American Funds Seeks Fee Revamp, Diversification Shift for Key Funds

American Funds Tax Exempt Series II / Ca DEF 14A Filing Summary
FieldDetail
CompanyAmerican Funds Tax Exempt Series II / Ca
Form TypeDEF 14A
Filed DateSep 9, 2025
Risk Levelmedium
Pages15
Reading Time18 min
Key Dollar Amounts$1.70
Sentimentbullish

Sentiment: bullish

Topics: Fund Governance, Advisory Fees, Shareholder Meeting, Diversification, Investment Company Act, Mutual Funds, ETFs

TL;DR

**Vote FOR these proposals; they're streamlining fees and giving management more flexibility to chase returns, which is a net positive for shareholders.**

AI Summary

AMERICAN FUNDS TAX EXEMPT SERIES II / CA is holding a joint special meeting of shareholders on November 25, 2025, to address three key proposals. The first proposal involves the election of Board members for all American Funds and Capital Group exchange-traded funds, a necessary step due to prior vacancies filled by appointment and to avoid future meeting expenses. The second proposal seeks approval to amend the Investment Advisory and Service Agreement for ten specific bond funds, including American Funds Mortgage Fund and The Bond Fund of America, by transitioning from an asset and income-based fee schedule to an asset-only fee schedule. This change aims to stabilize fees for investors, particularly in dynamic interest rate environments, by eliminating potential fee increases during periods of rising rates. The third proposal requests shareholder approval to reclassify American Funds Tax-Exempt Fund of New York (TEFNY) from a 'diversified' to a 'non-diversified' fund under the 1940 Act, granting its investment adviser, Capital Research and Management Company (CRMC), greater investment flexibility. The Boards of all affected Funds unanimously recommend voting 'FOR' all proposals, citing improved Board oversight, adaptation to market conditions, and better long-term investment results as motivations. The estimated cost for obtaining shareholder approval across all Funds is approximately $1.70 per shareholder account.

Why It Matters

This DEF 14A filing is crucial for investors as it outlines significant changes to fund governance and fee structures across a broad range of American Funds and Capital Group ETFs. The proposed shift to an asset-only advisory fee for ten bond funds could provide greater fee predictability for investors, especially in volatile interest rate markets, potentially impacting net returns. The reclassification of American Funds Tax-Exempt Fund of New York to 'non-diversified' offers its adviser, CRMC, enhanced investment flexibility, which could lead to higher returns but also increased risk concentration. These changes reflect a strategic adaptation to market dynamics and regulatory requirements, potentially altering the competitive landscape for these specific funds against peers with different fee models or diversification strategies.

Risk Assessment

Risk Level: medium — The reclassification of American Funds Tax-Exempt Fund of New York to a 'non-diversified' fund introduces additional risks, as it removes regulatory limits on asset concentration (e.g., investing more than 5% of total assets in one issuer). While this offers greater investment flexibility, it inherently increases portfolio concentration risk, as explicitly stated in Proposal 3. The fee schedule change for bond funds aims for stability but doesn't guarantee lower fees, only a different calculation method.

Analyst Insight

Investors should vote 'FOR' the proposals as recommended by the Boards, particularly to support the fee structure change for bond funds which aims for stability and the increased investment flexibility for TEFNY. Review the specific implications of the 'non-diversified' classification for TEFNY if you are a shareholder of that particular fund, understanding the trade-off between flexibility and concentration risk.

Key Numbers

  • $1.70 — Estimated cost per shareholder account (Average cost for obtaining shareholder approval across all Funds)
  • November 25, 2025 — Date of Special Shareholder Meeting (Date when shareholders will vote on the proposals)
  • August 28, 2025 — Record Date (Date for determining eligible shareholders to vote)
  • 9:00 a.m. Pacific Time — Meeting Start Time (Time of the Joint Special Meetings of Shareholders)
  • 10 — Number of bond funds affected by fee schedule change (Specific number of funds proposing an asset-only advisory fee schedule)
  • 5% — Diversified fund asset limit for single issuer (Maximum percentage of total assets a diversified fund can invest in one issuer)
  • 10% — Diversified fund voting securities limit for single issuer (Maximum percentage of outstanding voting securities a diversified fund can hold of one issuer)
  • 67% — Majority vote threshold for proposals 2 and 3 (if quorum met) (Required affirmative vote of voting securities present or represented by proxy)
  • 50% — Majority vote threshold for proposals 2 and 3 (of outstanding securities) (Required affirmative vote of outstanding voting securities of the Fund)
  • 888-615-7476 — Computershare contact number (Shareholder assistance line for voting questions)

Key Players & Entities

  • AMERICAN FUNDS TAX EXEMPT SERIES II / CA (company) — Registrant for the DEF 14A filing
  • Capital Group (company) — Parent company and location of shareholder meeting
  • Michael W. Stockton (person) — Executive Vice President of the Funds
  • Capital Research and Management Company (company) — Investment adviser for American Funds Tax-Exempt Fund of New York
  • Computershare Fund Services (company) — Company hired to assist with shareholder meetings and proxy solicitation
  • SEC (regulator) — Securities and Exchange Commission
  • Investment Company Act of 1940 (regulator) — Governing act for fund classifications and board elections
  • American Funds Tax-Exempt Fund of New York (company) — Fund undergoing diversification classification change
  • American Funds Mortgage Fund (company) — One of ten funds with proposed advisory fee schedule amendment
  • The Bond Fund of America (company) — One of ten funds with proposed advisory fee schedule amendment

FAQ

What are the key proposals for the AMERICAN FUNDS TAX EXEMPT SERIES II / CA shareholder meeting on November 25, 2025?

The key proposals include the election of Board members for all American Funds and Capital Group ETFs, the approval of an amendment to the Investment Advisory and Service Agreement for ten specific bond funds to modify their fee schedules, and the approval of a change in American Funds Tax-Exempt Fund of New York's classification from a 'diversified' to a 'non-diversified' fund.

How will the proposed fee schedule amendment affect investors in American Funds Mortgage Fund and other bond funds?

The proposed amendment will change the fee structure for ten bond funds, including American Funds Mortgage Fund, from an asset and income component to an asset-only advisory fee schedule. This aims to create stability and consistency in fees, eliminating the potential for higher advisory fees during periods of rising or higher interest rates.

What does the reclassification of American Funds Tax-Exempt Fund of New York to a 'non-diversified' fund mean for its investment strategy?

Reclassifying American Funds Tax-Exempt Fund of New York to a 'non-diversified' fund will give its investment adviser, Capital Research and Management Company (CRMC), greater investment flexibility. This means the fund will no longer be subject to the 1940 Act's limits on asset concentration, such as investing more than 5% of total assets in one issuer.

Who is Michael W. Stockton and what is his role in this DEF 14A filing?

Michael W. Stockton is the Executive Vice President of the Funds. He signed the letter to shareholders dated September 9, 2025, urging them to vote at the upcoming complex-wide shareholder meeting and emphasizing the importance of their participation.

What is the estimated cost associated with obtaining shareholder approval for these proposals?

The estimated cost associated with obtaining shareholder approval for the proposals, including printing, mailing, and proxy solicitation, is approximately $1.70 per shareholder account, averaged across all Funds.

When and where will the Joint Special Meetings of Shareholders be held?

The Joint Special Meetings of Shareholders will be held on November 25, 2025, at 9:00 a.m. Pacific Time, at the office of Capital Group, located at 333 South Hope Street, Los Angeles, California 90071.

What is the Board's recommendation regarding the proposals?

The Board of each Fund has unanimously approved proposals 1, 2, and 3, as applicable, and strongly recommends that shareholders vote 'FOR' each of these proposals, believing they are in the best interests of shareholders.

What are the risks associated with American Funds Tax-Exempt Fund of New York becoming a 'non-diversified' fund?

The primary risk is increased investment concentration. Non-diversified funds are not subject to the 1940 Act's regulatory limits that prevent diversified funds from investing more than 5% of total assets in one issuer, meaning TEFNY could hold a larger proportion of its assets in fewer securities, increasing its exposure to the performance of those specific issuers.

What happens if the proposals are not approved by shareholders?

If there are not enough votes to approve a proposal, the Fund's meeting may be adjourned to allow for further proxy solicitation. If a proposal is ultimately not approved (excluding EMEF or EUPAC's Proposal 1), the Fund will continue to operate under its current structure and agreements.

How can shareholders of AMERICAN FUNDS TAX EXEMPT SERIES II / CA vote on the proposals?

Shareholders can vote online, by phone, by mail using the enclosed proxy card, or in person at the shareholder meeting. Instructions and identifying numbers for online or phone voting are provided on the proxy card or meeting notice.

Risk Factors

  • 1940 Act Classification Change [medium — regulatory]: American Funds Tax-Exempt Fund of New York (TEFNY) is seeking to reclassify from a 'diversified' to a 'non-diversified' fund under the Investment Company Act of 1940. This change grants the investment adviser, CRMC, greater investment flexibility by removing the 5% asset limit for a single issuer and the 10% voting securities limit for a single issuer, which are standard for diversified funds.
  • Investment Advisory Fee Structure Change [medium — financial]: Ten bond funds are proposing to transition from an asset and income-based fee schedule to an asset-only fee schedule. This aims to stabilize fees for investors, particularly in dynamic interest rate environments, by eliminating potential fee increases during periods of rising rates.
  • Board Member Election Necessity [low — operational]: Shareholders are being asked to elect Board members for all American Funds and Capital Group ETFs due to prior vacancies filled by appointment. This is a necessary step to ensure compliance with the 1940 Act, which requires at least two-thirds of the Board to be elected by shareholders, and to avoid future meeting expenses.

Industry Context

The mutual fund industry, particularly the exchange-traded fund (ETF) and actively managed fund sectors, is highly competitive. Companies like American Funds and Capital Group operate in an environment where fee structures, investment flexibility, and regulatory compliance are critical for attracting and retaining assets. Changes in market conditions, such as interest rate volatility, directly impact fund performance and investor preferences, driving the need for adaptive strategies and fee adjustments.

Regulatory Implications

The proposals directly involve compliance with the Investment Company Act of 1940. Reclassifying a fund from diversified to non-diversified requires shareholder approval and alters the investment mandate. Changes to advisory agreements also fall under regulatory scrutiny. The election of board members ensures adherence to governance requirements, particularly regarding shareholder-elected directors.

What Investors Should Do

  1. Vote on the three proposals presented in the Joint Proxy Statement.
  2. Review the Joint Proxy Statement for detailed information on each proposal.
  3. Submit your vote by phone, internet, or mail by the meeting date.

Key Dates

  • 2025-11-25: Joint Special Shareholder Meeting — Shareholders will vote on three key proposals, including the election of board members and changes to investment advisory agreements and fund classifications.
  • 2025-08-28: Record Date — Determines which shareholders are eligible to vote at the special meeting.

Glossary

DEF 14A
A filing with the U.S. Securities and Exchange Commission (SEC) that provides detailed information to shareholders when they are asked to vote on certain matters. (This document is the proxy statement outlining the proposals for the shareholder meeting.)
Investment Company Act of 1940
A U.S. federal law that regulates the organization and operation of mutual funds and other investment companies. (Key regulations from this act govern fund classifications (diversified vs. non-diversified) and board composition requirements.)
Diversified Fund
Under the 1940 Act, a diversified fund has limitations on how much of its assets can be invested in a single issuer (e.g., no more than 5% of total assets in one issuer). (American Funds Tax-Exempt Fund of New York is proposing to change its classification from diversified to non-diversified.)
Non-Diversified Fund
Under the 1940 Act, a non-diversified fund does not have the same strict limitations on investments in single issuers as diversified funds, offering greater flexibility. (This is the proposed new classification for American Funds Tax-Exempt Fund of New York, allowing for potentially different investment strategies.)
Proxy Statement
A document that is sent to shareholders soliciting their vote on important company matters, such as the election of directors or major corporate actions. (This filing is a joint proxy statement for multiple American Funds and Capital Group ETFs.)

Year-Over-Year Comparison

This filing is a proxy statement for a special shareholder meeting, not an annual report. Therefore, direct year-over-year comparisons of financial metrics like revenue, net income, or margins are not applicable. The focus is on proposed changes to governance, investment advisory fees, and fund classification, rather than reporting historical financial performance.

Filing Stats: 4,405 words · 18 min read · ~15 pages · Grade level 13.7 · Accepted 2025-09-09 16:17:58

Key Financial Figures

  • $1.70 — average across all Funds approximately $1.70 per shareholder account. How many vote

Filing Documents

– The Proposals

Part I – The Proposals     Proposal 1 – To elect Board members of the Funds   3 Proposal 2 – To approve the proposed amendment of the Investment Advisory and Service Agreement to modify the investment advisory and service fee schedule for each of American Funds Mortgage Fund, American High -Income Trust, The Bond Fund of America, U.S. Government Securities Fund, Intermediate Bond Fund of America, American High -Income Municipal Bond Fund, Limited Term Tax -Exempt Bond Fund of America, The Tax -Exempt Bond Fund of America, The Tax -Exempt Fund of California, and American Funds Tax -Exempt Fund of New York   8 Proposal 3 – To approve the proposed change to the diversification classification for American Funds Tax -Exempt Fund of New York from a diversified to a non -diversified registered investment company   13 Part II     Additional Information about the Funds   15 Audit Committee   16 Further Information About Voting and the Shareholder Meetings   17 EXHIBITS     Exhibit A – Series and Included Fund(s )     Exhibit B – Form of Nominating and Governance Committee Charte r     APPENDICES     Appendix 1 – Board Member and Nominee Informatio n     Appendix 2 – Board and Committee Meetings; Committee Compositio n     Appendix 3 – Board Member Compensation and Fund Ownershi p     Appendix 4 – Executive Officer s     Appendix 5 – Total Shares Outstandin g     Appendix 6 – Principal Beneficial Holder s     Appendix 7 – Independent Auditors and Related Fee s     Appendix 8 – Comparison of Current and Proposed A

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