THE NEW ECONOMY FUND
1996 ANNUAL REPORT
For the year ended November 30
INVESTING FOR COLLEGE
[Photo: family photo, textbook, school pennant, personal check]
[The American Funds Group(r)]
RESULTS AT A GLANCE
FISCAL 1996 TOTAL RETURN
for the 12 months ended November 30, 1996
(with all distributions reinvested)
The New Economy Fund +15.0%
Standard & Poor's 500 Composite Index +27.9
Lipper Growth Funds Index +20.3
Morgan Stanley Capital International EAFE(r)
(Europe, Australasia, Far East) Index +12.1
LIFETIME TOTAL RETURN
since inception on December 1, 1983 to November 30, 1996
(with all distributions reinvested)
The New Economy Fund +522.0%
Standard & Poor's 500 Composite Index +598.9
Lipper Growth Funds Index +421.4
Morgan Stanley Capital International EAFE(r)
(Europe, Australasia, Far East) Index +600.4
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the total returns and average annual compound
returns with all distributions reinvested for periods ended December 31, 1996
(the most recent calendar quarter), assuming payment of the 5.75% maximum sales
charge at the beginning of the stated periods. Sales charges are lower for
accounts of $50,000 or more.
AVERAGE ANNUAL
TOTAL RETURN COMPOUND RETURN
Ten years +246.57% +13.23%
Five years +86.05 +13.22
One year +6.38 -
THE FIGURES IN THIS REPORT REFLECT PAST RESULTS AND, UNLESS OTHERWISE NOTED,
ASSUME REINVESTMENT OF ALL DISTRIBUTIONS. SHARE PRICE AND RETURN WILL VARY, SO
YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE TIME PERIOD OF
YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF LOSS. FUND SHARES ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED BY, THE U.S. GOVERNMENT,
ANY FINANCIAL INSTITUTION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY
OTHER AGENCY, ENTITY OR PERSON. Of course, investments outside the U.S. involve
special risks such as currency fluctuations, political instability, differing
securities regulations, and periods of illiquidity. Global diversification can
help reduce these risks.
The New Economy Fund(r) is designed to help you participate in the many
investment opportunities that are being created as society continues to shift
from producing standardized goods to providing a wide array of services. The
fund has the flexibility to invest all over the world in industries ranging
from broadcasting and publishing to banking and insurance, gas and electric
utilities to cable television, cellular telephones to merchandising,
entertainment to computer software, and airlines to health care - all of which
are benefiting from the accelerating demand for services and information.
[Sidebar]
Our fiscal 1996 results were achieved in an environment of moderate economic
growth, benign inflation and further increases in corporate earnings.
[End Sidebar]
WHERE THE FUND'S ASSETS ARE INVESTED
(as of 11/30/96)
<TABLE>
<CAPTION>
PERCENT OF
COUNTRY NET ASSETS
<S> <C>
United States 63.14%
United Kingdom 3.50
Canada 2.46
Netherlands 1.95
Mexico 1.81
Italy 1.60
Hong Kong 1.53
Australia 1.44
New Zealand 1.19
Japan 1.10
Sweden .95
Spain .82
Germany .74
Ireland .74
Denmark .65
Other countries 4.65
88.27
Cash & Equivalents 11.73
Total 100.00%
</TABLE>
FELLOW SHAREHOLDERS
In fiscal 1996, The New Economy Fund posted a double-digit gain for the ninth
time since operations began in 1983. For the 12 months ended November 30, the
value of your holdings rose 15.0% if, like most shareholders, you reinvested
income dividends totaling 19 cents a share and a 69-cent capital gain
distribution that were paid during the year. This gain matched almost exactly
the fund's lifetime average annual compound return of 15.1%.
Our fiscal 1996 results were achieved in an environment of moderate
economic growth, benign inflation and further increases in corporate earnings.
This confluence of favorable factors continued to create an unusually bullish
atmosphere in the U.S. stock market. The averages kept climbing, with the
unmanaged Standard & Poor's 500 Composite Index rising 27.9% for the 12 months
on a total return basis. A more relevant yardstick by which the fund's results
are often measured, the Lipper Growth Funds Index, went up 20.3%; this index
tracks the 30 largest U.S. growth funds.
In fiscal 1996 the majority of investments held in our portfolio
throughout the year rose in price. Relative to the benchmarks by which our
results are typically measured, however, it clearly was not a banner year.
Neither the Growth Funds Index nor the S&P 500 are perfect benchmarks; however,
over long periods of time that include market declines as well as advances, we
believe we should outpace them both. During some periods, the S&P500 can be a
particularly tough comparison. Unlike all mutual funds, it incurs no expenses.
And, unlike New Economy, it includes several capital equipment producers and
other manufacturing firms that were market favorites in '96. It also focuses on
larger corporations while NEF's portfolio includes many smaller firms. With a
few exceptions, the stocks of smaller firms were not among the market leaders
in '96.
A number of the fund's largest holdings fell in price during the 12
months. Two of the biggest decliners were United HealthCare and
Tele-Communications (TCI Group), which went down 31.4% and 27.0%, respectively.
Tele-Communications (TCI Group), the nation's largest cable-TV operator and one
of our biggest holdings for several years, has been an enormously profitable
investment for New Economy. The market value of the fund's position in the
stock on November 30 was more than ten times the original acquisition cost.
It's worth noting, too, that the company has conducted successful spinoffs,
notably Liberty Media, a stock which increased substantially in price and
contributed greatly to the fund's results earlier in the decade.
New Economy owns a number of other media-related holdings as well as
several health care issues which fit this same pattern of stocks that have done
well for the fund in the past but fared poorly in fiscal '96. Their weak
showings accounted for quite a bit of the gap between our results and those of
the U.S. indexes. Nonetheless, we remain enthusiastic about the longer term
prospects for virtually all of these companies. By and large, they are
well-managed, rapidly growing firms whose prosperity should be reflected in
higher stock prices in the future.
One area of strength in 1996 for New Economy was investments in companies
based outside the United States, which did rather poorly the previous year. In
fiscal '96, many of these holdings made a positive contribution to the fund's
results. This was especially gratifying since equity markets beyond our borders
generally trailed the U.S. market for the 12 months. (The Morgan Stanley
Capital International EAFE (Europe, Australasia, Far East) Index, which
measures all major markets outside North America, went up 12.1% during this
period.) Of the 28 non-U.S. stocks held in the fund's portfolio throughout the
12 months, 19 rose in price; eight of those went up more than 50%. Big gainers
included Hennes & Mauritz, a European apparel firm (+132.3%), Royal Bank of
Canada (+60.7%), and ING Groep, a Dutch financial services firm (+46.5%).
In keeping with our overall philosophy, New Economy's non-U.S. holdings
are primarily long-term investments. They allow the fund to participate in the
growth of service and information companies all over the world and currently
account for about 25% of net assets, up from less than 20% five years ago. In
expanding this portion of the portfolio, we have drawn extensively on the
global research capabilities of the fund's investment adviser, Capital Research
and Management Company. It maintains one of the industry's most elaborate
investment intelligence networks, employing more than 100 portfolio counselors
and analysts who travel the world regularly, studying companies and gathering
information on which our buy and sell decisions are made. Each year, these
investment professionals make thousands of research visits in dozens of
countries, including the United States.
Over the past few years, we have witnessed a series of mini-corrections in
various parts of the U.S. stock market - the recent downturns in media-related,
health care and high-technology issues are prime examples. However, after a
lengthy bull market such as the one we have experienced since the early 1980s,
it would not be surprising to see equities stage a broader correction. We
believe that New Economy shareholders who have the patience and self-discipline
to stay with their investment through such down periods should, over time,
continue to be rewarded. Service- and information-oriented industries - the
vibrant area in which the fund invests - offer what we feel is superior
long-term growth potential and outstanding opportunity for the patient
investor.
On the following pages, you will find a feature on shareholders who have
taken a long-term view of their holdings and earmarked them for college
expenses. We hope you find the article interesting as well as informative.
Cordially,
[/s/ Robert B. Egelston]
Robert B. Egelston
Chairman of the Board
[/s/ William R. Grimsley]
William R. Grimsley
President
January 17, 1997
[Sidebar]
Service- and information-oriented industries - the vibrant area in which the
fund invests - offer what we feel is superior long-term growth potential and
outstanding opportunity for the patient investor.
[End Sidebar]
HOW A $10,000 INVESTMENT HAS GROWN
Here's how a $10,000 investment grew between December 1, 1983 - when The New
Economy Fund began operations - and November 30, 1996, the end of its latest
fiscal year. As you can see, the $10,000 would have increased to $58,631 with
all distributions reinvested, an average increase of 14.6% a year. The fund's
year-by-year results appear under the chart.
[chart]
<TABLE>
<CAPTION>
NEF at maximum NEF at net
offering price asset value Lipper Consumer
(with 5.75% (without any S&P 500 Growth Price
Year Ended sales charge sales charge) Composite Funds Index
November 30 deducted)/1//2//4/ /1/ /3/ Index/1/ Index/1/ /5/ (inflation)/6/
<S> <C> <C> <C> <C> <C>
1983 $9,425 $10,000 $10,000 $10,000 $10,000
1984 9,485 10,062 10,287 9,222 10,405
1985 13,144 13,944 13,276 11,906 10,771
1986 15,950 16,920 16,957 14,566 10,909
1987 15,093 16,011 16,149 13,569 11,403
1988 18,462 19,585 19,914 16,403 11,887
1989 25,269 26,806 26,059 21,252 12,441
1990 21,886 23,217 25,124 19,611 13,221
1991 26,413 28,020 30,249 24,758 13,617
1992 32,641 34,627 35,853 29,299 14,032
1993 42,631 45,224 39,470 32,478 14,407
1994 41,376 43,894 39,867 32,541 14,792
1995 50,984 54,085 54,634 43,359 15,178
1996 58,631 62,198 69,895 52,141 15,672
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year Ended November 30 1984 1985 1986 1987 1988
Total Value Dividends Reinvested - $199 140 367 315
Value at Year-End /2/ $9,485 13,144 15,950 15,093 18,462
NEF TOTAL RETURN (5.2)% 38.6 21.3 (5.4) 22.3
Year Ended November 30 1989 1990 1991 1992 1993
Total Value Dividends Reinvested 421 566 589 328 189
Value at Year-End /2/ 25,269 21,886 26,413 32,641 42,631
NEF TOTAL RETURN 36.9 (13.4) 20.7 23.6 30.6
Year Ended November 30 1994 1995 1996
Total Value Dividends Reinvested 307 517 578
Value at Year-End /2/ 41,376 50,984 58,631
NEF TOTAL RETURN (2.9) 23.2 15.0
</TABLE>
Average annual compound return for 13 years: 14.6% /2/
/1/ All results are calculated with dividends and capital gains reinvested.
/2/ These figures, unlike those shown elsewhere in this report, reflect payment
of the maximum sales charge of 5.75% on the $10,000 investment. Thus, the net
amount invested was $9,425. As outlined in the prospectus, the sales charge is
reduced for larger investments. There is no sales charge on dividends or
capital gain distributions that are reinvested in additional shares. The
maximum initial sales charge was 8.5% prior to July 1, 1988. No adjustment has
been made for income or capital gain taxes.
/3/ Includes reinvested dividends of $4,793 and reinvested capital gain
distributions of $17,846.
/4/ Includes reinvested dividends of $4,516 and reinvested capital gain
distributions of $16,822.
/5/ This index tracks the 30 largest U.S. growth funds (representing about 56%
of all U.S. growth fund assets).
/6/ Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
The indexes are unmanaged and do not reflect sales charges, commissions or
expenses.
Past results are not predictive of future results.
[end chart]
Average Annual Compound Returns*
(for periods ended November 30, 1996)
Ten Years +13.23%
Five Years +15.91%
One Year +8.36%
*Assumes reinvestment of all distributions and payment of the 5.75% sales
charge at the beginning of the stated periods.
INVESTING FOR COLLEGE
For many families, setting aside money for college has become one of life's
most important financial goals. It also has become a formidable challenge. As
newspaper and magazine articles keep reminding us, the cost of higher education
is soaring. Over the past 15 years it has more than doubled at many public
institutions, and nearly tripled at many private schools.
If it continues climbing at this pace - and there is every reason to
believe it may - the numbers become positively eyepopping. As the chart on page
7 shows, for a child born today, the price tag for four years of education
could be well over $100,000 at public universities, and over $200,000 at many
private colleges. A family planning to send three children to the Ivy League
could easily be looking at a total bill approaching $1 million - and that
doesn't include the cost of graduate study.
Even today, putting one child through a quality institution of higher
learning can cost nearly as much as buying a house. Nonetheless, few would
argue that it's anything but a worthwhile investment. A good education delivers
excellent value with a host of benefits that include a heightened sense of
self-confidence, cultural awareness, training for a rewarding career and an
opportunity for monetary success. Government figures show that, over their
lifetimes, those who complete four years of college have the potential to earn
hundreds of thousands of dollars more than those who do not.
The question in the meantime is how to pay for the tuition, room, board
and other expenses that have to be met. Scholarships, grants and prepaid
tuition plans (which are offered in several states) can ease the burden for
some families. Other sources of relief include educational loans and financial
aid packages. However, experts caution against counting heavily on aid to serve
as the primary source of college money. Many students are not eligible for aid,
and increasingly it is being doled out in smaller amounts and, at some schools,
in the form of loans rather than grants, which means the money must be repaid.
Thus it is not surprising to find that a growing number of families have
decided the best way of providing for the bulk of college expenses is to
accumulate money for them through a program of saving and investing. The four
families featured in this article have been doing precisely that, using Uniform
Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) accounts
in The New Economy Fund.
[chart]
COSTS FOR FOUR YEARS OF COLLEGE*
<TABLE>
<CAPTION>
Year Public University Private College
<S> <C> <C>
1981 $18,183 $33,469
1982 19,546 36,739
1983 20,842 40,025
1984 22,180 43,297
1985 23,553 46,708
1986 25,097 50,222
1987 26,740 53,908
1988 28,237 58,132
1989 29,831 62,142
1990 31,526 66,062
1991 33,170 69,834
1992 34,884 73,347
1993 36,486 76,753
1994 38,152 80,490
1995 40,004 84,583
1996 42,211 89,072
1997 44,743 94,416
1998 47,428 100,081
1999 50,274 106,086
2000 53,290 112,451
2001 56,487 119,188
2002 59,877 126,350
2003 63,469 133,931
2004 67,277 141,967
2005 71,314 150,485
2006 75,593 159,514
2007 80,128 169,084
2008 84,936 179,229
2009 90,032 189,983
2010 95,434 201,382
2011 101,160 213,465
2012 107,230 226,273
2013 113,664 239,849
2014 120,484 254,240
</TABLE>
*The cost for four years of college is the sum of four consecutive individual
years beginning with the year the student enters college. Historical and
current costs - which include tuition and fees, room and board, books supplies,
travel and personal expenses - are based on data supplied by the College Board.
Projected costs (dotted lines) assume a 6% average annual increase for the
period from 1997 on.
[end chart]
While custodial accounts are not the answer for everyone, they have become
highly popular among our shareholders - there are now more than 18,000 of them
in New Economy, and more than 600,000 in the American Funds family of mutual
funds.
With an UGMA or UTMA, until a child reaches age 14, the first $600 a year
in investment earnings is tax-exempt and the second $600 is taxed at the
child's marginal rate, which is often 0%; any earnings beyond that are taxed at
the parents' marginal rate. (The tax and other ramifications of UGMAs and UTMAs
should be reviewed with your legal adviser and broker or financial planner.)
Calculating exactly how much money one will need for college is difficult.
There are elements in the equation that are nearly impossible to predict, such
as changes in future income or in the rate at which costs may go up at a
particular school. The rate of increase is likely to be higher or lower than
6%, the figure used in our charts; that's simply the average annual increase
for all colleges and universities over the past decade and a half.
The best most families can come up with is an extremely rough estimate of
the total amount that may eventually be required and an estimate of the amounts
that ought to be set aside each month. The table on page 8 shows four total
amounts and monthly amounts for a newborn child entering the average public or
private university in 2014, and for a child currently in the 7th grade.
<TABLE>
<CAPTION>
Amounts to be
Invested Monthly*
Total Amount Newborn Child 7th Grader
to be Saved (enter in 2014) (enter in 2001)
<S> <C> <C>
$50,000 $51 $502
$100,000 101 1,005
$150,000 152 1,507
$200,000 203 2,009
</TABLE>
*The monthly investments shown are assumed to stop the year the student enters
college. Earnings continue through the beginning of the senior year, when the
final tuition payment is made. The table assumes an annual return of 12.7%,
equal to the average annual total return of Standard & Poor's 500 Composite
Index over the past 50 years.
For illustrative purposes, the table assumes an annual return of 12.7%.
This is the average annual total return recorded over the past half-century by
Standard & Poor's 500 Composite Index, a broad unmanaged measure of the U.S.
stock market. Your actual return, of course, could be either lower or higher
than this.
The average gain recorded by The New Economy Fund over its 13-year
lifetime is 15.1% with all distributions taken in additional shares. (The total
return generated by the index during this time was 16.1%.) A word of caution is
in order, however. The period since New Economy began has been highly favorable
for growth-oriented equities, and NEF's average return to date should not be
viewed as a reliable indicator of future results.
It should be kept in mind, too, that the pursuit of an undergraduate
degree is a process which typically takes four years or longer to complete. The
total amount of money required does not have to be available at the start of
the first year.
As with any investment program, the earlier you can start setting aside
college money, the better. Unless you're in a position to make a large lump sum
investment, the most sensible approach is to invest modest amounts regularly.
Your financial adviser can help organize a program tailored to your specific
requirements.
COLLEGE MONEY FOR FOUR DAUGHTERS
During the summer, the carefully manicured yard at their southern Wisconsin
home blooms with roses, day lilies and other perennials - thanks in no small
part to the gardening work done by the four daughters of Doug Andrews and his
wife, Maureen Murphy. That's the youngest of the four, 3-year-old Glenna,
holding the watering can in the inset photo at the right.
[Photo: Glenna]
Recently Glenna joined her older sisters - Annamarie, 7; Elissa, 10; and
Megan, 12 - as members of The New Economy Fund shareholder family. Their
parents have opened accounts in the fund for each of their daughters as a means
of setting aside money for the girls' educational expenses.
Maureen is an accountant; Doug, a radiologist. They met as students at
Carleton College in Minnesota in the early 1970s. The daughter of a physician
who had health problems that became financial problems for the family during
her college years, Maureen is determined to plan ahead very carefully for the
girls' education.
[Photo: school supplies]
"College for them is still quite a few years away," she says. "But I've
learned from experience that it makes sense to start setting aside money early
and be prepared when the time comes. The cost of tuition, books and everything
else is going to be a multiple of what it was when Doug and I were in school."
[Photo: Doug Andrews and Maureen Murphy and family]
[Pull Quote]
For a child born today, the price tag for four years of education could be well
over $100,000 at public universities, and over $200,000 at many private
colleges.
[End Pull Quote]
[Photos: Jill Hogg]
[Pull Quote]
Even today, putting one child through a quality institution of higher learning
can cost nearly as much as buying a house.
[End Pull Quote]
FROM THE RANCH TO THE CAMPUS
[Photo: Jill Hogg and parents]
A junior at the University of Puget Sound in Tacoma, Washington, Jill Hogg has
pointed herself toward a career in physical therapy. "I saw how therapy helped
my mother when she was very ill a few years ago," she says. "That was when I
decided I would like to help people and make them feel better."
As a child growing up in eastern Oregon, one of Jill's chores was to feed
the calves at her family's 580-acre ranch on the Snake River. "I took care of
the runts," she recalls, "the ones that always got squeezed out at feeding
time." The proceeds from the sale of her calves were invested each year in an
account started in The New Economy Fund at the suggestion of the family's
financial adviser.
[Photo: University pendant and bullhorn]
"The account was set up in 1986 to accumulate money for Jill's college
expenses," says her father, Jim Hogg. "We felt this was a sensible way to help
prepare for the cost of her education. Up to now we haven't had to dip into the
account, but we'll be starting to do that pretty soon."
To help pay for her education, Jill works part time, devoting several
hours each workday afternoon to taking care of a pair of six-year-olds who live
near the campus. "They keep me hopping," she says. "But they're fun to be
around."
GIVING SOME THOUGHT TO THE IVY LEAGUE
[Photo: sons playing roller hockey]
They are 10, 12 and 15 - full of energy, active in sports. All three play
roller hockey. Tim, the 10-year-old, plays basketball and baseball. His older
brothers, Matthew and Louis, their playing days behind them, have turned to
umpiring Little League games.
From their home near the Jersey Shore, an hour's drive south of New York
City, Bonnie Sobo's three sons occasionally travel with her on weekends to Long
Island and Philadelphia to watch the Mets and Phillies, or to the Meadowlands
for hockey games. "We're definitely a sports-oriented family," says Bonnie, who
plays tennis and is learning golf. "There are days when I stay pretty busy
driving the boys around to games and practices."
A widow, Bonnie acknowledges that she has her hands full raising the trio
and keeping up with them. "It's a big challenge," she says, "but one I
thoroughly enjoy."
One aspect of the challenge Bonnie is likely to face in a few years is
financing their educations. She expects that all three will go to college. Her
oldest, Louis, has already declared that he would like to attend an Ivy League
school, and it's not inconceivable that one or both of his brothers may follow
suit.
With help from the family's broker and from Bonnie's father, a
professional financial planner, Bonnie has opened accounts in The New Economy
Fund for all three boys. "Those accounts are earmarked strictly for college,"
she says. "There'll come a time when the money can be put to very good use."
[Photo: baseball mitt and ball]
[Photos: Bonnie Sobo and sons]
[Pull Quote]
As with any investment program, the earlier you can start setting aside college
money, the better.
[End Pull Quote]
[Photos: Tyler Suacci]
[Pull Quote]
A good education delivers excellent value with a host of benefits.
[End Pull Quote]
A FRESHMAN WITH AN INTEREST IN BUSINESS
[Photo: Tyler Suacci and family]
During his senior year in high school, Tyler Suacci visited nine college
campuses before deciding to attend the University of Santa Clara, a two-hour
drive from his family's home in northern California. "I want to study decision
and information science in the business school with a minor in math," he says.
Tyler's father, John, runs a small machine shop business in Novato,
California. The company uses robotic and other high-precision equipment to
manufacture parts, mainly for the computer industry. His mother, Cathy, handles
the firm's books in addition to working as an X-ray technician.
"Putting a child through school nowadays is a major investment," she says.
"You have to start planning for it early." In the 1980s, the Suaccis opened
accounts in The New Economy Fund for both Tyler and his sister, Brianne, a high
school senior. "Our thinking was that we should be in growth stocks and we
should have professional investment management," says John. "Our money comes
too hard to fritter it away playing the market on our own."
The Suaccis have begun drawing on Tyler's NEF account to pay for some of
his college expenses. "So far we haven't had to tap into the account as much as
we'd expected," says John. "That's the good news. However, Tyler is only a
freshman and he has his eye on graduate study, so there are plenty of expenses
still ahead."
[Photo: schoolbag and books]
<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.
THE AMERICAN FUNDS GROUP(R) SHAREHOLDER SERVICES
ARE YOU AWARE OF YOUR RIGHTS?
Did you know you may be eligible for a sales charge discount when you buy
shares of most American Funds? The discounts begin when your investments total
$25,000 for bond funds or $50,000 for stock and stock/bond funds - and the good
news is you don't have to invest the whole amount at one time.
Through your right of accumulation, when you purchase additional shares
you can add the purchase amount to the value of shares you already own - in any
of our eligible funds* - in order to qualify for a sales charge discount on the
new investment.
Sales charges are reduced on a sliding scale as your investments increase.
You'll find a detailed breakdown of all discounts in your fund's prospectus,
which you can obtain from your financial adviser or by calling a Shareholder
Services Representative.
OTHER WAYS TO REDUCE SALES CHARGES
You can establish a statement of intention that allows you to invest at a
reduced sales charge immediately, based on purchases you intend to make over a
13-month period.* Or you can aggregate accounts by adding your purchase amount
to the total value of accounts you, your spouse and your minor children have
with The American Funds Group. Call a Shareholder Services Representative for
details and restrictions.
Whether you accumulate, aggregate or establish a statement of intention,
it all adds up - to more purchasing power for you.
INVESTING WITH STYLE
Our multitude of free services are designed to help you meet your needs
quickly, effortlessly and efficiently.
AMERICAN FUNDSLINE(R) - Handle transactions over the phone, 24 hours a day.
Exchange shares between funds, order checks, obtain current prices and
investment returns, check your share balances, request duplicate statements,
confirm your most recent transaction, and redeem shares - all on your
timetable. Just call 800/325-3590.
AMERICAN FUNDSLINK(SM) - Link your American Funds accounts with your bank
account. You can have fund dividends or automatic fund withdrawals deposited
directly into your bank account. Or you can invest money directly from your
bank account into your fund account on either a systematic or on-demand basis.
OTHER AUTOMATIC TRANSACTIONS - You can reinvest dividends into the same fund or
another fund, make withdrawals, and exchange shares between funds - quarterly,
monthly or during the months you specify.
DIVIDEND AND CAPITAL GAIN OPTIONS - Use your dividend and capital gain
distributions to meet your changing needs.
You may:
- - Automatically reinvest distributions back into the fund at no sales
charge.
- - Cross-reinvest dividends into another fund at no sales charge. (Certain
restrictions apply.)
- - Have dividends mailed or sent electronically to you or to someone else.
EXCHANGE PRIVILEGES - When you and your investment adviser feel it's time to
adjust your portfolio to meet your changing investment goals, you can easily
exchange shares from one American Fund to another - without paying a sales
charge.* If you are opening an account in a new fund, you must meet that fund's
minimum investment requirement. An exchange constitutes a sale and purchase for
tax purposes.
OTHER SERVICES - Stay on top of your investments with ACCOUNT STATEMENTS that
keep you abreast of the activity in your account, CONSOLIDATED QUARTERLY
STATEMENTS to reduce paperwork if you have multiple accounts, and YEAR-END TAX
REPORTS that show the dividends and any capital gain distributions paid to you
during the year.
*Investments in our money market funds - The Cash Management Trust of America,
The Tax-Exempt Money Fund of America and The U.S. Treasury Money Fund of
America - which are purchased without a sales charge, generally do not apply
when determining your sales charges. If, however, the shares were originally
purchased in another American Fund that required a sales charge, then later
exchanged into our money market funds, the value of those shares would apply
toward reducing sales charges.
FOR MORE COMPLETE INFORMATION ABOUT THESE SERVICES OR ABOUT ANY OF THE AMERICAN
FUNDS, INCLUDING CHARGES AND EXPENSES, PLEASE OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISER OR PHONE AMERICAN FUNDS SERVICE COMPANY. PLEASE READ THE
PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY. THESE SERVICES ARE
SUBJECT TO CHANGE OR TERMINATION.
TO TALK TO A SHAREHOLDER SERVICES REPRESENTATIVE, CALL TOLL-FREE (8 A.M. TO 8
P.M. ET) FROM ANYWHERE IN THE U.S.: 800/421-0180
[map]
WESTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2205
Brea, California
92822-2205
[map]
WEST CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 659522
San Antonio, Texas
78265-9522
[map]
EAST CENTRAL SERVICE CENTER
American Funds Service Company
P.O. Box 6007
Indianapolis, Indiana
46206-6007
[map]
EASTERN SERVICE CENTER
American Funds Service Company
P.O. Box 2280
Norfolk, Virginia
23501-2280
THE NEW ECONOMY FUND
BOARD OF TRUSTEES
AMBASSADOR RICHARD G. CAPEN, JR.
Rancho Santa Fe, California
Corporate Director and author; former United States Ambassador to Spain; former
Vice Chairman of the Board, Knight-Ridder, Inc.; former Chairman and Publisher,
The Miami Herald
H. FREDERICK CHRISTIE
Rolling Hills Estates, California
Private investor; former President and Chief Executive Officer, The Mission
Group; former President, Southern California Edison Company
ALAN W. CLEMENTS
London, England
Private investor; former Executive Director - Finance, Imperial Chemical
Industries PLC
ROBERT B. EGELSTON
Los Angeles, California
Chairman of the Board of the fund
Former Chairman of the Board,
The Capital Group Companies, Inc.
ALAN GREENWAY
La Jolla, California
Private investor; President, Greenway Associates, Inc.
(management consulting services)
WILLIAM R. GRIMSLEY
San Francisco, California
President and Vice Chairman
of the Board of the fund
Senior Vice President and Director, Capital
Research and Management Company
GRAHAM HOLLOWAY
Dallas, Texas
Former Chairman of the Board,
American Funds Distributors, Inc.
LEONADE D. JONES
Burlingame, California
Former Treasurer, The Washington Post Company
WILLIAM H. KLING
St. Paul, Minnesota
President, Minnesota Public Radio; President, Greenspring Co.; former
President, American Public Radio (now Public Radio International)
NORMAN R. WELDON, PH.D.
Miami, Florida
Managing Director, Partisan Management Group Inc.;
Chairman of the Board, Novoste Corporation
PATRICIA K. WOOLF, PH.D.
Princeton, New Jersey
Private investor; lecturer, Department of
Molecular Biology, Princeton University
OTHER OFFICERS
TIMOTHY D. ARMOUR
Los Angeles, California
Executive Vice President of the fund
Director, Capital Research and Management
Company; Senior Vice President and Director,
Capital Research Company
CLAUDIA P. HUNTINGTON
Los Angeles, California
Senior Vice President of the fund
Senior Vice President, Capital Research Company
JAMES B. LOVELACE
Los Angeles, California
Senior Vice President of the fund
Vice President, Capital Research and Management Company
VINCENT P. CORTI
Los Angeles, California
Vice President of the fund
Vice President - Fund Business Management Group, Capital Research and
Management Company
STEVEN N. KEARSLEY
Los Angeles, California
Vice President and Treasurer of the fund
Vice President and Treasurer, Capital Research and Management Company
CHAD L. NORTON
Los Angeles, California
Secretary of the fund
Vice President - Fund Business Management Group, Capital Research and
Management Company
MARY C. HALL
Brea, California
Assistant Treasurer of the fund
Senior Vice President - Fund Business Management Group, Capital Research and
Management Company
ROBERT P. SIMMER
Norfolk, Virginia
Assistant Treasurer of the fund
Vice President - Fund Business Management Group, Capital Research and
Management Company
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER, CAPITAL RESEARCH AND
MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
(Please write to the office nearest you.)
American Funds Service Company
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02105-1713
COUNSEL
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
This report is for the information of shareholders of The New Economy Fund, but
it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
March 31, 1997, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Litho in USA BDA/AL/3047
Lit. No. NEF-011-0197
[The American Funds Group(r)]
