SEC File Nos.
811-2210
2-41200
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 41 (X)
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 25 (X)
BOND PORTFOLIO FOR ENDOWMENTS, INC.
(Exact name of registrant as specified in charter)
P.O. Box 7650, One Market, Steuart Tower, San Francisco, California 94120
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (415) 421-9360
Patrick F. Quan
Secretary
Bond Portfolio for Endowments, Inc.
P.O. Box 7650, One Market, Steuart Tower
San Francisco, California 94120
(Name and address of agent for service)
Copy to:
Robert E. Carlson, Esq.
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071
The Registrant has filed a declaration
pursuant to Rule 24f-2. On
September 26, 1997, it filed its 24f-2
Notice for fiscal 1997.
Approximate date of proposed public offering:
[X] It is proposed that this filing will
become effective on October 1, 1997
pursuant to paragraph (b) of Rule 485.
BOND PORTFOLIO FOR ENDOWMENTS, INC.
Cross Reference Sheet
<TABLE>
<CAPTION>
Item Number Captions in
of Part "A" Prospectus
of Form N-1A (Part "A")
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Fund Organization
and Management; Investment
Policies and Risks;
Securities and Investment
Techniques
5. Management of the Fund Fund Organization and
Management; Multiple
Portfolio Counselor
System
6. Capital Stock and Other Securities Investment Policies
and Risks; Fund
Organization and
Management; Dividends,
Distributions
and Taxes; Shareholder
Services
7. Purchase of Securities Being Offered Purchasing Shares; Fund
Organization
and Management;
8. Redemption or Repurchase Selling Shares
9. Legal Proceedings N/A
</TABLE>
<TABLE>
<CAPTION>
Captions in Statement
Item Number of Additional
of Part "B" Information
of Form N-1A (Part "B")
<S> <C> <C>
10. Cover Page Cover
11. Table of Contents Table of Contents
12. General Information and History None
13. Investment Objectives and Policies Description of Certain
Securities;
Fundamental
Policies and
Investment
Restrictions
14. Management of the Fund Fund Officers and
Directors
15. Control Persons and Principal General Information
Holders of Securities
16. Investment Advisory and Other Services Fund Officers and
Directors; Expenses (Part "A");
General Information;
Management
17. Brokerage Allocation and Other Practices Execution of Portfolio
Transactions; Fund
Organization and
Management (Part "A")
18. Capital Stock and Other Securities Part A
19. Purchase, Redemption and Pricing Purchase of Shares;
of Securities Being Offered Purchasing Shares
(Part "A");
General Information
20. Tax Status Dividends,
Distributions and
Federal Taxes
21. Underwriter None
22. Calculation of Performance Data Investment Results
23. Financial Statements Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Item in
Part "C"
<S> <C>
24. Financial Statements and Exhibits
25. Persons Controlled by or under Common Control
with Registrant
26. Number of Holders of Securities
27. Indemnification
28. Business and Other Connections of Investment Adviser
29. Principal Underwriter
30. Location of Accounts and Records
31. Management Services
32. Undertakings
Signature Page
</TABLE>
<PAGE>
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Endowments, Inc.(SM)
Bond Portfolio for
Endowments, Inc.(SM)
Prospectus
OCTOBER 1, 1997
<PAGE>
ENDOWMENTS, INC.
BOND PORTFOLIO FOR ENDOWMENTS, INC.
One Market
Steuart Tower, Suite 1800
P.O. Box 7650
San Francisco, CA 94120
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Expenses 3
...................................................
Financial Highlights 4
...................................................
Investment Policies and Risks 6
...................................................
Securities and Investment Techniques 7
...................................................
Multiple Portfolio
Counselor System 11
...................................................
Investment Results 13
...................................................
Dividends, Distributions and Taxes 16
...................................................
Fund Organization and Management 16
...................................................
Shareholder Services 18
...................................................
Purchasing Shares 18
...................................................
Selling Shares 20
...................................................
</TABLE>
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ENDOWMENTS The primary investment objective of the fund is long-term growth of
principal with income and preservation of capital as secondary objectives. The
fund strives to accomplish these objectives by investing primarily in common
stocks or securities convertible into common stock. Major investment emphasis
will be given to stocks of companies which appear to have favorable prospects
for long-term growth of capital and income.
BOND PORTFOLIO FOR ENDOWMENTS The investment objective of the fund is to seek
as high a level of current income as is consistent with the preservation of
capital. The fund strives to accomplish this objective by investing primarily
in quality-oriented bonds and debentures, as described further in this
prospectus.
Shares of the funds are available only to institutions exempt from federal
taxation under Section 501(c)(3) of the Internal Revenue Code.
This prospectus presents information you should know before investing in the
fund(s). You should keep it on file for future reference.
YOU MAY LOSE MONEY BY INVESTING IN EITHER FUND. THE LIKELIHOOD OF LOSS IS
GREATER IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN THE
FUND(S) IS NOT A DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY
ENTITY OR PERSON INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT
INSURANCE CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
================================================================================
EXPENSES
The effect of the expenses described below is reflected in the funds' share
prices or returns.
Shareholders pay no shareholder transaction expenses when buying or selling
shares of either fund. Fund operating expenses are paid out of each fund's
assets and are factored into its share price.
SHAREHOLDER TRANSACTION EXPENSES
The funds have no sales charges on purchases or reinvested dividends, deferred
sales charges, redemption fees or exchange fees.
FUND OPERATING EXPENSES
(as a percentage of average net assets after fee waiver)
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<TABLE>
<CAPTION>
BOND
PORTFOLIO
FOR
ENDOWMENTS ENDOWMENTS
---------- ----------
<S> <C> <C>
Management fees 0.50% 0.40%
....................................................
12b-1 expenses none none
....................................................
Other expenses 0.24% 0.35%
....................................................
Total fund operating expenses 0.74% 0.75%/1/
</TABLE>
/1/ Capital Research and Management Company has been voluntarily waiving fees to
the extent necessary to ensure that each fund's expenses do not exceed 0.75%
of average net assets per annum. Without such a waiver, fees for Bond
Portfolio for Endowments, Inc. (as a percentage of average net assets) would
have been 0.85%.
EXAMPLES
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
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<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Endowments $ 8 $24 $41 $92
..............................................................
Bond Portfolio for Endowments $ 8 $24 $42 $93
</TABLE>
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY.
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PROSPECTUS 1997 3
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<PAGE>
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FINANCIAL HIGHLIGHTS
The following information for the seven years ended July 31, 1997 has been
audited by Deloitte & Touche LLP, independent auditors, and for the three years
ended July 31, 1990 by KPMG Peat Marwick, independent auditors. This table
should be read together with the financial statements which are included in the
statement of additional information and annual report.
ENDOWMENTS
SELECTED PER-SHARE DATA*
<TABLE>
<CAPTION>
YEARS ENDED JULY 31
...................
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $18.61 $18.06 $17.18 $18.43 $18.26 $17.89 $16.91 $18.22 $16.71 $19.70
- ---------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .56 .58 .63 .65 .66 .78 .78 .89 .98 .82
.........................................................................................................
Net realized and
unrealized gain (loss)
on investments 6.04 1.73 2.21 (.16) 1.05 1.74 1.60 (.16) 2.52 (1.16)
.........................................................................................................
Total income
from investment
operations 6.60 2.31 2.84 .49 1.71 2.52 2.38 .73 3.50 (.34)
- ---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.55) (.61) (.61) (.66) (.69) (.73) (.87) (1.01) (.89) (.85)
.........................................................................................................
Distributions from net
realized gains (2.00) (1.15) (1.35) (1.08) (.85) (1.42) (.53) (1.03) (1.10) (1.80)
.........................................................................................................
Total distributions (2.55) (1.76) (1.96) (1.74) (1.54) (2.15) (1.40) (2.04) (1.99) (2.65)
.........................................................................................................
Net asset value,
end of year $22.66 $18.61 $18.06 $17.18 $18.43 $18.26 $17.89 $16.91 $18.22 $16.71
- ---------------------------------------------------------------------------------------------------------
Total return 38.40% 13.22% 18.57% 2.77% 10.05% 15.74% 15.03% 4.13% 23.22% (2.31)%
- ---------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in millions) $48 $59 $57 $53 $72 $58 $46 $39 $43 $36
.........................................................................................................
Ratio of expenses to
average net assets .74% .72% .73% .73% .64% .70% .69% .68% .69% .63%
.........................................................................................................
Ratio of net income to
average net assets 2.73% 3.12% 3.70% 3.78% 3.72% 4.37% 4.63% 5.08% 5.76% 4.86%
.........................................................................................................
Average commission
paid per share/1/ 5.00c 5.87c 5.94c 6.27c 7.03c 7.14c 7.17c 7.83c 7.43c 7.20c
.........................................................................................................
Portfolio turnover rate 50.69% 38.73% 24.04% 25.58% 29.70% 20.35% 34.43% 20.75% 19.70% 33.48%
- --------------------------------------------------------------------------------------------------------
</TABLE>
* All per share data reflect the 100-for-1 stock split for Endowments
effected on February 16, 1988.
/1/ Brokerage commissions paid on portfolio transactions increase the cost of
securities purchased or reduce the proceeds of securities sold and are not
separately reflected in the fund's statement of operations. Shares traded on
a principal basis (without commission), such as fixed-income transactions,
are excluded.
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4 PROSPECTUS 1997
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<PAGE>
================================================================================
BOND PORTFOLIO FOR ENDOWMENTS
SELECTED PER-SHARE DATA*
<TABLE>
<CAPTION>
YEARS ENDED JULY 31
...................
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $16.63 $16.82 $16.86 $19.66 $19.44 $17.76 $17.50 $17.83 $17.10 $17.62
- -------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 1.21 1.22 1.26 1.32 1.49 1.47 1.49 1.61 1.60 1.51
.............................................................................................................
Net realized and
unrealized gain (loss)
on investments .52 (.19) .01 (1.51) .64 1.70 .28 (.46) .61 (.09)
.............................................................................................................
Total income
from investment
operations 1.73 1.03 1.27 (.19) 2.13 3.17 1.77 1.15 2.21 1.42
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (1.19) (1.22) (1.24) (1.35) (1.48) (1.49) (1.51) (1.48) (1.48) (1.40)
.............................................................................................................
Distributions from net
realized gains -- -- (.07) (1.26) (.43) -- -- -- -- (.54)
.............................................................................................................
Total distributions (1.19) (1.22) (1.31) (2.61) (1.91) (1.49) (1.51) (1.48) (1.48) (1.94)
.............................................................................................................
Net asset value,
end of year $17.17 $16.63 $16.82 $16.86 $19.66 $19.44 $17.76 $17.50 $17.83 $17.10
- -------------------------------------------------------------------------------------------------------------
Total return 10.83% 6.25% 7.97% (1.44)% 11.74% 18.69% 10.78% 6.86% 13.68% 8.62%
- -------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in millions) $33 $41 $44 $46 $67 $65 $46 $39 $40 $33
.............................................................................................................
Ratio of expenses to
average net assets .75%/1/ .75%/1/ .76% .77% .65% .68% .68% .69% .70% .64%
.............................................................................................................
Ratio of net income to
average net assets 7.04% 7.17% 7.52% 6.99% 7.69% 8.04% 8.76% 9.25% 9.28% 8.69%
.............................................................................................................
Portfolio turnover rate 22.18% 54.43% 69.22% 82.12% 35.97% 63.30% 54.86% 42.90% 64.21% 128.52%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* All per share data reflect the 50-for-1 stock split for Bond Portfolio for
Endowments effected on February 16, 1988.
/1/ Had CRMC not waived management services fees, the fund's ratio would have
been 0.85% and 0.80% for the fiscal years ended 1997 and 1996, respectively.
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PROSPECTUS 1997 5
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<PAGE>
================================================================================
INVESTMENT POLICIES AND RISKS
Endowments strives for long-term growth of principal with income and capital
preservation.
The fund's primary investment objective is long-term growth of principal with
income and preservation of capital as secondary objectives. The fund will
normally invest in common stocks or securities convertible into common stock.
Emphasis will be given to stocks of companies which have favorable prospects
for long-term growth of both capital and income. The fund may also purchase
preferred stocks and straight corporate debt securities (rated in the top three
quality categories by Moody's Investors Service, Inc. or Standard & Poor's
Corporation, or not rated but determined to be of equivalent quality by the
fund's investment adviser, Capital Research and Management Company). In
addition, cash and cash equivalents and U.S. government securities may also be
held. The fund may from time to time invest up to 10% of its assets in common
stocks and other securities of issuers domiciled outside the U.S. The fund will
normally diversify its investments among different industries although the
degree of diversification will vary from time to time in accordance with the
judgment of management.
Bond Portfolio for Endowments strives for as high a level of current income as
is consistent with the preservation of capital.
The investment objective of the fund is to seek as high a level of current
income as is consistent with the preservation of capital. Any capital
appreciation is incidental to the fund's objective of current income. The fund
invests primarily in fixed-income securities. All purchases of fixed-income
securities must be "investment grade," which are rated in the top four quality
categories by Standard & Poor's Corporation or Moody's Investors Service, Inc.
or unrated but determined to be of equivalent quality by Capital Research and
Management Company, the fund's investment adviser. A majority of the fund's
assets will be invested in fixed-income securities rated in the three highest
categories (those rated A or above) by Moody's or S&P or that are determined to
be of equivalent quality. In addition, the fund may invest in securities rated
BBB by S&P or Baa by Moody's or in unrated securities of equivalent quality.
Securities rated BBB or Baa may have speculative characteristics and changes in
economic conditions may lead to a weaker capacity to make principal and
interest payments than is the case with higher rated securities. The fund has
no current intention of investing in securities rated BB or below by S&P and Ba
or below by Moody's (commonly known as "junk" bonds) or in unrated securities
of equivalent quality. Normally, at least 65% of the fund's assets will be
invested in bonds. (For this purpose, bonds are considered any debt securities
having initial maturities in excess of one year.) The fund may also invest up
to 10% of its assets in obligations of corporations or government entities
outside the U.S. and Canada. All Canadian and other non-U.S. securities
purchased by the fund will be liquid, U.S. dollar-denominated and meet the
quality standards set forth above.
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6 PROSPECTUS 1997
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<PAGE>
================================================================================
The fixed-income 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 measured at the time of purchase. The fund will not acquire
common stocks except through the exercise of conversion or stock purchase
rights and will retain such common stocks only when it is consistent with the
fund's objective of current income. In addition, the fund may hold cash or cash
equivalents.
As the funds' shareholders are non-profit institutions, investments will be
made consonant with the standards generally considered prudent by fiduciaries
and trustees of such institutions. Because of the shareholders' tax-exempt
status, the funds will not be affected by the usual tax considerations in
making investment decisions.
Limits on the funds' investment policies are determined at the time of purchase
and are based on the funds' net assets, unless otherwise stated.
MORE INFORMATION ON THE FUNDS' INVESTMENT POLICIES IS CONTAINED IN THE
STATEMENT OF ADDITIONAL INFORMATION.
The funds' fundamental investment restrictions (described in the statement of
additional information) and objectives may not be changed without shareholder
approval.
ACHIEVEMENT OF THE FUNDS' INVESTMENT OBJECTIVES CANNOT, OF COURSE, BE ASSURED
DUE TO THE RISK OF CAPITAL LOSS FROM FLUCTUATING PRICES INHERENT IN ANY
INVESTMENT IN SECURITIES.
- --------------------------------------------------------------------------------
SECURITIES AND INVESTMENT TECHNIQUES
EQUITY SECURITIES
Endowments will ordinarily invest in equity securities, which represent an
ownership position in a company. These securities may include common stocks and
securities with equity conversion or purchase rights. The prices of equity
securities fluctuate based on changes in the financial condition of their
issuers and on market and economic conditions. The fund's results will be
related to the overall market for these securities.
DEBT SECURITIES
Bonds and other debt securities are used by issuers to borrow money. Issuers
pay investors interest and generally must repay the amount borrowed at
maturity. Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values.
The prices of debt securities fluctuate depending on such factors as interest
rates, credit quality and maturity. In general their prices decline when
interest rates rise and vice versa.
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PROSPECTUS 1997 7
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<PAGE>
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Endowments may invest in debt securities rated A or better by Moody's Investors
Service, Inc. or Standard & Poor's Corporation. Bond Portfolio for Endowments
may invest in debt securities rated Baa or BBB or better by Moody's Investors
Service, Inc. or Standard & Poor's Corporation or in unrated securities that
are determined to be of equivalent quality by Capital Research and Management
Company. Securities rated Baa or BBB are considered "investment grade" but also
may have speculative characteristics.
Capital Research and Management Company attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
OTHER SECURITIES
The funds may also invest in securities that have a combination of equity and
debt characteristics such as non-convertible preferred stocks and convertible
securities. These securities may at times resemble equity more than debt and
vice versa. Non-convertible preferred stocks are similar to debt in that they
have a stated dividend rate akin to the coupon of a bond or note even though
they are often classified as equity securities. The prices and yields of non-
convertible preferred stocks generally move with changes in interest rates and
the issuer's credit quality, similar to the factors affecting debt securities.
Bonds, preferred stocks, and other securities may sometimes be converted into
shares of common stock or other securities at a stated exchange ratio. These
securities prior to conversion pay a fixed rate of interest or a dividend.
Because convertible securities have both debt and equity characteristics their
value varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the credit quality of
the issuer.
U.S. GOVERNMENT SECURITIES
Securities guaranteed by the U.S. Government include (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes and bonds) and (2) federal
agency obligations guaranteed as to principal and interest by the U.S.
Treasury.
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal sponsorship in one way or
another: some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality. Bond Portfolio for Endowments may invest in notes
and bonds issued by the U.S. Treasury and federal agencies whose interest
payments vary with the rate of inflation.
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8 PROSPECTUS 1997
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<PAGE>
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PRIVATE PLACEMENTS
Normally, securities acquired in private placements are subject to contractual
restrictions on resale. Any such securities will be considered illiquid unless
they have been specifically determined to be liquid under procedures adopted by
the funds' boards of directors, 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 securities
that are illiquid.
INVESTING IN VARIOUS COUNTRIES
Investing outside the U.S. involves special risks caused by, among other
things, fluctuating currency values; different accounting, auditing, and
financial reporting regulations and practices in some countries; changing local
and regional economic, political, and social conditions; greater market
volatility; differing securities market structures; and various administrative
difficulties such as delays in clearing and settling portfolio transactions or
in receiving payment of dividends. However, in the opinion of Capital Research
and Management Company, investing outside the U.S. also can reduce certain
portfolio risks due to greater diversification opportunities.
Additional costs could be incurred in connection with the funds' investment
activities outside the U.S. Endowments can purchase and sell currencies to
facilitate transactions in securities denominated in currencies other than the
U.S. dollar. Brokerage commissions may be higher outside the U.S., and
Endowments may bear certain expenses in connection with its currency
transactions. Furthermore, increased custodian costs for either fund may be
associated with the maintenance of assets in certain jurisdictions.
APPLIES TO BOND PORTFOLIO FOR ENDOWMENTS:
PASS-THROUGH SECURITIES
The fund may invest in various debt obligations backed by a pool of mortgages
or other assets including loans on single family residences, home equity loans,
mortgages on commercial buildings, credit card receivables, and leases on
airplanes or other equipment. Principal and interest payments made on the
underlying asset pools backing these obligations are typically passed through
to investors. Pass-through securities may have either fixed or adjustable
coupons. These securities include those discussed below.
"Mortgage-backed securities" are issued both by U.S. government agencies,
including the Government National Mortgage Association (GNMA), the Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC), and by private entities. The payment of interest and
principal on securities issued by U.S. government agencies is guaranteed by the
full faith and credit of the U.S. government (in the case of GNMA securities)
or
- --------------------------------------------------------------------------------
PROSPECTUS 1997 9
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<PAGE>
================================================================================
the issuer (in the case of FNMA and FHLMC securities). However, the guarantees
do not apply to the market prices and yields of these securities, which vary
with changes in interest rates.
Mortgage-backed securities issued by private entities are structured similarly
to mortgage-backed securities issued by GNMA, FNMA, and FHLMC. These securities
and the underlying mortgages are not guaranteed by government agencies.
However, these securities generally are structured with one or more types of
credit enhancement by a third party. Mortgage-backed securities permit
borrowers to prepay their underlying mortgages. Prepayments by borrowers on
underlying obligations can alter the effective maturity of these instruments.
"Collateralized mortgage obligations" (CMOs) are also backed by a pool of
mortgages or mortgage loans, which are divided into two or more separate bond
issues. CMOs issued by U.S. government agencies are backed by agency mortgages,
while privately issued CMOs may be backed by either government agency mortgages
or private mortgages. Payments of principal and interest are passed through to
each bond at varying schedules resulting in bonds with different coupons,
effective maturities, and sensitivities to interest rates. In fact, some CMOs
may be structured in a way that when interest rates change the impact of
changing prepayment rates on these securities' effective maturities is
magnified.
"Commercial mortgage-backed securities" are backed by mortgages of commercial
property, such as hotels, office buildings, retail stores, hospitals, and other
commercial buildings. These securities may have a lower prepayment risk than
other mortgage-related securities because commercial mortgage loans generally
prohibit or impose penalties on prepayments of principal. In addition,
commercial mortgage-related securities often are structured with some form of
credit enhancement to protect against potential losses on the underlying
mortgage loans. Many of the risks of investing in commercial mortgage-backed
securities reflect the risks of investing in the real estate securing the
underlying mortgage loans, including the effects of local and other economic
conditions on real estate markets, the ability of tenants to make loan
payments, and the ability of a property to attract and retain tenants.
"Asset-backed securities" are backed by other assets such as credit card,
automobile or consumer loan receivables, retail installment loans, or
participations in pools of leases. Credit support for these securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. The values of these securities are sensitive to changes in the
credit quality of the underlying collateral, the credit strength of the credit
enhancement, changes in interest rates, and at times the financial condition of
the issuer. Some asset-backed securities also may receive prepayments which can
change the bonds' effective maturities.
FORWARD COMMITMENTS
The fund may enter into commitments to purchase or sell securities at a future
date. When the fund agrees to purchase such securities, it assumes the risk of
any decline in value of the securities beginning on the date of the agreement.
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10 PROSPECTUS 1997
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<PAGE>
================================================================================
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. In addition, the fund may also enter into reverse
repurchase agreements, which are the sale of a security by the fund and its
agreement to repurchase the security at a specified time and price at a later
date.
The fund may also enter into "roll" transactions which are the sale of GNMA
certificates or other securities together with a commitment to purchase
similar, but not identical, securities at a later date. The fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations as of the time of the agreement.
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.
REPURCHASE AGREEMENTS
The fund may enter into repurchase agreements, under which it buys a security
and obtains a simultaneous commitment from the seller to repurchase the
security at a specified time and price. The seller must maintain with the
fund's custodian collateral equal to at least 100% of the repurchase price
including accrued interest as monitored daily by Capital Research and
Management Company. The fund only enters into repurchase agreements involving
securities in which they could otherwise invest and with selected banks and
securities dealers whose financial condition is monitored by Capital Research
and Management Company. If the seller under a repurchase agreement defaults,
the fund may incur a loss if the value of the collateral securing the
repurchase agreement has declined and may incur disposition costs in connection
with liquidating the collateral. If bankruptcy proceedings are commenced with
respect to the seller, liquidation of the collateral by the fund may be delayed
or limited.
- --------------------------------------------------------------------------------
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The basic investment philosophy of Capital Research and Management Company is
to seek fundamental values at reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund assets. Under this system a fund's
portfolio is divided into segments which are managed by individual counselors.
Counselors decide how their respective segments will be invested (within the
limits provided by a fund's objective(s) and policies and by Capital Research
and Management Company's investment committee). In addition, Capital Research
and Management Company's research professionals may make investment decisions
with respect to a portion of a fund's portfolio. The primary individual
portfolio counselors for Endowments and Bond Portfolio for Endowments are
listed below.
- --------------------------------------------------------------------------------
PROSPECTUS 1997 11
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
ENDOWMENTS
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
..........................
YEARS OF EXPERIENCE
AS PORTFOLIO COUNSELOR WITH CAPITAL
(AND RESEARCH PROFESSIONAL, RESEARCH AND
IF APPLICABLE) FOR MANAGEMENT
PORTFOLIO COUNSELORS ENDOWMENTS COMPANY OR
FOR ENDOWMENTS PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES TOTAL YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ROBERT G. Senior Vice 7 years (in 22 years 25 years
O'DONNELL President addition to 18
of the fund. years as a
Senior Vice research
President and professional
Director, prior to
Capital becoming a
Research and portfolio
Management counselor for
Company the fund).
- ----------------------------------------------------------------------------------------------
CLAUDIA P. Vice President 2 years (in 20 years 22 years
HUNTINGTON of the fund. addition to 20
Vice President, years as a
Capital research
Research and professional
Management prior to
Company becoming a
portfolio
counselor for
the fund).
</TABLE>
BOND PORTFOLIO FOR ENDOWMENTS
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
.........................
YEARS OF EXPERIENCE WITH CAPITAL
AS PORTFOLIO COUNSELOR RESEARCH AND
PORTFOLIO COUNSELORS FOR BOND PORTFOLIO FOR MANAGEMENT
FOR BOND PORTFOLIO ENDOWMENTS COMPANY OR
FOR ENDOWMENTS PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES TOTAL YEARS
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ABNER D. Senior Vice 22 years 30 years 45 years
GOLDSTINE President
of the fund.
Senior Vice
President and
Director,
Capital
Research and
Management
Company
- -----------------------------------------------------------------------------------------
JOHN H. Vice President 9 years 14 years 15 years
SMET of the fund.
Vice President,
Capital
Research and
Management
Company
</TABLE>
Capital Research and Management Company has been the funds' investment adviser
since July 26, 1975.
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12 PROSPECTUS 1997
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
INVESTMENT RESULTS
The funds may from time to time compare investment results to various indices
or other mutual funds. Fund results may be calculated on a total return, yield
and/or distribution rate basis.
X TOTAL RETURN is the change in value of an investment in the fund over a given
period, assuming reinvestment of any dividends and capital gain
distributions.
X YIELD is computed by dividing the net investment income per share earned by
the fund over a given period of time by the maximum offering price per share
on the last day of the period, according to a formula mandated by the
Securities and Exchange Commission. A yield calculated using this formula may
be different than the income actually paid to shareholders.
X DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by dividing the dividends paid over the last
12 months by the sum of the month-end price and the capital gain
distributions paid over the last 12 months.
ENDOWMENTS
INVESTMENT RESULTS
(FOR PERIODS ENDED JUNE 30, 1997)
<TABLE>
<CAPTION>
THE FUND
AVERAGE ANNUAL AT NET S&P
TOTAL RETURNS: ASSET VALUE/1/ 500/2/
- -------------------------------------
<S> <C> <C>
One year 26.75% 34.63%
.....................................
Five years 15.44% 19.74%
.....................................
Ten years 12.83% 14.62%
.....................................
Lifetime/3/ 15.03% 15.42%
- -------------------------------------
</TABLE>
Yield/1/: 2.43%
Distribution Rate: 2.36%
- --------------------------------------------------------------------------------
PROSPECTUS 1997 13
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
BOND PORTFOLIO FOR ENDOWMENTS
INVESTMENT RESULTS
(FOR PERIODS ENDED JUNE 30, 1997)
<TABLE>
<CAPTION>
THE FUND LEHMAN
AVERAGE ANNUAL AT NET AGGREGATE
TOTAL RETURNS: ASSET VALUE/1/ BOND INDEX/4/
- --------------------------------------------
<S> <C> <C>
One year 8.64% 8.15%
............................................
Five years 7.18% 7.12%
............................................
Ten years 8.95% 8.82%
............................................
Lifetime/3/ 9.77% 9.74%/5/
- --------------------------------------------
</TABLE>
Yield/1/: 6.55%
Distribution Rate: 7.06%
/1/ These fund results were calculated according to a standard that is required
for all stock and bond funds.
/2/ The Standard & Poor's 500 Composite Index represents stocks. This index is
unmanaged and does not reflect sales charges, commissions or expenses.
/3/ For the period beginning July 26, 1975 (when Capital Research and
Management Company became the funds' investment adviser).
/4/ Lehman Brothers Aggregate Bond Index represents investment grade debt. This
index is unmanaged and does not reflect sales charges, commissions or
expenses.
/5/ Lehman Brothers Aggregate Bond Index did not exist until December 31, 1975.
For the period between July 31, 1975 and December 31, 1975, Lehman Brothers
Government/Corporate Bond Index results were used. The Lehman Brothers
indices are based on July 31, 1975 index value.
- --------------------------------------------------------------------------------
14 PROSPECTUS 1997
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
Here are the funds' annual total returns. This information is being
supplied on a calendar year basis for comparative purposes.
ENDI
<TABLE>
<S> <C>
1987 3.38%
1988 13.37
1989 25.4
1990 0.42
1991 22.57
1992 9.56
1993 9.56
1994 1.54
1995 28.31
1996 17.43
</TABLE>
BENDI
<TABLE>
<S> <C>
1987 0.65%
1988 9.18
1989 12.56
1990 6.04
1991 20.32
1992 9.4
1993 12.23
1994 (4.31)
1995 15.99
1996 3.98
</TABLE>
Past results are not an indication of future results and, for Bond Portfolio
for Endowments, reflect a fee waiver.
- --------------------------------------------------------------------------------
PROSPECTUS 1997 15
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The funds usually pay dividends, which may fluctuate, in March, June, September
and December. Capital gains, if any, are usually distributed in December. When
a dividend or capital gain is distributed, the net value per share is reduced
by the amount of the payment.
FEDERAL TAXES
The funds are tax-exempt organizations under Section 501(c)(2) of the Internal
Revenue Code. In addition, each fund intends to operate as a "regulated
investment company" under the Internal Revenue Code. If the funds elect to be
treated as regulated investment companies, and so qualify and distribute to
shareholders all of their net investment income and net capital gains, the
funds themselves are relieved of federal income tax.
Since all of the shareholders of the funds are exempt from taxation under
Section 501(c)(3) of the Internal Revenue Code, it is not anticipated that
there will be any tax consequences to the shareholders from distribution of
either net investment income or capital gains realized on the sale of
securities except where a shareholder is defined as a "private foundation"
under Section 509(a) and therefore may be subject to the taxes assessed under
Chapter 42 of the Internal Revenue Code.
This is a brief summary of some of the tax laws that affect your investment in
the funds. Please see the statement of additional information and your tax
adviser for further information.
- --------------------------------------------------------------------------------
FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS
The funds, which are open-end, diversified management investment companies,
were organized as Delaware corporations (Endowments in 1969 and Bond Portfolio
for Endowments in 1970). All fund operations are supervised by the funds' board
of directors who meet periodically and perform duties required by applicable
state and federal laws. Shareholders have one vote per share owned. At the
request of the holders of at least 10% of the shares of either fund, that fund
will hold a meeting at which any member of the board could be removed by a
majority vote. Since the funds use a combined prospectus, each fund may be
liable for misstatements, inaccuracies, or incomplete disclosure concerning the
other fund contained in this prospectus.
- --------------------------------------------------------------------------------
16 PROSPECTUS 1997
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
As of August 31, 1997, the following shareholders owned 5% or more of the
funds' outstanding stock:
Endowments--Boy Scouts of America-Mt. Diablo/Silverado Council, 132,020 shares
(6.27%); California Institute of the Arts, 272,388 shares (12.93%); Citizens'
Scholarship Foundation of America, 146,210 shares (6.94%); Foundation for
Reproductive Research and Education, 114,622 shares (5.44%); and Loyola
Marymount University, 115,087 shares (5.46%).
Bond Portfolio for Endowments--California Institute of the Arts, 514,168 shares
(26.70%); Citizens' Scholarship Foundation of America, 151,037 shares (7.84%);
Hudson Institute, 124,389 shares (6.46%); and San Francisco Opera Association,
152,816 shares (7.93%). As California Institute of the Arts owns in excess of
25% of the voting shares of the fund, it is, pursuant to the Investment Company
Act of 1940, presumed to be a controlling person of the fund.
THE INVESTMENT ADVISER
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, has been the funds' investment adviser
since July 25, 1975 and is the investment adviser to other funds, including
those in The American Funds Group. Capital Research and Management Company, a
wholly owned subsidiary of The Capital Group Companies, Inc., is headquartered
at 333 South Hope Street, Los Angeles, CA 90071. Capital Research and
Management Company manages the investment portfolio and business affairs of the
funds. The management fee paid by the funds to Capital Research and Management
Company may not exceed 0.50% of each fund's average net assets annually and
declines at certain asset levels. The total management fees paid by each fund,
as a percentage of average net assets, for the previous fiscal year are
discussed earlier under "Expenses."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the funds' code of ethics.
PORTFOLIO TRANSACTIONS
Orders for the funds' portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal
- --------------------------------------------------------------------------------
PROSPECTUS 1997 17
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
for its own account without a stated commission, although the price of the
security usually includes a profit to the dealer. In underwritten offerings,
securities are usually purchased at a fixed price which includes an amount of
compensation to the dealer, generally referred to as a concession or discount.
On occasion, securities may be purchased directly from an issuer, in which case
no commissions or discounts are paid. In the over-the-counter market, purchases
and sales are transacted directly with principal market-makers except in those
circumstances where it appears better prices and executions are available
elsewhere.
Subject to the above policy, when two or more brokers (either directly or
through their correspondent clearing agents) are in a position to offer
comparable prices and executions, preference may be given to brokers who have
provided investment research, statistical, and other related services for the
benefit of the funds and/or other funds served by Capital Research and
Management Company.
TRANSFER AGENT
American Funds Service Company serves as the transfer agent for the funds and
performs shareholder service functions. An agent of American Funds Service
Company who performs transfer agent services for the funds is located at
One Market, Steuart Tower, Suite 1800, San Francisco, CA 94105.
SHAREHOLDER SERVICES
The funds offer you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice.
- --------------------------------------------------------------------------------
PURCHASING SHARES
Shares of the funds may be purchased directly from the funds only by
institutional investors exempt from federal income taxation under Section
501(c)(3) of the Internal Revenue Code. The minimum initial purchase is $50,000
for either fund; there is no minimum on subsequent investments. The minimum
initial investment may be reduced by the boards for investments which meet
certain standards. Any shareholder which loses its tax-exempt status must
immediately transfer its shares to another tax-exempt institution or, at the
shareholder's option, sell its shares at net asset value.
- --------------------------------------------------------------------------------
18 PROSPECTUS 1997
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
The purchase of shares may be paid in cash or in a like value of acceptable
securities, said securities to be valued in accordance with the valuation
procedures described in the statement of additional information under "Purchase
of Shares--Price of Shares." Acceptable securities shall be those securities
deemed acceptable by Capital Research and Management Company; that is, those
securities which management deems to be consistent with the investment
objectives and policies of the funds.
Various services are available as described below:
X Automatic Reinvestment
Dividends and capital gain distributions are reinvested in additional shares
at no sales charge unless you indicate otherwise. You also may elect to have
dividends and/or capital gain distributions paid in cash.
X Exchange Feature
As a shareholder of Endowments or Bond Portfolio for Endowments, you may
exchange all or part of your shares at net asset value for shares of the
other, and for shares of The Cash Management Trust of America or The U.S.
Treasury Money Fund of America, whose shares may be similarly exchanged for
shares of Endowments and/or Bond Portfolio for Endowments. The Cash
Management Trust of America and The U.S. Treasury Money Fund of America are
money market funds whose shares are sold at net asset value. This feature is
available only if the fund for which you are exchanging is qualified in the
state where you reside.
As the funds' shareholders are tax-exempt institutions, it is not expected
that such an exchange will result in tax consequences to the shareholder.
X Automatic Withdrawals
Shareholders may authorize automatic withdrawals from their accounts. All
shares owned or purchased by a shareholder will be credited to the
shareholder's withdrawal account, and a sufficient number of shares will be
sold from the account to meet the requested withdrawal payments. All income
dividends and other distributions, if any, must be reinvested in fund shares
at net asset value and credited to the withdrawal account. Liquidation of
shares in excess of investment income will reduce and may deplete a
shareholder's invested capital. Withdrawal payments, therefore, should not
be considered as a yield or income on the investment.
X Account Statements
A shareholder account is opened in accordance with your registration
instructions. Transactions in the account, such as additional investments
and
- --------------------------------------------------------------------------------
PROSPECTUS 1997 19
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
dividend reinvestments, will be reflected on regular confirmation statements
from American Funds Service Company.
SHARE PRICE
Each fund's share price, also called net asset value, is determined as of the
close of trading (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open. Each fund calculates its net asset value per share,
generally using market prices, by dividing the total value of its assets after
subtracting liabilities by the number of its shares outstanding. Shares are
purchased at the net asset value next determined after your investment is
received and accepted.
SHARE CERTIFICATES
Shares are credited to your account and certificates are not issued unless you
request them by writing.
All stock certificates issued by the funds bear a legend that the shares may
not be owned, held, sold, transferred, assigned, pledged, hypothecated, or
otherwise transferred except by or to an organization which has established its
tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. Shares
of the funds are redeemable through the funds at net asset value. (See "Selling
Shares.")
- --------------------------------------------------------------------------------
SELLING SHARES
Shareholders may sell (redeem) their shares, by tendering a request in proper
form, at the offices of the funds, P.O. Box 7650, One Market, Steuart Tower
(Suite 1800), San Francisco, CA 94120. Proper tender of shares requires a
written request for redemption and, if the shareholder has received
certificates for its shares, the deposit of the stock certificates. Requests to
sell must be signed and the authorized signature(s) of the shareholder
guaranteed by an "eligible guarantor" which includes a bank or savings and loan
association that is federally insured or a member firm of the National
Association of Securities Dealers, Inc. Notarization by a notary public is not
an acceptable signature guarantee.
The funds do not have dealer agreements and do not accept redemption orders
from broker-dealers. The price you receive for the shares you sell is the net
asset value next determined after your order and all required documents are
received. (See "Purchasing Shares--Share Price.") Because the funds' net asset
values fluctuate, reflecting the market value of the funds' portfolios, the
amount a shareholder receives for shares sold may be more or less than the
amount paid for them.
- --------------------------------------------------------------------------------
20 PROSPECTUS 1997
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
NOTES
- --------------------------------------------------------------------------------
PROSPECTUS 1997 21
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
NOTES
- --------------------------------------------------------------------------------
22 PROSPECTUS 1997
- --------------------------------------------------------------------------------
<PAGE>
NOTES
- --------------------------------------------------------------------------------
PROSPECTUS 1997 23
- --------------------------------------------------------------------------------
ENDOWMENTS, INC.
AND
BOND PORTFOLIO FOR ENDOWMENTS, INC.
Part B
Statement of Additional Information
October 1, 1997
This document is not a prospectus but should be read in conjunction with the
current Prospectus of Endowments and Bond Portfolio for Endowments dated
October 1, 1997. The Prospectus may be obtained by writing to the funds at the
following address:
Endowments, Inc.
Bond Portfolio for Endowments, Inc.
Attention: Secretary
One Market
Steuart Tower, Suite 1800
P.O. Box 7650
San Francisco, CA 94120
Telephone: (415) 421-9360
Table of Contents
Item Page No.
DESCRIPTION OF CERTAIN SECURITIES 1
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS 5
FUND OFFICERS AND DIRECTORS 9
MANAGEMENT 11
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 13
PURCHASE OF SHARES 13
EXECUTION OF PORTFOLIO TRANSACTIONS 14
REDEMPTION OF SHARES 15
GENERAL INFORMATION 16
INVESTMENT RESULTS 17
FINANCIAL STATEMENTS ATTACHED
DESCRIPTION OF CERTAIN SECURITIES
BOND RATINGS - Endowments may invest in debt securities which are rated in the
top three quality categories by any national rating service (or determined to
be equivalent by Capital Research and Management Company) including bonds rated
at least A by Standard & Poor's Corporation or Moody's Investors Service, Inc.
Bond Portfolio for Endowments invests in bonds and debentures (including
straight debt securities), which are rated in the top four quality categories
by any national rating service (or determined to be equivalent by Capital
Research and Management Company) including bonds rated at least BBB by Standard
& Poor's Corporation or Baa by Moody's Investors Service, Inc. The top four
rating categories for Standard & Poor's and Moody's are described below:
Standard & Poor's Corporation:
"Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong."
"Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree."
"Debt rated 'A' has a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions than debt in higher categories."
"Debt rated $BBB' has an adequate capacity to pay interest and repay principal.
Whereas they normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal than for debt in higher rated
categories."
Standard & Poor's applies indicators "+", no character and "-" to its rating
categories. The indicators show relative standing within the major rating
categories.
Moody's Investors Service, Inc.:
"Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as 'gilt
edge.' Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues."
"Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities, or fluctuation of protective elements may be
of greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger than the Aaa securities."
"Bonds rated A are judged to be of upper medium grade obligations. These
bonds possess many favorable investment attributes. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future."
"Bonds rated Baa are judged to be medium grade obligations, I.E., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
Moody's also supplies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the obligation ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and 3
indicates a ranking toward the lower end of that generic rating category.
BOND PORTFOLIO FOR ENDOWMENTS
The fund has no current intention of investing in securities rated BB or below
by S&P and Ba or below by Moody's (commonly known as "junk" bonds) or
equivalent securities that are not rated. The fund is not normally required to
dispose of a security in the event that its rating is reduced below BBB or Baa
(or it is not rated and its quality becomes equivalent to such a security).
The fund, however, has no current intention of holding more than 5% of its net
assets in junk bonds. Junk bonds are subject to greater fluctuations in value
than are higher rated securities because the values of these securities tend to
reflect short-term corporate and market developments and investor perceptions
of the issuers' credit quality to a greater extent.
FORWARD COMMITMENTS - The fund may enter into commitments to purchase or sell
securities at a future date. When a fund purchases such securities it assumes
the risk of any decline in value of the security beginning on the date of the
agreement. When a fund sells such securities it does not participate in
further gains or losses with respect to such securities beginning on the date
of the agreement. If the other party to such a transaction fails to deliver
or pay for the securities, the fund could miss a favorable price or yield
opportunity or could experience a loss.
As the fund's aggregate commitments under these transactions increase, the
opportunity for leverage similarly may increase. The fund will not use these
transactions for the purpose of leveraging and will segregate liquid assets
which will be marked to market daily in an amount sufficient to meet its
payment obligations in these transactions. Although these transactions will
not be entered into for leveraging purposes, to the extent the fund's aggregate
commitments under these transactions exceed its segregated assets, the fund
temporarily could be in a leveraged position (because it will have an amount
greater than its net assets subject to market risk). Should market values of
the fund's portfolio securities decline while the fund is in a leveraged
position, greater depreciation of its net assets would likely occur than were
it not in such a position. The fund will not borrow money to settle these
transactions and, therefore, will liquidate other portfolio securities in
advance of settlement if necessary to generate additional cash to meet its
obligations thereunder.
The fund also may enter into "roll" transactions, which consist of the sale of
GNMA certificates or other securities together with a commitment to purchase
similar, but not identical, securities at a future date. The fund intends to
treat roll transactions as two separate transactions: one involving the
purchase of a security and a separate transaction involving the sale of a
security. Since the fund does not intend to enter into roll transactions for
financing purposes, it may treat these transactions as not falling within the
definition of "borrowing" set forth in Section 2(a)(23) of the Investment
Company Act of 1940.
REVERSE REPURCHASE AGREEMENTS - This type of agreement involves the sale of a
security by the fund and its commitment to repurchase the security at a
specified time and price. The fund will identify liquid assets which will be
marked to market daily in an amount sufficient to cover its obligations under
reverse repurchase agreements with broker-dealers (but no collateral is
required on reverse repurchase agreements with banks). Under the Investment
Company Act of 1940, as amended (the "1940 Act"), reverse repurchase agreements
may be considered borrowings by the fund. The use of reverse repurchase
agreements by the fund creates leverage which increases the fund's investment
risk. As the fund's aggregate commitments under these reverse repurchase
agreements increases, the opportunity for leverage similarly increases. If the
income and gains on securities purchased with the proceeds of reverse
repurchase agreements exceed the costs of the agreements, the fund's earnings
or net asset value will increase faster than otherwise would be the case;
conversely if the income and gains fail to exceed the costs, earnings or net
asset value would decline faster than otherwise would be the case.
WARRANTS AND RIGHTS - In addition, the fund may only acquire warrants or
rights, which are issued together with bonds or preferred stocks. Warrants
generally entitle the holder to buy a stated amount of common stock or
additional bonds to be exercised at a specified price. At the time the warrant
is issued, the exercise price is usually higher than the current market price.
Warrants may be issued with an expiration date or in perpetuity. The fund may
also acquire rights to purchase common stocks. Rights are similar to warrants
except that they normally entitle the holder to purchase common stock at a
lower price than the current market price.
ENDOWMENTS
REPURCHASE AGREEMENTS - Although the fund has no current intention in doing
so, the fund may enter into repurchase agreements, under which it buys a
security and obtains a simultaneous commitment from the seller to repurchase
the security at a specified time and price. The seller must maintain with the
fund's custodian collateral equal to at least 100% of the repurchase price
including accrued interest as monitored daily by Capital Research and
Management Company. The fund only enters into repurchase agreements involving
securities in which they could otherwise invest and with selected banks and
securities dealers whose financial condition is monitored by Capital Research
and Management Company. If the seller under a repurchase agreement defaults,
the fund may incur a loss if the value of the collateral securing the
repurchase agreement has declined and may incur disposition costs in connection
with liquidating the collateral. If bankruptcy proceedings are commenced with
respect to the seller, liquidation of the collateral by the fund may be delayed
or limited.
CURRENCY TRANSACTIONS - Although the fund has no current intention to do
so, the fund has the ability to enter into forward currency contracts to
protect against changes in currency exchange rates. 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 fund will involve the purchase
or sale of a currency against the U.S. dollar. The fund will segregate liquid
assets which will be marked to market daily to meet its forward contract
commitments to the extent required by the Securities and Exchange
Commission.
Certain provisions of the Internal Revenue Code may affect the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.
ENDOWMENTS AND BOND PORTFOLIO FOR ENDOWMENTS
CASH AND CASH EQUIVALENTS - Each fund may invest in cash or cash
equivalents. These securities include (1) commercial paper (short-term notes
issued by corporations or governmental bodies), (2) commercial bank obligations
(E.G., certificates of deposit (interest bearing time deposits), and bankers'
acceptances (time drafts on a commercial bank where the bank accepts an
irrevocable obligation to pay at maturity)) , (3) savings association and
savings bank obligations (E.G., certificates of deposit issued by savings banks
or savings associations), (4) securities of the U.S. Government, its agencies
or instrumentalities that mature, at the time of purchase, or may be redeemed,
in one year or less, and (5) corporate bonds and notes that mature, at the time
of purchase, or that may be redeemed, in one year or less.
PORTFOLIO TURNOVER - Portfolio changes will be made without regard to the
length of time particular investments may have been held. Short-term trading
profits are not the funds' objective and changes in their investments are
generally accomplished gradually, though short-term transactions may
occasionally be made. Management's appraisal of changing economic conditions
and trends may cause a change in emphasis within the portfolio, both among
individual securities and among various types of fixed-income securities in
order to achieve the objective of the fund. Major changes in economic
conditions could necessitate substantial portfolio turnover. Such turnover
will normally consist of shifts in grade, types of issuers, and maturity
composition of the fund's securities in order to preserve principal and
maintain current income. High portfolio turnover (100% or more) involves
correspondingly greater transaction costs in the form of dealer spreads or
brokerage commissions. Fixed-income securities are generally traded on a net
basis and usually neither brokerage commissions nor transfer taxes are
involved. A fund's portfolio turnover rate would equal 100% if each security
in either fund's portfolio were replaced once per year. Under normal
circumstances, it is anticipated that portfolio turnover for common stocks in
Endowments' portfolio will not exceed 100% on an annual basis, and that
portfolio turnover for the funds' other securities will not exceed 100% on an
annual basis.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
The funds have adopted certain fundamental policies and investment
restrictions which cannot be changed without shareholder approval. (Approval
requires the affirmative vote of 67% or more of the voting securities present
at a meeting of shareholders, provided more than 50% of such securities are
represented at the meeting, or the vote of more than 50% of the outstanding
voting securities, whichever is less.)
ENDOWMENTS
It is the fundamental policy of the fund:
1. To invest primarily in common stocks or senior securities with equity
provisions of well-known companies which appear to offer prospects for
long-term growth of both capital and income. Although common stocks and
convertible issues will ordinarily be used for the attainment of the fund's
investment objective, preferred stocks and bonds and other fixed income issues
may be purchased whenever and to the extent deemed advisable by the fund's
investment adviser in consideration of the fund's income objective and for
defensive purposes. The fund may also hold cash and cash equivalents
(commercial paper and other money market instruments) for cash needs and for
defensive purposes.
2. Not to concentrate its investments in one industry. (The amount invested
in an industry will not be 25% or more of the fund's total assets.)
3. Not to invest in companies for the purpose of exercising control or
management.
4. Not to invest more than 5% of the value of the total assets of the fund in
the securities of any one issuer, provided that this limitation shall apply
only to 75% of the value of the fund's total assets and, provided further, that
the limitation shall not apply to obligations of the government of the U.S. or
of any corporation organized as an instrumentality of the U.S. under a general
Act of Congress.
5. Not to acquire more than 10% of the outstanding voting securities of any
one corporation.
6. Not to borrow more than 5% of the value of its total assets at the time of
such borrowing, and to borrow only temporarily for extraordinary or emergency
purposes and not for purchase of investment securities, and each such borrowing
to be specifically approved by the board of directors of the fund.
7. Not to mortgage, pledge, hypothecate, or in any manner transfer as security
for any indebtedness, any securities owned or held by the fund except to secure
borrowings pursuant to policy #6 hereinabove, and in no event to an extent
greater than 15% of the gross assets of the fund taken at cost.
8. Not to underwrite the sale, or participate in any underwriting or selling
group in connection with the public distribution, of any security; provided,
however, that the fund may invest not more than 10% of its assets in, and
subsequently distribute, as permitted by law, securities and other assets for
which there is no ready market.
9. Not to participate on a joint or a joint and several basis in any trading
account in securities.
10. Not to purchase securities on margin, except that the fund may obtain such
short-term credits as may be necessary for clearance of purchases or sales of
securities.
11. Not to effect short sales, except for short sales "against the box" (I.E.,
sales when the fund owns or has the right to acquire at no additional cost
securities identical to those sold short).
12. Not to make loans to any person or firm, provided, however, that the
acquisition of a portion of an issue of bonds, debentures, notes and other
evidences of indebtedness of any corporation or government shall not be
construed to be the making of a loan.
13. Not to purchase or sell securities from or to officers or directors of the
fund, or of the investment adviser.
14. Not to purchase securities if one or more of the officers or directors of
the fund or investment adviser owns beneficially more than 1/2 of 1% of the
securities of such issuer and if together they own beneficially more than 5% of
such securities.
15. Not to invest in real estate, commodities, or commodity contracts.
(Investments in real estate investment trusts are not deemed purchases of real
estate.)
16. Not to purchase puts, calls or hedges.
17. Not to invest more than 5% of the value of the fund's total assets in the
securities of companies which (together with predecessors) have a record of
less than three years' continuous operation.
18. Not to invest in securities of other investment companies, except by
purchase on the open market at regular brokerage rates or pursuant to a merger
or consolidation.
19. That the shares of the fund may not be owned, held, sold, transferred,
assigned, pledged, hypothecated, or otherwise transferred except by or to an
organization which has established its tax-exempt status under Section
501(c)(3) of the Internal Revenue Code.
For purposes of policy #8, restricted securities are treated as not readily
marketable by the fund, with the exception of those securities that have been
determined to be liquid pursuant to procedures adopted by the fund's board of
directors.
In addition to the policies listed above, the fund will not issue senior
securities. This policy may not be changed except as allowed under the
Investment Company Act of 1940.
If a percentage restriction on investment is adhered to at the time an
investment is made, a later change in percentage resulting from changing values
will not be considered a violation of the fund's investment policies or
restrictions.
BOND PORTFOLIO FOR ENDOWMENTS
It is the fundamental policy of the fund:
1. To invest primarily in bonds and debentures which appear to offer
attractive current yields without undue risk of principal. To attain its
investment objective, the fund may invest in domestic and foreign corporate
bonds and debentures (a portion of which may have conversion or stock purchase
rights), bonds and debentures issued or guaranteed by the U.S. government or
its agencies or instrumentalities, and bonds and debentures issued by foreign
governments. The fund may also invest in short- and medium-term obligations
and hold cash and cash equivalents as dictated by cash needs and market
conditions.
2. Not to concentrate its investments in one industry. (The amount invested
in an industry will not be 25% or more of the fund's total assets.)
3. Not to invest in companies for the purpose of exercising control or
management.
4. Not to invest more than 5% of the value of the total assets of the fund in
the securities of any one issuer, provided that this limitation shall apply
only to 75% of the value of the fund's total assets and, provided further, that
the limitation shall not apply to obligations of the government of the U.S. or
of any corporation organized as an instrumentality of the U.S. under a general
Act of Congress.
5. Not to acquire more than 10% of the outstanding voting securities of any
one corporation, and to acquire voting securities only through the exercise of
conversion or stock purchase rights attached to convertible debt securities
held in the fund's portfolio.
6. Not to borrow more than 5% of the value of its total assets at the time of
such borrowing, and to borrow only temporarily for extraordinary or emergency
purposes and not for purchase of investment securities, and each such borrowing
to be specifically approved by the board of directors of the fund.
7. Not to mortgage, pledge, hypothecate, or in any manner transfer as security
for any indebtedness, any securities owned or held by the fund except to secure
borrowings pursuant to policy #6 hereinabove, and in no event to an extent
greater than 15% of the gross assets of the fund taken at cost.
8. Not to underwrite the sale, or participate in any underwriting or selling
group in connection with the public distribution, of any security, nor invest
more than 15% of the value of its net assets in securities for which there is
no ready market.
9. Not to participate on a joint or a joint and several basis in any trading
account in securities.
10. Not to purchase securities on margin, except that the fund may obtain such
short-term credits as may be necessary for clearance of purchases or sales of
securities.
11. Not to effect short sales, except for short sales "against the box" (I.E.,
sales when the fund owns or has the right to acquire at no additional cost
securities identical to those sold short).
12. Not to purchase puts, calls, or hedges.
13. Not to make loans to any person or firm, provided, however, that the
acquisition of a portion of an issue of publicly distributed bonds, debentures,
notes and other evidences of indebtedness of any corporation or government
shall not be construed to be the making of a loan.
14. Not to purchase or sell securities from or to officers or directors of the
fund, or of the investment adviser.
15. Not to purchase securities if one or more of the officers or directors of
the fund or investment adviser owns beneficially more than 1/2 of 1% of the
securities of such issuer and if together they own beneficially more than 5% of
such securities.
16. Not to invest in real estate, commodities, or commodity contracts.
(Investments in real estate investment trusts are not deemed purchases of real
estate.)
17. Not to invest more than 5% of the value of the fund's total assets in the
securities of companies which (together with predecessors) have a record of
less than three years' continuous operation.
18. Not to invest in securities of other investment companies, except by
purchase on the open market at regular brokerage rates or pursuant to a merger
or consolidation.
19. That the shares of the fund may not be owned, held, sold, transferred,
assigned, pledged, hypothecated, or otherwise transferred except by or to an
organization which has established its tax-exempt status under Section
501(c)(3) of the Internal Revenue Code.
For purposes of policy #8, restricted securities are treated as not readily
marketable by the fund, with the exception of those securities that have been
determined to be liquid pursuant to procedures adopted by the fund's board of
directors.
In addition to the policies listed above, the fund will not issue senior
securities. This policy may not be changed except as allowed under the
Investment Company Act of 1940.
If a percentage restriction on investment is adhered to at the time an
investment is made, a later change in percentage resulting from changing values
will not be considered a violation of the fund's investment policies or
restrictions.
FUND OFFICERS AND DIRECTORS
(with their principal occupations for the past five years#)
Directors
(and the organization for which they serve as designated representative ++)
ROBERT B. EGELSTON+, 333 South Hope Street, Los Angeles, CA 90071, Age: 66.
Senior Partner, The Capital Group Partners L.P.; former Chairman of the Board,
The Capital Group Companies, Inc.; (213) 486-9200.
FRANK L. ELLSWORTH+, 333 South Hope Street, Los Angeles, CA 90071, Age: 54.
Vice President, Capital Research and Management Company; former President,
Independent Colleges of Southern California; (213) 486-9200; Designated
Representative: Independent Colleges of Southern California.
STEVEN D. LAVINE, Age: 50, 24700 McBean Parkway, Valencia, CA 91355.
President, California Institute of the Arts; (805) 255-1050; Designated
Representative: California Institute of the Arts.
PATRICIA A. McBRIDE, Age: 54, 4933 Mangold Circle, Dallas, TX 75229. Chief
Financial Officer, Kevin L. McBride, D.D.S., Inc.; (214) 368-0268; Designated
Representative: Madison Foundation.
JOHN R. METCALF, Age: 81, 2864 Broadway - A, San Francisco, CA 94115. Private
investor; former Vice President, Alexander & Alexander, Inc.; (415) 775-2864;
Designated Representative: Alpine Winter Foundation.
CHARLES R. REDMOND, Age: 71, Times Mirror Square, Los Angeles, CA 90053.
Former Chairman, Pfaffinger Foundation and former President and Chief Executive
Officer, Times Mirror Foundation; (213) 237-3977; Designated Representative:
Loyola Marymount University.
THOMAS E. TERRY+, 333 South Hope Street, Los Angeles, CA 90071, Age: 59.
Consultant; former Vice President and Secretary, Capital Research and
Management Company (retired 1994); (213) 486-9200; Designated Representative:
Citizens' Scholarship Foundation of America.
ROBERT C. ZIEBARTH, Age: 61, P.O. Box 2156, Ketchum, ID 83340. Management
Consultant, Ziebarth Company; (208) 725-0535; Designated Representative:
Foundation for Reproductive Research & Education.
OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) HELD PRINCIPAL OCCUPATION(S)
WITH REGISTRANT DURING PAST 5 YEARS#
<S> <C> <C> <C>
Robert G. O'Donnell 53 Senior Vice Senior Vice President and Director,
P.O. Box 7650 President Capital Research and Management
San Francisco, CA 94120 Company
Abner D. Goldstine 67 Senior Vice Senior Vice President and Director,
11100 Santa Monica Blvd. President Capital Research and Management
Los Angeles, CA 90025 Company
Claudia P. Huntington 45 Vice President of Vice President, Capital Research and
333 South Hope Street Endowments Management Company
Los Angeles, CA 90071
John H. Smet 41 Vice President of Vice President, Capital Research and
11100 Santa Monica Blvd. Bond Portfolio for Management Company
Los Angeles, CA 90025 Endowments
Patrick F. Quan 39 Secretary Vice President, Fund Business
P.O. Box 7650 Management Group, Capital Research
San Francisco, CA 94120 and Management Company
Lisa G. Hathaway 35 Assistant Vice Assistant Vice President, Fund
333 South Hope Street President Business Management Group, Capital
Los Angeles, CA 90071 Research and Management Company
Louise M. Pescetta 47 Assistant Vice Assistant Vice President, Fund
P.O. Box 7650 President and Business Management Group, Capital
San Francisco, CA 94120 Assistant Secretary Research and Management Company
Mary C. Hall 39 Treasurer Senior Vice President, Fund Business
135 South State College Management Group, Capital Research
Blvd. and Management Company
Brea, CA 92821
Robert P. Simmer 36 Assistant Treasurer Vice President, Fund Business
5300 Robin Hood Road Management Group, Capital Research
Norfolk, VA 23513 and Management Company
</TABLE>
_________________
# Positions within the organizations listed may have changed during this
period.
+ An "interested person" of the funds within the meaning of the Investment
Company Act of 1940 (the 1940 Act) on the basis of his affiliation with Capital
Research and Management Company, the funds' investment adviser.
++ The Certificates of Incorporation provide that no person shall serve as a
director of the funds (except for the Chairman of the Board or the President),
unless he or she is a designated representative of at least one charitable
institution which is a shareholder of the funds.
All of the officers listed are officers or employees of the investment adviser
or affiliated companies. Endowments and Bond Portfolio for Endowments do not
pay any salaries or fees to their directors or officers. However, the funds
reimburse certain expenses of the directors who are not affiliated with the
investment adviser.
The following directors serve or have served on boards of tax-exempt 501(c)(3)
organizations and have had experience in dealing with the administrative and
financial needs of these institutions: Robert B. Egelston - California
Institute of the Arts, Claremont University Center, Los Angeles Festival, The
Los Angeles Philharmonic Association, The Music Center of Los Angeles County,
The Wharton School of Finance and Commerce, University of Pennsylvania; Frank
L. Ellsworth - Claremont University Center, English Village, Seattle,
Foundation for Independent Higher Education, Global Partners, Canada, Graphic
Arts Counsel--Los Angeles County Museum of Art, Independent Colleges of
Southern California, Inc., The Japanese-American National Museum, Japanese
Foundation of International Education, The Los Angeles Dance Center, Pitzer
College, Southwestern University School of Law; Steven D. Lavine - American
Council on the Arts, KCRW-FM National Public Radio, The Music Center Operating
Company, The Music Center of Los Angeles County; Patricia A. McBride - Dallas
Museum of Art League, Dallas Symphony Orchestra Association, Dallas Symphony
Orchestra League, Girl Scout Council, Inc., McDermott Foundation, St. Mark's
School of Texas, Southwest Museum of Science and Technology; John R. Metcalf -
Radiology Research and Education Foundation, The Yosemite Fund; Thomas E. Terry
- - Citizens' Scholarship Foundation of America, Edgewood High School, Elvehjem
Museum of Art, Ketchum YMCA, Madison Opera, Inc., National Football Scholarship
Foundation; Charles R. Redmond - AMAN Folk Ensemble, Catholic Charities of the
Archdiocese of Los Angeles, Loyola Marymount University, The Music Center of
Los Angeles County, Pasadena Playhouse, Pfaffinger Foundation, Times Mirror
Foundation; Robert C. Ziebarth - Chicago Maternity Center, Choate School,
Foundation for Reproductive Research & Education, Latin School of Chicago,
National Association of Independent Schools, Naval Historical Foundation,
Northwestern Memorial Hospital.
MANAGEMENT
INVESTMENT ADVISER - The investment adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Singapore, Hong Kong and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The investment adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 1135 South State College Boulevard, Brea, CA 92821.
The investment adviser's research professionals travel several million miles a
year, making more than 5,000 research visits in more than 50 countries around
the world. The investment adviser believes that it is able to attract and
retain quality personnel.
An affiliate of the investment adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The investment adviser is responsible for managing more than $100 billion of
stocks, bonds and money market instruments and serves over five million
investors of all types. These investors include privately owned businesses and
large corporations as well as schools, colleges, foundations and other
non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENTS - The Investment Advisory and
Service Agreements (the Agreements) between the funds and the investment
adviser, dated July 28, 1975, may be renewed from year to year, provided that
any such renewal has been specifically approved at least annually by (i) the
boards of directors of the funds, or by the vote of a majority (as defined in
the 1940 Act) of the outstanding voting securities of the funds, and (ii) the
vote of a majority of directors who are not parties to the Agreements or
interested persons (as defined in said Act) of any such party, cast in person,
at a meeting called for the purpose of voting on such approval. Renewal of the
Agreements was approved by the unanimous vote of the boards of directors of the
funds on May 15, 1997 for the period through July 27, 1998. 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 said
Act).
The investment adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the funds, provides suitable office space, necessary small office equipment and
utilities, and provides general purpose accounting forms, supplies, and postage
used at the offices of the funds. The funds pay all expenses not specifically
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 shareholders; taxes; expenses of the issuance and redemption of
shares of the funds (including stock certificates, registration and
qualification fees and expenses); legal and auditing expenses; expenses paid to
directors unaffiliated with the investment adviser; association dues; and costs
of stationery and forms prepared exclusively for the funds.
Capital Research and Management Company receives a management fee at the
annual rates of 1/2 of 1% of each fund's net assets up to $150,000,000 and 4/10
of 1% of such assets over $150,000,000.
The Agreements provide for an advisory fee reduction to the extent that a
fund's annual ordinary operating expenses exceed 1-1/2% of the first $30
million of the average net assets of the fund and 1% of the average net assets
in excess thereof. 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.
Effective December 1, 1995, the investment adviser has agreed with each
fund to voluntarily waive management fees to the extent that the fund's annual
operating expenses exceed 0.75% of its average net assets per annum. There can
be no assurance that this voluntary fee waiver will continue in the future.
During the years ended July 31, 1997, 1996 and 1995, the investment adviser
received from Endowments advisory fees of $276,008, $300,818, and $273,381, and
from Bond Portfolio for Endowments advisory fees of $177,223, $214,202, and
$223,573, respectively.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The funds are tax-exempt organizations under Section 501(c)(2) of the
Internal Revenue Code. In addition, each fund intends to operate as a
"regulated investment company" under Subchapter M of the Internal Revenue Code.
If, in the future, a fund elects to be treated as regulated investment
companies, it will be subject to the provisions described below.
To qualify as a "regulated investment company," a fund must (a) derive at
least 90% of its gross income from dividends, interest, certain payments with
respect to securities loans, and gains from the sale or other disposition of
stock, securities, currencies or other income derived with respect to its
business of investing in such stock, securities or currencies; (b) for taxable
year beginning on or before August 5, 1997, derive less than 30% of its gross
income from the gains on sale or other disposition of stock or securities held
less than three months; and (c) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the fund's assets
is represented by cash, cash items, U.S. government securities, securities of
other regulated investment companies, and other securities (but such other
securities must be limited, in respect of any one issuer, to an amount not
greater than 5% 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 any one issuer (other than U.S.
government securities or the securities of other regulated investment
companies), or in two or more issuers which the fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses.
Under Subchapter M, if a fund distributes within specified times at least
90% of the sum of its investment company taxable income (net investment income
and the excess of net short-term capital gains over long-term capital losses)
and its tax-exempt interest, if any, it will be taxed only on that portion of
such investment company taxable income that it retains.
Under the Internal Revenue Code, a nondeductible excise tax of 4% is imposed
on the excess of a regulated investment company's "required distribution" for
the calendar year ending within the regulated investment company's taxable year
over the "distributed amount" for such calendar year. The term "required
distribution" means the sum of (i) 98% of ordinary income (generally net
investment income) for the calendar year, (ii) 98% of capital gain net income
(both long-term and short-term) for the one-year period ending on October 31
(as though the one-year period ending on October 31 were the regulated
investment company's taxable year), and (iii) the sum of any untaxed,
undistributed net investment income and net capital gains of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (i) amounts actually distributed by the fund from its current
year's ordinary income and capital gain net income and (ii) any amount on which
the fund pays income tax for the year. The funds intend to distribute net
investment income and net capital gains so as to minimize or avoid the excise
tax liability.
PURCHASE OF SHARES
The purchase of shares may be paid in cash or in a like value of acceptable
securities. Such securities will (i) be acquired for investment and not for
resale; (ii) be liquid securities which are not restricted as to transfer
either by law or liquidity of market; and (iii) have a value which is readily
ascertainable.
PRICE OF SHARES - The price you pay for shares is the net asset value per
share which is calculated once daily at the close of trading (currently 4:00
p.m., New York time) each day the New York Stock Exchange is open. The New
York Stock Exchange is currently closed on weekends and on the following
holidays: New Year's Day, Presidents' Day, Martin Luther King, Jr.'s Birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas Day. Such net asset value is effective for orders to purchase shares
of the funds received by the funds before the close of trading on the New York
Stock Exchange; orders received after the close of trading will be entered at
the net asset value as computed as of the close of trading of the New York
Stock Exchange on the next business day. Prices which appear in the newspaper
are not always indicative of prices at which you will be purchasing and
redeeming shares of the funds, since such prices generally reflect the previous
day's closing price whereas purchases and redemptions are made at the next
calculated price.
All portfolio securities of funds managed by Capital Research and
Management Company are valued, and the net asset value per share is determined,
as follows:
1. Equity securities, including depositary receipts, are valued at the
last reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
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 foreign currencies
are translated prior to the next determination of the net asset value of the
fund's shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the funds' portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through their
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research, statistical, or other related
services to the Investment Adviser or has sold shares of other funds served by
the Investment Adviser. The funds do not consider that they have an obligation
to obtain the lowest available commission rate to the exclusion of price,
service and qualitative considerations.
There are occasions on which portfolio transactions for the funds may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the investment adviser, or for trusts or
other accounts served by affiliated companies of the investment adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the funds, they are effected only when the
investment adviser believes that to do so is in the interest of the funds.
When such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The funds will not pay a mark-up for
research in principal transactions.
Brokerage commissions paid on portfolio transactions during the fiscal years
ended July 31, 1997, 1996 and 1995, amounted to $61,000, $52,000, and $38,000
for Endowments. There are no brokerage commissions paid on portfolio
transactions for Bond Portfolio for Endowments.
BOND PORTFOLIO FOR ENDOWMENTS
The fund is required to disclose information regarding investments in the
securities of broker-dealers (or parents of broker-dealers that derive more
than 15% of their revenue from broker-dealer activities) which have certain
relationships with the fund. During the last fiscal year, Merrill Lynch,
Pierce, Fenner & Smith, Inc. was among the top 10 dealers that acted as
principals in portfolio transactions. The fund held debt securities of in the
amount of $376,000 as of the close of its most recent fiscal year.
REDEMPTION OF SHARES
For redemption requests received after the close of trading on the New York
Stock Exchange, the redemption price will be the net asset value determined as
of the close of trading on the next business day of the New York Stock
Exchange. There is no charge to the shareholder for redemption. Payment in
cash or in kind is made as soon as reasonably practicable after tender in
proper form (as described above), and must, in any event, be made within seven
days thereafter. Either fund may, however, suspend the right of redemption
during any period when: (a) trading on the New York Stock Exchange is
restricted as determined by the Securities and Exchange Commission or such
exchange is closed for other than weekends or holidays; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c) any
emergency as determined by the Securities and Exchange Commission exists,
making disposal of portfolio securities or valuation of net assets of the fund
not reasonably practicable.
Although they would not normally do so, the funds have the right to pay the
redemption price in whole or in part in portfolio securities as selected by the
boards of directors, taken at their value as used in determining net asset
value for purposes of computing the redemption price. A shareholder that
redeems fund shares, and is given by the fund a proportionate amount of the
fund's portfolio securities in lieu of cash, may incur brokerage commissions in
the event of a sale of the securities through a broker. However, the funds
have elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which
each fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the fund during any 90-day period for
any one shareholder.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the funds, including
proceeds from the sale of shares of the funds and of securities in the funds'
portfolios, are held by The Chase Manhattan Bank, One Chase Manhattan Plaza,
New York, NY 10081, as Custodian. Non-U.S. securities may be held by the
Custodian pursuant to sub-custodial arrangements in non-U.S. banks or foreign
branches of U.S. banks.
INDEPENDENT AUDITORS - Deloitte & Touche LLP, located at 1000 Wilshire
Boulevard, Los Angeles, CA 90017, serves as the funds' independent auditors,
providing audit services, preparing tax returns and reviewing certain documents
of the funds 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 given on the authority of said firm as experts in auditing and
accounting.
COUNSEL - Paul, Hastings, Janofsky & Walker LLP, 555 South Flower Street, Los
Angeles, CA 90071, has passed upon the legality of the shares offered hereby.
REPORTS TO SHAREHOLDERS - The funds' fiscal year ends on July 31.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio, financial statements and other information audited by the
funds' independent auditors, Deloitte & Touche LLP, whose selection is
determined annually by the boards of directors.
The financial statements including the investment portfolio and the Report of
Independent Auditors contained in the Annual Report are included in this
statement of additional information.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; blackout periods on
personal investing for certain investment personnel; ban on short-term trading
profits for investment personnel; limitations on service as a director of
publicly traded companies; and disclosure of personal securities transactions.
REMOVAL OF DIRECTORS BY SHAREHOLDERS - At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be cast
thereon, remove any director or directors from office and may elect a successor
or successors to fill any resulting vacancies for the unexpired terms of
removed directors. The funds have made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of directors as
though the funds were a common-law trust. Accordingly, the directors of a fund
shall promptly call a meeting of shareholders for the purpose of voting upon
the question of removal of any director when requested in writing to do so by
the record holders of not less than 10% of the outstanding shares of the
fund.
INVESTMENT RESULTS
Endowments' yield was 2.51% and Bond Portfolio for Endowments' yield was
5.96% based on a 30-day (or one month) period ended July 31, 1997, computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to
the following formula:
YIELD = 2[(a-b/cd+1)/6/-1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
(Endowments and Bond Portfolio for Endowments do not have a sales charge.)
Endowments' average annual total return for the one-, five- and ten-year
periods ended on July 31, 1997 was +38.40%, +16.01% and +13.35%, respectively.
Bond Portfolio for Endowments' average annual total return for the one-, five-
and ten-year periods ended on July 31, 1997 was +10.83%, +6.96% and +9.28%,
respectively. The average annual total return (T) is computed by equating the
value at the end of the period (ERV) with a hypothetical initial investment of
$1,000 (P) over a period of years (n) according to the following formula as
required by the Securities and Exchange Commission: P(1+T)/n/ = ERV.
The following assumptions will be reflected in computations made in accordance
with the formula stated above: (1) reinvestment of dividends and distributions
at net asset value on the reinvestment date determined by the boards of
directors; and (2) a complete redemption at the end of any period illustrated.
The funds may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by dividing the dividends
paid by the fund over the last 12 months by the sum of the month-end net asset
value and the capital gains paid over the last 12 months. The distribution
rate may differ from the yield.
The funds may include information on their investment results and/or
comparisons of their investment results to various unmanaged indices (such as
The Dow Jones Average of 30 Industrial Stocks, The Standard & Poor's 500 Stock
Composite Index and the Lipper Growth & Income Fund Index for Endowments and
the Lehman Aggregate Bond Index for Bond Portfolio for Endowments) or results
of other mutual funds or investment or savings vehicles in advertisements or in
reports furnished to present or prospective shareholders.
Total return for the unmanaged indices will be calculated assuming
reinvestment of dividends and interest, but will not reflect any deductions for
advisory fees, brokerage costs or administrative expenses.
The funds may refer to results compiled by organizations such as CDA
Investment Services, Ibbotson Associates, Lipper Analytical Services, and
Morningstar, Inc. and by the U.S. Department of Commerce. Additionally, the
funds may, from time to time, refer to results published in various newspapers
and periodicals, including Barrons, Forbes, Fortune, Institutional Investor,
Kiplinger's Personal Finance Magazine, Money, U.S. News and World Report and
The Wall Street Journal.
The funds may, from time to time, compare their investment results with the
Consumer Price Index, which is a measure of the average change in prices over
time in a fixed market basket of goods and services (E.G. food, clothing,
fuels, transportation, and other goods and services that people buy for
day-to-day living).
The investment results for the funds set forth below were calculated as
described in the funds' prospectus. The percentage increases shown in the
table below or used in published reports of the funds are obtained by
subtracting the index results at the beginning of the period from the index
results at the end of the period and dividing the difference by the index
results at the beginning of the period.
ENDI vs. Various Unmanaged Indices
<TABLE>
<CAPTION>
10-Year Lipper Growth
8/1 - 7/31 ENDI DJIA/1/ S&P 500/2/ and Income/3/
<S> <C> <C> <C> <C>
1987 - 1997 +251% +336% +303% +252%
1986 - 1996 +204 +330 +269 +220
1985 - 1995 +238 +391 +306 +255
1984 - 1994 +271 +385 +327 +290
1983 - 1993 +260 +333 +294 +249
1982 - 1992 +411 +528 +478 +381
1981 - 1991 +325 +392 +343 +290
1980 - 1990 +326 +392 +344 +301
1979 - 1989 +379 +409 +416 +387
1978 - 1988 +328 +308 +326 +329
1977 - 1987 +384 +388 +417 +412
1976 - 1986 +329 +208 +271 +301
1975 - 1985 +335 +177 +250 +287
1975# - 1985 +333 +177 +248 +287
</TABLE>
BENDI vs. Various Unmanaged Indices
<TABLE>
<CAPTION>
Lehman Lipper Average of
10-Year Brothers Corporate A-Rated
8/1 - 7/31 BENDI Aggregate/4/ Debt Funds/5/
<S> <C> <C> <C>
1987 - 1997 +143% +139% +135%
1986 - 1996 +129 +126 +119
1985 - 1995 +161 +160 +148
1984 - 1994 +191 +193 +178
1983 - 1993 +219 +218 +201
1982 - 1992 +254 +251 +232
1981 - 1991 +253 +269 +233
1980 - 1990 +204 +217 +188
1979 - 1989 +195 +201 +184
1978 - 1988 +178 +178 +164
1977 - 1987 +157 +164 +151
1976 - 1986 +178 +181 +168
1975 - 1985 +157 N/A +158
1975# - 1985 +158 N/A N/A
</TABLE>
________________
# From July 26, 1975
/1/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial
companies such as General Motors and General Electric.
/2/ The Standard & Poor's 500 Stock Composite Index is comprised of industrial,
transportation, public utilities, and financial stocks and represents a large
portion of the value of issues traded on the New York Stock Exchange. Selected
issues traded on the American Stock Exchange are also included.
/3/ The Lipper Growth & Income Fund Index is a non-weighted index of the 30
largest funds within the Lipper Growth & Income investment objective. It is
calculated daily with adjustments for income dividends and capital gain
distributions as of the ex-dividend dates.
/4/ The Lehman Brothers Aggregate Bond Index covers all sectors of the fixed
income market and is a combination of the Lehman Brothers Treasury Bond Index,
the Agency Bond Index, the Corporate Bond Index, the Yankee Bond Index and the
Mortgage Backed Securities Index. Its inception date is December 31, 1975.
/5/ The Lipper Average of Corporate A-Rated Debt Funds is an average of the
cumulative total reinvestment performance of funds that invest at least 65% of
assets in corporate debt issues rated "A" or better or government issues.
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
. . . and had taken
all dividends and
capital gain
distributions
in shares, your
If you had investment would
invested $50,000 have been worth
in ENDI this many this much at
years ago . . . 7/31/97
| |
<S> <C> <C>
Number Periods
of Years 8/1 - 7/31 Value
1 1996 - 1997 $69,199
2 1995 - 1997 78,344
3 1994 - 1997 92,894
4 1993 - 1997 95,467
5 1992 - 1997
105,060
6 1991 - 1997
121,600
7 1990 - 1997
139,878
8 1989 - 1997
145,650
9 1988 - 1997
179,471
10 1987 - 1997
175,330
11 1986 - 1997
210,593
12 1985 - 1997
264,439
13 1984 - 1997
344,935
14 1983 - 1997
343,762
15 1982 - 1997
536,330
16 1981 - 1997
516,604
17 1980 - 1997
595,306
18 1979 - 1997
697,857
19 1978 - 1997
769,045
20 1977 - 1997
847,981
21 1976 - 1997
902,945
22 1975#- 1997
1,146,270
</TABLE>
# From July 26, 1975
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM
<TABLE>
<CAPTION>
. . . and had taken
all dividends and
capital gain
distributions
in shares, your
If you had investment would
invested $50,000 have been worth
in BENDI this many this much at
years ago . . . 7/31/97
| |
Number
Periods
of Years Value
8/1 - 7/31
<S> <C> <C>
1 1996 - 1997 $55,413
2 1995 - 1997 58,877
3 1994 - 1997 63,572
4 1993 - 1997
62,654
5 1992 - 1997 70,011
6 1991 - 1997
83,093
7 1990 - 1997
92,049
8 1989 - 1997
98,359
9 1988 - 1997
111,818
10 1987 - 1997
121,453
11 1986 - 1997
126,814
12 1985 - 1997
153,398
13 1984 - 1997
185,059
14 1983 - 1997
199,782
15 1982 - 1997
247,638
16 1981 - 1997
293,217
17 1980 - 1997
279,795
18 1979 - 1997
290,179
19 1978 - 1997
310,440
20 1977 - 1997
312,715
21 1976 - 1997
351,971
22 1975#- 1997
395,088
</TABLE>
# From July 26, 1975
Illustration of a $50,000 investment in ENDI with
dividends reinvested and capital gain distributions taken in shares
(for the period July 26, 1975 through July 31, 1997)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
From
Year Total From Capital From
Ended Annual Dividends Investment Initial Gains Dividends Total
July 31 Dividends (cumulative) Cost Investment Reinvested Reinvested Value
<S> <C> <C> <C> <C> <C> <C> <C>
1975# $0 $0 $50,000 $49,769 $0 $0 $49,770
1976 2,408 2,408 52,408 60,781 0 2,695 63,476
1977 2,454 4,862 54,862 62,331 0 5,259 67,590
1978 2,899 7,761 57,761 65,910 0 8,615 74,525
1979 3,511 11,272 61,272 69,263 0 12,868 82,131
1980 4,322 15,594 65,594 77,021 0 19,256 96,277
1981 6,326 21,920 71,920 79,847 4,739 26,356 110,942
1982 7,869 29,789 79,789 64,678 13,443 28,739 106,860
1983 6,722 36,511 86,511 96,477 20,052 50,197 166,726
1984 7,502 44,013 94,013 83,847 31,536 50,774 166,157
1985 9,036 53,049 103,049 95,601 53,303 67,832 216,736
1986 10,623 63,672 113,672 104,971 81,000 86,184 272,155
1987 12,851 76,523 126,523 104,222 123,158 99,505 326,885
1988 15,733 92,256 142,256 88,382 130,787 100,178 319,347
1989 17,918 110,174 160,174 96,368 167,745 129,388 393,501
1990 22,799 132,973 182,973 89,440 178,016 142,283 409,739
1991 21,836 154,809 204,809 94,623 202,831 173,872 471,326
1992 20,318 175,127 225,127 96,580 249,826 199,127 545,533
1993 21,415 196,542 246,542 97,479 279,694 223,176 600,349
1994 22,417 218,959 268,959 90,868 296,050 230,062 616,980
1995 22,961 241,920 291,920 95,522 369,066 266,973 731,561
1996 25,984 267,904 317,904 98,431 428,636 301,171 828,238
1997 25,982 293,886 343,886 119,852 629,560 396,858 1,146,270
</TABLE>
# From July 26, 1975
The dollar amount of capital gain distributions during the period was $473,360.
Illustration of a $50,000 investment in BENDI with
dividends reinvested and capital gain distributions taken in shares
(for the period July 26, 1975 through July 31, 1997)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
From
Year Total From Capital From
Ended Annual Dividends Investment Initial Gains Dividends Total
July 31 Dividends (cumulative) Cost Investment Reinvested Reinvested Value
<S> <C> <C> <C> <C> <C> <C> <C>
1975# $0 $0 $50,000 $50,065 $0 $0 $50,064
1976 3,466 3,466 53,466 52,455 0 3,668 56,123
1977 4,395 7,861 57,861 54,854 0 8,315 63,169
1978 4,798 12,659 62,659 51,161 0 12,472 63,633
1979 5,595 18,254 68,254 50,165 0 17,913 68,078
1980 7,331 25,585 75,585 46,568 0 24,036 70,604
1981 7,990 33,575 83,575 39,235 0 28,137 67,372
1982 9,678 43,253 93,253 40,739 0 39,032 79,771
1983 10,518 53,771 103,771 45,384 0 53,497 98,881
1984 11,193 64,964 114,964 43,796 0 62,950 106,746
1985 12,231 77,195 127,195 47,570 0 81,205 128,775
1986 13,557 90,752 140,752 52,296 0 103,480 155,776
1987 13,829 104,581 154,581 50,040 0 112,609 162,649
1988 13,553 118,134 168,134 48,557 5,210 122,900 176,667
1989 15,800 133,934 183,934 50,630 5,433 144,778 200,841
1990 17,213 151,147 201,147 49,693 5,332 159,584 214,609
1991 19,146 170,293 220,293 50,432 5,411 181,896 237,739
1992 20,570 190,863 240,863 55,202 5,923 221,039 282,164
1993 22,376 213,239 263,239 55,827 12,805 246,660 315,292
1994 22,971 236,210 286,210 47,876 29,925 232,942 310,743
1995 23,564 259,774 309,774 47,762 31,232 256,528 335,522
1996 25,003 284,777 334,777 47,223 30,879 278,391 356,493
1997 26,094 310,871 360,871 48,756 31,882 314,450 395,088
</TABLE>
# From July 26, 1975
The dollar amount of capital gain distributions during the period was $33,339.
EXPERIENCE OF INVESTMENT ADVISER - Capital Research and Management Company
manages nine common stock funds that are at least 10 years old. In the rolling
10-year periods since January 1, 1967 (127 in all), those funds have had better
total returns than the Standard & Poor's 500 Composite Stock Index in 91 of the
127 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
<TABLE>
<S> <C> <C> <C>
ENDOWMENTS, INC.
INVESTMENT PORTFOLIO, JULY 31, 1997
Percent
of Net
INDUSTRY DIVERSIFICATION Assets
- --------------------------------------------------- -----
EQUITY-TYPE SECURITIES
Utilities: Electric & Gas 8.40%
Energy Sources 8.12
Health & Personal Care 7.01
Insurance 6.92
Business & Public Services 6.50
Chemicals 6.07
Banking 6.02
Forest Products & Paper 4.61
Food & Household Products 4.42
Metals: Nonferrous 4.08
Broadcasting & Publishing 2.74
Telecommunications 2.62
Merchandising 2.45
Financial Services 1.82
Electrical & Electronics 1.57
Real Estate 1.44
Transportation: Rail & Road 1.29
Beverages & Tobacco 1.23
Machinery & Engineering 1.17
Automobiles .69
-----
79.17
Equity-type securities in initial period of acquisition 4.09
Short-Term Securities 16.18
Excess of cash and receivables over payables .56
-----
Net Assets 100.00%
=====
Percent
of Net
TEN LARGEST HOLDINGS Assets
- --------------------------------------------------- ---------
Aluminum Co. of America 4.08%
Atlantic Richfield 4.08
General Mills 3.33
Duke Energy 2.97
American Home Products 2.59
RPM 2.56
J.C. Penney 2.45
Trenwick 2.41
H.F. Ahmanson 2.23
Glaxo Wellcome 2.23
-----
28.93%
=====
Shares or Percent
EQUITY-TYPE SECURITIES Principal Market Of Net
Common and preferred stocks and convertible debentures Amount Value Assets
- --------------------------------------------------- --------- --------- ---------
ENERGY
Energy Sources-8.12%
Amoco Corp. 5000 $ 470,000 0.98%
Atlantic Richfield Co. 26000 1945125 4.08
Texaco Inc. 4000 464250 .97
Ultramar Diamond Shamrock Corp. 30000 997500 2.09
Utilities: Electric & Gas-8.40%
DPL Inc. 25000 615625 1.29
Duke Energy Corp. 28000 1419250 2.97
GPU, Inc. 20000 693750 1.45
Southern Electric PLC (United Kingdom) 60000 439982 .92
Union Electric Co. 10000 385000 .81
Williams Companies, Inc. 10000 457500 .96
--------- ---------
7887982 16.52
--------- ---------
MATERIALS
Chemicals-6.07%
Dow Chemical Co. 8000 760000 1.59
RPM, Inc. 60000 1222500 2.56
Witco Corp. 20000 912500 1.92
Forest Products & Paper-4.61%
Georgia-Pacific Corp. 5000 472188 .99
International Paper Co. 6000 336000 .70
Louisiana-Pacific Corp. 30000 688125 1.44
Union Camp Corp. 12000 702750 1.48
Metals: Nonferrous-4.08%
Aluminum Co. of America 22000 1947000 4.08
--------- ---------
7041063 14.76
--------- ---------
CAPITAL EQUIPMENT
Electrical & Electronics-1.57%
Nokia Corp., Class A (American Depositary
Receipts) (Finland) 4000 342500 .72
Telefonaktiebolaget LM Ericsson, Class B
(American Depositary Receipts) (Sweden) 9000 407250 .85
Machinery & Engineering-1.17%
Caterpillar Inc. 10000 560000 1.17
--------- ---------
1309750 2.74
--------- ---------
CONSUMER GOODS
Automobiles-0.69%
Ford Motor Co. 8000 327000 .69
Beverages & Tobacco-1.23%
Philip Morris Companies Inc. 13000 586625 1.23
Food & Household Products-4.42%
General Mills, Inc. 23000 1589875 3.33
McCormick & Co. 20000 520000 1.09
Health & Personal Care-7.01%
American Home Products Corp. 15000 1236563 2.59
Avon Products, Inc. 3900 282994 .59
Glaxo Wellcome PLC (American Depositary
Receipts) (United Kingdom) 25000 1062500 2.23
Schering-Plough Corp. 14000 763874 1.60
--------- ---------
6369431 13.35
--------- ---------
SERVICES
Broadcasting & Publishing-2.74%
Gannett Co., Inc. 4000 397250 .83
Houston Industries Inc., 7.00% Automatic Common
Exchange Securities 7/1/00 (1) (2) 17000 911625 1.91
Business & Public Services-6.50%
Alexander & Baldwin, Inc. 30000 810000 1.70
Browning-Ferris Industries, Inc. 13000 481000 1.01
Cognizant Corp. 8000 341000 .71
CUC International Inc., 3.00% convertible
debentures 2/15/02 (3) $800,000 824000 1.73
Electronic Data Systems Corp. 10000 432500 .91
Waste Management, Inc.(formerly WMX
Technologies, Inc.) 6596 211072 .44
Merchandising-2.45%
J.C. Penney Co., Inc. 20000 1170000 2.45
Telecommunications-2.62%
Ameritech Corp. 12000 809250 1.70
AT&T Corp. 12000 441750 .92
Transportation: Rail & Road-1.29%
CSX Corp. 10000 617500 1.29
--------- ---------
7446947 15.60
--------- ---------
FINANCE
Banking-6.02%
H.F. Ahmanson & Co. 20000 1063750 2.23
Bank of Tokyo-Mitsubishi, Ltd. (American
Depositary Receipts) (Japan) 25000 473438 .99
CoreStates Financial Corp. 10000 616875 1.29
Huntington Bancshares Inc. 25190 717915 1.51
Financial Services-1.82%
Beneficial Corp. 12000 870000 1.82
Insurance-6.92%
Arthur J. Gallagher & Co. 15000 543750 1.14
General Re Corp. 3000 626625 1.31
Liberty Corp. 10000 447500 .94
Royal & Sun Alliance Insurance Group PLC
(United Kingdom) 65000 535295 1.12
Trenwick Group Inc. 30000 1147500 2.41
Real Estate-1.44%
Security Capital Pacific Trust 30000 686249 1.44
--------- ---------
7728897 16.20
--------- ---------
MISCELLANEOUS
Other equity-type securities in initial period of acquisition 1953241 4.09
--------- ---------
TOTAL EQUITY-TYPE SECURITIES (cost: $29,322,142) 39737311 83.26
--------- ---------
Principal
Amount
SHORT-TERM SECURITIES (000)
Corporate Short-Term Notes-14.29%
Associates Corp. of North America 5.85%
due 8/1/97 $890 889855 1.86
Bell Atlantic Financial Services, Inc. 5.47%
due 8/11/97 1,000 998329 2.09
E.I. du Pont de Nemours and Co. 5.45% due 9/4/97 1,300 1293112 2.71
Lucent Technologies Inc. 5.47%-5.50%
due 8/4-9/11/97 1,000 997947 2.09
Pitney Bowes Credit Corp. 5.51% due 8/15/97 1,200 1197245 2.51
United Parcel Service of America, Inc.5.49%
due 9/23/97 700 694236 1.46
Weyerhaeuser Co. 5.53% due 8/7/97 750 749192 1.57
--------- ---------
6819916 14.29
--------- ---------
Federal Agency Discount Notes-1.89%
Federal National Mortgage Assn. 5.45% due 8/26/97 905 901,454 1.89
--------- ---------
TOTAL SHORT-TERM SECURITIES (cost: $7,721,354) 7721370 16.18
--------- ---------
TOTAL INVESTMENT SECURITIES (cost: $37,043,496) 47458681 99.44
Excess of cash and receivables over payables 268808 .56
--------- ---------
NET ASSETS $47,727,489 100.00%
========= =========
(1)Non-income-producing security.
(2) Security is convertible into Time Warner shares.
(3)Purchased in a private placement transaction;
resale to the public may require registration
or sale only to qualified institutional buyers.
See Notes to Financial Statements
Equity-type securities added to the portfolio
since January 31, 1997
- --------------------------------------
Avon Products
Bank of Tokyo-Mitsubishi
CSX
CUC International
Electronic Data Systems
Arthur J. Gallagher
Glaxo Wellcome
Houston Industries
Royal & Sun Alliance Insurance
Southern Electric
Texaco
Ultramar Diamond Shamrock
Williams Companies
Witco
Equity-type securities eliminated from the portfolio
since January 31, 1997
- --------------------------------------
ACNielsen
American Greetings
Anheuser-Busch
Central Fidelity Banks
Crompton & Knowles
Exxon
International Business Machines
Jefferson BankShares
Merck & Co.
Parker Hannifin
PepsiCo
PG&E
Tambrands
U.S. Bancorp
USLIFE
Volvo
Warner-Lambert
</TABLE>
<TABLE>
<S> <C> <C>
Endowments, Inc.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
at July 31, 1997
Assets:
Investment securities at market
(cost: $37,043,496) $47,458,681
Cash 54,940
Receivables for-
Sales of Investments $191,019
Dividends and accrued interest $68,014 259,033
------------ ------------
47,772,654
Liabilities:
Payables for -
Management services 21,838
Accrued expenses 23,327 45,165
------------ ------------
Net Assets at July 31, 1997 -
Equivalent to $22.66 per share on
2,106,069 shares of $1 par value
capital stock outstanding (authorized
capital stock--6,000,000 shares) $47,727,489
=============
Statement of Operations
for the year ended July 31, 1997
Investment Income:
Income:
Dividends $ 1,257,590
Interest 652,824 $1,910,414
------------
Expenses:
Management services fee 276,008
Custodian fee 2,768
Registration statement and prospectus 14,819
Reports to shareholders 10,753
Auditing fees 46,844
Legal fees 4,810
Taxes other than federal income tax 30,070
Other expenses 20,038 406,110
Net investment income 1,504,304
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 14,485,532
Net increase in unrealized
appreciation on investments:
Beginning of year 8,633,233
End of year 10,415,185
------------
Net unrealized appreciation on investments 1,781,952
Net realized gain and unrealized
appreciation on investments 16,267,484
Net Increase in Net Assets Resulting
from Operations $ 17,771,788
See Notes to Financial Statements
Statement of Changes in Net Assets
Year ended Year ended
7/31/97 7/31/96
Operations:
Net investment income $ 1,504,304 $ 1,871,962
Net realized gain on investments 14,485,532 6,351,802
Net unrealized appreciation (depreciation)
on investments 1,781,952 (726,814)
------------ ------------
Net increase in net assets resulting
from operations 17,771,788 7,496,950
------------- -------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (1,543,830) (1,975,816)
Distributions from net realized
gain on investments (6,480,136) (3,710,692)
------------- -------------
Total dividends and distributions (8,023,966) (5,686,508)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
198,622 and 279,532
shares, respectively 3,944,263 5,201,405
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
396,508 and 283,073 shares,
respectively 7,514,541 5,156,184
Cost of shares repurchased:
1,675,374 and 518,349
shares, respectively (32,784,034) (9,598,279)
------------- -------------
Net increase (decrease) in net assets
resulting from capital share transactions (21,325,230) 759,310
------------- -------------
Total Increase (Decrease) in Net Assets (11,577,408) 2,569,752
Net Assets:
Beginning of year 59,304,897 56,735,145
------------- -------------
End of year (including undistributed
net investment income: $118,014 and
$157,540, respectively) $47,727,489 $ 59,304,897
============= =============
See Notes to Financial Statements
</TABLE>
ENDOWMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Endowments, Inc. (the "fund") is registered under the Investment Company Act
of 1940 as an open-end, diversified management investment company. The fund
seeks to provide long-term growth of principal with income and preservation of
capital as secondary objectives, primarily through investments in common
stocks. The following paragraphs summarize the significant accounting policies
consistently followed by the fund in the preparation of its financial
statements:
Equity-type securities traded on a national securities exchange (or reported
on the Nasdaq national market) and securities traded in the over-the-counter
market are stated at the last reported sales price on the day of valuation;
other securities, and securities for which no sale was reported on that date,
are stated at the last quoted bid price. Short-term securities with original or
remaining maturities in excess of 60 days are valued at the mean of their
quoted bid and asked prices. Short-term securities with 60 days or less to
maturity are valued at amortized cost, which approximates market value.
Securities for which market quotations are not readily available are valued at
fair value by the Board of Directors or a committee thereof.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Dividend and interest income is reported on the accrual basis. Discounts
and premiums on securities purchased are amortized over the life of the
respective securities. Dividends and distributions paid to shareholders are
recorded on the ex-dividend date.
Shares of the fund may be owned only by organizations exempt from federal
income taxation under Section 501(c)(3) of the Internal Revenue Code. The fund
itself is exempt from federal taxation under Section 501(c)(2) of the Internal
Revenue Code.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $2,768 was paid by these credits rather than in cash.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of July 31, 1997, net unrealized appreciation on investments for book and
federal income tax purposes aggregated $10,415,185, of which $10,440,334
related to appreciated securities and $25,149 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the year ended July 31, 1997. The cost of portfolio
securities for book and federal income tax purposes was $37,043,496 at July 31,
1997.
3. The fee of $276,008 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.50% of the first $150 million of average net assets and
0.40% of such assets in excess of $150 million. The Investment Advisory and
Service Agreement provides for a fee reduction to the extent the fund's annual
ordinary operating expenses exceed 1.50% of the first $30 million of the
average net assets of the fund and 1.00% of the average net assets in excess
thereof. Expenses which are not subject to this limitation are interest,
taxes, and extraordinary expenses. For the year ended of July 31, 1997, no
such fee reduction was required.
In addition, CRMC has voluntarily agreed to waive its management services fees
to the extent necessary to ensure that the fund's annual expenses do not exceed
0.75% of average net assets. For the year ended July 31, 1997, no such fee
reduction was required.
No fees were paid by the fund to its officers and Directors.
4. As of July 31, 1997, accumulated undistributed net realized gain on
investments was $12,780,274 and additional paid-in capital was $22,307,947.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $21,861,248 and $44,658,716, respectively, during the
year ended July 31, 1997.
<TABLE>
<S> <C> <C> <C> <C> <C>
ENDOWMENTS, INC.
PER-SHARE DATA AND RATIOS
Year ended July 31
-------- -------- -------- -------- --------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Net Asset Value, Beginning of Year 18.61 18.06 17.18 18.43 18.26
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income .56 .58 .63 .65 .66
Net realized and unrealized
gain (loss) on investments 6.04 1.73 2.21 (.16) 1.05
-------- -------- -------- -------- --------
Total income from investment operations 6.60 2.31 2.84 .49 1.71
-------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment income (.55) (.61) (.61) (.66) (.69)
Distributions from net realized gains (2.00) (1.15) (1.35) (1.08) (.85)
-------- -------- -------- -------- --------
Total distributions (2.55) (1.76) (1.96) (1.74) (1.54)
-------- -------- -------- -------- --------
Net Asset Value, End of Year 22.66 18.61 18.06 17.18 18.43
======== ======== ======== ======== ========
Total Return 38.40% 13.22% 18.57% 2.77% 10.05%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $48 $59 $57 $53 $72
Ratio of expenses to average net assets .74% .72% .73% .73% .64%
Ratio of net income to average net assets 2.73% 3.12% 3.70% 3.78% 3.72%
Average commissions paid per share(1) 5.00c 5.87c 5.94c 6.27c 7.03c
Portfolio turnover rate 50.69% 38.73% 24.04% 25.58% 29.70%
(1)Brokerage commissions paid on portfolio transactions
increase the cost of securities purchased or reduce the
proceeds of securities sold, and are not separately
reflected in the fund's statement of operations.
Shares traded on a principal basis (without commissions),
such as most over-the-counter and fixed-income
transactions, are excluded.
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Endowments, Inc.:
We have audited the accompanying statement of assets and liabilities of
Endowments, Inc. (the "fund"), including the schedule of portfolio investments,
as of July 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the per-share data and ratios for each of the five years
in the period then ended. These financial statements and per-share data and
ratios are the responsibility of the fund's management. Our responsibility is
to express an opinion on these financial statements and per-share data and
ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at July 31, 1997 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of Endowments, Inc. as of
July 31, 1997, 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 per-share data and ratios for each of the five years in the period then
ended, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
August 29, 1997
<TABLE>
<S> <C> <C> <C>
BOND PORTFOLIO FOR ENDOWMENTS, INC.
INVESTMENT PORTFOLIO, JULY 31, 1997
Principal Percent
Amount Market of Net
BONDS & NOTES (000) Value Assets
Industrials - 14.20%
Comcast Corp. 8.375% due 5/01/07 (1) $ 250 $ 275,783 0.84%
Hutchison Whampoa Finance Ltd. 6.988% due 8/1/37 (1) 200 203040 .61
Hyundai Semiconductor America, Inc.
8.625% due 5/15/07 (1) 500 527000 1.60
Inco Ltd.:
9.875% due 6/15/19 300 325062 3.40
9.60% due 6/15/22 700 799365
Millennium America Inc. 7.00% due 11/15/06 250 251440 .76
News America Holdings Inc. 7.43% due 10/1/26 500 524520 1.59
Petrozuata Finance Inc., Series A, 7.63% due 4/1/09 (1) 250 260800 .79
Tele-Communications, Inc. 9.80% due 2/1/12 250 301268 .91
Time Warner Inc.:
Pass-Through Asset Trust, Series 1997-1 ,
6.10% due 12/30/01 (1)(2) 250 244183 2.92
0% convertible debentures due 6/22/13 1500 721875
Wharf International Finance Ltd., Series A,
7.625% due 3/13/07 (1) 250 257236 .78
--------- ------
4691572 14.20
--------- ------
Electric Utilities - 3.21%
Big Rivers Electric Corp. 10.70% due 9/15/17 1000 1059910 3.21
--------- ------
Telephone - 4.95%
U S West Capital Funding, Inc. 6.95% due 1/15/37 500 516085 4.95
U S West, Inc. 0% convertible
debentures due 6/25/11 3000 1117500
--------- ------
1,633,585 4.95
--------- ------
Transportation (2) - 9.26%
Airplanes Pass Through Trust, Class C, 8.15% due 3/15/19 1000 1058000 3.20
Jet Equipment Trust:
Series 1994-A, 11.79% due 6/15/13 (1) 750 991575 4.54
Series 1995-B, Class A, 7.63% due 2/15/15 (1) 480 506971
USAir, Inc., Series 1996-B, 7.50% due 4/15/08 481 501622 1.52
--------- ------
3058168 9.26
--------- ------
Financial - 5.67%
American Re Corp. 10.875% due 9/15/04 1000 1052060 3.18
Capital One Bank 8.125% due 3/1/00 250 260733 .79
Terra Nova (Bermuda) Holdings Ltd. 10.75% due 7/1/05 500 560900 1.70
--------- ------
1873693 5.67
--------- ------
Real Estate - 1.51%
Irvine Co. 7.46% due 3/15/06 (1)(3) 500 498100 1.51
--------- ------
Collateralized Mortgage/Asset-Backed
Obligations (2) - 2.95%
Merrill Lynch Mortgage Investors, Inc., Series 1995-A,
7.383% due 6/15/21 (4) 369 376367 1.14
Prudential Home Mortgage Securities Co., Inc.,
Series 1992-2033, Class A-12, 7.50% due 11/25/22 213 212705 .64
Structured Asset Securities Corp., Series 1996-CFL,
Class A2A, 7.75% due 2/25/28 381 386028 1.17
--------- ------
975100 2.95
--------- ------
Floating Rate Eurodollar Notes (Undated) (4) - 5.42%
Bank of Nova Scotia 5.75% 1000 896300 2.71
Canadian Imperial Bank of Commerce 5.688% 1000 893750 2.71
--------- ------
1790050 5.42
--------- ------
Governments (excluding U.S. Government) &
Governmental Authorities - 3.56%
Quebec (Province of) 13.25% due 9/15/14 1000 1177640 3.56
--------- ------
Federal Agency Obligations - Mortgage
Pass-Throughs (2) - 13.27%
Federal Home Loan Mortgage Corp.:
8.75% due 7/1/08 118 122705
12.50% due 12/1/12 52 60747 .95
9.00% due 3/1/20 124 133214
Federal National Mortgage Assn.:
9.00% due 11/1/20 240 255397 2.20
6.03% due 3/1/33 (4) 474 471134
Government National Mortgage Assn.:
8.50% due 12/15/08 347 367368
10.00% due 12/15/19 402 445302
7.50% due 1/15/24 584 597550 10.12
7.00% due 2/20/24 (4) 749 764818
7.375% due 6/20/24 (4) 749 769465
8.50% due 10/15/25 378 394775
--------- ------
4382475 13.27
--------- ------
U.S. Treasury Obligations - 22.48%
9.25% due 8/15/98 1000 1036091
7.25% due 5/15/04 500 535470
11.625% due 11/15/04 500 663595 22.48
10.375% due 11/15/12 2000 2627820
8.875% due 8/15/17 2000 2564380
--------- ------
7,427,356 22.48
--------- ------
TOTAL BONDS & NOTES (cost: $27,966,316) 28567649 86.48
--------- ------
Number
STOCKS of Shares
Preferred Stocks - 0.83%
Swire Pacific Ltd. 8.84% cumulative guaranteed perpetual 10000 274200 .83
capital (1) --------- ------
TOTAL STOCKS (COST $250,000) 274200 .83
--------- ------
SHORT-TERM SECURITIES
Corporate Short-Term Notes - 11.58%
Associates Corp. of North America 5.85% due 8/1/97 980 979841 2.97
Atlantic Richfield Co. 5.50% due 8/6/97 1150 1148946 3.48
Pfizer Inc 5.45% due 9/11/97 (1) 1200 1192370 3.61
Xerox Corp. 5.48% due 10/17/97 510 503933 1.52
--------- ------
TOTAL SHORT-TERM SECURITIES (cost: $3,825,101) 3825090 11.58
--------- ------
TOTAL INVESTMENT SECURITIES (cost: $32,041,417) 32666939 98.89
Excess of cash and receivables over payables 365756 1.11
--------- ------
NET ASSETS $33,032,695 100.00%
========= =======
(1) Purchased in a private placement transaction; resale
to the public may require registration or sale only to
qualified institutional buyers.
(2) Pass-through securities backed by a pool of
mortgages or other loans on which principal
payments are periodically made. Therefore, the
effective maturity of these securities is shorter than
the stated maturity.
(3) Valued under procedures established
by the Board of Directors.
(4) Coupon rate changes periodically.
See Notes to Financial Statements
</TABLE>
<TABLE>
<S> <C> <C>
Bond Portfolio for Endowments, Inc.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
at July 31, 1997
Assets:
Investment securities at market
(cost: $32,041,417) $32,666,939
Cash 50,708
Receivables for-
Sales of investments $ 1,697
Accrued interest 546,152 547,849
----------- -----------
33,265,496
Liabilities:
Payables for-
Purchases of investments 200,000
Management services 10,540
Accrued expenses 22,261 232,801
----------- -----------
Net Assets at July 31, 1997-
Equivalent to $17.17 per share on
1,924,044 shares of $1 par value
capital stock outstanding (authorized
capital stock - 5,000,000 shares) $33,032,695
===========
Statement of Operations
for the year ended July 31, 1997
Investment Income:
Interest income $ 2,775,511
Expenses:
Management services fee $ 177,223
Custodian fee 2,022
Registration statement and prospectus 15,568
Reports to shareholders 10,753
Auditing fees 46,844
Legal fees 4,810
Taxes other than federal income tax 25,071
Other expenses 20,124
-----------
Total expenses before fee waiver 302,415
Fee waiver 35,051 267,364
----------- -----------
Net investment income 2,508,147
-----------
Realized Loss and Unrealized
Appreciation on Investments:
Net realized loss (216,967)
Net change in unrealized appreciation
(depreciation) on investments:
Beginning of year (731,418)
End of year 625,522
-----------
Net unrealized appreciation on
investments 1,356,940
-----------
Net realized loss and unrealized
appreciation on investments 1,139,973
-----------
Net Increase in Net Assets Resulting
from Operations $ 3,648,120
===========
Statement of Changes in Net Assets
Year ended July 31
1997 1996
Operations:
Net investment income $ 2,508,147 $ 3,075,042
Net realized gain (loss) on investments (216,967) 123,217
Net unrealized appreciation (depreciation) on
investments 1,356,940 (526,188)
----------- -----------
Net increase in net assets resulting
from operations 3,648,120 2,672,071
----------- -----------
Dividends Paid to Shareholders:
Dividends from net investment income (2,533,400) (3,085,285)
----------- -----------
Capital Share Transactions:
Proceeds from shares sold:
187,635 and 168,909
shares, respectively 3,152,584 2,838,556
Proceeds from shares issued in
reinvestment of net investment income
dividends: 65,746 and 94,993 shares,
respectively 1,089,420 1,596,233
Cost of shares repurchased:
822,286 and 377,703
shares, respectively (13,772,096) (6,407,611)
----------- -----------
Net decrease in net assets resulting
from capital share transactions (9,530,092) (1,972,822)
----------- -----------
Total Decrease in Net Assets (8,415,372) (2,386,036)
Net Assets:
Beginning of year 41,448,067 43,834,103
----------- -----------
End of year (including undistributed
net investment income: $274,340 and
$299,593, respectively) $33,032,695 $41,448,067
=========== ===========
See Notes to Financial Statements
</TABLE>
Bond Portfolio for Endowments, Inc.
Notes to Financial Statements
1. Bond Portfolio for Endowments, Inc. (the "fund") is registered under the
Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks to provide as high a level of current income
as is consistent with the preservation of capital. The following paragraphs
summarize the significant accounting policies consistently followed by the fund
in the preparation of its financial statements:
Bonds and notes are valued at prices obtained from a bond-pricing service
provided by a major dealer in bonds, 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 of their representative quoted bid
and asked prices or, if such prices are not available, at prices for securities
of comparable maturity, quality, and type. Short-term securities with original
or remaining maturities in excess of 60 days are valued at the mean of their
quoted bid and asked prices. Short-term securities with 60 days or less to
maturity are valued at amortized cost, which approximates market value.
Securities for which market quotations are not readily available are valued at
fair value by the Board of Directors or a committee thereof.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Interest income is reported on the accrual basis. Discounts on
securities purchased are amortized over the life of the respective securities.
The fund does not amortize premiums on securities purchased. Dividends and
distributions paid to shareholders are recorded on the ex-dividend date.
Shares of the fund may be owned only by organizations exempt from federal
income taxation under Section 501(c)(3) of the Internal Revenue Code. The fund
itself is exempt from federal taxation under Section 501(c)(2) of the Internal
Revenue Code.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $2,022 was paid by these credits rather than in cash.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net investment income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of July 31, 1997, net unrealized appreciation on investments for book and
federal income tax purposes aggregated $625,522, of which $994,372 related to
appreciated securities and $368,850 related to depreciated securities. There
was no difference between book and tax realized gains on securities
transactions for the year ended July 31, 1997. The fund has available at July
31, 1997 a net capital loss carryforward totaling $543,455, which may be used
to offset capital gains realized during subsequent years through July 31, 2004.
It is the intention of the fund not to make distributions from capital gains
until the capital loss carryforward is utilized. The cost of portfolio
securities for book and federal income tax purposes was $32,041,417 at July 31,
1997.
3. The fee of $177,223 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Directors of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.50% of the first $150 million of average net assets and
0.40% of such assets in excess of $150 million. The Investment Advisory and
Service Agreement provides for a fee reduction to the extent the fund's annual
ordinary operating expenses exceed 1.50% of the first $30 million of the
average net assets of the fund and 1.00% of the average net assets in excess
thereof. Expenses which are not subject to this limitation are interest,
taxes, and extraordinary expenses. For the year ended July 31, 1997, no such
fee reduction was required.
In addition, CRMC has voluntarily agreed to waive its management services fees
to the extent necessary to ensure that the fund's expenses do not exceed 0.75%
of average net assets. For the year ended July 31, 1997, fee reductions were
$35,051.
No fees were paid by the fund to its officers and Directors.
4. As of July 31, 1997, accumulated net realized loss on investments was
$543,455 and additional paid-in capital was $30,752,244.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $6,975,429 and $18,694,604, respectively, during the
year ended July 31, 1997.
<TABLE>
<S> <C> <C> <C> <C> <C>
BOND PORTFOLIO FOR ENDOWMENTS, INC.
PER-SHARE DATA AND RATIOS
Year ended July 31
---------- ---------- ------------------------------
1997 1996 1995 1994 1993
---------- ---------- ------------------------------
Net Asset Value, Beginning of Year 16.63 16.82 16.86 19.66 19.44
---------- ---------- ------------------------------
Income from Investment Operations
Net investment income 1.21 1.22 1.26 1.32 1.49
Net realized and unrealized
gain (loss) on investments .52 (.19) .01 (1.51) .64
---------- ---------- ------------------------------
Total income (loss) from investment operations 1.73 1.03 1.27 (.19) 2.13
---------- ---------- ------------------------------
Less Distributions:
Dividends from net investment income (1.19) (1.22) (1.24) (1.35) (1.48)
Distributions from net realized gains - - (.07) (1.26) (.43)
---------- ---------- ------------------------------
Total distributions (1.19) (1.22) (1.31) (2.61) (1.91)
---------- ---------- ------------------------------
Net Asset Value, End of Year 17.17 16.63 16.82 16.86 19.66
======= ======= ======= ======= =======
Total Return 10.83% 6.25% 7.97% (1.44)% 11.74%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $33 $41 $44 $46 $67
Ratio of expenses to average net assets .75% /1/ .75% /1/ .76% .77% .65%
Ratio of net income to average net assets 7.04% 7.17% 7.52% 6.99% 7.69%
Portfolio turnover rate 22.18% 54.43% 69.22% 82.12% 35.97%
/1/ Had Capital Research and Management Company not waived fees,
the fund's ratios of expenses to average net assets would have
been 0.85% and 0.80%, respectively, for the periods shown.
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Bond Portfolio for Endowments, Inc.:
We have audited the accompanying statement of assets and liabilities of Bond
Portfolio for Endowments, Inc. (the "fund"), including the schedule of
portfolio investments, as of July 31, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the per-share data and
ratios for each of the five years in the period then ended. These financial
statements and per-share data and ratios are the responsibility of the fund's
management. Our responsibility is to express an opinion on these financial
statements and per-share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per-share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1997 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other procedures. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of Bond Portfolio for Endowments, Inc. as of July 31, 1997, 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 per-share
data and ratios for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
August 29, 1997
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Included in Prospectus - Part A
Financial Highlights
Included in Statement of Additional Information - Part B
Investment Portfolio
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Selected Per-Share Data and Ratios
Independent Auditors' Report
(b) Exhibits.
1. On file (see SEC file nos. 811-2210 and 2-41200)
2. On file (see SEC file nos. 811-2210 and 2-41200)
3. None
4. On file (see SEC file nos. 811-2210 and 2-41200)
5. On file (see SEC file nos. 811-2210 and 2-41200)
6. None
7. None
8. On file (see SEC file nos. 811-2210 and 2-41200)
9. On file (see SEC file nos. 811-2210 and 2-41200)
10. Not applicable to this filing
11. Consent of Independent Auditors
12. None
13. None
14. None
15. None
16. On file (see SEC file nos. 811-2210 and 2-41200)
17. Financial Data Schedule (EDGAR)
Item 25. Persons Controlled by or under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As of June 30, 1997
<TABLE>
<CAPTION>
Title of Class Number of Record-Holders
<S> <C>
Common Stock 55
($1.00 Par Value)
</TABLE>
Item 27. Indemnification.
Registrant is a joint-insured under Investment Adviser/Mutual Fund Errors and
Omissions Policies written by American International Surplus Lines Insurance
Company, Chubb Custom Insurance Company, and ICI Mutual Insurance Company which
insures its officers and directors against certain liabilities.
The following are certain provisions of the Delaware Corporation Law
applicable to the Registrant:
Subsection (a) of Section 145 of the Delaware Corporation Law empowers a
corporation to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation or enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that a court of equity or the court in which such
action or suit was brought shall determine that despite the adjudication of
liability such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of
any action, suit or proceeding referred to in subsections (a) and (b) or in the
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification provided for by Section 145 shall
not be deemed exclusive of any other rights to which the indemnified party may
be entitled; that the scope of indemnification extends to directors, officers,
employees or agents of a constituent corporation absorbed in a consolidation or
merger and persons serving in that capacity at the request of the constituent
corporation for another; and empowers the corporation to purchase and maintain
insurance on behalf of a director or officer of the corporation against any
liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not the corporation would have the
power to indemnify him against such liabilities under Section 145.
The By-Laws of the Corporation state:
Section 11.01. The corporation shall indemnify its directors and officers and
may indemnify its employees and agents to the full extent permitted by the law
of the State of Delaware; provided, however, that the corporation shall not
indemnify any of its directors or officers against any liability to the
corporation or to its stockholders to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office
as described in Section 17(h) of the Investment Company Act of 1940 ("disabling
conduct"). The corporation shall indemnify any of its directors or officers
against any liability to the corporation or to its stockholders if:
(1) a court or other body before whom a proceeding relating to liability was
brought renders a final decision on the merits finding such director or officer
not liable by reason of disabling conduct or
(2) in the absence of such a decision either:
(a) a majority of a quorum of directors, who are neither interested
persons of the corporation as defined in Section 2(a)(19) of the Investment
Company Act of 1940 nor parties to the proceeding, or
(b) independent legal counsel in a written opinion makes a reasonable
determination, based on a review of the facts, that such director or officer is
not liable by reason of disabling conduct.
The corporation may advance funds to cover expenses, including attorneys' fees,
incurred by any director or officer in connection with the defense of any such
proceeding, provided that such director or officer undertakes to repay any
advance, unless a determination is made pursuant to the foregoing procedures
set forth herein that such indemnification is proper. As a condition to such
an advance (i) the director or officer shall provide security for his
undertaking; (ii) the corporation shall be insured against losses arising by
reason of any lawful advance; or (iii) a majority of a quorum of the directors,
who are neither "interested persons" of the corporation as defined in Section
2(a)(19) of the Investment Company Act of 1940 nor parties to the proceeding,
or independent legal counsel in a written opinion, shall determine, based on
review of readily available facts, that there is reason to believe that such
director or officer will be found entitled to indemnification.
Item 28. Business and Other Connections of Investment Adviser.
None.
Item 29. Principal Underwriters.
(a) Not Applicable.
(b) Not Applicable.
(c) Not Applicable.
Item 30. Location of Accounts and Records.
Accounts, books and other records required by Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940 are maintained and held in the offices of its
investment adviser, Capital Research and Management Company, 333 South Hope
Street, Los Angeles, California 90071, and/or 135 South State College
Boulevard, Brea, California 92821, and/or the offices of the Registrant, One
Market, Steuart Tower (Suite 1800), San Francisco, California 94105.
Registrant's records covering shareholder accounts are maintained and kept by
the fund's transfer agent, American Funds Service Company, 135 South State
College Boulevard, Brea, California 92821, 8332 Woodfield Crossing Boulevard,
Indianapolis, IN 46240, 8000 IH-10, Suite 1400, San Antonio, Texas 78230 and
5300 Robin Hood Road, Norfolk, VA 23513.
Registrant's records covering portfolio transactions are also maintained and
kept by the fund's custodian, The Chase Manhattan Bank, One Chase Manhattan
Plaza, New York, New York 10081.
Item 31. Management Services.
None.
Item 32. Undertakings.
As reflected in the prospectus, the fund undertakes to provide each person to
whom a prospectus is delivered with a copy of the fund's latest annual report
to shareholders, upon request and without charge.
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City and County of San Francisco, and State of California on
the 30th day of September , 1997.
BOND PORTFOLIO FOR ENDOWMENTS, INC.
By /s/ Patrick F. Quan
Patrick F. Quan, Secretary
ATTEST:
/s/ Louise M. Pescetta
Louise M. Pescetta
Pursuant to the requirements of the Securities Act of 1933, this amendment to
its registration statement has been signed below on September 30 , 1997 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title
(1) Principal Executive Officer:
/s/ Frank L. Ellsworth President
(Frank L. Ellsworth)
(2 ) Principal Financial Officer and
Principal Accounting Officer:
/s/ Mary C. Hall Treasurer
(Mary C. Hall)
(3) Directors:
/s/ Robert B. Egelston
Robert B. Egelston Chairman
Steven D. Lavine* Director
Patricia A. McBride* Director
John R. Metcalf* Director
Charles R. Redmond* Director
/s/ Thomas E. Terry
(Thomas E. Terry) Director
Robert C. Ziebarth* Director
</TABLE>
*By /s/ Patrick F. Quan
Patrick F. Quan, Attorney-in-Fact
Counsel reports that the amendment does not contain disclosures that would
make the amendment ineligible for effectiveness under the provisions of Rule
485(b).
/s/ Michele Y. Yang
Michele Y. Yang, Counsel
CONSENT OF INDEPENDENT AUDITORS
Bond Portfolio for Endowments, Inc.
We consent to (a) the use in this Post-Effective Amendment No. 41 to
Registration Statement No. 2-41200 on Form N-1A of our report dated August 29,
1997 appearing in the Financial Statements, which are included in Part B, the
Statement of Additional Information of such Registration Statement, (b) the
reference to us under the heading "General Information" in such Statement of
Additional Information and (c) the reference to us under the heading "Financial
Highlights" in the Prospectus, which is a part of such Registration Statement.
DELOITTE & TOUCHE LLP
September 25, 1997
Los Angeles, California
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-1-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 32,041
<INVESTMENTS-AT-VALUE> 32,667
<RECEIVABLES> 548
<ASSETS-OTHER> 51
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,266
<PAYABLE-FOR-SECURITIES> 200
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33
<TOTAL-LIABILITIES> 233
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,752
<SHARES-COMMON-STOCK> 1,924,044
<SHARES-COMMON-PRIOR> 2,492,949
<ACCUMULATED-NII-CURRENT> 274
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (543)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 626
<NET-ASSETS> 33,033
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,775
<OTHER-INCOME> 0
<EXPENSES-NET> 267
<NET-INVESTMENT-INCOME> 2,508
<REALIZED-GAINS-CURRENT> (217)
<APPREC-INCREASE-CURRENT> 1,357
<NET-CHANGE-FROM-OPS> 3,648
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,533
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 187,635
<NUMBER-OF-SHARES-REDEEMED> 822,286
<SHARES-REINVESTED> 65,746
<NET-CHANGE-IN-ASSETS> (8,415)
<ACCUMULATED-NII-PRIOR> 300
<ACCUMULATED-GAINS-PRIOR> (326)
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 177
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 302
<AVERAGE-NET-ASSETS> 35,649
<PER-SHARE-NAV-BEGIN> 16.63
<PER-SHARE-NII> 1.21
<PER-SHARE-GAIN-APPREC> .52
<PER-SHARE-DIVIDEND> 1.19
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.17
<EXPENSE-RATIO> .007
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
