ENDOWMENTS, INC.SM
AN INVESTMENT FOR TAX-EXEMPT INSTITUTIONS SEEKING LONG-TERM
GROWTH OF PRINCIPAL WITH INCOME AND CAPITAL PRESERVATION
BOND PORTFOLIO FOR
ENDOWMENTS, INC.SM
AN INVESTMENT FOR TAX-EXEMPT INSTITUTIONS
SEEKING AS HIGH A LEVEL OF CURRENT INCOME AS IS CONSISTENT
WITH THE PRESERVATION OF CAPITAL
PROSPECTUS
DECEMBER 1, 1996
- --------------------------------------------------------------------------------
ENDOWMENTS, INC. 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, INC. 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.
You may purchase shares directly from the funds. There is no sales or redemption
charge.
This prospectus presents information shareholders should know before investing
in the funds. It should be retained for future reference.
More detailed information about the funds, including the funds' financial
statements, is contained in the statement of additional information dated
December 1, 1996, which has been filed with the Securities and Exchange
Commission and is available to you without charge, by writing to the Secretary
of the funds at the address below.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED
BY, THE U.S. GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON. THE PURCHASE OF
FUND SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------------
ONE MARKET
STEUART TOWER, SUITE 1800
P.O. BOX 7650, SAN FRANCISCO, CA 94120
TELEPHONE NO. (415) 421-9360
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Expenses................. 2
Financial Highlights................ 3
Investment Objectives and
Policies............................ 4
Risks of Investing in Certain
Securities.......................... 6
Investment Techniques............... 9
Investment Results.................. 10
Dividends, Distributions and
Taxes............................... 11
Fund Organization and Management.... 11
Shareholder Guide................... 14-15
Purchasing Shares............... 14
Shareholder Services............ 14
Redeeming Shares................ 15
</TABLE>
SUMMARY
OF EXPENSES
AVERAGE ANNUAL
EXPENSES PAID OVER A
10-YEAR PERIOD FOR
ENDOWMENTS, INC. AND
BOND PORTFOLIO FOR
ENDOWMENTS, INC.
WOULD
BE APPROXIMATELY $9
EACH, ASSUMING A
$1,000
INVESTMENT AND A 5%
ANNUAL RETURN.
This table is designed to help you understand the costs of investing in the
funds. These are historical expenses; your actual expenses may vary.
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
The funds have no sales charge on purchases or reinvested dividends,
deferred sales charge, redemption fees or exchange fees.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets after fee waiver)
<CAPTION>
BOND PORTFOLIO
ENDOWMENTS, FOR ENDOWMENTS,
INC. INC.
--------- -----------------
<S> <C> <C>
Management fees....................... 0.50%(1) 0.45%(1)
12b-1 expenses........................ none none
Other expenses (including audit,
legal, shareholder services,
transfer agent and
custodian expenses)................. 0.22% 0.30%
Total fund operating expenses......... 0.72%(2) 0.75%(2)
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE
- ----------------------------------------
<S> <C> <C> <C> <C>
You would pay the following cumulative expenses on a $1,000 investment, assuming a 5% annual
return.(3)
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -------------
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Endowments, Inc. $ 7 $ 23 $ 40 $ 89
Bond Portfolio for Endowments, Inc. $ 8 $ 24 $ 42 $ 93
<FN>
(1) Capital Research and Management Company, the funds' investment adviser,
receives a management fee at the annual rates of 1/2 of 1% of the funds'
net assets up to $150,000,000 and 4/10 of 1% of such assets over
$150,000,000.
(2) 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 0.80%.
(3) Use of this assumed 5% return is required by the Securities and Exchange
Commission; it is not an illustration of past or future investment
results. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE
SHOWN.
</TABLE>
3
<PAGE>
FINANCIAL
HIGHLIGHTS The following information for the six years ended July
(FOR A SHARE* 31, 1996 hasbeen audited by Deloitte & Touche LLP,
OUTSTANDING independent accountants, andfor the four years ended
THROUGHOUT July 31, 1990 by KPMG Peat Marwick, independent
THE FISCAL YEAR) accountants. This information should be read in
conjunction with the financial statements and related
notes, which are included in the statement of
additional information.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED JULY 31
----------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
ENDOWMENTS, INC.
Net Asset Value, Beginning of Year.... $18.06 $17.18 $18.43 $18.26 $17.89 $16.91 $18.22 $16.71 $19.70 $19.84
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income............... .58 .63 .65 .66 .78 .78 .89 .98 .82 .86
Net realized and unrealized gain
(loss) on investments.............. 1.73 2.21 (.16) 1.05 1.74 1.60 (.16) 2.52 (1.16) 2.61
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total income from investment
operations....................... 2.31 2.84 .49 1.71 2.52 2.38 .73 3.50 (.34) 3.47
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment
income............................. (.61) (.61) (.66) (.69) (.73) (.87) (1.01) (.89) (.85) (.80)
Distributions from net realized
gains.............................. (1.15) (1.35) (1.08) (.85) (1.42) (.53) (1.03) (1.10) (1.80) (2.81)
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions............... (1.76) (1.96) (1.74) (1.54) (2.15) (1.40) (2.04) (1.99) (2.65) (3.61)
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Year.......... $18.61 $18.06 $17.18 $18.43 $18.26 $17.89 $16.91 $18.22 $16.71 $19.70
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Return.......................... 13.22% 18.57% 2.77% 10.05% 15.74% 15.03% 4.13% 23.22% (2.31)% 20.11%
Ratios/Supplemental Data:
Net assets, end of year (in
millions).......................... $59 $57 $53 $72 $58 $46 $39 $43 $36 $38
Ratio of expenses to average net
assets............................. .72% .73% .73% .64% .70% .69% .68% .69% .63% .61%
Ratio of net income to average net
assets............................. 3.12% 3.70% 3.78% 3.72% 4.37% 4.63% 5.08% 5.76% 4.86% 4.22%
Portfolio turnover rate............. 38.73% 24.04% 25.58% 29.70% 20.35% 34.43% 20.75% 19.70% 33.48% 12.98%
<CAPTION>
YEAR ENDED JULY 31
----------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BOND PORTFOLIO FOR ENDOWMENTS, INC.
Net Asset Value, Beginning of Year.... $16.82 $16.86 $19.66 $19.44 $17.76 $17.50 $17.83 $17.10 $17.62 $18.42
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income............... 1.22 1.26 1.32 1.49 1.47 1.49 1.61 1.60 1.51 1.52
Net realized and unrealized gain
(loss) on investments.............. (.19) .01 (1.51) .64 1.70 .28 (.46) .61 (.09) (.72)
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total income from investment
operations....................... 1.03 1.27 (.19) 2.13 3.17 1.77 1.15 2.21 1.42 .80
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment
income............................. (1.22) (1.24) (1.35) (1.48) (1.49) (1.51) (1.48) (1.48) (1.40) (1.60)
Distributions from net realized
gains.............................. -- (.07) (1.26) (.43) -- -- -- -- (.54) --
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions............... (1.22) (1.31) (2.61) (1.91) (1.49) (1.51) (1.48) (1.48) (1.94) (1.60)
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Year.......... $16.63 $16.82 $16.86 $19.66 $19.44 $17.76 $17.50 $17.83 $17.10 $17.62
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
--------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Return.......................... 6.25% 7.97% (1.44)% 11.74% 18.69% 10.78% 6.86% 13.68% 8.62% 4.41%
Ratios/Supplemental Data:
Net assets, end of year (in
millions).......................... $41 $44 $46 $67 $65 $46 $39 $40 $33 $28
Ratio of expenses to average net
assets............................. .75%(1) .76% .77% .65% .68% .68% .69% .70% .64% .67%
Ratio of net income to average net
assets............................. 7.17% 7.52% 6.99% 7.69% 8.04% 8.76% 9.25% 9.28% 8.69% 8.12%
Portfolio turnover rate............. 54.43 % 69.22 % 82.12 % 35.97 % 63.30 % 54.86 % 42.90 % 64.21 % 128.52% 83.76 %
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
* All per share data reflect the 100-for-1 stock split for Endowments, Inc. and 50-for-1 stock split for Bond Portfolio for
Endowments, Inc. effected on February 16, 1988.
(1) Had CRMC not waived management services fees, the fund's expense ratio would have been .80%.
</TABLE>
3
<PAGE>
INVESTMENT
OBJECTIVES ENDOWMENTS, INC. The fund's primary investment
AND POLICIES objective is long- term growth of principal with income
ENDOWMENTS, INC. and preservation of capital as secondary objectives.
AIMS TO PROVIDE The fund will ordinarily be invested in common stocks
SHAREHOLDERS or securities convertible into common stock. Major
WITH LONG-TERM investment emphasis will be given to stocks of
GROWTH OF companies which appear to have favorable prospects for
PRINCIPAL WITH long-term growth of both capital and income. The fund
INCOME AND will normally be invested in such securities, although
PRESERVATION OF preferred stocks and straight corporate debt securities
CAPITAL AS (rated in the top three quality categories by Moody's
SECONDARY Investors Service, Inc. or Standard & Poor's
OBJECTIVES. Corporation, or not rated but determined to be of
equivalent quality by the fund's investment adviser,
Capital Research and Management Company) may be
purchased to the extent deemed advisable by Capital
Research and Management Company. 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 (measured at the time of purchase) 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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED
GRAPHIC
<TABLE>
<CAPTION>
ENDI S&P 500
<S> <C> <C>
5 YEARS 7.14% 9.47%
10 YEARS 9.46% 14.28%
20 YEARS 11.13% 14.38%
</TABLE>
THESE FIGURES ARE THE STANDARD DEVIATIONS OF TOTAL
RETURN AND MEASURE VOLATILITY. THEY SHOW THE EXTENT TO
WHICH THE RETURNS FOR THE FUND AND THE UNMANAGED
STANDARD & POOR'S 500 COMPOSITE INDEX HAVE VARIED FROM
THE MEAN DURING THREE TIME PERIODS, ALL ENDED SEPTEMBER
30, 1996. IN ALL THREE, ENDI'S TOTAL RETURN HAS
FLUCTUATED AT LEAST 20% LESS THAN THE INDEX.
4
<PAGE>
BOND PORTFOLIO FOR
ENDOWMENTS, INC. BOND PORTFOLIO FOR ENDOWMENTS, INC. The investment
AIMS TO PROVIDE objective of the fund is to seek as high a level of
SHAREHOLDERS WITH current income as is consistent with the preservation
AS HIGH A LEVEL OF of capital. Any capital appreciation is incidental to
CURRENT INCOME AS the fund's objective of current income.
IS CONSISTENT WITH The fund invests primarily in fixed-income securities,
THE PRESERVATION including bonds and debentures. A majority of the
OF CAPITAL. fund's assets will be invested in fixed- income
securities rated in the three highest categories (those
rated A or above) by Moody's Investors Service, Inc. or
Standard & Poor's Corporation or that are determined to
be of equivalent quality by the fund's investment
adviser, Capital Research and Management Company. 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. The fund may also invest up to 10% (measured
at the time of purchase) 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.
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. (See the statement of additional
information for more about these securities and for a
description of bond ratings.)
-------------------
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.
The funds' investment restrictions (which are described
in the statement of additional information) and
objectives cannot be changed without shareholder
approval. All other investment practices may be changed
by the funds' boards.
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.
5
<PAGE>
RISKS OF
INVESTING IN RISKS OF INVESTING IN STOCKS AND BONDS Because
CERTAIN Endowments, Inc. invests primarily in common stocks or
SECURITIES securities convertible into common stocks, the fund is
THE FUNDS ARE subject to stock market risks. For example, the fund is
SUBJECT subject to the possibility that stock prices in general
TO CERTAIN RISKS. will decline over short or even extended periods.
THERE Endowments, Inc. may also, and Bond Portfolio for
IS NO ASSURANCE Endowments, Inc. will, invest in fixed-income
THAT securities, including bonds, which have market values
THEIR OBJECTIVES which tend to vary inversely with the level of interest
WILL BE rates--when interest rates rise, their values will tend
REALIZED. to decline and vice versa. Although under normal market
conditions longer term securities yield more than
shorter term securities of similar quality, they are
subject to greater price fluctuations. These
fluctuations in the value of each fund's investments
will be reflected in its net asset value per share. See
the statement of additional information under
"Description of Certain Securities" for a description
of bond ratings and other securities.
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 (such as
securities issued by the Government National Mortgage
Association which are commonly known as "GNMA
certificates" (described below), and Federal Housing
Administration debentures).
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; others are supported
only by the credit of the issuing government agency or
instrumentality.
PRIVATE PLACEMENTS Private placements may be either
purchased from another institutional investor that
originally acquired the securities in a private
placement or directly from the issuers of the
securities. Generally, securities acquired in private
placements are subject to contractual restrictions on
resale and may not be resold except pursuant to a
registration statement under the Securities Act of 1933
or in reliance upon an exemption from the registration
requirements under the Act, for example, private
placements sold pursuant to Rule 144A. Accordingly, any
such obligation will be deemed illiquid unless it has
been specifically determined to be liquid under
procedures adopted by the funds' boards of directors.
In determining whether these securities are liquid,
factors such as the frequency and volume of trading and
the commitment of dealers to make markets will be
considered. Additionally, the liquidity of any
particular security will depend on such factors as the
availability of "qualified" institutional investors and
the extent of investor interest in the security, which
can change from time to time.
INVESTING IN VARIOUS COUNTRIES The funds may invest in
non-U.S. issuers as described above. These issuers may
not be subject to uniform accounting, auditing and
financial reporting standards and practices or
regulatory requirements comparable to those applicable
to U.S. issuers. There may also be less public
information available about certain non-U.S. issuers.
Additionally, specific local political and economic
factors must be evaluated in making these investments
including trade balances
6
<PAGE>
and imbalances, and related economic policies;
expropriation or confiscatory taxation; limitations on
the removal of funds or other assets; political or
social instability; the diverse structure and liquidity
of the various securities markets; and nationalization
policies of governments around the world. However,
investing outside the U.S. can also reduce certain of
these risks due to greater diversification
opportunities.
--------------------------------------------
APPLIES TO BOND PORTFOLIO FOR ENDOWMENTS, INC.:
MORTGAGE-RELATED SECURITIES The fund may invest in
Government National Mortgage Association (GNMA)
certificates which are securities representing part
ownership of a pool of mortgage loans on which timely
payment of interest and principal is guaranteed by the
U.S. government. GNMA certificates differ from typical
bonds because principal is repaid monthly over the term
of the loan rather than returned in a lump sum at
maturity. Although the mortgage loans in the pool will
have stated maturities of up to 30 years, the actual
average life or effective maturity of the GNMA
certificates typically will be substantially less
because the mortgages will be subject to normal
principal amortization and may be prepaid prior to
maturity.
The fund also may invest in securities representing
interests in pools of mortgage loans issued by private
institutions or governmental entities including the
Federal National Mortgage Association (FNMA) or by the
Federal Home Loan Mortgage Corporation (FHLMC).
OTHER MORTGAGE-RELATED SECURITIES The fund may invest
in mortgage-related securities issued by financial
institutions such as commercial banks, savings and loan
associations, mortgage bankers and securities
broker-dealers (or separate trusts or affiliates of
such institutions established to issue these
securities). These securities include mortgage
pass-through certificates, collateralized mortgage
obligations (including real estate mortgage investment
conduits as authorized under the Internal Revenue Code
of 1986) (CMOs) or mortgage-backed bonds. Each class of
bonds in a CMO series may have a different effective
maturity, bear a different coupon, and have a different
priority in receiving payments. All principal payments,
both regular principal payments as well as any
prepayment of principal, are passed through to the
holders of the various CMO classes dependent on the
characteristics of each class. In some cases, all
payments are passed through first to the holders of the
class with the shortest stated maturity until it is
completely retired. Thereafter, principal payments are
passed through to the next class of bonds in the
series, until all the classes have been paid off. In
other cases, payments are passed through to holders of
whichever class first has the shortest effective
maturity at the time payments are made. As a result, an
acceleration in the rate of prepayments that may be
associated with declining interest rates shortens the
expected life of each class. The impact of an
acceleration in prepayments affects the expected life
of each class differently depending on the unique
characteristics of that class. In the case of some CMO
series, each class may receive a differing proportion
of the monthly interest and principal repayments on the
underlying collateral. In these series the classes
would be more affected by an acceleration (or slowing)
in the rate of prepayments than CMOs which share
principal and interest proportionally.
Mortgage-backed bonds are general obligations of the
issuer fully collateralized directly or indirectly by a
pool of mortgages. The mortgages serve as collateral
for the issuer's payment obligations on the bonds, but
interest and principal payments on the mortgages are
not passed through either directly (as with GNMA
certificates and FNMA and FHLMC pass-through
securities) or on a modified basis (as with CMOs).
Accordingly, a change in the rate of prepayments on the
pool of mortgages could change the
7
<PAGE>
effective maturity of a CMO but not that of a
mortgage-backed bond (although, like many bonds,
mortgage-backed bonds can provide that they are
callable by the issuer prior to maturity).
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. If the seller under the 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.
WHEN-ISSUED SECURITIES, FIRM COMMITMENT AGREEMENTS,
REVERSE REPURCHASE AGREEMENTS AND "ROLL" TRANSACTIONS
The fund may purchase securities on a delayed delivery
or "when-issued" basis and enter into firm commitment
agreements (transactions whereby the payment obligation
and interest rate are fixed at the time of the
transaction but the settlement is delayed). The fund as
purchaser assumes the risk of any decline in value of
the security beginning on the date of the agreement or
purchase. As the fund's aggregate commitments under
these transactions increase, the opportunity for
leverage similarly increases. The fund also may 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, and "roll" transactions, which consist
of the sale of securities together with a commitment
(for which the fund typically receives a fee) to
purchase similar, but not identical, securities at a
later date.
8
<PAGE>
INVESTMENT
TECHNIQUES MULTIPLE PORTFOLIO COUNSELOR SYSTEM The basic
CAPITAL RESEARCH investment philosophy of Capital Research and
AND MANAGEMENT Management Company is to seek fundamental values at
COMPANY, THE reasonable prices, using a system of multiple portfolio
FUNDS' INVESTMENT counselors in managing mutual fund assets. Under this
ADVISER, USES A system the portfolios of the funds are divided into
SYSTEM segments which are managed by an individual counselor.
OF MULTIPLE Counselors decide how their respective segments will be
PORTFOLIO invested (within the limits provided by the funds'
COUNSELORS TO objectives and policies and by Capital Research and
MANAGE FUND Management Company's investment committee). In
ASSETS. addition, Capital Research and Management Company's
research professionals may make investment decisions
with respect to a portion of the funds' portfolios. The
primary individual portfolio counselors for the funds
are listed below.
ENDOWMENTS, INC.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT
PROFESSIONAL
(APPROXIMATE)
YEARS OF EXPERIENCE AS
PORTFOLIO COUNSELOR WITH CAPITAL
(AND RESEARCH RESEARCH AND
PROFESSIONAL, IF MANAGEMENT
PORTFOLIO APPLICABLE) COMPANY OR
COUNSELORS FOR FOR ENDOWMENTS, INC. ITS TOTAL
ENDOWMENTS, INC. PRIMARY TITLE(S) (APPROXIMATE) AFFILIATES YEARS
<S> <C> <C> <C> <C>
Claudia P. Huntington Vice President of the Less than 1 year 18 years 20 years
fund. Vice President,
Capital Research and
Management Company
Robert G. O'Donnell Senior Vice President 6 years (in addition 21 years 24 years
of the fund. Senior to 18 years as a
Vice President and research professional
Director, Capital prior to becoming a
Research and portfolio counselor
Management Company for the fund)
</TABLE>
BOND PORTFOLIO FOR ENDOWMENTS, INC.
<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT
PROFESSIONAL
(APPROXIMATE)
YEARS OF EXPERIENCE AS WITH CAPITAL
PORTFOLIO COUNSELOR RESEARCH AND
PORTFOLIO FOR MANAGEMENT
COUNSELORS FOR BOND PORTFOLIO FOR COMPANY OR
BOND PORTFOLIO FOR ENDOWMENTS, INC. ITS TOTAL
ENDOWMENTS, INC. PRIMARY TITLE(S) (APPROXIMATE) AFFILIATES YEARS
<S> <C> <C> <C> <C>
Abner D. Goldstine Senior Vice President 20 years 29 years 43 years
of the fund. Senior
Vice President and
Director, Capital
Research and
Management Company
John H. Smet Vice President of the 7 years 12 years 13 years
fund. Vice President,
Capital Research and
Management Company
</TABLE>
9
<PAGE>
INVESTMENT
RESULTS The funds may from time to time compare their
ENDOWMENTS, INC. investment results to various unmanaged indices or
HAS AVERAGED A other mutual funds in reports to shareholders, sales
TOTAL RETURN OF literature and advertisements. The results may be
+14.55% A YEAR AND calculated on a total return, yield and/or distribution
BOND PORTFOLIO FOR rate basis for various periods. Total returns assume
ENDOWMENTS, INC. the reinvestment of all dividends and capital gain
HAS AVERAGED A distributions.
TOTAL RETURN OF The funds' distribution rates are calculated by
+9.80% A YEAR dividing the dividends paid by each fund over the last
UNDER CAPITAL 12 months by the sum of their month-end price and the
RESEARCH capital gains paid over the last 12 months. The SEC
AND MANAGEMENT yield reflects income the funds expect to earn based on
COMPANY'S their current portfolios of securities while the
MANAGEMENT. distribution rate is based solely on the funds' past
(JULY 26, 1975 dividends. Accordingly, the funds' SEC yields and
THROUGH distribution rates may differ.
SEPTEMBER 30, ENDOWMENTS, INC. For the 30-day period ended September
1996) 30, 1996, the fund's SEC yield was 2.88% and the
distribution rate was 2.93%. The fund's total return
over the past 12 months and average total returns over
the past five- and ten-year periods were +17.40%,
+13.21% and +12.60%, respectively.
BOND PORTFOLIO FOR ENDOWMENTS, INC. For the 30-day
period ended September 30, 1996, the fund's SEC yield
was 6.68% and the distribution rate was 7.23%. The
fund's total return over the past 12 months and average
annual total returns over the five- and ten-year
periods were +5.55%, +7.81% and +8.67%, respectively.
These results were calculated in accordance with
Securities and Exchange Commission requirements. Of
course, past results are not an indication of future
results. Further information regarding the funds'
investment results are contained in the funds' annual
report which may be obtained without charge by writing
to the Secretary of the funds at the address indicated
on the cover of this prospectus.
10
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DIVIDENDS,
DISTRIBUTIONS AND DIVIDENDS AND DISTRIBUTIONS Dividends are usually paid
TAXES in March, June, September and December. Capital gains,
INCOME if any, are usually distributed in December. When a
DISTRIBUTIONS dividend or capital gain is distributed, the net asset
ARE USUALLY MADE value per share is reduced by the amount of the
IN payment.
MARCH, JUNE, FEDERAL TAXES The funds are tax-exempt organizations
SEPTEMBER under Section 501(c)(2) of the Internal Revenue Code.
AND DECEMBER. 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 for further
information.
FUND
ORGANIZATION AND FUND ORGANIZATION AND VOTING RIGHTS The funds, which
MANAGEMENT are open-end, diversified management investment
THE FUNDS ARE companies, were organized as Delaware corporations
MANAGED BY ONE OF (Endowments, Inc. in 1969 and Bond Portfolio for
THE LARGEST AND Endowments, Inc. in 1970). The funds' boards supervise
MOST EXPERIENCED fund operations and perform duties required by
INVESTMENT applicable state and federal law. Shareholders have one
ADVISERS. vote per share owned and, 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 and a successor elected. 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.
As of October 31, 1996, the following shareholders
owned 5% or more of the funds' outstanding stock:
Endowments, Inc.--California Institute of the Arts,
246,298 shares (7.65%); St. Mark's School of Texas,
1,091,042 shares (33.90 %); and San Francisco Opera
Association, 200,976 shares (6.24%).
As St. Mark's School of Texas 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.
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Bond Portfolio for Endowments, Inc.--California
Institute of the Arts, 514,168 shares (22.85%); Hudson
Institute, 119,084 shares (5.29%); St. Mark's School of
Texas, 349,974 shares (15.55%); and San Francisco Opera
Association, 152,816 shares (6.79%).
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 the funds and other funds,
including those in The American Funds Group. Capital
Research and Management Company is located at 333 South
Hope Street, Los Angeles, CA 90071 and at 135 South
State College Boulevard, Brea, CA 92821. Capital
Research and Management Company manages the investment
portfolio and business affairs of the funds. (See
"Summary of Expenses" for management fees.)
Capital Research and Management Company is a wholly
owned subsidiary of The Capital Group Companies, Inc.
(formerly "The Capital Group, Inc."), which is located
at 333 South Hope Street, Los Angeles, CA 90071. The
research activities of Capital Research and Management
Company are conducted by affiliated companies which
have offices in Los Angeles, San Francisco, New York,
Washington, D.C., London, Geneva, Singapore, Hong Kong
and Tokyo.
Capital Research and Management Company and its
affiliated companies have adopted a personal investing
policy that is consistent with the recommendations
contained in the report dated May 9, 1994 issued by the
Investment Company Institute's Advisory Group on
Personal Investing. (See the statement of additional
information.) This policy has also been incorporated
into the funds' "code of ethics" which is available
from the funds' Secretary upon request.
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.
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.
Fixed-income securities are generally traded on a "net"
basis with a dealer acting as principal 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 underwriter, generally
12
<PAGE>
referred to as the underwriter's concession or
discount. On occasion, securities may be purchased
directly from an issuer, in which case no commissions
or discounts are paid.
Subject to the above policy, when two or more brokers
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 of
other funds served by Capital Research and Management
Company.
TRANSFER AGENT American Funds Service Company, a
wholly owned subsidiary of Capital Research and
Management Company, is the transfer agent 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.
13
<PAGE>
SHAREHOLDER GUIDE
PURCHASING SHARES
SHARES MAY BE Shares of the funds may be purchased directly from the
PURCHASED DIRECTLY funds only by institutional investors exempt from
FROM federal income taxation under Section 501(c)(3) of the
THE FUNDS ONLY Internal Revenue Code. The minimum initial purchase is
BY INSTITUTIONS $50,000 for either fund; there is no minimum on
EXEMPT subsequent investments. The minimum initial investment
FROM FEDERAL may be reduced by the boards for investments which meet
TAXATION certain standards. Any shareholder which loses its
UNDER SECTION tax-exempt status must immediately transfer its shares
501(C)(3) to another tax-exempt institution or, at the
OF THE INTERNAL shareholder's option, redeem its shares at net asset
REVENUE CODE. value.
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.
SHARE PRICE Shares are sold to eligible institutions
at net asset value. The net asset value is determined
as of the close of trading (currently 4:00 p.m., New
York time) on each day the New York Stock Exchange is
open. The current value of the fund's total assets,
less all liabilities, is divided by the total number of
shares outstanding and the result, rounded to the
nearer cent, is the net asset value per share.
SHARE CERTIFICATES Shares are credited to the
shareholder's account and certificates are not issued
unless specifically requested. This eliminates the
costly problem of lost or destroyed certificates.
All stock certificates issued by the funds shall bear
the 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 "Redeeming Shares.")
SHAREHOLDER AUTOMATIC REINVESTMENT Dividends and capital gain
SERVICES 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.
EXCHANGE FEATURE As a shareholder of Endowments, Inc.
or Bond Portfolio for Endowments, Inc., 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, Inc. and/or Bond
Portfolio for Endowments, Inc. The Cash Management
Trust of America and The U.S. Treasury Money Fund of
14
<PAGE>
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.
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.
These services are available only in states where the
funds may be legally offered and may be terminated or
modified at any time upon 60 days' written notice.
ACCOUNT STATEMENTS A shareholder account is opened in
accordance with your registration instructions.
Transactions in the account, such as additional
investments and dividend reinvestments, will be
reflected on regular confirmation statements from
American Funds Service Company.
REDEEMING SHARES Shareholders may 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 is also required.
Requests to redeem 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 redeem 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 redeemed may be more or less than the amount
paid for them.
15
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ENDOWMENTS, INC.
AN INVESTMENT FOR TAX-EXEMPT INSTITUTIONS SEEKING LONG-TERM
GROWTH OF PRINCIPAL WITH INCOME AND CAPITAL PRESERVATION
BOND PORTFOLIO FOR
ENDOWMENTS, INC.
AN INVESTMENT FOR TAX-EXEMPT INSTITUTIONS
SEEKING AS HIGH A LEVEL OF CURRENT INCOME AS IS CONSISTENT
WITH THE PRESERVATION OF CAPITAL
ONE MARKET, STEUART TOWER, SUITE 1800
P.O. BOX 7650, SAN FRANCISCO, CA 94120 PHONE: (415) 421-9360
MANAGED BY
CAPITAL RESEARCH AND MANAGEMENT COMPANY
333 SOUTH HOPE STREET
LOS ANGELES, CA 90071
<TABLE>
<C> <S>
THIS PROSPECTUS HAS BEEN PRINTED ON RECYCLED
[LOGO] PAPER THAT MEETS THE GUIDELINES OF THE
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY.
</TABLE>
<PAGE>
ENDOWMENTS, INC.
AND
BOND PORTFOLIO FOR ENDOWMENTS, INC.
Part B
Statement of Additional Information
December 1, 1996
This document is not a prospectus but should be read in conjunction with the
current Prospectus of Endowments, Inc. and Bond Portfolio for Endowments, Inc.
dated December 1, 1996. 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 4
FUND OFFICERS AND DIRECTORS 8
MANAGEMENT 10
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 11
PURCHASE OF SHARES 12
EXECUTION OF PORTFOLIO TRANSACTIONS 13
REDEMPTION OF SHARES 14
GENERAL INFORMATION 14
INVESTMENT RESULTS 15
FINANCIAL STATEMENTS ATTACHED
DESCRIPTION OF CERTAIN SECURITIES
BOND RATINGS - Endowments, Inc. may invest in debt securities, and a majority
of Bond Portfolio for Endowments, Inc.'s assets will ordinarily be invested in
bonds and debentures (including straight 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. The top three 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."
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."
BOND PORTFOLIO FOR ENDOWMENTS, INC.
Investments may also be made in securities rated BBB by S&P or Baa by Moody's
or in unrated securities of equivalent quality. S&P considers bonds rated BBB
as having 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." Moody's considers bonds which are rated Baa as "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."
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 to hold 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 issuer's credit quality to a greater extent.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION CERTIFICATES - Certificates issued by
the Government National Mortgage Association (GNMA) are mortgage-backed
securities representing part ownership of a pool of mortgage loans, which are
issued by lenders such as mortgage bankers, commercial banks and savings and
loan associations, and are either insured by the Federal Housing Administration
or guaranteed by the Veterans Administration. A pool of these mortgages is
assembled and, after being approved by GNMA, is offered to investors through
securities dealers. The timely payment of interest and principal on each
mortgage is guaranteed by GNMA and backed by the full faith and credit of the
U.S. government.
Principal is paid back monthly by the borrower over the term of the loan.
Reinvestment of prepayments may occur at higher or lower rates than the
original yield on the certificates. Due to the prepayment feature and the need
to reinvest prepayments of principal at current market rates, GNMA certificates
can be less effective than typical bonds of similar maturities at "locking in"
yields during periods of declining interest rates. GNMA certificates typically
appreciate or decline in market value during periods of declining or rising
interest rates, respectively. Due to the regular repayment of principal and
the prepayment feature, the effective maturities of mortgage pass-through
securities are shorter than stated maturities, will vary based on market
conditions and cannot be predicted in advance. The effective maturities of
newly-issued GNMA certificates backed by relatively new loans at or near the
prevailing interest rates are generally assumed to range between approximately
9 and 12 years.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS - The Federal National Mortgage
Association (FNMA), a federally chartered and privately-owned corporation,
issues pass-through securities representing interests in a pool of conventional
mortgage loans. FNMA guarantees the timely payment of principal and interest
but this guarantee is not backed by the full faith and credit of the U.S.
government.
The Federal Home Loan Mortgage Corporation (FHLMC), a corporate
instrumentality of the U.S. government, issues participation certificates which
represent an interest in a pool of conventional mortgage loans. FHLMC
guarantees the timely payment of interest and the ultimate collection of
principal, and maintains reserves to protect holders against losses due to
default, but the certificates are not backed by the full faith and credit of
the U.S. government.
As is the case with GNMA certificates, the actual maturity of and realized
yield on particular FNMA and FHLMC pass-through securities will vary based on
the prepayment experience of the underlying pool of mortgages.
WHEN-ISSUED SECURITIES, FIRM COMMITMENT AGREEMENTS AND "ROLL" TRANSACTIONS -
The fund may purchase securities on a delayed delivery or "when-issued" basis
and enter into firm commitment agreements (transactions whereby the payment
obligation and interest rate are fixed at the time of the transaction but the
settlement is delayed). The fund as purchaser assumes the risk of any decline
in value of the security beginning on the date of the agreement or purchase.
The fund will identify 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 holdings of cash and securities that do not fluctuate in value (such as
short-term money market instruments), the fund temporarily will 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
securities together with a commitment (for which the fund typically receives a
fee) to purchase similar, but not identical, securities at a later 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.
ENDOWMENTS, INC.
CURRENCY TRANSACTIONS - The fund has the ability to hold a portion of its
assets in U.S. dollars and other currencies and to enter into certain currency
contracts in connection with investing in non-U.S. dollar denominated
securities. 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. The fund does not currently intend to engage in any
transactions other than purchasing and selling currencies and foreign exchange
contracts which will be used to facilitate settlement of trades. For example,
the fund might purchase a particular currency or enter into a forward currency
contract to preserve the U.S. dollar price of securities it intends or has
contracted to purchase.
ENDOWMENTS, INC. AND BOND PORTFOLIO FOR ENDOWMENTS, INC.
CASH EQUIVALENTS - These securities include (1) commercial paper (short-term
notes up to 9 months in maturity issued by corporations or governmental
bodies), (2) commercial bank obligations (E.G., certificates of deposit,
bankers' acceptances (time drafts on a commercial bank where the bank accepts
an irrevocable obligation to pay at maturity) and documented discount notes
(corporate promissory discount notes accompanied by a commercial bank guarantee
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, or may be redeemed, in one year or less, and (5)
corporate bonds and notes that mature, or that may be redeemed, in one year or
less.
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, INC.
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.
Although not fundamental policies, the fund has further agreed that it will
not invest more than 5% of the value of the fund's net assets in warrants,
valued at the lower of cost or market, with no more than 2% being unlisted on
the New York or American Stock Exchanges (warrants acquired by the fund in
units or attached to securities may be deemed to be without value); or invest
in oil, gas or other mineral leases.
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.
The fund's portfolio turnover rate will depend primarily on market conditions.
Short-term trading profits are not the fund's objective and changes in its
investments are generally accomplished gradually, though short-term
transactions may occasionally be made.
BOND PORTFOLIO FOR ENDOWMENTS, INC.
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.
Although not fundamental policies, the fund has further agreed that it will
not invest more than 5% of the value of the fund's net assets in warrants,
valued at the lower of cost or market, with no more than 2% being unlisted on
the New York or American Stock Exchanges (warrants acquired by the fund in
units or attached to securities may be deemed to be without value); nor invest
in oil, gas or other mineral leases.
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.
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.
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+*, Age: 65. Senior Partner, The Capital Group Partners
L.P.; former Chairman of the Board, The Capital Group Companies, Inc.; (213)
486-9200.
FRANK L. ELLSWORTH+++, Age: 53, 333 South Grand Avenue, 26th Floor, Los
Angeles, CA 90071-1504. President, Independent Colleges of Southern
California; former President, Pitzer College; (213) 680-1330; Designated
Representative: Independent Colleges of Southern California.
STEVEN D. LAVINE, Age: 49, 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: 53, 4933 Mangold Circle, Dallas, TX 75229. Chief
Financial Officer, Kevin L. McBride, D.D.S., Inc.; (214) 368-0268; Designated
Representative: St. Mark's School of Texas.
JOHN R. METCALF, Age: 80, 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: 70, Times Mirror Square, Los Angeles, CA 90053.
Chairman, Pfaffinger Foundation; former President and Chief Executive Officer,
Times Mirror Foundation and former Executive Vice President and Member of the
Management Committee, The Times Mirror Company; (213) 237-3977; Designated
Representative: Loyola Marymount University.
THOMAS E. TERRY+*, Age: 59. Consultant; former Vice President and
Secretary, Capital Research and Management Company (retired 1994); (213)
486-9410; Designated Representative: Citizens' Scholarship Foundation of
America.
ROBERT C. ZIEBARTH, Age: 60, P.O. Box 839, Dover, MA 02030. Management
Consultant, Ziebarth Company; (508) 785-1937; Designated Representative:
Foundation for Reproductive Research & Education.
Officers
ROBERT B. EGELSTON, Chairman of the Boards.
THOMAS E. TERRY, President.
Fund officers whose other positions are not described above are:
ABNER D. GOLDSTINE, 11100 Santa Monica Boulevard, Los Angeles, CA 90025,
Senior Vice President. Senior Vice President and Director, Capital Research
and Management Company.
ROBERT G. O'DONNELL**, Senior Vice President. Senior Vice President and
Director, Capital Research and Management Company.
CLAUDIA P. HUNTINGTON*, Vice President of Endowments, Inc. Senior Vice
President, Capital Research Company.
JOHN H. SMET, 11100 Santa Monica Boulevard, Los Angeles, CA 90025, Vice
President of Bond Portfolio for Endowments, Inc. Vice President, Capital
Research and Management Company.
STEVEN N. KEARSLEY***, Vice President and Treasurer. Vice President and
Treasurer, Capital Research and Management Company; Director, American Funds
Service Company; (714) 671-7000.
PATRICK F. QUAN**, Secretary. Vice President - Fund Business Management
Group, Capital Research and Management Company; (415) 421-9360.
LISA G. HATHAWAY*, Assistant Vice President. Assistant Vice President - Fund
Business Management Group, Capital Research and Management Company; (213)
486-9200.
LOUISE M. PESCETTA**, Assistant Vice President and Assistant Secretary.
Assistant Vice President - Fund Business Management Group, Capital Research and
Management Company; (415) 421-9360.
MARY C. HALL***, Assistant Treasurer. Senior Vice President - Fund Business
Management Group, Capital Research and Management Company; (714) 671-7000.
ROBERT P. SIMMER, 5300 Robin Hood Road, Norfolk, VA 23513, Assistant
Treasurer. Vice President - Fund Business Management Group, Capital Research
and Management Company; (804) 670-4900.
_________________
* Address is 333 South Hope Street, Los Angeles, CA 90071.
** Address is P.O. Box 7650, San Francisco, CA 94120.
*** Address is 135 South State College Boulevard, Brea, CA 92821.
# Positions within the organizations listed may have changed during this
period.
+ An "interested person" 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 Certificate of Incorporation provides 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.
+++ Mr. Ellsworth serves as a director or trustee on the boards of a total of
three funds which are managed by Capital Research and Management Company. Only
Anchor Pathway Fund pays a directors fee. His total compensation from that
fund for the 12 months through July 31, 1996 was $13,000.
All of the officers listed are officers or employees of the investment
adviser or affiliated companies. Endowments, Inc. and Bond Portfolio for
Endowments, Inc. 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, with a staff of professionals, many
of whom have a number of years of investment experience. The investment
adviser's 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 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 the funds on May
23, 1996 for the period through July 27, 1997. 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.
The Agreements provide for an advisory fee reduction to the extent that the
funds' annual ordinary operating expenses exceed 1-1/2% of the first $30
million of the average net assets of the funds 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 to voluntarily
waive management fees to the extent that each 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, 1996, 1995 and 1994, the investment adviser
received from Endowments, Inc. advisory fees of $300,818, $273,381, and
$308,941, and from Bond Portfolio for Endowments, Inc. advisory fees of
$214,202, $223,573, and $250,998, 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, the funds elect to be treated as regulated investment companies,
they will be subject to the provisions described below.
To qualify as a "regulated investment company," each 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) 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 each 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, 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 on the next business day of the New York
Stock Exchange. 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. The net asset
value per share is determined as follows:
ENDOWMENTS, INC.
Common stocks, and convertible bonds and debentures, 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.
Non-convertible bonds and debentures, and other long-term debt securities,
normally 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 as determined in good faith by the Valuation Committee of the board
of directors. Cash and receivables are added and liabilities are deducted to
arrive at the net asset value. This figure is divided by the number of shares
outstanding to give the net asset value per share.
BOND PORTFOLIO FOR ENDOWMENTS, INC.
Bond 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. Stocks
and convertible bonds and debentures 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. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by the Valuation Committee of the board of directors.
Cash and receivables are added and liabilities are deducted to arrive at the
net asset value. This figure is divided by the number of shares outstanding to
give the net asset value per share.
EXECUTION OF PORTFOLIO TRANSACTIONS
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.
BOND PORTFOLIO FOR ENDOWMENTS, INC.
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 Merrill
Lynch, Pierce, Fenner & Smith Inc. in the amount of $460,000 as of the close of
its most recent fiscal year.
_______________
Brokerage commissions paid on portfolio transactions during the fiscal
years ended July 31, 1996, 1995 and 1994, amounted to $52,000, $38,000, and
$59,000 for Endowments, Inc. There are no brokerage commissions paid on
portfolio transactions for Bond Portfolio for Endowments, Inc.
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. The funds may, however, suspend the right of redemption
during any period when: (a) trading on the New York Stock Exchange is
restricted as determined by the Securities and Exchange Commission or such
exchange is closed for other than weekends or holidays; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c) any
emergency as determined by the Securities and Exchange Commission exists,
making disposal of portfolio securities or valuation of net assets of the funds
not reasonably practicable.
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, 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 the funds are
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the funds 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 N.A., One Chase Manhattan
Plaza, New York, NY 10081, as Custodian.
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.
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; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the funds; 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 the
funds 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.
INVESTMENT RESULTS
Endowments, Inc.'s yield is 3.05% and Bond Portfolio for Endowments, Inc.'s
yield is 6.64% based on a 30-day (or one month) period ended July 31, 1996,
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, Inc. and Bond Portfolio for Endowments, Inc. do not have a sales
charge.)
Endowments, Inc.'s average annual total return for the one-, five- and
ten-year periods ended on July 31, 1996 was +13.21%, +11.94% and +11.78%,
respectively. Bond Portfolio for Endowments, Inc.'s average annual total
return for the one-, five- and ten-year periods ended on July 31, 1996 was
+6.25%, +8.44% and +8.63%, 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; 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, Inc.
and the Lehman Aggregate Bond Index for Bond Portfolio for Endowments, Inc.) 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 Technologies, Ibbotson Associates, Lipper Analytical Services,
Morningstar, Inc., and Wiesenberger Investment Companies Services 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>
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>
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 . . . 7/31/96
| |
<S> <C> <C>
Number
Periods
of Years Value
8/1 - 7/31
1 1995 - 1996 $56,608
2 1994 - 1996 67,120
3 1993 - 1996 68,980
4 1992 - 1996
75,911
5 1991 - 1996
87,862
6 1990 - 1996
101,069
7 1989 - 1996
105,240
8 1988 - 1996
129,677
9 1987 - 1996
126,685
10 1986 - 1996
152,164
11 1985 - 1996
191,071
12 1984 - 1996
249,233
13 1983 - 1996
248,385
14 1982 - 1996
387,526
15 1981 - 1996
373,273
16 1980 - 1996
430,139
17 1979 - 1996
504,237
18 1978 - 1996
555,674
19 1977 - 1996
612,709
20 1976 - 1996
652,424
21 1975#- 1996
828,238
</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 . . . 7/31/96
| |
<S> <C> <C>
Number
Periods
of Years Value
8/1 - 7/31
1 1995 - 1996 $53,125
2 1994 - 1996 57,361
3 1993 - 1996
56,534
4 1992 - 1996
63,171
5 1991 - 1996
74,976
6 1990 - 1996
83,057
7 1989 - 1996
88,750
8 1988 - 1996
100,894
9 1987 - 1996
109,588
10 1986 - 1996
114,426
11 1985 - 1996
138,413
12 1984 - 1996
166,981
13 1983 - 1996
180,266
14 1982 - 1996
223,447
15 1981 - 1996
264,574
16 1980 - 1996
252,463
17 1979 - 1996
261,832
18 1978 - 1996
280,114
19 1977 - 1996
282,166
20 1976 - 1996
317,588
21 1975#- 1996
356,493
</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, 1996)
COST OF SHARES VALUE OF SHARES
<TABLE>
<CAPTION>
Year Total From From
Ended Annual Dividends Investment From Initial Capital Gains Dividends Total
July 31 Dividends (cumulative) Cost Investment Reinvested Reinvested Value
<S> <C> <C> <C> <C> <C> <C> <C>
1975# $ 0 $ 0 $50,000 $49,769 $ 0 $ 0 $49,770
1976 2,408 2,408 52,408 60,781 0 2,695 63,476
1977 2,454 4,862 54,862 62,331 0 5,259 67,590
1978 2,899 7,761 57,761 65,910 0 8,615 74,525
1979 3,511 11,272 61,272 69,263 0 12,868 82,131
1980 4,322 15,594 65,594 77,021 0 19,256 96,277
1981 6,326 21,920 71,920 79,847 4,739 26,356 110,942
1982 7,869 29,789 79,789 64,678 13,443 28,739 106,860
1983 6,722 36,511 86,511 96,477 20,052 50,197 166,726
1984 7,502 44,013 94,013 83,847 31,536 50,774 166,157
1985 9,036 53,049 103,049 95,601 53,303 67,832 216,736
1986 10,623 63,672 113,672 104,971 81,000 86,184 272,155
1987 12,851 76,523 126,523 104,222 123,158 99,505 326,885
1988 15,733 92,256 142,256 88,382 130,787 100,178 319,347
1989 17,918 110,174 160,174 96,368 167,745 129,388 393,501
1990 22,799 132,973 182,973 89,440 178,016 142,283 409,739
1991 21,836 154,809 204,809 94,623 202,831 173,872 471,326
1992 20,318 175,127 225,127 96,580 249,826 199,127 545,533
1993 21,415 196,542 246,542 97,479 279,694 223,176 600,349
1994 22,417 218,959 268,959 90,868 296,050 230,062 616,980
1995 22,961 241,920 291,920 95,522 369,066 266,973 731,561
1996 25,984 267,904 317,904 98,431 428,636 301,171 828,238
</TABLE>
# From July 26, 1975
The dollar amount of capital gain distributions during the period was $383,674.
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, 1996)
COST OF SHARES VALUE OF SHARES
<TABLE>
<CAPTION>
Year Total From From
Ended Annual Dividends Investment From Initial Capital Gains Dividends Total
July 31 Dividends (cumulative) Cost Investment Reinvested Reinvested Value
<S> <C> <C> <C> <C> <C> <C> <C>
1975# $ 0 $ 0 $50,000 $50,065 $ 0 $ 0 $50,064
1976 3,466 3,466 53,466 52,455 0 3,668 56,123
1977 4,395 7,861 57,861 54,854 0 8,315 63,169
1978 4,798 12,659 62,659 51,161 0 12,472 63,633
1979 5,595 18,254 68,254 50,165 0 17,913 68,078
1980 7,331 25,585 75,585 46,568 0 24,036 70,604
1981 7,990 33,575 83,575 39,235 0 28,137 67,372
1982 9,678 43,253 93,253 40,739 0 39,032 79,771
1983 10,518 53,771 103,771 45,384 0 53,497 98,881
1984 11,193 64,964 114,964 43,796 0 62,950 106,746
1985 12,231 77,195 127,195 47,570 0 81,205 128,775
1986 13,557 90,752 140,752 52,296 0 103,480 155,776
1987 13,829 104,581 154,581 50,040 0 112,609 162,649
1988 13,553 118,134 168,134 48,557 5,210 122,900 176,667
1989 15,800 133,934 183,934 50,630 5,433 144,778 200,841
1990 17,213 151,147 201,147 49,693 5,332 159,584 214,609
1991 19,146 170,293 220,293 50,432 5,411 181,896 237,739
1992 20,570 190,863 240,863 55,202 5,923 221,039 282,164
1993 22,376 213,239 263,239 55,827 12,805 246,660 315,292
1994 22,971 236,210 286,210 47,876 29,925 232,942 310,743
1995 23,564 259,774 309,774 47,762 31,232 256,528 335,522
1996 25,003 284,777 334,777 47,223 30,879 278,391 356,493
</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, 1966 (121 in all), those funds have had better
total returns than the Standard & Poor's 500 Composite Stock Index in 94 of the
121 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.
<PAGE>
<TABLE>
ENDOWMENTS, INC.
INVESTMENT PORTFOLIO, JULY 31, 1996
Percent
of Net
INDUSTRY DIVERSIFICATION Assets
- --------------------------------------------------- ----------
<S> <C> <C> <C>
Common Stocks
Banking 10.27%
Health & Personal Care 7.52
Energy Sources 6.48
Insurance 6.29
Forest Products & Paper 4.87
Utilities: Electric & Gas 4.35
Business & Public Services 3.74
Transportation: Rail & Road 3.66
Real Estate 3.22
Machinery & Engineering 3.04
Beverages & Tobacco 2.85
Merchandising 2.43
Food & Household Products 2.29
Telecommunications 2.25
Chemicals 2.06
Recreation & Other Consumer Products 1.96
Data Processing & Reproduction 1.91
Broadcasting & Publishing 1.11
Automobiles 1.10
Financial Services 1.09
Metals: Nonferrous .98
Multi-Industry .96
Electrical & Electronics .59
Electronic Instruments .07
----------
75.09
Common stocks in initial period of acquisition 2.93
Short-Term Securities 21.77
Excess of cash and receivables over payables .21
----------
Net Assets 100.00%
==========
Percent
of Net
TEN LARGEST HOLDINGS Assets
- --------------------------------------------------- ----------
American Home Products 2.87%
Wal-Mart Stores 2.43
General Mills 2.29
Weingarten Realty Investors 2.17
Dun & Bradstreet 2.04
Washington Mutual Savings Bank 2.03
Phillips Petroleum 2.00
Atlantic Richfield 1.96
International Business Machines 1.91
Warner-Lambert 1.84
----------
21.54%
==========
Percent
Number Market Of Net
COMMON STOCKS of shares Value Assets
- --------------------------------------------------- --------------------------------
ENERGY
Energy Sources-6.48%
Amoco Corp. 10000 $ 668,750 1.13%
Atlantic Richfield Co. 10000 1160000 1.96
Exxon Corp. 10000 822500 1.39
Phillips Petroleum Co. 30000 1185000 2.00
Utilities: Electric & Gas-4.35%
Consolidated Edison Co. of New York, Inc. 17000 459000 .77
Duke Power Co. 15000 718125 1.21
Entergy Corp. 25000 637500 1.07
Pacific Gas and Electric Co. 20000 395000 .67
Union Electric Co. 10000 376250 .63
-----------------------
6422125 10.83
-----------------------
MATERIALS
Chemicals-2.06%
Armor All Products Corp. 40000 627500 1.06
Dow Chemical Co. 8000 595000 1.00
Forest Products & Paper-4.87%
Georgia-Pacific Corp. 10000 747500 1.26
International Paper Co. 15000 568125 .96
Louisiana-Pacific Corp. 30000 611250 1.03
Union Camp Corp. 20000 960000 1.62
Metals: Nonferrous-0.98%
Aluminum Co. of America 10000 580000 .98
-----------------------
4689375 7.91
-----------------------
CAPITAL EQUIPMENT
Data Processing & Reproduction-1.91%
International Business Machines Corp. 10500 1132688 1.91
Electrical & Electronics-0.59%
Nokia Corp., Class A (American Depositary Receipts)
(Finland) 10000 352500 .59
Electronic Instruments-0.07%
Imation Corp. /1/ 1880 42770 .07
Machinery & Engineering-3.04%
Caterpillar Inc. 8000 527000 .89
Crompton & Knowles Corp. 50000 750000 1.27
Parker Hannifin Corp. 15000 523125 .88
-----------------------
3328083 5.61
-----------------------
CONSUMER GOODS
Automobiles-1.10%
Ford Motor Co., Class A 20000 650000 1.10
Beverages & Tobacco-2.85%
Anheuser-Busch Companies, Inc. 10000 747500 1.26
Philip Morris Companies Inc. 9000 941625 1.59
Food & Household Products-2.29%
General Mills, Inc. 25000 1356250 2.29
Health & Personal Care-7.52%
American Home Products Corp. 30000 1702500 2.87
Johnson & Johnson 10000 477500 .80
Merck & Co., Inc. 10000 642500 1.08
Schering-Plough Corp. 10000 551250 .93
Warner-Lambert Co. 20000 1090000 1.84
Recreation & Other Consumer Products-1.96%
American Greetings Corp., Class A 20000 485000 .82
Duracell International Inc. 15000 676875 1.14
-----------------------
9321000 15.72
-----------------------
SERVICES
Broadcasting & Publishing-1.11%
Gannett Co., Inc. 10000 656250 1.11
Business & Public Services-3.74%
Alexander & Baldwin, Inc. 30000 712500 1.20
Dun & Bradstreet Corp. 21000 1207500 2.04
WMX Technologies, Inc. 10000 296250 .50
Merchandising-2.43%
Wal-Mart Stores, Inc. 60000 1440000 2.43
Telecommunications-2.25%
AT&T Corp. 15000 781875 1.32
Ameritech Corp. 10000 555000 .93
Transportation: Rail & Road-3.66%
CSX Corp. 20000 965000 1.63
Union Pacific Corp. 6000 411000 .69
USFreightways Corp. 45000 795938 1.34
-----------------------
7821313 13.19
-----------------------
FINANCE
Banking-10.27%
H.F. Ahmanson & Co. 30000 757500 1.28
Boatmen's Bancshares, Inc. 15000 600000 1.01
Central Fidelity Banks, Inc. 23400 508950 .86
Comerica Inc. 15000 658125 1.11
First Hawaiian, Inc. 20000 541250 .91
Jefferson BankShares, Inc. 30000 682500 1.15
National City Corp. 15000 519375 .88
U.S. Bancorp 18000 616500 1.04
Washington Mutual Savings Bank 33150 1205831 2.03
Financial Services-1.09%
Beneficial Corp. 12000 648000 1.09
Insurance-6.29%
AMBAC Inc. 20000 955000 1.61
American General Corp. 27000 938250 1.58
General Re Corp. 5000 733750 1.24
Liberty Corp. 20000 617500 1.04
Trenwick Group Inc. 10000 487500 .82
Real Estate-3.22%
Security Capital Pacific Trust 30000 622500 1.05
Weingarten Realty Investors 32000 1288000 2.17
-----------------------
12380531 20.87
-----------------------
MULTI-INDUSTRY
Multi-Industry-0.96%
Minnesota Mining and Manufacturing Co. 8800 571999 .96
-----------------------
MISCELLANEOUS
Other common stocks in initial period of acquisition 1737500 2.93
-----------------------
TOTAL COMMON STOCKS (cost: $37,638,444) 46271926 78.02
-----------------------
Principal
Amount
SHORT-TERM SECURITIES (000)
Corporate Short-Term Notes-18.57%
American Brands Inc. 5.45% due 10/16/96 $1,400 1383650 2.33%
Associates Corp. of North America 5.70% due 8/1/96 1,300 1299794 2.19
H.J. Heinz Co. 5.28% due 8/21/96 770 767628 1.29
Hewlett-Packard Co. 5.37% due 10/4/96 1,500 1485321 2.51
National Rural Utilities Cooperative Finance Corp.
5.36% due 9/25/96 1,200 1189957 2.01
J.C. Penney Funding Corp. 5.34% due 8/29/96 1,400 1393978 2.35
Pitney Bowes Credit Corp. 5.33% due 8/15/96 1,200 1197320 2.02
Raytheon Co. 5.26% due 8/9/96 1,000 998685 1.68
Weyerhaeuser Co. 5.27% due 8/8/96 1,300 1298446 2.19
------------ ----------
11014779 18.57
------------ ----------
Federal Agency Discount Notes-3.20%
Federal National Mortgage Assn. 5.24% due 8/23/96 1900 1,893,640 3.20
----------- ----------
TOTAL SHORT-TERM SECURITIES (cost: $12,908,668) 12908419 21.77
------------ ----------
TOTAL INVESTMENT SECURITIES (cost: $50,547,112) 59180345 99.79
Excess of cash and receivables over payables 124552 .21
-----------------------
NET ASSETS $59,304,897 100.00%
=======================
/1/ Non-income-producing security.
See Notes to Financial Statements
Common stocks added to the portfolio
since January 31, 1996
- --------------------------------------
H.F. Ahmanson
Alexander & Baldwin
American Greetings
Ameritech
Anheuser-Busch
Crompton & Knowles
Duracell International
General Re
Imation
Jefferson BankShares
National City
Nokia
Parker Hannifin
USFreightways
Common stocks eliminated from the portfolio
since January 31, 1996
- --------------------------------------
Allstate
Boeing
General Electric
Huntington Bancshares
Integra Financial
J.P. Morgan
Ohio Casualty
Paul Revere
TNT Freightways
Western Investment Real Estate Trust
</TABLE>
<TABLE>
Endowments, Inc.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
at July 31, 1996
<S> <C> <C>
Assets:
Investment securities at market
(cost: $50,547,112) $59,180,345
Cash 76,649
Receivables for dividends 79,241
------------
59,336,235
Liabilities:
Payables for-
Management services $25,305
Accrued expenses 6,033 31,338
------------ ------------
Net Assets at July 31, 1996-
Equivalent to $18.61 per share on
3,186,313 shares of $1 par value
capital stock outstanding (authorized
capital stock--6,000,000 shares) $59,304,897
=============
Statement of Operations
for the year ended July 31, 1996
Investment Income:
Income:
Dividends $ 1,574,072
Interest 730,449 $2,304,521
------------
Expenses:
Management services fee 300,818
Custodian fee 3,013
Registration statement and prospectus 13,660
Auditing fees 30,200
Legal fees 10,116
Taxes other than federal income tax 46,428
Other expenses 28,324 432,559
------------ -----------
Net investment income 1,871,962
------------
Realized Gain and Unrealized
Depreciation on Investments:
Net realized gain 6,351,802
Net change in unrealized
appreciation on investments:
Beginning of year 9,360,047
End of year 8,633,233
------------
Net unrealized depreciation on investments (726,814)
------------
Net realized gain and unrealized
depreciation on investments 5,624,988
------------
Net Increase in Net Assets Resulting
from Operations $7,496,950
============
Statement of Changes in Net Assets
Year ended July 31
1996 1995
Operations:
Net investment income $ 1,871,962 $ 2,026,933
Net realized gain on investments 6,351,802 2,706,488
Net unrealized appreciation (depreciation)
on investments (726,814) 4,723,583
------------ ------------
Net increase in net assets resulting
from operations 7,496,950 9,457,004
------------- -------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (1,975,816) (1,942,631)
Distributions from net realized
gain on investments (3,710,692) (4,141,493)
------------- -------------
Total dividends and distributions (5,686,508) (6,084,124)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
279,532 and 317,243
shares, respectively 5,201,405 5,302,616
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
283,073 and 362,222 shares,
respectively 5,156,184 5,645,016
Cost of shares repurchased:
518,349 and 618,230
shares, respectively (9,598,279) (10,507,091)
------------- -------------
Net increase in net assets resulting
from capital share transactions 759,310 440,541
------------- -------------
Total Increase in Net Assets 2,569,752 3,813,421
Net Assets:
Beginning of year 56,735,145 52,921,724
------------- -------------
End of year (including undistributed
net investment income: $157,540 and
$261,394, respectively) $59,304,897 $ 56,735,145
============= =============
See Notes to Financial Statements
</TABLE>
<PAGE>
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 as a secondary
objective, primarily through investments in stocks. The following paragraphs
summarize the significant accounting policies consistently followed by the fund
in the preparation of its financial statements:
Common stocks 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 as determined in good faith by the Valuation Committee of the Board
of Directors.
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
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 $3,013 includes $2,586 that 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, 1996, net unrealized appreciation on investments for book and
federal income tax purposes aggregated $8,633,233, of which $9,435,862 related
to appreciated securities and $802,629 related to depreciated securities. There
was no difference between book and tax realized gains on securities
transactions for the year ended July 31, 1996. The cost of portfolio securities
for book and federal income tax purposes was $50,547,112 at July 31, 1996.
3. The fee of $300,818 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. As of July 31, 1996, no such fee reduction
was required.
Effective December 1, 1995, 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. As of July 31, 1996,
no such fee reduction was required.
No fees were paid by the fund to its officers and Directors.
4. As of July 31, 1996, accumulated undistributed net realized gain on
investments was $4,774,878 and additional paid-in capital was $42,552,933.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $18,036,311 and $22,375,618, respectively, during the
year ended July 31, 1996.
<PAGE>
<TABLE>
ENDOWMENTS, INC.
PER-SHARE DATA AND RATIOS
Year ended July 31
----------------------------------------
1996 1995 1994 1993 1992
Net Asset Value, Beginning of Year $18.06 $ 17.18 $ 18.43 $ 18.26 $ 17.89
----------------------------------------
<S> <C> <C> <C> <C> <C>
Income from Investment Operations:
Net investment income .58 .63 .65 .66 .78
Net realized and unrealized
gain (loss) on investments 1.73 2.21 (.16) 1.05 1.74
----------------------------------------
Total income from investment operations 2.31 2.84 .49 1.71 2.52
----------------------------------------
Less Distributions:
Dividends from net investment income (.61) (.61) (.66) (.69) (.73)
Distributions from net realized gains (1.15) (1.35) (1.08) (.85) (1.42)
----------------------------------------
Total distributions (1.76) (1.96) (1.74) (1.54) (2.15)
----------------------------------------
Net Asset Value, End of Year $18.61 $ 18.06 $ 17.18 $ 18.43 $ 18.26
========================================
Total Return 13.22% 18.57% 2.77% 10.05% 15.74%
Ratios/Supplemental Data:
Net assets, end of year (in millions) $59 $57 $53 $72 $58
Ratio of expenses to average net assets .72% .73% .73% .64% .70%
Ratio of net income to average net assets 3.12% 3.70% 3.78% 3.72% 4.37%
Portfolio turnover rate 38.73% 24.04% 25.58% 29.70% 20.35%
</TABLE>
<PAGE>
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, 1996, 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 the 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 the 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 the
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, 1996 by correspondence with the custodian. 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 the per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of Endowments, Inc. as of July 31, 1996, 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 30, 1996
<PAGE>
<TABLE>
BOND PORTFOLIO FOR ENDOWMENTS, INC.
INVESTMENT PORTFOLIO, JULY 31, 1996
Principal Percent
Amount Market of Net
BONDS & NOTES (000) Value Assets
<S> <C> <C> <C>
Industrials - 17.28%
360/0/ Communications Co. 7.125% due 3/1/03 $550 $529,469
360/0/ Communications Co. 7.50% due 3/1/06 500 477035 2.43
General Motors Corp. 8.80% due 3/1/21 2000 2226140 5.37
Hanson America, Inc. 2.39% convertible
debentures due 3/1/01 /1/ 1000 855000 2.06
Inco Ltd. 9.875% due 6/15/19 300 323688
Inco Ltd. 9.60% due 6/15/22 700 729316 2.54
Philips Electronics N.V. 7.20% due 6/1/26 500 494130 1.19
TCI Communications, Inc. 8.75% due 8/1/15 500 479835 1.16
U S WEST, Inc. 0% convertible
debentures due 6/25/11 3000 1050000 2.53
------------- ---------
7164613 17.28
------------- ---------
Electric Utilities - 5.27%
Big Rivers Electric Corp. 10.70% due 9/15/17 2000 2186160 5.27
------------- ---------
Transportation /2/ - 10.63%
Airplanes Pass Through Trust, Class C, 8.15% due 3/15/19 1000 997500 2.41
Continental Airlines, Inc., Series 1996-A, 6.94% due 4/15/15 /1/ 500 481250 1.16
Delta Air Lines, Inc., Series 1993-A2, 10.50% due 4/30/16 500 588070 1.42
Jet Equipment Trust, Series 1994-A, 11.79% due 6/15/13 /1/ 750 860625
Jet Equipment Trust, Series 1995-B, Class A, 7.63%
due 2/15/15 /1/ 491 492743 4.46
Jet Equipment Trust, Series 1995-B, Class B, 7.83%
due 2/15/15 /1/ 491 494069
USAir, Inc., Series 1996-B, 7.50% due 4/15/08 /1/ 500 491250 1.18
-------------- ---------
4405507 10.63
-------------- ---------
Financial - 10.35%
American Re Corp. 10.875% due 9/15/04 1500 1625190 3.92
Equitable Life Assurance Society of the United States
7.70% due 12/1/15 /1/ 1000 965640 2.33
General Electric Capital Corp. 8.875% due 5/15/09 1000 1140770 2.75
Terra Nova (Bermuda) Holdings Ltd. 10.75% due 7/1/05 500 558125 1.35
------------- ---------
4289725 10.35
------------- ---------
Real Estate - 1.12%
Irvine Co. 7.46% due 3/15/06 /1/ /3/ 500 465000 1.12
------------- ---------
Collateralized Mortgage/Asset-Backed
Obligations /2/ - 5.39%
CSFB Finance Co. Ltd. 5.00% due 11/15/05 /1/ 500 481250 1.16
Green Tree Financial Corp., Series 1995-A, Class NIM,
7.25% due 7/15/05 389 386369 .93
Merrill Lynch Mortgage Investors, Inc., Series 1995-A,
7.251% due 6/15/21 /4/ 459 459555 1.11
Prudential Home Mortgage Securities Co., Inc.,
Series 1992-2033, Class A-12, 7.50% due 11/25/22 422 422186 1.02
Structured Asset Securities Corp, Series 1996-CFL,
Class A2A, 7.75% due 2/25/28 482 484715 1.17
-------------- ---------
2234075 5.39
-------------- ---------
Floating Rate Eurodollar Notes (Undated) /4/ - 6.10%
Bank of Nova Scotia 5.375% 1000 825000 1.99
Canadian Imperial Bank of Commerce 5.375% 1000 843750 2.04
Midland Bank 6.00% 1000 858800 2.07
-------------- ---------
2527550 6.10
-------------- ---------
Governments (excluding U.S. Government) &
Governmental Authorities - 5.81%
Ontario (Province of) 17.00% due 11/5/11 1100 1200694 2.90
Quebec (Province of) 13.25% due 9/15/14 1000 1207980 2.91
-------------- ---------
2408674 5.81
-------------- ---------
Federal Agency Obligations - Mortgage
Pass-Throughs /2/ - 12.85%
Federal Home Loan Mortgage Corp. 8.75% due 7/1/08 138 143639
Federal Home Loan Mortgage Corp. 12.50% due 12/1/12 60 69861 .91
Federal Home Loan Mortgage Corp. 9.00% due 3/1/20 155 162807
Federal National Mortgage Assn. 9.00% due 11/1/20 268 281818 .68
Government National Mortgage Assn. 8.50% due 12/15/08 417 434573
Government National Mortgage Assn. 7.50% due 1/15/24 626 614760
Government National Mortgage Assn 6.50% due 2/20/24 876 878136
Government National Mortgage Assn. 6.00% due 6/20/24 904 911445 11.26
Government National Mortgage Assn. 8.50% due 10/15/25 443 454854
Government National Mortgage Assn. 8.50% due 5/15/26 808 828526
Government National Mortgage Assn. 10.00% due 7/15/26 500 543750
------------------------
5324169 12.85
------------------------
U.S. Treasury Obligations - 19.99%
9.25% due 8/15/98 2500 2641399
11.625% due 11/15/04 500 652110
10.375% due 11/15/12 2300 2902669 19.99
8.875% due 8/15/17 1750 2087698
-------------- ---------
8283876 19.99
-------------- ---------
TOTAL BONDS & NOTES (cost: $40,020,767) 39289349 94.79
-------------- ---------
SHORT-TERM SECURITIES
Corporate Short-Term Notes - 2.66%
Associates Corp. of North America 5.70% due 8/1/96 1100 1099826 2.66
-------------- ---------
TOTAL SHORT-TERM SECURITIES (cost: $1,099,826) 1099826 2.66
-------------- ---------
TOTAL INVESTMENT SECURITIES (cost: $41,120,593) 40389175 97.45
Excess of cash and receivables over payables 1058892 2.55
-------------- ---------
NET ASSETS $41,448,067 100.00%
============== =========
/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. Due to the possibility
of early principal payments, the effective maturity of
these securities is shorter than the stated maturity.
/3/ Valued under procedures established
by the Board of Directors.
/4/ Coupon rates may change periodically.
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
Bond Portfolio for Endowments, Inc.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
at July 31, 1996
<S> <C> <C>
Assets:
Investment securities at market
(cost: $41,120,593) $40,389,175
Cash 139,590
Receivables for-
Sales of investments $ 2,770
Accrued interest 940,588 943,358
-----------------------------
41,472,123
Liabilities:
Payables for-
Management services 19,005
Accrued expenses 5,051 24,056
-----------------------------
Net Assets at July 31, 1996-
Equivalent to $16.63 per share on
2,492,949 shares of $1 par value
capital stock outstanding (authorized
capital stock - 5,000,000 shares) $41,448,067
===========
Statement of Operations
for the year ended July 31, 1996
Investment Income:
Interest income $ 3,396,478
Expenses:
Management services fee $ 214,202
Custodian fee 2,796
Registration statement and prospectus 13,855
Auditing fees 30,200
Legal fees 10,059
Taxes other than federal income tax 43,221
Other expenses 28,126
----------------
Total expenses before fee waiver 342,459
Fee waiver 21,023 321,436
-----------------------------
Net investment income 3,075,042
-------------
Realized Gain and Unrealized
Depreciation on Investments:
Net realized gain 123,217
Net change in unrealized depreciation
on investments:
Beginning of year (205,230)
End of year (731,418)
----------------
Net unrealized depreciation on
investments (526,188)
-------------
Net realized gain and unrealized
depreciation on investments (402,971)
-------------
Net Increase in Net Assets Resulting
from Operations $ 2,672,071
===========
Statement of Changes in Net Assets
Year ended July 31
1996 1995
Operations:
Net investment income $ 3,075,042 $ 3,372,869
Net realized gain (loss) on investments 123,217 (339,552)
Net unrealized appreciation (depreciation) on
investments (526,188) 381,338
-----------------------------
Net increase in net assets resulting
from operations 2,672,071 3,414,655
-----------------------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (3,085,285) (3,338,883)
Distributions from net realized
gain on investments - (191,002)
-----------------------------
Total dividends and distributions (3,085,285) (3,529,885)
-----------------------------
Capital Share Transactions:
Proceeds from shares sold:
168,909 and 214,880
shares, respectively 2,838,556 3,539,415
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
94,993 and 130,272 shares,
respectively 1,596,233 2,134,210
Cost of shares repurchased:
377,703 and 484,790
shares, respectively (6,407,611) (8,030,465)
-----------------------------
Net decrease in net assets resulting
from capital share transactions (1,972,822) (2,356,840)
-----------------------------
Total Decrease in Net Assets (2,386,036) (2,472,070)
Net Assets:
Beginning of year 43,834,103 46,306,173
-----------------------------
End of year (including undistributed
net investment income: $299,593 and
$309,836, respectively) $41,448,067 $43,834,103
================ ===========
See Notes to Financial Statements
</TABLE>
<PAGE>
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 through investments in
fixed-income securities. 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 as determined in good faith by the Valuation Committee of the Board
of Directors.
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 $2,796 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, 1996, net unrealized depreciation on investments for book and
federal income tax purposes aggregated $731,418, of which $388,952 related to
appreciated securities and $1,120,370 related to depreciated securities. There
was no difference between book and tax realized gains on securities
transactions for the year ended July 31, 1996. During the year ended July 31,
1996, the fund utilized a capital loss carryforward totaling $123,217 to
offset, for tax purposes, capital gains realized during the year. The fund has
available at July 31, 1996 a net capital loss carryforward totaling $326,488,
which may be used to offset capital gains realized during subsequent years
through July 31, 2003. 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 $41,120,593 at July 31, 1996.
3. The fee of $214,202 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. As of July 31, 1996, no such fee reduction
was required.
Effective December 1, 1995, 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. Fee reductions were $21,023
for the year ended July 31, 1996.
No fees were paid by the fund to its officers and Directors.
4. As of July 31, 1996, accumulated net realized loss on investments was
$326,488 and additional paid-in capital was $39,713,431.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $22,109,357 and $24,176,328, respectively, during the
year ended July 31, 1996.
<PAGE>
<TABLE>
BOND PORTFOLIO FOR ENDOWMENTS, INC.
PER-SHARE DATA AND RATIOS
Year ended July 31
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year 16.82 16.86 19.66 19.44 17.76
-----------------------------------------------------------------------
Income from Investment Operations
Net investment income 1.22 1.26 1.32 1.49 1.47
Net realized and unrealized
gain (loss) on investments (.19) .01 (1.51) .64 1.70
-----------------------------------------------------------------------
Total income from investment oper 1.03 1.27 (.19) 2.13 3.17
-----------------------------------------------------------------------
Less Distributions:
Dividends from net investment inco (1.22) (1.24) (1.35) (1.48) (1.49)
Distributions from net realized ga - (.07) (1.26) (.43) -
-----------------------------------------------------------------------
Total distributions (1.22) (1.31) (2.61) (1.91) (1.49)
-----------------------------------------------------------------------
Net Asset Value, End of Year 16.63 16.82 16.86 19.66 19.44
===================================================================
Total Return 6.25% /1/ 7.97% (1.44)% 11.74% 18.69%
Ratios/Supplemental Data:
Net assets, end of year (in million $41 $44 $46 $67 $65
Ratio of expenses to average net as .75% /1/ .76% .77% .65% .68%
Ratio of net income to average net 7.17% 7.52% 6.99% 7.69% 8.04%
Portfolio turnover rate 54.43% 69.22% 82.12% 35.97% 63.30%
/1/ Had CRMC not waived management services fees,
the fund's expense ratio would have been .80%.
</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, 1996, 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, 1996 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, 1996, 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 30, 1996
