Endowments
Investments for Nonprofit Institutions
Annual Report
For the Year Ended
July 31, 2000
[logo]
Capital Research and Management Company
RESULTS AT A GLANCE
(with all distributions reinvested)
<TABLE>
<CAPTION>
Growth Lipper Standard Bond Lipper A-Rated Lehman
and Multi-Cap & Poor's Portfolio Bond Funds Brothers
Income Value Funds 500 Average Aggregate
Portfolio Index Composite Bond
Index Index*
<S> <C> <C> <C> <C> <C> <C>
Total return for the
past fiscal year -3.3% -2.5% +9.0% +5.1% +4.1% +6.0%
August 1, 1999 -
July 31, 2000
Average annual
compound return for
the past 25 years+ +14.3% +14.5% +15.8% +9.2% +9.1% +9.3%
</TABLE>
*Lehman Brothers Aggregate Bond Index did not exist until 12/31/75. For the
period from 7/31/75 to 12/31/75, the Lehman Brothers Government/Corporate Bond
Index was used.
+From July 25, 1975, when Capital Research and Management Company became the
investment adviser of the funds' assets, through July 31, 2000.
Market indexes are unmanaged and have no expenses.
Endowments is managed by Capital Research and Management Company, which also
manages the 29 American Funds, the nation's third-largest mutual fund family.
For nearly seven decades, Capital has invested with a long-term focus based on
thorough research and attention to risk.
Growth And Income Portfolio seeks to provide long-term growth of principal,
with income and preservation of capital as secondary objectives, primarily
through investments in common stocks.
Bond Portfolio seeks to provide as high a level of current income as is
consistent with the preservation of capital through investments in fixed-income
securities.
Here are the total returns and average annual compound returns on a $50,000
investment with all distributions reinvested for periods ended June 30, 2000
(the most recent calendar quarter): Growth and Income Portfolio - 10 years:
+242.18%, or +13.09% a year; 5 years: +100.48%, or +14.92% a year; 12 months:
-5.42%. Bond Portfolio - 10 years: +110.89%, or +7.75% a year; 5 years:
+32.96%, or +5.86% a year; 12 months: +3.94%.
Bond Portfolio's 30-day yield as of August 31, 2000, calculated in accordance
with the Securities and Exchange Commission formula, was 6.96%.
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. SHARE
PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY. INVESTING FOR SHORT PERIODS
MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT FDIC-INSURED, NOR ARE THEY
DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER ENTITY.
DEAR SHAREHOLDERS:
Fiscal 2000 represents a milestone for Endowments. This is the 25th year that
the Growth and Income Portfolio and the Bond Portfolio have been managed by
Capital Research and Management Company. During this lengthy span, which covers
all types of market conditions, both funds have built solid records; their
twenty-five year results are shown on the inside front cover. The results for
the fiscal year ended July 31, 2000 are as follows:
GROWTH AND INCOME PORTFOLIO
The Growth and Income Portfolio recorded a modest decline in fiscal 2000. For
the 12 months, the value of an investment fell 3.3%.* The Lipper Multi-Cap
Value Funds Index showed a slightly smaller drop of 2.5%. This unmanaged index,
created as part of a reclassification of U.S. equity funds into new categories
by Lipper, tracks 30 of the largest U.S. multi-cap value funds. For the same 12
months, the unmanaged Standard & Poor's 500 Composite Index recorded a return
of 9.0%.
*All percentage gain/loss figures include reinvestment of distributions unless
otherwise indicated.
A closer look at fiscal 2000 reveals two very different patterns. As we
discussed in the semi-annual report six months ago, the S&P 500 had a strong
first half, while the Growth and Income Portfolio lagged. However, in the
second half, the portfolio outpaced both the S&P 500 and the Multi-Cap Value
Funds Index. It rose 6.9% compared with 4.6% for the Multi-Cap Value Funds
Index and 3.2% for the S&P 500.
In the second half, Internet and other technology stocks - including some that
had propelled the S&P 500 upward earlier in the fiscal year - lost altitude.
They started dropping in March and continued working their way lower for more
than three months before showing signs of a recovery in July (and after the
close of the fiscal year).
Meanwhile, more reasonably priced issues that had been languishing began to
improve. Many of these had become severely depressed; even after rallying, they
still finished the fiscal year on the minus side. The fund has a number of
holdings that fit this category. A good example is our largest position,
Allstate, which was down 35% in the first half of the year and up 19% in the
second half.
The Growth and Income Portfolio benefited in the latter part of fiscal 2000
from the improvement shown by the value-oriented segment of the market. It also
avoided owning many of the stocks that pushed the indexes upward in the first
half, but which weakened in the second half. The portfolio does contain a few
carefully selected technology stocks that we believe offer good long-term
value. One of these, Nokia, the Finnish telecommunications manufacturer, was
our biggest gainer in fiscal 2000; it was up 108% for the 12 months despite
retreating sharply just before the end of July.
[Begin Sidebar]
The Growth and Income Portfolio benefited in the latter part of fiscal 2000
from the improvement shown by the value-oriented segment of the market.
[End Sidebar]
Our results were held back by a number of investments that went down early in
the fiscal year and did not participate fully in the rebound during the second
half. Several of those are in the food and retailing industries. Throughout the
year, we took advantage of what we felt were attractive valuations and added to
our holdings in those two industries as well as in health care and insurance.
At the same time, we sold some of our chemical and energy stocks.
On July 31, 81% of net assets was invested in common stocks, about the same as
at the start of the fiscal year. The remainder was held in interest-bearing
cash equivalents.
BOND PORTFOLIO
In fiscal 2000, the Bond Portfolio continued to produce a steady flow of
current income while outpacing the majority of funds in its peer group. For
shareholders who reinvested quarterly dividends totaling $1.16 a share and a
one-cent capital gain distribution, a small decline in net asset value was more
than offset by a 7.4% income return. The result was a total return of 5.1%.
During this same period, the average of 175 corporate A-rated bond funds
tracked by Lipper Inc. recorded a return of 4.1%. The unmanaged Lehman Brothers
Aggregate Bond Index was up 6.0%.
The Bond Portfolio's results were achieved in a difficult environment. In an
attempt to dampen inflationary pressures, the Federal Reserve raised short-term
interest rates six times -a total of 175 basis points (1.75 percentage points)
- between June 1999 and this past May.
In the meantime, longer term Treasury issues fell in price early in the fiscal
year and interest rates climbed, reflecting concern that a booming economy
might very well lead to higher inflation. Subsequently, those fears subsided as
many investors became increasingly optimistic that the Fed's actions will
forestall inflation and steer the economy to a soft landing, avoiding a
recession.
In January, the Treasury announced a buy-back program that is having the effect
of shrinking the available supply of bonds. Following that disclosure,
long-term Treasury issues shifted course; yields turned down and prices rose.
Later in the fiscal year, as investor confidence in the Fed's strategy grew,
fixed-income markets in general strengthened, with Treasuries moving up more
than other segments of the market. In June and July, the upturn was especially
robust; it produced over half of the fund's total return for the year.
In fiscal 2000, we added to the Bond Portfolio's holdings of Treasury issues
and increased our position in Ginnie Maes, which are backed by the full faith
and credit of the U.S. government. At the same time, we reduced the fund's
position in Freddie Mac securities (which are government-sponsored but not
guaranteed) and did some trimming in the corporate portion of the portfolio.
Our corporate holdings are high-grade, and by and large they held their ground
better than lower rated issues. However, corporate bonds in general - including
many of the fund's investments - did not fare as well as government securities
during the year.
[Begin Sidebar]
The Bond Portfolio continued to produce a steady flow of current income while
outpacing the majority of funds in its peer group.
[End Sidebar]
At the end of July, 27% of net assets was invested in U.S. Treasury and other
government bonds, up from 24% a year earlier; 32% was invested in mortgage- and
asset-backed obligations vs. 33% a year earlier. Corporate debt instruments
accounted for 34%, up slightly from 32% at the start of fiscal 2000. The
balance of net assets are held in short-term investments and cash equivalents.
The portfolio's maturity was shortened slightly in fiscal 2000. On July 31, its
average effective life was 7.8 years compared with 8.4 years at the start of
the fiscal year. Nearly all of that reduction took place in the first six
months.
On page 5, you will find an article exploring the history of the two portfolios
and discussing the investment approach used by Capital Research in managing
them over the past quarter-century. We welcome your comments and questions and
look forward to reporting to you again in another six months.
Cordially,
/s/ Robert G. O'Donnell
Robert G. O'Donnell
Chairman of the Board
/s/ Frank L. Ellsworth
Frank L. Ellsworth
President
September 20, 2000
The Value of a Long-Term Perspective
(Growth of a $50,000 investment under Capital Research and Management Company's
stewardship 7/25/75 - 7/31/00)
Growth and Income Portfolio
Average Annual Compound Returns
(for periods ended July 31, 2000)
Twenty-Five Years +14.34%/1/
Ten Years +13.30%
Five Years +14.33%
12 Months -3.31%
$1,948,848
S&P 500
$1,428,756
Growth
and Income
Portfolio
$159,225
Consumer
Price Index
(inflation)
Bond Portfolio
Average Annual Compound Returns
(for periods ended July 31, 2000)
Twenty-Five Years +9.19%/1/
Ten Years +7.71%
Five Years +6.09%
12 Months +5.13%
$461,839/3/
Lehman
Brothers
Aggregate
Bond Index
$450,928
Bond
Portfolio
$159,225
Consumer
Price Index
(inflation)
/1/From 7/25/75, when Capital Research and Management Company became the
investment adviser, through 7/31/00.
/2/The share value dipped below the $50,000 mark briefly in fiscal 1975 and
1976.
/3/Lehman Brothers Aggregate Bond Index did not exist until 12/31/75. For the
period from 7/31/75 to 12/31/75, the Lehman Brothers Government/Corporate Bond
Index was used.
All results calculated with dividends and capital gains reinvested.
Sales charges do not apply to the Growth and Income Portfolio or the Bond
Portfolio.
The indexes are unmanaged.
Past results are not predictive of future results.
A Conversation With the Chairman
[photo of Robert G. O'Donnell]
This past February, Robert G. O'Donnell was elected chairman of Endowments. He
continues to serve as a portfolio counselor of the Growth and Income Portfolio,
a responsibility he has had since 1991.
Mr. O'Donnell is a senior vice president and director of Endowments' investment
adviser, Capital Research and Management Company. He joined the Capital
organization in 1975, when Capital assumed the contract to manage ENDI and
BENDI* and several other funds that had been managed by the firm for which he
worked. Prior to becoming a portfolio counselor, he was an analyst for a number
of years, exploring investment opportunities for ENDI as well as other funds
managed by Capital Research.
*The acronyms ENDI and BENDI refer to these investment vehicles before they
became a series within Endowments in 1998. They are derived from the names by
which the funds were known prior to that year - Endowments, Inc. (now known as
Growth and Income Portfolio) and Bond Portfolio for Endowments, Inc. (now known
as Bond Portfolio).
In the following interview, Mr. O'Donnell reflected on the course taken by
Endowments over the years and the challenges it faces:
When you look back at Endowments' accomplishments during the past
quarter-century, what stands out?
Consistency of purpose. Endowments is still doing what it initially set out to
do: help nonprofit organizations meet their fiduciary responsibilities by
providing them with prudent, professional management of their assets. This was
the goal when ENDI and BENDI were formed a few years before Capital became the
investment adviser.
How did ENDI get started?
I wasn't present when operations began in 1971, but I arrived at my former
employer, American Express Investment Management Company, a year later, so I am
familiar with the circumstances. At the time, that firm had a number of small
nonprofit accounts with similar requirements. All of them were being managed
separately. It was inefficient, and we felt there was a better method of
managing these assets. So a decision was made to pool the assets and create an
equity fund that could provide the clients with professional, consistent
management and service.
What were the circumstances leading to the formation of BENDI?
Not long after ENDI started, it became clear that we also wanted to be able to
offer nonprofits a professionally managed portfolio of quality fixed-income
securities. Some clients wanted to be in bonds as well as, or instead of,
stocks. So BENDI was launched in 1972. From that point onward, shareholders in
ENDI and BENDI have been provided with what is sometimes called a
"do-it-yourself asset-allocation fund."
Have clients rather than investment managers traditionally made the
asset-allocation decisions?
Yes. We have provided our thoughts when asked to do so, but we do not make the
final choice between stocks and bonds for our shareholders. Our job is to offer
an equity portfolio and a fixed-income portfolio on a fully managed basis.
Is there a limit on the amount of assets that will be held in interest-bearing
cash equivalents?
There is a limit on ENDI. While our shareholders generally take a cautious
approach toward investing, their views on the subject can vary, and their
willingness to tolerate risk varies. There are those who might like us to stay
fully invested in equities, and others who believe that at times we should hold
a substantial cash reserve to reduce risk. Some years ago we settled on a
compromise between those two positions. We decided that we would normally keep
at least 80% of the Growth and Income Portfolio's assets invested in equities.
Right now the equity position is 81%.
What recollections do you have of the funds' early days?
I will never forget the period in 1974 when the U.S. equity market fell by more
than 40% from its high in January 1973. The stock portfolio's value went down,
too, though not nearly as much. I had only been in the business about two
years. Victor Parachini, who was managing the funds, and other colleagues would
return to our office from client meetings with grim stories of shareholders
shaken badly by the downturn. I came away from that experience with a painfully
clear sense of what losing part of an endowment can mean to these
organizations.
[photo of Robert G. O'Donnell]
Has that influenced the way the funds are managed?
Absolutely. We pay very careful attention to the objective of capital
preservation. I take a great deal of comfort from the fact that for more than
two decades now we have never had to tell ENDI's shareholders, "Hey, we just
lost a big chunk of your money." That's not to say the fund has never gone
down; it has. But it has enjoyed relatively low volatility as evidenced by the
fact that over its lifetime ENDI has been 19% less volatile than the S&P 500.
Let's talk for a moment about the shareholder base.
It has always been made up primarily of medium-size and smaller nonprofits,
although we do have a few larger accounts. At the outset, most of our clients
were headquartered in the San Francisco Bay Area. The shareholder base has
since broadened geographically. Typically, the charitable organizations that
are logical candidates for Endowments require an investment approach tailored
to their particular needs; however, they are not large enough to be able to
afford to hire their own investment manager.
From your perspective, has there been any pattern to the way in which
tax-exempt organizations have become shareholders?
Quite a few of our clients have come to us after concluding that they were not
being well served in the way their assets were managed. It's not uncommon for
them to have had a board of directors unfamiliar with investing, except for
perhaps one person who seemed to know something about it. Frequently, other
directors will cede the responsibility of managing the assets to that person.
However, all too often he or she turns out to have a definite view of how the
money should be invested that isn't consistent with the requirements of the
organization. At some point, the board recognizes the need for more formal
investment management.
Have there been many significant changes in Endowments over the years?
Surprisingly few. We have expanded Endowments to allow for charitable trusts
and other vehicles for planned-giving - that's a significant improvement. The
array of services we offer shareholders has broadened. For instance, we now
offer seminars. Our communications with the clientele - verbal and written -
have been strengthened substantially. Other than that, most of the changes have
been relatively modest.
Any changes affecting how the assets are managed?
Mainly refinements. For example, the percentage of ENDI's assets that can be
invested in the stocks of companies based outside the United States was raised
to 10% of assets from 5% prior to 1994. We clarified ENDI's prospectus in 1997
to add conservation of capital as an objective, but all we were really doing
was codifying the way the portfolio was - and still is - managed. In 1999, the
percentage of BENDI's assets that can be invested outside the U.S. and Canada
was raised to 20% from 10%, and BENDI was permitted to invest up to 10% of the
assets in securities denominated in currencies other than the U.S. dollar. But
basically, ENDI and BENDI are what they have always been - a high-quality stock
portfolio and a high-quality bond portfolio. With both, we remain mindful of
the importance of providing clients with reliable stewardship of their money,
and we try to steer a steady course in an attempt to minimize volatility.
It seems as if one of your main challenges in recent years has been to remind
investors that markets go down as well as up.
That has been very frustrating. We have gone through an abnormal period in the
U.S. equity market. When you have a handful of stocks shooting upward and
pulling the indexes higher while most issues are declining, some investors
begin to wonder if this is the way the world will be forever. We believe it is
an aberration, but only time will tell.
Looking ahead, what are some of the other challenges facing Endowments?
Reaching out to prospective clients more effectively and letting them know what
we have to offer. Expanding the asset base is very important. The two go hand
in hand, of course. Endowments and its two portfolios represent Capital's way
of helping nonprofits.
[photo of Robert G. O'Donnell]
You have been Chairman for half a year now. Are you having any fun?
Most of what I do is fun, and challenging. It's challenging because we have a
lot of work ahead of us. It's fun because I have the good fortune of being
surrounded by a great group of people, some of whom I have known for a long
time. My relationships with Claudia Huntington, one of our portfolio
counselors, and Tom Terry, formerly the president of the funds and now a
trustee, go back to the funds' formative years in the early '70s. Abner
Goldstine has been managing money for the Bond Portfolio and its predecessor
since 1975, and John Smet has been one of the portfolio counselors since 1989.
We have a team of experienced counselors who are able to draw on the resources
of one of the industry's largest and most respected research organizations.
Capital Research has highly skilled people in other areas, too. Frank Ellsworth
(Endowments president) has done a particularly fine job of broadening the range
of services offered to investors. The board of trustees is an exceptional group
consisting primarily of individuals in leadership positions with charitable
organizations, many of which are shareholders. We work very closely with them.
<TABLE>
Endowments - Growth and Income Portfolio
JULY 31, 2000
<S> <C>
Investment Mix - By Industry
Insurance 9.73%
Health & Personal Care 8.37%
Food & Household Products 7.39%
Merchandising 7.22%
Banking 6.47%
Utilities: Electric & Gas 4.70%
Real Estate 3.87%
Beverages & Tobacco 3.63%
Business & Public Services 3.12%
Energy Sources 2.56%
Industrial Components 2.40%
Chemicals 2.30%
Aerospace & Military Technology 2.29%
Recreation & Other Consumer Products 1.94%
Machinery & Engineering 1.91%
Forest Products & Paper 1.75%
Transportation: Rail & Road 1.49%
Electronic Components 1.45%
Financial Services 1.21%
Leisure & Tourism 1.05%
Textiles & Apparel 0.87%
Broadcasting & Publishing 0.86%
Appliances & Household Durables 0.78%
Diversified Telecommunication Services 0.55%
Electrical & Electronics 0.53%
Subtotal 78.44%
Short terms 18.28%
Excess of payables over cash and receivables 0.96%
TOTAL NET ASSETS 100.00%
TEN LARGEST HOLDINGS Percent of
Net Assets
Allstate 2.20%
Bristol-Myers Squibb 2.18%
HCC Insurance Holdings 2.05%
Albertson's 1.81%
Philip Morris 1.77%
Kimberly-Clark 1.72%
Flowers Industries 1.71%
Campbell Soup 1.90%
Pennzoil-Quaker State 1.50%
CSX 1.49%
18.02%
</TABLE>
<TABLE>
Endowments, Growth and Income Portfolio
Investment Portfolio, July 31, 2000
<S> <C> <C> <C>
Market Percent
Shares Value of Net
Equity Securitites Assets
-------------------------------------------- -------- -------- --------
ENERGY
ENERGY SOURCES - 2.56%
Chevron Corp. 5,000 $ 395,000 .79%
Conoco Inc., Class A 13,000 290,875 .58
Texaco Inc. 12,000 593,250 1.19
UTILITIES: ELECTRIC & GAS - 4.70%
Ameren Corp. 15,000 542,813 1.08
GPU, Inc. 20,000 530,000 1.06
NSTAR 18,000 729,000 1.46
TECO Energy, Inc. 25,000 548,437 1.10
---------- ----------
3,629,375 7.26
---------- ----------
MATERIALS
CHEMICALS - 2.30%
Crompton Corp. (formerly CK Witco Corp.) 28,000 274,750 .55
Hercules Inc. 10,000 149,375 .30
International Flavors & Fragrances Inc. 15,000 401,250 .80
PPG Industries, Inc. 8,000 325,500 .65
FOREST PRODUCTS & PAPER - 1.75%
International Paper Co. 15,000 510,000 1.02
Weyerhaeuser Co. 8,000 365,500 .73
---------- ----------
2,026,375 4.05
---------- ----------
CAPITAL EQUIPMENT
AEROSPACE & MILITARY TECHNOLOGY - 2.29%
Lockheed Martin Corp. 20,000 562,500 1.12
Raytheon Co., Class A 25,000 584,375 1.17
ELECTRICAL & ELECTRONICS - 0.53%
Nokia Corp., Class A (ADR) (Finland) 6,000 265,875 .53
ELECTRONIC COMPONENTS - 1.45%
Texas Instruments Inc. 8,400 492,975 .98
Thomas & Betts Corp. 12,000 234,000 .47
INDUSTRIAL COMPONENTS - 2.40%
Genuine Parts Co. 20,000 401,250 .80
Goodyear Tire & Rubber Co. 15,000 299,062 .60
Illinois Tool Works, Inc. 4,000 229,000 .46
TRW Inc. 6,000 269,625 .54
MACHINERY & ENGINEERING - 1.91%
Caterpillar Inc. 7,000 238,437 .48
Deere & Co. 10,000 385,625 .77
Foster Wheeler Corp. 45,000 329,062 .66
---------- ----------
4,291,786 8.58
---------- ----------
CONSUMER GOODS
APPLIANCES & HOUSEHOLD DURABLES - 0.78%
Newell Rubbermaid Inc. 14,500 390,594 .78
BEVERAGES & TOBACCO - 3.63%
Imperial Tobacco Ltd. PLC (United Kingdom) 25,000 243,425 .49
PepsiCo, Inc. 15,000 687,188 1.37
Philip Morris Companies Inc. 35,000 883,750 1.77
FOOD & HOUSEHOLD PRODUCTS - 7.39%
Campbell Soup Co. 30,000 795,000 1.59
Flowers Industries, Inc. 40,000 852,500 1.71
General Mills, Inc. 14,000 481,250 .96
H.J. Heinz Co. 10,000 399,375 .80
Sara Lee Corp. 30,000 553,125 1.11
Wm. Wrigley Jr. Co. 8,000 608,000 1.22
HEALTH & PERSONAL CARE - 8.37%
Avon Products, Inc. 17,000 674,687 1.35
Becton, Dickinson and Co. 22,000 555,500 1.11
Bristol-Myers Squibb Co. 22,000 1,091,750 2.18
Kimberly-Clark Corp. 15,000 861,562 1.72
Merck & Co., Inc. 8,000 573,500 1.15
Pfizer Inc 10,000 431,250 .86
RECREATION & OTHER CONSUMER PRODUCTS - 1.94%
Pennzoil-Quaker State Co. 60,000 750,000 1.50
Polaroid Corp. 12,100 219,313 .44
TEXTILES & APPAREL - 0.87%
NIKE, Inc., Class B 10,000 437,500 .87
---------- ----------
11,489,269 22.98
---------- ----------
SERVICES
BROADCASTING & PUBLISHING - 0.86%
Gannett Co., Inc. 8,000 431,000 .86
BUSINESS & PUBLIC SERVICES - 3.12%
Interpublic Group of Companies, Inc. 10,000 400,625 .80
Pitney Bowes Inc. 17,800 616,325 1.23
Service Corp. International 52,800 135,300 .27
UnitedHealth Group Inc. (formerly United 5,000 409,063 .82
HealthCare Corp.)
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.55%
Telefonos de Mexico, SA de CV 4.25% convertible 220,000 273,843 .55
debentures 2004 (Mexico)
LEISURE & TOURISM - 1.05%
Seagram Co. Ltd. 7.50% Automatic Common Exchange 3,700 194,712 .39
Securities convertible preferred 2002 (Canada)
Walt Disney Co. 8,500 328,844 .66
MERCHANDISING - 7.22%
Albertson's, Inc. 30,000 905,625 1.81
Dollar General Corp. 28,250 519,094 1.04
Gap, Inc. 10,000 358,125 .72
J.C. Penney Co., Inc. 45,000 725,625 1.45
May Department Stores Co. 30,000 712,500 1.42
Walgreen Co. 12,500 389,844 .78
TRANSPORTATION: RAIL & ROAD - 1.49%
CSX Corp. 30,000 744,375 1.49
---------- ----------
7,144,900 14.29
---------- ----------
FINANCE
BANKING - 6.47%
Bank of America Corp. 14,500 686,938 1.37
Bank of Tokyo-Mitsubishi, Ltd. (ADR) (Japan) 25,000 253,125 .51
BANK ONE CORP. 16,500 524,906 1.05
Fulton Financial Corp. 28,875 620,812 1.24
National City Corp. 30,000 532,500 1.06
Wells Fargo & Co. 15,000 619,687 1.24
FINANCIAL SERVICES - 1.21%
Fannie Mae 5,800 289,275 .58
Freddie Mac 8,000 315,500 .63
INSURANCE - 9.73%
Aetna Inc. 5,000 277,500 .55
Allstate Corp. 40,000 1,102,500 2.20
American International Group, Inc. 6,000 526,125 1.05
HCC Insurance Holdings, Inc. 50,000 1,025,000 2.05
Mercury General Corp. 20,000 522,500 1.05
Royal & Sun Alliance Insurance Group PLC (United 60,000 364,014 .73
Kingdom)
Trenwick Group Inc. 20,000 352,500 .71
XL Capital Ltd., Class A 10,500 693,000 1.39
REAL ESTATE - 3.87%
Apartment Investment and Management Co., Class A 10,000 483,750 .97
Archstone Communities Trust 20,000 518,750 1.04
Boston Properties, Inc. 10,000 415,000 .83
Spieker Properties, Inc. 10,000 516,875 1.03
---------- ----------
10,640,257 21.28
MISCELLANEOUS
Other equity securities in initial period 1,158,751 2.32
of acquisition
---------- ----------
---------- ----------
Total Equity Securities (cost: $44,251,136) 40,380,713 80.76
Principal Market Percent
Amount Value of Net
Short-Term Securities Assets
-------------------------------------------- -------- -------- --------
CORPORATE SHORT-TERM NOTES - 17.09%
Anheuser-Busch Comapnies, Inc. 6.52% due 8/16/00 900,000 897,380 1.79
AT&T Corp. 6.53% due 9/6/00 900,000 893,956 1.79
Bellsouth Telecommunications, Inc. 6.50% due 8/15/00 700,000 698,100 1.40
Colgate-Palmolive Co. 6.52% due 8/15/00(1) 1,000,000 997,274 1.99
General Electric Capital Corp. 6.46% due 8/1/00 980,000 979,824 1.96
Hershey Foods Corp. 6.50% due 9/19/00 1,000,000 990,972 1.98
John Hancock Capital Corp. 6.50% due 8/11/00(1) 1,100,000 1,097,812 2.19
Kimberly-Clark Corp. 6.52% due 8/8/00(1) 1,000,000 998,544 2.00
Procter & Gamble Co. 6.53% due 8/31/00 1,000,000 994,363 1.99
---------- ----------
8,548,225 17.09
---------- ----------
FEDERAL AGENCY SHORT-TERM OBLIGATIONS - 1.19%
Federal Home Loan Mortgage Corp. 6.40% due 9/19/00 600,000 594,663 1.19
---------- ----------
594,663 1.19
---------- ----------
---------- ----------
Total Short-Term Securities (cost: $9,142,888) 9,142,888 18.28
---------- ----------
Total Investment Securities (cost:$53,394,024) 49,523,601 99.04
Excess of cash and receivables over payables 478,590 .96
---------- ----------
NET ASSETS $50,002,191 100.00
---------- ----------
(1)Purchased in a private placement transaction;
resale may be limited to qualified institutional
buyers; resale to the public may require
registration.
ADR = American Depositary Receipts
See Notes to Financial Statements
</TABLE>
Companies Added to the Portfolio since January 31, 2000
American International Group
Bank of America
Bristol-Myers Squibb
Chevron
CSX
Dollar General
Fannie Mae
Flowers Industries
Freddie Mac
Gap
Goodyear Tire & Rubber
H.J. Heinz
Illinois Tool Works
Interpublic Group of Companies
Newell Rubbermaid
NIKE
Pfizer
Pitney Bowes
Polaroid
Service Corp.
Thomas & Betts
TRW
Walgreen
Walt Disney
Companies Eliminated from the Portfolio since January 31, 2000
Alcoa
Allegheny Technologies
American National Can Group
Atlantic Richfield
Corning
DPL
Eaton
Eli Lilly
FleetBoston Financial
Gerogia-Pacific
Glaxo Wellcome
Hitachi
Huntington Bancshares
Monsanto
Norfolk Southern
Praxair
US West
Ultramar Diamond Shamrock
<TABLE>
Endowments, Bond Portfolio
Investment Portfolio, July 31, 2000
<S> <C> <C> <C>
BONDS, NOTES & PREFERRED STOCKS Principal Market Percent
Amount(000) Value of Net
Assets
-------------------------------------------- -------- -------- --------
INDUSTRIALS - 11.87%
BHP Finance Ltd. 8.50% 2012 $145 $151,042 .47
Cendant Corp. 7.75% 2003 250 241,120 .76
Clear Channel Communications, Inc. 7.875% 2005 200 201,844 .63
Columbia/HCA Healthcare Corp. 8.85% 2007 125 123,750 .39
Equistar Chemicals LP 8.75% 2009 250 245,550 .77
Fox/Liberty Networks, LLC, FLN Finance, 450 452,250 1.42
Inc. 8.875% 2007
Hasbro, Inc. 7.95% 2003 250 248,172 .78
Hyundai Semiconductor America, Inc. 200 169,967 .53
8.625% 2007(1)
Inco Ltd. 9.60% 2022 700 687,414 2.16
J.C. Penney Co., Inc.:
7.65% 2016 200 159,200
7.95% 2017 200 163,492 1.01
Lilly Del Mar Inc. 7.80% 2029(1,3) 250 249,982 .78
Petrozuata Finance, Inc., Series A, 7.63% 2009(1) 250 211,471 .66
Scotia Pacific Co. LLC, Series B:
Class A-1, 6.55% 2028 213 198,768
Class A-3, 7.71% 2028 (2) 250 170,000 1.16
Waste Management, Inc. 6.875% 2009 125 111,576 .35
---------- ----------
3,785,598 11.87
---------- ----------
ELECTRIC UTILITIES - 0.87%
Israel Electric Corp. Ltd.:(1)
7.75% 2009 125 121,290
7.75% 2027 175 155,802 .87
---------- ----------
277,092 .87
---------- ----------
MULTI-INDUSTRY - 1.36%
Swire Pacific Capital Ltd. 8.84% cumulative 10,000 shares 200,000 .63
guaranteed perpetual capital securities(1)
Wharf International Finance Ltd., $250 233,210 .73
Series A, 7.625% 2007
---------- ----------
433,210 1.36
---------- ----------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.95%
Bell Atlantic Financial Services, Inc., senior 250 244,637 .77
exchangeable notes, 5.75% 2003
Ingram Micro Inc. 0% convertible debentures 2018 1,000 376,250 1.18
---------- ----------
620,887 1.95
---------- ----------
GAS AND ELECTRIC - 0.81%
AES Drax Holdings Ltd. 10.41% 2020 (1) 250 258,437 .81
---------- ----------
258,437 .81
---------- ----------
TRANSPORTATION - 7.97%
Airplanes Pass Through Trust, pass-through 1,166 1,084,922 3.40
certificates, Series 1, Class C, 8.15% 2019(2)
Continental Airlines, Inc., pass-through
certificates:(2)
Series 1998-3, Class A-2, 6.32% 2008 125 113,235
Series 2000-1, Class A-1, 8.048% 2020 250 250,155 1.14
Jet Equipment Trust, Series 1994-A, Class B1, 750 843,592 2.65
11.79% 2013(1)
Northwest Airlines, Inc., pass-through 247 249,661 .78
certificates, Series 1999-3, Class G 7.935%
2019(2)
---------- ----------
2,541,565 7.97
---------- ----------
FINANCIAL - 14.32%
Abbey National PLC 6.70% (undated)(3) 200 178,176 .56
Allstate Corp.:
7.875% 2005 400 403,364
7.20% 2009 250 239,232 2.02
BNP U.S. Funding LLC, Series A, 7.738% 500 463,840 1.45
noncumulative preferred (undated)(1)(3)
Capital One Bank 8.25% 2005 200 200,012 .63
Conseco Financing Trust II, Capital Trust 125 56,250
pass-through securities (TRUPS), 8.70% 2026(2)
Conseco, Inc. 9.00% 2006 125 85,000 .44
Ford Motor Credit Co. 5.80% 2009 150 131,250 .41
General Motors Acceptance Corp. 9.00% 2002(3) 300 309,444 .97
HSBC Capital Funding LP, Series 1, 9.547% 750 780,798 2.45
noncumulative preferred (undated)(1)(3)
MBNA Corp., MBNA Capital:
Series A, 8.278% 2026 250 206,917
Series B, 7.191% 2027(3) 200 167,436 1.17
NB Capital Corp. 8.35% exchangeable 10,000 shares 231,250 .73
depositary shares
Regional Diversified Funding Ltd. 9.25% 2030 125 121,704 .38
ReliaStar Financial Corp. 8.00% 2006 125 126,426 .40
Royal Bank of Scotland 9.118% (undated) 200 208,142 .65
SocGen Real Estate Co. LLC, Series A, 250 229,980 .72
7.64%(undated)(1)(3)
Washington Mutual Capital I, subordinated 250 222,357
capital income securities, 8.375% 2027
Washington Mutual Finance 8.25% 2005 200 203,290 1.34
---------- ----------
4,564,868 14.32
---------- ----------
REAL ESTATE - 0.37%
ProLogis Trust 7.05% 2006 125 118,245 .37
---------- ----------
118,245 .37
---------- ----------
COLLATERALIZED MORTGAGE/ASSET-BACKED
OBLIGATIONS(2) - 11.19%
Chase Commercial Mortgage Securities Corp., 250 232,747 .73
Series 1998-2, Class A-2, 6.39% 2030
CS First Boston Mortgage Securities Corp., 210 202,534 .64
Series 1998-C1, Class A-1A, 6.26% 2040
GMAC Commercial Mortgage Securities, Inc., 125 120,884 .38
Series 1997-C1, Class A3, 6.869% 2007
Green Tree Financial Corp., pass-through 246 141,757 .45
certificates, Series 1996-5, Class B-2,
8.45% 2027
GS Mortgage Securities Corp. II, pass-through
certificates, Series 1998-C1:(3)
Class D, 7.242% 2030 250 229,967 .72
Class E, 7.242% 2030 250 221,029 1.41
L.A. Arena Funding, LLC, Series 1, Class A, 325 305,090 .96
7.656% 2026 (1)
Morgan Stanley Capital I Inc., Series 1998-HF2, 500 470,617 1.48
Class A-2, 6.48% 2030
Nomura Asset Securities Corp., Series 1998-D6, 206 199,585 .62
Class A-A1, 6.28% 2030
Norwest Asset Securities Corp., Series 1998-31, 206 196,459 .61
Class A-1, 6.25% 2014
PP&L Transition Bond Co. LLC, Series 1999-1, 250 247,836 .78
Class A-7, 7.05% 2009(2)
Pegasus Aviation Lease Securitization, 500 508,450 1.59
Series 2000-1, Class A2, 8.37% 2030(1)(2)
Puerto Rico Public Financing Corp., Series 1, 232 219,337 .69
Class A, 6.15% 2008
Structured Asset Securities Corp., Series 268 272,453 .85
1998-RF2, Class A, 8.54% 2027(1)(3)
---------- ----------
3,568,745 11.19
---------- ----------
FEDERAL AGENCY OBLIGATIONS - Mortgage
Pass-Throughs(2) - 14.76%
Fannie Mae:
7.00% 2026 384 373,767
9.00% 2020 80 82,636 1.43
Freddie Mac:
7.00% 2015 244 239,392
8.75% 2008 50 51,183
9.00% 2020 55 56,220 1.17
12.50% 2019 23 25,600
Government National Mortgage Assn.:
7.00% 2024-2029 1,585 1,540,732
7.50% 2023-2030 1,023 1,014,521
8.00% 2023 636 640,549
8.50% 2008 162 167,221 12.16
10.00% 2019-2020 489 515,275
---------- ----------
4,707,096 14.76
---------- ----------
FEDERAL AGENCY OBLIGATIONS -OTHER - 1.47%
Federal Home Loan Bank Bonds 5.625% 2001 250 248,125 .78
Freddie Mac 5.125% 2008 250 218,750 .69
---------- ----------
466,875 1.47
---------- ----------
GOVERNMENTS (excluding U.S. Government) &
GOVERNMENTAL AUTHORITIES - 0.46%
United Mexican States Government Eurobonds, 125 145,438 .46
Global, 11.375% 2016
---------- ----------
145,438 .46
---------- ----------
U.S. TREASURY OBLIGATIONS - 25.59%
13.375% August 2001 1,000 1,068,280
11.625% November 2002 1,640 1,817,843
11.125% August 2003 400 451,500
11.625% November 2004 2,015 2,414,212
5.50% May 2009 500 479,685
8.875% August 2017 1,500 1,928,670 25.59
---------- ----------
8,160,190 25.59
---------- ----------
Total Bonds, Notes, and Preferred Stocks 29,648,246 92.99
(cost: $31,131,691)
Principal Market Percent
Amount(000) Value of Net
Short-Term Securities Assets
-------------------------------------------- -------- -------- --------
Corporate Short-Term Notes - 6.89%
Associates Corp. of North America 6.64% 500 499,908 1.57
due 8/1/00
AT&T Corp. 6.53% due 9/6/00 500 496,642 1.56
Estee Lauder Companies Inc. 6.60% due 8/2/00(1) 700 699,742 2.19
Paccar Financial Corp. 6.48% due 8/7/00 500 499,370 1.57
---------- ----------
2,195,662 6.89
---------- ----------
---------- ----------
Total Short-Term Securities (cost: $2,195,662) 2,195,662 6.89
---------- ----------
Total Investment Securities (cost:$33,327,353) 31,843,908.00 99.88
Excess of cash and receivables over payables 40,047 .12
---------- ----------
NET ASSETS $31,883,955 100.00
---------- ----------
(1) Purchased in a private placement
transaction; resale may be limited to qualified
institutional buyers; resale to the public
may require registration.
(2) Pass-through securities backed by a pool of
mortgages or other loans on
which principal payments are periodically made.
Therefore, the effective maturities
are shorter than the stated maturities.
(3) Coupon rate may change periodically.
See Notes to Financial Statements
</TABLE>
<TABLE>
Endowments
Financial Statements
Growth and
Statement of Assets and Liabilities Income Bond
at July 31, 2000 Portfolio Portfolio
<S> <C> <C>
Assets:
Investment securities at market
(cost: $53,394,024 and $33,327,353, respectively) $49,523,601 $31,843,908
Cash 62,551 50,134
Receivables for-
Sales of investments $0
Sales of investments 480,009 3,843
Sales of fund's shares 0 0
Dividends and accrued interest 91,516 519,539
Reimbursement of expenses from
investment adviser - -
________________ ________________
Total Assets 50,157,677 32,417,424
________________ ________________
Liabilities:
Payables for -
Purchases of investments 111,369 498,060
Management services 21,454 12,827
Accrued expenses 22,663 22,582
________________ ________________
Total Liabilities 155,486 533,469
________________ ________________
Net Assets at July 31, 2000 $50,002,191 $31,883,955
Shares outstanding(1) 4,186,402 2,019,578
Net asset value per share $ 11.94 $ 15.79
(1)Shares of beneficial interest issued
and outstanding; unlimited shares authorized.
See Notes to Financial Statements
Endowments
Statement of Operations Growth and
for the year ended July 31, 2000 Income Bond
Portfolio Portfolio
Investment Income:
Income:
Dividends $ 1,262,066 $ 42,972
Interest 594,308 2,501,551
________________ ________________
Total Income 1,856,374 2,544,523
________________ ________________
Expenses:
Management services fee 246,200 158,602
Transfer agent fee 20,882 20,884
Reports to shareholders 18,948 18,948
Registration statement and prospectus 16,152 12,758
Postage, stationery and supplies 740 740
Auditing fees 32,600 33,100
Legal fees 6,664 6,664
Trustees' meeting expenses 17,942 17,942
Custodian fee 1,192 679
Other 247 229
________________ ________________
Total expenses before reimbursement 361,567 270,546
Reimbursement of expenses 0 34,637
________________ ________________
Net Expenses 361,567 235,909
________________ ________________
Net investment income 1,494,807 2,308,614
________________ ________________
Realized Gain (Loss) and Change in Unrealized
Depreciation on Investments:
Net realized gain (loss) 3,286,983 (725,335)
Net change in unrealized depreciation
on investments (6,415,185) 16,577
________________ ________________
Net realized gain (loss) and change in
unrealized depreciation on investments (3,128,202) (708,758)
________________ ________________
Net (Decrease) Increase in Net Assets
Resulting from Operations $(1,633,395) $ 1,599,856
See Notes to Financial Statements
Endowments, Growth and Income Portfolio
Statement of Changes in Net Assets
Year Ended July 31
2000 1999
Operations:
Net investment income $ 1,494,807 $ 1,359,022
Net realized gain on investments 3,286,983 3,548,696
Net unrealized (depreciation) appreciation
on investments (6,415,185) 3,069,731
________________ ________________
Net (decrease) increase in net assets resulting
from operations (1,633,395) 7,977,449
________________ ________________
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (1,343,521) (1,251,179)
Distributions from net realized
gain on investments (4,153,742) -
________________ ________________
Total dividends and distributions (5,497,263) (1,251,179)
________________ ________________
Capital Share Transactions:
Proceeds from shares sold:
468,897 and 428,901
shares, respectively 5,564,786 5,431,127
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
432,522 and 71,284 shares,
respectively 5,051,873 890,752
Cost of shares repurchased:
421,677 and 362,633
shares, respectively (5,046,798) (4,626,061)
________________ ________________
Net increase in net assets
resulting from capital share transactions 5,569,861 1,695,818
________________ ________________
Total (Decrease) Increase in Net Assets (1,560,797) 8,422,088
Net Assets:
Beginning of year 51,562,988 43,140,900
________________ ________________
End of year (including undistributed
net investment income: $257,826 and
$107,548, respectively) $50,002,191 $51,562,988
See Notes to Financial Statements
Endowments, Bond Portfolio
Statement of Changes in Net Assets
Year Ended July 31
2000 1999
Operations:
Net investment income $ 2,308,614 $ 2,035,407
Net realized loss on investments (725,335) (81,253)
Net unrealized appreciation (depreciation) on
investments 16,577 (1,472,279)
________________ ________________
Net increase in net assets resulting
from operations 1,599,856 481,875
________________ ________________
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (2,288,482) (1,880,282)
Distributions from net realized
gain on investments (23,049) -
________________ ________________
Total dividends and distributions (2,311,531) (1,880,282)
________________ ________________
Capital Share Transactions:
Proceeds from shares sold:
335,621 and 265,672
shares, respectively 5,334,660 4,421,000
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
74,919 and 49,414 shares,
respectively 1,177,970 819,899
Cost of shares repurchased:
335,150 and 88,164
shares, respectively (5,355,440) (1,483,454)
________________ ________________
Net increase in net assets resulting
from capital share transactions 1,157,190 3,757,445
________________ ________________
Total Decrease Increase in Net Assets 445,515 2,359,038
Net Assets:
Beginning of year 31,438,440 29,079,402
________________ ________________
End of year (including undistributed
net investment income: $175,785 and
$155,563, respectively) $31,883,955 $31,438,440
See Notes to Financial Statements
</TABLE>
ENDOWMENTS
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Endowments (the "trust") is registered under the Investment
Company Act of 1940 as an open-end, diversified management investment company
and has initially issued two series of shares, Growth and Income Portfolio and
Bond Portfolio (the "funds"). Growth and Income Portfolio seeks to provide
long-term growth of principal, with income and preservation of capital as
secondary objectives, primarily through investments in common stocks. Bond
Portfolio seeks to provide as high a level of current income as is consistent
with preservation of capital.
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared
in conformity with generally accepted accounting principles which require
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies consistently followed by the trust in the preparation of its financial
statements:
SECURITY VALUATION - Equity securities, including depositary receipts, are
valued at the last reported sale price on the exchange or market on which such
securities are traded, as of the close of business on the day the securities
are being valued or, lacking any sales, at the last available bid price. In
cases where equity securities are traded on more than one exchange, the
securities are valued on the exchange or market determined by the investment
adviser to be the broadest and most representative market, which may be either
a securities exchange or the over-the-counter market.
Fixed-income securities are valued at prices obtained from a pricing service,
when such prices are available; however, in circumstances where the investment
adviser deems it appropriate to do so, such securities will be valued at the
mean quoted bid and asked prices or at prices for securities of comparable
maturity, quality and type. Short-term securities maturing within 60 days are
valued at amortized cost, which approximates market value. Securities and
assets for which representative market quotations are not readily available are
valued at fair value as determined in good faith by a committee appointed by
the Board of Trustees.
The ability of the issuers of the fixed income securities held by the trust to
meet their obligations may be affected by economic developments in a specific
industry, state or region.
NON-U.S. CURRENCY TRANSLATION - Assets and liabilities initially expressed in
terms of non-U.S. currencies are translated into U.S. dollars at the prevailing
market rates at the end of the reporting period. Purchases and sales of
securities and income and expenses are translated into U.S. dollars at the
prevailing market rates on the dates of such transactions. The effects of
changes in non-U.S. currency exchange rates on investment securities and other
assets and liabilities are included with the net realized and unrealized gain
or loss on investment securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions are
accounted for as of the trade date. Realized gains and losses from securities
transactions are determined based on specific identified cost. In the event
securities are purchased on a delayed delivery or $when-issued' basis, the
funds will instruct the custodian to segregate liquid assets sufficient to meet
its payment obligations in these transactions. Dividend income is recognized on
the ex-dividend date, and interest income is recognized on an accrual basis.
Market discounts and original issue discounts on securities purchased are
amortized daily over the expected life of the security. The trust does not
amortize premiums on securities purchased.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions paid
to shareholders are recorded on the ex-dividend date.
2. NON-U.S. INVESTMENT RISK
INVESTMENT RISK - Investments in securities of non-U.S. issuers in certain
countries involve special investment risks. These risks may include, but are
not limited to, investment and repatriation restrictions, revaluation of
currencies, adverse political, social, and economic developments, government
involvement in the private sector, limited and less reliable investor
information, lack of liquidity, certain local tax law considerations, and
limited regulation of the securities markets.
3. FEDERAL INCOME TAXATION
The funds comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and intends to distribute all of their net
taxable income and net capital gains for the fiscal year.
As regulated investment companies, the funds are not subject to income taxes if
such distributions are made. Required distributions are determined on a tax
basis and may differ from net investment income and net realized gains for
financial reporting purposes. In addition, the fiscal year in which amounts
are distributed may differ from the year in which the net investment income and
net realized gains are recorded by the funds.
As of July 31 2000, net unrealized depreciation on investments for book and
federal income tax purposes for Growth and Income Portfolio aggregated
$3,870,423, of which $7,244,562 related to depreciated securities and
$3,374,139 related to appreciated securities. For Bond Portfolio, net
unrealized depreciation aggregated $1,483,445, of which $1,667,628 related to
depreciated securities and $184,183 related to appreciated securities. For the
Growth and Income Portfolio there was no difference between book and tax
realized gains and losses on securities transactions for the year ended July
31, 2000.
During the year ended July 31, 2000, the Bond Portfolio realized, on a tax
basis, a net capital loss of $237,139 on securities transactions. The Bond
Portfolio had available at July 31, 2000, a net capital loss carryforward
totaling $339,849 which may be used to offset gains realized during subsequent
years through 2008 and thereby relieve the Bond Portfolio and its shareholders
of any federal income tax liability with respect to the capital gains that are
so offset. The Bond Portfolio will not make distributions from capital gains
while a capital loss carryforward remains. In addition, the Bond Portfolio has
recognized, for tax purposes, capital losses totalling $102,710 which were
realized during the period November 1, 1998 through July 31, 1999 and has
deferred, for tax purposes, to fiscal year ending July 31, 2001, the
recognition of capital losses of $488,196 which were realized during period
November 1, 1999 to July 31, 2000. The cost of portfolio securities for book
and federal income tax purposes was $53,394,024 and $33,327,353 for Growth and
Income and Bond Portfolios, respectively, at July 31, 2000.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE -
The fees of $246,200 and $158,602 for Growth and Income and Bond Portfolios,
respectively, for management services were incurred pursuant to an agreement
with Capital Research and Management Company (CRMC), with which certain
officers and Trustees of the trust are affiliated. The Investment Advisory and
Service Agreement provides for monthly fees, accrued daily, based on an annual
rate of 0.50% of the first $150 million of average net assets and 0.40% of such
assets in excess of $150 million.
The Investment Advisory and Service Agreement provides for a fee reduction to
the extent that annual operating expenses exceed 0.75% of the average daily net
assets of the funds. Expenses that are not subject to these limitations are
interest, taxes, brokerage commissions, transaction costs, and extraordinary
expenses. Fee reductions were $34,637 for Bond Portfolio for the year ended
July 31, 2000. No such fee reduction was required for Growth and Income
Portfolio.
No fees were paid by the funds to its officers or Trustees. The independent
Trustees were reimbursed by the trust for expenses incurred while traveling to
fund meetings.
TRANSFER AGENT FEE - American Funds Service Company (AFS), the transfer agent
for the funds, were paid fees of $20,882 and $20,884 for Growth and Income and
Bond Portfolios, respectively.
AFFILIATED DIRECTORS' AND OFFICERS - CRMC is owned by The Capital Group
Companies, Inc. AFS and AFD are both wholly owned subsidiaries of CRMC.
Officers of the trust and certain Trustees and are or may be considered to be
affiliated with CRMC, AFS and AFD. No such persons received any remuneration
directly from the funds.
5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
Pursuant to the custodian agreement, the fund receives credits against their
custodian fees for imputed interest on certain balances with the custodian
bank. The custodian fees of $1,192 and $679 for Growth and Income and Bond
Portfolios, respectively, were paid by these credits rather than in cash.
<TABLE>
Growth and Income Bond
Portfolio Portfolio
<S> <C> <C>
As of July 31,2000:
Accumulated undistributed
net realized gain (loss)
on investments $2,683,240 ($829,953)
Paid-in capital 50,931,588 34,021,568
During the year ended
July 31, 2000:
Purchases and sales of
investment securities,
excluding short-term
securities
Purchases 25,457,386 19,250,973
Sales 23,662,295 16,977,596
</TABLE>
<TABLE>
Endowments, Growth and Income Portfolio
Per-Share Data and Ratios
Year ended July 31
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $13.91 $12.09 $22.66 $18.61 $18.06
______ ______ ______ ______ ______
Income From Investment Operations:
Net investment income .37 .37 .51 .56 .58
Net loss or gains on securities (both
realized and unrealized) (.89) 1.79 1.16 6.04 1.73
______ ______ ______ ______ ______
Total from investment operations (.52) 2.16 1.67 6.60 2.31
______ ______ ______ ______ ______
Less Distributions:
Dividends (from net investment income) (.34) (.34) (.57) (.55) (.61)
Distributions (from capital gains) (1.11) - (11.67) (2.00) (1.15)
______ ______ ______ ______ ______
Total distributions (1.45) (.34) (12.24) (2.55) (1.76)
______ ______ ______ ______ ______
Net Asset Value, End of Year $11.94 $13.91 $12.09 $22.66 $18.61
Total Return (3.31)% 18.21% 9.05% 38.40% 13.22%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $50 $52 $43 $48 $59
Ratio of expenses to average net assets .73% .75% (1) .75% (1) .74% .72%
Ratio of net income to average net assets 3.03% 2.90% 2.69% 2.73% 3.12%
Portfolio turnover rate 60.05% 52.36% 48.59% 50.69% 38.73%
(1) Had CRMC not waived management services
fees, the fund's expense ratio would have
been 0.79% and 0.89%
for the fiscal years ended 1999 and 1998,
respectively.
</TABLE>
<TABLE>
Endowments, Bond Portfolio
Per-Share Data and Ratios Year ended July 31
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $16.17 $16.93 $17.17 $16.63 $16.82
______ ______ ______ ______ ______
Income From Investment Operations:
Net investment income 1.16 1.14 1.19 1.21 1.22
Net gains or losses on securities
(both realized and unrealized) (.37) (.84) (.09) .52 (.19)
______ ______ ______ ______ ______
Total from investment operations .79 .30 1.10 1.73 1.03
______ ______ ______ ______ ______
Less Distributions:
Dividends (from net investment income) (1.16) (1.06) (1.34) (1.19) (1.22)
Distributions (from capital gains) (.01) - - - -
______ ______ ______ ______ ______
Total distributions (1.17) (1.06) (1.34) (1.19) (1.22)
______ ______ ______ ______ ______
Net Asset Value, End of Year $15.79 $16.17 $16.93 $17.17 $16.63
Total Return 5.13% 1.75% 6.70% 10.83% 6.25%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $32 $31 $29 $33 $41
Ratio of expenses to average net assets .75% (1) .75% (1) .75% (1) .75% (1) .75% (1)
Ratio of net income to average net assets 7.31% 6.84% 6.87% 7.04% 7.17%
Portfolio turnover rate 58.93% 53.66% 50.40% 22.18% 54.43%
(1) Had CRMC not waived management
services fees, the fund's expense ratio
would have been 0.86%, 0.95%, 1.08%,
0.85% and 0.80% for the fiscal years
ended 2000, 1999, 1998, 1997, and 1996,
respectively.
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ENDOWMENTS
Independent Auditors' Report
To the Board of Trustees and Shareholders of Endowments:
We have audited the accompanying statements of assets and liabilities of
Endowments (the "trust"), comprising, respectively, the Growth and Income
Portfolio and the Bond Portfolio, including the investment portfolios, as of
July 31, 2000, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the per-share data and ratios for each of the five years
in the period then ended. These financial statements and per-share data and
ratios are the responsibility of the trust's management. Our responsibility is
to express an opinion on these financial statements and per-share data and
ratios based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and per-share data and ratios are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of July 31, 2000, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios constituting Endowments as of
July 31, 2000, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the per-share data and ratios for each of the five years in the period then
ended, in conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
Los Angeles, California
September 01, 2000
Endowments
Board of Trustees
Robert B. Egelston, Los Angeles, California
Former Chairman of the Board,
The Capital Group Companies, Inc.
213/486-9444
Frank L. Ellsworth, Ph.D., Los Angeles, California
President of the Trust
Vice President, Capital Research and Management Company
213/486-9560
Steven D. Lavine, Ph.D., Valencia, California
President, California Institute of the Arts
661/255-1050
Patricia A. McBride, Dallas, Texas
Chief Financial Officer,
Cosmetic and Maxillofacial Surgery Center
214/368-0268
Gail L. Neale, Burlington, Vermont
President, The Lovejoy Consulting Group, Inc.;
former Executive Vice President of the Salzburg Seminar
802/658-5674
Robert G. O'Donnell, San Francisco, California
Chairman of the Board of the Trust
Senior Vice President and Director,
Capital Research and Management Company
415/393-7120
Charles R. Redmond, Los Angeles, California
Former Chairman of the Board, Pfaffinger Foundation;
former President and Chief Executive Officer, Times Mirror
Foundation; former Executive Vice President and Member
of the Management Committee, The Times Mirror Company
213/237-3977
Thomas E. Terry, Los Angeles, California
Consultant; former Vice President and Secretary,
Capital Research and Management Company
213/486-9410
Robert C. Ziebarth, Ketchum, Idaho
Management Consultant, Ziebarth Company
208/725-0535
Other Officers
Abner D. Goldstine, Los Angeles, California
Senior Vice President of the Trust
Senior Vice President and Director,
Capital Research and Management Company
Claudia P. Huntington, Los Angeles, California
Senior Vice President of the Trust
Senior Vice President,
Capital Research and Management Company
John H. Smet, Los Angeles, California
Senior Vice President of the Trust
Vice President,
Capital Research and Management Company
Patrick F. Quan, San Francisco, California
Vice President and Secretary of the Trust
Vice President - Fund Business Management Group,
Capital Research and Management Company
Susi M. Silverman, Brea, California
Treasurer of the Trust
Vice President - Fund Business Management Group,
Capital Research and Management Company
Anthony W. Hynes, Jr., Brea, California
Assistant Treasurer of the Trust
Vice President - Fund Business Management Group,
Capital Research and Management Company
Office of the Trust
One Market
Steuart Tower, Suite 1800
Mailing Address: P.O. Box 7650
San Francisco, California 94120-7650
Investment Adviser
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071-1443
Transfer Agent For Shareholder Accounts
American Funds Service Company
P.O. Box 7650
San Francisco, California 94120-7650
135 South State College Boulevard
Brea, California 92821-5823
Custodian Of Assets
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
Counsel
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
Independent Auditors
Deloitte & Touche LLP
350 South Grand Avenue
Los Angeles, California 90071-3462
THIS REPORT IS FOR THE INFORMATION OF SHAREHOLDERS OF ENDOWMENTS, BUT IT MAY
ALSO BE USED AS SALES LITERATURE WHEN PRECEDED OR ACCOMPANIED BY THE CURRENT
PROSPECTUS, WHICH GIVES DETAILS ABOUT CHARGES, EXPENSES, INVESTMENT OBJECTIVES
AND OPERATING POLICIES OF THE FUNDS.
For more information about any of the American Funds, please ask your
investment professional for a prospectus.
Litho in USA KK/PL/4813
(c) 2000 Endowments
Lit. No. ENDI-BENDI-011-0900 (NLS)
