THE NEW ECONOMY FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1995
(as amended June 16, 1995)
This document is not a prospectus but should be read in conjunction with the
current prospectus dated February 1, 1995 of The New Economy Fund (the fund or
NEF). The prospectus may be obtained from your investment dealer or financial
planner or by writing to the fund at the following address:
THE NEW ECONOMY FUND
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
The fund has two forms of prospectuses. Each reference to the prospectus in
the Statement of Additional Information includes all the fund's prospectuses.
Shareholders who purchase shares at net asset value through eligible retirement
plans should note that not all of the services or features described below may
be available to them, and they should contact their employer for details.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
NO.
<S> <C>
INVESTMENT POLICIES 1
CERTAIN RISK FACTORS RELATING TO BELOW INVESTMENT GRADE BONDS 2
DESCRIPTION OF CERTAIN SECURITIES 2
INVESTMENT RESTRICTIONS 3
FUND TRUSTEES AND OFFICERS 6
TRUSTEE COMPENSATION. . 8
MANAGEMENT 9
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 11
PURCHASE OF SHARES 14
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 16
REDEMPTION OF SHARES 16
EXECUTION OF PORTFOLIO TRANSACTIONS 17
GENERAL INFORMATION 17
INVESTMENT RESULTS 19
APPENDIX - DESCRIPTION OF BOND RATINGS 24
FINANCIAL STATEMENTS ATTACHED
</TABLE>
INVESTMENT POLICIES
The fund may invest up to 10% of its assets in debt securities which are rated
below the top three quality categories by Standard & Poor's Corporation (S&P)
or Moody's Investors Service, Inc. (Moody's) or securities that are determined
equivalent by the fund's investment adviser, Capital Research and Management
Company (the Investment Adviser). (See "Appendix - Description of Bond
Ratings" below for a more complete description of bond ratings.)
CERTAIN RISK FACTORS RELATING TO BELOW INVESTMENT GRADE BONDS
Certain risk factors relating to investing in below investment grade
securities ("high-yield, high-risk bonds") are discussed below.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk bonds
are very sensitive to adverse economic changes and corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted on its proceedings, the fund may
incur losses or expenses in seeking recovery of amounts owed to it. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high-yield, high-risk bonds.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds, like other bonds, may
contain redemption or call provisions. If an issuer exercised these provisions
in a declining interest rate market, the fund would have to replace the
security with a lower yielding security, resulting in a decreased return for
investors. Conversely, a high-yield, high-risk bond's value will decrease in a
rising interest rate market, as it will with all bonds.
LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
DESCRIPTION OF CERTAIN SECURITIES
U.S. GOVERNMENT SECURITIES - Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds) and (2) federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury. In these securities, the payment of
principal and interest is unconditionally guaranteed by the U.S. Government,
and thus they are of the highest possible credit quality. Such securities are
subject to variations in market value due to fluctuations in interest rates,
but, if held to maturity, will be paid in full.
Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of, nor guaranteed by, the Treasury.
However, they generally involve federal sponsorship in one way or another; some
are backed by specific types of collateral; some are supported by the issuer's
right to borrow from the Treasury; some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer; others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank
Cooperatives, and Federal Intermediate Credit Banks.
CASH EQUIVALENTS - These securities include (1) commercial paper (short-term
notes up to 9 months in maturity issued by corporations or governmental
bodies), (2) commercial bank obligations (certificates of deposit
(interest-bearing time deposits), bankers' acceptances (time drafts on a
commercial bank where the bank accepts an irrevocable obligation to pay at
maturity) and documented discount notes (corporate promissory discount notes
accompanied by a commercial bank guarantee to pay at maturity)), (3) savings
association obligations (certificates of deposit issued by savings banks or
savings and loan associations), (4) securities of the U.S. Government, its
agencies or instrumentalities that mature, or may be redeemed, in one year or
less, and (5) corporate bonds and notes (corporate obligations that mature, or
that may be redeemed, in one year or less).
REPURCHASE AGREEMENTS - Although the fund currently does not anticipate doing
so during the next 12 months, it is authorized to enter into repurchase
agreements. A repurchase agreement permits the fund to buy a security and
obtain a simultaneous commitment from the seller to repurchase the security at
a specified time and price. The seller must maintain with the fund's custodian
collateral equal to at least 100% of the repurchase price including accrued
interest, as monitored daily by the Investment Adviser. If the seller under
the repurchase agreement defaults, the fund may incur a loss if the value of
the collateral securing the repurchase agreement has declined, and may incur
disposition costs in connection with liquidating the collateral. If bankruptcy
proceedings are commenced with respect to the seller, realization upon the
collateral by the fund may be delayed or limited.
CURRENCY TRANSACTIONS - The fund has the ability to hold a portion of its
assets in U.S. dollars and other currencies. For the purpose of protecting
against changes in currency exchange rates, the fund may enter into forward
currency contracts. The fund does not have any current intention during the
next twelve months to enter into forward currency contracts (other than
currency exchange contracts during the period between the trade date and
settlement date of a security transaction to fix the dollar cost or proceeds
for the transaction). A forward currency contract is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set
at the time of the contract. The fund might purchase a particular currency or
enter into a forward currency contract to preserve the U.S. dollar price of
securities it intends to or has contracted to purchase. Alternatively, it
might sell a particular currency on either a spot or forward basis to hedge
against an anticipated decline in the dollar value of securities it intends to
or has contracted to sell. Although this strategy could minimize the risk of
loss due to a decline in the value of the hedged currency, it could also limit
any potential gain from an increase in the value of the currency.
INVESTMENT RESTRICTIONS
The fund has adopted certain investment restrictions, which cannot be changed
without approval by a majority of its outstanding shares. Such majority is
defined within the Investment Company Act of 1940 (the "1940 Act") as the vote
of the lesser of (i) 67% or more of the outstanding shares present at a
meeting, if the holders of more than 50% of the outstanding shares are present
in person or by proxy, or (ii) more than 50% of the outstanding shares. These
restrictions provide that the fund may not:
1. Invest in securities of another issuer (other than the U.S. or its agencies
or instrumentalities), if immediately after and as a result of such investment
more than 5% of the value of the total assets of the fund would be invested in
the securities of such other issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the fund;
2. Invest in companies for the purpose of exercising control or management;
3. Purchase the securities of companies in a particular industry (other
than securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities) if thereafter 25% or more of the value of its total assets
would consist of securities issued by companies in that industry;
4. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commissions, is involved, and only if immediately thereafter no more than 10%
of the value of the fund's total assets would be invested in such securities;
5. Buy or sell real estate in the ordinary course of its business; however,
the fund may invest in securities secured by real estate or interests therein
or issued by companies, including real estate investment trusts, which invest
in real estate or interests therein;
6. Buy or sell commodities or commodity contracts in the ordinary course of
its business provided, however, that entering into a forward currency contract
shall not be prohibited by this restriction;
7. Invest more than 10% of the value of its total assets in securities
which are not readily marketable or engage in the business of underwriting of
securities of other issuers, except to the extent that the disposal of an
investment position may technically constitute the fund an underwriter as that
term is defined under the Securities Act of 1933;
8. Lend any of its assets; provided, however that investment in government
obligations, short-term commercial paper, certificates of deposit and banker's
acceptances and publicly traded bonds, debentures, or other debt securities or
entering into repurchase agreements, shall not be prohibited by this
restriction;
9. Sell securities short, except to the extent that the fund contemporaneously
owns or has the right to acquire at no additional cost, securities identical to
those sold short;
10. Purchase securities on margin;
11. Enter into any repurchase agreement if, as a result, more than 10% of the
fund's total assets would be subject to repurchase agreements maturing in more
than seven days (see above);
12. Borrow amounts in excess of 5% of the value of its total assets or issue
senior securities; in any event, the fund may borrow only as a temporary
measure for extraordinary or emergency purposes and not for investment in
securities;
13. Mortgage, pledge or hypothecate its assets to any extent;
14. Purchase or retain the securities of any issuer, if those individual
officers and trustees of the fund, its investment adviser or distributor, each
owning beneficially more than 1/2 of 1% of the securities of such issuer,
together own more than 5% of the securities of such issuer;
15. Invest more than 5% of the value of its total assets in securities of
companies having, together with their predecessors, a record of less than three
years of continuous operation;
16. Invest in puts, calls, straddles or spreads, or combinations thereof; nor
17. Purchase partnership interests in oil, gas, or mineral exploration,
drilling or mining ventures.
Further investment policies of the fund, which may be changed by action of
the Board of Trustees, without shareholder approval, include the following:
the fund will not invest more than 40% of its assets in securities of issuers
outside the U.S. and/or denominated in currencies other than the U.S. dollar;
nor will the fund invest more than 5% of the value of the fund's net assets in
warrants, valued at the lower of cost or market, with no more than 2% being
unlisted on the New York or American Stock Exchanges (warrants acquired by the
fund in units or attached to securities may be deemed to be without value).
All percentages relating to the policies and restrictions of the fund are
measured at the time the investment is made.
For purposes of investment restriction number 3, the fund will not invest 25%
or more of total assets in the securities of issuers in the same industry.
For purposes of investment restriction number 4, the fund may invest in
securities of other managed investment companies if deemed advisable by its
officers in connection with the administration of a deferred compensation plan
adopted by Trustees, and to the extent such investments are allowed by an
exemptive order granted by the Securities and Exchange Commission.
For purposes of investment restriction number 6, forward currency contracts
are not considered commodities or commodities contracts.
FUND TRUSTEES AND OFFICERS
(with their principal occupations during the past five years)#
TRUSTEES
RICHARD G. CAPEN, JR., Box 2494, Rancho Santa Fe, CA 92067.
Corporate director and author; former United States Ambassador to Spain;
former Vice Chairman of the Board, Knight Ridder, Inc.; former Chairman and
Publisher, The Miami Herald.
+ H. FREDERICK CHRISTIE, P.O. Box 144, Palos Verdes Estates, CA 90274.
Private Investor; former President and Chief Executive Officer, The Mission
Group (non-utility holding company, subsidiary of Southern California Edison
Company); former President, Southern California Edison Company.
ALAN W. CLEMENTS, 16 Great Peter Street, London SW1P3JF, England.
Private Investor; former Executive Director - Finance, Imperial Chemical
Industries PLC.
++* ROBERT B. EGELSTON, Chairman of the Board of the fund.
Senior Partner, Capital Group Partners, Limited Partnership.
ALAN GREENWAY, 7413 Fairway Road, La Jolla, CA 92037.
President, Greenway Associates, Inc. (management consulting services); former
Chairman, Australian Tourist Commission.
++ WILLIAM R. GRIMSLEY, President of the fund. Four Embarcadero Center, Suite
1800, San Francisco, CA 94111. Senior Vice President and Director, Capital
Research and Management Company.
++ GRAHAM HOLLOWAY, 17309 Club Hill Drive, Dallas, TX 75248.
Former Chairman of the Board, American Funds Distributors, Inc.
LEONADE D. JONES, 1150-15th Street, N.W., Washington, D.C. 20071.
Treasurer, The Washington Post Company.
WILLIAM H. KLING, 45 East Seventh Street, St. Paul, MN 55101.
President, Minnesota Public Radio; President, Greenspring Co.; former
President, American Public Radio (now Public Radio International).
NORMAN R. WELDON, 8210 N.W. 27th Street, Miami, FL 33122.
President, Corvita Corporation; former President and Director, Cordis
Corporation.
PATRICIA K. WOOLF, 506 Quaker Road, Princeton, NJ 08544.
Private Investor; Lecturer, Department of Molecular Biology (Princeton
University).
___________________________________
+ May be deemed an "interested person" due to membership on the board of
directors of the parent company of a registered broker-dealer.
++ Trustees who are "interested persons" within the meaning of the Investment
Company Act of 1940 (the 1940 Act) on the basis of their affiliation with the
Investment Adviser.
OFFICERS
(with their principal occupations during the past five years)#
ROBERT B. EGELSTON, Chairman of the Board of the fund (see above).
WILLIAM R. GRIMSLEY, President of the fund (see above).
** STEVEN N. KEARSLEY, Vice President and Treasurer of the fund. Vice
President and Treasurer, Capital Research and Management Company.
*** TIMOTHY D. ARMOUR, Vice President of the fund. Executive Vice President,
Capital Research Company.
* VINCENT P. CORTI, Vice President of the fund. Vice President - Fund Business
Management Group, Capital Research and Management Company.
*** JAMES B. LOVELACE, Vice President of the fund. Vice President, Capital
Research and Management Company.
* CHAD L. NORTON, Secretary of the fund. Vice President - Fund Business
Management Group, Capital Research and Management Company.
** MARY C. CREMIN, Assistant Treasurer of the fund. Senior Vice President -
Fund Business Management Group, Capital Research and Management Company.
** ROBERT P. SIMMER, Assistant Treasurer of the fund. Vice President - Fund
Business Management Group, Capital Research and Management Company.
__________________________________
# Positions within the organizations listed may have change during this period.
* Address is 333 South Hope Street, Los Angeles, CA 90071
** Address is 135 South State College Boulevard, Brea, CA 92621
*** Address is 11100 Santa Monica Boulevard, Santa Monica, CA 90025
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
Trustee Aggregate Compensation Total Compensation Total Number
(Including Voluntarily from All Funds of
Deferred Compensation/1/) Managed by Capital Research Fund Boards on
from Fund during and Management Company which Trustee
Fiscal Year Serves
ended 11/30/94
<S> <C> <C> <C>
Richard G. Capen, Jr. $11,800 $24,133 2
H. Frederick Christie 11,800 135,583 18
Alan W. Clements 7,000 21,833 2
Robert B. Egelston none/2/ none/2/ 4
Alan Greenway 12,100 55,533 4
William R. Grimsley none/2/ none/2/ 4
Graham Holloway none/2/ none/2/ 2
Leonade D. Jones none/3/ 39,300 6
William H. Kling 11,336/4/ 59,333 5
Norman R. Weldon 10,900 29,133 3
Patricia K. Woolf 11,200 62,833 5
</TABLE>
________________
/1/ Amounts may be deferred by eligible Trustees under a non-qualified deferred
compensation plan adopted by the fund in 1993. Deferred amounts accumulate at
an earnings rate determined by the total return of one or more funds in The
American Funds Group as designated by the Trustee.
/2/ Robert B. Egelston, William R. Grimsley, and Graham Holloway are affiliated
with the Investment Adviser and, accordingly, receive no remuneration from the
fund.
/3/ Trustee nominee has received no remuneration to date from the fund.
/4/ Since the plan's adoption, the total amount of deferred compensation
accrued by the fund (plus earnings thereon) for participating Trustees is as
follows: William H. Kling ($7,636). Amounts deferred and accumulated earnings
thereon are not funded and are general unsecured liabilities of the Fund until
paid to the Trustee.
Each unaffiliated Trustee is paid a fee of $7000 per annum, plus $700 for each
Board of Trustees meeting attended, plus $300 for each meeting attended as a
member of a committee of the Board of Trustees. No compensation is paid by the
fund to any officer or Trustee who is a director, officer or employee of the
Investment Adviser or affiliated companies. The Trustees may elect, on a
voluntary basis, to defer all or a portion of these fees through a deferred
compensation plan in effect for the fund. As of January 1, 1995 the officers
and Trustees of the fund and their families as a group owned beneficially or of
record less than 1% of the outstanding shares of the fund.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad, with a staff of professionals, many
of whom have a number of years of investment experience. The Investment
Adviser's professionals travel several million miles a year, making more than
5,000 research visits in more than 50 countries around the world. The
Investment Adviser believes that it is able to attract and retain quality
personnel.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for approximately $100 billion of
stocks, bonds and money market instruments and serves over five million
investors of all types. These investors include privately owned businesses and
large corporations as well as schools, colleges, foundations and other
non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and
Service Agreement (the Agreement) between the fund and the Investment Adviser
will continue in effect until November 30, 1995, and may be renewed from year
to year thereafter, provided that any such renewal has been specifically
approved at least annually by (i) the Board of Trustees, or by the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the fund, and (ii) the vote of a majority of Trustees who are not parties to
the Agreement or interested persons (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The Agreement provides that the Investment Adviser has no liability
to the fund for its acts or omissions in the performance of its obligations to
the fund not involving willful misconduct, bad faith, gross negligence or
reckless disregard of its obligations under the Agreement. The Agreement also
provides that either party has the right to terminate it, without penalty, upon
60 days' written notice to the other party and that the Agreement automatically
terminates in the event of its assignment (as defined in the 1940 Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, clerical and bookkeeping functions of the fund and
provides suitable office space, small office equipment and utilities, and
general purpose accounting forms, supplies, and postage used at the office of
the fund relating to the services furnished by the Investment Adviser. Subject
to the expense agreement described below, the fund will pay all expenses not
expressly assumed by the Investment Adviser, including, but not limited to,
registration and filing fees with federal and state agencies; blue sky
expenses; expenses of shareholders' meetings; the expense of reports to
existing shareholders; expenses of printing proxies and prospectuses; legal
and auditing fees; dividend disbursement expenses; the expense of the issuance,
transfer, and redemption of its shares; expenses pursuant to the fund's Plan of
Distribution (described below); custodian fees; printing and preparation of
registration statements; taxes; compensation, compensation and expenses paid to
Trustees unaffiliated with the Investment Adviser; association dues; and costs
of stationery, forms and certificates prepared exclusively for the fund.
As compensation for its services, the Investment Adviser receives a monthly
fee which is accrued daily, calculated at the annual rate of 0.60% on the first
$300 million of the fund's net assets, 0.48% on assets over $300 million to
$750 million, 0.45% on assets over $750 million to $1.25 billion, and 0.42% on
assets over $1.25 billion. The Board of Trustees has approved a new Agreement
under which the Investment Adviser receives a monthly fee which is accrued
daily, calculated at the annual rate of 0.58% on the first $500 million of the
fund's net assets, 0.48% on assets from $500 million to $1 billion, 0.44% on
assets from $1 billion to $1.5 billion, 0.41% on assets from $1.5 billion to
$2.5 billion, 0.39% on assets from $2.5 billion to $4 billion, 0.38% on assets
from $4 billion to $6.5 billion, and 0.375% on assets over $6.5 billion. The
new Agreement would not result in a reduction in fees until net asset levels
reach $3 billion; at lower levels it would involve an increase in fees.
Accordingly, the Investment Adviser will waive any fees under the new Agreement
that would exceed the fees payable under the current Agreement, so that at all
times the fees received will be the lower of those in the current or the new
Agreement.
Both the current and new Agreements provide for an advisory fee reduction by
any amount necessary to assure that the fund's annual ordinary net operating
expenses do not exceed applicable expense limitations in any state in which the
fund's shares are being offered for sale. Only one state (California)
continues to impose expense limitations on funds registered for sale therein.
The California provision currently limits annual expenses to the sum of 2 1/2%
of the first $30 million of average net assets, 2% of the next $70 million and
1 1/2% of the remaining average net assets. Rule 12b-1 distribution plan
expenses are excluded from this limit. Other expenses which are not subject to
this limitation are interest, taxes, and extraordinary items such as
litigation. Expenditures, including costs incurred in connection with the
purchase or sale of portfolio securities, which are capitalized in accordance
with generally accepted accounting principles applicable to investment
companies, are accounted for as capital items and not as expenses.
During the fiscal years ended November 30, 1994, 1993 and 1992, the Investment
Adviser's total fees amounted to $10,711,000, $7,097,000 and $5,173,000,
respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares. The fund has
adopted a Plan of Distribution (the Plan), pursuant to rule 12b-1 under the
1940 Act (see Principal Underwriter in the prospectus). The Principal
Underwriter receives amounts payable pursuant to the Plan (see below) and
commissions consisting of that portion of the sales charge remaining after the
discounts which it allows to investment dealers. Commissions retained by the
Principal Underwriter on sales of fund shares during the fiscal year ended
November 30, 1994 amounted to $4,309,000 after allowance of $22,638,000 to
dealers. During the fiscal years ended November 30, 1993 and 1992 the
Principal Underwriter retained $2,223,000 and $394,000, respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by the Board of Trustees, and separately by a
majority of the Trustees who are not "interested persons" of the fund and who
have no direct or indirect financial interest in the operation of the Plan or
the Principal Underwriting Agreement, and the Plan has been approved by the
vote of a majority of the outstanding voting securities of the fund. The
officers and Trustees who are "interested persons" of the fund may be
considered to have a direct or indirect financial interest in the operation of
the Plan due to present or past affiliations with the Investment Adviser and
related companies. Potential benefits of the Plan to the fund include improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of Trustees who
are not "interested persons" of the fund is committed to the discretion of the
Trustees who are not "interested persons" during the existence of the Plan.
The Plan is reviewed quarterly and must be renewed annually by the Board of
Trustees.
Under the Plan the fund may expend up to 0.25% of its average net assets
annually to finance any activity which is primarily intended to result in the
sale of fund shares provided the fund's Board of Trustees has approved the
category of expenses for which payment is being made. These include service
fees for qualified dealers and wholesaler compensation on sales of shares
exceeding $1 million. Only expenses incurred during the preceding 12 months
and accrued while the Plan is in effect may be paid by the fund. During the
year ended November 30, 1994, the fund paid or accrued $4,519,000 for
compensation to dealers under the Plan.
The Glass-Stegall Act and other applicable laws, among other things, generally
prohibit commercial banks from engaging in the business of underwriting,
selling or distributing securities, but permit banks to make shares of mutual
funds available to their customers and to perform administrative and
shareholder servicing functions. However, judicial or administrative decisions
or interpretations of such laws, as well as changes in either federal or state
statutes or regulations relating to the permissible activities of banks or
their subsidiaries of affiliates, could prevent a bank from continuing to
perform all or a part of its servicing activities. If a bank were prohibited
from so acting, shareholder clients of such bank would be permitted to remain
shareholders of the fund and alternate means for continuing the servicing of
such shareholders would be sought. In such event, changes in the operation of
the fund might occur and shareholders serviced by such bank might no longer be
able to avail themselves of any automatic investment or other services then
being provided by such bank. It is not expected that shareholders would suffer
adverse financial consequences as a result of any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements and has elected the tax status
of a "regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986, (the Code). Under Subchapter M, if the fund
distributes within specified times at least 90% of the sum of its investment
company taxable income it will be taxed only on that portion of such investment
company taxable income that it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, and
gains from the sale or other disposition of stock, securities, currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) derive less than 30% of its gross income from the
sale or other disposition of stock or securities held for less than three
months; and (c) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the fund's assets is
represented by cash, U.S. Government securities, securities of other regulated
investment companies, and other securities, but such other securities must be
limited, in respect of any one issuer, to an amount not greater than 5% of the
fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies), or in two or more issuers which the fund
controls and which are engaged in the same or similar trades or businesses or
related trades or businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gains (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods. The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
capital gain net income and (ii) any amount on which the fund pays income tax
for the year. The fund intends to distribute net investment income and net
capital gains so as to minimize or avoid the excise tax liability.
The amount of any realized gain or loss on closing out a forward currency
contract such as a forward commitment for the purchase or sale of foreign
currency will generally result in a realized capital gain or loss for tax
purposes. Under Code Section 1256, forward currency contracts held by the fund
at the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes, that is, deemed to have been sold at market value.
Code Section 988 may also apply to forward currency contracts. Under Section
988, each foreign currency gain or loss is generally computed separately and
treated as ordinary income or loss. In the case of overlap between Sections
1256 and 988, special provisions determine the character and timing of any
income, gain or loss. The fund will attempt to monitor Section 988
transactions to avoid an adverse tax impact.
The fund also intends to distribute to shareholders all of the excess of net
long-term capital gain over net short-term capital loss on sales of
securities. If the net asset value of shares of the fund should, by reason of
a distribution of realized capital gains, be reduced below a shareholder's
cost, such distribution would to that extent be a return of capital to that
shareholder even though taxable to the shareholder, and a sale of shares by a
shareholder at net asset value at that time would establish a capital loss for
federal tax purposes.
Except for transactions the fund has identified as hedging transactions, the
fund is required for federal income tax purposes to recognize as income for
each taxable year its net unrealized gains and losses on forward currency
contracts as of the end of the year as well as those actually realized during
the year. Except for transactions in forward currency contracts which are
classified as part of a "mixed straddle," any gain or loss recognized with
respect to forward currency contracts is considered to be 60% long-term capital
gain or loss and 40% short-term capital gain or loss, without regard to the
holding period of the contract. In the case of a transaction classified as a
"mixed straddle," the recognition of losses may be deferred to a later taxable
year.
Sales of forward currency contracts which are intended to hedge against a
change in the value of securities or currencies held by the fund may affect the
holding period of such securities or currencies and, consequently, the nature
of the gain or loss on such securities or currencies upon disposition.
It is anticipated that any net gain realized from the closing out of forward
currency contracts will be considered gain from the sale of securities or
currencies and therefore be qualifying income for purposes of the 90% of gross
income from qualified sources requirement, as discussed above. In order to
avoid realizing excessive gains on securities or currencies held less than
three months, the fund may be required to defer the closing out of a forward
currency contract beyond the time when it would otherwise be advantageous to do
so. It is anticipated that unrealized gains on forward currency contracts,
which have been open for less than three months as of the end of the fund's
fiscal year and which are recognized for tax purposes, will not be considered
gains on securities or currencies held less than three months for purposes of
the 30% test, as discussed above.
The fund will distribute to shareholders annually any net long-term capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the fund's fiscal year) on forward currency
contract transactions. Such distributions will be combined with distributions
of capital gains realized on the fund's other investments.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the fund pays the dividend during
January of the following year.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent shares are reacquired within
the 61-day period beginning 30 days before and ending 30 days after the shares
are disposed of.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, non-U.S. corporation, or non-U.S.
partnership (a non-U.S. shareholder) will be subject to U.S. withholding tax
(at a rate of 30% or lower treaty rate). Withholding will not apply if a
dividend paid by the fund to a non-U.S. shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens or domestic corporations will apply.
However, if the distribution is effectively connected with the conduct of the
non-U.S. shareholder's trade or business within the U.S., the distribution
would be included in the net income of the shareholder and subject to U.S.
income tax at the applicable marginal rate. Distributions of net long-term
capital gains are not subject to tax withholding, but if the non-U.S.
shareholder was an individual who was physically present in the U.S. during the
tax year for more than 182 days and such shareholder is nonetheless treated as
a nonresident alien, the distributions would be subject to a 30% tax.
The fund may be required to pay withholding and other taxes imposed by foreign
countries generally at rates from 10% to 40% which would reduce the fund's
investment income. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. If more than 50% in value of the
fund's total assets at the close of its taxable year consists of securities of
foreign issuers, the fund will be eligible to file elections with the Internal
Revenue Service pursuant to which shareholders of the fund will be required to
include their respective pro rata portions of such withholding taxes in their
federal income tax returns as gross income, treat such amounts as foreign taxes
paid by them, and deduct such amounts in computing their taxable incomes or,
alternatively, use them as foreign tax credits against their federal income
taxes. In any year the fund makes such an election, shareholders will be
notified as to the amount of foreign withholding and other taxes paid by the
fund.
As of the date of this statement of additional information, the maximum
federal individual stated tax rate applicable to ordinary income is 39.6%
(effective tax rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
applicable to net capital gain is 28%; and the maximum corporate tax applicable
to ordinary income and net capital gain is 35% (except that corporation's with
income in excess of $100,000 for a taxable year will be required to pay an
additional income tax liability up to $11,700 and corporations which have
taxable income in excess of $15,000,000 for a taxable year will be required to
pay and additional amount of tax up to $100,000). Naturally, the amount of tax
payable by a taxpayer will be affected by a combination of tax law rules
covering, E.G., deductions, credits, deferrals, exemptions, sources of income
and other matters. Under the Code, an individual is entitled to establish and
contribute to an IRA each year (prior to the tax return filing deadline for
that year) whereby earnings on investments are tax-deferred. In addition, in
some cases, the IRA contribution itself may be deductible.
The foregoing is limited to a summary federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors. Dividends and capital gain distributions may also be subject to
state or local taxes. Shareholders should consult their own tax advisers for
additional details as to their particular tax status.
PURCHASE OF SHARES
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service Company; this offering price is effective for orders received prior to
the time of determination of the net asset value and, in the case of orders
placed with dealers, accepted by the Principal Underwriter prior to its close
of business. The dealer is responsible for promptly transmitting purchase
orders to the Principal Underwriter. Orders received by the investment dealer,
the Transfer Agent, or the fund after the time of the determination of the net
asset value will be entered at the next calculated offering price. Prices
which appear in the newspaper are not always indicative of prices at which you
will be purchasing and redeeming shares of the fund, since such prices
generally reflect the previous day's closing price, whereas purchases and
redemptions are made at the next calculated price.
The price paid for shares, the offering price, is based on the net asset value
per share which is calculated once daily at the close of trading (currently
4:00 p.m., New York Time) each day the New York Stock Exchange is open. The
New York Stock Exchange is currently closed on weekends and on the following
holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas Day. The net asset
value per share is determined as follows:
1. Stocks, and convertible bonds and debentures, traded on the New York
Stock Exchange are valued at the last sale price on such exchange on the day of
valuation, or if there is no sale on the day of valuation, at the last-reported
bid price. Nonconvertible bonds and debentures, and other long-term debt
securities normally are valued at prices obtained for the day of valuation from
a bond pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, an
over-the-counter or exchange quotation may be used. Securities traded
primarily on securities exchanges outside the U.S. are valued at the last sale
price on such exchanges on the day of valuation, or if there is no sale on the
day of valuation, at the last-reported bid price. U.S. Treasury bills,
certificates of deposit issued by banks, corporate short-term notes and other
short-term investments with original or remaining maturities in excess of 60
days are valued at the mean of representative quoted bid and asked prices for
such securities or, if such prices are not available, for securities of
comparable maturity, quality and type. Short-term securities with 60 days or
less to maturity are amortized to maturity based on their cost to the fund if
acquired within 60 days of maturity or, if already held by the fund on the 60th
day, based on the value determined on the 61st day. Other securities are
valued on the basis of last sale or bid prices in what is, in the opinion of
the Investment Adviser, the broadest and most representative market, which may
be either a securities exchange or the over-the-counter market. Where
quotations are not readily available, securities are valued at fair value as
determined in good faith by the Board of Trustees. The fair value of all other
assets is added to the value of securities to arrive at the total assets;
2. There are deducted from the total assets, thus determined, the
liabilities, including accruals of taxes and other expense items; and
3. The net assets so obtained are then divided by the total number of shares
outstanding (excluding treasury shares), and the result, rounded to the nearer
cent, is the net asset value per share.
Any purchase order may be rejected by the Principal Underwriter or the fund.
The fund will not knowingly sell shares (other than for the reinvestment of
dividends or capital gain distributions) directly or indirectly or through a
unit investment trust to any other investment company, person or entity, where,
after the sale, such investment company, person, or entity would own
beneficially, directly, indirectly, or through a unit investment trust more
than 4.5% of the outstanding shares of the fund without the consent of a
majority of the Board of Trustees.
STATEMENT OF INTENTION - The reduced sales charges and offering prices set
forth in the prospectus apply to purchases of $50,000 or more made within a
13-month period pursuant to the terms of a written statement of intention (the
Statement) in the form provided by the Principal Underwriter and signed by the
purchaser. The Statement is not a binding obligation to purchase the indicated
amount. When a shareholder signs a Statement in order to qualify for a reduced
sales charge, shares equal to 5% of the dollar amount specified in the
Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent.
All dividends and capital gain distributions on shares held in escrow will be
credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total purchases had been made at a single time. If
the difference is not paid within 20 days after written request by the
Principal Underwriter or the securities dealer, the appropriate number of
shares will be redeemed to pay such difference. If the proceeds from this
redemption are inadequate, the purchaser will be liable to the Principal
Underwriter for the balance still outstanding. The Statement may be revised
upward at any time during the 13-month period, and such a revision will be
treated as a new Statement, except that the 13-month period during which the
purchase must be made will remain unchanged and there will be no retroactive
reduction of the sales charges paid on prior purchases.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The investment made the first
month of the 13-month period will be multiplied by 13 and then multiplied by
1.5. On the first investment and all other investments made pursuant to the
statement of intention, a sales charge will be assessed according to the sales
charge breakpoint thus determined. There will be no retroactive adjustments in
sales charges on investments previously made during the 13-month period.
DEALER COMMISSIONS - The following commissions will be paid to dealers who
initiate and are responsible for purchases of $1 million or more, for purchases
by any defined contribution plan qualified under Section 401(a) of the Internal
Revenue Code including a 401(k) plan with 200 or more eligible employees, and
for purchases made at net asset value by certain retirement plans of
organizations with collective retirement plan assets of $100 million or more:
1.00% on amounts of $1 million to $2 million, 0.80% on amounts over $2 million
to $3 million, 0.50% on amounts over $3 million to $50 million, 0.25% on
amounts over $50 million to $100 million, and 0.15% on amounts over $100
million. The level of dealer commissions will be determined based on sales
made over a 12-month period commencing from the date of the first sale at net
asset value. See "The American Funds Shareholder Guide" in the fund's
prospectus for more information.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum) which will be automatically invested in shares
at the offering price on or about the 10th day of the month (or on or about the
15th day of the month in the case of accounts for retirement plans where
Capital Guardian Trust Company serves as trustee or custodian). Bank accounts
will be charged on the day or a few days before investments are credited,
depending on the bank's capabilities, and shareholders will receive a
confirmation statement showing the current transaction. Participation in the
plan will begin within 30 days after receipt of the account application. If
the Shareholders bank account cannot be charged due to insufficient funds, a
stop-payment order or closing of the account, the plan may be terminated and
the related investment reversed. The shareholder may change the amount of the
investment or discontinue the plan at any time by writing to the Transfer
Agent.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the paying fund) into any other fund in The
American funds Group (the receiving fund) subject to the following conditions:
(i) the aggregate value of the shareholder's account(s) in the paying fund(s)
must equal or exceed $5,000 (this condition is waived if the value of the
account in the receiving fund equals or exceeds that fund's minimum initial
investment requirement), (ii) as long as the value of the account in the
receiving fund is below that fund's minimum initial investment requirement,
dividends and capital gain distributions paid by the receiving fund must be
automatically reinvested in the receiving fund, and (iii) if this privilege is
discontinued with respect to a particular receiving fund, the value of the
account in that fund must equal or exceed the fund's minimum initial investment
requirement or the fund shall have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, automatically to redeem the account and send the
proceeds to the shareholder. These cross-reinvestments of dividends and
capital gain distributions will be at net asset value (without sales charge).
REDEMPTION OF SHARES
The fund's Declaration of Trust permits the fund to direct the Transfer Agent
to redeem the shares of any shareholder if the shares owned by such shareholder
through redemptions, market decline or otherwise, have a value of less than
$1,000 (determined, for this purpose only as the greater of the shareholder's
cost or the current net asset value of the shares, including any shares
acquired through the reinvestment of income dividends and capital gain
distributions). Prior notice of at least 60 days will be given to a
shareholder before the involuntary redemption provision is made effective with
respect to the shareholder's account. The shareholder will have not less than
30 days from the date of such notice within which to bring the account up to
the minimum determined as set forth above.
EXECUTION OF PORTFOLIO TRANSACTIONS
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The fund will not pay a mark-up for
research in principal transactions.
As of the end of the fund's most recent fiscal year, the fund held certain
debt securities of three of its regular broker-dealers: Ford Motor Credit Co.,
General Electric Capital Corp., and American Express Credit Co. These holdings
amounted to $31,240,000, $12,801,000 and $9,957,000 respectively.
Brokerage commissions paid on portfolio transactions, including dealer
concessions on underwritings, for the fiscal years ended November 30, 1994,
1993 and 1992 amounted to $3,496,000, $2,644,000 and $1,306,000 respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by State Street Bank and Trust Company, 225 Franklin Street, Boston,
MA 02101, as Custodian. Non-U.S. securities may be held by the Custodian
pursuant to sub-custodial arrangements in non-U.S. banks or foreign branches of
U.S. banks.
INDEPENDENT PUBLIC ACCOUNTANTS - Deloitte & Touche LLP, 1000 Wilshire
Boulevard, 15th Floor, Los Angeles, CA 90017, have served as the fund's
independent accountants since its inception, providing audit services,
preparation of tax returns and review of certain documents to be filed with the
Securities and Exchange Commission. The financial statements, included in this
Statement of Additional Information from the Annual Report, have been so
included in reliance on the report of Deloitte & Touche LLP given on the
authority of said firm as experts in auditing and accounting.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on November 30.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio, financial statements and other information. The
financial statements are audited annually by the fund's independent public
accountants, Deloitte & Touche LLP, whose selection is determined annually by
the Board of Trustees.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.
SHAREHOLDER AND TRUSTEE RESPONSIBILITY - Under the laws of certain states,
including Massachusetts where the fund was organized and California where the
fund's principal office is located, shareholders of a Massachusetts business
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the fund. However, the risk of a shareholder's
incurring any financial loss on account of shareholder liability is limited to
circumstances in which the fund itself would be unable to meet its obligations.
The Declaration of Trust contains an express disclaimer of shareholder
liability for acts, ommissions, obligations or affairs of the fund and provides
that notice of the disclaimer may be given in each agreement, obligation, or
instrument which is entered into or executed by the fund or Trustees. The
Declaration of Trust provides for indemnification out of fund property of any
shareholder held personally liable for the obligations of the fund and also
provides for the fund to reimburse such shareholder for all legal and other
expenses reasonably incurred in connection with any such claim or liability.
Under the Declaration of Trust, the Trustees, officers, employees or agents of
the fund are not liable for actions or failure to act; however, they are not
protected from liability by reason of their willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct
of their office.
SHAREHOLDER VOTING RIGHTS - At any meeting of shareholders, duly called and at
which a quorum is present, the shareholders may, by the affirmative vote of the
holders of a majority of the votes entitled to be cast thereon, remove any
trustee or trustees from office and may elect a successor or successors to fill
any resulting vacancies for the unexpired terms of removed trustees. The fund
has made an undertaking, at the request of the staff of the Securities and
Exchange Commission, to apply the provisions of section 16(c) of the 1940 Act
with respect to the removal of trustees, as though the fund were a common-law
trust. Accordingly, the trustees of the fund shall promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
trustee when requested in writing to do so by the record holders of not less
than 10% of the outstanding shares.
The financial statements including the investment portfolio and the report of
Independent Auditors contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE -- NOVEMBER 30, 1994
<S> <C>
Net asset value and redemption price per share $14.65
(Net assets divided by shares outstanding)
Maximum offering price per share (100/94.25 of per $15.54
share net asset value, which takes into account
the fund's current maximum sales load)
</TABLE>
INVESTMENT RESULTS
The fund's yield is 1.45% based on a 30-day (or one month) period ended
November 30, 1994, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[(a-b/cd+1)/6/-1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund's total return for the past 12 months and average annual total
returns over the past five- and ten-year periods as of November 30, 1994 were
- -8.53%, 9.07% and 15.19%, respectively. The average total return ("T") is
computed by equating the value at the end of the period ("ERV") with a
hypothetical initial investment of $1,000 ("P") over a period of years ("n")
according to the following formula as required by the Securities and Exchange
Commission: P(1+T)/n/ = ERV.
To calculate total return, an initial investment is divided by the public
offering price (which includes the sales charge) as of the first day of the
period in order to determine the initial number of shares purchased. Subsequent
dividends and capital gain distributions are reinvested at net asset value on
the reinvestment date determined by the Board of Trustees. The sum of the
initial shares purchased and shares acquired through reinvestment is multiplied
by the net asset value per share as of the end of the period in order to
determine ending value. The difference between the ending and the initial
investment value divided by the initial investment converted to a percentage
equals total return. The resulting percentage indicates the positive or
negative investment results that an investor would have experienced from
reinvested dividends and capital gain distributions and changes in share price
during the periods. Total return may be calculated for one-year, five-years,
ten-years and for other periods. The average annual total return over periods
greater than one year may also be computed by utilizing ending values as
determined above.
The following assumptions will be reflected in computations made in accordance
with the formulas stated above: (1) deduction of the maximum sales load of
5.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
The fund may also, at times, calculate total return based on net asset value
per share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Consequently,
total return calculated in this manner will be higher. These total returns may
be calculated over periods in addition to those described above. Total return
for the unmanaged indices will be calculated assuming reinvestment of dividends
and interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
The fund may include information on its investment results and/or comparisons
of its investment results to various unmanaged indices (such as The Dow Jones
Average of 30 Industrial Stocks and The Standard and Poor's 500 Stock Composite
Index) or results of other mutual funds or investment or savings vehicles in
advertisements or in reports furnished to present or prospective shareholders.
The fund may refer to results compiled by organizations such as CDA Investment
Technologies, Ibbottson Associates, Lipper Analytical Services, and
Wiesenberger Investment Companies Services. Additionally, the fund may, from
time to time, refer to results published in various periodicals, including
Barron's, Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance
Magazine, Money, U.S. News and World Report and The Wall Street Journal.
The fund may from time to time illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans.
The fund may from time to time compare its investment results with the
Consumer Price Index, which is a measure of the average change in prices over
time in a fixed market basket of good and services (E.G. food, clothing, fuels,
transportation, and other goods and services that people buy for day-to-day
living).
The investment results set forth below were calculated as described in the
fund's prospectus. The fund's results will vary from time to time depending
upon market conditions, the composition of the fund's portfolio and operating
expenses of the fund, so that any investment results reported by the fund
should not be considered representative of what an investment in the fund may
earn in any future period. These factors and possible differences in
calculation methods should be considered when comparing the fund's investment
results with those published for other mutual funds, other investment vehicles
and unmanaged indices. The fund's results also should be considered relative
to the risks associated with the fund's investment objective and policies.
EXPERIENCE OF THE INVESTMENT ADVISER - Capital Research and Management Company
manages eight common stock funds that are at least 10 years old. In the
rolling 10-year periods since 1963 (109 in all), those funds have had better
total returns than the Standard and Poor's 500 Composite Stock Index in 91 of
the 109 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
NEF VS. VARIOUS UNMANAGED INDICES
Here is how a $10,000 investment in NEF would have grown (with all
distributions reinvested) in its lifetime compared with investments in DJIA 30
and S&P 500:
<TABLE>
<CAPTION>
Period NEF S&P 500/1/ DJIA/2/ NYSE/3/
<S> <C> <C> <C> <C>
12/1/83 - +314% +299% +340% +158%
11/30/94
</TABLE>
/1/ The Standard and Poor's 500 Stock Index is comprised of industrial,
transportation, public utilities and financial stocks, and represents a large
portion of the value of issues traded on the New York Stock Exchange. Selected
issues traded on the American Stock Exchange are also included.
/2/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30
industrial companies such as General Motors and General Electric.
/3/ Index is a capitalization weighted index of all The New York Stock
Exchange Composite common stocks listed on the exchange.
IF YOU ARE CONSIDERING NEF FOR AN INDIVIDUAL RETIREMENT ACCOUNT...
<TABLE>
<CAPTION>
Here's how much you would have if you had invested $2,000
a year in NEF:
<S> <C> <C> <C>
2 Years 5 Years 7 Years 10 Years
(12/1/92- (12/1/89 - (12/1/87- (12/1/84-
11/30/94) 11/30/94) 11/30/94) 11/30/94)
$4,219 $13,725 $23,118 $42,168
</TABLE>
SEE THE DIFFERNCE TIME CAN MAKE IN AN INVESTMENT PROGRAM:
<TABLE>
<CAPTION>
If you had invested Periods ...and taken all
$10,000 in NEF 12/1-11/30 distributions in shares,
this many years and... your investment would
Number have been worth this
of Years much at November 30,
1994:
Value
<S> <C> <C>
1 1993 - 1994 $ 9,147
2 1992 - 1994 11,946
3 1991 - 1994 14,764
4 1990 - 1994 17,815
5 1989 - 1994 15,435
6 1988 - 1994 21,122
7 1987 - 1994 25,843
8 1986 - 1994 24,454
9 1985 - 1994 29,674
10 1984 - 1994 41,122
11 1983 - 1994 41,376
</TABLE>
Illustration of a $10,000 investment in NEF with
dividends reinvested and capital gain distributions taken in shares
(For the lifetime of the fund, December 1, 1983 through November 30, 1994)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
Fiscal Annual Total Investment From From Dividends Total
Year End Dividends Dividends Cost Initial Capital Gains Reinvested Value
11/30 (cumulative) Investment Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1984 $ -- $ -- $ 10,000 $ 9,485 $ -- $ -- $ 9,485
1985 199 199 10,199 12,864 -- 280 13,144
1986 140 339 10,339 14,560 913 477 15,950
1987 367 706 10,706 12,761 1,586 746 15,093
1988 315 1,021 11,021 14,396 2,858 1,208 18,462
1989 421 1,442 11,442 18,159 5,042 2,068 25,269
1990 566 2,008 12,008 13,462 6,417 2,007 21,886
1991 589 2,597 12,597 15,076 8,427 2,910 26,413
1992 328 2,925 12,925 18,091 10,676 3,874 32,641
1993 189 3,114 13,114 22,617 14,934 5,080 42,631
1994 307 3,421 13,421 20,124 16,436 4,816 41,376
</TABLE>
The dollar amount of capital gain distributions during the period was $12,829
APPENDIX
DESCRIPTION OF BOND RATINGS
CORPORATE DEBT SECURITIES
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities from "Aaa" to "C".
"AA -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"AA -- High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"BAA -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"BA -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"CAA -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"CA -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
THE NEW ECONOMY FUND
<TABLE>
<CAPTION>
LARGEST HOLDINGS BY INDUSTRY
<S> <C>
Broadcasting and Publishing 14.65%
Telecommunications 11.37%
Banking 8.95%
Insurance 8.03%
Merchandising 5.16%
All Other Industries 28.07%
Bonds 0.53%
Cash & Equivalents 23.24%
</TABLE>
*************
THE NEW ECONOMY FUND
INVESTMENT PORTFOLIO, NOVEMBER 30, 1994
<TABLE>
<CAPTION>
Shares Market Percent
EQUITY-TYPE SECURITIES or Value of Net
(COMMON AND PREFERRED STOCKS AND Principal (000) Assets
CONVERTIBLE DEBENTURES) Amount
<S> <C> <C> <C>
- ---------------------------------------- ------------- ------------ -----------
BROADCASTING & PUBLISHING - 8.94%
Tele-Communications, Inc., Class A/1/ 6,267,067 $148,059 5.71%
Time Warner Inc. 1,388,000 46,845 1.81
Comcast Corp., Class A, special stock/1/ 2,115,000 33,047
Comcast Corp., Class A/1/ 130,000 2,031 1.35
Gaylord Entertainment Co., Class A 1,280,000 28,960 1.12
News Corp. Ltd. (Australia) 2,057,052 8,212
News Corp. Ltd. (American Depositary
Receipts) 470,000 7,402
News Corp. Ltd., preferred shares 1,028,526 3,569
News Corp. Ltd., preferred shares
(American Depositary Receipts)/1/ 235,000 3,261
News International PLC (United Kingdom) 1,000,000 3,679 1.01
Capital Cities/ABC, Inc. 240,000 19,620 .76
Grupo Televisa, SA (American Depositary
Receipts) (Mexico) 385,000 17,421 .67
CANAL+ (France) 80,478 13,593 .52
International Family Entertainment, Inc.,
Class B/1/ 900,000 12,488 .48
TeleWest Communications PLC (American
Depositary Receipts) (United Kingdom)/1/ 332,000 9,669 .37
Western Publishing Group, Inc./1/ 500,000 5,562 .21
Turner Broadcasting System, Inc., Class B 299,627 4,607 .18
Rogers Communications Inc., Class B
(Canada)/1/ 300,000 4,142 .16
Le Groupe Videotron Ltee (Canada) 500,000 4,133 .16
Westcott Communications, Inc./1/ 300,000 3,600 .14
TELECOMMUNICATIONS -1.37%
Telefonos de Mexico, SA de CV, Class L
(American Depositary Receipts) (Mexico) 1,041,860 55,218 2.13
LIN Broadcasting Corp./1/ 375,800 53,645 2.07
Telecom Corp. of New Zealand Ltd. (New
Zealand)/2/ 8,810,480 29,878 1.15
AirTouch Communications/1/ 725,000 19,666 .76
Vodafone Group PLC (American Depositary
Receipts) (United Kingdom) 510,000 16,575 .64
MCI Communications Corp. 720,000 14,040 .54
STET-Societa Finanziaria Telefonica p.a.
(Italy) 4,300,000 12,533
STET-Societa Finanziaria Telefonica p.a.,
preferred shares 150,000 358 .50
BCE Mobile Communications Inc. (Canada)/1/ 325,000 10,481 .40
Tele Danmark AS, Class B (American Depositary
Receipts) (Denmark)/1/ 395,000 10,221 .39
AT&T Corp. 200,000 9,825 .38
Technology Resources Industries Bhd.,
2.75% convertible debenture 2004 (Malaysia)/2/ $9,600,000 9,408 .36
Perusahaan Perseroan (Persero) P.T. Indonesian
Satellite Corp. (American Depositary
Receipts) (Indonesia)/1/ 226,600 8,611 .33
Octel Communications Corp./1/ 400,000 8,600 .33
Nortel Inversora SA, preferred shares,
Series B (American Depositary Receipts)
(Argentina)/2/ 284,000 8,520 .33
Pakistan Telecommunication Corp., registered
shares (Global Depositary Receipts)
(Pakistan)/1/ 31,000 4,743
Pakistan Telecommunication Corp. (Global
Depositary Receipts) /1/,/2/ 21,800 3,335 .31
GTE Corp. 228,600 7,001 .27
Telefonica de Espana, SA (American
Depositary Receipts) (Spain) 170,000 6,566 .25
Telecomunicacoes Brasileiras SA, preferred
nominative (Brazil)/1/ 125,292,635 5,998 .23
BANKING - 8.95%
Svenska Handelsbanken Group, Class A (Sweden) 2,410,000 33,066 1.28
First Interstate Bancorp 335,000 23,617 .91
Banc One Corp. 750,000 20,156 .78
Golden West Financial Corp. 530,000 18,550 .72
Old Kent Financial Corp. 500,000 15,687 .61
Mercantile Bancorporation Inc. 420,000 12,757 .49
Washington Mutual Savings Bank 667,500 11,431 .44
Canadian Imperial Bank of Commerce (Canada) 450,000 10,751 .41
Banco Bradesco SA, preferred nominative
(Brazil) 1,182,664,755 9,646
Banco Bradesco SA 74,365,055 554 .39
Grupo Financiero Banamex Accival, SA de CV,
Series B (Mexico) 1,200,000 7,415
Grupo Financiero Banamex Accival, SA de CV,
Series L 310,000 2,078 .37
Australia and New Zealand Banking Group Ltd.
(Australia) 3,000,000 9,120 .35
Charter One Financial, Inc. 450,000 8,269 .32
BankAmerica Corp. 195,000 7,995 .31
Stadshypotek AB, Class A (Sweden) 500,000 6,330 .24
Banco Popular Espanol, SA (Spain) 45,400 5,704 .22
U.S. Bancorp 250,000 5,688 .22
Mercantile Bankshares Corp. 250,000 5,031 .19
West One Bancorp 180,000 4,770 .18
Keystone Financial, Inc. 150,000 4,369 .17
Hibernia Corp., Class A 500,000 3,938 .15
Standard Federal Bank 100,000 2,475 .10
N.S. Bancorp, Inc. 60,000 1,553 .06
Thai Military Bank (Thailand) 264,500 982 .04
INSURANCE - 8.03%
Internationale Nederlanden Groep NV
(Netherlands) 620,052 29,120
Internationale Nederlanden Groep NV, warrants,
expire 2001/1/ 8,800,000 18,262 1.83
Colonia Konzern AG (Germany) 50,000 40,410
Colonia Konzern AG, preferred shares 5,330 2,714 1.66
EXEL Ltd. (Bermuda) 530,000 19,875 .77
Dowa Fire and Marine Insurance Co., Ltd.
(Japan) 2,200,000 13,118 .51
Nippon Fire and Marine Insurance Co., Ltd.
(Japan) 1,680,000 11,121 .43
AMBAC Inc. 300,000 10,387 .40
PartnerRe Holdings Ltd. 535,000 10,031 .39
Munchener Ruckversicherungs-Gesellschaft
(Germany) 5,297 9,472 .37
TIG Holdings, Inc. 525,000 9,187 .35
American International Group, Inc. 100,000 9,162 .35
Irish Life PLC (Ireland) 2,383,000 6,762 .26
Kolnische Ruckversicherungs-Gesellschaft
AG, preferred shares (Germany) 7,788 3,791
Kolnische Ruckversicherungs-Gesellschaft AG 5,000 2,927 .26
Cincinnati Financial Corp. 120,000 5,730 .22
Selective Insurance Group, Inc. 210,000 4,988 .19
Trenwick Group Inc. 30,000 1,103 .04
MERCHANDISING - 5.16%
Consolidated Stores Corp./1/ 2,068,500 36,199 1.40
Viking Office Products, Inc./1/ 1,110,000 31,635 1.22
H&M Hennes & Mauritz AB, Class B (Sweden) 320,000 16,629 .64
TJX Companies, Inc. 750,000 11,344 .44
Toys 'R' Us, Inc./1/ 225,000 8,241 .32
Giant Food Inc., Class A 350,000 7,831 .30
Delhaize 'Le Lion' SA (Belgium) 150,000 6,032 .23
Duty Free International, Inc. 450,000 5,456 .21
Tesco PLC (United Kingdom) 1,400,000 5,392 .21
Ito-Yokado Co., Ltd. (Japan) 60,000 3,183 .12
Melville Corp. 50,000 1,575 .06
Phar-Mor, Inc./1/,/2/ 235,000 235 .01
ENTERTAINMENT & LEISURE - 3.95%
Circus Circus Enterprises, Inc./1/ 1,200,000 25,200 .97
Walt Disney Co. 475,000 20,722 .80
Mirage Resorts, Inc./1/ 900,000 17,775 .69
Promus Companies Inc./1/ 500,000 13,875 .54
Caesars World, Inc./1/ 300,000 13,050 .50
Carnival Cruise Lines, Inc., Class A 270,000 11,678 .45
MISCELLANEOUS FINANCIAL SERVICES - 3.93%
Federal National Mortgage Assn. 800,000 56,900 2.20
ADVANTA Corp., Class A 400,000 10,900
ADVANTA Corp., Class B 300,000 7,725 .72
Student Loan Marketing Assn. 380,000 13,015 .50
Federal Home Loan Mortgage Corp. 150,000 7,481 .29
Grupo Financiero Bancomer, SA de CV,
Series C (American Depositary Receipts)
(Mexico)/2/ 140,000 3,377 .13
Enhance Financial Services Group Inc. 140,000 2,380 .09
COMPUTER SERVICES & SOFTWARE - 3.33%
Microsoft Corp./1/ 480,000 30,120 1.16
Electronic Arts/1/ 1,020,000 20,272 .78
Policy Management Systems Corp./1/ 300,000 12,825 .49
Lotus Development Corp./1/ 200,000 8,950 .35
General Motors Corp., Class E 200,000 7,350 .28
CUC International Inc./1/ 225,000 6,919 .27
HEALTH & PERSONAL CARE SERVICES - 2.83%
United HealthCare Corp. 432,000 20,520 .79
Columbia Healthcare Corp. 425,000 16,097 .62
Humana Inc./1/ 550,000 12,306 .47
Pacific Physician Services, Inc./1/ 442,900 6,976
Pacific Physician Services, Inc., 5.50%
convertible debenture 2003 $4,800,000 3,648 .41
FHP International Corp./1/ 305,400 8,169 .32
WellPoint Health Networks Inc., Class A/1/ 200,000 5,750 .22
MISCELLANEOUS PUBLIC SERVICES - 2.37%
Waste Management International PLC (American
Depositary Receipts) (United Kingdom)/1/ 1,200,000 19,050 .73
Eurotunnel SA (France)/1/ 4,780,000 18,854 .73
WMX Technologies, Inc. 695,000 17,896 .69
ADT Ltd. (United Kingdom)/1/ 500,000 5,563 .22
COMPUTER SYSTEMS - 2.33%
Silicon Graphics, Inc./1/ 900,000 27,675 1.07
Apple Computer, Inc. 345,000 12,765 .49
Digital Equipment Corp./1/ 200,000 6,800 .26
International Business Machines Corp. 77,000 5,448 .21
Unisys Corp./1/ 500,000 4,688 .18
Bay Networks Inc./1/ 125,000 3,203 .12
ADVERTISING - 1.20%
Havas SA (France) 194,136 15,758 .61
Interpublic Group of Companies, Inc. 320,000 10,120 .39
Omnicom Group Inc. 100,000 5,213 .20
ENERGY SERVICES - 0.95%
Helmerich & Payne, Inc. 500,000 14,000 .54
Schlumberger Ltd. (Netherlands Antilles) 200,000 10,625 .41
ELECTRONIC DATA PRODUCTS - 0.86%
America Online, Inc./1/ 310,000 12,943 .50
Intel Corp. 150,000 9,431 .36
HOTELS & MOTELS - 0.77%
Marriott International, Inc. 755,000 19,819 .77
RESTAURANTS - 0.67%
Foodmaker, Inc./1/ 1,800,000 9,450 .37
McDonald's Corp. 270,000 7,661 .30
AIRLINES - 0.57%
Southwest Airlines Co. 300,000 6,338 .25
AMR Corp./1/ 100,000 5,075 .20
Delta Air Lines, Inc. 60,000 3,008 .12
REAL ESTATE - 0.53%
Host Marriott Corp./1/ 1,450,000 13,775 .53
DIVERSIFIED SERVICES - 0.49%
First Pacific Co. Ltd. (Hong Kong) 11,826,080 8,181 .32
Benpres Holdings Corp. (Global Depositary
Receipts) (Philippines)/1/,/2/ 462,900 4,458 .17
DELIVERY SERVICES - 0.44%
Federal Express Corp./1/ 200,000 11,375 .44
ENGINEERING & CONSTRUCTION - 0.32%
Jacobs Engineering Group Inc./1/ 436,700 8,297 .32
ELECTRIC UTILITIES - 0.20%
China Light & Power Co., Ltd. (Hong Kong) 1,200,000 5,167 .20
RAIL & ROAD SERVICES - 0.12%
Norfolk Southern Corp. 50,000 3,025 .12
MISCELLANEOUS BUSINESS SERVICES - 0.07%
Sigma-Aldrich Corp. 50,000 1,713 .07
MISCELLANEOUS
Other Equity-Type Securities in initial
period of acquisition 55,519 2.14
------------ ------------
TOTAL EQUITY-TYPE SECURITIES
(COST: $1,615,067,000) 1,975,839 76.23
------------ -----------
Principal
Amount
BONDS & NOTES (000)
- ---------------------------------------- ------------- ------------ ----------
TELECOMMUNICATIONS- 0.29%
Dial Call Communications, Inc. 0%/12.25% 2004/3/
$10,500 3,990 .16
NEXTEL Communications, Inc. 0%/11.50% 2003/3/ 8,000 3,440 .13
BROADCASTING & PUBLISHING- 0.24%
Cablevision Systems Corp. 9.875% 2013 7,000 6,300 .24
------------ -----------
TOTAL BONDS & NOTES (COST: $19,405,000) 13,730 .53
------------ -----------
SHORT-TERM SECURITIES
- ---------------------------------------- ------------- ------------ -----------
CORPORATE SHORT-TERM NOTES- 18.13%
H.J. Heinz Co. 5.02% due 12/13-12/19/94 51,700 51,585 1.99
Xerox Corp. 5.00%-5.90% due 12/6/94-1/17/95 43,850 43,647 1.68
Texaco Inc. 5.63%-5.70% due 1/17-1/24/95 42,800 42,442 1.64
AT&T Corp.
5.37%-5.68% due 1/4-1/18/95 42,500 42,243 1.63
Commercial Credit Co. 5.16%-5.70% due
12/14/94-1/25/95 35,400 35,155 1.36
Ford Motor Credit Co. 5.45%-5.75% due
1/17-1/23/95 31,500 31,240 1.21
Beneficial Corp. 5.45%-5.47% due 1/6-1/10/95 31,000 30,820 1.19
John Deere Capital Corp. 5.50% due 1/18/95 25,000 24,804 .96
Campbell Soup Co. 5.20% due 12/22/94 24,700 24,622 .95
Union Pacific Corp. 5.02% due 12/13/94 24,000 23,956 .92
National Rural Utilities Cooperative
Finance Corp. 5.15%-5.70% due
12/12/94-1/11/95 22,800 22,682 .88
A.I. Credit Corp. 5.35% due 1/19/95 20,000 19,839 .77
Chevron Transport 5.64% due 1/20/95 20,000 19,836 .77
General Electric Capital Corp. 5.38%
due 1/17/95 12,900 12,801 .49
American Express Credit Co. 5.50% due
12/28/94 10,000 9,957 .38
Eli Lilly and Co. 5.73% due 1/9/95 10,000 9,936 .38
Motorola, Inc. 4.87% due 12/1/94 9,700 9,699 .37
Central and Southwest Corp. 5.20% due 12/1/94 9,000 8,999 .35
Duke Power Co. 5.20% due 12/12/94 3,500 3,494 .13
Schering Corp. 5.55% due 12/7/94 2,000 1,998 .08
FEDERAL AGENCY DISCOUNT NOTES- 5.67%
Federal National Mortgage Assn. 4.81%-4.97%
due 12/1-12/21/94 65,450 65,304 2.52
Federal Farm Credit Bank 4.93%-4.94% due
12/6-12/8/94 44,700 44,659 1.72
Federal Home Loan Mortgage Corp. 4.93%-5.17%
due 12/9-12/27/94 37,100 36,989 1.43
------------ -----------
TOTAL SHORT-TERM SECURITIES
(COST: $616,763,000) 616,707 23.80
------------ -----------
TOTAL INVESTMENT SECURITIES
(COST: $2,251,235,000) 2,606,276 100.56
EXCESS OF PAYABLES OVER CASH AND RECEIVABLES 14,429 .56
------------ -----------
NET ASSETS $2,591,847 100.00%
============ ===========
</TABLE>
/1/ Non-income-producing securities
/2/ Purchased in a private placement
transaction; resale to the public
may require registration or may
extend only to qualified
institutional buyers.
/3/ Represents a zero coupon bond which will
convert to a coupon-bearing security at
a later date.
The descriptions of the companies shown in the
portfolio, which were obtained from published
reports and other sources believed to be
reliable, are supplemental and are not
covered by the Independent Auditors' Report.
See Notes to Financial Statements
EQUITY-TYPE SECURITIES APPEARING IN THE PORTFOLIO
SINCE MAY 31, 1994:
- -------------------------------------------
AirTouch Communications
AT&T
Australia and New Zealand Banking Group
Banco Popular Espanol
Bay Networks
Benpres Holdings
Federal Home Loan Mortgage
General Motors
Giant Food
Hibernia
Humana
Intel
Mercantile Bankshares
N.S. Bancorp
Pakistan Telecommunication
PartnerRe Holdings
Perusahaan Perseroan (Persero) P.T. Indonesian
Satellite
Promus
Southwest Airlines
Stadshypotek
Technology Resources Industries
TeleWest Communications
Thai Military Bank
Westcott Communications
EQUITY-TYPE SECURITIES ELIMINATED FROM THE PORTFOLIO
SINCE MAY 31, 1994:
- -------------------------------------------
Broderbund Software
Bruno's
Cifra
Coastal Healthcare Group
Dun & Bradstreet
Elsevier
Hong Kong Telecommunications
Hysan Development
Liberty Media
McCaw Cellular Communications
QVC Network
Sun Hung Kai Properties
Sun Microsystems
20th Century Industries
UNUM
Williams-Sonoma
THE NEW ECONOMY FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AT NOVEMBER 30, 1994
<TABLE>
<CAPTION>
(dollars in
thousands)
------------- -------------
<S> <C> <C>
Assets:
Investment securities at market
(cost: $2,251,235) $2,606,276
Cash 177
Receivables for--
Sales of investments $ 2,832
Sales of fund's shares 6,067
Dividends and accrued interest 3,911 12,810
------------- -------------
2,619,263
Liabilities:
Payables for--
Purchases of investments 22,827
Repurchases of fund's shares 2,665
Management services 975
Accrued expenses 949 27,416
------------- -------------
Net Assets at November 30, 1994-
Equivalent to $14.65 per share on
176,952,337 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $2,591,847
=============
STATEMENT OF OPERATIONS (dollars in
for the year ended November 30, 1994 thousands)
- ---------------------------------------- ------------- -------------
Investment Income:
Income:
Dividends $ 23,744
Interest 25,079 $ 48,823
-------------
Expenses:
Management services fee 10,711
Distribution expenses 4,519
Transfer agent fee 2,561
Reports to shareholders 255
Registration statement and prospectus 388
Postage, stationery and supplies 571
Trustees' fees 69
Auditing and legal fees 45
Custodian fee 610
Taxes other than federal income tax 32
Other expenses 76 19,837
------------- -------------
Net investment income 28,986
-------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 120,824
Net change in unrealized
appreciation on investments:
Beginning of year 580,560
End of year 355,041
Net unrealized depreciation -------------
on investments (225,519)
Net realized gain and unrealized -------------
depreciation on investments (104,695)
-------------
Net Decrease in Net Assets
Resulting from Operations ($75,709)
=============
(dollars in
STATEMENT OF CHANGES IN NET ASSETS thousands)
- ---------------------------------------- ------------- -------------
Year ended November 30
1994 1993
Operations: ------------- -------------
Net investment income $ 28,986 $ 11,122
Net realized gain on investments 120,824 151,583
Net unrealized appreciation
(depreciation) on investments (225,519) 205,461
Net increase (decrease) in net assets ------------- -------------
resulting from operations (75,709) 368,166
------------- -------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (15,140) (6,692)
Distributions from net realized
gain on investments (151,346) (41,479)
------------- -------------
Total dividends and distributions (166,486) (48,171)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
59,645,687 and 34,449,991
shares, respectively 1,301,162 1,040,005
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
5,227,221 and 1,751,784 shares,
respectively 154,809 44,431
Cost of shares repurchased:
24,316,506 and 20,460,381
shares, respectively (534,094) (607,270)
Net increase in net assets resulting ------------- -------------
from capital share transactions 921,877 477,166
------------- -------------
Total Increase in Net Assets 679,682 797,161
Net Assets:
Beginning of year 1,912,165 1,115,004
End of year (including undistributed ------------- -------------
net investment income: $21,210 and
$7,339, respectively) $2,591,847 $1,912,165
============= =============
</TABLE>
See Notes to Financial Statements
Notes to Financial Statements
1. The New Economy Fund (the "fund") is registered under the Investment Company
Act of 1940 as an open-end, diversified management investment company. The
following paragraphs summarize the significant accounting policies consistently
followed by the fund in the preparation of its financial statements:
Equity-type securities are stated at market value based upon closing sales
prices reported on recognized securities exchanges on the last business day of
the year or, for listed securities having no sales reported and for unlisted
securities, upon last-reported bid prices on that date. Bonds and notes are
valued at prices obtained from a bond-pricing service provided by a major
dealer in bonds, when such prices are available; however, in circumstances
where the investment adviser deems it appropriate to do so, such securities
will be valued at the mean of their representative quoted bid and asked prices
or, if such prices are not available, at the mean of such prices for securities
of comparable maturity, quality and type. Short-term securities with original
or remaining maturities in excess of 60 days are valued at the mean of their
quoted bid and asked prices. Short-term securities with 60 days or less to
maturity are valued at amortized cost, which approximates market value.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by the Valuation Committee of the Board
of Trustees.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses from securities transactions are reported on an identified cost
basis. Dividend and interest income is reported on the accrual basis.
Discounts on securities purchased are amortized over the life of the respective
securities. Distributions to shareholders are recorded on the ex-dividend
date.
Investment securities and other assets and liabilities denominated in
non-U.S. currencies are recorded in the financial statements after translation
into U.S. dollars utilizing rates of exchange on the last business day of the
fiscal year. Purchases and sales of investment securities, income and expenses
are calculated using the prevailing exchange rate as accrued. The fund does
not identify the portion of each amount shown in the fund's statement of
operations under the caption "Realized Gain and Unrealized Appreciation on
Investments" that arises from changes in non-U.S. currency exchange rates.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $610,000 includes $10,000 that was paid by these credits
rather than in cash.
During the current year, the fund adopted Statement of Position 93-2
"Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies."
Accordingly, book and tax basis differences relating to shareholder
distributions are reclassified to or from paid-in capital. As of December 1,
1993 the cumulative effect of such differences totaling $25,000 was
reclassified to undistributed net investment income from paid-in capital, and
$10,000 was reclassified from undistributed net realized gains to paid-in
capital. Net investment income, net realized gains, and net assets were not
affected by this change.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision
is required.
As of November 30, 1994, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $355,041,000, of which $486,723,000
related to appreciated securities and $131,682,000 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the year ended November 30, 1994. The cost of
portfolio securities for book and federal income tax purposes was
$2,251,235,000 at November 30, 1994.
3. The fee of $10,711,000 for management services was paid pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Trustees of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily, based
on an annual rate of 0.60% of the first $300 million of average net assets;
0.48% of such assets in excess of $300 million but not exceeding $750 million;
0.45% of such assets in excess of $750 million but not exceeding $1.25 billion;
and 0.42% of such assets in excess of $1.25 billion. The Board of Trustees has
approved a new Agreement under which the Investment Adviser receives a monthly
fee which is accrued daily, calculated at the annual rate of 0.58% on the first
$500 million of the fund's net assets; 0.48% on assets from $500 million to $1
billion; 0.44% on assets from $1 billion to $1.5 billion; 0.41% on assets from
$1.5 billion to $2.5 billion; 0.39% on assets from $2.5 billion to $4 billion;
0.38% on assets from $4 billion to $6.5 billion; and 0.375% on assets over $6.5
billion. The new Agreement would not result in a reduction in fees until net
asset levels exceed $3 billion; at lower levels it would involve an increase in
fees. Accordingly, the Investment Adviser will waive any fees under the new
Agreement that would exceed the fees payable under the current Agreement, so
that at all times the fees received will be the lower of those in the current
or the new Agreement.
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Trustees. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the year ended November 30, 1994,
distribution expenses under the Plan were $4,519,000. As of November 30, 1994,
accrued and unpaid distribution expenses were $838,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $2,561,000 under the terms of a contract that provides for
transfer agency services to be performed for the fund. American Funds
Distributors, Inc. (AFD), the principal underwriter of the fund's shares,
received $4,309,000 (after allowances to dealers) as its portion of the sales
charges paid by purchasers of the fund's shares. Such sales charges are not an
expense of the fund and, hence, are not reflected in the accompanying statement
of operations.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both
wholly owned subsidiaries of CRMC. Certain Trustees and officers of the fund
are or may be considered to be affiliated with AFS and AFD.
4. As of November 30, 1994, accumulated undistributed net realized gain on
investments was $117,805,000 and paid-in capital was $2,097,791,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,052,555,000 and $458,272,000, respectively, during
the year ended November 30, 1994.
Dividend and interest income is recorded net of non-U.S. taxes paid. For the
year ended November 30, 1994, such non-U.S. taxes were $1,164,000.
5. Effective May 26, 1994, the Board of Trustees declared a 100% share
dividend, which in effect is a 2-for-1 share split, of 78,328,563 shares. Net
assets were not affected by this share dividend.
THE NEW ECONOMY FUND
PER-SHARE DATA AND
RATIIOS/1/
<TABLE>
<CAPTION>
Year ended November 30
--------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990
--------- -------- -------- -------- ----------
Net Asset Value, Beginning
of Year $16.47 $13.17 $10.98 $9.80 $13.22
--------- -------- -------- -------- ----------
Income from Investment
Operations:
Net investment income .17 .11 .08 .15 .27
Net realized and unrealized
gain (loss) on investments (.59) 3.75 2.45 1.76 (1.79)
Total income from investment --------- -------- -------- -------- ----------
operations (.42) 3.86 2.53 1.91 (1.52)
--------- -------- -------- -------- ----------
Less Distributions:
Dividends from net investment
income (.12) (.07) (.14) (.26) (.29)
Distributions from net realized
gains (1.28) (.49) (.20) (.47) (1.61)
--------- -------- -------- -------- ----------
Total distributions (1.40) (.56) (.34) (.73) (1.90)
--------- -------- -------- -------- ----------
Net Asset Value, End of Year $14.65 $16.47 $13.17 $10.98 $9.80
========= ======== ======== ======== ==========
Total Return/2/ (2.94)% 30.60% 23.58% 20.68% (13.39)%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $2,592 $1,912 $1,115 $908 $783
Ratio of expenses to average
net assets .85% .85% .89% .92% .92%
Ratio of net income to
average net assets 1.25% .76% .67% 1.33% 2.50%
Portfolio turnover rate 25.5 % 27.0 % 19.0 % 18.5 % 17.2 %
</TABLE>
/1/ Adjusted to reflect the 100%
share dividend effective May
26, 1994.
/2/ Does not take into account
effect of sales charge, at a
maximum rate of 5.75%
Independent Auditors' Report
To the Board of Trustees and Sharesholders of
The New Economy Fund:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of The New Economy Fund as of November 30,
1994, the related statements of operations for the year then ended and of
changes in net assets for the years ended November 30, 1994 and 1993, and the
per-share data and ratios for each of the five years in the period ended
November 30, 1994. These financial statements and the per-share data and
ratios are the responsibility of the fund's management. Our responsibility is
to express an opinion on these financial statements and the per-share data and
ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
per-share data and ratios are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at November 30, 1994 by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and the per-share data and ratios
referred to above present fairly, in all material respects, the financial
position of The New Economy Fund at November 30, 1994, and the results of its
operations, the changes in its net assets and the per-share data and ratios for
the respective stated years, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
December 23, 1994
Tax Information (unaudited)
- -----------------------------------------------------------------------
During the fiscal year ended November 30, 1994, 35% of the dividends paid by
the fund from investment income earned qualifies for the corporate
dividends-received deduction. Of those dividends paid to shareholders, none
was derived from interest on direct U.S. Treasury obligations.
