THE NEW ECONOMY FUND
SEMI-ANNUAL REPORT
For the six months ended
May 31, 1997
[Photo: family photo, textbook, school pennant, personal check]
[The American Funds Group(r)]
RESULTS AT A Glance
for periods ended May 31, 1997
TOTAL RETURNS
(with all distributions reinvested)
Six Months +7.4%
Twelve Months +11.2
Lifetime (average annual
compound return since
December 1, 1983) +15.1
[Sidebar]
The New Economy Fund(r) is designed to help you participate in the many
investment opportunities 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, cable television and
cellular telephones to merchandising and entertainment, computer software to
health care - all of which are benefiting from the accelerating demand for
services and information.
[End Sidebar]
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 June 30, 1997 (the
most recent calendar quarter), assuming payment of the 5.75% maximum sales
charge at the beginning of the stated periods:
TOTAL AVERAGE ANNUAL
RETURN COMPOUND RETURN
Ten Years +223.32% +12.45%
Five Years +108.16 +15.79
One Year +10.62 -
Sales charges are lower for accounts of $50,000 or more. THE FIGURES IN THIS
REPORT REFLECT PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE 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. Of course,
investments outside the U.S. involve special risks such as currency
fluctuations, political instability, differing securities regulations, and
periods of illiquidity. Global diversification can help reduce these risks.
FELLOW SHAREHOLDERS
The New Economy Fund continued to gain ground during the first half of fiscal
1997. After posting an increase of 15.0% in fiscal 1996, the value of your
shares rose another 7.4% for the six months ended May 31, assuming you
reinvested income dividends totaling 14 cents a share and a $1.13 a share
capital gain distribution paid during the period.
On an annualized basis, these results match closely the fund's long-term
record. They bring the total gain since operations began in December 1983 to
568.3% including reinvestment - an average compound growth rate of 15.1% a
year.
Of the 146 securities held by New Economy throughout the six months, 91
rose in price, including nine of the fund's ten largest holdings (page 4). The
average increase for these nine was 21.1%. The only decline in this group was
recorded by Oracle, a supplier of business software, which fell 4.8%.
The fund's ten largest stocks account for 20% of net assets and represent
an interesting cross-section of your fund's investment universe. Along with a
supplier of computer software, you'll find media firms, mortgage companies, a
cruise line operator and three companies based outside the United States,
including a denationalized phone monopoly, an insurance company and a supplier
of environmental and office services.
A TURBULENT MARKET
The six months ended May 31 were marked by considerable turbulence in the stock
market. The popular averages - which include many large manufacturing companies
- - continued to soar until mid-March, when they hit a sharp downdraft before
recovering toward the end of the fiscal half-year.
Some technology and related stocks took a beating during much of the
period, slipping to levels where they offered considerably better value. They
rallied in May (and continued to rise after the close of the half-year). During
the decline, the fund took advantage of lower valuations and invested in a
number of information and technology-related securities, including Oracle,
Ascend Communications (a supplier of computer peripherals), Cascade
Communications (a developer of components for high-speed data and voice
transmission, recently acquired by Ascend) and ABR Information Services (a firm
that processes employee benefits data).
Starting in May, we also witnessed upward movement in the prices of
several holdings that did well earlier in the '90s but have fared rather poorly
of late, including health care issues and some of our investments in cable TV
such as Tele-Communications (TCI Group and Liberty Media Group). The cable-TV
industry is well-represented in the portfolio and has been emerging from a
period of indigestion brought on by changes in federal regulations as well as
by growing competition.
In general, we have seen somewhat greater interest lately in the type of
smaller capitalization growth stocks that play an important role in New
Economy's portfolio. While a number of big-capitalization issues appear on the
list of our ten largest holdings, almost half of the stocks in our portfolio
have market caps of less than $2 billion; these medium-size and small-cap
investments currently account for about one-fourth of net assets. For more than
two years, this type of security was largely ignored while a handful of big-cap
stocks with high price-to-earnings ratios has driven the major averages,
including Standard & Poor's 500 Composite Index, upward at a blistering pace.
For the six months, the S&P 500 rose another 13.2% on a total-return basis.
WHERE THE FUND'S ASSETS ARE INVESTED
(as of 5/31/97)
PERCENT OF
COUNTRY NET ASSETS
United States 64.98%
United Kingdom 3.37
Canada 2.52
Mexico 2.32
Netherlands 2.07
Spain 1.63
Italy 1.50
Australia 1.30
Japan 1.10
Hong Kong .98
New Zealand .88
Denmark .77
Germany .54
Ireland .51
Other countries 6.37
90.84
Cash &
Equivalents 9.16
Total 100.00%
OTHER BENCHMARKS
Comparisons between the S&P 500 and New Economy's results can be rather
misleading. Because the fund can and does invest in many small-capitalization
stocks, it is useful to also look at other benchmarks which, like the S&P, are
unmanaged. The Russell 2000, for example, tracks 2,000 smaller capitalization
U.S. securities. For the six months, that index rose 8.4% on a reinvested
basis. It should be noted that this index includes all types of small-cap
stocks, while the fund's focus is narrower; it concentrates on service and
information companies, the area of the economy that we believe offers superior
long-term investment opportunities.
In recent years, non-U.S. investments have made an important contribution
to our results. Currently we own shares in 47 non-U.S. firms which account for
about 25% of net assets. For the six months, the Morgan Stanley Capital
International EAFE(r) (Europe, Australasia, Far East) Index, which tracks all
major markets outside North America, went up 4.2% on a reinvested basis.
One other benchmark that can be helpful in evaluating New Economy's
results is the Lipper Growth Fund Index, which tracks the 30 largest mutual
funds with growth of capital as their principal objective. Although made up
chiefly of funds investing solely in the U.S., it does provide a reasonably
good indication of how New Economy is doing relative to many of its peers. For
the six months, this index recorded a total return of 9.1%.
We are optimistic that many of the fund's investments are starting to be
recognized by the market as good values. And, as always, we encourage all of
our shareholders to maintain a long-term perspective on their holdings.
Cordially,
[/s/ Robert B. Egelston]
Robert B. Egelston
Chairman of the Board
[/s/ William R. Grimsley]
William R. Grimsley
President
July 11, 1997
<TABLE>
THE NEW ECONOMY FUND
Investment Portfolio, May 31, 1997
<S> <C> <C> <C>
- ------------------------------------------- ---------
Largest Holdings by Industry
Broadcasting & Publishing 14.93%
Telecommunications 9.77
Computer Services & Software 8.41
Merchandising 7.49
Miscellaneous Financial Services 7.43
All Other Industries 42.81
Cash & Equivalents 9.16
- ------------------------------------------- ---------
Percent
of
Largest Equity-Type Holdings Net Assets
Federal National Mortgage 2.93%
Federal Home Loan Mortgage 2.37
Time Warner 2.09
ING Groep 2.06
Tele-Communications, TCI Group 2.05
Oracle 1.85
Carnival 1.65
Tele-Communications, Liberty Media Group 1.59
Telefonos de Mexico 1.59
Rentokil Group 1.49
- ------------------------------------------- --------- --------- ---------
Shares or Market Percent
Equity-Type Securities Principal Value of Net
(common and preferred stocks and convertible debentures) Amount (000) Assets
- ---------------------------------------- --------- --------- ---------
BROADCASTING & PUBLISHING - 14.93%
Time Warner Inc. 1,940,220 $90,220 2.09%
Tele-Communications, Inc., Series A, TCI Group /1/ 5,850,000 88,481 2.05
Tele-Communications, Inc., Series A, Liberty Media
Groupv /1/ 3,147,587 68,657 1.59
Viacom Inc., Class B /1/ 1,935,000 57,445 1.33
International Family Entertainment, Inc.,
Class B /1/ 1,562,500 43,555 1.01
Comcast Corp., Class A, special stock 2,300,000 39,963 .93
Mediaset SpA (Italy) /2/ 8,410,000 36,278 .84
News Corp. Ltd., preferred shares (Australia) 2,823,351 10,608
News Corp. Ltd. 2,082,698 9,235
News Corp. Ltd. (American Depositary
Receipts) 470,000 8,343 .75
News Corp. Ltd., preferred shares
(American Depositary Receipts) 235,000 3,466
Tele-Communications International, Series A /1/ 1,788,000 24,362 .56
U S WEST Media Group /1/ 1,200,000 23,850 .55
Grupo Televisa, SA (American Depositary
Receipts) (Mexico) /1/ 760,000 21,755 .50
EMAP PLC (United Kingdom) 1,400,000 18,061 .42
Quebecor Printing Inc. (Canada) 1,000,000 17,500 .41
Gaylord Entertainment Co., Class A 671,738 14,946 .35
Chris-Craft Industries, Inc. /1/ 318,270 13,606 .32
CANAL+ (France) 79,875 13,540 .31
Thomson Corp. (Canada) 600,000 13,348 .31
AUDIOFINA (Luxembourg) 185,000 8,183 .19
Arnoldo Mondadori Editore SpA (Italy) 1,000,000 5,807 .13
Golden Books Family Entertainment, Inc. /1/ 500,000 5,688 .13
Soft Bank Corp. (Japan) 69,560 4,703 .11
All American Communications, Inc., Class B /1/ 170,000 2,295 .05
TELECOMMUNICATIONS - 9.77%
Telefonos de Mexico, SA de CV, Class L
(American Depositary Receipts) (Mexico) 1,541,960 68,424 1.59
Telefonica de Espana, SA (Spain) 1,675,000 48,334
Telefonica de Espana, SA (American 1.46
Depositary Receipts) 170,000 14,854
AirTouch Communications /1/ 1,750,000 48,781 1.13
Telecom Corp. of New Zealand Ltd. (New Zealand) /2/ 7,104,100 34,126 .79
Ascend Communications, Inc. /1/ 500,000 27,875 .65
Tele Danmark AS, Class B (American Depositary
Receipts) (Denmark) 704,700 17,441 .63
Tele Danmark AS, Class B 200,000 9,811
Mannesmann AG (Germany) 57,500 23,372 .54
STET-Societa Finanziaria Telefonica p.a.
(Italy) 4,300,000 21,731
STET-Societa Finanziaria Telefonica p.a., .52
preferred shares 150,000 591
Hong Kong Telecommunications Ltd. (Hong Kong) 9,952,345 22,029 .51
Telefonica del Peru SA (American Depositary
Receipts) (Peru) 835,600 21,203 .49
MCI Communications Corp. 425,000 16,309 .38
Sprint Corp. 300,000 14,663 .34
Vodafone Group PLC (American Depositary
Receipts) (United Kingdom) 225,000 10,041 .23
Technology Resources Industries Bhd.
(Malaysia) /1/ 4,320,000 8,597 .20
Globalstar Telecommunications Ltd., 6.50%
convertible preferred /2/ 100,000 5,400 .13
Telefonica de Argentina SA (Argentina) 107,700 3,904 .09
Telecom Argentina STET-France Telecom SA,
Class B (American Depositary Receipt) .09
(Argentina) 70,100 3,742
AT&T Corp. 7,300 269 .00
COMPUTER SERVICES & SOFTWARE - 8.41%
Oracle Corp. /1/ 1,713,700 79,901 1.85
CUC International Inc. /1/ 1,375,000 31,625
CUC International Inc., 3.00% .87
convertible debentures 2002 /2/ $6,000,000 5,940
Electronic Arts /1/ 1,130,000 36,160 .84
Shared Medical Systems Corp. 642,400 34,047 .79
Intuit Inc. /1/ 1,100,000 29,838 .69
Electronic Data Systems Corp. 740,000 27,658 .64
Computer Associates International, Inc. 500,000 27,375 .63
Sybase, Inc. /1/ 950,600 15,150 .35
Broderbund Software, Inc. /1/ 535,000 13,442 .31
Policy Management Systems Corp. /1/ 220,000 10,450 .24
Gemstar International Group Ltd. /1/ 456,600 9,589 .22
American Management Systems, Inc. /1/ 300,000 7,763 .18
Altron Inc. /1/ 460,000 7,647 .18
MacNeal-Schwendler Corp. 670,000 6,868 .16
First USA Paymentech, Inc. /1/ 149,967 4,743 .11
MetaCreations Corp. (formerly Fractal Design Corp.) /1/ 394,947 4,739 .11
Avid Technology, Inc. /1/ 200,000 4,700 .11
Acclaim Entertainment, Inc. /1/ 450,000 1,856 .04
HNC Software Inc. /1/ 50,000 1,650 .04
Macromedia, Inc. /1/ 150,000 1,509 .03
BTG, Inc. /1/ 48,700 657 .02
Nets Inc., convertible preferred, Class B /1/ /2/ /3/ 175,000 2 .00
MERCHANDISING - 7.49%
Circuit City Stores, Inc.-Circuit City Group 975,000 38,513
Circuit City Stores, Inc.-Carmax Group /1/ 900,000 13,050 1.19
Viking Office Products, Inc. /1/ 2,570,000 48,509 1.12
Consolidated Stores Corp. /1/ 1,000,000 38,250 .89
AutoZone, Inc. /1/ 1,200,000 28,050 .65
Gymboree Corp. /1/ 700,000 17,500 .41
Pep Boys - Manny, Moe & Jack 467,000 14,594 .34
Walgreen Co. 300,000 14,025 .33
Giordano Holdings Ltd. (Hong Kong) 22,551,000 13,534 .31
Home Depot, Inc. 206,000 12,978 .30
DFS Furniture Co. PLC (United Kingdom) 1,300,000 12,778 .30
Barnes & Noble, Inc. /1/ 300,000 12,487 .29
HSN, Inc. (formerly Home Shopping Network, Inc.) /1/ 337,800 10,345 .24
Garden Ridge Corp. /1/ 850,000 10,306 .24
Tesco PLC (United Kingdom) 1,445,485 8,892 .20
Giant Food Inc., Class A 250,000 8,234 .19
Michaels Stores, Inc. /1/ 400,000 7,900 .18
Dickson Concepts (International) Ltd. (Hong Kong -
Incorporated in Bermuda) 1,796,400 6,724 .16
MSC Industrial Direct Co., Inc., Class A /1/ 178,700 6,366 .15
MISCELLANEOUS FINANCIAL SERVICES - 7.43%
Federal National Mortgage Assn. 2,900,000 126,513 2.93
Federal Home Loan Mortgage Corp. 3,100,000 102,300 2.37
Student Loan Marketing Assn. 280,000 34,055 .79
Capital One Financial Corp. 950,000 30,519 .71
First Data Corp. 450,000 18,000 .42
ORIX Corp. (Japan) 154,000 9,260 .21
INSURANCE - 7.41%
ING Groep NV (Netherlands) 1,165,284 51,506
ING Groep NV, warrants, expire 2001 /1/ 3,500,000 37,646 2.06
Fairfax Financial Holdings Ltd. (Canada) /1/ 226,000 56,009 1.30
EXEL Ltd. (Bermuda) 1,150,000 50,888 1.18
Travelers Property Casualty Corp., Class A
(formerly Travelers/Aetna Property Casualty Corp.) 900,000 34,650 .80
PartnerRe Holdings Ltd. (Bermuda) 820,000 25,727 .60
Aetna Inc. 250,000 25,250 .59
American International Group, Inc. 150,000 20,306 .47
Trenwick Group Inc. 345,000 11,644 .27
Topdanmark A/S (Denmark) 45,920 5,896 .14
BANKING - 5.87%
Old Kent Financial Corp. 661,500 35,307 .82
Norwest Corp. 630,000 33,705 .78
Wells Fargo & Co. 116,666 30,741 .71
First Chicago NBD Corp. 400,000 23,700 .55
Charter One Financial, Inc. 472,500 22,148 .51
Allied Irish Banks, PLC (Ireland) 2,900,000 22,139 .51
Royal Bank of Canada (Canada) 500,000 21,667 .50
Banc One Corp. 275,000 11,894 .28
Keystone Financial, Inc. 375,000 11,156 .26
Grupo Financiero Banamex Accival, SA de CV,
Series L (Mexico) /1/ 3,024,415 6,001
Grupo Financiero Banamex Accival, SA de CV, .23
Series B /1/ 1,745,000 3,780
Sparbanken Sverige AB (Swedbank), Class A
(formerly shown as Swedbank) (Sweden) 490,000 9,615 .22
Sakura Finance (Bermuda) Trust, convertible
preference share units (Japan) 144 6,995 .19
Sakura Bank, Ltd. 181,000 1,084
Banco de Santander, SA (Spain) 85,000 7,252 .17
Philippine Commercial International Bank, Inc.
(Philippines) 607,600 5,938 .14
ENTERTAINMENT & LEISURE - 4.57%
Carnival Corp., Class A 1,870,000 71,060 1.65
Walt Disney Co. 772,000 63,208 1.47
Mirage Resorts, Inc. /1/ 1,400,000 33,425 .77
Nintendo Co., Ltd. (Japan) 120,000 9,381 .22
Circus Circus Enterprises, Inc. /1/ 300,000 7,800 .18
Station Casinos, Inc. /1/ 758,300 6,730 .15
Harrah's Entertainment, Inc. /1/ 300,000 5,587 .13
MISCELLANEOUS BUSINESS SERVICES - 4.24%
Rentokil Group PLC (United Kingdom) 16,679,800 64,487 1.49
Pittston Brink's Group 750,000 23,438 .54
Concord EFS, Inc. /1/ 882,400 19,854 .46
Ceridian Corp. /1/ 500,000 18,375 .43
Cascade Communications Corp. /1/ 450,000 17,212 .40
ABR Information Services, Inc. /1/ 424,400 13,634 .32
Administaff, Inc. /1/ 565,800 11,245 .26
Stewart Enterprises, Inc. 180,000 6,075 .14
EarthWatch Inc., 12% convertible preferred,
Series C /1/ /2/ /3/ /4/ 500,000 5,684 .13
DecisionOne Holdings Corp. /1/ 132,200 2,892 .07
HEALTH & HOSPITAL SERVICES - 3.79%
Columbia/HCA Healthcare Corp. 1,205,000 44,133 1.02
United HealthCare Corp. 660,000 37,290 .86
PacifiCare Health Systems, Inc., Class A /1/ 120,000 9,000
PacifiCare Health Systems, Inc., Class B /1/ 80,000 6,340 .36
HealthCare COMPARE Corp. /1/ 300,000 14,813 .34
Nu Skin Asia Pacific, Inc., Class A /1/ 476,400 12,744 .30
Human Genome Sciences, Inc. /1/ 300,000 11,625 .27
Vivra Inc. /1/ 300,000 10,612 .25
Orthodontic Centers of America, Inc. /1/ 545,000 9,129 .21
Cerner Corp. /1/ 400,000 7,800 .18
RESTAURANTS - 2.35%
Brinker International, Inc. /1/ 3,050,000 42,319 .98
McDonald's Corp. 520,000 26,130 .61
Foodmaker, Inc. /1/ 1,700,000 23,800 .55
Outback Steakhouse, Inc. /1/ 260,000 6,045 .14
Sizzler International, Inc. /1/ 1,375,000 3,265 .07
ELECTRONIC DATA PRODUCTS - 1.96%
America Online, Inc. /1/ 1,130,000 62,432 1.45
Avnet, Inc. 297,000 18,711 .43
CompuServe Corp. /1/ 300,000 3,375 .08
ENERGY SERVICES - 1.65%
Helmerich & Payne, Inc. 760,000 42,655 .99
Schlumberger Ltd. (Netherlands Antilles) 240,000 28,590 .66
REAL ESTATE - 1.04%
Host Marriott Corp. /1/ 1,650,000 29,081 .67
Mitsubishi Estate Co., Ltd. (Japan) 1,160,000 15,844 .37
HOTELS & MOTELS - 1.01%
Marriott International, Inc. 755,000 43,601 1.01
COMPUTER SYSTEMS - 0.96%
Silicon Graphics, Inc. /1/ 1,120,300 21,146 .49
Bay Networks, Inc. /1/ 500,000 12,250 .28
International Business Machines Corp. 94,000 8,131 .19
INFORMATION & PRINTING SERVICES - 0.96%
Primark Corp. /1/ 938,900 22,299 .52
ACNielsen Corp. /1/ 641,666 10,828 .25
Banta Corp. 300,000 8,325 .19
DIVERSIFIED SERVICES - 0.85%
Brambles Industries Ltd. (Australia) 1,350,000 24,284 .57
Benpres Holdings Corp. (Global Depositary
Receipts) (Philippines) /1/ /2/ 1,118,440 7,941
Benpres Holdings Corp. (Global Depositary .28
Receipts) /1/ 599,800 4,259
ENVIRONMENTAL SERVICES - 0.71%
Waste Management, Inc. (formerly
WMX Technologies, Inc.) 320,000 10,160 .24
United Waste Systems, Inc. /1/ 220,000 8,443 .20
Ecolab Inc. 200,000 8,325 .19
Waste Management International PLC (American
Depositary Receipts) (United Kingdom) /1/ 415,000 3,579 .08
ELECTRIC UTILITIES - 0.64%
Southern Electric PLC (United Kingdom) 2,769,230 18,600 .43
National Power PLC (United Kingdom) 1,000,000 9,035 .21
ADVERTISING - 0.55%
Interpublic Group of Companies, Inc. 200,000 11,975 .28
Omnicom Group Inc. 200,000 11,600 .27
ENGINEERING & CONSTRUCTION - 0.48%
Jacobs Engineering Group Inc. /1/ 775,000 20,828 .48
RAIL & ROAD SERVICES - 0.37%
Werner Enterprises, Inc. 450,000 8,775 .20
Tranz Rail Holdings Ltd. (American Depositary
Receipts) (New Zealand) 225,000 3,909 .09
Greyhound Lines, Inc. /1/ 825,000 3,455 .08
AIRLINES - 0.35%
Southwest Airlines Co. 350,000 9,013 .21
AMR Corp. /1/ 60,000 5,962 .14
SAFETY & SECURITY SERVICES - 0.09%
Securitas AB, Class B (Sweden) 153,000 3,812 .09
MISCELLANEOUS
Other equity-type securities in initial period of acquisition 127,527 2.96
--------- ---------
TOTAL EQUITY-TYPE SECURITIES
(cost: $2,755,585,000) 3,918,909 90.84
Principal --------- ---------
Amount
Short-Term Securities (000)
- ---------------------------------------- --------- --------- ---------
CORPORATE SHORT-TERM NOTES- 7.00%
Lucent Technologies Inc. 5.51%-5.54% due
6/3-6/20/97 $44,000 43,952 1.03
Xerox Corp.5.55% due
7/10-8/11/97 44,000 43,630 1.01
Ford Motor Credit Co. 5.54% due
6/2/97 30,000 29,991 .70
H. J. Heinz Co. 5.52%-5.55% due
6/4-7/11/97 28,100 27,988 .65
Pfizer Inc 5.50%-5.52% due
6/9-6/27/97 /2/ 25,400 25,349 .59
General Electric Capital Corp. 5.52%-5.65%
due 6/2-6/26/97 23,950 23,883 .56
PepsiCo, Inc. 5.50% due
6/16-7/15/97 18,400 18,340 .43
Gillette Co. 5.48%-5.57% due
6/24-7/10/97 /2/ 17,800 17,735 .41
SAFECO Credit Co. Inc. 5.53%-5.57%
due 7/2-8/22/97 15,500 15,363 .36
International Lease Finance Corp. 5.54%
due 7/8/97 13,900 13,818 .32
National Rural Utilities Cooperative Finance Corp.
5.50%-5.57% due 7/1/97 12,600 12,540 .29
Avco Financial Services, Inc. 5.53%
due 6/10-7/21/97 10,600 10,561 .24
Monsanto Co. 5.60%
due 7/17/97 9,000 8,934 .21
IBM Credit Corp. 5.54%
due 6/23/97 8,500 8,470 .20
Federal Agency Discount Notes- 2.55%
Federal Home Loan Mortgage Corp. 5.30%-5.54%
due 6/6-8/15/97 57,880 57,579 1.32
Federal National Mortgage Assn. 5.33%-
5.48% due 6/19-8/26/97 36,035 35,833 .82
Federal Home Loan Banks 5.41%-5.45%
due 6/19-8/28/97 18,300 18,085 .41
--------- ---------
TOTAL SHORT-TERM SECURITIES (cost: $412,056,000) 412,051 9.55
--------- ---------
TOTAL INVESTMENT SECURITIES (cost: $3,167,641,000) 4,330,960 100.39
Excess of payables over cash and receivables 17,009 .39
--------- ---------
NET ASSETS $4,313,951 100.00%
========= =========
/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.
The descriptions of the companies shown in the
portfolio, which were obtained from published reports
and other sources believed to be reliable, are
supplemental and are not covered by the Independent
Auditors' report.
See Notes to Financial Statements
Equity-type securities appearing in the portfolio
since November 30, 1996
- -------------------------------------------
ABR Information Services
ACNielsen
Administaff
Aetna
Altron
Ascend Communications
AutoZone
Banta
Cascade Communications
CompuServe
Computer Associates International
DFS Furniture
First Chicago NBD
First USA Paymentech
Gemstar International Group
HealthCare COMPARE
HNC Software
Intuit
Orthodontic Centers of America
Pep Boys-Manny, Moe & Jack
Securitas
Sprint
Stewart Enterprises
Telecom Argentina STET-France Telecom
Telefonica de Argentina
Telefonica del Peru
Topdanmark
Tranz Rail Holdings
United Waste Systems
Equity-type securities eliminated from the portfolio
since November 30, 1996
- -------------------------------------------
ADT
ADVANTA
ALLTEL
Barclays
Digital Equipment
Eurotunnel
Federal Express
First Pacific
General Instrument
Golden West Financial
H & M Hennes & Mauritz
Health Systems International
Hibernia
Humana
Intel
Irish Life
Lucent Technologies
New York Times
PMI Group
Promus Hotel
Robert Half International
Rollins
Tech Data
Telecomunicacoes Brasileiras
Transocean Offshore
U. S. Bancorp
Value Health
Wal-Mart Stores
Williams-Sonoma
Wonderware
</TABLE>
<TABLE>
The New Economy Fund
Financial Statements (Unaudited)
Statement of Assets and (dollars in
Liabilities at May 31, 1997 thousands)
--------- ---------
<S> <C> <C>
Assets:
Investment securities at market
(cost: $3,167,641) $4,330,960
Cash 92
Receivables for-
Sales of investments $ 11,081
Sales of fund's shares 2,934
Dividends 4,040 18,055
--------- ---------
4,349,107
Liabilities:
Payables for-
Purchases of investments 26,280
Repurchases of fund's shares 4,967
Management services 1,546
Accrued expenses 2,363 35,156
Net Assets at May 31, 1997- --------- ---------
Equivalent to $18.48 per share on
233,394,726 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $4,313,951
=========
(Unaudited)
Statement of Operations (dollars in
for the six months ended May 31, 1997 thousands)
- ---------------------------------------- --------- ---------
Investment Income:
Income:
Dividends $ 21,358
Interest 12,533 $ 33,891
---------
Expenses:
Management services fee 8,939
Distribution expenses 4,695
Transfer agent fee 2,260
Reports to shareholders 216
Registration statement and prospectus 216
Postage, stationery and supplies 442
Trustees' fees 54
Auditing and legal fees 47
Custodian fee 341
Taxes other than federal income tax 64
Other expenses 53 17,327
--------- ---------
Net investment income 16,564
---------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 187,524
Net increase in unrealized
appreciation on investments:
Beginning of period 1,067,480
End of period 1,163,310
Net unrealized appreciation ---------
on investments 95,830
Net realized gain and unrealized ---------
appreciation on investments 283,354
Net Increase in Net Assets ---------
Resulting from Operations $299,918
=========
(dollars in
Statement of Changes in Net Assets thousands)
- ---------------------------------------- --------- ---------
Six Months
Ended Year ended
5/31/1997 * 11/30/96
Operations: --------- ---------
Net investment income $ 16,564 $ 32,975
Net realized gain on investments 187,524 256,063
Net unrealized appreciation
on investments 95,830 251,881
--------- ---------
Net increase in net assets
resulting from operations 299,918 540,919
--------- ---------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (32,176) (40,512)
Distributions from net realized
gain on investments (257,536) (143,588)
--------- ---------
Total dividends and distributions (289,712) (184,100)
--------- ---------
Capital Share Transactions:
Proceeds from shares sold:
16,636,199 and 46,030,628
shares, respectively 287,899 791,270
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
16,361,438 and 10,959,728 shares,
respectively 275,376 174,287
Cost of shares repurchased:
27,894,889 and 36,172,855
shares, respectively (482,819) (621,663)
--------- ---------
Net increase in net assets resulting
from capital share transactions 80,456 343,894
--------- ---------
Total Increase in Net Assets 90,662 700,713
Net Assets:
Beginning of period 4,223,289 3,522,576
End of period (including undistributed --------- ---------
net investment income: $4,665 and
$20,277, respectively) $4,313,951 $4,223,289
========= =========
* Unaudited
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS (Unaudited
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:
Equity-type securities 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 by the Board of Trustees or a committee thereof.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions.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 and premiums 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 effects of
changes in foreign currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
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 $341,000 includes $12,000 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, 1997 net unrealized appreciation on investments for book and
federal income tax purposes aggregated $1,163,319,000, of which $1,316,355,000
related to appreciated securities and $153,036,000 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the six months ended May 31, 1997. The cost of
portfolio securities for book and federal income tax purposes was
$3,167,641,000 at May 31, 1997.
3. The fee of $8,939,000 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 average 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, 1997,
distribution expenses under the Plan were $4,695,000. As of May 31, 1997,
accrued and unpaid distribution expenses were $2,155,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $2,260,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $885,000 (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, 1997,
aggregate amounts deferred and earnings thereon were $98,000.
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, 1997, accumulated undistributed net realized gain on
investments was $186,118,000 and paid-in capital was $2,959,859,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $598,864,000 and $691,124,000, respectively, during
the six months ended May 31, 1997.
Dividend and interest income is recorded net of non-U.S. taxes paid. For
the six months ended May 31, 1997, such non-U.S. taxes were $1,570,000. Net
realized currency losses on dividends, interest, and withholding taxes
reclaimable were $50,000 for the six months ended May 31, 1997.
<TABLE>
PER-SHARE DATA AND RATIOS /1/
Six
Months
Ended /2/ Year ended November 30
--------- --------- -------- -------- -------- ----------
5/31/97 1996 1995 1994 1993 1992
--------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period 18.5 16.98 14.65 16.47 13.17 10.98
--------- --------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income .07 .14 .20 .17 .11 .08
Net realized and unrealized
gain (loss) on investments 1.18 2.26 2.99 (.59) 3.75 2.45
Total income (loss) from --------- --------- -------- -------- -------- --------
investment operations 1.25 2.40 3.19 (.42) 3.86 2.53
--------- --------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment
income (.14) (.19) (.18) (.12) (.07) (.14)
Distributions from net realized
gains (1.13) (.69) (.68) (1.28) (.49) (.20)
--------- --------- -------- -------- -------- --------
Total distributions (1.27) (.88) (.86) (1.40) (.56) (.34)
--------- --------- -------- -------- -------- --------
Net Asset Value, End of Period 18.48 18.5 16.98 14.65 16.47 13.17
========= ========= ======== ======== ======== ========
Total Return /3/ 7.45% /4/ 15.00% 23.22% (2.94)% 30.60% 23.58%
Ratios/Supplemental Data:
Net assets, end of period
(in millions) $4,314 $4,223 $3,523 $2,592 $1,912 $1,115
Ratio of expenses to average
net assets .42% /4/ .84% .88% .85% .85% .89%
Ratio of net income to
average net assets .40% /4/ .85% 1.33% 1.25% .76% .67%
Average commissions
paid per share /5/ 2.78 c 1.17 c .16 c .38 c .30 c 3.29 c
Portfolio turnover rate 16.28% /4/ 29.54% 27.03% 25.51% 26.97% 19.03%
/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 separately reflected in the fund's statement of
operations. Shares traded on a principal basis (without commissions),
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
(Please write to the office nearest you.)
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. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
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, 1997, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Litho in USA BDA/AL/3458
Lit. No. NEF-013-0797
Printed on recycled paper
[The American Funds Group(r)]
