UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
Certified Shareholder Report of
Registered Management Investment Companies
Investment Company Act File Number: 811-01884
Endowments
(Exact Name of Registrant as Specified in Charter)
P.O. Box 7650, One Market, Steuart Tower
San Francisco, California 94120
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (415) 421-9360
Date of fiscal year end: July 31
Date of reporting period: January 31, 2009
Patrick F. Quan
Capital Research and Management Company
P.O. Box 7650, One Market, Steuart Tower
San Francisco, California 94120
(Name and Address of Agent for Service)
Copies to:
Mitchell E. Nichter
Paul, Hastings, Janofsky & Walker LLP
55 Second Street
Twenty-Fourth Floor
San Francisco, California 94105
(Counsel for the Registrant)
ITEM 1 – Reports to Stockholders
[logo – Capital Research and Management SM]
Endowments
Investments for nonprofit institutions
Semi-annual report for the six months ended January 31, 2009
EndowmentsSM is managed by Capital Research and Management Company,SM which also manages the 31 American Funds.® American Funds is one of the nation’s largest mutual fund families. For nearly 80 years, Capital Research has invested with a long-term focus based on thorough research and attention to risk.
Growth and Income Portfolio seeks to provide long-term growth of principal, with income and preservation of capital as secondary objectives, primarily through investments in common stocks.
Bond Portfolio seeks to provide as high a level of current income as is consistent with the preservation of capital through investments in fixed-income securities.
Figures shown in this report are past results and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity. For current information and month-end results, visit americanfunds.com/endowments.
Here are returns on a $1,000 investment with all distributions reinvested for periods ended December 31, 2008 (the most recent calendar quarter-end): | ||||||||||||
1 year | 5 years | 10 years | ||||||||||
Growth and Income Portfolio | ||||||||||||
Average annual total return | — | –0.90 | % | 3.21 | % | |||||||
Cumulative total return | –30.87 | % | –4.44 | % | 37.19 | % | ||||||
Bond Portfolio | ||||||||||||
Average annual total return | — | 0.27 | % | 3.55 | % | |||||||
Cumulative total return | –11.60 | % | 1.35 | % | 41.74 | % |
The total annual fund operating expense ratio for Growth and Income Portfolio and Bond Portfolio were 0.67% and 0.75%, respectively, as of the most recent fiscal year-end.
Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The funds’ investment adviser waived a portion of its management fees from September 1, 2004, through February 28, 2009. Respective fund results shown reflect actual expenses, with the waiver applied. Fund results would have been lower without the waiver. Please see the Financial Highlights table on pages 24 and 25 for details.
Bond Portfolio’s 30-day yield as of February 28, 2009, calculated in accordance with the Securities and Exchange Commission formula, was 5.43% (5.38% without the waiver).
The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.
Dear shareholders:
We welcome the opportunity to report to you at the midpoint of our 2009 fiscal year.
Growth and Income Portfolio
For the six months ended January 31, 2009, the value of an investment in the Growth and Income Portfolio had a total return of –29.4%.* Over the same period, the unmanaged Standard & Poor’s 500 Composite Index returned –33.9% and the Lipper Growth and Income Funds Index returned –34.4%.
*All percentage gain/loss figures used throughout this letter include reinvestment of distributions.
The first six months of the fund’s fiscal year coincided with one of the worst six-month periods in the history of the equity markets. For the past several years, we had been concerned about the excessive amount of risk that was being taken in many areas of the economy. In hindsight, however, we did not fully appreciate the magnitude of the problems that would ensue. Stocks declined sharply through the period, especially in the autumn of 2008. By late November, the broader stock market had declined a full 50% from its record high just 13 months earlier.
With the economy currently in a steep recession, the government’s response has been substantial. In addition to the government’s action to aid the financial markets in the final months of 2008, a new stimulus package was signed into law February 17. The Federal Reserve slashed interest rates to near zero, from 2% at the start of the fund’s fiscal year. Both the Fed and the Treasury Department have offered funds to many financial institutions.
While the absolute return of the fund was negative due to the broad market selloff, its relative results were better than those of the overall market and those of the average growth and income fund. This was largely due to two factors. First, although we did own some financial stocks, our exposure to them at the beginning of the period was significantly less than their representation in the S&P 500. Second, our cash reserves helped cushion results. While experiencing negative returns is never pleasant, our long-term relative results have been attributable largely to doing better than the market during difficult periods.
At the end of the six months, the portfolio was 92% invested in equities, an increase from the 89% with which we began the period.
Bond Portfolio
For the six months ended January 31, 2009, the Bond Portfolio saw a total return of –9.0%. Over the same period, the unmanaged Barclays Capital U.S. Aggregate Index (formerly the Lehman Brothers U.S. Aggregate Index) rose 3.2%, while the Lipper Corporate Debt A-Rated Bond Funds Average returned –4.4%.
The higher return of the Barclays index — a measure of the broader investment-grade market — was mainly a result of its emphasis on Treasuries. During the period, a flight to quality resulted in extraordinary gains for Treasuries and government agency bonds. Consistent with its long-term strategy, the fund’s managers continued to draw upon its research capabilities and favored corporate issues, which offer higher yields and, over time, have delivered higher total returns.
During these six months, our credit-centered approach clearly led to returns below that of the broader benchmarks. Investors had already begun selling off private mortgage-backed instruments months prior to the downturn, but as the crisis grew and confidence in the financial system waned, the vast majority of corporate bonds and other private issuance produced negative returns.
The Bond Portfolio ended the period with 31% of assets in Treasury and other government-backed securities, up substantially from the beginning of the period. Exposure to corporate bonds from the financial sector fell from 24% at the start of the fund’s fiscal year to 13% at the end of the six-month period. Mortgage- and asset-backed securities made up 31% of the portfolio. Gains in Treasuries were not enough to offset negative returns in these latter categories. We are, of course, not satisfied with the Bond Portfolio’s results during this period. We will continue to improve the portfolio’s credit quality in the months and years to come. At the same time, we plan to maintain the Bond Portfolio’s broad diversity, as we believe this approach is best suited to meet the long-term needs of our shareholders.
At the end of the six-month period, the portfolio was 96% invested in bonds, up from 95% at the beginning of the fiscal year.
Some perspective
Certainly, the first half of 2009 is shaping up to be difficult for the economy. Many have forgotten how painful such periods can be. It is worth noting that the U.S. economy has not suffered a prolonged recession for 26 years. Equally important, both the economy and securities markets not only recovered but thrived after such periods.
We at Capital Research and Management Company have always taken a long-term, research-driven approach to investing that we believe has served our shareholders well through the years. Currently, there are many investment opportunities in the marketplace that we believe may provide attractive long-term returns. We will continue to focus on our intensive, company-focused research to find the best opportunities for our shareholders.
We look forward to reporting to you again at the close of this fiscal year.
Cordially,
/s/ Robert G. O’Donnell
Robert G. O’Donnell
Vice Chairman of the Board
and Principal Executive Officer
/s/ John H. Smet
John H. Smet
President
February 27, 2009
Summary investment portfolio
The following summary investment portfolio is designed to streamline the report and help investors better focus on a fund’s principal holdings. For details on how to obtain a complete schedule of portfolio holdings, please see page 28.
Growth and Income Portfolio, January 31, 2009
unaudited
[begin pie chart]
Industry sector diversification | ||||
Consumer staples | 17.19 | % | ||
Information Technology | 16.55 | |||
Health care | 15.63 | |||
Energy | 11.59 | |||
Financials | 10.58 | |||
Other industries | 20.86 | |||
Short-term securities & other assets less liabilities | 7.60 |
[end pie chart]
Percent of | ||||||||||||
Common stocks - 92.40% | Shares | Value | net assets | |||||||||
Consumer staples - 17.19% | ||||||||||||
Wal-Mart Stores, Inc. | 56,000 | $ | 2,638,720 | 3.56 | % | |||||||
Philip Morris International Inc. | 70,000 | 2,600,500 | 3.50 | |||||||||
Walgreen Co. | 73,000 | 2,000,930 | 2.70 | |||||||||
Coca-Cola Co. | 35,000 | 1,495,200 | 2.01 | |||||||||
PepsiCo, Inc. | 20,000 | 1,004,600 | 1.35 | |||||||||
Hershey Co. | 26,500 | 987,920 | 1.33 | |||||||||
Kraft Foods Inc., Class A | 25,000 | 701,250 | .95 | |||||||||
L'Oréal SA (1) | 9,000 | 598,794 | .81 | |||||||||
Other securities | 728,562 | .98 | ||||||||||
12,756,476 | 17.19 | |||||||||||
Information technology - 16.55% | ||||||||||||
Nokia Corp. (ADR) | 130,000 | 1,595,100 | 2.15 | |||||||||
Cisco Systems, Inc. (2) | 102,000 | 1,526,940 | 2.06 | |||||||||
Oracle Corp. (2) | 83,000 | 1,396,890 | 1.88 | |||||||||
International Business Machines Corp. | 14,500 | 1,328,925 | 1.79 | |||||||||
Microsoft Corp. | 71,000 | 1,214,100 | 1.64 | |||||||||
QUALCOMM Inc. | 30,000 | 1,036,500 | 1.40 | |||||||||
Google Inc., Class A (2) | 2,400 | 812,472 | 1.09 | |||||||||
Applied Materials, Inc. | 60,000 | 562,200 | .76 | |||||||||
Other securities | 2,806,080 | 3.78 | ||||||||||
12,279,207 | 16.55 | |||||||||||
Health care - 15.63% | ||||||||||||
Novo Nordisk A/S, Class B (1) | 25,000 | 1,334,073 | 1.80 | |||||||||
UnitedHealth Group Inc. | 45,000 | 1,274,850 | 1.72 | |||||||||
Roche Holding AG (1) | 8,000 | 1,125,722 | 1.51 | |||||||||
Eli Lilly and Co. | 30,000 | 1,104,600 | 1.49 | |||||||||
Medtronic, Inc. | 31,000 | 1,038,190 | 1.40 | |||||||||
Merck & Co., Inc. | 35,000 | 999,250 | 1.34 | |||||||||
Pfizer Inc | 65,000 | 947,700 | 1.28 | |||||||||
Becton, Dickinson and Co. | 11,000 | 799,370 | 1.08 | |||||||||
Bristol-Myers Squibb Co. | 28,000 | 599,480 | .81 | |||||||||
Schering-Plough Corp. | 32,000 | 561,920 | .76 | |||||||||
Other securities | 1,810,550 | 2.44 | ||||||||||
11,595,705 | 15.63 | |||||||||||
Energy - 11.59% | ||||||||||||
Exxon Mobil Corp. | 43,000 | 3,288,640 | 4.43 | |||||||||
Chevron Corp. | 22,000 | 1,551,440 | 2.09 | |||||||||
Schlumberger Ltd. | 28,000 | 1,142,680 | 1.54 | |||||||||
Royal Dutch Shell PLC, Class B (ADR) | 23,000 | 1,100,090 | 1.48 | |||||||||
Other securities | 1,521,590 | 2.05 | ||||||||||
8,604,440 | 11.59 | |||||||||||
Financials - 10.58% | ||||||||||||
Berkshire Hathaway Inc., Class A (2) | 20 | 1,790,040 | 2.41 | |||||||||
Wells Fargo & Co. | 90,000 | 1,701,000 | 2.29 | |||||||||
American Express Co. | 73,000 | 1,221,290 | 1.64 | |||||||||
JPMorgan Chase & Co. | 27,000 | 688,770 | .93 | |||||||||
U.S. Bancorp | 37,000 | 549,080 | .74 | |||||||||
Other securities | 1,904,570 | 2.57 | ||||||||||
7,854,750 | 10.58 | |||||||||||
Industrials - 7.68% | ||||||||||||
General Electric Co. | 110,305 | 1,338,000 | 1.80 | |||||||||
Boeing Co. | 20,000 | 846,200 | 1.14 | |||||||||
Lockheed Martin Corp. | 10,000 | 820,400 | 1.11 | |||||||||
FedEx Corp. | 15,000 | 764,100 | 1.03 | |||||||||
Other securities | 1,929,160 | 2.60 | ||||||||||
5,697,860 | 7.68 | |||||||||||
Consumer discretionary - 5.50% | ||||||||||||
Lowe's Companies, Inc. | 54,000 | 986,580 | 1.33 | |||||||||
Time Warner Inc. | 100,000 | 933,000 | 1.26 | |||||||||
Target Corp. | 27,500 | 858,000 | 1.15 | |||||||||
Other securities | 1,306,190 | 1.76 | ||||||||||
4,083,770 | 5.50 | |||||||||||
Telecommunication services - 3.38% | ||||||||||||
AT&T Inc. | 68,000 | 1,674,160 | 2.25 | |||||||||
Verizon Communications Inc. | 25,000 | 746,750 | 1.01 | |||||||||
Other securities | 87,480 | .12 | ||||||||||
2,508,390 | 3.38 | |||||||||||
Materials - 1.69% | ||||||||||||
Air Products and Chemicals, Inc. | 13,000 | 653,900 | .88 | |||||||||
Other securities | 601,470 | .81 | ||||||||||
1,255,370 | 1.69 | |||||||||||
Utilities - 1.24% | ||||||||||||
Exelon Corp. | 17,000 | 921,740 | 1.24 | |||||||||
Miscellaneous - 1.37% | ||||||||||||
Other common stocks in initial period of acquisition | 1,019,018 | 1.37 | ||||||||||
Total common stocks (cost: $87,140,991) | 68,576,726 | 92.40 | ||||||||||
Principal | ||||||||||||
amount | ||||||||||||
Short-term securities - 7.27% | (000 | ) | ||||||||||
Federal Home Loan Bank 0.15%-0.25% due 3/10-4/6/2009 | $ | 1,900 | 1,899,024 | 2.56 | ||||||||
U.S. Treasury Bills 0.122%-0.21% due 4/2-4/29/2009 | 1,100 | 1,099,648 | 1.48 | |||||||||
Estée Lauder Companies Inc. 0.30% due 3/19/2009 (3) | 800 | 799,687 | 1.08 | |||||||||
Jupiter Securitization Co., LLC 0.45% due 2/3/2009 (3) | 600 | 599,977 | .81 | |||||||||
Other securities | 999,587 | 1.34 | ||||||||||
Total short-term securities (cost: $5,398,516) | 5,397,923 | 7.27 | ||||||||||
Total investment securities (cost: $92,539,507) | 73,974,649 | 99.67 | ||||||||||
Other assets less liabilities | 240,325 | .33 | ||||||||||
Net assets | $ | 74,214,974 | 100.00 | % | ||||||||
"Miscellaneous" securities include holdings in their initial period of acquisition that have not previously been publicly disclosed. | ||||||||||||
"Other securities" includes all issues that are not disclosed separately in the summary investment portfolio. | ||||||||||||
The following footnotes apply to either the individual securities noted or one or more of the securities aggregated and listed as a single line item. | ||||||||||||
(1) Valued under fair value procedures adopted by authority of the board of trustees. The total value of all such securities was $3,058,589, which represented 4.12% of the net assets of the fund. | ||||||||||||
(2) Security did not produce income during the last 12 months. | ||||||||||||
(3) Purchased in a transaction exempt from registration under the Securities Act of 1933. May be resold in the U.S. in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities, including those in "Other securities," was $1,899,626, which represented 2.56% of the net assets of the fund. | ||||||||||||
Key to abbreviation | ||||||||||||
ADR = American Depositary Receipts | ||||||||||||
See Notes to Financial Statements |
Summary investment portfolio
Bond Portfolio, January 31, 2009
unaudited
The following summary investment portfolio is designed to streamline the report and help investors better focus on a fund’s principal holdings. For details on how to obtain a complete schedule of portfolio holdings, please see the inside back cover.
[begin pie chart]
Holdings by investment type | ||||
Mortgage- and asset-backed obligations | 31.26 | % | ||
Bonds & notes of U.S. government & government agencies | 26.59 | |||
Bonds & notes of governments outside the U.S. | 4.60 | |||
Preferred securities | 3.03 | |||
Other | .28 | |||
Short-term securities & other assets less liabilities | 4.32 | |||
Financials | 13.43 | |||
Industrials | 4.89 | |||
Utilities | 3.20 | |||
Telecommunication services | 2.87 | |||
Energy | 2.08 | |||
Consumer discretionary | 1.74 | |||
Other corporate bonds & notes | 1.71 | |||
Corporate bonds & notes | 29.92 |
[end pie chart]
Principal | Percent | |||||||||||
amount | of net | |||||||||||
Bonds & notes - 92.63% | (000 | ) | Value | assets | ||||||||
Corporate bonds & notes - 29.92% | ||||||||||||
Financials - 13.43% | ||||||||||||
Countrywide Financial Corp., Series B, 5.80% 2012 | $ | 665 | $ | 654,190 | ||||||||
MBNA Global Capital Funding, Series B, 3.993% 2027 (1) | 200 | 89,547 | 1.53 | % | ||||||||
Sovereign Bancorp, Inc. 4.903% 2013 (1) | 500 | 382,010 | .79 | |||||||||
Banco Santander-Chile 5.375% 2014 (2) | 300 | 274,721 | .56 | |||||||||
Other securities | 5,135,815 | 10.55 | ||||||||||
6,536,283 | 13.43 | |||||||||||
Industrials - 4.89% | ||||||||||||
Continental Airlines, Inc.: | ||||||||||||
!Series 2001-1, Class A-2, 6.503% 2011 (3) | 385 | 334,950 | ||||||||||
!6.903%-7.707% 2016-2022 (3) | 352 | 252,434 | 1.21 | |||||||||
Hutchison Whampoa International Ltd. 7.00% 2011 (2) | 250 | 263,232 | .54 | |||||||||
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664% 2013 (2) (3) | 257 | 242,853 | .50 | |||||||||
Other securities | 1,284,784 | 2.64 | ||||||||||
2,378,253 | 4.89 | |||||||||||
Utilities - 3.20% | ||||||||||||
Homer City Funding LLC 8.734% 2026 (3) | 289 | 271,425 | .56 | |||||||||
Reliant Energy Resources Corp. 7.75% 2011 | 250 | 248,248 | .51 | |||||||||
Other securities | 1,039,457 | 2.13 | ||||||||||
1,559,130 | 3.20 | |||||||||||
Telecommunication services - 2.87% | ||||||||||||
SBC Communications Inc: | ||||||||||||
6.25% 2011 | 250 | 261,647 | ||||||||||
5.625% 2016 | 125 | 125,784 | ||||||||||
AT&T Inc. 4.95%-5.80% 2013-2019 | 310 | 314,290 | ||||||||||
AT&T Wireless Services, Inc. 7.875% 2011 | 100 | 107,578 | 1.66 | |||||||||
Other securities | 585,688 | 1.21 | ||||||||||
1,394,987 | 2.87 | |||||||||||
Energy - 2.08% | ||||||||||||
Other securities | 1,011,397 | 2.08 | ||||||||||
Consumer discretionary - 1.74% | ||||||||||||
News America Inc. 6.65% 2037 (4) | 300 | 289,941 | .60 | |||||||||
Other securities | 555,489 | 1.14 | ||||||||||
845,430 | 1.74 | |||||||||||
Other corporate bonds & notes - 1.71% | ||||||||||||
Other securities | 834,086 | 1.71 | ||||||||||
Total corporate bonds & notes | 14,559,566 | 29.92 | ||||||||||
Mortgage- and asset-backed obligations (3) - 31.26% | ||||||||||||
Fannie Mae: | ||||||||||||
Series 2000-T5, Class B, 7.30% 2010 | 500 | 530,090 | ||||||||||
Series 2001-T6B, 6.088% 2011 | 250 | 268,068 | ||||||||||
5.00% 2036 | 622 | 633,710 | ||||||||||
5.632% 2037 (1) | 231 | 236,951 | ||||||||||
6.50% 2037 | 1,400 | 1,459,410 | ||||||||||
5.50% 2038 | 390 | 400,743 | ||||||||||
6.50% 2039 | 645 | 671,806 | ||||||||||
5.00%-12.047% 2021-2041 (1) | 1,439 | 1,497,982 | 11.71 | |||||||||
Freddie Mac: | ||||||||||||
5.00% 2023 | 472 | 483,228 | ||||||||||
5.00% 2023 | 361 | 369,897 | ||||||||||
5.00% 2023 | 359 | 367,822 | ||||||||||
6.00% 2026 | 387 | 400,646 | ||||||||||
5.00% 2038 | 491 | 498,381 | ||||||||||
0%-5.50% 2023-2037 | 643 | 639,632 | 5.67 | |||||||||
Government National Mortgage Assn.: | ||||||||||||
6.00% 2038 | 496 | 510,936 | ||||||||||
6.50% 2038 | 488 | 506,827 | 2.09 | |||||||||
SBA CMBS Trust: | ||||||||||||
Series 2005-1, Class D, 6.219% 2035 (2) (4) | 320 | 281,600 | ||||||||||
Series 2006-1A, Class D, 5.852% 2036 (2) (4) | 300 | 246,000 | ||||||||||
Series 2006-1A, Class A, 5.314% 2036 (2) (4) | 200 | 178,000 | 1.45 | |||||||||
Crown Castle Towers LLC, Series 2005-1, Class D, 5.612% 2035 (2) (4) | 325 | 284,375 | .59 | |||||||||
Honda Auto Receivables Owner Trust, Series 2007-2, Class A-4, 5.57% 2013 | 250 | 253,175 | .52 | |||||||||
PG&E Energy Recovery Funding LLC, Series 2005-1, Class A-3, 4.14% 2012 | 250 | 252,927 | .52 | |||||||||
Bear Stearns Commercial Mortgage Securities Inc., Series 2001-TOP2, Class A-2, 6.48% 2035 | 250 | 248,411 | .51 | |||||||||
Bank of America 5.50% 2012 (2) | 250 | 247,307 | .51 | |||||||||
Other securities | 3,741,877 | 7.69 | ||||||||||
15,209,801 | 31.26 | |||||||||||
Bonds & notes of U.S. government & government agencies - 26.59% | ||||||||||||
U.S. Treasury: | ||||||||||||
4.25% 2012 | 1,300 | 1,428,726 | ||||||||||
4.875% 2012 | 490 | 541,161 | ||||||||||
2.00% 2013 | 280 | 282,702 | ||||||||||
4.25% 2013 | 3,292 | 3,682,398 | ||||||||||
12.50% 2014 | 1,200 | 1,275,564 | ||||||||||
11.25% 2015 | 800 | 1,195,000 | ||||||||||
3.75% 2018 | 360 | 387,731 | ||||||||||
4.00% 2018 | 925 | 1,015,696 | ||||||||||
6.00% 2026 | 300 | 383,298 | ||||||||||
4.50% 2036 | 1,140 | 1,292,737 | ||||||||||
3.875%-4.375% 2018-2038 | 275 | 302,785 | 24.22 | |||||||||
Freddie Mac 5.00% 2018 | 250 | 234,015 | .48 | |||||||||
United States Government Agency-Guaranteed (FDIC insured): | ||||||||||||
Bank of America Corp., Series L, 3.125% 2012 | 150 | 154,211 | .32 | |||||||||
Sovereign Bancorp, Inc. 2.75% 2012 | 150 | 152,371 | .31 | |||||||||
Other securities | 613,353 | 1.26 | ||||||||||
12,941,748 | 26.59 | |||||||||||
Bonds & notes of governments outside the U.S. - 4.60% | ||||||||||||
German Government: | ||||||||||||
4.25% 2014 | € | 470 | 650,926 | |||||||||
3.75% 2017 | 415 | 553,732 | ||||||||||
Series 8, 4.25% 2018 | 315 | 435,665 | 3.37 | |||||||||
French Government O.A.T. Eurobond 4.00% 2018 | 250 | 326,913 | .67 | |||||||||
Israeli Government 7.50% 2014 (4) | ILS 935 | 271,921 | .56 | |||||||||
2,239,157 | 4.60 | |||||||||||
Municipals - 0.26% | ||||||||||||
Other securities | 128,259 | .26 | ||||||||||
Total bonds & notes (cost: $48,786,263) | 45,078,531 | 92.63 | ||||||||||
Convertible securities - 0.02% | Shares | |||||||||||
Financials - 0.02% | ||||||||||||
Fannie Mae, Series 2004-1, 5.375% convertible preferred | 2 | 8,000 | .02 | |||||||||
Total convertible securities (cost: $169,500) | 8,000 | .02 | ||||||||||
Preferred securities - 3.03% | ||||||||||||
Financials - 3.03% | ||||||||||||
Fannie Mae, Series O, 7.00% (1) (2) | 23,175 | 55,041 | .11 | |||||||||
Freddie Mac, Series Z, 8.375% | 10,950 | 11,634 | .02 | |||||||||
Freddie Mac, Series V, 5.57% | 8,300 | 4,088 | .01 | |||||||||
Other securities | 1,404,191 | 2.89 | ||||||||||
Total preferred securities (cost: $4,564,793) | 1,474,954 | 3.03 | ||||||||||
Principal | ||||||||||||
amount | ||||||||||||
Short-term securities - 6.78% | (000 | ) | ||||||||||
Federal Home Loan Bank 0.18% due 2/19/2009 | $ | 1,200 | 1,199,886 | 2.47 | ||||||||
Fannie Mae 0.90% due 2/3/2009 | 800 | 799,994 | 1.64 | |||||||||
NetJets Inc. 0.20% due 2/4/2009 (2) | 700 | 699,984 | 1.44 | |||||||||
U.S. Treasury Bills 0.21% due 4/29/2009 | 600 | 599,729 | 1.23 | |||||||||
Total short-term securities (cost: $3,299,556) | 3,299,593 | 6.78 | ||||||||||
Total investment securities (cost: $56,820,112) | 49,861,078 | 102.46 | ||||||||||
Other assets less liabilities | (1,196,154 | ) | (2.46 | ) | ||||||||
Net assets | $ | 48,664,924 | 100.00 | % | ||||||||
"Other securities" includes all issues that are not disclosed separately in the summary investment portfolio. | ||||||||||||
The following footnotes apply to either the individual securities noted or one or more of the securities aggregated and listed as a single line item. | ||||||||||||
(1) Coupon rate may change periodically. | ||||||||||||
(2) Purchased in a transaction exempt from registration under the Securities Act of 1933. May be resold in the U.S. in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities, including those in "Other securities," was $8,080,968, which represented 16.61% of the net assets of the fund. | ||||||||||||
(3) Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date. | ||||||||||||
(4) Valued under fair value procedures adopted by authority of the board of trustees. The total value of all such securities, including those in "Other securities," was $1,854,362, which represented 3.81% of the net assets of the fund. | ||||||||||||
Key to abbreviation and symbol | ||||||||||||
€ = Euros | ||||||||||||
ILS = Israeli shekels | ||||||||||||
See Notes to Financial Statements |
Financial statements
unaudited
Statements of assets and liabilities | ||||||||
at January 31, 2009 | ||||||||
Growth and Income | Bond | |||||||
Portfolio | Portfolio | |||||||
Assets: | ||||||||
Investment securities, at value (cost: $92,539,507 and $56,820,112, respectively) | $ | 73,974,649 | $ | 49,861,078 | ||||
Cash | 284,681 | 297,720 | ||||||
Unrealized gain on forward currency contracts | - | 27,035 | ||||||
Receivables for: | ||||||||
Sales of investments | 163,265 | 183,890 | ||||||
Dividends and interest | 110,092 | 706,656 | ||||||
Total assets | 74,532,687 | 51,076,379 | ||||||
Liabilities: | ||||||||
Payables for: | ||||||||
Purchases of investments | 267,735 | 2,371,202 | ||||||
Investment advisory services | 29,937 | 18,683 | ||||||
Other fees and expenses | 20,041 | 21,570 | ||||||
Total liabilities | 317,713 | 2,411,455 | ||||||
Net assets at January 31, 2009 | $ | 74,214,974 | $ | 48,664,924 | ||||
Net assets consist of: | ||||||||
Capital paid in on shares of beneficial interest | $ | 95,268,645 | $ | 62,300,907 | ||||
Undistributed (distributions in excess of) net investment income | 91,548 | (556,730 | ) | |||||
Accumulated net realized loss | (2,580,172 | ) | (6,144,833 | ) | ||||
Net unrealized depreciation | (18,565,047 | ) | (6,934,420 | ) | ||||
Net assets at January 31, 2009 | $ | 74,214,974 | $ | 48,664,924 | ||||
Shares of beneficial interest issued and outstanding (no stated par value) - unlimited shares authorized | ||||||||
Shares outstanding | 7,469,225 | 3,763,081 | ||||||
Net asset value per share | $ | 9.94 | $ | 12.93 | ||||
See Notes to Financial Statements | ||||||||
Statements of operations | ||||||||
for the year ended January 31, 2009 | ||||||||
Growth and | ||||||||
Income Portfolio | Bond Portfolio | |||||||
Investment income: | ||||||||
Income: | ||||||||
Dividends (net of non-U.S. taxes of $4,883 on Growth and Income Portfolio) | $ | 1,097,716 | $ | 56,169 | ||||
Interest | 73,790 | 1,516,695 | ||||||
Total income | 1,171,506 | 1,572,864 | ||||||
Fees and expenses: | ||||||||
Investment advisory services | 226,510 | 127,287 | ||||||
Transfer agent services | 373 | 285 | ||||||
Reports to shareholders | 8,499 | 4,514 | ||||||
Registration statement and prospectus | 11,881 | 11,873 | ||||||
Trustees' compensation | 31,658 | 16,623 | ||||||
Trustees' travel expenses | 9,965 | 5,396 | ||||||
Auditing | 23,034 | 23,701 | ||||||
Legal | 7,684 | 7,684 | ||||||
Custodian | 602 | 488 | ||||||
Total fees and expenses before waiver | 320,206 | 197,851 | ||||||
Less investment advisory waiver | 22,651 | 12,729 | ||||||
Total fees and expenses after waiver | 297,555 | 185,122 | ||||||
Net investment income | 873,951 | 1,387,742 | ||||||
Net realized loss and unrealized | ||||||||
depreciation on investments and currency: | ||||||||
Net realized (loss) gain on: | ||||||||
Investments | (2,559,534 | ) | (3,534,029 | ) | ||||
Currency transactions | (20,638 | ) | 9,360 | |||||
(2,580,172 | ) | (3,524,669 | ) | |||||
Net unrealized (depreciation) appreciation on: | ||||||||
Investments | (29,551,019 | ) | (2,770,493 | ) | ||||
Currency translations | (1,667 | ) | 24,810 | |||||
(29,552,686 | ) | (2,745,683 | ) | |||||
Net realized loss and unrealized depreciation | ||||||||
on investments and currency | (32,132,858 | ) | (6,270,352 | ) | ||||
Net decrease in net assets resulting from operations | $ | (31,258,907 | ) | $ | (4,882,610 | ) | ||
See Notes to Financial Statements | ||||||||
Statements of changes in net assets | ||||||||
GROWTH AND INCOME PORTFOLIO | ||||||||
Six months | ||||||||
ended January 31, 2009* | Year ended July 31, 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 873,951 | $ | 1,955,610 | ||||
Net realized (loss) gain on investments and currency transactions | (2,580,172 | ) | 892,518 | |||||
Net unrealized depreciation on investments and currency translations | (29,552,686 | ) | (12,176,211 | ) | ||||
Net decrease in net assets resulting from operations | (31,258,907 | ) | (9,328,083 | ) | ||||
Dividends and distributions paid to shareholders: | ||||||||
Dividends from net investment income | (1,047,492 | ) | (2,232,110 | ) | ||||
Distributions from net realized gain on investments | - | (2,749,537 | ) | |||||
Total dividends and distributions paid to shareholders | (1,047,492 | ) | (4,981,647 | ) | ||||
Net capital share transactions | (1,975,988 | ) | 4,026,592 | |||||
Total decrease in net assets | (34,282,387 | ) | (10,283,138 | ) | ||||
Net assets: | ||||||||
Beginning of period | 108,497,361 | 118,780,499 | ||||||
End of period (including undistributed | ||||||||
net investment income: $91,548 and $265,089, respectively) | $ | 74,214,974 | $ | 108,497,361 | ||||
*Unaudited. | ||||||||
See Notes to Financial Statements | ||||||||
Statements of changes in net assets | ||||||||
BOND PORTFOLIO | ||||||||
Six months | ||||||||
ended January 31, 2009* | Year ended July 31, 2008 | |||||||
Operations: | ||||||||
Net investment income | $ | 1,387,742 | $ | 3,140,719 | ||||
Net realized loss on investments and currency transactions | (3,524,669 | ) | (432,887 | ) | ||||
Net unrealized depreciation on investments and currency translations | (2,745,683 | ) | (3,745,192 | ) | ||||
Net decrease in net assets resulting from operations | (4,882,610 | ) | (1,037,360 | ) | ||||
Dividends paid to shareholders from net investment income | (1,563,449 | ) | (3,415,559 | ) | ||||
Net capital share transactions | (644,537 | ) | 393,671 | |||||
Total decrease in net assets | (7,090,596 | ) | (4,059,248 | ) | ||||
Net assets: | ||||||||
Beginning of period | 55,755,520 | 59,814,768 | ||||||
End of period (including distributions in excess of | ||||||||
net investment income: $(556,730) and $(381,023), respectively) | $ | 48,664,924 | $ | 55,755,520 | ||||
*Unaudited. | ||||||||
See Notes to Financial Statements |
Notes to financial statements
unaudited
1. Organization and significant accounting policies
Organization – Endowments (the "trust") is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company and has initially issued two series of shares, Growth and Income Portfolio and Bond Portfolio (the "funds"). Growth and Income Portfolio seeks to provide long-term growth of principal, with income and preservation of capital as secondary objectives, primarily through investments in common stocks. Bond Portfolio seeks to provide as high a level of current income as is consistent with the preservation of capital through investments in fixed-income securities.
Significant accounting policies – The financial statements have been prepared to comply with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by the trust:
Security valuation – Equity securities are valued at the official closing price of, or the last reported sale price on, the exchange or market on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. Prices for each security are taken from the principal exchange or market in which the security trades. Fixed-income securities, including short-term securities purchased with more than 60 days left to maturity, are valued at prices obtained from an independent pricing service when such prices are available. However, where the investment adviser deems it appropriate, such securities will be valued at the mean quoted bid and asked prices (or bid prices, if asked prices are not available) or at prices for securities of comparable maturity, quality and type. Securities with both fixed-income and equity characteristics, or equity securities traded principally among fixed-income dealers, are valued in the manner described above for either equity or fixed-income securities, depending on which method is deemed most appropriate by the investment adviser. Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates market value. The value of short-term securities originally purchased with maturities greater than 60 days is determined based on an amortized value to par when they reach 60 days or less remaining to maturity. Forward currency contracts are valued at the mean of representative quoted bid and asked prices.
Securities and other assets for which representative market quotations are not readily available or are considered unreliable by the investment adviser are fair valued as determined in good faith under procedures adopted by authority of the trust's board of trustees. Market quotations may be considered unreliable if events occur that materially affect the value of securities (particularly securities outside the U.S.) between the close of trading in those securities and the close of regular trading on the New York Stock Exchange. Various factors may be reviewed in order to make a good faith determination of a security’s fair value. These factors include, but are not limited to, the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or business developments of the issuer; actively traded similar or related securities; conversion or exchange rights on the security; related corporate actions; significant events occurring after the close of trading in the security; and changes in overall market conditions.
Security transactions and related investment income – Security transactions are recorded by the funds as of the date the trades are executed with brokers. Realized gains and losses from security transactions are determined based on the specific identified cost of the securities. In the event a security is purchased with a delayed payment date, the funds will segregate liquid assets sufficient to meet its payment obligations. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Market discounts, premiums and original issue discounts on fixed-income securities are amortized daily over the expected life of the security.
Dividends and distributions to shareholders –Dividends and distributions paid to shareholders are recorded on the ex-dividend date.
Currency translation – Assets and liabilities, including investment securities, denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. Purchases and sales of investment securities and income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions. On the accompanying financial statements, the effects of changes in exchange rates on investment securities are included with the net realized gain or loss and net unrealized appreciation or depreciation on investments. The realized gain or loss and unrealized appreciation or depreciation resulting from all other transactions denominated in currencies other than U.S. dollars are disclosed separately.
Forward currency contracts – Bond Portfolio may enter into forward currency contracts, which represent agreements to exchange currencies on specific future dates at predetermined rates. The fund enters into these contracts to manage its exposure to changes in exchange rates arising from investments denominated in currencies other than U.S. dollars. Upon entering into these contracts, risks may arise from the potential inability of counterparties to meet the terms of their contracts and from possible movements in exchange rates. Due to these risks, the fund could incur losses up to the entire contract amount, which may exceed the net unrealized value shown on the accompanying financial statements. On a daily basis, the fund values forward currency contracts based on the applicable exchange rates and records unrealized gains or losses. The fund records realized gains or losses at the time the forward contract is closed or offset by another contract with the same broker for the same settlement date and currency. Closed forward currency contracts that have not reached their expiration date are included in the respective receivables for sales or payables for purchases of investment securities in the statement of assets and liabilities.
2. Risk factors
Investing in the funds may involve certain risks including, but not limited to, those described below.
The prices of, and the income generated by, securities held by the funds may decline in response to certain events, including those directly involving the companies whose securities are owned by the funds; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency, interest rate and commodity price fluctuations.
The prices of, and the income generated by, most debt securities held by the funds may be affected by changing interest rates and by changes in the effective maturities and credit ratings of these securities. For example, the prices of debt securities in the funds’ portfolios generally will decline when interest rates rise and increase when interest rates fall. In addition, falling interest rates may cause an issuer to redeem, “call” or refinance a security before its stated maturity, which may result in a fund having to reinvest the proceeds in lower yielding securities.
Investments outside the U.S. may be subject to certain risks. For example, changes in relationships among global currencies may trigger declines in the value of the funds’ holdings. Investing in securities issued by entities based outside the U.S. may also be affected by currency controls, different accounting and legal standards, expropriation, tax policies, greater market volatility and various administrative difficulties.
3. Taxation and distributions
Federal income taxation – The funds comply with the requirements under Subchapter M of the Internal Revenue Code applicable to mutual funds and intend to distribute substantially all of their net taxable income and net capital gains each year. The funds are not subject to income taxes to the extent such distributions are made. Therefore, no federal income tax provision is required.
As of and during the period ended January 31, 2009, the funds did not have a liability for any unrecognized tax benefits. The funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the funds did not incur any interest or penalties.
The funds are not subject to examination by U.S. federal tax authorities for tax years before 2004 and by state tax authorities for tax years before 2003.
Non-U.S. taxation – Dividend and interest income is recorded net of non-U.S. taxes paid.
Distributions – Distributions paid to shareholders are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains for financial reporting purposes. These differences are due primarily to differing treatment for items such as short-term capital gains and losses; capital losses related to sales of certain securities within 30 days of purchases; unrealized appreciation of certain investments in securities outside the U.S.; net capital losses; amortization of premiums; and income on certain investments. The fiscal year in which amounts are distributed may differ from the year in which the net investment income and net realized gains are recorded by the funds for financial reporting purposes.
The components of distributable earnings on a tax basis are reported as of the funds’ most recent year-end. As of July 31, 2008, the components of distributable earnings on a tax basis were as follows:
Growth and Income Portfolio | Bond Portfolio | |||||||||||
Undistributed ordinary income | $ | 265,089 | $ | 260,410 | ||||||||
Capital loss carryforwards*: | ||||||||||||
Expiring 2011 | - | $ | (197,715 | ) | ||||||||
Expiring 2014 | - | (345,750 | ) | |||||||||
Expiring 2015 | - | (1,278,462 | ) | |||||||||
Expiring 2016 | - | (218,313 | ) | (2,040,240 | ) | |||||||
Post-October capital loss deferrals (realized during the period November 1, 2007, through July 31, 2008)† | - | (547,546 | ) | |||||||||
*The capital loss carryforwards will be used to offset any capital gains realized by the fund in the current year or in subsequent years through the expiration dates. The fund will not make distributions from capital gains while capital loss carryforwards remain. †These deferrals are considered incurred in the subsequent year. |
As of January 31, 2009, the tax basis unrealized appreciation (depreciation) and cost of investment securities were as follows:
Growth and Income Portfolio | Bond Portfolio | |||||||
Gross unrealized appreciation on investment securities | $ | 5,241,747 | $ | 653,589 | ||||
Gross unrealized depreciation on investment securities | (23,826,960 | ) | (8,363,681 | ) | ||||
Net unrealized depreciation on investment securities | (18,585,213 | ) | (7,710,092 | ) | ||||
Cost of investment securities | 92,559,862 | 57,571,170 |
4. Fees and transactions with related parties
Capital Research and Management Company ("CRMC"), the funds’ investment adviser, is the parent company of American Funds Service Company® ("AFS"), the funds’ transfer agent, and American Funds Distributors,® Inc. ("AFD"), the principal underwriter of the funds’ shares.
Investment advisory services - The Investment Advisory and Service Agreement with CRMC provides for monthly fees accrued daily. These fees are based on an annual rate of 0.50% on the first $150 million of each fund’s daily net assets and 0.40% on such assets in excess of $150 million.
The Investment Advisory and Service Agreement provides for a fee reduction to the extent that annual operating expenses exceed 0.75% of the average daily net assets of each fund. Expenses related to interest, taxes, brokerage commissions, transaction costs and extraordinary items are not subject to these limitations. For the six months ended January 31, 2009, no such fee reductions were required. CRMC voluntarily waived a portion of investment advisory services fees during the six months ended January 31, 2009. Total investment advisory services fees waived by CRMC were $22,651 and $12,729 for Growth and Income Portfolio and Bond Portfolio, respectively. As a result, the fees shown on the accompanying financial statements of $226,510 and $127,287, for Growth and Income Portfolio and Bond Portfolio, respectively, were both reduced to an annualized rate of 0.450% of average daily net assets.
Transfer agent services – The funds have a transfer agent agreement with AFS. Under this agreement, this share class compensates AFS for transfer agent services including shareholder recordkeeping and communications.
Distribution services – The trust has a principal underwriting agreement with AFD. AFD does not receive compensation for any sales of the funds’ shares.
Affiliated officers and trustees – Officers and certain trustees of the trust are or may be considered to be affiliated with CRMC, AFD and AFS. No affiliated officers or trustees received any compensation directly from the funds.
5. Disclosure of fair value measurements
The series adopted the Statement of Financial Accounting Standards No. 157 (“FAS 157”), Fair Value Measurements, on August 1, 2008. FAS 157 requires the funds to classify their assets and liabilities into three levels based on the method used to value the assets or liabilities. Level 1 values are based on quoted prices in active markets for identical securities. Level 2 values are based on significant observable market inputs, such as quoted prices for similar securities and quoted prices in inactive markets. Level 3 values are based on significant unobservable inputs that reflect the funds’ determination of assumptions that market participants might reasonably use in valuing the securities. The valuation levels are not necessarily an indication of the risk or liquidity associated with the underlying investment. For example, U.S. government securities are generally high quality and liquid; however, they are reflected as Level 2 because the inputs used to determine fair value may not always be quoted prices in an active market. The following table presents the funds’ valuation levels as of January 31, 2009:
Growth and Income Portfolio | Bond Portfolio | |||||||
Investment securities: | ||||||||
Level 1 – Quoted prices | $ | 65,518,137 | $ | 70,763 | ||||
Level 2 – Other significant observable inputs | 8,456,512 | 48,497,815 | ||||||
Level 3 – Significant unobservable inputs | - | 1,292,500 | ||||||
Total | $ | 73,974,649 | $ | 49,861,078 |
Investment securities trading outside the U.S. (1) | $ | 3,058,589 | - |
Forward currency contracts: | ||||||||
Level 2 – Other significant observable inputs | - | $ | 27,035 | (2) |
(1)Represents certain securities trading outside the U.S. whose values were adjusted as a result of significant market movements following the close of local trading; therefore, these amounts were classified as Level 2 instead of Level 1 in the above chart.
(2) Forward currency contracts are not included in the summary investment portfolio.
The following table reconciles the valuation of Bond Portfolio’s Level 3 investment securities and related transactions during the six months ended January 31, 2009:
Level 3 investment securities | ||||
Beginning value at 8/1/2008 | $ | - | ||
Net unrealized appreciation (3) | 42,954 | |||
Net transfers into Level 3 | 1,249,546 | |||
Ending value at 1/31/2009 | $ | 1,292,500 |
Net unrealized appreciation during the period on Level 3 investment securities held at 1/31/2009 | $ | 42,954 |
(3) Net unrealized appreciation is included in the related amounts on investments in the statements of operations.
6. Capital share transactions
Capital share transactions in the funds were as follows:
Sales | Reinvestments of dividends and distributions | Repurchases | Net (decrease) increase | |||||||||||||||||||||||||||||
Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | |||||||||||||||||||||||||
Six months ended January 31, 2009 | ||||||||||||||||||||||||||||||||
Growth and Income Portfolio | $ | 2,846,621 | 243,256 | $ | 915,788 | 75,690 | $ | (5,738,397 | ) | (470,822 | ) | $ | (1,975,988 | ) | (151,876 | ) | ||||||||||||||||
Bond Portfolio | 1,103,768 | 79,550 | 1,393,059 | 103,671 | (3,141,364 | ) | (225,392 | ) | (644,537 | ) | (42,171 | ) | ||||||||||||||||||||
Year ended July 31, 2008 | ||||||||||||||||||||||||||||||||
Growth and Income Portfolio | $ | 9,427,098 | 601,592 | $ | 4,623,482 | 293,245 | $ | (10,023,988 | ) | (632,953 | ) | $ | 4,026,592 | 261,884 | ||||||||||||||||||
Bond Portfolio | 4,146,499 | 266,513 | 2,950,641 | 192,308 | (6,703,469 | ) | (433,530 | ) | 393,671 | 25,291 |
7. Forward currency contracts
As of January 31, 2009, Bond Portfolio had open forward currency contracts to sell currencies as follows:
Contract amount | U.S. valuation at January 31, 2009 | |||
Unrealized | ||||
Receive | Deliver | Amount | appreciation | |
Sales: | ||||
Euros | ||||
expiring 2/26 to 3/12/2009 | $1,837,887 | €1,415,000 | $1,810,852 | $27,035 |
8. Investment transactions
Growth and Income Portfolio and Bond Portfolio made purchases of investment securities of $17,386,123 and $9,851,054 and sales of investment securities of $12,999,492 and $10,527,899, respectively, during the six months ended January 31, 2009. Short-term securities and U.S. government obligations, if any, were excluded.
Financial highlights (1)
Growth and Income Portfolio
(Loss) income from investment operations(2) | Dividends and distributions | |||||||||||||||||||
Net asset value, beginning of period | Net investment income | Net (losses) gains on securities (both realized and unrealized) | Total from investment operations | Dividends (from net investment income) | Distributions (from capital gains) | Total dividends and distributions | Net asset value, end of period | Total return (3) | Net assets, end of period (in millions) | Ratio of expenses to average net assets before waivers | Ratio of expenses to average net assets after waivers (3) | Ratio of net income to average net assets (3) | ||||||||
Class A: | ||||||||||||||||||||
Six months ended 1/31/2009 | (4) | $14.24 | $.12 | $ | (4.28) | $(4.16) | $(.14) | $ - | $(.14) | $9.94 | (29.38)% | $74 | .71% | (5) | .66% | (5) | 1.93% | (5) | ||
Year ended 7/31/2008 | 16.14 | .26 | (1.48) | (1.22) | (.30) | (.38) | (.68) | 14.24 | (7.95) | 108 | .67 | .62 | 1.67 | |||||||
Year ended 7/31/2007 | 14.86 | .29 | 2.03 | 2.32 | (.27) | (.77) | (1.04) | 16.14 | 16.02 | 119 | .69 | .64 | 1.81 | |||||||
Year ended 7/31/2006 | 14.95 | .23 | .44 | .67 | (.23) | (.53) | (.76) | 14.86 | 4.61 | 104 | .71 | .66 | 1.56 | |||||||
Year ended 7/31/2005 | 14.10 | .24 | 1.20 | 1.44 | (.21) | (.38) | (.59) | 14.95 | 10.33 | 106 | .69 | .66 | 1.60 | |||||||
Year ended 7/31/2004 | 12.57 | .20 | 1.53 | 1.73 | (.20) | - | (.20) | 14.10 | 13.81 | 90 | .64 | .64 | 1.43 |
Bond Portfolio
(Loss) income from investment operations(2) | Dividends and distributions | |||||||||||||||||||
Net asset value, beginning of period | Net investment income | Net (losses) gains on securities (both realized and unrealized) | Total from investment operations | Dividends (from net investment income) | Distributions (from capital gains) | Total dividends and distributions | Net asset value, end of period | Total return (3) | Net assets, end of period (in millions) | Ratio of expenses to average net assets before waivers | Ratio of expenses to average net assets after waivers (3) | Ratio of net income to average net assets (3) | ||||||||
Class A: | ||||||||||||||||||||
Six months ended 1/31/2009 | (4) | $14.65 | $.37 | $ | (1.67) | $(1.30) | $(.42) | $ - | $(.42) | $12.93 | (8.96)% | $49 | .78% | (5) | .73% | (5) | 5.45% | (5) | ||
Year ended 7/31/2008 | 15.82 | .83 | (1.09) | (.26) | (.91) | - | (.91) | 14.65 | (1.81) | 56 | .75 | .70 | 5.33 | |||||||
Year ended 7/31/2007 | 15.99 | .83 | (.07) | .76 | (.93) | - | (.93) | 15.82 | 4.81 | 60 | .76 | .71 | 5.12 | |||||||
Year ended 7/31/2006 | 16.62 | .81 | (.50) | .31 | (.94) | - | (.94) | 15.99 | 1.94 | 60 | .79 | .74 | 5.00 | |||||||
Year ended 7/31/2005 | 16.72 | .78 | .05 | .83 | (.93) | - | (.93) | 16.62 | 5.07 | 65 | .74 | .71 | 4.61 | |||||||
Year ended 7/31/2004 | 16.57 | .83 | .22 | 1.05 | (.90) | - | (.90) | 16.72 | 6.37 | 59 | .70 | .70 | 4.93 |
Year ended July 31 | ||||||||||||||||||||||||
Six months ended January 31, 2009(4) | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||
Portfolio turnover rate | 16 | % | 21 | % | 24 | % | 25 | % | 31 | % | 32 | % | ||||||||||||
Portfolio turnover rate | 31 | % | 60 | % | 52 | % | 62 | % | 51 | % | 36 | % |
(1) Based on operations for the periods shown (unless otherwise noted) and, accordingly, may not be representative of a full year. |
(2) Based on average shares outstanding. |
(3) This column reflects the impact, if any, of certain waivers from CRMC. During the periods shown, CRMC reduced fees for investment advisory services. |
(4) Unaudited. |
(5) Annualized. |
See Notes to Financial Statements |
Expense example
60; unaudited
As a shareholder of the funds, you incur certain ongoing costs, including management fees and other expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the funds so you can compare these costs with the ongoing costs of investing in other mutual funds. The examples on the next page are based on an investment of $1,000 invested at the beginning of the period and held for the entire period (August 1, 2008, through January 31, 2009).
Actual expenses:
The first line for each fund in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses paid during period" to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes:
The second line for each fund in the table on the next page provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio for the fund and an assumed rate of return of 5% per year before expenses, which is not the actual return of the fund. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Notes:
Shareholders may be subject to fees charged by financial intermediaries. You can estimate the impact of these fees by adding the amount of the fees to the total estimated expenses you paid on your account during the period as calculated above. In addition, your ending account value would also be lower by the amount of these fees.
Beginning account value 8/1/2008 | Ending account value 1/31/2009 | Expenses paid during period* | Annualized expense ratio | |||||||||||||
Growth and Income Portfolio -- actual return | $ | 1,000.00 | $ | 706.16 | $ | 2.84 | .66 | % | ||||||||
Growth and Income Portfolio -- assumed 5% return | 1,000.00 | 1,021.88 | 3.36 | .66 | ||||||||||||
Bond Portfolio -- actual return | 1,000.00 | 910.40 | 3.52 | .73 | ||||||||||||
Bond Portfolio -- assumed 5% return | 1,000.00 | 1,021.53 | 3.72 | .73 |
*The “expenses paid during period” are equal to the “annualized expense ratio,” multiplied by the average account value over the period, multiplied by the number of days in the period (184), and divided by 365 (to reflect the one-half year period).
Endowments
Office of the trust
One Market
Steuart Tower, Suite 1800
Mailing address: P.O. Box 7650
San Francisco, CA 94120-7650
Investment adviser
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071-1406
Transfer agent for shareholder accounts
American Funds Service Company
Attn: HOST/IIS-IRV S-1
6455 Irvine Center Drive
Irvine, CA 92618
Custodian of assets
JPMorgan Chase Bank
270 Park Avenue
New York, NY 10017-2070
Independent registered public accounting firm
Deloitte & Touche LLP
695 Town Center Drive
Suite 1200
Costa Mesa, CA 92626-7188
Counsel
Paul, Hastings, Janofsky & Walker LLP
515 South Flower Street
Los Angeles, CA 90071-2228
Principal underwriter
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406
For more information about any of the American Funds, please ask your investment professional for a prospectus.
“American Funds Proxy Voting Guidelines” — which describes how we vote proxies relating to portfolio securities — is available free of charge on the U.S. Securities and Exchange Commission (SEC) website at sec.gov, on the American Funds website at americanfunds.com or upon request by calling American Funds Service Company (AFS) at 800/421-0180. The funds file their proxy voting records with the SEC for the 12 months ended June 30 by August 31. The reports also are available on the Endowments website at americanfunds.com/endowments and on the SEC website.
A complete January 31, 2009, portfolio of Endowments’ investments is available free of charge by calling AFS or visiting the SEC website (where it is part of Form N-CSR).
Endowments files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. This filing is available free of charge on the SEC website. You may also review or, for a fee, copy this filing at the SEC’s Public Reference Room in Washington, D.C. Additional information regarding the operation of the Public Reference Room may be obtained by calling the SEC’s Office of Investor Education and Advocacy at 800/SEC-0330. Additionally, the list of portfolio holdings is available by calling AFS.
This report is for the information of shareholders of Endowments, but it also may 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.
[logo – Capital Research and Management (sm)]
The Capital Group Companies
Capital International Capital Guardian Capital Research and Management Capital Bank and Trust American Funds
Lit. No. MFGESR-985-0309P
Litho in USA REG/PL/9141-S16162
© 2009 ENDOWMENTS
10% post-consumer waste
Printed with inks containing soy and/or vegetable oil
ITEM 2 – Code of Ethics
Not applicable for filing of semi-annual reports to shareholders.
ITEM 3 – Audit Committee Financial Expert
Not applicable for filing of semi-annual reports to shareholders.
ITEM 4 – Principal Accountant Fees and Services
Not applicable for filing of semi-annual reports to shareholders.
ITEM 5 – Audit Committee of Listed Registrants
Not applicable to this Registrant, insofar as the Registrant is not a listed issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934.
ITEM 6 – Schedule of Investments
[logo - Capital Research and Management sm]
Endowments, Growth and Income PortfolioSM
Investment portfolio
January 31, 2009
unaudited
Common stocks — 92.40% | Shares | Value | ||||||
CONSUMER STAPLES — 17.19% | ||||||||
Wal-Mart Stores, Inc. | 56,000 | $ | 2,638,720 | |||||
Philip Morris International Inc. | 70,000 | 2,600,500 | ||||||
Walgreen Co. | 73,000 | 2,000,930 | ||||||
Coca-Cola Co. | 35,000 | 1,495,200 | ||||||
PepsiCo, Inc. | 20,000 | 1,004,600 | ||||||
Hershey Co. | 26,500 | 987,920 | ||||||
Kraft Foods Inc., Class A | 25,000 | 701,250 | ||||||
L’Oréal SA1 | 9,000 | 598,794 | ||||||
Avon Products, Inc. | 26,500 | 541,925 | ||||||
Altria Group, Inc. | 11,284 | 186,637 | ||||||
12,756,476 | ||||||||
INFORMATION TECHNOLOGY — 16.55% | ||||||||
Nokia Corp. (ADR) | 130,000 | 1,595,100 | ||||||
Cisco Systems, Inc.2 | 102,000 | 1,526,940 | ||||||
Oracle Corp.2 | 83,000 | 1,396,890 | ||||||
International Business Machines Corp. | 14,500 | 1,328,925 | ||||||
Microsoft Corp. | 71,000 | 1,214,100 | ||||||
QUALCOMM Inc. | 30,000 | 1,036,500 | ||||||
Google Inc., Class A2 | 2,400 | 812,472 | ||||||
Applied Materials, Inc. | 60,000 | 562,200 | ||||||
Intel Corp. | 40,000 | 516,000 | ||||||
Texas Instruments Inc. | 28,000 | 418,600 | ||||||
Analog Devices, Inc. | 20,000 | 399,600 | ||||||
Intuit Inc.2 | 17,000 | 385,050 | ||||||
Hewlett-Packard Co. | 11,000 | 382,250 | ||||||
EMC Corp.2 | 32,000 | 353,280 | ||||||
Linear Technology Corp. | 15,000 | 351,300 | ||||||
12,279,207 | ||||||||
HEALTH CARE — 15.63% | ||||||||
Novo Nordisk A/S, Class B1 | 25,000 | 1,334,073 | ||||||
UnitedHealth Group Inc. | 45,000 | 1,274,850 | ||||||
Roche Holding AG1 | 8,000 | 1,125,722 | ||||||
Eli Lilly and Co. | 30,000 | 1,104,600 | ||||||
Medtronic, Inc. | 31,000 | 1,038,190 | ||||||
Merck & Co., Inc. | 35,000 | 999,250 | ||||||
Pfizer Inc | 65,000 | 947,700 | ||||||
Becton, Dickinson and Co. | 11,000 | 799,370 | ||||||
Bristol-Myers Squibb Co. | 28,000 | 599,480 | ||||||
Schering-Plough Corp. | 32,000 | 561,920 | ||||||
Wyeth | 10,000 | 429,700 | ||||||
Johnson & Johnson | 7,000 | 403,830 | ||||||
Stryker Corp. | 8,000 | 337,920 | ||||||
Amgen Inc.2 | 6,000 | 329,100 | ||||||
Aetna Inc. | 10,000 | 310,000 | ||||||
11,595,705 | ||||||||
ENERGY — 11.59% | ||||||||
Exxon Mobil Corp. | 43,000 | 3,288,640 | ||||||
Chevron Corp. | 22,000 | 1,551,440 | ||||||
Schlumberger Ltd. | 28,000 | 1,142,680 | ||||||
Royal Dutch Shell PLC, Class B (ADR) | 23,000 | 1,100,090 | ||||||
Diamond Offshore Drilling, Inc. | 8,000 | 502,080 | ||||||
ConocoPhillips | 8,000 | 380,240 | ||||||
Baker Hughes Inc. | 11,000 | 366,520 | ||||||
Occidental Petroleum Corp. | 5,000 | 272,750 | ||||||
8,604,440 | ||||||||
FINANCIALS — 10.58% | ||||||||
Berkshire Hathaway Inc., Class A2 | 20 | 1,790,040 | ||||||
Wells Fargo & Co. | 90,000 | 1,701,000 | ||||||
American Express Co. | 73,000 | 1,221,290 | ||||||
JPMorgan Chase & Co. | 27,000 | 688,770 | ||||||
U.S. Bancorp | 37,000 | 549,080 | ||||||
Allstate Corp. | 22,000 | 476,740 | ||||||
Chubb Corp. | 8,000 | 340,640 | ||||||
KeyCorp | 35,000 | 254,800 | ||||||
Lincoln National Corp. | 16,000 | 242,080 | ||||||
Bank of America Corp. | 35,000 | 230,300 | ||||||
Comerica Inc. | 12,000 | 199,920 | ||||||
Citigroup Inc. | 35,000 | 124,250 | ||||||
American International Group, Inc. | 28,000 | 35,840 | ||||||
7,854,750 | ||||||||
INDUSTRIALS — 7.68% | ||||||||
General Electric Co. | 110,305 | 1,338,000 | ||||||
Boeing Co. | 20,000 | 846,200 | ||||||
Lockheed Martin Corp. | 10,000 | 820,400 | ||||||
FedEx Corp. | 15,000 | 764,100 | ||||||
United Parcel Service, Inc., Class B | 10,000 | 424,900 | ||||||
Avery Dennison Corp. | 15,000 | 363,450 | ||||||
Illinois Tool Works Inc. | 10,000 | 326,600 | ||||||
Deere & Co. | 9,000 | 312,660 | ||||||
Emerson Electric Co. | 8,000 | 261,600 | ||||||
United Technologies Corp. | 5,000 | 239,950 | ||||||
5,697,860 | ||||||||
CONSUMER DISCRETIONARY — 5.50% | ||||||||
Lowe’s Companies, Inc. | 54,000 | 986,580 | ||||||
Time Warner Inc. | 100,000 | 933,000 | ||||||
Target Corp. | 27,500 | 858,000 | ||||||
Carnival Corp., units | 20,000 | 363,800 | ||||||
Nordstrom, Inc. | 25,000 | 317,250 | ||||||
News Corp., Class A | 45,000 | 287,550 | ||||||
Home Depot, Inc. | 13,000 | 279,890 | ||||||
Gannett Co., Inc. | 10,000 | 57,700 | ||||||
4,083,770 | ||||||||
TELECOMMUNICATION SERVICES — 3.38% | ||||||||
AT&T Inc. | 68,000 | 1,674,160 | ||||||
Verizon Communications Inc. | 25,000 | 746,750 | ||||||
Sprint Nextel Corp., Series 12 | 36,000 | 87,480 | ||||||
2,508,390 | ||||||||
MATERIALS — 1.69% | ||||||||
Air Products and Chemicals, Inc. | 13,000 | 653,900 | ||||||
E.I. du Pont de Nemours and Co. | 15,000 | 344,400 | ||||||
Alcoa Inc. | 33,000 | 257,070 | ||||||
1,255,370 | ||||||||
UTILITIES — 1.24% | ||||||||
Exelon Corp. | 17,000 | 921,740 | ||||||
MISCELLANEOUS — 1.37% | ||||||||
Other common stocks in initial period of acquisition | 1,019,018 | |||||||
Total common stocks (cost: $87,140,991) | 68,576,726 | |||||||
Principal amount | ||||||||
Short-term securities — 7.27% | (000 | ) | ||||||
Federal Home Loan Bank 0.15%–0.25% due 3/10–4/6/2009 | $ | 1,900 | 1,899,024 | |||||
U.S. Treasury Bills 0.122%–0.21% due 4/2–4/29/2009 | 1,100 | 1,099,648 | ||||||
Estée Lauder Companies Inc. 0.30% due 3/19/20093 | 800 | 799,687 | ||||||
Jupiter Securitization Co., LLC 0.45% due 2/3/20093 | 600 | 599,977 | ||||||
General Dynamics Corp. 0.23% due 2/12/20093 | 500 | 499,962 | ||||||
Freddie Mac 0.33% due 4/3/2009 | 500 | 499,625 | ||||||
Total short-term securities (cost: $5,398,516) | 5,397,923 | |||||||
Total investment securities (cost: $92,539,507) | 73,974,649 | |||||||
Other assets less liabilities | 240,325 | |||||||
Net assets | $ | 74,214,974 |
“Miscellaneous” securities include holdings in their initial period of acquisition that have not previously been publicly disclosed.
1Valued under fair value procedures adopted by authority of the board of trustees. The total value of all such securities was $3,058,589, which represented 4.12% of the net assets of the fund. |
2Security did not produce income during the last 12 months. |
3Purchased in a transaction exempt from registration under the Securities Act of 1933. May be resold in the U.S. in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities was $1,899,626, which represented 2.56% of the net assets of the fund. |
Key to abbreviation
ADR = American Depositary Receipts
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so you may lose money.
Investors should carefully consider the investment objectives, risks, and expenses of the fund. This and other important information is contained in the fund’s prospectus, which should be read carefully before investing.
Endowments, Bond PortfolioSM
Investment portfolio
January 31, 2009
unaudited
Bonds & notes — 92.63% | Principal amount (000) | Value | ||||||
CORPORATE BONDS & NOTES — 29.92% | ||||||||
Financials — 13.43% | ||||||||
Countrywide Financial Corp., Series B, 5.80% 2012 | $ | 665 | $ | 654,190 | ||||
MBNA Global Capital Funding, Series B, 3.993% 20271 | 200 | 89,547 | ||||||
Hospitality Properties Trust 6.30% 2016 | 400 | 212,233 | ||||||
Hospitality Properties Trust 5.625% 2017 | 115 | 60,344 | ||||||
Hospitality Properties Trust 6.70% 2018 | 200 | 113,548 | ||||||
Sovereign Bancorp, Inc. 4.903% 20131 | 500 | 382,010 | ||||||
Banco Santander-Chile 5.375% 20142 | 300 | 274,721 | ||||||
United Overseas Bank Ltd. 5.375% 20191,2 | 250 | 224,411 | ||||||
Fifth Third Bancorp 8.25% 2038 | 200 | 151,042 | ||||||
Fifth Third Capital Trust IV 6.50% 20671 | 125 | 57,062 | ||||||
New York Life Global Funding 4.65% 20132 | 200 | 197,483 | ||||||
Lincoln National Corp. 7.00% 20661 | 425 | 196,593 | ||||||
SLM Corp., Series A, 4.50% 2010 | 200 | 186,044 | ||||||
DBS Bank Ltd. 1.704% 20211,2 | 250 | 184,377 | ||||||
International Lease Finance Corp., Series R, 6.375% 2013 | 100 | 73,425 | ||||||
American General Finance Corp., Series I, 5.40% 2015 | 250 | 110,100 | ||||||
Loews Corp. 6.00% 2035 | 225 | 182,187 | ||||||
CNA Financial Corp. 6.50% 2016 | 250 | 181,251 | ||||||
MetLife Capital Trust X 9.25% 20681,2 | 250 | 180,004 | ||||||
Resona Bank, Ltd. 5.85% (undated)1,2 | 305 | 163,370 | ||||||
Kimco Realty Corp., Series C, 4.82% 2014 | 200 | 148,265 | ||||||
Nationwide Financial Services, Inc. 6.75% 20671 | 335 | 146,650 | ||||||
Hartford Financial Services Group, Inc. 8.125% 20681 | 250 | 144,063 | ||||||
Principal Life Insurance Co. 5.30% 2013 | 150 | 143,842 | ||||||
American Express Co. 6.15% 2017 | 150 | 141,292 | ||||||
HSBC Holdings PLC 6.50% 2037 | 150 | 137,244 | ||||||
HBOS PLC 6.75% 20182 | 150 | 132,728 | ||||||
Prudential Holdings, LLC, Series C, 8.695% 20232,3 | 150 | 130,600 | ||||||
UniCredito Italiano SpA 5.584% 20171,2 | 200 | 130,078 | ||||||
Santander Issuances, SA Unipersonal 5.805% 20161,2 | 100 | 79,857 | ||||||
Abbey National PLC 7.95% 2029 | 60 | 49,976 | ||||||
Capital One Capital III 7.686% 20361 | 231 | 122,430 | ||||||
United Dominion Realty Trust, Inc. 6.50% 2009 | 125 | 122,101 | ||||||
Chubb Corp. 6.375% 20671 | 150 | 101,394 | ||||||
Simon Property Group, LP 6.125% 2018 | 125 | 96,519 | ||||||
Capmark Financial Group Inc. 5.875% 2012 | 250 | 94,970 | ||||||
JPMorgan Chase Capital XXII, Series V, 6.45% 20871 | 125 | 93,570 | ||||||
ORIX Corp. 5.48% 2011 | 125 | 92,292 | ||||||
Monumental Global Funding 5.50% 20132 | 100 | 91,063 | ||||||
Liberty Mutual Group Inc., Series C, 10.75% 20881,2 | 150 | 90,127 | ||||||
Allstate Corp., Series A, 6.50% 20671 | 125 | 80,898 | ||||||
CIT Group Inc. 6.10% 20671 | 250 | 80,723 | ||||||
Northern Rock PLC 6.594% (undated)1,2 | 200 | 47,000 | ||||||
Nationwide Mutual Insurance Co. 7.875% 20332 | 85 | 46,907 | ||||||
TuranAlem Finance BV 8.25% 20372 | 100 | 43,500 | ||||||
Credit Agricole SA 6.637% (undated)1,2 | 100 | 38,500 | ||||||
Catlin Insurance Ltd. 7.249% (undated)1,2 | 150 | 35,752 | ||||||
6,536,283 | ||||||||
Industrials — 4.89% | ||||||||
Continental Airlines, Inc., Series 2001-1, Class A-2, 6.503% 20113 | 385 | 334,950 | ||||||
Continental Airlines, Inc., Series 1997-1, Class A, 7.461% 20163 | 112 | 78,592 | ||||||
Continental Airlines, Inc., Series 2007-1, Class B, 6.903% 20223 | 70 | 45,106 | ||||||
Continental Airlines, Inc., Series 2000-2, Class A-1, 7.707% 20223 | 169 | 128,736 | ||||||
Hutchison Whampoa International Ltd. 7.00% 20112 | 250 | 263,232 | ||||||
Hutchison Whampoa International Ltd. 6.50% 20132 | 150 | 152,312 | ||||||
BAE SYSTEMS 2001 Asset Trust, Series 2001, Class G, MBIA insured, 6.664% 20132,3 | 257 | 242,853 | ||||||
Delta Air Lines, Inc., Series 2002-1, Class G-2, MBIA insured, 6.417% 20143 | 200 | 155,300 | ||||||
Delta Air Lines, Inc., Series 2002-1, Class G-1, MBIA insured, 6.718% 20243 | 121 | 81,491 | ||||||
Canadian National Railway Co. 6.375% 2037 | 200 | 200,554 | ||||||
Norfolk Southern Corp. 5.75% 2018 | 200 | 193,064 | ||||||
American Airlines, Inc., Series 2001-2, Class A-1, 6.978% 20123 | 148 | 136,727 | ||||||
Burlington Northern Santa Fe Corp. 7.00% 2014 | 125 | 132,610 | ||||||
United Air Lines, Inc., Series 2007-1, Class A, 6.636% 20243 | 140 | 98,369 | ||||||
CSX Corp. 5.75% 2013 | 50 | 48,165 | ||||||
CSX Corp. 6.15% 2037 | 50 | 38,234 | ||||||
Southern Capital Corp. Pass Through Trust, Series 2002-1, Class G, MBIA insured, 5.70% 20232,3 | 49 | 47,958 | ||||||
2,378,253 | ||||||||
Utilities — 3.20% | ||||||||
Midwest Generation, LLC, Series B, 8.56% 20163 | 83 | 81,393 | ||||||
Homer City Funding LLC 8.734% 20263 | 289 | 271,425 | ||||||
Reliant Energy Resources Corp. 7.75% 2011 | 250 | 248,248 | ||||||
MidAmerican Energy Holdings Co., Series D, 5.00% 2014 | 225 | 224,630 | ||||||
E.ON International Finance BV 5.80% 20182 | 200 | 193,474 | ||||||
FPL Energy National Wind, LLC 5.608% 20242,3 | 198 | 155,091 | ||||||
National Rural Utilities Cooperative Finance Corp. 5.50% 2013 | 150 | 152,708 | ||||||
PSEG Power LLC 3.75% 2009 | 125 | 125,264 | ||||||
Abu Dhabi National Energy Co. PJSC (TAQA) 6.50% 20362 | 150 | 106,897 | ||||||
1,559,130 | ||||||||
Telecommunication services — 2.87% | ||||||||
SBC Communications Inc. 6.25% 2011 | 250 | 261,647 | ||||||
AT&T Wireless Services, Inc. 7.875% 2011 | 100 | 107,578 | ||||||
AT&T Inc. 4.95% 2013 | 200 | 204,036 | ||||||
SBC Communications Inc. 5.625% 2016 | 125 | 125,784 | ||||||
AT&T Inc. 5.80% 2019 | 110 | 110,254 | ||||||
Telecom Italia Capital SA 5.25% 2015 | 100 | 85,223 | ||||||
Telecom Italia Capital SA 7.721% 2038 | 250 | 234,044 | ||||||
Nextel Communications, Inc., Series E, 6.875% 2013 | 375 | 181,968 | ||||||
Verizon Communications Inc. 5.55% 20142 | 85 | 84,453 | ||||||
1,394,987 | ||||||||
Energy — 2.08% | ||||||||
Enbridge Energy Partners, LP, Series B, 7.50% 2038 | 250 | 212,075 | ||||||
Tengizchevroil Finance Co. S.àr.l., Series A, 6.124% 20142,3 | 257 | 205,745 | ||||||
TransCanada PipeLines Ltd. 7.125% 2019 | 100 | 106,184 | ||||||
TransCanada PipeLines Ltd. 6.35% 20671 | 150 | 85,479 | ||||||
Rockies Express Pipeline LLC 6.85% 20182 | 150 | 152,967 | ||||||
Enterprise Products Operating LLC 5.65% 2013 | 150 | 143,383 | ||||||
Qatar Petroleum 5.579% 20112,3 | 56 | 53,042 | ||||||
Ras Laffan Liquefied Natural Gas Co. Ltd. 3.437% 20092,3 | 53 | 52,522 | ||||||
1,011,397 | ||||||||
Consumer discretionary — 1.74% | ||||||||
News America Inc. 6.65% 20374 | 300 | 289,941 | ||||||
Tele-Communications, Inc. 9.80% 2012 | 215 | 231,492 | ||||||
Time Warner Cable Inc. 6.75% 2018 | 150 | 146,739 | ||||||
Seminole Tribe of Florida 5.798% 20132,3 | 105 | 98,317 | ||||||
Thomson Reuters Corp. 6.50% 2018 | 85 | 78,941 | ||||||
845,430 | ||||||||
Consumer staples — 0.61% | ||||||||
Kroger Co. 6.40% 2017 | 150 | 152,307 | ||||||
Safeway Inc. 6.25% 2014 | 100 | 105,664 | ||||||
Delhaize Group 5.875% 2014 | 40 | 40,412 | ||||||
298,383 | ||||||||
Information technology — 0.44% | ||||||||
National Semiconductor Corp. 6.15% 2012 | 150 | 119,906 | ||||||
KLA-Tencor Corp. 6.90% 2018 | 125 | 95,191 | ||||||
215,097 | ||||||||
Health care — 0.42% | ||||||||
Amgen Inc. 5.70% 2019 | 195 | 203,051 | ||||||
Materials — 0.24% | ||||||||
ArcelorMittal 6.125% 2018 | 150 | 117,555 | ||||||
Total corporate bonds & notes | 14,559,566 | |||||||
MORTGAGE- AND ASSET-BACKED OBLIGATIONS3 — 31.26% | ||||||||
Fannie Mae, Series 2000-T5, Class B, 7.30% 2010 | 500 | 530,090 | ||||||
Fannie Mae, Series 2001-T6B, 6.088% 2011 | 250 | 268,068 | ||||||
Fannie Mae 6.00% 2021 | 15 | 15,770 | ||||||
Fannie Mae, Series 2001-4, Class GA, 10.148% 20251 | 23 | 25,533 | ||||||
Fannie Mae 6.00% 2026 | 91 | 94,027 | ||||||
Fannie Mae 7.50% 2031 | 6 | 5,864 | ||||||
Fannie Mae, Series 2001-20, Class C, 12.047% 20311 | 17 | 18,932 | ||||||
Fannie Mae 5.00% 2036 | 622 | 633,710 | ||||||
Fannie Mae 5.632% 20371 | 231 | 236,951 | ||||||
Fannie Mae 6.00% 2037 | 200 | 206,376 | ||||||
Fannie Mae 6.50% 2037 | 1,400 | 1,459,410 | ||||||
Fannie Mae 6.50% 2037 | 174 | 180,956 | ||||||
Fannie Mae 6.50% 2037 | 130 | 134,354 | ||||||
Fannie Mae 7.00% 2037 | 203 | 212,093 | ||||||
Fannie Mae 7.00% 2037 | 191 | 199,854 | ||||||
Fannie Mae 7.00% 2037 | 174 | 183,041 | ||||||
Fannie Mae 5.00% 2038 | 200 | 203,413 | ||||||
Fannie Mae 5.50% 2038 | 390 | 400,743 | ||||||
Fannie Mae 6.50% 2039 | 645 | 671,806 | ||||||
Fannie Mae, Series 2001-T10, Class A-1, 7.00% 2041 | 17 | 17,769 | ||||||
Freddie Mac 5.00% 2023 | 472 | 483,228 | ||||||
Freddie Mac 5.00% 2023 | 361 | 369,897 | ||||||
Freddie Mac 5.00% 2023 | 359 | 367,822 | ||||||
Freddie Mac 5.00% 2023 | 95 | 97,147 | ||||||
Freddie Mac 6.00% 2026 | 387 | 400,646 | ||||||
Freddie Mac, Series 3156, Class PO, principal only, 0% 2036 | 101 | 85,461 | ||||||
Freddie Mac, Series 3257, Class PA, 5.50% 2036 | 220 | 225,649 | ||||||
Freddie Mac, Series 3318, Class JT, 5.50% 2037 | 227 | 231,375 | ||||||
Freddie Mac 5.00% 2038 | 491 | 498,381 | ||||||
Government National Mortgage Assn. 6.00% 2038 | 496 | 510,936 | ||||||
Government National Mortgage Assn. 6.50% 2038 | 488 | 506,827 | ||||||
SBA CMBS Trust, Series 2005-1, Class D, 6.219% 20352,4 | 320 | 281,600 | ||||||
SBA CMBS Trust, Series 2006-1A, Class A, 5.314% 20362,4 | 200 | 178,000 | ||||||
SBA CMBS Trust, Series 2006-1A, Class D, 5.852% 20362,4 | 300 | 246,000 | ||||||
Crown Castle Towers LLC, Series 2005-1, Class A-FX, 4.643% 20352 | 200 | 180,000 | ||||||
Crown Castle Towers LLC, Series 2005-1, Class D, 5.612% 20352,4 | 325 | 284,375 | ||||||
CS First Boston Mortgage Securities Corp., Series 2004-C4, Class A-4, 4.283% 2039 | 255 | 214,144 | ||||||
CS First Boston Mortgage Securities Corp., Series 2005-C6, Class A-3, 5.23% 20401 | 125 | 104,388 | ||||||
American Tower Trust I, Series 2007-1A, Class D, 5.957% 20372,4 | 200 | 149,000 | ||||||
American Tower Trust I, Series 2007-1A, Class E, 6.249% 20372,4 | 250 | 153,525 | ||||||
Honda Auto Receivables Owner Trust, Series 2007-2, Class A-4, 5.57% 2013 | 250 | 253,175 | ||||||
PG&E Energy Recovery Funding LLC, Series 2005-1, Class A-3, 4.14% 2012 | 250 | 252,927 | ||||||
Bear Stearns Commercial Mortgage Securities Inc., Series 2001-TOP2, Class A-2, 6.48% 2035 | 250 | 248,411 | ||||||
Bank of America 5.50% 20122 | 250 | 247,307 | ||||||
Nationwide Building Society, Series 2007-2, 5.50% 20122 | 250 | 231,249 | ||||||
L.A. Arena Funding, LLC, Series 1, Class A, 7.656% 20262 | 256 | 221,296 | ||||||
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4, Class A-2, 4.79% 2042 | 229 | 215,370 | ||||||
Wachovia Bank Commercial Mortgage Trust, Series 2005-C17, Class A-2, 4.782% 2042 | 221 | 212,219 | ||||||
Nissan Auto Lease Trust, Series 2008-A, Class A-3a, 5.14% 2011 | 200 | 186,718 | ||||||
Long Beach Acceptance Auto Receivables Trust, Series 2006-B, Class A-4, FSA insured, 5.18% 2013 | 200 | 172,797 | ||||||
Chase Commercial Mortgage Securities Corp., Series 2000-1, Class A-2, 7.757% 2032 | 154 | 151,448 | ||||||
Chase Manhattan Bank — First Union National Bank, Commercial Mortgage Trust, Series 1999-1, Class B, 7.619% 2031 | 125 | 125,440 | ||||||
American Home Mortgage Assets Trust, Series 2007-3, Class II-2A-1, 6.25% 20371 | 227 | 125,389 | ||||||
LB-UBS Commercial Mortgage Trust, Series 2000-C3, Class A-2, 7.95% 2025 | 119 | 121,343 | ||||||
Countrywide Alternative Loan Trust, Series 2005-40CB, Class A-1, 5.50% 2035 | 166 | 120,704 | ||||||
Residential Accredit Loans, Inc., Series 2007-QS9, Class A-33, 6.50% 2037 | 215 | 112,508 | ||||||
Susquehanna Auto Lease Trust, Series 2007-1, Class A-3, 5.25% 20102 | 112 | 111,183 | ||||||
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-4, Class 6-A, 5.921% 20361 | 113 | 62,546 | ||||||
Structured Adjustable Rate Mortgage Loan Trust, Series 2006-12, Class 2-A1, 5.928% 20371 | 87 | 45,921 | ||||||
Triad Automobile Receivables Trust, Series 2006-C, Class A-3, AMBAC insured, 5.26% 2011 | 105 | 104,109 | ||||||
AmeriCredit Automobile Receivables Trust, Series 2006-B-G, Class A-4, FGIC insured, 5.21% 2013 | 150 | 103,054 | ||||||
Wells Fargo Alternative Loan Trust, Series 2007-PA3, Class IV-A-1, 6.50% 2037 | 220 | 97,491 | ||||||
IndyMac IMSC Mortgage Loan Trust, Series 2007-F3, Class 3-A-1, 7.00% 2037 | 173 | 95,389 | ||||||
GS Mortgage Securities Corp. II, Series 1998-C1, Class E, 7.19% 20301 | 76 | 75,492 | ||||||
UPFC Auto Receivables Trust, Series 2005-B, Class A-3, XLCA insured, 4.98% 2011 | 63 | 60,671 | ||||||
Cendant Timeshare Receivables Funding, LLC, Series 2005-1, Class A-1, FGIC insured, 4.67% 20172 | 47 | 36,361 | ||||||
Residential Funding Mortgage Securities II, Inc., Series 2007-HSA2, Class A-1F, MBIA insured, 8.47% 20371 | 36 | 34,700 | ||||||
Vanderbilt Mortgage and Finance, Inc., Series 2001-A, Class B-1, 8.20% 2020 | 34 | 32,734 | ||||||
CWHEQ Revolving Home Equity Loan Trust, Series 2007-C, Class A, FGIC insured, 0.483% 20371 | 141 | 30,972 | ||||||
Structured Asset Securities Corp., Series 1998-RF2, Class A, 8.467% 20271,2 | 31 | 30,525 | ||||||
Morgan Stanley Dean Witter Capital I Trust, Series 2001-TOP5, Class A-3, 6.16% 2035 | 23 | 23,191 | ||||||
15,209,801 | ||||||||
BONDS & NOTES OF U.S. GOVERNMENT & GOVERNMENT AGENCIES — 26.59% | ||||||||
U.S. Treasury 4.25% 2012 | 1,300 | 1,428,726 | ||||||
U.S. Treasury 4.875% 2012 | 490 | 541,161 | ||||||
U.S. Treasury 2.00% 2013 | 280 | 282,702 | ||||||
U.S. Treasury 4.25% 2013 | 3,292 | 3,682,398 | ||||||
U.S. Treasury 12.50% 2014 | 1,200 | 1,275,564 | ||||||
U.S. Treasury 11.25% 2015 | 800 | 1,195,000 | ||||||
U.S. Treasury 3.75% 2018 | 360 | 387,731 | ||||||
U.S. Treasury 3.875% 2018 | 190 | 206,403 | ||||||
U.S. Treasury 4.00% 2018 | 925 | 1,015,696 | ||||||
U.S. Treasury 6.00% 2026 | 300 | 383,298 | ||||||
U.S. Treasury 4.50% 2036 | 1,140 | 1,292,737 | ||||||
U.S. Treasury 4.375% 2038 | 85 | 96,382 | ||||||
Freddie Mac 5.00% 2018 | 250 | 234,015 | ||||||
United States Government Agency-Guaranteed (FDIC insured), Goldman Sachs Group, Inc. 3.25% 2012 | 150 | 154,863 | ||||||
United States Government Agency-Guaranteed (FDIC insured), JPMorgan Chase & Co. 3.125% 2011 | 150 | 154,472 | ||||||
United States Government Agency-Guaranteed (FDIC insured), Bank of America Corp., Series L, 3.125% 2012 | 150 | 154,211 | ||||||
United States Government Agency-Guaranteed (FDIC insured), KeyBank NA 3.20% 2012 | 150 | 154,132 | ||||||
United States Government Agency-Guaranteed (FDIC insured), Sovereign Bancorp, Inc. 2.75% 2012 | 150 | 152,371 | ||||||
United States Government Agency-Guaranteed (FDIC insured), PNC Funding Corp. 2.30% 2012 | 150 | 149,886 | ||||||
12,941,748 | ||||||||
BONDS & NOTES OF GOVERNMENTS OUTSIDE THE U.S. — 4.60% | ||||||||
German Government 4.25% 2014 | € | 470 | 650,926 | |||||
German Government 3.75% 2017 | 415 | 553,732 | ||||||
German Government, Series 8, 4.25% 2018 | 315 | 435,665 | ||||||
French Government O.A.T. Eurobond 4.00% 2018 | 250 | 326,913 | ||||||
Israeli Government 7.50% 20144 | ILS935 | 271,921 | ||||||
2,239,157 | ||||||||
MUNICIPALS — 0.26% | ||||||||
State of South Dakota, Educational Enhancement Funding Corp., Tobacco Settlement Asset-backed Bonds, | ||||||||
Series 2002-A, Class A, 6.72% 2025 | $ | 144 | 106,565 | |||||
State of Louisiana,Tobacco Settlement Financing Corp., Tobacco Settlement Asset-backed Bonds, | ||||||||
Series 2001-A, Class A, 6.36% 2025 | 25 | 21,694 | ||||||
128,259 | ||||||||
Total bonds & notes (cost: $48,786,263) | 45,078,531 | |||||||
Convertible securities — 0.02% | Shares | |||||||
FINANCIALS — 0.02% | ||||||||
Fannie Mae, Series 2004-1, 5.375% convertible preferred | 2 | 8,000 | ||||||
Total convertible securities (cost: $169,500) | 8,000 | |||||||
Preferred securities — 3.03% | ||||||||
FINANCIALS — 3.03% | ||||||||
Chuo Mitsui Trust and Banking Co., Ltd. 5.506%1,2 | 250,000 | 142,714 | ||||||
BNP Paribas Capital Trust 9.003% noncumulative trust1,2 | 150,000 | 84,064 | ||||||
BNP Paribas 7.195%1,2 | 100,000 | 55,040 | ||||||
Standard Chartered PLC 6.409%1,2 | 400,000 | 138,112 | ||||||
JPMorgan Chase & Co., Series I, 7.90%1 | 150,000 | 114,283 | ||||||
DBS Capital Funding Corp., Series A, 7.657% noncumulative guaranteed preference shares1,2 | 125,000 | 110,025 | ||||||
QBE Capital Funding II LP 6.797%1,2 | 200,000 | 109,978 | ||||||
PNC Preferred Funding Trust I 6.517%1,2 | 200,000 | 96,337 | ||||||
ILFC E-Capital Trust II 6.25%1,2 | 255,000 | 83,687 | ||||||
ING Capital Funding Trust III 8.439% noncumulative1 | 170,000 | 76,590 | ||||||
Société Générale 5.922%1,2 | 150,000 | 66,952 | ||||||
AXA SA, Series B, 6.379%1,2 | 150,000 | 64,964 | ||||||
Fannie Mae, Series O, 7.00%1,2 | 23,175 | 55,041 | ||||||
Citigroup Inc., Series E, 8.40%1 | 150,000 | 54,972 | ||||||
Barclays Bank PLC 7.434%1,2 | 100,000 | 47,024 | ||||||
Royal Bank of Scotland Group PLC, Series U, 7.64%1 | 300,000 | 46,518 | ||||||
Mizuho Capital Investment (USD) 1 Ltd. 6.686% noncumulative1,2 | 62,000 | 40,013 | ||||||
Lloyds TSB Group PLC 6.267%1,2 | 150,000 | 37,271 | ||||||
XL Capital Ltd., Series E, 6.50%1 | 250,000 | 35,647 | ||||||
Freddie Mac, Series Z, 8.375% | 10,950 | 11,634 | ||||||
Freddie Mac, Series V, 5.57% | 8,300 | 4,088 | ||||||
Total preferred securities (cost: $4,564,793) | 1,474,954 | |||||||
Principal amount | ||||||||
Short-term securities — 6.78% | (000 | ) | ||||||
Federal Home Loan Bank 0.18% due 2/19/2009 | $ | 1,200 | 1,199,886 | |||||
Fannie Mae 0.90% due 2/3/2009 | 800 | 799,994 | ||||||
NetJets Inc. 0.20% due 2/4/20092 | 700 | 699,984 | ||||||
U.S. Treasury Bills 0.21% due 4/29/2009 | 600 | 599,729 | ||||||
Total short-term securities (cost: $3,299,556) | 3,299,593 | |||||||
Total investment securities (cost: $56,820,112) | 49,861,078 | |||||||
Other assets less liabilities | (1,196,154 | ) | ||||||
Net assets | $ | 48,664,924 |
1Coupon rate may change periodically. |
2Purchased in a transaction exempt from registration under the Securities Act of 1933. May be resold in the U.S. in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities was $8,080,968, which represented 16.61% of the net assets of the fund. |
3Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date. |
4Valued under fair value procedures adopted by authority of the board of trustees. The total value of all such securities was $1,854,362, which represented 3.81% of the net assets of the fund. |
Key to abbreviation and symbol
€ = Euros
ILS = Israeli shekels
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so you may lose money.
Investors should carefully consider the investment objectives, risks, and expenses of the fund. This and other important information is contained in the fund’s prospectus, which should be read carefully before investing.
MFGEFP-985-1208O-S15831
ITEM 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.
ITEM 8 – Portfolio Managers of Closed-End Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.
ITEM 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.
ITEM 10 – Submission of Matters to a Vote of Security Holders
There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of trustees since the Registrant last submitted a proxy statement to its shareholders. The procedures are as follows. The Registrant has a committee on governance comprised solely of persons who are not considered ‘‘interested persons’’ of the Registrant within the meaning of the Investment Company Act of 1940, as amended. The committee periodically reviews such issues as the board’s composition, responsibilities, committees, compensation and other relevant issues, and recommends any appropriate changes to the full board of trustees. While the committee normally is able to identify from its own resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the board. Such suggestions must be sent in writing to the committee on governance of the Registrant, c/o the Registrant’s Secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, along with a written consent of the prospective nominee for consideration of his or her name by the committee on governance.
ITEM 11 – Controls and Procedures
(a) | The Registrant’s Principal Executive Officer and Principal Financial Officer have concluded, based on their evaluation of the Registrant’s disclosure controls and procedures (as such term is defined in Rule 30a-3 under the Investment Company Act of 1940), that such controls and procedures are adequate and reasonably designed to achieve the purposes described in paragraph (c) of such rule. |
(b) | There were no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
ITEM 12 – Exhibits
(a)(1) | Not applicable for filing of semi-annual reports to shareholders. |
(a)(2) | The certifications required by Rule 30a-2 of the Investment Company Act of 1940 and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are attached as exhibits hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ENDOWMENTS | |
By /s/ Robert G. O'Donnell | |
Robert G. O'Donnell, Vice Chairman and Principal Executive Officer | |
Date: April 9, 2009 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By /s/ Robert G. O'Donnell |
Robert G. O'Donnell, Vice Chairman and Principal Executive Officer |
Date: April 9, 2009 |
By /s/ Dori Laskin |
Dori Laskin, Treasurer and Principal Financial Officer |
Date: April 9, 2009 |