THE NEW ECONOMY FUND
1995 Annual Report
For the year ended November 30
[The American Funds Group(R)]
RESULTS AT A GLANCE
FISCAL 1995 TOTAL RETURN
for the 12 months ended November 30, 1995 (with all distributions reinvested)
<TABLE>
<CAPTION>
<S> <C>
THE NEW ECONOMY FUND +23.2%
STANDARD & POOR'S 500 COMPOSITE INDEX +37.0
</TABLE>
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<CAPTION>
<S> <C> <C>
LIFETIME TOTAL RETURN
AVERAGE
for the period December 1, 1983 ANNUAL
to November 30, 1995 LIFETIME COMPOUND
(with all distributions reinvested) RETURN RETURN
THE NEW ECONOMY FUND +440.9% +15.1%
STANDARD & POOR'S 500 COMPOSITE INDEX +446.3 +15.2
</TABLE>
The New Economy Fund(R) is designed to help you participate in the many
investment opportunities that are being created as society continues to shift
from producing standardized goods to providing a wide array of services. The
fund has the flexibility to invest all over the world in industries ranging
from broadcasting and publishing to banking and insurance, gas and electric
utilities to cable television, cellular telephones to merchandising,
entertainment to computer software, and airlines to health care -- all of which
are benefiting from the accelerating demand for services and information.
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the total returns and average annual compound
returns with all distributions reinvested for periods ended December 31, 1995
(the most recent calendar quarter), assuming payment of the 5.75% maximum sales
charge at the beginning of the stated periods. Sales charges are lower for
accounts of $50,000 or more.
<TABLE>
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<S> <C> <C>
Average
Annual
Compound
Total Return
Return
Ten years +247.80% +13.27%
Five years +112.87 +16.31
One year +17.21 --
</TABLE>
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE TIME
PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED BY, THE U.S.
GOVERNMENT, ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER AGENCY, ENTITY OR PERSON.
[Sidebar]
New Economy's fiscal 1995 results were achieved in an environment of rising
corporate earnings, benign inflation and declining interest rates.
[End Sidebar]
WHERE THE FUND'S ASSETS ARE INVESTED (as of 11/30/95)
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<CAPTION>
<S> <C>
Percent of
Country Net Assets
United States 60.98%
Sweden 3.04
United Kingdom 2.13
Netherlands 2.05
Mexico 1.97
Australia 1.58
Germany 1.22
Hong Kong 1.18
Japan 1.09
New Zealand 1.05
Denmark .87
Spain .83
Italy .77
Brazil .62
France .51
Other countries 4.74
-----
84.63
Cash & Equivalents 15.37
=====
Total 100.00%
</TABLE>
FELLOW SHAREHOLDERS
The New Economy Fund posted a solid gain in fiscal 1995. For the 12 months
ended November 30, the value of your holdings rose 23.2% if, like most
shareholders, you reinvested income dividends totaling 18 cents a share and a
68-cent capital gain distribution that were paid during the period.
This was the fourth time in the past five years -- and the eighth time
since operations began in 1983 -- that New Economy has recorded a fiscal-year
increase of more than 20%. Over its lifetime, the fund has produced a total
return of 440.9% and an average annual compound growth rate of 15.1%. It ranks
among the leaders in a small universe of comparable funds in existence
throughout this 12-year period, according to Lipper Analytical Services, as the
box on page 2 shows. Its ranking has varied over other periods.
New Economy's fiscal 1995 results were achieved in an environment of
rising corporate earnings, benign inflation and declining interest rates. This
confluence of favorable factors created an unusually bullish atmosphere in the
stock market, with prices moving sharply higher. The unmanaged Standard &
Poor's 500 Composite Index, a broad measure of the U.S. market, rose 37.0% for
the 12 months on a total return basis. Other unmanaged indexes also registered
large increases, with the Dow Jones Industrial Average rising nearly 40% and
piercing the 5000 mark toward year-end.
By historical standards, this bull market is clearly in a mature phase. It
has been 62 months since stock prices have experienced a correction of at least
10%. Until now, the longest interval between such corrections was 45 months,
and the average is 21 months. This upward movement of prices has depressed the
dividend yield on the S&P 500 to an all-time low. In these circumstances it
would not be surprising to see prices fall back at some point.
New Economy participated extensively in the market's advance in fiscal
1995. The vast majority of our investments rose, with about two-thirds of them
posting double-digit gains. Our U.S. holdings, which constitute the bulk of the
portfolio, went up an estimated 36%. The fund lagged the S&P 500 for the 12
months partly because of relatively weak showings by investments outside the
United States. As a group, they rose approximately 8% in U.S. dollar terms -- a
little more than the average for all equity markets abroad -- and a few of them
did considerably better than that; Internationale Nederlanden and Svenska
Handelsbanken, two European financial firms that appear on our 10 Largest list,
were up 48% and 47%, respectively.
Our Latin American investments, however, were hit very hard. They
represented about 3% of net assets on November 30. The largest of those
holdings, Telefonos de Mexico (Mexico's principal phone company), fell 47% in
the December-May period before rallying to some degree and closing the fiscal
year down 38%.
We believe that the worst is probably over for Mexican and other Latin
American companies that remain in our portfolio. A number of them reorganized
their operations, cut costs and strengthened themselves during the crisis
stemming from the devaluation of the Mexican peso a year ago. In recent months
their stocks have bounced back, albeit, as in the case of Telefonos, from a
very low level.
Unlike most growth funds, New Economy has a portfolio with a fairly large
component of non-U.S stocks, currently amounting to about 24% of net assets.
This allows the fund to participate in the growth of service and information
companies all over the world, many of which are global firms that derive much
of their revenue from markets outside their home country. These non-U.S.
investments have made a strong contribution to the fund's results in years
past, and we believe they will do so again in the future.
New Economy trailed the S&P 500 in fiscal '95 for other reasons as well.
With stock prices in the U.S. bubbling upward, we maintained a relatively
cautious investment approach and a cash reserve averaging a little under 20% of
assets and ending the year at 15%. The index, of course, represents a "fully
invested" fund.
In addition, New Economy did not participate to any great extent in the
hottest part of the U.S. market: high-technology stocks. They are well
represented in the index. Many of them, in our view, were overvalued during the
year.
Interestingly, in the second half of fiscal 1995, NEF's results matched
exactly the performance of the S&P 500. Both recorded 15% gains on a reinvested
basis. Along with our Latin American holdings, our cable television stocks
firmed up during this period, as Congress began working on legislation which
could benefit that industry; in the first half, poor showings by those stocks
hurt the fund's results. Meanwhile, our banking and other
interest-rate-sensitive investments -- another area where the fund is rather
heavily concentrated -- were helped by a steady decline in rates in the final
half of the year.
As we look ahead, we find good reason to be optimistic about the
long-range prospects for the services and information-oriented companies
represented in New Economy's portfolio. We believe, by and large, they are
growing, well-managed firms that can look forward to increasing prosperity in
the years to come. Over time, that prosperity should be reflected in higher
prices for their stocks.
On the following pages, we invite you to meet some interesting members of
our shareholder family who are institutional investors.
Cordially,
Robert B. Egelston
Chairman of the Board
William R. Grimsley
President
January 18, 1996
NEW ECONOMY VS. OTHER GROWTH FUNDS
Over its 12-year lifetime, The New Economy Fund has done significantly better
than the vast majority of its peers on a total return basis. Through November
30, it ranked in the top 13% (15th of 124) among U.S. growth funds in existence
throughout this period, according to Lipper Analytical Services, a leading
mutual fund rating service. For the 10 years ended December 31, New Economy
finished in the top 35% of its universe (53rd of 153 comparable funds); for the
five years ended December 31, it was in the top 29% (67th of 237). Partly
because of its focus on certain segments of the economy, your fund often trails
the majority of its peers over shorter periods. Calendar 1995 was an
illustration of that. For the 12 months ended December 31, NEF ranked 480th of
572 U.S. growth funds tracked by Lipper. Lipper rankings do not reflect the
effects of sales charges.
[Sidebar]
We find good reason to be optimistic about the long-range prospects for the
services and information-oriented companies represented in New Economy's
portfolio.
[End Sidebar]
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NEF'S 10 LARGEST HOLDINGS
Percent of
Net Assets
Tele-Communications,
Series A, TCI Group 3.09%
Federal National Mortgage 2.49
Internationale Nederlanden 2.05
United HealthCare 1.89
Time Warner 1.70
Viking Office Products 1.45
Svenska Handelsbanken 1.38
AirTouch Communications 1.34
EXEL 1.31
Telefonos de Mexico 1.26
</TABLE>
HOW A $10,000 INVESTMENT HAS GROWN
Here's how a $10,000 investment grew between December 1, 1983 -- when The New
Economy Fund began operations -- and November 30, 1995, the end of its latest
fiscal year. As you can see, the $10,000 would have increased to $50,984 with
all distributions reinvested, an average increase of 14.5% a year. The fund's
year-by-year results appear under the chart.
AVERAGE ANNUAL COMPOUND RETURNS*
(for periods ended November 30, 1995)
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Ten Years +13.84%
Five Years +17.03%
One Year +16.16%
</TABLE>
*Assumes reinvestment of all distributions and payment of the 5.75% sales
charge at the beginning of the stated periods.
$54,634 /1/
S&P 500 Composite Index
$50,984/1/ /2/ /3/
NEF with dividends reinvested
$42,960/1/ /4/
Lipper Growth Funds Index
$15,178/5/
Consumer Price Index (inflation)
$10,000/2/
original investment
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<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED NOVEMBER 30 1984 1985 1986 1987 1988 1989
TOTAL VALUE
DIVIDENDS REINVESTED -- $199 140 367 315 421
VALUE AT YEAR-END/2/ $9,485 13,144 15,950 15,093 18,462 25,269
NEF TOTAL RETURN (5.2)% 38.6 21.3 (5.4) 22.3 36.9
YEAR ENDED NOVEMBER 30 1990 1991 1992 1993 1994 1995
TOTAL VALUE
Dividends Reinvested 566 589 328 189 307 517
Value at Year-End/2/ 21,886 26,413 32,641 42,631 41,376 50,984
NEF Total Return (13.4) 20.7 23.6 30.6 (2.9) 23.2
</TABLE>
Average annual compound return for 12 years: 14.5%/2/
/1/All results are calculated with dividends reinvested.
/2/These figures, unlike those shown earlier in this report, reflect payment of
the maximum sales charge of 5.75% on the $10,000 investment. Thus, the net
amount invested was $9,425. As outlined in the prospectus, the sales charge is
reduced for larger investments.
/3/Includes reinvested dividends of $3,938 and reinvested capital gain
distributions of $14,750.
/4/This index tracks the 30 largest growth funds
(representing about 58% of all growth fund assets).
/5/Computed from data supplied by the U.S. Department of Labor, Bureau of Labor
Statistics.
The S&P index is unmanaged and does not reflect sales charges, commissions or
expenses.
Past results are not predictive of future results.
INSTITUTIONAL INVESTORS: AN IMPORTANT PART OF OUR SHAREHOLDER FAMILY
The New Economy Fund's 330,000 shareholders include individuals and couples of
all ages, from all walks of life, as well as some 30,000 corporations,
colleges, foundations and other institutions. The combined holdings of these
institutional investors amount to more than $500 million, over a third of which
is in accounts worth at least $100,000. While these 30,000 investors represent
only about 10% of the fund's shareholder family, their holdings account for
nearly 17% of total assets.
Knowing how thorough institutional investors can be when it comes to
making financial decisions, we think it's particularly gratifying that so many
have chosen New Economy. Typically, they have done so after reviewing the
fund's track record and studying a wide range of investment alternatives.
The requirements of these institutional shareholders tend to be rather
strict. They want the opportunity for above-average returns while seeking a
level of risk below that typically associated with growth funds, and at a cost
or expense ratio below that charged by the majority of private managers. They
also want clear, concise reporting statements and the convenience of being able
to redeem or exchange shares at a moment's notice. On all of these counts, they
are finding that The New Economy Fund, a member of The American Funds Group,
fulfills their needs.
Who are our institutional shareholders? Many of them are corporate
retirement plans. Others are enterprises and organizations, such as hospitals
and schools, that use NEF as a vehicle for investing excess funds, or to
accumulate money for future expansion. A number of our institutional accounts
are very large; some retirement plans, for example, have accumulated more money
than the net worth of the companies themselves. Other accounts -- including the
three you will meet on the following pages -- are more modest in size. They are
family-run businesses and local or regional institutions similar to those you
can find in small and medium-size communities all across America.
PRAIRIE GRASS AND WHITE SQUIRRELS
When the Olney Central College Foundation was established in 1980, its
primary purpose was to provide scholarships. Since then, its total endowment
has grown to more than $1 million and its activities have expanded
considerably. Today, the foundation buys computers for classrooms and exercise
equipment for the student fitness center. It has helped finance trips for the
college band as well as the creation of a five-acre preserve with prairie grass
of a type that covered much of southern Illinois, including the Olney area, in
the days of Daniel Boone.
The money for these projects comes from donations and from income earned
on assets (most of which are earmarked for scholarships). Working with a local
financial adviser, the foundation over the years has built up a diversified
portfolio that includes income-oriented investments as well as The New Economy
Fund and other holdings oriented toward long-term growth.
"We decided that we want to be involved in other things besides
scholarships," says Chris Berger, who has been president of the Olney Central
College Foundation since 1985. "Our investments, including New Economy, have
generally been doing very well. Our endowment continues to grow, and we're
constantly looking at new projects." One large project under consideration is
the construction of student dormitories.
Olney is a farming town of about 10,000; the college's student body
numbers about 1,800. Its unofficial mascot, and the town's principal icon, is
the white squirrel. A rare breed of such squirrels makes its home in Olney.
Each year, the school's biology students fan out across the town to take a
census of this squirrel population. "We're a community that's proud of our
college, our kids and our squirrels," says Chris. "It's a great feeling to be
able to help out in so many different ways."
[Photo Caption]
Chris Berger (below left), president of the Olney Central College Foundation,
visits the campus's prairie preserve with Dan Tahtinen, the school's dean of
instruction.
[End Photo Caption]
[Photo Caption]
At their company's Lubbock headquarters, Ethel and Don McLeod pause for a
portrait by a paging terminal that tracks messages for more than 500 clients.
[End Photo Caption]
CELLULAR, PAGING AND VOICE MAIL
New Economy's institutional shareholders include a great many family-owned
businesses, a number of which are in service and information industries, the
dynamic area of the economy where the fund invests. Stenocall/Radio Paging is a
case in point. Based in Lubbock, on the plains of western Texas, this
enterprising firm provides thousands of clients with paging, voice mail,
cellular phones, answering systems and other communications products and
services.
Stenocall/Radio Paging is run by Ethel McLeod, who started it with $1,500
in 1954, and by her husband, Don, who joined the firm in 1969. Ethel had been a
stenographer in an eight-to-five job when she decided to go into business for
herself. "I thought it would be nice to have my own company so I wouldn't have
to get up and go to work every day if I didn't feel like it," she recalls.
"After about a week I realized things weren't going to be that easy, not if I
wanted to succeed."
Since the mid-'50s, the McLeods' company has grown steadily and worked its
way through various technologies. Among them: old-fashioned PBX switchboards,
manually operated paging systems and two-way mobile radios (the predecessor of
cellular phones). What's next? "We're studying the new generation of personal
communications systems," says Don, "but we haven't made any decisions yet."
In 1985, acting on the advice of a local broker, the McLeods set up a
profit-sharing plan at their company. Its investments include New Economy and
four other American Funds. Two years after starting the plan, the stock market
plunged (in October, 1987). "That was pretty rough," says Don, who follows the
ups and downs of the market closely. "But our company has been around for a
long time, and it has bounced back after some difficult periods. We figured
that the stock market would probably do the same -- and, of course, it did."
FUEL, FLYING, POLITICS AND ICE
Another family-owned firm and New Economy shareholder operating in the
service segment of the economy is MIFCO, Manassas Ice and Fuel Company. MIFCO
supplies fuel, heating oil and bagged ice to customers in an area of northern
Virginia that is the site of a well-known Civil War battlefield.
MIFCO is run by Harry Parrish, a Virginia state legislator and former
mayor of Manassas, and by his son, Hal, a Manassas city councilman. Along with
politics, a love of flying runs through the Parrish family. Hal is a pilot and
served in the Air Force. Harry flew military transports from India over the
Himalaya mountains into China during World War II; his brother, Frank, also an
Air Force officer during that war, runs a MIFCO subsidiary that sells frozen
food. "We're a close-knit family and we all seem to have a lot of the same
interests," says Hal.
The company has been a family operation since the 1920s, when it was
founded by Harry's father. In those days, one of its principal businesses was
supplying 300-pound blocks of ice to restaurants and homes with ice boxes.
"Delivering those big blocks was one of my jobs as a kid," says Harry.
MIFCO's growth over the years has closely paralleled that of Manassas
itself, a country town that has developed into a small city with a population
of more than 30,000; it has become part of suburban Washington. The company now
has 19 delivery trucks and vans, and 34 employees. Several years ago, with the
help of their stockbroker, the Parrishes set up a retirement plan for employees
as well as a corporate reserve account to accumulate money for future capital
expenditures. Both the plan and the reserve account are invested in New Economy
and three other American Funds.
[Photo Caption]
Hal Parrish and his father, Harry, run a service-oriented business that
includes the delivery of fuel oil by truck to customers in northern Virginia.
[End Photo Caption]
THE NEW ECONOMY FUND
Investment Portfolio, November 30, 1995
LARGEST HOLDINGS BY INDUSTRY
Broadcasting & Publishing 14.98%
Telecommunications 8.94%
Banking 8.36%
Insurance 8.24%
Merchandising 7.48%
All Other Industries 36.63%
Cash & Equivalents 15.37%
<TABLE>
<CAPTION>
MARKET PERCENT
Stocks SHARES VALUE OF NET
(Common and Preferred ) (000) ASSETS
- ---------------------------------------- ----------- --------- --------
<S> <C> <C> <C>
BROADCASTING & PUBLISHING - 14.98%
Tele-Communications, Inc., Series A, TCI Group/1/ 5,877,067 $108,726 3.09%
(Formerly Tele-Communications, Inc.)
Time Warner Inc. 1,488,000 59,520 1.70
Tele-Communications, Inc., Series A, Liberty Media
Group (Formerly Liberty Media Corp.)/1/ 1,545,866 43,284 1.23
Comcast Corp., Class A, special stock 2,050,000 40,487 1.15
Viacom Inc., Class B/1/ 750,000 36,187 1.03
Gaylord Entertainment Co., Class A 1,344,000 33,936 .96
News Corp. Ltd. (Australia) 2,066,943 10,842
News Corp. Ltd. (American Depositary
Receipts) 470,000 9,870
News Corp. Ltd., preferred shares 1,042,295 4,987
News Corp. Ltd., preferred shares
(American Depositary Receipts) 235,000 4,436 .86
Capital Cities/ABC, Inc. 240,000 29,670 .84
International Family Entertainment, Inc.,
Class B/1/ 1,250,000 23,281 .66
Tele-Communications International, Series A/1/ 735,000 17,273 .49
Grupo Televisa, SA (American Depositary
Receipts) (Mexico) 738,300 15,966 .45
Arnoldo Mondadori Editore SpA (Italy) 1,950,000 15,227 .43
Turner Broadcasting System, Inc., Class B 469,627 13,150 .37
Chris-Craft Industries, Inc./1/ 300,000 12,338 .35
LIN Television Corp./1/ 420,000 12,075 .34
CANAL+ (France) 59,646 10,851 .31
News International PLC (United Kingdom) 1,300,000 6,109 .17
Western Publishing Group, Inc./1/ 500,000 4,500 .13
New York Times Co., Class A 150,000 4,425 .13
TeleWest Communications PLC (American
Depositary Receipts) (United Kingdom)/1/ 172,000 4,386 .12
Westcott Communications, Inc./1/ 300,000 4,275 .12
Dow Jones & Co., Inc. 50,000 1,919 .05
TELECOMMUNICATIONS - 8.94%
AirTouch Communications/1/ 1,625,000 47,328 1.34
Telefonos de Mexico, SA de CV, Class L
(American Depositary Receipts) (Mexico) 1,341,960 44,285 1.26
Telecom Corp. of New Zealand Ltd. (New Zealand)/2/ 8,810,480 36,850 1.05
Tele Danmark AS, Class B (American Depositary
Receipts) (Denmark) 704,700 19,644
Tele Danmark AS, Class B 200,000 10,877 .87
Vodafone Group PLC (American Depositary
Receipts) (United Kingdom) 575,000 20,772 .59
Octel Communications Corp./1/ 600,000 19,725 .56
MCI Communications Corp. 720,000 19,260 .55
Telecomunicacoes Brasileiras SA, preferred
nominative (American Depositary Receipts)
(Brazil) 373,291 17,918 .51
AT&T Corp. 200,000 13,200 .37
Telefonica de Espana, SA (American
Depositary Receipts) (Spain) 170,000 7,055
Telefonica de Espana, SA 400,000 5,509 .36
ALLTEL Corp. 420,000 12,390 .35
Technology Resources Industries Bhd.
(Malaysia) 4,320,000 12,090 .34
STET-Societa Finanziaria Telefonica p.a.
(Italy) 4,300,000 11,713
STET-Societa Finanziaria Telefonica p.a.,
preferred shares 150,000 294 .34
BCE Mobile Communications Inc. (Canada)/1/ 325,000 10,403 .29
Nortel Inversora SA, preferred shares,
Series B (American Depositary Receipts)
(Argentina)/2/ 284,000 3,976 .11
Pakistan Telecommunication Corp. (Global
Depositary Receipts) (Pakistan)/1/ /2/ 21,800 1,657 .05
BANKING - 8.36%
Svenska Handelsbanken Group, Class A (Sweden) 2,410,000 48,675 1.38
Banc One Corp. 800,000 30,500 .87
Old Kent Financial Corp. 630,000 25,515 .72
First Interstate Bancorp 175,000 23,450 .67
Mercantile Bancorporation Inc. 510,000 23,396 .66
Norwest Corp. 630,000 20,790 .59
Golden West Financial Corp. 350,000 17,894 .51
Washington Mutual Savings Bank 567,500 16,032 .46
Charter One Financial, Inc. 450,000 14,400 .41
Australia and New Zealand Banking Group Ltd.
(Australia) 3,218,711 14,349 .41
Banco de Santander, SA (Spain) 270,000 12,577 .36
Stadshypotek AB, Class A (Sweden) 500,000 10,060 .29
West One Bancorp 180,000 8,955 .25
Mercantile Bankshares Corp. 250,000 7,094 .20
Grupo Financiero Banamex Accival, SA de CV,
Series L (Mexico) 2,885,500 4,111
Grupo Financiero Banamex Accival, SA de CV,
Series B 1,745,000 2,686 .19
Hibernia Corp., Class A 500,000 5,250 .15
Keystone Financial, Inc. 150,000 4,669 .13
Banco Popular Espanol, SA (Spain) 24,000 4,025 .11
INSURANCE - 8.24%
Internationale Nederlanden Groep NV
(Netherlands) 649,075 42,444
Internationale Nederlanden Groep NV, warrants,
expire 2001/1/ 8,800,000 29,695 2.05
EXEL Ltd. (Bermuda) 740,000 46,157 1.31
PartnerRe Holdings Ltd. (Bermuda) 1,320,000 34,980 .99
CKAG Colonia Konzern AG (Germany) 27,900 20,421
CKAG Colonia Konzern AG, preferred shares 5,330 3,147 .67
PMI Group, Inc. 405,100 19,242 .55
AMBAC Inc. 350,000 15,444 .44
TIG Holdings, Inc. 525,000 14,175 .40
American International Group, Inc. 150,000 13,462 .38
Cincinnati Financial Corp. 200,000 12,400 .35
Dowa Fire and Marine Insurance Co., Ltd.
(Japan) 2,200,000 11,108 .31
Irish Life PLC (Ireland) 2,507,465 9,680 .27
Selective Insurance Group, Inc. 210,000 7,980 .23
Nippon Fire and Marine Insurance Co., Ltd.
(Japan) 1,230,000 7,006 .20
Trenwick Group Inc. 60,000 3,075 .09
MERCHANDISING - 7.48%
Viking Office Products, Inc./1/ 1,110,000 51,060 1.45
Giordano Holdings Ltd. (Hong Kong) 33,436,000 30,047 .85
Consolidated Stores Corp./1/ 1,200,000 29,700 .84
H & M Hennes & Mauritz AB, Class B (Sweden) 320,000 19,877 .56
Barnes & Noble, Inc./1/ 479,600 17,625 .50
Wal-Mart Stores, Inc. 575,000 13,800 .39
Walgreen Co. 400,000 11,650 .33
Giant Food Inc., Class A 350,000 11,287 .32
Michaels Stores, Inc./1/ 600,000 9,900 .28
Arbor Drugs, Inc. 500,000 9,875 .28
Home Depot, Inc. 206,000 9,141 .26
Toys 'R' Us, Inc./1/ 300,000 6,975 .20
Home Shopping Network, Inc./1/ 700,000 6,562 .19
Tesco PLC (United Kingdom) 1,430,156 6,316 .18
Delhaize 'Le Lion' SA (Belgium) 150,000 6,260 .18
Duty Free International, Inc. 450,000 6,075 .17
Gap, Inc. 80,000 3,620 .10
Circuit City Stores, Inc. 120,000 3,480 .10
Ito-Yokado Co., Ltd. (Japan) 60,000 3,306 .09
Williams-Sonoma, Inc./1/ 150,000 3,000 .09
Cifra, SA de CV, Class C (Mexico) 2,340,000 2,474 .07
Shoe Carnival, Inc./1/ 412,000 1,596 .05
MISCELLANEOUS FINANCIAL SERVICES - 6.35%
Federal National Mortgage Assn. 800,000 87,600 2.49
Federal Home Loan Mortgage Corp. 560,000 43,120 1.22
Student Loan Marketing Assn. 380,000 26,648 .76
Capital One Financial Corp. 875,000 22,094 .63
ADVANTA Corp., Class B 300,000 11,625
ADVANTA Corp., Class A 250,000 10,375 .62
ORIX Corp. (Japan) 320,000 13,176 .38
H&R Block, Inc. 200,000 8,900 .25
ENTERTAINMENT & LEISURE - 5.43%
Walt Disney Co. 675,000 40,584 1.15
Carnival Cruise Lines, Inc., Class A 1,520,000 39,520 1.12
Mirage Resorts, Inc./1/ 1,000,000 33,875 .96
Harrah's Entertainment, Inc./1/ 1,290,000 32,089 .91
Circus Circus Enterprises, Inc./1/ 1,100,000 30,525 .87
Station Casinos, Inc./1/ 725,000 10,875 .31
Nintendo Co., Ltd. (Japan) 50,000 3,922 .11
HEALTH & PERSONAL CARE SERVICES - 4.70%
United HealthCare Corp. 1,060,000 66,647 1.89
Humana Inc./1/ 1,100,000 30,800 .88
Columbia/HCA Healthcare Corp. 425,000 21,941 .62
Health Systems International, Inc., Class A/1/ 550,000 17,875 .51
PacifiCare Health Systems, Inc., Class A/1/ 100,000 8,500
PacifiCare Health Systems, Inc., Class B/1/ 50,000 4,337 .36
FHP International Corp./1/ 305,400 8,857 .25
Value Health, Inc./1/ 130,000 3,266 .09
Vivra Inc./1/ 90,000 2,047 .06
Coram Healthcare Corp./1/ 230,000 1,265 .04
COMPUTER SERVICES & SOFTWARE - 2.96%
Sybase, Inc./1/ 850,600 29,877 .85
Tech Data Corp./1/ 900,000 15,187 .43
Electronic Arts/1/ 355,200 12,121 .35
CUC International Inc./1/ 300,000 11,400 .32
General Motors Corp., Class E 200,000 10,100 .29
Policy Management Systems Corp./1/ 220,000 9,845 .28
Oracle Corp.(Formerly Oracle Systems Corp.)/1/ 100,000 4,537 .13
Fractal Design Corp./1/ 250,000 3,563 .10
MacNeal-Schwendler Corp. 200,000 3,125 .09
Avid Technology, Inc./1/ 70,000 2,774 .08
FTP Software, Inc. /1/ 50,000 1,519 .04
RESTAURANTS - 2.17%
Brinker International, Inc./1/ 2,320,000 35,670 1.01
McDonald's Corp. 470,000 20,974 .60
Foodmaker, Inc./1/ 1,900,000 9,975 .28
Sizzler International, Inc. 1,100,000 4,262 .12
Au Bon Pain Co., Inc./1/ 400,000 3,650 .11
Outback Steakhouse, Inc./1/ 50,000 1,825 .05
COMPUTER SYSTEMS - 1.48%
Silicon Graphics, Inc./1/ 900,000 32,850 .93
Digital Equipment Corp./1/ 200,000 11,775 .34
International Business Machines Corp. 77,000 7,440 .21
ELECTRONIC DATA PRODUCTS - 1.40%
General Instrument Corp./1/ 1,247,300 31,962 .91
America Online, Inc./1/ 423,800 17,323 .49
MISCELLANEOUS PUBLIC SERVICES - 1.29%
WMX Technologies, Inc. 695,000 20,503 .58
Waste Management International PLC (American
Depositary Receipts) (United Kingdom)/1/ 1,465,000 15,199 .43
ADT Ltd. (Bermuda)/1/ 500,000 7,000 .20
Eurotunnel SA (France)/1/ 1,899,400 2,778 .08
ENERGY SERVICES - 1.28%
Sonat Offshore Drilling Inc. 400,000 13,800 .39
Helmerich & Payne, Inc. 500,000 13,625 .39
Schlumberger Ltd. (Netherlands Antilles) 200,000 12,700 .36
Landmark Graphics Corp./1/ 250,000 5,000 .14
HOTELS & MOTELS - 1.05%
Marriott International, Inc. 755,000 28,124 .80
Promus Hotel Corp./1/ 400,000 8,850 .25
DIVERSIFIED SERVICES - 0.71%
First Pacific Co. Ltd. (Hong Kong) 10,724,106 11,648 .33
Brambles Industries Ltd. (Australia) 1,000,000 10,922 .31
Benpres Holdings Corp. (Global Depositary
Receipts) (Philippines)/1/ /2/ 509,190 2,485 .07
ADVERTISING - 0.66%
Interpublic Group of Companies, Inc. 320,000 12,280 .35
Omnicom Group Inc. 100,000 6,675 .19
Havas SA (France) 59,204 4,343 .12
DELIVERY SERVICES - 0.55%
Federal Express Corp./1/ 260,000 19,435 .55
REAL ESTATE - 0.53%
Host Marriott Corp./1/ 1,450,000 18,669 .53
AIRLINES - 0.49%
Southwest Airlines Co. 500,000 12,500 .36
AMR Corp./1/ 60,000 4,597 .13
ELECTRIC UTILITIES - 0.40%
National Power PLC (United Kingdom) 1,450,000 10,255 .29
CESP - Companhia Energetica de Sao Paulo,
preferred nominative (Brazil) 133,590,000 3,610
CESP - Companhia Energetica de Sao Paulo,
ordinary nominative 4,995,000 118
CESP - Companhia Energetica de Sao Paulo,
preferred nominative (American Depositary
Receipts)/1/ 2,000 16 .11
ENGINEERING & CONSTRUCTION - 0.38%
Jacobs Engineering Group Inc./1/ 555,000 13,389 .38
INFORMATION & PRINTING SERVICES - 0.37%
Primark Corp./1/ 466,500 12,887 .37
MISCELLANEOUS BUSINESS SERVICES - 0.23%
Robert Half International Inc. 200,000 8,025 .23
RAIL & ROAD SERVICES - 0.13%
Norfolk Southern Corp. 50,000 3,937 .11
Canadian National Railway System - 1st Installment
(Canada)/1/ 50,000 750 .02
ENVIRONMENTAL SERVICES - 0.03%
Ecolab Inc. 40,000 1,150 .03
MISCELLANEOUS
Other stocks in initial period of acquisition 142,420 4.04
--------- -------
TOTAL STOCKS
(cost: $2,165,415,000) 2,981,043 84.63
Principal --------- -------
Amount
Short-Term Securities (000)
- ---------------------------------------- ----------- --------- -------
CORPORATE SHORT-TERM NOTES- 15.29%
Ford Motor Credit Co. 5.70% due
1/9-1/24/96 45,900 $45,569 1.29
Central and South West Corp. 5.68%-5.72%
due 12/12/95-1/23/96 38,650 38,447 1.09
General Electric Capital Corp. 5.70%
due 12/6-12/11/95 38,200 38,157 1.08
Wal-Mart Stores, Inc. 5.68% due
12/19-12/21/95 36,200 36,085 1.02
Coca-Cola Co. 5.67%-5.70% due 12/12-
12/14/95 33,600 33,529 .94
John Deere Capital Corp. 5.72% due
1/16/96 30,000 29,775 .85
A. I. Credit Corp. 5.67%-5.68% due
1/8-1/26/96 25,000 24,824 .71
Motorola Credit Corp. 5.69% due 12/8/95 24,800 24,769 .70
H.J. Heinz Co. 5.70%-5.72% due 12/5
-12/18/95 24,600 24,556 .70
American General Finance Corp. 5.70%
due 12/5/95 21,400 21,383 .61
Beneficial Corp. 5.67%-5.70% due 12/18/95
-1/11/96 21,100 20,981 .60
AT & T Co. 5.64%-5.69% due 12/19-12/21/95 20,200 20,135 .57
J.C. Penney Funding Corp. 5.71% due
12/11/95 20,000 19,965 .57
Procter & Gamble Co. 5.67% due 1/29/96 20,000 19,810 .56
SAFECO Credit Co. Inc. 5.67% due 1/26/96 15,520 15,380 .44
National Rural Utilities Cooperative
Finance Corp. 5.68% due 1/12/96 15,000 14,898 .42
Xerox Corp. 5.68% due 1/12/96 15,000 14,898 .42
Associates Corp. of North America 5.89%
due 12/1/95 13,350 13,348 .38
Eli Lilly and Co. 5.67% due 12/15/95 12,900 12,870 .37
U S WEST Communications, Inc. 5.70% due
12/13/95 12,000 11,975 .34
Kimberly-Clark Corp. 5.67% due 12/28/95 11,000 10,951 .31
American Express Credit Co. 5.70% due
1/11/96 10,000 9,934 .28
Avco Financial Services Inc. 5.65% due
1/30/96 10,000 9,903 .28
Harvard University 5.70% due 12/13/95 8,650 8,632 .25
PACCAR Financial Corp. 5.71% due
12/5/95 6,800 6,795 .19
CIT Group Holdings Inc. 5.72% due
12/4/95 6,000 5,996 .17
Toys R Us, Inc.5.68% due 12/8/95 5,200 5,193 .15
FEDERAL AGENCY DISCOUNT NOTES- 0.61%
Federal Home Loan Bank 5.67% due 12/18/95 21,300 21,240 .61
--------- -------
TOTAL SHORT-TERM SECURITIES
(cost: $560,014,000) 559,998 15.90
--------- -------
TOTAL INVESTMENT SECURITIES
(cost: $2,725,429,000) 3,541,041 100.53
Excess of payables over cash and receivables 18,465 .53
--------- -------
NET ASSETS $3,522,576 100.00%
========= =======
</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.
SEE NOTES TO FINANCIAL STATEMENTS
STOCKS APPEARING IN THE PORTFOLIO
SINCE MAY 31, 1995
- -------------------------------------------
Arbor Drugs
Banco de Santander
Barnes & Noble
H&R Block
Brambles Industries
Brinker International
Canadian National Railway System
Chris-Craft Industries
Fractal Design
FTP Software
Gap
General Instrument
Giordano Holdings
Harrah's Entertainment
Health Systems International
Michaels Stores
National Power
ORIX
Primark
Robert Half International
Sonat Offshore Drilling
Sybase
Tele-Communications International
Walgreen
Wal-Mart Stores
STOCKS ELIMINATED FROM THE PORTFOLIO
SINCE MAY 31, 1995
- -------------------------------------------
Apple Computer
BankAmerica
Bay Networks
Canadian Imperial Bank of Commerce
China Light & Power
Enhance Financial Services Group
Intel
Le Groupe Videotron Ltee
LIN Broadcasting
Lotus Development
Munchener Ruckversicherungs-Gesellschaft
Perusahaan Perseroan (Persero) PT Indonesian
Satellite
Rogers Communications
Symantec
Thai Military Bank
TJX Companies
THE NEW ECONOMY FUND
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND (DOLLARS IN
LIABILITIES AT NOVEMBER 30, 1995 THOUSANDS)
------------- -------------
<S> <C> <C>
ASSETS:
Investment securities at market
(cost: $2,725,429) $3,541,041
Cash 12
Receivables for-
Sales of investments $ 730
Sales of fund's shares 18,988
Dividends 4,101 23,819
------------- -------------
3,564,872
LIABILITIES:
Payables for-
Purchases of investments 16,425
Repurchases of fund's shares 23,032
Management services 1,247
Accrued expenses 1,592 42,296
NET ASSETS AT NOVEMBER 30, 1995- ------------- -------------
Equivalent to $16.98 per share on
207,474,477 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $3,522,576
=============
STATEMENT OF OPERATIONS (DOLLARS IN
FOR THE YEAR ENDED NOVEMBER 30, 1995 THOUSANDS)
- ---------------------------------------- ------------- -------------
INVESTMENT INCOME:
Income:
Dividends $ 32,308
Interest 34,095 $ 66,403
-------------
Expenses:
Management services fee 13,517
Distribution expenses 6,124
Transfer agent fee 4,047
Reports to shareholders 291
Registration statement and prospectus 479
Postage, stationery and supplies 1,046
Trustees' fees 103
Auditing and legal fees 45
Custodian fee 708
Taxes other than federal income tax 46
Other expenses 92 26,498
------------- -------------
Net investment income 39,905
-------------
REALIZED GAIN AND UNREALIZED
APPRECIATION ON INVESTMENTS:
Net realized gain 146,663
Net increase in unrealized
appreciation on investments:
Beginning of year 355,041
End of year 815,599
Net unrealized appreciation -------------
on investments 460,558
Net realized gain and unrealized -------------
appreciation on investments 607,221
NET INCREASE IN NET ASSETS -------------
RESULTING FROM OPERATIONS $647,126
=============
(DOLLARS IN
STATEMENT OF CHANGES IN NET ASSETS THOUSANDS)
- ---------------------------------------- ------------- -------------
Year Ended November 30
1995 1994
Operations : ------------- -------------
Net investment income $ 39,905 $ 28,986
Net realized gain on investments 146,663 120,824
Net unrealized appreciation
(depreciation) on investments 460,558 (225,519)
------------- -------------
Net increase (decrease) in net assets
resulting from operations 647,126 (75,709)
------------- -------------
DIVIDENDS AND DISTRIBUTIONS PAID TO
SHAREHOLDERS:
Dividends from net investment income (33,138) (15,140)
Distributions from net realized
gain on investments (120,976) (151,346)
------------- -------------
Total dividends and distributions (154,114) (166,486)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
50,144,726 and 59,645,687
shares, respectively 747,511 1,301,162
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
10,606,653 and 5,227,221 shares,
respectively 145,052 154,809
Cost of shares repurchased:
30,229,239 and 24,316,506
shares, respectively (454,846) (534,094)
------------- -------------
Net increase in net assets resulting
from capital share transactions 437,717 921,877
------------- -------------
TOTAL INCREASE IN NET ASSETS 930,729 679,682
NET ASSETS:
Beginning of year 2,591,847 1,912,165
End of year (including undistributed ------------- -------------
net investment income: $27,814 and
$21,210, respectively) $3,522,576 $2,591,847
============= =============
</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:
Stocks traded on a national securities exchange (or reported on the NASDAQ
national market) and securities traded in the over-the-counter market are
stated at the last reported sales price on the day of valuation; other
securities, and securities for which no sale was reported on that date, are
stated at the last quoted bid price. Short-term securities with original or
remaining maturities in excess of 60 days are valued at the mean of their
quoted bid and asked prices. Short-term securities with 60 days or less to
maturity are valued at amortized cost, which approximates market value.
Securities for which market quotations are not readily available are valued at
fair value as determined in good faith by the Valuation Committee of the Board
of 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. The fund does not amortize premiums on securities purchased.
Dividends and distributions paid 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
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 $708,000 includes $13,000 that was paid by these credits
rather than in cash.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of November 30, 1995 net unrealized appreciation on investments for
book and federal income tax purposes aggregated $815,612,000, of which
$921,003,000 related to appreciated securities and $105,391,000 related to
depreciated securities. There was no difference between book and tax realized
gains on securities transactions for the year ended November 30, 1995. The cost
of portfolio securities for book and federal income tax purposes was
$2,725,429,000 at November 30, 1995.
3. The fee of $13,517,000 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,
calculated at the lower of the annual rates 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;
OR 0.58% of the first $500 million of the fund's net assets; 0.48% of such
assets in excess of $500 million but not exceeding $1 billion; 0.44% of such
assets in excess of $1 billion but not exceeding $1.5 billion; 0.41% of such
assets in excess of $1.5 billion but not exceeding $2.5 billion; 0.39% of such
assets in excess of $2.5 billion but not exceeding $4 billion; 0.38% of such
assets in excess of $4 billion but not exceeding $6.5 billion; and 0.375% of
such assets in excess of $6.5 billion. The latter fee schedule provides for
lower fees when net assets exceed $3 billion.
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, 1995,
distribution expenses under the Plan were $6,124,000. As of November 30, 1995,
accrued and unpaid distribution expenses were $1,436,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $4,047,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $2,620,000 (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.
Trustees of the fund who are unaffiliated with CRMC may elect to defer
part or all of the fees earned for services as members of the Board. Amounts
deferred are not funded and are general unsecured liabilities of the fund. As
of November 30, 1995, aggregate amounts deferred were $35,000.
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 CRMC, AFS, and AFD. No such
persons received any remuneration directly from the fund.
4. As of November 30, 1995, accumulated undistributed net realized gain on
investments was $143,655,000 and paid-in capital was $2,535,508,000. The fund
reclassified permanent book and tax differences relating to shareholder
distributions of $163,000 from undistributed net investment income to
undistributed net realized gains for the year ended November 30, 1995.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,044,986,000 and $661,189,000, respectively, during
the year ended November 30, 1995.
Dividend and interest income is recorded net of non-U.S. taxes paid. For
the year ended November 30, 1995, such non-U.S. taxes were $1,679,000. Net
realized currency losses on dividends, interest, withholding taxes reclaimable,
and sales of non-U.S. bonds and notes were $54,000 for the year ended November
30, 1995.
PER-SHARE DATA AND RATIOS/1/
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
------- -------- ------- ------ ------
1995 1994 1993 1992 1991
------- -------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year $14.65 $16.47 $13.17 $10.98 $9.80
------- -------- ------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .20 .17 .11 .08 .15
Net realized and unrealized
gain (loss) on investments 2.99 (.59) 3.75 2.45 1.76
Total income from ------- -------- ------- ------ ------
investment operations 3.19 (.42) 3.86 2.53 1.91
------- -------- ------- ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.18) (.12) (.07) (.14) (.26)
Distributions from net realized
gains (.68) (1.28) (.49) (.20) (.47)
------- -------- ------- ------ ------
Total distributions (.86) (1.40) (.56) (.34) (.73)
------- -------- ------- ------ ------
Net Asset Value, End of Year $16.98 $14.65 $16.47 $13.17 $10.98
======= ======== ======= ====== ======
Total Return/2/ 23.22% (2.94)% 30.60% 23.58% 20.68%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in millions) $3,523 $2,592 $1,912 $1,115 $908
Ratio of expenses to average
net assets .88% .85% .85% .89% .92%
Ratio of net income to
average net assets 1.33% 1.25% .76% .67% 1.33%
Portfolio turnover rate 27.03% 25.51% 26.97% 19.03% 18.52%
</TABLE>
/1/ Adjusted to reflect the 100% share dividend effective May 26, 1994.
/2/ Calculated without deducting a sales charge. The maximum sales charge is
5.75% of the fund's offering price.
Independent Auditors' Report
To the Board of Trustees and Shareholders of The New Economy Fund:
We have audited the accompanying statement of assets and liabilities of
The New Economy Fund, including the schedule of portfolio investments, as of
November 30, 1995, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the per-share data and ratios for each of the five years
in the period then ended. These financial statements and 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 include confirmation of securities owned
at November 30, 1995 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 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, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the per-share data and ratios for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
December 22, 1995
1995 TAX INFORMATION (unaudited)
We are required to advise you within 60 days of the fund's fiscal
year-end regarding the federal tax status of distributions received by
shareholders during such fiscal year.
Corporate shareholders may exclude up to 70% of qualifying dividends
received during the year. For purposes of computing this exclusion, 23% of the
dividends paid by the fund from net investment income represents qualifying
dividends.
Dividends and distributions received by retirement plans such as IRAs,
Keogh-type plans, and 403(b) plans need not be reported as taxable income.
However, many plan retirement trusts may need this information for their annual
information reporting.
SINCE THE AMOUNTS ABOVE ARE REPORTED FOR THE FUND'S FISCAL YEAR AND NOT
THE CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV WHICH WILL
BE MAILED IN JANUARY 1996 TO DETERMINE THE CALENDAR YEAR AMOUNTS TO BE INCLUDED
ON THEIR 1995 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.
FUND SERVICES
These handy services can add convenience and flexibility to your American Funds
investments.
ADDING TO YOUR INVESTMENT
There are three ways you can group your American Funds purchases to qualify for
a quantity discount:
- -Right of accumulation: You can combine the value of your existing shares with
those you are purchasing to qualify for a discount.
- -Statement of Intention: You can, without obligation, use a Statement of
Intention that allows you to combine the value of your existing shares and the
purchases you intend to make over a 13-month period so you can take immediate
advantage of the maximum quantity discount available.
- -Concurrent purchases: By purchasing shares in more than one American Fund
simultaneously, you may qualify for a quantity discount.
(Shares of money market funds purchased directly do not apply to quantity
discounts. Additionally, certain accounts may not be eligible to be grouped.
See the fund's prospectus or your investment professional for more details.)
Subsequent investments by mail: Once your account has been established and
you've selected a broker/dealer, simply send a check for $50 or more, along
with the bottom portion of your account statement, to American Funds Service
Company.
PUTTING YOUR INVESTMENTS ON AUTOPILOT
Automatic investment plan: You can make automatic investments regularly by
authorizing American Funds Service Company to deduct a specified sum
from your bank account.
Automatic exchange plan: You can automatically exchange $50 or more between
funds on a regular basis.
Automatic withdrawal plan: You can arrange to have regular checks for specified
amounts sent to you or to anyone you designate in any month(s) you choose.
CHOOSING THE PAYOUT SYSTEM THAT'S RIGHT FOR YOU
Automatic reinvestment: All dividends and capital gain distributions can be
automatically reinvested in additional fund shares without a sales charge.
Cross-reinvestment: You can reinvest dividends and/or capital gains from one
fund to another fund at no charge if you have a balance of at least $5,000 in
the originating fund or meet the minimum initial investment for the receiving
fund.
Dividends in cash: You can elect to take dividends in cash.
REPORTS YOU'LL RECEIVE FROM US
Confirmations of transactions: You receive account statements reflecting the
transactions in your account.
Consolidated quarterly statements: If you have more than one account with the
American Funds, you can request a quarterly statement combining certain
accounts registered to the same individual.
Year-end tax reports: At the end of each year, you will receive an individual
report which shows the tax status of the distributions paid to you during the
year. In many instances, these reports can help you calculate taxes due on
shares sold by reporting average cost.
SPECIAL SERVICES
Exchange privileges: You can transfer some or all of your holdings into other
American Funds by mail or by phone. Certain restrictions apply (a sales charge
may apply if one has not already been paid), and it's important to remember
that an exchange constitutes a sale and purchase for tax purposes.
Telephone information service: American FundsLine(R) is a toll-free service
which gives you account information as well as current prices for all American
Funds. Just call 800/325-3590.
Safekeeping of certificates: Your shares are credited to your account and
certificates are not issued unless specifically requested. (Certificates are
not available for money market funds.)
Free check-writing withdrawal service: If you have a money market fund account,
this service enables you to write checks for $250 or more against the account.
The account continues to earn daily interest until checks clear the fund's
bank.
Retirement plans: A wide variety of plans is available.
FOR MORE COMPLETE INFORMATION ABOUT THESE SERVICES OR ABOUT ANY OF THE AMERICAN
FUNDS, INCLUDING CHARGES AND EXPENSES, PLEASE OBTAIN A PROSPECTUS FROM YOUR
SECURITIES DEALER OR FINANCIAL PLANNER, OR PHONE THE FUND'S TRANSFER AGENT,
AMERICAN FUNDS SERVICE COMPANY, AT 800/421-0180. PLEASE READ THE PROSPECTUS
CAREFULLY BEFORE YOU INVEST OR SEND MONEY. THESE SERVICES ARE SUBJECT TO CHANGE
OR TERMINATION.
BOARD OF TRUSTEES
AMBASSADOR RICHARD G. CAPEN, JR.
Rancho Santa Fe, California
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
Rolling Hills Estates, California
Private investor; former President and
Chief Executive Officer, The Mission Group;
former President, Southern California Edison Company
ALAN W. CLEMENTS
London, England
Private investor; former Executive Director -- Finance, Imperial Chemical
Industries PLC
ROBERT B. EGELSTON
Los Angeles, California
Chairman of the Board of the fund
Former Chairman of the Board,
The Capital Group Companies, Inc.
ALAN GREENWAY
La Jolla, California
Private investor; President, Greenway Associates, Inc.
(management consulting services)
WILLIAM R. GRIMSLEY
San Francisco, California
President of the fund
Senior Vice President and Director,
Capital Research and Management Company
GRAHAM HOLLOWAY
Dallas, Texas
Former Chairman of the Board,
American Funds Distributors, Inc.
LEONADE D. JONES
Washington, D.C.
Treasurer, The Washington Post Company
WILLIAM H. KLING
St. Paul, Minnesota
President, Minnesota Public Radio; President,
Greenspring Co.; former President,
American Public Radio (now Public Radio International)
NORMAN R. WELDON, PH.D.
Miami, Florida
President and Director, Corvita Corporation;
Chairman of the Board, Novoste Corporation
PATRICIA K. WOOLF
Princeton, New Jersey
Private investor; lecturer, Department of
Molecular Biology, Princeton University
OTHER OFFICERS
TIMOTHY D. ARMOUR
Los Angeles, California
Vice President of the fund
Executive Vice President, Capital Research Company
VINCENT P. CORTI
Los Angeles, California
Vice President of the fund
Vice President -- Fund Business Management Group, Capital Research and
Management Company
STEVEN N. KEARSLEY
Brea, California
Vice President and Treasurer of the fund
Vice President and Treasurer,
Capital Research and Management Company
JAMES B. LOVELACE
Los Angeles, California
Vice President of the fund
Vice President,
Capital Research and Management Company
CHAD L. NORTON
Los Angeles, California
Secretary of the fund
Vice President -- Fund Business Management Group, Capital Research and
Management Company
MARY C. HALL
Brea, California
Assistant Treasurer of the fund
Senior Vice President -- Fund Business Management Group, Capital Research and
Management Company
ROBERT P. SIMMER
Norfolk, Virginia
Assistant Treasurer of the fund
Vice President -- Fund Business Management Group, Capital Research and
Management Company
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER, CAPITAL RESEARCH AND
MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92621-5804
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
American Funds Service Company
P.O. Box 2205
Brea, California 92622-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02105-1713
COUNSEL
O'Melveny & Myers
400 South Hope Street
Los Angeles, California 90071-2899
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
This report is for the information of shareholders of The New Economy Fund, but
it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
March 31, 1996, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Litho in USA BDA/AL/2799
Lit. No. NEF-011-0196
[The American Funds Group(R)]
