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. 17
and
Registration Statement
Under
The Investment Company Act of 1940
Amendment No. 16
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
333 South Hope Street
Los Angeles, California 90071
(name and address of agent for service)
Copies to:
Cary I. Klafter, Esq.
MORRISON & FOERSTER
345 California Street
San Francisco, California 94104
(Counsel for the Registrant)
The Registrant has filed a declaration pursuant to rule 24f-2
registering an indefinite number of shares under the Securities Act of1933.
On October 16, 1995, it filed its 24f-2 notice for fiscal 1995.
Approximate date of proposed public offering:
It is proposed that this filing become effective on October 25, 1995 pursuant
to paragraph (b) of rule 485.
THE AMERICAN FUNDS INCOME SERIES
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number of Captions in Prospectus (Part "A")
Part "A" of Form N-1A
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Summary of Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objective and Policies
5. Management of the Fund Summary of Expenses: Fund Organization and Management
6. Capital Stock and Other Securities Investment Objective and Policies; Certain Securities and
Investment Techniques; Fund Organization and Management;
Dividends, Distributions and Taxes
7. Purchase of Securities Being Offered Purchasing Shares
8. Redemption or Repurchase Redeeming Shares
9. Legal Proceedings N/A
</TABLE>
<TABLE>
<CAPTION>
Item Number of Captions in Statement of
Part "B" of Form N-1A Additional Information (Part "B")
<S> <C> <C>
10. Cover Page Cover
11. Table of Contents Table of Contents
12. General Information and History General Information; Investment Restrictions
13. Investment Objectives and Policies Description of Securities and Investment Techniques;
Investment Restrictions
14. Management of the Registrant Fund Officers and Trustees; Management
15. Control Persons and Principal Fund Officers and Trustees
Holders of Securities
16. Investment Advisory and Other Management
Services
17. Brokerage Allocation and Other Execution of Portfolio Transactions
Practices
18. Capital Stock and Other Securities None
19. Purchase, Redemption and Pricing of Purchase of Shares; Shareholder Account Services and Privileges
Securities Being Offered
20. Tax Status Dividends, Distributions and Federal Taxes
21. Underwriter Management -- Principal Underwriter
22. Calculation of Performance Data Investment Results
23. Financial Statements Financial Statements
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Item in Part "C"
24. Financial Statements and Exhibits
25. Persons Controlled by or under
Common Control with Registrant
26. Number of Holders of Securities
27. Indemnification
28. Business and Other Connections of
Investment Adviser
29. Principal Underwriters
30. Location of Accounts and Records
31. Management Services
32. Undertakings
Signature Page
</TABLE>
<PAGE>
Prospectus
U.S. GOVERNMENT SECURITIES FUND(SM)
AN OPPORTUNITY FOR CURRENT
INCOME CONSISTENT WITH PRUDENT
INVESTMENT RISK AND PRESERVATION
OF CAPITAL PRIMARILY THROUGH SECURITIES
THAT ARE GUARANTEED BY THE
"FULL FAITH AND CREDIT" PLEDGE OF THE
U.S. GOVERNMENT
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
October 25, 1995
THE AMERICAN FUNDS INCOME SERIES
U.S. GOVERNMENT SECURITIES FUND
333 South Hope Street
Los Angeles, California 90071
The fund's investment objective is to provide investors with a high level of
current income consistent with prudent investment risk and preservation of
capital. It seeks to achieve this objective by investing primarily in
securities that are guaranteed by the "full faith and credit" pledge of the
United States Government. Although the fund invests primarily in securities on
which the U.S. Government guarantees the payment of interest and principal,
the value of the fund's shares and its current yield will fluctuate and are
not guaranteed by the U.S. Government.
This prospectus presents information you should know before investing in the
fund. It should be retained for future reference.
You may obtain the statement of additional information dated October 25, 1995,
which contains the fund's financial statements, without charge, by writing to
the Secretary of the fund at the above address or telephoning 800/421-0180.
These requests will be honored within three business days of receipt.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR
GUARANTEED BY, THE U.S. GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON. THE
PURCHASE OF FUND SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
22-010-1095
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SUMMARY OF EXPENSES
Average annual expenses
paid over a 10-year
period would be
approximately $14 per
year, assuming a $1,000
investment and a 5%
annual return.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Expenses............................ 2
Financial Highlights........................... 3
Investment Objective and Policies.............. 3
Risks.......................................... 4
Certain Securities and Investment Techniques... 4
Investment Results............................. 7
Dividends, Distributions and Taxes............. 7
Fund Organization and Management............... 8
The American Funds Shareholder Guide........... 12-20
Purchasing Shares............................. 12
Reducing Your Sales Charge.................... 15
Shareholder Services.......................... 16
Redeeming Shares.............................. 18
Retirement Plans.............................. 20
</TABLE>
IMPORTANT PHONE NUMBERS
Shareholder Services: 800/421-0180 ext. 1
Dealer Services: 800/421-9900 ext. 11
American FundsLine(R): 800/325-3590
(24-hour information)
This table is designed to help you understand the costs of investing in the
fund. These are historical expenses; your actual expenses may vary.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum sales charge on purchases
(as a percentage of offering price)................................... 4.75%/1/
</TABLE>
The fund has no sales charge on reinvested dividends, deferred sales
charge,/2/ redemption fees or exchange fees.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management fees....................................................... 0.42%
12b-1 expenses........................................................ 0.26%/3/
Other expenses (including audit, legal, shareholder services, transfer
agent and custodian expenses)........................................ 0.11%
Total fund operating expenses......................................... 0.79%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following cumulative ex-
penses on a $1,000 investment, assuming a 5%
annual return./4/ $55 $72 $89 $141
</TABLE>
/1/ Sales charges are reduced for certain large purchases. (See "The American
Funds Shareholder Guide: Purchasing Shares--Sales Charges.")
/2/ Any defined contribution plan qualified under Section 401(a) of the Internal
Revenue Code including a "401(k)" plan with 200 or more eligible employees
or any other purchaser investing at least $1 million in shares of the fund
(or in combination with shares of other funds in The American Funds Group
other than the money market funds) may purchase shares at net asset value;
however, a contingent deferred sales charge of 1% applies on certain
redemptions within 12 months following such purchases. (See "The American
Funds Shareholder Guide: Redeeming Shares--Contingent Deferred Sales
Charge.")
/3/ These expenses may not exceed 0.30% of the fund's average net assets
annually. (See "Fund Organization and Management--Plan of Distribution.")
Due to these distribution expenses, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers.
/4/ Use of this assumed 5% return is required by the Securities and Exchange
Commission; it is not an illustration of past or future investment results.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
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FINANCIAL The following information has been audited by Deloitte
HIGHLIGHTS & Touche LLP, independent accountants, whose
(For a share unqualified report covering each of the most recent
outstanding five years is included in the statement of additional
throughout the information. This information should be read in
fiscal year) conjunction with the financial statements and
accompanying notes which are included in the statement
of additional information.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986/1/
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Year........... $13.18 $14.73 $14.13 $13.57 $13.25 $13.48 $13.54 $13.75 $14.88 $14.29
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 1.01 1.03 1.07 1.18 1.22 1.31 1.30 1.35 1.35 1.26
Net realized and
unrealized gain (loss)
on investments......... .06 (1.56) .61 .53 .37 (.26) (.04) (.24) (1.16) .57
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations........... 1.07 (.53) 1.68 1.71 1.59 1.05 1.26 1.11 .19 1.83
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net in-
vestment income........ (1.01) (1.02) (1.08) (1.15) (1.27) (1.28) (1.32) (1.32) (1.32) (1.24)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, end of
year................... $13.24 $13.18 $14.73 $14.13 $13.57 $13.25 $13.48 $13.54 $13.75 $14.88
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return/2/......... 8.60% (3.72)% 12.44% 13.05% 12.34% 8.11% 9.82% 8.40% 1.62% 13.14%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in millions).......... $1,337 $1,373 $1,581 $1,328 $1,018 $ 619 $ 497 $ 410 $ 349 $ 171
Ratio of expenses to
average net assets..... .79% .78% .83% .88% .95% .87% .97% 1.00% 1.00% .81%/3/
Ratio of net income to
average net assets..... 7.79% 7.35% 7.54% 8.63% 9.07% 9.73% 9.68% 9.80% 9.33% 8.15%/3/
Portfolio turnover
rate................... 46.77% 71.58% 35.24% 44.81% 53.40% 50.00% 101.30% 89.30% 67.80% 99.80%/3/
</TABLE>
--------
/1/ Period from 10/17/85-8/31/86.
/2/ This was calculated without deducting a sales charge. The maximum sales
charge is 4.75% of the fund's offering price.
/3/ These ratios are based on operations for the period shown and,
accordingly, are not representative of a full year's operations.
INVESTMENT The fund's investment objective is to provide a high
OBJECTIVE level of current income consistent with prudent
AND POLICIES investment risk and preservation of capital. It seeks
to achieve this objective by investing primarily in
The fund's goal is securities that are guaranteed by the "full faith and
to provide you credit" pledge of the United States Government.
with high current
income while The fund also may invest in securities that are issued
preserving your by U.S. Government agencies or instrumentalities but
capital. are not backed by the full faith and credit of the U.S.
Government and in short-term debt securities of private
issuers (including certificates of deposit, bankers'
acceptances and commercial paper rated Prime-1 by
Moody's Investors Service, Inc. or A-1 by Standard and
Poor's Corporation). See "Certain Securities and
Investment Techniques" below and the statement of
additional information.
Except when the fund is in a temporary defensive
investment position, at least 65% of its total assets
will be invested in securities that are guaranteed by
the U.S. Government, including such securities held
subject to repurchase agreements.
The fund is not required to maintain any particular
effective average portfolio maturity, and its average
maturity will vary with current and anticipated market
conditions.
3
<PAGE>
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The fund's investment restrictions (which are described
in the statement of additional information) and
objective cannot be changed without shareholder
approval. All other investment practices may be changed
by the fund's board.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVE CANNOT,
OF COURSE, BE ASSURED DUE TO THE RISK OF CAPITAL LOSS
FROM FLUCTUATING PRICES INHERENT IN ANY INVESTMENT IN
SECURITIES.
RISKS Although the fund invests primarily in securities on
which the U.S. Government guarantees the payment of
The fund is interest and principal, the value of the fund's shares
subject to the and its current yield will fluctuate and are not
risk of guaranteed by the U.S. Government. The market value of
fluctuating fixed-income securities is generally affected by
interest rates and changes in the level of interest rates. An increase in
share values, and interest rates will tend to reduce their market value,
there is no and a decline in interest rates will tend to increase
assurance that its their value. The magnitude of these changes generally
objective will be will be greater the longer the remaining maturity of
realized. the security. The fund is not intended to constitute a
balanced investment program and is not designed for
investors primarily seeking capital appreciation. There
can be, of course, no assurance that the fund's
investment objective will be realized or that the net
return on an investment in the fund will equal or
exceed that which could have been obtained through
other investment vehicles or through savings vehicles.
CERTAIN U.S. GOVERNMENT SECURITIES Securities guaranteed by the
SECURITIES AND U.S. Government include: (1) direct obligations of the
INVESTMENT U.S. Treasury (such as Treasury bills, notes and bonds)
TECHNIQUES and (2) federal agency obligations guaranteed as to
principal and interest by the U.S. Treasury (such as
securities issued by the Government National Mortgage
Association, commonly known as "GNMA certificates"
(described below), and Federal Housing Administration
debentures).
Certain securities issued by U.S. Government
instrumentalities and certain federal agencies are
neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal
sponsorship in one way or another: some are backed by
specific types of collateral; some are supported by the
issuer's right to borrow from the Treasury; some are
supported by the discretionary authority of the
Treasury to purchase certain obligations of the issuer;
and others are supported only by the credit of the
issuing government agency or instrumentality.
MORTGAGE-RELATED SECURITIES The fund expects to invest
substantially in GNMA certificates which are securities
representing part ownership of a pool of mortgage loans
on which timely payment of interest and principal is
guaranteed by the U.S. Government. GNMA certificates
differ from typical bonds because principal is repaid
monthly over the term of the loan rather than returned
in a lump sum at maturity.
4
<PAGE>
================================================================================
Although the mortgage loans in the pool will have
stated maturities of up to 30 years, the actual average
life or effective maturity of the GNMA certificates
typically will be substantially less because the
mortgages will
be subject to normal principal amortization and may be
prepaid prior to maturity.
The fund also may invest in securities representing in-
terests in pools of conventional mortgage loans issued
by the Federal National Mortgage Association (FNMA) or
by the Federal Home Loan Mortgage Corporation (FHLMC).
The fund also may invest in collateralized mortgage
obligations (CMOs) and mortgage-backed bonds which may
be issued by various governmental entities or private
institutions. A CMO is made up of a series of bonds of
varying maturities that together are fully
collateralized directly or indirectly by a pool of
mortgages on which the payments of principal and
interest are dedicated to payment of principal and
interest on the bonds. Mortgage-backed bonds are
general obligations fully collateralized directly or
indirectly by a pool of mortgages, but on which
payments are not passed through directly. 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.
The fund may invest to a limited extent in inverse
floating rate notes (a type of derivative instrument).
These notes have rates that move in the opposite
direction of prevailing interest rates; thus, a change
in prevailing interest rates will often result in a
greater change in the instruments' interest rates. As a
result, the maturities of these instruments may have a
greater degree of volatility than other types of
interest-bearing securities.
REPURCHASE AGREEMENTS The fund may enter into
repurchase agreements, under which it buys a security
and obtains a simultaneous commitment from the seller
to repurchase the security at a specified time and
price. 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 Capital Research and Management
Company. 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,
liquidation of the collateral by the fund may be
delayed or limited.
WHEN-ISSUED SECURITIES, FIRM COMMITMENT AGREEMENTS, RE-
VERSE REPURCHASE AGREEMENTS AND "ROLL" TRANSACTIONS The
fund may purchase securities on a delayed delivery or
"when-issued" basis and enter into firm commitment
agreements (transactions whereby
5
<PAGE>
================================================================================
the payment obligation and interest rate are fixed at
the time of the transaction but the settlement is de-
layed). The fund as purchaser assumes the risk of any
decline in value of the security beginning on the date
of the agreement or purchase. As the fund's aggregate
commitments under these transactions increase the op-
portunity for leverage similarly may increase. The fund
also may enter into reverse repurchase agreements,
which are the sale of a security by the fund and its
agreement to repurchase the security at a specified
time and price at a later date, and "roll" transac-
tions, which are the sale of GNMA certificates or other
securities together with a commitment (for which the
fund typically receives a fee) to purchase similar, but
not identical, securities at a later date.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM The basic
investment philosophy of Capital Research and
Management Company is to seek fundamental values at
reasonable prices, using a system of multiple portfolio
counselors in managing mutual fund assets. Under this
system the portfolio of the fund is divided into
segments, which are managed by individual counselors.
Each counselor decides how their segment will be
invested (within the limits provided by the fund's
objective and policies and by Capital Research and
Management Company's investment committee). In
addition, Capital Research and Management Company's
research professionals make investment decisions with
respect to a portion of the fund's portfolio. The
primary individual portfolio counselors for the fund
are listed below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
YEARS OF EXPERIENCE AS YEARS OF EXPERIENCE AS
PORTFOLIO COUNSELOR INVESTMENT PROFESSIONAL
PORTFOLIO COUNSELORS FOR U.S. GOVERNMENT (APPROXIMATE)
FOR SECURITIES FUND
U.S. GOVERNMENT PRIMARY TITLE(S) (APPROXIMATE) WITH CAPITAL
SECURITIES FUND RESEARCH AND
MANAGEMENT
COMPANY OR TOTAL
ITS AFFILIATES YEARS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Abner D. Goldstine President and Trustee of Since the fund began 28 years 43 years
the fund. Senior Vice operations
President and Director,
Capital Research and
Management Company
- -----------------------------------------------------------------------------------------------
John H. Smet Vice President of the 9 years 12 years 13 years
fund. Vice
President, Capital Re-
search and
Management Company
- -----------------------------------------------------------------------------------------------
Mark H. Dalzell Vice President--Invest- 2 years 7 years 18 years
ment
Management Group, Capital
Research and Management
Company
- -----------------------------------------------------------------------------------------------
John W. Ressner Portfolio Counselor-- 5 years 7 years 7 years
Fixed Income,
Capital Research and Man-
agement Company
- -----------------------------------------------------------------------------------------------
Richard T. Schotte Senior Vice President, 2 years 18 years 28 years
Capital
Research and Management
Company
- -----------------------------------------------------------------------------------------------
The fund began operations on October 17, 1985.
- -----------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
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INVESTMENT The fund may from time to time compare its investment
RESULTS results to various indices or other mutual funds in re-
ports to shareholders, sales literature and advertise-
The fund has ments. The results may be calculated on a total return,
averaged a total yield and/or distribution rate basis for various peri-
return of 7.87% a ods, with or without sales charges. Results calculated
year (assuming the without a sales charge will be higher. Total returns
maximum sales assume the reinvestment of all dividends and capital
charge was paid) gain distributions.
over its lifetime
(October 17, 1985 The fund's yield for the average annual total returns
through September are calculated in accordance with Securities and
30, 1995). Exchange Commission requirements which provide that the
maximum sales charge be reflected. The fund's
distribution rate is calculated by annualizing the
current month's dividend and dividing by the average
price for the month. For the 30-day period ended
September 30, 1995, the fund's SEC yield was 5.36% and
the distribution rate was 6.89% at maximum offering
price. The SEC yield reflects income earned by the
fund, while the distribution rate reflects dividends
paid by the fund. Among the elements used to calculate
the SEC yield are the dividend and interest income
earned and expenses paid by the fund, whereas the
income paid to shareholders is used to calculate the
distribution rate. The fund's total return over the
past 12 months and average annual total returns over
the past five-year and lifetime periods, as of
September 30, 1995, were 5.67%, 7.34% and 7.87%,
respectively. Of course, past results are not a
guarantee of future results. Further information
regarding the fund's investment results is contained in
the fund's annual report which may be obtained without
charge by writing to the Secretary of the fund at the
address indicated on the cover of this prospectus.
DIVIDENDS, DIVIDENDS AND DISTRIBUTIONS The fund declares dividends
DISTRIBUTIONS from its net investment income daily and distributes
AND TAXES the accrued dividends to shareholders each month.
Dividends begin accruing one day after payment for
Income shares is received by the fund or American Funds
distributions are Service Company. All capital gains, if any, are
made each month. distributed annually, usually in December. When a
capital gain is declared, the net asset value per share
is reduced by the amount of the payment.
FEDERAL TAXES The fund intends to operate as a
"regulated investment company" under the Internal
Revenue Code. For any fiscal year in which the fund so
qualifies and distributes to shareholders all of its
net investment income and net capital gains, the fund
itself is relieved of federal income tax.
All dividends and capital gains are taxable whether
they are reinvested or received in cash -- unless you
are exempt from taxation or entitled to tax deferral.
Early each year, you will be notified as to the amount
and federal tax status of all dividends and capital
gains paid during the prior year. Such dividends and
capital gains may also be subject to state or local
taxes.
7
<PAGE>
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IF YOU HAVE NOT FURNISHED A CERTIFIED CORRECT TAXPAYER
IDENTIFICATION NUMBER (GENERALLY YOUR SOCIAL SECURITY
NUMBER) AND HAVE NOT CERTIFIED THAT WITHHOLDING DOES
NOT APPLY, OR IF THE INTERNAL REVENUE SERVICE HAS
NOTIFIED THE FUND THAT THE TAXPAYER IDENTIFICATION
NUMBER LISTED ON YOUR ACCOUNT IS INCORRECT ACCORDING TO
THEIR RECORDS OR THAT YOU ARE SUBJECT TO BACKUP
WITHHOLDING, FEDERAL LAW GENERALLY REQUIRES THE FUND TO
WITHHOLD 31% FROM ANY DIVIDENDS AND/OR REDEMPTIONS
(INCLUDING EXCHANGE REDEMPTIONS). Amounts withheld are
applied to your federal tax liability; a refund may be
obtained from the Service if withholding results in
overpayment of taxes. Federal law also requires the
fund to withhold 30% or the applicable tax treaty rate
from dividends paid to certain nonresident alien, non-
U.S. partnership and non-U.S. corporation shareholder
accounts.
This is a brief summary of some of the tax laws that
affect your investment in the fund. Please see the
statement of additional information and your tax
adviser for further information.
FUND FUND ORGANIZATION AND VOTING RIGHTS The fund, an open-
ORGANIZATION end, diversified management investment company, was
AND organized as a Massachusetts business trust in 1985.
MANAGEMENT The fund's board supervises fund operations and
performs duties required by applicable state and
The fund is a federal law. Members of the board who are not employed
member of The by Capital Research and Management Company or its
American Funds affiliates are paid certain fees for services rendered
Group, which is to the fund as described in the statement of additional
managed by one of information. They may elect to defer all or a portion
the largest and of these fees through a deferred compensation plan in
most experienced effect for the fund. Shareholders have one vote per
investment share owned and, at the request of the holders of at
advisers. least 10% of the shares, the fund will hold a meeting
at which any member of the board could be removed by
majority vote. There will not usually be a shareholder
meeting in any year except, for example, when the
election of the board is required to be acted upon by
shareholders under the Investment Company Act of 1940.
THE INVESTMENT ADVISER Capital Research and Management
Company, a large and experienced investment management
organization founded in 1931, is the investment adviser
to the fund and other funds, including those in The
American Funds Group. Capital Research and Management
Company is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College
Boulevard, Brea, CA 92621. (See "The American Funds
Shareholder Guide: Purchasing Shares--Investment
Minimums and Fund Numbers" for a listing of funds in
The American Funds Group.) Capital Research and
Management Company manages the investment portfolio and
business affairs of the fund and receives a fee at the
annual rate of 0.30% of the first $60 million of the
fund's net assets, plus 0.21% on net assets in excess
of $60 million but not exceeding $1 billion, plus 0.18%
on net assets in excess of $1 billion
8
<PAGE>
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but not exceeding $3 billion, plus 0.16% on net assets
in excess of $3 billion, plus 3% of the first $40
million of annual gross income, plus 2.25% of annual
gross investment income in excess of $40 million but
not exceeding $100 million, plus 2% of annual gross
investment income in excess of $100 million. Assuming
net assets of $1.3 billion and gross investment income
levels of 6%, 7%, 8%, 9% and 10%, management fees would
be .37%, .39%, .41%, .43% and .45%, respectively.
Capital Research and Management Company is a wholly
owned subsidiary of The Capital Group Companies, Inc.
(formerly "the Capital Group, Inc."), which is located
at 333 South Hope Street, Los Angeles, CA 90071. The
research activities of Capital Research and Management
Company are conducted by affiliated companies which
have offices in Los Angeles, San Francisco, New York,
Washington, D.C., London, Geneva, Singapore, Hong Kong
and Tokyo.
Capital Research and Management Company and its
affiliated companies have adopted a personal investing
policy that is consistent with the recommendations
contained in the report dated May 9, 1994 issued by the
Investment Company Institute's Advisory Group on
Personal Investing. (See the statement of additional
information.)
PORTFOLIO TRANSACTIONS Orders for the fund's portfolio
securities transactions are placed by Capital Research
and Management Company, which strives to obtain the
best available prices, taking into account the costs
and quality of executions. Fixed-income securities are
generally traded on a "net" basis with a dealer acting
as principal for its own account without a stated
commission, although the price of the security usually
includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed
price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's
concession or discount. On occasion, securities may be
purchased directly from an issuer, in which case no
commissions or discounts are paid.
Subject to the above policy, when two or more brokers
are in a position to offer comparable prices and
executions, preference may be given to brokers that
have sold shares of the fund or have provided
investment research, statistical, and other related
services for the benefit of the fund and/or of other
funds served by Capital Research and Management
Company.
PRINCIPAL UNDERWRITER American Funds Distributors,
Inc., a wholly owned subsidiary of Capital Research and
Management Company, is the principal underwriter of the
fund's shares. American Funds Distributors is located
at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92621, 8000
IH-10
9
<PAGE>
================================================================================
West, San Antonio, TX 78230, 8332 Woodfield Crossing
Boulevard, Indianapolis, IN 46240, and 5300 Robin Hood
Road, Norfolk, VA 23513. Telephone conversations with
American Funds Distributors may be recorded or
monitored for verification, recordkeeping and quality
assurance purposes.
PLAN OF DISTRIBUTION The fund has a plan of
distribution or "12b-1 Plan" under which it may finance
activities primary intended to sell shares, provided
the categories of expenses are approved in advance by
the board and the expenses paid under the plan were
incurred within the last 12 months and accrued while
the plan is in effect. Expenditures by the fund under
the plan may not exceed 0.30% of its average net assets
annually (0.25% of which may be for service fees). See
"Purchasing Shares--Sales Charges" below.
TRANSFER AGENT American Funds Service Company, a wholly
owned subsidiary of Capital Research and Management
Company, is the transfer agent and performs shareholder
service functions. It was paid a fee of $992,000 for
the fiscal year ended August 31, 1995. Telephone
conversations with American Funds Service Company may
be recorded or monitored for verification,
recordkeeping and quality assurance purposes.
10
<PAGE>
================================================================================
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
SERVICE ADDRESS AREAS SERVED
AREA
------------------------------------------------------------
WEST P.O. Box 2205 AK, AZ, CA, HI, ID,
Brea, CA 92622-2205 MT, NV, OR, UT, WA
Fax: 714/671-7080 and outside the U.S.
------------------------------------------------------------
CENTRAL- P.O. Box 659522 AR, CO, IA, KS, LA,
WEST San Antonio, TX 78265-9522 MN, MO, ND, NE, NM,
Fax: 210/530-4050 OK, SD, TX, and WY
------------------------------------------------------------
CENTRAL- P.O. Box 6007 AL, IL, IN, KY, MI,
EAST Indianapolis, IN 46206-6007 MS, OH, TNand WI
Fax: 317/735-6620
------------------------------------------------------------
EAST P.O. Box 2280 CT, DE, FL, GA, MA,
Norfolk, VA 23501-2280 MD, ME, NC, NH, NJ,
Fax: 804/670-4773 NY, PA, RI, SC, VA,
VT, WV and
Washington, D.C.
------------------------------------------------------------
ALL SHAREHOLDERS MAY CALL AMERICAN FUNDS SERVICE
COMPANY AT 800/421-0180 FOR SERVICE.
------------------------------------------------------------
[MAP OF THE UNITED STATES OF AMERICA]
------------------------------------------------------------
West (light grey); Central-West (white); Central-East
(dark grey), East (green)
11
<PAGE>
THE AMERICAN FUNDS SHAREHOLDER GUIDE
PURCHASING SHARES METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
---------------------------------------------------------
Your investment See "Investment $50 minimum (except
dealer can help Minimums and Fund where a lower
you establish your Numbers" for minimum is noted
account--and help initial under "Investment
you add to it investment Minimums and Fund
whenever you like. minimums. Numbers").
---------------------------------------------------------
By Visit any Mail directly to
contacting investment dealer your investment
your who is registered dealer's address
investment in the state printed on your
dealer where the account statement.
purchase is made
and who has a
sales agreement
with American
Funds
Distributors.
---------------------------------------------------------
By mail Make your check Fill out the account
payable to the additions form at the
fund and mail to bottom of a recent
the address account statement,
indicated on the make your check
account payable to the fund,
application. write your account
Please indicate number on your check,
an investment and mail the check
dealer on the and form in the
account envelope provided
application. with your account
statement.
---------------------------------------------------------
By wire Call 800/421-0180 Your bank should wire
to obtain your your additional
account investments in the
number(s), if same manner as
necessary. Please described under
indicate an "Initial Investment."
investment dealer
on the account.
Instruct your
bank to wire
funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco,
CA 94106
(ABA #121000248)
For credit to the
account of:
American Funds
Service Company
a/c #4600-076178
(fund name)
(your fund acct.
no.)
---------------------------------------------------------
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE
THE RIGHT TO REJECT ANY PURCHASE ORDER.
SHARE PRICE Shares are purchased at the next offering
price after the order is received by the fund or
American Funds Service Company. In the case of orders
sent directly to the fund or American Funds Service
Company, an investment dealer MUST be indicated. This
price is the net asset value plus a sales charge, if
applicable. Dealers are responsible for promptly
transmitting orders. (See the statement of additional
information under "Purchase of Shares--Price of
Shares.")
The net asset value per share is determined as of the
close of trading (currently 4:00 p.m., New York time) on
each day the New York Stock Exchange is open. The
current value of the fund's total assets, less all
liabilities, is divided by the total number of shares
outstanding and the result, rounded to the nearer cent,
is the net asset value per share. The net asset value
per share of the money market funds normally will remain
constant at $1.00 based on the funds' current practice
of valuing their shares using the penny-rounding method
in accordance with rules of the Securities and Exchange
Commission.
SHARE CERTIFICATES Shares are credited to your account
and certificates are not issued unless specifically
requested. This eliminates the costly problem of lost or
destroyed certificates.
12
<PAGE>
================================================================================
If you would like certificates issued, please request
them by writing to American Funds Service Company.
There is usually no charge for issuing certificates in
reasonable denominations. CERTIFICATES ARE NOT AVAIL-
ABLE FOR THE MONEY MARKET FUNDS.
INVESTMENT MINIMUMS AND FUND NUMBERS Here are the
minimum initial investments required by the funds in
The American Funds Group along with fund numbers for
use with our automated phone line, American
FundsLine(R) (see description below):
<TABLE>
<CAPTION>
MINIMUM
INITIAL FUND
FUND INVESTMENT NUMBER
- ---- ---------- ------
<S> <C> <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R)................................... $1,000 02
American Balanced Fund(R)....................... 500 11
American Mutual Fund(R)......................... 250 03
Capital Income Builder(R)....................... 1,000 12
Capital World Growth and Income Fund(SM)........ 1,000 33
EuroPacific Growth Fund(R)...................... 250 16
Fundamental Investors(SM)....................... 250 10
The Growth Fund of America(R)................... 1,000 05
The Income Fund of America(R)................... 1,000 06
The Investment Company of America(R)............ 250 04
The New Economy Fund(R)......................... 1,000 14
New Perspective Fund(R)......................... 250 07
SMALLCAP World Fund(SM)......................... 1,000 35
Washington Mutual Investors Fund(SM)............ 250 01
<CAPTION>
MINIMUM
INITIAL FUND
FUND INVESTMENT NUMBER
- ---- ---------- ------
<S> <C> <C>
BOND FUNDS
American High-Income Municipal Bond Fund(SM).... $1,000 40
American High-Income Trust(R)................... 1,000 21
The Bond Fund of America(SM).................... 1,000 08
Capital World Bond Fund(R)...................... 1,000 31
Intermediate Bond Fund of America(R)............ 1,000 23
Limited Term Tax-Exempt Bond Fund of America(SM) 1,000 43
The Tax-Exempt Bond Fund of America(SM)......... 1,000 19
The Tax-Exempt Fund of California(R)*........... 1,000 20
The Tax-Exempt Fund of Maryland(R)*............. 1,000 24
The Tax-Exempt Fund of Virginia(R)*............. 1,000 25
U.S. Government Securities Fund(SM)............. 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of America(R)......... 2,500 09
The Tax-Exempt Money Fund of America(SM)........ 2,500 39
The U.S. Treasury Money Fund of America(SM)..... 2,500 49
</TABLE>
- --------
* Available only in certain states.
For retirement plan investments, the minimum is $250,
except that the money market funds have a minimum of
$1,000 for individual retirement accounts (IRAs). Mini-
mums are reduced to $50 for purchases through "Auto-
matic Investment Plans" (except for the money market
funds) or to $25 for purchases by retirement plans
through payroll deductions and may be reduced or waived
for shareholders of other funds in The American Funds
Group. TAX-EXEMPT FUNDS SHOULD NOT SERVE AS RETIREMENT
PLAN INVESTMENTS. The minimum is $50 for additional in-
vestments (except as noted above).
SALES CHARGES The sales charges you pay when purchasing
the stock, stock/bond, and bond funds of The American
Funds Group are set forth below. The money market funds
of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for
a listing of the funds.)
13
<PAGE>
================================================================================
<TABLE>
<CAPTION>
DEALER
SALES CHARGE AS CONCESSION
PERCENTAGE OF THE: AS PERCENTAGE
------------------ OF THE
AMOUNT OF PURCHASE NET AMOUNT OFFERING OFFERING
AT THE OFFERING PRICE INVESTED PRICE PRICE
--------------------- ---------- -------- -------------
<S> <C> <C> <C>
STOCK AND STOCK/BOND FUNDS
Less than $50,000................. 6.10% 5.75% 5.00%
$50,000 but less than $100,000.... 4.71 4.50 3.75
BOND FUNDS
Less than $25,000................. 4.99 4.75 4.00
$25,000 but less than $50,000..... 4.71 4.50 3.75
$50,000 but less than $100,000.... 4.17 4.00 3.25
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 $1,000,000. 2.04 2.00 1.60
$1,000,000 or more................ none none (see below)
</TABLE>
Commissions of up to 1% will be paid to dealers who
initiate and are responsible for purchases of $1 mil-
lion or more, for purchases by any employer-sponsored
403(b) plan or defined contribution plan qualified un-
der Section 401(a) of the Internal Revenue Code includ-
ing a "401(k)" plan with 200 or more eligible employees
(paid pursuant to the fund's plan of distribution), and
for purchases made at net asset value by certain re-
tirement plans of organizations with collective retire-
ment plan assets of $100 million or more as set forth
in the statement of additional information (paid by
American Funds Distributors).
American Funds Distributors, at its expense (from a
designated percentage of its income), will, during cal-
endar year 1996, provide additional promotional incen-
tives to dealers. Currently these incentives are lim-
ited to the top one hundred dealers who have sold
shares of the fund or other funds in The American Funds
Group. These incentive payments will be based on a pro
rata share of a qualifying dealer's sales. American
Funds Distributors will, on an annual basis, determine
the advisability of continuing these promotional incen-
tives.
Any employer-sponsored 403(b) plan or defined contribu-
tion plan qualified under Section 401(a) of the Inter-
nal Revenue Code including a "401(k)" plan with 200 or
more eligible employees or any other purchaser invest-
ing at least $1 million in shares of the fund (or in
combination with shares of other funds in The American
Funds Group other than the money market funds) may pur-
chase shares at net asset value; however, a contingent
deferred sales charge of 1% is imposed on certain re-
demptions within one year of the purchase. (See "Re-
deeming Shares--Contingent Deferred Sales Charge.")
Qualified dealers currently are paid a continuing serv-
ice fee not to exceed 0.25% of average net assets
(0.15% in the case of the money market funds) annually
in order to promote selling efforts and to
14
<PAGE>
================================================================================
compensate them for providing certain services. (See
"Fund Organization and Management--Plan of Distribu-
tion.") These services include processing purchase and
redemption transactions, establishing shareholder ac-
counts and providing certain information and assistance
with respect to the fund.
NET ASSET VALUE PURCHASES The stock, stock/bond and
bond funds may sell shares at net asset value to: (1)
current or retired directors, trustees, officers and
advisory board members of the funds managed by Capital
Research and Management Company, employees of Washing-
ton Management Corporation, employees and partners of
The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons,
and trusts or plans primarily for such persons;
(2) current registered representatives, retired regis-
tered representatives with respect to accounts estab-
lished while active, or full-time employees (and their
spouses, parents, and children) of dealers who have
sales agreements with American Funds Distributors (or
who clear transactions through such dealers) and plans
for such persons or the dealer; (3) companies exchang-
ing securities with the fund through a merger, acquisi-
tion or exchange offer; (4) trustees or other fiducia-
ries purchasing shares for certain retirement plans of
organizations with retirement plan assets of $100 mil-
lion or more; (5) insurance company separate accounts;
(6) accounts managed by subsidiaries of The Capital
Group Companies, Inc.; and (7) The Capital Group Compa-
nies, Inc., its affiliated companies and Washington
Management Corporation. Shares are offered at net asset
value to these persons and organizations due to
anticipated economies in sales effort and expense.
REDUCING AGGREGATION Sales charge discounts are available for
YOUR SALES certain aggregated investments. Qualifying investments
CHARGE include those by you, your spouse and your children
under the age of 21, if all parties are purchasing
You and your shares for their own account(s), which may include
immediate family purchases through employee benefit plan(s) such as an
may combine IRA, individual-type 403(b) plan or single-participant
investments to Keogh-type plan or by a business solely controlled by
reduce your costs. these individuals (for example, the individuals own the
entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these
individuals. Individual purchases by a trustee(s) or
other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or
fiduciary account, including an employee benefit plan
other than those described above or (2) made for two or
more employee benefit plans of a single employer or of
affiliated employers as defined in the Investment
Company Act of 1940, again excluding employee benefit
plans described above, or (3) for a diversified common
trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating
fund shares. Purchases made for nominee or street name
accounts (securities held in the name of an investment
dealer or another nominee such as a bank trust
department instead of the customer) may not be
aggregated with those made for other accounts and may
not be aggregated with other nominee or street name
accounts unless otherwise qualified as described above.
15
<PAGE>
================================================================================
CONCURRENT PURCHASES To qualify for a reduced sales
charge, you may combine concurrent purchases of two or
more funds in The American Funds Group, except direct
purchases of the money market funds. (Shares of the
money market funds purchased through an exchange,
reinvestment or cross-reinvestment from a fund having a
sales charge do qualify.) For example, if you
concurrently invest $25,000 in one fund and $25,000 in
another, the sales charge would be reduced to reflect a
$50,000 purchase.
RIGHT OF ACCUMULATION The sales charge for your invest-
ment may also be reduced by taking into account the
current value of your existing holdings in The American
Funds Group. Direct purchases of the money market funds
are excluded. (See account application.)
STATEMENT OF INTENTION You may reduce sales charges on
all investments by meeting the terms of a statement of
intention, a non-binding commitment to invest a certain
amount in fund shares subject to a commission within a
13-month period. Five percent of the statement amount
will be held in escrow to cover additional sales
charges which may be due if your total investments over
the statement period are insufficient to qualify for a
sales charge reduction. (See account application and
the statement of additional information under "Purchase
of Shares--Statement of Intention.")
YOU MUST LET YOUR INVESTMENT DEALER OR AMERICAN FUNDS
SERVICE COMPANY KNOW IF YOU QUALIFY FOR A REDUCTION IN
YOUR SALES CHARGE USING ONE OR ANY COMBINATION OF THE
METHODS DESCRIBED ABOVE.
SHAREHOLDER AUTOMATIC INVESTMENT PLAN You may make regular monthly
SERVICES or quarterly investments through automatic charges to
your bank account. Once a plan is established, your ac-
The fund offers count will normally be charged by the 10th day of the
you a valuable month during which an investment is made (or by the
array of services 15th day of the month in the case of any retirement
designed to plan for which Capital Guardian Trust Company--another
increase the affiliate of The Capital Group Companies, Inc.--acts as
convenience and trustee or custodian).
flexibility of
your investment-- AUTOMATIC REINVESTMENT Dividends and capital gain dis-
services you can tributions are reinvested in additional shares at no
use to alter your sales charge unless you indicate otherwise on the
investment program account application. You also may elect to have divi-
as your needs and dends and/or capital gain distributions paid in cash by
circumstances informing the fund, American Funds Service Company or
change. your investment dealer.
CROSS-REINVESTMENT You may cross-reinvest dividends or
dividends and capital gain distributions paid by one
fund into another fund in The American Funds Group,
subject to conditions outlined in the statement of ad-
ditional information. Generally, to use this service
the value of your account in the paying fund must equal
at least $5,000.
EXCHANGE PRIVILEGE You may exchange shares into other
funds in The American Funds Group. Exchange purchases
are subject to the minimum investment requirements of
the fund purchased and no sales
16
<PAGE>
================================================================================
charge generally applies. However, exchanges of shares
from the money market funds are subject to applicable
sales charges on the fund being purchased, unless the
money market fund shares were acquired by an exchange
from a fund having a sales charge, or by reinvestment
or cross-reinvestment of dividends or capital gain dis-
tributions.
You may exchange shares by writing to American Funds
Service Company (see "Redeeming Shares"), by contacting
your investment dealer, by using American FundsLine(R)
(see "Shareholder Services--American FundsLine(R)" be-
low), or by telephoning 800/421-0180 toll-free, faxing
(see "Transfer Agent" above for the appropriate fax
numbers) or telegraphing American Funds Service Compa-
ny. (See "Telephone Redemptions and Exchanges" below.)
Shares held in corporate-type retirement plans for
which Capital Guardian Trust Company serves as trustee
may not be exchanged by telephone, fax or telegraph.
Exchange redemptions and purchases are processed simul-
taneously at the share prices next determined after the
exchange order is received. (See "Purchasing Shares--
Share Price.") THESE TRANSACTIONS HAVE THE SAME TAX
CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES You may automatically exchange
shares (in amounts of $50 or more) among any of the
funds in The American Funds Group on any day (or pre-
ceding business day if the day falls on a non-business
day) of each month you designate. You must either meet
the minimum initial investment requirement for the re-
ceiving fund OR the originating fund's balance must be
at least $5,000 and the receiving fund's minimum must
be met within one year.
AUTOMATIC WITHDRAWALS You may make automatic
withdrawals of $50 or more as follows: five or more
times per year if you have an account of $10,000 or
more, or four or fewer times per year if you have an
account of $5,000 or more. Withdrawals are made on or
about the 15th day of each month you designate, and
checks will be sent within seven days. (See "Other
Important Things to Remember.") Additional investments
in a withdrawal account must not be less than one
year's scheduled withdrawals or $1,200, whichever is
greater. However, additional investments in a
withdrawal account may be inadvisable due to sales
charges and tax liabilities.
THESE SERVICES ARE AVAILABLE ONLY IN STATES WHERE THE
FUND TO BE PURCHASED MAY BE LEGALLY OFFERED AND MAY BE
TERMINATED OR MODIFIED AT ANY TIME UPON 60 DAYS'
WRITTEN NOTICE.
ACCOUNT STATEMENTS Your account is opened in accordance
with your registration instructions. Transactions in
the account, such as additional investments and
dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service
Company.
17
<PAGE>
================================================================================
AMERICAN FUNDSLINE(R) You may check your share balance,
the price of your shares, or your most recent account
transaction, redeem shares (up to $10,000 per fund, per
account each day), or exchange shares around the clock
with American FundsLine(R). To use this service, call
800/325-3590 from a TouchTone(TM) telephone.
Redemptions and exchanges through American FundsLine(R)
are subject to the conditions noted above and in
"Redeeming Shares--Telephone Redemptions and Exchanges"
below. You will need your fund number (see the list of
funds in The American Funds Group under "Purchasing
Shares--Investment Minimums and Fund Numbers"),
personal identification number (the last four digits of
your Social Security number or other tax identification
number associated with your account) and account
number.
---------------------------------------------------------
REDEEMING By writing to Send a letter of instruction
SHARES American specifying the name of the fund, the
Funds Service number of shares or dollar amount to
You may take money Company (at be sold, your name and account
out of your the number. You should also enclose any
account whenever appropriate share certificates you wish to
you please. address redeem. For redemptions over $50,000
indicated and for certain redemptions of
under "Fund $50,000 or less (see below), your
Organization signature must be guaranteed by a
and bank, savings association, credit
Management-- union, or member firm of a domestic
Transfer stock exchange or the National
Agent") Association of Securities Dealers,
Inc., that is an eligible guarantor
institution. You should verify with
the institution that it is an
eligible guarantor prior to signing.
Additional documentation may be
required for redemption of shares
held in corporate, partnership or
fiduciary accounts. Notarization by a
Notary Public is not an acceptable
signature guarantee.
---------------------------------------------------------
By contacting If you redeem shares through your
your investment dealer, you may be charged
investment for this service. SHARES HELD FOR YOU
dealer IN YOUR INVESTMENT DEALER'S STREET
NAME MUST BE REDEEMED THROUGH THE
DEALER.
---------------------------------------------------------
You may use this option, provided the
You may have account is registered in the name of
a redemption an individual(s), a UGMA/UTMA
check sent to custodian, or a non-retirement plan
you by using trust. These redemptions may not
American exceed $10,000 per day, per fund
FundsLine(R) account and the check must be made
or by payable to the shareholder(s) of
telephoning, record and be sent to the address of
faxing, or record provided the address has been
telegraphing used with the account for at least 10
American days. See "Transfer Agent" and
Funds Service "Exchange Privilege" above for the
Company appropriate telephone or fax number.
(subject to
the
conditions
noted in this
section and
in "Telephone
Redemptions
and
Exchanges"
below)
---------------------------------------------------------
In the case Upon request (use the account
of the money application for the money market
market funds, funds) you may establish telephone
you may have redemption privileges (which will
redemptions enable you to have a redemption sent
wired to your to your bank account) and/or check
bank by writing privileges. If you request
telephoning check writing privileges, you will be
American provided with checks that you may use
Funds Service to draw against your account. These
Company checks may be made payable to anyone
($1,000 or you designate and must be signed by
more) or by the authorized number of registered
writing a shareholders exactly as indicated on
check ($250 your checking account signature card.
or more)
---------------------------------------------------------
A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY
REDEMPTION OF $50,000 OR LESS PROVIDED THE REDEMPTION
CHECK IS MADE PAYABLE TO THE REGISTERED SHAREHOLDER(S)
AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE
ADDRESS HAS BEEN USED WITH THE ACCOUNT FOR AT LEAST 10
DAYS.
18
<PAGE>
================================================================================
THE PRICE YOU RECEIVE FOR THE SHARES YOU REDEEM IS THE
NET ASSET VALUE NEXT DETERMINED AFTER YOUR ORDER AND
ALL REQUIRED DOCUMENTATION ARE RECEIVED BY THE FUND OR
AMERICAN FUNDS SERVICE COMPANY. (SEE "PURCHASING
SHARES--SHARE PRICE.")
TELEPHONE REDEMPTIONS AND EXCHANGES By using the
telephone (including American FundsLine(R)), fax or
telegraph redemption and/or exchange options, you agree
to hold the fund, American Funds Service Company, any
of its affiliates or mutual funds managed by such
affiliates, and each of their respective directors,
trustees, officers, employees and agents harmless from
any losses, expenses, costs or liability (including
attorney fees) which may be incurred in connection with
the exercise of these privileges. Generally, all
shareholders are automatically eligible to use these
options. However, you may elect to opt out of these
options by writing American Funds Service Company (you
may reinstate them at any time also by writing American
Funds Service Company). If American Funds Service
Company does not employ reasonable procedures to
confirm that the instructions received from any person
with appropriate account information are genuine, the
fund may be liable for losses due to unauthorized or
fraudulent instructions. In the event that shareholders
are unable to reach the fund by telephone because of
technical difficulties, market conditions, or a natural
disaster, redemption and exchange requests may be made
in writing only.
CONTINGENT DEFERRED SALES CHARGE A contingent deferred
sales charge of 1% applies to certain redemptions
within the first year on investments of $1 million or
more and on any investment made with no initial sales
charge by any employer-sponsored 403(b) plan or defined
contribution plan qualified under Section 401(a) of the
Internal Revenue Code including a "401(k)" plan with
200 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive
of reinvested dividends and capital gain distributions)
or the total cost of such shares. Shares held for the
longest period are assumed to be redeemed first for
purposes of calculating this charge. The charge is
waived for exchanges (except if shares acquired by
exchange were then redeemed within 12 months of the
initial purchase); for distributions from qualified
retirement plans and other employee benefit plans; for
redemptions resulting from participant- directed
switches among investment options within a participant-
directed employer-sponsored retirement plan; for
distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 59 1/2; for tax-free
returns of excess contributions to IRAs; for
redemptions through certain automatic withdrawals not
exceeding 10% of the amount that would otherwise be
subject to the charge; and for redemptions in
connection with loans made by qualified retirement
plans.
REINSTATEMENT PRIVILEGE You may reinvest proceeds from
a redemption or a dividend or capital gain distribution
without sales charge (any contingent deferred sales
charge paid will be credited to your
19
<PAGE>
================================================================================
account) in any fund in The American Funds Group. Send
a written request and a check to American Funds Service
Company within 90 days after the date of the redemption
or distribution. Reinvestment will be at the next
calculated net asset value after receipt. The tax
status of a gain realized on a redemption will not be
affected by exercise of the reinstatement privilege,
but a loss may be nullified if you reinvest in the same
fund within 30 days. If you redeem your shares within
90 days after purchase and the sales charge on the
purchase of other shares is waived under the
reinstatement privilege, the sales charge you
previously paid for the shares may not be taken into
account when you calculate your gain or loss on that
redemption.
OTHER IMPORTANT THINGS TO REMEMBER The net asset value
for redemptions is determined as indicated under
"Purchasing Shares--Share Price." Because each stock,
stock/bond and bond fund's net asset value fluctuates,
reflecting the market value of the fund's portfolio,
the amount a shareholder receives for shares redeemed
may be more or less than the amount paid for them.
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 Investment Company Act of
1940), redemption proceeds will be paid on or before
the seventh day following receipt of a proper
redemption request.
A fund may, with 60 days' written notice, close your
account if, due to a redemption, the account has a
value of less than the minimum required initial
investment. (For example, a fund may close an account
if a redemption is made shortly after a minimum initial
investment is made.)
RETIREMENT You may invest in the funds through various retirement
PLANS plans including the following plans for which Capital
Guardian Trust Company acts as trustee or custodian:
IRAs, Simplified Employee Pension plans, 403(b) plans
and Keogh- and corporate-type business retirement
plans. For further information about any of the plans,
agreements, applications and annual fees, contact
American Funds Distributors or your investment dealer.
To determine which retirement plan is appropriate for
you, please consult your tax adviser. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS INVESTMENTS FOR RETIREMENT PLANS.
FOR MORE INFORMATION, PLEASE REFER TO THE ACCOUNT
APPLICATION OR THE STATEMENT OF ADDITIONAL INFORMATION.
IF YOU HAVE ANY QUESTIONS ABOUT ANY OF THE SHAREHOLDER
SERVICES DESCRIBED HEREIN OR YOUR ACCOUNT, PLEASE
CONTACT YOUR INVESTMENT DEALER OR AMERICAN FUNDS
SERVICE COMPANY.
[RECYCLE LOGO] This prospectus has been printed on
recycled paper that meets the
guidelines of the United States
Environmental Protection Agency
20
<PAGE>
Prospectus
for Eligible Retirement Plans
U.S. GOVERNMENT SECURITIES FUND(SM)
AN OPPORTUNITY FOR CURRENT INCOME
CONSISTENT WITH PRUDENT INVESTMENT RISK
AND PRESERVATION OF CAPITAL PRIMARILY THROUGH
SECURITIES THAT ARE GUARANTEED BY THE "FULL FAITH
AND CREDIT" PLEDGE OF THE U.S. GOVERNMENT
[LOGO OF THE AMERICAN FUNDS GROUP(R)]
October 25, 1995
THE AMERICAN FUNDS INCOME SERIES
U.S. GOVERNMENT SECURITIES FUND
333 South Hope Street
Los Angeles, California 90071
The fund's investment objective is to provide investors with a high level of
current income consistent with prudent investment risk and preservation of
capital. It seeks to achieve this objective by investing primarily in
securities that are guaranteed by the "full faith and credit" pledge of the
United States Government. Although the fund invests primarily in securities on
which the U.S. Government guarantees the payment of interest and principal,
the value of the fund's shares and its current yield will fluctuate and are
not guaranteed by the U.S. Government.
This prospectus relates only to shares of the fund offered without a sales
charge to eligible retirement plans. For a prospectus regarding shares of the
fund to be acquired otherwise, contact the Secretary of the fund at the
address indicated above.
This prospectus presents information you should know before investing in the
fund. It should be retained for future reference.
You may obtain the statement of additional information dated October 25, 1995,
which contains the fund's financial statements, without charge, by writing to
the Secretary of the fund at the above address or telephoning 800/421-0180.
These requests will be honored within three business days of receipt.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR
GUARANTEED BY, THE U.S. GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON. THE
PURCHASE OF FUND SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
RP 22-010-1095
<PAGE>
================================================================================
SUMMARY OF EXPENSES
Average annual
expenses paid over a
10-year period would
be approximately $10
per year, assuming a
$1,000 investment and
a 5% annual return.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Expenses................................ 2
Financial Highlights............................... 3
Investment Objective and Policies.................. 3
Risks ............................................. 4
Certain Securities and Investment Techniques....... 4
Investment Results................................. 7
Dividends, Distributions and Taxes................. 7
Fund Organiza tion and Management.................. 8
Purchasing Shares.................................. 10
Shareholder Services............................... 11
Redeeming Shares................................... 11
</TABLE>
This table is designed to help you understand the costs of investing in the
fund. These are historical expenses; your actual expenses may vary.
SHAREHOLDER TRANSACTION EXPENSES
Certain retirement plans may purchase shares of the fund with no sales
charge./1/ The fund has no sales charge on reinvested dividends, deferred
sales charges, redemption fees or exchange fees.
ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets)
<TABLE>
<S> <C>
Management fees....................................................... 0.42%
12b-1 expenses........................................................ 0.26%/2/
Other expenses (including audit, legal, shareholder services, transfer
agent and custodian expenses)........................................ 0.11%
Total fund operating expenses......................................... 0.79%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following cumulative ex-
penses on a $1,000 investment, assuming a 5%
annual return./3/ $8 $25 $44 $98
</TABLE>
/1/ Retirement plans of organizations with $100 million or more in collective
retirement plan assets may purchase shares of the fund with no sales charge.
In addition, any defined contribution plan qualified under Section 401(a) of
the Internal Revenue Code including a "401(k)" plan with 200 or more
eligible employees or any other plan that invests at least $1 million in
shares of the fund (or in combination with shares of other funds in The
American Funds Group other than the money market funds) may purchase shares
at net asset value; however, a contingent deferred sales charge of 1%
applies on certain redemptions within 12 months following such purchases.
(See "Redeeming Shares--Contingent Deferred Sales Charge.")
/2/ These expenses may not exceed 0.30% of the fund's average net assets
annually. (See "Fund Organization and Management--Plan of Distribution.")
Due to these distribution expenses, long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers.
/3/ Use of this assumed 5% return is required by the Securities and Exchange
Commission; it is not an illustration of past or future investment results.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
================================================================================
FINANCIAL The following information has been audited by Deloitte
HIGHLIGHTS & Touche LLP, independent accountants, whose
(For a share unqualified report covering each of the most recent
outstanding five years is included in the statement of additional
throughout the information. This information should be read in
fiscal year) conjunction with the financial statements and
accompanying notes which are included in the statement
of additional information.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986/1/
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Year........... $13.18 $14.73 $14.13 $13.57 $13.25 $13.48 $13.54 $13.75 $14.88 $14.29
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 1.01 1.03 1.07 1.18 1.22 1.31 1.30 1.35 1.35 1.26
Net realized and
unrealized gain (loss)
on investments......... .06 (1.56) .61 .53 .37 (.26) (.04) (.24) (1.16) .57
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations........... 1.07 (.53) 1.68 1.71 1.59 1.05 1.26 1.11 .19 1.83
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net in-
vestment income........ (1.01) (1.02) (1.08) (1.15) (1.27) (1.28) (1.32) (1.32) (1.32) (1.24)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, end of
year................... $13.24 $13.18 $14.73 $14.13 $13.57 $13.25 $13.48 $13.54 $13.75 $14.88
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return/2/......... 8.60% (3.72)% 12.44% 13.05% 12.34% 8.11% 9.82% 8.40% 1.62% 13.14%
RATIOS/SUPPLEMENTAL
DATA:
Net Assets, end of year
(in millions).......... $1,337 $1,373 $1,581 $1,328 $1,018 $ 619 $ 497 $ 410 $ 349 $ 171
Ratio of expenses to
average net assets..... .79% .78% .83% .88% .95% .87% .97% 1.00% 1.00% .81%/3/
Ratio of net income to
average net assets..... 7.79% 7.35% 7.54% 8.63% 9.07% 9.73% 9.68% 9.80% 9.33% 8.15%/3/
Portfolio turnover
rate................... 46.77% 71.58% 35.24% 44.81% 53.40% 50.00% 101.30% 89.30% 67.80% 99.80%/3/
</TABLE>
--------
/1/ Period from 10/17/85-8/31/86.
/2/ Calculated with no sales charge.
/3/ These ratios are based on operations for the period shown and,
accordingly, are not representative of a full year's operations.
INVESTMENT The fund's investment objective is to provide a high
OBJECTIVE level of current income consistent with prudent
AND POLICIES investment risk and preservation of capital. It seeks
to achieve this objective by investing primarily in
The fund's goal is securities that are guaranteed by the "full faith and
to provide you credit" pledge of the United States Government.
with high current
income while The fund also may invest in securities that are issued
preserving your by U.S. Government agencies or instrumentalities but
capital. are not backed by the full faith and credit of the U.S.
Government and in short-term debt securities of private
issuers (including certificates of deposit, bankers'
acceptances and commercial paper rated Prime-1 by
Moody's Investors Service, Inc. or A-1 by Standard and
Poor's Corporation). See "Certain Securities and
Investment Techniques" below and the statement of
additional information.
Except when the fund is in a temporary defensive
investment position, at least 65% of its total assets
will be invested in securities that are guaranteed by
the U.S. Government, including such securities held
subject to repurchase agreements.
The fund is not required to maintain any particular
effective average portfolio maturity, and its average
maturity will vary with current and anticipated market
conditions.
3
<PAGE>
================================================================================
The fund's investment restrictions (which are described
in the statement of additional information) and
objective cannot be changed without shareholder
approval. All other investment practices may be changed
by the fund's board
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVE CANNOT,
OF COURSE, BE ASSURED DUE TO THE RISK OF CAPITAL LOSS
FROM FLUCTUATING PRICES INHERENT IN ANY INVESTMENT IN
SECURITIES.
RISKS Although the fund invests primarily in securities on
which the U.S. Government guarantees the payment of
The fund is interest and principal, the value of the fund's shares
subject to the and its current yield will fluctuate and are not
risk of guaranteed by the U.S. Government. The market value of
fluctuating fixed-income securities is generally affected by changes
interest rates and in the level of interest rates. An increase in interest
share values, and rates will tend to reduce their market value, and a
there is no decline in interest rates will tend to increase their
assurance that its value. The magnitude of these changes generally will be
objective will be greater the longer the remaining maturity of the
realized. security. The fund is not intended to constitute a
balanced investment program and is not designed for
investors primarily seeking capital appreciation. There
can be, of course, no assurance that the fund's
investment objective will be realized or that the net
return on an investment in the fund will equal or exceed
that which could have been obtained through other
investment vehicles or through savings vehicles.
CERTAIN U.S. GOVERNMENT SECURITIES Securities guaranteed by the
SECURITIES AND U.S. Government include: (1) direct obligations of the
INVESTMENT U.S. Treasury (such as Treasury bills, notes and bonds)
TECHNIQUES and (2) federal agency obligations guaranteed as to
principal and interest by the U.S. Treasury (such as
securities issued by the Government National Mortgage
Association, commonly known as "GNMA certificates"
(described below), and Federal Housing Administration
debentures).
Certain securities issued by U.S. Government
instrumentalities and certain federal agencies are
neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal
sponsorship in one way or another: some are backed by
specific types of collateral; some are supported by the
issuer's right to borrow from the Treasury; some are
supported by the discretionary authority of the Treasury
to purchase certain obligations of the issuer; and
others are supported only by the credit of the issuing
government agency or instrumentality.
MORTGAGE-RELATED SECURITIES The fund expects to invest
substantially in GNMA certificates which are securities
representing part ownership of a pool of mortgage loans
on which timely payment of interest and principal is
guaranteed by the U.S. Government. GNMA certificates
differ from typical bonds because principal is repaid
monthly
over the term of the loan rather than returned in a lump
sum at maturity.
4
<PAGE>
================================================================================
Although the mortgage loans in the pool will have
stated maturities of up to 30 years, the actual average
life or effective maturity of the GNMA certificates
typically will be substantially less because the
mortgages will
be subject to normal principal amortization and may be
prepaid prior to maturity.
The fund also may invest in securities representing in-
terests in pools of conventional mortgage loans issued
by the Federal National Mortgage Association (FNMA) or
by the Federal Home Loan Mortgage Corporation (FHLMC).
The fund also may invest in collateralized mortgage
obligations (CMOs) and mortgage-backed bonds which may
be issued by various governmental entities or private
institutions. A CMO is made up of a series of bonds of
varying maturities that together are fully
collateralized directly or indirectly by a pool of
mortgages on which the payments of principal and
interest are dedicated to payment of principal and
interest on the bonds. Mortgage-backed bonds are
general obligations fully collateralized directly or
indirectly by a pool of mortgages, but on which
payments are not passed through directly. 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.
The fund may invest to a limited extent in inverse
floating rate notes (a type of derivative instrument).
These notes have rates that move in the opposite
direction of prevailing interest rates; thus, a change
in prevailing interest rates will often result in a
greater change in the instruments' interest rates. As a
result, the maturities of these instruments may have a
greater degree of volatility than other types of
interest-bearing securities.
REPURCHASE AGREEMENTS The fund may enter into
repurchase agreements, under which it buys a security
and obtains a simultaneous commitment from the seller
to repurchase the security at a specified time and
price. 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 Capital Research and Management
Company. 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,
liquidation of the collateral by the fund may be
delayed or limited.
WHEN-ISSUED SECURITIES, FIRM COMMITMENT AGREEMENTS, RE-
VERSE REPURCHASE AGREEMENTS AND "ROLL" TRANSACTIONS The
fund may purchase securities on a delayed delivery or
"when-issued" basis and enter into firm commitment
agreements (transactions whereby
5
<PAGE>
================================================================================
the payment obligation and interest rate are fixed at
the time of the transaction but the settlement is de-
layed). The fund as purchaser assumes the risk of any
decline in value of the security beginning on the date
of the agreement or purchase. As the fund's aggregate
commitments under these transactions increase the op-
portunity for leverage similarly may increase. The fund
also may enter into reverse repurchase agreements,
which are the sale of a security by the fund and its
agreement to repurchase the security at a specified
time and price at a later date, and "roll" transac-
tions, which are the sale of GNMA certificates or other
securities together with a commitment (for which the
fund typically receives a fee) to purchase similar, but
not identical, securities at a later date.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM The basic
investment philosophy of Capital Research and
Management Company is to seek fundamental values at
reasonable prices, using a system of multiple portfolio
counselors in managing mutual fund assets. Under this
system the portfolio of the fund is divided into
segments, which are managed by individual counselors.
Each counselor decides how their segment will be
invested (within the limits provided by the fund's
objective and policies and by Capital Research and
Management Company's investment committee). In
addition, Capital Research and Management Company's
research professionals make investment decisions with
respect to a portion of the fund's portfolio. The
primary individual portfolio counselors for the fund
are listed below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
YEARS OF EXPERIENCE AS YEARS OF EXPERIENCE AS
PORTFOLIO COUNSELOR INVESTMENT PROFESSIONAL
FOR U.S. GOVERNMENT (APPROXIMATE)
PORTFOLIO COUNSELORS SECURITIES FUND
FOR PRIMARY TITLE(S) (APPROXIMATE) WITH CAPITAL
U.S. GOVERNMENT RESEARCH AND
SECURITIES FUND MANAGEMENT
COMPANY OR TOTAL
ITS AFFILIATES YEARS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Abner D. Goldstine President and Trustee of Since the fund began 28 years 43 years
the fund. operations
Senior Vice President and
Director, Capital Re-
search and Management
Company
- ------------------------------------------------------------------------------------------------
John H. Smet Vice President of the 9 years 12 years 13 years
fund. Vice
President, Capital Re-
search and
Management Company
- ------------------------------------------------------------------------------------------------
Mark H. Dalzell Vice President--Invest- 2 years 7 years 18 years
ment
Management Group, Capital
Research and Management
Company
- ------------------------------------------------------------------------------------------------
John W. Ressner Portfolio Counselor-- 5 years 7 years 7 years
Fixed Income, Capital Re-
search and Management
Company
- ------------------------------------------------------------------------------------------------
Richard T. Schotte Senior Vice President, 2 years 18 years 28 years
Capital
Research and Management
Company
- ------------------------------------------------------------------------------------------------
The fund began operations on October 17, 1985.
- ------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
================================================================================
INVESTMENT The fund may from time to time compare its investment
RESULTS results to various indices or other mutual funds in re-
ports to shareholders, sales literature and advertise-
The fund has ments. The results may be calculated on a total return,
averaged a total yield and/or distribution rate basis for various peri-
return (at no ods, with or without sales charges. Results calculated
sales charge) of without a sales charge will be higher. Total returns
8.40% a year over assume the reinvestment of all dividends and capital
its lifetime gain distributions.
(October 17, 1985 The fund's yield for the average annual total returns
through September are calculated with no sales charge. The fund's
30, 1995). distribution rate is calculated by annualizing the
current month's dividend and dividing by the average
price for the month. For the 30-day period ended
September 30, 1995, the fund's SEC yield was 5.62% and
the distribution rate was 7.23% with no sales charge.
The SEC yield reflects income earned by the fund, while
the distribution rate reflects dividends paid by the
fund. Among the elements used to calculate the SEC
yield are the dividend and interest income earned and
expenses paid by the fund, whereas the income paid to
shareholders is used to calculate the distribution
rate. The fund's total return over the past 12 months
and average annual total returns over the past five-
year and lifetime periods, as of September 30, 1995,
were 10.98%, 8.39% and 8.40%, respectively. Of course,
past results are not a guarantee of future results.
Further information regarding the fund's investment
results is contained in the fund's annual report which
may be obtained without charge by writing to the
Secretary of the fund at the address indicated on the
cover of this prospectus.
DIVIDENDS, DIVIDENDS AND DISTRIBUTIONS The fund declares dividends
DISTRIBUTIONS from its net investment income daily and distributes
AND TAXES the accrued dividends to shareholders each month.
Dividends begin accruing one day after payment for
Income shares is received by the fund or American Funds
distributions are Service Company. All capital gains, if any, are
made each month. distributed annually, usually in December. When a
capital gain is declared, the net asset value per share
is reduced by the amount of the payment.
The terms of your plan will govern how your plan may
receive distributions from the fund. Generally,
periodic distributions from the fund to your plan are
reinvested in additional fund shares, although your
plan may permit fund distributions from net investment
income to be received by you in cash while reinvesting
capital gain distributions in additional shares or all
fund distributions to be received in cash. Unless you
select another option, all distributions will be
reinvested in additional fund shares.
FEDERAL TAXES The fund intends to operate as a
"regulated investment company" under the Internal
Revenue Code. In any fiscal year in which the fund so
qualifies and distributes to shareholders all of its
net investment income and net capital gains, the fund
itself is relieved
of federal income tax. The tax treatment of redemptions
from a retirement plan may differ from redemptions from
an ordinary shareholder account.
7
<PAGE>
================================================================================
Please see the statement of additional information and
your tax adviser for further information.
FUND FUND ORGANIZATION AND VOTING RIGHTS The fund, an open-
ORGANIZATION end, diversified management investment company, was
AND organized as a Massachusetts business trust in 1985.
MANAGEMENT The fund's board supervises fund operations and
performs duties required by applicable state and
The fund is a federal law. Members of the board who are not employed
member of The by Capital Research and Management Company or its
American Funds affiliates are paid certain fees for services rendered
Group, which is to the fund as described in the statement of additional
managed by one of information. They may elect to defer all or a portion
the largest and of these fees through a deferred compensation plan in
most experienced effect for the fund. Shareholders have one vote per
investment share owned and, at the request of the holders of at
advisers. least 10% of the shares, the fund will hold a meeting
at which any member of the board could be removed by
majority vote. There will not usually be a shareholder
meeting in any year except, for example, when the
election of the board is required to be acted upon by
shareholders under the Investment Company Act of 1940.
THE INVESTMENT ADVISER Capital Research and Management
Company, a large and experienced investment management
organization founded in 1931, is the investment adviser
to the fund and other funds, including those in The
American Funds Group. Capital Research and Management
Company is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College
Boulevard, Brea, CA 92621. Capital Research and
Management Company manages the investment portfolio and
business affairs of the fund and receives a fee at the
annual rate of 0.30% of the first $60 million of the
fund's net assets, plus 0.21% on net assets in excess
of $60 million but not exceeding $1 billion, plus 0.18%
on net assets in excess of $1 billion but not exceeding
$3 billion, plus 0.16% on net assets in excess of $3
billion, plus 3% of the first $40 million of annual
gross income, plus 2.25% of annual gross investment
income in excess of $40 million but not exceeding $100
million, plus 2% of annual gross investment income in
excess of $100 million. Assuming net assets of $1.3
billion and gross investment income levels of 6%, 7%,
8%, 9% and 10%, management fees would be .37%, .39%,
.41%, .43% and .45%, respectively.
Capital Research and Management Company is a wholly
owned subsidiary of The Capital Group Companies, Inc.
(formerly "The Capital Group, Inc."), which is located
at 333 South Hope Street, Los Angeles, CA 90071. The
research activities of Capital Research and Management
Company are conducted by affiliated companies which
have offices in Los Angeles, San Francisco, New York,
Washington, D.C., London, Geneva, Singapore, Hong Kong
and Tokyo.
Capital Research and Management Company and its
affiliated companies have adopted a personal investing
policy that is consistent with the recommendations
contained in the report dated May 9, 1994 issued by the
Investment Company Institute's Advisory Group on
Personal Investing. (See the statement of additional
information.)
8
<PAGE>
================================================================================
PORTFOLIO TRANSACTIONS Orders for the fund's portfolio
securities transactions are placed by Capital Research
and Management Company, which strives to obtain the
best available prices, taking into account the costs
and quality of executions. Fixed-income securities are
generally traded on a "net" basis with a dealer acting
as principal for its own account without a stated
commission, although the price of the security usually
includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed
price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's
concession or discount. On occasion, securities may be
purchased directly from an issuer, in which case no
commissions or discounts are paid.
Subject to the above policy, when two or more brokers
are in a position to offer comparable prices and
executions, preference may be given to brokers that
have sold shares of the fund or have provided
investment research, statistical, and other related
services for the benefit of the fund and/or of other
funds served by Capital Research and Management
Company.
PRINCIPAL UNDERWRITER American Funds Distributors,
Inc., a wholly owned subsidiary of Capital Research and
Management Company, is the principal underwriter of the
fund's shares. American Funds Distributors is located
at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92621, 8000 IH-
10 West, San Antonio, TX 78230, 8332 Woodfield Crossing
Boulevard, Indianapolis, IN 46240, and 5300 Robin Hood
Road, Norfolk, VA 23513. Telephone conversations with
American Funds Distributors may be recorded or
monitored for verification, recordkeeping and quality
assurance purposes.
PLAN OF DISTRIBUTION The fund has a plan of
distribution or "12b-1 Plan" under which it may finance
activities primary intended to sell shares, provided
the categories of expenses are approved in advance by
the board and the expenses paid under the plan were
incurred within the last 12 months and accrued while
the plan is in effect. Expenditures by the fund under
the plan may not exceed 0.30% of its average net assets
annually (0.25% of which may be for service fees).
TRANSFER AGENT American Funds Service Company, 800/421-
0180, a wholly owned subsidiary of Capital Research and
Management Company, is the transfer agent and performs
shareholder service functions. American Funds Service
Company is located at333 South Hope Street, Los
Angeles, CA 90071, 135 South State College Boulevard,
Brea, CA 92621, 8000 1H-10 West, San Antonio, TX 78230,
8332 Woodfield Crossing Boulevard, Indianapolis, IN
46240, and 5300 Robin Hood Road, Norfolk, VA 23513. It
was paid a fee of $992,000 for the fiscal year ended
August 31, 1995. Telephone conversations with American
Funds Service Company may be recorded or monitored for
verification, recordkeeping and quality assurance
purposes.
9
<PAGE>
================================================================================
PURCHASING SHARES ALL ORDERS TO PURCHASE SHARES MUST BE MADE THROUGH YOUR
RETIREMENT PLAN. FOR MORE INFORMATION ABOUT HOW TO
PURCHASE SHARES OF THE FUND THROUGH YOUR PLAN OR
LIMITATIONS ON THE AMOUNT THAT MAY BE PURCHASED, PLEASE
CONSULT WITH YOUR EMPLOYER. Shares are sold to eligible
retirement plans at the net asset value per share next
determined after receipt of an order by the fund or
American Funds Service Company. Orders must be received
before the close of regular trading on the New York
Stock Exchange in order to receive that day's net asset
value. Plans of organizations with collective
retirement plan assets of $100 million or more may
purchase shares at net asset value. In addition, any
employer-sponsored 403(b) plan or defined contribution
plan qualified under Section 401(a) of the Internal
Revenue Code including a "401(k)" plan with 200 or more
eligible employees or any other plan that invests at
least $1 million in shares of the fund (or in
combination with shares of other funds in The American
Funds Group other than the money market funds) may
purchase shares at net asset value; however, a
contingent deferred sales charge of 1% is imposed on
certain redemptions within one year of such purchase.
(See "Redeeming Shares--Contingent Deferred Sales
Charge.") Plans may also qualify to purchase shares at
net asset value by completing a statement of intention
to purchase $1 million in fund shares subject to a
commission over a maximum of 13 consecutive months.
Certain redemptions of such shares may also be subject
to a contingent deferred sales charge as described
above. (See the statement of additional information.)
The minimum initial investment is $250, except that the
money market funds have a minimum of $1,000 for
individual retirement accounts (IRAs). Minimums are
reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds)
or to $25 for purchases by retirement plans through
payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds
Group.
American Funds Distributors, at its expense (from a
designated percentage of its income), will, during
calendar year 1996, provide additional promotional
incentives to dealers. Currently, these incentives are
limited to the top hundred dealers who have sold shares
of the fund or other funds in The American Funds Group.
Such incentive payments will be based on a pro rata
share of a qualifying dealer's sales. American Funds
Distributors will, on an annual basis, determine the
advisability of continuing these promotional
incentives.
Qualified dealers currently are paid a continuing
service fee not to exceed 0.25% of average net assets
annually in order to promote selling efforts and to
compensate them for providing certain services. (See
"Fund Organization and Management--Plan of
Distribution.") These services include processing
purchase and redemption transactions, establishing
shareholder accounts and providing certain information
and assistance with respect to the fund.
10
<PAGE>
================================================================================
Shares of the fund are offered to other shareholders
pursuant to another prospectus at public offering
prices that may include an initial sales charge.
SHARE PRICE Shares are offered to eligible retirement
plans at the net asset value after the order is
received by the fund or American Funds Service Company.
In the case of orders sent directly to the fund or
American Funds Service Company, an investment dealer
must be indicated. Dealers are responsible for promptly
transmitting orders. (See the statement of additional
information under "Purchase of Shares--Price of
Shares.")
The fund's net asset value per share is determined as
of the close of trading (currently 4:00 p.m., New York
time) on each day the New York Stock Exchange is open.
The current value of the fund's total assets, less all
liabilities, is divided by the total number of shares
outstanding and the result, rounded to the nearer cent,
is the net asset value per share.
SHAREHOLDER Subject to any restrictions contained in your plan, you
SERVICES can exchange your shares for shares of other funds in
The American Funds Group which are offered through the
plan at net asset value. In addition, again depending
on your plan, you may be able to exchange shares
automatically or cross-reinvest dividends in shares of
other funds. Contact your plan administrator/trustee
regarding how to use these services. Also, see the
fund's statement of additional information for a
description of these and other services that may be
available through your plan. These services are
available only in states where the fund to be purchased
may be legally offered and may be terminated or
modified at any time upon 60 days' written notice.
REDEEMING SHARES Subject to any restrictions imposed by your plan, you
can sell your shares through the plan any day the New
York Stock Exchange is open. For more information about
how to sell shares of the fund through your retirement
plan, including any charges that may be imposed by the
plan, please consult with your employer.
---------------------------------------------------------
By Your plan administrator/trustee must
contacting send a letter of instruction
your plan specifying the name of the fund, the
administrator/ number of shares or dollar amount to
trustee be sold, and, if applicable, your
name and account number. For your
protection, if you redeem more than
$50,000, the signatures of the
registered owners (i.e., trustees or
their legal representatives) must be
guaranteed by a bank, savings
association, credit union, or member
firm of a domestic stock exchange or
the National Association of
Securities Dealers, Inc., that is an
eligible guarantor institution. Your
plan administrator/trustee should
verify with the institution that it
is an eligible guarantor prior to
signing. Additional documentation may
be required to redeem shares from
certain accounts. Notarization by a
Notary Public is not an acceptable
signature guarantee.
---------------------------------------------------------
By Shares may also be redeemed through
contacting an investment dealer; however, you or
an your plan may be charged for this
investment service. SHARES HELD FOR YOU IN AN
dealer INVESTMENT DEALER'S STREET NAME MUST
BE REDEEMED THROUGH THE DEALER.
---------------------------------------------------------
11
<PAGE>
================================================================================
THE PRICE YOU RECEIVE FOR THE SHARES YOU REDEEM IS THE
NET ASSET VALUE NEXT DETERMINED AFTER YOUR ORDER AND ALL
REQUIRED DOCUMENTATION ARE RECEIVED BY THE FUND OR
AMERICAN FUNDS SERVICE COMPANY. (SEE "PURCHASING
SHARES--SHARE PRICE.")
CONTINGENT DEFERRED SALES CHARGE A contingent deferred
sales charge of 1% applies to certain redemptions
within the first year on investments of $1 million or
more and on any investment made with no initial sales
charge by any employer-sponsored 403(b) plan or defined
contribution plan qualified under Section 401(a) of the
Internal Revenue Code including a "401(k)" plan with
200 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive
of reinvested dividends and capital gain distributions)
or the total cost of such shares. Shares held for the
longest period are assumed to be redeemed first for
purposes of calculating this charge. The charge is
waived for exchanges (except if shares acquired by
exchange were then redeemed within 12 months of the
initial purchase); for distributions from qualified
retirement plans and other employee benefit plans; for
redemptions resulting from participant-directed
switches among investment options within a participant-
directed employer-sponsored retirement plan; and for
redemptions in connection with loans made by qualified
retirement plans.
OTHER IMPORTANT THINGS TO REMEMBER The net asset value
for redemptions is determined as indicated under
"Purchasing Shares--Share Price." Because the fund's
net asset value fluctuates, reflecting the market value
of the portfolio, the amount you receive for shares
redeemed may be more or less than the amount paid for
them.
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 Investment Company Act of
1940), redemption proceeds will be paid on or before
the seventh day following receipt of a proper
redemption request.
[RECYCLE LOGO] This prospectus has been printed on
recycled paper that meets the
guidelines of the United States
Environmental Protection Agency
---------------------------------------------------------
THIS PROSPECTUS RELATES ONLY TO SHARES OF THE FUND
OFFERED WITHOUT A SALES CHARGE TO ELIGIBLE RETIREMENT
PLANS. FOR A PROSPECTUS REGARDING SHARES OF THE FUND
TO BE ACQUIRED OTHERWISE, CONTACT THE SECRETARY OF
THE FUND AT THE ADDRESS INDICATED ON THE FRONT.
---------------------------------------------------------
12
The American Funds Income Series
U.S. GOVERNMENT SECURITIES FUND
Part B
Statement of Additional Information
October 25, 1995
This document is not a prospectus but should be read in conjunction with
the current Prospectus dated October 25, 1995 of The American Funds Income
Series (the "Trust"). The Trust currently consists of one series, U.S.
Government Securities Fund (the "fund"). The Prospectus may be obtained from
your investment dealer or financial planner or by writing to the Trust at the
following address:
U.S. Government Securities Fund
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(800) 421-0180
The fund has two forms of prospectuses. Each reference to the prospectus
in this Statement of Additional Information includes both of the fund's
prospectuses. Shareholders who purchase shares at net asset value through
eligible retirement plans should note that not all of the services or features
described below may be available to them, and they should contact their
employer for details.
Table of Contents
<TABLE>
<CAPTION>
Item Page No.
<S> <C>
Description of Securities and Investment Techniques 1
Investment Restrictions 5
Fund Officers and Trustees 7
Management 10
Dividends, Distributions and Federal Taxes 12
Purchase of Shares 14
Shareholder Account Services and Privileges 15
Execution of Portfolio Transactions 16
General Information 17
Investment Results 18
Appendix 21
Financial Statements Attached
</TABLE>
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
INVESTMENT POLICIES - Except when the fund is in a temporary defensive
investment position, at least 65% of its total assets will be invested in
securities that are guaranteed by the U.S. Government, including such
securities held subject to repurchase agreements. Obligations not directly
backed by the full faith and credit of the U.S. Government such as privately
issued "zero-coupon bonds" representing interests in U.S. Treasury securities,
certificates of deposit, and privately issued mortgage-related securities will
not be considered securities guaranteed by the U.S. Government for purposes of
this 65% limitation.
Although the fund has no current intention of doing so during the next 12
months, the fund may also purchase obligations of non-U.S. corporations or
governmental entities, provided they are dollar-denominated and liquid.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES - Certificates issued by
the Government National Mortgage Association (GNMA) are mortgage-backed
securities representing part ownership of a pool of mortgage loans, which are
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations, and are either insured by the Federal Housing Administration
or guaranteed by the Veterans Administration. A pool of these mortgages is
assembled and, after being approved by GNMA, is offered to investors through
securities dealers. The timely payment of interest and principal on each
mortgage is guaranteed by GNMA and backed by the full faith and credit of the
U.S. Government.
Principal is paid back monthly by the borrower over the term of the loan.
Reinvestment of prepayments may occur at higher or lower rates than the
original yield on the certificates. Due to the prepayment feature and the need
to reinvest prepayments of principal at current market rates, GNMA certificates
can be less effective than typical bonds of similar maturities at "locking in"
yields during periods of declining interest rates. GNMA certificates typically
appreciate or decline in market value during periods of declining or rising
interest rates, respectively. Due to the regular repayment of principal and
the prepayment feature, the effective maturities of mortgage pass-through
securities are shorter than stated maturities, will vary based on market
conditions and cannot be predicted in advance. The effective maturities of
newly-issued GNMA certificates backed by relatively new loans at or near the
prevailing interest rates are generally assumed to range between approximately
9 and 12 years.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS - FNMA, a privately-owned
corporate instrumentality of the U.S. Government, issues pass-through
securities representing interests in a pool of conventional mortgage loans.
FNMA guarantees the timely payment of principal and interest but this guarantee
is not backed by the full faith and credit of the U.S. Government .
FHLMC, a corporate instrumentality of the U.S. Government, issues
participation certificates which represent an interest in a pool of
conventional mortgage loans. FHLMC guarantees the timely payment of interest
and the ultimate collection of principal, and maintains reserves to protect
holders against losses due to default, but the certificates are not backed by
the full faith and credit of the U.S. Government.
As is the case with GNMA certificates, the actual maturity of and realized
yield on particular FNMA and FHLMC pass-through securities will vary based on
the prepayment experience of the underlying pool of mortgages.
OTHER MORTGAGE-RELATED SECURITIES - The fund may invest in mortgage-related
securities issued by financial institutions such as commercial banks, savings
and loan associations, mortgage bankers and securities broker-dealers (or
separate trusts or affiliates of such institutions established to issue these
securities). These securities include mortgage pass-through certificates,
collateralized mortgage obligations (including real estate mortgage investment
conduits as authorized under the Internal Revenue Code of 1986) (CMOs) or
mortgage-backed bonds. Each class of bonds in a CMO series may have a
different effective maturity, bear a different coupon and have a different
priority in receiving payments. All principal payments, both regular principal
payments as well as any prepayment of principal, are passed through to the
holders of the various CMO classes dependent on the characteristics of each
class. In some cases, all payments are passed through first to the holders of
the class with the shortest stated maturity until it is completely retired.
Thereafter, principal payments are passed through to the next class of bonds in
the series, until all the classes have been paid off. In other cases, payments
are passed through to holders of whichever class first has the shortest
effective maturity at the time payments are made. As a result, an acceleration
in the rate of prepayments that may be associated with declining interest rates
shortens the expected life of each class. The impact of an acceleration in
prepayments affects the expected life of each class differently depending on
the unique characteristics of that class. In the case of some CMO series, each
class may receive a differing proportion of the monthly interest and principal
repayments on the underlying collateral. In these series the classes would be
more affected by an acceleration (or slowing) in the rate of prepayments than
CMOs which share principal and interest proportionally.
Mortgage-backed bonds are general obligations of the issuer fully
collateralized directly or indirectly by a pool of mortgages. The mortgages
serve as collateral for the issuer's payment obligations on the bonds, but
interest and principal payments on the mortgages are not passed through either
directly (as with GNMA certificates and FNMA and FHLMC pass-through securities)
or on a modified basis (as with CMOs). Accordingly, a change in the rate of
prepayments on the pool of mortgages could change the effective maturity of a
CMO but not that of a mortgage-backed bond (although, like many bonds,
mortgage-backed bonds can provide that they are callable by the issuer prior to
maturity).
WHEN-ISSUED SECURITIES, FIRM COMMITMENT AGREEMENTS AND "ROLL" TRANSACTIONS -
The fund may purchase securities on a delayed delivery or "when-issued" basis
and enter into firm commitment agreements (transactions whereby the payment
obligation and interest rate are fixed at the time of the transaction but the
settlement is delayed). The fund as purchaser assumes the risk of any decline
in the value of the security beginning on the date of the agreement or
purchase. As the fund's aggregate commitments under these transactions
increase, the opportunity for leverage similarly may increase .
The fund will not use these transactions for the purpose of leveraging
and will maintain in a segregated account (with the value adjusted daily based
on market valuations) cash or high-grade debt securities 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
holdings of cash and securities that do not fluctuate in value (such as
short-term money market instruments), the fund temporarily will be in a
leveraged position (because it will 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 also may enter into "roll" transactions, which consist of the
sale of securities together with a commitment (for which the fund typically
receives a fee) to purchase similar, but not identical, securities at a later
date. The fund intends to treat roll transactions as two separate
transactions: one involving the purchase of a security and a separate
transaction involving the sale of a security. Since the fund does not intend
to enter into roll transactions for financing purposes, it may treat these
transactions as not falling within the definition of "borrowing" set forth in
Section 2(a)(23) of the Investment Company Act of 1940.
REVERSE REPURCHASE AGREEMENTS - The fund may enter into reverse repurchase
agreements. This type of agreement involves the sale of a security by the fund
and its commitment to repurchase the security at a specified time and price.
The fund will maintain in a segregated account with its custodian liquid assets
such as cash, U.S. Government securities or other appropriate high-grade debt
obligations in an amount sufficient to cover its obligations under reverse
repurchase agreements with broker-dealers (but no collateral is required on
reverse repurchase agreements with banks). Under the Investment Company Act of
1940 (the "1940 Act"), reverse repurchase agreements may be considered
borrowings by the fund; accordingly, the fund will limit its investments in
reverse repurchase agreements, together with any other borrowings, to no more
than one-third of its total assets. The use of reverse repurchase agreements
by the fund creates leverage which increases the fund's investment risk. As
the fund's aggregate commitments under these reverse repurchase agreements
increases, the opportunity for leverage similarly increases. If the income and
gains on securities purchased with the proceeds of reverse repurchase
agreements exceed the costs of the agreements, the fund's earnings or net asset
value will increase faster than otherwise would be the case; conversely if the
income and gains fail to exceed the costs, earnings or net asset value would
decline faster than otherwise would be the case.
PORTFOLIO TRADING - The fund intends to engage in portfolio trading when it
is believed that the sale of a security owned by the fund and the purchase of
another security of better value can enhance principal and/or increase income.
A security may be sold to avoid any prospective decline in market value in
light of what is evaluated as an expected rise in prevailing yields, or a
security may be purchased in anticipation of a market rise (a decline in
prevailing yields). A security also may be sold and a comparable security
purchased coincidentally in order to take advantage of what is believed to be a
disparity in the normal yield and price relationship between the two
securities, or in connection with a "roll" transaction as described in the
Prospectus under "Description of Securities and Investment Techniques."
LOANS OF PORTFOLIO SECURITIES - Although the fund has no current intention of
doing so during the next 12 months, the fund is authorized to lend portfolio
securities to selected securities dealers or to other institutional investors
whose financial condition is monitored by Capital Research and Management
Company (the "Investment Adviser"). The borrower must maintain with the
Trust'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 one-third of the
value of its total assets, measured at the time any such loan is made.
MATURITY - The maturity composition of the fund's portfolio will be adjusted in
response to market conditions and expectations. As described above, the fund
may invest in various mortgage pass-through securities and normally will invest
substantially in GNMA certificates (see "Government National Mortgage
Association Certificates" above). The fund may also invest in securities with
interest rates that are not fixed but fluctuate based upon changes in market
rates or designated indexes. Variable rate obligations have interest rates
that are adjusted at designated intervals, and interest rates on floating rate
obligations are adjusted whenever there are exchanges in the indexes or market
rates on which their interest rates are based. In some cases the fund has the
ability to demand payment from the dealer or issuer at par plus accrued
interest on short notice (seven days or less). The effective maturity of a
floating or variable rate obligation is deemed to be the longer of (i) the
notice period required before the fund is entitled to receive payment of the
obligation upon demand or (ii) the period remaining until the obligation's next
interest rate adjustment. If not sold or redeemed by the fund through the
demand feature, these obligations would mature on a specified date which may
range up to 30 years or more from the date of issuance.
PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the
length of time particular investments may have been held. High portfolio
turnover involves correspondingly greater transaction costs in the form of
dealer spreads or brokerage commissions, and may result in the realization of
net capital gains, which are taxable when distributed to shareholders.
Fixed-income securities are generally traded on a net basis and usually neither
brokerage commissions nor transfer taxes are involved. The fund does not
anticipate its portfolio turnover to exceed 100% annually. The fund's
portfolio turnover rate would equal 100% if each security in the fund's
portfolio were replaced once per year. See "Financial Highlights" in the
Prospectus for the fund's portfolio turnover for each of the last 10 years.
INVESTMENT RESTRICTIONS
The fund has adopted certain investment restrictions which may not be
changed without a majority vote of the fund's outstanding shares. Such
majority is defined by the 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. These
restrictions provide 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;
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.
FUND OFFICERS AND TRUSTEES
Trustees and Trustee Compensation
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH PRINCIPAL OCCUPATION(S) DURING AGGREGATE TOTAL COMPENSATION TOTAL NUMBER
REGISTRANT PAST 5 YEARS (POSITIONS WITHIN THE COMPENSATION FROM ALL FUNDS OF FUND
ORGANIZATIONS LISTED MAY HAVE (INCLUDING MANAGED BY CAPITAL BOARDS ON
CHANGED DURING THIS PERIOD) VOLUNTARILY DEFERRED RESEARCH AND WHICH
COMPENSATION/1/) FROM MANAGEMENT TRUSTEE
THE COMPANY DURING FISCAL COMPANY/2/ SERVES/2/
YEAR ENDED AUGUST 31,
1995
<S> <C> <C> <C> <C> <C>
++ H. Trustee Private Investor. The Mission Group $3,559/3/
Frederick Christie (non-utility holding company, subsidiary of $136,600 18
P.O. Southern California Edison Company),
Box 144 former President and Chief
Palos Executive Officer
Verdes Estates, CA 90274
Age: 62
Diane Trustee Chairwoman, CEO and President, $2,931
C. Creel The Earth Technology Corporation $30,675 12
100 W.
Broadway
Suite
5000
Long
Beach, CA 90802
Age: 46
Martin Trustee Chairman, Senior Resource Group $3,972/3/
Fenton, Jr. (management of senior living centers) $102,700 16
4350
Executive Drive
Suite
101
San
Diego, CA 92121-2116
Age: 60
Leonard Trustee President, Fuller & Company, Inc. $2,786
R. Fuller (financial management consulting firm) $31,575 12
4337
Marina City Drive
Suite
841 ETN
Marina
del Rey, CA 90292
Age: 48
+* Abner President, PEO Capital Research and Management none
D. Goldstine and Trustee Company, Senior Vice President /4/ none/4/ 12
Age: 65 and Director
+** Paul G. Chairman of Capital Research and Management none
Haaga, Jr. the Board Company, Senior Vice President /4/ none/4/ 14
Age: 46 and Director
Herbert Trustee Private Investor $3,377
Hoover III $60,050 14
200 S.
Los Robles Avenue
Suite
520
Pasaden
a, CA 91101-2431
Age: 67
Richard Trustee Chairman, President and CEO, $3,991/3/
G. Newman AECOM Technology Corporation $39,050 12
3250 (architectural engineering)
Wilshire Boulevard
Los
Angeles, CA 90010-1599
Age: 60
Peter C. Trustee Chairman and CEO, BW/IP $3,700/3/
Valli International Inc. (industrial $37,050 12
200 manufacturing)
Oceangate Boulevard
Suite
900
Long
Beach, CA 90802
Age: 68
</TABLE>
+ Trustees who are considered "interested persons as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), on
the basis of their affiliation with the fund's Investment Adviser, Capital
Research and Management Company.
++ May be deemed an "interested person" of the fund due to membership on the
board of trustees of the parent company of a registered broker-dealer.
* Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025
** Address is 333 South Hope Street, Los Angeles, CA 90071//
/1/ Amounts may be deferred by eligible Trustees under a non-qualified
deferred compensation plan adopted by the fund in 1994. 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 Trustee.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management
Trust of America, Capital Income Builder, Inc., Capital World Growth and Income
Fund, Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America,
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U. S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicle for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc. whose shares may be owned only by tax-exempt
organizations.
/3/ Since the plan's adoption, the total amount of deferred compensation
accrued by the fund (plus earnings thereon) for participating Trustees is as
follows: H. Frederick Christie ($2,113), Martin Fenton, Jr. ($5,807), Richard
G. Newman ($7,813), and Peter C. Valli ($7,086). Amounts deferred and
accumulated earnings thereon are not funded and are general unsecured
liabilities of the fund until paid to the Director.
/4/ Paul G. Haaga, Jr. and Abner D. Goldstine are affiliated with the
Investment Adviser and, accordingly, receive no compensation from the fund.
OFFICERS
(with their principal occupations during the past five years)#
** MARY C. CREMIN, VICE PRESIDENT AND TREASURER. Capital Research and
Management Company, Senior Vice President - Fund Business Management Group
* MICHAEL J. DOWNER, VICE PRESIDENT. Capital Research and Management Company,
Senior Vice President - Fund Business Management Group
*** JOHN H. SMET, VICE PRESIDENT. Capital Research and Management Company,
Vice President
* JULIE F. WILLIAMS, SECRETARY. Capital Research and Management Company,
Vice President - Fund Business Management Group
* KIMBERLY S. VERDICK, ASSISTANT SECRETARY. Capital Research and Management
Company,
Compliance Associate - Fund Business Management Group
** ANTHONY W. HYNES, JR., ASSISTANT TREASURER. Capital Research and Management
Company, Vice President - Fund Business Management Group
# Positions within the organizations listed may have changed during this
period.
* Address is 333 South Hope Street, Los Angeles, CA 90071.
** Address is 135 South State College Boulevard, Brea, CA 92621.
*** Address is 11100 Santa Monica Boulevard, Los Angeles, CA 90025.
No compensation is paid by the fund to any officer or Trustee who is a
director or officer of the Investment Adviser. The fund pays annual fees of
$2,500 to Trustees who are not affiliated with the Investment Adviser, plus
$200 for each Board of Trustees meeting attended, plus $200 for each meeting
attended as a member of a committee of the Board of Trustees. The Trustees may
elect, on a voluntary basis, to defer all or a portion of these fees through a
deferred compensation plan in effect for the fund. The fund also reimburses
certain expenses of the Trustees who are not affiliated with the Investment
Adviser. As of October 1, 1995, the officers and Trustees and their families
as a group, owned beneficially or of record fewer than 1% of the outstanding
shares of the fund.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad, with a staff of professionals, many
of whom have a number of years of investment experience. 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.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $100 billion of
stocks, bonds and money market instruments and serves over five million
investors of all types throughout the world. These investors include privately
owned businesses and large corporations as well as schools, colleges,
foundations and other non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service
Agreement (the "Agreement"), between the Trust and the Investment Adviser will
continue until May 31, 1996, 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 Trust for its acts or omissions in the performance of its obligations to
the Trust 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 the Agreement without
penalty, upon 60 days' written notice to the other party and that the Agreement
automatically terminates in the event of its assignment (as defined in the 1940
Act).
The Investment Adviser, in addition to providing investment advisory
services, furnishes the services and pays the compensation and travel expenses
of persons to perform the executive, administrative, clerical and bookkeeping
functions of the fund, provides suitable office space and utilities, necessary
small office equipment and general purpose accounting forms, supplies, and
postage used at the offices of the fund. The fund pays all expenses not
assumed by the Investment Adviser, including, but not limited to, custodian,
stock transfer and dividend disbursing fees and expenses; costs of the
designing, printing and mailing of reports, prospectuses, proxy statements, and
notices to its shareholders; taxes; expenses of the issuance and redemption of
shares (including stock certificates, registration and qualification fees and
expenses); legal and auditing expenses; compensation, fees, and expenses paid
to directors unaffiliated with the Investment Adviser; association dues; and
costs of stationery and forms prepared exclusively for the fund.
The Agreement provides for advisory fee reductions as follows: (a) to the
extent that the fund's annual ordinary net operating expenses for any fiscal
year exceed 1% of the average month-end net assets of the fund for such fiscal
year and (b) by any additional amount necessary to assure that such expenses do
not exceed applicable expense limitations in any state in which the fund's
shares are being offered for sale. Only one state (California) continues to
impose expense limitations on funds registered for sale therein. The
California provision currently limits annual expenses to the sum of 2-1/2% of
the first $30 million of average net assets, 2% of the next $70 million and
1-1/2% of the remaining average net assets. Expenses pursuant to the Trust's
Plan of Distribution are excluded from this limit. Other expenses which are
not subject to these limitations include interest, taxes, brokerage
commissions, transaction costs, and extraordinary items such as litigation, as
well as, for purposes of the state expense limitations, any amounts excludable
under the applicable regulation. Expenditures, including costs incurred in
connection with the purchase or sale of portfolio securities, which are
capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses.
During the fiscal years ended August 31, 1995, 1994, and 1993, the
Investment Adviser's total fees amounted to $5,575,000, $6,018,000, and
$5,842,000, respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares. The Trust has
adopted a Plan of Distribution (the "Plan"), pursuant to rule 12b-1 under the
1940 Act (see "Principal Underwriter" in the Prospectus). The Principal
Underwriter receives amounts payable pursuant to the Plan (see below) and
commissions consisting of that portion of the sales charge remaining after the
discounts which it allows to investment dealers. Commissions retained by the
Principal Underwriter on sales of fund shares during the fiscal year ended
August 31, 1995 amounted to $662,342 after allowance of $2,777,998 to dealers.
During the fiscal years ended August 31, 1994 and 1993 the Principal
Underwriter retained $1,180,822 and $1,833,626, respectively.
As required by rule 12b-1, the Plan (together with the Principal
Underwriting Agreement) has been approved by the full Board of Trustees and
separately by a majority of the Trustees who are not interested persons of the
Trust and who have no direct or indirect financial interest in the operation of
the Plan or the Principal Underwriting Agreement, and the Plan has been
approved by the vote of a majority of the outstanding voting securities of the
fund. The officers and Trustees who are interested persons of the Trust due to
present affiliations with the Investment Adviser and related companies may be
considered to have a direct or indirect financial interest in the operation of
the Plan. Potential benefits of the Plan to the fund include improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of Trustees who
are not interested persons of the Trust shall be committed to the discretion of
the Trustees who are not interested persons during the existence of the Plan.
The Plan is reviewed quarterly and must be renewed annually by the Board of
Trustees.
Under the Plan the fund may expend up to 0.30% of its average net
assets annually to finance any activity which is primarily intended to result
in the sale of fund shares, provided the fund's Board of Trustees has approved
the category of expenses for which payment is being made. These include
service fees for qualified dealers and dealer commissions and wholesaler
compensation on sales of shares exceeding $1 million (including purchases by
any defined contribution plan qualified under Section 401(a) of the Internal
Revenue Code including a "401(k) plan with 200 or more eligible employees).
During the fund's fiscal year ended August 31, 1995, the fund paid $3,425,000
under the Plan as compensation to dealers. As of August 31, 1995 accrued and
unpaid distribution expenses were $684,000.
The Glass-Steagall Act and other applicable laws, among other things,
generally prohibit federally chartered or supervised banks from engaging in the
business of underwriting, selling or distributing securities, but permit banks
to make shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries of affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer with adverse financial consequences as a result of
any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements and has elected the tax
status of a "regulated investment company" under the provisions of Subchapter M
of the Internal Revenue Code of 1986 (the "Code"). Under Subchapter M, if the
fund distributes within specified times at least 90% of its investment company
taxable income (net investment income and the excess of net short-term capital
gains over net long-term capital losses), it will be taxed only on the portion
of the investment company taxable income that it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, and
gains from the sale or other disposition of stock, securities, currencies, or
other income derived with respect to its business of investing in such stock,
securities, or currencies; (b) derive less than 30% of its gross income from
the sale or other disposition of stock or securities held less than three
months; and (c) 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, cash items, U.S. Government securities, securities of
other regulated investment companies and other securities which must be
limited, in respect of any one issuer, to an amount not greater than 5% 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 in two or more issuers which the fund
controls and which are engaged in the same or similar trades or businesses or
related 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 and (ii) any amount on which the fund pays income tax during the periods
described above. The fund intends to distribute net investment income and net
capital gains so as to minimize or avoid the excise tax liability.
The fund also intends to distribute to shareholders all of the excess of
net long-term capital gain over net short-term capital loss on sales of
securities. If the net asset value of shares of the fund should, by reason of
a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would be, in effect, a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes. In particular, investors should consider the tax
implications of purchasing shares just prior to a dividend or distribution
record date. Those investors purchasing shares just prior to such a date will
then receive a partial return of capital upon the dividend or distribution,
which will nevertheless be taxable to them as an ordinary or capital gains
dividend.
Dividends and distributions generally are taxable to shareholders at the
time they are paid. However, dividends declared in October, November and
December and made payable to shareholders of record in such a month are treated
as paid and are thereby taxable as of December 31, provided that the fund pays
the dividend no later than the end of January of the following year.
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 shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose 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 shares. Also, any loss realized on a redemption or exchange of
shares of a 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.
As of the date of this statement of additional information, the maximum
individual stated tax rate applicable to ordinary income is 39.6% (effective
tax rates may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gain is 28%; and the maximum corporate tax applicable to ordinary
income and net capital gain is 35%. However, to eliminate the benefit of lower
marginal corporate income tax rates, corporations which have taxable income in
excess of $100,000 in a taxable year will be required to pay an additional
amount of up to $11,750, and corporations which have taxable income in excess
of $15,000,000 for a taxable year will be required to pay an additional amount
of income tax up to $100,000. Naturally, the amount of tax payable by a
taxpayer will be affected by a combination of tax law rules covering, e.g.,
deductions, credits, deferrals, exemptions, sources of income and other
matters. Under the Code, an individual is entitled to establish an IRA each
year (prior to the tax return filing deadline for that year) whereby earnings
on investments are tax-deferred. In addition, in some cases, the IRA
contribution itself may be deductible.
The foregoing is limited to a summary discussion of federal taxation and
should not be viewed as a comprehensive discussion of all provisions of the
Code relevant to investors. Dividends and distributions may also be subject to
state or local taxes. Investors should consult their own tax advisers for
additional details as to their particular tax status.
PURCHASE OF SHARES
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company; this offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. The dealer is responsible for promptly transmitting purchase
orders to the Principal Underwriter. Orders received by the investment dealer,
the Transfer Agent, or the fund after the time of the determination of the net
asset value will be entered at the next calculated offering price. Prices
which appear in the newspaper are not always indicative of prices at which you
will 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 closing price.
The price you pay for fund shares, the offering price, is based on the
net asset value per share which is calculated once daily at the close of
trading (currently 4:00 p.m., New York time) each day the New York Stock
Exchange is open. The New York Stock Exchange is currently closed on weekends
and on the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day. The
net asset value per share of the fund is determined as follows:
1. Long-term fixed-income obligations and Treasury notes are valued at
prices obtained for the day of valuation from a bond pricing service provided
by a major dealer in bonds. Short-term obligations other than Treasury notes
with original or remaining maturities in excess of 60 days are valued at the
mean of their most recent bid and asked prices or, if such prices are not
available, at prices quoted for securities of comparable maturity, quality and
type. Short-term securities with 60 days or less remaining to maturity are
amortized to maturity based on their cost to the fund if acquired within 60
days of maturity or, if already held by the fund on the 60th day, based on the
value determined on the 61st day. Where market quotations are not readily
available, securities are valued at fair value as determined in good faith by
the Board of Trustees or a committee thereof. The fair value of any other
assets is added to the value of securities to arrive at total assets;
2. The fund's liabilities, including proper accruals of expense items, are
deducted from total assets; and
3. The 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
Trust. The Trust will not knowingly sell shares of the fund (other than for
the reinvestment of dividends or capital gain distributions) directly,
indirectly or through a unit investment trust to any person or entity, where,
after the sale, such person, or entity would own beneficially directly,
indirectly, or through a unit investment trust more than 4.5% of the
outstanding shares of the fund without the consent of a majority of the Board
of Trustees.
STATEMENT OF INTENTION - The reduced sales charges and public offering prices
set forth in the Prospectus apply to purchases of $25,000 or more made within a
13-month period pursuant to the terms of a written statement of intention (the
"Statement") in the form provided by the Principal Underwriter and signed by
the purchaser. The Statement is not a binding obligation to purchase the
indicated amount. When a shareholder signs a Statement in order to qualify for
a reduced sales charge, shares equal to 5% of the dollar amount specified in
the Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent.
All dividends and any capital gain distributions on shares held in escrow will
be credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total purchases had been made at a single time. If
the difference is not paid within 20 days after written request by the
Principal Underwriter or the securities dealer, 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 and there will be no retroactive
reduction of the sales charges paid on prior purchases.
In the case of purchase orders by the trustees of certain retirement plans
by payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: the investment made the first month
of the 13-month period will be multiplied by 13 and then multiplied by 1.5. On
the first investment and all other investments made pursuant to the statement
of intention, 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 previously made during the 13-month period.
DEALER COMMISSIONS - The following commissions will be paid, as described in
the prospectus, to dealers who initiate and are responsible for purchases of $1
million or more, for purchases by any defined contribution plan qualified under
section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200
or more eligible employees, and for purchases made at net asset value by
certain retirement plans of organizations with collective retirement plan
assets of $100 million or more: 1% on amounts of $1 million to $2 million,
0.80% on amounts over $2 million to $3 million, 0.50% on amounts over $3
million to $50 million, 0.25% on amounts over $50 million to $100 million, and
0.15% on amounts over $100 million. The level of dealer commissions will be
determined based on sales made over a 12-month period commencing from the date
of the first sale at net asset value. See "The American Funds Shareholder
Guide" in the fund's Prospectus for more information.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the 10th day of the month (or on or about the
15th day of the month in the case of accounts for retirement plans where
Capital Guardian Trust Company serves as trustee or custodian). Bank accounts
will be charged on the day or a few days before investments are credited,
depending on the bank's capabilities, and shareholders will receive a
confirmation statement showing the current transaction. Participation in the
plan will begin within 30 days after receipt of the account application. If
the shareholder's bank account cannot be charged due to insufficient funds, a
stop-payment order or closing of the account, the plan may be terminated and
the related investment reversed. The shareholder may change the amount of the
investment or discontinue the plan at any time by writing the Transfer Agent.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the "paying fund") into any other fund in The
American Funds Group (the "receiving fund") subject to the following
conditions: (i) the aggregate value of the shareholder's account(s) in the
paying fund(s) must equal or exceed $5,000 (this condition is waived if the
value of the account in the receiving fund equals or exceeds that fund's
minimum initial investment requirement), (ii) as long as the value of the
account in the receiving fund is below that fund's minimum initial investment
requirement, dividends and capital gain distributions paid by the receiving
fund must be automatically reinvested in the receiving fund, and (iii) if this
privilege is discontinued with respect to a particular receiving fund, the
value of the account in that fund must equal or exceed the fund's minimum
initial investment requirement or the fund shall have the right, if the
shareholder fails to increase the value of the account to such minimum within
90 days after being notified of the deficiency, automatically to redeem the
account and send the proceeds to the shareholder. These cross-reinvestments of
dividends and capital gain distributions will be at net asset value (without
sales charge).
EXECUTION OF PORTFOLIO TRANSACTIONS
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.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, for the fiscal years ended August 31, 1995 and
1994, amounted to $15,000 and $50,040, respectively. No brokerage commissions
were paid for the fiscal year ended August 31, 1993.
The fund held certain debt securities of two of its regular brokers or
dealers or their parents, E.G., securities of Ford Motor Credit Co. and General
Electric Capital Corp. in the amounts of $18,482,000 and $20,097,000,
respectively, at August 31, 1995.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by The Chase Manhattan Bank, N.A., One Chase Manhattan Plaza, New
York, NY 10081, as Custodian.
INDEPENDENT ACCOUNTANT - Deloitte & Touche LLP, 1000 Wilshire Boulevard, 15th
Floor, Los Angeles, CA 90017, has served as the fund's independent auditors
since its inception, 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 have been so included in reliance on the report of the independent
auditors given on the authority of said firm as experts in accounting and
auditing.
REPORTS TO SHAREHOLDERS - The Trust's fiscal year ends on August 31.
Shareholders are provided at least semiannually with reports showing the
investment portfolio, financial statements and other information. The fund's
annual financial statements are audited annually by the Trust's independent
auditors, Deloitte & Touche LLP, whose selection is determined annually by the
Trustees.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; 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.
The financial statements including the investment portfolio and the report
of Independent Auditors contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
<TABLE>
<CAPTION>
<S> <C>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
OFFERING PRICE PER SHARE -- AUGUST 31, 1995
Net asset value and redemption price per share
(Net assets divided by shares outstanding) $13.24
Offering price per share (100/95.25 of per share
net asset value, which takes into account the
fund's current maximum sales charge) $13.90
</TABLE>
SHAREHOLDER AND TRUSTEE RESPONSIBILITY - Under the laws of certain states,
including Massachusetts, where the Trust was organized, and California, where
the Trust's principal office is located, shareholders of a Massachusetts
business trust may, under certain circumstances, be held personally liable as
partners for the obligations of the Trust. However, the risk of a shareholder
incurring any financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its
obligations. The Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and provides that
notice of the disclaimer may be given in each agreement, obligation, or
instrument which is entered into or executed by the Trust or Trustees. The
Declaration of Trust provides for indemnification out of Trust property of any
shareholder held personally liable for the obligations of the Trust and also
provides for the Trust 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 or officers 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. The Trust
will provide indemnification to its Trustees and officers as authorized by its
By-Laws and by the 1940 Act and the rules and regulations thereunder.
SHAREHOLDER VOTING RIGHTS - All shares of the fund have equal voting rights
and may be voted in the elections of Trustees and on other matters submitted to
the vote of shareholders. As permitted by Massachusetts law, there will
normally be no meetings of shareholders for the purpose of electing Trustees
unless and until such time as less than a majority of the Trustees holding
office have been elected by shareholders. At that time, the Trustees then in
office will call a shareholders' meeting for the election of Trustees. The
Trustees must call a meeting of shareholders for the purpose of voting upon the
question of removal of any Trustee when requested to do so by the record
holders of 10% of the outstanding shares. At such a meeting, a Trustee may be
removed after the holders of record of not less than a majority of the
outstanding shares of the fund have declared that the Trustee be removed either
by declaration in writing or by votes cast in person or by proxy. Except as
set forth above, the Trustees shall continue to hold office and may appoint
successor Trustees. The shares do not have cumulative voting rights, which
means that the holders of a majority of the shares voting for the election of
Trustees can elect all the Trustees. No amendment may be made to the Trust's
Declaration of Trust without the affirmative vote of a majority of the
outstanding shares of the fund except that amendments may be made upon the sole
approval of the Trustees to conform the Declaration of Trust to the
requirements of applicable Federal laws or regulations or the requirements of
the regulated investment company provisions of the Code, however, the Trustees
shall not be liable for failing to do so. If not terminated by the vote or
written consent of a majority of the outstanding shares, the Trust will
continue indefinitely.
The Trust currently issues shares in one series (the fund), but the Board
of Trustees may establish additional series of shares in the future. When more
than one series of shares is outstanding, shares of all series will vote
together for a single set of Trustees, and on other matters affecting the
entire Trust, with each share entitled to a single vote. On matters affecting
only one series, only the shareholders of that series shall be entitled to
vote. On matters relating to more than one series but affecting the series
differently, separate votes by series are required.
INVESTMENT RESULTS
The fund's yield is 5.73% based on the 30-day (or one month) period
ended August 31, 1995, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[( a-b/cd + 1)/6/ -1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by annualizing the current
month's dividend and dividing by average net asset value or maximum offering
price for the month. The distribution rate may differ from the yield.
In addition, invstments in premium bonds may affect a fund's
distribution rate. A premium bond is bond which is purchased for more than its
face value. Because of this, the bond usually pays a higher than market rate
interest, but the value of the bond (which affects the net asset value of the
fund) will be lower than its purchase price as it nears maturity. The SEC
yield takes into account the long-term effects of premium bonds (I.E., for a
premium bond, the income must be regularly reduced (amortized) by an amount
that provides for the future decrease in value of the bond) whereas the
distribution rate may not.
Income from "roll" transactions (the sale of GNMA certificates or other
securities together with a commitment, for which the Fund receives a fee, to
purchase similar securities at a future date) is recorded for accounting
purposes as interest income ratable over the term of each roll and is included
in net investment income for purposes of determining the fund's yield.
As of August 31, 1995, the fund's total return over the past 12 months
and annual total return for the five-year and lifetime periods was 3.42%, 7.30%
and 7.83%. The average annual total return ("T") is computed by equating the
value at the end of the period ("ERV") with a hypothetical initial investment
of $1,000 ("P") over a period of years ("n") according to the following formula
as required by the Securities and Exchange Commission: P(1+T)/n/ = ERV.
The following assumptions will be reflected in computations made in
accordance with the formula stated above: (1) deduction of the maximum sales
load of 4.75% from the $1,000 initial investment; (2) reinvestment of dividends
and distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated. The
fund will calculate total return for five and ten-year periods after such
periods have elapsed. In addition, the fund may provide lifetime average total
return figures.
EXPERIENCE OF INVESTMENT ADVISER - Capital Research and Management Company
manages nine common stock funds that are at least 10 years old. In all of the
10-year periods during which those funds were managed by Capital Research and
Management Company since 1964 (115 in all), those funds have had better total
returns that the Standard and Poor's 500 Composite Stock Index in 94 of the 115
periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
The fund may also refer to results compiled by organizations such as Lipper
Analytical Services, Morningstar, Inc. and Wiesenberger Investment Companies
Services. Additionally, the fund may, from time to time, refer to results
published in various newspapers or periodicals, including Barrons, Forbes,
Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine, Money,
U.S. News and World Report and The Wall Street Journal.
THE BENEFITS OF SYSTEMATIC INVESTING
<TABLE>
<CAPTION>
<S> <C> <C>
Here's how much you would have if you invested $2,000 a year in the Fund:
2 Years 4 Years Lifetime
(9/1/93 - 8/31/95) (9/1/91 - 8/31/95) (10/17/85 - 8/31/95)
$8,833 $29,707
$4,061
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
If you had invested ... and taken all
$10,000 in the Fund distributions in shares,
this many years ago... your investment would
| have been worth this
much at August 31, 1995
|
Periods
Number of Years 9/1-8/31 Value**
<S> <C> <C>
1 1994 - 1995 $10,343
2 1993 - 1995 9,962
3 1992 - 1995 11,202
4 1991 - 1995 12,657
5 1990 - 1995 14,223
6 1989 - 1995 15,378
7 1988 - 1995 16,881
8 1987 - 1995 18,300
9 1986 - 1995 18,603
Lifetime 1985* - 1995 21,049
</TABLE>
Illustration of a $10,000 investment in the Fund
with dividends reinvested
(For the lifetime of the Fund October 17, 1985 - August 31, 1995)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES**
Fiscal Total From From From
Year End Annual Dividends Investment Initial Capital Gains Dividends Total
August 31 Dividends (cumulative) Cost Investment Reinvested Reinvested Value
<S> <C> <C> <C> <C> <C> <C> <C>
1986* $ 825 $ 825 $10,825 $9,920 $26 $ 833 $10,779
1987 1,035 1,860 11,860 9,167 38 1,748 10,953
1988 1,099 2,959 12,959 9,027 37 2,809 11,873
1989 1,211 4,170 14,170 8,987 37 4,016 13,040
1990 1,289 5,459 15,459 8,833 37 5,227 14,097
1991 1,383 6,842 16,842 9,047 37 6,753 15,837
1992 1,382 8,224 18,224 9,420 39 8,445 17,904
1993 1,417 9,641 19,641 9,820 41 10,270 20,131
1994 1,441 11,082 21,082 8,787 36 10,559 19,382
1995 1,548 12,630 22,630 8,827 37 12,185 21,049
</TABLE>
The dollar amount of capital gain distributions during the period was $41.
* From inception on October 17, 1985.
** Results assume deduction of the maximum sales charge of 4.75% from the
initial purchase payment.
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.: "Prime-1" is the highest commercial paper
rating and issuers rated in this category have the following characteristics:
"Issuers rated 'Prime-1' have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment capacity will normally be
evidenced by
-- 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 protections
-- broad margins in earnings coverage of fixed financial charges and high
internal cash generation
-- well-established access to a range of financial markets and assured
sources of alternate liquidity."
STANDARD & POOR'S CORPORATION'S: "A-1" is the highest commercial paper rating,
and issuers rated in this category have the following characteristics:
"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."
THE AMERICAN FUNDS INCOME SERIES
U.S. GOVERNMENT SECURITIES FUND
INVESTMENT PORTFOLIO AUGUST 31, 1995
<TABLE>
<CAPTION>
Principal Market Percent
Amount Value of Net
(000) (000) Assets
<S> <C> <C> <C>
FEDERAL AGENCY OBLIGATIONS -
MORTGAGE PASS-THROUGHS /1/ - 24.36%
Federal Home Loan Mortgage Corp.:
8.25% 2007 $961 $985 .07%
8.50% 2020-2021 10,995 11,349 .85
8.75% 2008 884 916 .07
9.00% 2010-2021 4,856 5,074 .38
10.50% 2006-2016 1,321 1,436 .11
10.75% 2009-2010 454 496 .04
11.00% 2011-2016 965 1,057 .08
11.50% 2011-2015 626 690 .05
11.75% 2011-2015 721 792 .06
12.00% 2000-2016 7,441 8,240 .62
12.25% 2011-2015 758 839 .06
12.50% 2009-2019 9,075 10,073 .75
13.00% 2010-2014 1,284 1,432 .11
13.50% 2010-2015 383 429 .03
13.75% 2014 52 58 .00
14.00% 2011-2014 246 276 .02
14.50% 2010-2011 41 46 .00
14.75% 2010 79 89 .01
15.00% 2011 76 85 .01
15.50% 2011 87 97 .01
16.00% 2012 61 68 .01
16.25% 2011 128 144 .01
Federal National Mortgage Assn.:
8.00% 2005-2023 6,120 6,246 .47
8.50% 2007-2023 14,587 15,082 1.13
9.00% 2011-2025 6,187 6,453 .48
9.50% 2011 970 1,017 .08
10.00% 2021 923 1,005 .08
11.00% 1999-2015 2,508 2,782 .21
12.00% 2000-2019 2,814 3,115 .23
12.25% 2013-2014 382 424 .03
12.50% 2001-2015 1,644 1,829 .14
12.75% 2012 106 117 .01
13.25% 2011-2014 1,115 1,241 .09
14.00% 2013 115 130 .01
14.50% 2014 15 17 .00
15.00% 2013 19 22 .00
15.50% 2012 48 55 .00
16.00% 2012 28 32 .00
Government National Mortgage Assn.:
5.50% 2023-2024 /2/ 32,538 32,218 2.41
6.00% 2024 /2/ 4,718 4,739 .35
6.125% 2020 /2/ 1,975 2,000 .15
7.00% 2008-2024 33,432 33,011 2.47
7.50% 2022-2025 35,754 35,991 2.69
8.00% 2023 1,591 1,630 .12
8.50% 2020-2025 52,798 54,857 4.10
9.00% 2011-2022 17,138 17,970 1.34
9.50% 2016-2025 12,177 12,894 .96
9.75% 1999-2012 3,347 3,473 .26
10.00% 2016-2019 3,853 4,192 .31
10.25% 2012 353 369 .03
10.50% 2015-2019 4,654 5,133 .38
11.00% 2009-2020 7,972 8,878 .66
11.25% 2001-2016 4,273 4,527 .34
11.50% 2000-2014 1,879 2,108 .16
11.75% 2000-2015 559 595 .04
12.00% 1999-2019 4,475 4,965 .37
12.25% 2013-2015 593 661 .05
12.50% 2010-2015 3,199 3,608 .27
12.75% 2013-2015 714 785 .06
13.00% 2011-2015 2,661 2,980 .22
13.25% 2013-2015 448 490 .04
13.50% 2010-2015 1,508 1,693 .13
14.00% 2011-2014 374 415 .03
14.50% 2012-2014 439 495 .04
15.00% 2011-2013 768 873 .07
16.00% 2011-2012 44 51 .00
--------- ---------
325,839 24.36
--------- ---------
FEDERAL AGENCY OBLIGATIONS - OTHER - 3.88%
FNSM Callable Principal STRIPS:
0%/8.25% 2022 /3/ 2,000 1,565 .12
0%/8.62% 2022 /3/ 4,500 3,731 .28
Federal Home Loan Bank Bonds 6.00% 1996 10,000 9,880 .74
Federal Home Loan Bank Notes 6.41% 2003 5,000 4,848 .36
Federal Home Loan Mortgage Notes 6.19% 2004 5,000 4,782 .36
Federal Home Loan Mortgage Notes 6.27% 2004 7,000 6,733 .50
Federal Home Loan Mortgage Notes 6.59% 2003 5,000 4,887 .37
Federal Home Loan Mortgage Notes 6.60% 2003 4,000 3,914 .29
Federal National Mortgage Assn. Notes 6.30%
1997 10,000 9,981 .75
Federal National Mortgage Assn. Notes 6.40%
2004 1,500 1,446 .11
--------- ---------
51,767 3.88
--------- ---------
U. S. GUARANTEED OBLIGATIONS - OTHER - 1.01%
Big Rivers Electrical Corp. 10.70% 2017 12,000 13,508 1.01
--------- ---------
COLLATERALIZED MORTGAGE OBLIGATIONS/1/ - 4.76%
Federal Home Loan Mortgage Corp.:
Series 1625, Class SC, 4.6077463% 2008 /4/ 6,233 3,338 .25
Series 1625, Class SG, 4.6076916% 2008 /4/ 2,178 1,310 .10
Series 1659, Class SA, 5.2116109% 2009 /4/ 2,500 1,571 .12
Series 1673, Class SA, 4.3658834% 2024 /4/ 2,000 737 .06
Series 1716, Class A, 6.50% 2009 10,586 10,215 .76
Series 83-A, Class 3, 11.875% 2013 301 322 .02
Series 83-B, Class 3, 12.50% 2013 2,577 2,809 .21
Federal National Mortgage Assn.:
Trust 35, Class 2, 12.00% 2018 851 949 .07
Trust 90-93, Class G, 5.50% 2020 3,600 3,302 .25
Trust 91-50, Class H, 7.75% 2006 4,000 4,111 .31
Trust 91-65, Class X, 6.50% 2019 26,030 24,240 1.81
Trust 91-146, Class Z, 8.00% 2006 6,109 6,281 .47
Trust G93-19, Class SJ, 0.8823505% 2023 /4/ 436 165 .01
Trust 93-43, Class SA, 8.917093% 2008 /4/ 620 480 .04
Trust 93-120, Class SB, 7.6456446% 2023 /4/ 4,000 2,276 .17
Trust 93-120, Class SN, 7.6098321% 2023 /4/ 3,233 1,527 .11
--------- ---------
63,633 4.76
--------- ---------
DEVELOPMENT AUTHORITIES - 1.91%
International Bank for Reconstruction and
Development:
14.90% May 1997 5,000 5,713 .43
12.25% December 2008 2,000 2,930 .22
8.875% June 2009 14,000 16,866 1.26
--------- ---------
25,509 1.91
--------- ---------
U. S. TREASURY OBLIGATIONS - 60.04%
11.50% November 1995 77,500 78,396 5.86
7.875% February 1996 40,000 40,388 3.02
9.375% April 1996 50,000 51,093 3.82
8.00% January 1997 53,000 54,540 4.09
9.00% May 1998 31,000 33,340 2.49
9.25% August 1998 13,500 14,681 1.10
7.00% April 1999 8,500 8,755 .65
9.125% May 1999 13,000 14,310 1.07
7.75% November 1999 11,000 11,676 .87
8.50% November 2000 12,000 13,260 .99
8.00% May 2001 5,500 5,990 .45
13.125% May 2001 39,000 52,016 3.89
13.375% August 2001 22,500 30,526 2.28
15.75% November 2001 5,500 8,179 .61
14.25% February 2002 39,000 55,532 4.15
11.625% November 2002 38,000 49,774 3.72
11.625% November 2004 8,500 11,579 .87
7.50% February 2005 30,000 32,428 2.42
10.75% August 2005 10,000 13,161 .98
10.375% November 2009 22,500 28,515 2.13
12.75% November 2010 10,000 14,617 1.09
13.875% May 2011 8,000 12,488 .93
10.375% November 2012 33,000 43,292 3.24
12.00% August 2013 12,000 17,569 1.31
12.50% August 2014 12,000 18,341 1.37
11.25% February 2015 3,500 5,217 .39
8.875% August 2017 67,500 83,573 6.25
--------- ---------
803,236 60.04
--------- ---------
Total Bonds and Notes (cost:$1,285,248,000) 1,283,492 95.96
--------- ---------
SHORT-TERM SECURITIES
Commercial Paper - 2.89%
Ford Motor Credit Co. 5.79% due 9/5/95 8,500 8,493 .64
Ford Motor Credit Co. 5.74% due 9/7/95 10,000 9,989 .75
General Electric Capital Corp. 5.82 due 9/1/95 20,100 20,097 1.50
--------- ---------
38,579 2.89
--------- ---------
TOTAL SHORT-TERM SECURITIES (COST:$38,579,000) 38,579 2.89
--------- ---------
TOTAL INVESTMENT SECURITIES (COST:$1,323,827,000) 1,322,071 98.85
Excess of cash and receivables over payable 15,385 1.15
--------- ---------
NET ASSETS 1,337,456 100.00%
--------- ---------
</TABLE>
/1/ Pass-through securities backed by a pool of mortgages or other loans on
which principal payments are periodically made. Therefore the effective
maturity of these securities is shorter than the stated maturity.
/2/ Coupon rate changes periodically.
/3/ Represents zero coupon bond which will convert to a coupon-bearing security
at a later date.
/4/ Represents an inverse floater, which is a floating rate note whose interest
rate moves in the opposite direction of prevailing interest rates.
See Notes to Financial Statements
THE AMERICAN FUNDS INCOME SERIES
U.S. GOVERNMENT SECURITIES FUND
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
at August 31, 1995 (dollars in thousands)
- ---------------------------------------- ------------ ------------
<S> <C> <C>
ASSETS:
Investment securities at market
(COST: $1,323,827) $1,322,071
Cash 8
Receivables for-
Sales of investments $ 552
Sales of fund's shares 2,510
Accrued interest 18,689 21,751
------------ ------------
1,343,830
LIABILITIES:
Payables for-
Purchases of investments 1,089
Repurchases of fund's shares 1,149
Dividends payable 3,038
Management services 466
Accrued expenses 632 6,374
------------ ------------
NET ASSETS AT AUGUST 31, 1995-
EQUIVALENT TO $13.24 PER SHARE ON
101,015,638 SHARES OF BENEFICIAL
INTEREST ISSUED AND OUTSTANDING;
UNLIMITED SHARES AUTHORIZED $1,337,456
=============
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1995 (dollars in thousands)
------------ ------------
INVESTMENT INCOME:
Income:
Interest $ 113,599
Expenses:
Management services fee 5,575
Distribution expenses 3,425
Transfer agent fee 992
Reports to shareholders 102
Registration statement and prospectus 40
Postage, stationery and supplies 136
Trustees' fees 30
Auditing and legal fees 45
Custodian fee 56
Taxes other than federal income tax 27 10,428
------------ ------------
Net investment income 103,171
------------
REALIZED LOSS AND UNREALIZED
DEPRECIATION ON INVESTMENTS:
NET REALIZED LOSS (27,960)
Net change in unrealized
depreciation on investments:
Beginning of year (35,444)
End of year (1,756)
------------
Net change in unrealized depreciation
on investments 33,688
------------
NET REALIZED LOSS AND CHANGE IN
unrealized depreciation on investments 5,728
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $108,899
============
Statement of Changes in Net
Assets (dollars in thousands)
- ---------------------------------------- ------------- -------------
Year ended Year ended
8/31/95 8/31/94
OPERATIONS: ------------- -------------
Net investment income $ 103,171 $ 109,861
NET REALIZED LOSS ON INVESTMENTS (27,960) (8,805)
NET CHANGE IN UNREALIZED DEPRECIATION
on investments 33,688 (159,327)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
resulting from operations 108,899 (58,271)
------------- -------------
DIVIDENDS PAID TO SHAREHOLDERS (103,274) (109,394)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
20,239,785 AND 25,313,467
shares, respectively 262,458 354,749
Proceeds from shares issued in
reinvestment of net investment income
dividends: 5,562,854 and 5,527,860
shares respectively 72,131 76,780
Cost of shares repurchased:
28,920,071 and 34,055,830
shares, respectively (375,402) (472,436)
------------- -------------
NET DECREASE IN NET ASSETS RESULTING
from capital share transactions (40,813) (40,907)
------------- -------------
TOTAL DECREASE IN NET ASSETS (35,188) (208,572)
NET ASSETS:
Beginning of year 1,372,644 1,581,216
------------- -------------
End of year (including undistributed
net investment income of $2,502 and
$2,605, RESPECTIVELY) $1,337,456 $1,372,644
============= =============
</TABLE>
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
1. 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 following paragraphs summarize
the significant accounting policies consistently followed by the fund in the
preparation of its financial statements:
Bonds and notes are valued at prices obtained from a bond-pricing service
provided by a major dealer in bonds, 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 of their representative quoted bid
and asked prices or, if such prices are not available, at the mean of such
prices for securities of comparable maturity, quality and type. Short-term
securities with original or remaining maturities in excess of 60 days are
valued at the mean of their quoted bid and asked prices. Short-term securities
with 60 days or less to maturity are valued at amortized cost, which
approximates market value. The maturities of variable or floating rate
instruments are deemed to be the time remaining until the next interest rate
adjustment date. Securities for which market quotations are not readily
available are valued at fair value as determined in good faith by the Valuation
Committee of the Board of Trustees.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Interest income is reported on the accrual basis. Discounts on
securities purchased are amortized over the life of the respective securities.
The fund does not amortize premiums on securities purchased. Dividends are
declared on a daily basis after the determination of the fund's net asset value
and are paid to shareholders on a monthly basis.
Pursuant to the custodian agreement, the fund receives credit against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $56,000 includes $27,000 that was paid with credits rather
than in cash.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments not offset by loss carryforwards, to its shareholders. Therefore,
no federal income tax provision is required.
As of August 31, 1995, net unrealized depreciation on investments for book
and federal income tax purposes aggregated $1,756,000, of which $20,998,000
related to appreciated securities and $22,754,000 related to depreciated
securities. During the year ended August 31, 1995, the fund realized, on a tax
basis, a net capital loss of $27,960,000 on securities transactions. The fund
has available at August 31, 1995 a net capital loss carryforward totaling
$55,673,000 which may be used to offset capital gains realized during
subsequent years through 2002 and thereby relieve the fund and its shareholders
of any federal income tax liability with respect to the capital gains that are
so offset. It is the intention of the fund not to make distributions from
capital gains while there is a capital loss carryforward. The cost of
portfolio securities for book and federal income tax purposes was
$1,323,827,000 at August 31, 1995.
3. The fee of $5,575,0000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Trustees of the trust are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.30% of the first $60 million of average net assets;
0.21% of such assets in excess of $60 million but not exceeding $1 billion;
0.18% of such assets in excess of $1 billion but not exceeding $3 billion; and
0.16% of such assets in excess of $3 billion; plus 3.00% on the first
$3,333,333 of the fund's monthly gross investment income; 2.25% of the next
$5,000,000 of such income; and 2.00% of such income in excess of $8,333,333.
Pursuant to a Plan of Distribution, the fund may expend up to 0.30% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the trust's Board of Trustees. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended August 31, 1995,
distribution expenses under the Plan were $3,424,000. As of August 31, 1995,
accrued and unpaid distribution expenses were $684,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $992,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $662,000 (after allowances to
dealers) as its portion of the sales charges paid by purchasers of the fund's
shares. Such sales charges are not an expense of the fund and, hence, are not
reflected in the accompanying statement of operations.
Trustees who are unaffiliated with CRMC may elect to defer part or all of
the fees earned for services as members of the board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of August 31,
1995, aggregate amounts deferred were $19,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain of the Trustees and officers of the
trust are or may be considered to be affiliated with CRMC, AFS and AFD. No
such persons received any remuneration directly from the fund.
4. As of August 31, 1995, accumulated undistributed net realized loss on
investments was $79,914,000 and paid-in capital was $1,416,624,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $583,215,000 and $613,355,000, respectively, during
the year ended August 31, 1995.
PER-SHARE DATA AND RATIOS
<TABLE>
<CAPTION>
Year Ended August 31
-------- -------- -------- --------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year...................... $13.18 $14.73 $14.13 $13.57 $13.25
-------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income....... 1.01 1.03 1.07 1.18 1.22
Net realized and unrealized
gain (loss) on investments. 0.06 (1.56) .61 .53 .37
Total income from -------- -------- -------- -------- --------
investment operations................ 1.07 (0.53) 1.68 1.71 1.59
-------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment
income...................... (1.01) (1.02) (1.08) (1.15) (1.27)
-------- -------- -------- -------- --------
Net Asset Value, End of Year.. $13.23 $13.18 $14.73 $14.13 $13.57
======== ======== ======== ======== ========
==
Total Return*................. 8.60% (3.72%) 12.44% 13.05% 12.34%
Ratios/Supplemental Data:
Net assets, end of year (in
millions)................... $1,337 $1,373 $1,581 $1,328 $1,018
Ratio of expenses to average
net assets.................. .79% .78% .83% .88% .95%
Ratio of net income to
average net assets.......... 7.79% 7.35% 7.54% 8.63% 9.07%
Portfolio turnover rate...... 46.77% 71.58% 35.24% 44.81% 53.40%
</TABLE>
* This was calculated without deducting a sales charge. The maximum sales
charge is 4.75% of the fund's offering price.
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,
including the investment portfolio, of The American Funds Income Series - U.S.
Government Securities Fund as of August 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the per-share data and
ratios for each of the five years in the period then ended. These financial
statements and the per-share data and ratios are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and the per-share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at August 31, 1995 by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of The American Funds Income Series - U.S. Government Securities Fund
at August 31, 1995, and the results of its operations for the year then ended,
the changes in its net assets for each of the two years then ended, and the
per-share data and ratios for each of the five years in the period then ended,
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
September 22, 1995
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 distributions.
Certain states may exempt from income taxation a portion of the dividends
paid from net invstment income if derived from direct U.S. Treasury
obligations. For purposes of computing this exclusion, 67% of the dividends
paid by the fund from net investment income was derived from interest on direct
U.S. Treasury obligations.
Dividends received by retirement plans such as IRAs, Keogh-type plans, and
403(b) plans need not be reported as taxable income. However, many retirement
trusts may need this information for their annual information reporting.
Since the amounts above are reported for the fiscal year and not a
calendar year, shareholders should refer to their Form 1099 DIV or other tax
information which will be mailed in January 1996 to determine the calendar year
amounts to be included on their respective 1995 tax returns. Shareholders
should consult their tax advisers.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS:
Included in Prospectus - Part A
Financial Highlights
Included in Statement of Additional Information - Part B
Investment Portfolio Notes to Financial Statements
Statement of Assets and Liabilities Selected Per-Share Data and Ratios
Statement of Operations Independent Auditors Report
Statement of Changes in Net Assets
(B) EXHIBITS:
1. On file (see SEC file Nos. 811-4318 and 2-98199)
2. On file (see SEC file Nos. 811-4318 and 2-98199)
3. None.
4. On file (see SEC file Nos. 811-4318 and 2-98199)
5. On file (see SEC file Nos. 811-4318 and 2-98199)
6. On file (see SEC file Nos. 811-4318 and 2-98199)
7. None.
8. On file (see SEC file Nos. 811-4318 and 2-98199)
9. Form of Shareholder Services Agreement between Registrant and American
Funds Service Company, as amended 1/1/95.
10. Not applicable to this filing
11. Consent of independent auditors
12. None.
13. On file (see SEC file Nos. 811-4318 and 2-98199)
14. On file (see SEC file Nos. 811-4318 and 2-98199)
15. On file (see SEC file Nos. 811-4318 and 2-98199)
16. Updates to previously filed schedule for compuation of each performance
quotation provided in the Registration Statement in response to Item 22 (see
SEC file Nos. 811-4318 and 2-98199)
17. Financial data schedule (EDGAR)
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of August 31, 1995
<TABLE>
<CAPTION>
Number of
Title of Class Record-Holders
<S> <C>
Shares of Beneficial 64,320
Interest (no par value)
</TABLE>
ITEM 27. INDEMNIFICATION.
Registrant is a joint-insured under an Investment Advisor/Mutual Fund
Errors and Omissions Policy 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
ITEM 27. INDEMNIFICATION (CONT.)
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Trust, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of such person's duty to the Trust unless and
only to the extent that the court in which such action or suit was brought, or
any other court having jurisdiction in the premises, shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
(c) To the extent that a Trustee or officer of the Trust has been successful
on the merits in defense of any action, suit or proceeding referred to in
subparagraphs (a) or (b) above or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith, without the necessity for the determination as to the standard of
conduct as provided in subparagraph (d).
(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
ITEM 27. INDEMNIFICATION (CONT.)
would otherwise be subject by reason of willful malfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
person's office.
(i) The Trust shall have the power to purchase and maintain insurance on
behalf of any person against any liability asserted against or incurred by such
person, whether or not the Trust would have the power to indemnify such person
against such liability under the provisions of this Article. Nevertheless,
insurance will not be purchased or maintained by the Trust if the purchase or
maintenance of such insurance would result in the indemnification of any person
in contravention of any rule or regulation of the SEC.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Trustee, officer of
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such Trustee, officer of controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
None.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) American Funds Distributors, Inc. is also the Principal Underwriter of
shares of: AMCAP Fund, Inc., American Balanced Fund, Inc., The American Funds
Tax-Exempt Series I, The American Funds Tax-Exempt Series II, American
High-Income Municipal Bond Fund, Inc., American High-Income Trust, American
Mutual Fund, Inc., The Bond Fund of America, Inc., Capital Income Builder,
Inc., Capital World Bond Fund, Inc., Capital World Growth and Income Fund,
Inc., The Cash Management Trust of America, EuroPacific Growth Fund,
Fundamental Investors, Inc., The Growth Fund of America, Inc., The Income Fund
of America, Inc., Intermediate Bond Fund of America, The Investment Company of
America, Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund,
New Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund
of America, Inc., The Tax-Exempt Money Fund of America, The U.S. Treasury Money
Fund of America and Washington Mutual Investors Fund, Inc.
<TABLE>
<CAPTION>
(B) (1) (2) (3)
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
<S> <C> <C> <C>
# David L. Abzug Assistant Vice President None
John A. Agar Regional Vice President None
1501 N. University, Suite 225
Little Rock AR 72207
Robert B. Aprison Regional Vice President None
2983 Bryn Wood Drive
Madison, WI 53711
& Richard Armstrong Assistant Vice President None
* William W. Bagnard Vice President None
Steven L. Barnes Vice President None
8000 Town Line Avenue South
Suite 204
Minneapolis, MN 55438
Michelle A. Bergeron Regional Vice President None
1190 Rockmart Circle
Kennesw, GA 30144
Joseph T. Blair Vice President None
27 Drumlin Road
West Simsbury, CT 06092
Ian B. Bodell Regional Vice President None
3100 West End Avenue, Suite 870
Nashville, TN 37215
Michael L. Brethower Vice President None
108 Hagen Court
Georgetown, TX 78628
C. Alan Brown Regional Vice President None
4619 McPherson Avenue
St. Louis, MO 63108
* Daniel C. Brown Director, Sr. Vice President None
@ J. Peter Burns Vice President None
Brian C. Casey Regional Vice President None
9508 Cable Drive
Kensington, MO 20895
Victor C. Cassato Vice President None
999 Green Oaks Drive
Littleton, CO 80121
Christopher J. Cassin Regional Vice President None
231 Burlington
Clarendon Hills, IL 60514
Denise M. Cassin Regional Vice President None
1425 Vallejo, #203
San Francisco, CA 94109
* Larry P. Clemmensen Director, Treasurer None
* Kevin G. Clifford Senior Vice President None
Ruth M. Collier Vice President None
145 West 67th St. Ste. 12K
New York, NY 10023
Thomas E. Cournoyer Vice President None
2333 Granada Boulevard
Coral Gables, FL 33134
Douglas A. Critchell Vice President None
3521 Rittenhouse Street, NW
Washington, DC 20005
* Carl D. Cutting Vice President None
Michael A. Dilella Vice President None
P. O. Box 661
Ramsey, NJ 07446
G. Michael Dill Senior Vice President None
3622 E. 87th Street
Tulsa, OK 74137
Kirk D. Dodge Vice President None
2617 Salisbury Road
Ann Arbor, MI 48103
Peter J. Doran Sr. Vice President None
1205 Franklin Avenue
Garden City, NY 11530
* Michael J. Downer Secretary Vice President
Robert W. Durbin Vice President None
74 Sunny Lane
Tiffin, OH 44883
% Lloyd G. Edwards Vice President None
@ Richard A. Eychner Vice President None
* Paul H. Fieberg Sr. Vice President None
John Fodor Regional Vice President None
5 Marlborough Street, Suite 51
Boston, MA 02116
* Mark P. Freeman, Jr. Director, President None
Clyde E. Gardner Vice President None
Route 2, Box 3162
Osage Beach, MO 65065
# Evelyn K. Glassford Vice President None
Jeffrey J. Greiner Regional Vice President None
5898 Heather Glen Court
Dublin, OH 43017
* Paul G. Haaga, Jr. Director Chairman of the Board
David E. Harper Vice President None
R.D., 1 Box 210, Rte 519
Frenchtown, NJ 08825
Ronald R. Hulsey Regional Vice President None
6744 Avalon
Dallas, TX 75214
* Robert L. Johansen Vice President, Controller None
* V. John Kriss Sr. Vice President None
Arthur J. Levine Vice President None
12558 Highlands Place
Fishers, IN 46038
# Karl A. Lewis Assistant Vice President None
T. Blake Liberty Regional Vice President None
12585-E East Tennessee Circle
Aurora, CO 80012
* Heather A. Maier Assistant Vice President - Institutional None
Investment Services Division
Steve A. Malbasa Regional Vice President None
13405 Lake Shore Blvd.
Cleveland, OH 44110
Steven M. Markel Vice President None
5241 South Race Street
Littleton, CO 90121
* John C. Massar Vice President None
* E. Lee McClennahan Vice President None
Laurie B. McCurdy Regional Vice President None
6008 E. Anderson Drive
Scottsdale, AZ 85255
& John V. McLaughlin Senior Vice President None
Terry W. McNabb Vice President None
2002 Barrett Station Road
St. Louis, MO 63131
* R. William Melinat Vice President - Institutional None
Investment Services Division
David R. Murray Regional Vice President None
25701 S.E. 32nd Place
Issaquah, WA 98027
Stephen S. Nelson Vice President None
7215 Trevor Court
Charlotte, NC 28226
* Barbara G. Nicholich Assistant Vice President - None
Institutional Investment Services Division
William E. Noe Regional Vice President None
12535 Barkley
Overland Park, KS 66209
Peter A. Nyhus Regional Vice President None
3084 Wilds Ridge Court
Prior Lake, MN 55372
Eric P. Olson Regional Vice President None
62 Park Drive
Glenview, IL 60025
Fredric Phillips Regional Vice President None
32 Ridge Avenue
Newton Centre, MA 02159
# Candance D. Pilgrim Assistant Vice President None
Carl S. Platou Regional Vice President None
4021 96th Avenue, S.E.
Mercer Island, WA 98040
* John O. Post Vice President None
Steven J. Reitman Vice President None
212 The Lane
Hinsdale, IL 60521
Brian A. Roberts Regional Vice President None
12025 Delmahoy Drive
Charlotte, NC 28277
* George L. Romine, Jr. Vice President - Institutional None
Investment Services Division
George S. Ross Vice President None
55 Madison Avenue
Morristown, NJ 07962
* Julie D. Roth Vice President None
Douglas F. Rowe Regional Vice President None
104 River Road
Georgetown, TX 78628
* Christopher Rowey Regional Vice President None
Dean B. Rydquist Vice President None
1080 Bay Pointe Crossing
Alpharetta, GA 30202
Richard R. Samson Vice President None
4604 Glencoe Avenue, No. 4
Marina del Rey, CA 90292
Joseph D. Scarpitti Regional Vice President None
25760 Kensington Drive
Westlake, OH 44145
* R. Michael Shanahan Chairman of the Board None
David W. Short Vice President None
1000 RIDC Plaza, Suite 212
Pittsburgh, PA 15238
* Victor S. Sidhu Vice President - Institutional None
Investment Services Division
William P. Simon, Jr. Vice President None
554 Canterbury Lane
Berwyn, PA 19312
* John C. Smith Assistant Vice President - Institutional None
Investment Services Division
* Mary E. Smith Assistant Vice President - Institutional None
Investment Services Division
Rodney G. Smith Regional Vice President None
2350 Lakeside Blvd., #850
Richardson, TX 75082
Nicholas D. Spadaccini Regional Vice President None
855 Markley Woods Way
Cincinnati, OH 45230
Daniel S. Spradling Senior Vice President None
#4 West Fourth Avenue, Suite 406
San Mateo, CA 94402
Craig R. Strauser Regional Vice President None
17040 Summer Place
Lake Oswego, OR 97035
Francis N. Strazzeri Regional Vice President None
31641 Saddletree Drive
Westlake Village, CA 91361
& James P. Toomey Assistant Vice President None
& Christopher E. Trede Assistant Vice President None
George F. Truesdail Vice President None
400 Abbotsford Court
Charlotte, NC 28270
Scott W. Ursin-Smith Regional Vice President None
606 Glenwood Avenue
Mill Valley, CA 94941
@ Andrew J. Ward Vice President None
* David M. Ward Assistant Vice President -Institutional None
Investment Services Division
Thomas E. Warren Regional Vice President None
4001 Crockers Lake Blvd., #1012
Sarasota, FL 34242
# J. Kelly Webb Sr. Vice President None
Gregory J. Weimer Regional Vice President None
125 Surrey Drive
Canonsburg, PA 15317
# Timothy W. Weiss Director None
** N. Dexter Williams Vice President None
Timothy J. Wilson Regional Vice President None
113 Farmview Place
Venetia, PA 15367
@ Marshall D. Wingo Sr. Vice President None
# Robert L. Winston Director, Sr. Vice President None
William R. Yost Regional Vice President None
9320 Overlook Trail
Eden Prairie, MN 55347
Janet M. Young Regional Vice President None
1616 Vermont
Houston, TX 77006
</TABLE>
* Business Address, 333 South Hope Street, Los Angeles, CA 90071
** Business Address, Four Embarcadero, Suite 1800, San Francisco, CA 94111
# Business Address, 135 South State College Boulevard, Brea, CA 92621
& Business Address, 8000 IH-10 West, Suite 1400, San Antonio, TX 78230
@ Business Address, 5300 Robin Hood Road, Norfolk, VA 23513
% Business Address, 8332 Woodfield Crossing Blvd., Indianapolis, IN 46240
(c) None.
ITEM 30. 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 kept in the
offices of the Trust and its investment adviser, Capital Research and
Management Company, 333 South Hope Street,
Los Angeles, CA 90071. Certain accounting records are maintained and kept in
the offices of the Fund's accounting department, 135 South State College Blvd.,
Brea, CA 92621.
Records covering shareholder accounts are maintained and kept by the
transfer agent, American Funds Service Company, 135 South State College Blvd.,
Brea, CA 92621, 8000 IH-10 West, Suite 1400, San Antonio, TX 78230,
8332 Woodfield Crossing Blvd., Indianapolis, IN 46240 and 5300 Robin Hood
Road, Norfolk, VA 23514.
Records covering portfolio transactions are also maintained and kept by the
custodian, The Chase Manhattan Bank, N.A., One Chase Manhattan Plaza, New York,
New York, 10081.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
(c) As reflected in the prospectus, the fund undertakes to provide each
person to whom a prospectus is delivered with a copy of the fund's latest
annual report to shareholders, upon request and without charge.
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
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
23rd day of October, 1995.
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 October 23, 1995, by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
(1) Principal Executive Officer:
/s/ Abner D. Goldstine
(Abner D. Goldstine) President and Trustee
(2) Principal Financial Officer and
Principal Accounting Officer:
/s/ Mary C. Cremin Vice President and
Treasurer
(Mary C. Cremin)
(3) Trustees:
H. Frederick Christie* Trustee
Diane C. Creel* Trustee
Martin Fenton, Jr.* Trustee
Leonard R. Fuller* Trustee
/s/ Abner D. Goldstine President and Trustee
(Abner D. Goldstine)
/s/ Paul G. Haaga, Jr. Chairman of the Board
(Paul G. Haaga, Jr.)
Herbert Hoover III* Trustee
Richard G. Newman* Trustee
Peter C. Valli* Trustee
</TABLE>
*By /s/ Julie F. Williams
Julie F. Williams, Attorney-in-Fact
Counsel represents that this amendment does not contain disclosures that would
make the amendment ineligible for effectiveness under the provisions of Rule
485(b).
/s/ Michael J. Downer
(Michael J. Downer)
C-13
SHAREHOLDER SERVICES AGREEMENT
1. The parties to this Agreement, which is effective as of January 1, 1995,
are THE AMERICAN FUNDS INCOME SERIES, a Massachusetts business trust
(hereinafter called "the Fund") and American Funds Service Company, a
California corporation (hereinafter called "AFS"). AFS is a wholly owned
subsidiary of Capital Research and Management Company (hereinafter called
"CRMC"). This Agreement will continue in effect until amended or terminated in
accordance with its terms.
2. The Fund hereby employs AFS, and AFS hereby accepts such employment by
the Fund, as its transfer agent. In such capacity AFS will provide the
services of stock transfer agent, dividend disbursing agent, redemption agent,
and such additional related services as the Fund may from time to time require,
all of which services are sometimes referred to herein as "shareholder
services."
3. AFS has entered into substantially identical agreements with other
investment companies for which CRMC serves as investment adviser. (For the
purposes of this Agreement, such investment companies, including the Fund, are
called "participating investment companies.")
4. AFS has entered into an agreement with DST Systems, Inc. (hereinafter
called "DST"), to provide AFS with electronic data processing services
sufficient for the performance of the shareholder services referred to in
paragraph 2.
5. The Fund, together with the other participating companies, will maintain
a Review and Advisory Committee, which Committee will review and may make
recommendations to the boards of the participating investment companies
regarding all fees and charges provided for in this Agreement, as well as
review the level and quality of the shareholder services rendered to the
participating investment companies and their shareholders. Each participating
investment company may select one director or trustee who is not affiliated
with CRMC, or any of its affiliated companies, or with Washington Management
Corporation or any of its affiliated companies, to serve on the Review and
Advisory Committee.
6. AFS will provide to the participating investment companies the shareholder
services referred to herein in return for the following fees:
ANNUAL ACCOUNT MAINTENANCE FEE (PAID MONTHLY):
$.67 per month for each open account on AFS books or in Level 2 or 4
Networking ($8.04 per year)
$.09 per month for each open account maintained in Street Name or
Level 1 or 3 Networking ($1.08 per year)
No annual fee will be charged for a participant account underlying a
401(k) or other defined contribution plan where the plan
maintains a single account on AFS books and responds to all
participant inquiries
TRANSACTION FEES:
$2.00 per non-automated transaction
$0.50 per automated transaction
For this purpose, "transactions" shall include all types of transactions
included in an "activity index" as reported to the Review and Advisory
Committee at least annually. AFS will bill the Fund monthly, on or shortly
after the first of each calendar month, and the Fund will pay to AFS within
five business days of such billing.
Any revision of the schedule of charges set forth herein shall require the
affirmative vote of a majority of the members of the board of
directors/trustees of the Fund.
7. All fund-specific charges from third parties -- including DST charges,
payments described in the next sentence, postage, NSCC transaction charges and
similar out-of-pocket expenses -- will be passed through directly to the Fund
or other participating investment companies, as applicable. AFS, subject to
approval of its board of directors, is authorized in its discretion to
negotiate payments to third parties for account maintenance and/or transaction
processing services provided such payments do not exceed the anticipated
savings to the Fund, either in fees payable to AFS hereunder or in other direct
Fund expenses, that AFS reasonably anticipates would be realized by the Fund
from using the services of such third party rather than maintaining the
accounts directly on AFS' books and/or processing non-automated transactions.
8. It is understood that AFS may have income in excess of its expenses and
may accumulate capital and surplus. AFS is not, however, permitted to
distribute any net income or accumulated surplus to its parent, CRMC, in the
form of a dividend without the affirmative vote of a majority of the members of
the boards of directors/trustees of the Fund and all participating investment
companies.
9. This Agreement may be amended at any time by mutual agreement of the
parties, with agreement of the Fund to be evidenced by affirmative vote of a
majority of the members of the board of directors/trustees of the Fund.
10. This Agreement may be terminated on 180 days' written notice by either
party. In the event of a termination of this Agreement, AFS and the Fund will
each extend full cooperation in effecting a conversion to whatever successor
shareholder service provider(s) the Fund may select, it being understood that
all records relating to the Fund and its shareholders are property of the Fund.
11. In the event of a termination of this Agreement by the Fund, the Fund
will pay to AFS as a termination fee the Fund's proportionate share of any
costs of conversion of the Fund's shareholder service from AFS to a successor.
In the event of termination of this Agreement and all corresponding agreements
with all the participating investment companies, all assets of AFS will be sold
or otherwise converted to cash, with a view to the liquidation of AFS when it
ceases to provide shareholder services for the participating investment
companies. To the extent any such assets are sold by AFS to CRMC and/or any of
its affiliates, such sales shall be at fair market value at the time of sale as
agreed upon by AFS, the purchasing company or companies, and the Review and
Advisory Committee. After all assets of AFS have been converted to cash and
all liabilities of AFS have been paid or discharged, an amount equal to any
capital or paid-in surplus of AFS that shall have been contributed by CRMC or
its affiliates shall be set aside in cash for distribution to CRMC upon
liquidation of AFS. Any other capital or surplus and any assets of AFS
remaining after the foregoing provisions for liabilities and return of capital
or paid-in surplus to CRMC shall be distributed to the participating investment
companies in such proportions as may be determined by the Review and Advisory
Committee.
12. In the event of disagreement between the Fund and AFS, or between the
Fund and other participating investment companies as to any matter arising
under this Agreement, which the parties to the disagreement are unable to
resolve, the question shall be referred to the Review and Advisory Committee
for resolution. If the Review and Advisory Committee is unable to resolve the
question to the satisfaction of both parties, either party may elect to submit
the question to arbitration; one arbitrator to be named by each party to the
disagreement and a third arbitrator to be selected by the two arbitrators named
by the original parties. The decision of a majority of the arbitrators shall
be final and binding on all parties to the arbitration. The expenses of such
arbitration shall be paid by the party electing to submit the question to
arbitration.
13. The obligations of the Fund under this Agreement are not binding upon any
of the directors, trustees, officers, employees, agents or shareholders of the
Fund individually, but bind only the Fund itself. AFS agrees to look solely to
the assets of the Fund for the satisfaction of any liability of the Fund in
respect to this Agreement and will not seek recourse against such directors,
trustees, officers, employees, agents or shareholders, or any of them or their
personal assets for such satisfaction.
AMERICAN FUNDS SERVICE COMPANY THE AMERICAN FUNDS INCOME SERIES
By /s/ Don R. Conlan By /s/ Paul G. Haaga, Jr.
Don R. Conlan, Chairman Paul G. Haaga, Jr., Chairman
By /s/ Kenneth R. Gorvetzian By /s/ Julie F. Williams
Kenneth R. Gorvetzian, Secretary Julie F. Williams, Secretary
INDEPENDENT AUDITORS' CONSENT
We consent to (a) the use in the Post-Effective Amendment No. 17 to
Registration Statement
No. 2-98199 of The American Fund Income Series: U.S. Government Securities
Fund on
Form N-1A of our report dated September 22, 1995, appearing in the Financial
Statements, which are included in Part B, the Statement of Additional
Information of such Registration Statement, (b) the reference to us under the
heading "General Information" in such Statement of Additional Information, and
(c) the reference to us under the heading "Financial Highlights" in the
Prospectus, which is a part of such Registration Statement.
DELOITTE & TOUCHE LLP
Los Angeles, California
October 20, 1995
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
10/01/94 1000.00 12.94 0.00 % 77.280 12.940 1000
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/95 1000 81 81 1081 0 1027 0 1027 82 1109.78 83.505
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
10/01/90 1000.00 13.25 0.00 % 75.472 13.250 1000
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/91 1000 98 98 1098 0 1035 0 1035 100 1135.14 82.736
9/30/92 1000 97 195 1195 0 1075 0 1075 202 1277.85 89.737
9/30/93 1000 100 295 1295 0 1110 0 1110 313 1423.06 96.741
9/30/94 1000 102 397 1397 0 977 0 977 370 1347.96 104.170
9/30/95 1000 109 506 1506 0 1003 0 1003 492 1495.90 112.558
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
10/17/85 1000.00 14.29 0.00 % 69.979 14.290 1000
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/86 1000 96 96 1096 3 1032 3 1035 96 1131.19 76.691
9/30/87 1000 108 204 1204 2 928 4 932 185 1117.91 84.307
9/30/88 1000 116 320 1320 0 955 4 959 306 1265.64 92.789
9/30/89 1000 128 448 1448 0 941 4 945 431 1376.82 102.366
9/30/90 1000 136 584 1584 0 927 4 931 560 1491.50 112.566
9/30/91 1000 146 730 1730 0 960 4 964 729 1693.03 123.399
9/30/92 1000 145 875 1875 0 997 4 1001 904 1905.88 133.840
9/30/93 1000 149 1024 2024 0 1029 4 1033 1089 2122.39 144.282
9/30/94 1000 152 1176 2176 0 906 4 910 1100 2010.40 155.363
9/30/95 1000 163 1339 2339 0 930 4 934 1297 2231.11 167.879
TOTAL $ 5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
10/01/94 1000.00 13.59 4.75 % 73.584 12.940 952
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/95 1000 77 77 1077 0 978 0 978 78 1056.71 79.512
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
10/01/90 1000.00 13.91 4.75 % 71.891 13.250 953
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/91 1000 93 93 1093 0 986 0 986 95 1081.27 78.810
9/30/92 1000 92 185 1185 0 1024 0 1024 193 1217.19 85.477
9/30/93 1000 95 280 1280 0 1058 0 1058 297 1355.47 92.146
9/30/94 1000 97 377 1377 0 930 0 930 353 1283.96 99.224
9/30/95 1000 104 481 1481 0 955 0 955 469 1424.90 107.216
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
10/17/85 1000.00 15.00 4.75 % 66.667 14.290 953
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9/30/86 1000 92 92 1092 3 983 3 986 91 1077.66 73.062
9/30/87 1000 103 195 1195 1 884 4 888 177 1065.03 80.319
9/30/88 1000 111 306 1306 0 909 4 913 292 1205.82 88.403
9/30/89 1000 122 428 1428 0 897 4 901 410 1311.72 97.526
9/30/90 1000 129 557 1557 0 883 4 887 533 1420.98 107.244
9/30/91 1000 139 696 1696 0 915 4 919 694 1613.02 117.567
9/30/92 1000 138 834 1834 0 949 4 953 862 1815.80 127.514
9/30/93 1000 142 976 1976 0 981 4 985 1037 2022.11 137.465
9/30/94 1000 145 1121 2121 0 863 4 867 1048 1915.40 148.022
9/30/95 1000 155 1276 2276 0 886 4 890 1235 2125.66 159.944
TOTAL $ 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/94 1000.00 13.84 4.75 % 72.254 13.180 952
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/95 1000 76 76 1076 0 957 0 957 77 1034.24 78.115
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/90 1000.00 13.91 4.75 % 71.891 13.250 953
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/91 1000 93 93 1093 0 976 0 976 94 1070.14 78.861
8/31/92 1000 93 186 1186 0 1016 0 1016 193 1209.80 85.619
8/31/93 1000 96 282 1282 0 1059 0 1059 301 1360.32 92.350
8/31/94 1000 97 379 1379 0 948 0 948 361 1309.67 99.368
8/31/95 1000 105 484 1484 0 952 0 952 470 1422.36 107.429
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
10/17/85 1000.00 15.00 4.75 % 66.667 14.290 953
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/86 1000 82 82 1082 3 992 3 995 82 1077.89 72.439
8/31/87 1000 104 186 1186 1 917 4 921 174 1095.33 79.660
8/31/88 1000 110 296 1296 0 903 4 907 280 1187.35 87.692
8/31/89 1000 121 417 1417 0 899 4 903 401 1304.01 96.737
8/31/90 1000 129 546 1546 0 883 4 887 522 1409.77 106.398
8/31/91 1000 138 684 1684 0 905 4 909 674 1583.81 116.714
8/31/92 1000 138 822 1822 0 942 4 946 844 1790.45 126.713
8/31/93 1000 142 964 1964 0 982 4 986 1027 2013.22 136.675
8/31/94 1000 144 1108 2108 0 879 4 883 1055 1938.25 147.060
8/31/95 1000 155 1263 2263 0 883 4 887 1218 2105.03 158.990
TOTAL $ 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/93 2000.00 15.46 4.75 % 129.366 14.730 1906
ANNUAL INVESTMENTS OF $ 2000.00 -- SAME DAY AS INITIAL INVESTMENT
DIVIDENDS AND CAPITAL GAINS REINVESTED
RIGHT OF ACCUMULATION DISCOUNT REFLECTED WHERE APPLICABLE IN THIS ILLUSTRATION
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/94 2000 136 136 2136 0 1705 0 1705 129 1834.63 139.198
8/31/95 4000 299 435 4435 0 3626 0 3626 435 4061.01 306.723
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/91 2000.00 14.25 4.75 % 140.351 13.570 1905
ANNUAL INVESTMENTS OF $ 2000.00 -- SAME DAY AS INITIAL INVESTMENT
DIVIDENDS AND CAPITAL GAINS REINVESTED
RIGHT OF ACCUMULATION DISCOUNT REFLECTED WHERE APPLICABLE IN THIS ILLUSTRATION
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/92 2000 166 166 2166 0 1983 0 1983 170 2153.07 152.376
8/31/93 4000 321 487 4487 0 4054 0 4054 509 4563.62 309.818
8/31/94 6000 463 950 6950 0 5332 0 5332 896 6228.29 472.556
8/31/95 8000 649 1599 9599 0 7270 0 7270 1562 8832.75 667.126
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
10/17/85 2000.00 15.00 4.75 % 133.333 14.290 1905
ANNUAL INVESTMENTS OF $ 2000.00 -- SAME DAY AS INITIAL INVESTMENT
DIVIDENDS AND CAPITAL GAINS REINVESTED
RIGHT OF ACCUMULATION DISCOUNT REFLECTED WHERE APPLICABLE IN THIS ILLUSTRATION
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/86 2000 165 165 2165 5 1984 5 1989 166 2155.74 144.875
8/31/87 4000 373 538 4538 6 3603 10 3613 506 4119.97 299.634
8/31/88 6000 599 1137 7137 0 5539 10 5549 1090 6639.99 490.398
8/31/89 8000 852 1989 9989 0 7387 10 7397 1944 9341.10 692.960
8/31/90 10000 1093 3082 13082 0 9115 10 9125 2996 12121.91 914.861
8/31/91 12000 1359 4441 16441 0 11279 10 11289 4445 15734.02 1159.471
8/31/92 14000 1523 5964 19964 0 13714 10 13724 6185 19909.51 1409.024
8/31/93 16000 1714 7678 23678 0 16286 11 16297 8221 24518.57 1664.533
8/31/94 18000 1878 9556 27556 0 16266 10 16276 9141 25417.93 1928.523
8/31/95 20000 2172 11728 31728 0 18297 10 18307 11400 29707.26 2243.751
TOTAL $ 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
10/17/85 10000.00 15.00 4.75 % 666.667 14.290 9527
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/86 10000 825 825 10825 26 9920 26 9946 832 10778.80 724.382
8/31/87 10000 1035 1860 11860 15 9167 38 9205 1747 10952.99 796.581
8/31/88 10000 1099 2959 12959 0 9027 37 9064 2809 11873.06 876.888
8/31/89 10000 1211 4170 14170 0 8987 37 9024 4015 13039.59 967.329
8/31/90 10000 1289 5459 15459 0 8833 37 8870 5227 14097.26 1063.944
8/31/91 10000 1383 6842 16842 0 9047 37 9084 6753 15837.45 1167.093
8/31/92 10000 1382 8224 18224 0 9420 39 9459 8444 17903.85 1267.081
8/31/93 10000 1417 9641 19641 0 9820 41 9861 10270 20131.31 1366.688
8/31/94 10000 1441 11082 21082 0 8787 36 8823 10558 19381.69 1470.538
8/31/95 10000 1548 12630 22630 0 8827 37 8864 12185 21049.42 1589.835
TOTAL $ 41
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/86 10000.00 15.62 4.75 % 640.205 14.880 9526
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/87 10000 915 915 10915 13 8803 12 8815 865 9680.19 704.014
8/31/88 10000 972 1887 11887 0 8668 12 8680 1813 10493.39 774.992
8/31/89 10000 1070 2957 12957 0 8630 12 8642 2882 11524.38 854.924
8/31/90 10000 1139 4096 14096 0 8483 12 8495 3964 12459.09 940.309
8/31/91 10000 1222 5318 15318 0 8688 12 8700 5297 13997.10 1031.474
8/31/92 10000 1222 6540 16540 0 9046 13 9059 6764 15823.38 1119.843
8/31/93 10000 1253 7793 17793 0 9430 13 9443 8348 17791.98 1207.874
8/31/94 10000 1273 9066 19066 0 8438 12 8450 8679 17129.47 1299.656
8/31/95 10000 1368 10434 20434 0 8476 12 8488 10115 18603.43 1405.093
TOTAL $ 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/87 10000.00 14.44 4.75 % 692.521 13.750 9522
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/88 10000 956 956 10956 0 9377 0 9377 945 10322.07 762.339
8/31/89 10000 1053 2009 12009 0 9335 0 9335 2001 11336.21 840.965
8/31/90 10000 1120 3129 13129 0 9176 0 9176 3079 12255.69 924.958
8/31/91 10000 1202 4331 14331 0 9398 0 9398 4370 13768.61 1014.636
8/31/92 10000 1202 5533 15533 0 9785 0 9785 5780 15565.10 1101.564
8/31/93 10000 1232 6765 16765 0 10201 0 10201 7300 17501.57 1188.158
8/31/94 10000 1252 8017 18017 0 9127 0 9127 7722 16849.85 1278.441
8/31/95 10000 1345 9362 19362 0 9169 0 9169 9130 18299.75 1382.156
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/88 10000.00 14.22 4.75 % 703.235 13.540 9522
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/89 10000 971 971 10971 0 9480 0 9480 977 10457.33 775.766
8/31/90 10000 1033 2004 12004 0 9318 0 9318 1987 11305.51 853.246
8/31/91 10000 1109 3113 13113 0 9543 0 9543 3158 12701.10 935.969
8/31/92 10000 1108 4221 14221 0 9937 0 9937 4421 14358.30 1016.157
8/31/93 10000 1137 5358 15358 0 10359 0 10359 5785 16144.61 1096.036
8/31/94 10000 1155 6513 16513 0 9269 0 9269 6274 15543.46 1179.322
8/31/95 10000 1241 7754 17754 0 9311 0 9311 7569 16880.95 1274.996
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/89 10000.00 14.15 4.75 % 706.714 13.480 9527
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/90 10000 941 941 10941 0 9364 0 9364 935 10299.20 777.298
8/31/91 10000 1010 1951 11951 0 9590 0 9590 1980 11570.56 852.657
8/31/92 10000 1010 2961 12961 0 9986 0 9986 3094 13080.24 925.707
8/31/93 10000 1036 3997 13997 0 10410 0 10410 4297 14707.58 998.478
8/31/94 10000 1052 5049 15049 0 9314 0 9314 4845 14159.95 1074.351
8/31/95 10000 1131 6180 16180 0 9357 0 9357 6021 15378.42 1161.512
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/90 10000.00 13.91 4.75 % 718.907 13.250 9526
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/91 10000 934 934 10934 0 9756 0 9756 945 10701.40 788.607
8/31/92 10000 934 1868 11868 0 10158 0 10158 1939 12097.70 856.171
8/31/93 10000 958 2826 12826 0 10590 0 10590 3012 13602.79 923.475
8/31/94 10000 973 3799 13799 0 9475 0 9475 3621 13096.27 993.647
8/31/95 10000 1046 4845 14845 0 9518 0 9518 4705 14223.19 1074.259
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/91 10000.00 14.25 4.75 % 701.754 13.570 9523
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/92 10000 831 831 10831 0 9916 0 9916 849 10765.31 761.876
8/31/93 10000 852 1683 11683 0 10337 0 10337 1767 12104.64 821.768
8/31/94 10000 866 2549 12549 0 9249 0 9249 2404 11653.89 884.210
8/31/95 10000 931 3480 13480 0 9291 0 9291 3365 12656.70 955.944
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/92 10000.00 14.83 4.75 % 674.309 14.130 9528
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/93 10000 754 754 10754 0 9933 0 9933 780 10713.41 727.319
8/31/94 10000 767 1521 11521 0 8887 0 8887 1427 10314.47 782.585
8/31/95 10000 824 2345 12345 0 8928 0 8928 2274 11202.01 846.073
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/93 10000.00 15.46 4.75 % 646.831 14.730 9528
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/94 10000 682 682 10682 0 8525 0 8525 648 9173.07 695.984
8/31/95 10000 732 1414 11414 0 8564 0 8564 1398 9962.40 752.447
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/94 10000.00 13.84 4.75 % 722.543 13.180 9523
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/95 10000 760 760 10760 0 9566 0 9566 776 10342.57 781.161
TOTAL $ 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
SALES NET ASSET INITIAL
INITIAL OFFERING CHARGE SHARES VALUE NET ASSET
DATE INVESTMENT PRICE INCLUDED PURCHASED PER SHARE VALUE
9/01/95 10000.00 13.90 4.75 % 719.424 13.240 9525
DIVIDENDS AND CAPITAL GAINS REINVESTED
============COST OF SHARES============= ================VALUE OF SHARES=====================
CURRENT CUM. TOTAL CURRENT FROM FROM
CUM INCOME INCOME INVM'T CAP GAIN FROM CAP GAINS SUB- DIVS TOTAL SHARES
DATE INV'M'T DIVS DIVS COST DISTRIB'N INV'M'T REINV'D TOTAL REINV'D VALUE HELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/95 10000 0 0 10000 0 9525 0 9525 0 9525.17 719.424
TOTAL $ 0
</TABLE>
SCHEDULE FOR COMPUTATION OF EACH PERFORMANCE QUOTATION
PROVIDED IN THE REGISTRATION STATEMENT
(1) ENDING REDEMPTION VALUE AND TOTAL RETURN
Value of an initial investment at the end of a period and total return for the
period are computed as set forth below.
(A) Initial investment DIVIDED BY
Public offering price for one share at
beginning of period EQUALS
Number of shares initially purchased
(B) Number of shares initially purchased PLUS
Number of shares acquired at net asset
value through reinvestment of dividends
and capital gain distributions during period EQUALS
Number of shares purchased during period
(C) Number of shares purchased during period MULTIPLIED BY
Net asset value of one share as of the last day
of the period EQUALS
Value of investment at end of period
(D) Value of investment at end of period DIVIDED BY
Initial investment
minus one and then multiplied by 100 EQUALS
Total return for the period expressed as a
percentage
EXHIBIT 16
(2) AVERAGE ANNUAL TOTAL RETURN
Average annual total return quotations for the 1-, 5- and lifetime periods
ended August 31, 1994 are computed according to the formula set forth below.
P(1+T)/n/ = ERV
WHERE: P= a hypothetical initial investment of $1,000
T= average annual total return
n= number of years
ERV= ending redeemable value of a hypothetical $1,000 investment as of the end
of 1 year, 5 year and lifetime periods (computed in accordance with the formula
shown in (1), above)
THUS:
AVG. ANNUAL TOTAL RETURN AT PUBLIC OFFERING PRICE:
1 Year Total Return 1,000(1+T)/1/ = 1,034.24
T = 3.42%
5 Year Avg. Annual Total Return 1,000 (1+T)/5/ = 1,422.36
T = +7.30%
Lifetime Avg. Annual Total Return 1,000(1+T)/9.87/ = 2,105.03
T = +7.83%
Hypothetical illustrations which are based on $1,000 and $10,000 initial
investments used to obtain ending values over various time periods are
attached.
(3) YIELD
Yield is computed as set forth below.
(A) Dividends and interest earned during the period MINUS
Expenses accrued for the period EQUALS
Net investment income
(B) Net income investment DIVIDED BY
Average daily number of shares
outstanding during the period that
were entitled to receive dividends EQUALS
Net investment income per share earned
during the period
(C) Net investment income per share earned
during the period DIVIDED BY
Maximum offering price per share on
last day of the period EQUALS
Current month's yield
(D) Current months yield PLUS ONE RAISED
TO THE SIXTH
POWER EQUALS
Semiannual compounded yield
(E) Semiannual compounded yield MINUS ONE
MULTIPLIED
BY TWO EQUALS
Annualized rate
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-1-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 1,323,827
<INVESTMENTS-AT-VALUE> 1,322,071
<RECEIVABLES> 21,751
<ASSETS-OTHER> 8
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,343,830
<PAYABLE-FOR-SECURITIES> 1,089
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,285
<TOTAL-LIABILITIES> 6,374
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,315,609
<SHARES-COMMON-STOCK> 101,015,638
<SHARES-COMMON-PRIOR> 104,133,070
<ACCUMULATED-NII-CURRENT> 2,502
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (79,914)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33,688
<NET-ASSETS> 1,337,456
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 113,599
<OTHER-INCOME> 0
<EXPENSES-NET> 10,428
<NET-INVESTMENT-INCOME> 103,171
<REALIZED-GAINS-CURRENT> (27,960)
<APPREC-INCREASE-CURRENT> 33,688
<NET-CHANGE-FROM-OPS> 108,899
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 103,274
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,239,785
<NUMBER-OF-SHARES-REDEEMED> 28,920,071
<SHARES-REINVESTED> 5,562,854
<NET-CHANGE-IN-ASSETS> (35,188)
<ACCUMULATED-NII-PRIOR> 2,605
<ACCUMULATED-GAINS-PRIOR> (51,954)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,575
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,428
<AVERAGE-NET-ASSETS> 1,324,897
<PER-SHARE-NAV-BEGIN> 13.18
<PER-SHARE-NII> 1.01
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> 1.01
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.24
<EXPENSE-RATIO> .008
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
