supplement.htm

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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, 2009

(as supplemented January 1, 2010)

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, 2009. 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

Class A Class B Class C Class F-1 Class F-2

Tax-Exempt Fund of Maryland TMMDX TEMBX TEMCX TMDFX TMMFX
Tax-Exempt Fund of Virginia TFVAX TEVBX TEVCX TEVFX TEFFX

TABLE OF CONTENTS

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

Certain investment limitations and guidelines . . . . . . . . . . . 2
Description of certain securities and investment techniques . . . . 3
Fund policies . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Management of the trust . . . . . . . . . . . . . . . . . . . . . . 13
Execution of portfolio transactions . . . . . . . . . . . . . . . . 33
Disclosure of portfolio holdings. . . . . . . . . . . . . . . . . . 36
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . . 39
Purchase and exchange of shares . . . . . . . . . . . . . . . . . . 42
Sales charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Sales charge reductions and waivers . . . . . . . . . . . . . . . . 49
Selling shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Shareholder account services and privileges . . . . . . . . . . . . 55
General information . . . . . . . . . . . . . . . . . . . . . . . . 58
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Investment portfolio
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 10% of its assets in debt securities rated Ba1 or
below by Moody's Investors Service (Moody's) and BB+ or below by Standard &
Poor's Corporation (S&P) (or unrated but determined by the fund's
investment adviser 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.

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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 their values accrete over
time to face value at maturity. 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 Ba1 or below by Moody's and/or BB+ or below
by S&P or unrated but determined by the fund's investment adviser 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.

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 could 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, 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.

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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 reflect an
evaluation of 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
except where otherwise provided. 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 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

The American Funds Tax-Exempt Series I -- Page 4
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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. When assigning a credit rating to an insured municipal bond the
investment adviser considers the higher of the credit rating of the insurer,
based on the insurer's claims-paying ability, and the credit rating of the
issuer (or the equivalent as determined by the investment adviser if the issuer
is not rated by the rating agencies). Insurance that covers a municipal bond
does not guarantee the market value of the bond or the prices of the fund's
shares. If the credit rating of the insurer were reduced, this could have an
adverse effect upon the credit rating of the insured bond and, therefore, its
market value.

SECURITIES SUBJECT TO ALTERNATIVE MINIMUM TAX -- The fund may invest in
tax-exempt securities believed to pay interest constituting an item of tax
preference subject to alternative minimum tax. Therefore, while the fund's
distributions from tax-exempt securities are not subject to regular federal
income tax, a portion or all may be included in determining a shareholder's
federal alternative minimum tax.

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.

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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 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

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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 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.

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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 available as of the date of this statement of additional
information and 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.

ECONOMY AND FINANCES -- Maryland's economy has continued to slow, however,
the state's economy has fared better than that of many other states.
Specifically, Maryland's per capita personal income for 2008 was the sixth
highest in the country. Its unemployment rate for 2008 was well below the
national average, and has been lower than the rest of the country for the
past 10 years.

The challenges at the national level are impacting Maryland's economy
which, in turn, is affecting the level of taxes collected and the revenues
earned. In order to address an anticipated budget deficit, the governor
enacted several tax increases, including increases in personal income tax,
state sales tax and corporate income tax. The Maryland General Assembly
enacted a balanced budget of $32.3 billion for the fiscal year 2010 which
included a 3.6% reduction in the general fund spending, with further
expense cuts possible if revenues continue to decline. In addition to
efforts at the state level, the American Recovery and Reinvestment Act of
2009 ("ARRA") was enacted by the U.S. Congress in February 2009 to provide
a stimulus to the U.S. economy. The ARRA allocated approximately $4.1
billion in direct appropriation to Maryland for the fiscal years 2009, 2010
and 2011. Of this amount, approximately $2.9 billion was appropriated for
fiscal year 2009. The state's education and infrastructure programs will
benefit the most from this support.

Maryland's general obligation bonds, which are backed by the full faith and
credit of the state of Maryland, are used to fund state, county and local
government projects, such as roads, schools and water treatment facilities.
Due to Maryland's financial strength, its general obligation bonds have
maintained the highest credit rating by Moody's Investors Services, Inc.
(Aaa), Standard & Poor's (AAA) and Fitch Ratings, Inc. (AAA). Maryland is
one of only a handful of states in the nation to hold a Triple-A credit
rating from all three major credit rating agencies.

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FACTORS AFFECTING VIRGINIA DEBT OBLIGATIONS

GENERAL INFORMATION -- The commonwealth of Virginia has a population of
approximately 7.8 million, with population concentrated around the Northern
Virginia area outside of Washington, DC, followed by the Virginia
Beach-Norfolk-Newport News area and the Richmond 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.

ECONOMY AND FINANCES -- Although the recession has weakened Virginia's
economy, the state's economy remains relatively strong compared to that of
other states. Specifically, Virginia's per capita personal income for 2008
was the eighth highest in the country and its unemployment rate for 2008
was the ninth lowest in the nation.

Virginia's economy is experiencing a slowdown similar to the slowdown that
is occurring at a national level. This slowdown has resulted in a projected
general revenue shortfall for fiscal year 2009 in excess of $3 billion.
Virginia has attempted to offset the state's revenue losses with expense
cuts and a surplus in certain income tax collections, however, in June
2009, the governor directed that a reforecast of revenues be completed
because economic indicators and revenue data suggested that the state would
not achieve its fiscal year 2010 revenue projections. As a result, further
budget reductions are anticipated for fiscal year 2010. In addition to
efforts at the state level, the American Recovery and Reinvestment Act of
2009 ("ARRA") was enacted by the U.S. Congress in February 2009 to provide
a stimulus to the U.S. economy. The ARRA allocated approximately $5.1
billion in direct appropriation to Virginia for the fiscal years 2009, 2010
and 2011. Budgetary pressures on the state's health and human services and
education programs, among others, will be relieved due to this support.

Virginia's state government is consistently ranked as a top performer and
has a track record of being fiscally responsible. Its general obligation
bonds, which are backed by the full faith and credit of the state of
Virginia, are used to fund state, county and local government projects,
such as schools, state park and recreational facilities and roads. Due to
Virginia's financial strength, its general obligation bonds have maintained
the highest credit rating, Aaa, AAA and AAA, by Moody's Investors Services,
Inc., Standard & Poor's and Fitch Ratings, Inc., respectively. Virginia is
one of only a handful of states in the nation to hold a Triple-A credit
rating from all three major credit rating agencies.

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.

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* * * * * *

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 may be 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.

The fund's portfolio turnover rates for the fiscal years ended July 31, 2009 and
2008 were 14% and 5%, respectively, for the Maryland Fund and 10% and 8%,
respectively, for the Virginia Fund. The portfolio turnover rate would equal
100% if each security in a fund's portfolio were replaced once per year. See
"Financial highlights" in the prospectus for the fund's annual portfolio
turnover rate for each of the last five fiscal years.

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FUND POLICIES

All percentage limitations in the following fund policies are considered at the
time securities are purchased and are based on a fund's net assets unless
otherwise indicated. None of the following policies 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.

FUNDAMENTAL POLICIES -- The fund has adopted the following fundamental policies,
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 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.

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:

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;

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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.

CHANGES TO FUNDAMENTAL POLICIES - At a meeting of the fund's shareholders on
November 24, 2009, shareholders approved changes to the fundamental policies
listed above. The fund plans to implement the new fundamental policies in 2010;
however, the fund reserves the right to delay the implementation. The new
policies are set forth in a joint proxy statement available on the SEC's website
at sec.gov.

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 12
<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
----------------------------------------------------------------------------------------------------------------

Nariman Farvardin, 53 Senior Vice President for 3 None
Trustee (2010) Academic Affairs & Provost,
University of Maryland;
former Dean, The A. James
Clark School of Engineering,
University of Maryland
----------------------------------------------------------------------------------------------------------------
Barbara Hackman Franklin, President and CEO, Barbara 3 Aetna, Inc.;
69 Franklin Enterprises The Dow Chemical Company;
Trustee (2007) (international business and JPMorgan Value Opportunities
corporate governance Fund, Inc.
consulting); former U.S.
Secretary of Commerce
----------------------------------------------------------------------------------------------------------------
R. Clark Hooper, 63 Private investor; former 43 JPMorgan Value Opportunities
Trustee (2005) President, Dumbarton Group Fund, Inc.;
LLC (securities industry The Swiss Helvetia Fund, Inc.
consulting); former
Executive Vice President -
Policy and Oversight, NASD
----------------------------------------------------------------------------------------------------------------
James C. Miller III, 67 Senior Advisor, Husch 3 Clean Energy Fuels Corporation;
Trustee (2000) Blackwell Sanders LLP; JPMorgan Value Opportunities
former Chairman, The Fund, Inc.
CapAnalysis Group, LLC
(economic, financial and
regulatory consulting);
former Director, U.S. Office
of Management and Budget
----------------------------------------------------------------------------------------------------------------
Donald L. Nickles, 61 Chairman of the Board and 3 Chesapeake Energy Corporation;
Trustee (2010) CEO, The Nickles Group Valero Energy Corporation
(consulting and business
venture firm); former United
States Senator
----------------------------------------------------------------------------------------------------------------
J. Knox Singleton, 61 President and CEO, INOVA 3 Healthcare Realty Trust, Inc.;
Chairman of the Trust Health System JPMorgan Value Opportunities
(Non-Executive) (2004) Fund, Inc.
----------------------------------------------------------------------------------------------------------------

The American Funds Tax-Exempt Series I -- Page 13
<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., 73 Chairman of the Board and CEO, 3 JPMorgan Value
Vice Chairman of the Trust The Johnston-Lemon Group, Opportunities Fund, Inc.
(1986) Incorporated (financial
services holding company)
-------------------------------------------------------------------------------------------------------------
Jeffrey L. Steele, 64 President and Director, 3 JPMorgan Value
President of the Trust Washington Management Opportunities Fund, Inc.
(2002) Corporation
-------------------------------------------------------------------------------------------------------------

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

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, 42 Director, Senior Vice President, Secretary and
Senior Vice President, Treasurer, Washington Management Corporation
Assistant Secretary and
Treasurer (1996)
-------------------------------------------------------------------------------
Lois A. Erhard, 57 Vice President, Washington Management Corporation
Vice President (1988)
-------------------------------------------------------------------------------
Stephanie L. Pfromer, 41 Vice President and General Counsel, Washington
Secretary (2007) Management Corporation; former Vice President and
Senior Counsel, The BISYS Group, Inc. (now
Citigroup, Inc.)
-------------------------------------------------------------------------------
Jennifer L. Butler, 43 Vice President and Assistant Secretary,
Assistant Secretary Washington Management Corporation
(2005)
-------------------------------------------------------------------------------
J. Lanier Frank, 48 Assistant Vice President, Washington Management
Assistant Vice President Corporation
(1998)
-------------------------------------------------------------------------------
Curt M. Scott, 31 Assistant Vice President and Assistant Treasurer,
Assistant Treasurer Washington Management Corporation; former
(2006) Financial Analyst, The BISYS Group, Inc. (now
Citigroup, 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 Funds managed by Capital Research and Management Company, including the
American Funds; American Funds Insurance Series,(R) which is composed of 16
funds and serves as the underlying investment vehicle for certain variable
insurance contracts; American Funds Target Date Retirement Series,(R) Inc.,
which is composed of nine funds and is available through 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 or
other funds managed by Capital Research and Management Company) 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 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.

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 15
<PAGE>

FUND SHARES OWNED BY TRUSTEES AS OF DECEMBER 31, 2008:

AGGREGATE
DOLLAR
RANGE/1/ OF
AGGREGATE INDEPENDENT
DOLLAR RANGE/1/ TRUSTEES
OF SHARES DOLLAR DEFERRED
OWNED IN RANGE/1 /OF COMPENSATION/2/
ALL FUNDS INDEPENDENT ALLOCATED TO
IN THE TRUSTEES ALL FUNDS
AMERICAN FUNDS DEFERRED WITHIN
DOLLAR RANGE/1/ FAMILY COMPENSATION/2/ AMERICAN FUNDS
OF FUND OVERSEEN ALLOCATED FAMILY OVERSEEN
NAME SHARES OWNED BY TRUSTEE TO FUND BY TRUSTEE
----------------------------------------------------------------------------------------------------------------
"INDEPENDENT" TRUSTEES MARYLAND VIRGINIA MARYLAND VIRGINIA
FUND FUND FUND FUND
----------------------------------------------------------------------------------------------------------------

Nariman Farvardin/3/ None None/4/ $10,001 - None None/4/ $10,001 - $50,000
$50,000
----------------------------------------------------------------------------------------------------------------
Barbara H. Franklin None/4/ None/4/ Over $100,000 None/4/ None/4/ None/4/
----------------------------------------------------------------------------------------------------------------
R. Clark Hooper None/4/ None/4/ Over $100,000 None/4/ None/4/ $50,001 -
$100,000/4/
----------------------------------------------------------------------------------------------------------------
James C. Miller III $10,001 - $10,001 - Over $100,000 None/4/ None None/4/
$50,000 $50,000
----------------------------------------------------------------------------------------------------------------
Donald L. Nickles/3/ None/4/ None Over $100,000 None/4/ None Over $100,000
----------------------------------------------------------------------------------------------------------------
J. Knox Singleton None/4/ None Over $100,000 None/4/ Over Over $100,000
$100,000
----------------------------------------------------------------------------------------------------------------

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

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

"INTERESTED" MARYLAND VIRGINIA
TRUSTEES/5/ FUND FUND
-------------------------------------------------------------------------------
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.
2 Eligible trustees may defer their compensation under a nonqualified deferred
compensation plan. Deferred amounts accumulate at an earnings rate determined
by the total return of one or more American Funds as designated by the trustee.

3 Nariman Farvardin and Donald L. Nickles were elected to the board effective
January 1, 2010.
4 Funds are designed primarily for taxable residents in the states of Maryland
and Virginia. Because the trustee does not reside in the state of Maryland
and/or Virginia, investment in the fund may not be appropriate for their
personal portfolio.
5 "Interested persons" of the trust within the meaning of the 1940 Act, on the
basis of their affiliation with the fund's business manager, Washington
Management Corporation.

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 $1,500 to trustees who are not
affiliated with the business manager, $338 for each board of trustees meeting
attended, and $338 for each meeting attended as a member of a committee of the
Board of trustees. The audit committee chairs receive an annual fee of $1,000
from each fund and standing sub-committee chairs receive an annual fee of $750
from each fund. An independent chairman of the board (an "independent chair")
also receives an additional fee of $33,000, 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 17
<PAGE>

TRUSTEE COMPENSATION EARNED DURING THE FISCAL YEAR ENDED JULY 31, 2009:

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

Nariman Farvardin None/3/ $131,100
--------------------------------------------------------------------------------------------
Barbara H. Franklin 6,496 147,798
--------------------------------------------------------------------------------------------
R. Clark Hooper 6,703 393,002
--------------------------------------------------------------------------------------------
James C. Miller III 10,884 163,048
--------------------------------------------------------------------------------------------
Donald L. Nickles None/3/ 127,300
--------------------------------------------------------------------------------------------
J. Knox Singleton/4/ 10,471 175,148
--------------------------------------------------------------------------------------------

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, 2009 does not include earnings on amounts deferred in
previous fiscal years. See footnote 3 to this table for more information.
2 Funds managed by Capital Research and Management Company, including the
American Funds; American Funds Insurance Series,(R) which is composed of 16
funds and serves as the underlying investment vehicle for certain variable
insurance contracts; American Funds Target Date Retirement Series,(R) Inc.,
which is composed of nine funds and is available through tax-deferred
retirement plans and IRAs; and Endowments, which is composed of two portfolios
and is available to certain nonprofit organizations.

3 Nariman Farvardin and Donald L. Nickles were elected to the board effective
January 1, 2010.
4 Since the deferred compensation plan's adoption, the total amount of deferred
compensation accrued by the trust (plus earnings thereon) through the 2009
fiscal year for participating trustees is as follows: J. Knox Singleton
($37,463). Amounts deferred and accumulated earnings thereon are not funded and
are general unsecured liabilities of the trust until paid to the trustees.

As of December 1, 2009, 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. At a meeting of the trust's shareholders on
November 24, 2009, shareholders approved the reorganization of the trust to a
Delaware statutory trust. The reorganization is expected to be completed in
2010; however, the trust reserves the right to delay the implementation. A
summary comparison of the governing documents and state laws affecting the
Delaware statutory trust and the current form of organization of the trust can
be found in a joint proxy statement available on the SEC's website at sec.gov.
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.

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

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. 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.

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 not less than
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 Massachusetts, where
the trust was organized, there is no express provision relating to the
limitation of liability of the beneficial owners of a Massachusetts business
trust. However, under the laws of Massachusetts and the

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

District of Columbia, where the fund's principal office is located, shareholders
of a Massachusetts business trust may, under certain circumstances, be held
personally liable as partners for the obligations of the fund. However, the risk
of a shareholder incurring any financial loss on account of shareholder
liability is limited to circumstances in which 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.

Massachusetts law does not include an express provision limiting the liability
of the trustees of a Massachusetts business trust. 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 three trustees who are not
considered "interested persons" of the trust within the meaning of the 1940 Act
("independent trustees"): R. Clark Hooper, James C. Miller III (Chair) and
Donald L. Nickles. 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 J. Knox Singleton (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 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 four board of trustees meetings and seven committee meetings (six
audit and one governance committee) during the fiscal year ended July 31, 2009.
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

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

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 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 December 1, 2009. 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 OWNERSHIP PERCENTAGE
--------------------------------------------------------------------------------

First Clearing, LLC Record Class A 16.21%
Custody Account Class B 14.04
St. Louis, MO Class C 9.36
--------------------------------------------------------------------------------
Merrill Lynch Record Class A 7.94
Omnibus Account Class B 19.36
Jacksonville, FL Class C 27.98
Class F-2 11.43
--------------------------------------------------------------------------------
Edward D. Jones & Co. Record Class A 6.82
Omnibus Account
Maryland Heights, MO
--------------------------------------------------------------------------------
Morgan Stanley & Co., Inc. Record Class B 6.95
Omnibus Account Class F-1 5.59
Jersey City, NJ
--------------------------------------------------------------------------------
Citigroup Global Markets, Inc. Record Class B 5.22
Omnibus Account Class C 7.67
New York, NY Class F-1 10.92
--------------------------------------------------------------------------------
Charles Schwab & Co., Inc. Record Class F-1 16.84
Custody Account
San Francisco, CA
--------------------------------------------------------------------------------
LPL Financial Record Class F-1 6.43
Omnibus Account
San Diego, CA
--------------------------------------------------------------------------------
Capital Guardian Trust Company Record Class F-2 29.50
Personal Investment Management Account Beneficial
#1
Irvine, CA
--------------------------------------------------------------------------------
Capital Guardian Trust Company Record Class F-2 18.23
Personal Investment Management Account Beneficial
#2
Irvine, CA
--------------------------------------------------------------------------------
Capital Guardian Trust Company Record Class F-2 8.86
Personal Investment Management Account Beneficial
#3
Irvine, CA
--------------------------------------------------------------------------------

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

THE TAX-EXEMPT FUND OF VIRGINIA

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

First Clearing, LLC Record Class A 15.89%
Custody Account Class B 24.18
St. Louis, MO Class C 21.61
------------------------------------------------------------------------------
Edward D. Jones & Co. Record Class A 8.79
Omnibus Account Class B 5.96
Maryland Heights, MO
------------------------------------------------------------------------------
Citigroup Global Markets, Inc. Record Class A 6.77
Omnibus Account Class C 6.44
New York, NY
------------------------------------------------------------------------------
Merrill Lynch Record Class B 6.12
Omnibus Account Class C 14.50
Jacksonville, FL Class F-2 20.27
------------------------------------------------------------------------------
Raymond James & Associates, Inc. Record Class F-1 7.08
FBO Individual Investor Beneficial
McLean, VA
------------------------------------------------------------------------------
LPL Financial Record Class F-1 6.68
Omnibus Account
San Diego, CA
------------------------------------------------------------------------------
Capital Guardian Trust Company Record Class F-2 27.97
Personal Investment Management Account Beneficial
Irvine, CA
------------------------------------------------------------------------------
Charles Schwab & Co., Inc. Record Class F-2 13.53
Custody Account
San Francisco, CA
------------------------------------------------------------------------------
Trust Account Beneficial Class F-2 9.60
Clearwater, FL
------------------------------------------------------------------------------

UNLESS OTHERWISE NOTED, REFERENCES IN THIS STATEMENT OF ADDITIONAL INFORMATION
TO CLASS F SHARES REFER TO BOTH CLASS F-1 AND F-2 SHARE CLASSES.

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

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 contractual 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 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 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, summary 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, 2010 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 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 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 $2.5 million for the year ended December 31,
2008.

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.
Employees of the business manager and its affiliates, as well as trustees and
officers of the trust, may participate in a gift matching program sponsored by
the Foundation.

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

For the fiscal years ended July 31, 2009, 2008, and 2007 the business manager
was entitled to receive from the Maryland Fund fees of $531,000, $504,000 and
$449,000, respectively. After giving effect to the business manager fee waiver
described below, the fund paid the business manager $509,000 (a reduction of
$22,000), $454,000 (a reduction of $50,000) and $404,000 (a reduction of
$45,000) for the fiscal years ended July 31, 2009, 2008 and 2007, respectively.

For the fiscal years ended July 31, 2009, 2008 and 2007, the business manager
was entitled to receive from the Virginia Fund fees of $597,000, $524,000 and
$465,000, respectively. After giving effect to the business manager fee waiver
described below, the fund paid the business manager $573,000 (a reduction of
$24,000), $472,000 (a reduction of $52,000) and $418,000 (a reduction of
$47,000) for the fiscal years ended July 31, 2009, 2008 and 2007, respectively.

For the period from September 1, 2004 until March 31, 2005, the business manager
agreed to waive 5% of the fees that it was otherwise entitled to receive under
the Business Management Agreement. From April 1, 2005 through December 31, 2008,
this waiver increased to 10% of the fees that the business manager was otherwise
entitled to receive. The waiver was discontinued effective January 1, 2009.

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 Investors and Capital Research Global Investors, and
manages fixed-income assets through its Fixed Income division. Capital World
Investors and Capital Research Global Investors make investment decisions on an
independent basis.

Rather than remain as investment divisions, Capital World Investors and Capital
Research Global Investors may be incorporated into wholly owned subsidiaries of
Capital Research and Management Company. In that event, Capital Research and
Management Company would continue to be the investment adviser, and day-to-day
investment management of equity assets would continue to be carried out through
one or both of these subsidiaries. Although not currently contemplated, Capital
Research and Management Company could incorporate its Fixed Income division in
the future and engage it to provide day-to-day investment management of
fixed-income assets. Capital Research and Management Company and each of the
funds it advises have applied to the U.S. Securities and Exchange Commission for
an exemptive order that would give Capital Research and Management Company the
authority to use, upon approval of the fund's board, its management subsidiaries
and affiliates to provide day-to-day investment management services to the fund,
including making changes to the management subsidiaries and affiliates providing
such services. The fund's shareholders approved this arrangement at a meeting of
the fund's shareholders on November 24, 2009. There is no assurance that Capital
Research and Management Company will incorporate its investment divisions or
exercise any authority, if granted, under an exemptive order.

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

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 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 makes periodic subjective
assessments of analysts' contributions to the investment process and this is an
element of their overall compensation. The investment results of each of the
fund's portfolio counselors are measured against the following benchmarks:
Lipper Maryland Municipal Debt Funds Average and Barclays Capital Municipal
Maryland Index (The Tax-Exempt Fund of Maryland) and Lipper Virginia Municipal
Debt Funds Average and Barclays Capital Municipal Virginia Index (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 25
<PAGE>

THE FOLLOWING TABLE REFLECTS INFORMATION AS OF JULY 31, 2009:

NUMBER NUMBER
OF OTHER OF OTHER NUMBER
REGISTERED POOLED OF OTHER
INVESTMENT INVESTMENT ACCOUNTS
COMPANIES (RICS) VEHICLES (PIVS) FOR WHICH
FOR WHICH FOR WHICH PORTFOLIO
PORTFOLIO PORTFOLIO COUNSELOR
DOLLAR RANGE COUNSELOR COUNSELOR IS A MANAGER
OF FUND IS A MANAGER IS A MANAGER (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. Ellerin None/5/ 4/6/ $13.3 None None
------------------------------------------------------------------------------------------
Edward B. Nahmias None/5/ 1 $ 1.6 None None
------------------------------------------------------------------------------------------

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 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 or its affiliates 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 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.
6 Includes American Funds Short-Term Tax-Exempt Bond Fund, which commenced
operations as a short-term tax-exempt bond fund on August 7, 2009.

INVESTMENT ADVISORY AGREEMENT -- The Investment Advisory Agreement (the
"Agreement") between the fund and the investment adviser will continue in effect
until July 31, 2010, 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). In addition, the
Agreement provides that the investment adviser may delegate all, or a portion
of, its investment management responsibilities to one or more subsidiary
advisers that is approved by the fund's board, pursuant to an agreement between
the investment adviser and such subsidiary. Any such subsidiary adviser will be
paid solely by the investment adviser out of its fees.

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

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.

For the fiscal years ended July 31, 2009, 2008 and 2007, the investment adviser
was entitled to receive from the Maryland Fund management fees of $677,000,
$641,000 and $570,000, respectively. After giving effect to the management fee
waivers described below, the fund paid the investment adviser management fees of
$648,000 (a reduction of $29,000), $577,000 (a reduction of $64,000) and
$513,000 (a reduction of $57,000) for the fiscal years ended July 31, 2009, 2008
and 2007, respectively.

For the fiscal years ended July 31, 2009, 2008 and 2007, the investment adviser
was entitled to receive from the Virginia Fund management fees of $761,000,
$667,000 and $592,000, respectively. After giving effect to the management fee
waivers described below, the fund paid the investment adviser management fees of
$731,000 (a reduction of $30,000), $600,000 (a reduction of $67,000) and
$533,000 (a reduction of $59,000) for the fiscal years ended July 31, 2009, 2008
and 2007, 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. From April 1, 2005 through December 31, 2008,
this waiver increased to 10% of the management fees that the investment adviser
was otherwise entitled to receive. The waiver was discontinued effective January
1, 2009.

ADMINISTRATIVE SERVICES AGREEMENT -- The Administrative Services Agreement (the
"Administrative Agreement") between the fund and the investment adviser relating
to the fund's Class C and F shares will continue in effect until July 31, 2010,
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 and F shares. The investment adviser may contract with third parties,
including American Funds Service Company/(R)/, 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, oversees and assists with 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 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

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

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. The administrative services fee includes compensation
for transfer agent and shareholder services provided to the fund's 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, based principally on the number of accounts serviced, contained in a
Shareholder Services Agreement between the fund and American Funds Service
Company. A portion of the fees paid to American Funds Service Company for
transfer agent services is also paid directly from the relevant share class.

During the 2009 fiscal year, administrative services fees, gross of any payments
made by the investment adviser, were:

Administrative service fee
--------------------------------------------------------------

MARYLAND FUND CLASS C
CLASS F-1
CLASS F-2
CLASS R-5/*/
--------------------------------------------------------------
VIRGINIA FUND CLASS C
CLASS F-1
CLASS F-2
CLASS R-5/*/
--------------------------------------------------------------

* Class R-5 shares were only offered through June 29, 2009

PRINCIPAL UNDERWRITER AND PLANS OF DISTRIBUTION -- American Funds
Distributors,/(R)/ 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 relating to sales of the funds'
shares, as follows:

. For Class A shares, the Principal Underwriter receives commission
revenue consisting of the balance of the Class A sales charge
remaining after the allowances by the Principal Underwriter to
investment dealers.

. For Class B shares sold prior to April 21, 2009, the Principal
Underwriter sold its rights to the 0.75% distribution-related portion
of the 12b-1 fees paid by the fund, as well as any contingent deferred
sales charges, to a third party. The Principal Underwriter compensated
investment dealers for sales of Class B shares out of the proceeds of
this sale and kept any amounts remaining after this compensation was
paid.

. For Class C shares, the Principal Underwriter receives any contingent
deferred sales charges that apply during the first year after
purchase.

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

In addition, the funds reimburse the Principal Underwriter for advancing
immediate service fees to qualified dealers and advisers upon the sale of Class
C shares. The fund also reimbursed the Principal Underwriter for advancing
immediate service fees to qualified dealers on sales of Class B shares prior to
April 21, 2009. The funds also reimburse the Principal Underwriter for service
fees paid on a quarterly basis to qualified dealers and advisers in connection
with investments in Class F-1 shares.

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 2009 Maryland Fund $ 95,000 Maryland Fund $364,000
Virginia Fund 151,000 Virginia Fund 580,000
2008 Maryland Fund 152,000 Maryland Fund 585,000
Virginia Fund 123,000 Virginia Fund 470,000
2007 Maryland Fund 182,000 Maryland Fund 713,000
Virginia Fund 115,000 Virginia Fund 493,000
---------------------------------------------------------------------------------------------
CLASS B 2009 Maryland Fund 2,000 Maryland Fund 13,000
Virginia Fund 2,000 Virginia Fund 17,000
2008 Maryland Fund 3,000 Maryland Fund 18,000
Virginia Fund 3,000 Virginia Fund 27,000
2007 Maryland Fund 5,000 Maryland Fund 32,000
Virginia Fund 5,000 Virginia Fund 33,000
---------------------------------------------------------------------------------------------
CLASS C 2009 Maryland Fund 14,000 Maryland Fund 82,000
Virginia Fund -- Virginia Fund 95,000
2008 Maryland Fund -- Maryland Fund 77,000
Virginia Fund -- Virginia Fund 86,000
2007 Maryland Fund 17,000 Maryland Fund 57,000
Virginia Fund -- Virginia Fund 38,000
---------------------------------------------------------------------------------------------

Plans of distribution -- Each of the funds has adopted plans of distribution
(the "Plans") pursuant to rule 12b-1 under the 1940 Act. The Plans permit the
fund to expend amounts to finance any activity primarily intended to result in
the sale of fund shares, provided each fund's board of trustees has approved the
category of expenses for which payment is being made.

Each Plan is specific to a particular share class of each fund. As neither of
the funds have adopted a Plan for Class F-2, no 12b-1 fees are paid from Class
F-2 share assets and the following disclosure is not applicable to these share
classes.

Payments under the Plans may be made for service-related and/or
distribution-related expenses. Service-related expenses include paying service
fees to qualified dealers. Distribution-related expenses include commissions
paid to qualified dealers. The amounts actually paid under the Plans for the
past fiscal year, expressed as a percentage of the fund's average daily net
assets attributable to the applicable share class, are disclosed in the
prospectus under "Fees and expenses of the fund." Further information regarding
the amounts available under each Plan is in the "Plans of Distribution" section
of the prospectus.

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

Following is a brief description of the Plans:

CLASS A -- For Class A shares, up to 0.25% of each fund's average daily net
assets attributable to such shares is reimbursed to the Principal
Underwriter for paying service-related expenses, and the balance available
under the applicable Plan may be paid to the Principal Underwriter for
distribution-related expenses.

Distribution-related expenses for Class A shares include dealer commissions
and wholesaler compensation paid on sales of shares of $1 million or more
purchased without a sales charge. Commissions on these "no load" purchases
(which are described in further detail under the "Sales Charges" section of
this statement of additional information document) in excess of the Class A
Plan limitations and not reimbursed to the Principal Underwriter during the
most recent fiscal quarter are recoverable for five quarters, provided that
the reimbursement of such commissions does not cause the fund to exceed the
annual expense limit. After five quarters, these commissions are not
recoverable. As of July 31, 2009, unreimbursed expenses which remain
subject to reimbursement under the Plan for Class A shares totaled
$383,000, or 0.11% of Class A net assets for the Maryland Fund, and
$638,000, or 0.15% of Class A net assets for the Virginia Fund.

CLASS B -- The Plans for Class B shares provide for payments to the
Principal Underwriter of up to 0.25% of each fund's average daily net
assets attributable to such shares for paying service-related expenses and
0.75% for distribution-related expenses, which include the financing of
commissions paid to qualified dealers.

CLASS C -- The Plans for Class C shares provide for payments to the
Principal Underwriter of up to 0.25% of each fund's average daily net
assets attributable to such shares for paying service-related expenses and
0.75% for distribution-related expenses.

CLASS F-1 -- The Plans for Class F-1 shares provide for payments to the
Principal Underwriter of up to 0.25% of each fund's average daily net
assets attributable to such shares for paying service-related expenses. The
funds may annually expend up to 0.50% for Class F-1 shares under the
applicable Plan with the approval of the board of trustees.

During the 2009 fiscal year, 12b-1 expenses, accrued and paid, and if
applicable, unpaid were:

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

CLASS A Maryland Fund $656,000 Maryland Fund $94,000
Virginia Fund 776,000 Virginia Fund 106,000
-----------------------------------------------------------------------------
CLASS B Maryland Fund 114,000 Maryland Fund 10,000
Virginia Fund 92,000 Virginia Fund 9,000
-----------------------------------------------------------------------------
CLASS C Maryland Fund 295,000 Maryland Fund 41,000
Virginia Fund 247,000 Virginia Fund 39,000
-----------------------------------------------------------------------------
CLASS F-1 Maryland Fund 49,000 Maryland Fund 11,000
Virginia Fund 71,000 Virginia Fund 14,000
-----------------------------------------------------------------------------

Approval of the Plans - 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
of the funds who have no direct or indirect

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

financial interest in the operation of the Plans or the Principal Underwriting
Agreement. In addition, the selection and nomination of independent trustees of
the funds are committed to the discretion of the independent trustees during the
existence of the Plans.

Potential benefits of the Plans to the funds include quality shareholder
services, savings to the funds in transfer agency costs, and benefits to the
investment process from growth or stability of assets. The Plans may not be
amended to increase materially the amount spent for distribution without
shareholder approval. Plan expenses are reviewed quarterly by the boards of
trustees and the Plans must be renewed annually by the boards of trustees.

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 $25,000, $16,000 and $26,000 on its retail sales of the Maryland Fund
and $19,000, $15,000 and $25,000 on its retail sales of the Virginia Fund,
respectively, for the fiscal years ended July 31, 2009, 2008 and 2007.

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 July 2009, the top dealers (or their
affiliates) that American Funds Distributors anticipates will receive additional
compensation (as described in the prospectus) include:

AIG Advisors Group
Advantage Capital Corporation
American General Securities Incorporated
FSC Securities Corporation
Royal Alliance Associates, Inc.
SagePoint Financial, Inc.
AXA Advisors, LLC
Cadaret, Grant & Co., Inc
Cambridge Investment Research, Inc.
Commonwealth Financial Network
Cuna Brokerage Services, 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.

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

Intersecurities / Transamerica
InterSecurities, Inc.
Transamerica Financial Advisors, Inc.
J. J. B. Hilliard, W. L. Lyons, LLC
JJB Hilliard/PNC Bank
PNC Bank, National Association
PNC Investments LLC
Lincoln Financial Advisors Corporation
Lincoln Financial Securities Corporation
LPL Group
Associated Securities Corp.
LPL Financial Corporation
Mutual Service Corporation
Uvest Investment Services
Waterstone Financial Group, Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Metlife Enterprises
Metlife Securities Inc.
New England Securities
Tower Square Securities, Inc.
Walnut Street Securities, Inc.
MML Investors Services, Inc.
Morgan Keegan & Company, Inc.
Morgan Stanley Smith Barney LLC
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
Park Avenue Securities LLC
PFS Investments Inc.
Raymond James Group
Raymond James & Associates, Inc.
Raymond James Financial Services Inc.
RBC Capital Markets Corporation
Robert W. Baird & Co. Incorporated
Securian / C.R.I.
CRI Securities, LLC
Securian Financial Services, Inc.
U.S. Bancorp Investments, Inc.
UBS Financial Services Inc.
Wells Fargo Network
A. G. Edwards, A Division Of Wells Fargo Advisors, LLC
First Clearing LLC
H.D. Vest Investment Securities, Inc.
Wells Fargo Advisors Financial Network, LLC
Wells Fargo Advisors Investment Services Group
Wells Fargo Advisors Latin American Channel
Wells Fargo Advisors Private Client Group
Wells Fargo Investments, LLC

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

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

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 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, each equity
investment division of the investment adviser periodically assesses the
brokerage and investment research services provided by each broker-dealer from
which it receives such services. Using its judgment, each equity investment
division of 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 than 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 in connection with 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 its 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

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

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 of the funds managed by the investment
adviser or its affiliated companies; however, it does not consider whether a
broker-dealer has sold shares of the funds managed by the investment adviser or
its affiliated companies when placing any such orders for the fund's portfolio
transactions.

No brokerage commissions were paid by the fund on portfolio transactions for the
fiscal years ended July 31, 2009, 2008 and 2007.

During fiscal years 2009, 2008 and 2007 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.

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

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, including officers of the fund and employees of
the investment adviser and its affiliates, 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 not to trade in securities based on confidential and proprietary
investment information, to maintain the confidentiality of such information, and
to preclear securities trades and report securities transactions activity, as
applicable. For more information on these restrictions and limitations, please
see the "Code of Ethics" section in this statement of additional information and
the Code of Ethics. Third party service providers of the fund, as described in
this statement of additional information, 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 will be bound by agreements (including confidentiality agreements)
or fiduciary obligations 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.

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.

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

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 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 p.m., the fund's share price would still be determined
as of 4 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 American Funds Money Market Fund) 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.

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 one or more independent pricing vendors, when such prices are
available; however, in circumstances where the investment adviser deems it
appropriate to do so, such securities will be valued in good faith at the mean
quoted bid and asked prices that are reasonably and timely available (or bid
prices, if asked prices are not available) or at prices for securities of
comparable maturity, quality and type. The pricing vendors base bond prices on,
among other things, valuation matrices which may incorporate dealer-supplied
valuations, proprietary pricing models and an evaluation of the yield curve as
of approximately 3 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

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

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 currencies other than U.S.
dollars 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 consider certain relevant principles and factors 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. Fair valuations and valuations of investments that are not
actively trading involve judgment and may differ materially from valuations that
would have been used had greater market activity occurred. The valuation
committee considers relevant indications of value that are reasonably and timely
available to it in determining the fair value to be assigned to a particular
security, such as 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.

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 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.

Net assets so obtained for each share class are 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.

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

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.

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 the length of time the shares of a fund have been held by the
shareholder.

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.

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

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-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.

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

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 fund 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.

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

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 transaction confirmation and mailing the form, along
with a check made payable to the fund, using the envelope provided with
your confirmation.

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 either of the following addresses:

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

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 statement of additional
information for more information regarding this service.

BY INTERNET -- Using americanfunds.com. Please see the "Shareholder account
services and privileges" section of this statement of additional
information 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)

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

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.

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:

. 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 this statement of additional information. However, in the case
where the entity maintaining these accounts aggregates the accounts'

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

purchase orders for fund shares, such accounts are not required to meet the
fund's minimum amount for subsequent purchases.

EXCHANGES -- You may only exchange shares into other American Funds within the
same share class. However, exchanges from Class A shares of American Funds Money
Market Fund may be made to Class C shares of other American Funds for dollar
cost averaging purposes. Exchanges are not permitted from Class A shares of
American Funds Money Market Fund to Class C shares of Intermediate Bond Fund of
America, Limited Term Tax-Exempt Bond Fund of America or 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 Fund are subject to applicable sales
charges, unless the American Funds 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" in this statement of additional
information. 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" in this
statement of additional information).

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 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

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

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 any applicable deferred sales charges
attributable to those Class B shares, but you will not be required to pay a
Class A sales charge. If, however, 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.

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 requirements
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 to receive the Class A shares without paying an initial Class A
sales charge.

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.

EXCHANGING CLASS F-1 SHARES FOR CLASS F-2 SHARES -- If you are part of a
qualified fee-based program that offers Class F-2 shares, you may exchange
your Class F-1 shares for Class F-2 shares to be held in the program.

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.

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

SALES CHARGES

CLASS A PURCHASES

PURCHASES BY CERTAIN 403(B) PLANS

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

A 403(b) plan may not invest in Class A or C shares unless such plan was
invested in Class A, or C shares before January 1, 2009.

Participant accounts of a 403(b) plan that were treated as an
individual-type plan for sales charge purposes before January 1, 2009, may
continue to be treated as accounts of an individual-type plan for sales
charge purposes. Participant accounts of a 403(b) plan that were treated as
an employer-sponsored plan for sales charge purposes before January 1,
2009, may continue to be treated as accounts of an employer-sponsored plan
for sales charge purposes. Participant accounts of a 403(b) plan that is
established on or after January 1, 2009 are treated as accounts of an
employer-sponsored plan for sales charge purposes.

PURCHASES BY SEP PLANS AND SIMPLE IRA PLANS

Participant accounts in a Simplified Employee Pension (SEP) plan or a
Savings Incentive Match Plan for Employees of Small Employers IRA (SIMPLE
IRA) plan will be aggregated together for Class A sales charge purposes if
the SEP plan or SIMPLE IRA plan was established after November 15, 2004 by
an employer adopting a prototype plan produced by American Funds
Distributors, Inc. In the case where the employer adopts any other plan
(including, but not limited to, an IRS model agreement), each participant's
account in the plan will be aggregated with the participant's own personal
investments that qualify under the aggregation policy. A SEP plan or SIMPLE
IRA plan with a certain method of aggregating participant accounts as of
November 15, 2004 may continue with that method so long as the employer has
not modified the plan document since that date.

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 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

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

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
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;

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

. 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.

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 initial 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.

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

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
the American Funds (excluding American Funds Money Market Fund) 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,
unless the Statement is upgraded as described below.

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.

You may revise the commitment you have made in your Statement upward at any
time during the Statement period. If your prior commitment has not been met
by the time of the revision, the Statement period during which purchases
must be made will remain unchanged. Purchases made from the date of the
revision will receive the reduced sales charge, if any, resulting from the
revised Statement. If your prior commitment has been met by the time of the
revision, your original Statement will be considered met and a new
Statement will be established.

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 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. In addition, effective May 1, 2009, the

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

Statements for these plans will expire if they have not been met by the
next anniversary of the establishment of such Statement. 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,
single-participant Keogh-type plan, or a participant account of a
403(b) plan that is treated as an individual-type plan for sales
charge purposes (see "Purchases by certain 403(b) plans" under "Sales
charges" in this statement of additional information);

. SEP plans and SIMPLE IRA plans established after November 15, 2004 by
an employer adopting any plan document other than a prototype plan
produced by American Funds Distributors, Inc.;

. 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.)

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;

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

. 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;

. for participant accounts of a 403(b) plan that is treated as an
employer-sponsored plan for sales charge purposes (see "Purchases by
certain 403(b) plans" under "Sales charges" in this statement of
additional information), or made for participant accounts of two or
more such plans, in each case of a single employer or affiliated
employers as defined in the 1940 Act; or

. for a SEP or SIMPLE IRA plan established after November 15, 2004 by an
employer adopting a prototype plan produced by American Funds
Distributors, Inc.

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 holdings in Endowments and applicable holdings
in the American Funds Target Date Retirement Series. 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 Fund 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 and applicable holdings in the American Funds Target Date
Retirement Series, to determine your sales charge on investments in
accounts eligible to be aggregated. Direct purchases of American Funds
Money Market Fund 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") as of the day prior to your American Funds investment 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

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

held in nominee or street name may 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 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.

RIGHT OF REINVESTMENT -- As described in the prospectus, certain
transactions may be eligible for investment without a sales charge pursuant
to the fund's right of reinvestment policy. Recent legislation suspended
required minimum distributions from individual retirement accounts and
employer-sponsored retirement plan accounts for the 2009 tax year. Given
this suspension, proceeds from an automatic withdrawal plan to satisfy a
required minimum distribution may be invested without a sales charge for
the 2009 tax year, or any subsequent period, to the extent such legislation
is extended. This policy is subject to any restrictions regarding the
investment of proceeds from a required minimum distribution that may be
established by the transfer agent.

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

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 post-purchase 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" in this statement of additional information). 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 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 Fund 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.

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

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 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 American Funds
Money Market Fund be wired to your bank by writing American Funds Service
Company. A signature guarantee is required on all requests to wire funds.

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

SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES

The following services and privileges are generally available to all
shareholders. However, certain services and privileges described in the
prospectus and this statement of additional information 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 may be automatically 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

(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.

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

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 -- Depending on the type of account, for all share classes
except R shares, 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. You should consult with your adviser or intermediary to determine if
your account is eligible for automatic withdrawals.

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 56
<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 Fund 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.

While payment of redemptions normally will be in cash, the trust's declaration
of trust permits payment of the redemption price wholly or partly with portfolio
securities or other fund assets under conditions and circumstances determined by
the trust's board of trustees. For example, redemptions could be made in this
manner if the board determined that making payments wholly in cash over a
particular period would be unfair and/or harmful to other fund shareholders.

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

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

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 $77,000 and $3,000 for Class A and B shares,
respectively, of the Maryland Fund and $81,000 and $2,000 for Class A and B
shares, respectively, of the Virginia Fund for the 2009 fiscal year. American
Funds Service Company is also compensated for certain transfer agency services
provided to all share classes from the administrative services fees paid to
Capital Research and Management Company and from the relevant share class, as
described under "Administrative services agreement."

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 audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report appearing herein. Such financial statements have been so
included in reliance upon the report of such firm given upon their authority 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 independent legal counsel to the
independent trustees in their capacities as such. A determination with respect
to the independence of their 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 summary prospectuses
annually and at least semi-annually 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

The American Funds Tax-Exempt Series I -- Page 58
<PAGE>

one account, the Transfer Agent has taken steps to eliminate duplicate mailings
of summary prospectuses, shareholder reports and proxy statements. To receive
additional copies of a summary prospectus, report or proxy statement,
shareholders should contact the Transfer Agent.

Shareholders may also elect to receive updated summary prospectuses, annual
reports and semi-annual reports electronically by signing up for electronic
delivery on our website, americanfunds.com. Upon electing the electronic
delivery of updated summary prospectuses and other reports, a shareholder will
no longer automatically receive such documents in paper form by mail. A
shareholder who elects electronic delivery is able to cancel this service at any
time and return to receiving updated summary prospectuses and other reports in
paper form by mail.

Summary prospectuses, prospectuses, annual reports and semi-annual reports that
are mailed to shareholders by the American Funds organization are printed with
ink containing soy and/or vegetable oil on paper containing recycled fibers.

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, or FINRA) 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
complaint seeks sanctions, restitution and disgorgement. On August 30, 2006, a
FINRA Hearing Panel ruled against the Principal Underwriter and imposed a $5
million fine. On April 30, 2008, FINRA's National Adjudicatory Council affirmed
the decision by FINRA's Hearing Panel. The Principal Underwriter has appealed
this decision to the Securities and Exchange Commission.

The investment adviser and Principal Underwriter believe that the likelihood
that this matter 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
this and other matters. The investment adviser believes that these suits are
without merit and will defend itself vigorously.

The American Funds Tax-Exempt Series I -- Page 59
<PAGE>

DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE
PER SHARE FOR CLASS A SHARES -- JULY 31, 2009

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). . . . . . . . . . . . . . . $14.95 $15.90
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) . . . . . . . . . . . . . $15.53 $16.52

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 60
<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-1 CLASS F-2 CLASS R-5
------------------------------------------------------------------------------------

STOCK AND STOCK/BOND
FUNDS
AMCAP Fund/(R)/ . . . 02 202 302 402 602 2502
American Balanced
Fund/(R)/ . . . . . . 11 211 311 411 611 2511
American Mutual
Fund/(R)/ . . . . . . 03 203 303 403 603 2503
Capital Income
Builder/(R)/ . . . . 12 212 312 412 612 2512
Capital World Growth
and Income Fund/SM/ . 33 233 333 433 633 2533
EuroPacific Growth
Fund/(R)/ . . . . . . 16 216 316 416 616 2516
Fundamental
Investors/SM/ . . . . 10 210 310 410 610 2510
The Growth Fund of
America/SM/ . . . . . 05 205 305 405 605 2505
The Income Fund of
America/(R)/. . . . . 06 206 306 406 606 2506
International Growth
and Income Fund/SM/ . 34 234 334 434 634 2534
The Investment Company
of America/(R)/ . . . 04 204 304 404 604 2504
The New Economy
Fund/(R)/ . . . . . . 14 214 314 414 614 2514
New Perspective
Fund/(R)/ . . . . . . 07 207 307 407 607 2507
New World Fund/(R)/ . 36 236 336 436 636 2536
SMALLCAP World
Fund/(R)/ . . . . . . 35 235 335 435 635 2535
Washington Mutual
Investors Fund/SM/ . 01 201 301 401 601 2501
BOND FUNDS
American Funds
Short-Term Tax-Exempt
Bond Fund/SM/ . . . . 39 N/A N/A 439 639 N/A
American High-Income
Municipal Bond
Fund/(R)/ . . . . . . 40 240 340 440 640 N/A
American High-Income
Trust/SM/ . . . . . . 21 221 321 421 621 2521
The Bond Fund of
America/SM/ . . . . . 08 208 308 408 608 2508
Capital World Bond
Fund/(R)/ . . . . . . 31 231 331 431 631 2531
Intermediate Bond Fund
of America/(R)/ . . . 23 223 323 423 623 2523
Limited Term
Tax-Exempt Bond Fund
of America/SM/ . . . 43 243 343 443 643 N/A
Short-Term Bond Fund
of America/SM/. . . . 48 248 348 448 648 2548
The Tax-Exempt Bond
Fund of America/(R)/ 19 219 319 419 619 N/A
The Tax-Exempt Fund of
California/(R)/*. . . 20 220 320 420 620 N/A
The Tax-Exempt Fund of
Maryland/(R)/*. . . . 24 224 324 424 624 N/A
The Tax-Exempt Fund of
Virginia/(R)/*. . . . 25 225 325 425 625 N/A
U.S. Government
Securities Fund/SM/ . 22 222 322 422 622 2522
MONEY MARKET FUNDS
American Funds Money
Market Fund/SM/ . . . 59 259 359 459 659 2559
___________
*Qualified for sale only in certain jurisdictions.

The American Funds Tax-Exempt Series I -- Page 61
<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 62
<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 63
<PAGE>

C
A C rating is assigned to obligations that are currently highly vulnerable to
nonpayment, obligations that have payment arrearages allowed by the terms of the
documents, or obligations of an issuer that is the subject of a bankruptcy
petition or similar action which have not experienced a payment default. Among
others, the C rating may be assigned to subordinated debt, preferred stock or
other obligations on which cash payments have been suspended in accordance with
the instrument's terms.

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.

The American Funds Tax-Exempt Series I -- Page 64
<PAGE>

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.

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 65

Tax-Exempt Fund of Maryland®

Investment portfolio

July 31, 2009
	Principal amount	Value
Bonds & notes — 92.54%	(000)	(000)

MARYLAND — 85.91%
STATE ISSUERS — 45.66%
Community Dev. Administration, Dept. of Housing and Community Dev., Housing Rev. Bonds, GNMA Collateralized, Series 2002-B, AMT, 4.85% 2022	$2,000	$1,972
Community Dev. Administration, Dept. of Housing and Community Dev., Housing Rev. Bonds, Series 2007-A, AMT, 4.85% 2037	1,300	1,155
Community Dev. Administration, Dept. of Housing and Community Dev., Residential Rev. Bonds, Series 2001-H, AMT, 5.20% 2022	900	902
Community Dev. Administration, Dept. of Housing and Community Dev., Residential Rev. Bonds, Series 2006-F, AMT, 6.00% 2039	3,115	3,153
Community Dev. Administration, Dept. of Housing and Community Dev., Residential Rev. Bonds, Series D, AMT, 4.65% 2022	1,000	965
Community Dev. Administration, Dept. of Housing and Community Dev., Residential Rev. Bonds, Series I, AMT, 6.00% 2041	1,570	1,571
Econ. Dev. Corp., Lease Rev. Bonds (Aviation Administration Facs.), Series 2003, AMT, FSA insured, 5.25% 2012	1,000	1,051
Econ. Dev. Corp., Lease Rev. Bonds (Aviation Administration Facs.), Series 2003, AMT, FSA insured, 5.50% 2013	1,500	1,599
Econ. Dev. Corp., Lease Rev. Bonds (Aviation Administration Facs.), Series 2003, AMT, FSA insured, 5.50% 2015	2,000	2,122
Econ. Dev. Corp., Lease Rev. Bonds (Dept. of Transportation Headquarters Fac.), Series 2002, 5.00% 2014	1,755	1,918
Econ. Dev. Corp., Lease Rev. Bonds (Dept. of Transportation Headquarters Fac.), Series 2002, 5.375% 2019	1,500	1,612
Econ. Dev. Corp., Rev. Bonds (Anne Arundel County, Golf Course System), Series 2001, 8.25% 2028 (preref. 2011)	1,865	2,113
Econ. Dev. Corp., Rev. Ref. Bonds (Chesapeake Bay Conference Center Project), Series 2006-A, 4.75% 2011	600	521
Econ. Dev. Corp., Student Housing Rev. Bonds (Towson University Project), Series 2007-A, 5.25% 2024	1,000	882
Econ. Dev. Corp., Student Housing Rev. Bonds (Towson University Project), Series 2007-A, 5.25% 2037	3,265	2,576
Econ. Dev. Corp., Student Housing Rev. Bonds (University of Maryland, College Park Projects), Series 2008, 5.80% 2038	3,000	2,836
Econ. Dev. Corp., Student Housing Rev. Ref. Bonds (University of Maryland, College Park Projects), Series 2006, CIFG insured, 5.00% 2020	1,000	922
Econ. Dev. Corp., Student Housing Rev. Ref. Bonds (University of Maryland, College Park Projects), Series 2006, CIFG insured, 5.00% 2021	1,000	912
Econ. Dev. Corp., Student Housing Rev. Ref. Bonds (University of Maryland, College Park Projects), Series 2006, CIFG insured, 5.00% 2026	1,000	862
Econ. Dev. Corp., Utility Infrastructure Rev. Bonds (University of Maryland, College Park Project), Series 2001, AMBAC insured, 5.25% 2011	3,355	3,573
Econ. Dev. Corp., Utility Infrastructure Rev. Bonds (University of Maryland, College Park Project), Series 2001, AMBAC insured, 5.375% 2015	2,190	2,321
G.O. Bonds, State and Local Facs., First Series Loan of 2000, Series H, 5.50% 2010	2,000	2,101
G.O. Bonds, State and Local Facs., First Series Loan of 2001, Series H, 5.50% 2011	1,000	1,077
G.O. Bonds, State and Local Facs., First Series Loan of 2003, Capital Improvement Bonds, Series A, 5.25% 2016	1,500	1,779
G.O. Bonds, State and Local Facs., First Series Loan of 2009, Series A, 5.00% 2024	1,000	1,097
G.O. Bonds, State and Local Facs., Second Series Loan of 2007, 5.00% 2010	4,000	4,183
G.O. Bonds, State and Local Facs., Second Series Loan of 2008, 5.00% 2021	2,000	2,269
G.O. Bonds, State and Local Facs., Second Series Loan of 2008, 5.00% 2023	2,000	2,231
Health and Higher Educational Facs. Auth., FHA Insured Mortgage Rev. Bonds, Western Maryland Health System Issue, Series 2006-A, National insured, 5.00% 2024	2,000	2,017

	Principal amount	Value
Bonds & notes	(000)	(000)

STATE ISSUERS (continued)
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	$ 940
Health and Higher Educational Facs. Auth., Parking Rev. Bonds (Johns Hopkins Medical Institutions Parking Facs. Issue), Series 2001, AMBAC insured, 5.00% 2034	880	710
Health and Higher Educational Facs. Auth., Rev. Bonds (Johns Hopkins Health System Obligated Group Issue), Series 2008-B, 5.00% 2048 (put 2015)	1,000	1,079
Health and Higher Educational Facs. Auth., Rev. Bonds (Anne Arundel Medical Center Issue), Series 1998, FSA insured, 5.125% 2028	1,000	1,003
Health and Higher Educational Facs. Auth., Rev. Bonds (Carroll Hospital Center Issue), Series 2006, 4.50% 2026	1,000	884
Health and Higher Educational Facs. Auth., Rev. Bonds (Carroll Hospital Center Issue), Series 2006, 5.00% 2036	1,500	1,341
Health and Higher Educational Facs. Auth., Rev. Bonds (Edenwald Issue), Series 2006-A, 5.40% 2031	1,000	836
Health and Higher Educational Facs. Auth., Rev. Bonds (Edenwald Issue), Series 2006-A, 5.40% 2037	2,500	2,034
Health and Higher Educational Facs. Auth., Rev. Bonds (Howard County General Hospital Issue), Series 1993, 5.50% 2013 (escrowed to maturity)	925	977
Health and Higher Educational Facs. Auth., Rev. Bonds (Howard County General Hospital Issue), Series 1993, 5.50% 2021 (escrowed to maturity)	1,000	1,033
Health and Higher Educational Facs. Auth., Rev. Bonds (Johns Hopkins University Issue), Series 2008-A, 5.00% 2018	2,000	2,340
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (Johns Hopkins University Issue), Series 2001-A, 5.00% 2011	1,000	1,082
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (Johns Hopkins University Issue), Series 2001-A, 5.00% 2013	1,000	1,066
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (Johns Hopkins University Issue), Series 2002-A, 5.00% 2032	1,000	1,001
Health and Higher Educational Facs. Auth., Rev. Bonds (Kaiser Permanente), Series 1998-A, 5.375% 2015	1,000	1,011
Health and Higher Educational Facs. Auth., Rev. Bonds (LifeBridge Health Issue), Series 2004-A, 5.00% 2012 (escrowed to maturity)	1,000	1,114
Health and Higher Educational Facs. Auth., Rev. Bonds (LifeBridge Health Issue), Series 2004-A, 5.00% 2014 (escrowed to maturity)	2,450	2,822
Health and Higher Educational Facs. Auth., Rev. Bonds (LifeBridge Health Issue), Series 2004-A, 5.25% 2018 (preref. 2014)	1,000	1,154
Health and Higher Educational Facs. Auth., Rev. Bonds (LifeBridge Health Issue), Series 2008, ASSURED GUARANTY insured, 5.00% 2020	2,710	2,873
Health and Higher Educational Facs. Auth., Rev. Bonds (LifeBridge Health Issue), Series 2008, ASSURED GUARANTY insured, 5.00% 2028	1,000	1,024
Health and Higher Educational Facs. Auth., Rev. Bonds (Medlantic/Helix Issue), Series 1998-B, AMBAC insured, 5.25% 2038	1,500	1,383
Health and Higher Educational Facs. Auth., Rev. Bonds (Mercy Medical Center Issue), Series 2007-A, 5.00% 2032	4,000	3,361
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (Mercy Medical Center Issue), Series 1996, FSA insured, 6.50% 2013	1,410	1,558
Health and Higher Educational Facs. Auth., Rev. Bonds (Mercy Ridge Issue), Series 2003-A, 6.00% 2035 (preref. 2013)	2,000	2,346
Health and Higher Educational Facs. Auth., Rev. Bonds (Mercy Ridge Issue), Series 2007, 4.50% 2022	1,065	955
Health and Higher Educational Facs. Auth., Rev. Bonds (Mercy Ridge Issue), Series 2007, 4.75% 2034	3,590	2,861
Health and Higher Educational Facs. Auth., Rev. Bonds (Mercy Ridge Issue), Series 2007, 4.50% 2035	1,000	750
Health and Higher Educational Facs. Auth., Rev. Bonds (Peninsula Regional Medical Center Issue), Series 2006, 5.00% 2016	1,200	1,267
Health and Higher Educational Facs. Auth., Rev. Bonds (Peninsula Regional Medical Center Issue), Series 2006, 5.00% 2021	1,000	1,016
Health and Higher Educational Facs. Auth., Rev. Bonds (Peninsula Regional Medical Center Issue), Series 2006, 5.00% 2036	4,000	3,823
Health and Higher Educational Facs. Auth., Rev. Bonds (University of Maryland Medical System Issue), Series 2000, 6.75% 2030 (preref. 2010)	2,000	2,135
Health and Higher Educational Facs. Auth., Rev. Bonds (University of Maryland Medical System Issue), Series 2006-A, 5.00% 2036	2,000	1,773
Health and Higher Educational Facs. Auth., Rev. Bonds (Washington County Hospital Issue), Series 2008, 5.75% 2033	1,595	1,426
Health and Higher Educational Facs. Auth., Rev. Bonds (Washington County Hospital Issue), Series 2008, 5.75% 2038	1,000	876
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (Adventist HealthCare Issue), Series 2003-A, 5.00% 2012	765	768
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (Adventist HealthCare Issue), Series 2003-A, 5.75% 2025	1,000	925
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (MedStar Health Issue), Series 2004, 5.00% 2013	1,000	1,051
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (MedStar Health Issue), Series 2004, 5.75% 2014	1,845	1,996
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (MedStar Health Issue), Series 2004, 5.75% 2015	1,500	1,608

	Principal amount	Value
Bonds & notes	(000)	(000)

STATE ISSUERS (continued)
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (MedStar Health Issue), Series 2004, 5.75% 2016	$3,500	$ 3,725
Health and Higher Educational Facs. Auth., Rev. Ref. Bonds (MedStar Health Issue), Series 2004, 5.50% 2033	1,000	974
Industrial Dev. Fncg. Auth., Econ. Dev. Rev. Bonds (Our Lady of Good Counsel High School Fac.), Series 2005-A, 6.00% 2035	1,000	746
Morgan State University, Academic Fees and Auxiliary Facs. Fees Rev. Bonds, Series 2003-A, FGIC-National insured, 5.00% 2020	1,375	1,423
Dept. of Transportation, Consolidated Transportation Bonds, Series 2002, 5.50% 2017	2,000	2,391
Dept. of Transportation, Consolidated Transportation Bonds, Series 2003, 5.25% 2014	4,000	4,712
Dept. of Transportation, Consolidated Transportation Bonds, Series 2003, 5.00% 2015	1,500	1,744
Dept. of Transportation, Consolidated Transportation Bonds, Series 2004, 5.00% 2018	1,000	1,109
Dept. of Transportation, Consolidated Transportation Bonds, Series 2008, 5.00% 2018	1,000	1,165
Dept. of Transportation, Consolidated Transportation Bonds, Series 2008, 5.00% 2020	2,000	2,270
Transportation Auth., Airport Parking Rev. Bonds (Baltimore/Washington International Airport Projects), Series 2002-B, AMT, AMBAC insured, 5.375% 2015	2,000	2,048
Transportation Auth., Grant and Rev. Anticipation Bonds, Series 2007, 5.00% 2019	2,500	2,838
Transportation Auth., Grant and Rev. Anticipation Bonds, Series 2008, 5.25% 2018	4,000	4,727
Transportation Auth., Grant and Rev. Anticipation Bonds, Series 2008, 5.25% 2020	1,000	1,167
Transportation Auth., Transportation Facs. Projects Rev. Bonds, Series 2007, FSA insured, 5.00% 2021	3,000	3,335
Transportation Auth., Transportation Facs. Projects Rev. Bonds, Series 2008, 5.00% 2020	1,545	1,746
Transportation Auth., Transportation Facs. Projects Rev. Bonds, Series 2008, 5.00% 2022	1,000	1,104
Transportation Auth., Transportation Facs. Projects Rev. Bonds, Series 2008, 5.00% 2023	3,140	3,444
University System, Auxiliary Fac. and Tuition Rev. Bonds, Series 2001-B, 4.00% 2013	1,000	1,047
University System, Auxiliary Fac. and Tuition Rev. Bonds, Series 2005-A, 5.00% 2018	2,000	2,196
University System, Auxiliary Fac. and Tuition Rev. Bonds, Series 2008-A, 5.00% 2022	1,500	1,670
University System, Auxiliary Fac. and Tuition Rev. Bonds, Series 2009-A, 4.00% 2022	1,000	1,036
University System, Auxiliary Fac. and Tuition Rev. Bonds, Series 2002-A, 5.125% 2022 (preref. 2012)	2,000	2,220
Water Quality Fncg. Administration, Revolving Loan Fund Rev. Bonds, Series 2008-A, 5.00% 2021	1,245	1,408
		160,739

CITY & COUNTY ISSUERS — 40.25%
City of Annapolis, Econ. Dev. Rev. Bonds (St. John’s College Fac.), Series 2007-B, 5.00% 2032	2,000	1,718
City of Annapolis, Special Obligation Bonds (Park Place Project), Series 2005-A, 5.35% 2034	1,969	1,339
City of Annapolis, Special Obligation Bonds (Park Place Project), Series 2005-B, 4.75% 2034	2,960	1,809
Anne Arundel County, G.O. Bonds (Consolidated General Improvements), Ref. Series 2006, 5.00% 2017	1,590	1,830
Anne Arundel County, G.O. Bonds (Consolidated General Improvements), Series 2005, 5.00% 2016	1,500	1,718
Anne Arundel County, G.O. Bonds (Consolidated General Improvements), Series 2008, 5.00% 2018	2,250	2,638
Anne Arundel County, G.O. Bonds (Consolidated General Improvements), Series 2009, 4.00% 2018	500	546
Anne Arundel County, G.O. Bonds (Consolidated General Improvements), Series 2009, 4.00% 2020	1,490	1,586
Anne Arundel County, G.O. Bonds (Consolidated Golf Course Project), Series 2005, 5.00% 2018	1,165	1,304
Anne Arundel County, G.O. Bonds (Consolidated Golf Course Project), Series 2005, 5.00% 2021	1,350	1,472
Anne Arundel County, G.O. Bonds, Series 2002, 5.25% 2012	1,000	1,111
Anne Arundel County, Special Obligation Bonds (National Business Park Project), Series 2000, 7.375% 2028 (preref. 2010)	1,440	1,559
Anne Arundel County, Tax Increment Fncg. Bonds (Parole Town Center Project), Series 2002, 5.00% 2012	695	684
Baltimore County, G.O. Bonds, Consolidated Public Improvement Bonds, Series 2002, 5.25% 2010	2,000	2,103
Baltimore County, G.O. Bonds, Metropolitan Dist. Ref. Bonds, Series 2009, 5.00% 2016	1,000	1,182
Baltimore County, G.O. Bonds, Consolidated Public Improvement Bonds, Series 2002, 5.25% 2015 (preref. 2012)	3,000	3,381
Baltimore County, G.O. Bonds, Metropolitan Dist. Bonds (67th Issue), 5.00% 2018 (preref. 2011)	1,500	1,634
Mayor and City Council of Baltimore, G.O. Consolidated Public Improvement Bonds, Series 2008-A, 5.00% 2020	2,315	2,621
Mayor and City Council of Baltimore, G.O. Consolidated Public Improvement Bonds, Series 2008-A, 5.00% 2021	1,280	1,431
Baltimore County, Rev. Bonds (Catholic Health Initiatives), Series 2006-A, 5.00% 2020	1,000	1,054
Baltimore County, Rev. Bonds (Catholic Health Initiatives), Series 2006-A, 4.50% 2033	700	613
Baltimore County, Rev. Bonds (Oak Crest Village, Inc. Fac.), Series 2007-A, 5.00% 2022	2,600	2,569
Baltimore County, Rev. Bonds (Oak Crest Village, Inc. Fac.), Series 2007-A, 5.00% 2037	2,000	1,723
Mayor and City Council of Baltimore, Convention Center Hotel Rev. Bonds, Series 2006-A, XLCA insured, 5.25% 2018	1,000	854
Mayor and City Council of Baltimore, Convention Center Hotel Rev. Bonds, Series 2006-A, XLCA insured, 5.25% 2019	1,000	831
Mayor and City Council of Baltimore, Convention Center Hotel Rev. Bonds, Series 2006-A, XLCA insured, 5.25% 2023	1,000	770

	Principal amount	Value
Bonds & notes	(000)	(000)

CITY & COUNTY ISSUERS (continued)
Mayor and City Council of Baltimore, Project and Rev. Bonds (Wastewater Projects), Series 2005-B, National insured, 5.00% 2021 (preref. 2015)	$1,030	$1,202
Mayor and City Council of Baltimore, Project and Rev. Ref. Bonds (Water Projects), Series 1994-A, FGIC insured, 5.00% 2024	2,275	2,457
Mayor and City Council of Baltimore, Project and Rev. Ref. Bonds (Water Projects), Series 2002-A, FGIC-National insured, 5.00% 2021	1,225	1,255
Mayor and City Council of Baltimore, Rev. Ref. Bonds (Water Projects), Series 2007-B, AMBAC insured, 4.50% 2032	1,000	975
Mayor and City Council of Baltimore, Rev. Ref. Bonds (Wastewater Projects), Series 1994-A, FGIC-National insured, 6.00% 2015	1,500	1,662
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	1,216
Carroll County, G.O. Bonds, Consolidated Public Improvement Bonds of 2008, 5.00% 2021	2,800	3,182
Carroll County, G.O. Bonds, County of Commissioners of Carroll County, Consolidated Public Improvement Ref. Bonds (Delayed Delivery), Series 2003, 5.00% 2010	500	528
Charles County, G.O. Bonds, County Commissioners of Charles County, Consolidated Public Improvement Bonds of 2009, Series B, 4.00% 2026	1,255	1,263
Charles County, G.O. Bonds, County Commissioners of Charles County, Consolidated Public Improvement Bonds of 2009, Series B, 4.25% 2028	1,000	1,011
City of Frederick, G.O. Bonds and Notes, Public Improvements Bonds, Series 2009-A, 5.00% 2026	1,000	1,091
City of Frederick, G.O. Bonds and Notes, Public Improvements Bonds, Series 2009-A, 5.00% 2027	1,250	1,353
Frederick County, G.O. Public Facs. Bonds of 2008, 5.00% 2022	1,000	1,114
Frederick County, G.O. Public Facs. Bonds of 2008, 5.00% 2024	2,545	2,793
Frederick County, G.O. Public Facs. Ref. Bonds of 2006, 5.25% 2021	1,000	1,185
Frederick County, Educational Facs. Rev. Bonds (Mount Saint Mary’s University), Series 2007, 4.50% 2025	1,000	786
Frederick County, G.O. Public Facs. Bonds of 2000, 5.10% 2017 (preref. 2010)	1,000	1,071
Frederick County, Urbana Community Dev. Auth., Special Obligation Bonds, Series 1998, 6.625% 2025	3,000	2,573
Frederick County, Urbana Community Dev. Auth., Special Obligation Bonds, Series 2004-B, 5.95% 2030	500	370
Frederick County, Urbana Community Dev. Auth., Special Obligation Bonds, Series 2004-B, 6.25% 2030	1,408	1,072
City of Gaithersburg, Econ. Dev. Rev. Ref. Bonds (Asbury Maryland Obligated Group), Series 2006-A, 5.125% 2026	1,000	812
City of Gaithersburg, Econ. Dev. Rev. Ref. Bonds (Asbury Maryland Obligated Group), Series 2006-A, 5.125% 2036	3,420	2,502
Harford County, Consolidated Public Improvement Bonds, Series 2005, 5.00% 2020	1,000	1,074
Howard County, G.O. Consolidated Public Improvement Bonds, Series 2009-A, 5.00% 2023	2,970	3,339
Howard County, G.O. Consolidated Public Improvement Project and Ref. Bonds, Series 2002-A, 5.25% 2014	795	865
Howard County, G.O. Consolidated Public Improvement Project and Ref. Bonds, Series 2002-A, 5.25% 2014 (preref. 2012)	205	227
City of Hyattsville, Special Obligation Bonds (University Town Center Project), Series 2004, 5.75% 2034	3,650	2,390
Montgomery County, Econ. Dev. Corp., Lease Rev. Bonds (Town Square Parking Garage Project), Series 2002-A, 3.25% 2011	1,000	1,053
Montgomery County, Econ. Dev. Rev. Bonds (Trinity Health Credit Group), Series 2001, 5.50% 2016	1,000	1,088
Montgomery County, G.O. Consolidated Public Improvement Bonds, Series 2000-A, 5.30% 2013 (preref. 2010)	1,000	1,031
Montgomery County, G.O. Consolidated Public Improvement Bonds, Series 2001-A, 5.25% 2015	2,000	2,179
Montgomery County, G.O. Consolidated Public Improvement Bonds, Series 2007-A, 5.00% 2020	1,000	1,131
Montgomery County, G.O. Consolidated Public Improvement Bonds, Series 2008-A, 5.00% 2018	5,040	5,941
Montgomery County Housing Opportunities Commission, Multi-family Housing Dev. Bonds, Series 2004-A, 4.65% 2030	2,670	2,540
Montgomery County Housing Opportunities Commission, Multi-family Housing Dev. Bonds, Series 2007-A, AMT, 4.55% 2027	2,000	1,785
Montgomery County Housing Opportunities Commission, Multi-family Housing Dev. Bonds, Series 2007-A, AMT, 4.625% 2032	765	665
Montgomery County Housing Opportunities Commission, Multi-family Housing Dev. Bonds, Series 2007-A, AMT, 4.70% 2037	1,350	1,161
Montgomery County Housing Opportunities Commission, Single-family Mortgage Rev. Bonds, Series 2007-D, AMT, 5.50% 2038	930	934
Montgomery County, Rev. Bonds (Dept. of Liquor Control), Series 2009-A, 5.00% 2026	3,010	3,195
Montgomery County, Rev. Bonds (Dept. of Liquor Control), Series 2009-A, 5.00% 2027	1,475	1,553
Montgomery County, Rev. Bonds (Dept. of Liquor Control), Series 2009-A, 5.00% 2028	1,515	1,575
Montgomery County, Solid Waste Disposal System Rev. Ref. Bonds, Series 2003-A, AMBAC insured, 5.00% 2013	1,000	1,125
Montgomery County, Special Obligation Bonds (Kingsview Village Center Dev. Dist.), Series 1999, 6.90% 2021	1,995	1,739

	Principal amount	Value
Bonds & notes	(000)	(000)

CITY & COUNTY ISSUERS (continued)
Montgomery County, Special Obligation Bonds (West Germantown Dev. Dist.), Series 2002-A, RADIAN insured, 5.375% 2020	$ 750	$ 694
Montgomery County, Special Obligation Bonds (West Germantown Dev. Dist.), Series 2004-A, RADIAN insured, 6.70% 2027	1,625	1,623
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	2,569
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	1,046
Housing Auth. of Prince George’s County, Mortgage Rev. Bonds (GNMA Collateralized — Langley Gardens Apartments Project), Series 1997-A, AMT, 5.60% 2017	1,000	1,005
Housing Auth. of Prince George’s County, Mortgage Rev. Bonds (GNMA Collateralized — Windsor Crossing Apartments Project), Series 2002-A, AMT, 3.90% 2012	240	245
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	1,002
Industrial Dev. Auth. of Prince George’s County, Rev. Ref. Lease Bonds (Upper Marlboro Justice Center Project), Series 2003-A, National insured, 5.00% 2014	1,500	1,667
Prince George’s County, G.O. Consolidated Public Improvement Bonds, Series 2007-A, 5.00% 2021	3,500	3,910
Prince George’s County, Special Obligation Bonds (National Harbor Project), Series 2004, 4.70% 2015	1,900	1,775
Prince George’s County, Special Obligation Bonds (National Harbor Project), Series 2004, 5.20% 2034	3,500	2,479
Prince George’s County, Special Obligation Bonds (Woodview Village Infrastructure Improvements), Series 1997-A, 4.50% 2017	725	648
Prince George’s County, Special Obligation Bonds (Woodview Village Infrastructure Improvements), Series 1997-A, 4.60% 2021	1,660	1,363
Prince George’s County, Special Obligation Bonds (Woodview Village Infrastructure Improvements), Series 1997-A, 4.70% 2026	1,545	1,164
Prince George’s County, Special Obligation Ref. Bonds (Woodview Village Phase II Infrastructure Improvements), Series 2006, RADIAN insured, 5.00% 2026	1,000	889
Prince George’s County, Special Tax Dist. Bonds (Victoria Falls Project), Series 2005, 5.25% 2035	3,686	1,958
City of Salisbury, Special Obligation Bonds (Villages at Aydelotte Farm Project), Series 2007, 5.25% 2037	1,775	961
Washington Suburban Sanitary Dist., Montgomery and Prince George’s Counties, G.O. Ref. Bonds of 1997, 5.75% 2017	1,510	1,848
Washington Suburban Sanitary Dist., Montgomery and Prince George’s Counties, G.O. Water Supply Bonds of 2005, 5.00% 2019	1,000	1,111
Washington Suburban Sanitary Dist., Montgomery and Prince George’s Counties, G.O. Ref. Bonds of 2001, 4.50% 2015 (preref. 2011)	3,000	3,213
Westminster, Educational Facs. Rev. Bonds (McDaniel College, Inc.), Series 2006, 4.50% 2036	3,000	2,379
		141,692

DISTRICT OF COLUMBIA — 1.19%
Metropolitan Area Transit Auth., Gross Rev. Transit Bonds, Series 2009-A, 5.25% 2025	2,000	2,116
Metropolitan Area Transit Auth., Gross Rev. Transit Bonds, Series 2009-A, 5.25% 2028	2,000	2,073
		4,189

PUERTO RICO — 4.20%
Electric Power Auth., Power Rev. Bonds, Series WW, 5.25% 2033	1,000	916
Electric Power Auth., Power Rev. Ref. Bonds (Forward Delivery), Series QQ, XLCA insured, 5.50% 2015	1,000	1,070
Electric Power Auth., Power Rev. Ref. Bonds, Series UU, FSA insured, 0.912% 20291	1,500	938
Electric Power Auth., Rev. Ref. Bonds, Series KK, XLCA insured, 5.00% 2011	1,000	1,036
Highways and Transportation Auth., Highway Rev. Ref. Bonds, Series AA, FSA insured, 5.00% 2026 (put 2010)	500	509
Housing Fin. Auth., Capital Fund Modernization Program Bonds (Public Housing Projects), Series 2008, 5.50% 2020	1,900	2,043
Public Buildings Auth., Government Facs. Rev. Bonds, Series D, 5.25% 2027 (preref. 2012)	4,500	4,987
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 (escrowed to maturity)	455	549
Sales Tax Fncg. Corp., Sales Tax Rev. Bonds, Series 2007-A, FGIC-National insured, 0% 2040	4,000	551
Sales Tax Fncg. Corp., Sales Tax Rev. Bonds, Series 2009-A, 5.00% 2018	2,000	2,127
		14,780

	Principal amount	Value
Bonds & notes	(000)	(000)

VIRGIN ISLANDS — 1.24%
Public Fin. Auth., Rev. and Ref. Bonds (Matching Fund Loan Notes), Series 1998-A, 5.20% 2009	$1,500	$ 1,508
Public Fin. Auth., Rev. and Ref. Bonds (Matching Fund Loan Notes), Series 1998-A, 5.20% 2010	1,000	1,012
Public Fin. Auth., Rev. and Ref. Bonds (Matching Fund Loan Notes), Series A, 6.75% 2019	1,750	1,831
		4,351


Total bonds & notes (cost: $335,448,000)		325,751



Short-term securities — 5.88%

Econ. Dev. Corp., Econ. Dev. Rev. Bonds (Maryland Soccer Foundation, Inc. Project), Series 2000, 0.40% 20251	1,580	1,580
Economic Dev. Corp., Econ. Dev. Rev. Ref. Bonds (United States Pharmacopeial Convention, Inc. Project), Series 2008-A, 0.35% 20381	700	700
Economic Dev. Corp., Econ. Dev. Rev. Ref. Bonds (United States Pharmacopeial Convention, Inc. Project), Series 2008-B, 0.35% 20381	2,825	2,825
Health and Higher Educational Facs. Auth., Pooled Loan Program Rev. Bonds, Series 1994-D, 0.37% 20291	2,215	2,215
Health and Higher Educational Facs. Auth., Rev. Bonds (Goucher College Issue), Series 2007, 0.37% 20371	5,860	5,860
Health and Higher Educational Facs. Auth., Rev. Bonds (University of Medical System Issue), Series 2008-G, 0.35% 20231	1,140	1,140
Health and Higher Educational Facs. Auth., Rev. Bonds (Upper Chesapeake Hospitals Issue), Series 2008-A, 0.35% 20431	290	290
Montgomery County, Consolidated Public Improvement Bond Anticipation Notes, Series 2006-A, 0.35% 20261	5,200	5,200
Montgomery County, Consolidated Public Improvement Bond Anticipation Notes, Series 2006-B, 0.30% 20261	900	900

Total short-term securities (cost: $20,710,000)		20,710


Total investment securities (cost: $356,158,000)		346,461
Other assets less liabilities		5,551

Net assets		$352,012

1Coupon rate may change periodically. For short-term securities, the date of the next scheduled coupon rate change is considered to be the maturity date.

Key to abbreviations

Agcy. = Agency	Facs. = Facilities
AMT = Alternative Minimum Tax	Fin. = Finance
Auth. = Authority	Fncg. = Financing
Certs. of Part. = Certificates of Participation	G.O. = General Obligation
Dept. = Department	Preref. = Prerefunded
Dev. = Development	Redev. = Redevelopment
Dist. = District	Ref. = Refunding
Econ. = Economic	Rev. = Revenue
Fac. = Facility	TECP = Tax-Exempt Commercial Paper

Quality ratings*:		Maturity diversification†:

Aaa/AAA	37.6%	Under a year	13.3%
Aa/AA	21.6	1 to 5 years	23.1
A/A	12.7	5+ to 10 years	39.1
Baa/BBB or less	20.6	10+ to 20 years	12.1
Short-term securities and other assets less liabilities	7.5	20+ to 30 years	12.2
		30+ years	0.2

		Average life 8.47 years

Statement of assets and liabilities at July 31, 2009
(dollars in thousands)
Assets:
Investment securities, at value (cost: $356,158)				$	346,461
Cash					375
Receivables for:
Sales of investments	$	2,100
Sales of Fund’s shares		743
Interest		3,361			6,204
					353,040
Liabilities:
Payables for:
Repurchases of Fund’s shares		418
Dividends on Fund’s shares		317
Management services		105
Services provided by affiliates		170
Trustees’ deferred compensation		18
Other		—	*		1,028
Net assets at July 31, 2009				$	352,012

Net assets consist of:
Capital paid in on shares of beneficial interest				$	367,246
Undistributed net investment income					207
Accumulated net realized loss					(5,744	)
Net unrealized depreciation					(9,697	)
Net assets at July 31, 2009				$	352,012

Statement of operations for the year ended July 31, 2009
(dollars in thousands)
Investment income:
Income:
Interest			$	15,404
Fees and expenses*:
Investment advisory services	$	677
Business management services		531
Distribution services		1,114
Transfer agent services		80
Administrative services		56
Reports to shareholders		39
Registration statement and prospectus		19
Trustees’ compensation		24
Auditing and legal		50
Custodian		2
State and local taxes	—†
Other		28
Total fees and expenses before waivers		2,620
Less waivers of fees and expenses:
Investment advisory services		29
Business management services		22
Total fees and expenses after waivers				2,569
Net investment income				12,835

Net realized loss and unrealized depreciation on investments:
Net realized loss on investments				(4,858	)
Net unrealized depreciation on investments				(276	)
Net realized loss and unrealized depreciation on investments				(5,134	)
Net increase in net assets resulting from operations			$	7,701

Statements of changes in net assets
(dollars in thousands)

	Year ended July 31
	2009		2008
Operations:
Net investment income		$ 12,835		$ 12,093
Net realized loss on investments		(4,858)		(880)
Net unrealized depreciation on investments		(276)		(11,376)
Net increase (decrease) in net assets resulting from operations		7,701		(163)

Dividends paid or accrued to shareholders from net investment income		(12,757)		(12,036)

Net capital share transactions		21,293		51,959

Total increase in net assets		16,237		39,760

Net assets:
Beginning of year		335,775		296,015
End of year (including undistributed net investment income: $207 and $180, respectively)		$352,012		$335,775


See Notes to Financial Statements

Quality ratings*:		Maturity diversification†:
Aaa/AAA	36.1%	Under a year	9.9%
Aa/AA	36.6	1 to 5 years	22.3
A/A	10.9	5+ to 10 years	50.0
Baa/BBB or less	11.9	10+ to 20 years	11.4
Short-term securities and other assets less liabilities	4.5	20+ to 30 years	6.4

		Average life 7.73 years

		Principal amount (000)		Value (000)	Percent of net assets
Maryland — 85.91%
State Issuers — 45.66%
Community Dev. Administration, Dept. of Housing and Community Dev., Residential Rev. Bonds, AMT:
Series 2006-F, 6.00% 2039			$3,115	$3,153
Series 2001-H, 5.20% 2022			900	902
Series D, 4.65% 2022			1,000	965
Series I, 6.00% 2041			1,570	1,571	1.87%
Econ. Dev. Corp.:
Lease Rev. Bonds:
Aviation Administration Facs., Series 2003, AMT, FSA insured, 5.25%–5.50% 2012–2015			4,500	4,772	1.35
Dept. of Transportation Headquarters Fac., Series 2002, 5.00%–5.375% 2014–2019			3,255	3,530	1.00
Student Housing Rev. Bonds:
Towson University Project, Series 2007-A, 5.25% 2037			3,265	2,576	.73
University of Maryland, College Park Projects, Series 2008, 5.80% 2038			3,000	2,836
Student Housing Rev. Ref. Bonds (University of Maryland, College Park Projects), Series 2006, CIFG insured, 5.00% 2020–2026			3,000	2,696
Utility Infrastructure Rev. Bonds (University of Maryland, College Park Project), Series 2001, AMBAC insured:
5.25% 2011			3,355	3,573
5.375% 2015			2,190	2,321	3.25
G.O. Bonds, State and Local Facs.:
Second Series Loan of 2007, 5.00% 2010			4,000	4,183
Second Series Loan of 2008, 5.00% 2021			2,000	2,269
Second Series Loan of 2008, 5.00% 2023			2,000	2,231
First Series Loan of 2000, Series H, 5.50% 2010			2,000	2,101
First Series Loan of 2001, Series H, 5.50% 2011			1,000	1,077
First Series Loan of 2003, Capital Improvement Bonds, Series A, 5.25% 2016			1,500	1,779
First Series Loan of 2009, Series A, 5.00% 2024			1,000	1,097	4.19
Health and Higher Educational Facs. Auth.:
Rev. Bonds (Johns Hopkins University Issue), Series 2008-A, 5.00% 2018			2,000	2,340
Rev. Ref. Bonds (Johns Hopkins University Issue):
Series 2002-A, 5.00% 2032			1,000	1,001
Series 2001-A, 5.00% 2011–2013			2,000	2,148	1.56
Rev. Bonds:
LifeBridge Health Issue:
Series 2004-A:
5.00% 2014 (escrowed to maturity)			2,450	2,822
5.00% 2012			1,000	1,114
5.25% 2018			1,000	1,154	1.45
Health and Higher Educational Facs. Auth.: (continued)
Series 2008, ASSURED GUARANTY insured:
5.00% 2020			$2,710	$ 2,873
5.00% 2028			1,000	1,024	1.11%
Mercy Medical Center Issue, Series 2007-A, 5.00% 2032			4,000	3,361
Rev. Ref. Bonds (Mercy Medical Center Issue), Series 1996, FSA insured, 6.50% 2013			1,410	1,558	1.40
Mercy Ridge Issue:
Series 2003-A, 6.00% 2035 (preref. 2013)			2,000	2,346	.67
Series 2007:
4.75% 2034			3,590	2,861
4.50% 2022–2035			2,065	1,705	1.30
Peninsula Regional Medical Center Issue:
Series 2006:
5.00% 2036			4,000	3,823
5.00% 2016–2021			2,200	2,283	1.73
Rev. Ref. Bonds MedStar Health Issue Series 2004:
5.75% 2016			3,500	3,725
5.00%–5.75% 2013–2033			5,345	5,629	2.66
Dept. of Transportation:
Consolidated Transportation Bonds:
Series 2002, 5.50% 2017			2,000	2,391
Series 2003, 5.25% 2014			4,000	4,712
Series 2003, 5.00% 2015			1,500	1,744
Series 2004, 5.00% 2018			1,000	1,109
Series 2008, 5.00% 2018			1,000	1,165
Series 2008, 5.00% 2020			2,000	2,270	3.80
Transportation Auth.:
Grant and Rev. Anticipation Bonds:
Series 2007, 5.00% 2019			2,500	2,838
Series 2008:
5.25% 2018			4,000	4,727
5.25% 2020			1,000	1,167	2.48
Transportation Facs. Projects Rev. Bonds:
Series 2007, FSA insured, 5.00% 2021			3,000	3,335
Series 2008:
5.00% 2023			3,140	3,444
5.00% 2020–2022			2,545	2,850	2.73
University System, Auxiliary Fac. and Tuition Rev. Bonds:
Series 2002-A, 5.125% 2022 (preref. 2012)			2,000	2,220	.63
Series 2005-A, 5.00% 2018			2,000	2,196
Series 2001-B, 4.00% 2013			1,000	1,047
Series 2008-A, 5.00% 2022			1,500	1,670
Series 2009-A, 4.00% 2022			1,000	1,036	1.69
Other securities				35,419	10.06
				160,739	45.66

City & County Issuers — 40.25%
Anne Arundel County, G.O. Bonds:
Consolidated General Improvements:
Series 2008, 5.00% 2018			2,250	2,638
Ref. Series 2006, 5.00% 2017			1,590	1,830
Series 2005, 5.00% 2016			1,500	1,718
Series 2009, 4.00% 2018–2020			1,990	2,132
Consolidated Golf Course Project, Series 2005, 5.00% 2018–2021			2,515	2,776
Series 2002, 5.25% 2012			1,000	1,111	3.47
Baltimore County:
G.O. Bonds:
Consolidated Public Improvement Bonds, Series 2002, 5.25% 2015 (preref. 2012)			3,000	3,381
Metropolitan Dist. Bonds (67th Issue), 5.00% 2018			1,500	1,634	1.42
Rev. Bonds (Oak Crest Village, Inc. Fac.), Series 2007-A:
5.00% 2022			$2,600	$ 2,569
5.00% 2037			2,000	1,723	1.22%
Mayor and City Council of Baltimore:
G.O. Consolidated Public Improvement Bonds, Series 2008-A:
5.00% 2020			2,315	2,621
5.00% 2021			1,280	1,431	1.15
Project and Rev. Ref. Bonds (Water Projects):
Series 1994-A, FGIC insured, 5.00% 2024			2,275	2,457
Series 2002-A, FGIC-National insured, 5.00% 2021			1,225	1,255
Rev. Ref. Bonds (Water Projects), Series 2007-B, AMBAC insured, 4.50% 2032			1,000	975	1.33
Carroll County, G.O. Bonds:
Consolidated Public Improvement Bonds of 2008, 5.00% 2021			2,800	3,182
County of Commissioners of Carroll County, Consolidated Public Improvement Ref. Bonds (Delayed Delivery), Series 2003, 5.00% 2010			500	528	1.05
City of Frederick, G.O. Bonds and Notes, Public Improvements Bonds, Series 2009-A, 5.00% 2026–2027			2,250	2,444
Frederick County:
G.O. Public Facs.:
Bonds of 2008:
5.00% 2024			2,545	2,793
5.00% 2022			1,000	1,114
Ref. Bonds of 2006, 5.25% 2021			1,000	1,185	2.14
Urbana Community Dev. Auth., Special Obligation Bonds:
Series 1998, 6.625% 2025			3,000	2,573
Series 2004-B, 5.95%–6.25% 2030			1,908	1,442	1.14
City of Gaithersburg, Econ. Dev. Rev. Ref. Bonds (Asbury Maryland Obligated Group), Series 2006-A, 5.125% 2036			3,420	2,502	.71
Howard County:
G.O. Consolidated Public Improvement Bonds, Series 2009-A, 5.00% 2023			2,970	3,339
G.O. Consolidated Public Improvement Project and Ref. Bonds, Series 2002-A, 5.25% 2014			795	865	1.19
City of Hyattsville, Special Obligation Bonds (University Town Center Project), Series 2004, 5.75% 2034			3,650	2,390	.68
Montgomery County:
G.O. Consolidated Public Improvement Bonds:
Series 2001-A, 5.25% 2015			2,000	2,179
Series 2007-A, 5.00% 2020			1,000	1,131
Series 2008-A, 5.00% 2018			5,040	5,941	2.63
Housing Opportunities Commission, Multi-family Housing Dev. Bonds:
Series 2004-A, 4.65% 2030			2,670	2,540
Series 2007-A, AMT, 4.55%-4.70% 2027–2037			4,115	3,611	1.75
Rev. Bonds (Dept. of Liquor Control), Series 2009-A:
5.00% 2026			3,010	3,195
5.00% 2027–2028			2,990	3,128	1.80
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	2,569
5.50% 2016			1,000	1,046	1.03
Prince George’s County:
G.O. Consolidated Public Improvement Bonds, Series 2007-A, 5.00% 2021			3,500	3,910	1.11
Special Obligation Bonds (National Harbor Project), Series 2004:
5.20% 2034			3,500	2,479
4.70% 2015			1,900	1,775	1.21
Washington Suburban Sanitary Dist., Montgomery and Prince George’s Counties, G.O. Ref. Bonds of 2001, 4.50% 2015 (preref. 2011)			3,000	3,213	.91
Westminster, Educational Facs. Rev. Bonds (McDaniel College, Inc.), Series 2006, 4.50% 2036			3,000	2,379	.67
Other securities				47,988	13.64
				141,692	40.25

District of Columbia — 1.19%
Metropolitan Area Transit Auth., Gross Rev. Transit Bonds, Series 2009-A, 5.25% 2025–2028			$4,000	$ 4,189	1.19%

Puerto Rico — 4.20%
Electric Power Auth.:
Power Rev. Bonds, Series WW, 5.25% 2033			1,000	916
Power Rev. Ref. Bonds:
Forward Delivery, Series QQ, XLCA insured, 5.50% 2015			1,000	1,070
Series UU, FSA insured, 0.912% 20291			1,500	938
Rev. Ref. Bonds, Series KK, XLCA insured, 5.00% 2011			1,000	1,036	1.12
Public Buildings Auth., Government Facs. Rev. Bonds, Series D, 5.25% 2027 (preref. 2012)			4,500	4,987	1.42
Other securities				5,833	1.66
				14,780	4.20

Virgin Islands — 1.24%
Public Fin. Auth., Rev. and Ref. Bonds (Matching Fund Loan Notes):
Series A, 6.75% 2019			1,750	1,831
Series 1998-A, 5.20% 2009–2010			2,500	2,520	1.24
				4,351	1.24

Total bonds & notes (cost: $335,448,000)				325,751	92.54



Short-term securities — 5.88%
Econ. Dev. Corp., Econ. Dev. Rev. Ref. Bonds (United States Pharmacopeial Convention, Inc. Project):
Series 2008-A, 0.35% 20381			700	700
Series 2008-B, 0.35% 20381			2,825	2,825	1.00
Health and Higher Educational Facs. Auth.:
Pooled Loan Program Rev. Bonds, Series 1994-D, 0.37% 20291			2,215	2,215	.63
Rev. Bonds (Goucher College Issue), Series 2007, 0.37% 20371			5,860	5,860	1.66
Montgomery County, Consolidated Public Improvement Bond Anticipation Notes:
Series 2006-A, 0.35% 20261			5,200	5,200
Series 2006-B, 0.30% 20261			900	900	1.73
Other securities				3,010	.86

Total short-term securities (cost: $20,710,000)				20,710	5.88

Total investment securities (cost: $356,158,000)				346,461	98.42
Other assets less liabilities				5,551	1.58

Net assets				$352,012	100.00%


"Other securities" includes all issues that are not disclosed separately in the summary investment portfolio.

The following footnote applies to either the individual securities noted or one or more of the securities aggregated and listed as a single line item.

1Coupon rate may change periodically. For short-term securities, the date of the next scheduled coupon rate change is considered to be the maturity date.


See Notes to Financial Statements

Key to abbreviations
AMT=Alternative Minimum Tax	Econ.=Economic		G.O.=General Obligation
Auth.=Authority	Fac.=Facility		Preref.=Prerefunded
Dept.=Department	Facs.=Facilities		Ref.=Refunding
Dev.=Development	Fin.=Finance		Rev.=Revenue
Dist.=District


(dollars and shares in thousands, except per-share amounts)
Shares of beneficial interest issued and outstanding (no stated par value) — unlimited shares authorized (23,549 total shares outstanding)

	Net assets	Shares outstanding	Net asset value per share†
Class A	$280,694	18,778	$14.95
Class B	10,613	710	14.95
Class C	32,382	2,166	14.95
Class F-1	20,677	1,383	14.95
Class F-2	7,646	512	14.95

* 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 $15.53.

See Notes to Financial Statements



* Additional information related to class-specific fees and expenses is included in the Notes to Financial Statements. † Amount less than one thousand.

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-1 after 10 years
Classes F-1 and F-2	None	None	None

*Effective April 21, 2009, Class B shares of the Funds are no longer available for purchase.

Maryland	(dollars in thousands)
Undistributed tax-exempt income		$ 317
Capital loss carryforwards*:
Expiring 2014	$ (49)
Expiring 2016	(43)
Expiring 2017	(1,172)	(1,264)
Post-October capital loss deferrals (realized during the period November 1, 2008 through July 31, 2009)†		(4,480)
Gross unrealized appreciation on investment securities		11,239
Gross unrealized depreciation on investment securities		(20,711)
Net unrealized depreciation on investment securities		(9,472)
Cost of investment securities		355,933

* 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.

Virginia	(dollars in thousands)
Undistributed tax-exempt income		$ 309
Capital loss carryforwards*:
Expiring 2012	$ (1)
Expiring 2015	(5)
Expiring 2016	(35)	(41)
Post-October capital loss deferrals (realized during the period November 1, 2008 through July 31, 2009)†		(1,312)
Gross unrealized appreciation on investment securities		12,844
Gross unrealized depreciation on investment securities		(15,796)
Net unrealized depreciation on investment securities		(2,952)
Cost of investment securities		420,111

* 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.

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-1	0.25	0.50

Maryland
	Sales1		Reinvestments of dividends		Repurchases1		Net increase (decrease)
Share class	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Shares
Year ended July 31, 2009
Class A	$70,535	4,877	$7,907	547	$(60,270)	(4,223)	$18,172	1,201
Class B	773	54	282	19	(3,148)	(217)	(2,093)	(144)
Class C	10,189	703	720	50	(8,089)	(562)	2,820	191
Class F-1	9,059	627	598	41	(8,623)	(606)	1,034	62
Class F-22	7,585	520	54	4	(175)	(12)	7,464	512
Class R-53	—	—	140	10	(6,244)	(434)	(6,104)	(424)
Total net increase (decrease)	$98,141	6,781	$9,701	671	$(86,549)	(6,054)	$21,293	1,398

Year ended July 31, 2008
Class A	$ 86,227	5,574	$7,449	483	$(50,404)	(3,253)	$43,272	2,804
Class B	663	43	323	21	(3,269)	(211)	(2,283)	(147)
Class C	8,981	581	649	42	(6,107)	(394)	3,523	229
Class F-1	10,760	695	468	30	(5,011)	(323)	6,217	402
Class R-5	1,011	64	229	15	(10)	(1)	1,230	78
Total net increase (decrease)	$107,642	6,957	$9,118	591	$(64,801)	(4,182)	$51,959	3,366

1 Includes exchanges between share classes of the Fund. 2 Class F-2 shares were offered beginning August 1, 2008. 3 Class R-5 shares were available through June 29, 2009 when their operation ceased.

	Income (loss) from investment operations2					Dividends and distributions
	Net asset value, beginning of period	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 period	Total return3,4	Net assets, end of period (in millions)		Ratio of expenses to average net assets before waivers		Ratio of expenses to average net assets after waivers4	Ratio of net income to average net assets4
Class A:
Year ended 7/31/2009	$15.16	$.58	$(.21)	$ .37		$(.58)	—		$(.58)		$14.95	2.62%	$281		.70%		.68%	4.00%
Year ended 7/31/2008	15.76	.61	(.60)	.01		(.61)	—		(.61)		15.16	.09	267		.69		.65	3.97
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
Class B:
Year ended 7/31/2009	15.16	.47	(.21)	.26		(.47)	—		(.47)		14.95	1.87	10		1.45		1.43	3.26
Year ended 7/31/2008	15.76	.50	(.60)	(.10)		(.50)	—		(.50)		15.16	(.65)	13		1.44		1.41	3.23
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
Class C:
Year ended 7/31/2009	15.16	.46	(.21)	.25		(.46)	—		(.46)		14.95	1.83	32		1.49		1.47	3.20
Year ended 7/31/2008	15.76	.49	(.60)	(.11)		(.49)	—		(.49)		15.16	(.69)	30		1.49		1.45	3.17
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
Class F-1:
Year ended 7/31/2009	15.16	.56	(.21)	.35		(.56)	—		(.56)		14.95	2.52	21		.80		.78	3.89
Year ended 7/31/2008	15.76	.60	(.60)	—5		(.60)	—		(.60)		15.16	.02	20		.76		.72	3.89
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
Class F-2:
Year ended 7/31/2009	15.16	.60	(.21)	.39		(.60)	—		(.60)		14.95	2.80	8		.49		.49	4.03
Class R-5:
Period from 8/1/2008 to 6/29/20096	15.16	.55	(.45)	.10		(.55)	—		(.55)		14.71	.82	—		.517		.497	4.247
Year ended 7/31/2008	15.76	.65	(.60)	.05		(.65)	—		(.65)		15.16	.31	6		.46		.43	4.20
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 July 31
					2009			2008		2007				2006		2005
Portfolio turnover rate for all classes of shares					14%			5%		9%				5%		5%

1 Based on operations for the periods shown (unless otherwise noted) and, accordingly, may not be representative of a full year. 2 Based on average shares outstanding. 3 Total returns exclude any applicable sales charges, including contingent deferred sales charges. 4 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. 5 Amount less than $.01. 6 Class R-5 shares were available through June 29, 2009 when their operation ceased. 7 Annualized. See Notes to Financial Statements

	Income from investment operations2					Dividends and distributions
	Net asset value, beginning of period	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 period	Total return3,4	Net assets, end of period (in millions)		Ratio of expenses to average net assets before waivers		Ratio of expenses to average net assets after waivers4	Ratio of net income to average net assets4
Class A:
Year ended 7/31/2009	$15.90	$.59	$ —5	$.59		$(.59)	—		$(.59)		$15.90	3.88%	$347		.68%		.66%	3.81%
Year ended 7/31/2008	16.30	.62	(.40 )	.22		(.62)	—		(.62)		15.90	1.36	296		.68		.64	3.84
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
Class B:
Year ended 7/31/2009	15.90	.48	—5	.48		(.48)	—		(.48)		15.90	3.12	9		1.43		1.41	3.08
Year ended 7/31/2008	16.30	.50	(.40 )	.10		(.50)	—		(.50)		15.90	.62	10		1.43		1.40	3.10
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
Class C:
Year ended 7/31/2009	15.90	.47	—5	.47		(.47)	—		(.47)		15.90	3.07	31		1.47		1.46	3.00
Year ended 7/31/2008	16.30	.49	(.40 )	.09		(.49)	—		(.49)		15.90	.57	22		1.48		1.44	3.03
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
Class F-1:
Year ended 7/31/2009	15.90	.58	—5	.58		(.58)	—		(.58)		15.90	3.80	29		.76		.74	3.72
Year ended 7/31/2008	16.30	.61	(.40 )	.21		(.61)	—		(.61)		15.90	1.29	27		.75		.71	3.75
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
Class F-2:
Year ended 7/31/2009	15.90	.62	—5	.62		(.62)	—		(.62)		15.90	4.05	11		.51		.51	3.86
Class R-5:
Period from 8/1/2008 to 6/29/20096	15.90	.57	(.20 )	.37		(.57)	—		(.57)		15.70	2.45	—		.467		.447	4.047
Year ended 7/31/2008	16.30	.66	(.40 )	.26		(.66)	—		(.66)		15.90	1.62	3		.42		.39	4.10
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 July 31
					2009			2008		2007				2006		2005
Portfolio turnover rate for all classes of shares					10%			8%		11%				4%		13%

1 Based on operations for the periods shown (unless otherwise noted) and, accordingly, may not be representative of a full year. 2 Based on average shares outstanding. 3 Total returns exclude any applicable sales charges, including contingent deferred sales charges. 4 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. 5 Amount less than $.01. 6 Class R-5 shares were available through June 29, 2009 when their operation ceased. 7 Annualized. See Notes to Financial Statements