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THE TAX-EXEMPT BOND FUND OF AMERICA, INC.
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND, INC.
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
THE AMERICAN FUNDS TAX-EXEMPT SERIES II
(THE TAX-EXEMPT FUND OF CALIFORNIA)

Part B
Statement of Additional Information

November 1, 2006
(as supplemented April 1, 2007)

This document is not a prospectus but should be read in conjunction with the
current prospectus of The Tax-Exempt Bond Fund of America, Inc. ("TEBF"),
American High-Income Municipal Bond Fund, Inc. ("AHIM"), Limited Term Tax-Exempt
Bond Fund of America ("LTEX") and The American Funds Tax-Exempt Series II - The
Tax-Exempt Fund of California ("TEFCA") dated November 1, 2006. The prospectus
may be obtained from your financial adviser or by writing to the funds at the
following address:

The Tax-Exempt Bond Fund of America, Inc.
American High-Income Municipal Bond Fund, Inc.
Limited Term Tax-Exempt Bond Fund of America
The American Funds Tax-Exempt Series II
(The Tax-Exempt Fund of California)
Attention: Secretary
333 South Hope Street
Los Angeles, California 90071
213/486-9200

TABLE OF CONTENTS

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

Certain investment limitations and guidelines . . . . . . . . . . . 2
Description of certain securities and investment techniques . . . . 4
Fundamental policies and investment restrictions. . . . . . . . . . 10
Management of the funds . . . . . . . . . . . . . . . . . . . . . . 18
Execution of portfolio transactions . . . . . . . . . . . . . . . . 45
Disclosure of portfolio holdings. . . . . . . . . . . . . . . . . . 46
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . . 49
Purchase and exchange of shares . . . . . . . . . . . . . . . . . . 52
Sales charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Sales charge reductions and waivers . . . . . . . . . . . . . . . . 57
Selling shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Shareholder account services and privileges . . . . . . . . . . . . 61
General information . . . . . . . . . . . . . . . . . . . . . . . . 64
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Financial statements

Tax-Exempt Income Funds -- Page 1
<PAGE>

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 each fund's net
assets unless otherwise noted. This summary is not intended to reflect all of
the funds' investment limitations.

THE TAX-EXEMPT BOND FUND OF AMERICA
-----------------------------------

. The fund will invest at least 80% of its assets in, or derive at least 80%
of its income from, securities exempt from regular federal income tax.

. The fund will not invest in securities that subject fund shareholders to
alternative minimum tax.

. The fund will invest at least 80% of its assets in bonds (for purposes of
this limit, bonds include any debt instrument and cash equivalents, and may
include certain preferred securities).

. The fund will invest at least 65% of its assets in debt securities rated A
or better by Standard & Poor's Corporation ("S&P") or Moody's Investors
Service ("Moody's") or unrated but determined to be of equivalent quality.

. The fund may invest up to 35% of its assets in debt securities rated BBB or
below by S&P and Baa or below by Moody's or unrated but determined to be of
equivalent quality.

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

. The fund will invest substantially in securities with maturities in excess
of three years.

AMERICAN HIGH-INCOME MUNICIPAL BOND FUND
----------------------------------------

. The fund will invest at least 80% of its assets in, or derive at least 80%
of its income from, securities exempt from regular federal income tax
(including securities subject to alternative minimum tax).

. The fund may invest, without limitation, in securities that may subject
fund shareholders to alternative minimum tax.

. The fund will invest at least 80% of its assets in bonds (for purposes of
this limit, bonds include any debt instrument and cash equivalents, and may
include certain preferred securities).

. The fund will invest at least 65% of its assets in debt securities rated A
or below by S&P or Moody's or unrated but determined to be of equivalent
quality.

. The fund will invest at least 50% of its assets in debt securities rated
BBB or below by S&P or Baa or below by Moody's or unrated but determined to
be of equivalent quality.

Tax-Exempt Income Funds -- Page 2
<PAGE>

. The fund may invest more than 25% of its assets in municipal obligations of
issuers located in the same state or in obligations of the same type
(however, the fund may not invest 25% or more in municipal securities of
the same project type issued by non-governmental entities).

LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
--------------------------------------------

. The fund will invest at least 80% of its assets in, or derive at least 80%
of its income from, securities exempt from regular federal income tax and
that do not subject fund shareholders to alternative minimum tax.

. The fund may invest up to 20% of its assets in securities that may subject
fund shareholders to federal alternative minimum tax.

. The fund will invest at least 80% of its assets in bonds (for purposes of
this limit, bonds include any debt instrument and cash equivalents, and may
include certain preferred securities).

. The fund will invest at least 65% of its assets in debt securities rated A
or better by S&P or Moody's or unrated but determined to be of equivalent
quality.

. The fund may invest up to 35% of its assets in debt securities rated BBB by
S&P or Baa by Moody's or unrated but determined to be of equivalent
quality. The fund is not normally required to dispose of a security in the
event its rating is reduced below BBB or Baa (or if unrated, when its
quality falls below the equivalent of BBB or Baa).

. The dollar-weighted average effective maturity of the fund's portfolio will
be between 3 and 10 years.

. The maximum effective maturity or average life of any one security in the
fund's portfolio will be 10 years.

THE TAX-EXEMPT FUND OF CALIFORNIA
---------------------------------

. 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 regular federal
and California income taxes and that do not subject fund shareholders to
alternative minimum tax.

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

. The fund will invest at least 65% of its assets in debt securities rated
BBB or better by S&P or Baa or better by Moody's or unrated but determined
to be of equivalent quality.

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

. The fund will invest substantially in securities with maturities in excess
of three years.

* * * * * *

Tax-Exempt Income Funds -- Page 3
<PAGE>

The funds may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions.

DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES

The descriptions below are intended to supplement the material in the prospectus
under "Investment objectives, strategies and risks."

THE TAX-EXEMPT BOND FUND OF AMERICA, AMERICAN HIGH-INCOME MUNICIPAL BOND FUND,
------------------------------------------------------------------------------
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA AND THE TAX-EXEMPT FUND OF
-----------------------------------------------------------------------
CALIFORNIA
----------

DEBT SECURITIES -- Debt securities are used by issuers to borrow money.
Generally, issuers pay investors periodic interest and repay the amount borrowed
either periodically during the life of the security and/or at maturity. Some
debt securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values and accrue interest at the
applicable coupon rate over a specified time period. The market prices of debt
securities fluctuate depending on such factors as interest rates, credit quality
and maturity. In general, market prices of debt securities decline when interest
rates rise and increase when interest rates fall. The prices of these securities
can be adversely affected by the outcome of financial contracts (such as
derivatives) held by third parties relating to various assets or indices.

Lower rated debt securities, rated Ba or below by Moody's and/or BB or below by
S&P or unrated but determined to be of equivalent quality, are described by the
rating agencies as speculative and involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than higher rated debt
securities, or they may already be in default. The market prices of these
securities may fluctuate more than higher quality securities and may decline
significantly in periods of general economic difficulty. It may be more
difficult to dispose of, and to determine the value of, lower rated debt
securities.

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

SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES -- Debt securities may be
sensitive to economic changes, political and corporate developments, and
interest rate changes. In addition, during an economic downturn or
substantial period of rising interest rates, issuers that are highly
leveraged may experience increased financial stress that would adversely
affect their ability to meet projected business goals, to obtain additional
financing and to service their principal and interest payment obligations.
Periods of economic change and uncertainty also can be expected to result
in increased volatility of market prices and yields of certain debt
securities.

PAYMENT EXPECTATIONS -- Debt securities may contain redemption or call
provisions. If an issuer exercises these provisions in a lower interest
rate market, the funds 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 funds may incur
losses or expenses in seeking recovery of amounts owed to them.

LIQUIDITY AND VALUATION -- There may be little trading in the secondary
market for particular debt securities, which may affect adversely the
funds' ability to value accurately or dispose of such debt securities.
Adverse publicity and investor perceptions, whether or

Tax-Exempt Income Funds -- Page 4
<PAGE>

not based on fundamental analysis, may decrease the value and/or liquidity
of debt securities.

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

MUNICIPAL BONDS -- Municipal bonds are debt obligations generally issued to
obtain funds for various public purposes, including the construction of public
facilities. Opinions relating to the validity of municipal bonds, 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
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 LEASE OBLIGATIONS -- The funds may invest, without limitation, in
municipal lease revenue obligations that are determined to be liquid by the
investment adviser. In determining whether these securities are liquid, the
investment adviser will consider, among other things, the

Tax-Exempt Income Funds -- Page 5
<PAGE>

credit quality and support, including strengths and weaknesses of the issuers
and lessees, the terms of the lease, the frequency and volume of trading and the
number of dealers trading the securities.

INSURED MUNICIPAL BONDS -- The funds 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 funds or any
other party, and is usually purchased from private, non-governmental insurance
companies. The credit rating of an insured municipal bond reflects the credit
rating of the insurer, based on the insurer's claims-paying ability. Insurance
that covers a municipal bond does not guarantee the market value of the bond or
the prices of a fund's shares.

U.S. COMMONWEALTH OBLIGATIONS -- The funds 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 funds' holdings in such obligations.

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.

CASH AND CASH EQUIVALENTS -- These 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 funds 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 a 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

Tax-Exempt Income Funds -- Page 6
<PAGE>

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.

FORWARD COMMITMENT, WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The funds
may enter into commitments to purchase or sell securities at a future date. When
the funds agree to purchase such securities, they assume 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 funds could
miss a favorable price or yield opportunity, or could experience a loss.

The funds 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 their payment obligations in these transactions. Although
these transactions will not be entered into for leveraging purposes, to the
extent a 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 a 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 funds 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 their obligations. After a transaction is entered into,
the funds may still dispose of or renegotiate the transaction. Additionally,
prior to receiving delivery of securities as part of a transaction, the funds
may sell such securities.

VARIABLE AND FLOATING RATE OBLIGATIONS -- The interest rates payable on certain
securities in which the funds may invest may not be fixed but may fluctuate
based upon changes in market rates or credit ratings. Variable and floating rate
obligations bear coupon rates that are adjusted at designated intervals, based
on the then current market rates of interest or credit ratings. The rate
adjustment features tend to limit the extent to which the market value of the
obligations will fluctuate.

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 each 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 funds 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).

Tax-Exempt Income Funds -- Page 7
<PAGE>

PRIVATE PLACEMENTS -- Generally, municipal securities acquired in private
placements are subject to contractual restrictions on resale. Accordingly, all
private placements will be considered illiquid unless they have been
specifically determined to be liquid, taking into account factors such as the
frequency and volume of trading and the commitment of dealers to make markets
under procedures adopted by each fund's board of directors/trustees.

RESTRICTED OR ILLIQUID SECURITIES -- The funds may purchase securities subject
to restrictions on resale. Difficulty in selling such securities may result in a
loss or be costly to the funds. Securities (including restricted securities) not
actively traded will be considered illiquid unless they have been specifically
determined to be liquid under procedures adopted by the funds' board of
directors/trustees, taking into account factors such as the frequency and volume
of trading, the commitment of dealers to make markets and the availability of
qualified investors, all of which can change from time to time. The funds may
incur certain additional costs in disposing of illiquid securities.

REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements under
which the funds buy a security and obtain a simultaneous commitment from the
seller to repurchase the security at a specified time and price. Repurchase
agreements permit the funds to maintain liquidity and earn income over periods
of time as short as overnight. The seller must maintain with the funds'
custodian collateral equal to at least 100% of the repurchase price, including
accrued interest, as monitored daily by the investment adviser. The funds will
only enter into repurchase agreements involving securities in which they could
otherwise invest and with selected banks and securities dealers whose financial
condition is monitored by the investment adviser. If the seller under the
repurchase agreement defaults, the funds 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 funds may be delayed or limited. The funds do not currently
intend to engage in this investment practice over the next 12 months.

AMERICAN HIGH-INCOME MUNICIPAL BOND FUND, LIMITED TERM TAX-EXEMPT BOND FUND OF
------------------------------------------------------------------------------
AMERICA AND THE TAX-EXEMPT FUND OF CALIFORNIA
-------------------------------------------------

SECURITIES SUBJECT TO ALTERNATIVE MINIMUM TAX -- The funds may invest in
tax-exempt securities believed to pay interest constituting an item of tax
preference subject to alternative minimum tax. Therefore, while each 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.

AMERICAN HIGH-INCOME MUNICIPAL BOND FUND AND THE TAX-EXEMPT FUND OF CALIFORNIA
------------------------------------------------------------------------------

----

CONCENTRATION OF INVESTMENTS -- The funds may invest more than 25% of their
assets in industrial development bonds.

AHIM may invest more than 25% of its assets in municipal obligations of issuers
located in the same state or in municipal obligations of the same type which pay
interest on their obligations from revenue of similar projects. This may make
AHIM more susceptible to similar economic, political, or regulatory occurrences
such as changes in healthcare regulations, environmental considerations related
to construction, construction cost increases and labor problems, failure of
healthcare facilities to maintain adequate occupancy levels, and inflation. As
the similarity in issuers increases, the potential for fluctuations in the
fund's share price also may increase.

Tax-Exempt Income Funds -- Page 8
<PAGE>

LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
--------------------------------------------

MATURITY -- Under normal market conditions, the fund's dollar-weighted average
effective portfolio maturity will range between 3 and 10 years. The fund may
purchase any security with an effective maturity or average life of 10 years or
less. In calculating effective maturity or average life, a put, call, sinking
fund or other feature will be considered to the extent it results in a security
whose market characteristics indicate an effective maturity or average life of
10 years or less, even though the nominal or stated maturity may be beyond 10
years. The investment adviser will consider the impact on effective maturity of
potential changes in the financial condition of issuers and in market interest
rates in making investment selections for the fund.

THE TAX-EXEMPT FUND OF CALIFORNIA
-------------------------------------

RISK FACTORS RELATING TO CALIFORNIA DEBT OBLIGATIONS -- Because the fund invests
primarily in securities issued by the State of California (the "State"), its
agencies and municipalities, the fund is more susceptible to developments
adversely affecting issuers of California securities than a municipal bond fund
that does not concentrate its investments in a single state. The information
below constitutes only a brief summary and does not purport to be a complete
description of risk factors relating to California debt obligations. Certain
information is drawn from official statements relating to securities offerings
of the State and various local agencies in California, available as of the date
of this statement of additional information.

A variety of events, such as economic or political policy changes, tax base
erosion, state constitutional limits on tax increases, budget deficits and other
financial difficulties, and changes in the credit ratings assigned to
California's municipal issuers may have an adverse impact on the fund. In
addition, natural disasters, such as earthquakes and droughts, may have an
adverse effect on the State's economy.

California's economy and general financial condition affect the ability of State
and local governments to raise revenues to make timely payments on their
obligations. Events such as budgetary problems at the State level, fiscal
weakness or an overall slowdown in the California economy could adversely impact
the fund. Such events can negatively impact the State's credit rating, make it
more expensive for the State to borrow money, and impact municipal issuers'
ability to pay their obligations. For example, in the past various nationally
recognized statistical ratings organizations ("NRSROs") have lowered their
ratings on California general obligation bonds, making it more expensive for the
State to borrow money. Recently, NRSROs have increased such ratings. It is not
currently possible to determine whether, or the extent to which, an NRSRO may
change such ratings, either up or down, in the future.

California is the most populous state in the nation with a diverse economy.
Major employers include the agriculture, manufacturing, high technology,
services, trade, entertainment and construction sectors. However, certain of the
State's significant industries are sensitive to economic disruptions in their
export markets. The State's rate of economic growth, therefore, could be
adversely affected by any such disruption. A significant downturn in the
housing market or U.S. stock market prices could adversely affect California's
economy by reducing household spending and business investment, particularly
in the high technology sector. Moreover, a large and increasing share of the
State's General Fund revenue in the form of income and capital gains taxes is
directly related to, and would be adversely affected by a significant downturn
in the performance of, the stock markets.

Tax-Exempt Income Funds -- Page 9
<PAGE>

Future California constitutional amendments, legislative measures, executive
orders, administrative regulations, court decisions and voter initiatives could
have an adverse effect on the debt obligations of California issuers. The
initiative process is used quite often in California, resulting in numerous
initiative items on the ballot for most state and local elections, any of which
could affect the ability of municipal issuers to pay their obligations. For
example, revenue and expenditure limitations adopted by California voters, such
as Propositions 13 (limiting ad valorem taxes on real property and restricts
local taxing entities' ability to raise real property taxes) and 218 (limiting
local governments' ability to impose "property related" fees, assessments and
taxes) have constrained local governments' ability to raise revenue,
consequently raising concerns about whether municipalities have sufficient
revenue to pay their debt obligations.

* * * * * *

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 funds' objective, and changes in their investments are
generally accomplished gradually, though short-term transactions may
occasionally be made. High portfolio turnover involves correspondingly greater
transaction costs in the form of dealer spreads or brokerage commissions, and
may result in the realization of net capital gains, which are taxable when
distributed to shareholders.

Fixed-income securities are generally traded on a net basis and usually neither
brokerage commissions nor transfer taxes are involved. Transaction costs are
usually reflected in the spread between the bid and asked price.

A fund's portfolio turnover rate would equal 100% if each security in the fund's
portfolio were replaced once per year.

FISCAL YEAR/PERIOD PORTFOLIO TURNOVER RATE
--------------------------------------------------------------------------------------------

TEBF 2006 9%
2005 9
--------------------------------------------------------------------------------------------
AHIM 2006 14
2005 10
--------------------------------------------------------------------------------------------
LTEX 2006 25
2005 12
--------------------------------------------------------------------------------------------
TEFCA 2006 14
2005 11
--------------------------------------------------------------------------------------------

See "Financial highlights" in the prospectus for the funds' annual portfolio
turnover for each of the last five fiscal years.

FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS

FUNDAMENTAL POLICIES -- Each fund has adopted the following fundamental policies
and investment restrictions, which may not be changed without approval by
holders of a majority of its outstanding shares. Such majority is defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), as the vote of the
lesser of (a) 67% or more of the outstanding voting securities present at a
shareholder meeting, if the holders of more than 50% of the outstanding

Tax-Exempt Income Funds -- Page 10
<PAGE>

voting securities are present in person or by proxy, or (b) more than 50% of the
outstanding voting securities. All percentage limitations are considered at the
time securities are purchased and are based on a funds' net assets unless
otherwise indicated. None of the following investment restrictions involving a
maximum percentage of assets will be considered violated unless the excess
occurs immediately after, and is caused by, an acquisition by the fund.

THE TAX-EXEMPT BOND FUND OF AMERICA
-----------------------------------

These restrictions provide that the fund may not:

1. With respect to 75% of the fund's total assets, purchase the security of
any issuer (other than securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities) if, as a result, (a) more than 5% of the
fund's total assets would be invested in securities of that issuer, or (b) the
fund would hold more than 10% of the outstanding voting securities of that
issuer;

2. Enter into any repurchase agreement if, as a result, more than 10% of the
value of the fund's total assets would be subject to repurchase agreements
maturing in more than seven days;

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

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

5. Sell securities short, except to the extent that the fund contemporaneously
owns or has the right to acquire at no additional cost securities identical to
those sold short;

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

7. Borrow money, except from banks for temporary or emergency purposes, not in
excess of 5% of the value of the fund's total assets, excluding the amount
borrowed. This borrowing provision is intended to facilitate the orderly sale of
portfolio securities to accommodate unusually heavy redemption requests, if they
should occur; it is not intended for investment purposes;

8. Underwrite any issue of securities, except to the extent that the purchase
of municipal bonds directly from the issuer in accordance with the fund's
investment objective, policies and restrictions, and later resale may be deemed
to be an underwriting;

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

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

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

Tax-Exempt Income Funds -- Page 11
<PAGE>

These restrictions also provide that the fund will:

Normally invest at least 80% of its assets in securities the income from which
is exempt from federal income tax, or will invest its assets so that at least
80% of the income that the fund distributes is exempt from federal income tax.

For the purpose of the fund's investment restrictions, the identification of the
"issuer" of municipal bonds that are not general obligation bonds is made by the
Investment Adviser on the basis of the characteristics of the bonds as
described, the most significant of which is the ultimate source of funds for the
payment of principal and interest on such bonds.

For purposes of Investment Restriction #10, the term "oil, gas or other mineral
exploration or development programs" includes oil, gas or other mineral
exploration or development leases.

NONFUNDAMENTAL POLICIES -- The following policies may be changed without
shareholder approval:

1. The fund may not invest 25% or more of its assets in municipal bonds the
issuers of which are located in the same state, unless such securities are
guaranteed by the U.S. government, or more than 25% of its total 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 on occasion invest more
than an aggregate of 25% of its total assets in industrial development bonds.
There could be economic, business or political developments which might affect
all municipal bonds of a similar category or type or issued by issuers within
any particular geographical area or jurisdiction;

2. The fund may not invest more than 15% of its net assets in securities which
are not readily marketable.

3. The fund may not invest in securities of other investment companies, except
as permitted by the 1940 Act.

4. The fund may not issue senior securities, except as permitted by the 1940
Act.

AMERICAN HIGH-INCOME MUNICIPAL BOND FUND
----------------------------------------

These restrictions provide that the fund may not:

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

3. Purchase or sell real estate (including real estate limited partnerships)
unless acquired as a result of ownership of securities or other instruments (but
this shall not prevent the fund from investing in securities or other
instruments backed by real estate or securities of companies engaged in the real
estate business);

Tax-Exempt Income Funds -- Page 12
<PAGE>

4. Purchase or sell commodities unless acquired as a result of ownership of
securities or other instruments or engage in futures transactions;

5. Engage in the business of underwriting securities of other issuers, except
to the extent that the purchase or disposal of an investment position may
technically constitute the fund as an underwriter as that term is defined under
the Securities Act of 1933;

6. Make loans in an aggregate amount in excess of 33 1/3% of the value of the
fund's total assets, taken at the time any loan is made, provided that the
purchase of debt securities pursuant to the fund's investment objective and
entering into repurchase agreements maturing in seven days or less shall not be
deemed loans for the purposes of this restriction and that loans of portfolio
securities may be made;

7. Issue senior securities, except as permitted under the Investment Company
Act of 1940;

8. Borrow money, except from banks for temporary or emergency purposes not to
exceed one-third of the value of the fund's total assets. Moreover, in the event
that the asset coverage for the fund's borrowings falls below 300%, the fund
will reduce, within three days (excluding Sundays and holidays), the amount of
its borrowings in order to provide for 300% asset coverage;

9. Purchase or sell puts, calls, straddles, or spreads, or combinations
thereof (this restriction does not prevent the fund from investing in securities
with put and call features);

10. Invest 25% or more of its assets in municipal securities of the same
project type issued by non-governmental entities. However, the fund may invest
more than 25% of its assets in municipal obligations of issuers located in the
same state or in municipal obligations of the same type, including without
limitation the following: general obligations of states and localities; lease
rental obligations of state and local authorities; obligations of state and
local housing finance authorities, municipal utilities systems or public housing
authorities; or industrial development or pollution control bonds issued for
hospitals, electric utility systems, life care facilities or other purposes. As
a result, the fund may be more susceptible to adverse economic, political, or
regulatory occurrences affecting a particular category of issuers. As the
concentration in the securities of a particular category of issuer increases,
the potential for fluctuation in the value of the fund's shares also increases;
nor

11. 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.

These restrictions also provide that the fund will:

Normally invest at least 80% of its assets in securities the income from which
is exempt from federal income tax. For this purpose, securities subject to
federal alternative minimum tax are considered tax-exempt securities. In the
alternative, the fund will invest its assets so that at least 80% of the income
that the fund distributes is exempt from federal income tax.

Tax-Exempt Income Funds -- Page 13
<PAGE>

NONFUNDAMENTAL POLICIES -- The following policies may be changed without
shareholder approval:

1. The fund does not currently intend (at least for the next 12 months) to
lend portfolio securities. However, if such action is authorized by the board of
directors, loans of portfolio securities as described under "Loans of Portfolio
Securities" shall be made in accordance with the terms and conditions therein
set forth and consistent with fundamental investment restriction #6;

2. The fund will not invest more than 15% of the value of its net assets in
illiquid securities;

3. The fund does not currently intend (at least for the next 12 months) to
invest in the securities of other registered management investment companies,
except in connection with a merger, consolidation, acquisition, reorganization,
or in connection with the implementation of any deferred compensation plan as
adopted by the board of directors;

4. The fund does not currently intend (at least for the next 12 months) to
purchase securities in the event its borrowings exceed 5% of total assets.

5. The fund may not issue senior securities, except as permitted by the 1940
Act.

6. The fund may not acquire securities of open-end investment companies or
unit investment trusts registered under the Investment Company Act of 1940 in
reliance on Sections 12(d)(1)(F) or 12(d)(1)(G) of the Investment Company Act of
1940.

For the purposes of the fund's investment restrictions, the identification of
the "issuer" of municipal bonds that are not general obligation bonds is made by
the Investment Adviser on the basis of the characteristics of the bonds as
described, the most significant of which is the ultimate source of funds for the
payment of principal and interest on such bonds.

LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
--------------------------------------------

These restrictions provide that the fund may not:

1. With respect to 75% of the fund's total assets, purchase the securities of
any issuer (other than securities issued or guaranteed by the U.S. government or
any of its agencies or instrumentalities) if, as a result, (a) more than 5% of
the fund's total assets would be invested in the securities of that issuer, or
(b) the fund would hold more than 10% of the outstanding voting securities of
that issuer;

2. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business);

3. Purchase or sell commodities unless acquired as a result of ownership of
securities or other instruments or engage in futures transactions;

4. Invest 25% or more of the fund's total assets in the securities of issuers
in the same industry. Obligations of the U.S. government, its agencies and
instrumentalities are not subject to this 25% limitation on industry
concentration;

5. Invest more than 15% of the value of its net assets in securities which are
not readily marketable (including repurchase agreements maturing in more than
seven days) or engage in the business of underwriting securities of other
issuers, except to the extent that the purchase or

Tax-Exempt Income Funds -- Page 14
<PAGE>

disposal of an investment position may technically constitute the fund as an
underwriter as that term is defined under the Securities Act of 1933;

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

7. Make loans to others except for (a) purchasing debt securities; (b)
entering into repurchase agreements; and (c) loaning portfolio securities;

8. Issue senior securities, except as permitted under the Investment Company
Act of 1940;

9. Borrow money, except from banks for temporary purposes in an amount not to
exceed one-third of the value of the fund's total assets. Moreover, in the event
that the asset coverage for such borrowing falls below 300%, the fund will
reduce, within three days, the amount of its borrowing in order to provide for
300% asset coverage; nor

10. Purchase or sell puts, calls, straddles, or spreads, or combinations
thereof (this restriction does not prevent the fund from investing in securities
with put and call features).

These restrictions also provide that the fund will:

NONFUNDAMENTAL POLICIES -- The following policies may be changed without
shareholder approval:

1. The fund does not currently intend (at least for the next 12 months) to
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.

2. The fund does not currently intend (at least for the next 12 months) to
invest in the securities of other investment companies except as permitted by
the 1940 Act, as amended.

3. The fund does not currently intend (at least for the next 12 months) to
purchase securities in the event its borrowings exceed 5%.

4. The fund does not currently intend (at least for the next 12 months) to
invest 25% or more of its assets in municipal bonds the issuers of which are
located in the same state, unless such securities are guaranteed by the U.S.
government, or more than 25% of its total assets in securities the interest on
which is paid from revenues of similar type projects. The fund may on occasion
invest more than an aggregate of 25% of its total assets in industrial
development bonds. There could be economic, business or political developments
which might affect all municipal bonds of a similar category or type or issued
by issuers within any particular geographical area or jurisdiction.

5. The fund does not currently intend (at least for the next 12 months) to
loan portfolio securities.

6. The fund may not issue senior securities, except as permitted by the 1940
Act.

Tax-Exempt Income Funds -- Page 15
<PAGE>

THE TAX-EXEMPT FUND OF CALIFORNIA
-------------------------------------

These restrictions provide that the fund may not:

1. Invest more than 5% of the value of its total assets in the securities of
any one issuer provided that this limitation shall apply only to 75% of the
value of the fund's total assets and, provided further, that the limitation
shall not apply to obligations issued or guaranteed by the U.S. government or
its agencies or instrumentalities;

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

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

4. Sell securities short, except to the extent that the fund contemporaneously
owns or has the right to acquire at no additional cost securities identical to
those sold short;

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

6. Borrow money, except from banks for temporary or emergency purposes, not in
excess of 5% of the value of the fund's total assets, excluding the amount
borrowed. This borrowing provision is intended to facilitate the orderly sale of
portfolio securities to accommodate unusually heavy redemption requests, if they
should occur; it is not intended for investment purposes;

7. Underwrite any issue of securities, except to the extent that the purchase
of municipal bonds directly from the issuer in accordance with the fund's
investment objective, policies and restrictions, and later resale may be deemed
to be an underwriting;

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

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

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

11. Invest more than 25% of its assets in securities of any industry, although
for purposes of this limitation, the issuers of municipal securities and U. S.
government obligations are not considered to be part of any industry.

Tax-Exempt Income Funds -- Page 16
<PAGE>

These restrictions also provide that the fund will:

Normally invest at least 80% of its assets in securities the income from which
is exempt from federal and California income tax, or will invest its assets so
that at least 80% of the income that the fund distributes is exempt from federal
and California income tax.

For the purpose of the fund's investment restrictions, the identification of the
issuer of municipal bonds which are not general obligation bonds is made by the
Investment Adviser on the basis of the characteristics of the obligation as
described, the most significant of which is the ultimate source of funds for the
payment of principal of and interest on such bonds.

For purposes of Investment Restriction #9, the term "oil, gas or other mineral
exploration or development programs" includes oil, gas or other mineral
exploration or development leases.

NONFUNDAMENTAL POLICIES -- The following policies may be changed 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 its value of its net assets in illiquid securities.

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

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

Tax-Exempt Income Funds -- Page 17
<PAGE>

MANAGEMENT OF THE FUNDS

BOARD OF DIRECTORS/TRUSTEES AND OFFICERS

"INDEPENDENT" DIRECTORS/TRUSTEES/1/

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

Richard G. Capen, Jr., 72 Corporate director and 15 Carnival
Director/Trustee (1999) author; former U.S. Corporation
Ambassador to Spain; former
Vice Chairman,
Knight-Ridder, Inc.
(communications company);
former Chairman and
Publisher, The Miami Herald
-------------------------------------------------------------------------------------------------------------------
H. Frederick Christie, 73 Private investor; former 21 Ducommun
Director/Trustee President and CEO, The Incorporated;
(TEBF-1979; AHIM-1994; Mission Group (non-utility IHOP
LTEX-1993; TEFCA-1986) holding company, subsidiary Corporation;
of Southern California Southwest
Edison Company) Water Company
-------------------------------------------------------------------------------------------------------------------
Diane C. Creel, 57 Chairman of the Board, 13 Allegheny
Director/Trustee (1994) President and CEO, Technologies;
Ecovation, Inc. (organic BF Goodrich;
waste management); former Foster
President and CEO, The Earth Wheeler Ltd.
Technology Corporation
(international consulting
engineering)
-------------------------------------------------------------------------------------------------------------------
James G. Ellis, 60 Vice Provost, Globalization, 12 Genius
Director (2006) University of Southern Products;
California; Vice Dean, Professional
Marshall School of Business, Business Bank
University of Southern
California; Professor,
Marshall School of Business,
University of Southern
California
-------------------------------------------------------------------------------------------------------------------
Martin Fenton, 71 Chairman of the Board, 18 None
Chairman of the Board Senior Resource Group LLC
(Independent and Non-Executive) (development and management
and Director/ Trustee of senior living
(TEBF-1989; AHIM-1994; communities)
LTEX-1993; TEFCA-1989)
-------------------------------------------------------------------------------------------------------------------
Leonard R. Fuller, 60 President and CEO, Fuller 16 None
Director/Trustee (1994) Consulting (financial
management consulting firm)

-------------------------------------------------------------------------------------------------------------------
R. Clark Hooper, 60 Private investor; former 18 JPMorgan
Director/Trustee (2005) President, Dumbarton Group Value
LLC (consulting); former Opportunities
Executive Vice President - Fund
Policy and Oversight, NASD
-------------------------------------------------------------------------------------------------------------------
Richard G. Newman,/5/ 71 Chairman of the Board, AECOM 14 Sempra
Director/Trustee Technology Corporation Energy;
(TEBF-1991; AHIM-1994; (engineering, consulting and Southwest
LTEX-1993; TEFCA-1991) professional technical Water Company
services)
-------------------------------------------------------------------------------------------------------------------
Frank M. Sanchez, 63 Principal, The Sanchez 13 None
Director/Trustee (1999) Family Corporation dba
McDonald's Restaurants
(McDonald's licensee)
-------------------------------------------------------------------------------------------------------------------

Tax-Exempt Income Funds -- Page 8
<PAGE>

"INTERESTED" DIRECTORS/TRUSTEES/6,7/

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

Brenda S. Ellerin, 43 Senior Vice President, 1 None
LTEX: President and Trustee Capital Research Company*
TEBF: Senior Vice President
AHIM: Vice President

(TEBF-1999; AHIM-2001;
LTEX-1997)
------------------------------------------------------------------------------------------------------------------
Abner D. Goldstine, 76 Senior Vice President and 13 None
AHIM, LTEX and TEBF: Vice Director, Capital Research
Chairman and Director/Trustee and Management Company
TEFCA: President and Trustee

(TEBF-1979; AHIM-1994;
LTEX-1993; TEFCA-1986)
------------------------------------------------------------------------------------------------------------------
Paul G. Haaga, Jr., 57 Vice Chairman of the Board, 16 None
Vice Chairman and Capital Research and
Director/Trustee Management Company;
(TEBF-1986; AHIM-1994; Director, The Capital Group
LTEX-1993; TEFCA-1986) Companies, Inc.*
------------------------------------------------------------------------------------------------------------------
Neil L. Langberg, 53 Vice President - Investment 1 None
TEBF: President and Director Management Group, Capital
AHIM, LTEX and TEFCA: Senior Research and Management
Vice President Company

(TEBF-1985; AHIM-1994;
LTEX-1993; TEFCA-1986)
------------------------------------------------------------------------------------------------------------------
Mark R. Macdonald, 47 Senior Vice President and 1 None
AHIM: President and Director Director, Capital Research
(AHIM-1996) and Management Company
------------------------------------------------------------------------------------------------------------------

Tax-Exempt Income Funds -- Page 1
<PAGE>

OTHER OFFICERS/7/

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

David A. Hoag, 41 Senior Vice President, Capital Research Company*
AHIM: Executive Vice
President
(AHIM-1997)
-------------------------------------------------------------------------------
Edward B. Nahmias, Senior Vice President, Capital Research Company*
54
AHIM, TEBF and
TEFCA: Vice
President
(TEBF-2004;
AHIM-1999;
TEFCA-2001)
-------------------------------------------------------------------------------
Kristine M. Vice President and Counsel - Fund Business Management
Nishiyama, 36 Group, Capital Research and Management Company; Vice
Vice President President and Counsel, Capital Bank and Trust
(2003) Company*
-------------------------------------------------------------------------------
Karl J. Zeile, 39 Vice President and Director, Capital Research
LTEX: Vice President Company*
(2004)
-------------------------------------------------------------------------------
Sharon G. Moseley, Vice President - Fund Business Management Group,
38 Capital Research and Management Company
Treasurer (2003)
-------------------------------------------------------------------------------
Kimberly S. Verdick, Vice President - Fund Business Management Group,
42 Capital Research and Management Company
Secretary (1994)
-------------------------------------------------------------------------------
Ari M. Vinocor, Vice President - Fund Business Management Group,
32 Capital Research and Management Company
Assistant Treasurer
(2007)
-------------------------------------------------------------------------------
Courtney R. Taylor, Senior Compliance Specialist - Fund Business
32 Management Group, Capital Research and Management
Assistant Secretary Company
(2006)
-------------------------------------------------------------------------------

Tax-Exempt Income Funds -- Page 20
<PAGE>

* Company affiliated with Capital Research and Management Company.

1 An "independent" director/trustee refers to a director/trustee who is not an
"interested person" within the meaning of the 1940 Act.
2 Directors/Trustees and officers of the funds 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 serves as the
underlying investment vehicle for certain variable insurance contracts, and
Endowments, whose shareholders are limited to certain nonprofit organizations.
4 This includes all directorships (other than those in the American Funds) that
are held by each director/trustee as a director of a public company or a
registered investment company.
5The investment adviser and its affiliates use a subsidiary of AECOM, Inc. to
perform architectural and space management services. The investment adviser's
business relationship with the subsidiary preceded its acquisition by AECOM
in 1994. The total fees relating to this engagement for the last two years
represent less than 0.1% of AECOM, Inc.'s 2005 gross revenues.
6 "Interested persons," within the meaning of the 1940 Act, on the basis of
their affiliation with the funds' investment adviser, Capital Research and
Management Company, or affiliated entities (including the fund's principal
underwriter). The listed individual may not be a director/trustee of all funds
listed for him or her, but rather may be an officer of one or more such funds.

7 All of the officers listed are officers and/or directors/trustees of one or
more of the other funds for which Capital Research and Management Company
serves as investment adviser.

THE ADDRESS FOR ALL DIRECTORS/TRUSTEES AND OFFICERS OF THE FUNDS IS 333 SOUTH
HOPE STREET, 55TH FLOOR, LOS ANGELES, CALIFORNIA 90071, ATTENTION: FUND
SECRETARY.

Tax-Exempt Income Funds -- Page 21
<PAGE>

FUND SHARES OWNED BY DIRECTORS/TRUSTEES AS OF DECEMBER 31, 2005

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

"INDEPENDENT" DIRECTORS/TRUSTEES
-----------------------------------------------------------------------------------------
Richard G. Capen, TEBF None Over $100,000
Jr. AHIM None
LTEX None
TEFCA None

-----------------------------------------------------------------------------------------
H. Frederick TEBF Over $100,000 Over $100,000
Christie AHIM None
LTEX None
TEFCA Over $100,000
-----------------------------------------------------------------------------------------
Diane C. Creel TEBF $1 - $10,000 $10,001 - $50,000
AHIM $1 - $10,000
LTEX $1 - $10,000
TEFCA $1 - $10,000
-----------------------------------------------------------------------------------------
Martin Fenton TEBF $10,001 - $50,000 Over $100,000
AHIM $10,001 - $50,000
LTEX $10,001 - $50,000
TEFCA Over $100,000
-----------------------------------------------------------------------------------------
Leonard R. Fuller TEBF None $50,001 - $100,000
AHIM None
LTEX None
TEFCA None
-----------------------------------------------------------------------------------------
R. Clark Hooper TEBF $10,001 - $50,000 $50,001 - $100,000
AHIM None
LTEX None
TEFCA None
-----------------------------------------------------------------------------------------
Richard G. Newman TEBF $10,001 - $50,000 Over $100,000
AHIM $10,001 - $50,000
LTEX $10,001 - $50,000
TEFCA $10,001 - $50,000
-----------------------------------------------------------------------------------------
Frank M. Sanchez TEBF $1 - $10,000 $10,001 - $50,000
AHIM $1 - $10,000
LTEX $1 - $10,000
TEFCA $1 - $10,000
-----------------------------------------------------------------------------------------
"INTERESTED" DIRECTORS/TRUSTEES
-----------------------------------------------------------------------------------------
Don R. Conlan TEBF N/A Over $100,000
AHIM N/A
LTEX N/A
TEFCA $1 - $10,000
-----------------------------------------------------------------------------------------
Brenda S. Ellerin TEBF N/A Over $100,000
AHIM N/A
LTEX Over $100,000
TEFCA N/A
-----------------------------------------------------------------------------------------
Abner D. Goldstine TEBF Over $100,000 Over $100,000
AHIM Over $100,000
LTEX $50,001 - $100,000
TEFCA $50,001 - $100,000
-----------------------------------------------------------------------------------------
Paul G. Haaga, Jr. TEBF Over $100,000 Over $100,000
AHIM Over $100,000
LTEX Over $100,000
TEFCA Over $100,000
-----------------------------------------------------------------------------------------
Neil L. Langberg TEBF $10,001 - $50,000 $10,001 - $50,000
AHIM N/A
LTEX N/A
TEFCA N/A
-----------------------------------------------------------------------------------------
Mark R. Macdonald TEBF N/A Over $100,000
AHIM Over $100,000
LTEX N/A
TEFCA N/A
-----------------------------------------------------------------------------------------

Tax-Exempt Income Funds -- Page 22
<PAGE>

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. N/A indicates that
the listed individual is not a director/trustee of a particular fund. The
amounts listed for "interested" directors/trustees include shares owned through
The Capital Group Companies, Inc. retirement plan and 401(k) plan.

BOARD COMPENSATION -- No compensation is paid by the funds to any officer or
director/trustee who is a director, officer or employee of the investment
adviser or its affiliates. The boards of funds advised by the investment
adviser typically meet either individually or jointly with the boards of one
or more other such funds with substantially overlapping board membership
(in each case referred to as a "board cluster"). The funds typically pay
each independent director/trustee an annual fee, which ranges from $3,000
to $5,240 for TEBF, $1,500 to $2,480 for AHIM, $1,500 to $2,480 for LTEX and
$1,500 to $2,480 for TEFCA, based primarily on the total number of board
clusters on which that independent director/trustee serves.

In addition, the funds generally pay independent directors/trustees
attendance and other fees for meetings of the board and its committees.
Board and committee chairs receive additional fees for their services.

Tax-Exempt Income Funds -- Page 23
<PAGE>

Independent directors/trustees also receive attendance fees for certain
special joint meetings and information sessions with directors and
trustees of other groupings of funds advised by the investment
adviser. The funds and the other funds served by each independent
director/trustee each pay an equal portion of these attendance fees.

No pension or retirement benefits are accrued as part of fund expenses.
Independent directors/ 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
funds. The funds also reimburse certain expenses of the independent
directors/trustees.

DIRECTOR/TRUSTEE COMPENSATION PAID DURING THE FISCAL YEAR ENDED JULY 31 OR
AUGUST 31, 2006/*/

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

Richard G. Capen, $5,228 TEBF $140,860/4/
Jr./3/ 3,728 AHIM 141,420/5/
3,728 LTEX
3,728 TEFCA
-----------------------------------------------------------------------------------
H. Frederick $5,174 TEBF $367,360/4/
Christie/3/ 3,674 AHIM 368,920/5/
3,674 LTEX
3,674 TEFCA
-----------------------------------------------------------------------------------
Diane C. Creel/3/ $7,202 TEBF $83,860/4/
5,981 AHIM 84,340/5/
5,981 LTEX
5,282 TEFCA
-----------------------------------------------------------------------------------
Martin Fenton/3/ $8,358 TEBF $320,360/4/
7,557 AHIM 326,280/5/
7,555 LTEX
6,856 TEFCA
-----------------------------------------------------------------------------------
Leonard R. Fuller/3/ $5,228 TEBF $210,860/4/
3,728 AHIM 215,420/5/
3,728 LTEX
3,728 TEFCA
-----------------------------------------------------------------------------------
R. Clark Hooper/6/ $5,241 TEBF $167,860/4/
3,742 AHIM 171,420/5/
3,742 LTEX
3,741 TEFCA
-----------------------------------------------------------------------------------
Richard G. Newman $6,454 TEBF $155,860/4/
5,654 AHIM 157,340/5/
5,654 LTEX
4,954 TEFCA
-----------------------------------------------------------------------------------
Frank M. Sanchez $7,409 TEBF $86,360/4/
6,190 AHIM 86,840/5/
6,190 LTEX
5,489 TEFCA
-----------------------------------------------------------------------------------

Tax-Exempt Income Funds -- Page 24
<PAGE>

* The Tax-Exempt Bond Fund of America's and The Tax-Exempt Fund of California's
fiscal year ends on August 31. American High-Income Municipal Bond Fund's and
Limited Term Tax-Exempt Bond Fund of America's fiscal year ends on July 31.

1 Amounts may be deferred by eligible directors/trustees under a nonqualified
deferred compensation plan adopted by the funds in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more
American Funds as designated by the directors/trustees. Compensation shown in
this table for the fiscal years ended July 31, 2006 and August 31, 2006 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 serves as the
underlying investment vehicle for certain variable insurance contracts, and
Endowments, whose shareholders are limited to certain nonprofit organizations.
3 Since the deferred compensation plans' adoption, the total amount of deferred
compensation accrued by the funds (plus earnings thereon) through the 2006
fiscal year for participating directors/trustees is as follows:
TEBF - Richard G. Capen, Jr. ($33,894), H. Frederick Christie ($18,241), Diane
C. Creel ($34,180), Martin Fenton ($33,017) and Leonard R. Fuller ($37,307);
and
AHIM - Richard G. Capen, Jr. ($23,676), H. Frederick Christie ($12,157), Diane
C. Creel ($20,442), Martin Fenton ($13,050) and Leonard R. Fuller ($16,766);
and
LTEX - Richard G. Capen, Jr. ($23,676), H. Frederick Christie ($11,527), Diane
C. Creel ($21,544), Martin Fenton ($26,620) and Leonard R. Fuller ($16,802);
and
TEFCA - Richard G. Capen, Jr. ($25,661), H. Frederick Christie ($9,397), Diane
C. Creel ($22,223), Martin Fenton ($28,306) and Leonard R. Fuller ($17,140).

Amounts deferred and accumulated earnings thereon are not funded and are
general unsecured liabilities of the funds until paid to the
directors/trustees.

4 For the fiscal year ended July 31, 2006.
5 For the fiscal year ended August 31, 2006.
6 Ms. Hooper began serving as a Trustee on June 22, 2005.

As of October 1, 2006, the officers and directors/trustees of each fund and
their families, as a group, owned beneficially or of record less than 1% of the
outstanding shares of each fund.

FUND ORGANIZATION AND THE BOARD OF DIRECTORS/TRUSTEES

Each fund is an open-end, diversified management investment company. The
Tax-Exempt Bond Fund of America and American High-Income Municipal Bond Fund
were each organized as a

Tax-Exempt Income Funds -- Page 25
<PAGE>

Maryland corporation on July 20, 1979 and June 14, 1994, respectively. Limited
Term Tax-Exempt Bond Fund of America and The Tax-Exempt Fund of California were
each organized as a Massachusetts business trust on July 12, 1993 and May 30,
1986, respectively. All fund operations are supervised by the funds' board of
directors/trustees which meets periodically and performs duties required by
applicable state and federal laws.

Under Maryland law, the business affairs of a fund is managed under the
direction of the board of directors, and all powers of a fund are exercised by
or under the authority of the board except as reserved to the shareholders by
law or a fund's charter or by-laws. Maryland law requires each director to
perform his/her duties as a director, including his/her duties as a member of
any board committee on which he/she serves, in good faith, in a manner he/she
reasonably believes to be in the best interest of a fund, and with the care that
an ordinarily prudent person in a like position would use under similar
circumstances.

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.

Members of the board who are not employed by the investment adviser or its
affiliates are paid certain fees for services rendered to the funds as described
above. They may elect to defer all or a portion of these fees through a deferred
compensation plan in effect for the funds.

The funds have several different classes of shares consisting of Class A, B, C,
F and R-5. Class R-5 shares are available to clients of the Personal Investment
Management group of Capital Guardian Trust Company who do not have an
intermediary associated with their accounts and without regard to the $1 million
purchase minimum. 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
directors/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 funds do not hold annual meetings of shareholders. However, significant
matters that require shareholder approval, such as certain elections of board
members or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. Shareholders have one vote
per share owned. At the request of the holders of at least 10% of a fund's
shares, a fund will hold a meeting at which any member of the board could be
removed by a majority vote.

SHAREHOLDER AND DIRECTOR/TRUSTEE RESPONSIBILITY -- Under the laws of certain
states, including Massachusetts, where LTEX and TEFCA were organized as trusts,
shareholders of a Massachusetts business trust may, under certain circumstances,
be held personally liable as partners for the obligations of the trust. However,
the risk of a shareholder incurring any financial loss on account of shareholder
liability is limited to circumstances in which the trust itself would be unable
to meet its obligations. The Declaration of Trust of each of LTEX and TEFCA
contains

Tax-Exempt Income Funds -- Page 26
<PAGE>

an express disclaimer of shareholder liability for acts or obligations of the
trust and provides that notice of the disclaimer may be given in any agreement,
obligation, or instrument which is entered into or executed by the trust or
trustees. The Declaration of Trust provides for indemnification out of trust
property of any shareholder held personally liable for the obligations of the
trust and also provides for the trust to reimburse such shareholder for all
legal and other expenses reasonably incurred in connection with any such claim
or liability.

Under each Articles of Incorporation or Declaration of Trust of the funds, the
directors/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. Each fund will provide indemnification
to its directors/ 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 DIRECTORS/TRUSTEES -- The funds have an audit
committee comprised of Diane C. Creel, Martin Fenton, Richard G. Newman and
Frank M. Sanchez, none of whom is an "interested person" of the funds within the
meaning of the 1940 Act. The committee provides oversight regarding the funds'
accounting and financial reporting policies and practices, their internal
controls and the internal controls of the funds' principal service providers.
The committee acts as a liaison between the funds' independent registered public
accounting firm and the full board of directors/trustees. Four audit committee
meetings were held during the 2006 fiscal year.

The funds have a contracts committee comprised of Richard G. Capen, Jr.; H.
Frederick Christie; Diane C. Creel; Martin Fenton; Leonard R. Fuller; R. Clark
Hooper; Richard G. Newman; and Frank M. Sanchez, none of whom is an "interested
person" of the funds within the meaning of the 1940 Act. The committee's
principal function is to request, review and consider the information deemed
necessary to evaluate the terms of certain agreements between the funds and
their investment adviser or the investment adviser's affiliates, such as the
Investment Advisory and Service Agreement, Principal Underwriting Agreement,
Administrative Services Agreement and Plans of Distribution adopted pursuant to
rule 12b-1 under the 1940 Act, that the fund may enter into, renew or continue,
and to make its recommendations to the full board of directors/trustees on these
matters. One contracts committee meeting was held during the 2006 fiscal year.

The funds have a nominating and governance committee comprised of Richard G.
Capen, Jr.; H. Frederick Christie; Diane C. Creel; Martin Fenton; Leonard R.
Fuller; R. Clark Hooper; Richard G. Newman; and Frank M. Sanchez, none of whom
is an "interested person" of the funds within the meaning of the 1940 Act. The
committee periodically reviews such issues as each board's composition,
responsibilities, committees, compensation and other relevant issues, and
recommends any appropriate changes to the full board of directors/trustees. The
committee also evaluates, selects and nominates independent director/trustee
candidates to each full board of directors/trustees. While the committee
normally is able to identify from its own and other 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 boards. Such suggestions
must be sent in writing to the nominating and governance committee of the funds,
addressed to the funds' 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. Three nominating and governance committee meetings were held
during the 2006 fiscal year.

Tax-Exempt Income Funds -- Page 27
<PAGE>

PROXY VOTING PROCEDURES AND GUIDELINES -- The funds and their investment adviser
have adopted Proxy Voting Guidelines (the "Guidelines") with respect to voting
proxies of securities held by the funds, other American Funds, Endowments and
American Funds Insurance Series. Certain American Funds have established
separate proxy committees that vote proxies or delegate to a voting officer the
authority to vote on behalf of those funds. Proxies for all other funds are
voted by a committee of the investment adviser under authority delegated by
those funds' boards. Therefore, if more than one fund invests in the same
company, they may vote differently on the same proposal.

All U.S. proxies are voted. Non-U.S. proxies also are voted, provided there is
sufficient time and information available. After a proxy is received, the
investment adviser prepares a summary of the proposals in the proxy. A
discussion of any potential conflicts of interest is also included in the
summary. After reviewing the summary, one or more research analysts familiar
with the company and industry make a voting recommendation on the proxy
proposals. A second recommendation is made by a proxy coordinator (a senior
investment professional) based on the individual's knowledge of the Guidelines
and familiarity with proxy-related issues. The proxy summary and voting
recommendations are then sent to the appropriate proxy voting committee for the
final voting decision.

The analyst and proxy coordinator making voting recommendations are responsible
for noting any potential material conflicts of interest. One example might be
where a director of one or more American Funds is also a director of a company
whose proxy is being voted. In such instances, proxy committee members are
alerted to the potential conflict. The proxy committee may then elect to vote
the proxy or seek a third-party recommendation or vote of an ad hoc group of
committee members.

The Guidelines, which have been in effect in substantially their current form
for many years, provide an important framework for analysis and decision-making
by all funds. However, they are not exhaustive and do not address all potential
issues. The Guidelines provide a certain amount of flexibility so that all
relevant facts and circumstances can be considered in connection with every
vote. As a result, each proxy received is voted on a case-by-case basis
considering the specific circumstances of each proposal. The voting process
reflects the funds' understanding of the company's business, its management and
its relationship with shareholders over time.

Information regarding how the fund 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 and (c) on the SEC's website at sec.gov.

The following summary sets forth the general positions of the American Funds,
Endowments, American Funds Insurance Series and the investment adviser on
various proposals. A copy of the full Guidelines is available upon request, free
of charge, by calling American Funds Service Company at 800/421-0180 or visiting
the American Funds website.

DIRECTOR MATTERS -- The election of a company's slate of nominees for
director is generally supported. Votes may be withheld for some or all of
the nominees if this is determined to be in the best interest of
shareholders. Separation of the chairman and CEO positions may also be
supported. Typically, proposals to declassify the board (elect

Tax-Exempt Income Funds -- Page 28
<PAGE>

all directors annually) are supported based on the belief that this
increases the directors' sense of accountability to shareholders.

SHAREHOLDER RIGHTS -- Proposals to repeal an existing poison pill, to
provide for confidential voting and to provide for cumulative voting are
usually supported. Proposals to eliminate the right of shareholders to act
by written consent or to take away a shareholder's right to call a special
meeting are not typically supported.

COMPENSATION AND BENEFIT PLANS -- Option plans are complicated, and many
factors are considered in evaluating a plan. Each plan is evaluated based
on protecting shareholder interests and a knowledge of the company and its
management. Considerations include the pricing (or repricing) of options
awarded under the plan and the impact of dilution on existing shareholders
from past and future equity awards. Compensation packages should be
structured to attract, motivate and retain existing employees and qualified
directors; however, they should not be excessive.

ROUTINE MATTERS -- The ratification of auditors, procedural matters
relating to the annual meeting and changes to company name are examples of
items considered routine. Such items are generally voted in favor of
management's recommendations unless circumstances indicate otherwise.

PRINCIPAL FUND SHAREHOLDERS -- The following tables identify those investors who
own of record or are known by each fund to own beneficially 5% or more of any
class of its shares as of the opening of business on October 1, 2006. Unless
otherwise indicated, the ownership percentages below represent ownership of
record rather than beneficial ownership.

THE TAX-EXEMPT BOND FUND OF AMERICA

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

Edward D. Jones & Co. Class A 16.42%
201 Progress Parkway Class B 10.85
Maryland Heights, MO 63043-3009
----------------------------------------------------------------------------
MLPF&S Class B 7.54
4800 Deer Lake Drive, E., Floor 2 Class C 18.05
Jacksonville, FL 32246-6484
----------------------------------------------------------------------------
Citigroup Global Markets, Inc. Class C 7.60
333 W. 34th Street Class F 12.61
New York, NY 10001-2402
----------------------------------------------------------------------------
CGTC Agent Class R-5 14.79
120 S. State College Boulevard
Brea, CA 92821-5805
----------------------------------------------------------------------------

Tax-Exempt Income Funds -- Page 29
<PAGE>

AMERICAN HIGH-INCOME MUNICIPAL BOND FUND

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

Edward D. Jones & Co. Class A 22.92%
201 Progress Parkway Class B 17.78
Maryland Heights, MO 63043-3009 Class C 6.36
----------------------------------------------------------------------------
Citigroup Global Markets, Inc. Class A 5.51
333 W. 34th Street Class B 7.35
New York, NY 10001-2402 Class C 7.46
----------------------------------------------------------------------------
MLPF&S Class B 9.13
4800 Deer Lake Drive, E., Floor 2 Class C 15.92
Jacksonville, FL 32246-6484
----------------------------------------------------------------------------
Dean Witter Reynolds Class B 5.30
3 Harborside Plaza, 6th Floor
Jersey City, NJ 07311-3907
----------------------------------------------------------------------------
CGTC Agent Class R-5 16.20
120 S. State College Boulevard
Brea, CA 92821-5805
----------------------------------------------------------------------------
CGTC Agent Class R-5 7.28
120 S. State College Boulevard
Brea, CA 92821-5805
----------------------------------------------------------------------------
CGTC Agent Class R-5 5.64
120 S. State College Boulevard
Brea, CA 92821-5805
----------------------------------------------------------------------------

LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA

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

Edward D. Jones & Co. Class A 10.14%
201 Progress Parkway Class B 7.23
Maryland Heights, MO 63043-3009
----------------------------------------------------------------------------
MLPF&S Class A 5.29
4800 Deer Lake Drive, E., Floor 2 Class B 28.02
Jacksonville, FL 32246-6484 Class C 22.32
----------------------------------------------------------------------------
Citigroup Global Markets, Inc. Class B 6.12
333 W. 34th Street Class C 10.13
New York, NY 10001-2402 Class F 5.86
----------------------------------------------------------------------------
AG Edwards Trust Company Class F 8.54
P.O. Box 66734
St. Louis, MO 63166-6734
----------------------------------------------------------------------------
CGTC Agent Class R-5 9.85
120 S. State College Boulevard
Brea, CA 92821-5805
----------------------------------------------------------------------------
CGTC Agent Class R-5 6.82
120 S. State College Boulevard
Brea, CA 92821-5805
----------------------------------------------------------------------------

Tax-Exempt Income Funds -- Page 30
<PAGE>

THE TAX-EXEMPT FUND OF CALIFORNIA

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

Edward D. Jones & Co. Class A 12.03%
201 Progress Parkway Class B 7.50
Maryland Heights, MO 63043-3009
----------------------------------------------------------------------------
MLPF&S Class A 5.19
4800 Deer Lake Drive, E., Floor 2 Class B 16.46
Jacksonville, FL 32246-6484 Class C 31.10
----------------------------------------------------------------------------
Dean Witter Reynolds Class B 5.09
3 Harborside Plaza, 6th Floor
Jersey City, NJ 07311-3907
----------------------------------------------------------------------------
Citigroup Global Markets, Inc. Class C 6.45
333 W. 34th Street
New York, NY 10001-2402
----------------------------------------------------------------------------

INVESTMENT ADVISER -- Capital Research and Management Company, the funds'
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 135 South State College Boulevard,
Brea, CA 92821. It is a wholly owned subsidiary of The Capital Group Companies,
Inc., a holding company for several investment management subsidiaries. The
investment adviser manages equity assets for the American Funds through two
divisions. These divisions generally function separately from each other with
respect to investment research activities and they make investment decisions for
the funds on a separate basis.

POTENTIAL CONFLICTS OF INTEREST -- The investment adviser has adopted policies
and procedures that address conflicts of interest that may arise between a
portfolio counselor's management of the funds and his or her management of other
funds and accounts. Potential areas of conflict could involve allocation of
investment opportunities and trades among funds and accounts, use of information
regarding the timing of fund trades, personal investing activities, portfolio
counselor compensation and voting relating to portfolio securities. The
investment adviser has adopted policies and procedures that it believes are
reasonably designed to address these conflicts. However, there is no guarantee
that such policies and procedures will be effective or that the investment
adviser will anticipate all potential conflicts of interest.

COMPENSATION OF INVESTMENT PROFESSIONALS -- As described in the prospectus, the
investment adviser uses a system of multiple portfolio counselors in managing
fund assets. In addition, Capital Research and Management Company's investment
analysts may make investment decisions with respect to a portion of a fund's
portfolio within their research coverage. Portfolio

Tax-Exempt Income Funds -- Page 31
<PAGE>

counselors and investment analysts may also make investment decisions for other
mutual funds advised by Capital Research and Management Company.

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 will vary depending on the
individual's portfolio results, contributions to the organization and other
factors. In order to encourage a long-term focus, bonuses based on investment
results are principally determined by comparing pretax total returns to relevant
benchmarks over both the most recent year and a four-year rolling average, with
the greater weight placed on the four-year rolling average. For portfolio
counselors, benchmarks may include measures of the marketplaces in which the
relevant fund invests and measures of the results of comparable mutual funds.
For investment analysts, benchmarks may include relevant market measures and
appropriate industry or sector indexes reflecting their areas of expertise.
Capital Research and Management Company also separately compensates analysts for
the quality of their research efforts. The benchmarks against which The
Tax-Exempt Bond Fund of America, American High-Income Municipal Bond Fund,
Limited Term Tax-Exempt Bond Fund of America and The Tax-Exempt Fund of
California portfolio counselors are measured include:

The Tax-Exempt Bond Fund of America -- Lipper General Municipal Debt Funds
Average;

American High-Income Municipal Bond Fund -- Lipper High Yield Municipal
Debt Funds Average;

Limited Term Tax-Exempt Bond Fund of America -- Lipper Intermediate
Municipal Debt Funds Average; and

The Tax-Exempt Fund of California -- Lipper California Municipal Debt Funds
Average.

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

Tax-Exempt Income Funds -- Page 32
<PAGE>

THE FOLLOWING TABLE REFLECTS INFORMATION AS OF JULY 31, 2006 FOR AHIM AND LTEX
AND AUGUST 31, 2006 FOR TEBF AND TEFCA:

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

THE TAX-EXEMPT BOND FUND OF AMERICA
-----------------------------------------------------------------------------------------
Brenda S. $100,001 - 4 $3.6 None None
Ellerin $500,000
-----------------------------------------------------------------------------------------
Neil L. Langberg $10,001 - 3 $4.4 None None
$50,000
-----------------------------------------------------------------------------------------
Karl J. Zeile $100,001 - 3 $4.4 None None
$500,000
-----------------------------------------------------------------------------------------
AMERICAN HIGH-INCOME MUNICIPAL BOND FUND
-----------------------------------------------------------------------------------------
Brenda S. $100,001 - 4 $6.5 None None
Ellerin $500,000
-----------------------------------------------------------------------------------------
Neil L. Langberg $10,001 - 3 $7.2 None None
$50,000
-----------------------------------------------------------------------------------------
Karl J. Zeile $100,001 - 3 $7.2 None None
$500,000
-----------------------------------------------------------------------------------------
LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA
-----------------------------------------------------------------------------------------
Brenda S. $100,001 - 4 $7.4 None None
Ellerin $500,000
-----------------------------------------------------------------------------------------
Neil L. Langberg $10,001 - 3 $8.1 None None
$50,000
-----------------------------------------------------------------------------------------
Karl J. Zeile $100,001 - 3 $8.1 None None
$500,000
-----------------------------------------------------------------------------------------
THE TAX-EXEMPT FUND OF CALIFORNIA
-----------------------------------------------------------------------------------------
Neil L. Langberg $10,001 - 3 $8.1 None None
$50,000
-----------------------------------------------------------------------------------------
Edward B. $500,001 - 2 $0.6 None None
Nahmias $1,000,000
-----------------------------------------------------------------------------------------
Karl J. Zeile $100,001 - 3 $8.1 None None
$500,000
-----------------------------------------------------------------------------------------

Tax-Exempt Income Funds -- Page 33
<PAGE>

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

INVESTMENT ADVISORY AND SERVICE AGREEMENT -- The Investment Advisory and Service
Agreements (the "Agreements") between the funds and the investment adviser will
continue in effect until May 31, 2007, 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 directors/trustees,
or by the vote of a majority (as defined in the 1940 Act) of the outstanding
voting securities of the relevant fund, and (b) the vote of a majority of
directors/ trustees who are not parties to the Agreements 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 Agreements provide that
the investment adviser has no liability to the funds for its acts or omissions
in the performance of its obligations to the funds not involving willful
misconduct, bad faith, gross negligence or reckless disregard of its obligations
under the Agreements. The Agreements also provide that either party has the
right to terminate them, without penalty, upon 60 days' written notice to the
other party, and that the Agreements automatically terminate in the event of
their assignment (as defined in the 1940 Act).

In addition to providing investment advisory services, the investment adviser
furnishes the services and pays the compensation and travel expenses of persons
to perform the funds' executive, administrative, clerical and bookkeeping
functions, and provides suitable office space, necessary small office equipment
and utilities, general purpose accounting forms, supplies and

Tax-Exempt Income Funds -- Page 34
<PAGE>

postage used at the funds' offices. The funds pay all expenses not assumed by
the investment adviser, including, but not limited to, custodian, stock transfer
and dividend disbursing fees and expenses; shareholder recordkeeping and
administrative expenses; costs of the designing, printing and mailing of
reports, prospectuses, proxy statements and notices to their shareholders;
taxes; expenses of the issuance and redemption of fund shares (including stock
certificates, registration and qualification fees and expenses); expenses
pursuant to the funds' plans of distribution (described below); legal and
auditing expenses; compensation, fees and expenses paid to independent
directors/trustees; association dues; costs of stationery and forms prepared
exclusively for the funds; and costs of assembling and storing shareholder
account data.

THE TAX-EXEMPT BOND FUND OF AMERICA: The investment adviser receives a monthly
fee based on the following annualized rates and net asset levels:

Net asset level

RATE IN EXCESS OF UP TO
------------------------------------------------------------------------------

0.30% $ 0 $ 60,000,000
------------------------------------------------------------------------------
0.21 60,000,000 1,000,000,000
------------------------------------------------------------------------------
0.18 1,000,000,000 3,000,000,000
------------------------------------------------------------------------------
0.15 3,000,000,000 6,000,000,000
------------------------------------------------------------------------------
0.13 6,000,000,000
------------------------------------------------------------------------------

The Agreement also provides for fees based on monthly gross investment income at
the following annualized rates:

Monthly gross investment income

RATE IN EXCESS OF UP TO
-----------------------------------------------------------------------------------

3.00% $ 0 $3,333,333
-----------------------------------------------------------------------------------
2.50 3,333,333 8,333,333
-----------------------------------------------------------------------------------
2.00 8,333,333
-----------------------------------------------------------------------------------

For the purposes of such computations under the Agreement, the fund's gross
investment income shall be determined in accordance with generally accepted
accounting principles and does not reflect any net realized gains or losses on
the sale of portfolio securities but does include original-issue discount as
defined for federal income tax purposes.

For the fiscal years ended August 31, 2006 and 2005, the investment adviser was
entitled to receive from the fund management fees of $12,974,000 and
$11,108,000, respectively. After giving effect to the management fee waivers
described below, the fund paid the investment adviser management fees of
$11,677,000 (a reduction of $1,297,000) and $10,311,000 (a reduction of
$797,000) for the fiscal years ended August 31, 2006 and 2005, respectively. For
the fiscal year ended August 31, 2004, the fund paid the investment adviser
management fees of $10,420,000.

Tax-Exempt Income Funds -- Page 35
<PAGE>

AMERICAN HIGH-INCOME MUNICIPAL BOND FUND: The investment adviser receives a
monthly fee based on the following annualized rates and net asset levels:

Net asset level

RATE IN EXCESS OF UP TO
------------------------------------------------------------------------------

0.30% $ 0 $ 60,000,000
------------------------------------------------------------------------------
0.21 60,000,000 1,000,000,000
------------------------------------------------------------------------------
0.18 1,000,000,000 3,000,000,000
------------------------------------------------------------------------------
0.15 3,000,000,000
------------------------------------------------------------------------------

The Agreement also provides for fees based on monthly gross investment income at
the following annualized rates:

Monthly gross investment income

RATE IN EXCESS OF UP TO
-----------------------------------------------------------------------------------

3.00% $ 0 $3,333,333
-----------------------------------------------------------------------------------
2.50 3,333,333
-----------------------------------------------------------------------------------

For the purposes of such computations under the Agreement, the fund's gross
investment income shall be determined in accordance with generally accepted
accounting principles and does not reflect any net realized gains or losses on
the sale of portfolio securities but does include original issue discount as
defined for federal income tax purposes.

For the fiscal years ended July 31, 2006, 2005 and 2004, the investment adviser
was entitled to receive from the fund management fees of $6,000,000, $5,087,000
and $4,516,000, respectively. After giving effect to the management fee waivers
described below, the fund paid the investment adviser management fees of
$5,400,000 (a reduction of $600,000), $4,763,000 (a reduction of $324,000) and
$4,498,000 (a reduction of $18,000) for the fiscal years ended July 31, 2006,
2005 and 2004, respectively.

The investment adviser has agreed that in the event the Class A expenses of the
fund (with the exclusion of interest, taxes, brokerage costs, distribution
expenses pursuant to a plan under rule 12b-1 and extraordinary expenses such as
litigation and acquisitions or other expenses excludable under applicable state
securities laws or regulations) for any fiscal year ending on a date on which
the Agreement is in effect exceed the expense limitations, if any, applicable to
the fund pursuant to state securities laws or any related regulations, it will
reduce its fee by the extent of such excess and, if required pursuant to any
such laws or any regulations thereunder, will reimburse the fund in the amount
of such excess. To the extent the fund's management fee must be waived due to
Class A share expense ratios exceeding the above limit, management fees will be
reduced similarly for all classes of shares of the fund, or other Class A fees
will be waived in lieu of management fees.

Tax-Exempt Income Funds -- Page 36
<PAGE>

LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA: The investment adviser receives a
monthly fee based on the following annualized rates and net asset levels:

Net asset level

RATE IN EXCESS OF UP TO
------------------------------------------------------------------------------

0.30% $ 0 $ 60,000,000
------------------------------------------------------------------------------
0.18 60,000,000 1,000,000,000
------------------------------------------------------------------------------
0.15 1,000,000,000
------------------------------------------------------------------------------

The Agreement also provides for fees based on monthly gross investment income at
the following annualized rates:

Monthly gross investment income

RATE IN EXCESS OF UP TO
------------------------------------------------------------------------------

3.00% $ 0 $3,333,333
------------------------------------------------------------------------------
2.50 3,333,333
------------------------------------------------------------------------------

For the purposes of such computations under the Agreement, the fund's gross
investment income shall be determined in accordance with generally accepted
accounting principles and does not reflect any net realized gains or losses on
the sale of portfolio securities but does include original issue discount as
defined for federal income tax purposes.

For the fiscal years ended July 31, 2006, 2005 and 2004, the investment adviser
was entitled to receive from the fund management fees of $3,192,000, $3,251,000
and $3,167,000, respectively. After giving effect to the management fee waivers
described below, the fund paid the investment adviser management fees of
$2,873,000 (a reduction of $319,000), $3,047,000 (a reduction of $204,000) and
$3,030,000 (a reduction of $137,000), for the fiscal years ended July 31, 2006,
2005 and 2004, respectively.

Tax-Exempt Income Funds -- Page 37
<PAGE>

THE TAX-EXEMPT FUND OF CALIFORNIA: The investment adviser receives a monthly fee
based on the following annualized rates and net asset levels:

Net asset level

RATE IN EXCESS OF UP TO
------------------------------------------------------------------------------

The Agreement also provides for fees based on monthly gross investment income at
the following annualized rates:

Monthly gross investment income

RATE IN EXCESS OF UP TO
-----------------------------------------------------------------------------------

For the fiscal years ended August 31, 2006 and 2005, the investment adviser was
entitled to receive from the fund management fees of $3,969,000 and $2,988,000,
respectively. After giving effect to the management fee waivers described below,
the fund paid the investment adviser management fees of $3,572,000 (a reduction
of $397,000) and $2,770,000 (a reduction of $218,000) for the fiscal years ended
August 31, 2006 and 2005, respectively. For the fiscal year ended August 31,
2004, the fund paid the investment adviser management fees of $2,486,000.

FEE WAIVER -- 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 Agreements. Beginning April 1, 2005,
this waiver increased to 10% of the management fees that the investment adviser
is otherwise entitled to receive and this waiver is expected to continue at this
level until further review. As a result of this waiver, management fees will be
reduced similarly for all classes of shares of the funds. In addition, the
investment adviser agreed to waive a portion of its management fees that it was
otherwise entitled to receive under the Agreement for AHIM and LTEX during those
funds' 2004 fiscal years.

Tax-Exempt Income Funds -- Page 38
<PAGE>

ADMINISTRATIVE SERVICES AGREEMENT -- The Administrative Services Agreement (the
"Administrative Agreement") between each fund and the investment adviser
relating to the funds' Class C, F and R-5 shares will continue in effect until
May 31, 2007, 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 directors/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 directors/trustees. The
investment adviser has the right to terminate the Administrative Agreement upon
60 days' written notice to the relevant 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 funds' Class
C, F and R-5 shares. The investment adviser may contract with third parties,
including American Funds Service Company, the funds' Transfer Agent, to provide
these services. Services include, but are not limited to, shareholder account
maintenance, transaction processing, tax information reporting, and shareholder
and fund communications. In addition, the investment adviser monitors,
coordinates and oversees the activities performed by third parties.

The investment adviser receives an administrative services fee at the annual
rate of up to 0.15% of the average daily net assets for each applicable share
class (excluding Class R-5 shares) for administrative services provided to these
share classes. Administrative services fees are paid monthly and accrued daily.
The investment adviser uses a portion of this fee to compensate third parties
for administrative services provided to the funds. Of the remainder, the
investment adviser will not retain more than 0.05% of the average daily net
assets for each applicable share class. For Class R-5 shares, the administrative
services fee is calculated at the annual rate of up to 0.10% of the average
daily net assets of Class R-5 shares. The administrative services fee includes
compensation for transfer agent and shareholder services provided to the funds'
applicable share classes. In addition to making administrative service fee
payments to unaffiliated third parties, the investment adviser also makes
payments from the administrative services fee to American Funds Service Company
according to a fee schedule contained in a Shareholder Services
Agreement between each fund and American Funds Service Company.

During the 2006 fiscal year, administrative services fees were:

--------------------------------------------------------------------------------------------

ADMINISTRATIVE SERVICES
FEE

TEBF CLASS C $145,000
CLASS F 283,000
CLASS R-5 88,000
-------------------------
AHIM CLASS C 112,000
CLASS F 100,000
CLASS R-5 23,000
--------------------------------------------------------------------------------------------
LTEX CLASS C $ 74,000
CLASS F 30,000
CLASS R-5 45,000
-------------------------
TEFCA CLASS C 66,000
CLASS F 57,000
CLASS R-5 46,000
--------------------------------------------------------------------------------------------

Tax-Exempt Income Funds -- Page 39
<PAGE>

PRINCIPAL UNDERWRITER AND PLANS OF DISTRIBUTION -- American Funds Distributors,
Inc. (the "Principal Underwriter") is the principal underwriter of each fund's
shares. The Principal Underwriter is located at 333 South Hope Street, Los
Angeles, CA 90071; 135 South State College Boulevard, Brea, CA 92821; 3500
Wiseman Boulevard, San Antonio, TX 78251; 8332 Woodfield Crossing Boulevard,
Indianapolis, IN 46240; and 5300 Robin Hood Road, Norfolk, VA 23513.

The Principal Underwriter receives revenues from sales of each fund's shares.
For Class A shares, the Principal Underwriter receives commission revenue
consisting of that portion of the Class A sales charge remaining after the
allowances by the Principal Underwriter to investment dealers. For Class B
shares, the Principal Underwriter sells the rights to Class B 12b-1 fees paid by
each fund for distribution expenses to a third party and receives the revenue
remaining after compensating investment dealers for sales of Class B shares.
Each fund also pays the Principal Underwriter for advancing the immediate
service fees paid to qualified dealers of Class B shares. For Class C shares,
the Principal Underwriter receives any contingent deferred sales charges that
apply during the first year after purchase. Each fund pays the Principal
Underwriter for advancing the immediate service fees and commissions paid to
qualified dealers of Class C shares. For Class F shares, each fund pays the
Principal Underwriter for advancing the immediate service fees paid to qualified
dealers and advisers who sell Class F shares.

Tax-Exempt Income Funds -- Page 40
<PAGE>

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

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

CLASS A
2006 TEBF $2,214,000 TEBF $8,506,000
AHIM 969,000 AHIM 3,720,000
LTEX 244,000 LTEX 990,000
TEFCA 636,000 TEFCA 2,451,000

2005 TEBF 1,954,000 TEBF 7,543,000
AHIM 977,000 AHIM 3,723,000
LTEX 412,000 LTEX 1,551,000
TEFCA 635,000 TEFCA 2,453,000
2004 TEBF 1,575,000 TEBF 6,044,000
AHIM 837,000 AHIM 3,260,000
LTEX 521,000 LTEX 2,023,000
TEFCA 374,000 TEFCA 1,423,000
------------------------------------------------------------------------------------------------------------
CLASS B
2006 TEBF 41,000 TEBF 294,000
AHIM 27,000 AHIM 190,000
LTEX 4,000 LTEX 17,000
TEFCA 10,000 TEFCA 72,000
2005 TEBF 54,000 TEBF 368,000
AHIM 43,000 AHIM 272,000
LTEX 17,000 LTEX 95,000
TEFCA 14,000 TEFCA 97,000
2004 TEBF 109,000 TEBF 625,000
AHIM 79,000 AHIM 487,000
LTEX 71,000 LTEX 302,000
TEFCA 26,000 TEFCA 163,000
------------------------------------------------------------------------------------------------------------
CLASS C 2006 TEBF $ 6,000 TEBF $ 548,000
AHIM 39,000 AHIM 258,000
LTEX 68,000 LTEX 80,000
TEFCA 48,000 TEFCA 287,000
2005 TEBF -- TEBF 514,000
AHIM -- AHIM 293,000
LTEX 37,000 LTEX 204,000
TEFCA -- TEFCA 317,000
2004 TEBF 102,000 TEBF 381,000
AHIM 38,000 AHIM 288,000
LTEX 193,000 LTEX 321,000
TEFCA 26,000 TEFCA 194,000
------------------------------------------------------------------------------------------------------------

Tax-Exempt Income Funds -- Page 41
<PAGE>

Each fund has adopted plans of distribution (the "Plans") pursuant to rule 12b-1
under the 1940 Act. The Principal Underwriter receives amounts payable pursuant
to the Plans (see below). As required by rule 12b-1 and the 1940 Act, the Plans
(together with the Principal Underwriting Agreement) have been approved by the
full board of directors/trustees and separately by a majority of the independent
directors/trustees of the funds who have no direct or indirect financial
interest in the operation of the Plans or the Principal Underwriting Agreements.
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 selection and
nomination of independent directors/trustees are committed to the discretion of
the independent directors/trustees during the existence of the Plans. The Plans
may not be amended to increase materially the amount spent for distribution
without shareholder approval. Plan expenses are reviewed quarterly and the Plans
must be renewed annually by the board of directors/trustees.

Under the Plans, each fund may annually expend the following amounts to finance
any activity primarily intended to result in the sale of fund shares, provided
each fund's board of directors/ trustees has approved the category of expenses
for which payment is being made: (a) for Class A shares, up to 0.25% (up to
0.30% in the case of AHIM and LTEX) of the average daily net assets attributable
to Class A shares, (b) for Class B shares, up to 1.00% of the average daily net
assets attributable to Class B shares, (c) for Class C shares, up to 1.00% of
the average daily net assets attributable to Class C shares, and (d) for Class F
shares, up to 0.50% of the average daily net assets attributable to Class F
shares. The funds have not adopted a Plan for Class R-5 shares; accordingly, no
12b-1 fees are paid from Class R-5 assets.

For Class A shares: (a) up to 0.25% is reimbursed to the Principal Underwriter
for paying service-related expenses, including paying service fees paid to
qualified dealers, and (b) up to the amount allowable under each fund's Class A
12b-1 limit is reimbursed to the Principal Underwriter for paying
distribution-related expenses, including for Class A shares dealer commissions
and wholesaler compensation paid on sales of shares of $1 million or more
purchased without a sales charge (including purchases by employer-sponsored
defined

Tax-Exempt Income Funds -- Page 42
<PAGE>

contribution-type retirement plans investing $1 million or more or with 100 or
more eligible employees, and retirement plans, endowments and foundations with
$50 million or more in assets -- "no load purchases"). Commissions on no load
purchases of Class A shares in excess of the Class A Plan limitation not
reimbursed to the Principal Underwriter during the most recent fiscal quarter
are recoverable for five quarters, provided that such commissions do not exceed
the annual expense limit. After five quarters these commissions are not
recoverable. As of the funds' most recent fiscal year, unreimbursed expenses
which remained subject to reimbursement under the Plan for Class A shares
totaled $6,053,000 or 0.14% of Class A net assets for TEBF, $1,289,000 or 0.16%
of Class A net assets for LTEX and $1,087,000 or 0.10% of Class A net assets for
TEFCA.

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

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

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

During the 2006 fiscal year, total 12b-1 expenses, and the portion of the
expense that remained unpaid, were:

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

CLASS A TEBF $9,645,000 TEBF $1,631,000
AHIM 4,193,000 AHIM 546,000
LTEX 2,513,000 LTEX 242,000
TEFCA 2,338,000 TEFCA 376,000

--------------------------------------------------------------------------------------------------
CLASS B TEBF 1,191,000 TEBF 139,000
AHIM 656,000 AHIM 65,000
LTEX 456,000 LTEX 41,000
TEFCA 231,000 TEFCA 26,000

--------------------------------------------------------------------------------------------------
CLASS C TEBF 1,771,000 TEBF 349,000
AHIM 914,000 AHIM 132,000
LTEX 884,000 LTEX 111,000
TEFCA 859,000 TEFCA 150,000

--------------------------------------------------------------------------------------------------
CLASS F TEBF 790,000 TEBF 247,000
AHIM 256,000 AHIM 48,000
LTEX 101,000 LTEX 19,000
TEFCA 173,000 TEFCA 58,000

--------------------------------------------------------------------------------------------------

Tax-Exempt Income Funds -- Page 43
<PAGE>

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

A. G. Edwards & Sons, Inc.
AIG Advisors Group:
Advantage Capital Corporation
AIG Financial Advisors, Inc.
American General Securities Incorporated
FSC Securities Corporation
Royal Alliance Associates, Inc.
AXA Advisors, LLC
Cadaret, Grant & Co., Inc.
Cambridge Investment Research, Inc.
Commonwealth Financial Network
Cuna Brokerage Services, Inc.
Deutsche Bank Securities Inc.
Edward Jones
Genworth Financial Securities Corporation
Hefren-Tillotson, Inc.
HTK/Janney Montgomery Group:
Hornor, Townsend & Kent, Inc.
Janney Montgomery Scott LLC
ING Advisors Network Inc.:
Bancnorth Investment Group, Inc.
Financial Network Investment Corporation
Guaranty Brokerage Services, Inc.
ING Financial Partners, Inc.
Multi-Financial Securities Corporation
Primevest Financial Services, Inc.
InterSecurities/Transamerica:
InterSecurities, Inc.
Transamerica Financial Advisors, Inc.
J.J.B. Hilliard/PNC Bank:
J.J.B. Hilliard, W.L. Lyons, Inc.
PNC Bank, National Association
PNC Brokerage Corp.
PNC Investments LLC
Lincoln Financial Advisors Corporation:
Lincoln Financial Advisors Corporation
Jefferson Pilot Securities Corporation
LPL Financial Services:
Linsco/Private Ledger Corp.
Uvest Investment Services
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Metlife Enterprises:
Metlife Securities Inc.
Tower Square Securities
New England Securities
Walnut Street Securities, Inc.
MML Investors Services, Inc.
Morgan Keegan & Company, Inc.
Morgan Stanley DW Inc.
National Planning Holdings Inc.:
Invest Financial Corporation
Investment Centers of America, Inc.
National Planning Corporation
SII Investments, Inc.
NFP Securities, Inc.
Northwestern Mutual Investment Services, LLC
Pacific Select Distributors Inc.:
Associated Securities Corp.
Contemporary Financial Solutions, Inc.
M.L. Stern & Co., LLC
Mutual Service Corporation
Sorrento Pacific Financial, LLC
United Planners' Financial Services of America
Waterstone Financial Group, Inc.

Tax-Exempt Income Funds -- Page 44
<PAGE>

Park Avenue Securities LLC
Princor Financial Services Corporation
Raymond James Group:
Raymond James & Associates, Inc.
Raymond James Financial Services Inc.
RBC Dain Rauscher Inc.
Robert W. Baird & Co. Incorporated
Securian/C.R.I.:
CRI Securities, LLC
Securian Financial Services, Inc.
Smith Barney
U.S. Bancorp Investments, Inc.
UBS Financial Services Inc.
First Clearing LLC
Wells Fargo Investments, L.L.C.

EXECUTION OF PORTFOLIO TRANSACTIONS

As described in the prospectus, the investment adviser places orders with
broker-dealers for the funds' portfolio transactions. Portfolio transactions for
the funds may be executed as part of concurrent authorizations to purchase or
sell the same security for other funds served by the investment adviser, or for
trusts or other accounts served by affiliated companies of the investment
adviser. When such concurrent authorizations occur, the objective is to allocate
the executions in an equitable manner.

THE TAX-EXEMPT BOND FUND OF AMERICA -- Brokerage commissions paid on portfolio
transactions, including dealer concessions on underwritings, for the 2006, 2005
and 2004 fiscal years amounted to $3,786,000, $2,539,000 and 1,198,000,
respectively. With respect to fixed income securities, brokerage commissions
include explicit investment dealer concessions and may exclude other transaction
costs which may be reflected in the spread between the bid and asked price. The
volume of securities purchased by the fund in underwritten offerings increased
from 2004 to 2006, resulting in an increase in brokerage concessions paid on
portfolio transactions.

AMERICAN HIGH-INCOME MUNICIPAL BOND FUND -- Brokerage commissions paid on
portfolio transactions, including dealer concessions on underwritings, for the
2006, 2005 and 2004 fiscal years amounted to $2,287,000, $1,095,000 and
$876,000, respectively. With respect to fixed income securities, brokerage
commissions include explicit investment dealer concessions and may exclude other
transaction costs which may be reflected in the spread between the bid and asked
price. The volume of securities purchased by the fund in underwritten offerings
increased from 2004 to 2006, resulting in an increase in brokerage concessions
paid on portfolio transactions.

Tax-Exempt Income Funds -- Page 45
<PAGE>

LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA -- Brokerage commissions paid on
portfolio transactions, including dealer concessions on underwritings, for the
2006, 2005 and 2004 fiscal years amounted to $451,000, $347,000 and $459,000,
respectively. With respect to fixed income securities, brokerage commissions
include explicit investment dealer concessions and may exclude other transaction
costs which may be reflected in the spread between the bid and asked price.

THE TAX-EXEMPT FUND OF CALIFORNIA -- Brokerage commissions paid on portfolio
transactions, including dealer concessions on underwritings, if applicable, for
the fiscal years ended 2006, 2005 and 2004 fiscal years amounted to $1,271,000,
$1,198,000 and $420,000, respectively. With respect to fixed income securities,
brokerage commissions include explicit investment dealer concessions and may
exclude other transaction costs which may be reflected in the spread between the
bid and asked price. The volume of securities purchased by the fund in
underwritten offerings increased between 2004 and 2006, resulting in an
increase in brokerage concessions paid on portfolio transactions.

DISCLOSURE OF PORTFOLIO HOLDINGS

The funds' investment adviser, on behalf of the funds, 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 funds' board
of directors/trustees and compliance will be periodically assessed by the board
in connection with reporting from the funds' Chief Compliance Officer.

Under these policies and procedures, each funds' 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 funds' custodian,
outside counsel and auditors, each of which require portfolio holdings
information for legitimate business and fund oversight purposes, may receive the
information earlier.

Affiliated persons of the funds as described above who receive portfolio
holdings information are subject to restrictions and limitations on the use and
handling of such information pursuant to applicable codes of ethics, including
requirements to maintain the confidentiality of such information, preclear
securities trades and report securities transactions activity, as applicable.
Third party service providers of the funds 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 funds (which, as described above, would typically occur no
earlier than one day after the day on which the information is posted on the
American Funds website), such persons may be bound by agreements (including
confidentiality agreements) that restrict and limit their use of the information
to legitimate business uses only. Neither the funds nor their investment adviser
or any affiliate thereof receives compensation or other consideration in
connection with the disclosure of information about portfolio securities.

Tax-Exempt Income Funds -- Page 46
<PAGE>

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

PRICE OF SHARES

Shares are purchased at the offering price or sold at the net asset value price
next determined after the purchase or sell order is received and accepted by the
funds 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 funds 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 funds. 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 funds, since such prices
generally reflect the previous day's closing price, while purchases and
redemptions are made at the next calculated price. The price you pay for shares,
the offering price, is based on the net asset value per share, which is
calculated once daily as of approximately 4:00 p.m. New York time, which is the
normal close of trading on the New York Stock Exchange, each day the Exchange is
open. If, for example, the Exchange closes at 1:00 p.m., the fund's share price
would still be determined as of 4:00 p.m. New York time. The New York Stock
Exchange is currently closed on weekends and on the following holidays: New
Year's Day; Martin Luther King, Jr. Day; Presidents' Day; Good Friday; Memorial
Day; Independence Day; Labor Day; Thanksgiving; and Christmas Day. Each share
class of the funds has a separately calculated net asset value (and share
price).

All portfolio securities of funds managed by Capital Research and Management
Company (other than money market funds) are valued, and the net asset values per
share for each share class are determined, as follows:

Tax-Exempt Income Funds -- Page 47
<PAGE>

1. Equity securities, including depositary receipts, are valued at the
official closing price of, or the last reported sale price on, the exchange or
market on which such securities are traded, as of the close of business on the
day the securities are being valued or, lacking any sales, at the last available
bid price. Prices for each security are taken from the principal exchange or
market in which the security trades. Fixed-income securities are valued at
prices obtained from an independent pricing service, when such prices are
available; however, in circumstances where the investment adviser deems it
appropriate to do so, such securities will be valued at the mean quoted bid and
asked prices (or bid prices, if asked prices are not available) or at prices for
securities of comparable maturity, quality and type. The pricing services base
bond prices on, among other things, an evaluation of the yield curve as of
approximately 3:00 p.m. New York time. The funds' investment adviser performs
certain checks on these prices prior to calculation of the funds' net asset
value.

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

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

Assets or liabilities initially expressed in terms of non-U.S. currencies are
translated prior to the next determination of the net asset value of the funds'
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 funds' board. Subject to board oversight, the
funds' board has delegated the obligation to make fair valuation determinations
to a valuation committee established by the funds' investment adviser. The board
receives regular reports describing fair-valued securities and the valuation
methods used.

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

Tax-Exempt Income Funds -- Page 48
<PAGE>

2. Each class of shares represents interests in the same portfolio of
investments and is identical in all respects to each other class, except for
differences relating to distribution, service and other charges and expenses,
certain voting rights, differences relating to eligible investors, the
designation of each class of shares, conversion features and exchange
privileges. Expenses attributable to the fund, but not to a particular class of
shares, are borne by each class pro rata based on relative aggregate net assets
of the classes. Expenses directly attributable to a class of shares are borne by
that class of shares. Liabilities, including accruals of taxes and other expense
items attributable to particular share classes, are deducted from total assets
attributable to such share classes.

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

TAXES AND DISTRIBUTIONS

FUND TAXATION -- Each 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, each 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 each 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 each 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, each 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

Tax-Exempt Income Funds -- Page 49
<PAGE>

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

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

SHAREHOLDER TAXATION -- Distributions by each fund result in a reduction in the
net asset value of each 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 each fund on those shares.

If a shareholder exchanges or otherwise disposes of shares of a 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.

Tax-Exempt Income Funds -- Page 50
<PAGE>

Each 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 each 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 each fund's dividends because such dividends would be ultimately
taxable to beneficiaries when distributed to them.

Exempt-interest dividends paid by each fund will be reported to both the IRS and
shareholders of each fund. Individual shareholders are required to report to the
federal government all exempt-interest dividends and all other tax-exempt
interest received. In addition, each fund is required to report all
distributions of investment company taxable income and capital gains as well as
gross proceeds from the redemption or exchange of fund shares, except in the
case of certain exempt shareholders.

Under the backup withholding provisions of Section 3406 of the Code,
distributions of investment company taxable income and capital gains and
proceeds from the redemption or exchange of a regulated investment company may
be subject to backup withholding of federal income tax in the case of non-exempt
U.S. shareholders who fail to furnish the investment company with their taxpayer
identification numbers and with required certifications regarding their status
under the federal income tax law. In addition, back-up withholding may apply
beginning in 2007 to exempt-interest dividends paid to non-exempt shareholders
for whom a certified taxpayer identification number has not been received.
Withholding may also be required if the fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.

The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of each 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.

Tax-Exempt Income Funds -- Page 51

<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 account statement and mailing the form, along
with a check made payable to the fund, using the envelope provided with
your account statement.

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

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

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

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

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

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

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

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

Your bank should include the following information when wiring funds:

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

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

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

The Principal Underwriter will not knowingly sell shares of the funds directly
or indirectly to any person or entity, where, after the sale, such person or
entity would own beneficially directly or

Tax-Exempt Income Funds -- Page 52
<PAGE>

indirectly more than 4.5% of the outstanding shares of a 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 funds 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 statement of additional information. However, in the case where
the entity maintaining these accounts aggregates the accounts' purchase orders
for fund shares, such accounts are not required to meet the 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 The Cash Management
Trust of America may be made to Class B or C shares of other American Funds for
dollar cost averaging purposes. Exchanges from Class A shares of The Cash
Management Trust of America to Class B or C shares of Intermediate Bond Fund of
America, Limited Term Tax-Exempt Bond Fund of America and Short-Term Bond Fund
of America are not permitted. Exchange purchases are subject to the minimum
investment requirements of the fund purchased and no sales charge generally
applies.

Tax-Exempt Income Funds -- Page 53
<PAGE>

However, exchanges of shares from American Funds money market funds are subject
to applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions. Exchanges of Class F shares generally may only be made through
fee-based programs of investment firms that have special agreements with the
funds' distributor and certain registered investment advisers.

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

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

FREQUENT TRADING OF FUND SHARES -- As noted in the prospectus, certain
redemptions may trigger a purchase block lasting 30 calendar days under the
funds' "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.

The fund, through its transfer agent, American Funds Service Company,
maintains surveillance procedures to detect frequent trading in fund
shares. Under these procedures, various analytics are used to evaluate
factors that may be indicative of frequent trading. For example,
transactions in fund shares that exceed certain monetary thresholds may be
scrutinized. American Funds Service Company also may review transactions
that occur close in time to other transactions in the same account or in
multiple accounts under common ownership or influence. Trading activity
that is identified through these procedures or as a result of any other
information available to the fund will be evaluated to determine whether
such activity might constitute frequent trading. These procedures may be
modified from time to time as appropriate to improve the detection of
frequent trading, to facilitate monitoring for frequent trading in
particular retirement plans or other accounts, and to comply with
applicable laws.

In addition to the fund's broad ability to restrict potentially harmful
trading, the fund's board of directors has adopted a "purchase blocking
policy," under which any shareholder redeeming shares (including
redemptions that are part of an exchange transaction) having a value of
$5,000 or more from the fund will be precluded from investing in the
fund (including investments that are part of an exchange transaction)
for 30 calendar days after the redemption transaction. Under the fund's
purchase blocking policy, certain purchases will not be prevented and
certain redemptions will not trigger a purchase block, such as: systematic
redemptions and purchases where the entity maintaining the shareholder
account is able to identify the transaction as a systematic redemption or
purchase; purchases and redemptions of shares having a value of less than
$5,000; transactions in Class 529 shares; purchases and redemptions
resulting from reallocations by American Funds Target Date Retirement
Series; retirement plan contributions, loans and distributions (including
hardship withdrawals) identified as such on the retirement plan
recordkeeper's system; and purchase transactions involving transfers of
assets, rollovers, Roth IRA conversions and IRA recharacterizations, where
the entity maintaining the shareholder account is able to identify the
transaction as one of these types of transactions.

The fund reserves the right to waive the purchase blocking policy in those
instances where American Funds Service Company determines that its
surveillance procedures are adequate to detect frequent trading in fund
shares.

American Funds Service Company will work with certain intermediaries (such
as investment dealers holding shareholder accounts in street name,
retirement plan recordkeepers, insurance company separate accounts and bank
trust companies) to apply their procedures which American Funds Service
Company believes are reasonably designed to enforce the frequent trading
policies of the fund. You should refer to disclosures provided by the
intermediaries with which you have an account to determine the specific
trading restrictions that apply to you.

If American Funds Service Company identifies any activity that may
constitute frequent trading, it reserves the right to contact the
intermediary and request that the intermediary either provide information
regarding an account owner's transactions or restrict the account owner's
trading. If American Funds Service Company is not satisfied that the
intermediary has taken appropriate action, American Funds Service Company
may terminate the intermediary's ability to transact in fund shares.

There is no guarantee that all instances of frequent trading in fund shares
will be prevented.

Notwithstanding the fund's surveillance procedures and purchase blocking
policy, all transactions in fund shares remain subject to the fund's and
American Funds Distributors' right to restrict potentially abusive trading
generally (including the types of transactions described above that will
not be prevented or trigger a block under the purchase blocking policy).

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

AUTOMATIC CONVERSIONS -- As described more fully in the prospectus, Class B
and C shares automatically convert to Class A and F shares, respectively,
after a certain period from the purchase date.

MOVING FROM CLASS B TO CLASS A SHARES -- Under the right of reinvestment
policy as described in the prospectus, if you redeem Class B shares during
the contingent deferred sales charge period, you may reinvest the proceeds
in Class A shares without paying a Class A sales charge if you notify
American Funds Service Company and the reinvestment occurs within 90 days
after the date of redemption and is made into the same account from which
you redeemed the shares. If you redeem your Class B shares after the
contingent deferred sales charge period, you may either reinvest the
proceeds in Class B shares or purchase Class A shares. If you purchase
Class A shares, you are responsible for paying any applicable Class A sales
charges.

Tax-Exempt Income Funds -- Page 54
<PAGE>

MOVING FROM CLASS C TO CLASS A SHARES -- If you redeem Class C shares and
with the redemption proceeds purchase Class A shares, you are still
responsible for paying any Class C contingent deferred sales charges and
applicable Class A sales charges.

MOVING FROM CLASS F TO CLASS A SHARES -- You can redeem Class F shares held
in a qualified fee-based program and with the redemption proceeds purchase
Class A shares without paying an initial Class A sales charge if all of the
following are met: (a) you are leaving or have left the fee-based program,
(b) you have held the Class F shares in the program for at least one year,
and (c) you notify American Funds Service Company and purchase the Class A
shares within 90 days after redeeming the Class F shares.

MOVING FROM CLASS A TO CLASS F SHARES -- If you are part of a qualified
fee-based program and you wish to redeem your Class A shares and with the
redemption proceeds purchase Class F shares for 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.

NON-REPORTABLE TRANSACTIONS -- As described above, automatic conversions
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 or vice
versa, an exchange of shares from one share class of a fund to another
share class of the same fund will be treated as a non-reportable exchange
for tax purposes, provided that the exchange request is received in writing
by American Funds Service Company and processed as a single transaction.

SALES CHARGES

CLASS A PURCHASES

PURCHASES BY CERTAIN 403(B) PLANS

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

OTHER PURCHASES

Pursuant to a determination of eligibility by a vice president or more
senior officer of the Capital Research and Management Company Fund
Administration Unit, or by his or her designee, Class A shares of the
American Funds stock, stock/bond and bond funds may be sold at net asset
value to:

(1) current or retired directors, trustees, officers and advisory board
members of, and certain lawyers who provide services to, the funds
managed by Capital Research and Management Company, current or retired
employees of Washington Management Corporation, current or retired
employees and partners of The Capital Group Companies, Inc. and its
affiliated companies, certain family members and employees of the
above persons, and trusts or plans primarily for such persons;

(2) currently registered representatives and assistants directly employed
by such representatives, retired registered representatives with
respect to accounts established while active, or full-time employees
(collectively, "Eligible Persons") (and their (a) spouses or
equivalents if recognized under local law, (b) parents and children,
including parents and children in step and adoptive relationships,
sons-in-law and daughters-in-law, and (c) parents-in-law, if the
Eligible Persons or the spouses, children or parents of the Eligible
Persons are listed in the account registration with the
parents-in-law) of dealers who have sales agreements with the
Principal Underwriter (or who clear transactions through such
dealers), plans for the dealers, and plans that include as
participants only the Eligible Persons, their spouses, parents and/or
children;

Tax-Exempt Income Funds -- Page 55
<PAGE>

(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;

. 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 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
funds' IRA rollover policy as described in the prospectus) are paid to dealers
at the following rates: 1.00% on amounts to $4 million, 0.50% on amounts over $4
million to $10 million and 0.25% on amounts over $10 million. Commissions are
based on cumulative investments and are not annually reset.

A dealer concession of up to 1% may be paid by each 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.

Tax-Exempt Income Funds -- Page 56
<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
American Funds non-money market funds over a 13-month period and receive
the same sales charge (expressed as a percentage of your purchases) as if
all shares had been purchased at once.

The market value of your existing holdings eligible to be aggregated (see
below) as of the day immediately before the start of the Statement period
may be credited toward satisfying the Statement.

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

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

When a shareholder elects to use a Statement, shares equal to 5% of the
dollar amount specified in the Statement may be held in escrow in the
shareholder's account out of the initial purchase (or subsequent purchases,
if necessary) by the Transfer Agent. All dividends and any capital gain
distributions on shares held in escrow will be credited to the
shareholder's account in shares (or paid in cash, if requested). If the
intended investment 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 at that time. After such termination, these
plans are eligible for additional sales charge reductions by meeting the
criteria under the fund's rights of accumulation policy.

Tax-Exempt Income Funds -- Page 57
<PAGE>

If you make an American Funds purchase under a statement of intention
prior to April 1, 2007, purchases of American Legacy variable annuity
contracts and variable life insurance policies may also be credited toward
completion of that statement of intention.

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

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

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

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

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

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

. CollegeAmerica/(R)/ accounts invested in American Funds other than the
funds, 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;

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

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

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

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

Tax-Exempt Income Funds -- Page 58
<PAGE>

Purchases made for nominee or street name accounts (securities held in the
name of an investment dealer or another nominee such as a bank trust
department instead of the customer) may not be aggregated with those made
for other accounts and may not be aggregated with other nominee or street
name accounts unless otherwise qualified as described above.

CONCURRENT PURCHASES -- As described in the prospectus, you may reduce your
Class A sales charge by combining purchases of all classes of shares in the
American Funds, as well as individual holdings in Endowments. Shares of
money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge also qualify. However,
direct purchases of American Funds money market funds are excluded.

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

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 accounts.

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

Tax-Exempt Income Funds -- Page 59
<PAGE>

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 a systematic withdrawal plan (SWP) (see "Automatic
withdrawals" under "Shareholder account services and privileges"
below). For each SWP 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 SWP 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 a SWP will also count toward the 12% limit. In the
case of a SWP, the 12% limit is calculated at the time a systematic
redemption is first made, and is recalculated at the time each
additional systematic redemption is made. Shareholders who establish a
SWP should be aware that the amount of a payment not subject to a CDSC
may vary over time depending on fluctuations in the value of their
accounts. This privilege may be revised or terminated at any time.

For purposes of this paragraph, "account" means:

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

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

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

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

Tax-Exempt Income Funds -- Page 60
<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 National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution. The Transfer Agent reserves the
right to require a signature guarantee on 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 money market
funds be wired to your bank by writing American Funds Service Company. A
signature guarantee is required on all requests to wire funds.

SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES

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

AUTOMATIC INVESTMENT PLAN -- An automatic investment plan enables you to make
monthly or quarterly investments in The American Funds through automatic debits
from your bank account. To set up a plan, you must fill out an account
application and specify the amount you would like to invest ($50 minimum per
fund) and the date on which you would like your investments to occur. The plan
will begin within 30 days after your account application is received. Your bank
account will be debited on the day or a few days before your investment is made,
depending on the bank's capabilities. The Transfer Agent will then invest your
money into the fund you specified on or around the date you specified. If the
date you specified falls on a weekend or holiday, your money will be invested on
the following business day. However, if the following business day falls in the
next month, your money will be invested on the business day immediately
preceding the weekend or holiday. If your bank account cannot be debited due to
insufficient funds, a stop-payment or the closing of the account, the plan may
be terminated and the related investment reversed. You may change the amount of
the investment or discontinue the plan at any time by contacting the Transfer
Agent.

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

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

Tax-Exempt Income Funds -- Page 61
<PAGE>

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.

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

AUTOMATIC WITHDRAWALS -- For all share classes, you may automatically withdraw
shares from any of the American Funds. You can make automatic withdrawals of $50
or more as often as you wish if your account is worth at least $10,000, or up to
four times a year for an account worth at least $5,000. You can designate the
day of each period for withdrawals and request that checks be sent to you or
someone else. Withdrawals may also be electronically deposited to your bank
account. The Transfer Agent will withdraw your money from the fund you specify
on or around the date you specify. If the date you specified falls on a weekend
or holiday, the redemption will take place on the previous business day.
However, if the previous business day falls in the preceding month, the
redemption will take place on the following business day after the weekend or
holiday.

Withdrawal payments are not to be considered as dividends, yield or income.
Automatic investments may not be made into a shareholder account from which
there are automatic withdrawals. Withdrawals of amounts exceeding reinvested
dividends and distributions and increases in share value would reduce the
aggregate value of the shareholder's account. The Transfer Agent arranges for
the redemption by the fund of sufficient shares, deposited by the shareholder
with the Transfer Agent, to provide the withdrawal payment specified.

ACCOUNT STATEMENTS -- Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments will be reflected on regular confirmation statements from the
Transfer Agent. Dividend and capital gain reinvestments, 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

Tax-Exempt Income Funds -- Page 62
<PAGE>

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.

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, and each of their respective directors,
trustees, officers, employees and agents harmless from any losses, expenses,
costs or liability (including attorney fees) which may be incurred in connection
with the exercise of these privileges. Generally, all shareholders are
automatically eligible to use these services. However, you may elect to opt out
of these services by writing the Transfer Agent (you may also reinstate them at
any time by writing the Transfer Agent). If the Transfer Agent does not employ
reasonable procedures to confirm that the instructions received from any person
with appropriate account information are genuine, it and/or the fund may be
liable for losses due to unauthorized or fraudulent instructions. In the event
that shareholders are unable to reach the fund by telephone because of technical
difficulties, market conditions, or a natural disaster, redemption and exchange
requests may be made in writing only.

CHECKWRITING -- You may establish check writing privileges for Class A shares
(but not Class 529-A shares) for American Funds money market funds. 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 funds' Articles of Incorporation or Declarations of
Trust permit the funds 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 each fund's current registration statement under the 1940 Act, and
subject to such further terms and conditions as the board of directors/trustees
of the funds may from time to time adopt.

While payment of redemptions normally will be in cash, TEBF's and AHIM's
Articles of Incorporation permit payment of the redemption price wholly or
partly in securities or other property included in the assets belonging to the
fund when in the opinion of each fund's board of directors, which shall be
conclusive, conditions exist which make payment wholly in cash unwise or
undesirable.

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

Tax-Exempt Income Funds -- Page 63
<PAGE>

GENERAL INFORMATION

CUSTODIAN OF ASSETS -- Securities and cash owned by the funds, including
proceeds from the sale of shares of the funds and of securities in the funds'
portfolios, are held by JPMorgan Chase Bank, 270 Park Avenue, New York, NY
10017-2070, as Custodian. If a fund holds non-U.S. securities, the Custodian may
hold these securities pursuant to subcustodial arrangements in non-U.S. banks or
non-U.S. branches of U.S. banks.

TRANSFER AGENT -- American Funds Service Company, a wholly owned subsidiary of
the investment adviser, maintains the records of shareholder accounts, processes
purchases and redemptions of the funds' 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 135 South State College Boulevard, Brea, CA 92821-5823. American
Funds Service Company was paid a fee by TEBF, AHIM, LTEX and TEFCA of $828,000,
$436,000, $173,000 and $154,000, respectively, for Class A shares, and $33,000,
$24,000, $12,000 and $5,000, respectively, for Class B shares for the 2006
fiscal year. American Funds Service Company is also compensated for certain
transfer agency services provided to all other share classes from the
administrative services fees paid to Capital Research and Management Company, as
described under "Administrative services agreement."

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 funds as disclosed in the prospectus.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -- PricewaterhouseCoopers LLP, 350
South Grand Avenue, Los Angeles, CA 90071, serves as the independent registered
public accounting firm for TEBF, AHIM and LTEX. Deloitte & Touche LLP, 695 Town
Center Drive, Costa Mesa, CA 92626, serves as the independent registered public
accounting firm for TEFCA. Each firm provides 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 reports have been so included in reliance
on the reports of PricewaterhouseCoopers LLP and Deloitte & Touche LLP,
independent registered public accounting firms, given on the authority of said
firms as experts in accounting and auditing. The selection of the funds'
independent registered public accounting firm is reviewed and determined
annually by the board of directors/trustees.

INDEPENDENT LEGAL COUNSEL -- Paul, Hastings, Janofsky & Walker LLP, 515 South
Flower Street, Los Angeles, CA 90071, serves as counsel for the funds and for
independent directors/trustees in their capacities as such. Certain legal
matters in connection with certain capital shares and shares of beneficial
interest offered by the prospectus have been passed upon for the funds by Paul,
Hastings, Janofsky & Walker LLP. Counsel does not provide legal services to the
funds' investment adviser or any of its affiliated companies. A determination
with respect to the independence of the funds' "independent legal counsel" will
be made at least annually by the independent directors/trustees of the funds, as
prescribed by the 1940 Act and related rules.

Tax-Exempt Income Funds -- Page 64
<PAGE>

PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS -- TEBF's and TEFCA's
fiscal year ends on August 31. AHIM's and LTEX's fiscal year ends on July 31.
Shareholders are provided updated prospectuses annually and at least
semiannually with reports showing the funds' investment portfolio or summary
investment portfolio, financial statements and other information. TEBF's, AHIM's
and LTEX's annual financial statements are audited by the funds' independent
registered public accounting firm, PricewaterhouseCoopers LLP and TEFCA's annual
financial statements are audited by the fund's independent registered public
accounting firm, Deloitte & Touche LLP. In addition, shareholders may also
receive proxy statements for the funds. In an effort to reduce the volume of
mail shareholders receive from the funds when a household owns more than one
account, the Transfer Agent has taken steps to eliminate duplicate mailings of
prospectuses, shareholder reports and proxy statements. To receive additional
copies of a prospectus, report or proxy statement, shareholders should contact
the Transfer Agent.

CODES OF ETHICS -- The funds and Capital Research and Management Company and its
affiliated companies, including each fund's Principal Underwriter, have adopted
codes of ethics that allow for personal investments, including securities in
which each 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 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, the NASD Hearing Panel ruled against the Principal Underwriter
and imposed a $5 million fine. The Principal Underwriter has appealed this
decision to the NASD's National Adjudicatory Council.

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

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

Tax-Exempt Income Funds -- Page 65
<PAGE>

OTHER INFORMATION -- The financial statements including the investment portfolio
and the reports of independent registered public accounting firms contained in
the annual reports are included in this statement of additional information. The
following information is not included in the annual report:

THE TAX-EXEMPT BOND FUND OF AMERICA

DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE
PER SHARE FOR CLASS A SHARES -- AUGUST 31, 2006

Net asset value and redemption price per share
(Net assets divided by shares outstanding). . $12.49
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). . . . . . . . . . . . . . . . $12.98

AMERICAN HIGH-INCOME MUNICIPAL BOND FUND

DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE
PER SHARE FOR CLASS A SHARES -- JULY 31, 2006

Net asset value and redemption price per share
(Net assets divided by shares outstanding). . $15.60
Maximum offering price per share
(100/96.25 of net asset value per share,
which takes into account the fund's current maximum
sales charge). . . . . . . . . . . . . . . . $16.21

Tax-Exempt Income Funds -- Page 66
<PAGE>

LIMITED TERM TAX-EXEMPT BOND FUND OF AMERICA

DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE
PER SHARE FOR CLASS A SHARES -- JULY 31, 2006

Net asset value and redemption price per share
(Net assets divided by shares outstanding). . $15.14
Maximum offering price per share
(100/97.50 of net asset value per share,
which takes into account the fund's current maximum
sales charge). . . . . . . . . . . . . . . . $15.53

THE TAX-EXEMPT FUND OF CALIFORNIA

DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE
PER SHARE FOR CLASS A SHARES -- AUGUST 31, 2006

Net asset value and redemption price per share
(Net assets divided by shares outstanding). . $16.75
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). . . . . . . . . . . . . . . . $17.40

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

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

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

Tax-Exempt Income Funds -- Page 67
<PAGE>

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Tax-Exempt Income Funds -- Page 68
<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.

Tax-Exempt Income Funds -- Page 69
<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.

Tax-Exempt Income Funds -- Page 70
<PAGE>

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

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

PLUS (+) OR MINUS (-)
The ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.

DESCRIPTION OF NOTE RATINGS

MOODY'S
MUNICIPAL SHORT-TERM DEBT RATINGS

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

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

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

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

STANDARD & POOR'S
SHORT-TERM ISSUE CREDIT RATINGS

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

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

SP-3
Speculative capacity to pay principal and interest.

Tax-Exempt Income Funds -- Page 71
<PAGE>

DESCRIPTION OF COMMERCIAL PAPER RATINGS

MOODY'S
COMMERCIAL PAPER RATINGS (HIGHEST THREE RATINGS)

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

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

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

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

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

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

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

Tax-Exempt Income Funds -- Page 72

[logo - American Funds ^®]

The Tax-Exempt Fund of California^®

Investment portfolio

August 31, 2006

	Principal amount	Market value
Bonds & notes — 95.15%	(000)	(000)

CALIFORNIA — 90.71%
State Issuers — 35.75%
CSUCI Fncg. Auth., Rev. Bonds (Rental Housing and Town Center), Series 2004-A, 2.50% 2044 (put 2007)	$1,250	$1,236
Del Mar Race Track Auth., Rev. Bonds, Series 2005, 5.00% 2012	750	787
Del Mar Race Track Auth., Rev. Bonds, Series 2005, 5.00% 2013	1,000	1,054
Del Mar Race Track Auth., Rev. Bonds, Series 2005, 5.00% 2014	500	528
Del Mar Race Track Auth., Rev. Bonds, Series 2005, 5.00% 2025	5,500	5,703
Econ. Recovery Bonds, Series 2004-A, 5.25% 2012	3,000	3,256
Econ. Recovery Bonds, Series 2004-A, 5.25% 2013	2,975	3,259
Econ. Recovery Bonds, Series 2004-A, 5.00% 2015	5,000	5,421
Econ. Recovery Bonds, Series 2004-A, 5.00% 2016	2,000	2,121
Educational Facs. Auth., Current Interest Rev. Bonds (Pomona College), Series 2005-A, 5.00% 2045	7,390	7,717
Educational Facs. Auth., Rev. Bonds (Dominican University of California), Series 2006, 5.00% 2021	1,255	1,291
Educational Facs. Auth., Rev. Bonds (Dominican University of California), Series 2006, 5.00% 2036	5,000	5,030
Educational Facs. Auth., Rev. Bonds (Mills College), Series 2005-A, 5.00% 2025	4,975	5,141
Educational Facs. Auth., Rev. Bonds (Mills College), Series 2005-A, 5.00% 2029	1,810	1,872
Educational Facs. Auth., Rev. Bonds (Mills College), Series 2005-A, 5.00% 2034	1,000	1,023
Educational Facs. Auth., Rev. Bonds (Mills College), Series 2005-B, 5.00% 2020	1,400	1,481
Educational Facs. Auth., Rev. Bonds (Pitzer College), Series 2005-A, 5.00% 2025	1,000	1,036
Educational Facs. Auth., Rev. Bonds (University of La Verne), Series 2005-A, 5.00% 2026	4,000	4,111
Educational Facs. Auth., Rev. Bonds (University of La Verne), Series 2005-A, 5.00% 2035	2,470	2,514
Educational Facs. Auth., Rev. Bonds (University of the Pacific), Series 2006, 5.00% 2036	9,000	9,270
Educational Facs. Auth., Rev. Bonds (University of Redlands), Series 2005-A, 5.00% 2020	2,650	2,777
Educational Facs. Auth., Rev. Bonds (University of Redlands), Series 2005-A, 5.00% 2031	3,005	3,092
Educational Facs. Auth., Rev. Bonds (University of Redlands), Series 2005-A, 5.00% 2035	4,000	4,107
Educational Facs. Auth., Rev. Bonds (University of San Francisco), Series 1996, MBIA insured, 5.70% 2011	1,190	1,310
Educational Facs. Auth., Rev. Bonds (University of Southern California), Series 2005, 4.75% 2028	5,000	5,154
Educational Facs. Auth., Rev. Ref. Bonds (Stanford University), Series R, 5.00% 2021	1,000	1,053
G.O. Bonds 5.00% 2013	2,000	2,144
G.O. Bonds 5.00% 2015	2,000	2,164
G.O. Bonds 5.25% 2015	2,000	2,165
G.O. Bonds 5.25% 2016	1,000	1,081
G.O. Bonds 5.00% 2017	200	208
G.O. Bonds 5.00% 2023	1,300	1,363
G.O. Bonds, XLCA-ICR insured, 5.00% 2014	2,000	2,123
G.O. Ref. Bonds 5.00% 2016	7,000	7,595
G.O. Ref. Bonds 5.00% 2026	1,500	1,581
Various Purpose G.O. Bonds 5.25% 2014	2,350	2,556
Various Purpose G.O. Bonds 5.00% 2017	1,500	1,622
Various Purpose G.O. Bonds 5.00% 2028	5,000	5,249
Various Purpose G.O. Bonds, RADIAN insured, 5.25% 2019	5,020	5,430
G.O. Bonds 5.00% 2017 (preref. 2010)	800	846
Veterans G.O. Bonds, Series BG, 4.95% 2010	1,175	1,213
Veterans G.O. Bonds, Series CB, AMT, 4.75% 2018	6,510	6,639
Golden State Tobacco Securitization Corp., Enhanced Tobacco Settlement Asset-backed Bonds, Series 2003-B, 5.00% 2012	1,500	1,607
Golden State Tobacco Securitization Corp., Enhanced Tobacco Settlement Asset-backed Bonds, Series 2005-A, 5.00% 2045	6,000	6,134
Golden State Tobacco Securitization Corp., Enhanced Tobacco Settlement Asset-backed Bonds, Series 2005-A, FGIC insured, 5.00% 2035	15,000	15,630
Golden State Tobacco Securitization Corp., Tobacco Settlement Asset-backed Bonds, Series 2003-A-1, 6.25% 2033	12,915	14,178
Golden State Tobacco Securitization Corp., Tobacco Settlement Asset-backed Bonds, Series 2003-A-1, 6.75% 2039	3,000	3,387
Golden State Tobacco Securitization Corp., Enhanced Tobacco Settlement Asset-backed Bonds, Series 2003-B, 5.00% 2011 (escrowed to maturity)	1,000	1,062
Golden State Tobacco Securitization Corp., Enhanced Tobacco Settlement Asset-backed Bonds, Series 2003-B, AMBAC insured, 5.00% 2038 (preref. 2013)	10,000	10,760
Health Facs. Fncg. Auth., Rev. Bonds (Adventist Health System/West), Series 2003-A, 5.00% 2017	1,000	1,045
Statewide Communities Dev. Auth., Health Fac. Rev. Bonds (Adventist Health System/West), Series 2005-A, 5.00% 2016	2,500	2,651
Statewide Communities Dev. Auth., Health Fac. Rev. Bonds (Adventist Health System/West), Series 2005-A, 5.00% 2017	1,000	1,056
Statewide Communities Dev. Auth., Health Fac. Rev. Bonds (Adventist Health System/West), Series 2005-A, 5.00% 2020	2,000	2,097
Statewide Communities Dev. Auth., Health Fac. Rev. Bonds (Adventist Health System/West), Series 2005-A, 5.00% 2035	3,000	3,080
Health Facs. Fncg. Auth., Rev. Bonds (Catholic Healthcare West), Series 1998-A, 5.00% 2007	385	389
Health Facs. Fncg. Auth., Rev. Bonds (Catholic Healthcare West), Series 1998-A, 5.25% 2008	665	682
Health Facs. Fncg. Auth., Rev. Bonds (Catholic Healthcare West), Series 2004-I, 4.95% 2026 (put 2014)	3,500	3,684
Statewide Communities Dev. Auth., Certs. of Part. (Catholic Healthcare West), 6.50% 2020	1,555	1,707
Health Facs. Fncg. Auth., Rev. Bonds (Catholic Healthcare West), Series 1998-A, 5.00% 2007 (escrowed to maturity)	575	582
Health Facs. Fncg. Auth., Rev. Bonds (Catholic Healthcare West), Series 1998-A, 5.00% 2007 (escrowed to maturity)	40	40
Health Facs. Fncg. Auth., Rev. Bonds (Catholic Healthcare West), Series 1998-A, 5.25% 2008 (escrowed to maturity)	1,010	1,042
Health Facs. Fncg. Auth., Rev. Bonds (Catholic Healthcare West), Series 1998-A, 5.25% 2008 (escrowed to maturity)	75	77
Statewide Communities Dev. Auth., Certs. of Part. (Catholic Healthcare West), 6.50% 2020 (preref. 2010)	3,790	4,222
Health Facs. Fncg. Auth., Rev. Bonds (Downey Community Hospital), Series 1993, 5.625% 2008	920	920
Health Facs. Fncg. Auth., Rev. Bonds (Downey Community Hospital), Series 1993, 5.75% 2015	1,000	1,000
Health Facs. Fncg. Auth., Rev. Bonds (Kaiser Permanente), Series 1998-B, 5.25% 2013 (escrowed to maturity)	2,000	2,086
Health Facs. Fncg. Auth., Rev. Bonds (Kaiser Permanente), Series 2006-A, 5.00% 2037	5,000	5,153
Statewide Communities Dev. Auth., Rev. Bonds (Kaiser Permanente), Series 2001-C, 5.25% 2031	3,000	3,172
Statewide Communities Dev. Auth., Rev. Bonds (Kaiser Permanente), Series 2004-I, 3.45% 2035 (put 2011)	4,000	3,899
Health Facs. Fncg. Auth., Rev. Bonds (Little Co. of Mary Health Services), Series 1998, AMBAC insured, 5.00% 2010	2,170	2,267
Health Facs. Fncg. Auth., Rev. Bonds (Little Co. of Mary Health Services), Series 1998, AMBAC insured, 5.00% 2013	1,125	1,175
Health Facs. Fncg. Auth., Rev. Bonds (Stanford Hospital and Clinics), Series 2003-A, 5.00% 2017	3,680	3,886
Health Facs. Fncg. Auth., Rev. Ref. Bonds (Cedars-Sinai Medical Center), Series 2005, 5.00% 2015	2,300	2,452
Health Facs. Fncg. Auth., Rev. Ref. Bonds (Cedars-Sinai Medical Center), Series 2005, 5.00% 2021	2,000	2,095
Health Facs. Fncg. Auth., Rev. Ref. Bonds (Cedars-Sinai Medical Center), Series 2005, 5.00% 2027	8,050	8,341
Statewide Communities Dev. Auth., Hospital Rev. Certs. of Part. (Cedars-Sinai Medical Center), Series 1992, 6.50% 2012	4,460	4,778
Housing Fin. Agcy., Single-family Mortgage Bonds, Series 1995-B-2, AMT, AMBAC insured, 5.70% 2007	100	101
Housing Fin. Agcy., Single-family Mortgage Bonds, Series 1997-B-3, Class III, AMT, MBIA insured, 5.10% 2012	140	141
Housing Fin. Agcy., Single-family Mortgage Rev. Bonds, Series 1997-C-1, Class III, MBIA insured, 5.05% 2011	325	327
Infrastructure and Econ. Dev. Bank, Bay Area Toll Bridges Seismic Retrofit Rev. Bonds, Series 2003-A, FSA insured, 5.25% 2014 (preref. 2013)	1,500	1,649
Infrastructure and Econ. Dev. Bank, Clean Water State Revolving Fund Rev. Bonds, Series 2002, 5.00% 2014	2,200	2,368
Infrastructure and Econ. Dev. Bank, Clean Water State Revolving Fund Rev. Bonds, Series 2002, 5.00% 2015	2,000	2,149
Infrastructure and Econ. Dev. Bank, Clean Water State Revolving Fund Rev. Bonds, Series 2002, 5.00% 2016	5,000	5,363
Infrastructure and Econ. Dev. Bank, Infrastructure State Revolving Fund Rev. Bonds, Series 2004, 5.00% 2019	1,710	1,817
Infrastructure and Econ. Dev. Bank, Rev. Bonds (California Science Center Phase II Project), Series 2006-B, FGIC insured, 5.00% 2015	1,000	1,092
Infrastructure and Econ. Dev. Bank, Rev. Bonds (California Science Center Phase II Project), Series 2006-B, FGIC insured, 5.00% 2022	1,000	1,069
Municipal Fin. Auth., Education Rev. Bonds (American Heritage Education Foundation Project), Series 2006-A, 5.00% 2016	1,290	1,324
Municipal Fin. Auth., Education Rev. Bonds (American Heritage Education Foundation Project), Series 2006-A, 5.25% 2026	1,000	1,027
Municipal Fin. Auth., Education Rev. Bonds (American Heritage Education Foundation Project), Series 2006-A, 5.25% 2036	1,750	1,781
Municipal Fin. Auth., Rev. Bonds (Cancer Center of Santa Barbara), Series 2006, RADIAN insured, 5.00% 2026	1,000	1,042
Northern California Power Agcy., Special Rev. Ref. Bonds (Geothermal Project No. 3), Series 1993-A, 5.65% 2007 (escrowed to maturity)	1,025	1,044
Pollution Control Fncg. Auth., Pollution Control Rev. Ref. Bonds (San Diego Gas and Electric Co.), 1996 Series A, 5.90% 2014	2,075	2,317
Pollution Control Fncg. Auth., Rev. Ref. Bonds (Pacific Gas and Electric Co.), Series 1996-A, AMT, MBIA insured, 5.35% 2016	8,000	8,566
Pollution Control Fncg. Auth., Solid Waste Disposal Rev. Bonds (Browning-Ferris Industries of California, Inc. Project), BFI Corp. Guarantee, Series 1996-A, AMT, 5.80% 2016	5,000	4,967
Pollution Control Fncg. Auth., Solid Waste Disposal Rev. Bonds (Waste Management, Inc. Project), Series 2001-A, AMT, 5.125% 2031 (put 2014)	2,000	2,088
Pollution Control Fncg. Auth., Solid Waste Disposal Rev. Bonds (Waste Management, Inc. Project), Series 2002-B, AMT, 5.00% 2027	3,500	3,576
Pollution Control Fncg. Auth., Solid Waste Disposal Rev. Bonds (Waste Management, Inc. Project), Series 2005-A, AMT, 4.70% 2025 (put 2012)	3,250	3,325
Pollution Control Fncg. Auth., Solid Waste Disposal Rev. Bonds (Waste Management, Inc. Project), Series 2005-C, AMT, 5.125% 2023	7,000	7,280
Pollution Control Fncg. Auth., Solid Waste Disposal Rev. Ref. Bonds (USA Waste Services, Inc. Project), Series 1998-B, 5.00% 2018 (put 2008)	1,200	1,220
Pollution Control Fncg. Auth., Solid Waste Disposal Rev. Ref. Bonds (Waste Management, Inc. Project), Series 2002-A, AMT, 5.00% 2022	6,000	6,183
Statewide Communities Dev. Auth., Solid Waste Disposal Rev. Bonds (Waste Management, Inc. Project), Series 2001, AMT, 2.90% 2011 (put 2007)	2,000	1,987
Public Works Board, Lease Rev. Bonds (Dept. of Corrections, State Prison, Imperial County), Series 1991-A, 6.50% 2017	1,000	1,155
Public Works Board, Lease Rev. Bonds (Dept. of Corrections, State Prison, Kern County at Delano II), Series 2003-C, 5.50% 2013	1,000	1,101
Public Works Board, Lease Rev. Bonds (Dept. of Corrections, State Prison, Kern County at Delano II), Series 2003-C, 5.50% 2022	1,000	1,096
Public Works Board, Lease Rev. Bonds (Dept. of Corrections, State Prison-Lassen County, Susanville), Series 1993-D, FSA insured, 5.25% 2015	3,000	3,289
Public Works Board, Lease Rev. Ref. Bonds (Dept. of Corrections, State Prison-Lassen County, Susanville), Series 2004-E, XLCA insured, 5.00% 2016	3,395	3,644
Public Works Board, Lease Rev. Ref. Bonds (Dept. of Corrections, Various State Prisons), Series 1993-A, AMBAC insured, 5.25% 2013	1,000	1,102
Public Works Board, Lease Rev. Ref. Bonds (Dept. of Corrections and Rehabilitation, Substance Abuse Treatment Fac. and State Prison at Corcoran (Corcoran II)), Series 2005-J, 5.00% 2017	1,470	1,581
Public Works Board, Lease Rev. Ref. Bonds (Dept. of Corrections and Rehabilitation, Substance Abuse Treatment Fac. and State Prison at Corcoran (Corcoran II)), Series 2005-J, 5.00% 2021	7,475	7,923
Public Works Board, Lease Rev. Bonds (Dept. of General Services, Butterfield State Office Complex), Series 2005-A, 5.00% 2015	1,000	1,079
Public Works Board, Lease Rev. Bonds (Dept. of General Services, Butterfield State Office Complex), Series 2005-A, 5.00% 2016	2,735	2,938
Public Works Board, Lease Rev. Bonds (Dept. of General Services, Butterfield State Office Complex), Series 2005-A, 5.00% 2017	1,000	1,071
Public Works Board, Lease Rev. Bonds (Dept. of General Services, Butterfield State Office Complex), Series 2005-A, 5.00% 2021	2,000	2,114
Public Works Board, Lease Rev. Bonds (Dept. of Mental Health-Coalinga State Hospital), Series 2004-A, 5.25% 2013	1,000	1,086
Public Works Board, Lease Rev. Bonds (Dept. of Mental Health-Coalinga State Hospital), Series 2004-A, 5.50% 2016	2,000	2,217
Public Works Board, Lease Rev. Bonds (Regents of the University of California, Various University of California Projects), Series 2004-F, 5.00% 2016	2,500	2,683
Public Works Board, Lease Rev. Bonds (Regents of the University of California, Various University of California Projects), Series 2004-F, 5.00% 2020	1,500	1,584
Public Works Board, Lease Rev. Bonds (Regents of the University of California, Various University of California Projects), Series 2005-D, 5.00% 2018	3,045	3,269
Public Works Board, Lease Rev. Bonds (Regents of the University of California, Various University of California Projects), Series 2005-D, 5.00% 2025	1,000	1,051
Public Works Board, Lease Rev. Bonds (Trustees of the California State University, Academic Hall II, Building 13, San Marcos Campus), Series 2006-B, 5.00% 2031	2,000	2,072
Public Works Board, Lease Rev. Ref. Bonds (Dept. of Health Services, Richmond Laboratory Project), Series 2005-K, 5.00% 2018	3,000	3,208
Rural Home Mortgage Fin. Auth., Single-family Mortgage Rev. Bonds (Mortgage-backed Securities Program), Series 1996-A, AMT, 7.75% 2027¹	10	10
Trustees of the State University, Systemwide Rev. Bonds, Series 2005-A, AMBAC insured, 5.00% 2019	3,000	3,228
Statewide Communities Dev. Auth., Apartment Dev. Rev. Ref. Bonds (Irvine Apartment Communities, LP), Series 1998-A-1, AMT, 5.05% 2025 (put 2008)	5,300	5,369
Statewide Communities Dev. Auth., Apartment Dev. Rev. Ref. Bonds (Irvine Apartment Communities, LP), Series 1998-A-3, 5.10% 2025 (put 2010)	6,000	6,152
Statewide Communities Dev. Auth., Apartment Dev. Rev. Ref. Bonds (Irvine Apartment Communities, LP), Series 1998-A-4, 5.25% 2025 (put 2013)	1,500	1,540
Statewide Communities Dev. Auth., Certs. of Part. (Citrus Valley Health Partners, Inc.), MBIA insured, 5.50% 2011	1,000	1,081
Statewide Communities Dev. Auth., Certs. of Part. (Internext Group), 5.375% 2017	5,980	6,120
Statewide Communities Dev. Auth., Health Fac. Rev. Bonds (Community Hospital of the Monterey Peninsula), Series 2003-B, FSA insured, 5.25% 2018	2,500	2,691
Statewide Communities Dev. Auth., Health Fac. Rev. Bonds (Community Hospital of the Monterey Peninsula), Series 2003-B, FSA insured, 5.25% 2023	500	533
Statewide Communities Dev. Auth., Health Fac. Rev. Bonds (Memorial Health Services), Series 2003-A, 6.00% 2014	2,000	2,232
Statewide Communities Dev. Auth., Health Fac. Rev. Bonds (Memorial Health Services), Series 2003-A, 6.00% 2016	2,000	2,238
Statewide Communities Dev. Auth., Health Fac. Rev. Bonds (Memorial Health Services), Series 2003-A, 6.00% 2023	3,000	3,323
Statewide Communities Dev. Auth., Insured Health Fac. Rev. Bonds (Los Angeles Jewish Home for the Aging), Series 2003, 5.25% 2023	2,000	2,112
Statewide Communities Dev. Auth., Multi-family Housing Rev. Ref. Bonds (Equity Residential/Ashton Apartments), Issue 1999-C, 5.20% 2029 (put 2009)	1,000	1,028
Statewide Communities Dev. Auth., Multi-family Housing Rev. Ref. Bonds (Equity Residential/Parkview Terrace Club Apartments), Issue 1999-B, 5.20% 2029 (put 2009)	3,100	3,188
Statewide Communities Dev. Auth., Multi-family Housing Rev. Ref. Bonds (Equity Residential/Skylark Apartments), Issue 1999-D, 5.20% 2029 (put 2009)	1,440	1,481
Statewide Communities Dev. Auth., Rev. Bonds (Daughters of Charity Health System), Series 2005-A, 5.25% 2024	2,500	2,629
Statewide Communities Dev. Auth., Rev. Bonds (Daughters of Charity Health System), Series 2005-A, 5.00% 2039	6,200	6,306
Statewide Communities Dev. Auth., Rev. Bonds (Daughters of Charity Health System), Series 2005-G, 5.00% 2022	5,000	5,156
Statewide Communities Dev. Auth., Rev. Bonds (Daughters of Charity Health System), Series 2005-H, 5.25% 2025	7,330	7,697
Statewide Communities Dev. Auth., Rev. Bonds (Huntington Memorial Hospital), Series 2005, 5.00% 2014	4,090	4,341
Statewide Communities Dev. Auth., Rev. Bonds (Huntington Memorial Hospital), Series 2005, 5.00% 2019	6,495	6,848
Statewide Communities Dev. Auth., Rev. Bonds (Huntington Memorial Hospital), Series 2005, 5.00% 2027	4,700	4,878
Statewide Communities Dev. Auth., Rev. Bonds (John Muir Health), Series 2006-A, 5.00% 2018	4,250	4,522
Statewide Communities Dev. Auth., Rev. Bonds (John Muir Health), Series 2006-A, 5.00% 2019	4,465	4,736
Statewide Communities Dev. Auth., Rev. Bonds (Redlands Community Hospital), Series 2005-A, RADIAN insured, 5.00% 2016	2,660	2,832
Statewide Communities Dev. Auth., Student Housing Rev. Ref. Bonds (CHF-Irvine, LLC-UCI East Campus Apartments, Phase II), Series 2006, 5.00% 2017	2,565	2,715
Statewide Communities Dev. Auth., Student Housing Rev. Ref. Bonds (CHF-Irvine, LLC-UCI East Campus Apartments, Phase II), Series 2006, 5.00% 2026	2,980	3,081
Statewide Communities Dev. Auth., Student Housing Rev. Ref. Bonds (CHF-Irvine, LLC-UCI East Campus Apartments, Phase II), Series 2006, 5.00% 2038	2,000	2,049
Regents of the University of California, General Rev. Bonds, Series 2005-F, FSA insured, 5.00% 2015	1,500	1,627
Dept. of Water Resources, Power Supply Rev. Bonds, Series 2002-A, 6.00% 2013	4,000	4,498
Dept. of Water Resources, Power Supply Rev. Bonds, Series 2002-A, AMBAC insured, 5.50% 2015	2,000	2,208
Dept. of Water Resources, Power Supply Rev. Bonds, Series 2002-A, MBIA insured, 5.50% 2011	1,000	1,083
Dept. of Water Resources, Power Supply Rev. Bonds, Series 2002-A, 5.875% 2016 (preref. 2012)	1,000	1,127
Dept. of Water Resources, Power Supply Rev. Bonds, Series 2002-A, 5.75% 2017 (preref. 2012)	2,500	2,802
Dept. of Water Resources, Power Supply Rev. Bonds, Series 2002-A, AMBAC insured, 5.50% 2016 (preref. 2012)	1,000	1,108
Dept. of Water Resources, Power Supply Rev. Bonds, Series 2002-A, XLCA insured, 5.375% 2017 (preref. 2012)	3,000	3,306
Dept. of Water Resources, Water System Rev. Bonds (Central Valley Project), Series W, 5.50% 2017 (preref. 2011)	335	367
Dept. of Water Resources, Water System Rev. Bonds (Central Valley Project), Series W, 5.50% 2017	1,665	1,808
Dept. of Water Resources, Water System Rev. Bonds (Central Valley Project), Series X, FGIC insured, 5.50% 2016	3,100	3,532
Dept. of Water Resources, Water System Rev. Bonds (Central Valley Project), Series X, FGIC insured, 5.50% 2017	8,000	9,193
		483,500

CALIFORNIA
City and county issuers — 54.96%
Alameda County Joint Powers Auth., Lease Rev. Bonds (Juvenile Justice Fac.), Series 2004-D, XLCA insured, 5.125% 2012	$2,500	$2,704
Anaheim Public Fncg. Auth., Lease Rev. Bonds (Anaheim Public Improvement Project), Series 1997-A, FSA insured, 6.00% 2024	1,500	1,828
Anaheim Public Fncg. Auth., Lease Rev. Bonds (Anaheim Public Improvement Project), Series 1997-C, FSA insured, 0% 2022	2,000	984
City of Antioch Public Fncg. Auth., 1998 Reassessment Rev. Bonds, Series B, 5.70% 2010	1,260	1,305
Assn. of Bay Area Governments, Fin. Auth. for Nonprofit Corps., Multi-family Housing Rev. Ref. Bonds (Archstone/Redwood Shores Apartments), Series 2000-A, 5.30% 2008	1,000	1,022
Assn. of Bay Area Governments, Fin. Auth. for Nonprofit Corps., Multi-family Housing Rev. Ref. Bonds (United Dominion/2000 Post Apartments), Series 2000-B, 6.25% 2030 (put 2008)	2,000	2,075
Assn. of Bay Area Governments, Fin. Auth. for Nonprofit Corps., Rev. Bonds (San Diego Hospital Assn.), Series 2001-A, 5.50% 2009	7,100	7,330
Assn. of Bay Area Governments, Fin. Auth. for Nonprofit Corps., Rev. Bonds (San Diego Hospital Assn.), Series 2001-A, 6.125% 2020	3,500	3,815
Assn. of Bay Area Governments, Fin. Auth. for Nonprofit Corps., Rev. Ref. Certs. of Part. (American Baptist Homes of the West Facs. Project), Series 1997-A, 5.25% 2007	435	440
Assn. of Bay Area Governments, Fin. Auth. for Nonprofit Corps., Rev. Ref. Certs. of Part. (American Baptist Homes of the West Facs. Project), Series 1997-A, 5.75% 2017	1,500	1,518
Assn. of Bay Area Governments, Fin. Auth. for Nonprofit Corps., Rev. Ref. Certs. of Part. (American Baptist Homes of the West Facs. Project), Series 1997-A, 5.85% 2027	1,000	1,013
Assn. of Bay Area Governments, Fin. Auth. for Nonprofit Corps., Rev. Ref. Certs. of Part. (American Baptist Homes of the West Facs. Project), Series 1997-A, 6.20% 2027	4,170	4,265
Assn. of Bay Area Governments, Fin. Auth. for Nonprofit Corps., Rev. Ref. Certs. of Part. (American Baptist Homes of the West Facs. Project), Series 1998-A, 6.10% 2017	3,705	3,788
Assn. of Bay Area Governments, Fin. Auth. for Nonprofit Corps., Rev. Ref. Certs. of Part. (Episcopal Homes Foundation), Series 1998, 5.00% 2009	4,600	4,688
Assn. of Bay Area Governments, Fin. Auth. for Nonprofit Corps., Rev. Ref. Certs. of Part. (Episcopal Homes Foundation), Series 1998, 5.125% 2013	1,000	1,024
Assn. of Bay Area Governments, Fin. Auth. for Nonprofit Corps., Rev. Ref. Certs. of Part. (Episcopal Homes Foundation), Series 1998, 5.125% 2018	2,215	2,256
Assn. of Bay Area Governments, Fin. Auth. for Nonprofit Corps., Southern California Presbyterian Homes Obligated Group, Rev. Bonds (Redwood Senior Homes and Services), Series 2002, 6.00% 2022	1,750	1,905
Assn. of Bay Area Governments, Fin. Auth. for Nonprofit Corps., Southern California Presbyterian Homes Obligated Group, Rev. Bonds (Redwood Senior Homes and Services), Series 2002, 6.125% 2032	4,000	4,339
Bay Area Toll Auth. San Francisco Bay Area Toll Bridge Rev. Bonds, Series 2001-D, 5.125% 2015	4,000	4,249
Bay Area Toll Auth. San Francisco Bay Area Toll Bridge Rev. Bonds, Series 2006-F, 5.00% 2017	6,000	6,560
Bay Area Toll Auth. San Francisco Bay Area Toll Bridge Rev. Bonds, Series 2006-F, 5.00% 2018	3,500	3,809
Bay Area Toll Auth. San Francisco Bay Area Toll Bridge Rev. Bonds, Series 2006-F, 5.00% 2019	5,000	5,417
Bay Area Toll Auth. San Francisco Bay Area Toll Bridge Rev. Bonds, Series 2006-F, 5.00% 2022	4,000	4,291
Beverly Hills Unified School Dist. (Los Angeles County), Election of 2002 G.O. Bonds, Series A, 5.375% 2017 (preref. 2012)	1,000	1,097
Beverly Hills Unified School Dist. (Los Angeles County), Election of 2002 G.O. Bonds, Series A, 5.00% 2022 (preref. 2012)	1,500	1,616
Beverly Hills Unified School Dist. (Los Angeles County), Election of 2002 G.O. Bonds, Series B, 5.00% 2022	3,000	3,206
Burbank-Glendale-Pasadena Airport Auth., Airport Rev. Bonds, Series 2005-B, AMT, AMBAC insured, 5.25% 2016	1,000	1,087
Burbank-Glendale-Pasadena Airport Auth., Airport Rev. Bonds, Series 2005-B, AMT, AMBAC insured, 5.25% 2019	1,500	1,611
Burbank-Glendale-Pasadena Airport Auth., Airport Rev. Bonds, Series 2005-B, AMT, AMBAC insured, 5.00% 2024	1,500	1,566
Burbank-Glendale-Pasadena Airport Auth., Airport Rev. Bonds, Series 2005-B, AMT, AMBAC insured, 5.00% 2025	1,000	1,042
California County Tobacco Securitization Agcy., Tobacco Settlement Asset-backed Bonds (Alameda County Tobacco Asset Securitization Corp.), Series 2002, 4.75% 2019	3,000	3,024
California County Tobacco Securitization Agcy., Tobacco Settlement Asset-backed Bonds (Alameda County Tobacco Asset Securitization Corp.), Series 2002, 5.75% 2029	2,115	2,199
Calleguas — Las Virgenes Public Fncg. Auth., Rev. Ref. Bonds (Calleguas Municipal Water Dist. Project), Series 2003-B, MBIA insured, 5.25% 2020	1,565	1,702
Community Facs. Dist. No. 98-2, Capistrano Unified School Dist. (Ladera), Special Tax Ref. Bonds, Series 2005, FGIC insured, 5.00% 2016	2,120	2,311
Community Facs. Dist. No. 98-2, Capistrano Unified School Dist. (Ladera), Special Tax Ref. Bonds, Series 2005, FGIC insured, 5.00% 2023	2,000	2,126
City of Carlsbad, Assessment Dist. No. 2002-01 (Poinsettia Lane East), Limited Obligation Improvement Bonds, Series 2005-A, 5.00% 2022	1,000	1,011
City of Carlsbad, Assessment Dist. No. 2002-01 (Poinsettia Lane East), Limited Obligation Improvement Bonds, Series 2005-A, 5.20% 2035	2,720	2,743
City of Carlsbad, Community Facs. Dist. No. 3, Special Tax Bonds (Improvement Area 1), Series 2006, 5.25% 2026	1,620	1,641
City of Carlsbad, Community Facs. Dist. No. 3, Special Tax Bonds (Improvement Area 1), Series 2006, 5.30% 2036	1,475	1,488
City of Cathedral City, Community Facs. Dist. No. 2000-1, Special Tax Bonds, 6.625% 2023	815	868
City of Cathedral City, Community Facs. Dist. No. 2000-1, Special Tax Bonds, 6.70% 2030	3,750	3,998
City of Cathedral City, Cove Improvement Dist. No. 2004-02, Limited Obligation Improvement Bonds, 5.00% 2030	990	992
City of Cathedral City, Cove Improvement Dist. No. 2004-02, Limited Obligation Improvement Bonds, 5.05% 2035	1,370	1,371
Central Valley School Districts Fncg. Auth., Rev. Bonds (School Dist. G.O. Bond Ref. Program), Series 1998-A, MBIA insured, 6.25% 2011	1,000	1,110
Cerritos Public Fncg. Auth., 2002 Tax Allocation Rev. Bonds (Cerritos Redev. Projects), Series A, AMBAC insured, 5.00% 2017	1,000	1,098
Chaffey Community College Dist., San Bernardino County, Election of 2002 G.O. Bonds, Series 2002-A, FSA insured, 5.25% 2016	75	82
Chaffey Community College Dist., San Bernardino County, Election of 2002 G.O. Bonds, Series 2002-A, FSA insured, 5.25% 2016 (preref. 2012)	1,545	1,696
City of Chino Hills, Community Facs. Dist. No. 10 (Fairfield Ranch), Special Tax Bonds, 6.95% 2030	2,000	2,193
City of Chula Vista, Community Facs. Dist. No. 07-I (Otay Ranch Village Eleven), Special Tax Bonds, Series 2006, 5.125% 2036	3,000	3,021
City of Chula Vista, Industrial Dev. Rev. Bonds (San Diego Gas & Electric Co.), Series 1992-B, AMT, 5.00% 2027	10,945	11,350
City of Chula Vista, Industrial Dev. Rev. Bonds (San Diego Gas & Electric Co.), Series 1992-D, AMT, 5.00% 2027	1,000	1,037
City of Chula Vista, Industrial Dev. Rev. Bonds (San Diego Gas & Electric Co.), Series 1997-A, AMT, 4.90% 2023	3,000	3,086
City of Commerce Community Dev. Commission, Tax Allocation Ref. Bonds (Redev. Project No. 1), Series 1997-B, 5.50% 2008	685	695
East Bay Municipal Utility Dist. (Alameda and Contra Costa Counties), Water System Rev. Bonds, Series 2001, 5.25% 2016	7,000	7,481
Community Facs. Dist. No. 2001-01 (French Valley), Eastern Municipal Water Dist., Special Tax Bonds (Improvement Area A), Series 2006, 5.125% 2036	3,225	3,235
Eastern Municipal Water Dist. (Riverside County), Water and Sewer Rev. Certs. of Part., Series 2006-A, MBIA insured, 5.00% 2016	1,500	1,647
County of El Dorado, Community Facs. Dist. No. 1992-1 (El Dorado Hills Dev.), Special Tax Bonds, Series 1999, 6.125% 2016	995	1,046
City of Folsom, Community Facs. Dist. No. 10, Special Tax Bonds, Series 1999, 6.20% 2011	1,475	1,558
City of Folsom, Community Facs. Dist. No. 10, Special Tax Bonds, Series 1999, 7.00% 2024	1,000	1,080
City of Folsom, Community Facs. Dist. No. 14, Special Tax Bonds (Parkway Phase II), Series 2002, 6.30% 2032	4,000	4,290
City of Fontana, Community Facs. Dist. No. 12 (Sierra Lakes), Special Tax Bonds, Series 1999, 6.50% 2015 (preref. 2009)	1,105	1,198
City of Fontana, Community Facs. Dist. No. 12 (Sierra Lakes), Special Tax Bonds, Series 1999, 6.625% 2030 (preref. 2009)	5,250	5,712
City of Fontana, Community Facs. Dist. No. 22 (Sierra Hills South), Special Tax Bonds, Series 2004, 6.00% 2034	4,000	4,246
Foothill-De Anza Community College Dist. (Santa Clara County), Election of 1999 G.O. Bonds, Series B, 5.25% 2017 (preref. 2013)	3,085	3,395
Foothill/Eastern Transportation Corridor Agcy., Toll Road Rev. Bonds, Series 1995-A, 6.00% 2016 (preref. 2010)	1,000	1,080
City of Fullerton, Community Facs. Dist. No.1 (Amerige Heights), Special Tax Bonds, Series 2002, 6.10% 2022	1,000	1,066
City of Fullerton, Community Facs. Dist. No.1 (Amerige Heights), Special Tax Bonds, Series 2002, 6.20% 2032	2,500	2,659
City of Fullerton Public Fin. Auth., Tax Allocation Rev. Bonds, Series 2005, AMBAC insured, 5.00% 2017	2,785	3,013
Community Facs. Dist. No. 2001-1, Fullerton School Dist., 2001 Special Tax Bonds, 6.375% 2031	3,000	3,245
Fullerton School Dist. (Orange County), 2002 Election G.O. Bonds, Series A, FGIC insured, 5.375% 2017	2,340	2,535
Golden West Schools Fncg. Auth., G.O. Rev. Bonds (Beverly Hills Unified School Dist. G.O. Bond Ref., Los Angeles County), Series 2005, FGIC insured, 5.00% 2017	1,000	1,102
Golden West Schools Fncg. Auth., G.O. Rev. Bonds (Beverly Hills Unified School Dist. G.O. Bond Ref., Los Angeles County), Series 2005, FGIC insured, 5.25% 2018	4,435	5,012
Golden West Schools Fncg. Auth., G.O. Rev. Bonds (Beverly Hills Unified School Dist. G.O. Bond Ref., Los Angeles County), Series 2005, FGIC insured, 5.25% 2019	2,000	2,266
Imperial Irrigation Dist., Electric System Rev. Ref. Bonds, Series 1998, MBIA insured, 5.00% 2018	2,000	2,067
Independent Cities Lease Fin. Auth., Mobile Home Park Rev. Bonds (Hermosa Beach, Marineland Mobile Home Park), Series 2004-A, 6.375% 2039	3,935	4,283
Independent Cities Lease Fin. Auth., Mobile Home Park Rev. Bonds (San Juan Mobile Estates), Series 2006-A, 5.00% 2026	1,500	1,527
Independent Cities Lease Fin. Auth., Mobile Home Park Rev. Bonds (San Juan Mobile Estates), Series 2006-A, 5.00% 2031	2,000	2,024
Independent Cities Lease Fin. Auth., Mobile Home Park Rev. Bonds (San Juan Mobile Estates), Series 2006-A, 5.125% 2041	2,800	2,841
Independent Cities Lease Fin. Auth., Mobile Home Park Rev. Bonds (San Juan Mobile Estates), Series 2006-B, 5.85% 2041	1,150	1,168
City of Irvine, Assessment Dist. No. 00-18, Limited Obligation Improvement Bonds, Group Two, 5.10% 2016	1,730	1,768
City of Irvine, Assessment Dist. No. 00-18, Limited Obligation Improvement Bonds, Group Two, 5.60% 2022	2,500	2,583
City of Irvine, Assessment Dist. No. 00-18, Limited Obligation Improvement Bonds, Group Two, 5.70% 2026	2,750	2,842
City of Irvine, Assessment Dist. No. 00-18, Limited Obligation Improvement Bonds, Group Three, 5.55% 2026	1,995	2,060
City of Irvine, Assessment Dist. No. 03-19, Limited Obligation Improvement Bonds, Group Three, 5.00% 2025	1,130	1,137
City of Irvine, Assessment Dist. No. 87-8, Limited Obligation Improvement Bonds, Group Seven, 5.00% 2018	750	763
City of Irvine, Assessment Dist. No. 87-8, Limited Obligation Improvement Bonds, Group Seven, 5.00% 2019	790	804
City of Irvine, Assessment Dist. No. 87-8, Limited Obligation Improvement Bonds, Group Seven, 5.00% 2022	885	901
City of Irvine, Community Facs. Dist. No. 2005-2 (Columbus Grove), 2006 Special Tax Bonds, 5.20% 2026	1,375	1,409
City of Irvine, Community Facs. Dist. No. 2005-2 (Columbus Grove), 2006 Special Tax Bonds, 5.25% 2036	3,800	3,894
Irvine Unified School Dist. Fncg. Auth., Special Tax Rev. Bonds (Group II), Series A, 5.00% 2019	1,645	1,677
Irvine Unified School Dist. Fncg. Auth., Special Tax Rev. Bonds (Group II), Series A, 5.00% 2026	2,500	2,523
Community Facs. Dist. No. 12, Jurupa Community Services Dist. (Eastvale Area), Special Tax Bonds, Series 2005-A, 5.15% 2035	1,630	1,643
Community Facs. Dist. No. 21, Jurupa Community Services Dist. (Eastvale Area), Special Tax Bonds, Series 2006-A, 5.15% 2036	4,615	4,656
City of La Verne, Rev. Certs. of Part. (Brethren Hillcrest Homes), Series 2003-B, 6.625% 2025	4,500	4,959
City of Lake Elsinore, Community Facs. Dist. No. 2003-2 (Canyon Hills), Special Tax Bonds, Series 2004-A, 5.95% 2034	2,500	2,660
City of Lake Elsinore, Community Facs. Dist. No. 2004-3 (Rosetta Canyon), Special Tax Bonds (Improvement Area No. 1), Series 2005-A, 5.10% 2022	1,000	1,026
City of Lake Elsinore, Community Facs. Dist. No. 2004-3 (Rosetta Canyon), Special Tax Bonds (Improvement Area No. 1), Series 2005-A, 5.25% 2030	1,195	1,224
City of Lake Elsinore, Community Facs. Dist. No. 2004-3 (Rosetta Canyon), Special Tax Bonds (Improvement Area No. 1), Series 2005-A, 5.25% 2035	1,225	1,242
City of Lake Elsinore, Community Facs. Dist. No. 2005-2 (Alberhill Ranch), Special Tax Bonds (Improvement Area A), Series 2005-A, 5.45% 2036	3,000	3,071
Lammersville School Dist., Community Facs. Dist. No. 2002 (Mountain House), Special Tax Bonds, Series 2002, 6.375% 2032	4,500	4,864
Lammersville School Dist., Community Facs. Dist. No. 2002 (Mountain House), Special Tax Bonds, Series 2006, 5.00% 2026	1,500	1,514
Lammersville School Dist., Community Facs. Dist. No. 2002 (Mountain House), Special Tax Bonds, Series 2006, 5.125% 2035	1,875	1,895
Lancaster Redev. Agcy., Combined Redev. Project Areas (Housing Programs), Tax Allocation Ref. Bonds, Series 2003, MBIA insured, 5.25% 2018	1,935	2,177
City of Lathrop (San Joaquin County), Community Facs. Dist. No. 2006-1, Special Tax Bonds (Central Lathrop Specific Plan Phase 1 Infrastructure), Series 2006, 5.25% 2020	1,110	1,115
City of Lathrop (San Joaquin County), Community Facs. Dist. No. 2006-1, Special Tax Bonds (Central Lathrop Specific Plan Phase 1 Infrastructure), Series 2006, 5.30% 2026	2,680	2,693
City of Lathrop (San Joaquin County), Community Facs. Dist. No. 2006-1, Special Tax Bonds (Central Lathrop Specific Plan Phase 1 Infrastructure), Series 2006, 5.375% 2036	5,000	5,035
Lee Lake Water Dist., Community Facs. Dist. No. 1 (Sycamore Creek), Special Tax Bonds, Series 2003, 6.00% 2033	1,780	1,908
Lee Lake Water Dist., Community Facs. Dist. No. 1 (Sycamore Creek), Special Tax Bonds, Series 2005, 5.30% 2035	4,700	4,789
City of Lincoln, Community Facs. Dist. No. 2003-1, Special Tax Bonds (Lincoln Crossing Project), Series 2003-A, 6.125% 2033	4,000	4,325
City of Lincoln, Community Facs. Dist. No. 2003-1, Special Tax Bonds (Lincoln Crossing Project), Series 2004, 6.00% 2034	2,750	2,936
Logistics Airport Auth., Tax Allocation Parity Bonds (Southern California Logistics Airport Project), Series 2005-A, RADIAN insured, 5.00% 2015	3,365	3,595
City of Loma Linda, Hospital Rev. Bonds (Loma Linda University Medical Center), Series 2005-A, 5.00% 2016	2,950	3,094
City of Loma Linda, Hospital Rev. Bonds (Loma Linda University Medical Center), Series 2005-A, 5.00% 2021	5,960	6,163
City of Long Beach, Fncg. Auth. Rev. Bonds, Series 1992, AMBAC insured, 6.00% 2017	750	860
City of Long Beach, Harbor Rev. Bonds, Series 2000-A, AMT, 5.50% 2009	2,000	2,091
City of Long Beach, Harbor Rev. Bonds, Series 2000-A, AMT, 5.75% 2013	2,500	2,675
City of Long Beach, Harbor Rev. Ref. Bonds, Series 2004-A, AMT, FGIC insured, 5.00% 2011	2,800	2,948
City of Long Beach, Harbor Rev. Ref. Bonds, Series 2004-A, AMT, FGIC insured, 5.00% 2014	5,930	6,348
City of Long Beach, Harbor Rev. Ref. Bonds, Series 2004-A, AMT, FGIC insured, 5.00% 2015	1,000	1,068
City of Long Beach, Harbor Rev. Ref. Bonds, Series 2005-A, AMT, MBIA insured, 5.00% 2015	1,000	1,075
Long Beach Bond Fin. Auth., Lease Rev. Ref. Bonds (Aquarium of the Pacific Project), Series 2001, AMBAC insured, 5.50% 2016	4,380	4,770
City of Los Angeles Harbor Dept., Rev. Bonds, Issue 1988, 7.60% 2018 (escrowed to maturity)	1,615	1,977
City of Los Angeles Harbor Dept., Rev. Ref. Bonds, Series 2005-B, MBIA insured, 5.00% 2021	2,010	2,171
City of Los Angeles Harbor Dept., Rev. Ref. Bonds, Series 2005-C-1, AMT, MBIA insured, 5.00% 2017	5,710	6,192
City of Los Angeles Harbor Dept., Rev. Ref. Bonds, Series 2006-A, AMT, MBIA insured, 5.00% 2018	5,000	5,421
City of Los Angeles Harbor Dept., Rev. Ref. Bonds, Series 2006-A, AMT, MBIA insured, 5.00% 2020	10,000	10,719
City of Los Angeles Harbor Dept., Rev. Ref. Bonds, Series 2006-B, AMT, FGIC insured, 5.00% 2017	3,095	3,357
City of Los Angeles Harbor Dept., Rev. Ref. Bonds, Series 2006-B, AMT, FGIC insured, 5.00% 2020	8,000	8,576
City of Los Angeles, Multi-family Housing Rev. Bonds (GNMA Collateralized — Ridgecroft Apartments Project), Series 1997-E, AMT, 6.125% 2027	2,005	2,057
City of Los Angeles, Dept. of Water and Power, Power System Rev. Bonds, Series 2001-A, Subseries A-1, 5.25% 2015	7,500	7,986
City of Los Angeles, Dept. of Water and Power, Water System Rev. Bonds, Series 2001-A, 5.125% 2032	1,000	1,033
Community Redev. Agcy. of the City of Los Angeles, Lease Rev. Bonds (Vermont Manchester Social Services Project), Series 2005, AMBAC insured, 5.00% 2015	1,000	1,093
Community Redev. Agcy. of the City of Los Angeles, Lease Rev. Bonds (Vermont Manchester Social Services Project), Series 2005, AMBAC insured, 5.00% 2022	1,450	1,541
Community Redev. Agcy. of the City of Los Angeles, Lease Rev. Bonds (Vermont Manchester Social Services Project), Series 2005, AMBAC insured, 5.00% 2023	1,595	1,689
Community Redev. Agcy. of the City of Los Angeles, Lease Rev. Bonds (Vermont Manchester Social Services Project), Series 2005, AMBAC insured, 5.00% 2024	3,250	3,432
County of Los Angeles, Certs. of Part. (1993 Disney Parking Project), AMBAC insured, 0% 2014	3,000	2,188
County of Los Angeles, Los Angeles Community College Dist., G.O. Bonds, 2001 Election, Series A, 5.50% 2016 (preref. 2011)	4,500	4,904
County of Los Angeles, Metropolitan Transportation Auth., Proposition A, Sales Tax Rev. Ref. Bonds, Series 2001-B, FSA insured, 5.25% 2017	3,530	3,794
Los Angeles County Public Works Fncg. Auth., Lease Rev. Bonds (Calabasas Landfill Project), Series 2005, AMBAC insured, 5.00% 2022	3,440	3,640
Los Angeles County Sanitation Districts Fncg. Auth., Capital Projects Rev. Bonds (Dist. No. 14 Rev. Bonds), Series 2005-B, FGIC insured, 5.00% 2020	3,740	4,021
Los Angeles Unified School Dist. (County of Los Angeles), Election of 2002 G.O. Bonds, Series 2003-A, MBIA insured, 5.375% 2016	1,000	1,100
Los Angeles Unified School Dist. (County of Los Angeles), Election of 2002 G.O. Bonds, Series 2003-A, MBIA insured, 5.375% 2017	465	510
Los Angeles Unified School Dist. (County of Los Angeles), Election of 2004 G.O. Bonds, Series 2006-F, FGIC insured, 5.00% 2017	3,000	3,285
Los Angeles Unified School Dist. (County of Los Angeles), Election of 2004 G.O. Bonds, Series 2006-F, FGIC insured, 5.00% 2019	3,000	3,254
Los Angeles Unified School Dist. (County of Los Angeles), Election of 2004 G.O. Bonds, Series 2006-G, AMBAC insured, 5.00% 2016	1,000	1,101
Los Angeles Unified School Dist. (County of Los Angeles), G.O. Ref. Bonds, Series 2002, MBIA insured, 5.75% 2015	1,000	1,151
Los Angeles Unified School Dist. (County of Los Angeles), Election of 2002 G.O. Bonds, Series 2003-A, MBIA insured, 5.375% 2017 (preref. 2013)	535	592
Metropolitan Water Dist. of Southern California, Water Rev. Bonds, Series 1997-A, 5.00% 2026 (preref. 2008)	1,055	1,087
Metropolitan Water Dist. of Southern California, Water Rev. Bonds, Series 1997-A, 5.00% 2026 (preref. 2008)	910	938
Metropolitan Water Dist. of Southern California, Water Rev. Ref. Bonds, Series 2001-A, 5.375% 2013	4,000	4,340
Metropolitan Water Dist. of Southern California, Water Rev. Ref. Bonds, Series 2003-A, 5.25% 2015	3,075	3,321
Metropolitan Water Dist. of Southern California, Water Rev. Ref. Bonds, Series 2004-B, 5.00% 2015	4,500	4,893
Metropolitan Water Dist. of Southern California, Waterworks G.O. Ref. Bonds, Series 2001-B, 5.25% 2016 (preref. 2011)	3,530	3,820
Metropolitan Water Dist. of Southern California, Waterworks G.O. Ref. Bonds, Series 2001-B, 5.25% 2018 (preref. 2011)	2,000	2,164
Metropolitan Water Dist. of Southern California, Waterworks G.O. Ref. Bonds, Series 2004-A, 5.00% 2013	2,000	2,169
Metropolitan Water Dist. of Southern California, Waterworks G.O. Ref. Bonds, Series 2004-A, 5.00% 2015	1,300	1,426
Metropolitan Water Dist. of Southern California, Waterworks G.O. Ref. Bonds, Series 2005-A, 5.00% 2018	1,000	1,082
City of Moorpark, Community Facs. Dist. No 2004-1, Special Tax Bonds (Moorpark Highlands), Series 2006, 5.30% 2038	4,000	4,095
City of Murrieta, Community Facs. Dist. No. 2003-3 (Creekside Village), 2005 Special Tax Bonds (Improvement Area No. 1), 5.10% 2026	1,355	1,370
City of Murrieta, Community Facs. Dist. No. 2003-3 (Creekside Village), 2005 Special Tax Bonds (Improvement Area No. 1), 5.20% 2035	1,810	1,825
Community Facs. Dist. No. 2002-4, Murrieta Valley Unified School Dist., Improvement Area B Special Tax Bonds, Series 2006, 5.45% 2038	675	689
Northstar Community Services Dist., Community Facs. Dist. No. 1, Special Tax Bonds, Series 2005, 5.55% 2036	5,000	5,142
Oak Park Unified School Dist. (Ventura County), Election of 1977 G.O. Bonds, Series 2000, FSA insured, 0% 2015	2,300	1,628
Community Facs. Dist. No. 1999-1, Orange County (Ladera Ranch), Special Tax Bonds, Series 1999-A, 6.70% 2029 (preref. 2009)	1,000	1,108
Community Facs. Dist. No. 2000-1, Orange County (Ladera Ranch), Special Tax Bonds, Series 2000-A, 6.20% 2023 (preref. 2008)	1,780	1,872
Community Facs. Dist. No. 2000-1, Orange County (Ladera Ranch), Special Tax Bonds, Series 2000-A, 6.25% 2030 (preref. 2008)	1,800	1,895
Community Facs. Dist. No. 2001-1, Orange County (Ladera Ranch), Special Tax Bonds, Series 2002-A, 6.00% 2032 (preref. 2010)	2,400	2,643
Community Facs. Dist. No. 2002-1, Orange County (Ladera Ranch), Special Tax Bonds, Series 2003-A, 5.125% 2018	1,180	1,217
Community Facs. Dist. No. 2002-1, Orange County (Ladera Ranch), Special Tax Bonds, Series 2003-A, 5.55% 2033	1,500	1,549
Community Facs. Dist. No. 2003-1, Orange County (Ladera Ranch), Special Tax Bonds, Series 2004-A, 5.60% 2028	1,000	1,052
Community Facs. Dist. No. 2003-1, Orange County (Ladera Ranch), Special Tax Bonds, Series 2004-A, 5.625% 2034	1,750	1,822
Community Facs. Dist. No. 2004-1, Orange County (Ladera Ranch), Special Tax Bonds, Series 2005-A, 5.15% 2029	1,000	1,018
Community Facs. Dist. No. 2004-1, Orange County (Ladera Ranch), Special Tax Bonds, Series 2005-A, 5.20% 2034	4,950	5,029
County of Orange, Irvine Coast Assessment Dist. No. 88-1, Limited Obligation Improvement Bonds, Series 1998-A, 5.25% 2009	670	678
County of Orange, Local Transportation Auth., First Bonds, MBIA insured, 6.00% 2009	1,500	1,588
County of Orange, Newport Coast Phase IV Assessment Dist. No. 01-1, Limited Obligation Improvement Bonds (Group 1), 5.00% 2028	1,000	1,005
County of Orange, Newport Coast Phase IV Assessment Dist. No. 01-1, Limited Obligation Improvement Bonds (Group 1), 5.10% 2033	1,115	1,122
County of Orange, Recovery Certs. of Part., Series 1996-A, MBIA insured, 6.00% 2008	1,500	1,568
Orange County Water Dist., Rev. Certs. of Part., Series 1999-A, 5.25% 2022	1,960	2,053
City of Oxnard Fncg. Auth., Solid Waste Rev. Ref. Bonds, Series 2005, AMT, AMBAC insured, 5.00% 2014	2,275	2,413
City of Oxnard Fncg. Auth., Solid Waste Rev. Ref. Bonds, Series 2005, AMT, AMBAC insured, 5.00% 2015	2,390	2,545
City of Oxnard Fncg. Auth., Solid Waste Rev. Ref. Bonds, Series 2005, AMT, AMBAC insured, 5.00% 2016	1,475	1,574
City of Oxnard, Assessment Dist. No. 97-1-R (Pacific Commerce Center), Limited Obligation Ref. Bonds, 5.70% 2006	1,005	1,005
City of Oxnard, Community Facs. Dist. No. 3 (Seabridge at Mandalay Bay), Special Tax Bonds, Series 2005, 5.00% 2035	2,000	1,989
City of Palmdale, Community Facs. Dist. No. 2003-1, Special Tax Bonds (Anaverde Public Improvements), Series 2005-A, 5.00% 2019	675	688
City of Palmdale, Community Facs. Dist. No. 2003-1, Special Tax Bonds (Anaverde Public Improvements), Series 2005-A, 5.10% 2021	620	633
City of Palmdale, Community Facs. Dist. No. 2003-1, Special Tax Bonds (Anaverde Public Improvements), Series 2005-A, 5.15% 2022	915	941
City of Palmdale, Community Facs. Dist. No. 2003-1, Special Tax Bonds (Anaverde Public Improvements), Series 2005-A, 5.25% 2024	1,015	1,039
City of Palmdale, Community Facs. Dist. No. 2003-1, Special Tax Bonds (Anaverde Public Improvements), Series 2005-A, 5.35% 2030	1,740	1,792
City of Palmdale, Community Facs. Dist. No. 2003-1, Special Tax Bonds (Anaverde Public Improvements), Series 2005-A, 5.40% 2035	1,755	1,805
City of Poway, Community Facs. Dist. No. 88-1 (Parkway Business Centre), Special Tax Ref. Bonds, Series 1998, 6.50% 2008	1,000	1,039
City of Poway, Community Facs. Dist. No. 88-1 (Parkway Business Centre), Special Tax Ref. Bonds, Series 1998, 6.50% 2009	1,320	1,395
City of Poway, Community Facs. Dist. No. 88-1 (Parkway Business Centre), Special Tax Ref. Bonds, Series 1998, 6.50% 2010	1,715	1,818
City of Poway, Community Facs. Dist. No. 88-1 (Parkway Business Centre), Special Tax Ref. Bonds, Series 1998, 6.75% 2015	2,050	2,186
Poway Unified School Dist., Community Facs. Dist. No. 14 (Del Sur), Improvement Area A Special Tax Bonds, Series 2006, 5.25% 2036	5,000	5,084
Poway Unified School Dist., Community Facs. Dist. No. 14 (Del Sur), Special Tax Bonds, Series 2006, 5.00% 2019	1,000	1,019
Poway Unified School Dist., Community Facs. Dist. No. 14 (Del Sur), Special Tax Bonds, Series 2006, 5.10% 2021	1,040	1,062
Poway Unified School Dist., Community Facs. Dist. No. 14 (Del Sur), Special Tax Bonds, Series 2006, 5.125% 2026	2,200	2,233
Poway Unified School Dist., Community Facs. Dist. No. 14 (Del Sur), Special Tax Bonds, Series 2006, 5.25% 2036	1,000	1,017
Rancho Santiago Community College Dist. (Orange County), G.O. Ref. Bonds, Series 2005, FSA insured, 5.25% 2017	3,170	3,566
Rancho Santiago Community College Dist. (Orange County), G.O. Ref. Bonds, Series 2005, FSA insured, 5.25% 2020	2,000	2,269
Redding Redev. Agcy., Tax Allocation Bonds (SHASTEC Redev. Project), Series 2006, 5.00% 2029	655	670
Redding Redev. Agcy., Tax Allocation Bonds (SHASTEC Redev. Project), Series 2006, 5.00% 2036	1,585	1,614
Rio Elementary School Dist., Community Facs. Dist. No. 1, Special Tax Bonds, Series 2005, 5.20% 2035	2,000	2,022
City of Rio Vista, Community Facs. Dist. No. 2004-1, Special Tax Bonds (Northwest Wastewater Fac.), Series 2005, 5.70% 2024	3,110	3,225
City of Rio Vista, Community Facs. Dist. No. 2004-1, Special Tax Bonds (Northwest Wastewater Fac.), Series 2005, 5.85% 2035	5,000	5,222
City of Riverside, Electric Rev. Bonds, Issue 2001, FSA insured, 5.25% 2015 (preref. 2011)	1,000	1,089
Community Facs. Dist. No. 15 (Mission Ranch) of Riverside Unified School Dist., Special Tax Bonds (Improvement Area No. 2), Series 2005-A, 5.25% 2030	1,000	1,017
County of Riverside Community Facs. Dist. No. 04-2 (Lake Hills Crest), Special Tax Bonds, Series 2005, 5.00% 2025	2,400	2,417
County of Riverside Community Facs. Dist. No. 04-2 (Lake Hills Crest), Special Tax Bonds, Series 2005, 5.10% 2035	4,610	4,625
Riverside County Public Fncg. Auth., Certs. of Part. (Air Force Village West, Inc.), 5.40% 2009	730	750
Riverside County Public Fncg. Auth., Tax Allocation Rev. Bonds (County of Riverside Redev. Projects), Series 2005-A, XLCA insured, 5.00% 2023	2,000	2,119
City of Rocklin (Placer County) Community Facs. Dist. No. 10 (Whitney Ranch), Special Tax Bonds, Series 2005, 5.00% 2020	805	813
City of Rocklin (Placer County) Community Facs. Dist. No. 10 (Whitney Ranch), Special Tax Bonds, Series 2005, 5.00% 2021	855	864
City of Roseville, Electric System Rev. Certs. of Part., Series 2005-A, FGIC insured, 5.00% 2017	2,000	2,162
City of Roseville, Highland Reserve North Community Facs. Dist. No. 1, Special Tax Bonds, Series 1999, 6.00% 2011 (preref. 2009)	955	1,039
City of Roseville, Highland Reserve North Community Facs. Dist. No. 1, Special Tax Bonds, Series 1999, 6.30% 2025 (preref. 2009)	1,680	1,841
City of Roseville, North Roseville Community Facs. Dist. No. 1, Special Tax Bonds, Series 1998, 5.20% 2007 (escrowed to maturity)	575	584
City of Roseville, Woodcreek West Community Facs. Dist. No. 1, Special Tax Bonds, Series 1999, 6.50% 2015 (preref. 2009)	1,000	1,102
City of Roseville, Woodcreek West Community Facs. Dist. No. 1, Special Tax Bonds, Series 1999, 6.70% 2025 (preref. 2009)	2,750	3,045
City of Sacramento, North Natomas Community Facs. Dist. No. 4, Special Tax Bonds, Series 2003-C, 6.00% 2033	1,000	1,069
City of Sacramento, North Natomas Regency Park Community Facs. Dist. No. 2001-03, Special Tax Bonds, 6.00% 2028	1,755	1,856
County of Sacramento, Airport System Rev. Ref. Bonds, Series B, AMT, FSA insured, 5.25% 2015	1,115	1,185
County of Sacramento, Airport System Rev. Ref. Bonds, Series B, AMT, FSA insured, 5.25% 2016	1,170	1,241
County of Sacramento, Laguna Creek Ranch/Elliott Ranch Community Facs. Dist. No. 1, Improvement Area No. 2 Special Tax Ref. Bonds (Elliott Ranch), 6.00% 2012	880	909
County of Sacramento, Laguna Creek Ranch/Elliott Ranch Community Facs. Dist. No. 1, Improvement Area No. 2 Special Tax Ref. Bonds (Elliott Ranch), 6.10% 2013	665	688
County of Sacramento, Laguna Creek Ranch/Elliott Ranch Community Facs. Dist. No. 1, Improvement Area No. 2 Special Tax Ref. Bonds (Elliott Ranch), 6.30% 2021	500	515
County of Sacramento, Single-family Mortgage Rev. Bonds (GNMA Mortgage-backed Securities Program), Issue 1987-A, AMT, 9.00% 2019 (escrowed to maturity)	1,500	2,202
Sacramento City Fncg. Auth., 2001 Capital Improvement Rev. Bonds (Water and Capital Improvement Projects), Series A, AMBAC insured, 5.50% 2015 (preref. 2011)	2,000	2,174
Sacramento City Fncg. Auth., 2001 Capital Improvement Rev. Bonds (Water and Capital Improvement Projects), Series A, AMBAC insured, 5.50% 2016 (preref. 2011)	5,435	5,908
Sacramento City Fncg. Auth., Rev. Bonds (City Hall and Redev. Projects), Series 2002-A, FSA insured, 5.25% 2016	470	512
Sacramento City Fncg. Auth., Rev. Bonds (City Hall and Redev. Projects), Series 2002-A, FSA insured, 5.25% 2016 (preref. 2012)	1,530	1,674
Sacramento Municipal Utility Dist., Electric Rev. Bonds, Series 1997-K, AMBAC insured, 5.70% 2017	2,500	2,903
Sacramento Municipal Utility Dist., Electric Rev. Ref. Bonds, Series 2002-Q, FSA insured, 5.25% 2017	1,000	1,080
County of San Bernardino Housing Auth., Multi-family Housing Rev. Ref. Bonds (Equity Residential/Redlands Lawn and Tennis Apartments), Issue 1999-A, 5.20% 2029 (put 2009)	1,000	1,028
Redev. Agcy. of the County of San Bernardino, Tax Allocation Bonds (San Sevaine Redev. Project), Series 2005-A, RADIAN insured, 5.00% 2017	1,395	1,481
Redev. Agcy. of the County of San Bernardino, Tax Allocation Bonds (San Sevaine Redev. Project), Series 2005-A, RADIAN insured, 5.00% 2020	1,730	1,816
San Bernardino County, Alta Loma School Dist., 1999 Election G.O. Bonds, Series A, FGIC insured, 0% 2021	2,500	1,299
San Bernardino Joint Powers Fncg. Auth., 2002 Tax Allocation Rev. Ref. Bonds, 6.625% 2026	5,000	5,465
County of San Diego, Certs. of Part. (2005 Edgemoor Project and 1996 Regional Communications System Ref.), AMBAC insured, 5.00% 2016	1,130	1,223
County of San Diego, Certs. of Part. (2005 Edgemoor Project and 1996 Regional Communications System Ref.), AMBAC insured, 5.00% 2018	1,450	1,554
County of San Diego, Poway Unified School Dist., Community Facs. Dist. No. 1, Special Tax Bonds, Series 1998, MBIA insured, 5.00% 2010	1,000	1,041
County of San Diego, Reassessment Dist. No. 97-1 (4-S Ranch), Limited Obligation Improvement Bonds, 5.90% 2007	1,355	1,375
County of San Diego, Reassessment Dist. No. 97-1 (4-S Ranch), Limited Obligation Improvement Bonds, 5.90% 2008	950	977
County of San Diego, San Diego Community College Dist., G.O. Bonds (Election of 2002), Series 2005, FSA insured, 5.00% 2020	5,000	5,361
San Diego County, Certs. of Part. (Burnham Institute for Medical Research), 5.00% 2017	1,645	1,721
San Diego County, Certs. of Part. (Burnham Institute for Medical Research), 5.00% 2018	1,715	1,789
San Diego County, Certs. of Part. (Burnham Institute for Medical Research), 5.00% 2019	1,230	1,276
San Diego County, Certs. of Part. (Burnham Institute for Medical Research), 5.00% 2021	1,005	1,037
San Diego County, Certs. of Part. (Burnham Institute for Medical Research), 5.00% 2022	2,065	2,127
San Diego County, Certs. of Part. (Burnham Institute for Medical Research), 5.00% 2034	4,000	4,085
San Diego County, Escondido Union School Dist., Election of 2002 G.O. Bonds, Series A, FSA insured, 5.25% 2017	2,015	2,176
San Diego Unified School Dist., 2003 G.O. Bonds, Current Interest Bonds (Election of 1998), Series E, FSA insured, 5.25% 2015	1,000	1,096
City and County of San Francisco Airport Commission, San Francisco International Airport, Second Series Rev. Bonds, Issue 26-A, AMT, FGIC insured, 5.00% 2010	1,915	1,992
City and County of San Francisco Airport Commission, San Francisco International Airport, Second Series Rev. Bonds, Issue 26-A, AMT, AMBAC insured, 5.00% 2019	1,000	1,022
City and County of San Francisco Public Utilities Commission, San Francisco Water Rev. Bonds, Series 2006-A, FSA insured, 5.00% 2017	2,485	2,717
City and County of San Francisco Redev. Fin. Auth., Tax Allocation Rev. Bonds (Mission Bay North Redev. Project--Infrastructure), Series 2006-B, RADIAN insured, 5.00% 2036	5,000	5,180
San Francisco State Building Auth., Lease Rev. Ref. Bonds (San Francisco Civic Center Complex), Series 2005-A, FGIC insured, 5.00% 2015	4,500	4,924
San Francisco State Building Auth., Lease Rev. Ref. Bonds (San Francisco Civic Center Complex), Series 2005-A, FGIC insured, 5.00% 2019	2,195	2,357
San Joaquin Hills Transportation Corridor Agcy. (Orange County), Toll Road Rev. Bonds, 0% 2011 (escrowed to maturity)	1,500	1,277
San Joaquin Hills Transportation Corridor Agcy. (Orange County), Toll Road Rev. Bonds, 0% 2014 (escrowed to maturity)	4,000	3,009
San Joaquin Hills Transportation Corridor Agcy. (Orange County), Toll Road Rev. Bonds, 0% 2019 (escrowed to maturity)	4,150	2,468
San Joaquin Hills Transportation Corridor Agcy. (Orange County), Toll Road Rev. Bonds, 0% 2023 (escrowed to maturity)	5,900	2,875
City of San Jose, G.O. Bonds (Libraries and Parks Project), Series 2001, 5.00% 2019	2,295	2,420
City of San Jose, G.O. Bonds (Libraries, Parks and Public Safety Projects), Series 2002, 5.00% 2017	1,120	1,192
City of San Jose, G.O. Bonds (Libraries, Parks and Public Safety Projects), Series 2002, 5.00% 2020	1,000	1,063
Redev. Agcy. of the City of San Jose, Multi-family Housing Rev. Bonds (GNMA Collateralized — Miraido Village), Series 1997-A, AMT, 5.30% 2012	525	535
Redev. Agcy. of the City of San Jose, Multi-family Housing Rev. Bonds (GNMA Collateralized — Miraido Village), Series 1997-A, AMT, 5.65% 2022	1,490	1,532
Redev. Agcy. of the City of San Jose, Tax Allocation Ref. Bonds (Merged Area Redev. Project), Series 2004-A, MBIA insured, 4.54% 2018	3,000	3,111
San Marcos Public Facs. Auth., Rev. Ref. Bonds, Series 1998, 5.50% 2010	2,485	2,573
San Mateo County, Joint Powers Fncg. Auth., Lease Rev. Ref. Bonds (Capital Projects Program), Series 1993-A, MBIA insured, 5.125% 2018	2,700	2,983
San Mateo County Transit Dist., Limited Tax Bonds, Series 1997-A, MBIA insured, 5.50% 2017	2,500	2,864
Santa Ana Fncg. Auth., Police Administration and Holding Fac. Lease Rev. Bonds, Series 1994-A, MBIA insured, 6.25% 2019	1,000	1,208
Santa Clara County Fncg. Auth., Lease Rev. Bonds (VMC Fac. Replacement Project), Series 1994-A, AMBAC insured, 7.75% 2009	2,200	2,472
Santa Cruz County, Cabrillo Community College Dist., Election of 1998 G.O. Bonds, Series B, FGIC insured, 0% 2016	1,500	1,002
Community Facs. Dist. No. 99-1 (Talega), Santa Margarita Water Dist., Special Tax Bonds, Series 2003, 5.375% 2018	1,005	1,049
Community Facs. Dist. No. 99-1 (Talega), Santa Margarita Water Dist., Special Tax Bonds, Series 2003, 6.00% 2030	1,170	1,239
Santa Monica-Malibu Unified School Dist., Los Angeles County, G.O. Ref. Bonds, Series 1998, 5.25% 2015	3,000	3,351
Santa Monica-Malibu Unified School Dist., Los Angeles County, G.O. Ref. Bonds, Series 1998, 5.25% 2017	1,175	1,321
Santa Monica-Malibu Unified School Dist., Los Angeles County, G.O. Ref. Bonds, Series 1998, 5.25% 2018	2,175	2,458
Community Facs. Dist. No. 2005-1, Saugus Union School Dist., Special Tax Bonds, Series 2006, 5.25% 2026	1,135	1,161
Community Facs. Dist. No. 2005-1, Saugus Union School Dist., Special Tax Bonds, Series 2006, 5.30% 2036	1,000	1,019
Community Facs. Dist. No. 2005-1, William S. Hart Union School Dist., Special Tax Bonds, Series 2006, 5.25% 2026	845	864
Community Facs. Dist. No. 2005-1, William S. Hart Union School Dist., Special Tax Bonds, Series 2006, 5.30% 2036	1,500	1,528
Saugus Union School Dist., 2006 G.O. Ref. Bonds, Current Interest Bonds (Los Angeles County), FGIC insured, 5.25% 2021	2,000	2,275
Shafter Joint Powers Fin. Auth., Lease Rev. Bonds (Community Correctional Fac. Acquisition Project), Series 1997-A, 5.95% 2011	1,700	1,728
South Orange County Public Fncg. Auth., Special Tax Rev. Bonds, Series 1999-A, FSA insured, 5.375% 2011	1,600	1,692
Redev. Agcy. of the City of South San Francisco, Tax Allocation Rev. Bonds (Merged Redev. Project), Series 2006-A, FGIC insured, 5.00% 2019	1,015	1,095
Redev. Agcy. of the City of South San Francisco, Tax Allocation Rev. Bonds (Merged Redev. Project), Series 2006-A, FGIC insured, 5.00% 2020	2,025	2,176
Redev. Agcy. of the City of South San Francisco, Tax Allocation Rev. Bonds (Merged Redev. Project), Series 2006-A, FGIC insured, 5.00% 2022	2,300	2,458
South Tahoe Joint Powers Fncg. Auth., Bond Anticipation Notes (South Tahoe Redev. Project Area No. 1), Series 2003-B, 5.125% 2009	1,000	1,001
South Tahoe Joint Powers Parking Fin. Auth., Parking Rev. Bonds, Series A, 7.00% 2027	5,500	5,586
Southeast Resource Recovery Fac. Auth., Lease Rev. Bonds, Series 2003-B, AMT, AMBAC insured, 5.375% 2016	1,500	1,614
Southeast Resource Recovery Fac. Auth., Lease Rev. Bonds, Series 2003-B, AMT, AMBAC insured, 5.375% 2017	2,655	2,852
Stockton Public Fncg. Auth., Rev. Bonds (Redev. Projects), Series 2006-A, RADIAN insured, 5.00% 2018	1,200	1,276
Sweetwater Auth., San Diego County, Water Rev. Bonds, Series 2005, AMBAC insured, 5.00% 2016	2,825	3,080
Talega-Capistrano Unified School Dist., Community Facs. Dist. No. 90-2, Special Tax Bonds, Series 2003, 6.00% 2033	1,200	1,270
City of Temecula, Public Fncg. Auth., Community Facs. Dist. No. 03-03 (Wolf Creek), Special Tax Bonds, Series 2003, 5.80% 2026	1,165	1,229
Community Facs. Dist. No. 88-12, Temecula (Ynez Corridor), Special Tax Ref. Bonds, Series 1998-A, 5.25% 2008	745	759
Tobacco Securitization Auth. of Northern California (Sacramento County), Tobacco Settlement Asset-backed Bonds, Series 2001-B, 5.00% 2028 (preref. 2011)	4,715	5,014
Tobacco Securitization Auth., Tobacco Settlement Asset-backed Bonds (San Diego County Tobacco Asset Securitization Corp.), Series 2001-A, 5.25% 2027 (preref. 2012)	5,675	6,152
City of Torrance, Hospital Rev. Bonds (Torrance Memorial Medical Center), Series 2001-A, 6.00% 2022	2,600	2,839
City of Torrance, Hospital Rev. Bonds (Torrance Memorial Medical Center), Series 2001-A, 5.50% 2031	1,000	1,051
Community Facs. Dist. No. 97-1, Tustin Unified School Dist., Special Tax Bonds, Series 2000, 6.375% 2035 (preref. 2008)	3,000	3,228
Val Verde Unified School Dist., Certs. of Part. (Ref. and School Construction Project), Series 2005-B, FGIC insured, 5.00% 2018	1,000	1,073
Washington Township Health Care Dist., Rev. Bonds, Series 1999, 5.00% 2010	1,210	1,245
Washington Township Health Care Dist., Rev. Bonds, Series 1999, 5.00% 2013	1,100	1,131
Washington Township Health Care Dist., Rev. Bonds, Series 1999, 5.00% 2018	2,750	2,816
Washington Township Health Care Dist., Rev. Bonds, Series 1999, 5.125% 2023	1,000	1,024
City of West Sacramento, Limited Obligation Ref. Improvement Bonds, Reassessment Dist. of 1998, 5.20% 2008	490	499
West Sacramento Fncg. Auth., Special Tax Rev. Bonds, Series F, 5.75% 2011	1,510	1,556
West Sacramento Fncg. Auth., Special Tax Rev. Bonds, Series F, 5.85% 2013	1,685	1,741
Westlands Water Dist., Rev. Certs. of Part., Series 2002-A, MBIA insured, 5.25% 2016	1,270	1,389
City of Whittier, Health Fac. Rev. Bonds (Presbyterian Intercommunity Hospital), Series 2002, 5.75% 2031	5,000	5,348
Community Facs. Dist. No. 2002-1, William S. Hart Union High School Dist., Special Tax Bonds, Series 2003, 6.00% 2033	1,000	1,059
Yorba Linda Public Fncg. Auth., Rev. Bonds (Black Gold Golf Course Project), Series 2000, 7.50% 2030 (preref. 2008)	5,500	5,947
		743,384

PUERTO RICO — 3.86%
Children’s Trust Fund, Tobacco Settlement Asset-backed Bonds, Series 2000, 5.75% 2009 (escrowed to maturity)	2,000	2,119
Children’s Trust Fund, Tobacco Settlement Asset-backed Bonds, Series 2000, 5.75% 2020 (preref. 2010)	3,730	3,906
Government Dev. Bank for Puerto Rico, Series 2006-B, 5.00% 2015	3,000	3,205
Government Dev. Bank for Puerto Rico, Series 2006-C, AMT, 5.25% 2015	1,675	1,798
Infrastructure Fncg. Auth., Special Obligation Bonds, Series 2000-A, 5.50% 2032	2,500	2,682
Ports Auth., Special Facs. Rev. Bonds (American Airlines, Inc. Project), Series 1993-A, AMT, 6.30% 2023	1,000	1,000
Public Buildings Auth., Government Facs. Rev. Ref. Bonds, Series C, 5.50% 2010	2,835	2,994
Public Buildings Auth., Government Facs. Rev. Ref. Bonds, Series J, 5.00% 2028 (put 2012)	4,000	4,171
Public Fin. Corp., Commonwealth Appropriation Bonds, Series 2001-E, 6.00% 2026	1,830	2,166
Public Fin. Corp., Commonwealth Appropriation Bonds, Series 2004-A, 5.75% 2027 (put 2012)	5,000	5,376
Public Fin. Corp., Commonwealth Appropriation Bonds, Series 2004-A, FGIC insured, 5.25% 2031 (put 2012)	1,000	1,073
Public Fin. Corp., Commonwealth Appropriation Bonds, Series 2001-E, 6.00% 2026 (escrowed to maturity)	170	212
Public Improvement G.O. Bonds, Series 2006-A, 5.25% 2022	2,000	2,152
Public Improvement G.O. Ref. Bonds, Series 1998-B, MBIA insured, 5.75% 2009	4,575	4,847
Public Improvement G.O. Ref. Bonds, Series 2004-A, 5.00% 2030 (put 2012)	3,500	3,650
Public Improvement G.O. Ref. Bonds, Series 2006-B, 5.00% 2035	5,000	5,127
Public Improvement G.O. Ref. Bonds, Series 2002-A, XLCA insured, 5.50% 2017	5,075	5,755
		52,233

VIRGIN ISLANDS — 0.58%
Public Fin. Auth., Rev. and Ref. Bonds (Matching Fund Loan Notes), Series 1998-A, 5.20% 2009	500	517
Public Fin. Auth., Rev. and Ref. Bonds (Matching Fund Loan Notes), Series 1998-A, 5.20% 2010	1,000	1,032
Public Fin. Auth., Rev. and Ref. Bonds (Matching Fund Loan Notes), Series 1998-A, 5.30% 2011	2,000	2,065
Public Fin. Auth., Rev. and Ref. Bonds (Matching Fund Loan Notes), Series 1998-D, 6.00% 2006	1,000	1,002
Public Fin. Auth., Rev. and Ref. Bonds (Matching Fund Loan Notes), Series 1998-E, 5.75% 2013	1,595	1,668
Public Fin. Auth., Rev. Bonds (Matching Fund Loan Notes), Series 2004-A, 5.00% 2013	1,450	1,518
		7,802


Total bonds & notes (cost: $1,246,287,000)		1,286,919

Short-term securities — 3.91%

California Housing Fin. Agcy., Home Mortgage Rev. Bonds, Series 2001-F, AMT, MBIA insured, 3.37% 2032^1,2	3,000	3,000
California Housing Fin. Agcy., Home Mortgage Rev. Bonds, Series 2002-M, AMT, 3.60% 2025¹	2,900	2,900
California Housing Fin. Agcy., Home Mortgage Rev. Bonds, Series 2003-K, AMT, 3.40% 2034^1,2	2,900	2,900
California Housing Fin. Agcy., Multi-family Housing Rev. Bonds III, Series D, AMT, 3.55% 2038¹	300	300
California Statewide Communities Dev. Auth., Rev. Bonds (Scripps Health), Series 2005-A, TECP, 3.40% 9/6/2006	2,000	2,000
California Statewide Communities Dev. Auth., Demand Rev. Bonds (YMCA of the East Bay Project), Series 2006, 3.27% 2027¹	1,560	1,560
California Statewide Communities Dev. Auth., Rev. Bonds (North Peninsula Jewish Campus), Series 2004, 3.50% 2034^1,2	2,000	2,000
California Statewide Communities Dev. Auth., Solid Waste Facs. Rev. Bonds (Chevron U.S.A. Inc. Project), Series 1994-A, AMT, 3.43% 2024¹	4,150	4,150
City of Irvine, California, Assessment Dist. No. 05-21, Limited Obligation Improvement Bonds, Series A, 3.45% 2031¹	2,205	2,205
City of Los Angeles, California, Certs. of Part. (Loyola High School of Los Angeles), Series 2005-A, 3.33% 2035^1,2	2,000	2,000
Dept. of Water and Power of the City of Los Angeles, California, Power System Rev. Bonds, Series 2001-B, Subseries B-3, 3.52% 2034^1,2	4,200	4,200
Housing Auth. of the City of Santa Ana, California, Demand Multi-family Housing Rev. Ref. Bonds (Vintage Apartments), Series 1996-A, AMT, FNMA insured, 3.35% 2022¹	1,400	1,400
Metropolitan Water Dist. Of Southern California, Water Rev. Bonds, Series 2000-B-4, 3.25% 2035^1,2	4,000	4,000
Santa Clara County, California, El Camino Hospital Dist. Hospital Facs. Auth., Lease Rev. Bonds (1985 Valley Medical Center Project), Series B, 3.50% 2015¹	2,560	2,560
State of California Dept. of Water Resources, Power Supply Rev. Bonds, Series 2002-C-13, FSA insured, 3.26% 2022¹	3,200	3,200
State of California Dept. of Water Resources, Power Supply Rev. Bonds, Series 2002-C-4, 3.29% 2022¹	2,940	2,940
State of California Dept. of Water Resources, Power Supply Rev. Bonds, Series 2005-F-2, 3.52% 2020¹	2,650	2,650
State of California Dept. of Water Resources, Power Supply Rev. Demand Bonds, Series 2002-C-15, 3.30% 2022¹	2,750	2,750
State of California Dept. of Water Resources, Power Supply Rev. Demand Bonds, Series 2005-F-4, 3.50% 2022¹	$1,200	$ 1,200
State of California, Pollution Control Fncg. Auth., Pollution Control Rev. Ref. Bonds (Pacific Gas and Electric Co.), Series 1996-C, 3.50% 2026¹	4,700	4,700
State of California, Pollution Control Fncg. Auth., Pollution Control Rev. Ref. Bonds (Pacific Gas and Electric Co.), Series 1997-B, AMT, 3.58% 2026¹	200	200

Total short-term securities (cost: $52,815,000)		52,815


Total investment securities (cost: $1,299,102,000)		1,339,734
Other assets less liabilities		12,773

Net assets		$1,352,507

¹ Coupon rate may change periodically; the date of the next scheduled coupon rate change is considered to be the maturity date.

² This security, or a portion of this security, has been segregated to cover funding requirements on investment transactions settling in the future.

See Notes to Financial Statements

Key to abbreviations

Agcy. = Agency

AMT = Alternative Minimum Tax

Auth. = Authority

Certs. of Part. = Certificates of Participation

Dept. = Department

Dev. = Development

Dist. = District

Econ. = Economic

Fac. = Facility

Facs. = Facilities

Fin. = Finance

Fncg. = Financing

G.O. = General Obligation

Preref. = Prerefunded

Redev. = Redevelopment

Ref. = Refunding

Rev. = Revenue

TECP = Tax-Exempt Commercial Paper

MFGEFP-920-1006-S6842

Financial statements

Statement of assets and liabilities
at August 31, 2006 (dollars and shares in thousands, except per-share amounts)

Assets:

Investment securities at market (cost: $1,299,102)			$	1,339,734
Cash				90
Receivables for:
Sales of investments	$	13,231
Sales of fund's shares		5,594
Interest		17,967		36,792
				1,376,616
Liabilities:
Payables for:
Purchases of investments		20,562
Repurchases of fund's shares		1,055
Dividends on fund's shares		1,399
Investment advisory services		339
Services provided by affiliates		643
Deferred trustees' compensation		101
Other fees and expenses		10		24,109
Net assets at August 31, 2006			$	1,352,507

Net assets consist of:
Capital paid in on shares of beneficial interest			$	1,311,867
Undistributed net investment income				741
Accumulated net realized loss				(733	)
Net unrealized appreciation				40,632
Net assets at August 31, 2006			$	1,352,507

Shares of beneficial interest issued and outstanding - unlimited shares authorized (80,728 total shares outstanding)
	Net assets		Shares outstanding		Net asset value per share*

Class A	$	1,070,455		63,893	$	16.75
Class B		22,840		1,363		16.75
Class C		96,644		5,768		16.75
Class F		102,044		6,091		16.75
Class R-5		60,524		3,613		16.75
* 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 $17.40.

See Notes to Financial Statements

Statement of operations
for the year ended August 31, 2006			(dollars in thousands)
Investment income:
Income:
Interest				$53,201

Fees and expenses*:
Investment advisory services	$	3,969
Distribution services		3,601
Transfer agent services		159
Administrative services		169
Reports to shareholders		58
Registration statement and prospectus		27
Postage, stationery and supplies		17
Trustees' compensation		48
Auditing and legal		67
Custodian		6
Other taxes		11
Other		34
Total fees and expenses before waiver		8,166
Less waiver of fees and expenses:
Investment advisory services		397
Total fees and expenses after waiver					7,769
Net investment income					45,432

Net realized loss and unrealized depreciation on investments:
Net realized loss on investments					(811	)
Net unrealized depreciation on investments					(3,893	)
Net realized loss and unrealized depreciation on investments					(4,704	)
Net increase in net assets resulting from operations				$	40,728

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


Statements of changes in net assets			(dollars in thousands)


		Year ended August 31,
		2006			2005
Operations:
Net investment income	$	45,432		$	33,133
Net realized (loss) gain on investments		(811	)		290
Net unrealized (depreciation) appreciation on investments		(3,893	)		12,166
Net increase in net assets
resulting from operations		40,728			45,589

Dividends and distributions paid or accrued to
shareholders:
Dividends from net investment income		(45,188	)		(33,058	)
Distributions from net realized gain
on investments		(322	)		(738	)
Total dividends and distributions paid or accrued
to shareholders		(45,510	)		(33,796	)

Capital share transactions		339,825			279,924

Total increase in net assets		335,043			291,717

Net assets:
Beginning of year		1,017,464			725,747
End of year (including undistributed
net investment income: $741 and $627, respectively)	$	1,352,507		$	1,017,464


See Notes to Financial Statements

Notes to financial statements

1.	Organization and significant accounting policies

Organization - The American Funds Tax-Exempt Series II (the "trust") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company and has initially issued one series of shares, The Tax-Exempt Fund of California (the “fund”). The fund seeks a high level of current income exempt from regular federal and California income taxes, with a secondary objective of preservation of capital.

The fund offers five share classes consisting of four retail share classes and one retirement plan share class. The retirement plan share class (R-5) is sold without any sales charges and does not carry any conversion rights. The fund’s share classes are described below:

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

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

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

Security valuation - Fixed-income securities, including short-term securities purchased with more than 60 days left to maturity, are valued at prices obtained from an independent pricing service when such prices are available. However, where the investment adviser deems it appropriate, such securities will be valued at the mean quoted bid and asked prices (or bid prices, if asked prices are not available) or at prices for securities of comparable maturity, quality and type. Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value. The value of short-term securities originally purchased with maturities greater than 60 days is determined based on an amortized value to par when they reach 60 days or less remaining to maturity. The ability of the issuers of the debt securities held by the fund to meet their obligations may be affected by economic developments in a specific industry, state or region. Securities and other assets for which representative market quotations are not readily available or are considered unreliable are fair valued as determined in good faith under procedures adopted by authority of the fund's board of trustees. Various factors may be reviewed in order to make a good faith determination of a security’s fair value. These factors include, but are not limited to, the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded similar or related securities; conversion or exchange rights on the security; related corporate actions; significant events occurring after the close of trading in the security; and changes in overall market conditions.

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

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

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

2. Federal income taxation and distributions

The fund complies with the requirements under Subchapter M of the Internal Revenue Code applicable to mutual funds and intends to distribute substantially all of its net income and net capital gains each year. The fund is not subject to income taxes to the extent taxable income and net capital gains are distributed. Therefore, no federal income tax provision is required. Generally, income earned by the fund is exempt from federal income taxes; however, the fund may earn taxable income from certain investments.

Distributions - Distributions paid to shareholders are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains for financial reporting purposes. These differences are due primarily to differing treatment for items such as short-term capital gains and losses and amortization of discounts. The fiscal year in which amounts are distributed may differ from the year in which the net investment income and net realized gains are recorded by the fund for financial reporting purposes.

During the year ended August 31, 2006, the fund reclassified $129,000 to accumulated net realized loss and $1,000 to capital paid in on shares of beneficial interest from undistributed net investment income to align financial reporting with tax reporting.

As of August 31, 2006, the components of distributable earnings, unrealized appreciation (depreciation) and cost of investments on a tax basis were as follows:

(dollars in thousands)


Undistributed tax-exempt income	$1,396
Capital loss carryforward expiring in 2014*	<133>
Post-October capital loss deferrals (realized during the period November 1, 2005, through August 31, 2006)†	<600>
Gross unrealized appreciation on investment securities	42,352
Gross unrealized depreciation on investment securities	<875>
Net unrealized appreciation on investment securities	41,477
Cost of investment securities	1,298,257

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

† These deferrals are considered incurred in the subsequent year.

The tax character of distributions paid or accrued to shareholders was as follows (dollars in thousands):

	Year ended August 31, 2006						Year ended August 31, 2005
	Tax-exempt income		Long-term capital gains		Total distributions paid or accrued		Tax-exempt income		Long-term capital gains		Total distributions paid or accrued
Share class
Class A	$	37,156	$	263	$	37,419	$	28,396	$	628	$	29,024
Class B		747		7		754		770		22		792
Class C		2,732		25		2,757		1,938		53		1,991
Class F		2,698		16		2,714		991		19		1,010
Class R-5		1,855		11		1,866		963		16		979
Total	$	45,188	$	322	$	45,510	$	33,058	$	738	$	33,796

3. Fees and transactions with related parties

Capital Research and Management Company ("CRMC"), the fund’s investment adviser, is the parent company of American Funds Service Company ^SM ("AFS"), the fund’s transfer agent, and American Funds Distributors, Inc.^SM ("AFD"), the principal underwriter of the fund’s shares.

Investment advisory services - The Investment Advisory and Service Agreement with CRMC provides for monthly fees accrued daily. These fees are based on a declining series of annual rates beginning with 0.30% on the first $60 million of daily net assets and decreasing to 0.18% on such assets in excess of $1 billion. The agreement also provides for monthly fees, accrued daily, of 3.00% on the first $3,333,333 of the fund's monthly gross income and 2.50% on such income in excess of $3,333,333. CRMC is currently waiving 10% of investment advisory services fees. During the year ended August 31, 2006, total investment advisory services fees waived by CRMC were $397,000. As a result, the fee shown on the accompanying financial statements of $3,969,000, which was equivalent to an annualized rate of 0.343%, was reduced to $3,572,000, or 0.308% of average daily net assets.

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

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

For Class A, the board of trustees has also approved the reimbursement of dealer and wholesaler commissions paid by AFD for certain shares sold without a sales charge. This class reimburses AFD for amounts billed within the prior 15 months but only to the extent that the overall annual expense limit of 0.25% is not exceeded. As of August 31, 2006, unreimbursed expenses subject to reimbursement totaled $1,087,000 for Class A.

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

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

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

Expenses under the agreements described above for the year ended August 31, 2006, were as follows (dollars in thousands):

Share class	Distribution services	Transfer agent services	Administrative services
Share class	Distribution services	Transfer agent services	CRMC administrative services	Transfer agent services
Class A	$2,338	$154	Not applicable	Not applicable
Class B	231	5	Not applicable	Not applicable
Class C	859	Included in administrative services	$61	$5
Class F	173		50	7
Class R-5	Not applicable		45	1
Total	$3,601	$159	$156	$13

Deferred trustees’ compensation - Since the adoption of the deferred compensation plan in 1993, trustees who are unaffiliated with CRMC may elect to defer the cash payment of part or all of their compensation. These deferred amounts, which remain as liabilities of the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. Trustees’ compensation of $48,000, shown on the accompanying financial statements, includes $38,000 in current fees (either paid in cash or deferred) and a net increase of $10,000 in the value of the deferred amounts.

Affiliated officers and trustees - Officers and certain trustees of the fund are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated officers or trustees received any compensation directly from the fund.

4. Capital share transactions

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

Share class	Sales*				Reinvestments of dividends and distributions				Repurchases*						Net increase (decrease)
	Amount		Shares		Amount		Shares		Amount			Shares			Amount			Shares
Year ended August 31, 2006
Class A	$	354,025		21,323	$	26,362		1,587	$	(143,269	)		(8,629	)	$	237,118			14,281
Class B		3,013		181		527		32		(3,995	)		(241	)		(455	)		(28	)
Class C		32,510		1,956		1,992		120		(15,143	)		(912	)		19,359			1,164
Class F		74,341		4,478		2,073		125		(16,582	)		(999	)		59,832			3,604
Class R-5		32,275		1,944		884		53		(9,188	)		(553	)		23,971			1,444
Total net increase
(decrease)	$	496,164		29,882	$	31,838		1,917	$	(188,177	)		(11,334	)	$	339,825			20,465

Year ended August 31, 2005
Class A	$	271,146		16,190	$	20,143		1,203	$	(85,495	)		(5,112	)	$	205,794			12,281
Class B		3,051		182		527		31		(3,784	)		(226	)		(206	)		(13	)
Class C		34,113		2,038		1,408		84		(8,045	)		(481	)		27,476			1,641
Class F		31,519		1,882		757		45		(7,002	)		(419	)		25,274			1,508
Class R-5		23,774		1,422		291		18		(2,479	)		(148	)		21,586			1,292
Total net increase
(decrease)	$	363,603		21,714	$	23,126		1,381	$	(106,805	)		(6,386	)	$	279,924			16,709

* Includes exchanges between share classes of the fund.

5. Investment transactions

The fund made purchases and sales of investment securities, excluding short-term securities, of $483,429,000 and $155,841,000, respectively, during the year ended August 31, 2006.

Financial highlights(1)

			Income from investment operations⁽²⁾							Dividends and distributions

	Net asset value, beginning of period		Net investment		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 return(3)			Net assets, end of period (in millions)		Ratio of expenses to average net assets before waivers			Ratio of expenses to average net assets after waivers(4)			Ratio of net income to average net assets
Class A:
Year ended 8/31/2006	$	16.88	$	.66	$	(.12	)	$	.54	$	(.66	)	$	(.01	)	$	(.67	)	$	16.75		3.28	%	$	1,070		.63	%		.60	%		4.00	%
Year ended 8/31/2005		16.66		.67		.24			.91		(.67	)		(.02	)		(.69	)		16.88		5.57			838		.65			.62			4.02
Year ended 8/31/2004		16.20		.69		.46			1.15		(.69	)		-			(.69	)		16.66		7.22			622		.70			.70			4.21
Year ended 8/31/2003		16.54		.69		(.34	)		.35		(.69	)		-			(.69	)		16.20		2.12			553		.68			.68			4.19
Year ended 8/31/2002		16.56		.70		.04			.74		(.70	)		(.06	)		(.76	)		16.54		4.66			542		.68			.68			4.34
Class B:
Year ended 8/31/2006		16.88		.54		(.12	)		.42		(.54	)		(.01	)		(.55	)		16.75		2.52			23		1.39			1.36			3.25
Year ended 8/31/2005		16.66		.55		.24			.79		(.55	)		(.02	)		(.57	)		16.88		4.79			23		1.40			1.38			3.28
Year ended 8/31/2004		16.20		.57		.46			1.03		(.57	)		-			(.57	)		16.66		6.45			24		1.45			1.45			3.46
Year ended 8/31/2003		16.54		.57		(.34	)		.23		(.57	)		-			(.57	)		16.20		1.36			21		1.43			1.43			3.32
Year ended 8/31/2002		16.56		.58		.04			.62		(.58	)		(.06	)		(.64	)		16.54		3.88			14		1.42			1.42			3.53
Class C:
Year ended 8/31/2006		16.88		.53		(.12	)		.41		(.53	)		(.01	)		(.54	)		16.75		2.46			97		1.44			1.41			3.19
Year ended 8/31/2005		16.66		.53		.24			.77		(.53	)		(.02	)		(.55	)		16.88		4.67			78		1.52			1.49			3.14
Year ended 8/31/2004		16.20		.55		.46			1.01		(.55	)		-			(.55	)		16.66		6.30			49		1.58			1.58			3.31
Year ended 8/31/2003		16.54		.55		(.34	)		.21		(.55	)		-			(.55	)		16.20		1.22			38		1.56			1.56			3.27
Year ended 8/31/2002		16.56		.56		.04			.60		(.56	)		(.06	)		(.62	)		16.54		3.73			21		1.55			1.55			3.37
Class F:
Year ended 8/31/2006		16.88		.65		(.12	)		.53		(.65	)		(.01	)		(.66	)		16.75		3.22			102		.69			.66			3.91
Year ended 8/31/2005		16.66		.65		.24			.89		(.65	)		(.02	)		(.67	)		16.88		5.44			42		.77			.74			3.86
Year ended 8/31/2004		16.20		.67		.46			1.13		(.67	)		-			(.67	)		16.66		7.07			16		.83			.83			4.04
Year ended 8/31/2003		16.54		.67		(.34	)		.33		(.67	)		-			(.67	)		16.20		1.97			10		.82			.82			4.03
Year ended 8/31/2002		16.56		.67		.04			.71		(.67	)		(.06	)		(.73	)		16.54		4.47			7		.83			.83			4.14
Class R-5:
Year ended 8/31/2006		16.88		.69		(.12	)		.57		(.69	)		(.01	)		(.70	)		16.75		3.45			61		.47			.43			4.16
Year ended 8/31/2005		16.66		.70		.24			.94		(.70	)		(.02	)		(.72	)		16.88		5.74			36		.48			.45			4.19
Year ended 8/31/2004		16.20		.72		.46			1.18		(.72	)		-			(.72	)		16.66		7.40			15		.53			.53			4.38
Year ended 8/31/2003		16.54		.72		(.34	)		.38		(.72	)		-			(.72	)		16.20		2.29			12		.51			.51			4.37
Period from 7/15/2002 to 8/31/2002		16.39		.09		.15			.24		(.09	)		-			(.09	)		16.54		1.47			25		.06			.06			.55

	Year ended August 31
	2006			2005			2004			2003			2002

Portfolio turnover rate for all classes of shares		14	%		11	%		8	%		16	%		11	%

(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 all sales charges, including contingent deferred sales charges.

(4) The ratios in this column reflect the impact, if any, of certain waivers from CRMC. During some of the periods shown, CRMC reduced fees for investment advisory services for all share classes.

See Notes to Financial Statements

<page>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees and Shareholders of The American Funds Tax-Exempt Series II - The Tax-Exempt Fund of California:

We have audited the accompanying statement of assets and liabilities of The American Funds Tax-Exempt Series II - The Tax-Exempt Fund of California (the “Fund”), including the investment portfolio, as of August 31, 2006, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of August 31, 2006, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The American Funds Tax-Exempt Series II - The Tax-Exempt Fund of California as of August 31, 2006, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche, LLP

Costa Mesa, California

October 10, 2006

<page>

Tax information unaudited

We are required to advise you within 60 days of the fund’s fiscal year-end regarding the federal tax status of certain distributions received by shareholders during such fiscal year. The fund hereby designates the following amounts for the fund’s fiscal year ended August 31, 2006:

Long-term capital gains $322,000

Exempt interest dividends 100%

Individual shareholders should refer to their Form 1099-DIV or other tax information, which will be mailed in January 2007, to determine the calendar year amounts to be included on their 2006 tax returns. Shareholders should consult their tax advisers.