MARKED
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. 20
and
Registration Statement
Under
The Investment Company Act of 1940
Amendment No. 22
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 November 1, 2000, pursuant
to paragraph (b) of rule 485.
<PAGE>
The Tax-Exempt Fund of California/(R)/
Prospectus
NOVEMBER 1, 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>
TICKER NEWSPAPER FUND
SYMBOL ABBREVIATION NUMBER
------------------------------------------------------------
<S> <C> <C> <C>
Class A TAFTX TECA 20
Class B TECBX TECAB 220
</TABLE>
<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 17
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How to Sell Shares 18
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Distributions and Taxes 20
-------------------------------------------------------
Financial Highlights 22
-------------------------------------------------------
</TABLE>
1
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
TEFCA-010-1100/RRD
<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 provide less
income or 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 or longer maturity bonds may be subject to greater
price fluctuations than higher quality or 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 total 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 4.37
1997 8.54
1998 6.13
1999 -1.97
[end chart]
The fund's year-to-date return for the nine months ended September 30, 2000
was 7.32%.
------------------------------------------------------------------------------
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/1/
<S> <C> <C> <C> <C>
Class A - began 10/28/86
(with the maximum sales charge -5.66% 5.91% 6.04% 6.11%
imposed)
------------------------------------------------------------------------------
Class B - began 3/15/00 N/A N/A N/A N/A
------------------------------------------------------------------------------
Lehman Brothers Municipal -2.06% 6.91% 6.89% 7.05%
Bond Index/2/
------------------------------------------------------------------------------
Lipper California Municipal -5.16% 6.10% 6.12% 6.09%
Debt Average/3/
------------------------------------------------------------------------------
</TABLE>
Class A yield: 4.76%
(For current yield information, please call American FundsLine at
1-800-325-3590).
1 Lifetime figures are from the date the fund's Class A shares began investment
operations.
2 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.
3 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.
Unlike the bar chart on the previous page, this table reflects the fund's
investment results with the maximum initial or deferred sales charge imposed,
as required by Securities and Exchange Commission rules. Class A share results
reflect the maximum initial sales charge of 3.75%. 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 began investment operations on March 15, 2000, no results are available
as of the most recent calendar year-end.
4
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
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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 0.39% 0.39%
Distribution and/or Service (12b-1) Fees 0.25%/2/ 1.00%/3/
Other Expenses 0.08% 0.05%
Total Annual Fund Operating Expenses 0.72% 1.44%
</TABLE>
1 Annualized.
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 are 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 $446 $597 $761 $1,236
----------------------------------------------------------------------------
Class B - assuming redemption $647 $856 $987 $1,528
Class B - assuming no redemption $147 $456 $787 $1,528
</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 tax;
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. The fund will
invest primarily in higher quality 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. However, the fund may invest up to
20% of its assets in lower quality debt securities rated Ba and BB or below or
unrated but determined to be of equivalent quality.
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. In
addition, falling interest rates may cause an issuer to redeem or "call" a
security before its stated maturity, which may result in the fund having to
reinvest the proceeds in lower yielding securities. 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 or longer maturity bonds will be subject to greater
price fluctuations than higher quality or shorter
6
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
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 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
investments. 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 ONE YEAR FIVE YEARS TEN YEARS LIFETIME/1/
<S> <C> <C> <C> <C>
Class A - began 10/28/86 -1.97% 6.72% 6.44% 6.41%
(with no sales charge imposed)
------------------------------------------------------------------------------
Class B - began 3/15/00 N/A N/A N/A N/A
------------------------------------------------------------------------------
Lehman Brothers Municipal -2.06% 6.91% 6.89% 7.05%
Bond Index/2/
------------------------------------------------------------------------------
Lipper California Municipal -5.16% 6.10% 6.12% 6.09%
Debt Average/3/
------------------------------------------------------------------------------
</TABLE>
Class A distribution rate/4/: 4.87%
1 Lifetime figures are from the date the fund's Class A shares began investment
operations.
2 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.
3 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.
4 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>
---------------------------------------------------------
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 and with the Securities and
Exchange Commission rules adopted in 1999 governing Codes of Ethics. This
policy has also been incorporated into the fund's Code of Ethics.
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 on the
following page.
8
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE YEARS OF EXPERIENCE
AS AN INVESTMENT PROFESSIONAL
YEARS OF EXPERIENCE (INCLUDING THE LAST FIVE YEARS)
AS PORTFOLIO COUNSELOR
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 14 years (since the fund began 22 years 22 years
LANGBERG of the fund. Vice 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 2 years 4 years 11 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>
---------------------------------------------------------
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 or
eliminated 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 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 or eliminated 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 the value of the shares you redeem
within six years of purchase, as shown in the table below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Shares sold within year 1 2 3 4 5 6
----------------------------------------------------------------
Contingent deferred sales charge 5% 4% 4% 3% 2% 1%
</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.
American Funds Distributors pays compensation equal to 4% of the amount
invested to dealers who sell Class B shares.
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 CHARGE
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 (or if greater, the amount you
invested less any withdrawals) 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.
15
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
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
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:
. when receiving payments through systematic withdrawal plans (up to 12% of
the value of your account);
. when receiving required minimum distributions from retirement accounts upon
reaching age 70 1/2; 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."
16
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
---------------------------------------------------------
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 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.
17
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.
. American Funds Service Company reserves the right to require signature
guarantee(s) on all redemptions.
. 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, fax, or computer (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.
18
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
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, it and/or the fund may
be liable for losses due to unauthorized or fraudulent instructions.
19
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.
20
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.
21
THE TAX-EXEMPT FUND OF CALIFORNIA / PROSPECTUS
<PAGE>
FINANCIAL HIGHLIGHTS/1/
The financial highlights table is intended to help you understand the fund's
results for the past five years. 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>
Net gains/(losses)
Net asset on securities Dividends
value, Net (both realized Total from (from net Distributions Net asset
Year ended beginning of investment and investment investment (from capital Total value, end of
August 31 year income unrealized) operations income) gains) distributions year
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A:
2000 $15.72 $.74/2/ $.31/2/ $1.05 $(.74) $(.03) $(.77) $16.00
1999 16.60 .74 (.65) .09 (.74) (.23) (.97) 15.72
1998 16.22 .79 .47 1.26 (.80) (.08) (.88) 16.60
1997 15.78 .83 .53 1.36 (.83) (.09) (.92) 16.22
1996 15.74 .84 .04 .88 (.84) - (.84) 15.78
CLASS B:
2000 15.38 .24/2/ .67/2/ .91 (.29) - (.29) 16.00
<CAPTION>
Ratio of Ratio of net
Net assets, expenses to income to
Year ended end of year average net average net Portfolio
August 31 Total return (in millions) assets assets turnover rate
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A:
2000 6.99% $394 .72% 4.78% 41.68%/4/
1999 0.47 379 .70 4.55 22.68
1998 7.98 358 .71 4.83 27.78
1997 8.80 289 .72 5.15 15.68
1996 5.65 253 .73 5.25 27.60
CLASS B:
2000 5.99 1 1.44/3/ 3.81/3/ 41.68/4/
</TABLE>
1 The years 1996 through 2000 represent, for Class A shares, fiscal years ended
August 31. The period ended 2000 represents, for Class B shares, the 169-day
period ended August 31, 2000. Class B shares were not offered before March 15,
2000. Total returns for such periods are based on activity during the period
and thus are not representative of a full year. Total returns exclude all
sales charges, including contingent deferred sales charges.
2 Based on average shares outstanding.
3 Annualized
4 Represents portfolio turnover rate (equivalent for all share classes) for the
fiscal year ended August 31, 2000.
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
November 1, 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 November 1, 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 . . . . . . . . . . . . . . . . 14
Fund Trustees and Other Officers. . . . . . . . . . . . . . . . . . 15
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . . . 21
Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 28
Sales Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Sales Charge Reductions and Waivers . . . . . . . . . . . . . . . . 32
Individual Retirement Account (IRA) Rollovers . . . . . . . . . . . 35
Price of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Selling Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Shareholder Account Services and Privileges . . . . . . . . . . . . 39
Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 41
General Information . . . . . . . . . . . . . . . . . . . . . . . . 41
Class A Share Investment Results and Related Statistics . . . . . . 43
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
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.
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 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 Tax-Exempt Fund of California - Page 3
<PAGE>
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.
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.
CASH AND CASH EQUIVALENTS - These securities include, but are not limited to:
(i) tax-exempt commercial paper (e.g., short-term notes obligations issued by
municipalities that mature, or may be redeemed in 270 days or less), (ii)
municipal notes (e.g., bond anticipation notes, revenue anticipation notes, and
tax anticipation notes issued by municipalities that mature, or may be redeemed
in one year or less), (iii) municipal obligations backed by letters of credit
issued by banks or other financial institutions or government agencies that
mature, or may be redeemed in one year or less, (iv) tax-exempt variable rate
debt issued by municipal conduits for corporate obligors, and (v) securities of
the U.S. Government, its agencies or instrumentalities that mature, or may be
redeemed in one year or less.
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.
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
The Tax-Exempt Fund of California - Page 4
<PAGE>
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 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 extended
The Tax-Exempt Fund of California - Page 5
<PAGE>
to charter cities the same voter approval requirements 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 "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
The Tax-Exempt Fund of California - Page 6
<PAGE>
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.
The California economy and general financial condition affect the ability of the
State and local governments to raise and redistribute revenues to assist issuers
of municipal securities to make timely payments on their obligations.
California is the most populous state in the nation with a total population
estimated at 33.4 million. California has a diverse economy, with major
employment in the agriculture, manufacturing, high technology, services, trade,
entertainment and construction sectors. After experiencing strong growth
throughout much of the 1980s, from 1990-1993 the State suffered through a severe
recession, the worst since the 1930's, heavily influenced by large cutbacks in
defense/aerospace industries, military base closures and a major drop in real
estate construction. California's economy has been performing strongly since
the start of 1994.
Certain of the State's significant industries, such as high technology, are
sensitive to economic disruptions in their export markets and the State's rate
of economic growth, therefore, could be adversely affected by any such
disruption. A significant downturn in U.S. stock market prices could adversely
affect California's economy by reducing household spending and business
investment, particularly in the important high technology sector. Moreover, a
large and increasing share of the State's General Fund revenue in the form of
income and capital gains
The Tax-Exempt Fund of California - Page 7
<PAGE>
taxes is directly related to, and would be adversely affected by a significant
downturn in the performance of, the stock markets.
In addition, it is impossible to predict the time, magnitude or location of a
major earthquake or its effect on the California economy. In January 1994, a
major earthquake struck the Los Angeles area, causing significant damage in a
four county area. The possibility exists that another such earthquake could
create a major dislocation of the California economy and significantly affect
state and local government budgets.
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, 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 several fiscal years. The
State has also increased aid to local governments and reduced certain mandates
for local services.
It is not possible to predict the future impact of the voter initiatives, State
constitutional amendments, legislation or economic considerations described
above, or of such initiatives, amendments or legislation that may be enacted in
the future, on the long-term ability of the State of California or California
municipal issuers to pay interest or repay principal on their obligations.
There is no assurance that any California issuer will make full or timely
payments of principal or interest or remain solvent. For example, in December
1994, Orange County, California, together with its pooled investment funds,
which included investment funds from other local governments, filed for
bankruptcy. Los Angeles County, the nation's largest county, in the recent past
has also experienced financial difficulty and its 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. Nonetheless, California's improved economy has caused Los Angeles
County, and other local governments, to come under increased pressure from
public employee unions for improved compensation and retirement benefits.
At the State level, the combination of resurging exports, a strong stock market,
and a rapidly growing economy in 1999 and early 2000 resulted in unprecedented
growth in General Fund revenues during fiscal year 1999-2000. Revenues are
estimated to have been about $71.2 billion, which is $8.2 billion higher than
projected for the 1999 Budget Act. The State's Special Fund for Economic
Uncertainties ("SFEU") had a record balance of over $7.2 billion on June 30,
2000. On that date, the Governor signed the 2000 Budget Act enacting the
State's fiscal year 2000-01 budget. The spending plan assumes General Fund
revenues and transfers of $73.9 billion, an increase of 3.8 percent above the
estimates for 1999-2000. The Budget Act appropriates $78.8 billion from the
General Fund, an increase of 17.3 percent over 1999-2000, and reflects the use
of $5.5 billion from the SFEU. The Budget Act also includes Special Fund
expenditures of $15.6 billion, from revenues estimated at $16.5 billion, and
Bond Fund expenditure of $5.0 billion.
In order not to place undue pressure on future budget years, about $7.0 billion
of the increased spending in 2000-01 will be for one-time expenditures and
investments. The State estimates the SFEU will have a balance of $1.781 billion
at June 30, 2001. In addition, the Governor held back
The Tax-Exempt Fund of California - Page 8
<PAGE>
$500 million as a set aside for litigation costs. The Governor vetoed just over
$1 billion in General Fund and Special Fund appropriations from the 2000 Budget
Act in order to achieve the budget reserve. The State will not undertake a
revenue anticipation note borrowing in 2000-01.
THE FOREGOING DISCUSSION OF THE 2000-01 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 July 1, 2000, the State had over $21.3 billion aggregate amount of its
general obligation bonds outstanding. General obligation bond authorizations in
an aggregate amount of approximately $14.8 billion remained unissued as of July
1, 2000. The State also builds and acquires capital facilities through the use
of lease purchase borrowing. As of July 1, 2000, the State had approximately
$6.7 billion of outstanding Lease-Purchase Debt.
In addition to the general obligation bonds, State agencies and authorities had
approximately $27 billion aggregate principal amount of revenue bonds and notes
outstanding as of June 30, 2000. 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. The State's improved economy and budget, however, have resulted in several
upgrades in its general obligation bond ratings. As of October 6, 2000, the
State's general obligation bonds were rated Aa2 by Moody's. AA by Standard &
Poor's, and AA by Fitch. It is not presently possible to determine whether, or
the extent to which, Moody's, S&P or Fitch will change such ratings in the
future. It should be noted that the creditworthiness of obligations issued by
local California issuers may be unrelated to the creditworthiness of obligations
issued
The Tax-Exempt Fund of California - Page 9
<PAGE>
by the State, and there is no obligation on the part of the State to make
payment on such local obligations in the event of default.
U.S. VIRGIN ISLANDS AND PUERTO RICO OBLIGATIONS - The fund may invest in
obligations of the Commonwealth of Puerto Rico and its agencies and authorities
and the U.S. Virgin Islands to the extent such obligations are exempt from
federal and state income taxes. Adverse political and economic conditions and
developments, affecting Puerto Rico and the U.S. Virgin Islands, may in turn
affect negatively the value of the fund's holdings in such obligations.
SECURITIES SUBJECT TO ALTERNATIVE MINIMUM TAX - The fund may invest in
tax-exempt securities believed to pay interest constituting an item of tax
preference subject to alternative minimum tax; 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:
The Tax-Exempt Fund of California - Page 10
<PAGE>
(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.
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).
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.
PRIVATE PLACEMENTS - Generally, municipal securities acquired in private
placements are subject to contractual restrictions on resale. Accordingly, all
private placements will be considered illiquid unless they have been
specifically determined to be liquid, taking into account factors such as the
frequency and volume of trading and the commitment of dealers to make markets
under procedures adopted by the fund's board of directors.
RESTRICTED SECURITIES AND LIQUIDITY - The fund may purchase securities subject
to restrictions on resale. All such securities not actively traded will be
considered illiquid unless they have been specifically determined to be liquid
under procedures which have been adopted by the fund's board of trustees, taking
into account factors such as the frequency and volume of trading, the commitment
of dealers to make markets and the availability of qualified investors, all of
which can change from time to time. The fund may incur certain additional costs
in disposing of illiquid securities.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements, under
which the fund 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
The Tax-Exempt Fund of California - Page 11
<PAGE>
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. There is no current intent to
engage in this investment practice over the next 12 months.
* * * * * *
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 fund's portfolio turnover rate would equal 100% if each security in the
fund's portfolio was 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.
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;
The Tax-Exempt Fund of California - Page 12
<PAGE>
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;
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.
The Tax-Exempt Fund of California - Page 13
<PAGE>
(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 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, 2000
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard G. Capen, Jr. Trustee Corporate Director and author; former $2,114/3/
6077 San Elijo, Box 2494 United States Ambassador to Spain;
Rancho Santa Fe, CA 92067 former Vice Chairman of the Board,
Age: 66 Knight-Ridder, Inc., former Chairman
and Publisher, The Miami Herald
----------------
---------------------------------------------------------------------------------------------------------------
H. Frederick Christie Trustee Private Investor. Former President and $2,058/3/
P.O. Box 144 Chief Executive Officer, The Mission
Palos Verdes Estates, CA Group (non-utility holding company,
90274 subsidiary of Southern California
Age: 67 Edison Company
---------------------------------------------------------------------------------------------------------------
+Don R. Conlan Trustee President (retired), The Capital Group none/4/
1630 Milan Avenue Companies, Inc.
South Pasadena, CA 91030
Age: 64
---------------------------------------------------------------------------------------------------------------
Diane C. Creel Trustee CEO and President, The Earth Technology $1,900/3/
100 W. Broadway Corporation (international consulting
Suite 5000 engineering)
Long Beach, CA 90802
Age: 51
---------------------------------------------------------------------------------------------------------------
Martin Fenton Trustee Managing Director, Senior Resource $2,500/3/
4660 La Jolla Village Group LLC (development and management
Drive of senior living communities)
Suite 725
San Diego, CA 92122
Age: 65
---------------------------------------------------------------------------------------------------------------
Leonard R. Fuller Trustee President, Fuller Consulting (financial $2,131/3/
4337 Marina City Drive management consulting firm)
Suite 841 ETN
Marina del Rey, CA 90292
Age: 54
---------------------------------------------------------------------------------------------------------------
+*Abner D. Goldstine President, Senior Vice President and Trustee, none/4/
Age: 70 PEO and Capital Research and Management Company
Trustee
---------------------------------------------------------------------------------------------------------------
+**Paul G. Haaga, Jr. Chairman Executive Vice President and Director, none/4/
Age: 51 of Capital Research and Management Company
the Board
---------------------------------------------------------------------------------------------------------------
Richard G. Newman Trustee Chairman, President and CEO, AECOM $2,531/3/
3250 Wilshire Boulevard Technology Corporation (architectural
Los Angeles, CA 90010-1599 engineering)
Age: 65
---------------------------------------------------------------------------------------------------------------
Frank M .Sanchez Trustee President, The Sanchez Family $2,550/3/
5234 Via San Delarro, #1 Corporation dba McDonald's Restaurants
Los Angeles, CA 90022 (McDonald's licensee)
Age: 57
---------------------------------------------------------------------------------------------------------------
<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, 2000 SERVES/2/
--------------------------------------------------------------------------
<S> <C> <C>
Richard G. Capen, Jr. $88,153/3/ 14
6077 San Elijo, Box 2494
Rancho Santa Fe, CA 92067
Age: 66
--------------------------------------------------------------------------
H. Frederick Christie $214,453/3/ 19
P.O. Box 144
Palos Verdes Estates, CA
90274
Age: 67
--------------------------------------------------------------------------
+Don R. Conlan none/4/ 7
1630 Milan Avenue
South Pasadena, CA 91030
Age: 64
--------------------------------------------------------------------------
Diane C. Creel $42,320/3/ 12
100 W. Broadway
Suite 5000
Long Beach, CA 90802
Age: 51
--------------------------------------------------------------------------
Martin Fenton $128,153/3/ 16
4660 La Jolla Village
Drive
Suite 725
San Diego, CA 92122
Age: 65
--------------------------------------------------------------------------
Leonard R. Fuller $87,953/3/ 13
4337 Marina City Drive
Suite 841 ETN
Marina del Rey, CA 90292
Age: 54
--------------------------------------------------------------------------
+*Abner D. Goldstine none/4/ 12
Age: 70
--------------------------------------------------------------------------
+**Paul G. Haaga, Jr. none/4/ 15
Age: 51
--------------------------------------------------------------------------
Richard G. Newman $105,320/3/ 13
3250 Wilshire Boulevard
Los Angeles, CA 90010-1599
Age: 65
--------------------------------------------------------------------------
Frank M .Sanchez $43,953/3/ 12
5234 Via San Delarro, #1
Los Angeles, CA 90022
Age: 57
--------------------------------------------------------------------------
</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) through the 2000
fiscal year for participating Trustees is as follows: Richard G. Capen, Jr.
($4,315), H. Frederick Christie ($5,017), Diane C. Creel ($3,159), Martin
Fenton ($16,381), Leonard R. Fuller ($4,734), Richard G. Newman ($33,284) and
Frank M. Sanchez ($1,358). 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>
OTHER 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 47 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 35 Vice President Vice President and Director,
11100 Santa Monica Capital Research Company*
Blvd.
Los Angeles, CA 90025
-------------------------------------------------------------------------------
Julie F. Williams 52 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 36 Assistant Assistant Vice President - Fund
333 South Hope Street Secretary Business Management Group,
Los Angeles, CA 90071 Capital Research and Management
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 $1,500 to Trustees who are not affiliated with the
Investment Adviser, plus $210 for each Board of Trustees meeting attended, plus
a pro rata portion of $2,510 for each meeting of the Contracts Committee
attended and a pro rata portion of $1,000 for each meeting of the Audit and
Nominating Committees attended. 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 October 1, 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.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, Capital Research and Management
Company, 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 Tax-Exempt Fund of California - Page 18
<PAGE>
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, 2001, 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 shall be determined in accordance
with generally accepted accounting principles and does not include gains or
losses from sales of capital assets.
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 $390 million and
gross investment income levels of 4%, 5%,
The Tax-Exempt Fund of California - Page 19
<PAGE>
6%, 7% and 8% management fees would be 0.34%, 0.37%, 0.40%, 0.43% and 0.46%,
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 2000, 1999, and 1998, the Investment Adviser received
advisory fees of $1,442,000, $1,459,000, and $1,262,000, 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). In addition, the Principal Underwriter receives revenues from sales of
the fund's shares. For Class A shares, the Principal Underwriter receives
commission revenue consisting of that portion of the Class A sales charge
remaining after the discounts which it allows to investment dealers. For Class B
shares, the Principal Underwriter sells the rights to 12b-1 fees paid by the
fund for distribution expenses to a third party and receives the revenue
remaining after compensating investment dealers for sales of Class B shares. The
fund also reimburses the Principal Underwriter for the immediate service fees
advanced and paid to dealers by the Principal Underwriter for sales of Class B
shares. The fund also reimburses the Principal Underwriter for the immediate
service fees advanced and paid to dealers by the Principal Underwriter for sales
of Class B shares.
Commissions retained by the Principal Underwriter on sales of Class A shares
during the 2000 fiscal year amounted to $124,000 after allowance of $474,000 to
dealers. During the fiscal years ended 1999 and 1998, the Principal Underwriter
retained $205,000 and $183,000, respectively, on sales of Class A shares after
an allowance of $794,000 and $713,000 to dealers, respectively. Revenue retained
and service fee reimbursements received by the Principal Underwriter on sales of
Class B shares during the 2000 fiscal year amounted to $6,000 after compensation
of $38,000 to dealers.
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
The Tax-Exempt Fund of California - Page 20
<PAGE>
advisory fees and other expenses, benefits to the investment process from growth
or stability of assets and maintenance of a financially healthy management
organization. The selection and nomination of trustees who are not "interested
persons" of the fund are committed to the discretion of the trustees who are not
"interested persons" during the existence of the Plans. The Plans may not be
amended to increase materially the amount spent for distribution without
shareholder approval. 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 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 2000 fiscal year, distribution expenses under the Plan for Class A
shares were limited to $924,000 for compensation to dealers or the Principal
Underwriter. Had no limitation been in effect, the fund would have paid $939,000
in distribution expenses under the Plan for Class A shares. During the 2000
fiscal year, distribution expenses under the Plan of Distribution for Class B
were $2,000. As of August 31, 2000, accrued and unpaid distribution expenses for
Class A and Class B shares were $155,000 and $1,000, respectively .
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
The Tax-Exempt Fund of California - Page 21
<PAGE>
declared as dividends or distributions and reserves for contingent or
undetermined liabilities, all determined in accordance with generally accepted
accounting principles.
Dividends on Class A and Class B shares will be reinvested in shares of the fund
of the same class unless shareholders indicate in writing that they wish to
receive them in cash or in shares of the same class of other American Funds, as
provided in the prospectus.
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 without fluctuation of 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, 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 Internal Revenue Code of 1986 (the "Code") 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. 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.
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
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 of its investment company taxable income, 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
The Tax-Exempt Fund of California - Page 22
<PAGE>
items, U.S. Government securities, securities of other regulated investment
companies, and other securities which must be limited, in respect of any one
issuer to an amount not greater than 5% of the fund's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
U.S. Government securities or the securities of other regulated investment
companies) or in two or more issuers which the fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses.
The percentage of total dividends paid by the fund with respect to any taxable
year which qualify for exclusion from gross income ("exempt-interest dividends")
will be the same for all shareholders receiving dividends during such year. In
order for the fund to pay exempt-interest dividends during any taxable year, at
the close of each fiscal quarter at least 50% of the aggregate value of the
Trust's and fund's assets must consist of certain tax-exempt obligations. Not
later than 60 days after the close of its taxable year, the fund will notify
each shareholder in writing of the portion of the dividends paid by the fund to
the shareholder with respect to such taxable year which constitutes
exempt-interest dividends. The aggregate amount of dividends so designated
cannot, however, exceed the excess of the amount of interest excludable from
gross income from tax under Section 103 of the Code received by the fund during
the taxable year over any amounts disallowed as deductions under Sections 265
and 171(a)(2) of the Code.
Interest on indebtedness incurred by a shareholder to purchase or carry fund
shares is not deductible for federal income tax purposes if the fund distributes
exempt-interest dividends during the shareholder's taxable year. If a
shareholder receives an exempt-interest dividend with respect to any share and
such share is held for six months or less, any loss on the sale or exchange of
such share will be disallowed to the extent of the amount of such
exempt-interest dividend.
While the fund does not expect to realize substantial long-term capital gains,
any net realized long-term capital gains will be distributed annually 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. 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.
In addition, 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
The Tax-Exempt Fund of California - Page 23
<PAGE>
taxable income. Any such income distributed will be taxable to shareholders as
ordinary income (whether distributed in cash or additional shares).
Distributions by the fund result in a reduction in the net asset value of the
fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of investment
capital. For this reason, investors should consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a partial return of investment
capital upon the distribution, which will nevertheless be taxable to them.
If any net long-term capital gains in excess of net short-term capital losses
are retained by the fund for reinvestment, requiring federal income taxes to be
paid thereon by the fund, the fund intends to elect to treat such capital gains
as having been distributed to shareholders. As a result, each shareholder will
report such capital gains as long-term gains taxable to individual shareholders
at a maximum 20% capital gains rate, will be able to claim a pro rata share of
federal income taxes paid by the fund on such gains as a credit against personal
federal income tax liability, and will be entitled to increase the adjusted tax
basis on fund shares by the difference between a pro rata share of the retained
gains and their related tax credit.
Redemptions of shares, including exchanges for shares of another American Fund,
may result in tax consequences (gain or loss) to the shareholder.
If a shareholder exchanges or otherwise disposes of shares of the fund within 90
days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously incurred
in acquiring the fund's shares will not be taken into account (to the extent
such previous sales charges do not exceed the reduction in sales charges) for
the purposes of determining the amount of gain or loss on the exchange, but will
be treated as having been incurred in the acquisition of such other funds.
Also, any loss realized on a redemption or exchange of shares of the fund will
be disallowed to the extent substantially identical shares are reacquired within
the 61-day period beginning 30 days before and ending 30 days after the shares
are disposed of.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gain (both long-term and short-term)
for the one-year period ending on October 31 (as though the one-year period
ending on October 31 were the regulated investment company's taxable year), and
(iii) the sum of any untaxed, undistributed net investment income and net
capital gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (i) amounts actually distributed
by the fund from its current year's ordinary income and capital gain net income
and (ii) any amount on which the fund pays income tax during the periods
described above. Except as indicated above, the fund intends to meet these
distribution requirements to avoid the excise tax liability.
The Tax-Exempt Fund of California - Page 24
<PAGE>
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 12 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.
The fund will be required to report to the IRS all distributions of investment
company taxable income and capital gains as well as gross proceeds from the
redemption or exchange of fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of investment company taxable income and capital gains and
proceeds from the redemption or exchange of the shares of a regulated investment
company may be subject to withholding of federal income tax at the rate of 31%
in the case of non-exempt U.S. shareholders who fail to furnish the investment
company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if the fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Under the Code, distributions of taxable income (other than capital gain
distributions) by the fund to a nonresident alien individual, nonresident alien
fiduciary of a trust or estate, foreign
The Tax-Exempt Fund of California - Page 25
<PAGE>
corporation, or foreign partnership (a "foreign shareholder") will be subject to
U.S. withholding tax (at a rate of 30% or a lower treaty rate, if applicable).
Withholding will not apply if a dividend paid by the fund is "effectively
connected" with a U.S. trade or business, in which case the reporting and
withholding requirements applicable to U.S. citizens, U.S. residents, or
domestic corporations will apply.
CALIFORNIA TAXES - The fund itself is not subject to tax in California if it
qualifies for exemption from federal tax under the Code as described above.
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. Any dividends paid to corporate
shareholders subject to the California franchise tax will be taxed as ordinary
dividends to such shareholders.
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 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
The Tax-Exempt Fund of California - Page 26
<PAGE>
dividend treatment to "substantial users" are applicable for California state
tax purposes. See "Additional Information Concerning Taxes--Federal Taxes"
above.
Long-term and/or short-term capital gain distributions will not constitute
California exempt-interest dividends and will be taxed as capital gain
distributions or ordinary dividends as appropriate. Under California law,
ordinary income and capital gains currently are taxed at the same rate.
Moreover, interest on indebtedness incurred by a shareholder to purchase or
carry fund shares is not deductible for California corporate or personal income
tax purposes if the fund distributes California exempt-interest dividends during
the shareholder's taxable year.
The foregoing is only a summary of some of the important California corporate or
personal income tax considerations generally affecting the fund and its
shareholders. No attempt is made to present a detailed explanation of the
California income tax treatment of the fund or its shareholders, and this
discussion is not intended as a substitute for careful planning. Further, it
should be noted that the portion of any fund dividends constituting California
exempt-interest dividends is excludable from income for California income tax
purposes only. Any dividends paid to fund shareholders that are corporations
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 27
<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 28
<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 29
<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 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
The Tax-Exempt Fund of California - Page 30
<PAGE>
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 31
<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 32
<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), including Class A shares held in a fee-based arrangement 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. The
Statement will be considered completed if the shareholder dies within the
13-month Statement period. Commissions will not be adjusted or paid on the
difference between the Statement amount and the amount actually invested
before the shareholder's death.
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
The Tax-Exempt Fund of California - Page 33
<PAGE>
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.
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 (or if
greater, the amount you invested less any withdrawals) 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
The Tax-Exempt Fund of California - Page 34
<PAGE>
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:
(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
The Tax-Exempt Fund of California - Page 35
<PAGE>
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).
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.
The Tax-Exempt Fund of California - Page 36
<PAGE>
Securities and assets for which representative market quotations are not readily
available are valued at fair value as determined in good faith under policies
approved by the fund's Board. The fair value of all other assets is added to the
value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
Any purchase order may be rejected by the Principal Underwriter or by the 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. The Transfer Agent reserves the
right to require a signature guarantee on all redemptions.
- 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.
The Tax-Exempt Fund of California - Page 37
<PAGE>
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).
- 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.
The Tax-Exempt Fund of California - Page 38
<PAGE>
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - An automatic investment plan enables you to make
monthly or quarterly investments in 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. For
example, if the date you specified falls on a weekend or holiday, your money
will be invested on the next business day. If your bank account cannot be
debited due to insufficient funds, a 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 of the same class 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") of the same share class 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 only exchange shares into other funds in The
American Funds Group within the same class. However, exchanges from Class A
shares of The Cash Management Trust of America may be made to Class B shares of
any other American Fund for dollar cost averaging purposes. 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
The Tax-Exempt Fund of California - Page 39
<PAGE>
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 "American Funds Service
Company Service Areas" -- "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 Bank and 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.
AUTOMATIC EXCHANGES - You may automatically exchange shares of the same class 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 "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 - Purchase
Minimums" and "Purchase of Shares - Fund Numbers"), personal identification
number (generally 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
The Tax-Exempt Fund of California - Page 40
<PAGE>
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, it and/or 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 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.
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, 2000, 1999 and 1998, amounted to $182,000, $318,000 and $358,000,
respectively, 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.
The Tax-Exempt Fund of California - Page 41
<PAGE>
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
$97,000 for Class A shares and $47 for Class B shares for the 2000 fiscal year.
INDEPENDENT ACCOUNTANTS - Deloitte & Touche LLP, Two California Plaza, 350 South
Grand Avenue, Suite 200, Los Angeles, CA 90071, 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 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.
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
The Tax-Exempt Fund of California - Page 42
<PAGE>
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
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. 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.
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:
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE FOR CLASS A SHARES -- AUGUST 31, 2000
<TABLE>
<CAPTION>
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) . . . . . . . . . $16.00
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). . . . . . . . . . . . . . . . . . . . . . . . $16.62
</TABLE>
CLASS A SHARE INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield was 4.50% based on a 30-day (or one month) period ended August
31, 2000, 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 five- and ten-year average annual total
return at the maximum offering price for the periods ended August 31, 2000 were
2.99%, 5.13% and 6.83%, respectively. The fund's one-year total return and
five- and ten-year average annual total return at net asset value for the
periods ended August 31, 2000 were 6.99%, 5.93% and 7.24%, respectively.
The Tax-Exempt Fund of California - Page 43
<PAGE>
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 at the maximum offering price, 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 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, 2000 was 8.21%.
The Tax-Exempt Fund of California - Page 44
<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 45
<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 46
<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 47
<TABLE>
The Tax-Exempt Fund of California
Investment Portfolio, August 31, 2000
<S> <C> <C>
Principal Market
Amount Value
(000) (000)
-------- --------
Tax-Exempt Securities Maturing in More Than
One Year - 91.44%
G.O. Bonds, 5.375% 2014 1,200 1,259
G.O. Ref. Bonds:
0% 2007 3,500 2,624
5.25% 2009 3,000 3,223
5.25% 2013 2,250 2,376
5.25% 2017 1,000 1,014
FGIC Insured, 4.75% 2016 2,900 2,788
Educational Facs. Auth., Rev. Bonds:
California Institute of Technology, Series 5,000 4,314
1998, 4.50% 2027
University of San Francisco, Series 1996, MBIA 1,190 1,318
Insured, 5.70% 2011
Stanford University, Series N, 5.20% 2027 3,000 2,922
Health Facs. Fncg. Auth., Hospital Rev. Bonds:
Catholic Healthcare West, 1998 Series A:
5.00% 2006 1,500 1,451
5.00% 2007 1,000 957
5.25% 2008 1,750 1,684
Downey Community Hospital, Series 1993:
5.20% 2003 1,000 1,006
5.625% 2008 3,000 3,029
5.75% 2015 4,900 4,709
Little Co. of Mary Health Services, Series 1998,
AMBAC Insured:
5.00% 2010 2,170 2,269
5.00% 2013 1,125 1,146
Pacific Presbyterian Medical Center, 1985 Series B, 3,570 3,708
INDLC Insured, 6.75% 2015 (Preref. 2002)
Housing Fin. Agcy.:
Single Family Mortgage Bonds:
1995 Issue B-2 AMT, AMBAC Insured, 5.70% 2007 2,060 2,071
1997 Series B-3 AMT, MBIA Insured, 5.10% 2012 810 802
Single Family Mortgage Rev. Bonds:
1997 Series C-1, Class 111, MBIA Insured, 5.05% 2011 1,585 1,586
1998 Series C-4, Class I, 4.90% 2004 2,265 2,321
Pollution Control Fncg. Auth.:
Pollution Control Rev. Bonds:
Pacific Gas and Electric Co., 1992 Series B 2,800 2,954
AMT, 6.35% 2009
San Diego Gas and Electric Co., 1996 Series A, 5,000 5,461
5.90% 2014
Resource Recovery Rev. Bonds, Waste Management Inc. 1,500 1,530
Guarantee Bond, Series A AMT, 7.15% 2011
Solid Waste Disposal Rev. Bonds:
(CanFibre of Riverside Project), Series 1997A 1,000 915
AMT, 9.00% 2019
(USA Waste Services, Inc. Project), Series 1998A 2,000 1,843
AMT, 5.10% 2018 (Put 2008)
Public Works Board:
Lease Rev. Bonds, Dept. of Corrections, Various
State Prisons:
Imperial County, 1991 Series A, AMBAC Insured, 6.50% 2017 1,000 1,148
Lassen County (Susanville), 1993 Series D, FSA Insured, 2,000 2,082
5.25% 2015
Lease Rev. Ref. Bonds:
Dept. of Corrections, 1998 Series C (State 2,000 2,126
Prison-Monterey County), 5.25% 2007
1998 Series A (Library and Courts Annex Building 1,500 1,628
Complex), 5.50% 2010
Various State Prisons, Series 1993A, AMBAC 1,000 1,058
Insured, 5.25% 2013
Rural Home Mortgage Fin. Auth., Single Family Mortgage
Rev. Bonds(Mortgage-Backed Securities Program):
1995 Series B AMT, 7.75% 2026 1,405 1,496
1996 Series A AMT, 7.75% 2027 830 900
Statewide Communities Dev. Auth.:
Apartment Dev. Rev. Ref. Bonds (Irvine Apartment
Communities, LP):
Series 1998A-1 AMT, 5.05% 2025 (Put 2008) 5,300 5,236
Series 1998A-3, 5.10% 2025 (Put 2010) 5,000 4,947
Series 1998A-4, 5.25% 2025 (Put 2013) 3,000 2,935
Hospital Rev. Cert. of Part., Cedars-Sinai Medical 5,900 6,539
Center, Series 1992, 6.50% 2012
Citrus Valley Health Partners, Inc., Cert. of Part., 1,000 1,072
MBIA Insured, 5.50% 2011
The Internext Group, Cert. of Part.:
5.375% 2017 5,000 4,615
5.375% 2030 2,000 1,748
Veterans G.O. Bonds, Series BG, 4.95% 2010 1,000 1,035
Dept. of Water Resources, Central Valley Project, Water 2,000 1,911
System Rev. Bonds, Series O, 5.00% 2022
Alameda Corridor Transportation Auth., Tax-Exempt Senior 3,500 3,503
Lien Rev. Bonds, Series 1999A, MBIA Insured, 5.125% 2018
Alta Loma School District, San Bernardino County, G.O. 2,500 796
Bonds, Series A 1999 Election, FGIC Insured, 0% 2021
Anaheim Public Fncg. Auth., Lease Rev. Bonds (Anaheim
Public Improvement Project),
Senior Lease Rev. Bonds, FSA Insured:
1997 Series A, 6.00% 2024 1,500 1,647
1997 Series C, Capital Appreciation Bonds, 0% 2018 3,900 1,488
1997 Series C, 0% 2022 5,500 1,641
City of Antioch, Public Fncg. Auth., 1998 Reassessment 1,360 1,409
Rev. Bonds, Subordinated Series B, AMBAC Insured, 5.70% 2010
Association of Bay Area Governments:
Fin. Auth. for Nonprofit Corps., Cert. of Part.:
Episcopal Homes Foundation, Series 1997A, 5.25% 2007 2,275 2,154
Stanford University Hospital, Series 1993:
5.75% 2005 1,240 1,338
5.50% 2013 (Preref. 2005) 1,500 1,599
Fin. Auth., Taxable Rev. Ref. Cert. of Part. (American 3,000 2,680
Baptist Homes of the West Facs. Project), Series 1997B,
6.20% 2027
Ref. Rev. Cert. of Part.:
American Baptist Homes Foundation, Series 1998A, 5,985 5,430
6.10% 2017
Episcopal Homes Foundation, Series 1998, 5.00% 2009 4,600 4,546
Berkeley Unified School District, Alameda County, 1,540 1,519
1992 G.O. Bonds, Series G, FGIC Insured, 5.00% 2018
Redev. Agcy. of the City of Burbank (Golden State
Redev. Project),
Tax Allocation Bonds, 1993 Series A:
6.00% 2013 1,500 1,571
6.00% 2023 1,000 1,025
6.25% 2024 1,475 1,533
Cabrillo Community College Dist., Santa Cruz County, 1,500 654
Election of 1998 G.O. Bonds, Series B, FGIC Insured, 0% 2016
Capistrano Unified School Dist.:
Cert. of Part., Series 1997, 5.20% 2018 990 985
Community Fac. Dist. Special Tax, 5.75% 2029 1,750 1,639
Central Valley Fncg. Auth., Cogeneration Project
Rev. Ref. Bonds
(Carson Ice-Gen Project):
Series 1993:
6.00% 2009 1,000 1,039
6.10% 2013 (Preref. 2003) 1,000 1,072
6.20% 2020 (Preref. 2003) 1,500 1,612
Series 1998, MBIA Insured, 5.00% 2018 2,000 1,969
Central Valley School Districts Fncg. Auth. (School Dist. 1,000 1,148
G.O. Bond Ref. Program), 1998 Rev. Bonds, Series A,
MBIA Insured, 6.25% 2011
City of Chino Hills, Community Fac.:
Dist. No. 9 (Rincon Village Area), Special Tax Bonds, 995 1,032
Series 1998, 6.45% 2023
Dist. No. 10 (Fairfield Ranch), Special Tax Bonds, 2,000 2,074
6.95% 2030
City of Commerce, Community Dev. Commission, Redev. Project 1,000 1,029
No. 1, Subordinate Lien Tax Allocation Ref. Bonds, Series
1997 B, 5.50% 2008
City of Corona, Community Facs. Dist. No. 86-2 (Woodlake), 2,000 1,955
1999 Special Tax Ref. Bonds, AMBAC Insured, 5.125% 2019
County of El Dorado, Community Facs. Dist. No. 1992-1 (El 995 998
Dorado Hills Dev.), Series 1999 Special Tax Bonds,
6.125% 2016
City of Folsom, Community Facs. Dist. No. 10, Special Tax
Bonds, Series 1999:
6.20% 2011 1,475 1,540
7.00% 2024 1,000 1,062
City of Fontana, Community Facs. Dist. No. 12 (Sierra 1,105 1,150
Lakes), Special Tax Bonds, Series 1999, 6.50% 2015
Foothill/Eastern Transportation Corridor Agcy., Toll 1,000 1,125
Road Rev. Bonds, Series 1995A, 6.00% 2016 (Preref. 2010)
Foothill-De Anza Community College Dist., Santa Clara
County, Election of 1999 G.O. Bonds, Series A, MBIA Insured:
0% 2017 3,000 1,225
0% 2019 5,555 1,992
Golden West Schools Fncg. Auth., 1999 Rev. Bonds (School 2,750 1,052
Dist. G.O. Bonds Ref. Program), Series A, MBIA
Insured, 0% 2018
Imperial Irrigation Dist., 1998 Electric System Ref. 2,000 1,968
Rev. Bonds, MBIA Insured, 5.00% 2018
City of Irvine:
Assessment Dist. No. 94-13 (Oak Creek), Limited Obligation
Improvement Bonds:
Group One, 5.50% 2022 1,000 927
Group Two, 5.875% 2017 1,000 1,003
Assessment Dist. No. 95-12, Limited Obligation Improvement 1,400 1,305
Bonds, Group Three, 5.50% 2021
City of Long Beach:
Fncg. Auth. Rev. Bonds, Series 1992, AMBAC Insured, 750 832
6.00% 2017
Harbor Rev. Bonds, Series 1993 AMT, 5.125% 2018 1,000 967
City of Los Angeles:
Community Redev. Agcy., Central Business Dist. Redev. 2,000 2,012
Project, Tax Allocation Ref. Bonds, Series I, 5.00% 2001
Harbor Dept. Rev. Bonds:
Issue 1988, 7.60% 2018 1,750 2,200
Issue 1995, Series B AMT, 6.625% 2025 1,000 1,053
Issue 1996 AMT, 5.50% 2007 3,675 3,911
Multi-family Housing Rev. Bonds (GNMA Collateralized - 2,005 2,024
Ridgecroft Apartments Project), Series 1997E
AMT, 6.125% 2027
State Building Auth., Lease Rev. Bonds (Dept. of General 1,000 1,036
Services Lease), Series 1999A, 5.40% 2015
County of Los Angeles, Capital Asset Leasing Corp.,
Cert. of Part.
(Marina del Rey), 1993 Series A:
6.25% 2003 1,675 1,722
6.50% 2008 6,000 6,366
Los Angeles Unified School Dist., G.O. Bonds, Series 2,500 2,387
1998B, FGIC Insured, 5.00% 2023
The Metropolitan Water Dist. of Southern California, Water 4,270 4,042
Rev. Bonds, Series 1997A, 5.00% 2026
Northern California Power Agcy., Geothermal
Project Number 3
Special Rev. Bonds, 1993 Ref. Series A:
5.60% 2006 860 906
5.60% 2006 (Escrowed to Maturity) 1,000 1,077
5.65% 2007 (Escrowed to Maturity) 1,025 1,113
Oak Park Unified School Dist., Ventura County, G.O. Bonds, 2,300 1,058
Series 2000 Election of 1977, FSA Insured, 0% 2015
Port of Oakland, Rev. Bonds, 2000 Series K AMT, FGIC 2,000 2,102
Insured, 5.25% 2007
Community Facs. Dist. No. 99-1 of the County of Orange 1,000 1,054
(Ladera Ranch), Series A of 1999, Special Tax
Bonds, 6.70% 2029
County of Orange:
Aliso Viejo Special Tax Bonds of Community Facs. 1,000 1,081
Dist. No. 88-1, Series A of 1992, 7.35% 2018 (Preref. 2002)
Limited Obligation Improvement Bonds, Irvine Coast 900 896
Assessment Dist. No. 88-1, 1998 Series A, 5.25% 2009
Local Transportation Auth., First Senior Fixed-Rate 1,500 1,684
Bonds, MBIA Insured, 6.00% 2009
Recovery Cert. of Part., 1996 Series A, MBIA 1,500 1,678
Insured, 6.00% 2008
South Orange County Public Fncg. Auth., Special Tax Rev. 1,600 1,717
Bonds, 1999 Series A, FSA Insured, 5.375% 2011
Orange County Water Dist., Rev. Cert. of Part., 2,960 2,931
Series 1999A, 5.25% 2022
City of Oxnard, Assessment Dist. No. 97-1-R (Pacific
Commerce Center), Limited Obligation Ref. Bonds:
5.60% 2005 2,805 2,870
5.70% 2006 1,165 1,200
Placer Union High School Dist., Placer County, Election of 3,525 989
1999 G.O. Bonds, FGIC Insured, Series A, 0% 2023
Pleasanton Joint Powers Fncg. Auth., Reassessment Rev.
Bonds, 1993 Series A:
5.70% 2001 3,665 3,711
6.15% 2012 1,740 1,821
City of Poway:
Community Facs. Dist. No. 88-1 (Parkway Business Centre),
Special Tax Ref. Bonds, Series 1998:
5.30% 2005 1,225 1,236
6.25% 2007 2,050 2,190
6.50% 2008 2,000 2,176
6.50% 2009 1,320 1,443
6.50% 2010 1,715 1,879
Poway Unified School Dist., Community Facs. Dist. No. 1, 1,000 1,050
Series 1998 Special Tax Bonds, MBIA Insured, 5.00% 2010
Reassessment Dist. No. 97-1 (4-S Ranch), Limited Obligation
Improvement Bonds:
5.90% 2007 1,435 1,483
5.90% 2008 1,000 1,033
City of Riverside, Electric Ref./Rev. Bonds, Series 1998, 1,500 1,480
AMBAC Insured, 5.00% 2018
Riverside County:
Asset Leasing Corp., Leasehold Rev. Bonds, MBIA 1,000 263
Insured, 0% 2024
Public Fncg. Auth., Cert. of Part., Air Force Village 950 952
West, Inc., 5.40% 2009
City of Roseville:
Highland Reserve North Community Facs. Dist. No. 1, 1,000 1,045
Special Tax Bonds, Series 1999, 6.00% 2011
North Roseville Community Facs. Dist. No. 1, Special 1,980 1,945
Tax Bonds, Series 1998, 5.20% 2007
Woodcreek West Community Facs. Dist. No. 1, Special
Tax Bonds, Series 1999:
6.50% 2015 1,000 1,049
6.70% 2025 1,750 1,833
Sacramento Cogeneration Auth., Cogeneration
Project Rev. Bonds
(Procter & Gamble Project), 1995 Series:
7.00% 2005 1,700 1,861
6.375% 2010 1,600 1,717
6.375% 2010 (Preref. 2005) 1,085 1,209
6.50% 2014 (Preref. 2005) 1,000 1,120
6.50% 2021 (Preref. 2005) 4,000 4,480
Sacramento Municipal Utility Dist., Electric Rev. 2,500 2,696
Bonds, 1997 Series K, AMBAC Insured, 5.70% 2017
Sacramento Power Auth., Cogeneration Project Rev. 1,500 1,551
Bonds, 1995 Series, 6.00% 2003
Sacramento County Airport System Rev. Ref. Bonds, 3,000 2,840
Series 1998A, FGIC Insured, 5.00% 2026
County of Sacramento:
Laguna Creek Ranch/Elliott Ranch
Community Facs. Dist. No. 1,
Improvement Area No. 2 Special Tax
Ref. Bonds (Elliott Ranch):
6.00% 2012 880 921
6.10% 2013 665 696
6.30% 2021 500 512
Ref. Cert. of Part. (1994 Public Facs.
Project - Coroner/Crime Lab
and Data Center), Series 1997, AMBAC Insured, 4.75% 2017 2,500 2,394
Single Family Mortgage Rev. Bonds (GNMA Mortgage-Backed 1,500 2,129
Securities Program), Issue A of 1987 AMT, 9.00%
2019 (Escrowed to Maturity)
2000 Tax and Rev. Anticipation Notes, 5.25% 2001 2,000 2,021
County of San Bernardino, Housing Auth.:
Multifamily Housing Rev. Bonds (Fannie Mae Program - 965 990
Villa Serena Project), Series 1985, 4.95% 2007
Multifamily Housing Rev. Ref. Bonds (Equity 1,000 957
Residential/Redlands Lawn & Tennis Apartments), Issue
1999A, 5.20% 2029 (Put 2009)
County of San Diego:
Cert. of Part., Sharp Healthcare Obligated Group, 2,000 1,955
MBIA Insured, 5.00% 2018
San Diego Unified School Dist., 1999 G.O. Bonds (Election 3,000 1,233
of 1998, Series A), Capital Appreciation Bonds, FGIC
Insured, 0% 2017
City and County of San Francisco:
International Airport:
Second Series Issue 22 Rev. Bonds, AMBAC 6,000 5,682
Insured, 5.00% 2019
Second Series Issue 23B Rev. Bonds, FGIC 4,250 4,043
Insured, 5.00% 2024
Port Commission Rev. Ref. Bonds, Series 1994, 5.90% 2009 1,500 1,598
Redev. Agcy., Residential Fac. Rev. Bonds (Coventry 5,000 5,087
Park Project), Series 1996A AMT, 8.50% 2026
County of San Joaquin, Cert. of Part. (1993 General 1,000 1,088
Hospital Project), 6.625% 2020 (Preref. 2003)
San Joaquin Hills Transportation Corridor Agcy.:
Senior Lien Toll Road Rev. Bonds (Orange County),
(Escrowed to Maturity)
0% 2011 1,500 923
0% 2014 4,000 2,045
0% 2019 4,150 1,539
0% 2023 14,900 4,335
Toll Road Ref. Rev. Capital Appreciation Bonds, 3,765 1,298
MBIA Insured, Series 1997A, 0% 2020
City of San Jose,
Redev. Agcy., Multifamily Housing Rev.
Bonds (GNMA Collateralized -
The Miraido Village), Series 1997A AMT:
5.30% 2012 920 914
5.65% 2022 1,490 1,466
San Juan Unified School District, FGIC Insured, 0% 2021 1,435 454
San Marcos Public Facs. Auth.:
1989 Public Fac. Rev. Bonds, (Community Fac. Dist. 4,015 1,441
No. 88-1), 0% 2019 (Escrowed to Maturity)
Ref. Rev. Bonds, Series 1998:
5.50% 2010 4,295 4,365
5.80% 2027 1,000 946
San Mateo County Transportation Authority, Limited Tax 2,500 2,639
Bonds, MBIA Insured, 1997 Series A, 5.50% 2017
Santa Ana Fncg. Auth., Police Administration and Holding 1,000 1,135
Fac. Lease Rev. Bonds, MBIA Insured,
Series 1994A, 6.25% 2019
Santa Clara County Fncg. Auth., Lease Rev. Bonds 2,200 2,773
(VMC Fac. Replacement Project), AMBAC Insured, 1994
Series A, 7.75% 2009
Santa Monica-Malibu Unified School Dist., G.O. Bonds, 2,000 564
Series 1999 Election of 1998, FGIC Insured, 0% 2023
Shafter Joint Powers Fin. Auth., Lease Rev.
Bonds, 1997 Series A
(Community Correctional Fac. Acquisition Project):
5.50% 2006 1,535 1,590
5.95% 2011 1,700 1,820
Southern California Home Fncg. Auth., Single Family 800 815
Mortgage Rev. Bonds (GNMA and FNMA Mortgage-Backed
Securities Program), 1992 Series A AMT, 6.75% 2022
South Tahoe Joint Powers Fncg. Auth.:
Ref. Rev. Bonds (South Tahoe Redev. Project Area 3,250 3,312
No. 1), 1995 Series B, 6.25% 2020
Subordinate Bond Anticipation Notes (South Tahoe Redev.
Project Area No. 1):
Series 1999A, 7.30% 2007 4,500 4,532
Series 1999B, 7.30% 2007 1,000 1,007
City of Stockton, Mello-Roos Rev. Bonds, Community Facs.
Dist. No. 90-2B (Brookside Estates), Series 1997A:
5.50% 2005 1,560 1,602
5.75% 2008 1,840 1,916
5.95% 2010 1,000 1,047
6.20% 2015 1,750 1,800
Community Facs. Dist. No. 88-12 of the City of Temecula 745 740
(Ynez Corridor), Special Tax Ref. Bonds, 1998
Series A, 5.25% 2008
Tustin Unified School Dist., Community Fac. Dist. No. 97-1, 3,000 3,030
Series 2000 Special Tax Bonds, 6.375% 2035
Virgin Islands Public Fin. Auth., Rev. and Ref. Bonds
(Matching Fund Loan Notes):
Series 1998 A:
5.20% 2010 1,000 978
5.30% 2011 2,000 1,955
Series 1998 C, 5.50% 2008 1,000 1,019
Series 1998 D:
5.50% 2003 1,895 1,897
6.00% 2004 1,000 1,017
6.00% 2006 2,220 2,269
Washington Township Health Care Dist., Rev.
Bonds, Series 1999:
5.00% 2010 1,210 1,224
5.00% 2013 1,100 1,081
5.00% 2018 2,750 2,584
City of West Sacramento, Limited Obligation Ref. 500 503
Improvement Bonds, Reassessment Dist. of 1998, 5.20% 2008
West Sacramento Fncg. Auth., Special Tax Rev.
Bonds, Series F:
5.85% 2013 1,725 1,681
6.10% 2029 1,500 1,427
----------
361,150
----------
Tax-Exempt Securities Maturing in One Year or Less - 6.84%
City of Azusa, Multifamily Housing Rev. Ref. Bonds 2,300 2,300
(Pacific Glen Apartments Project), Series
1994, 3.60% 2015 (1)
CA G.O. Bonds, 3.80% 2000 3,000 3,000
City of Irvine Assessment Dist. No. 97-17, Limited 2,380 2,380
Obligation Improvement Bonds, Adjustable Rate
Series, 3.60% 2023 (1)
Irvine Ranch Water Dist., Consolidated Series 1993, G.O. 1,100 1,100
of Improvement Dist. No. 140, 240, 105, 250, 3.60% 2033 (1)
County of Los Angeles, Tax and Rev. Anticipation 5,000 5,037
Notes, 2000-2001 Series A , 5.00% 2001
Los Angeles Multifamily Rev. Bonds, 3.60% 2009 (1) 2,300 2,300
Los Angeles Unified School Dist., Belmont Learning 2,400 2,400
Complex, Series 1997 A, 3.70% 2017 (1)
County of Orange, Apartment Dev. Rev. Bonds, 3.70% 2009 (1) 1,300 1,300
Pollution Control Fncg. Auth., Burney Forest 1,600 1,600
Products Projects, Series 1998 A, 3.40% 2020 (1)
City of San Bernardino, SCH Health Care System Rev. 1,000 1,044
Bonds (Sisters of Charity for the Incarnate Word Houston,
Texas), Series 1991A, 7.00% 2021 (Preref. 2001)
School Cash Reserve Program Auth., 2000 Pool Bonds, 2,500 2,521
Series A, 5.25% 2001
County of Ventura, 2000 Tax and Rev. Anticipation 2,000 2,015
Notes, 5.00% 2001
----------
26,997
----------
TOTAL TAX-EXEMPT SECURITIES (cost: $376,717,000) 388,147
Excess of cash and receivables over payables 6,789
----------
NET ASSETS $394,936
----------
(1) Coupon rate changes periodically.
See Notes to Financial Statements
Key to Abbreviations
Agcy. = Agency
Auth. = Authority
Cert. of Part. = Certificates of Participation
Dept. = Department
Dev. = Development
Dist. = District
Econ. = Economic
Fac. = Facility
Facs. = Facilities
Fin. = Finance
Fncg. = Financing
G.O. = General Obligation
Preref. = Prerefunded
Redev. = Redevelopment
Ref. = Refunding
Rev. = Revenue
</TABLE>
<TABLE>
The Tax-Exempt Fund of California
FINANCIAL STATEMENTS
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
at August 31, 2000 (dollars in thousands)
Assets:
Investment securities at market
(cost: $376,717) $388,147
Cash 1
Receivables for --
Sales of investments $1,460
Sales of fund's shares 1,074
Accrued interest 5,437
Other 4 7,975
396,123
Liabilities:
Payables for --
Repurchases of fund's shares 110
Dividends on fund's shares 700
Management services 126
Other expenses 251 1,187
Net Assets at August 31, 2000 --
Unlimited shares authorized $394,936
Class A shares:
Net assets $393,990
Shares outstanding 24,618,778
Net asset value per share $16.00
Class B shares:
Net assets $946
Shares outstanding 59,113
Net asset value per share $16.00
See Notes to Financial Statements
STATEMENT OF OPERATIONS
for the year ended August 31, 2000 (dollars in thousands)
Investment Income:
Income:
Interest on tax-exempt securities $20,371
Expenses:
Management services fee $1,442
Distribution expenses - Class A 924
Distribution expenses - Class B 2
Transfer agent fee - Class A 97
Transfer agent fee - Class B -
Reports to shareholders 50
Registration statement and prospectus 22
Postage, stationery and supplies 46
Trustees' fees 18
Auditing and legal fees 57
Custodian fee 7
Taxes other than federal income tax 7 2,672
Net investment income 17,699
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 1,655
Net increase in unrealized appreciation on
investments 6,031
Net realized gain and unrealized
appreciation on investments 7,686
Net Increase in Net Assets Resulting from
Operations $25,385
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
Year ended
August 31,
2000 1999
Operations:
Net investment income $17,699 $17,382
Net realized gain on investments 1,655 1,312
Net unrealized appreciation
on investments 6,031 (17,280)
Net increase in net assets
resulting from operations 25,385 1,414
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income:
Class A (17,704) (17,400)
Class B (7) -
Distributions from net realized gain
on investments:
Class A (725) (5,084)
Class B - -
Total dividends and distributions (18,436) (22,484)
Capital Share Transactions:
Proceeds from shares sold 99,470 114,227
Proceeds from shares issued in reinvestment
of net investment income dividends and
distributions of net realized gain on
investments 10,248 13,877
Cost of shares repurchased (100,734) (85,585)
Net increase in net assets
resulting from capital share transactions 8,984 42,519
Total Increase in Net Assets 15,933 21,449
Net Assets:
Beginning of year 379,003 357,554
End of year (including
undistributed net investment
income: $38 and $38 respectively) $394,936 $379,003
See Notes to Financial Statements
</TABLE>
THE TAX-EXEMPT FUND OF CALIFORNIA
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The American Funds Tax-Exempt Series II (the "trust") is
registered under the Investment Company Act of 1940 as an open-end, diversified
management investment company and has initially issued one series of shares,
The Tax-Exempt Fund of California (the "fund"). The fund seeks a high level of
current income exempt from regular federal and California income taxes, with
the additional objective of preservation of capital. The fund offers Class A
and Class B shares. Class A shares are sold with an initial sales charge of up
to 3.75%. Class B shares are sold without an initial sales charge but are
subject to a contingent deferred sales charge paid upon redemption. This charge
declines from 5% to zero over a period of six years. Class B shares have higher
distribution expenses and transfer agent fees than Class A shares. Class B
shares are automatically converted to Class A shares eight years after the date
of purchase. Holders of both classes of shares have equal pro rata rights to
assets and identical voting, dividend, liquidation and other rights, except
that each class bears different distribution and transfer agent expenses, and
each class shall have exclusive rights to vote on matters affecting only their
class.
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared
in conformity with generally accepted accounting principles which require
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies consistently followed by the fund in the preparation of its financial
statements:
SECURITY VALUATION - Tax-exempt securities are valued at prices obtained from a
pricing service, when such prices are available; however, in circumstances
where the investment adviser deems it appropriate to do so, such securities
will be valued at the mean quoted bid and asked prices or at prices for
securities of comparable maturity, quality and type. Short-term securities
maturing within 60 days are valued at amortized cost, which approximates market
value.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith by a
committee appointed by the Board of Trustees. The ability of the issuers of the
fixed-income securities held by the fund to meet their obligations may be
affected by economic developments in a specific industry, state or region.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions are
accounted for as of the trade date. Realized gains and losses from securities
transactions are determined based on specific identified cost. In the event
securities are purchased on a delayed delivery or "when-issued" basis, the fund
will instruct the custodian to segregate liquid assets sufficient to meet its
payment obligations in these transactions. Interest income is recognized on an
accrual basis. Premiums and original issue discounts on securities are
amortized daily over the expected life of the security. Amortization of market
discounts on securities is recognized upon disposition.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends to shareholders are
declared daily after the determination of the fund's net investment income and
are paid to shareholders monthly.
ALLOCATIONS - Income, expenses (other than class-specific expenses) and
realized and unrealized gains and losses are allocated daily between the share
classes based on their relative net asset values. Distribution expenses,
transfer agent fees and any other class-specific expenses are accrued daily and
charged to the applicable share class.
2. FEDERAL INCOME TAXATION
The fund complies with the requirements of the Internal Revenue Code applicable
to regulated investment companies and intends to distribute all of its net
taxable income and net capital gains for the fiscal year. As a regulated
investment company, the fund is not subject to income taxes if such
distributions are made. Required distributions are determined on a tax basis
and may differ from net investment income and net realized gains for financial
reporting purposes. In addition, the fiscal year in which amounts are
distributed may differ from the year in which the net investment income and net
realized gains are recorded by the fund.
As of August 31, 2000, net unrealized appreciation on investments for book and
federal income tax purposes aggregated $11,430,000; $14,916,000 related to
appreciated securities and $3,486,000 related to depreciated securities. There
was no difference between book and tax realized gains on securities
transactions for the year ended August 31, 2000. During the year ended August
31, 2000 the fund realized, on a tax basis, a net capital gain of $1,362,000 on
securities transactions. The cost of portfolio securities for book and federal
income tax purposes was $376,717,000 at August 31, 2000.
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $1,442,000 for management services was
incurred pursuant to an agreement with Capital Research and Management Company
(CRMC), with which certain officers and Trustees of the fund are affiliated.
The Investment Advisory and Service Agreement provides for monthly fees accrued
daily, based on an annual rate of 0.30% of the first $60 million of average net
assets; 0.21% of such assets in excess of $60 million; and 3.00% of the fund's
monthly gross investment income.
DISTRIBUTION EXPENSES - Pursuant to a Plan of Distribution for Class A shares,
the fund may expend up to 0.25% of Class A daily net assets annually for any
activities primarily intended to result in sales of fund shares, provided the
categories of expenses for which reimbursement is made are approved in advance
by the fund's Board of Trustees. Fund expenses under the Plan include payments
to dealers to compensate them for their selling and servicing efforts. Pursuant
to a Plan of Distribution for Class B shares, the fund may expend 1.00% of
Class B daily net assets annually to compensate dealers for their selling and
servicing efforts. Some or all of the unpaid amounts may be paid by the fund in
the future. During the year ended August 31, 2000, distribution expenses under
the Plan of Distribution for Class A were limited to $924,000 on Class A
shares. Had no limitation been in effect, the fund would have paid $939,000 in
distribution expenses for Class A shares under the Plan. During the year ended
August 31, 2000, distribution expenses under the Plan of Distribution for Class
B were $2,000. As of August 31, 2000, accrued and unpaid distribution expenses
for Class A and Class B shares were $155,000 and $1,000, respectively.
American Funds Distributors, Inc. (AFD), the principal underwriter of the
fund's shares, received $124,000 (after allowances to dealers) during the year
ended August 31, 2000, as its portion of the sales charges paid by purchasers
of the fund's Class A shares. Such sales charges are not an expense of the fund
and, hence, are not reflected in the accompanying statement of operations.
TRANSFER AGENT FEE - A fee of $97,000 was incurred during the year ended August
31, 2000 pursuant to an agreement with American Funds Service Company (AFS),
the transfer agent for the fund.
DEFERRED TRUSTEES' FEES - Trustees who are unaffiliated with CRMC may elect to
defer part or all of the fees earned for services as members of the Board.
Amounts deferred are not funded and are general unsecured liabilities of the
fund. As of August 31, 2000, aggregate deferred amounts and earnings thereon
since the deferred compensation plan's adoption (1993), net of any payments to
Trustees, were $68,000.
AFFILIATED TRUSTEES' AND OFFICERS - CRMC is owned by The Capital Group
Companies, Inc. AFS and AFD are both wholly owned subsidiaries of CRMC.
Officers of the fund and certain Trustees are or may be considered to be
affiliated with CRMC, AFS and AFD. No such persons received any remuneration
directly from the fund.
4. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $144,550,000 and $147,188,000, respectively, during
the year ended August 31, 2000.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
During the year ended August 31, 2000, the custodian fee of $7,000 was paid by
these credits rather than in cash.
The fund reclassified $217,000 from undistributed net realized gains to
additional paid-in capital for the year ended August 31, 2000 as a result of
permanent differences between book and tax.
As of August 31, 2000, net assets consisted of the following:
<TABLE>
(dollars in thousands)
<S> <C>
Capital paid in on shares of beneficial interest 381,843
Undistributed net investment income 38
Accumulated net realized gain 1,625
Net unrealized appreciation 11,430
----------
Net Assets $ 394,936
----------
</TABLE>
Capital share transactions in the fund were as follows:
<TABLE>
Capital share transactions table:
<S> <C> <C> <C> <C>
Year ended Year ended
August 31, 2000 August 31, 1999
Amount (000) Shares Amount (000) Shares
Class A Shares:
Sold $ 98,529 6,365,894 $ 114,227 6,994,060
Reinvestment of dividends 10,243 661,691 13,877 850,311
and distributions
Repurchased (100,710) (6,520,421) (85,585) (5,278,098)
Net increase in Class A 8,062 507,164 42,519 2,566,273
Class B Shares: *
Sold 941 60,296 - -
Reinvestment of dividends 5 327 - -
and distributions
Repurchased (24) (1,510) - -
Net increase in Class B 922 59,113 - -
Total net increase in fund $ 8,984 566,277 $ 42,519 2,566,273
* Class B shares not offered
before March 15, 2000.
</TABLE>
<TABLE>
PER-SHARE DATA AND RATIOS (1)
<S> <C> <C> <C> <C>
Net
Net asset gains/(losses)
value, Net on securities
beginning investment (both realized
Year ended of year income and unrealized)
Class A:
2000 $15.72 $.74 (2) $.31 (2)
1999 16.60 .74 (.65)
1998 16.22 .79 .47
1997 15.78 .83 .53
1996 15.74 .84 .04
Class B:
2000 15.38 .24 (2) .67 (2)
Dividends
Total from (from net Distributions Net asset
investment investment (from capital Total value, end
Year ended operations income) gains) distributions of year
Class A:
2000 $1.05 $(.74) $(.03) $(.77) $16.00
1999 0.09 (.74) (.23) (.97) 15.72
1998 1.26 (.80) (.08) (.88) 16.60
1997 1.36 (.83) (.09) (.92) 16.22
1996 0.88 (.84) - (.84) 15.78
Class B:
2000 0.91 (.29) - (.29) 16.00
Ratio of Ratio of
Net assets, expenses net income
Total end of year to average to average
Year ended return (in millions) net assets net assets
Class A:
2000 6.99% $394 .72% 4.78%
1999 0.47 379 .70 4.55
1998 7.98 358 .71 4.83
1997 8.80 289 .72 5.15
1996 5.65 253 .73 5.25
Class B:
2000 5.99 1 1.44 (3) 3.81
Portfolio
turnover
Year ended rate
Class A:
2000 41.68% (4)
1999 22.68
1998 27.78
1997 15.68
1996 27.60
Class B:
2000 (3) 41.68 (4)
</TABLE>
(1) The years 1996 through 2000 represent, for Class A shares, fiscal years
ended August 31. The period ended 2000 represents, for Class B shares, the
169-day period ended August 31, 2000. Class B shares were not offered before
March 15, 2000. Total returns for such periods are based on activity during
the period and thus are not representative of a full year. Total returns
exclude all sales charges, including contingent deferred sales charges.
(2) Based on average shares outstanding.
(3) Annualized.
(4) Represents portfolio turnover rate (equivalent for all share classes) for
the year ended August 31, 2000.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES OF THE AMERICAN FUNDS
TAX-EXEMPT SERIES II AND SHAREHOLDERS OF
THE TAX-EXEMPT FUND OF CALIFORNIA:
We have audited the accompanying statement of assets and liabilities of The
American Funds Tax-Exempt Series II-- The Tax-Exempt Fund of California (the
"Fund" ), including the investment portfolio, as of August 31, 2000, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the per-share data and ratios for each of the five years in the period then
ended for Class A shares and the period March 15, 2000 through August 31, 2000
for Class B shares. These financial statements and per-share data and ratios
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and per-share data and ratios
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and per-share data and ratios are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of August 31, 2000 by
correspondence with the custodian and brokers; where replies were not received,
we performed other procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and per-share data and ratios referred
to above present fairly, in all material respects, the financial position of
The American Funds Tax-Exempt Series II -- The Tax-Exempt Fund of California as
of August 31, 2000, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the per-share data and ratios for each of the five years in the period then
ended for Class A shares and the period March 15, 2000 through August 31, 2000
for Class B shares, in conformity with accounting principles generally accepted
in the United States of America.
Deloitte & Touche, LLP
Los Angeles, California
October 2, 2000
August 31, 2000
TAX INFORMATION (UNAUDITED)
We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of certain distributions received by
shareholders during such fiscal year.
During the fiscal year ended August 31, 2000, the fund paid a long-term capital
gain distribution of $725,000.
Shareholders may exclude from federal taxable income any exempt-interest
dividends paid from net investment income. All of the dividends paid from net
investment income for Class A and Class B qualify as exempt-interest dividends.
Any distributions paid from realized net short-term or long-term capital gains
are not exempt from federal taxation.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 2001 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 2000 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
PART C
OTHER INFORMATION
THE TAX-EXEMPT FUND OF CALIFORNIA
ITEM 23. EXHIBITS
(a) Previously filed (see Post-Effective Amendment No. 19 filed 3/9/00)
(b) Previously filed (see Post-Effective Amendment No. 15 filed 10/29/97)
(c) Previously filed (see Post-Effective Amendment No. 19 filed 3/9/00)
(d) Previously filed (see Post-Effective Amendment No. 19 filed 3/9/00)
(e) Previously filed (see Post-Effective Amendment No. 19 filed 3/9/00)
(f) None
(g) Previously filed (see Post-Effective Amendment No. 15 filed 10/29/97)
(h) None
(i) Previously filed (see Post-Effective Amendment No. 19 filed 3/9/00)
(j) Consent of Independent Auditors
(k) None
(l) Previously filed (see Post-Effective Amendment No. 15 filed 10/29/97)
(m) Previously filed (see Post-Effective Amendment No. 19 filed 3/9/00)
(n) Previously filed (see Post-Effective Amendment No. 19 filed 3/9/00)
(o) None
(p) Previously filed (see Post-Effective Amendment No. 19 filed 3/9/00)
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 Vice President None
27304 Park Vista Road
Agoura Hills, CA 91301
John A. Agar Vice President None
1501 N. University, Suite 227A
Little Rock, AR 72207
Robert B. Aprison Vice President None
2983 Bryn Wood Drive
Madison, WI 53711
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 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
2320 North Austin Avenue
Georgetown, TX 78626
Alan Brown Vice President None
4129 Laclede Avenue
St. Louis, MO 63108
B J. Peter Burns Vice President None
Brian C. Casey 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 Co-Chief Executive Officer None
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 F. Daugherty Regional Vice President None
1216 Highlander Way
Mechanicsburg, PA 17055
Daniel J. Delianedis 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
2627 Mission Street
San Marino, CA 91108
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
John Fodor Senior 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 Senior Vice President None
6744 Avalon
Dallas, TX 75214
Robert S. Irish 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
John P. Keating Regional Vice President None
2285 Eagle Harbor Parkway
Orange Park, FL 32073
Andrew R. LeBlanc Regional Vice President None
10 Saint James Street South
Garden City, NY 11530
Arthur J. Levine Senior Vice President None
12558 Highlands Place
Fishers, IN 46038
B Karl A. Lewis Assistant Vice President None
T. Blake Liberty 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 Vice President None
LW Robert W. Lovelace Director None
Stephen A. Malbasa Senior 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
James R. McCrary Regional Vice President None
963 1st Street, #1
Hermosa Beach, CA 90254
S John V. McLaughlin Senior Vice President None
Terry W. McNabb Vice President None
2002 Barrett Station Road
St. Louis, MO 63131
David R. Murray Vice President None
1263 Brookwood Street
Birmingham, MI 48009
Stephen S. Nelson Vice President None
P.O. Box 470528
Charlotte, NC 28247-0528
William E. Noe 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
P.O. Box 452
Glenville, NC 28736
George S. Ross Senior Vice President None
P.O. Box 376
Southport, ME 04576
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 Vice President None
10538 Cheviot Drive
Los Angeles, CA 90064
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
1601 Seal Way
Seal Beach, CA 90740
David W. Short Chairman of the Board and None
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
Rodney G. Smith Senior 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
L Therese L. Souiller Assistant Vice President None
Nicholas D. Spadaccini 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 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
3021 Kensington Trace
Tarpon Springs, FL 34689
L Drew W. Taylor Assistant Vice President None
Gary J. Thoma Regional Vice President None
604 Thelosen Drive
Kimberly, WI 54136
L James P. Toomey Vice President None
I Christopher E. Trede Vice President None
George F. Truesdail Senior 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
204 Fernleaf Drive
Corona Del Mar, CA 92625
Thomas E. Warren 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
251 Barden Road
Bloomfield, MI 48304
H J. D. Wiedmaier Assistant Vice President None
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 Senior Vice President None
9320 Overlook Trail
Eden Prairie, MN 55347
Janet M. Young Regional Vice President None
1616 Vermont
Houston, TX 77006
Jonathan A. Young Regional Vice President None
329 Downing Drive
Chesapeake, VA 23322
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
27/th/ day of October, 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 October 27, 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)
