[THE AMERICAN FUNDS GROUP(R)]
The New Economy Fund
SEMI-ANNUAL REPORT
For the six months ended May 31, 1998
[cover: Three picture circles surrounding the fund name]
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 the 28 mutual 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 June 30, 1998 (the most recent calendar
quarter), assuming payment of the 5.75% maximum sales charge at
the beginning of the stated periods:
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL AVERAGE ANNUAL
RETURN COMPOUND RETURN
Ten +345.94% +16.13%
Years
Five +114.65 +16.51
Years
One +26.71 -
Year
</TABLE>
Sales charges are lower for accounts of $50,000 or more. THE
FIGURES IN THIS REPORT REFLECT PAST RESULTS AND ARE NOT
PREDICTIVE OF FUTURE RESULTS. SHARE PRICE AND RETURN WILL VARY,
SO YOU MAY LOSE MONEY BY INVESTING IN THE FUND. THE SHORTER THE
TIME PERIOD OF YOUR INVESTMENT, THE GREATER THE POSSIBILITY OF
LOSS. FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR INSURED OR GUARANTEED
BY, THE U.S. GOVERNMENT, ANY FINANCIAL INSTITUTION,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER AGENCY,
ENTITY OR PERSON. INVESTING OUTSIDE THE UNITED STATES IS SUBJECT
TO ADDITIONAL RISKS, SUCH AS CURRENCY FLUCTUATIONS, POLITICAL
INSTABILITY, DIFFERING SECURITIES REGULATIONS AND PERIODS OF
ILLIQUIDITY, WHICH ARE DETAILED IN THE FUND'S PROSPECTUS.
FELLOW SHAREHOLDERS
<TABLE>
<CAPTION>
<S> <C>
RESULTS AT A GLANCE
FOR PERIODS ENDED MAY 31, 1998
(WITH ALL DISTRIBUTIONS REINVESTED)
Six Months +18.6%
Twelve Months +34.3
Lifetime (average annual
compound return since
December 1, 1983) +16.3
</TABLE>
The New Economy Fund posted a large gain during the first half of
its 1998 fiscal year. For the six months ended May 31, the value
of your investment rose 18.6% if, like most shareholders, you
reinvested the income dividend of 8 cents a share and a $1.72-a-share capital
gain distribution paid during the period.
This six-month return is greater than the fund's historical
average annual return and reflects a pace that is unsustainable
over any extended period. It brings the total increase since
operations began in December 1983 to 797.3% including
reinvestment, or 16.3% a year.
The November-May gain was broadly based, with about three-fourths
of all securities held throughout the period rising in price.
Continuing a pattern that began during fiscal 1997, some of the
increases were recorded by stocks that had turned in lackluster
performances in recent years after doing well earlier in the
'90s. Examples include Intuit, a software producer (+56.9%),
Brinker International, a restaurant chain (+47.5%) and Viacom, a
multimedia company and our biggest single investment (+57.1%).
EUROPEAN MARKETS OUTPACE EVEN STRONG U.S. SHOWING
Buoyed by strengthening economies, European equities in general
led the way in helping the fund achieve its strong results. The
stock markets in Germany, Italy, Spain and France all rose two to
three times as fast as the U.S. stock market overall, even after adjusting for
the strength of the dollar. The United Kingdom also
outpaced the United States. Mannesmann, a diversified German
company providing cellular telephone services, recorded the
largest price increase of any European stock in the fund's
portfolio: 110.2% for the six months. Vodafone, in the same
business and based in the U.K., was up 66.5%. The fund benefited
not only from the 12.5% of the portfolio invested directly in
Europe but by holding U.S.-based firms which have major
operations there. AirTouch Communications (+21.3%) is an example.
Non-U.S. investments account for about one-fourth of the fund's
portfolio, with holdings in the economically troubled
Asia/Pacific region fortunately accounting for only 4%.
In the U.S., which accounts for about two-thirds of the fund's
portfolio, the economy is in its eighth year of a broad
expansion. Interest rates remain low. The jobless rate is at its
lowest level in more than two decades, yet producer and consumer
prices have risen surprisingly little considering the strength of
the expansion. That confluence of favorable factors has fostered
an extremely bullish atmosphere in the U.S. stock market. The
popular averages have soared for three consecutive years, and
that advance continued in the first half of the fund's fiscal
year.
<TABLE>
<CAPTION>
<S> <C>
WHERE THE FUND'S
ASSETS ARE INVESTED
(as of 5/31/98)
Country Percent of
Net Assets
United States 62.4%
United Kingdom 4.5
Canada 2.5
Mexico 1.8
Australia 1.8
Spain 1.6
Germany 1.3
Denmark 1.2
Japan 1.2
Netherlands 1.2
Belgium .8
Italy .8
Sweden .6
New Zealand .5
France .4
Philippines .4
Hong Kong .3
Argentina .2
Peru .2
Taiwan .2
Luxembourg .1
Other 5.1
countries
89.1
Cash & 10.9
Equivalents
Total 100.0%
</TABLE>
MEASURING THE FUND'S RESULTS
We believe that a useful way of evaluating the fund's results is
to look at unmanaged indexes that correspond to three parts of
New Economy's portfolio: 1) the Lipper Growth Fund Index, which
tracks 30 of the largest growth-oriented U.S. mutual funds,
recorded a total return for the half-year of 12.7%; 2) the
Russell 2500, which tracks small- and medium-capitalization U.S.
stocks, went up 7.5% on a reinvested basis; and 3) the Morgan
Stanley Capital International EAFE(R) (Europe, Australasia, Far
East) Index, which measures all major markets outside North
America, rose 16.2% for the six months. In evaluating New
Economy's results within our organization, we use these three
benchmarks because we feel there is no single index that
parallels the fund's portfolio.
The unmanaged Standard & Poor's 500 Composite Index posted a
total return for this period of 15.0%, less than that of the
fund. The S&P 500 is a benchmark by which equity mutual fund
results are often judged. However, it includes a number of
manufacturing companies not in New Economy's investment universe
and focuses rather heavily on larger corporations, while the fund's portfolio
includes many smaller firms. Indeed, almost half
of the fund's stocks have market capitalizations of less than $2
billion. Also, the S&P is made up almost entirely of U.S.
securities, whereas the fund can invest up to 40% outside the
United States.
In closing, we would like to reiterate the note of caution
sounded at the beginning of this letter. New Economy invests with
a long-term focus, employing a value-oriented approach based on
thorough research and attention to risk. We believe that
shareholders who maintain a long-term perspective and have the
patience and self-discipline to stay with their holdings through
periodic downturns as well as bull markets should, over time,
continue to be well rewarded. Nonetheless, markets can and will
go down, and your fund will not be immune.
Cordially,
/s/ William R. Grimsley /s/ Timothy D. Armour
William R. Grimsley Timothy D. Armour
Chairman of the Board President
July 10, 1998
<TABLE>
<S> <C> <C> <C>
THE NEW ECONOMY FUND
Investment Portfolio, May 31, 1998
(Unaudited)
- ------------------------------------------- -------------
[begin pie chart]
Largest Holdings by Industry
Broadcasting & Publishing 16.87%
Telecommunications 11.06
Miscellaneous Financial Services 7.70
Insurance 6.98
Computer Services & Software 6.21
All Other Industries 40.27
Cash & Equivalents 10.91
[end pie chart]
- ------------------------------------------- -------------
Percent
of
Largest Equity Holdings Net Assets
Viacom 2.92%
Tele-Communications, Liberty Media Group 2.73
Time Warner 2.64
Freddie Mac 2.47
Fannie Mae 2.43
Carnival 2.22
Rentokil Initial 2.19
Tele-Communications, TCI Group 2.08
Fairfax Financial Holdings 1.90
EXEL 1.51
- ------------------------------------------- ------------- -----------------------
Market Percent
Equity-Type Securities (Common and Shares or Value of Net
Preferred Stocks and Convertible Debentures) Principal Amoun (000) Assets
- ---------------------------------------- --------------- ------- -------
BROADCASTING & PUBLISHING - 16.87%
Viacom Inc., Class B (1) 3,035,000 166,925 2.92
Tele-Communications, Inc., Series A, Liberty Media Group (1) 4,721,380 155,805 2.73
Time Warner Inc. 1,940,220 150,973 2.64
Tele-Communications, Inc., Series A, TCI Group (1) 3,454,659 118,538 2.08
Comcast Corp., Class A, special stock 2,485,000 85,189 1.49
News Corp. Ltd., preferred shares (Australia) 2,845,362 15,397
News Corp. Ltd. 2,088,169 12,868
News Corp. Ltd. (American Depositary Receipts) 470,000 11,574
News Corp. Ltd., preferred shares (American Depositary Receipts) 235,000 5,038 .79
Tele-Communications International, Class A (1) 2,350,000 40,097 .70
Mediaset SpA (Italy) (2) 5,760,000 37,242 .65
EMAP PLC (United Kingdom) 1,400,000 29,587 .52
ProSieben Media AG (Germany) (1) 410,000 20,444 .36
Chris-Craft Industries, Inc. (1) 327,818 17,231 .30
Thomson Corp. (Canada) 600,000 16,936 .30
TV Azteca, SA de CV (American Depositary Receipts) (Mexico) 1,105,670 15,963 .28
CANAL+ (France) 81,370 14,777 .26
Grupo Televisa, SA (American Depositary Receipts)(Mexico) (1) 345,000 13,476 .24
Scholastic Corp. (1) 236,200 9,448 .16
AUDIOFINA (Luxembourg) 185,000 7,694 .13
CBS Corp. 200,434 6,364 .11
FLEXTECH PLC (United Kingdom) 500,000 4,263 .07
Golden Books Family Entertainment, Inc. (1) 500,000 4,031 .07
SOFT BANK CORP. (Japan) 69,560 2,659 .05
Young Broadcasting Inc., Class A (1) 18,000 934 .02
TELECOMMUNICATIONS - 11.06%
Telefonica SA (Formerly Telefonica de Espana, SA)(Spain) 1,375,000 61,460
Telefonica SA (American Depositary Receipts) 170,000 22,865 1.48
Tele-Communications, Inc., Series A, TCI Ventures Group (1) 4,600,000 80,069 1.40
Telefonos de Mexico, SA de CV, Class L (American Depositary Receipts) 1,541,960 73,147 1.28
(Mexico)
AirTouch Communications (1) 1,450,000 69,056 1.21
Mannesmann AG (Germany) 57,500 56,215 .98
Tele Danmark AS, Class B (American Depositary Receipts) (Denmark) 704,700 32,680
Tele Danmark AS, Class B 200,000 18,706 .90
Telecom Corp. of New Zealand Ltd. (New Zealand) 2,200,000 10,132
Telecom Corp. of New Zealand Ltd., Installment Receipt 3,602,400 9,472
Telecom Corp. of New Zealand Ltd. (2) 2,028,400 9,341 .51
MCI Communications Corp. 500,000 26,734 .47
Sprint Corp. 350,500 25,148 .44
Vodafone Group PLC (American Depositary Receipts) (United Kingdom) 225,000 24,722 .43
Hong Kong Telecommunications Ltd. (Hong Kong) 10,194,412 18,354 .32
LCI International, Inc. (1) 469,400 17,573 .31
SITEL Corp. (1) 2,350,000 14,688 .26
France Telecom, SA (France) 190,000 10,647 .19
Telefonica del Peru SA, Class B (American Depositary Receipts) (Peru) 485,600 10,501 .18
Globalstar Telecommunications Ltd. (1) 166,634 9,873 .17
TeleTech Holdings, Inc. (1) 600,000 8,100 .14
Telecom Argentina SA, Class B (American Depositary Receipts) (Argentina) 261,000 8,091 .14
Telecom Italia SpA (Italy) 850,000 6,368
Telecom Italia SpA, savings shares 150,000 810 .13
Telefonica de Argentina SA, Class B (American Depositary Receipts) (Argentina) 128,700 4,191 .07
APAC TeleServices, Inc. (1) 300,000 2,728 .05
MISCELLANEOUS FINANCIAL SERVICES - 7.70%
Freddie Mac 3,100,000 141,050 2.47
Fannie Mae 2,321,500 139,000 2.43
Capital One Financial Corp. 589,100 58,799 1.03
SLM Holding Corp. 980,000 39,139 .69
First Data Corp. 800,000 26,600 .47
CB Richard Ellis Services Group, Inc. (Formerly CB Commercial Real Estate 333,200 11,204 .20
Services Group, Inc) (1)
ORIX Corp. (Japan) 154,000 10,006 .17
Insignia Financial Group, Inc., Class A (1) 355,700 8,737 .15
American Capital Strategies, Ltd. 225,000 5,301 .09
INSURANCE - 6.98%
Fairfax Financial Holdings Ltd. (Canada)(1) 251,000 96,876
Fairfax Financial Holdings Ltd. 30,000 11,579 1.90
EXEL Ltd. (Incorporated in Bermuda) 1,150,000 86,537 1.51
ING Groep NV (Netherlands) 708,224 48,623
ING Groep NV, warrants, expire 2001 (1) 900,000 17,808 1.16
Aetna Inc. 370,000 28,929 .51
American International Group, Inc. 225,000 27,858 .49
PartnerRe Holdings Ltd. (Incorporated in Bermuda) 553,900 27,003 .47
Life Re Corp. 250,000 18,406 .32
20th Century Industries 600,000 16,913 .30
Trenwick Group Inc. 255,000 9,690 .17
HCC Insurance Holdings, Inc. 400,000 8,550 .15
COMPUTER SERVICES & SOFTWARE - 6.21%
Cendant Corp. (Formerly CUC International Inc.) (1) 3,395,000 73,629 1.29
Oracle Corp. (1) 2,775,000 65,559 1.15
Intuit Inc. (1) 700,000 33,162 .58
PeopleSoft, Inc. (1) 600,000 26,213 .46
Security Dynamics Technologies, Inc. (1) 1,230,000 25,984 .46
HNC Software Inc. (1) 737,000 25,473 .45
Shared Medical Systems Corp. 300,000 21,825 .38
Electronic Arts (1) 400,000 17,400 .30
Policy Management Systems Corp. (1) 190,000 15,675 .27
Altera Corp.(1) 400,000 13,450 .24
Platinum Software Corp. (1) 600,000 11,513 .20
American Management Systems, Inc. (1) 400,000 10,850 .19
Broderbund Software, Inc. (1) 450,000 7,200 .13
MacNeal-Schwendler Corp. (1) 603,300 6,372 .11
BANKING - 5.84%
Societe Generale de Belgique SA (Belgium) 259,500 46,204 .81
Wells Fargo & Co. 116,666 42,175 .74
Norwest Corp. 1,000,000 38,875 .68
Charter One Financial, Inc. 992,250 33,985 .60
Associated Banc-Corp 625,000 30,937 .54
Westpac Banking Corp.(Australia) 3,850,000 25,410 .44
Unidanmark A/S (Denmark) 207,500 16,753 .29
Royal Bank of Canada (Canada) 250,000 15,281 .27
ForeningsSparbanken AB, Class A (Sweden) 490,000 14,716 .26
STB Cayman Capital Ltd., 0.50% convertible debentures 2007 (Japan) $2,240,000,000 14,659 .26
Keystone Financial, Inc. 375,000 14,625 .26
Sakura Finance (Bermuda) Trust, Convertible Preference Share Units (Japan) 864,000,000 4,984
Sakura Bank, Ltd. 1,371,000 4,063 .16
First Union Corp. 150,000 8,297 .15
St. George Bank Ltd. (Australia) (1) 140,000 6,825 .12
Banco de Santander, SA (Spain) 105,500 5,315 .09
National Westminster Bank PLC (United Kingdom) 223,735 4,056 .07
Philippine Commercial International Bank, Inc. (Philippines) 807,600 3,555 .06
Grupo Financiero Banamex Accival, SA de CV, Class L (Mexico) (1) 1,277,389 2,826 .04
MISCELLANEOUS BUSINESS SERVICES - 5.66%
Rentokil Initial PLC (Formerly Rentokil Group PLC) (United Kingdom) 18,059,800 124,886 2.19
Pittston Brink's Group 1,075,000 41,589 .73
Concord EFS, Inc. (1) 888,300 28,315 .49
Administaff, Inc. (1) 565,800 23,198 .41
Security Capital Group Inc., Class A (1) 13,500 18,225
Security Capital Group Inc., Class B (1) 52,800 1,478 .34
ABR Information Services, Inc. (1) 599,400 15,360 .27
Metamor Worldwide, Inc. (1) 505,800 15,190 .27
Snyder Communications, Inc. (1) 350,000 14,109 .25
Black Box Corp. (1) 350,000 13,956 .24
Rental Service Corp. (1) 500,000 12,969 .23
Stewart Enterprises, Inc., Class A 200,000 5,400 .09
CorporateFamily Solutions, Inc. (1) 220,000 5,032 .09
InaCom Corp. (1) 100,000 3,244 .06
EarthWatch Inc., 12% convertible preferred, Series C (1) (2) (3) (4) 500,000 250 .00
MERCHANDISING - 5.52%
Consolidated Stores Corp. (1) 1,500,000 57,281 1.00
Viking Office Products, Inc. (1) 1,432,400 40,958 .72
AutoZone, Inc. (1) 1,200,000 39,900 .70
Circuit City Stores, Inc. - Circuit City Group 575,000 24,366
Circuit City Stores, Inc. - CarMax Group (1) 900,000 8,719 .58
USA Networks, Inc. (formerly HSN, Inc.) (1) 910,000 22,295 .39
Limited Inc. 500,000 16,625 .29
Garden Ridge Corp. (1) 815,000 14,262 .25
Home Depot, Inc. 164,000 12,884 .22
Claire's Stores, Inc. 600,000 11,287 .20
PETsMART, Inc. (1) 1,000,000 9,875 .17
MSC Industrial Direct Co., Inc., Class A (1) 357,400 9,538 .17
Tesco PLC (United Kingdom) 974,410 8,546 .15
Coles Myer Ltd. (Australia) 1,800,209 8,109 .14
Gymboree Corp. (1) 500,000 7,906 .14
Michaels Stores, Inc. (1) 237,500 7,110 .12
DFS Furniture Co. PLC (United Kingdom) 1,300,000 5,478 .10
JLK Direct Distribution Inc., Class A (1) 232,500 5,464 .10
CompuCom Systems, Inc. (1) 400,000 2,925 .05
Dickson Concepts (International) Ltd. (Hong Kong--Incorporated in Bermuda) 1,278,400 1,658 .03
ENTERTAINMENT & LEISURE - 5.46%
Carnival Corp., Class A 1,870,000 126,693 2.22
Walt Disney Co. 747,000 84,504 1.48
Mirage Resorts, Inc. (1) 2,300,000 47,869 .84
MGM Grand, Inc. (1) 400,000 13,275 .23
Midway Games Inc. (1) 900,000 12,150 .21
Nintendo Co., Ltd. (Japan) 120,000 11,206 .20
Star Cruises PLC (United Kingdom)(1) 4,980,000 10,757 .19
Circus Circus Enterprises, Inc. (1) 300,000 5,325 .09
ELECTRONIC DATA PRODUCTS - 3.28%
America Online, Inc. (1) 770,000 64,151 1.12
Micron Technology, Inc. (1) 1,000,000 23,562 .41
Adaptec, Inc. (1) 1,506,300 22,877 .40
Microchip Technology Inc. (1) 760,000 18,620 .33
Texas Instruments Inc. 300,000 15,412 .27
3Com Corp. (1) 500,000 12,688 .22
Intel Corp. 175,000 12,502 .22
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) 2,600,000 9,305 .16
Rohm Co., Ltd. (Japan) 80,000 8,307 .15
RESTAURANTS - 2.20%
Brinker International, Inc. (1) 3,050,000 66,338 1.16
Mc Donald's Corp. 520,000 34,125 .60
Foodmaker, Inc. (1) 1,270,400 21,438 .37
Sizzler International, Inc. (1) 1,375,000 3,781 .07
HEALTH & HOSPITAL SERVICES - 1.85%
Columbia/HCA Healthcare Corp. 1,030,000 33,668 .59
FIRST HEALTH Group Corp. (Formerly HealthCare COMPARE Corp.) (1) 360,000 20,452 .36
United HealthCare Corp. 200,000 12,800 .22
Human Genome Sciences, Inc. (1) 300,000 10,950 .19
Orthodontic Centers of America, Inc. (1) 500,000 10,594 .19
Cerner Corp. (1) 376,000 9,635 .17
Nu Skin Enterprises Class A (Formerly Nu Skin Asia Pacific, Inc.)(1) 290,000 7,540 .13
ENVIRONMENTAL SERVICES - 1.36%
Allied Waste Industries, Inc. (1) 1,514,800 40,142 .70
USA Waste Services, Inc. (1) 311,500 14,699 .26
Ecolab Inc. 400,000 12,350 .22
Waste Management, Inc. 320,000 10,400 .18
INFORMATION & PRINTING SERVICES - 0.99%
Reuters Group PLC (American Depositary Receipts) (United Kingdom) 433,393 29,687 .52
Primark Corp. (1) 808,900 27,048 .47
REAL ESTATE - 0.65%
Host Marriott Corp. (1) 1,300,000 25,025 .44
Mitsubishi Estate Co., Ltd. (Japan) 1,320,000 11,585 .21
Mandamus AB (Sweden) (3) 24,500 156 .00
ADVERTISING - 0.64%
Omnicom Group Inc. 400,000 18,725 .33
Interpublic Group of Companies, Inc. 300,000 17,794 .31
ELECTRIC UTILITIES - 0.55%
Southern Electric PLC (United Kingdom) 1,600,000 13,836 .24
Manila Electric Co., Class B (Philippines) 3,000,000 8,880 .16
National Power PLC (United Kingdom) 940,000 8,751 .15
DIVERSIFIED SERVICES - 0.53%
Brambles Industries Ltd. (Australia) 875,000 17,736 .31
Benpres Holdings Corp. (Global Depositary Receipts) (Philippines)(1) 3,916,536 12,729 .22
ENERGY SERVICES - 0.53%
Schlumberger Ltd. (Netherlands Antilles) 390,000 30,444 .53
LEASING SERVICES - 0.53%
Hertz Corp., Class A 481,300 22,080 .39
IKON Office Solutions, Inc. 382,400 8,102 .14
MISCELLANEOUS PUBLIC SERVICES - 0.52%
K N Energy, Inc. 550,000 29,769 .52
COMPUTER SYSTEMS - 0.43%
Silicon Graphics, Inc. (1) 1,120,300 13,444 .24
International Business Machines Corp. 94,000 11,033 .19
HOTELS & MOTELS - 0.31%
Sodexho Marriott Services, Inc. (Formerly Marriott International, Inc.) 500,000 17,375 .31
SAFETY & SECURITY SERVICES - 0.10%
Securitas AB, Class B (Sweden) 153,000 5,844 .10
RAIL & ROAD SERVICES - 0.09%
Greyhound Lines, Inc. (1) 825,000 5,156 .09
AIRLINES - 0.06%
Southwest Airlines Co. 130,900 3,493 .06
MISCELLANEOUS
Other equity securities in initial
period of acquisition 180,855 3.17
------- ----
TOTAL EQUITY SECURITIES
(cost: $3,014,888,000) 5,087,627 89.09
Principal --------- ------
Amount
Short-Term Securities (000)
- ---------------------------------------- ---------- ---------
CORPORATE SHORT-TERM NOTES - 9.04%
Abbott Laboratories 5.47%-5.50%
due 6/4-6/25/98 $65,230 65,077 1.15
Procter & Gamble Co. 5.38%-5.48%
due 6/17-8/12/98 53,780 53,529 .94
National Rural Utilities Cooperative Finance Corp. 5.47%-5.50%
due 6/22-8/6/98 53,900 53,482 .94
American Express Credit Corp. 5.49%-5.51%
due 6/29-7/28/98 53,500 53,201 .93
Lucent Technologies Inc. 5.46%-5.50%
due 7/6-7/21/98 47,200 46,892 .82
General Electric Capital Corp. 5.47%-5.51%
due 6/18-7/9/98 42,000 41,830 .73
H. J. Heinz Co. 5.48%-5.51%
due 6/17-7/8/98 40,700 40,517 .71
Amoco Corp. 5.44%-5.48%
due 7/9-7/30/98 36,900 36,617 .64
CIT Group Holdings, Inc. 5.49%-5.53%
due 6/9-7/17/98 36,300 36,149 .63
Gannett Co., Inc. 5.48% (2)
due 6/9-6/23/98 33,500 33,401 .58
Bell Atlantic Financial Services, Inc. 5.49%-5.51%
due 6/18-7/7/98 31,000 30,868 .54
Duke Energy Corp. 5.47%-5.49%
due 7/14-7/23/98 24,700 24,516 .43
FEDERAL AGENCY DISCOUNT NOTES - 1.66%
Freddie Mac 5.40%-5.43% due 6/30-8/6/98 43,300 43,006 .75
Federal Home Loan Banks 5.385%-5.41%
due 6/3-7/24/98 33,200 33,036 .58
International Bank for Reconstruction and Development 5.40%
due 6/2/98 18,600 18,594 .33
NON-U.S. CURRENCY - 0.29%
New Taiwanese Dollar $563,057 16,585 .29
TOTAL SHORT-TERM SECURITIES ------- ------
(cost: $627,713,000) 627,300 10.99
------- ------
TOTAL INVESTMENT SECURITIES
(cost: $3,642,601,000) 5,714,927 100.08
Excess of payables over cash and receivables 4,253 .08
--------- ------
NET ASSETS 5,710,674 100.00
========= ======
(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 fund's 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 securities appearing in the
portfolio since November 30, 1997
- -------------------------------------------
3Com
Adaptec
Altera
American Capital Strategies
Associated Banc-Corp
CB Commercial Real Estate Services Group
Claire's Stores
Coles Myer
First Union
France Telecom
HCC Insurance Holdings
Hertz
K N Energy
Life Re
Mandamus
Manila Electric
Metamor Worldwide
Microchip Technology
National Westminster Bank
Platinum Software
Rental Service
Reuters Group
Rohm
Security Capital Group
Security Dynamics Technologies
St. George Bank
Star Cruises
Taiwan Semiconductor Manufacturing
Texas Instruments
Unidanmark
Westpac Banking
Equity securities eliminated from the
portfolio since November 30, 1997
- -------------------------------------------
Acclaim Entertainment
Altron
AT&T
Avid Technology
Banta
Barnes & Noble
Ceridian
Computer Associates International
Electronic Data Systems
First Chicago NBD
First USA Paymentech
Gaylord Entertainment
Gemstar International Group
Giant Food
Giordano Holdings
Harrah's Entertainment
Jacobs Engineering Group
Macromedia
MicroAge
Netscape Communications
Outback Steakhouse
PacifiCare Health Systems
Precision Response
Quebecor Printing
Station Casinos
Sybase
Topdanmark
Tranz Rail Holdings
Travelers Property Casualty
Verity
Werner Enterprises
</TABLE>
<TABLE>
<S> <C> <C>
The New Economy Fund
Financial Statements (Unaudited)
Statement of Assets and (dollars in
Liabilities at May 31, 1998 thousands)
---------- ----------
Assets:
Investment securities at market
(cost: $3,642,601) $5,714,927
Cash 208
Receivables for-
Sales of investments $31,698
Sales of fund's shares 7,271
Dividends 5,157 44,126
---------- ----------
5,759,261
Liabilities:
Payables for-
Purchases of investments 37,056
Repurchases of fund's shares 6,166
Management services 2,075
Accrued expenses 3,290 48,587
Net Assets at May 31, 1998- ---------- ----------
Equivalent to $22.71 per share on
251,434,153 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $5,710,674
----------
(Unaudited)
Statement of Operations (dollars in
for the six months ended May 31, 1998 thousands)
- ---------------------------------------- ---------- ----------
Investment Income:
Income:
Dividends $ 22,246
Interest 12,537 $ 34,783
----------
Expenses:
Management services fee 11,358
Distribution expenses 6,473
Transfer agent fee 2,104
Reports to shareholders 169
Registration statement and prospectus 109
Postage, stationery and supplies 488
Trustees' fees 62
Auditing and legal fees 60
Custodian fee 404
Taxes other than federal income tax 70
Other expenses 92 21,389
---------- --------
Net investment income 13,394
---------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 311,164
Net increase in unrealized
appreciation on investments:
Beginning of period 1,507,804
End of period 2,072,296
Net unrealized appreciation ----------
on investments 564,492
Net realized gain and unrealized ---------
appreciation on investments 875,656
Net Increase in Net Assets ---------
Resulting from Operations $889,050
===========
See Notes to Financial Statements
(dollars in
Statement of Changes in Net Assets thousands)
- ---------------------------------------- ---------- ----------
Six months
ended Year ended
5/31/98 * 11/30/1997
Operations: ---------- ----------
Net investment income $ 13,394 $ 28,767
Net realized gain on investments 311,164 396,363
Net unrealized appreciation
on investments 564,492 440,324
---------- ----------
Net increase in net assets
resulting from operations 889,050 865,454
---------- ---------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (18,360) (32,176)
Distributions from net realized
gain on investments (394,742) (257,536)
---------- ----------
Total dividends and distributions (413,102) (289,712)
---------- ----------
Capital Share Transactions:
Proceeds from shares sold:
19,704,161 and 28,930,089
shares, respectively 432,735 535,948
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
20,251,869 and 16,361,452 shares,
respectively 393,650 275,377
Cost of shares repurchased: 18,129,163 and
43,976,233 shares, respectively (396,009) (806,006)
---------- ----------
Net increase in net assets resulting
from capital share transactions leaders 430,376 5,319
---------- ----------
Total Increase in Net Assets 906,324 581,061
Net Assets:
Beginning of period 4,804,350 4,223,289
End of period (including undistributed ---------- ----------
net investment income: $12,042 and
$17,008, respectively) $5,710,674 $4,804,350
========= ==========
* Unaudited
See Notes to Financial Statements
</TABLE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. The New Economy Fund (the "fund") is registered under the Investment Company
Act of 1940 as an open-end, diversified management investment company. The fund
seeks long-term growth of capital. The following paragraphs summarize the
significant accounting policies consistently followed by the fund in the
preparation of its financial statements:
Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the investment adviser to be the broadest
and most representative market, which may be either a securities exchange or
the over-the-counter market. Securities with original maturities of one year or
less having 60 days or less to maturity are amortized to maturity based on
their cost if acquired within 60 days of maturity or, if already held on the
60th day, based on the value determined on the 61st day. Assets or liabilities
initially expressed in terms of foreign currencies are translated into U.S.
dollars at the prevailing market rates at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated into
U.S. dollars at the prevailing market rates on the dates of such transactions.
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. Securities and assets for which representative market
quotations are not readily available are valued at fair value as determined in
good faith by a committee appointed by the Board of Trustees.
As is customary in the mutual fund industry, securities transactions are
accounted for on the date the securities are purchased or sold. 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. Dividends and distributions paid to
shareholders are recorded on the ex-dividend date.
2. It is the fund's policy to continue to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its net taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
As of May 31, 1998, net unrealized appreciation on investments for book and
federal income tax purposes aggregated $2,072,326,000, of which $2,266,252,000
related to appreciated securities and $193,926,000 related to depreciated
securities. There was no difference between book and tax realized gains on
securities transactions for the six months ended May 31, 1998. Net losses
related to non-U.S. currency transactions of $53,000 were treated as ordinary
income for federal income tax purposes. The cost of portfolio securities for
book and federal income tax purposes was $3,642,601,000 at May 31, 1998.
3. The fee of $11,358,000 for management services was incurred pursuant to an
agreement with Capital Research and Management Company (CRMC), with which
certain officers and Trustees of the fund are affiliated. The Investment
Advisory and Service Agreement provides for monthly fees, accrued daily,
calculated at the lower of the annual rates of 0.60% of the first $300 million
of average net assets; 0.48% of such assets in excess of $300 million but not
exceeding $750 million; 0.45% of such assets in excess of $750 million but not
exceeding $1.25 billion; and 0.42% of such assets in excess of $1.25 billion;
OR 0.58% of the first $500 million of the fund's average net assets; 0.48% of
such assets in excess of $500 million but not exceeding $1 billion; 0.44% of
such assets in excess of $1 billion but not exceeding $1.5 billion; 0.41% of
such assets in excess of $1.5 billion but not exceeding $2.5 billion; 0.39% of
such assets in excess of $2.5 billion but not exceeding $4 billion; 0.38% of
such assets in excess of $4 billion but not exceeding $6.5 billion; and 0.375%
of such assets in excess of $6.5 billion. The latter fee schedule provides for
lower fees when net assets exceed $3 billion.
Pursuant to a Plan of Distribution, the fund may expend up to 0.25% of its
average net assets annually for any activities primarily intended to result in
sales of fund shares, provided the categories of expenses for which
reimbursement is made are approved by the fund's Board of Trustees. Fund
expenses under the Plan include payments to dealers to compensate them for
their selling and servicing efforts. During the six months ended May 31, 1998,
distribution expenses under the Plan were $6,473,000. As of May 31, 1998,
accrued and unpaid distribution expenses were $3,001,000.
American Funds Service Company (AFS), the transfer agent for the fund, was
paid a fee of $2,104,000. American Funds Distributors, Inc. (AFD), the
principal underwriter of the fund's shares, received $1,198,000 (after
allowances to dealers) as its portion of the sales charges paid by purchasers
of the fund's shares. Such sales charges are not an expense of the fund and,
hence, are not reflected in the accompanying statement of operations.
Trustees who are unaffiliated with CRMC may elect to defer part or all of the
fees earned for services as members of the Board. Amounts deferred are not
funded and are general unsecured liabilities of the fund. As of May 31, 1998,
aggregate amounts deferred and earnings thereon were $146,000.
CRMC is owned by The Capital Group Companies, Inc. AFS and AFD are both wholly
owned subsidiaries of CRMC. Certain Trustees and officers of the fund are or
may be considered to be affiliated with CRMC, AFS and AFD. No such persons
received any remuneration directly from the fund.
4. As of May 31, 1998, accumulated undistributed net realized gain on
investments was $311,239,000 and paid-in capital was $3,315,097,000.
The fund made purchases and sales of investment securities, excluding
short-term securities, of $714,065,000 and $765,591,000, respectively, during
the six months ended May 31, 1998.
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 $404,000 includes $5,000 that was paid by these credits
rather than in cash.
Dividend income is recorded net of non-U.S. taxes paid. For the six months
ended May 31, 1998, such non-U.S. taxes were $1,911,000. Net realized currency
losses on dividends and withholding taxes reclaimable on a book basis, were
$53,000 for the six months ended May 31, 1998.
<TABLE>
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PER-SHARE DATA AND RATIOS 1
Six
months
ended/2/ Year ended November 30
--------- ----- ----- ----- ----- -----
5/31/98 1997 1996 1995 1994 1993
--------- ----- ----- ----- ----- -----
Net Asset Value, Beginning
of Period 20.92 18.5 16.98 14.65 16.47 13.17
--------- ----- ----- ----- ----- -----
Income from Investment
Operations:
Net investment income .05 .12 .14 .20 .17 .11
Net realized and unrealized
gain (loss) on investments 3.54 3.57 2.26 2.99 (.59) 3.75
Total income (loss) from --------- ----- ----- ----- ----- -----
investment operations 3.59 3.69 2.40 3.19 (.42) 3.86
--------- ----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment
income (.08) (.14) (.19) (.18) (.12) (.07)
Distributions from net realized
gains (1.72) (1.13) (.69) (.68) (1.28) (.49)
--------- ----- ----- ----- ----- -----
Total distributions (1.80) (1.27) (.88) (.86) (1.40) (.56)
--------- ----- ----- ----- ----- -----
Net Asset Value, End of Period 22.71 20.92 18.5 16.98 14.65 16.47
====== ====== ====== ====== ===== ======
Total Return /3/ 18.61% /4/ 21.64% 15.00% 23.22% (2.94%) 30.60%
Ratios/Supplemental Data:
Net assets, end of period
(in millions) $5,711 $4,804 $4,223 $3,523 $2,592 $1,912
Ratio of expenses to average
net assets 0.4% /4/ .81% .84% .88% .85% .85%
Ratio of net income to
average net assets 0.25% /4/ .66% .85% 1.33% 1.25% .76%
Average commissions
paid per share /5/ 3.14c 2.58c 1.17c .16c .38c .30c
Portfolio turnover rate 14.55% /4/ 31.62% 29.54% 27.03% 25.51% 26.97%
/1/ Adjusted to reflect the 100%
share dividend effective May
26, 1994.
/2/ Unaudited
/3/ Excludes maximum sales charge of 5.75%
/4/ Based on operations for the
period shown and, accordingly,
not representative of a full
year's operations.
/5/ Brokerage commissions
paid on portfolio
transactions increase the
cost of securities
purchased or reduce the
proceeds of securities sold
and are not separately reflected in the
fund's statement of
operations. Shares traded
on a principal basis (without commissions),
such as most over-the-counter and
fixed-income transactions, are excluded.
Generally, non-U.S. commissions
are lower than U.S. commissions
when expressed as a percentage of transaction amount
because of the lower per-share prices of many non-U.S.
securities.
</TABLE>
[THE AMERICAN FUNDS GROUP(R)]
THE NEW ECONOMY 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
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
This report is for the information of shareholders of The New Economy Fund, but
it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
September 30, 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/3846
Lit. No. NEF-013-0798
