U.S. Government Securities Fund
Semi-Annual Report
for the six months ended February 28, 1997
[The American Funds Group(r)]
[Photo: Federal Treasury Building/telephone switchboard]
[Watermark: The words "U.S. Government Securities Fund"]
U.S. Government Securities Fund(sm) seeks high current income, consistent with
prudent investment risk and preservation of capital, by investing primarily in
obligations backed by the full faith and credit of the United States
government.
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the total returns and average annual compound
returns with all distributions reinvested for periods ended March 31, 1997 (the
most recent calendar quarter), assuming payment of the 4.75% maximum sales
charge at the beginning of the stated periods:
10 years 5 years 12 months
+89.36% +29.27% -0.71%
(+6.59% a year) (+5.27% a year)
Sales charges are lower for accounts of $25,000 or more. The fund's 30-day
yield as of March 31, 1997, calculated in accordance with the Securities and
Exchange Commission formula, was 5.93%. The fund's distribution rate as of that
date was 6.21%. The SEC yield reflects income the fund expects to earn based on
its current portfolio of securities, while the distribution rate is based
solely on the fund's past dividends. Accordingly, the fund's SEC yield and
distribution rate may differ.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE TIME
PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES
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.
FELLOW SHAREHOLDERS:
The first half of U.S. Government Securities Fund's fiscal 1997 coincided
with a seesaw in the direction of interest rates. Yields dropped during the
first three months of the period as benign economic data - showing moderate
growth with few indications of price pressures - caused a favorable shift in
investor perceptions toward fixed-income securities. Worries about the pace of
economic growth, however, nudged rates up slightly in December and January,
although they ended the six-month period below where they began.
Throughout, the fund continued to provide shareholders with attractive
current income from a high-quality portfolio of U.S. government and federal
agency obligations. For the six months ended February 28, the fund paid monthly
dividends totaling 46 cents a share. That represents an income return of 3.7%
(7.4% annualized) if you reinvested those dividends in additional shares, as
most shareholders do.
With yields at the end of the period modestly below those at the start,
the fund's share price recorded a gain as well. It rose 1.4%, contributing to a
total return (dividends plus appreciation) of 5.0% for shareholders who
reinvested their dividends. That return just topped the 4.9% return for the
average of 177 U.S. government funds tracked by Lipper Analytical Services.
Meanwhile, the unmanaged Lehman Brothers Government/Mortgage-Backed Securities
Index rose 5.2% with income reinvested.
[Photo: Federal Treasury Building/telephone switchboard]
Over the past 12 months, the fund had a total return of 4.5%, reflecting
bond market weakness in the second half of fiscal 1996. The fund's total return
since inception on October 17, 1985 was 140.0% - an average compound return of
8.0% a year.
RESULTS AT A GLANCE
as of February 28, 1997
Total Returns
(with all distributions reinvested)
6 months +5.0%
12 months +4.5
Lifetime +8.0
(average annual compound
return since October 17, 1985)
SIX MONTHS IN REVIEW
U.S. Government Securities Fund is diversified across a spectrum of U.S.
Treasury issues, mortgage-backed securities and other federal agency
obligations. In considering the portfolio mix, we take a research-intensive
approach in order to determine the relative values among these areas.
During the past fiscal year, we have been steadily building up our
investments in mortgage-backed securities. These bonds, which typically pay
higher rates to compensate for their prepayment risk, provide a yield advantage
in the current low-interest-rate environment. (If an underlying mortgage is
prepaid when interest rates decline, investors risk having to reinvest those
assets at lower rates.) At the close of the period, mortgage-backed securities
accounted for 38% of net assets.
The lion's share of the portfolio - just under half of net assets -
remains invested in U.S. Treasuries. These securities have offered only
slightly lower yields than high-grade corporate bonds in return for the
reassurance of government backing.
We have been gradually shortening the average maturity of the fund's
holdings in an effort to make it less exposed to possible interest rate
increases. (The longer a bond's maturity, the more its price tends to rise and
fall in response to interest rate fluctuations.) To that end, we increased our
position in short-term instruments to nearly 10% of net assets, roughly double
what it was six months ago. At the close of the period, the average effective
maturity was 7.2 years, down from 7.8 years six months ago and 8.0 years 12
months ago.
LOOKING FORWARD
Since the close of the fiscal period, a number of variables - including an
increase in consumer spending and the run-up in stocks in recent years - have
led the Federal Reserve Board to raise the federal funds rate in an attempt to
keep inflationary threats in check. (The federal funds rate is the rate banks
charge each other for overnight loans; it was increased to 5.5% from 5.25%.) In
the near term, upward pressures on interest rates could linger if economic
growth continues at an above-average pace.
Longer term, many factors suggest that the positive environment
for bonds may continue. Most importantly, the rate of inflation has not shown
signs of accelerating, despite a business expansion that has put pressure on
manufacturing capacity and tightened the U.S. labor market. We believe this
stability could eventually translate into lower interest rates. The dollar's
continued strength could sustain demand for U.S. Treasury bonds by buyers
outside the United States, who now hold nearly one-third of all outstanding
issues. Finally, a renewed commitment to reducing the federal budget deficit
still further could benefit longer term securities by promising less bond
issuance by the government.
As always, we will continue to monitor developments that could influence
the direction of interest rates and other considerations affecting your
holdings in the fund.
We look forward to reporting to you again in six months.
Cordially,
[/s/ Paul G. Haaga, Jr.]
Paul G. Haaga, Jr.
Chairman of the Board
[/s/ Abner D. Goldstine]
Abner D. Goldstine
President
April 11, 1997
<TABLE>
The American Funds Income Series
U.S. Government Securities Fund
Investment Portfolio
February 28, 1997 UNAUDITED
U.S. GOVERNMENT SECURITIES FUND
PERIOD ENDING 2/28/97
<S> <C> <C> <C>
% OF
NET ASSETS
ROUNDED
U.S. TREASURY BONDS & NOTES 45%
GNMAs AND OTHER MORTGAGE BACKED SECURITIES 38%
OTHER FEDERAL OBLIGATIONS 6%
DEVELOPMENT AUTHORITIES 1%
CASH & EQUIVALENTS 10%
TOTAL NET ASSETS 100%
Principal Market Percent
Amount Value of Net
(000) (000) Assets
FEDERAL AGENCY OBLIGATIONS -
MORTGAGE PASS-THROUGHS /1/ - 34.46%
Federal Home Loan Mortgage Corp.:
8.25% 2007 $ 723 $ 746
8.50% 2009-2021 16,134 16,852
8.75% 2008 663 697
9.00% 2010-2021 6,261 6,601
10.50% 2006-2016 836 918
10.75% 2009-2010 330 364
11.00% 2011-2016 718 800
11.50% 2011-2015 371 419
11.75% 2011-2014 420 470
12.00% 2000-2016 5,196 5,867
12.25% 2011-2015 580 659
12.50% 2009-2019 6,294 7,321 3.81%
13.00% 2010-2014 914 1,073
13.50% 2010-2015 262 313
13.75% 2014 35 42
14.00% 2011-2014 166 198
14.50% 2010-2011 30 37
14.75% 2010 59 70
15.00% 2011 55 66
15.50% 2011 53 63
16.00% 2012 49 60
16.25% 2011 88 105
Federal National Mortgage Assn.:
7.00% 2009-2011 29,636 29,516
8.00% 2005-2023 5,005 5,143
8.50% 2007-2027 12,461 13,031
9.00% 2009-2025 3,861 4,089
9.50% 2011-2022 2,457 2,667
10.00% 2017-2021 1,578 1,747
11.00% 1999-2015 1,895 2,131
12.00% 2000-2019 1,938 2,229
12.25% 2013-2014 253 293 5.52
12.50% 2001-2015 1,174 1,378
12.75% 2012 33 39
13.25% 2011-2014 797 947
14.00% 2013 103 125
14.50% 2014 10 12
15.00% 2013 14 17
15.50% 2012 38 46
16.00% 2012 22 27
Government National Mortgage Assn.:
5.00% 2026 /2/ 10,334 10,107
6.50% 2023-2026 /2/ 59,706 59,191
6.875% 2022-2023 /2/ 4,923 5,017
7.00% 2008-2026 36,686 35,924
7.50% 2009-2026 37,924 38,118
8.00% 2022-2023 8,941 9,235
8.50% 2020-2026 34,480 35,876
9.00% 2011-2022 17,227 18,430
9.50% 2009-2021 10,594 11,512
9.75% 1999-2012 2,356 2,476
10.00% 2016-2019 31,810 34,982
10.25% 2012 216 225
10.50% 2015-2019 2,846 3,199
11.00% 2009-2020 5,385 6,152 25.13
11.25% 2001-2016 2,932 3,086
11.50% 2000-2014 1,478 1,700
11.75% 2000-2015 306 326
12.00% 1999-2019 3,219 3,751
12.25% 2013-2015 316 368
12.50% 2010-2015 2,214 2,610
12.75% 2013-2015 478 559
13.00% 2011-2015 1,949 2,322
13.25% 2013-2015 307 359
13.50% 2010-2014 1,259 1,519
14.00% 2011-2014 249 302
14.50% 2012-2014 359 442
15.00% 2011-2013 567 698
16.00% 2011-2012 44 55
-----------------------
395,719 30.65
-----------------------
FEDERAL AGENCY OBLIGATIONS - OTHER - 5.51%
FNSM Callable Principal STRIPS:
0%/8.25% 2022 /3/ 2,000 1,718
0%/8.62% 2022 /3/ 4,500 4,114 .51
Federal Home Loan Bank Notes 6.41% 2003 5,000 4,837 .42
Federal Home Loan Mortgage Notes:
6.19% 2004 13,914 13,269
6.27% 2004 7,000 6,732
6.555% 2006 5,000 4,795
6.59% 2003 5,000 4,887 4.58
6.60% 2003 3,500 3,426
6.945% 2005 10,000 9,761
7.01% 2005 10,000 9,789
-----------------------
63,328 5.51
-----------------------
U. S. GUARANTEED OBLIGATIONS - OTHER - 1.12%
Big Rivers Electrical Corp. 10.70% 2017 12,000 12,913 1.12
-----------------------
ASSET-BACKED OBLIGATIONS/1/ - 0.17%
First Plus Home Loan Trust, Series 1997-1:
Class A1, 6.05% 2005 1,001 999
Class A3, 6.45% 2009 1,000 995 .17
-----------------------
1,994 .17
-----------------------
COLLATERALIZED MORTGAGE OBLIGATIONS/1/ - 2.80%
Federal Home Loan Mortgage Corp.:
Series 1716, Class A, 6.50% 2009 10,586 10,136
Series 83-A, Class 3, 11.875% 2013 215 234 1.56
Series 83-B, Class 3, 12.50% 2013 1,811 2,005
Series 76, Class F, 9.125% 2020 2,078 2,140
Series 178, Class Z, 9.25% 2021 3,242 3,397
Federal National Mortgage Assn.:
Trust 91-50, Class H, 7.75% 2006 3,167 3,217
Trust 91-146, Class Z, 8.00% 2006 6,885 7,001
Trust 35, Class 2, 12.00% 2018 598 676 1.24
Trust 90-93, Class G, 5.50% 2020 3,600 3,400
-----------------------
32,206 2.80
-----------------------
COLLATERALIZED MORTGAGE OBLIGATIONS
(Privately Originated)/4/ - 0.81%
Collateralized Mortgage Obligation Trust,
Series 63, Class Z, 9.00% 2020 3,660 3,945 .34
Paine Webber CMO Pac, Series O, Class 5, 9.50% 2019 5,000 5,338 .47
-----------------------
9,283 .81
-----------------------
DEVELOPMENT AUTHORITIES - 0.69%
International Bank for Reconstruction and
Development:
14.90% May 1997 5,000 5,100
12.25% December 2008 2,000 2,843 .69
-----------------------
7,943 .69
-----------------------
U. S. TREASURY OBLIGATIONS - 44.52%
8.50% November 2000 12,500 13,387 1.17
13.125% May 2001 29,000 36,087 3.14
13.375% August 2001 12,000 15,204 1.32
15.75% November 2001 5,500 7,558 .66
14.25% February 2002 15,000 19,934 1.74
11.625% November 2002 38,000 47,351 4.12
7.25% May 2004 52,000 54,129 4.71
11.625% November 2004 18,000 23,451 2.04
7.50% February 2005 29,000 30,659 2.67
10.375% November 2009 35,250 43,043 3.75
10.00% May 2010 4,000 4,832 .42
12.75% November 2010 10,000 13,966 1.22
13.875% May 2011 8,000 11,908 1.04
10.375% November 2012 67,500 85,862 7.48
12.00% August 2013 12,000 16,926 1.47
8.875% August 2017 71,750 86,896 7.57
-----------------------
511,193 44.52
-----------------------
Total Bonds and Notes (cost:$1,042,762,000) 1,034,579 90.08
-----------------------
SHORT-TERM SECURITIES
Commercial Paper - 0.83%
CIT Group Holdings Inc. 5.40% due 3/3/97 9,500 9,496 .83
-----------------------
U.S. Treasury Securities - 8.12%
U.S. Treasury Bills due 4/3/97 19,000 18,912 1.65
U.S. Treasury Bills due 4/10/97 20,000 19,889 1.73
U.S. Treasury Bills due 4/17/97 15,000 14,899 1.30
U.S. Treasury Bills due 5/1/97 25,300 25,090 2.18
U.S. Treasury Bills due 5/29/97 14,700 14,519 1.26
-----------------------
1,031,374 93,309 8.12
-----------------------
-----------------------
Total Short-Term Securities (cost:$102,798,000) 102,805 8.95
-----------------------
Total Investment Securities (cost:$1,145,560,000) 1,137,384 99.03
Excess of cash and receivables over payables 11,083 .97
-----------------------
Net Assets 1,148,467 100.00%
-----------------------
/1/ Pass-through security backed by a pool of
mortgages or other loans on which principal
payments are periodically made. Therefore, the
effective maturity is
shorter than the stated maturity.
/2/ Coupon rate changes periodically.
/3/ Zero-coupon bond which will
convert to a coupon-bearing security at a future
date.
/4/ Made up of federal agency originated or
guaranteed loans.
See Notes to Financial Statements
</TABLE>
<TABLE>
The American Funds Income Series
U.S. Government Securities Fund
Financial Statements Unaudited
- ---------------------------------------- ------------ ------------
Statement of Assets and Liabilities
at February 28, 1997 (dollars in thousands)
- ---------------------------------------- ------------ ------------
<S> <C> <C>
Assets:
Investment securities at market
(cost: $1,145,560) $1,137,384
Cash 75
Receivables for-
Sales of investments $ 338
Sales of fund's shares 2,379
Accrued interest 13,834 16,551
------------ ------------
1,154,010
Liabilities:
Payables for-
Purchases of investments 516
Repurchases of fund's shares 2,065
Dividends payable 1,774
Management services 370
Accrued expenses 818 5,543
------------ ------------
Net Assets at February 28, 1997-
Equivalent to $12.96 per share on
88,608,412 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $1,148,467
============
Statement of Operations
for the six months ended February 28, 1997 (dollars in thousands)
------------ ------------
Investment Income:
Income:
Interest $ 45,611
Expenses:
Management services fee $2,422
Distribution expenses 1,516
Transfer agent fee 471
Reports to shareholders 96
Registration statement and prospectus 28
Postage, stationery and supplies 122
Trustees' fees 11
Auditing and legal fees 40
Custodian fee 27
Taxes other than federal income tax 22
Other expenses 91 4,846
------------ ------------
Net investment income 40,765
------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 103
Net change in unrealized depreciation
on investments
Beginning of period (26,927)
End of period (8,176)
------------
Net unrealized appreciation
on investments 18,751
------------
Net realized gain and
unrealized appreciation on investments 18,854
------------
Net Increase in Net Assets Resulting
from Operations $59,619
============
Statement of Changes in Net
Assets (dollars in thousands)
- ---------------------------------------- ------------ ------------
Six months
ended Year ended
2/28/97* 8/31/95
Operations: ------------ ------------
Net investment income $ 40,765 $ 91,685
Net realized gain (loss) on investments 103 (21,590)
Net unrealized appreciation (depreciation)
on investments 18,751 (25,171)
------------ ------------
Net increase in net assets
resulting from operations 59,619 44,924
------------ ------------
Dividends Paid to Shareholders (41,994) (89,352)
------------ ------------
Capital Share Transactions:
Proceeds from shares sold:
6,615,624 and 16,684,657
shares, respectively 86,154 220,093
Proceeds from shares issued in
reinvestment of net investment income
dividends: 2,323,611 and 4,829,407
shares respectively 30,280 63,705
Cost of shares repurchased:
15,514,063 and 27,346,462
shares, respectively (201,997) (360,421)
------------ ------------
Net decrease in net assets resulting
from capital share transactions (85,563) (76,623)
------------ ------------
Total Decrease in Net Assets (67,938) (121,051)
Net Assets:
Beginning of period 1,216,405 1,337,456
------------ ------------
End of period (including undistributed
net investment income of $3,606 and
$4,835, respectively) $1,148,467 $1,216,405
============ ============
*Unaudited
See Notes to Financial Statements
</TABLE>
U.S. GOVERNMENT SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS Unaudited
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 fund seeks high current income,
consistent with prudent investment risk and preservation of capital, by
investing primarily in obligations backed by the full faith and credit of the
United States government. The 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 prices for securities
of comparable maturity, quality and type. Short-term securities with more than
60 days remaining to maturity are valued at the mean of their representative
quoted bid and asked prices. Where pricing service or market quotations are
not readily available, securities will be valued at fair value by the Board of
Trustees or a committee thereof. Short-term securities with 60 days or less
remaining to maturity are valued at amortized cost, which approximates market
value.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed-delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions. Realized gains and losses from
securities transactions are reported on an identified cost basis. Interest
income is reported on the accrual basis. Discounts and premiums on securities
purchased are amortized over the life of the respective securities. Dividends
to shareholders are declared daily after determination of the fund's net asset
value and paid to shareholders monthly.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $27,000 includes $19,000 that was paid by these 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, to its shareholders. Therefore, no federal income tax provision is
required.
As of February 28, 1997, net unrealized depreciation on investments for
book and federal income tax purposes aggregated $8,176,000, of which
$14,151,000 related to appreciated securities and $22,327,000 related to
depreciated securities. During the six months ended February 28, 1997, the fund
realized, on a tax basis, a net capital gain of $103,000 on securities
transactions. The fund had available at August 31, 1996 a net capital loss
carryforward totaling $82,825,000 which may be used to offset capital gains
realized during subsequent years through 2004 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
$1,145,560,000 at February 28, 1997.
3. The fee of $2,422,000 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 such income
in excess of $3,333,333 but not exceeding $8,333,333; and 2.00% of such income
in excess of $8,333,333.
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 six months ended February 28,
1997, distribution expenses under the Plan were $1,516,000. As of February 28,
1997, accrued and unpaid distribution expenses were $636,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $471,000. American Funds Distributors, Inc. (AFD), the principal
underwriter of the fund's shares, received $202,000 (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 February 28,
1997, aggregate amounts deferred and earnings thereon were $36,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Trustees and officers of the trust
are or may be considered to be affiliated with CRMC, AFS and AFD. No such
persons received any remuneration directly from the fund.
4. As of February 28, 1997, accumulated net realized loss on investments was
$101,401,000 and paid-in capital was $1,254,437,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $69,159,000 and $209,400,000, respectively, during
the six months ended February 28, 1997.
<TABLE>
PER-SHARE DATA AND RATIOS
- --------------------------------- ---------- ---------- ---------- -------- -------- --------
Six months
ended Year Ended August 31
February 28, -------- -------- -------- -------- --------
1997 /1/ 1996 1995 1994 1993 1992
------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $12.78 $13.24 $13.18 $14.73 $14.13 $13.57
------------- -------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income .42 .93 1.01 1.03 1.07 1.18
Net realized and unrealized
gain (loss) on investments. .22 (0.49) .06 (1.56) .61 .53
Total income (loss) from ------------- -------- -------- -------- -------- --------
investment operations 0.64 0.44 1.07 (0.53) 1.68 1.71
------------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment
income (.46) (.90) (1.01) (1.02) (1.08) (1.15)
------------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $12.96 $12.78 $13.24 $13.18 $14.73 $14.13
======== ======== ======== ======== ======== ======
Total Return /2/ 5.04% /3/ 3.40% 8.60% (3.72%) 12.44% 13.05%
Ratios/Supplemental Data:
Net assets, end of period (in
millions) $1,148 $1,216 $1,337 $1,373 $1,581 $1,328
Ratio of expenses to average
net assets .39% /3/ .81% .79% .78% .83% .88%
Ratio of net income to
average net assets 3.32% /3/ 7.04% 7.79% 7.35% 7.54% 8.63%
Portfolio turnover rate 6.23% /3/ 40.01% 46.77% 71.58% 35.24% 44.81%
/1/ Unaudited
/2/ Calculated without deducting a sales charge. The maximum sales charge is
4.75% of the fund's offering price.
/3/Based on operations for the period shown and, accordingly, not representative of a
full year's operations.
</TABLE>
OFFICES OF THE FUND AND OF THE
INVESTMENT ADVISER, CAPITAL RESEARCH
AND MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
(Please write to the address nearest you.)
American Funds Service Company
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
This report is for the information of shareholders of U.S. Government
Securities Fund, but it may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details about charges,
expenses, investment objectives and operating policies of the fund. If used as
sales material after June 30, 1997, this report must be accompanied by an
American Funds Group Statistical Update for the most recently completed
calendar quarter.
Litho in USA AGD/AL/3394
Lit. No. GVT-013-0497
[The American Funds Group(r)]
Printed on recycled paper
