[THE AMERICAN FUNDS GROUP(R)]
1997 ANNUAL REPORT
For the year ended November 30
THE NEW ECONOMY FUND
A visit to a town undergoing the same economic changes that gave birth to the
fund more than a decade ago.
[photos: top of the Opera House in Woodstock, IL; statue; silo]
RESULTS AT A GLANCE
FISCAL 1997 TOTAL RETURN
for the 12 months ended November 30, 1997
(with all distributions reinvested)
The New Economy Fund +21.6%
Standard & Poor's 500 Composite Index +28.6
Lipper Growth Fund Index +23.6
Morgan Stanley Capital International EAFE(R)
(Europe, Australasia, Far East) Index - 0.1
Russell 2500 Index +23.7
LIFETIME TOTAL RETURN
since inception on December 1, 1983 to November 30, 1997
(with all distributions reinvested)
The New Economy Fund +656.6%
Standard & Poor's 500 Composite Index +798.3
Lipper Growth Fund Index +544.3
Morgan Stanley Capital International EAFE(R)
(Europe, Australasia, Far East) Index +599.6
Russell 2500 Index +514.7
THE NEW ECONOMY FUND(R) aims 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.
The New Economy Fund is one of 28 funds in The American Funds Group,(R) managed
by Capital Research and Management Company. Since 1931, Capital has invested
with a long-term focus based on thorough research and attention to risk.
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, 1997
(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 +324.51% +15.56%
Five Years +105.20 +15.46
One Year +21.42 -
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.
FELLOW SHAREHOLDERS
Fiscal 1997 was another profitable year for investors in The New Economy Fund.
For the 12 months ended November 30, the value of your holdings rose 21.6% if,
like most shareholders, you reinvested income dividends totaling 14 cents a
share and a capital gain distribution of $1.13 a share.
More than two-thirds of all securities held in the portfolio throughout the
year rose in price. Our results benefited importantly from strong showings by
financial, media and retail stocks. Of the fund's five largest holdings at the
beginning of the year-all of which rose in double digits-three are financial
(Fannie Mae +28.0%, Freddie Mac +44.4%, ING Groep +27.7%), and two are media
stocks (Tele-Communications, TCI Group +69.7%, and Time Warner +42.9%).
Not all of our stocks fared as well, of course. While we believe that our
positions in the gaming, computer services and software industries represent
good long-term investments, some of them declined in price rather sharply
during fiscal 1997. Two of our holdings in gaming, Station Casinos and Circus
Circus Enterprises, fell 37.6% and 43.5%, respectively. Among computer-related
issues, Silicon Graphics and Electronic Data Systems were down 34.0% and 21.4%,
respectively.
Although a majority of New Economy's assets are invested in U.S. securities,
the fund can invest up to 40% of net assets in the stocks of companies based
outside the United States. This gives us the flexibility to go anywhere in the
world in search of the best opportunities in the services and information area
of the global economy.
Currently, non-U.S. investments represent 24% of net assets, about the same as
at the start of fiscal 1997. As a group these stocks rose an average of 17.6%
in price for the 12 months. A number of them represent investments in firms
based in the United Kingdom, Canada and other countries where share prices
stayed on an upward course during the year. The fund had less than 3% of net
assets invested in Asia when the financial crisis unfolded there. Because of
this limited exposure, the selloff in Asian stock markets only had a minor
effect on our results.
New Economy's fiscal '97 gain of 21.6% was achieved in a rather unstable
investment climate. In the U.S., the popular averages kept moving higher.
However, the advance was interrupted twice by sharp declines. The most recent
one took place this past October, when the U.S. market reacted to the decline
in Asia. During that selloff, the fund held up a little better than the U.S.
market as a whole, registering a drop of 8.1% (from the high recorded on
October 7 to the low on October 27) versus a 10.8% drop for the unmanaged
Standard & Poor's 500 Composite Index. For the full fiscal year, that index
outpaced the fund, rising 28.6% on a reinvested basis.
[Begin sidebar]
WHERE THE FUND'S
ASSETS ARE INVESTED
(as of 11/30/97)
<TABLE>
<CAPTION>
<S> <C>
Percent of
Country Net Assets
United States 64.40%
United Kingdom 3.38
Mexico 2.36
Canada 2.01
Spain 1.44
Australia 1.36
Japan 1.26
Netherlands 1.05
Denmark 1.05
Italy .99
Germany .97
New Zealand .51
Hong Kong .48
Sweden .36
Other countries 7.11
88.73
Cash & Equivalents 11.27
Total 100.00%
</TABLE>
[End sidebar]
[Begin sidebar]
OUR RESULTS BENEFITED IMPORTANTLY FROM STRONG SHOWINGS BY FINANCIAL, MEDIA AND
RETAIL STOCKS.
[End sidebar]
In making comparisons between the S&P 500 and New Economy, it should be kept in
mind that the index has been driven upward by a handful of large U.S. companies
whose share prices have climbed to what we feel are probably unsustainable
levels. For some time, therefore, we have concentrated our search for value
elsewhere, chiefly among smaller and medium-capitalization issues.
Currently, more than half of the stocks in the fund's portfolio have market
capitalizations of less than $5 billion. Because we own quite a number of these
issues, it is useful to also look at other benchmarks which, like the S&P 500,
are unmanaged. The Russell 2500, for example, tracks 2,500 small and medium-cap
U.S. securities of all kinds. For the 12 months, it rose 23.7% on a reinvested
basis.
Since non-U.S. securities are a significant part of the fund, it also is useful
to look at the Morgan Stanley Capital International EAFE (Europe, Australasia,
Far East) Index, which tracks all major markets outside North America. For the
12 months, that index posted a tiny decline of 0.1%, trailing both New Economy
and its non-U.S. investments as a group by a considerable margin.
One other benchmark that is helpful in evaluating our results is the Lipper
Growth Fund Index, which tracks 30 of the largest mutual funds with growth of
capital as their principal objective; it provides a reasonably good indication
of how New Economy is doing relative to many of its peers. For the 12 months,
this index recorded a total return of 23.6%.
In view of the recent volatility in global markets, we are maintaining a
cautious investment approach. We would not be at all surprised to see further
downswings in the months ahead. However, we believe that shareholders who have
the patience and self-discipline to stay with their investment through periodic
declines should, over time, continue to be rewarded.
In December, New Economy's Trustees elected Timothy Armour President of the
fund, succeeding William Grimsley. Both have been NEF portfolio counselors for
a number of years. Mr. Grimsley was elected Chairman, succeeding Robert
Egelston, the fund's founding Chairman. Under Bob Egelston's stewardship, New
Economy has grown steadily over the past 14 years while providing shareholders
with a rewarding investment experience. Those of us who have worked closely
with him during this time would like to express our sincere appreciation for
his leadership, professionalism and wise counsel.
Cordially,
/s/William R. Grimsley /s/ Timothy D. Armour
William R. Grimsley Timothy D. Armour
Chairman of the Board President
January 12, 1998
[Begin sidebar]
IN VIEW OF THE RECENT VOLATILITY IN GLOBAL MARKETS, WE ARE MAINTAINING A
CAUTIOUS INVESTMENT APPROACH. WE WOULD NOT BE AT ALL SURPRISED TO SEE FURTHER
DOWNSWINGS IN THE MONTHS AHEAD.
[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, 1997, the end of its latest
fiscal year. As you can see, the $10,000 would have increased to $71,317 after
deducting the maximum 5.75% sales charge and with all distributions reinvested,
an average increase of 15.1% a year. The fund's year-by-year results appear
under the chart.
Average Annual Compound Returns*
(for periods ended November 30, 1997)
Ten Years +16.11%
Five Years +15.54%
One Year +14.63%
*Assumes reinvestment of all distributions and payment of the 5.75% sales
charge at the beginning of the stated periods.
[begin mountain chart]
$89,825/1/
S&P 500
Composite Index
$75,656/1/ /2/
NEF at net asset value (without
any sales charge)
$71,317/1/ /3/ /4/
NEF at maximum offering price
(with 5.75% sales charge deducted)
$64,428/1/ /5/
Lipper Growth
Fund Index
$15,959/6/
Consumer Price Index (inflation)
$10,000/3/
original investment
[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//3//4/ /1/ /2/ 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
1997 71,317 75,656 89,825 64,428 15,959
</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 /3/ $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 /3/ 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 1997
Total Value Dividends Reinvested 307 517 578 455
Value at Year-End /3/ 41,376 50,984 58,631 71,317
NEF TOTAL RETURN (2.9) 23.2 15.0 21.6
</TABLE>
[end mountain chart]
Average annual compound return for 14 years: 15.1%/3/
/1/ All results are calculated with dividends and capital gains reinvested.
/2/ Includes reinvested dividends of $5,276 and reinvested capital gain
distributions of $21,645.
/3/ 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.
/4/ Includes reinvested dividends of $4,971 and reinvested capital gain
distributions of $20,403.
/5/ This index tracks 30 of the largest U.S. growth funds
(representing about 51% 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.
[photo: Opera House]
THE NEW ECONOMY FUND AND WOODSTOCK: A LOOK AT THEIR DISTINGUISHING
CHARACTERISTICS
Can the word "unique" be modified with an adverb such as somewhat or rather?
Most grammarians say no, while others argue that common usage has made the use
of an adverb acceptable. We believe the term applies without qualification to
both The New Economy Fund and to the town featured on these pages - Woodstock,
Illinois - a community that's home to a number of our shareholders.
THE FUND
New Economy's uniqueness stems from its investment focus and from the way it is
managed. The fund invests in companies operating in services and information
industries in the United States and around the world. These industries have
been growing rapidly - generally much faster than industrial businesses - and
creating attractive investment opportunities. As a shareholder in NEF, you have
access to what we believe are the best of those opportunities. In the U.S., the
services and information component accounts for nearly 60% of the economy and
has shown relative stability during recessions.
The fund maintains a patient, value - oriented approach to investing, drawing
on the worldwide research capabilities of its adviser, Capital Research and
Management Company (CRMC). New Economy's globally diversified investments are
managed by a method unlike that used by any other mutual fund company. Known as
the Multiple Portfolio Counselor System, it was created by CRMC 40 years ago to
blend teamwork with individual effort. Under this method, NEF's assets are
divided into seven portions, six of which are managed independently by
experienced portfolio counselors - in line, of course, with the fund's overall
objectives. The seventh portion is managed, with a view toward meeting the
fund's objectives, by a team of experienced research analysts.
How has New Economy fared using the Multiple Portfolio Counselor System and
investing in services and information companies? Since the fund began in 1983,
the value of an investment in NEF has risen on a total return basis in 11 of 14
fiscal years. In 10 of those 11, the increase was in double digits; the average
gain was 23.1%. In the three down years, the declines averaged 7.2%. Over the
entire 14 - year span, NEF generated an average annual return of 15.6%,
including reinvestment of dividends and capital gain distributions.
[photo: water tower]
THE TOWN
Woodstock's principal distinguishing characteristic is the 107-year-old Opera
House shown at the left. Culturally and geographically, it is at the center of
this northern Illinois city. A gathering place for the community, the Opera
House has hosted everything from ice cream socials and dancing classes to
concerts by the Glenn Miller Orchestra and performances of The Pajama Game and
The Pirates of Penzance. Its stage has been graced by a number of successful
actors, including Geraldine Page, Shelley Berman, Tom Bosley and Paul Newman.
Orson Welles performed Shakespeare under its floodlights in the 1930s after
graduating from a local boys' school; he later described the building as
"rustic and rusticated . . . a real honest-to-horse-hair Opera House." A few
years ago, the building and the town were used as a location for filming the
motion picture Groundhog Day.
"Since it was refurbished in the 1970s, the Opera House has become a source of
great civic pride," says Jim Wormley, a local investment broker who has lived
in Woodstock for 14 years. "It receives very strong support from the
community." One of its most active supporters is a New Economy shareholder you
will meet on page 10.
At one time, Woodstock was essentially a farming town with a few factories.
Today, it finds itself on the edge of suburban Chicago, a bedroom community to
some extent, with a population of 16,000 and rush-hour train service into the
"Loop." Around the train station and the Opera House, stately old homes on
tree-lined streets serve as a reminder that the community's origins were in the
Victorian era. Not far away, at the outskirts of town, housing developments are
being built on land that was once used to raise dairy cows.
Woodstock still has a substantial agricultural base (you'll meet one local farm
family on page 8), but its manufacturing base has dwindled. Plants that
produced typewriters and other consumer and industrial products have closed
their doors in recent years; major local employers today include a number of
service-oriented businesses in the computer, printing and packaging industries.
Near the center of town, a car parts factory that was once a very large
employer has been razed, leaving a concrete slab that covers an entire city
block as a reminder of the economic change taking place in the community.
Indeed, one of the things that struck us when we visited Woodstock recently was
the degree to which it has been experiencing the same shift - away from
smokestack industries - that gave birth to the fund more than a decade ago.
Woodstock impressed us as an appropriate community to feature in our annual
report for another reason: it is home to quite a few New Economy shareholders -
about 300, including the surrounding county. As you can see above, we gathered
a group of them together in a location that we felt would be perfect for a
portrait: the balcony of the Opera House.
[photos: New Economy shareholders from Woodstock; building in Woodstock]
INVESTING IN THE "NEW STUFF"
When she went to work for the Woodstock Public Library in 1971, Maggie Field
promised to remain on the job for at least a year. "Twenty-seven years later
I'm still here," she says, "sitting in the same chair. My job, however, has
completely changed around me."
A native of nearby Crystal Lake and a graduate of the University of Illinois,
Ms. Field says the biggest change took place recently, when the library started
making the Internet accessible to its patrons. "Our challenge is to make them
feel comfortable with the latest available technology," she says.
In addition to serving as Woodstock's chief librarian, Ms. Field conducts
walking tours of the city for classes of schoolchildren and other groups. She
is also an inveterate traveler who, by her own reckoning, has "visited every
continent except Antarctica."
Twelve years ago, with an eye toward eventual retirement, Ms. Field expanded
her investment program and bought shares in The New Economy Fund. "One of the
things that attracted me to this fund," she says, "is the fact that it invests
in areas that are of great interest to me - information and service companies.
I call it $the new stuff.'"
[photos: Maggie Field with children in library; statue; Ms. Field conducting
walking tour]
BUSY DAYS ON THE FARM
Their 225-acre dairy farm south of Woodstock has been in the family since Don
Riedl's ancestors emigrated to Illinois from Europe in the mid-1800s. "We keep
pretty busy," says Don. "We milk 60 cows twice a day, seven days a week. And
when we're not milking, we're filling the silo or doing something else around
the place."
Don's wife, Judy, a native of nearby Elgin, describes herself as "a city girl
who came to the country and learned farming. It's tough work," she admits, "but
I love it." Judy is also a part-time journalist who writes about farm life,
environmental concerns and other topics in a column called "Thoughts from the
Country," which appears every week in the Huntley Farmside, a local newspaper.
Several years ago, with help from their financial adviser, the Riedls made some
changes in their savings and investment program. "You start to realize that you
have only so much time left to farm," says Judy. "And you don't want to be
caught with nothing after all the hard work." They decided to shift money from
a certificate of deposit into New Economy and one other American Fund. "We
wanted to diversify our investments," says Don, "and we like the American
Funds' philosophy of concentrating on deep research into a company's potential
and the business it's in." (Unlike a CD, the fund's value will fluctuate and
the investment return is not guaranteed.)
[photos: Don and Judy Riedl in corn field; silo; Judy Riedl writing]
TEACHING AND COACHING
Gordon Tebo is a Detroit native who, in his words, "grew up in the car
factories." In the early 1980s, when the auto industry and the Detroit area's
economy were going through tough times, Tebo's teaching job was eliminated by a
budget cut in a suburban school system. The job hunt that followed led him and
his family to Woodstock, where he has been teaching math and coaching high
school basketball for the past 15 years.
"We chose Woodstock," he explained, "because it offered my family a lot of the
things we wanted, including a strong sense of community and a tradition of
music." His wife, Anita, teaches piano, sings in a local choral group and has
directed musical performances at the Opera House. One of the Tebos' three sons,
Gordie, composes symphonies and is majoring in music in college.
Using pension money rolled over from Gordon's job in Michigan, the Tebos began
investing in mutual funds, including New Economy, in the mid-1980s. "I've been
pleased with the way it has turned out," he says. Some of the Tebos'
investments have been used to help meet the educational expenses of their
oldest son, Kirk, who graduated from Ball State University last year. Says
Gordon, "What isn't used for college for the boys is earmarked for our
retirement."
[photos: Gordon Tebo coaching basketball team; Anita Tebo teaching piano;
Gordon and Anita Tebo]
PHILANTHROPY AND CIVIC AFFAIRS
As a member of the Board of Directors of the Woodstock Fine Arts Association,
Peg Van Doren helps raise funds for plays, musical productions and other
activities at the Opera House. She also belongs to a vocal group, The New
Oratorio Singers, which toured England a year ago and is scheduled to perform
in Prague, Vienna and Budapest during 1998.
One of Ms. Van Doren's favorite projects at the moment is a women's investment
club, which she was instrumental in forming. "I got involved in that because I
believe it's important for women to learn about finances and investing," she
explains. One of the lessons she feels should be learned: "The advisability of
staying the course rather than changing investments constantly in hopes of
making a quick profit."
Along with The New Economy Fund, Ms. Van Doren owns shares in a number of other
American Funds. "I feel comfortable with investment managers who focus on the
long term and emphasize what a company does rather than on what the stock is
supposed to do," she says.
[photos: Woodstock Square sign; Peg Van Doren biking; Peg Van Doren]
INVESTING A LUMP SUM
Laura and Virgil Boal are lifelong residents of the Woodstock area who built a
substantial part of their three-bedroom home 11 years ago. "We subcontracted
the main frame, the roofing, and the electrical and plumbing," says Virgil.
"Everything else we did ourselves. By acting as our own general contractors, we
saved money, but it sure was a lot of work."
Since moving in on Valentine's Day in 1987, the Boals have added a number of
features, including a screened-in back porch and a hot tub.
The Boals have two sons - Ryan, a high school senior, and Greg, a college
sophomore - living at home. For 25 years, Laura has been a homemaker while
Virgil has worked for Filtertek, a technology company in nearby Hebron,
Illinois. When the firm was sold in 1992, he received a lump sum from a
profit-sharing program and made investments in New Economy and two other
American Funds. "We feel good about how it's going," he says. "Having our money
invested this way means a lot to us."
[photos: The Boal family; Virgil Boal fixing water pump; Laura Boal sewing]
<TABLE>
THE NEW ECONOMY FUND
<S> <C> <C> <C>
Investment Portfolio, November 30, 1997
- ------------------------------------------- -------------
Largest Holdings by Industry
Broadcasting & Publishing 15.46%
Telecommunications 10.36
Miscellaneous Financial Services 8.19
Merchandising 7.48
Computer Services & Software 7.36
All Other Industries 39.88
Cash & Equivalents 11.27
- ------------------------------------------- -------------
Percent
of
Largest Equity-Type Holdings Net Assets
Fannie Mae 3.19%
Freddie Mac 2.66
Time Warner 2.35
Tele-Communications, Liberty Media Group 2.21
Carnival 2.10
Tele-Communications, TCI Group 1.91
Viacom 1.81
America Online 1.77
Telefonos de Mexico 1.59
Rentokil Group 1.53
- ------------------------------------------- ------------- -----------------------
Market Percent
Equity-Type Securities (Common and Shares or Value of Net
Preferred Stocks and Convertible Debentures) Principal Amou (000) Assets
- ---------------------------------------- ------------- -----------------------
BROADCASTING & PUBLISHING - 13.13%
Time Warner Inc. 1,940,220 $113,018 2.35%
Tele-Communications, Inc., Series A, Liberty Media
Group (1) 3,147,587 106,231 2.21
Tele-Communications, Inc., Series A, TCI Group 4,000,000 91,625 1.91
Viacom Inc., Class B (1) 2,485,000 86,975 1.81
Comcast Corp., Class A, special stock 2,300,000 64,400 1.34
Mediaset SpA (Italy) (2) 6,960,000 34,393
Mediaset SpA 1,450,000 7,165 .87
News Corp. Ltd., preferred shares (Australia) 2,845,362 13,792
News Corp. Ltd. 2,088,169 11,114
News Corp. Ltd. (American Depositary
Receipts) 470,000 10,193 .83
News Corp. Ltd., preferred shares
(American Depositary Receipts) 235,000 4,641
Tele-Communications International, Series A (1 2,250,000 36,141 .75
EMAP PLC (United Kingdom) 1,400,000 20,576 .43
ProSieben Media AG (Germany) (1) 410,000 19,649 .40
Chris-Craft Industries, Inc. (1) 318,270 15,953 .33
Thomson Corp. (Canada) 600,000 15,107 .31
Quebecor Printing Inc. (Canada) 1,000,000 14,312 .30
CANAL+ (France) 81,370 14,149 .29
TV Azteca, SA de CV (American Depositary
Receipts) (Mexico) (1) 682,900 14,127 .29
Grupo Televisa, SA (American Depositary
Receipts) (Mexico) (1) 345,000 12,765 .27
Scholastic Corp. (1) 236,200 9,020 .19
AUDIOFINA (Luxembourg) 185,000 6,513 .14
CBS Corp. 200,434 6,013 .13
FLEXTECH PLC (United Kingdom) 500,000 4,737 .10
Golden Books Family Entertainment, Inc. (1) 500,000 4,687 .10
Gaylord Entertainment Co., Class A 110,250 3,370 .07
SOFT BANK Corp. (Japan) 69,560 1,252 .03
Young Broadcasting Inc., Class A (1) 18,000 655 .01
TELECOMMUNICATIONS - 10.36%
Telefonos de Mexico, SA de CV, Class L
(American Depositary Receipts) (Mexico) 1,541,960 76,327 1.59
Telefonica de Espana, SA (Spain) 1,675,000 48,274
Telefonica de Espana, SA (American 1.31
Depositary Receipts) 170,000 14,705
AirTouch Communications (1) 1,450,000 56,912 1.18
Tele-Communications, Inc., Series A, TCI
Ventures (1) 2,300,000 52,037 1.08
Tele Danmark AS, Class B (American Depositary
Receipts) (Denmark) 704,700 21,053 .68
Tele Danmark AS, Class B 200,000 11,938
Mannesmann AG (Germany) 57,500 26,742 .56
MCI Communications Corp. 500,000 21,969 .46
SITEL Corp. (1) 2,350,000 21,884 .45
Telecom Corp. of New Zealand Ltd. (New Zealand 2,200,000 11,273
Telecom Corp. of New Zealand Ltd. (2) 2,028,400 10,394 .45
Sprint Corp. 350,500 20,526 .43
Hong Kong Telecommunications Ltd. (Hong Kong) 9,952,345 18,927 .39
LCI International, Inc. (1) 650,000 17,916 .37
Vodafone Group PLC (American Depositary
Receipts) (United Kingdom) 225,000 14,850 .31
Telefonica del Peru SA (American Depositary
Receipts) (Peru) 485,600 10,198 .21
APAC TeleServices, Inc. (1) 641,400 8,980 .19
Globalstar Telecommunications Ltd., 6.50%
convertible preferred (2) 100,000 8,500 .18
Telecom Argentina STET-France Telecom SA,
Class B (American Depositary Receipts)
(Argentina) 261,000 8,009 .17
TeleTech Holdings, Inc. (1) 600,000 6,375 .13
Telecom Italia SpA (Italy) 850,000 5,308
Telecom Italia SpA, savings shares 150,000 589 .12
Telefonica de Argentina SA (American
Depositary Receipts) (Argentina) 128,700 4,255 .09
AT&T Corp. 7,300 408 .01
MISCELLANEOUS FINANCIAL SERVICES - 8.19%
Fannie Mae (formerly Federal National
Mortgage Assn.) 2,900,000 153,156 3.19
Freddie Mac (formerly Federal Home Loan
Mortgage Corp.) 3,100,000 127,875 2.66
Capital One Financial Corp. 950,000 43,047 .90
SLM Holding Corp. (formerly
(Student Loan Marketing Assn.) 280,000 36,155 .75
First Data Corp. 600,000 16,988 .35
ORIX Corp. (Japan) 154,000 10,329 .22
Insignia Financial Group, Inc. Class A (1) 300,000 5,925 .12
MERCHANDISING - 7.48%
Viking Office Products, Inc. (1) 2,970,000 68,867 1.43
Consolidated Stores Corp. (1) 1,250,000 60,781 1.27
AutoZone, Inc. (1) 1,200,000 36,000 .75
Circuit City Stores, Inc.-Circuit City Group 575,000 18,867
Circuit City Stores, Inc.-Carmax Group (1) 900,000 10,744 .62
HSN, Inc. (1) 455,000 20,304 .42
Barnes & Noble, Inc. (1) 600,000 18,563 .39
Home Depot, Inc. 309,000 17,285 .36
Gymboree Corp. (1) 500,000 14,438 .30
Garden Ridge Corp. (1) 850,000 12,963 .27
DFS Furniture Co. PLC (United Kingdom) 1,300,000 12,793 .27
Limited Inc. 500,000 12,031 .25
Tesco PLC (United Kingdom) 1,474,410 11,908 .25
Giant Food Inc., Class A 250,000 8,438 .17
PETsMART, Inc. (1) 1,000,000 7,813 .16
MSC Industrial Direct Co., Inc., Class A (1) 178,700 6,947 .14
Michaels Stores, Inc. (1) 200,000 6,475 .13
JLK Direct Distribution Inc., Class A (1) 212,800 6,052 .13
CompuCom Systems, Inc. (1) 400,000 4,100 .09
Dickson Concepts (International) Ltd. (Hong Kong -
Incorporated in Bermuda) 1,561,400 2,929 .06
Giordano Holdings Ltd. (Hong Kong) 3,750,000 982 .02
COMPUTER SERVICES & SOFTWARE - 7.36%
Oracle Corp. (1) 1,900,000 63,294 1.32
CUC International Inc. (1) 1,945,000 55,919 1.16
Computer Associates International, Inc. 690,000 35,923 .75
Intuit Inc. (1) 1,100,000 33,206 .69
Shared Medical Systems Corp. 450,000 28,800 .60
Electronic Arts (1) 847,600 28,395 .59
PeopleSoft, Inc. (1) 300,000 19,631 .41
Policy Management Systems Corp. (1) 220,000 14,217 .30
Sybase, Inc. (1) 950,600 13,308 .28
American Management Systems, Inc. (1) 400,000 9,325 .19
Broderbund Software, Inc. (1) 300,000 8,719 .18
Netscape Communications Corp. (1) 300,000 8,550 .18
Electronic Data Systems Corp. 200,000 7,600 .16
MacNeal-Schwendler Corp. (1) 603,300 6,146 .13
Avid Technology, Inc. (1) 200,000 5,850 .12
HNC Software Inc. (1) 125,000 3,938 .08
Altron Inc.(1) 160,000 2,520 .05
Gemstar International Group Ltd. (1) 101,300 2,406 .05
First USA Paymentech, Inc. (1) 122,667 1,901 .04
Acclaim Entertainment, Inc. (1) 450,000 1,828 .04
Macromedia, Inc. (1) 150,000 1,495 .03
Verity, Inc. (1) 120,500 591 .01
INSURANCE - 6.90%
EXEL Ltd. (Bermuda) 1,150,000 70,725 1.47
Fairfax Financial Holdings Ltd. (Canada) (1) 226,000 47,540
Fairfax Financial Holdings Ltd. 30,000 6,310 1.12
ING Groep NV (Netherlands) 708,224 28,770
ING Groep NV, warrants, expire 2001 (1) 2,200,000 21,513 1.05
Travelers/Aetna Property Casualty Corp., Class 1,085,000 43,129 .90
Aetna Inc. 370,000 27,889 .58
PartnerRe Holdings Ltd. (Incorporated in Bermu 553,900 23,956 .50
American International Group, Inc. 225,000 22,683 .47
Topdanmark A/S (Denmark) 110,120 17,376 .36
20th Century Industries 474,200 11,944 .25
Trenwick Group Inc. 255,000 9,467 .20
ENTERTAINMENT & LEISURE - 5.64%
Carnival Corp., Class A 1,870,000 101,097 2.10
Walt Disney Co. 747,000 70,918 1.48
Mirage Resorts, Inc. (1) 1,500,000 35,625 .74
Midway Games Inc. (1) 900,000 18,112 .38
MGM Grand, Inc. (1) 400,000 15,650 .33
Nintendo Co., Ltd. (Japan) 120,000 12,397 .26
Circus Circus Enterprises, Inc. (1) 300,000 6,188 .13
Harrah's Entertainment, Inc. (1) 300,000 6,019 .12
Station Casinos, Inc. (1) 758,300 5,024 .10
BANKING - 5.07%
Norwest Corp. 1,260,000 47,171 .98
Wells Fargo & Co. 116,666 35,846 .75
Charter One Financial, Inc. 496,125 29,395 .61
First Chicago NBD Corp. 315,400 24,680 .51
Societe Generale de Belgique SA (Belgium) 259,500 24,192 .50
STB Cayman Capital Ltd., 0.50% convertible
debentures 2007 (Japan) $2,240,000 14,376 .30
Keystone Financial, Inc. 375,000 13,969 .29
Royal Bank of Canada (Canada) 250,000 13,380 .28
Sparbanken Sverige AB (Swedbank), Class A (Swe 490,000 12,466 .26
Grupo Financiero Banamex Accival, SA de CV,
Series L (Mexico) (1) 3,024,415 6,262
Grupo Financiero Banamex Accival, SA de CV, .21
Series B (1) 1,745,000 3,826
Sakura Finance (Bermuda) Trust, convertible
preference share units (Japan) 144 5,832 .19
Sakura Bank, Ltd. 891,000 3,110
Banco de Santander, SA (Spain) 200,000 6,046 .12
Philippine Commercial International Bank, Inc.
(Philippines) 807,600 3,193 .07
MISCELLANEOUS BUSINESS SERVICES - 4.52%
Rentokil Group PLC (United Kingdom) 17,399,800 73,276 1.53
Pittston Brink's Group 1,075,000 39,372 .82
Concord EFS, Inc. (1) 882,400 22,501 .47
Ceridian Corp. (1) 500,000 21,938 .45
Administaff, Inc. (1) 565,800 12,589 .26
Snyder Communications, Inc. (1) 350,000 11,878 .25
ABR Information Services, Inc. (1) 424,400 10,186 .21
Precision Response Corp. (1) 645,000 4,878 .10
Stewart Enterprises, Inc. Class A 100,000 4,344 .09
EarthWatch Inc., 12% convertible preferred,
Series C (1) (2) (3) (4) 500,000 4,000 .08
CorporateFamily Solutions, Inc. (1) 220,000 3,685 .08
MicroAge, Inc. (1) 150,000 3,019 .06
InaCom Corp. (1) 100,000 2,838 .06
Black Box Corp. (1) 75,700 2,697 .06
ELECTRONIC DATA PRODUCTS - 2.52%
America Online, Inc. (1) 1,130,000 85,315 1.77
Micron Technology, Inc. (1) 900,000 22,388 .47
Intel Corp. 175,000 13,584 .28
HEALTH & HOSPITAL SERVICES - 2.10%
Columbia/HCA Healthcare Corp. 1,030,000 30,385 .63
HealthCare COMPARE Corp. (1) 300,000 15,637 .32
Human Genome Sciences, Inc. (1) 300,000 12,300 .26
Nu Skin Asia Pacific, Inc., Class A (1) 585,000 11,700 .24
United HealthCare Corp. 200,000 10,412 .22
Cerner Corp. (1) 400,000 9,625 .20
Orthodontic Centers of America, Inc. (1) 500,000 9,063 .19
PacifiCare Health Systems, Inc., Class A (1) 35,200 1,813 .04
RESTAURANTS - 2.09%
Brinker International, Inc. (1) 3,050,000 44,987 .94
McDonald's Corp. 520,000 25,220 .52
Foodmaker, Inc. (1) 918,000 14,229 .30
Outback Steakhouse, Inc. (1) 400,000 11,975 .25
Sizzler International, Inc. (1) 1,375,000 4,039 .08
ENVIRONMENTAL SERVICES - 1.32%
Allied Waste Industries, Inc. (1) 1,220,400 26,696 .56
USA Waste Services, Inc. (1) 561,500 18,565 .39
Ecolab Inc. 200,000 10,200 .21
Waste Management, Inc. 320,000 7,880 .16
REAL ESTATE - 0.84%
Host Marriott Corp. (1) 1,300,000 27,056 .56
Mitsubishi Estate Co., Ltd. (Japan) 1,160,000 13,437 .28
INFORMATION & PRINTING SERVICES - 0.82%
Primark Corp. (1) 938,900 31,805 .66
Banta Corp. 300,000 7,500 .16
HOTELS & MOTELS - 0.80%
Marriott International, Inc. 530,000 38,392 .80
DIVERSIFIED SERVICES - 0.76%
Brambles Industries Ltd. (Australia) 1,350,000 25,733 .54
Benpres Holdings Corp. (Global Depositary
Receipts) (Philippines) (1) 3,581,536 10,566 .22
ENERGY SERVICES - 0.67%
Schlumberger Ltd. (Netherlands Antilles) 390,000 32,102 .67
ADVERTISING - 0.61%
Omnicom Group Inc. 200,000 14,825 .31
Interpublic Group of Companies, Inc. 300,000 14,381 .30
COMPUTER SYSTEMS - 0.52%
Silicon Graphics, Inc. (1) 1,120,300 14,704 .31
International Business Machines Corp. 94,000 10,299 .21
ELECTRIC UTILITIES - 0.44%
Southern Electric PLC (United Kingdom) 1,600,000 12,126 .25
National Power PLC (United Kingdom) 940,000 8,972 .19
AIRLINES - 0.27%
Southwest Airlines Co. 525,000 12,830 .27
RAIL & ROAD SERVICES - 0.25%
Werner Enterprises, Inc. 279,700 5,979 .12
Greyhound Lines, Inc. (1) 825,000 3,248 .07
Tranz Rail Holdings Ltd. (American Depositary
Receipts) (New Zealand) 225,000 2,925 .06
LEASING SERVICES - 0.19%
IKON Office Solutions, Inc. 300,000 9,131 .19
ENGINEERING & CONSTRUCTION - 0.17%
Jacobs Engineering Group Inc. (1) 317,100 8,383 .17
SAFETY AND SECURITY SERVICES - 0.10%
Securitas AB, Class B (Sweden) 153,000 4,596 .10
MISCELLANEOUS
Other equity-type securities in initial
period of acquisition 157,512 3.28
--------------
TOTAL EQUITY-TYPE SECURITIES
(cost: $2,755,130,000) 4,263,031 88.73
Principal --------------
Amount
Short-Term Securities (000)
- ---------------------------------------- ------------- ------------
CORPORATE SHORT-TERM NOTES - 9.56%
A.I. Credit Corp. 5.50%-5.54%
due 12/11/97-1/7/98 $47,500 47,343 .99
J. C. Penney Funding Corp. 5.50%-5.51%
due 12/1-12/17/97 (2) 47,100 47,026 .98
Ford Motor Credit Co. 5.54%-5.67% due
1/13-2/11/98 46,050 45,610 .95
International Lease Finance Corp. 5.49%-5.62%
due 12/4/97-1/16/98 40,250 40,037 .83
Abbott Laboratories 5.51%-5.56%
due 12/17-12/22/97 39,900 39,790 .83
Hershey Foods Corp.5.51%-5.53% due
12/22/97-1/30/98 36,500 36,256 .75
Warner-Lambert Co. 5.48%-5.52% due
12/8-12/30/97 (2) 34,000 33,882 .71
Lucent Technologies Inc. 5.49%-5.55% due
12/10/97-1/20/98 31,600 31,454 .65
General Electric Capital Corp. 5.55%-5.72%
due 1/8-1/14/98 30,000 29,803 .62
IBM Credit Corp. 5.53%-5.71%
due 12/9/97-1/16/98 25,750 25,628 .53
Emerson Electric Co. 5.48%-5.50% due
12/3-12/19/97 25,500 25,429 .53
AT & T Corp. 5.52%-5.53%
due 1/5-1/22/98 21,600 21,448 .45
Wal-Mart Stores Inc. 5.49%-5.50% due
12/1/97 17,900 17,897 .37
Baltimore Gas and Electric Co.
5.50%-5.55% due 12/4-12/18/97 17,800 17,775 .37
FEDERAL AGENCY DISCOUNT NOTES - 1.41%
Freddie Mac (formerly Federal Home Loan
Mortgage Corp.) 5.39%-5.43% due 12/15-12/23/9 45,600 45,479 .95
Federal Home Loan Banks 5.40%-5.47%
due 1/7-1/21/98 22,200 22,040 .46
NON-U.S. CURRENCY - 0.14%
New Taiwanese Dollar NT$226,295 7,050 .14
TOTAL SHORT-TERM SECURITIES ------------
(cost: $534,038,000) 533,947 11.11
------------
TOTAL INVESTMENT SECURITIES
(cost: $3,289,168,000) 4,796,978 99.84
Excess of cash and receivables over payables 7,372 .16
-----------------------
NET ASSETS $4,804,350 100.00%
=======================
(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
Equity-Type securities appearing in the
portfolio since May 31, 1997
- -------------------------------------------
Allied Waste Industries
APAC TeleServices
Black Box
CBS
CompuCom Systems
CorporateFamily Solutions
FLEXTECH
IKON Office Solutions
InaCom
Insignia Financial Group
Intel
JLK Direct Distribution
LCI International
Limited
MGM Grand
MicroAge
Micron Technology
Midway Games
Netscape Communications
PeopleSoft
PETsMART
Precision Response
ProSieben Media
Scholastic
SITEL
Snyder Communications
Societe Generale de Belgique
STB Cayman Capital
Tele-Communications, TCI Ventures
TeleTech Holdings
TV Azteca
20th Century Industries
USA Waste Services
Verity
Young Broadcasting
Equity-Type securities eliminated from the
portfolio since May 31, 1997
- -------------------------------------------
ACNielsen
All American Communications
Allied Irish Banks
AMR
Arnoldo Mondadori Editore
Ascend Communications
Avnet
Banc One
Bay Networks
BTG
Cascade Communications
CompuServe
DecisionOne Holdings
Helmerich & Payne
International Family Entertainment
MetaCreations
Nets
Old Kent Financial
Pep Boys - Manny, Moe & Jack
Technology Resources Industries
U S WEST Media Group
United Waste Systems
Vivra
Walgreen
Waste Management International
</TABLE>
<TABLE>
The New Economy Fund
Financial Statements
<S> <C> <C>
Statement of Assets and (dollars in
Liabilities at November 30, 1997 thousands)
---------------- ----------------
Assets:
Investment securities at market
(cost: $3,289,168) $4,796,978
Cash 79
Receivables for-
Sales of investments $ 12,855
Sales of fund's shares 2,283
Dividends 2,700 17,838
---------------- ----------------
4,814,895
Liabilities:
Payables for-
Purchases of investments 4,048
Repurchases of fund's shares 2,089
Management services 1,672
Accrued expenses 2,736 10,545
Net Assets at November 30, 1997- ---------------- ----------------
Equivalent to $20.92 per share on
229,607,286 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $4,804,350
=============
Statement of Operations (dollars in
for the year ended November 30, 1997 thousands)
- ---------------------------------------- ---------------- ----------------
Investment Income:
Income:
Dividends $ 39,696
Interest 24,740 $ 64,436
----------------
Expenses:
Management services fee 18,971
Distribution expenses 10,087
Transfer agent fee 4,253
Reports to shareholders 308
Registration statement and prospectus 260
Postage, stationery and supplies 781
Trustees' fees 114
Auditing and legal fees 49
Custodian fee 686
Taxes other than federal income tax 64
Other expenses 96 35,669
---------------- ----------------
Net investment income 28,767
----------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 396,363
Net increase in unrealized
appreciation on investments:
Beginning of year 1,067,480
End of year 1,507,804
Net unrealized appreciation ----------------
on investments 440,324
Net realized gain and unrealized ----------------
appreciation on investments 836,687
Net Increase in Net Assets ----------------
Resulting from Operations $865,454
=============
(dollars in
Statement of Changes in Net Assets thousands)
- ---------------------------------------- ------------- -------------
Year Ended November 30
1997 1996
Operations: ------------- -------------
Net investment income $ 28,767 $ 32,975
Net realized gain on investments 396,363 256,063
Net unrealized appreciation
on investments 440,324 251,881
------------- -------------
Net increase in net assets
resulting from operations 865,454 540,919
------------- -------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (32,176) (40,512)
Distributions from net realized
gain on investments (257,536) (143,588)
------------- -------------
Total dividends and distributions (289,712) (184,100)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
28,930,089 and 46,030,628
shares, respectively 535,948 791,270
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
16,361,452 and 10,959,728 shares,
respectively 275,377 174,287
Cost of shares repurchased:
43,976,233 and 36,172,855
shares, respectively (806,006) (621,663)
------------- -------------
Net increase in net assets resulting
from capital share transactions 5,319 343,894
------------- -------------
Total Increase in Net Assets 581,061 700,713
Net Assets:
Beginning of year 4,223,289 3,522,576
End of year (including undistributed ------------- -------------
net investment income: $17,008 and
$20,277, respectively) $4,804,350 $4,223,289
============= =============
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. The New Economy Fund (the "fund") is registered under the Investment Company
Act of 1940 as an open-end, diversified management investment company. The fund
seeks long-term growth of capital. The following paragraphs summarize the
significant accounting policies consistently followed by the fund in the
preparation of its financial statements:
Equity-type securities traded on a national securities exchange (or
reported on the Nasdaq national market) and securities traded in the
over-the-counter market are stated at the last reported sales price on the day
of valuation; other securities, and securities for which no sale was reported
on that date, are stated at the last quoted bid price. Short-term securities
with original or remaining maturities in excess of 60 days are valued at the
mean of their quoted bid and asked prices. Short-term securities with 60 days
or less to maturity are valued at amortized cost, which approximates market
value. Securities for which market quotations are not readily available are
valued at fair value by the Board of Trustees or a committee thereof.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. In the event
the fund purchases securities on a delayed delivery or "when-issued" basis, it
will segregate with its custodian liquid assets in an amount sufficient to meet
its payment obligations in these transactions.Realized gains and losses from
securities transactions are reported on an identified cost basis. Dividend and
interest income is reported on the accrual basis. Discounts and premiums on
securities purchased are amortized over the life of the respective securities.
Dividends and distributions paid to shareholders are recorded on the
ex-dividend date.
Investment securities and other assets and liabilities denominated in
non-U.S. currencies are recorded in the financial statements after translation
into U.S. dollars utilizing rates of exchange on the last business day of the
period. Purchases and sales of investment securities, income and expenses are
calculated using the prevailing exchange rate as accrued. The effects of
changes in foreign currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
Pursuant to the custodian agreement, the fund receives credits against its
custodian fee for imputed interest on certain balances with the custodian bank.
The custodian fee of $686,000 includes $41,000 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, 1997 net unrealized appreciation on investments for book
and federal income tax purposes aggregated $1,507,810,000, of which
$1,684,939,000 related to appreciated securities and $177,130,000 related to
depreciated securities. There was no difference between book and tax realized
gains on securities transactions for the year ended November 30, 1997. The cost
of portfolio securities for book and federal income tax purposes was
$3,289,168,000 at November 30, 1997.
3. The fee of $18,971,000 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, 1997,
distribution expenses under the Plan were $10,087,000. As of November 30, 1997,
accrued and unpaid distribution expenses were $2,501,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $4,253,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $1,605,000 (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,
1997, aggregate amounts deferred and earnings thereon were $126,000.
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, 1997, accumulated undistributed net realized gain on
investments was $394,957,000 and paid-in capital was $2,884,721,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,243,318,000 and $1,544,880,000, respectively,
during the year ended November 30, 1997.
Dividend and interest income is recorded net of non-U.S. taxes paid. For
the year ended November 30, 1997, such non-U.S. taxes were $2,587,000. Net
realized currency losses on dividends, interest, and withholding taxes
reclaimable were $62,000 for the year ended November 30, 1997.
<TABLE>
PER-SHARE DATA AND RATIOS (1)
<S> <C> <C> <C> <C> <C>
Year ended November 30
--------- --------- -------- -------- --------
1997 1996 1995 1994 1993
--------- --------- -------- -------- --------
Net Asset Value, Beginning
of Year 18.50 16.98 14.65 16.47 13.17
--------- --------- -------- -------- --------
Income from Investment
Operations:
Net investment income .12 .14 .20 .17 .11
Net realized and unrealized
gain (loss) on investments 3.57 2.26 2.99 (.59) 3.75
Total income (loss) from --------- --------- -------- -------- --------
investment operations 3.69 2.40 3.19 (.42) 3.86
--------- --------- -------- -------- --------
Less Distributions:
Dividends from net investment
income (.14) (.19) (.18) (.12) (.07)
Distributions from net realized
gains (1.13) (.69) (.68) (1.28) (.49)
--------- --------- -------- -------- --------
Total distributions (1.27) (.88) (.86) (1.40) (.56)
--------- --------- -------- -------- --------
Net Asset Value, End of Year 20.92 18.50 16.98 14.65 16.47
========= ========= ======== ======== ========
Total Return (2) 21.64% 15.00% 23.22% (2.94)% 30.60%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $4,804 $4,223 $3,523 $2,592 $1,912
Ratio of expenses to average
net assets .81% .84% .88% .85% .85%
Ratio of net income to
average net assets .66% .85% 1.33% 1.25% .76%
Average commissions
paid per share (3) 2.58c 1.17c .16c .38c .30c
Portfolio turnover rate 31.62% 29.54% 27.03% 25.51% 26.97%
(1) Adjusted to reflect the 100%
share dividend effective May
26, 1994.
2 Unaudited
(2) Calculated without
deducting a sales charge. The
maximum sales charge is 5.75%
of the fund's offering price.
4 Based on operations for the
period shown and, accordingly,
not representative of a full
year's operations.
(3) Brokerage commissions
paid on portfolio
transactions increase the
cost of securities
purchased or reduce the
proceeds of securities sold,
and are not separately reflected in the
fund's statement of
operations. Shares traded
on a principal basis (without commissions),
such as most over-the-counter and
fixed-income transactions, are excluded.
Generally, non-U.S. commissions
are lower than U.S. commissions
when expressed as cents per share but higher
when expressed as a percentage of transactions
because of the lower per-share prices of many non-U.S.
securities.
</TABLE>
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.
/s/Deloitte & Touche LLP
Los Angeles, California
December 24, 1997
1997 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, 70% 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 1998 TO DETERMINE THE CALENDAR YEAR AMOUNTS TO BE INCLUDED ON
THEIR 1997 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.
[THE AMERICAN FUNDS GROUP(R)]
THE NEW ECONOMY FUND
BOARD OF TRUSTEES
Timothy D. Armour
Los Angeles, California
President of the fund
Director, Capital Research and Management Company;
Chairman and Chief Executive Officer,
Capital Research Company
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
Alan Greenway
La Jolla, California
Private investor; President, Greenway Associates, Inc.
(management consulting services)
William R. Grimsley
San Francisco, California
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
Claudia P. Huntington
Los Angeles, California
Senior Vice President of the fund
Senior Vice President, Capital Research
and Management Company
James B. Lovelace
Los Angeles, California
Senior Vice President of the fund
Senior 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
Chad L. Norton
Los Angeles, California
Secretary of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
Robert P. Simmer
Norfolk, Virginia
Treasurer of the fund
Vice President - Fund Business Management Group,
Capital Research and Management Company
Steven N. Kearsley retired as Vice President and Treasurer of the fund
effective June 30, 1997. He had been an officer since the fund began operations
in 1983. The Trustees thank him for his many contributions to the fund.
OFFICES OF THE FUND AND
OF THE INVESTMENT ADVISER,
CAPITAL RESEARCH AND
MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5804
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
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
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
This report is for the information of shareholders of The New Economy Fund, but
it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
March 31, 1998, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Printed on recycled paper.
Litho in USA BDA/AL/3214
Lit. No. NEF-011-0198
