-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dv+1DEW98y+/yn2naetPHJaJOtWL5I3FVxALZwXfYbJzxHvHfT3KgIeKcOTBWXnW l2K/lB6VSoozVAaBHMljug== 0000004405-00-000021.txt : 20000110 0000004405-00-000021.hdr.sgml : 20000110 ACCESSION NUMBER: 0000004405-00-000021 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20000107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN FUNDS INCOME SERIES CENTRAL INDEX KEY: 0000770161 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 497 SEC ACT: SEC FILE NUMBER: 002-98199 FILM NUMBER: 503518 BUSINESS ADDRESS: STREET 1: 333 S HOPE ST - 52ND FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134869200 497 1 PROSPECTUS SUPPLEMENT January 10, 2000 for the following funds with prospectuses dated February 1, 1999 - December 1, 1999
AMCAP Fund, Inc. Limited Term Tax-Exempt Bond American Balanced Fund, Inc. Fund of America American High-Income Municipal The New Economy Fund Bond Fund, Inc. New Perspective Fund, Inc. American High-Income Trust SMALLCAP World Fund, Inc. The Bond Fund of America, Inc. The Tax-Exempt Bond Fund of Capital World Bond Fund, Inc. America, Inc. Capital World Growth and The Tax-Exempt Fund of Income Fund, Inc. California The Cash Management Trust of The Tax-Exempt Fund of America Maryland EuroPacific Growth Fund The Tax-Exempt Fund of Fundamental Investors, Inc. Virginia The Growth Fund of America, The Tax-Exempt Money Fund Inc. of America The Income Fund of America, U.S. Government Securities Inc. Fund Intermediate Bond Fund of The U.S. Treasury Money Fund America of America The Investment Company of Washington Mutual Investors America Fund, Inc.
The initial investment minimum for all funds in The American Funds Group(r), except the money market funds and the state tax-exempt funds, is now $250. The initial investment minimum for the money market funds (The Cash Management Trust of America, The Tax-Exempt Money Fund of America and The U.S. Treasury Money Fund of America) and the state tax-exempt funds (The Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia) is $1,000. In addition, effective January 10, 2000, the sales charges applied to purchases of the equity and fixed-income funds in The American Funds Group are as follows:
EQUITY FUNDS FIXED-INCOME FUNDS Sales Charge Dealer Sales Charge Dealer as % of Concession as % of Concession as a % of as a % of Offering Offering Price Price AMOUNT OF SALE Offering Net Offering Net Price Amount Price Amount Invested Invested Less than $25,000 5.75% 6.10% 5.00% $25,000 but less than 5.00 5.26 4.25 3.75% 3.90% 3.00% $50,000 $50,000 but less than 4.50 4.71 3.75 $100,000 $100,000 but less than 3.50 3.63 2.75 3.50 3.63 2.75 $250,000 $250,000 but less than 2.50 2.56 2.00 2.50 2.56 2.00 $500,000 $500,000 but less than 2.00 2.04 1.60 2.00 2.04 1.60 $750,000 $750,000 but less than 1.50 1.52 1.20 1.50 1.52 1.20 $1 million $1 million and above none none see none none see prospectus prospectus
THE FUND PROVIDES SPANISH TRANSLATIONS IN CONNECTION WITH THE PUBLIC OFFERING AND SALE OF ITS SHARES. THE FOLLOWING IS A FAIR AND ACCURATE ENGLISH TRANSLATION OF A SPANISH LANGUAGE PROSPECTUS FOR THE FUND. /s/ Julie F. Williams Julie F. Williams Secretary PROSPECTUS SUPPLEMENT January 10, 2000 for the following funds with prospectuses dated February 1, 1999 - December 1, 1999
AMCAP Fund, Inc. Limited Term Tax-Exempt Bond American Balanced Fund, Inc. Fund of America American High-Income Municipal The New Economy Fund Bond Fund, Inc. New Perspective Fund, Inc. American High-Income Trust SMALLCAP World Fund, Inc. The Bond Fund of America, Inc. The Tax-Exempt Bond Fund of Capital World Bond Fund, Inc. America, Inc. Capital World Growth and The Tax-Exempt Fund of Income Fund, Inc. California The Cash Management Trust of The Tax-Exempt Fund of America Maryland EuroPacific Growth Fund The Tax-Exempt Fund of Fundamental Investors, Inc. Virginia The Growth Fund of America, The Tax-Exempt Money Fund Inc. of America The Income Fund of America, U.S. Government Securities Inc. Fund Intermediate Bond Fund of The U.S. Treasury Money Fund America of America The Investment Company of Washington Mutual Investors America Fund, Inc.
The initial investment minimum for all funds in The American Funds Group(r), except the money market funds and the state tax-exempt funds, is now $250. The initial investment minimum for the money market funds (The Cash Management Trust of America, The Tax-Exempt Money Fund of America and The U.S. Treasury Money Fund of America) and the state tax-exempt funds (The Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland and The Tax-Exempt Fund of Virginia) is $1,000. In addition, effective January 10, 2000, the sales charges applied to purchases of the equity and fixed-income funds in The American Funds Group are as follows:
EQUITY FUNDS FIXED-INCOME FUNDS Sales Charge Dealer Sales Charge Dealer as % of Concession as % of Concession as a % of as a % of Offering Offering Price Price AMOUNT OF SALE Offering Net Offering Net Price Amount Price Amount Invested Invested Less than $25,000 5.75% 6.10% 5.00% $25,000 but less than 5.00 5.26 4.25 3.75% 3.90% 3.00% $50,000 $50,000 but less than 4.50 4.71 3.75 $100,000 $100,000 but less than 3.50 3.63 2.75 3.50 3.63 2.75 $250,000 $250,000 but less than 2.50 2.56 2.00 2.50 2.56 2.00 $500,000 $500,000 but less than 2.00 2.04 1.60 2.00 2.04 1.60 $750,000 $750,000 but less than 1.50 1.52 1.20 1.50 1.52 1.20 $1 million $1 million and above none none see none none see prospectus prospectus
U.S. GOVERNMENT SECURITIES FUND Part B Statement of Additional Information November 1, 1999 (as amended January 10, 2000) This document is not a prospectus but should be read in conjunction with the current prospectus of U.S. Government Securities Fund (the "fund" or "GVT") dated November 1, 1999. The prospectus may be obtained from your investment dealer or financial planner or by writing to the fund at the following address: The American Funds Income Series U.S. Government Securities Fund Attention: Secretary 333 South Hope Street Los Angeles, California 90071 (213) 486-9200 Shareholders who purchase shares at net asset value through eligible retirement plans should note that not all of the services or features described below may be available to them, and they should contact their employer for details. TABLE OF CONTENTS
Item Page No. - ---- -------- Certain Investment Limitations and Guidelines . . . . . . . . . . . 2 Description of Certain Securities and Investment Techniques . . . . 2 Fundamental Policies and Investment Restrictions. . . . . . . . . . 6 Fund Organization and Voting Rights . . . . . . . . . . . . . . . . 8 Fund Trustees and Officers. . . . . . . . . . . . . . . . . . . . . 9 Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Dividends, Distributions and Taxes. . . . . . . . . . . . . . . . . 15 Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 19 Selling Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Shareholder Account Services and Privileges . . . . . . . . . . . . 27 Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 30 General Information . . . . . . . . . . . . . . . . . . . . . . . . 30 Investment Results and Related Statistics . . . . . . . . . . . . . 32 Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Financial Statements
U.S. Government Securities Fund -- Page 1 CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES The following limitations and guidelines are considered at the time of purchase, under normal market conditions, and are based on a percentage of the fund's net assets unless otherwise noted. This summary is not intended to reflect all of the fund's investment limitations. U.S. GOVERNMENT SECURITIES - - The fund will invest at least 65% of its assets in securities guaranteed by the U.S. Government, its agencies or instrumentalities. - - The fund may also invest in securities sponsored by the U.S. Government but not guaranteed by the full faith and credit of the U.S. Government, cash and cash equivalents, short-term debt, and other mortgage-related securities. - - The fund will only purchase collateralized mortgage obligations (CMOs) or mortgage-backed bonds which are fully collateralized by securities issued by GNMA, FNMA or FHLMC and/or mortgages insured GNMA. DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES The fund may experience difficulty liquidating certain portfolio securities during significant market declines or periods of heavy redemptions. The descriptions below are intended to supplement the material in the prospectus under "Investment Objective, Strategies and Risks." U.S. GOVERNMENT SECURITIES -- Securities guaranteed by the U.S. Government include: (1) direct obligations of the U.S. Treasury (such as Treasury bills, notes and bonds) and (2) federal agency obligations guaranteed as to principal and interest by the U.S. Treasury. For these securities, the payment of principal and interest is unconditionally guaranteed by the U.S. Government, and thus they are of the highest possible credit quality. Such securities are subject to variations in market value due to fluctuations in interest rates, but, if held to maturity, will be paid in full. Certain securities issued by U.S. Government instrumentalities and certain federal agencies are neither direct obligations of, nor guaranteed by, the Treasury. However, they generally involve federal sponsorship in one way or another; some are backed by specific types of collateral; some are supported by the issuer's right to borrow from the Treasury; some are supported by the discretionary authority of the Treasury to purchase certain obligations of the issuer; and others are supported only by the credit of the issuing government agency or instrumentality. These agencies and instrumentalities include, but are not limited to, Farmers Home Administration, Federal Home Loan Bank, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, Tennessee Valley Authority, and Federal Farm Credit Bank System. These securities will be rated AAA by Standard & Poor's Corporation or Aaa by Moody's Investors Services, Inc. or unrated but determined to be of equivalent quality. PASS-THROUGH SECURITIES -- The fund may invest in various debt obligations backed by a pool of mortgages or other assets including loans on single family residences, home equity loans, mortgages on commercial buildings, credit card receivables, and leases on airplanes or other equipment. Principal and interest payments made on the underlying asset pools backing these obligations are typically passed through to investors. Pass-through securities may have either fixed or adjustable coupons. These securities include those discussed below. U.S. Government Securities Fund -- Page 2 "Mortgage-backed securities" are issued both by U.S. government agencies, including the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC), and by private entities. The payment of interest and principal on securities issued by U.S. government agencies is guaranteed by the full faith and credit of the U.S. government (in the case of GNMA securities) or the issuer (in the case of FNMA and FHLMC securities). However, the guarantees do not apply to the market prices and yields of these securities, which vary with changes in interest rates. Mortgage-backed securities issued by private entities are structured similarly to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities and the underlying mortgages are not guaranteed by government agencies. In addition, these securities generally are structured with one or more types of credit enhancement. Mortgage-backed securities generally permit borrowers to prepay their underlying mortgages. Prepayments can alter the effective maturity of these instruments. "Collateralized mortgage obligations" (CMOs) are also backed by a pool of mortgages or mortgage loans, which are divided into two or more separate bond issues. CMOs issued by U.S. government agencies are backed by agency mortgages. Payments of principal and interest are passed-through to each bond at varying schedules resulting in bonds with different coupons, effective maturities, and sensitivities to interest rates. In fact, some CMOs may be structured in a way that when interest rates change the impact of changing prepayment rates on these securities' effective maturities is magnified. The fund will only purchase CMOs or mortgage-backed bonds which are fully collateralized by securities issued by GNMA, FNMA or FHLMC and/or mortgages insured GNMA. "Commercial mortgage-backed securities" are backed by mortgages of commercial property, such as hotels, office buildings, retail stores, hospitals, and other commercial buildings. These securities may have a lower prepayment uncertainty than other mortgage-related securities because commercial mortgage loans generally prohibit or impose penalties on prepayments of principal. In addition, commercial mortgage-related securities often are structured with some form of credit enhancement to protect against potential losses on the underlying mortgage loans. Many of the risks of investing in commercial mortgage-backed securities reflect the risks of investing in the real estate securing the underlying mortgage loans, including the effects of local and other economic conditions on real estate markets, the ability of tenants to make loan payments, and the ability of a property to attract and retain tenants. "Asset-backed securities" are backed by other assets such as credit card, automobile or consumer loan receivables, retail installment loans, or participations in pools of leases. Credit support for these securities may be based on the underlying assets and/or provided through credit enhancements by a third party. The values of these securities are sensitive to changes in the credit quality of the underlying collateral, the credit strength of the credit enhancement, changes in interest rates, and at times the financial condition of the issuer. Some asset-backed securities also may receive prepayments which can change the securities' effective maturities. INFLATION-INDEXED BONDS - The fund may invest in inflation-indexed bonds issued by governments, their agencies or instrumentalities, and corporations. The principal value of this type of bond is periodically adjusted according to changes in the rate of inflation. The interest rate is generally fixed at issuance; however, interest payments are based on an inflation adjusted U.S. Government Securities Fund -- Page 3 principal value. For example, in a period of deflation, principal value will be adjusted downward, reducing the interest payable. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation indexed bonds, even during a period of deflation. However, the current market value of the bonds is not guaranteed, and will fluctuate. The fund may also invest in other bonds which may or may not provide a similar guarantee. If a guarantee of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal. REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements, under which it buys a security and obtains a simultaneous commitment from the seller to repurchase the security at a specified time and price. Repurchase agreements permit the fund to maintain liquidity and earn income over periods of time as short as overnight. The seller must maintain with the fund's custodian collateral equal to at least 100% of the repurchase price, including accrued interest, as monitored daily by the Investment Adviser. The fund will only enter into repurchase agreements involving securities in which it could otherwise invest and with selected banks and securities dealers whose financial condition is monitored by the Investment Adviser. If the seller under the repurchase agreement defaults, the fund may incur a loss if the value of the collateral securing the repurchase agreement has declined and may incur disposition costs in connection with liquidating the collateral. If bankruptcy proceedings are commenced with respect to the seller, realization upon the collateral by the fund may be delayed or limited. FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell securities at a future date. When the fund agrees to purchase such securities it assumes the risk of any decline in value of the security beginning on the date of the agreement. When the fund agrees to sell such securities it does not participate in further gains or losses with respect to the securities beginning on the date of the agreement. If the other party to such a transaction fails to deliver or pay for the securities, the fund could miss a favorable price or yield opportunity, or could experience a loss. As the fund's aggregate commitments under these transactions increase, the opportunity for leverage similarly increases. The fund will not use these transactions for the purpose of leveraging and will segregate liquid assets which will be marked to market daily in an amount sufficient to meet its payment obligations in these transactions. Although these transactions will not be entered into for leveraging purposes, to the extent the fund's aggregate commitments under these transactions exceed its segregated assets, the fund temporarily could be in a leveraged position (because it may have an amount greater than its net assets subject to market risk). Should market values of the fund's portfolio securities decline while the fund is in a leveraged position, greater depreciation of its net assets would likely occur than were it not in such a position. As the fund's aggregate commitments under these transactions increase the opportunity for leverage similarly may increase. The fund will not borrow money to settle these transactions and therefore, will liquidate other portfolio securities in advance of settlement if necessary to generate additional cash to meet its obligations thereunder. The fund may also enter into reverse repurchase agreements and "roll" transactions. A reverse repurchase agreement is the sale of a security by a fund and its agreement to repurchase the security at a specified time and price. A "roll" transaction is the sale of mortgage-backed or other securities together with a commitment to purchase similar, but not identical securities at a later date. The fund assumes the rights and risks of ownership, including the risk of price and yield U.S. Government Securities Fund -- Page 4 fluctuations as of the time of the agreement. The fund intends to treat roll transactions as two separate transactions: one involving the purchase of a security and a separate transaction involving the sale of a security. Since the fund does not intend to enter into roll transactions for financing purposes, it may treat these transactions as not falling within the definition of "borrowing" set forth in Section 2(a)(23) of the Investment Company Act of 1940. The fund will segregate liquid assets which will be marked to market daily in an amount sufficient to meet its payment obligations under "roll" transactions and reverse repurchase agreements with broker-dealers (no collateral is required for reverse repurchase agreements with banks). RESTRICTED SECURITIES AND LIQUIDITY - The fund may purchase securities subject to restrictions on resale. All such securities not actively traded will be considered illiquid unless they have been specifically determined to be liquid under procedures that have been adopted by the fund's board of 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 fund may incur certain additional costs in disposing of illiquid securities. CASH AND CASH EQUIVALENTS - These securities include (i) commercial paper (short-term notes up to 9 months in maturity issued by corporations or governmental bodies), (ii) commercial bank obligations (e.g., certificates of deposit, bankers' acceptances (time drafts on a commercial bank where the bank accepts an irrevocable obligation to pay at maturity)), (iii) savings association and saving bank obligations (e.g., certificates of deposit issued by savings banks or savings associations), (iv) securities of the U.S. Government, its agencies or instrumentalities that mature, or may be redeemed, in one year or less, and (v) corporate bonds and notes that mature, or that may be redeemed, in one year or less. MATURITY -- The maturity composition of the fund's portfolio will be adjusted in response to market conditions and expectations. As described above, the fund may invest in various mortgage pass-through securities and normally will invest substantially in GNMA certificates. The fund may also invest in securities with interest rates that are not fixed but fluctuate based upon changes in market rates or designated indexes. Variable rate obligations have interest rates that are adjusted at designated intervals, and interest rates on floating rate obligations are adjusted whenever there are exchanges in the indexes or market rates on which their interest rates are based. In some cases the fund has the ability to demand payment from the dealer or issuer at par plus accrued interest on short notice (seven days or less). The effective maturity of a floating or variable rate obligation is deemed to be the longer of (i) the notice period required before the fund is entitled to receive payment of the obligation upon demand or (ii) the period remaining until the obligation's next interest rate adjustment. If not sold or redeemed by the fund through the demand feature, these obligations would mature on a specified date which may range up to 30 years or more from the date of issuance. The fund may also engage in the following investment practices, although it has no current intention to do so over the next twelve months: LOANS OF PORTFOLIO SECURITIES -- The fund is authorized to lend portfolio securities to selected securities dealers or other institutional investors whose financial condition is monitored by the Investment Adviser. The borrower must maintain with the fund's custodian collateral consisting of cash, cash equivalents or U.S. Government securities equal to at least 100% of the value of the borrowed securities, plus any accrued interest. The Investment Adviser will monitor the adequacy of the collateral on a daily basis. The fund may at any time call a loan of its portfolio U.S. Government Securities Fund -- Page 5 securities and obtain the return of the loaned securities. The fund will receive any interest paid on the loaned securities and a fee or a portion of the interest earned on the collateral. The fund will limit its loans of portfolio securities to an aggregate of 33-1/3% of the value of its total assets, measured at the time any such loan is made. * * * * * * PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the length of time particular investments may have been held. Short-term trading profits are not the fund's objective and changes in its investments are generally accomplished gradually, though short-term transactions may occasionally be made. High portfolio turnover (100% or more) 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. The fund's portfolio turnover rate would equal 100% if each security in the fund's portfolio were replaced once per year. See "Financial Highlights" in the prospectus for the fund's annual portfolio turnover for each of the last five fiscal periods. FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS FUNDAMENTAL POLICIES - The fund has adopted the following fundamental policies and investment restrictions which may not be changed without approval by holders of a majority of its outstanding shares. Such majority is defined in the Investment Company Act of 1940 ("1940 Act") as the vote of the lesser of (i) 67% or more of the outstanding voting securities present at a meeting, if the holders of more than 50% of the outstanding voting securities are present in person or by proxy, or (ii) more than 50% of the outstanding voting securities. All percentage limitations are considered at the time securities are purchased and are based on the fund's net assets unless otherwise indicated. None of the following investment restrictions involving a maximum percentage of assets will be considered violated unless the excess occurs immediately after, and is caused by, an acquisition by the fund. These restrictions provided that the fund may not: 1. Purchase any security (other than securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities ("U.S. Government securities") if, immediately after and as a result of such investment, more than 5% of the value of the fund's total assets would be invested in securities of the issuer; 2. Invest 25% or more of the value of its total assets in the securities of issuers conducting their principal business activities in the same industry, except that this limitation shall not apply to U.S. Government securities; 3. Invest in companies for the purpose of exercising control or management; 4. Knowingly purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition, or reorganization; U.S. Government Securities Fund -- Page 6 5. Buy or sell real estate or commodities or commodity contracts in the ordinary course of its business; however, the fund may purchase or sell readily marketable debt securities secured by real estate or interests therein or issued by companies which invest in real estate or interests therein, including real estate investment trusts; 6. Acquire securities subject to restrictions on disposition imposed by the Securities Act of 1933, if, immediately after and as a result of such acquisition, the value of such restricted securities and all other illiquid securities held by the fund would exceed 10% of the value of the fund's total assets; 7. Engage in the business of underwriting securities of other issuers, except to the extent that the disposal of an investment position may technically cause it to be considered an underwriter as that term is defined under the Securities Act of 1933; 8. Make loans, except that the fund may purchase readily marketable debt securities and invest in repurchase agreements and make loans of portfolio securities. The fund will not invest in repurchase agreements maturing in more than seven days (unless subject to a demand feature) if any such investment, together with any illiquid securities (including securities which are subject to legal or contractual restrictions on resale) held by the fund, exceeds 10% of the value of its total assets; 9. 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; 10. Purchase securities on margin, except that the fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales of securities; 11. Borrow money, except from banks for temporary or emergency purposes not in excess of 5% of the value of the fund's total assets, except that the fund may enter into reverse repurchase agreements, provided that the fund will limit its aggregate borrowings to no more than one-third of its total assets; 12. Mortgage, pledge, or hypothecate any of its assets, provided that this restriction shall not apply to the sale of securities pursuant to a reverse repurchase agreement; 13. Purchase or retain the securities of any issuer, if those individual officers and Trustees of the Trust, its investment adviser, or distributor, each owning beneficially more than 1/2 of 1% of the securities of such issuer, together own more than 5% of the securities of such issuer; 14. Invest in interests in oil, gas, or other mineral exploration or development programs; 15. Invest more than 5% of its total assets in warrants which are unattached to securities; 16. Write, purchase or sell puts, calls or combinations thereof. Notwithstanding Investment Restriction #4, the fund may invest in securities of other investment companies if deemed advisable by its officers in connection with the administration of a deferred compensation plan adopted by the Trustees pursuant to an exemptive order granted by the Securities and Exchange Commission. For purposes of Investment Restriction #6, the fund will not invest more than 15% of its net assets in illiquid securities. U.S. Government Securities Fund -- Page 7 FUND ORGANIZATION AND VOTING RIGHTS The fund, an open-end, diversified management investment company, was organized as a Massachusetts business trust on May 8, 1985. All fund operations are supervised by the fund's board of trustees which meets periodically and performs duties required by applicable state and federal laws. Members of the board who are not employed by Capital Research and Management Company or its affiliates are paid certain fees for services rendered to the fund as described in "Trustees and Trustee Compensation" below. They may elect to defer all or a portion of these fees through a deferred compensation plan in effect for the fund. The fund does not hold annual meetings of shareholders. However, significant matters which require shareholder approval, such as certain elections of board members or a change in a fundamental investment policy, will be presented to shareholders at a meeting called for such purpose. Shareholders have one vote per share owned. At the request of the holders of at least 10% of the shares, the fund will hold a meeting at which any member of the board could be removed by a majority vote. U.S. Government Securities Fund -- Page 8 FUND TRUSTEES AND OFFICERS Trustees and Trustee Compensation
AGGREGATE COMPENSATION (INCLUDING VOLUNTARILY DEFERRED COMPENSATION/1/) FROM THE FUND POSITION DURING FISCAL YEAR WITH PRINCIPAL OCCUPATION(S) DURING ENDED NAME, ADDRESS AND AGE REGISTRANT PAST 5 YEARS AUGUST 31, 1999 - ------------------------------------------------------------------------------------------------------------------ Richard G. Capen, Jr. Trustee Corporate Director and author; former none/3/ 6077 San Elijo, Box 2494 United States Ambassador to Spain; Rancho Santa Fe, CA 92067 former Vice Chairman of the Board, Age: 63 Knight-Ridder, Inc., former Chairman and Publisher, The Miami Herald - ------------------------------------------------------------------------------------------------------------------ H. Frederick Christie Trustee Private Investor. Former President and $4,100/3/ P.O. Box 144 Chief Executive Officer, The Mission Palos Verdes Estates, CA Group (non-utility holding company, 90274 subsidiary of Southern California Age: 66 Edison Company) - ------------------------------------------------------------------------------------------------------------------ + Don R. Conlan Trustee President (Retired), The Capital Group none/4/ 1630 Milan Avenue Companies, Inc. South Pasadena, CA 91030 Age: 63 - ------------------------------------------------------------------------------------------------------------------ Diane C. Creel Trustee CEO and President, The Earth Technology $4,100/3/ 100 W. Broadway Corporation (international consulting Suite 5000 engineering) Long Beach, CA 90802 Age: 50 - ------------------------------------------------------------------------------------------------------------------ Martin Fenton Trustee Chairman, Senior Resource Group $4,900/3/ 4660 La Jolla Village (management of senior living centers) Drive Suite 725 San Diego, CA 92122 Age: 64 - ------------------------------------------------------------------------------------------------------------------ Leonard R. Fuller Trustee President, Fuller Consulting (financial $4,100/3/ 4337 Marina City Drive management consulting firm) Suite 841 ETN Marina del Rey, CA 90292 Age: 53 - ------------------------------------------------------------------------------------------------------------------ +* Abner D. Goldstine Vice Chairman Senior Vice President and Director, none/4/ Age: 69 and Trustee Capital Research and Management Company ------------------------ - ------------------------------------------------------------------------------------------ +** Paul G. Haaga, Jr. Chairman of Executive Vice President and Director, none/4/ Age: 50 the Board Capital Research and Management Company - ------------------------------------------------------------------------------------------------------------------ Richard G. Newman Trustee Chairman, President and CEO, AECOM $4,500/3/ 3250 Wilshire Boulevard Technology Corporation (architectural Los Angeles, CA 90010-1599 engineering) Age: 63 - ------------------------------------------------------------------------------------------------------------------ Frank M. Sanchez Trustee President, The Sanchez Family none/3/ 5234 Via San Delarro, #1 Corporation dba McDonald's Restaurants Los Angeles, CA 90022 (McDonald's licensee) Age: 55 - ------------------------------------------------------------------------------------------------------------------ TOTAL COMPENSATION (INCLUDING VOLUNTARILY DEFERRED COMPENSATION/1/) FROM TOTAL NUMBER ALL FUNDS MANAGED BY OF FUND CAPITAL RESEARCH AND BOARDS MANAGEMENT COMPANY ON WHICH OR ITS AFFILIATES/2/ FOR THE TRUSTEE NAME, ADDRESS AND AGE YEAR ENDED AUGUST 31, 1999 SERVES/2/ - -------------------------------------------------------------------------- Richard G. Capen, Jr. $ 43,700 8 6077 San Elijo, Box 2494 Rancho Santa Fe, CA 92067 Age: 63 - -------------------------------------------------------------------------- H. Frederick Christie $206,600 19 P.O. Box 144 Palos Verdes Estates, CA 90274 Age: 66 - -------------------------------------------------------------------------- + Don R. Conlan none/4/ 12 1630 Milan Avenue South Pasadena, CA 91030 Age: 63 - -------------------------------------------------------------------------- Diane C. Creel $ 48,000 12 100 W. Broadway Suite 5000 Long Beach, CA 90802 Age: 50 - -------------------------------------------------------------------------- Martin Fenton $131,600 15 4660 La Jolla Village Drive Suite 725 San Diego, CA 92122 Age: 64 - -------------------------------------------------------------------------- Leonard R. Fuller $ 51,600 13 4337 Marina City Drive Suite 841 ETN Marina del Rey, CA 90292 Age: 53 - -------------------------------------------------------------------------- +* Abner D. Goldstine none/4/ 12 Age: 69 - -------------------------------------------------------------------------- +** Paul G. Haaga, Jr. none/4/ 14 Age: 50 - -------------------------------------------------------------------------- Richard G. Newman $107,100 13 3250 Wilshire Boulevard Los Angeles, CA 90010-1599 Age: 63 - -------------------------------------------------------------------------- Frank M. Sanchez $ 4,000 6 5234 Via San Delarro, #1 Los Angeles, CA 90022 Age: 55 - --------------------------------------------------------------------------
U.S. Government Securities Fund -- Page 9 U.S. Government Securities Fund -- Page 10 + "Interested persons" within the meaning of the 1940 Act on the basis of their affiliation with the fund's Investment Adviser, Capital Research and Management Company or the parent company of the Investment Adviser, The Capital Group Companies, Inc. * Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025 ** Address is 333 South Hope Street, Los Angeles, CA 90071 1 Amounts may be deferred by eligible Trustees under a non-qualified deferred compensation plan adopted by the fund in 1993. Deferred amounts accumulate at an earnings rate determined by the total return of one or more funds in The American Funds Group as designated by the Trustees. 2 Capital Research and Management Company manages The American Funds Group consisting of 29 funds: AMCAP Fund, Inc., American Balanced Fund, Inc., American High-Income Municipal Bond Fund, Inc., American High-Income Trust, American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of America, Capital Income Builder, Inc., Capital World Growth and Income Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America, Inc., Intermediate Bond Fund of America, The Investment Company of America, Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New Perspective Fund, Inc., New World Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of America, The U. S. Treasury Money Fund of America, U.S. Government Securities Fund and Washington Mutual Investors Fund, Inc. Capital Research and Management Company also manages American Variable Insurance Series and Anchor Pathway Fund, which serve as the underlying investment vehicle for certain variable insurance contracts; and Endowments, whose shareholders are limited to (i) any entity exempt from taxation under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended ("501(c)(3) organization"); (ii) any trust, the present or future beneficiary of which is a 501(c)(3) organization, and (iii) any other entity formed for the primary purpose of benefiting a 501(c)(3) organization. An affiliate of Capital Research and Management Company, Capital International, Inc., manages Emerging Markets Growth Fund, Inc. 3 Since the deferred compensation plan's adoption, the total amount of deferred compensation accrued by the fund (plus earnings thereon) as of fiscal year ended August 31, 1999 for participating Trustees is as follows: H. Frederick Christie ($9,423), Diane C. Creel ($4,659), Martin Fenton, ($15,276), Leonard R. Fuller ($9,710) and Richard G. Newman ($35,568). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the fund until paid to the Trustees. 4 Don R. Conlan, Abner D. Goldstine, and Paul G. Haaga, Jr. are affiliated with the Investment Adviser and, accordingly, receive no compensation from the fund. U.S. Government Securities Fund -- Page 11 OFFICERS
POSITION(S) PRINCIPAL OCCUPATION(S) DURING NAME AND ADDRESS AGE WITH REGISTRANT PAST 5 YEARS - ------------------------------------------------------------------------------- John Smet 43 President and PEO Vice President, Capital 11100 Santa Monica Research and Management Company Blvd. Los Angeles, CA 90025 - ------------------------------------------------------------------------------- Michael J. Downer 44 Vice President Senior Vice President - Fund 333 South Hope Street Business Management Group, Los Angeles, CA 90071 Capital Research and Management Company - ------------------------------------------------------------------------------- Julie F. Williams 51 Secretary Vice President - Fund Business 333 South Hope Street Management Group, Capital Los Angeles, CA 90071 Research and Management Company - ------------------------------------------------------------------------------- Anthony W. Hynes, Jr. 36 Treasurer Vice President - Fund Business 135 South State Management Group, Capital College Blvd. Research and Management Company Brea, CA 92821 - ------------------------------------------------------------------------------- Kimberly S. Verdick 35 Assistant Assistant Vice President - Fund 333 South Hope Street Secretary Business Management Group, Los Angeles, CA 90071 Capital Research and Management Company - ------------------------------------------------------------------------------- Todd L. Miller 40 Assistant Assistant Vice President - Fund 135 South State Treasurer Business Management Group, College Blvd. Capital Research and Management Brea, CA 92821 Company - -------------------------------------------------------------------------------
All of the officers listed are officers, and/or directors/trustees of one of more of the other funds for which Capital Research and Management Company serves as Investment Adviser. No compensation is paid by a fund to any officer or Trustee who is a director, officer or employee of the Investment Adviser or affiliated companies. The fund pays annual fees of $2,500 to Trustees who are not affiliated with the Investment Adviser, plus $200 for each Board of Trustees meeting attended, plus $200 for each meeting attended as a member of a committee of the Board of Trustees. No pension or retirement benefits are accrued as part of fund expenses. The Trustees may elect, on a voluntary basis, to defer all or a portion of their fees through a deferred compensation plan in effect for the fund. The fund also reimburses certain expenses of the Trustees who are not affiliated with the Investment Adviser. As of October 1, 1999 the officers and Directors of the fund and their families, as a group, owned beneficially or of record less than 1% of the outstanding shares of the fund. MANAGEMENT INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains research facilities in the U.S. and abroad (Los Angeles, San Francisco, New York, Washington, D.C., London, Geneva, Hong Kong, Singapore and Tokyo), with a staff of professionals, many of whom have a number of years of investment experience. The Investment Adviser is located at 333 South Hope Street, Los Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821. The U.S. Government Securities Fund -- Page 12 Investment Adviser's research professionals travel several million miles a year, making more than 5,000 research visits in more than 50 countries around the world. The Investment Adviser believes that it is able to attract and retain quality personnel. The Investment Adviser is a wholly owned subsidiary of The Capital Group Companies, Inc. An affiliate of the Investment Adviser compiles indices for major stock markets around the world and compiles and edits the Morgan Stanley Capital International Perspective, providing financial and market information about more than 2,400 companies around the world. The Investment Adviser is responsible for managing more than $200 billion of stocks, bonds and money market instruments and serves over eight million investors of all types throughout the world. These investors include privately owned businesses and large corporations as well as schools, colleges, foundations and other non-profit and tax-exempt organizations. INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service Agreement (the "Agreement") between the fund and the Investment Adviser will continue in effect until May 31, 2000, 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 (i) the Board of Trustees, or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the fund, and (ii) the vote of a majority of Trustees who are not parties to the Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Agreement provides that the Investment Adviser has no liability to the fund for its acts or omissions in the performance of its obligations to the fund not involving willful misconduct, bad faith, gross negligence or reckless disregard of its obligations under the Agreement. The Agreement also provides that either party has the right to terminate it, without penalty, upon 60 days' written notice to the other party and that the Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act). The Investment Adviser, in addition to providing investment advisory services, furnishes the services and pays the compensation and travel expenses of persons to perform the executive, administrative, clerical and bookkeeping functions of the fund, and provides suitable office space, necessary small office equipment and utilities, general purpose accounting forms, supplies, and postage used at the offices of the fund. The fund pays all expenses not assumed by the Investment Adviser, including, but not limited to, custodian, stock transfer and dividend disbursing fees and expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements, and notices to its shareholders; taxes; expenses of the issuance and redemption of shares of the fund (including stock certificates, registration and qualification fees and expenses); expenses pursuant to the fund's Plan of Distribution (described below); legal and auditing expenses; compensation, fees, and expenses paid to directors unaffiliated with the Investment Adviser; association dues; costs of stationery and forms prepared exclusively for the fund; and costs of assembling and storing shareholder account data. The management fee is based upon the net assets of the fund and monthly gross investment income. For the purpose of such computations under the Agreement, gross investment income means gross income, computed without taking account of gains or losses from sales of capital assets, but including original issue discount as defined for federal income tax purposes. The Internal Revenue Code in general defines original issue discount to mean the difference between the issue price and the stated redemption price at maturity of certain debt obligations. The holder of such indebtedness is in general required to treat as ordinary income the proportionate part of U.S. Government Securities Fund -- Page 13 the original issue discount attributable to the period during which the holder held the indebtedness. The management fee is based upon the annual rates of 0.30% of the first $60 million of the fund's average net assets, plus 0.21% on average net assets in excess of $60 million but not exceeding $1 billion, plus 0.18% on average net assets in excess of $1 billion but not exceeding $3 billion, plus 0.16% on average net assets in excess of $3 billion, plus 3% of the first $40 million of annual gross income, plus 2.25% of annual gross investment income in excess of $40 million but not exceeding $100 million, plus 2% of annual gross investment income in excess of $100 million. Assuming net assets of $1.3 billion and gross investment income levels of 6%, 7%, 8%, 9% and 10%, management fees would be 0.37%, 0.39%, 0.41%, 0.43%, and 0.45%, respectively. The Agreement provides for a management fee reduction to the extent that the fund's annual ordinary operating expenses exceed 1-1/2% of the first $30 million of the net assets of the fund and 1% of the net assets in excess thereof. Expenses which are not subject to this limitation are interest, taxes, and extraordinary expenses. Expenditures, including costs incurred in connection with the purchase or sale of portfolio securities, which are capitalized in accordance with generally accepted accounting principles applicable to investment companies, are accounted for as capital items and not as expenses. For the fiscal years ended August 31, 1999, 1998, 1997, the Investment Adviser received advisory fees of $5,028,000, $4,450,000, and $4,700,000, respectively. PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal Underwriter") is the principal underwriter of the fund's shares. The Principal Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 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 fund has adopted a Plan of Distribution (the Plan), pursuant to rule 12b-1 under the 1940 Act. The Principal Underwriter receives amounts payable pursuant to the Plan (see below) and commissions consisting of that portion of the sales charge remaining after the discounts which it allows to investment dealers. Commissions retained by the Principal Underwriter on sales of fund shares during the fiscal year ended August 31, 1999 amounted to $983,000 after allowance of $4,031,000 to dealers. During the fiscal years ended 1998 and 1997 the Principal Underwriter retained $469,000 and $382,000, respectively after an allowance of $1,913,000 and $1,565,000 to dealers, respectively. As required by rule 12b-1 and the 1940 Act, the Plan (together with the Principal Underwriting Agreement) has been approved by the full Board of Trustees and separately by a majority of the trustees who are not "interested persons" of the fund and who have no direct or indirect financial interest in the operation of the Plan or the Principal Underwriting Agreement, and the Plan has been approved by the vote of a majority of the outstanding voting securities of the fund. The officers and trustees who are "interested persons" of the fund may be considered to have a direct or indirect financial interest in the operation of the Plan due to present or past affiliations with the Investment Adviser and related companies. Potential benefits of the Plan to the fund include improved shareholder services, savings to the fund in transfer agency costs, savings to the fund in advisory fees and other expenses, benefits to the investment process from growth or stability of assets and maintenance of a financially healthy management organization. The selection and nomination of trustees who are not "interested persons" of the fund are committed to the U.S. Government Securities Fund -- Page 14 discretion of the trustees who are not "interested persons" during the existence of the Plan. The Plan is reviewed quarterly and must be renewed annually by the Board of Trustees. Under the Plan the fund may expend up to 0.30% of its net assets annually to finance any activity which is primarily intended to result in the sale of fund shares, provided the fund's Board of Trustees has approved the category of expenses for which payment is being made. These include service fees for qualified dealers and dealer commissions and wholesaler compensation on sales of shares exceeding $1 million (including purchases by any employer-sponsored 403(b) plan, any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 100 or more eligible employees or a community foundation). Commissions on sales of shares exceeding $1 million (including purchases by any employer-sponsored 403(b) plan or purchases by any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code, including any "401(k)" plan with 100 or more eligible employees) in excess of the Plan limitation not reimbursed 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, commissions are not recoverable. During the fiscal year ended August 31, 1999, the fund paid or accrued $3,989,000 for compensation to dealers under the Plan. As of August 31, 1999, accrued and unpaid distribution expenses were $647,000. The Glass-Steagall Act and other applicable laws, among other things, generally prohibit commercial banks from engaging in the business of underwriting, selling or distributing securities, but permit banks to make shares of mutual funds available to their customers and to perform administrative and shareholder servicing functions. However, judicial or administrative decisions or interpretations of such laws, as well as changes in either federal or state statutes or regulations relating to the permissible activities of banks or their subsidiaries or affiliates, could prevent a bank from continuing to perform all or a part of its servicing activities. If a bank were prohibited from so acting, shareholder clients of such bank would be permitted to remain shareholders of the fund and alternate means for continuing the servicing of such shareholders would be sought. In such event, changes in the operation of the fund might occur and shareholders serviced by such bank might no longer be able to avail themselves of any automatic investment or other services then being provided by such bank. It is not expected that shareholders would suffer adverse financial consequences as a result of any of these occurrences. In addition, state securities laws on this issue may differ from the interpretations of federal law expressed herein, and certain banks and financial institutions may be required to be registered as dealers pursuant to state law. DIVIDENDS, DISTRIBUTIONS AND TAXES DIVIDENDS - The fund intends to follow the practice of distributing substantially all of its investment company taxable income which includes any excess of net realized short-term gains over net realized long-term capital losses. Additional distributions may be made, if necessary. The fund also intends to follow the practice of distributing the entire excess of net realized long-term capital gains over net realized short-term capital losses. However, the fund may retain all or part of such gain for reinvestment, after paying the related federal taxes for which shareholders may then be able to claim a credit against their federal tax liability. If the fund does not distribute the amount of capital gain and/or net investment income required to be distributed by an excise tax provision of the Code, the fund may be subject to that excise tax. In certain circumstances, U.S. Government Securities Fund -- Page 15 the fund may determine that it is in the interest of shareholders to distribute less than the required amount. In this case, the fund will pay any income or excise taxes due. Dividends will be reinvested in shares of the fund unless shareholders indicate in writing that they wish to receive them in cash or in shares of other American Funds, as provided in the prospectus. TAXES - The fund intends to elect to be treated as a regulated investment company under Subchapter M of the Code. A regulated investment company qualifying under Subchapter M of the Code is required to distribute to its shareholders at least 90% of its investment company taxable income (including the excess of net short-term capital gain over net long-term capital losses) and generally is not subject to federal income tax to the extent that it distributes annually its investment company taxable income and net realized capital gains in the manner required under the Code. The fund intends to distribute annually all of its investment company taxable income and net realized capital gains and therefore does not expect to pay federal income tax, although in certain circumstances the fund may determine that it is in the interest of shareholders to distribute less than that amount. Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a regulated investment company's "required distribution" for the calendar year ending within the regulated investment company's taxable year over the "distributed amount" for such calendar year. The term "required distribution" means the sum of (i) 98% of ordinary income (generally net investment income) for the calendar year, (ii) 98% of capital gain (both long-term and short-term) for the one-year period ending on October 31 (as though the one-year period ending on October 31 were the regulated investment company's taxable year), and (iii) the sum of any untaxed, undistributed net investment income and net capital gains of the regulated investment company for prior periods. The term "distributed amount" generally means the sum of (i) amounts actually distributed by the fund from its current year's ordinary income and capital gain net income and (ii) any amount on which the fund pays income tax during the periods described above. The fund intends to distribute net investment income and net capital gains so as to minimize or avoid the excise tax liability. Investment company taxable income generally includes dividends, interest, net short-term capital gains in excess of net long-term capital losses, and certain foreign currency gains, if any, less expenses and certain foreign currency losses, if any. Net capital gains for a fiscal year are computed by taking into account any capital loss carry-forward of the fund. If any net long-term capital gains in excess of net short-term capital losses are retained by a fund for reinvestment, requiring federal income taxes to be paid thereon by the fund, the fund intends to elect to treat such capital gains as having been distributed to shareholders. As a result, each shareholder will report such capital gains as long-term capital gains taxable to individual shareholders at a maximum 20% capital gains rate, will be able to claim a pro rata share of federal income taxes paid by the fund on such gains as a credit against personal federal income tax liability, and will be entitled to increase the adjusted tax basis on fund shares by the difference between a pro rata share of the retained gains and their related tax credit. Distributions of investment company taxable income are taxable to shareholders as ordinary income. U.S. Government Securities Fund -- Page 16 Distributions of the excess of net long-term capital gains over net short-term capital losses which the fund properly designates as "capital gain dividends" generally will be taxable to individual shareholders at a maximum 20% capital gains rate, regardless of the length of time the shares of the fund have been held by such shareholders. Such distributions are not eligible for the dividends-received deduction. Any loss realized upon the redemption of shares held at the time of redemption for six months or less from the date of their purchase will be treated as a long-term capital loss to the extent of any amounts treated as distributions of long-term capital gain during such six-month period. Distributions of investment company taxable income and net realized capital gains to individual shareholders will be taxable as described above, whether received in shares or in cash. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for federal income tax purposes in each share so received equal to the net asset value of a share on the reinvestment date. All distributions of investment company taxable income and net realized capital gain, whether received in shares or in cash, must be reported by each shareholder subject to tax on his or her federal income tax return. Dividends and capital gains distributions declared in October, November or December and payable to shareholders of record in such a month will be deemed to have been received by shareholders on December 31 if paid during January of the following year. Redemptions of shares, including exchanges for shares of another American Fund, may result in tax consequences (gain or loss) to the shareholder and must also be reported on the shareholder's federal income tax return. Dividends from domestic corporations are expected to comprise some portion of the fund's gross income. To the extent that such dividends constitute any of the fund's gross income, a portion of the income distributions of the fund will be eligible for the deduction for dividends received by corporations. Shareholders will be informed of the portion of dividends which so qualify. The dividends-received deduction is reduced to the extent that either the fund shares, or the underlying shares of stock held by the fund, with respect to which dividends are received, are treated as debt-financed under federal income tax law and is eliminated if the shares are deemed to have been held by the shareholder or the fund, as the case may be, for less than 46 days. Distributions by the fund result in a reduction in the net asset value of the fund's shares. Should a distribution reduce the net asset value below a shareholder's cost basis, such distribution would nevertheless be taxable to the shareholder as ordinary income or capital gain as described above, even though, from an investment standpoint, it may constitute a partial return of investment capital. For this reason, 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 then receive a partial return of investment capital upon the distribution, which will nevertheless be taxable to them. A portion of the difference between the issue price of zero coupon securities and their face value ("original issue discount") is considered to be income to the fund each year, even though the fund will not receive cash interest payments from these securities. This original issue discount (imputed income) will comprise a part of the investment company taxable income of the fund which must be distributed to shareholders in order to maintain the qualification of the fund as a regulated investment company and to avoid federal income tax at the level of the fund. U.S. Government Securities Fund -- Page 17 Shareholders will be subject to income tax on such original issue discount, whether or not they elect to receive their distributions in cash. The fund will be required to report to the IRS 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 the shares of a regulated investment company may be subject to withholding of federal income tax at the rate of 31% 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. 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. Shareholders of the fund may be subject to state and local taxes on distributions received from the fund and on redemptions of the fund's shares. Each distribution is accompanied by a brief explanation of the form and character of the distribution. In January of each year fund shareholders will receive a statement of the federal income tax status of all distributions. The foregoing discussion of U.S. federal income tax law relates solely to the application of that law to U.S. persons, i.e., U.S. citizens and residents and U.S. corporations, partnerships, trusts and estates. Each shareholder who is not a U.S. person should consider the U.S. and foreign tax consequences of ownership of shares of the fund, including the possibility that such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an applicable income tax treaty) on dividend income received by him or her. Shareholders should consult their tax advisers about the application of the provisions of tax law described in this statement of additional information in light of their particular tax situations. U.S. Government Securities Fund -- Page 18 PURCHASE OF SHARES
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS - ------------------------------------------------------------------------------- See "Investment $50 minimum (except where a Minimums and Fund lower minimum is noted under Numbers "for initial "Investment Minimums and Fund investment minimums. Numbers"). - ------------------------------------------------------------------------------- By contacting Visit any investment Mail directly to your your investment dealer dealer who is investment dealer's address registered in the printed on your account state where the statement. purchase is made and who has a sales agreement with American Funds Distributors. - ------------------------------------------------------------------------------- By mail Make your check Fill out the account additions payable to the fund form at the bottom of a recent and mail to the account statement, make your address indicated on check payable to the fund, the account write your account number on application. Please your check, and mail the check indicate an investment and form in the envelope dealer on the account provided with your account application. statement. - ------------------------------------------------------------------------------- By telephone Please contact your Complete the "Investments by investment dealer to Phone" section on the account open account, then application or American follow the procedures FundsLink Authorization Form. for additional Once you establish the investments. privilege, you, your financial advisor or any person with your account information can call American FundsLine(R) and make investments by telephone (subject to conditions noted in "Shareholder Account Services and Privileges - Telephone and Computer Purchases, Redemptions and Exchanges" below). - ------------------------------------------------------------------------------- By computer Please contact your Complete the American FundsLink investment dealer to Authorization Form. Once you open account, then established the privilege, you, follow the procedures your financial advisor or any for additional person with your account investments. information may access American FundsLine OnLine(R) on the Internet and make investments by computer (subject to conditions noted in "Shareholder Account Services and Privileges - Telephone and Computer Purchases, Redemptions and Exchanges" below). - ------------------------------------------------------------------------------- By wire Call800/421-0180 to Your bank should wire your obtain your account additional investments in the number(s), if same manner as described under necessary. Please "Initial Investment." indicate an investment dealer on the account. Instruct your bank to wire funds to: Wells Fargo Bank 155 Fifth Street, Sixth Floor San Francisco, CA 94106 (ABA#121000248) For credit to the account of: American Funds Service Company a/c# 4600-076178 (fund name) (your fund acct. no.) - ------------------------------------------------------------------------------- THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER. - -------------------------------------------------------------------------------
U.S. Government Securities Fund -- Page 19 INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial investments required by the funds in The American Funds Group along with fund numbers for use with our automated phone line, American FundsLine/(R)/ (see description below):
MINIMUM INITIAL FUND FUND INVESTMENT NUMBER ---- ---------- ------ STOCK AND STOCK/BOND FUNDS AMCAP Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250 02 American Balanced Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . 250 11 American Mutual Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 250 03 Capital Income Builder/(R)/ . . . . . . . . . . . . . . . . . . . . . . 250 12 Capital World Growth and Income Fund/SM/ . . . . . . . . . . . . . . . . 250 33 EuroPacific Growth Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . 250 16 Fundamental Investors/SM/ . . . . . . . . . . . . . . . . . . . . . . . 250 10 The Growth Fund of America/(R)/ . . . . . . . . . . . . . . . . . . . . 250 05 The Income Fund of America/(R)/ . . . . . . . . . . . . . . . . . . . . 250 06 The Investment Company of America/(R)/ . . . . . . . . . . . . . . . . . 250 04 The New Economy Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 250 14 New Perspective Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 250 07 New World Fund/SM/ . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 36 SMALLCAP World Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . 250 35 Washington Mutual Investors Fund/SM/ . . . . . . . . . . . . . . . . . . 250 01 BOND FUNDS American High-Income Municipal Bond Fund/(R)/ . . . . . . . . . . . . . 250 40 American High-Income Trust/SM/ . . . . . . . . . . . . . . . . . . . . . 250 21 The Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . . . . . . 250 08 Capital World Bond Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . 250 31 Intermediate Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . 250 23 Limited Term Tax-Exempt Bond Fund of America/SM/ . . . . . . . . . . . . 250 43 The Tax-Exempt Bond Fund of America/(R)/ . . . . . . . . . . . . . . . . 250 19 The Tax-Exempt Fund of California/(R)/* . . . . . . . . . . . . . . . . 1,000 20 The Tax-Exempt Fund of Maryland/(R)/* . . . . . . . . . . . . . . . . . 1,000 24 The Tax-Exempt Fund of Virginia/(R)/* . . . . . . . . . . . . . . . . . 1,000 25 U.S. Government Securities Fund/SM/ . . . . . . . . . . . . . . . . . . 250 22 MONEY MARKET FUNDS The Cash Management Trust of America/(R)/ . . . . . . . . . . . . . . . 1,000 09 The Tax-Exempt Money Fund of America/SM/ . . . . . . . . . . . . . . . . 1,000 39 The U.S. Treasury Money Fund of America/SM/ . . . . . . . . . . . . . . 1,000 49 ___________ *Available only in certain states.
Minimums are reduced to $50 for purchases through "Automatic Investment Plans" (except for the money market funds) or to $25 for purchases by retirement plans through payroll deductions and may be reduced or waived for shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS SHOULD NOT U.S. Government Securities Fund -- Page 20 SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for additional investments (except as noted above). SALES CHARGES -- The sales charges you pay when purchasing the stock, stock/bond, and bond funds of The American Funds Group are set forth below. The money market funds of The American Funds Group are offered at net asset value. (See "Investment Minimums and Fund Numbers" for a listing of the funds.)
Amount of Purchase SALES CHARGE AS DEALER at the Offering Price PERCENTAGE OF THE: CONCESSION AS PERCENTAGE OF THE OFFERING PRICE NET AMOUNT OFFERING INVESTED PRICE STOCK AND STOCK/BOND FUNDS Less than $25,000 6.10% 5.75% 5.00% $25,000 but less than $50,000 5.26 5.00 4.25 $50,000 but less than $100,000 4.71 4.50 3.75 BOND FUNDS Less than $100,000 3.90 3.75 3.00 STOCK, STOCK/BOND, AND BOND FUNDS $100,000 but less than 3.63 3.50 2.75 $250,000 $250,000 but less than 2.56 2.50 2.00 $500,000 $500,000 but less than 2.04 2.00 1.60 $750,000 $750,000 but less than 1.52 1.50 1.20 $1,000,000 $1,000,000 or more none none (see below)
PURCHASES NOT SUBJECT TO SALES CHARGES - Investment of $1 million or more are sold with no initial sales charge. HOWEVER, A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE IMPOSED IF REDEMPTIONS ARE MADE WITHIN ONE YEAR OF PURCHASE. Employer-sponsored defined contribution-type plans investing $1 million or more, or with 100 or more eligible employees, may invest with no sales charge and are not subject to a contingent deferred sales charge. Investments made by retirement plans, endowments or foundations with $50 million or more in assets may also be made with no sales charge and are not subject to a contingent deferred sales charge. A dealer concession of up to 1% may be paid by the fund under its Plan of Distribution on investments made with no initial sales charge. In addition, the stock, stock/bond and bond funds may sell shares at net asset value to: (1) current or retired directors, trustees, officers and advisory board members of the funds managed by Capital Research and Management Company, employees of Washington Man- U.S. Government Securities Fund -- Page 21 agement Corporation, employees and partners of The Capital Group Companies, Inc. and its affiliated companies, certain family members of the above persons, and trusts or plans primarily for such persons; (2) current registered representatives, retired registered representatives with respect to accounts established while active, or full-time employees (and their spouses, parents, and children) of dealers who have sales agreements with the Principal Underwriter (or who clear transactions through such dealers) and plans for such persons or the dealers; (3) companies exchanging securities with the fund through a merger, acquisition or exchange offer; (4) trustees or other fiduciaries purchasing shares for certain retirement plans of organizations with retirement plan assets of $50 million or more; (5) insurance company separate accounts; (6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group Companies, Inc., its affiliated companies and Washington Management Corporation. Shares are offered at net asset value to these persons and organizations due to anticipated economies in sales effort and expense. DEALER COMMISSIONS - Commissions of up to 1% will be paid to dealers who initiate and are responsible for purchases of $1 million or more, for purchases by any employer-sponsored 403(b) plan or purchases by any defined contribution plan qualified under Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 100 or more eligible employees, and for purchases made at net asset value by certain retirement plans of organizations with collective retirement plan assets of $50 million or more: 1.00% on amounts of $1 million to $4 million, 0.50% on amounts over $4 million to $10 million, and 0.25% on amounts over $10 million. OTHER COMPENSATION TO DEALERS - The Principal Underwriter, at its expense (from a designated percentage of its income), currently provides additional compensation to dealers. Currently these payments are limited to the top 100 dealers who have sold shares of the fund or other funds in The American Funds Group. These payments will be based principally on a pro rata share of a qualifying dealer's sales. The Principal Underwriter will, on an annual basis, determine the advisability of continuing these payments. Qualified dealers currently are paid a continuing service fee not to exceed 0.25% of average net assets (0.15% in the case of the money market funds) annually in order to promote selling efforts and to compensate them for providing certain services. These services include processing purchase and redemption transactions, establishing shareholder accounts and providing certain information and assistance with respect to the fund. REDUCING YOUR SALES CHARGE - You and your "immediate family" (your spouse and your children under age 21) may combine investments to reduce your costs. You must let your investment dealer or American Funds Service Company (the "Transfer Agent") know if you qualify for a reduction in your sales charge using one or any combination of the methods described below. U.S. Government Securities Fund -- Page 22 STATEMENT OF INTENTION - You may enter into a non-binding commitment to purchase shares of a fund(s) over a over a 13-month period and receive the same sales charge as if all shares had been purchased at once. This includes purchases made during the previous 90 days, but does not include appreciation of your investment or reinvested distributions. The reduced sales charges and offering prices set forth in the Prospectus apply to purchases of $25,000 or more made within a 13-month period subject to the following statement of intention (the "Statement"). The Statement is not a binding obligation to purchase the indicated amount. When a shareholder elects to utilize a Statement in order to qualify for a reduced sales charge, shares equal to 5% of the dollar amount specified in the Statement will 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 13-month period, the purchaser will 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. If the difference is not paid by the close of the 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 will be liable to the Principal Underwriter for the balance still outstanding. The Statement may be revised upward at any time during the 13-month period, and such a revision will be treated as a new Statement, except that the 13-month period during which the purchase must be made will remain unchanged. Existing holdings eligible for rights of accumulation (see the account application) and any individual investments in American Legacy products (American Legacy, American Legacy II and American Legacy III variable annuities, American Legacy Life, American Legacy Variable Life, and American Legacy Estate Builder) may be credited toward satisfying the Statement. During the Statement period reinvested dividends and capital gain distributions, investments in money market funds, and investments made under a right of reinstatement will not be credited toward satisfying the Statement. When the trustees of certain retirement plans purchase shares by payroll deduction, the sales charge for the investments made during the 13-month period will be handled as follows: The regular monthly payroll deduction investment will be multiplied by 13 and then multiplied by 1.5. The current value of existing American Funds investments (other than money market fund investments) and any rollovers or transfers reasonably anticipated to be invested in non-money market American Funds during the 13-month period, and any individual investments in American Legacy products are added to the figure determined above. The sum is the Statement amount and applicable breakpoint level. On the first investment and all other investments made pursuant to the Statement, a sales charge will be assessed according to the sales charge breakpoint thus determined. Shareholders purchasing shares at a reduced sales charge under a Statement indicate their acceptance of these terms with their first purchase. AGGREGATION - Sales charge discounts are available for certain aggregated investments. Qualifying investments include those by you, your spouse and your children under the age of 21, if all parties are purchasing shares for their own accounts and/or: - employee benefit plan(s), such as an IRA, individual-type 403(b) plan, or single-participant Keogh-type plan; U.S. Government Securities Fund -- Page 23 - business accounts solely controlled by these individuals (for example, the individuals own the entire business); - trust accounts established by the above individuals. However, if the person(s) who established the trust is deceased, the trust account may be aggregated with accounts of the person who is the primary beneficiary of the trust. 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 an employee benefit plan other than those described above; - made for two or more employee benefit plans of a single employer or of affiliated employers as defined in the 1940 Act, again excluding employee benefit plans described above; or - for a diversified common trust fund or other diversified pooled account not specifically formed for the purpose of accumulating fund shares. 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 - You may combine purchases of two or more funds in The American Funds Group, except direct purchases of the money market funds. Shares of money market funds purchased through an exchange, reinvestment or cross-reinvestment from a fund having a sales charge do qualify. RIGHTS OF ACCUMULATION - You may take into account the current value of your existing holdings in The American Funds Group, as well as your holdings in Endowments (shares of which may be owned only by tax-exempt organizations), to determine your sales charge on investments in accounts eligible to be aggregated, or when making a gift to an individual or charity. When determining your sales charge, you may also take into account the value of your individual holdings, as of the end of the week prior to your investment, in various American Legacy products (American Legacy, American Legacy II and American Legacy III variable annuities, American Legacy Life, American Legacy Variable Life, and American Legacy Estate Builder). Direct purchases of the money market funds are excluded. PRICE OF SHARES - Shares are purchased at the offering price next determined after the purchase order is received and accepted by the fund or the Transfer Agent; this offering 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, accepted by the Principal Underwriter prior to its close of business. In the case of orders sent directly to the fund or the Transfer Agent, an investment dealer MUST be indicated. The dealer is responsible for promptly transmitting purchase orders to the Principal Underwriter. Orders received by the investment dealer, the Transfer Agent, or the fund after the time of the determination of the net asset value will be entered at the next calculated offering price. Prices which appear in the newspaper are not always indicative of prices at which you will U.S. Government Securities Fund -- Page 24 be purchasing and redeeming shares of the fund, since such prices generally reflect the previous day's closing price whereas 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 at the close of trading (currently 4:00 p.m., New York time) each day the New York Stock Exchange is open. For example, if the Exchange closes at 1:00 p.m. on one day and at 4:00 p.m. on the next, the fund's share price would be determined as of 4:00 p.m. New York time on both days. 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. SELLING SHARES Shares are sold at the net asset value next determined after your request is received in good order by the Transfer Agent. You may sell (redeem) shares in your account in any of the following ways: THROUGH YOUR DEALER (certain charges may apply) - Shares held for you in your dealer's street name must be sold through the dealer. WRITING TO AMERICAN FUNDS SERVICE COMPANY - Requests must be signed by the registered shareholder(s) - A signature guarantee is required if the redemption is: - Over $50,000; - Made payable to someone other than the registered shareholder(s); or - Sent to an address other than the address of record, or an address or record which has been changed within the last 10 days. 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. - Additional documentation may be required for sales of shares held in corporate, partnership or fiduciary accounts. - You must include any shares you wish to sell that are in certificate form. TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN FUNDSLINE/(R)/ OR AMERICAN FUNDSLINE ONLINE/(R)/ - Redemptions by telephone or fax (including American FundsLine/(R)/ and American FundsLine OnLine/(R)/) are limited to $50,000 per shareholder each day. - Checks must be made payable to the registered shareholder(s). - Checks must be mailed to an address of record that has been used with the account for at least 10 days. MONEY MARKET FUNDS - You may have redemptions of $1,000 or more wired to your bank by writing American Funds Service Company. - You may establish check writing privileges (use the money market funds application). U.S. Government Securities Fund -- Page 26 - 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 or registered shareholders exactly as indicated on your checking account signature card. 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 15 calendar 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 reinvest proceeds from a redemption or a dividend or capital gain distribution without a sales charge (any contingent deferred sales charge paid will be credited to your account) in any fund in The American Funds Group within 90 days after the date of the redemption or distribution. Redemption proceeds of shares representing direct purchases in the money market funds are excluded. Proceeds will be reinvested at the next calculated net asset value after your request is received and accepted by the Transfer Agent. CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1% applies to certain redemptions from funds other than the money market funds made within twelve months of purchase on investments of $1 million or more (other than redemptions by employer-sponsored retirement plans). The charge is 1% of the lesser of the value of the shares redeemed (exclusive of reinvested dividends and capital gain distributions) or the total cost of such shares. Shares held for the longest period are assumed to be redeemed first for purposes of calculating this charge. The charge is waived for exchanges (except if shares acquired by exchange were then redeemed within 12 months of the initial purchase); for distributions from 403(b) plans or IRAs due to death, disability or attainment of age 591/2; for tax-free returns of excess contributions to IRAs; and for redemptions through certain automatic withdrawals not exceeding 10% of the amount that would otherwise be subject to the charge. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES AUTOMATIC INVESTMENT PLAN - An automatic investment plan enables you to make monthly or quarterly investments into 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) 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 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 writing to the Transfer Agent. AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are reinvested in additional shares at no sales charge unless you indicate otherwise on the account application. You also U.S. Government Securities Fund -- Page 27 may elect to have dividends and/or capital gain distributions paid in cash by informing the fund, the Transfer Agent or your investment dealer. If you have elected to receive dividends and/or capital gain distributions in cash, and the postal or other delivery service is unable to deliver checks to your address of record, or you do not respond to mailings from American Funds Service Company with regard to uncashed distribution checks, your distribution option will automatically be converted to having all dividends and other distributions reinvested in additional shares. CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - You may cross-reinvest dividends and capital gains ("distributions") into any other fund in The American Funds Group 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, (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. EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American Funds Group. Exchange purchases are subject to the minimum investment requirements of the fund purchased and no sales charge generally applies. However, exchanges of shares from the 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. You may exchange shares by writing to the Transfer Agent (see "Redeeming Shares"), by contacting your investment dealer, by using American FundsLine and American FundsLine OnLine (see "American FundsLine and American FundsLine OnLine" below), or by telephoning 800/421-0180 toll-free, faxing (see "Principal Underwriter and Transfer Agent" in the prospectus for the appropriate fax numbers) or telegraphing the Transfer Agent. (See "Telephone and Computer Purchases, Redemptions and Exchanges" below.) Shares held in corporate-type retirement plans for which Capital Guardian Trust Company serves as trustee may not be exchanged by telephone, computer, fax or telegraph. Exchange redemptions and purchases are processed simultaneously at the share prices next determined after the exchange order is received. (See "Purchase of Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES. AUTOMATIC EXCHANGES - You may automatically exchange shares in amounts of $50 or more among any of the funds in The American Funds Group on any day (or preceding business day if the day falls on a non-business day of each month you designate. You must either (a) meet the minimum initial investment requirement for the receiving fund OR (b) the originating fund's balance must be at least $5,000 and the receiving fund's minimum must be met within one year. U.S. Government Securities Fund -- Page 28 AUTOMATIC WITHDRAWALS - 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 and purchases through automatic investment plans and certain retirement plans will be confirmed at least quarterly. AMERICAN FUNDSLINE AND AMERICAN FUNDSLINE ONLINE - You may check your share balance, the price of your shares, or your most recent account transaction, redeem shares (up to $50,000 per shareholder each day), or exchange shares around the clock with American FundsLine and American FundsLine OnLine. To use these services, call 800/325-3590 from a TouchTone(TM) telephone or access the American Funds Web site on the Internet at www.americanfunds.com. Redemptions and exchanges through American FundsLine and American FundsLine OnLine are subject to the conditions noted above and in "Shareholder Account Services and Privileges - Telephone and Computer Purchases, Redemptions and Exchanges" below. You will need your fund number (see the list of funds in The American Funds Group under "Purchase of Shares - Investment Minimums and Fund Numbers"), personal identification number (the last four digits of your Social Security number or other tax identification number associated with your account) and account number. TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES - By using the telephone (including American FundsLine) or computer (including American FundsLine OnLine), fax or telegraph 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 options. However, you may elect to opt out of these options 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, 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. SHARE CERTIFICATES - Shares are credited to your account and certificates are not issued unless you request them by writing to the Transfer Agent. REDEMPTION OF SHARES - The fund's declaration of trust permits the fund 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 owns of record shares having an aggregate net asset value of less than the minimum initial investment amount required of new shareholders as set forth in the U.S. Government Securities Fund -- Page 29 fund's current registration statement under the 1940 Act, and subject to such further terms and conditions as the Board of Trustees of the fund may from time to time adopt. EXECUTION OF PORTFOLIO TRANSACTIONS The Investment Adviser places orders for the fund's portfolio securities transactions. The Investment Adviser strives to obtain the best available prices in its portfolio transactions taking into account the costs and quality of executions. When, in the opinion of the Investment Adviser, two or more brokers (either directly or through their correspondent clearing agents) are in a position to obtain the best price and execution, preference may be given to brokers who have sold shares of the fund or who have provided investment research, statistical, or other related services to the Investment Adviser. The fund does not consider that it has an obligation to obtain the lowest available commission rate to the exclusion of price, service and qualitative considerations. There are occasions on which portfolio transactions for the fund 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. Although such concurrent authorizations potentially could be either advantageous or disadvantageous to the fund, they are effected only when the Investment Adviser believes that to do so is in the interest of the fund. When such concurrent authorizations occur, the objective is to allocate the executions in an equitable manner. The fund will not pay a mark-up for research in principal transactions. Dealer concessions paid on underwriting transactions for the fiscal years ended August 31, 1999, 1998 and 1997, amounted to $56,000, $8,000 and $73,000, respectively. GENERAL INFORMATION CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds from the sale of shares of the fund and of securities in the fund's portfolio, are held by The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, NY 10081, as Custodian. If the fund holds non-U.S. securities, the Custodian may hold these securities pursuant to sub-custodial arrangements in non-U.S. banks or foreign branches of U.S. banks. TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of the Investment Adviser, maintains the records of each shareholder's account, processes purchases and redemptions of the fund's shares, acts as dividend and capital gain distribution disbursing agent, and performs other related shareholder service functions. American Funds Service Company was paid a fee of $1,001,000 for the fiscal year ended August 31, 1999. INDEPENDENT AUDITORS - Deloitte & Touche LLP, 1000 Wilshire Boulevard, 15th Floor, Los Angeles, CA 90017, serves as the fund's independent auditors providing audit services, preparation of tax returns and review of certain documents to be filed with the Securities and Exchange Commission. The financial statements included in this Statement of Additional Information from the Annual Report have been so included in reliance on the report Deloitte & Touche LLP, independent auditors, given on the authority of said firm as experts in accounting and auditing. The selection of the fund's independent accountants is reviewed and determined annually by the Board of Trustees. U.S. Government Securities Fund -- Page 30 REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on August 31. Shareholders are provided at least semiannually with reports showing the investment portfolio, financial statements and other information. The fund's annual financial statements are audited by the fund's independent auditors, Deloitte & Touche LLP. In an effort to reduce the volume of mail shareholders receive from the fund when a household owns more than one account, the Transfer Agent has taken steps to eliminate duplicate mailings of shareholder reports. To receive additional copies of a report, shareholders should contact the Transfer Agent. YEAR 2000 - The fund and its shareholders depend on the proper functioning of computer systems maintained by the Investment Adviser and its affiliates and other key service providers. Many computer systems in use today will require reprogramming or replacement prior to the year 2000 because of the way they store dates and make date-related calculations. The fund understands that these service providers are taking steps to address the "Year 2000 problem". However, there can be no assurance that these steps will be sufficient to avoid any adverse impact on the fund. In addition, the fund's investments could be adversely affected by the Year 2000 problem. For example, the markets for securities in which the fund invests could experience settlement problems and liquidity issues. Corporate and governmental data processing errors may cause losses for individual companies and overall economic uncertainties. Earnings of individual issuers are likely to be affected by the costs of addressing the problem, which may be substantial and may be reported inconsistently. PERSONAL INVESTING POLICY - The fund, Capital Research and Management Company and its affiliated companies, including the fund's principal underwriter, have adopted codes of ethics which allow for personal investments. The personal investing policy is consistent with Investment Company Institute guidelines. This policy includes: a ban on acquisitions of securities pursuant to an initial public offering; restrictions on acquisitions of private placement securities; pre-clearance 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. SHAREHOLDER AND TRUSTEE RESPONSIBILITY - Under the laws of certain states, including Massachusetts where the fund was organized and California where the fund's principal office is located, shareholders of a Massachusetts business trust may, under certain circumstances, be held personally liable as partners for the obligations of the fund. However, the risk of a shareholder incurring any financial loss on account of shareholder liability is limited to circumstances in which the fund itself would be unable to meet its obligations. The Declaration of Trust contains an express disclaimer of shareholder liability for acts, omissions, obligations or affairs of the fund and provides that notice of the disclaimer may be given in each agreement, obligation, or instrument which is entered into or executed by the fund or Trustees. The Declaration of Trust provides for indemnification out of fund property of any shareholder held personally liable for the obligations of the fund and also provides for the fund to reimburse such shareholder for all legal and other expenses reasonably incurred in connection with any such claim or liability. Under the Declaration of Trust, the Trustees, officers, employees or agents of the fund 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. U.S. Government Securities Fund -- Page 31 OTHER INFORMATION - The financial statements including the investment portfolio and the report of Independent Auditors contained in the Annual Report are included in this Statement of Additional Information. The following information is not included in the Annual Report: DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE PER SHARE -- AUGUST 31, 1999
Net asset value and redemption price per share (Net assets divided by shares outstanding) . . . . . . . . . $12.63 Maximum offering price per share (100/95.25 of net asset value per share, which takes into account the fund's current maximum sales charge). . . . . . . . . . . . . . . . . . . . . . . . $13.26
INVESTMENT RESULTS AND RELATED STATISTICS The fund's yield is 5.39% based on a 30-day (or one month) period ended August 31, 1999, computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, according to the following formula: YIELD = 2[( a-b/cd + 1)/6/ -1] Where: a = dividends and interest earned during the period. b = expenses accrued for the period (net of reimbursements). c = the average daily number of shares outstanding during the period that were entitled to receive dividends. d = the maximum offering price per share on the last day of the period. The average total return ("T") is computed by equating the value at the end of the period ("ERV") with a hypothetical initial investment of $1,000 ("P") over a period of years ("n") according to the following formula as required by the Securities and Exchange Commission: P(1+T)/n/ = ERV. The fund's one year total return and average annual total return for the five- and ten-year periods ended August 31, 1999 were -4.78%, 5.05% and 6.64%, respectively. The fund's average annual total return at net asset value for the one-, five- and ten-year periods ended on August 31, 1999 were -0.01%, 6.08% and 7.16, respectively. In calculating average annual total return, the fund assumes: (1) deduction of the maximum sales load of 4.75% from the $1,000 initial investment; (2) reinvestment of dividends and distributions at net asset value on the reinvestment date determined by the Board; and (3) a complete redemption at the end of any period illustrated. In addition, the fund will provide lifetime average total return figures. U.S. Government Securities Fund -- Page 32 The fund may also, at times, calculate total return based on net asset value per share (rather than the offering price), in which case the figure would not reflect the effect of any sales charges which would have been paid if shares were purchased during the period reflected in the computation. Consequently, total return calculated in this manner will be higher. These total returns may be calculated over periods in addition to those described above. Total return for the unmanaged indices will be calculated assuming reinvestment of dividends and interest, but will not reflect any deductions for advisory fees, brokerage costs or administrative expenses. The fund may include information on its investment results and/or comparisons of its investment results to various unmanaged indices (such as the Dow Jones Average of 30 Industrial Stocks and the Standard and Poor's 500 Composite Stock Index) or results of other mutual funds or investment or savings vehicles in advertisements or in reports furnished to present or prospective shareholders. The fund may also, from time to time, combine its results with those of other funds in The American Funds Group for purposes of illustrating investment strategies involving multiple funds. The fund may refer to results and surveys compiled by organizations such as CDA/ Wiesenberger, Ibbotson Associates, Lipper Analytical Services, Morningstar, Inc., and by the U.S. Department of Commerce. Additionally, the fund may refer to results published in various newspapers and periodicals, including Barron's, Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine, Money, U.S. News and World Report and The Wall Street Journal. The fund may illustrate the benefits of tax-deferral by comparing taxable investments to investments made through tax-deferred retirement plans. The fund may compare its investment results with the Consumer Price Index, which is a measure of the average change in prices over time in a fixed market basket of goods and services (e.g. food, clothing, and fuels, transportation, and other goods and services that people buy for day-to-day living). The fund may also calculate a distribution rate on a taxable and tax equivalent basis. The distribution rate is computed by dividing the dividends paid by the fund over the last 12 months by the sum of the month-end net asset value or maximum offering price and the capital gains paid over the last 12 months. The distribution rate may differ from the yield. The investment results for the fund set forth below were calculated as described in the fund's prospectus. The fund's results will vary from time to time depending upon market conditions, the composition of the fund's portfolio and operating expenses of the fund, so that any investment results reported by the fund should not be considered representative of what an investment in the fund may earn in any future period. These factors and possible differences in calculation methods should be considered when comparing the fund's investment results with those published for other mutual funds, other investment vehicles and unmanaged indices. The fund's results also should be considered relative to the risks associated with the fund's investment objective and policies. U.S. Government Securities Fund -- Page 33 EXPERIENCE OF INVESTMENT ADVISER - The Investment Adviser manages nine growth and growth-income funds that are at least 10 years old. In the rolling 10-year periods since January 1, 1969 (138 in all), those funds have had better total returns than their comparable Lipper indexes and 128 of 138 periods. Note that past results are not an indication of future investment results. Also, the fund has different investment policies than the funds mentioned above. These results are included solely for the purpose of informing investors about the experience and history of Capital Research and Management Company. IF YOU ARE CONSIDERING GVT FOR AN INDIVIDUAL RETIREMENT ACCOUNT HERE ARE THE BENEFITS OF SYSTEMATIC INVESTING:
Here's how much you would have if you invested $2,000 a year in the Fund: ----------------------------------- 2 Years 4 Years Lifetime (9/1/97 - 8/31/99) (9/1/95 - 8/31/99) (10/17/85 - 8/31/99) - ----------------------------------------------------------------------------- $3,994 $8,629 $45,413 - -----------------------------------------------------------------------------
U.S. Government Securities Fund -- Page 34 SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
. . . AND HAD TAKEN ALL DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS IN SHARES, YOUR IF YOU HAD INVESTMENT WOULD INVESTED $10,000 HAVE BEEN WORTH IN THE FUND THIS MANY THIS MUCH AT YEARS AGO . . . AUGUST 31, 1999 NUMBER PERIODS OF YEARS 9/1 - 8/31 VALUE** 1 1998 - 1999 $ 9,522 2 1997 - 1999 10,447 3 1996 - 1999 11,393 4 1995 - 1999 11,783 5 1994 - 1999 12,794 6 1993 - 1999 12,324 7 1992 - 1999 13,856 8 1991 - 1999 15,656 9 1990 - 1999 17,593 10 1989 - 1999 19,022 11 1988 - 1999 20,881 12 1987 - 1999 22,636 13 1986 - 1999 23,012 Lifetime 1985* - 1999 26,037
U.S. Government Securities Fund -- Page 35 Illustration of a $10,000 investment in the Fund with dividends reinvested (For the lifetime of the Fund October 17, 1985 - August 31, 1999)
COSTOFSHARES VALUEOFSHARES** ------------ --------------- FISCAL TOTAL FROM FROM FROM YEAR END ANNUAL DIVIDENDS INVESTMENT INITIAL CAPITAL GAINS DIVIDENDS TOTAL 8/31 DIVIDENDS (CUMULATIVE) COST INVESTMENT REINVESTED REINVESTED VALUE ---- --------- ------------ ---- ---------- ---------- ---------- ----- 1986* $ 825 $ 825 $ 10,825 $ 9,920 $ 26 $ 833 $10,779 1987 1,035 1,860 11,860 9,167 38 1,748 10,953 1988 1,099 2,959 12,959 9,027 37 2,809 11,873 1989 1,211 4,170 14,170 8,987 37 4,016 13,040 1990 1,289 5,459 15,459 8,833 37 5,227 14,097 1991 1,383 6,842 16,842 9,047 37 6,753 15,837 1992 1,382 8,224 18,224 9,420 39 8,445 17,904 1993 1,417 9,641 19,641 9,820 41 10,269 20,130 1994 1,440 11,081 21,081 8,787 36 10,557 19,380 1995 1,547 12,628 22,628 8,827 37 12,184 21,048 1996 1,493 14,121 24,121 8,520 35 13,208 21,763 1997 1,545 15,666 25,666 8,687 36 15,016 23,739 1998 1,624 17,290 27,290 8,927 37 17,077 26,041 1999 1,538 18,828 28,828 8,420 35 17,582 26,037
The dollar amount of capital gain distributions during the period was $41. * From inception on October 17, 1985. ** Results assume deduction of the maximum sales charge of 4.75% from the initial purchase payment. U.S. Government Securities Fund -- Page 36 APPENDIX Description of Commercial Paper Ratings MOODY'S employs the designations "Prime-1," "Prime-2" and "Prime-3" to indicate - ------- commercial paper having the highest capacity for timely repayment. Issuers rated Prime-1 have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structures with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; and well-established access to a range of financial markets and assured sources of alternate liquidity. Issues rated Prime-2 have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. S&P ratings of commercial paper are graded into four categories ranging from "A" - --- for the highest quality obligations to "D" for the lowest. A -- Issues assigned its highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are delineated with numbers 1, 2, and 3 to indicate the relative degree of safety. A-1 -- This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics will be denoted with a plus (+) sign designation. A-2 -- Capacity for timely payments on issues with this designation is strong; however, the relative degree of safety is not as high as for issues designated "A-1." U.S. Government Securities Fund -- Page 37 [begin pie chart] The American Funds Income Series U.S. Government Securities Fund August 31, 1999 [S] [C] Portfolio Composition U.S. Treasuries 47% Agency Mortgage-Backed Securit 40% Agency Debentures 9% Cash & Equivalents 4% [end pie chart] The American Funds Income Series U.S. Government Securities Fund Investment Portfolio August 31, 1999 Principal Market Percent Amount Value of Net (000) (000) Assets Federal Agency Obligations - Mortgage Pass-Throughs (1) - 33.67% Fannie Mae: 5.50% 2014 $4,834 $4,502 6.00% 2008-2013 12,304 11,657 6.27% 2005 6,922 6,742 6.35% 2005 16,402 16,026 6.50% 2028 5,889 5,574 7.00% 2009-2028 20,174 19,938 7.50% 2039 9,384 9,363 8.00% 2005-2023 2,225 2,261 8.282% 2002 (2) 3,441 3,472 8.50% 2007-2027 4,725 4,889 9.00% 2009-2023 1,271 1,330 9.50% 2011-2022 1,088 1,153 10.00% 2017-2021 601 650 11.00% 2010-2029 3,550 3,926 11.50% 2015 463 516 12.00% 2000-2029 3,899 4,387 8.47% 12.25% 2011-2013 365 408 12.50% 2001-2029 6,749 7,693 12.75% 2012 1 2 13.00% 2028 3,070 3,506 13.25% 2011-2014 508 583 13.50% 2015 1,434 1,651 14.00% 2013-2014 503 588 15.00% 2013 924 1,120 15.5% 2012 12 14 16.00% 2012 9 11 Freddie Mac: 6.00% 2014 5,735 5,462 6.50% 2014 9,976 9,693 7.00% 2008 660 657 8.00% 2012 1,715 1,759 8.25% 2007 407 415 8.50% 2009-2021 7,309 7,560 8.75% 2008 359 369 9.00% 2010-2021 2,427 2,523 10.50% 2006-2016 299 322 10.75% 2010 148 159 11.00% 2015-2016 404 441 11.50% 2015 165 180 11.75% 2014 244 269 12.00% 2000-2017 4,472 4,985 12.25% 2015 254 283 12.50% 2015-2019 4,057 4,549 13.00% 2014-2015 2,716 3,087 13.50% 2018 123 141 3.28 13.75% 2014 18 21 14.00% 2011-2014 119 138 14.5% 2010-2011 80 92 14.75% 2010 62 72 15.00% 2011 28 33 15.50% 2011 25 29 16.00% 2012 19 22 16.25% 2011 72 84 Government National Mortgage Assn.: 5.50% 2013 2,510 2,345 6.00% 2008-2030 96,805 90,642 6.50% 2013-2029 63,245 60,038 7.00% 2008-2029 58,907 57,251 7.50% 2009-2028 23,487 23,496 8.00% 2022-2027 15,182 15,389 8.50% 2020-2023 2,888 2,992 9.00% 2009-2022 9,601 10,117 9.50% 2009-2021 4,150 4,432 9.75% 2011-2012 1,132 1,216 10.00% 2016-2019 13,424 14,665 10.25% 2012 69 74 10.50% 2015-2019 1,158 1,277 11.00% 2013 144 159 11.25% 2001-2016 1,619 1,743 11.50% 2000-2014 61 67 21.92 11.75% 2000-2015 69 73 12.00% 2000-2016 1,140 1,264 12.25% 2013-2015 169 188 12.75% 2014-2015 195 220 13.00% 2011-2015 1,112 1,276 13.25% 2013-2015 181 205 13.50% 2013 172 200 14.00% 2014 96 111 14.50% 2012-2014 247 292 16.00% 2011-2012 21 25 ---------------------- 445,064 33.67 ---------------------- Federal Agency Obligations Other - 9.01% Federal Home Loan Bank Bonds: 5.625% 2001 10,000 9,927 5.50% 2003 10,000 9,691 3.43 6.00% 2004 10,000 9,648 5.80% 2008 17,325 16,042 Freddie Mac Notes: 5.125% 2003 17,000 16,190 1.22 5.75% 2008 11,000 10,201 .77 Tennessee Valley Authority: Series G, 5.375% 2008 42,670 38,276 Series E, 6.25% 2017 10,000 9,108 3.59 ---------------------- 119,083 9.01 ---------------------- Collateralized Mortgage Obligations (1) - 5.03% Fannie Mae: Series 91-50, Class H, 7.75% 2006 1,628 1,648 Series 91-146, Class Z, 8.00% 2006 3,597 3,683 Series 1997-M5, Class C, ACES, 6.74% 2007 5,000 4,862 Series 1998-M6, Class A2, ACES, 6.32% 2008 17,500 16,505 Trust 35, Class 2, 12.00% 2018 254 279 3.90 Series 90-93, Class G, 5.50% 2020 1,505 1,430 Series 1992-119, Class Z, 8.00% 2022 4,134 4,168 Series 1994-4, Class ZA, 6.50% 2024 5,400 4,840 Series 1997-M6, Class ZA, 6.85% 2026 11,464 10,238 Series 1997-28, Class C, 7.00% 2027 4,000 3,846 Freddie Mac: Series 1716, Class A, 6.50% 2009 10,586 10,259 Series 83-A, Class 3, 11.875% 2013 112 122 Series 83-B, Class 3, 12.50% 2013 892 978 Series 178, Class Z, 9.25% 2021 1,376 1,420 1.13 Series 1567, Class A, 5.527% 2023 (2) 1,133 1,104 Series 2030, Class F, 5.769% 2028 (2) 1,043 1,051 ---------------------- 66,433 5.03 ---------------------- Collateralized Mortgage Obligations (Privately Originated)(1),(3) - .98% Collateralized Mortgage Obligation Trust, Series 63, Class Z, 9.00% 2020 2,893 2,975 .23 PaineWebber CMO Pac, Series O, Class 5, 9.50% 2019 2,566 2,685 .20 Ryland Acceptance Corp. Four, Series 88, Class E, 7.95% 2019 7,216 7,266 .55 ---------------------- 12,926 .98 ---------------------- Development Authorities - 0.21% International Bank for Reconstruction and Development 12.25% December 2008 2,000 2,735 .21 ---------------------- U. S. Treasury Obligations - 46.91% 6.375% January 2000 8,000 8,026 .61 5.875% June 2000 13,200 13,237 1.00 13.125% May 2001 19,000 21,236 1.60 13.375% August 2001 8,000 9,099 .69 6.25% October 2001 1,000 1,009 .08 15.75% November 2001 5,500 6,613 .50 14.25% February 2002 15,000 17,850 1.35 5.875% September 2002 31,000 30,995 2.34 11.625% November 2002 48,000 55,748 4.22 5.75% April 2003 19,770 19,650 1.49 10.75% May 2003 10,250 11,847 .90 5.75% August 2003 3,170 3,148 .24 11.875% November 2003 6,000 7,260 .55 7.25% May 2004 39,750 41,750 3.16 7.875% November 2004 3,655 3,945 .30 11.625% November 2004 7,300 9,053 .68 7.50% February 2005 7,980 8,491 .64 0.00% May 2006 71,240 47,357 3.58 6.25% February 2007 31,000 31,102 2.35 6.625% May 2007 40,000 41,031 3.10 6.125 August 2007 16,530 16,476 1.25 10.375% November 2009 21,000 24,701 1.87 10.00% May 2010 4,000 4,691 .35 12.75% November 2010 10,000 13,236 1.00 13.875% May 2011 8,000 11,238 .85 10.375% November 2012 35,000 43,739 3.31 12.00% August 2013 11,000 15,139 1.14 9.875% November 2015 2,345 3,139 .24 8.875% August 2017 57,000 71,250 5.39 7.875% February 2021 16,250 18,847 1.43 7.125% February 2023 8,375 9,067 .69 ---------------------- 619,970 46.90 ---------------------- Total Bonds and Notes (cost: $1,307,054,000) 1,266,211 95.80 ---------------------- Short-Term Securities Federal Agency Discount Notes - 3.15% Federal Home Loan Bank due 9/1/99 14,780 14,778 1.12 Federal Home Loan Bank due 10/13/99 27,000 26,834 2.03 ---------------------- Total Short-Term Securities (cost: $41,612,000) 41,612 3.15 ---------------------- Total Investment Securities (cost: $1,348,666,000) 1,307,823 98.95 Excess of cash and receivables over payables 13,896 1.05 ---------------------- Net Assets $1,321,719 100.00 ==================== (1)Pass-through securities backed by a pool of mortgages or other loans on which principal payments are periodically made. Therefore, the effective maturities are shorter than the stated maturities. (2)Coupon rate may change periodically. (3)Comprised of federal agency originated or guaranteed loans. See Notes to Financial Statements
The American Funds Income Series U.S. Government Securities Fund Financial Statements (Unaudited) - ---------------------------------------- ----------------------------- Statement of Assets and Liabilities at August 31, 1999 (dollars in thousands) - ---------------------------------------- ----------------------------- Assets: Investment securities at market (cost: $1,348,666) $1,307,823 Cash 66 Receivables for- Sales of investments $ 312 Sales of fund's shares 3,238 Accrued interest 15,672 Other 4 19,226 ----------------------------- 1,327,115 Liabilities: Payables for- Purchases of investments 370 Repurchases of fund's shares 1,789 Dividends payable 2,083 Management services 428 Accrued expenses 726 5,396 ----------------------------- Net Assets at August 31, 1999- Equivalent to $12.63 per share on 104,642,524 shares of beneficial interest issued and outstanding; unlimited shares authorized $1,321,719 ============ Statement of Operations for the year ended August 31, 1999 (dollars in thousands) ----------------------------- Investment Income: Income: Interest $ 87,717 Expenses: Management services fee $5,028 Distribution expenses 3,989 Transfer agent fee 1,001 Reports to shareholders 78 Registration statement and prospectus 152 Postage, stationery and supplies 199 Trustees' fees 25 Auditing and legal fees 45 Custodian fee 26 Taxes other than federal income tax 13 Other expenses 36 10,592 ----------------------------- Net investment income 77,125 ------------ Realized Loss and Unrealized Depreciation on Investments: Net realized loss (1,614) Net on investments unrealized depreciation: Beginning of year 37,133 End of year (40,843) -------------------- Net unrealized depreciation on investments (77,976) ------------ Net realized loss and unrealized depreciation on investments (79,590) ------------ Net Decrease in Net Assets Resulting from Operations $ (2,465) ============ Statement of Changes in Net Assets (dollars in thousands) - ---------------------------------------- ----------------------------- Year ended Year ended August 31, August 31 1999 1998 Operations: ----------------------------- Net investment income $ 77,125 $ 70,243 Net realized loss on investments (1,614) (187) Net change in unrealized (depreciation) appreciation on investments (77,976) 34,508 ----------------------------- Net (decrease) increase in net assets resulting from operations (2,465) 104,564 ----------------------------- Dividends Paid to Shareholders (77,414) (73,356) ----------------------------- Capital Share Transactions: Proceeds from shares sold: 59,582,486 and 28,937,114 shares, respectively 788,396 383,161 Proceeds from shares issued in reinvestment of net investment income dividends: 4,640,790 and 4,071,001 shares, respectively 61,070 53,739 Cost of shares repurchased: 49,917,467 and 27,545,162 shares, respectively (657,673) (363,863) ----------------------------- Net increase in net assets resulting from capital share transactions 191,793 73,037 ----------------------------- Total Increase in Net Assets 111,914 104,245 Net Assets: Beginning of year 1,209,805 1,105,560 ----------------------------- End of year (including undistributed net investment income of $1,176 and $1,465, respectively) $1,321,719 $1,209,805 ================ ============= See Notes to Financial Statements
Notes to Financial Statements 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - The American Funds Income Series(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, U.S. Government Securities Fund(the "fund"). The fund seeks high current income, consistent with prudent investment risk and preservation of capital, by investing primarily in obligations backed by the full faith and credit of the United States government. SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared in conformity with generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by the fund in the preparation of its financial statements: SECURITY VALUATION - Fixed-income securities are valued at prices obtained from a 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 at prices for securities of comparable maturity, quality and type. 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. Short-term securities maturing within 60 days are valued at amortized cost, which approximates market value. Securities and assets for which representative market quotations are not readily available are valued at fair value as determined in good faith by a committee appointed by the Board of Trustees. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions are accounted for as of the trade date. Realized gains and losses from securities transactions are determined based on specific identified cost. In the event securities are purchased on a delayed delivery or "when-issued" basis, the fund will instruct the custodian to segregate liquid assets sufficient to meet its payment obligations in these transactions. Dividend income is recognized on the ex-dividend date, and interest income is recognized on an accrual basis. Market discounts, premiums and original issue discounts on securities purchased are amortized daily over the expected life of the security. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends to shareholders are declared daily after the determination of the fund's net investment income and are paid to shareholders monthly. 2. FEDERAL INCOME TAXATION The fund complies with the requirements of the Internal Revenue Code applicable to regulated investment companies and intends to distribute all of its net taxable income and net capital gains for the fiscal year. As a regulated investment company, the fund is not subject to income taxes if such distributions are made. Required distributions are determined on a tax basis and may differ from net investment income and net realized gains for financial reporting purposes. In addition, 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. As of August 31, 1999, net unrealized depreciation on investments for book and federal income tax purposes aggregated $40,843,000, of which $9,169,000 related to appreciated securities and $50,012,000 related to depreciated securities. There was no difference between book and tax realized losses on securities transactions for the year ended August 31, 1999. During the year ended August 31, 1999, the fund realized, on a tax basis, a net capital loss of $1,614,000 on securities transactions. The fund had available at August 31, 1999 a net capital loss carryforward totaling $68,463,000 which may be used to offset capital gains realized during subsequent years through 2007 and thereby relieve the fund and its shareholders of any federal income tax liability with respect to the capital gains that are so offset. The fund will not make distributions from capital gains while a capital loss carryforward remains. In addition, the fund has deferred, for tax purposes, to fiscal year ending August 31, 2000, the recognition of capital losses totaling $4,005,000 which were realized during the period November 1, 1998 through August 31, 1999. The cost of portfolio securities for book and federal income tax purposes was $1,348,666,000 at August 31, 1999. 3. FEES AND TRANSACTIONS WITH RELATED PARTIES INVESTMENT ADVISORY FEE - The fee of $5,028,000 for management services was incurred pursuant to an agreement with Capital Research and Management Company (CRMC), with which certain officers and Trustees of the trust are affiliated. The Investment Advisory and Service Agreement provides for monthly fees, accrued daily, based on an annual rate of 0.30% of the first $60 million of average net assets; 0.21% of such assets in excess of $60 million but not exceeding $1 billion; 0.18% of such assets in excess of $1 billion but not exceeding $3 billion; and 0.16% of such assets in excess of $3 billion (asset-based fee); plus 3.00% on the first $3,333,333 of the fund's monthly gross investment income; and 2.25% of such income in excess of $3,333,333 but not exceeding $8,333,333; and 2.00% of such income in excess of $8,333,333 (income-based fee). DISTRIBUTION EXPENSES - Pursuant to a Plan of Distribution, the fund may expend up to 0.30% of its average net assets annually for any activities primarily intended to result in sales of fund shares, provided the categories of expenses for which reimbursement is made are approved by the trust's Board of Trustees. Fund expenses under the Plan include payments to dealers to compensate them for their selling and servicing efforts. During the year ended August 31, 1999, distribution expenses under the Plan were limited to $3,989,000. Had no limitation been in effect, the fund would have paid $4,156,000 in distribution expenses under the Plan. As of August 31, 1999, accrued and unpaid distribution expenses were $647,000. American Funds Distributors, Inc. (AFD), the principal underwriter of the fund's shares, received $983,000 (after allowances to dealers) as its portion of the sales charges paid by purchasers of the fund's shares. Such sales charges are not an expense of the fund and, hence, are not reflected in the accompanying statement of operations. TRANSFER AGENT FEE - American Funds Service Company (AFS), the transfer agent for the fund, was paid a fee of $1,001,000. DEFERRED TRUSTEES' FEES - Trustees who are unaffiliated with CRMC may elect to defer part or all of the fees earned for services as members of the Board. Amounts deferred are not funded and are general unsecured liabilities of the fund. As of August 31, 1999, aggregate deferred amounts and earnings thereon since the deferred compensation plan's adoption (1993) net of any payments to Trustees, were $75,000. CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both wholly owned subsidiaries of CRMC. Certain Trustees and officers of the trust are or may be considered to be affiliated with CRMC, AFS and AFD. No such persons received any remuneration directly from the fund. 4. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES The fund made purchases and sales of investment securities, excluding short-term securities of $1,147,057,000 and $951,728,000, respectively, during year ended August 31, 1999. As of August 31, 1999, net realized loss on investments was $72,469,000 and paid-in capital was $1,433,855,000. The fund reclassified $19,043,000 from undistributed net realized gains to paid-in capital for the year ended August 31, 1999 as a result of permanent differences between book and tax. Pursuant to the custodian agreement, the fund receives credits against its custodian fee for imputed interest on certain balances with the custodian bank. The custodian fee of $26,000 includes $25,000 that was paid by these credits rather than in cash. PER-SHARE DATA AND RATIOS - --------------------------------- -------- ----------------------------- Year Ended August 31 -------- ----------------------------- 1999 1998 1997 1996 1995 -------- ----------------------------- Net Asset Value, Beginning of Year $13.39 $13.03 $12.78 $13.24 $13.18 -------- ----------------------------- Income from Investment Operations: Net investment income .77 .83 .88 .93 1.01 Net gains or lossess on securities (both realized and unrealized) (.76) .40 .25 (.49) .06 -------- ----------------------------- Total from investment operations .01 1.23 1.13 .44 1.07 -------- ----------------------------- Less Distributions: Dividends (from net investment income) (.77) (.87) (.88) (.90) (1.01) -------- ----------------------------- Net Asset Value, End of Year $12.63 $13.39 $13.03 $12.78 $13.24 ======= ============================= Total Return* (.01)% 9.70% 9.08% 3.40% 8.60% Ratios/Supplemental Data: Net assets, end of year (in millions) $1,322 $1,210 $1,106 $1,216 $1,337 Ratio of expenses to average net assets .79% .79% .80% .81% .79% Ratio of net income to average net assets 5.80 6.24% 6.74% 7.04% 7.79% Portfolio turnover rate 81.10 81.99% 28.16% 40.01% 46.77% *Excludes maximum sales charge of 4.75%.
Independent Auditors' Report To the Board of Trustees and Shareholders of The American Funds Income Series- U.S. Government Securities Fund: We have audited the accompanying statement of assets and liabilities of The American Funds Income Series -- U.S. Government Securities Fund (the "Fund"), including the schedule of portfolio investments as of August 31, 1999, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the per-share data and ratios for each of the five years in the period then ended. These financial statements and the per-share data and ratios are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the per-share data and ratios based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and per-share data and ratios are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at August 31, 1999, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and per-share data and ratios referred to above present fairly, in all material respects, the financial position of The American Funds Income Series -- U.S. Government Securities Fund at August 31, 1999, 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 per-share data and ratios for each of the five years in the period then ended, in conformity with generally accepted accounting principles. Deloitte & Touche LLP Los Angeles, California September 30, 1999 Tax Information (unaudited) Certain states may exempt from income taxation a portion of the dividends paid from net investment income if derived from direct U.S. Treasury obligations. For purposes of computing this exclusion, 53% of the dividends paid by the fund from net investment income was derived from interest on direct U.S. Treasury obligations. Dividends received by retirement plans such as IRAs, Keogh-type plans, and 403(b) plans need not be reported as taxable income. However, many retirement trusts may need this information for their annual information reporting. SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FISCAL YEAR AND NOT A CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX INFORMATION WHICH WILL BE MAILED IN JANUARY 2000 TO DETERMINE THE CALENDAR YEAR AMOUNTS TO BE INCLUDED ON THEIR RESPECTIVE 1999 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS. -----END PRIVACY-ENHANCED MESSAGE-----