485BPOS 1 edg485b.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. 28 and Registration Statement Under The Investment Company Act of 1940 Amendment No. 27 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 May 15, 2002 pursuant to paragraph (b) of rule 485. [logo - American Funds (sm)] The right choice for the long term/SM/ U.S. Government Securities Fund/SM/ Retirement Plan 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 Purchase, Exchange and Sale of Shares 9 Sales Charges 10 Sales Charge Reductions 11 Individual Retirement Account (IRA) Rollovers 11 Plans of Distribution 12 Distributions and Taxes 13 Financial Highlights
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. PROSPECTUS May 15, 2002 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 from investing in stocks and lower quality fixed income securities, and capital preservation over the long term. Your 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 still be affected by changing interest rates and prepayment risks. It is important to note that neither the fund nor its yield is 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 total 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] 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 2001 6.41 [end chart] Highest/lowest quarterly results during this time period were:
HIGHEST 5.17% (quarter ended September 30, 1992) LOWEST -3.68% (quarter ended March 31, 1994)
The year-to-date result was 0.06% for the three months ended March 31, 2002. 2 U.S. Government Securities Fund / Prospectus Unlike the bar chart on the previous page, the Investment Results Table below reflects, as required by Securities and Exchange Commission rules, the fund's investment results with the maximum initial sales charge imposed. 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 R shares were first available on May 15, 2002, comparable results for these classes are not available for the 2001 calendar year.
INVESTMENT RESULTS TABLE (WITH MAXIMUM SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2001: ONE YEAR FIVE YEARS TEN YEARS LIFETIME/1/ ------------------------------------------------------------------------------- CLASS A - BEGAN 10/17/85 2.43% 5.69% 5.90% 7.35% SSB Treasury/Govt Sponsored/Mortgage Index/2/ 7.69% 7.45% 7.17% 8.72% Lipper U.S. Govt Average/3/ 6.17% 6.36% 6.29% 7.37% Lipper GNMA Average/4/ 7.35% 6.55% 6.41% 7.86% Consumer Price Index/5/ 1.55% 2.18% 2.51% 3.04% ------------------------------------------------------------------------------- Class A 30-day yield at December 31, 2001: 4.01% (For current yield information, please call American FundsLine at 1-800-325-3590.)
1 Lifetime results are as of the date Class A shares first became available. 2 The Salomon Smith Barney Treasury/Government Sponsored/Mortgage Index is 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, expenses or taxes. 3 The Lipper General U.S. Government Funds Average represents funds that invest at least 65% of their assets in U.S. government and agency 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 or taxes. 4 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 or taxes. 5 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 TABLE (PAID DIRECTLY FROM YOUR INVESTMENT) ALL R SHARE CLASS A CLASSES Maximum sales charge imposed on purchases (as a percentage of offering price) 3.75%/1/ none Maximum sales charge imposed on reinvested dividends none none Maximum deferred sales charge none/2/ none Redemption or exchange fees 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.
ANNUAL FUND OPERATING EXPENSES TABLE (DEDUCTED FROM FUND ASSETS) CLASS A R-1/1/ R-2/1/ R-3/1/ R-4/1/ R-5/1/ Management Fees 0.37% 0.37% 0.37% 0.37% 0.37% 0.37% Distribution and/or Service (12b-1) Fees/2/ 0.30% 1.00% 0.75% 0.50% 0.25% none Other Expenses 0.18% 0.24% 0.44% 0.30% 0.22% 0.17% Total Annual Fund Operating Expenses 0.85% 1.61% 1.56% 1.17% 0.84% 0.54%
1 Based on estimated amounts for the current fiscal year. 2 Class A, R-2, R-3 and R-4 12b-1 fees may not exceed 0.30%, 1.00%, 0.75%, and 0.50%, respectively, of the class' average net assets annually. Class R-1 fees will always be 1.00% 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, that all dividend and capital gain distributions are reinvested, and that the fund's operating expenses remain the same as shown above. Although your actual costs may be higher or lower, based on these assumptions, your cumulative estimated expenses would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS Class A/1/ $459 $636 $829 $1,385 R-1 $164 $508 $876 $1,911 R-2 $159 $493 $850 $1,856 R-3 $119 $372 $644 $1,420 R-4 $ 86 $268 $466 $1,037 R-5 $ 55 $173 $302 $ 677
1 Reflects the maximum initial sales charge in the first year. 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. Normally, the fund will invest at least 80% of its assets in securities guaranteed or sponsored by the U.S. government. At least 65% of the fund's assets will be invested 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 guaranteed or sponsored by the U.S. government and will be rated AAA by Standard & Poor's Corporation or Aaa by Moody's Investors Service, Inc. or unrated but determined to be of equivalent quality. The values of most debt securities held by the fund may be affected by changing interest rates and prepayment risk. For example, as with other debt securities, the value of U.S. government securities generally will decline when interest rates rise and increase when interest rates fall. In addition, falling interest rates may cause an issuer to redeem or "call" a security before its stated maturity, which may result in the fund having to reinvest the proceeds in lower yielding securities. Longer maturity securities generally have higher rates of interest but may be subject to greater price fluctuations than shorter maturity securities. 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. A larger cash position could detract from the achievement of the fund's objective in a period of rising market prices; conversely, it would reduce the fund's magnitude of loss in the event of a general 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 reasonably priced securities that represent above average long-term investment opportunities. This is accomplished not only through fundamental analysis, but also by meeting with company executives and employees, suppliers, customers and competitors in order to gain in-depth 5 U.S. Government Securities Fund / Prospectus knowledge of a company's true value. Securities may be sold when the investment adviser believes they no longer represent good long-term value.
INVESTMENT RESULTS TABLE (WITHOUT SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2001: ONE YEAR FIVE YEARS TEN YEARS LIFETIME/1/ ------------------------------------------------------------------------------- CLASS A - BEGAN 10/17/85 6.41% 6.51% 6.31% 7.61% SSB Treasury/Govt Sponsored/Mortgage Index/2/ 7.69% 7.45% 7.17% 8.72% Lipper U.S. Govt Average/3/ 6.17% 6.36% 6.29% 7.37% Lipper GNMA Average/4/ 7.35% 6.55% 6.41% 7.86% Consumer Price Index/5/ 1.55% 2.18% 2.51% 3.04% ------------------------------------------------------------------------------- Class A distribution rate at December 31, 2001/6/: 4.30% (For current distribution rate information, please call American FundsLine at 1-800-325-3590.)
1 Lifetime results are as of the date Class A shares first became available. 2 The Salomon Smith Barney Treasury/Government Sponsored/Mortgage Index is 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, expenses or taxes. 3 The Lipper General U.S. Government Funds Average represents funds that invest at least 65% of their assets in U.S. government and agency 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 or taxes. 4 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 or taxes. 5 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. 6 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, 2001 [pie chart] U.S. Treasury Obligations 38% Federal Agency Mortgage Pass-Throughs 38 Federal Agency Debentures 11 Federal Agency Collateralized Mortgage Obligations 5 Cash & Equivalents 8 [end chart] Because the fund is actively managed, its holdings will change over time. For updated information on the fund's portfolio holdings, please visit us at www.americanfunds.com. 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 in the Annual Fund Operating Expenses Table. 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 PORTFOLIO COUNSELOR PRIMARY TITLE WITH INVESTMENT ADVISER TITLE (IF APPLICABLE) EXPERIENCE IN THIS FUND (OR AFFILIATE) AND INVESTMENT EXPERIENCE ------------------------- JOHN H. SMET 15 years Senior Vice President, Capital Research and President, Principal Management Company Executive Officer and Trustee Investment professional for 20 years in total;19 years with Capital Research and Management Company or affiliate -------------------------------------------------------------------------------------------------------- THOMAS H. HOGH 5 years Vice President, Capital InternationalResearch, Inc. Investment professional for 15 years in total;12 years with Capital Research and Management Company or affiliate -------------------------------------------------------------------------------------------------------- JOHN W. RESSNER 12 years Executive Vice President and Director, Capital Research Company Investment professional for 14 years, all with Capital Research and Management Company or affiliate
7 U.S. Government Securities Fund / Prospectus Purchase, Exchange and Sale of Shares PURCHASES AND EXCHANGES Class A shares are generally not available for retirement plans using the PlanPremier or Recordkeeper Direct recordkeeping programs. Class R shares generally are available only to 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans, and non-qualified deferred compensation plans. Class R shares also are generally available only to retirement plans where plan level or omnibus accounts are held on the books of the fund. In addition, Class R-5 shares generally are available only to retirement plans with $1 million or more in plan assets. Class R shares are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual 403(b) plans, and CollegeAmerica accounts. Eligible retirement plans generally may open an account and purchase Class A or R 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. Some or all R share classes may not be available through certain investment dealers. Additional shares may be purchased through a plan's administrator or recordkeeper. Shares of the fund offered through this prospectus generally may be exchanged into shares of the same class of other funds in The American Funds Group. Exchanges of Class A shares from money market funds purchased without a sales charge generally will be subject to the appropriate sales charge. THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S DISTRIBUTOR, RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. THE FUND IS NOT DESIGNED TO SERVE AS A VEHICLE FOR FREQUENT TRADING IN RESPONSE TO SHORT-TERM STOCK MARKET FLUCTUATIONS. ACCORDINGLY, PURCHASES THAT ARE PART OF EXCHANGE ACTIVITY THAT THE FUND OR AMERICAN FUNDS DISTRIBUTORS HAVE DETERMINED COULD INVOLVE ACTUAL OR POTENTIAL HARM TO THE FUND MAY BE REJECTED. SALES Please contact your plan administrator or recordkeeper. VALUING SHARES The fund's net asset value is the value of a single share. The fund calculates its net asset value, each day the New York Stock Exchange is open, as of approximately 4:00 p.m. New York time, the normal close of regular trading. Assets are valued primarily on the basis of market quotations. However, the fund has adopted procedures for making "fair value" determinations if market quotations are not readily 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. 8 U.S. Government Securities Fund / Prospectus Sales Charges CLASS A SHARES 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. Any applicable sales charge will be paid directly from your investment and, as a result, will reduce the amount of your investment.
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 $250,000 3.50% 3.63% 2.75% ---------------------------------------------------------------------------- $250,000 but less than $500,000 2.50% 2.56% 2.00% ---------------------------------------------------------------------------- $500,000 but less than $750,000 2.00% 2.04% 1.60% ---------------------------------------------------------------------------- $750,000 but less than $1 million 1.50% 1.52% 1.20% ---------------------------------------------------------------------------- $1 million or more and certain other none none none investments described below ----------------------------------------------------------------------------
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGE Employer-sponsored defined contribution-type plans, including certain 403(b) 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 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% on investments made in Class A shares with no initial sales charge. The fund may reimburse the distributor for these payments through its Plans of Distribution (see below). CLASS R SHARES Class R shares are sold with no initial or deferred sales charges. The distributor will pay dealers annually, asset-based compensation of 1.00% for sales of Class R-1 shares, 0.75% for Class R-2 shares, 0.50% for Class R-3 shares, and 0.25% for Class R-4 shares. No dealer compensation is paid on sales of Class R-5 shares. The fund may reimburse the distributor for these payments through its Plans of Distribution (see below). 9 U.S. Government Securities Fund / Prospectus Sales Charge Reductions Class A sales charges may be reduced in the following ways: CONCURRENT PURCHASES Simultaneous purchases of any class of shares of two or more American Funds may be combined to qualify for a reduced Class A sales charge. Direct purchases of money market funds are excluded. RIGHTS OF ACCUMULATION The current value (or if greater, the amount invested less any withdrawals) of existing holdings in any class of shares of the American Funds may be taken into account to determine Class A sales charges. Direct purchases of money market funds are excluded. STATEMENT OF INTENTION Class A sales charges may be reduced by establishing a Statement of Intention. A Statement of Intention allows all non-money market fund purchases of all share classes intended to be made over a 13-month period to be combined in order to determine the applicable sales charge. At the request of a plan, 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 the account may be held in escrow to cover additional Class A sales charges which may be due if total investments over the 13-month period do not qualify for the applicable sales charge reduction. 10 U.S. Government Securities Fund / Prospectus Individual Retirement Account (IRA) Rollovers Assets from a retirement plan may be invested in Class A, B, C or F shares of the American Funds 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. An IRA rollover involving retirement plan assets that offered an investment option managed by any affiliate of The Capital Group Companies, Inc., including any of the American Funds, may be invested in: . Class A shares at net asset value; . Class A shares subject to the applicable initial sales charge; . Class B shares; . Class C shares; or . Class F shares Retirement plan assets invested in Class A shares with a sales charge, or B, C or F shares are subject to the terms and conditions contained in the fund's current prospectus and statement of additional information. Advisers will be compensated according to the policies associated with each share class as described in the fund's current prospectus and statement of additional information. Retirement plan assets invested in Class A shares at net asset value will not be subject to a contingent deferred sales charge and will immediately begin to accrue service fees. Dealer commissions on such assets will be paid only on rollovers of $1 million or more. 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 R-1 shares, and up to 1.00%, 0.75% and 0.50% for Class R-2, R-3 and R-4 shares, respectively. 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 in the Annual Fund Operating Expenses Table. 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. OTHER COMPENSATION TO DEALERS American Funds Distributors may pay, or sponsor informational meetings for, dealers as described in the statement of additional information. 11 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. All dividend and capital gain distributions paid to retirement plan shareholders will automatically be reinvested. TAXES ON DISTRIBUTIONS Dividends and capital gains distributed by the fund to retirement plan accounts currently are not taxable. TAXES ON TRANSACTIONS Distributions taken from a retirement plan account generally are taxable as ordinary income. Please see your tax adviser for further information. 12 U.S. Government Securities Fund / Prospectus Financial Highlights 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 shares. A similar table will be shown for the R share classes beginning with the fund's 2002 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 (except for the six months ended February 28, 2002), whose report, along with the fund's financial statements, is included in the statement of additional information, which is available upon request.
CLASS A Six months ended February 28, YEAR ENDED AUGUST 31 2002/1,2/ 2001 2000 1999 1998 1997 NET ASSET VALUE, $13.34 $12.76 $12.63 $13.39 $13.03 $12.78 BEGINNING OF PERIOD -------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income .29/3/ .70/3/ .77/3/ .77 .83 .88 Net gains (losses) on securities (both .06/3/ .63/3/ .09/3/ (.76) .40 .25 realized and unrealized) -------------------------------------------------------------------------------------- Total from investment .35 1.33 .86 .01 1.23 1.13 operations -------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends (from net (.30 ) (.75 ) (.73 ) (.77) (.87) (.88) investment income) -------------------------------------------------------------------------------------- NET ASSET VALUE, END $13.39 $13.34 $12.76 $12.63 $13.39 $13.03 OF PERIOD -------------------------------------------------------------------------------------- TOTAL RETURN/4/ 2.67 % 10.70 % 7.07 % (.04)% 9.70% 9.08% -------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of $1,581 $1,357 $1,083 $1,322 $1,210 $1,106 period (in millions) -------------------------------------------------------------------------------------- Ratio of expenses to .80 %/5/ .85 % .85 % .80% .79% .80% average net assets -------------------------------------------------------------------------------------- Ratio of net income 4.42 %/5/ 5.37 % 6.13 % 5.80% 6.24% 6.74% to average net assets Portfolio turnover 64 % 44 % 63 % 81% 82% 28% rate
1 Based on operations for the period shown (unless otherwise noted) and, accordingly, may not be representative of a full year. 2 Unaudited. 3 Based on average shares outstanding. 4 Total returns exclude all sales charges, including contingent deferred sales charges. 5 Annualized. 13 U.S. Government Securities Fund / Prospectus [logo - American Funds (sm)] The right choice for the long term/SM/
FOR SHAREHOLDER American Funds Service Company SERVICES 800/421-0180 FOR RETIREMENT PLAN Call your employer or plan SERVICES administrator FOR DEALER SERVICES American Funds Distributors 800/421-9900 American FundsLine(R) FOR 24 800/325-3590 -HOUR INFORMATION American FundsLine OnLine(R) 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 REPORTS TO SHAREHOLDERS The shareholder reports contain 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 Retirement Plan 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 Retirement Plan 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. [LOGO - recycled bug]
Printed on recycled paper Investment Company File No. 811-4318 RPGVT-010-0502/B ------------------------------------------------------------------------------- THE CAPITAL GROUP COMPANIES American Funds Capital Research and Management Capital International Capital Guardian Capital Bank and Trust
THE FUND PROVIDES SPANISH TRANSLATION 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 [logo - American Funds (sm)] The right choice for the long term/SM/ U.S. Government Securities Fund/SM/ Retirement Plan 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 Purchase, Exchange and Sale of Shares 9 Sales Charges 10 Sales Charge Reductions 11 Individual Retirement Account (IRA) Rollovers 11 Plans of Distribution 12 Distributions and Taxes 13 Financial Highlights
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. PROSPECTUS May 15, 2002 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 from investing in stocks and lower quality fixed income securities, and capital preservation over the long term. Your 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 still be affected by changing interest rates and prepayment risks. It is important to note that neither the fund nor its yield is 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 total 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] 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 2001 6.41 [end chart] Highest/lowest quarterly results during this time period were:
HIGHEST 5.17% (quarter ended September 30, 1992) LOWEST -3.68% (quarter ended March 31, 1994)
The year-to-date result was 0.06% for the three months ended March 31, 2002. 2 U.S. Government Securities Fund / Prospectus Unlike the bar chart on the previous page, the Investment Results Table below reflects, as required by Securities and Exchange Commission rules, the fund's investment results with the maximum initial sales charge imposed. 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 R shares were first available on May 15, 2002, comparable results for these classes are not available for the 2001 calendar year.
INVESTMENT RESULTS TABLE (WITH MAXIMUM SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2001: ONE YEAR FIVE YEARS TEN YEARS LIFETIME/1/ ------------------------------------------------------------------------------- CLASS A - BEGAN 10/17/85 2.43% 5.69% 5.90% 7.35% SSB Treasury/Govt Sponsored/Mortgage Index/2/ 7.69% 7.45% 7.17% 8.72% Lipper U.S. Govt Average/3/ 6.17% 6.36% 6.29% 7.37% Lipper GNMA Average/4/ 7.35% 6.55% 6.41% 7.86% Consumer Price Index/5/ 1.55% 2.18% 2.51% 3.04% ------------------------------------------------------------------------------- Class A 30-day yield at December 31, 2001: 4.01% (For current yield information, please call American FundsLine at 1-800-325-3590.)
1 Lifetime results are as of the date Class A shares first became available. 2 The Salomon Smith Barney Treasury/Government Sponsored/Mortgage Index is 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, expenses or taxes. 3 The Lipper General U.S. Government Funds Average represents funds that invest at least 65% of their assets in U.S. government and agency 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 or taxes. 4 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 or taxes. 5 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 TABLE (PAID DIRECTLY FROM YOUR INVESTMENT) ALL R SHARE CLASS A CLASSES Maximum sales charge imposed on purchases (as a percentage of offering price) 3.75%/1/ none Maximum sales charge imposed on reinvested dividends none none Maximum deferred sales charge none/2/ none Redemption or exchange fees 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.
ANNUAL FUND OPERATING EXPENSES TABLE (DEDUCTED FROM FUND ASSETS) CLASS A R-1/1/ R-2/1/ R-3/1/ R-4/1/ R-5/1/ Management Fees 0.37% 0.37% 0.37% 0.37% 0.37% 0.37% Distribution and/or Service (12b-1) Fees/2/ 0.30% 1.00% 0.75% 0.50% 0.25% none Other Expenses 0.18% 0.24% 0.44% 0.30% 0.22% 0.17% Total Annual Fund Operating Expenses 0.85% 1.61% 1.56% 1.17% 0.84% 0.54%
1 Based on estimated amounts for the current fiscal year. 2 Class A, R-2, R-3 and R-4 12b-1 fees may not exceed 0.30%, 1.00%, 0.75%, and 0.50%, respectively, of the class' average net assets annually. Class R-1 fees will always be 1.00% 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, that all dividend and capital gain distributions are reinvested, and that the fund's operating expenses remain the same as shown above. Although your actual costs may be higher or lower, based on these assumptions, your cumulative estimated expenses would be:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS Class A/1/ $459 $636 $829 $1,385 R-1 $164 $508 $876 $1,911 R-2 $159 $493 $850 $1,856 R-3 $119 $372 $644 $1,420 R-4 $ 86 $268 $466 $1,037 R-5 $ 55 $173 $302 $ 677
1 Reflects the maximum initial sales charge in the first year. 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. Normally, the fund will invest at least 80% of its assets in securities guaranteed or sponsored by the U.S. government. At least 65% of the fund's assets will be invested 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 guaranteed or sponsored by the U.S. government and will be rated AAA by Standard & Poor's Corporation or Aaa by Moody's Investors Service, Inc. or unrated but determined to be of equivalent quality. The values of most debt securities held by the fund may be affected by changing interest rates and prepayment risk. For example, as with other debt securities, the value of U.S. government securities generally will decline when interest rates rise and increase when interest rates fall. In addition, falling interest rates may cause an issuer to redeem or "call" a security before its stated maturity, which may result in the fund having to reinvest the proceeds in lower yielding securities. Longer maturity securities generally have higher rates of interest but may be subject to greater price fluctuations than shorter maturity securities. 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. A larger cash position could detract from the achievement of the fund's objective in a period of rising market prices; conversely, it would reduce the fund's magnitude of loss in the event of a general 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 reasonably priced securities that represent above average long-term investment opportunities. This is accomplished not only through fundamental analysis, but also by meeting with company executives and employees, suppliers, customers and competitors in order to gain in-depth 5 U.S. Government Securities Fund / Prospectus knowledge of a company's true value. Securities may be sold when the investment adviser believes they no longer represent good long-term value.
INVESTMENT RESULTS TABLE (WITHOUT SALES CHARGES IMPOSED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2001: ONE YEAR FIVE YEARS TEN YEARS LIFETIME/1/ ------------------------------------------------------------------------------- CLASS A - BEGAN 10/17/85 6.41% 6.51% 6.31% 7.61% SSB Treasury/Govt Sponsored/Mortgage Index/2/ 7.69% 7.45% 7.17% 8.72% Lipper U.S. Govt Average/3/ 6.17% 6.36% 6.29% 7.37% Lipper GNMA Average/4/ 7.35% 6.55% 6.41% 7.86% Consumer Price Index/5/ 1.55% 2.18% 2.51% 3.04% ------------------------------------------------------------------------------- Class A distribution rate at December 31, 2001/6/: 4.30% (For current distribution rate information, please call American FundsLine at 1-800-325-3590.)
1 Lifetime results are as of the date Class A shares first became available. 2 The Salomon Smith Barney Treasury/Government Sponsored/Mortgage Index is 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, expenses or taxes. 3 The Lipper General U.S. Government Funds Average represents funds that invest at least 65% of their assets in U.S. government and agency 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 or taxes. 4 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 or taxes. 5 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. 6 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, 2001 [pie chart] U.S. Treasury Obligations 38% Federal Agency Mortgage Pass-Throughs 38 Federal Agency Debentures 11 Federal Agency Collateralized Mortgage Obligations 5 Cash & Equivalents 8 [end chart] Because the fund is actively managed, its holdings will change over time. For updated information on the fund's portfolio holdings, please visit us at www.americanfunds.com. 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 in the Annual Fund Operating Expenses Table. 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 PORTFOLIO COUNSELOR PRIMARY TITLE WITH INVESTMENT ADVISER TITLE (IF APPLICABLE) EXPERIENCE IN THIS FUND (OR AFFILIATE) AND INVESTMENT EXPERIENCE ------------------------- JOHN H. SMET 15 years Senior Vice President, Capital Research and President, Principal Management Company Executive Officer and Trustee Investment professional for 20 years in total;19 years with Capital Research and Management Company or affiliate -------------------------------------------------------------------------------------------------------- THOMAS H. HOGH 5 years Vice President, Capital InternationalResearch, Inc. Investment professional for 15 years in total;12 years with Capital Research and Management Company or affiliate -------------------------------------------------------------------------------------------------------- JOHN W. RESSNER 12 years Executive Vice President and Director, Capital Research Company Investment professional for 14 years, all with Capital Research and Management Company or affiliate
7 U.S. Government Securities Fund / Prospectus Purchase, Exchange and Sale of Shares PURCHASES AND EXCHANGES Class A shares are generally not available for retirement plans using the PlanPremier or Recordkeeper Direct recordkeeping programs. Class R shares generally are available only to 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans, and non-qualified deferred compensation plans. Class R shares also are generally available only to retirement plans where plan level or omnibus accounts are held on the books of the fund. In addition, Class R-5 shares generally are available only to retirement plans with $1 million or more in plan assets. Class R shares are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual 403(b) plans, and CollegeAmerica accounts. Eligible retirement plans generally may open an account and purchase Class A or R 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. Some or all R share classes may not be available through certain investment dealers. Additional shares may be purchased through a plan's administrator or recordkeeper. Shares of the fund offered through this prospectus generally may be exchanged into shares of the same class of other funds in The American Funds Group. Exchanges of Class A shares from money market funds purchased without a sales charge generally will be subject to the appropriate sales charge. THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S DISTRIBUTOR, RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. THE FUND IS NOT DESIGNED TO SERVE AS A VEHICLE FOR FREQUENT TRADING IN RESPONSE TO SHORT-TERM STOCK MARKET FLUCTUATIONS. ACCORDINGLY, PURCHASES THAT ARE PART OF EXCHANGE ACTIVITY THAT THE FUND OR AMERICAN FUNDS DISTRIBUTORS HAVE DETERMINED COULD INVOLVE ACTUAL OR POTENTIAL HARM TO THE FUND MAY BE REJECTED. SALES Please contact your plan administrator or recordkeeper. VALUING SHARES The fund's net asset value is the value of a single share. The fund calculates its net asset value, each day the New York Stock Exchange is open, as of approximately 4:00 p.m. New York time, the normal close of regular trading. Assets are valued primarily on the basis of market quotations. However, the fund has adopted procedures for making "fair value" determinations if market quotations are not readily 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. 8 U.S. Government Securities Fund / Prospectus Sales Charges CLASS A SHARES 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. Any applicable sales charge will be paid directly from your investment and, as a result, will reduce the amount of your investment.
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 $250,000 3.50% 3.63% 2.75% ---------------------------------------------------------------------------- $250,000 but less than $500,000 2.50% 2.56% 2.00% ---------------------------------------------------------------------------- $500,000 but less than $750,000 2.00% 2.04% 1.60% ---------------------------------------------------------------------------- $750,000 but less than $1 million 1.50% 1.52% 1.20% ---------------------------------------------------------------------------- $1 million or more and certain other none none none investments described below ----------------------------------------------------------------------------
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGE Employer-sponsored defined contribution-type plans, including certain 403(b) 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 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% on investments made in Class A shares with no initial sales charge. The fund may reimburse the distributor for these payments through its Plans of Distribution (see below). CLASS R SHARES Class R shares are sold with no initial or deferred sales charges. The distributor will pay dealers annually, asset-based compensation of 1.00% for sales of Class R-1 shares, 0.75% for Class R-2 shares, 0.50% for Class R-3 shares, and 0.25% for Class R-4 shares. No dealer compensation is paid on sales of Class R-5 shares. The fund may reimburse the distributor for these payments through its Plans of Distribution (see below). 9 U.S. Government Securities Fund / Prospectus Sales Charge Reductions Class A sales charges may be reduced in the following ways: CONCURRENT PURCHASES Simultaneous purchases of any class of shares of two or more American Funds may be combined to qualify for a reduced Class A sales charge. Direct purchases of money market funds are excluded. RIGHTS OF ACCUMULATION The current value (or if greater, the amount invested less any withdrawals) of existing holdings in any class of shares of the American Funds may be taken into account to determine Class A sales charges. Direct purchases of money market funds are excluded. STATEMENT OF INTENTION Class A sales charges may be reduced by establishing a Statement of Intention. A Statement of Intention allows all non-money market fund purchases of all share classes intended to be made over a 13-month period to be combined in order to determine the applicable sales charge. At the request of a plan, 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 the account may be held in escrow to cover additional Class A sales charges which may be due if total investments over the 13-month period do not qualify for the applicable sales charge reduction. 10 U.S. Government Securities Fund / Prospectus Individual Retirement Account (IRA) Rollovers Assets from a retirement plan may be invested in Class A, B, C or F shares of the American Funds 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. An IRA rollover involving retirement plan assets that offered an investment option managed by any affiliate of The Capital Group Companies, Inc., including any of the American Funds, may be invested in: . Class A shares at net asset value; . Class A shares subject to the applicable initial sales charge; . Class B shares; . Class C shares; or . Class F shares Retirement plan assets invested in Class A shares with a sales charge, or B, C or F shares are subject to the terms and conditions contained in the fund's current prospectus and statement of additional information. Advisers will be compensated according to the policies associated with each share class as described in the fund's current prospectus and statement of additional information. Retirement plan assets invested in Class A shares at net asset value will not be subject to a contingent deferred sales charge and will immediately begin to accrue service fees. Dealer commissions on such assets will be paid only on rollovers of $1 million or more. 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 R-1 shares, and up to 1.00%, 0.75% and 0.50% for Class R-2, R-3 and R-4 shares, respectively. 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 in the Annual Fund Operating Expenses Table. 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. OTHER COMPENSATION TO DEALERS American Funds Distributors may pay, or sponsor informational meetings for, dealers as described in the statement of additional information. 11 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. All dividend and capital gain distributions paid to retirement plan shareholders will automatically be reinvested. TAXES ON DISTRIBUTIONS Dividends and capital gains distributed by the fund to retirement plan accounts currently are not taxable. TAXES ON TRANSACTIONS Distributions taken from a retirement plan account generally are taxable as ordinary income. Please see your tax adviser for further information. 12 U.S. Government Securities Fund / Prospectus Financial Highlights 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 shares. A similar table will be shown for the R share classes beginning with the fund's 2002 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 (except for the six months ended February 28, 2002), whose report, along with the fund's financial statements, is included in the statement of additional information, which is available upon request.
CLASS A Six months ended February 28, YEAR ENDED AUGUST 31 2002/1,2/ 2001 2000 1999 1998 1997 NET ASSET VALUE, $13.34 $12.76 $12.63 $13.39 $13.03 $12.78 BEGINNING OF PERIOD -------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income .29/3/ .70/3/ .77/3/ .77 .83 .88 Net gains (losses) on securities (both .06/3/ .63/3/ .09/3/ (.76) .40 .25 realized and unrealized) -------------------------------------------------------------------------------------- Total from investment .35 1.33 .86 .01 1.23 1.13 operations -------------------------------------------------------------------------------------- LESS DISTRIBUTIONS: Dividends (from net (.30 ) (.75 ) (.73 ) (.77) (.87) (.88) investment income) -------------------------------------------------------------------------------------- NET ASSET VALUE, END $13.39 $13.34 $12.76 $12.63 $13.39 $13.03 OF PERIOD -------------------------------------------------------------------------------------- TOTAL RETURN/4/ 2.67 % 10.70 % 7.07 % (.04)% 9.70% 9.08% -------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of $1,581 $1,357 $1,083 $1,322 $1,210 $1,106 period (in millions) -------------------------------------------------------------------------------------- Ratio of expenses to .80 %/5/ .85 % .85 % .80% .79% .80% average net assets -------------------------------------------------------------------------------------- Ratio of net income 4.42 %/5/ 5.37 % 6.13 % 5.80% 6.24% 6.74% to average net assets Portfolio turnover 64 % 44 % 63 % 81% 82% 28% rate
1 Based on operations for the period shown (unless otherwise noted) and, accordingly, may not be representative of a full year. 2 Unaudited. 3 Based on average shares outstanding. 4 Total returns exclude all sales charges, including contingent deferred sales charges. 5 Annualized. 13 U.S. Government Securities Fund / Prospectus [logo - American Funds (sm)] The right choice for the long term/SM/
FOR SHAREHOLDER American Funds Service Company SERVICES 800/421-0180 FOR RETIREMENT PLAN Call your employer or plan SERVICES administrator FOR DEALER SERVICES American Funds Distributors 800/421-9900 American FundsLine(R) FOR 24 800/325-3590 -HOUR INFORMATION American FundsLine OnLine(R) 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 REPORTS TO SHAREHOLDERS The shareholder reports contain 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 Retirement Plan 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 Retirement Plan 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. [LOGO - recycled bug]
Printed on recycled paper Investment Company File No. 811-4318 RPGVT-010-0502/B ------------------------------------------------------------------------------- THE CAPITAL GROUP COMPANIES American Funds Capital Research and Management Capital International Capital Guardian Capital Bank and Trust
U.S. GOVERNMENT SECURITIES FUND Part B Retirement Plan Statement of Additional Information May 15, 2002 This document is not a prospectus but should be read in conjunction with the current Retirement Plan Prospectus of U.S. Government Securities Fund (the "fund" or "GVT") dated May 15, 2002. 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 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 Management of the Fund . . . . . . . . . . . . . . . . . . . . . . 8 Taxes and Distributions . . . . . . . . . . . . . . . . . . . . . . 19 Purchase, Exchange and Sale of Shares . . . . . . . . . . . . . . . 22 Sales Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Class A Sales Charge Reductions . . . . . . . . . . . . . . . . . . 26 Individual Retirement Account (IRA) Rollovers . . . . . . . . . . . 28 Price of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Shareholder Account Services and Privileges . . . . . . . . . . . . 30 Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 30 General Information . . . . . . . . . . . . . . . . . . . . . . . . 31 Class A Share Investment Results and Related Statistics . . . . . . 32 Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 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 circumstances, 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. .. The fund will invest at least 80% of its assets in securities guaranteed or sponsored by the U.S. government. .. The fund will invest at least 65% of its assets in securities guaranteed by the U.S. government. .. 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 the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortage Corporation (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. TREASURY AND AGENCY SECURITIES - U.S. Treasury securities 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. U.S. agency securities include those issued by certain U.S. government instrumentalities and certain federal agencies. These securities 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 (FHLMC), Federal National Mortgage Association (FNMA), 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 Service, 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. Principal and interest payments made on the underlying asset pools backing these U.S. Government Securities Fund - Page 2 obligations are typically passed through to investors. Pass-through 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), FNMA, FHLMC . 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. 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 U.S. Government Securities Fund - Page 3 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" 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 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 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. U.S. Government Securities Fund - Page 4 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. A 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 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. U.S. Government Securities Fund - Page 5 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 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; U.S. Government Securities Fund - Page 6 13. Purchase or retain the securities of any issuer, if those individual officers and Trustees of the Trust, its investment adviser, or distributor, each owning beneficially more than 1/2 of 1% of the securities of such issuer, together own more than 5% of the securities of such issuer; 14. Invest in interests in oil, gas, or other mineral exploration or development programs; 15. Invest more than 5% of its total assets in warrants which are unattached to securities; 16. Write, purchase or sell puts, calls or combinations thereof. Notwithstanding Investment Restriction #4, the fund may invest in securities of other investment companies if deemed advisable by its officers in connection with the administration of a deferred compensation plan adopted by the Trustees pursuant to an exemptive order granted by the Securities and Exchange Commission. For purposes of Investment Restriction #6, the fund will not invest more than 15% of its net assets in illiquid securities. U.S. Government Securities Fund - Page 7 MANAGEMENT OF THE FUND BOARD OF TRUSTEES AND OFFICERS
YEAR FIRST NUMBER OF BOARDS POSITION ELECTED WITHIN THE FUND OTHER DIRECTORSHIPS/3/ WITH THE A TRUSTEE PRINCIPAL OCCUPATION(S) DURING COMPLEX/2/ ON WHICH HELD NAME AND AGE FUND OF THE FUND/1/ PAST 5 YEARS TRUSTEE SERVES BY TRUSTEE ----------------------------------------------------------------------------------------------------------------------------------- "NON-INTERESTED" TRUSTEES ----------------------------------------------------------------------------------------------------------------------------------- Richard G. Capen, Trustee 1999 Corporate Director and author; 14 Carnival Corporation Jr. former United States Age: 67 Ambassador to Spain; former Vice Chairman, Knight Ridder, Inc.; former Chairman and Publisher, The Miami Herald ---------------- ----------------------------------------------------------------------------------------------------------------------------------- H. Frederick Trustee 1985 Private Investor; former 19 Ducommun Christie President and Chief Executive Incorporated;IHOP Age: 68 Officer, The Mission Group Corporation;Southwest (non-utility holding company Water Company;Valero L.P. subsidiary of Southern California Edison Company) ----------------------------------------------------------------------------------------------------------------------------------- Diane C. Creel Trustee 1994 CEO and President, The Earth 12 Allegheny Technologies;BF Age: 53 Technology Corporation Goodrich;Teledyne (international consulting Technologies engineering) ----------------------------------------------------------------------------------------------------------------------------------- Martin Fenton Trustee 1989 Managing Director, Senior 16 None Age: 66 Resource Group LLC (development and management of senior living communities) ----------------------------------------------------------------------------------------------------------------------------------- Leonard R. Fuller Trustee 1994 President, Fuller Consulting 13 None Age: 55 (financial management consulting firm) ----------------------------------------------------------------------------------------------------------------------------------- Richard G. Newman Trustee 1991 Chairman and CEO, AECOM 13 Southwest Water Company Age: 67 Technology Corporation (engineering, consulting and professional services) ----------------------------------------------------------------------------------------------------------------------------------- Frank M. Sanchez Trustee 1999 President, The Sanchez Family 12 None Age: 58 Corporation dba McDonald's Restaurants (McDonald's licensee) -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund - Page 8
PRINCIPAL OCCUPATION(S) DURING YEAR FIRST PAST 5 YEARS AND ELECTED POSITIONS HELD NUMBER OF BOARDS POSITION A TRUSTEE WITH AFFILIATED ENTITIES WITHIN THE FUND OTHER DIRECTORSHIPS/3/ WITH THE AND/OR OFFICER OR THE PRINCIPAL UNDERWRITER COMPLEX/2/ ON WHICH HELD NAME AND AGE FUND OF THE FUND/1/ OF THE FUND TRUSTEE SERVES BY TRUSTEE ----------------------------------------------------------------------------------------------------------------------------------- "INTERESTED" TRUSTEES/4//,//5/ ----------------------------------------------------------------------------------------------------------------------------------- Abner D. Vice 1985 Senior Vice President and 12 None Goldstine Chairman Director, Capital Research and Age: 72 and Management Company Trustee ----------------------------------------------------------------------------------------------------------------------------------- Paul G. Haaga, Chairman 1985 Executive Vice President and 16 None Jr. of the Director, Capital Research and Age: 53 Board Management Company; Director, and American Funds Distributors, Trustee Inc.*; Director, The Capital Group Companies, Inc.* ----------------------------------------------------------------------------------------------------------------------------------- John H. Smet President 2000 Senior Vice President, Capital 2 None Age: 45 and Research and Management Trustee Company -----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund - Page 9
PRINCIPAL OCCUPATION(S) DURING POSITION YEAR FIRST ELECTED PAST 5 YEARS AND POSITIONS HELD WITH THE AN OFFICER WITH AFFILIATED ENTITIES NAME AND AGE FUND OF THE FUND/1/ OR THE PRINCIPAL UNDERWRITER OF THE FUND ----------------------------------------------------------------------------------------------------------------------------------- OTHER OFFICERS/5/ ----------------------------------------------------------------------------------------------------------------------------------- Michael J. Downer Vice President 1994 Vice President and Secretary, Capital Research and Management Age: 47 Company; Secretary, American Funds Distributors, Inc.*; Director, Capital Bank and Trust Company* ----------------------------------------------------------------------------------------------------------------------------------- Julie F. Williams Secretary 1985 Vice President - Fund Business Management Group, Capital Age: 53 Research and Management Company ----------------------------------------------------------------------------------------------------------------------------------- Anthony W. Hynes, Treasurer 1993 Vice President - Fund Business Management Group, Capital Jr. Research and Management Company Age: 39 ----------------------------------------------------------------------------------------------------------------------------------- Kimberly S. Verdick Assistant Secretary 1994 Assistant Vice President - Fund Business Management Group, Age: 37 Capital Research and Management Company ----------------------------------------------------------------------------------------------------------------------------------- Susi M. Silverman Assistant Treasurer 2001 Vice President - Fund Business Management Group, Capital Age: 32 Research and Management Company -----------------------------------------------------------------------------------------------------------------------------------
* Company affiliated with Capital Research and Management Company. 1 Trustees and officers of the fund serve until their resignation, removal or retirement. 2 Capital Research and Management Company manages the American Funds consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 3 This includes all directorships (other than those in the American Funds Group) that are held by each trustee as a director of a public company or a registered investment company. 4 "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 its affiliated entities (including the fund's principal underwriter). 5 All of the officers listed are officers and/or directors/trustees of one or more of the other funds for which Capital Research and Management Company serves as Investment Adviser. THE ADDRESS FOR ALL TRUSTEES AND OFFICERS OF THE FUND IS 333 SOUTH HOPE STREET - 55TH FLOOR, LOS ANGELES, CALIFORNIA 90071, ATTENTION: FUND SECRETARY. U.S. Government Securities Fund - Page 10 FUND SHARES OWNED BY TRUSTEES AS OF DECEMBER 31, 2001
AGGREGATE DOLLAR RANGE/1/ OF SHARES OWNED IN ALL FUNDS IN THE AMERICAN FUNDS DOLLAR RANGE/1/ OF FUND FAMILY OVERSEEN NAME SHARES OWNED BY TRUSTEE ------------------------------------------------------------------------------- "NON-INTERESTED" TRUSTEES ------------------------------------------------------------------------------- Richard G. Capen, Jr. None Over $100,000 ------------------------------------------------------------------------------- H. Frederick Christie None Over $100,000 ------------------------------------------------------------------------------- Diane C. Creel $1 - $10,000 $10,001 - $50,000 ------------------------------------------------------------------------------- Martin Fenton None Over $100,000 ------------------------------------------------------------------------------- Leonard R. Fuller $1 - $10,000 $50,001 - $100,000 ------------------------------------------------------------------------------- Richard G. Newman $1 - $10,000 Over $100,000 ------------------------------------------------------------------------------- Frank M. Sanchez $1 - $10,000 $10,001 - $50,000 ------------------------------------------------------------------------------- "INTERESTED" TRUSTEES/2/ ------------------------------------------------------------------------------- Abner D. Goldstine Over $100,000 Over $100,000 ------------------------------------------------------------------------------- Paul G. Haaga, Jr. $10,001 - $50,000 Over $100,000 ------------------------------------------------------------------------------- John H. Smet None None -------------------------------------------------------------------------------
1 Ownership disclosure is made using the following ranges: None; $1 - $10,000; $10,001 - $50,000; $50,001 - $100,000 and Over $100,000. The amounts listed for "interested" trustees include shares owned through The Capital Group Companies, Inc. retirement plan and 401(k) plan. 2 "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 its affiliated entities (including the fund's principal underwriter). TRUSTEE COMPENSATION PAID DURING THE FISCAL YEAR ENDED AUGUST 31, 2001 No compensation is paid by the fund to any officer or Trustee who is a director, officer or employee of the Investment Adviser or its affiliates. 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; $2,520 per Contracts Committee meeting attended; and $1,000 per Audit and Nominating Committee meeting attended. Certain of the fund's trustees may also serve as Committee members for other American Funds whose Committees meet jointly with those of the fund. Accordingly, the Committee fees are allocated among the funds participating. 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. U.S. Government Securities Fund - Page 11
TOTAL COMPENSATION (INCLUDING AGGREGATE COMPENSATION VOLUNTARILY DEFERRED COMPENSATION/1/) (INCLUDING VOLUNTARILY FROM ALL FUNDS MANAGED BY DEFERRED COMPENSATION/1/) CAPITAL RESEARCH AND MANAGEMENT NAME FROM THE FUND COMPANY OR ITS AFFILIATES/2/ ------------------------------------------------------------------------------------------ Richard G. Capen, $3,843/3/ $ 98,620/3/ Jr. ------------------------------------------------------------------------------------------ H. Frederick $3,843/3/ $205,620/3/ Christie ------------------------------------------------------------------------------------------ Diane C. Creel $3,755/3/ $ 48,580/3/ ------------------------------------------------------------------------------------------ Martin Fenton $4,175/3/ $184,120/3/ ------------------------------------------------------------------------------------------ Leonard R. Fuller $3,843/3/ $ 80,620/3/ ------------------------------------------------------------------------------------------ Richard G. Newman $4,175 $116,620 ------------------------------------------------------------------------------------------ Frank M. Sanchez $3,965 $ 52,100 ------------------------------------------------------------------------------------------
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 consisting of 29 funds. Capital Research and Management Company also manages American Funds Insurance Series and Anchor Pathway Fund, which serve as the underlying investment vehicles for certain variable insurance contracts, and Endowments, whose shareholders are limited to certain non-profit organizations. 3 Since the deferred compensation plan's adoption, the total amount of deferred compensation accrued by the fund (plus earnings thereon) through the 2001 fiscal year for participating Trustees is as follows: Richard G. Capen, Jr. ($5,093), H. Frederick Christie ($10,819), Diane C. Creel ($9,360), Martin Fenton, ($15,573) and Leonard R. Fuller ($16,598). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the fund until paid to the Trustees. As of April 15, 2002, 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. FUND ORGANIZATION AND THE BOARD OF TRUSTEES 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 above. 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 several different classes of shares, including Class A, R-1, R-2, R-3, R-4 and R-5 shares. Class R shares are generally only available to employer-sponsored retirement plans. The shares of each class represent an interest in the same investment portfolio. Each class has pro rata rights as to voting, redemption, dividends and liquidation, except that each class bears different distribution expenses and may bear different transfer agent fees and other expenses properly attributable to the particular class as approved by the Board of Trustees and set forth in the fund's rule 18f-3 Plan. Each class' shareholders have exclusive voting rights with respect to the respective class' rule 12b-1 Plans adopted in connection with the distribution of shares and on other matters in which the interests of one class are different from interests in another class. U.S. Government Securities Fund - Page 12 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. COMMITTEES OF THE BOARD OF TRUSTEES The fund has an Audit Committee comprised of Diane C. Creel, Martin Fenton, Richard G. Newman and Frank M. Sanchez, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee oversees the fund's accounting and financial reporting policies and practices, its internal controls and the internal controls of the fund's principal service providers. The Committee acts as a liaison between the fund's independent auditors and the full Board of Trustees. There were two Audit Committee meetings held during the 2001 fiscal year. The fund has a Contracts Committee comprised of Richard G. Capen, Jr., H. Frederick Christie, Diane C. Creel, Martin Fenton, Leonard R. Fuller, Richard G. Newman and Frank M. Sanchez, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee's function is to request, review and consider the information deemed necessary to evaluate the terms of certain agreements between the fund and its Investment Adviser or the Investment Adviser's affiliates, such as the investment advisory and service agreement, principal underwriting agreement, and plans of distribution under rule 12b-1, that the fund may enter into, renew or continue, and to make its recommendations to the full Board of Trustees on these matters. There was one Contracts Committee meeting during the 2001 fiscal year. The fund has a Nominating Committee comprised of Richard G. Capen, Jr., H. Frederick Christie, Diane C. Creel, Martin Fenton, Leonard R. Fuller, Richard G. Newman and Frank M. Sanchez, none of whom is considered an "interested person" of the fund within the meaning of the 1940 Act. The Committee periodically reviews such issues as the Board's composition, responsibilities, committees, compensation and other relevant issues, and recommends any appropriate changes to the full Board of Trustees. The Committee also evaluates, selects and nominates candidates for independent trustees to the full Board of Trustees. While the Committee normally is able to identify from its own resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the Board. Such suggestions must be sent in writing to the Nominating Committee of the fund, c/o the fund's Secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, along with a written consent of the prospective nominee for consideration of his or her name by the Committee. There was one Nominating Committee meeting during the 2001 fiscal year. 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 significant investment experience. The U.S. Government Securities Fund - Page 13 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 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 $350 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, 2003, 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). In determining whether to renew the Agreement each year, the Contracts Committee of the Board of Trustees evaluates information provided by the Investment Adviser in accordance with Section 15(c) of the 1940 Act, and presents its recommendations to the full Board of Trustees. At its most recent meeting, the Committee considered a number of factors in recommending renewal of the existing Agreement, including the quality of services provided to the fund, fees and expenses borne by the fund, and financial results of the Investment Adviser. In reviewing the quality of services provided to the fund, the Committee noted that during 2001, the fund's results slightly lagged the funds in its peer group and were slightly below the median for the five- and ten-year periods ended December 31, 2001. The Committee also considered the quality and depth of the Investment Adviser's organization in general and of the investment professionals currently providing services to the fund. In reviewing the fees and expenses borne by the fund, the Committee noted, among other things, that the fund's advisory fees and its total expenses over various periods as a percentage of its average net assets were highly favorable in relation to its peer group. The Committee also discussed steps taken by the Investment Adviser to control overall expenses during a period of market uncertainty and reviewed various scenarios involving variables in sales, redemptions, markets and expenses. Based on their review, the Committee and the Board concluded that the advisory fees and other expenses of the fund are fair, both absolutely and in comparison with those of other funds in the U.S. Government Securities Fund - Page 14 industry, and that shareholders have received reasonable value in return for paying such fees and expenses. 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 expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements, and notices to its shareholders; taxes; expenses of the issuance and redemption of shares of the fund (including stock certificates, registration and qualification fees and expenses); expenses pursuant to the fund's Plans of Distribution (described below); legal and auditing expenses; compensation, fees and expenses paid to trustees 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 daily net asset levels: NET ASSET LEVEL
RATE IN EXCESS OF UP TO ------------------------------------------------------------------------------ 0.30% $ 0 $ 60,000,000 ------------------------------------------------------------------------------ 0.21 60,000,000 1,000,000,000 ------------------------------------------------------------------------------ 0.18 1,000,000,000 3,000,000,000 ------------------------------------------------------------------------------ 0.16 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. U.S. Government Securities Fund - Page 15 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 2001, 2000 and 1999, the Investment Adviser received from the fund advisory fees of $4,610,000, $4,622,000 and $5,028,000, respectively. ADMINISTRATIVE SERVICES AGREEMENT - The Administrative Services Agreement (the "Administrative Agreement") between the fund and the Investment Adviser relating to the fund's R share classes will continue in effect until May 31, 2003, 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 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 R share classes. 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 providing such services. As compensation for its services, the Investment Adviser receives transfer agent fees for transfer agent services provided to the fund's applicable share classes. 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 Investment Adviser also receives an administrative services fee for administrative services provided to the fund's applicable share classes. Administrative services fees are paid monthly, accrued daily and calculated at the annual rate of 0.15% of the average daily net assets for each R share class except Class R-5 shares. For Class R-5 shares, the administrative fee is paid monthly, accrued daily and calculated at the annual rate of 0.10% of the average daily net assets of Class R-5 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 U.S. Government Securities Fund - Page 16 Woodfield Crossing Boulevard, Indianapolis, IN 46240; and 5300 Robin Hood Road, Norfolk, VA 23513. 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 R-1, R-2, R-3 and R-4 shares, the fund pays the Principal Underwriter for advancing the immediate service fees paid to qualified dealers and advisers who sell the shares. Commissions, revenue or service fees retained by the Principal Underwriter after allowances or compensation to dealers were:
COMMISSIONS, ALLOWANCE OR FISCAL YEAR REVENUE COMPENSATION -------------------------------------------------------------- OR FEES RETAINED TO DEALERS -------------------------------------- CLASS A 2001 $796,000 $3,057,000 2000 410,000 1,620,000 1999 983,000 4,031,000 ----------------------------------------------------------------------------------------------------
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). 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 the following amounts to finance any activity 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: (i) for Class A shares, up to 0.30% of its average daily net assets attributable to Class A shares; (ii) for Class R-1 shares, 1.00% of its average daily net assets attributable to Class R-1 shares; (iii) for Class R-2 shares, up to 1.00% of its average daily net assets attributable to Class R-2 shares; (iv) for Class R-3 shares, up to 0.75% of its average daily net assets attributable to Class R-3 shares; and (v) for Class R-4 shares, up to 0.50% of its average daily net assets attributable to Class R-4 shares. The fund has not adopted a Plan for Class R-5 shares; accordingly, no 12b-1 fees are paid from Class R-5 share assets. U.S. Government Securities Fund - Page 17 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 for Class A shares dealer commissions and wholesaler compensation paid on sales of shares of $1 million or more purchased without a sales charge (including purchases by employer-sponsored defined 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 limitations not reimbursed to the Principal Underwriter during the most recent fiscal quarter are recoverable for five quarters, provided that such commissions do not exceed the annual expense limit. After five quarters these commissions are not recoverable. As of August 31, 2001, unreimbursed expenses which remain subject to reimbursement under the Plan for Class A shares totaled $123,000. For Class R-1 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 R-2 shares, currently (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.50% is paid to the Principal Underwriter for paying distribution-related expenses, including commissions paid to qualified dealers. For Class R-3 shares, currently (i) 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers, and (ii) 0.25% is paid to the Principal Underwriter for paying distribution-related expenses, including commissions paid to qualified dealers. For Class R-4 shares, currently 0.25% is paid to the Principal Underwriter for paying service-related expenses, including service fees paid to qualified dealers or advisers. During the 2001 fiscal year, 12b-1 expenses accrued and paid, and if applicable, unpaid, were:
12B-1 EXPENSES 12B-1 LIABILITY -------------------------- ACCRUED OUTSTANDING ---------------------------------------------------- CLASS A $3,630,000 $636,000 ------------------------------------------------------------------------------
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 are 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. U.S. Government Securities Fund - Page 18 TAXES AND DISTRIBUTIONS FUND TAXATION - The fund has elected to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code ("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 tax liability, the fund may determine that it is the interest of shareholders to distribute a lesser amount. The fund may pass through the income earned on certain U.S. government bonds free of various states' income taxes. However, a few states require the fund hold more than 50% of its assets in these types of government bonds at the end of every fiscal quarter in order to qualify for the tax exemption. The fund does not currently intend to actively meet the 50% threshold in order to qualify for the tax exemption in those few states. The following information may or may not apply to you depending on whether you hold fund shares in a non-taxable account, such as a qualified retirement plan. Please see your tax adviser for more information. U.S. Government Securities Fund - Page 19 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. Dividends and capital gains distributed by the fund to a retirement plan currently are not taxable. 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. 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 the 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 a market discount may be treated as taxable ordinary income to the extent it does not exceed the accrued market discount on such bond or a fund may elect to include the market discount in income in tax years to which it is attributable. Generally, accrued market discount may be figured under either the ratable accrual method or constant interest method. If the fund has paid a premium over the face amount of a bond, the fund has the option of either amortizing the premium until bond maturity and reducing the fund's basis in the bond by the amortized amount, or not amortizing and treating the premium as part of the bond's basis. In the case of any debt security having a fixed maturity date of not more than one year from its date of 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 such shareholder's related tax credit. U.S. Government Securities Fund - Page 20 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 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 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. U.S. Government Securities Fund - Page 21 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. PURCHASE, EXCHANGE AND SALE OF SHARES PURCHASES - Class A shares are generally not available for retirement plans using the PlanPremier or Recordkeeper Direct recordkeeping programs. Class R shares are generally only available to 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans, and non-qualified deferred compensation plans. Class R shares are also generally only available to retirement plans where plan level or omnibus accounts (i.e., no participant accounts) are held on the books of a fund. In addition, Class R-5 shares are generally only available to retirement plans with at least $1 million or more in plan assets. This minimum does not apply to clients of the Personal Investment Management division of Capital Guardian Trust Company. Class R shares are not available to retail non-retirement accounts, traditional and Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual 403(b) plans, and CollegeAmerica accounts. Eligible retirement plans may generally open an account and purchase Class A and R shares by contacting any investment dealer (who may impose transaction charges in addition to those described in the fund's prospectus and statement of additional information) authorized to sell the fund's shares. Additional shares may be purchased through a plan's administrator or recordkeeper. THE FUND AND THE PRINCIPAL UNDERWRITER RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER. EXCHANGES - Shares of the fund generally may be exchanged into shares of the same class of other funds in The American Funds Group. Exchange purchases are subject to the minimum investment requirements of the fund purchased and no sales charge generally applies. However, exchanges of Class A shares from the money market funds purchased without a sales charge generally will be subject to the appropriate sales charge, unless the money market fund shares were acquired by an exchange from a fund having a sales charge. Shares may be exchanged into other American Funds by contacting your plan administrator or recordkeeper. Shares held in corporate-type retirement plans for which Capital Bank and Trust Company serves as trustee may not be exchanged by telephone, Internet, fax or telegraph. Exchange redemptions and purchases are processed simultaneously at the share prices next determined after the exchange order is received. EXCHANGE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES. U.S. Government Securities Fund - Page 22 SALES - Shares of the fund may be sold by contacting your plan administrator or recordkeeper. Shares are sold at the net asset value next determined after the request is received in good order by the Transfer Agent, dealer or any of their designees. 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. Proceeds from a redemption or a dividend or capital gain distribution may be reinvested without a sales charge in any fund in The American Funds Group within 90 days after the date of the redemption or distribution. Proceeds will be reinvested in the same share class from which the original redemption or distribution was made. Redemption proceeds of Class A 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 the request is received and accepted by the Transfer Agent. FUND NUMBERS - Here are the fund numbers for use when making share transactions:
FUND NUMBERS ------------------------------------------ CLASS CLASS CLASS CLASS CLASS CLASS FUND A R-1 R-2 R-3 R-4 R-5 -------------------------------------------------------------------------------------------------------------------------- STOCK AND STOCK/BOND FUNDS AMCAP Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 002 2102 2202 2302 2402 2502 American Balanced Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . 011 2111 2211 2311 2411 2511 American Mutual Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . 003 2103 2203 2303 2403 2503 Capital Income Builder/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . 012 2112 2212 2312 2412 2512 Capital World Growth and Income Fund/SM/ . . . . . . . . . . . . . . . . . . 033 2133 2233 2333 2433 2533 EuroPacific Growth Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . 016 2116 2216 2316 2416 2516 Fundamental Investors/SM/ . . . . . . . . . . . . . . . . . . . . . . . . . . 010 2110 2210 2310 2410 2510 The Growth Fund of America/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 005 2105 2205 2305 2405 2505 The Income Fund of America/(R)/ . . . . . . . . . . . . . . . . . . . . . . . 006 2106 2206 2306 2406 2506 The Investment Company of America/(R)/ . . . . . . . . . . . . . . . . . . . 004 2104 2204 2304 2404 2504 The New Economy Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . 014 2114 2214 2314 2414 2514 New Perspective Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . 007 2107 2207 2307 2407 2507 New World Fund/SM/ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 036 2136 2236 2336 2436 2536 SMALLCAP World Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . . . 035 2135 2235 2335 2435 2535 Washington Mutual Investors Fund/SM/ . . . . . . . . . . . . . . . . . . . . 001 2101 2201 2301 2401 2501 BOND FUNDS American High-Income Municipal Bond Fund/(R)/ . . . . . . . . . . . . . . . . 040 N/A N/A N/A N/A 2540 American High-Income Trust/SM/ . . . . . . . . . . . . . . . . . . . . . . . 021 2121 2221 2321 2421 2521 The Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . . . . . . . . 008 2108 2208 2308 2408 2508 Capital World Bond Fund/(R)/ . . . . . . . . . . . . . . . . . . . . . . . . 031 2131 2231 2331 2431 2531 Intermediate Bond Fund of America/SM/ . . . . . . . . . . . . . . . . . . . . 023 2123 2223 2323 2423 2523 Limited Term Tax-Exempt Bond Fund of America/SM/ . . . . . . . . . . . . . . 043 N/A N/A N/A N/A 2543 The Tax-Exempt Bond Fund of America/(R)/ . . . . . . . . . . . . . . . . . . 019 N/A N/A N/A N/A 2519 The Tax-Exempt Fund of California/(R)/* . . . . . . . . . . . . . . . . . . . 020 N/A N/A N/A N/A 2520 The Tax-Exempt Fund of Maryland/(R)/* . . . . . . . . . . . . . . . . . . . . 024 N/A N/A N/A N/A 2524 The Tax-Exempt Fund of Virginia/(R)/* . . . . . . . . . . . . . . . . . . . . 025 N/A N/A N/A N/A 2525 U.S. Government Securities Fund/SM/ . . . . . . . . . . . . . . . . . . . . . 022 2122 2222 2322 2422 2522 MONEY MARKET FUNDS The Cash Management Trust of America/(R)/ . . . . . . . . . . . . . . . . . . 009 2109 2209 2309 2409 2509 The Tax-Exempt Money Fund of America/SM/ . . . . . . . . . . . . . . . . . . 039 N/A N/A N/A N/A 2539 The U.S. Treasury Money Fund of America/SM/ . . . . . . . . . . . . . . . . . 049 2149 2249 2349 2449 2549 ___________ *Available only in certain states.
U.S. Government Securities Fund - Page 23 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" above for a listing of the funds.)
DEALER SALES CHARGE AS COMMISSION 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 none ----------------------------------------------------------------------------
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGES - Investments of $1 million or more are sold with no initial sales charge. 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 U.S. Government Securities Fund - Page 24 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; (7) an individual or entity with a substantial business relationship with The Capital Group Companies, Inc. or its affiliates, as determined by a Vice President or more senior officer of the Capital Research and Management Company Fund Administration Unit; and (8) wholesalers and full-time employees directly supporting wholesalers involved in the distribution of insurance company separate accounts whose underlying investments are managed by any affiliate of The Capital Group Companies, Inc. U.S. Government Securities Fund - Page 25 Shares are offered at net asset value to these persons and organizations due to anticipated economies in sales effort and expense. 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 of $1 million or more (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 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 R-1 shares, annual asset-based compensation of 1.00% is paid by the Principal Underwriter to dealers who sell Class R-1 shares. For Class R-2 shares, annual asset-based compensation of 0.75% is paid by the Principal Underwriter to dealers who sell Class R-2 shares. For Class R-3 shares, annual asset-based compensation of 0.50% is paid by the Principal Underwriter to dealers who sell Class R-3 shares. For Class R-4 shares, annual asset-based compensation of 0.25% is paid by the Principal Underwriter to dealers who sell Class R-4 shares. No dealer compensation is paid on sales of Class R-5 shares. The fund has not adopted a plan for Class R-5 shares; accordingly no 12b-1 fee is paid from Class R-5 assets. CLASS A SALES CHARGE REDUCTIONS REDUCING YOUR CLASS A SALES CHARGE - You must let your investment dealer or American Funds Service Company (the "Transfer Agent") know at the time you purchase shares 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 U.S. Government Securities Fund - Page 26 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. The dealer assigned to the account at the end of the period will receive an appropriate commission adjustment. 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 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) 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 total monthly 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 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. Individual purchases by a trustee(s) or other fiduciary(ies) may be aggregated if the investments are: .for a fiduciary account, including employee benefit plans other than individual-type employee benefit plans, such as an IRA, 403(b) plan (except as described below), or single-participant Keogh-type plan; U.S. Government Securities Fund - Page 27 .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; or .for participant accounts of a 403(b) plan that are 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. 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 - Subject to the limitations described under the aggregation policy, 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. INDIVIDUAL RETIREMENT ACCOUNT (IRA) ROLLOVERS Assets from a retirement plan (plan assets) may be invested in any class of shares of the American Funds 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. 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, may be invested in: i) Class A shares at net asset value; ii) Class A shares subject to the applicable initial sales charge; iii) Class B shares; iv) Class C shares; or v) Class F shares. Plan assets invested in Class A shares with a sales charge, B, C or F shares are subject to the terms and conditions contained in the fund's current prospectus and statement of additional information. Advisers will be compensated according to the policies associated with each share class as described in the fund's current prospectus and statement of additional information. Plan assets invested in Class A shares at net asset value will not be subject to a contingent deferred sales charge and will immediately begin to accrue service fees (i.e., shares do not have to age). Dealer commissions will be paid only on IRA rollovers of $1 million or more according to U.S. Government Securities Fund - Page 28 the schedule applicable to Class A share investments of $1 million or more (see "Dealer Commissions and Compensation" above). IRA rollovers that do not indicate which share class plan assets should be invested in and which do not have an adviser associated with the account will be invested in Class F shares. Additional plan assets may be rolled into the account holding F shares; however, subsequent contributions will not be allowed to be invested in F shares. PRICE OF SHARES Shares are purchased at the offering price or sold at the net asset value price next determined after the purchase or sell order is received and accepted by the fund or the Transfer Agent; the offering or net asset value price is effective for orders received prior to the time of determination of the net asset value and, in the case of orders placed with dealers or their authorized designees, accepted by the Principal Underwriter, the Transfer Agent, a dealer or any of their designees. In the case of orders sent directly to the fund or the Transfer Agent, an investment dealer MUST be indicated. The dealer is responsible for promptly transmitting purchase and sell orders to the Principal Underwriter. Orders received by the investment dealer or authorized designee, the Transfer Agent, or the 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. U.S. Government Securities Fund - Page 29 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 procedures adopted by authority of 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 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. SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES ACCOUNT STATEMENTS - Your account is opened in accordance with your registration instructions. Transactions in the account, such as additional investments, will be reflected on regular confirmation statements from the Transfer Agent. Dividend and capital gain reinvestments, and purchases through certain retirement plans, will be confirmed at least quarterly. REDEMPTION OF SHARES - The fund's Declaration of Trust permit 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. Certificates are not available for the R share classes. 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. U.S. Government Securities Fund - Page 30 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. Brokerage commissions paid on portfolio transactions, including dealer concessions on underwritings, if applicable, for the fiscal years ended 2001, 2000 and 1999, amounted to $162,000, $56,000 and $8,000, respectively. GENERAL INFORMATION CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds from the sale of shares of the fund and of securities in the fund's portfolio, are held by JPMorgan Chase Bank, 270 Park Avenue, New York, NY 10017-2070, 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 $1,431,000 for Class A shares for the 2001 fiscal year. INDEPENDENT AUDITORS - Deloitte & Touche LLP, Two California Plaza, 350 South Grand Avenue, Suite 200, 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 U.S. Government Securities Fund - Page 31 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. 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 - (i) The unaudied financial statements including the investment portfolio for the six months ended February 28, 2002 and (ii) the financial statements including the investment portfolio and the report of Independent Auditors contained in the Annual Report for the fiscal year ended August 31, 2001 are included in this Statement of Additional Information. The following information is not included: DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE PER SHARE FOR CLASS A SHARES -- FEBRUARY 28, 2002
Net asset value and redemption price per share (Net assets divided by shares outstanding) . . . . . . . . . $13.39 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). . . . . . . . . . . . . . . . . . . . . . . . $13.91
CLASS A SHARE INVESTMENT RESULTS AND RELATED STATISTICS The fund's yield was 3.88% based on a 30-day (or one month) period ended February 28, 2002, 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 as required by the Securities and Exchange Commission: U.S. Government Securities Fund - Page 32 YIELD = 2[((a-b)/cd + 1)/6/ -1] Where: a = dividends and interest earned during the period. b = expenses accrued for the period (net of reimbursements). c = the average daily number of shares outstanding during the period that were entitled to receive dividends. d = the maximum offering price per share on the last day of the period. The fund's one-year total return and five- and ten-year average annual total returns at the maximum offering price for the periods ended February 28, 2002 were 2.00%, 5.94% and 6.17%, 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 February 28, 2002 were 6.00%, 6.75% and 6.57%, 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, F, 529 and R 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. ----- -------------------------- ----------------------- U.S. Government Securities Fund - Page 33 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, fuels, transportation, and other goods and services that people buy for day-to-day living). U.S. Government Securities Fund - Page 34 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. STANDARD & POOR'S 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 35 [pie chart] Federal agency mortgage pass-throughs 46% U.S. Treasury notes & bonds 34% Federal agency debentures 7% Federal agency collateralized mortgage obligations 5% Cash & equivalents 8%
U.S. Government Securities Fund Investment portfolio, February 28, 2002 (unaudited) Principal Market amount value Bonds & notes (000) (000) Federal agency mortgage pass-throughs (1) - 46.10% Fannie Mae: 5.50% 2016 - 2017 $ 42,411 $ 42,239 6.00% 2032 9,000 8,947 6.50% 2016 - 2032 31,124 31,724 7.00% 2009 - 2032 35,266 36,488 7.50% 2030 - 2031 10,716 11,161 8.00% 2005 - 2023 1,176 1,253 8.16% 2002 (2) 32 32 8.50% 2007 - 2027 795 861 9.00% 2009 123 133 9.50% 2011 - 2022 480 528 12.00% 2019 2,780 3,245 Freddie Mac: 6.00% 2014 1,984 2,016 7.00% 2008 336 353 7.20% 2006 12,962 13,853 8.00% 2012 - 2017 2,053 2,159 8.25% 2007 190 201 8.50% 2009 - 2021 2,479 2,681 8.75% 2008 188 201 11.00% 2016 19 22 12.00% 2015 47 55 Government National Mortgage Association: 5.50% 2013 - 2016 17,019 17,056 6.00% 2008 - 2032 219,977 220,300 6.50% 2014 - 2032 146,344 149,458 7.00% 2008 - 2032 130,855 135,256 7.50% 2009 - 2032 57,733 60,488 8.00% 2002 - 2030 36,732 38,522 8.50% 2020 - 2023 1,375 1,489 9.00% 2009 - 2021 2,343 2,548 9.50% 2009 - 2021 541 595 10.00% 2019 - 2022 10,665 12,075 795,939 U.S. Treasury notes & bonds - 33.81% 4.25% May 2003 117,000 119,632 5.75% August 2003 10,000 10,448 3.00% January 2004 61,000 61,000 Principal Strip 0% August 2004 44,962 41,313 11.625% November 2004 9,500 11,479 Principal Strip 0% May 2006 35,720 30,002 6.875% May 2006 32,250 35,697 7.00% July 2006 5,000 5,563 3.375% January 2007 (3) 25,934 26,615 6.25% February 2007 28,500 30,963 6.625% May 2007 21,500 23,741 5.75% August 2010 21,000 22,270 Principal Strip 0% November 2011 5,285 3,190 10.375% November 2012 31,000 39,835 12.00% August 2013 10,000 13,995 8.875% August 2017 25,250 34,087 8.875% February 2019 9,100 12,414 8.125% August 2019 12,000 15,411 7.875% February 2021 32,250 40,811 6.25% May 2030 4,685 5,142 583,608 Federal agency debentures - 6.73% Fannie Mae: 6.35% 2005 (1) 2,877 2,980 6.25% 2029 3,150 3,171 7.25% 2030 6,000 6,835 Federal Home Loan Bank Bonds: 5.125% 2003 6,315 6,528 5.75% 2008 7,725 7,972 5.80% 2008 10,075 10,434 Freddie Mac 6.75% 2031 2,150 2,311 United States Government Guaranteed Ship Financing 9,546 9,696 Obligations, Rowan Companies, Inc. (Title XI) 5.88% 2012 (1) Sallie Mae 4.75% 2004 10,000 10,284 Small Business Administration: Series 2001-20K, Class 1, 5.34% 2021 5,250 5,091 Series 2001-20J, Class 1, 5.67% 2021 5,500 5,478 Series 2001-20F, Class 1, 6.44% 2021 (1) 13,179 13,645 Series 2001-20G, Class 1, 6.625% 2021 (1) 4,067 4,249 Tennessee Valley Authority: Series G, 5.375% 2008 22,420 22,651 Global Power Bonds, 1995 Series E, 6.75% 2025 4,500 4,847 116,172 Federal agency collateralized mortgage obligations (1) - 4.75% Fannie Mae: Series 91-50, Class H, 7.75% 2006 660 690 Series 1997-M5, Class C, ACES 6.74% 2007 5,000 5,341 Series 1998-M6, Class A-2, ACES, 6.32% 2008 2,500 2,637 Trust 35, Class 2, 12.00% 2018 125 143 Series 90-93, Class G, 5.50% 2020 658 625 Series 1992-119, Class Z, 8.00% 2022 2,702 2,804 Series 1994-4, Class ZA, 6.50% 2024 4,800 4,750 Series 2001-4, Class NA, 11.70% 2025 (2) 19,374 22,197 Series 1997-M6, Class ZA, 6.85% 2026 13,598 13,327 Series 2001-20, Class C, 11.58% 2031 (2) 3,178 3,676 Series 2001-20, Class E, 9.588% 2031 (2) 778 870 Series 1999-T2, Class A-1, 7.50% 2039 5,876 6,197 Freddie Mac: Series 83-A, Class 3, 11.875% 2013 61 66 Series 83-B, Class B-3, 12.50% 2013 400 441 Series 2289-NA, 11.962% 2020 (2) 11,670 13,626 Series 178, Class Z, 9.25% 2021 652 687 Series 2289-NB, 10.977% 2022 (2) 2,830 3,239 Series 1567, Class A, 2.275% 2023 (2) 721 662 81,978 Collateralized mortgage obligations (privately originated) - 0.08% Paine Webber CMO, Series O, Class 5, 1,248 1,384 9.50% 2019 (1) (4) 1,384 Total bonds & notes (cost: $1,548,111,000) 1,579,081 Principal Market amount value Short-term securities (000) (000) Corporate short-term notes - 9.19% Abbott Laboratories: (5) 1.72% due 3/7/2002 13,500 13,495 1.70% due 3/12/2002 15,000 14,991 Alcoa Inc. 1.77% due 3/22/2002 20,000 19,978 American General Corp. 1.79% due 4/2/2002 13,500 13,478 ChevronTexaco Corp. 1.77% due 3/12/2002 11,400 11,393 Ciesco LP: 1.77% due 3/4/2002 5,000 4,999 1.78% due 4/8/2002 22,000 21,958 General Electric Capital Corp. 1.88% due 3/1/2002 25,000 24,999 Motiva Enterprises LLC 1.76% due 3/5/2002 10,000 9,997 Procter & Gamble Co. 1.60% due 3/4/2002 (5) 23,300 23,296 158,584 Federal agency discount notes - 1.36% Freddie Mac 1.685% due 3/19/2002 15,000 14,987 Federal Home Loan Banks 1.73% due 4/19/2002 8,500 8,480 23,467 Total short-term securities (cost: $182,051,000) 182,051 Total investment securities (cost: $1,730,162,000) 1,761,132 Excess of payables over cash and receivables 34,817 Net assets $1,726,315 (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 rates may change periodically. (3) Index-linked bond whose principal amount moves with a government retail price index. (4) Comprised of federal agency originated or guaranteed loans. (5) Restricted security that can be resold only to institutional investors. In practice, this security is as liquid as an unrestricted security in the portfolio. See Notes to Financial Statements
U.S. Government Securities Fund Financial statements (dollars and shares in thousands, except per share amounts) Statement of assets and liabilities unaudited at February 28, 2002 Assets: Investment securities at market (cost: $1,730,162) $1,761,132 Cash 614 Receivables for: Sales of investments $653 Sales of fund's shares 10,063 Interest 11,337 22,053 Other assets 4 1,783,803 Liabilities - Payables for: Purchases of investments 51,506 Repurchases of fund's shares 2,789 Dividends on fund's shares 1,713 Management services 441 Services provided by affiliates 940 Deferred Trustees' compensation 65 Other fees and expenses 34 57,488 Net assets at February 28, 2002 $1,726,315 Net assets consist of: Capital paid in on shares of beneficial interest $1,772,203 Distruibutions in excess of net investment income (212) Accumulated net realized loss (76,646) Net unrealized appreciation 30,970 Net assets at February 28, 2002 $1,726,315 Shares of beneficial interest issued and outstanding - unlimited shares authorized Net Net assets Shares asset value outstanding per share (1 Class A $1,581,497 118,154 $13.39 Class B 86,585 6,469 13.39 Class C 45,585 3,406 13.39 Class F 12,334 921 13.39 Class 529-A 140 10 13.39 Class 529-B 118 9 13.39 Class 529-C 56 4 13.39 (1) Maximum offering price and redemption price per share are equal to the net asset value per share for all share classes, except for Class A and Class 529-A, for which the maximum offering price per share is $13.91 for both. Statement of operations for the six months ended February 28, 2002 Investment income: (dollars in Unaudited Income- thousands) Interest $41,639 Fees and expenses: Investment advisory services $2,699 Distribution services 2,732 Transfer agent services 915 Administrative services 39 Reports to shareholders 70 Registration statement and prospectus 121 Postage, stationery and supplies 115 Trustees' compensation 12 Auditing and legal 46 Custodian 16 Other 4 6,769 Net investment income 34,870 Net realized gain and unrealized depreciation on investments: Net realized gain on investments 11,998 Net unrealized depreciation on investments (7,509) Net realized gain and unrealized depreciation on investments 4,489 Net increase in net assets resulting from operations $39,359 Statement of changes in net assets (dollars in thousands) Six months ended Year ended February 28, August 31, 2002* 2001 Operations: Net investment income $34,870 $66,230 Net realized gain on investments 11,998 16,742 Net unrealized (depreciation) appreciation on investments (7,509) 40,971 Net increase in net assets resulting from operations 39,359 123,943 Dividends paid to shareholders (35,867) (70,438) Capital share transactions 304,534 279,111 Total increase in net assets 308,026 332,616 Net assets: Beginning of period 1,418,289 1,085,673 End of period (including distributions in excess of net investment income and undistributed net investment income: $(212) and $785, respectively) $1,726,315 $1,418,289 *Unaudited See Notes to Financial Statements
Notes to financial statements unaudited 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - The American Funds Income Series (the "trust") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company and has initially issued one series of shares, U.S. Government Securities Fund (the "fund"). The fund seeks high current income, consistent with prudent investment risk and preservation of capital, by investing primarily in obligations backed by the full faith and credit of the United States government. The fund offers nine share classes consisting of four retail share classes and five CollegeAmerica savings plan share classes. The CollegeAmerica savings plan share classes (Classes 529-A, 529-B, 529-C, 529-E and 529-F) are sponsored by the Commonwealth of Virginia and can be utilized to save for college education. The fund's share classes are described below:
SHARE CLASS INITIAL SALES CHARGE CONTINGENT DEFERRED CONVERSION SALES CHARGE UPON FEATURE REDEMPTION Class A and Class 529-A Up to 3.75% None None Class B and Class 529-B None Declines from 5% to Class B and zero for redemptions Class 529-B within six years of convert to Class purchase A and Class 529-A, respectively, after eight years Class C None 1% for redemptions Class C converts within one year of to Class F after purchase 10 years Class 529-C None 1% for redemptions within one year of None purchase Class 529-E* None None None Class F and Class 529-F* None None None
* As of February 28, 2002, there were no Class 529-E or Class 529-F shares outstanding. Holders of all share classes have equal pro rata rights to assets, dividends and liquidation. Each share class has identical voting rights, except for the exclusive right to vote on matters affecting only its class. Share classes have different fees and expenses ("class-specific fees and expenses"), primarily due to different arrangements for distribution, administrative and shareholder services. Differences in class-specific fees and expenses will result in differences in net investment income and, therefore, the payment of different per-share dividends by each class. SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared to comply with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the fund: SECURITY VALUATION -Fixed-income securities are valued at prices obtained from a pricing service. However, where the investment adviser deems it appropriate, they 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. The ability of the issuers of the debt securities held by the fund to meet their obligations may be affected by economic developments in a specific industry, state or region. Securities and other assets for which representative market quotations are not readily available are valued at fair value as determined in good faith by authority of the fund's Board of Trustees. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions are recorded by the fund as of the date the trades are executed with brokers. Realized gains and losses from security transactions are determined based on the specific identified cost of the securities. In the event a security is purchased with a delayed payment date, the fund will segregate liquid assets sufficient to meet its payment obligations. 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. CLASS ALLOCATIONS - Income, fees and expenses (other than class-specific fees and expenses) and realized and unrealized gains and losses are allocated daily among the various share classes based on their relative net assets. Class-specific fees and expenses, such as distribution, administrative and shareholder services are charged directly to the respective share class. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -Dividends to shareholders are declared daily from net investment income and are paid to shareholders monthly. 2. FEDERAL INCOME TAXATION AND DISTRIBUTIONS The fund complies with the requirements under Subchapter M of the Internal Revenue Code applicable to mutual funds and intends to distribute substantially all of its net taxable income and net capital gains each year. The fund is not subject to income taxes to the extent such distributions are made. DISTRIBUTIONS - Distributions are based on net investment income and net realized gains determined on a tax basis which may differ from net investment income and net realized gains for financial reporting purposes. These differences are due primarily to differing treatment for items such as short-term capital gains and losses and net capital losses. 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 February 28, 2002, the cost of investment securities for federal income tax purposes was $1,730,162,000. As of February 28, 2002, the components of distributable earnings on a tax basis were as follows:
(dollars in thousands) Distributions in excess of net investment income $(146) Accumulated short-term losses (80,017) Undistributed long-term gains 10,692 Unrealized appreciation 34,090 Unrealized depreciation (3,120)
Accumulated short-term losses above include capital loss carryforwards of $15,165,000, $27,152,000, $20,590,000, $4,377,000, $5,664,000 and $8,375,000 expiring in 2003, 2004, 2005, 2006, 2008 and 2009, respectively. The capital loss carryforward will be used to offset undistributed capital gains realized by the fund. The fund will not make distributions from capital gains while a capital loss carryforward remains. The tax character of distributions paid was as follows: SIX MONTHS ENDED FEBRUARY 28, 2002 (dollars in thousands)
DISTRIBUTIONS FROM ORDINARY INCOME DISTRIBUTIONS TOTAL FROM DISTRIBUTIONS NET INVESTMENT INCOME SHORT-TERM LONG-TERM PAID CAPITAL GAINS CAPITAL GAINS CLASS A $33,863 $- $- $33,863 CLASS B 1,251 - - 1,251 CLASS C(1) 560 - - 560 CLASS F(1) 193 - - 193 CLASS 529-A(1) - * - - - * CLASS 529-B(1) - * - - - * CLASS 529-C(1) - * - - - * TOTAL $35,867 $- $- $35,867
YEAR ENDED AUGUST 31, 2001 (DOLLARS IN THOUANDS)
DISTRIBUTIONS FROM ORDINARY INCOME DISTRIBUTIONS TOTAL FROM DISTRIBUTIONS NET INVESTMENT INCOME SHORT-TERM LONG-TERM PAID CAPITAL GAINS CAPITAL GAINS Class A $69,470 $- $- $69,470 Class B 744 - - 744 Class C(2) 118 - - 118 Class F(2) 106 - - 106 Total $70,438 $- $- $70,438 *Amount less than 1,000.
(1) Class 529-A, Class 529-B and Class 529-C shares were not offered before February 15, 2002. (2) Class C and Class F shares were not offered before March 15, 2001. 3. FEES AND TRANSACTIONS WITH RELATED PARTIES Capital Research and Management Company ("CRMC"), the fund's investment adviser, is the parent company of American Funds Service Company ("AFS"), the fund's transfer agent, and American Funds Distributors ("AFD"), the principal underwriter of the fund's shares. INVESTMENT ADVISORY SERVICES - The Investment Advisory and Service Agreement with CRMC provides for monthly fees accrued daily. These fees are based on a series of annual rates beginning with 0.30% per annum on the first $60 million of daily net assets and decreasing to 0.16% on such assets in excess of $3 billion. The agreement also provides for monthly fees, accrued daily, based on a series of annual rates beginning with 3.00% per annum on the first $3,333,333 of the fund's monthly gross investment income decreasing to 2.00% on such income in excess of $8,333,333. For the six months ended February 28, 2002, the investment advisory services fee was equivalent to an annualized rate of 0.338% of average daily net assets. CLASS-SPECIFIC FEES AND EXPENSES - Expenses that are specific to individual share classes are accrued directly to the respective share class. The principal class-specific expenses are described below: DISTRIBUTION SERVICES - The fund has adopted plans of distribution for all share classes. Under the plans, the Board of Trustees approves certain categories of expenses which are used to finance activities primarily intended to sell fund shares. The plans provide for annual expenses, based on average daily net assets of up to 0.30% for Class A shares; 0.50% for Class 529-A shares; 1.00% for Class B, Class 529-B, Class C and Class 529-C shares; 0.75% for Class 529-E shares; and 0.50% for Class F and Class 529-F shares. In some cases, the Board of Trustees approved expense amounts lower than plan limits. All share classes may use up to 0.25% of these expenses to pay service fees, or to compensate AFD for paying service fees to firms that have entered into agreements with AFD for providing certain shareholder services. Additionally, the Board of Trustees has approved the following categories of distribution expenses: CLASS A AND CLASS 529-A - Dealers and wholesalers receive commissions from AFD for certain shares sold without a sales charge. Each class reimburses AFD for amounts billed within the prior 15 months but only to the extent that the overall annual expense limit is not exceeded. Although the Class 529-A plan has an annual expense limit of 0.50% of average daily net assests, currently the expense is limited to 0.30% of such assets. As of February 28, 2002, unreimbursed expenses which remain subject to reimbursement totaled $303,000 for Class A. CLASS B, CLASS 529-B, CLASS C AND CLASS 529-C - Each class pays AFD annual fees of 0.75% of its respective average daily net assets to compensate dealers and wholesalers for shares sold. CLASS 529-E - AFD is paid annual fees of 0.25% of average daily net assets to compensate dealers and wholesalers for shares sold. CLASS F AND CLASS 529-F- Although the plan has an annual expense limit of 0.50% of its respective average daily net assets, currently there are no additional approved categories of expense for these classes. TRANSFER AGENT SERVICES - The fund has a transfer agency agreement with AFS for Class A and Class B shares. Under this agreement, these share classes compensate AFS for transfer agency services including shareholder record keeping, communications and transaction processing. AFS is compensated for transfer agency services provided to all other share classes from the administrative services fees paid to CRMC described below. ADMINISTRATIVE SERVICES - The fund has an administrative services agreement with CRMC to provide transfer agency and other related shareholder services for all classes of shares other than Class A and Class B. Each relevant class pays CRMC annual fees of 0.15% based on its respective average daily net assets, plus amounts payable for certain transfer agency services. CRMC may use these fees to compensate third parties for performing these services. Each 529 share class is subject to an additional annual administrative fee of 0.10% of its respective average daily net assets; this fee is payable to the Commonwealth of Virginia for the maintenance of the CollegeAmerica plan. Expenses under the agreements described above for the six months ended February 28, 2002 are as follows (dollars in thousands):
FUND SHARE DISTRIBUTION TRANSFER ADMINISTRATIVE CLASSES SERVICES AGENT SERVICES SERVICES Class A $2,236 $875 Not applicable Class B 333 40 Not applicable Class C 152 Not applicable $30 Class F 11 Not applicable 9 Class 529-A - Not applicable - * Class 529-B - * Not applicable - * Class 529-C - * Not applicable - *
* Amount less than 1,000. DEFERRED TRUSTEES' COMPENSATION - Since the adoption of the deferred compensation plan in 1993, Trustees who are unaffiliated with CRMC may elect to defer the cash payment of part or all of their compensation. These deferred amounts, which remain as liabilities of the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. Trustees' fees in the accompanying financial statements include the current fees (either paid in cash or deferred) and the net increase or decrease in the value of the deferred amounts. AFFILIATED OFFICERS AND TRUSTEES - Officers and certain Trustees of the fund are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated officers or Trustees received any compensation directly from the fund. 4. CAPITAL SHARE TRANSACTIONS Capital share transactions in the fund were as follows:
SIX MONTHS ENDED FEBRUARY 28, 2002 (dollars and shares in thousands)
SALES REINVESTMENTS REPURCHASES NET OF DIVIDENDS INCREASE AND DISTRIBUTIONS Amount Shares Amount Shares Amount Shares Amount Shares Class A $554,274 41,320 $28,022 2,094 $(361,419) (26,981) $220,877 16,433 Class B 58,539 1,054 79 (13,236) (990) 46,357 3,451 4,362 Class C 47,891 3,571 460 34 (17,581) (1,314) 30,770 2,291 Class F 49,845 3,728 130 10 (43,758) (3,269) 6,217 469 Class 139 10 - - - - 139 10 529-A(1) Class 118 9 - - - * - * 118 9 529-B(1) Class 56 4 -* -* - - 56 4 529-C(1) Total net $710,862 53,004 $29,666 2,217 $(435,994) (32,554) $304,534 22,667 increase (decrease) in fund
YEAR ENDED AUGUST 31, 2001 (dollars and shares in thousands)
SALES REINVESTMENTS REPURCHASES NET OF DIVIDENDS INCREASE AND DISTRIBUTIONS Amount Shares Amount Shares Amount Shares Amount Shares Class A $829,729 63,187 $55,696 4,254 $(663,616) (50,581) $221,809 16,860 Class B 42,424 3,224 585 44 (6,444) (490) 36,565 2,778 Class C(2) 21,524 1,631 85 6 (6,888) (522) 14,721 1,115 Class F(2) 46,157 3,497 65 5 (40,206) (3,049) 6,016 453 Total net $939,834 71,539 $56,431 4,309,630 $(717,154) (54,642) $279,111 21,206 increase (decrease) in fund
(1)Class 529-A, Class 529-B and Class 529-C shares were not offered before February 15, 2002. (2) Class C and Class F shares were not offered before March 15, 2001. 5. RESTRICTED SECURITIES The fund has invested in certain securities for which resale may be limited to qualified buyers or which are otherwise restricted. These securities are identified in the investment portfolio. Any costs incurred in connection with the disposition of such securities will be recorded in the fund on the date of disposition. As of February 28, 2002, the total value of restricted securities was $51,782,000, which represents 3.00% of the net assets of the fund. 6. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES The fund made purchases and sales of investment securities, excluding short-term securities, of $1,293,360,000 and $911,990,000, respectively, during the six months ended February 28, 2002. The fund receives a reduction in its custodian fee equal to the amount of interest calculated on certain cash balances held at the custodian bank. For the six months ended February 28, 2002, the custodian fee of $16,000 was offset by this reduction rather than paid in cash. Financial Highlights (1) Net asset value, beginning of period Class A: Six months ended 2/28/2002 (2) $ 13.34 Year ended 8/31/2001 12.76 Year ended 8/31/2000 12.63 Year ended 8/31/1999 13.39 Year ended 8/31/1998 13.03 Year ended 8/31/1997 12.78 Class B: Six months ended 2/28/2002 (2) 13.34 Year ended 8/31/2001 12.76 Period from 3/15/2000 to 8/31/2000 12.49 Class C: Six months ended 2/28/2002 (2) 13.34 Period from 3/15/2001 to 8/31/2001 13.31 Class F: Six months ended 2/28/2002 (2) 13.34 Period from 3/15/2001 to 8/31/2001 13.31 Class 529-A - Period from 2/20/2002 to 2/28/2002 (2) 13.36 Class 529-B - Period from 2/20/2002 to 2/28/2002 (2) 13.36 Class 529-C - Period from 2/19/2002 to 2/28/2002 (2) 13.36 Income from investment operations Net gains(losses) on securities Net (both realized Total from investment and investment income (3) unrealized) (3) operations Class A: Six months ended 2/28/2002 (2) $.29 $.06 $.35 Year ended 8/31/2001 .70 .63 1.33 Year ended 8/31/2000 .77 .09 .86 Year ended 8/31/1999 .77 (.76) .01 Year ended 8/31/1998 .83 .40 1.23 Year ended 8/31/1997 .88 .25 1.13 Class B: Six months ended 2/28/2002 (2) .25 .06 .31 Year ended 8/31/2001 .61 .63 1.24 Period from 3/15/2000 to 8/31/2000 .50 .07 .57 Class C: Six months ended 2/28/2002 (2) .24 .06 .30 Period from 3/15/2001 to 8/31/2001 .25 .04 .29 Class F: Six months ended 2/28/2002 (2) .29 .06 .35 Period from 3/15/2001 to 8/31/2001 .29 .04 .33 Class 529-A - Period from 2/20/2002 to 2/28/2002 (2) .02 .03 .05 Class 529-B - Period from 2/20/2002 to 2/28/2002 (2) .01 .03 .04 Class 529-C - Period from 2/19/2002 to 2/28/2002 (2) .01 .03 .04 Dividends (from net Net asset investment value, end Total income) of period return (4) Class A: Six months ended 2/28/2002 (2) ($0.30) $ 13.39 2.67% Year ended 8/31/2001 (.75) 13.34 10.70 Year ended 8/31/2000 (.73) 12.76 7.07 Year ended 8/31/1999 (.77) 12.63 (.04) Year ended 8/31/1998 (.87) 13.39 9.70 Year ended 8/31/1997 (.88) 13.03 9.08 Class B: Six months ended 2/28/2002 (2) (.26) 13.39 2.31 Year ended 8/31/2001 (.66) 13.34 9.94 Period from 3/15/2000 to 8/31/2000 (.30) 12.76 4.60 Class C: Six months ended 2/28/2002 (2) (.25) 13.39 2.27 Period from 3/15/2001 to 8/31/2001 (.26) 13.34 2.19 Class F: Six months ended 2/28/2002 (2) (.30) 13.39 2.65 Period from 3/15/2001 to 8/31/2001 (.30) 13.34 2.53 Class 529-A - Period from 2/20/2002 to 2/28/2002 (2) (.02) 13.39 .33 Class 529-B - Period from 2/20/2002 to 2/28/2002 (2) (.01) 13.39 .31 Class 529-C - Period from 2/19/2002 to 2/28/2002 (2) (.01) 13.39 .32 Ratio of Ratio of Net assets, expenses net income end of period to average to average (in millions) net assets net assets Class A: Six months ended 2/28/2002 (2) $1,581 0.80% (5) 4.42% (5) Year ended 8/31/2001 1,357 .85 5.37 Year ended 8/31/2000 1,083 .85 6.13 Year ended 8/31/1999 1,322 .80 5.80 Year ended 8/31/1998 1,210 .79 6.24 Year ended 8/31/1997 1,106 .80 6.74 Class B: Six months ended 2/28/2002 (2) 87 1.50 (5) 3.65 (5) Year ended 8/31/2001 40 1.51 4.47 Period from 3/15/2000 to 8/31/2000 3 .71 2.44 Class C: Six months ended 2/28/2002 (2) 46 1.58 (5) 3.59 (5) Period from 3/15/2001 to 8/31/2001 15 .81 1.97 Class F: Six months ended 2/28/2002 (2) 12 0.84 (5) 4.38 (5) Period from 3/15/2001 to 8/31/2001 6 .40 2.35 Class 529-A - Period from 2/20/2002 to 2/28/2002 (2) - .02 .14 Class 529-B - Period from 2/20/2002 to 2/28/2002 (2) - .04 .11 Class 529-C - Period from 2/19/2002 to 2/28/2002 (2) - .04 .12 Supplemental data - all classes Six months Year ended August 31 ended February 28, 2002 2001 2000 Portfolio turnover rate 64% 44% 63% Supplemental data - all classes Year ended August 31 1999 1998 1997 Portfolio turnover rate 81% 82% 28% (1) Based on operations for the period shown (unless otherwise noted) and, accordingly, may not be representative of a full year. (2) Unaudited. (3) Years ended 1999, 1998 and 1997 are based on shares outstanding on the last day of the year; all other periods are based on average shares outstanding. (4) Total returns exclude all sales charges, including contingent deferred sales charges. (5) Annualized. (6) Amounts less than 1 million.
U.S. Treasury Obligations 38% Federal Agency Mortgage Pass-Throughs 38% Federal Agency Debentures 11% Federal Agency Collateralized Mortgage Obligations 5% Cash & Equivalents 8%
U.S. Government Securities Fund Investment Portfolio, August 31, 2001 Principal Market Percent Amount Value of Net (000) (000) Assets U.S. Treasury Obligations - 38.29% 6.25% February 2002 $ 112,825 $ 114,429 Principal Strip 0% August 2004 18,412 16,259 11.625% November 2004 9,500 11,602 7.50% February 2005 4,980 5,508 Principal Strip 0% May 2006 35,720 28,964 6.875% May 2006 57,000 62,843 3.375% January 2007 (1) 26,120 26,454 6.25% February 2007 35,500 38,423 6.625% May 2007 21,500 23,694 6.125% August 2007 8,550 9,217 10.375% November 2009 1,750 2,064 38.29 5.75% August 2010 21,000 22,257 Principal Strip 0% May 2011 26,100 20,770 10.375% November 2012 31,000 40,160 Principal Strip 0% August 2013 6,160 3,267 12.00% August 2013 10,000 14,164 8.875% August 2017 50,750 69,622 8.875% February 2019 13,540 18,793 7.875% February 2021 6,250 8,047 6.25% August 2023 5,950 6,520 543,057 38.29 Federal Agency Mortgage Pass-Throughs(2) - 37.99% Fannie Mae: 6.00% 2031 2,990 2,938 6.50% 2016 - 2031 26,974 27,228 7.00% 2009 - 2031 35,764 36,663 7.50% 2030 - 2031 16,042 16,533 8.00% 2005 - 2023 1,510 1,586 8.304% 2002 (3) 2,196 2,239 6.54 8.50% 2007 - 2027 968 1,031 9.00% 2009 143 154 9.50% 2011 - 2022 611 661 12.00% 2019 3,213 3,699 Freddie Mac: 6.00% 2014 2,238 2,249 7.00% 2008 413 429 7.20% 2006 13,028 13,817 8.00% 2012-2017 2,693 2,794 8.25% 2007 232 242 8.50% 2009-2021 3,016 3,216 2.96 8.75% 2008 215 227 11.00% 2016 19 22 12.00% 2015 48 55 Series 2289-NA, 11.94% 2020(3) 13,574 15,215 Series 2289-NB, 10.916% 2022(3) 3,378 3,686 Government National Mortgage Assn.: 5.50% 2013 839 830 6.00% 2008-2031 86,835 86,319 6.50% 2014-2031 91,252 92,399 7.00% 2008-2031 91,570 93,943 7.50% 2009-2031 61,234 63,410 28.49 8.00% 2002-2030 44,738 47,716 8.50% 2020-2023 1,682 1,768 9.00% 2009-2021 2,815 2,980 9.50% 2009-2021 632 668 10.00% 2019-2022 12,627 14,096 538,813 37.99 Federal Agency Debentures - 10.77% Fannie Mae: 6.35% 2005 2,896 2,983 5.25% 2006 4,500 4,550 .81 6.25% 2029 3,900 3,938 Freddie Mac 5.50% 2006 4,500 4,596 .32 Federal Home Loan Bank Bonds: 5.125% 2003 6,315 6,448 5.75% 2008 7,725 7,872 3.54 5.80% 2008 35,075 35,892 United States Government Guaranteed Ship Financing Obligations, Rowan Companies, Inc. (Title XI) 5.88% 2012 10,000 10,161 .72 Sallie-Mae 4.75% 2004 10,000 10,103 .71 Small Business Administration: 6.44% 2021 (2) 13,250 13,552 1.25 6.625% 2021 (2) 4,000 4,124 Tennessee Valley Authority: Series G, 5.375% 2008 48,670 48,480 3.42 152,699 10.77 Federal Agency Collateralized Mortgage Obligations(2) -5.07% Fannie Mae: Series 91-50, Class H, 7.75% 2006 857 891 Series 1997-M5, Class C, ACES, 6.74% 2007 5,000 5,253 Series 1998-M6, Class A2, ACES, 6.32% 2008 2,500 2,606 Trust 35, Class 2, 12.00% 2018 157 179 Series 90-93, Class G, 5.50% 2020 854 853 Series 1992-119, Class Z, 8.00% 2022 3,559 3,708 4.92 Series 1994-4, Class ZA, 6.50% 2024 6,145 6,108 Series 2001-4, Class NA, 11.673% 2025 (3) 22,414 24,703 Series 1997-M6, Class ZA, 6.85% 2026 13,142 13,142 Series 2001-20, Class C, 11.509% 2031 (3) 3,738 4,227 Series 2001-20, Class E, 9.610% 2031 925 995 Series 1999-T2, Class A1, 7.50% 2039 6,686 7,072 Freddie Mac: Series 83-A, Class 3, 11.875% 2013 74 79 Series 83-B, Class 3, 12.50% 2013 468 523 Series 178, Class Z, 9.25% 2021 744 786 .15 Series 1567, Class A, 4.088% 2023(3) 856 786 71,911 5.07 Collateralized Mortgage Obligations (Privately Originated)(4) - 0.11% Paine Webber CMO, Series O, Class 5, 9.50% 2019 (2) 1,506 1,633 .11 1,633 .11 Development Authorities - 0.20% International Bank for Reconstruction and Development 2,000 2,841 .20 12.25% 2008 2,841 .20 Total Bonds and Notes (cost: $1,272,474,000) 1,310,954 92.43 Short-Term Securities Federal Agency Discount Notes - 9.35% Federal Home Loan Bank due 9/04/01 23,400 23,391 1.65 Federal Home Loan Bank due 9/12/01 13,800 13,783 .97 Federal Home Loan Bank due 10/05/01 36,150 36,029 2.54 Federal Home Loan Bank due 10/26/01 26,250 26,111 1.84 Federal Home Loan Bank due 10/31/01 33,500 33,307 2.35 Total Short-Term Securities (cost: $133,622,000) 132,621 9.35 Total Investment Securities (cost: $1,405,096,000) 1,443,575 101.78 Excess of payables over cash and receivables 25,286 1.78 Net Assets $1,418,289 100.00% (1) Index-linked bond whose principal amount moves with a government retail price index. (2) 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. (3) Coupon rate may change periodically. (4) 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, 2001 (dollars in thousands) Assets: Investment securities at market (cost: $1,405,096) $1,443,575 Cash 1,669 Receivables for - Sales of investments $18,687 Sales of fund's shares 7,836 Interest 10,201 Other 4 36,728 1,481,972 Liabilities: Payables for - Purchases of investments 55,494 Repurchases of fund's shares 4,868 Dividends on fund's shares 1,909 Management services 431 Other expenses 981 63,683 Net assets at August 31, 2001 $1,418,289 Shares of beneficial interest issued and outstanding - unlimited shares authorized Class A shares: Net assets $1,357,114 Shares outstanding 101,720,875 Net asset value per share $13.34 Class B shares: Net assets $40,253 Shares outstanding 3,017,119 Net asset value per share $13.34 Class C shares: Net assets $14,874 Shares outstanding 1,114,860 Net asset value per share $13.34 Class F shares: Net assets $6,048 Shares outstanding 453,346 Net asset value per share $13.34 Statement of operations for the year ended August 31, 2001 (dollars in thousands) Investment income: Income: Interest $76,832 Expenses: Management services fee 4,610 Distribution expenses - Class A 3,630 Distribution expenses - Class B 163 Distribution expenses - Class C 29 Distribution expenses - Class F 5 Transfer agent fee - Class A 1,431 Transfer agent fee - Class B 19 Administrative services fees - Class C 12 Administrative services fees - Class F 6 Reports to shareholders 118 Registration statement and prospectus 165 Postage, stationery and supplies 196 Trustees' fees 22 Auditing and legal fees 55 Custodian fee 24 Taxes other than federal income tax 18 Other expenses 99 10,602 Net investment income 66,230 Realized gain and unrealized appreciation on investments: Net realized gain 16,742 Net unrealized appreciation on investments 40,971 Net realized gain and unrealized appreciation on investments 57,713 Net increase in net assets resulting from operations $123,943 Statement of changes in net assets (dollars in thousands) Year ended August 31 2001 2000 Operations: Net investment income $66,230 $72,102 Net realized gain(loss) on investments 16,742 (34,097) Net unrealized appreciation on investments 40,971 38,351 Net increase in net assets resulting from operations 123,943 76,356 Dividends paid to shareholders: Dividends from net investment income: Class A (69,470) (68,250) Class B (744) (35) Class C (118) - Class F (106) - Total dividends (70,438) (68,285) Capital share transactions: Proceeds from shares sold 939,834 306,318 Proceeds from shares issued in reinvestment of net investment income dividends 56,431 54,037 Cost of shares repurchased (717,154) (604,472) Net increase (decrease) in net assets resulting from capital share transactions 279,111 (244,117) Total increase (decrease) in net assets 332,616 (236,046) Net assets: Beginning of year 1,085,673 1,321,719 End of year (including undistributed net investment income: $785 and $4,993, respectively) $1,418,289 $1,085,673 See notes to financial statements
NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - The American Funds Income Series (the "trust") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company and has initially issued one series of shares, U.S. Government Securities Fund (the "fund"). The fund seeks high current income, consistent with prudent investment risk and preservation of capital, by investing primarily in obligations backed by the full faith and credit of the United States government. The fund offers four classes of shares as described below: 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 ("CDSC") paid upon redemption. This charge declines from 5% to zero over a period of six years. Class B shares automatically convert to Class A shares after eight years. Class C shares are sold without an initial sales charge but are subject to a CDSC of 1% for redemptions within one year of purchase. Class C shares automatically convert to Class F shares after ten years. Class F shares, which are sold exclusively through fee-based programs, are sold without an initial sales charge or CDSC. Holders of all classes of shares have equal pro rata rights to assets, dividends, liquidation and other rights. Each class has identical voting rights, except for exclusive rights to vote on matters affecting only its class. Each class of shares may have different distribution, administrative services and transfer agent fees and expenses. Differences in class-specific expenses will result in the payment of different per share dividends by each class. SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. These principles 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. The ability of the issuers of the debt securities held by the fund to meet their obligations may be affected by economic developments in a specific industry, state or region. Securities and 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 fund's Board of Trustees. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions are accounted for as of the trade date. Realized gains and losses from securities transactions are determined based on specific identified cost. In the event securities are purchased on a delayed delivery or when-issued basis, the fund will instruct the custodian to segregate liquid assets sufficient to meet its payment obligations in these transactions. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Market discounts, premiums and original issue discounts on 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. Class allocations - Income, expenses (other than class-specific expenses) and realized and unrealized gains and losses are allocated daily among the various share classes based on their relative net asset values. Distribution expenses, administrative services fees, certain transfer agent fees and other applicable class-specific expenses are accrued daily and charged to the respective 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 based on net investment income and net realized gains determined on a tax basis and may differ from such amounts 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 is earned and the net gains are realized by the fund. As of August 31, 2001, the cost of investment securities for book and federal income tax reporting purposes was $1,405,096,000. Net unrealized appreciation on investments aggregated $38,479,000; $39,521,000 related to appreciated securities and $1,042,000 related to depreciated securities. There was no difference between book and tax realized gains on securities transactions for the year ended August 31, 2001. The fund had available at August 31, 2001, a net capital loss carryforward totaling $88,644,000 which may be used to offset capital gains realized during subsequent years through 2009 and thereby relieve the fund and its shareholders of any federal income tax liability with respect to the capital gains that are so offset. The fund will not make distributions from capital gains while a capital loss carryforward remains. In addition, the fund has recognized, for tax purposes, capital losses totaling $32,439,000 which were realized during the period November 1, 1999 through August 31, 2000. 3. FEES AND TRANSACTIONS WITH RELATED PARTIES INVESTMENT ADVISORY FEE - The fee of $4,610,000 for management services was incurred pursuant to an agreement with Capital Research and Management Company ("CRMC") with which certain officers and Trustees of the fund are affiliated. The Investment Advisory and Service Agreement provides for monthly fees accrued daily, based on a series of rates beginning with 0.30% per annum of the first $60 million of daily net assets decreasing to 0.16% of such assets in excess of $3 billion. The agreement also provides for monthly fees, accrued daily, based on a series of rates beginning with 3.00% per annum of the first $3,333,333 of the fund's monthly gross investment income decreasing to 2.00% of such income in excess of $8,333,333. For the year ended August 31, 2001, the management services fee was equivalent to an annualized rate of 0.37% of average daily net assets. DISTRIBUTION EXPENSES - The fund has adopted plans of distribution under which it may finance activities primarily intended to sell fund shares, provided the categories of expenses are approved in advance by the fund's Board of Trustees. The plans provide for annual expenses, based on average daily net assets, of up to 0.30% for Class A shares, 1.00% for Class B and Class C shares, and up to 0.50% for Class F shares. All share classes may use up to 0.25% of these expenses to pay service fees, or to compensate American Funds Distributors, Inc.("AFD"), the principal underwriter of the fund's shares, for paying service fees to firms that have entered into agreements with AFD for providing certain shareholder services. The balance may be used for approved distribution expenses as follows: CLASS A SHARES - Approved categories of expense include reimbursements to AFD for commissions paid to dealers and wholesalers in respect of certain shares sold without a sales charge. Those reimbursements are permitted for amounts billed to the fund within the prior 15 months but only to the extent that the overall 0.30% annual expense limit for Class A shares is not exceeded. For the year ended August 31, 2001, aggregate distribution expenses were limited to $3,630,000, or 0.30% of average daily net assets attributable to Class A shares. As of August 31, 2001, unreimbursed expenses which remain subject to reimbursement totaled $123,000. CLASS B SHARES - In addition to service fees of 0.25%, approved categories of expense include fees of 0.75% per annum of average daily net assets attributable to Class B shares payable to AFD. AFD sells the rights to receive such payments (as well as any contingent deferred sales charges payable in respect of shares sold during the period) in order to finance the payment of dealer commissions. For the year ended August 31, 2001, aggregate distribution expenses were $163,000, or 1.00% of average daily net assets attributable to Class B shares. CLASS C SHARES - In addition to service fees of 0.25%, the Board of Trustees has approved the payment of 0.75% per annum of average daily net assets attributable to Class C shares to AFD to compensate firms selling Class C shares of the fund. For the period ended August 31, 2001, aggregate distribution expenses were $29,000, or 1.00% of average daily net assets attributable to Class C shares. CLASS F SHARES - The plan has an expense limit of 0.50%. However, the Board of Trustees has presently approved expenses under the plan of 0.25% per annum of average daily net assets attributable to Class F shares. For the period ended August 31, 2001, aggregate distribution expenses were $5,000, or 0.25% of average daily net assets attributable to Class F shares. As of August 31, 2001, aggregate distribution expenses payable to AFD for all share classes were $680,000. AFD received $796,000 (after allowances to dealers) as its portion of the sales charges paid by purchasers of the fund's Class A shares for the year ended August 31, 2001. 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 $1,450,000 was incurred during the year ended August 31, 2001, pursuant to an agreement with American Funds Service Company ("AFS"), the transfer agent for the fund. As of August 31, 2001, aggregate transfer agent fees payable to AFS for Class A and Class B shares were $123,000. ADMINISTRATIVE SERVICES FEES - The fund has an administrative services agreement with CRMC for Class C and Class F shares. Pursuant to this agreement, CRMC provides transfer agency and other related shareholder services. CRMC may contract with third parties to perform these services. Under the agreement, the fund pays CRMC a fee equal to 0.15% per annum of average daily net assets of Class C and Class F shares, plus amounts payable for certain transfer agency services according to a specified schedule. For the period ended August 31, 2001, total fees under the agreement were $18,000. As of August 31, 2001, aggregate administrative services fees payable to CRMC for Class C and Class F shares were $5,000. DEFERRED TRUSTEES' FEES - Since the adoption of the deferred compensation plan in 1993, Trustees who are unaffiliated with CRMC may elect to defer the receipt of part or all of their compensation. Deferred compensation amounts, which remain in the fund, are treated as if invested in shares of the fund or other American Funds. These amounts represent general, unsecured liabilities of the fund and vary according to the total returns of the selected funds. As of August 31, 2001, the cumulative amount of these liabilities was $57,000. Trustees' fees on the Statement of Operations include the current fees (either paid in cash or deferred) and the net increase or decrease in the value of deferred compensation. AFFILIATED TRUSTEES AND OFFICERS - CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both wholly owned subsidiaries of CRMC. Officers of the fund 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 $1,164,794,000 and $946,107,000, respectively, during the year ended August 31, 2001. Pursuant to the custodian agreement, the fund receives credits against its custodian fee for imputed interest on certain balances with the custodian bank. For the year ended August 31, 2001, the custodian fee of $24,000 was paid by these credits rather than in cash. As of August 31, 2001, net assets consisted of the following: (dollars in thousands) Capital paid in on shares of beneficial interest $1,467,669 Undistributed net investment income 785 Accumulated net realized loss (88,644) Net unrealized appreciation 38,479 Net assets $1,418,289
Capital share transactions in the fund were as follows: Year ended August 31 Year ended August 31 2001 2000 Amount (000) Shares Amount (000) Shares Class A Shares: Sold $ 829,729 63,186,536 $ 302,736 24,095,858 Reinvestment of dividends 55,696 4,253,851 54,013 4,303,427 Repurchased (663,616) (50,580,820) (603,875) (48,180,501) Net increase (decrease) in Class A 221,809 16,859,567 (247,126) (19,781,216) Class B Shares: (1) Sold 42,424 3,223,912 3,582 284,619 Reinvestment of dividends 585 44,440 24 1,925 Repurchased (6,444) (490,526) (597) (47,251) Net increase in Class B 36,565 2,777,826 3,009 239,293 Class C Shares: (2) Sold 21,524 1,630,672 - - Reinvestment of dividends 85 6,396 - - Repurchased (6,888) (522,208) - - Net increase in Class C 14,721 1,114,860 - - Class F Shares: (2) Sold 46,157 3,497,479 - - Reinvestment of dividends 65 4,943 - - Repurchased (40,206) (3,049,076) - - Net increase in Class F 6,016 453,346 - - Total net increase (decrease) in fund $ 279,111 21,205,599 $ (244,117) (19,541,923) (1) Class B shares were not offered before March 15, 2000. (2) Class C and Class F shares were not offered before March 15, 2001.
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 investment portfolio, as of August 31, 2001, 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 and the year ended August 31, 2001 for Class B shares, and the period March 15, 2001 through August 31, 2001 for Class C and Class F shares. These financial statements and 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 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 as of August 31, 2001, 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 as of August 31, 2001, 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 and the year ended August 31, 2001 for Class B shares, and the period March 15, 2001 through August 31, 2001 for Class C and Class F shares, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Los Angeles, California October 2, 2001 Tax Information (unaudited) We are required to advise you within 60 days of the fund's fiscal year-end regarding the federal tax status of certain distributions received by shareholders during such fiscal year. Certain states may exempt from income taxation that portion of the dividends paid from net investment income that was derived from direct U.S. Treasury obligations. For purposes of computing this exclusion, 51% of the dividends paid by the fund from net investment income were derived from interest on direct U.S. Treasury obligations. Dividends and distributions received by retirement plans such as IRAs, Keogh-type plans and 403(b) plans need not be reported as taxable income. However, many retirement plan trusts may need this information for their annual information reporting. SINCE THE INFORMATION ABOVE IS REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX INFORMATION WHICH WILL BE MAILED IN JANUARY 2002 TO DETERMINE THE CALENDAR YEAR AMOUNTS TO BE INCLUDED ON THEIR 2001 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS. SHARE RESULTS: CLASS B, CLASS C AND CLASS F (UNAUDITED) Average annual compound returns for periods ended September 30, 2001 (the most recent calendar quarter): CLASS B SHARES ONE YEAR LIFE OF CLASS* Reflecting applicable contingent deferred sales charge (CDSC), maximum of 5%, payable only if shares are sold 6.21% 8.07% Not reflecting CDSC 11.21% 10.53% CLASS C AND CLASS F SHARES Results for these shares are not shown because of the brief time between their introduction on March 15, 2001, and the end of the period. *From March 15, 2000, when B shares first became available. Per-share data and ratios Class A Year ended August 31, 2001 2000 1999 Net asset value, beginning of year $12.76 $12.63 $13.39 Income from investment operations : Net investment income .70 (1) .77 (1) .77 Net gains (losses) on securities .63 (1) .09 (1) (.76) (both realized and unrealized) Total from investment operations 1.33 .86 .01 Less distributions : Dividends (from net investment income) (.75) (.73) (.77) Net asset value, end of year $13.34 $12.76 $12.63 Total return (2) 10.76% 7.04% (.01)% Ratios/supplemental data: Net assets, end of year (in millions) $1,357 $1,083 $1,322 Ratio of expenses to average net assets .85% .85% .80% Ratio of net income to average net assets 5.37% 6.13% 5.80% 1998 1997 Net asset value, beginning of year $13.03 $12.78 Income from investment operations : Net investment income .83 .88 Net gains (losses) on securities .40 .25 (both realized and unrealized) Total from investment operations 1.23 1.13 Less distributions : Dividends (from net investment income) (.87) (.88) Net asset value, end of year $13.39 $13.03 Total return (2) 9.70% 9.08% Ratios/supplemental data: Net assets, end of year (in millions) $1,210 $1,106 Ratio of expenses to average net assets .79% .80% Ratio of net income to average net assets 6.24% 6.74% Class B Year ended March 15 to August 31, August 31, 2001 2000 (3) Net asset value, beginning of period $12.76 $12.49 Income from investment operations : Net investment income (1) .61 .50 Net gains on securities (both .63 .07 realized and unrealized) (1) Total from investment operations 1.24 .57 Less distributions : Dividends (from net investment income) (.66) (.30) Net asset value, end of period $13.34 $12.76 Total return (2) 10.00% 4.43% Ratios/supplemental data: Net assets, end of period (in millions) $40 $3 Ratio of expenses to average net assets 1.51% .71% Ratio of net income to average net assets 4.47% 2.44% Class C Class F March 15 to March 15 to August 31, August 31, 2001 (3) 2001 (3) Net asset value, beginning of period $13.31 $13.31 Income from investment operations : Net investment income (1) .25 .29 Net gains on securities (both .04 .04 realized and unrealized) (1) Total from investment operations .29 .33 Less distributions : Dividends (from net investment income) (.26) (.30) Net asset value, end of period $13.34 $13.34 Total return (2) 2.08% 2.39% Ratios/supplemental data: Net assets, end of period (in millions) $15 $6 Ratio of expenses to average net assets .81% .40% Ratio of net income to average net assets 1.97% 2.35% Supplemental data - all classes Year ended August 31, 2001 2000 1999 Portfolio turnover rate 44.13% 63.18% 81.10% 1998 1997 Portfolio turnover rate 81.99% 28.16% 1) Based on average shares outstanding. 2) Total returns exclude all sales charges, including contingent deferred sales charges. 3) Based on operations for the period shown and, accordingly, not representative of a full year (unless otherwise noted).
PART C OTHER INFORMATION U.S. GOVERNMENT SECURITIES FUND Item 23. Exhibits (a) Declaration of Trust and Amendment to and Restatement of Declaration of Trust - previously filed (see P/E Amendment No. 19 filed 10/29/97); Establishment and Designation of Additional Classes of Shares of Beneficial Interest Without Par Value- previously filed (see P/E Amendment No. 23 filed 3/10/00; No. 25 filed 3/8/01 and No. 27 filed 2/13/02) (b) By-laws - previously filed (see Post-Effective Amendment No. 19 filed 10/29/97) (c) Share certificate - previously filed (see Post-Effective Amendment No. 25 filed 3/8/01) (d) Amended Investment Advisory and Service Agreement - previously filed (see Post-Effective Amendment No. 23 filed 3/10/00) (e-1) Form of Amended and Restated Principal Underwriting Agreement - previously filed (see P/E Amendment No. 27 filed 2/13/02) (e-2) Form of Selling Group Agreement; form of Banking Selling Group Agreement; form of Omnibus addendum to the Selling Group Agreement (for retirement plan share classes (R shares) only); and form of Institutional Selling Group Agreement (f) None (g) Form of Global Custody Agreement - previously filed (see P/E Amendment No. 26 filed on 10/30/01) (h) Form of Amended and Restated Administrative Services Agreement; and Form of Amended Shareholder Services Agreement dated 7/1/01 - previously filed (see P/E Amendment No. 27 filed 2/13/02) (i) Legal opinion for Classes R-1, R-2, R-3, R-4 and R-5 Shares (j) Consent of Independent Accountants (k) None (l) Initial capital agreements - previously filed (see P/E Amendment No. 19 filed 10/29/97) (m-1) Forms of Plans of Distribution - previously filed (see P/E Amendment No. 19 filed 10/29/97; No. 23 filed 3/10/00; No. 25 filed 3/8/01; and No. 27 filed 2/13/02) (m-2) Form of Plans of Distribution relating to Class R-1, R-2, R-3 and R-4 shares (n) Form of Amended and Restated Multiple Class Plan - previously filed (see P/E Amendment No. 27 filed 2/13/02) (o) None (p) Code of Ethics - previously filed (see P/E Amendment No. 27 filed 2/13/02) 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. 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. ITEM 25. INDEMNIFICATION (CONTINUED) (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). (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. ITEM 25. INDEMNIFICATION (CONTINUED) 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 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. Registrant will comply with the indemnification requirements contained in the Investment Company Act of 1940 (the "1940 Act") Releases No. 7221 (June 9, 1972) and No. 11330 (September 4, 1980). In addition, indemnification by the Registrant shall be consistent with the requirements of rule 484 under the Securities Act of 1933. Furthermore, Registrant undertakes to the staff of the Securities and Exchange Commission that the Fund's indemnification provisions quoted above prohibit indemnification for liabilities arising under the Securities Act of 1933 and the 1940 Act. ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER None ITEM 27. PRINCIPAL UNDERWRITERS (a) American Funds Distributors, Inc. is 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 OFFICES BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT David L. Abzug Vice President None P.O. Box 2248 Agoura Hills, CA 91376 John A. Agar Vice President None P.O. Box 7326 Little Rock, AR 72217 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 7490 Clubhouse Road Suite 100 Boulder, CO 80301 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 P.O. Box 3529 148 E. Shore Avenue Groton Long Point, CT 06340 John A. Blanchard Vice President None 576 Somerset Lane Northfield, IL 60093 Ian B. Bodell Senior Vice President None P.O. Box 1665 Brentwood, TN 37024-1665 Mick L. Brethower Senior Vice President None 601 E. Whitestone Blvd. Building 6, Suite 115 Cedar Park, TX 78613 Alan Brown Vice President None 4129 Laclede Avenue St. Louis, MO 63108 B J. Peter Burns Vice President None Cody Callaway Regional Vice President None 803 South Desert Palm Place Broken Arrow, OK 74012 Matthew C. Carlisle Regional Vice President None 4500 Fairvista Drive Charlotte, NC 28269 Damian F. Carroll Regional Vice President None 40 Ten Acre Road New Britain, CT 06052 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 Littleton, 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 94583 L David Charlton Senior Vice President None L Larry P. Clemmensen Director None L Kevin G. Clifford Director, President and Co-Chief None Executive Officer H Cheri Coleman Assistant Vice President None Ruth M. Collier Senior Vice President None 29 Landsdowne Drive Larchmont, NY 10538 S David Coolbaugh Vice President None Carlo O. Cordasco Regional Vice President None 101 Five Forks Lane Hampton, VA 23669 Thomas E. Cournoyer Vice President None 2333 Granada Boulevard Coral Gables, FL 33134 Joseph G. Cronin Regional Vice President None 1533 Wilmot Road Deerfield, IL 60015 William F. Daugherty Regional Vice President None 1216 Highlander Way Mechanicsburg, PA 17050 Guy E. Decker Regional Vice President None 2990 Topaz Lane Carmel, IN 46032 Daniel J. Delianedis Vice President None Edina Executive Plaza 5200 Willson Road, Suite 150 Edina, MN 55424 James A. DePerno, Jr. Regional Vice President None 91 Church Street East Aurora, NY 14052 L Bruce L. DePriester Senior Vice President None Thomas J. Dickson Regional Vice President None 108 Wilmington Court Southlake, TX 76092 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 5040 Plantation Grove Lane Roanoke, VA 24012 S J. Steven Duncan Senior Vice President None 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 L Linda S. Gardner Assistant Vice President None B Evelyn K. Glassford Vice President None Jack E. Goldin Regional Vice President None 7995 Northwest 20th Street Pembroke Pines, FL 33024 Jeffrey J. Greiner Vice President None 12210 Taylor Road Plain City, OH 43064 L Paul G. Haaga, Jr. Director Chairman and Trustee B Mariellen Hamann 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 Vice President None Robert J. Hartig, Jr. Regional Vice President None 8504 Scenic View Drive, Apt. 103 Fishers, IN 46038 Steven J. Hipsley Regional Vice President None 14 Dyer Switch Road Saratoga Springs, NY 12866 Ronald R. Hulsey Senior Vice President None 6202 Llano 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 Senior Vice President None John P. Keating Regional Vice President None 2285 Eagle Harbor Parkway Orange Park, FL 30073 Dorothy Klock Vice President None 555 Madison Avenue, 29th Floor New York, NY 10022 Dianne L. Koske Assistant Vice President 122 Clydesdale Court Hampton, VA 23666 Andrew R. LeBlanc Regional Vice President None 78 Eton Road Garden City, NY 11530 B Karl A. Lewis Vice President None T. Blake Liberty Vice President None 5506 East Mineral Lane Littleton, CO 80122 Mark J. Lien Regional Vice President None 1103 Tulip Tree Lane West Des Moines, IA 50266 L Lorin E. Liesy Vice President None I Kelle Lindenberg Assistant Vice President None Louis K. Linquata Regional Vice President None 5214 Cass Street Omaha, NE 68132 LW Robert W. Lovelace Director None Brendan T. Mahoney Regional Vice President None 29 Harvard Drive Sudbury, MA 01776 Stephen A. Malbasa Director, Senior Vice None President 13405 Lake Shore Blvd. Cleveland, OH 44110 Steven M. Markel Senior Vice President None 5241 South Race Street Greenwood Village, CO 80121 L J. Clifton Massar Director, Senior Vice None President James R. McCrary Regional Vice President None 28812 Crestridge Rancho Palos Verdes, CA 90275 L Scott F. McIntyre Senior Vice President None S John V. McLaughlin Senior Vice President None Terry W. McNabb Vice President None 2002 Barrett Station Road St. Louis, MO 63131 Scott M. Meade Regional Vice President None P.O. Box 122 Rye Beach, NH 03871 Monty L. Moncrief Regional Vice President None 55 Chandler Creek Court The Woodlands, TX 77381 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 S Richard P. Prior Vice President None Mark S. Reischmann Regional Vice President None 5485 East Mineral Lane Littleton, CO 80122 Steven J. Reitman Senior Vice President None 212 The Lane Hinsdale, IL 60521 Brian A. Roberts Vice President None 418 S. Royal Street Alexandria, VA 22314 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 H Steve Rubin Assistant Vice President None 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 Paul V. Santoro Regional Vice President None 17 Willow Street Boston, MA 02108 Joseph D. Scarpitti Vice President None 31465 St. Andrews Westlake, OH 44145 Shannon D. Schofield Regional Vice President None 201 McIver Street Greenville, SC 29601 S Sherrie Senft Vice President None L R. Michael Shanahan Director None Brad 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 212 Co-Chief Executive Officer 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 5520 Frankford Court Dallas, TX 75252 Anthony L. Soave Regional Vice President None 8831 Morning Mist Drive Clarkston, MI 48348 L Therese L. Soullier 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 B Raymond Stein Assistant Vice President None LW Eric H. Stern Director None Brad Stillwagon Regional Vice President None 2438 Broadmeade Road Louisville, KY 40205 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 Lisa F. Swaiman Vice President None L Drew W. Taylor Vice President None Gary J. Thoma Regional Vice President None 21 White Cloud HCR 1 Box 172-A Keshena, WI 54135 Cynthia M. Thompson Regional Vice President None 4 Franklin Way Ladera Ranch, CA 92694 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 Gerald J. Voss Regional Vice President None The Pines at Four Hills 3900 S. Southeastern Ave., #110 Sioux Falls, SD 57103 Thomas E. Warren Vice President None 7347 Turnstone Road 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 SF Gregory W. Wendt Director None George J. Wenzel Regional Vice President None 251 Barden Road Bloomfield Hills, MI 48304 H J. D. Wiedmaier Assistant Vice President None SF N. Dexter Williams, Jr. 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 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 the fund's custodian, JPMorgan Chase Bank, 270 Park Avenue, New York, New York 10017-2070. 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 10th day of May, 2002. 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 May 10, 2002, by the following persons in the capacities indicated
Signature Title (1) Principal Executive Officer: /s/ John H. Smet President and Trustee (John H. Smet) (2) Principal Financial Officer and Principal Accounting Officer: /s/ Anthony W. Hynes, Jr. Treasurer (Anthony W. Hynes, Jr.) (3) Trustees: Richard G. Capen, Jr.* Trustee H. Frederick Christie* Trustee Diane C. Creel* Trustee Martin Fenton* Trustee Leonard R. Fuller* Trustee /s/ Abner D. Goldstine Vice Chairman and Trustee (Abner D. Goldstine) /s/ Paul G. Haaga, Jr. Chairman and Trustee (Paul G. Haaga, Jr. Richard G. Newman* Trustee Frank M. Sanchez* Trustee /s/ John H. Smet President and Trustee (John H. Smet)
*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/ Kristine M. Nishiyama (Kristine M. Nishiyama)