UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
Certified Shareholder Report of
Registered Management Investment Companies
Investment Company Act File Number: 811-4318
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
Date of fiscal year end: August 31, 2005
Date of reporting period: February 28, 2005
Julie F. Williams
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071
(name and address of agent for service)
Copies to:
Michael Glazer
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, California 90071
(Counsel for the Registrant)
ITEM 1 - Reports to Stockholders
[logo - American Funds(R)]
The right choice for the long term(R)
U.S. GOVERNMENT SECURITIES FUND
[cover photo: close-up of architectural columns]
Semi-annual report for the six months ended February 28, 2005
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.
This fund is one of the 29 American Funds, the nation's third-largest mutual
fund family. For more than seven decades, Capital Research and Management
Company,SM the American Funds adviser, has invested with a long-term focus based
on thorough research and attention to risk.
FIGURES SHOWN ARE PAST RESULTS FOR CLASS A SHARES AND ARE NOT PREDICTIVE OF
RESULTS IN FUTURE PERIODS. CURRENT AND FUTURE RESULTS MAY BE LOWER OR HIGHER
THAN THOSE SHOWN. SHARE PRICES AND RETURNS WILL VARY, SO INVESTORS MAY LOSE
MONEY. INVESTING FOR SHORT PERIODS MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT
FDIC-INSURED, NOR ARE THEY DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER
ENTITY. FOR THE MOST CURRENT INFORMATION AND MONTH-END RESULTS, VISIT
AMERICANFUNDS.COM. FUND RESULTS SHOWN, UNLESS OTHERWISE INDICATED, ARE AT NET
ASSET VALUE. IF A SALES CHARGE (MAXIMUM 3.75%) HAD BEEN DEDUCTED, THE RESULTS
WOULD HAVE BEEN LOWER.
Here are the average annual total returns on a $1,000 investment with all
distributions reinvested for periods ended March 31, 2005 (the most recent
calendar quarter):
1 year 5 years 10 years
Class A shares
Reflecting 3.75% maximum sales charge -3.13% +5.02% +5.55%
Results for other share classes can be found on page 24. Please see the inside
back cover for important information about other share classes.
The fund's investment adviser is waiving a portion of its management fees.
Results shown reflect the waiver. Please see the Financial Highlights table on
page 18 for details.
The fund's 30-day yield for Class A shares as of March 31, 2005, calculated in
accordance with the Securities and Exchange Commission formula, was 3.22%, which
reflects a fee waiver (3.21% without the fee waiver). The fund's distribution
rate for Class A shares as of that date was 3.08% (3.07% without the fee
waiver). Both reflect the 3.75% maximum sales charge. The SEC yield reflects the
rate at which the fund is earning income on its current portfolio of securities
while the distribution rate reflects the fund's past dividends paid to
shareholders. Accordingly, the fund's SEC yield and distribution rate may
differ.
The return of principal in bond funds is not guaranteed. Bond funds have the
same interest rate, inflation and credit risks that are associated with the
underlying bonds owned by the fund.
[photo: close-up of architectural columns]
FELLOW SHAREHOLDERS:
The first half of the current fiscal year ended with lower prices for most
government securities. This downturn pared returns for U.S. Government
Securities Fund and its benchmarks for the period.
For the six months ended February 28, 2005, U.S. Government Securities Fund
produced a total return of 0.6%. This compared to a 0.9% average return for its
Lipper peer group, while the unmanaged Citigroup
Treasury/Government-Sponsored/Mortgage Index recorded a 1.1% return. The index
serves as a proxy for the universe of bonds in which the fund invests, and its
returns do not reflect the effects of sales charges, expenses or commissions.
Shareholders who reinvested monthly dividends totaling 21.7 cents a share during
this period earned an income return of 1.6% (3.2% annualized). At the same time,
the value of the fund's share price declined less than 1.0%.
GOVERNMENT BOND MARKET OVERVIEW
Higher interest rates have been a major market concern for some time now. Just
two months before the September 1 start of the fund's fiscal year, the Federal
Reserve Board began to raise its key short-term lending rate. Their intent has
been to restore monetary conditions, which had been highly accommodative, to a
more neutral position. Since June 30, 2004, the Fed has raised this benchmark
rate seven times, a quarter-point each, bringing it to 2.75% from 1.0%. Further
increases are anticipated.
[Begin Sidebar]
Results at a glance
(For periods ended February 28, 2005, with all distributions reinvested)
Lifetime
1 year 5 years 10 years (since 10/17/85)
Average annual total return -- +6.2% +6.0% +7.1%
Cumulative total return +1.6% +35.2 +79.8 +275.4
[End Sidebar]
Yields on bonds of all maturities typically begin to rise as the Fed starts
raising rates. That did not happen this time, however. Yields on short-term
government debt rose in step with the Fed's measured increases, but long- and
intermediate-term bonds were much less affected. In fact, the 30-year Treasury
yield was lower by the end of the period. Consequently, long-term bonds posted
better returns than did short-term debt.
The chart below depicts the Treasury yield curve at the beginning and end of the
fiscal period. The yield curve is a snapshot of bond yields representing short
through long Treasury maturities. As illustrated in the chart, short-term yields
rose significantly more than long-term yields, creating a flatter curve by the
end of the period.
HOW THE FUND RESPONDED
During periods of rising interest rates, U.S. Government Securities Fund
typically pursues a defensive investment strategy in order to safeguard
shareholder principal. This involves reducing holdings that are particularly
sensitive to rising rates and adding securities that have greater price
resilience.
One aspect of this strategy calls for shortening the maturity structure of the
fund's portfolio. Bonds with short maturities generally retain more of their
value during rising rate cycles than do longer term bonds. Unfortunately,
long-term rates proved more resistant than in previous rate-tightening cycles.
This benefited the fund's index and its peers who had more exposure to long-term
debt. That benefit quickly faded, however, in the early weeks of the fiscal
second half when long rates finally began to move higher.
[Begin Sidebar]
TREASURY YIELD CURVES
9/01/04 2/28/05
Bond maturities
6 Month 1.780 2.972
2 Year 2.423 3.571
3 Year 2.750 3.729
5 Year 3.334 3.972
10 Year 4.142 4.341
30 Year 4.942 4.698
Source: Bloomberg
[End Sidebar]
During the year, your fund's counselors also trimmed the fund's exposure to
mortgage-backed obligations. These securities have delivered attractive returns
while long-term rates were steady or declining, but as these rates begin to
rise, mortgage-backed obligations become less appealing. Higher rates tend to
diminish the prepayments on these bonds, which has the effect of extending their
expected maturities. One year ago, mortgage-backed obligations stood at 39% of
fund assets; they have since been reduced to 29%. Conversely, the fund has
steadily increased its exposure to U.S. Treasuries and direct obligations of
federal agencies, which now stand at 53% and 14% of assets, respectively.
LOOKING AHEAD
Through the balance of this fiscal year, the Federal Reserve is expected to
continue raising short-term rates. What effect this will have on bonds with
longer maturities remains uncertain. Economic factors, such as rising commodity
prices, consumer inflation, employment trends and the pace of domestic growth,
are likely to influence long-term rate movements.
U.S. Government Securities Fund nonetheless remains an attractive option for
investors seeking to limit their exposure to risk. While the fund is subject to
interest rate risks - as all bonds are - the fund's holdings have virtually no
credit risk. Moreover, the fund's portfolio counselors have moved aggressively
to limit the negative effects of higher rates and will continue to take
appropriate measures to help safeguard shareholder principal. For nearly 20
years, this combination of active management and high-quality bonds has provided
attractive long-term results for patient shareholders, as noted in the table on
page 1.
In our next report, we'll take a look at the fund's first two decades and
examine how the fund has fared in a variety of market conditions. We look
forward to reporting to you then.
Cordially,
/s/ Paul G. Haaga, Jr. /s/ John H. Smet
Paul G. Haaga, Jr. John H. Smet
Chairman of the Board President
April 13, 2005
For current information about the fund, visit americanfunds.com.
SUMMARY INVESTMENT PORTFOLIO, February 28, 2005 unaudited
The following summary investment portfolio is designed to streamline the report
and help investors better focus on a fund's principal holdings. For details on
how to obtain a complete schedule of portfolio holdings, please see the inside
back cover.
[begin pie chart]
INVESTMENT MIX BY SECURITY TYPE
U.S. Treasury bonds & notes 53.2%
Mortgage-backed obligations 28.9%
Federal agency bonds & notes 13.8%
Short-term securities and other assets less liabilities 4.1%
[end pie chart]
QUALITY BREAKDOWN
as of February 28, 2005 Percent of net assets
U.S. government obligations(*) 70.8%
Federal agencies 25.1
Short-term securities and other
assets less liabilities 4.1
(*) These securities are guaranteed by the full faith and credit of the United
States government.
Principal Market Percent
amount value of net
Bonds & notes - 95.91% (000) (000) assets
U.S. TREASURY BONDS & notes - 53.26%
1.625% 2005 $ 37,000 $ 36,653
5.75% 2005 50,000 50,910
3.50% 2006 36,250 36,236
4.625% 2006 (1) 45,600 46,280
5.625% 2006 29,525 30,198
6.875% 2006 107,650 112,091
7.00% 2006 43,750 45,828
3.25% 2007 108,485 107,434
4.375% 2007 34,925 35,476
6.25% 2007 44,500 46,753
6.625% 2007 17,495 18,603
3.375% 2008 14,750 14,503
3.625% 2008 (2) 73,783 79,628
3.625% 2009 28,000 27,637
3.875% 2009 (2) 13,926 15,449
5.75% 2010 45,535 49,299
4.375% 2012 17,355 17,534
3.875% 2013 50,485 49,168
4.25% 2014 17,000 16,843
9.25% 2016 26,380 37,295
8.125% 2019 27,775 37,843
8.875% 2019 20,100 28,815
7.875% 2021 10,655 14,406
6.875% 2025 22,000 27,950
6.50% 2026 49,750 61,138
3.875% 2029 (2) 11,068 15,200
5.25% 2029 83,850 89,431
5.375% 2031 15,500 17,045
0%-12.00% 2005-2032 (1) (2) 94,716 103,145
Principal Strip 0% 2019 32,790 16,829 53.26%
1,285,620 53.26
MORTGAGE-BACKED OBLIGATIONS (3) - 28.88%
Government National Mortgage Association:
6.00% 2033 18,492 19,117
6.00% 2033 14,448 14,936
6.00% 2034 15,387 15,907
4.50% 2035 (4) 16,104 16,105
5.00% 2035 (4) 52,228 52,659
5.00% 2035 29,585 29,428
3.624%-10.00% 2009-2035 (4) 199,724 207,503 14.73
Fannie Mae:
5.50% 2018 19,057 19,561
4.20% 2033 (4) 17,814 17,804
6.00% 2033 40,562 41,656
6.00% 2034 24,803 25,471
3.063%-12.00% 2006-2042 (4) 106,861 111,370
Series 1997-M6, Class ZA, 6.85% 2026 16,691 17,897 9.68
Freddie Mac:
6.00% 2033 29,315 30,138
6.00% 2034 34,266 35,227
1.876%-12.004% 2006-2036 (4) 41,079 42,000 4.45
Other securities 414 .02
697,193 28.88
FEDERAL AGENCY BONDS & notes - 13.77%
Freddie Mac:
1.875% 2006 15,000 14,778
5.75% 2009 60,000 63,609
6.625% 2009 25,000 27,450
5.00% 2014 26,000 26,692
5.125%-7.00% 2005-2008 17,500 17,964 6.23
FEDERAL HOME LOAN BANK:
3.75% 2007 24,280 24,157
2.50%-5.823% 2006-2012 45,350 45,874 2.90
SMALL BUSINESS ADMINISTRATION 4.75%-6.625% 2021-2023 (3) 49,540 51,322 2.13
FANNIE MAE:
6.625% 2009 15,900 17,454
4.25%-7.25% 2005-2030 23,575 25,660 1.79
Other securities 17,397 .72
332,357 13.77
Total bonds & notes (cost: $2,305,361,000) 2,315,170 95.91
Principal Market Percent
amount value of net
Short-term securities - 5.56% (000) (000) assets
U.S. Treasury Bills 2.111%-2.357% due 3/10-3/17/2005 90,900 90,813 3.76
Federal Home Loan Bank 2.51% due 3/1/2005 43,500 43,497 1.80
TOTAL SHORT-TERM SECURITIES (cost: $134,305,000) 134,310 5.56
TOTAL INVESTMENT SECURITIES (cost: $2,439,666,000) 2,449,480 101.47
Other assets less liabilities (35,445) (1.47)
NET ASSETS $2,414,035 100.00%
"Other securities" includes all issues that are not required to be disclosed in
the summary investment portfolio.
The following footnotes to the portfolio apply to either the individual
securities noted or one or more of the securities aggregated and listed as a
single line item.
(1) This security, or a portion of this security, has been segregated to cover
funding requirements on investment transactions settling in the future.
(2) Index-linked bond whose principal amount moves with a government retail
price index.
(3) Pass-through securities backed by a pool of mortgages or other loans on
which principal payments are periodically made. Therefore, the effective
maturities are shorter than the stated maturities.
(4) Coupon rate may change periodically.
See Notes to Financial Statements
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES unaudited
at February 28, 2005 (dollars and shares in thousands, except per-share amounts)
ASSETS:
Investment securities at market (cost: $2,439,666) $2,449,480
Cash 145
Receivables for:
Sales of investments $12,510
Sales of fund's shares 3,961
Interest 17,497 33,968
2,483,593
LIABILITIES:
Payables for:
Purchases of investments 58,612
Repurchases of fund's shares 5,644
Dividends on fund's shares 2,583
Investment advisory services 528
Services provided by affiliates 2,061
Deferred Trustees' compensation 117
Other fees and expenses 13 69,558
NET ASSETS AT FEBRUARY 28, 2005 $2,414,035
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $2,431,219
Distributions in excess of net investment income (1,988)
Accumulated net realized loss (25,010)
Net unrealized appreciation 9,814
NET ASSETS AT FEBRUARY 28, 2005 $2,414,035
SHARES OF BENEFICIAL INTEREST ISSUED AND OUTSTANDING - UNLIMITED SHARES
AUTHORIZED, 177,430 TOTAL SHARES OUTSTANDING
Net assets Shares outstanding Net asset value
per share(1)
Class A $1,788,833 131,478 $13.61
Class B 206,835 15,202 13.61
Class C 117,871 8,664 13.61
Class F 44,920 3,302 13.61
Class 529-A 34,801 2,558 13.61
Class 529-B 13,365 982 13.61
Class 529-C 21,950 1,613 13.61
Class 529-E 2,833 208 13.61
Class 529-F 1,199 88 13.61
Class R-1 2,560 188 13.61
Class R-2 76,061 5,591 13.61
Class R-3 84,853 6,237 13.61
Class R-4 10,903 801 13.61
Class R-5 7,051 518 13.61
(1) Maximum offering price and redemption price per share were equal to the net
asset value per share for all share classes, except for classes A and
529-A, for which the maximum offering prices per share were $14.14 for
each.
STATEMENT OF OPERATIONS
for the six months ended February 28, 2005
INVESTMENT INCOME: unaudited
Income: (dollars in thousands)
Interest $46,220
FEES AND EXPENSES:
Investment advisory services $3,568
Distribution services 4,802
Transfer agent services 1,684
Administrative services 745
Reports to shareholders 128
Registration statement and prospectus 84
Postage, stationery and supplies 226
Trustees' compensation 36
Auditing and legal 19
Custodian 9
Total expenses before reimbursement/waiver 11,301
Reimbursement/waiver of expenses 379 10,922
Net investment income 35,298
NET REALIZED GAIN AND UNREALIZED DEPRECIATION ON INVESTMENTS:
Net realized gain on investments 14,217
Net unrealized depreciation on investments (36,888)
Net realized gain and unrealized depreciation on investments (22,671)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $12,627
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
Six months ended Year ended
February 28, August 31,
2005(*) 2004
OPERATIONS:
Net investment income $35,298 $79,515
Net realized gain on investments 14,217 10,131
Net unrealized (depreciation) appreciation
on investments (36,888) 26,177
Net increase in net assets resulting from operations 12,627 115,823
DIVIDENDS PAID OR ACCRUED TO
SHAREHOLDERS FROM NET INVESTMENT INCOME (37,221) (84,098)
CAPITAL SHARE TRANSACTIONS (66,115) (560,790)
TOTAL DECREASE IN NET ASSETS (90,709) (529,065)
NET ASSETS:
Beginning of period 2,504,744 3,033,809
End of period (including
distributions in excess of
net investment income: $(1,988) and $(65),
respectively) $2,414,035 $2,504,744
(*)Unaudited
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS unaudited
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The American Funds Income Series (the "trust") is registered
under the Investment Company Act of 1940 as an open-end, diversified management
investment company and has initially issued one series of shares, U.S.
Government Securities Fund (the "fund"). The fund seeks high current income,
consistent with prudent investment risk and preservation of capital, by
investing primarily in obligations backed by the full faith and credit of the
United States government.
The fund offers 14 share classes consisting of four retail share classes, five
CollegeAmerica(R) savings plan share classes and five retirement plan share
classes. The CollegeAmerica savings plan share classes (529-A, 529-B, 529-C,
529-E and 529-F) are sponsored by the Commonwealth of Virginia and can be
utilized to save for college education. The five retirement plan share classes
(R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not carry
any conversion rights. The fund's share classes are described below:
SHARE CLASS INITIAL SALES CHARGE CONTINGENT DEFERRED SALES CONVERSION FEATURE
CHARGE UPON REDEMPTION
Classes A and 529-A Up to 3.75% None (except 1% for None
certain redemptions
within one year of
purchase without an
initial sales charge)
Classes B and 529-B None Declines from 5% to zero Classes B and 529-B
for redemptions within convert to classes A
six years of purchase and 529-A, respectively,
after eight years
Class C None 1% for redemptions within Class C converts to Class F
one year of purchase after 10 years
Class 529-C None 1% for redemptions within None
one year of purchase
Class 529-E None None None
Classes F and 529-F None None None
Classes R-1, R-2, R-3, None None None
Holders of all share classes have equal pro rata rights to assets, dividends and
liquidation proceeds. Each share class has identical voting rights, except for
the exclusive right to vote on matters affecting only its class. Share classes
have different fees and expenses ("class-specific fees and expenses"), primarily
due to different arrangements for distribution, administrative and shareholder
services. Differences in class-specific fees and expenses will result in
differences in net investment income and, therefore, the payment of different
per-share dividends by each class.
CollegeAmerica is a registered trademark of the Virginia College Savings Plan.
(SM)
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared to
comply with accounting principles generally accepted in the United States of
America. These principles require management to make estimates and assumptions
that affect reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the fund:
SECURITY VALUATION -Fixed-income securities are valued at prices
obtained from an independent pricing service, when such prices are
available. However, where the investment adviser deems it appropriate,
such securities will be valued at the mean quoted bid and asked prices
(or bid prices, if asked prices are not available) or at prices for
securities of comparable maturity, quality and type. Short-term
securities purchased within 60 days to maturity are valued at amortized
cost, which approximates market value. The value of short-term
securities purchased with greater than 60 days to maturity with 60 days
or less remaining to maturity is determined based on the market value
on the 61st day. The ability of the issuers of the debt securities held
by the fund to meet their obligations may be affected by economic
developments in a specific industry, state or region. Securities and
other assets for which representative market quotations are not readily
available are fair valued as determined in good faith under procedures
adopted by authority of the fund's Board of Trustees. Various factors
may be reviewed in order to make a good faith determination of a
security's fair value. These factors include, but are not limited to,
the type and cost of the security; contractual or legal restrictions on
resale of the security; relevant financial or business developments of
the issuer; actively traded similar or related securities; conversion
or exchange rights on the security; related corporate actions;
significant events occurring after the close of trading in the
security; and changes in overall market conditions.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are recorded by the fund as of the date the trades are
executed with brokers. Realized gains and losses from security
transactions are determined based on the specific identified cost of
the securities. In the event a security is purchased with a delayed
payment date, the fund will segregate liquid assets sufficient to meet
its payment obligations. Interest income is recognized on an accrual
basis. Market discounts, premiums and original issue discounts on
fixed-income securities are amortized daily over the expected life of
the security.
CLASS ALLOCATIONS - Income, fees and expenses (other than class-
specific fees and expenses) are allocated daily among the various
share classes based on the relative value of their settled shares.
Realized and unrealized gains and losses are allocated daily among the
various share classes based on their relative net assets.
Class-specific fees and expenses, such as distribution, administrative
and shareholder services, are charged directly to the respective share
class.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends paid to
shareholders are declared daily after the determination of the fund's
net investment income and are paid to shareholders monthly.
Distributions paid to shareholders are recorded on the ex-dividend
date.
MORTGAGE DOLLAR ROLLS - The fund may enter into mortgage dollar roll
transactions in which the fund sells a mortgage-backed security to a
counterparty and simultaneously enters into an agreement with the same
counterparty to buy back a similar security on a specific future date
at a predetermined price. Each mortgage dollar roll is treated as a
financing transaction, therefore, any gain or loss is considered
unrealized until the roll reaches completion. Risks may arise due to
the delayed payment date and the potential inability of counterparties
to complete the transaction. Income is generated as consideration for
entering into these transactions and is included in interest income in
the accompanying financial statements.
2. FEDERAL INCOME TAXATION AND DISTRIBUTIONS
The fund complies with the requirements under Subchapter M of the Internal
Revenue Code applicable to mutual funds and intends to distribute substantially
all of its net taxable income and net capital gains each year. The fund is not
subject to income taxes to the extent such distributions are made.
DISTRIBUTIONS - Distributions paid to shareholders are based on net investment
income and net realized gains determined on a tax basis, which may differ from
net investment income and net realized gains for financial reporting purposes.
These differences are due primarily to differing treatment for items such as
short-term capital gains and losses; deferred expenses; cost of investments
sold; paydowns on investments; and net capital losses. The fiscal year in which
amounts are distributed may differ from the year in which the net investment
income and net realized gains are recorded by the fund. As of February 28, 2005,
the cost of investment securities for federal income tax purposes was
$2,439,888,000.
As of February 28, 2005, the components of distributable earnings on a tax basis
were as follows (dollars in thousands):
Undistributed net investment income $2,572
Accumulated short-term capital losses (30,044)
Undistributed long-term capital gains 3,396
Gross unrealized appreciation on investment securities 26,073
Net unrealized appreciation on investment securities 9,592
Accumulated short-term capital losses on the previous page include capital loss
carryforwards of $20,590,000, $4,377,000, $5,664,000 and $8,375,000 expiring in
2005, 2006, 2008 and 2009, respectively. The capital loss carryforwards will be
used to offset any capital gains realized by the fund in the current year or in
subsequent years through the expiration dates. The fund will not make
distributions from capital gains while capital loss carryforwards remain. During
the six months ended February 28, 2005, the fund realized, on a tax basis, a net
capital gain of $12,358,000.
Ordinary income distributions paid or accrued to shareholders were as follows
(dollars in thousands):
Share class Six months ended February 28, 2005 Year ended August 31, 2004
Class A $ 29,180 $ 67,777
Class B 2,648 6,272
Class C 1,449 3,482
Class F 626 937
Class 529-A 533 1,028
Class 529-B 153 331
Class 529-C 252 505
Class 529-E 38 68
Class 529-F 17 29
Class R-1 28 40
Class R-2 889 1,404
Class R-3 1,131 1,784
Class R-4 148 209
Class R-5 129 232
Total $ 37,221 $ 84,098
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
Capital Research and Management Company ("CRMC"), the fund's investment adviser,
is the parent company of American Funds Service Company ("AFS"), the fund's
transfer agent, and American Funds Distributors, Inc. ("AFD"), the principal
underwriter of the fund's shares.
INVESTMENT ADVISORY SERVICES - The Investment Advisory and Service Agreement
with CRMC provides for monthly fees accrued daily. These fees are based on a
declining series of annual rates beginning with 0.30% on the first $60 million
of daily net assets and decreasing to 0.15% on such assets in excess of $3
billion. The agreement also provides for monthly fees, accrued daily, based on a
declining series of annual rates beginning with 3.00% on the first $3,333,333 of
the fund's monthly gross income and decreasing to 2.00% on such income in excess
of $8,333,333. During the six months ended February 28, 2005, CRMC reduced
investment advisory services fees by $178,000. As a result, the fee shown on the
accompanying financial statements of $3,568,000, which was equivalent to an
annualized rate of 0.292%, was reduced to $3,390,000, or 0.277% of average daily
net assets.
CLASS-SPECIFIC FEES AND EXPENSES - Expenses that are specific to individual
share classes are accrued directly to the respective share class. The principal
class-specific fees and expenses are described below:
DISTRIBUTION SERVICES - The fund has adopted plans of distribution for
all share classes, except Class R-5. Under the plans, the Board of
Trustees approves certain categories of expenses that are used to
finance activities primarily intended to sell fund shares. The plans
provide for annual expenses, based on a percentage of average daily net
assets, ranging from 0.30% to 1.00% as noted below. In some cases, the
Board of Trustees has approved expense amounts lower than plan limits.
All share classes may use up to 0.25% of average daily net assets to
pay service fees, or to compensate AFD for paying service fees, to
firms that have entered into agreements with AFD for providing certain
shareholder services. Expenses in excess of these amounts, up to
approved limits, may be used to compensate dealers and wholesalers for
shares sold.
For classes A and 529-A, the Board of Trustees has also approved the
reimbursement of dealer and wholesaler commissions paid by AFD for
certain shares sold without a sales charge. Each class reimburses AFD
for amounts billed within the prior 15 months but only to the extent
that the overall annual expense limit of 0.30% is not exceeded. As of
February 28, 2005, there were no unreimbursed expenses subject to
reimbursement for classes A or 529-A.
Share class Currently approved limits Plan limits
Class A 0.30% 0.30%
Class 529-A 0.30 0.50
Classes B and 529-B 1.00 1.00
Classes C, 529-C and R-1 1.00 1.00
Class R-2 0.75 1.00
Classes 529-E and R-3 0.50 0.75
Classes F, 529-F and R-4 0.25 0.50
TRANSFER AGENT SERVICES - The fund has a transfer agent agreement with
AFS for classes A and B. Under this agreement, these share classes
compensate AFS for transfer agent services including shareholder
recordkeeping, communications and transaction processing. AFS is also
compensated for certain transfer agent services provided to all other
share classes from the administrative services fees paid to CRMC
described on the following page.
ADMINISTRATIVE SERVICES - The fund has an administrative services
agreement with CRMC to provide transfer agent and other related
shareholder services for all classes of shares other than classes A and
B. Each relevant class pays CRMC annual fees of 0.15% (0.10% for Class
R-5) based on its respective average daily net assets. Each relevant
class also pays AFS additional amounts for certain transfer agent
services. CRMC and AFS may use these fees to compensate third parties
for performing these services. During the six months ended February 28,
2005, CRMC agreed to pay a portion of these fees for classes R-1, R-2
and R-3. For the six months ended February 28, 2005, the total fees
paid by CRMC were $2,000, $158,000 and $41,000 for Class R-1, Class R-2
and Class R-3, respectively. Administrative services fees are presented
gross of any payments made by CRMC. Each 529 share class is subject to
an additional annual administrative services fee of 0.10% of its
respective average daily net assets; this fee is payable to the
Commonwealth of Virginia for the maintenance of the CollegeAmerica
plan. Although these amounts are included with administrative services
fees in the accompanying financial statements, the Commonwealth of
Virginia is not considered a related party.
Expenses under the agreements described above for the six months ended
February 28, 2005, were as follows (dollars in thousands):
SHARE CLASS DISTRIBUTION TRANSFER AGENT ADMINISTRATIVE SERVICES
SERVICES SERVICES
CRMC TRANSFER AGENT COMMONWEALTH OF
ADMINISTRATIVE SERVICES VIRGINIA
SERVICES ADMINISTRATIVE
SERVICES
Class A $2,383 $1,532 Not applicable Not applicable Not applicable
Class B 1,066 152 Not applicable Not applicable Not applicable
Class C 598 Included $90 $31 Not applicable
in
administrative
services
Class F 50 Included 30 9 Not applicable
in
administrative
services
Class 529-A 31 Included 25 6 $17
in
administrative
services
Class 529-B 66 Included 10 4 7
in
administrative
services
Class 529-C 109 Included 16 6 11
in
administrative
services
Class 529-E 7 Included 2 1 1
in
administrative
services
Class 529-F 1 Included 1 -(*) -(*)
in
administrative
services
Class R-1 12 Included 2 2 Not applicable
in
administrative
services
Class R-2 269 Included 54 254 Not applicable
in
administrative
services
Class R-3 198 Included 59 95 Not applicable
in
administrative
services
Class R-4 12 Included 7 1 Not applicable
in
administrative
services
Class R-5 Not applicable Included 4 -(*) Not applicable
in
administrative
services
Total $4,802 $1,684 $300 $409 $36
(*) Amount less than one thousand.
DEFERRED TRUSTEES' COMPENSATION - Since the adoption of the deferred
compensation plan in 1993, Trustees who are unaffiliated with CRMC may elect to
defer the cash payment of part or all of their compensation. These deferred
amounts, which remain as liabilities of the fund, are treated as if invested in
shares of the fund or other American Funds. These amounts represent general,
unsecured liabilities of the fund and vary according to the total returns of the
selected funds. Trustees' compensation of $36,000, shown on the accompanying
financial statements, includes $24,000 in current fees (either paid in cash or
deferred) and a net increase of $12,000 in the value of the deferred amounts.
AFFILIATED OFFICERS AND TRUSTEES - Officers and certain Trustees of the fund are
or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated
officers or Trustees received any compensation directly from the fund.
4. CAPITAL SHARE TRANSACTIONS
Capital share transactions in the fund were as follows (dollars and shares in
thousands):
Reinvestments of
dividends and
Share class Sales(1) distributions
Amount Shares Amount Shares
Six months ended February 28, 2005
Class A $165,161 12,047 $ 25,518 1,860
Class B 12,005 875 2,350 171
Class C 15,700 1,145 1,268 93
Class F 20,158 1,468 482 35
Class 529-A 4,076 298 522 38
Class 529-B 1,118 81 150 11
Class 529-C 2,889 210 246 18
Class 529-E 563 41 37 3
Class 529-F 215 16 17 1
Class R-1 684 50 27 2
Class R-2 18,296 1,335 862 63
Class R-3 21,453 1,566 1,097 80
Class R-4 3,625 265 143 10
Class R-5 2,818 205 105 8
Total net increase
(decrease) $268,761 19,602 $ 32,824 2,393
Year ended August 31, 2004
Class A $421,261 30,787 $ 59,101 4,322
Class B 37,807 2,763 5,601 410
Class C 39,279 2,870 3,031 222
Class F 24,351 1,776 705 52
Class 529-A 10,260 751 1,015 74
Class 529-B 2,832 207 325 24
Class 529-C 6,693 489 497 36
Class 529-E 940 68 67 5
Class 529-F 518 38 28 2
Class R-1 1,603 117 39 3
Class R-2 44,806 3,274 1,367 100
Class R-3 40,344 2,949 1,747 128
Class R-4 5,418 396 205 15
Class R-5 3,945 286 155 11
Total net increase
(decrease) $640,057 46,771 $ 73,883 5,404
Share class Repurchases(1) Net (decrease) increase
Amount Shares Amount Shares
Six months ended February 28, 2005
Class A $ (283,247) (20,667) $ (92,568) (6,760)
Class B (26,171) (1,909) (11,816) (863)
Class C (20,199) (1,474) (3,231) (236)
Class F (7,779) (567) 12,861 936
Class 529-A (2,885) (211) 1,713 125
Class 529-B (1,152) (84) 116 8
Class 529-C (2,316) (169) 819 59
Class 529-E (219) (16) 381 28
Class 529-F (92) (7) 140 10
Class R-1 (310) (23) 401 29
Class R-2 (9,949) (726) 9,209 672
Class R-3 (9,357) (683) 13,193 963
Class R-4 (933) (68) 2,835 207
Class R-5 (3,091) (225) (168) (12)
Total net increase
(decrease) $ (367,700) (26,829) $ (66,115) (4,834)
Year ended August 31, 2004
Class A $ (978,736) (71,566) $ (498,374) (36,457)
Class B (116,635) (8,526) (73,227) (5,353)
Class C (91,990) (6,728) (49,680) (3,636)
Class F (15,994) (1,171) 9,062 657
Class 529-A (8,764) (641) 2,511 184
Class 529-B (4,395) (320) (1,238) (89)
Class 529-C (6,225) (455) 965 70
Class 529-E (574) (42) 433 31
Class 529-F (234) (17) 312 23
Class R-1 (629) (46) 1,013 74
Class R-2 (22,637) (1,654) 23,536 1,720
Class R-3 (19,956) (1,460) 22,135 1,617
Class R-4 (2,454) (180) 3,169 231
Class R-5 (5,507) (402) (1,407) (105)
Total net increase
(decrease) $ (1,274,730) (93,208) $ (560,790) (41,033)
(1) Includes exchanges between share classes of the fund.
5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding short-term
securities, of $1,075,342,000 and $1,107,607,000, respectively, during the six
months ended February 28, 2005.
The fund receives a reduction in its custodian fee equal to the amount of
interest calculated on certain cash balances held at the custodian bank. For the
six months ended February 28, 2005, the custodian fee of $9,000, shown on the
accompanying financial statements, was offset by this reduction, rather than
paid in cash.
FINANCIAL HIGHLIGHTS(1)
Income from investment operations(2)
Net
Net asset (losses) gains
value, Net on securities Total from
beginning investment (both realized investment
of period income and unrealized) operations
Class A:
Six months ended 2/28/2005(5) $13.74 $.21 $(.12) $.09
Year ended 8/31/2004 13.59 .43 .17 .60
Year ended 8/31/2003 13.73 .42 (.10) .32
Year ended 8/31/2002 13.34 .57 .41 .98
Year ended 8/31/2001 12.76 .70 .63 1.33
Year ended 8/31/2000 12.63 .77 .09 .86
Class B:
Six months ended 2/28/2005(5) 13.74 .16 (.12) .04
Year ended 8/31/2004 13.59 .33 .17 .50
Year ended 8/31/2003 13.73 .32 (.10) .22
Year ended 8/31/2002 13.34 .48 .41 .89
Year ended 8/31/2001 12.76 .61 .63 1.24
Period from 3/15/2000 to 8/31/2000 12.49 .26 .31 .57
Class C:
Six months ended 2/28/2005(5) 13.74 .15 (.12) .03
Year ended 8/31/2004 13.59 .32 .17 .49
Year ended 8/31/2003 13.73 .31 (.10) .21
Year ended 8/31/2002 13.34 .47 .41 .88
Period from 3/15/2001 to 8/31/2001 13.31 .25 .04 .29
Class F:
Six months ended 2/28/2005(5) 13.74 .21 (.12) .09
Year ended 8/31/2004 13.59 .43 .17 .60
Year ended 8/31/2003 13.73 .42 (.10) .32
Year ended 8/31/2002 13.34 .56 .41 .97
Period from 3/15/2001 to 8/31/2001 13.31 .29 .04 .33
Class 529-A:
Six months ended 2/28/2005(5) 13.74 .20 (.12) .08
Year ended 8/31/2004 13.59 .42 .17 .59
Year ended 8/31/2003 13.73 .42 (.10) .32
Period from 2/20/2002 to 8/31/2002 13.36 .27 .39 .66
Class 529-B:
Six months ended 2/28/2005(5) 13.74 .15 (.12) .03
Year ended 8/31/2004 13.59 .31 .17 .48
Year ended 8/31/2003 13.73 .29 (.10) .19
Period from 2/20/2002 to 8/31/2002 13.36 .19 .39 .58
Class 529-C:
Six months ended 2/28/2005(5) 13.74 .15 (.12) .03
Year ended 8/31/2004 13.59 .31 .17 .48
Year ended 8/31/2003 13.73 .29 (.10) .19
Period from 2/19/2002 to 8/31/2002 13.36 .22 .36 .58
Class 529-E:
Six months ended 2/28/2005(5) 13.74 .18 (.12) .06
Year ended 8/31/2004 13.59 .38 .17 .55
Year ended 8/31/2003 13.73 .37 (.10) .27
Period from 3/7/2002 to 8/31/2002 13.22 .24 .51 .75
Class 529-F:
Six months ended 2/28/2005(5) 13.74 .20 (.12) .08
Year ended 8/31/2004 13.59 .41 .17 .58
Period from 10/11/2002 to 8/31/2003 13.83 .30 (.15) .15
Class R-1:
Six months ended 2/28/2005(5) $13.74 $.16 $(.12) $.04
Year ended 8/31/2004 13.59 .32 .17 .49
Year ended 8/31/2003 13.73 .31 (.10) .21
Period from 6/13/2002 to 8/31/2002 13.40 .09 .33 .42
Class R-2:
Six months ended 2/28/2005(5) 13.74 .16 (.12) .04
Year ended 8/31/2004 13.59 .33 .17 .50
Year ended 8/31/2003 13.73 .31 (.10) .21
Period from 5/31/2002 to 8/31/2002 13.37 .10 .38 .48
Class R-3:
Six months ended 2/28/2005(5) 13.74 .18 (.12) .06
Year ended 8/31/2004 13.59 .38 .17 .55
Year ended 8/31/2003 13.73 .37 (.10) .27
Period from 6/6/2002 to 8/31/2002 13.36 .11 .38 .49
Class R-4:
Six months ended 2/28/2005(5) 13.74 .21 (.12) .09
Year ended 8/31/2004 13.59 .43 .17 .60
Year ended 8/31/2003 13.73 .42 (.10) .32
Period from 5/28/2002 to 8/31/2002 13.34 .14 .40 .54
Class R-5:
Six months ended 2/28/2005(5) 13.74 .23 (.12) .11
Year ended 8/31/2004 13.59 .47 .17 .64
Year ended 8/31/2003 13.73 .46 (.10) .36
Period from 5/15/2002 to 8/31/2002 13.27 .17 .48 .65
Dividends
(from net Net asset Net assets,
investment value, end Total end of period
income) of period return (3) (in millions)
Class A:
Six months ended 2/28/2005(5) $(.22) $13.61 .63% $1,789
Year ended 8/31/2004 (.45) 13.74 4.49 1,900
Year ended 8/31/2003 (.46) 13.59 2.29 2,374
Year ended 8/31/2002 (.59) 13.73 7.55 2,256
Year ended 8/31/2001 (.75) 13.34 10.70 1,357
Year ended 8/31/2000 (.73) 12.76 7.07 1,083
Class B:
Six months ended 2/28/2005(5) (.17) 13.61 .28 207
Year ended 8/31/2004 (.35) 13.74 3.72 221
Year ended 8/31/2003 (.36) 13.59 1.58 291
Year ended 8/31/2002 (.50) 13.73 6.80 184
Year ended 8/31/2001 (.66) 13.34 9.94 40
Period from 3/15/2000 to 8/31/2000 (.30) 12.76 4.60 3
Class C:
Six months ended 2/28/2005(5) (.16) 13.61 .25 118
Year ended 8/31/2004 (.34) 13.74 3.65 122
Year ended 8/31/2003 (.35) 13.59 1.51 170
Year ended 8/31/2002 (.49) 13.73 6.72 122
Period from 3/15/2001 to 8/31/2001 (.26) 13.34 2.19 15
Class F:
Six months ended 2/28/2005(5) (.22) 13.61 .63 45
Year ended 8/31/2004 (.45) 13.74 4.45 33
Year ended 8/31/2003 (.46) 13.59 2.29 23
Year ended 8/31/2002 (.58) 13.73 7.51 22
Period from 3/15/2001 to 8/31/2001 (.30) 13.34 2.53 6
Class 529-A:
Six months ended 2/28/2005(5) (.21) 13.61 .61 35
Year ended 8/31/2004 (.44) 13.74 4.40 34
Year ended 8/31/2003 (.46) 13.59 2.31 31
Period from 2/20/2002 to 8/31/2002 (.29) 13.73 5.00 9
Class 529-B:
Six months ended 2/28/2005(5) (.16) 13.61 .20 13
Year ended 8/31/2004 (.33) 13.74 3.54 13
Year ended 8/31/2003 (.33) 13.59 1.38 14
Period from 2/20/2002 to 8/31/2002 (.21) 13.73 4.40 3
Class 529-C:
Six months ended 2/28/2005(5) (.16) 13.61 .20 22
Year ended 8/31/2004 (.33) 13.74 3.55 21
Year ended 8/31/2003 (.33) 13.59 1.39 20
Period from 2/19/2002 to 8/31/2002 (.21) 13.73 4.41 7
Class 529-E:
Six months ended 2/28/2005(5) (.19) 13.61 .45 3
Year ended 8/31/2004 (.40) 13.74 4.08 2
Year ended 8/31/2003 (.41) 13.59 1.92 2
Period from 3/7/2002 to 8/31/2002 (.24) 13.73 5.76 1
Class 529-F:
Six months ended 2/28/2005(5) (.21) 13.61 .58 1
Year ended 8/31/2004 (.43) 13.74 4.33 1
Period from 10/11/2002 to 8/31/2003 (.39) 13.59 1.04 1
Class R-1:
Six months ended 2/28/2005(5) $(.17) 13.61 .26% $2
Year ended 8/31/2004 (.34) 13.74 3.66 2
Year ended 8/31/2003 (.35) 13.59 1.49 1
Period from 6/13/2002 to 8/31/2002 (.09) 13.73 3.12 - (7)
Class R-2:
Six months ended 2/28/2005(5) (.17) 13.61 .28 76
Year ended 8/31/2004 (.35) 13.74 3.70 68
Year ended 8/31/2003 (.35) 13.59 1.53 43
Period from 5/31/2002 to 8/31/2002 (.12) 13.73 3.57 1
Class R-3:
Six months ended 2/28/2005(5) (.19) 13.61 .46 85
Year ended 8/31/2004 (.40) 13.74 4.09 73
Year ended 8/31/2003 (.41) 13.59 1.93 50
Period from 6/6/2002 to 8/31/2002 (.12) 13.73 3.68 - (7)
Class R-4:
Six months ended 2/28/2005(5) (.22) 13.61 .64 11
Year ended 8/31/2004 (.45) 13.74 4.45 8
Year ended 8/31/2003 (.46) 13.59 2.30 5
Period from 5/28/2002 to 8/31/2002 (.15) 13.73 4.04 - (7)
Class R-5:
Six months ended 2/28/2005(5) (.24) 13.61 .79 7
Year ended 8/31/2004 (.49) 13.74 4.78 7
Year ended 8/31/2003 (.50) 13.59 2.63 9
Period from 5/15/2002 to 8/31/2002 (.19) 13.73 4.89 5
Ratio of expenses Ratio of expenses
to average net to average net Ratio of
assets before assets after net income
reimbursements/ reimbursements/ to average
waivers waivers(4) net assets
Class A:
Six months ended 2/28/2005(5) .76%(6) .75%(6) 3.03%(6)
Year ended 8/31/2004 .71 .71 3.14
Year ended 8/31/2003 .76 .76 3.01
Year ended 8/31/2002 .80 .80 4.27
Year ended 8/31/2001 .85 .85 5.37
Year ended 8/31/2000 .85 .85 6.13
Class B:
Six months ended 2/28/2005(5) 1.48(6) 1.46(6) 2.32(6)
Year ended 8/31/2004 1.47 1.47 2.38
Year ended 8/31/2003 1.46 1.46 2.23
Year ended 8/31/2002 1.50 1.50 3.47
Year ended 8/31/2001 1.51 1.51 4.47
Period from 3/15/2000 to 8/31/2000 .71 .71 2.44
Class C:
Six months ended 2/28/2005(5) 1.54(6) 1.52(6) 2.26(6)
Year ended 8/31/2004 1.53 1.53 2.32
Year ended 8/31/2003 1.54 1.54 2.19
Year ended 8/31/2002 1.57 1.57 3.37
Period from 3/15/2001 to 8/31/2001 .81 .81 1.97
Class F:
Six months ended 2/28/2005(5) .76(6) .75(6) 2.99(6)
Year ended 8/31/2004 .75 .75 3.04
Year ended 8/31/2003 .75 .75 3.00
Year ended 8/31/2002 .83 .83 4.16
Period from 3/15/2001 to 8/31/2001 .40 .40 2.35
Class 529-A:
Six months ended 2/28/2005(5) .81(6) .79(6) 2.99(6)
Year ended 8/31/2004 .80 .80 3.02
Year ended 8/31/2003 .68 .68 2.91
Period from 2/20/2002 to 8/31/2002 .92(6) .92(6) 3.82(6)
Class 529-B:
Six months ended 2/28/2005(5) 1.65(6) 1.64(6) 2.14(6)
Year ended 8/31/2004 1.64 1.64 2.20
Year ended 8/31/2003 1.63 1.63 1.92
Period from 2/20/2002 to 8/31/2002 1.66(6) 1.66(6) 3.16(6)
Class 529-C:
Six months ended 2/28/2005(5) 1.64(6) 1.63(6) 2.15(6)
Year ended 8/31/2004 1.63 1.63 2.20
Year ended 8/31/2003 1.62 1.62 1.99
Period from 2/19/2002 to 8/31/2002 1.64(6) 1.64(6) 3.13(6)
Class 529-E:
Six months ended 2/28/2005(5) 1.12(6) 1.11(6) 2.67(6)
Year ended 8/31/2004 1.11 1.11 2.71
Year ended 8/31/2003 1.10 1.10 2.48
Period from 3/7/2002 to 8/31/2002 .55 .55 1.78
Class 529-F:
Six months ended 2/28/2005(5) .87(6) .86(6) 2.92(6)
Year ended 8/31/2004 .86 .86 2.94
Period from 10/11/2002 to 8/31/2003 .84(6) .84(6) 2.49(6)
Class R-1:
Six months ended 2/28/2005(5) 1.66%(6) 1.51%(6) 2.27%(6)
Year ended 8/31/2004 1.74 1.52 2.26
Year ended 8/31/2003 2.02 1.52 1.86
Period from 6/13/2002 to 8/31/2002 .39 .31 .64
Class R-2:
Six months ended 2/28/2005(5) 1.92(6) 1.47(6) 2.31(6)
Year ended 8/31/2004 2.02 1.48 2.32
Year ended 8/31/2003 2.05 1.47 1.81
Period from 5/31/2002 to 8/31/2002 .53 .38 .72
Class R-3:
Six months ended 2/28/2005(5) 1.21(6) 1.09(6) 2.69(6)
Year ended 8/31/2004 1.23 1.10 2.71
Year ended 8/31/2003 1.16 1.08 1.80
Period from 6/6/2002 to 8/31/2002 .35 .27 .83
Class R-4:
Six months ended 2/28/2005(5) .74(6) .73(6) 3.06(6)
Year ended 8/31/2004 .74 .74 3.05
Year ended 8/31/2003 .75 .73 2.58
Period from 5/28/2002 to 8/31/2002 .27 .20 1.00
Class R-5:
Six months ended 2/28/2005(5) .43(6) .42(6) 3.36(6)
Year ended 8/31/2004 .42 .42 3.39
Year ended 8/31/2003 .43 .43 3.31
Period from 5/15/2002 to 8/31/2002 .13 .13 1.24
Six months ended
February 28, Year ended August 31
2005(5) 2004 2003 2002 2001 2000
Portfolio turnover rate for all classes of shares 46% 72% 82% 95% 44% 63%
(1) Based on operations for the period shown (unless otherwise noted) and,
accordingly, may not be representative of a full year.
(2) Based on average shares outstanding.
(3) Total returns exclude all sales charges, including contingent deferred
sales charges.
(4) The ratios in this column reflect the impact, if any, of certain
reimbursements/waivers from CRMC. During the six months ended 2/28/2005,
CRMC reduced fees for investment advisory services for all share classes.
In addition, during the start-up period for the retirement plan share
classes (except Class R-5), CRMC agreed to pay a portion of the fees
related to transfer agent services.
(5) Unaudited.
(6) Annualized.
(7) Amount less than $1 million.
See Notes to Financial Statements
EXPENSE EXAMPLE (UNAUDITED)
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs such as initial sales charges on purchase payments and contingent deferred
sales charges on redemptions (loads); and (2) ongoing costs, including
management fees; distribution and service (12b-1) fees; and other expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the fund so you can compare these costs with the ongoing costs of
investing in other mutual funds. The example is based on an investment of $1,000
invested at the beginning of the period and held for the entire period
(September 1, 2004 through February 28, 2005).
ACTUAL EXPENSES:
The first line of each share class in the table on the next page provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested, to estimate the
expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first line under the heading entitled
"Expenses paid during period" to estimate the expenses you paid on your account
during this period. There are some account fees that are charged to certain
types of accounts, such as Individual Retirement Accounts and CollegeAmerica
accounts (generally, a $10 fee is charged to set up the account and an
additional $10 fee is charged to the account annually) that would increase the
amount of expenses paid on your account. In addition, retirement plan
participants may be subject to certain fees charged by the plan sponsor, and
Class F and Class 529-F shareholders may be subject to fees charged by financial
intermediaries, typically ranging from 0.50% to 3.00% of assets annually
depending on services offered. You can estimate the impact of these fees by
adding the amount of the fees to the total estimated expenses you paid on your
account during the period as calculated above. In addition, your ending account
value would also be lower by the amount of these fees.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES:
The second line of each share class in the table on the next page provides
information about hypothetical account values and hypothetical expenses based on
the actual expense ratio for the share class and an assumed rate of return of
5.00% per year before expenses, which is not the actual return of the share
class. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the fund and
other funds. To do so, compare this 5.00% hypothetical example with the 5.00%
hypothetical examples that appear in the shareholder reports of the other funds.
There are some account fees that are charged to certain shareholders, such as
Individual Retirement Accounts and CollegeAmerica accounts (generally, a $10 fee
is charged to set up the account and an additional $10 fee is charged to the
account annually) that would increase the amount of expenses paid on your
account. In addition, retirement plan participants may be subject to certain
fees charged by the plan sponsor, and Class F and Class 529-F shareholders may
be subject to fees charged by financial intermediaries, typically ranging from
0.50% to 3.00% of assets annually depending on services offered. You can
estimate the impact of these fees by adding the amount of the fees to the total
estimated expenses you paid on your account during the period as calculated on
the previous page. In addition, your ending account value would also be lower by
the amount of these fees.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads). Therefore, the second line of each share class in the table is
useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these
transactional costs were included, your costs would have been higher.
Beginning Ending Expenses Annualized
account account paid during expense ratio
value value period(1)
9/1/2004 2/28/2005
Class A -- actual return $1,000.00 $1,006.31 $3.73 .75%
Class A -- assumed 5% return 1,000.00 1,021.08 3.76 .75
Class B -- actual return 1,000.00 1,002.80 7.25 1.46
Class B -- assumed 5% return 1,000.00 1,017.55 7.30 1.46
Class C -- actual return 1,000.00 1,002.50 7.55 1.52
Class C -- assumed 5% return 1,000.00 1,017.26 7.60 1.52
Class F -- actual return 1,000.00 1,006.27 3.73 .75
Class F -- assumed 5% return 1,000.00 1,021.08 3.76 .75
Class 529-A -- actual return 1,000.00 1,006.07 3.93 .79
Class 529-A -- assumed 5% return 1,000.00 1,020.88 3.96 .79
Class 529-B -- actual return 1,000.00 1,001.97 8.14 1.64
Class 529-B -- assumed 5% return 1,000.00 1,016.66 8.20 1.64
Class 529-C -- actual return 1,000.00 1,002.00 8.09 1.63
Class 529-C -- assumed 5% return 1,000.00 1,016.71 8.15 1.63
Class 529-E -- actual return 1,000.00 1,004.54 5.52 1.11
Class 529-E -- assumed 5% return 1,000.00 1,019.29 5.56 1.11
Class 529-F -- actual return 1,000.00 1,005.75 4.28 .86
Class 529-F -- assumed 5% return 1,000.00 1,020.53 4.31 .86
Class R-1 -- actual return 1,000.00 1,002.58 7.50 1.51
Class R-1 -- assumed 5% return 1,000.00 1,017.31 7.55 1.51
Class R-2 -- actual return 1,000.00 1,002.77 7.30 1.47
Class R-2 -- assumed 5% return 1,000.00 1,017.50 7.35 1.47
Class R-3 -- actual return 1,000.00 1,004.63 5.42 1.09
Class R-3 -- assumed 5% return 1,000.00 1,019.39 5.46 1.09
Class R-4 -- actual return 1,000.00 1,006.41 3.63 .73
Class R-4 -- assumed 5% return 1,000.00 1,021.17 3.66 .73
Class R-5 -- actual return 1,000.00 1,007.94 2.09 .42
Class R-5 -- assumed 5% return 1,000.00 1,022.71 2.11 .42
(1) Expenses are equal to the annualized expense ratio, multiplied by the
average account value over the period, multiplied by the number of days in
the period (181), and divided by 365 (to reflect the one-half year period).
OTHER SHARE CLASS RESULTS unaudited
Class B, Class C, Class F and Class 529
Figures shown are past results and are not predictive of results in future
periods. Current and future results may be lower or higher than those shown.
Share prices and returns will vary, so investors may lose money. For the most
current information and month-end results, visit americanfunds.com.
Returns for periods ended March 31, 2005 (the most recent calendar quarter):
1 year 5 years Life of class
CLASS B SHARES
Reflecting applicable contingent deferred sales charge
(CDSC), maximum of 5%, payable only if shares
are sold within six years of purchase -4.94% +4.74% +5.06%(1)
Not reflecting CDSC -0.07% +5.07% +5.22%(1)
CLASS C SHARES
Reflecting CDSC, maximum of 1%, payable only if
shares are sold within one year of purchase -1.10% -- +3.43%(2)
Not reflecting CDSC -0.12% -- +3.43%(2)
CLASS F SHARES(3)
Not reflecting annual asset-based fee charged by
sponsoring firm +0.64% -- +4.20%(2)
CLASS 529-A SHARES
Reflecting 3.75% maximum sales charge -3.19% -- +2.59%(4)
Not reflecting maximum sales charge +0.57% -- +3.86%(4)
CLASS 529-B SHARES
Reflecting applicable CDSC, maximum of 5%, payable
only if shares are sold within six years of purchase -5.10% -- +2.01%(4)
Not reflecting CDSC -0.23% -- +2.92%(4)
CLASS 529-C SHARES
Reflecting CDSC, maximum of 1%, payable only if
shares are sold within one year of purchase -1.20% -- +2.93%(5)
Not reflecting CDSC -0.22% -- +2.93%(5)
CLASS 529-E SHARES(3) +0.28% -- +3.86%(6)
CLASS 529-F SHARES(3)
Not reflecting annual asset-based fee charged by
sponsoring firm +0.53% -- +2.26%(7)
The fund's investment adviser is waiving a portion of its management fees.
Results shown reflect the waiver.
Please see the Financial Highlights table on page 18 for details.
(1) Average annual total return from March 15, 2000, when Class B shares were
first sold.
(2) Average annual total return from March 15, 2001, when Class C and Class F
shares were first sold.
(3) These shares are sold without any initial or contingent deferred sales
charge.
(4) Average annual total return from February 20, 2002, when Class 529-A and
Class 529-B shares were first sold.
(5) Average annual total return from February 19, 2002, when Class 529-C shares
were first sold.
(6) Average annual total return from March 7, 2002, when Class 529-E shares
were first sold.
(7) Average annual total return from October 11, 2002, when Class 529-F shares
were first sold.
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER
Capital Research and
Management Company
333 South Hope Street
Los Angeles, CA 90071-1406
135 South State College Boulevard
Brea, CA 92821-5823
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 25065
Santa Ana, CA 92799-5065
P.O. Box 659522
San Antonio, TX 78265-9522
P.O. Box 6007
Indianapolis, IN 46206-6007
P.O. Box 2280
Norfolk, VA 23501-2280
CUSTODIAN OF ASSETS
JPMorgan Chase Bank
270 Park Avenue
New York, NY 10017-2070
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, CA 90071-2228
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
695 Town Center Drive
Suite 1200
Costa Mesa, CA 92626-7188
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406
There are several ways to invest in U.S. Government Securities Fund. Class A
shares are subject to a 3.75% maximum up-front sales charge that declines for
accounts (and aggregated investments) of $100,000 or more and is eliminated for
purchases of $1 million or more. Other share classes, which are generally not
available for certain employer-sponsored retirement plans, have no up-front
sales charges but are subject to additional annual expenses and fees. Annualized
expenses for Class B shares were 0.71 percentage points higher than for Class A
shares; Class B shares convert to Class A shares after eight years of ownership.
If redeemed within six years, Class B shares may also be subject to a contingent
deferred sales charge ("CDSC") of up to 5% that declines over time. Class C
shares were subject to annualized expenses 0.77 percentage points higher than
those for Class A shares and a 1% CDSC if redeemed within the first year after
purchase. Class C shares convert to Class F shares after 10 years. Class F
shares, which are available only through certain fee-based programs offered by
broker-dealer firms and registered investment advisers, had the same annualized
expenses as did Class A shares, and an annual asset-based fee charged by the
sponsoring firm. Expenses are deducted from income earned by the fund. As a
result, dividends and investment results will differ for each share class.
INVESTORS SHOULD CAREFULLY CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES
AND EXPENSES OF THE AMERICAN FUNDS AND COLLEGEAMERICA. THIS AND OTHER IMPORTANT
INFORMATION IS CONTAINED IN THE FUND'S PROSPECTUS AND THE COLLEGEAMERICA PROGRAM
DESCRIPTION, WHICH CAN BE OBTAINED FROM YOUR FINANCIAL ADVISER AND SHOULD BE
READ CAREFULLY BEFORE INVESTING. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY (AFS) AT 800/421-0180 OR VISIT THE AMERICAN FUNDS WEBSITE AT
AMERICANFUNDS.COM.
"AMERICAN FUNDS PROXY VOTING GUIDELINES" -- WHICH DESCRIBES HOW WE VOTE PROXIES
RELATING TO PORTFOLIO SECURITIES -- IS AVAILABLE FREE OF CHARGE ON THE U.S.
SECURITIES AND EXCHANGE COMMISSION (SEC) WEBSITE AT WWW.SEC.GOV, ON THE AMERICAN
FUNDS WEBSITE OR UPON REQUEST BY CALLING AFS. THE FUND'S PROXY VOTING RECORD FOR
THE 12 MONTHS ENDED JUNE 30, 2004, IS ALSO AVAILABLE ON THE SEC AND AMERICAN
FUNDS WEBSITES.
A complete February 28, 2005, portfolio of U.S. Government Securities Fund's
investments is available free of charge on the SEC website or upon request by
calling AFS.
U.S. Government Securities Fund files a complete list of its portfolio holdings
with the SEC for the first and third quarters of each fiscal year on Form N-Q.
Forms N-Q are available free of charge on the SEC website or upon request by
calling AFS. You may also review or, for a fee, copy the forms at the SEC's
Public Reference Room in Washington, D.C. (800/SEC-0330).
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, 2005, this report must be accompanied by an American
Funds statistical update for the most recently completed calendar quarter.
[logo - American Funds(R)]
The right choice for the long term(R)
WHAT MAKES AMERICAN FUNDS DIFFERENT?
For more than 70 years, we have followed a consistent philosophy that we firmly
believe is in our investors' best interests. The range of opportunities offered
by our family of just 29 carefully conceived, broadly diversified funds has
attracted over 30 million shareholder accounts.
OUR UNIQUE COMBINATION OF STRENGTHS INCLUDES THESE FIVE FACTORS:
o A LONG-TERM, VALUE-ORIENTED APPROACH
Rather than follow fads, we pursue a consistent strategy, focusing on each
investment's long-term potential.
o AN UNPARALLELED GLOBAL RESEARCH EFFORT
American Funds draws on one of the industry's most globally integrated
research networks.
o THE MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Every American Fund is divided among a number of portfolio counselors. Each
takes responsibility for a portion independently, within each fund's
objectives; in most cases, research analysts manage a portion as well. Over
time this method has contributed to a consistency of results and continuity
of management.
o EXPERIENCED INVESTMENT PROFESSIONALS
The recent market decline was not the first for most of the portfolio
counselors who serve the American Funds. More than half of them were in the
investment business before the sharp market decline of 1987.
o A COMMITMENT TO LOW OPERATING EXPENSES
American Funds' operating expenses are among the lowest in the mutual fund
industry. Our portfolio turnover rates are low as well, keeping transaction
costs and tax consequences contained.
29 MUTUAL FUNDS, CONSISTENT PHILOSOPHY, CONSISTENT RESULTS
o Growth funds
AMCAP Fund(R)
EuroPacific Growth Fund(R)
The Growth Fund of America(R)
The New Economy Fund(R)
New Perspective Fund(R)
New World Fund(SM)
SMALLCAP World Fund(R)
o Growth-and-income funds
American Mutual Fund(R)
Capital World Growth and Income Fund(SM)
Fundamental Investors(SM)
The Investment Company of America(R)
Washington Mutual Investors Fund(SM)
o Equity-income funds
Capital Income Builder(R)
The Income Fund of America(R)
o Balanced fund
American Balanced Fund(R)
o Bond funds
American High-Income Trust(SM)
The Bond Fund of America(SM)
Capital World Bond Fund(R)
Intermediate Bond Fund of America(R)
> U.S. Government Securities Fund(SM)
o Tax-exempt bond funds
American High-Income Municipal Bond Fund(R)
Limited Term Tax-Exempt Bond Fund of America(SM)
The Tax-Exempt Bond Fund of America(R)
State-specific tax-exempt funds
The Tax-Exempt Fund of California(R)
The Tax-Exempt Fund of Maryland(R)
The Tax-Exempt Fund of Virginia(R)
o Money market funds
The Cash Management Trust of America(R)
The Tax-Exempt Money Fund of America(SM)
The U.S. Treasury Money Fund of America(SM)
THE CAPITAL GROUP COMPANIES
American Funds
Capital Research and Management
Capital International
Capital Guardian
Capital Bank and Trust
Lit. No. MFGESR-922-0405P
Litho in USA DD/LPT/8085-S1937
Printed on recycled paper
ITEM 2 - Code of Ethics
Not applicable for filing of Semiannual Reports to Shareholders.
ITEM 3 - Audit Committee Financial Expert
Not applicable for filing of Semiannual Reports to Shareholders.
ITEM 4 - Principal Accountant Fees and Services
Not applicable for filing of Semiannual Reports to Shareholders.
ITEM 5 - Audit Committee of Listed Registrants
Not applicable.
ITEM 6 - Schedule of Investments
[logo - AMERICAN FUNDS (r)]
U.S. GOVERNMENT SECURITIES FUND
INVESTMENT PORTFOLIO
February 28, 2005
unaudited
Principal amount Market value
Bonds & notes -- 95.91% (000) 000)
U.S. TREASURY BONDS & NOTES -- 53.26%
U.S. Treasury 1.125% 2005 $ 11,225 $ 11,163
U.S. Treasury 1.625% 2005 37,000 36,653
U.S. Treasury 5.75% 2005 50,000 50,910
U.S. Treasury 3.50% 2006 36,250 36,236
U.S. Treasury 4.625% 2006(1) 45,600 46,280
U.S. Treasury 5.625% 2006 29,525 30,198
U.S. Treasury 6.875% 2006 107,650 112,091
U.S. Treasury 7.00% 2006 43,750 45,828
U.S. Treasury 3.25% 2007 108,485 107,434
U.S. Treasury 3.375% 2007(1,2) 8,649 9,089
U.S. Treasury 4.375% 2007 34,925 35,476
U.S. Treasury 6.25% 2007 44,500 46,753
U.S. Treasury 6.625% 2007 17,495 18,603
U.S. Treasury 3.375% 2008 14,750 14,503
U.S. Treasury 3.625% 2008(2) 73,783 79,628
U.S. Treasury 5.625% 2008 12,000 12,662
U.S. Treasury 3.625% 2009 28,000 27,637
U.S. Treasury 3.875% 2009(2) 13,926 15,449
U.S. Treasury 5.50% 2009 13,500 14,340
U.S. Treasury 6.00% 2009 465 504
U.S. Treasury 5.75% 2010 45,535 49,299
U.S. Treasury 5.00% 2011 7,250 7,598
U.S. Treasury 3.00% 2012(2) 561 622
U.S. Treasury 4.375% 2012 17,355 17,534
U.S. Treasury 3.875% 2013 50,485 49,168
U.S. Treasury 4.25% 2013 7,500 7,466
U.S. Treasury 12.00% 2013 10,000 12,622
U.S. Treasury 4.25% 2014 17,000 16,843
U.S. Treasury 7.50% 2016 8,000 10,150
U.S. Treasury 9.25% 2016 26,380 37,295
U.S. Treasury 8.125% 2019 27,775 37,843
U.S. Treasury 8.875% 2019 20,100 28,815
U.S. Treasury 7.875% 2021 10,655 14,406
U.S. Treasury 6.875% 2025 22,000 27,950
U.S. Treasury 6.50% 2026 49,750 61,138
U.S. Treasury 3.875% 2029(2) 11,068 15,200
U.S. Treasury 5.25% 2029 83,850 89,431
U.S. Treasury 6.25% 2030 6,180 7,510
U.S. Treasury 5.375% 2031 15,500 17,045
U.S. Treasury 3.375% 2032(2) 4,101 5,432
U.S. Treasury Principal Strip 0% 2011 5,285 3,987
U.S. Treasury Principal Strip 0% 2019 32,790 16,829
1,285,620
Principal amount Market value
Bonds & notes (000) (000)
MORTGAGE-BACKED OBLIGATIONS(3) -- 28.88%
Government National Mortgage Assn. 7.50% 2009 $ 119 $ 123
Government National Mortgage Assn. 7.50% 2009 61 64
Government National Mortgage Assn. 9.00% 2009 333 351
Government National Mortgage Assn. 9.50% 2009 67 71
Government National Mortgage Assn. 7.50% 2011 170 181
Government National Mortgage Assn. 7.50% 2011 25 27
Government National Mortgage Assn. 5.50% 2013 235 244
Government National Mortgage Assn. 6.00% 2013 13,389 14,058
Government National Mortgage Assn. 6.00% 2013 1,199 1,258
Government National Mortgage Assn. 6.00% 2013 281 295
Government National Mortgage Assn. 6.00% 2013 273 287
Government National Mortgage Assn. 6.00% 2014 5,338 5,594
Government National Mortgage Assn. 6.00% 2014 691 724
Government National Mortgage Assn. 6.00% 2014 601 630
Government National Mortgage Assn. 6.00% 2014 396 415
Government National Mortgage Assn. 6.00% 2014 181 190
Government National Mortgage Assn. 6.50% 2014 598 633
Government National Mortgage Assn. 6.50% 2014 571 605
Government National Mortgage Assn. 6.50% 2014 553 585
Government National Mortgage Assn. 6.50% 2014 335 355
Government National Mortgage Assn. 6.50% 2014 276 292
Government National Mortgage Assn. 6.50% 2014 252 267
Government National Mortgage Assn. 6.50% 2014 245 259
Government National Mortgage Assn. 6.50% 2014 214 226
Government National Mortgage Assn. 6.50% 2014 206 218
Government National Mortgage Assn. 6.50% 2014 165 175
Government National Mortgage Assn. 6.50% 2014 161 170
Government National Mortgage Assn. 6.50% 2014 135 143
Government National Mortgage Assn. 6.50% 2014 101 107
Government National Mortgage Assn. 6.50% 2014 20 21
Government National Mortgage Assn. 5.50% 2016 1,168 1,209
Government National Mortgage Assn. 5.50% 2016 736 762
Government National Mortgage Assn. 5.50% 2016 681 705
Government National Mortgage Assn. 5.50% 2016 674 698
Government National Mortgage Assn. 5.50% 2016 628 650
Government National Mortgage Assn. 5.50% 2016 606 627
Government National Mortgage Assn. 5.50% 2016 471 487
Government National Mortgage Assn. 5.50% 2016 460 475
Government National Mortgage Assn. 5.50% 2016 367 379
Government National Mortgage Assn. 5.50% 2016 354 366
Government National Mortgage Assn. 5.50% 2016 314 325
Government National Mortgage Assn. 5.50% 2016 307 318
Government National Mortgage Assn. 5.50% 2016 267 276
Government National Mortgage Assn. 5.50% 2016 209 216
Government National Mortgage Assn. 5.50% 2016 185 191
Government National Mortgage Assn. 6.00% 2016 2,220 2,322
Government National Mortgage Assn. 6.00% 2016 950 994
Government National Mortgage Assn. 6.00% 2016 916 959
Government National Mortgage Assn. 6.00% 2016 728 761
Government National Mortgage Assn. 6.50% 2016 1,099 1,162
Government National Mortgage Assn. 6.50% 2016 547 578
Government National Mortgage Assn. 9.00% 2016 115 125
Government National Mortgage Assn. 5.50% 2017 7,254 7,505
Government National Mortgage Assn. 5.50% 2017 $6,084 $6,295
Government National Mortgage Assn. 6.00% 2017 765 801
Government National Mortgage Assn. 6.00% 2017 620 648
Government National Mortgage Assn. 10.00% 2019 2,128 2,401
Government National Mortgage Assn. 8.50% 2020 40 44
Government National Mortgage Assn. 8.50% 2021 100 110
Government National Mortgage Assn. 8.50% 2021 45 50
Government National Mortgage Assn. 10.00% 2021 634 719
Government National Mortgage Assn. 7.50% 2022 18 19
Government National Mortgage Assn. 8.00% 2022 343 372
Government National Mortgage Assn. 8.50% 2022 41 45
Government National Mortgage Assn. 8.50% 2022 26 29
Government National Mortgage Assn. 8.50% 2022 12 13
Government National Mortgage Assn. 7.50% 2023 151 163
Government National Mortgage Assn. 7.50% 2023 63 68
Government National Mortgage Assn. 7.50% 2023 46 49
Government National Mortgage Assn. 7.50% 2023 40 44
Government National Mortgage Assn. 7.50% 2023 29 31
Government National Mortgage Assn. 8.00% 2023 493 535
Government National Mortgage Assn. 8.00% 2023 216 234
Government National Mortgage Assn. 8.00% 2023 141 153
Government National Mortgage Assn. 8.50% 2023 27 29
Government National Mortgage Assn. 7.00% 2024 572 608
Government National Mortgage Assn. 7.00% 2024 423 449
Government National Mortgage Assn. 7.50% 2024 123 132
Government National Mortgage Assn. 7.50% 2024 54 58
Government National Mortgage Assn. 7.50% 2024 32 34
Government National Mortgage Assn. 7.50% 2024 11 12
Government National Mortgage Assn. 7.00% 2025 422 448
Government National Mortgage Assn. 7.00% 2025 368 390
Government National Mortgage Assn. 7.00% 2026 178 190
Government National Mortgage Assn. 7.00% 2026 60 64
Government National Mortgage Assn. 7.50% 2026 291 316
Government National Mortgage Assn. 8.00% 2026 32 35
Government National Mortgage Assn. 8.00% 2026 19 20
Government National Mortgage Assn. 7.00% 2027 213 227
Government National Mortgage Assn. 7.50% 2027 106 115
Government National Mortgage Assn. 8.00% 2027 181 198
Government National Mortgage Assn. 6.00% 2028 4,158 4,316
Government National Mortgage Assn. 6.00% 2028 2,421 2,513
Government National Mortgage Assn. 6.00% 2028 2,117 2,198
Government National Mortgage Assn. 6.00% 2028 433 449
Government National Mortgage Assn. 6.50% 2028 755 797
Government National Mortgage Assn. 6.50% 2028 343 361
Government National Mortgage Assn. 7.00% 2028 584 623
Government National Mortgage Assn. 7.00% 2028 351 374
Government National Mortgage Assn. 7.00% 2028 91 97
Government National Mortgage Assn. 7.50% 2028 251 272
Government National Mortgage Assn. 7.50% 2028 98 106
Government National Mortgage Assn. 6.00% 2029 7,043 7,312
Government National Mortgage Assn. 6.00% 2029 258 268
Government National Mortgage Assn. 7.00% 2029 462 493
Government National Mortgage Assn. 7.00% 2029 324 346
Government National Mortgage Assn. 7.00% 2029 288 307
Government National Mortgage Assn. 7.00% 2029 254 270
Government National Mortgage Assn. 7.50% 2029 192 207
Government National Mortgage Assn. 7.50% 2029 108 117
Government National Mortgage Assn. 7.50% 2029 79 85
Government National Mortgage Assn. 7.00% 2030 342 364
Government National Mortgage Assn. 7.50% 2030 904 976
Government National Mortgage Assn. 7.50% 2030 518 558
Government National Mortgage Assn. 7.50% 2030 478 515
Government National Mortgage Assn. 7.50% 2030 222 239
Government National Mortgage Assn. 7.50% 2030 158 171
Government National Mortgage Assn. 8.00% 2030 238 259
Government National Mortgage Assn. 8.00% 2030 144 156
Government National Mortgage Assn. 8.00% 2030 116 125
Government National Mortgage Assn. 8.00% 2030 103 112
Government National Mortgage Assn. 8.00% 2030 101 110
Government National Mortgage Assn. 8.00% 2030 48 52
Government National Mortgage Assn. 8.00% 2030 32 34
Government National Mortgage Assn. 5.50% 2031 2,521 2,568
Government National Mortgage Assn. 6.00% 2031 7,244 7,509
Government National Mortgage Assn. 6.00% 2031 1,481 1,534
Government National Mortgage Assn. 6.50% 2031 723 762
Government National Mortgage Assn. 6.50% 2031 711 749
Government National Mortgage Assn. 6.50% 2031 620 653
Government National Mortgage Assn. 6.50% 2031 521 549
Government National Mortgage Assn. 6.50% 2031 518 546
Government National Mortgage Assn. 6.50% 2031 507 535
Government National Mortgage Assn. 6.50% 2031 507 535
Government National Mortgage Assn. 6.50% 2031 424 447
Government National Mortgage Assn. 7.00% 2031 1,178 1,252
Government National Mortgage Assn. 7.00% 2031 872 927
Government National Mortgage Assn. 7.00% 2031 853 907
Government National Mortgage Assn. 7.00% 2031 606 644
Government National Mortgage Assn. 7.00% 2031 518 552
Government National Mortgage Assn. 7.00% 2031 308 327
Government National Mortgage Assn. 7.00% 2031 50 53
Government National Mortgage Assn. 7.50% 2031 293 316
Government National Mortgage Assn. 7.50% 2031 271 292
Government National Mortgage Assn. 7.50% 2031 137 147
Government National Mortgage Assn. 6.00% 2032 915 947
Government National Mortgage Assn. 6.50% 2032 1,861 1,962
Government National Mortgage Assn. 6.50% 2032 1,570 1,653
Government National Mortgage Assn. 6.50% 2032 700 738
Government National Mortgage Assn. 6.50% 2032 629 662
Government National Mortgage Assn. 6.50% 2032 619 652
Government National Mortgage Assn. 6.50% 2032 617 650
Government National Mortgage Assn. 6.50% 2032 604 637
Government National Mortgage Assn. 6.50% 2032 591 622
Government National Mortgage Assn. 6.50% 2032 571 602
Government National Mortgage Assn. 6.50% 2032 526 554
Government National Mortgage Assn. 6.50% 2032 452 477
Government National Mortgage Assn. 6.50% 2032 387 408
Government National Mortgage Assn. 6.50% 2032 370 390
Government National Mortgage Assn. 6.50% 2032 277 292
Government National Mortgage Assn. 7.00% 2032 4,775 5,071
Government National Mortgage Assn. 7.00% 2032 1,611 1,711
Government National Mortgage Assn. 7.00% 2032 1,321 1,403
Government National Mortgage Assn. 7.50% 2032 1,847 1,989
Government National Mortgage Assn. 7.50% 2032 450 485
Government National Mortgage Assn. 5.50% 2033 11,397 11,610
Government National Mortgage Assn. 6.00% 2033 18,492 19,117
Government National Mortgage Assn. 6.00% 2033 14,448 14,936
Government National Mortgage Assn. 6.00% 2033 4,117 4,256
Government National Mortgage Assn. 6.00% 2033 3,082 3,186
Government National Mortgage Assn. 6.00% 2033 2,858 2,955
Government National Mortgage Assn. 6.00% 2033 2,826 2,921
Government National Mortgage Assn. 6.00% 2033 2,822 2,920
Government National Mortgage Assn. 6.50% 2033 878 925
Government National Mortgage Assn. 6.50% 2033 740 778
Government National Mortgage Assn. 6.50% 2033 648 682
Government National Mortgage Assn. 6.50% 2033 417 439
Government National Mortgage Assn. 5.00% 2034(4) 4,866 4,906
Government National Mortgage Assn. 5.00% 2034(4) 3,712 3,743
Government National Mortgage Assn. 6.00% 2034 15,387 15,907
Government National Mortgage Assn. 6.50% 2034 862 907
Government National Mortgage Assn. 6.50% 2034 779 819
Government National Mortgage Assn. 6.50% 2034 607 638
Government National Mortgage Assn. 6.50% 2034 578 608
Government National Mortgage Assn. 4.50% 2035(4) 16,104 16,105
Government National Mortgage Assn. 5.00% 2035(4) 52,228 52,659
Government National Mortgage Assn. 5.00% 2035 29,585 29,428
Government National Mortgage Assn. 5.00% 2035(4) 3,750 3,781
Government National Mortgage Assn. 5.50% 2035 13,000 13,204
Government National Mortgage Assn., Series 2004-84, Class A, 3.624% 2017 8,838 8,682
Government National Mortgage Assn., Series 2002-28, Class A, 4.776% 2018 3,783 3,846
Fannie Mae 8.50% 2007 15 16
Fannie Mae 8.50% 2008 11 11
Fannie Mae 7.00% 2009 103 109
Fannie Mae 7.00% 2009 101 107
Fannie Mae 9.00% 2009 41 44
Fannie Mae 7.00% 2010 804 849
Fannie Mae 8.50% 2010 51 53
Fannie Mae 7.00% 2011 43 45
Fannie Mae 9.50% 2011 43 46
Fannie Mae 8.50% 2013 26 27
Fannie Mae 8.50% 2014 56 58
Fannie Mae 6.00% 2015 4,795 4,997
Fannie Mae 6.00% 2017 2,539 2,644
Fannie Mae 7.00% 2017 394 416
Fannie Mae 5.50% 2018 19,057 19,561
Fannie Mae 12.00% 2019 1,101 1,279
Fannie Mae 8.00% 2022 40 43
Fannie Mae 9.50% 2022 107 117
Fannie Mae 8.00% 2023 79 85
Fannie Mae 8.00% 2023 66 72
Fannie Mae 8.00% 2023 26 28
Fannie Mae 11.091% 2025 7,864 9,088
Fannie Mae 9.50% 2026 671 760
Fannie Mae 8.50% 2027 30 34
Fannie Mae 7.00% 2028 329 348
Fannie Mae 7.00% 2028 222 236
Fannie Mae 7.50% 2029 735 789
Fannie Mae 7.00% 2030 283 299
Fannie Mae 7.50% 2030 159 171
Fannie Mae 7.50% 2030 85 91
Fannie Mae 6.50% 2031 594 619
Fannie Mae 6.50% 2031 388 405
Fannie Mae 6.50% 2031 366 382
Fannie Mae 7.00% 2031 184 194
Fannie Mae 7.50% 2031 576 617
Fannie Mae 7.50% 2031 197 212
Fannie Mae 7.50% 2031 195 210
Fannie Mae 7.50% 2031 184 197
Fannie Mae 6.50% 2032 4,790 4,995
Fannie Mae 6.50% 2032 2,294 2,392
Fannie Mae 6.50% 2032 773 806
Fannie Mae 6.50% 2032 465 485
Fannie Mae 7.00% 2032 2,471 2,612
Fannie Mae 3.904% 2033(4) 6,256 6,211
Fannie Mae 4.035% 2033(4) 4,202 4,183
Fannie Mae 4.039% 2033(4) 632 629
Fannie Mae 4.20% 2033(4) 17,814 17,804
Fannie Mae 4.454% 2033(4) 8,927 8,959
Fannie Mae 6.00% 2033 40,562 41,656
Fannie Mae 6.00% 2034 24,803 25,471
Fannie Mae 6.00% 2034 314 324
Fannie Mae 6.00% 2034 283 290
Fannie Mae, Series 91-50, Class H, 7.75% 2006 68 69
Fannie Mae, Series 1997-M5, Class C, ACES, 6.74% 2007 5,000 5,274
Fannie Mae, Series 1998-M6, Class A-2, ACES, 6.32% 2008 2,240 2,358
Fannie Mae, Series 2002-T11, Class A, 4.769% 2012 6,755 6,850
Fannie Mae, Trust 35, Class 2, 12.00% 2018 37 42
Fannie Mae, Series 90-93, Class G, 5.50% 2020 152 155
Fannie Mae, Series 1992-119, Class Z, 8.00% 2022 473 501
Fannie Mae, Series 2001-4, Class NA, 11.828% 2025(4) 7,264 8,359
Fannie Mae, Series 1997-M6, Class ZA, 6.85% 2026 16,691 17,897
Fannie Mae, Series 2002-W3, Class A-5, 7.50% 2028 1,833 1,971
Fannie Mae, Series 2002-W7, Class A-5, 7.50% 2029 6,137 6,517
Fannie Mae, Series 2001-20, Class E, 9.595% 2031(4) 223 247
Fannie Mae, Series 2001-20, Class C, 11.995% 2031(4) 996 1,159
Fannie Mae, Series 2003-M2, Class D, 4.68% 2033(4) 11,000 10,233
Fannie Mae, Series 2003-W4, Class 1A-2, 3.063% 2038 2,806 2,794
Fannie Mae, Series 1999-T2, Class A-1, 7.50% 2039 2,177 2,389
Fannie Mae, Series 2003-W4, Class 1A-3, 3.991% 2040 3,000 2,972
Fannie Mae, Series 2002-W1, Class 2A, 7.50% 2042 1,790 1,896
Freddie Mac 7.20% 2006 374 391
Freddie Mac 8.25% 2007 40 41
Freddie Mac 7.00% 2008 65 68
Freddie Mac 8.75% 2008 44 45
Freddie Mac 8.50% 2009 84 88
Freddie Mac 8.00% 2012 64 68
Freddie Mac 6.00% 2014 429 447
Freddie Mac 4.00% 2015 3,500 3,434
Freddie Mac 12.00% 2015 21 24
Freddie Mac 6.00% 2017 1,441 1,498
Freddie Mac 8.00% 2017 500 532
Freddie Mac 8.50% 2018 24 25
Freddie Mac 8.50% 2020 369 398
Freddie Mac 8.50% 2021 106 115
Freddie Mac 4.075% 2033(4) 13,144 13,071
Freddie Mac 6.00% 2033 29,315 30,138
Freddie Mac 6.00% 2034 34,266 35,227
Freddie Mac 6.00% 2034 6,211 6,385
Freddie Mac, Series H009, Class A-2, 1.876% 2008(4) 2,996 2,950
Freddie Mac, Series 2289-NA, 12.004% 2020(4) 4,412 5,024
Freddie Mac, Series 178, Class Z, 9.25% 2021 138 138
Freddie Mac, Series 2289, Class NB, 11.445% 2022(4) 842 941
Freddie Mac, Series 1567, Class A, 3.025% 2023(4) 108 105
Freddie Mac, Series T-041, Class 3-A, 7.50% 2032 1,534 1,617
Freddie Mac, Series T-056, Class A-2A, 2.842% 2036 4,633 4,595
Paine Webber CMO, Series O, Class 5, 9.50% 2019(5) 391 414
697,193
FEDERAL AGENCY BONDS & NOTES -- 13.77%
Freddie Mac 7.00% 2005 8,000 8,120
Freddie Mac 1.875% 2006 15,000 14,778
Freddie Mac 5.125% 2008 9,500 9,844
Freddie Mac 5.75% 2009 60,000 63,609
Freddie Mac 6.625% 2009 25,000 27,450
Freddie Mac 5.00% 2014 26,000 26,692
Federal Home Loan Bank 2.50% 2006 11,500 11,369
Federal Home Loan Bank 3.375% 2007 8,625 8,499
Federal Home Loan Bank 3.75% 2007 24,280 24,157
Federal Home Loan Bank 5.75% 2008 7,725 8,106
Federal Home Loan Bank 5.823% 2009 6,500 6,886
Federal Home Loan Bank 4.50% 2012 11,000 11,014
Small Business Administration, Series 2001-20K, 5.34% 2021(3) 4,095 4,227
Small Business Administration, Series 2001-20J, 5.76% 2021(3) 2,011 2,102
Small Business Administration, Series 2001-20F, 6.44% 2021(3) 9,929 10,612
Small Business Administration, Series 2001-20G, 6.625% 2021(3) 3,119 3,363
Small Business Administration, Series 2002-20J, 4.75% 2022(3) 7,448 7,467
Small Business Administration, Series 2002-20K, 5.08% 2022(3) 4,216 4,289
Small Business Administration, Series 2002-20C, 6.07% 2022(3) 3,121 3,301
Small Business Administration, Series 2002-20D, 6.41% 2022(3) 4,249 4,549
Small Business Administration, Series 2003-20B, 4.84% 2023(3) 11,352 11,412
Fannie Mae 6.00% 2005 9,200 9,391
Fannie Mae 4.25% 2007 8,375 8,449
Fannie Mae 6.625% 2009 15,900 17,454
Fannie Mae 7.25% 2030 6,000 7,820
United States Government Guaranteed Certificates of Participation,
Overseas Private Investment Corp., Series 2000-044-A, 3.74% 2015(3) 7,684 7,452
United States Government Guaranteed Ship Financing Obligations, Rowan
Companies, Inc. (Title XI) 5.88% 2012(3) 6,818 7,135
United States Government Guaranteed, Perforadora Centrale SA de CV (Title XI) 4.92% 2018(3) 2,802 2,810
332,357
TOTAL BONDS & notes (cost: $2,305,361,000) 2,315,170
Short-term securities -- 5.56%
U.S. Treasury Bills 2.111%-2.357% due 3/10-3/17/2005 90,900 90,813
Federal Home Loan Bank 2.51% due 3/1/2005 43,500 43,497
TOTAL SHORT-TERM SECURITIES (COST: $134,305,000) 134,310
TOTAL INVESTMENT SECURITIES (COST: $2,439,666,000) 2,449,480
OTHER ASSETS LESS LIABILITIES (35,445)
NET ASSETS $2,414,035
(1) This security, or a portion of this security, has been
segregated to cover funding requirements on investment
transactions settling in the future.
(2) Index-linked bond whose principal amount moves with a
government retail price index.
(3) Pass-through securities backed by a pool of mortgages or
other loans on which principal payments are periodically
made. Therefore, the effective maturities are shorter than
the stated maturities.
(4) Coupon rate may change periodically.
(5) Comprised of federal agency originated or guaranteed loans.
ITEM 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end
management investment company.
ITEM 8 - Portfolio Managers of Closed-End Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end
management investment company.
ITEM 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers
Not applicable to this Registrant, insofar as the Registrant is not a closed-end
management investment company.
ITEM 10 - Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Registrant's Board of Trustees since the Registrant
last submitted a proxy statement to its shareholders. The procedures are as
follows. The Registrant has a nominating committee comprised solely of persons
who are not considered "interested persons" of the Registrant within the meaning
of the Investment Company Act of 1940, as amended. The committee periodically
reviews such issues as the Board's composition, responsibilities, committees,
compensation and other relevant issues, and recommends any appropriate changes
to the full Board of Trustees. While the committee normally is able to identify
from its own resources an ample number of qualified candidates, it will consider
shareholder suggestions of persons to be considered as nominees to fill future
vacancies on the Board. Such suggestions must be sent in writing to the
nominating committee of the Registrant, c/o the Registrant's Secretary, and must
be accompanied by complete biographical and occupational data on the prospective
nominee, along with a written consent of the prospective nominee for
consideration of his or her name by the nominating committee.
ITEM 11 - Controls and Procedures
(a) The Registrant's Principal Executive Officer and Principal Financial
Officer have concluded, based on their evaluation of the Registrant's
disclosure controls and procedures (as such term is defined in Rule 30a-3
under the Investment Company Act of 1940), that such controls and
procedures are adequate and reasonably designed to achieve the purposes
described in paragraph (c) of such rule.
(b) There were no changes in the Registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of
1940) that occurred during the Registrant's second fiscal quarter of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal control
over financial reporting.
ITEM 12 - Exhibits
(a)(1)The Code of Ethics - not applicable for filing of Semiannual Reports to
Shareholders.
(a)(2)The certifications required by Rule 30a-2 of the Investment Company Act of
1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 are attached as exhibits hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE AMERICAN FUNDS INCOME SERIES
By /s/ John H. Smet
- -------------------------------
John H. Smet, President and PEO
Date: May 6, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By /s/ John H. Smet
- -------------------------------
John H. Smet, President and PEO
Date: May 6, 2005
By /s/ Sharon G. Moseley
- ------------------------------------
Sharon G. Moseley, Treasurer and PFO
Date: May 6, 2005