ENDOWMENTS, INC.
AND
BOND PORTFOLIO FOR ENDOWMENTS, INC.
Part B
Statement of Additional Information
December 1, 1996
(as amended February 13, 1997)
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. Vice President, Capital Research and
Management Company; former President, Independent Colleges of Southern
California; (213) 486-9200; Designated Representative: Independent Colleges of
Southern California.
STEVEN D. LAVINE, Age: 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: Madison Foundation.
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.
FRANK L. ELLSWORTH, 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 or has served 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 8/1 - 7/31 Value
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 Value
of Years 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)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
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)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
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.
<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>
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.
<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. 1.
----------------------------------------
Total income from investment operations 2.31 2.84 .49 1. 2.
----------------------------------------
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>
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
