Endowments

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ENDOWMENTS

Part B
Statement of Additional Information

October 1, 2005
(as supplemented April 1, 2006)

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 (individually, a "fund" and
collectively, the "funds").

This document is not a prospectus but should be read in conjunction with the
current prospectus of Endowments dated October 1, 2005. The prospectus may be
obtained from your registered investment adviser or 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

Item Page no.
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Certain investment limitations and guidelines . . . . . . . . . . . 2
Description of certain securities and investment techniques . . . . 3
Fundamental policies and investment restrictions. . . . . . . . . . 10
Management of the funds . . . . . . . . . . . . . . . . . . . . . . 12
Execution of portfolio transactions . . . . . . . . . . . . . . . . 23
Disclosure of portfolio holdings . . . . . . . . . . . . . . . . . 24
Price of shares . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Taxes and distributions . . . . . . . . . . . . . . . . . . . . . . 27
Purchase of shares. . . . . . . . . . . . . . . . . . . . . . . . . 30
Selling shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
General information . . . . . . . . . . . . . . . . . . . . . . . . 35
Financial statements

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CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES

The following limitations and guidelines are considered at the time of purchase,
under normal circumstances, and are based on a percentage of each fund's 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 stocks.

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 United States. In
determining the domicile of an issuer, the fund's investment adviser,
Capital Research and Management Company, will consider the domicile
determination of a leading provider of global indexes, such as MSCI,
and may also take into account such factors as where the company is
legally organized, maintains principal corporate offices and/or
conducts its principal operations.

BOND PORTFOLIO

DEBT SECURITIES

.Normally, at least 80% of the fund's assets will be invested in bonds
(for purposes of this limit, bonds include any debt instrument and
cash equivalents).

.The fund will invest in debt securities rated Baa or above by Moody's
Investors Service (Moody's) or BBB or above by Standard & Poor's (S&P)
or unrated but determined to be of equivalent quality by the
investment adviser.

.The fund has no current intention of investing in securities rated Ba
or below by Moody's and BB or below by S&P or unrated but determined
to be of equivalent quality by the investment adviser. The fund is not
required to dispose of a security in the event that its rating is
reduced below Baa or BBB (or if it is unrated, when 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.

EQUITY SECURITIES

.The fund will not acquire common stocks except through the exercise of
stock conversion or stock purchase rights and will retain such common
stocks only when it is consistent with the fund's objective of current
income.

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NON-U.S. SECURITIES

.The fund may invest up to 20% of its assets in obligations of
corporations or government entities domiciled outside the United
States 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. In
determining the domicile of an issuer, the investment adviser will
consider the domicile determination of a leading provider of global
indexes, such as MSCI, and may also take into account such factors as
where the company is legally organized, maintains principal corporate
offices and/or conducts its principal operations.

* * * * * *

The funds may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions.

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. Equity securities held by the fund typically consist of common stocks.
The prices of equity securities fluctuate based on, among other things, events
specific to their issuers and market, economic and other conditions.

There may be little trading in the secondary market for particular equity
securities, which may adversely affect the fund's ability to value accurately or
dispose of such equity securities. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the value and/or
liquidity of equity securities.

REAL ESTATE INVESTMENT TRUSTS -- The fund may invest in securities issued by
real estate investment trusts (REITs), which primarily invest in real estate or
real estate-related loans. Equity REITs own real estate properties, while
mortgage REITs hold construction, development and/or long-term mortgage loans.
The values of REITs may be affected by changes in the value of the underlying
property of the trusts, the creditworthiness of the issuer, property taxes,
interest rates and tax and regulatory requirements, such as those relating to
the environment. Both types of REITs are dependent upon management skill and the
cash flows generated by their holdings, the real estate market in general and
the possibility of failing to qualify for any applicable pass-through tax
treatment or failing to maintain any applicable exemptive status afforded under
relevant laws.

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BOND PORTFOLIO
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PASS-THROUGH SECURITIES -- The fund may invest in various debt obligations
backed by pools of mortgages or other assets including, but not limited to,
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:

"MORTGAGE-BACKED SECURITIES" -- These securities may be issued by U.S.
government agencies and government-sponsored entities, such as Ginnie Mae,
Fannie Mae and Freddie Mac, and by private entities. The payment of
interest and principal on mortgage-backed obligations issued by U.S.
government agencies may be guaranteed by the full faith and credit of the
U.S. government (in the case of Ginnie Mae), or may be guaranteed by the
issuer (in the case of Fannie Mae and Freddie Mac). However, these
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 those issued by U.S. government agencies. However, these
securities and the underlying mortgages are not guaranteed by any
government agencies. 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) -- CMOs are also backed by a
pool of mortgages or mortgage loans, which are divided into two or more
separate bond issues. CMOs issued by U.S. government agencies are backed by
agency mortgages, while privately issued CMOs may be backed by either
government agency mortgages or private mortgages. Payments of principal and
interest are passed through to each bond issue at varying schedules
resulting in bonds with different coupons, effective maturities and
sensitivities to interest rates. Some CMOs may be structured in a way that
when interest rates change, the impact of changing prepayment rates on the
effective maturities of certain issues of these securities is magnified.

COMMERCIAL MORTGAGE-BACKED SECURITIES -- These securities are backed by
mortgages on 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 -- These 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

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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
that can change their 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 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 involves the sale of a security by
a fund and its agreement to repurchase the security at a specified time and
price. A "roll" transaction involves 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 risk of price and yield
fluctuations during the time of the commitment. The fund will segregate liquid
assets that 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 adjusted in response to changes in the
level of the consumer price index. The interest rate is fixed at issuance as a
percentage of this adjustable principal. The actual interest income may
therefore both rise and fall as the level of the consumer price index rises and
falls. In particular, in a period of deflation the interest income would fall.
While the interest income may

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adjust upward or downward without limit in response to changes in the consumer
price index, the principal has a floor at par, meaning that the investor
receives at least the par value at redemption.

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.

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
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DEBT SECURITIES -- Debt securities are used by issuers to borrow money.
Generally, issuers pay investors interest and may repay the amount borrowed
periodically during the life of the security or 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 and accrue interest at the
applicable coupon rate over a specified time period. The market prices of debt
securities fluctuate depending on such factors as interest rates, credit quality
and maturity. In general, market prices of debt securities decline when interest
rates rise and increase when interest rates fall.

Lower rated debt securities, rated Ba or below by Moody's and/or BB or below by
S&P or unrated but determined 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 debt
securities, or they may already be in default. The market prices of these
securities may fluctuate more than higher quality securities and may decline
significantly in periods of general economic difficulty. It may be more
difficult to dispose of, and to determine the value of, lower rated debt
securities.

Certain additional risk factors relating to debt securities are discussed below:

SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES -- Debt securities may be
sensitive to economic changes, political and corporate developments, and
interest rate changes. In addition, during an economic downturn or
substantial period of rising interest rates, issuers that are highly
leveraged may experience increased financial stress that would adversely
affect their ability to meet projected business goals, to obtain additional
financing and to service their principal and interest payment obligations.
Periods of economic change and uncertainty also can be expected to result
in increased volatility of market prices and yields of certain debt
securities.

PAYMENT EXPECTATIONS -- Debt securities may contain redemption or call
provisions. If an issuer exercises these provisions in a lower interest
rate market, the funds would have to replace the security with a lower
yielding security, resulting in decreased income to investors. If the
issuer of a debt security defaults on its obligations to pay interest or
principal or is the subject of bankruptcy proceedings, the funds may incur
losses or expenses in seeking recovery of amounts owed to them.

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RESALE RESTRICTIONS, LIQUIDITY AND VALUATION -- The funds may purchase debt
securities subject to restrictions on resale. As further described in the
"Restricted or illiquid securities" paragraph below, difficulty in selling
such debt securities may result in losses or be costly to the funds. In
addition, there may be little trading in the secondary market for
particular debt securities, which may affect adversely the funds' ability
to value accurately or dispose of such debt securities. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
decrease the value and/or liquidity of debt securities.

The investment adviser attempts to reduce the risks described above through
diversification of the funds' portfolios 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.

Growth and Income Portfolio has no current intention of investing in debt
securities other than U.S. Treasury securities.

SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS -- The funds may invest in
securities that have a combination of equity and debt characteristics. These
securities may at times behave more like equity than debt and vice versa. Some
types of convertible bonds or preferred stocks automatically convert into common
stocks. The prices and yields of nonconvertible preferred stocks generally move
with changes in interest rates and the issuer's credit quality, similar to the
factors affecting debt securities. Certain of these securities will be treated
as debt for fund investment limit purposes.

Convertible bonds, convertible preferred stocks and other securities may
sometimes be converted, or may automatically convert, into common stocks or
other securities at a stated conversion ratio. These securities, prior to
conversion, may 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 assets, general
market and economic conditions, and convertible market valuations, as well as
changes in interest rates, credit spreads and the credit quality of the issuer.

U.S. GOVERNMENT OBLIGATIONS -- U.S. government obligations are securities backed
by the full faith and credit of the U.S. government. U.S. government obligations
include the following types of securities:

U.S. TREASURY SECURITIES -- U.S. Treasury securities 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.

FEDERAL AGENCY SECURITIES BACKED BY "FULL FAITH AND CREDIT" -- The
securities of certain U.S. government agencies and government-sponsored
entities are guaranteed as to the timely payment of principal and interest
by the full faith and credit of the U.S. government. Such agencies and
entities include the Government National Mortgage Association (Ginnie Mae),
the Veterans Administration (VA), the Federal Housing Administration (FHA),
the Export-Import Bank (Exim Bank), the Overseas Private Investment

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Corporation (OPIC), the Commodity Credit Corporation (CCC) and the Small
Business Administration (SBA).

OTHER FEDERAL AGENCY OBLIGATIONS -- Additional federal agency securities are
neither direct obligations of, nor guaranteed by, the U.S. government. These
obligations include securities issued by certain U.S. government agencies and
government-sponsored entities. However, they generally involve some form of
federal sponsorship: some operate under a government charter, some are backed by
specific types of collateral; some are supported by the issuer's right to borrow
from the Treasury; and others are supported only by the credit of the issuing
government agency or entity. These agencies and entities include, but are not
limited to: Federal Home Loan Bank, Federal Home Loan Mortgage Corporation
(Freddie Mac), Federal National Mortgage Association (Fannie Mae), Tennessee
Valley Authority and Federal Farm Credit Bank System.

INVESTING IN VARIOUS COUNTRIES -- Investing outside the United States may
involve additional risks caused by, among other things, currency controls and
fluctuating currency values; different accounting, auditing, financial reporting
and legal standards and practices in some countries; changing local, regional
and global economic, political and social conditions; expropriation; changes in
tax policy; greater market volatility; differing securities market structures;
higher transaction costs; and various administrative difficulties, such as
delays in clearing and settling portfolio transactions or in receiving payment
of dividends.

The risks described above may be heightened in connection with investments in
developing countries. Although there is no universally accepted definition, the
investment adviser generally considers a developing country as a country that is
in the earlier stages of its industrialization cycle with a low per capita gross
domestic product ("GDP") and a low market capitalization to GDP ratio relative
to those in the United States and western Europe. Historically, the markets of
developing countries have been more volatile than the markets of developed
countries. The funds may invest in securities of issuers in developing countries
only to a limited extent.

Additional costs could be incurred in connection with the funds' investment
activities outside the United States. Brokerage commissions may be higher
outside the United States, and the funds will bear certain expenses in
connection with their currency transactions. Furthermore, increased custodian
costs may be associated with maintaining assets in certain jurisdictions.

CURRENCY TRANSACTIONS -- The funds may 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 do so). A forward currency contract is an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. Forward currency contracts
entered into by the funds will involve the purchase or sale of 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 that may result from an increase in the
value of the currency. Each fund will not generally attempt to protect against
all potential changes in exchange rates. The funds will segregate liquid assets
that will be marked to market daily to meet its forward contract commitments to
the extent required by the Securities and Exchange Commission.

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Certain provisions of the Internal Revenue Code may affect the extent to which
the funds may enter into forward contracts. Such transactions also may affect
the character and timing of income, gain or loss recognized by the funds for
U.S. federal income tax purposes.

CASH AND CASH EQUIVALENTS -- These include (a) commercial paper (for example,
short-term notes with maturities typically up to 12 months in length issued by
corporations, governmental bodies or bank/corporation sponsored conduits
(asset-backed commercial paper)) (b) short-term bank obligations (for example,
certificates of deposit, bankers' acceptances (time drafts on a commercial bank
where the bank accepts an irrevocable obligation to pay at maturity)) or bank
notes, (c) savings association and savings bank obligations (for example, bank
notes and certificates of deposit issued by savings banks or savings
associations), (d) securities of the U.S. government, its agencies or
instrumentalities that mature, or may be redeemed, in one year or less, and (e)
corporate bonds and notes that mature, or that may be redeemed, in one year or
less.

RESTRICTED OR ILLIQUID SECURITIES -- The funds may purchase securities subject
to restrictions on resale. Difficulty in selling such securities may result in a
loss or be costly to the funds. Restricted securities generally can be sold in
privately negotiated transactions, pursuant to an exemption from registration
under the Securities Act of 1933 (the "1933 Act"), or in a registered public
offering. Where registration is required, the holder of a registered security
may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek registration
and the time it may be permitted to sell a security under an effective
registration statement.

Securities (including restricted securities) not actively traded will be
considered illiquid unless they have been specifically determined to be liquid
under procedures adopted by the funds' Board of Trustees, taking into account
factors such as the frequency and volume of trading, the commitment of dealers
to make markets and the availability of qualified investors, all of which can
change from time to time. The funds may incur certain additional costs in
disposing of illiquid securities.

REPURCHASE AGREEMENTS -- The funds may enter into repurchase agreements
(although Growth and Income Portfolio has no current intention to do so) under
which the funds buy a security and obtain a simultaneous commitment from the
seller to repurchase the security at a specified time and price. 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 of 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 their investments are
generally accomplished gradually, though short--

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term transactions may occasionally be made. High portfolio turnover 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. Transaction costs are
usually reflected in the spread between the bid and asked price.

A fund's portfolio turnover rate would equal 100% if each security in the fund's
portfolio were replaced once per year. The funds' portfolio turnover rates for
the fiscal years ended July 31, 2005 and 2004 were 31% and 32%, respectively,
for Growth and Income Portfolio and 51% and 36%, respectively, for Bond
Portfolio. See "Financial highlights" in the prospectus for the funds' annual
portfolio turnover rate for each of the last five fiscal years.

FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS

FUNDAMENTAL POLICIES -- Each fund 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, as amended (the "1940 Act"), as the vote of the
lesser of (a) 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 (b) more than 50% of the outstanding
voting securities. All percentage limitations are considered at the time
securities are purchased and are based on a funds' 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.

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.

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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.

NON-FUNDAMENTAL POLICIES -- The following policies may be changed without
shareholder approval and 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.

The following non-fundamental policy applies to Growth and Income Portfolio
only:

1. The fund may not invest more than 10% of its total assets in securities
that are not readily marketable.

The following non-fundamental policy applies to Bond Portfolio only:

1. The fund may not invest more than 15% of its total assets in securities
that are not readily marketable.

Restricted securities are treated as not readily marketable by the funds, with
the exception of those securities that have been determined to be liquid
pursuant to procedures adopted by the funds' board of trustees.

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MANAGEMENT OF THE FUNDS

BOARD OF TRUSTEES AND OFFICERS

NUMBER OF PORTFOLIOS
POSITION YEAR FIRST ELECTED WITHIN THE FUND
WITH THE A TRUSTEE PRINCIPAL OCCUPATION(S) COMPLEX/2/ OVERSEEN OTHER DIRECTORSHIPS/3/
NAME AND AGE TRUST OF THE TRUST/1/ DURING PAST FIVE YEARS BY TRUSTEE HELD BY TRUSTEE
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"NON-INTERESTED" TRUSTEES
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Robert J. Denison Trustee 2003 Chair, First Security 6 None
Age: 64 Management (private
investments)
-----------------------------------------------------------------------------------------------------------------------------------
Steven D. Lavine Trustee 1994 President, California 2 None
Age: 58 Institute of the Arts
-----------------------------------------------------------------------------------------------------------------------------------
Joseph M. Lumarda Trustee 2000 Executive Vice President 2 None
Age: 45 and Chief Operating
Officer, California
Community Foundation
-----------------------------------------------------------------------------------------------------------------------------------
Patricia A. Chairman of 1988 Chief Financial Officer, 2 None
McBride the Board Cosmetic and
Age: 62 (independent Maxillofacial Surgery
and Center Medical City
Non-Executive) Dallas Hospital
and Trustee
-----------------------------------------------------------------------------------------------------------------------------------
Gail L. Neale Trustee 1998 President, The Lovejoy 6 None
Age: 70 Consulting Group, Inc.
(a pro bono consulting
group advising nonprofit
organizations)
-----------------------------------------------------------------------------------------------------------------------------------
Robert C. Ziebarth Trustee 1993 Management consultant, 2 None
Age: 69 Ziebarth Company
(management and
financial consulting)
-----------------------------------------------------------------------------------------------------------------------------------

Endowments -- Page 12

<PAGE>

YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) DURING
POSITION A TRUSTEE PAST FIVE YEARS AND NUMBER OF PORTFOLIOS
WITH THE AND/OR OFFICER POSITIONS HELD WITHIN THE FUND
NAME AND AGE TRUST OF THE TRUST/1/ WITH AFFILIATED ENTITIES COMPLEX/2/ OVERSEEN BY TRUSTEE
---------------------------------------------------------------------------------------------------------------------------
"INTERESTED" TRUSTEES/4,5/
---------------------------------------------------------------------------------------------------------------------------

Robert G. Vice 1995 Senior Vice President and 4
O'Donnell Chairman of Director, Capital Research and
Age: 61 the Board Management Company
---------------------------------------------------------------------------------------------------------------------------
Thomas E. Terry Trustee 1969 Consultant; former Vice 2
Age: 67 President and Secretary,
Capital Research and
Management Company (retired
1994)
---------------------------------------------------------------------------------------------------------------------------

OTHER
DIRECTORSHIPS/3/
NAME AND AGE HELD BY TRUSTEE
-----------------------------------------
"INTERESTED" TRUSTEES/4,5/
------------------------------------------

Robert G. None
O'Donnell
Age: 61
-----------------------------------------
Thomas E. Terry None
Age: 67
-----------------------------------------

POSITION YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) DURING
WITH THE AN OFFICER PAST FIVE YEARS AND POSITIONS HELD
NAME AND AGE TRUST OF THE TRUST/1/ WITH AFFILIATED ENTITIES
-----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS/5/
-----------------------------------------------------------------------------------------------------------------------------------

Claudia P. President 1996 Senior Vice President, Capital Research and Management Company;
Huntington Director, The Capital Group Companies, Inc.*
Age: 53
-----------------------------------------------------------------------------------------------------------------------------------
Abner D. Goldstine Senior Vice 1995 Senior Vice President and Director, Capital Research and
Age: 75 President Management Company
-----------------------------------------------------------------------------------------------------------------------------------
John H. Smet Senior Vice 1996 Senior Vice President, Capital Research and Management Company;
Age: 49 President Director, American Funds Distributors, Inc.*
-----------------------------------------------------------------------------------------------------------------------------------
Gregory D. Johnson Vice President 2000 Senior Vice President, Capital Research Company*
Age: 42
-----------------------------------------------------------------------------------------------------------------------------------
Krista M. Johnson Vice President 2000 Assistant Vice President - Fund Business Management Group,
Age: 40 Capital Research and Management Company
-----------------------------------------------------------------------------------------------------------------------------------
Patrick F. Quan Vice President and 1986 Vice President - Fund Business Management Group, Capital
Age: 47 Secretary Research and Management Company
-----------------------------------------------------------------------------------------------------------------------------------
Susi M. Silverman Treasurer 1998 Vice President - Fund Business Management Group, Capital
Age: 35 Research and Management Company
-----------------------------------------------------------------------------------------------------------------------------------
Ari M. Vinocor Assistant Treasurer 2005 Vice President - Fund Business Management Group, Capital
Age: 30 Research and Management Company
-----------------------------------------------------------------------------------------------------------------------------------

Endowments -- Page 13

<PAGE>

* Company affiliated with Capital Research and Management Company.
1 Trustees and officers of the Trust serve until their resignation, removal or
retirement.
2 Capital Research and Management Company manages the American Funds, consisting
of 29 funds. Capital Research and Management Company also manages American
Funds Insurance Series,(R) which serves as the underlying investment vehicle
for certain variable insurance contracts, and Endowments, whose shareholders
are limited to certain nonprofit organizations.
3 This includes all directorships (other than those of the American Funds) that
are held by each Trustee as a director of a public company or a registered
investment company.
4 "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 affiliated entities.
5 All of the officers listed, except Krista M. Johnson, are officers and/or
Directors/Trustees of one or more of the other funds for which Capital Research
and Management Company serves as investment adviser.

THE ADDRESS FOR ALL TRUSTEES AND OFFICERS OF THE FUNDS IS 333 SOUTH HOPE STREET,
55TH FLOOR, LOS ANGELES, CALIFORNIA 90071, ATTENTION: FUND SECRETARY.

Endowments -- Page 14

<PAGE>

FUND SHARES OWNED BY TRUSTEES AS OF DECEMBER 31, 2004

AGGREGATE DOLLAR RANGE/1/
OF SHARES
OWNED IN ALL FUNDS
IN THE AMERICAN FUNDS
DOLLAR RANGE/1/ OF FUND FAMILY OVERSEEN
NAME SHARES OWNED/2/ BY TRUSTEE/3/
-------------------------------------------------------------------------------

"NON-INTERESTED" TRUSTEES
-------------------------------------------------------------------------------
Robert J. Denison None None
-------------------------------------------------------------------------------
Steven D. Lavine None None
-------------------------------------------------------------------------------
Joseph M. Lumarda None None
-------------------------------------------------------------------------------
Patricia A. McBride None None
-------------------------------------------------------------------------------
Gail L. Neale None Over $100,000
-------------------------------------------------------------------------------
Robert C. Ziebarth None None
-------------------------------------------------------------------------------
"INTERESTED" TRUSTEES/4/
-------------------------------------------------------------------------------
Robert G. O'Donnell Over $100,000/5/ Over $100,000
-------------------------------------------------------------------------------
Thomas E. Terry None None
-------------------------------------------------------------------------------

1 Ownership disclosure is made using the following ranges: None; $1 - $10,000;
$10,001 - $50,000; $50,001 - $100,000; and Over $100,000.
2 Shareholders of the Trust are limited to: (a) any entity exempt from taxation
under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended
("501(c)(3) organizations"); (b) any trust, the present or future beneficiary
of which is a 501(c)(3) organization; and (c) 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 its shareholders.
3 The amounts listed for "interested" Trustees include shares owned through The
Capital Group Companies, Inc. retirement plan and 401(k) plan.
4 "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 affiliated entities.
5 Represents assets in a charitable remainder trust for which Mr. O'Donnell
serves as Trustee and is the income beneficiary.

TRUSTEE COMPENSATION -- No compensation is paid by the Trust to any officer or
Trustee who is a director, officer or employee of the investment adviser or its
affiliates. The Trust pays annually fees of $6,000 to each Trustee who is not
an "interested person" within the meaning of The 1940 Act (a "Non-interested
Trustee"), $1,000 for each Board of Trustees meeting attended, and $500 for
each meeting attended as a member of a committee of the Board of Trustees. No
pension or retirement benefits are accrued as part of fund expenses. The Trust
also reimburses certain expenses of Non-interested Trustees. A Non-interested
Trustee who is chairman of the Board also receives an additional annual fee of
$25,000. The Trust pays to its independent chair an attendance fee (as described
above) for each meeting of a committee of the Board of Trustees attended as a
non-voting ex-officio member.

Non-interested Trustees also receive attendance fees of (a) $2,500 for each
director seminar or information session organized by the investment adviser, (b)
$1,500 for each joint audit committee meeting with all other audit committees of
funds advised by the investment adviser and (c) $500 for each meeting of the
board or committee chairs of other funds advised by the investment adviser. The
Trust and the other funds served by each Non-interested Trustee each pay an
equal portion of these attendance fees.

Endowments -- Page 15

<PAGE>

The Committee on Governance of the Board of Trustees, a Committee comprised
exclusively of Non-interested Trustees, reviews Trustee compensation periodically,
and recommends adjustments periodically. In making its recommendations, the
Committee on Governance considers a number of factors, including operational,
regulatory and other developments affecting the complexity of the Board's
oversight obligations, as well as comparative industry data.

TRUSTEE COMPENSATION PAID DURING THE FISCAL YEAR ENDED JULY 31, 2005

TOTAL COMPENSATION (INCLUDING
VOLUNTARILY DEFERRED COMPENSATION/1/)
FROM ALL FUNDS MANAGED BY
AGGREGATE COMPENSATION CAPITAL RESEARCH AND MANAGEMENT
NAME FROM THE TRUST COMPANY OR ITS AFFILIATES/2/
-----------------------------------------------------------------------------------------------------------------------------------

Robert J. Denison $14,666 $ 59,008
-----------------------------------------------------------------------------------------------------------------------------------
Steven D. Lavine 15,500 15,500
-----------------------------------------------------------------------------------------------------------------------------------
Joseph M. Lumarda 16,000 16,000
-----------------------------------------------------------------------------------------------------------------------------------
Patricia A. McBride 20,500 20,500
-----------------------------------------------------------------------------------------------------------------------------------
Gail L. Neale 15,700 142,500
-----------------------------------------------------------------------------------------------------------------------------------
Robert C. Ziebarth 18,000 18,000
-----------------------------------------------------------------------------------------------------------------------------------

1 Amounts may be deferred under a non-qualified deferred compensation plan.
Deferred amounts accumulate at an earnings rate determined by the total return
of one or more of the American Funds as designated by the Trustee.
2 Capital Research and Management Company manages the American Funds, consisting
of 29 funds. Capital Research and Management Company also manages American
Funds Insurance Series,(R) which serves as the underlying investment vehicle
for certain variable insurance contracts, and Endowments, whose shareholders
are limited to certain nonprofit organizations.

All of the Trustees serve or have served on boards of tax-exempt 501(c)(3)
organizations as indicated in the table below, and have had experience in
dealing with the administrative and financial needs of these institutions:

NAME TAX-EXEMPT BOARDS ON WHICH TRUSTEE SERVES OR HAS SERVED
-----------------------------------------------------------------------------------------------------------------------------------

Robert J. Denison California Institute of the Arts; The Institute for
Contemporary Arts/P.S. 1 Museum, New York; The JL
Foundation; The Museum of Modern Art, New York; New
Mexico Academy of Science and Mathematics; Santa Fe
Institute
-----------------------------------------------------------------------------------------------------------------------------------
Steven D. Lavine American Council on Education; American Council on the
Arts; Arts International; Asia Society California Center;
Cultural Policy Network Project of the Center for Arts
and Culture; KCET Public Broadcasting; KCRW-FM National
Public Radio; Los Angeles Philharmonic Association; The
Music Center Operating Company, The Music Center of Los
Angeles County
-----------------------------------------------------------------------------------------------------------------------------------
Joseph M. Lumarda Asian American and Pacific Islanders in Philanthropy;
CORO Southern California; Peter F. Drucker Graduate
School of Management; Saint Joseph Healthcare Foundation;
Saint Joseph Health System Foundation; Southern
California Association for Philanthropy; Stop Gap
-----------------------------------------------------------------------------------------------------------------------------------
Patricia A. McBride Arts Magnet High School Advisory Board; Commemara
Conservancy Foundation; Dallas Symphony Orchestra
Association; Dallas Women's Council; 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 of Hampshire College; The JL Foundation;
The Madison-Deane Initiative of the Visiting Nurse
Association; Preservation Trust of Vermont; Shelburne
Farms; The Vera Institute of Justice; The Vermont
Folklife Center; Vermont Public Radio
-----------------------------------------------------------------------------------------------------------------------------------
Robert G. O'Donnell University of California, Berkeley Foundation; Library
Advisory Board, University of California, Berkeley; Phi
Beta Kappa Association of Northern California; Civil War
Preservation Trust
-----------------------------------------------------------------------------------------------------------------------------------
Thomas E. Terry Academy of Arts and Sciences; Chazen Museum of Art;
Edgewood High School; Ketchum YMCA; Madison Community
Foundation; Madison Opera, Inc.; National Football
Scholarship Foundation; Scholarship America; Ten Chimneys
Foundation; Waisman Center- University of Wisconsin
-----------------------------------------------------------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------------------------------------------------------

Endowments -- Page 16

<PAGE>

TRUST ORGANIZATION AND THE BOARD OF TRUSTEES -- Endowments, Inc., the
predecessor to Growth and Income Portfolio, was organized as a Delaware
corporation in 1969; Bond Portfolio for Endowments, Inc., the predecessor to
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.

Delaware law charges Trustees with the duty of managing the business affairs of
the Trust. Trustees are considered to be fiduciaries of the Trust and should act
with the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity and familiar with
such matters would use to attain the purposes of the Trust. In addition, the
Trustees have the authority to establish new series and classes of shares, and
to split or combine outstanding shares into a greater or lesser number, without
shareholder approval.

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.

Endowments -- Page 17

<PAGE>

The Trust's Trust Instrument and by-laws as well as separate indemnification
agreements that the Trust has entered into with Trustees who are not "interested
persons" of the Trust, provide in effect that, subject to certain conditions,
the Trust will indemnify its officers and Trustees against liabilities or
expenses actually and reasonably incurred by them relating to their service to
the fund. However, Trustees are not protected from liability by reason of their
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of their office.

COMMITTEES OF THE BOARD OF TRUSTEES -- The funds have an Audit Committee
comprised of Robert J. Denison, Steven D. Lavine, Joseph M. Lumarda, Patricia A.
McBride, Gail L. Neale and Robert C. Ziebarth, none of whom is an "interested
person" of the funds within the meaning of the 1940 Act. The Committee provides
oversight regarding the funds' accounting and financial reporting policies and
practices, their internal controls and the internal controls of the funds'
principal service providers. The Committee acts as a liaison between the funds'
independent registered public accounting firm and the full Board of Trustees.
Four Audit Committee meetings were held during the 2005 fiscal year.

The funds have a Contracts Committee comprised of Robert J. Denison, Steven D.
Lavine, Joseph M. Lumarda, Patricia A. McBride, Gail L. Neale and Robert C.
Ziebarth, none of whom is an "interested person" of the funds within the meaning
of the 1940 Act. The Committee's function is to request, review and consider the
information deemed necessary to evaluate the terms of certain agreements between
the funds and their investment adviser or the investment adviser's affiliates,
such as the Investment Advisory and Service Agreement that the funds may enter
into, renew or continue, and to make its recommendations to the full Board of
Trustees on these matters. One Contracts Committee meeting was held during the
2005 fiscal year.

The funds have a Committee on Governance comprised of Robert J. Denison, Steven
D. Lavine, Joseph M. Lumarda, Patricia A. McBride, Gail L. Neale and Robert C.
Ziebarth, none of whom is an "interested person" of the funds within the meaning
of the 1940 Act. The Committee periodically reviews such issues as the Board's
composition, responsibilities, committees, compensation and other relevant
issues, and recommends any appropriate changes to the full Board of Trustees.
The Committee also evaluates, selects and nominates independent Trustee
candidates to the full Board of Trustees. While the Committee normally is able
to identify from its own and other resources an ample number of qualified
candidates, it will consider shareholder suggestions of persons to be considered
as nominees to fill future vacancies on the Board. Such suggestions must be sent
in writing to the Committee on Governance of the funds, addressed to the funds'
Secretary, and must be accompanied by complete biographical and occupational
data on the prospective nominee, along with a written consent of the prospective
nominee for consideration of his or her name by the Committee. Three Committee
on Governance meetings were held during the 2005 fiscal year.

PROXY VOTING PROCEDURES AND GUIDELINES -- The funds and their investment adviser
have adopted Proxy Voting Guidelines (the "Guidelines") with respect to voting
proxies of securities held by the funds, other American Funds and American Funds
Insurance Series. Certain American Funds have established separate proxy
committees that vote proxies or delegate to a voting officer the authority to
vote on behalf of those funds. Proxies for all other funds are voted by a
committee of the investment adviser under authority delegated by those funds'
Boards. Therefore, if more than one fund invests in the same company, they may
vote differently on the same proposal.

Endowments -- Page 18

<PAGE>

All U.S. proxies are voted. Non-U.S. proxies also are voted, provided there is
sufficient time and information available. After a proxy is received, the
investment adviser prepares a summary of the proposals in the proxy. A
discussion of any potential conflicts of interest is also included in the
summary. After reviewing the summary, one or more research analysts familiar
with the company and industry make a voting recommendation on the proxy
proposals. A second recommendation is made by a proxy coordinator (a senior
investment professional) based on the individual's knowledge of the Guidelines
and familiarity with proxy-related issues. The proxy summary and voting
recommendations are then sent to the appropriate proxy voting committee for the
final voting decision.

The analyst and proxy coordinator making voting recommendations are responsible
for noting any potential material conflicts of interest. One example might be
where a director of one or more American Funds is also a director of a company
whose proxy is being voted. In such instances, proxy committee members are
alerted to the potential conflict. The proxy committee may then elect to vote
the proxy or seek a third-party recommendation or vote of an ad hoc group of
committee members.

The Guidelines, which have been in effect in substantially their current form
for many years, provide an important framework for analysis and decision-making
by all funds. However, they are not exhaustive and do not address all potential
issues. The Guidelines provide a certain amount of flexibility so that all
relevant facts and circumstances can be considered in connection with every
vote. As a result, each proxy received is voted on a case-by-case basis
considering the specific circumstances of each proposal. The voting process
reflects the funds' understanding of the company's business, its management and
its relationship with shareholders over time.

Information regarding how the fund voted proxies relating to portfolio
securities during the 12-month period ended June 30 of each year, will be
available on or about September 1 of each year, (a) without charge, upon request
by calling American Funds Service Company at 800/421-0180 or (b) on the SEC's
website at www.sec.gov.

The following summary sets forth the general positions of the American Funds,
Endowments, American Funds Insurance Series and the investment adviser on
various proposals. A copy of the full Guidelines is available upon request, free
of charge, by calling American Funds Service Company at 800/421-0180 or visiting
the American Funds website.

DIRECTOR MATTERS -- The election of a company's slate of nominees for
director is generally supported. Votes may be withheld for some or all of
the nominees if this is determined to be in the best interest of
shareholders. Separation of the chairman and CEO positions may also be
supported. Typically, proposals to declassify the board (elect all
directors annually) are supported based on the belief that this increases
the directors' sense of accountability to shareholders.

SHAREHOLDER RIGHTS -- Proposals to repeal an existing poison pill, to
provide for confidential voting and to provide for cumulative voting are
usually supported. Proposals to eliminate the right of shareholders to act
by written consent or to take away a shareholder's right to call a special
meeting are not typically supported.

COMPENSATION AND BENEFIT PLANS -- Option plans are complicated, and many
factors are considered in evaluating a plan. Each plan is evaluated based
on protecting shareholder interests and a knowledge of the company and its
management. Considerations

Endowments -- Page 19

<PAGE>

include the pricing (or repricing) of options awarded under the plan and
the impact of dilution on existing shareholders from past and future equity
awards. Compensation packages should be structured to attract, motivate and
retain existing employees and qualified directors; however, they should not
be excessive.

ROUTINE MATTERS -- The ratification of auditors, procedural matters
relating to the annual meeting and changes to company name are examples of
items considered routine. Such items are generally voted in favor of
management's recommendations unless circumstances indicate otherwise.

PRINCIPAL FUND SHAREHOLDERS -- The following table identifies those investors
who own of record or are known by the funds to own beneficially 5% or more of
their shares as of the opening of business on September 1, 2005. Unless
otherwise indicated, the ownership percentages below represent ownership of
record rather than beneficial ownership.

GROWTH AND INCOME PORTFOLIO

OWNERSHIP
NAME AND ADDRESS PERCENTAGE
----------------------------------------------------------------------------

California Institute of the Arts 7.10%
24700 McBean Parkway
Valencia, CA 91355-2397
----------------------------------------------------------------------------
Facey Medical Foundation 6.85
15451 San Fernando Mission Blvd. Ste. 300
Mission Hills, CA 91345-1420
----------------------------------------------------------------------------

BOND PORTFOLIO

OWNERSHIP
NAME AND ADDRESS PERCENTAGE
----------------------------------------------------------------------------

CGTC Agent 10.16%
120 S State College Blvd.
Brea, CA 92821-5805
----------------------------------------------------------------------------
Facey Medical Foundation 8.14
15451 San Fernando Mission Blvd. Ste 300
Mission Hills, CA 91345-1420
----------------------------------------------------------------------------
California Institute of the Arts 6.41
24700 McBean Parkway
Valencia, CA 91355-2397
----------------------------------------------------------------------------

Shareholder inquiries may be made in writing to Endowments, c/o American Funds
Service Company, Attention: IIS Team, 135 South State College Boulevard, Brea,
CA 92821 or by calling 800/421-5475, ext. 30028.

INVESTMENT ADVISER -- Capital Research and Management Company, the investment
adviser, founded in 1931, maintains research facilities in the United States and
abroad (Los Angeles, San Francisco, New York, Washington, DC, London, Geneva,
Hong Kong, Singapore and Tokyo).

Endowments -- Page 20

<PAGE>

These facilities are staffed with experienced investment professionals. The
investment adviser is located at 333 South Hope Street, Los Angeles, CA 90071
and 135 South State College Boulevard, Brea, CA 92821. It is a wholly owned
subsidiary of The Capital Group Companies, Inc., a holding company for several
investment management subsidiaries. The investment adviser manages equity assets
for the American Funds and the Trust through two divisions. These divisions
generally function separately from each other with respect to investment
research activities and they make investment decisions for the funds on a
separate basis.

POTENTIAL CONFLICTS OF INTEREST -- The investment adviser has adopted policies
and procedures that address potential conflicts of interest that may arise
between a portfolio counselor's management of the funds and his or her
management of other funds and accounts, such as conflicts relating to the
allocation of investment opportunities, personal investing activities, portfolio
counselor compensation and proxy voting of portfolio securities. While there is
no guarantee that such policies and procedures will be effective in all cases,
the investment adviser believes that all issues relating to potential material
conflicts of interest involving the funds and its other managed funds and
accounts have been addressed.

COMPENSATION OF INVESTMENT PROFESSIONALS -- As described in the prospectus, the
investment adviser uses a system of multiple portfolio counselors in managing
fund assets. Portfolio counselors and investment analysts may manage assets in
other mutual funds advised by Capital Research and Management Company.
Currently, the investment adviser's investment analysts do not directly make
investment decisions for either fund's portfolio. Portfolio counselors and
investment analysts are paid competitive salaries by Capital Research and
Management Company. In addition, they may receive bonuses based on their
individual portfolio results. Investment professionals also may participate in
profit-sharing plans. The relative mix of compensation represented by bonuses,
salary and profit-sharing will vary depending on the individual's portfolio
results, contributions to the organization and other factors. In order to
encourage a long-term focus, bonuses based on investment results are calculated
by comparing pretax total returns to relevant benchmarks over both the most
recent year and a four-year rolling average, with the greatest weight placed on
the four-year rolling average. For portfolio counselors, benchmarks may include
measures of the marketplaces in which the relevant fund invests and measures of
the results of comparable mutual funds. For investment analysts, benchmarks may
include relevant market measures and appropriate industry or sector indexes
reflecting their areas of expertise. Capital Research and Management Company
also separately compensates analysts for the quality of their research efforts.
The benchmarks against which the funds' portfolio counselors are measured
include: S&P 500 and Lipper Growth and Income Funds Index, adjusted (Growth and
Income Portfolio) and Lehman Aggregate Bond Index (Bond Portfolio).

PORTFOLIO COUNSELOR FUND HOLDINGS AND OTHER MANAGED ACCOUNTS -- As described
below, portfolio counselors may be affiliated with charitable trusts or family
foundations that hold shares of the fund. In addition, portfolio counselors may
manage a portion of other mutual funds or accounts advised by Capital Research
and Management Company or its affiliates.

Endowments -- Page 21

<PAGE>

THE FOLLOWING TABLE REFLECTS INFORMATION AS OF JULY 31, 2005:

NUMBER
OF OTHER
NUMBER POOLED
OF OTHER INVESTMENT NUMBER
REGISTERED VEHICLES OF OTHER
INVESTMENT (PIVS) ACCOUNTS
COMPANIES (RICS) THAT THAT
THAT PORTFOLIO PORTFOLIO
PORTFOLIO COUNSELOR COUNSELOR
DOLLAR RANGE COUNSELOR MANAGES MANAGES
OF FUND MANAGES (ASSETS OF (ASSETS OF
PORTFOLIO SHARES (ASSETS OF RICS PIVS OTHER ACCOUNTS
COUNSELOR OWNED/1/ IN BILLIONS)/2/ IN BILLIONS) IN BILLIONS)/3/
--------------------------------------------------------------------------------------------

GROWTH AND INCOME PORTFOLIO
--------------------------------------------------------------------------------------------
Robert G. O'Donnell $500,001 -- 4 $208.3/4/ None None
$1,000,000*
--------------------------------------------------------------------------------------------
Claudia P. $100,001 -- 4 $105.3/4/ 1 $0.01/5/ None
Huntington $500,000*
--------------------------------------------------------------------------------------------
Gregory D. Johnson None** 2 $129.1/4/ None None
--------------------------------------------------------------------------------------------
BOND PORTFOLIO
--------------------------------------------------------------------------------------------
Abner D. Goldstine None** 5 $205.6/4/ None None
--------------------------------------------------------------------------------------------
John H. Smet None** 5 $198.0/4/ None 3 $1.97/6/
--------------------------------------------------------------------------------------------

1 Ownership disclosure is made using the following ranges: None; $1 - $10,000;
$10,001 - $50,000; $50,001 - $100,000; $100,001 - $500,000; $500,001 -
$1,000,000; and Over $1,000,000.
2 Indicates fund(s) where the portfolio counselor also has significant
responsibilities for the day to day management of the fund(s).
3 Reflects other professionally managed accounts held at companies affiliated
with Capital Research and Management Company. Personal brokerage accounts of
portfolio counselors and their families are not reflected.
4 Assets noted are the total net assets of the registered investment companies
and are not indicative of the total assets managed by the individual, which is
a substantially lower amount.
5 Represents a fund sub-advised by Capital Research and Management Company and
sold in Canada. Assets noted are the total net assets of the fund and are not
indicative of the total assets managed by the individual, which is a
substantially lower amount.
6 Represents fixed-income assets in institutional accounts managed by investment
adviser subsidiaries of Capital Group International, Inc., an affiliate of
Capital Research and Management Company. Assets noted are the total net assets
of the fund and are not indicative of the total assets managed by the
individual, which is a substantially lower amount.
* Reflects holdings in an individual charitable remainder unit trust or family
foundation.
** Ownership of fund shares is limited to nonprofit organizations, as such,
individuals do not have the ability to own fund shares.

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, 2006, 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 (a) the Board of Trustees, or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of each fund, and (b) 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 22

<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).

In addition to providing investment advisory services, the investment adviser
furnishes the services and pays the compensation and travel expenses of persons
to perform the funds' executive, administrative, clerical and bookkeeping
functions, and provides suitable office space, necessary small office equipment
and utilities, general purpose accounting forms, supplies and postage used at
the funds' offices. 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 their shareholders;
taxes; expenses of the issuance and redemption of fund shares (including stock
certificates, registration and qualification fees and expenses); legal and
auditing expenses; compensation, fees and expenses paid to Trustees 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 each fund's average daily net assets up to $150,000,000 and 4/10 of 1% of
the portion of such average daily net assets over $150,000,000.

The Agreements provide for a management fee reduction to the extent that each
fund's annual ordinary operating expenses exceed 0.75% of the average net assets
of the fund. Expenses which are not subject to this limitation are interest,
taxes and extraordinary expenses. Expenditures, including costs incurred in
connection with the purchase or sale of portfolio securities, which are
capitalized in accordance with generally accepted accounting principles
applicable to investment companies, are accounted for as capital items and not
as expenses.

For the fiscal years ended July 31, 2005, 2004 and 2003, the investment adviser
received advisory fees from Growth and Income Portfolio of $498,032, $429,224
and $334,342, respectively. For the fiscal years ended July 31, 2005, 2004 and
2003, the investment adviser received advisory fees from Bond Portfolio of
$316,152, $297,456 and $275,354, respectively.

For the period from September 1, 2004 through March 31, 2005, the investment
adviser agreed to waive 5% of the management fees that it was otherwise entitled
to receive under the Agreement. Beginning April 1, 2005, this waiver increased
to 10% of the management fees that it is otherwise entitled to receive and will
continue at this level until further review. For the period ended July 31, 2005,
management fees were reduced by $31,558 and $19,876 for Growth and Income and
Bond Portfolios, respectively, as a result of these waivers.

EXECUTION OF PORTFOLIO TRANSACTIONS

As described in the prospectus, the investment adviser places orders with
broker-dealers for the funds' portfolio transactions. 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. When such concurrent authorizations occur, the objective is to allocate
the executions in an equitable manner.

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<PAGE>

Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, if applicable, for the 2005, 2004 and 2003 fiscal
years for Growth and Income Portfolio amounted to $50,669, $45,255 and $59,097,
respectively. With respect to fixed income securities, brokerage commissions
include explicit investment dealer concessions and may exclude other transaction
costs which may be reflected in the spread between the bid and asked price. The
increase in commissions paid from 2004 to 2005 was attributable to growth of the
fund's shares which led the fund to purchase additional securities for its
portfolio, thereby increasing brokerage commissions paid.

Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, if applicable, for the 2005, 2004 and 2003 fiscal
years for Bond Portfolio amounted to $52,572, $25,670 and $42,524, respectively.
The volume of trading activity increased during the year, resulting in an
increase in dealer concessions paid on portfolio transactions.

The funds are required to disclose information regarding investments in the
securities of their "regular" broker-dealers (or parent companies of their
regular broker-dealers) that derive more than 15% of their revenue from
broker-dealer, underwriter or investment adviser activities. A regular
broker-dealer is (a) one of the 10 broker-dealers that received from the funds
the largest amount of brokerage commissions by participating, directly or
indirectly, in the funds' portfolio transactions during the funds' most recent
fiscal year; (b) one of the 10 broker-dealers that engaged as principal in the
largest dollar amount of portfolio transactions of the funds during the funds'
most recent fiscal year; or (c) one of the 10 broker-dealers that sold the
largest amount of securities of the funds during the funds' most recent fiscal
year.

At the end of the funds' most recent fiscal year, the funds' regular
broker-dealers included Banc of America Securities, LLC, Citigroup Global
Markets Inc. and J.P. Morgan Securities. As of the funds' fiscal year-end,
Growth and Income Portfolio held equity securities of Bank of America Corp. in
the amount of $872,000 and Citigroup Inc. in the amount of $652,500. Bond
Portfolio held debt securities of Citigroup Inc. in the amount of $250,095 and
J.P. Morgan Chase & Co. in the amount of $346,094.

DISCLOSURE OF PORTFOLIO HOLDINGS

The funds' investment adviser, on behalf of the funds, has adopted policies and
procedures with respect to the disclosure of information about fund portfolio
securities. These policies and procedures have been reviewed by the funds' Board
of Trustees and compliance will be periodically assessed by the Board in
connection with reporting from the funds' Chief Compliance Officer.

Under these policies and procedures, each fund's complete list of portfolio
holdings available for public disclosure, dated as of the end of each calendar
quarter, is permitted to be posted on the funds' website no earlier than the
tenth day after such calendar quarter. In addition, the fund's list of top 10
equity portfolio holdings measured by percentage of net assets invested, dated
as of the end of each calendar month, is permitted to be posted on the funds'
website no earlier than the tenth day after such month. Such portfolio holdings
information may then be disclosed to any person pursuant to an ongoing
arrangement to disclose portfolio holdings information to such person no earlier
than one day after the day on which the information is posted on the funds'
website. Affiliates of the funds (including the funds' Board members and
officers, and certain personnel of the fund's investment adviser and its
affiliates) and certain service providers (such

Endowments -- Page 24

<PAGE>

as the fund's custodian and outside counsel) who require portfolio holdings
information for legitimate business and fund oversight purposes may receive the
information earlier.

Affiliated persons of the funds as described above who receive portfolio
holdings information are subject to restrictions and limitations on the use and
handling of such information pursuant to applicable codes of ethics, including
requirements to maintain the confidentiality of such information, preclear
securities trades and report securities transactions activity, as applicable.
Third party service providers of the fund receiving such information are subject
to confidentiality obligations. When portfolio holdings information is disclosed
other than through the funds' website to persons not affiliated with the funds
(which, as described above, would typically occur no earlier than one day after
the day on which the information is posted on the funds' website), such persons
may be bound by agreements (including confidentiality agreements) that restrict
and limit their use of the information to legitimate business uses only. Neither
the funds nor their investment adviser or any affiliate thereof receives
compensation or other consideration in connection with the disclosure of
information about portfolio securities.

Subject to Board policies, the authority to disclose a funds' portfolio
holdings, and to establish policies with respect to such disclosure, resides
with the Investment Committee of the funds' investment adviser. In exercising
its authority, the Investment Committee determines whether disclosure of
information about the funds' portfolio securities is appropriate and in the best
interest of fund shareholders. The investment adviser has implemented policies
and procedures to address conflicts of interest that may arise from the
disclosure of fund holdings. For example, the investment adviser's code of
ethics specifically requires, among other things, the safeguarding of
information about fund holdings and contains prohibitions designed to prevent
the personal use of confidential, proprietary investment information in a way
that would conflict with fund transactions. In addition, the investment adviser
believes that its current policy of not selling portfolio holdings information
and not disclosing such information to unaffiliated third parties until such
holdings have been made public on the funds' website (other than to certain fund
service providers for legitimate business and fund oversight purposes), helps
reduce potential conflicts of interest between fund shareholders and the
investment adviser and its affiliates.

PRICE OF SHARES

Shares are purchased or sold at the net asset value price next determined after
the purchase or sell order is received and accepted by each fund or the Transfer
Agent; the net asset value price is effective for orders received prior to the
time of determination of the net asset value and, in the case of orders placed
with registered investment advisers or their authorized designees, accepted by
the Transfer Agent, the registered investment adviser or any of their designees.
The registered investment adviser is responsible for promptly transmitting
purchase and sell orders to the Transfer Agent. Orders received by the
registered investment adviser or authorized designee, the Transfer Agent, or the
funds after the time of the determination of the net asset value will be entered
at the next calculated offering price. Note that registered investment advisers
may have their own rules about share transactions and may have earlier cut-off
times than those of the funds. For more information about how to purchase
through your registered investment adviser, contact your registered investment
adviser directly.

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

Endowments -- Page 25

<PAGE>

at 1:00 p.m., the funds' share 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
official closing price of, or 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. Prices for each security are taken from the principal exchange or
market in which the security trades. Fixed-income securities are valued at
prices obtained from an independent 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 bid prices, if asked prices are not available) or at prices for
securities of comparable maturity, quality and type. The pricing services base
bond prices on, among other things, an evaluation of the yield curve as of
approximately 3:00 p.m. New York time. The funds' investment adviser performs
certain checks on these prices prior to the funds' net asset value being
calculated.

Securities with both fixed-income and equity characteristics (e.g., convertible
bonds, preferred stocks, units comprised of more than one type of security,
etc.), or equity securities traded principally among fixed-income dealers, are
valued in the manner described above for either equity or fixed-income
securities, depending on which method is deemed most appropriate by the
investment adviser.

Securities with original maturities of one year or less having 60 days or less
to maturity are amortized to maturity based on their cost if acquired within 60
days of maturity, or if already held on the 60th day, based on the value
determined on the 61st day. Forward currency contracts are valued at the mean of
representative quoted bid and asked prices.

Assets or liabilities initially expressed in terms of non-U.S. currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.

Securities and assets for which market quotations are not readily available or
are considered unreliable are valued at fair value as determined in good faith
under policies approved by the funds' Board. Subject to its oversight, the
funds' Board has delegated the obligation to make fair valuation determinations
to a Valuation Committee established by the funds' investment adviser. The Board
receives regular reports describing fair-valued securities and the valuation
methods used.

The Valuation Committee has adopted guidelines and procedures (consistent with
SEC rules and guidance) to ensure that certain basic principles and factors are
considered when making all fair value determinations. As a general principle,
securities lacking readily available market quotations, or that have quotations
that are considered unreliable, are valued in good faith by the Valuation
Committee based upon what the funds might reasonably expect to receive upon
their current sale. The Valuation Committee considers all indications of value
available to it in

Endowments -- Page 26

<PAGE>

determining the "fair value" to be assigned to a particular security, including,
without limitation, the type and cost of the security, contractual or legal
restrictions on resale of the security, relevant financial or business
developments of the issuer, actively traded similar or related securities,
conversion or exchange rights on the security, related corporate actions,
significant events occurring after the close of trading in the security and
changes in overall market conditions.

2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets.

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.

TAXES AND DISTRIBUTIONS

FUND TAXATION -- Each fund has elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code (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. Each fund intends to distribute annually all of its investment company
taxable income and net realized capital gains and therefore does not expect to
pay federal income tax, although in certain circumstances, each fund may
determine that it is in the interest of shareholders to distribute less than
that amount.

To be treated as a regulated investment company under Subchapter M of the Code,
each fund must also (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, net income from certain
publicly traded partnerships and gains from the sale or other disposition of
securities or foreign currencies, or other income (including, but not limited
to, gains from options, futures or forward contracts) derived with respect to
the business of investing in such securities or currencies, and (b) diversify
its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
market value of each fund's assets is represented by cash, U.S. government
securities and securities of other regulated investment companies, and other
securities (for purposes of this calculation, generally limited in respect of
any one issuer, to an amount not greater than 5% of the market value of the
fund's assets and 10% of the outstanding voting securities of such issuer) and
(ii) not more than 25% of the value of its assets is invested in the securities
of (other than U.S. government securities or the securities of other regulated
investment companies) any one issuer; two or more issuers which the fund
controls and which are determined to be engaged in the same or similar trades or
businesses; or the securities of certain publicly traded partnerships.

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 (a) 98% of ordinary income (generally net investment income)
for the calendar year, (b) 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
(c) the sum of any untaxed, undistributed net investment income and net capital
gains of the regulated investment company

Endowments -- Page 27

<PAGE>

for prior periods. The term "distributed amount" generally means the sum of (a)
amounts actually distributed by each fund from its current year's ordinary
income and capital gain net income and (b) any amount on which the fund pays
income tax during the periods described above. Although each fund intends to
distribute its net investment income and net capital gains so as to avoid excise
tax liability, each fund may determine that it is in the interest of
shareholders to distribute a lesser amount.

DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS -- Dividends and capital gain
distributions on fund shares will be reinvested in shares of the funds, unless
shareholders indicate in writing that they wish to receive them in cash or in
shares of the American Funds, as provided in the prospectus and statement of
additional information.

DIVIDENDS -- 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. 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.

Under the Code, gains or losses attributable to fluctuations in exchange
rates that occur between the time the funds accrue receivables or
liabilities denominated in a foreign currency and the time the funds
actually collect such receivables, or pay such liabilities, generally are
treated as ordinary income or ordinary loss. Similarly, on disposition of
debt securities denominated in a foreign currency and on disposition of
certain futures contracts, forward contracts and options, gains or losses
attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of disposition
are also treated as ordinary gain or loss. These gains or losses, referred
to under the Code as Section 988 gains or losses, may increase or decrease
the amount of the funds' investment company taxable income to be
distributed to its shareholders as ordinary income.

If the funds invest in stock of certain passive foreign investment
companies, the funds may be subject to U.S. federal income taxation on a
portion of any "excess distribution" with respect to, or gain from the
disposition of, such stock. The tax would be determined by allocating such
distribution or gain ratably to each day of the funds' holding period for
the stock. The distribution or gain so allocated to any taxable year of the
funds, other than the taxable year of the excess distribution or
disposition, would be taxed to the funds at the highest ordinary income
rate in effect for such year, and the tax would be further increased by an
interest charge to reflect the value of the tax deferral deemed to have
resulted from the ownership of the foreign company's stock. Any amount of
distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the funds' investment company taxable
income and, accordingly, would not be taxable to the funds to the extent
distributed by the funds as a dividend to its shareholders.

To avoid such tax and interest, the funds intend to elect to treat these
securities as sold on the last day of its fiscal year and recognize any
gains for tax purposes at that time. Under this election, deductions for
losses are allowable only to the extent of any prior recognized gains, and
both gains and losses will be treated as ordinary income or loss. The funds
will be required to distribute any resulting income, even though they have
not sold the security and received cash to pay such distributions. Upon
disposition of these

Endowments -- Page 28

<PAGE>

securities, any gain recognized is treated as ordinary income and loss is
treated as ordinary loss to the extent of any prior recognized gain.

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 that must be distributed to shareholders in order to
maintain the qualification of the funds as regulated investment companies
and to avoid federal income taxation at the level of the funds.

In addition, some of the bonds may be purchased by the funds at a discount
that exceeds the original issue discount on such bonds, if any. This
additional discount represents market discount for federal income tax
purposes. The gain realized on the disposition of any bond having a market
discount may be treated as taxable ordinary income to the extent it does
not exceed the accrued market discount on such bond or a fund may elect to
include the market discount in income in tax years to which it is
attributable. Generally, accrued market discount may be figured under
either the ratable accrual method or constant interest method. If a fund
has paid a premium over the face amount of a bond, the fund has the option
of either amortizing the premium until bond maturity and reducing the
fund's basis in the bond by the amortized amount, or not amortizing and
treating the premium as part of the bond's basis. In the case of any debt
security having a fixed maturity date of not more than one year from its
date of issue, the gain realized on disposition generally will be treated
as a short-term capital gain. In general, any gain realized on disposition
of a security held less than one year is treated as a short-term capital
gain.

Dividend and interest income received by the funds from sources outside the
United States may be subject to withholding and other taxes imposed by such
foreign jurisdictions. Tax conventions between certain countries and the
United States, however, may reduce or eliminate these foreign taxes. Most
foreign countries do not impose taxes on capital gains with respect to
investments by foreign investors.

CAPITAL GAIN DISTRIBUTIONS -- 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. 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 15% 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 such
shareholder's related tax credit.

Endowments -- Page 29

<PAGE>

SHAREHOLDER TAXATION - Fund shareholders are generally exempt from taxation
under Internal Revenue Code Section 501(c). Therefore, distributions from the
fund and transactions in fund shares should not result in income tax
consequences to shareholders.

Shareholders should consult their tax advisers about the application of federal,
state and local tax law in light of their particular situation.

PURCHASE OF SHARES

The purchase of shares may be made in cash or in a like value of acceptable
securities. Such securities will: (a) be acquired for investment and not for
resale; (b) be liquid securities which are not restricted as to transfer either
by law or liquidity of market; and (c) have a value which is readily
ascertainable.

FREQUENT TRADING OF FUND SHARES -- As noted in the prospectus, certain
redemptions may trigger a purchase block lasting 30 calendar days under the
funds' "purchase blocking policy." Under this policy, systematic redemptions
will not trigger a purchase block and systematic purchases will not be
prevented. For purposes of this policy, systematic redemptions include, for
example, regular periodic automatic redemptions and statement of intention
escrow share redemptions. Systematic purchases include, for example, regular
periodic automatic purchases and automatic reinvestments of dividends and
capital gain distributions.

OTHER POTENTIALLY ABUSIVE ACTIVITY -- In addition to implementing purchase
blocks, American Funds Service Company will monitor for other types of activity
that could be harmful to the funds - for example, short-term trading activity.
When identified, American Funds Service Company will request that the
shareholder discontinue the activity. If the activity continues, American Funds
Service Company will freeze the shareholder account to prevent all activity
other than redemptions of fund shares.

The following services are available in connection with the purchase of the
American Funds.

STATEMENT OF INTENTION -- If you purchase Growth and Income Portfolio
and/or Bond Portfolio, along with shares of the American Funds, by
establishing a statement of intention (the "Statement"), you enter into a
nonbinding commitment to purchase shares of American Funds non-money market
funds over a 13-month period and receive the same sales charge as if all
shares had been purchased at once.

When a shareholder elects to use a Statement, shares equal to 5% of the
dollar amount specified in the Statement will be held in escrow in the
shareholder's account out of the initial purchase (or subsequent purchases,
if necessary) by the Transfer Agent. All dividends and any capital gain
distributions on shares held in escrow will be credited to the
shareholder's account in shares (or paid in cash, if requested). If the
intended investment is not completed within the specified 13-month period,
the purchaser will remit to American Funds Distributors, Inc., the
principal underwriter of the American Funds, the difference between the
sales charge actually paid and the sales charge which would have been paid
if the total of such purchases had been made at a single time. The dealer
assigned to an account at the time of each purchase made during the
Statement period will receive an appropriate commission adjustment. If the
difference is not paid by the close of the Statement period, the
appropriate number of shares held in escrow will be

Endowments -- Page 30

<PAGE>

redeemed to pay such difference. If the proceeds from this redemption are
inadequate, the purchaser will be liable to the principal underwriter for
the balance still outstanding.

The Statement may be revised upward at any time during the 13-month period,
and such a revision will be treated as a new Statement, except that the
13-month period during which the purchase must be made will remain
unchanged. Accordingly, upon your request, the sales charge paid on
investments made 90 days prior to the Statement revision will be adjusted
to reflect the revised Statement.

Existing holdings eligible for rights of accumulation may be credited
toward satisfying the Statement.

The Statement will be considered completed if the shareholder dies within
the 13-month Statement period. Commissions will not be adjusted or paid on
the difference between the Statement amount and the amount actually
invested before the shareholder's death.

Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms and those in the prospectus with
their first purchase.

CONCURRENT PURCHASES -- As described in the prospectus, you may combine
purchases of Growth and Income and/or Bond Portfolio and purchases of all
classes of shares of the American Funds to qualify for a reduced Class A
sales charge for the American Funds. Shares of money market funds purchased
through an exchange, reinvestment or cross-reinvestment from a fund having
a sales charge also qualify. However, direct purchases of money market
funds are excluded.

RIGHTS OF ACCUMULATION -- You may take into account the current value of
your existing holdings in Growth and Income Portfolio and Bond Portfolio,
as well as your holdings in any class of shares of the American Funds to
determine your Class A sales charge for the American Funds. Alternatively,
upon your request, you may take into account the amount you invested less
any withdrawals (however, for this purpose, the amount invested does not
include capital appreciation and reinvested dividends and capital gains).
Direct purchases of money market funds are excluded.

SELLING SHARES

Shares are sold at the net asset value next determined after your request is
received in good order by the Transfer Agent or registered investment adviser.

For redemption requests received after the close of trading on the New York
Stock Exchange, the redemption price will be the net asset value determined as
of the close of trading on the next business day of the New York Stock Exchange.
There is no charge to the shareholder for redemption. Payment in cash or in kind
is made as soon as reasonably practicable after tender in proper form (as
described above), and must, in any event, be made within seven days thereafter.
Either fund may, however, suspend the right of redemption during any period
when: (a) trading on the New York Stock Exchange is restricted as determined by
the Securities and Exchange Commission or such exchange is closed for other than
weekends or holidays; (b) the Securities and Exchange Commission has by order
permitted such suspension; or (c) any emergency as determined by the Securities
and Exchange Commission exists, making disposal of portfolio securities or
valuation of net assets of the funds not reasonably practicable.

Endowments -- Page 31

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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 transaction charges in the event of a sale
of the securities through an intermediary.

You may sell (redeem) other classes of shares in your account in any of the
following ways:

THROUGH YOUR REGISTERED INVESTMENT ADVISER

*) Shares purchased through registered investment advisers must be sold
through the advisers (who may impose transaction charges not described
in this prospectus).

WRITING TO AMERICAN FUNDS SERVICE COMPANY

*) Requests must be signed by the registered shareholder(s).

*) A signature guarantee is required if the redemption is:

- over $75,000;

- made payable to someone other than the registered shareholder(s); or

- sent to an address other than the address of record, or an address
of record that has been changed within the last 10 days.

Your signature may be guaranteed by a domestic stock exchange or the
National Association of Securities Dealers, Inc., bank, savings
association or credit union that is an eligible guarantor institution.
The Transfer Agent reserves the right to require a signature guarantee
on any redemptions.

*) Additional documentation may be required.

TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY

*) Redemptions by telephone or fax are limited to $75,000 per shareholder
each day.

*) Checks must be made payable to the registered shareholder(s).

*) Checks must be mailed to an address of record that has been used with
the account for at least 10 days.

The funds do not have dealer agreements with, and do not accept redemption
orders from, broker-dealers."

Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays

Endowments -- Page 32

<PAGE>

relating to clearance of checks for share purchases or in extraordinary
circumstances (and as permissible under the 1940 Act), sale proceeds will be
paid on or before the seventh day following receipt and acceptance of an order.
Interest will not accrue or be paid on amounts that represent uncashed
distribution or redemption checks.

If you notify the Transfer Agent, you may reinvest proceeds from a redemption,
dividend payment or capital gain distribution, subject to the appropriate sales
charge, in any of the American Funds within 90 days after the date of the
redemption or distribution. Proceeds will be reinvested at the next calculated
net asset value after your request is received and accepted by the Transfer
Agent.

SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES

The following services and privileges are generally available to all
shareholders. However, certain services and privileges may not be available if
your account is held with a registered investment adviser.

AUTOMATIC REINVESTMENT -- Dividends and capital gain distributions are
reinvested in additional shares of the funds at net asset value unless you
indicate otherwise on the account application. You also may elect to have
dividends and/or capital gain distributions paid in cash by informing the funds,
the Transfer Agent or your registered investment adviser.

If you have elected to receive dividends and/or capital gain distributions in
cash, and the postal or other delivery service is unable to deliver checks to
your address of record, or you do not respond to mailings from American Funds
Service Company with regard to uncashed distribution checks, your distribution
option will automatically be converted to having all dividends and other
distributions reinvested in additional shares.

CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- You may cross-reinvest
dividends and capital gains (distributions) of Growth and Income Portfolio
and/or Bond Portfolio into Class A shares of any American Funds (except Class
529-A shares) at net asset value, subject to the following conditions:

(a) The aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5,000 (this is waived if the value of the account in the fund
receiving the distributions equals or exceeds that fund's minimum initial
investment requirement),

(b) If the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, distributions must be automatically
reinvested,

(c) If you discontinue the cross-reinvestment of distributions, the value of
the account of the fund receiving distributions must equal or exceed the minimum
initial investment requirement. If you do not meet this requirement within 90
days of notification, the fund has the right to automatically redeem the
account.

EXCHANGE PRIVILEGE -- You may only exchange shares of the funds into Class A
shares of the American Funds. Exchange purchases are subject to the minimum
investment requirements of the fund purchased and are subject to applicable
sales charges on the fund being purchased, unless shares of Growth and Income
Portfolio and/or Bond Portfolio were acquired by an

Endowments -- Page 33

<PAGE>

exchange from a fund having a sales charge, or by reinvestment or
cross-reinvestment of dividends or capital gain distributions.

Exchanges to Class 529-A shares may result in significant legal and tax
consequences as described in the CollegeAmerica Program Description. Please
consult your financial adviser prior to making such an exchange.

Exchange redemptions and purchases are processed simultaneously at the share
prices next determined after the exchange order is received. (See "Price of
shares" above.) THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS ORDINARY
SALES AND PURCHASES.

AUTOMATIC EXCHANGES -- You may automatically exchange shares of the funds in
amounts of $50 or more among Class A shares of any American Funds on any day (or
preceding business day if the day falls on a non-business day) of each month you
designate.

AUTOMATIC WITHDRAWALS -- You may automatically withdraw shares from the funds.
You can make automatic withdrawals of $50 or more as often as you wish if your
account is worth at least $10,000, or up to four times a year for an account
worth at least $5,000. You can designate the day of each period for withdrawals
and request that checks be sent to you or someone else. The Transfer Agent will
withdraw your money from the fund you specify on or around the date you specify.
If the date you specified falls on a weekend or holiday, the redemption will
take place on the previous business day. However, if the previous business day
falls in the preceding month, the redemption will take place on the following
business day after the weekend or holiday.

Withdrawal payments are not to be considered as dividends, yield or income.
Automatic investments may not be made into a shareholder account from which
there are automatic withdrawals. Withdrawals of amounts exceeding reinvested
dividends and distributions and increases in share value would reduce the
aggregate value of the shareholder's account. The Transfer Agent arranges for
the redemption by the fund of sufficient shares, deposited by the shareholder
with the Transfer Agent, to provide the withdrawal payment specified.

ACCOUNT STATEMENTS -- Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments, will be reflected on regular confirmation statements from the
Transfer Agent. Dividend and capital gain reinvestments, purchases through
automatic investment plans, as well as automatic exchanges and withdrawals will
be confirmed at least quarterly.

TELEPHONE REDEMPTIONS AND EXCHANGES -- By using the telephone, fax or telegraph
redemption and/or exchange options, you agree to hold each fund, the Transfer
Agent, any of its affiliates or mutual funds managed by such affiliates, and
each of their respective directors, trustees, officers, employees and agents
harmless from any losses, expenses, costs or liability (including attorney fees)
which may be incurred in connection with the exercise of these privileges.
Generally, all shareholders are automatically eligible to use these options.
However, you may elect to opt out of these options by writing the Transfer Agent
(you may also reinstate them at any time by writing the Transfer Agent). If the
Transfer Agent does not employ reasonable procedures to confirm that the
instructions received from any person with appropriate account information are
genuine, it and/or the fund may be liable for losses due to unauthorized or
fraudulent instructions. In the event that shareholders are unable to reach the
fund by telephone because of technical difficulties, market conditions, or a
natural disaster, redemption and exchange requests may be made in writing only.

Endowments -- Page 34

<PAGE>

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 JPMorgan Chase Bank, 270 Park Avenue, New York, NY
10017-2070, as Custodian. If a fund holds non-U.S. securities, the Custodian may
hold these securities pursuant to subcustodial 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 shareholder accounts, processes
purchases and redemptions of the funds' shares, acts as dividend and capital
gain distribution disbursing agent, and performs other related shareholder
service functions. The principal office of American Funds Service Company is
located at 135 South State College Boulevard, Brea, CA 92821-5823. American
Funds Service Company was paid a fee of $463 for services with respect to Growth
and Income Portfolio shares and $410 for services with respect to Bond Portfolio
shares for the 2005 fiscal year.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -- Deloitte & Touche LLP, 695 Town
Center Drive, Costa Mesa, California 92626, serves as the Trust's independent
registered public accounting firm, 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 registered public accounting
firm, given on the authority of said firm as experts in accounting and auditing.
The selection of the funds' independent registered public accounting firm is
reviewed and determined annually by the Board of Trustees.

INDEPENDENT LEGAL COUNSEL -- Paul, Hastings, Janofsky & Walker LLP, 515 South
Flower Street, Los Angeles, CA 90071, serves as counsel for the funds and for
Trustees who are not "interested persons" (as defined by the 1940 Act) of the
funds in their capacities as such. Certain legal matters in connection with the
shares of beneficial interest offered by the prospectus have been passed upon
for the funds by Paul, Hastings, Janofsky & Walker LLP. Counsel does not provide
legal services to the funds' investment adviser or any of its affiliated
companies. A determination with respect to the independence of the funds'
"independent legal counsel" will be made at least annually by the independent
Trustees of the funds, as prescribed by the 1940 Act and related rules.

PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS -- The funds' fiscal
year ends on July 31. Shareholders are provided updated prospectuses annually
and 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 registered public accounting
firm, Deloitte & Touche LLP. In addition, shareholders may also receive proxy
statements for the funds. In an effort to reduce the volume of mail shareholders
receive from the funds when a household owns more than one account, the Transfer
Agent has taken steps to eliminate duplicate mailings of prospectuses,
shareholder reports and proxy statements. To receive additional copies of a
prospectus, report or proxy statement, shareholders should contact the Transfer
Agent.

CODES OF ETHICS -- The funds and Capital Research and Management Company and its
affiliated companies, have adopted codes of ethics that allow for personal
investments, including

Endowments -- Page 35

<PAGE>

securities in which each fund may invest from time to time. These codes include
a ban on acquisitions of securities pursuant to an initial public offering;
restrictions on acquisitions of private placement securities; preclearance 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.

LEGAL PROCEEDINGS -- On February 16, 2005, the NASD filed an administrative
complaint against the American Funds Distributors, Inc., the principal
underwriter to the American Funds. The complaint alleges violations of certain
NASD rules by the American Funds Distributors, Inc. with respect to the
selection of broker-dealer firms that buy and sell securities for mutual fund
investment portfolios. The complaint seeks sanctions, restitution and
disgorgement.

On March 24, 2005, the investment adviser and American Funds Distributors, Inc.
filed a complaint against the Attorney General of the State of California in Los
Angeles County Superior Court. The complaint alleged that the Attorney General
threatened to take enforcement actions against the investment adviser and
American Funds Distributors, Inc. that are without merit and preempted by
federal law. On the same day, following the filing of the investment adviser's
and American Funds Distributors, Inc.'s complaint, the Attorney General of the
State of California filed a complaint against the American Funds Distributors,
Inc. and investment adviser. Filed in Los Angeles County Superior Court, the
Attorney General's complaint alleged violations of certain sections of the
California Corporations Code with respect to so-called "revenue sharing"
disclosures in mutual fund prospectuses and statements of additional
information. On November 22, 2005, the Los Angeles Superior Court dismissed the
Attorney General's complaint. On February 7, 2006, the Attorney General filed a
notice that he intends to appeal the Superior Court's decision to California's
Court of Appeal for the Second Appellate District.

The investment adviser believes that the likelihood that these matters could
have a material adverse effect on the funds or on the ability of the investment
adviser to perform its contract with the funds is remote. The SEC is conducting
a related investigation as of the date of this statement of additional
information. The investment adviser and American Funds Distributors, Inc. are
cooperating fully. In addition, a series of class action lawsuits have been
filed in the U.S. District Court, Central District of California, relating to
these matters. Although the suit was dismissed in its entirety, an amended
complaint relating to management fees has been filed. The investment adviser
believes that this suit is without merit and will defend itself vigorously.
Further updates on these issues will be available on the American Funds website
(americanfunds.com) under "American Funds regulatory matters."

Endowments -- Page 36

[logo - CAPITAL RESEARCH AND MANAGEMENT (SM)]

ENDOWMENTS, GROWTH AND INCOME PORTFOLIO (SM)
INVESTMENT PORTFOLIO

July 31, 2005

Common stocks -- 88.43% Shares Market value

INFORMATION TECHNOLOGY -- 14.47%
Texas Instruments Inc. 78,000 $ 2,477,280
Microsoft Corp. 95,000 2,432,950
Intel Corp. 80,000 2,171,200
Cisco Systems, Inc.(1) 78,000 1,493,700
Nokia Corp. (ADR) 78,000 1,244,100
Oracle Corp.(1) 85,000 1,154,300
International Business Machines Corp. 12,000 1,001,520
Analog Devices, Inc. 20,000 784,000
Linear Technology Corp. 15,000 582,900
Symbol Technologies, Inc. 50,000 582,000
Hewlett-Packard Co. 20,000 492,400
Dell Inc.(1) 12,000 485,640
EMC Corp.(1) 35,000 479,150
15,381,140

CONSUMER STAPLES -- 13.46%
Altria Group, Inc. 44,000 2,946,240
Wal-Mart Stores, Inc. 51,000 2,516,850
PepsiCo, Inc. 32,000 1,744,960
Sara Lee Corp. 62,000 1,235,660
Procter & Gamble Co. 20,000 1,112,600
Walgreen Co. 22,000 1,052,920
Coca-Cola Co. 20,000 875,200
L'Oreal SA 10,000 789,793
WD-40 Co. 26,000 746,980
General Mills, Inc. 14,000 663,600
Avon Products, Inc. 19,000 621,490
14,306,293

FINANCIALS -- 11.99%
American International Group, Inc. 29,000 1,745,800
American Express Co. 29,000 1,595,000
Wells Fargo & Co. 25,000 1,533,500
Berkshire Hathaway Inc., Class A(1) 15 1,252,500
Fulton Financial Corp. 52,225 943,184
Bank of America Corp. 20,000 872,000
Bank of New York Co., Inc. 25,000 769,500
Jefferson-Pilot Corp. 15,000 752,550
U.S. Bancorp 25,000 751,500
SunTrust Banks, Inc. 10,000 727,200
St. Paul Travelers Companies, Inc. 15,000 660,300
Citigroup Inc. 15,000 652,500
Marsh & McLennan Companies, Inc. 17,000 492,490
12,748,024

HEALTH CARE -- 11.76%
Medtronic, Inc. 40,000 2,157,600
Sanofi-Aventis 15,000 1,298,427
Eli Lilly and Co. 22,000 1,239,040
Roche Holding AG 8,000 1,088,199
Johnson & Johnson 17,000 1,087,320
Merck & Co., Inc. 25,000 776,500
Novo Nordisk A/S, Class B 15,000 775,799
Becton, Dickinson and Co. 14,000 775,180
Medco Health Solutions, Inc.(1) 15,000 726,600
Abbott Laboratories 15,000 699,450
Pfizer Inc 25,000 662,500
Amgen Inc.(1) 8,000 638,000
Bristol-Myers Squibb Co. 23,000 574,540
12,499,155

CONSUMER DISCRETIONARY -- 10.14%
Lowe's Companies, Inc. 28,000 1,854,160
Target Corp. 30,000 1,762,500
Walt Disney Co. 52,000 1,333,280
Time Warner Inc.(1) 78,000 1,327,560
Garmin Ltd. 22,000 1,207,580
Home Depot, Inc. 20,000 870,200
Gannett Co., Inc. 10,000 729,600
Delphi Corp. 130,000 689,000
Gentex Corp. 30,000 534,600
TJX Companies, Inc. 20,000 470,200
10,778,680

INDUSTRIALS -- 9.14%
3M Co. 24,000 1,800,000
Lockheed Martin Corp. 25,000 1,560,000
United Technologies Corp. 30,000 1,521,000
General Electric Co. 40,000 1,380,000
General Dynamics Corp. 8,000 921,520
Avery Dennison Corp. 15,000 850,050
Illinois Tool Works Inc. 7,000 599,550
Northrop Grumman Corp. 10,000 554,500
Emerson Electric Co. 8,000 526,400
9,713,020

ENERGY -- 7.95%
Exxon Mobil Corp. 52,000 3,055,000
Royal Dutch Shell PLC, Class B (ADR) 38,000 2,419,460
Chevron Corp. 37,000 2,146,370
Schlumberger Ltd. 10,000 837,400
8,458,230

MATERIALS -- 2.63%
Air Products and Chemicals, Inc. 13,000 776,880
Alcoa Inc. 25,000 701,250
International Flavors & Fragrances Inc. 18,000 682,560
International Paper Co. 20,000 632,000
2,792,690

TELECOMMUNICATION SERVICES -- 2.38%
Sprint Corp. 36,000 $ 968,400
BellSouth Corp. 32,000 883,200
Verizon Communications Inc. 20,000 684,600
2,536,200

UTILITIES -- 2.14%
Duke Energy Corp. 30,000 886,200
NSTAR 24,000 727,920
FirstEnergy Corp. 13,267 660,431
2,274,551

MISCELLANEOUS -- 2.37%
Other common stocks in initial period of acquisition 2,526,249

Total common stocks (cost: $80,501,155) 94,014,232

Principal amount
Convertible securities -- 0.98% (000)

INFORMATION TECHNOLOGY -- 0.98%
Lucent Technologies Inc. 8.00% convertible subordinated notes 2031 $1,000 1,038,750

TOTAL CONVERTIBLE SECURITIES (cost: $1,092,882) 1,038,750

Short-term securities -- 10.28%

Harley-Davidson Funding Corp. 3.23% due 8/8/2005(2) 1,700 1,698,779
Triple-A One Funding Corp. 3.38% due 8/24/2005(2) 1,500 1,496,619
Coca-Cola Co. 3.21% due 8/9/2005 1,200 1,199,035
Scripps (E.W.) Co. 3.24% due 8/10/2005(2) 900 899,189
Park Avenue Receivables Co., LLC 3.40% due 8/25/2005(2) 900 897,874
NetJets Inc. 3.33% due 9/9/2005(2) 850 846,853
Colgate-Palmolive Co. 3.22% due 8/4/2005(2) 800 799,714
IBM Corp. 3.24% due 8/17/2005 800 798,775
CAFCO, LLC 3.37% due 8/30/2005(2) 750 747,893
Freddie Mac 3.25% due 8/23/2005 700 698,545
Hershey Co. 3.22% due 8/16/2005(2) 600 599,140
General Electric Capital Corp. 3.29% due 8/1/2005 250 249,931

TOTAL SHORT-TERM SECURITIES (cost: $10,932,347) 10,932,347

TOTAL INVESTMENT SECURITIES (cost: $92,526,384) 105,985,329
Other assets less liabilities 324,810

NET ASSETS $106,310,139

"Miscellaneous" securities include holdings in their initial period of
acquisition that have not previously been publicly disclosed.

(1) Security did not produce income during the last 12 months.

(2) Purchased in a private placement transaction; resale may be limited to
qualified institutional buyers; resale to the public may require
registration. The total value of all such restricted securities was
$7,986,061, which represented 7.51% of the net assets of the fund.

ADR = American Depositary Receipts

ENDOWMENTS, BOND PORTFOLIO (SM)
INVESTMENT PORTFOLIO
July 31, 2005

Principal amount
Bonds & notes -- 88.24% (000) Market value

CORPORATE BONDS & NOTES -- 53.63%
Financials -- 19.16%
Washington Mutual, Inc. 5.625% 2007 $375 $381,082
Washington Mutual, Inc. 3.899% 2010(1) 400 401,080
Washington Mutual Bank, FA 6.875% 2011 250 274,389
PRICOA Global Funding I 4.20% 2010(2) 250 245,371
Prudential Holdings, LLC, Series C, 8.695% 2023(2,3) 250 321,301
CIT Group Inc. 3.65% 2007 125 122,617
CIT Group Inc. 7.375% 2007 250 261,679
CIT Group Inc. 7.75% 2012 125 144,141
EOP Operating LP 4.65% 2010 200 196,432
EOP Operating LP 8.10% 2010 125 141,672
EOP Operating LP 6.75% 2012 125 136,787
Abbey National PLC 6.70% (undated)(1) 250 262,886
Abbey National PLC 7.35% (undated)(1) 200 206,586
Sumitomo Mitsui Banking Corp. 5.625% (undated)(1,2) 450 449,168
USA Education, Inc. 5.625% 2007 125 127,347
SLM Corp., Series A, 4.50% 2010 325 321,646
XL Capital Ltd. 5.25% 2014 300 297,491
Mangrove Bay Pass Through Trust 6.102% 2033(1,2) 125 126,135
TuranAlem Finance BV 8.50% 2015(2) 400 413,000
AIG SunAmerica Global Financing XII 5.30% 2007(2) 275 278,787
AIG SunAmerica Global Financing VII 5.85% 2008(2) 125 128,948
SocGen Real Estate Co. LLC, Series A, 7.64% (undated)(1,2) 375 397,518
J.P. Morgan Chase & Co. 5.75% 2013 125 131,957
JPM Capital Trust I, cumulative capital securities trust, 7.54% 2027 200 214,137
Chuo Mitsui Trust and Banking Co., Ltd. 5.506% (undated)(1,2) 350 338,694
Deutsche Bank Capital Funding Trust I, 7.872% (undated)(1,2) 300 332,232
Lazard LLC 7.125% 2015(2) 315 314,115
Banco Santander-Chile 5.375% 2014(2) 300 303,074
BNP Paribas 5.186% noncumulative (undated)(1,2) 300 298,310
Countrywide Home Loans, Inc., Series L, 4.00% 2011 300 285,825
Development Bank of Singapore Ltd. 7.875% 2009(2) 250 279,285
Downey Financial Corp. 6.50% 2014 250 259,948
United Overseas Bank Ltd. 5.375% 2019(1,2) 250 253,412
Citigroup Inc. 4.625% 2010 250 250,095
Bayerische Landesbank, Series F, 2.50% 2006 250 247,539
Berkshire Hathaway Finance Corp. 4.125% 2010 250 244,824
Liberty Mutual Group Inc. 6.50% 2035(2) 250 242,170
Hospitality Properties Trust 6.75% 2013 215 231,681
Barclays Bank PLC, Series 1, 6.278% noncumulative preferred (undated)(1) 200 205,124
MBNA Global Capital Funding, Series B, 4.01% 2027(1) 200 195,934
Kimco Realty Corp., Series C, 4.82% 2014 200 194,841
Nationwide Mutual Insurance Co. 7.875% 2033(2) 125 153,578
BCI U.S. Funding Trust I 8.01% noncumulative preferred (undated)(1,2) 125 135,728
First Industrial, LP 6.875% 2012 125 134,288
Household Finance Corp. 6.375% 2011 125 134,143
Rouse Co. 7.20% 2012 125 132,234
United Dominion Realty Trust, Inc. 6.50% 2009 125 132,105
ReliaStar Financial Corp. 8.00% 2006 125 129,927
ProLogis Trust 7.05% 2006 125 127,523
Monumental Global Funding Trust II, Series 2002-A, 5.20% 2007(2) 125 126,615
Allstate Financial Global Funding LLC 5.25% 2007(2) 125 126,563
CNA Financial Corp. 5.85% 2014 125 125,781
Simon Property Group, LP 4.875% 2010 125 124,790
Hartford Financial Services Group, Inc. 2.375% 2006 125 123,110
HBOS Treasury Services PLC 3.75% 2008(2) 125 122,439
John Hancock Global Funding II, Series 2004-A, 3.50% 2009(2) 125 120,365
12,408,449

Consumer Discretionary -- 12.03%
Residential Capital Corp. 6.375% 2010(2) 250 254,283
General Motors Acceptance Corp. 7.75% 2010 245 247,578
General Motors Acceptance Corp. 7.25% 2011 555 541,203
General Motors Acceptance Corp. 5.53% 2014(1) 250 227,920
General Motors Corp. 8.25% 2023 150 135,000
General Motors Acceptance Corp. 8.00% 2031 125 121,576
Ford Motor Credit Co. 7.375% 2009 200 199,734
Ford Motor Credit Co. 7.875% 2010 600 606,190
Ford Motor Credit Co. 7.375% 2011 200 198,918
Ford Motor Co. 7.45% 2031 100 85,005
Comcast Cable Communications, Inc. 8.375% 2007 125 133,058
Tele-Communications, Inc. 9.80% 2012 215 268,641
Tele-Communications, Inc. 7.875% 2013 250 292,128
Comcast Corp. 6.50% 2015 125 137,213
DaimlerChrysler North America Holding Corp. 8.00% 2010 600 669,862
DaimlerChrysler North America Holding Corp. 7.30% 2012 125 138,472
Toll Brothers, Inc. 6.875% 2012 375 411,192
Toll Brothers Finance Corp. 5.15% 2015(2) 200 195,561
Clear Channel Communications, Inc. 6.625% 2008 125 128,826
Clear Channel Communications, Inc. 7.65% 2010 250 267,342
Centex Corp. 4.75% 2008 150 149,771
Centex Corp. 5.25% 2015 200 196,735
ArvinMeritor, Inc. 6.625% 2007 250 255,000
Harrah's Operating Co., Inc. 5.625% 2015(2) 250 253,746
MDC Holdings, Inc. 5.50% 2013 250 250,913
Ryland Group, Inc. 5.375% 2012 250 248,382
Viacom Inc. 6.625% 2011 210 222,289
Toys "R" Us, Inc. 7.875% 2013 215 191,350
AOL Time Warner Inc. 7.625% 2031 125 154,507
Pulte Homes, Inc. 8.125% 2011 125 142,745
Univision Communications Inc. 7.85% 2011 125 139,702
Hyatt Equities, LLC 6.875% 2007(2) 125 128,093
Carnival Corp. 3.75% 2007 125 122,930
Liberty Media Corp. 8.25% 2030 75 75,877
7,791,742

Industrials -- 6.82%
Continental Airlines, Inc., Series 2001-1, Class A-2, 6.503% 2011(3) 385 380,940
Continental Airlines, Inc., Series 2000-1, Class A-1, 8.048% 2022(3) 207 209,750
John Deere Capital Corp. 3.90% 2008 125 123,447
Deere & Co. 8.95% 2019 370 423,420
Northwest Airlines Trust, Series 2, Class A, 9.25% 2014(3) 136 139,345
Northwest Airlines, Inc., Series 1999-3, Class G, 7.935% 2020(3) 195 208,304
Northwest Airlines, Inc., Series 2001-1, Class A-1, 7.041% 2023(3) 179 170,724
Hutchison Whampoa International Ltd. 7.00% 2011(2) 375 409,434
American Airlines, Inc., Series 2001-2, Class A-1, 6.978% 2012(3) 389 404,936
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664% 2013(2,3) 343 367,732
Bombardier Inc. 6.30% 2014(2) 375 354,375
Cendant Corp. 7.375% 2013 250 282,384
General Electric Capital Corp., Series A, 5.375% 2007 125 127,144
General Electric Capital Corp., Series A, 6.00% 2012 125 133,912
Delta Air Lines, Inc., Series 2000-1, Class A-2, 7.57% 2012 200 186,115
Tyco International Group SA 6.375% 2011 150 162,700
Caterpillar Financial Services Corp. 4.30% 2010 125 123,309
Union Pacific Railroad Co. Pass Through Trust, Series 2003-1, 4.698% 2024(3) 125 120,871
Southern Capital Corp. Pass Through Trust, Series 2002-1, Class G, MBIA insured, 5.70% 2023(2,3) 84 84,954
Jet Equipment Trust, Series 1994-A, 11.79% 2013(2,4) 750 75
4,413,871

Telecommunication Services -- 4.85%
AT&T Wireless Services, Inc. 7.875% 2011 200 229,362
AT&T Wireless Services, Inc. 8.125% 2012 350 413,925
SBC Communications Inc. 5.10% 2014 550 553,997
France Telecom 8.50% 2011(1) 400 458,605
ALLTEL Corp. 4.656% 2007 300 301,080
Verizon Wireless Capital LLC and Cellco Partnership 5.375% 2006 250 253,533
Qwest Services Corp. 13.50% 2010 176 203,280
Deutsche Telekom International Finance BV 8.75% 2030(1) 125 167,723
BellSouth Corp. 5.20% 2016 150 150,514
TELUS Corp. 8.00% 2011 125 144,501
Koninklijke KPN NV 8.00% 2010 125 142,709
Telecom Italia Capital SA 4.95% 2014(2) 125 122,746
3,141,975

Utilities -- 4.39%
FPL Energy American Wind, LLC 6.639% 2023(2,3) 267 285,750
FPL Energy National Wind, LLC 5.608% 2024(2,3) 245 245,507
Midwest Generation, LLC, Series B, 8.56% 2016(3) 95 105,318
Homer City Funding LLC 8.734% 2026(3) 298 354,894
Commonwealth Edison Co., Series 99, 3.70% 2008 125 122,682
Exelon Generation Co., LLC 6.95% 2011 300 331,343
Reliant Energy Resources Corp. 7.75% 2011 250 283,115
AES Ironwood, LLC 8.857% 2025(3) 237 273,213
NiSource Finance Corp. 7.625% 2005 250 252,510
Constellation Energy Group, Inc. 6.125% 2009 200 210,070
Duke Capital Corp. 6.25% 2013 125 134,073
Virginia Electric and Power Co., Series 2002-A, 5.375% 2007 125 126,663
PSEG Power LLC 3.75% 2009 125 120,631
2,845,769

Materials -- 2.61%
Norske Skogindustrier ASA 7.625% 2011(2) 500 548,252
Georgia-Pacific Corp. 7.50% 2006 353 361,825
Equistar Chemicals, LP and Equistar Funding Corp. 8.75% 2009 250 266,875
Weyerhaeuser Co. 6.75% 2012 125 136,201
Phelps Dodge Corp. 6.125% 2034 125 129,827
International Paper Co. 5.85% 2012 125 129,112
Dow Chemical Pass Through Trust, Series 2004, 4.027% 2009(2) 125 120,984
1,693,076

Health Care -- 1.51%
Cardinal Health, Inc. 6.75% 2011 250 272,603
Cardinal Health, Inc. 4.00% 2015 200 182,299
Health Net, Inc. 9.875% 2011(1) 125 146,831
Humana Inc. 7.25% 2006 125 127,838
UnitedHealth Group Inc. 5.20% 2007 125 126,298
Amgen Inc. 4.00% 2009 125 122,507
978,376

Energy -- 1.06%
Tengizchevroil Finance Co. S.ar.l., Series A, 6.124% 2014(2,3) 300 305,625
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 2009(2,3) 224 218,836
Devon Energy Corp. 7.95% 2032 125 161,972
686,433

Consumer Staples -- 0.62%
Delhaize America, Inc. 8.125% 2011 250 280,062
CVS Corp. 6.117% 2013(2,3) 113 118,478
398,540

Information Technology -- 0.58%
Jabil Circuit, Inc. 5.875% 2010 125 128,664
Electronic Data Systems Corp., Series B, 6.50% 2013(1) 125 126,872
Chartered Semiconductor Manufacturing Ltd. 6.375% 2015 125 123,216
378,752

MORTGAGE- AND ASSET-BACKED OBLIGATIONS(3) -- 17.85%
Fannie Mae, Series 2000-T5B, 7.30% 2010 250 279,078
Fannie Mae, Series 2001-T6B, 6.088% 2011 250 268,240
Fannie Mae 6.00% 2016 34 34,912
Fannie Mae, Series 2001-4, Class GA, 10.242% 2025(1) 54 60,892
Fannie Mae 7.00% 2026 29 30,678
Fannie Mae 6.50% 2031 23 23,461
Fannie Mae 7.00% 2031 17 18,142
Fannie Mae 7.50% 2031 12 13,269
Fannie Mae, Series 2001-20, Class C, 11.989% 2031(1) 54 62,139
Fannie Mae 6.00% 2034 236 240,853
Fannie Mae, Series 2001-T10, Class A-1, 7.00% 2041 37 38,787
Government National Mortgage Assn. 8.50% 2008 16 16,345
Government National Mortgage Assn. 10.00% 2020 65 75,255
Government National Mortgage Assn. 7.00% 2034 183 194,246
Government National Mortgage Assn. 5.50% 2035 250 252,842
Government National Mortgage Assn. 5.50% 2035 233 235,402
ARG Funding Corp., Series 2005-2, Class A-1, AMBAC insured, 4.54% 2009(2) 500 499,900
ARG Funding Corp., Series 2005-1, Class A-3, MBIA insured, 4.29% 2010(2) 250 245,850
Chase Commercial Mortgage Securities Corp., Series 1998-2, Class A-2, 6.39% 2030 375 393,862
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2, 7.757% 2032 250 273,730
CWABS, Inc., Series 2004-15, Class AF-4, 4.614% 2032 382 374,904
CWABS, Inc., Series 2004-15, Class AF-5, 5.227% 2035 250 247,644
GS Mortgage Securities Corp. II, Series 1998-C1, Class D, 7.213% 2030(1) 250 263,679
GS Mortgage Securities Corp. II, Series 1998-C1, Class E, 7.213% 2030(1) 250 260,924
Crown Castle Towers LLC, Series 2005-1, Class A-FX, 4.643% 2035(2) 200 197,860
Crown Castle Towers LLC, Series 2005-1, Class D, 5.612% 2035(2) 325 321,490
Morgan Stanley Capital I, Inc., Series 1998-HF2, Class A-2, 6.48% 2030 489 510,597
Freddie Mac 8.75% 2008 6 6,228
Freddie Mac 4.00% 2015 237 228,538
Freddie Mac 6.00% 2034 197 201,334
Freddie Mac, Series T-056, Class A-2A, 2.842% 2036 55 54,889
Bear Stearns Commercial Mortgage Securities Inc., Series 2002-PBW1, Class A-1, 3.97% 2035 220 216,355
Bear Stearns Commercial Mortgage Securities Inc., Series 2001-TOP2, Class A-2, 6.48% 2035 250 270,224
CS First Boston Mortgage Securities Corp., Series 2001-CF2, Class A-2, 5.935% 2034 64 64,542
CS First Boston Mortgage Securities Corp., Series 2004-C4, Class A-4, 4.283% 2039 255 247,383
CS First Boston Mortgage Securities Corp., Series 1998-C1, Class A-1B, 6.48% 2040 124 129,396
Salomon Brothers Commercial Mortgage Trust, Series 2001-C1, Class A-2, 6.226% 2035 399 412,048
Residential Funding Mortgage Securities I, Inc., Series 2004-SA1, Class A-II, 4.337% 2034(1) 411 404,817
Wells Fargo Home Equity Trust, Series 2004-2, Class AI-5, 4.89% 2028 334 328,823
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 2026(2) 299 322,136
Vanderbilt Mortgage and Finance, Inc., Series 1999-B, Class I-B-1, 8.395% 2016 89 91,124
Vanderbilt Mortgage and Finance, Inc., Series 2001-A, Class B-1, 8.20% 2020 200 210,118
Morgan Stanley Dean Witter Capital I Trust, Series 2001-TOP5, Class A-3, 6.16% 2035 250 262,430
PP&L Transition Bond Co. LLC, Series 1999-1, Class A-7, 7.05% 2009 250 258,459
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-2, 4.782% 2042 250 250,656
Residential Asset Securities Corp. Trust, Series 2004-KS12, Class A-1-2, 3.69% 2035(1) 250 250,195
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP1, Class A-2, 4.625% 2046 250 249,458
PG&E Energy Recovery Funding LLC, Series 2005-1, Class A-3, 4.14% 2012 250 247,161
Countrywide Alternative Loan Trust, Series 2005-21CB, Class A-17, 6.00% 2035 244 246,408
LB-UBS Commercial Mortgage Trust, Series 2000-C3, Class A-2, 7.95% 2025 125 140,544
Chase Manhattan Bank -- First Union National Bank, Commercial Mortgage Trust, Series 1999-1,
Class B, 7.619% 2031 125 138,169
DLJ Commercial Mortgage Corp., Series 1999-CG1, Class A-1B, 6.46% 2032 125 131,953
PF Export Receivables Master Trust, Series 2001-B, MBIA insured, 6.60% 2011(2) 118 124,065
GGP Mall Properties Trust, Series 2001-GGP1, Class A-2, 5.007% 2011(2) 121 121,729
Morgan Stanley Mortgage Trust, Series 2004-3, Class 4-A, 5.706% 2034(1) 100 99,834
GMAC Commercial Mortgage Securities, Inc., Series 1997-C1, Class A-3, 6.869% 2029 87 90,699
Prestige Auto Receivables Trust, Series 2003-1, Class A-2, FSA insured, 2.41% 2010(2) 78 77,346
WaMu Mortgage Pass-Through Certificates Trust, Series 2004-AR1, Class A, 4.229% 2034(1) 73 72,727
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.544% 2027(1)(,2) 62 63,706
Nomura Asset Securities Corp., Series 1998-D6, Class A-1A, 6.28% 2030 57 58,308
Bear Stearns ARM Trust, Series 2003-6, Class I-A-2, 4.007% 2033(1) 57 55,808
11,562,591

U.S. GOVERNMENT & GOVERNMENT AGENCY BONDS & NOTES -- 13.98%
U.S. Treasury 5.75% 2005 500 503,085
U.S. Treasury 10.75% 2005 350 350,983
U.S. Treasury 3.625% 2008(5) 301 315,225
U.S. Treasury 3.625% 2009 500 490,900
U.S. Treasury 3.875% 2009(5) 593 635,950
U.S. Treasury 14.00% 2011 450 506,250
U.S. Treasury 2.00% 2014(5) 263 265,375
U.S. Treasury 12.50% 2014 1,200 1,567,128
U.S. Treasury 6.875% 2025 825 1,074,562
Freddie Mac 1.875% 2006 50 49,441
Freddie Mac 6.625% 2009 1,500 1,626,525
Freddie Mac 5.75% 2010 (euro)250 346,136
Federal Home Loan Bank 2.00% 2006 $410 405,699
Federal Home Loan Bank 2.375% 2006 390 385,620
Federal Home Loan Bank 5.823% 2009 250 261,102
Fannie Mae 6.25% 2011 250 268,245
9,052,226

MUNICIPALS -- 2.15%
State of New Jersey, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds,
Series 2003, 4.375% 2019 235 238,339
State of New Jersey, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds,
Series 2003, 6.125% 2024 125 141,565
State of California, Golden State Tobacco Securitization Corp., Tobacco Settlement Asset-backed Bonds,
Series 2003-A1, 6.25% 2033 325 362,537
State of Wisconsin, Badger Tobacco Asset Securitization Corp., Tobacco Settlement Asset-backed
Bonds, 6.125% 2027 275 296,241
State of South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement Asset-backed Bonds,
Series 2002-A, Class A, 6.72% 2025 175 172,669
State of North Carolina, Eastern Municipal Power Agency, Power System Revenue Refunding Bonds,
Federally Taxable, Series 2003-E, 5.55% 2014 125 125,203
State of Louisiana, Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds,
Series 2001-A, Class A, 6.36% 2025 58 57,845
1,394,399

NON-U.S. GOVERNMENT & GOVERNMENT AGENCY BONDS & NOTES -- 0.63%
Israel Government 7.50% 2014 935 225,739
United Mexican States Government Global 11.375% 2016 125 183,437
409,176

TOTAL BONDS & NOTES (COST: $56,560,637) 57,155,375

Shares or
Convertible securities -- 0.58% principal amount

TELECOMMUNICATION SERVICES -- 0.52%
Hellenic Exchangeable Finance SCA 2.00% exchangeable bonds 2005 (euro)250,000 334,055

CONSUMER DISCRETIONARY -- 0.06%
Ford Motor Co. Capital Trust II 6.50% cumulative convertible trust preferred 2032 1,000 shares 41,710

TOTAL CONVERTIBLE SECURITIES (cost: $292,280) 375,765

Preferred stocks -- 5.72% Shares Market value

FINANCIALS -- 5.72%
Fannie Mae, Series O, 7.00% preferred(2) 15,000 $ 835,313
BNP U.S. Funding LLC, Series A, 7.738% noncumulative preferred(1,2) 375,000 400,046
BNP Paribas Capital Trust 9.003% noncumulative trust preferred(1,2) 150,000 178,179
HSBC Capital Funding LP, Series 1, 9.547% noncumulative step-up perpetual preferred(1,2) 400,000 479,403
Royal Bank of Scotland Group PLC, Series 3 Preference Shares, 7.816%(1) 425,000 431,401
Fuji JGB Investment LLC, Series A, 9.87% noncumulative preferred(1,2) 360,000 403,938
ING Capital Funding Trust III 8.439% noncumulative preferred(1) 250,000 290,401
NB Capital Corp., Series A, 8.35% exchangeable preferred depositary shares 10,000 274,500
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed perpetual capital securities(2) 10,000 271,563
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference shares(1,2) 125,000 140,893

Total preferred stocks (cost: $3,451,887) 3,705,637

Principal amount
Short-term securities -- 4.48% (000)

Wal-Mart Stores Inc. 3.23% due 8/2/2005(2) $1,200 1,199,785
Bellsouth Corp. 3.24% due 8/3/2005(2) 1,000 999,730
General Electric Capital Corp. 3.29% due 8/1/2005 700 699,808

TOTAL SHORT-TERM SECURITIES (cost: $2,899,323) 2,899,323

TOTAL INVESTMENT SECURITIES (cost: $63,204,127) 64,136,100
Other assets less liabilities 636,919

NET ASSETS $64,773,019

(1) Coupon rate may change periodically.

(2) Purchased in a private placement transaction; resale may be limited to
qualified institutional buyers; resale to the public may require
registration. The total value of all such restricted securities was
$16,404,171, which represented 25.33% of the net assets of the fund.

(3) 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.

(4) Company not making scheduled interest payments; bankruptcy proceedings
pending.

(5) Index-linked bond whose principal amount moves with a government retail
price index.

See Notes to Financial Statements

FINANCIAL STATEMENTS

STATEMENTS OF ASSETS AND LIABILITIES
at July 31, 2005
Growth and Income Bond Portfolio
Portfolio
Assets:
Investment securities at market (cost: $92,526,384 and $63,204,127, respectively) $105,985,329 $64,136,100
Cash 92,775 98,733
Receivables for:
Sales of investments 437,644 103,559
Sales of fund's shares 39,391 32,229
Dividends and interest 133,191 838,393
Total assets 106,688,330 65,209,014

Liabilities:
Payables for:
Purchases of investments 300,006 373,184
Investment advisory services 39,986 24,621
Other fees and expenses 38,199 38,190
Total liabilities 378,191 435,995
Net assets at July 31, 2005 $106,310,139 $64,773,019

Net assets consist of:
Capital paid in on shares of beneficial interest $89,167,780 $64,643,567
Undistributed (distributions in excess of) net investment income 342,356 (363,031)
Undistributed (accumulated) net realized gain (loss) 3,341,716 (438,298)
Net unrealized appreciation 13,458,287 930,781
Net assets at July 31, 2005 $106,310,139 $64,773,019

Shares of beneficial interest issued and outstanding - unlimited shares authorized
Shares outstanding 7,112,686 3,896,560
Net asset value per share $ 14.95 $ 16.62

STATEMENTS OF OPERATIONS
for the year ended July 31, 2005

Investment income:
Income:
Dividends (net of non-U.S. withholding
tax of $18,569 on Growth and Income Portfolio) $1,875,999 $68,197
Interest 373,525 3,295,952
Total income 2,249,524 3,364,149
Fees and expenses:
Investment advisory services 498,032 316,152
Transfer agent services 463 410
Reports to shareholders 18,868 12,099
Registration statement and prospectus 15,776 11,821
Trustees' compensation 61,098 39,268
Trustees' travel expenses 18,674 12,038
Auditing 38,077 38,077
Legal 26,956 26,956
Custodian 1,189 783
Other 9,662 9,655
Total fees and expenses before waiver 688,795 467,259
Less waiver of fees and expenses:
Investment advisory services 31,558 19,876
Total fees and expenses after waiver 657,237 447,383
Net investment income 1,592,287 2,916,766

Net realized gain and unrealized
appreciation (depreciation) on investments
and non-U.S. currency:
Net realized gain (loss) on:
Investments 4,303,304 604,319
Non-U.S. currency transactions 9,203 (44)
4,312,507 604,275
Net unrealized appreciation (depreciation) on:
Investments 3,706,557 (467,260)
Non-U.S. currency translations (672) (1,036)
3,705,885 (468,296)

Net realized gain and unrealized appreciation (depreciation)
on investments and non-U.S. currency 8,018,392 135,979
Net increase in net assets resulting
from operations $9,610,679 $3,052,745

See Notes to Financial Statements

GROWTH AND INCOME PORTFOLIO

STATEMENTS OF CHANGES IN NET ASSETS
Year ended Year ended
July 31, July 31,
2005 2004
Operations:
Net investment income $1,592,287 $1,229,871
Net realized gain on investments and
non-U.S. currency transactions 4,312,507 3,632,725
Net unrealized appreciation
on investments and non-U.S. currency translations 3,705,885 5,609,071
Net increase in net assets
resulting from operations 9,610,679 10,471,667

Dividends and distributions paid to shareholders:
Dividends from net investment income (1,400,093) (1,232,643)
Distributions from net realized gain on investments (2,564,054) -
Total dividends and distributions paid to shareholders (3,964,147) (1,232,643)

Capital share transactions 10,635,416 4,876,726

Total increase in net assets 16,281,948 14,115,750

Net assets:
Beginning of year 90,028,191 75,912,441
End of year (including undistributed
net investment income: $342,356 and $146,581, respectively) $106,310,139 $90,028,191

BOND PORTFOLIO

STATEMENTS OF CHANGES IN NET ASSETS
Year ended Year ended
July 31, July 31,
2005 2004
Operations:
Net investment income $2,916,766 $2,932,360
Net realized gain on investments and
non-U.S. currency transactions 604,275 1,426,099
Net unrealized depreciation
on investments and non-U.S. currency translations (468,296) (673,211)
Net increase in net assets
resulting from operations 3,052,745 3,685,248

Dividends paid to shareholders from net investment income (3,464,879) (3,167,410)

Capital share transactions 5,960,099 (210,166)

Total increase in net assets 5,547,965 307,672

Net assets:
Beginning of year 59,225,054 58,917,382
End of year (including distributions in excess of
net investment income: $363,031 and $612,315, respectively) $64,773,019 $59,225,054

See Notes to Financial Statements

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 the preservation of capital through investments in fixed-income securities.

SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared to
comply with accounting principles generally accepted in the United States of
America. These principles require management to make estimates and assumptions
that affect reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the trust:

SECURITY VALUATION - Equity securities are valued at the official
closing price of, or 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. Prices for each security are taken from
the principal exchange or market in which the security trades.
Fixed-income securities, including short-term securities purchased with
more than 60 days left to maturity, are valued at prices obtained from
an independent pricing service when such prices are available. However,
where the investment adviser deems it appropriate, such securities will
be valued at the mean quoted bid and asked prices (or bid prices, if
asked prices are not available) or at prices for securities of
comparable maturity, quality and type. Securities with both
fixed-income and equity characteristics, or equity securities traded
principally among fixed-income dealers, are valued in the manner
described above for either equity or fixed-income securities, depending
on which method is deemed most appropriate by the investment adviser.
Short-term securities purchased within 60 days to maturity are valued
at amortized cost, which approximates market value. The value of
short-term securities originally purchased with maturities greater than
60 days are determined based on an amortized value to par when they
reach 60 days or less remaining to maturity. The ability of the issuers
of the debt securities held by the funds to meet their obligations may
be affected by economic developments in a specific industry, state or
region. Securities and other assets for which representative market
quotations are not readily available are fair valued as determined in
good faith under procedures adopted by authority of the trust's Board
of Trustees. Various factors may be reviewed in order to make a good
faith determination of a security's fair value. These factors include,
but are not limited to, the type and cost of the security; contractual
or legal restrictions on resale of the security; relevant financial or
business developments of the issuer; actively traded similar or related
securities; conversion or exchange rights on the security; related
corporate actions; significant events occurring after the close of
trading in the security; and changes in overall market conditions.

SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are recorded by the funds as of the date the trades are
executed with brokers. Realized gains and losses from security
transactions are determined based on the specific identified cost of
the securities. Dividend income is recognized on the ex-dividend date
and interest income is recognized on an accrual basis. Market
discounts, premiums and original issue discounts on fixed-income
securities are amortized daily over the expected life of the security.

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and
distributions paid to shareholders are recorded on the ex-dividend
date.

NON-U.S. CURRENCY TRANSLATION - Assets and liabilities, including
investment securities, denominated in non-U.S. currencies are
translated into U.S. dollars at the exchange rates in effect at the end
of the reporting period. Purchases and sales of investment securities
and income and expenses are translated into U.S. dollars at the
exchange rates on the dates of such transactions. In the accompanying
financial statements, the effects of changes in non-U.S. exchange rates
on investment securities are included with the net realized gain or
loss and net unrealized appreciation or depreciation on investments.
The realized gain or loss and unrealized appreciation or depreciation
resulting from all other transactions denominated in non-U.S.
currencies are disclosed separately.

MORTGAGE DOLLAR ROLLS - Bond Portfolio may enter into mortgage dollar
roll transactions in which the fund sells a mortgage-backed security to
a counterparty and simultaneously enters into an agreement with the
same counterparty to buy back a similar security on a specific future
date at a predetermined price. Each mortgage dollar roll is treated as
a financing transaction, therefore, any gain or loss is considered
unrealized until the roll reaches completion. Risks may arise due to
the delayed payment date and the potential inability of counterparties
to complete the transaction. Income is generated as consideration for
entering into these transactions and is included in interest income in
the accompanying financial statements.

2. NON-U.S. INVESTMENTS

INVESTMENT RISK - The risks of investing in securities of non-U.S. issuers 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.

TAXATION - Dividend and interest income is recorded net of non-U.S. withholding
taxes paid.

3. FEDERAL INCOME TAXATION AND DISTRIBUTIONS

The funds comply with the requirements under Subchapter M of the Internal
Revenue Code applicable to mutual funds and intend to distribute substantially
all of their net taxable income and net capital gains each year. The funds are
not subject to income taxes to the extent such distributions are made.

DISTRIBUTIONS - Distributions paid to shareholders are based on net investment
income and net realized gains determined on a tax basis, which may differ from
net investment income and net realized gains for financial reporting purposes.
These differences are due primarily to differing treatment for items such as
non-U.S. currency gains and losses; short-term capital gains and losses;
unrealized appreciation of certain investments in non-U.S. securities; cost of
investments sold; paydowns on investments; net capital losses; and amortization
of premiums. 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 for financial reporting purposes. As of July 31, 2005, the cost of
investment securities for federal income tax purposes was $92,528,502 and
$63,880,899 for Growth and Income Portfolio and Bond Portfolio, respectively.

During the year ended July 31, 2005, the Growth and Income Portfolio
reclassified $3,581 to undistributed net investment income and $5,622 to capital
paid in on shares of beneficial interest from undistributed net realized gains
and Bond Portfolio reclassified $797,397 to undistributed net investment income
and $726 to capital paid in on shares of beneficial interest from undistributed
net realized gains to align financial reporting with tax reporting.

As of July 31, 2005, the components of distributable earnings on a tax basis
were as follows:

GROWTH AND INCOME BOND PORTFOLIO
PORTFOLIO

Undistributed net investment income and non-U.S. currency gains $344,475 $324,856
Loss deferrals related to non-U.S. currency that were realized during the period - (63)
November 1, 2004 through July 31, 2005
Undistributed short-term capital gains 477,502 -
Undistributed long-term capital gains 2,864,213 -
Short-term and long-term capital loss deferrals - (438,298)
Gross unrealized appreciation on investment securities 15,726,068 1,664,147
Gross unrealized depreciation on investment securities (2,269,241) (1,408,946)
Net unrealized appreciation on investment securities 13,456,827 255,201

For Bond Portfolio, short-term and long-term capital loss deferrals above
include a capital loss carryforward of $197,714 expiring in 2011 and reflect the
utilization of a capital loss carryforward of $46,737. The capital loss
carryforward for Bond Portfolio will be used to offset any capital gains
realized by the fund in future years through the expiration date. The funds will
not make distributions from capital gains while a capital loss carryforward
remains in that fund. Also included in short-term and long-term capital loss
deferrals for Bond Portfolio are capital loss deferrals of $240,584 that were
realized during the period November 1, 2004 through July 31, 2005. During the
year ended July 31, 2005, the funds realized, on a tax basis, net capital gains
of $4,303,304 and $46,737 for Growth and Income Portfolio and Bond Portfolio,
respectively.

For the year ended July 31, 2005, distributions from realized long-term capital
gains were $2,564,054 for Growth and Income Portfolio.

4. FEES AND TRANSACTIONS WITH RELATED PARTIES

Capital Research and Management Company ("CRMC"), the funds' investment adviser,
is the parent company of American Funds Service Company ("AFS"), the funds'
transfer agent.

INVESTMENT ADVISORY SERVICES - The Investment Advisory and Service Agreement
with CRMC provides for monthly fees accrued daily. These fees are based on an
annual rate of 0.50% on the first $150 million of each fund's daily net assets
and 0.40% on 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 each fund. Expenses related to interest, taxes, brokerage commissions,
transaction costs and extraordinary items are not subject to these limitations.
For the year ended July 31, 2005, no such fee reduction was required, but CRMC
is voluntarily waiving a portion of the investment advisory services fees. From
September 1, 2004, through March 31, 2005, CRMC waived 5% of these fees and
increased the waiver to 10% on April 1, 2005. During the year ended July 31,
2005, total investment advisory services fees waived by CRMC were $31,558 and
$19,876 for Growth and Income Portfolio and Bond Portfolio, respectively. As a
result, the fees shown on the accompanying financial statements of $498,032 and
$316,152 for Growth and Income Portfolio and Bond Portfolio, respectively, were
both reduced to an annualized rate of 0.468% of average daily net assets.

TRANSFER AGENT SERVICES - The funds have a transfer agent agreement with AFS.
Under this agreement, the funds compensate AFS for transfer agent services
including shareholder recordkeeping and communications.

AFFILIATED OFFICERS AND TRUSTEES - Officers and certain Trustees of the trust
are or may be considered to be affiliated with CRMC and AFS. No affiliated
officers or Trustees received any compensation directly from the funds.

5. CAPITAL SHARE TRANSACTIONS

Capital share transactions in the funds were as follows:

Sales Reinvestments of dividends Repurchases
and distributions

Amount Shares Amount Shares Amount Shares
YEAR ENDED JULY 31, 2005
Growth and Income Portfolio $12,669,940 869,849 $ 3,499,712 240,757 $ (5,534,236) (383,646)
Bond Portfolio 7,665,322 455,477 2,628,385 157,099 (4,333,608) (259,090)

YEAR ENDED JULY 31, 2004
Growth and Income Portfolio $11,072,274 797,740 $ 954,392 69,102 $ (7,149,940) (519,826)
Bond Portfolio 8,137,204 482,260 2,552,116 152,086 (10,899,486) (646,832)

Net increase
(decrease)

Amount Shares
Year ended July 31, 2005
Growth and Income Portfolio $ 10,635,416 726,960
Bond Portfolio 5,960,099 353,486

Year ended July 31, 2004 $ 4,876,726 347,016
Growth and Income Portfolio (210,166) (12,486)
Bond Portfolio

6. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES

Growth and Income Portfolio and Bond Portfolio made purchases of investment
securities of $37,261,664 and $35,074,152 and sales of investment securities of
$27,501,497 and $30,242,920, respectively, during the year ended July 31, 2005.
Short-term securities were excluded.

The funds receive a reduction in their custodian fee equal to the amount of
interest calculated on certain cash balances held at the custodian bank. For the
year ended July 31, 2005, the custodian fees of $1,189 and $783, shown on the
accompanying financial statements for Growth and Income Portfolio and Bond
Portfolio, respectively, includes $1,134 and $716 that were offset by this
reduction, rather than paid in cash.

FINANCIAL HIGHLIGHTS

Income from investment operations(1)
Net
Net asset gains (losses)
value, Net on securities
beginning investment (both realized
GROWTH AND INCOME PORTFOLIO of year income and unrealized)

Year ended 7/31/2005 $14.10 $.24 $1.20
Year ended 7/31/2004 12.57 .20 1.53
Year ended 7/31/2003 11.61 .22 .94
Year ended 7/31/2002 13.11 .23 (1.33)
Year ended 7/31/2001 11.94 .30 1.81

Dividends and distributions

Dividends
Total from (from net Distributions Total
investment investment (from capital dividends and
GROWTH AND INCOME PORTFOLIO operations income) gains) distributions

Year ended 7/31/2005 $1.44 $(.21) $(.38) $(.59)
Year ended 7/31/2004 1.73 (.20) - (.20)
Year ended 7/31/2003 1.16 (.20) - (.20)
Year ended 7/31/2002 (1.10) (.24) (.16) (.40)
Year ended 7/31/2001 2.11 (.34) (.60) (.94)

Net asset Net assets,
value, end Total end of period
GROWTH AND INCOME PORTFOLIO of year return (in millions)

Year ended 7/31/2005 $14.95 10.33% $106
Year ended 7/31/2004 14.10 13.81 90
Year ended 7/31/2003 12.57 10.18 76
Year ended 7/31/2002 11.61 (8.60) 63
Year ended 7/31/2001 13.11 18.23 61

Ratio of Ratio of
expenses to expenses to Ratio of
average net average net net income
assets before assets after to average
GROWTH AND INCOME PORTFOLIO waivers waivers (2) net assets

Year ended 7/31/2005 .69% .66% 1.60%
Year ended 7/31/2004 .64 .64 1.43
Year ended 7/31/2003 .68 .68 1.88
Year ended 7/31/2002 .66 .66 1.81
Year ended 7/31/2001 .71 .71 2.32

Income from investment operations(1)
Net
Net asset gains (losses)
value, Net on securities
beginning investment (both realized
BOND PORTFOLIO of year income and unrealized)

Year ended 7/31/2005 $16.72 $.78 $.05
Year ended 7/31/2004 16.57 .83 .22
Year ended 7/31/2003 15.93 .89 .77
Year ended 7/31/2002 16.56 .99 (.53)
Year ended 7/31/2001 15.79 1.16 .77

Dividends and distributions

Dividends
Total from (from net Distributions Total
investment investment (from capital dividends and
BOND PORTFOLIO operations income) gains) distributions

Year ended 7/31/2005 $.83 $(.93) $- $(.93)
Year ended 7/31/2004 1.05 (.90) - (.90)
Year ended 7/31/2003 1.66 (1.02) - (1.02)
Year ended 7/31/2002 .46 (1.09) - (1.09)
Year ended 7/31/2001 1.93 (1.16) - (1.16)

Net asset Net assets,
value, end Total end of period
BOND PORTFOLIO of year return (in millions)

Year ended 7/31/2005 $16.62 5.07% $65
Year ended 7/31/2004 16.72 6.37 59
Year ended 7/31/2003 16.57 10.64 59
Year ended 7/31/2002 15.93 2.82 50
Year ended 7/31/2001 16.56 12.67 46

Ratio of Ratio of
expenses to expenses to Ratio of
average net average net net income
assets before assets after to average
BOND PORTFOLIO waivers waivers (2) net assets

Year ended 7/31/2005 .74% .71% 4.61%
Year ended 7/31/2004 .70 .70 4.93
Year ended 7/31/2003 .71 .71 5.38
Year ended 7/31/2002 .70 .70 6.07
Year ended 7/31/2001 .79 .75 7.18

Year ended July 31
Portfolio turnover rate 2005 2004 2003 2002 2001

Growth and Income Portfolio 31% 32% 29% 50% 49%
Bond Portfolio 51% 36% 25% 70% 48%

(1) Based on average shares outstanding.

(2) The ratios in this column reflect the impact, if any, of certain waivers
from CRMC. During some of the periods shown, CRMC waived fees for
investment advisory services.

See Notes to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Trustees of ENDOWMENTS:

We have audited the accompanying statement of assets and liabilities of
ENDOWMENTS (the "trust"), comprising, respectively, the Growth and Income
Portfolio and the Bond Portfolio, including the investment portfolio, as of July
31, 2005, 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 financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The trust
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of July 31, 2005, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
ENDOWMENTS as of July 31, 2005, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights 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
Costa Mesa, CA
September 9, 2005

TAX INFORMATION unaudited

We are required to advise you within 60 days of the fund's fiscal year-end
regarding the federal tax status of certain distributions received by
shareholders during such fiscal year. The information below is provided for the
Growth and Income Portfolio and Bond Portfolio fiscal year ending July 31, 2005.
Much of the information provided below does not apply to most shareholders of
these funds.

Certain shareholders are eligible for reduced tax rates on qualified dividend
income. For purposes of computing the dividends eligible for reduced tax rates,
100% of the dividends paid by the Growth and Income Portfolio from ordinary
income earned during the fiscal year are considered qualified dividend income.
Bond Portfolio paid out dividends of $47,000 from ordinary income earned during
the fiscal year that are considered qualified dividend income.

Certain states may exempt from income taxation that portion of dividends paid by
the funds from ordinary income that was derived from direct U.S. government
obligations. For purposes of computing this exclusion, $28,000 and $503,000 of
the dividends paid from ordinary income earned by Growth and Income Portfolio
and Bond Portfolio, respectively, during the fiscal year were derived from
interest on direct U.S. government obligations.

ADDITIONAL TAX INFORMATION WILL BE MAILED IN EARLY 2006 TO APPLICABLE
SHAREHOLDERS TO HELP DETERMINE CALENDAR YEAR AMOUNTS. SHAREHOLDERS SHOULD
CONSULT THEIR TAX ADVISERS.