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. 51 (X)
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 30 (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
Vice President and 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
Approximate date of proposed public offering:
[X] It is proposed that this filing will
become effective on October 1, 2000
pursuant to paragraph (b) of Rule 485.
<PAGE>
Endowments(SM)
Prospectus
OCTOBER 1, 2000
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED
OR DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT DETERMINED THAT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
---------------------------------------------------------
ENDOWMENTS
One Market
Steuart Tower, Suite 1800
P.O. Box 7650
San Francisco, CA 94120
<TABLE>
<CAPTION>
TICKER FUND
FUND SYMBOL NEWSPAPER ABBREV NO.
-----------------------------------------------------------------
<S> <C> <C> <C>
Growth and Income Portfolio ENDIX Endow-GI 80
-----------------------------------------------------------------
Bond Portfolio BENDX Endow-Bd 81
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-------------------------------------------------------
<S> <C>
Risk/Return Summary 2
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Fees and Expenses of the Funds 7
-------------------------------------------------------
Investment Objectives, Strategies and Risks 8
-------------------------------------------------------
Management and Organization 12
-------------------------------------------------------
Shareholder Information 15
-------------------------------------------------------
Purchase and Exchange of Shares 15
-------------------------------------------------------
How to Sell Shares 17
-------------------------------------------------------
Distribution and Taxes 18
-------------------------------------------------------
Financial Highlights 19
-------------------------------------------------------
Appendix 21
-------------------------------------------------------
</TABLE>
Endowments (the "Trust") is an open-end management investment company with two
diversified series, Growth and Income Portfolio and Bond Portfolio
(collectively, 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.
1
ENDOWMENTS / PROSPECTUS
80/81-010-1000/D
<PAGE>
---------------------------------------------------------
RISK/RETURN SUMMARY
GROWTH AND INCOME PORTFOLIO The fund seeks primarily to 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
common stock that have favorable prospects for long-term growth of capital and
for income.
The fund is designed for investors seeking long-term growth of principal, as
well as income and preservation of capital. The prices of equity securities
owned by the fund may be affected by events specifically involving the
companies issuing those securities. An investment in the fund is subject to
risks, including the possibility that the fund may decline in value in response
to economic, political or social events in the U.S. or abroad.
BOND PORTFOLIO The fund seeks to maximize your level of current income and
preserve your capital. Any capital appreciation is incidental to the fund's
objective of current income. The fund invests primarily in investment grade
debt securities.
The fund is designed for investors seeking current income, as well as capital
preservation. The values of debt securities may be affected by changing
interest rates and credit risk assessments. An investment in the fund is
subject to risks, including the possibility that the fund may decline in value
in response to economic, political or social events in the U.S. or abroad.
* * *
RISKS APPLICABLE TO BOTH FUNDS Although all securities in the funds' portfolios
may be adversely affected by currency fluctuations or world political, social
and economic instability, investments outside the U.S. may be affected to a
greater extent.
Your investment in the funds 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.
YOU MAY LOSE MONEY BY INVESTING IN THE FUNDS. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME.
2
ENDOWMENTS / PROSPECTUS
<PAGE>
INVESTMENT RESULTS
The following information provides some indication of the risks of investing in
the funds by showing changes in the funds' investment results from year to year
and by showing how the funds' average annual returns for various periods
compare with those of a broad measure of market performance. Past results are
not an indication of future results.
GROWTH AND INCOME PORTFOLIO
CALENDAR YEAR TOTAL RETURNS
(Results do not include a sales charge; if one were included, results would
be lower.)
[bar chart]
1990 0.43
1991 22.57
1992 9.56
1993 9.56
1994 1.54
1995 28.31
1996 17.42
1997 28.81
1998 11.28
1999 3.64
The fund's year-to-date return for the six months ended June 30, 2000 was
2.01%.
The fund's highest/lowest quarterly results during this time period were:
<TABLE>
<CAPTION>
<S> <C> <C>
HIGHEST 11.70% (quarter ended June 30, 1997)
LOWEST -8.99% (quarter ended September 30, 1990)
</TABLE>
3
ENDOWMENTS / PROSPECTUS
<PAGE>
For periods ended December 31, 1999:
<TABLE>
<CAPTION>
THE FUND
AVERAGE ANNUAL AT NET
TOTAL RETURN ASSET VALUE/1/ S&P 500/2/
------------------------------------------------------------------------------
<S> <C> <C>
One Year 3.64% 21.01%
------------------------------------------------------------------------------
Five Years 17.48% 28.49%
------------------------------------------------------------------------------
Ten Years 12.88% 18.17%
------------------------------------------------------------------------------
Lifetime/3/ 14.59% 16.27%
</TABLE>
Yield: 3.04%
(For current yield information, please call the Transfer Agent at
1-800-421-8511, ext. 99635).
1 These fund results were calculated at net asset value according to a required
standard formula and include the reinvestment of dividend and capital gain
distributions.
2 The Standard & Poor's 500 Composite Index is an asset-weighted, broad-based
measurement of changes in stock market conditions based on the average
performance of 500 widely held common stocks. This index is unmanaged and does
not reflect sales charges, commissions or expenses. The lifetime figure is
from the date Capital Research and Management Company became the fund's
investment adviser.
3 For the period beginning July 26, 1975 (when Capital Research and Management
Company became the fund's investment adviser).
4
ENDOWMENTS / PROSPECTUS
<PAGE>
BOND PORTFOLIO
CALENDAR YEAR TOTAL RETURNS
(Results do not include a sales charge; if one were included, results would
be lower.)
[bar chart]
1990 6.04
1991 20.32
1992 9.40
1993 12.23
1994 -4.31
1995 15.99
1996 3.99
1997 8.72
1998 7.47
1999 -0.40
The fund's year-to-date return for the six months ended June 30, 2000 was
3.03%.
------------------------------------------------------------------------------
The fund's highest/lowest quarterly results during this time period were:
<TABLE>
<CAPTION>
<S> <C> <C>
HIGHEST 6.46% (quarter ended September 30, 1991)
LOWEST -3.65% (quarter ended March 31, 1994)
</TABLE>
5
ENDOWMENTS / PROSPECTUS
<PAGE>
For periods ended December 31, 1999:
<TABLE>
<CAPTION>
THE FUND
AVERAGE ANNUAL AT NET
TOTAL RETURN ASSET VALUE/1/ BOND INDEX/2/
------------------------------------------------------------------------------
<S> <C> <C>
One Year -0.40% -0.82%
------------------------------------------------------------------------------
Five Years 7.01% 7.73%
------------------------------------------------------------------------------
Ten Years 7.72% 7.70%
------------------------------------------------------------------------------
Lifetime/3/ 9.24% 9.31%/4/
</TABLE>
Yield: 6.72%
(For current yield information, please call the Transfer Agent at
1-800-421-8511, ext. 99635).
1 These fund results were calculated at net asset value according to a required
standard formula and include the reinvestment of dividend and capital gain
distributions.
2 The Lehman Brothers Aggregate Bond Index represents investment grade debt.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
3 For the period beginning July 26, 1975 (when Capital Research and Management
Company became the fund's investment adviser).
4 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/Credit Bond Index was used. The Lehman Brothers indexes
are based on July 31, 1975 index values.
6
ENDOWMENTS / PROSPECTUS
<PAGE>
---------------------------------------------------------
FEES AND EXPENSES OF THE FUNDS
<TABLE>
<CAPTION>
SHAREHOLDER FEES GROWTH
(fees paid directly from your investment) AND
INCOME BOND
PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge imposed on purchases none none
(as a percentage of offering price)
----------------------------------------------------------------------------
Maximum sales charge imposed on reinvested dividends none none
----------------------------------------------------------------------------
Maximum deferred sales charge none none
----------------------------------------------------------------------------
Redemption or exchange fees none none
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES GROWTH
(expenses that are deducted from fund assets) AND
INCOME BOND
PORTFOLIO PORTFOLIO
-----------------------------------------------
<S> <C> <C>
Management Fees 0.50% 0.50%
Service (12b-1) Fees none none
Other Expenses 0.23% 0.36%
Total Annual Fund Operating Expenses 0.73% 0.86%
Fee Waiver/1/ 0.00% 0.11%
Net Expenses 0.73% 0.75%
</TABLE>
1 The funds' Investment Advisory and Service Agreements provide for fee
reductions through fee waivers by the Investment Adviser to the extent that
annual operating expenses exceed 0.75% of either fund's average net assets.
With the waiver, the management fee (as a percentage of average net assets) is
0.39% for Bond Portfolio.
EXAMPLE
This Example is intended to help you compare the cost of investing in the funds
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, 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 cumulative expenses would be:
<TABLE>
<CAPTION>
GROWTH AND
INCOME PORTFOLIO BOND PORTFOLIO/*/
<S> <C> <C>
One Year $ 75 $ 77
----------------------------------------------------------------------------
Three Years $233 $240
----------------------------------------------------------------------------
Five Years $406 $417
----------------------------------------------------------------------------
Ten Years $906 $930
</TABLE>
* Reflects fee waiver
7
ENDOWMENTS / PROSPECTUS
<PAGE>
---------------------------------------------------------
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 emphasizes stocks of
companies that have favorable prospects for long-term growth of capital and for
income.
The values of equity securities held by the fund may 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 and interest rate 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 in debt securities rated Baa or BBB or better by Moody's Investors
Service, Inc. or Standard & Poor's Corporation or unrated but determined to be
of equivalent quality. The fund also invests in securities 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 considered to be any
debt securities having initial maturities in excess of one year.)
The values of most debt securities held by the funds may be affected by
changing interest rates, and individual securities by changes in their
effective maturities and credit ratings. For example, the values of bonds in
each 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. Accordingly, the current market prices for
these securities will fluctuate with changes in interest rates.
* * *
The funds may also hold cash or money market instruments. The size of each
fund's cash position will vary and will depend on various factors, including
market conditions and purchases and redemptions of fund shares. A larger cash
position could detract from the achievement of each fund's objectives, but it
also would reduce each fund's exposure in the event of a market downturn and
provide liquidity to make additional investments or to meet redemptions.
Each fund relies on the professional judgment of its investment adviser,
Capital Research and Management Company, to make decisions about each fund's
portfolio investments. The basic investment philosophy of the investment
adviser is to seek undervalued securities that represent good long-term
8
ENDOWMENTS / PROSPECTUS
<PAGE>
investment opportunities. Securities may be sold when the investment adviser
believes they 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 its assets in common stocks and other
securities of issuers domiciled outside the U.S. Bond Portfolio may invest in
obligations of corporations or government entities domiciled outside the U.S.
and Canada. All Canadian and other non-U.S. securities purchased by Bond
Portfolio will be liquid, and meet the quality standards set forth above. The
value of non-U.S. securities can decline in response to various factors
including currency fluctuations, political, social and economic instability,
differing securities regulations and administrative difficulties such as delays
in clearing and settling portfolio transactions.
9
ENDOWMENTS / PROSPECTUS
<PAGE>
The following charts illustrate selected information from the fund's investment
portfolio as of the end of the fund's fiscal year, July 31, 2000.
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST INDUSTRY HOLDINGS NET ASSETS
--------------------------------------------------------------
<S> <C>
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
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST INDIVIDUAL HOLDINGS NET ASSETS
--------------------------------------------------------------
<S> <C>
Allstate Corp. 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 1.59
--------------------------------------------------------------
Pennzoil-Quaker State 1.50
--------------------------------------------------------------
CSX Corp. 1.49
</TABLE>
Because the fund is actively managed, its holdings will change from time to
time.
10
ENDOWMENTS / PROSPECTUS
<PAGE>
The following chart illustrates the investment portfolio as of the end of the
fund's fiscal year, July 31, 2000.
BOND PORTFOLIO
[pie chart]
Corporate Bonds 33.48%
Mortgage- and Asset-Backed Securities 31.99%
U.S. Treasury Securities 25.59%
Federal Agency Notes & Bonds 1.47%
Non-U.S. Government Bonds and
Governmental Authorities 0.46%
Cash and Cash Equivalents 7.01%
<TABLE>
<CAPTION>
HOLDINGS BY QUALITY RATING PERCENT OF
See the Appendix for a description of quality categories. NET ASSETS
------------------------------------------------------------------------
<S> <C>
U.S. Treasury and Agency 41.82%
------------------------------------------------------------------------
Cash & Cash Equivalents 7.01%
------------------------------------------------------------------------
Aaa/AAA 7.57%
------------------------------------------------------------------------
Aa/AA 3.29%
------------------------------------------------------------------------
A/A 17.39%
------------------------------------------------------------------------
Baa/BBB 18.95%
------------------------------------------------------------------------
Ba/BB or below 3.97%*
------------------------------------------------------------------------
</TABLE>
* Represents bonds whose quality ratings were downgraded while held by the
fund.
Because the fund is actively managed, its holdings will change from time to
time.
11
ENDOWMENTS / PROSPECTUS
<PAGE>
---------------------------------------------------------
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 and with the Securities and
Exchange Commission rules adopted in 1999 governing Codes of Ethics. This
policy has also been incorporated into each fund's 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.
12
ENDOWMENTS / PROSPECTUS
<PAGE>
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
APPROXIMATE YEARS OF EXPERIENCE
YEARS OF EXPERIENCE AS AN INVESTMENT PROFESSIONAL
AS PORTFOLIO COUNSELOR (INCLUDING THE LAST FIVE YEARS)
PORTFOLIO (AND RESEARCH PROFESSIONAL, -----------------------------------
COUNSELORS FOR IF APPLICABLE) FOR WITH CAPITAL
GROWTH AND GROWTH AND INCOME RESEARCH AND
INCOME PORTFOLIO MANAGEMENT
PORTFOLIO PRIMARY TITLE(S) (APPROXIMATE) COMPANY
--------------------------------------------------------------------------- OR AFFILIATES TOTAL YEARS
-----------------------------------
<S> <C> <C> <C> <C>
ROBERT G. Chairman of the Trust. 10 years (plus 18 years as a 25 years 28 years
O'DONNELL Senior Vice President research professional prior to
and Director, Capital becoming a portfolio counselor
Research and Management for the fund)
Company
--------------------------------------------------------------------
------------------------------------------
CLAUDIA P. Senior Vice President of 5 years (plus 20 years as a 25 years 28 years
HUNTINGTON the Trust. Senior Vice research professional prior to
President, Capital becoming a portfolio counselor
Research and Management for the fund)
Company
--------------------------------------------------------------------------------------------------------------
GREGORY D. Vice President and Less than one year 7 years 7 years
JOHNSON Director, Capital
Research Company*
* Company affiliated with Capital Research and Management Company
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
ENDOWMENTS / PROSPECTUS
<PAGE>
BOND PORTFOLIO
<TABLE>
<CAPTION>
APPROXIMATE YEARS OF EXPERIENCE
AS AN INVESTMENT PROFESSIONAL
(INCLUDING THE LAST FIVE YEARS)
-----------------------------------
PORTFOLIO YEARS OF EXPERIENCE WITH CAPITAL
COUNSELORS FOR AS PORTFOLIO COUNSELOR FOR RESEARCH AND
BOND BOND PORTFOLIO MANAGEMENT
PORTFOLIO PRIMARY TITLE(S) (APPROXIMATE) COMPANY
-------------------------------------------------------------------- OR AFFILIATES TOTAL YEARS
-----------------------------------
<S> <C> <C> <C> <C>
ABNER D. Senior Vice President 25 years 33 years 48 years
GOLDSTINE of the Trust. Senior
Vice President and
Director, Capital
Research and
Management Company
---------------------------------------------------------------
----------------------------------------
JOHN H. Senior Vice President 12 years 17 years 18 years
SMET of the Trust. Vice
President, Capital
Research and
Management Company
------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
ENDOWMENTS / PROSPECTUS
<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 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 333 South Hope Street, Los Angeles, CA 90071.
---------------------------------------------------------
PURCHASE AND EXCHANGE OF SHARES
Shares of the funds may be purchased directly from the funds only by (i)
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 price 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:
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.
15
ENDOWMENTS / PROSPECTUS
<PAGE>
RIGHTS 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.
EXCHANGE FEATURE
As a shareholder of the Growth and Income Portfolio or the Bond Portfolio, you
may exchange all or part of your shares at net asset value for shares of the
other, and for shares of The Cash Management Trust of America or The U.S.
Treasury Money Fund of America, whose shares may be similarly exchanged for
shares of the Growth and Income Portfolio and/or the Bond Portfolio. The Cash
Management Trust of America and The U.S. Treasury Money Fund of America are
money market funds whose shares are sold at net asset value. This feature is
available only if the fund for which you are exchanging is qualified in the
state where you reside.
This exchange may or may not have potential tax consequences for you. You
should consult your tax or financial advisers before exchanging your shares
under this option.
AUTOMATIC WITHDRAWALS
You may authorize automatic withdrawals from your accounts. All shares owned
or purchased by you will be credited to your 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 your invested capital. Withdrawal payments, therefore,
should not be considered as yield or income on the investment.
ACCOUNT STATEMENT
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.
16
ENDOWMENTS / PROSPECTUS
<PAGE>
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,
market prices are used when available. If a market price for a particular
security is not available, each fund will determine the appropriate price for
the security. Your shares will be purchased or sold at the net asset value next
determined after your investment is received and accepted.
Your shares will be purchased or sold at the net asset value next determined
after your investment is received and accepted.
---------------------------------------------------------
HOW TO SELL SHARES
Shares are credited to your account and shares of the funds are redeemable
through the funds at net asset value. You may sell (redeem) your shares, by
tendering a request in proper form, at the offices of Capital Research and
Management Company, 333 South Hope Street, Los Angeles, California 90071.
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
received and accepted. Because the funds' net asset values fluctuate,
reflecting the market value of the funds' portfolios, the amount you receive
for shares sold may be more or less than the amount paid for them.
17
ENDOWMENTS / PROSPECTUS
<PAGE>
---------------------------------------------------------
DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Each fund intends to distribute dividends to you, usually in March, June,
September and December. Capital gains, if any, are usually distributed in
December. When a dividend or capital gain is distributed, the net asset value
per share is reduced by the amount of the payment.
You may elect to reinvest dividends and/or capital gain distributions to
purchase additional shares of these funds or any other fund in The American
Funds Group or you may elect to receive them in cash. Most shareholders do not
elect to take capital gain distributions in cash because these distributions
reduce principal value.
TAXES ON DISTRIBUTIONS
Distributions you receive from the funds may be subject to income tax and may
also be subject to state or local taxes - unless you are exempt from taxation.
For federal tax purposes, any taxable dividends and distributions of short-term
capital gains are treated as ordinary income. The funds' distributions of net
long-term capital gains are taxable to you as long-term capital gains. Any
taxable distributions you receive from the funds will normally be taxable to
you when made, regardless of whether you reinvest distributions or receive them
in cash.
TAXES ON TRANSACTIONS
Your redemptions, including exchanges, may result in a capital gain or loss for
federal tax purposes. A capital gain or loss on your investment in the funds is
the difference between the cost of your shares, including any sales charges,
and the price you receive when you sell them.
18
ENDOWMENTS / PROSPECTUS
<PAGE>
---------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each fund's
results for the past five years. Certain information reflects financial
results for a single fund share. The total returns in the table represent the
rate that an investor would have earned or lost on an investment in the funds
(assuming reinvestment of all dividends and distributions). This information
has been audited by Deloitte & Touche LLP, whose report, along with each fund's
financial statements, is included in the statement of additional information,
which is available upon request.
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
YEARS ENDED JULY 31
------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, $13.91 $12.09 $22.66 $18.61 $18.06
Beginning of Year
-----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .37 .37 .51 .56 .58
Net gains or losses on
securities (both
realized and (.89) 1.79 1.16 6.04 1.73
unrealized)
-----------------------------------------------------------------------------------------------
Total from investment (.52) 2.16 1.67 6.60 2.31
operations
-----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends (from net
investment income) (.34) (.34) (.57) (.55) (.61)
Distributions (from (1.11) - (11.67) (2.00) (1.15)
capital gains)
-----------------------------------------------------------------------------------------------
Total distributions (1.45) (.34) (12.24) (2.55) (1.76)
-----------------------------------------------------------------------------------------------
Net Asset Value, $11.94 $13.91 $12.09 $22.66 $18.61
End of Year
-----------------------------------------------------------------------------------------------
Total return (3.31)% 18.21% 9.05% 38.40% 13.22%
-----------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of $50 $52 $43 $48 $59
year (in millions)
-----------------------------------------------------------------------------------------------
Ratio of expenses to .73% .75%/1/ .75%/1/ .74% .72%
average net assets
-----------------------------------------------------------------------------------------------
Ratio of net income 3.03% 2.90% 2.69% 2.73% 3.12%
to average net assets
-----------------------------------------------------------------------------------------------
Portfolio turnover
rate 60.05% 52.36% 48.59% 50.69% 38.73%
1Had Capital Research and Management Company 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>
19
ENDOWMENTS / PROSPECTUS
<PAGE>
BOND PORTFOLIO
<TABLE>
<CAPTION>
YEARS ENDED JULY 31
------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, $16.17 $16.93 $17.17 $16.63 $16.82
Beginning of Year
--------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 1.16 1.14 1.19 1.21 1.22
Net gains or losses on securities (both (.37) (.84) (.09) .52 (.19)
realized and unrealized)
--------------------------------------------------------------------------------------------------------------------------------
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, $15.79 $16.17 $16.93 $17.17 $16.63
End of Year
--------------------------------------------------------------------------------------------------------------------------------
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 .75%/1/ .75%/1/ .75%/1/ .75%/1/ .75%/1/
average net assets
--------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 58.93% 53.66% 50.40% 22.18% 54.43%
1Had Capital Research and Management Company 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.
</TABLE>
20
ENDOWMENTS / PROSPECTUS
<PAGE>
---------------------------------------------------------
APPENDIX
Growth and Income Portfolio generally invests in debt securities rated A or
better; Bond Portfolio generally invests in debt securities rated Baa/BBB or
better.
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.
"Aaa - Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such 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,
fluctuation 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
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"Baa - Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"Ba - Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B - Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"Caa - Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
21
ENDOWMENTS / PROSPECTUS
<PAGE>
"Ca - Speculative in a high degree; often in default or having other marked
shortcomings."
"C - Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
Moody's supplies numerical indicators, 1, 2 and 3 to rating categories. The
modifier 1 indicates that the obligation ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and 3 indicates
a ranking toward the lower end of that generic category.
Standard & Poor's Corporation rates the long-term debt securities issued by
various entities in categories ranging from "AAA" to "D," according to quality
as described below.
"AAA - Highest rating. Capacity to pay interest and repay principal is
extremely 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."
"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
principal. 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."
"BB, B, CCC, CC, C - Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions."
"C1 - Reserved for income bonds on which interest is being paid."
"D - In default and payment of interest and/or repayment of principal is in
arrears."
Standard & Poor's applies indicators "+", no character and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
22
ENDOWMENTS / PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FOR SHAREHOLDER SERVICES American Funds Service Company
1-800-421-8511, ext. 99635
</TABLE>
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
* * * * *
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS Contains additional information
about the funds including financial statements, investment results, portfolio
holdings, a statement from portfolio management discussing market conditions
and the funds' investment strategies, and the independent accountants' report
(in the annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI) AND CODES OF ETHICS The SAI contains
more detailed information on all aspects of the funds, including the funds'
financial statements and is incorporated by reference into this prospectus.
The Codes of Ethics describe the personal investing policies adopted by the
funds and the funds' investment adviser and their affiliated companies.
The Codes of Ethics and current SAI have been filed with the Securities and
Exchange Commission ("SEC"). These 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. (202/942-8090) or on the EDGAR database on the SEC's Internet
Web site at http://www.sec.gov, or, after payment of a duplicating fee, via
e-mail request to [email protected] or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-0102.
If you would like to receive individual copies of these documents, or a free
copy of the SAI or Codes of Ethics, please call American Funds Service Company
at 800/421-0180 or write to the Secretary of the funds at P.O. Box 7650San
Francisco, CA 94120.
Investment Company Act No. 811-1884
Printed on recycled paper
<PAGE>
ENDOWMENTS
Part B
Statement of Additional Information
October 1, 2000
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, 2000. 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, CA 94120
(415) 421-9360
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page No.
---- --------
<S> <C>
Certain Investment Limitations and Guidelines . . . . . . . . . . . 2
Description of Certain Securities and Investment Techniques . . . . 3
Fundamental Policies and Investment Restrictions. . . . . . . . . . 8
Trust Organization and Voting Rights. . . . . . . . . . . . . . . . 10
Fund Trustees and Officers. . . . . . . . . . . . . . . . . . . . . 12
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . . . 16
Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 19
Price of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Selling Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 21
General Information . . . . . . . . . . . . . . . . . . . . . . . . 21
Investment Results and Related Statistics . . . . . . . . . . . . . 22
Financial Statements
</TABLE>
Endowments - Page 1
<PAGE>
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 funds' net
assets unless otherwise noted. This summary is not intended to reflect all of
the funds' investment limitations.
GROWTH AND INCOME PORTFOLIO
EQUITY SECURITIES
. The fund will normally invest primarily in common stocks or securities
convertible into common stock.
NON-U.S. SECURITIES
. The fund may invest up to 10% of its assets in common stocks and other
securities of issuers domiciled outside the U.S.
BOND PORTFOLIO
DEBT SECURITIES
.
Normally, at least 65% of the fund's assets will be invested in bonds.
(For this purpose, bonds are considered to be any debt securities
having initial maturities in excess of one year.)
. The fund will invest in debt securities rated Baa or above by Moody's
or BBB or above by S&P or unrated but determined to be of equivalent
quality by Capital Research and Management Company, the fund's
investment adviser.
. The fund has no current intention 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") or unrated but determined to be of
equivalent quality by Capital Research and Management Company
("CRMC"). The fund is not 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 debt securities in which the fund invests may have stock
conversion or purchase rights; however, such securities will generally
not exceed 20% of the fund's assets. The fund will not acquire common
stocks except through the exercise of conversion or stock purchase
rights and will retain such common stocks only when it is consistent
with the fund's objective of current income.
NON-U.S. SECURITIES
. The fund may invest up to 20% of its assets in obligations of
corporations or government entities domiciled outside the U.S. and
Canada. All Canadian and other non-U.S. securities purchased by the
fund will be liquid, and meet the quality standards set forth above.
Up to 10% of the fund's assets may be invested in securities
denominated in currencies other than the U.S. dollar.
The funds may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions.
Endowments - Page 2
<PAGE>
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The descriptions below are intended to supplement the material in the prospectus
under "Investment Objectives, Strategies and Risks."
GROWTH AND INCOME PORTFOLIO
---------------------------
EQUITY SECURITIES - Equity securities represent an ownership position in a
company. These securities may include common stocks and securities with equity
conversion or purchase rights. The prices of equity securities fluctuate based
on changes in the financial condition of their issuers and on market and
economic conditions. The fund's results will be related to the overall markets
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
primarily invest 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 risks associated with REIT debt
investments are similar to the risks of investing in corporate-issued debt. In
addition, the return on REITs is dependent on such factors as the skill of
management and the real estate environment in general. Debt that is issued by
REITs is typically rated by the credit rating agencies as investment grade or
above.
BOND PORTFOLIO
--------------
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 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
Endowments - Page 3
<PAGE>
interest are passed-through to each bond at varying schedules resulting in bonds
with different coupons, effective maturities, and sensitivities to interest
rates. In fact, some CMOs may be structured in a way that when interest rates
change the impact of changing prepayment rates on these securities' effective
maturities is magnified.
"Commercial mortgage-backed securities" are backed by mortgages of commercial
property, such as hotels, office buildings, retail stores, hospitals, and other
commercial buildings. These securities may have a lower prepayment uncertainty
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 securities' effective maturities.
FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell
securities at a future date. When the fund agrees to purchase such securities it
assumes the risk of any decline in value of the security beginning on the date
of the agreement. When the fund agrees to sell such securities it does not
participate in further gains or losses with respect to the securities beginning
on the date of the agreement. If the other party to such a transaction fails to
deliver or pay for the securities, the 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 increases. 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 may 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 may also enter into reverse repurchase agreements and "roll"
transactions. A reverse repurchase agreement is the sale of a security by a fund
and its agreement to repurchase the security at a specified time and price. A
"roll" transaction is the sale of mortgage-backed or other securities together
with a commitment to purchase similar, but not identical securities at a later
date. The fund assumes the rights and risks of ownership, including the risk of
price and yield
Endowments - Page 4
<PAGE>
fluctuations as of the time of the agreement. 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. 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. The fund
will segregate liquid assets which will be marked to market daily in an amount
sufficient to meet its payment obligations under "roll" transactions and reverse
repurchase agreements with broker-dealers (no collateral is required for reverse
repurchase agreements with banks).
WARRANTS AND RIGHTS - The fund may purchase warrants, which may be issued
together with bonds or preferred stocks. Warrants generally entitle the holder
to buy a proportionate amount of common stock at a specified price, usually
higher than the current market price. Warrants may be issued with an expiration
date or in perpetuity. 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, and 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 deflation, 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.
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.
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.
Lower quality, lower rated bonds rated Ba or below by Standard & Poor's
Corporation and BB or below by Moody's Investors Services, Inc. (or unrated but
considered to be of equivalent quality) are described by the rating agencies as
speculative and involve greater risk of default or price changes due to changes
in the issuer's creditworthiness than higher rated bonds, or they may already be
in default. The market prices of these securities may fluctuate more than higher
Endowments - Page 5
<PAGE>
quality securities and may decline significantly in periods of general economic
difficulty. It may be more difficult to dispose of, or to determine the value
of, lower quality, lower rated bonds.
The Investment Adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as well
as by monitoring broad economic trends and corporate and legislative
developments, but there can be no assurance that it will be successful in doing
so.
SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS - The funds may 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. The risks of
convertible preferred stock may be similar to those of equity securities. Some
types of convertible preferred stock automatically convert into common stock.
Non-convertible preferred stock with stated redemption rates 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 stock generally move with changes in
interest rates and the issuer's credit quality, similar to the factors affecting
debt securities.
Bonds, convertible preferred stock, and other securities may sometimes be
converted into common stock or other securities at a stated conversion ratio.
These securities prior to conversion pay a fixed rate of interest or a dividend.
Because convertible securities have both debt and equity characteristics, their
value varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the credit quality of
the issuer.
U.S. GOVERNMENT SECURITIES - Securities guaranteed by the U.S. Government
include direct obligations of the U.S. Treasury (such as Treasury bills, notes
and bonds). For these securities, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. Such securities are subject to variations in
market value due to fluctuations in interest rates, but, if held to maturity,
will be paid in full.
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal sponsorship in one way or
another; some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality. These agencies and instrumentalities include, but are
not limited to, Farmers Home Administration, Federal Home Loan Bank, Federal
Home Loan Mortgage Corporation, Federal National Mortgage Association, Tennessee
Valley Authority, and Federal Farm Credit Bank System.
INVESTING IN VARIOUS COUNTRIES - Investing outside the U.S. involves special
risks, caused by, among other things: currency controls, 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.
Endowments - Page 6
<PAGE>
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 funds' investment
activities outside the U.S. Brokerage commissions may be higher outside the
U.S., and the funds 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 AND CASH EQUIVALENTS - These securities include (i) commercial paper (e.g.,
short-term notes up to 9 months in maturity issued by corporations, governmental
bodies or bank/ corporation sponsored conduits (asset backed commercial paper)),
(ii) commercial bank obligations (e.g., certificates of deposit, bankers'
acceptances (time drafts on a commercial bank where the bank accepts an
irrevocable obligation to pay at maturity)), (iii) savings association and
savings bank obligations (e.g., bank notes and certificates of deposit issued by
savings banks or savings associations), (iv) securities of the U.S. Government,
its agencies or instrumentalities that mature, or may be redeemed, in one year
or less, and (v) corporate bonds and notes that mature, or that may be redeemed,
in one year or less.
CURRENCY TRANSACTIONS - The funds can purchase and sell currencies to facilitate
securities transactions and enter into forward currency contracts to protect
against changes in currency exchange rates (although Growth and Income Portfolio
has no current intention to enter into forward currency contracts). 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 one currency against the U.S. dollar. While entering into forward currency
transactions could minimize the 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 funds will not generally
attempt to protect against all potential changes in exchange rates. 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.
Certain provisions of the Internal Revenue Code may affect the extent to which
the funds may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.
RESTRICTED SECURITIES AND LIQUIDITY - The funds may purchase securities subject
to restrictions on resale. All such securities not actively traded will be
considered illiquid unless they have been specifically determined to be liquid
under procedures which have been adopted by the funds' board of trustees, taking
into account factors such as the frequency and volume of trading, the commitment
of dealers to make markets and the availability of qualified investors, all of
which
Endowments - Page 7
<PAGE>
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 enter into forward
currency contracts), 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. Repurchase agreements permit the funds to maintain
liquidity and earn income over periods of time as short as overnight. 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 the
Investment Adviser. The funds will only enter into repurchase agreements
involving securities in which they could otherwise invest and with selected
banks and securities dealers whose financial condition is monitored by the
Investment Adviser. If the seller under the repurchase agreement defaults, the
funds 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, realization upon the collateral by the funds 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 its investments are generally
accomplished gradually, though short-term transactions may occasionally be made.
High portfolio turnover (100% or more) involves correspondingly greater
transaction costs in the form of dealer spreads or brokerage commissions, and
may result in the realization of net capital gains, which are taxable when
distributed to shareholders.
Fixed-income securities are generally traded on a net basis and usually neither
brokerage commissions nor transfer taxes are involved.
The fund's portfolio turnover rate would equal 100% if each security in the
fund's portfolio were replaced once per year. See "Financial Highlights" in the
prospectus for the funds' annual portfolio turnover for each of the last five
fiscal periods.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES - The Trust has adopted the following fundamental policies
and investment restrictions which may not be changed without approval by holders
of a majority of its outstanding shares. Such majority is defined in the
Investment Company Act of 1940 ("1940 Act") as the vote of the lesser of (i) 67%
or more of the outstanding voting securities present at a meeting, if the
holders of more than 50% of the outstanding voting securities are present in
person or by proxy, or (ii) more than 50% of the outstanding voting securities.
All percentage limitations are considered at the time securities are purchased
and are based on the fund's net assets unless otherwise indicated. None of the
following investment restrictions involving a maximum percentage of assets will
be considered violated unless the excess occurs immediately after, and is caused
by, an acquisition by the fund.
Endowments - Page 8
<PAGE>
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 funds' board of trustees. The following non-fundamental 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 investment companies,
except as permitted by the Investment Company Act of 1940, as amended.
Endowments - Page 9
<PAGE>
The following non-fundamental policy applies to the Growth and Income Portfolio
only:
1. The fund may not invest more than 10% of its total assets in securities
that are not readily marketable.
The following non-fundamental policy applies to the Bond Portfolio only:
1. The fund may not invest more than 15% of its total assets in securities
that are not readily marketable.
Restricted securities are treated as not readily marketable by the funds, with
the exception of those securities that have been determined to be liquid
pursuant to procedures adopted by the funds' 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. Endowments, Inc. and Bond Portfolio for Endowments, Inc.
were reorganized as two separate series of Endowments, a Delaware business trust
which is a registered, open-end, diversified management investment company
organized on May 14, 1998. The two separate series are called Growth and Income
Portfolio and Bond Portfolio. On July 31, 1998, all assets of Endowments, Inc.
and Bond Portfolio for Endowments, Inc. were 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.
All fund operations are supervised by the funds' Board of Trustees which meets
periodically and performs duties required by applicable state and federal laws.
The funds do not hold annual meetings of shareholders. However, significant
matters which 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 July 31, 2000, the following shareholders owned 5% or more of the funds'
outstanding shares:
GROWTH AND INCOME PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
SHARES OF
NAME AND ADDRESS OWNED SHARES OWNED
-------------------------------------------------------------------------------
<S> <C> <C>
California Institute for the Arts
24700 McBean Parkway 592,116 14.2%
Valencia, CA 91355
-------------------------------------------------------------------------------
Citizens' Scholarship of America
1505 Riverview Road
P.O. Box 297 429,383 10.3%
St. Peter, MN 56082
-------------------------------------------------------------------------------
Hudson Institute
5395 Emerson Way
P.O. Box 26919 285,927 6.9%
Indianapolis, IN 46226
-------------------------------------------------------------------------------
Loyola Marymount University
7900 Loyola Boulevard 241,479 5.8%
Los Angeles, CA 90045
-------------------------------------------------------------------------------
Richard and Mary Solari Charitable Trust
P.O. Box 40 212,488 5.1%
Capitola, CA 95010
-------------------------------------------------------------------------------
</TABLE>
Endowments - Page 10
<PAGE>
BOND PORTFOLIO
<TABLE>
<CAPTION>
PERCENTAGE
SHARES OF
NAME AND ADDRESS OWNED SHARES OWNED
-------------------------------------------------------------------------------
<S> <C> <C>
California Institute for the Arts
24700 McBean Parkway 390,317 19.3%
Valencia, CA 91355
-------------------------------------------------------------------------------
Citizens' Scholarship of America
1505 Riverview Road
P.O. Box 297 235,103 11.6%
St. Peter, MN 56082
-------------------------------------------------------------------------------
Foundation for Reproductive Research and Education
333 E. Superior Street
Prentice 490 106,067 5.2%
Chicago, IL 60611
-------------------------------------------------------------------------------
Hudson Institute
5395 Emerson Way
P.O. Box 26919 205,357 10.1%
Indianapolis, IN 46226
-------------------------------------------------------------------------------
</TABLE>
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.
Endowments - Page 11
<PAGE>
FUND TRUSTEES AND OFFICERS
Trustees and Trustee Compensation
<TABLE>
<CAPTION>
TOTAL COMPENSATION TOTAL NUMBER
FROM ALL FUNDS MANAGED BY OF FUND
CAPITAL RESEARCH AND BOARDS
POSITION MANAGEMENT COMPANY ON WHICH
WITH PRINCIPAL OCCUPATION(S) DURING OR ITS AFFILIATES/1/ FOR THE TRUSTEE
NAME, ADDRESS AND AGE REGISTRANT PAST 5 YEARS YEAR ENDED JULY 31, 2000 SERVES/1/
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
+Robert B. Egelston Trustee Senior Partner, The Capital Group none 1
333 South Hope Partners L.P.; former Chairman of
Street the Board, The Capital Group
Los Angeles, CA Companies, Inc.
90071
Age: 69
-----------------------------------------------------------------------------------------------------------------------------------
+Frank L. Ellsworth President and Vice President, Capital Research none 1
333 South Hope Trustee and Management Company; former
Street President, Independent Colleges of
Los Angeles, CA Southern California
90071
Age: 57
-----------------------------------------------------------------------------------------------------------------------------------
Steven D. Lavine Trustee President, California Institute of none 1
24700 McBean Parkway the Arts
Valencia, CA 91355
Age: 53
-----------------------------------------------------------------------------------------------------------------------------------
Patricia A. McBride Trustee Chief Financial Officer, Cosmetic none 1
4933 Mangold Circle and Maxillofacial Surgery Center
Dallas, TX 75229
Age: 57
-----------------------------------------------------------------------------------------------------------------------------------
Gail L. Neale Trustee President, The Lovejoy Consulting $96,500 5
The Lovejoy Group, Inc.; former Executive Vice
Consulting Group President, Salzburg Seminar
154 Prospect Parkway
Burlington, VT 05401
Age: 65
-----------------------------------------------------------------------------------------------------------------------------------
+Robert G. O'Donnell Chairman of the Senior Vice President and Director, None 3
P.O. Box 7650 Board Capital Research and Management
San Francisco, CA Company
94120
Age: 56
-----------------------------------------------------------------------------------------------------------------------------------
Charles R. Redmond Trustee Former Chairman, Pfaffinger None 1
2198 Fairhurst Drive Foundation and former President and
La Canada, CA 91011 Chief Executive Officer, Times
Age: 74 Mirror Foundation.
-----------------------------------------------------------------------------------------------------------------------------------
+Thomas E. Terry Trustee Consultant; former Vice President None 1
333 South Hope and Secretary, Capital Research and
Street Management Company (retired 1994)
Los Angeles, CA
90071
Age: 62
-----------------------------------------------------------------------------------------------------------------------------------
Robert C. Ziebarth Trustee Management Consultant, Ziebarth None 1
P.O. Box 2156 Company
Ketchum, ID 83340
Age: 64
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Endowments - Page 12
<PAGE>
+ "Interested persons" within the meaning of the 1940 Act on the basis of their
affiliation with the funds' Investment Adviser, Capital Research and
Management Company, or the parent company of the Investment Adviser, The
Capital Group Companies, Inc.
1 Capital Research and Management Company manages The American Funds Group
consisting of 29 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash
Management Trust of America, Capital Income Builder, Inc., Capital World
Growth and Income Fund, Inc., Capital World Bond Fund, Inc., EuroPacific
Growth Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc.,
The Income Fund of America, Inc., Intermediate Bond Fund of America, The
Investment Company of America, Limited Term Tax-Exempt Bond Fund of America,
The New Economy Fund, New Perspective Fund, Inc., New World Fund, Inc.,
SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America, Inc., The
Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland, The Tax-Exempt
Fund of Virginia, The Tax-Exempt Money Fund of America, The U. S. Treasury
Money Fund of America, U.S. Government Securities Fund and Washington Mutual
Investors Fund, Inc. Capital Research and Management Company also manages
American Variable Insurance Series and Anchor Pathway Fund, which serve as the
underlying investment vehicle for certain variable insurance contracts; and
Endowments, whose shareholders 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) organization"); (ii) any trust, the present or future
beneficiary of which is a 501(c)(3) organization, and (iii) any other entity
formed for the primary purpose of benefiting a 501(c)(3) organization. An
affiliate of Capital Research and Management Company, Capital International,
Inc., manages Emerging Markets Growth Fund, Inc.
Endowments - Page 13
<PAGE>
OTHER OFFICERS
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS AGE WITH REGISTRANT DURING
---------------------------------------------------- PAST 5 YEARS
-----------------------------
<S> <C> <C> <C>
Robert G. O'Donnell
(see above)
---------------------------------------------------------------------------------
Frank L. Ellsworth
(see above)
---------------------------------------------------------------------------------
Abner D. Goldstine 70 Senior Vice President Senior Vice President and
11100 Santa Monica Director, Capital Research
Blvd. and Management Company
Los Angeles, CA 90025
---------------------------------------------------------------------------------
Claudia P. Huntington 48 Senior Vice President Senior Vice President,
333 South Hope Street Capital Research and
Los Angeles, CA 90071 Management Company
---------------------------------------------------------------------------------
John H. Smet 44 Senior Vice President Vice President, Capital
11100 Santa Monica Research and Management
Blvd. Company
Los Angeles, CA 90025
---------------------------------------------------------------------------------
Patrick F. Quan 42 Vice President and Vice President, Fund Business
P.O. Box 7650 Secretary Management Group, Capital
San Francisco, CA Research and Management
94120 Company
---------------------------------------------------------------------------------
Susi M. Silverman 30 Treasurer Vice President, Fund Business
135 South State Management Group, Capital
College Blvd. Research and Management
Brea, CA 92821 Company
---------------------------------------------------------------------------------
Anthony W. Hynes, Jr. 37 Assistant Treasurer Vice President, Fund Business
135 South State Management Group, Capital
College Blvd. Research and Management
Brea, CA 92821 Company
---------------------------------------------------------------------------------
</TABLE>
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. No pension or retirement benefits are accrued as part of
fund expenses. However, the Trust reimburses certain expenses of the trustees
who are not affiliated with the investment adviser.
All of the Trustees serve or have served on boards of tax-exempt 501(c)(3)
organizations and have had experience in dealing with the administrative and
financial needs of these institutions as indicated:
Robert B. Egelston - California Institute of the Arts, Claremont University
Center, Los Angeles Festival, The Los Angeles Philharmonic Association, The
Music Center of Los Angeles County, The Wharton School of Finance and Commerce,
University of Pennsylvania; Frank L. Ellsworth - Claremont University Center,
English Village, Seattle, Foundation for Independent Higher Education, Global
Partners, Canada, Graphic Arts Counsel--Los Angeles County Museum of Art,
Independent Colleges of Southern California, Inc., The Japanese-American
National Museum, Japanese Foundation of International Education, The Los Angeles
Dance Center, Pitzer College, Southwestern University School of Law; Steven D.
Lavine - American Council on the Arts, Asia Society California Center, Cultural
Policy Network Project of the Center for Arts and Culture,
Endowments - Page 14
<PAGE>
KCET Public Broadcasting, KCRW-FM National Public Radio, Los Angeles County
Museum of Art, Los Angeles Philharmonic Association, The Music Center Operating
Company, The Music Center of Los Angeles County; Patricia A. McBride - Commemara
Conservancy Foundation, Dallas Museum of Art League, Dallas Symphony Orchestra
Association, Dallas Symphony Orchestra League, Dallas Women's Foundation, Girl
Scout Council, Inc., Eugene and Margaret McDermott Art Fund, St. Mark's School
of Texas, Southwest Museum of Science and Technology; Gail L. Neale - Circus
Smirkus, Concern for Dying, The Flynn Theater, The Frances Clark Center for
Keyboard Pedagogy, National Advisory Council, Hampshire College, The JL
Foundation, Shelburne Farms, The United Way, The Vera Institute of Justice;
Robert G. O'Donnell - University of California, Berkeley Foundation, Library
Advisory Board, University of California, Berkeley, Phi Beta Kappa Association
of Northern California, Audit Committee, Town of Atherton, California; 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,
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.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains research
facilities in the U.S. and abroad (Los Angeles, San Francisco, New York,
Washington, D.C., London, Geneva, Hong Kong, Singapore and Tokyo), with a staff
of professionals, many of whom have a number of years of investment experience.
The Investment Adviser is located at 333 South Hope Street, Los Angeles, CA
90071, and at 135 South State College Boulevard, Brea, CA 92821. The Investment
Adviser's research professionals travel several million miles a year, making
more than 5,000 research visits in more than 50 countries around the world. The
Investment Adviser believes that it is able to attract and retain quality
personnel. The Investment Adviser is a wholly owned subsidiary of The Capital
Group Companies, Inc.
The Investment Adviser is responsible for managing more than $300 billion of
stocks, bonds and money market instruments and serves over 11 million
shareholder accounts of all types throughout the world. 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 funds and the Investment Adviser will
continue in effect until July 27, 2001, unless sooner terminated, and may be
renewed from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (i) the Board of Trustees, or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the fund, and (ii) the vote of a majority of Trustees who are not
parties to the Agreements or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. The Agreements provide that the Investment Adviser has no
liability to the funds for its acts or omissions in the performance of its
obligations to the funds not involving willful misconduct, bad faith, gross
Endowments - Page 15
<PAGE>
negligence or reckless disregard of its obligations under the Agreements. 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 terminate in the event of their assignment (as defined
in the 1940 Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the funds, and provides suitable office space, necessary small office equipment
and utilities, general purpose accounting forms, supplies, and postage used at
the offices of the funds. The funds pay all expenses not assumed by the
Investment Adviser, including, but not limited to, custodian, stock transfer and
dividend disbursing fees and expenses; costs of the designing, printing and
mailing of reports, prospectuses, proxy statements, and notices to its
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; compensation, fees, and expenses paid to
directors unaffiliated with the Investment Adviser; association dues; and costs
of stationery and forms prepared exclusively for the funds.
The Investment Adviser receives a management fee at the annual rates of 1/2 of
1% of the funds' 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 a management fee reduction to the extent that each
funds' 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. For the fiscal years ended 2000, 1999, and 1998, the Investment
Adviser received advisory fees from Growth and Income Portfolio of $246,200,
$236,741, and $235,598, respectively, before fee reductions of $17,655 and
$63,974 for the fiscal years 1999 and 1998; no fee reduction was required for
the fiscal year ended 2000. For the fiscal years ended 2000, 1999, and 1998, the
Investment Adviser received advisory fees from Bond Portfolio of $158,602,
$148,454, and $154,762, before fee reductions of $34,637, $60,812 and $102,579,
respectively.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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. Additional distributions may be made, if necessary. The funds
also intend to 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 the funds do not
distribute the amount of capital gain and/or net investment income required to
be distributed by an excise tax provision of the Code, the funds 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.
Endowments - Page 16
<PAGE>
Dividends will be reinvested in shares of each fund unless shareholders indicate
in writing that they wish to receive them in cash or in shares of other American
Funds, as provided in the prospectus.
TAXES - The Trust (including each fund) has elected 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 100% of its investment company taxable income and net
realized capital gains in the manner required under the Code. The funds intend
to distribute annually all of their investment company taxable income and net
realized capital gains and therefore do not expect to pay federal income tax,
although in certain circumstances the funds may determine that it is in the
interest of shareholders to distribute less than that amount.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gain (both long-term and short-term)
for the one-year period ending on October 31 (as though the one-year period
ending on October 31 were the regulated investment company's taxable year), and
(iii) the sum of any untaxed, undistributed net investment income and net
capital gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (i) amounts actually distributed
by the fund from its current year's ordinary income and capital gain net income
and (ii) any amount on which the fund pays income tax during the periods
described above. The funds intends to distribute net investment income and net
capital gains so as to minimize or avoid the excise tax liability.
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 the funds.
If any net long-term capital gains in excess of net short-term capital losses
are retained by the funds for reinvestment, requiring federal income taxes to be
paid thereon by the funds, the funds intend 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 funds 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 funds properly designate 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 funds have been
held by such shareholders. Such distributions are not eligible for the
Endowments - Page 17
<PAGE>
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 his or her 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 another American
Fund, 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 the
funds' gross income, a portion of the income distributions of the funds 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.
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 funds each year, even though the funds 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 funds which
must be distributed to shareholders in order to maintain the qualification of
the funds as a regulated investment company and to avoid federal income tax at
the level of the funds. Shareholders will be subject to income tax on such
original issue discount, whether or not they elect to receive their
distributions in cash.
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
Endowments - Page 18
<PAGE>
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 funds
are 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 funds and on redemptions of the funds' 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 funds, 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
Shares are purchased at the net asset value next determined after the purchase
order is received and accepted by the funds or the Transfer Agent; this net
asset value is effective for orders received prior to the time of determination
of the net asset value.
Orders received by the Transfer Agent or the funds after the time of the
determination of the net asset value will be entered at the next calculated net
asset value. Prices which appear in the newspaper do not always indicate prices
at which you will be purchasing and redeeming shares of each fund, since such
prices generally reflect the previous day's closing price whereas purchases and
redemptions are made at the next calculated price. The price you pay for shares
is based on the net asset value per share which is calculated once daily as of
approximately 4:00 p.m. New York time, which is the normal close of trading on
the New York Stock Exchange each day the Exchange is open. If, for example, the
Exchange closes at 1:00 p.m., the funds' share
Endowments - Page 19
<PAGE>
price would still be determined as of 4:00 p.m. New York time. The New York
Stock Exchange is currently closed on weekends and on the following holidays:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day.
All portfolio securities of funds managed by Capital Research and Management
Company (other than 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 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.
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.
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 funds' 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
Any purchase order may be rejected by the funds.
SELLING 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
Endowments - Page 20
<PAGE>
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.
EXECUTION OF PORTFOLIO TRANSACTIONS
The Investment Adviser places orders for the funds' portfolio securities
transactions. 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 for the fiscal years ended
2000, 1999 and 1998, amounted to $61,000, $42,000 and $37,000 for Growth and
Income Portfolio, respectively. There are no brokerage commissions paid on
portfolio transactions for Bond Portfolio.
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' portfolio,
are held by The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, NY
10081, as Custodian. If the fund holds non-U.S. securities, the Custodian may
hold these securities pursuant to sub-custodial arrangements in non-U.S. banks
or non-U.S. branches of U.S. banks.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the funds' shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee of
$21,000 for Growth and Income Portfolio and $21,000 for Bond Portfolio for the
2000 fiscal year.
Endowments - Page 21
<PAGE>
INDEPENDENT AUDITORS - Deloitte & Touche LLP, located at Two California Plaza,
350 South Grand Avenue, Los Angeles, CA 90071, serves as the Trust's independent
auditors providing audit services, preparation of tax returns and review of
certain documents 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 report of Deloitte &
Touche LLP, independent auditors, given on the authority of said firm as experts
in accounting and auditing. The selection of the funds' independent auditors is
reviewed and determined annually by the Board of Trustees.
PROSPECTUSES AND REPORTS TO SHAREHOLDERS - The funds' fiscal year ends on July
31. Shareholders are provided updated prospectuses annually. In addition,
shareholders are provided at least semiannually with reports showing the
investment portfolio, financial statements and other information. The funds'
annual financial statements are audited by the funds' independent auditors,
Deloitte & Touche LLP. In an effort to reduce the volume of mail shareholders
receive from the fund when a household owns more than one account, the Transfer
Agent has taken steps to eliminate duplicate mailings of prospectuses and
shareholder reports. To receive additional copies of a prospectus or report,
shareholders should contact the Transfer Agent.
PERSONAL INVESTING POLICY - The funds, Capital Research and Management Company
and its affiliated companies, have adopted codes of ethics which allow for
personal investments. 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 director of publicly traded companies; and
disclosure of personal securities transactions.
INVESTMENT RESULTS AND RELATED STATISTICS
Growth and Income Portfolio's yield was 3.21% and Bond Portfolio's yield was
7.03% based on a 30-day (or one month) period ended July 31, 2000, 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.)
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
Endowments - Page 22
<PAGE>
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.
Growth and Income Portfolio's one year total return and average annual total
return for the five- and ten-year periods ended on July 31, 2000 was -3.31%,
+14.33% and +13.30%, respectively. Bond Portfolio's one year total return and
average annual total return for the five- and ten-year periods ended on July 31,
2000 was +5.13%, +6.09% and +7.71%, respectively.
The average 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.
In calculating average annual total return, the funds assume: (1) reinvestment
of dividends and distributions at net asset value on the reinvestment date
determined by the Board; and (2) a complete redemption at the end of any period.
In addition, the funds will provide lifetime average total return figures.
Total returns may be calculated over periods in addition to those described
above. 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 include information on its investment results and/or comparisons
of its investment results to various unmanaged indices (such as the Dow Jones
Average of 30 Industrial Stocks and the Standard and Poor's 500 Composite Stock
Index) or results of other mutual funds or investment or savings vehicles in
advertisements or in reports furnished to present or prospective shareholders.
The funds may refer to results and surveys compiled by organizations such as
CDA/ Wiesenberger, Ibbotson Associates, Lipper Analytical Services, Morningstar,
Inc., and by the U.S. Department of Commerce. Additionally, the funds may refer
to results published in various newspapers and periodicals, including Barron's,
Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine,
Money, U.S. News and World Report and The Wall Street Journal.
The funds may 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, and fuels, transportation,
and other goods and services that people buy for day-to-day living).
Endowments - Page 23
<TABLE>
Endowments, Growth and Income Portfolio
Investment Portfolio, July 31, 2000
Market Percent
Shares Value of Net
Equity Securitites Assets
-------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
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 HealthCare Corp.) 5,000 409,063 .82
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 Kingdom) 60,000 364,014 .73
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
Bell Atlantic Corp. (USA) 20,000 940,000 1.88
Lucent Technologies Inc. (USA) 5,000 218,750 .44
---------- ----------
Other equity securities in initial period of acquisition 1,158,751 2.32
---------- ----------
---------- ----------
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>
<TABLE>
Endowments, Bond Portfolio
Investment Portfolio, July 31, 2000
Principal Market Percent
Amount (000) Value of Net
Assets
-------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
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. 8.625% 2007(1) 200 169,967 .53
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., Series A, $250 233,210 .73
7.625% 2007
---------- ----------
433,210 1.36
---------- ----------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.95%
Bell Atlantic Financial Services, Inc., 250 244,637 .77
senior 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 certificates, 247 249,661 .78
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 depositary shares 10,000 shares 231,250 .73
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., 206 199,585 .62
Series 1998-D6, 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, Series 500 508,450 1.59
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 1998-RF2, 268 272,453 .85
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% 2025
Government National Mortgage Assn.: 7.00% 2025
7.00% 2028
7.00% 2029
7.00% 2024-2029 1,585 1,540,732
Government National Mortgage Assn.: 7.00% 2024
7.50% 2024
7.50% 2023-2030 1,023 1,014,521
Government National Mortgage Assn.: 7.00% 2029
7.50% 2030
8.00% 2023 636 640,549
8.50% 2008 162 167,221 12.16
10.00% 2019-2020 489 515,275
10.00% 2020
Government National Mortgage Assn.: 8.00% 2023
7.5% 01-01-30
---------- ----------
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% due 8/1/00 500 499,908 1.57
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>
Endowments, Growth and Income Portfolio
Per-Share Data and Ratios
Year ended 36738
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.
</TABLE>
Independent Auditors' Report
To the Board of Trustees and Shareholders of Endowments:
We have audited the accompanying statements of assets and liabilities of
Endowments (the "trust"), comprising, respectively, the Growth and Income
Portfolio and the Bond Portfolio, including the investment portfolios, as of
July 31, 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
<TABLE>
<CAPTION>
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>
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
k. None
l. Not applicable to this filing
m. None
n. None
o. None
p. Codes of Ethics
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.
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and 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 September, 2000.
ENDOWMENTS
By /s/ Patrick F. Quan
Patrick F. Quan, Secretary
ATTEST:
/s/ Melem Eday
Melem Eday
Pursuant to the requirements of the Securities Act of 1933, this amendment to
its registration statement has been signed below on September 27, 2000 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/ Susi M. Silverman Treasurer
(Susi M. Silverman)
(3) Trustees:
/s/ Robert B. Egelston
Robert B. Egelston Trustee
Steven D. Lavine* Trustee
Patricia A. McBride* Trustee
Gail L. Neale* Trustee
/s/ Robert G. O'Donnell
Robert G. O'Donnell Chairman
Charles R. Redmond* Trustee
Thomas E. Terry* Trustee
Robert C. Ziebarth* Trustee
</TABLE>
*By /s/ Patrick F. Quan
Patrick F. Quan, Attorney-in-Fact
Counsel reports that the amendment does not contain disclosures that would
make the amendment ineligible for effectiveness under the provisions of Rule
485(b).
/s/ Michele Y. Yang
Michele Y. Yang, Counsel
