Tax-Exempt Fund Merger Update | American Funds

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JUNE 15, 2016

Update on Our Tax-Exempt Fund Merger

The Tax-Exempt Fund of Maryland® (TEFMD) and The Tax-Exempt Fund of Virginia® (TEFVA) will be merging with The Tax-Exempt Bond Fund of America® (TEBF) as of June 17.

TEFMD and TEFVA shareholders received proxy solicitation materials in late April, and have each voted in favor of the merger of their respective fund. No new purchases of shares of either TEFMD or TEFVA will be accepted as of June 13.

Introduced into the American Funds family in 1979, TEBF seeks to provide investors a high level of current income exempt from federal income tax, consistent with the preservation of capital.

TEBF offers several benefits and potential benefits to investors:

  • A larger, more diversified investment universe. The fund has the flexibility to invest anywhere in the United States, offering a more robust and more diverse universe of investments than a fund largely limited to investments in a single state. 
  • No alternative minimum tax. The fund is one of a few general municipal bond funds that do not invest in bonds subject to the federal alternative minimum tax (AMT). In 2015, while TEBF did not pay any federally tax-exempt income dividends derived from municipal bond interest subject to AMT, 7.14% and 7.99% of the federally tax-exempt income dividends paid by TEFMD and TEFVA, respectively, were derived from municipal bond interest subject to AMT.
  • A history of above-average risk-adjusted returns. Although past results are not predictive of future returns, TEBF has historically experienced superior risk-adjusted returns relative to TEFMD and TEFVA. We believe TEBF’s relatively greater exposure to differentiated credits will promote the fund’s ability to continue to offer relatively better risk-adjusted returns.
  • Lower overall expenses. TEBF has a 0.54% expense ratio compared to 0.69% for TEFMD and 0.66% for TEFVA. Expense ratios are for Class A shares and are as of each fund's currently effective prospectus dated October 1, 2015. Pro forma for the proposed mergers, the expense ratio for TEBF’s Class A shares is expected to be 0.53%.

For more information about the funds’ results, please visit this page.

If you have any specific questions about the tax implications of the mergers, please consult a tax advisor.

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

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.