ENDOWMENTS
INVESTMENTS FOR NONPROFIT INSTITUTIONS
SEMI-ANNUAL REPORT
For the Six Months Ended
January 31, 1999
Capital Research and Management Company
SIX-MONTH TOTAL RETURNS (8/1/98 - 1/31/99)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
STANDARD &
GROWTH POOR'S LIPPER GROWTH LEHMAN BROTHERS LIPPER
AND INCOME 500 COMPOSITE & INCOME FUNDS BOND AGGREGATE BOND A-RATED BOND
PORTFOLIO INDEX INDEX PORTFOLIO INDEX FUNDS AVERAGE
+5.9% +15.0% +5.3% +4.3% +5.1% +4.3%
</TABLE>
The indexes are unmanaged.
ENDOWMENTS is managed by Capital Research and Management Company, which also
manages the 28 funds in The American Funds Group.(r) Since 1931, Capital has
invested with a long-term focus based on thorough research and attention to
risk.
GROWTH AND INCOME PORTFOLIO (ENDI) 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 (BENDI) seeks to provide as high a level of current income as is
consistent with the preservation of capital through investments in fixed-income
securities.
Here are the total returns and average annual compound returns with all
distributions reinvested for periods ended December 31, 1998 (the most recent
calendar quarter): ENDI - 10 years: +306.25%, or +15.05% a year; 5 years:
+119.28%, or +17.00% a year; 12 months: +11.28%. BENDI -10 years: +137.76%, or
+9.05% a year; 5 years: +34.85%, or +6.16% a year; 12 months: +7.47%.
BENDI's 30-day yield as of February 28, 1999, calculated in accordance with the
Securities and Exchange Commission formula, was 5.88%.
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. SHARE
PRICE AND RETURN WILL VARY, SO YOU 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.
DEAR SHAREHOLDER:
The first half of fiscal 1999 - the six months ended January 31 - saw
extraordinary volatility in the stock and bond markets. In this environment,
both the Growth and Income Portfolio (ENDI) and the Bond Portfolio (BENDI)
generated favorable returns while paying careful attention to risk.
GROWTH AND INCOME PORTFOLIO (ENDI):
When the fiscal year began on August 1, stock prices were spiraling downward.
During the six weeks ended August 31, the drop amounted to nearly 20% for the
unmanaged Standard & Poor's 500 Composite Index, a closely watched measure of
the U.S. equity market.* This decline was sparked by fears of a global economic
meltdown following Russia's decision to devalue the ruble and by concern that
valuations, especially among the fastest rising stocks, might at last be
reaching unsustainable levels.
*All percentage gain/loss figures include reinvestment of distributions.
Subsequently, those fears and doubts subsided in the minds of many investors.
The U.S. Federal Reserve, in concert with European central banks, took action
to cut interest rates and ease credit, and the S&P 500 promptly rebounded with
a vengeance. By the end of the fiscal half-year, it was up almost 35% from its
summer low. The index closed January 31 with a six-month gain of 15.0%.
Approximately half of this increase came from about a dozen
large-capitalization stocks that resumed their upward climb after the summer
selloff. Because the S&P 500 is weighted by size, these high-flying issues -
some of which pay no dividends and therefore are not appropriate for the fund -
had a strong impact on the index's results. Many stocks in the S&P 500 actually
posted only modest six-month gains, and quite a few others went down.
This bias toward low- or no-dividend large-capitalization stocks continued to
create a difficult environment for active managers to even match the S&P 500.
The Lipper Growth & Income Funds Index, which tracks the 30 largest funds in
this category, showed a gain of just 5.3% from July 31 through January 31. That
index trailed the S&P 500 by an unusually wide margin during this period.
ENDI recorded an advance of 5.9% for the fiscal half-year. Nearly all of the
increase came in September, October and November. In the down month of August,
the fund demonstrated greater resilience than the S&P 500 before falling behind
as the market turned up.
Our results historically have followed a somewhat similar pattern - holding
their ground comparatively well during downturns while frequently lagging the
index on the upside. The fund's defensive characteristics have contributed to
its ability to provide satisfactory results through the years while showing
less severe fluctuations than the index. Since Capital Research and Management
Company became investment adviser in 1975, ENDI has been about 20% less
volatile than the S&P 500, based on standard deviation, a widely used measure
of volatility. During this lengthy span, the fund reported positive results in
22 of 23 calendar years(+) while generating an average annual compound return
of 14.9% compared with 16.2% for the S&P 500.
(+)The only calendar year in which ENDI declined was 1977, when it went down
1.0% on a total return basis.
In the first half of fiscal 1999, ENDI benefited from investments in companies
producing food, beverages and other consumer nondurables. Anheuser-Busch,
Imperial Tobacco and General Mills all posted increases in the 30%-40% range.
Merger and acquisition activity also had a beneficial impact on results. Three
holdings that did very well partly because they were involved in possible
acquisitions during the period were American Stores, Union Camp and Ameritech.
These stocks rose 56%, 45% and 32%, respectively.
ENDI's six-month results were held down by disappointing performances among
energy stocks. Frankly, we were surprised at the extent of the decline in oil
prices - a development that had a profoundly negative impact on earnings and
share prices in that industry. Five oil-related investments that fared poorly
were K N Energy (-40%), Kerr-McGee (-34%), Schlumberger (-21%), Ultramar
Diamond Shamrock (-16%) and Atlantic Richfield (-15%).
ENDI's holdings of interest-bearing cash equivalents amounted to 20% of net
assets on January 31, about the same as at the start of the period. Typically,
our cash position will not exceed that figure. During the course of the six
months, it dipped into the middle teens as we responded to the weakness in
prices and increased our exposure to stocks. Then, as the market rallied, we
trimmed back several of our equity holdings.
During the period of price weakness, our purchases were mainly shares of
quality companies that had been dragged down during the general selloff and
commodity-related issues that were depressed because of deterioration in raw
materials prices. In our view, shares of well-managed firms in chemicals and
other raw materials industries currently represent excellent long-term values.
Given the rather frothy nature of the market recently, we have felt that
holding a reserve of cash equivalents has been prudent. We have not altered our
value-oriented approach to investing and firmly believe that in due course
stock prices once again will be driven primarily by corporate earnings.
BOND PORTFOLIO (BENDI):
When interest rates decline and bond prices rise, it is often interpreted as a
sign that all is well in the world of fixed-income investing. However, all was
not well during the first half of BENDI's fiscal year. Despite declining rates
and rising prices for benchmark U.S. Treasury issues, it was a difficult period
in the fixed-income markets.
Russia's decision in August to devalue its currency and default on several debt
issues produced a great deal of global turmoil, as did the near-collapse a
month later of a Wall Street hedge fund with substantial investments in
fixed-income securities. The situation improved in the fall of 1998 after the
Federal Reserve lowered short-term interest rates three times and pumped
additional liquidity into the economy and the financial markets.
During the first part of the fiscal period, jittery investors seeking safety
flocked to Treasury issues. Meanwhile, most of the rest of the fixed-income
market did not fully reflect the decline in Treasury rates. In fact, yields on
a number of bonds actually rose while Treasury rates were falling. This was
true of both high- and low-quality issues.
BENDI was helped during the half-year by its Treasury holdings. On the other
hand, some of our positions in investment-grade corporate bonds,
mortgage-backed issues and other areas of the market that provide relatively
more attractive yields suffered early in the period before firming up later on.
Assuming reinvestment of dividends totaling 48 cents a share, BENDI generated a
total return of 4.3% for the six months. This matched the return recorded by
the average of 161 corporate A-rated bond funds tracked by Lipper, Inc., but
trailed the 5.1% return for the unmanaged Lehman Brothers Aggregate Bond Index.
A closer look at the results reveals that when investors were buying Treasury
securities aggressively, BENDI lagged the Lehman Brothers Aggregate Bond Index;
from August through October, the fund's total return was just 1.8% versus 3.5%
for the index. However, from November through January, when corporate bonds and
other parts of the market that did poorly during the early fall bounced back,
BENDI showed a three-month return of 2.5%, nine-tenths of a percentage point
above the index.
Over the 23-1/2 years that Capital Research has been investment manager, BENDI
produced an average annual total return of 9.7% compared with 9.8% for the
Lehman Brothers Aggregate Bond Index and 9.6% for the average of 17 A-rated
bond funds in existence throughout this time, according to Lipper.
During the half-year, we took advantage of the yield spread between Treasury
and corporate issues. We sold a portion of BENDI's Treasury holdings and bought
AAA-rated mortgage-backed securities and high-quality corporate bonds that we
felt were attractively priced. The portfolio's average maturity lengthened to
9.7 years on January 31 from 8.6 years on July 31, 1998. Our holdings of
Treasury securities were reduced to 23% of the portfolio from 39% during the
period. Meantime, the percentage of government agency bonds rose from 11% to
18%. Total U.S. government securities represented 41% of net assets on January
31, down from 49% on July 31.
Total corporate bonds (which include a few non-U.S. issues) increased to 52% of
net assets from 40% six months ago. The balance of the portfolio was held
primarily in the form of cash equivalents. We believe that our mix of
government, mortgage-related and corporate securities represents a conservative
investment posture that is appropriate for our shareholders.
Barring any further shocks to the financial system of the magnitude experienced
over these past six months, we look for somewhat calmer conditions in the
period ahead. We would not be surprised to see slightly higher interest rates
and a further narrowing of the spreads between Treasuries and the yields on
high-grade corporate debt. The evidence is inconclusive, but there are signs
that economic growth could remain quite strong.
We welcome your comments and questions and look forward to reporting to you
again in another six months.
Cordially,
/s/Robert B. Egleston /s/Frank L. Ellsworth
Robert B. Egelston Frank L. Ellsworth
Chairman of the Board President
March 15, 1999
<TABLE>
Growth and Income Porfolio
Investment Portfolio January 31, 1999
Unaudited Percent
Of Net
INDUSTRY DIVERSIFICATION Assets
- ----------------------------------------------------------------- --------
<S> <C> <C> <C>
EQUITY SECURITES
Utiltities: Electric & Gas 8.40%
Chemicals 7.10
Health & Personal Care 6.45
Banking 6.24
Energy Sources 5.66
Real Estate 5.29
Insurance 4.72
Forest Products & Paper 4.04
Beverages & Tobacco 3.97
Broadcasting & Publishing 3.53
Merchandising 3.38
Food & Household Products 2.71
Industrial Components 2.61
Machinery & Engineering 1.75
Business & Public Services 1.40
Data Processing & Reproduction 1.39
Recreation, Other Consumer Products 1.37
Telecommunications 1.37
Metals: Steel 1.35
Metals: Nonferrous 1.30
Transportation: Rail & Road 1.22
Aerospace & Military Technology 1.15
Electrical & Electronics 1.09
Electronic Components 1.08
Energy Equipment 1.06
--------
79.63
Short-Term Securities 20.16
Excess of cash and receivables over payables 0.21
--------
Net Assets 100.00%
Percent
Of Net
TEN LARGEST HOLDINGS Assets
- ----------------------------------------------------------------- --------
Houston Industries (ACES)* 2.36%
Glaxo Wellcome 2.26
J.C. Penney 2.17
Atlantic Richfield 2.16
Huntington Bancshares 1.91
GPU 1.89
General Mills 1.86
Morton International 1.72
Kimberly-Clark 1.66
Orion Captial 1.58
--------
* Security is convertible into Time Warner shares. 19.57%
=====
Market Percent
EQUITY SECURITIES Shares Value of Net
(common and preferred stocks) Assets
- ----------------------------------------------------------------- -------- -------- --------
ENERGY
Energy Sources - 5.66%
Atlantic Richfield Co. 17,000 $975,375 2.16%
BP Amoco PLC (formerly Amoco Corp.) (ADS) (United Kingdom) 3,970 322,066 0.71
Conoco Inc., Class A 13,000 259,188 0.58
Kerr-McGee Corp. 10,000 339,375 0.75
Ultramar Diamond Shamrock Corp. 30,000 660,000 1.46
Utiltities: Electric & Gas - 8.40%
Ameren Corp. 10,000 392,500 0.87
BEC Energy 15,000 573,750 1.27
DPL Inc. 30,000 568,125 1.26
GPU, Inc. 20,000 852,500 1.89
K N Energy, Inc. 20,000 395,000 0.88
Scottish and Southern Energy PLC (formerly Southern 30,000 341,165 0.76
Electric PLC) (United Kingdom)
Williams Companies, Inc. 20,000 660,000 1.47
---------- ----------
6,339,044 14.06
---------- ----------
MATERIALS
Chemicals - 7.10%
Dow Chemical Co. 4,000 352,250 0.78
International Flavors & Fragrances Inc. 15,000 654,375 1.45
Monsanto Co. 10,000 475,625 1.06
Morton International, Inc. 30,000 776,250 1.72
Praxair, Inc. 15,000 484,688 1.07
Witco Corp. 30,000 461,250 1.02
Forest Products and Paper - 4.04%
Georgia-Pacific Corp., Georgia-Pacific Group 5,000 322,500
Georgia-Pacific Corp., Timber Group 15,000 337,500 1.47
Union Camp Corp. 10,000 616,875 1.37
Weyerhaeuser Co. 10,000 541,250 1.20
Metals: Nonferrous - 1.30%
Alcoa Inc. (formerly Aluminum Co. of America) 7,000 585,375 1.30
Metals: Steel - 1.35%
Allegheny Teledyne Inc. 30,000 607,500 1.35
---------- ----------
6,215,438 13.79
---------- ----------
CAPITAL EQUIPMENT
Aerospace & Military Technology - 1.15%
Boeing Co. 15,000 518,438 1.15
Data Processing & Reproduction - 1.39%
Hewlett-Packard Co. 8,000 627,000 1.39
Electrical & Electronics - 1.09%
Nokia Corp., Class A (ADR) (Finland) 3,400 489,600 1.09
Electronic Components - 1.08%
Corning Inc. 10,000 487,500 1.08
Energy Equipment - 1.06%
Schlumberger Ltd. (Netherlands Antilles) 10,000 476,250 1.06
Industrial Components - 2.61%
Eaton Corp. 10,000 696,250 1.55
Genuine Parts Co. 15,000 478,125 1.06
Machinery & Engineering - 1.75%
Caterpillar Inc. 7,000 303,188 0.67
Deere & Co. 15,000 488,437 1.08
---------- ----------
4,564,788 10.13
---------- ----------
CONSUMER GOODS
Beverages & Tobacco - 3.97%
Anheuser-Busch Companies, Inc. 5,000 353,438 0.78
Imperial Tobacco Ltd. (United Kingdom) 35,000 402,278 0.89
Philip Morris Companies Inc. 10,000 470,000 1.04
Seagram Co. Ltd. (Canada) 12,000 568,500 1.26
Food & Household Products - 2.71%
General Mills, Inc. 10,000 839,375 1.86
Sara Lee Corp. 15,000 382,500 0.85
Health & Personal Care - 6.45%
Avon Products, Inc. 15,000 554,063 1.23
Glaxo Wellcome PLC (ADR) (United Kingdom) 15,000 1,018,125 2.26
Kimberly-Clark Corp. 15,000 747,188 1.66
Merck & Co., Inc. 4,000 586,999 1.30
Recreation, Other Consumer Products - 1.37%
Pennzoil-Quaker State Co. 40,000 615,000 1.37
---------- ----------
6,537,466 14.50
---------- ----------
SERVICES
Broadcasting & Publishing - 3.53%
Gannett Co., Inc. 8,000 526,500 1.17
Houston Industries Inc. 7.00% Automatic Common Exchange Securities 10,000 1,063,750 2.36
convertible preferred 2000(1)
Business & Public Services - 1.40%
Browning-Ferris Industries, Inc. 10,000 275,000 0.61
United HealthCare Corp. 8,000 358,000 0.79
Merchandising - 3.38%
American Stores Co. 15,000 543,750 1.21
J.C. Penney Co., Inc. 25,000 979,688 2.17
Telecommunications - 1.37%
Ameritech Corp. 7,400 481,925 1.07
GTE Corp. 2,000 135,000 0.30
Transportation: Rail & Road - 1.22%
Norfolk Southern Corp. 20,000 551,250 1.22
---------- ----------
4,914,863 10.90
---------- ----------
FINANCE
Banking - 6.24%
Bankers Trust Corp. 5,000 435,000 0.97
Bank of Tokyo-Mitsubishi, Ltd. (ADR) (Japan) 25,000 301,563 0.67
Fulton Financial Corp. 25,000 514,063 1.14
Huntington Bancshares Inc. 27,709 862,443 1.91
Wells Fargo & Co. 20,000 698,749 1.55
Insurance - 4.72%
Aetna Inc. 5,000 450,625 1.00
Orion Capital Corp. 20,000 712,500 1.58
Royal & Sun Alliance Insurance Group PLC (United Kingdom) 40,000 303,867 0.68
Trenwick Group Inc. 20,000 660,000 1.46
Real Estate - 5.29%
Apartment Investment and Management Co., Class A 10,000 373,750 0.83
Archstone Communities Trust 34,285 670,700 1.49
Boston Properties, Inc. 15,000 487,500 1.08
CCA Prison Realty Trust 25,000 512,500 1.14
Spieker Properties, Inc. 10,000 339,997 0.75
---------- ----------
7,323,257 16.25
---------- ----------
TOTAL EQUITY-TYPE SECURITIES (cost: $35,348,038) 35,894,856 79.63
---------- ----------
SHORT-TERM SECURITIES
Corporate Short-Term Notes - 20.16%
A. I. Credit Corp. 4.82% due 2/8/99 1,300 1,298,608 2.88
Coca Cola Co. 4.80% due 2/4/99 1,300 1,299,307 2.88
Emerson Electric Co. 4.78% due 2/24/99 400 398,725 0.88
Ford Motor Credit Co. 5.21% due 2/10/99 1,000 998,553 2.22
General Electric Capital Corp. 4.81% due 2/1/99 900 899,880 2.00
Monsanto Co. 5.15% due 2/12/99(2) 1,000 998,297 2.21
PepsiCo, Inc. 4.83% due 2/12/99 1,000 998,390 2.21
Proctor & Gamble Co. 4.78% due 2/19/99 1,200 1,196,973 2.66
St. Paul Companies, Inc. 4.80% due 2/8/99(2) 1,000 998,932 2.22
---------- ----------
TOTAL SHORT-TERM SECURITIES (cost: $9,087,651) 9,087,665 20.16
---------- ----------
TOTAL INVESTMENT SECURITIES (cost: $44,435,689) 44,982,521 99.79
Excess of cash and receivables over payables 95,510 0.21
---------- ----------
NET ASSETS $45,078,031 100.00%
======= ======
(1) Security is convertible into Time Warner shares.
(2) Purchased in a private placement transaction;
resale may be limited to qualified institutional
buyers resale to the public may require registration.
ADR = American Depositary Receipts
ADS = American Depositary Shares
See Notes to Financial Statements
Equity securities added
to the portfolio since July 31, 1998
Bankers Trust
BEC Energy
Boeing
Conoco
Deere & Co.
GTE
Monsanto
Orion Capital
Sara Lee
Seagram
United HealthCare
Equity securities eliminated
to the portfolio since July 31, 1998
Eliminated:
AT&T
Avery Dennison
Cendant (convertible debentures)
Chrsyler
Electronic Data Systems
First Financial Bancorp.
General Re
Texaco
</TABLE>
<TABLE>
Bond Portfolio
INVESTMENTS PORTFOLIO, January 31, 1999
Unaudited
Shares or Market Percent
Principal Value Of Net
(000) Assets
------- --------- -----
<S> <C> <C> <C>
BONDS, NOTES & PREFERRED STOCKS
Industrials - 10.69%
BHP Finance Ltd. 8.50% 2012 $145 $165,955 0.55%
Clear Channel Communications, Inc. 7.25% 2027 250 258,160 0.86
Columbia/HCA Healthcare Corp. 8.85% 2007 125 135,098 0.45
Comcast Cable Communications, Inc.:
8.375% 2007 250 293,408
8.875% 2017 250 317,495 2.03
Ford Motor Credit Co. 5.80% 2009 150 150,524 0.50
Hutchison Whampoa Finance Ltd., Series D, 6.988% 2037 (1) 300 275,862 0.92
Hyundai Semiconductor America, Inc. 8.625% 2007 (1) 200 157,000 0.52
Inco Ltd. 9.60% 2022 700 789,439 2.63
Petrozuata Finance, Inc., Series A, 7.63% 2009 (1) 250 198,345 0.66
Scotia Pacific Co. LLC, Timber Collateralized Notes:
Class A-1, 6.55% 2028 (1) 250 245,373
Class A-3, 7.71% 2028 (1) 250 225,113 1.57
------------------
3,211,772 10.69
------------------
Electric Utilities - .57%
Israel Electric Corp. Ltd. 7.75% 2027 (1) 175 171,364 0.57
------------------
Multi-Industry - 1.97%
Swire Pacific Capital Ltd. 8.84% cumulative guaranteed
perpetual capital securities (1) 10,000 shares 175,000 0.58
Wharf International Finance Ltd., Series A, 7.625% 2007 $500 418,990 1.39
------------------
593,990 1.97
------------------
Telecommunications - 2.78%
Bell Atlantic Financial Services, Inc. 5.75% 2003 (1) 250 265,625
Bell Atlantic Financial Services, Inc., Senior Exchangeable Notes, 4.25% 150 172,875 1.46
convertible debentures 2005(1)
Sprint Capital Corp. 6.875% 2028 375 397,073 1.32
------------------
835,573 2.78
------------------
Transportation - 9.69%
Airplanes Pass Through Trust, pass-through certificates, Series 1, 9771,026,270 3.42
Class C, 8.15% 2019 (2)
Canadian National Railway Co. 6.45% 2036 250 258,023 0.86
Continental Airlines, Inc., pass-through certificates, Series 1998-3, 125 127,221 0.42
Class A-2, 6.32% 2008
Jet Equipment Trust, Series 1994-A, 11.79% 2013 (1) 7501,027,838 3.42
USAir, Inc., Enhanced Equipment Notes, Class B, 7.50% 2009 (2) 464 471,945 1.57
------------------
2,911,297 9.69
------------------
Financials - 11.91%
Abbey National PLC 6.70% (undated) 250 248,110 0.83
AT&T Capital Corp. 6.60% 2005 500 479,815 1.60
Barnett Capital I 8.06% 2026 500 562,205 1.87
BNP US Funding LLC, Series A, 7.738% noncumulative preferred (1)(3) 500 481,805 1.60
Chase Capital I, Capital Securities, Series A, 7.67% 2026 250 270,885 0.90
Household Finance Corp. 6.40% 2008 250 259,030 0.86
IBJ Preferred Capital Co. LLC, Series A, 8.79% noncumulative preferred (1) 250 198,383 0.66
MBNA Corp., MBNA Capital A, Series A, 8.278% 2026 300 308,211 1.03
NB Capital Corp. 8.35% exchangeable depositary shares 10,000 shares 260,620 0.87
SocGen Real Estate Co. LLC, Series A, 7.64%/8.406% (undated) (1)(4) $250 230,733 0.77
Washington Mutual Capital I Subordinated Capital Income Securities
8.375% 2027 250 274,429 0.92
------------------
3,574,226 11.91
------------------
Real Estate - 1.96%
Irvine Co. 7.46% 2006 (1)(5) 500 466,410 1.55
ProLogis Trust 7.05% 2006 125 122,448 0.41
------------------
588,858 1.96
------------------
Collaterized Mortgage/Asset-Backed Obligations(2) - 12.08%
Asset-Backed Securities Investment Trust, Series 1997-D, Class A, 6.79% 20 38 37,678 0.13
Chase Commercial Mortgage Securities Corp., pass-through certificates, 250 259,675 0.86
Series 1998-2, Class A-2, 6.39% 2030
CS First Boston Mortgage Securities Corp., Mortgage Pass-Through Certifica 240 246,497 0.82
Series 1998-C1, Class A-1A, 6.26% 2040
First Consumers Master Trust, Series 1999-A, Class A, 5.80% 2005 250 249,825 0.83
GMAC Commercial Mortgage Securities, Inc., Series 1997-C1, 125 133,038 0.44
Class A3, 6.869% 2007
GS Mortgage Securities Corp II:
Series 1998-C1, Class D, 7.45% 2030 250 240,075
Series 1998-C1, Class E, 7.45% 2030 250 227,725 1.56
Merrill Lynch Mortgage Investors, Inc., Seller Manufactured Housing Contra 191 193,532 0.64
Series 1995-C2,Class A-1, 7.325% 2021(3)
Morgan Stanley Capital I Inc.:
Series 1998-1, Class A-5, 6.75% 2013 216 214,548
Series 1998-HF2, Class A-2, 6.48% 2030 500 521,650 2.45
Nomura Asset Securities Corp., Series 1998-D6, Class A-A1, 6.28% 2030 236 239,672 0.80
Norwest Asset Securities Corp., Series 1998-31, Class A-1, 6.25% 2014 249 249,548 0.83
Sears Credit Account Master Trust II, Series 1998-2, Class A, 5.25% 2008 250 244,688 0.82
Structured Asset Securities Corp.:
Series 1998-RF2, Class A, 8.572% 2022 363 389,022
Series 1996-CFL, Class A2A, 7.75% 2028 181 180,983 1.90
------------------
3,628,156 12.08
------------------
Governments (excluding U.S. Government)
& Governmental Authorities - 3.64%
Quebec (Province of) 13.25% 2014 1,0001,091,960 3.64
------------------
Federal Agency Obligations - Mortgage Pass-Throughs(2) - 18.01%
Fannie Mae:
9.00% 2020 164 173,837
7.00% 2026 474 484,733 3.45
6.089% 2033 376 378,141
Freddie Mac:
8.75% 2008 76 80,291
12.50% 2019 36 41,221 1.52
9.00% 2020 81 86,406
6.00% 2029 250 247,500
Government National Mortgage Assn.:
8.50% 2008 243 259,152
10.00% 2019 243 263,396
7.00% 2023 238 243,908
7.50% 2023 219 226,169
8.00% 2023 433 451,413 13.04
6.875% 2024 (3) 456 462,220
7.00% 2024 (3) 427 433,250
7.00% 2024 406 416,011
7.50% 2024 439 453,854
7.00% 2025 690 706,930
------------------
5,408,432 18.01
------------------
U.S. Treasury Obligations - 22.55%
11.625% November 2002 500 618,750
11.625% November 2004 1,0501,410,612 22.55
10.375% November 2012 1,8252,515,360
8.875% August 2017 1,5752,228,373
------------------
6,773,095 22.55
------------------
TOTAL BONDS, NOTES & PREFERRED STOCKS (cost: $28,654,887) 28,788,72 95.85
------------------
SHORT TERM SECURITIES
Corporate Short-Term Notes - 3.32%
Eastman Kodak 4.78% due 3/18/99 500 496,946 1.65
PepsiCo, Inc. 4.83% due 2/12/99 500 499,195 1.67
------------------
TOTAL SHORT TERM SECURITIES (cost: $996,141) 996,141 3.32
------------------
TOTAL INVESTMENTS SECURITIES (cost: $29,651,028) 29,784,86 99.17
Excess of cash over payable and receivables 249,278 0.83
------------------
NET ASSETS $30,034,1100.00%
------------------
------------------
(1) Purchased in a private placement transaction; resale may be limited to
qualified institutional buyers; resale to the public may require registration.
(2) Pass-through securities backed by a pool of mortgages or other loans on
which principal payments are periodically made. Therefore, the effective
maturities are shorter that the stated maturities.
(3) Coupon rates may change periodically.
(4) Step bond; coupon rate will increase at a later date.
(5) Valued under procedures established by the Board of Trustees.
See Notes to Financial Statements
</TABLE>
<TABLE>
Endowments
Financial Statements
Unaudited
Statement of Assets and Liabilities Growth Bond
at January 31, 1999 and Income Portfolio
Portfolio
<S> <C> <C>
Assets:
Investment securities at market
(cost: $44,435,689 and 29,651,028, respectively) $44,982,521 $29,784,864
Cash 65,908 322,473
Receivables for-
Sales of investments $0
Sales of investments 87,288 2,769
Sales of fund's shares - 10,000
Dividends and accrued interest 72,933 423,087
Reimbursement of expenses from
investment adviser - 2,293
------------ ------------
Total Assets 45,208,650 30,545,486
------------ ------------
Liabilities:
Payables for -
Purchases of investments 100,770 497,214
Management services 15,594 -
Accrued expenses 14,255 14,130
------------ ------------
Total Liabilities 130,619 511,344
------------ ------------
Net Assets at January 31, 1999 $45,078,031 $30,034,142
============= =============
Shares outstanding(1) 3,572,348 1,748,039
Net asset value per share $12.62 $17.18
(1)Shares of beneficial interest issued and outstanding;
unlimited shares authorized.
See Notes to Financial Statements
Endowments
Financial Statements
Unaudited
Statement of Operations Growth Bond
for the six months ended January 31, 1999 and Income Portfolio
Portfolio
Investment Income:
Income:
Dividends $ 541,687 $ 27,012
Interest 271,461 $1,090,734
------------ ------------
Total Income 813,148 1,117,746
------------ ------------
Expenses:
Management services fee 115,415 73,940
Reports to shareholders 7,597 7,597
Registration statement and prospectus 7,630 1,000
Postage, stationery, and supplies 3,737 3,737
Auditing fees 18,978 15,252
Legal fees 17,784 20,481
Custodian fee 554 273
Taxes other than federal income tax 3,284 13,500
Other expenses 21,156 19,402
------------ ------------
Total expenses before reimbursement 196,135 155,182
Reimbursement of expenses 23,013 44,272
------------ ------------
Net Expenses 173,122 110,910
------------ ------------
Net investment income 640,026 1,006,836
------------ ------------
Realized Gain and Change from Unrealized Depreciation
to Unrealized Appreciation on Investments:
Net realized gain 1,029,689 83,277
Net change from unrealized depreciation to
unrealized appeciation on investments 1,071,783 161,579
------------ ------------
Net realized gain and change from unrealized
depreciation to unrealized appreciation 2,101,472 244,856
on investments ------------ ------------
Net Increase in Net Assets Resulting
from Operations $ 2,741,498 $ 1,251,692
============= =============
GROWTH AND INCOME PORTFOLIO
Financial Statements
Statement of Changes in Net Assets
Six Months
Ended Year Ended
1/31/1999* 7/31/1998
Operations:
Net investment income $ 640,026 $ 1,259,18
Net realized gain on investments 1,029,689 13,791,367
Net unrealized appreciation (depreciation)
on investments 1,071,783 (10,940,194)
------------ ------------
Net increase in net assets resulting
from operations 2,741,498 4,110,353
------------- -------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (641,051) (1,382,106)
Distributions from net realized
gain on investments 0 (26,584,691)
------------- -------------
Total dividends and distributions (641,051) (27,966,797)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
272,944 and 180,191
shares, respectively 3,279,767 3,165,176
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
39,140 and 1,930,591 shares,
respectively 462,824 27,173,082
Cost of shares repurchased:
308,844 and 647,743
shares, respectively (3,905,907) (11,068,403)
------------- -------------
Net (decrease) increase in net assets
resulting from capital share transactions (163,316) 19,269,855
------------- -------------
Total Increase (Decrease) in Net Assets 1,937,131 (4,586,589)
Net Assets:
Beginning of period 43,140,900 47,727,489
------------- -------------
End of period (including undistributed
net investment income: $(1,025) and
$0, respectively) $45,078,031 $ 43,140,900
============= =============
*Unaudited
See Notes to Financial Statements
BOND PORTFOLIO
Financial Statements
Statement of Changes in Net Assets
Six months ended Year ended
1/31/1999* 7/31/98
Operations:
Net investment income $ 1,006,836 $ 2,122,993
Net realized gain on investments 83,277 543,139
Net unrealized appreciation (depreciation) on
investments 161,579 (653,265)
---------------- ------------
Net increase in net assets resulting
from operations 1,251,692 2,012,867
---------------- ------------
Dividends Paid to
Shareholders:
Dividends from net investment income (827,574) (2,405,442)
---------------- ------------
Capital Share Transactions:
Proceeds from shares sold:
66,684 and 129,544
shares, respectively 1,142,996 2,202,671
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
20,767 and 57,517 shares,
respectively 354,627 968,653
Cost of shares repurchased:
56,678 and 393,839
shares, respectively (967,001) (6,732,042)
---------------- ------------
Net increase (decrease) in net assets resulting
from capital share transactions 530,622 (3,560,718)
---------------- ------------
Total Increase (Decrease) in Net Assets 954,740 (3,953,293)
Net Assets:
Beginning of period 29,079,402 33,032,695
---------------- ------------
End of period (including undistributed
net investment income: $179,262 and
$0, respectively) $30,034,142 $29,079,402
================ ===========
*Unaudited
See Notes to Financial Statements
</TABLE>
ENDOWMENTS
Notes to Financial Statements
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 preservation of capital.
SIGNIFICANT ACCOUNTING POLICIES - The following is a summary of the
significant accounting policies consistently followed by the trust in the
preparation of its financial statements:
SECURITY VALUATION - Equity securities, including depositary receipts,
are valued at the last reported sale price on the exchange or market on which
such securities are traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price. In cases where equity securities are traded on more than one exchange,
the securities are valued on the exchange or market determined by the
investment adviser to be the broadest and most representative market, which may
be either a securities exchange or the over-the-counter market. Fixed-income
securities are valued at prices obtained from a pricing service, when such
prices are available; however, in circumstances where the investment adviser
deems it appropriate to do so, such securities will be valued at the mean
quoted bid and asked prices or at prices for securities of comparable maturity,
quality and type. Securities with original maturities of one year or less
having 60 days or less to maturity are amortized to maturity based on their
cost if acquired within 60 days of maturity or, if already held on the 60th
day, based on the value determined on the 61st day. Securities and assets for
which representative market quotations are not readily available are valued at
fair value as determined in good faith by a committee appointed by the Board of
Trustees.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - 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. The funds do not amortize premiums on
securities purchased.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions
paid to shareholders are recorded on the ex-dividend date.
2. FEDERAL INCOME TAXATION
It is the trust'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 taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of January 31, 1999, net unrealized appreciation on investments for book
and federal income tax purposes for Growth and Income Portfolio aggregated
$546,832, of which $3,109,383 related to appreciated securities and $2,562,551
related to depreciated securities. For Bond Portfolio, net unrealized
appreciation aggregated $133,836, of which $457,890 related to appreciated
securities and $324,054 related to depreciated securities. There was no
difference between book and tax realized gains on securities transactions for
the six months ended January 31, 1999. The cost of portfolio securities for
book and federal income tax purposes was $44,435,689 and $29,651,028 for Growth
and Income and Bond Portfolios, respectively, at January 31, 1999.
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fees of $115,415 and $73,940 for Growth and
Income and Bond Portfolios, respectively, for management services were incurred
pursuant to agreements with Capital Research and Management Company (CRMC),
with which certain officers and Trustees of the trust are affiliated. The
Investment Advisory and Service Agreements provide 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 Agreements provide for a fee reduction to
the extent that annual operating expenses exceed 0.75% of the average daily net
assets of the funds. Expenses which are not subject to this limitation are
interest, taxes, brokerage commissions, transaction costs, and extraordinary
expenses. Fee reductions were $23,013 and $44,272 for Growth and Income and
Bond Portfolios, respectively, for the six months ended January 31, 1999.
No fees were paid by the trust to its officers and Trustees.
4. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
Pursuant to the custodian agreement, the funds receive credits against their
custodian fees for imputed interest on certain balances with the custodian
bank. The custodian fees of $554 and $273 for Growth and Income and Bond
Portfolios, respectively, were paid by these credits rather than in cash.
As of January 31,1999:
Growth and Income Bond
Portfolio Portfolio
Accumulated undistributed
net realized gain on
investments $ 1,029,689 $ 82,961
Paid-in capital 43,502,593 29,638,083
Purchases and sales of
investment securities,
excluding short-term
securities, during the
six months ended
January 31, 1999:
Purchases 8,546,776 10,078,196
Sales 9,319,508 8,748,397
<TABLE>
Growth and Income Portfolio
Six months
Per-Share Data and Ratios ended Year Ended
January 31, July 31
1999 (1) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.09 $22.66 $18.61 $18.06 $17.18 $18.43
-------- -------- -------- -------- -------- --------
Income From Investment Operations:
Net investment income $.17 $.51 $.56 $.58 $.63 $.65
Net gains or losses on securities (both
realized and unrealized) $.53 $1.16 $6.04 $1.73 $2.21 ($.16)
-------- -------- -------- -------- -------- --------
Total from investment operations .70 1.67 6.60 2.31 2.84 .49
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) (.17) (.57) (.55) (.61) (.61) (.66)
Distributions (from capital gains) -- (11.67) (2.00) (1.15) (1.35) (1.08)
-------- -------- -------- -------- -------- --------
Total distributions (.17) (12.24) (2.55) (1.76) (1.96) (1.74)
-------- -------- --------- -------- -------- --------
Net Asset Value, End of Period $12.62 $12.09 $22.66 $18.61 $18.06 $17.18
========= ======== ======== ======== ======= =======
Total Return 5.89% (2) 9.05% 38.40% 13.22% 18.57% 2.77%
Ratios/Supplemental Data:
Net assets, end of period (in millions) $45 $43 $48 $59 $57 $53
Ratio of expenses to average net assets 0.39% (2)(3) 0.75%(3) 0.74% 0.72% 0.73% 0.73%
Ratio of net income to average net assets 1.42% 2.69% 2.73% 3.12% 3.70% 3.78%
Portfolio turnover rate 24.95% (2) 48.59% 50.69% 38.73% 24.04% 25.58%
</TABLE>
<TABLE>
Bond Portfolio
Per-Share Data and Ratios Six months
ended Year Ended July 31
01/31/1999 ( 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $16.93 $17.17 $16.63 $16.82 $16.86 $19.66
---------- ------------------------------------------
Income From Investment Operations:
Net investment income $.58 $1.19 $1.21 $1.22 $1.26 $1.32
Net gains or losses on securities (both
realized and unrealized) $.15 ($.09) $.52 ($.19) $.01 ($1.51)
---------- ------------------------------------------
Total from investment operations .73 1.10 1.73 1.03 1.27 (.19)
---------- ------------------------------------------
Less Distributions:
Dividends (from net investment income) (.48) (1.34) (1.19) (1.22) (1.24) (1.35)
Distributions (from capital gains) -- (.07) (1.26)
---------- ------------------------------------------
Total distributions (.48) (1.34) (1.19) (1.22) (1.31) (2.61)
---------- ------------------------------------------
Net Asset Value, End of Period $17.18 $16.93 $17.17 $16.63 $16.82 $16.86
========== ================ ======= ======= =======
Total Return 4.35% (2) 6.70% 10.83% 6.25% 7.97% (1.44%)
Ratios/Supplemental Data:
Net assets, end of period (in millions) $30 $29 $33 $41 $44 $46
Ratio of expenses to average net assets 0.38% (2,3) 0.75% (30.75% (3)0.75% (3 0.76% 0.77%
Ratio of net income to average net assets 3.43% (2) 6.87% 7.04% 7.17% 7.52% 6.99%
Portfolio turnover rate 31.25% (2) 50.40% 22.18% 54.43% 69.22% 82.12%
(1) Unaudited
(2) Based on operations for the period shown
and, accordingly, not resprsentative of a full year.
(3) Had CRMC not waived management services fees,
the fund's expense ratio would have been .53%,
1.08%, 0.85%, and 0.80% for the six months ended
January 31, 1999, and the fiscal years
ended 1998, 1997, and 1996, respectively.
</TABLE>
ENDOWMENTS
BOARD OF TRUSTEES
ROBERT B. EGELSTON
Los Angeles, California
Chairman of the Board of the Trust
Former Chairman of the Board,
The Capital Group Companies, Inc.
213/486-9444
FRANK L. ELLSWORTH, PH.D.
Los Angeles, California
President and Chief Executive Officer of the Trust
Vice President,
Capital Research and Management Company
213/486-9560
STEVEN D. LAVINE, PH.D.
Valencia, California
President, California Institute of the Arts
805/255-1050
PATRICIA A. MCBRIDE
Dallas, Texas
Chief Financial Officer,
Kevin L. McBride, D.D.S., Inc.
214/368-0268
GAIL L. NEALE
Burlington, Vermont
President, The Lovejoy Consulting Group, Inc.;
former Executive Vice President of the
Salzburg Seminar
802/658-5674
CHARLES R. REDMOND
Los Angeles, California
Former Chairman, Pfaffinger Foundation;
former President and Chief Executive Officer,
Times Mirror Foundation; former Executive
Vice President and Member of the Management
Committee, The Times Mirror Company
213/237-3977
THOMAS E. TERRY
Los Angeles, California
Consultant; former Vice President and Secretary,
Capital Research and Management Company
213/486-9410
ROBERT C. ZIEBARTH
Ketchum, Idaho
Management Consultant, Ziebarth Company
208/725-0535
OTHER OFFICERS
ABNER D. GOLDSTINE
Los Angeles, California
Senior Vice President of the Trust
Senior Vice President and Director,
Capital Research and Management Company
ROBERT G. O'DONNELL
San Francisco, California
Senior Vice President of the Trust
Senior Vice President and Director,
Capital Research and Management Company
CLAUDIA P. HUNTINGTON
Los Angeles, California
Vice President of
Endowments Growth and Income Portfolio
Senior Vice President,
Capital Research and Management Company
JOHN H. SMET
Los Angeles, California
Vice President of Endowments Bond Portfolio
Vice President,
Capital Research and Management Company
PATRICK F. QUAN
San Francisco, California
Secretary of the Trust
Vice President -
Fund Business Management Group,
Capital Research and Management Company
ANTHONY W. HYNES, JR.
Brea, California
Treasurer of the Trust
Vice President -
Fund Business Management Group,
Capital Research and Management Company
SUSI M. SILVERMAN
Brea, California
Assistant Treasurer of the Trust
Assistant Vice President -
Fund Business Management Group,
Capital Research and Management Company
ENDOWMENTS
OFFICE OF THE TRUST
One Market
Steuart Tower, Suite 1800
Mailing address: P.O. Box 7650
San Francisco, California 94120-7650
INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071-1443
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
P.O. Box 7650
San Francisco, California 94120-7650
135 South State College Boulevard
Brea, California 92821-5823
CUSTODIAN OF ASSETS
The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081-0001
COUNSEL
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071-2371
This report is for the information of shareholders of Endowments, but it may
also be used as sales literature when preceded or accompanied by the current
prospectus, which gives details about charges, expenses, investment objectives
and operating policies of the trust.
For more information about any of the American Funds, please ask your
investment professional for a prospectus.
Litho in USA KK/PL/3962
E1999 Endowments
Lit. No. ENDI-BENDI-013-0399 (NLS)
