ENDOWMENTS, INC.(SM)
AND
BOND PORTFOLIO FOR ENDOWMENTS, INC.(SM)
Endowments, Inc. (ENDI) seeks to provide long-term growth of principal with
income and preservation of capital as secondary objectives.
Bond Portfolio for Endowments, Inc. (BENDI) seeks to provide as high a level
of current income as is consistent with the preservation of capital.
SEMI-ANNUAL REPORT
For the Six Months Ended January 31, 1997
RESULTS AT A GLANCE (with all distributions reinvested)
<TABLE>
<CAPTION>
STANDARD LIPPER GROWTH LEHMAN LIPPER CORPORATE
& POOR'S AND INCOME AGGREGATE A-RATED
ENDI 500 INDEX FUND INDEX BENDI BOND INDEX BOND FUND AVERAGE
<S> <C> <C> <C> <C> <C> <C>
Total return +17.2% +24.2% +21.2% +5.0% +4.9% +4.9%
for the 6 months
ended January 31, 1997
Average annual +14.8 +15.1 +14.6 +9.8 NA/2/ 9.6
compound return
for the past 21-1/2 years /1/
</TABLE>
/1/ From July 25, 1975, when Capital Research and Management Company became the
funds' investment adviser, through January 31, 1997.
/2/ Figures not available for the full period.
The indexes are unmanaged.
Here are the total returns and average annual compound returns with all
distributions reinvested for periods ended December 31, 1996 (the most recent
calendar quarter):
<TABLE>
<CAPTION>
TOTAL AVERAGE ANNUAL
RETURN COMPOUND RETURN
<S> <C> <C> <C>
ENDI Ten Years +232.07% +12.75%
Five Years +83.63 +12.92
12 Months +17.43 --
BENDI Ten Years +123.68% +8.38%
Five Years +41.70 +7.22
12 Months +3.98 --
</TABLE>
BENDI's 30-day yield as of February 28, 1997, calculated in accordance with the
Securities and Exchange Commission formula, was 6.18%.
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUNDS. THE SHORTER THE TIME
PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES
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.
DEAR SHAREHOLDER:
The six months ended January 31 were marked by continued economic
expansion, low inflation, a robust stock market and fluctuating bond prices. In
this environment, both ENDOWMENTS, INC. and BOND PORTFOLIO FOR ENDOWMENTS, INC.
recorded positive total returns for the first half of fiscal 1997.
ENDOWMENTS, INC. ("ENDI"):
The value of an investment in ENDI, with all distributions taken in
shares, rose 17.2% in the fiscal half-year. The gain was broad-based, with 38
of 42 securities held in the portfolio throughout the period posting increases.
The fund benefited from favorable showings by several of its larger holdings.
Three of the five largest recorded gains of approximately 25%. They are General
Mills and two less well-known companies: Crompton & Knowles, a chemical
manufacturer, and McCormick & Co., a producer of spices and seasonings. Among
them, these three stocks accounted for about 9% of net assets on January 31.
ENDI's latest advance brought the total increase since Capital Research
and Management Company (CRMC) became manager in July 1975 to 1,840% including
reinvestment, which comes to an average compound return of 14.8% a year. These
results are in line with those generated by the unmanaged Standard & Poor's 500
Composite Index, a closely watched measure of the U.S. equity market. Over this
21-1/2-year span, the index registered a total return of 1,945% and an average
compound return of 15.1% a year.
It should be kept in mind that the S&P 500 is the equivalent of a fully
invested fund, while ENDI maintains a conservative investment posture and is
managed in a way that places considerable emphasis on preservation of capital.
During periods when stocks seem expensive, the fund will typically hold a
portion of assets in cash and its equivalents. On January 31, that portion was
equal to 20% of net assets compared with 22% at the start of the fiscal year.
It is worth bearing in mind, too, that ENDI tries to focus on solid,
long-term investments and maintain a portfolio that fluctuates less than the
market as a whole. Over its lifetime the fund has roughly matched the
performance of the S&P 500 with about 80% of the fluctuations, as measured by
standard deviation data. Typically, it has lagged when stock prices have risen
and held its ground better than the index when prices have turned down. For
example, during the decline that took place between May 24 and July 24 in 1996,
the S&P fell 7.1% on a total return basis while ENDI's total return declined
4.8%.
Throughout most of the 1990s, the market has been on an upward march and
the fund has frequently trailed the index. It did so again during the past six
months, as the S&P recorded a total return of 24.2%. At the end of the period,
the yield on the index (1.9%) was at an unprecedented low. Two other measures
of valuation - price-to-sales and price-to-book - were at or close to record
highs, while the price-to-earnings ratio for the index (approximately 20X) also
was around its historic high. In this environment, with stock prices climbing
much faster than corporate profits and dividends, we see considerable risk in
the market. Therefore, we continue to feel that a cautious investment approach
is in order.
Changes made in the portfolio during the period included a reduction in
our investments in large banks. We added to the portfolio the securities of a
few smaller financial institutions and consumer-oriented companies that we felt
offered good value.
BOND PORTFOLIO FOR ENDOWMENTS, INC. ("BENDI"):
BENDI's total return for the six months ended January 31 was 5.0%. This
was in line with a 4.9% return generated by both the unmanaged Lehman Aggregate
Bond Index and the average of 117 corporate A-rated bond funds tracked by
Lipper Analytical Services. During this period the Consumer Price Index rose
1.3%.
These results bring BENDI's total return for the 21-1/2 years since CRMC
became investment manager to 648.6%, or an average of 9.8% a year compounded.
During this time, the Consumer Price Index increased at an average annual rate
of 5.1%. Meanwhile, the Lipper corporate A-rated universe rose at a 9.6%
average annual rate.
The fiscal half-year began with bond prices rising and yields declining.
Subsequently, the fixed-income market reversed course; yields moved higher and
prices turned down. The change took place despite a lack of evidence of
worsening inflation, and there was no action taken by the Federal Reserve to
raise interest rates. In fact, the Fed has not moved to change rates for more
than a year.
What led to the turnaround were signs - notably a strong quarterly gain in
gross domestic product - that the economy could be gathering steam. Among some
fixed-income investors, this produced fear that inflation might accelerate in
the near future.
The fund's portfolio remains conservatively postured. Its average maturity
of 6.3 years on January 31 was below the average of recent years. Currently,
about 48% of net assets is invested in corporate bonds, while 46% is invested
in government issues, with the balance - about 6% - held in the form of cash
and equivalents.
BENDI's portfolio is concentrated at both ends of the investment-grade
spectrum, in top-quality U.S. government issues as well as among Baa-rated
corporate securities. In exploring opportunities in the corporate market, we
have drawn extensively on the research capabilities of the fund's investment
adviser, Capital Research and Management Company. It maintains one of the
industry's most extensive investment intelligence networks, employing a large
number of portfolio counselors and analysts who travel the world studying
companies and gathering information on which decisions to buy and sell
corporate bonds as well as equities are made.
A NEW PRESIDENT
In February, Frank L. Ellsworth joined CRMC as an associate and was
elected president of ENDI and BENDI (succeeding Thomas E. Terry) as well as
chief executive officer of both funds (succeeding Robert B. Egelston). Mr.
Terry has been associated with ENDI and BENDI since the funds were formed and
will continue to serve on the Board of Directors of each fund. Mr. Egelston
will continue to chair both funds.
Dr. Ellsworth brings to his new position a valuable background with
tax-exempt institutions. He has been president of the Independent Colleges of
Southern California since 1991 and has served as a director of both ENDI and
BENDI since 1992. A graduate of the University of Chicago and Columbia
University, Dr. Ellsworth is a former president of Pitzer College. He will be
based in Los Angeles, where he will coordinate Capital Research and Management
Company's services for nonprofit institutions.
A PERSPECTIVE ON THE FUNDS
ENDI and BENDI were formed to help trustees, directors and advisers of
501(c)(3) tax-exempt organizations fulfill their fiduciary responsibilities.
The funds place experienced professional investment management within the reach
of small as well as large nonprofit institutions. ENDI and BENDI operate within
the framework of a prudent investment strategy that limits the risks our
investors are obliged to take. Both funds pursue an approach that is
value-oriented as well as research-driven. Both have built solid records while
keeping expenses low and outdistancing inflation by a comfortable margin.
Finally, we should note that, during the fiscal half-year, a major
shareholder redeemed its holdings in both ENDI and BENDI. In the case of ENDI,
the redemption led to a substantial reduction in the size of the fund's
portfolio and resulted in a large capital gain which will be discussed in a
special letter to all shareholders.
We look forward to reporting to you again at the end of the funds' fiscal
year.
Cordially,
[/s/ Robert B. Egelston]
Robert B. Egelston
Chairman of the Board
[/s/ Frank L. Ellsworth]
Frank L. Ellsworth
President
March 7, 1997
<TABLE>
ENDOWMENTS, INC.
INVESTMENT PORTFOLIO, JANUARY 31, 1997
Percent
of Net
INDUSTRY DIVERSIFICATION Assets
- --------------------------------------------------- ----------
<S> <C> <C> <C>
COMMON STOCKS
Health & Personal Care 9.40%
Banking 8.36
Food & Household Products 6.01
Energy Sources 5.83
Utilities: Electric & Gas 5.58
Insurance 5.12
Machinery & Engineering 4.78
Forest Products & Paper 4.55
Beverages & Tobacco 4.49
Business & Public Services 4.41
Metals: Nonferrous 3.27
Chemicals 3.23
Telecommunications 2.81
Merchandising 2.04
Financial Services 1.74
Automobiles 1.72
Real Estate 1.53
Electrical & Electronics 1.44
Data Processing & Reproduction 1.35
Broadcasting & Publishing .83
Recreation & Other Consumer Products .61
---------
79.10
Common stocks in initial period of acquisition .83
Short-Term Securities 20.27
Excess of payables over cash and receivables .20
Net Assets 100.00%
=========
Percent
of Net
TEN LARGEST HOLDINGS Assets
- --------------------------------------------------- ---------
General Mills 3.35%
Aluminum Co. of America 3.27
Atlantic Richfield 2.84
Crompton & Knowles 2.82
McCormick & Co. 2.66
Tambrands 2.65
Warner-Lambert 2.60
Duke Power 2.52
H.F. Ahmanson & Co. 2.42
RPM 2.40
27.53%
Percent
Number Market Of Net
COMMON STOCKS of shares Value Assets
- --------------------------------------------------- --------- ---------- ---------
ENERGY
Energy Sources-5.83%
Amoco Corp. 10000 $ 870,000 1.87%
Atlantic Richfield Co. 10000 1322500 2.84
Exxon Corp. 5000 518125 1.12
Utilities: Electric & Gas-5.58%
DPL Inc. 15000 367500 .79
Duke Power Co. 25000 1171875 2.52
GPU, Inc. 10000 335000 .72
PG&E Corp. (formerly shown as Pacific Gas and 15000 341250 .73
Electric Co.)
Union Electric Co. 10000 380000 .82
---------- ----------
5306250 11.41
---------- ----------
MATERIALS
Chemicals-3.23%
Dow Chemical Co. 5000 385625 .83
RPM, Inc. 60000 1117500 2.40
Forest Products & Paper-4.55%
Georgia-Pacific Corp. 7000 515375 1.11
International Paper Co. 10000 408750 .88
Louisiana-Pacific Corp. 30000 622500 1.34
Union Camp Corp. 12000 568500 1.22
Metals: Nonferrous-3.27%
Aluminum Co. of America 22000 1518000 3.27
---------- ----------
5136250 11.05
---------- ----------
CAPITAL EQUIPMENT
Data Processing & Reproduction-1.35%
International Business Machines Corp. 4000 629000 1.35
Electrical & Electronics-1.44%
Nokia Corp., Class A (American Depositary Receipts)
(Finland) 5000 334375 .72
Telefonaktiebolaget LM Ericsson, Class B (American
Depositary Receipts) (Sweden) 10000 336719 .72
Machinery & Engineering-4.78%
Caterpillar Inc. 5000 388125 .84
Crompton & Knowles Corp. 70000 1312500 2.82
Parker Hannifin Corp. 12000 517500 1.12
---------- ----------
3518219 7.57
---------- ----------
CONSUMER GOODS
Automobiles-1.72%
Ford Motor Co., Class A 10000 321250 .69
Volvo AB (American Depositary Receipts) (Sweden) 20000 477500 1.03
Beverages & Tobacco-4.49%
Anheuser-Busch Companies, Inc. 20000 850000 1.83
PepsiCo, Inc. 15000 523125 1.13
Philip Morris Companies Inc. 6000 713250 1.53
Food & Household Products-6.01%
General Mills, Inc. 23000 1558250 3.35
McCormick & Co. 50000 1237500 2.66
Health & Personal Care-9.40%
American Home Products Corp. 15000 950625 2.04
Merck & Co., Inc. 5000 453750 .97
Schering-Plough Corp. 7000 529375 1.14
Tambrands Inc. 30000 1230000 2.65
Warner-Lambert Co. 15000 1207500 2.60
Recreation & Other Consumer Products-0.61%
American Greetings Corp., Class A 10000 283125 .61
---------- ----------
10335250 22.23
---------- ----------
SERVICES
Broadcasting & Publishing-0.83%
Gannett Co., Inc. 5000 383125 .83
Business & Public Services-4.41%
ACNielsen Corp. /1/ 3667 60047 .13
Alexander & Baldwin, Inc. 30000 780000 1.68
Browning-Ferris Industries, Inc. 15000 487500 1.05
Cognizant Corp. ('96 spinoff from Dun & Bradstreet) /1/ 11000 353375 .76
WMX Technologies, Inc. 10000 366250 .79
Merchandising-2.04%
J.C. Penney Co., Inc. 20000 947500 2.04
Telecommunications-2.81%
Ameritech Corp. 12000 717000 1.54
AT&T Corp. 15000 590625 1.27
---------- ----------
4685422 10.09
---------- ----------
FINANCE
Banking-8.36%
H.F. Ahmanson & Co. 30000 1125000 2.42
Central Fidelity Banks, Inc. 15000 421875 .91
CoreStates Financial Corp 10000 497500 1.07
Huntington Bancshares Inc. 6200 165075 .35
Jefferson BankShares, Inc. 30000 858750 1.85
U.S. Bancorp 18000 820125 1.76
Financial Services-1.74%
Beneficial Corp. 12000 807000 1.74
Insurance-5.12%
General Re Corp. 3000 484500 1.04
Liberty Corp. 10000 405000 .87
Trenwick Group Inc. 20000 1000000 2.15
USLIFE Corp. 12000 492000 1.06
Real Estate-1.53%
Security Capital Pacific Trust 30000 712499 1.53
---------- ----------
7789324 16.75
---------- ----------
MISCELLANEOUS
Other common stocks in initial period of acquisition 386764 .83
------------- ----------
TOTAL COMMON STOCKS (cost: $27,756,743) 37157479 79.93
---------- ----------
Principal
Amount
SHORT-TERM SECURITIES (000)
Corporate Short-Term Notes-10.41%
American Express Credit Corp. 5.28% due 2/18/97 $1,100 1097096 2.36
General Electric Capital Corp. 5.48% due 2/3/97 540 539753 1.16
International Lease Finance Corp. 5.30% due 4/28/97 1,400 1381933 2.97
National Rural Utilities Cooperative Finance Corp.
5.29% due 3/24/97 830 823658 1.77
PACCAR Financial Corp. 5.28% due 2/20/97 1,000 997067 2.15
---------- ----------
4839507 10.41
---------- ----------
Federal Agency Discount Notes-9.86%
Federal National Mortgage Assn. 5.28%-5.41%
due 2/3-3/27/97 4600 4,581,596 9.86
---------- ----------
TOTAL SHORT-TERM SECURITIES (cost: $9,420,994) 9421103 20.27
---------- ----------
TOTAL INVESTMENT SECURITIES (cost: $37,177,737) 46578582 100.20
Excess of payables over cash and receivables 91034 .20
---------- ----------
NET ASSETS $46,487,548 100.00%
============= ==========
/1/ Non-income-producing security.
See Notes to Financial Statements
Common stocks added to the portfolio
since July 31, 1996
- --------------------------------------
ACNielsen
Browning-Ferris Industries
Cognizant
CoreStates Financial
DPL
GPU
Huntington Bancshares
McCormick & Co.
J.C. Penney
PepsiCo
RPM
Tambrands
Telefonaktiebolaget LM Ericsson
USLIFE
Volvo
Common stocks eliminated from the portfolio
since July 31, 1996
- --------------------------------------
AMBAC
American General
Armor All Products
Boatmen's Bancshares
Comerica
Consolidated Edison Co. of New York
CSX
Dun & Bradstreet
Duracell International
Entergy
First Hawaiian
Imation
Johnson & Johnson
Minnesota Mining and Manufacturing
National City
Phillips Petroleum
Union Pacific
USFreightways
Wal-Mart Stores
Washington Mutual Savings Bank
Weingarten Realty Investors
</TABLE>
<TABLE>
Endowments, Inc.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
at January 31, 1997
Assets:
<S> <C> <C>
Investment securities at market
(cost: $37,177,737) $46,578,582
Cash 64,288
Receivables for dividends 42,241
------------
46,685,111
Liabilities:
Payables for -
Purchase of investments $151,248
Management services 21,963
Accrued expenses 24,352 197,563
------------ ------------
Net Assets at January 31, 1997 -
Equivalent to $19.43 per share on
2,392,110 shares of $1 par value
capital stock outstanding (authorized
capital stock--6,000,000 shares) $46,487,548
=============
Statement of Operations
for the six months ended January 31, 1997
Investment Income:
Income:
Dividends $ 745,930
Interest 378,987 $1,124,917
------------
Expenses:
Management services fee 157,074
Custodian fee 1,632
Registration statement and prospectus 7,861
Reports to shareholders 5,919
Auditing fees 31,550
Legal fees 1,830
Taxes other than federal income tax 15,040
Other expenses 8,991 229,897
Net investment income 895,020
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 7,943,261
Net increase in unrealized
appreciation on investments:
Beginning of period 8,633,233
End of period 9,400,845
------------
Net unrealized appreciation on investments 767,612
Net realized gain and unrealized
appreciation on investments 8,710,873
Net Increase in Net Assets Resulting
from Operations $ 9,605,893
See Notes to Financial Statements
Statement of Changes in Net Assets
Six Months
ended Year ended
1/31/97 7/31/96
Operations:
Net investment income $ 895,020 $ 1,871,962
Net realized gain on investments 7,943,261 6,351,802
Net unrealized appreciation (depreciation)
on investments 767,612 (726,814)
------------ ------------
Net increase in net assets resulting
from operations 9,605,893
------------ -----------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (931,763) (1,975,816)
Distributions from net realized
gain on investments (6,480,136) (3,710,692)
------------- -------------
Total dividends and distributions (7,411,899) (5,686,508)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
85,787 and 279,532
shares, respectively 1,691,190 5,201,405
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
376,732 and 283,073 shares,
respectively 7,116,864 5,156,184
Cost of shares repurchased:
1,256,722 and 518,349
shares, respectively (23,819,397) (9,598,279)
------------- ------------
Net increase (decrease) in net assets
resulting from capital share transactions (15,011,343) 759,310
------------- -------------
Total Increase (Decrease) in Net Assets (12,817,349) (4,927,198)
Net Assets:
Beginning of period 51,807,947 56,735,145
------------- -------------
End of period (including undistributed
net investment income: $120,797 and
$157,540, respectively) $38,990,598 $51,807,947
============= =============
See Notes to Financial Statements
</TABLE>
ENDOWMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Endowments, Inc. (the "fund") is registered under the Investment Company
Act of 1940 as an open-end, diversified management investment company. The fund
seeks to provide long-term growth of principal with income and preservation of
capital as secondary objectives, primarily through investments in 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 by the Board of Directors or a committee thereof.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Dividend and interest income is reported on the accrual basis. Discounts
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 $1,632 includes $1,548 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 January 31, 1997, net unrealized appreciation on investments for
book and federal income tax purposes aggregated $9,400,845, of which $9,757,288
related to appreciated securities and $356,443 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the six months ended January 31, 1997. The cost of
portfolio securities for book and federal income tax purposes was $37,177,737
at January 31, 1997.
3. The fee of $157,074 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. During the six months ended January 31,
1997, no such fee reduction was required.
In addition, CRMC has voluntarily agreed to waive its management services
fees to the extent necessary to ensure that the fund's annual expenses do not
exceed 0.75% of average net assets. During the six months ended January 31,
1997, no such fee reduction was required.
No fees were paid by the fund to its officers and Directors.
4. As of January 31, 1997, accumulated undistributed net realized gain on
investments was $6,238,003 and additional paid-in capital was $28,335,793.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $10,174,504 and $27,999,466, respectively, during the
six months ended January 31, 1997.
<TABLE>
ENDOWMENTS, INC.
PER-SHARE DATA AND RATIOS
Six months Year ended July 31
ended ------- ------- ------- ------- -------
1/31/97 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
Net Asset Value, Beginning of Period 18.61 18.06 17.18 18.43 18.26 17.89
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income from Investment Operations:
Net investment income .29 .58 .63 .65 .66 .78
Net realized and unrealized
gain (loss) on investments 2.82 1.73 2.21 (.16) 1.05 1.74
------- ------- ------- ------- ------- -------
Total income from investment operations 3.11 2.31 2.84 .49 1.71 2.52
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from net investment income (.29) (.61) (.61) (.66) (.69) (.73)
Distributions from net realized gains (2.00) (1.15) (1.35) (1.08) (.85) (1.42)
------- ------- ------- ------- ------- -------
Total distributions (2.29) (1.76) (1.96) (1.74) (1.54) (2.15)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $19.43 $18.61 $18.06 $17.18 $18.43 $18.26
======= ======= ======= ======= ======= =======
Total Return 17.15% /1/ 13.22% 18.57% 2.77% 10.05% 15.74%
Ratios/Supplemental Data:
Net assets, end of period (in millions) $46 $59 $57 $53 $72 $58
Ratio of expenses to average net assets .37% /1/ .72% .73% .73% .64% .70%
Ratio of net income to average net assets 1.45% /1/ 3.12% 3.70% 3.78% 3.72% 4.37%
Average commissions paid per share /2/ 4.98 cents 5.87 cents 5.94 cents 6.27 cents 7.03 cents 7.14 cents
Portfolio turnover rate 21.30% /1/ 38.73% 24.04% 25.58% 29.70% 20.35%
/1/ Based on operations for the period shown and, accordingly, not representative of a full
year's operations
/2/ Brokerage commissions paid on portfolio transactions increase the cost of securities
purchased or reduce the proceeds of securities sold and are not separately reflected in
the fund's statement of operations. Shares traded on a principal basis (without
commission), such as fixed-income transactions, are excluded.
</TABLE>
ENDOWMENTS, INC.
Results of Annual Meeting of Shareholders held November 21, 1996
Shares Outstanding on October 3, 1996 (record date) 3,217,488
Shares Voting on November 21, 1996 2,672,524 (83.06%)
ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
Percent of Percent of
Votes Shares Votes Shares
<S> <C> <C> <C> <C>
Director For Voting For Withheld Withheld
Robert B. Egelston 2,592,977 97.0% 79,547 3.0%
Frank L. Ellsworth 2,592,977 97.0 79,547 3.0
Steven D. Lavine 2,592,977 97.0 79,547 3.0
Patricia A. McBride 2,592,977 97.0 79,547
John R. Metcalf 2,592,977 97.0 79,547 3.0
Charles R. Redmond 2,592,977 97.0 79,547 3.0
Thomas E. Terry 2,592,977 97.0 79,547 3.0
Robert C. Ziebarth 2,592,977 97.0 79,547 3.0
</TABLE>
AMENDMENT OF INVESTMENT OBJECTIVE
<TABLE>
<CAPTION>
Percent of
Percent of Shares Percent of
Votes Shares Votes Voting Shares
For Voting For Against Against Abstentions Abstaining
<S> <C> <C> <C> <C> <C> <C>
Amendment of
investment objective
to specify
"preservation of capital"
as a secondary objective 2,573,843 96.3% 20,376 0.8% 78,305 2.9%
</TABLE>
RATIFICATION OF AUDITORS
<TABLE>
<CAPTION>
Percent of Percent of Percent of
Votes Shares Votes Shares Shares
For Voting For Against Voting Against Abstentions Abstaining
<S> <C> <C> <C> <C> <C> <C>
Deloitte & Touche LLP 2,672,524 100% 0 0% 0 0%
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Endowments, Inc.:
We have audited the accompanying statement of assets and liabilities of
Endowments, Inc. (the "fund"), including the schedule of portfolio investments,
as of January 31, 1997, and the related statement of operations for the six
months then ended, the statement of changes in net assets for the six months
then ended and for the year ended July 31, 1996, and the per-share data and
ratios for the six months ended January 31, 1997 and for each of the five years
in the period ended July 31, 1996. 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
per-share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at January 31, 1997 by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of Endowments, Inc. as of January 31, 1997, the results of its
operations for the six months then ended, the changes in its net assets for the
six months then ended and for the year ended July 31, 1996, and the per-share
data and ratios for the six months ended January 31, 1997 and for each of the
five years ended July 31, 1996, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 21, 1997
<TABLE>
BOND PORTFOLIO FOR ENDOWMENTS, INC.
INVESTMENT PORTFOLIO, JANUARY 31, 1997
Principal Percent
Amount Market of Net
<S> <C> <C> <C>
BONDS & NOTES (000) Value Assets
Industrials - 7.12%
Inco Ltd.:
9.875% due 6/15/19 $ 300 $ 320,970 3.31%
9.60% due 6/15/22 700 761712
News America Holdings Inc. 7.43% due 10/1/26 500 502000 1.54
Philips Electronics N.V. 7.20% due 6/1/26 500 503825 1.54
Time Warner Pass-Through Asset Trust, Series 1997-1
6.10% due 12/30/01 /1/ /2/ 250 239000 .73
------ ---------- ------
2327507 7.12
------ ---------- ------
Electric Utilities - 4.95%
Big Rivers Electric Corp. 10.70% due 9/15/17 1500 1619235 4.95
------ ---------- ------
Telephone - 4.86%
U S WEST Capital Funding, Inc. 6.95% due 1/15/37 500 499495
U S WEST, Inc. 0% convertible 4.86
debentures due 6/25/11 3000 1091250
------ ---------- ------
1590745 4.86
---------- ------
Transportation /2/ - 8.95%
Airplanes Pass Through Trust, Class C, 8.15% due 3/15/19 1000 1034200 3.16
Jet Equipment Trust:
Series 1994-A, 11.79% due 6/15/13 /1/ 750 906750
Series 1995-B, Class A, 7.63% due 2/15/15 /1/ 486 497434 4.29
USAir, Inc., Series 1996-B, 7.50% due 4/15/08 487 489065 1.50
------ ---------- ------
2927449 8.95
------ ---------- ------
Financial - 7.29%
Aetna Services, Inc. 6.97% due 8/15/36 250 253880 .78
American Re Corp. 10.875% due 9/15/04 1000 1073920 3.28
First Union Corp. 6.82%/7.57% due 8/1/26 /3/ 500 498435 1.52
Terra Nova (Bermuda) Holdings Ltd. 10.75% due 7/1/05 500 560000 1.71
------ ---------- ------
2386235 7.29
------ ---------- ------
Real Estate - 1.48%
Irvine Co. 7.46% due 3/15/06 /1/ /4/ 500 482700 1.48
------ ---------- ------
Collateralized Mortgage/Asset-Backed
Obligations /2/ - 6.14%
CSFB Finance Co. Ltd., Series 1995-A, 5.00%/7.00%
due 11/15/05 /1/ /3/ 500 490750 1.50
Green Tree Financial Corp., Series 1995-A, Class NIM,
7.25% due 7/15/05 337 336056 1.03
Merrill Lynch Mortgage Investors, Inc., Series 1995-A,
7.458% due 6/15/21 /5/ 401 406571 1.24
Prudential Home Mortgage Securities Co., Inc.,
Series 1992-2033, Class A-12, 7.50% due 11/25/22 333 333106 1.02
Structured Asset Securities Corp., Series 1996-CFL,
Class A2A, 7.75% due 2/25/28 435 440869 1.35
------ ---------- ------
2007352 6.14
------ ---------- ------
Floating Rate Eurodollar Notes (Undated) 5 - 5.34%
Bank of Nova Scotia 5.875% 1000 874500 2.67
Canadian Imperial Bank of Commerce 5.813% 1000 873800 2.67
------ ---------- ------
1748300 5.34
------ ---------- ------
Governments (excluding U.S. Government) &
Governmental Authorities - 3.65%
Quebec (Province of) 13.25% due 9/15/14 1000 1194880 3.65
------ ---------- ------
Federal Agency Obligations - Mortgage
Pass-Throughs /2/ - 16.79%
Federal Home Loan Mortgage Corp.:
8.75% due 7/1/08 127 133133
12.50% due 12/1/12 58 67148 1.06
9.00% due 3/1/20 138 147040
Federal National Mortgage Assn.:
9.00% due 11/1/20 251 266606 2.33
6.084% due 3/1/33 500 496566
Government National Mortgage Assn.:
8.50% due 12/15/08 381 402739
10.00% due 12/15/19 448 492143
7.50% due 1/15/24 605 610049
6.50% due 2/20/24 819 836024 13.40
7.00% due 6/20/24 838 857200
8.50% due 10/15/25 442 459010
8.50% due 5/15/26 697 724190
------ ---------- ------
5491848 16.79
------ ---------- ------
U.S. Treasury Obligations - 25.29%
9.25% due 8/15/98 2000 2098740
7.25% due 5/15/04 500 523830
11.625% due 11/15/04 500 655545 25.29
10.375% due 11/15/12 2000 2554380
8.875% due 8/15/17 2000 2439680
------ ---------- ------
8272175 25.29
------ ---------- ------
MISCELLANEOUS
Other bonds and notes in initial period of acquisition 658125 2.01
------ ---------- ------
TOTAL BONDS & NOTES (cost: $30,734,982) 30706551 93.87
------ ---------- ------
SHORT-TERM SECURITIES
Corporate Short-Term Notes - 4.19%
General Electric Capital Corp. 5.48% due 2/3/97 1370 1369375 4.19
------ ---------- ------
TOTAL SHORT-TERM SECURITIES (cost: $1,369,375) 1369375 4.19
------ ---------- ------
TOTAL INVESTMENT SECURITIES (cost: $32,104,357) 32075926 98.06
Excess of cash and receivables over payables 634481 1.94
------ ---------- ------
NET ASSETS $32,710,407 100.00%
=========== ======
/1/ Purchased in a private placement transaction; resale to the public may require registration or sale only to
qualified institutional buyers.
/2/ Pass-through securities backed by a pool of mortgages or other loans on which principal
payments are periodically made. Therefore, the effective maturity is shorter than the
stated maturity.
/3/ Represents a step bond; coupon rate will increase at a later date.
/4/ Valued under procedures established by the Board of Directors.
/5/ Coupon rates may change periodically.
See Notes to Financial Statements
</TABLE>
<TABLE>
Bond Portfolio for Endowments, Inc.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
at January 31, 1997
Assets:
<S> <C> <C>
Investment securities at market
(cost: $32,104,357) $32,075,926
Cash 54,761
Receivables for-
Sales of investments $ 3,401
Accrued interest 608,011 611,412
------------ ----------
32,742,099
Liabilities:
Payables for-
Purchases of investments 0
Management services 8,965
Accrued expenses 22,727 31,692
------------ ------------
Net Assets at January 31, 1997-
Equivalent to $16.84 per share on
1,942,324 shares of $1 par value
capital stock outstanding (authorized
capital stock - 5,000,000 shares) $32,710,407
===========
Statement of Operations
for the six months ended January 31, 1997
Investment Income:
Interest income $ 1,544,813
Expenses:
Management services fee $ 97,775
Custodian fee 1,117
Registration statement and prospectus 8,631
Reports to shareholders 5,919
Auditing fees 31,550
Legal fees 1,830
Taxes other than federal income tax 12,541
Other expenses 9,088
------------
Total expenses before fee waiver 168,451
Fee waiver 23,148 145,303
------------ ------------
Net investment income 1,399,510
------------
Realized Loss and Unrealized
Appreciation on Investments:
Net realized loss (213,490)
Net change in unrealized depreciation
on investments:
Beginning of period (731,418)
End of period (28,431)
------------
Net unrealized appreciation on
investments 702,987
------------
Net realized loss and unrealized
appreciation on investments 489,497
------------
Net Increase in Net Assets Resulting
from Operations $ 1,889,007
===========
Statement of Changes in Net Assets
Six months ended Year ended
1/31/97 7/31/96
Operations:
Net investment income $ 1,399,510 $ 3,075,042
Net realized gain (loss) on investments (213,490) 123,217
Net unrealized appreciation (depreciation) on
investments 702,987 (526,188)
------------ ------------
Net increase in net assets resulting
from operations 1,889,007 2,672,071
------------ ------------
Dividends Paid to Shareholders:
Dividends from net investment income (1,436,755) (3,085,285)
Distributions from net realized
gain on investments - -
------------ ------------
Capital Share Transactions:
Proceeds from shares sold:
51,974 and 168,909
shares, respectively 873,707 2,838,556
Proceeds from shares issued in
reinvestment of net investment income
dividends:
realized gain on investments:
42,270 and 94,993 shares,
respectively 699,704 1,596,233
Cost of shares repurchased:
644,869 and 377,703
shares, respectively (10,763,323) (6,407,611)
------------ ------------
Net decrease in net assets resulting
from capital share transactions (9,189,912) (1,972,822)
------------ ------------
Total Decrease in Net Assets (8,737,660) (2,386,036)
Net Assets:
Beginning of period 41,448,067 43,834,103
------------ ------------
End of period (including undistributed
net investment income: $262,348 and
$299,593, respectively) $32,710,407 $41,448,067
============ ===========
See Notes to Financial Statements
</TABLE>
Bond Portfolio for Endowments, Inc.
Notes to Financial Statements
1. Bond Portfolio for Endowments, Inc. (the "fund") is registered under the
Investment Company Act of 1940 as an open-end, diversified management
investment company. The fund seeks to provide as high a level of current income
as is consistent with the preservation of capital. The following paragraphs
summarize the significant accounting policies consistently followed by the fund
in the preparation of its financial statements:
Bonds and notes are valued at prices obtained from a bond-pricing service
provided by a major dealer in bonds, when such prices are available; however,
in circumstances where the investment adviser deems it appropriate to do so,
such securities will be valued at the mean of their representative quoted bid
and asked prices or, if such prices are not available, at prices for securities
of comparable maturity, quality, and type. Short-term securities with original
or remaining maturities in excess of 60 days are valued at the mean of their
quoted bid and asked prices. Short-term securities with 60 days or less to
maturity are valued at amortized cost, which approximates market value.
Securities for which market quotations are not readily available are valued at
fair value by the Board of Directors or a committee thereof.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Interest income is reported on the accrual basis. Discounts on
securities purchased are amortized over the life of the respective securities.
The fund does not amortize premiums on securities purchased. Dividends and
distributions paid to shareholders are recorded on the ex-dividend date.
Shares of the fund may be owned only by organizations exempt from federal
income taxation under Section 501(c)(3) of the Internal Revenue Code. The fund
itself is exempt from federal taxation under Section 501(c)(2) of the Internal
Revenue Code.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $1,117 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 January 31, 1997, net unrealized depreciation on investments for
book and federal income tax purposes aggregated $28,431, of which $446,372
related to appreciated securities and $474,803 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the six months ended January 31, 1997. The fund has
available at January 31, 1997 a net capital loss carryforward totaling
$539,978, 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 $32,104,357 at January 31, 1997.
3. The fee of $97,775 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. During the six months ended January 31, 1997, no
such fee reduction was required.
In addition, CRMC has voluntarily agreed to waive its management services
fees to the extent necessary to ensure that the fund's annual expenses do not
exceed 0.75% of average net assets. Fee reductions were $23,148 for the six
months ended January 31, 1997.
No fees were paid by the fund to its officers and Directors.
4. As of January 31, 1997, accumulated net realized loss on investments was
$539,978 and additional paid-in capital was $31,074,144.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $3,959,346 and $13,101,019, respectively, during the
six months ended January 31, 1997.
<TABLE>
BOND PORTFOLIO FOR ENDOWMENTS, INC.
PER-SHARE DATA AND RATIOS Six months
ended Year Ended July 31
--------- --------- --------- --------- --------- ---------
1/31/97 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $16.63 $16.82 $16.86 $19.66 $19.44 $17.76
--------- --------- --------- --------- --------- ---------
Income from Investment Operations:
Net investment income .62 1.22 1.26 1.32 1.49 1.47
Net realized and unrealized
gain (loss) on investments .20 (.19) .01 (1.51) .64 1.70
--------- --------- --------- --------- --------- ---------
Total income (loss) from investment
operations .82 1.03 1.27 (.19) 2.13 3.17
--------- --------- --------- --------- --------- ---------
Less Distributions:
Dividends from net investment income (.61) (1.22) (1.24) (1.35) (1.48) (1.49)
Distributions from net realized gains - - (.07) (1.26) (.43) -
--------- --------- --------- --------- --------- ---------
Total distributions (.61) (1.22) (1.31) (2.61) (1.91) (1.49)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period $16.84 $16.63 $16.82 $16.86 $19.66 $19.44
======== ======== ======== ======== ======== ========
Total Return 5.00% /1/ 6.25% /1/ 7.97% (1.44)% 11.74% 18.69%
Ratios/Supplemental Data:
Net assets, end of period (in millions) $33 $41 $44 $46 $67 $65
Ratio of expenses to average net assets .37% /1/ /2/ .75% .76% .77% .65% .68%
Ratio of net income to average net assets 3.61% /1/ 7.17% 7.52% 6.99% 7.69% 8.04%
Portfolio turnover rate 11.51% /1/ 54.43% 69.22% 82.12% 35.97% 63.30%
/1/ Based on operations for the period shown and, accordingly, not representative
of a full year's operations.
/2/ Had CRMC not waived management services fees, the fund's expense ratio would have
been 0.43%.
</TABLE>
Bond Portfolio for Endowments, Inc.
Results of Annual Meeting of Shareholders held November 21, 1996
Shares Outstanding on October 3, 1996 (record date) 2,427,377
Shares Voting on November 21, 1996 1,855,995 (76.46%)
Election of Directors
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Percent of Percent of
Votes Shares Votes Shares
Director For Voting For Withheld Withheld
Robert B. Egelston 1,778,240 95.8% 77,755 4.2%
Frank L. Ellsworth 1,778,240 95.8 77,755 4.2
Steven D. Lavine 1,778,240 95.8 77,755 4.2
Patricia A. McBride 1,778,240 95.8 77,755 4.2
John R. Metcalf 1,778,240 95.8 77,755 4.2
Charles R. Redmond 1,778,240 95.8 77,755 4.2
Thomas E. Terry 1,778,240 95.8 77,755 4.2
Robert C. Ziebarth 1,778,240 95.8 77,755 4.2
</TABLE>
RATIFICATION OF AUDITORS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Percent of Percent of Percent of
Votes Shares Votes Shares Shares
For Voting For Against Voting Against Abstentions Abstaining
Deloitte & Touche 1,855,995 100% 0 0% 0 0%
LLP
</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 January 31, 1997, and the related statement of
operations for the six months then ended, the statement of changes in net
assets for the six months then ended and for the year ended July 31, 1996, and
the per-share data and ratios for the six months ended January 31, 1997 and for
each of the five years in the period ended July 31, 1996. 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 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
January 31, 1997 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 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 January 31, 1997, the
results of its operations for the six months then ended, the changes in its net
assets for the six months then ended and for the year ended July 31, 1996, and
the per-share data and ratios for the six months ended January 31, 1997 and for
each of the five years ended July 31, 1996, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 21, 1997
Endowments, Inc. and Bond Portfolio for Endowments, Inc.
OFFICE OF THE FUNDS
One Market
Steuart Tower, Suite 1800
Mailing address: P.O. Box 7650
San Francisco, California 94120-7650
INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071-1443
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
American Funds Service Company
P.O. Box 7650
San Francisco, California 94120-7650
135 South State College Boulevard
Brea, California 92821-5804
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
This report is for the information of shareholders of Endowments, Inc. and Bond
Portfolio for Endowments, Inc., but it may also be used as sales literature
when preceded or accompanied by the current prospectus, which gives details
about charges, expenses, investment objectives and operating policies of the
funds.
Litho in USA DT/PL/3365
(c)1997 Endowments, Inc.
(c)1997 Bond Portfolio for Endowments, Inc.
Lit. No. ENDI-BENDI-013-0397(NLS)
