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THE AMERICAN FUNDS TAX-EXEMPT SERIES I
(THE TAX-EXEMPT FUND OF MARYLAND)
(THE TAX-EXEMPT FUND OF VIRGINIA)

Part B
Statement of Additional Information

October 1, 2007
(as supplemented April 7, 2008)

This document is not a prospectus but should be read in conjunction with the
current prospectus of The American Funds Tax-Exempt Series I (the "trust") dated
October 1, 2007. The trust currently consists of two series, The Tax-Exempt Fund
of Maryland (the "Maryland Fund") and The Tax-Exempt Fund of Virginia (the
"Virginia Fund"). Except where the context indicates otherwise, all references
herein to the "fund" apply to each of these two funds. The prospectus may be
obtained from your financial adviser or by writing to the trust at the following
address:

The American Funds Tax-Exempt Series I
(The Tax-Exempt Fund of Maryland)
(The Tax-Exempt Fund of Virginia)
Attention: Secretary
1101 Vermont Avenue, NW
Washington, DC 20005
202/842-5665

TABLE OF CONTENTS

Item Page no.
---- --------

Certain investment limitations and guidelines . . . . . . . . . . . 2
Description of certain securities and investment techniques . . . . 2
Fundamental policies and investment restrictions. . . . . . . . . . 9
Management of the trust . . . . . . . . . . . . . . . . . . . . . . 12
Execution of portfolio transactions . . . . . . . . . . . . . . . . 29
Disclosure of portfolio holdings. . . . . . . . . . . . . . . . . . 32
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . . 35
Purchase and exchange of shares . . . . . . . . . . . . . . . . . . 37
Sales charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Sales charge reductions and waivers . . . . . . . . . . . . . . . . 44
Selling shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Shareholder account services and privileges . . . . . . . . . . . . 49
General information . . . . . . . . . . . . . . . . . . . . . . . . 51
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Financial statements

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CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES

The following limitations and guidelines are considered at the time of purchase,
under normal circumstances, 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 the
respective state (Maryland or Virginia) tax.

. The fund may invest up to 20% of its assets in securities subject to
alternative minimum taxes.

. The fund may invest up to 20% of its assets in debt securities rated Ba or
below by Moody's Investors Service (Moody's) and BB or below by Standard &
Poor's Corporation (S&P) (or unrated but determined to be of equivalent
quality).

Although the fund is not normally required to dispose of a security in the event
its rating is reduced below the current minimum rating for its purchase (or if
it is not rated and its quality becomes equivalent to such a security), if, as a
result of a downgrade or otherwise, the fund holds more than 20% of its net
assets in these securities, the fund will dispose of the excess as deemed
prudent by the investment adviser.

* * * * * *

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 -- Debt securities are used by issuers to borrow money.
Generally, issuers pay investors periodic interest and repay the amount borrowed
either periodically during the life of the security and/or 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 and accrue interest at the
applicable coupon rate over a specified time period. The market prices of debt
securities fluctuate depending on such factors as interest rates, credit quality
and maturity. In general, market prices of debt securities decline when interest
rates rise and increase when interest rates fall.

Lower rated debt securities, rated Ba or below by Moody's and/or BB or below by
S&P or unrated but determined 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 debt
securities, 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, and to determine the value of, lower rated debt
securities.

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Certain additional risk factors relating to debt securities are discussed below:

SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES -- Debt securities may be
sensitive to economic changes, political and corporate developments, and
interest rate changes. In addition, during an economic downturn or
substantial period of rising interest rates, issuers that are highly
leveraged may experience increased financial stress that would adversely
affect their ability to meet projected business goals, to obtain additional
financing and to service their principal and interest payment obligations.
Periods of economic change and uncertainty also can be expected to result
in increased volatility of market prices and yields of certain debt
securities. For example, the prices of these securities can be affected by
financial contracts held by the issuer or third parties (such as
derivatives) relating to the security or other assets or indices.

PAYMENT EXPECTATIONS -- Debt securities may contain redemption or call
provisions. If an issuer exercises these provisions in a lower interest
rate market, the fund would have to replace the security with a lower
yielding security, resulting in decreased income to investors. If the
issuer of a debt security defaults on its obligations to pay interest or
principal or is the subject of 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 debt securities, which may affect adversely the
fund's ability to value accurately or dispose of such debt securities.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the value and/or liquidity of debt
securities.

The investment adviser attempts to reduce the risks described above through
diversification of the fund's portfolio and by credit analysis of each issuer,
as well as by monitoring broad economic trends and corporate and legislative
developments, but there can be no assurance that it will be successful in doing
so.

Credit ratings for debt securities provided by rating agencies evaluate the
safety of principal and interest payments, not market value risk. The rating of
an issuer is a rating agency's view of past and future potential developments
related to the issuer and may not necessarily reflect actual outcomes. There can
be a lag between the time of developments relating to an issuer and the time a
rating is assigned and updated.

Bond rating agencies may assign modifiers (such as +/-) to ratings categories to
signify the relative position of a credit within the rating category. Investment
policies that are based on ratings categories should be read to include any
security within that category, without giving consideration to the modifier. See
the Appendix for more information about credit ratings.

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, exclusion of
municipal bond interest from an investor's 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

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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, tribal
gaming 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. Many of these bonds do not generally
constitute the pledge of the credit of the issuer of such bonds. The credit
quality of such revenue bonds is usually directly related to the credit standing
of the user of the facility being financed or of an institution which provides a
guarantee, letter of credit or other credit enhancement for the bond issue.

MUNICIPAL INFLATION-INDEXED BONDS -- The fund may invest in inflation-indexed
bonds issued by municipalities. Interest payments are made to bondholders
semi-annually and are made up of two components: a fixed "real coupon" or
spread, and a variable coupon linked to an inflation index. Accordingly,
payments will increase or decrease each period as a result of changes in the
inflation index. In a period of deflation payments may decrease to zero, but in
any event will not be less than zero.

INSURED MUNICIPAL BONDS -- The fund may invest in municipal bonds that are
insured generally as to the timely payment of interest and principal. The
insurance for such bonds may be purchased by the bond issuer, the fund or any
other party, and is usually purchased from private, non-governmental insurance
companies. The credit rating of an insured municipal bond reflects the credit
rating of the insurer, based on the insurer's claims-paying ability. Insurance
that covers a municipal bond does not guarantee the market value of the bond or
the prices of the fund's shares.

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

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federal income tax, a portion or all may be included in determining a
shareholder's federal alternative minimum tax.

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 U.S. government 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 purposes of diversification, pre-refunded bonds will be treated as
governmental issues.

U.S. COMMONWEALTH OBLIGATIONS -- The fund may invest in obligations of the
Commonwealths of the United States, such as Puerto Rico, the U.S. Virgin
Islands, Guam and their agencies and authorities, to the extent such obligations
are exempt from federal income taxes. Adverse political and economic conditions
and developments affecting any Commonwealth may, in turn, affect negatively the
value of the fund's holdings in such obligations.

FORWARD COMMITMENT, WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The fund
may enter into commitments to purchase or sell securities at a future date. When
a fund agrees to purchase such securities, it assumes the risk of any decline in
value of the security from 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.

The fund will not use these transactions for the purpose of leveraging and will
segregate liquid assets that 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 in connection with 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 if it were 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. After a transaction is entered into,
the fund may still dispose of or renegotiate the transaction. Additionally,
prior to receiving delivery of securities as part of a transaction, the fund may
sell such securities.

CASH AND CASH EQUIVALENTS -- The funds may hold cash and invest in cash
equivalents. Cash equivalents include, but are not limited to: (a) tax-exempt
commercial paper (e.g., short-term notes obligations issued by municipalities
that mature, or may be redeemed in 270 days or less), (b) 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),
(c) municipal obligations backed by letters of credit issued by banks or other
financial institutions or

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government agencies that mature, or may be redeemed in one year or less, (d)
tax-exempt variable rate debt issued by municipal conduits for corporate
obligors and (e) securities of the U.S. government, its agencies or
instrumentalities that mature, or may be redeemed in one year or less.

TEMPORARY INVESTMENTS -- The fund may invest in short-term municipal obligations
of up to one year in maturity during periods of using temporary defensive
strategies resulting from abnormal market conditions, or when such investments
are considered advisable for liquidity. Generally, the income from such
short-term municipal obligations 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: (a) obligations of the U.S.
Treasury; (b) obligations of agencies and instrumentalities of the U.S.
government; (c) money market instruments, such as certificates of deposit issued
by domestic banks, corporate commercial paper, and bankers' acceptances and (d)
repurchase agreements.

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 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 of the collateral by the fund
may be delayed or limited.

ADJUSTMENT OF MATURITIES -- The investment adviser seeks to anticipate movements
in interest rates and may adjust the maturity distribution of the portfolio
accordingly, keeping in mind the fund's objectives.

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).

RISK FACTORS RELATING TO MARYLAND AND VIRGINIA DEBT OBLIGATIONS -- Because each
fund invests primarily in the securities issued by a single state, its agencies,
instrumentalities and

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municipalities, each fund is more susceptible to developments adversely
affecting issuers of that state's securities than a municipal bond fund that
does not concentrate its investments in a single state. To a large degree, the
risk of each fund is dependent upon the financial strength of the state and its
localities. A variety of events, such as changes in economic conditions and
government policies of Maryland or Virginia, and their agencies,
instrumentalities and authorities, could adversely affect the value of the
Maryland and Virginia fund, respectively. In addition to the general obligations
and agency issues of the state of Maryland or the commonwealth of Virginia, each
fund may invest in local bond issues, lease obligations and revenue bonds. The
credit quality and risk will vary according to each security's own structure and
underlying economics.

The following information highlights certain economic trends in Maryland and
Virginia and does not purport to be a complete description of risk factors
relating to Maryland and Virginia debt obligations. Certain information is drawn
from official statements and prospectuses relating to securities offerings of
the state of Maryland and the commonwealth of Virginia and other public sources
of information deemed reliable. The funds assume no obligation to independently
verify or update this information.

FACTORS AFFECTING MARYLAND DEBT OBLIGATIONS

GENERAL INFORMATION -- The state of Maryland has a population of
approximately 5.6 million, with employment based largely in the service,
retail trade and government sectors. Those sectors, along with finance,
insurance and real estate, are the largest contributors to the gross state
product. Population is concentrated around the Baltimore and Washington, DC
areas, and proximity to Washington, DC influences the above average
percentage of employees in government. Manufacturing, on the other hand, is
a much smaller proportion of employment than for the nation as a whole.
Maryland's unemployment rate for 2006 was below the national average. In
2006, its per capita income remained significantly above the national
average.

ECONOMY AND FINANCES -- The state enacts its budget annually. In 2002-2003,
following years of healthy economic growth, Maryland's economy slowed as a
result of the national recession. However, the Maryland Board of Revenue
Estimates reported that, according to several measures, the state's economy
outperformed the nation, even during the most recent nationwide slowdown.
The slowdown reduced employment and personal income growth. However, the
extent of the reduction was not as severe in Maryland as in other states;
partially as a result of Maryland's limited exposure to the manufacturing
sector, which had been hard hit by economic conditions, and Maryland's
large exposure to the government sector which was a stabilizing force for
the state's economy as other employment sectors slowed. Maryland has
participated strongly in the economic recovery. After two years of revenue
weakness, Maryland's revenue performance began improving in fiscal 2004,
with even stronger growth in 2005, and continued growth, though not as
strong, in fiscal 2006. The Bureau of Revenue Estimates reports that
while steady growth was seen in 2006 and the state's economy is expected to
continue to expand, it, like the national economy, is expected to slow
through 2007. Appropriations are expected to outpace revenue for the state
in 2007, however, the Maryland General Fund is expected to maintain a
positive balance.

The state and its subdivisions, and their respective officers and
employees, are parties to numerous legal proceedings, some involving
substantial amounts. Although adverse decisions in these matters could
require extraordinary appropriations not budgeted for, in

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the opinion of the Attorney General of Maryland, the legal proceedings are
not likely to have a material adverse affect on the state's financial
position.

FACTORS AFFECTING VIRGINIA DEBT OBLIGATIONS

GENERAL INFORMATION -- The commonwealth of Virginia has a population of
approximately 7.6 million, with population concentrated around the Northern
Virginia area outside of Washington, DC, followed by the Norfolk-Virginia
Beach-Newport News area and the Richmond-Petersburg area. The
commonwealth's economy is broadly based, with a concentration in service
and governmental jobs, followed by wholesale and retail trade,
manufacturing and finance, insurance and real estate. Virginia has
significant concentrations of high-technology employers, predominantly in
Northern Virginia. With Northern Virginia considered a part of the
Washington, DC metropolitan area, and Hampton Roads, which has the nation's
largest concentration of military installations, the federal government has
a strong economic impact on the commonwealth. In 2006, the commonwealth's
per capita income exceeded national averages and its unemployment rate was
significantly below the national average.

ECONOMY AND FINANCES -- The commonwealth's budget is prepared on a biennial
basis. Virginia was impacted by the national recession and, because of
budget gaps brought about by slowing revenues and rising expenditures, the
commonwealth was forced to draw down its general fund balances. However,
the Virginia economy has rebounded in recent years, with increasing tax
revenues and several economic indicators showing strong growth in 2004 and
2005. In fiscal 2006, the commonwealth's economy continued to expand.
However, this growth has slowed when compared to recent fiscal years.
According to the Comprehensive Annual Financial Report for fiscal year
ended June 2006, the outlook for the commonwealth in the coming fiscal year
is positive, but the growth in the economy is expected to continue to slow.
The commonwealth ended fiscal 2006 with a budget surplus in the general
fund and an increased Revenue Stabilization Fund balance. Appropriations
are expected to outpace revenue for the commonwealth in 2007, however, the
Virginia General Fund is expected to maintain a positive balance.

RISK OF CHANGES TO STATE INCOME TAX TREATMENT OF MUNICIPAL BONDS -- The U.S.
Supreme Court has accepted the appeal of a Kentucky case which could have a
significant impact on the tax treatment of municipal bonds issued by the state
of Maryland and the commonwealth of Virginia and their political subdivisions.
In 2006, the Kentucky Court of Appeals ruled that it was unlawful for a state to
exempt from its income tax any interest derived from bonds issued by the state
and its political subdivisions, while at the same time subjecting to its tax the
interest derived from bonds issued by other states and their political
subdivisions. A decision on the appeal is unlikely before mid-2008. If the U.S.
Supreme Court sustains the Kentucky decision, all states may be required to
provide equal tax treatment for interest derived from in-state and out-of-state
municipal bonds. In that event, the Maryland State legislature and/or the
Virginia Commonwealth legislature may determine that interest derived from all
municipal bonds, whether held directly or indirectly through the fund and
regardless of their state of origin, will be exempt from Maryland's or
Virginia's income tax, as applicable. Alternatively, the respective legislatures
may determine that interest derived from bonds issued by the state of Maryland
or the commonwealth of Virginia and their political subdivisions will no longer
be exempt from state income tax. Either of these alternatives may have an impact
on the value of bonds issued by the state of Maryland and the commonwealth of
Virginia and their political subdivisions. The outcome of the case and the
nature and timing of any required changes in tax laws are uncertain.

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RISK OF NON-COMPLIANCE WITH CERTAIN FEDERAL REQUIREMENTS -- 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. These restrictions in the Code also may affect the
availability of certain municipal securities.

* * * * * *

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 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. Transaction costs are
usually reflected in the spread between the bid and asked price.

A fund's portfolio turnover rate would equal 100% if each security in the fund's
portfolio were replaced once per year. The fund's portfolio turnover rates for
the fiscal years ended July 31, 2007 and 2006 were 9% and 5%, respectively, for
the Maryland Fund and 11% and 4%, respectively, for the Virginia Fund. See
"Financial highlights" in the prospectus for the fund's annual portfolio
turnover rate for each of the last five fiscal years.

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, as amended (the "1940 Act"), as the vote of the
lesser of (a) 67% or more of the outstanding voting securities present at a
shareholder meeting, if the holders of more than 50% of the outstanding voting
securities are present in person or by proxy, or (b) more than 50% of the
outstanding voting securities. All percentage limitations are considered at the
time securities are purchased and are based on a 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 will:

1. Normally, 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 the respective
state (Maryland or Virginia) tax.

These restrictions provide that the fund may not:

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2. Invest in more than 10% of the outstanding voting securities of any issuer
or 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, securities of other investment companies or cash and cash
items;

3. Buy or sell real estate in the ordinary course of its business; however,
the fund may invest in securities secured by real estate or interests therein;

4. Make loans to others, except for the purchase of debt securities or
entering into repurchase agreements;

5. 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;

6. Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases or sales;

7. 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;

8. 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;

9. Invest in companies for the purpose of exercising control or management;

10. Buy or sell commodities or commodity contracts or oil, gas or other mineral
exploration or development programs;

11. Write, purchase or sell puts, calls, straddles, spreads or any combination
thereof; or

12. 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 the purpose of investment restriction number 10, the term "oil, gas or other
mineral exploration or development programs" includes oil, gas, or other mineral
exploration or development leases.

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NONFUNDAMENTAL POLICIES -- The following policies may be changed by the Board of
Trustees without shareholder approval:

The fund may not:

1. 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;

2. Invest more than 15% of the value of its net assets in illiquid securities;

3. Invest in securities of other investment companies, except as permitted by
the Investment Company Act of 1940, as amended; or

4. Issue senior securities, except as permitted by the 1940 Act.

The American Funds Tax-Exempt Series I -- Page 11
<PAGE>

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES AND OFFICERS

"INDEPENDENT" TRUSTEES/1/

NAME, AGE AND NUMBER OF
POSITION WITH THE TRUST PORTFOLIOS/3/
(YEAR FIRST ELECTED/2/ AS A PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS/4/ HELD
TRUSTEE) DURING PAST FIVE YEARS BY TRUSTEE BY TRUSTEE
-----------------------------------------------------------------------------------------------------------------

Cyrus A. Ansary, 73 President, Investment 3 JPMorgan Value Opportunities
Chairman of the Trust Services International Co., Fund
(Non-Executive) (1986) LLC (private investment
company for various operating
entities)
-----------------------------------------------------------------------------------------------------------------
Daniel J. Callahan III, 75 Vice Chairman & Treasurer, 3 JPMorgan Value Opportunities
Trustee (2002) The Morris & Gwendolyn Fund
Cafritz Foundation
-----------------------------------------------------------------------------------------------------------------
R. Clark Hooper, 61 Private investor; former 18 JPMorgan Value Opportunities
Trustee (2005) President, Dumbarton Group Fund; The Swiss Helvetia Fund
LLC (securities industry Inc.
consulting); former Executive
Vice President - Policy and
Oversight, NASD
-----------------------------------------------------------------------------------------------------------------
James C. Miller III, 65 Senior Advisor, Blackwell 3 Clean Energy Fuels Corporation;
Trustee (2000) Sanders LLP; former Chairman, JPMorgan Value Opportunities
The CapAnalysis Group, LLC Fund
(economic, financial and
regulatory consulting);
former Director, U.S. Office
of Management and Budget

-----------------------------------------------------------------------------------------------------------------
Katherine D. Ortega, 73 Former Treasurer of the 3 JPMorgan Value Opportunities
Trustee (2003) United States Fund; The Kroger Co.

-----------------------------------------------------------------------------------------------------------------
J. Knox Singleton, 59 President and Chief Executive 3 Healthcare Realty Trust, Inc.;
Trustee (2004) Officer, INOVA Health System JPMorgan Value Opportunities
Fund
-----------------------------------------------------------------------------------------------------------------

The American Funds Tax-Exempt Series I -- Page 12
<PAGE>

"INTERESTED" TRUSTEES/5,6/

PRINCIPAL OCCUPATION(S)
DURING PAST FIVE YEARS
NAME, AGE AND AND POSITIONS NUMBER OF
POSITION WITH THE TRUST HELD WITH AFFILIATED ENTITIES PORTFOLIOS/3/
(YEAR FIRST ELECTED/2/ AS A OR THE PRINCIPAL UNDERWRITER OVERSEEN OTHER DIRECTORSHIPS/4/ HELD
TRUSTEE) OF THE TRUST BY TRUSTEE BY TRUSTEE
----------------------------------------------------------------------------------------------------------

James H. Lemon, Jr., 71 Chairman of the Board and 3 JPMorgan Value
Vice Chairman of the Trust Chief Executive Officer, Opportunities Fund
(1986) The Johnston-Lemon Group,
Incorporated (financial
services holding company)
----------------------------------------------------------------------------------------------------------
Jeffrey L. Steele, 62 President and Director, 3 JPMorgan Value
President of the Trust Washington Management Opportunities Fund
(2002) Corporation
----------------------------------------------------------------------------------------------------------

OTHER OFFICERS/6/

NAME, AGE AND
POSITION WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
(YEAR FIRST ELECTED/2/ AS AND POSITIONS HELD WITH AFFILIATED ENTITIES
AN OFFICER) OR THE PRINCIPAL UNDERWRITER OF THE TRUST
-------------------------------------------------------------------------------

Michael W. Stockton, 40 Director, Senior Vice President, Secretary and
Vice President, Treasurer, Washington Management Corporation
Assistant Secretary and
Treasurer (1996)
-------------------------------------------------------------------------------
Lois A. Erhard, 55 Vice President, Washington Management Corporation
Vice President (1988)
-------------------------------------------------------------------------------
Jennifer L. Butler, 41 Vice President and Assistant Secretary,
Secretary (2005) Washington Management Corporation; former
Specialist, Fund Administration, Pacific
Investment Management Company
-------------------------------------------------------------------------------
J. Lanier Frank, 46 Assistant Vice President, Washington Management
Assistant Vice President Corporation
(1998)
-------------------------------------------------------------------------------
Ashley L. Shaw,/7/ 38 Vice President and Assistant General Counsel,
Assistant Secretary Washington Management Corporation
(2000)
-------------------------------------------------------------------------------
Curt M. Scott, 28 Assistant Vice President and Assistant Treasurer,
Assistant Treasurer Washington Management Corporation; former
(2006) Financial Analyst, BISYS Group, Inc.
-------------------------------------------------------------------------------

1 The term "independent" trustee refers to a trustee who is not an "interested
person" of the trust within the meaning of the 1940 Act.
2 Trustees and officers of the trust serve until their resignation, removal or
retirement.
3 Capital Research and Management Company manages the American Funds, consisting
of 30 funds. Capital Research and Management Company also manages American
Funds Insurance Series,/(R)/ which serves as the underlying investment vehicle
for certain variable insurance contracts, American Funds Target Date Retirement
Series,/(R)/ Inc., which is available to investors in tax-deferred retirement
plans and IRAS, and Endowments, which is composed of two portfolios and is
available to certain nonprofit organizations.
4 This includes all directorships (other than those in the American Funds) that
are held by each trustee as a director of a public company or a registered
investment company.

5 "Interested persons" of the trust within the meaning of the 1940 Act, on the
basis of their affiliation with the fund's business

The American Funds Tax-Exempt Series I -- Page 13
<PAGE>

manager, Washington Management Corporation.
6 All of the trustees and officers listed are officers and/or directors/trustees
of one or more other funds for which Washington Management Corporation serves
as business manager.
7 Ashley L. Shaw is the daughter of James H. Lemon, Jr.

THE ADDRESS FOR ALL TRUSTEES AND OFFICERS OF THE TRUST IS 1101 VERMONT AVENUE,
NW, WASHINGTON, DC 20005, ATTENTION: SECRETARY.

The American Funds Tax-Exempt Series I -- Page 14
<PAGE>

FUND SHARES OWNED BY TRUSTEES AS OF DECEMBER 31, 2006

AGGREGATE DOLLAR RANGE/1/
OF SHARES
OWNED IN ALL FUNDS
IN THE AMERICAN FUNDS
DOLLAR RANGE/1/ OF FUND FAMILY OVERSEEN
NAME SHARES OWNED BY TRUSTEE
------------------------------------------------------------------------------------------
"INDEPENDENT" MARYLAND FUND VIRGINIA FUND
TRUSTEES -----------------------------------------------------------------
-------------------------

Cyrus A. Ansary Over $100,000 None Over $100,000
------------------------------------------------------------------------------------------
Daniel J. Callahan None None Over $100,000
III
------------------------------------------------------------------------------------------
R. Clark Hooper None None $50,001 - $100,000
------------------------------------------------------------------------------------------
James C. Miller III Over $100,000
$10,001 - $50,000 $10,001 - $50,000
------------------------------------------------------------------------------------------
Katherine D. Ortega $10,001 - $50,000 $10,001 - $50,000 Over $100,000
------------------------------------------------------------------------------------------
J. Knox Singleton None None Over $100,000
------------------------------------------------------------------------------------------
"INTERESTED" TRUSTEES
------------------------------------------------------------------------------------------
James H. Lemon, Jr. Over $100,000 Over $100,000 Over $100,000
------------------------------------------------------------------------------------------
Jeffrey L. Steele Over $100,000 None Over $100,000
------------------------------------------------------------------------------------------

1 Ownership disclosure is made using the following ranges: None; $1 - $10,000;
$10,001 - $50,000; $50,001 - $100,000 and Over $100,000.

TRUSTEE COMPENSATION -- No compensation is paid by the fund to any officer or
trustee who is a director, officer or employee of the business manager or its
affiliates. Each fund pays annual fees of $1,000 to trustees who are not
affiliated with the business manager, $250 for each board of trustees meeting
attended, and $250 for each meeting attended as a member of a committee of the
Board of trustees. The audit committee chairs receive an annual fee of $750 from
each fund and standing sub-committee chairs receive an annual fee of $500 from
each fund. An independent chairman of the board (an "independent chair") also
receives an additional fee of $25,000, which is paid by the trust or shared
based on the relative board meeting fee if the independent chairman serves in
such capacity for multiple funds.

No pension or retirement benefits are accrued as part of fund expenses.
Independent 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 independent trustees.

The American Funds Tax-Exempt Series I -- Page 15
<PAGE>

TRUSTEE COMPENSATION PAID DURING THE FISCAL YEAR ENDED JULY 31, 2007:

TOTAL COMPENSATION (INCLUDING
AGGREGATE COMPENSATION VOLUNTARILY DEFERRED COMPENSATION/1/)
(INCLUDING VOLUNTARILY FROM ALL FUNDS MANAGED BY
DEFERRED COMPENSATION/1/) CAPITAL RESEARCH AND MANAGEMENT
NAME FROM THE TRUST COMPANY OR ITS AFFILIATES/2/
------------------------------------------------------------------------------------------

Cyrus A. Ansary $11,547 $147,000
------------------------------------------------------------------------------------------
Daniel J. Callahan 6,472 111,500
III
------------------------------------------------------------------------------------------
R. Clark Hooper 4,724 304,285
------------------------------------------------------------------------------------------
James C. Miller III 8,872 124,500
------------------------------------------------------------------------------------------
Katherine D. Ortega 10,444 133,500
------------------------------------------------------------------------------------------
J. Knox Singleton/3/ 5,972 111,000
------------------------------------------------------------------------------------------

1 Amounts may be deferred by eligible trustees under a nonqualified deferred
compensation plan adopted by the trust in 1994. Deferred amounts accumulate at
an earnings rate determined by the total return of one or more American Funds
as designated by the trustees. Compensation shown in this table for the fiscal
year ended July 31, 2007 does not include earnings on amounts deferred in
previous fiscal years. See footnote 3 to this table for more information.
2 Capital Research and Management Company manages the American Funds, consisting
of 30 funds. Capital Research and Management Company also manages American
Funds Insurance Series,/(R) /which serves as the underlying investment vehicle
for certain variable insurance contracts, American Funds Target Date Retirement
Series,/(R)/ Inc., which is available to investors in tax-deferred retirement
plans and IRAS, and Endowments, which is composed of two portfolios and is
available to certain nonprofit organizations.

3 Since the deferred compensation plan's adoption, the total amount of deferred
compensation accrued by the trust (plus earnings thereon) through the 2007
fiscal year for participating trustees is as follows: J. Knox Singleton
($23,256). Amounts deferred and accumulated earnings thereon are not funded and
are general unsecured liabilities of the trust until paid to the trustees.

As of September 1, 2007, the officers and trustees of the trust and their
families, as a group, owned beneficially or of record less than 1% of the
outstanding shares of the trust.

TRUST ORGANIZATION AND THE BOARD OF TRUSTEES -- The trust, an open-end,
diversified management investment company, was organized as a Massachusetts
business trust on May 30, 1986. Although the board of trustees has delegated
day-to-day oversight to the investment adviser and business manager, all trust
operations are supervised by the trust's board, which meets periodically and
performs duties required by applicable state and federal laws.

Massachusetts common law provides that a trustee of a Massachusetts business
trust owes a fiduciary duty to the trust and must carry out his or her
responsibilities as a trustee in accordance with that fiduciary duty. Generally,
a trustee will satisfy his or her duties if he or she acts in good faith and
uses ordinary prudence.

Independent board members are paid certain fees for services rendered to the
trust as described above. They may elect to defer all or a portion of these fees
through a deferred compensation plan in effect for the trust.

The fund has several different classes of shares, including Class A, B, C, F and
R-5 shares. Class R-5 shares are available to clients of the Personal Investment
Management group of Capital Guardian Trust Company who do not have an
intermediary associated with their accounts

The American Funds Tax-Exempt Series I -- Page 16
<PAGE>

and without regard to the $1 million purchase minimum. Class R-5 shares are
described in more detail in the fund's prospectus addendum.

The board of trustees may establish additional series and/or classes of shares
in the future. Each "series" of shares represents interests in a separate
portfolio and has its own investment objectives and policies. When more than one
series of shares is outstanding, shares of all series will vote together for a
single set of trustees, and on other matters affecting only one series, only the
shareholders of that series shall be entitled to vote. On matters relating to
more than one series but affecting the series differently, separate votes by
series are required.

With respect to a particular series, shares of each class represent an interest
in the same investment portfolio. Each class has pro rata 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 and set forth in the fund's rule 18f-3 Plan. Each class'
shareholders have exclusive voting rights with respect to the respective class'
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 trust 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 trust will hold a meeting at which any member of the board could be removed
by a majority vote.

As permitted by Massachusetts law, there will normally be no meetings of
shareholders for the purpose of electing trustees unless and until such time as
less than a majority of the trustees holding office have been elected by
shareholders. At that time, the trustees then in office will call a
shareholders' meeting for the election of trustees. The trustees must call a
meeting of shareholders for the purpose of voting upon the question of removal
of any trustee when requested to do so by the record holders of 10% of the
outstanding shares of the trust. At such a meeting, a trustee may be removed
after the holders of record of not less than a majority of the outstanding
shares of the trust have declared that the trustee be removed either by
declaration in writing or by votes cast in person or by proxy. Except as set
forth above, the trustees will continue to hold office and may appoint successor
trustees. The shares do not have cumulative voting rights, which means that the
holders of a majority of the shares of the trust voting for the election of
trustees can elect all the trustees. No amendment may be made to the Declaration
of Trust without the affirmative vote of a majority of the outstanding shares of
the trust except amendments to change the name of the trust, to correct any
ambiguous, defective or inconsistent provision of, or to supply any omission to,
the Declaration of Trust, to establish new funds, or to reduce or eliminate the
payment of taxes by the trust may be made by the trustees without the vote or
consent of shareholders. If not terminated by the vote or written consent of a
majority of the outstanding shares, the trust will continue indefinitely.

SHAREHOLDER AND TRUSTEE RESPONSIBILITY -- Under the laws of certain states,
including Massachusetts, where the trust was organized, shareholders of a
Massachusetts business trust may, under certain circumstances, be held
personally liable as partners for the obligations of the

The American Funds Tax-Exempt Series I -- Page 17
<PAGE>

trust. However, the risk of a shareholder incurring any financial loss on
account of shareholder liability is limited to circumstances in which the trust
itself would be unable to meet its obligations. The Declaration of Trust
contains an express disclaimer of shareholder liability for acts or obligations
of the trust and provides that notice of the disclaimer may be given in any
agreement, obligation, or instrument which is entered into or executed by the
trust or trustees. The Declaration of Trust provides for indemnification out of
trust property of any shareholder held personally liable for the obligations of
the trust and also provides for the trust to reimburse such shareholder for all
legal and other expenses reasonably incurred in connection with any such claim
or liability.

Under the Declaration of Trust, the trustees or officers are not liable for
actions or failure to act; however they are not protected from liability by
reason of their willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office. The trust will
provide indemnification to its trustees and officers as authorized by its
By-Laws and by the 1940 Act and the rules and regulations thereunder.

COMMITTEES OF THE BOARD OF TRUSTEES

The trust has an audit committee composed of four trustees who are not
considered "interested persons" of the trust within the meaning of the 1940 Act
("independent trustees"): Cyrus A. Ansary, Daniel J. Callahan III, James C.
Miller III (Co-chair) and Katherine D. Ortega (Co-chair). The function of the
committee is the oversight of the trust's accounting and financial reporting
policies. The committee acts as a liaison between the trust's independent
registered public accounting firm and the full board of trustees.

The trust has a governance committee composed of Cyrus A. Ansary (Chair) and all
other independent trustees. The committee's functions include, through a
contracts sub-committee, reviewing all contracts and agreements with the trust,
as required by the 1940 Act and the rules thereunder. The governance committee
reports its recommendations to the full board of trustees. In addition, the
governance committee periodically reviews such issues as the board's
composition, responsibilities, committees and compensation and other relevant
issues, and recommends any appropriate changes to the full board of trustees.
The committee, through a nominating sub-committee, also evaluates, selects and
nominates candidates for independent trustees to the full board of trustees.
While the committee normally is able to identify from its own resources an ample
number of qualified candidates, it will consider shareholder suggestions of
persons to be considered as nominees to fill future vacancies on the board. Such
suggestions must be sent in writing to the governance committee of the trust,
c/o the trust's secretary, and must be accompanied by complete biographical and
occupational data on the prospective nominee, along with a written consent of
the prospective nominee for consideration of his or her name by the committee.

There were five board of trustees meetings and seven committee meetings (five
audit, and two governance committee) during the fiscal year ended July 31, 2007.
All trustees attended at least 80% of all board meetings and meetings of the
committees of which they are members.

PROXY VOTING PROCEDURES -- The trust's board of trustees will oversee the voting
of any proxies for securities held by the trust in order to ensure that the
voting of such proxies is conducted in accordance with the established
procedures and policies. The board of trustees authorizes the chief executive
officer ("CEO") or the CEO's designee (the "voting officer") to vote on any
matter arising as a result of the trust's portfolio holdings. The voting officer
is directed to vote on each

The American Funds Tax-Exempt Series I -- Page 18
<PAGE>

matter in the best interests of the fund holding the portfolio security and its
shareholders. The voting officer may consult with others, as appropriate, in
deciding how to vote and should resolve any conflict of interest involved in
voting by consulting with the chairman of the trust's governance committee. The
business manager is responsible for administering the voting of proxies, related
record keeping and reporting of votes. Since the trust will normally hold only
municipal securities, it is highly unlikely the trust will be required to vote
on any issue.

Information regarding how the trust voted proxies relating to portfolio
securities during the 12-month period ended June 30 of each year, will be
available on or about September 1 of each year, (a) without charge, upon request
by calling American Funds Service Company at 800/421-0180, (b) on the American
Funds website at americanfunds.com or (c) on the SEC's website at sec.gov.

PRINCIPAL FUND SHAREHOLDERS -- The following tables identify those investors who
own of record or are known by the fund to own beneficially 5% or more of any
class of its shares as of the opening of business on September 1, 2007. Unless
otherwise indicated, the ownership percentages below represent ownership of
record rather than beneficial ownership.

THE TAX-EXEMPT FUND OF MARYLAND

NAME AND ADDRESS OWNERSHIP PERCENTAGE
----------------------------------------------------------------------------

MLPF&S Class A 8.91%
4800 Deer Lake Dr. E. Fl. 2 Class B 22.16
Jacksonville, FL 32246-6484 Class C 44.12

----------------------------------------------------------------------------
Edward D. Jones & Co. Class A 8.23
201 Progress Parkway
Maryland Hts, MO 63043-3009
----------------------------------------------------------------------------
Citigroup Global Markets, Inc. Class A 7.68
333 W. 34th St. Class C 7.78
New York, NY 10001-2402 Class F 11.38
----------------------------------------------------------------------------
Morgan Stanley & Co., Inc. Class B 7.34
Harborside Financial Center, PL 11, FL3
Jersey City, NJ 07311
----------------------------------------------------------------------------
Johnston Lemon Group Class R-5 43.79
1101 Vermont Avenue NW
Washington, DC 20005-3521
----------------------------------------------------------------------------
CGTC Agent Class R-5 37.81
120 S. State College Boulevard
Brea, CA 92821-5805
----------------------------------------------------------------------------
CGTC Agent Class R-5 17.72
120 S. State College Boulevard
Brea, CA 92821-5805
----------------------------------------------------------------------------

The American Funds Tax-Exempt Series I -- Page 19
<PAGE>

THE TAX-EXEMPT FUND OF VIRGINIA

NAME AND ADDRESS OWNERSHIP PERCENTAGE
----------------------------------------------------------------------------

Edward D. Jones & Co. Class A 9.52%
201 Progress Parkway
Maryland Hts, MO 63043-3009
----------------------------------------------------------------------------
Citigroup Global Markets, Inc. Class A 5.24
333 W. 34th St. Class C 11.22
New York, NY 10001-2402 Class F 11.19
----------------------------------------------------------------------------
MLPF&S Class B 9.23
4800 Deer Lake Dr. E. Fl. 2 Class C 24.87
Jacksonville, FL 32246-6484
----------------------------------------------------------------------------
Charles Schwab & Co., Inc. Class F 7.00
101 Montgomery Street
San Francisco, CA 94104-4151
----------------------------------------------------------------------------
Johnston Lemon Group Class R-5 100.00
1101 Vermont Avenue NW
Washington, DC 20005-3521
----------------------------------------------------------------------------

BUSINESS MANAGER -- Since its inception, the trust has operated under a Business
Management Agreement with Washington Management Corporation. The business
manager maintains its principal business address at 1101 Vermont Avenue, NW,
Washington, DC 20005.

The business manager provides services necessary to carry on the trust's general
administrative and corporate affairs, and is responsible for monitoring the
various services and operations of the trust. These services encompass matters
relating to general corporate governance, regulatory compliance and monitoring
of the fund's service providers, including custodian operations, shareholder
services and fund share distribution functions, and includes the provision of
all executive personnel, clerical staff, office space and equipment and certain
accounting and record keeping facilities. The business manager provides similar
services to other mutual funds.

The fund pays all expenses not specifically assumed by the business manager,
including but not limited to, custodian, transfer and dividend disbursing agency
fees and expenses; costs of the designing, printing and mailing of reports,
prospectuses, proxy statements and notices to its shareholders; expenses of
shareholder meetings; taxes; insurance; expenses of the issuance, sale
(including stock certificates, registration and qualification expenses), or
repurchase of shares of the fund; legal and auditing expenses; expenses pursuant
to the fund's plans of distribution; fees and expense reimbursements paid to
Trustees; association dues; and costs of stationery and forms prepared
exclusively for the trust.

The business manager receives a fee at the annual rate of 0.135% of the first
$60 million of the fund's net assets, 0.09% of the fund's net assets in excess
of $60 million plus 1.35% of the gross investment income (excluding any net
capital gains from transactions in portfolio securities). The current Business
Management Agreement, unless sooner terminated, will continue in effect until
July 31, 2008 and may be renewed from year to year thereafter, provided that any
such renewal has been specifically approved at least annually by (a) 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 (b) the vote of a majority of
trustees who are not parties to the Business Management Agreement or

The American Funds Tax-Exempt Series I -- Page 20
<PAGE>

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
Business Management Agreement provides that the business manager has no
liability to the fund for its acts or omissions in the performance of its
obligations to the fund not involving willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations under the Business
Management Agreement. The Business Management Agreement also provides that
either party has the right to terminate it, without penalty, upon sixty (60)
days' written notice to the other party and that the Business Management
Agreement automatically terminates in the event of its assignment (as defined in
the 1940 Act).

Out of its own resources, the business manager makes payments to the investment
adviser for performing various accounting services for the fund and Washington
Mutual Investors Fund. The amount paid to the investment adviser may be found in
the most recent shareholder report. The business manager also makes payments to
support compensation paid to dealers (for additional information, see "Other
compensation to dealers" below). The amount of these payments to support dealer
compensation were approximately $2.7 million for the year ended December 31,
2006.

The business manager has established a charitable foundation, The Washington
Management Corporation Foundation, which makes contributions to charities
organized under Section 501(c)(3) or 509(a)(2) of the Internal Revenue Code.
Trustees and officers of the trust, as well as all employees of the business
manager and its affiliates, may participate in a gift matching program sponsored
by the Foundation.

For the fiscal years ended July 31, 2007, 2006, and 2005 the business manager
was entitled to receive from the Maryland Fund fees of $449,000, $377,000 and
$347,000, respectively. After giving effect to the business manager fee waiver
described below, the fund paid the business manager $404,000 (a reduction of
$45,000), $339,000 (a reduction of $38,000) and $325,000 (a reduction of
$22,000) for the fiscal years ended July 31, 2007, 2006 and 2005, respectively.

For the fiscal years ended July 31, 2007, 2006 and 2005, the business manager
was entitled to receive from the Virginia Fund fees of $465,000, $415,000 and
$378,000, respectively. After giving effect to the business manager fee waiver
described below, the fund paid the business manager $418,000 (a reduction of
$47,000), $374,000 (a reduction of $41,000) and $354,000 (a reduction of
$24,000) for the fiscal years ended July 31, 2007, 2006 and 2005, respectively.

For the period from September 1, 2004 until March 31, 2005, the business manager
agreed to waive 5% of the fees that it is otherwise entitled to receive under
the Business Management Agreement. Beginning April 1, 2005, this waiver
increased to 10% of the fees that the business manager is otherwise entitled to
receive and is expected to continue at this level until further review. As a
result of this waiver, fees are reduced similarly for all classes of shares of
the fund.

INVESTMENT ADVISER -- Capital Research and Management Company, the fund's
investment adviser, founded in 1931, maintains research facilities in the United
States and abroad (Los Angeles, San Francisco, New York, Washington, DC, London,
Geneva, Hong Kong, Singapore and Tokyo). These facilities are staffed with
experienced investment professionals. The investment adviser is located at 333
South Hope Street, Los Angeles, CA 90071 and 6455 Irvine Center Drive, Irvine,
CA 92618. It is a wholly owned subsidiary of The Capital Group Companies, Inc.,
a holding company for several investment management subsidiaries. Capital
Research and Management Company manages equity assets through two investment
divisions, Capital World

The American Funds Tax-Exempt Series I -- Page 21
<PAGE>

Investors and Capital Research Global Investors, and manages fixed-income assets
through its Fixed Income division. Capital World Investors and Capital Research
Global Investors generally function separately from each other with respect to
investment research activities and make investment and proxy voting decisions on
an independent basis.

The investment adviser has adopted policies and procedures that address issues
that may arise as a result of an investment professional's management of the
fund and other funds and accounts. Potential issues could involve allocation of
investment opportunities and trades among funds and accounts, use of information
regarding the timing of fund trades, investment professional compensation and
voting relating to portfolio securities. The investment adviser believes that
its policies and procedures are reasonably designed to address these issues.

COMPENSATION OF INVESTMENT PROFESSIONALS -- As described in the prospectus, the
investment adviser uses a system of multiple portfolio counselors in managing
fund assets. The investment adviser's investment analysts do not currently
manage a research portfolio in the fund.

Portfolio counselors and investment analysts are paid competitive salaries by
Capital Research and Management Company. In addition, they may receive bonuses
based on their individual portfolio results. Investment professionals also may
participate in profit-sharing plans. The relative mix of compensation
represented by bonuses, salary and profit-sharing plans will vary depending on
the individual's portfolio results, contributions to the organization and other
factors.

To encourage a long-term focus, bonuses based on investment results are
calculated by comparing pretax total investment returns to relevant
benchmarks over the most recent year, a four-year rolling average and an
eight-year rolling average with much greater weight placed on the four-year and
eight-year rolling averages. For portfolio counselors, benchmarks may include
measures of the marketplaces in which the fund invests and measures of the
results of comparable mutual funds. For investment analysts, benchmarks may
include relevant market measures and appropriate industry or sector indexes
reflecting their areas of expertise. Capital Research and Management Company
also subjectively compensates analysts for their contributions to the research
process. The fund's portfolio counselors are measured against the following
benchmarks: Lipper Maryland Municipal Debt Funds Average (The Tax-Exempt Fund
of Maryland) and Lipper Virginia Municipal Debt Funds Average (The Tax-Exempt
Fund of Virginia).

PORTFOLIO COUNSELOR FUND HOLDINGS AND OTHER MANAGED ACCOUNTS -- As described
below, portfolio counselors may personally own shares of the fund. In addition,
portfolio counselors may manage portions of other mutual funds or accounts
advised by Capital Research and Management Company or its affiliates.

The American Funds Tax-Exempt Series I -- Page 22
<PAGE>

THE FOLLOWING TABLE REFLECTS INFORMATION AS OF JULY 31, 2007:

NUMBER NUMBER
OF OTHER OF OTHER NUMBER
REGISTERED POOLED OF OTHER
INVESTMENT INVESTMENT ACCOUNTS
COMPANIES (RICS) VEHICLES (PIVS) THAT
THAT THAT PORTFOLIO
PORTFOLIO PORTFOLIO COUNSELOR
DOLLAR RANGE COUNSELOR COUNSELOR MANAGES
OF FUND MANAGES MANAGES (ASSETS OF
PORTFOLIO SHARES (ASSETS OF RICS (ASSETS OF PIVS OTHER ACCOUNTS
COUNSELOR OWNED/1/ IN BILLIONS)/2/ IN BILLIONS)/3/ IN BILLIONS)/4/
----------------------------------------------------------------------------------------

Brenda S. None/5/ 3 $9.8 None None
Ellerin
-----------------------------------------------------------------------------------------
Edward B. None/5/ 2 $4.1 None None
Nahmias
-----------------------------------------------------------------------------------------

1 Ownership disclosure is made using the following ranges: None; $1 - $10,000;
$10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000; $500,001 -
$1,000,000; and Over $1,000,000. The amounts listed include shares owned
through The Capital Group Companies, Inc. retirement plan and 401(k) plan.
2 Indicates fund(s) where the portfolio counselor also has significant
responsibilities for the day to day management of the fund(s). Assets noted are
the total net assets of the registered investment companies and are not
indicative of the total assets managed by the individual, which is a
substantially lower amount.No fund has an advisory fee that is based on the
performance of the fund.
3 Represents funds advised or sub-advised by Capital Research and Management
Company and sold outside the United States and/ or fixed-income assets in
institutional accounts managed by investment adviser subsidiaries of Capital
Group International, Inc., an affiliate of Capital Research and Management
Company. Assets noted are the total net assets of the funds or accounts and are
not indicative of the total assets managed by the individual, which is a
substantially lower amount. No fund or account has an advisory fee that is
based on the performance of the fund or account.
4 Reflects other professionally managed accounts held at companies affiliated
with Capital Research and Management Company. Personal brokerage accounts of
portfolio counselors and their families are not reflected.
5 Funds are designed primarily for taxable residents in the states of Maryland
or Virginia. Because the portfolio counselors do not reside in either state,
investment in the fund may not be appropriate for their personal portfolio.

INVESTMENT ADVISORY AGREEMENT -- The Investment Advisory Agreement (the
"Agreement") between the fund and the investment adviser will continue in effect
until July 31, 2008, 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 (a) 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
(b) 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 misfeasance, 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 manages the investment portfolio of the fund subject to
the policies established by the board of trustees and places orders for the
fund's portfolio securities transactions. As compensation for its services, the
investment adviser receives a fee at the annual rate of 0.165% of the first $60
million of the fund's net assets plus 0.120% of the fund's net assets in excess
of $60 million plus 1.65% of gross investment income.

The American Funds Tax-Exempt Series I -- Page 23
<PAGE>

For the fiscal years ended July 31, 2007, 2006 and 2005, the investment adviser
was entitled to receive from the Maryland Fund management fees of $570,000,
$478,000 and $439,000, respectively. After giving effect to the management fee
waivers described below, the fund paid the investment adviser management fees of
$513,000 (a reduction of $57,000), $430,000 (a reduction of $48,000) and
$411,000 (a reduction of $28,000) for the fiscal years ended July 31, 2007, 2006
and 2005, respectively.

For the fiscal years ended July 31, 2007, 2006 and 2005, the investment adviser
was entitled to receive from the Virginia Fund management fees of $592,000,
$527,000 and $480,000, respectively. After giving effect to the management fee
waivers described below, the fund paid the investment adviser management fees of
$533,000 (a reduction of $59,000), $474,000 (a reduction of $53,000) and
$450,000 (a reduction of $30,000) for the fiscal years ended July 31, 2007, 2006
and 2005, respectively.

For the period from September 1, 2004 through March 31, 2005, the investment
adviser agreed to waive 5% of the management fees that it was otherwise entitled
to receive under the Agreement. Beginning April 1, 2005, this waiver increased
to 10% of the management fees that the investment adviser is otherwise entitled
to receive and this waiver is expected to continue at this level until further
review. As a result of this waiver, management fees are reduced similarly for
all classes of shares of the fund.

ADMINISTRATIVE SERVICES AGREEMENT -- The Administrative Services Agreement (the
"Administrative Agreement") between the fund and the investment adviser relating
to the fund's Class C, F and R-5 shares will continue in effect until July 31,
2008, 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 the vote of a majority of trustees who are not parties to the Administrative
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 fund may terminate the Administrative Agreement at any time by vote of a
majority of the independent trustees. The investment adviser has the right to
terminate the Administrative Agreement upon 60 days' written notice to the fund.
The Administrative Agreement automatically terminates in the event of its
assignment (as defined in the 1940 Act).

Under the Administrative Agreement, the investment adviser provides certain
transfer agent and administrative services for shareholders of the fund's Class
C, F and R-5 shares. The investment adviser may contract with third parties,
including American Funds Service Company, the fund's Transfer Agent, to provide
some of these services. Services include, but are not limited to, shareholder
account maintenance, transaction processing, tax information reporting, and
shareholder and fund communications. In addition, the investment adviser
monitors, coordinates and oversees the activities performed by third parties.

The investment adviser receives an administrative services fee at the annual
rate of up to 0.15% of the average daily net assets for each applicable share
class (excluding Class R-5 shares) for administrative services provided to these
share classes. Administrative services fees are paid monthly and accrued daily.
The investment adviser uses a portion of this fee to compensate third parties
for administrative services provided to the funds. Of the remainder, the
investment adviser does not retain more than 0.05% of the average daily net
assets for each applicable share class. For Class R-5 shares, the administrative
services fee is calculated at the annual rate of up to 0.10% of the average
daily net assets of Class R-5 shares. The administrative services fee includes
compensation for transfer agent and shareholder services provided to the fund's

The American Funds Tax-Exempt Series I -- Page 24
<PAGE>

applicable share classes. In addition to making administrative service fee
payments to unaffiliated third parties, the investment adviser also makes
payments from the administrative services fee to American Funds Service Company
according to a fee schedule contained in a Shareholder Services Agreement
between the fund and American Funds Service Company.

During the 2007 fiscal year, administrative services fees, gross of any payments
made by the investment adviser, were:

------------------------------------------------------------------
<s>ADMINISTRATIVE
SERVICES FEE
MARYLAND FUND CLASS C $22,000
CLASS F 13,000
CLASS R-5 5,000
-------------------------
VIRGINIA FUND CLASS C 13,000
CLASS F 16,000
CLASS R-5 2,000
------------------------------------------------------------------

PRINCIPAL UNDERWRITER AND PLANS OF DISTRIBUTION -- 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; 6455 Irvine Center Drive, Irvine, CA 92618; 3500 Wiseman
Boulevard, San Antonio, TX 78251; 8332 Woodfield Crossing Boulevard,
Indianapolis, IN 46240; and 5300 Robin Hood Road, Norfolk, VA 23513.

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 allowances by
the Principal Underwriter to investment dealers. For Class B shares, the
Principal Underwriter sells the rights to Class B 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
pays the Principal Underwriter for advancing the immediate service fees paid to
qualified dealers of Class B shares. For Class C shares, the Principal
Underwriter receives any contingent deferred sales charges that apply during the
first year after purchase. The fund pays the Principal Underwriter for advancing
the immediate service fees and commissions paid to qualified dealers of Class C
shares. For Class F shares, the fund pays the Principal Underwriter for
advancing the immediate service fees paid to qualified dealers and advisers who
sell Class F shares.

The American Funds Tax-Exempt Series I -- Page 25
<PAGE>

Commissions, revenue or service fees retained by the Principal Underwriter after
allowances or compensation to dealers were:

COMMISSIONS, ALLOWANCE OR
REVENUE COMPENSATION
FISCAL YEAR OR FEES RETAINED TO DEALERS
------------------------------------------------------------------------------------------------------------

CLASS A 2007 Maryland Fund $182,000 Maryland Fund $713,000
Virginia Fund 115,000 Virginia Fund 493,000
------------------------------------------------------------------------------------------------------------
2006 Maryland Fund 128,000 Maryland Fund 493,000
Virginia Fund 105,000 Virginia Fund 405,000
------------------------------------------------------------------------------------------------------------
2005 Maryland Fund 122,000 Maryland Fund 470,000
Virginia Fund 111,000 Virginia Fund 433,000
------------------------------------------------------------------------------------------------------------
CLASS B 2007 Maryland Fund 5,000 Maryland Fund 30,000
Virginia Fund 5,000 Virginia Fund 25,000
------------------------------------------------------------------------------------------------------------
2006 Maryland Fund 5,000 Maryland Fund 40,000
Virginia Fund 4,000 Virginia Fund 28,000
------------------------------------------------------------------------------------------------------------
2005 Maryland Fund 18,000 Maryland Fund 47,000
Virginia Fund 12,000 Virginia Fund 28,000
------------------------------------------------------------------------------------------------------------
CLASS C 2007 Maryland Fund 17,000 Maryland Fund 57,000
Virginia Fund -- Virginia Fund 38,000
------------------------------------------------------------------------------------------------------------
2006 Maryland Fund -- Maryland Fund 77,000
Virginia Fund 7,000 Virginia Fund 36,000
------------------------------------------------------------------------------------------------------------
2005 Maryland Fund 4,000 Maryland Fund 73,000
Virginia Fund 3,000 Virginia Fund 38,000
------------------------------------------------------------------------------------------------------------

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). As required by rule 12b-1 and the 1940 Act, the Plans
(together with the Principal Underwriting Agreement) have been approved by the
full boards of trustees and separately by a majority of the independent trustees
who have no direct or indirect financial interest in the operation of the Plans
or the Principal Underwriting Agreement. Potential benefits of the Plans to the
fund include quality shareholder services; savings to the fund in transfer
agency costs; and benefits to the investment process from growth or stability of
assets. The selection and nomination of the independent trustees are committed
to the discretion of the independent trustees 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 boards of trustees.

Under the Plans, the fund may annually expend the following amounts to finance
any activity 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: (a) for Class A shares, up to 0.25% of the average daily
net assets attributable to Class A shares, (b) for Class B shares, up to 1.00%
of the average daily net assets attributable to Class B shares, (c) for Class C
shares, up to 1.00% of the average daily net assets attributable to Class C
shares, and (d) for Class F shares, up to 0.50% of the average daily net assets
attributable to Class F shares. The fund has

The American Funds Tax-Exempt Series I -- Page 26
<PAGE>

not adopted a Plan for Class R-5 shares; accordingly, no 12b-1 fees are paid
from Class R-5 assets.

For Class A shares: (a) up to 0.25% is reimbursed to the Principal Underwriter
for paying service-related expenses, including paying service fees paid to
qualified dealers, and (b) up to the amount allowable under the fund's Class A
12b-1 limit is reimbursed to the Principal Underwriter for paying
distribution-related expenses, including for Class A shares dealer commissions
and wholesaler compensation paid on sales of shares of $1 million or more
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, and retirement plans, endowments and foundations
with $50 million or more in assets -- "no load purchases"). Commissions on no
load purchases of Class A shares in excess of the Class A Plan limitation not
reimbursed to the Principal Underwriter 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. As of July 31, 2007, unreimbursed expenses which remain subject to
reimbursement under the Plan for Class A shares totaled $319,000, or 0.14% of
Class A net assets for the Maryland Fund, and $440,000, or 0.17% of Class A net
assets for the Virginia Fund.

For Class B shares: (a) up to 0.25% is paid to the Principal Underwriter for
paying service-related expenses, including paying service fees paid to qualified
dealers, and (b) 0.75% is paid to the Principal Underwriter for
distribution-related expenses, including the financing of commissions paid to
qualified dealers.

For Class C shares: (a) up to 0.25% is paid to the Principal Underwriter for
paying service-related expenses, including service fees paid to qualified
dealers, and (b) up to 0.75% is paid to the Principal Underwriter for paying
distribution-related expenses, including commissions paid to qualified dealers.

For Class F shares: currently up to 0.25% is paid to the Principal Underwriter
for paying service-related expenses, including service fees paid to qualified
dealers or advisers.

During the 2007 fiscal year, total 12b-1 expenses, and the portion of the
expenses that remained unpaid, were:

12B-1 UNPAID LIABILITY
12B-1 EXPENSES OUTSTANDING
---------------------------------------------------------------------------------------------

CLASS A Maryland Fund $544,000 Maryland Fund $86,000
Virginia Fund 618,000 Virginia Fund 103,000
---------------------------------------------------------------------------------------------
CLASS B Maryland Fund 169,000 Maryland Fund 17,000
Virginia Fund 124,000 Virginia Fund 13,000
---------------------------------------------------------------------------------------------
CLASS C Maryland Fund 266,000 Maryland Fund 49,000
Virginia Fund 161,000 Virginia Fund 29,000
---------------------------------------------------------------------------------------------
CLASS F Maryland Fund 30,000 Maryland Fund 6,000
Virginia Fund 37,000 Virginia Fund 8,000
---------------------------------------------------------------------------------------------

The American Funds Tax-Exempt Series I -- Page 27
<PAGE>

Johnston, Lemon & Co. Incorporated ("Johnston, Lemon") a wholly-owned subsidiary
of the business manager's parent company, The Johnston-Lemon Group, Inc.
("JLG"), received commissions and payments from the plans of distribution of the
funds of $26,000, $14,000 and $42,000 on its retail sales of the Maryland Fund
and $25,000, $34,000 and $21,000 on its retail sales of the Virginia Fund,
respectively, for the fiscal years ended July 31, 2007, 2006 and 2005.

All officers of the trust and two of its interested trustees are officers or
directors of Washington Management Corporation, a wholly-owned subsidiary of
JLG. Johnston, Lemon participates in receiving dealer service fee payments from
the Plans. Some of the trust's officers and one interested trustee are also
registered representatives with Johnston, Lemon and, as such, to the extent they
have sold shares of the fund, receive a portion of the service fee payments in
the same manner as all other Johnston, Lemon registered representatives.

OTHER COMPENSATION TO DEALERS -- As of January 2007, the top dealers (or their
affiliates) that American Funds Distributors anticipates will receive additional
compensation (as described in the prospectus) include:

A. G. Edwards & Sons, Inc.
AIG Advisors Group:
Advantage Capital Corporation
AIG Financial Advisors, Inc.
American General Securities Incorporated
FSC Securities Corporation
Royal Alliance Associates, Inc.
AXA Advisors, LLC
Cadaret, Grant & Co., Inc.
Cambridge Investment Research, Inc.
Commonwealth Financial Network
Cuna Brokerage Services, Inc.
Deutsche Bank Securities Inc.
Edward Jones
Genworth Financial Securities Corporation
Hefren-Tillotson, Inc.
HTK/Janney Montgomery Group:
Hornor, Townsend & Kent, Inc.
Janney Montgomery Scott LLC
ING Advisors Network Inc.:
Bancnorth Investment Group, Inc.
Financial Network Investment Corporation
Guaranty Brokerage Services, Inc.
ING Financial Partners, Inc.
Multi-Financial Securities Corporation
Primevest Financial Services, Inc.
InterSecurities/Transamerica:
InterSecurities, Inc.
Transamerica Financial Advisors, Inc.
J.J.B. Hilliard/PNC Bank:
J.J.B. Hilliard, W.L. Lyons, Inc.
PNC Bank, National Association
PNC Brokerage Corp.
PNC Investments LLC

The American Funds Tax-Exempt Series I -- Page 28
<PAGE>

Lincoln Financial Advisors Corporation:
Lincoln Financial Advisors Corporation
Jefferson Pilot Securities Corporation
LPL Financial Services:
Linsco/Private Ledger Corp.
Uvest Investment Services
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Metlife Enterprises:
Metlife Securities Inc.
Tower Square Securities
New England Securities
Walnut Street Securities, Inc.
MML Investors Services, Inc.
Morgan Keegan & Company, Inc.
Morgan Stanley DW Inc.
National Planning Holdings Inc.:
Invest Financial Corporation
Investment Centers of America, Inc.
National Planning Corporation
SII Investments, Inc.
NFP Securities, Inc.
Northwestern Mutual Investment Services, LLC
Pacific Select Distributors Inc.:
Associated Securities Corp.
Contemporary Financial Solutions, Inc.
M.L. Stern & Co., LLC
Mutual Service Corporation
Sorrento Pacific Financial, LLC
United Planners' Financial Services of America
Waterstone Financial Group, Inc.
Park Avenue Securities LLC
Princor Financial Services Corporation
Raymond James Group:
Raymond James & Associates, Inc.
Raymond James Financial Services Inc.
RBC Dain Rauscher Inc.
Robert W. Baird & Co. Incorporated
Securian/C.R.I.:
CRI Securities, LLC
Securian Financial Services, Inc.
Smith Barney
U.S. Bancorp Investments, Inc.
UBS Financial Services Inc.
First Clearing LLC
Wells Fargo Investments, L.L.C.

EXECUTION OF PORTFOLIO TRANSACTIONS

The investment adviser places orders with broker-dealers for the fund's
portfolio transactions. Purchases and sales of equity securities on a securities
exchange or an over-the-counter market

The American Funds Tax-Exempt Series I -- Page 29
<PAGE>

are effected through broker-dealers who receive commissions for their services.
Generally, commissions relating to securities traded on foreign exchanges will
be higher than commissions relating to securities traded on U.S. exchanges and
may not be subject to negotiation. Equity securities may also be purchased from
underwriters at prices that include underwriting fees. Purchases and sales of
fixed-income securities are generally made with an issuer or a primary
market-maker acting as principal with no stated brokerage commission. The price
paid to an underwriter for fixed-income securities includes underwriting fees.
Prices for fixed-income securities in secondary trades usually include
undisclosed compensation to the market-maker reflecting the spread between the
bid and ask prices for the securities.

In selecting broker-dealers, the investment adviser strives to obtain "best
execution" (the most favorable total price reasonably attainable under the
circumstances) for the fund's portfolio transactions, taking into account a
variety of factors. These factors include the size and type of transaction, the
nature and character of the markets for the security to be purchased or sold,
the cost, quality and reliability of the executions and the broker-dealer's
ability to offer liquidity and anonymity. The investment adviser considers these
factors which involve qualitative judgments when selecting broker-dealers and
execution venues for fund portfolio transactions. The investment adviser views
best execution as a process that should be evaluated over time as part of an
overall relationship with particular broker-dealer firms rather than on a
trade-by-trade basis. The fund does not consider the investment adviser as
having an obligation to obtain the lowest commission rate available for a
portfolio transaction to the exclusion of price, service and qualitative
considerations.

The investment adviser may execute portfolio transactions with broker-dealers
who provide certain brokerage and/or investment research services to it, but
only when in the investment adviser's judgment the broker-dealer is capable of
providing best execution for that transaction. The receipt of these services
permits the investment adviser to supplement its own research and analysis and
makes available the views of, and information from, individuals and the research
staffs of other firms. Such views and information may be provided in the form of
written reports, telephone contacts and meetings with securities analysts. These
services may include, among other things, reports and other communications with
respect to individual companies, industries, countries and regions, economic,
political and legal developments, as well as setting up meetings with corporate
executives and seminars and conferences related to relevant subject matters. The
investment adviser considers these services to be supplemental to its own
internal research efforts and therefore the receipt of investment research from
broker-dealers does not tend to reduce the expenses involved in the investment
adviser's research efforts. If broker-dealers were to discontinue providing such
services it is unlikely the investment adviser would attempt to replicate them
on its own, in part because they would then no longer provide an independent,
supplemental viewpoint. Nonetheless, if it were to attempt to do so, the
investment adviser would incur substantial additional costs. Research services
that the investment adviser receives from broker-dealers may be used by the
investment adviser in servicing the fund and other funds and accounts that it
advises; however, not all such services will necessarily benefit the fund.

The investment adviser may pay commissions in excess of what other
broker-dealers might have charged - including on an execution-only basis - for
certain portfolio transactions in recognition of brokerage and/or investment
research services provided by a broker-dealer. In this regard, the investment
adviser has adopted a brokerage allocation procedure consistent with the
requirements of Section 28(e) of the U.S. Securities Exchange Act of 1934.
Section 28(e) permits an investment adviser to cause an account to pay a higher
commission to a broker-dealer that

The American Funds Tax-Exempt Series I -- Page 30
<PAGE>

provides certain brokerage and/or investment research services to the investment
adviser, if the investment adviser makes a good faith determination that such
commissions are reasonable in relation to the value of the services provided by
such broker-dealer to the investment adviser in terms of that particular
transaction or the investment adviser's overall responsibility to the fund and
other accounts that it advises. Certain brokerage and/or investment research
services may not necessarily benefit all accounts paying commissions to each
such broker-dealer; therefore, the investment adviser assesses the
reasonableness of commissions in light of the total brokerage and investment
research services provided by each particular broker-dealer. In accordance with
its internal brokerage allocation procedure, the investment adviser periodically
assesses the brokerage and investment research services provided by each
broker-dealer from whom it receives such services. Using its judgment, the
investment adviser then creates lists with suggested levels of commissions for
particular broker-dealers and provides those lists to its trading desks. Neither
the investment adviser nor the fund incurs any obligation to any broker-dealer
to pay for research by generating trading commissions. The actual level of
business received by any broker-dealer may be less then the suggested level of
commissions and can, and often does, exceed the suggested level in the normal
course of business. As part of its ongoing relationships with broker-dealers,
the investment adviser routinely meets with firms, typically at the firm's
request, to discuss the level and quality of the brokerage and research services
provided, as well as the perceived value and cost of such services. In valuing
the brokerage and investment research services the investment adviser receives
from broker-dealers for its good faith determination of reasonableness, the
investment adviser does not attribute a dollar value to such services, but
rather takes various factors into consideration, including the quantity, quality
and usefulness of the services to the investment adviser.

The investment adviser seeks, on an ongoing basis, to determine what the
reasonable levels of commission rates are in the marketplace. The investment
adviser takes various considerations into account when evaluating such
reasonableness, including, (a) rates quoted by broker-dealers, (b) the size of a
particular transaction in terms of the number of shares and dollar amount, (c)
the complexity of a particular transaction, (d) the nature and character of the
markets on which a particular trade takes place, (e) the ability of a
broker-dealer to provide anonymity while executing trades, (f) the ability of a
broker-dealer to execute large trades while minimizing market impact, (g) the
extent to which a broker-dealer has put its own capital at risk, (h) the level
and type of business done with a particular broker-dealer over a period of time,
(i) historical commission rates, and (j) commission rates that other
institutional investors are paying.

When executing portfolio transactions in the same equity security for the funds
and accounts, or portions of funds and accounts, over which the investment
adviser, through its equity investment divisions, has investment discretion,
each of the investment divisions will normally aggregate their respective
purchases or sales and execute them as part of the same transaction or series of
transactions. When executing portfolio transactions in the same fixed-income
security for the fund and the other funds or accounts over which it or one of
its affiliated companies has investment discretion, the investment adviser will
normally aggregate such purchases or sales and execute them as part of the same
transaction or series of transactions. The objective of aggregating purchases
and sales of a security is to allocate executions in an equitable manner among
the funds and other accounts that have concurrently authorized a transaction in
such security.

The investment adviser may place orders for the fund's portfolio transactions
with broker-dealers who have sold shares in the funds managed by the investment
adviser or its affiliated companies, however, it does not give consideration to
whether a broker-dealer has sold shares of the funds

The American Funds Tax-Exempt Series I -- Page 31
<PAGE>

managed by the investment adviser or its affiliated companies when placing any
such orders for the fund's portfolio transactions.

Brokerage commissions paid on portfolio transactions, including investment
dealer concessions on underwritings, if applicable, for the fiscal years ended
July 31, 2007, 2006 and 2005 amounted to $267,000, $133,000 and $77,000,
respectively, for the Maryland Fund and $296,000, $107,000 and $148,000,
respectively, for the Virginia Fund. With respect to fixed-income securities,
brokerage commissions include explicit investment dealer concessions and may
exclude other transaction costs which may be reflected in the spread between the
bid and asked price. The volume of trading activity increased during the year,
resulting in an increase in brokerage concessions paid on portfolio
transactions.

During fiscal years 2007, 2006 and 2005 Johnston, Lemon & Co. Incorporated
received no commissions for executing portfolio transactions for the fund.
Johnston, Lemon & Co. Incorporated will not participate in commissions paid by
the fund to other brokers or dealers and will not receive any reciprocal
business, directly or indirectly, as a result of such commissions.

DISCLOSURE OF PORTFOLIO HOLDINGS

The fund's investment adviser, on behalf of the fund, has adopted policies and
procedures with respect to the disclosure of information about fund portfolio
securities. These policies and procedures have been reviewed by the fund's board
of trustees and compliance will be periodically assessed by the board in
connection with reporting from the fund's Chief Compliance Officer.

Under these policies and procedures, the fund's complete list of portfolio
holdings available for public disclosure, dated as of the end of each calendar
quarter, is permitted to be posted on the American Funds website no earlier than
the tenth day after such calendar quarter. In practice, the public portfolio
typically is posted on the website approximately 45 days after the end of the
calendar quarter. Such portfolio holdings information may then be disclosed to
any person pursuant to an ongoing arrangement to disclose portfolio holdings
information to such person no earlier than one day after the day on which the
information is posted on the American Funds website. The fund's business
manager, custodian, outside counsel and auditor, each of which requires
portfolio holdings information for legitimate business and fund oversight
purposes, may receive the information earlier.

Affiliated persons of the fund as described above who receive portfolio holdings
information are subject to restrictions and limitations on the use and handling
of such information pursuant to applicable codes of ethics, including
requirements to maintain the confidentiality of such information, preclear
securities trades and report securities transactions activity, as applicable.
Third party service providers of the fund receiving such information are subject
to confidentiality obligations. When portfolio holdings information is disclosed
other than through the American Funds website to persons not affiliated with the
fund (which, as described above, would typically occur no earlier than one day
after the day on which the information is posted on the American Funds website),
such persons may be bound by agreements (including confidentiality agreements)
that restrict and limit their use of the information to legitimate business uses
only. Neither the fund nor its investment adviser or any affiliate thereof
receives compensation or other consideration in connection with the disclosure
of information about portfolio securities.

The American Funds Tax-Exempt Series I -- Page 32
<PAGE>

Subject to board policies, the authority to disclose a fund's portfolio
holdings, and to establish policies with respect to such disclosure, resides
with the appropriate investment-related committees of the fund's investment
adviser. In exercising their authority, the committees determine whether
disclosure of information about the fund's portfolio securities is appropriate
and in the best interest of fund shareholders. The investment adviser has
implemented policies and procedures to address conflicts of interest that may
arise from the disclosure of fund holdings. For example, the investment
adviser's code of ethics specifically requires, among other things, the
safeguarding of information about fund holdings and contains prohibitions
designed to prevent the personal use of confidential, proprietary investment
information in a way that would conflict with fund transactions. In addition,
the investment adviser believes that its current policy of not selling portfolio
holdings information and not disclosing such information to unaffiliated third
parties until such holdings have been made public on the American Funds website
(other than to certain fund service providers for legitimate business and fund
oversight purposes) helps reduce potential conflicts of interest between fund
shareholders and the investment adviser and its affiliates.

PRICE OF SHARES

Shares are purchased at the offering price or sold at the net asset value price
next determined after the purchase or sell order is received and accepted by the
fund or the Transfer Agent; the offering or net asset value 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 or their authorized designees,
accepted by the Principal Underwriter, the Transfer Agent, a dealer or any of
their designees. In the case of orders sent directly to the fund or the Transfer
Agent, an investment dealer should be indicated. The dealer is responsible for
promptly transmitting purchase and sell orders to the Principal Underwriter.

Orders received by the investment dealer or authorized designee, 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. Note that investment
dealers or other intermediaries may have their own rules about share
transactions and may have earlier cut-off times than those of the fund. For more
information about how to purchase through your intermediary, contact your
intermediary directly.

Prices that 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, while 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. Each share class
of the fund has a separately calculated net asset value (and share price).

All portfolio securities of funds advised by Capital Research and Management
Company (other than money market funds) are valued, and the net asset values per
share for each share class are determined, as indicated below. The fund follows
standard industry practice by typically reflecting changes in its holdings of
portfolio securities on the first business day following a portfolio trade.

The American Funds Tax-Exempt Series I -- Page 33
<PAGE>

1. Equity securities, including depositary receipts, are valued at the
official closing price of, or 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. Prices for each security are taken from the principal exchange or
market in which the security trades. Fixed-income securities are valued at
prices obtained from an independent 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 bid prices, if asked prices are not available) or at prices for
securities of comparable maturity, quality and type. The pricing services base
bond prices on, among other things, an evaluation of the yield curve as of
approximately 3:00 p.m. New York time. The fund's investment adviser performs
certain checks on these prices prior to calculation of the fund's net asset
value.

Securities with both fixed-income and equity characteristics (e.g., convertible
bonds, preferred stocks, units comprised of more than one type of security,
etc.), or equity securities traded principally among fixed-income dealers, are
valued in the manner described above for either equity or fixed-income
securities, depending on which method is deemed most appropriate by the
investment adviser.

Securities with original maturities of one year or less having 60 days or less
to maturity are amortized to maturity based on their cost if acquired within 60
days of maturity, or if already held on the 60th day, based on the value
determined on the 61st day. Forward currency contracts are valued at the mean of
representative quoted bid and asked prices.

Assets or liabilities initially expressed in terms of non-U.S. currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.

Securities and assets for which market quotations are not readily available or
are considered unreliable are valued at fair value as determined in good faith
under policies approved by the fund's board. Subject to board oversight, the
fund's board has delegated the obligation to make fair valuation determinations
to a valuation committee established by the fund's investment adviser. The board
receives regular reports describing fair-valued securities and the valuation
methods used.

The valuation committee has adopted guidelines and procedures (consistent with
SEC rules and guidance) to ensure that certain basic principles and factors are
considered when making all fair value determinations. As a general principle,
securities lacking readily available market quotations, or that have quotations
that are considered unreliable by the investment adviser, are valued in good
faith by the valuation committee based upon what the fund might reasonably
expect to receive upon their current sale. The valuation committee considers all
indications of value available to it in determining the fair value to be
assigned to a particular security, including, without limitation, the type and
cost of the security, contractual or legal restrictions on resale of the
security, relevant financial or business developments of the issuer, actively
traded similar or related securities, conversion or exchange rights on the
security, related corporate actions, significant events occurring after the
close of trading in the security and changes in overall market conditions.

2. Each class of shares represents interests in the same portfolio of
investments and is identical in all respects to each other class, except for
differences relating to distribution, service

The American Funds Tax-Exempt Series I -- Page 34
<PAGE>

and other charges and expenses, certain voting rights, differences relating to
eligible investors, the designation of each class of shares, conversion features
and exchange privileges. Expenses attributable to the fund, but not to a
particular class of shares, are borne by each class pro rata based on relative
aggregate net assets of the classes. Expenses directly attributable to a class
of shares are borne by that class of shares. Liabilities, including accruals of
taxes and other expense items attributable to particular share classes, are
deducted from total assets attributable to such share classes.

3. Net assets so obtained for each share class are then divided by the total
number of shares outstanding of that share class, and the result, rounded to the
nearest cent, is the net asset value per share for that share class.

TAXES AND DISTRIBUTIONS

FUND TAXATION -- The fund intends to qualify each year as a "regulated
investment company" under Subchapter M of the Internal Revenue Code ("Code") so
that it will not be liable for federal tax on income and capital gains
distributed to shareholders. In order to qualify as a regulated investment
company, and avoid being subject to federal income or excise taxes at the fund
level, the fund intends to distribute substantially all of its net investment
income and net realized capital gains within each calendar year as well as on a
fiscal year basis, and intends to comply with other tax rules applicable to
regulated investment companies.

To avoid federal excise taxes, the Code requires the fund to distribute by
December 31 of each year, at a minimum, the following amounts: 98% of its
taxable ordinary income earned during the calendar year; 98% of its capital gain
net income earned during the twelve month period ending October 31; and 100% of
any undistributed amounts from the prior year.

Interest on the municipal securities purchased by the fund is believed to be
free from regular federal income tax based on opinions issued by bond counsel.
However, there is no guarantee that the opinion is correct or that the IRS will
agree with the opinion. In addition, 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 with these limitations, or a determination by the IRS that the securities
do not qualify for tax-exempt treatment, could cause the interest on the bonds
to become taxable to investors retroactive to the date the bonds were issued. If
this were to happen, dividends derived from this interest may be taxable to you,
and you may need to file an amended tax return.

DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS

DIVIDENDS -- By meeting certain requirements of the Code, the fund
qualifies to pay exempt-interest dividends to shareholders. These dividends
("exempt-interest dividends") are derived from interest income exempt from
regular federal income tax, and are not subject to regular federal income
tax when they are distributed to fund shareholders. In addition, to the
extent that exempt-interest dividends are derived from interest on
obligations of a state or its political subdivisions, or from interest on
qualifying U.S. territorial obligations (including qualifying obligations
of Puerto Rico, the U.S. Virgin Islands or Guam), they also may be exempt
from that state's personal income taxes.

The American Funds Tax-Exempt Series I -- Page 35
<PAGE>

CAPITAL GAIN DISTRIBUTIONS -- The fund may derive capital gains and losses
in connection with sales or other dispositions of its portfolio securities.
Distributions from net short-term capital gains will be taxable to
shareholders as ordinary income. Distributions from net long-term capital
gains will be taxable to shareholders as long-term capital gain, regardless
of how long a particular shareholder has held shares in the fund.

A portion of the gain on municipal bonds purchased at market discount after
April 30, 1993 is taxable to shareholders as ordinary income, not as
capital gains.

SHAREHOLDER TAXATION -- Distributions by the fund result in a reduction in the
net asset value of the fund's shares. 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 subsequently receive a
partial return of their investment capital upon payment of the distribution,
which will be taxable to them.

Redemptions and exchanges of fund shares are taxable transactions for federal
and state income tax purposes. If a shareholder redeems fund shares, or
exchanges shares for shares of a different fund, the IRS will require the
shareholder to report any gain or loss on the redemption or exchange. The gain
or loss realized will be capital gain or loss and will be long-term or
short-term, depending on how long the shareholder held the shares.

Any loss incurred on the redemption or exchange of shares held for six months or
less will be disallowed to the extent of any exempt-interest dividends
distributed to a shareholder with respect to fund shares and any remaining loss
will be treated as a long-term capital loss to the extent of any long-term
capital gains distributed to the shareholder by the fund on those shares.

If a shareholder exchanges or otherwise disposes of shares of the fund within 90
days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously incurred
in acquiring the fund's shares will not be taken into account (to the extent
such previous sales charges do not exceed the reduction in sales charges) for
the purposes of determining the amount of gain or loss on the exchange, but will
be treated as having been incurred in the acquisition of such other fund(s).

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. Any loss disallowed under this rule will be added to the
shareholder's tax basis in the new shares purchased.

Interest on certain private activity bonds, while exempt from regular federal
income tax, is a preference item for taxpayers when determining their
alternative minimum tax under the Code and under the income tax provisions of
several states. Private activity bond interest could subject a shareholder to or
increase liability under federal and state alternative minimum taxes, depending
on a shareholder's individual or corporate tax position. Persons who are defined
in the Code as substantial users (or persons related to such users) of
facilities financed by private activity bonds should consult with their tax
advisors before buying fund shares.

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--

The American Funds Tax-Exempt Series I -- Page 36
<PAGE>

deferred retirement plans (e.g., plans qualified under Section 401 of the 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.

Exempt-interest dividends paid by each fund will be reported to both the IRS and
shareholders of each fund. Individual shareholders are required to report to the
federal government all exempt-interest dividends and all other tax-exempt
interest received. In addition, each fund is required to report 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 a regulated investment company may
be subject to backup withholding of federal income tax 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. In addition, back-up withholding may apply
beginning in 2007 to exempt-interest dividends paid to non-exempt shareholders
for whom a certified taxpayer identification number has not been received.
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.

The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or a lower rate under an
applicable income tax treaty) on taxable dividends, excluding long-term capital
gain distributions, received by him or her.

Shareholders should consult their tax advisers about the application of federal,
state and local tax law in light of their particular situation.

PURCHASE AND EXCHANGE OF SHARES

PURCHASES BY INDIVIDUALS -- As described in the prospectus, you may generally
open an account and purchase fund shares by contacting a financial adviser or
investment dealer authorized to sell the fund's shares. You may make investments
by any of the following means:

CONTACTING YOUR FINANCIAL ADVISER -- Deliver or mail a check to your
financial adviser.

BY MAIL -- for initial investments, you may mail a check, made payable to
the fund, directly to the address indicated on the account application.
Please indicate an investment dealer on the account application. You may
make additional investments by filling out the "Account Additions" form at
the bottom of a recent account statement and mailing the form, along with a
check made payable to the fund, using the envelope provided with your
account statement.

The American Funds Tax-Exempt Series I -- Page 37
<PAGE>

The amount of time it takes for us to receive regular U.S. postal mail may
vary and there is no assurance that we will receive such mail on the day
you expect. Mailing addresses for regular U.S. postal mail can be found in
the prospectus. To send investments or correspondence to us via overnight
mail or courier service, use any of the following addresses:

American Funds
8332 Woodfield Crossing Blvd.
Indianapolis, IN 46240-2482

American Funds
3500 Wiseman Blvd.
San Antonio, TX 78251-4321

American Funds
5300 Robin Hood Rd.
Norfolk, VA 23513-2407

BY TELEPHONE -- using the American FundsLine. Please see the "Shareholder
account services and privileges" section of this document for more
information regarding this service.

BY INTERNET -- using americanfunds.com. Please see the "Shareholder account
services and privileges" section of this document for more information
regarding this service.

BY WIRE -- If you are making a wire transfer, instruct your bank to wire
funds to:

Wells Fargo Bank
ABA Routing No. 121000248
Account No. 4600-076178

Your bank should include the following information when wiring funds:

For credit to the account of:
American Funds Service Company
(fund's name)

For further credit to:
(shareholder's fund account number)
(shareholder's name)

You may contact American Funds Service Company at 800/421-0180 if you have
questions about making wire transfers.

PURCHASES RECEIVED WITHOUT INVESTMENT INSTRUCTIONS -- When purchasing shares,
you should designate the fund or funds in which you wish to invest. In the
case of accounts other than 529 accounts, if no fund is designated and the
amount of your cash investment is more than $5,000, your money will be held
uninvested (without liability to the transfer agent for loss of income or
appreciation pending receipt of proper instructions) until investment
instructions are received, but for no more than three business days.
Your investment will be made at the net asset value (plus any applicable sales
charge in the case of Class A shares) next determined after investment
instructions are received and accepted by the transfer agent. If investment
instructions are not received, your money will be invested in Class A shares of
The Cash Management Trust of America on the third business day after receipt of
your investment.

The American Funds Tax-Exempt Series I -- Page 38
<PAGE>

In the case of accounts other than 529 accounts, if no fund is designated and
the amount of your cash investment is $5,000 or less, your money will be
invested in the same proportion and in the same fund or funds in which your last
cash investment (excludes exchanges) was made, provided such investment was made
within the last 16 months. If no investment was made within the last
16 months, your money will be held uninvested (without liability to the
transfer agent for loss of income or appreciation pending receipt of proper
instructions) until investment instructions are received, but for no more than
three business days. Your investment will be made at the net asset value (plus
any applicable sales charge in the case of Class A shares) next determined after
investment instructions are received and accepted by the transfer agent. If
investment instructions are not received, your money will be invested in Class A
shares of The Cash Management Trust of America on the third business day after
receipt of your investment.

OTHER PURCHASE INFORMATION -- 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.

In addition, the American Funds state tax-exempt funds are qualified for sale
only in certain jurisdictions, and tax-exempt funds in general should not serve
as retirement plan investments. The fund and the Principal Underwriter reserve
the right to reject any purchase order.

PURCHASE MINIMUMS AND MAXIMUMS -- All investments are subject to the purchase
minimums and maximums described in the prospectus. As noted in the prospectus,
purchase minimums may be waived or reduced in certain cases.

In the case of American Funds non-tax-exempt funds, the initial purchase minimum
of $25 may be waived for the following account types:

. Payroll deduction retirement plan accounts (such as, but not limited
to, 403(b), 401(k), SIMPLE IRA, SARSEP and deferred compensation plan
accounts); and

. Employer-sponsored CollegeAmerica accounts.

The following account types may be established without meeting the initial
purchase minimum:

. Retirement accounts that are funded with employer contributions; and

. Accounts that are funded with monies set by court decree.

The following account types may be established without meeting the initial
purchase minimum, but shareholders wishing to invest in two or more funds must
meet the normal initial purchase minimum of each fund:

The American Funds Tax-Exempt Series I -- Page 39
<PAGE>

. Accounts that are funded with (a) transfers of assets, (b) rollovers
from retirement plans, (c) rollovers from 529 college savings plans or
(d) required minimum distribution automatic exchanges; and

. American Funds money market fund accounts registered in the name of
clients of Capital Guardian Trust Company's Personal Investment
Management group.

Certain accounts held on the fund's books, known as omnibus accounts, contain
multiple underlying accounts that are invested in shares of the fund. These
underlying accounts are maintained by entities such as financial intermediaries
and are subject to the applicable initial purchase minimums as described in the
prospectus and statement of additional information.

EXCHANGES -- You may only exchange shares into other American Funds within the
same share class. However, exchanges from Class A shares of The Cash Management
Trust of America may be made to Class B or C shares of other American Funds for
dollar cost averaging purposes. Exchanges are not permitted from Class A shares
of The Cash Management Trust of America to Class B or C shares of Intermediate
Bond Fund of America, Limited Term Tax-Exempt Bond Fund of America and
Short-Term Bond Fund of America. Exchange purchases are subject to the minimum
investment requirements of the fund purchased and no sales charge generally
applies. However, exchanges of shares from American Funds money market funds are
subject to applicable sales charges on the fund being purchased, unless the
money market fund shares were acquired by an exchange from a fund having a sales
charge, or by reinvestment or cross-reinvestment of dividends or capital gain
distributions. Exchanges of Class F shares generally may only be made through
fee-based programs of investment firms that have special agreements with the
fund's distributor and certain registered investment advisers.

You may exchange shares of other classes by contacting the Transfer Agent, by
contacting your investment dealer or financial adviser, by using American
FundsLine or americanfunds.com, or by telephoning 800/421-0180 toll-free, or
faxing (see "American Funds Service Company service areas" in the prospectus for
the appropriate fax numbers) the Transfer Agent. For more information, see
"Shareholder account services and privileges" below. THESE TRANSACTIONS HAVE THE
SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES.

Shares held in employer-sponsored retirement plans may be exchanged into other
American Funds by contacting your plan administrator or recordkeeper. Exchange
redemptions and purchases are processed simultaneously at the share prices next
determined after the exchange order is received (see "Price of shares" above).

FREQUENT TRADING OF FUND SHARES -- As noted in the prospectus, certain
redemptions may trigger a purchase block lasting 30 calendar days under the
fund's "purchase blocking policy." Under this policy, systematic redemptions
will not trigger a purchase block and systematic purchases will not be
prevented. For purposes of this policy, systematic redemptions include, for
example, regular periodic automatic redemptions and statement of intention
escrow share redemptions. Systematic purchases include, for example, regular
periodic automatic purchases and automatic reinvestments of dividends and
capital gain distributions.

OTHER POTENTIALLY ABUSIVE ACTIVITY -- In addition to implementing purchase
blocks, American Funds Service Company will monitor for other types of activity
that could potentially be harmful to the American Funds - for example,
short-term trading activity in multiple funds. When identified, American Funds
Service Company will request that the shareholder discontinue the activity. If
the

The American Funds Tax-Exempt Series I -- Page 40
<PAGE>

activity continues, American Funds Service Company will freeze the shareholder
account to prevent all activity other than redemptions of fund shares.

MOVING BETWEEN SHARE CLASSES

If you wish to "move" your investment between share classes (within the
same fund or between different funds), we generally will process your
request as an exchange of the shares you currently hold for shares in
the new class or fund. Below is more information about how sales
charges are handled for various scenarios.

EXCHANGING CLASS B SHARES FOR CLASS A SHARES -- If you exchange Class B
shares for Class A shares during the contingent deferred sales charge
period you are responsible for paying applicable deferred sales charges on
Class B shares, but you will not be required to pay a Class A sales charge.
If you exchange your Class B shares for Class A shares after the contingent
deferred sales charge period you are responsible for paying any applicable
Class A sales charges.

If you redeem Class B shares after the contingent deferred sales charge
period, you may either reinvest the proceeds in Class B shares or purchase
Class A shares; if you purchase Class A shares you are responsible for
paying any applicable Class A sales charges.

EXCHANGING CLASS C SHARES FOR CLASS A SHARES -- If you exchange Class C
shares for Class A shares, you are still responsible for paying any Class C
contingent deferred sales charges and applicable Class A sales charges.

EXCHANGING CLASS C SHARES FOR CLASS F SHARES -- If you are part of a
qualified fee-based program and you wish to exchange your Class C shares
for Class F shares to be held in the program, you are still responsible for
paying any applicable Class C contingent deferred sales charges.

EXCHANGING CLASS F SHARES FOR CLASS A SHARES -- You can exchange Class F
shares held in a qualified fee-based program for Class A shares without
paying an initial Class A sales charge if all of the following are met: (a)
you are leaving or have left the fee-based program, (b) you have held the
Class F shares in the program for at least one year, and (c) you notify
American Funds Service Company of your request. If you have already
redeemed your Class F shares, the foregoing requirements apply and you must
purchase Class A shares within 90 days after redeeming your Class F shares.

In addition, you may redeem Class F shares held in a fee-based brokerage
account/ program for less than one year and with the redemption proceeds
purchase Class A shares without a sales charge if the redemption is
necessary to comply with the repeal of SEC Rule 202 under the Investment
Advisers Act of 1940 and the transaction occurs prior to October 1, 2007,
or such other date as determined by rule, regulation or court order.

EXCHANGING CLASS A SHARES FOR CLASS F SHARES -- If you are part of a
qualified fee-based program and you wish to exchange your Class A shares
for Class F shares to be held in the program, any Class A sales charges
(including contingent deferred sales charges) that you paid or are payable
will not be credited back to your account.

The American Funds Tax-Exempt Series I -- Page 41
<PAGE>

MOVING BETWEEN OTHER SHARE CLASSES -- If you desire to move your investment
between share classes and the particular scenario is not described in this
statement of additional information, please contact American Funds Service
Company at 800/421-0180 for more information.

NON-REPORTABLE TRANSACTIONS -- Automatic conversions described in the
prospectus will be non-reportable for tax purposes. In addition, except in
the case of a movement between a 529 share class and a non-529 share class,
an exchange of shares from one share class of a fund to another share class
of the same fund will be treated as a non-reportable exchange for tax
purposes, provided that the exchange request is received in writing by
American Funds Service Company and processed as a single transaction.

SALES CHARGES

CLASS A PURCHASES

PURCHASES BY CERTAIN 403(B) PLANS

Tax-exempt funds in general should not serve as retirement plan
investments.

OTHER PURCHASES

Pursuant to a determination of eligibility by a vice president or more
senior officer of the Capital Research and Management Company Fund
Administration Unit, or by his or her designee, Class A shares of the
American Funds 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) currently registered representatives and assistants directly employed
by such representatives, retired registered representatives with
respect to accounts established while active, or full-time employees
(collectively, "Eligible Persons") (and their (a) spouses or
equivalents if recognized under local law, (b) parents and children,
including parents and children in step and adoptive relationships,
sons-in-law and daughters-in-law, and (c) parents-in-law, if the
Eligible Persons or the spouses, children or parents of the Eligible
Persons are listed in the account registration with the
parents-in-law) of dealers who have sales agreements with the
Principal Underwriter (or who clear transactions through such
dealers), plans for the dealers, and plans that include as
participants only the Eligible Persons, their spouses, parents and/or
children;

(3) currently registered investment advisers ("RIAs") and assistants
directly employed by such RIAs, retired RIAs with respect to accounts
established while active, or full-time employees (collectively,
"Eligible Persons") (and their (a) spouses or equivalents if
recognized under local law, (b) parents and children, including

The American Funds Tax-Exempt Series I -- Page 42
<PAGE>

parents and children in step and adoptive relationships, sons-in-law
and daughters-in-law and (c) parents-in-law, if the Eligible Persons
or the spouses, children or parents of the Eligible Persons are listed
in the account registration with the parents-in-law) of RIA firms that
are authorized to sell shares of the funds, plans for the RIA firms,
and plans that include as participants only the Eligible Persons,
their spouses, parents and/or children;

(4) companies exchanging securities with the fund through a merger,
acquisition or exchange offer;

(5) insurance company separate accounts;

(6) accounts managed by subsidiaries of The Capital Group Companies, Inc.;

(7) THe Capital Group Companies, Inc., its affiliated companies and
Washington Management Corporation;

(8) an individual or entity with a substantial business relationship with
The Capital Group Companies, Inc. or its affiliates, or an individual
or entity related or relating to such individual or entity;

(9) wholesalers and full-time employees directly supporting wholesalers
involved in the distribution of insurance company separate accounts
whose underlying investments are managed by any affiliate of The
Capital Group Companies, Inc.; and

(10) full-time employees of banks that have sales agreements with the
Principal Underwriter, who are solely dedicated to directly supporting
the sale of mutual funds.

Shares are offered at net asset value to these persons and organizations
due to anticipated economies in sales effort and expense. Once an account
is established under this net asset value privilege, additional investments
can be made at net asset value for the life of the account.

MOVING BETWEEN ACCOUNTS -- Investments in certain account types may be moved to
other account types without incurring additional Class A sales charges. These
transactions include, for example:

. redemption proceeds from a non-retirement account (for example, a
joint tenant account) used to purchase fund shares in an IRA or other
individual-type retirement account;

. required minimum distributions from an IRA or other individual-type
retirement account used to purchase fund shares in a non-retirement
account; and

. death distributions paid to a beneficiary's account that are used by
the beneficiary to purchase fund shares in a different account.

LOAN REPAYMENTS -- Repayments on loans taken from a retirement plan or an
individual-type retirement account are not subject to sales charges if American
Funds Service Company is notified of the repayment.

The American Funds Tax-Exempt Series I -- Page 43
<PAGE>

DEALER COMMISSIONS AND COMPENSATION -- Commissions (up to 1.00%) are paid to
dealers who initiate and are responsible for certain Class A share purchases not
subject to sales charges. These purchases consist of purchases of $1 million or
more, purchases by employer-sponsored defined contribution-type retirement plans
investing $1 million or more or with 100 or more eligible employees, and
purchases made at net asset value by certain retirement plans, endowments and
foundations with assets of $50 million or more. Commissions on such investments
(other than IRA rollover assets that roll over at no sales charge under the
fund's IRA rollover policy as described in the prospectus) are paid to dealers
at the following rates: 1.00% on amounts of less than $4 million, 0.50% on
amounts of at least $4 million but less than $10 million and 0.25% on amounts of
at least $10 million. Commissions are based on cumulative investments over the
life of the account with no adjustment for redemptions, transfers, or market
declines. For example, if a shareholder has accumulated investments in excess of
$4 million (but less than $10 million) and subsequently redeems all or a portion
of the account(s), purchases following the redemption will generate a dealer
commission of 0.50%.A dealer concession of up to 1% may be paid by the fund
under its Class A plan of distribution to reimburse the Principal Underwriter in
connection with dealer and wholesaler compensation paid by it with respect to
investments made with no initial sales charge.

SALES CHARGE REDUCTIONS AND WAIVERS

REDUCING YOUR CLASS A SALES CHARGE -- As described in the prospectus, there are
various ways to reduce your sales charge when purchasing Class A shares.
Additional information about Class A sales charge reductions is provided below.

STATEMENT OF INTENTION -- By establishing a statement of intention (the
"Statement"), you enter into a nonbinding commitment to purchase shares of
American Funds non-money market funds over a 13-month period and receive
the same sales charge (expressed as a percentage of your purchases) as if
all shares had been purchased at once.

The Statement period starts on the date on which your first purchase made
toward satisfying the Statement is processed. The market value of your
existing holdings eligible to be aggregated (see below) as of the day
immediately before the start of the Statement period may be credited toward
satisfying the Statement.

The Statement may be revised upward at any time during the Statement
period, and such a revision will be treated as a new Statement, except that
the Statement period during which the purchases must be made will remain
unchanged. Purchases made from the date of revision will receive the
reduced sales charge, if any, resulting from the revised Statement.

The Statement will be considered completed if the shareholder dies within
the 13-month Statement period. Commissions to dealers will not be adjusted
or paid on the difference between the Statement amount and the amount
actually invested before the shareholder's death.

When a shareholder elects to use a Statement, shares equal to 5% of the
dollar amount specified in the Statement may 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

The American Funds Tax-Exempt Series I -- Page 44
<PAGE>

is not completed within the specified Statement period, the purchaser may
be required to 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. Any
dealers assigned to the shareholder's account at the time a purchase was
made during the Statement period will receive a corresponding commission
adjustment if appropriate. If the difference is not paid by the close of
the Statement 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 may be liable to the Principal Underwriter
for the balance still outstanding.

Certain payroll deduction retirement plans purchasing Class A shares under
a Statement on or before November 12, 2006, may continue to purchase Class
A shares at the sales charge determined by that particular Statement until
the plans' values reach the amounts specified in their Statements. Upon
reaching such amounts, the Statements for these plans will be deemed
completed and will terminate. After such termination, these plans are
eligible for additional sales charge reductions by meeting the criteria
under the fund's rights of accumulation policy.

In addition, if you currently have individual holdings in American Legacy
variable annuity contracts or variable life insurance policies that were
established on or before March 31, 2007, you may continue to apply
purchases under such contracts and policies to a Statement.

Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms and those in the prospectus with
their first purchase.

AGGREGATION -- Qualifying investments for aggregation include those made by
you and your "immediate family" as defined in the prospectus, if all
parties are purchasing shares for their own accounts and/or:

. individual-type employee benefit plans, such as an IRA, individual
403(b) plan or single-participant Keogh-type plan;

. business accounts solely controlled by you or your immediate family
(for example, you own the entire business);

. trust accounts established by you or your immediate family (for trusts
with only one primary beneficiary, upon the trustor's death the trust
account may be aggregated with such beneficiary's own accounts; for
trusts with multiple primary beneficiaries, upon the trustor's death
the trustees of the trust may instruct American Funds Service Company
to establish separate trust accounts for each primary beneficiary;
each primary beneficiary's separate trust account may then be
aggregated with such beneficiary's own accounts);

. endowments or foundations established and controlled by you or your
immediate family; or

. CollegeAmerica/(R)/ accounts invested in American Funds other than the
fund, which will be aggregated at the account owner level. (Class
529-E accounts may only be aggregated with an eligible employer plan.
For more information about CollegeAmerica and Class 529 shares, please
see the prospectus of American Funds that offer Class 529 shares.)

The American Funds Tax-Exempt Series I -- Page 45
<PAGE>

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 employee
benefit plans other than the individual-type employee benefit plans
described above;

. made for two or more employee benefit plans of a single employer or of
affiliated employers as defined in the 1940 Act, excluding the
individual-type employee benefit plans described above;

. for a diversified common trust fund or other diversified pooled
account not specifically formed for the purpose of accumulating fund
shares;

. for nonprofit, charitable or educational organizations, or any
endowments or foundations established and controlled by such
organizations, or any employer-sponsored retirement plans established
for the benefit of the employees of such organizations, their
endowments, or their foundations; or

. for individually established participant accounts of a 403(b) plan
that is treated similarly to an employer-sponsored plan for sales
charge purposes, or made for two or more such 403(b) plans that are
treated similarly to employer-sponsored plans for sales charge
purposes, in each case of a single employer or affiliated employers as
defined in the 1940 Act.

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 -- As described in the prospectus, you may reduce your
Class A sales charge by combining purchases of all classes of shares in the
American Funds, as well as individual holdings in Endowments. Shares of
money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge also qualify. However,
direct purchases of American Funds money market funds are excluded. If you
currently have individual holdings in American Legacy variable annuity
contracts or variable life insurance policies that were established on or
before March 31, 2007, you may continue to combine purchases made under
such contracts and policies to reduce your Class A sales charge.

RIGHTS OF ACCUMULATION -- Subject to the limitations described in the
aggregation policy, you may take into account your accumulated holdings in
all share classes of the American Funds, as well as your holdings in
Endowments, to determine your sales charge on investments in accounts
eligible to be aggregated. Direct purchases of American Funds money market
funds are excluded. Subject to your investment dealer's or recordkeeper's
capabilities, your accumulated holdings will be calculated as the higher of
(a) the current value of your existing holdings (the "market value") or (b)
the amount you invested (including reinvested dividends and capital gains,
but excluding capital appreciation) less any withdrawals (the "cost
value"). Depending on the entity on whose books your account is held, the
value of your holdings in that account may not be eligible for calculation
at cost value. For example, accounts held in nominee or street name may

The American Funds Tax-Exempt Series I -- Page 46
<PAGE>

not be eligible for calculation at cost value and instead may be calculated
at market value for purposes of rights of accumulation.

The value of all of your holdings in accounts established in calendar year
2005 or earlier will be assigned an initial cost value equal to the market
value of those holdings as of the last business day of 2005. Thereafter,
the cost value of such accounts will increase or decrease according to
actual investments or withdrawals. You must contact your financial adviser
or American Funds Service Company if you have additional information that
is relevant to the calculation of the value of your holdings.

When determining your American Funds Class A sales charge, if your
investment is not in an employer-sponsored retirement plan, you may also
continue to take into account the market value (as of the day prior to your
American Funds investment) of your individual holdings in various American
Legacy variable annuity contracts and variable life insurance policies that
were established on or before March 31, 2007. An employer-sponsored
retirement plan may also continue to take into account the market value of
its investments in American Legacy Retirement Investment Plans that were
established on or before March 31, 2007.

You may not purchase Class B shares if your combined American Funds and
applicable American Legacy holdings cause you to be eligible to purchase
Class A shares at the $100,000 or higher sales charge discount rate, and
you may not purchase Class C shares if such combined holdings cause you to
be eligible to purchase Class A shares at the $1 million or more sales
charge discount rate (i.e. at net asset value).

If you make a gift of American Funds Class A shares, upon your request, you
may purchase the shares at the sales charge discount allowed under rights
of accumulation of all of your American Funds and applicable American
Legacy accounts.

CDSC WAIVERS FOR CLASS A, B AND C SHARES -- As noted in the prospectus, a
contingent deferred sales charge ("CDSC") may be waived for redemptions due to
death or postpurchase disability of a shareholder (this generally excludes
accounts registered in the names of trusts and other entities). In the case of
joint tenant accounts, if one joint tenant dies, a surviving joint tenant, at
the time he or she notifies the Transfer Agent of the other joint tenant's death
and removes the decedent's name from the account, may redeem shares from the
account without incurring a CDSC. Redemptions made after the Transfer Agent is
notified of the death of a joint tenant will be subject to a CDSC.

In addition, a CDSC may be waived for the following types of transactions, if
together they do not exceed 12% of the value of an "account" (defined below)
annually (the "12% limit"):

. Required minimum distributions taken from retirement accounts upon the
shareholder's attainment of age 70-1/2 (required minimum distributions
that continue to be taken by the beneficiary(ies) after the account
owner is deceased also qualify for a waiver).

. Redemptions through an automatic withdrawal plan (AWP) (see "Automatic
withdrawals" under "Shareholder account services and privileges"
below). For each AWP payment, assets that are not subject to a CDSC,
such as appreciation on shares and shares acquired through
reinvestment of dividends and/or capital

The American Funds Tax-Exempt Series I -- Page 47
<PAGE>

gain distributions, will be redeemed first and will count toward the
12% limit. If there is an insufficient amount of assets not subject to
a CDSC to cover a particular AWP payment, shares subject to the lowest
CDSC will be redeemed next until the 12% limit is reached. Any
dividends and/or capital gain distributions taken in cash by a
shareholder who receives payments through an AWP will also count
toward the 12% limit. In the case of an AWP, the 12% limit is
calculated at the time an automatic redemption is first made, and is
recalculated at the time each additional automatic redemption is made.
Shareholders who establish an AWP should be aware that the amount of a
payment not subject to a CDSC may vary over time depending on
fluctuations in the value of their accounts. This privilege may be
revised or terminated at any time.

For purposes of this paragraph, "account" means:

. in the case of Class A shares, your investment in Class A shares of
all American Funds (investments representing direct purchases of
American Funds money market funds are excluded);

. in the case of Class B shares, your investment in Class B shares of
the particular fund from which you are making the redemption; and

. in the case of Class C shares, your investment in Class C shares of
the particular fund from which you are making the redemption.

CDSC waivers are allowed only in the cases listed here and in the prospectus.

SELLING SHARES

The methods for selling (redeeming) shares are described more fully in the
prospectus. If you wish to sell your shares by contacting American Funds Service
Company directly, any such request must be signed by the registered
shareholders. To contact American Funds Service Company via overnight mail or
courier service, see "Purchase and exchange of shares."

A signature guarantee may be required for certain redemptions. In such an event,
your signature may be guaranteed by a domestic stock exchange or the Financial
Industry Regulatory Authority, bank, savings association or credit union that is
an eligible guarantor institution. The Transfer Agent reserves the right to
require a signature guarantee on any redemptions.

Additional documentation may be required for sales of shares held in corporate,
partnership or fiduciary accounts. You must include with your written request
any shares you wish to sell that are in certificate form.

If you sell Class A, B or C shares and request a specific dollar amount to be
sold, we will sell sufficient shares so that the sale proceeds, after deducting
any applicable CDSC, 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 10
business 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

The American Funds Tax-Exempt Series I -- Page 48
<PAGE>

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 request that redemption proceeds of $1,000 or more from money market
funds be wired to your bank by writing American Funds Service Company. A
signature guarantee is required on all requests to wire funds.

SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES

The following services and privileges are generally available to all
shareholders. However, certain services and privileges may not be available if
your account is held with an investment dealer.

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 and the date on
which you would like your investments to occur. The plan will begin within 30
days after your account application is received. Your bank account will be
debited on the day or a few days before your investment is made, depending on
the bank's capabilities. The Transfer Agent will then invest your money into the
fund you specified on or around the date you specified. If the date you
specified falls on a weekend or holiday, your money will be invested on the
following business day. However, if the following business day falls in the next
month, your money will be invested on the business day immediately preceding the
weekend or holiday. 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 contacting the Transfer Agent.

AUTOMATIC REINVESTMENT -- Dividends and capital gain distributions are
reinvested in additional shares of the same class and fund at net asset value
unless you indicate otherwise on the account application. You also may elect to
have dividends and/or capital gain distributions paid in cash by informing the
fund, the Transfer Agent or your investment dealer.

If you have elected to receive dividends and/or capital gain distributions in
cash, and the postal or other delivery service is unable to deliver checks to
your address of record, or you do not respond to mailings from American Funds
Service Company with regard to uncashed distribution checks, your distribution
option will automatically be converted to having all dividends and other
distributions reinvested in additional shares.

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- You may cross-reinvest
dividends and capital gains (distributions) into other American Funds in the
same class 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; and

The American Funds Tax-Exempt Series I -- Page 49
<PAGE>

(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.

AUTOMATIC EXCHANGES -- For all share classes, you may automatically exchange
shares of the same class in amounts of $50 or more among any of the American
Funds on any day (or preceding business day if the day falls on a nonbusiness
day) of each month you designate.

AUTOMATIC WITHDRAWALS -- For all share classes, you may automatically withdraw
shares from any of the American Funds. You can make automatic withdrawals of $50
or more. You can designate the day of each period for withdrawals and request
that checks be sent to you or someone else. Withdrawals may also be
electronically deposited to your bank account. The Transfer Agent will withdraw
your money from the fund you specify on or around the date you specify. If the
date you specified falls on a weekend or holiday, the redemption will take place
on the previous business day. However, if the previous business day falls in the
preceding month, the redemption will take place on the following business day
after the weekend or holiday.

Withdrawal payments are not to be considered as dividends, yield or income.
Generally, 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.

Redemption proceeds from an automatic withdrawal plan are not eligible for
reinvestment without a sales charge.

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, purchases through
automatic investment plans and certain retirement plans, as well as automatic
exchanges and withdrawals will be confirmed at least quarterly.

AMERICAN FUNDSLINE AND AMERICANFUNDS.COM -- You may check your share balance,
the price of your shares, or your most recent account transaction, redeem shares
(up to $75,000 per American Funds shareholder each day) from non-retirement plan
accounts, or exchange shares around the clock with American FundsLine or using
americanfunds.com. To use American FundsLine, call 800/325-3590 from a
TouchTone(TM) telephone. Redemptions and exchanges through American FundsLine
and americanfunds.com are subject to the conditions noted above and in
"Telephone and Internet purchases, redemptions and exchanges" below. You will
need your fund number (see the list of the American Funds under "General
information -- 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.

Generally, all shareholders are automatically eligible to use these services.
However, if you are not currently authorized to do so, you may complete an
American FundsLink Authorization Form. Once you establish this privilege, you,
your financial adviser or any person with your account information may use these
services.

The American Funds Tax-Exempt Series I -- Page 50
<PAGE>

TELEPHONE AND INTERNET PURCHASES, REDEMPTIONS AND EXCHANGES -- By using the
telephone (including American FundsLine) or the Internet (including
americanfunds.com), or fax 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, the fund's business manager 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. Generally, all
shareholders are automatically eligible to use these services. However, you may
elect to opt out of these services 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.

CHECKWRITING -- You may establish check writing privileges for Class A shares
(but not Class 529-A shares) for American Funds money market funds upon meeting
the fund's initial purchase minimum of $1,000. This can be done by using an
account 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 of registered shareholders exactly as indicated on your account
application.

REDEMPTION OF SHARES -- The trust's declaration of trust permits the trust 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 of record owns
shares having an aggregate net asset value of less than the minimum initial
investment amount required of new shareholders as set forth in the trust's
current registration statement under the 1940 Act, and subject to such further
terms and conditions as the board of trustees of the trust may from time to time
adopt.

SHARE CERTIFICATES -- Shares are credited to your account and certificates are
not issued unless you request them by contacting the Transfer Agent.

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 JPMorgan Chase Bank, 270 Park Avenue, New York, NY 10017-2070, as
Custodian.

TRANSFER AGENT -- American Funds Service Company, a wholly owned subsidiary of
the investment adviser, maintains the records of shareholder accounts, 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. The principal office of American Funds Service Company is
located at 6455 Irvine Center Drive, Irvine, CA 92618. American Funds Service
Company was paid a fee of $52,000 and $5,000 for Class A and B shares,
respectively, of the Maryland Fund and $56,000 and $3,000 for Class A and B
shares, respectively, of the Virginia Fund for the 2007 fiscal year. American
Funds Service Company is also compensated for certain transfer agency services
provided to all other share classes from the administrative services fees paid
to Capital Research and Management Company, as described under "Administrative
services agreement."

The American Funds Tax-Exempt Series I -- Page 51
<PAGE>

In the case of certain shareholder accounts, third parties who may be
unaffiliated with the investment adviser provide transfer agency and shareholder
services in place of American Funds Service Company. These services are rendered
under agreements with American Funds Service Company or its affiliates and the
third parties receive compensation according to such agreements. Compensation
for transfer agency and shareholder services, whether paid to American Funds
Service Company or such third parties, is ultimately paid from fund assets and
is reflected in the expenses of the fund as disclosed in the prospectus.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -- PricewaterhouseCoopers LLP, 350
South Grand Avenue, Los Angeles, CA 90071, serves as the fund's independent
registered public accounting firm, 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 PricewaterhouseCoopers LLP, independent registered public
accounting firm, given on the authority of said firm as experts in accounting
and auditing. The selection of the fund's independent registered public
accounting firm is reviewed and determined annually by the board of trustees.

INDEPENDENT LEGAL COUNSEL -- Dechert LLP, 1775 I Street, NW, Washington DC
20006, serves as counsel to the trust and to the independent trustees in their
capacities as such. A determination with respect to the independence of the
trust's "independent legal counsel" will be made at least annually by the
independent trustees of the trust, as prescribed by the 1940 Act and related
rules.

PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS -- The fund's fiscal
year ends on July 31. Shareholders are provided updated prospectuses annually
and at least semiannually with reports showing the fund's investment portfolio
or summary investment portfolio, financial statements and other information. The
fund's annual financial statements are audited by the fund's independent
registered public accounting firm, PricewaterhouseCoopers LLP. In addition,
shareholders may also receive proxy statements for the fund. 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, shareholder reports and proxy statements. To
receive additional copies of a prospectus, report or proxy statement,
shareholders should contact the Transfer Agent.

CODES OF ETHICS -- The trust, Washington Management Corporation and Capital
Research and Management Company and its affiliated companies, including the
fund's Principal Underwriter, have adopted codes of ethics that allow for
personal investments, including securities in which the fund may invest from
time to time. These codes include a ban on acquisitions of securities pursuant
to an initial public offering; restrictions on acquisitions of private placement
securities; preclearance 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.

LEGAL PROCEEDINGS -- On February 16, 2005, the NASD (now the Financial Industry
Regulatory Authority) filed an administrative complaint against the Principal
Underwriter. The complaint alleges violations of certain NASD rules by the
Principal Underwriter with respect to the selection of broker-dealer firms that
buy and sell securities for mutual fund investment portfolios. The

The American Funds Tax-Exempt Series I -- Page 52
<PAGE>

complaint seeks sanctions, restitution and disgorgement. On August 30, 2006, the
NASD Hearing Panel ruled against the Principal Underwriter and imposed a $5
million fine. The Principal Underwriter has appealed this decision to the NASD's
National Adjudicatory Council.

On March 24, 2005, the investment adviser and Principal Underwriter filed a
complaint against the Attorney General of the State of California in Los Angeles
County Superior Court. The complaint alleged that the Attorney General
threatened to take enforcement actions against the investment adviser and
Principal Underwriter that are without merit and preempted by federal law. On
the same day, following the filing of the investment adviser's and Principal
Underwriter's complaint, the Attorney General of the State of California filed a
complaint against the Principal Underwriter and investment adviser. Filed in Los
Angeles County Superior Court, the Attorney General's complaint alleged
violations of certain sections of the California Corporations Code with respect
to so-called "revenue sharing" disclosures in mutual fund prospectuses and
statements of additional information. On November 22, 2005, the Los Angeles
Superior Court dismissed the Attorney General's complaint. The Attorney General
subsequently appealed the Superior Court's decision to California's Court of
Appeal for the Second Appellate District. On January 26, 2007, the Court of
Appeal issued a ruling allowing the California Attorney General to proceed with
his civil action.

The investment adviser and Principal Underwriter believe that the likelihood
that these matters could have a material adverse effect on the fund or on the
ability of the investment adviser or Principal Underwriter to perform their
contracts with the fund is remote. In addition, class action lawsuits have been
filed in the U.S. District Court, Central District of California, relating to
these matters. The investment adviser believes that these suits are without
merit and will defend itself vigorously. Further updates on these issues will be
available on the American Funds website (americanfunds.com) under "American
Funds regulatory matters."

DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE
PER SHARE FOR CLASS A SHARES -- JULY 31, 2007

THE TAX-EXEMPT THE TAX-EXEMPT
FUND OF MARYLAND FUND OF VIRGINIA
-------------------------------------------------------------------------------------

Net asset value and redemption price per share
(Net assets divided by shares outstanding). $15.76 $16.30
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) . . . . . . . . . . . . . . . $16.37 $16.94

OTHER INFORMATION -- The fund reserves the right to modify the privileges
described in this statement of additional information at any time.

The financial statements including the investment portfolio and the report of
the fund's independent registered public accounting firm contained in the annual
report are included in this statement of additional information. The following
information is not included in the annual report:

The American Funds Tax-Exempt Series I -- Page 53
<PAGE>

FUND NUMBERS -- Here are the fund numbers for use with our automated phone line,
American FundsLine/(R)/, or when making share transactions:

FUND NUMBERS
-----------------------------------------------
FUND CLASS A CLASS B CLASS C CLASS F CLASS R-5
-------------------------------------------------------------------------------

STOCK AND STOCK/BOND FUNDS
AMCAP Fund/(R)/ . . . . . . . 02 202 302 402 2502
American Balanced Fund/(R)/ . 11 211 311 411 2511
American Mutual Fund/(R)/ . . 03 203 303 403 2503
Capital Income Builder/(R)/ . 12 212 312 412 2512
Capital World Growth and
Income Fund/SM/ . . . . . . . 33 233 333 433 2533
EuroPacific Growth Fund/(R)/ 16 216 316 416 2516
Fundamental Investors/SM/ . . 10 210 310 410 2510
The Growth Fund of America/SM/ 05 205 305 405 2505
The Income Fund of
America/(R)/. . . . . . . . . 06 206 306 406 2506
The Investment Company of
America/(R)/. . . . . . . . . 04 204 304 404 2504
The New Economy Fund/(R)/ . . 14 214 314 414 2514
New Perspective Fund/(R)/ . . 07 207 307 407 2507
New World Fund/SM/ . . . . . 36 236 336 436 2536
SMALLCAP World Fund/(R)/ . . 35 235 335 435 2535
Washington Mutual Investors
Fund/SM/ . . . . . . . . . . 01 201 301 401 2501
BOND FUNDS
American High-Income Municipal
Bond Fund/(R)/ . . . . . . . 40 240 340 440 2540
American High-Income Trust/SM/ 21 221 321 421 2521
The Bond Fund of America/SM/ 08 208 308 408 2508
Capital World Bond Fund/(R)/ 31 231 331 431 2531
Intermediate Bond Fund of
America/(R)/ . . . . . . . . 23 223 323 423 2523
Limited Term Tax-Exempt Bond
Fund of America/SM/ . . . . . 43 243 343 443 2543
Short-Term Bond Fund of
America/SM/ . . . . . . . . . 48 248 348 448 2548
The Tax-Exempt Bond Fund of
America/(R)/. . . . . . . . . 19 219 319 419 2519
The Tax-Exempt Fund of
California/(R)/*. . . . . . . 20 220 320 420 2520
The Tax-Exempt Fund of
Maryland/(R)/*. . . . . . . . 24 224 324 424 2524
The Tax-Exempt Fund of
Virginia/(R)/*. . . . . . . . 25 225 325 425 2525
U.S. Government Securities
Fund/SM/. . . . . . . . . . . 22 222 322 422 2522
MONEY MARKET FUNDS
The Cash Management Trust of
America/(R)/. . . . . . . . . 09 209 309 409 2509
The Tax-Exempt Money Fund of
America/SM/ . . . . . . . . . 39 N/A N/A N/A 2539
The U.S. Treasury Money Fund
of America/SM/ . . . . . . . 49 N/A N/A N/A 2549
___________
*Qualified for sale only in certain jurisdictions.

The American Funds Tax-Exempt Series I -- Page 54
<PAGE>

APPENDIX

The following descriptions of debt security ratings are based on information
provided by Moody's Investors Service and Standard & Poor's Corporation.

DESCRIPTION OF BOND RATINGS

MOODY'S
MUNICIPAL LONG-TERM RATING DEFINITIONS

Aaa
Issuers or issues rated Aaa demonstrate the strongest creditworthiness relative
to other US municipal or tax-exempt issuers or issues.

A
Issuers or issues rated A present above-average creditworthiness relative to
other US municipal or tax-exempt issuers or issues.

Baa
Issuers or issues rated Baa represent average creditworthiness relative to other
US municipal or tax-exempt issuers or issues.

Ba
Issuers or issues rated Ba demonstrate below-average creditworthiness relative
to other US municipal or tax-exempt issuers or issues.

B
Issuers or issues rated B demonstrate weak creditworthiness relative to other US
municipal or tax-exempt issuers or issues.

Caa
Issuers or issues rated Caa demonstrate very weak creditworthiness relative to
other US municipal or tax-exempt issuers or issues.

Ca
Issuers or issues rated Ca demonstrate extremely weak creditworthiness relative
to other US municipal or tax-exempt issuers or issues.

C
Issuers or issues rated C demonstrate the weakest creditworthiness relative to
other US municipal or tax-exempt issuers or issues.

NOTE: Moody's appends numerical modifiers 1, 2, and 3 to each generic rating
category from Aa through Caa. The modifier 1 indicates that the issuer or
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.

The American Funds Tax-Exempt Series I -- Page 55
<PAGE>

STANDARD & POOR'S
LONG-TERM ISSUE CREDIT RATINGS

AAA
An obligation rated AAA has the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.

AA
An obligation rated AA differs from the highest-rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.

A
An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB
An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

BB, B, CCC, CC, AND C
Obligations rated BB, B, CCC, CC, and C are regarded as having significant
speculative characteristics. BB indicates the least degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.

BB
An obligation rated BB is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.

B
An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.

CCC
An obligation rated CCC is currently vulnerable to nonpayment and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.

CC
An obligation rated CC is currently highly vulnerable to nonpayment.

The American Funds Tax-Exempt Series I -- Page 56
<PAGE>

C
The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.

D
An obligation rated D is in payment default. The D rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless Standard & Poor's 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 or the taking of a similar action if
payments on an obligation are jeopardized.

PLUS (+) OR MINUS (-)
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.

DESCRIPTION OF NOTE RATINGS

MOODY'S
MUNICIPAL SHORT-TERM DEBT RATINGS

MIG 1
This designation denotes superior credit quality. Excellent protection is
afforded by established cash flows, highly reliable liquidity support, or
demonstrated broad-based access to the market for refinancing.

MIG 2
This designation denotes strong credit quality. Margins of protection are ample,
although not as large as in the preceding group.

MIG 3
This designation denotes acceptable credit quality. Liquidity and cash-flow
protection may be narrow, and market access for refinancing is likely to be less
well-established.

SG
This designation denotes speculative-grade credit quality. Debt instruments in
this category may lack sufficient margins of protection.

STANDARD & POOR'S
SHORT-TERM ISSUE CREDIT RATINGS

SP-1
Strong capacity to pay principal and interest. An issue determined to possess a
very strong capacity to pay debt service is given a plus (+) designation.

SP-2
Satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.

SP-3
Speculative capacity to pay principal and interest.

The American Funds Tax-Exempt Series I -- Page 57
<PAGE>

DESCRIPTION OF COMMERCIAL PAPER RATINGS

MOODY'S
COMMERCIAL PAPER RATINGS (HIGHEST THREE RATINGS)

P-1
Issuers (or supporting institutions) rated Prime-1 have a superior ability to
repay short-term debt obligations.

P-2
Issuers (or supporting institutions) rated Prime-2 have a strong ability to
repay short-term debt obligations.

P-3
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to
repay short-term obligations.

STANDARD & POOR'S
COMMERCIAL PAPER RATINGS (HIGHEST THREE RATINGS)

A-1
A short-term obligation rated A-1 is rated in the highest category by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.

A-2
A short-term obligation rated A-2 is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.

A-3
A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

The American Funds Tax-Exempt Series I -- Page 58

The Tax-Exempt Fund of Maryland
Investment portfolio
July 31, 2007

	Principal amount	Market value
Bonds & notes — 95.32%	(000))	(000)

MARYLAND — 87.50%
State issuers — 45.14%
Community Dev. Administration, Dept. of Housing and Community Dev., Housing Rev. Bonds, GNMA Collateralized, Series 2002-B, AMT, 4.85% 2022	$2,000	$1,993
Community Dev. Administration, Dept. of Housing and Community Dev., Housing Rev. Bonds, Series 2007-A, AMT, 4.85% 2037	2,650	2,578
Community Dev. Administration, Dept. of Housing and Community Dev., Residential Rev. Bonds, Series 1998-B, AMT, 5.00% 2008	1,610	1,625
Community Dev. Administration, Dept. of Housing and Community Dev., Residential Rev. Bonds, Series 1998-B, AMT, 5.00% 2009	830	846
Community Dev. Administration, Dept. of Housing and Community Dev., Residential Rev. Bonds, Series 2001-H, AMT, 5.20% 2022	900	909
Community Dev. Administration, Dept. of Housing and Community Dev., Residential Rev. Bonds, Series 2006-F, AMT, 6.00% 2039	3,965	4,221
Community Dev. Administration, Dept. of Housing and Community Dev., Residential Rev. Bonds, Series 2006-L, AMT, 4.80% 2021	1,500	1,484
Community Dev. Administration, Dept. of Housing and Community Dev., Residential Rev. Bonds, Series 2006-P, AMT, 4.55% 2026	500	476
Community Dev. Administration, Dept. of Housing and Community Dev., Residential Rev. Bonds, Series 2007-D, AMT, 4.80% 2032	1,000	971
Community Dev. Administration, Dept. of Housing and Community Dev., Residential Rev. Bonds, Series D, AMT, 4.65% 2022	1,000	978
Community Dev. Administration, Dept. of Housing and Community Dev., Residential Rev. Bonds, Series H, AMT, 5.00% 2027	1,000	1,006
Community Dev. Administration, Dept. of Housing and Community Dev., Residential Rev. Bonds, Series I, AMT, 6.00% 2041	1,975	2,102
Econ. Dev. Corp., Lease Rev. Bonds (Aviation Administration Facs.), Series 2003, AMT, FSA insured, 5.25% 2012	1,000	1,055
Econ. Dev. Corp., Lease Rev. Bonds (Aviation Administration Facs.), Series 2003, AMT, FSA insured, 5.50% 2013	1,500	1,611
Econ. Dev. Corp., Lease Rev. Bonds (Aviation Administration Facs.), Series 2003, AMT, FSA insured, 5.50% 2015	2,000	2,137
Econ. Dev. Corp., Lease Rev. Bonds (Dept. of Transportation Headquarters Fac.), Series 2002, 5.00% 2014	1,755	1,847
Econ. Dev. Corp., Lease Rev. Bonds (Dept. of Transportation Headquarters Fac.), Series 2002, 5.375% 2019	1,500	1,594
Econ. Dev. Corp., Rev. Bonds (Anne Arundel County, Golf Course System), Series 2001, 8.25% 2028 (preref. 2011)	1,940	2,226
Econ. Dev. Corp., Rev. Ref. Bonds (Chesapeake Bay Conference Center Project), Series 2006-A, 4.75% 2011	1,000	996
Econ. Dev. Corp., Student Housing Rev. Bonds (Towson University Project), Series 2007-A, 5.25% 2024	1,000	1,013
Econ. Dev. Corp., Student Housing Rev. Bonds (Towson University Project), Series 2007-A, 5.25% 2037	3,265	3,274
Econ. Dev. Corp., Student Housing Rev. Ref. Bonds (University of Maryland, Baltimore County Project), Series 2006, XLCA insured, 5.00% 2020	600	633
Econ. Dev. Corp., Student Housing Rev. Ref. Bonds (University of Maryland, College Park Projects), Series 2006, CIFG insured, 5.00% 2020	1,000	1,055
Econ. Dev. Corp., Student Housing Rev. Ref. Bonds (University of Maryland, College Park Projects), Series 2006, CIFG insured, 5.00% 2021	1,000	1,054
Econ. Dev. Corp., Student Housing Rev. Ref. Bonds (University of Maryland, College Park Projects), Series 2006, CIFG insured, 5.00% 2026	1,000	1,045
Econ. Dev. Corp., Utility Infrastructure Rev. Bonds (University of Maryland, College Park Project), Series 2001, AMBAC insured, 5.25% 2011	3,355	3,527

	Principal amount	Market value
Bonds & notes	(000)	(000)

MARYLAND — State Issuers (continued)
Econ. Dev. Corp., Utility Infrastructure Rev. Bonds (University of Maryland, College Park Project), Series 2001, AMBAC insured, 5.375% 2015	$2,190	$2,310
Energy Fncg. Administration, Limited Obligation Solid Waste Disposal Rev. Bonds (Wheelabrator Water Technologies Baltimore LLC Projects), Series 1996, AMT, 6.30% 2010	2,885	2,947
G.O. Bonds, State and Local Facs., First Series Loan of 2000, Series H, 5.50% 2010	2,000	2,103
G.O. Bonds, State and Local Facs., First Series Loan of 2001, Series H, 5.50% 2011	1,000	1,060
G.O. Bonds, State and Local Facs., First Series Loan of 2003, Capital Improvement Bonds, Series A, 5.25% 2016	1,500	1,646
G.O. Bonds, State and Local Facs., Second Series Loan of 2002, Series B, 5.25% 2009	1,000	1,023
G.O. Bonds, State and Local Facs., Second Series Loan of 1999, Series X, 5.25% 2012 (preref. 2009)	2,000	2,077
Health and Higher Educational Facs. Auth., First Mortgage Rev. Bonds (PUMH of Maryland, Inc. — Heron Point of Chestertown Issue), Series 1998-A, 5.75% 2019	1,500	1,515
Health and Higher Educational Facs. Auth., First Mortgage Rev. Bonds (PUMH of Maryland, Inc. — Heron Point of Chestertown Issue), Series 1998-A, 5.75% 2026	1,640	1,652
Health and Higher Educational Facs. Auth., Parking Rev. Bonds (Johns Hopkins Medical Institutions Parking Facs. Issue), Series 2001, AMBAC insured, 5.00% 2034	880	899
Health and Higher Educational Facs. Auth., Rev. Bonds (Anne Arundel Medical Center Issue), Series 1998, FSA insured, 5.125% 2028	1,000	1,019
Health and Higher Educational Facs. Auth., Rev. Bonds (Carroll Hospital Center Issue), Series 2006, 4.50% 2026	1,000	932
Health and Higher Educational Facs. Auth., Rev. Bonds (Carroll Hospital Center Issue), Series 2006, 5.00% 2036	1,000	986
Health and Higher Educational Facs. Auth., Rev. Bonds (Edenwald Issue), Series 2006-A, 5.40% 2031	1,000	1,018
Health and Higher Educational Facs. Auth., Rev. Bonds (Edenwald Issue), Series 2006-A, 5.40% 2037	2,500	2,532
Health and Higher Educational Facs. Auth., Rev. Bonds (Good Samaritan Hospital Issue), Series 1993, 5.70% 2009 (escrowed to maturity)	1,000	1,024
Health and Higher Educational Facs. Auth., Rev. Bonds (Howard County General Hospital Issue), Series 1993, 5.50% 2013 (escrowed to maturity)	1,325	1,354
Health and Higher Educational Facs. Auth., Rev. Bonds (Howard County General Hospital Issue), Series 1993, 5.50% 2021 (escrowed to maturity)	1,000	1,012
Health and Higher Educational Facs. Auth., Rev. Bonds (Kaiser Permanente), Series 1998-A, 5.375% 2015	1,000	1,026
Health and Higher Educational Facs. Auth., Rev. Bonds (LifeBridge Health Issue), Series 2004-A, 5.00% 2012	1,000	1,038
Health and Higher Educational Facs. Auth., Rev. Bonds (LifeBridge Health Issue), Series 2004-A, 5.00% 2014	2,450	2,558
Health and Higher Educational Facs. Auth., Rev. Bonds (LifeBridge Health Issue), Series 2004-A, 5.25% 2018	1,000	1,042
Health and Higher Educational Facs. Auth., Rev. Bonds (Medlantic/Helix Issue), Series 1998-B, AMBAC insured, 5.25% 2038	1,500	1,670
Health and Higher Educational Facs. Auth., Rev. Bonds (Mercy Ridge Issue), Series 2003-A, 6.00% 2035 (preref. 2013)	2,000	2,223
Health and Higher Educational Facs. Auth., Rev. Bonds (Mercy Ridge Issue), Series 2003-B, 5.00% 2008	1,000	1,008
Health and Higher Educational Facs. Auth., Rev. Bonds (Mercy Ridge Issue), Series 2007, 4.50% 2022	1,065	1,010
Health and Higher Educational Facs. Auth., Rev. Bonds (Mercy Ridge Issue), Series 2007, 4.75% 2034	3,090	2,913
Health and Higher Educational Facs. Auth., Rev. Bonds (Mercy Ridge Issue), Series 2007, 4.50% 2035	1,000	894
Health and Higher Educational Facs. Auth., Rev. Bonds (Peninsula Regional Medical Center Issue), Series 2006, 5.00% 2021	1,000	1,025
Health and Higher Educational Facs. Auth., Rev. Bonds (Peninsula Regional Medical Center Issue), Series 2006, 5.00% 2036	4,500	4,506
Health and Higher Educational Facs. Auth., Rev. Bonds (Suburban Hospital Issue), Series 2004-A, 5.00% 2008	1,500	1,516
Health and Higher Educational Facs. Auth., Rev. Bonds (University of Maryland Medical System Issue), Series 2000, 6.75% 2030 (preref. 2010)	2,000	2,181
Health and Higher Educational Facs. Auth., Rev. Bonds (University of Maryland Medical System Issue), Series 2006-A, 5.00% 2036	2,000	2,001
Health and Higher Educational Facs. Auth., Rev. Bonds (Washington Christian Academy Issue), Series 2006, 5.25% 2018	250	250
Health and Higher Educational Facs. Auth., Rev. Bonds (Washington Christian Academy Issue), Series 2006, 5.50% 2038	1,200	1,202
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (Adventist HealthCare Issue), Series 2003-A, 5.00% 2012	1,000	1,020
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (Adventist HealthCare Issue), Series 2003-A, 5.75% 2025	1,000	1,047
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (Johns Hopkins University Issue), Series 1998, 5.25% 2014	1,375	1,420
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (Johns Hopkins University Issue), Series 2001-A, 5.00% 2011	1,000	1,043
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (Johns Hopkins University Issue), Series 2001-A, 5.00% 2013	1,000	1,041
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (Johns Hopkins University Issue), Series 2002-A, 5.00% 2032	1,000	1,027
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (MedStar Health Issue), Series 2004, 5.00% 2013	1,000	1,038
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (MedStar Health Issue), Series 2004, 5.75% 2015	500	541
	Principal amount	Market value
Bonds & notes	(000)	(000)

MARYLAND — State Issuers (continued)
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (MedStar Health Issue), Series 2004, 5.75% 2016	$3,500	$3,770
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (MedStar Health Issue), Series 2004, 5.50% 2033	1,000	1,038
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (Mercy Medical Center Issue), Series 1996, FSA insured, 6.50% 2013	2,000	2,173
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (Roland Park Place Issue), Series 1999, 5.50% 2014	525	525
Industrial Dev. Fncg. Auth., Econ. Dev. Rev. Bonds (Our Lady of Good Counsel High School Fac.), Series 2005-A, 6.00% 2035	1,000	1,061
Morgan State University, Academic Fees and Auxiliary Facs. Fees Rev. Bonds, Series 2003-A, FGIC insured, 5.00% 2020	1,375	1,436
Dept. of Transportation, Consolidated Transportation Bonds, Series 2002, 5.50% 2017	2,000	2,229
Dept. of Transportation, Consolidated Transportation Bonds, Series 2003, 5.25% 2014	4,000	4,344
Dept. of Transportation, Consolidated Transportation Bonds, Series 2003, 5.00% 2015	1,500	1,608
Dept. of Transportation, Consolidated Transportation Bonds, Series 2004, 5.00% 2018	1,000	1,050
Dept. of Transportation, Project Certs. of Part. (Mass Transit Administration Project), Series 2000, AMT, 5.00% 2008	1,415	1,435
Transportation Auth., Airport Parking Rev. Bonds (Baltimore/Washington International Airport Projects), Series 2002-B, AMT, AMBAC insured, 5.375% 2015	2,000	2,116
University System, Auxiliary Fac. and Tuition Rev. Bonds, Series 2001-B, 4.00% 2013	1,000	1,006
University System, Auxiliary Fac. and Tuition Rev. Bonds, Series 2005-A, 5.00% 2018	2,000	2,113
University System, Auxiliary Fac. and Tuition Rev. Bonds, Series 2002-A, 5.125% 2022 (preref. 2012)	2,000	2,114
		133,623

City & County Issuers — 42.36%
City of Annapolis, Econ. Dev. Rev. Bonds (St. John’s College Fac.), Series 2007-B, 5.00% 2032	2,000	2,013
City of Annapolis, Special Obligation Bonds (Park Place Project), Series 2005-A, 5.35% 2034	2,000	2,019
City of Annapolis, Special Obligation Bonds (Park Place Project), Series 2005-B, 4.75% 2034	3,000	3,006
Anne Arundel County, G.O. Bonds (Consolidated General Improvements), Ref. Series 2006, 5.00% 2017	1,590	1,706
Anne Arundel County, G.O. Bonds (Consolidated General Improvements), Series 2005, 5.00% 2016	1,500	1,605
Anne Arundel County, G.O. Bonds (Consolidated Golf Course Project), Series 2005, 5.00% 2018	1,165	1,231
Anne Arundel County, G.O. Bonds (Consolidated Golf Course Project), Series 2005, 5.00% 2021	1,350	1,422
Anne Arundel County, G.O. Bonds, Series 2002, 5.25% 2012	1,000	1,062
Anne Arundel County, Special Obligation Bonds (Arundel Mills Project), Series 1999, 7.10% 2029 (preref. 2009)	1,985	2,141
Anne Arundel County, Special Obligation Bonds (National Business Park Project), Series 2000, 7.375% 2028 (preref. 2010)	1,500	1,669
Anne Arundel County, Tax Increment Fncg. Bonds (Parole Town Center Project), Series 2002, 5.00% 2012	1,120	1,129
Baltimore County, G.O. Bonds, Consolidated Public Improvement Bonds, Series 2002, 5.25% 2010	2,000	2,091
Baltimore County, G.O. Bonds, Consolidated Public Improvement Bonds, Series 2002, 5.25% 2015 (preref. 2012)	3,000	3,203
Baltimore County, G.O. Bonds, Metropolitan Dist. Bonds (67th Issue), 5.00% 2018 (preref. 2011)	1,500	1,581
Baltimore County, Rev. Bonds (Catholic Health Initiatives), Series 2006-A, 5.00% 2020	1,000	1,028
Baltimore County, Rev. Bonds (Catholic Health Initiatives), Series 2006-A, 4.50% 2033	700	672
Baltimore County, Rev. Bonds (Oak Crest Village, Inc. Fac.), Series 2007-A, 5.00% 2022	2,600	2,644
Baltimore County, Rev. Bonds (Oak Crest Village, Inc. Fac.), Series 2007-A, 5.00% 2037	3,000	2,952
Mayor and City Council of Baltimore, Convention Center Hotel Rev. Bonds, Series 2006-A, XLCA insured, 5.25% 2018	1,000	1,080
Mayor and City Council of Baltimore, Convention Center Hotel Rev. Bonds, Series 2006-A, XLCA insured, 5.25% 2019	1,000	1,078
Mayor and City Council of Baltimore, Convention Center Hotel Rev. Bonds, Series 2006-A, XLCA insured, 5.00% 2032	1,250	1,301
Mayor and City Council of Baltimore, Convention Center Hotel Rev. Bonds, Series 2006-B, 5.875% 2039	2,500	2,618
Mayor and City Council of Baltimore, Convertible Rev. Ref. Bonds (Baltimore City Parking System Facs.), Series 1996-A, FGIC insured, 5.90% 2009	1,500	1,559
Mayor and City Council of Baltimore, Project and Rev. Bonds (Wastewater Projects), Series 2005-B, MBIA insured, 5.00% 2021 (preref. 2015)	1,030	1,105
Mayor and City Council of Baltimore, Project and Rev. Ref. Bonds (Water Projects), Series 1994-A, FGIC insured, 5.00% 2024	410	442
Mayor and City Council of Baltimore, Project and Rev. Ref. Bonds (Water Projects), Series 2002-A, FGIC insured, 5.00% 2021	1,225	1,272
Mayor and City Council of Baltimore, Rev. Ref. Bonds (Wastewater Projects), Series 1994-A, FGIC insured, 6.00% 2015	1,500	1,644
Mayor and City Council of Brunswick, Special Obligation Bonds (Brunswick Crossing Special Taxing Dist.), Series 2006, 5.50% 2036	4,000	4,038
Calvert County, Econ. Dev. Rev. Ref. Bonds (Asbury-Solomons Island Fac.), Series 1997, MBIA insured, 5.00% 2009 (escrowed to maturity)	1,000	1,017
Carroll County, EMA Obligated Group Issue (Fairhaven and Copper Ridge), Rev. Ref. Bonds, Series 1999-A, ASSET GUARANTY insured, RADIAN insured, 5.50% 2019	1,265	1,298

	Principal amount	Market value
Bonds & notes	(000)	(000)

MARYLAND — City & County Issuers (continued)
Carroll County, G.O. Bonds, County of Commissioners of Carroll County, Consolidated Public Improvement Ref. Bonds (Delayed Delivery), Series 2003, 5.00% 2010	$ 500	$ 520
Frederick County, G.O. Public Facs. Bonds of 2000, 5.10% 2017 (preref. 2010)	1,000	1,051
Frederick County, G.O. Public Facs. Ref. Bonds of 2006, 5.25% 2021	1,000	1,113
Frederick County, Educational Facs. Rev. Bonds (Mount Saint Mary’s University), Series 2007, 4.50% 2025	1,000	925
Frederick County, Educational Facs. Rev. Bonds (Mount Saint Mary’s University), Series 2007, 5.00% 2030	2,000	1,969
Frederick County, Urbana Community Dev. Auth., Special Obligation Bonds, Series 1998, 6.625% 2025	3,000	3,064
Frederick County, Urbana Community Dev. Auth., Special Obligation Bonds, Series 2004-B, 5.95% 2030	1,000	1,021
Frederick County, Urbana Community Dev. Auth., Special Obligation Bonds, Series 2004-B, 6.25% 2030	1,436	1,466
City of Gaithersburg, Econ. Dev. Rev. Ref. Bonds (Asbury Maryland Obligated Group), Series 2006-A, 5.125% 2026	1,000	1,005
City of Gaithersburg, Econ. Dev. Rev. Ref. Bonds (Asbury Maryland Obligated Group), Series 2006-A, 5.125% 2036	3,420	3,369
Harford County, Consolidated Public Improvement Bonds, Series 2005, 5.00% 2020	1,000	1,056
Howard County, G.O. Consolidated Public Improvement Project and Ref. Bonds, Series 2002-A, 5.25% 2014	795	841
Howard County, G.O. Consolidated Public Improvement Project and Ref. Bonds, Series 2002-A, 5.25% 2014 (preref. 2012)	205	218
City of Hyattsville, Special Obligation Bonds (University Town Center Project), Series 2004, 5.75% 2034	3,650	3,759
Montgomery County Housing Opportunities Commission, Multi-family Housing Dev. Bonds, Series 2004-A, 4.65% 2030	2,670	2,640
Montgomery County Housing Opportunities Commission, Multi-family Housing Dev. Bonds,
Series 2007-A, AMT, 4.55% 2027	2,000	1,897
Montgomery County Housing Opportunities Commission, Multi-family Housing Dev. Bonds,
Series 2007-A, AMT, 4.625% 2032	765	721
Montgomery County Housing Opportunities Commission, Multi-family Housing Dev. Bonds, Series 2007-A, AMT, 4.70% 2037	1,350	1,278
Montgomery County Housing Opportunities Commission, Single-family Mortgage Rev. Bonds, Series 1998-B, 4.80% 2009	85	85
Montgomery County Housing Opportunities Commission, Single-family Mortgage Rev. Bonds, Series 1998-B, 4.90% 2010	70	71
Montgomery County, Econ. Dev. Corp., Lease Rev. Bonds (Town Square Parking Garage Project), Series 2002-A, 3.25% 2011	1,000	975
Montgomery County, Econ. Dev. Rev. Bonds (Trinity Health Credit Group), Series 2001, 5.50% 2016	1,000	1,056
Montgomery County, G.O. Consolidated Public Improvement Bonds, Series 2000-A, 5.30% 2013 (preref. 2010)	1,000	1,046
Montgomery County, G.O. Consolidated Public Improvement Bonds, Series 2001-A, 4.75% 2011	1,000	1,034
Montgomery County, G.O. Consolidated Public Improvement Bonds, Series 2001-A, 4.75% 2012	1,000	1,041
Montgomery County, G.O. Consolidated Public Improvement Bonds, Series 2001-A, 5.25% 2015	2,000	2,121
Montgomery County, Solid Waste Disposal System Rev. Ref. Bonds, Series 2003-A, AMBAC insured, 5.00% 2013	1,000	1,060
Montgomery County, Special Obligation Bonds (Kingsview Village Center Dev. Dist.), Series 1999, 6.90% 2021	2,145	2,266
Montgomery County, Special Obligation Bonds (West Germantown Dev. Dist.), Series 2002-A, RADIAN insured, 5.375% 2020	750	780
Montgomery County, Special Obligation Bonds (West Germantown Dev. Dist.), Series 2004-A, RADIAN insured, 6.70% 2027	1,660	1,843
Northeast Maryland Waste Disposal Auth., Solid Waste Rev. Ref. Bonds (Montgomery County Solid Waste Disposal System), Series 2003, AMT, AMBAC insured, 5.50% 2010	2,500	2,600
Northeast Maryland Waste Disposal Auth., Solid Waste Rev. Ref. Bonds (Montgomery County Solid Waste Disposal System), Series 2003, AMT, AMBAC insured, 5.50% 2016	1,000	1,062
Housing Auth. of Prince George’s County, Mortgage Rev. Bonds (GNMA Collateralized — Langley Gardens Apartments Project), Series 1997-A, AMT, 5.60% 2017	1,130	1,159
Housing Auth. of Prince George’s County, Mortgage Rev. Bonds (GNMA Collateralized — Windsor Crossing Apartments Project), Series 2002-A, AMT, 3.90% 2012	360	353
Housing Auth. of Prince George’s County, Mortgage Rev. Bonds (GNMA Collateralized — Windsor Crossing Apartments Project), Series 2002-A, AMT, 5.00% 2023	1,000	1,003
Industrial Dev. Auth. of Prince George’s County, Rev. Ref. Lease Bonds (Upper Marlboro Justice Center Project), Series 2003-A, MBIA insured, 5.00% 2014	1,500	1,587
Prince George’s County, Special Obligation Bonds (National Harbor Project), Series 2004, 4.70% 2015	1,900	1,886
Prince George’s County, Special Obligation Bonds (National Harbor Project), Series 2004, 5.20% 2034	4,000	3,968
Prince George’s County, Special Obligation Bonds (Woodview Village Infrastructure Improvements), Series 1997-A, 4.50% 2017	725	703
Prince George’s County, Special Obligation Bonds (Woodview Village Infrastructure Improvements), Series 1997-A, 4.60% 2021	1,660	1,600
Prince George’s County, Special Obligation Bonds (Woodview Village Infrastructure Improvements), Series 1997-A, 4.70% 2026	1,545	1,487
Prince George’s County, Special Obligation Ref. Bonds (Woodview Village Phase II Infrastructure Improvements), Series 2006, RADIAN insured, 5.00% 2026	1,000	1,014
Prince George’s County, Special Tax Dist. Bonds (Victoria Falls Project), Series 2005, 5.25% 2035	3,700	3,706
	Principal amount	Market value
Bonds & notes	(000)	(000)

MARYLAND — City & County Issuers (continued)
City of Salisbury, Special Obligation Bonds (Villages at Aydelotte Farm Project), Series 2007, 5.25% 2037	$1,775	$ 1,732
Washington Suburban Sanitary Dist., Montgomery and Prince George’s Counties, G.O. Ref. Bonds of 1997, 5.75% 2017	1,510	1,720
Washington Suburban Sanitary Dist., Montgomery and Prince George’s Counties, G.O. Water Supply Bonds of 2005, 5.00% 2019	1,000	1,062
Washington Suburban Sanitary Dist., Montgomery and Prince George’s Counties, G.O. Ref. Bonds of 2001, 4.50% 2015 (preref. 2011)	3,000	3,080
Westminster, Educational Facs. Rev. Bonds (McDaniel College, Inc.), Series 2006, 4.50% 2036	3,000	2,736
		125,375

DISTRICT OF COLUMBIA — 0.51%
Washington Metropolitan Area Transit Auth., Gross Transit Rev. Ref. Bonds, Series 1993, FGIC insured, 6.00% 2008	1,480	1,511


PUERTO RICO — 6.08%
Electric Power Auth., Power Rev. Ref. Bonds (Forward Delivery), Series QQ, XLCA insured, 5.50% 2015	1,000	1,105
Electric Power Auth., Power Rev. Ref. Bonds, Series UU, FSA insured, 4.111% 20291	1,500	1,491
Electric Power Auth., Rev. Ref. Bonds, Series GG, FSA insured, 4.75% 2021	1,020	1,041
Electric Power Auth., Rev. Ref. Bonds, Series KK, XLCA insured, 5.00% 2011	1,000	1,044
Highways and Transportation Auth., Highway Rev. Ref. Bonds, Series AA, FSA insured, 5.00% 2026 (put 2010)	500	517
Public Buildings Auth., Government Facs. Rev. Bonds, Series D, 5.25% 2027 (preref. 2012)	4,500	4,770
Public Fin. Corp., Commonwealth Appropriation Bonds, Series 2001-E, 6.00% 2026 (escrowed to maturity)	45	54
Public Fin. Corp., Commonwealth Appropriation Bonds, Series 2001-E, 6.00% 2026	455	550
Public Fin. Corp., Commonwealth Appropriation Bonds, Series 2004-A, 5.75% 2027 (put 2012)	3,755	3,980
Public Fin. Corp., Commonwealth Appropriation Bonds, Series 2004-A, FGIC insured, 5.25% 2031 (put 2012)	2,500	2,642
Sales Tax Fncg. Corp., Sales Tax Rev. Bonds, Series 2007-A, FGIC insured, 0% 2040	4,000	815
		18,009

VIRGIN ISLANDS — 1.23%
Public Fin. Auth., Rev. and Ref. Bonds (Matching Fund Loan Notes), Series 1998-A, 5.20% 2009	1,500	1,534
Public Fin. Auth., Rev. and Ref. Bonds (Matching Fund Loan Notes), Series 1998-A, 5.20% 2010	1,000	1,021
Public Fin. Auth., Rev. Bonds (Gross Receipts Taxes Loan Note), Series 2003-A, FSA insured, 5.25% 2017	1,000	1,074
		3,629


Total bonds & notes (cost: $280,192,000)		282,147


Short-term securities — 4.08%

Community Dev. Administration, Maryland Dept. of Housing and Community Dev., Multi-family Dev. Rev. Bonds (Barrington Apartments Project), Series 2003-A, AMT, 3.63% 20371	2,500	2,500
Health and Higher Educational Facs. Auth., Rev. Bonds (University of Maryland Medical System Issue), Series 2004-A, AMBAC insured, 3.61% 20231	1,800	1,800
Maryland Health and Higher Educational Facs. Auth., Rev. Bonds, University of Maryland Medical System Issue, Series 2006-E, 3.60% 20411	1,700	1,700
Maryland Health and Higher Educational Facs. Auth., Pooled Loan Program Rev. Bonds, Series 1994-D, 3.60% 20291	2,180	2,180
Maryland Econ. Dev. Corp., Multi-Modal Rev. Bonds (United States Pharmacopeial Project), Series 2004-A, AMBAC insured, 3.67% 20341	2,000	2,000
Maryland Econ. Dev. Corp., Rev. Bonds (Federation of American Societies for Experimental Biology Project), Series 2002-A, 3.70% 20301	600	600
Montgomery County, Maryland, Consolidated Public Improvement Bond Anticipation Notes, Series 2006-A, 3.67% 20261,2	1,300	1,300


Total short-term securities (cost: $12,080,000)		12,080


Total investment securities (cost: $292,272,000)		294,227
Other assets less liabilities		1,788

Net assets		$296,015

1 Coupon rate may change periodically; the date of the next scheduled coupon rate change is considered to be the maturity date.
2 This security, or a portion of this security, has been segregated to cover funding requirements on investment transactions settling in the future.


Key to abbreviations

Agcy. = Agency
AMT = Alternative Minimum Tax
Auth. = Authority
Certs. 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
TECP = Tax Exempt Commercial Paper




Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so you may lose money.

Investors should carefully consider the investment objectives, risks, and expenses of the funds. This and other important information is contained in the funds’ prospectus, which should be read carefully before investing.

Financial statements

Statement of assets and liabilities at July 31, 2007
(dollars and shares in thousands, except per-share amounts)
Assets:
Investment securities at market (cost: $292,272)				$	294,227
Cash					34
Receivables for:
Sales of Fund’s shares	$	833
Interest		2,874			3,707
					297,968
Liabilities:
Payables for:
Purchases of investments		1,000
Repurchases of Fund’s shares		368
Dividends on Fund’s shares		313
Management services		82
Services provided by affiliates		178
Deferred trustees’ compensation		12
Other		—	*		1,953
Net assets at July 31, 2007				$	296,015

Net assets consist of:
Capital paid in on shares of beneficial interest				$	293,984
Undistributed net investment income					125
Accumulated net realized loss					(49)
Net unrealized appreciation					1,955
Net assets at July 31, 2007				$	296,015



Shares of beneficial interest issued and outstanding (unlimited shares authorized): 18,785 total shares outstanding
	Net assets	Shares outstanding	Net asset value per share†
Class A	$232,801	14,773	$15.76
Class B	15,781	1,001	15.76
Class C	27,505	1,746	15.76
Class F	14,473	919	15.76
Class R-5	5,455	346	15.76

* Amount less than one thousand. † Maximum offering price and redemption price per share were equal to the net asset value per share for all share classes, except for Class A, for which the maximum offering price per share was $16.37.

See Notes to Financial Statements

Statement of operations for the year ended July 31, 2007
(dollars in thousands)
Investment income:
Income:
Interest			$	12,714
Fees and expenses*:
Investment advisory services	$	570
Business management services		449
Distribution services		1,009
Transfer agent services		57
Administrative services		40
Reports to shareholders		35
Registration statement and prospectus		15
Postage, stationery and supplies		8
Trustees’ compensation		26
Auditing and legal		55
Custodian		1
Federal income taxes		1
Other state and local taxes	— †
Other		15
Total fees and expenses before waivers		2,281
Less waivers of fees and expenses:
Investment advisory services		57
Business management services		45
Total fees and expenses after waivers				2,179
Net investment income				10,535

Net realized gain and unrealized depreciation on investments
Net realized gain on investments				100
Net unrealized depreciation on investments				(2,654)
Net realized gain and unrealized depreciation on investments				(2,554)
Net increase in net assets resulting from operations			$	7,981

* Additional information related to class-specific fees and expenses is included in the Notes to Financial Statements.

† Amount less than one thousand.

Statements of changes in net assets
(dollars in thousands)

	Year ended July 31,
	2007		2006
Operations:
Net investment income	$	10,535	$	8,608
Net realized gain on investments		100		54
Net unrealized depreciation on investments		(2,654)		(3,770)
Net increase in net assets resulting from operations		7,981		4,892

Dividends paid or accrued to shareholders from net investment income		(10,509)		(8,627)

Net capital share transactions		45,694		34,351

Total increase in net assets		43,166		30,616

Net assets:
Beginning of year		252,849		222,233
End of year (including undistributed net investment income: $125 and $153, respectively)	$	296,015	$	252,849


See Notes to Financial Statements

The Tax-Exempt Fund of Virginia
Investment portfolio
July 31, 2007

	Principal amount	Market value
Bonds & notes — 96.46%	(000)	(000)

VIRGINIA — 85.10%
State Issuers — 31.32%
College Building Auth., Educational Facs. Rev. Bonds (21st Century College Program), Series 1998, 5.00% 2017 (preref. 2007)	$1,000	$1,010
College Building Auth., Educational Facs. Rev. Bonds (Public Higher Education Fncg. Program), Series 2002-A, 5.00% 2011	1,530	1,600
College Building Auth., Educational Facs. Rev. Bonds (Regent University Project), Series 2006, 5.00% 2026	4,000	4,020
College Building Auth., Educational Facs. Rev. Bonds (Regent University Project), Series 2006, 5.00% 2029	1,000	1,002
College Building Auth., Educational Facs. Rev. Bonds (Roanoke College), Series 2007, 5.00% 2023	1,000	1,042
College Building Auth., Educational Facs. Rev. Bonds (Roanoke College), Series 2007, 5.00% 2033	1,375	1,420
College Building Auth., Educational Facs. Rev. Bonds (University of Richmond Project), Series 2002-A, 5.00% 2032 (put 2009)	2,500	2,543
College Building Auth., Educational Facs. Rev. Bonds (Washington and Lee University Project), Series 2001, 5.375% 2021	1,000	1,116
College Building Auth., Educational Facs. Rev. Ref. Bonds (Hampden-Sydney College Project), Series 1998, MBIA insured, 5.00% 2016	500	511
College Building Auth., Educational Facs. Rev. Ref. Bonds (Hampton University Project), Series 2003, 5.00% 2013	1,000	1,053
College Building Auth., Educational Facs. Rev. Ref. Bonds (Hampton University Project), Series 2003, 5.00% 2014	1,815	1,920
Commonwealth Transportation Board, Federal Highway Reimbursement Anticipation Notes, Series 2000, 5.50% 2010	1,300	1,367
Commonwealth Transportation Board, Transportation Rev. Bonds (U.S. Route 58 Corridor Dev. Program), Series 1999-B, 5.50% 2013 (preref. 2009)	4,750	4,941
Housing Dev. Auth., Commonwealth Mortgage Bonds, Series 2001-J-1, MBIA insured, 4.55% 2010	1,000	1,016
Housing Dev. Auth., Commonwealth Mortgage Bonds, Series 2001-J-1, MBIA insured, 4.65% 2011	1,000	1,026
Housing Dev. Auth., Commonwealth Mortgage Bonds, Series 2004-A-1, AMT, 4.00% 2015	1,300	1,262
Housing Dev. Auth., Commonwealth Mortgage Bonds, Series 2007-A, Subseries A-1, AMT, 4.90% 2020	3,200	3,226
Housing Dev. Auth., Commonwealth Mortgage Bonds, Series 2007-B, AMT, 4.75% 2032	2,000	1,931
Housing Dev. Auth., Multi-family Housing Bonds, Series 1996-B, 5.95% 2016	710	726
Housing Dev. Auth., Multi-family Housing Bonds, Series 1997-B, AMT, 5.80% 2010	1,185	1,202
Housing Dev. Auth., Multi-family Housing Bonds, Series 1998-I, AMT, 4.60% 2009	1,320	1,336
Housing Dev. Auth., Multi-family Housing Bonds, Series 1998-I, AMT, 4.70% 2010	1,240	1,262
Housing Dev. Auth., Rental Housing Bonds, Series 2001-K, AMT, 5.00% 2017	825	839
Housing Dev. Auth., Rental Housing Bonds, Series 2006-B, AMT, 4.55% 2023	1,260	1,216
Northern Virginia Transportation Dist. Commission, Commuter Rail Rev. Ref. Bonds (Virginia Railway Express Project), Series 1998, FSA insured, 5.375% 2011	1,000	1,033
Northern Virginia Transportation Dist. Commission, Commuter Rail Rev. Ref. Bonds (Virginia Railway Express Project), Series 1998, FSA insured, 5.375% 2014	1,000	1,033
Peninsula Ports Auth., Health System Rev. Ref. Bonds (Riverside Health System Project), Series 1998, 5.00% 2008	1,200	1,214
Peninsula Ports Auth., Health System Rev. Ref. Bonds (Riverside Health System Project), Series 1998, 5.00% 2009	1,100	1,120
Port Auth., Commonwealth Port Fund Rev. Bonds (2002 Resolution), Series 2002, AMT, 5.00% 2012	1,000	1,044
Port Auth., Commonwealth Port Fund Rev. Bonds (2002 Resolution), Series 2002, AMT, 5.00% 2013	3,700	3,877
Port Auth., Commonwealth Port Fund Rev. Bonds (2002 Resolution), Series 2006, AMT, FSA insured, 5.50% 2015	2,885	3,137
Port Auth., Port Facs. Rev. Bonds, Series 2006, AMT, FGIC insured, 4.75% 2031	1,000	992
Port Auth., Port Facs. Rev. Ref. Bonds, Series 2007, AMT, FSA insured, 5.00% 2027	1,000	1,027
Public Building Auth., Public Facs. Rev. Bonds, Series 1998-B, 5.00% 2010 (preref. 2008)	1,000	1,013
Public Building Auth., Public Facs. Rev. Bonds, Series 2000-A, 5.75% 2016 (preref. 2010)	1,000	1,057
Public Building Auth., Public Facs. Rev. Ref. Bonds, Series 2005-A, 5.00% 2015	1,000	1,071
Public Building Auth., Public Facs. Rev. Ref. Bonds, Series 2005-A, 5.00% 2017	2,680	2,853

	Principal amount	Market value
Bonds & notes	(000)	(000)

VIRGINIA — State Issuers (continued)
Public School Auth., School Fncg. Bonds (1997 Resolution), Ref. Series 2005-A, 5.25% 2017	$1,000	$1,098
Public School Auth., School Fncg. Bonds (1997 Resolution), Ref. Series 2005-B, 5.25% 2017	1,000	1,099
Public School Auth., School Fncg. Bonds (1997 Resolution), Series 1998-A, 5.25% 2007	2,000	2,000
Public School Auth., School Fncg. Bonds (1997 Resolution), Series 1998-B, 4.50% 2009	2,880	2,924
Public School Auth., School Fncg. Bonds (1997 Resolution), Series 2002-A, 5.00% 2014	1,000	1,050
Public School Auth., School Fncg. Bonds (1997 Resolution), Series 2002-B, 4.00% 2009	1,500	1,508
Public School Auth., School Fncg. Bonds (1997 Resolution), Series 2005-D, 5.00% 2018	2,000	2,116
Public School Auth., School Fncg. Bonds (1997 Resolution), Series 1998-B, 4.50% 2009 (preref. 2008)	120	122
Resources Auth., Clean Water State Revolving Fund Rev. Bonds, Series 2000, 5.25% 2015 (preref. 2010)	1,000	1,045
Resources Auth., Infrastructure Rev. Bonds (Pooled Fncg. Program), Series 2006-A, 5.00% 2017	2,105	2,259
Resources Auth., Infrastructure Rev. Bonds (Pooled Loan Bond Program), Series 2002-A, 5.25% 2014	1,460	1,542
Resources Auth., Infrastructure Rev. Bonds (Pooled Loan Bond Program), Series 2003, 5.00% 2020	2,000	2,091
Resources Auth., Infrastructure Rev. Bonds (Pooled Loan Bond Program), Series 2003-B, AMT, MBIA insured, 5.00% 2016	1,000	1,043
Small Business Fncg. Auth., Educational Facs. Rev. Ref. Bonds (Mary Baldwin College), Series 2005, 4.75% 2017	1,485	1,468
Small Business Fin. Auth., Hospital Rev. Bonds (Wellmont Health System Project), Series 2007-A, 5.25% 2027	2,050	2,096
Southeastern Public Service Auth., Rev. Ref. Bonds, Series 1998, AMBAC insured, 5.00% 2015	4,825	5,115
Tobacco Settlement Fncg. Corp., Tobacco Settlement Asset-backed Bonds, Series 2005, 5.25% 2019 (preref. 2012)	2,000	2,080
Tobacco Settlement Fncg. Corp., Tobacco Settlement Asset-backed Bonds, Series 2005, 5.50% 2026 (preref. 2015)	3,000	3,252
Rector and Visitors of the University of Virginia, General Rev. Pledge Bonds, Series 2003-B, 5.00% 2016	1,000	1,053
Rector and Visitors of the University of Virginia, General Rev. Pledge Bonds, Series 2003-B, 5.00% 2017	1,480	1,558
Western Virginia Regional Jail Auth., Regional Jail Fac. Rev. Bonds, Series 2007, MBIA insured, 4.75% 2024	2,200	2,260
		97,837

CITY & COUNTY ISSUERS — 53.78%
Industrial Dev. Auth. of the Town of Abingdon, Hospital Fac. Rev. Ref. Bonds (Johnston Memorial Hospital), Series 1998, 5.00% 2008	1,015	1,024
Industrial Dev. Auth. of the Town of Abingdon, Hospital Fac. Rev. Ref. Bonds (Johnston Memorial Hospital), Series 1998, 5.00% 2009	1,020	1,037
Industrial Dev. Auth. of Albemarle County, Residential Care Fac. Mortgage Rev. Ref. Bonds (Westminster-Canterbury of the Blue Ridge), Series 2005, 5.25% 2032	2,000	2,009
Industrial Dev. Auth. of Albemarle County, Residential Care Fac. Mortgage Rev. Ref. Bonds (Westminster-Canterbury of the Blue Ridge), Series 2007, 5.00% 2031	1,000	976
Industrial Dev. Auth. of the Town of Amherst, Educational Facs. Rev. Ref. Bonds (Sweet Briar College), Series 2006, 5.00% 2026	1,000	1,005
Arlington County, G.O. Ref. Bonds, Series 1993, 6.00% 2011	1,000	1,080
Arlington County, G.O. Ref. Bonds, Series 1993, 6.00% 2012	1,000	1,098
Industrial Dev. Auth. of Arlington County, Alexandria/Arlington Waste-to-Energy Fac. Resource Recovery Rev. Bonds (Ogden Martin Systems of Alexandria/Arlington Inc. Project), Series 1998-B, AMT, FSA insured, 5.375% 2012	2,785	2,845
Industrial Dev. Auth. of the County of Charles City, Solid Waste Disposal Fac. Rev. Ref. Bonds (USA Waste of Virginia, Inc. Project), Series 1999, AMT, 4.875% 2009	3,100	3,111
City of Chesapeake, G.O. Public Improvement and Ref. Bonds, Series 2001, 5.50% 2009	1,300	1,351
City of Chesapeake, G.O. Public Improvement and Ref. Bonds, Series 2001, 5.50% 2011	1,500	1,602
City of Chesapeake, G.O. Ref. Bonds, Series 1993, 5.40% 2008	1,000	1,022
City of Chesapeake, G.O. School Ref. Bonds, Series 2003, 5.00% 2013	1,500	1,590
Chesterfield County, Water and Sewer Rev. Ref. Bonds, Series 1992, 6.375% 2009	330	331
City of Fairfax, G.O. School Bonds, Series 2004, 5.00% 2027	1,640	1,714
City of Fairfax Econ. Dev. Auth., Public Fac. Lease Rev. Bonds (City of Fairfax Public Improvement Projects), Series 2005, 5.00% 2024	3,000	3,130
Fairfax County Econ. Dev. Auth., Fairfax County Facs. Rev. Bonds (School Board Central Administration Building Project Phase I), Series 2005-A, 5.00% 2028	2,615	2,710
Fairfax County Econ. Dev. Auth., Lease Rev. Bonds (Joint Public Uses Complex Project), Series 2006, 5.00% 2024	3,795	3,983
Fairfax County Econ. Dev. Auth., Residential Care Facs. Mortgage Rev. Bonds (Goodwin House Incorporated), Series 2007, 5.00% 2027	1,000	998
Fairfax County Econ. Dev. Auth., Residential Care Facs. Mortgage Rev. Bonds (Goodwin House Incorporated), Series 2007, 5.125% 2037	2,000	1,988
Fairfax County Econ. Dev. Auth., Retirement Community Rev. Bonds (Greenspring Village, Inc. Fac.), Series 1999-A, 6.75% 2012 (preref. 2009)	500	538
Fairfax County Econ. Dev. Auth., Retirement Community Rev. Bonds (Greenspring Village, Inc. Fac.), Series 1999-A, 7.50% 2029 (preref. 2009)	2,500	2,726

	Principal amount	Market value
Bonds & notes	(000)	(000)

VIRGINIA — City & County Issuers (continued)
Fairfax County Econ. Dev. Auth., Retirement Community Rev. Ref. Bonds (Greenspring Village, Inc. Fac.), Series 2006-A, 4.75% 2026	$2,500	$2,380
Fairfax County Econ. Dev. Auth., Retirement Community Rev. Ref. Bonds (Greenspring Village, Inc. Fac.), Series 2006-A, 4.875% 2036	3,000	2,856
Fairfax County Industrial Dev. Auth., Health Care Rev. Ref. Bonds (Inova Health Systems Project), Series 1998-A, 5.00% 2011	1,500	1,520
Fairfax County Industrial Dev. Auth., Hospital Rev. Ref. Bonds (Inova Health System Hospitals Project), Series 1993-A, 5.00% 2007	750	750
Fairfax County Industrial Dev. Auth., Hospital Rev. Ref. Bonds (Inova Health System Hospitals Project), Series 1993-A, 5.00% 2011	1,000	1,041
Fairfax County Industrial Dev. Auth., Hospital Rev. Ref. Bonds (Inova Health System Hospitals Project), Series 1993-A, 5.25% 2019	2,500	2,676
Fairfax County Industrial Dev. Auth., Hospital Rev. Ref. Bonds (Inova Health System Hospitals Project), Series 1993-A, FSA insured, 5.25% 2019	1,000	1,083
Fairfax County Redev. and Housing Auth., Multi-family Housing Rev. Bonds (FHA-Insured Mortgage — Cedar Ridge Project), Series 2007, AMT, 4.75% 2038	3,775	3,602
Fairfax County Redev. and Housing Auth., Multi-family Housing Rev. Bonds (Grand View Apartments Project), Series 1998-A, 5.05% 2010	615	627
Fairfax County Water Auth., Water Rev. Ref. Bonds, Series 1997, 5.00% 2021	1,000	1,085
Fairfax County Water Auth., Water Rev. Ref. Bonds, Series 2005-B, 5.25% 2019	1,000	1,103
City of Fredericksburg, Rev. Bonds (MediCorp Health System Obligated Group), Series 2002-B, 5.25% 2027	1,500	1,524
Econ. Dev. Auth. of the City of Fredericksburg, Hospital Facs. Rev. and Ref. Bonds (MediCorp Health System Obligated Group), Series 2007, 5.00% 2015	1,500	1,557
Econ. Dev. Auth. of the City of Fredericksburg, Hospital Facs. Rev. and Ref. Bonds (MediCorp Health System Obligated Group), Series 2007, 5.25% 2021	2,000	2,110
Econ. Dev. Auth. of Stafford County, Hospital Facs. Rev. Bonds (MediCorp Health System Obligated Group), Series 2006, 5.25% 2025	1,000	1,030
H2O Community Dev. Auth., Special Assessment Bonds, Series 2007, 5.20% 2037	3,440	3,356
City of Hampton, Convention Center Rev. Bonds, Series 2002, AMBAC insured, 5.25% 2014	1,000	1,064
City of Hampton, Convention Center Rev. Bonds, Series 2002, AMBAC insured, 5.25% 2015	1,500	1,593
City of Hampton, G.O. Public Improvement Ref. Bonds, Series 1998, 5.00% 2013	2,240	2,366
City of Hampton, G.O. Public Improvement Ref. Bonds, Series 1998, 5.00% 2014	1,000	1,063
City of Hampton, G.O. Public Improvement Ref. Bonds, Series 2000, 5.25% 2011	1,000	1,046
City of Hampton, Museum Rev. Ref. Bonds, Series 2004, 4.00% 2009	500	501
City of Hampton, Museum Rev. Ref. Bonds, Series 2004, 5.00% 2012	1,220	1,266
City of Hampton, Public Improvement Bonds, Series 2005-A, FGIC insured, 5.00% 2022	1,640	1,729
Industrial Dev. Auth. of County of Hanover, Hospital Rev. Bonds (Memorial Regional Medical Center Project at Hanover Medical Park), Series 1995, MBIA insured, 6.50% 2010	1,375	1,475
Industrial Dev. Auth. of County of Hanover, Hospital Rev. Bonds (Memorial Regional Medical Center Project at Hanover Medical Park), Series 1995, MBIA insured, 6.375% 2018	1,500	1,720
Industrial Dev. Auth. of the City of Harrisonburg, Hospital Facs. Rev. Bonds (Rockingham Memorial Hospital), Series 2006, AMBAC insured, 4.00% 2018	1,170	1,128
Econ. Dev. Auth. of Henrico County, Residential Care Fac. Mortgage Rev. Ref. Bonds (Westminster Canterbury of Richmond), Series 2006, 5.00% 2027	1,000	988
Econ. Dev. Auth. of Henrico County, Residential Care Fac. Mortgage Rev. Ref. Bonds (Westminster Canterbury of Richmond), Series 2006, 5.00% 2035	1,850	1,791
Henrico County, Water and Sewer System Rev. Bonds, Series 2006-A, 5.00% 2025	2,945	3,095
Henrico County, Water and Sewer System Rev. Ref. Bonds, Series 2002, 4.625% 2013	580	603
Industrial Dev. Auth. of the County of Henrico, Solid Waste Disposal Rev. Bonds (Browning-Ferris Industries of South Atlantic, Inc. Project), Series 1996-A, AMT, 5.45% 2014	1,000	1,005
Heritage Hunt Commercial Community Dev. Auth. (Prince William County), Special Assessment Bonds, Series 1999-A, 6.85% 2019	250	253
Heritage Hunt Commercial Community Dev. Auth. (Prince William County), Special Assessment Bonds, Series 1999-B, 7.00% 2029	438	459
Econ. Dev. Auth. of James City County, Lease Rev. Bonds (Public Fac. Projects), Series 2006, FSA insured, 5.00% 2021	1,000	1,061
Econ. Dev. Auth. of James City County, Residential Care Fac. First Mortgage Rev. and Ref. Bonds (Williamsburg Landing, Inc.), Series 2005, 5.35% 2026	2,250	2,264
Econ. Dev. Auth. of James City County, Residential Care Fac. First Mortgage Rev. and Ref. Bonds (Williamsburg Landing, Inc.), Series 2005, 5.50% 2034	750	757

	Principal amount	Market value
Bonds & notes	(000)	(000)

VIRGINIA — City & County Issuers (continued)
Community Dev. Auth. of Loudoun County, Special Assessment Bonds (Dulles Town Center Project), Series 1998, 6.25% 2026	$2,455	$2,525
Industrial Dev. Auth. of Loudoun County, Residential Care Fac. Rev. Ref. Bonds, (Falcons Landing Project), Series 2004-A, 6.00% 2024	2,000	2,110
Loudoun County Sanitation Auth., Water and Sewer System Rev. Bonds, Series 2000, FSA insured, 5.00% 2014 (preref. 2011)	1,185	1,242
Loudoun County Sanitation Auth., Water and Sewer System Rev. Bonds, Series 2007, 5.00% 2021	500	531
Loudoun County, G.O. Public Improvement and Ref. Bonds, Series 2002-A, 5.00% 2012	1,795	1,891
Loudoun County, G.O. Public Improvement Bonds, Series 2001-B, 5.00% 2012 (preref. 2010)	1,000	1,039
Loudoun County, G.O. Public Improvement Bonds, Series 2001-B, 5.25% 2015 (preref. 2011)	500	528
Industrial Dev. Auth. of the City of Lynchburg, Residential Care Fac. Mortgage Rev. Ref. Bonds (Westminster-Canterbury of Lynchburg), Series 2007, 5.00% 2031	500	483
City of Manassas, G.O. Bonds, Series 1997-A, 5.00% 2013 (preref. 2008)	500	513
New Port Community Dev. Auth., Special Assessment Bonds, Series 2006, 5.50% 2026	2,325	2,384
New Port Community Dev. Auth., Special Assessment Bonds, Series 2006, 5.60% 2036	2,000	2,046
City of Newport News, G.O. General Improvement Bonds, Series 2004-A, 5.00% 2020	1,000	1,052
City of Newport News, G.O. General Improvement Ref. Bonds, Series 2003-A, 5.00% 2010	1,000	1,033
City of Newport News, G.O. General Improvement Ref. Bonds, Series 2007-B, 5.25% 2022	1,805	2,004
Econ. Dev. Auth. of the City of Newport News, Econ. Dev. Rev. Bonds, Series 2006, 5.00% 2023	1,110	1,171
Econ. Dev. Auth. of the City of Newport News, Econ. Dev. Rev. Bonds, Series 2006, 5.00% 2024	1,085	1,143
Norfolk Airport Auth., Airport Rev. Bonds, Series 2001-B, AMT, FGIC insured, 5.375% 2014	1,485	1,550
Norfolk Airport Auth., Airport Rev. Bonds, Series 2001-B, AMT, FGIC insured, 5.375% 2015	1,565	1,629
Econ. Dev. Auth. of the County of Powhatan, Lease Rev. Bonds (Virginia Capital Projects), Series 2007, AMBAC insured, 5.00% 2020	1,110	1,176
County of Prince William, Industrial Dev. Auth., Hospital Fac. Rev. Bonds (Potomac Hospital Corp. of Prince William), Series 2003, 5.00% 2013	1,000	1,038
Prince William County Service Auth., Water and Sewer System Rev. Ref. Bonds, Series 2003, 5.00% 2019	1,635	1,726
Prince William County Virginia Gateway Community Dev. Auth., Special Assessment Bonds, Series 1999, 6.25% 2026	2,227	2,321
Reynolds Crossing Community Dev. Auth. (Henrico County), Special Assessment Rev. Bonds (Reynolds Crossing Project), Series 2007, 5.10% 2021	2,000	1,996
City of Richmond, Public Utility Rev. and Ref. Bonds, Series 2007-A, FSA insured, 4.50% 2022	500	503
City of Richmond, Public Utility Rev. and Ref. Bonds, Series 2007-A, FSA insured, 4.50% 2026	1,000	996
City of Richmond, Public Utility Rev. and Ref. Bonds, Series 2007-A, FSA insured, 4.50% 2033	1,500	1,465
City of Richmond, G.O. Public Improvement Ref. Bonds, Series 2001, FGIC insured, 5.375% 2015 (preref. 2011)	1,000	1,067
City of Richmond, Public Utility Rev. Ref. Bonds, Series 1998-A, 5.25% 2009 (preref. 2008)	1,500	1,525
Richmond Metropolitan Auth., Expressway Rev. and Ref. Bonds, Series 1998, FGIC insured, 5.25% 2012	1,000	1,065
Richmond Metropolitan Auth., Expressway Rev. and Ref. Bonds, Series 2002, FGIC insured, 5.25% 2017	1,120	1,227
Riverside Regional Jail Auth., Jail Fac. Rev. Bonds, Series 2003, MBIA insured, 5.00% 2015	1,000	1,061
Industrial Dev. Auth. of the City of Roanoke, Hospital Rev. Bonds (Carilion Health System Obligated Group), Series 2002-A, MBIA insured, 5.50% 2015	3,500	3,717
City of Salem, G.O. Public Improvement Ref. Bonds, Series 2007-A, 4.50% 2027	1,050	1,043
City of Suffolk, G.O. Public Improvement and Ref. Bonds, Series 2007, MBIA insured, 4.50% 2028	1,000	989
City of Virginia Beach Dev. Auth., Health Care Facs. Rev. Ref. Bonds (Sentara Health System), Series 1998, 5.25% 2011	1,000	1,025
City of Virginia Beach Dev. Auth., Hospital Rev. Bonds (Virginia Beach General Hospital Project), Series 1993, AMBAC insured, 5.125% 2018	2,200	2,350
City of Virginia Beach Dev. Auth., Hospital Rev. Bonds (Virginia Beach General Hospital Project), Series 1993, AMBAC insured, 6.00% 2011	1,000	1,068
City of Virginia Beach Dev. Auth., Public Fac. Rev. Bonds (Town Center Project Phase I), Series 2002-A, 5.00% 2021	2,000	2,076
City of Virginia Beach Dev. Auth., Public Fac. Rev. Bonds (Town Center Project Phase I), Series 2002-A, 5.375% 2017	1,500	1,590
City of Virginia Beach Dev. Auth., Public Fac. Rev. Bonds, Series 2007-A, 5.00% 2020	1,000	1,065
City of Virginia Beach, G.O. Public Improvement and Ref. Bonds, Series 2002, 5.00% 2015 (preref. 2012)	1,500	1,575
City of Virginia Beach, G.O. Public Improvement and Ref. Bonds, Series 2002, 5.00% 2016 (preref. 2012)	1,500	1,575
City of Virginia Beach, G.O. Public Improvement Bonds, Series 2001, 5.00% 2012 (preref. 2011)	2,425	2,552
City of Virginia Beach, G.O. Public Improvement Bonds, Series 2001, 5.00% 2013 (preref. 2011)	2,425	2,552
City of Virginia Beach, G.O. Public Improvement Ref. Bonds, Series 2004-B, 5.00% 2016	1,350	1,452
City of Virginia Beach, G.O. Public Improvement Ref. Bonds, Series 2004-B, 5.00% 2017	1,000	1,077
Westmoreland County Industrial Dev. Auth., Lease Rev. Bonds (Northumberland County School Project), Series 2006, MBIA insured, 5.00% 2022	1,215	1,281
Westmoreland County Industrial Dev. Auth., Lease Rev. Bonds (Northumberland County School Project), Series 2006, MBIA insured, 5.00% 2023	1,275	1,341

	Principal amount	Market value
Bonds & notes	(000)	(000)

VIRGINIA — City & County Issuers (continued)
Industrial Dev. Auth. of the City of Winchester, Hospital Rev. Bonds (Valley Health System Obligated Group), Series 2007, 5.00% 2026	$1,250	$ 1,270
Industrial Dev. Auth. of the City of Winchester, Residential Care Fac. Rev. Bonds (Westminster-Canterbury of Winchester, Inc.), Series 2005-A, 4.875% 2019	1,005	995
Industrial Dev. Auth. of the City of Winchester, Residential Care Fac. Rev. Bonds (Westminster-Canterbury of Winchester, Inc.), Series 2005-A, 5.20% 2027	1,000	989
Industrial Dev. Auth. of the City of Winchester, Residential Care Fac. Rev. Bonds (Westminster-Canterbury of Winchester, Inc.), Series 2005-A, 5.30% 2035	1,000	986
		168,003

DISTRICT OF COLUMBIA — 4.94%
Metropolitan Washington Airports Auth., Airport System Rev. and Ref. Bonds, Series 1998-B, AMT, MBIA insured, 5.25% 2010	1,000	1,025
Metropolitan Washington Airports Auth., Airport System Rev. Bonds, Series 2001-A, AMT, MBIA insured, 5.50% 2014	1,000	1,059
Metropolitan Washington Airports Auth., Airport System Rev. Bonds, Series 2005-A, AMT, MBIA insured, 5.25% 2017	1,000	1,064
Metropolitan Washington Airports Auth., Airport System Rev. Bonds, Series 2006-A, AMT, FSA insured, 5.00% 2032	1,000	1,020
Metropolitan Washington Airports Auth., Airport System Rev. Ref. Bonds, Series 2002-D, AMT, FSA insured, 5.375% 2013	1,000	1,059
Metropolitan Washington Airports Auth., Airport System Rev. Ref. Bonds, Series 2002-D, AMT, FSA insured, 5.375% 2014	1,000	1,057
Metropolitan Washington Airports Auth., Airport System Rev. Ref. Bonds, Series 2002-D, AMT, FSA insured, 5.375% 2016	1,995	2,097
Metropolitan Washington Airports Auth., Airport System Rev. Ref. Bonds, Series 2003-A, AMT, FGIC insured, 5.00% 2008	1,000	1,014
Metropolitan Washington Airports Auth., Airport System Rev. Ref. Bonds, Series 2004-C-1, AMT, FSA insured, 5.00% 2008	500	507
Metropolitan Washington Airports Auth., Airport System Rev. Ref. Bonds, Series 2004-D, AMT, MBIA insured, 5.25% 2012	1,000	1,057
Metropolitan Washington Airports Auth., Airport System Rev. Ref. Bonds, Series 2004-D, AMT, MBIA insured, 5.00% 2019	1,000	1,034
Metropolitan Washington Airports Auth., Airport System Rev. Ref. Bonds, Series 2005-D, AMBAC insured, 5.00% 2021	2,155	2,260
Metropolitan Washington Airports Auth., Airport System Rev. Ref. Bonds, Series 2006-C, FGIC insured, 5.00% 2025	1,130	1,182
		15,435

PUERTO RICO — 5.35%
Electric Power Auth., Power Rev. Ref. Bonds (Forward Delivery), Series QQ, XLCA insured, 5.50% 2015	1,000	1,105
Electric Power Auth., Power Rev. Ref. Bonds, Series UU, FSA insured, 4.111% 20291	2,500	2,485
Government Dev. Bank for Puerto Rico, Series 2006-B, 5.00% 2015	1,000	1,053
Highways and Transportation Auth., Highway Rev. Ref. Bonds, Series AA, AMBAC insured, 5.00% 2035 (put 2010)	1,150	1,189
Highways and Transportation Auth., Highway Rev. Ref. Bonds, Series CC, 5.50% 2030	1,200	1,340
Public Buildings Auth., Government Facs. Rev. Bonds, Series D, 5.25% 2027 (preref. 2012)	1,040	1,102
Public Buildings Auth., Government Facs. Rev. Ref. Bonds, Series C, 5.50% 2014	1,000	1,077
Public Fin. Corp., Commonwealth Appropriation Bonds, Series 2004-A, AMBAC insured, 5.25% 2030 (put 2012)	1,000	1,057
Public Fin. Corp., Commonwealth Appropriation Bonds, Series 2004-A, FGIC insured, 5.25% 2031 (put 2012)	3,000	3,170
Public Fin. Corp., Commonwealth Appropriation Bonds, Series 2004-A, MBIA insured, 5.25% 2029 (put 2012)	2,000	2,114
Public Improvement G.O. Ref. Bonds, Series 2004-A, 5.00% 2030 (put 2012)	1,000	1,033
		16,725

VIRGIN ISLANDS — 1.07%
Public Fin. Auth., Rev. and Ref. Bonds (Matching Fund Loan Notes), Series 1998-A, 5.20% 2009	1,000	1,022
Public Fin. Auth., Rev. and Ref. Bonds (Matching Fund Loan Notes), Series 1998-C, 5.50% 2007	1,000	1,003
Public Fin. Auth., Rev. Bonds (Matching Fund Loan Notes), Series 2004-A, 5.25% 2017	750	787
Public Fin. Auth., Rev. Bonds (Matching Fund Loan Notes), Series 2004-A, 5.25% 2018	500	524
		3,336


Total bonds & notes (cost: $298,071,000)		301,336

	Principal amount	Market value
Short-term securities — 3.73%	(000)	(000)

Industrial Dev. Auth. of Loudoun County, Virginia, Multi-Modal Rev. Bonds (Howard Hughes Medical Institute Issue), Series 2003-C, 3.72% 20381	$ 300	$ 300
Industrial Dev. Auth. of Loudoun County, Virginia, Multi-Modal Rev. Bonds (Howard Hughes Medical Institute Issue), Series 2003-E, 3.65% 20381	2,515	2,515
Industrial Dev. Auth. of the City of Richmond, Virginia, Educational Facs. Rev. Bonds (Church Schools in the Diocese of Virginia), Series 2001, 3.70% 20311,2	2,800	2,800
Industrial Dev. Auth. of the City of Roanoke, Virginia, Hospital Rev. Bonds (Carilion Health System Obligated Group), Series 2005-C-1, FSA insured, 3.70% 20271,2	650	650
State of Virginia, Industrial Dev. Auth. of the City of Alexandria, Demand Rev. Ref. Bonds (Goodwin House), Series 2005, 3.65% 20351	380	380
State of Virginia, Rector and Visitors of the University of Virginia, General Rev. Pledge Bonds, Series 2003-A, 3.60% 20341	700	700
Virginia College Building Auth., Educational Facs. Rev. Bonds (21st Century College and Equipment Programs), Series 2006-B, 3.74% 20261	1,700	1,700
Virginia Small Business Fncg. Auth., Tax-Exempt Rev. and Ref. Bonds (Children’s Hospital of The King’s Daughters, Incorporated Project), Series 2006, 3.61% 20361	2600	2,600


Total short-term securities (cost: $11,645,000)		11,645


Total investment securities (cost: $309,716,000)		312,981
Other assets less liabilities		(583)

Net assets		$312,398

1 Coupon rate may change periodically; the date of the next scheduled coupon rate change is considered to be the maturity date.
2 This security, or a portion of this security, has been segregated to cover funding requirements on investment transactions settling in the future.


Key to abbreviations

Agcy. = Agency
AMT = Alternative Minimum Tax
Auth. = Authority
Certs. 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
TECP = Tax Exempt Commercial Paper

Financial statements

Statement of assets and liabilities at July 31, 2007
(dollars and shares in thousands, except per-share amounts)
Assets:
Investment securities at market (cost: $309,716)				$	312,981
Cash					93
Receivables for:
Sales of Fund’s shares	$	294
Interest		3,665			3,959
					317,033
Liabilities:
Payables for:
Purchases of investments		3,200
Repurchases of Fund’s shares		846
Dividends on Fund’s shares		323
Management services		86
Services provided by affiliates		168
Deferred trustees’ compensation		12
Other		—	*		4,635
Net assets at July 31, 2007				$	312,398

Net assets consist of:
Capital paid in on shares of beneficial interest				$	308,945
Undistributed net investment income					237
Accumulated net realized loss					(49)
Net unrealized appreciation					3,265
Net assets at July 31, 2007				$	312,398



Shares of beneficial interest issued and outstanding (unlimited shares authorized): 19,171 total shares outstanding
	Net assets	Shares outstanding	Net asset value per share†
Class A	$263,454	16,168	$16.30
Class B	12,310	755	16.30
Class C	16,889	1,036	16.30
Class F	17,388	1,067	16.30
Class R-5	2,357	145	16.30

* Amount less than one thousand. † Maximum offering price and redemption price per share were equal to the net asset value per share for all share classes, except for Class A, for which the maximum offeringprice per share was $16.94.

See Notes to Financial Statements

Statement of operations for the year ended July 31, 2007
(dollars in thousands)
Investment income:
Income:
Interest			$	12,948
Fees and expenses*:
Investment advisory services	$	592
Business management services		465
Distribution services		940
Transfer agent services		59
Administrative services		31
Reports to shareholders		42
Registration statement and prospectus		11
Postage, stationery and supplies		9
Trustees’ compensation		26
Auditing and legal		55
Custodian		2
State and local taxes	—†
Other		15
Total fees and expenses before waivers		2,247
Less waivers of fees and expenses:
Investment advisory services		59
Business management services		47
Total fees and expenses after waivers				2,141
Net investment income				10,807

Net realized gain and unrealized depreciation on investments
Net realized gain on investments				8
Net unrealized depreciation on investments				(1,505)
Net realized gain and unrealized depreciation on investments				(1,497)
Net increase in net assets resulting from operations			$	9,310

* Additional information related to class-specific fees and expenses is included in the Notes to Financial Statements.

† Amount less than one thousand.

Statements of changes in net assets
(dollars in thousands)

	Year ended July 31,
	2007			2006
Operations:
Net investment income		$	10,807		$	9,405
Net realized gain (loss) on investments			8			(66)
Net unrealized depreciation on investments			(1,505)			(4,305)
Net increase in net assets resulting from operations			9,310			5,034

Dividends paid or accrued to shareholders from net investment income			(10,768)			(9,418)

Net capital share transactions			42,860			25,373

Total increase in net assets			41,402			20,989

Net assets:
Beginning of year			270,996			250,007
End of year (including undistributed net investment income: $237 and $209, respectively)		$	312,398		$	270,996


See Notes to Financial Statements

The American Funds Tax-Exempt Series

Notes to financial statements

1. Organization and significant accounting policies

Organization — The American Funds Tax-Exempt Series I (the "Trust") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company and has issued two series of shares, The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia (the "Funds"). The Funds seek a high level of current income exempt from federal and their respective state income taxes. Additionally, each Fund seeks to preserve capital.

Each Fund offers five share classes, some of which are available only to limited categories of investors. The Funds’ share classes are described below:

Share class	Initial sales charge	Contingent deferred sales charge upon redemption	Conversion feature
Class A	Up to 3.75%	None (except 1% for certain redemptions within one year of purchase without an initial sales charge)	None
Class B	None	Declines from 5% to 0% for redemptions within six years of purchase	Class B converts to Class A after eight years
Class C	None	1% for redemptions within one year of purchase	Class C converts to Class F after 10 years
Class F	None	None	None
Class R-5	None	None	None

Holders of all share classes have equal pro rata rights to assets, dividends and liquidation proceeds. Each share class has identical voting rights, except for the exclusive right to vote on matters affecting only its class. Share classes have different fees and expenses ("class-specific fees and expenses"), primarily due to different arrangements for distribution, administrative and shareholder services. Differences in class-specific fees and expenses will result in differences in net investment income and, therefore, the payment of different per-share dividends by each class.

Significant accounting policies — The financial statements have been prepared to comply with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the Funds:

Security valuation — Fixed-income securities, including short-term securities purchased with more than 60 days left to maturity, are valued at prices obtained from an independent pricing service when such prices are available. However, where the investment adviser deems it appropriate, such securities will be valued at the mean quoted bid and asked prices (or bid prices, if asked prices are not available) or at prices for securities of comparable maturity, quality and type. Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value. The value of short-term securities originally purchased with maturities greater than 60 days is determined based on an amortized value to par when they reach 60 days or less remaining to maturity. The ability of the issuers of the debt securities held by the Funds to meet their obligations may be affected by economic developments in a specific industry, state or region.

Securities and other assets for which representative market quotations are not readily available or are considered unreliable by the investment adviser are fair valued as determined in good faith under procedures adopted by authority of the Trust’s board of trustees. Various factors may be reviewed in order to make a good faith determination of a security’s fair value. These factors include, but are not limited to, the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded similar or related securities; conversion or exchange rights on the security; related corporate actions; significant events occurring after the close of trading in the security; and changes in overall market conditions.

Security transactions and related investment income — Security transactions are recorded by the Funds as of the date the trades are executed with brokers. Realized gains and losses from security transactions are determined based on the specific identified cost of the securities. In the event a security is purchased with a delayed payment date, the Funds will segregate liquid assets sufficient to meet its payment obligations. Interest income is recognized on an accrual basis. Market discounts, premiums and original issue discounts on fixed-income securities are amortized daily over the expected life of the security.

Class allocations — Income, fees and expenses (other than class-specific fees and expenses) are allocated daily among the various share classes based on the relative value of their settled shares. Realized and unrealized gains and losses are allocated daily among the various share classes based on their relative net assets. Class-specific fees and expenses, such as distribution, administrative and shareholder services, are charged directly to the respective share class.

Dividends and distributions to shareholders — Dividends paid to shareholders are declared daily after the determination of the Funds’ net investment income and are paid to shareholders monthly. Distributions paid to shareholders are recorded on the ex-dividend date.

2. Federal income taxation and distributions

The Funds comply with the requirements under Subchapter M of the Internal Revenue Code applicable to mutual funds and intend to distribute substantially all of their net income and net capital gains each year. The Funds are not subject to income taxes to the extent taxable income and net capital gains are distributed. Generally, income earned by the Funds is exempt from federal income taxes; however, the Funds may earn taxable income from certain investments.

The Funds adopted the provisions of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes, on June 29, 2007. The implementation of FIN 48 resulted in no material liability for unrecognized tax benefits and no material change to the beginning net asset value of the Funds.

As of and during the period ended July 31, 2007, the Funds did not have a liability for any unrecognized tax benefits. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the Funds did not incur any interest or penalties.

The Funds are not subject to examination by U.S. federal tax authorities for tax years before 2003 and by state tax authorities for tax years before 2003.

Distributions — Distributions paid to shareholders are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains for financial reporting purposes. These differences are due primarily to differing treatment for items such as short-term capital gains and losses; deferred expenses; and amortization of discounts. 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 Funds for financial reporting purposes.

During the year ended July 31, 2007, the Maryland Fund and Virginia Fund reclassified $26,000 and $1,000, respectively, from undistributed net investment income to capital paid in on shares of beneficial interest. The Maryland Fund and Virginia Fund also reclassified $28,000 and $10,000, respectively, from undistributed net investment income to accumulated net realized loss to align financial reporting with tax reporting.

As of July 31, 2007, the tax basis components of distributable earnings, unrealized appreciation (depreciation) and cost of investment securities were as follows:

Maryland	(dollars in thousands)
Undistributed tax-exempt income		$ 313
Capital loss carryforward expiring 2014*		(49)
Gross unrealized appreciation on investment securities		4,896
Gross unrealized depreciation on investment securities		(2,805)
Net unrealized appreciation on investment securities		2,091
Cost of investment securities		292,136

*Reflects the utilization of capital loss carryforwards of $128,000. The capital loss carryforward will be used to offset any capital gains realized by the Fund in future years through the expiration date. The Fund will not make distributions from capital gains while capital loss carryforwards remain.

Virginia	(dollars in thousands)
Undistributed tax-exempt income		$ 322
Capital loss carryforwards*:
Expiring 2012	$(1)
Expiring 2015	(5)	(6)
Post-October capital loss deferrals (realized during the period November 1, 2006 through July 31, 2007)		(42)
Gross unrealized appreciation on investment securities		5,476
Gross unrealized depreciation on investment securities		(1,961)
Net unrealized appreciation on investment securities		3,515
Cost of investment securities		309,466

*The capital loss carryforwards will be used to offset any capital gains realized by the Fund in future years through the expiration dates. The Fund will not make distributions from capital gains while capital loss carryforwards remain.

These deferrals are considered incurred in the subsequent year.

Ordinary income distributions paid or accrued to shareholders from tax-exempt income were as follows (dollars in thousands):

Maryland				Virginia
		Year ended July 31				Year ended July 31
Share class	2007		2006	Share class	2007		2006
Class A	$ 8,487		$6,898	Class A	$ 9,277		$8,090
Class B	535		569	Class B	375		384
Class C	827		722	Class C	477		460
Class F	455		295	Class F	547		397
Class R-5	205		143	Class R-5	92		87
Total	$10,509		$8,627	Total	$10,768		$9,418

3. Fees and transactions with related parties

Business management services — The Funds have a business management agreement with Washington Management Corporation (WMC). Under this agreement, WMC, a wholly owned subsidiary of The Johnston-Lemon Group, Incorporated (JLG), provides services necessary to carry on the Funds’ general administrative and corporate affairs. These services encompass matters relating to general corporate governance, regulatory compliance and monitoring of the Funds’ contractual service providers, including custodian operations, shareholder services and Fund share distribution functions. The agreement provides for monthly fees, accrued daily, based on an annual rate of 0.135% on the first $60 million of each Fund’s daily net assets and 0.09% on such assets in excess of $60 million. The agreement also provided for monthly fees of 1.35% of each Fund’s gross investment income (excluding any net capital gains from transactions in portfolio securities). WMC is currently waiving 10% of business management services fees. During the year ended July 31, 2007, total business management fees waived by WMC were $45,000 and $47,000 for the Maryland and Virginia Funds, respectively. As a result, the fee shown on the accompanying financial statements for the Maryland Fund of $449,000, which was equivalent to an annualized rate of 0.161%, was reduced to $404,000, or 0.145% of average daily net assets. The fee shown on the accompanying financial statements for the Virginia Fund of $465,000, which was equivalent to an annualized rate of 0.159%, was reduced to $418,000, or 0.143% of average daily net assets. During the year ended July 31, 2007, WMC paid the Maryland and Virginia Funds’ investment adviser $2,291,000 for performing various fund accounting services for the Funds and for Washington Mutual Investors Fund, another registered investment company for which WMC serves as business manager. Johnston, Lemon & Co., Incorporated (JLC), a wholly owned subsidiary of JLG, earned $26,000 and $25,000 on its retail sales of shares and distribution plan of the Maryland and Virginia Funds, respectively. JLC received no brokerage commissions resulting from the purchases and sales of securities for the investment account of the Funds.

Investment advisory services — Capital Research and Management Company (CRMC), the Funds’ investment adviser, is the parent company of American Funds Service CompanySM (AFS), the Funds’ transfer agent, and American Funds Distributors,SM Inc. (AFD), the principal under-writer of the Funds’ shares. The Investment Advisory Agreement with CRMC provides for monthly fees accrued daily. These fees are based on an annual rate of 0.165% on the first $60 million of daily net assets and 0.120% on such assets in excess of $60 million. The agreement also provides for monthly fees, accrued daily, of 1.65% of each Fund’s monthly gross income (excluding any net capital gains from transactions in portfolio securities). CRMC is currently waiving 10% of investment advisory services fees. During the year ended July 31, 2007, total investment advisory services fees waived by CRMC were $57,000 and $59,000 for the Maryland and Virginia Funds, respectively. As a result, the fee shown on the accompanying financial statements for Maryland Fund of $570,000, which was equivalent to an annualized rate of 0.205%, was reduced to $513,000, or 0.185% of average daily net assets. The fee shown on the accompanying financial statements for Virginia Fund of $592,000, which was equivalent to an annualized rate of 0.202%, was reduced to $533,000, or 0.182% of average daily net assets.

Class-specific fees and expenses — Expenses that are specific to individual share classes are accrued directly to the respective share class. The principal class-specific fees and expenses are described below:

Distribution services — The Funds have adopted plans of distribution for all share classes, except Class R-5. Under the plans, the board of trustees approves certain categories of expenses that are used to finance activities primarily intended to sell Fund shares and service existing accounts. The plans provide for payments, based on an annualized percentage of average daily net assets, ranging from 0.25% to 1.00% as noted on the following page. In some cases, the board of trustees has limited the amounts that may be paid to less than the maximum allowed by the plans. All share classes may use up to 0.25% of average daily net assets to pay service fees, or to compensate AFD for paying service fees, to firms that have entered into agreements with AFD to provide certain shareholder services. The remaining amounts available to be paid under each plan are paid to dealers to compensate them for their sales activities.

For Class A, the board of trustees has also approved the reimbursement of dealer and wholesaler commissions paid by AFD for certain shares sold without a sales charge. This class reimburses AFD for amounts billed within the prior 15 months but only to the extent that the overall annual expense limit of 0.25% is not exceeded. As of July 31, 2007, unreimbursed expenses subject to reimbursement totaled $319,000 for the Maryland Fund and $440,000 for the Virginia Fund.

Share class	Currently approved limits	Plan limits
Class A	0.25%	0.25%
Class B	1.00	1.00
Class C	1.00	1.00
Class F	0.25	0.50

Transfer agent services — The Funds have a transfer agent agreement with AFS for Class A and B. Under this agreement, these share classes compensate AFS for transfer agent services including shareholder recordkeeping, communications and transaction processing. AFS is also compensated for certain transfer agent services provided to all other share classes from the administrative services fees paid to CRMC described below.

Administrative services — The Funds have an administrative services agreement with CRMC to provide transfer agent and other related shareholder services for all share classes other than Class A and B. Each relevant share class pays CRMC annual fees up to 0.15% (0.10% for Class R-5) based on its respective average daily net assets. Each relevant share class also pays AFS additional amounts for certain transfer agent services. CRMC and AFS may use these fees to compensate third parties for performing these services.

Expenses under the agreements described above for the year ended July 31, 2007, were as follows (dollars in thousands):

Maryland
			Administrative services
Share class	Distribution services	Transfer agent services	CRMC administrative services	Transfer agent services
Class A	$544	$52	Not applicable	Not applicable
Class B	169	5	Not applicable	Not applicable
Class C	266	Included in administrative services	$20	$2
Class F	30		12	1
Class R-5	Not applicable		5	—*
Total	$1,009	$57	$37	$3

Virginia
			Administrative services
Share class	Distribution services	Transfer agent services	CRMC administrative services	Transfer agent services
Class A	$618	$56	Not applicable	Not applicable
Class B	124	3	Not applicable	Not applicable
Class C	161	Included in administrative services	$12	$1
Class F	37		15	1
Class R-5	Not applicable		2	—*
Total	$940	$59	$29	$2

*Amount less than one thousand.

Deferred trustees’ compensation — Since the adoption of the deferred compensation plan in 1994, independent trustees may elect to defer the cash payment of part or all of their compensation. These deferred amounts, which remain as liabilities of the Funds, are treated as if invested in shares of the Funds or other American Funds. These amounts represent general, unsecured liabilities of the Funds and vary according to the total returns of the selected funds. Trustees’ compensation of $26,000 each for the Maryland Fund and the Virginia Fund, shown on the accompanying financial statements, includes $24,000 for each Fund in current fees (either paid in cash or deferred) and a net increase of $2,000 in each Fund in the value of the deferred amounts.

Affiliated officers and trustees — All the officers and certain trustees of the Trust are affiliated with WMC. Officers and affiliated trustees do not receive compensation directly from the Funds.

4. Capital share transactions

Capital share transactions in the Funds were as follows (dollars and shares in thousands):

Maryland
	Sales*				Reinvestments of dividends				Repurchases*				Net increase (decrease)
Share class	Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares
Year ended July 31, 2007
Class A	$	69,568		4,353	$	6,484		406	$	(38,290)		(2,402)	$	37,762		2,357
Class B		1,115		70		357		22		(3,242)		(203)		(1,770)		(111)
Class C		6,241		390		602		38		(4,187)		(262)		2,656		166
Class F		7,283		456		261		16		(2,239)		(140)		5,305		332
Class R-5		1,532		96		209		13		—		—		1,741		109
Total net increase (decrease)	$	85,739		5,365	$	7,913		495	$	(47,958)		(3,007)	$	45,694		2,853

Year ended July 31, 2006
Class A	$	51,381		3,222	$	4,991		312	$	(27,605)		(1,726)	$	28,767		1,808
Class B		1,447		91		377		23		(2,382)		(149)		(558)		(35)
Class C		8,140		509		524		33		(5,860)		(366)		2,804		176
Class F		5,885		369		169		11		(2,718)		(171)		3,336		209
Class R-5		1,000		62		129		8		(1,127)		(70)		2		—†
Total net increase (decrease)	$	67,853		4,253	$	6,190		387	$	(39,692)		(2,482)	$	34,351		2,158

Virginia
	Sales*				Reinvestments of dividends				Repurchases*				Net increase (decrease)
Share class	Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares
Year ended July 31, 2007
Class A	$	65,549		3,978	$	6,418		390	$	(35,143)		(2,136)	$	36,824		2,232
Class B		959		58		289		17		(1,682)		(102)		(434)		(27)
Class C		4,460		271		370		23		(3,354)		(204)		1,476		90
Class F		7,256		441		421		25		(2,777)		(169)		4,900		297
Class R-5		—		—		94		6		—		—		94		6
Total net increase (decrease)	$	78,224		4,748	$	7,592		461	$	(42,956)		(2,611)	$	42,860		2,598

Year ended July 31, 2006
Class A	$	53,636		3,259	$	5,436		330	$	(37,318)		(2,268)	$	21,754		1,321
Class B		1,006		61		304		19		(1,638)		(99)		(328)		(19)
Class C		4,064		246		339		21		(4,374)		(266)		29		1
Class F		4,938		300		263		16		(1,370)		(83)		3,831		233
Class R-5		—		—		87		5		—		—		87		5
Total net increase (decrease)	$	63,644		3,866	$	6,429		391	$	(44,700)		(2,716)	$	25,373		1,541

*Includes exchanges between share classes of the Fund.

†Amount less than one thousand.

5. Investment transactions

The Maryland Fund and Virginia Fund made purchases of investment securities, excluding short-term securities, of $72,102,000 and $75,907,000, and sales of $25,036,000 and $30,356,000, respectively, during the year ended July 31, 2007.

The Tax-Exempt Fund of Maryland

Financial highlights

		Income from investment operations1					Dividends and distributions
	Net asset value, beginning of year	Net investment income		Net (losses) gains on securities (both realized and unrealized)	Total from investment operations		Dividends (from net investment income)	Distributions (from capital gains)		Total dividends and distributions		Net asset value, end of year	Total return2,3	Net assets, end of year (in millions)		Ratio of expenses to average net assets before waivers		Ratio of expenses to average net assets after waivers3	Ratio of net income to average net assets 3
Class A
Year ended 7/31/2007	$15.87	$.62		$(.11)	$.51		$(.62)	$ —		$(.62)		$15.76	3.26%	$233		.70%		.66%	3.91%
Year ended 7/31/2006	16.13	.62		(.26)	.36		(.62)	—		(.62)		15.87	2.27	197		.72		.69	3.86
Year ended 7/31/2005	15.94	.62		.19	.81		(.62)	—		(.62)		16.13	5.12	171		.71		.69	3.84
Year ended 7/31/2004	15.76	.64		.17	.81		(.63)	—		(.63)		15.94	5.17	154		.72		.72	3.97
Year ended 7/31/2003	15.93	.62		(.15)	.47		(.62)	(.02)		(.64)		15.76	2.98	156		.73		.73	3.87
Class B:
Year ended 7/31/2007	15.87	.51		(.11)	.40		(.51)	—		(.51)		15.76	2.50	16		1.45		1.42	3.17
Year ended 7/31/2006	16.13	.50		(.26)	.24		(.50)	—		(.50)		15.87	1.52	18		1.48		1.44	3.12
Year ended 7/31/2005	15.94	.50		.19	.69		(.50)	—		(.50)		16.13	4.35	18		1.47		1.44	3.09
Year ended 7/31/2004	15.76	.52		.17	.69		(.51)	—		(.51)		15.94	4.40	19		1.48		1.48	3.21
Year ended 7/31/2003	15.93	.50		(.15)	.35		(.50)	(.02)		(.52)		15.76	2.22	18		1.48		1.48	3.09
Class C:
Year ended 7/31/2007	15.87	.50		(.11)	.39		(.50)	—		(.50)		15.76	2.44	28		1.51		1.47	3.10
Year ended 7/31/2006	16.13	.49		(.26)	.23		(.49)	—		(.49)		15.87	1.46	25		1.53		1.49	3.06
Year ended 7/31/2005	15.94	.48		.19	.67		(.48)	—		(.48)		16.13	4.22	23		1.59		1.56	2.97
Year ended 7/31/2004	15.76	.50		.17	.67		(.49)	—		(.49)		15.94	4.27	17		1.60		1.60	3.09
Year ended 7/31/2003	15.93	.48		(.15)	.33		(.48)	(.02)		(.50)		15.76	2.09	13		1.61		1.61	2.97
Class F:
Year ended 7/31/2007	15.87	.61		(.11)	.50		(.61)	—		(.61)		15.76	3.17	14		.78		.74	3.82
Year ended 7/31/2006	16.13	.61		(.26)	.35		(.61)	—		(.61)		15.87	2.19	9		.80		.77	3.77
Year ended 7/31/2005	15.94	.60		.19	.79		(.60)	—		(.60)		16.13	4.98	6		.84		.82	3.72
Year ended 7/31/2004	15.76	.62		.17	.79		(.61)	—		(.61)		15.94	5.04	5		.85		.85	3.85
Year ended 7/31/2003	15.93	.60		(.15)	.45		(.60)	(.02)		(.62)		15.76	2.84	3		.86		.86	3.73
Class R-5:
Year ended 7/31/2007	15.87	.65		(.11)	.54		(.65)	—		(.65)		15.76	3.43	5		.52		.48	4.09
Year ended 7/31/2006	16.13	.65		(.26)	.39		(.65)	—		(.65)		15.87	2.45	4		.55		.51	4.04
Year ended 7/31/2005	15.94	.64		.19	.83		(.64)	—		(.64)		16.13	5.30	4		.54		.51	4.02
Year ended 7/31/2004	15.76	.67		.17	.84		(.66)	—		(.66)		15.94	5.36	3		.54		.54	4.15
Year ended 7/31/2003	15.93	.65		(.15)	.50		(.65)	(.02)		(.67)		15.76	3.16	3		.55		.55	4.06

			Year ended July 31
						2007			2006		2005				2004		2003
Portfolio turnover rate for all classes of shares						9%			5%		5%				11%		8%

1 Based on average shares outstanding. 2 Total returns exclude all sales charges, including contingent deferred sales charges. 3 This column reflects the impact, if any, of certain waivers from CRMC and WMC. During some of the periods shown, CRMC and WMC reduced fees for investment advisory services and business management services for all share classes. See Notes to Financial Statements

		Income from investment operations1					Dividends and distributions
	Net asset value, beginning of year	Net investment income		Net (losses) gains on securities (both realized and unrealized)	Total from investment operations		Dividends (from net investment income)	Distributions (from capital gains)		Total dividends and distributions		Net asset value, end of year	Total return2,3	Net assets, end of year (in millions)		Ratio of expenses to average net assets before waivers		Ratio of expenses to average net assets after waivers3	Ratio of net income to average net assets3
Class A:
Year ended 7/31/2007	$16.35	$.62		$(.05 )	$.57		$(.62)	$ —		$(.62)		$16.30	3.51%	$264		.69%		.65%	3.77%
Year ended 7/31/2006	16.63	.61		(.28 )	.33		(.61)	—		(.61)		16.35	2.03	228		.71		.67	3.70
Year ended 7/31/2005	16.48	.61		.14	.75		(.60)	—		(.60)		16.63	4.59	210		.69		.67	3.62
Year ended 7/31/2004	16.32	.60		.16	.76		(.60)	—		(.60)		16.48	4.67	189		.70		.70	3.60
Year ended 7/31/2003	16.57	.60		(.21)	.39		(.60)	(.04)		(.64)		16.32	2.32	189		.71		.71	3.61
Class B:
Year ended 7/31/2007	16.35	.50		(.05 )	.45		(.50)	—		(.50)		16.30	2.75	12		1.45		1.41	3.02
Year ended 7/31/2006	16.63	.49		(.28 )	.21		(.49)	—		(.49)		16.35	1.28	13		1.46		1.42	2.95
Year ended 7/31/2005	16.48	.49		.14	.63		(.48)	—		(.48)		16.63	3.82	13		1.45		1.43	2.87
Year ended 7/31/2004	16.32	.48		.16	.64		(.48)	—		(.48)		16.48	3.90	14		1.45		1.45	2.84
Year ended 7/31/2003	16.57	.47		(.21)	.26		(.47)	(.04)		(.51)		16.32	1.56	14		1.46		1.46	2.81
Class C:
Year ended 7/31/2007	16.35	.49		(.05 )	.44		(.49)	—		(.49)		16.30	2.69	17		1.50		1.46	2.96
Year ended 7/31/2006	16.63	.48		(.28 )	.20		(.48)	—		(.48)		16.35	1.23	15		1.51		1.47	2.90
Year ended 7/31/2005	16.48	.47		.14	.61		(.46)	—		(.46)		16.63	3.70	16		1.57		1.55	2.75
Year ended 7/31/2004	16.32	.45		.16	.61		(.45)	—		(.45)		16.48	3.77	15		1.58		1.58	2.72
Year ended 7/31/2003	16.57	.45		(.21)	.24		(.45)	(.04)		(.49)		16.32	1.43	14		1.60		1.60	2.72
Class F:
Year ended 7/31/2007	16.35	.61		(.05 )	.56		(.61)	—		(.61)		16.30	3.43	17		.77		.73	3.69
Year ended 7/31/2006	16.63	.60		(.28 )	.32		(.60)	—		(.60)		16.35	1.96	13		.78		.74	3.62
Year ended 7/31/2005	16.48	.59		.14	.73		(.58)	—		(.58)		16.63	4.46	9		.82		.80	3.50
Year ended 7/31/2004	16.32	.58		.16	.74		(.58)	—		(.58)		16.48	4.54	7		.83		.83	3.48
Year ended 7/31/2003	16.57	.58		(.21)	.37		(.58)	(.04)		(.62)		16.32	2.17	3		.85		.85	3.44
Class R-5:
Year ended 7/31/2007	16.35	.65		(.05 )	.60		(.65)	—		(.65)		16.30	3.69	2		.51		.47	3.96
Year ended 7/31/2006	16.63	.64		(.28 )	.36		(.64)	—		(.64)		16.35	2.20	2		.53		.50	3.88
Year ended 7/31/2005	16.48	.64		.14	.78		(.63)	—		(.63)		16.63	4.77	2		.52		.50	3.81
Year ended 7/31/2004	16.32	.63		.16	.79		(.63)	—		(.63)		16.48	4.85	2		.52		.52	3.78
Year ended 7/31/2003	16.57	.63		(.21)	.42		(.63)	(.04)		(.67)		16.32	2.49	2		.53		.53	3.79

			Year ended July 31
						2007			2006		2005				2004		2003
Portfolio turnover rate for all classes of shares						11%			4%		13%				8%		4%

1 Based on average shares outstanding. 2 Total returns exclude all sales charges, including contingent deferred sales charges. 3 This column reflects the impact, if any, of certain waivers from CRMC and WMC. During some of the periods shown, CRMC and WMC reduced fees for investment advisory services and business management services for all share classes. See Notes to Financial Statements

The American Funds Tax-Exempt Series I

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of The American Funds Tax-Exempt Series I:

In our opinion, the accompanying statements of assets and liabilities, including the summary investment portfolios, and the related statements of operations and changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia (constituting The American Funds Tax-Exempt Series I, hereafter referred to as the "Trust") at July 31, 2007, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and their financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trust’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities owned at July 31, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Los Angeles, California

September 14, 2007