ENDOWMENTS
Part B
Statement of Additional Information
October 1, 1999
(as amended December 1, 1999)
Endowments (the "Trust") is an open-end management investment company, commonly
known as a mutual fund. The Trust offers two diversified investment
portfolios, Growth and Income Portfolio and Bond Portfolio (collectively, the
"funds").
This document is not a prospectus but should be read in conjunction with the
current Prospectus of Endowments dated October 1, 1999. The Prospectus may be
obtained by writing to the Trust at the following address:
ENDOWMENTS
ATTENTION: SECRETARY
ONE MARKET
STEUART TOWER, SUITE 1800
P.O. BOX 7650
SAN FRANCISCO, CALIFORNIA 94120
TELEPHONE: (415) 421-9360
TABLE OF CONTENTS
Item Page No.
ABOUT ENDOWMENTS 1
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES 2
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES 3
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS 9
TRUST ORGANIZATION AND VOTING RIGHTS 10
MANAGEMENT OF THE TRUST 11
DIVIDENDS, DISTRIBUTIONS AND TAXES 15
PURCHASE OF SHARES 19
EXECUTION OF PORTFOLIO TRANSACTIONS 21
REDEMPTION OF SHARES 21
GENERAL INFORMATION 22
INVESTMENT RESULTS AND RELATED STATISTICS 23
FINANCIAL STATEMENTS 32
ABOUT ENDOWMENTS
Endowments is a business trust organized under the laws of the state of
Delaware on May 14, 1998 with two separate series, Growth and Income Portfolio
and Bond Portfolio. Growth and Income Portfolio was formerly known as
Endowments, Inc. and was organized as a Delaware corporation. Bond Portfolio
was formerly known as Bond Portfolio for Endowments, Inc. and was organized as
a separate Delaware corporation. Endowments, Inc. and 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 Growth and
Income Portfolio and Bond Portfolio, respectively. As a result, certain
financial and other information appearing in the prospectus and statement of
additional information reflect the operations of these predecessor entities
through the date of the reorganization.
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES
The following limitations and guidelines are considered at the time of
purchase, under normal market conditions, and are based on a percentage of the
fund's net assets unless otherwise noted. This summary is not intended to
reflect all of the fund's investment limitations.
GROWTH AND INCOME PORTFOLIO
EQUITY SECURITIES
- - The fund will normally invest primarily in common stocks or securities
convertible into common stock.
DEBT SECURITIES
- - The fund may purchase preferred stocks and straight debt securities (not
including convertible securities) that are rated A or above by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's ("S&P"), or unrated
but determined to be of equivalent quality by Capital Research and Management
Company, the funds' investment adviser.
NON-U.S. SECURITIES
- - The fund may invest up to 10% of its assets in common stocks and other
securities of issuers domiciled outside the U.S.
BOND PORTFOLIO
DEBT SECURITIES
- - The fund will invest in debt securities rated Baa or above by Moody's or BBB
or above by S&P) or unrated but determined to be of equivalent quality by
Capital Research and Management Company, the fund's investment adviser.
Normally, at least 65% of the fund'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 debt securities in which the fund invests may have stock conversion or
purchase rights; however, such securities will generally not exceed 20% of the
fund's assets. The fund 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 fund's objective of current
income.
NON-U.S. AND CANADIAN SECURITIES
- - The fund may invest up to 20% of its assets in obligations of corporations
or government entities domiciled outside the U.S. and Canada. All Canadian and
other non-U.S. securities purchased by the fund will be liquid, and meet the
quality standards set forth above. Up to 10% of the fund's assets may be
invested in securities denominated in currencies other than the U.S.
dollar.
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The funds may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions. The
descriptions below are intended to supplement the material in the prospectus
under "Investment Objectives, Strategies and Risks."
GROWTH AND INCOME PORTFOLIO
EQUITY SECURITIES -- Equity securities 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 fund's results will be related to the overall market
for these securities.
REAL ESTATE INVESTMENT TRUSTS -- The fund may invest in securities issued by
real estate investment trusts (REITs), which are pooled investment vehicles
that invest primarily in real estate or real estate-related loans. REITs are
not taxed on income distributed to shareholders provided they meet requirements
imposed by the Internal Revenue Code. The return on REITs is dependent on such
factors as the skill of management and the real estate environment in general.
In addition, the risks associated with REIT debt and equity instruments, are
similar to the risks of investing in corporate-issued debt and common stocks,
respectively. Debt that is issued by REITs is typically rated by the credit
rating agencies as investment grade or above.
BOND PORTFOLIO
MATURITY -- There are no restrictions on the maturity composition of the
portfolio, although it is anticipated that the fund normally will be invested
substantially in securities with maturities in excess of three years. Under
normal market conditions, longer term securities yield more than shorter term
securities, but are subject to greater price fluctuations.
PASS-THROUGH SECURITIES -- The fund 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. In
addition, these securities generally are structured with one or more types of
credit enhancement. Mortgage-backed securities generally permit borrowers to
prepay their underlying mortgages. Prepayments can alter the effective maturity
of these instruments.
"Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages, mortgage-backed securities 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 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 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 agrees to sell such securities, it does not participate
in further gains or losses with respect to such securities. 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 "roll" transactions, which consist of the sale of
mortgage-backed securities or other securities together with a commitment to
purchase similar, but not identical, securities at a future date. The fund
intends to treat roll transactions as two separate transactions: one involving
the purchase of a security and a separate transaction involving the sale of a
security. The fund assumes the rights and risks of ownership, including the
risk of price and yield fluctuations as of the time of the agreement. Since
the fund does not intend to enter into roll transactions for financing
purposes, it may treat these transactions as not falling within the definition
of "borrowing" set forth in Section 2(a)(23) of the Investment Company Act of
1940.
REVERSE REPURCHASE AGREEMENTS -- The fund may enter into reverse repurchase
agreements. This type of agreement involves the sale of a security by the fund
and its commitment to repurchase the security at a specified time and price.
The fund will segregate 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 Investment Company Act of 1940,
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 -- The fund may only acquire warrants or rights that 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.
INFLATION-INDEXED BONDS -- The fund may invest in inflation-indexed bonds
issued by governments, their agencies or instrumentalities, or corporations.
The principal value of this type of bond is periodically adjusted according to
changes in the rate of inflation. The interest rate is generally fixed at
issuance; however, interest payments are based on an inflation adjusted
principal value. For example, in a period of falling inflation, principal
value will be adjusted downward, reducing the interest payable.
Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation indexed bonds,
even during a period of deflation. However, the current market value of the
bonds is not guaranteed, and will fluctuate. The fund may also invest in other
bonds which may or may not provide a similar guarantee. If a guarantee of
principal is not provided, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.
GROWTH AND INCOME PORTFOLIO AND BOND PORTFOLIO
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.
Bond Portfolio has no current intention (at least during the next 12 months) of
investing in securities rated BB or below by Standard & Poor's ("S&P") and Ba
or below by Moody's Investors Service, Inc. ("Moody's") (commonly known as
"junk" bonds) or unrated but determined to be of equivalent quality by Capital
Research and Management Company ("CRMC"). 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).
High-yield, high-risk bonds rated Ba or below by Standard & Poor's Corporation
or BB or below by Moody's Investors Services, Inc. (or unrated but considered
to be of equivalent quality) are described by the rating agencies as
speculative and involve greater risk of default or price changes due to changes
in the issuer's creditworthiness than higher rated bonds, or they may already
be in default. The market prices of these securities may fluctuate more than
higher quality securities and may decline significantly in periods of general
economic difficulty. It may be more difficult to dispose of or to determine
the value of high-yield, high-risk bonds.
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, but there can be no assurance that it will be successful doing
so.
Credit ratings evaluate the safety of principal and interest payments, not the
market value risk of bonds. The rating of an issuer is also heavily weighted
by past developments and does not necessarily reflect probably future
conditions. There is frequently a lag between the tim a rating is assigned and
the time it is updated. Consequently, Capital Research and Management Company
monitors the issuers of bonds held by the portfolios to determine if the
issuers will have sufficient cash flow and profits to meet required principal
and interest payments, and to assure the bonds' liquidity.
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. For these securities, the payment of
principal and interest is unconditionally guaranteed by the U.S. Government,
and thus they are of the highest possible credit quality. Such securities are
subject to variations in market value due to fluctuations in interest rates,
but, if held to maturity, will be paid in full.
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. These agencies and instrumentalities include, but
are not limited to, Federal Land Banks, Farmers Home Administration, Central
Bank for Cooperatives, and Federal Intermediate Credit Banks.
INVESTING IN VARIOUS COUNTRIES -- Investing outside the U.S. 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; expropriation or confiscatory taxation; 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 Capital Research and
Management Company, investing outside the U.S. also can reduce certain
portfolio risks due to greater diversification opportunities.
The risks described above are potentially heightened in connection with
investments in developing countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a low per capita
gross national product. For example, political and/or economic structures in
these countries may be in their infancy and developing rapidly. Historically,
the markets of developing countries have been more volatile than the markets of
developed countries. The funds may only invest in securities of issuers in
developing countries to a limited extent.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. The funds 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 U.S., and the
fund will bear certain expenses in connection with its currency transactions.
Furthermore, increased custodian costs may be associated with the maintenance
of assets in certain jurisdictions.
CASH EQUIVALENTS -- The funds invest in various high-quality money market
instruments that mature, or may be redeemed or resold, in 13 months or less (25
months in the case of U.S. government securities). These include: (1)
commercial paper (notes issued by corporations or governmental bodies); (2)
certificates of deposit and bankers' acceptances (time drafts on a commercial
bank where the bank accepts an irrevocable obligation to pay at maturity); (3)
savings association and bank obligations; (4) securities of the U.S.
Government, its agencies or instrumentalities; and (5) corporate bonds and
notes.
CURRENCY TRANSACTIONS -- The funds have the ability to enter into forward
currency contracts to protect against changes in currency exchange rates
(although Growth and Income Portfolio has no current intention to do so).
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 funds will involve
the purchase or sale of a currency against the U.S. dollar. The funds 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.
While entering into forward currency transactions could minimize risk of loss
due to a decline in the value of the hedged currency, it could also limit any
potential gain which might result from an increase in the value of the
currency. The fund will not generally attempt to protect against all potential
changes in exchange rates.
Certain provisions of the Internal Revenue Code may affect the extent to which
the funds 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.
RESTRICTED SECURITIES AND LIQUIDITY -- The funds may purchase securities
subject to restrictions on resale. All such securities not actively traded
will be considered illiquid unless they have been specifically determined to be
liquid under procedures adopted by the funds' board of trustees taking into
account factors such as 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 illiquid securities.
REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements
(although Growth and Income Portfolio has no current intention to do so), under
which the funds buy a security and obtain a simultaneous commitment from the
seller to repurchase the security at a specified time and price. The seller
must maintain with the funds' custodian collateral equal to at least 100% of
the repurchase price including accrued interest as monitored daily by Capital
Research and Management Company. 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
Capital Research and Management Company. 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.
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 objectives of the funds. 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. The funds do not anticipate that their portfolio turnovers will
exceed 100% annually. A fund's portfolio turnover rate would equal 100% if each
security in either fund's portfolio were replaced once per year.
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'
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.) Investment limitations expressed in the
following restrictions are considered at the time securities are purchased and
are based on the funds' net assets unless otherwise indicated. 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 or calls.
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 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 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.
TRUST ORGANIZATION AND VOTING RIGHTS
Endowments, Inc., the predecessor to the Growth and Income Portfolio, was
organized as a Delaware corporation in 1969; Bond Portfolio for Endowments,
Inc., the predecessor to the Bond Portfolio, was organized as a Delaware
corporation in 1970. Each fund is now 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.
The funds do not hold annual meetings of shareholders. However, significant
matters that require shareholder approval, such as certain elections of board
members or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. 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.
As of August 31, 1999, the following shareholders owned 5% or more of the
funds' outstanding shares:
Growth and Income Portfolio -- California Institute of the Arts (24700 McBean
Parkway, Valencia, CA 91355) (540.441 shares, 14.42%); Citizens' Scholarship
Foundation of America (1505 Riverview Road, P.O. Box 297, St. Peter, MN 56082)
(300,909 shares, 8.03%); Foundation for Reproductive Research and Education
(333 E. Superior Street, Prentice 490, Chicago, IL 60611) (198,110 shares,
5.29%); Hudson Institute, 5395 Emerson Way (P.O. Box 26919, Indianapolis, IN
46226) (212,584 shares, 5.67%); Loyola Marymount University (7900 Loyola
Boulevard, Los Angeles, CA 90045) (217,502 shares, 5.80%); and Richard and Mary
Solari Charitable Trust (P.O. Box 40, Capitola, CA 95010) (188,639 shares,
5.03%).
Bond Portfolio -- California Institute for the Arts (24700 McBean Parkway,
Valencia, CA 91355) (514,168 shares, 26.47%); Citizens' Scholarship of America
(1505 Riverview Road, P.O. Box 297, St. Peter, MN 56082) (160,991 shares,
8.29%); Foundation for Reproductive Research and Education (333 E. Superior
Street, Prentice 490, Chicago, IL 60611) (95,518 shares, 5.07%); and Hudson
Institute, 5395 Emerson Way, (P.O. Box 26919, Indianapolis, IN 46226) (187,068
shares, 9.63%). As California Institute of the Arts owns in excess of 25% of
the voting shares of the fund, it is, pursuant to the Investment Company Act of
1940, 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, CA 94120 or by calling
415/393-7105.
MANAGEMENT OF THE TRUST
All fund operations are supervised by the Trust's board of trustees who meet
periodically and perform dutieis required by applicable state and federal laws.
The Trustees and officers of the Trust are listed below.
Trustees and Officers
(with their principal occupations for the past five years#)
TRUSTEES
ROBERT B. EGELSTON*, 333 South Hope Street, Los Angeles, CA 90071, Age: 68.
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: 56.
President and Trustee. Vice President, Capital Research and Management Company;
former President, Independent Colleges of Southern California.
STEVEN D. LAVINE, 24700 McBean Parkway, Valencia, CA 91355, Age: 52. Trustee.
President, California Institute of the Arts.
PATRICIA A. McBRIDE, 4933 Mangold Circle, Dallas, TX 75229, Age: 56. Trustee.
Chief Financial Officer, Kevin L. McBride, D.D.S., Inc.
GAIL L. NEALE, 154 Prospect Parkway, Burlington, VT 05401, Age: 64. Trustee.
President, The Lovejoy Consulting Group, Inc.
CHARLES R. REDMOND, 2198 Fairhurst Drive, La Canada, CA 91011, Age: 73.
Trustee. Former Chairman, Pfaffinger Foundation and former President and Chief
Executive Officer, Times Mirror Foundation.
THOMAS E. TERRY*, 333 South Hope Street, Los Angeles, CA 90071, Age: 61.
Trustee. Consultant; former Vice President and Secretary, Capital Research and
Management Company (retired 1994).
ROBERT C. ZIEBARTH, P.O. Box 2156, Ketchum, ID 83340, Age: 63. Trustee.
Management Consultant, Ziebarth Company.
All of the officers listed are officers or employees of the investment adviser
or affiliated companies. The Trust does not pay any salaries or fees to its
trustees or officers. However, the Trust reimburses certain expenses of the
trustees who are not affiliated with the investment adviser.
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 55 Senior Vice Senior Vice President and
P.O. Box 7650 President Director, Capital Research
San Francisco, CA 94120 and Management Company
Abner D. Goldstine 69 Senior Vice Senior Vice President and
11100 Santa Monica Blvd. President Director, Capital Research
Los Angeles, CA 90025 and Management Company
Claudia P. Huntington 47 Vice President Vice President, Capital
333 South Hope Street (Growth and Research and Management
Los Angeles, CA 90071 Income Portfolio) Company
John H. Smet 43 Vice President Vice President, Capital
11100 Santa Monica Blvd. (Bond Portfolio) Research and Management
Los Angeles, CA 90025 Company
Patrick F. Quan 41 Secretary Vice President, Fund
P.O. Box 7650 Business Management Group,
San Francisco, CA 94120 Capital Research and
Management Company
Anthony W. Hynes 36 Treasurer Vice President, Fund
135 South State College Blvd. Business Management Group,
Brea, CA 92821 Capital Research and
Management Company
Susi M. Silverman 29 Assistant Assistant Vice President,
135 South State College Blvd. Treasurer Fund Business Management
Brea, CA 92821 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 basis of his affiliation with Capital Research and
Management Company, the funds' investment adviser.
All of the officers listed are officers or employees of Capital Research and
Management Company 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, Asia Society California Center, Cultural Policy
Network Project of the Center for Arts and Culture, KCET Public Broadcasting,
KCRW-FM National Public Radio, Los Angeles County Museum of Art, Los Angeles
Philharmonic Association, The Music Center Operating Company, The Music Center
of Los Angeles County; Patricia A. McBride - Commemara Conservancy Foundation,
Dallas Museum of Art League, Dallas Symphony Orchestra Association, Dallas
Symphony Orchestra League, Dallas Women's Foundation, Girl Scout Council, Inc.,
Eugene and Margaret McDermott Art Fund, St. Mark's School of Texas, Southwest
Museum of Science and Technology; Gail L. Neale - Concern for Dying, The Flynn
Theater, The Frances Clark Center for Keyboard Pedagogy, National Advisory
Council, Hampshire College, The JL Foundation, Shelburne Farms, The United Way,
The Vera Institute of Justice; Thomas E. Terry - Academy of Arts and Sciences,
Citizens' Scholarship Foundation of America, Edgewood High School, Elvehjem
Museum of Art, Ketchum YMCA, Madison Community Foundation, Madison Opera, Inc.,
National Football Scholarship Foundation, Ten Chimneys Foundation, Waisman
Center--University of Wisconsin; Charles R. Redmond - AMAN Folk Ensemble,
Catholic Charities of the Archdiocese of Los Angeles, Immaculate Heart High
School, Loyola Marymount University, Los Angeles Urban League, The Music Center
of Los Angeles County, A Noise Within, 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.
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. Capital Research and
Management Company is located at 333 South Hope Street, Los Angeles, CA 90071,
and at 135 South State College Boulevard, Brea, CA 92821. Capital Research and
Management Company's research professionals travel several million miles a
year, making more than 5,000 research visits in more than 50 countries around
the world. Capital Research and Management Company believes that it is able to
attract and retain quality personnel. The Investment Adviser is a wholly owned
subsidiary of The Capital Group Companies, Inc.
An affiliate of Capital Research and Management Company 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.
Capital Research and Management Company is responsible for managing more than
$200 billion of stocks, bonds and money market instruments and serves over
eight 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 Agreements (the "Agreements") between the Trust, on behalf of Growth
and Income Portfolio and Bond Portfolio, and Capital Research and Management
Company, dated July 31, 1998, and approved by the shareholders on July 21,
1998, was amended by the Board of Directors effective on July 28, 1999. Its
renewal was approved by the unanimous vote of the Board of Trustees of the
funds on May 5, 1999. The Agreement will be in effect until the close of
business on July 27, 2000 and 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
Investment Company Act of 1940) 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 Agreements also provide that either party has the right to terminate them
without penalty, upon 60 days' written notice to the other party, and that the
Agreements automatically terminates in the event of their assignment (as
defined in said Act). The Agreements are 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.
Capital Research and Management Company, 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 Capital Research and Management
Company, 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 Capital Research
and Management Company; 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 average daily net assets up to $150,000,000
and 4/10 of 1% of the portion of such average daily net assets over
$150,000,000.
The Agreements provide for an advisory fee reduction to the extent that a
fund's annual ordinary operating expenses exceed 0.75% of the average net
assets of the fund. 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.
During the years ended 1999, 1998 and 1997, Capital Research and Management
Company received from Growth and Income Portfolio advisory fees of $236,741,
$235,598 and $276,008, and from Bond Portfolio advisory fees of $148,454,
$154,762 and $177,223, respectively.
DIVIDENDS, DISTRIBUTIONS AND 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 necessarily apply
or 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 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.
DIVIDENDS - The Trust (including each fund) intends to follow the practice of
distributing substantially all of its investment company taxable income which
includes any excess of net realized short-term gains over net realized
long-term capital losses. The funds may follow the practice of distributing
the entire excess of net realized long-term capital gains over net realized
short-term capital losses. However, the funds may retain all or part of such
gain for reinvestment, after paying the related federal taxes for which
shareholders may then be able to claim a credit against their federal tax
liability. If either fund does not distribute the amount of capital gain
and/or net investment income required to be distributed by an excise tax
provision of the Code, it may be subject to that excise tax. In certain
circumstances, the funds may determine that it is in the interest of
shareholders to distribute less than the required amount. In this case, the
funds will pay any income or excise taxes due.
The funds intend to distribute its investment company taxable income, including
any net short-term capital gains in excess of net long-term capital losses, and
any net capital gains realized during each fiscal year. Additional
distributions may be made, if necessary.
Dividends will be reinvested in shares of either fund unless shareholders
indicate in writing that they wish to receive them in cash or in shares of
funds in The American Funds, as provided in the prospectus.
TAXES - The Trust (including each fund) intends to elect to be treated as a
regulated investment company under Subchapter M of the Code. A regulated
investment company qualifying under Subchapter M of the Code is required to
distribute to its shareholders at least 90% of its investment company taxable
income (including the excess of net short-term capital gain over net long-term
capital losses) and generally is not subject to federal income tax to the
extent that it distributes annually its investment company taxable income and
net realized capital gains in the manner required under the Code. Each fund
intends to distribute annually all of its investment company taxable income and
net realized capital gains and therefore does not expect to pay federal income
tax, although in certain circumstances either fund may determine that it is in
the interest of shareholders to distribute less than that amount.
The funds will be subject to a 4% nondeductible excise tax on amounts required
to be but not distributed under a prescribed formula. The formula requires a
fund to distribute to shareholders for a calendar year an amount equal to at
least 98% of the fund's ordinary income for that calendar year, at least 98% of
the excess of its capital gains over capital losses realized during the
one-year period ending October 31 during such year, and all ordinary income and
capital gains for prior years that were not previously distributed.
Investment company taxable income generally includes dividends, interest, net
short-term capital gains in excess of net long-term capital losses, and certain
foreign currency gains, if any, less expenses and certain foreign currency
losses, if any. Net capital gains for a fiscal year are computed by taking
into account any capital loss carry-forward of a fund.
If any net long-term capital gains in excess of net short-term capital losses
are retained by either fund for reinvestment, requiring federal income taxes to
be paid thereon by a fund, the fund intends to elect to treat such capital
gains as having been distributed to shareholders. As a result, each
shareholder will report such capital gains as long-term capital gains taxable
to individual shareholders at a maximum 20% capital gains rate, will be able
to claim a pro rata share of federal income taxes paid by the fund on such
gains as a credit against personal federal income tax liability, and will be
entitled to increase the adjusted tax basis on fund shares by the difference
between a pro rata share of the retained gains and their related tax credit.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income.
Distributions of the excess of net long-term capital gains over net short-term
capital losses which the fund properly designates as "capital gain dividends"
generally will be taxable to individual shareholders at a maximum 20% capital
gains rate, regardless of the length of time the shares of the fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less from the date of their
purchase will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain during such
six-month period.
Distributions of investment company taxable income and net realized capital
gains to individual shareholders will be taxable as described above, whether
received in shares or in cash. Shareholders electing to receive distributions
in the form of additional shares will have a cost basis for federal income tax
purposes in each share so received equal to the net asset value of a share on
the reinvestment date.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder subject to tax on its federal income tax return. Dividends and
capital gains distributions declared in October, November or December and
payable to shareholders of record in such a month will be deemed to have been
received by shareholders on December 31 if paid during January of the following
year. Redemptions of shares, including exchanges for shares of a fund in The
American Funds, may result in tax consequences (gain or loss) to the
shareholder and must also be reported on the shareholder's federal income tax
return.
Dividends from domestic corporations are expected to comprise some portion of
the funds' gross income. To the extent that such dividends constitute any of
either fund's gross income, a portion of the income distributions of the fund
will be eligible for the deduction for dividends received by corporations.
Shareholders will be informed of the portion of dividends which so qualify.
The dividends-received deduction is reduced to the extent that either the fund
shares, or the underlying shares of stock held by the fund, with respect to
which dividends are received, are treated as debt-financed under federal income
tax law and is eliminated if the shares are deemed to have been held by the
shareholder or the fund, as the case may be, for less than 46 days.
Distributions by the funds result in a reduction in the net asset value of the
funds' shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to
the shareholder as ordinary income or capital gain as described above, even
though, from an investment standpoint, it may constitute a partial return of
investment capital. For this reason, investors should consider the tax
implications of buying shares just prior to a distribution. The price of
shares purchased at that time includes the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then receive
a partial return of investment capital upon the distribution, which will
nevertheless be taxable to them.
Dividend and interest income received by the funds from sources outside the
U.S. may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may
reduce or eliminate these foreign taxes, however. Most foreign countries do
not impose taxes on capital gains in respect of investments by foreign
investors.
The fund may make the election permitted under Section 853 of the Code so that
shareholders may (subject to limitations) be able to claim a credit or
deduction on their federal income tax returns for, and will be required to
treat as part of the amounts distributed to them, their pro rata portion of
qualified taxes paid by the Fund to foreign countries (which taxes relate
primarily to investment income). The fund may make an election under Section
853 of the Code, provided that more than 50% of the value of the total assets
of the fund at the close of the taxable year consists of securities in foreign
corporations. The foreign tax credit available to shareholders is subject to
certain limitations imposed by the Code.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the funds accrue receivables or liabilities
denominated in a foreign currency and the time the funds actually collect such
receivables, or pay such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in
a foreign currency and on disposition of certain futures contracts, forward
contracts and options, gains or losses attributable to fluctuations in the
value of foreign currency between the date of acquisition of the security or
contract and the date of disposition are also treated as ordinary gain or loss.
These gains or losses, referred to under the Code as "Section 988" gains or
losses, may increase or decrease the amount of either fund's investment company
taxable income to be distributed to its shareholders as ordinary income.
A portion of the difference between the issue price of zero coupon securities
and their face value ("original issue discount") is considered to be income to
the fund each year, even though the fund will not receive cash interest
payments from these securities. This original issue discount (imputed income)
will comprise a part of the investment company taxable income of the fund which
must be distributed to shareholders in order to maintain the qualification of
the fund as a regulated investment company and to avoid federal income tax at
the level of the fund. Shareholders will be subject to income tax on such
original issue discount, whether or not they elect to receive their
distributions in cash.
If either fund invests in stock of certain passive foreign investment
companies, the fund may be subject to U.S. federal income taxation on a portion
of any "excess distribution" with respect to, or gain from the disposition of,
such stock. The tax would be determined by allocating such distribution or
gain ratably to each day of the fund's holding period for the stock. The
distribution or gain so allocated to any taxable year of the fund, other than
the taxable year of the excess distribution or disposition, would be taxed to
the fund at the highest ordinary income rate in effect for such year, and the
tax would be further increased by an interest charge to reflect the value of
the tax deferral deemed to have resulted from the ownership of the foreign
company's stock. Any amount of distribution or gain allocated to the taxable
year of the distribution or disposition would be included in the fund's
investment company taxable income and, accordingly, would not be taxable to the
fund to the extent distributed by the fund as a dividend to its shareholders.
To avoid such tax and interest, the funds intend to elect to treat these
securities as sold on the last day of its fiscal year and recognize any gains
for tax purposes at that time. Under this election, deductions for losses are
allowable only to the extent of any prior recognized gains, and both gains and
losses will be treated as ordinary income or loss. The funds will be required
to distribute any resulting income, even though they have not sold the security
and received cash to pay such distributions.
The funds will be required to report to the IRS all distributions of investment
company taxable income and capital gains as well as gross proceeds from the
redemption or exchange of fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of investment company taxable income and capital gains and
proceeds from the redemption or exchange of the shares of a regulated
investment company may be subject to withholding of federal income tax at the
rate of 31% in the case of non-exempt U.S. shareholders who fail to furnish the
investment company with their taxpayer identification numbers and with required
certifications regarding their status under the federal income tax law.
Withholding may also be required if the fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of the funds may be subject to state and local taxes on
distributions received from the fund and on redemptions of the fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year fund shareholders will
receive a statement of the federal income tax status of all distributions.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, I.E., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on dividend income received
by him or her.
Shareholders should consult their tax advisers about the application of the
provisions of tax law described in this statement of additional information in
light of their particular 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 4:00 p.m., New York time each day the
New York Stock Exchange is open. For example, if the Exchange closes at 1:00
p.m. on one day and at 4:00 p.m. on the next, the funds' share prices would be
determined as of 4:00 p.m. New York time on both days. 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 do not
always indicate the 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, other than the money market funds, 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 Capital Research and Management Company 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 Capital Research and Management
Company 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 non-U.S. 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. Purchases and sales
of securities and income and expenses are translated into U.S. dollars at the
prevailing market rates on the dates of such transactions. The effects of
changes in non-U.S. currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith 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 quality of executions. When, in the opinion of the Investment Adviser, two
or more brokers (either directly or through their correspondent clearing
agents) are in a position to obtain the best price and execution, preference
may be given to brokers who have provided investment research, statistical, or
other related services to 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, including dealer
concessions on underwritings, during the fiscal years ended July 31, 1999, 1998
and 1997, amounted to $42,000, $37,000 and $61,000 for Growth and Income
Portfolio. There are no brokerage commissions paid on portfolio transactions
for Bond Portfolio.
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. The custodian may hold non-U.S. securities
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 Annual Report have been so included in reliance on the reports of Deloitte
& Touche LLP given on the authority of said firm as experts in auditing and
accounting. The selection of the fund's independent auditor is reviewed and
determined annually by the Board of Trustees.
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. The fund's
annual financial statements are audited by the funds' independent auditors,
Deloitte & Touche LLP.
YEAR 2000 -- The funds and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The funds understand that
these service providers are taking steps to address the "Year 2000 problem".
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the fund. In addition, the funds' investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the funds invest could experience settlement problems and
liquidity issues. Corporate and governmental data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings of
individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.
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 holding a majority of
the votes entitled to be case, 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 Trust has agreed, at the request of
the staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of trustees as though
the Trust were a common-law trust. 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 AND RELATED STATISTICS
Growth and Income Portfolio's yield was 2.70% and Bond Portfolio's yield was
6.21% based on a 30-day (or one month) period ended July 31, 1999, 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.
(Growth and Income Portfolio and Bond Portfolio do not have a sales charge.)
Growth and Income Portfolio's average annual total return for the one-, five-
and ten-year periods ended on July 31, 1999 was +18.21%, +19.09% and +14.15%,
respectively. Bond Portfolio's average annual total return for the one-, five-
and ten-year periods ended on July 31, 1999 was +1.75%, +6.66% and +7.88%,
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, in advertisements or in reports furnished to present or
prospective shareholders, 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 the Growth and
Income Portfolio and the Lehman Aggregate Bond Index for Bond Portfolio) or
results of other mutual funds or investment or savings vehicles.
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 and surveys 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 and DJIA/1/ S&P 500/2/ Lipper Growth
8/1 - 7/31 Income and Income/3/
Portfolio
<S> <C> <C> <C> <C>
1989 - 1999 +276% +423% +395% +276%
1988 - 1998 +291% +458% +443% +320%
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>0
Bond Portfolio vs. Various Unmanaged Indices
<TABLE>
<CAPTION>
Lehman Lipper Average of
10-Year Bond Brothers Corporate A-Rated
8/1 - 7/31 Portfolio Aggregate/4/ Debt Funds/5/
<S> <C> <C> <C>
1989 - 1999 +114% +113% +106%
1988 - 1998 +139% +140% +134%
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 investment would
this many have been worth
years ago. . . this much at
7/31/99
| |
<S> <C> <C>
Number Periods
of Years 8/1 - 7/31 Value
1 1998 - 1999 $59,104.48
2 1997 - 1999 64,455.77
3 1996 - 1999 89,205.93
4 1995 - 1999 100,994.65
5 1994 - 1999 119,750.54
6 1993 - 1999 123,067.95
7 1992 - 1999 135,433.85
8 1991 - 1999 156,757.08
9 1990 - 1999 180,318.89
10 1989 - 1999 187,760.00
11 1988 - 1999 231,358.97
12 1987 - 1999 226,021.18
13 1986 - 1999 271,478.79
14 1985 - 1999 340,892.77
15 1984 - 1999 444,661.21
16 1983 - 1999 443,148.59
17 1982 - 1999 691,391.75
18 1981 - 1999 665,962.43
19 1980 - 1999 767,418.37
20 1979 - 1999 899,617.84
21 1978 - 1999 991,388.14
22 1977 - 1999 1,093,145.31
23 1976 - 1999 1,164,000.76
24 1975#- 1999 1,477,674.24
</TABLE>
# From July 26, 1975
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
If you had . . . and had taken
invested $50,000 all dividends and
in Bond Portfolio this many capital gain
years ago . . . distributions
in shares, your
investment would
have been worth
this much at
7/31/99
Number Periods
of Years 8/1 - 7/31 Value
<S> <C> <C>
1 1998 - 1999 $50,873.99
2 1997 - 1999 54,280.62
3 1996 - 1999 60,157.22
4 1995 - 1999 63,917.34
5 1994 - 1999 69,014.11
6 1993 - 1999 68,018.30
7 1992 - 1999 76,004.24
8 1991 - 1999 90,206.50
9 1990 - 1999 99,928.98
10 1989 - 1999 106,779.21
11 1988 - 1999 121,390.65
12 1987 - 1999 131,850.44
13 1986 - 1999 137,670.60
14 1985 - 1999 166,531.21
15 1984 - 1999 200,902.35
16 1983 - 1999 216,885.75
17 1982 - 1999 268,838.77
18 1981 - 1999 318,320.16
19 1980 - 1999 303,749.08
20 1979 - 1999 315,021.30
21 1978 - 1999 337,017.63
22 1977 - 1999 339,486.95
23 1976 - 1999 382,104.23
24 1975#- 1999 428,912.73
</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, 1999)
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
1998 36,558 330,444 380,444 63,946 947,192 238,915 1,250,053
1999 35,534 365,978 415,978 73,572 1,089,781 314,321 1,477,674
</TABLE>
# From July 26, 1975
The dollar amount of capital gain distributions during the period was
$1,174,453.
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, 1999)
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
1998 31,811 342,682 392,682 48,075 31,436 342,033 421,544
1999 27,010 369,692 419,692 45,917 30,025 352,971 428,913
</TABLE>
# From July 26, 1975
The dollar amount of capital gain distributions during the period was $33,339.
EXPERIENCE OF INVESTMENT ADVISER -- The Investment Adviser manages nine growth
and growth-income funds that are at least 10 years old. In the rolling 10-year
periods since January 1, 1968 (138 in all), those funds have had better total
returns than their comparable Lipper indexes in 128 of 138 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.
FINANCIAL STATEMENTS
<TABLE>
Endowments, Growth and Income Portfolio
Investment Portfolio, July 31, 1999
Market Percent
Shares Value Of Net
Equity Securitites Assets
- -------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
ENERGY
ENERGY SOURCES - 4.25%
Atlantic Richfield Co. 7,000 630,438 1.22%
Conoco Inc., Class A 13,000 338,813 0.66
Kerr-McGee Corp. 10,000 515,000 1.00
Ultramar Diamond Shamrock Corp. 30,000 708,749 1.37
UTILITIES: ELECTRIC & GAS - 5.84%
Ameren Corp. 10,000 390,000 0.76
BEC Energy 18,000 767,250 1.49
DPL Inc. 30,000 575,625 1.12
GPU, Inc. 20,000 767,500 1.49
TECO Energy, Inc. 25,000 509,375 0.98
---------- ----------
5,202,750 10.09
---------- ----------
MATERIALS
CHEMICALS - 6.31%
Hercules Inc. 10,000 348,750 0.68
International Flavors & Fragrances Inc. 15,000 679,688 1.32
Monsanto Co. 10,000 391,250 0.76
PPG Industries, Inc. 10,000 596,250 1.15
Praxair, Inc. 15,000 691,875 1.34
Witco Corp. 30,000 549,375 1.06
FOREST PRODUCTS & PAPER - 2.14%
Georgia-Pacific Corp., Timber Group 15,000 370,313 0.72
International Paper Co. (acquired Union Camp Corp.) 8,000 409,000 0.79
Weyerhaeuser Co. 5,000 323,437 0.63
METALS: NONFERROUS - 0.70%
Alcoa Inc. 6,000 359,250 0.70
METALS: STEEL - 1.25%
Allegheny Teledyne Inc. 30,000 643,125 1.25
---------- ----------
5,362,313 10.40
---------- ----------
CAPITAL EQUIPMENT
AEROSPACE & MILITARY TECHNOLOGY - 2.33%
Boeing Co. 15,000 680,625 1.32
Lockheed Martin Corp. 15,000 522,188 1.01
ELECTRICAL & ELECTRONICS - 1.64%
Emerson Electric Co. 7,000 417,813 0.81
Nokia Corp., Class A (ADR) (Finland) 5,000 425,312 0.83
ELECTRONIC COMPONENTS - 1.36%
Corning Inc. 10,000 700,000 1.36
ENERGY EQUIPMENT - 0.70%
Schlumberger Ltd. 6,000 363,375 0.70
INDUSTRIAL COMPONENTS - 2.44%
Eaton Corp. 8,000 791,500 1.54
Genuine Parts Co. 15,000 465,938 0.90
MACHINERY & ENGINEERING - 1.91%
Caterpillar Inc. 7,000 410,375 0.80
Deere & Co. 15,000 573,750 1.11
---------- ----------
5,350,876 10.38
---------- ----------
CONSUMER GOODS
BEVERAGES & TOBACCO - 1.78%
Imperial Tobacco Ltd. (United Kingdom) 35,000 358,108 0.69
Philip Morris Companies Inc. 15,000 558,750 1.09
FOOD & HOUSEHOLD PRODUCTS - 6.09%
Campbell Soup Co. 25,000 1,100,000 2.13
General Mills, Inc. 10,000 828,125 1.61
Sara Lee Corp. 55,000 1,210,000 2.35
HEALTH & PERSONAL CARE - 6.56%
Avon Products, Inc. 15,000 682,500 1.32
Eli Lilly and Co. 7,000 459,375 0.89
Glaxo Wellcome PLC (ADR) (United Kingdom) 15,000 782,813 1.52
Kimberly-Clark Corp. 15,000 915,000 1.77
Merck & Co., Inc. 8,000 541,500 1.06
RECREATION & OTHER CONSUMER PRODUCTS - 1.72%
Pennzoil-Quaker State Co. 60,000 888,750 1.72
---------- ----------
8,324,921 16.15
---------- ----------
SERVICES
BROADCASTING & PUBLISHING - 1.12%
Gannett Co., Inc. 8,000 578,000 1.12
BUSINESS & PUBLIC SERVICES - 2.13%
Browning-Ferris Industries, Inc. 15,000 673,125 1.30
United HealthCare Corp. 7,000 427,000 0.83
LEISURE & TOURISM - 1.20%
Seagram Co. Ltd. (Canada) 12,000 615,750 1.20
MERCHANDISING - 4.63%
Albertson's, Inc. (acquired American Stores Co.) 9,450 469,547 0.91
J.C. Penney Co., Inc. 35,000 1,531,250 2.97
May Department Stores Co. 10,000 386,875 0.75
TELECOMMUNICATIONS - 1.62%
GTE Corp. 2,000 147,375 0.29
U S WEST, Inc. 12,000 687,750 1.33
TRANSPORTATION: RAIL & ROAD - 1.13%
Norfolk Southern Corp. 20,000 585,000 1.13
---------- ----------
6,101,672 11.83
---------- ----------
FINANCE
BANKING - 6.55%
Bank of America Corp. 5,000 331,875 0.64
Bank of Tokyo-Mitsubishi, Ltd. (ADR) (Japan) 25,000 375,000 0.73
Fleet Financial Group, Inc. 10,000 405,000 0.79
Fulton Financial Corp. 27,500 564,180 1.10
Huntington Bancshares Inc. 30,479 918,207 1.78
Wells Fargo & Co. 20,000 780,000 1.51
INSURANCE - 7.56%
Aetna Inc. 5,000 410,000 0.80
Allstate Corp. 20,000 710,000 1.38
Mercury General Corp. 20,000 686,250 1.33
Orion Capital Corp. 25,000 1,189,063 2.31
Royal & Sun Alliance Insurance Group PLC (United Kingdom) 50,000 422,401 0.82
Trenwick Group Inc. 20,000 482,499 0.92
REAL ESTATE - 4.63%
Apartment Investment and Management Co., Class A 10,000 408,125 0.79
Archstone Communities Trust 34,285 739,270 1.43
Boston Properties, Inc. 15,000 513,750 1.00
CCA Prison Realty Trust 25,000 346,875 0.67
Spieker Properties, Inc. 10,000 382,499 0.74
---------- ----------
9,664,994 18.74
---------- ----------
MISCELLANEOUS
Other equity securities in initial period of acquisition 1,704,037 3.30
---------- ----------
TOTAL EQUITY SECURITIES (cost:$39,166,651) 41,711,563 80.89
---------- ----------
Principal
Short Term Securities Amount (000)
Corporate Short-Term Notes - 19.75%
A.I. Credit Corp. 5.03% due 8/25/1999 900 896,856 1.74
Bell Atlantic Network Funding Corp. 5.08% due 8/24/1999 900 896,952 1.74
BellSouth Capital Funding Corp. 5.06% due 9/21/1999 (1) 1,000 992,691 1.93
Coca-Cola Co. 5.06% due 8/26/1999 1,000 996,346 1.93
Eastman Kodak Co. 4.79% due 8/19/1999 620 618,364 1.20
Ford Motor Credit Co. 5.07% due 8/20/1999 1,000 997,183 1.93
General Electric Capital Corp. 5.10% due 8/2/1999 600 599,830 1.16
Motiva Enterprises LLC 5.07% due 8/6/1999 700 699,408 1.36
Motorola Inc. 5.05% due 8/4/1999 800 799,551 1.55
Pfizer Inc. 5.07% due 9/2/1999 (1) 1,000 995,353 1.93
Procter & Gamble Co. 5.10% due 10/21/1999 700 691,656 1.34
Wal-Mart Stores Inc. 5.05% due 8/4/1999 (1) 1,000 999,439 1.94
---------- ----------
TOTAL SHORT-TERM SECURITIES (cost: $10,183,910) 10,183,629 19.75
---------- ----------
TOTAL INVESTMENT SECURITIES (cost: $49,350,561) 51,895,192 100.64
Excess of payables over cash and receivables 332,204 0.64
---------- ----------
NET ASSETS 51,562,988 100.00
========== ==========
(1) Purchased in a private placement transaction;
resale may be limited to qualified institutional buyers;
resale to the public may require registration.
ADR = American Depositary Receipts
See Notes to Financial Statements
</TABLE>
<TABLE>
Endowments, Bond Portfolio
Investment Portfolio, July 31, 1999
Shares or
Principal Market Percent
Amount Value Of Net
BONDS, NOTES & PREFERRED STOCKS (000) Assets
- -------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Industrials - 10.46%
BHP Finance Ltd. 8.50% 2012 $145 155,455 .50%
Ceridian Corp. 7.25% 2004 (1) 250 248,208 .79
Columbia/HCA Healthcare Corp. 8.85% 2007 125 124,375 .40
Comcast Cable Communications, Inc. 8.875% 2017 250 277,495 .88
Equistar Chemicals LP 8.75% 2009 (1) 250 251,445 .80
Hutchison Whampoa Finance Ltd., Series D, 6.988% 2037 (1) 300 275,883 .88
Hyundai Semiconductor America, Inc. 8.625% 2007 (1) 200 158,135 .50
Inco Ltd. 9.60% 2022 700 679,245 2.16
J. C. Penney Co., Inc. 7.95% 2017 200 198,580 .63
Petrozuata Finance, Inc., Series A, 7.63% 2009 (1) 250 208,795 .66
Scotia Pacific Co. LLC, Timber Collateralized Notes, Series B:
Class A-1, 6.55% 2028 (2) 237 214,043 1.26
Class A-3, 7.71% 2028 250 182,500
TRW Inc. 7.125% 2009 (1) 125 120,551 .38
Union Pacific Resources Group Inc. 7.30% 2009 200 193,218 .62
---------- ----------
3,287,928 10.46
---------- ----------
Electric Utilities - .88%
Israel Electric Corp. Ltd.: (1)
7.75% 2009 125 122,870
7.75% 2027 175 154,256 .88
---------- ----------
277,126 0.88
---------- ----------
Multi-Industry - 2.04%
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed 10,000 shares 201,250 0.64
perpetual capital securities (1)
Wharf International Finance Ltd., Series A, 7.625% 2007 $500 440,459 1.40
---------- ----------
641,709 2.04
---------- ----------
Telecommunications - 2.97%
Bell Atlantic Financial Services, Inc., Senior Exchangeable Notes:
5.75% 2003 250 251,875 1.33
4.25% 2005 150 166,500
Sprint Capital Corp. 6.875% 2028 375 337,181 1.07
U S WEST Capital Funding, Inc. 6.50% 2018 200 177,808 .57
---------- ----------
933,364 2.97
---------- ----------
Transporation - 8.46%
Airplanes Pass Through Trust, pass-through certificates, 1,222 1,173,485 3.73
Series 1, Class C, 8.15% 2019 (2)
Continental Airlines, Inc., pass-through certificates, 125 116,074 .37
Series 1998-3, Class A-2, 6.32% 2008
Jet Equipment Trust, Series 1994-A, Class C1, 11.79% 2013 (1) 750 933,345 2.97
USAir, Inc., Enhanced Equipment Notes, Class B, 7.50% 2009 (2) 460 438,462 1.39
---------- ----------
2,661,366 8.46
---------- ----------
Financial - 8.44%
Abbey National PLC 6.70% (undated)(3) 250 229,975 .73
BNP U.S. Funding LLC, Series A, 7.738% noncumulative preferred (1), (3) 500 462,714 1.47
Chase Capital I, Capital Securities, Series A, 7.67% 2026 250 235,670 .75
Ford Motor Credit Co. 5.80% 2009 150 134,852 .43
Household Finance Corp. 6.40% 2008 250 234,060 .74
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative 250 211,250 .67
preferred (1), (3)
MBNA Corp., MBNA Capital A, Series A, 8.278% 2026 300 273,714 .87
NB Capital Corp. 8.35% exchangeable depositary shares 10,000 shares 246,250 .78
Newcourt Credit Group 6.875% 2005 (1) $150 143,523 .46
SocGen Real Estate Co. LLC, Series A, 7.64%/8.406% (undated) (1), (3) 250 234,643 .75
Washington Mutual Capital I Subordinated Capital 250 246,643 .79
Income Securities 8.375% 2027
---------- ----------
2,653,294 8.44
---------- ----------
Real Estate - .38%
ProLogis Trust 7.05% 2006 125 118,536 .38
---------- ----------
Collaterized Mortgage/Asset-Backed Obligations(2) - 13.19%
Boston Edison Co., Series 1999-1, Class A-5, 7.03% 2012 200 196,940 .63
Chase Commercial Mortgage Securities Corp., Series 1998-2, 250 235,669 .75
Class A-2, 6.39% 2030
CS First Boston Mortgage Securities Corp., Series 1998-C1, 231 225,338 .72
Class A-1A, 6.26% 2040
First Consumer Master Trust, Series 1999-A, Class A, 5.80% 2005 (1) 250 237,300 .76
GMAC Commercial Mortgage Securities, Inc., Series 125 121,984 .39
1997-C1, Class A3, 6.869% 2007
GS Mortgage Securities Corp. II, Mortgage Pass-Through
Certificates, Series 1998-C1: (3)
Class D, 7.243% 2030 250 224,631 1.43
Class E, 7.243% 2030 250 221,700
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 2026 (1) 325 304,363 .97
Merrill Lynch Mortgage Investors, Inc., 154 154,638 .49
Seller Manufactured Housing Contracts, Series 1995-C2,
Class A-1, 6.973% 2021 (3)
Morgan Stanley Capital I Inc., Series 1998-HF2, Class A-2, 6.48% 2030 500 475,893 1.51
Nomura Asset Securities Corp., Series 1998-D6, Class A-A1, 6.28% 2030 226 221,293 .70
Norwest Asset Securities Corp., Series 1998-31, Class A-1, 6.25% 2014 230 224,814 .72
PP&L Transition Bond Co. LLC, Series 1999-1, Class A-5, 6.83% 2007 250 249,603 1.58
PP&L Transition Bond Co. LLC, Series 1999-1, Class A-7, 7.05% 2009 250 249,538
Puerto Rico Public Financing Corp., Series 1, Class A, 6.15% 2008 236 230,544 .73
Sears Credit Account Master Trust II, Series 1998-2, Class A, 5.25% 2008 250 236,639 .75
Structured Asset Securities Corp., pass-through certificates: (3)
Series 1996-CFL, Class A2A, 7.75% 2028 4 4,058 1.06
Series 1998-RF2, Class A, 8.564% 2027 (1) 324 330,906
---------- ----------
4,145,851 13.19
---------- ----------
Governments (excluding U.S. Government) &
Governmental Authorities - 3.35%
Quebec (Province of) 13.25% 2014 1,000 1,053,820 3.35
---------- ----------
Federal Agency Obligations - Mortgage Pass-Throughs (2) - 14.85%
Fannie Mae:
7.00% 2012 178 177,570
9.00% 2020 121 127,427 3.36
7.00% 2026 424 415,389
5.812% 2033 (3) 345 338,710
Freddie Mac:
8.75% 2008 69 71,289
12.50% 2019 30 33,808 .56
9.00% 2020 66 69,768
Government National Mortgage Assn.:
8.50% 2008 210 220,149
10.00% 2019 194 212,140
7.50% 2023 189 189,359
8.00% 2023 761 775,777
7.00% 2024 367 358,429 10.93
7.50% 2024 371 371,348
7.00% 2025 629 614,792
6.00% 2029 249 229,790
7.00% 2029 475 462,611
---------- ----------
4,668,356 14.85
---------- ----------
Federal Agency Obligations - Other - 3.63%
Fannie Mae 5.25% 2009 250 224,728 .71
Federal Home Loan Bank Bonds 5.625% 2001 250 248,710 .79
Freddie Mac 5.125% 2008 750 668,790 2.13
---------- ----------
1,142,228 3.63
---------- ----------
U.S. Treasury Obligations - 19.37%
11.625% November 2002 500 584,685
11.625% November 2004 1,275 1,593,954
10.375% November 2012 1,825 2,300,066 19.37
8.875% August 2017 1,275 1,610,285
---------- ----------
6,088,990 19.37
---------- ----------
Miscellaneous - 1.08%
Other bonds, notes & preferred stocks in initial period of acquisition 338,750 1.08
---------- ----------
Total Bonds, Notes & Preferred Stocks (cost: $29,511,340) 28,011,318 89.10
---------- ----------
SHORT TERM SECURITIES
- --------------------------------------------
Corporate Short-Term Notes - 11.86%
A.I. Credit Corp. 5.03% due 8/25/1999 600 597,904 1.90
Bell Atlantic Network Funding Corp. 5.08% due 8/24/1999 650 647,799 2.06
General Electric Capital Corp. 5.10% due 8/2/1999 685 684,806 2.18
Motorola Inc. 5.05% due 8/4/1999 800 799,551 2.54
Paccar Financial Corp. 5.06% due 8/13/1999 1,000 998,173 3.18
---------- ----------
Total Short-Term Securities (cost: $3,728,233) 3,728,233 11.86
---------- ----------
Total Investment Securities (cost: $33,239,573) 31,739,551 100.96
Excess of payables over cash and receivables 301,111 0.96
---------- ----------
NET ASSETS 31,438,440 100.00
(1) Purchased in a private placement transaction; resale
may be limited to qualified institutional buyers; resale
to the public may require registration.
(2) Pass-through securities backed by a pool of
mortgages or other loans on which principal payments
are periodically made. Therefore, the
effective maturities are shorter than the stated maturities.
(3) Coupon rate may change periodically.
See Notes to Financial Statements
</TABLE>
<TABLE>
Endowments
Statements of Assets and Liabilities
at July 31, 1999 Growth and Income Bond Portfolio
Portfolio
Assets:
<S> <C> <C>
Investment securities at market
(cost: $49,350,561 and $33,239,573, respectively $51,895,192 $31,739,551
Cash 50,719 61,372
Receivables for-
Sales of investments - 6,441
Sales of fund's shares 9,399 6,266
Dividends and accrued interest 86,942 413,808
------------ ------------
Total Assets 52,042,252 32,227,438
------------ ------------
Liabilities:
Payables for -
Purchases of investments 422,279 745,630
Management services 28,481 14,968
Accrued expenses 28,504 28,400
------------ ------------
Total Liabilities 479,264 788,998
------------ ------------
Net Assets at July 31, 1999 $51,562,988 $31,438,440
============= =============
Shares outstanding(1) 3,706,660 1,944,188
Net asset value per share $ 13.91 $ 16.17
(1)Shares of beneficial interest issued and outstanding;
unlimited shares authorized.
See Notes to Financial Statements
Endowments
Statements of Operations
for the year ended July 31, 1999 Growth and IncomBond Portfolio
Portfolio
Investment Income:
Income:
Dividends $ 1,177,592 $ 42,974
Interest 536,491 2,215,113
------------ ------------
Total Income 1,714,083 2,258,087
------------ ------------
Expenses:
Management services fee 236,741 148,454
Reports to shareholders 17,831 16,425
Registration statement and prospectus 16,448 8,434
Postage, stationery and supplies 4,587 5,452
Auditing fees 36,502 33,970
Legal fees 24,405 25,909
Trustees' meeting expenses 20,112 20,112
Custodian fee 1,132 569
Taxes other than federal income tax 4,094 14,837
Other expenses 10,864 9,330
------------ ------------
Total expenses before reimbursement 372,716 283,492
Reimbursement of expenses 17,655 60,812
------------ ------------
Net Expenses 355,061 222,680
------------ ------------
Net investment income 1,359,022 2,035,407
------------ ------------
Realized Gain and Change in Unrealized
(Depreciation) Appreciation on Investments:
Net realized gain (loss) 3,548,696 (81,253)
Net change in unrealized (depreciation)
appeciation on investments 3,069,731 (1,472,279)
------------ ------------
Net realized gain and change in unrealized
(depreciation) appreciation on investments 6,618,427 (1,553,532)
------------ ------------
Net Increase in Net Assets Resulting
from Operations $ 7,977,449 $ 481,875
============= =============
See Notes to Financial Statements
Endowments, Growth and Income Portfolio
Statement of Changes in Net Assets
Year ended July 31
1999 1998
Operations:
Net investment income $ 1,359,022 $ 1,259,180
Net realized gain on investments 3,548,696 13,791,367
Net unrealized appreciation (depreciation)
on investments 3,069,731 (10,940,194)
------------ ------------
Net increase in net assets resulting
from operations 7,977,449 4,110,353
------------- -------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (1,251,179) (1,382,106)
Distributions from net realized
gain on investments - (26,584,691)
------------- -------------
Total dividends and distributions (1,251,179) (27,966,797)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
428,901 and 180,191
shares, respectively 5,431,127 3,165,176
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
71,284 and 1,930,591 shares,
respectively 890,752 27,173,082
Cost of shares repurchased:
362,633 and 647,743
shares, respectively (4,626,061) (11,068,403)
------------- -------------
Net increase in net assets
resulting from capital share transactions 1,695,818 19,269,855
------------- -------------
Total Increase (Decrease) in Net Assets 8,422,088 (4,586,589)
Net Assets:
Beginning of year 43,140,900 47,727,489
------------- -------------
End of year (including undistributed
net investment income: $107,548 and
$0, respectively) $51,562,988 $ 43,140,900
============= =============
See Notes to Financial Statements
Endowments, Bond Portfolio
Statement of Changes in Net Assets
Year ended July 31
1999 1998
Operations:
Net investment income $ 2,035,407 $ 2,122,993
Net realized (loss) gain on investments (81,253) 543,139
Net unrealized appreciation (depreciation) on
investments (1,472,279) (653,265)
----------------------------
Net increase in net assets resulting
from operations 481,875 2,012,867
----------------------------
Dividends Paid to
Shareholders:
Dividends from net investment income (1,880,282) (2,405,442)
----------------------------
Capital Share Transactions:
Proceeds from shares sold:
265,672 and 129,544
shares, respectively 4,421,000 2,202,671
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
49,414 and 57,517 shares,
respectively 819,899 968,653
Cost of shares repurchased:
88,164 and 393,839
shares, respectively (1,483,454) (6,732,042)
----------------------------
Net increase (decrease) in net assets resulting
from capital share transactions 3,757,445 (3,560,718)
----------------------------
Total Increase (Decrease) in Net Assets 2,359,038 (3,953,293)
Net Assets:
Beginning of year 29,079,402 33,032,695
----------------------------
End of year (including undistributed
net investment income: $155,125 and
$0, respectively) $31,438,440 $29,079,402
================ ===========
See Notes to Financial Statements
</TABLE>
ENDOWMENTS
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Endowments (the "trust") is registered under the Investment
Company Act of 1940 as an open-end, diversified management investment company
and has initially issued two series of shares, Growth and Income Portfolio and
Bond Portfolio (the "funds"). Growth and Income Portfolio seeks to provide
long-term growth of principal, with income and preservation of capital as
secondary objectives, primarily through investments in common stocks. Bond
Portfolio seeks to provide as high a level of current income as is consistent
with preservation of capital.
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared
in conformity with generally accepted accounting principles which require
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies consistently followed by the trust in the preparation of its financial
statements:
SECURITY VALUATION - 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. The ability of the issuers of the debt securities
held by the trust to meet their obligations may be affected by economic
developments in a specific industry, state or region. Short-term securities
maturing within 60 days are valued at amortized cost, which approximates market
value. Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith by a
committee appointed by the Board of Trustees.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for as of the trade date. Realized gains and losses from
securities transactions are determined based on specific identified cost. In
the event securities are purchased on a delayed delivery or "when-issued"
basis, the trust will instruct the custodian to segregate liquid assets
sufficient to meet its payment obligations in these transactions. Dividend
income is recognized on the ex-dividend date, and interest income is recognized
on an accrual basis. Market discounts and original issue discounts on
securities purchased are amortized daily over the expected life of the
security. The trust does not amortize premiums on securities purchased.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions paid
to shareholders are recorded on the ex-dividend date.
2. FEDERAL INCOME TAXATION
The funds comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and intend to distribute all of their net
taxable income and net capital gains for the fiscal year. As regulated
investment companies, the funds are not subject to income taxes if such
distributions are made. Required distributions are determined on a tax basis
and may differ from net investment income and net realized gains for financial
reporting purposes. In addition, the fiscal year in which amounts are
distributed may differ from the year in which the net investment income and net
realized gains are recorded by the funds.
As of July 31, 1999, net unrealized appreciation on investments for book and
federal income tax purposes for Growth and Income Portfolio aggregated
$2,544,631, of which $4,399,064 related to appreciated securities and
$1,854,433 related to depreciated securities. For Bond Portfolio, net
unrealized depreciation aggregated $1,500,022, of which $72,155 related to
appreciated securities and $1,572,177 related to depreciated securities. There
was no difference between book and tax realized gains and losses on securities
transactions for the year ended July 31, 1999. The cost of portfolio securities
for book and federal income tax purposes was $49,350,561 and $33,239,573 for
Growth and Income and Bond Portfolios, respectively, at July 31, 1999.
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE -
The fees of $236,741 and $148,454 for Growth and Income and Bond Portfolios,
respectively, for management services was incurred pursuant to agreements with
Capital Research and Management Company (CRMC), with which certain officers and
Trustees of the trust are affiliated. The Investment Advisory and Service
Agreements provide for monthly fees, accrued daily, based on an annual rate of
0.50% of the first $150 million of average net assets and 0.40% of such assets
in excess of $150 million.
The Investment Advisory and Service Agreements provide for fee reductions to
the extent that annual operating expenses exceed 0.75% of the average daily net
assets of the fund. Expenses that are not subject to these limitations are
interest, taxes, brokerage commissions, transaction costs, and extraordinary
expenses. Fee reductions were $17,655 and $60,812 for Growth and Income and
Bond Portfolios, respectively, for the year ended July 31, 1999 .
No fees were paid by the trust to its officers or Trustees. The independent
Trustees were reimbursed by the trust for expenses incurred while traveling to
fund meetings.
4. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
Pursuant to the custodian agreement, the funds receive credits against their
custodian fees for imputed interest on certain balances with the custodian
bank. The custodian fees of $1,132 and $569 for Growth and Income and Bond
Portfolios, respectively, were paid by these credits rather than in cash.
<TABLE>
<CAPTION>
Growth and Income Bond
Portfolio Portfolio
<S> <C> <C>
As of July 31,1999:
Accumulated undistributed
net realized gain (loss)
on investments $3,548,991 $(81,569)
Paid-in capital 45,361,727 32,864,906
During the year ended
July 31, 1999:
Purchases and sales of
investment securities,
excluding short-term
securities
Purchases 19,921,683 17,360,692
Sales 19,382,187 15,024,061
</TABLE>
Independent Auditors' Report
To the Board of Trustees and Shareholders of Endowments:
We have audited the accompanying statements of assets and liabilities of
Endowments (the "trust"), comprising, respectively, the Growth and Income
Portfolio and the Bond Portfolio, including the investment portfolios, as of
July 31, 1999, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the per-share data and ratios for each of the five years
in the period then ended. These financial statements and per-share data and
ratios are the responsibility of the trust's management. Our responsibility is
to express an opinion on these financial statements and per-share data and
ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per-share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1999, by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios constituting Endowments as of
July 31, 1999, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the per-share data and ratios for each of the five years in the period then
ended, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
August 27, 1999
<TABLE>
Endowments, Growth and Income Portfolio
Per-Share Data and Ratios
Year ended July 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $12.09 $22.66 $18.61 $18.06 $17.18
------------ ------------ ---------- ---------- ---------
Income From Investment Operations:
Net investment income .37 .51 .56 .58 .63
Net gains or losses on securities (both
realized and unrealized) 1.79 1.16 6.04 1.73 2.21
------------ ------------ ---------- ---------- ---------
Total from investment operations 2.16 1.67 6.60 2.31 2.84
----------- ----------- --------- ----------- ---------
Less Distributions:
Dividends (from net investment income) (.34) (.57) (.55) (.61) (.61)
Distributions (from capital gains) - (11.67) (2.00) (1.15) (1.35)
----------- ----------- --------- ----------- ---------
Total distributions (.34) (12.24) (2.55) (1.76) (1.96)
----------- ----------- --------- ---------- ---------
Net Asset Value, End of Year $13.91 $12.09 $22.66 $18.61 $18.06
========== ========== ======== ======== =======
Total Return 18.21% 9.05% 38.40% 13.22% 18.57%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $52 $43 $48 $59 $57
Ratio of expenses to average net assets 0.75%(1) 0.75%(1) 0.74% 0.72% 0.73%
Ratio of net income to average net assets 2.90% 2.69% 2.73% 3.12% 3.70%
Portfolio turnover rate 52.36% 48.59% 50.69% 38.73% 24.04%
(1) Had CRMC not waived management services
fees, the fund's expense ratio would have been
0.79% and 0.89% for the fiscal years ended 1999 and
1998, respectively.
</TABLE>
<TABLE>
Endowments, Bond Portfolio
Per-Share Data and Ratios
Year ended July 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $16.93 $17.17 $16.63 $16.82 $16.86
--------------------------------------------
Income From Investment Operations:
Net investment income 1.14 1.19 1.21 1.22 1.26
Net gains or losses on securities (both
realized and unrealized) (.84) (.09) .52 (.19) .01
--------------------------------------------
Total from investment operations .30 1.10 1.73 1.03 1.27
--------------------------------------------
Less Distributions:
Dividends (from net investment income) (1.06) (1.34) (1.19) (1.22) (1.24)
Distributions (from capital gains) - - - - (.07)
--------------------------------------------
Total distributions (1.06) (1.34) (1.19) (1.22) (1.31)
--------------------------------------------
Net Asset Value, End of Year $16.17 $16.93 $17.17 $16.63 $16.82
========================== ======= =======
Total Return 1.75% 6.70% 10.83% 6.25% 7.97%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $31 $29 $33 $41 $44
Ratio of expenses to average net assets 0.75% (1) 0.75% (10.75% (1)0.75% (1 0.76%
Ratio of net income to average net assets 6.84% 6.87% 7.04% 7.17% 7.52%
Portfolio turnover rate 53.66% 50.40% 22.18% 54.43% 69.22%
(1) Had CRMC not waived management services fees,
the fund's expense ratio would have been 0.95%,
1.08%, 0.85%, and 0.80% for the fiscal years ended 1999,
1998, 1997, and 1996, respectively.
</TABLE>
