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[LOGO OF THE AMERICAN FUNDS GROUP(R)]
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The New Economy
Fund(R)
Prospectus
FEBRUARY 1, 1997
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THE NEW ECONOMY FUND
333 South Hope Street
Los Angeles, CA 90071
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TABLE OF CONTENTS
Expenses 3
Financial Highlights 4
Investment Policies and Risks 5
Securities and Investment Techniques 5
Multiple Portfolio Counselor System 7
Investment Results 9
Dividends Distributions and Taxes 10
Fund Organization and Management 11
Shareholder Services 14
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The fund's investment objective is long-term growth of capital. Current income
is a secondary consideration. In seeking to achieve its objective, the fund
invests principally in the equity securities of companies that derive their
revenue primarily from operations in the services and information area of the
global economy or that appear to have future prospects tied importantly to that
area of the economy.
This prospectus presents information you should know before investing in the
fund. You should keep it on file for future reference.
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE LIKELIHOOD OF LOSS IS GREATER
IF YOU INVEST FOR A SHORTER PERIOD OF TIME. YOUR INVESTMENT IN THE FUND IS NOT
A DEPOSIT OR OBLIGATION OF, OR INSURED OR GUARANTEED BY, ANY ENTITY OR PERSON
INCLUDING THE U.S. GOVERNMENT AND THE FEDERAL DEPOSIT INSURANCE CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
14-010-0297
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THE NEW ECONOMY FUND / PROSPECTUS
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EXPENSES
The effect of the expenses described below is reflected in the fund's share
price or return.
You may pay certain shareholder transaction expenses when you buy or sell
shares of the fund. Fund operating expenses are paid out of the fund's earned
income.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge on purchases
(as a percentage of offering price) 5.75%
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SALES CHARGES ARE REDUCED OR ELIMINATED FOR LARGER PURCHASES. There is no sales
charge on reinvested dividends, and no deferred sales charge or redemption or
exchange fees. A contingent deferred sales charge of 1% applies on certain
redemptions made within 12 months following purchases without a sales charge.
FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees 0.44%
12b-1 expenses 0.22%/1/
Other expenses 0.18%
Total fund operating expenses 0.84%
/1/ 12b-1 expenses may not exceed 0.25% of the fund's average net assets
annually. Due to these distribution expenses, long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.
EXAMPLES
Assuming a hypothetical annual return of 5% and shareholder transaction and
operating expenses as described above, for every $1,000 you invested, you would
pay the following total expenses over the following periods:
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One year $ 66
Three years $ 83
Five years $101
Ten years $155
THESE EXAMPLES ARE NOT MEANT TO REPRESENT YOUR ACTUAL INVESTMENT RESULTS OR
EXPENSES, WHICH MAY VARY. YOUR EXPENSES WILL BE LESS IF YOU QUALIFY TO PURCHASE
SHARES AT A REDUCED OR NO SALES CHARGE.
3
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THE NEW ECONOMY FUND / PROSPECTUS
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FINANCIAL HIGHLIGHTS
The following information has been audited by Deloitte & Touche llp,
independent auditors. This table should be read together with the financial
statements which are included in the statement of additional information and
annual report.
SELECTED PER-SHARE DATA*
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30
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1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $16.98 $14.65 $16.47 $13.17 $10.98 $ 9.80 $13.22 $10.48 $ 9.29 $10.60
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INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .14 .20 .17 .11 .08 .15 .27 .25 .22 .22
Net realized and
unrealized gain (loss)
on investments 2.26 2.99 (.59) 3.75 2.45 1.76 (1.79) 3.33 1.70 (.73)
Total income (loss)
from investment
operations 2.40 3.19 (.42) 3.86 2.53 1.91 (1.52) 3.58 1.92 (.51)
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LESS DISTRIBUTIONS:
Dividends from net
investment income (.19) (.18) (.12) (.07) (.14) (.26) (.29) (.24) (.19) (.24)
Distributions from net
realized gains (.69) (.68) (1.28) (.49) (.20) (.47) (1.61) (.60) (.54) (.56)
Total distributions (.88) (.86) (1.40) (.56) (.34) (.73) (1.90) (.84) (.73) (.80)
Net asset value, end of
year $18.50 $16.98 $14.65 $16.47 $13.17 $10.98 $ 9.80 $13.22 $10.48 $ 9.29
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Total return/1/ 15.00% 23.22% (2.94%) 30.60% 23.58% 20.68% (13.39%) 36.87% 22.32% (3.37%)
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RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of year
(in millions) $4,223 $3,523 $2,592 $1,912 $1,115 $ 908 $ 783 $ 888 $ 678 $ 696
Ratio of expenses to
average net assets .84% .88% .85% .85% .89% .92% .92% .83% .81% .73%
Ratio of net income to
average net assets .85% 1.33% 1.25% .76% .67% 1.33% 2.50% 2.13% 1.97% 1.91%
Average commissions
paid/2/ 1.17c .16c .38c .30c 3.29c 4.42c 3.29c 6.54c 4.12c 6.97c
Portfolio turnover rate 29.54% 27.03% 25.51% 26.97% 19.03% 18.52% 17.21% 23.31% 8.06% 13.40%
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</TABLE>
* All per share data reflect the 100% stock dividend effected on May 26, 1994.
/1/ Excludes maximum sales charge of 5.75%.
/2/ 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 (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.
4
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THE NEW ECONOMY FUND / PROSPECTUS
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INVESTMENT POLICIES AND RISKS
The fund aims to provide you with long-term growth of capital.
The fund seeks to achieve its objective by investing in securities of companies
that derive their revenues primarily from operations in the services and
information area of the global economy. These could include, for example,
companies involved in the areas of telecommunications, computer systems and
software, broadcasting and publishing, health care, advertising, leisure,
tourism, financial services, distribution and transportation. This investment
policy is based on the belief that growth in services and information
industries will continue to outpace overall economic growth, and will be more
resistant to economic downturn.
The fund may invest up to 25% of its assets in companies outside the services
and information area. This percentage is measured at the time of a particular
investment. Up to 40% of the fund's assets may be invested in securities of
issuers that are domiciled outside the U.S. (which are generally denominated in
currencies other than the U.S. dollar).
The fund normally invests in equity securities, including common stocks or
other securities convertible into stocks. When prevailing market, economic,
political or currency conditions warrant, assets may also be invested in debt
securities generally rated in the top three quality categories by Standard &
Poor's Corporation or Moody's Investors Service, Inc. or determined to be of
equivalent quality by the fund's investment adviser, Capital Research and
Management Company. In addition, the fund may hold cash and cash equivalents of
U.S. and non-U.S. issuers, and may enter into repurchase agreements. MORE
INFORMATION ON THE FUND'S INVESTMENT POLICIES IS CONTAINED IN ITS STATEMENT
OF ADDITIONAL INFORMATION.
The fund's fundamental investment restrictions (described in the statement of
additional information) and objective may not be changed without shareholder
approval. All other investment practices may be changed by the fund's board of
trustees.
ACHIEVEMENT OF THE FUND'S INVESTMENT OBJECTIVE CANNOT, OF COURSE, BE ASSURED
DUE TO THE RISK OF CAPITAL LOSS FROM FLUCTUATING PRICES INHERENT IN ANY
INVESTMENT IN SECURITIES.
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SECURITIES AND INVESTMENT TECHNIQUES
EQUITY SECURITIES
Equity securities represent an ownership position in a company. These
securities may include common stocks and securities with equity conversion or
purchase
5
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THE NEW ECONOMY FUND / PROSPECTUS
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rights. The prices of equity securities fluctuate based on changes in the
financial condition of their issuers and on market and economic conditions. The
fund's results will be related to the overall market for these securities.
DEBT SECURITIES
Bonds and other debt securities are used by issuers to borrow money. Issuers
pay investors interest and generally must repay the amount borrowed at
maturity. Some debt securities, such as zero coupon bonds, do not pay current
interest but are purchased at a discount from their face values.
The prices of debt securities fluctuate depending on such factors as interest
rates, credit quality and maturity. In general their prices decline when
interest rates rise and vice versa.
The fund may invest up to 10% of its total assets in debt securities rated Baa
or BBB or below by Moody's Investors Service, Inc. or Standard & Poor's
Corporation or in unrated securities that are determined to be of equivalent
quality. Securities rated Ba and BB or below or unrated securities determined
to be of equivalent quality are commonly known as "high-yield, high-risk" or
"junk" bonds and are described by the ratings agencies as speculative. These
securities are subject to greater risk of default and can significantly decline
in price particularly in periods of general economic difficulty. It may be more
difficult to dispose of, or to determine the value of, high-yield, high-risk
bonds. The fund's high-yield, high-risk securities may be rated as low as Ca or
CC. Bonds rated Ca or CC are described by the ratings agencies as "speculative
in a high degree; often in default or [having] other marked shortcomings." See
the statement of additional information for a complete description of the
ratings.
Capital Research and Management Company attempts to reduce the risks described
above through diversification of the portfolio and by credit analysis of each
issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
The fund's investments in debt securities outside the U.S. will principally be
in securities issued or guaranteed as to principal and interest by governments
or their agencies or instrumentalities or by multinational agencies.
U.S. PRIVATE PLACEMENTS
Private placements may be either purchased from another institutional investor
that originally acquired the securities in a private placement or directly
from the issuers of the securities. Generally, securities acquired in such
private placements are subject to contractual restrictions on resale and may
not be resold except pursuant to a registration statement under the Securities
Act of 1933 or in reliance upon an exemption from the registration requirements
under the Act (for example, private placements sold pursuant to Rule 144A).
Accordingly, all such private placements will be considered illiquid unless
they have been specifically determined to be liquid taking into account factors
such as the frequency and volume of trading and the commitment of dealers to
make markets under procedures adopted by the funds board of trustees.
Additionally, investing in private placement securities could have the effect
of increasing the level of illiquidity of the fund's portfolio to the extent
that "qualified" institutional investors become, for a period of time,
uninterested in purchasing these securities. The fund will not invest more
than 10% of its total assets in illiquid securities.
INVESTING IN VARIOUS COUNTRIES
The fund has the ability to invest outside the U.S. Investing outside the U.S.
involves special risks, particularly in certain developing countries, caused
by, among other things: fluctuating currency values; different accounting,
auditing, and financial reporting regulations and practices in some countries;
changing
6
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THE NEW ECONOMY FUND / PROSPECTUS
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local and regional economic, political, and social conditions; greater market
volatility; differing securities market structures; and various administrative
difficulties such as delays in clearing and settling portfolio transactions or
in receiving payment of dividends. However, in the opinion of Capital Research
and Management Company, investing outside the U.S. also can reduce certain
portfolio risks due to greater diversification opportunities.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. Brokerage commissions may be higher outside the
U.S., and the fund will bear certain expenses in connection with its currency
transactions. Furthermore, increased custodian costs may be associated with the
maintenance of assets in certain jurisdictions.
CURRENCY TRANSACTIONS
The fund can purchase and sell currencies to facilitate securities transactions
and enter into forward currency contracts to hedge against changes in currency
exchange rates. While entering into forward transactions could minimize the
risk of loss due to a decline in the value of the hedged currency, it could
also limit any potential gain which might result from an increase in the value
of the currency. The fund will not generally attempt to protect against all
potential changes in exchange rates.
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MULTIPLE PORTFOLIO COUNSELOR SYSTEM
The basic investment philosophy of Capital Research and Management Company is
to seek fundamental values at reasonable prices, using a system of multiple
portfolio counselors in managing mutual fund assets. Under this system the
portfolio of the fund is divided into segments which are managed by individual
counselors. Counselors decide how their respective segments will be invested
(within the limits provided by the fund's objective and policies and by Capital
Research and Management Company's investment committee). In addition, Capital
Research and Management Company's research professionals make investment
decisions with respect to a portion of the fund's portfolio. The primary
individual portfolio counselors for the fund are listed below.
7
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THE NEW ECONOMY FUND / PROSPECTUS
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<TABLE>
<CAPTION>
YEARS OF EXPERIENCE AS
INVESTMENT PROFESSIONAL
(APPROXIMATE)
------------------------------
YEARS OF EXPERIENCE
AS PORTFOLIO COUNSELOR WITH CAPITAL
(AND RESEARCH PROFESSIONAL, RESEARCH AND
PORTFOLIO COUNSELORS IF APPLICABLE) FOR THE MANAGEMENT
FOR THE NEW NEW ECONOMY FUND COMPANY OR
ECONOMY FUND PRIMARY TITLE(S) (APPROXIMATE) ITS AFFILIATES TOTAL YEARS
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<S> <C> <C> <C> <C>
WILLIAM R. President, 13 years (since 27 years 34 years
GRIMSLEY Trustee and the fund began
Principal operations)
Executive
Officer of the
fund; Senior
Vice President
and Director,
Capital
Research and
Management
Company
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TIMOTHY D. Executive Vice 6 years (in 14 years 14 years
ARMOUR President of addition to 5
the fund; years as a
Senior Vice research
President and professional
Director, prior to
Capital becoming a
Research portfolio
Company* counselor for
the fund)
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CLAUDIA Senior Vice 2 years (in 19 years 21 years
HUNTINGTON President of addition to 11
the fund; years as a
Senior Vice research
President, professional
Capital prior to
Research becoming a
Company* portfolio
counselor for
the fund)
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JAMES B. Senior Vice 6 years (in 15 years 15 years
LOVELACE President of addition to 2
the fund; Vice years as a
President, research
Capital professional
Research and prior to
Management becoming a
Company portfolio
counselor for
the fund)
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GORDON Senior Vice 3 years (in 26 years 26 years
CRAWFORD President and addition to 5
Director, years as a
Capital and research
Research professional
Management prior to
Company becoming a
portfolio
counselor for
the fund)
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WILLIAM C. Senior Partner, 13 years (since 38 years 44 years
NEWTON The Capital the fund began
Group operations)
Partners L.P.*
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</TABLE>
The fund began operations in December 1983.
*Company affiliated with Capital Research and Management Company.
8
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THE NEW ECONOMY FUND / PROSPECTUS
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INVESTMENT RESULTS
The fund may from time to time compare investment results to various indices or
other mutual funds. Fund results may be calculated on a total return, yield
and/or distribution rate basis. Currently, the fund calculates investment
results only on a total return basis. Results calculated without a sales charge
will be higher.
- - TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gain
distributions.
- - YIELD is computed by dividing the net investment income per share earned by
the fund over a given period of time by the maximum offering price per share
on the last day of the period, according to a formula mandated by the
Securities and Exchange Commission. A yield calculated using this formula
may be different than the income actually paid to shareholders.
- - DISTRIBUTION RATE reflects dividends that were paid by the fund. The
distribution rate is calculated by dividing the dividends paid over the last
12 months by the sum of the month-end price and the capital gain
distributions paid over the last 12 months.
INVESTMENT RESULTS
(FOR PERIODS ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
AVERAGE
ANNUAL THE FUND THE FUND AT GROWTH
TOTAL AT NET MAXIMUM FUNDS
RETURNS: ASSET VALUE/1/ SALES CHARGE/1/,/2/ INDEX/3/ S&P 500/4/
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<S> <C> <C> <C> <C>
One year 12.89% 6.38% 17.48% 22.90%
................................................................................
Five years 14.57% 13.22% 13.08% 15.18%
................................................................................
Ten years 13.90% 13.23% 13.61% 15.26%
................................................................................
Lifetime/5/ 14.86% 14.34% 13.29% 15.87%
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</TABLE>
/1/ These fund results were calculated according to a standard formula that is
required for all stock and bond funds..
/2/ The maximum sales charge has been deducted.
/3/ The Lipper Growth Funds Index tracks the 30 largest growth funds
(representing about 56% of all growth fund assets).
/4/ The Standard & Poor's 500 Index represents stocks. This index is unmanaged
and does not reflect sales charges, commissions or expenses.
/5/ The fund began investment operations on December 1, 1983.
9
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THE NEW ECONOMY FUND / PROSPECTUS
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Past results are not an indication of future results.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Usually, the fund pays dividends, which may fluctuate, in June and December.
Capital gains, if any, are usually distributed in December. When a dividend or
capital gain is distributed, the net asset value per share is reduced by the
amount of the payment.
FEDERAL TAXES
In any fiscal year in which the fund qualifies as a regulated investment
company and distributes to shareholders all of its net investment income and
net capital gains, the fund itself is relieved of federal income tax.
Generally, all dividends and capital gains are taxable whether they are
reinvested or received in cash -- unless you are exempt from taxation or
entitled to tax deferral. Early each year, you will be notified as to the
amount and federal tax status of all income distributions paid during the prior
year. Such distributions may also be subject to state or local taxes. The tax
treatment of redemptions from a retirement plan account may differ from
redemptions from an ordinary shareholder account.
10
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THE NEW ECONOMY FUND / PROSPECTUS
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YOU MUST PROVIDE THE FUND WITH A CERTIFIED CORRECT TAXPAYER IDENTIFICATION
NUMBER (GENERALLY YOUR SOCIAL SECURITY NUMBER) AND CERTIFY THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. IF YOU FAIL TO DO SO THE IRS CAN REQUIRE THE
FUND TO WITHHOLD 31% OF YOUR TAXABLE DISTRIBUTIONS AND REDEMPTIONS. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment in
the fund. Please see the statement of additional information and your tax
adviser for further information.
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FUND ORGANIZATION AND MANAGEMENT
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a Massachusetts business trust in 1983. All fund operations are supervised
by the fund's board of trustees who meet periodically and perform duties
required by applicable state and federal laws. Members of the board who are not
employed by Capital Research and Management Company or its affiliates are paid
certain fees for services rendered to the fund as described in the statement of
additional information. They may elect to defer all or a portion of these fees
through a deferred compensation plan in effect for the fund. The fund does not
hold annual meetings of shareholders. However, significant corporate matters
which require shareholder approval, such as certain elections of board members
or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. Shareholders have one vote
per share owned. At the request of the holders of at least 10% of the shares,
the fund will hold a meeting at which any member of the board could be removed
by a majority vote.
THE INVESTMENT ADVISER
Capital Research and Management Company, a large and experienced investment
management organization founded in 1931, is the investment adviser to the fund
and other funds, including those in The American Funds Group. Capital Research
and Management Company, a wholly owned subsidiary of The Capital Group
Companies, Inc., is headquartered at 333 South Hope Street, Los Angeles, CA
90071. Capital Research and Management
11
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THE NEW ECONOMY FUND / PROSPECTUS
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Company manages the investment portfolio and business affairs of the fund. The
management fee paid by the fund to Capital Research and Management Company may
not exceed 0.60% of the fund's average net assets annually and declines at
certain asset levels. The total management fee paid by the fund, as a
percentage of average net assets, for the previous fiscal year is discussed
earlier under "Expenses."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company
Institute's Advisory Group on Personal Investing. This policy has also been
incorporated into the fund's "code of ethics."
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the board and the expenses paid under the
Plan were incurred within the preceding 12 months and accrued while the Plan is
in effect. The 12b-1 fee paid by the fund, as a percentage of average net
assets, for the previous fiscal year is discussed earlier under "Expenses."
PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by Capital
Research and Management Company, which strives to obtain the best available
prices, taking into account the costs and quality of executions. Fixed-income
securities are generally traded on a "net" basis with a dealer acting as
principal for its own account without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are usually purchased at a fixed price which includes an
amount of compensation to the dealer, generally referred to as a concession or
discount. On occasion, securities may be purchased directly from an issuer, in
which case no commissions or discounts are paid. In the over-the-counter
market, purchases and sales are transacted directly with principal market-
makers except in those circumstances where it appears better prices and
executions are available elsewhere.
Subject to the above policy, when two or more brokers are in a position to
offer comparable prices and executions, preference may be given to brokers who
have sold shares of the fund or have provided investment research, statistical,
and other related services for the benefit of the fund and/or other funds
served by Capital Research and Management Company.
12
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THE NEW ECONOMY FUND / PROSPECTUS
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PRINCIPAL UNDERWRITER AND TRANSFER AGENT
American Funds Distributors, Inc. and American Funds Service Company serve as
the principal underwriter and transfer agent for the fund, respectively. They
are headquartered at 333 South Hope Street, Los Angeles, CA 90071 and 135 South
State College Boulevard, Brea, CA 92821, respectively.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
[MAP APPEARS HERE]
CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
(8 A.M. TO 8 P.M. ET):
800/421-0180
WESTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2205
Brea, California
92822-2205
Fax: 714/671-7080
WESTERN CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 659522
San Antonio, Texas
78265-9522
Fax: 210/530-4050
EASTERN CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 6007
Indianapolis, Indiana
46206-6007
Fax: 317/735-6620
EASTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2280
Norfolk, Virginia
23501-2280
Fax: 804/670-4773
13
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THE NEW ECONOMY FUND / PROSPECTUS
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SHAREHOLDER SERVICES
The fund offers you a valuable array of services you can use to alter your
investment program as your needs and circumstances change. These services,
which are summarized below, are available only in states where they may be
legally offered and may be terminated or modified at any time upon 60 days'
written notice. A COMPLETE DESCRIPTION OF SHAREHOLDER SERVICES AND ACCOUNT
POLICIES IS CONTAINED IN THE FUND'S STATEMENT OF ADDITIONAL INFORMATION. In
addition, an easy-to-read guide to owning a fund in The American Funds Group
titled "Welcome to the Family" is sent to new shareholders and is available by
writing or calling American Funds Service Company.
THE SERVICES DESCRIBED MAY NOT BE AVAILABLE THROUGH SOME RETIREMENT PLANS. IF
YOU ARE INVESTING THROUGH A RETIREMENT PLAN, YOU SHOULD CONTACT YOUR PLAN
ADMINISTRATOR/TRUSTEE ABOUT WHAT SERVICES ARE AVAILABLE AND WITH QUESTIONS
ABOUT YOUR ACCOUNT.
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PURCHASING SHARES
HOW TO PURCHASE SHARES
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may add to your account through your
dealer or directly through American Funds Service Company by mail, wire, or
bank debit. You may also establish or add to your account by exchanging shares
from any of your other accounts in The American Funds Group. The fund and
American Funds Distributors reserve the right to reject any purchase order.
Various purchase options are available as described below subject to certain
investment minimums and limitations described in the statement of additional
information and "Welcome to the Family."
- - Automatic Investment Plan
You may invest monthly or quarterly through automatic withdrawals from your
bank account.
- - Automatic Reinvestment
You may reinvest your dividends and capital gain distributions into the
fund (with no sales charge). This will be done automatically unless you
elect to have the dividends and/or capital gain distributions paid to you
in cash.
14
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THE NEW ECONOMY FUND / PROSPECTUS
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- - Cross-Reinvestment
You may invest your dividend and capital gain distributions into any other
fund in The American Funds Group.
- - Exchange Privilege
You may exchange your shares into other funds in The American Funds Group
generally with no sales charge. Exchanges of shares from the money market
funds that were initially purchased with no sales charge will generally be
subject to the appropriate sales charge. You may also elect to
automatically exchange shares among any of the funds in The American Funds
Group. Exchange requests may be made in writing, by telephone including
American FundsLine(R) (see below) or by fax. EXCHANGES HAVE THE SAME TAX
CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
- - Retirement Plans
You may invest in the fund through various retirement plans. For further
information contact your investment dealer or American Funds Distributors.
SHARE PRICE
The fund's share price, also called net asset value, is determined as of the
close of trading (normally 4:00 p.m., Eastern time) every day the New York
Stock Exchange is open. The fund calculates its net asset value per share,
generally using market prices, by dividing the total value of its assets after
subtracting liabilities by the number of its shares outstanding. Shares are
purchased at the offering price next determined after your investment is
received and accepted by American Funds Service Company. The offering price is
the net asset value plus a sales charge, if applicable.
SHARE CERTIFICATES
Shares are credited to your account and certificates are not issued unless you
request them by writing to American Funds Service Company.
INVESTMENT MINIMUMS
<TABLE>
- ----------------------------------------------------------------
<S> <C>
To establish an account $1,000
For a retirement plan account $ 250
For a retirement plan account through payroll deduction $ 25
To add to an account $ 50
For a retirement plan account $ 25
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
THE NEW ECONOMY FUND / PROSPECTUS
- --------------------------------------------------------------------------------
SALES CHARGES
A sales charge may apply, as described below, when purchasing shares. Sales
charges may be reduced for larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A
PERCENTAGE OF
--------------------
DEALER
NET CONCESSION AS
OFFERING AMOUNT % OF OFFERING
INVESTMENT PRICE INVESTED PRICE
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 3.75%
$100,000 but less than $250,000 3.50% 3.63% 2.75%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less than $1 million 2.00% 2.04% 1.60%
$1 million or more and certain
other investments described below see below see below see below
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 200 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS MADE WITHIN ONE YEAR OF PURCHASE BY THESE
ACCOUNTS. A dealer concession of up to 1% may be paid by the fund from its Plan
of Distribution on these investments. Investments by retirement plans with $100
million or more in assets may be made with no sales charge and are not subject
to a contingent deferred sales charge. A dealer concession of up to 1% may be
paid by American Funds Distributors on these investments. Investments by
certain individuals and entities including employees and other associated
persons of dealers authorized to sell shares of the fund and Capital Research
and Management Company and its affiliated companies are not subject to a sales
charge.
16
<PAGE>
- --------------------------------------------------------------------------------
THE NEW ECONOMY FUND / PROSPECTUS
- --------------------------------------------------------------------------------
ADDITIONAL DEALER COMPENSATION
In addition to the concessions listed, up to 0.25% of average net assets is
paid annually to qualified dealers for providing certain services pursuant to
the fund's Plan of Distribution. During 1997, American Funds Distributors will
also provide additional compensation to the top one hundred dealers who have
sold shares of funds in The American Funds Group based on the pro rata share of
a qualifying dealer's sales.
REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your costs. You
must let your investment dealer or American Funds Service Company know if you
qualify for a reduction in your sales charge using one or any combination of
the methods described below.
- - Aggregation
Investments that may be aggregated include those made by you, your spouse
and your children under the age of 21, if all parties are purchasing shares
for their own account(s), including any business account solely "controlled
by," as well as any retirement plan or trust account solely for the benefit
of, these individuals. Investments made for multiple employee benefit plans
of a single employer or "affiliated" employers may be aggregated provided
they are not also aggregated with individual accounts. Finally, investments
made by a common trust fund or other diversified pooled account not
specifically formed for the purpose of accumulating fund shares may be
aggregated.
Purchases made for nominee or street name accounts will generally not be
aggregated with those made for other accounts unless qualified as described
above.
- - Concurrent Purchases
You may combine concurrent purchases of two or more funds in The American
Funds Group, except direct purchases of the money market funds. Shares of
the money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
- - Right of Accumulation
You may take into account the current value of your existing holdings in
The American Funds Group to determine your sales charge. Direct purchases
of the money market funds are excluded.
17
<PAGE>
- --------------------------------------------------------------------------------
THE NEW ECONOMY FUND / PROSPECTUS
- --------------------------------------------------------------------------------
- - Statement of Intention
You may enter into a non-binding commitment to invest a certain amount
(which, at your request, may include purchases made during the previous 90
days) in non-money market fund shares over a 13-month period. A portion of
your account may be held in escrow to cover additional sales charges which
may be due if your total investments over the statement period are
insufficient to qualify for the applicable sales charge reduction.
- --------------------------------------------------------------------------------
SELLING SHARES
HOW TO SELL SHARES
You may sell (redeem) shares in your account by contacting your investment
dealer or American Funds Service Company. You may also use American
FundsLine(R) (see below). In addition, you may sell shares in amounts of $50 or
more automatically. If you sell shares through your investment dealer you may
be charged for this service. Shares held for you in your dealer's street name
must be sold through the dealer.
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. Sale requests may be
made in writing, by telephone, including American FundsLine(R) (see below), or
by fax. Sales by telephone or fax are limited to $10,000 in accounts registered
to individual(s) (including non-retirement trust accounts). In addition, checks
must be made payable to the registered shareholder(s) and mailed to an address
of record that has been used with the account for at least 10 days. Proceeds
will not be mailed until sufficient time has passed to provide reasonable
assurance that checks or drafts (including certified or cashier's checks) for
shares purchased have cleared (which may take up to 15 calendar days from the
purchase date). Except for delays relating to clearance of checks for share
purchases or in extraordinary circumstances (and as permissible under the
Investment Company Act of 1940), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. The fund may, with 60
days' written notice, close your account if due to a sale of shares the account
has a value of less than the minimum required initial investment.
Generally, written requests to sell shares must be signed by you and must
include any shares you wish to sell that are in certificate form. Your
signature must be guaranteed by a bank, savings association, credit union, or
member firm of a domestic stock exchange or the National Association of
Securities Dealers, Inc., that is an eligible guarantor institution. A
signature guarantee is not currently required for any sale of $50,000 or less
provided the check is made
18
<PAGE>
- --------------------------------------------------------------------------------
THE NEW ECONOMY FUND / PROSPECTUS
- --------------------------------------------------------------------------------
payable to the registered shareholder(s) and is mailed to the address of record
on the account, and provided the address has been used with the account for at
least 10 days. Additional documentation may be required for sales of shares
held in corporate, partnership or fiduciary accounts.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge in any fund in The American Fund Group
within 90 days after the date of the redemption or distribution. Reinvestment
will be at the next calculated net asset value after receipt and acceptance by
American Funds Service Company.
- --------------------------------------------------------------------------------
OTHER IMPORTANT THINGS TO REMEMBER
AMERICAN FUNDSLINE(R)
You may check your share balance, the price of your shares, or your most recent
account transactions, sell shares (up to $10,000 per fund, per account each
day), or exchange shares around the clock with American FundsLine(R). To use
this service, call 800/325-3590 from a TouchTone(TM) telephone.
TELEPHONE PURCHASES, SALES AND EXCHANGES
Unless you opt out of the telephone (including American FundsLine(R)) or fax
purchase, sale and/or exchange options (see below), you agree to hold the fund,
American Funds Service Company, any of its affiliates or mutual funds managed
by such affiliates, and each of their respective directors, trustees, officers,
employees and agents harmless from any losses, expenses, costs or liability
(including attorney fees) which may be incurred in connection with the exercise
of these privileges provided American Funds Service Company employs reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine. If reasonable procedures are not
employed, the fund may be liable for losses due to unauthorized or fraudulent
instructions.
Generally, all shareholders are automatically eligible to use these options.
However, you may elect to opt out of these options by writing American Funds
Service Company. (You may also reinstate them at any time by writing to
American Funds Service Company.)
ACCOUNT STATEMENTS
You will receive regular confirmation statements reflecting transactions in
your account. Purchases through automatic investment plans and certain
retirement plans will be confirmed at least quarterly.
19
<PAGE>
- --------------------------------------------------------------------------------
THE NEW ECONOMY FUND / PROSPECTUS
- --------------------------------------------------------------------------------
NOTES
20
<PAGE>
- --------------------------------------------------------------------------------
THE NEW ECONOMY FUND / PROSPECTUS
- --------------------------------------------------------------------------------
NOTES
21
<PAGE>
- --------------------------------------------------------------------------------
THE NEW ECONOMY FUND / PROSPECTUS
- --------------------------------------------------------------------------------
NOTES
22
<PAGE>
- --------------------------------------------------------------------------------
THE NEW ECONOMY FUND / PROSPECTUS
- --------------------------------------------------------------------------------
NOTES
23
<PAGE>
- --------------------------------------------------------------------------------
THE NEW ECONOMY FUND / PROSPECTUS
- --------------------------------------------------------------------------------
FOR SHAREHOLDER FOR DEALER FOR 24-HOUR
SERVICES SERVICES INFORMATION
American Funds American Funds American
Service Company Distributors FundsLine(R)
800/421-0180 ext. 1 800/421-9900 ext. 11 800/325-3590
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
--------------------------------------------------------------
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL STATEMENT OF ADDITIONAL
REPORT TO SHAREHOLDERS INFORMATION (SAI)
Includes financial Contains more detailed
statements, detailed information on all aspects of
performance information, the fund, including the
portfolio holdings, a fund's financial statements.
statement from portfolio
management and the auditor's
report.
A current SAI has been filed
with the Securities and
Exchange Commission and is
incorporated by reference (is
legally part of the
prospectus).
CODE OF ETHICS
Includes a description of the
fund's personal investing
policy.
To request a free copy of any of the documents above:
Call American Funds or Write to the Secretary of the fund
Service Company 333 South Hope Street
800/421-0180 ext. 1 Los Angeles, CA 90071
[RECYCLE LOGO]
This prospectus has been printed on recycled paper.
24
THE NEW ECONOMY FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1997
This document is not a prospectus but should be read in conjunction with
the current prospectus of The New Economy Fund (the fund or NEF) dated February
1, 1997. The prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
THE NEW ECONOMY FUND
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
Shareholders who purchase shares at net asset value through eligible
retirement plans should note that not all of the services or features described
below may be available to them, and they should contact their employer for
details.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE NO.
<S> <C>
INVESTMENT POLICIES 1
DESCRIPTION OF CERTAIN SECURITIES 2
INVESTMENT RESTRICTIONS 3
FUND TRUSTEES AND OFFICERS 6
MANAGEMENT 10
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES 12
PURCHASE OF SHARES 15
REDEEMING SHARES 22
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES 23
EXECUTION OF PORTFOLIO TRANSACTIONS 25
GENERAL INFORMATION 26
INVESTMENT RESULTS 27
APPENDIX - DESCRIPTION OF BOND RATINGS 33
FINANCIAL STATEMENTS ATTACHED
</TABLE>
INVESTMENT POLICIES
LOWER RATED DEBT SECURITIES - The fund may invest up to 10% of its assets in
debt securities which are rated below the top three quality categories by
Standard & Poor's Corporation (S&P) or Moody's Investors Service, Inc.
(Moody's) or securities that are determined equivalent by the fund's investment
adviser, Capital Research and Management Company (the Investment Adviser).
(See "Appendix - Description of Bond Ratings" below for a more complete
description of bond ratings.)
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - High-yield, high-risk bonds
are very sensitive to adverse economic changes and corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that would adversely
affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted on its proceedings, the fund may
incur losses or expenses in seeking recovery of amounts owed to it. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high-yield, high-risk bonds.
PAYMENT EXPECTATIONS - High-yield, high-risk bonds, like other bonds, may
contain redemption or call provisions. If an issuer exercised these provisions
in a declining interest rate market, the fund would have to replace the
security with a lower yielding security, resulting in a decreased return for
investors. Conversely, a high-yield, high-risk bond's value will decrease in a
rising interest rate market, as it will with all bonds.
LIQUIDITY AND VALUATION - There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
DESCRIPTION OF CERTAIN SECURITIES
U.S. GOVERNMENT SECURITIES - Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes and bonds) and (2) federal agency obligations guaranteed as to principal
and interest by the U.S. Treasury. In these securities, the payment of
principal and interest is unconditionally guaranteed by the U.S. Government,
and thus they are of the highest possible credit quality. Such securities are
subject to variations in market value due to fluctuations in interest rates,
but, if held to maturity, will be paid in full.
Certain securities issued by U.S. Government instrumentalities and
certain federal agencies are neither direct obligations of, nor guaranteed by,
the U.S. Treasury. However, they generally involve federal sponsorship in one
way or another; some are backed by specific types of collateral; some are
supported by the issuer's right to borrow from the U.S. Treasury; some are
supported by the discretionary authority of the U.S. Treasury to purchase
certain obligations of the issuer; others are supported only by the credit of
the issuing government agency or instrumentality. These agencies and
instrumentalities include, but are not limited to, Federal Land Banks, Farmers
Home Administration, Central Bank Cooperatives, and Federal Intermediate Credit
Banks.
CASH EQUIVALENTS - These securities include (1) commercial paper (short-term
notes up to 9 months in maturity issued by corporations or governmental
bodies), (2) commercial bank obligations (e.g., certificates of deposit
(interest-bearing time deposits), and bankers' acceptances (time drafts on a
commercial bank where the bank accepts an irrevocable obligation to pay at
maturity), (3) savings association obligations (e.g., certificates of deposit
issued by savings banks or savings associations), (4) securities of the U.S.
Government, its agencies or instrumentalities that mature, or may be redeemed,
in one year or less, and (5) corporate bonds and notes that mature, or that may
be redeemed, in one year or less.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements, under
which it buys a security and obtains a simultaneous commitment from the seller
to repurchase the security at a specified time and price. The seller must
maintain with the fund's custodian collateral equal to at least 100% of the
repurchase price including accrued interest as monitored daily by Capital
Research and Management Company. If the seller under the repurchase agreement
defaults, the fund may incur a loss if the value of the collareral securing the
repurchase agreement has declined and may occur disposition costs in connection
with liquidating the collateral. If bankruptcy proceedings are commenced with
respect to the seller, liquidation of the collateral by the fund may be delayed
or limited.
CURRENCY TRANSACTIONS -- The fund has the ability to enter into forward
currency contracts to protect against changes in currency exchange rates. A
forward currency contract is an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. Forward currency contracts entered into by the fund will involve the
purchase or sale of a currency against the U.S. dollar. The fund will
segregate liquid assets which will be marked to market daily to meet its
forward contract commitments to the extent required by the Securities and
Exchange Commission.
Certain provisions of the Internal Revenue Code may limit the extent to
which the fund may enter into forward contracts. Such transactions may also
affect, for U.S. federal income tax purposes, the character and timing of
income, gain or loss recognized by the fund.
INVESTMENT RESTRICTIONS
The fund has adopted certain investment restrictions, which cannot be changed
without approval by a majority of its outstanding shares. Such majority is
defined within the Investment Company Act of 1940 (the 1940 Act) as the vote of
the lesser of (i) 67% or more of the outstanding shares present at a meeting,
if the holders of more than 50% of the outstanding shares are present in person
or by proxy, or (ii) more than 50% of the outstanding shares. These
restrictions provide that the fund may not:
1. Invest in securities of another issuer (other than the U.S. or its agencies
or instrumentalities), if immediately after and as a result of such investment
more than 5% of the value of the total assets of the fund would be invested in
the securities of such other issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the fund;
2. Invest in companies for the purpose of exercising control or management;
3. Purchase the securities of companies in a particular industry (other than
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities) if thereafter 25% or more of the value of its total assets
would consist of securities issued by companies in that industry;
4. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commissions, is involved, and only if immediately thereafter no more than 10%
of the value of the fund's total assets would be invested in such securities;
5. Buy or sell real estate in the ordinary course of its business; however,
the fund may invest in securities secured by real estate or interests therein
or issued by companies, including real estate investment trusts, which invest
in real estate or interests therein;
6. Buy or sell commodities or commodity contracts in the ordinary course of
its business provided, however, that entering into a forward currency contract
shall not be prohibited by this restriction;
7. Invest more than 10% of the value of its total assets in securities which
are not readily marketable or engage in the business of underwriting of
securities of other issuers, except to the extent that the disposal of an
investment position may technically constitute the fund an underwriter as that
term is defined under the Securities Act of 1933;
8. Lend any of its assets; provided, however that investment in government
obligations, short-term commercial paper, certificates of deposit and banker's
acceptances and publicly traded bonds, debentures, or other debt securities or
entering into repurchase agreements, shall not be prohibited by this
restriction;
9. Sell securities short, except to the extent that the fund contemporaneously
owns or has the right to acquire at no additional cost, securities identical to
those sold short;
10. Purchase securities on margin;
11. Enter into any repurchase agreement if, as a result, more than 10% of the
fund's total assets would be subject to repurchase agreements maturing in more
than seven days (see above);
12. Borrow amounts in excess of 5% of the value of its total assets or issue
senior securities; in any event, the fund may borrow only as a temporary
measure for extraordinary or emergency purposes and not for investment in
securities;
13. Mortgage, pledge or hypothecate its assets to any extent;
14. Purchase or retain the securities of any issuer, if those individual
officers and trustees of the fund, its investment adviser or distributor, each
owning beneficially more than 1/2 of 1% of the securities of such issuer,
together own more than 5% of the securities of such issuer;
15. Invest more than 5% of the value of its total assets in securities of
companies having, together with their predecessors, a record of less than three
years of continuous operation;
16. Invest in puts, calls, straddles or spreads, or combinations thereof; nor
17. Purchase partnership interests in oil, gas, or mineral exploration,
drilling or mining ventures.
Further investment policies of the fund, which may be changed by action of
the Board of Trustees, without shareholder approval, include the following:
the fund will not invest more than 40% of its assets in securities of issuers
outside the U.S. and/or denominated in currencies other than the U.S. dollar;
nor will the fund invest more than 5% of the value of the fund's net assets in
warrants, valued at the lower of cost or market, with no more than 2% being
unlisted on the New York or American Stock Exchanges (warrants acquired by the
fund in units or attached to securities may be deemed to be without value for
purposes of this restriction).
All percentages relating to the policies and restrictions of the fund are
measured at the time the investment is made.
For purposes of investment restriction number 3, the fund will not invest
25% or more of total assets in the securities of issuers in the same industry.
For purposes of investment restriction number 4, the fund may invest in
securities of other managed investment companies if deemed advisable by its
officers in connection with the administration of a deferred compensation plan
adopted by Trustees, and to the extent such investments are allowed by an
exemptive order granted by the Securities and Exchange Commission.
For purposes of investment restriction number 6, forward currency
contracts are not considered commodities or commodities contracts.
FUND TRUSTEES AND OFFICERS
TRUSTEES AND TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
NAME, POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
ADDRESS WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
AND AGE REGISTRANT DURING PAST 5 (INCLUDING (INCLUDING OF FUND
YEARS VOLUNTARILY VOLUNTARILY BOARDS ON
(POSITIONS DEFERRED DEFERRED WHICH
WITHIN THE COMPENSATION/1/) COMPENSATION/1/) TRUSTEE
ORGANIZATIONS FROM THE FUND FROM ALL FUNDS SERVES/2/
LISTED MAY DURING FISCAL MANAGED BY
HAVE YEAR ENDED CAPITAL RESEARCH
CHANGED 11/30/96 AND
DURING THIS MANAGEMENT
PERIOD) COMPANY
<S> <C> <C> <C> <C> <C>
Richard G. Trustee Corporate $13,550 $29,100 2
Capen, Jr. Director and
Box 2494 author;
Rancho former United
Santa Fe, States
CA 92067 Ambassador to
Age: 62 Spain; former
Vice Chairman
of the Board;
Knight
Ridder, Inc.;
former
Chairman and
Publisher,
The Miami
Herald.
+H. Trustee Private $13,550/3/ $149,900/3/ 18
Frederick Investor;
Christie former
P.O. Box President and
144 Chief
Palos Executive
Verdes Officer, The
Estates, Mission Group
CA (non-utility
90274 holding
Age: 63 company,
subsidiary of
Southern
California
Edison
Company);
former
President,
Southern
California
Edison Company
Alan E. Trustee Private $12,850 $27,700 2
Clements investor;
16 Great former
Peter Executive
Street Director -
London Finance,
SW1P3JF Imperial
England Chemical
Age: 68 Industries
PLC
++Robert Chairman Senior None/4/ None/4/ 5
B. of the Partner,
Egelston Board Capital Group
333 South Partners,
Hope Limited
Street Partnership
Los
Angeles,
CA 90071
Age: 66
Alan Trustee President, $14,550 $68,900 4
Greenway Greenway
7413 Associates,
Fairway Inc.
Road (management
La Jolla, consulting
CA 92037 services)
Age: 69
++William President Senior Vice None/4/ None/4/ 3
R. and President and
Grimsley Trustee Director,
One Market Capital
Plaza Research and
Steuart Management
Towers, Company
Suite 1800
San
Francisco,
CA 94105
Age: 58
++Graham Trustee Former None/4/ None/4/ 2
Holloway Chairman of
17309 Club the Board,
Hill Drive American
Dallas, TX Funds
75248 Distributors,
Age: 66 Inc.
Leonade D. Trustee Former $13,550/3/ $73,650/3/ 5
Jones Treasurer,
1536 Los The
Montes Washington
Drive Post Company
Burlingame, CA 94010
Age: 49
William H. Trustee President, $12,850/3/ $71,400/3/ 4
Kling Minnesota
45 East Public Radio;
Seventh President,
Street Greenspring
St. Paul, Co.; former
MN 55101 President,
Age: 54 American
Public Radio
(now Public
Radio
International)
Norman R. Trustee Managing $12,850 $35,200 2
Weldon Director,
8210 N.W. Partisan
27th Management
Street Group, Inc;
Miami, FL Chairman of
33122 the Board,
Age: 62 Novoste
Corporation;
Director,
Enable
Medical;
former
President and
Director,
Corvita
Corporation
Patricia Trustee Private $12,850 $79,300 5
K. Woolf investor;
506 Quaker Lecturer,
Road Department
Princeton, of Molecular
NJ 08540 Biology,
Age: 62 Princeton
University
</TABLE>
+ May be deemed an "interested person" within the meaning of the Investment
Company Act of 1940 (the 1940 Act) due to membership on the board of directors
of the parent company of a registered broker-dealer.
++ Trustees who are "interested persons" within the meaning of the 1940 Act on
the basis of their affiliation with the Investment Adviser.
/1/ Amounts may be deferred by eligible directors/trustees under a
non-qualified deferred compensation plan adopted by the fund in 1993. Deferred
amounts accumulate at an earnings rate determined by the total return of one or
more of the funds in The American Funds Group as designated by the
director/trustee.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, American Balanced Fund, Inc., American
High-Income Municipal Bond Fund, Inc., American High-Income Trust, American
Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of
America, Capital Income Builder, Inc., Capital World Growth and Income Fund,
Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America.
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U.S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicles for certain
variable insurance contracts; and Bond Portfolio for Endowments, Inc. and
Endowments, Inc whose shares may be owned only by tax-exempt organizations.
/3/ Since the plan's adoption, the total amounts of deferred compensation
accrued by the fund (plus earnings thereon) for participating Trustees are as
follows: H. Frederick Christie ($17,712); William H. Kling ($40,835); and
Leonade D. Jones ($24,820). Amounts deferred and accumulated earnings thereon
are not funded and are general unsecured liabilities of the fund until paid to
the Trustee.
/4/ Robert B. Egelston, William R. Grimsley and Graham Holloway are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
fund.
OFFICERS
(with their principal occupations during the past five years)#
ROBERT B. EGELSTON, Chairman of the Board (see above).
WILLIAM R. GRIMSLEY, President (see above).
* TIMOTHY D. ARMOUR, Executive Vice President.
Senior Vice President and Director, Capital Research Company.
* CLAUDIA P. HUNTINGTON, Senior Vice President.
Senior Vice President, Capiral Research Company
* JAMES B. LOVELACE, Senior Vice President.
Vice President, Capital Research and Management Company.
* VINCENT P. CORTI, Vice President.
Vice President -- Fund Business Management Group, Capital Research and
Management Company.
** STEVEN N. KEARSLEY, Vice President and Treasurer.
Vice President and Treasurer, Capital Research and Management Company.
* CHAD L. NORTON, Secretary.
Vice President -- Fund Business Management Group, Capital Research and
Management Company.
** MARY C. HALL, Assistant Treasurer.
Senior Vice President -- Fund Business Management Group, Capital Research and
Management Company.
ROBERT P. SIMMER, Assistant Treasurer. 5300 Robin Hood Raod, Norfolk, VA
23513. Vice President - Fund Business Management Group, Capital Research
and Management Company.
__________________________________
# Positions within the organizations listed may have change during this period.
* Address is 333 South Hope Street, Los Angeles, CA 90071
** Address is 135 South State College Boulevard, Brea, CA 92821
All of the officers listed also are officers or employees of the
Investment Adviser or affiliated companies. No compensation is paid by the
fund to any officer or Trustee who is a director, officer or employee of the
Investment Adviser or affiliated companies. The fund pays fees of $8,500 per
annum to Trustees who are not affiliated with the Investment Adviser, plus $800
for each Board of Trustees meeteing attended, plus $400 for each meeting
attended as a member of a committee of the Board of Trustees. No pension or
retirement benefits are accrued as part of fund expenses. The Trustees may
elect, on a voluntary basis, to defer all or a portion of these fees through a
deferred compensation plan in effect for the fund. The fund also reimburses
certain expenses of the Trustees who are not affiliated with the Investment
Adviser. As of January 1, 1997 the officers and Trustees of the fund and their
families as a group owned beneficially or of record less than 1% of the
outstanding shares of the fund.
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Hong Kong, Singapore and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821.
The Investment Adviser's professionals travel several million miles a year,
making more than 5,000 research visits in more than 50 countries around the
world. The Investment Adviser believes that it is able to attract and retain
quality personnel. The Investment Adviser is a wholly owned subsidiary of The
Capital Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock
markets around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $100 billion of
stocks, bonds and money market instruments and serves over five million
investors of all types. These investors include privately owned businesses and
large corporations as well as schools, colleges, foundations and other
non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and
Service Agreement (the Agreement) between the fund and the Investment Adviser
will continue in effect until November 30, 1997, and may be renewed from year
to year thereafter, provided that any such renewal has been specifically
approved at least annually by (i) the Board of Trustees, or by the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the fund, and (ii) the vote of a majority of Trustees who are not parties to
the Agreement or interested persons (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. The Agreement provides that the Investment Adviser has no liability
to the fund for its acts or omissions in the performance of its obligations to
the fund not involving willful misconduct, bad faith, gross negligence or
reckless disregard of its obligations under the Agreement. The Agreement also
provides that either party has the right to terminate it, without penalty, upon
60 days' written notice to the other party and that the Agreement automatically
terminates in the event of its assignment (as defined in the 1940 Act).
The Investment Adviser, in addition to providing investment advisory
services, furnishes the services and pays the compensation and travel expenses
of persons to perform the executive, clerical and bookkeeping functions of the
fund and provides suitable office space, small office equipment and utilities,
and general purpose accounting forms, supplies, and postage used at the office
of the fund relating to the services furnished by the Investment Adviser.
Subject to the expense agreement described below, the fund will pay all
expenses not expressly assumed by the Investment Adviser, including, but not
limited to, registration and filing fees with federal and state agencies; blue
sky expenses; expenses of shareholders' meetings; the expense of reports to
existing shareholders; expenses of printing proxies and prospectuses; legal
and auditing fees; dividend disbursement expenses; the expense of the issuance,
transfer, and redemption of its shares; expenses pursuant to the fund's Plan of
Distribution (described below); custodian fees; printing and preparation of
registration statements; taxes; compensation, compensation and expenses paid to
Trustees unaffiliated with the Investment Adviser; association dues; and costs
of stationery, forms and certificates prepared exclusively for the fund.
As compensation for its services, the Investment Adviser receives a
monthly fee which is accrued daily, calculated at the lower of the annual rates
of 0.60% on the first $300 million of the fund's net assets, 0.48% on assets
over $300 million to $750 million, 0.45% on assets over $750 million to $1.25
billion, and 0.42% on assets over $1.25 billion; OR 0.58% on the first $500
million of the fund's net assets, 0.48% on assets from $500 million to $1
billion, 0.44% on assets from $1 billion to $1.5 billion, 0.41% on assets from
$1.5 billion to $2.5 billion, 0.39% on assets from $2.5 billion to $4 billion,
0.38% on assets from $4 billion to $6.5 billion, and 0.375% on assets over $6.5
billion. The latter fee schedule provides for lower fees when net assets
exceed $3 billion.
The Agreement provides for an advisory fee reduction by any amount
necessary to assure that the fund's annual ordinary net operating expenses do
not exceed applicable expense limitations in any state in which the fund's
shares are being offered for sale. Only one state (California) continues to
impose expense limitations on funds registered for sale therein. The
California provision currently limits annual expenses to the sum of 2 1/2% of
the first $30 million of average net assets, 2% of the next $70 million and 1
1/2% of the remaining average net assets. Rule 12b-1 distribution plan
expenses are excluded from this limit. Other expenses which are not subject to
this limitation are interest, taxes, and extraordinary items such as
litigation. Expenditures, including costs incurred in connection with the
purchase or sale of portfolio securities, which are capitalized in accordance
with generally accepted accounting principles applicable to investment
companies, are accounted for as capital items and not as expenses.
During the fiscal years ended November 30, 1996, 1995 and 1994, the
Investment Adviser's total fees amounted to $17,016,000, $13,517,000, and
$10,711,000, respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the Principal
Underwriter) is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio, TX
78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240 and 5300 Robin
Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of Distribution (the
"Plan"), pursuant to rule 12b-1 under the 1940 Act. The Principal Underwriter
receives amounts payable pursuant to the Plan (see below) and commissions
consisting of that portion of the sales charge remaining after the discounts
which it allows to investment dealers. Commissions retained by the Principal
Underwriter on sales of fund shares during the fiscal year ended November 30,
1996 amounted to $2,388,000 after allowance of $12,134,000 to dealers. During
the fiscal years ended November 30, 1995 and 1994 the Principal Underwriter
retained $2,620,000 and $4,309,000 respectively.
As required by rule 12b-1, the Plan (together with the Principal
Underwriting Agreement) has been approved by a majority of the entire Board of
Trustees, and separately by a majority of the Trustees who are not "interested
persons" of the fund and who have no direct or indirect financial interest in
the operation of the Plan or the Principal Underwriting Agreement, and the Plan
has been approved by the vote of a majority of the outstanding voting
securities of the fund. The officers and Trustees who are "interested persons"
of the fund may be considered to have a direct or indirect financial interest
in the operation of the Plan due to present or past affiliations with the
Investment Adviser and related companies. Potential benefits of the Plan to
the fund include improved shareholder services, savings to the fund in transfer
agency costs, savings to the fund in advisory fees and other expenses, benefits
to the investment process from growth or stability of assets and maintenance of
a financially healthy management organization. The selection and nomination of
Trustees who are not "interested persons" of the fund is committed to the
discretion of the Trustees who are not "interested persons" during the
existence of the Plan. The Plan is reviewed quarterly and must be renewed
annually by the Board of Trustees.
Under the Plan the fund may expend up to 0.25% of its average net assets
annually to finance any activity which is primarily intended to result in the
sale of fund shares provided the fund's Board of Trustees has approved the
category of expenses for which payment is being made. These include service
fees for qualified dealers and wholesaler compensation on sales of shares
exceeding $1 million (including purchases by any employer-sponsored 403(b) plan
or purchases by any defined contribution plan qualified under Section 401(a) of
the Internal Revenue Code including a 401 (k) plan with 200 or more eligible
employees). Only expenses incurred during the preceding 12 months and accrued
while the Plan is in effect may be paid by the fund. During the year ended
November 30, 1996, the fund paid or accrued $8,452,000 for compensation to
dealers under the Plan.
The Glass-Stegall Act and other applicable laws, among other things,
generally prohibit commercial banks from engaging in the business of
underwriting, selling or distributing securities, but permit banks to make
shares of mutual funds available to their customers and to perform
administrative and shareholder servicing functions. However, judicial or
administrative decisions or interpretations of such laws, as well as changes in
either federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries of affiliates, could prevent a bank
from continuing to perform all or a part of its servicing activities. If a
bank were prohibited from so acting, shareholder clients of such bank would be
permitted to remain shareholders of the fund and alternate means for continuing
the servicing of such shareholders would be sought. In such event, changes in
the operation of the fund might occur and shareholders serviced by such bank
might no longer be able to avail themselves of any automatic investment or
other services then being provided by such bank. It is not expected that
shareholders would suffer adverse financial consequences as a result of any of
these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and certain banks and financial
institutions may be required to be registered as dealers pursuant to state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements and has elected the tax
status of a "regulated investment company" under the provisions of Subchapter M
of the Internal Revenue Code of 1986, (the Code). Under Subchapter M, if the
fund distributes within specified times at least 90% of the sum of its
investment company taxable income, it will be taxed only on that portion of
such investment company taxable income that it retains.
To qualify, the fund must (a) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, and
gains from the sale or other disposition of stock, securities, currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; (b) derive less than 30% of its gross income from the
sale or other disposition of stock or securities held for less than three
months; and (c) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the fund's assets is
represented by cash, U.S. Government securities, securities of other regulated
investment companies, and other securities, but such other securities must be
limited, in respect of any one issuer, to an amount not greater than 5% of the
fund's assets and 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its assets is invested in the securities
of any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies), or in two or more issuers which the fund
controls and which are engaged in the same or similar trades or businesses or
related trades or businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess
of a regulated investment company's "required distribution" for the calendar
year ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gains (both long-term and
short-term) for the one-year period ending on October 31 (as though the
one-year period ending on October 31 were the regulated investment company's
taxable year), and (iii) the sum of any untaxed, undistributed net investment
income and net capital gains of the regulated investment company for prior
periods. The term "distributed amount" generally means the sum of (i) amounts
actually distributed by the fund from its current year's ordinary income and
capital gain net income and (ii) any amount on which the fund pays income tax
for the year. The fund intends to distribute net investment income and net
capital gains so as to minimize or avoid the excise tax liability.
The amount of any realized gain or loss on closing out a forward currency
contract such as a forward commitment for the purchase or sale of foreign
currency will generally result in a realized capital gain or loss for tax
purposes. Under Code Section 1256, forward currency contracts held by the fund
at the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes, that is, deemed to have been sold at market value.
Code Section 988 may also apply to forward currency contracts. Under Section
988, each foreign currency gain or loss is generally computed separately and
treated as ordinary income or loss. In the case of overlap between Sections
1256 and 988, special provisions determine the character and timing of any
income, gain or loss. The fund will attempt to monitor Section 988
transactions to avoid an adverse tax impact.
Distributions of investment company taxable income, including short-term
capital gains, generally are taxable to the shareholder as ordinary income,
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the fund. The fund also intends to continue distributing
to shareholders all of the excess of net long-term capital gain over net
short-term capital loss on sales of securities. A capital gain distribution,
whether paid in cash or reinvested in shares, is taxable to shareholders as
long-term capital gains, regardless of the length of time a shareholder has
held the shares or whether such gain was realized by the fund before the
shareholder acquired such shares and was reflected in the price paid for the
shares.
Except for transactions the fund has identified as hedging transactions,
the fund is required for federal income tax purposes to recognize as income for
each taxable year its net unrealized gains and losses on forward currency
contracts as of the end of the year as well as those actually realized during
the year.
Sales of forward currency contracts which are intended to hedge against a
change in the value of securities or currencies held by the fund may affect the
holding period of such securities or currencies and, consequently, the nature
of the gain or loss on such securities or currencies upon disposition.
It is anticipated that any net gain realized from the closing out of
forward currency contracts will be considered gain from the sale of securities
or currencies and therefore be qualifying income for purposes of the 90% of
gross income from qualified sources requirement, as discussed above. In order
to avoid realizing excessive gains on securities or currencies held less than
three months, the fund may be required to defer the closing out of a forward
currency contract beyond the time when it would otherwise be advantageous to do
so. It is anticipated that unrealized gains on forward currency contracts,
which have been open for less than three months as of the end of the fund's
fiscal year and which are recognized for tax purposes, will not be considered
gains on securities or currencies held less than three months for purposes of
the 30% test, as discussed above.
The fund will distribute to shareholders annually any net long-term
capital gains which have been recognized for federal income tax purposes
(including unrealized gains at the end of the fund's fiscal year) on forward
currency contract transactions. Such distributions will be combined with
distributions of capital gains realized on the fund's other investments.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the fund pays the dividend during
January of the following year.
If a shareholder exchanges or otherwise disposes of shares of the fund
within 90 days of having acquired such shares, and if, as a result of having
acquired those shares, the shareholder subsequently pays a reduced sales charge
for shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, nonresident
alien fiduciary of a trust or estate, non-U.S. corporation, or non-U.S.
partnership (a non-U.S. shareholder) will be subject to U.S. withholding tax
(at a rate of 30% or lower treaty rate). Withholding will not apply if a
dividend paid by the fund to a non-U.S. shareholder is "effectively connected"
with a U.S. trade or business, in which case the reporting and withholding
requirements applicable to U.S. citizens, U.S. residents, or domestic
corporations will apply. However, if the distribution is effectively connected
with the conduct of the non-U.S. shareholder's trade or business within the
U.S., the distribution would be included in the net income of the shareholder
and subject to U.S. income tax at the applicable marginal rate. Distributions
of net long-term capital gains are not subject to tax withholding, but if the
non-U.S. shareholder was an individual who was physically present in the U.S.
during the tax year for more than 182 days and such shareholder is nonetheless
treated as a nonresident alien, the distributions would be subject to a 30%
tax.
The fund may be required to pay withholding and other taxes imposed by
foreign countries generally at rates from 10% to 40% which would reduce the
fund's investment income. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. If more than 50% in value of
the fund's total assets at the close of its taxable year consists of securities
of foreign issuers, the fund will be eligible to file elections with the
Internal Revenue Service pursuant to which shareholders of the fund will be
required to include their respective pro rata portions of such withholding
taxes in their federal income tax returns as gross income, treat such amounts
as foreign taxes paid by them, and deduct such amounts in computing their
taxable incomes or, alternatively, use them as foreign tax credits against
their federal income taxes. In any year the fund makes such an election,
shareholders will be notified as to the amount of foreign withholding and other
taxes paid by the fund.
As of the date of this statement of additional information, the maximum
federal individual stated tax rate applicable to ordinary income is 39.6%
(effective tax rates may be higher for some individuals due to phase out of
exemptions and elimination of deductions); the maximum individual tax rate
applicable to net capital gain is 28%; and the maximum corporate tax applicable
to ordinary income and net capital gain is 35%. However, to eliminate the
benefit of lower marginal corporate income tax rates, corporations which have
taxable income in excess of $100,000 for a taxable year will be required to pay
an additional income tax liability up to $11,700 and corporations which have
taxable income in excess of $15,000,000 for a taxable year will be required to
pay and additional amount of tax up to $100,000. Naturally, the amount of tax
payable by a taxpayer will be affected by a combination of tax law rules
covering, E.G., deductions, credits, deferrals, exemptions, sources of income
and other matters. Under the Code, an individual is entitled to establish and
contribute to an IRA each year (prior to the tax return filing deadline for
that year) whereby earnings on investments are tax-deferred. In addition, in
some cases, the IRA contribution itself may be deductible.
The foregoing is limited to a summary federal taxation and should not be
viewed as a comprehensive discussion of all provisions of the Code relevant to
investors. Dividends and capital gain distributions may also be subject to
state or local taxes. Shareholders should consult their own tax advisers for
additional details as to their particular tax status.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
<S> <C> <C>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
See "Investment Minimums and $50 minimum (except where a lower
Fund Numbers" for initial minimum is noted under "Investment
investment minimums. Minimums and Fund Numbers").
By contacting Visit any investment dealer Mail directly to your investment
your investment who is registered in the state dealer's address printed on your
dealer where the purchase is made and account statement.
who has a sales agreement with
American Funds Distributors.
By mail Make your check payable to the Fill out the account additions form
fund and mail to the address at the bottom of a recent account
indicated on the account statement, make your check payable
application. Please indicate to the fund, write your account
an investment dealer on the number on your check, and mail the
account application. check and form in the envelope
provided with your account
statement.
By telephone Please contact your investment Complete the "Investments by Phone"
dealer to open account, then section on the account application
follow the procedures for or American FundsLink Authorization
additional investments. Form.
Once you establish the privilege,
you, your financial advisor or any
person with your account
information can call American
FundsLine(r) and make investments by
telephone (subject to conditions
noted in "Shareholder Account
Services and Privileges - Telephone
Redemptions and Exchanges" below).
By wire Call 800/421-0180 to obtain Your bank should wire your
your account number(s), if additional investments in the same
necessary. Please indicate an manner as described under "Initial
investment dealer on the Investment."
account. Instruct your bank
to wire funds to:
Wells Fargo Bank
155 Fifth Street
Sixth Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service
Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS - Here are the minimum initial investments
required by the funds in The American Funds Group along with fund numbers for
use with our automated phone line, American FundsLine(r) (see description
below):
<TABLE>
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<S> <C> <C>
MINIMUM FUND
FUND INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(r) 02
$1,000
American Balanced Fund(r) 11
500
American Mutual Fund(r) 03
250
Capital Income Builder(r) 12
1,000
Capital World Growth and Income Fund(sm) 33
1,000
EuroPacific Growth Fund(r) 16
250
Fundamental Investors(sm) 10
250
The Growth Fund of America(r) 05
1,000
The Income Fund of America(r) 06
1,000
The Investment Company of America(r) 04
250
The New Economy Fund(r) 14
1,000
New Perspective Fund(r) 07
250
SMALLCAP World Fund(r) 35
1,000
Washington Mutual Investors Fund(sm) 01
250
BOND FUNDS
American High-Income Municipal Bond Fund(r) 40
1,000
American High-Income Trust(sm) 21
1,000
The Bond Fund of America(sm) 08
1,000
Capital World Bond Fund(r) 31
1,000
Intermediate Bond Fund of America(sm) 23
1,000
Limited Term Tax-Exempt Bond Fund of America(sm) 43
1,000
The Tax-Exempt Bond Fund of America(r) 19
1,000
The Tax-Exempt Fund of California(r)* 20
1,000
The Tax-Exempt Fund of Maryland(r)* 24
1,000
The Tax-Exempt Fund of Virginia(r)* 25
1,000
U.S. Government Securities Fund(sm) 22
1,000
MONEY MARKET FUNDS
The Cash Management Trust of America(r) 09
2,500
The Tax-Exempt Money Fund of America(sm) 39
2,500
The U.S. Treasury Money Fund of America(sm) 49
2,500
___________
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for individual retirement accounts
(IRAs). Minimums are reduced to $50 for purchases through "Automatic
Investment Plans" (except for the money market funds) or to $25 for purchases
by retirement plans through payroll deductions and may be reduced or waived for
shareholders of other funds in The American Funds Group. TAX-EXEMPT FUNDS
SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS. The minimum is $50 for
additional investments (except as noted above).
DEALER COMMISSIONS - The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
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<CAPTION>
<S> <C> <C> <C>
SALES CHARGE AS DEALER
AMOUNT OF PURCHASE PERCENTAGE OF THE: CONCESSION
AT THE OFFERING PRICE AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND FUNDS
Less than $50,000
6.10% 5.75% 5.00%
$50,000 but less than $100,000
4.71 4.50 3.75
BOND FUNDS
Less than $25,000
4.99 4.75 4.00
$25,000 but less than $50,000
4.71 4.50 3.75
$50,000 but less than $100,000
4.17 4.00 3.25
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000
3.63 3.50 2.75
$250,000 but less than $500,000
2.56 2.50 2.00
$500,000 but less than $1,000,000
2.04 2.00 1.60
$1,000,000 or more (see below)
none none
</TABLE>
Commissions of up to 1% will be paid to dealers who initiate and are
responsible for purchases of $1 million or more, for purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees, and for purchases made at
net asset value by certain retirement plans of organizations with collective
retirement plan assets of $100 million or more: 1.00% on amounts of $1 million
to $2 million, 0.80% on amounts over $2 million to $3 million, 0.50% on amounts
over $3 million to $50 million, 0.25% on amounts over $50 million to $100
million, and 0.15% on amounts over $100 million. The level of dealer
commissions will be determined based on sales made over a 12-month period
commencing from the date of the first sale at net asset value.
American Funds Distributors, at its expense (from a designated percentage of
its income), will, during calendar year 1997, provide additional compensation
to dealers. Currently these payments are limited to the top one hundred dealers
who have sold shares of the fund or other funds in The American Funds Group.
These payments will be based on a pro rata share of a qualifying dealer's
sales. American Funds Distributors will, on an annual basis, determine the
advisability of continuing these payments.
Any employer-sponsored 403(b) plan or defined contribution plan qualified under
Section 401(a) of the Internal Revenue Code including a "401(k)" plan with 200
or more eligible employees or any other purchaser investing at least $1 million
in shares of the fund (or in combination with shares of other funds in The
American Funds Group other than the money market funds) may purchase shares at
net asset value; however, a contingent deferred sales charge of 1% is imposed
on certain redemptions made within twelve months of the purchase. (See
"Redeeming Shares--Contingent Deferred Sales Charge.")
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
NET ASSET VALUE PURCHASES - The stock, stock/bond and bond funds may sell
shares at net asset value to: (1) current or retired directors, trustees,
officers and advisory board members of the funds managed by Capital Research
and Management Company, employees of Washington Management Corporation,
employees and partners of The Capital Group Companies, Inc. and its affiliated
companies, certain family members of the above persons, and trusts or plans
primarily for such persons; (2) current registered representatives, retired
registered representatives with respect to accounts established while active,
or full-time employees (and their spouses, parents, and children) of dealers
who have sales agreements with American Funds Distributors (or who clear
transactions through such dealers) and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer; (4) trustees or other fiduciaries purchasing shares for
certain retirement plans of organizations with retirement plan assets of $100
million or more; (5) insurance company separate accounts; (6) accounts managed
by subsidiaries of The Capital Group Companies, Inc.; and (7) The Capital Group
Companies, Inc., its affiliated companies and Washington Management
Corporation. Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
STATEMENT OF INTENTION - The reduced sales charges and offering prices set
forth in the rospectus apply to purchases of $50,000 or more made within a
13-month period subject to a statement of intention (the "Statement"). The
Statement is not a binding obligation to purchase the indicated amount. When a
shareholder elects to utilize a Statement in order to qualify for a reduced
sales charge, shares equal to 5% of the dollar amount specified in the
Statement will be held in escrow in the shareholder's account out of the
initial purchase (or subsequent purchases, if necessary) by the Transfer Agent.
All dividends and any capital gain distributions on shares held in escrow will
be credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the specified
13-month period, the purchaser will remit to the Principal Underwriter the
difference between the sales charge actually paid and the sales charge which
would have been paid if the total of such purchases had been made at a single
time. If the difference is not paid within 45 days after written request by
the Principal Underwriter or the securities dealer, the appropriate number of
shares held in escrow will be redeemed to pay such difference. If the proceeds
from this redemption are inadequate, the purchaser will be liable to the
Principal Underwriter for the balance still outstanding. The Statement may be
revised upward at any time during the 13-month period, and such a revision will
be treated as a new Statement, except that the 13-month period during which the
purchase must be made will remain unchanged and there will be no retroactive
reduction of the sales charges paid on prior purchases. Existing holdings
eligible for rights of accumulation (see the prospectus and account
application) may be credited toward satisfying the Statement. During the
Statement period reinvested dividends and capital gain distributions,
investments in money market funds, and investments made under a right of
reinstatement will not be credited toward satisfying the Statement.
In the case of purchase orders by the trustees of certain retirement plans by
payroll deduction, the sales charge for the investments made during the
13-month period will be handled as follows: The regular monthly payroll
deduction investment will be multiplied by 13 and then multiplied by 1.5. The
current value of existing American Funds investments (other than money market
fund investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period are
added to the figure determined above. The sum is the Statement amount and
applicable breakpoint level. On the first investment and all other investments
made pursuant to the Statement, a sales charge will be assessed according to
the sales charge breakpoint thus determined. There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing shares for their
own account(s), which may include purchases through employee benefit plan(s)
such as an IRA, individual-type 403(b) plan or single-participant Keogh-type
plan or by a business solely controlled by these individuals (for example, the
individuals own the entire business) or by a trust (or other fiduciary
arrangement) solely for the benefit of these individuals. Individual purchases
by a trustee(s) or other fiduciary(ies) may also be aggregated if the
investments are (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above or (2) made for two
or more employee benefit plans of a single employer or of affiliated employers
as defined in the Investment Company Act of 1940, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
PRICE OF SHARES - Purchases of shares are made at the offering price next
determined after the purchase order is received by the fund or American Funds
Service; this offering price is effective for orders received prior to the time
of determination of the net asset value and, in the case of orders placed with
dealers, accepted by the Principal Underwriter prior to its close of business.
In the case of orders sent directly to the fund or American Funds Service
Company, an investment dealer MUST be indicated. The dealer is responsible for
promptly transmitting purchase orders to the Principal Underwriter. Orders
received by the investment dealer, the Transfer Agent, or the fund after the
time of the determination of the net asset value will be entered at the next
calculated offering price. The prices which appear in the newspaper are not
always indicative of prices at which you will be purchasing and redeeming
shares of the fund, since such prices generally reflect the previous day's
closing price whereas purchases and redemptions are made at the next calculated
price.
The price you pay for shares, the offering price, is based on the net
asset value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York Time) each day the New York Stock Exchange is
open as set forth below. The New York Stock Exchange is currently closed on
weekends and on the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas
Day. The net asset value per share is determined as follows:
1. Stocks, and convertible bonds and debentures, traded on the New York Stock
Exchange are valued at the last sale price on such exchange on the day of
valuation, or if there is no sale on the day of valuation, at the last-reported
bid price. Nonconvertible bonds and debentures, and other long-term debt
securities normally are valued at prices obtained for the day of valuation from
a bond pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, an
over-the-counter or exchange quotation may be used. Securities traded
primarily on securities exchanges outside the U.S. are valued at the last sale
price on such exchanges on the day of valuation, or if there is no sale on the
day of valuation, at the last-reported bid price. U.S. Treasury bills,
certificates of deposit issued by banks, corporate short-term notes and other
short-term investments with original or remaining maturities in excess of 60
days are valued at the mean of representative quoted bid and asked prices for
such securities or, if such prices are not available, for securities of
comparable maturity, quality and type. Short-term securities with 60 days or
less to maturity are amortized to maturity based on their cost to the fund if
acquired within 60 days of maturity or, if already held by the fund on the 60th
day, based on the value determined on the 61st day. Other securities are
valued on the basis of last sale or bid prices in what is, in the opinion of
the Investment Adviser, the broadest and most representative market, which may
be either a securities exchange or the over-the-counter market. Where
quotations are not readily available, securities are valued at fair value as
determined in good faith by the Board of Trustees. The fair value of all other
assets is added to the value of securities to arrive at the total assets;
2. There are deducted from the total assets, thus determined, the liabilities,
including accruals of taxes and other expense items; and
3. The net assets so obtained are then divided by the total number of shares
outstanding (excluding treasury shares), and the result, rounded to the nearer
cent, is the net asset value per share.
Any purchase order may be rejected by the Principal Underwriter or the
fund. The fund will not knowingly sell shares (other than for the reinvestment
of dividends or capital gain distributions) directly or indirectly or through a
unit investment trust to any other investment company, person or entity, where,
after the sale, such investment company, person, or entity would own
beneficially, directly, indirectly, or through a unit investment trust more
than 4.5% of the outstanding shares of the fund without the consent of a
majority of the Board of Trustees.
REDEEMING SHARES
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By writing to American Funds Service Send a letter of instruction specifying the name of
Company (at the appropriate address the fund, the number of shares or dollar amount to be
indicated under "Fund sold, your name and account number. You should also
Organization and Management - enclose any share certificates you wish to redeem.
Principal Underwriter and For redemptions over $50,000 and for certain
Transfer Agent" in the prospectus) redemptions of $50,000 or less (see below), your
signature must be guaranteed by a bank, savings
association, credit union, or member firm of a
domestic stock exchange or the National Association
of Securities Dealers, Inc. that is an eligible
guarantor institution. You should verify with the
institution that it is an eligible guarantor prior to
signing. Additional documentation may be required
for redemption of shares held in corporate,
partnership or fiduciary accounts. Notarization by a
Notary Public is not an acceptable signature
guarantee.
By contacting your investment dealer If you redeem shares through your investment dealer,
you may be charged for this service. SHARES HELD FOR
YOU IN YOUR INVESTMENT DEALER'S STREET NAME MUST BE
REDEEMED THROUGH THE DEALER.
You may have a redemption You may use this option, provided the account is
check sent to you by using registered in the name of an individual(s), a
American FundsLine(r) or by UGMA/UTMA custodian, or a non-retirement plan trust.
telephoning, faxing, or These redemptions may not exceed $10,000 per day, per
telegraphing American Funds Service fund account and the check must be made payable to
Company (subject to the conditions the shareholder(s) of record and be sent to the
noted in this section and in "Other address of record provided the address has been used
Important Things to Remember - with the account for at least 10 days. See "Fund
Telephone Purchases, Sales and Organization and Management - Principal Underwriter
Exchanges" in the prospectus) and Transfer Agent" in the Prospectus and "Exchange
Privilege" below for the appropriate telephone or fax
number.
In the case of the money Upon request (use the account application for the
market funds, you may have money market funds) you may establish telephone
redemptions wired to your redemption privileges (which will enable you to have
bank by telephoning American Funds a redemption sent to your bank account) and/or check
Service Company ($1,000 or more) or writing privileges. If you request check writing
by writing a check ($250 or more) privileges, you will be provided with checks that you
may use to draw against your account. These checks
may be made payable to anyone you designate and must
be signed by the authorized number of registered
shareholders exactly as indicated on your checking
account signature card.
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A SIGNATURE GUARANTEE IS NOT CURRENTLY REQUIRED FOR ANY REDEMPTION OF $50,000
OR LESS PROVIDED THE REDEMPTION CHECK IS MADE PAYABLE TO THE REGISTERED
SHAREHOLDER(S) AND IS MAILED TO THE ADDRESS OF RECORD, PROVIDED THE ADDRESS HAS
BEEN USED WITH THE ACCOUNT FOR AT LEAST 10 DAYS.
CONTINGENT DEFERRED SALES CHARGE - A contingent deferred sales charge of 1%
applies to certain redemptions made within twelve months of purchase on
investments of $1 million or more and on any investment made with no initial
sales charge by any employer-sponsored 403(b) plan or defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 200 or more eligible employees. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares. Shares held
for the longest period are assumed to be redeemed first for purposes of
calculating this charge. The charge is waived for exchanges (except if shares
acquired by exchange were then redeemed within 12 months of the initial
purchase); for distributions from qualified retirement plans and other employee
benefit plans; for redemptions resulting from participant-directed switches
among investment options within a participant-directed employer-sponsored
retirement plan; for distributions from 403(b) plans or IRAs due to death,
disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge;
and for redemptions in connection with loans made by qualified retirement
plans.
REDEMPTION OF SHARES - The fund's Declaration of Trust permits the fund to
redeem the shares of any shareholder, at the current net asset value per share,
if at such time the shareholder owns shares having an aggregate net asset value
of less than the minimum initial investment required of new shareholders
($1,000).
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select. Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
at least quarterly. Participation in the plan will begin within 30 days after
receipt of the account application. If the shareholder's bank account cannot
be charged due to insufficient funds, a stop-payment order or closing of the
account, the plan may be terminated and the related investment reversed. The
shareholder may change the amount of the investment or discontinue the plan at
any time by writing to the Transfer Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, American
Funds Service Company or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - A shareholder in one fund
may elect to cross-reinvest dividends or dividends and capital gain
distributions paid by that fund (the paying fund) into any other fund in The
American Funds Group (the receiving fund) subject to the following conditions:
(i) the aggregate value of the shareholder's account(s) in the paying fund(s)
must equal or exceed $5,000 (this condition is waived if the value of the
account in the receiving fund equals or exceeds that fund's minimum initial
investment requirement), (ii) as long as the value of the account in the
receiving fund is below that fund's minimum initial investment requirement,
dividends and capital gain distributions paid by the receiving fund must be
automatically reinvested in the receiving fund, and (iii) if this privilege is
discontinued with respect to a particular receiving fund, the value of the
account in that fund must equal or exceed the fund's minimum initial investment
requirement or the fund shall have the right, if the shareholder fails to
increase the value of the account to such minimum within 90 days after being
notified of the deficiency, automatically to redeem the account and send the
proceeds to the shareholder. These cross-reinvestments of dividends and
capital gain distributions will be at net asset value (without sales charge).
EXCHANGE PRIVILEGE - You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to American Funds Service Company (see
"Redeeming Shares"), by contacting your investment dealer, by using American
FundsLine(r) (see "American FundsLine(r)" below), or by telephoning
800/421-0180 toll-free, faxing (see "Principal Underwriter and Transfer Agent"
in the prospectus for the appropriate fax numbers) or telegraphing American
Funds Service Company. (See "Telephone Redemptions and Exchanges" below.)
Shares held in corporate-type retirement plans for which Capital Guardian Trust
Company serves as trustee may not be exchanged by telephone, fax or telegraph.
Exchange redemptions and purchases are processed simultaneously at the share
prices next determined after the exchange order is received. (See "Purchase of
Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS
ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from American Funds Service Company. Purchases through
automatic investment plans and certain retirement plans will be confirmed at
least quarterly.
AMERICAN FUNDSLINE(R) - You may check your share balance, the price of your
shares, or your most recent account transaction, redeem shares (up to $10,000
per fund, per account each day), or exchange shares around the clock with
American FundsLine(r). To use this service, call 800/325-3590 from a TouchTonet
telephone. Redemptions and exchanges through American FundsLine(r) are subject
to the conditions noted above and in "Telephone Redemptions and Exchanges"
below. You will need your fund number (see the list of funds in The American
Funds Group under "Purchase of Shares--Investment Minimums and Fund Numbers"),
personal identification number (the last four digits of your Social Security
number or other tax identification number associated with your account) and
account number.
TELEPHONE REDEMPTIONS AND EXCHANGES - By using the telephone (including
American FundsLine(r)), fax or telegraph redemption and/or exchange options,
you agree to hold the fund, American Funds Service Company, any of its
affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from
any losses, expenses, costs or liability (including attorney fees) which may be
incurred in connection with the exercise of these privileges. Generally, all
shareholders are automatically eligible to use these options. However, you may
elect to opt out of these options by writing American Funds Service Company
(you may also reinstate them at any time by writing American Funds Service
Company). If American Funds Service Company does not employ reasonable
procedures to confirm that the instructions received from any person with
appropriate account information are genuine, the fund may be liable for losses
due to unauthorized or fraudulent instructions. In the event that shareholders
are unable to reach the fund by telephone because of technical difficulties,
market conditions, or a natural disaster, redemption and exchange requests may
be made in writing only.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker is in a position to obtain the
best price and execution, the order is placed with that broker. This may or
may not be a broker who has provided investment research, statistical, or other
related services to the Investment Adviser or has sold shares of the fund or
other funds served by the Investment Adviser. The fund does not consider that
it has an obligation to obtain the lowest available commission rate to the
exclusion of price, service and qualitative considerations.
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The fund will not pay a mark-up for
research in principal transactions.
Brokerage commissions paid on portfolio transactions for the fiscal years
ended November 30, 1996, 1995 and 1994 amounted to $2,495,000, $2,615,000 and
$2,437,000 respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by State Street Bank and Trust Company, 225 Franklin Street, Boston,
MA 02101, as Custodian. Non-U.S. securities may be held by the Custodian
pursuant to sub-custodial arrangements in non-U.S. banks or foreign branches of
U.S. banks.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $4,626,000 for the fiscal year ended November 30, 1996.
INDEPENDENT AUDITORS - Deloitte & Touche LLP, 1000 Wilshire Boulevard, 15th
Floor, Los Angeles, CA 90017, have served as the fund's independent auditors
since its inception, providing audit services, preparation of tax returns and
review of certain documents to be filed with the Securities and Exchange
Commission. The financial statements included in this Statement of Additional
Information from the Annual Report have been so included in reliance on the
report of Deloitte & Touche LLP given on the authority of said firm as experts
in auditing and accounting.
REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on November 30.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio, financial statements and other information. The
financial statements are audited annually by the fund's independent auditors,
Deloitte & Touche LLP, whose selection is determined annually by the Board of
Trustees.
PERSONAL INVESTING POLICY - Capital Research and Management Company and its
affiliated companies have adopted a personal investing policy consistent with
Investment Company Institute guidelines. This policy includes: a ban on
acquisitions of securities pursuant to an initial public offering; restrictions
on acquisitions of private placement securities; pre-clearance and reporting
requirements; review of duplicate confirmation statements; annual
recertification of compliance with codes of ethics; disclosure of personal
holdings by certain investment personnel prior to recommendation for purchase
for the fund; blackout periods on personal investing for certain investment
personnel; ban on short-term trading profits for investment personnel;
limitations on service as a director of publicly traded companies; and
disclosure of personal securities transactions.
SHAREHOLDER AND TRUSTEE RESPONSIBILITY - Under the laws of certain states,
including Massachusetts where the fund was organized and California where the
fund's principal office is located, shareholders of a Massachusetts business
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the fund. However, the risk of a shareholder incurring
any financial loss on account of shareholder liability is limited to
circumstances in which the fund itself would be unable to meet its obligations.
The Declaration of Trust contains an express disclaimer of shareholder
liability for acts, omissions, obligations or affairs of the fund and provides
that notice of the disclaimer may be given in each agreement, obligation, or
instrument which is entered into or executed by the fund or Trustees. The
Declaration of Trust provides for indemnification out of fund property of any
shareholder held personally liable for the obligations of the fund and also
provides for the fund to reimburse such shareholder for all legal and other
expenses reasonably incurred in connection with any such claim or liability.
Under the Declaration of Trust, the Trustees, officers, employees or
agents of the fund are not liable for actions or failure to act; however, they
are not protected from liability by reason of their willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of their office.
SHAREHOLDER VOTING RIGHTS - At any meeting of shareholders, duly called and at
which a quorum is present, the shareholders may, by the affirmative vote of the
holders of a majority of the votes entitled to be cast thereon, remove any
trustee or trustees from office and may elect a successor or successors to fill
any resulting vacancies for the unexpired terms of removed trustees. The fund
has made an undertaking, at the request of the staff of the Securities and
Exchange Commission, to apply the provisions of section 16(c) of the 1940 Act
with respect to the removal of trustees, as though the fund were a common-law
trust. Accordingly, the trustees of the fund shall promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
trustee when requested in writing to do so by the record holders of not less
than 10% of the outstanding shares.
The financial statements including the investment portfolio and the report
of Independent Auditors contained in the Annual Report are included in this
Statement of Additional Information. The following information is not included
in the Annual Report:
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DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE -- NOVEMBER 30, 1996
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Net asset value and redemption price per share $18.50
(Net assets divided by shares outstanding)
Maximum offering price per share (100/94.25 of per $19.63
share net asset value, which takes into account
the fund's current maximum sales load)
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INVESTMENT RESULTS
The fund's yield is 0.80% based on a 30-day (or one month) period ended
November 30, 1996, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[(a-b/cd+1)/6/-1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund's total return for the past 12 months and average annual total
returns over the past five- and ten-year periods as of November 30, 1996 were
8.36%, 15.91% and 13.23%, respectively. The average total return ("T") is
computed by equating the value at the end of the period ("ERV") with a
hypothetical initial investment of $1,000 ("P") over a period of years ("n")
according to the following formula as required by the Securities and Exchange
Commission: P(1+T)/n/ = ERV.
To calculate total return, an initial investment is divided by the public
offering price (which includes the sales charge) as of the first day of the
period in order to determine the initial number of shares purchased. Subsequent
dividends and capital gain distributions are reinvested at net asset value on
the reinvestment date determined by the Board of Trustees. The sum of the
initial shares purchased and shares acquired through reinvestment is multiplied
by the net asset value per share as of the end of the period in order to
determine ending value. The difference between the ending and the initial
investment value divided by the initial investment converted to a percentage
equals total return. The resulting percentage indicates the positive or
negative investment results that an investor would have experienced from
reinvested dividends and capital gain distributions and changes in share price
during the periods. Total return may be calculated for one-year, five-years,
ten-years and for other periods. The average annual total return over periods
greater than one year may also be computed by utilizing ending values as
determined above.
The following assumptions will be reflected in computations made in
accordance with the formulas stated above: (1) deduction of the maximum sales
load of 5.75% from the $1,000 initial investment; (2) reinvestment of dividends
and distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
The fund may also, at times, calculate total return based on net asset
value per share (rather than the offering price), in which case the figure
would not reflect the effect of any sales charges which would have been paid if
shares were purchased during the period reflected in the computation.
Consequently, total return calculated in this manner will be higher. These
total returns may be calculated over periods in addition to those described
above. Total return for the unmanaged indices will be calculated assuming
reinvestment of dividends and interest, but will not reflect any deductions for
advisory fees, brokerage costs or administrative expenses.
The fund may also calculate a distribution rate on a taxable and tax
equivalent basis. The distribution rate is computed by dividing the dividends
paid by the fund over the last 12 months by the sum of the month-end net asset
value or maximum offering price and the capital gains paid over the last 12
months. The distribution rate may differ from the yield.
The fund may include information on its investment results and/or
comparisons of its investment results to various unmanaged indices (such as The
Dow Jones Average of 30 Industrial Stocks and The Standard and Poor's 500 Stock
Composite Index) or results of other mutual funds or investment or savings
vehicles in advertisements or in reports furnished to present or prospective
shareholders.
The fund may refer to results compiled by organizations such as CDA
Investment Technologies, Ibbottson Associates, Lipper Analytical Services,
Morningstar, Inc., Wiesenberger Investment Companies Services and the U.S.
Department of Commerce. Additionally, the fund may, from time to time, refer
to results published in various periodicals, including BARRON'S, FORBES,
FORTUNE, INSTITUTIONAL INVESTOR, KIPLINGER'S PERSONAL FINANCE MAGAZINE, MONEY,
U.S. NEWS AND WORLD REPORT and THE WALL STREET JOURNAL.
The fund may, from time to time, compare its investment results with the
following:
(1) Average of Savings Institutions deposits, which is a measure of all kinds
of savings deposits, including longer-term certificates (based on figures
supplied by the U.S. League of Savings Institutions and the Federal Reserve
Board). Savings deposits offer a guaranteed rate of return on principal, but
no opportunity for capital growth. The period shown may include periods during
which the maximum rates paid on some savings deposits were fixed by law.
(2) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g. food,
clothing, shelter, and fuels, transportation fares, charges for doctors' and
dentists' services, prescription medicines, and other goods and services that
people buy for day-to-day living).
The fund may from time to time illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans.
EXPERIENCE OF THE INVESTMENT ADVISER - Capital Research and Management Company
manages nine common stock funds that are at least 10 years old. In the rolling
10-year periods since January 1, 1967 (127 in all), those funds have had better
total returns than the Standard and Poor's 500 Composite Stock Index in 91 of
the 127 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
The investment results set forth below were calculated as described in the
fund's prospectus. The fund's results will vary from time to time depending
upon market conditions, the composition of the fund's portfolio and operating
expenses of the fund, so that any investment results reported by the fund
should not be considered representative of what an investment in the fund may
earn in any future period. These factors and possible differences in
calculation methods should be considered when comparing the fund's investment
results with those published for other mutual funds, other investment vehicles
and unmanaged indices. The fund's results also should be considered relative
to the risks associated with the fund's investment objective and policies.
NEF VS. VARIOUS UNMANAGED INDICES
<TABLE>
<CAPTION>
Period NEF S&P 500/1/ DJIA/2/ NYSE/3/
<S> <C> <C> <C> <C>
12/1/83 - 11/30/96 +486% +599% +706% +314%
</TABLE>
/1/ The Standard and Poor's 500 Stock Index is comprised of industrial,
transportation, public utilities and financial stocks, and represents a large
portion of the value of issues traded on the New York Stock Exchange. Selected
issues traded on the American Stock Exchange are also included.
/2/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30
industrial companies such as General Motors and General Electric.
/3/ Index is a capitalization weighted index of all The New York Stock
Exchange Composite common stocks listed on the exchange.
IF YOU ARE CONSIDERING NEF FOR AN INDIVIDUAL RETIREMENT ACCOUNT...
<TABLE>
<CAPTION>
Here's how much you would have if you had invested $2,000
a year in NEF:
<S> <C> <C> <C>
2 Years 5 Years 7 Years 10 Years
(12/1/94- (12/1/91 - (12/1/89- (12/1/86-
11/30/96) 11/30/96) 11/30/96) 11/30/96)
$4,839 $14,864 $24,287 $44,528
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM:
<TABLE>
<CAPTION>
If you had invested Periods ...and taken all
$10,000 in NEF 12/1-11/30 distributions in shares,
this many years... your investment would
Number have been worth this
of Years much at November 30, 1996:
Value ($)
<S> <C> <C>
1 1995 - 1996 10,836
2 1994 - 1996 13,359
3 1993 - 1996 12,962
4 1992 - 1996 16,928
5 1991 - 1996 20,921
6 1990 - 1996 25,244
7 1989 - 1996 21,871
8 1988 - 1996 29,930
9 1987 - 1996 36,620
10 1986 - 1996 34,652
11 1985 - 1996 42,048
12 1984 - 1996 58,271
13 1983 - 1996 58,631
</TABLE>
Illustration of a $10,000 investment in NEF with
dividends reinvested and capital gain distributions taken in shares
(For the lifetime of the fund, December 1, 1983 through November 30, 1996)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
Fiscal Annual Total Investment From From Dividends Total
Year End Dividends Dividends Cost Initial Capital Gains Reinvested Value
11/30 (cumulative) Investment Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1984 $ -- $ -- $ 10,000 $ 9,485 $ -- $ -- $ 9,485
1985 199 199 10,199 12,864 -- 280 13,144
1986 140 339 10,339 14,560 913 477 15,950
1987 367 706 10,706 12,761 1,586 746 15,093
1988 315 1,021 11,021 14,396 2,858 1,208 18,462
1989 421 1,442 11,442 18,159 5,042 2,068 25,269
1990 566 2,008 12,008 13,462 6,417 2,007 21,886
1991 589 2,597 12,597 15,076 8,427 2,910 26,413
1992 328 2,925 12,925 18,091 10,676 3,874 32,641
1993 189 3,114 13,114 22,617 14,934 5,080 42,631
1994 307 3,421 13,421 20,124 16,436 4,816 41,376
1995 517 3,938 13,938 23,324 21,446 6,214 50,984
1996 578 4,516 14,516 25,412 25,793 7,426 58,631
</TABLE>
The dollar amount of capital gain distributions during the period was $16,822
APPENDIX
DESCRIPTION OF BOND RATINGS
CORPORATE DEBT SECURITIES
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities from "Aaa" to "C".
"AA -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"AA -- High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"BAA -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"BA -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"CAA -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"CA -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."
<TABLE>
THE NEW ECONOMY FUND
Investment Portfolio, November 30, 1996
- ------------------------------------------- ---------
Largest Holdings by Industry
<S> <C> <C>
Broadcasting & Publishing 14.21%
Miscellaneous Financial Services 7.81
Telecommunications 7.69
Merchandising 7.20
Banking 6.82
All Other Industries 44.54
Cash & Equivalents 11.73
- ------------------------------------------- ---------
Percent
of
Largest Stock Holdings Net Assets
Federal National Mortgage 3.12%
Federal Home Loan Mortgage 2.10
ING Groep 1.95
Tele-Communications, TCI Group 1.80
Time Warner 1.78
Walt Disney 1.65
Viking Office Products 1.65
Viacom 1.47
United HealthCare 1.44
Carnival 1.40
- ------------------------------------------- --------- --------- ---------
Market Percent
Stocks Shares Value of Net
(Common & Preferred ) (000) Assets
- ---------------------------------------- --------- --------- ---------
BROADCASTING & PUBLISHING - 14.21%
Tele-Communications, Inc., Series A, TCI Group /1/ 5,620,165 $75,872 1.80%
Time Warner Inc. 1,840,220 74,989 1.78
Viacom Inc., Class B /1/ 1,650,000 62,288 1.47
Tele-Communications, Inc., Series A, Liberty Media
Group /1/ 1,819,266 45,482 1.08
Mediaset (Italy)/1/ /2/ 8,410,000 40,236 .95
News Corp. Ltd., preferred shares (Australia) 2,798,715 12,298
News Corp. Ltd. 2,076,719 11,051
News Corp. Ltd. (American Depositary
Receipts) 470,000 9,988 .88
News Corp. Ltd., preferred shares
(American Depositary Receipts) 235,000 4,054
Comcast Corp., Class A, special stock 2,050,000 34,338 .81
Gaylord Entertainment Co., Class A 1,411,200 30,164 .71
International Family Entertainment, Inc.,
Class B /1/ 1,562,500 24,023 .57
U S WEST Media Group /1/ 1,200,000 22,950 .54
Quebecor Printing Inc. (Canada) 1,200,000 21,750 .51
Grupo Televisa, SA (American Depositary
Receipts) (Mexico) /1/ 760,000 20,710 .49
EMAP PLC (United Kingdom) 1,400,000 17,180 .41
Tele-Communications International, Series A /1/ 1,088,000 16,320 .39
CANAL+ (France) 66,025 15,147 .36
Thomson Corp. (Canada) 600,000 13,497 .32
Chris-Craft Industries, Inc. /1/ 309,000 12,630 .30
AUDIOFINA (Luxembourg) 262,150 11,695 .28
Arnoldo Mondadori Editore SpA (Italy) 1,000,000 8,370 .20
Golden Books Family Entertainment, Inc. /1/ 500,000 5,750 .14
Soft Bank Corp. (Japan) 53,508 3,995 .09
New York Times Co., Class A 100,000 3,738 .09
All American Communications, Inc., Class B /1/ 170,000 1,658 .04
MISCELLANEOUS FINANCIAL SERVICES - 7.81%
Federal National Mortgage Assn. 3,200,000 132,000 3.12
Federal Home Loan Mortgage Corp. 775,000 88,544 2.10
Capital One Financial Corp. 875,000 31,609 .75
Student Loan Marketing Assn. 280,000 26,915 .64
ADVANTA Corp., Class A 428,000 19,046
ADVANTA Corp., Class B 40,000 1,680 .49
First Data Corp. 450,000 17,944 .42
ORIX Corp. (Japan) 320,000 12,199 .29
TELECOMMUNICATIONS - 7.69%
Telefonos de Mexico, SA de CV, Class L
(American Depositary Receipts) (Mexico) 1,541,960 46,837 1.11
Telecom Corp. of New Zealand Ltd. (New Zealand) /2/ 8,644,000 45,547
Telecom Corp. of New Zealand Ltd. 166,480 877 1.10
AirTouch Communications /1/ 1,550,000 39,719 .94
Mannesmann AG (Germany) 75,000 31,293 .74
Tele Danmark AS, Class B (American Depositary
Receipts) (Denmark) 704,700 17,618 .65
Tele Danmark AS, Class B 200,000 9,975
Telecomunicacoes Brasileiras SA, preferred
nominative (American Depositary Receipts)
(Brazil) 267,493 20,263 .48
Telefonica de Espana, SA (American
Depositary Receipts) (Spain) 170,000 11,220 .47
Telefonica de Espana, SA 400,000 8,765
STET-Societa Finanziaria Telefonica p.a.
(Italy) 4,300,000 18,308
STET-Societa Finanziaria Telefonica p.a., .44
preferred shares 150,000 461
Hong Kong Telecommunications Ltd. (Hong Kong) 9,700,000 16,812 .40
MCI Communications Corp. 450,000 13,725 .33
ALLTEL Corp. 345,300 11,006 .26
Vodafone Group PLC (American Depositary
Receipts) (United Kingdom) 225,000 9,731 .23
Technology Resources Industries Bhd.
(Malaysia) /1/ 4,320,000 8,806 .21
AT&T Corp. 207,300 8,137 .19
Globalstar Telecommunications Ltd., 6.50%
convertible preferred /2/ 100,000 5,800 .14
MERCHANDISING - 7.20%
Viking Office Products, Inc. /1/ 2,220,000 69,514 1.65
Giordano Holdings Ltd. (Hong Kong) 34,203,000 30,082 .71
Consolidated Stores Corp. /1/ 800,000 29,600 .70
H & M Hennes & Mauritz AB, Class B (Sweden) 205,000 29,578 .70
Circuit City Stores, Inc. 850,000 28,369 .67
Walgreen Co. 400,000 16,700 .39
Wal-Mart Stores, Inc. 575,000 14,662 .35
Barnes & Noble, Inc. /1/ 429,600 13,425 .32
Home Depot, Inc. 206,000 10,738 .25
Gymboree Corp. /1/ 356,600 10,074 .24
Giant Food Inc., Class A 250,000 8,437 .20
Tesco PLC (United Kingdom) 1,445,485 8,274 .19
Home Shopping Network, Inc. /1/ 700,000 7,875 .19
Garden Ridge Corp. /1/ 850,000 7,012 .17
Dickson Concepts (International) Ltd. (Hong Kong -
Incorporated in Bermuda) 1,796,400 6,599 .16
Michaels Stores, Inc. /1/ 600,000 6,000 .14
MSC Industrial Direct Co., Inc., Class A /1/ 100,000 3,738 .09
Williams-Sonoma, Inc. /1/ 100,000 3,475 .08
BANKING - 6.82%
Wells Fargo & Co. 116,666 33,206 .78
Old Kent Financial Corp. 661,500 30,925 .73
Norwest Corp. 630,000 29,452 .70
Golden West Financial Corp. 350,000 23,625 .56
Charter One Financial, Inc. 472,500 20,554 .49
Allied Irish Banks, PLC (Ireland) 2,900,000 19,085 .45
Royal Bank of Canada (Canada) 500,000 18,474 .44
Barclays PLC (United Kingdom) 1,000,000 17,205 .41
Banco de Santander, SA (Spain) 270,000 14,625 .34
Banc One Corp. 275,000 13,097 .31
U. S. Bancorp 264,600 11,312 .27
Hibernia Corp., Class A 869,100 11,298 .27
Keystone Financial, Inc. 375,000 10,102 .24
Sakura Finance (Bermuda) Trust, convertible
preference share units (Japan) /1/ 177 9,982 .24
Grupo Financiero Banamex Accival, SA de CV,
Series L (Mexico) /1/ 3,024,415 5,493
Grupo Financiero Banamex Accival, SA de CV, .21
Series B /1/ 1,745,000 3,443
Swedbank, Class A (Sweden) 490,000 8,107 .19
Philippine Commercial International Bank, Inc.
(Philippines) 607,600 8,091 .19
INSURANCE - 6.62%
ING Groep NV (Netherlands) 1,335,575 46,748
ING Groep NV, warrants, expire 2001 /1/ 5,200,000 35,589 1.95
Fairfax Financial Holdings Ltd. (Canada) /1/ 226,000 50,252 1.19
EXEL Ltd. (Bermuda) 1,150,000 43,556 1.03
Travelers/Aetna Property Casualty Corp., Class A 900,000 31,050 .74
PartnerRe Holdings Ltd. (Bermuda) 820,000 26,650 .63
American International Group, Inc. 150,000 17,250 .41
Irish Life PLC (Ireland) 2,584,124 11,949 .28
PMI Group, Inc. 162,000 9,396 .22
Trenwick Group Inc. 144,900 7,064 .17
COMPUTER SERVICES & SOFTWARE - 5.85%
Oracle Corp. /1/ 1,167,900 57,227 1.35
Electronic Data Systems Corp. (formerly General
Motors Corp., Class E) 740,000 35,798 .85
CUC International Inc. /1/ 1,050,000 27,694 .66
Shared Medical Systems Corp. 400,000 19,900 .47
Tech Data Corp. /1/ 600,000 18,000 .43
Sybase, Inc. /1/ 950,600 16,754 .40
Electronic Arts /1/ 495,300 15,912 .38
Broderbund Software, Inc. /1/ 300,000 9,000 .21
Policy Management Systems Corp. /1/ 220,000 8,800 .21
Avid Technology, Inc. /1/ 650,000 8,369 .20
MacNeal-Schwendler Corp. 670,000 5,862 .14
Fractal Design Corp. /1/ 400,000 4,750 .11
Macromedia, Inc. /1/ 225,100 4,080 .10
Wonderware Corp. /1/ 430,000 4,031 .09
Nets Inc., convertible preferred, Class B/1/ /2/ /3/ 175,000 3,500 .08
BTG, Inc. /1/ 150,000 3,019 .07
Acclaim Entertainment, Inc. /1/ 450,000 2,334 .05
American Management Systems, Inc. /1/ 62,000 2,205 .05
ENTERTAINMENT & LEISURE - 4.85%
Walt Disney Co. 947,000 69,841 1.65
Carnival Corp., Inc., Class A 1,870,000 59,139 1.40
Mirage Resorts, Inc. /1/ 1,100,000 26,538 .63
Harrah's Entertainment, Inc. /1/ 1,411,800 25,059 .59
Circus Circus Enterprises, Inc. /1/ 300,000 10,950 .26
Station Casinos, Inc. /1/ 725,000 7,703 .18
Nintendo Co., Ltd. (Japan) 80,000 5,657 .14
HEALTH & HOSPITAL SERVICES - 3.55%
United HealthCare Corp. 1,410,000 60,806 1.44
Columbia/HCA Healthcare Corp. 517,500 20,700 .49
PacifiCare Health Systems, Inc., Class A /1/ 120,000 9,480
PacifiCare Health Systems, Inc., Class B /1/ 100,000 8,300 .42
Humana Inc. /1/ 500,000 9,437 .22
Human Genome Sciences, Inc. /1/ 250,000 9,313 .22
Value Health, Inc. /1/ 450,000 8,156 .19
Vivra Inc. /1/ 200,000 6,150 .15
Cerner Corp. /1/ 400,000 5,950 .14
Nu Skin Asia Pacific, Inc., Class A /1/ 200,000 5,925 .14
Health Systems International, Inc., Class A /1/ 245,500 5,647 .14
ELECTRONIC DATA PRODUCTS - 2.88%
America Online, Inc. /1/ 1,030,000 36,436 .86
Intel Corp. 250,000 31,719 .75
General Instrument Corp. /1/ 1,285,100 28,433 .68
Avnet, Inc. 370,000 21,645 .51
Lucent Technologies Inc. 64,816 3,322 .08
MISCELLANEOUS BUSINESS SERVICES - 2.83%
Rentokil Group PLC (United Kingdom) 7,429,900 54,205 1.28
Ceridian Corp. /1/ 400,000 19,250 .46
Robert Half International Inc. /1/ 400,000 14,900 .35
Pittston Brink's Group 580,000 14,790 .35
Concord EFS, Inc. /1/ 307,500 8,956 .21
EarthWatch Inc., 12% convertible preferred,
Series C /1/ /2/ /3/ /4/ 500,000 5,358 .13
DecisionOne Holdings Corp. /1/ 132,200 2,049 .05
RESTAURANTS - 2.32%
Brinker International, Inc. /1/ 2,750,000 50,875 1.21
McDonald's Corp. 520,000 24,310 .58
Foodmaker, Inc. /1/ 1,900,000 17,337 .41
Sizzler International, Inc. /1/ 1,375,000 3,953 .09
Outback Steakhouse, Inc. /1/ 50,000 1,444 .03
ENERGY SERVICES - 2.13%
Helmerich & Payne, Inc. 738,000 39,667 .94
Schlumberger Ltd. (Netherlands Antilles) 250,000 26,000 .62
Transocean Offshore Inc. 400,000 24,100 .57
COMPUTER SYSTEMS - 1.23%
Silicon Graphics, Inc. /1/ 1,060,000 21,067 .50
Bay Networks, Inc. /1/ 600,000 16,050 .38
International Business Machines Corp. 47,000 7,491 .18
Digital Equipment Corp. /1/ 200,000 7,350 .17
DIVERSIFIED SERVICES - 1.12%
Brambles Industries Ltd. (Australia) 1,350,000 23,617 .56
Benpres Holdings Corp. (Global Depositary
Receipts) (Philippines) /1/ /2/ 1,209,190 8,888
Benpress Holdings Corp. (Global Depositary .30
Receipts) /1/ 509,050 3,742
First Pacific Co. Ltd. (Hong Kong) 8,000,000 11,123 .26
HOTELS & MOTELS - 1.09%
Marriott International, Inc. 755,000 42,091 1.00
Promus Hotel Corp. /1/ 122,900 3,964 .09
REAL ESTATE - 0.94%
Host Marriott Corp. /1/ 1,650,000 25,163 .59
Mitsubishi Estate Co., Ltd. (Japan) 1,160,000 14,673 .35
ELECTRIC UTILITIES - 0.79%
Southern Electric PLC (United Kingdom) 1,500,000 17,688 .42
National Power PLC (United Kingdom) 2,000,000 15,533 .37
ADVERTISING - 0.66%
Interpublic Group of Companies, Inc. 360,000 17,820 .42
Omnicom Group Inc. 200,000 10,200 .24
ENVIRONMENTAL SERVICES - 0.55%
WMX Technologies, Inc. 320,000 11,520 .27
Ecolab Inc. 200,000 7,775 .19
Waste Management International PLC (American
Depositary Receipts) (United Kingdom) /1/ 415,000 3,735 .09
INFORMATION & PRINTING SERVICES - 0.52%
Primark Corp. /1/ 838,900 22,021 .52
SAFETY AND SECURITY SERVICES - 0.46%
ADT Ltd. (Bermuda) /1/ 500,000 10,250 .24
Rollins, Inc. 500,000 9,312 .22
ENGINEERING & CONSTRUCTION - 0.44%
Jacobs Engineering Group Inc. /1/ 775,000 18,697 .44
DELIVERY SERVICES - 0.34%
Federal Express Corp. /1/ 320,000 14,160 .34
AIRLINES - 0.34%
Southwest Airlines Co. 350,000 8,663 .21
AMR Corp. /1/ 60,000 5,475 .13
RAIL & ROAD SERVICES - 0.25%
Werner Enterprises, Inc. 450,000 7,256 .17
Greyhound Lines, Inc. /1/ 825,000 3,197 .08
MISCELLANEOUS PUBLIC SERVICES - 0.03%
Eurotunnel SA, units (France) /1/ 910,268 1,264 .03
MISCELLANEOUS
Other stocks in initial period of acquisition 200,491 4.75
--------- ---------
TOTAL STOCKS
(cost: $2,660,271,000) 3,727,753 88.27
Principal --------- ---------
Amount
Short-Term Securities (000)
- ---------------------------------------- --------- --------- ---------
CORPORATE SHORT-TERM NOTES- 10.92%
E.I. du Pont de Nemours and Co.5.27% due
1/13-1/28/97 $60,625 60,206 1.43
General Electric Co. 5.25% due
12/13-12/20/96 48,700 48,586 1.15
Beneficial Corp. 5.25%-5.33% due
12/2/96-1/17/97 48,400 48,227 1.14
Ameritech Capital Funding Corp. 5.25%-5.28% due
12/19/96-2/7/97 41,300 41,041 .97
Ford Motor Credit Co. 5.25%-5.33% due
12/12/96-1/9/97 40,000 39,856 .94
American Express Credit Corp. 5.25%-5.33% due
12/12/96-1/23/97 38,600 38,486 .91
Lucent Technologies Inc. 5.24%-5.40% due
12/3-12/18/96 38,500 38,449 .91
J.C. Penney Funding Corp. 5.31% due
12/4/96 37,600 37,578 .89
International Lease Finance Corp. 5.28%-
5.30% due 12/9/96-1/22/97 37,500 37,293 .88
Weyerhaeuser Co. 5.25%-5.29% due
12/11/96-1/23/97 34,000 33,831 .80
Sara Lee Corp. 5.24%-5.25% due
12/4-12/24/96 26,500 26,441 .63
General Electric Capital Corp. 5.31% due
1/8-1/15/97 11,200 11,126 .27
Federal Agency Discount Notes- 1.28%
Federal National Mortgage Assn. 5.215%-
5.415% due 12/6-12/19/96 54,435 54,358 1.28
--------- ---------
TOTAL SHORT-TERM SECURITIES
(cost: $515,482,000) 515,478 12.20
--------- ---------
TOTAL INVESTMENT SECURITIES
(cost: $3,175,753,000) 4,243,231 100.47
Excess of payables over cash and receivables 19,942 .47
--------- ---------
NET ASSETS $4,223,289 100.00%
========= =========
/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 May 31, 1996
- -------------------------------------------
Allied Irish Banks
American Management Systems
BTG
Ceridian
Concord EFS
Garden Ridge
Globalstar Telecommunications
Gymboree
Hong Kong Telecommunications
Lucent Technologies
Macromedia
Mitsubishi Estate
MSC Industrial Direct
Nets
Nu Skin Asia Pacific
Royal Bank of Canada
Sakura Finance (Bermuda) Trust
Shared Medical Systems
Southern Electric
Swedbank
Thomson
Wonderware
Stocks eliminated from the portfolio
since May 31, 1996
- -------------------------------------------
AMBAC
Arbor Drugs
Australia and New Zealand Banking Group
Banco Popular Espanol
Canadian National Railway System
CESP - Companhia Energetica de Sao Paulo
Cifra
Cincinnati Financial
CKAG Colonia Konzern
Compuware
Coram Healthcare
Delhaize 'Le Lion'
Dow Jones & Co.
Duty Free International
FHP International
Havas
Host Marriott Services
Ito-Yokado
Landmark Graphics
LIN Television
Mercantile Bancorporation
News International
Noble Drilling
Nortel Inversora
Octel Communications
Renaissance Communications
Selective Insurance Group
SFX Broadcasting
Shoe Carnival
Talbots
Telephone and Data Systems
Toys 'R' Us
Turner Broadcasting System
Washington Mutual Savings Bank
<TABLE>
The New Economy Fund
Financial Statements
Statement of Assets and (dollars in
Liabilities at November 30, 1996 thousands)
----------- -----------
<S> <C> <C>
Assets:
Investment securities at market
(cost: $3,175,753) $4,243,231
Cash 1,454
Receivables for-
Sales of investments $ 797
Sales of fund's shares 3,459
Dividends 3,222 7,478
----------- -----------
4,252,163
Liabilities:
Payables for-
Purchases of investments 21,801
Repurchases of fund's shares 3,460
Management services 1,478
Accrued expenses 2,135 28,874
Net Assets at November 30, 1996- ----------- -----------
Equivalent to $18.50 per share on
228,291,978 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $4,223,289
==========
Statement of Operations (dollars in
for the year ended November 30, 1996 thousands)
- ---------------------------------------- ----------- -----------
Investment Income:
Income:
Dividends $ 39,669
Interest 25,895 $ 65,564
-----------
Expenses:
Management services fee 17,016
Distribution expenses 8,452
Transfer agent fee 4,626
Reports to shareholders 260
Registration statement and prospectus 329
Postage, stationery and supplies 897
Trustees' fees 107
Auditing and legal fees 68
Custodian fee 675
Taxes other than federal income tax 60
Other expenses 99 32,589
----------- -----------
Net investment income 32,975
-----------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 256,063
Net increase in unrealized
appreciation on investments:
Beginning of year 815,599
End of year 1,067,480
Net unrealized appreciation -----------
on investments 251,881
Net realized gain and unrealized -----------
appreciation on investments 507,944
Net Increase in Net Assets -----------
Resulting from Operations $540,919
==========
(dollars in
Statement of Changes in Net Assets thousands)
- ---------------------------------------- ----------- -----------
Year ended November 30
1996 1995
Operations: ----------- -----------
Net investment income $ 32,975 $ 39,905
Net realized gain on investments 256,063 146,663
Net unrealized appreciation
on investments 251,881 460,558
----------- -----------
Net increase in net assets
resulting from operations 540,919 647,126
----------- -----------
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:
46,030,628 and 50,144,726
shares, respectively 791,270 747,511
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
10,959,728 and 10,606,653 shares,
respectively 174,287 145,052
Cost of shares repurchased:
36,172,855 and 30,229,239
shares, respectively (621,663) (454,846)
----------- -----------
Net increase in net assets resulting
from capital share transactions 343,894 437,717
----------- -----------
Total Increase in Net Assets 700,713 930,729
Net Assets:
Beginning of year 3,522,576 2,591,847
End of year (including undistributed ----------- -----------
net investment income: $20,277 and
$27,814, respectively) $4,223,289 $3,522,576
========== ==========
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. Securities for which market quotations are not
readily available are valued at fair value by the Board of Trustees or a
committee thereof. Short-term securities with 60 days or less to maturity are
valued at amortized cost, which approximates market value.
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
year. 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 $675,000 includes $18,000 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, 1996 net unrealized appreciation on investments for
book and federal income tax purposes aggregated $1,067,478,000, of which
$1,219,818,000 related to appreciated securities and $152,340,000 related to
depreciated securities. There was no difference between book and tax realized
gains on securities transactions for the year ended November 30, 1996. The cost
of portfolio securities for book and federal income tax purposes was
$3,175,753,000 at November 30, 1996.
3. The fee of $17,016,000 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 year ended November 30, 1996,
distribution expenses under the Plan were $8,452,000. As of November 30,1996,
accrued and unpaid distribution expenses were $1,946,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $4,626,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $2,388,000 (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 November 30,
1996, aggregate amounts deferred and earnings thereon were $80,000.
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, 1996, accumulated undistributed net realized gain on
investments was $256,130,000 and paid-in capital was $2,879,402,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,228,263,000 and $1,004,804,000, respectively,
during the year ended November 30, 1996.
Dividend and interest income is recorded net of non-U.S. taxes paid. For
the year ended November 30, 1996, such non-U.S. taxes were $2,558,000. Net
realized currency losses on dividends, interest, and withholding taxes
reclaimable were $29,000 for the year ended November 30, 1996.
<TABLE>
PER-SHARE DATA AND RATIOS /1/
Year ended November 30
--------- -------- -------- -------- ----------
1996 1995 1994 1993 1992
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year 16.98 14.65 16.47 13.17 10.98
--------- -------- -------- -------- --------
Income from Investment
Operations:
Net investment income .14 .20 .17 .11 .08
Net realized and unrealized
gain (loss) on investments 2.26 2.99 (.59) 3.75 2.45
Total income (loss) from --------- -------- -------- -------- --------
investment operations 2.40 3.19 (.42) 3.86 2.53
--------- -------- -------- -------- --------
Less Distributions:
Dividends from net investment
income (.19) (.18) (.12) (.07) (.14)
Distributions from net realized
gains (.69) (.68) (1.28) (.49) (.20)
--------- -------- -------- -------- --------
Total distributions (.88) (.86) (1.40) (.56) (.34)
--------- -------- -------- -------- --------
Net Asset Value, End of Year 18.5 16.98 14.65 16.47 13.17
========= ======== ======== ======== ========
Total Return /2/ 15.00% 23.22% (2.94)% 30.60% 23.58%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $4,223 $3,523 $2,592 $1,912 $1,115
Ratio of expenses to average
net assets .84% .88% .85% .85% .89%
Ratio of net income to
average net assets .85% 1.33% 1.25% .76% .67%
Average commissions
paid per share /3/ 1.17 cents .16 cents .38 cents .30 cents 3.29 cents
Portfolio turnover rate 29.54% 27.03% 25.51% 26.97% 19.03%
/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.
/3/ 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>
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, 1996, 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 included confirmation of securities owned
at November 30, 1996 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, 1996, 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.
PRICE WATERHOUSE LLP
Los Angeles, California
December 20, 1996
1996 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 1997 TO DETERMINE THE CALENDAR YEAR AMOUNTS TO BE INCLUDED ON
THEIR 1996 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.
