SEC File Nos.
811-1884
2-34371
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 49 (X)
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 28 (X)
ENDOWMENTS
(Exact name of registrant as specified in charter)
P.O. Box 7650, One Market, Steuart Tower, San Francisco, California 94120
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (415) 421-9360
Patrick F. Quan
Secretary
Endowments
P.O. Box 7650, One Market, Steuart Tower
San Francisco, California 94120
(Name and address of agent for service)
Copy to:
Robert E. Carlson, Esq.
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071
The Registrant has filed a declaration
pursuant to Rule 24f-2. On
September 25, 1998, it filed its 24f-2
Notice for fiscal 1998.
Approximate date of proposed public offering:
[X] It is proposed that this filing will
become effective on October 1, 1999
pursuant to paragraph (a) of Rule 485.
<PAGE>
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Endowments (SM)
Prospectus
OCTOBER 1, 1999
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT
DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
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Endowments
One Market
Steuart Tower, Suite 1800
San Francisco, CA 94105
Growth and Income Portfolio
TICKER SYMBOL: ENDIX NEWSPAPER ABBREV.: Endow-GI FUND NO.: 80
Bond Portfolio
TICKER SYMBOL: BENDX NEWSPAPER ABBREV.: Endow-Bd FUND NO.: 81
- ------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary 2
..................................................................
Fees and Expenses of the Funds 5
..................................................................
Investment Objectives, Strategies and Risks 6
..................................................................
Year 2000 9
..................................................................
Management and Organization 10
..................................................................
Shareholder Information 12
..................................................................
Purchasing Shares 12
..................................................................
Selling Shares 14
..................................................................
Distribution Arrangements 14
..................................................................
Financial Highlights 16
..................................................................
Appendix 18
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</TABLE>
Endowments (the "Trust") is an open-end management investment company with two
diversified series, Growth and Income Portfolio and Bond Portfolio (collective-
ly, the "funds").
Shareholders of the Trust are limited to: (i) any entity exempt from taxation
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended
("501(c)(3) organizations"); (ii) any trust, the present or future beneficiary
of which is a 501(c)(3) organization, and (iii) any other entity formed for the
primary purpose of benefiting a 501(c)(3) organization. The Trust may change
this policy at any time without the approval of the Trust's shareholders.
80/81-010-1099/RRD
Endowments / Prospectus 1
<PAGE>
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RISK/RETURN SUMMARY
Growth and Income Portfolio The fund seeks to primarily make your investment
grow over time and secondarily provide you with income and preserve capital.
The fund invests primarily in common stocks or securities convertible into com-
mon stock that have favorable prospects for long-term growth of capital and in-
come.
The fund is designed for investors seeking long-term growth of principal, as
well as income and preservation of capital. An investment in the fund is sub-
ject to risks, including the possibility that the fund may decline in value in
response to certain events, such as changes in the market or general economy.
The prices of equity securities will be affected by events specifically involv-
ing the companies whose securities are owned in the fund.
Bond Portfolio The fund seeks to maximize your level of current income and pre-
serve your capital. Any capital appreciation is incidental to the fund's objec-
tive of current income. The fund invests primarily in bonds rated Baa or BBB or
above.
The fund is designed for investors seeking a high level of current income, as
well as capital preservation. An investment in the fund is subject to risks,
including the possibility that the fund may decline in value in response to
certain events, such as changes in the market or general economy. The values of
debt securities held by the fund may be affected by changing interest rates and
credit ratings.
...
Although all securities in the funds' portfolios, including U.S. securities may
be adversely affected by global economic, political and social events, invest-
ments outside the U.S. may be affected to a greater extent. In addition, the
value of certain securities may also be affected by currency fluctuations.
You may lose money by investing in the funds. The likelihood of loss is greater
if you invest for a shorter period of time.
Your investment in either fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency, entity or person.
2 Endowments / Prospectus
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Investment Results
The following information illustrates how the funds' results may fluctuate.
Past results are not an indication of future results.
[CHART TO COME]
The fund's highest/lowest quarterly results during this time period were:
X Highest % (quarter ended )
X Lowest % (quarter ended )
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
Average
Annual The fund
Total at net
Return asset value/1/ S&P 500/2/
- --------------------------------------------------------------------------------
<S> <C> <C>
One Year
................................................................................
Five Years
................................................................................
Ten Years
................................................................................
Lifetime/4/
</TABLE>
Yield/1/: %
Endowments / Prospectus 3
<PAGE>
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Bond Portfolio
[CHART APPEARS HERE]
The fund's highest/lowest quarterly results during this time period were:
X Highest % (quarter ended )
X Lowest % (quarter ended )
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
Average
Annual The fund
Total at net Lehman
Return asset value/1/ Aggregate/3/
- --------------------------------------------------------------------------------
<S> <C> <C>
One Year
................................................................................
Five Years
................................................................................
Ten Years
................................................................................
Lifetime/4/ /5/
</TABLE>
Yield/1/: %
(For current yield information call the Transfer Agent at 415-393-7105)
/1/ These fund results were calculated according to a formula that is required
for all stock and bond funds.
/2/ The Standard & Poor's 500 Composite Index represents primarily U.S. stocks.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
/3/ The Lehman Brothers Aggregate Bond Index represents investment grade debt.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
/4/ For the period beginning July 26, 1975 (when Capital Research and Management
Company became the funds' investment adviser).
/5/ The Lehman Brothers Aggregate Bond Index did not exist until December 31,
1975. For the period between July 31, 1975 and December 31, 1975, the Lehman
Brothers Government/Corporate Bond Index results were used. The Lehman
Brothers indexes are based on July 31, 1975 index values.
4 Endowments / Prospectus
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FEES AND EXPENSES OF THE FUNDS
The following describes the fees and expenses that you may pay if you buy and
hold shares of either fund.
Shareholder Fees
(fees paid directly from your investment)
<TABLE>
<CAPTION>
Growth and
Income Portfolio Bond Portfolio
- --------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 0% 0%
................................................................................
Maximum sales charge imposed on reinvested
dividends 0% 0%
................................................................................
Maximum deferred sales charge 0% 0%
................................................................................
Redemption or exchange fees 0% 0%
</TABLE>
Annual Fund Operating Expenses
(expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
Growth and
Income Portfolio Bond Portfolio
- --------------------------------------------------------------------------------
<S> <C> <C>
Management Fees
................................................................................
Service (12b-1) Fees
................................................................................
Other Expenses
................................................................................
Total Annual Fund Operating Expenses
................................................................................
Fee Waiver/1/
................................................................................
Net Expenses
</TABLE>
/1/ The funds' Investment Advisory and Service Agreements provide for fee
reductions to the extent that annual operating expenses exceed 0.75% of
either fund's average net assets. With the waiver, fees (as a percentage of
average net assets) are % for Growth and Income Portfolio and % for
Bond Portfolio.
Example
This Example is intended to help you compare the cost of investing in either
fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Growth and
Income Portfolio Bond Portfolio
- --------------------------------------------------------------------------------
<S> <C> <C>
One Year
................................................................................
Three Years
................................................................................
Five Years
................................................................................
Ten Years
</TABLE>
Endowments / Prospectus 5
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INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
Growth and Income Portfolio The primary investment objective of the fund is
long-term growth of principal, with income and preservation of capital as
secondary objectives. The fund invests primarily in common stocks or securities
convertible into common stock. The fund will emphasize stocks of companies
which have favorable prospects for long-term growth of both capital and income.
The prices of equity securities will decline in response to certain events,
including those directly involving the companies whose securities are owned in
the fund, adverse conditions affecting the general economy, overall market
declines, world political, social and economic instability and currency
fluctuations.
Bond Portfolio The investment objective of the fund is to seek as high a level
of current income as is consistent with the preservation of capital. The fund
invests primarily in bonds rated Baa or BBB or better by Moody's Investors
Service, Inc. or Standard & Poor's Corporation. The fund also invests in secu-
rities issued and guaranteed by the U.S. government. Normally, at least 65% of
the fund's assets will be invested in bonds. (For this purpose, bonds are con-
sidered to be any debt securities having initial maturities in excess of one
year.)
The value of debt securities held by the fund may be affected by factors such
as changing interest rates, credit ratings, and effective maturities. For
example, the value of bonds in the fund's portfolio generally will decline when
interest rates rise and vice versa. A security backed by the U.S. Treasury or
the full faith and credit of the United States is guaranteed only as to the
timely payment of interest and principal when held to maturity. The market
prices for such securities are not guaranteed and will fluctuate.
...
Either fund may also hold cash or cash equivalents of any issuer to any extent
deemed appropriate. The extent of either fund's cash position will depend on
market conditions, fund purchases and redemptions, and other factors. For
example, in response to abnormal market conditions, the fund may invest
substantially in cash or cash equivalents. This may detract from the
achievement of either fund's objective(s) over the short term, or it may
protect the fund during a market downturn.
6 Endowments / Prospectus
<PAGE>
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The funds rely on the professional judgment of their investment adviser,
Capital Research and Management Company, to make decisions about the funds'
portfolio securities. The basic investment philosophy of Capital Research and
Management Company is to seek undervalued securities that represent good long-
term investment opportunities. Securities may be sold when they are judged to
no longer represent good long-term value.
As the majority of the funds' shareholders are non-profit institutions, the
funds' investments will be consonant with the standards generally considered
prudent by fiduciaries and trustees of such institutions.
OTHER IMPORTANT INVESTMENT PRACTICES
In addition to the principal investment strategies described above, the funds
have other investment practices that are described here and in the Statement of
Additional Information.
Growth and Income Portfolio may invest up to 10% of its assets in common stocks
and other securities of issuers domiciled outside the U.S. Bond Portfolio may
invest up to 10% of its assets in obligations of corporations or government en-
tities 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. The value of non-U.S. securities can decline in response to various fac-
tors including currency fluctuations, political, social and economic instabili-
ty, differing securities regulations and administrative difficulties such as
delays in clearing and settling portfolio transactions.
Endowments / Prospectus 7
<PAGE>
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The following charts illustrate the asset mix of the funds'
investment portfolios as of the end of the funds' fiscal
year, July 31, 1999.
Growth and Income Portfolio
Largest Equity Holdings Pie Chart
Ten Largest Individual Holdings
-----------------------------------------------------------------------------
Bond Portfolio
Pie Chart of Security Types
Holdings by Quality Rating
-----------------------------------------------------------------------------
Because the funds are actively managed, their holdings will
change from time to time.
8 Endowments / Prospectus
<PAGE>
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YEAR 2000
The date-related computer issue known as the "Year 2000 problem" could have an
adverse impact on the quality of services provided to the funds and their
shareholders. However, the funds understand that their key service providers --
including the investment adviser and its affiliates -- are taking steps to
address the issue. In addition, the Year 2000 problem may adversely affect the
issuers in which the funds invest. For example, issuers may incur substantial
costs to address the problem. They may also suffer losses caused by corporate
and governmental data processing errors. These risks may be particularly acute
in certain countries outside the U.S. in which the funds may invest and may
adversely affect the funds' net asset values and total returns. The funds and
their investment adviser will continue to monitor developments relating to this
issue.
Endowments / Prospectus 9
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MANAGEMENT AND ORGANIZATION
Investment Adviser
Capital Research and Management Company, an experienced investment management
organization founded in 1931, serves as investment adviser to the funds and
other funds, including those in The American Funds Group. Capital Research and
Management Company, a wholly owned subsidiary of The Capital Group Companies,
Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital
Research and Management Company manages the investment portfolio and business
affairs of the funds. The total management fees paid by the funds, as a
percentage of average net assets, for the previous fiscal year are discussed
earlier under "Fees and Expenses of the Funds."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the funds' code of ethics.
Multiple Portfolio Counselor System
Capital Research and Management Company uses a system of multiple portfolio
counselors in managing mutual fund assets. Under this approach the portfolio of
a fund is divided into segments which are managed by individual counselors.
Counselors decide how their respective segments will be invested, within the
limits provided by a fund's objective(s) and policies and by Capital Research
and Management Company's investment committee. In addition, Capital Research
and Management Company's research professionals may make investment decisions
with respect to a portion of a fund's portfolio. The primary individual
portfolio counselors for Growth and Income Portfolio and Bond Portfolio are
listed on the following page.
10 Endowments / Prospectus
<PAGE>
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Growth and Income Portfolio
<TABLE>
<CAPTION>
Years
Years of of Experience as
Experience Investment Professional
as Portfolio (approximate)
Counselor ............................
Portfolio (and Research With Capital
Counselors Professional, Research and
for if applicable) for Management
Growth and Growth and Income Company or
Income Portfolio its
Portfolio Primary Title(s) (approximate) Affiliates Total Years
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert G. Senior Vice 9 years (in 24 years 27 years
O'Donnell President. addition to
Senior Vice 18 years as a
President research
and Director, professional prior
Capital Research to becoming a
and portfolio
Management Company counselor for the
fund)
------------------------------------------------------------------------------
Claudia P. Vice President 4 years (in 24 years 24 years
Huntington (Growth addition to
and Income 20 years as a
Portfolio). Senior research
Vice President, professional prior
Capital Research to becoming a
and portfolio
Management Company counselor for the
fund)
</TABLE>
Bond Portfolio
<TABLE>
<CAPTION>
Years
of Experience as an
Investment Professional
(approximate)
.........................
With Capital
Portfolio Years of Experience Research and
Counselors as Portfolio Management
for Counselor Company or
Bond for Bond Portfolio its
Portfolio Primary Title(s) (approximate) Affiliates Total Years
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Abner D. Senior Vice 24 years 32 years 47 years
Goldstine President.
Senior Vice
President
and Director,
Capital Research
and
Management Company
------------------------------------------------------------------------------
John H. Vice President 11 years 16 years 17 years
Smet (Bond Portfolio).
Vice President,
Capital Research
and
Management Company
</TABLE>
................................................................................
Endowments / Prospectus 11
<PAGE>
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SHAREHOLDER INFORMATION
Shareholder Services
American Funds Service Company, the funds' transfer agent, offers you a wide
range of services you can use to alter your investment program should your
needs and circumstances change. These services are available only in states
where they may be legally offered and may be terminated or modified at any time
upon 60 days' written notice.
An agent of American Funds Service Company who performs transfer agent services
for the funds is located at One Market, Steuart Tower, Suite 1800, San Francis-
co, CA 94105.
- --------------------------------------------------------------------------------
PURCHASING SHARES
Shares of the funds may be purchased directly from the funds only by (i) any
entity exempt from taxation under Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended ("501(c)(3) organizations"); (ii) any trust, the
present or future beneficiary of which is a 501(c)(3) organization and (iii)
any other entity formed for the primary purpose of benefiting a 501(c)(3)
organization. The minimum initial purchase is $50,000 for either fund; there is
no minimum on subsequent investments. The minimum initial investment may be
reduced by the board of trustees for investments which meet certain standards.
Any shareholder which no longer fulfills the characteristics described above
must transfer its shares to an eligible entity or, at the shareholder's option,
sell its shares at net asset value.
The purchase of shares may be paid in cash or in acceptable securities valued
in accordance with the valuation procedures described in the statement of
additional information under "Purchase of Shares -- Price of Shares."
Acceptable securities are those securities deemed acceptable by Capital
Research and Management Company; that is, those securities which management
deems to be consistent with the investment objectives and policies of the
funds.
Various services are available as described below:
X Automatic Reinvestment
Dividends and capital gain distributions are reinvested in additional shares
at no sales charge unless you indicate otherwise. You also may elect to have
dividends and/or capital gain distributions paid in cash.
12 Endowments / Prospectus
<PAGE>
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X Right of Accumulation
You may take into account the current value of your existing holdings in
the Growth and Income Portfolio and the Bond Portfolio, as well as your
holdings in The American Funds Group, to determine your sales charge on
investments in accounts eligible to be aggregated, or when making a gift to
an individual or charity.
X Exchange Feature
As a shareholder of Growth and Income Portfolio or Bond Portfolio, you may
exchange all or part of your shares at net asset value for shares of the
other, and for shares of The Cash Management Trust of America or The U.S.
Treasury Money Fund of America, whose shares may be similarly exchanged for
shares of the Growth and Income Portfolio and/or the Bond Portfolio. The
Cash Management Trust of America and The U.S. Treasury Money Fund of
America are money market funds whose shares are sold at net asset value.
This feature is available only if the fund for which you are exchanging is
qualified in the state where you reside.
This exchange may or may not have potential tax consequences for the
shareholder. Shareholders should consult their tax or financial advisers
before exchanging their shares under this option.
X Automatic Withdrawals
Shareholders may authorize automatic withdrawals from their accounts. All
shares owned or purchased by a shareholder will be credited to the
shareholder's withdrawal account, and a sufficient number of shares will be
sold from the account to meet the requested withdrawal payments. All income
dividends and other distributions, if any, must be reinvested in fund
shares at net asset value and credited to the withdrawal account.
Liquidation of shares in excess of investment income will reduce and may
deplete a shareholder's invested capital. Withdrawal payments, therefore,
should not be considered as a yield or income on the investment.
X Account Statements
A shareholder account is opened in accordance with your registration
instructions. Transactions in the account, such as additional investments
and dividend reinvestments, will be reflected on regular confirmation
statements from American Funds Service Company.
Endowments / Prospectus 13
<PAGE>
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Share Price
Each fund calculates its share price, also called net asset value, as of 4:00
p.m. New York time which is the normal close of trading on the New York Stock
Exchange, every day the Exchange is open. In calculating net asset value, mar-
ket prices are used when available. If a market price for a particular security
is not available, the fund will determine the appropriate price for the securi-
ty. Your shares will be purchased or sold at the net asset value next deter-
mined after your investment is received and accepted.
- --------------------------------------------------------------------------------
SELLING SHARES
Shares are credited to your account and shares of the funds are redeemable
through the funds at net asset value. Shareholders may sell (redeem) their
shares, by tendering a request in proper form, at the offices of the Trust,
P.O. Box 7650, One Market, Steuart Tower (Suite 1800), San Francisco,
California 94120. Proper tender of shares requires a written request for
redemption. Requests to sell must be signed and the authorized signature(s) of
the shareholder guaranteed by an "eligible guarantor" which includes a bank or
savings and loan association that is federally insured or a member firm of the
National Association of Securities Dealers, Inc. Notarization by a notary
public is not an acceptable signature guarantee.
The funds do not have dealer agreements and do not accept redemption orders
from broker-dealers. The price you receive for the shares you sell is the net
asset value next determined after your order and all required documents are re-
ceived. Because the funds' net asset values fluctuate, reflecting the market
value of the funds' portfolios, the amount a shareholder receives for shares
sold may be more or less than the amount paid for them.
- --------------------------------------------------------------------------------
DISTRIBUTION ARRANGEMENTS
Dividends and Distributions
The fund intends to pay dividends to you, usually in March, June, September and
December. Capital gains, if any, are usually distributed in December.
You may elect to reinvest dividends and/or capital gain distributions to pur-
chase additional shares of either fund or any other fund in The American Funds
Group or you may elect to receive them in cash.
14 Endowments / Prospectus
<PAGE>
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Tax Consequences
Dividends and capital gains are generally taxable whether they are reinvested
or received in cash -- unless you are exempt from taxation or entitled to tax
deferral. Capital gains may be taxed at different rates depending on the length
of time the fund holds its assets.
Endowments / Prospectus 15
<PAGE>
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FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the funds'
results for the past five years. Certain information reflects financial results
for a single fund share. The total returns in the tables represent the rate
that
an investor would have earned or lost on an investment in the fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Deloitte & Touche llp, whose reports, along with the funds' finan-
cial statements, are included in the statement of additional information, which
is available upon request.
Growth and Income Portfolio
<TABLE>
<CAPTION>
Years ended July 31
...................
1999 1998 1997 1996 1995
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $22.66 $18.61 $18.06 $17.18
- --------------------------------------------------------------------------------
Income from Investment
Operations:
Net Investment
Income .51 .56 .58 .63
................................................................................
Net Gains or Losses on Securities
(both realized and unrealized) 1.16 6.04 1.73 2.21
- --------------------------------------------------------------------------------
Total From Investment Operations 1.67 6.60 2.31 2.84
- --------------------------------------------------------------------------------
Less Distributions:
Dividends (from net
investment income) (.57) (.55) (.61) (.61)
................................................................................
Distributions (from capital gains) (11.67) (2.00) (1.15) (1.35)
- --------------------------------------------------------------------------------
Total Distributions (12.24) (2.55) (1.76) (1.96)
- --------------------------------------------------------------------------------
Net Asset Value,
End of Year $12.09 $22.66 $18.61 $18.06
- --------------------------------------------------------------------------------
Total Return 9.05% 38.40% 13.22% 18.57%
- --------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, End of Period
(in millions) $ 43 $ 48 $ 59 $ 57
................................................................................
Ratio of Expenses to
Average Net Assets .75%/1/ .74% .72% .73%
- --------------------------------------------------------------------------------
Ratio of Net Income to
Average Net Assets 2.69% 2.73% 3.12% 3.70%
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 48.59% 50.69% 38.73% 24.04%
</TABLE>
/1/ Had CRMC not waived management services fees, the fund's expense ra-
tio would have been % and .89% for the fiscal years ended 1999 and
1998, respectively.
16 Endowments / Prospectus
<PAGE>
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Bond Portfolio
<TABLE>
<CAPTION>
Years ended July 31
...................
1999 1998 1997 1996 1995
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $17.17 $16.63 $16.82 $16.86
- --------------------------------------------------------------------------------
Income from Investment
Operations:
Net Investment
Income 1.19 1.21 1.22 1.26
................................................................................
Net Gains or Losses on Securities
(both realized and unrealized) (.09) .52 (.19) .01
- --------------------------------------------------------------------------------
Total From Investment Operations 1.10 1.73 1.03 1.27
- --------------------------------------------------------------------------------
Less Distributions:
Dividends (from net
investment income) (1.34) (1.19) (1.22) (1.24)
................................................................................
Distributions (from capital gains) -- -- -- (.07)
- --------------------------------------------------------------------------------
Total Distributions (1.34) (1.19) (1.22) (1.31)
- --------------------------------------------------------------------------------
Net Asset Value,
End of Year $16.93 $17.17 $16.63 $16.82
- --------------------------------------------------------------------------------
Total Return 6.70% 10.83% 6.25% 7.97%
- --------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, End of Period
(in millions) $ 29 $ 33 $ 41 $ 44
................................................................................
Ratio of Expenses to
Average Net Assets .75%/1/ .75%/1/ .75%/1/ .76%
................................................................................
Ratio of Net Income to
Average Net Assets 6.87% 7.04% 7.17% 7.52%
................................................................................
Portfolio Turnover Rate 50.40% 22.18% 54.43% 69.22%
</TABLE>
/1/ Had CRMC not waived management services fees, the fund's expense ra-
tio would have been %, 1.08%, .85% and .80% for the fiscal years
ended 1999, 1998, 1997 and 1996, respectively.
Endowments / Prospectus 17
<PAGE>
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APPENDIX
Moody's Investors Service, Inc. rates the long-term debt securities issued by
various entities in categories ranging from "Aaa" to "C," according to quality
as described below. Growth and Income Portfolio generally invests in debt secu-
rities rated A or better by Moody's; Bond Portfolio generally invests in debt
securities rated Baa or better by Moody's.
"Aaa -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are pro-
tected by a large, or by an exceptionally stable margin and principal is se-
cure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong posi-
tion of such shares."
"Aa -- High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aaa securities, fluctu-
ation of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable in-
vestment attributes. Factors giving security to principal and interest are con-
sidered adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future."
"Baa -- Medium grade obligations. Interest payments and principal security ap-
pear adequate for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and, in fact, have speculative
characteristics as well."
Standard & Poor's rates the long-term debt securities issued by various enti-
ties in categories ranging from "AAA" to "D," according to quality as described
below. Growth and Income Portfolio generally invests in debt securities rated A
or better by Standard & Poor's; Bond Portfolio generally invests in debt secu-
rities rated BBB or better by Standard & Poor's.
"AAA -- Highest rating. Capacity to pay interest and repay principal is ex-
tremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
18 Endowments / Prospectus
<PAGE>
================================================================================
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay princi-
pal. These bonds normally exhibit adequate protection parameters, but adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than for debt in higher
rated categories."
Endowments / Prospectus 19
<PAGE>
- --------------------------------------------------------------------------------
NOTES
20 Endowments / Prospectus
<PAGE>
- --------------------------------------------------------------------------------
NOTES
Endowments / Prospectus 21
<PAGE>
For Shareholder Services
American Funds Service Company
415/393-7105
------------------------------------------------------------
OTHER FUND INFORMATION
Annual/Semi-Annual Report to Shareholders
Contains additional information about the funds including
financial statements, investments results, portfolio
holdings, a statement from portfolio management discussing
market conditions and the funds' investment strategies, and
the independent auditors' reports (in the annual report).
Statement of Additional Information (SAI)
Contains more detailed information on all aspects of the
funds, including the funds' financial statements.
A current SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by
reference into this prospectus. The SAI and other related
materials about the funds are available for review or to be
copied at the SEC's Public Reference Room in Washington,
D.C. (1-800-SEC-0330) or on the SEC's Internet Web site at
http://www.sec.gov.
Code of Ethics
Includes a description of the funds' personal investing
policy.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary of the Trust
Service Company P.O. Box 7650
415/393-7105 San Francisco, CA 94120
Investment Company File No. 811-1884 [LOGO OF RECYCLED PAPER]
Printed on recycled paper
<PAGE>
ENDOWMENTS
Part B
Statement of Additional Information
October 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 corporate debt
securities that are rated in the top three quality categories by Moody's
Investors Service, Inc. or Standard & Poor's, or unrated but determined to be
of equivalent quality by Capital Research and Management Company, the funds'
investment adviser.
SECURITIES OUTSIDE THE U.S.
- - The fund may invest up to 10% of its assets in common stocks and other
securities of issuers outside the U.S.
BOND PORTFOLIO
DEBT SECURITIES
- - The fund will invest primarily in fixed-income securities, including bonds
and debentures, which are rated in the top four quality categories (those 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. The fund will invest at least 25% of the value of its
assets in debt securities generally rated Baa or better by Moody's Investors
Services, Inc. or BBB or better by Standard & Poor's Corporation, or in unrated
securities determined to be of equivalent quality.
SECURITIES OUTSIDE THE U.S.
- - The fund may invest up to 10% of its assets in obligations of corporations
or government entities outside the U.S. and Canada. All Canadian and other
non-U.S. securities purchased by the fund will be liquid, and meet the quality
standards set forth above.
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 -- The fund will invest in equity securities. Equity
securities represent an ownership position in a company. 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 identify liquid assets which will be marked to market daily in an
amount sufficient to cover its obligations under reverse repurchase agreements
with broker-dealers (but no collateral is required on reverse repurchase
agreements with banks). Under the 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.
Capital Research and Management Company 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.
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).
The fund, however, has no current intention of holding more than 5% of its net
assets in junk bonds. Junk bonds 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. It may be more
difficult to dispose of or to determine the value of junk bonds. See
"Appendix" in the Prospectus for a complete description of the bond
ratings.
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 -- The funds may invest in securities guaranteed by
the U.S. Government including: (1) direct obligations of the U.S. Treasury
(such as Treasury bills, notes and bonds) and (2) federal agency obligations
guaranteed as to principal and interest by the U.S. Treasury.
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal sponsorship in one way or
another; some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality.
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
outside the U.S. 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) (_______ shares, _____%); Citizens' Scholarship
Foundation of America (1505 Riverview Road, P.O. Box 297, St. Peter, MN 56082)
(_______ shares, ____%); Foundation for Reproductive Research and Education
(333 E. Superior Street, Prentice 490, Chicago, IL 60611) (_______ shares,
____%); and Loyola Marymount University (7900 Loyola Boulevard, Los Angeles, CA
90045) (_______ shares, ____%).
Bond Portfolio -- California Institute for the Arts (24700 McBean Parkway,
Valencia, CA 91355) (_______ shares, _____%); Citizens' Scholarship of America
(1505 Riverview Road, P.O. Box 297, St. Peter, MN 56082) (_______ shares,
____%); and Hudson Institute, 5395 Emerson Way, (P.O. Box 26919, Indianapolis,
IN 46226) (_______ shares, ____%); and Foundation for Reproductive Research and
Education (333 E. Superior Street, Prentice 490, Chicago, IL 60611) (_______
shares, ____%). 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
The Trust is managed by its board of trustees. 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, KCRW-FM National Public Radio, 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, National Advisory
Council, Hampshire College, The JL Foundation, Shelburne Farms, 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 $_______,
$235,598 and $276,008, and from Bond Portfolio advisory fees of $_______,
$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 $______, $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. It
provides shareholders at least semi-annually with reports showing the
investment portfolio, financial statements and other information audited by the
funds' independent auditors, Deloitte & Touche LLP, whose selection is
determined annually by the board of trustees of the Trust.
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 ____% and Bond Portfolio's yield was
____% 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 +____%, +_____% and +_____%,
respectively. Bond Portfolio's average annual total return for the one-, five-
and ten-year periods ended on July 31, 1999 was +____%, +____% and +____%,
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
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>
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
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 $
2 1997 - 1999
3 1996 - 1999
4 1995 - 1999
5 1994 - 1999
6 1993 - 1999
7 1992 - 1999
8 1991 - 1999
9 1990 - 1999
10 1989 - 1999
11 1988 - 1999
12 1987 - 1999
13 1986 - 1999
14 1985 - 1999
15 1984 - 1999
16 1983 - 1999
17 1982 - 1999
18 1981 - 1999
19 1980 - 1999
20 1979 - 1999
21 1978 - 1999
22 1977 - 1999
23 1976 - 1999
24 1975#- 1999
</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 $
2 1997 - 1999
3 1996 - 1999
4 1995 - 1999
5 1994 - 1999
6 1993 - 1999
7 1992 - 1999
8 1991 - 1999
9 1990 - 1999
10 1989 - 1999
11 1988 - 1999
12 1987 - 1999
13 1986 - 1999
14 1985 - 1999
15 1984 - 1999
16 1983 - 1999
17 1982 - 1999
18 1981 - 1999
19 1980 - 1999
20 1979 - 1999
21 1978 - 1999
22 1977 - 1999
23 1976 - 1999
24 1975#- 1999
</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
</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
</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 (133 in all), those funds have had better total
returns than their comparable Lipper indexes in 124 of 133 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
<PAGE>
OTHER INFORMATION
Item 23. Exhibits.
a. On file (see SEC file nos. 811-1884 and 2-34371)
b. On file (see SEC file nos. 811-1884 and 2-34371)
c. None
d. On file (see SEC file nos. 811-1884 and 2-34371)
e. None
f. None
g. On file (see SEC file nos. 811-1884 and 2-34371)
h. None
i. Not applicable to this filing
j. Consent of Independent Auditors--to be filed by amendment
k. None
l. Not applicable to this filing
m. None
n. None
o. None
Item 24. Persons Controlled by or under Common Control with Registrant.
None.
Item 25. Indemnification.
Registrant is a joint-insured under Investment Adviser/Mutual Fund Errors and
Omissions Policies written by American International Surplus Lines Insurance
Company, Chubb Custom Insurance Company, and ICI Mutual Insurance Company which
insures its officers and trustees against certain liabilities. However, in no
event will Registrant maintain insurance to indemnify any such person for any
act for which Registrant itself is not permitted to indemnify the individual.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant by the Registrant pursuant to the Trust's Trust Instrument, its
By-Laws or otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by trustees, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees, officers or
controlling persons in connection with shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
Item 26. Business and Other Connections of Investment Adviser.
None.
Item 27. Principal Underwriters.
(a) Not Applicable.
(b) Not Applicable.
(c) Not Applicable.
Item 28. Location of Accounts and Records.
Accounts, books and other records required by Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940 are maintained and held in the offices of its
investment adviser, Capital Research and Management Company, 333 South Hope
Street, Los Angeles, California 90071, and/or 135 South State College
Boulevard, Brea, California 92821, and/or the offices of the Registrant, One
Market, Steuart Tower (Suite 1800), San Francisco, California 94105.
Registrant's records covering shareholder accounts are maintained and kept by
the Trust's transfer agent, American Funds Service Company, 135 South State
College Boulevard, Brea, California 92821, 8332 Woodfield Crossing Boulevard,
Indianapolis, IN 46240, 3500 Wiseman Boulevard, San Antonio, Texas 78251 and
5300 Robin Hood Road, Norfolk, VA 23513.
Registrant's records covering portfolio transactions are also maintained and
kept by the Trust's custodian, The Chase Manhattan Bank, One Chase Manhattan
Plaza, New York, New York 10081.
Item 29. Management Services.
None.
Item 30. Undertakings.
None.
<PAGE>
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City and County of San Francisco, and State of California on the 27th day
of July, 1999.
ENDOWMENTS
By /s/ Patrick F. Quan
Patrick F. Quan, Secretary
ATTEST:
/s/ Jennifer L. Yardley
Jennifer L. Yardley
Pursuant to the requirements of the Securities Act of 1933, this amendment to
its registration statement has been signed below on July 27, 1999 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
<S> <C> <C>
(1) Principal Executive Officer:
President and
/s/ Frank L. Ellsworth Trustee
(Frank L. Ellsworth)
(2) Principal Financial Officer and
Principal Accounting Officer:
/s/ Anthony W. Hynes, Jr. Treasurer
(Anthony W. Hynes, Jr.)
(3) Trustees:
/s/ Robert B. Egelston
Robert B. Egelston Chairman
Steven D. Lavine* Trustee
Patricia A. McBride* Trustee
Gail L. Neale* Trustee
Charles R. Redmond* Trustee
Thomas E. Terry* Trustee
Robert C. Ziebarth* Trustee
</TABLE>
*By /s/ Patrick F. Quan
Patrick F. Quan, Attorney-in-Fact
