa Barnum
Larry P. Clemmensen
Roberta Conroy
Bill Hurt
Sonny Kamm
Mike Kerr
John McLaughlin
Bob O'Donnell
Tom Rowland
John Smet
Mark Smith
Wally Stern
Antonio Vegezzi
Shaw Wagener
Kelly Webb
- - Mike Downer or any other lawyer in the CGC Legal Group
- - Don Wolfe of Deloitte & Touche LLP (CGC's auditors)
CONFLICTS OF INTEREST
A conflict of interest occurs when the private interests of associates
interfere or could potentially interfere with their responsibilities at work.
Associates must not place themselves or the company in a position of actual or
potential conflict. Associates may not accept gifts worth more than $100,
excessive business entertainment, loans, or anything else involving personal
gain from those who conduct business with the company. In addition, a business
entertainment event exceeding $200 in value should not be accepted unless the
associate receives permission from the Gifts Policy Committee.
REPORTING -- Although the limitations on accepting gifts applies to ALL
associates as described above, some associates will be asked to fill out
quarterly reports. If you receive a reporting form, you must report any gift
exceeding $50 (although it is recommended that you report ALL gifts received)
and business entertainment in which an event exceeds $75.
GIFTS POLICY COMMITTEE
The Gifts Policy Committee oversees administration of and compliance with the
Policy.
INSIDER TRADING
Antifraud provisions of the federal securities laws generally prohibit persons
while in possession of material nonpublic information from trading on or
communicating the information to others. Sanctions for violations can include
civil injunctions, permanent bars from the securities industry, civil penalties
up to three times the profits made or losses avoided, criminal fines and jail
sentences.
While investment research analysts are most likely to come in contact with
material nonpublic information, the rules (and sanctions) in this area apply to
all CGC associates and extend to activities both within and outside each
associate's duties. All associates must read the Insider Trading Policy in the
Appendix of the CGC Handbook for Associates.
PERSONAL INVESTING POLICY
As an associate of the Capital Group companies, you may have access to
confidential information. This places you in a position of special trust.
You are associated with a group of companies that is responsible for the
management of many billions of dollars belonging to mutual fund shareholders
and other clients. The law, ethics and our own policy place a heavy burden on
all of us to ensure that the highest standards of honesty and integrity are
maintained at all times.
There are several rules that must be followed to avoid possible conflicts of
interest in personal securities transactions.
ALL ASSOCIATES
Information regarding proposed or partially completed plans by CGC companies to
buy or sell specific securities must not be divulged to outsiders.
Favors or preferential treatment from stockbrokers may not be accepted.
Associates may not subscribe to any initial public offering or any other
securities offering that is subject to allocation (so-called "hot issues").
Generally, this prohibition applies to spouses of associates and any family
member residing in the same household. However, an associate may request that
the Personal Investing Policy Committee consider granting an exception.
COVERED PERSONS
Associates who have access to investment information in connection with their
regular duties are generally considered "covered persons." If you receive a
quarterly personal securities transactions report form, you are a covered
person. You should take the time to review this memo as ongoing interpretations
of the policy will be explained therein.
Covered persons must conduct their personal securities transactions in such a
way that they do not conflict with the interests of the funds and client
accounts. This policy also includes securities transactions of family members
living in the covered person's household and any trust or custodianship for
which the associate is trustee or custodian. A conflict may occur if you, a
family member in the same household, a trust or custodianship for which you are
trustee or custodian have a transaction in a security when the funds or client
accounts are considering or concluding a transaction in the same security.
Additional rules apply to "investment personnel" including portfolio
counselors/managers, research analysts, traders, and investment administration
personnel (see below).
PRE-CLEARANCE OF SECURITIES TRANSACTIONS
Before buying or selling securities, covered persons should find out if the
purchase or sale of a particular security would involve a conflict of interest.
This involves checking with the CGC Legal Group based in LAO by calling [phone
number]. (You will generally receive a response within one business day.)
Unless a shorter period is specified, clearance is good for two trading days
(including the day you check). If you have not executed your transaction
within this period, you must again pre-clear your transaction.
Covered persons must promptly submit quarterly reports of certain transactions.
Transactions of securities (including fixed-income securities) or options (see
below) must be pre-cleared as described above and reported except for: gifts
or bequests of securities (although pre-clearance and reporting are required if
these securities are later sold); open-end investment companies (mutual funds);
shares of CGC stock; money market instruments with maturities of one year or
less; direct obligations of the U.S. Government, bankers' acceptances, CDs or
other commercial paper; commodities; and options or futures on broad-based
indices. Covered persons must also report transactions made by family members
in their household and by those for which they are a trustee or custodian.
Reporting forms will be supplied at the appropriate times.
In addition, the following transactions must be reported but need not have been
pre-cleared: transactions in debt instruments rated "A" or above by at least
one national rating service; sales pursuant to tender offers; and dividend
reinvestment plan purchases (provided the purchase pursuant to such plan is
made with dividend proceeds only).
BROKERAGE ACCOUNTS
Covered persons should inform their stockbrokers that they are employed by an
investment adviser, trust company or affiliate of either. The broker is
subject to certain rules designed to prevent favoritism toward such accounts.
Associates may not accept negotiated commission rates which they believe may be
more favorable than the broker grants to accounts with similar characteristics.
In addition, covered persons must direct their brokers to send duplicate
confirmations and copies of all periodic statements on a timely basis to The
Legal Group of The Capital Group Companies, Inc., [P.O. Box address]. ALL
DOCUMENTS RECEIVED IN THIS POST OFFICE BOX ARE KEPT STRICTLY CONFIDENTIAL.
[If extraneous information is included on an associate's statements (E.G.,
checking account information or other information that is not subject to the
policy), the associate might want to establish a separate account solely for
transactions subject to the policy.]
ANNUAL RECERTIFICATION
All access persons will be required to certify annually that they have read and
understood the Personal Investing Policy and recognize that they are subject
thereto.
ADDITIONAL RULES FOR INVESTMENT PERSONNEL
DISCLOSURE OF OWNERSHIP OF RECOMMENDED SECURITIES -- Any associate who is in a
position to recommend the purchase or sale of securities by the fund or client
accounts must not recommend securities that s/he personally owns without FIRST
disclosing ownership. Typically, a complete disclosure of holdings (such as in
the annual disclosure of personal securities) satisfies this requirement.
BLACKOUT PERIOD -- Portfolio counselors/managers and research analysts may not
buy or sell a security within at least seven calendar days before and after A
FUND OR CLIENT ACCOUNT THAT HIS OR HER COMPANY MANAGES transacts in that
security. Profits resulting from transactions occurring within this time
period are subject to special review and may be subject to disgorgement.
BAN ON SHORT-TERM TRADING PROFITS -- Investment personnel are prohibited from
profiting from the purchase and sale or sale and purchase of the same (or
equivalent) securities within 60 days. THIS RESTRICTION APPLIES TO THE
PURCHASE OF AN OPTION AND THE EXERCISE OF THE OPTION WITHIN 60 DAYS.
ANNUAL DISCLOSURE OF PERSONAL SECURITIES HOLDINGS - Investment personnel will
be required to disclose all personal securities holdings upon commencement of
employment and thereafter on an annual basis. Reporting forms will be supplied
for this purpose.
SERVICE AS A DIRECTOR -- Investment personnel must obtain prior authorization
of the investment committee of the appropriate management company BEFORE
SERVING ON THE BOARD OF DIRECTORS OF PUBLICLY TRADED COMPANIES.
PERSONAL INVESTING POLICY COMMITTEE
Any questions or hardships that result from these policies or requests for
exceptions should be referred to CGC's Personal Investing Policy Committee.
