As filed with the U.S. Securities and Exchange Commission on May 15, 1998
Securities Act File No. 2-34371
Investment Company Act File No. 811-1884
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM N-1A
Registration Statement Under The Securities Act of 1933 _
Pre-Effective Amendment No. ___ _
Post-Effective Amendment No. 46 X
and/or
Registration Statement Under The Investment Company Act of 1940 X
Amendment No. 25
(Check appropriate box or boxes)
_______________
ENDOWMENTS
(which by this Amendment is adopting and succeeding to the Registration
Statement under the Investment Company Act of 1940 of Endowments, Inc.
(File No. 811-1884) and adopting and succeeding to the registration under the
Securities Act of 1933 of Bond Portfolio for Endowments, Inc. (File No.
2-41200) and Endowments, Inc. (File No. 2-34371) for
all purposes, including for purposes of calculating registration fees under
Rule 24f-2 under the Investment Company Act of 1940)
(Exact Name of Registrant as Specified in Charter)
P.O. Box 7650, One Market, Steuart Tower
San Francisco, California 94120
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code:
(415) 421-9360
Patrick F. Quan, Secretary
Endowments
P.O. Box 7650, One Market, Steuart Tower
San Francisco, California 94120
(Name and Address of Agent for Service)
Copies to:
Robert E. Carlson, Esq. Robert W. Helm, Esq.
Paul, Hastings, Janofsky & Walker LLP Dechert Price & Rhoads
555 South Flower Street 1775 Eye Street, N.W.
Los Angeles, California 90071 Washington, DC 20026-2401
Approximate Date of Proposed Public Offering: It is proposed that this filing
will become effective on August 1, 1998 pursuant to paragraph (a) of Rule 485.
CROSS-REFERENCE SHEET
REQUIRED BY RULE 495
UNDER THE SECURITIES ACT OF 1933
PART A
Information Required in Prospectus
Item Number Heading
1 Cover Page
2 Expenses
3 Financial Highlights
4 Organization and Management of
Endowments; Investment
Policies and Risks
5 Multiple Portfolio Counselor System;
Organization and Management of
Endowments; The Investment Adviser;
Portfolio Transactions; Transfer Agent
5A Investment Results
6 Shareholder Services; Share Price
Dividends, Distributions and Taxes
7 Share Price
8 Selling Shares
9 Not Applicable
PART B
Information Required in Statement of Additional Information
Item Number Heading
10 Cover Page
11 Table of Contents
12 About Endowments
13 Description of Certain Securities;
Fundamental Policies and Investment
Restrictions
14 Management of the Trust
15 Not Applicable
16 Management of the Trust
17 Execution of Portfolio Transactions
18 General Information
19 Purchase of Shares; Redemption of Shares
20 Dividends, Distributions and Federal Taxes
21 Not Applicable
22 Investment Results
23 Financial Statements
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
ENDOWMENTS
Prospectus
__________, 1998
ENDOWMENTS
ONE MARKET
STEUART TOWER, SUITE 1800
P.O. BOX 7650
SAN FRANCISCO, CA 94120
415/421-9360
Endowments (the "Trust") is an open-end management investment company which
offers two diversified investment portfolios, the Growth and Income Portfolio
and the Bond Portfolio (collectively, the "Funds"). The Trust is a Delaware
business trust and is registered with the SEC as an open-end management
investment company. The public offering price of the Funds' shares is equal to
their net asset value. The share price of each Fund is expected to fluctuate
and the price paid may be higher or lower than the price at a time when an
investor wishes to redeem shares of the Funds. Capital Research and Management
Company serves as investment adviser to the Funds and also provides
administrative services to the Funds (the "Investment Adviser" or "CRMC").
The primary investment objective of the Growth and Income Portfolio is
long-term growth of principal with income and preservation of capital as
secondary objectives. The Growth and Income Portfolio strives to accomplish
these objectives by investing primarily in common stocks or securities
convertible into common stock. Major investment emphasis will be given to
stocks of companies which appear to have favorable prospects for long-term
growth of capital and income.
The primary investment objective of the Bond Portfolio is to seek as high a
level of current income as is consistent with the preservation of capital. The
fund strives to accomplish this objective by investing primarily in
quality-oriented bonds and debentures, as described further in this prospectus.
Shares of the Funds are available to (i) any entity exempt from taxation under
Section 501(c)(3) of the Internal Revenue Code of 1986, as amended ("501(c)(3)
Organizations"); (ii) any trust, the present or future beneficiary of which is
a 501(c)(3) Organization and (iii) any other entity formed for the primary
purpose of benefiting a 501(c)(3) Organization. An investment in the Funds
involve a certain amount of risk and may not be suitable for all investors.
See "INVESTMENT POLICIES AND RISKS."
This Prospectus sets forth concisely the information about the Trust that a
prospective investor ought to know before investing. Investors should read
this Prospectus and retain it for future reference. A Statement of Additional
Information ("SAI") about the Trust, dated __________, 1998, has been filed
with the Securities and Exchange Commission (the "SEC") and is incorporated
herein by reference. The SAI is available free upon request by calling the
Trust at the telephone number shown above.
YOU MAY LOSE MONEY BY INVESTING IN EITHER FUND. THE LIKELIHOOD OF LOSS IS
GREATER IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN THE
FUND(S) IS NOT A DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY
ENTITY OR PERSON INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT
INSURANCE CORPORATION. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
EXPENSES 3
FINANCIAL HIGHLIGHTS 4
INVESTMENT POLICIES AND RISKS 6
MULTIPLE PORTFOLIO COUNSELOR SYSTEM 11
INVESTMENT RESULTS 13
DIVIDENDS, DISTRIBUTIONS AND TAXES 16
ORGANIZATION AND MANAGEMENT OF ENDOWMENTS 16
THE INVESTMENT ADVISER 17
PORTFOLIO TRANSACTIONS 17
TRANSFER AGENT 18
SHAREHOLDER SERVICES 18
SHARE PRICE 19
SELLING SHARES 20
EXPENSES
The effect of the expenses described below is reflected in the Funds' share
prices or returns.
Shareholders pay no shareholder transaction expenses when buying or selling
shares of either fund. Fund operating expenses are paid out of each Fund's
assets and are factored into its share price.
SHAREHOLDER TRANSACTION EXPENSES
The Funds have no sales charges on purchases or reinvested dividends, deferred
sales charges, redemption fees or exchange fees.
FUND OPERATING EXPENSES
(as a percentage of average net assets after fee waiver)
________________________________________
<TABLE>
<CAPTION>
GROWTH AND BOND PORTFOLIO
INCOME
PORTFOLIO
<S> <C> <C>
Management fees 0.50% 0.40%
12b-1 expenses none none
Other expenses 0.24% 0.35%
Total fund operating 0.74% 0.75% /l/
expenses
</TABLE>
/l/ The Investment Adviser has been voluntarily waiving fees to the extent
necessary to ensure that each Fund's expenses do not exceed 0.75% of average
net assets per annum. Without such a waiver, fees for the Bond Portfolio (as a
percentage of average net assets) would have been 0.85%.
EXAMPLES
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
_______________________________
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Growth and Income Portfolio $ 8 $24 $41 $92
Bond Portfolio $ 8 $24` $42 $93
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY.
FINANCIAL HIGHLIGHTS
The following information for the seven years ended July 31, 1997 has been
audited by Deloitte & Touche LLP, independent auditors, and for the three years
ended July 31, 1990 by KPMG Peat Marwick, independent auditors. This table
should be read together with the financial statements which are included in the
statement of additional information and annual report.
GROWTH AND INCOME PORTFOLIO
SELECTED PER-SHARE DATA*
YEARS ENDED JULY 31
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset $18.61 $18.06 $17.18 $18.43 $18.26 $17.89 $16.91 $18.22 $16.71 $19.70
value,
beginning of
year
INCOME FROM .56 .58 .63 .65 .66 .78 .78 .89 .98 .82
INVESTMENT
OPERATIONS:
Net investment
income
Net realized 6.04 1.73 2.21 (.16) 1.05 1.74 1.60 (.16) 2.52 (1.16)
and unrealized
gain (loss) on
investments
Total income 6.60 2.31 2.84 .49 1.71 2.52 2.38 .73 3.50 (.34)
from
investment
operations
LESS (.55) (.61) (.61) (.66) (.69) (.73) (.87) (1.01) (.89) (.85)
DISTRIBUTIONS:
Dividends from
net investment
income
Distributions (2.00) (1.15) (1.35) (1.08) (.85) (1.42) (.53) (1.03) (1.10) (1.80)
from net
realized gains
Total (2.55) (1.76) (1.96) (1.74) (1.54) (2.15) (1.40) (2.04) (1.99) (2.65)
distributions
Net asset $22.66 $18.61 $18.06 $17.18 $18.43 $18.26 $17.89 $16.91 $18.22 $16.71
value, end of
year
Total return 38.40% 13.22% 18.57% 2.77% 10.05% 15.74% 15.03% 4.13% 23.22% (2.31)%
RATIOS/ $48 $59 $57 $53 $72 $58 $46 $39 $43 $36
SUPPLEMENTAL
DATA:Net
assets, end of
year (in
millions)
Ratio of .74% .82% .73% .73% .64% .70% .69% .68% .69% .63%
expenses to
average net
assets
Ratio of net 2.73% 3.12% 3.70% 3.78% 3.72% 4.37% 4.63% 5.08% 5.76% 4.86%
incometo
average net
assets
Average 5.00c 5.87c 5.94c 6.27c 7.03c 7.14c 7.17c 7.83c 7.43c 7.20c
commission
paid per share
/l/
Portfolio 50.69% 38.73% 24.04% 25.58% 29.70% 20.35% 34.43% 20.75% 19.70% 33.48%
turnover rate
</TABLE>
* All per share data reflects the 100-for-1 stock split for the Growth and
Income Portfolio effected on February 16, 1988.
/1/ Brokerage commissions paid on portfolio transactions increases the cost of
securities purchased or reduce the proceeds of securities sold and are not
separately reflected in the fund's statement of operations. Shares traded on a
principal basis (without commission), such as fixed-income transactions, are
excluded.
BOND PORTFOLIO
SELECTED PER-SHARE DATA*
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset $16.63 $16.82 $16.86 $19.66 $19.44 $17.76 $17.50 $17.83 $17.10 $17.62
value,
beginning of
year
INCOME FROM 1.21 1.22 1.26 1.32 1.49 1.47 1.49 1.61 1.60 1.51
INVESTMENT
OPERATIONS:
Net investment
income
Net realized .52 (.19) .01 (1.51) .64 1.70 .28 (.46) .61 (.09)
and unrealized
gain (loss) on
investments
Total income 1.73 1.03 1.27 (.19) 2.13 3.17 1.77 1.15 2.21 1.42
from
investment
operations
LESS (1.19) (1.22) (1.24) (1.35) (1.48) (1.49) (1.51) (1.48) (1.48) (1.40)
DISTRIBUTIONS:
Dividends from
net investment
income
Distributions --- --- (.07) (1.26) (.43) --- --- --- --- (.54)
from net
realized gains
Total (1.19) (1.22) (1.31) (2.61) (1.91) (1.49) (1.51) (1.48) (1.48) (1.94)
distributions
Net asset $17.17 $16.63 $16.82 $16.86 $19.66 $19.44 $17.76 $17.50 $17.83 $17.10
value, end of
year
Total return 10.83% 6.25% 7.97% (1.44)% 11.74% 18.69% 10.78% 6.86% 13.68% 8.62%
RATIOS/ $33 $41 $44 $46 $67 $65 $46 $39 $40 $33
SUPPLEMENTAL
DATA: Net
assets, end of
year (in
millions)
Ratio of .75% .75% .76% .77% .65% .68% .68% .69% .70% .64%
expenses to
average net
assets
Ratio of net 7.04% 7.17% 7.52% 6.99% 7.69% 8.04% 8.76% 9.25% 9.28% 8.69%
incometo
average net
assets
Portfolio 22.18% 54.43% 69.22% 82.12% 35.97% 63.30% 54.86% 42.90% 64.21% 128.52%
turnover rate
</TABLE>
* All per share data reflects the 100-for-1 stock split for the Bond Portfolio
effected on February 16, 1988.
/1/ Had CRMC not waived management service fees, the fund's ratio would have
been 0.85% and 0.80% for the fiscal years ended 1997 and 1996, respectively.
INVESTMENT POLICIES AND RISKS
INVESTMENT POLICIES
GROWTH AND INCOME PORTFOLIO
The Growth and Income Portfolio's primary investment objective is long-term
growth of principal with income and preservation of capital as secondary
objectives. The Growth and Income Portfolio will normally invest in common
stocks or securities convertible into common stock. Emphasis will be given to
stocks of companies which have favorable prospects for long-term growth of both
capital and income. The Growth and Income Portfolio may also purchase preferred
stocks and straight corporate debt securities (rated at the time of purchase in
the top three quality categories by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Ratings Services ("S&P"), or not rated but determined to
be of equivalent quality by the Investment Adviser). In addition, cash and cash
equivalents and U.S. government securities may also be held. The Growth and
Income Portfolio may from time to time invest up to 10% of its assets in common
stocks and other securities of issuers domiciled outside the United States. The
Growth and Income Portfolio may also engage in certain transactions involving
financial futures and options and similar instruments. The Growth and Income
Portfolio will normally diversify its investments among different industries
although the degree of diversification will vary from time to time in
accordance with the judgment of management.
BOND PORTFOLIO
The primary investment objective of the Bond Portfolio is to seek as high a
level of current income as is consistent with the preservation of capital. Any
capital appreciation is incidental to the Bond Portfolio's objective of current
income. The Bond Portfolio invests primarily in fixed-income securities. All
fixed-income securities purchased by the Fund must be "investment grade" at the
time of purchase which means securities rated in the top four ratings
categories by S & P or Moody's or unrated but determined to be of equivalent
quality by the Investment Adviser. A majority of the Bond Portfolio's assets
will be invested in fixed-income securities rated in the three highest
categories (those rated A or above) by Moody's or S&P or that are determined to
be of equivalent quality. In addition, the Bond Portfolio may invest in
securities rated BBB by S&P or Baa by Moody's, at the time of purchase, or in
unrated securities of equivalent quality. Securities rated BBB or Baa may have
speculative characteristics and changes in economic conditions may lead to a
weaker capacity to make principal and interest payments than is the case with
higher rated securities. The Bond Portfolio has no current intention of
investing in securities rated BB or below by S&P and Ba or below by Moody's
(commonly known as "junk" bonds) or in unrated securities of equivalent
quality. Normally, at least 65% of the Bond Portfolio's assets will be invested
in bonds. (For this purpose, bonds are considered to be any debt securities
having initial maturities in excess of one year.) The Bond Portfolio may also
invest up to 10% of its assets in obligations of corporations or government
entities outside the U.S. and Canada. All Canadian and other non-U.S.
securities purchased by the Bond Portfolio will be liquid, U.S.
dollar-denominated and meet the quality standards set forth above. The Bond
Portfolio may also engage in certain transactions involving financial futures
and options and similar instruments.
The fixed-income securities in which the fund invests may have stock
conversion or purchase rights; however, such securities will generally not
exceed 20% of the Bond Portfolio's assets measured at the time of purchase. The
Bond Portfolio will not acquire common stocks except through the exercise of
conversion or stock purchase rights and will retain such common stocks only
when it is consistent with the Bond Portfolio's objective of current income. In
addition, the Bond Portfolio may hold cash or cash equivalents.
As the majority of the Funds' shareholders are non-profit institutions,
investments will be made consonant with the standards generally considered
prudent by fiduciaries and trustees of such institutions.
Limits on the Funds' investment policies are determined at the time of
purchase and are based on the Funds' net assets, unless otherwise stated.
MORE INFORMATION ON THE FUNDS' INVESTMENT POLICIES AND INVESTMENT RESTRICTIONS
ARE CONTAINED IN THE STATEMENT OF ADDITIONAL INFORMATION.
The Funds' fundamental investment restrictions (described in the statement of
additional information) and its primary investment objectives may not be
changed without shareholder approval.
ACHIEVEMENT OF THE FUNDS' INVESTMENT OBJECTIVES CANNOT, OF COURSE, BE ASSURED
DUE TO THE RISK OF CAPITAL LOSS FROM FLUCTUATING PRICES INHERENT IN ANY
INVESTMENT IN SECURITIES.
SECURITIES AND INVESTMENT TECHNIQUES
EQUITY SECURITIES
The Growth and Income Portfolio will ordinarily invest in equity securities,
which represent an ownership position in a company. These securities may
include common stocks and securities with equity conversion or purchase rights.
The prices of equity securities fluctuate based on changes in the financial
condition of their issuers and on market and economic conditions. The Growth
and Income Portfolio's results will be related to the overall market for these
securities.
DEBT SECURITIES
Bonds and other debt securities are used by issuers to borrow money. Issuers
pay investors interest and generally must repay the amount borrowed at
maturity. Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values.
The prices of debt securities fluctuate depending on such factors as interest
rates, credit quality and maturity. In general their prices decline when
interest rates rise and vice versa.
The Growth and Income Portfolio may invest in debt securities rated A or
better by Moody's or S&P. The Bond Portfolio may invest in debt securities
rated Baa or BBB or better by Moody's or S&P or in unrated securities that are
determined to be of equivalent quality by the Investment Adviser. Securities
rated Baa or BBB are considered "investment grade" but also may have
speculative characteristics.
The Investment Adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as well
as by monitoring broad economic trends and corporate and legislative
developments.
OTHER SECURITIES
The Funds may also invest in securities that have a combination of equity and
debt characteristics such as non-convertible preferred stocks and convertible
securities. These securities may at times resemble equity more than debt and
vice versa. Non-convertible preferred stocks are similar to debt in that they
have a stated dividend rate akin to the coupon of a bond or note even though
they are often classified as equity securities. The prices and yields of
non-convertible preferred stocks generally move with changes in interest rates
and the issuer's credit quality, similar to the factors affecting debt
securities.
Bonds, preferred stocks, and other securities may sometimes be converted into
shares of common stock or other securities at a stated exchange ratio. These
securities prior to conversion pay a fixed rate of interest or a dividend.
Because convertible securities have both debt and equity characteristics their
value varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the credit quality of
the issuer.
U.S. GOVERNMENT SECURITIES
Securities guaranteed by the U.S. Government include (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes and bonds) and (2) federal
agency obligations guaranteed as to principal and interest by the U.S.
Treasury. Certain securities issued by U.S. Government instrumentalities and
certain federal agencies are neither direct obligations of, nor guaranteed by,
the Treasury. However, they generally involve federal sponsorship in one way or
another: some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality. The Bond Portfolio may invest in notes and bonds
issued by the U.S. Treasury and federal agencies whose interest payments are
indexed to the rate of inflation.
RESTRICTED AND ILLIQUID SECURITIES
Normally, securities acquired in private placements are subject to contractual
restrictions on resale. Any such securities will be considered illiquid unless
they have been specifically determined to be liquid under procedures adopted by
the Trust's Board of Trustees, taking into account factors such as the
frequency and volume of trading, the commitment of dealers to make markets and
the availability of qualified investors, all of which can change from time to
time. The Funds may incur certain additional costs in disposing of securities
that are illiquid.
INVESTING IN VARIOUS COUNTRIES
Investing outside the United States involves special risks caused by, among
other things, fluctuating currency values; different accounting, auditing, and
financial reporting regulations and practices in some countries; changing local
and regional economic, political, and social conditions; greater market
volatility; differing securities market structures; and various administrative
difficulties such as delays in clearing and settling portfolio transactions or
in receiving payment of dividends. However, in the opinion of the Investment
Adviser, investing outside the United States also can reduce certain portfolio
risks due to greater diversification opportunities.
Additional costs could be incurred in connection with the Funds' investment
activities outside the United States. The Growth and Income Portfolio can
purchase and sell currencies to facilitate transactions in securities
denominated in currencies other than the U.S. dollar. Brokerage commissions may
be higher outside the United States, and the Growth and Income Portfolio may
bear certain expenses in connection with its currency transactions.
Furthermore, increased custodian costs for either Fund may be associated with
the maintenance of assets in certain jurisdictions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Funds may enter into forward foreign currency exchange contracts in an
effort to reduce the level of volatility caused by changes in foreign currency
exchange rates. A Fund may not enter into these contracts for speculative
purposes. A forward currency exchange contract is an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set
at the time of contract. Although forward contracts are used primarily to
protect a Fund from adverse currency movements, they may also be used to
increase exposure to a currency, and involve the risk that anticipated currency
movements will not be accurately predicated and the Fund's total return will be
adversely affected as a result. Open positions in forward contracts are
covered by the segregation with a Fund's custodian of assets determined to be
liquid in accordance with procedures adopted by the Trustees of the Trust, and
which are marked to market daily.
APPLIES TO THE BOND PORTFOLIO:
PASS-THROUGH SECURITIES
The Bond Portfolio may invest in various debt obligations backed by a pool of
mortgages or other assets including loans on single family residences, home
equity loans, mortgages on commercial buildings, credit card receivables, and
leases on airplanes or other equipment. Principal and interest payments made on
the underlying asset pools backing these obligations are typically passed
through to investors. Pass-through securities may have either fixed or
adjustable coupons. These securities include those discussed below.
"Mortgage-backed securities" are issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), the Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC), and by private entities. The payment of interest and
principal on securities issued by U.S. government agencies is guaranteed by the
full faith and credit of the U.S. government (in the case of GNMA securities)
or the issuer (in the case of FNMA and FHLMC securities). However, the
guarantees do not apply to the market prices and yields of these securities,
which vary with changes in interest rates.
Mortgage-backed securities issued by private entities are structured similarly
to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities
and the underlying mortgages are not guaranteed by government agencies.
However, these securities generally are structured with one or more types of
credit enhancement by a third party. Mortgage-backed securities permit
borrowers to prepay their underlying mortgages. Prepayments by borrowers on
underlying obligations can alter the effective maturity of these instruments.
"Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages or mortgage loans, which are divided into two or more separate bond
issues. CMOs issued by U.S. government agencies are backed by agency mortgages,
while privately issued CMOs may be backed by either government agency mortgages
or private mortgages. Payments of principal and interest are passed through to
each bond at varying schedules resulting in bonds with different coupons,
effective maturities, and sensitivities to interest rates. In fact, some CMOs
may be structured in a way that when interest rates change the impact of
changing prepayment rates on these securities' effective maturities is
magnified.
"Commercial mortgage-backed securities" are backed by mortgages of commercial
property, such as hotels, office buildings, retail stores, hospitals, and other
commercial buildings. These securities may have a lower prepayment risk than
other mortgage-related securities because commercial mortgage loans generally
prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying
mortgage loans. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans, including the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan
payments, and the ability of a property to attract and retain tenants.
"Asset-backed securities" are backed by other assets such as credit card,
automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying collateral, the credit strength of the credit
enhancement, changes in interest rates, and at times the financial condition of
the issuer. Some asset-backed securities also may receive prepayments which can
change the bonds' effective maturities.
FORWARD COMMITMENTS
The Bond Portfolio may enter into commitments to purchase or sell securities
at a future date. When the Fund agrees to purchase such securities, it assumes
the risk of any decline in value of the securities beginning on the date of the
agreement.
When the Bond Portfolio agrees to sell such securities, it does not
participate in further gains or losses with respect to the securities beginning
on the date of the agreement. If the other party to such a transaction fails to
deliver or pay for the securities, the Bond Portfolio could miss a favorable
price or yield opportunity, or could experience a loss. In addition, the Bond
Portfolio may also enter into reverse repurchase agreements, which are the sale
of a security by the Bond Portfolio and its agreement to repurchase the
security at a specified time and price at a later date.
The Bond Portfolio may also enter into "dollar roll" transactions which are
the sale of GNMA certificates or other securities together with a commitment to
purchase similar, but not identical, securities at a later date. The Bond
Portfolio assumes the rights and risks of ownership, including the risk of
price and yield fluctuations as of the time of the agreement.
MATURITY
There are no restrictions on the maturity composition of the portfolio,
although it is anticipated that the Funds normally will be invested
substantially in securities with maturities in excess of three years.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements, under which a Fund buys a
security and obtains a simultaneous commitment from the seller to repurchase
the security at a specified time and price. The seller must maintain with the
Fund's custodian collateral equal to at least 100% of the repurchase price
including accrued interest as monitored daily by the Investment Adviser. The
Funds only enter into repurchase agreements involving securities in which they
could otherwise invest and with selected banks and securities dealers whose
financial condition is monitored by the Investment Adviser. If the seller under
a repurchase agreement defaults, the Fund may incur a loss if the value of the
collateral securing the repurchase agreement has declined and may incur
disposition costs in connection with liquidating the collateral. If bankruptcy
proceedings are commenced with respect to the seller, liquidation of the
collateral by the Fund may be delayed or limited.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The basic investment philosophy of CRMC is to seek fundamental values at
reasonable prices, using a system of multiple portfolio counselors in managing
mutual fund assets. Under this system a fund's portfolio is divided into
segments which are managed by individual counselors. Counselors decide how
their respective segments will be invested (within the limits provided by a
fund's objective(s) and policies and by CRMC's investment committee). In
addition, CRMC's research professionals may make investment decisions with
respect to a portion of a fund's portfolio. The primary individual portfolio
counselors for the Growth and Income Portfolio and the Bond Portfolio are
listed below.
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT
PROFESSIONAL
(APPROXIMATE)
PORTFOLIO PRIMARY TITLE(S) YEARS OF EXPERIENCE AS WITH CAPITAL TOTAL
COUNSELORS FOR PORTFOLIO COUNSELOR (AND RESEARCH YEARS
GROWTH AND RESEARCH PROFESSIONAL, IF AND MANAGEMENT
INCOME APPLICABLE) FOR GROWTH AND COMPANY
PORTFOLIO INCOME PORTFOLIO OR ITS AFFILIATES
(APPROXIMATE)
<S> <C> <C> <C> <C>
Robert G. Senior Vice 7 years (in addition to 18 22 years 25 years
O'Donnell President. years as a research
Senior Vice professional prior to
President and becoming a portfolio
Director, counselor for the fund).
Capital
Research and
Management
Company
Claudia P. Vice President 2 years (in addition to 20 20 years 22 years
Huntington (Growth and years as a research
Income professional prior to
Portfolio). Vice becoming a portfolio
President, counselor for the fund).
Capital Research
and Management
Company
</TABLE>
BOND PORTFOLIO
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT
PROFESSIONAL
(APPROXIMATE)
PORTFOLIO PRIMARY TITLE(S) YEARS OF EXPERIENCE AS WITH CAPITAL TOTAL
COUNSELORS FOR PORTFOLIO COUNSELOR FOR RESEARCH AND YEARS
BOND BOND PORTFOLIO MANAGEMENT
PORTFOLIO (APPROXIMATE) COMPANY
OR ITS
AFFILIATES
<S> <C> <C> <C> <C>
Abner D. Senior Vice 22 years 30 years 45
Goldstine President. years
Senior Vice
President
and Director,
Capital
Research and
Management
Company
John H. Smet Vice President 9 years 14 years 15
(Bond years
Portfolio). Vice
President,
Capital
Research and
Management
Company
</TABLE>
CAPITAL RESEARCH AND MANAGEMENT COMPANY HAS BEEN THE FUNDS' INVESTMENT ADVISER
SINCE JULY 26, 1975.
INVESTMENT RESULTS
The Funds may from time to time compare investment results to various indices
or other mutual funds. Fund results may be calculated on a total return, yield
and/or distribution rate basis.
TOTAL RETURN is the change in value of an investment in the Fund over a given
period, assuming reinvestment of any dividends and capital gain distributions.
YIELD is computed by dividing the net investment income per share earned by
the Fund over a given period of time by the maximum offering price per share
on the last day of the period, according to a formula mandated by the SEC. A
yield calculated using this formula may be different than the income actually
paid to shareholders.
DISTRIBUTION RATE reflects dividends that were paid by the Fund. The
distribution rate is calculated by dividing the dividends paid over the last
12 months by the sum of the month-end price and the capital gain distributions
paid over the last 12 months.
GROWTH AND INCOME PORTFOLIO
INVESTMENT RESULTS
(FOR PERIODS ENDED JUNE 30, 1997)
<TABLE>
<CAPTION>
Average Annual Total Returns: The fund at S&P 500/2/
net asset
value/1/
<S> <C> <C>
One year 26.75% 34.63%
Five years 15.44% 19.74%
Ten years 12.83% 14.62%
Lifetime/3/ 15.03% 15.42%
</TABLE>
Yield/1/: 2.43%
Distribution Rate: 2.36%
BOND PORTFOLIO
INVESTMENT RESULTS
(FOR PERIODS ENDED JUNE 30, 1997)
<TABLE>
<CAPTION>
Average Annual Total Returns: The fund at Lehman Aggregate
net asset Bond Index/4/
value /1/
<S> <C> <C>
One year 8.64% 8.15%
Five years 7.18% 7.12%
Ten years 8.95% 8.82%
Lifetime/3/ 9.77% 9.74%
</TABLE>
Yield/1/: 6.55%
Distribution Rate: 7.06%
/1/ These fund results were calculated according to a standard that is required
for all stock and bond funds.
/2/ The Standard & Poor's 500 Composite Index represents stocks. This index is
unmanaged and does not reflect sales charges, commissions or expenses.
/3/ For the period beginning July 26, 1975 (when Capital Research and
Management Company became the Funds' investment adviser).
/4/ Lehman Brothers Aggregate Bond Index represents investment grade debt. This
index is unmanaged and does not reflect sales charges, commissions or expenses.
/5/ Lehman Brothers Aggregate Bond Index did not exist until December 31, 1975.
For the period between July 31, 1975 and December 31, 1975, Lehman Brothers
Government/Corporate Bond Index results were used. The Lehman Brothers indices
are based on July 31, 1975 index value.
The following presents the Funds' annual total returns. This information is
being supplied on a calendar year basis for comparative purposes.
GROWTH AND INCOME PORTFOLIO
1987 3.38%
1988 13.37
1989 25.4
1990 0.42
1991 22.57
1992 9.56
1993 9.56
1994 1.54
1995 28.31
1996 17.43
BOND PORTFOLIO
1987 0.65%
1988 9.18
1989 12.56
1990 6.04
1991 20.32
1992 9.4
1993 12.23
1994 (4.31)
1995 15.99
1996 3.98
Past results are not an indication of future results and, for Bond Portfolio,
reflect a fee waiver.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Funds usually pay dividends, which may fluctuate, in March, June,
September and December. Capital gains, if any, are usually distributed in
December. When a dividend or capital gain is distributed, the net value per
share is reduced by the amount of the payment.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
FEDERAL TAXES
In any fiscal year in which the Trust qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the Trust itself (and hence the Funds) is relieved of
federal income tax.
Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash - unless you are exempt from taxation or
entitled to tax deferral. Early each year, you will be notified as to the
amount and federal tax status of all income distributions paid during the prior
year. Such distributions may also be subject to state or local taxes.
This is a brief summary of some of the tax laws that affect your investment in
the funds. Please see the SAI and consult your tax adviser for further
information.
ORGANIZATION AND MANAGEMENT OF ENDOWMENTS
TRUST ORGANIZATION AND VOTING RIGHTS
Each Fund is a separate series of a Delaware business trust which is a
registered open-end, diversified management investment company. The Trust was
organized on May 14, 1998. All Fund operations are supervised by the Trust's
Board of Trustees who meet periodically and perform duties required by
applicable state and federal laws. Shareholders have one vote per share owned.
At the request of the holders of at least 10% of the shares of either Fund,
that Fund will hold a meeting at which any member of the board could be removed
by a majority vote. Shareholders of the Trust must be (i) any entity exempt
from taxation under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended ("501(c)(3) Organizations"); (ii) any trust, the present or future
beneficiary of which is a 501(c)(3) Organization and (iii) any other entity
formed for the primary purpose of benefiting a 501(c)(3) Organization. The
Trust may change this policy at any time without the approval of the Trust's
shareholders.
As of ______, 1998, the following shareholders owned 5% or more of the Funds'
outstanding stock:
Growth and Income Portfolio - California Institute of the Arts (24700 McBean
Parkway, Valencia, California 91355) (_____ shares, ____%); Citizens'
Scholarship Foundation of America (1505 Riverview Road, P.O. Box 297, St.
Peter, Minnesota 56082) (_____ shares, ____%); DeKalb County Community
Foundation (2225 Gateway Drive, Sycamore, Illinois 60178) (____ shares, ___%);
Foundation for Reproductive Research and Education (333 E. Superior Street,
Prentice 490, Chicago, Illinois 60611) (____ shares, ___%); and Loyola
Marymount University (7900 Loyola Boulevard, Los Angeles, California 90045)
(______ shares, _____%).
Bond Portfolio - California Institute for the Arts (24700 McBean Parkway,
Valencia, California 91355) (_____ shares, ____%); Citizens' Scholarship of
America (1505 Riverview Road, P.O. Box 297, St. Peter, Minnesota 56082) (____
shares, ____%); Hudson Institute 5395 Emerson Way, P.O. Box 26919,
Indianapolis, Indiana 46226) (_____ shares, ____%); and Foundation for
Reproductive Research and Education (333 E. Superior Street, Prentice 490,
Chicago, Illinois 60611) (_____ shares, _____%). As California Institute of
the Arts owns in excess of ____% of the voting shares of the Fund, it is,
pursuant to the 1940 Act, presumed to be a controlling person of the Fund.
Shareholder inquiries may be made in writing to Endowments, One Market,
Steuart Tower, Suite 1800, P.O. Box 7650, San Francisco, California 94120 or by
calling 415/421-9360.
THE INVESTMENT ADVISER
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, has been the Funds' investment adviser
since July 25, 1975 and is the investment adviser to other funds, including
those in The American Funds Group. The Investment Adviser is a wholly owned
subsidiary of The Capital Group Companies, Inc. and is headquartered at 333
South Hope Street, Los Angeles, CA 90071. CRMC manages the investment portfolio
and business affairs of the Funds. The management fee paid by the Funds to the
Investment Adviser may not exceed 0.50% of each Fund's average net assets
annually and declines at certain asset levels. The total management fees paid
by each Fund, as a percentage of average net assets, for the previous fiscal
year are discussed earlier under "Expenses."
The Investment Adviser and its affiliated companies have adopted a personal
investing policy that is consistent with the recommendations contained in the
May 9, 1994 report issued by the Investment Company Institute's Advisory Group
on Personal Investing. This policy has also been incorporated into the Funds'
code of ethics.
PORTFOLIO TRANSACTIONS
Orders for the Funds' portfolio securities transactions are placed by the
Investment Adviser, which strives to obtain the best available prices, taking
into account the costs and quality of executions. Fixed-income securities are
generally traded on a "net" basis with a dealer acting as principal for its own
account without a stated commission, although the price of the security usually
includes a profit to the dealer. In underwritten offerings, securities are
usually purchased at a fixed price which includes an amount of compensation to
the dealer, generally referred to as a concession or discount. On occasion,
securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid. In the over-the-counter market, purchases
and sales are transacted directly with principal market-makers except in those
circumstances where it appears better prices and executions are available
elsewhere.
Subject to the above policy, when two or more brokers (either directly or
through their correspondent clearing agents) are in a position to offer
comparable prices and executions, preference may be given to brokers who have
provided investment research, statistical, and other related services for the
benefit of the Funds and/or other funds served by the Investment Adviser.
TRANSFER AGENT
American Funds Service Company serves as the transfer agent for the Funds and
performs shareholder service functions. An agent of American Funds Service
Company who performs transfer agent services for the Funds is located at One
Market, Steuart Tower, Suite 1800, San Francisco, California 94105.
SHAREHOLDER SERVICES
The Funds offer you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice.
PURCHASING SHARES
Shares of the Funds may be purchased directly from the Funds only by (i) any
entity exempt from taxation under Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended ("501(c)(3) Organizations"); (ii) any trust, the
present or future beneficiary of which is a 501(c)(3) Organization and (iii)
any other entity formed for the primary purpose of benefiting a 501(c)(3)
Organization. The minimum initial purchase is $50,000 for either Fund; there is
no minimum on subsequent investments. The minimum initial investment may be
reduced by the Board of Trustees for investments which meet certain standards.
Any shareholder which no longer fulfills the characteristics described in the
beginning of this paragraph must transfer its shares to an eligible entity or,
at the shareholder's option, sell its shares at net asset value.
The purchase of shares may be paid in cash or in a like value of acceptable
securities, said securities to be valued in accordance with the valuation
procedures described in the statement of additional information under "Purchase
of Shares--Price of Shares." Acceptable securities shall be those securities
deemed acceptable by CRMC; that is, those securities which management deems to
be consistent with the investment objectives and policies of the funds.
Various services are available as described below:
Automatic Reinvestment
Dividends and capital gain distributions are reinvested in additional shares
at no sales charge unless you indicate otherwise. You also may elect to have
dividends and/or capital gain distributions paid in cash.
Exchange Feature
As a shareholder of the Growth and Income Portfolio or the Bond Portfolio, you
may exchange all or part of your shares at net asset value for shares of the
other, and for shares of The Cash Management Trust of America or The U.S.
Treasury Money Fund of America, whose shares may be similarly exchanged for
shares of the Growth and Income Portfolio and/or the Bond Portfolio. The Cash
Management Trust of America and The U.S. Treasury Money Fund of America are
money market funds whose shares are sold at net asset value. This feature is
available only if the fund for which you are exchanging is qualified in the
state where you reside.
This exchange may or may not have potential tax consequences for the
shareholder. Shareholders should consult their tax or financial advisers
before exchanging their shares under this option.
Automatic Withdrawals
Shareholders may authorize automatic withdrawals from their accounts. All
shares owned or purchased by a shareholder will be credited to the
shareholder's withdrawal account, and a sufficient number of shares will be
sold from the account to meet the requested withdrawal payments. All income
dividends and other distributions, if any, must be reinvested in fund shares at
net asset value and credited to the withdrawal account. Liquidation of shares
in excess of investment income will reduce and may deplete a shareholder's
invested capital. Withdrawal payments, therefore, should not be considered as a
yield or income on the investment.
Account Statements
A shareholder account is opened in accordance with your registration
instructions. Transactions in the account, such as additional investments and
dividend reinvestments, will be reflected on regular confirmation statements
from American Funds Service Company.
SHARE PRICE
Each Fund's share price, also called net asset value, is determined as of
4:00 p.m., Eastern time every day the New York Stock Exchange is open. Each
Fund calculates its net asset value per share, generally using market prices,
by dividing the total value of its assets after subtracting liabilities by the
number of its shares outstanding. Shares are purchased at the net asset value
next determined after your investment is received and accepted.
SELLING SHARES
Shares are credited to your account and certificates are not issued unless you
request them by writing. Shares of the Funds are redeemable through the Funds
at net asset value. Shareholders may sell (redeem) their shares, by tendering a
request in proper form, at the offices of the Funds, P.O. Box 7650, One Market,
Steuart Tower (Suite 1800), San Francisco, California 94120. Proper tender of
shares requires a written request for redemption and, if the shareholder has
received certificates for its shares, the deposit of the stock certificates.
Requests to sell must be signed and the authorized signature(s) of the
shareholder guaranteed by an "eligible guarantor" which includes a bank or
savings and loan association that is federally insured or a member firm of the
National Association of Securities Dealers, Inc. Notarization by a notary
public is not an acceptable signature guarantee.
The Funds do not have dealer agreements and do not accept redemption orders
from broker-dealers. The price you receive for the shares you sell is the net
asset value next determined after your order and all required documents are
received. (See "Share Price.") Because the Funds' net asset values fluctuate,
reflecting the market value of the Funds' portfolios, the amount a shareholder
receives for shares sold may be more or less than the amount paid for them.
ENDOWMENTS
One Market
Steuart Tower, Suite 1800
P.O. Box 7650
San Francisco, California 94120
(415) 421-9360
Part B
Statement of Additional Information
__________, 1998
Endowments (the "Trust") is an open-end management investment company,
commonly known as a mutual fund. The Trust offers two diversified investment
portfolios, the Growth and Income Portfolio and the Bond Portfolio
(collectively, the "Funds").
This document is not a prospectus but should be read in conjunction with the
current Prospectus of Endowments dated __________, 1998. The Prospectus may be
obtained free of charge by writing to the Funds' Secretary at the above address
or calling the Funds at (415) 421-9360.
TABLE OF CONTENTS
Page No.
About Endowments 1
Description of Certain Securities 2
Fundamental Policies and Investment Restrictions 6
Management of the Trust 8
Dividends, Distributions and Federal Taxes 13
Purchase of Shares 16
Execution of Portfolio Transactions 17
Redemption of Shares 18
General Information 19
Investment Results 19
Appendix 28
ABOUT ENDOWMENTS
Endowments is a business trust organized under the laws of the state of
Delaware on May 14, 1998 with two separate series, the Growth and Income
Portfolio and the Bond Portfolio. The Growth and Income Portfolio was formerly
known as Endowments, Inc. and was organized as a Delaware corporation. The
Bond Portfolio was formerly known as Bond Portfolio for Endowments, Inc. and
was organized as a separate Delaware corporation. Endowments, Inc. and the
Bond Portfolio for Endowments, Inc. were reorganized as separate series of
Endowments on July 31, 1998 with all of the assets of each predecessor fund
transferred to the Growth and Income Portfolio and the Bond Portfolio,
respectively.
DESCRIPTION OF CERTAIN SECURITIES
BOND PORTFOLIO
The Fund has no current intention (at least during the next 12 months) of
investing in securities rated BB or below by S&P and Ba or below by Moody's
(commonly known as "junk" bonds) or equivalent securities that are not rated.
The Fund is not normally required to dispose of a security in the event that
its rating is reduced below BBB or Baa (or it is not rated and its quality
becomes equivalent to such a security). The Fund, however, has no current
intention of holding more than 5% of its net assets in junk bonds. Junk bonds
are subject to greater fluctuations in value than are higher rated securities
because the values of these securities tend to reflect short-term corporate and
market developments and investor perceptions of the issuers' credit quality to
a greater extent.
FORWARD COMMITMENTS - The Fund may enter into commitments to purchase or sell
securities at a future date. When a fund purchases such securities it assumes
the risk of any decline in value of the security beginning on the date of the
agreement. When a fund sells such securities it does not participate in
further gains or losses with respect to such securities beginning on the date
of the agreement. If the other party to such a transaction fails to deliver
or pay for the securities, the fund could miss a favorable price or yield
opportunity or could experience a loss.
As the Fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly may increase. The Fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily in an amount sufficient to meet its
payment obligations in these transactions. Although these transactions will
not be entered into for leveraging purposes, to the extent the Fund's aggregate
commitments under these transactions exceed its segregated assets, the Fund
temporarily could be in a leveraged position (because it will have an amount
greater than its net assets subject to market risk). Should market values of
the fund's portfolio securities decline while the Fund is in a leveraged
position, greater depreciation of its net assets would likely occur than were
it not in such a position. The Fund will not borrow money to settle these
transactions and, therefore, will liquidate other portfolio securities in
advance of settlement if necessary to generate additional cash to meet its
obligations thereunder.
The Fund also may enter into "dollar roll" transactions, which consist of the
sale of GNMA certificates or other securities together with a commitment to
purchase similar, but not identical, securities at a future date. The Fund
intends to treat dollar roll transactions as two separate transactions: one
involving the purchase of a security and a separate transaction involving the
sale of a security. Since the Fund does not intend to enter into dollar roll
transactions for financing purposes, it may treat these transactions as not
falling within the definition of "borrowing" set forth in Section 2(a)(23) of
the Investment Company Act of 1940, as amended (the "1940 Act").
REVERSE REPURCHASE AGREEMENTS - This type of agreement involves the sale of a
security by the Fund and its commitment to repurchase the security at a
specified time and price. The Fund will identify liquid assets which will be
marked to market daily in an amount sufficient to cover its obligations under
reverse repurchase agreements with broker-dealers (but no collateral is
required on reverse repurchase agreements with banks). Under the 1940 Act,
reverse repurchase agreements may be considered borrowings by the Fund. The
use of reverse repurchase agreements by the Fund creates leverage which
increases the Fund's investment risk. As the Fund's aggregate commitments under
these reverse repurchase agreements increases, the opportunity for leverage
similarly increases. If the income and gains on securities purchased with the
proceeds of reverse repurchase agreements exceed the costs of the agreements,
the Fund's earnings or net asset value will increase faster than otherwise
would be the case; conversely if the income and gains fail to exceed the costs,
earnings or net asset value would decline faster than otherwise would be the
case.
WARRANTS AND RIGHTS - In addition, the Fund may only acquire warrants or
rights, which are issued together with bonds or preferred stocks. Warrants
generally entitle the holder to buy a stated amount of common stock or
additional bonds to be exercised at a specified price. At the time the warrant
is issued, the exercise price is usually higher than the current market price.
Warrants may be issued with an expiration date or in perpetuity. The Fund may
also acquire rights to purchase common stocks. Rights are similar to warrants
except that they normally entitle the holder to purchase common stock at a
lower price than the current market price.
GROWTH AND INCOME PORTFOLIO
REPURCHASE AGREEMENTS - Although the Fund has no current intention in doing
so, the Fund may enter into repurchase agreements, under which it buys a
security and obtains a simultaneous commitment from the seller to repurchase
the security at a specified time and price. The seller must maintain with the
Fund's custodian collateral equal to at least 100% of the repurchase price
including accrued interest as monitored daily by the Investment Adviser. The
Fund only enters into repurchase agreements involving securities in which they
could otherwise invest and with selected banks and securities dealers whose
financial condition is monitored by the Investment Adviser. If the seller
under a repurchase agreement defaults, the Fund may incur a loss if the value
of the collateral securing the repurchase agreement has declined and may incur
disposition costs in connection with liquidating the collateral. If bankruptcy
proceedings are commenced with respect to the seller, liquidation of the
collateral by the Fund may be delayed or limited.
CURRENCY TRANSACTIONS - Although the Fund has no current intention to do so,
the Fund has the ability to enter into forward currency contracts to protect
against changes in currency exchange rates. A forward currency contract is an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. Forward currency
contracts entered into by the Fund will involve the purchase or sale of a
currency against the U.S. dollar. The Fund will segregate liquid assets which
will be marked to market daily to meet its forward contract commitments to the
extent required by the Securities and Exchange Commission.
Certain provisions of the Internal Revenue Code may affect the extent to which
the Fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the Fund.
GROWTH AND INCOME PORTFOLIO AND BOND PORTFOLIO
BOND RATINGS - The Growth and Income Portfolio may invest in debt securities
which are rated in the top three quality categories by any national rating
service (or determined to be equivalent by Capital Research and Management
Company, the Fund's investment adviser ("CRMC" or the "Investment Adviser").
The Bond Portfolio invests in bonds and debentures (including straight debt
securities), which are rated in the top four quality categories by any national
rating service (or determined to be equivalent by CRMC). The top four rating
categories for S&P and Moody's are described in the Appendix to this Statement
of Additional Information.
CASH AND CASH EQUIVALENTS - Each Fund may invest in cash or cash equivalents.
These securities include (1) commercial paper (short-term notes issued by
corporations or governmental bodies), (2) commercial bank obligations (E.G.,
certificates of deposit (interest bearing time deposits), and bankers'
acceptances (time drafts on a commercial bank where the bank accepts an
irrevocable obligation to pay at maturity)) , (3) savings association and
savings bank obligations (E.G., certificates of deposit issued by savings banks
or savings associations), (4) securities of the U.S. Government, its agencies
or instrumentalities that mature, at the time of purchase, or may be redeemed,
in one year or less, and (5) corporate bonds and notes that mature, at the time
of purchase, or that may be redeemed, in one year or less.
FUTURES CONTRACTS AND OPTIONS - Although the Funds have no current intention
to do so, (at least during the next 12 months), the Funds may purchase and sell
options and futures contracts and related options on securities, securities
indexes and foreign currencies, as consistent with the Funds' investment
objectives.
Futures contracts obligate a Fund, at maturity, to take or make delivery of
certain securities or the cash value of a bond or securities index. When
interest rates are rising, futures contracts can offset a decline in value of
the Fund's portfolio securities. When rates are falling, these contracts can
secure higher yields for securities the Fund intends to purchase.
The Funds may also purchase and sell call and put options on futures contracts
traded on an exchange or board of trade. When a Fund purchases an option on a
futures contract, it has the right to assume a position as a purchaser or
seller of a futures contract at a specified exercise price at any time during
the option period. When the Fund sells an option on a futures contract, it
becomes obligated to purchase or sell a futures contract if the option is
exercised. In anticipation of a market advance, a Fund may purchase call
options on futures contracts as a substitute for the purchase of futures
contracts to hedge against a possible increase in the price of securities which
the Fund intends to purchase. Similarly, if the value of a Fund's portfolio
securities is expected to decline, the Fund might purchase put options or sell
call options on futures contracts rather than sell futures contracts. The
Funds may also enter into contracts for the purchase or sale for future
delivery of foreign currencies. In connection with a Fund's position in a
futures contract or option thereon, the Fund will create a segregated account
of assets determined to be liquid in accordance with procedures adopted by the
Trustees of the Trust, or will otherwise cover its position in accordance with
applicable requirements of the SEC.
In addition, the Funds may write covered call options, buy put options, buy
call options and write secured put options on particular securities or various
stock or bond indices. The Funds may also purchase and write put and call
options on foreign currencies (traded on U.S. and foreign exchanges or
over-the-counter) to manage the Funds' exposure to changes in dollar exchange
rates. Options trading is a highly specialized activity which entails greater
than ordinary investment risks. A call option for a particular security gives
the purchaser of the option the right to buy, and a writer the obligation to
sell, the underlying security at the stated exercise price at any time prior to
the expiration of the option, regardless of the market price of the security.
The premium paid to the writer is in consideration for undertaking the
obligations under the option contract.
A put option for a particular security gives the purchaser the right to sell
the underlying security at the stated exercise price at any time prior to the
expiration date of the option, regardless of the market price of the security.
In contrast to an option on a particular security, an option on a stock index
provides the holder with the right to make or receive a cash settlement upon
exercise of the option, regardless of the market price of the security.
The use of derivative instruments such as futures and options exposes a Fund
to additional risks and transaction costs. Risks inherent in the use of
derivative instruments include: (1) the risk that interest rates, securities
prices and currency markets will not move in the direction that a portfolio
manager anticipates; (2) imperfect correlation between the price of derivative
instruments and movements in the prices of the securities, interest rates or
currencies being hedged; (3) the fact that skills needed to use these
strategies are different than those needed to select portfolio securities; (4)
inability to close out certain hedged positions to avoid adverse tax
consequences; (5) the possible absence of a liquid secondary market for any
particular instrument and possible exchange-imposed price fluctuation limits,
either of which may make it difficult or impossible to close out a position
when desired; (6) leverage risk, that is, the risk that adverse price movements
in an instrument can result in a loss substantially greater than a Fund's
initial investment in that instrument (in some cases, the potential loss is
unlimited); and (7) particularly in the case of privately-negotiated
instruments, the risk that the counterparty will fail to perform its
obligations, which could leave a Fund worse off than if it had not entered into
the position.
As stated above, when a Fund invests in a derivative instrument, it may be
required to segregate assets determined to be liquid, in accordance with
procedures adopted by the Trustees of the Trust, to "cover" the Fund's
position. Assets segregated or set aside generally may not be disposed of so
long as the Fund maintains the positions requiring segregation or cover.
Segregating assets could diminish a Fund's return due to the opportunity losses
of foregoing other potential investments with the segregated assets.
All futures transactions engaged in by a Fund will constitute bona fide
hedging or other permissible transactions in accordance with the rules and
regulations promulgated by the Commodity Futures Trading Commission pursuant to
which the Funds are exempt from regulation as commodity pools. Successful use
of futures and options is subject to special risk considerations.
PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the
length of time particular investments may have been held. Short-term trading
profits are not the funds' objective and changes in their investments are
generally accomplished gradually, though short-term transactions may
occasionally be made. Management's appraisal of changing economic conditions
and trends may cause a change in emphasis within the portfolio, both among
individual securities and among various types of fixed-income securities in
order to achieve the objective of the Fund. Major changes in economic
conditions could necessitate substantial portfolio turnover. Such turnover
will normally consist of shifts in grade, types of issuers, and maturity
composition of the Fund's securities in order to preserve principal and
maintain current income. High portfolio turnover (100% or more) involves
correspondingly greater transaction costs in the form of dealer spreads or
brokerage commissions. Fixed-income securities are generally traded on a net
basis and usually neither brokerage commissions nor transfer taxes are
involved. A Fund's portfolio turnover rate would equal 100% if each security
in either Fund's portfolio were replaced once per year. Under normal
circumstances, it is anticipated that portfolio turnover for common stocks in
the Growth and Income Portfolio's portfolio will not exceed 100% on an annual
basis, and that portfolio turnover for the Growth and Income Portfolio's other
securities will not exceed 100% on an annual basis. The Bond Portfolio's
portfolio turnover is not expected to exceed 100% and was 22.18% as of July 31,
1997.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental policies and investment restrictions
for the Funds which cannot be changed without shareholder approval. The Funds'
primary investment objectives described in the Prospectus and the following
fundamental investment restrictions require shareholder approval to be changed.
(Approval requires the affirmative vote of 67% or more of the voting securities
present at a meeting of shareholders, provided more than 50% of such securities
are represented at the meeting, or the vote of more than 50% of the outstanding
voting securities, whichever is less.) The following are the Funds'
fundamental investment restrictions:
1. A Fund may not invest in a security if, as a result of such investment,
more than 25% of its total assets would be invested in the securities of
issuers in any particular industry, except that the restriction does not apply
to securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (or repurchase agreements with respect thereto).
2. A Fund may not make loans, but this limitation does not apply (i) to
purchases of debt securities, loan participations, or the entry into of
repurchase agreements, or (ii) to loans of portfolio securities if, as a
result, no more than 33 1/3% of a Fund's total assets would be on loan to third
parties.
3. A Fund may not purchase or sell real estate unless acquired as a result
of ownership of securities or other instruments (this shall not prevent the
Funds from investing in securities or other instruments backed by real estate,
or the securities of companies engaged in the real estate business).
4. A Fund may not purchase or sell commodities or commodities contracts.
This restriction shall not prohibit the Funds, subject to restrictions
described in the Funds' prospectus and statement of additional information,
from purchasing, selling or entering into futures contracts, options on futures
contracts, foreign currency forward contracts, foreign currency options, or any
interest rate, securities-related or foreign currency-related hedging
instrument, including swap agreements and other derivative instruments, subject
to compliance with applicable provisions of the federal securities and
commodities laws.
5. A Fund may not issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended.
6. A Fund may not borrow money, except temporarily for extraordinary or
emergency purposes, in an amount not exceeding 5% of its total assets at the
time of such borrowing.
7. A Fund may not, with respect to 75% of its total assets, invest more than
5% of the value of its total assets in the securities of any one issuer, or
acquire more than 10% of the voting securities of any one issuer. These
limitations do not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
8. A Fund may not engage in the business of underwriting securities of other
issuers, except to the extent that a Fund may be deemed an underwriter under
the Securities Act of 1933, as amended, in disposing of portfolio
securities.
The following investment policies of the Funds and all other policies
described in the Funds' prospectus and this statement of additional information
are considered non-fundamental and may be changed at any time with the approval
of the Trust's Board of Trustees. The following nonfundamental policies apply
to both Funds:
1. The Funds may not invest in other companies for the purpose of exercising
control or management.
2. The Funds may not purchase puts, calls or hedges.
3. The Funds may not invest in securities of other investments companies,
except as permitted by the Investment Company Act of 1940, as amended.
The following non-fundamental policy applies to the Growth and Income Portfolio
only:
1. The Fund may not invest more than 10% of its total assets in securities
that are not readily marketable.
The following non-fundamental policy applies to the Bond Portfolio only:
1. The Fund may not invest more than 15% of its total assets in securities
that are not readily marketable.
Restricted securities are treated as not readily marketable by the Funds,
with the exception of those securities that have been determined to be liquid
pursuant to procedures adopted by the Trust's Board of Trustees.
MANAGEMENT OF THE TRUST
The Trust is managed by its Board of Trustees. The Trustees and officers of
the Trust are listed below. Their affiliations over the last five years are
set forth below. An asterisk (*) has been placed next to the name of each
Trustee who is an "interested person" as that term is defined in the 1940 Act,
by virtue of that person's affiliation with the Trust, its Investment Adviser,
or otherwise.
OFFICERS AND TRUSTEES
(with their principal occupations for the past five years#)
TRUSTEES
(and the organization for which they serve as designated representative ++)
ROBERT B. EGELSTON*, 333 South Hope Street, Los Angeles, CA 90071, Age: 67.
Chairman of the Board. Senior Partner, The Capital Group Partners L.P.; former
Chairman of the Board, The Capital Group Companies, Inc.
FRANK L. ELLSWORTH*, 333 South Hope Street, Los Angeles, CA 90071, Age: 55.
President and Trustee. Vice President, Capital Research and Management Company;
former President, Independent Colleges of Southern California; Designated
Representative: Independent Colleges of Southern California.
STEVEN D. LAVINE, 24700 McBean Parkway, Valencia, CA 91355, Age: 51. Trustee.
President, California Institute of the Arts; Designated Representative:
California Institute of the Arts.
PATRICIA A. McBRIDE, 4933 Mangold Circle, Dallas, TX 75229, Age: 55. Trustee.
Chief Financial Officer, Kevin L. McBride, D.D.S., Inc.; Designated
Representative: Madison Foundation.
GAIL L. NEALE, 154 Prospect Parkway, Burlington, VT 05401, Age: 63. Trustee.
President, The Lovejoy Consulting Group, Inc.; Designated Representative:
Shelburne Farms.
CHARLES R. REDMOND, Times Mirror Square, Los Angeles, CA 90053, Age: 71.
Trustee. Former Chairman, Pfaffinger Foundation and former President and Chief
Executive Officer, Times Mirror Foundation; Designated Representative: Loyola
Marymount University.
THOMAS E. TERRY*, 333 South Hope Street, Los Angeles, CA 90071, Age: 60.
Trustee. Consultant; former Vice President and Secretary, Capital Research and
Management Company (retired 1994); Designated Representative: Citizens'
Scholarship Foundation of America.
ROBERT C. ZIEBARTH, P.O. Box 2156, Ketchum, ID 83340, Age: 61. Trustee.
Management Consultant, Ziebarth Company; Designated Representative: Foundation
for Reproductive Research & Education.
The Trust does not pay the Trustees any retainers or compensation for their
services, although the Trust does reimburse the Trustees for their expenses
incurred to attend meetings. The Trust does not pay any other remuneration to
its officers or trustees, and have no bonus, profit sharing, pension or
retirement plan.
OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) HELD PRINCIPAL OCCUPATION(S)
WITH REGISTRANT DURING PAST 5 YEARS#
<S> <C> <C> <C>
Robert G. O'Donnell 53 Senior Vice Senior Vice President
P.O. Box 7650 President and Director, Capital
San Francisco, CA 94120 Research and Management
Company
Abner D. Goldstine 67 Senior Vice Senior Vice President
11100 Santa Monica Blvd. President and Director, Capital
Los Angeles, CA 90025 Research and Management
Company
Claudia P. Huntington 45 Vice President Vice President, Capital
333 South Hope Street (Growth and Research and Management
Los Angeles, CA 90071 Income Company
Portfolio)
John H. Smet 41 Vice President Vice President, Capital
11100 Santa Monica Blvd. (Bond Portfolio) Research and Management
Los Angeles, CA 90025 Company
Patrick F. Quan 39 Secretary Vice President, Fund
P.O. Box 7650 Business Management
San Francisco, CA 94120 Group, Capital Research
and Management Company
Lisa G. Hathaway 35 Assistant Vice Assistant Vice
333 South Hope Street President President, Fund Business
Los Angeles, CA 90071 Management Group,
Capital Research and
Management Company
Mary C. Hall 39 Treasurer Senior Vice President,
135 South State College Blvd. Fund Business Management
Brea, CA 92821 Group, Capital Research
and Management Company
Robert P. Simmer 36 Assistant Vice President, Fund
5300 Robin Hood Road Treasurer Business Management
Norfolk, VA 23513 Group, Capital Research
and Management Company
</TABLE>
_________________
# Positions within the organizations listed may have changed during this
period.
* An "interested person" of the funds within the meaning of the Investment
Company Act of 1940 (the 1940 Act) on the basis of his affiliation with Capital
Research and Management Company, the Funds' investment adviser.
All of the officers listed are officers or employees of the Investment Adviser
or affiliated companies.
All of the Trustees serve or have served on boards of tax-exempt 501(c)(3)
organizations and have had experience in dealing with the administrative and
financial needs of these institutions as indicated: Robert B. Egelston -
California Institute of the Arts, Claremont University Center, Los Angeles
Festival, The Los Angeles Philharmonic Association, The Music Center of Los
Angeles County, The Wharton School of Finance and Commerce, University of
Pennsylvania; Frank L. Ellsworth - Claremont University Center, English
Village, Seattle, Foundation for Independent Higher Education, Global Partners,
Canada, Graphic Arts Counsel--Los Angeles County Museum of Art, Independent
Colleges of Southern California, Inc., The Japanese-American National Museum,
Japanese Foundation of International Education, The Los Angeles Dance Center,
Pitzer College, Southwestern University School of Law; Steven D. Lavine -
American Council on the Arts, KCRW-FM National Public Radio, The Music Center
Operating Company, The Music Center of Los Angeles County; Patricia A. McBride
- - Dallas Museum of Art League, Dallas Symphony Orchestra Association, Dallas
Symphony Orchestra League, Girl Scout Council, Inc., McDermott Foundation, St.
Mark's School of Texas, Southwest Museum of Science and Technology; Gail L.
Neale - The Flynn Theater, The JL Foundation, National Advisory Council,
Hampshire College, Origami Society of America, Shelburne Farms, The Vera
Institute of Justice; Thomas E. Terry - Citizens' Scholarship Foundation of
America, Edgewood High School, Elvehjem Museum of Art, Ketchum YMCA, Madison
Opera, Inc., National Football Scholarship Foundation; Charles R. Redmond -
AMAN Folk Ensemble, Catholic Charities of the Archdiocese of Los Angeles,
Loyola Marymount University, The Music Center of Los Angeles County, Pasadena
Playhouse, Pfaffinger Foundation, Times Mirror Foundation; Robert C. Ziebarth -
Chicago Maternity Center, Choate School, Foundation for Reproductive Research &
Education, Latin School of Chicago, National Association of Independent
Schools, Naval Historical Foundation, Northwestern Memorial Hospital.
California Institute of the Arts owns ___% of the voting securities of the
Bond Portfolio. There are no other shareholders of the Funds who own more than
25% of the voting securities of either Fund.
INVESTMENT ADVISER - Capital Research and Management Company, the investment
adviser, founded in 1931, maintains research facilities in the United States
and abroad (Los Angeles, San Francisco, New York, Washington D.C., London,
Geneva, Singapore, Hong Kong and Tokyo), with a staff of professionals, many of
whom have a number of years of investment experience. The Investment Adviser
is located at 333 South Hope Street, Los Angeles, CA 90071, and at 135 South
State College Boulevard, Brea, CA 92821. The Investment Adviser's research
professionals travel several million miles a year, making more than 5,000
research visits in more than 50 countries around the world. The Investment
Adviser believes that it is able to attract and retain quality personnel.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for managing more than $150 billion of
stocks, bonds and money market instruments and serves over five million
investors of all types. These investors include privately owned businesses and
large corporations as well as schools, colleges, foundations and other
non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and
Service Agreement (the Agreements) between the Trust and the Investment
Adviser, on behalf of the Fund, dated ______, 1998, may be renewed from year to
year, provided that any such renewal has been specifically approved at least
annually by (i) the Board of Trustees of the Trust, or by the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Trust, and (ii) the vote of a majority of the Trustees who are not parties
to the Agreement or interested persons (as defined in said Act) of any such
party, cast in person, at a meeting called for the purpose of voting on such
approval. The Agreement also provides that either party has the right to
terminate them without penalty, upon 60 days' written notice to the other
party, and that the Agreement automatically terminates in the event of its
assignment (as defined in said Act). The Agreement is identical except for
conforming changes as the Investment Advisory and Service Agreements entered
into by the Funds in 1975 before their reorganization as separate series of a
Delaware business trust.
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the funds, provides suitable office space, necessary small office equipment and
utilities, and provides general purpose accounting forms, supplies, and postage
used at the offices of the funds. The Trust pays all expenses not specifically
assumed by the Investment Adviser, including, but not limited to, custodian,
stock transfer and dividend disbursing fees and expenses; costs of the
designing, printing and mailing of reports, prospectuses, proxy statements, and
notices to shareholders; taxes; expenses of the issuance and redemption of
shares of the Funds (including stock certificates, registration and
qualification fees and expenses); legal and auditing expenses; expenses paid to
Trustees unaffiliated with the Investment Adviser; association dues; and costs
of stationery and forms prepared exclusively for the Funds.
Capital Research and Management Company receives a management fee at the
annual rates of 1/2 of 1% of each Fund's net assets up to $150,000,000 and 4/10
of 1% of such assets over $150,000,000.
The Agreement provides for an advisory fee reduction to the extent that a
Fund's annual ordinary operating expenses exceed 1-1/2% of the first $30
million of the average net assets of the Fund and 1% of the average net assets
in excess thereof. Expenses which are not subject to this limitation are
interest, taxes, and extraordinary expenses. Expenditures, including costs
incurred in connection with the purchase or sale of portfolio securities, which
are capitalized in accordance with generally accepted accounting principles
applicable to investment companies are accounted for as capital items and not
as expenses.
The Investment Adviser has agreed with the Trust to voluntarily waive
management fees to the extent that a Fund's annual operating expenses exceed
0.75% of its average net assets per annum. There can be no assurance that this
voluntary fee waiver will continue in the future.
During the years ended July 31, 1997, 1996 and 1995, the investment adviser
received from Endowments, Inc. advisory fees of $276,008, $300,818, and
$273,381, and from Bond Portfolio for Endowments advisory fees of $177,223,
$214,202, and $223,573, respectively.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Funds and the purchase, ownership, and disposition of the Funds'
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to shareholders in
light of their particular circumstances. This discussion is based upon present
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated thereunder, and judicial and administrative ruling
authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisors with
regard to the federal tax consequences of the purchase, ownership, or
disposition of the Funds' shares, as well as the tax consequences arising under
the laws of any state, foreign country or other taxing jurisdiction.
The Trust (including each Fund) intends each year to qualify and elect to be
treated as a "regulated investment company" under the provisions of Subchapter
M of the Code. Under Subchapter M, if the Trust distributes within specified
times at least 90% of its investment company taxable income, it will be taxed
only on that portion of such investment company taxable income that it
retains.
To qualify as a "regulated investment company," a Fund must (a) in each
taxable year, derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans, and gains from the sale or
other disposition of stock, securities, currencies or other income derived with
respect to its business of investing in such stock, securities or currencies;
and (b) diversify its holdings so that, at the end of each fiscal quarter, (i)
at least 50% of the market value of the Fund's assets is represented by cash,
cash items, U.S. Government securities, securities of other regulated
investment companies, and other securities (but such other securities must be
limited, in respect of any one issuer, to an amount not greater than 5% of the
Fund's assets and 10% of the outstanding voting securities of such issuer), and
not more than 25% of the value of its assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies), or in two or more issuers which the Fund
controls and which are engaged in the same or similar trades or businesses or
related trades or businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gain net income (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods. The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
capital gain net income and (ii) any amount on which the fund pays income tax
for the year. The funds intend to distribute net investment income and net
capital gains so as to minimize or avoid the excise tax liability.
The Funds also intend to continue distributing to shareholders all of the
excess of net long-term capital gain over net short-term capital loss on sales
of securities. If the net asset value of shares of a Fund should, by reason of
a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the Fund pays the dividend no later
than the end of January of the following year.
Any loss realized on a redemption or exchange of shares of a Fund will be
disallowed to the extent substantially identical shares are reacquired within
the 61 day period beginning 30 days before and ending 30 days after the shares
are disposed of.
The Funds may be required to pay withholding and other taxes imposed by
foreign countries which would reduce a Fund's investment income. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes.
The Funds may invest in shares of foreign corporations that may be classified
under the Code as passive foreign investment companies ("PFICs"). In general,
a foreign corporation is classified as a PFIC if at least one-half of its
assets constitute investment-type assets, or 75% or more of its gross income is
investment-type income. If the Funds receive a so-called "excess distribution"
with respect to PFIC stock, the Funds itself may be subject to a tax on a
portion of the excess distribution, whether or not the corresponding income is
distributed by the Funds to shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which the Funds held the PFIC shares. The Funds will itself be subject
to tax on the portion, if any, of an excess distribution that is so allocated
to prior Fund taxable years and an interest factor will be added to the tax, as
if the tax had been payable in such prior taxable years. Certain distributions
from a PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions
might have been classified as capital gain.
The Funds may be eligible to elect alternative tax treatment with respect to
PFIC shares. Under an election that currently is available in some
circumstances, the Fund would be required to include in its gross income its
share of the earnings of a PFIC on a current basis, regardless of whether
distributions were received from the PFIC in a given year. If this election
were made, the special rules, discussed above, relating to the taxation of
excess distributions, would not apply. In addition, another election would
involve marking to market the Fund's PFIC shares at the end of each taxable
year, with the result that unrealized gains would be treated as though they
were realized and reported as ordinary income. Any mark-to-market losses and
any loss from an actual disposition of PFIC shares would be deductible as
ordinary losses to the extent of any net mark-to-market gains included in
income in prior years.
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by the Funds to a corporate shareholder, to the extent such dividends are
attributable to dividends received by the Funds from U.S. corporations, may,
subject to limitation, be eligible for the dividends received deduction.
However, the alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction.
If a Fund purchases a debt security at a price lower than the stated
redemption price of such debt security, the excess of the stated redemption
price over the purchase price is "market discount". If the amount of market
discount is more than a DE MINIMIS amount, a portion of such market discount
must be included as ordinary income (not capital gain) by the Fund in each
taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required
to allocate that principal payment first to the portion of the market discount
on the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for
each period is equal to the lesser of (i) the amount of market discount
accruing during such period (plus any accrued market discount for prior periods
not previously taken into account) or (ii) the amount of the principal payment
with respect to such period. Generally, market discount accrues on a daily
basis for each day the debt security is held by the Fund at a constant rate
over the time remaining to the debt security's maturity or, at the election of
the Fund, at a constant yield to maturity which takes into account the
semi-annual compounding of interest. Gain realized on the disposition of a
market discount obligation must be recognized as ordinary interest income (not
capital gain) to the extent of the "accrued market discount."
Certain debt securities acquired by a Fund may be treated as debt securities
that were originally issued at a discount. Very generally, original issue
discount is defined as the difference between the price at which a security was
issued and its stated redemption price at maturity. Although no cash income on
account of such discount is actually received by the Fund, original issue
discount that accrues on a debt security in a given year generally is treated
for federal income tax purposes as interest and, therefore, such income would
be subject to the distribution requirements applicable to regulated investment
companies. Some debt securities may be purchased by a Fund at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes
(see above).
Any regulated futures contracts and certain options (namely, nonequity options
and dealer equity options) in which a Fund may invest may be "section 1256
contracts." Gains (or losses) on these contracts generally are considered to
be 60% long-term and 40% short-term capital gains or losses. Also, section
1256 contracts held by a Fund at the end of each taxable year (and on certain
other dates prescribed in the Code) are "marked to market" with the result that
unrealized gains or losses are treated as though they were realized.
Transactions in options, futures and forward contracts undertaken by a Fund
may result in "straddles" for federal income tax purposes. The straddle rules
may affect the character of gains (or losses) realized by the Fund, and losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized. In
addition, certain carrying charges (including interest expense) associated with
positions in a straddle may be required to be capitalized rather than deducted
currently. Certain elections that a Fund may make with respect to its straddle
positions may also affect the amount, character and timing of the recognition
of gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have been
promulgated, the consequences of such transactions to the Fund are not entirely
clear. The straddle rules may increase the amount of short-term capital gain
realized by a Fund, which is taxed as ordinary income when distributed to
shareholders. Because application of the straddle rules may affect the
character of gains or losses, defer losses and/or accelerate the recognition of
gains or losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Recently enacted rules may affect the timing and character of gain if a Fund
engages in transactions that reduce or eliminate its risk of loss with respect
to appreciated financial positions. If a Fund enters into certain transactions
in property while holding substantially identical property, the Fund would be
treated as if it had sold and immediately repurchased the property and would be
taxed on any gain (but not loss) from the constructive sale. The character of
gain from a constructive sale would depend upon the Fund's holding period in
the property. Loss from a constructive sale would be recognized when the
property was subsequently disposed of, and its character would depend on the
Fund's holding period and the application of various loss deferral provisions
of the Code.
Gains or losses attributable to fluctuations in exchange rates which occur
between the time a Fund accrues income or other receivables or accrues expenses
or other liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on disposition of some
investments, including debt securities and certain forward contracts
denominated in a foreign currency, gains or losses attributable to fluctuations
in the value of the foreign currency between the acquisition and disposition of
the position also are treated as ordinary gain or loss. These gains and
losses, referred to under the Code as "section 988" gains or losses, increase
or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income. If section
988 losses exceed other investment company taxable income during a taxable
year, a Fund would not be able to make any ordinary dividend distributions, or
distributions made before the losses were realized would be recharacterized as
a return of capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his or her Fund shares.
The foregoing is limited to a summary of federal income taxation and should
not be viewed as a comprehensive discussion of all tax considerations relevant
to investors. Dividends and capital gain distributions may also be subject to
state, foreign or local taxes. Investors are urged to consult their tax
advisers with specific reference to their own tax situations.
PURCHASE OF SHARES
The purchase of shares may be paid in cash or in a like value of acceptable
securities. Such securities will (i) be acquired for investment and not for
resale; (ii) be liquid securities which are not restricted as to transfer
either by law or liquidity of market; and (iii) have a value which is readily
ascertainable.
PRICE OF SHARES - The price you pay for shares is the net asset value per
share which is calculated once daily at the close of trading (currently 4:00
p.m., New York time) each day the New York Stock Exchange is open. The New
York Stock Exchange is currently closed on weekends and on the following
holidays: New Year's Day, Presidents' Day, Martin Luther King, Jr.'s Birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas Day. Such net asset value is effective for orders to purchase shares
of the funds received by the funds before the close of trading on the New York
Stock Exchange; orders received after the close of trading will be entered at
the net asset value as computed as of the close of trading of the New York
Stock Exchange on the next business day. Prices which appear in the newspaper
are not always indicative of prices at which you will be purchasing and
redeeming shares of the funds, since such prices generally reflect the previous
day's closing price whereas purchases and redemptions are made at the next
calculated price.
All portfolio securities of funds managed by Capital Research and Management
Company are valued, and the net asset value per share is determined, as
follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
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. Forward currency contracts are valued at the mean
of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board. The fair value of all other assets is
added to the value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the Funds' portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through their
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research, statistical, or other related
services to the Investment Adviser or has sold shares of other funds served by
the Investment Adviser. The Funds do not consider that they have an obligation
to obtain the lowest available commission rate to the exclusion of price,
service and qualitative considerations.
There are occasions on which portfolio transactions for the Funds may be
executed as part of concurrent authorizations to purchase or sell the same
security for other Funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the Funds, they are effected only when the
Investment Adviser believes that to do so is in the interest of the Funds.
When such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The Funds will not pay a mark-up for
research in principal transactions.
Brokerage commissions paid on portfolio transactions during the fiscal years
ended July 31, 1997, 1996 and 1995, amounted to $61,000, $52,000, and $38,000
for Endowments, Inc. There are no brokerage commissions paid on portfolio
transactions for Bond Portfolio for Endowments, Inc.
BOND PORTFOLIO
The Fund is required to disclose information regarding investments in the
securities of broker-dealers (or parents of broker-dealers that derive more
than 15% of their revenue from broker-dealer activities) which have certain
relationships with the Fund. During the last fiscal year, Merrill Lynch,
Pierce, Fenner & Smith, Inc. was among the top 10 dealers that acted as
principals in portfolio transactions. The Fund held debt securities issued by
Merrill Lynch in the amount of $376,000 as of the close of its most recent
fiscal year.
REDEMPTION OF SHARES
For redemption requests received after the close of trading on the New York
Stock Exchange, the redemption price will be the net asset value determined as
of the close of trading on the next business day of the New York Stock
Exchange. There is no charge to the shareholder for redemption. Payment in
cash or in kind is made as soon as reasonably practicable after tender in
proper form (as described above), and must, in any event, be made within seven
days thereafter. Either Fund may, however, suspend the right of redemption
during any period when: (a) trading on the New York Stock Exchange is
restricted as determined by the Securities and Exchange Commission or such
exchange is closed for other than weekends or holidays; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c) any
emergency as determined by the Securities and Exchange Commission exists,
making disposal of portfolio securities or valuation of net assets of the fund
not reasonably practicable.
Although they would not normally do so, the Funds have the right to pay the
redemption price in whole or in part in portfolio securities as selected by the
Board of Trustees, taken at their value as used in determining net asset value
for purposes of computing the redemption price. A shareholder that redeems
Fund shares, and is given by the Fund a proportionate amount of the Fund's
portfolio securities in lieu of cash, may incur brokerage commissions in the
event of a sale of the securities through a broker.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the Funds, including
proceeds from the sale of shares of the Funds and of securities in the Funds'
portfolios, are held by The Chase Manhattan Bank, One Chase Manhattan Plaza,
New York, NY 10081, as Custodian. Non-U.S. securities may be held by the
Custodian pursuant to sub-custodial arrangements in non-U.S. banks or foreign
branches of U.S. banks.
INDEPENDENT AUDITORS - Deloitte & Touche LLP, located at 1000 Wilshire
Boulevard, Los Angeles, CA 90017, serves as the Trust's independent auditors,
providing audit services, preparing tax returns and reviewing certain documents
of the Trust to be filed with the Securities and Exchange Commission. The
financial statements included in this statement of additional information from
the Semi-Annual Report have been so included in reliance on the report of
Deloitte & Touche LLP given on the authority of said firm as experts in
auditing and accounting.
COUNSEL - Paul, Hastings, Janofsky & Walker LLP, 555 South Flower Street, Los
Angeles, CA 90071, has passed upon the legality of the shares offered hereby.
REPORTS TO SHAREHOLDERS - The Trust's fiscal year ends on July 31.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio, financial statements and other information audited by the
Funds' independent auditors, Deloitte & Touche LLP, whose selection is
determined annually by the Board of Trustees of the Trust.
The financial statements including the investment portfolio and the Report of
Independent Auditors contained in the Semi-Annual Report are included in this
statement of additional information.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; blackout periods on
personal investing for certain investment personnel; ban on short-term trading
profits for investment personnel; limitations on service as a trustee of
publicly traded companies; and disclosure of personal securities transactions.
REMOVAL OF TRUSTEES BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any Trustee or Trustees from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed Trustees. The Trustees shall promptly call a meeting of shareholders
for the purpose of voting upon the question of removal of any Trustees when
requested in writing to do so by the record holders of not less than 10% of the
outstanding shares of the Trust.
INVESTMENT RESULTS
Endowments' yield was 2.51% and Bond Portfolio for Endowments' yield was 5.96%
based on a 30-day (or one month) period ended July 31, 1997, computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to
the following formula:
YIELD = 2[(a-b/cd+1)/6/-1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
(Endowments and Bond Portfolio for Endowments do not have a sales
charge.)
Endowments' average annual total return for the one-, five- and ten-year
periods ended on July 31, 1997 was +38.40%, +16.01% and +13.35%, respectively.
Bond Portfolio for Endowments' average annual total return for the one-, five-
and ten-year periods ended on July 31, 1997 was +10.83%, +6.96% and +9.28%,
respectively. The average annual total return (T) is computed by equating the
value at the end of the period (ERV) with a hypothetical initial investment of
$1,000 (P) over a period of years (n) according to the following formula as
required by the Securities and Exchange Commission: P(1+T)/n/ = ERV.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) reinvestment of dividends and distributions
at net asset value on the reinvestment date determined by the Board of
Trustees; and (2) a complete redemption at the end of any period illustrated.
The funds may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by dividing the dividends
paid by the fund over the last 12 months by the sum of the month-end net asset
value and the capital gains paid over the last 12 months. The distribution
rate may differ from the yield.
The funds may include information on their investment results and/or
comparisons of their investment results to various unmanaged indices (such as
The Dow Jones Average of 30 Industrial Stocks, The Standard & Poor's 500 Stock
Composite Index and the Lipper Growth & Income Fund Index for Endowments and
the Lehman Aggregate Bond Index for Bond Portfolio for Endowments) or results
of other mutual funds or investment or savings vehicles in advertisements or in
reports furnished to present or prospective shareholders.
Total return for the unmanaged indices will be calculated assuming
reinvestment of dividends and interest, but will not reflect any deductions for
advisory fees, brokerage costs or administrative expenses.
The funds may refer to results compiled by organizations such as CDA
Investment Services, Ibbotson Associates, Lipper Analytical Services, and
Morningstar, Inc. and by the U.S. Department of Commerce. Additionally, the
funds may, from time to time, refer to results published in various newspapers
and periodicals, including Barrons, Forbes, Fortune, Institutional Investor,
Kiplinger's Personal Finance Magazine, Money, U.S. News and World Report and
The Wall Street Journal.
The funds may, from time to time, compare their investment results with the
Consumer Price Index, which is a measure of the average change in prices over
time in a fixed market basket of goods and services (E.G. food, clothing,
fuels, transportation, and other goods and services that people buy for
day-to-day living).
The investment results for the funds set forth below were calculated as
described in the funds' prospectus. The percentage increases shown in the
table below or used in published reports of the funds are obtained by
subtracting the index results at the beginning of the period from the index
results at the end of the period and dividing the difference by the index
results at the beginning of the period.
Growth and Income Portfolio vs. Various Unmanaged Indices
<TABLE>
<CAPTION>
10-Year Growth DJIA/1/ S&P 500/2/ Lipper Growth
8/1 - 7/31 and and Income/3/
Income
Portfolio
<S> <C> <C> <C> <C>
1987 - 1997 +251% +336% +303% +252%
1986 - 1996 +204 +330 +269 +220
1985 - 1995 +238 +391 +306 +255
1984 - 1994 +271 +385 +327 +290
1983 - 1993 +260 +333 +294 +249
1982 - 1992 +411 +528 +478 +381
1981 - 1991 +325 +392 +343 +290
1980 - 1990 +326 +392 +344 +301
1979 - 1989 +379 +409 +416 +387
1978 - 1988 +328 +308 +326 +329
1977 - 1987 +384 +388 +417 +412
1976 - 1986 +329 +208 +271 +301
1975 - 1985 +335 +177 +250 +287
1975# - 1985 +333 +177 +248 +287
</TABLE>
Bond Portfolio vs. Various Unmanaged Indices
<TABLE>
<CAPTION>
Lehman Lipper Average of
10-Year Brothers Corporate A-Rated
8/1 - 7/31 Bond Portfolio Aggregate/4/ Debt Funds/5/
<S> <C> <C> <C>
1987 - 1997 +143% +139% +135%
1986 - 1996 +129 +126 +119
1985 - 1995 +161 +160 +148
1984 - 1994 +191 +193 +178
1983 - 1993 +219 +218 +201
1982 - 1992 +254 +251 +232
1981 - 1991 +253 +269 +233
1980 - 1990 +204 +217 +188
1979 - 1989 +195 +201 +184
1978 - 1988 +178 +178 +164
1977 - 1987 +157 +164 +151
1976 - 1986 +178 +181 +168
1975 - 1985 +157 N/A +158
1975# - 1985 +158 N/A N/A
</TABLE>
________________
# From July 26, 1975
/1/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial
companies such as General Motors and General Electric.
/2/ The Standard & Poor's 500 Stock Composite Index is comprised of industrial,
transportation, public utilities, and financial stocks and represents a large
portion of the value of issues traded on the New York Stock Exchange. Selected
issues traded on the American Stock Exchange are also included.
/3/ The Lipper Growth & Income Fund Index is a non-weighted index of the 30
largest funds within the Lipper Growth & Income investment objective. It is
calculated daily with adjustments for income dividends and capital gain
distributions as of the ex-dividend dates.
/4/ The Lehman Brothers Aggregate Bond Index covers all sectors of the fixed
income market and is a combination of the Lehman Brothers Treasury Bond Index,
the Agency Bond Index, the Corporate Bond Index, the Yankee Bond Index and the
Mortgage Backed Securities Index. Its inception date is December 31, 1975.
/5/ The Lipper Average of Corporate A-Rated Debt Funds is an average of the
cumulative total reinvestment performance of funds that invest at least 65% of
assets in corporate debt issues rated "A" or better or government issues.
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
If you had . . . and had taken
invested all dividends and
$50,000 capital gain
in Growth and distributions
Income in shares, your
Portfolio this investment would
many have been worth
years ago... this much at
7/31/97
<S> <C> <C>
Number Periods
of Years 8/1 - 7/31 Value
1 1996 - 1997 $69,199
2 1995 - 1997 78,344
3 1994 - 1997 92,894
4 1993 - 1997 95,467
5 1992 - 1997 105,060
6 1991 - 1997 121,600
7 1990 - 1997 139,878
8 1989 - 1997 145,650
9 1988 - 1997 179,471
10 1987 - 1997 175,330
11 1986 - 1997 210,593
12 1985 - 1997 264,439
13 1984 - 1997 344,935
14 1983 - 1997 343,762
15 1982 - 1997 536,330
16 1981 - 1997 516,604
17 1980 - 1997 595,306
18 1979 - 1997 697,857
19 1978 - 1997 769,045
20 1977 - 1997 847,981
21 1976 - 1997 902,945
22 1975#- 1997 1,146,270
</TABLE>
# From July 26, 1975
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
If you had . . . and had taken
invested all dividends and
$50,000 capital gain
in Bond distributions
Portfolio this in shares, your
many investment would
years ago... have been worth
this much at
7/31/97
<S> <C> <C>
Number Periods
of Years 8/1 - 7/31 Value
1 1996 - 1997 $55,413
2 1995 - 1997 58,877
3 1994 - 1997 63,572
4 1993 - 1997 62,654
5 1992 - 1997 70,011
6 1991 - 1997 83,093
7 1990 - 1997 92,049
8 1989 - 1997 98,359
9 1988 - 1997 111,818
10 1987 - 1997 121,453
11 1986 - 1997 126,814
12 1985 - 1997 153,398
13 1984 - 1997 185,059
14 1983 - 1997 199,782
15 1982 - 1997 247,638
16 1981 - 1997 293,217
17 1980 - 1997 279,795
18 1979 - 1997 290,179
19 1978 - 1997 310,440
20 1977 - 1997 312,715
21 1976 - 1997 351,971
22 1975#- 1997 395,088
</TABLE>
# From July 26, 1975
Illustration of a $50,000 investment in Growth and Income Portfolio with
dividends reinvested and capital gain distributions taken in shares
(for the period July 26, 1975 through July 31, 1997)
COST OF SHARES VALUE OF SHARES
<TABLE>
<CAPTION>
Year Total From From
Ended Annual Dividends Investment From Initial Capital Gains Dividends Total
July 31 Dividends (cumulative) Cost Investment Reinvested Reinvested Value
<S> <C> <C> <C> <C> <C> <C> <C>
1975# $ 0 $ 0 $50,000 $49,769 $ 0 $ 0 $49,770
1976 2,408 2,408 52,408 60,781 0 2,695 63,476
1977 2,454 4,862 54,862 62,331 0 5,259 67,590
1978 2,899 7,761 57,761 65,910 0 8,615 74,525
1979 3,511 11,272 61,272 69,263 0 12,868 82,131
1980 4,322 15,594 65,594 77,021 0 19,256 96,277
1981 6,326 21,920 71,920 79,847 4,739 26,356 110,942
1982 7,869 29,789 79,789 64,678 13,443 28,739 106,860
1983 6,722 36,511 86,511 96,477 20,052 50,197 166,726
1984 7,502 44,013 94,013 83,847 31,536 50,774 166,157
1985 9,036 53,049 103,049 95,601 53,303 67,832 216,736
1986 10,623 63,672 113,672 104,971 81,000 86,184 272,155
1987 12,851 76,523 126,523 104,222 123,158 99,505 326,885
1988 15,733 92,256 142,256 88,382 130,787 100,178 319,347
1989 17,918 110,174 160,174 96,368 167,745 129,388 393,501
1990 22,799 132,973 182,973 89,440 178,016 142,283 409,739
1991 21,836 154,809 204,809 94,623 202,831 173,872 471,326
1992 20,318 175,127 225,127 96,580 249,826 199,127 545,533
1993 21,415 196,542 246,542 97,479 279,694 223,176 600,349
1994 22,417 218,959 268,959 90,868 296,050 230,062 616,980
1995 22,961 241,920 291,920 95,522 369,066 266,973 731,561
1996 25,984 267,904 317,904 98,431 428,636 301,171 828,238
1997 25,982 293,886 343,886 119,852 629,560 396,858 1,146,270
</TABLE>
# From July 26, 1975
The dollar amount of capital gain distributions during the period was $473,360.
Illustration of a $50,000 investment in Bond Portfolio with
dividends reinvested and capital gain distributions taken in shares
(for the period July 26, 1975 through July 31, 1997)
COST OF SHARES VALUE OF SHARES
<TABLE>
<CAPTION>
Year Total From From
Ended Annual Dividends Investment From Initial Capital Gains Dividends Total
July 31 Dividends (cumulative) Cost Investment Reinvested Reinvested Value
<S> <C> <C> <C> <C> <C> <C> <C>
1975# $ 0 $ 0 $50,000 $50,065 $ 0 $ 0 $50,064
1976 3,466 3,466 53,466 52,455 0 3,668 56,123
1977 4,395 7,861 57,861 54,854 0 8,315 63,169
1978 4,798 12,659 62,659 51,161 0 12,472 63,633
1979 5,595 18,254 68,254 50,165 0 17,913 68,078
1980 7,331 25,585 75,585 46,568 0 24,036 70,604
1981 7,990 33,575 83,575 39,235 0 28,137 67,372
1982 9,678 43,253 93,253 40,739 0 39,032 79,771
1983 10,518 53,771 103,771 45,384 0 53,497 98,881
1984 11,193 64,964 114,964 43,796 0 62,950 106,746
1985 12,231 77,195 127,195 47,570 0 81,205 128,775
1986 13,557 90,752 140,752 52,296 0 103,480 155,776
1987 13,829 104,581 154,581 50,040 0 112,609 162,649
1988 13,553 118,134 168,134 48,557 5,210 122,900 176,667
1989 15,800 133,934 183,934 50,630 5,433 144,778 200,841
1990 17,213 151,147 201,147 49,693 5,332 159,584 214,609
1991 19,146 170,293 220,293 50,432 5,411 181,896 237,739
1992 20,570 190,863 240,863 55,202 5,923 221,039 282,164
1993 22,376 213,239 263,239 55,827 12,805 246,660 315,292
1994 22,971 236,210 286,210 47,876 29,925 232,942 310,743
1995 23,564 259,774 309,774 47,762 31,232 256,528 335,522
1996 25,003 284,777 334,777 47,223 30,879 278,391 356,493
1997 26,094 310,871 360,871 48,756 31,882 314,450 395,088
</TABLE>
# From July 26, 1975
The dollar amount of capital gain distributions during the period was $33,339.
EXPERIENCE OF INVESTMENT ADVISER - Capital Research and Management Company
manages nine common stock funds that are at least 10 years old. In the rolling
10-year periods since January 1, 1967 (127 in all), those funds have had better
total returns than the Standard & Poor's 500 Composite Stock Index in 91 of the
127 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
APPENDIX
Standard & Poor's Ratings Services:
"Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong."
"Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree."
"Debt rated 'A' has a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions than debt in higher categories."
"Debt rated $BBB' has an adequate capacity to pay interest and repay principal.
Whereas they normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal than for debt in higher rated
categories."
S&P applies indicators "+", no character and "-" to its rating categories. The
indicators show relative standing within the major rating categories.
Moody's Investors Service, Inc.:
"Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as 'gilt
edge.' Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues."
"Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities, or fluctuation of protective elements may be
of greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger than the Aaa securities."
"Bonds rated A are judged to be of upper medium grade obligations. These bonds
possess many favorable investment attributes. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future."
"Bonds rated Baa are judged to be medium grade obligations, I.E., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
Moody's also supplies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the obligation ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and 3
indicates a ranking toward the lower end of that generic rating category.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Included in Prospectus Part A:
Financial Highlights
Included in Statement of Additional Information Part B:
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Selected Per-Share Data and Ratios
Independent Auditors' Report
(b) Exhibits
(1) (a) Certificate of Trust filed May 14, 1998
(b) Trust Instrument dated May 14, 1998
(2) By-Laws
(3) Not Applicable
(4) Not Applicable
(5) Form of Investment Advisory and Service Agreement between Endowments
(on behalf of the Growth and Income Portfolio and the Bond Portfolio) and
Capital Research and Management Company*
(6) Not Applicable
(7) Not Applicable
(8) Form of Custody Agreement between Endowments (on behalf of the Growth
and Income Portfolio and the Bond Portfolio) and Capital Research and
Management Company*
(9) Form of Transfer Agency Agreement between Endowments and American Funds
Service Company*
(10) (i) Opinion of Counsel*
(ii) Consent of Counsel*
(11) Consent of Independent Auditors*
(12) Not Applicable
(13) Subscription Agreement*
(14) Not Applicable
(15) Not Applicable
(16) Calculation of Performance Data*
(17) Financial Data Schedule*
(18) Not Applicable
* To be filed by amendment.
Item 25. Persons Controlled by or Under Common Control with Registrant
No person is controlled by or under common control with the Registrant.
Item 26. Number of Holders of Securities
As of _______, 1998, there were ___ record holders of shares of beneficial
interest of the Growth and Income Portfolio. As of ______, 1998, there were
___ record holders of shares of beneficial interest of the Bond Portfolio.
Item 27. Indemnification
Registrant is insured under an Investment Adviser/Mutual Fund Errors and
Omissions Policy written by American International Surplus Lines Insurance
Company.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant by the Registrant pursuant to the Trust's Trust Instrument, its
By-Laws or otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by trustees, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees, officers or
controlling persons in connection with shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
Item 28. Business and Other Connections of Investment Adviser
None.
Item 29. Principal Underwriter
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
Item 30. Location of Accounts and Records
Accounts, books and other records required by Rules 31a-1 and 31a-2 of the
Investment Company Act of 1940, as amended, are maintained and held in the
offices of the Registrant's investment adviser, Capital Research and Management
Company, 333 South Hope Street, Los Angeles, California 90071, and/or 135 South
State College Boulevard, Brea, California 92821, and/or the offices of the
Registrant, One Market, Steuart Tower (Suite 1800), San Francisco, California
94105.
Registrant's records covering shareholder accounts are maintained and kept by
the Trust's transfer agent, American Funds Service Company, 135 South State
College Boulevard, Brea, California 92821, 8332 Woodfield Crossing Boulevard,
Indianapolis, Indiana 46240, 8000 IH-10, Suite 1400, San Antonio, Texas 78230
and 5300 Robin Hood Road, Norfolk, Virginia 23513.
Item 31. Management Services
Not Applicable
Item 32. Undertakings
(a) Not Applicable
(b) Registrant undertakes to furnish each person to whom a prospectus is
delivered a copy of the Registrant's latest annual report to shareholders upon
request and without charge.
(c) Registrant undertakes to call a meeting of shareholders for the purpose
of voting upon the question of removal of a person serving as Director if
requested in writing to do so by the holders of not less than 10% of the
outstanding shares of Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles in the State of California on the
14th day of May, 1998.
ENDOWMENTS
By: /s/ Patrick F. Quan
Patrick F. Quan
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this amendment to
its registration statement has been signed below on May 15, 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title
(1) Principal Executive Officer:
/s/ Frank L. Ellsworth President
(Frank L. Ellsworth)
(2 ) Principal Financial Officer and
Principal Accounting Officer:
/s/ Mary C. Hall Treasurer
(Mary C. Hall)
(3) Trustees:
/s/ Robert B. Egelston
Robert B. Egelston Chairman
Steven D. Lavine* Trustee
Patricia A. McBride* Trustee
Gail L. Neale* Trustee
Charles R. Redmond* Trustee
Thomas E. Terry* Trustee
Robert C. Ziebarth* Trustee
</TABLE>
*By /s/ Patrick F. Quan
Patrick F. Quan, Attorney-in-Fact
CERTIFICATE OF TRUST
OF
ENDOWMENTS
This Certificate of Trust, a business trust to be registered under the
Investment Company Act of 1940, is filed in accordance with the provisions of
the Delaware Business Trust Act (12 Del. C. Section 3801 et seq.) and sets
forth the following:
1. The name of the Trust is: Endowments
2. The business address of the registered office of the Trust and of the
registered agent of the Trust is:
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
3. The business address of the undersigned Trustees, Stuart R. Strachan and
Steven H. Price, is Capital Research and Management Company,
333 South Hope Street, Los Angeles, California 90071.
4. This Certificate shall be effective upon filing.
5. Notice is hereby given that the Trust is a series trust. The debts,
liabilities, obligations and expenses incurred, contracted for or otherwise
existing with respect to a series of the Trust shall be enforceable against the
assets of such series only and not against the assets of the Trust generally.
This Certificate is executed this 12th day of May, 1998, in Los Angeles,
California under the penalties of perjury and constitutes the oath or
affirmation that the facts stated above are true to the undersigned trustees'
belief or knowledge.
/s/ Stuart R. Strachan
Stuart R. Strachan, Trustee
/s/ Steven H. Price
Steven H. Price, Trustee
ENDOWMENTS
TRUST INSTRUMENT
Dated May 14,1998
ENDOWMENTS
TABLE OF CONTENTS
Page
ARTICLE I NAME AND DEFINITIONS 1
Section 1.01 Name1
Section 1.02 Definitions1
ARTICLE II BENEFICIAL INTEREST 2
Section 2.01 Shares of Beneficial Interest 2
Section 2.02 Issuance of Shares 2
Section 2.03 Register of Shares and Share Certificates 3
Section 2.04 Transfer of Shares 3
Section 2.05 Treasury Shares 3
Section 2.06 Establishment of Series 3
Section 2.07 Investment in the Trust 4
Section 2.08 Assets and Liabilities of Series 4
Section 2.09 No Preemptive Rights 5
Section 2.10 No Personal Liability of Shareholder5
Section 2.11 Assent to Trust Instrument 6
ARTICLE III THE TRUSTEES 7
Section 3.01 Management of the Trust 7
Section 3.02 Initial Trustees 7
Section 3.03 Term of Office 7
Section 3.04 Vacancies and Appointments 8
Section 3.06 Number of Trustees 8
Section 3.07 Effect of Ending of a Trustee's Service 8
Section 3.08 Ownership of Assets of the Trust 8
ARTICLE IV POWER OF THE TRUSTEES 9
Section 4.01 Powers 9
Section 4.02 Issuance and Repurchase of Shares 11
Section 4.03 Trustees and Officers as Shareholders 12
Section 4.04 Action by the Trustees 12
Section 4.05 Chairman of the Trustees 12
Section 4.06 Principal Transactions 12
ARTICLE V EXPENSES OF THE TRUST 12
ARTICLE VI INVESTMENT ADVISER, PRINCIPAL UNDERWRITER, ADMINISTRATOR AND
TRANSFER AGENT 13
Section 6.01 Investment Adviser 13
Section 6.02 Principal Underwriter 14
Section 6.03 Administration 14
Section 6.04 Transfer Agent 14
Section 6.05 Parties to Contract 14
Section 6.06 Provisions and Amendments 15
ARTICLE VII SHAREHOLDER VOTING POWERS AND MEETINGS 15
Section 7.01 Voting Powers 15
Section 7.02 Meetings 16
Section 7.03 Quorum and Required Vote 16
ARTICLE VIII CUSTODIAN 16
Section 8.01 Appointment and Duties 16
Section 8.02 Central Certificate System 17
ARTICLE IX DISTRIBUTIONS AND REDEMPTIONS 17
Section 9.01 Distributions 17
Section 9.02 Redemptions 17
Section 9.03 Determination of Net Asset Value and Valuation of Portfolio
Assets 18
Section 9.04 Suspension of the Right of Redemption 18
ARTICLE X LIMITATION OF LIABILITY AND INDEMNIFICATION 19
Section 10.01 Limitation of Liability 19
Section 10.02 Indemnification. 19
Section 10.03 Shareholders 20
ARTICLE XI MISCELLANEOUS 20
Section 11.01 Trust Not A Partnership 21
Section 11.02 Trustee's Good Faith Action, Expert Advice, No Bond or Surety21
Section 11.03 Establishment of Record Dates 21
Section 11.04 Termination of Trust. 21
Section 11.05 Reorganization 22
Section 11.06 Filing of Copies, References, Headings 23
Section 11.07 Applicable Law 23
Section 11.08 Amendments 24
Section 11.09 Fiscal Year 24
Section 11.10 Provisions in Conflict With Law 24
ENDOWMENTS
May 14, 1998
TRUST INSTRUMENT, made by Stuart Strachan and Steven Price (the "Trustees").
WHEREAS, the Trustees desire to establish a business trust for the investment
and reinvestment of funds contributed thereto;
NOW THEREFORE, the Trustees declare that all money and property contributed to
the Trust hereunder shall be held and managed in trust under this Trust
Instrument as herein set forth below.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.01 NAME. The name of the Trust created hereby is Endowments.
SECTION 1.02 DEFINITIONS. Wherever used herein, unless otherwise required by
the context or specifically provided:
(a) "Bylaws" means the Bylaws of the Trust as adopted by the Trustees, as
amended from time to time.
(b) "Commission" has the meaning given it in the 1940 Act. "Affiliated
Person," "Assignment," "Interested Person" and "Principal Underwriter" shall
have the respective meanings given them in the 1940 Act, as modified by or
interpreted by any applicable order or orders of the Commission or any rules or
regulations adopted by or interpretive releases of the Commission thereunder.
"Majority Shareholder Vote" shall have the same meaning as the term "vote of a
majority of the outstanding voting securities" is given in the 1940 Act, as
modified by or interpreted by any applicable order or orders of the Commission
or any rules or regulations adopted by or interpretive releases of the
Commission thereunder.
(c) "Delaware Act" refers to Chapter 38 of Title 12 of the Delaware Code
entitled "Treatment of Delaware Business Trusts," as amended from time to time.
(d) "Net Asset Value" means the net asset value of each Series of the Trust
determined in the manner provided in Article IX, Section 9.03 hereof.
(e) "Outstanding Shares" means those Shares shown from time to time in the
books of the Trust or its transfer agent as then issued and outstanding, but
shall not include Shares which have been redeemed or repurchased by the Trust
and which are at the time held in the treasury of the Trust.
(f) "Principal Underwriter" means a party, other than the Trust, to a contract
described in Article VI, Section 6.02 hereof.
(g) "Series" means a series of Shares of the Trust established in accordance
with the provisions of Article II, Section 2.06 hereof.
(h) "Shareholder" means a record owner of Outstanding Shares of the Trust.
(i) "Shares" means the equal proportionate transferable units of beneficial
interest into which the beneficial interest of each Series of the Trust or
class thereof shall be divided and may include fractions of Shares as well as
whole Shares.
(j) The "Trust" means the Endowments and reference to the Trust, when
applicable to one or more Series of the Trust, shall refer to any such Series.
(k) The "Trustees" means the person or persons who has or have signed this
Trust Instrument, so long as he or they shall continue in office in accordance
with the terms hereof, and all other persons who may from time to time be duly
qualified and serving as Trustees in accordance with the provisions of Article
III hereof and reference herein to a Trustee or to the Trustees shall refer to
the individual Trustees in their capacity as Trustees hereunder.
(l) "Trust Property" means any and all property, real or personal, tangible or
intangible, which is owned or held by or for the account of one or more of the
Trust or any Series, or the Trustees on behalf of the Trust or any Series.
(m) The "1940 Act" means the Investment Company Act of 1940, as amended from
time to time.
ARTICLE II
BENEFICIAL INTEREST
SECTION 2.01 SHARES OF BENEFICIAL INTEREST. The beneficial interest in the
Trust shall be divided into such transferable Shares of one or more separate
and distinct Series or classes of a Series as the Trustees shall from time to
time create and establish. The number of Shares of each Series, and class
thereof, authorized hereunder is unlimited and each Share shall have a par
value of $0.01. All Shares issued hereunder, including without limitation,
Shares issued in connection with a dividend in Shares or a split or reverse
split of Shares, shall be fully paid and nonassessable.
SECTION 2.02 ISSUANCE OF SHARES. The Trustees in their discretion may, from
time to time, without vote of the Shareholders, issue Shares, in addition to
the then issued and Outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, subject to
applicable law, including cash or securities, at such time or times and on such
terms as the Trustees may deem appropriate, and may in such manner acquire
other assets (including the acquisition of assets subject to, and in connection
with, the assumption of liabilities) and businesses. In connection with any
issuance of Shares, the Trustees may issue fractional Shares and Shares held in
the treasury. The Trustees may from time to time divide or combine the Shares
into a greater or lesser number without thereby changing the proportionate
beneficial interests in the Trust. Contributions to the Trust may be accepted
for, and Shares shall be redeemed as, whole Shares and/or 1/1,000th of a Share
or integral multiples thereof. The Trustees, the Principal Underwriter or any
other person the Trustees may authorize for the purpose may, in their
discretion, reject any application for the issuance of Shares.
SECTION 2.03 REGISTER OF SHARES AND SHARE CERTIFICATES. A register shall be
kept at the principal office of the Trust or at the office of the Trust's
transfer agent which shall contain the names and addresses of the Shareholders
of each Series, the number of Shares of that Series (or any class or classes
thereof) held by them respectively and a record of all transfers thereof. As to
Shares for which no certificate has been issued, such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or other distributions or otherwise to exercise or enjoy the
rights of Shareholders. No Shareholder shall be entitled to receive payment of
any dividend or other distribution, nor to have notice given to him as herein
or in the Bylaws provided, until he has given his address to the transfer agent
or such officer or other agent of the Trustees as shall keep the said register
for entry thereon. It is not contemplated that certificates will be issued for
the Shares; however, the Trustees, in their discretion, may authorize the
issuance of Share certificates and promulgate appropriate rules and regulations
as to their use.
SECTION 2.04 TRANSFER OF SHARES. Except as otherwise provided by the
Trustees, Shares shall be transferable on the records of the Trust only by the
record holder thereof or by his agent thereunto duly authorized in writing,
upon delivery to the Trustees or the Trust's transfer agent of a duly executed
instrument of transfer and such evidence of the genuineness of such execution
and authorization and of such other matters as may be required. Upon such
delivery, the transfer shall be recorded on the register of the Trust, after
which the transferee of Shares will be regarded as a Shareholder. Until such
record is made, the Shareholder of record shall be deemed to be the holder of
such Shares for all purposes hereunder and neither the Trustees nor the Trust,
nor any transfer agent or registrar nor any officer, employee or agent of the
Trust shall be affected by any notice of the proposed transfer.
SECTION 2.05 TREASURY SHARES. Shares held in the treasury shall not, until
reissued pursuant to Section 2.02 hereof, confer any voting rights on the
Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
SECTION 2.06 ESTABLISHMENT OF SERIES. The Trust created hereby shall consist
of one or more Series and separate and distinct records shall be maintained by
the Trust for each Series and the assets associated with any such Series shall
be held and accounted for separately from the assets of the Trust or any other
Series. The Trustees shall have full power and authority, in their sole
discretion, and without obtaining any prior authorization or vote of the
Shareholders of any Series of the Trust, to establish and designate and to
change in any manner any such Series of Shares or any classes of initial or
additional Series and to fix such preferences, voting powers, rights and
privileges of such Series or classes thereof as the Trustees may from time to
time determine, to divide or combine the Shares or any Series or classes
thereof into a greater or lesser number, to classify or reclassify any issued
Shares or any Series or classes thereof into one or more Series or classes of
Shares, and to take such other action with respect to the Shares as the
Trustees may deem desirable. The establishment and designation of any Series
shall be effective upon the adoption of a resolution by a majority of the
Trustees setting forth such establishment and designation and the relative
rights and preferences of the Shares of such Series. A Series may issue any
number of Shares and need not issue certificates. At any time that there are
no Shares outstanding of any particular Series previously established and
designated, the Trustees may by a majority vote abolish that Series and the
establishment and designation thereof.
All references to Shares in this Trust Instrument shall be deemed to be Shares
of any or all Series, or classes thereof, as the context may require. All
provisions herein relating to the Trust shall apply equally to each Series of
the Trust, and each class thereof, except as the context otherwise requires.
Each Share of a Series of the Trust shall represent an equal beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
shall be entitled to receive his pro rata share of all distributions made with
respect to such Series. Upon redemption of his Shares, such Shareholder shall
be paid solely out of the funds and property of such Series of the Trust.
SECTION 2.07 INVESTMENT IN THE TRUST. The Trustees shall accept investments
in any Series of the Trust from such persons and on such terms as they may from
time to time authorize. At the Trustees' discretion, such investments, subject
to applicable law, may be in the form of cash or securities in which the
affected Series is authorized to invest, valued as provided in Article IX,
Section 9.03 hereof. Investments in a Series shall be credited to each
Shareholder's account in the form of full Shares at the Net Asset Value per
Share next determined after the investment is received or accepted as may be
determined by the Trustees; provided, however, that the Trustees may, in their
sole discretion, (a) fix the Net Asset Value per Share of the initial capital
contribution, (b) impose a sales charge upon investments in the Trust in such
manner and at such time determined by the Trustees, or (c) issue fractional
Shares.
SECTION 2.08 ASSETS AND LIABILITIES OF SERIES. All consideration received by
the Trust for the issue or sale of Shares of a particular Series, together with
all assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may
be, shall be held and accounted for separately from the other assets of the
Trust and of every other Series and may be referred to herein as "assets
belonging to" that Series. The assets belonging to a particular Series shall
belong to that Series for all purposes, and to no other Series, subject only to
the rights of creditors of that Series. In addition, any assets, income,
earnings, profits or funds, or payments and proceeds with respect thereto,
which are not readily identifiable as belonging to any particular Series shall
be allocated by the Trustees between and among one or more of the Series in
such manner as the Trustees, in their sole discretion, deem fair and equitable.
Each such allocation shall be conclusive and binding upon the Shareholders of
all Series for all purposes, and such assets, income, earnings, profits or
funds, or payments and proceeds with respect thereto, shall be assets belonging
to that Series. The assets belonging to a particular Series shall be so
recorded upon the books of the Trust, and shall be held by the Trustees in
trust for the benefit of the holders of Shares of that Series. The assets
belonging to each particular Series shall be charged with the liabilities of
that Series and all expenses, costs, charges and reserves attributable to that
Series. Any general liabilities, expenses, costs, charges or reserves of the
Trust which are not readily identifiable as belonging to any particular Series
shall be allocated and charged by the Trustees between or among any one or more
of the Series in such manner as the Trustees in their sole discretion deem fair
and equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all Series for all purposes. Without limitation of the
foregoing provisions of this Section 2.08, but subject to the right of the
Trustees in their discretion to allocate general liabilities, expenses, costs,
charges or reserves as herein provided, the debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular Series shall be enforceable against the assets of such Series only,
and not against the assets of the Trust generally. Notice of this contractual
limitation on inter-Series liabilities may, in the Trustees' sole discretion,
be set forth in the Certificate of Trust of the Trust (whether originally or by
amendment) as filed or to be filed in the Office of the Secretary of State of
the State of Delaware pursuant to the Delaware Act, and upon the giving of such
notice in the certificate of trust, the statutory provisions of Section 3804 of
the Delaware Act relating to limitations on inter-Series liabilities (and the
statutory effect under Section 3804 of setting forth such notice in the
certificate of trust) shall become applicable to the Trust and each Series.
Any person extending credit to, contracting with or having any claim against
any Series may look only to the assets of that Series to satisfy or enforce any
debt, liability, obligation or expense incurred, contracted for or otherwise
existing with respect to that Series. No Shareholder or former Shareholder of
any Series shall have a claim on or any right to any assets allocated or
belonging to any other Series.
SECTION 2.09 NO PREEMPTIVE RIGHTS. Shareholders shall have no preemptive or
other right to subscribe to any additional Shares or other securities issued by
the Trust or the Trustees, whether of the same or other Series.
SECTION 2.10 NO PERSONAL LIABILITY OF SHAREHOLDER. Each Shareholder of the
Trust and of each Series shall not be personally liable for the debts,
liabilities, obligations and expenses incurred by, contracted for, or otherwise
existing with respect to, the Trust or by or on behalf of any Series. The
Trustees shall have no power to bind any Shareholder personally or to call upon
any Shareholder for the payment of any sum of money or assessment whatsoever
other than such as the Shareholder may at any time personally agree to pay by
way of subscription for any Shares or otherwise. Every note, bond, contract or
other undertaking issued by or on behalf of the Trust or the Trustees relating
to the Trust or to a Series shall include a recitation limiting the obligation
represented thereby to the Trust or to one or more Series and its or their
assets (but the omission of such a recitation shall not operate to bind any
Shareholder or Trustee of the Trust).
SECTION 2.11 ASSENT TO TRUST INSTRUMENT. Every Shareholder, by virtue of
having purchased a Share, shall become a Shareholder and shall be held to have
expressly assented and agreed to be bound by the terms hereof.
ARTICLE III
THE TRUSTEES
SECTION 3.01 MANAGEMENT OF THE TRUST. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust to
the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Trust Instrument. The Trustees shall have power to conduct
the business of the Trust and to carry on its operations in any and all of its
branches and maintain offices both within and without the State of Delaware, in
any and all states of the United States of America, in the District of
Columbia, in any and all commonwealths, territories, dependencies, colonies, or
possessions of the United States of America, and in any foreign jurisdiction
and to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination
as to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Trust Instrument,
the presumption shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power in this Trust Instrument shall not be
construed as limiting the aforesaid power. The powers of the Trustees may be
exercised without order of or resort to any court.
Except for the Trustees named herein or appointed to fill vacancies pursuant
to Section 3.04 of this Article III, the Trustees shall be elected by the
Shareholders owning of record a plurality of the Shares voting at a meeting of
Shareholders. Such a meeting shall be held on a date fixed by the Trustees. In
the event that less than a majority of the Trustees holding office have been
elected by Shareholders, the Trustees then in office will call a Shareholders'
meeting for the election of Trustees.
SECTION 3.02 INITIAL TRUSTEES. The initial Trustees shall be the persons
named herein. On a date fixed by the Trustees, the Shareholders shall elect at
least one (1) but not more than fifteen (15) Trustees, as specified by the
Trustees pursuant to Section 3.06 of this Article III.
SECTION 3.03 TERM OF OFFICE. The Trustees shall hold office during the
lifetime of this Trust, and until its termination as herein provided; except
(a) that any Trustee may resign his trust by written instrument signed by him
and delivered to the other Trustees, which shall take effect upon such delivery
or upon such later date as is specified therein; (b) that any Trustee may be
removed at any time by written instrument, signed by at least two-thirds of the
number of Trustees prior to such removal, specifying the date when such removal
shall become effective; (c) that any Trustee who requests in writing to be
retired or who has died, become physically or mentally incapacitated by reason
of disease or otherwise, or is otherwise unable to serve, may be retired by
written instrument signed by a majority of the other Trustees, specifying the
date of his retirement; and (d) that a Trustee may be removed at any meeting of
the Shareholders of the Trust by a vote of Shareholders owning at least
two-thirds of the Outstanding Shares.
SECTION 3.04 VACANCIES AND APPOINTMENTS. In case of the declination to
serve, death, resignation, retirement, removal, physical or mental incapacity
by reason of disease or otherwise, other inability of a Trustee to serve, or an
increase in the number of Trustees, a vacancy shall occur. Whenever a vacancy
in the Board of Trustees shall occur, until such vacancy is filled, the other
Trustees shall have all the powers hereunder and the certification of the other
Trustees of such vacancy shall be conclusive. In the case of an existing
vacancy, the remaining Trustees shall fill such vacancy by appointing such
other person as they in their discretion shall see fit consistent with the
limitations under the 1940 Act. Such appointment shall be evidenced by a
written instrument signed by a majority of the Trustees in office or by
resolution of the Trustees, duly adopted, which shall be recorded in the
minutes of a meeting of the Trustees, whereupon the appointment shall take
effect.
An appointment of a Trustee may be made by the Trustees then in office in
anticipation of a vacancy to occur by reason of retirement, resignation or
increase shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees. As soon as any
Trustee appointed pursuant to this Section 3.04 shall have accepted this Trust,
the Trust estate shall vest in the new Trustee or Trustees, together with the
continuing Trustees, without any further act or conveyance, and he or she shall
be deemed a Trustee hereunder. The power to appoint a Trustee pursuant to this
section 3.04 is subject to the provisions of Section 16(a) of the 1940 Act.
SECTION 3.05 NUMBER OF TRUSTEES. The number of Trustees shall be at least one
(1), and thereafter shall be such number as shall be fixed from time to time by
a majority of the Trustees, provided, however, that the number of Trustees
shall in no event be more than fifteen (15).
SECTION 3.06 EFFECT OF ENDING OF A TRUSTEE'S SERVICE. The disinclination to
serve, death, resignation, retirement, removal, incapacity, or inability of the
Trustees, or any one of them, shall not operate to terminate the Trust or to
revoke any existing agency created pursuant to the terms of this Trust
Instrument.
SECTION 3.07 OWNERSHIP OF ASSETS OF THE TRUST. The assets of the Trust and
of each Series shall be held separate and apart from any assets now or
hereafter held in any capacity other than as Trustee hereunder by the Trustees
or any successor Trustees. Legal title in all of the assets of the Trust and
the right to conduct any business shall at all times be considered as vested in
the Trustees on behalf of the Trust, except that the Trustees may cause legal
title to any Trust Property to be held by or in the name of the Trust, or in
the name of any person as nominee. No Shareholder shall be deemed to have a
severable ownership in any individual asset of the Trust or of any Series or
any right of partition or possession thereof, but each Shareholder shall have,
except as otherwise provided for herein, a proportionate undivided beneficial
interest in the Trust or Series. The Shares shall be personal property giving
only the rights specifically set forth in this Trust Instrument.
ARTICLE IV
POWERS OF THE TRUSTEES
SECTION 4.01 POWERS. The Trustees in all instances shall act as principals,
and are and shall be free from the control of the Shareholders. The Trustees
shall have full power and authority to do any and all acts and to make and
execute any and all contracts and instruments that they may consider necessary
or appropriate in connection with the management of the Trust, and to vary the
investments of any Series in accordance with the prospectus applicable to such
Series. The Trustees shall not in any way be bound or limited by present or
future laws or customs in regard to Trust investments, but shall have full
authority and power to make any and all investments which they, in their sole
discretion, shall deem proper to accomplish the purpose of this Trust without
recourse to any court or other authority. Subject to any applicable limitation
in this Trust Instrument or the Bylaws of the Trust, the Trustees shall have
the power and authority:
(a) To invest and reinvest cash and other property, and to hold cash or other
property uninvested, without in any event being bound or limited by any present
or future law or custom in regard to investments by Trustees, and to sell,
exchange, lend, pledge, mortgage, hypothecate, write options on and lease any
or all of the assets of the Trust;
(b) To operate as and carry on the business of an investment company, and
exercise all the powers necessary and appropriate to the conduct of such
operations;
(c) To borrow money and in this connection issue notes or other evidence of
indebtedness; to secure borrowings by mortgaging, pledging or otherwise
subjecting as security the Trust Property; to endorse, guarantee, or undertake
the performance of an obligation or engagement of any other person and to lend
Trust Property;
(d) To provide for the distribution of interests of the Trust either through a
Principal Underwriter in the manner hereinafter provided for or by the Trust
itself, or both, or otherwise pursuant to a plan of distribution of any kind;
(e) To adopt Bylaws not inconsistent with this Trust Instrument providing for
the conduct of the business of the Trust and to amend and repeal them to the
extent that they do not reserve that right to the Shareholders; such Bylaws
shall be deemed incorporated and included in this Trust Instrument;
(f) To elect and remove such officers and appoint and terminate such agents as
they consider appropriate;
(g) To employ one or more banks, trust companies or companies that are members
of a national securities exchange or such other entities as the Commission may
permit as custodians of any assets of the Trust subject to any conditions set
forth in this Trust Instrument or in the Bylaws;
(h) To retain one or more transfer agents, shareholder servicing agents,
and/or fund accountants;
(i) To set record dates in the manner provided herein or in the Bylaws;
(j) To delegate such authority as they consider desirable to any officers of
the Trust and to any investment adviser, manager, custodian, underwriter or
other agent or independent contractor;
(k) To sell or exchange any or all of the assets of the Trust, subject to the
provisions of Article XI, Subsection 11.04(b) hereof;
(l) To vote or give assent, or exercise any rights of ownership, with respect
to stock or other securities or property, and to execute and deliver powers of
attorney to such person or persons as the Trustees shall deem proper, granting
to such person or persons such power and discretion with relation to securities
or property as the Trustees shall deem proper;
(m) To exercise powers and rights of subscription or otherwise which in any
manner arise out of ownership of securities;
(n) To hold any security or property in a form not indicating any trust,
whether in bearer, book entry, unregistered or other negotiable form; or either
in the name of the Trust or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the usual
practice of Delaware business trusts or investment companies;
(o) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article II hereof and to establish classes of
such Series having relative rights, powers and duties as they may provide
consistent with applicable law;
(p) Subject to the provisions of Section 3804 of the Delaware Act, to allocate
assets, liabilities and expenses of the Trust to a particular Series or to
apportion the same between or among two or more Series, provided that any
liabilities or expenses incurred by a particular Series shall be payable solely
out of the assets belonging to that Series as provided for in Article II
hereof;
(q) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase, or
sale of property by such corporation or concern; and to pay calls or
subscriptions with respect to any security held in the Trust;
(r) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(s) To make distributions of income and of capital gains to Shareholders in
the manner provided herein;
(t) To establish, from time to time, a minimum investment for Shareholders in
the Trust or in one or more Series or classes, and to require the redemption of
the Shares of any Shareholders whose investment is less than such minimum, or
who does not satisfy any other criteria the Trustees may set from time to time,
upon giving notice to such Shareholder;
(u) To establish one or more committees, to delegate any of the powers of the
Trustees to said committees and to adopt a committee charter providing for such
responsibilities, membership (including Trustees, officers or other agents of
the Trust therein) and any other characteristics of said committees as the
Trustees may deem proper. Notwithstanding the provisions of this Article IV,
and in addition to such provisions or any other provision of this Trust
Instrument or of the Bylaws, the Trustees may by resolution appoint a committee
consisting of less than the whole number of Trustees then in office, which
committee may be empowered to act for and bind the Trustees and the Trust, as
if the acts of such committee were the acts of all the Trustees then in office,
with respect to the institution, prosecution, dismissal, settlement, review or
investigation of any action, suit or proceeding which shall be pending or
threatened to be brought before any court, administrative agency or other
adjudicatory body;
(v) To interpret the investment policies, practices or limitations of any
Series;
(w) To establish a registered office and have a registered agent in the state
of Delaware; and
(x) In general to carry on any other business in connection with or incidental
to any of the foregoing powers, to do everything necessary, suitable or proper
for the accomplishment of any purpose or the attainment of any object or the
furtherance of any power hereinbefore set forth, either alone or in association
with others, and to do every other act or thing incidental or appurtenant to or
growing out of or connected with the aforesaid business or purposes, objects or
powers.
The foregoing clauses shall be construed as objects and powers, and the
foregoing enumeration of specific powers shall not be held to limit or restrict
in any manner the general powers of the Trustees. Any action by one or more of
the Trustees in their capacity as such hereunder shall be deemed an action on
behalf of the Trust or the applicable Series, and not an action in an
individual capacity.
The Trustees shall not be limited to investing in obligations maturing before
the possible termination of the Trust.
No one dealing with the Trustees shall be under any obligation to make any
inquiry concerning the authority of the Trustees, or to see to the application
of any payments made or property transferred to the Trustees or upon their
order.
SECTION 4.02 ISSUANCE AND REPURCHASE OF SHARES. The Trustees shall have the
power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, and otherwise deal in Shares and, subject to the
provisions set forth in Article II and Article IX, to apply to any such
repurchase, redemption, retirement, cancellation or acquisition of Shares any
funds or property of the Trust, or the particular Series of the Trust, with
respect to which such Shares are issued.
SECTION 4.03 TRUSTEES AND OFFICERS AS SHAREHOLDERS. Any Trustee, officer or
other agent of the Trust may acquire, own and dispose of Shares to the same
extent as if he were not a Trustee, officer or agent; and the Trustees may
issue and sell or cause to be issued and sold, Shares, to and buy such Shares
from, any such person or any firm or company in which he is interested, subject
only to the general limitations herein contained as to the sale and purchase of
such Shares; and all subject to any restrictions which may be contained in the
Bylaws.
SECTION 4.04 ACTION BY THE TRUSTEES. Except as otherwise provided herein or
in the Bylaws, any action to be taken by the Trustees may be taken by a
majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of the entire number
of Trustees then in office. The Trustees may adopt Bylaws not inconsistent
with this Trust Instrument to provide for the conduct of the business of the
Trust and may amend or repeal such Bylaws to the extent such power is not
reserved to the Shareholders.
SECTION 4.05 CHAIRMAN OF THE TRUSTEES. The Trustees shall appoint one of
their number to be Chairman of the Board of Trustees. The Chairman shall
preside at all meetings of the Trustees, shall be responsible for the execution
of policies established by the Trustees and the administration of the Trust,
and may be (but is not required to be) the chief executive, financial and/or
accounting officer of the Trust.
SECTION 4.06 PRINCIPAL TRANSACTIONS. Except to the extent prohibited by
applicable law, the Trustees may, on behalf of the Trust, buy any securities
from or sell any securities to, or lend any assets of the Trust to, any Trustee
or officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with any investment
adviser, administrator, distributor or transfer agent for the Trust or with any
Interested Person of such person; and the Trust may employ any such person, or
firm or company in which such person is an Interested Person, as broker, legal
counsel, registrar, investment adviser, administrator, distributor, transfer
agent, dividend disbursing agent, custodian or in any other capacity upon
customary terms.
ARTICLE V
EXPENSES OF THE TRUST
Subject to the provisions of Article II, Section 2.08 hereof, the Trustees
shall be reimbursed from the Trust estate or the assets belonging to the
appropriate Series for their expenses and disbursements, including, without
limitation, interest charges, taxes, brokerage fees and commissions; expenses
of issue, repurchase and redemption of shares; certain insurance premiums;
applicable fees, interest charges and expenses of third parties, including the
Trust's investment advisers, managers, administrators, distributors, custodian,
transfer agent and fund accountant; fees of pricing, interest, dividend, credit
and other reporting services; costs of membership in trade associations;
telecommunications expenses; funds transmission expenses; auditing, legal and
compliance expenses; costs of forming the Trust and maintaining corporate
existence; costs of preparing and printing the Trust's prospectuses, statements
of additional information and shareholder reports and delivering them to
existing shareholders; expenses of meetings of shareholders and proxy
solicitations therefore; costs of maintaining books and accounts; costs of
reproduction, stationery and supplies; fees and expenses of the Trustees;
compensation of the Trust's officers and employees and costs of other personnel
performing services for the Trust; costs of Trustee meetings; Securities and
Exchange Commission registration fees and related expenses; state or foreign
securities laws registration fees and related expenses; and for such
non-recurring items as may arise, including litigation to which the Trust (or a
Trustee acting as such) is a party, and for all losses and liabilities by them
incurred in administering the Trust, and for the payment of such expenses,
disbursements, losses and liabilities the Trustees shall have a lien on the
assets belonging to the appropriate Series, or in the case of an expense
allocable to more than one Series, on the assets of each such Series, prior to
any rights or interests of the Shareholders thereto. This section shall not
preclude the Trust from directly paying any of the aforementioned fees and
expenses.
ARTICLE VI
INVESTMENT ADVISER, PRINCIPAL UNDERWRITER,
ADMINISTRATOR AND TRANSFER AGENT
SECTION 6.01 INVESTMENT ADVISER. The Trustees may in their discretion, from
time to time, enter into an investment advisory contract or contracts with
respect to the Trust or any Series whereby the other party or parties to such
contract or contracts shall undertake to furnish the Trustees with such
investment advisory, statistical and research facilities and services and such
other facilities and services, if any, all upon such terms and conditions as
may be prescribed in the Bylaws or as the Trustees may in their discretion
determine (such terms and conditions not to be inconsistent with the provisions
of this Trust Instrument or of the Bylaws). Notwithstanding any other
provision of this Trust Instrument, the Trustees may authorize any investment
adviser (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales or exchanges of portfolio
securities, other investment instruments of the Trust, or other Trust Property
on behalf of the Trustees, or may authorize any officer, agent, or Trustee to
effect such purchases, sales or exchanges pursuant to recommendations of the
investment adviser (and all without further action by the Trustees). Any such
purchases, sales and exchanges shall be deemed to have been authorized by all
of the Trustees.
The Trustees may, subject to the requirements of the 1940 Act, authorize the
investment adviser to employ, from time to time, one or more sub-advisers to
perform such of the acts and services of the investment adviser, and upon such
terms and conditions, as may be agreed upon between the investment adviser and
sub-adviser (such terms and conditions not to be inconsistent with the
provisions of this Trust Instrument or of the Bylaws). Any reference in this
Trust Instrument to the investment adviser shall be deemed to include such
sub-advisers, unless the context otherwise requires.
SECTION 6.02 PRINCIPAL UNDERWRITER. The Trustees may in their discretion
from time to time enter into an exclusive or non-exclusive underwriting
contract or contracts providing for the sale of Shares, whereby the Trust may
either agree to sell Shares to the other party to the contract or appoint such
other party as its sales agent for such Shares. In either case, the contract
shall be on such terms and conditions as may be prescribed in the Bylaws and as
the Trustees may in their discretion determine (such terms and conditions not
to be inconsistent with the provisions of this Trust Instrument or of the
Bylaws); and such contract may also provide for the repurchase or sale of
Shares by such other party as principal or as agent of the Trust.
SECTION 6.03 ADMINISTRATION. The Trustees may in their discretion from time
to time enter into one or more management or administrative contracts whereby
the other party or parties shall undertake to furnish the Trustees with
management or administrative services. The contract or contracts shall be on
such terms and conditions as may be prescribed in the Bylaws and as the
Trustees may in their discretion determine (such terms and conditions not to be
inconsistent with the provisions of this Trust Instrument or of the Bylaws).
SECTION 6.04 TRANSFER AGENT. The Trustees may in their discretion from time
to time enter into one or more transfer agency and shareholder service
contracts whereby the other party or parties shall undertake to furnish the
Trustees with transfer agency and shareholder services. The contract or
contracts shall be on such terms and conditions as may be prescribed in the
Bylaws and as the Trustees may in their discretion determine (such terms and
conditions not to be inconsistent with the provisions of this Trust Instrument
or of the Bylaws).
SECTION 6.05 PARTIES TO CONTRACT. Any contract of the character described in
Sections 6.01, 6.02, 6.03 and 6.04 of this Article VI or any contract of the
character described in Article VIII hereof may be entered into with any
corporation, firm, partnership, trust or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract, and no such
contract shall be invalidated or rendered void or voidable by reason of the
existence of any relationship, nor shall any person holding such relationship
be disqualified from voting on or executing the same in his capacity as
Shareholder and/or Trustee, nor shall any person holding such relationship be
liable merely by reason of such relationship for any loss or expense to the
Trust under or by reason of said contract or accountable for any profit
realized directly or indirectly therefrom, provided that the contract when
entered into was not inconsistent with the provisions of this Article VI or
Article VIII hereof or of the Bylaws. The same person (including a firm,
corporation, partnership, trust, or association) may be the other party to
contracts entered into pursuant to Sections 6.01, 6.02, 6.03 and 6.04 of this
Article VI or pursuant to Article VIII hereof, and any individual may be
financially interested or otherwise affiliated with persons who are parties to
any or all of the contracts mentioned in this Section 6.05.
SECTION 6.06 PROVISIONS AND AMENDMENTS. Any contract entered into pursuant
to Sections 6.01 or 6.02 of this Article VI shall be consistent with and
subject to the requirements of Section 15 of the 1940 Act, if applicable, or
other applicable Act of Congress hereafter enacted with respect to its
continuance in effect, its termination, and the method of authorization and
approval of such contract or renewal thereof, and no amendment to any contract
entered into pursuant to Section 6.01 of this Article VI shall be effective
unless assented to in a manner consistent with the requirements of said Section
15, as modified by any applicable rule, regulation or order of the Commission.
ARTICLE VII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 7.01 VOTING POWERS. The Shareholders shall have power to vote only
(a) for the election of Trustees as provided in Article III, Sections 3.01 and
3.02 hereof, (b) for the removal of Trustees as provided in Article III,
Subsection 3.03(d) hereof, (c) with respect to any investment advisory contract
as provided in Article VI, Section 6.01 hereof, and (d) with respect to such
additional matters relating to the Trust as may be required by law, by this
Trust Instrument, or the Bylaws or any registration of the Trust with the
Commission or any state, or as the Trustees may consider desirable.
On any matter submitted to a vote of the Shareholders, all Shares shall be
voted separately by individual Series, except (i) when required by the 1940
Act, Shares shall be voted in the aggregate and not by individual Series; and
(ii) when the Trustees have determined that the matter affects the interests of
more than one Series, then the Shareholders of all such Series shall be
entitled to vote thereon. The Trustees may also determine that a matter
affects only the interests of one or more classes of a Series, in which case
any such matter shall be voted on by such class or classes. Each whole Share
shall be entitled to one vote as to any matter on which it is entitled to vote,
and each fractional Share shall be entitled to a proportionate fractional vote.
There shall be no cumulative voting in the election of Trustees. Shares may be
voted in person or by proxy or in any manner provided for in the Bylaws. A
proxy may be given in writing. The Bylaws may provide that proxies may also,
or may instead, be given by any electronic or telecommunications device or in
any other manner. Notwithstanding anything else herein or in the Bylaws, in
the event a proposal by anyone other than the officers or Trustees of the Trust
is submitted to a vote of the Shareholders of one or more Series or of the
Trust, or in the event of any proxy contest or proxy solicitation or proposal
in opposition to any proposal by the officers or Trustees of the Trust, Shares
may be voted only in person or by written proxy. Until Shares are issued, the
Trustees may exercise all rights of Shareholders and may take any action
required or permitted by law, this Trust Instrument or any of the Bylaws of the
Trust to be taken by Shareholders.
SECTION 7.02 MEETINGS. A meeting of the Shareholders shall be held at such
times, on such day and at such hour as the Trustees may from time to time
determine, either at the principal office of the Trust, or at such other place,
within or without the State of Delaware, as may be designated by the Trustees,
for such purposes as may be specified by the Trustees.
SECTION 7.03 QUORUM AND REQUIRED VOTE. One-third of Shares entitled to vote
in person or by proxy shall be a quorum for the transaction of business at a
Shareholders' meeting, except that where any provision of law or of this Trust
Instrument permits or requires that holders of any Series shall vote as a
Series (or that holders of a class shall vote as a class), then one-third of
the aggregate number of Shares of that Series (or that class) entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that Series (or that class). Any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held, within a
reasonable time after the date set for the original meeting, without the
necessity of further notice. Except when a larger vote is required by law or
by any provision of this Trust Instrument or the Bylaws, a majority of the
Shares voted in person or by proxy shall decide any questions and a plurality
shall elect a Trustee, provided that where any provision of law or of this
Trust Instrument permits or requires that the holders of any Series shall vote
as a Series (or that the holders of any class shall vote as a class), then a
majority of the Shares present in person or by proxy of that Series (or class)
or, if required by law, a majority of the Shares of that Series (or class),
voted on the matter in person or by proxy shall decide that matter insofar as
that Series (or class) is concerned. Shareholders may act by unanimous written
consent. Actions taken by Series (or class) may be consented to unanimously in
writing by Shareholders of that Series (or class).
ARTICLE VIII
CUSTODIAN
SECTION 8.01 APPOINTMENT AND DUTIES. The Trustees shall at all times employ
a bank, a company that is a member of a national securities exchange, or a
trust company that has capital, surplus and undivided profits of at least two
million dollars ($2,000,000) and is a member of the Depository Trust Company,
as custodian with authority as its agent, but subject to such restrictions,
limitations and other requirements, if any, as may be contained in the Bylaws
of the Trust. Said custodian shall be authorized: (a) to hold the securities
owned by the Trust and deliver the same upon written order or oral order
confirmed in writing; (b) to receive and receipt for any moneys due to the
Trust and deposit the same in its own banking department or elsewhere as the
Trustees may direct; and (c) to disburse such funds upon orders or vouchers.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian, and upon such terms and conditions, as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees,
subject to such restrictions, limitations and other requirements, if any, as
may be contained in the Bylaws of the Trust.
SECTION 8.02 CENTRAL CERTIFICATE SYSTEM. Subject to such rules, regulations
and orders as the Commission may adopt, the Trustees may direct the custodian
to deposit all or any part of the securities owned by the Trust in a system for
the central handling of securities established by a national securities
exchange or a national securities association registered with the Commission
under the Securities Exchange Act of 1934, as amended, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust or its custodians, sub-custodians or other agents.
ARTICLE IX
DISTRIBUTIONS AND REDEMPTIONS
SECTION 9.01 DISTRIBUTIONS.
(a) The Trustees may from time to time declare and pay dividends or other
distributions with respect to any Series. The amount of such dividends or
distributions and the payment of them and whether they are in cash or any other
Trust Property shall be within the sole discretion of the Trustees.
(b) Dividends and other distributions may be paid or made to the Shareholders
of record at the time of declaring a dividend or other distribution or among
the Shareholders of record at such other date or time or dates or times as the
Trustees shall determine, which dividends or distributions, at the election of
the Trustees, may be paid pursuant to a standing resolution or resolutions
adopted only once or with such frequency as the Trustees may determine. The
Trustees may adopt and offer to Shareholders such dividend reinvestment plans,
cash dividend payout plans or related plans as the Trustees shall deem
appropriate.
(c) Anything in this Trust Instrument to the contrary notwithstanding, the
Trustees may at any time declare and distribute a stock dividend pro rata among
the Shareholders of a particular Series, or class thereof, as of the record
date of that Series fixed as provided in Subsection 9.01(b) hereof.
SECTION 9.02 REDEMPTIONS. In case any holder of record of Shares of a
particular Series desires to dispose of his Shares or any portion thereof, he
may deposit at the office of the transfer agent or other authorized agent of
that Series a written request or such other form of request as the Trustees may
from time to time authorize, requesting that the Series purchase the Shares in
accordance with this Section 9.02; and the Shareholder so requesting shall be
entitled to require the Series to purchase, and the Series or the Principal
Underwriter of the Series shall purchase his said Shares, but only at the Net
Asset Value thereof (as described in Section 9.03 of this Article IX). The
Series shall make payment for any such Shares to be redeemed, as aforesaid, in
cash or property from the assets of that Series and payment for such Shares
shall be made by the Series or the Principal Underwriter of the Series to the
Shareholder of record within seven (7) days after the date upon which the
request is effective, or such longer period as may be permitted. Upon
redemption, Shares shall become Treasury shares and may be re-issued from time
to time.
SECTION 9.03 DETERMINATION OF NET ASSET VALUE AND VALUATION OF PORTFOLIO
ASSETS. The term "Net Asset Value" of any Series shall mean that amount by
which the assets of that Series exceed its liabilities, all as determined by or
under the direction of the Trustees. Such value shall be determined separately
for each Series and shall be determined on such days and at such times as the
Trustees may determine. Such determination shall be made with respect to
securities for which market quotations are readily available, at the market
value of such securities; and with respect to other securities and assets, at
the fair value as determined in good faith by the Trustees; provided, however,
that the Trustees, without Shareholder approval, may alter the method of
valuing portfolio securities insofar as permitted under the 1940 Act and the
rules, regulations and interpretations thereof promulgated or issued by the
Commission or insofar as permitted by any Order of the Commission applicable to
the Series. The Trustees may delegate any of their powers and duties under
this Section 9.03 with respect to valuation of assets and liabilities. The
resulting amount, which shall represent the total Net Asset Value of the
particular Series, shall be divided by the total number of Shares of that
Series outstanding at the time and the quotient so obtained shall be the Net
Asset Value per Share of that Series. At any time the Trustees may cause the
Net Asset Value per Share last determined to be determined again in similar
manner and may fix the time when such redetermined value shall become
effective. If, for any reason, the net income of any Series, determined at any
time, is a negative amount, the Trustees shall have the power with respect to
that Series (a) to offset each Shareholder's pro rata share of such negative
amount from the accrued dividend account of such Shareholder; (b) to reduce the
number of Outstanding Shares of such Series by reducing the number of Shares in
the account of each Shareholder by a pro rata portion of that number of full
and fractional Shares which represents the amount of such excess negative net
income; (c) to cause to be recorded on the books of such Series an asset
account in the amount of such negative net income (provided that the same shall
thereupon become the property of such Series with respect to such Series and
shall not be paid to any Shareholder), which account may be reduced by the
amount, of dividends declared thereafter upon the Outstanding Shares of such
Series on the day such negative net income is experienced, until such asset
account is reduced to zero; (d) to combine the methods described in clauses (a)
and (b) and (c) of this sentence; or (e) to take any other action they deem
appropriate, in order to cause (or in order to assist in causing) the Net Asset
Value per Share of such Series to remain at a constant amount per Outstanding
Share immediately after each such determination and declaration. The Trustees
shall also have the power not to declare a dividend out of net income for the
purpose of causing the Net Asset Value per Share to be increased. The Trustees
shall not be required to adopt, but may at any time adopt, discontinue or amend
the practice of maintaining the Net Asset Value per Share of the Series at a
constant amount.
SECTION 9.04 SUSPENSION OF THE RIGHT OF REDEMPTION. The Trustees may declare
a suspension of the right of redemption or postpone the date of payment as
permitted under the 1940 Act. Such suspension shall take effect at such time as
the Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension, and thereafter there
shall be no right of redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the right of redemption,
a Shareholder may either withdraw his request for redemption or receive payment
based on the Net Asset Value per Share next determined after the termination of
the suspension. In the event that any Series is divided into classes, the
provisions of this Section 9.03, to the extent applicable as determined in the
discretion of the Trustees and consistent with applicable law, may be equally
applied to each such class.
ARTICLE X
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 10.01 LIMITATION OF LIABILITY. A Trustee, when acting in such
capacity, shall not be personally liable to any person other than the Trust or
a beneficial owner for any act, omission or obligation of the Trust or any
Trustee. A Trustee shall not be liable for any act or omission or any conduct
whatsoever in his capacity as Trustee, provided that nothing contained herein
or in the Delaware Act shall protect any Trustee against any liability to the
Trust or to Shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee hereunder.
SECTION 10.02 INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in Subsection
10.02(b):
(i) every person who is, or has been, a Trustee or officer of the Trust
(hereinafter referred to as a "Covered Person") shall be indemnified by the
Trust to the fullest extent permitted by law against liability and against all
expenses reasonably incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes involved as a party or otherwise
by virtue of his being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply to all
claims, actions, suits or proceedings (civil, criminal or other, including
appeals), actual or threatened while in office or thereafter, and the words
"liability" and "expenses" shall include, without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which the
proceeding was brought (A) to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office or (B) not to
have acted in good faith in the reasonable belief that his action was in the
best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a determination that
such Trustee or officer did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office, (A) by the court or other body approving the settlement; (B) by at
least a majority of those Trustees who are neither Interested Persons of the
Trust nor are parties to the matter based upon a review of readily available
facts (as opposed to a full trial-type inquiry); or (C) by written opinion of
independent legal counsel based upon a review of readily available facts (as
opposed to a full trial-type inquiry); provided, however, that any Shareholder
may, by appropriate legal proceedings, challenge any such determination by the
Trustees or by independent counsel.
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not be exclusive of
or affect any other rights to which any Covered Person may now or hereafter be
entitled, shall continue as to a person who has ceased to be a Covered Person
and shall inure to the benefit of the heirs, executors and administrators of
such a person. Nothing contained herein shall affect any rights to
indemnification to which Trust personnel, other than Covered Persons, and other
persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a defense
to any claim, action, suit or proceeding of the character described in
Subsection 10.02(a) of this Section 10.02 may be paid by the Trust or Series
from time to time prior to final disposition thereof upon receipt of an
undertaking by or on behalf of such Covered Person that such amount will be
paid over by him to the Trust or Series if it is ultimately determined that he
is not entitled to indemnification under this Section 10.02; provided, however,
that either (i) such Covered Person shall have provided appropriate security
for such undertaking, (ii) the Trust is insured against losses arising out of
any such advance payments, or (iii) either a majority of the Trustees who are
neither Interested Persons of the Trust nor parties to the matter, or
independent legal counsel in a written opinion, shall have determined, based
upon a review of readily available facts (as opposed to a trial-type inquiry or
full investigation), that there is reason to believe that such Covered Person
will be found entitled to indemnification under Section 10.02.
SECTION 10.03 SHAREHOLDERS. In case any Shareholder of any Series shall be
held to be personally liable solely by reason of his being or having been a
Shareholder of such Series and not because of his acts or omissions or for some
other reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives, or, in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled
out of the assets belonging to the applicable Series to be held harmless from
and indemnified against all loss and expense arising from such liability. The
Trust, on behalf of the affected Series, shall, upon request by the
Shareholder, assume the defense of any claim made against the Shareholder for
any act or obligation of the Series and satisfy any judgment thereon from the
assets of the Series.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01 TRUST NOT A PARTNERSHIP. It is hereby expressly declared that a
trust and not a partnership is created hereby; provided, however, that it is
acknowledged that, for federal tax purposes, the trust created hereby may be
characterized as a corporation. No Trustee hereunder shall have any power to
bind personally either the Trust officers or any Shareholder. All persons
extending credit to, contracting with or having any claim against the Trust or
the Trustees shall look only to the assets of the appropriate Series or (if the
Trustees shall have yet to have established Series) of the Trust for payment
under such credit, contract or claim; and neither the Shareholders nor the
Trustees, nor any of their agents, whether past, present or future, shall be
personally liable therefor.
SECTION 11.02 TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR SURETY.
The exercise by the Trustees of their powers and discretion hereunder in good
faith and with reasonable care under the circumstances then prevailing shall be
binding upon everyone interested. Subject to the provisions of Article X
hereof and to Section 11.01 of this Article XI, the Trustees shall not be
liable for errors of judgment or mistakes of fact or law. The Trustees may
take advice of counsel or other experts with respect to the meaning and
operation of this Trust Instrument, and subject to the provisions of Article X
hereof and Section 11.01 of this Article XI, shall be under no liability for
any act or omission in accordance with such advice or for failing to follow
such advice. The Trustees shall not be required to give any bond as such, nor
any surety if a bond is obtained.
SECTION 11.03 ESTABLISHMENT OF RECORD DATES. The Trustees may close the Share
transfer books of the Trust for a period not exceeding sixty (60) days
preceding the date of any meeting of Shareholders, or the date for the payment
of any dividends or other distributions, or the date for the allotment of
rights, or the date when any change or conversion or exchange of Shares shall
go into effect. In lieu of closing the stock transfer books as aforesaid, the
Trustees may fix in advance a date, not exceeding sixty (60) days preceding the
date of any meeting of Shareholders, or the date for payment of any dividend or
other distribution, or the date for the allotment of rights, or the date when
any change or conversion or exchange of Shares shall go into effect, as a
record date for the determination of the Shareholders entitled to notice of,
and to vote at, any such meeting, or entitled to receive payment of any such
dividend or other distribution, or to any such allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange of
Shares, and in such case such Shareholders and only such Shareholders as shall
be Shareholders of record on the date so fixed shall be entitled to such notice
of, and to vote at, such meeting, or to receive payment of such dividend or
other distribution, or to receive such allotment or rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of any Shares on the
books of the Trust after any such record date fixed as aforesaid.
SECTION 11.04 TERMINATION OF TRUST.
(a) This Trust shall continue without limitation of time but subject to the
provisions of Subsection 11.04(b).
(b) The Trustees may, subject to a Majority Shareholder Vote of each Series
affected by the matter or, if applicable, to a Majority Shareholder Vote of the
Trust, and subject to a vote of a majority of the Trustees,
(i) sell and convey all or substantially all of the assets of the Trust or any
affected Series to another trust, partnership, association or corporation, or
to a separate series of shares thereof, organized under the laws of any state
which trust, partnership, association or corporation is an open-end management
investment company as defined in the 1940 Act, or is a series thereof, for
adequate consideration which may include the assumption of all outstanding
obligations, taxes and other liabilities, accrued or contingent, of the Trust
or any affected Series, and which may include shares of beneficial interest,
stock or other ownership interests of such trust, partnership, association or
corporation or of a series thereof; or
(ii) at any time sell and convert into money all of the assets of the Trust or
any affected Series.
Upon making reasonable provision, in the determination of the Trustees, for the
payment of all such liabilities in either (i) or (ii), by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds or assets (as
the case may be) of each Series (or class) ratably among the holders of Shares
of that Series then outstanding.
(c) Upon completion of the distribution of the remaining proceeds or the
remaining assets as provided in Subsection 11.05(b), the Trust or any affected
Series shall terminate and the Trustees and the Trust shall be discharged of
any and all further liabilities and duties hereunder and the right, title and
interest of all parties with respect to the Trust or Series shall be canceled
and discharged.
Upon termination of the Trust, following completion of the winding up of its
business, the Trustees shall cause a certificate of cancellation of the Trust's
Certificate of Trust to be filed in accordance with the Delaware Act, which
certificate of cancellation may be signed by any one Trustee.
Without limiting the generality of the foregoing, the existence of the Trust
shall not be affected by sales or purchases of Shares or status of any
Shareholders.
SECTION 11.05 REORGANIZATION. Notwithstanding anything else herein, the
Trustees, in order to change the form of organization of the Trust, may,
without prior Shareholder approval, (a) cause the Trust to merge or consolidate
with or into one or more trusts, partnerships, associations or corporations so
long as the surviving or resulting entity is an open-end management investment
company under the 1940 Act, or is a series thereof, that will succeed to or
assume the Trust's registration under that Act and which is formed, organized
or existing under the laws of a state, commonwealth, possession or colony of
the United States or (b) cause the Trust to incorporate under the laws of
Delaware. Any agreement of merger or consolidation or certificate of merger
may be signed by a majority of Trustees and facsimile signatures conveyed by
electronic or telecommunication means shall be valid.
Pursuant to and in accordance with the provisions of Section 3815(f) of the
Delaware Act, and notwithstanding anything to the contrary contained in this
Trust Instrument, an agreement of merger or consolidation approved by the
Trustees in accordance with this Section 11.05 may effect any amendment to the
Trust Instrument or effect the adoption of a new trust instrument of the Trust
if it is the surviving or resulting trust in the merger or consolidation.
SECTION 11.06 FILING OF COPIES, REFERENCES, HEADINGS. The original or a copy
of this Trust Instrument and of each amendment hereof or Trust Instrument
supplemental hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer or Trustee of the Trust as to whether or not any such
amendments or supplements have been made and as to any matters in connection
with the Trust hereunder, and with the same effect as if it were the original,
may rely on a copy certified by an officer or Trustee of the Trust to be a copy
of this Trust Instrument or of any such amendment or supplemental Trust
Instrument. In this Trust Instrument or in any such amendment or supplemental
Trust Instrument, references to this Trust Instrument, and all expressions like
"herein," "hereof" and "hereunder," shall be deemed to refer to this Trust
Instrument as amended or affected by any such supplemental Trust Instrument.
All expressions like "his", "he" and "him", shall be deemed to include the
feminine and neuter, as well as masculine, genders. Headings are placed herein
for convenience of reference only and in case of any conflict, the text of this
Trust Instrument, rather than the headings, shall control. This Trust
Instrument may be executed in any number of counterparts each of which shall be
deemed an original.
SECTION 11.07 APPLICABLE LAW. The Trust set forth in this instrument is made
in the State of Delaware, and the Trust and this Trust Instrument, and the
rights and obligations of the Trustees and Shareholders hereunder, are to be
governed by and construed and administered according to the Delaware Act and
the laws of said State; provided, however, that there shall not be applicable
to the Trust, the Trustees or this Trust Instrument (a) the provisions of
Section 3540 of Title 12 of the Delaware Code or (b) any provisions of the laws
(statutory or common) of the State of Delaware (other than the Delaware Act)
pertaining to trusts which relate to or regulate (i) the filing with any court
or governmental body or agency of trustee accounts or schedules of trustee fees
and charges, (ii) affirmative requirements to post bonds for trustees,
officers, agents or employees of a trust, (iii) the necessity for obtaining
court or other governmental approval concerning the acquisition, holding or
disposition of real or personal property, (iv) fees or other sums payable to
trustees, officers, agents or employees of a trust, (v) the allocation of
receipts and expenditures to income or principal, (vi) restrictions or
limitations on the permissible nature, amount or concentration of trust
investments or requirements relating to the titling, storage or other manner of
holding of trust assets, or (vii) the establishment of fiduciary or other
standards of responsibilities or limitations on the acts or powers of trustees,
which are inconsistent with the limitations or liabilities or authorities and
powers of the Trustees set forth or referenced in this Trust Instrument. The
Trust shall be of the type commonly called a "business trust", and without
limiting the provisions hereof, the Trust may exercise all powers which are
ordinarily exercised by such a trust under Delaware law. The Trust
specifically reserves the right to exercise any of the powers or privileges
afforded to trusts or actions that may be engaged in by trusts under the
Delaware Act, and the absence of a specific reference herein to any such power,
privilege or action shall not imply that the Trust may not exercise such power
or privilege or take such actions.
SECTION 11.08 AMENDMENTS. Except as specifically provided herein, the
Trustees may, without Shareholder vote, amend or otherwise supplement this
Trust Instrument by making an amendment, a Trust Instrument supplemental hereto
or an amended and restated Trust Instrument. Shareholders shall have the right
to vote (a) on any amendment which would affect their right to vote granted in
Section 7.01 of Article VII hereof, (b) on any amendment to this Section 11.08,
(c) on any amendment as may be required by law or by the Trust's registration
statement filed with the Commission, and (d) on any amendment submitted to them
by the Trustees. Any amendment required or permitted to be submitted to
Shareholders which, as the Trustees determine, shall affect the Shareholders of
one or more Series (or classes) shall be authorized by vote of the Shareholders
of each Series (or class) affected and no vote of Shareholders of a Series (or
class) not affected shall be required. Notwithstanding anything else herein,
any amendment to Article X hereof shall not limit the rights to indemnification
or insurance provided therein with respect to action or omission of Covered
Persons prior to such amendment.
SECTION 11.09 FISCAL YEAR. The fiscal year of the Trust shall end on a
specified date as set forth in the Bylaws, provided, however, that the Trustees
may, without Shareholder approval, change the fiscal year of the Trust.
SECTION 11.10 PROVISIONS IN CONFLICT WITH LAW. The provisions of this Trust
Instrument are severable, and if the Trustees shall determine, with the advice
of counsel, that any of such provisions is in conflict with the 1940 Act, the
regulated investment company provisions of the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be
deemed never to have constituted a part of this Trust Instrument; provided,
however, that such determination shall not affect any of the remaining
provisions of this Trust Instrument or render invalid or improper any action
taken or omitted prior to such determination. If any provision of this Trust
Instrument shall be held invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall attach only to such provision in such
jurisdiction and shall not in any matter affect such provisions in any other
jurisdiction or any other provision of this Trust Instrument in any
jurisdiction.
IN WITNESS WHEREOF, the undersigned, being all of the initial Trustees of the
Trust, have executed this instrument as of date first written above.
/s/ Stuart R. Strachan
Stuart R. Strachan, as Trustee
and not individually
/s/ Steven H. Price
Steven H. Price, as Trustee
and not individually
T:\dmc\endi\trust2.doc, ,
BYLAWS
OF
ENDOWMENTS
(a Delaware Business Trust)
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
ARTICLE II OFFICES 1
Section 1. Resident Agent 1
Section 2. Offices 1
ARTICLE III SHAREHOLDERS 1
Section 1. Meetings 1
Section 2. Notice of Meetings 2
Section 3. Record Date for Meetings and Other Purposes 2
Section 4. Proxies 2
Section 5. Action Without Meeting 3
ARTICLE IV TRUSTEES 4
Section 1. Meetings of the Trustees 4
Section 2. Quorum and Manner of Acting 5
ARTICLE V COMMITTEES 5
Section 1. Executive and Other Committees 5
Section 2. Meetings, Quorum and Manner of Acting 6
ARTICLE VI OFFICERS 6
Section 1. General Provisions 6
Section 2. Term of Office and Qualifications 7
Section 3. Removal 7
Section 4. Powers and Duties of the President 7
Section 5. Powers and Duties of Vice Presidents 8
Section 6. Powers and Duties of the Treasurer 8
Section 7. Powers and Duties of the Secretary 9
Section 8. Powers and Duties of Assistant Treasurers 9
Section 9. Powers and Duties of Assistant Secretaries 9
Section 10. Compensation of Officers and Trustees and Members of the Advisory
Board 9
ARTICLE VII FISCAL YEAR 10
ARTICLE VIII SEAL 10
ARTICLE IX WAIVERS OF NOTICE 10
ARTICLE X CUSTODY OF SECURITIES 11
Section 1. Action Upon Termination of Custodian Agreement 11
Section 2. Provisions of Custodian Agreement 11
Section 3. Acceptance of Receipts in Lieu of Certificates 12
ARTICLE XI AMENDMENTS 12
ARTICLE XII INSPECTION OF BOOKS 13
BYLAWS
OF
ENDOWMENTS
ARTICLE I
DEFINITIONS
Any terms defined in the Trust Instrument of Endowments dated May 14 , 1998, as
amended from time to time, shall have the same meaning when used herein.
ARTICLE II
OFFICES
Section 1. Resident Agent. The Trust shall maintain a resident agent in the
State of Delaware, which agent shall initially be The Corporation Trust
Company, 30 The Green, Dover, Delaware 19901. The Trustees may designate a
successor resident agent, provided, however, that such appointment shall not
become effective until written notice thereof is delivered to the office of the
Secretary of State.
Section 2. Offices. The Trust may have its principal office and other offices
in such places within as well as without the State of Delaware as the Trustees
may from time to time determine.
ARTICLE III
SHAREHOLDERS
Section 1. Meetings. Meetings of the Shareholders shall be held as provided
in the Trust Instrument at such place within or without the State of Delaware
as the Trustees shall designate.
Section 2. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder at his address as recorded on the register
of the Trust mailed at least ten (10) days and not more than sixty (60) days
before the meeting. Only the business stated in the notice of the meeting
shall be considered at such meeting. Any adjourned meeting may be held as
adjourned without further notice. No notice need be given to any Shareholder
who shall have failed to inform the Trust of his current address or if a
written waiver of notice, executed before or after the meeting by the
Shareholder or his/her attorney thereunto authorized, is filed with the records
of the meeting.
Section 3. Record Date for Meetings and Other Purposes. For the purpose of
determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding sixty (60) days, as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date not more than
sixty (60) days prior to the date of any meeting of Shareholders or
distribution or other action as a record date for the determinations of the
persons to be treated as Shareholders of record for such purposes, subject to
the provisions of the Trust Instrument.
Section 4. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary
may direct, for verification prior to the time at which such vote shall be
taken. Proxies may be solicited in the name of one or more Trustees or one or
more of the officers of the Trust. Only Shareholders of record as of the
record date shall be entitled to vote. Each whole share shall be entitled to
one vote as to any matter on which it is entitled by the Trust Instrument to
vote, and each fractional Share shall be entitled to a proportionate fractional
vote. When any Share is held jointly by two or more persons, any one of them
may vote at any meeting in person or by proxy in respect of such Share, but if
more than one of them shall be present at such meeting in person or by proxy,
and such joint owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Share. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. If the holder of any such Share is a
minor or legally incompetent, and subject to guardianship or the legal control
of any other person as regards the charge or management of such Share, the
person may vote by his or her guardian or such other person appointed or having
such control, and such vote may be given in person or by proxy. For purposes
of this Section, a proxy granted by telephone, telegram, telex, telecopy,
internet, computer interface or other electronic method of document transfer
shall be deemed "executed by or on behalf of a Shareholder."
Section 5. Action Without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if all Shareholders entitled to
vote on the matter consent to the action in writing and the written consents
are filed with the records of the meetings of Shareholders. Such consents
shall be treated for all purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the President, or by any
one of the Trustees, at the time being in office. Notice of the time and place
of each meeting other than regular or stated meetings shall be given by the
Secretary or an Assistant Secretary or by the officer or Trustee calling the
meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be sent by facsimile, telegraphed, cabled, or sent by
internet, computer interface or other electronic method of document transfer to
each Trustee at his business address, or personally delivered to him or her at
least one day before the meeting. Such notice may, however, be waived by any
Trustee. Notice of a meeting need not be given to any Trustee if a written
waiver of notice, executed by him or her before or after the meeting, is filed
with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him or her. A notice or waiver of notice need not specify the purpose of any
meeting. The Trustees may meet by means of a telephone conference circuit or
similar communications equipment by means of which all persons participating in
the meeting can hear one another. Participation in a telephone conference
meeting shall constitute presence in person at such meeting. Any action
required or permitted to be taken at any meeting of the Trustees may be taken
by the Trustees without a meeting if all the Trustees consent to the action in
writing and the written consents are filed with the records of the Trustees'
meetings. Such consents shall be treated as a vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees shall be
present in person at any regular or special meeting of the Trustees in order to
constitute a quorum for the transaction of business at such meeting and (except
as otherwise required by law, the Trust Instrument or these Bylaws) the act of
a majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from time to time
until a quorum shall be present. Notice of an adjourned meeting need not be
given.
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a majority
of all the Trustees may elect from their own number an Executive Committee to
consist of not less than three (3) to hold office at the pleasure of the
Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers which by law, the Trust Instrument or these Bylaws they are prohibited
from delegating. The Trustees may also elect from their own number other
Committees from time to time, the number composing such Committees, the powers
conferred upon the same (subject to the same limitations as with respect to the
Executive Committee) and the term of membership on such Committees to be
determined by the Trustees. The Trustees may designate a chairman of any such
Committee. In the absence of such designation, the Committee may elect its own
Chairman.
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (5) authorize the members of a Committee to meet by
means of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and records
of decisions taken without a meeting and cause them to be kept with the records
of the Trust.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Executive Vice Presidents, one
or more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers. The Trustees may delegate to any officer or Committee
the power to appoint any subordinate officers or agents.
Section 2. Term of Office and Qualifications. Except as otherwise provided by
law, the Trust Instrument or these Bylaws, the President, the Treasurer and the
Secretary shall each hold office until his or her successor shall have been
duly elected and qualified, and all other officers shall hold office at the
pleasure of the Trustees. The Secretary and Treasurer may be the same person.
A Vice President and the Treasurer or Assistant Treasurer or a Vice President
and the Secretary or Assistant Secretary may be the same person, but the
offices of Vice President and Secretary and Treasurer shall not be held by the
same person. The President shall hold no other office. Except as above
provided, any two offices may be held by the same person. Any officer may be,
but none need be, a Trustee or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer with or without cause, by a vote of a majority
of the Trustees then in office. Any officer or agent appointed by an officer
or Committee may be removed with or without cause by such appointing officer or
Committee.
Section 4. Powers and Duties of the President. The President may call meetings
of the Trustees and of any Committee thereof when he or she deems it necessary
and shall preside at all meetings of the Shareholders. Subject to the control
of the Trustees and to the control of any Committees of the Trustees, within
their respective spheres, as provided by the Trustees, he or she shall at all
times exercise a general supervision and direction over the affairs of the
Trust. He or she shall have the power to employ attorneys and counsel for the
Trust and to employ such subordinate officers, agents, clerks and employees as
he may find necessary to transact the business of the Trust. He or she shall
also have the power to grant, issue, execute or sign such powers of attorney,
proxies or other documents as may be deemed advisable or necessary in
furtherance of the interests of the Trust. The President shall have such other
powers and duties as from time to time may be conferred upon or assigned to him
or her by the Trustees.
Section 5. Powers and Duties of Vice Presidents. In the absence or disability
of the President, any Vice President designated by the Trustees shall perform
all the duties and may exercise any of the powers of the President, subject to
the control of the Trustees. Each Vice President shall perform such other
duties as may be assigned to him or her from time to time by the Trustees and
the President.
Section 6. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. He or she shall
deliver all funds of the Trust which may come into his or her hands to such
Custodian as the Trustees may employ pursuant to Article X of these Bylaws. He
or she shall in general perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him or
her by the Trustees.
Section 7. Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Trustees and of the Shareholders among the Trust
records; he or she shall have custody of the seal of the Trust; he or she shall
have charge of the Share transfer books, lists and records unless the same are
in the charge of the Transfer Agent. He or she shall attend to the giving and
serving of all notices by the Trust in accordance with the provisions of these
Bylaws and as required by law; and subject to these Bylaws, he or she shall in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him or her by the Trustees.
Section 8. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from
time to time may be assigned to him or her by the Trustees.
Section 9. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him or her by the Trustees.
Section 10. Compensation of Officers and Trustees and Members of the Advisory
Board. Subject to any applicable provisions of the Trust Instrument, the
compensation of the officers and Trustees and members of any Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers,
by any Committee or officer upon whom such power may be conferred by the
Trustees. No officer shall be prevented from receiving such compensation as
such officer by reason of the fact that he or she is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of August in each
year and shall end on the 31st day of July in each year, provided, however,
that the Trustees may from time to time change the fiscal year.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have such
inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the Trust Instrument or
these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. A notice shall be deemed to have been
telegraphed, cabled or sent by Internet, computer interface or other electronic
method of document transfer for the purposes of these Bylaws when it has been
delivered to a representative of the Trust or any telegraph or cable company
with instructions that it be telegraphed, cabled or sent by other electronic
method of document transfer.
ARTICLE X
CUSTODY OF SECURITIES
Section 1. Action Upon Termination of Custodian Agreement. Upon termination
of a Custodian Agreement or inability of the Custodian to continue to serve,
the Trustees shall promptly appoint a successor custodian, but in the event
that no successor custodian can be found who has the required qualifications
and is willing to serve, the Trustees shall call as promptly as possible a
special meeting of the Shareholders to determine whether the Trust shall
function without a custodian or shall be liquidated. If so directed by vote of
the holders of a majority of the outstanding voting securities, the Custodian
shall deliver and pay over all Trust Property held by it as specified in such
vote.
Section 2. Provisions of Custodian Agreement. The following provisions shall
apply to the employment of a Custodian and to any contract entered into with
the Custodian so employed:
The Trustees shall cause to be delivered to the Custodian all securities
included in the Trust Property or to which the Trust may become entitled, and
shall order the same to be delivered by the Custodian only in completion of a
sale, exchange, transfer, pledge, loan of portfolio securities to another
person, or other disposition thereof, all as the Trustees may generally or from
time to time require or approve or to a successor Custodian; and the Trustees
shall cause all funds included in the Trust Property or to which it may become
entitled to be paid to the Custodian, and shall order the same disbursed only
for investment against delivery of the securities acquired, or the return of
cash held as collateral for loans of portfolio securities, or in payment of
expenses, including management compensation, and liabilities of the Trust,
including distributions to shareholders, or to a successor Custodian. In
connection with the Trust's purchase or sale of futures contracts, the
Custodian shall transmit, prior to receipt on behalf of the Trust of any
securities or other property, funds from the Trust's custodian account in order
to furnish to and maintain funds with brokers as margin to guarantee the
performance of the Trust's futures obligations in accordance with the
applicable requirements of commodities exchanges and brokers.
Section 3. Acceptance of Receipts in Lieu of Certificates. Subject to such
rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
ARTICLE XI
AMENDMENTS
These Bylaws, or any of them, may be altered, amended or repealed, or new
Bylaws may be adopted by (a) a vote of a majority of the Shares outstanding and
entitled to vote or (b) the Trustees, provided, however, that no Bylaw may be
amended, adopted or repealed by the Trustees if such amendment, adoption or
repeal requires, pursuant to law, the Trust Instrument or these Bylaws, a vote
of the Shareholders.
ARTICLE XII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what extent, and
at what times and places, and under what conditions and regulations the
accounts and books of the Trust, or any of them, shall be open to the
inspection of the shareholders; and no shareholder shall have any right of
inspecting any account or book or document of the Trust except as conferred by
law or authorized by the Trustees or by resolution of the Shareholders.
