ENDOWMENTS
INVESTMENTS FOR NONPROFIT INSTITUTIONS
ANNUAL REPORT FOR THE YEAR ENDED JULY 31, 1998
[Capital Research and Management Company(r)]
RESULTS AT A GLANCE (with all distributions reinvested)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Lipper Lehman
Standard & Growth Brothers
Poor's 500 & Income Aggregate
ENDI Composite Fund Bond
Index Index BENDI Index
Total return +9.1% +19.3% +11.2% 0.067 0.079
for the past
fiscal year
August 1, 1997
through
July 31, 1997
Average annual +15.0 +15.9 +15.0 +9.7 +9.7/2/
compound return
for the past 23
years/1/
</TABLE>
/1/From July 25, 1975, when Capital Research and Management Company became the
investment adviser of the funds' assets, through July 31, 1998.
/2/The Lehman Brothers Aggregate Bond Index did not exist until December 31,
1975. For the period from July 25, 1975 through December 31, 1975, the Lehman
Brothers Government/Corporate Bond Index was used.
The indexes are unmanaged.
GROWTH AND INCOME PORTFOLIO (ENDI)
SEEKS TO PROVIDE LONG-TERM GROWTH OF PRINCIPAL, WITH INCOME AND PRESERVATION OF
CAPITAL AS SECONDARY OBJECTIVES, PRIMARILY THROUGH INVESTMENTS IN COMMON
STOCKS.
BOND PORTFOLIO (BENDI)
SEEKS TO PROVIDE AS HIGH A LEVEL OF CURRENT INCOME AS IS CONSISTENT WITH THE
PRESERVATION OF CAPITAL THROUGH INVESTMENTS IN FIXED-INCOME SECURITIES.
AS PART OF A REORGANIZATION COMPLETED ON JULY 31, 1998, ALL ASSETS AND
LIABILITIES OF ENDOWMENTS, INC. (ENDI) WERE ACQUIRED BY GROWTH AND INCOME
PORTFOLIO, AND ALL ASSETS AND LIABILITIES OF BOND PORTFOLIO FOR ENDOWMENTS,
INC. (BENDI) WERE ACQUIRED BY BOND PORTFOLIO. THE DATA IN THIS REPORT REFLECT
PRIMARILY THE OPERATIONS OF THE PREDECESSOR ENTITIES.
Here are the total returns and average annual compound returns with all
distributions reinvested for
periods ended June 30, 1998 (the most recent calendar quarter):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Average Annual Average Annual
Total Compound Total Compound
ENDI Return Return BENDI Return Return
Ten Years +301.16% +14.90% Ten Years 1.3777 0.0905
Five Years +117.41 +16.80 Five Years +34.63 +6.13
12 Months +19.75 - 12 Months +8.99 -
</TABLE>
BENDI's 30-day yield as of August 31, 1998, calculated in accordance with the
Securities and Exchange Commission formula, was 5.83%.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS AND ARE NOT PREDICTIVE OF
FUTURE RESULTS. SHARE PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY BY
INVESTING IN THE FUNDS. 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.
DEAR SHAREHOLDER:
At the end of fiscal 1998 - our 23rd year under the stewardship of Capital
Research and Management Company - your funds underwent a reorganization and
name change that are noted in the box at left and discussed in greater detail
in an article starting on page 5. The funds will continue to use the acronyms
ENDI and BENDI and pursue the same investment objectives and policies. This
letter focuses on their fiscal-year results and the current investment climate.
GROWTH AND INCOME PORTFOLIO (ENDI):
In the final weeks of fiscal 1998 and the early part of the fund's new fiscal
year, the stock market dropped roughly 20%, reflecting concern about major
economic problems around the world, notably in Russia and Asia. ENDI held its
ground relatively well throughout this period. Between July 17 and August 31,
the fund's share value went down 12.0% compared to a 19.2% drop recorded by the
unmanaged Standard & Poor's 500 Composite Index, a closely watched measure of
the U.S. equity market.*
*All percentage gain/loss figures include reinvestment of distributions unless
otherwise indicated.
This resistance during declines is a key reason why the fund has done about as
well as the S&P 500 over the long term while fluctuating considerably less.
Since Capital Research became manager in July 1975, ENDI has generated an
average compound return of 15.0% per year, compared with 15.9% for the S&P 500.
During this 23-year span, the fund was about 20% less volatile than the index,
based on standard deviation, a widely used measure of volatility.
Unlike the S&P 500, which is the equivalent of a fully invested fund, ENDI has
as one of its objectives preservation of capital. During a long period prior to
the recent selloff, when the market was bubbling upward and attractive
valuations were hard to find, the fund maintained a sizable cash reserve. This
cautious posture served ENDI well when stock prices fell and is attuned to the
needs of our shareholders, who, by and large, are primarily concerned with
having a reasonably stable flow of investment income and conservative
stewardship of their assets.
Even after taking this into consideration, however, we have to acknowledge that
ENDI's results for fiscal 1998 were disappointing relative to our principal
benchmark. After enjoying a strong first half - and outpacing the S&P 500
during that period - the fund's total return of 9.1% for the 12 months ended
July 31 was slightly less than half of the 19.3% total return recorded by the
index.
ENDI was hurt by poor showings among some of its investments in the paper,
forest products, metal and energy industries. For example, Georgia-Pacific fell
21.8% in price for the 12 months. Aluminum Company of America was down 21.7%.
Atlantic Richfield, the second-largest position in the portfolio, slipped 9.4%.
These and other declines among our holdings in those industries can be
attributed in large part to a sharp drop in global commodity prices. We remain
very optimistic, however, about the longer range prospects for the vast
majority of these stocks.
Additionally, a number of ENDI's investments are in relatively small, quality
companies. This is a segment of the stock market where we have often pursued
investment opportunities, and an area where, in recent years, we have found
some of the better values. Unfortunately, it was not an area that was treated
kindly by the market in fiscal 1998. In a pattern reminiscent of the early
1970s, the securities of many smaller companies lagged while investor attention
remained focused on a handful of large-capitalization stocks that kept soaring
in price and valuation and pulling the averages up with them.
ENDI owns shares chiefly in U.S. companies but has the flexibility to invest a
small portion of its assets in the securities of firms based outside the United
States. On July 31, non-U.S. stocks represented 7% of net assets, about the
same as a year ago. Most of these holdings did quite well in fiscal 1998.
Nokia, the Finnish telecommunications equipment manufacturer, was the best
performer in the portfolio, rising 103.5% for the 12 months. Our largest
non-U.S. holding, Glaxo Wellcome, the British pharmaceutical producer, went up
43.1%.
There were some bright spots, too, among our U.S. investments. Two of our
telecommunications stocks showed good gains: AT&T rose 64.7% and Ameritech was
up 45.9%. Other U.S. holdings that rose in double digits include First
Financial Bancorp (+50.1%) and Gannett (+28.8%).
On July 31, equities accounted for 80% of ENDI's net assets, compared with 83%
at the start of the fiscal year. Our 10 largest holdings (which are shown on
page 9) represented 22% of net assets at fiscal year-end compared with 29% on
July 31, 1997.
BOND PORTFOLIO (BENDI):
For the 12 months, BENDI recorded a total return of 6.7%, bringing the return
for the 23 years since Capital Research became investment manager to 743.1%, or
an average of 9.7% a year compounded. That matches the return generated over
the same 23-year span by the unmanaged Lehman Brothers Aggregate Bond Index.
During this time, the Consumer Price Index rose at an average annual rate of
4.9%.
In fiscal 1998, BENDI trailed the 7.9% total return recorded by the Lehman
Brothers Aggregate Bond Index for two reasons. The first of these relates to
the decline in intermediate and long-term interest rates which took place
during the year. This decline was largely a response to slow (and in some cases
negative) economic growth in Asia and a substantial flow of money from that
region into fixed-income markets in the United States, where economic activity
remained strong. Because BENDI maintained a conservative investment posture, it
did not benefit fully from lower yields and higher bond prices. The fund has
avoided commitments to either extremely long or extremely short maturities and
has positioned itself to continue pursuing the objective of high current income
while potentially benefiting from any further drop in interest rates. We have
also tried to position the portfolio so it is not exposed to excessive risk if
rates begin to rise. On July 31, the average effective maturity was about nine
years, up modestly from eight years on January 31 and six years at the end of
fiscal 1997.
The second reason for the lag is that a small portion of the portfolio was
somewhat exposed to companies on the periphery of the Asia-Pacific region,
notably Hong Kong. We still view these holdings as sound long-term investments.
However, their performance during the year was impaired by events in Asia, and
this had some impact on the fund's 12-month results.
In the United States, the climate for bond investors remained positive
throughout the fiscal year. The economy continued to show a great deal of
vigor, but inflation stayed subdued, partly because the deterioration in Asian
currencies lowered the price of imports. Consumer demand remained strong, and
unemployment edged downward to around four-and-a-half percent of the work force
- - - low enough to cause concern that wage rates could at some point begin to rise
sharply, creating significant inflationary pressure.
In fiscal 1998, we added to BENDI's holdings of U.S. government fixed-income
securities. On July 31, total government securities (which include a relatively
small number of non-U.S. government obligations) represented 53% of net assets,
up from 50% six months ago and 39% at the end of fiscal 1997. Meanwhile, we
reduced our position in corporate bonds to 40% of net assets from 43% on
January 31 and 47% one year ago. This shift into government securities
reflected the availability of better values in that sector of the market as
well as concern that many corporate issues were becoming quite expensive. The
balance of BENDI's portfolio - nearly 7% of net assets - is held in the form of
cash and equivalents.
The reorganization outlined on the next few pages represents a positive step
forward for the funds. We welcome any comments or questions you may have and
look forward to reporting to you again in another six months.
Cordially,
/s/Robert B. Egleston /s/Frank L. Ellsworth
Robert B. Egelston Frank L. Ellsworth
Chairman of the Board President
September 4, 1998
HOW A $50,000 INVESTMENT HAS GROWN
(Under Capital Research and Management Company's stewardship 7/25/75 - 7/31/98)
GROWTH AND INCOME PORTFOLIO (ENDI)
[begin mountain chart]
<TABLE>
<CAPTION>
Consumer
Price
Index
DATE ENDI S&P 500 (inflation)
<S> <C> <C> <C>
7/25/75 $50,000 $50,000 $50,000
7/31/76 63,476 60,269 52,675
7/31/77 67,590 60,145 56,273
7/31/78 74,525 64,526 60,609
7/31/79 82,131 70,226 67,435
7/31/80 96,277 86,842 76,291
7/31/81 110,942 98,071 84,502
7/31/82 106,860 84,944 89,945
7/31/83 166,726 135,430 92,159
7/31/84 166,157 131,380 96,033
7/31/85 216,736 173,983 99,446
7/31/86 272,155 223,417 101,015
7/31/87 326,885 311,203 104,982
7/31/88 319,347 274,924 109,317
7/31/89 393,501 362,553 114,760
7/31/90 409,739 385,779 120,295
7/31/91 471,326 434,923 125,646
7/31/92 545,533 490,602 129,613
7/31/93 600,349 533,369 133,210
7/31/94 616,980 560,740 136,900
7/31/95 731,561 706,843 140,683
7/31/96 828,238 823,561 144,834
7/31/97 1,146,270 1,252,663 148,063
7/31/98 1,250,053 1,493,932 /1/ 150,554 /1/
</TABLE>
[end mountain chart]
AVERAGE ANNUAL COMPOUND RETURNS/1/
(for periods ended July 31, 1998)
Ten Years +14.62%
Five Years +15.80%
12 Months + 9.05%
$1,493,932/1/
S&P 500
$1,250,053/1/
ENDI
$150,554
Consumer
Price Index
(inflation)
BOND PORTFOLIO (BENDI)
[begin mountain chart]
<TABLE>
<CAPTION>
Lehman Consumer
Aggregate Price
Bond Index
DATE BENDI Index (inflation)
<S> <C> <C> <C>
7/25/75 $50,000 $50,000 $50,000
7/31/76 56,123 53,140 52,675
7/31/77 63,169 59,040 56,273
7/31/78 63,633 60,315 60,609
7/31/79 68,078 64,340 67,435
7/31/80 70,604 65,365 76,291
7/31/81 67,372 62,090 84,502
7/31/82 79,771 74,845 89,945
7/31/83 98,881 91,240 92,159
7/31/84 106,746 99,170 96,033
7/31/85 128,775 122,885 99,446
7/31/86 155,776 149,300 101,015
7/31/87 162,649 156,040 104,982
7/31/88 176,667 167,850 109,317
7/31/89 200,841 193,375 114,760
7/31/90 214,609 207,045 120,295
7/31/91 237,739 229,205 125,646
7/31/92 282,164 263,075 129,613
7/31/93 315,292 289,825 133,210
7/31/94 310,743 290,095 136,900
7/31/95 335,522 319,420 140,683
7/31/96 356,493 337,115 144,834
7/31/97 395,088 394,235 148,063
7/31/98 421,544 425,255 150,554
</TABLE>
[end mountain chart]
AVERAGE ANNUAL COMPOUND RETURNS/1/
(for periods ended July 31, 1998)
Ten Years +9.09%
Five Years +5.98%
12 Months +6.70%
$425,255/1,3/
Lehman
Brothers
Aggregate
Bond Index
$421,544/1/
BENDI
$150,554
Consumer
Price Index
(inflation)
/1/With dividends and capital gains reinvested.
/2/The share value dipped below the $50,000 mark briefly in fiscal 1975 and
1976.
/3/Lehman Brothers Aggregate Bond Index did not exist until 12/31/75.
For the period from 7/31/75 to 12/31/75, the Lehman Brothers
Government/Corporate Bond Index was used.
Sales charges do not apply to either fund.
Past results are not predictive of future results.
A PRIMER ON ENDOWMENTS AND ITS ADVISER
Endowments, consisting of the Growth and Income Portfolio and the Bond
Portfolio, represents the continuation of two well-established funds with solid
track records of investment success - Endowments, Inc. (ENDI) and Bond
Portfolio for Endowments, Inc. (BENDI). Both of those funds have helped the
trustees of nonprofit organizations meet their fiduciary responsibilities for
nearly a quarter of a century. Both have been managed with a strict discipline
that limits the risks investors are obliged to take.
Endowments, as the new entity is called, is structured to enable it to serve
the existing ENDI and BENDI shareholder base as well as a wider constituency.
Along with 501(c)(3) tax-exempt organizations, the Growth and Income Portfolio
and Bond Portfolio can accept as investors charitable remainder trusts (CRTs)
and certain other types of trusts and annuities that are becoming increasingly
important in helping build nonprofit endowments through planned giving.
The reorganization involved the acquisition by the Growth and Income Portfolio
of all assets and liabilities of Endowments, Inc. and the acquisition by the
Bond Portfolio of all assets and liabilities of Bond Portfolio for Endowments,
Inc. The transaction was approved at a special meeting of shareholders held on
July 21 and completed on July 31. It involves the formation of a Delaware
business trust and allows Endowments to take advantage of certain
administrative efficiencies.
[Begin Pull Quote]
Along with 501(c)(3) tax-exempt organizations, these funds can accept as
investors charitable remainder trusts (CRTs) and certain other types of trusts
and annuities.
[End Pull Quote]
A DIFFICULT ENVIRONMENT
Nonprofit organizations operate in an increasingly challenging environment.
They are confronted by an array of concerns, including higher expenses and the
requirements of many foundations to show a budget surplus. The pressure to
increase endowment assets is stretching fundraising budgets to cover both
short- and long-term program and operating needs. Today, nonprofits typically
find themselves running a tight ship, scrambling to finance their activities
through a variety of means, and relying on invested assets to generate
operating income. This reliance comes at a time when interest rates on savings
are low and valuations for many stocks are still at very high levels.
Given this difficult environment, three basic requirements apply when a
nonprofit develops its investment policy:
* preserving capital;
* growing its assets and outpacing inflation; and
* providing a stream of income that is reliable and rises over time.
While all three deserve careful consideration, the emphasis is bound to vary.
Some nonprofits, for example, will place greater importance on conserving the
value of assets, while others prefer to emphasize a rising flow of income. A
set of priorities has to be established by each organization based on its
spending policy and its tolerance for risk.
TWO DIVERSIFIED PORTFOLIOS
After those priorities are defined, Endowments can become a valuable tool for
meeting a nonprofit's goals. In tailoring an investment program that matches up
well with its spending plans and risk tolerance, many organizations use a
combination of the Growth and Income and Bond portfolios, and two money market
funds that are available: The Cash Management Trust of America (CMTA) and The
U.S. Treasury Money Fund of America (CTRS). CMTA provides income on cash
reserves by investing in high-quality money market instruments such as
commercial paper and government agency securities, while CTRS concentrates on
U.S. Treasury securities maturing in one year or less.
The diversified Growth and Income Portfolio holds primarily the common stocks
of U.S. corporations and can invest up to 10% of assets in the securities of
companies based outside the United States. This portfolio aims for asset
appreciation and a satisfactory total return, while paying close attention to
preservation of capital. From July 1975 through July 1998, the fund captured
94% of the S&P 500's annualized return, but with considerably less volatility.
In a study of results covering the past 10 calendar years, ENDI placed in the
top 3% among 660 equity mutual funds measured on the basis of consistency of
returns and the relative lack of volatility/+/
/+/This study, conducted by Modigliani-Modigliani for Morgan Stanley Dean
Witter, assigned a risk-adjusted return of 18.3% to Endowments, Inc., the
predecessor to Growth and Income Portfolio, for the 10 years ended December 31,
1997 vs. 17.9% for the S&P 500. Risk is defined in the study as total
volatility or inconsistency of returns.
The Bond Portfolio holds primarily U.S. government and high-grade corporate
securities. It too is broadly diversified, managed prudently, and aims to
provide as much current income as possible consistent with the objective of
maintaining the value of your principal. Over its 23-year lifetime, BENDI kept
pace with its principal benchmark, the Lehman Brothers Aggregate Bond Index,
and stayed well ahead of inflation while producing more income than
certificates of deposit. Unlike the fund, CDs are federally insured and pay
guaranteed fixed rates of interest for specific periods. However, they offer no
opportunity for growth of principal and their returns are reset after each
period based on prevailing short-term interest rates, which can fluctuate
substantially.
TIME-TESTED MANAGEMENT
The professionals who manage the Growth and Income Portfolio and the Bond
Portfolio have done so through many types of market conditions. Their average
tenure with the funds' adviser or its affiliates is 22 years.
The adviser, Capital Research and Management Company, is one of the world's
largest and oldest investment managers, with roots dating back to 1931. Capital
Research manages more than $225 billion in assets, chiefly for the 28 funds in
The American Funds Group(r). It employs a value-oriented approach, focusing on
securities that the adviser believes have unusually favorable prospects
relative to their market price.
[Begin Pull Quote]
Today, nonprofits typically find themselves running a tight ship, scrambling to
finance their activities through a variety of means, and relying on invested
assets to generate operating income.
[End Pull Quote]
[Begin Pull Quote]
Endowments provides shareholders with seasoned management, supported by an
elaborate research operation, at a very reasonable price.
[End Pull Quote]
In determining which stocks and bonds to buy and sell, our portfolio counselors
draw on the resources of a research operation that is among the most extensive
in the industry. Capital Research employs more than 100 analysts and other
investment professionals, who travel millions of miles each year visiting
corporate executives, industry specialists, economists and government officials
to gather information on which investment decisions are made. Last year, nearly
7,500 such visits were made all over the world. This massive effort costs
Capital Research more than $55 million annually and gives the funds it manages
- - - including the Growth and Income Portfolio and the Bond Portfolio - an
important competitive edge.
LOW EXPENSES AND OTHER BENEFITS
Endowments provides shareholders with seasoned management, supported by an
elaborate research operation, at a very reasonable price. There are no sales or
redemption charges. Expenses are low and limited to 0.75% ($7.50 per $1,000
invested). The average expense ratios for growth and income funds and for bond
funds are in excess of 1.00%, according to figures compiled in June by
CDA/Wiesenberger.
Another benefit of investing in Endowments is its subaccounting feature.
Shareholders are permitted to maintain multiple accounts to help segregate
specific funds for specific purposes. They receive account statements for all
transactions and confirmation of account values for auditors. Additionally,
Endowments' account balances are included in the aggregate total required to
reduce or eliminate sales charges on investments in The American Funds Group.
<TABLE>
<S> <C> <C> <C>
GROWTH AND INCOME PORTFOLIO
INVESTMENT PORTFOLIO, JULY 31, 1998
Shares or Percent
Principal Market Of Net
EQUITY SECURITIES Amount Value Assets
(common and preferred stocks and convertible debentures) ------ ------ ------
- - -----------------------------------------------------
ENERGY
Energy Sources - 6.90%
Amoco Corp. 10,000 $417,500 0.97%
Atlantic Richfield Co. 17,000 1,151,750 2.67
Kerr-McGee Corp. 5,000 256,563 .59
Texaco Inc. 6,000 364,875 .85
Ultramar Diamond Shamrock Corp. 30,000 785,624 1.82
Utilities: Electric & Gas-8.14%
Ameren Corp. 10,000 378,125 .88
DPL Inc. 37,500 639,844 1.48
GPU Inc. 20,000 715,000 1.66
K N Energy, Inc. 12,000 593,250 1.38
Southern Electric PLC (United Kingdom) 60,000 545,615 1.26
Williams Companies, Inc. 20,000 641,250 1.48
------ ------
6,489,396 15.04
------ ------
MATERIALS
Chemicals-7.09%
Dow Chemical Co. 4,000 363,000 .84
International Flavors & Fragrances Inc. 15,000 630,000 1.46
Morton International, Inc. 30,000 725,625 1.68
Praxair, Inc. 15,000 738,750 1.71
Witco Corp. 25,000 603,125 1.40
Forest Products & Paper-2.62%
Georgia-Pacific Corp., Georgia-Pacific Group 5,000 256,875 .60
Georgia-Pacific Corp., Timber Group 5,000 112,188 .26
Union Camp Corp. 12,000 509,250 1.18
Weyerhaeuser Co. 6,000 252,000 .58
Metals: Nonferrous-1.12%
Aluminum Co. of America 7,000 485,188 1.12
Metals: Steel-1.40%
Allegheny Teledyne Inc. 30,000 599,999 1.40
------ ------
5,276,000 12.23
------ ------
CAPITAL EQUIPMENT
Data Processing & Reproduction-0.64%
Hewlett-Packard Co. 5,000 277,500 .64
Electrical & Electronics-1.01%
Nokia Corp., Class A (ADR)(Finland) 5,000 435,625 1.01
Electronic Components-1.81%
Corning Inc. 25,400 779,463 1.81
Energy Equipment-0.70%
Schlumberger Ltd. 5,000 302,813 .70
Industrial Components-2.72%
Eaton Corp. 10,000 652,500 1.51
Genuine Parts Co. 15,000 520,313 1.21
Machinery & Engineering-0.79%
Caterpillar Inc. 7,000 339,499 .79
------ ------
3,307,713 7.67
------ ------
CONSUMER GOODS
Automobiles-1.37%
Chrysler Corp. 10,000 591,875 1.37
Beverages & Tobacco-3.39%
Anheuser-Busch Companies, Inc. 10,000 516,875 1.19
Imperial Tobacco Ltd. (United Kingdom) 60,000 506,922 1.18
Philip Morris Companies Inc. 10,000 438,125 1.02
Food & Household Products-1.44%
General Mills, Inc. 10,000 619,375 1.44
Health & Personal Care-6.96%
Avon Products, Inc. 5,000 432,500 1.00
Glaxo Wellcome PLC (ADR)(United Kingdom) 15,000 912,188 2.11
Kimberly-Clark Corp. 15,000 674,063 1.56
Merck & Co., Inc. 8,000 986,499 2.29
------ ------
5,678,422 13.16
------ ------
SERVICES
Broadcasting & Publishing-3.00%
Gannett Co., Inc. 8,000 511,500 1.19
Houston Industries Inc. 7.00% Automatic Common Exchange
Securities convertible preferred 2000(1) 10,000 782,500 1.81
Business & Public Services-4.54%
Avery Dennison Corp. 10,000 575,625 1.33
Browning-Ferris Industries, Inc. 10,000 351,875 .82
Cendant Corp. 3.00% convertible debentures 2002(2) $800,000 749,000 1.74
Electronic Data Systems Corp. 8,000 281,500 .65
Merchandising-2.17%
American Stores Co. 15,000 347,813 .81
J.C. Penney Co., Inc. 10,000 586,875 1.36
Telecommunications-2.41%
Ameritech Corp. 15,000 737,813 1.71
AT&T Corp. 5,000 303,125 .70
Transportation: Rail & Road-1.38%
Norfolk Southern Corp. 20,000 597,499 1.38
------ ------
5,825,125 13.50
------ ------
FINANCE
Banking-8.64%
Bank of Tokyo-Mitsubishi, Ltd. (ADR)(Japan) 25,000 250,000 .58
First Financial Bancorp. 12,200 330,925 .77
Fulton Financial Corp. 50,962 1,239,014 2.87
Huntington Bancshares Inc. 27,709 838,197 1.94
Wells Fargo & Co. 3,000 1,067,625 2.48
Insurance-4.52%
Aetna Inc. 5,000 346,563 .80
General Re Corp. 2,000 474,000 1.10
Royal & Sun Alliance Insurance Group PLC (United Kingdom) 40,000 434,925 1.01
Trenwick Group Inc. 20,000 694,999 1.61
Real Estate-4.88%
Apartment Investment and Management Co., Class A 10,000 380,000 .88
Archstone Communities Trust (formerly Security Capital Pacific 34,285 719,985 1.67
Boston Properties, Inc. 10,000 323,125 .75
CCA Prison Realty Trust 15,000 323,438 .75
Spieker Properties, Inc. 10,000 359,374 .83
------ ------
7,782,170 18.04
------ ------
MISCELLANEOUS
Other equity securities in initial period of acquisition 201,413 .47
------ ------
TOTAL EQUITY SECURITIES (cost: $35,085,140) 34,560,239 80.11
------ ------
SHORT-TERM SECURITIES
Corporate Short-Term Notes-16.19%
A.I. Credit Corp. 5.49% due 8/13/98 $1,000 998,018 2.31
Abbott Laboratories 5.49% due 9/1/98 1,000 995,120 2.31
Bell Atlantic Financial Services, Inc. 5.50% due 8/6/98 900 899,175 2.08
Emerson Electric Co. 5.51% due 8/6/98 600 599,449 1.39
Lucent Technologies Inc. 5.52% due 9/11/98 1,000 993,560 2.30
Pitney Bowes Credit Corp. 5.50% due 8/7/98 1,000 998,931 2.32
St. Paul Companies., Inc. 5.55% due 8/7/98 500 499,460 1.16
Xerox Corp. 5.48% due 8/6/98 1,000 999,086 2.32
------ ------
6,982,799 16.19
------ ------
Federal Agency Discount Notes-2.19%
Freddie Mac 5.46% due 9/4/98 950 944,957 2.19
------ ------
TOTAL SHORT-TERM SECURITIES (cost: $7,927,756) 7,927,756 18.38
------ ------
TOTAL INVESTMENT SECURITIES (cost: $43,012,896) 42,487,995 98.49
Excess of cash and receivables over payables 652,905 1.51
------ ------
NET ASSETS 43,140,900 100.00
====== ======
(1)Security is convertible into Time Warner shares.
(2)Purchased in a private placement transaction;
resale may be limited to qualified institutional buyers;
resale to the public may require registration.
ADR = American Depositary Receipts
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C>
Growth and Income Portfolio
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
at July 31, 1998
Assets:
Investment securities at market
(cost: $43,012,896) $42,487,995
Cash 603,738
Receivables for-
Sales of fund's shares 22,500
Dividends and accrued interest 77,576
Reimbursement of expenses from
investment adviser 24,279 124,355
------- -------
43,216,088
Liabilities:
Payables for -
Purchases of investments 20,903
Accrued expenses 54,285 75,188
------- -------
Net Assets at July 31, 1998 -
Equivalent to $12.09 per share on
3,569,108 shares of beneficial interest
issued and outstanding; unlimited
shares authorized $43,140,900
========
Statement of Operations
for the year ended July 31, 1998
Investment Income:
Income:
Dividends $ 1,053,909
Interest 557,735 $1,611,644
-------
Expenses:
Management services fee 235,598
Reports to shareholders 24,900
Registration statement and prospectus 23,816
Auditing fees 31,000
Legal fees 42,295
Custodian fee 874
Taxes other than federal income tax 29,862
Other expenses 28,093
-------
Total expenses before reimbursement 416,439
Reimbursement of expenses 63,974 352,464
------- -------
Net investment income 1,259,180
-------
Realized Gain and Change in Unrealized
Appreciation (Depreciation)
on Investments:
Net realized gain 13,791,367
Net change in unrealized appreciation
(depreciation) on investments (10,940,194)
-------
Net realized gain and change in unrealized
appreciation (depreciation) 2,851,173
on investments -------
Net Increase in Net Assets Resulting
from Operations $ 4,110,353
========
Statement of Changes in Net Assets
Year ended
1998 1997
Operations:
Net investment income $ 1,259,180 $ 1,504,304
Net realized gain on investments 13,791,367 14,485,532
Net unrealized (depreciation) appreciation
on investments (10,940,194) 1,781,952
------- -------
Net increase in net assets resulting
from operations 4,110,353 17,771,788
------- -------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (1,382,106) (1,543,830)
Distributions from net realized
gain on investments (26,584,691) (6,480,136)
------- -------
Total dividends and distributions (27,966,797) (8,023,966)
------- -------
Capital Share Transactions:
Proceeds from shares sold:
180,191 and 198,622
shares, respectively 3,165,176 3,944,263
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
1,930,591 and 396,508 shares,
respectively 27,173,082 7,514,541
Cost of shares repurchased:
647,743 and 1,675,374
shares, respectively (11,068,403) (32,784,034)
------- -------
Net increase (decrease) in net assets
resulting from capital share transactions 19,269,855 (21,325,230)
------- -------
Total Decrease in Net Assets (4,586,589) (11,577,408)
Net Assets:
Beginning of year 47,727,489 59,304,897
------- -------
End of year (including undistributed
net investment income: $0 and
$118,014, respectively) $43,140,900 $ 47,727,489
======== ========
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. On July 21, 1998 the shareholders of Endowments, Inc. (the "predecessor")
approved an Agreement and Plan of Reorganization providing for the transfer, on
July 31, 1998, of all its assets and liabilities in exchange for the issuance
of shares in Growth and Income Portfolio (the "fund"), a series of Endowments,
an open-end, diversified management investment company registered under the
Investment Company Act of 1940, in a tax-free reorganization. In accordance
with generally accepted accounting principles, the statement of operations, the
statement of changes in net assets and the per-share data and ratios presented
herein include those of the predecessor immediately prior to the
reorganization. The investment portfolio includes securities held by the fund
immediately following the reorganization. Because the fund acquired all the
assets and liabilities and adopted the same accounting policies of the
predecessor, the notes to financial statements relate to both the fund and its
predecessor.
The fund seeks to provide long-term growth of principal, with income and
preservation of capital as secondary objectives, primarily through investments
in common stocks. The following paragraphs summarize the significant accounting
policies consistently followed by the fund in the preparation of its financial
statements:
Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the investment adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the investment adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type. Securities with
original maturities of one year or less having 60 days or less to maturity are
amortized to maturity based on their cost if acquired within 60 days of
maturity or, if already held on the 60th day, based on the value determined on
the 61st day.
Assets or liabilities initially expressed in terms of foreign currencies are
translated into U.S. dollars at the prevailing market rates at the end of the
reporting period. Purchases and sales of securities and income and expenses are
translated into U.S. dollars at the prevailing market rates on the dates of
such transactions. The effects of changes in foreign currency exchange rates on
investment securities are included with the net realized and unrealized gain or
loss on investment securities.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith by a
committee appointed by the Board of Trustees.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Dividend and interest income is reported on the accrual basis. Discounts
on securities purchased are amortized. The fund does not amortize premiums on
securities purchased. Dividends and distributions paid to shareholders are
recorded on the ex-dividend date.
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 July 31, 1998, net unrealized depreciation on investments for book and
federal income tax purposes aggregated $524,901 of which $49,993 related to
appreciated securities and $574,894 related to depreciated securities. There
was no difference between book and tax realized gains on securities
transactions for the year ended July 31, 1998. The cost of portfolio securities
for book and federal income tax purposes was $43,012,896 at July 31, 1998.
3. The fee of $235,598 for management services was incurred pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the predecessor were affiliated. The
Investment Advisory and Service Agreement provides for monthly fees, accrued
daily, based on an annual rate of 0.50% of the first $150 million of average
net assets and 0.40% of such assets in excess of $150 million. The Investment
Advisory and Service Agreement provided for a fee reduction to the extent
annual ordinary operating expenses exceed 1.50% of the first $30 million of the
average net assets and 1.00% of the average net assets in excess thereof.
Expenses which are not subject to this limitation are interest, taxes,
brokerage commissions, transaction costs, and extraordinary expenses. As of
July 31, 1998, no such fee reduction was required.
In addition, CRMC voluntarily agreed to waive its management services fees to
the extent necessary to ensure that the predecessor's annual ordinary operating
expenses did not exceed 0.75% of average net assets. Fee reductions were
$63,974 for the year ended July 31, 1998. Following the reorganization, this
voluntary fee reduction was incorporated into the terms of the Investment
Advisory and Service Agreement.
No fees are paid by the fund to its officers and Trustees.
4. As of July 31, 1998, there was no accumulated undistributed net realized
gain on investments and paid-in capital was $43,683,871.
The predecessor made purchases and sales of investment securities, excluding
short-term securities, of $18,089,204 and $26,110,590, respectively, during the
year ended July 31, 1998.
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 $874 was paid by these credits rather than in cash.
<TABLE>
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA AND RATIOS
Year Ended July 31
------ ------ ------ ------ ------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Net Asset Value, Beginning of Year $22.66 $18.61 $18.06 $17.18 $18.43
------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income .51 .56 .58 .63 .65
Net realized and unrealized
gain (loss) on investments 1.16 6.04 1.73 2.21 (.16)
------ ------ ------ ------ ------
Total income from investment operations 1.67 6.60 2.31 2.84 .49
------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment income (.57) (.55) (.61) (.61) (.66)
Distributions from net realized gains (11.67) (2.00) (1.15) (1.35) (1.08)
------ ------ ------ ------ ------
Total distributions (12.24) (2.55) (1.76) (1.96) (1.74)
------ ------ ------ ------ ------
Net Asset Value, End of Year $12.09 $22.66 $18.61 $18.06 $17.18
====== ====== ====== ====== ======
Total Return 9.05% 38.40% 13.22% 18.57% 2.77%
Ratios/Supplemental Data:
Net assets, end of period (in millions) $43 $48 $59 $57 $53
Ratio of expenses to average net assets 0.75% (1) .74% .72% .73% .73%
Ratio of net income to average net assets 2.69% 2.73% 3.12% 3.70% 3.78%
Portfolio turnover rate 48.59% 50.69% 38.73% 24.04% 25.58%
(1) Had CRMC not waived management services fees, the fund's
expense ratio would have been 0.89%
for the fiscal year ended 1998.
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Endowments and Shareholders of
Growth and Income Portfolio:
We have audited the accompanying statement of assets and liabilities of
Endowments, Growth and Income Portfolio (the "fund"), including the investment
portfolio, as of July 31, 1998, and the related statement of operations for the
year then ended, the statement of changes in net assets for the each of the two
years in the period then ended, and the per-share data and ratios for each of
the five years in the period then ended. These financial statements and
per-share data and ratios are the responsibility of the fund's management. Our
responsibility is to express an opinion on these financial statements and
per-share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at July 31, 1998 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of Endowments, Growth and Income Portfolio at July 31, 1998, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the per-share
data and ratios for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
August 28, 1998
<TABLE>
<S> <C> <C> <C>
Published Report Name Mkt Val
BOND PORTFOLIO
INVESTMENT PORTFOLIO, JULY 31, 1998 Shares or
Principal Percent
Amount Market of Net
BONDS, NOTES & PREFERRED STOCKS (000) Value Assets
Industrials - 12.80%
Bell Atlantic Financial Services, Inc. 5.75% convertible debentu $ 160 $ 165,600 .57%
Columbia/HCA Healthcare Corp. 8.85% 2007 125 133,358 .46
Comcast Cable Communications, Inc.: 250 278,673
8.375% 2007 250 298,980 1.99
8.875% 2017
Hutchison Whampoa Finance (CI) Ltd., Series D, 6.988% 2037 (1) 300 256,542 .88
Hyundai Semiconductor America, Inc. 8.625% 2007 (1) 450 351,000 1.21
Inco Ltd.:
9.875% 2019 300 316,620
9.60% 2022 700 780,136 3.77
Petrozuata Finance, Inc., Series A, 7.63% 2009(1) 250 250,433 .86
Scotia Pacific Company LLC, Timber Collateralized Notes:
Class A-1, 6.55% 2028(1) 250 248,480
Class A-2, 7.11% 2028(1) 250 246,203 1.70
Wharf International Finance Ltd., Series A, 7.625% 2007 500 396,938 1.36
-------- --------
3,722,963 12.80
-------- --------
Electric Utilities - 0.59%
Israel Electric Corp. Ltd. 7.75% 2027(1) 175 170,573 .59
-------- --------
Multi-Industry - 0.63%
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed perpetual
capital securities(1) 10,000 shar 184,600 .63
-------- --------
Transportation - 9.69%
Airplanes Pass Through Trust, Series 1, Class C, 8.15% 2019 (2) $ 993 1,044,426 3.59
Canadian National Railway Company 6.45% 2036 (3) 250 250,558 .86
Jet Equipment Trust, Series 1994-A, 11.79% 2013(1) 750 1,029,098 3.54
USAir, Inc., Enhanced Equipment Notes, Class B, 7.50% 2009 (2) 470 494,247 1.70
-------- --------
2,818,329 9.69
-------- --------
Financial - 10.31%
AT&T Capital Corp. 6.60% 2005 500 502,180 1.73
Barnett Capital I 8.06% 2026 500 543,760 1.87
BNP U.S. Funding LLC, Series A, 7.738% 2049 (1)(3) 500 497,790 1.71
Household Finance Corp. 6.40% 2008 250 248,883 .86
IBJ Preferred Capital Company LLC noncumulative preferred securities,
Series A, 8.79% (1) 250 231,915 .80
MBNA Corp., MBNA Capital A, Series A, 8.278% 2026 300 313,731 1.08
NB Capital Corp., 8.35% exchangeable depositary shares 10,000 shar 258,400 .89
SB Treasury Company LLC noncumulative preferred securities,
Series A, 9.40% (1) $ 125 125,373 .43
Washington Mutual Capital I Subordinated Capital Income Securities,
8.375% 2027 250 274,974 .94
-------- --------
2,997,006 10.31
-------- --------
Real Estate - 3.03%
Irvine Co. 7.46% 2006 (1)(4) 500 510,125 1.75
ProLogis Trust 7.05% 2006 125 125,390 .43
SocGen Real Estate Co. LLC, Series A, 7.64% 2049(1) 250 246,568 .85
-------- --------
882,083 3.03
-------- --------
Collateralized Mortgage/Asset-Backed Obligations (2)- 3.36%
Asset-Backed Securities Investment Trust, Series 1997-D, 6.79% 2 250 250,390 .86
Merrill Lynch Mortgage Investors, Inc.,
Seller Manufactured Housing Contract, Series 1995-C2,
Class A-1, 7.0875% 2021 (3) 255 260,563 .90
Nomura Asset Securities Corp., Series 1998-D6, Class A-A1, 6.28% 244 246,325 .85
Structured Asset Securities Corp., Series 1996-CFL,
Class A2A, 7.75% 2028 217 218,356 .75
-------- --------
975,634 3.36
Governments (excluding U.S. Government) & -------- --------
Governmental Authorities - 3.85%
Quebec (Province of) 13.25% 2014 1,000 1,118,630 3.85
-------- --------
Federal Agency Obligations - Mortgage Pass-Throughs (2)- 10.79%
Fannie Mae:
9.00% 2020 197 209,280
6.167% 2033 (3) 416 418,298 2.16
Freddie Mac:
8.75% 2008 94 98,292
12.50% 2019 42 48,245 .86
9.00% 2020 97 103,296
Government National Mortgage Assn.:
8.50% 2008 278 295,630
10.00% 2019 298 327,485
6.875% 2024 (3) 555 563,579 7.77
7.375% 2024 (3) 517 525,374
7.50% 2024 531 546,883
-------- --------
3,136,362 10.79
U.S. Treasury Obligations - 38.50% -------- --------
9.25% August 1998 1,000 1,000,939
11.625% November 2002 775 950,948
7.25% May 2004 1,000 1,082,660
11.625% November 2004 1,250 1,644,525 38.50
9.125% May 2009 500 583,595
10.375% November 2012 2,000 2,660,620
8.875% August 2017 2,425 3,275,642
-------- --------
11,198,929 38.50
-------- --------
TOTAL BONDS, NOTES & PREFERRED STOCKS (cost: $27,232,852) $ 27,205,108. 93.55
-------- --------
TOTAL INVESTMENT SECURITIES (cost: $27,232,852) 27,205,109 93.55
Excess of cash and receivables over payables 1,874,293 6.45
-------- --------
NET ASSETS $ 29,079,402.100.00%
========== =======
(1) Purchased in a private placement transaction; resale
may be limited to qualified institutional buyers; resale
to the public may require registration.
(2) Pass-through securities backed by a pool of
mortgages or other loans on which principal
payments are periodically made. Therefore, the
effective maturities are shorter than
the stated maturities.
(3) Coupon rate may change periodically.
(4) Valued under procedures established
by the Board of Trustees.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C>
Bond Portfolio
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
at July 31, 1998
Assets:
Investment securities at market
(cost: $27,232,852) $27,205,109
Cash 1,434,347
Receivables for-
Sales of investments $ 1,651
Accrued interest 484,566
Reimbursement of expenses
from investment adviser 31,961 518,178
-------- --------
29,157,634
Liabilities:
Payables for-
Repurchases of fund's shares 22,500
Accrued expenses 55,732 78,232
-------- --------
Net Assets at July 31, 1998-
Equivalent to $16.93 per share on
1,717,266 shares of beneficial interest
issued and outstanding; unlimited
shares authorized $29,079,402
===========
Statement of Operations
for the year ended July 31, 1998
Investment Income:
Income:
Dividends $ 21,794
Interest 2,332,507 $ 2,354,301
--------
Expenses:
Management services fee $ 154,762
Reports to shareholders 25,208
Registration statement and prospectus 25,322
Auditing fees 33,250
Legal fees 42,131
Custodian fee 151
Taxes other than federal income tax 25,048
Other expenses 28,015
--------
Total expenses before reimbursement 333,887
Reimbursement of expenses 102,579 231,308
-------- --------
Net investment income 2,122,993
--------
Realized Gain and Change in Unrealized
Appreciation (Depreciation)
on Investments:
Net realized gain 543,139
Net change in unrealized appreciation
(depreciation) on investments:
Beginning of year 625,522
End of year (27,743)
--------
Net change in unrealized appreciation
(depreciation) on investments (653,265)
--------
Net realized gain and change in unrealized
appreciation (depreciation) (110,126)
on investments
--------
Net Increase in Net Assets Resulting
from Operations $ 2,012,867
===========
Statement of Changes in Net Assets
Year ended July 31
1998 1997
Operations:
Net investment income $ 2,122,993 $ 2,508,147
Net realized gain (loss) on investments 543,139 (216,967)
Net unrealized appreciation (depreciation) on
investments (653,265) 1,356,940
-------- --------
Net increase in net assets resulting
from operations 2,012,867 3,648,120
-------- --------
Dividends Paid to
Shareholders:
Dividends from net investment income (2,405,442) (2,533,400)
-------- --------
Capital Share Transactions:
Proceeds from shares sold:
129,544 and 187,635
shares, respectively 2,202,671 3,152,584
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
57,517 and 65,746 shares,
respectively 968,653 1,089,420
Cost of shares repurchased:
393,839 and 822,286
shares, respectively (6,732,042) (13,772,096)
-------- --------
Net decrease in net assets resulting
from capital share transactions (3,560,718) (9,530,092)
-------- --------
Total Decrease in Net Assets (3,953,293) (8,415,372)
Net Assets:
Beginning of year 33,032,695 41,448,067
-------- --------
End of year (including undistributed
net investment income: $0 and
$274,340, respectively) $29,079,402 $33,032,695
========= ===========
See Notes to Financial Statements
</TABLE>
Notes to Financial Statements
1. On July 21, 1998 the shareholders of Bond Portfolio for Endowments, Inc.
(the "predecessor") approved an Agreement and Plan of Reorganization providing
for the transfer, on July 31, 1998, of all its assets and liabilities in
exchange for the issuance of shares in Bond Portfolio (the "fund"), a series of
Endowments, an open-end, diversified management investment company registered
under the Investment Company Act of 1940, in a tax-free reorganization. In
accordance with generally accepted accounting principles, the statement of
operations, the statement of changes in net assets and the per-share data and
ratios presented herein include those of the predecessor immediately prior to
the reorganization. The investment portfolio includes securities held by the
fund immediately following the reorganization. Because the fund acquired all
the assets and liabilities and adopted the same accounting policies of the
predecessor, the notes to financial statements relate to both the fund and its
predecessor.
The fund seeks to provide as high a level of current income as is consistent
with preservation of capital. The following paragraphs summarize the
significant accounting policies consistently followed by the fund in the
preparation of its financial statements:
Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the investment adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market.
Fixed-income securities are valued at prices obtained from a pricing service,
when such prices are available; however, in circumstances where the investment
adviser deems it appropriate to do so, such securities will be valued at the
mean quoted bid and asked prices or at prices for securities of comparable
maturity, quality and type. Securities with original maturities of one year or
less having 60 days or less to maturity are amortized to maturity based on
their cost if acquired within 60 days of maturity or, if already held on the
60th day, based on the value determined on the 61st day.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith by a
committee appointed by the Board of Trustees.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Dividend and interest income is reported on the accrual basis. Discounts
on securities purchased are amortized. The fund does not amortize premiums on
securities purchased. Distributions paid to shareholders are recorded on the
ex-dividend date.
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 July 31, 1998, net unrealized depreciation on investments for book and
federal income tax purposes aggregated $27,743 of which $7,236 related to
appreciated securities and $34,979 related to depreciated securities. There was
no difference between book and tax realized gains on securities transactions
for the year ended July 31, 1998. The cost of portfolio securities for book
and federal income tax purposes was $27,232,852 at July 31, 1998.
3. The fee of $154,762 for management services was incurred pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the predecessor were affiliated. The
Investment Advisory and Service Agreement provides for monthly fees, accrued
daily, based on an annual rate of .50% of the first $150 million of average net
assets and .40% of such assets in excess of $150 million. The Investment
Advisory and Service Agreement provided for a fee reduction to the extent
annual ordinary operating expenses exceed 1.50% of the first $30 million of the
average net assets and 1.00% of the average net assets in excess thereof.
Expenses which are not subject to this limitation are interest, taxes,
brokerage commissions, transaction costs, and extraordinary expenses.
In addition, CRMC voluntarily agreed to waive its management services fees
to the extent necessary to ensure that the predecessor's annual ordinary
operating expenses did not exceed 0.75% of average net assets. Fee reductions
were $102,579 for the year ended July 31, 1998. Following the reorganization,
this voluntary fee reduction was incorporated into the terms of the Investment
Advisory and Service Agreement.
No fees are paid by the fund to its officers and Trustees.
4. As of July 31, 1998, accumulated net realized loss on investments was $316
and paid-in capital was $29,115,570.
The predecessor made purchases and sales of investment securities, excluding
short-term securities, of $14,161,693 and $15,734,147, respectively, during the
year ended July 31, 1998.
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 $151 was paid by these credits rather than in cash.
<TABLE>
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA AND RATIOS
Year Ended July 31
------- ------- ------- ------- -------
1998 1997 1996 1995 1994
Net Asset Value, Beginning of Year 17.17 16.63 16.82 16.86 19.66
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income 1.19 1.21 1.22 1.26 1.32
Net realized and unrealized
gain (loss) on investments (.09) .52 (.19) .01 (1.51)
------- ------- ------- ------- -------
Total income (loss) from investment
operations 1.10 1.73 1.03 1.27 (.19)
------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income (1.34) (1.19) (1.22) (1.24) (1.35)
Distributions from net realized gains - - - (.07) (1.26)
------- ------- ------- ------- -------
Total distributions (1.34) (1.19) (1.22) (1.31) (2.61)
------- ------- ------- ------- -------
Net Asset Value, End of Year 16.93 17.17 16.63 16.82 16.86
======= ======= ======= ======= =======
Total Return 6.70% 10.83% 6.25% 7.97% (1.44)%
Ratios/Supplemental Data:
Net assets, end of period (in millions) $29 $33 $41 $44 $46
Ratio of expenses to average net assets .75% (1) .75%(1) .75%(1) .76% .77%
Ratio of net income to average net assets 6.87% 7.04% 7.17% 7.52% 6.99%
Portfolio turnover rate 50.40% 22.18% 54.43% 69.22% 82.12%
(1) Had CRMC not waived management services fees, the fund's
expense ratio would have been 1.08%, 0.85%, and 0.80%
for the fiscal years ended 1998, 1997, and 1996, respectively.
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Endowments and Shareholders of Bond Portfolio:
We have audited the accompanying statement of assets and liabilities of
Endowments, Bond Portfolio (the "fund"), including the investment portfolio, as
of July 31, 1998, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the per-share data and ratios for each of the five years
in the period then ended. These financial statements and per-share data and
ratios are the responsibility of the fund's management. Our responsibility is
to express an opinion on these financial statements and per-share data and
ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per-share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1998 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of Endowments, Bond Portfolio at July 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the per-share data and ratios for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
August 28, 1998
ENDOWMENTS, INC.
RESULTS OF SPECIAL MEETING OF SHAREHOLDERS HELD JULY 21, 1998
Shares Outstanding on June 17, 1998 (record date) 2,731,047
Shares Voting on July 21, 1998 1,823,621 (67%)
<TABLE>
<CAPTION>
Votes For Votes Abstentions
Against
Number Percent Number Percent Number Percent
of of Shares of of Shares of of Shares
Shares Voting Shares Voting Shares Voting
<S> <C> <C> <C> <C> <C> <C>
Elimination or 1,634,525 89.7% 48,268 2.7% 140,828 7.7%
Revision of Certain or more or more or less or less
Fundamental Investment
Restrictions /1,2/
Amendment to the 1,635,673 89.7% 47,120 2.6% 140,828 7.7%
Fund's Incorporation
to Specify What
Approvals Are Required
to Participate in a
Reorganization
Approval of An 1,635,673 89.7% 47,120 2.6% 140,828 7.7%
Agreement and Plan of
Reorganization/3/
</TABLE>
BOND PORTFOLIO FOR ENDOWMENTS, INC.
Results of Special Meeting of Shareholders Held July 21, 1998
Shares Outstanding on June 17, 1998 (record date) 1,717,722
Shares Voting on July 21, 1998 1,203,456 (70%)
<TABLE>
<CAPTION>
Votes For Votes Abstentions
Against
Number Percent Number Percent Number Percent
of of Shares of of Shares of of Shares
Shares Voting Shares Voting Shares Voting
<S> <C> <C> <C> <C> <C> <C>
Elimination or 1,124,135 93.4% 17,213 1.4% 62,108 5.2%
Revision of Certain
Fundamental Investment
Restrictions /1,2/
Amendment to the 1,124,135 93.4% 17,213 1.4% 62,108 5.2%
Fund's Certificate of
Incorporation to
Specify What Approvals
Are Required to
Participate in a
Reorganization /3/
Approval of an 1,124,135 93.4% 17,213 1.4% 62,108 5.2%
Agreement and Plan of
Reorganization /3/
</TABLE>
/1/Vote required: the lesser of (i) 67% of the shares present at the meeting if
more than 50% of the outstanding shares are present or (ii) more than 50% of
the outstanding voting securities
/2/This item included proposals (i) modifying certain investment restrictions;
(ii) reclassifying certain investment restrictions as nonfundamental and (iii)
eliminating certain other restrictions. Shareholders could vote for or against,
or abstain from, any of the proposals.
/3/Vote required: a majority of the outstanding voting securities
PREPARING FOR THE YEAR 2000 (UNAUDITED)
The fund's key service providers - Capital Research and Management Company, the
investment adviser, and American Funds Service Company, the transfer agent -
are updating their computer systems to process date-related information
properly following the turn of the century. Both are on track to complete
modifications of significant internal systems by the end of 1998. Testing with
business partners, vendors and other service providers is already under way. We
will continue to keep you up to date in our regular publications. If you'd like
more detailed information, please call 415/393-7105 or visit our Web site at
www.americanfunds.com on the World Wide Web.
ENDOWMENTS
BOARD OF TRUSTEES
ROBERT B. EGELSTON, Los Angeles, California
Chairman of the Board of the Trust
Former Chairman of the Board,
The Capital Group Companies, Inc.
213/486-9444
FRANK L. ELLSWORTH, Ph.D., Los Angeles, California
President and Principal Executive Officer of the Trust
Vice President, Capital Research and Management Company
213/486-9560
STEVEN D. LAVINE, Ph.D., Valencia, California
President, California Institute of the Arts
805/255-1050
Patricia A. McBride, Dallas, Texas
Chief Financial Officer, Kevin L. McBride, D.D.S., Inc.
214/368-0268
GAIL L. NEALE, Burlington, Vermont
President, The Lovejoy Consulting Group, Inc.,
former Executive Vice President of the Salzburg Seminar;
former Director of Development and of the
Capital Campaign, Hampshire College
802/658-5674
CHARLES R. REDMOND, Los Angeles, California
Former Chairman, Pfaffinger Foundation; former President
and Chief Executive Officer, Times Mirror Foundation;
former Executive Vice President and Member of the
Management Committee, The Times Mirror Company
213/237-3977
THOMAS E. TERRY, Los Angeles, California
Consultant; former Vice President and Secretary,
Capital Research and Management Company
213/486-9410
ROBERT C. ZIEBARTH, Ketchum, Idaho
Management Consultant, Ziebarth Company
208/725-0535
OTHER OFFICERS
ABNER D. GOLDSTINE, Los Angeles, California
Senior Vice President of the Trust
Senior Vice President and Director,
Capital Research and Management Company
ROBERT G. O'DONNELL, San Francisco, California
Senior Vice President of the Trust
Senior Vice President and Director,
Capital Research and Management Company
CLAUDIA P. HUNTINGTON, Los Angeles, California
Vice President of Endowments Growth and Income Portfolio
Senior Vice President,
Capital Research and Management Company
JOHN H. SMET, Los Angeles, California
Vice President of Endowments Bond Portfolio
Vice President, Capital Research and Management Company
LISA G. HATHAWAY, Los Angeles, California
Assistant Vice President of the Trust
Assistant Vice President - Fund Business Management Group,
Capital Research and Management Company
PATRICK F. QUAN, San Francisco, California
Secretary of the Trust
Vice President - Fund Business Management Group,
Capital Research and Management Company
ANTHONY W. HYNES, JR., Brea, California
Treasurer of the Trust
Vice President - Fund Business Management Group,
Capital Research and Management Company
SUSI M. SILVERMAN, Brea, California
Assistant Treasurer of the Trust
Assistant Vice President - Fund Business Management Group,
Capital Research and Management Company
OFFICE OF THE TRUST
One Market
Steuart Tower, Suite 1800
Mailing address: P.O. Box 7650
San Francisco, California 94120-7650
INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071-1443
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
P.O. Box 7650
San Francisco, California 94120-7650
135 South State College Boulevard
Brea, California 92821-5804
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
Independent Auditors
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
This report is for the information of shareholders of Endowments, 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.
For more information about any of the American Funds, please ask your
investment professional for a prospectus.
Mary C. Hall retired as Treasurer effective August 14, 1998. She had been an
officer since 1986. We thank her for her many contributions.
Litho in USA TAG/PL/4000-45055
E1998 Endowments
Lit. No. ENDI-BENDI-011-0998 (NLS)
