THE NEW ECONOMY FUND
SEMI-ANNUAL REPORT
for the six months ended May 31, 1996
[The American Funds Group(R)]
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.
RESULTS AT A GLANCE
For periods ended May 31, 1996
(with all distributions reinvested)
Total Return
Six Months Five Years
The New Economy Fund +11.1% +105.3%
Standard & Poor's 500
Composite Index +11.8 +97.5
LIFETIME RESULTS
since inception on Total Average Annual
December 1, 1983 Return Compound Return
The New Economy Fund +500.8% +15.4%
Standard & Poor's 500
Composite Index +510.7 +15.6
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are returns, with all distributions reinvested,
through June 30, 1996 (the most recent calendar quarter), assuming payment of
the 5.75% maximum sales charge at the beginning of the stated periods.
Average Annual
Total Return Compound Return
10 Years +222.02% +12.41%
Five Years +107.01 +15.66
One Year +13.69 -
Sales charges are lower for accounts of $50,000 or more. 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.
FELLOW SHAREHOLDERS
Six months ago we reported that The New Economy Fund recorded a total return of
23.2% in fiscal 1995. We are happy to tell you that this past half-year was
another rewarding period for investors in the fund. In the six months ended May
31, the value of your holdings rose an additional 11.1% if, like most
shareholders, you reinvested income dividends totaling 19 cents a share and a
capital gain distribution of 69 cents a share that were paid during the period.
These results bring New Economy's total gain since operations began in
December 1983 to 500.8% with all distributions reinvested. That's an average
compound growth rate of 15.4% a year.
Of the 179 stocks held by the fund throughout the fiscal half, 132 posted
gains. New Economy benefited from especially strong showings by a number of its
investments in companies based outside the United States. Two of our biggest
gainers for the period were in the financial services industry: Grupo
Financiero Banamex Accival, a Mexican banking firm, and Internationale
Nederlanden Groep, a Dutch insurance company. Those two stocks rose 50.1% and
48.9%, respectively. Large gains also were recorded by the securities of
several other companies domiciled in Mexico and other Latin American countries
where stock prices rallied after being severely depressed for nearly two years.
While our holdings outside the United States helped the fund's results
considerably during this period, it should be kept in mind that some
investments outside the U.S. are subject to additional risks.
Our investments in gaming companies in the U.S. also did well. For the six
months, Mirage Resorts rose 67.9% in price; Circus Circus Enterprises, 50.0%;
and Harrah's Entertainment, 35.2%. Our positions in these three securities were
built up a few years ago at a time when they were out of favor among many
investors.
[Sidebar]
New Economy benefited from especially strong showings by a number of its
investments in companies based outside the United States.
[End Sidebar]
WHERE THE FUND'S ASSETS
ARE INVESTED
(as of 5/31/96)
Percent of
Country Net Assets
United States 65.37%
United Kingdom 3.01
Netherlands 2.28
Mexico 2.13
Italy 1.51
Australia 1.43
Canada 1.35
Hong Kong 1.24
Germany .98
New Zealand .87
Spain .80
Sweden .73
Japan .71
Brazil .68
Denmark .67
Ireland .63
France .55
Other countries 3.79
Cash & equivalents 11.27
Total 100.00%
One category that did not fare well in the first half of fiscal '96 was
health and personal care. Concern about that industry's increasingly
competitive pricing environment caused several of our holdings to post losses
in price. Humana, United HealthCare and Coram Healthcare declined 21.4%, 12.7%
and 11.4%, respectively, while Health Systems International was down 8.5%.
Although these stocks weakened during the period, we remain optimistic about
their long-range prospects.
The fund's results for the fiscal half were achieved in a mixed global
economic environment. In Europe, although stock prices generally moved upward,
business conditions were sluggish and interest rates declined. In Japan, the
economy began recovering from a long downturn. Meanwhile, in the U.S. - where
the majority of our investments are concentrated - business showed increasing
strength, and inflation fears drove long-term interest rates upward. The stock
market nonetheless managed to hit new highs. The unmanaged Standard & Poor's
500 Composite Index posted a six-month advance of 11.8% on a total return
basis.
The U.S. market fluctuated a great deal during the fiscal period, however,
and there was considerable volatility among various groups of stocks. Computer
software and technology-related issues went through a particularly turbulent
time. After a frenetic run-up, many of them fell sharply over the winter
months. We took advantage of that weakness to repurchase several stocks,
including Intel, which we had sold earlier at higher prices.
During the six months, we increased the fund's equity position worldwide
to 89% of net assets from 85% at the start of fiscal 1996 and 82% one year ago.
The main additions were in U.S.-based companies. On May 31, they accounted for
65% of assets, about four percentage points more than at the start of the
fiscal year. Some of the more noteworthy additions included Travelers/Aetna
Property Casualty and Mannesmann, a diversified German firm with interests in
the cellular phone business.
We are pleased to report that New Economy continues to grow. In the first
half of fiscal '96, our shareholder family increased to more than 350,000
individual and institutional investor accounts, while net assets passed the $4
billion mark.
We continue to uncover what we think are promising opportunities in the
services and information industries. We recognize, however, that stock prices
in general are high by historical standards and, as recent events in the market
have demonstrated, setbacks are inevitable. Accordingly, we believe it is
prudent to maintain a long-term perspective - and we would encourage our
shareholders to do the same.
Cordially,
Robert B. Egelston
Chairman of the Board
William R. Grimsley
President
July 15, 1996
[Sidebar]
Of the 179 stocks held by the fund throughout the fiscal half, 132 posted
gains.
[End Sidebar]
<TABLE>
THE NEW ECONOMY FUND
Investment Portfolio, May 31, 1996
<S> <C> <C> <C>
- ------------------------------------------- -------------
Largest Holdings by Industry
Broadcasting & Publishing 16.15%
Telecommunications 8.91%
Insurance 7.40%
Merchandising 7.26%
Entertainment & Leisure 6.71%
All Other Industries 42.30%
Cash & Equivalents 11.27%
- ------------------------------------------- -------------
Percent
of
NEF's 10 Largest Holdings Net Assets
Tele-Communications, Series A, TCI Group 2.71%
Federal National Mortgage 2.41%
Internationale Nederlanden 2.28%
Viacom 1.66%
Viking Office Products 1.55%
Time Warner 1.47%
AirTouch Communications 1.42%
United HealthCare 1.42%
Walt Disney 1.41%
EXEL 1.25%
- ------------------------------------------- ------------- ------------ -----------
Market Percent
Stocks Shares Value of Net
(Common and Preferred ) (000) Assets
- ---------------------------------------- ------------- ------------ -----------
BROADCASTING & PUBLISHING - 16.15%
Tele-Communications, Inc., Series A, TCI Group /1/ 5,877,067 $110,930 2.71
Viacom Inc., Class B /1/ 1,600,000 67,800 1.66
Time Warner Inc. 1,488,000 60,078 1.47
Tele-Communications, Inc., Series A, Liberty Media
Group /1/ 1,569,266 47,078 1.15
Gaylord Entertainment Co., Class A 1,411,200 36,868 .90
Comcast Corp., Class A, special stock 2,050,000 35,619 .87
News Corp. Ltd. (Australia) 2,071,549 11,621
News Corp. Ltd. (American Depositary
Receipts) 470,000 10,516
News Corp. Ltd., preferred shares 1,048,964 5,115
News Corp. Ltd., preferred shares
(American Depositary Receipts) 235,000 4,553 .78
Mediaset (Italy) /2/ /3/ 6,960,000 31,019 .76
International Family Entertainment, Inc.,
Class B /1/ 1,562,500 28,125 .69
Grupo Televisa, SA (American Depositary
Receipts) (Mexico) /1/ 738,300 22,703 .55
U S WEST Media Group /1/ 1,200,000 22,650 .55
Quebecor Printing Inc. (Canada) 1,200,000 20,100 .49
CANAL+ (France) 65,000 15,974 .39
EMAP PLC (United Kingdom) 1,400,000 15,282 .37
Arnoldo Mondadori Editore SpA (Italy) 1,950,000 15,145 .37
Tele-Communications International, Series A /1/ 785,000 14,817 .36
AUDIOFINA (Luxembourg) 262,150 13,694 .33
Turner Broadcasting System, Inc., Class B 469,627 12,797 .31
Chris-Craft Industries, Inc. /1/ 309,000 12,630 .31
Soft Bank Corp. (Japan) 38,220 7,075 .17
Golden Books Family Entertainment Inc. /1/
(Formerly Western Publishing Group, Inc.) 500,000 6,875 .17
SFX Broadcasting, Inc. /1/ 174,000 6,481 .16
LIN Television Corp. /1/ 200,000 6,400 .16
News International PLC (United Kingdom) 1,300,000 6,249 .15
Renaissance Communications Corp. /1/ 200,000 6,000 .15
New York Times Co., Class A 100,000 3,287 .08
Dow Jones & Co., Inc. 50,000 1,956 .05
All American Communications, Inc., Class B /1/ 170,000 1,456 .04
TELECOMMUNICATIONS - 8.91%
AirTouch Communications /1/ 1,825,000 58,172 1.42
Telefonos de Mexico, SA de CV, Class L
(American Depositary Receipts) (Mexico) 1,541,960 50,885 1.24
Telecom Corp. of New Zealand Ltd. (New Zealand) /2/ 8,810,480 35,764 .88
Tele Danmark AS, Class B (American Depositary
Receipts) (Denmark) 704,700 17,529
Tele Danmark AS, Class B 200,000 9,861 .67
Mannesmann AG (Germany) 75,000 26,062 .64
Telecomunicacoes Brasileiras SA, preferred
nominative (American Depositary Receipts)
(Brazil) 373,291 24,031 .59
Vodafone Group PLC (American Depositary
Receipts) (United Kingdom) 575,000 22,784 .56
Octel Communications Corp. /1/ 900,000 22,050 .54
MCI Communications Corp. 720,000 20,970 .51
Telefonica de Espana, SA (American
Depositary Receipts) (Spain) 170,000 8,904
Telefonica de Espana, SA 400,000 7,201 .39
STET-Societa Finanziaria Telefonica p.a.
(Italy) 4,300,000 15,387
STET-Societa Finanziaria Telefonica p.a.,
preferred shares 150,000 431 .39
Technology Resources Industries Bhd.
(Malaysia) 4,320,000 14,368 .35
ALLTEL Corp. 420,000 13,230 .32
AT&T Corp. 200,000 12,475 .30
Telephone and Data Systems, Inc. 70,000 3,054 .08
Nortel Inversora SA, preferred shares,
Series B (American Depositary Receipts)
(Argentina) /2/ 107,600 1,399 .03
INSURANCE - 7.40%
Internationale Nederlanden Groep NV 609,772 50,313
(Netherlands)
Internationale Nederlanden Groep NV, warrants, 7,000,000 42,846 2.28
expire 2001 /1/
EXEL Ltd. (Bermuda) 740,000 51,338 1.25
PartnerRe Holdings Ltd. (Bermuda) 960,000 28,800 .70
Travelers/Aetna Property Casualty Corp., Class A /1/ 900,000 24,525 .60
Fairfax Financial Holdings Ltd. (Canada) /1/ 185,000 22,281 .54
AMBAC Inc. 350,000 18,156 .44
American International Group, Inc. 150,000 14,137 .35
CKAG Colonia Konzern AG (Germany) 18,600 12,211
CKAG Colonia Konzern AG, preferred shares 3,530 1,912 .35
Cincinnati Financial Corp. 210,000 12,495 .31
Irish Life PLC (Ireland) 2,507,465 10,037 .25
PMI Group, Inc. 174,100 7,530 .18
Selective Insurance Group, Inc. 106,900 3,394 .08
Trenwick Group Inc. 60,000 2,857 .07
MERCHANDISING - 7.26%
Viking Office Products, Inc. /1/ 2,220,000 63,547 1.55
Consolidated Stores Corp. /1/ 900,000 34,087 .83
Giordano Holdings Ltd. (Hong Kong) 34,203,000 30,728 .75
H & M Hennes & Mauritz AB, Class B (Sweden) 320,000 23,597 .58
Barnes & Noble, Inc. /1/ 479,600 16,846 .41
Wal-Mart Stores, Inc. 575,000 14,878 .36
Walgreen Co. 400,000 12,750 .31
Giant Food Inc., Class A 350,000 12,075 .30
Home Depot, Inc. 206,000 10,532 .26
Home Shopping Network, Inc. /1/ 700,000 10,062 .25
Michaels Stores, Inc. /1/ 600,000 9,975 .24
Toys 'R' Us, Inc. /1/ 300,000 8,700 .21
Delhaize 'Le Lion' SA (Belgium) 150,000 7,620 .19
Duty Free International, Inc. 450,000 6,750 .16
Tesco PLC (United Kingdom) 1,430,156 6,686 .16
Williams-Sonoma, Inc. /1/ 200,000 5,550 .14
Dickson Concepts (Hong Kong) 4,491,000 5,138 .13
Circuit City Stores, Inc. 120,000 3,915 .10
Cifra, SA de CV, Class C (Mexico) 2,340,000 3,483 .08
Ito-Yokado Co., Ltd. (Japan) 60,000 3,404 .08
Arbor Drugs, Inc. 173,600 3,277 .08
Talbots, Inc. 70,000 2,284 .06
Shoe Carnival, Inc. /1/ 306,200 1,416 .03
ENTERTAINMENT & LEISURE - 6.71%
Walt Disney Co. 947,000 57,530 1.41
Mirage Resorts, Inc. /1/ 900,000 51,187 1.25
Harrah's Entertainment, Inc./1/ 1,520,000 51,110 1.25
Circus Circus Enterprises, Inc. /1/ 1,200,000 49,950 1.22
Carnival Cruise Lines, Inc., Class A 1,520,000 45,220 1.10
Station Casinos, Inc. /1/ 725,000 11,328 .28
Nintendo Co., Ltd. (Japan) 80,000 5,894 .14
Host Marriott Services Corp. /1/ 290,000 2,284 .06
BANKING - 6.54%
Mercantile Bancorporation Inc. 885,000 41,595 1.02
Wells Fargo & Co. 116,666 28,117 .69
Old Kent Financial Corp. 630,000 24,491 .60
Norwest Corp. 630,000 21,971 .54
Banc One Corp. 550,000 20,350 .50
Golden West Financial Corp. 350,000 19,206 .47
Charter One Financial, Inc. 450,000 16,369 .40
Washington Mutual Savings Bank 567,500 16,280 .40
Banco de Santander, SA (Spain) 270,000 12,351 .30
Barclays PLC (United Kingdom) 1,000,000 11,644 .28
Grupo Financiero Banamex Accival, SA de CV,
Series L (Mexico) 3,024,415 6,362
Grupo Financiero Banamex Accival, SA de CV,
Series B 1,745,000 3,953 .25
U. S. Bancorp (Formerly West One Bancorp) 264,600 9,426 .23
Hibernia Corp., Class A 800,000 8,800 .21
Philippine Commercial International Bank, Inc.
(Philippines) 607,600 7,845 .19
Australia and New Zealand Banking Group Ltd.
(Australia) 1,672,450 7,687 .19
Keystone Financial, Inc. 204,500 6,851 .17
Banco Popular Espanol, SA (Spain) 24,000 4,199 .10
MISCELLANEOUS FINANCIAL SERVICES - 6.36%
Federal National Mortgage Assn. 3,200,000 98,800 2.41
Federal Home Loan Mortgage Corp. 560,000 46,270 1.13
ADVANTA Corp., Class B 300,000 15,600
ADVANTA Corp., Class A 250,000 14,125 .73
Student Loan Marketing Assn. 380,000 28,262 .69
Capital One Financial Corp. 875,000 26,578 .65
First Data Corp. 225,000 17,944 .44
ORIX Corp. (Japan) 320,000 12,557 .31
COMPUTER SERVICES & SOFTWARE - 5.77%
Compuware Corp. /1/ 1,002,000 39,328 .96
Oracle Corp. /1/ 1,067,900 35,374 .86
General Motors Corp., Class E 500,000 28,187 .69
CUC International Inc. /1/ 700,000 25,900 .63
Electronic Arts /1/ 680,000 21,505 .54
Tech Data Corp. /1/ 900,000 20,925 .51
Sybase, Inc. /1/ 850,600 19,670 .48
Avid Technology, Inc. /1/ 650,000 14,706 .36
Policy Management Systems Corp. /1/ 220,000 11,770 .29
Broderbund Software, Inc. /1/ 175,000 7,372 .18
Acclaim Entertainment, Inc. /1/ 450,000 5,400 .13
Fractal Design Corp. /1/ 250,000 3,875 .09
MacNeal-Schwendler Corp. 200,000 2,225 .05
HEALTH & PERSONAL CARE SERVICES - 4.19%
United HealthCare Corp. 1,060,000 58,167 1.42
Humana Inc. /1/ 1,100,000 24,200 .59
Columbia/HCA Healthcare Corp. 425,000 22,897 .56
Health Systems International, Inc., Class A /1/ 550,000 16,362 .40
PacifiCare Health Systems, Inc., Class B /1/ 100,000 8,275
PacifiCare Health Systems, Inc., Class A /1/ 100,000 7,900 .40
Human Genome Sciences, Inc. /1/ 300,000 10,987 .27
FHP International Corp. /1/ 305,400 8,704 .21
Cerner Corp. /1/ 220,000 5,500 .13
Value Health, Inc. /1/ 130,000 3,542 .09
Vivra Inc. /1/ 90,000 3,071 .07
Coram Healthcare Corp. /1/ 400,000 1,950 .05
ELECTRONIC DATA PRODUCTS - 2.48%
General Instrument Corp./1/ 1,285,100 39,677 .97
America Online, Inc. /1/ 423,800 23,945 .58
Avnet, Inc. 370,000 19,055 .47
Intel Corp. 250,000 18,875 .46
RESTAURANTS - 2.03%
Brinker International, Inc. /1/ 2,470,000 41,373 1.01
McDonald's Corp. 420,000 20,213 .49
Foodmaker, Inc. /1/ 1,900,000 15,438 .38
Sizzler International, Inc. 1,100,000 4,125 .10
Outback Steakhouse, Inc. /1/ 50,000 1,894 .05
ENERGY SERVICES - 1.80%
Helmerich & Payne, Inc. 638,000 23,128 .56
Sonat Offshore Drilling Inc. 400,000 21,200 .52
Schlumberger Ltd. (Netherlands Antilles) 200,000 16,675 .41
Noble Drilling Corp. /1/ 600,000 8,025 .20
Landmark Graphics Corp. /1/ 245,800 4,609 .11
MISCELLANEOUS BUSINESS SERVICES - 1.72%
Rentokil Group PLC (United Kingdom) 5,000,000 31,785 .78
Pittston Brinks 430,000 13,008 .32
Robert Half International Inc. /1/ 200,000 11,225 .27
DecisionOne Holdings /1/ 325,000 9,425 .23
EarthWatch Inc., 12% convertible preferred,
Series C /1/ /2/ /4/ 500,000 5,000 .12
COMPUTER SYSTEMS - 1.51%
Silicon Graphics, Inc. /1/ 1,060,000 29,150 .71
Bay Networks, Inc. /1/ 600,000 17,400 .43
Digital Equipment Corp. /1/ 200,000 10,425 .25
International Business Machines Corp. 47,000 5,017 .12
HOTELS & MOTELS - 1.15%
Marriott International, Inc. 755,000 35,863 .88
Promus Hotel Corp. /1/ 400,000 11,000 .27
DIVERSIFIED SERVICES - 1.03%
Brambles Industries Ltd. (Australia) 1,350,000 18,960 .46
First Pacific Co. Ltd. (Hong Kong) 10,724,106 14,764 .36
Benpres Holdings Corp. (Global Depositary
Receipts) (Philippines)/1/ /2/ 1,018,240 8,401 .21
MISCELLANEOUS PUBLIC SERVICES - 0.73%
Waste Management International PLC (American
Depositary Receipts) (United Kingdom) /1/ 1,465,000 17,031 .42
WMX Technologies, Inc. 320,000 11,280 .28
Eurotunnel SA (France) /1/ 910,268 1,324 .03
ADVERTISING - 0.70%
Interpublic Group of Companies, Inc. 320,000 14,840 .36
Omnicom Group Inc. 200,000 8,725 .21
Havas SA (France) 59,204 5,076 .13
REAL ESTATE - 0.52%
Host Marriott Corp. /1/ 1,611,400 21,150 .52
SAFETY AND SECURITY SERVICES - 0.50%
ADT Ltd. (Bermuda) /1/ 600,000 11,550 .28
Rollins, Inc. 400,000 9,100 .22
INFORMATION & PRINTING SERVICES - 0.50%
Primark Corp. /1/ 577,900 20,371 .50
DELIVERY SERVICES - 0.49%
Federal Express Corp. /1/ 260,000 19,923 .49
ELECTRIC UTILITIES - 0.37%
National Power PLC (United Kingdom) 1,450,000 11,702 .28
CESP - Companhia Energetica de Sao Paulo,
preferred nominative (Brazil) 133,590,000 3,479
CESP - Companhia Energetica de Sao Paulo,
ordinary nominative 4,995,000 113
CESP - Companhia Energetica de Sao Paulo,
preferred nominative (American Depositary
Receipts) /1/ 2,000 15 .09
ENGINEERING & CONSTRUCTION - 0.36%
Jacobs Engineering Group Inc. /1/ 555,000 14,916 .36
AIRLINES - 0.27%
AMR Corp. /1/ 60,000 5,663 .14
Southwest Airlines Co. 200,000 5,475 .13
RAIL & ROAD SERVICES - 0.25%
Werner Enterprises, Inc. 300,000 7,350 .18
Greyhound Lines, Inc. /1/ 450,000 2,053 .05
Canadian National Railway System - 1st Installment
(Canada) 50,000 925 .02
ENVIRONMENTAL SERVICES - 0.03%
Ecolab Inc. 40,000 1,300 .03
MISCELLANEOUS
Other stocks in initial period of acquisition 122,683 3.00
---------------------------
TOTAL STOCKS
(cost: $2,518,531,000) 3,631,209 88.73
Principal ---------------------------
Amount
Short-Term Securities (000)
- ---------------------------------------- ------------- ------------ -----------
CORPORATE SHORT-TERM NOTES- 7.75%
Ford Motor Credit Co. 5.28%-5.30% due
6/17-7/9/96 84,250 $83,891 2.06
Xerox Corp. 5.25%-5.29% due
6/13-7/25/96 55,650 55,377 1.35
International Lease Finance Corp. 5.26%-5.28%
due 7/10-8/20/96 50,100 49,676 1.21
AT & T Corp. 5.28% due 6/4-8/13/96 45,000 44,716 1.09
PepsiCo, Inc. 5.25%-5.28% due 6/21-7/9/96 42,400 42,217 1.04
SAFECO Credit Co. Inc. 5.27%-5.28% due
7/15-7/24/96 26,600 26,399 .64
Kimberly-Clark Corp. 5.27%-5.30% due
6/10-6/28/96 14,800 14,768 .36
Federal Agency Discount Notes- 3.09%
Federal Home Loan Mortgage Corp. 5.03%-
5.25% due 6/3-8/16/96 70,645 70,334 1.72
Federal Home Loan Bank 5.04%-5.21%
due 6/5-7/22/96 40,500 40,323 .98
Federal National Mortgage Assoc. 5.14% due
6/4/96 16,100 16,091 .39
------------ -----------
TOTAL SHORT-TERM SECURITIES
(cost: $443,799,000) 443,792 10.84
------------ -----------
TOTAL INVESTMENT SECURITIES
(cost: $2,962,330,000) 4,075,001 99.57
Excess of cash and receivables over payables 17,603 .43
------------ -----------
NET ASSETS $4,092,604 100.00
============ ===========
/1/ Non-income-producing securities.
/2/ Purchased in a private placement transaction; resale to the public may require registration or sale
only to qualified institutional buyers.
/3/ Valued under procedures established by the Board of Trustees
/4/ Payment in kind. The issuer has the option of paying additional securities in lieu of cash.
See Notes to Financial Statements
</TABLE>
Stocks appearing in the portfolio
since November 30, 1995
- -------------------------------------------
Acclaim Entertainment
All American Communications
AUDIOFINA
Avnet
Barclays
Bay Networks
Broderbund Software
Cerner
Compuware
DecisionOne Holdings
Dickson Concepts
EarthWatch
EMAP
Fairfax Financial Holdings
First Data
Greyhound Lines
Host Marriott Services
Human Genome Sciences
Intel
Mannesmann
Mediaset
Noble Drilling
Philippine Commercial International Bank
Pittston Brinks
Quebecor Printing
Renaissance Communications
Rentokil Group
Rollins
SFX Broadcasting
Soft Bank
Talbots
Telephone and Data Systems
Travelers/Aetna Property Casualty
U S WEST Media Group
Wells Fargo
Werner Enterprises
Stocks eliminated from the portfolio
since November 30, 1995
- -------------------------------------------
Au Bon Pain
BCE Mobile Communications
H&R Block
Capital Cities/ABC
Dowa Fire and Marine Insurance
First Interstate Bancorp
FTP Software
Gap
Mercantile Bankshares
Nippon Fire and Marine Insurance
Norfolk Southern
Pakistan Telecommunication
Stadshypotek
Svenska Handelsbanken Group
TeleWest Communications
TIG Holdings
Westcott Communications
<TABLE>
The New Economy Fund
Financial Statements (Unaudited)
Statement of Assets and (dollars in
Liabilities at May 31, 1996 thousands)
------------- ----------------
<S> <C> <C>
Assets:
Investment securities at market
(cost: $2,962,330) $4,075,001
Cash 120
Receivables for-
Sales of investments $ 17,066
Sales of fund's shares 7,190
Dividends 4,452 28,708
------------- ----------------
4,103,829
Liabilities:
Payables for-
Purchases of investments 4,518
Repurchases of fund's shares 3,195
Management services 1,490
Accrued expenses 2,022 11,225
Net Assets at May 31, 1996- ------------- ----------------
Equivalent to $17.87 per share on
228,975,738 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $4,092,604
=============
(Unaudited)
Statement of Operations (dollars in
for the six months ended May 31, 1996 thousands)
- ------------------------------------- ------------- ----------------
Investment Income:
Income:
Dividends $ 18,085
Interest 12,048 $ 30,133
----------------
Expenses:
Management services fee 8,276
Distribution expenses 4,103
Transfer agent fee 2,346
Reports to shareholders 192
Registration statement and prospectu 348
Postage, stationery and supplies 535
Trustees' fees 51
Auditing and legal fees 53
Custodian fee 358
Taxes other than federal income tax 60
Other expenses 68 16,390
------------- ----------------
Net investment income 13,743
----------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 88,701
Net increase in unrealized
appreciation on investments:
Beginning of period 815,599
End of period 1,112,675
Net unrealized appreciation ----------------
on investments 297,076
Net realized gain and unrealized ----------------
appreciation on investments 385,777
Net Increase in Net Assets ----------------
Resulting from Operations $399,520
=============
See Notes to Financial Statements
(dollars in
Statement of Changes in Net Assets thousands)
- ------------------------------------- ------------- -------------
Six Months
Ended Year ended
5/31/96* 11/30/95
Operations: ------------- -------------
Net investment income $ 13,743 $ 39,905
Net realized gain on investments 88,701 146,663
Net unrealized appreciation
on investments 297,076 460,558
------------- -------------
Net increase in net assets
resulting from operations 399,520 647,126
------------- -------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (40,512) (33,138)
Distributions from net realized
gain on investments (143,588) (120,976)
------------- -------------
Total dividends and distributions (184,100) (154,114)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
26,157,824 and 50,144,726
shares, respectively 445,577 747,511
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
10,959,727 and 10,606,653 shares,
respectively 174,287 145,052
Cost of shares repurchased:
15,616,290 and 30,229,239
shares, respectively (265,256) (454,846)
------------- -------------
Net increase in net assets resulting
from capital share transactions 354,608 437,717
------------- -------------
Total Increase in Net Assets 570,028 930,729
Net Assets:
Beginning of period 3,522,576 2,591,847
End of period (including undistribute ------------- -------------
net investment income: $1,045 and
$27,814, respectively) $4,092,604 $3,522,576
============= =============
*Unaudited
See Notes to Financial Statements
</TABLE>
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 fund seeks long-term growth of capital. 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. 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
period. 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 $358,000 includes $11,000 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 May 31, 1996 net unrealized appreciation on investments for book and
federal income tax purposes aggregated $1,112,671,000, of which $1,175,387,000
related to appreciated securities and $62,716,000 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the six months ended May 31, 1996. The cost of
portfolio securities for book and federal income tax purposes was
$2,962,330,000 at May 31, 1996.
3. The fee of $8,276,000 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 six months ended May 31, 1996,
distribution expenses under the Plan were $4,103,000. As of May 31, 1996,
accrued and unpaid distribution expenses were $1,850,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $2,346,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $1,368,000 (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 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 May 31,1996,
aggregate amounts deferred and earnings thereon were $64,000.
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 May 31, 1996, accumulated undistributed net realized gain on
investments was $88,768,000 and paid-in capital was $2,890,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $623,593,000 and $375,256,000, respectively, during
the six months ended May 31, 1996.
Dividend and interest income is recorded net of non-U.S. taxes paid. For
the six months ended May 31, 1996, such non-U.S. taxes were $1,027,300. Net
realized currency losses on dividends, interest, and withholding taxes
reclaimable were $33,000 for the six months ended May 31, 1996.
<TABLE>
PER-SHARE DATA AND RATIOS /1/
Six
Months
Ended Year ended November 30
--------- -------- -------- -------- --------- --------
5/31/96 /2 1995 1994 1993 1992 1991
--------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period 16.98 14.65 16.47 13.17 10.98 9.8
--------- -------- -------- -------- -------- ----------
Income from Investment
Operations:
Net investment income .06 .20 .17 .11 .08 .15
Net realized and unrealized
gain (loss) on investments 1.71 2.99 -0.59 3.75 2.45 1.76
Total income from --------- -------- -------- -------- -------- ----------
investment operations 1.77 3.19 -0.42 3.86 2.53 1.91
--------- -------- -------- -------- -------- ----------
Less Distributions:
Dividends from net investment
income (.19) (.18) (.12) (.07) (.14) (.26)
Distributions from net realized
gains (.69) (.68) (1.28) (.49) (.20) (.47)
--------- -------- -------- -------- -------- ----------
Total distributions (.88) (.86) (1.40) (.56) (.34) (.73)
--------- -------- -------- -------- -------- ----------
Net Asset Value, End of Period 17.87 16.98 14.65 16.47 13.17 10.98
========= ======== ======== ======== ======== ==========
Total Return /3/ 11.08% /4/ 23.22% (2.94)% 30.60% 23.58% 20.68%
Ratios/Supplemental Data:
Net assets, end of period
(in millions) $4,093 $3,523 $2,592 $1,912 $1,115 $908
Ratio of expenses to average
net assets .43% /4/ .88% .85% .85% .89% .92%
Ratio of net income to
average net assets .36% /4/ 1.33% 1.25% .76% .67% 1.33%
Average commissions
paid per share /2/ /5/ 3.29 .16 .38 .30 3.29 4.42
Portfolio turnover rate 11.26% /4/ 27.03% 25.51% 26.97% 19.03% 18.52%
/1/ Adjusted to reflect the 100% share dividend effective May 26, 1994.
/2/ Unaudited
/3/ Calculated without deducting a sales charge. The maximum sales charge is 5.75%
of the fund's offering price.
/4/ Based on operations for the period shown and, accordingly, not representative of a full
year's operations.
/5/ Brokerage commissions paid on portfolio transactions increase the cost of securities
purchased or reduce the proceeds of securities sold, and are not reflected in the
fund's statement of operations. Shares traded on a principal basis, such as most
over-the-counter and fixed-income transactions, are excluded. Generally, non-U.S. commissions
are lower than U.S. commissions when expressed as cents per share but higher when expressed as a
percentage of transactions because of the lower per-share prices of many non-U.S. securities.
</TABLE>
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 92821-5804
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
American Funds Service Company
P.O. Box 2205
Brea, California 92822-2205
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 LLP
400 South Hope Street
Los Angeles, California 90071-2899
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER OR CALL AMERICAN FUNDS SERVICE COMPANY,
TOLL-FREE, AT 800/421-0180.
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
September 30, 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/3016
Lit. No. NEF-013-0796
Printed on recycled paper
[The American Funds Group(R)]
