485BPOS 1 0001.txt SEC. FILE NOS. 2-98199 811-4318 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A Registration Statement Under the Securities Act of 1933 Post-Effective Amendment No. 25 and Registration Statement Under The Investment Company Act of 1940 Amendment No. 24 THE AMERICAN FUNDS INCOME SERIES (Exact Name of Registrant as specified in charter) 333 South Hope Street Los Angeles, California 90071 (Address of principal executive offices) Registrant's telephone number, including area code: (213) 486-9200 JULIE F. WILLIAMS, Secretary The American Funds Income Series 333 South Hope Street Los Angeles, California 90071 (name and address of agent for service) Copies to: Robert E. Carlson, Esq. PAUL, HASTINGS, JANOFSKY & WALKER LLP 555 S. Flower Street Los Angeles, CA 90071-2371 (Counsel for the Registrant) Approximate date of proposed public offering: It is proposed that this filing become effective on March 15, 2001 pursuant to paragraph (b) of rule 485. U.S. Government Securities Fund(SM) Prospectus
TABLE OF CONTENTS ----------------------------------------------------- 1 Risk/Return Summary ----------------------------------------------------- 4 Fees and Expenses of the Fund ----------------------------------------------------- 5 Investment Objective, Strategies and Risks ----------------------------------------------------- 7 Management and Organization ----------------------------------------------------- 8 Shareholder Information ----------------------------------------------------- 9 Choosing a Share Class ----------------------------------------------------- 11 Purchase and Exchange of Shares ----------------------------------------------------- 12 Sales Charges ----------------------------------------------------- 14 Sales Charge Reductions and Waivers ----------------------------------------------------- 15 Plans of Distribution ----------------------------------------------------- 16 How to Sell Shares ----------------------------------------------------- 17 Distributions and Taxes ----------------------------------------------------- 18 Financial Highlights -----------------------------------------------------
MARCH 15, 2001 THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. RISK/RETURN SUMMARY The fund seeks to provide you with a high level of current income as well as preserve your investment, by investing primarily in securities that are guaranteed by the United States Government. Securities in the fund will be rated AAA/Aaa. The fund is designed for investors seeking income and more price stability than stocks and lower quality fixed income securities, and capital preservation over the long term. An investment in the fund is subject to risks, including the possibility that the fund's income and the value of its investments may fluctuate in response to economic, political or social events in the U.S. or abroad. While the fund invests in the highest quality debt securities, these securities may be affected by changing interest rates and prepayment risks. It is important to note that neither the fund nor its yield are guaranteed by the U.S. Government. Your investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER IF YOU INVEST FOR A SHORTER PERIOD OF TIME. 1 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS HISTORICAL INVESTMENT RESULTS The following information provides some indication of the risks of investing in the fund by showing changes in the fund's investment results from year to year and by showing how the fund's average annual returns for various periods compare with those of a broad measure of market performance. Past results are not an indication of future results. CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES (Results do not include a sales charge; if one were included, results would be lower.) [bar chart] 1991 14.16% 1992 7.59% 1993 10.44% 1994 -4.65% 1995 15.46% 1996 2.82% 1997 8.39% 1998 7.87% 1999 -1.59% 2000 11.93% [end bar chart] The fund's highest/lowest quarterly results during this time period were:
HIGHEST 5.16% (quarter ended September 30, 1992) LOWEST -3.91% (quarter ended March 31, 1994)
2 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS Unlike the bar chart on the previous page, the table below reflects the fund's results with the maximum initial or deferred sales charge imposed, as required by Securities and Exchange Commission rules. Class A share results reflect the maximum initial sales charge of 3.75%. Sales charges are reduced for purchases of $100,000 or more. Results would be higher if calculated without a sales charge. All fund results reflect the reinvestment of dividend and capital gain distributions. Since the fund's Class B shares began investment operations on March 15, 2000 and Class C and F shares began investment operations on March 15, 2001, comparable results for those classes are not available for the 2000 calendar year.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2000: ------------------------------------------------------------------------------ ONE YEAR FIVE YEARS TEN YEARS LIFETIME Class A - began 10/17/85 (with the maximum sales 7.69% 4.97% 6.64% 7.41% charge imposed) ------------------------------------------------------------------------------ Lehman Brothers Govt/ 12.29% 6.64% 7.88% 8.77% Mortgage-Backed Index/1/ ------------------------------------------------------------------------------ Lipper U.S. Govt Average/2/ 11.77% 5.41% 7.01% 7.36% ------------------------------------------------------------------------------ Lipper GNMA Average/3/ 10.41% 5.90% 7.13% 7.89% ------------------------------------------------------------------------------ Consumer Price Index/4/ 3.39% 2.54% 2.66% 3.14% ------------------------------------------------------------------------------ Class A 30-day yield: 5.35% (For current yield information, please call American FundsLine at 1-800-325-3590.) ------------------------------------------------------------------------------
1 The Lehman Brothers Government/Mortgage-Backed Securities Index represents a market-weighted index that includes U.S. Treasury and agency securities, as well as FNMAs, FHLMCs, and GNMAs. This index is unmanaged and does not reflect sales charges, commissions or expenses. 2 The Lipper General U.S. Government Funds Average represents funds that invest at least 65% of their assets in U.S. Government and agencies issues. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the fund for portfolio transactions, but do not reflect sales charges. 3 The Lipper GNMA Funds Average represents funds that invest at least 65% of their assets in Government National Mortgage Association securities. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the fund for portfolio transactions, but do not reflect sales charges. 4 The Consumer Price Index is a measure of inflation and is computed from data supplied by the U.S. Department of Labor, Bureau of Labor Statistics. 3 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS FEES AND EXPENSES OF THE FUND SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C CLASS F -------------------------------------------------------------------------------------------- Maximum sales charge imposed on purchases (as a 3.75%/1/ none none none percentage of offering price) -------------------------------------------------------------------------------------------- Maximum sales charge imposed on reinvested none none none none dividends -------------------------------------------------------------------------------------------- Maximum deferred sales charge none/2/ 5.00%/3/ 1.00%/4/ none -------------------------------------------------------------------------------------------- Redemption or exchange fees none none none none --------------------------------------------------------------------------------------------
1 Sales charges are reduced or eliminated for purchases of $100,000 or more. 2 A contingent deferred sales charge of 1% applies on certain redemptions made within 12 months following purchases of $1 million or more made without a sales charge. 3 Deferred sales charges are reduced after 12 months and eliminated after six years. 4 Deferred sales charge is eliminated after 12 months. ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B/1/ CLASS C/2/ CLASS F/2/ ------------------------------------------------------------------------------------------------------- Management Fees 0.39% 0.39% 0.39% 0.39% ------------------------------------------------------------------------------------------------------- Distribution and/or Service (12b-1) Fees/3/ 0.29% 1.00% 1.00% 0.25% ------------------------------------------------------------------------------------------------------- Other Expenses 0.17% 0.14% 0.23% 0.22% ------------------------------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 0.85% 1.53% 1.62% 0.86% -------------------------------------------------------------------------------------------------------
1 Annualized. 2 Based on estimated amounts for the current fiscal year. 3 Class A and F 12b-1 fees may not exceed 0.30% and 0.50%, respectively, of the class' average net assets annually. EXAMPLE The examples below are intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The examples assume that you invest $10,000 in the fund for the time periods indicated, that your investment has a 5% return each year and that the fund's operating expenses remain the same as shown above. The "Class A" example reflects the maximum initial sales charge in the first year. The "Class B- and Class C-assuming redemption" examples reflect applicable contingent deferred sales charges through six years and one year, respectively (after which times they are eliminated). The examples do not include fees charged by financial intermediaries, typically applicable mainly to Class F shares. Both Class B examples reflect Class A expenses for years 9 and 10 since Class B shares automatically convert to Class A after eight years. Although your actual costs may be higher or lower, based on these assumptions, your cumulative expenses would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS Class A $459 $636 $ 829 $1,385 ---------------------------------------------------------------------------------------------------------------------------------- Class B - assuming redemption $656 $883 $1,034 $1,640 ------------------------------------------------------------------------------------------------------------------- Class B - assuming no redemption $156 $483 $ 834 $1,640 ------------------------------------------------------------------------------------------------------------------- Class C - assuming redemption $265 $511 $ 881 $1,922 ------------------------------------------------------------------------------------------------------------------- Class C - assuming no redemption $165 $511 $ 881 $1,922 ------------------------------------------------------------------------------------------------------------------- Class F - excludes intermediary fees/*/ $ 88 $274 $ 477 $1,061 ------------------------------------------------------------------------------------------------------------------- *Fees charged by financial intermediaries are independent of fund expenses and will increase the overall cost of your investment. Intermediary fees typically range from 0.50% to 3.00% of assets annually depending on services offered.
4 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS The fund's investment objective is to provide a high level of current income consistent with prudent investment risk and preservation of capital. It invests primarily in securities that are guaranteed by the "full faith and credit" pledge of the U.S. Government. The fund may also invest in securities issued by U.S. governmental agencies or instrumentalities that are not guaranteed by the U.S. Government. In addition, the fund may invest a substantial portion of its assets in securities backed by pools of mortgages, also called "mortgage-backed securities." These securities will be rated AAA by Standard & Poor's Corporation or Aaa by Moody's Investor Services, Inc. or unrated but determined to be of equivalent quality. The value of certain debt securities held by the fund may be affected by changing interest rates and prepayment risks. For example, as with other debt securities, the value of U.S. Government securities generally will decline when interest rates rise and vice versa. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed only as to the timely payment of interest and principal when held to maturity. Accordingly, the current market prices for such securities will fluctuate. Many types of debt securities, including mortgage-related securities, are subject to prepayment risk. For example, when interest rates fall, homeowners are more likely to refinance their home mortgages and "prepay" their principal earlier than expected. The fund must then reinvest the prepaid principal in new securities when interest rates on new mortgage investments are falling, thus reducing the fund's income. The fund may also hold cash, money market instruments or short-term debt securities. The size of the fund's cash position will vary and will depend on various factors, including market conditions and purchases and redemptions of fund shares. A larger cash position could detract from the achievement of the fund's objective, but it also would reduce the fund's exposure in the event of a market downturn and provide liquidity to make additional investments or to meet redemptions. The fund relies on the professional judgment of its investment adviser, Capital Research and Management Company, to make decisions about the fund's portfolio investments. The basic investment philosophy of the investment adviser is to seek undervalued securities that represent good long-term investment opportunities. Securities may be sold when the investment adviser believes they no longer represent good long-term value. 5 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS ADDITIONAL INVESTMENT RESULTS Unlike the investment results table shown on an earlier page, the table below reflects the fund's results calculated without a sales charge.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2000: ONE YEAR FIVE YEARS TEN YEARS LIFETIME Class A - began 10/17/85 (with no sales charge 11.93% 5.78% 7.06% 7.68% imposed) --------------------------------------------------------------------------------------- Lehman Brothers Govt/ Mortgage-Backed 12.29% 6.64% 7.88% 8.77% Index/1/ --------------------------------------------------------------------------------------- Lipper U.S. Govt 11.77% 5.41% 7.01% 7.36% Average/2/ --------------------------------------------------------------------------------------- Lipper GNMA Average/3/ 10.41% 5.90% 7.13% 7.89% --------------------------------------------------------------------------------------- Consumer Price 3.39% 2.54% 2.66% 3.14% Index/4/ --------------------------------------------------------------------------------------- Class A distribution rate/5/: 5.74% (For current distribution rate information, please call American FundsLine at 1-800-325-3590.) ---------------------------------------------------------------------------------------
1 The Lehman Brothers Government/Mortgage-Backed Securities Index represents a market-weighted index that includes U.S. Treasury and agency securities, as well as FNMAs, FHLMCs, and GNMAs. This index is unmanaged and does not reflect sales charges, commissions or expenses. 2 The Lipper General U.S. Government Funds Average represents funds that invest at least 65% of their assets in U.S. Government and agencies issues. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the fund for portfolio transactions, but do not reflect sales charges. 3 The Lipper GNMA Funds Average represents funds that invest at least 65% of their assets in Government National Mortgage Association securities. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the fund for portfolio transactions, but do not reflect sales charges. 4 The Consumer Price Index is a measure of inflation and is computed from data supplied by the U.S. Department of Labor, Bureau of Labor Statistics. 5 The distribution rate represents actual distributions paid by the fund. It was calculated at net asset value by annualizing dividends paid by the fund over one month and dividing that number by the fund's average net asset value for the month. HOLDINGS BY TYPE OF INVESTMENT AS OF AUGUST 31, 2000 [pie chart] U.S. Treasury Obligations 44% Federal Agency Obligations: Mortgage Pass-Throughs 40% Federal Agency Debentures 8% Collateralized Mortgage Obligations 4% Cash & Equivalents 4% [end pie chart] Because the fund is actively managed, its holdings will change from time to time. 6 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS MANAGEMENT AND ORGANIZATION INVESTMENT ADVISER Capital Research and Management Company, an experienced investment management organization founded in 1931, serves as investment adviser to the fund and other funds, including those in The American Funds Group. Capital Research and Management Company, a wholly owned subsidiary of The Capital Group Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital Research and Management Company manages the investment portfolio and business affairs of the fund. The total management fee paid by the fund, as a percentage of average net assets, for the previous fiscal year appears earlier under "Fees and Expenses of the Fund." MULTIPLE PORTFOLIO COUNSELOR SYSTEM Capital Research and Management Company uses a system of multiple portfolio counselors in managing mutual fund assets. Under this approach the portfolio of a fund is divided into segments managed by individual counselors. Counselors decide how their respective segments will be invested, within the limits provided by a fund's objective(s) and policies and by Capital Research and Management Company's investment committee. In addition, Capital Research and Management Company's research professionals may make investment decisions with respect to a portion of a fund's portfolio. The primary individual portfolio counselors for U.S. Government Securities Fund are:
PORTFOLIO COUNSELOR/ FUND PRIMARY TITLE WITH INVESTMENT ADVISER TITLE (IF APPLICABLE) COUNSELOR SINCE (OR AFFILIATE) AND INVESTMENT EXPERIENCE ----------------------------------------------------------------------------------------------- JOHN H. SMET 1987 Senior Vice President, Capital Research and President and Trustee Management Company Investment professional since 1982 and with Capital Research and Management Company or affiliate since 1983 ----------------------------------------------------------------------------------------------- THOMAS H. HOGH 1997 Vice President, Capital International Research Investment professional since 1987 and with Capital Research and Management Company or affiliate since 1990 ----------------------------------------------------------------------------------------------- JOHN W. RESSNER 1990 Executive Vice President and Director, Capital Research Company Investment professional with Capital Research and Management Company or affiliate since 1988 -----------------------------------------------------------------------------------------------
7 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS SHAREHOLDER INFORMATION SHAREHOLDER SERVICES American Funds Service Company, the fund's transfer agent, offers you a wide range of services you can use to alter your investment program should your needs and circumstances change. These services may be terminated or modified at any time upon 60 days written notice. For your convenience, American Funds Service Company has four service centers across the country. AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS Call toll-Free from anywhere in the U.S. (8 a.m. to 8 p.m. ET): 800/421-0180 [map of the United States]
Western Western Central Eastern Central Eastern Service Center Service Center Service Center Service Center American Funds American Funds American Funds American Funds Service Company Service Company Service Company Service Company P.O. Box 2205 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280 Brea, California San Antonio, Texas Indianapolis, Indiana Norfolk, Virginia 92822-2205 78265-9522 46206-6007 23501-2280 Fax: 714/671-7080 Fax: 210/474-4050 Fax: 317/735-6620 Fax: 757/670-4773
A MORE DETAILED DESCRIPTION OF POLICIES AND SERVICES IS INCLUDED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION AND THE OWNER'S GUIDE SENT TO NEW AMERICAN FUNDS SHAREHOLDERS TITLED "WELCOME TO THE FAMILY." Both are available by writing or calling American Funds Service Company. 8 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS CHOOSING A SHARE CLASS The fund offers four different classes of shares. Each share class represents investments in the same portfolio of securities, but each class has its own sales charge and expense structure, allowing you to choose the class that best meets your situation. WHEN YOU PURCHASE SHARES OF THE FUND, YOU MUST CHOOSE A SHARE CLASS. IF NONE IS CHOSEN, YOUR INVESTMENT WILL BE MADE IN CLASS A SHARES. Shares of the fund may be purchased through various investment programs or accounts, including many types of retirement plans. The services or share classes available to you may vary depending upon how you wish to purchase shares of the fund. Factors you should consider in choosing a class of shares include: . How long you expect to own the shares . How much you intend to invest . Total expenses associated with owning shares of each class . Whether you qualify for any reduction or waiver of sales charges (for example, Class A shares may be a less expensive option over time if you qualify for a sales charge reduction or waiver) . Class B and C shares generally are not available to certain retirement plans, including employer-sponsored retirement plans such as 401(k) plans, employer-sponsored 403(b) plans, and money purchase pension and profit sharing plans . Class F shares are generally only available to fee-based programs of investment firms and registered investment advisers that have special agreements with the fund's distributor EACH INVESTOR'S FINANCIAL CONSIDERATIONS ARE DIFFERENT. YOU SHOULD SPEAK WITH YOUR FINANCIAL ADVISER TO HELP YOU DECIDE WHICH SHARE CLASS IS BEST FOR YOU. 9 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS SUMMARY OF THE PRIMARY DIFFERENCES AMONG SHARE CLASSES
CLASS A SHARES ------------------------------------------------------------------------------ Initial sales charge up to 3.75% (reduced or eliminated for purchases of $100,000 or more) Contingent deferred sales none (except on certain redemptions on purchases charge of $1 million or more bought without an initial sales charge) 12b-1 fees up to 0.30% annually Dividends higher than other classes due to lower annual expenses Purchase maximum none Conversion none CLASS B SHARES ------------------------------------------------------------------------------ Initial sales charge none Contingent deferred sales starts at 5.00% and declines each year until it charge reaches 0% after six years 12b-1 fees 1.00% annually Dividends lower than Class A and F shares due to higher distribution fees and other expenses Purchase maximum $100,000 Conversion automatic conversion to Class A shares after eight years, reducing future annual expenses CLASS C SHARES ------------------------------------------------------------------------------ Initial sales charge none Contingent deferred sales 1.00% if shares are sold within one year after charge being purchased 12b-1 fees 1.00% annually Dividends lower than Class A and F shares due to higher distribution fees and other expenses Purchase maximum $500,000 Conversion automatic conversion to Class F shares after ten years, reducing future annual expenses CLASS F SHARES ------------------------------------------------------------------------------ Initial sales charge none Contingent deferred sales none charge 12b-1 fees currently 0.25% annually (may not exceed 0.50% annually) Dividends higher than Class B and C shares due to lower distribution fees, but typically lower than Class A shares due to higher other expenses Purchase maximum none Conversion none ------------------------------------------------------------------------------
10 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS PURCHASE AND EXCHANGE OF SHARES PURCHASE OF CLASS A, B AND C SHARES Generally, you may open an account and purchase Class A, B and C shares by contacting any investment dealer (who may impose transaction charges in addition to those described in this prospectus) authorized to sell the fund's shares. You may purchase additional shares in various ways, including through your investment dealer and by mail, telephone, the Internet and bank wire. PURCHASE OF CLASS F SHARES Generally, you may only open an account and purchase Class F shares through fee-based programs of investment firms and registered investment advisers with special agreements with the fund's distributor. These firms and advisers typically charge ongoing fees for services they provide. EXCHANGE Generally, you may exchange your shares into shares of the same class of other funds in The American Funds Group without a sales charge. For purposes of computing the contingent deferred sales charge on Class B and C shares, the length of time you have owned your shares will be measured from the date of original purchase and will not be affected by any exchange. Exchanges of shares from the money market funds initially purchased without a sales charge generally will be subject to the appropriate sales charge. Exchanges have the same tax consequences as ordinary sales and purchases. See "Transactions by Telephone..." for information regarding electronic exchanges. THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S DISTRIBUTOR, RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON, INCLUDING PURCHASES WHICH ARE PART OF EXCHANGE ACTIVITY THAT COULD INVOLVE ACTUAL OR POTENTIAL HARM TO THE FUND.
PURCHASE MINIMUMS FOR ALL CLASSES OF SHARES To establish an account (including retirement plan accounts) $ 250 For a retirement plan account through payroll deduction $ 25 To add to an account $ 50 For a retirement plan account through payroll deduction $ 25 ------------------------------------------------------------------------ PURCHASE MAXIMUM FOR CLASS B SHARES $100,000 ------------------------------------------------------------------------ PURCHASE MAXIMUM FOR CLASS C SHARES $500,000 ------------------------------------------------------------------------
11 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS SHARE PRICE The fund calculates its share price, also called net asset value, as of approximately 4:00 p.m. New York time, which is the normal close of trading on the New York Stock Exchange, every day the Exchange is open. In calculating net asset value, market prices are used when available. The fund has adopted procedures to make "fair value" determinations when reliable market prices for particular securities are not available. Your shares will be purchased at the net asset value (plus any applicable sales charge in the case of Class A shares), or sold at the net asset value next determined after American Funds Service Company receives and accepts your request. A contingent deferred sales charge may apply at the time you sell certain Class A, B and C shares. SALES CHARGES CLASS A The initial sales charge you pay when you buy Class A shares differs depending upon the amount you invest and may be reduced or eliminated for larger purchases as indicated below.
SALES CHARGE AS A PERCENTAGE OF ---------------------------------- DEALER NET COMMISSION OFFERING AMOUNT AS % OF INVESTMENT PRICE INVESTED OFFERING PRICE ------------------------------------------------------------------------------ Less than $100,000 3.75% 3.90% 3.00% ------------------------------------------------------------------------------ $100,000 but less than 3.50% 3.63% 2.75% $250,000 ------------------------------------------------------------------------------ $250,000 but less than 2.50% 2.56% 2.00% $500,000 ------------------------------------------------------------------------------ $500,000 but less than 2.00% 2.04% 1.60% $750,000 ------------------------------------------------------------------------------ $750,000 but less than $1 1.50% 1.52% 1.20% million ------------------------------------------------------------------------------ $1 million or more and certain other investments none none none described below ------------------------------------------------------------------------------
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGE INVESTMENTS OF $1 MILLION OR MORE MAY BE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE IF SHARES ARE SOLD WITHIN ONE YEAR OF PURCHASE. Employer-sponsored defined contribution-type plans investing $1 million or more, or with 100 or more eligible employees, and Individual Retirement Account rollovers involving retirement plan assets invested in the American Funds, may invest with no sales charge and are not subject to a contingent deferred sales charge. Also exempt are investments made through retirement plans, endowments or foundations with $50 million or more in assets, and investments made through accounts that purchased fund shares before March 15, 2001 and are part of certain qualified fee-based programs. The distributor may pay dealers up to 1% 12 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS on investments made in Class A shares with no initial sales charge. The fund may reimburse the distributor for these payments through its Plan of Distribution (see below). CLASS B AND C Class B and C shares are sold without any initial sales charge. American Funds Distributors pays 4% of the amount invested to dealers who sell Class B shares and 1% to dealers who sell Class C shares. For Class C shares, a contingent deferred sales charge of 1% applies if shares are sold within one year of purchase. For Class B shares, a contingent deferred sales charge may be applied to shares you sell within six years of purchase, as shown in the table below.
CLASS B SHARES SOLD WITHIN YEAR 1 2 3 4 5 6 -------------------------------------------------------------------- CONTINGENT DEFERRED SALES CHARGE 5% 4% 4% 3% 2% 1%
Shares acquired through reinvestment of dividends or capital gain distributions are not subject to a contingent deferred sales charge. In addition, the contingent deferred sales charge may be waived in certain circumstances. See "Contingent Deferred Sales Charge Waivers for Class B and C Shares" below. The contingent deferred sales charge is based on the original purchase cost or the current market value of the shares being sold, whichever is less. For purposes of determining the contingent deferred sales charge, if you sell only some of your shares, shares that are not subject to any contingent deferred sales charge will be sold first and then shares that you have owned the longest. See "Plans of Distribution" below for ongoing compensation paid to your dealer or financial adviser for all share classes. CONVERSION OF CLASS B AND C SHARES Class B shares automatically convert to Class A shares in the month of the eight-year anniversary of the purchase date. Class C shares automatically convert to Class F shares in the month of the ten-year anniversary of the purchase date. The Internal Revenue Service currently takes the position that these automatic conversions are not taxable. Should their position change, shareholders would still have the option of converting but may face certain tax consequences. 13 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS SALES CHARGE REDUCTIONS AND WAIVERS You must let your investment dealer or American Funds Service Company know if you qualify for a reduction in your Class A sales charge or waiver of your Class B or C contingent deferred sales charge. REDUCING YOUR CLASS A SALES CHARGE You and your "immediate family" (your spouse and your children under the age of 21) may combine investments to reduce your Class A sales charge. AGGREGATING ACCOUNTS To receive a reduced Class A sales charge, investments made by you and your immediate family (see above) may be aggregated if made for your own account(s) and/or, for instance: . 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. . solely controlled business accounts. . single-participant retirement plans. CONCURRENT PURCHASES You may combine simultaneous purchases of any class of shares of two or more American Funds, as well as individual holdings in various American Legacy variable annuities or variable life insurance policies, to qualify for a reduced Class A sales charge. Direct purchases of money market funds are excluded. RIGHTS OF ACCUMULATION You may take into account the current value (or if greater, the amount you invested less any withdrawals) of your existing holdings in any class of shares of the American Funds, as well as individual holdings in various American Legacy variable annuities or variable life insurance policies, to determine your Class A sales charge. Direct purchases of money market funds are excluded. STATEMENT OF INTENTION You can reduce the sales charge you pay on your Class A share purchases by establishing a Statement of Intention. A Statement of Intention allows you to combine all non-money market fund purchases of all share classes, as well as individual American Legacy variable annuity and life insurance policies you intend to make over a 13-month period, to determine the applicable sales charge. At your request, purchases made during the previous 90 days may be included; however, capital appreciation and reinvested dividends and capital gains do not apply toward these combined purchases. A portion of your account may be held in escrow to cover additional Class A sales charges which may be due if your total investments over the 13-month period do not qualify for the applicable sales charge reduction. 14 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS CONTINGENT DEFERRED SALES CHARGE WAIVERS FOR CLASS B AND C SHARES The contingent deferred sales charge on Class B and C shares may be waived in the following cases: . when receiving payments through systematic withdrawal plans (up to 12% of the value of each fund account); . when receiving required minimum distributions from retirement accounts upon reaching age 70 1/2; or . for redemptions due to death or post-purchase disability of the shareholder. PLANS OF DISTRIBUTION The fund has Plans of Distribution or "12b-1 Plans" under which it may finance activities primarily intended to sell shares, provided the categories of expenses are approved in advance by the fund's board of trustees. The plans provide for annual expenses of up to 0.30% for Class A shares, 1.00% for Class B and C shares, and up to 0.50% for Class F shares. For all share classes, up to 0.25% of these expenses may be used to pay service fees to qualified dealers for providing certain shareholder services. The remaining expense for each share class may be used for distribution expenses. The 12b-1 fees paid by the fund, as a percentage of average net assets, for the previous fiscal year are indicated earlier under "Fees and Expenses of the Fund." Since these fees are paid out of the fund's assets or income on an ongoing basis, over time they will increase the cost and reduce the return of an investment. The higher fees for Class B and C shares may cost you more over time than paying the initial sales charge for Class A shares. OTHER COMPENSATION TO DEALERS American Funds Distributors may pay, or sponsor informational meetings for, dealers as described in the statement of additional information. 15 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS HOW TO SELL SHARES Once a sufficient period of time has passed to reasonably assure that checks or drafts (including certified or cashiers' checks) for shares purchased have cleared (normally 15 calendar days), you may sell (redeem) those shares in any of the following ways: THROUGH YOUR DEALER OR FINANCIAL ADVISER (CERTAIN CHARGES MAY APPLY) . Shares held for you in your dealer's name must be sold through the dealer. . Class F shares must be sold through your dealer or financial adviser. 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 of record which has been changed within the last 10 days. . American Funds Service Company reserves the right to require signature guarantee(s) on any redemptions. . Additional documentation may be required for sales of shares held in corporate, partnership or fiduciary accounts. TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN FUNDSLINE/(R)/ OR AMERICAN FUNDSLINE ONLINE/(R)/: . Redemptions by telephone, fax, or computer (including American FundsLine and American FundsLine OnLine) are limited to $50,000 per shareholder each day. . Checks must be made payable to the registered shareholder. . Checks must be mailed to an address of record that has been used with the account for at least 10 days. TRANSACTIONS BY TELEPHONE, FAX, AMERICAN FUNDSLINE OR FUNDSLINE ONLINE Generally, you are automatically eligible to use these services for redemptions and exchanges unless you notify us in writing that you do not want any or all of these services. You may reinstate these services at any time. Unless you decide not to have telephone, fax, or computer services on your account(s), you agree to hold the fund, American Funds Service Company, 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 liabilities (including attorney fees) which may be incurred in connection with the exercise of these privileges, provided American Funds Service Company employs reasonable procedures to confirm that the instructions received from any person with appropriate account information are genuine. If reasonable procedures are not employed, it and/or the fund may be liable for losses due to unauthorized or fraudulent instructions. 16 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS DISTRIBUTIONS AND TAXES DIVIDENDS AND DISTRIBUTIONS The fund declares dividends from net investment income daily and distributes the accrued dividends, which may fluctuate, to shareholders each month. Dividends begin accruing one day after payment for shares is received by the fund or American Funds Service Company. Capital gains, if any, are usually distributed in December. When a capital gain is distributed, the net asset value per share is reduced by the amount of the payment. You may elect to reinvest dividends and/or capital gain distributions to purchase additional shares of this fund or any other American Fund, or you may elect to receive them in cash. Most shareholders do not elect to take capital gain distributions in cash because these distributions reduce principal value. TAXES ON DISTRIBUTIONS Distributions you receive from the fund may be subject to income tax and may also be subject to state or local taxes - unless you are exempt from taxation. For federal tax purposes, any taxable dividends and distributions of short-term capital gains are treated as ordinary income. The fund's distributions of net long-term capital gains are taxable to you as long-term capital gains. Any taxable distributions you receive from the fund will normally be taxable to you when made, regardless of whether you reinvest distributions or receive them in cash. TAXES ON TRANSACTIONS Your redemptions, including exchanges, may result in a capital gain or loss for federal tax purposes. A capital gain or loss on your investment is the difference between the cost of your shares, including any sales charges, and the price you receive when you sell them. Please see your tax adviser for further information. 17 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS FINANCIAL HIGHLIGHTS/1/ The financial highlights table is intended to help you understand the fund's results for the past five years and is currently only shown for Class A and B shares. A similar table will be shown for Class C and F shares beginning with the fund's 2001 fiscal year end. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the fund (assuming reinvestment of all dividends and distributions). This information has been audited by Deloitte & Touche LLP, whose report, along with the fund's financial statements, is included in the statement of additional information, which is available upon request.
Net gains/(losses) on Net asset securities Dividends value, Net (both realized Total from (from net Net asset Net assets, Year ended beginning of investment and investment investment value, end of end of year August 31 period income unrealized) operations income) year Total return (in millions) --------------------------------------------------------------------------------------------------------------------------------- CLASS A: 2000 $12.63 $.77/2/ $.09/2/ $.86 $(.73) $12.76 7.04% $1,083 1999 13.39 .77 (.76) .01 (.77) 12.63 (.01) 1,322 1998 13.03 .83 .40 1.23 (.87) 13.39 9.70 1,210 1997 12.78 .88 .25 1.13 (.88) 13.03 9.08 1,106 1996 13.24 .93 (.49) .44 (.90) 12.78 3.40 1,216 CLASS B: 2000 12.49 .50/2/ .07/2/ .57 (.30) 12.76 4.43 3 Ratio of Ratio of net expenses to income to Year ended average net average net Portfolio August 31 assets assets turnover rate ------------------------------------------------------ CLASS A: 2000 .85% 6.13% 63.18%/4/ 1999 .80 5.80 81.10 1998 .79 6.24 81.99 1997 .80 6.74 28.16 1996 .81 7.04 40.01 CLASS B: 2000 1.53/3/ 5.28/3/ 63.18/4/
1 The years 1996 through 2000 represent, for Class A shares, fiscal years ended August 31. The period ended 2000 represents, for Class B shares, the 169-day period ended August 31, 2000. Class B shares were not offered before March 15, 2000. Total return for Class B is based on activity during the period and thus is not representative of a full year. Total returns exclude all sales charges, including contingent deferred sales charges. 2 Based on average shares outstanding. 3 Annualized. 4 Represents portfolio turnover rate (equivalent for all share classes) for the fiscal year ended August 31, 2000. 18 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS --------------------------------------------------------- NOTES 19 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS --------------------------------------------------------- NOTES 20 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS --------------------------------------------------------- NOTES 21 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS
FOR SHAREHOLDER SERVICES American Funds Service Company 800/421-0180 FOR RETIREMENT PLAN SERVICES Call your employer or plan administrator FOR DEALER SERVICES American Funds Distributors 800/421-9900 Ext. 11 FOR 24-HOUR INFORMATION American FundsLine(R) 800/325-3590 American FundsLine OnLine(R) http://www.americanfunds.com
Telephone conversations may be recorded or monitored for verification, recordkeeping and quality assurance purposes. * * * * * MULTIPLE TRANSLATIONS This prospectus may be translated into other languages. If there is any inconsistency or ambiguity as to the meaning of any word or phrase in a translation, the English text will prevail. ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS Contains additional information about the fund including financial statements, investment results, portfolio holdings, a statement from portfolio management discussing market conditions and the fund's investment strategies, and the independent accountants' report (in the annual report). STATEMENT OF ADDITIONAL INFORMATION (SAI) AND CODES OF ETHICS The SAI contains more detailed information on all aspects of the fund, including the fund's financial statements and is incorporated by reference into this prospectus. The Codes of Ethics describe the personal investing policies adopted by the fund and the fund's investment adviser and its affiliated companies. The Codes of Ethics and current SAI have been filed with the Securities and Exchange Commission ("SEC"). These and other related materials about the fund are available for review or to be copied at the SEC's Public Reference Room in Washington, D.C. (202/942-8090) or on the EDGAR database on the SEC's Internet Web site at http://www.sec.gov, or, after payment of a duplicating fee, via e-mail request to publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. HOUSEHOLD MAILINGS Each year you are automatically sent an updated prospectus, annual and semi-annual report for the fund. You may also occasionally receive proxy statements for the fund. In order to reduce the volume of mail you receive, when possible, only one copy of these documents will be sent to shareholders that are part of the same family and share the same residential address. If you would like to receive individual copies of these documents, or a free copy of the SAI or Codes of Ethics, please call American Funds Service Company at 800/421-0180 or write to the Secretary of the fund at 333 South Hope Street, Los Angeles, California 90071. Investment Company File No. 811-4318 Printed on recycled paper GVT-010-0301/MC 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 U.S. Government Securities Fund(SM) Prospectus
TABLE OF CONTENTS ----------------------------------------------------- 1 Risk/Return Summary ----------------------------------------------------- 4 Fees and Expenses of the Fund ----------------------------------------------------- 5 Investment Objective, Strategies and Risks ----------------------------------------------------- 7 Management and Organization ----------------------------------------------------- 8 Shareholder Information ----------------------------------------------------- 9 Choosing a Share Class ----------------------------------------------------- 11 Purchase and Exchange of Shares ----------------------------------------------------- 12 Sales Charges ----------------------------------------------------- 14 Sales Charge Reductions and Waivers ----------------------------------------------------- 15 Plans of Distribution ----------------------------------------------------- 16 How to Sell Shares ----------------------------------------------------- 17 Distributions and Taxes ----------------------------------------------------- 18 Financial Highlights -----------------------------------------------------
MARCH 15, 2001 THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. RISK/RETURN SUMMARY The fund seeks to provide you with a high level of current income as well as preserve your investment, by investing primarily in securities that are guaranteed by the United States Government. Securities in the fund will be rated AAA/Aaa. The fund is designed for investors seeking income and more price stability than stocks and lower quality fixed income securities, and capital preservation over the long term. An investment in the fund is subject to risks, including the possibility that the fund's income and the value of its investments may fluctuate in response to economic, political or social events in the U.S. or abroad. While the fund invests in the highest quality debt securities, these securities may be affected by changing interest rates and prepayment risks. It is important to note that neither the fund nor its yield are guaranteed by the U.S. Government. Your investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person. YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER IF YOU INVEST FOR A SHORTER PERIOD OF TIME. 1 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS HISTORICAL INVESTMENT RESULTS The following information provides some indication of the risks of investing in the fund by showing changes in the fund's investment results from year to year and by showing how the fund's average annual returns for various periods compare with those of a broad measure of market performance. Past results are not an indication of future results. CALENDAR YEAR TOTAL RETURNS FOR CLASS A SHARES (Results do not include a sales charge; if one were included, results would be lower.) [bar chart] 1991 14.16% 1992 7.59% 1993 10.44% 1994 -4.65% 1995 15.46% 1996 2.82% 1997 8.39% 1998 7.87% 1999 -1.59% 2000 11.93% [end bar chart] The fund's highest/lowest quarterly results during this time period were:
HIGHEST 5.16% (quarter ended September 30, 1992) LOWEST -3.91% (quarter ended March 31, 1994)
2 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS Unlike the bar chart on the previous page, the table below reflects the fund's results with the maximum initial or deferred sales charge imposed, as required by Securities and Exchange Commission rules. Class A share results reflect the maximum initial sales charge of 3.75%. Sales charges are reduced for purchases of $100,000 or more. Results would be higher if calculated without a sales charge. All fund results reflect the reinvestment of dividend and capital gain distributions. Since the fund's Class B shares began investment operations on March 15, 2000 and Class C and F shares began investment operations on March 15, 2001, comparable results for those classes are not available for the 2000 calendar year.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2000: ------------------------------------------------------------------------------ ONE YEAR FIVE YEARS TEN YEARS LIFETIME Class A - began 10/17/85 (with the maximum sales 7.69% 4.97% 6.64% 7.41% charge imposed) ------------------------------------------------------------------------------ Lehman Brothers Govt/ 12.29% 6.64% 7.88% 8.77% Mortgage-Backed Index/1/ ------------------------------------------------------------------------------ Lipper U.S. Govt Average/2/ 11.77% 5.41% 7.01% 7.36% ------------------------------------------------------------------------------ Lipper GNMA Average/3/ 10.41% 5.90% 7.13% 7.89% ------------------------------------------------------------------------------ Consumer Price Index/4/ 3.39% 2.54% 2.66% 3.14% ------------------------------------------------------------------------------ Class A 30-day yield: 5.35% (For current yield information, please call American FundsLine at 1-800-325-3590.) ------------------------------------------------------------------------------
1 The Lehman Brothers Government/Mortgage-Backed Securities Index represents a market-weighted index that includes U.S. Treasury and agency securities, as well as FNMAs, FHLMCs, and GNMAs. This index is unmanaged and does not reflect sales charges, commissions or expenses. 2 The Lipper General U.S. Government Funds Average represents funds that invest at least 65% of their assets in U.S. Government and agencies issues. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the fund for portfolio transactions, but do not reflect sales charges. 3 The Lipper GNMA Funds Average represents funds that invest at least 65% of their assets in Government National Mortgage Association securities. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the fund for portfolio transactions, but do not reflect sales charges. 4 The Consumer Price Index is a measure of inflation and is computed from data supplied by the U.S. Department of Labor, Bureau of Labor Statistics. 3 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS FEES AND EXPENSES OF THE FUND SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C CLASS F -------------------------------------------------------------------------------------------- Maximum sales charge imposed on purchases (as a 3.75%/1/ none none none percentage of offering price) -------------------------------------------------------------------------------------------- Maximum sales charge imposed on reinvested none none none none dividends -------------------------------------------------------------------------------------------- Maximum deferred sales charge none/2/ 5.00%/3/ 1.00%/4/ none -------------------------------------------------------------------------------------------- Redemption or exchange fees none none none none --------------------------------------------------------------------------------------------
1 Sales charges are reduced or eliminated for purchases of $100,000 or more. 2 A contingent deferred sales charge of 1% applies on certain redemptions made within 12 months following purchases of $1 million or more made without a sales charge. 3 Deferred sales charges are reduced after 12 months and eliminated after six years. 4 Deferred sales charge is eliminated after 12 months. ANNUAL FUND OPERATING EXPENSES (DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B/1/ CLASS C/2/ CLASS F/2/ ------------------------------------------------------------------------------------------------------- Management Fees 0.39% 0.39% 0.39% 0.39% ------------------------------------------------------------------------------------------------------- Distribution and/or Service (12b-1) Fees/3/ 0.29% 1.00% 1.00% 0.25% ------------------------------------------------------------------------------------------------------- Other Expenses 0.17% 0.14% 0.23% 0.22% ------------------------------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 0.85% 1.53% 1.62% 0.86% -------------------------------------------------------------------------------------------------------
1 Annualized. 2 Based on estimated amounts for the current fiscal year. 3 Class A and F 12b-1 fees may not exceed 0.30% and 0.50%, respectively, of the class' average net assets annually. EXAMPLE The examples below are intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The examples assume that you invest $10,000 in the fund for the time periods indicated, that your investment has a 5% return each year and that the fund's operating expenses remain the same as shown above. The "Class A" example reflects the maximum initial sales charge in the first year. The "Class B- and Class C-assuming redemption" examples reflect applicable contingent deferred sales charges through six years and one year, respectively (after which times they are eliminated). The examples do not include fees charged by financial intermediaries, typically applicable mainly to Class F shares. Both Class B examples reflect Class A expenses for years 9 and 10 since Class B shares automatically convert to Class A after eight years. Although your actual costs may be higher or lower, based on these assumptions, your cumulative expenses would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS Class A $459 $636 $ 829 $1,385 ---------------------------------------------------------------------------------------------------------------------------------- Class B - assuming redemption $656 $883 $1,034 $1,640 ------------------------------------------------------------------------------------------------------------------- Class B - assuming no redemption $156 $483 $ 834 $1,640 ------------------------------------------------------------------------------------------------------------------- Class C - assuming redemption $265 $511 $ 881 $1,922 ------------------------------------------------------------------------------------------------------------------- Class C - assuming no redemption $165 $511 $ 881 $1,922 ------------------------------------------------------------------------------------------------------------------- Class F - excludes intermediary fees/*/ $ 88 $274 $ 477 $1,061 ------------------------------------------------------------------------------------------------------------------- *Fees charged by financial intermediaries are independent of fund expenses and will increase the overall cost of your investment. Intermediary fees typically range from 0.50% to 3.00% of assets annually depending on services offered.
4 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS INVESTMENT OBJECTIVE, STRATEGIES AND RISKS The fund's investment objective is to provide a high level of current income consistent with prudent investment risk and preservation of capital. It invests primarily in securities that are guaranteed by the "full faith and credit" pledge of the U.S. Government. The fund may also invest in securities issued by U.S. governmental agencies or instrumentalities that are not guaranteed by the U.S. Government. In addition, the fund may invest a substantial portion of its assets in securities backed by pools of mortgages, also called "mortgage-backed securities." These securities will be rated AAA by Standard & Poor's Corporation or Aaa by Moody's Investor Services, Inc. or unrated but determined to be of equivalent quality. The value of certain debt securities held by the fund may be affected by changing interest rates and prepayment risks. For example, as with other debt securities, the value of U.S. Government securities generally will decline when interest rates rise and vice versa. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed only as to the timely payment of interest and principal when held to maturity. Accordingly, the current market prices for such securities will fluctuate. Many types of debt securities, including mortgage-related securities, are subject to prepayment risk. For example, when interest rates fall, homeowners are more likely to refinance their home mortgages and "prepay" their principal earlier than expected. The fund must then reinvest the prepaid principal in new securities when interest rates on new mortgage investments are falling, thus reducing the fund's income. The fund may also hold cash, money market instruments or short-term debt securities. The size of the fund's cash position will vary and will depend on various factors, including market conditions and purchases and redemptions of fund shares. A larger cash position could detract from the achievement of the fund's objective, but it also would reduce the fund's exposure in the event of a market downturn and provide liquidity to make additional investments or to meet redemptions. The fund relies on the professional judgment of its investment adviser, Capital Research and Management Company, to make decisions about the fund's portfolio investments. The basic investment philosophy of the investment adviser is to seek undervalued securities that represent good long-term investment opportunities. Securities may be sold when the investment adviser believes they no longer represent good long-term value. 5 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS ADDITIONAL INVESTMENT RESULTS Unlike the investment results table shown on an earlier page, the table below reflects the fund's results calculated without a sales charge.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2000: ONE YEAR FIVE YEARS TEN YEARS LIFETIME Class A - began 10/17/85 (with no sales charge 11.93% 5.78% 7.06% 7.68% imposed) --------------------------------------------------------------------------------------- Lehman Brothers Govt/ Mortgage-Backed 12.29% 6.64% 7.88% 8.77% Index/1/ --------------------------------------------------------------------------------------- Lipper U.S. Govt 11.77% 5.41% 7.01% 7.36% Average/2/ --------------------------------------------------------------------------------------- Lipper GNMA Average/3/ 10.41% 5.90% 7.13% 7.89% --------------------------------------------------------------------------------------- Consumer Price 3.39% 2.54% 2.66% 3.14% Index/4/ --------------------------------------------------------------------------------------- Class A distribution rate/5/: 5.74% (For current distribution rate information, please call American FundsLine at 1-800-325-3590.) ---------------------------------------------------------------------------------------
1 The Lehman Brothers Government/Mortgage-Backed Securities Index represents a market-weighted index that includes U.S. Treasury and agency securities, as well as FNMAs, FHLMCs, and GNMAs. This index is unmanaged and does not reflect sales charges, commissions or expenses. 2 The Lipper General U.S. Government Funds Average represents funds that invest at least 65% of their assets in U.S. Government and agencies issues. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the fund for portfolio transactions, but do not reflect sales charges. 3 The Lipper GNMA Funds Average represents funds that invest at least 65% of their assets in Government National Mortgage Association securities. The results of the underlying funds in the average include the reinvestment of dividend and capital gain distributions and brokerage commissions paid by the fund for portfolio transactions, but do not reflect sales charges. 4 The Consumer Price Index is a measure of inflation and is computed from data supplied by the U.S. Department of Labor, Bureau of Labor Statistics. 5 The distribution rate represents actual distributions paid by the fund. It was calculated at net asset value by annualizing dividends paid by the fund over one month and dividing that number by the fund's average net asset value for the month. HOLDINGS BY TYPE OF INVESTMENT AS OF AUGUST 31, 2000 [pie chart] U.S. Treasury Obligations 44% Federal Agency Obligations: Mortgage Pass-Throughs 40% Federal Agency Debentures 8% Collateralized Mortgage Obligations 4% Cash & Equivalents 4% [end pie chart] Because the fund is actively managed, its holdings will change from time to time. 6 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS MANAGEMENT AND ORGANIZATION INVESTMENT ADVISER Capital Research and Management Company, an experienced investment management organization founded in 1931, serves as investment adviser to the fund and other funds, including those in The American Funds Group. Capital Research and Management Company, a wholly owned subsidiary of The Capital Group Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital Research and Management Company manages the investment portfolio and business affairs of the fund. The total management fee paid by the fund, as a percentage of average net assets, for the previous fiscal year appears earlier under "Fees and Expenses of the Fund." MULTIPLE PORTFOLIO COUNSELOR SYSTEM Capital Research and Management Company uses a system of multiple portfolio counselors in managing mutual fund assets. Under this approach the portfolio of a fund is divided into segments managed by individual counselors. Counselors decide how their respective segments will be invested, within the limits provided by a fund's objective(s) and policies and by Capital Research and Management Company's investment committee. In addition, Capital Research and Management Company's research professionals may make investment decisions with respect to a portion of a fund's portfolio. The primary individual portfolio counselors for U.S. Government Securities Fund are:
PORTFOLIO COUNSELOR/ FUND PRIMARY TITLE WITH INVESTMENT ADVISER TITLE (IF APPLICABLE) COUNSELOR SINCE (OR AFFILIATE) AND INVESTMENT EXPERIENCE ----------------------------------------------------------------------------------------------- JOHN H. SMET 1987 Senior Vice President, Capital Research and President and Trustee Management Company Investment professional since 1982 and with Capital Research and Management Company or affiliate since 1983 ----------------------------------------------------------------------------------------------- THOMAS H. HOGH 1997 Vice President, Capital International Research Investment professional since 1987 and with Capital Research and Management Company or affiliate since 1990 ----------------------------------------------------------------------------------------------- JOHN W. RESSNER 1990 Executive Vice President and Director, Capital Research Company Investment professional with Capital Research and Management Company or affiliate since 1988 -----------------------------------------------------------------------------------------------
7 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS SHAREHOLDER INFORMATION SHAREHOLDER SERVICES American Funds Service Company, the fund's transfer agent, offers you a wide range of services you can use to alter your investment program should your needs and circumstances change. These services may be terminated or modified at any time upon 60 days written notice. For your convenience, American Funds Service Company has four service centers across the country. AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS Call toll-Free from anywhere in the U.S. (8 a.m. to 8 p.m. ET): 800/421-0180 [map of the United States]
Western Western Central Eastern Central Eastern Service Center Service Center Service Center Service Center American Funds American Funds American Funds American Funds Service Company Service Company Service Company Service Company P.O. Box 2205 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280 Brea, California San Antonio, Texas Indianapolis, Indiana Norfolk, Virginia 92822-2205 78265-9522 46206-6007 23501-2280 Fax: 714/671-7080 Fax: 210/474-4050 Fax: 317/735-6620 Fax: 757/670-4773
A MORE DETAILED DESCRIPTION OF POLICIES AND SERVICES IS INCLUDED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION AND THE OWNER'S GUIDE SENT TO NEW AMERICAN FUNDS SHAREHOLDERS TITLED "WELCOME TO THE FAMILY." Both are available by writing or calling American Funds Service Company. 8 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS CHOOSING A SHARE CLASS The fund offers four different classes of shares. Each share class represents investments in the same portfolio of securities, but each class has its own sales charge and expense structure, allowing you to choose the class that best meets your situation. WHEN YOU PURCHASE SHARES OF THE FUND, YOU MUST CHOOSE A SHARE CLASS. IF NONE IS CHOSEN, YOUR INVESTMENT WILL BE MADE IN CLASS A SHARES. Shares of the fund may be purchased through various investment programs or accounts, including many types of retirement plans. The services or share classes available to you may vary depending upon how you wish to purchase shares of the fund. Factors you should consider in choosing a class of shares include: . How long you expect to own the shares . How much you intend to invest . Total expenses associated with owning shares of each class . Whether you qualify for any reduction or waiver of sales charges (for example, Class A shares may be a less expensive option over time if you qualify for a sales charge reduction or waiver) . Class B and C shares generally are not available to certain retirement plans, including employer-sponsored retirement plans such as 401(k) plans, employer-sponsored 403(b) plans, and money purchase pension and profit sharing plans . Class F shares are generally only available to fee-based programs of investment firms and registered investment advisers that have special agreements with the fund's distributor EACH INVESTOR'S FINANCIAL CONSIDERATIONS ARE DIFFERENT. YOU SHOULD SPEAK WITH YOUR FINANCIAL ADVISER TO HELP YOU DECIDE WHICH SHARE CLASS IS BEST FOR YOU. 9 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS SUMMARY OF THE PRIMARY DIFFERENCES AMONG SHARE CLASSES
CLASS A SHARES ------------------------------------------------------------------------------ Initial sales charge up to 3.75% (reduced or eliminated for purchases of $100,000 or more) Contingent deferred sales none (except on certain redemptions on purchases charge of $1 million or more bought without an initial sales charge) 12b-1 fees up to 0.30% annually Dividends higher than other classes due to lower annual expenses Purchase maximum none Conversion none CLASS B SHARES ------------------------------------------------------------------------------ Initial sales charge none Contingent deferred sales starts at 5.00% and declines each year until it charge reaches 0% after six years 12b-1 fees 1.00% annually Dividends lower than Class A and F shares due to higher distribution fees and other expenses Purchase maximum $100,000 Conversion automatic conversion to Class A shares after eight years, reducing future annual expenses CLASS C SHARES ------------------------------------------------------------------------------ Initial sales charge none Contingent deferred sales 1.00% if shares are sold within one year after charge being purchased 12b-1 fees 1.00% annually Dividends lower than Class A and F shares due to higher distribution fees and other expenses Purchase maximum $500,000 Conversion automatic conversion to Class F shares after ten years, reducing future annual expenses CLASS F SHARES ------------------------------------------------------------------------------ Initial sales charge none Contingent deferred sales none charge 12b-1 fees currently 0.25% annually (may not exceed 0.50% annually) Dividends higher than Class B and C shares due to lower distribution fees, but typically lower than Class A shares due to higher other expenses Purchase maximum none Conversion none ------------------------------------------------------------------------------
10 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS PURCHASE AND EXCHANGE OF SHARES PURCHASE OF CLASS A, B AND C SHARES Generally, you may open an account and purchase Class A, B and C shares by contacting any investment dealer (who may impose transaction charges in addition to those described in this prospectus) authorized to sell the fund's shares. You may purchase additional shares in various ways, including through your investment dealer and by mail, telephone, the Internet and bank wire. PURCHASE OF CLASS F SHARES Generally, you may only open an account and purchase Class F shares through fee-based programs of investment firms and registered investment advisers with special agreements with the fund's distributor. These firms and advisers typically charge ongoing fees for services they provide. EXCHANGE Generally, you may exchange your shares into shares of the same class of other funds in The American Funds Group without a sales charge. For purposes of computing the contingent deferred sales charge on Class B and C shares, the length of time you have owned your shares will be measured from the date of original purchase and will not be affected by any exchange. Exchanges of shares from the money market funds initially purchased without a sales charge generally will be subject to the appropriate sales charge. Exchanges have the same tax consequences as ordinary sales and purchases. See "Transactions by Telephone..." for information regarding electronic exchanges. THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S DISTRIBUTOR, RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON, INCLUDING PURCHASES WHICH ARE PART OF EXCHANGE ACTIVITY THAT COULD INVOLVE ACTUAL OR POTENTIAL HARM TO THE FUND.
PURCHASE MINIMUMS FOR ALL CLASSES OF SHARES To establish an account (including retirement plan accounts) $ 250 For a retirement plan account through payroll deduction $ 25 To add to an account $ 50 For a retirement plan account through payroll deduction $ 25 ------------------------------------------------------------------------ PURCHASE MAXIMUM FOR CLASS B SHARES $100,000 ------------------------------------------------------------------------ PURCHASE MAXIMUM FOR CLASS C SHARES $500,000 ------------------------------------------------------------------------
11 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS SHARE PRICE The fund calculates its share price, also called net asset value, as of approximately 4:00 p.m. New York time, which is the normal close of trading on the New York Stock Exchange, every day the Exchange is open. In calculating net asset value, market prices are used when available. The fund has adopted procedures to make "fair value" determinations when reliable market prices for particular securities are not available. Your shares will be purchased at the net asset value (plus any applicable sales charge in the case of Class A shares), or sold at the net asset value next determined after American Funds Service Company receives and accepts your request. A contingent deferred sales charge may apply at the time you sell certain Class A, B and C shares. SALES CHARGES CLASS A The initial sales charge you pay when you buy Class A shares differs depending upon the amount you invest and may be reduced or eliminated for larger purchases as indicated below.
SALES CHARGE AS A PERCENTAGE OF ---------------------------------- DEALER NET COMMISSION OFFERING AMOUNT AS % OF INVESTMENT PRICE INVESTED OFFERING PRICE ------------------------------------------------------------------------------ Less than $100,000 3.75% 3.90% 3.00% ------------------------------------------------------------------------------ $100,000 but less than 3.50% 3.63% 2.75% $250,000 ------------------------------------------------------------------------------ $250,000 but less than 2.50% 2.56% 2.00% $500,000 ------------------------------------------------------------------------------ $500,000 but less than 2.00% 2.04% 1.60% $750,000 ------------------------------------------------------------------------------ $750,000 but less than $1 1.50% 1.52% 1.20% million ------------------------------------------------------------------------------ $1 million or more and certain other investments none none none described below ------------------------------------------------------------------------------
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGE INVESTMENTS OF $1 MILLION OR MORE MAY BE SUBJECT TO A 1% CONTINGENT DEFERRED SALES CHARGE IF SHARES ARE SOLD WITHIN ONE YEAR OF PURCHASE. Employer-sponsored defined contribution-type plans investing $1 million or more, or with 100 or more eligible employees, and Individual Retirement Account rollovers involving retirement plan assets invested in the American Funds, may invest with no sales charge and are not subject to a contingent deferred sales charge. Also exempt are investments made through retirement plans, endowments or foundations with $50 million or more in assets, and investments made through accounts that purchased fund shares before March 15, 2001 and are part of certain qualified fee-based programs. The distributor may pay dealers up to 1% 12 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS on investments made in Class A shares with no initial sales charge. The fund may reimburse the distributor for these payments through its Plan of Distribution (see below). CLASS B AND C Class B and C shares are sold without any initial sales charge. American Funds Distributors pays 4% of the amount invested to dealers who sell Class B shares and 1% to dealers who sell Class C shares. For Class C shares, a contingent deferred sales charge of 1% applies if shares are sold within one year of purchase. For Class B shares, a contingent deferred sales charge may be applied to shares you sell within six years of purchase, as shown in the table below.
CLASS B SHARES SOLD WITHIN YEAR 1 2 3 4 5 6 -------------------------------------------------------------------- CONTINGENT DEFERRED SALES CHARGE 5% 4% 4% 3% 2% 1%
Shares acquired through reinvestment of dividends or capital gain distributions are not subject to a contingent deferred sales charge. In addition, the contingent deferred sales charge may be waived in certain circumstances. See "Contingent Deferred Sales Charge Waivers for Class B and C Shares" below. The contingent deferred sales charge is based on the original purchase cost or the current market value of the shares being sold, whichever is less. For purposes of determining the contingent deferred sales charge, if you sell only some of your shares, shares that are not subject to any contingent deferred sales charge will be sold first and then shares that you have owned the longest. See "Plans of Distribution" below for ongoing compensation paid to your dealer or financial adviser for all share classes. CONVERSION OF CLASS B AND C SHARES Class B shares automatically convert to Class A shares in the month of the eight-year anniversary of the purchase date. Class C shares automatically convert to Class F shares in the month of the ten-year anniversary of the purchase date. The Internal Revenue Service currently takes the position that these automatic conversions are not taxable. Should their position change, shareholders would still have the option of converting but may face certain tax consequences. 13 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS SALES CHARGE REDUCTIONS AND WAIVERS You must let your investment dealer or American Funds Service Company know if you qualify for a reduction in your Class A sales charge or waiver of your Class B or C contingent deferred sales charge. REDUCING YOUR CLASS A SALES CHARGE You and your "immediate family" (your spouse and your children under the age of 21) may combine investments to reduce your Class A sales charge. AGGREGATING ACCOUNTS To receive a reduced Class A sales charge, investments made by you and your immediate family (see above) may be aggregated if made for your own account(s) and/or, for instance: . 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. . solely controlled business accounts. . single-participant retirement plans. CONCURRENT PURCHASES You may combine simultaneous purchases of any class of shares of two or more American Funds, as well as individual holdings in various American Legacy variable annuities or variable life insurance policies, to qualify for a reduced Class A sales charge. Direct purchases of money market funds are excluded. RIGHTS OF ACCUMULATION You may take into account the current value (or if greater, the amount you invested less any withdrawals) of your existing holdings in any class of shares of the American Funds, as well as individual holdings in various American Legacy variable annuities or variable life insurance policies, to determine your Class A sales charge. Direct purchases of money market funds are excluded. STATEMENT OF INTENTION You can reduce the sales charge you pay on your Class A share purchases by establishing a Statement of Intention. A Statement of Intention allows you to combine all non-money market fund purchases of all share classes, as well as individual American Legacy variable annuity and life insurance policies you intend to make over a 13-month period, to determine the applicable sales charge. At your request, purchases made during the previous 90 days may be included; however, capital appreciation and reinvested dividends and capital gains do not apply toward these combined purchases. A portion of your account may be held in escrow to cover additional Class A sales charges which may be due if your total investments over the 13-month period do not qualify for the applicable sales charge reduction. 14 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS CONTINGENT DEFERRED SALES CHARGE WAIVERS FOR CLASS B AND C SHARES The contingent deferred sales charge on Class B and C shares may be waived in the following cases: . when receiving payments through systematic withdrawal plans (up to 12% of the value of each fund account); . when receiving required minimum distributions from retirement accounts upon reaching age 70 1/2; or . for redemptions due to death or post-purchase disability of the shareholder. PLANS OF DISTRIBUTION The fund has Plans of Distribution or "12b-1 Plans" under which it may finance activities primarily intended to sell shares, provided the categories of expenses are approved in advance by the fund's board of trustees. The plans provide for annual expenses of up to 0.30% for Class A shares, 1.00% for Class B and C shares, and up to 0.50% for Class F shares. For all share classes, up to 0.25% of these expenses may be used to pay service fees to qualified dealers for providing certain shareholder services. The remaining expense for each share class may be used for distribution expenses. The 12b-1 fees paid by the fund, as a percentage of average net assets, for the previous fiscal year are indicated earlier under "Fees and Expenses of the Fund." Since these fees are paid out of the fund's assets or income on an ongoing basis, over time they will increase the cost and reduce the return of an investment. The higher fees for Class B and C shares may cost you more over time than paying the initial sales charge for Class A shares. OTHER COMPENSATION TO DEALERS American Funds Distributors may pay, or sponsor informational meetings for, dealers as described in the statement of additional information. 15 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS HOW TO SELL SHARES Once a sufficient period of time has passed to reasonably assure that checks or drafts (including certified or cashiers' checks) for shares purchased have cleared (normally 15 calendar days), you may sell (redeem) those shares in any of the following ways: THROUGH YOUR DEALER OR FINANCIAL ADVISER (CERTAIN CHARGES MAY APPLY) . Shares held for you in your dealer's name must be sold through the dealer. . Class F shares must be sold through your dealer or financial adviser. 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 of record which has been changed within the last 10 days. . American Funds Service Company reserves the right to require signature guarantee(s) on any redemptions. . Additional documentation may be required for sales of shares held in corporate, partnership or fiduciary accounts. TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN FUNDSLINE/(R)/ OR AMERICAN FUNDSLINE ONLINE/(R)/: . Redemptions by telephone, fax, or computer (including American FundsLine and American FundsLine OnLine) are limited to $50,000 per shareholder each day. . Checks must be made payable to the registered shareholder. . Checks must be mailed to an address of record that has been used with the account for at least 10 days. TRANSACTIONS BY TELEPHONE, FAX, AMERICAN FUNDSLINE OR FUNDSLINE ONLINE Generally, you are automatically eligible to use these services for redemptions and exchanges unless you notify us in writing that you do not want any or all of these services. You may reinstate these services at any time. Unless you decide not to have telephone, fax, or computer services on your account(s), you agree to hold the fund, American Funds Service Company, 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 liabilities (including attorney fees) which may be incurred in connection with the exercise of these privileges, provided American Funds Service Company employs reasonable procedures to confirm that the instructions received from any person with appropriate account information are genuine. If reasonable procedures are not employed, it and/or the fund may be liable for losses due to unauthorized or fraudulent instructions. 16 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS DISTRIBUTIONS AND TAXES DIVIDENDS AND DISTRIBUTIONS The fund declares dividends from net investment income daily and distributes the accrued dividends, which may fluctuate, to shareholders each month. Dividends begin accruing one day after payment for shares is received by the fund or American Funds Service Company. Capital gains, if any, are usually distributed in December. When a capital gain is distributed, the net asset value per share is reduced by the amount of the payment. You may elect to reinvest dividends and/or capital gain distributions to purchase additional shares of this fund or any other American Fund, or you may elect to receive them in cash. Most shareholders do not elect to take capital gain distributions in cash because these distributions reduce principal value. TAXES ON DISTRIBUTIONS Distributions you receive from the fund may be subject to income tax and may also be subject to state or local taxes - unless you are exempt from taxation. For federal tax purposes, any taxable dividends and distributions of short-term capital gains are treated as ordinary income. The fund's distributions of net long-term capital gains are taxable to you as long-term capital gains. Any taxable distributions you receive from the fund will normally be taxable to you when made, regardless of whether you reinvest distributions or receive them in cash. TAXES ON TRANSACTIONS Your redemptions, including exchanges, may result in a capital gain or loss for federal tax purposes. A capital gain or loss on your investment is the difference between the cost of your shares, including any sales charges, and the price you receive when you sell them. Please see your tax adviser for further information. 17 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS FINANCIAL HIGHLIGHTS/1/ The financial highlights table is intended to help you understand the fund's results for the past five years and is currently only shown for Class A and B shares. A similar table will be shown for Class C and F shares beginning with the fund's 2001 fiscal year end. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the fund (assuming reinvestment of all dividends and distributions). This information has been audited by Deloitte & Touche LLP, whose report, along with the fund's financial statements, is included in the statement of additional information, which is available upon request.
Net gains/(losses) on Net asset securities Dividends value, Net (both realized Total from (from net Net asset Net assets, Year ended beginning of investment and investment investment value, end of end of year August 31 period income unrealized) operations income) year Total return (in millions) --------------------------------------------------------------------------------------------------------------------------------- CLASS A: 2000 $12.63 $.77/2/ $.09/2/ $.86 $(.73) $12.76 7.04% $1,083 1999 13.39 .77 (.76) .01 (.77) 12.63 (.01) 1,322 1998 13.03 .83 .40 1.23 (.87) 13.39 9.70 1,210 1997 12.78 .88 .25 1.13 (.88) 13.03 9.08 1,106 1996 13.24 .93 (.49) .44 (.90) 12.78 3.40 1,216 CLASS B: 2000 12.49 .50/2/ .07/2/ .57 (.30) 12.76 4.43 3 Ratio of Ratio of net expenses to income to Year ended average net average net Portfolio August 31 assets assets turnover rate ------------------------------------------------------ CLASS A: 2000 .85% 6.13% 63.18%/4/ 1999 .80 5.80 81.10 1998 .79 6.24 81.99 1997 .80 6.74 28.16 1996 .81 7.04 40.01 CLASS B: 2000 1.53/3/ 5.28/3/ 63.18/4/
1 The years 1996 through 2000 represent, for Class A shares, fiscal years ended August 31. The period ended 2000 represents, for Class B shares, the 169-day period ended August 31, 2000. Class B shares were not offered before March 15, 2000. Total return for Class B is based on activity during the period and thus is not representative of a full year. Total returns exclude all sales charges, including contingent deferred sales charges. 2 Based on average shares outstanding. 3 Annualized. 4 Represents portfolio turnover rate (equivalent for all share classes) for the fiscal year ended August 31, 2000. 18 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS --------------------------------------------------------- NOTES 19 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS --------------------------------------------------------- NOTES 20 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS --------------------------------------------------------- NOTES 21 U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS U.S. GOVERNMENT SECURITIES FUND / PROSPECTUS
FOR SHAREHOLDER SERVICES American Funds Service Company 800/421-0180 FOR RETIREMENT PLAN SERVICES Call your employer or plan administrator FOR DEALER SERVICES American Funds Distributors 800/421-9900 Ext. 11 FOR 24-HOUR INFORMATION American FundsLine(R) 800/325-3590 American FundsLine OnLine(R) http://www.americanfunds.com
Telephone conversations may be recorded or monitored for verification, recordkeeping and quality assurance purposes. * * * * * MULTIPLE TRANSLATIONS This prospectus may be translated into other languages. If there is any inconsistency or ambiguity as to the meaning of any word or phrase in a translation, the English text will prevail. ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS Contains additional information about the fund including financial statements, investment results, portfolio holdings, a statement from portfolio management discussing market conditions and the fund's investment strategies, and the independent accountants' report (in the annual report). STATEMENT OF ADDITIONAL INFORMATION (SAI) AND CODES OF ETHICS The SAI contains more detailed information on all aspects of the fund, including the fund's financial statements and is incorporated by reference into this prospectus. The Codes of Ethics describe the personal investing policies adopted by the fund and the fund's investment adviser and its affiliated companies. The Codes of Ethics and current SAI have been filed with the Securities and Exchange Commission ("SEC"). These and other related materials about the fund are available for review or to be copied at the SEC's Public Reference Room in Washington, D.C. (202/942-8090) or on the EDGAR database on the SEC's Internet Web site at http://www.sec.gov, or, after payment of a duplicating fee, via e-mail request to publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. HOUSEHOLD MAILINGS Each year you are automatically sent an updated prospectus, annual and semi-annual report for the fund. You may also occasionally receive proxy statements for the fund. In order to reduce the volume of mail you receive, when possible, only one copy of these documents will be sent to shareholders that are part of the same family and share the same residential address. If you would like to receive individual copies of these documents, or a free copy of the SAI or Codes of Ethics, please call American Funds Service Company at 800/421-0180 or write to the Secretary of the fund at 333 South Hope Street, Los Angeles, California 90071. Investment Company File No. 811-4318 Printed on recycled paper GVT-010-0301/MC U.S. GOVERNMENT SECURITIES FUND Part B Statement of Additional Information March 15, 2001 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 March 15, 2001. 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. . . . . . . . . . 5 Fund Organization and Voting Rights . . . . . . . . . . . . . . . . 7 Fund Trustees and Other Officers. . . . . . . . . . . . . . . . . . 8 Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Taxes and Distributions . . . . . . . . . . . . . . . . . . . . . . 16 Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 20 Sales Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Sales Charge Reductions and Waivers . . . . . . . . . . . . . . . . 25 Individual Retirement Account (IRA) Rollovers . . . . . . . . . . . 28 Price of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Selling Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Shareholder Account Services and Privileges . . . . . . . . . . . . 31 Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 34 General Information . . . . . . . . . . . . . . . . . . . . . . . . 34 Class A Share Investment Results and Related Statistics . . . . . . 36 Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 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 by GNMA. The fund may experience difficulty liquidating certain portfolio securities during significant market declines or periods of heavy redemptions. DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES The descriptions below are intended to supplement the material in the prospectus under "Investment Objective, Strategies and Risks." U.S. GOVERNMENT SECURITIES - Securities guaranteed by the U.S. Government include direct obligations of the U.S. Treasury, such as Treasury bills, notes and bonds. 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: 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, but not limited to, 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 U.S. Government Securities Fund - Page 2 securities may have either fixed or adjustable coupons. These securities include those discussed below. "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. "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 by GNMA. 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 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 the fund buys a security and obtains a simultaneous commitment from the seller to repurchase the security at a specified time and price. Repurchase agreements permit the fund to maintain liquidity and earn income over periods of time as short as overnight. The seller must maintain with the fund's custodian collateral equal to at least 100% of the repurchase price, including accrued interest, as monitored daily by the Investment Adviser. The fund will only enter into repurchase agreements involving securities in which it could otherwise invest and with selected banks and securities dealers whose financial condition is monitored by the Investment Adviser. If the seller under the repurchase agreement defaults, the fund may incur a loss if the value of the collateral securing the repurchase agreement has declined and may incur disposition costs in connection with liquidating the collateral. If bankruptcy proceedings are commenced with respect to the seller, realization of the collateral by the fund may be delayed or limited. U.S. Government Securities Fund - Page 3 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. 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. 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 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. Securities not actively traded will be considered illiquid unless they have been specifically determined to be liquid under procedures which 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 (e.g., short-term notes up to 9 months in maturity issued by corporations, governmental bodies or bank/ corporation sponsored conduits (asset-backed commercial paper)), (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 savings bank obligations (e.g., bank notes and certificates of deposit issued by savings banks or savings associations), (iv) securities of the U.S. Government, its agencies or U.S. Government Securities Fund - Page 4 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. VARIABLE AND FLOATING RATE OBLIGATIONS - The interest rates payable on certain securities in which the fund may invest may not be fixed but may fluctuate based upon changes in market rates. Variable and floating rate obligations bear coupon rates that are adjusted at designated intervals, based on the then current market rates of interest. Variable and floating rate obligations permit the fund to "lock in" the current interest rate for only the period until the next scheduled rate adjustment, but the rate adjustment feature tends to limit the extent to which the market value of the obligation will fluctuate. 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 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. There is no current intent to engage in this investment practice over the next 12 months. * * * * * * 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, although the price usually includes a profit to the dealer. The fund's portfolio turnover rate would equal 100% if each security in the fund's portfolio was 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 U.S. Government Securities Fund - Page 5 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; 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 U.S. Government Securities Fund - Page 6 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. 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 has four classes of shares - Class A, B, C and F. The shares of each class represent an interest in the same investment portfolio. Each class has equal rights as to voting, redemption, dividends and liquidation, except that each class bears different distribution expenses and may bear different transfer agent fees and other expenses properly attributable to the particular class as approved by the Board of Trustees and set forth in the fund's rule 18f-3 Plan. Class A, B, C and F shareholders have exclusive voting rights with respect to the respective class' rule 12b-1 Plans adopted in connection with the distribution of shares and on other matters in which the interests of one class are different from interests in another class. Shares of all classes of the fund vote together on matters that affect all classes in substantially the same manner. Each class votes as a class on matters that affect that class alone. The 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 7 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, 2000 ------------------------------------------------------------------------------------------------------------------ Richard G. Capen, Jr. Trustee Corporate Director and author; former $3,097/3/ 6077 San Elijo, Box 2494 United States Ambassador to Spain; Rancho Santa Fe, CA 92067 former Vice Chairman of the Board, Age: 66 Knight-Ridder, Inc., former Chairman and Publisher, The Miami Herald ---------------- ------------------------------------------------------------------------------------------------------------------ H. Frederick Christie Trustee Private Investor. Former President and $3,658/3/ P.O. Box 144 Chief Executive Officer, The Mission Palos Verdes Estates, CA Group (non-utility holding company, 90274 subsidiary of Southern California Age: 67 Edison Company) ------------------------------------------------------------------------------------------------------------------ Diane C. Creel Trustee CEO and President, The Earth Technology $3,500/3/ 100 W. Broadway Corporation (international consulting Suite 5000 engineering) Long Beach, CA 90802 Age: 52 ------------------------------------------------------------------------------------------------------------------ Martin Fenton Trustee Managing Director, Senior Resource $4,100/3/ 4660 La Jolla Village Group LLC (development and management Drive of senior living communities) Suite 725 San Diego, CA 92122 Age: 65 ------------------------------------------------------------------------------------------------------------------ Leonard R. Fuller Trustee President, Fuller Consulting (financial $3,731/3/ 4337 Marina City Drive management consulting firm) Suite 841 ETN Marina del Rey, CA 90292 Age: 54 ------------------------------------------------------------------------------------------------------------------ +* Abner D. Goldstine Vice Chairman Senior Vice President and Director, none/4/ Age: 71 and Trustee Capital Research and Management Company ------------------------ ------------------------------------------------------------------------------------------ +** Paul G. Haaga, Jr. Chairman of Executive Vice President and Director, none/4/ Age: 52 the Board Capital Research and Management Company ------------------------ ------------------------------------------------------------------------------------------ Richard G. Newman Trustee Chairman and CEO, AECOM Technology $4,131/3/ 3250 Wilshire Boulevard Corporation (architectural engineering) Los Angeles, CA 90010-1599 Age: 66 ------------------------------------------------------------------------------------------------------------------ Frank M. Sanchez Trustee President, The Sanchez Family $ 3,333 5234 Via San Delarro, #1 Corporation dba McDonald's Restaurants Los Angeles, CA 90022 (McDonald's licensee) Age: 57 ------------------------------------------------------------------------------------------------------------------ +* John H. Smet President and Senior Vice President, Capital Research none/4/ Age: 44 Trustee and Management Company ------------------------------------------------------------------------------------------------------------------ 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, 2000 SERVES/2/ -------------------------------------------------------------------------- Richard G. Capen, Jr. $88,153/3/ 14 6077 San Elijo, Box 2494 Rancho Santa Fe, CA 92067 Age: 66 -------------------------------------------------------------------------- H. Frederick Christie $214,453/3/ 19 P.O. Box 144 Palos Verdes Estates, CA 90274 Age: 67 -------------------------------------------------------------------------- Diane C. Creel $42,320/3/ 12 100 W. Broadway Suite 5000 Long Beach, CA 90802 Age: 52 -------------------------------------------------------------------------- Martin Fenton $128,153/3/ 16 4660 La Jolla Village Drive Suite 725 San Diego, CA 92122 Age: 65 -------------------------------------------------------------------------- Leonard R. Fuller $87,953/3/ 13 4337 Marina City Drive Suite 841 ETN Marina del Rey, CA 90292 Age: 54 -------------------------------------------------------------------------- +* Abner D. Goldstine none/4/ 12 Age: 71 -------------------------------------------------------------------------- +** Paul G. Haaga, Jr. none/4/ 15 Age: 52 -------------------------------------------------------------------------- Richard G. Newman $105,320/3/ 13 3250 Wilshire Boulevard Los Angeles, CA 90010-1599 Age: 66 -------------------------------------------------------------------------- Frank M. Sanchez $ 43,953 12 5234 Via San Delarro, #1 Los Angeles, CA 90022 Age: 57 -------------------------------------------------------------------------- +* John H. Smet none/4/ 2 Age: 44 --------------------------------------------------------------------------
U.S. Government Securities Fund - Page 8 + "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. U.S. Government Securities Fund - Page 9 * 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) through the 2000 fiscal year for participating Trustees is as follows: Richard G. Capen, Jr. ($2,485), H. Frederick Christie ($9,739), Diane C. Creel ($8,776), Martin Fenton, ($19,025), Leonard R. Fuller ($13,151) and Richard G. Newman ($46,355). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the fund until paid to the Trustees. 4 Abner D. Goldstine, Paul G. Haaga, Jr. and John H. Smet are affiliated with the Investment Adviser and, accordingly, receive no compensation from the fund. U.S. Government Securities Fund - Page 10 OTHER OFFICERS
POSITION(S) PRINCIPAL OCCUPATION(S) DURING NAME AND ADDRESS AGE WITH REGISTRANT PAST 5 YEARS ------------------------------------------------------------------------------- Michael J. Downer 46 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 52 Secretary Vice President - Fund Business 333 South Hope Street Management Group, Capital Los Angeles, CA 90071 Research and Management Company ------------------------------------------------------------------------------- Anthony W. Hynes, Jr. 38 Treasurer Vice President - Fund Business 135 South State Management Group, Capital College Blvd. Research and Management Company Brea, CA 92821 ------------------------------------------------------------------------------- Kimberly S. Verdick 36 Assistant Assistant Vice President - Fund 333 South Hope Street Secretary Business Management Group, Los Angeles, CA 90071 Capital Research and Management Company -------------------------------------------------------------------------------
All of the officers listed are officers and/or directors/trustees of one or more of the other funds for which Capital Research and Management Company serves as Investment Adviser. No compensation is paid by the 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 $210 for each Board of Trustees meeting attended. In addition, various Trustees participate with directors and trustees of certain other funds in The American Funds Group in joint meetings of Contracts Committees, Audit Committees and Nominating Committees; total fees for attendance at these meetings, which are prorated among the participants in proportion to the number of funds represented, are $2,510 for each meeting of the Contracts Committee and $1,000 for each meeting of the Audit and Nominating Committees. 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 February 15, 2001 the officers and Trustees 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, Capital Research and Management Company, 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 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 U.S. Government Securities Fund - Page 11 retain quality personnel. The Investment Adviser is a wholly owned subsidiary of The Capital Group Companies, Inc. The Investment Adviser is responsible for managing more than $300 billion of stocks, bonds and money market instruments and serves over 11 million shareholder accounts 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, 2001, 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; shareholder recordkeeping and administrative services; 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 Plans 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. Gross investment income is determined in accordance with generally accepted accounting principles and does not include gains or losses from sales of capital assets. The management fee is based on the following rates and month-end net asset levels: U.S. Government Securities Fund - Page 12 NET ASSET LEVEL
RATE IN EXCESS OF UP TO ------------------------------------------------------------------------------ 0.30% $ 0 $ 60,000,000 ------------------------------------------------------------------------------ 0.21 60,000,000 1,000,000,000 ------------------------------------------------------------------------------ 0.18 1,000,000,000 3,000,000,000 ------------------------------------------------------------------------------ 0.16 3,000,000,000 ------------------------------------------------------------------------------
The agreement also provides for fees based on monthly gross investment income at the following rates: MONTHLY GROSS INVESTMENT
INCOME RATE IN EXCESS OF UP TO ------------------------------------------------------------------------------ 3.00% $ 0 $3,333,333 ------------------------------------------------------------------------------ 2.25 3,333,333 8,333,333 ------------------------------------------------------------------------------ 2.00 8,333,333 ------------------------------------------------------------------------------
Assuming net assets of $1.1 billion and gross investment income levels of 6%, 7%, 8%, 9% and 10%, management fees would be 0.37%, 0.40%, 0.42%, 0.44% and 0.46%, respectively. The Investment Adviser has agreed that in the event the Class A expenses of the fund (with the exclusion of interest, taxes, brokerage costs, extraordinary expenses such as litigation and acquisitions or other expenses excludable under applicable state securities laws or regulations) for any fiscal year ending on a date on which the Agreement is in effect, exceed the expense limitations, if any, applicable to the fund pursuant to state securities laws or any regulations thereunder, it will reduce its fee by the extent of such excess and, if required pursuant to any such laws or any regulations thereunder, will reimburse the fund in the amount of such excess. To the extent the fund's management fee must be waived due to Class A share expense ratios exceeding the above limit, management fees will be reduced similarly for all classes of shares of the fund or other Class A fees will be waived in lieu of management fees. For the fiscal years ended 2000, 1999, and 1998, the Investment Adviser received advisory fees of $4,622,000, $5,028,000, and $4,450,000, respectively. ADMINISTRATIVE SERVICES AGREEMENT - The Administrative Services Agreement (the "Administrative Agreement") between the fund and the Investment Adviser, relating to the fund's Class C and F shares, will continue in effect until May 31, 2002, unless sooner terminated, and may be renewed from year to year thereafter, provided that any such renewal has been specifically approved at least annually by the vote of a majority of Trustees who are not parties to the Administrative Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Administrative Agreement provides that the fund may terminate the agreement at any time by vote of a majority of Trustees who are not interested persons of the fund. The Investment Adviser has the right to terminate the Administrative Agreement upon 60 days' written notice to U.S. Government Securities Fund - Page 13 the fund. The Administrative Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act). Under the Administrative Agreement, the Investment Adviser provides certain transfer agent and administrative services for shareholders of the fund's Class C and F shares. The Investment Adviser contracts with third parties, including American Funds Service Company, the fund's Transfer Agent, to provide these services. Services include, but are not limited to, shareholder account maintenance, transaction processing, tax information reporting, and shareholder and fund communications. In addition, the Investment Adviser monitors, coordinates and oversees the activities performed by third parties. As compensation for its services, the Investment Adviser receives transfer agent fees for transfer agent services provided to the fund's Class C and F shares. Transfer agent fees are paid monthly according to a fee schedule contained in a Shareholder Services Agreement between the fund and American Funds Service Company. The fund's Class C and F shares pay only those transfer agent fees that are attributed to accounts and activities generated by their respective share class. The Investment Adviser also receives an administrative services fee for administrative services provided to the fund's Class C and F shares. Administrative services fees are paid monthly, accrued daily and calculated at the annual rate of 0.15% of the average net assets of the fund's Class C and F shares. PRINCIPAL UNDERWRITER AND PLANS OF DISTRIBUTION - 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 Plans of Distribution (the "Plans"), pursuant to rule 12b-1 under the 1940 Act. The Principal Underwriter receives amounts payable pursuant to the Plans (see below). In addition, the Principal Underwriter receives revenues from sales of the fund's shares. For Class A shares, the Principal Underwriter receives commission revenue consisting of that portion of the Class A sales charge remaining after the allowances by the Principal Underwriter to investment dealers. For Class B shares, the Principal Underwriter sells the rights to Class B 12b-1 fees paid by the fund for distribution expenses to a third party and receives the revenue remaining after compensating investment dealers for sales of Class B shares. The fund also pays the Principal Underwriter for advancing the immediate service fees paid to qualified dealers of Class B shares. For Class C shares, the Principal Underwriter receives any contingent deferred sales charges that apply to Class C shares during the first year after purchase. The fund pays the Principal Underwriter for advancing the immediate service fees and commissions paid to qualified dealers of Class C shares. For Class F shares, the fund pays the Principal Underwriter for advancing the immediate service fees paid to qualified dealers and advisers of Class F shares. Commissions retained by the Principal Underwriter on sales of Class A shares during the 2000 fiscal year amounted to $410,000 after an allowance of $1,620,000 to dealers. During the fiscal years ended 1999 and 1998, the Principal Underwriter retained $983,000 and $468,000, respectively, on sales of Class A shares after an allowance of $4,031,000 and $1,913,000 to dealers, respectively. Revenue retained and service fees received by the Principal Underwriter on sales of Class B shares during the 2000 fiscal year amounted to $21,000 after compensation of $137,000 to dealers. U.S. Government Securities Fund - Page 14 As required by rule 12b-1 and the 1940 Act, the Plans (together with the Principal Underwriting Agreement) have been approved by the full Board of 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 Plans or the Principal Underwriting Agreement. Potential benefits of the Plans to the fund include 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 discretion of the trustees who are not "interested persons" during the existence of the Plans. The Plans may not be amended to increase materially the amount spent for distribution without shareholder approval. Plan expenses are reviewed quarterly and the Plans must be renewed annually by the Board of Trustees. Under the Plans, the fund may annually expend (i) for Class A shares, up to 0.30% of its net assets attributable to Class A shares, (ii) for Class B shares, 1.00% of its net assets attributable to Class B shares, (iii) for Class C shares, 1.00% of its net assets attributable to Class C shares, and (iv) for Class F shares, up to 0.50% of its net assets attributable to Class F shares, 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. For Class A shares, (i) up to 0.25% is reimbursed to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) up to the amount allowable under the fund's Class A 12b-1 limit is reimbursed to the Principal Underwriter for paying distribution-related expenses, including dealer commissions and wholesaler compensation paid on sales of shares of $1 million or more purchased without a sales charge (including purchases by employer-sponsored defined contribution-type retirement plans investing $1 million or more or with 100 or more eligible employees, and retirement plans, endowments and foundations with $50 million or more in assets) ("no load purchases"). Commissions on no load purchases of Class A shares in excess of the Class A Plan limitation not reimbursed to the Principal Underwriter during the most recent fiscal quarter are recoverable for five quarters, provided that such commissions do not exceed the annual expense limit. After five quarters these commissions are not recoverable. For Class B shares, (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.75% is paid to the Principal Underwriter for distribution-related expenses, including the financing of commissions paid to qualified dealers. For Class C shares, (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.75% is paid to the Principal Underwriter for paying distribution-related expenses, including commissions paid to qualfied dealers. For Class F shares, 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers or advisers. Currently, no compensation is paid under the fund's Class F Plan for distribution-related expenses. During the 2000 fiscal year, the fund paid or accrued $3,395,000 for compensation to dealers or the Principal Underwriter under the Plan for Class A shares and $7,000 under the Plan for Class U.S. Government Securities Fund - Page 15 B shares. As of August 31, 2000, accrued and unpaid distribution expenses for Class A and Class B shares were $573,000 and $2,000, respectively. 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. TAXES AND DISTRIBUTIONS FUND TAXATION - The fund has elected 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 100% of 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. To be treated as a regulated investment company under Subchapter M of the Code, the fund must also (a) derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of securities or foreign currencies, or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to the business of investing in such securities or currencies, and (b) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the fund's assets is represented by cash, U.S. Government securities and securities of other regulated investment companies, and other securities (for purposes of this calculation generally limited, in respect of any one issuer, to an amount not greater than 5% of the market value of the fund's assets and 10% of the outstanding voting securities of such issuer) and (ii) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies), or two or more issuers which the fund controls and which are determined to be engaged in the same or similar trades or businesses. 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. Although the fund intends to distribute its net investment income and net capital gains so as to avoid excise U.S. Government Securities Fund - Page 16 tax liability, the fund may determine that it is the interest of shareholders to distribute a lesser amount. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS - Dividends and capital gain distributions on fund shares will be reinvested in shares of the fund of the same class, unless shareholders indicate in writing that they wish to receive them in cash or in shares of the same class of other American Funds, as provided in the prospectus. Distributions of investment company taxable income and net realized capital gains to individual shareholders will be taxable 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 that share on the reinvestment date. 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. 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. 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 during the 90-day period beginning on the date which is 45 days before the date on which the shares become ex-dividend. Capital gain distributions are not eligible for the dividends-received deduction. 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 taxation at the level of the fund. In addition, some of the bonds may be purchased by a fund at a discount that exceeds the original issue discount on such bonds, if any. This additional discount represents market discount for federal income tax purposes. The gain realized on the disposition of any bond having market discount generally will be treated as taxable ordinary income to the extent it does not exceed the accrued market discount on such bond (unless a fund elects to include market discount in income in tax years to which it is attributable). Generally, market discount accrues on a daily basis for each day the bond is held by a fund on a straight-line basis over the time remaining to the bond's maturity. In the case of any debt security having a fixed maturity date of not more than one year from its date of U.S. Government Securities Fund - Page 17 issue, the gain realized on disposition generally will be treated as short-term capital gain. In general, any gain realized on disposition of a security held less than one year is treated as short-term capital gain. CAPITAL GAIN DISTRIBUTIONS - 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. 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 the 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. SHAREHOLDER TAXATION - In January of each year individual shareholders of the fund will receive a statement of the federal income tax status of all distributions. Shareholders of the fund also may be subject to state and local taxes on distributions received from the fund. 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. 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 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. Redemptions of shares, including exchanges for shares of another American Fund, may result in federal, state and local tax consequences (gain or loss) to the shareholder. However, conversion from one class to another class in the same fund should not be a taxable event. If a shareholder exchanges or otherwise disposes of shares of the fund within 90 days of having acquired such shares, and if, as a result of having acquired those shares, the shareholder subsequently pays a reduced sales charge for shares of the fund, or of a different fund, the sales charge previously incurred in acquiring the fund's shares will not be taken into account (to the extent such previous sales charges do not exceed the reduction in sales charges) for the purposes of determining the amount of gain or loss on the exchange, but will be treated as U.S. Government Securities Fund - Page 18 having been incurred in the acquisition of such other funds. Also, any loss realized on a redemption or exchange of shares of the fund will be disallowed to the extent substantially identical shares are reacquired within the 61-day period beginning 30 days before and ending 30 days after the shares are disposed of. 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 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. The foregoing discussion of U.S. federal income tax law relates solely to the application of that law to U.S. persons, i.e., U.S. citizens and residents and U.S. corporations, partnerships, trusts and estates. Each shareholder who is not a U.S. person should consider the U.S. and foreign tax consequences of ownership of shares of the fund, including the possibility that such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or a lower rate under an applicable income tax treaty) on dividend income received by the shareholder. Shareholders should consult their tax advisers about the application of federal, state and local tax law in light of their particular situation. U.S. Government Securities Fund - Page 19 PURCHASE OF SHARES
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS ------------------------------------------------------------------------------- See "Purchase $50 minimum (except where a Minimums" for initial lower minimum is noted under investment minimums. "Purchase Minimums"). ------------------------------------------------------------------------------- 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 Call 800/421-0180 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 the Principal Underwriter reserve the right to reject any purchase order. Generally, Class F shares may only be purchased through fee-based programs of investment firms and registered investment advisers who have special agreements with the fund's distributor. Class B and C shares are generally not available to certain employer-sponsored retirement plans, such as 401(k) plans, employer-sponsored 403(b) plans, and money purchase U.S. Government Securities Fund - Page 20 pension and profit sharing plans. In addition, the state tax-exempt funds are only offered in certain states and tax-exempt funds in general should not serve as retirement plan investments. PURCHASE MINIMUMS - The minimum initial investment for all funds in The American Funds Group, except the money market funds and the state tax-exempt funds, is $250. The minimum initial investment 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. Purchase 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. The minimum is $50 for additional investments (except for retirement plan payroll deductions as noted above). PURCHASE MAXIMUM FOR CLASS B SHARES - The maximum purchase order for Class B shares for all American Funds is $100,000. For investments above $100,000, Class A shares are generally a less expensive option over time due to sales charge reductions or waivers. PURCHASE MAXIMUM FOR CLASS C SHARES - The maximum purchase order for Class C shares for all American Funds is $500,000. FUND NUMBERS - Here are the fund numbers for use with our automated phone line, American FundsLine/(R)/ (see description below):
FUND FUND FUND FUND NUMBER NUMBER NUMBER NUMBER FUND CLASS A CLASS B CLASS C CLASS F ---------------------------------------------------------------------------------------- STOCK AND STOCK/BOND FUNDS AMCAP Fund/(R)/ . . . . . . . . . . . . . . . 02 202 302 402 American Balanced Fund/(R)/ . . . . . . . . . 11 211 311 411 American Mutual Fund/(R)/ . . . . . . . . . . 03 203 303 403 Capital Income Builder/(R)/ . . . . . . . . . 12 212 312 412 Capital World Growth and Income Fund/SM/ . . 33 233 333 433 EuroPacific Growth Fund/(R)/ . . . . . . . . 16 216 316 416 Fundamental Investors/SM/ . . . . . . . . . . 10 210 310 410 The Growth Fund of America/(R)/ . . . . . . . 05 205 305 405 The Income Fund of America/(R)/ . . . . . . . 06 206 306 406 The Investment Company of America/(R)/ . . . 04 204 304 404 The New Economy Fund/(R)/ . . . . . . . . . . 14 214 314 414 New Perspective Fund/(R)/ . . . . . . . . . . 07 207 307 407 New World Fund/SM/ . . . . . . . . . . . . . 36 236 336 436 SMALLCAP World Fund/(R)/ . . . . . . . . . . 35 235 335 435 Washington Mutual Investors Fund/SM/ . . . . 01 201 301 401 BOND FUNDS American High-Income Municipal Bond Fund/(R)/ 40 240 340 440 American High-Income Trust/SM/ . . . . . . . 21 221 321 421 The Bond Fund of America/SM/ . . . . . . . . 08 208 308 408 Capital World Bond Fund/(R)/ . . . . . . . . 31 231 331 431 Intermediate Bond Fund of America/SM/ . . . . 23 223 323 423 Limited Term Tax-Exempt Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . 43 243 343 443 The Tax-Exempt Bond Fund of America/(R)/ . . 19 219 319 419 The Tax-Exempt Fund of California/(R)/* . . . 20 220 320 420 The Tax-Exempt Fund of Maryland/(R)/* . . . . 24 224 324 424 The Tax-Exempt Fund of Virginia/(R)/* . . . . 25 225 325 425 U.S. Government Securities Fund/SM/ . . . . . 22 222 322 422 MONEY MARKET FUNDS The Cash Management Trust of America/(R)/ . . 09 209 309 409 The Tax-Exempt Money Fund of America/SM/ . . 39 N/A N/A N/A The U.S. Treasury Money Fund of America/SM/ . 49 N/A N/A N/A ___________ *Available only in certain states.
U.S. Government Securities Fund - Page 21 SALES CHARGES CLASS A SALES CHARGES - The sales charges you pay when purchasing Class A shares of 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 "Fund Numbers" for a listing of the funds.)
DEALER SALES CHARGE AS CONCESSION PERCENTAGE OF THE: AS PERCENTAGE ------------------ OF THE AMOUNT OF PURCHASE AT THE OFFERING PRICE NET AMOUNT OFFERING OFFERING -INVESTED- PRICE 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 $250,000 . 3.63 3.50 2.75 $250,000 but less than $500,000 . 2.56 2.50 2.00 $500,000 but less than $750,000 . 2.04 2.00 1.60 $750,000 but less than $1 million 1.52 1.50 1.20 $1 million or more . . . . . . . . . . none none (see below) -----------------------------------------------------------------------------
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGES - Investments of $1 million or more are sold with no initial sales charge. HOWEVER, A 1% CONTINGENT DEFERRED SALES CHARGE (CDSC) MAY BE U.S. Government Securities Fund - Page 22 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, and Individual Retirement Account rollovers from retirement plans with assets invested in the American Funds (see "Individual Retirement Account (IRA) Rollovers" below) may invest with no sales charge and are not subject to a CDSC. 403(b) plans may be treated as employer-sponsored plans for sales charge purposes if: (i) the American Funds are principal investment options; (ii) the employer facilitates the enrollment process by, for example, allowing for onsite group enrollment meetings held during working hours; and (iii) there is only one dealer firm assigned to the plans. 403(b) plans meeting these criteria may invest with no sales charge and are not subject to a CDSC if investing $1 million or more or having 100 or more eligible employees. Investments made through accounts that purchased Class A shares of the fund before March 15, 2001 and are part of certain qualified fee-based programs, and 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 CDSC. A dealer concession of up to 1% may be paid by the fund under its Class A Plan of Distribution on investments made with no initial sales charge. In addition, Class A shares of the stock, stock/bond and bond funds may be sold at net asset value to: (1) current or retired directors, trustees, officers and advisory board members of, and certain lawyers who provide services to, the funds managed by Capital Research and Management Company, current or retired employees of Washington Management Corporation, current or retired employees and partners of The Capital Group Companies, Inc. and its affiliated companies, certain family members and employees of the above persons, and trusts or plans primarily for such persons; (2) 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) insurance company separate accounts; (5) accounts managed by subsidiaries of The Capital Group Companies, Inc.; (6) The Capital Group Companies, Inc., its affiliated companies and Washington Management Corporation; and (7) wholesalers and full-time employees of insurance companies involved in the distribution of insurance company separate accounts whose underlying investments are managed by any affiliate of The Capital Group Companies, Inc. Shares are offered at net asset value to these persons and organizations due to anticipated economies in sales effort and expense. U.S. Government Securities Fund - Page 23 CONTINGENT DEFERRED SALES CHARGE ON CLASS A AND C SHARES - Except as described above, a CDSC of 1% applies to redemptions of Class A shares of the American Funds, other than the money market funds, made within 12 months following the purchase of Class A shares of $1 million or more made without an initial sales charge. A CDSC of 1% also applies to redemptions of Class C shares of the American Funds made within 12 months following the purchase of the Class C shares. 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 the longest are assumed to be redeemed first for purposes of calculating this CDSC. The CDSC may be waived in certain circumstances. See "CDSC Waivers for Class A and C Shares" below. CLASS B SALES CHARGES - Class B shares are sold without any initial sales charge. However, a CDSC may be applied to shares you sell within six years of purchase, as shown in the table below:
CONTINGENT DEFERRED SALES CHARGE ON SHARES SOLD WITHIN YEAR AS A % OF SHARES BEING SOLD ------------------------------------------------------------------------------ 1 5.00% 2 4.00% 3 4.00% 4 3.00% 5 2.00% 6 1.00%
There is no CDSC on appreciation in share value above the initial purchase price or on shares acquired through reinvestment of dividends or capital gain distributions. In addition, the CDSC may be waived in certain circumstances. See "CDSC Waivers for Class B shares" below. The CDSC is based on the original purchase cost or the current market value of the shares being sold, whichever is less. In processing redemptions of Class B shares, shares that are not subject to any CDSC will be redeemed first followed by shares that you have owned the longest during the six-year period. CLASS F SALES CHARGE - Class F shares are sold with no initial or contingent deferred sales charge. DEALER COMMISSIONS AND COMPENSATION - For Class A shares, commissions (up to 1%) are paid to dealers who initiate and are responsible for purchases of $1 million or more, for purchases by any employer-sponsored defined contribution-type plan investing $1 million or more or with 100 or more eligible employees, IRA rollover accounts (as described in "Individual Retirement Account (IRA) Rollovers" below), and for purchases made at net asset value by certain retirement plans, endowments and foundations with assets of $50 million or more. Commissions on investments in Class A shares are paid at the following rates: 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. Commissions are based on cumulative investments and are not annually reset. For Class B shares, compensation equal to 4.00% of the amount invested is paid by the Principal Underwriter to dealers who sell Class B shares. U.S. Government Securities Fund - Page 24 For Class C shares, compensation equal to 1.00% of the amount invested is paid by the Principal Underwriter to dealers who sell Class C shares. CONVERSION OF CLASS B AND C SHARES - Class B shares automatically convert to Class A shares in the month of the eight-year anniversary of the purchase date. Class C shares automatically convert to Class F shares in the month of the ten-year anniversary of the purchase date. The conversion of shares is subject to the Internal Revenue Service's continued position that the conversions are not subject to federal income tax. In the event the Internal Revenue Service no longer takes this position, the automatic conversion feature may be suspended, in which event no further conversions of Class B or C shares would occur while such suspension remained in effect. In that event, at your option, Class B shares could be exchanged for Class A shares and Class C shares for Class F shares on the basis of the relative net asset values of the two classes, without the imposition of a sales charge or fee; however, such an exchange could constitute a taxable event for you. Absent such an exchange, Class B and C shares would continue to be subject to higher expenses for longer than eight years and ten years, respectively. SALES CHARGE REDUCTIONS AND WAIVERS REDUCING YOUR CLASS A 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. STATEMENT OF INTENTION - You may enter into a non-binding commitment to purchase shares of a fund(s) 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 future 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 for equity funds and $100,000 or more for bond funds 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 use 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 Statement period, the appropriate number of shares held in escrow will be redeemed to pay such difference. If the proceeds from this redemption are inadequate, the purchaser 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. Accordingly, upon your U.S. Government Securities Fund - Page 25 request, the sales charge paid on investments made 90 days prior to the Statement revision will be adjusted to reflect the revised Statement. Existing holdings eligible for rights of accumulation (see below), including Class A shares held in a fee-based arrangement, other classes of shares of the American Funds, and any individual investments in American Legacy variable annuities and variable life insurance policies (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. The Statement will be considered completed if the shareholder dies within the 13-month Statement period. Commissions will not be adjusted or paid on the difference between the Statement amount and the amount actually invested before the shareholder's death. 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 variable annuities and variable life insurance policies 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. There will be no retroactive adjustments in sales charges on investments made during the 13-month period. 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 made by you and your immediate family (your spouse and your children under the age of 21), if all parties are purchasing shares for their own accounts and/or: . individual-type employee benefit plan(s), such as an IRA, 403(b) plan (see exception below), or single-participant Keogh-type plan; . business accounts solely controlled by you or your immediate family (for example, you own the entire business); . trust accounts established by you or your immediate family. 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; or . endowments or foundations established and controlled by you or your immediate family. U.S. Government Securities Fund - Page 26 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, excluding individual-type employee benefit plans described above; . made for two or more employee benefit plans of a single employer or of affiliated employers as defined in the 1940 Act, again excluding individual-type employee benefit plans described above; . for a diversified common trust fund or other diversified pooled account not specifically formed for the purpose of accumulating fund shares; . for non-profit, charitable or educational organizations (or any employer-sponsored retirement plan for such an endowment or foundation) or any endowments or foundations established and controlled by the organization; or . for participant accounts of a 403(b) plan that is treated as an employer-sponsored plan (see "Class A Purchases Not Subject to Sales Charges" above), or made for two or more 403(b) plans that are treated as employer-sponsored plans of a single employer or affiliated employers as defined in the 1940 Act. 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 all classes of shares of two or more funds in The American Funds Group, as well as individual holdings in American Legacy variable annuities and variable life insurance policies. Shares of money market funds purchased through an exchange, reinvestment or cross-reinvestment from a fund having a sales charge also qualify. However, direct purchases of the money market funds are excluded. RIGHTS OF ACCUMULATION - You may take into account the current value (or if greater, the amount you invested less any withdrawals) of your existing holdings in all share classes of 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 variable annuities and variable life insurance policies. Direct purchases of the money market funds are excluded. CDSC WAIVERS FOR CLASS A AND C SHARES - Any CDSC on Class A and C shares may be waived in the following cases: (1) Exchanges (except if shares acquired by exchange are then redeemed within 12 months of the initial purchase). U.S. Government Securities Fund - Page 27 (2) Distributions from 403(b) plans or IRAs due to death, post-purchase disability or attainment of age 59-1/2. (3) Tax-free returns of excess contributions to IRAs. (4) Redemptions through systematic withdrawal plans (see "Automatic Withdrawals" below), not exceeding 12% each year of the lesser of the original purchase cost or the current market value of the shares being sold that would otherwise be subject to a CDSC. CDSC WAIVERS FOR CLASS B SHARES - Any CDSC on Class B shares may be waived in the following cases: (1) Redemptions through systematic withdrawal plans ("SWPs") (see "Automatic Withdrawals" below) not exceeding 12% each year of the lesser of the original purchase cost or the current market value of the shares being sold that would otherwise be subject to a CDSC. Shares not subject to a CDSC (such as shares representing reinvestment of distributions) will be redeemed first and will count toward the 12% limitation. If there are insufficient shares not subject to a CDSC, shares subject to the lowest CDSC will be redeemed next until the 12% limit is reached. The 12% fee from CDSC limit is calculated on a pro rata basis at the time the first payment is made and is recalculated thereafter on a pro rata basis at the time of each SWP payment. Shareholders who establish a SWP should be aware that the amount of that payment not subject to a CDSC may vary over time depending on fluctuations in net asset value of their account. This privilege may be revised or terminated at any time. (2) Required minimum distributions taken from retirement accounts upon the attainment of age 70-1/2. (3) Distributions due to death or post-purchase disability of a shareholder. In the case of joint tenant accounts, if one joint tenant dies, the surviving joint tenant(s), at the time they notify the Transfer Agent of the decedent's death and remove his/her name from the account, may redeem shares from the account without incurring a CDSC. Redemptions subsequent to the notification to the Transfer Agent of the death of one of the joint owners will be subject to a CDSC. INDIVIDUAL RETIREMENT ACCOUNT (IRA) ROLLOVERS Assets from a retirement plan (plan assets) may be invested in any class of shares of the American Funds (except as described below) through an IRA rollover plan. All such rollover investments will be subject to the terms and conditions for Class A, B, C and F shares contained in the fund's current prospectus and statement of additional information. In the case of an IRA rollover involving plan assets that offered an investment option managed by any affiliate of The Capital Group Companies, Inc., including any of the American Funds, the assets may only be invested in Class A shares of the American Funds. Such investments will be at net asset value and will not be subject to a contingent deferred sales charge. Dealers who initiate and are responsible for such investments will be compensated pursuant to the schedule applicable to Class A share investments of $1 million or more (see "Dealers Commissions and Compensation" above). U.S. Government Securities Fund - Page 28 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 do not always indicate prices at which you will be purchasing and redeeming shares of the fund, since such prices generally reflect the previous day's closing price 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 as of approximately 4:00 p.m. New York time, which is the normal close of trading on the New York Stock Exchange each day the Exchange is open. If, for example, the Exchange closes at 1:00 p.m., the fund's share price would still be determined as of 4:00 p.m. New York time. The New York Stock Exchange is currently closed on weekends and on the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. All portfolio securities of funds managed by Capital Research and Management Company (other than money market funds) are valued, and the net asset value per share is determined as follows: 1. Equity securities, including depositary receipts, are valued at the last reported sale price on the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. In cases where equity securities are traded on more than one exchange, the securities are valued on the exchange or market determined by the Investment Adviser to be the broadest and most representative market, which may be either a securities exchange or the over-the-counter market. 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. Short-term securities maturing within 60 days are valued at amortized cost which approximates market value. Assets or liabilities initially expressed in terms of non-U.S. currencies are translated prior to the next determination of the net asset value of the fund's shares into U.S. dollars at the prevailing market rates. Securities and assets for which representative market quotations are not readily available are valued at fair value as determined in good faith under policies approved by the fund's Board. The fair value of all other assets is added to the value of securities to arrive at the total assets; 2. Liabilities, including accruals of taxes and other expense items, are deducted from total assets; and U.S. Government Securities Fund - Page 29 3. Net assets so obtained are then divided by the total number of shares outstanding, and the result, rounded to the nearer cent, is the net asset value per share. Any purchase order may be rejected by the Principal Underwriter or by the fund. The Principal Underwriter will not knowingly sell shares of the fund directly or indirectly to any person or entity, where, after the sale, such person or entity would own beneficially directly or indirectly more than 4.5% of the outstanding shares of the fund without the consent of a majority of the fund's Board of Trustees. SELLING SHARES Shares are sold at the net asset value next determined after your request is received in good order by the Transfer Agent. Sales of certain Class A, B and C shares may be subject to a CDSC. Generally, Class F shares may only be sold through fee-based programs of investment firms and registered investment advisers with special agreements with the fund's distributor. You may sell (redeem) other classes of 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 of 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. The Transfer Agent reserves the right to require a signature guarantee on any redemptions. - Additional documentation may be required for sales of shares held in corporate, partnership or fiduciary accounts. - You must include 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. U.S. Government Securities Fund - Page 30 - 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). - If you request check writing privileges, you will be provided with checks that you may use to draw against your account. These checks may be made payable to anyone you designate and must be signed by the authorized number of registered shareholders exactly as indicated on your checking account signature card. - Check writing is not available for Class B, C or F shares of The Cash Management Trust. If you sell Class A, B or C shares and request a specific dollar amount to be sold, we will sell sufficient shares so that the sale proceeds, after deducting any applicable CDSC, equals the dollar amount requested. Redemption proceeds will not be mailed until sufficient time has passed to provide reasonable assurance that checks or drafts (including certified or cashier's checks) for shares purchased have cleared (which may take up to 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 of Class A, B, C or F shares without a sales charge in the Class A shares of any fund in The American Funds Group within 90 days after the date of the redemption or distribution (any CDSC on Class A or C shares will be credited to your account). In addition, proceeds from a redemption or a dividend or capital gain distribution of Class C shares may be reinvested in Class C shares. Redemption proceeds of shares representing direct purchases in the money market funds that are reinvested in non-money market funds will be subject to a sales charge. Proceeds will be reinvested at the next calculated net asset value after your request is received and accepted by the Transfer Agent. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES The following services and privileges are generally available to all shareholders. However, certain services and privileges may not be available if your account is held with an investment dealer. U.S. Government Securities Fund - Page 31 AUTOMATIC INVESTMENT PLAN - An automatic investment plan enables you to make monthly or quarterly investments in The American Funds through automatic debits from your bank account. To set up a plan you must fill out an account application and specify the amount you would like to invest ($50 minimum) 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. For example, if the date you specified falls on a weekend or holiday, your money will be invested on the next business day. 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 of the same class and fund at net asset value unless you indicate otherwise on the account application. You also may elect to have dividends and/or capital gain distributions paid in cash by informing the fund, the Transfer Agent or your investment dealer. If you have elected to receive dividends and/or capital gain distributions in cash, and the postal or other delivery service is unable to deliver checks to your address of record, or you do not respond to mailings from American Funds Service Company with regard to uncashed distribution checks, your distribution option will automatically be converted to having all dividends and other distributions reinvested in additional shares. CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - You may cross-reinvest dividends and capital gains ("distributions") of the same share class 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 only exchange shares into other funds in The American Funds Group within the same class. However, exchanges from Class A shares of The Cash Management Trust of America may be made to Class B or C shares of any other American Fund for dollar cost averaging purposes. 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. U.S. Government Securities Fund - Page 32 Exchanges of Class F shares generally may only be done through fee-based programs of investment firms and registered investment advisers with special agreements with the fund's distributor. You may exchange shares of other classes by writing to the Transfer Agent (see "Selling 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 "American Funds Service Company Service Areas" -- "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 Bank and 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 of the same class 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. 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, purchases through automatic investment plans and certain retirement plans, as well as automatic exchanges and withdrawals will be confirmed at least quarterly. AMERICAN FUNDSLINE AND 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) from non-retirement plan accounts, 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 "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 - Purchase Minimums" and "Purchase of Shares - Fund Numbers"), personal identification number (generally the last four digits of your Social Security number or other tax identification number associated with your account) and account number. 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 U.S. Government Securities Fund - Page 33 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, it and/or the fund may be liable for losses due to unauthorized or fraudulent instructions. In the event that shareholders are unable to reach the fund by telephone because of technical difficulties, market conditions, or a natural disaster, redemption and exchange requests may be made in writing only. 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 of record owns shares having an aggregate net asset value of less than the minimum initial investment amount required of new shareholders as set forth in the 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. SHARE CERTIFICATES - Shares are credited to your account and certificates are not issued unless you request them by writing to the Transfer Agent. 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. No dealer concessions were paid on underwriting transactions in fiscal 2000 and dealer concessions paid on underwriting transactions for the fiscal years ended, August 31, 1999 and 1998, amounted to $56,000 and $8,000, respectively. U.S. Government Securities Fund - Page 34 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 non-U.S. branches of U.S. banks. TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of the Investment Adviser, maintains the records of 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 $1,323,000 for Class A shares and $1,000 for Class B shares for the 2000 fiscal year. INDEPENDENT AUDITORS - Deloitte & Touche LLP, Two California Plaza, 350 South Grand Avenue, Los Angeles, CA 90071, 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 of 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 auditors is reviewed and determined annually by the Board of Trustees. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS - The fund's fiscal year ends on August 31. Shareholders are provided updated prospectuses annually and 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 addition, shareholders may also receive proxy statements for the fund. In an effort to reduce the volume of mail shareholders receive from the fund when a household owns more than one account, the Transfer Agent has taken steps to eliminate duplicate mailings of prospectuses, shareholder reports and proxy statements. To receive additional copies of a prospectus, report or proxy statement, shareholders should contact the Transfer Agent. 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 a 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. U.S. Government Securities Fund - Page 35 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. 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, including securities in which the fund may invest from time to time. 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. 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 FOR CLASS A SHARES -- AUGUST 31, 2000
Net asset value and redemption price per share (Net assets divided by shares outstanding) . . . . . . . . . $12.76 Maximum offering price per share (100/96.25 of net asset value per share, which takes into account the fund's current maximum sales charge). . . . . . . . . . . . . . . . . . . . . . . . $13.26
CLASS A SHARE INVESTMENT RESULTS AND RELATED STATISTICS The fund's yield was 5.87% based on a 30-day (or one month) period ended August 31, 2000, 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. U.S. Government Securities Fund - Page 36 The fund's one-year total return and five- and ten-year average annual total returns at the maximum offering price for the periods ended August 31, 2000 were 3.05%, 4.97% and 6.64%, respectively. The fund's one-year total return and five- and ten-year average annual total returns at net asset value for the periods ended August 31, 2000 were 7.04%, 5.78% and 7.05%, respectively. 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. In calculating average annual total return at the maximum offering price, the fund assumes: (1) deduction of the maximum sales load of 3.75% 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. From time to time, the fund may calculate investment results for Class B, C and F shares. 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). U.S. Government Securities Fund - Page 37 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 38 The American Funds Income Series U.S. Government Securities Fund August 31, 2000 Portfolio Composition [pie chart] U.S. Treasuries Obligations 44% Federal Agency Obligations: Mortgate Pass-Throughs 40% Federal Agency Debentures 8% Collateralized Mortgage Obligations 3% Collateralized Mortgage Obligations (Privately Originated) 1% Cash & Equivalents 4% 100% [end pie chart]
The American Funds Income Series U.S. Government Securities Fund Investment Portfolio August 31, 2000 Principal Market Percent Amount Value of Net (000) (000) Assets -------- -------- -------- U.S. Treasury Obligations - 43.94% 5.75% November 2000 $ 33,000 $ 32,949 43.94% 6.375% August 2002 350 351 11.625% November 2002 17,500 19,417 7.25% May 2004 1,250 1,297 12.375% May 2004 245 295 0% November 2004 39,375 30,579 7.875% November 2004 3,655 3,897 11.625% November 2004 6,240 7,505 7.50% February 2005 7,980 8,429 0% May 2006 71,240 50,777 6.50% October 2006 27,000 27,657 6.25% February 2007 16,000 16,223 6.625% May 2007 39,000 40,340 6.125% August 2007 8,550 8,618 5.50% February 2008 3,140 3,053 5.50% May 2009 23,225 22,579 10.375% November 2009 14,750 16,953 10.375% November 2012 31,000 38,531 12.00% August 2013 10,000 13,636 9.875% November 2015 2,345 3,253 8.75% May 2017 5,550 7,172 8.875% August 2017 63,750 83,392 8.875% February 2019 230 304 7.875% February 2021 11,250 13,797 7.125% February 2023 8,375 9,612 0% November 2027 4,350 924 5.25% February 2029 16,800 15,473 ---------- ---------- 477,013 43.94 ---------- ---------- Federal Agency Obligations: Mortgage Pass-Throughs (1) - 39.46% Fannie Mae: 6.00% 2008 3,000 2,842 6.25% 2029 3,900 3,606 6.35% 2005 2,931 2,861 6.50% 2028 500 478 7.00% 2009 - 2028 10,433 10,294 7.50% 2039 8026 7929 8.00% 2005 - 2030 16,363 16,516 8.26% 2002(2) 2,645 2,666 8.50% 2007 - 2030 1,708 1,750 9.00% 2009 - 2023 946 977 9.50% 2011 - 2022 805 839 10.00% 2017 - 2021 420 445 11.00% 2010 - 2020 2,593 2,811 11.50% 2015 - 2020 2,015 2,204 12.00% 2015 - 2029 6,874 7,576 12.25% 2011 - 2013 305 336 12.50% 2012 - 2019 5,208 5,828 Federal Housing Administration/Veterans Affairs 12.50% 2029 12.75% 2012 - - 13.00% 2028 2,478 2,783 13.25% 2011 - 2014 373 418 13.50% 2015 1,129 1,275 14.00% 2013 - 2014 411 474 15.00% 2013 762 888 Fannie Mae/Government National Mortgage Assn.: 15.00% 2013 15.50% 2012 10 11 16.00% 2012 8 9 6.98 Freddie Mac: 6.00% 2014 2,577 2,466 7.00% 2008 527 524 8.00% 2012 1,107 1,125 8.25% 2007 314 318 8.50% 2009 - 2021 3,935 4,031 8.75% 2008 284 289 9.00% 2010 - 2021 1,717 1,762 10.50% 2006 - 2016 215 231 10.75% 2010 112 118 11.00% 2015 - 2016 221 239 11.50% 2015 106 114 11.75% 2014 217 236 12.00% 2014 - 2017 3,380 3,708 12.25% 2015 225 246 12.50% 2015 - 2019 3,127 3,453 13.00% 2014 - 2015 2,040 2,293 13.50% 2018 100 113 13.75% 2014 12 14 14.00% 2011 - 2014 112 128 14.50% 2010 - 2011 54 62 14.75% 2010 47 53 15.00% 2011 21 24 15.50% 2011 12 13 16.00% 2012 18 21 16.25% 2011 62 71 2.00 Government National Mortgage Assn.: 5.50% 2013 999 939 6.00% 2008 - 2029 74,917 70,525 GNMA I POOL #781014 6.0% 04-15-29 6.50% 2014 - 2029 72,924 70,384 GNMA I POOL #486598 6.5% 10-15-28 GNMA I POOL #486873 6.5% 01-15-29 7.00% 2008 - 2029 57,244 56,236 7.50% 2009 - 2030 35,539 35,553 Goverment National Mortgage Assn.: 7.50% 2029 8.00% 2002 - 2030 56,567 57,566 GNMA I POOL #433770 8.0% 03-15-30 GNMA I POOL #505455 8.0% 03-15-30 8.50% 2020 - 2023 2,221 2,282 9.00% 2009 - 2022 7,811 8,117 9.50% 2009 - 2021 3,258 3,419 9.75% 2011 - 2012 943 991 10.00% 2016 - 2022 18,798 20,068 10.25% 2012 65 69 10.50% 2015 - 2019 963 1,043 11.00% 2013 87 95 11.25% 2001 - 2016 1,359 1,443 11.75% 2013 - 2015 24 25 12.25% 2013 - 2015 108 115 12.75% 2014 - 2015 157 167 13.00% 2011 - 2015 989 1,118 13.25% 2013 - 2015 167 178 13.50% 2013 166 190 14.00% 2014 93 106 14.50% 2012 - 2014 231 270 16.00% 2011 - 2012 19 23 30.48 ---------- ---------- 428,390 39.46 ---------- ---------- Federal Agency Debentures - 8.32% Federal Home Loan Bank Bonds: 5.625% 2001 3,500 3,473 7.125% 2005 6,500 6,613 5.80% 2008 30,825 28,768 3.58 Freddie Mac 5.75% 2008 8,000 7,465 .69 Tennessee Valley Authority, Series G, 5.375% 2008 48,670 43,948 4.05 ---------- ---------- 90,267 8.32 ---------- ---------- Collateralized Mortgage Obligations(1) - 3.06% Fannie Mae: Series 91-50, Class H, 7.75% 2006 1,220 1,226 Series 1997-M5, Class C, ACES, 6.74% 2007 5,000 4,844 Series 1998-M6, Class A2, ACES, 6.32% 2008 2,500 2,361 Trust 35, Class 2, 12.00% 2018 200 225 2.81 Series 90-93, Class G, 5.50% 2020 1,136 1,060 Series 1992-119, Class Z, 8.00% 2022 4,477 4,464 Series 1994-4, Class ZA, 6.50% 2024 5,761 5,335 Series 1997-M6, Class ZA, 6.85% 2026 12,274 10,989 Freddie Mac: Series 83-A, Class 3, 11.875% 2013 89 95 Series 83-B, Class 3, 12.50% 2013 599 642 .25 Series 178, Class Z, 9.25% 2021 997 1,030 Series 1567, Class A, 5.161% 2023(2) 1,009 982 ---------- ---------- 33,253 3.06 ---------- ---------- Collateralized Mortgage Obligations (Privately Originated)(1)(3) - 0.84% Paine Webber CMO, Series O, Class 5, 9.50% 2019 1,915 2,003 .18 Ryland Acceptance Corp. Four, Series 88, 7,167 7,174 .66 Class E, 7.95% 2019 ---------- ---------- 9,177 .84 ---------- ---------- Development Authorities - 0.25% International Bank for Reconstruction and 2,000 2,671 .25 Development 12.25% 2008 ---------- ---------- ---------- ---------- Total Bonds and Notes (cost: $1,043,263,000) 1,040,771 95.87 ---------- ---------- Short-Term Securities Federal Agency Discount Notes - 4.23% Federal Home Loan Bank due 9/01/00 24,900 24,896 2.29 Federal Home Loan Bank due 9/06/00 21,100 21,077 1.94 ---------- ---------- 45,973 4.23 ---------- ---------- ---------- ---------- Total Short-Term Securities (cost: $45,973,000) 45,973 4.23 ---------- ---------- Total Investment Securities (cost: $1,089,236,000) 1,086,744 100.10 Excess of payables over cash and receivables -1,071 -.10 ---------- ---------- Net Assets $1,085,673 100.00% ---------- ---------- (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
U.S. GOVERNMENT SECURITIES FUND FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES at August 31, 2000 (dollars in thousands) Assets: Investment securities at market (cost: $1,089,236) $1,086,744 Cash 117 Receivables for-- Sales of investments $10,805 Sales of fund's shares 1,388 Forward currency contracts - net 0 Accrued interest 10,538 Other 4 22,735 1,109,596 Liabilities: Payables for-- Purchases of investments 18,807 Repurchases of fund's shares 2,005 Forward currency contracts - net 0 Dividends on fund's shares 1,992 Management services 361 Chase Manhattan Bank 0 Other expenses 758 23,923 Net Assets at August 31, 2000 $1,085,673 Unlimited shares authorized Class A shares, $1.00 par value: Net assets $1,082,620 Shares outstanding 84,861,308 Net asset value per share $12.76 Class B shares, $1.00 par value: Net assets $3,053 Shares outstanding 239,293 Net asset value per share $12.76 STATEMENT OF OPERATIONS for the year ended August 31, 2000 (dollars in thousands) Investment Income: Income: Interest $78,543 Amortization 3,529 Other 31 $82,103 Expenses: Management services fee 4,622 Distribution expenses - Class A 3,395 Distribution expenses - Class B 7 Transfer agent fee - Class A 1,323 Transfer agent fee - Class B 1 Reports to shareholders 93 Registration statement and prospectus 130 Postage, stationery and supplies 239 Trustees' fees 27 Auditing and legal fees 59 Custodian fee 23 Taxes other than federal income tax 37 Other expenses 45 10,001 Net investment income 72,102 Realized Loss and Unrealized Appreciation on Investments: Net realized loss (34,097) Net change in unrealized depreciation on investments 38,351 Net realized loss and unrealized appreciation on investments 4,254 Net Increase in Net Assets Resulting from Operations $76,356 STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands) Year ended August 31 2000 1999 Operations: Net investment income 72102.00 77125.00 Net realized loss on investments (34097.00) (1614.00) Net unrealized appreciation (depreciation) on investments 38351.00 (77976.00) Net increase (decrease) in net assets resulting from operations 76356.00 (2465.00) Dividends Paid to Shareholders: Dividends from net investment income: Class A (68250.00) (77414.00) Class B (35.00) - Total dividends (68285.00) (77414.00) Capital Share Transactions: Proceeds from shares sold 306116.00 788396.00 Proceeds from shares issued in reinvestment of net investment income dividends 54239.00 61070.00 Cost of shares repurchased (604472.00) (657673.00) Net (decrease) increase in net assets (244117.00) 191793.00 resulting from capital share transactions Total (Decrease) Increase in Net Assets (236046.00) 111914.00 Net Assets: Beginning of year 1321719.00 1209805.00 End of year (including undistributed net investment income of: $4,993 and $1,176, respectively) $1,085,673 $1,321,719 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 two 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. The fund offers Class A and Class B shares. Class A shares are sold with an initial sales charge of up to 3.75%. Class B shares are sold without an initial sales charge but are subject to a contingent deferred sales charge paid upon redemption. This charge declines from 5% to zero over a period of six years. Class B shares have higher distribution expenses and transfer agent fees than Class A shares. Class B shares are automatically converted to Class A shares eight years after the date of purchase. Holders of both classes of shares have equal pro rata rights to assets and identical voting, dividend, liquidation and other rights, except that each class bears different distribution and transfer agent expenses, and each class shall have exclusive rights to vote on matters affecting only their class. SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared in conformity with accounting principles generally accepted in the United States 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. 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. The ability of the issuers of the fixed-income securities held by the fund to meet their obligations may be affected by economic developments in a specific industry, state or region. 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 fixed-income securities 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. ALLOCATIONS - Income, expenses (other than class-specific expenses) and realized and unrealized gains and losses are allocated daily between Class A and Class B based on their relative net asset values. Distribution expenses, transfer agent fees and any other class-specific expenses, are accrued daily and charged to the applicable share class. 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, 2000, net unrealized depreciation on investments for book and federal income tax purposes aggregated $2,492,000, of which $16,626,000 related to appreciated securities and $19,118,000 related to depreciated securities. There was no difference between book and tax realized losses on securities transactions for the year ended August 31, 2000. During the year ended August 31, 2000, the fund realized, on a tax basis, a net capital loss of $34,097,000 on securities transactions. During the year ended August 31, 2000, a net capital loss totaling $3,462,000 expired. In addition, the fund has recognized, for tax purposes, capital losses totaling $4,005,000 which were realized during the period November 1, 1998 through August 31, 1999 and has deferred the recognition of capital losses totaling $32,439,000 which were realized during the period November 1, 1999 through August 31, 2000. The fund had available at August 31, 2000 a net capital loss carryforward totaling $65,491,000 which may be used to offset capital gains realized during subsequent years through 2008 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. The cost of portfolio securities for book and federal income tax purposes was $1,089,236,000 at August 31, 2000. 3. FEES AND TRANSACTIONS WITH RELATED PARTIES INVESTMENT ADVISORY FEE - The fee of $4,622,000 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 based on the following rates and month-end net asset levels:
Net Asset Level Rate In Excess of Up to 0.30% $0 $60 million 0.21 $60 million $1 billion 0.18 $1 billion $3 billion 0.16 $3 billion
The agreement also provides for fees based on monthly gross investment income at the following rates:
Monthly Gross Investment Income Rate In Excess of Up to 3.00% $ 0 $3,333,333 2.25 3,333,333 8,333,333 2.00 8,333,333
DISTRIBUTION EXPENSES - Pursuant to a Plan of Distribution for Class A shares, the fund may expend up to 0.30% of Class A average daily 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 in advance by the fund's Board of Trustees. Fund expenses under the Plan include payments to dealers to compensate them for their selling and servicing efforts. Pursuant to a Plan of Distribution for Class B shares, the fund may expend 1.00% of Class B daily net assets annually to compensate dealers for their selling and servicing efforts. During the year ended August 31, 2000, distribution expenses under the Plans of Distribution for Class A and Class B shares were $3,395,000 and $7,000, respectively. As of August 31, 2000, accrued and unpaid distribution expenses for Class A and Class B shares were $573,000 and $2,000, respectively. American Funds Distributors, Inc. (AFD), the principal underwriter of the fund's shares, received $410,000 (after allowances to dealers) during the year ended August 31, 2000, as its portion of the sales charges paid by purchasers of the fund's Class A 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 - A fee of $1,324,000 was incurred during the year ended August 31, 2000 pursuant to an agreement with American Funds Service Company (AFS), the transfer agent for the fund. 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, 2000, aggregate deferred amounts and earnings thereon since the deferred compensation plan's adoption (1993), net of any payments to Trustees, were $100,000. AFFILIATED DIRECTORS' AND OFFICERS - CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both wholly owned subsidiaries of CRMC. Officers of the trust and certain Trustees 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 $704,660,000 and $953,575,000, respectively, during the year ended August 31, 2000. As of August 31, 2000, net assets consisted of the following: insert chart see excel S:\Template\capitalshr transactions Capital share transactions in the fund were as follows: Year ended Year ended August 31, 2000 August 31, 1999 Amount (000) Shares Amount (000) Shares Class A Shares: Sold $ 302,736 24,095,858 $ 788,396 59,582,486 Reinvested dividends 54,013 4,303,427 61,070 4,640,790 Repurchased (603,875) (48,180,501) (657,673) (49,917,467) Net (decrease) increase in Class A (247,126) (19,781,216) 191,793 14,305,809 Class B Shares:* Sold 3,582 284,619 - - Reinvested dividends 24 1,925 - - Repurchased (597) (47,251) - - Net increase in Class B 3,009 239,293 - - Total net (decrease) increase in fund $ (244,117) (19,541,923) $ 191,793 14,305,809 *Class B shares were not offered before March 15, 2000
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 $23,000 was paid by these credits rather than in cash. (dollars in thousands) Capital paid in on shares of benefici $1,192,020 Undistributed net investment income 4,993 Accumulated net realized loss (108,848) Net unrealized depreciation (2,492) Net assets $1,085,673
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, 2000, 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 for Class A shares and the period March 15, 2000 through August 31, 2000 for Class B shares. 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 auditing standards generally accepted in the United States of America. 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, 2000, 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, 2000, 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 for Class A shares and the period March 15, 2000 through August 31, 2000 for Class B shares, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Los Angeles, California October 2, 2000 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, 55% 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 2001 TO DETERMINE THE CALENDAR YEAR AMOUNTS TO BE INCLUDED ON THEIR RESPECTIVE 2000 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS. PART C OTHER INFORMATION U.S. GOVERNMENT SECURITIES FUND (a) Establishment and Designation of Class of Shares of Beneficial Interest Without Par Value dated December 19, 2000 (b) By-laws, as amended 3/21/2000 (c) Form of Share Certificate (d) Previously filed (see Post-Effective Amendment No. 23 filed 3/10/00) (e) Form of Amended and Restated Principal Underwriting Agreement (f) None (g) Previously filed (see Post-Effective Amendment No. 19 filed 10/29/97) (h) Form of Administrative Services Agreement (i) Legal Opinion for Class C and Class F Shares (j) Consent of Independent Accountants (k) None (l) Previously filed (see Post-Effective Amendment No. 19 filed 10/29/97) (m) Form of Plans of Distribution relating to Class C and Class F Shares (n) Form of Amended and Restated Multiple Class Plan (o) None (p) Codes of Ethics ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT None ITEM 25. INDEMNIFICATION Registrant is a joint-insured under Investment Advisor/Mutual Fund Errors and Omissions Policies written by American International Surplus Lines Insurance Company, Chubb Custom Insurance Company and ICI Mutual Insurance Company which insures its officers and trustees against certain liabilities. However, in no event will Registrant maintain insurance to indemnify any such person for any act for which Registrant itself is not permitted to indemnify the individual. ITEM 25. INDEMNIFICATION (CONTINUED) Article VI of the Trust's By-Laws states: (a) The Trust shall indemnify any Trustee or officer of the Trust who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than action by or in the right of the Trust) by reason of the fact that such person is or was such Trustee or officer or an employee or agent of the Trust, or is or was serving at the request of the Trust as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith or in a manner reasonably believed to be opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person's conduct was unlawful. (b) The Trust shall indemnify any Trustee or officer of the Trust who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Trust to procure a judgment in its favor by reason of the fact that such person is or was such Trustee or officer or an employee or agent of the Trust, or is or was serving at the request of the Trust as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Trust, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of such person's duty to the Trust unless and only to the extent that the court in which such action or suit was brought, or any other court having jurisdiction in the premises, shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (c) To the extent that a Trustee or officer of the Trust has been successful on the merits in defense of any action, suit or proceeding referred to in subparagraphs (a) or (b) above or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith, without the necessity for the determination as to the standard of conduct as provided in subparagraph (d). ITEM 25. INDEMNIFICATION (CONTINUED) (d) Any indemnification under subparagraph (a) or (b) (unless ordered by a court) shall be made by the Trust only as authorized in the specific case upon a determination that indemnification of the Trustee or officer is proper under the standard of conduct set forth in subparagraph (a) or (b). Such determination shall be made (i) by the Board by a majority vote of a quorum consisting of Trustees who were not parties to such action, suit or proceeding, and are disinterested Trustees or (ii) if such a quorum of disinterested Trustees so directs, by independent legal counsel in a written opinion. (e) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Trust in advance of the final disposition of such action, suit or proceeding, as authorized in the particular case, upon receipt of an undertaking and security by or on behalf of the Trustee or officer to repay such amount unless it shall ultimately be determined that such person is entitled to be indemnified by the Trust as authorized herein. (f) Agents and employees of the Trust who are not Trustees or officers of the Trust may be indemnified under the same standards and procedures set forth above, in the discretion of the Board. (g) Any indemnification pursuant to this Article shall not be deemed exclusive of any other rights to which those indemnified may be entitled and shall continue as to a person who has ceased to be Trustee or officer and shall inure to the benefit of the heirs, executors and administrators of such person. (h) Nothing in the Declaration of Trust or in these By-Laws shall be deemed to protect any Trustee, officer, distributor, investment adviser or controlling shareholder of the Trust against any liability to the Trust or to its shareholders to which such person would otherwise be subject by reason of willful malfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office. (i) The Trust shall have the power to purchase and maintain insurance on behalf of any person against any liability asserted against or incurred by such person, whether or not the Trust would have the power to indemnify such person against such liability under the provisions of this Article. Nevertheless, insurance will not be purchased or maintained by the Trust if the purchase or maintenance of such insurance would result in the indemnification of any person in contravention of any rule or regulation of the SEC. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to Trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer of controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer of controlling person in connection with the securities being registered, the Registrant will, unless in ITEM 25. INDEMNIFICATION (CONTINUED) the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER None ITEM 27. PRINCIPAL UNDERWRITERS (a) American Funds Distributors, Inc. is also the Principal Underwriter of shares of: AMCAP Fund, Inc., American Balanced Fund, Inc., The American Funds Tax-Exempt Series I, The American Funds Tax-Exempt Series II, American High-Income Municipal Bond Fund, Inc., American High-Income Trust, American Mutual Fund, Inc., The Bond Fund of America, Inc., Capital Income Builder, Inc., Capital World Bond Fund, Inc., Capital World Growth and Income Fund, Inc., The Cash Management Trust of America, EuroPacific Growth Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America, Inc., The Investment Company of America, Intermediate Bond Fund 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 Money Fund of America, U.S. Treasury Money Fund of America and Washington Mutual Investors Fund, Inc.
(B) (1) (2) (3) NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND BUSINESS ADDRESS WITH UNDERWRITER OFFICES WITH REGISTRANT David L. Abzug Vice President None 27304 Park Vista Road Agoura Hills, CA 91301 John A. Agar Vice President None 1501 N. University, Suite 227A Little Rock, AR 72207 Robert B. Aprison Vice President None 2983 Bryn Wood Drive Madison, WI 53711 L William W. Bagnard Vice President None Steven L. Barnes Senior Vice President None 5400 Mount Meeker Road Suite 1 Boulder, CO 80301-3508 B Carl R. Bauer Vice President None Michelle A. Bergeron Senior Vice President None 4160 Gateswalk Drive Smyrna, GA 30080 J. Walter Best, Jr. Regional Vice President None 9013 Brentmeade Blvd. Brentwood, TN 37027 Joseph T. Blair Senior Vice President None 148 E. Shore Ave. Groton Long Point, CT 06340 John A. Blanchard Vice President None 6421 Aberdeen Road Mission Hills, KS 66208 Ian B. Bodell Senior Vice President None P.O. Box 1665 Brentwood, TN 37024-1665 Mick L. Brethower Senior Vice President None 2320 North Austin Avenue Georgetown, TX 78626 Alan Brown Vice President None 4129 Laclede Avenue St. Louis, MO 63108 B J. Peter Burns Vice President None Brian C. Casey Vice President None 8002 Greentree Road Bethesda, MD 20817 Victor C. Cassato Senior Vice President None 609 W. Littleton Blvd., Suite 310 Greenwood Village, CO 80120 Christopher J. Cassin Senior Vice President None 19 North Grant Street Hinsdale, IL 60521 Denise M. Cassin Vice President None 1301 Stoney Creek Drive San Ramon, CA 94538 L Larry P. Clemmensen Director None L Kevin G. Clifford Director, President and None Co-Chief Executive Officer Ruth M. Collier Senior Vice President None 29 Landsdowne Drive Larchmont, NY 10538 S David Coolbaugh Assistant Vice President None H Carlo O. Cordasco Assistant Vice President None Thomas E. Cournoyer Vice President None 2333 Granada Boulevard Coral Gables, FL 33134 Douglas A. Critchell Senior Vice President None 3521 Rittenhouse Street, N.W. Washington, D.C. 20015 L Carl D. Cutting Vice President None William F. Daugherty Regional Vice President None 1216 Highlander Way Mechanicsburg, PA 17055 Guy E. Decker Regional Vice President None 345 Trowbridge Lane Lawrenceville, GA 300436 Daniel J. Delianedis Vice President None 8689 Braxton Drive Eden Prairie, MN 55347 James A. DePerno, Jr. Regional Vice President None 91 Church Street East Aurora, NY 14052 L Bruce De Priester Vice President None Michael A. DiLella Vice President None P. O. Box 661 Ramsey, NJ 07446 G. Michael Dill Senior Vice President None 505 E. Main Street Jenks, OK 74037 Kirk D. Dodge Senior Vice President None 2627 Mission Street San Marino, CA 91108 Peter J. Doran Director, Executive Vice None President 100 Merrick Road, Suite 216W Rockville Centre, NY 11570 L Michael J. Downer Secretary Vice President Michael J. Dullaghan Regional Vice President None 1307 Sage Court Chesapeake, VA 23320 Robert W. Durbin Vice President None 74 Sunny Lane Tiffin, OH 44883 I Lloyd G. Edwards Senior Vice President None Timothy L. Ellis Regional Vice President None 1441 Canton Mart Road, Suite 9 Jackson, MS 39211 John R. Fodor Senior Vice President None 15 Latisquama Road Southborough, MA 01772 Daniel B. Frick Regional Vice President None 845 Western Avenue Glen Ellyn, IL 60137 Clyde E. Gardner Senior Vice President None Route 2, Box 3162 Osage Beach, MO 65065 B Evelyn K. Glassford Vice President None Jeffrey J. Greiner Vice President None 12210 Taylor Road Plain City, OH 43064 L Paul G. Haaga, Jr. Director Chairman of the Board B Mariellen Hamann Assistant Vice President None Derek S. Hansen Regional Vice President None 13033 Ridgedale Drive, PMB 147 Minnetonka, MN 55305 David E. Harper Senior Vice President None 150 Old Franklin School Road Pittstown, NJ 08867 H Mary Pat Harris Assistant Vice President None Ronald R. Hulsey Senior Vice President None 6744 Avalon Dallas, TX 75214 Robert S. Irish Vice President None 1225 Vista Del Mar Drive Delray Beach, FL 33483 Michael J. Johnston Director None 630 Fifth Avenue, 36th Floor New York, NY 10111 B Damien M. Jordan Vice President None John P. Keating Regional Vice President None 2285 Eagle Harbor Parkway Orange Park, FL 32073 Dorothy Klock Vice President None 555 Madison Avenue, 29th Floor New York, NY 10022 H Dianne L. Koske Assistant Vice President Andrew R. LeBlanc Regional Vice President None 78 Eton Road Garden City, NY 11530 Arthur J. Levine Senior Vice President None 12558 Highlands Place Fishers, IN 46038 B Karl A. Lewis Assistant Vice President None T. Blake Liberty Vice President None 5506 East Mineral Lane Littleton, CO 80122 Mark J. Lien Regional Vice President None 5570 Beechwood Terrace West Des Moines, IA 50266 L Lorin E. Liesy Vice President None Louis K. Linquata Regional Vice President None 170 South Battin Wichita, KS 67218 LW Robert W. Lovelace Director None Stephen A. Malbasa Senior Vice President None 13405 Lake Shore Blvd. Cleveland, OH 44110 Steven M. Markel Senior Vice President None 5241 South Race Street Littleton, CO 80121 L J. Clifton Massar Director, Senior Vice None President L E. Lee McClennahan Senior Vice President None James R. McCrary Regional Vice President None 963 1st Street, #1 Hermosa Beach, CA 90254 S John V. McLaughlin Senior Vice President None Terry W. McNabb Vice President None 2002 Barrett Station Road St. Louis, MO 63131 William E. Noe Vice President None 304 River Oaks Road Brentwood, TN 37027 Peter A. Nyhus Vice President None 3084 Wilds Ridge Court Prior Lake, MN 55372 Eric P. Olson Vice President None 62 Park Drive Glenview, IL 60025 Jeffrey A. Olson Regional Vice President None 930 S. Cowley Street, #305 Spokane, WA 99202 Gary A. Peace Regional Vice President None 291 Kaanapali Drive Napa, CA 94558 Samuel W. Perry Regional Vice President None 4730 East Indian School Road Suite 120 Phoenix, AZ 85018 David K. Petzke Regional Vice President None 4016 Saint Lucia Street Boulder, CO 80301 Fredric Phillips Senior Vice President None 175 Highland Avenue, 4th Floor Needham, MA 02494 B Candance D. Pilgrim Assistant Vice President None Carl S. Platou Vice President None 7455 80th Place, S.E. Mercer Island, WA 98040 L John O. Post Senior Vice President None S Richard P. Prior Vice President None Steven J. Reitman Senior Vice President None 212 The Lane Hinsdale, IL 60521 Brian A. Roberts Vice President None P.O. Box 388 Glenville, NC 28736 George S. Ross Senior Vice President None P.O. Box 376 Southport, ME 04576 L Julie D. Roth Vice President None L James F. Rothenberg Director None Douglas F. Rowe Vice President None 414 Logan Ranch Road Georgetown, TX 78628 Christopher S. Rowey Vice President None 10538 Cheviot Drive Los Angeles, CA 90064 Dean B. Rydquist Senior Vice President None 1080 Bay Pointe Crossing Alpharetta, GA 30005 Richard R. Samson Senior Vice President None 4604 Glencoe Avenue, #4 Marina del Rey, CA 90292 Joseph D. Scarpitti Vice President None 31465 St. Andrews Westlake, OH 44145 Shannon D. Schofield Regional Vice President None 3078 Peachtree Drive, NE Atlanta, GA 30305 L R. Michael Shanahan Director None Brad W. Short Regional Vice President None 1601 Seal Way Seal Beach, CA 90740 David W. Short Chairman of the Board and None 1000 RIDC Plaza, Suite Co-Chief Executive Officer 212 Pittsburgh, PA 15238 William P. Simon Senior Vice President None 912 Castlehill Lane Devon, PA 19333 Jerry L. Slater Regional Vice President None 4152 42nd Avenue, NE Seattle, WA 98105 Rodney G. Smith Senior Vice President None 100 N. Central Expressway Suite 1214 Richardson, TX 75080 S Sherrie L. Snyder-Senft Assistant Vice President None Anthony L. Soave Regional Vice President None 8831 Morning Mist Drive Clarkston, MI 48348 L Therese L. Souiller Assistant Vice President None Nicholas D. Spadaccini Vice President None 855 Markley Woods Way Cincinnati, OH 45230 L Kristen J. Spazafumo Assistant Vice President None Daniel S. Spradling Senior Vice President None 181 Second Avenue Suite 228 San Mateo, CA 94401 LW Eric H. Stern Director None B Max D. Stites Vice President None Thomas A. Stout Vice President None 1004 Ditchley Road Virginia Beach, VA 23451 Craig R. Strauser Vice President None 3 Dover Way Lake Oswego, OR 97034 Francis N. Strazzeri Senior Vice President None 3021 Kensington Trace Tarpon Springs, FL 34689 L Drew W. Taylor Assistant Vice President None Gary J. Thoma Regional Vice President None 604 Thelosen Drive Kimberly, WI 54136 L James P. Toomey Vice President None I Christopher E. Trede Vice President None George F. Truesdail Senior Vice President None 400 Abbotsford Court Charlotte, NC 28270 Scott W. Ursin-Smith Vice President None 60 Reedland Woods Way Tiburon, CA 94920 J. David Viale Regional Vice President None 39 Old Course Drive Newport Beach, CA 92660 Thomas E. Warren Vice President None 119 Faubel Street Sarasota, FL 34242 L J. Kelly Webb Senior Vice President, None Treasurer and Controller Gregory J. Weimer Vice President None 206 Hardwood Drive Venetia, PA 15367 B Timothy W. Weiss Director None George J. Wenzel Regional Vice President None 251 Barden Road Bloomfield, MI 48304 H J. D. Wiedmaier Assistant Vice President None SF N. Dexter Williams Senior Vice President None Timothy J. Wilson Vice President None 113 Farmview Place Venetia, PA 15367 B Laura L. Wimberly Vice President None H Marshall D. Wingo Director, Senior Vice None President L Robert L. Winston Director, Senior Vice None President William R. Yost Senior Vice President None 9320 Overlook Trail Eden Prairie, MN 55347 Janet M. Young Regional Vice President None 1616 Vermont Houston, TX 77006 Jonathan A. Young Regional Vice President None 329 Downing Drive Chesapeake, VA 23322 Scott D. Zambon Regional Vice President None 2887 Player Lane Tustin Ranch, CA 92782
__________ L Business Address, 333 South Hope Street, Los Angeles, CA 90071 LW Business Address, 11100 Santa Monica Boulevard, 15th Floor, Los Angeles, CA 90025 B Business Address, 135 South State College Boulevard, Brea, CA 92821 S Business Address, 3500 Wiseman Boulevard, San Antonio, TX 78251 SF Business Address, One Market, Steuart Tower, Suite 1800, San Francisco, CA 94105-1016 H Business Address, 5300 Robin Hood Road, Norfolk, VA 23513 I Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240 (c) None ITEM 28. LOCATION OF ACCOUNTS AND RECORDS Accounts, books and other records required by Rules 31a-1 and 31a-2 under the Investment Company Act of 1940, as amended, are maintained and held in the offices of its investment adviser, Capital Research and Management Company, 333 South Hope Street, Los Angeles, California 90071, and/or 135 South State College Boulevard, Brea, California 92821. Registrant's records covering shareholder accounts are maintained and kept by its transfer agent, American Funds Service Company, 135 South State College Boulevard, Brea, California 92821, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240, 3500 Wiseman Boulevard, San Antonio, Texas 78251 and 5300 Robin Hood Road, Norfolk, VA 23513. Registrant's records covering portfolio transactions are maintained and kept by its custodian, The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, New York 10081. ITEM 29. MANAGEMENT SERVICES None ITEM 30. UNDERTAKINGS n/a SIGNATURE OF REGISTRANT Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this amended Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, and State of California, on the 8th day of March, 2001. THE AMERICAN FUNDS INCOME SERIES By/s/ Paul G. Haaga, Jr. (Paul G. Haaga, Jr., Chairman of the Board) Pursuant to the requirements of the Securities Act of 1933, this amendment to registration statement has been signed below on March 8, 2001, by the following persons in the capacities indicated.
Signature Title (1) Principal Executive Officer: /s/ John H. Smet President and (John H. Smet) Trustee (2) Principal Financial Officer and Principal Accounting Officer: /s/ Anthony W. Hynes, Jr. Treasurer (3) Trustees: Richard G. Capen, Jr.* Trustee H. Frederick Christie* Trustee Diane C. Creel* Trustee Martin Fenton, Jr.* Trustee Leonard R. Fuller* Trustee /s/ Abner D. Goldstine Vice Chairman and (Abner D. Goldstine) Trustee /s/ Paul G. Haaga, Jr. Chairman and (Paul G. Haaga, Jr.) Trustee Richard G. Newman* Trustee Frank M. Sanchez* Trustee /s/ John H. Smet President and (John H. Smet) Trustee
*By /s/ Julie F. Williams Julie F. Williams, Attorney-in-Fact Counsel represents that this amendment does not contain disclosures that would make the amendment ineligible for effectiveness under the provisions of rule 485(b). /s/ Michael J. Downer (Michael J. Downer) U. S. Government Securities Fund -- C-16