<PAGE>
[The American Funds Logo]
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The New
Economy Fund(R)
Prospectus
FEBRUARY 1, 1999
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT
DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
THE NEW ECONOMY FUND
333 South Hope Street
Los Angeles, CA 90071
TICKER SYMBOL: ANEFX NEWSPAPER ABBREV.: NEco FUND NO.: 14
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary 2
..................................................................
Fees and Expenses of the Fund 5
..................................................................
Investment Objective, Strategies and Risks 6
..................................................................
Year 2000 9
..................................................................
Management and Organization 10
..................................................................
Shareholder Information 12
..................................................................
Purchase and Exchange of Shares 13
..................................................................
Distribution Arrangements 17
..................................................................
Financial Highlights 18
</TABLE>
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14-010-0299/B
THE NEW ECONOMY FUND / PROSPECTUS 1
<PAGE>
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
stocks of companies in the services and information area of the global economy.
The fund is designed for investors seeking greater capital appreciation through
investments in stocks of issuers based around the world. Investors in the fund
should have a long-term perspective and be able to tolerate potentially wide
price fluctuations. An investment in the fund is subject to risks, including the
possibility that its share price and total return may decline in response to
certain events, such as changes in securities markets or economic conditions.
The prices of equity securities held by the fund may be affected by events
involving the issuers of those securities.
Although all securities in the fund's portfolio, including U.S. securities, may
be adversely affected by currency fluctuations or world political, social and
economic instability, investments outside the U.S. may be affected to a greater
extent.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time.
Your investment in the fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency, entity or person.
2 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
INVESTMENT RESULTS
The following information illustrates how the fund's results may fluctuate. Past
results are not an indication of future results.
Here are the fund's results calculated without a sales charge on a calendar
year basis. (If a sales charge were included, results would be lower.)
[bar graph]
1989 31.79
1990 -10.10
1991 29.17
1992 16.82
1993 30.95
1994 -8.11
1995 24.37
1996 12.89
1997 28.85
1998 28.84
[end bar graph]
The fund's highest/lowest quarterly results during this time period were:
[X] HIGHEST 22.13% (quarter ended December 31, 1998)
[X] LOWEST -20.04% (quarter ended September 30, 1990)
THE NEW ECONOMY FUND / PROSPECTUS 3
<PAGE>
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
THE FUND
WITH
MAXIMUM
AVERAGE ANNUAL SALES CHARGE LIPPER MSCI RUSSELL
TOTAL RETURN DEDUCTED(1) S&P 500(2) INDEX(3) EAFE(4) 2500(5)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One Year 21.42% 28.52% 25.69% 20.33% .38%
................................................................................
Five Years 15.08% 24.02% 19.82% 9.50% 14.13%
................................................................................
Ten Years 16.80% 19.16% 17.21% 5.85% 14.62%
................................................................................
Lifetime(6) 16.17% 17.74% 15.00% 15.24% 12.96%
</TABLE>
(1) These fund results were calculated according to a formula which requires
that the maximum sales charge of 5.75% be deducted. Results would be higher
if they were calculated at net asset value.
(2) The Standard & Poor's 500 Composite Index represents primarily U.S. stocks.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
(3) The Lipper Growth Funds Index tracks the 30 largest growth funds
(representing about 53% of all growth fund assets). Sales charges and
commissions are not reflected in the results of the underlying funds.
(4) The Morgan Stanley Capital International EAFE (Europe, Australasia, Far
East) Index measures all major stock markets outside North America. Sales
charges and commissions are not reflected in the results of the underlying
funds.
(5) The Russell 2500 Index tracks small and medium-size U.S. stocks. Sales
charges and commissions are not reflected in the results of the underlying
funds.
(6) The fund began investment operations on December 1, 1983.
4 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
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FEES AND EXPENSES OF THE FUND
The following describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.75%(1)
................................................................................
Maximum sales charge imposed on reinvested dividends 0%
................................................................................
Maximum deferred sales charge 0%(2)
................................................................................
Redemption or exchange fees 0%
</TABLE>
(1) Sales charges are reduced or eliminated for larger purchases.
(2) A contingent deferred sales charge of 1% applies on certain redemptions made
within 12 months following any purchases you made without a sales charge.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Management Fees 0.42%
................................................................................
Service (12b-1) Fees 0.23%*
................................................................................
Other Expenses 0.14%
................................................................................
Total Annual Fund Operating Expenses 0.79%
</TABLE>
*12b-1 expenses may not exceed 0.25% of the fund's average net assets annually.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
One Year $ 651
................................................................................
Three Years $ 813
................................................................................
Five Years $ 989
................................................................................
Ten Years $1,497
</TABLE>
THE NEW ECONOMY FUND / PROSPECTUS 5
<PAGE>
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INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
The fund seeks to provide you with long-term growth of capital. It invests
primarily in stocks of companies in the services and information area of the
global economy, although a portion of its assets may be outside these areas.
Companies in the services and information area include, for example, those
involved in the fields of telecommunications, computer systems and software,
broadcasting and publishing, health care, advertising, leisure, tourism,
financial services, distribution and transportation. Providing you with current
income is a secondary consideration.
The prices of equity securities held by the fund may decline in response to
certain events, including those directly involving the issuers of these
securities, adverse conditions affecting the general economy, overall market
declines, world political, social and economic instability and currency
fluctuations. Investments outside the U.S. may be affected by these events to a
greater extent and may also be affected by differing securities regulations, and
administrative difficulties such as delays in clearing and settling portfolio
transactions. The growth-oriented, equity-type securities generally purchased by
the fund may involve large price swings and potential for loss, particularly in
the case of smaller capitalization stocks.
The fund may also invest in cash or cash equivalents of any issuer. The fund may
invest in cash and cash equivalents to any extent deemed appropriate, in
response to abnormal market conditions. The extent of the fund's cash position
will depend on market conditions, fund purchases and redemptions, and other
factors. This may detract from the achievement of the fund's objective over the
short-term or it may protect the fund during a market downturn.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they no longer represent
good long-term value.
6 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
ADDITIONAL INVESTMENT RESULTS
(for periods ended December 31, 1998)
<TABLE>
<CAPTION>
AVERAGE ANNUAL THE FUND WITH LIPPER MSCI RUSSELL
TOTAL RETURN NO SALES CHARGE(1) S&P 500(2) INDEX(3) EAFE(4) 2500(5)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One Year 28.84% 28.52% 25.69% 20.33% .38%
....................................................................................
Five Years 16.45% 24.02% 19.82% 9.50% 14.13%
....................................................................................
Ten Years 17.50% 19.16% 17.21% 5.85% 14.62%
....................................................................................
Lifetime(6) 16.62% 17.74% 15.00% 15.24% 12.96%
</TABLE>
(1) These fund results were calculated according to a formula that is required
for all stock and bond funds.
(2) The Standard & Poor's 500 Composite Index represents primarily U.S. stocks.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
(3) The Lipper Growth Funds Index tracks the 30 largest growth funds
(representing about 53% of all growth fund assets). Sales charges and
commissions are not reflected in the results of the underlying funds.
(4) The Morgan Stanley Capital International EAFE (Europe, Australasia, Far
East) Index measures all major stock markets outside North America. Sales
charges and commissions are not reflected in the results of the underlying
funds.
(5) The Russell 2500 Index tracks small and medium-size U.S. stocks. Sales
charges and commissions are not reflected in the results of the underlying
funds.
(6) The fund began investment operations on December 1, 1983.
THE NEW ECONOMY FUND / PROSPECTUS 7
<PAGE>
The following chart illustrates the asset mix of the fund's investment
portfolio as of the end of the fund's fiscal year, November 30, 1998.
LARGEST INDUSTRY HOLDINGS
<TABLE>
<CAPTION>
<S> <C>
BROADCASTING & PUBLISHING 18.23%
TELECOMMUNICATIONS 10.39
COMPUTER SERVICES & SOFTWARE 8.09
MISCELLANEOUS FINANCIAL SERVICES 7.54
INSURANCE 5.70
OTHER INDUSTRIES 38.07
CASH & EQUIVALENTS 11.98
</TABLE>
<TABLE>
<CAPTION>
PERCENT INVESTED BY PERCENT OF
COUNTRY NET ASSETS
- ----------------------------------
<S> <C>
United States 61.3%
.......................................................
Europe
United Kingdom 3.8
Italy 1.5
Germany 1.3
Sweden 1.3
Spain 1.3
Denmark 1.2
Netherlands .9
Switzerland .8
France .8
Greece .2
Luxembourg .1
Ireland .1
.......................................................
Asia/Pacific
Australia 2.2
Japan 1.3
Philippines .6
New Zealand .4
Hong Kong .2
Taiwan .1
.......................................................
Latin America &
Canada
Canada 2.0
Mexico 1.9
Argentina .2
.......................................................
SupraNational 4.5
.......................................................
Total Non-U.S. 26.7%
.......................................................
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST INDIVIDUAL PERCENT OF
EQUITY HOLDINGS NET ASSETS
- ---------------------------------------
<S> <C>
Tele-Communications,
Liberty Media Group 3.53%
.......................................................
Viacom 3.35
.......................................................
Fannie Mae 2.80
.......................................................
Freddie Mac 2.61
.......................................................
Time Warner 2.50
.......................................................
Cendant 2.34
.......................................................
Carnival 2.01
.......................................................
Comcast 2.00
.......................................................
Rentokil Initial 1.77
.......................................................
Oracle 1.76
.......................................................
</TABLE>
Because the fund is actively managed, its holdings will change from time to
time.
8 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
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YEAR 2000
The date-related computer issue known as the "Year 2000 problem" could have an
adverse impact on the quality of services provided to the fund and its
shareholders. However, the fund understands that its key service providers --
including the investment adviser and its affiliates -- are taking steps to
address the issue. In addition, the Year 2000 problem may adversely affect the
issuers in which the fund invests. For example, issuers may incur substantial
costs to address the problem. They may also suffer losses caused by corporate
and governmental data processing errors. The fund and its investment adviser
will continue to monitor developments relating to this issue.
THE NEW ECONOMY FUND / PROSPECTUS 9
<PAGE>
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MANAGEMENT AND ORGANIZATION
INVESTMENT ADVISER
Capital Research and Management Company, an experienced investment management
organization founded in 1931, serves as investment adviser to the fund and other
funds, including those in The American Funds Group. Capital Research and
Management Company, a wholly owned subsidiary of The Capital Group Companies,
Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital
Research and Management Company manages the investment portfolio and business
affairs of the fund. The total management fee paid by the fund, as a percentage
of average net assets, for the previous fiscal year is discussed earlier under
"Fees and Expenses of the Fund."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company Institute's
Advisory Group on Personal Investing. This policy has also been incorporated
into the fund's code of ethics.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Capital Research and Management Company uses a system of multiple portfolio
counselors in managing mutual fund assets. Under this system the portfolio of a
fund is divided into segments which are managed by individual counselors.
Counselors decide how their respective segments will be invested (within the
limits provided by a fund's objective(s) and policies and by Capital Research
and Management Company's investment committee). In addition, Capital Research
and Management Company's research professionals may make investment decisions
with respect to a portion of a fund's portfolio. The primary individual
portfolio counselors for The New Economy Fund are listed on the following page.
10 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE YEARS OF
EXPERIENCE AS AN INVESTMENT
PROFESSIONAL
(INCLUDING THE LAST FIVE YEARS)
YEARS OF EXPERIENCE ................................
AS PORTFOLIO COUNSELOR WITH CAPITAL
(AND RESEARCH PROFESSIONAL, RESEARCH AND
PORTFOLIO COUNSELORS IF APPLICABLE) FOR MANAGEMENT
FOR THE NEW THE NEW ECONOMY FUND COMPANY OR
ECONOMY FUND PRIMARY TITLE(S) (APPROXIMATE) AFFILIATES TOTAL YEARS
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WILLIAM R. GRIMSLEY Chairman of the 15 years (since the fund 29 years 36 years
Board of the fund. began operations)
Senior Vice
President and
Director, Capital
Research and
Management Company
---------------------------------------------------------------------------------------------------------
TIMOTHY D. ARMOUR President, Principal 8 years (plus 5 years as a 16 years 16 years
Executive Officer research professional prior
and Trustee of the to becoming a portfolio
fund. Chairman of counselor for the fund)
the Board and Chief
Executive Officer,
Capital Research
Company*
---------------------------------------------------------------------------------------------------------
CLAUDIA HUNTINGTON Senior Vice 4 years (plus 11 years as a 21 years 23 years
President of the research professional prior
fund. Senior Vice to becoming a portfolio
President, Capital counselor for the fund)
Research and
Management Company
---------------------------------------------------------------------------------------------------------
GORDON Senior Vice 5 years (plus 5 years as a 28 years 28 years
CRAWFORD President research professional prior
and Director, to becoming a portfolio
Capital Research and counselor for the fund)
Management Company
---------------------------------------------------------------------------------------------------------
WILLIAM C. NEWTON Senior Partner, The 15 years (since the fund 40 years 46 years
Capital Group began operations)
Partners L.P.*
---------------------------------------------------------------------------------------------------------
</TABLE>
The fund began investment operations on December 1, 1983.
* Company affiliated with Capital Research and Management Company.
THE NEW ECONOMY FUND / PROSPECTUS 11
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
SHAREHOLDER SERVICES
American Funds Service Company, the fund's transfer agent, offers you a wide
range of services you can use to alter your investment program should your needs
and circumstances change. These services are available only in states where they
may be legally offered and may be terminated or modified at any time upon 60
days' written notice. For your convenience, American Funds Service Company has
four service centers across the country.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
(8 A.M. TO 8 P.M. ET):
800/421-0180
[U.S. CALL TOLL-FREE MAP]
<TABLE>
<S> <C> <C> <C>
WESTERN SERVICE WESTERN CENTRAL EASTERN CENTRAL EASTERN SERVICE
CENTER SERVICE CENTER SERVICE CENTER CENTER
American Funds American Funds American Funds American Funds
Service Company Service Company Service Company Service Company
P.O. Box 2205 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280
Brea, California San Antonio, Indianapolis, Norfolk, Virginia
92822-2205 Texas Indiana 23501-2280
Fax: 714/671-7080 78265-9522 46206-6007 Fax: 757/670-4773
Fax: 210/474-4050 Fax: 317/735-6620
</TABLE>
A COMPLETE DESCRIPTION OF THE SERVICES WE OFFER IS DESCRIBED IN THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION. In addition, an easy-to-read guide to
owning a fund in The American Funds Group titled "Welcome to the Family" is sent
to new shareholders and is available by writing or calling American Funds
Service Company.
You may invest in the fund through various retirement plans. However, some
retirement plans or accounts held by investment dealers may not offer certain
services. If you have any questions, please contact your plan
administrator/trustee or dealer.
12 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
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PURCHASE AND EXCHANGE OF SHARES
PURCHASE
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may purchase additional shares using
various options described in the statement of additional information and
"Welcome to the Family."
EXCHANGE
You may exchange your shares into other funds in The American Funds Group
generally without a sales charge. Exchange of shares from the money market funds
initially purchased without a sales charge generally will be subject to the
appropriate sales charge. Exchanges have the same tax consequences as ordinary
sales and purchases. See "Transactions by Telephone . . ." for information
regarding electronic exchanges.
THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S PRINCIPAL UNDERWRITER,
RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. ALTHOUGH THERE IS
CURRENTLY NO SPECIFIC LIMIT ON THE NUMBER OF EXCHANGES YOU CAN MAKE IN A PERIOD
OF TIME, THE FUND AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT
ANY PURCHASE ORDER AND MAY TERMINATE THE EXCHANGE PRIVILEGE OF ANY INVESTOR
WHOSE PATTERN OF EXCHANGE ACTIVITY THEY HAVE DETERMINED INVOLVES ACTUAL OR
POTENTIAL HARM TO THE FUND.
INVESTMENT MINIMUMS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
To establish an account $1,000
For a retirement plan account $ 250
For a retirement plan account through payroll $ 25
deduction
To add to an account $ 50
For a retirement plan account through payroll $ 25
deduction
</TABLE>
SHARE PRICE
The fund calculates its share price, also called net asset value, as of 4:00
p.m. New York time which is the normal close of trading on the New York Stock
Exchange, every day the Exchange is open. In calculating net asset value, market
prices are used when available. If a market price for a particular security is
not available, the fund will determine the appropriate price for the security.
THE NEW ECONOMY FUND / PROSPECTUS 13
<PAGE>
Your shares will be purchased at the offering price, or sold at the net asset
value, next determined after American Funds Service Company receives and accepts
your request. The offering price is the net asset value plus a sales charge, if
applicable.
SALES CHARGE
A sales charge may apply to your purchase. Your sales charge may be reduced for
larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF
.................................
NET DEALER CONCESSION
OFFERING AMOUNT AS % OF
INVESTMENT PRICE INVESTED OFFERING PRICE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
.......................................................................................
$50,000 but less than $100,000 4.50% 4.71% 3.75%
.......................................................................................
$100,000 but less than $250,000 3.50% 3.63% 2.75%
.......................................................................................
$250,000 but less than $500,000 2.50% 2.56% 2.00%
.......................................................................................
$500,000 but less $1 million 2.00% 2.04% 1.60%
.......................................................................................
$1 million or more and certain
other investments described
below see below see below see below
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGE
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 100 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS BY ACCOUNTS THAT INVEST WITH NO INITIAL SALES
CHARGE (OTHER THAN EMPLOYER-SPONSORED PLANS), MADE WITHIN ONE YEAR OF PURCHASE.
A dealer concession of up to 1% may be paid by the fund under its Plan of
Distribution and/or by American funds Distributors on investments made with no
initial sales charge.
REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your sales
charge. You must let your investment dealer or American Funds Service Company
know if you qualify for a reduction in your sales charge using one or any
combination of the methods described in the statement of additional information
and "Welcome to the Family."
14 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the fund's board of directors. Up to 0.25%
of average net assets is paid annually to qualified dealers for providing
certain services pursuant to the fund's Plan of Distribution. The 12b-1 fee paid
by the fund, as a percentage of average net assets, for the previous fiscal year
is indicated earlier under "Fees and Expenses of the Fund." Since these fees are
paid out of the fund's assets on an ongoing basis, over time they will increase
the cost of an investment and may cost you more than paying higher initial sales
charges.
OTHER COMPENSATION TO DEALERS
American Funds Distributors may provide additional compensation to, or sponsor
informational meetings for, dealers as described in the statement of additional
information.
HOW TO SELL SHARES
Once a sufficient period of time has passed to reasonably assure that checks or
drafts (including certified or cashiers' checks) for shares purchased have
cleared (normally 15 calendar days), you may sell (redeem) those shares in any
of the following ways:
THROUGH YOUR DEALER (CERTAIN CHARGES MAY APPLY)
- Shares held for you in your dealer's name must be sold through the dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- Requests must be signed by the registered shareholder(s)
- A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address other than the address of record, or an address of
record which has been changed within the last 10 days.
- Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
THE NEW ECONOMY FUND / PROSPECTUS 15
<PAGE>
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE(R) OR AMERICAN FUNDSLINE ONLINE(R):
- Redemptions by telephone or fax (including American FundsLine and American
FundsLine OnLine) are limited to $50,000 per shareholder each day
- Checks must be made payable to the registered shareholder
- Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
TRANSACTIONS BY TELEPHONE, FAX, AMERICAN FUNDSLINE, OR AMERICAN FUNDSLINE
ONLINE
Generally, you are automatically eligible to use these services for redemptions
and exchanges unless you notify us in writing that you do not want any or all of
these services. You may reinstate these services at any time.
Unless you decide not to have telephone, fax, or computer services on your
account(s), you agree to hold the fund, American Funds Service Company, any of
its affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from any
losses, expenses, costs or liabilities (including attorney fees) which may be
incurred in connection with the exercise of these privileges, provided American
Funds Service Company employs reasonable procedures to confirm that the
instructions received from any person with appropriate account information are
genuine. If reasonable procedures are not employed, the fund may be liable for
losses due to unauthorized or fraudulent instructions.
16 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION ARRANGEMENTS
DIVIDENDS AND DISTRIBUTIONS
The fund intends to pay dividends to you, usually in June and December. Capital
gains, if any, are usually distributed in December.
You may elect to reinvest dividends and/or capital gain distributions to
purchase additional shares of this fund or any other fund in The American Funds
Group or you may elect to receive them in cash.
TAX CONSEQUENCES
Dividends and capital gains are generally taxable whether they are reinvested or
received in cash -- unless you are exempt from taxation or entitled to tax
deferral. Capital gains may be taxed at different rates depending on the length
of time the fund holds its assets.
The tax treatment of redemptions from a retirement plan account may differ from
redemptions from an ordinary shareholder account.
You must provide the fund with a certified correct taxpayer identification
number (generally your Social Security Number) and certify that you are not
subject to backup withholding. If you fail to do so, the IRS can require the
fund to withhold 31% of your taxable distributions and redemptions. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
Please see the statement of additional information, "Welcome to the Family," and
your tax adviser for further information.
THE NEW ECONOMY FUND / PROSPECTUS 17
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's
results for the past five years. Certain information reflects financial results
for a single fund share. The total returns in the table represent the rate that
an investor would have earned or lost on an investment in the fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Deloitte & Touche LLP, whose report, along with the fund's financial
statements, are included in the statement of additional information, which is
available upon request.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
................................
1998 1997 1996 1995 1994(1)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $20.92 $18.50 $16.98 $14.65 $16.47
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .13 .12 .14 .20 .17
...............................................................................................
Net gains (losses)
on securities (both
realized and unrealized) 4.44 3.57 2.26 2.99 (.59)
- ---------------------------------------------------------------------------------------------
Total from investment operations 4.57 3.69 2.40 3.19 (.42)
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends (from net
investment income) (.12) (.14) (.19) (.18) (.12)
...............................................................................................
Distributions (from capital gains) (1.72) (1.13) (.69) (.68) (1.28)
- ---------------------------------------------------------------------------------------------
Total distributions (1.84) (1.27) (.88) (.86) (1.40)
...............................................................................................
Net asset value,
end of period 23.65 20.92 18.50 16.98 14.65
- ---------------------------------------------------------------------------------------------
Total return(2) 23.73% 21.64% 15.00% 23.22% (2.94)%
- ---------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions) $6,039 $4,804 $4,223 $3,523 $2,592
...............................................................................................
Ratio of expenses to
average net assets .79% .81% .84% .88% .85%
...............................................................................................
Ratio of net income to
average net assets .60% .66% .85% 1.33% 1.25%
...............................................................................................
Portfolio turnover rate 38.55% 31.62% 29.54% 27.03% 25.51%
</TABLE>
(1) Adjusted to reflect the 100% share dividend effective May 26, 1994.
(2) Excludes maximum sales charge of 5.75%.
18 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
- --------------------------------------------------------------------------------
NOTES
THE NEW ECONOMY FUND / PROSPECTUS 19
<PAGE>
- --------------------------------------------------------------------------------
NOTES
20 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
- --------------------------------------------------------------------------------
NOTES
THE NEW ECONOMY FUND / PROSPECTUS 21
<PAGE>
FOR SHAREHOLDER FOR RETIREMENT PLAN FOR DEALER
SERVICES SERVICES SERVICES
American Funds Call your employer or American Funds
Service Company plan administrator Distributors
800/421-0180 800/421-9900 ext.11
FOR 24-HOUR INFORMATION
American American Funds
FundsLine(R) Internet Web site
800/325-3590 http://www.americanfunds.com
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
------------------------------------------------------------
MULTIPLE TRANSLATIONS
This prospectus may be translated into other languages. In
the event of any inconsistencies or ambiguities, the English
text will prevail.
------------------------------------------------------------
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Contains additional information about the fund including
financial statements, investments results, portfolio
holdings, a statement from portfolio management discussing
market conditions and the fund's investment strategies, and
the independent accountants' report (in the annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more detailed information on all aspects of the
fund, including the fund's financial statements.
A current SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference
into this prospectus. The SAI and other related materials
about the fund are available for review or to be copied at
the SEC's Public Reference Room in Washington, D.C.
(1-800-SEC-0330) or on the SEC's Internet Web site at
http://www.sec.gov.
CODE OF ETHICS
Includes a description of the fund's personal investing
policy.
To request a free copy of any of the documents above:
Call American Write to the Secretary of
Funds or the fund
Service Company 333 South Hope Street
800/421-0180 ext.1 Los Angeles, CA 90071
Investment Company File No. 811-3735
[LOGO] Printed on recycled paper
THE FUND PROVIDES SPANISH TRANSLATIONS IN CONNECTION WITH THE PUBLIC OFFERING
AND SALE OF ITS SHARES. THE FOLLOWING IS A FAIR AND ACCURATE ENGLISH
TRANSLATION OF A SPANISH LANGUAGE PROSPECTUS FOR THE FUND.
/s/ Chad L. Norton
Chad L. Norton
Secretary
<PAGE>
[The American Funds Logo]
- --------------------------------------------------------------------------------
The New
Economy Fund(R)
Prospectus
FEBRUARY 1, 1999
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED OF THESE SECURITIES. FURTHER, IT HAS NOT
DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
THE NEW ECONOMY FUND
333 South Hope Street
Los Angeles, CA 90071
TICKER SYMBOL: ANEFX NEWSPAPER ABBREV.: NEco FUND NO.: 14
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary 2
..................................................................
Fees and Expenses of the Fund 5
..................................................................
Investment Objective, Strategies and Risks 6
..................................................................
Year 2000 9
..................................................................
Management and Organization 10
..................................................................
Shareholder Information 12
..................................................................
Purchase and Exchange of Shares 13
..................................................................
Distribution Arrangements 17
..................................................................
Financial Highlights 18
</TABLE>
- --------------------------------------------------------------------------------
14-010-0299/B
THE NEW ECONOMY FUND / PROSPECTUS 1
<PAGE>
- --------------------------------------------------------------------------------
RISK/RETURN SUMMARY
The fund seeks to make your investment grow over time by investing primarily in
stocks of companies in the services and information area of the global economy.
The fund is designed for investors seeking greater capital appreciation through
investments in stocks of issuers based around the world. Investors in the fund
should have a long-term perspective and be able to tolerate potentially wide
price fluctuations. An investment in the fund is subject to risks, including the
possibility that its share price and total return may decline in response to
certain events, such as changes in securities markets or economic conditions.
The prices of equity securities held by the fund may be affected by events
involving the issuers of those securities.
Although all securities in the fund's portfolio, including U.S. securities, may
be adversely affected by currency fluctuations or world political, social and
economic instability, investments outside the U.S. may be affected to a greater
extent.
You may lose money by investing in the fund. The likelihood of loss is greater
if you invest for a shorter period of time.
Your investment in the fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency, entity or person.
2 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
INVESTMENT RESULTS
The following information illustrates how the fund's results may fluctuate. Past
results are not an indication of future results.
Here are the fund's results calculated without a sales charge on a calendar
year basis. (If a sales charge were included, results would be lower.)
[bar graph]
1989 31.79
1990 -10.10
1991 29.17
1992 16.82
1993 30.95
1994 -8.11
1995 24.37
1996 12.89
1997 28.85
1998 28.84
[end bar graph]
The fund's highest/lowest quarterly results during this time period were:
[X] HIGHEST 22.13% (quarter ended December 31, 1998)
[X] LOWEST -20.04% (quarter ended September 30, 1990)
THE NEW ECONOMY FUND / PROSPECTUS 3
<PAGE>
For periods ended December 31, 1998:
<TABLE>
<CAPTION>
THE FUND
WITH
MAXIMUM
AVERAGE ANNUAL SALES CHARGE LIPPER MSCI RUSSELL
TOTAL RETURN DEDUCTED(1) S&P 500(2) INDEX(3) EAFE(4) 2500(5)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One Year 21.42% 28.52% 25.69% 20.33% .38%
................................................................................
Five Years 15.08% 24.02% 19.82% 9.50% 14.13%
................................................................................
Ten Years 16.80% 19.16% 17.21% 5.85% 14.62%
................................................................................
Lifetime(6) 16.17% 17.74% 15.00% 15.24% 12.96%
</TABLE>
(1) These fund results were calculated according to a formula which requires
that the maximum sales charge of 5.75% be deducted. Results would be higher
if they were calculated at net asset value.
(2) The Standard & Poor's 500 Composite Index represents primarily U.S. stocks.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
(3) The Lipper Growth Funds Index tracks the 30 largest growth funds
(representing about 53% of all growth fund assets). Sales charges and
commissions are not reflected in the results of the underlying funds.
(4) The Morgan Stanley Capital International EAFE (Europe, Australasia, Far
East) Index measures all major stock markets outside North America. Sales
charges and commissions are not reflected in the results of the underlying
funds.
(5) The Russell 2500 Index tracks small and medium-size U.S. stocks. Sales
charges and commissions are not reflected in the results of the underlying
funds.
(6) The fund began investment operations on December 1, 1983.
4 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUND
The following describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES
(fees paid directly from your investment)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.75%(1)
................................................................................
Maximum sales charge imposed on reinvested dividends 0%
................................................................................
Maximum deferred sales charge 0%(2)
................................................................................
Redemption or exchange fees 0%
</TABLE>
(1) Sales charges are reduced or eliminated for larger purchases.
(2) A contingent deferred sales charge of 1% applies on certain redemptions made
within 12 months following any purchases you made without a sales charge.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Management Fees 0.42%
................................................................................
Service (12b-1) Fees 0.23%*
................................................................................
Other Expenses 0.14%
................................................................................
Total Annual Fund Operating Expenses 0.79%
</TABLE>
*12b-1 expenses may not exceed 0.25% of the fund's average net assets annually.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
One Year $ 651
................................................................................
Three Years $ 813
................................................................................
Five Years $ 989
................................................................................
Ten Years $1,497
</TABLE>
THE NEW ECONOMY FUND / PROSPECTUS 5
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
The fund seeks to provide you with long-term growth of capital. It invests
primarily in stocks of companies in the services and information area of the
global economy, although a portion of its assets may be outside these areas.
Companies in the services and information area include, for example, those
involved in the fields of telecommunications, computer systems and software,
broadcasting and publishing, health care, advertising, leisure, tourism,
financial services, distribution and transportation. Providing you with current
income is a secondary consideration.
The prices of equity securities held by the fund may decline in response to
certain events, including those directly involving the issuers of these
securities, adverse conditions affecting the general economy, overall market
declines, world political, social and economic instability and currency
fluctuations. Investments outside the U.S. may be affected by these events to a
greater extent and may also be affected by differing securities regulations, and
administrative difficulties such as delays in clearing and settling portfolio
transactions. The growth-oriented, equity-type securities generally purchased by
the fund may involve large price swings and potential for loss, particularly in
the case of smaller capitalization stocks.
The fund may also invest in cash or cash equivalents of any issuer. The fund may
invest in cash and cash equivalents to any extent deemed appropriate, in
response to abnormal market conditions. The extent of the fund's cash position
will depend on market conditions, fund purchases and redemptions, and other
factors. This may detract from the achievement of the fund's objective over the
short-term or it may protect the fund during a market downturn.
The fund relies on the professional judgment of its investment adviser, Capital
Research and Management Company, to make decisions about the fund's portfolio
securities. The basic investment philosophy of Capital Research and Management
Company is to seek undervalued securities that represent good long-term
investment opportunities. Securities may be sold when they no longer represent
good long-term value.
6 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
ADDITIONAL INVESTMENT RESULTS
(for periods ended December 31, 1998)
<TABLE>
<CAPTION>
AVERAGE ANNUAL THE FUND WITH LIPPER MSCI RUSSELL
TOTAL RETURN NO SALES CHARGE(1) S&P 500(2) INDEX(3) EAFE(4) 2500(5)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One Year 28.84% 28.52% 25.69% 20.33% .38%
....................................................................................
Five Years 16.45% 24.02% 19.82% 9.50% 14.13%
....................................................................................
Ten Years 17.50% 19.16% 17.21% 5.85% 14.62%
....................................................................................
Lifetime(6) 16.62% 17.74% 15.00% 15.24% 12.96%
</TABLE>
(1) These fund results were calculated according to a formula that is required
for all stock and bond funds.
(2) The Standard & Poor's 500 Composite Index represents primarily U.S. stocks.
This index is unmanaged and does not reflect sales charges, commissions or
expenses.
(3) The Lipper Growth Funds Index tracks the 30 largest growth funds
(representing about 53% of all growth fund assets). Sales charges and
commissions are not reflected in the results of the underlying funds.
(4) The Morgan Stanley Capital International EAFE (Europe, Australasia, Far
East) Index measures all major stock markets outside North America. Sales
charges and commissions are not reflected in the results of the underlying
funds.
(5) The Russell 2500 Index tracks small and medium-size U.S. stocks. Sales
charges and commissions are not reflected in the results of the underlying
funds.
(6) The fund began investment operations on December 1, 1983.
THE NEW ECONOMY FUND / PROSPECTUS 7
<PAGE>
The following chart illustrates the asset mix of the fund's investment
portfolio as of the end of the fund's fiscal year, November 30, 1998.
LARGEST INDUSTRY HOLDINGS
<TABLE>
<CAPTION>
<S> <C>
BROADCASTING & PUBLISHING 18.23%
TELECOMMUNICATIONS 10.39
COMPUTER SERVICES & SOFTWARE 8.09
MISCELLANEOUS FINANCIAL SERVICES 7.54
INSURANCE 5.70
OTHER INDUSTRIES 38.07
CASH & EQUIVALENTS 11.98
</TABLE>
<TABLE>
<CAPTION>
PERCENT INVESTED BY PERCENT OF
COUNTRY NET ASSETS
- ----------------------------------
<S> <C>
United States 61.3%
.......................................................
Europe
United Kingdom 3.8
Italy 1.5
Germany 1.3
Sweden 1.3
Spain 1.3
Denmark 1.2
Netherlands .9
Switzerland .8
France .8
Greece .2
Luxembourg .1
Ireland .1
.......................................................
Asia/Pacific
Australia 2.2
Japan 1.3
Philippines .6
New Zealand .4
Hong Kong .2
Taiwan .1
.......................................................
Latin America &
Canada
Canada 2.0
Mexico 1.9
Argentina .2
.......................................................
SupraNational 4.5
.......................................................
Total Non-U.S. 26.7%
.......................................................
</TABLE>
<TABLE>
<CAPTION>
TEN LARGEST INDIVIDUAL PERCENT OF
EQUITY HOLDINGS NET ASSETS
- ---------------------------------------
<S> <C>
Tele-Communications,
Liberty Media Group 3.53%
.......................................................
Viacom 3.35
.......................................................
Fannie Mae 2.80
.......................................................
Freddie Mac 2.61
.......................................................
Time Warner 2.50
.......................................................
Cendant 2.34
.......................................................
Carnival 2.01
.......................................................
Comcast 2.00
.......................................................
Rentokil Initial 1.77
.......................................................
Oracle 1.76
.......................................................
</TABLE>
Because the fund is actively managed, its holdings will change from time to
time.
8 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
- --------------------------------------------------------------------------------
YEAR 2000
The date-related computer issue known as the "Year 2000 problem" could have an
adverse impact on the quality of services provided to the fund and its
shareholders. However, the fund understands that its key service providers --
including the investment adviser and its affiliates -- are taking steps to
address the issue. In addition, the Year 2000 problem may adversely affect the
issuers in which the fund invests. For example, issuers may incur substantial
costs to address the problem. They may also suffer losses caused by corporate
and governmental data processing errors. The fund and its investment adviser
will continue to monitor developments relating to this issue.
THE NEW ECONOMY FUND / PROSPECTUS 9
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT AND ORGANIZATION
INVESTMENT ADVISER
Capital Research and Management Company, an experienced investment management
organization founded in 1931, serves as investment adviser to the fund and other
funds, including those in The American Funds Group. Capital Research and
Management Company, a wholly owned subsidiary of The Capital Group Companies,
Inc., is headquartered at 333 South Hope Street, Los Angeles, CA 90071. Capital
Research and Management Company manages the investment portfolio and business
affairs of the fund. The total management fee paid by the fund, as a percentage
of average net assets, for the previous fiscal year is discussed earlier under
"Fees and Expenses of the Fund."
Capital Research and Management Company and its affiliated companies have
adopted a personal investing policy that is consistent with the recommendations
contained in the May 9, 1994 report issued by the Investment Company Institute's
Advisory Group on Personal Investing. This policy has also been incorporated
into the fund's code of ethics.
MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Capital Research and Management Company uses a system of multiple portfolio
counselors in managing mutual fund assets. Under this system the portfolio of a
fund is divided into segments which are managed by individual counselors.
Counselors decide how their respective segments will be invested (within the
limits provided by a fund's objective(s) and policies and by Capital Research
and Management Company's investment committee). In addition, Capital Research
and Management Company's research professionals may make investment decisions
with respect to a portion of a fund's portfolio. The primary individual
portfolio counselors for The New Economy Fund are listed on the following page.
10 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE YEARS OF
EXPERIENCE AS AN INVESTMENT
PROFESSIONAL
(INCLUDING THE LAST FIVE YEARS)
YEARS OF EXPERIENCE ................................
AS PORTFOLIO COUNSELOR WITH CAPITAL
(AND RESEARCH PROFESSIONAL, RESEARCH AND
PORTFOLIO COUNSELORS IF APPLICABLE) FOR MANAGEMENT
FOR THE NEW THE NEW ECONOMY FUND COMPANY OR
ECONOMY FUND PRIMARY TITLE(S) (APPROXIMATE) AFFILIATES TOTAL YEARS
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WILLIAM R. GRIMSLEY Chairman of the 15 years (since the fund 29 years 36 years
Board of the fund. began operations)
Senior Vice
President and
Director, Capital
Research and
Management Company
---------------------------------------------------------------------------------------------------------
TIMOTHY D. ARMOUR President, Principal 8 years (plus 5 years as a 16 years 16 years
Executive Officer research professional prior
and Trustee of the to becoming a portfolio
fund. Chairman of counselor for the fund)
the Board and Chief
Executive Officer,
Capital Research
Company*
---------------------------------------------------------------------------------------------------------
CLAUDIA HUNTINGTON Senior Vice 4 years (plus 11 years as a 21 years 23 years
President of the research professional prior
fund. Senior Vice to becoming a portfolio
President, Capital counselor for the fund)
Research and
Management Company
---------------------------------------------------------------------------------------------------------
GORDON Senior Vice 5 years (plus 5 years as a 28 years 28 years
CRAWFORD President research professional prior
and Director, to becoming a portfolio
Capital Research and counselor for the fund)
Management Company
---------------------------------------------------------------------------------------------------------
WILLIAM C. NEWTON Senior Partner, The 15 years (since the fund 40 years 46 years
Capital Group began operations)
Partners L.P.*
---------------------------------------------------------------------------------------------------------
</TABLE>
The fund began investment operations on December 1, 1983.
* Company affiliated with Capital Research and Management Company.
THE NEW ECONOMY FUND / PROSPECTUS 11
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
SHAREHOLDER SERVICES
American Funds Service Company, the fund's transfer agent, offers you a wide
range of services you can use to alter your investment program should your needs
and circumstances change. These services are available only in states where they
may be legally offered and may be terminated or modified at any time upon 60
days' written notice. For your convenience, American Funds Service Company has
four service centers across the country.
AMERICAN FUNDS SERVICE COMPANY SERVICE AREAS
CALL TOLL-FREE FROM ANYWHERE IN THE U.S.
(8 A.M. TO 8 P.M. ET):
800/421-0180
[U.S. CALL TOLL-FREE MAP]
<TABLE>
<S> <C> <C> <C>
WESTERN SERVICE WESTERN CENTRAL EASTERN CENTRAL EASTERN SERVICE
CENTER SERVICE CENTER SERVICE CENTER CENTER
American Funds American Funds American Funds American Funds
Service Company Service Company Service Company Service Company
P.O. Box 2205 P.O. Box 659522 P.O. Box 6007 P.O. Box 2280
Brea, California San Antonio, Indianapolis, Norfolk, Virginia
92822-2205 Texas Indiana 23501-2280
Fax: 714/671-7080 78265-9522 46206-6007 Fax: 757/670-4773
Fax: 210/474-4050 Fax: 317/735-6620
</TABLE>
A COMPLETE DESCRIPTION OF THE SERVICES WE OFFER IS DESCRIBED IN THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION. In addition, an easy-to-read guide to
owning a fund in The American Funds Group titled "Welcome to the Family" is sent
to new shareholders and is available by writing or calling American Funds
Service Company.
You may invest in the fund through various retirement plans. However, some
retirement plans or accounts held by investment dealers may not offer certain
services. If you have any questions, please contact your plan
administrator/trustee or dealer.
12 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
- --------------------------------------------------------------------------------
PURCHASE AND EXCHANGE OF SHARES
PURCHASE
Generally, you may open an account by contacting any investment dealer
authorized to sell the fund's shares. You may purchase additional shares using
various options described in the statement of additional information and
"Welcome to the Family."
EXCHANGE
You may exchange your shares into other funds in The American Funds Group
generally without a sales charge. Exchange of shares from the money market funds
initially purchased without a sales charge generally will be subject to the
appropriate sales charge. Exchanges have the same tax consequences as ordinary
sales and purchases. See "Transactions by Telephone . . ." for information
regarding electronic exchanges.
THE FUND AND AMERICAN FUNDS DISTRIBUTORS, THE FUND'S PRINCIPAL UNDERWRITER,
RESERVE THE RIGHT TO REJECT ANY PURCHASE ORDER FOR ANY REASON. ALTHOUGH THERE IS
CURRENTLY NO SPECIFIC LIMIT ON THE NUMBER OF EXCHANGES YOU CAN MAKE IN A PERIOD
OF TIME, THE FUND AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT
ANY PURCHASE ORDER AND MAY TERMINATE THE EXCHANGE PRIVILEGE OF ANY INVESTOR
WHOSE PATTERN OF EXCHANGE ACTIVITY THEY HAVE DETERMINED INVOLVES ACTUAL OR
POTENTIAL HARM TO THE FUND.
INVESTMENT MINIMUMS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
To establish an account $1,000
For a retirement plan account $ 250
For a retirement plan account through payroll $ 25
deduction
To add to an account $ 50
For a retirement plan account through payroll $ 25
deduction
</TABLE>
SHARE PRICE
The fund calculates its share price, also called net asset value, as of 4:00
p.m. New York time which is the normal close of trading on the New York Stock
Exchange, every day the Exchange is open. In calculating net asset value, market
prices are used when available. If a market price for a particular security is
not available, the fund will determine the appropriate price for the security.
THE NEW ECONOMY FUND / PROSPECTUS 13
<PAGE>
Your shares will be purchased at the offering price, or sold at the net asset
value, next determined after American Funds Service Company receives and accepts
your request. The offering price is the net asset value plus a sales charge, if
applicable.
SALES CHARGE
A sales charge may apply to your purchase. Your sales charge may be reduced for
larger purchases as indicated below.
<TABLE>
<CAPTION>
SALES CHARGE AS A PERCENTAGE OF
.................................
NET DEALER CONCESSION
OFFERING AMOUNT AS % OF
INVESTMENT PRICE INVESTED OFFERING PRICE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10% 5.00%
.......................................................................................
$50,000 but less than $100,000 4.50% 4.71% 3.75%
.......................................................................................
$100,000 but less than $250,000 3.50% 3.63% 2.75%
.......................................................................................
$250,000 but less than $500,000 2.50% 2.56% 2.00%
.......................................................................................
$500,000 but less $1 million 2.00% 2.04% 1.60%
.......................................................................................
$1 million or more and certain
other investments described
below see below see below see below
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGE
Investments of $1 million or more and investments made by employer-sponsored
defined contribution-type plans with 100 or more eligible employees are sold
with no initial sales charge. A 1% CONTINGENT DEFERRED SALES CHARGE MAY BE
IMPOSED ON CERTAIN REDEMPTIONS BY ACCOUNTS THAT INVEST WITH NO INITIAL SALES
CHARGE (OTHER THAN EMPLOYER-SPONSORED PLANS), MADE WITHIN ONE YEAR OF PURCHASE.
A dealer concession of up to 1% may be paid by the fund under its Plan of
Distribution and/or by American funds Distributors on investments made with no
initial sales charge.
REDUCING YOUR SALES CHARGE
You and your immediate family may combine investments to reduce your sales
charge. You must let your investment dealer or American Funds Service Company
know if you qualify for a reduction in your sales charge using one or any
combination of the methods described in the statement of additional information
and "Welcome to the Family."
14 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
PLAN OF DISTRIBUTION
The fund has a Plan of Distribution or "12b-1 Plan" under which it may finance
activities primarily intended to sell shares, provided the categories of
expenses are approved in advance by the fund's board of directors. Up to 0.25%
of average net assets is paid annually to qualified dealers for providing
certain services pursuant to the fund's Plan of Distribution. The 12b-1 fee paid
by the fund, as a percentage of average net assets, for the previous fiscal year
is indicated earlier under "Fees and Expenses of the Fund." Since these fees are
paid out of the fund's assets on an ongoing basis, over time they will increase
the cost of an investment and may cost you more than paying higher initial sales
charges.
OTHER COMPENSATION TO DEALERS
American Funds Distributors may provide additional compensation to, or sponsor
informational meetings for, dealers as described in the statement of additional
information.
HOW TO SELL SHARES
Once a sufficient period of time has passed to reasonably assure that checks or
drafts (including certified or cashiers' checks) for shares purchased have
cleared (normally 15 calendar days), you may sell (redeem) those shares in any
of the following ways:
THROUGH YOUR DEALER (CERTAIN CHARGES MAY APPLY)
- Shares held for you in your dealer's name must be sold through the dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- Requests must be signed by the registered shareholder(s)
- A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address other than the address of record, or an address of
record which has been changed within the last 10 days.
- Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
THE NEW ECONOMY FUND / PROSPECTUS 15
<PAGE>
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE(R) OR AMERICAN FUNDSLINE ONLINE(R):
- Redemptions by telephone or fax (including American FundsLine and American
FundsLine OnLine) are limited to $50,000 per shareholder each day
- Checks must be made payable to the registered shareholder
- Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
TRANSACTIONS BY TELEPHONE, FAX, AMERICAN FUNDSLINE, OR AMERICAN FUNDSLINE
ONLINE
Generally, you are automatically eligible to use these services for redemptions
and exchanges unless you notify us in writing that you do not want any or all of
these services. You may reinstate these services at any time.
Unless you decide not to have telephone, fax, or computer services on your
account(s), you agree to hold the fund, American Funds Service Company, any of
its affiliates or mutual funds managed by such affiliates, and each of their
respective directors, trustees, officers, employees and agents harmless from any
losses, expenses, costs or liabilities (including attorney fees) which may be
incurred in connection with the exercise of these privileges, provided American
Funds Service Company employs reasonable procedures to confirm that the
instructions received from any person with appropriate account information are
genuine. If reasonable procedures are not employed, the fund may be liable for
losses due to unauthorized or fraudulent instructions.
16 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION ARRANGEMENTS
DIVIDENDS AND DISTRIBUTIONS
The fund intends to pay dividends to you, usually in June and December. Capital
gains, if any, are usually distributed in December.
You may elect to reinvest dividends and/or capital gain distributions to
purchase additional shares of this fund or any other fund in The American Funds
Group or you may elect to receive them in cash.
TAX CONSEQUENCES
Dividends and capital gains are generally taxable whether they are reinvested or
received in cash -- unless you are exempt from taxation or entitled to tax
deferral. Capital gains may be taxed at different rates depending on the length
of time the fund holds its assets.
The tax treatment of redemptions from a retirement plan account may differ from
redemptions from an ordinary shareholder account.
You must provide the fund with a certified correct taxpayer identification
number (generally your Social Security Number) and certify that you are not
subject to backup withholding. If you fail to do so, the IRS can require the
fund to withhold 31% of your taxable distributions and redemptions. Federal law
also requires the fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
Please see the statement of additional information, "Welcome to the Family," and
your tax adviser for further information.
THE NEW ECONOMY FUND / PROSPECTUS 17
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's
results for the past five years. Certain information reflects financial results
for a single fund share. The total returns in the table represent the rate that
an investor would have earned or lost on an investment in the fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Deloitte & Touche LLP, whose report, along with the fund's financial
statements, are included in the statement of additional information, which is
available upon request.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
................................
1998 1997 1996 1995 1994(1)
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $20.92 $18.50 $16.98 $14.65 $16.47
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .13 .12 .14 .20 .17
...............................................................................................
Net gains (losses)
on securities (both
realized and unrealized) 4.44 3.57 2.26 2.99 (.59)
- ---------------------------------------------------------------------------------------------
Total from investment operations 4.57 3.69 2.40 3.19 (.42)
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends (from net
investment income) (.12) (.14) (.19) (.18) (.12)
...............................................................................................
Distributions (from capital gains) (1.72) (1.13) (.69) (.68) (1.28)
- ---------------------------------------------------------------------------------------------
Total distributions (1.84) (1.27) (.88) (.86) (1.40)
...............................................................................................
Net asset value,
end of period 23.65 20.92 18.50 16.98 14.65
- ---------------------------------------------------------------------------------------------
Total return(2) 23.73% 21.64% 15.00% 23.22% (2.94)%
- ---------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions) $6,039 $4,804 $4,223 $3,523 $2,592
...............................................................................................
Ratio of expenses to
average net assets .79% .81% .84% .88% .85%
...............................................................................................
Ratio of net income to
average net assets .60% .66% .85% 1.33% 1.25%
...............................................................................................
Portfolio turnover rate 38.55% 31.62% 29.54% 27.03% 25.51%
</TABLE>
(1) Adjusted to reflect the 100% share dividend effective May 26, 1994.
(2) Excludes maximum sales charge of 5.75%.
18 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
- --------------------------------------------------------------------------------
NOTES
THE NEW ECONOMY FUND / PROSPECTUS 19
<PAGE>
- --------------------------------------------------------------------------------
NOTES
20 THE NEW ECONOMY FUND / PROSPECTUS
<PAGE>
- --------------------------------------------------------------------------------
NOTES
THE NEW ECONOMY FUND / PROSPECTUS 21
<PAGE>
FOR SHAREHOLDER FOR RETIREMENT PLAN FOR DEALER
SERVICES SERVICES SERVICES
American Funds Call your employer or American Funds
Service Company plan administrator Distributors
800/421-0180 800/421-9900 ext.11
FOR 24-HOUR INFORMATION
American American Funds
FundsLine(R) Internet Web site
800/325-3590 http://www.americanfunds.com
Telephone conversations may be recorded or monitored for
verification, recordkeeping and quality assurance purposes.
------------------------------------------------------------
MULTIPLE TRANSLATIONS
This prospectus may be translated into other languages. In
the event of any inconsistencies or ambiguities, the English
text will prevail.
------------------------------------------------------------
OTHER FUND INFORMATION
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Contains additional information about the fund including
financial statements, investments results, portfolio
holdings, a statement from portfolio management discussing
market conditions and the fund's investment strategies, and
the independent accountants' report (in the annual report).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more detailed information on all aspects of the
fund, including the fund's financial statements.
A current SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference
into this prospectus. The SAI and other related materials
about the fund are available for review or to be copied at
the SEC's Public Reference Room in Washington, D.C.
(1-800-SEC-0330) or on the SEC's Internet Web site at
http://www.sec.gov.
CODE OF ETHICS
Includes a description of the fund's personal investing
policy.
To request a free copy of any of the documents above:
Call American Write to the Secretary of
Funds or the fund
Service Company 333 South Hope Street
800/421-0180 ext.1 Los Angeles, CA 90071
Investment Company File No. 811-3735
[LOGO] Printed on recycled paper
<PAGE>
THE NEW ECONOMY FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 1999
This document is not a prospectus but should be read in conjunction with the
current prospectus of The New Economy Fund (the "fund" or "NEF") dated February
1, 1999. The prospectus may be obtained from your investment dealer or
financial planner or by writing to the fund at the following address:
THE NEW ECONOMY FUND
Attention: Secretary
333 South Hope Street
Los Angeles, CA 90071
(213) 486-9200
Shareholders who purchase shares at net asset value through eligible retirement
plans should note that not all of the services or features described below may
be available to them, and they should contact their employer for details.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE NO.
<S> <C>
Certain Investment Limitations and Guidelines 2
Description of Certain Securities and Investment 2
Techniques
Fundamental Policies and Investment Restrictions 5
Fund Organization 7
Fund Trustees and Officers 8
Management 12
Dividends, Distributions and Federal Taxes 14
Purchase of Shares 18
Selling Shares 24
Shareholder Account Services and Privileges 26
Execution of Portfolio Transactions 28
General Information 28
Investment Results and Related Statistics 31
Description of Bond Ratings 36
Financial Statements Attached
</TABLE>
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES
The following limitations and guidelines are considered at the time of
purchase, under normal market conditions, and are based on a percentage of the
fund's net assets unless otherwise noted. This summary is not intended to
reflect all of the fund's investment limitations.
INVESTMENT OBJECTIVE
- - Generally, the fund will invest primarily in securities of companies that
derive their revenues primarily from operations in the services and information
area of the global economy. These could include, for example, companies
involved in the areas of telecommunications, computer systems and software,
broadcasting and publishing, health care, advertising, leisure, tourism,
financial services, distribution and transportation.
- - The fund may invest up to 25% of its assets in companies outside the
services and information area.
DEBT SECURITIES
- - The fund may invest up to 10% of its assets in debt securities rated Baa/BBB
or below by Moody's Investors Services, Inc. (Moody's) or Standard & Poor's
Corporation (S&P) or in unrated securities that are determined to be of
equivalent quality.
NON-U.S. SECURITIES
- - The fund may invest up to 40% of its assets in securities of issuers
domiciled outside the U.S. and in securities denominated in currencies other
than the U.S. dollar.
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The following limitations and guidelines are considered at the time of
purchase, under normal market conditions, and are based on a percentage of the
fund's net assets unless otherwise noted. This summary is not intended to
reflect all of the fund's investment limitations.
EQUITY SECURITIES -- The fund will invest in equity securities. Equity
securities represent an ownership position in a company. The prices of equity
securities fluctuate based on changes in the financial condition of their
issuers and on market and economic conditions. The fund's results will be
related to the overall market for these securities. The growth-oriented,
equity-type securities generally purchased by the fund may involve large price
swings and potential for loss.
INVESTING IN SMALLER CAPITALIZATION STOCKS -- The fund may invest in the
stocks of smaller companies (typically companies with market capitalizations of
less than $1.2 billion at the time of purchase). Capital Research and
Management Company (the Investment Adviser) believes that the issuers of
smaller capitalization stocks often provide attractive investment
opportunities. However, investing in smaller capitalization stocks can involve
greater risk than is customarily associated with investing in stocks of larger,
more established companies. For example, smaller companies often have limited
product lines, markets, or financial resources, may be dependent for management
on one or a few key persons, and can be more susceptible to losses. Also,
their securities may be thinly traded (and therefore have to be sold at a
discount from current prices or sold in small lots over an extended period of
time), may be followed by fewer investment research analysts, and may be
subject to wider price swings thus creating a greater chance of loss than
securities of larger capitalization companies.
INVESTING IN VARIOUS COUNTRIES -- The fund has the ability to invest outside
the U.S. Investing outside the U.S. involves special risks caused by, among
other things: fluctuating currency values; different accounting, auditing, and
financial reporting regulations and practices in some countries; changing local
and regional economic, political, and social conditions; expropriation or
confiscatory taxation; greater market volatility; differing securities market
structures; and various administrative difficulties such as delays in clearing
and settling portfolio transactions or in receiving payment of dividends.
However, in the opinion of Capital Research and Management Company, investing
outside the U.S. also can reduce certain portfolio risks due to greater
diversification opportunities.
The risks described above are potentially heightened in connection with
investments in developing countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a low per capita
gross national product. For example, political and/or economic structures in
these countries may be in their infancy and developing rapidly. Historically,
the markets of developing countries have been more volatile than the markets of
developed countries. The fund may only invest in securities of issuers in
developing countries to a limited extent.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. Brokerage commissions may be higher outside the
U.S., and the fund will bear certain expenses in connection with its currency
transactions. Furthermore, increased custodian costs may be associated with the
maintenance of assets in certain jurisdictions.
CURRENCY TRANSACTIONS -- The fund can purchase and sell currencies to
facilitate securities transactions and enter into forward currency contracts to
protect against changes in currency exchange rates. A forward currency
contract is an obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract.
Forward currency contracts entered into by the fund will involve the purchase
or sale of a currency against the U.S. dollar. While entering into forward
currency transactions could minimize the risk of loss due to a decline in the
value of the hedged currency, it could also limit any potential gain which
might result from an increase in the value of the currency. The fund will not
generally attempt to protect against all potential changes in exchange rates.
The fund will segregate liquid assets which will be marked to market daily to
meet its forward contract commitments to the extent required by the Securities
and Exchange Commission.
Certain provisions of the Internal Revenue Code (the "Code") may limit the
extent to which the fund may enter into forward contracts. Such transactions
may also affect, for U.S. federal income tax purposes, the character and timing
of income, gain or loss recognized by the fund.
DEBT SECURITIES - The fund may invest in debt securities. Bonds and other
debt securities are used by issuers to borrow money. Issuers pay investors
interest and generally must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest but are
purchased at a discount from their face values. The prices of debt securities
fluctuate depending on such factors as interest rates, credit quality and
maturity. In general their prices decline when interest rates rise and vice
versa.
LOWER RATED DEBT SECURITIES -- The fund may invest up to 10% of its total
assets in debt securities rated Baa or BBB or below or in unrated securities
that are determined to be of equivalent quality. Securities rated Ba and BB or
below or unrated securities determined to be of equivalent quality are commonly
known as "high-yield, high-risk" or "junk" bonds and may have characteristics
similar to the equity securities eligible for purchase by the fund. The fund's
high-yield, high-risk securities may be rated as low as Ca by Moody's or CC by
S&P, which are described by the ratings agencies as "speculative in a high
degree; often in default or [having] other marked shortcomings" or
"predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with terms of the obligation."
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK BONDS
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES -- High-yield, high-risk
bonds are very sensitive to adverse economic changes and corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers or issuers whose revenue is very
sensitive to economic conditions may experience financial stress that would
adversely affect their ability to service their principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted on its obligations to pay
interest or principal or entered into bankruptcy proceedings, the fund may
incur losses or expenses in seeking recovery of amounts owed to it. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high-yield, high-risk bonds.
PAYMENT EXPECTATIONS -- High-yield, high-risk bonds, may contain redemption or
call provisions. If an issuer exercised these provisions in a declining
interest rate market, the fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely,
a high-yield, high-risk bond's value is likely to in a rising interest rate
market, as it will with all bonds.
LIQUIDITY AND VALUATION -- There may be little trading in the secondary market
for particular bonds, which may affect adversely the fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
The fund's Investment Adviser attempts to reduce these risks through
diversification of the portfolio, by credit analysis of each issuer as well as
by monitoring broad economic trends and corporate developments, but there can
be no assurance that it will be successful in doing so.
U.S. GOVERNMENT SECURITIES -- The fund may invest in securities guaranteed by
the U.S. Government. These include: (1) direct obligations of the U.S. Treasury
(such as Treasury bills, notes and bonds) and (2) federal agency obligations
guaranteed as to principal and interest by the U.S. Treasury. In these
securities, the payment of principal and interest is unconditionally guaranteed
by the U.S. Government, and thus they are of the highest possible credit
quality. Such securities are subject to variations in market value due to
fluctuations in interest rates, but, if held to maturity, will be paid in full.
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the U.S.
Treasury. However, they generally involve federal sponsorship in one way or
another; some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the U.S. Treasury; some are supported by the
discretionary authority of the U.S. Treasury to purchase certain obligations of
the issuer; others are supported only by the credit of the issuing government
agency or instrumentality. These agencies and instrumentalities include, but
are not limited to, Federal Land Banks, Farmers Home Administration, Central
Bank Cooperatives, and Federal Intermediate Credit Banks.
CASH AND CASH EQUIVALENTS -- The fund may invest in cash and cash equivalents.
These securities include (1) commercial paper (short-term notes issued by
corporations or governmental bodies), (2) commercial bank obligations (E.G.
certificates of deposit (interest-bearing time deposits), and bankers'
acceptances (time drafts on a commercial bank where the bank accepts an
irrevocable obligation to pay at maturity)), (3) savings association and bank
obligations (E.G. certificates of deposit issued by savings banks or savings
associations), (4) securities of the U.S. Government, its agencies or
instrumentalities that mature, or may be redeemed, in one year or less, and (5)
corporate bonds and notes that mature, or that may be redeemed, in one year or
less.
REPURCHASE AGREEMENTS -- The fund may enter into repurchase agreements, under
which the fund buys a security and obtains a simultaneous commitment from the
seller to repurchase the security at a specified time and price. Repurchase
agreements permit the fund to maintain liquidity and earn income over periods
of time as short as overnight. The seller must maintain with the fund's
custodian collateral equal to at least 100% of the repurchase price, including
accrued interest, as monitored daily by the Investment Adviser. The fund will
only enter into repurchase agreements involving securities in which it could
otherwise invest and with selected banks and securities dealers whose financial
condition is monitored by the Investment Adviser. If the seller under the
repurchase agreement defaults, the fund may incur a loss if the value of the
collateral securing the repurchase agreement has declined and may incur
disposition costs in connection with liquidating the collateral. If bankruptcy
proceedings are commenced with respect to the seller, realization upon the
collateral by the fund may be delayed or limited.
RESTRICTED SECURITIES AND LIQUIDITY -- The fund may purchase securities subject
to restrictions on resale. All such securities not actively traded outside the
U.S. will be considered illiquid unless they have been specifically determined
to be liquid under procedures which have been adopted by the fund's board of
trustees, taking into account factors such as the frequency and volume of
trading, the commitment of dealers to make markets and the availability of
qualified investors, all of which can change from time to time. The fund may
incur certain additional costs in disposing of illiquid securities.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
The fund has adopted the following fundamental policies and investment
restrictions which may not be changed without a majority vote of its
outstanding shares. Such majority is defined by law as the vote of the lesser
of (1) 67% or more of the outstanding voting securities present at a meeting,
if the holders of more than 50% of the outstanding voting securities are
present in person or by proxy, or (2) more than 50% of the outstanding voting
securities. Investment limitations expressed in the following restrictions as
a percentage of assets are considered at the time securities are purchased.
The fund may not:
1. Invest in securities of another issuer (other than the U.S. or its agencies
or instrumentalities), if immediately after and as a result of such investment
more than 5% of the value of the total assets of the fund would be invested in
the securities of such other issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the fund;
2. Invest in companies for the purpose of exercising control or management;
3. Purchase the securities of companies in a particular industry (other than
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities) if thereafter 25% or more of the value of its total assets
would consist of securities issued by companies in that industry;
4. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commissions, is involved, and only if immediately thereafter no more than 10%
of the value of the fund's total assets would be invested in such securities;
5. Buy or sell real estate in the ordinary course of its business; however,
the fund may invest in securities secured by real estate or interests therein
or issued by companies, including real estate investment trusts, which invest
in real estate or interests therein;
6. Buy or sell commodities or commodity contracts in the ordinary course of
its business provided, however, that entering into a forward currency contract
shall not be prohibited by this restriction;
7. Invest more than 10% of the value of its total assets in securities which
are not readily marketable or engage in the business of underwriting of
securities of other issuers, except to the extent that the disposal of an
investment position may technically constitute the fund an underwriter as that
term is defined under the Securities Act of 1933;
8. Lend any of its assets; provided, however that investment in government
obligations, short-term commercial paper, certificates of deposit and banker's
acceptances and publicly traded bonds, debentures, or other debt securities or
entering into repurchase agreements, shall not be prohibited by this
restriction;
9. Sell securities short, except to the extent that the fund contemporaneously
owns or has the right to acquire at no additional cost, securities identical to
those sold short;
10. Purchase securities on margin;
11. Enter into any repurchase agreement if, as a result, more than 10% of the
fund's total assets would be subject to repurchase agreements maturing in more
than seven days (see above);
12. Borrow amounts in excess of 5% of the value of its total assets or issue
senior securities; in any event, the fund may borrow only as a temporary
measure for extraordinary or emergency purposes and not for investment in
securities;
13. Mortgage, pledge or hypothecate its assets to any extent;
14. Purchase or retain the securities of any issuer, if those individual
officers and trustees of the fund, its investment adviser or distributor, each
owning beneficially more than 1/2 of 1% of the securities of such issuer,
together own more than 5% of the securities of such issuer;
15. Invest more than 5% of the value of its total assets in securities of
companies having, together with their predecessors, a record of less than three
years of continuous operation;
16. Invest in puts, calls, straddles or spreads, or combinations thereof; or
17. Purchase partnership interests in oil, gas, or mineral exploration,
drilling or mining ventures.
For purposes of investment restriction number 4, the fund may invest in
securities of other managed investment companies if deemed advisable by its
officers in connection with the administration of a deferred compensation plan
adopted by Trustees, and to the extent such investments are allowed by an
exemptive order granted by the Securities and Exchange Commission.
FUND ORGANIZATION
The fund, an open-end, diversified management investment company was organized
as a Massachusetts business trust on May 17, 1983.
All fund operations are supervised by the fund's board of trustees which meets
periodically and performs duties required by applicable state and federal laws.
Members of the board who are not employed by Capital Research and Management
Company or its affiliates are paid certain fees for services rendered to the
fund as described in "Fund Trustees and Officers -- Trustees and Trustee
Compensation." They may elect to defer all or a portion of these fees through a
deferred compensation plan in effect for the fund.
FUND TRUSTEES AND OFFICERS
TRUSTEES AND TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
NAME, ADDRESS AND POSITION PRINCIPAL AGGREGATE TOTAL TOTAL
AGE WITH OCCUPATION(S) COMPENSATION COMPENSATION NUMBER
REGISTRANT DURING PAST 5 (INCLUDING (INCLUDING OF FUND
YEARS VOLUNTARILY VOLUNTARILY BOARDS
DEFERRED DEFERRED ON
COMPENSATION COMPENSATION WHICH
/1/) FROM /1/) FROM TRUSTEE
THE FUND ALL FUNDS SERVES
DURING MANAGED BY /3/
FISCAL YEAR CAPITAL
ENDED RESEARCH AND
11/30/98 MANAGEMENT
COMPANY OR
ITS
AFFILIATES
/2/ FOR THE
YEAR ENDED
11/30/98
<S> <C> <C> <C> <C> <C>
+Timothy D. Armour President and Chairman and none/4/ none/4/ 1
333 South Hope Trustee Chief Executive
Street Officer, Capital
Los Angeles, CA Research
90071 Company;
Director,
Age: 38 Capital Research
and Management
Company
Richard G. Capen, Trustee Corporate $16,750 $35,000 2
Jr. Director and
Box 2494 author; former
Rancho Santa Fe, CA United States
92067 Ambassador to
Age: 64 Spain; former
Vice Chairman of
the Board;
Knight Ridder,
Inc., former
Chairman and
Publisher, The
Miami Herald
H. Frederick Trustee Private $14,250/4/ $189,650/4/ 18
Christie Investor; former
P.O. Box 144 President and
Palos Verdes Chief Executive
Estates, CA Officer, The
90274 Mission Group
Age: 65 (non-utility
holding company
subsidiary of
Southern
California
Edison Company);
former
President,
Southern
California
Edison Company
Alan E. Clements Trustee Private $12,550 $29,100 2
16 Great Peter investor; former
Street Executive
London SW1P3JF Director -
England Finance,
Age: 70 Imperial
Chemical
Industries PLC
Alan Greenway Trustee President, $14,250 $75,100 4
7413 Fairway Road Greenway
La Jolla, CA 92037 Associates, Inc.
Age: 71 (management
consulting
services)
+William R. Grimsley Chairman of Senior Vice None/5/ None/5/ 3
P.O. Box 7650 the Board President and
San Francisco, CA Director,
94120 Capital Research
Age: 60 and Management
Company
++Graham Holloway Trustee Former Chairman None/5/ None/5/ 2
17309 Club Hill of the Board,
Drive American Funds
Dallas, TX 75248 Distributors,
Age: 68 Inc.
Leonade D. Jones Trustee Former $14,250/4/ $98,917/4/ 5
1536 Los Montes Treasurer, The
Drive Washington Post
Burlingame, CA 94010 Company
Age: 50
William H. Kling Trustee President, $13,350/4/ $79,000/4/ 4
2619 Lake of the Minnesota Public
Isles Radio;
Parkway East President,
St. Paul, MN 55408 Greenspring Co.;
Age: 56 former
President,
American Public
Radio
(now Public
Radio
International)
Norman R. Weldon Trustee Managing $13,350 $38,200 2
7026 Timbers Drive Director,
Evergreen, CO 80439 Partisan
Age: 64 Management
Group, Inc;
Chairman of the
Board, Novoste
Corporation;
Director, Enable
Medical; former
President and
Director,
Corvita
Corporation
Patricia K. Woolf Trustee Private $13,350 $98,000 6
506 Quaker Road investor;
Princeton, NJ 08540 Lecturer,
Age: 64 Department
of Molecular
Biology,
Princeton
University;
Corporate
Director
</TABLE>
+ "Interested Persons" of the fund within the meaning of the Investment
Company Act of 1940 (the "1940 Act") on the basis of their affiliation with the
fund's Investment Adviser or the parent company of theInvestment Adviser, The
Capital Group Companies, Inc.
/1/ Amounts may be deferred by eligible Trustees under a non-qualified
deferred compensation plan adopted by the fund in 1993. Deferred amounts
accumulate at an earnings rate determined by the total return of one or more of
the funds in The American Funds Group as designated by the Trustee.
/2/ Capital Research and Management Company manages The American Funds Group
consisting of 28 funds: AMCAP Fund, American Balanced Fund, Inc., American
High-Income Municipal Bond Fund, Inc., American High-Income Trust, American
Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash Management Trust of
America, Capital Income Builder, Inc., Capital World Growth and Income Fund,
Inc., Capital World Bond Fund, Inc., EuroPacific Growth Fund, Fundamental
Investors, Inc., The Growth Fund of America, Inc., The Income Fund of America.
Inc., Intermediate Bond Fund of America, The Investment Company of America,
Limited Term Tax-Exempt Bond Fund of America, The New Economy Fund, New
Perspective Fund, Inc., SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of
America, Inc., The Tax-Exempt Fund of California, The Tax-Exempt Fund of
Maryland, The Tax-Exempt Fund of Virginia, The Tax-Exempt Money Fund of
America, The U.S. Treasury Money Fund of America, U.S. Government Securities
Fund and Washington Mutual Investors Fund, Inc. Capital Research and
Management Company also manages American Variable Insurance Series and Anchor
Pathway Fund which serve as the underlying investment vehicles for certain
variable insurance contracts; and Endowments whose shareholders are limited
to (i) any entity exempt from taxation under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended ("501(c)(3) organization"); (ii) any trust,
the present or future beneficiary of which is a 501(c)(3) organization; and
(iii) any other entity formed for the primary purpose of benefiting a 501(c)(3)
organization.
/3/ Includes funds managed by Capital Research and Management Company.
/4/ Since the plan's adoption, the total amounts of deferred compensation
accrued by the fund (plus earnings thereon) for participating Trustees are as
follows: H. Frederick Christie ($40,192); Leonade D. Jones ($58,548); and
William H. Kling ($67,750). Amounts deferred and accumulated earnings thereon
are not funded and are general unsecured liabilities of the fund until paid to
the Trustee.
/5/ Timothy D. Armour, William R. Grimsley and Graham Holloway are affiliated
with the Investment Adviser and, accordingly, receive no compensation from the
fund.
OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S) HELD PRINCIPAL OCCUPATION(S)
WITH REGISTRANT DURING PAST 5 YEARS
<S> <C> <C> <C>
William R. Grimsley 60 Chairman of the Senior Vice President and
(see above) Board Director, Capital Research and
Management Company
Timothy D. Armour 38 President and Chairman and Chief Executive
333 South Hope Street Trustee Officer, Capital Research
Los Angeles, CA 90071 Company. Director, Capital
Research and Management
Company
Claudia P. Huntington 46 Senior Vice Senior Vice President, Capital
333 South Hope Street President Research and Management
Los Angeles, CA 90071 Company
Vincent P. Corti 42 Vice President Vice President -- Fund
333 South Hope Street Business Management Group, Capital Research and
Los Angeles, CA 90071 Management Company.
Ulrich A. Volk 37 Vice President Vice President, Capital
25 Bedford Street Research Company
London, England WC2E 9HN
Chad L. Norton 38 Secretary Vice President -- Fund
333 South Hope Street Business Management Group,
Los Angeles, CA 90071 Capital Research and
Management Company
Robert P. Simmer 37 Treasurer Vice President -- Fund
5300 Robin Hood Road Business Management Group,
Norfolk, VA 23513 Capital Research and
Management Company
Sheryl F. Johnson 30 Assistant Treasurer Assistant Vice President --
5300 Robin Hood Road Fund Business Management
Norfolk, VA 23513 Group, Capital Research and
Management Company
</TABLE>
All of the officers listed also are officers or employees of the Investment
Adviser or affiliated companies. No compensation is paid by the fund to any
officer or Trustee who is a director, officer or employee of the Investment
Adviser or affiliated companies. The fund pays fees of $9,000 per annum to
Trustees who are not affiliated with the Investment Adviser, plus $1,000 for
each Board of Trustees meeting attended, plus $500 for each meeting attended as
a member of a committee of the Board of Trustees. No pension or retirement
benefits are accrued as part of fund expenses. The Trustees may elect, on a
voluntary basis, to defer all or a portion of these fees through a deferred
compensation plan in effect for the fund. The fund also reimburses certain
expenses of the Trustees who are not affiliated with the Investment Adviser.
As of January 1, 1999 the officers and Trustees of the fund and their families
as a group owned beneficially or of record less than 1% of the outstanding
shares of the fund.
MANAGEMENT
INVESTMENT ADVISER -- The Investment Adviser, founded in 1931, maintains
research facilities in the U.S. and abroad (Los Angeles, San Francisco, New
York, Washington D.C., London, Geneva, Hong Kong, Singapore and Tokyo), with a
staff of professionals, many of whom have a number of years of investment
experience. The Investment Adviser is located at 333 South Hope Street, Los
Angeles, CA 90071, and at 135 South State College Boulevard, Brea, CA 92821.
The Investment Adviser's professionals travel several million miles a year,
making more than 5,000 research visits in more than 50 countries around the
world. The Investment Adviser believes that it is able to attract and retain
quality personnel. The Investment Adviser is a wholly-owned subsidiary of The
Capital Group Companies, Inc.
An affiliate of the Investment Adviser compiles indices for major stock markets
around the world and compiles and edits the Morgan Stanley Capital
International Perspective, providing financial and market information about
more than 2,400 companies around the world.
The Investment Adviser is responsible for more than $200 billion of stocks,
bonds and money market instruments and serves over eight million investors of
all types. These investors include privately owned businesses and large
corporations as well as schools, colleges, foundations and other non-profit and
tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT -- The Investment Advisory and
Service Agreement (the Agreement) between the fund and the Investment Adviser
will continue in effect until November 30, 1999, and may be renewed from year
to year thereafter, provided that any such renewal has been specifically
approved at least annually by (1) the Board of Trustees, or by the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the fund, and (2) the vote of a majority of Trustees who are not parties to the
Agreement or interested persons (as defined in the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on such approval.
The Agreement provides that the Investment Adviser has no liability to the fund
for its acts or omissions in the performance of its obligations to the fund not
involving willful misconduct, bad faith, gross negligence or reckless disregard
of its obligations under the Agreement. The Agreement also provides that
either party has the right to terminate it, without penalty, upon 60 days'
written notice to the other party and that the Agreement automatically
terminates in the event of its assignment (as defined in the 1940 Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, clerical and bookkeeping functions of the fund and
provides suitable office space, small office equipment and utilities, and
general purpose accounting forms, supplies, and postage used at the office of
the fund relating to the services furnished by the Investment Adviser. Subject
to the expense agreement described below, the fund will pay all expenses not
expressly assumed by the Investment Adviser, including, but not limited to,
registration and filing fees with federal and state agencies; blue sky
expenses; expenses of shareholders' meetings; the expense of reports to
existing shareholders; expenses of printing proxies and prospectuses; legal
and auditing fees; dividend disbursement expenses; the expense of the issuance,
transfer, and redemption of its shares; expenses pursuant to the fund's Plan of
Distribution (described below); custodian fees; printing and preparation of
registration statements; taxes; compensation, compensation and expenses paid to
Trustees unaffiliated with the Investment Adviser; association dues; and costs
of stationery, forms and certificates prepared exclusively for the fund.
As compensation for its services, the Investment Adviser receives a monthly fee
which is accrued daily, calculated at the annual rates of 0.58% on the first
$500 million of the fund's net assets, 0.48% on assets from $500 million to $1
billion, 0.44% on assets from $1 billion to $1.5 billion, 0.41% on assets from
$1.5 billion to $2.5 billion, 0.39% on assets from $2.5 billion to $4 billion,
0.38% on assets from $4 billion to $6.5 billion, and 0.375% on assets over $6.5
billion. If net assets fall below $3 billion, the Agreement provides for lower
fees calculated at the annual rates of 0.60% on the first $300 million of the
fund's net assets, 0.48% on assets over $300 million to $750 million, 0.45% on
assets over $750 million to $1.25 billion, and 0.42% on assets over $1.25
billion.
The Agreement provides for an advisory fee reduction by any amount necessary to
assure that the fund's annual ordinary net operating expenses do not exceed
applicable expense limitations in any state in which the fund's shares are
being offered for sale. Only one state (California) continues to impose
expense limitations on funds registered for sale therein. The California
provision currently limits annual expenses to the sum of 2 1/2% of the first
$30 million of average net assets, 2% of the next $70 million and 1 1/2% of the
remaining average net assets. Rule 12b-1 distribution plan expenses are
excluded from this limit. Other expenses which are not subject to this
limitation are interest, taxes, and extraordinary items such as litigation.
Expenditures, including costs incurred in connection with the purchase or sale
of portfolio securities, which are capitalized in accordance with generally
accepted accounting principles applicable to investment companies, are
accounted for as capital items and not as expenses.
During the fiscal years ended November 30, 1998, 1997 and 1996, the Investment
Adviser's total fees amounted to $23,295,000, $18,971,000, and $17,016,000,
respectively.
PRINCIPAL UNDERWRITER -- American Funds Distributors, Inc. (the Principal
Underwriter) is the Principal Underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 8000 IH-10 West, San Antonio, TX
78230, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240 and 5300 Robin
Hood Road, Norfolk, VA 23513. The fund has adopted a Plan of Distribution (the
Plan), pursuant to rule 12b-1 under the 1940 Act. The Principal Underwriter
receives amounts payable pursuant to the Plan (see below) and commissions
consisting of that portion of the sales charge remaining after the discounts
which it allows to investment dealers. Commissions retained by the Principal
Underwriter on sales of fund shares during the fiscal year ended November 30,
1998 amounted to $2,489,000 after allowance of $12,263,000 to dealers. During
the fiscal years ended November 30, 1997 and 1996 the Principal Underwriter
retained $1,605,000 and $2,388,000 respectively.
As required by rule 12b-1, the Plan (together with the Principal Underwriting
Agreement) has been approved by a majority of the entire Board of Trustees, and
separately by a majority of the Trustees who are not "interested persons" of
the fund and who have no direct or indirect financial interest in the operation
of the Plan or the Principal Underwriting Agreement, and the Plan has been
approved by the vote of a majority of the outstanding voting securities of the
fund. The officers and Trustees who are "interested persons" of the fund may
be considered to have a direct or indirect financial interest in the operation
of the Plan due to present or past affiliations with the Investment Adviser and
related companies. Potential benefits of the Plan to the fund include improved
shareholder services, savings to the fund in transfer agency costs, savings to
the fund in advisory fees and other expenses, benefits to the investment
process from growth or stability of assets and maintenance of a financially
healthy management organization. The selection and nomination of Trustees who
are not "interested persons" of the fund is committed to the discretion of the
Trustees who are not "interested persons" during the existence of the Plan.
The Plan is reviewed quarterly and must be renewed annually by the Board of
Trustees.
Under the Plan the fund may expend up to 0.25% of its average net assets
annually to finance any activity primarily intended to result in the sale of
fund shares, provided the fund's Board of Trustees has approved the category of
expenses for which payment is being made. These include service fees for
qualified dealers and wholesaler compensation on sales of shares exceeding $1
million (including purchases by any employer-sponsored 403(b) plan, purchases
by any defined contribution plan qualified under Section 401(a) of the Code
including a "401(k)" plan with 100 or more eligible employees or a community
foundation).
Commissions on sales of shares exceeding $1 million (including purchases by any
employer-sponsored 403(b) plan or purchases by any defined contribution plan
qualified under Section 401(a) of the Internal Revenue Code, including any
"401(k)" plan with 100 or more eligible employees) in excess of the Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarters, commissions are not recoverable. During
the fiscal year ended November 30 , 1998, the fund paid or accrued $12,940,000
under the Plan as compensation to dealers.
The Glass-Stegall Act and other applicable laws, among other things, generally
prohibit commercial banks from engaging in the business of underwriting,
selling or distributing securities, but permit banks to make shares of mutual
funds available to their customers and to perform administrative and
shareholder servicing functions. However, judicial or administrative decisions
or interpretations of such laws, as well as changes in either federal or state
statutes or regulations relating to the permissible activities of banks or
their subsidiaries of affiliates, could prevent a bank from continuing to
perform all or a part of its servicing activities. If a bank were prohibited
from so acting, shareholder clients of such bank would be permitted to remain
shareholders of the fund and alternate means for continuing the servicing of
such shareholders would be sought. In such event, changes in the operation of
the fund might occur, and shareholders serviced by such bank might no longer be
able to avail themselves of any automatic investment or other services then
being provided by such bank. It is not expected that shareholders would suffer
adverse financial consequences as a result of any of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and certain banks and
financial institutions may be required to be registered as dealers pursuant to
state law.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAXES
The fund intends to meet all the requirements and has elected the tax status of
a "regulated investment company" under the provisions of Subchapter M of the
The Internal Revenue Code of 1986 (the "Code"). Under Subchapter M, if the
fund distributes within specified times at least 90% of the sum of its
investment company taxable income, it generally will be taxed only on that
portion of such investment company taxable income that it retains.
To qualify, the fund must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, and
gains from the sale or other disposition of stock, securities, currencies or
other income derived with respect to its business of investing in such stock,
securities or currencies; and (2) diversify its holdings so that, at the end of
each fiscal quarter, (a) at least 50% of the value of the fund's total assets
is represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities, but such other
securities must be limited, in respect of any one issuer, to an amount not
greater than 5% of the fund's total assets and not more than 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies), or in two or more issuers which the fund controls and
which are engaged in the same or similar trades or businesses or related trades
or businesses.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (1) 98% of ordinary income for the calendar year, (2) 98% of
capital gains (both long-term and short-term) for the one-year period ending on
October 31 (as though the one-year period ending on October 31 were the
regulated investment company's taxable year), and (3) the sum of any untaxed,
undistributed net investment income and net capital gains of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (a) amounts actually distributed by the fund from its current
year's ordinary income and capital gain net income and (b) any amount on which
the fund pays income tax for the year. The fund intends to distribute net
investment income and net capital gains so as to minimize or avoid the excise
tax liability.
The amount of any realized gain or loss on closing out a forward currency
contract such as a forward commitment for the purchase or sale of foreign
currency will generally result in a realized capital gain or loss for tax
purposes. Under Code Section 1256, forward currency contracts held by the fund
at the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes, that is, deemed to have been sold at market value.
Code Section 988 may also apply to forward currency contracts. Under Section
988, each foreign currency gain or loss is generally computed separately and
treated as ordinary income or loss. In the case of overlap between Sections
1256 and 988, special provisions determine the character and timing of any
income, gain or loss. The fund will attempt to monitor Section 988
transactions to avoid an adverse tax impact.
The fund also intends to continue distributing to shareholders all of the
excess of net long-term capital gain over net short-term capital loss on sales
of securities. A capital gain distribution, whether paid in cash or reinvested
in shares, is taxable to shareholders as long-term capital gains, regardless of
the length of time a shareholder has held the shares or whether such gain was
realized by the fund before the shareholder acquired such shares and was
reflected in the price paid for the shares.
Except for transactions the fund has identified as hedging transactions, the
fund is required for federal income tax purposes to recognize as income for
each taxable year its net unrealized gains and losses on forward currency
contracts as of the end of the year as well as those actually realized during
the year. Sales of forward currency contracts which are intended to hedge
against a change in the value of securities or currencies held by the fund may
affect the holding period of such securities or currencies and, consequently,
the nature of the gain or loss on such securities or currencies upon
disposition.
It is anticipated that any net gain realized from the closing out of forward
currency contracts will be considered gain from the sale of securities or
currencies and therefore be qualifying income for purposes of the 90% of gross
income from qualified sources requirement, as discussed above.
The fund will distribute to shareholders annually any net long-term capital
gains which have been recognized for federal income tax purposes (including
unrealized gains at the end of the fund's fiscal year) on forward currency
contract transactions. Such distributions will be combined with distributions
of capital gains realized on the fund's other investments.
Dividends generally are taxable to shareholders at the time they are paid.
However, dividends declared in October, November and December and made payable
to shareholders of record in such a month are treated as paid and are thereby
taxable as of December 31, provided that the fund pays the dividend no later
than January of the following year.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash, and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, or the shareholder does
not respond to mailings from American Funds Service Company with regard to
uncashed distribution checks, the shareholder's distribution option will
automatically be converted to having all dividends and other distributions
reinvested in additional shares.
Corporate shareholders of the fund may be eligible for the dividends-received
deduction on the dividends (excluding the net capital gain distributions) paid
by the fund to the extent the fund's income is derived from dividends (which if
received directly would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the fund shares paying the dividends upon which
the deduction is based for at least 46 days.
If a shareholder exchanges or otherwise disposes of shares of the fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales charge for
shares of the fund, or of a different fund, the sales charge previously
incurred in acquiring the fund's shares shall not be taken into account (to the
extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares. Also, any loss realized on a redemption or exchange of
shares of a fund will be disallowed to the extent substantially identical
shares are reacquired within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of.
Under the Code, distributions of net investment income by the fund to a
shareholder who, as to the U.S., is a nonresident alien individual, foreign
trust or estate, non-U.S. corporation, or non-U.S. partnership (a non-U.S.
shareholder) will be subject to U.S. withholding tax (at a rate of 30% or lower
treaty rate). Withholding will not apply if a dividend paid by the fund to a
non-U.S. shareholder is "effectively connected" with a U.S. trade or business,
in which case the reporting and withholding requirements applicable to U.S.
citizens, U.S. residents, or domestic corporations will apply. However, if the
distribution is effectively connected with the conduct of the non-U.S.
shareholder's trade or business within the U.S., the distribution would be
included in the net income of the shareholder and subject to U.S. income tax at
the applicable marginal rate. Distributions of net long-term capital gains are
not subject to tax withholding, but in the case of a non-U.S. shareholder is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. during the tax year for more than 182 days during the taxable year.
The fund may be required to pay withholding and other taxes imposed by foreign
countries generally at rates from 10% to 40% on the fund's income subject to
tax in such countries, which would reduce the fund's investment income. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. While the fund expects to invest less than 50% of its
assets outside the U.S. under current market conditions, if more than 50% in
value of the fund's total assets at the close of its taxable year consists of
securities of foreign issuers, the fund will be eligible to file elections with
the Internal Revenue Service pursuant to which shareholders of the fund will be
required to include their respective pro rata portions of such withholding
taxes in their federal income tax returns as gross income, treat such amounts
as foreign taxes paid by them, and deduct such amounts in computing their
taxable incomes or, alternatively, use them as foreign tax credits against
their federal income taxes. In any year the fund makes such an election,
shareholders will be notified as to the amount of foreign withholding and other
taxes paid by the fund.
As of the date of this statement of additional information, the maximum federal
individual stated tax rate applicable to ordinary income is 39.6% (effective
tax rates may be higher for some individuals due to phase out of exemptions and
elimination of deductions); the maximum individual tax rate applicable to net
capital gains on assets held more than one year is 20%, and the maximum
corporate tax applicable to ordinary income and net capital gain is 35%.
However, to eliminate the benefit of lower marginal corporate income tax rates,
corporations which have taxable income in excess of $100,000 for a taxable year
will be required to pay an additional income tax liability up to $11,750 and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay and additional amount of tax up to $100,000.
Naturally, the amount of tax payable by a taxpayer will be affected by a
combination of tax law rules covering, E.G., deductions, credits, deferrals,
exemptions, sources of income and other matters. Under the Code, an individual
is entitled to establish and contribute to an Individual Retirement Account
(IRA) each year (prior to the tax return filing deadline for that year) whereby
earnings on investments are tax-deferred. The maximum amount that an
individual may contribute to all IRAs (deductible, nondeductible and Roth IRAs)
per year is the lesser of $2,000 or theindividual's compensation for the year.
In addition, in some cases, the IRA contribution itself may be deductible.
The foregoing is limited to a summary discussion of federal taxation and should
not be viewed as a comprehensive discussion of all provisions of the Code
relevant to investors. Dividends and capital gain distributions may also be
subject to state or local taxes. Shareholders should consult their own tax
advisers for additional details as to their particular tax status.
PURCHASE OF SHARES
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
See "Investment Minimums and Fund $50 minimum (except where a
Numbers" for initial investment lower minimum is noted under
minimums. "Investment Minimums and Fund
Numbers").
By contacting Visit any investment dealer who is Mail directly to your investment
your investment registered in the state where the dealer's address printed on your
dealer purchase is made and who has a sales account statement.
agreement with American Funds
Distributors.
By mail Make your check payable to the fund Fill out the account additions
and mail to the address indicated on form at the bottom of a recent
the account application. Please account statement, make your
indicate an investment dealer on the check payable to the fund, write
account application. your account number on your
check, and mail the check and
form in the envelope provided
with your account statement.
By telephone Please contact your investment dealer Complete the "Investments by
to open account, then follow the Phone" section on the account
procedures for additional application or American
investments. FundsLink Authorization Form.
Once you establish the
privilege, you, your financial
advisor or any person with your
account information can call
American FundsLine(R) and make
investments by telephone
(subject to conditions noted in
"Shareholder Account Services
and Privileges - Telephone and
Computer Purchases, Redemptions
and Exchanges" below).
By computer Please contact your investment dealer Complete the American FundsLink
to open account, then follow the Authorization Form. Once you
procedures for additional establish the privilege, you,
investments. your financial adviser or any
person with your account
information may access American
FundsLine OnLine (SM) on the
Internet and make investments by
computer (subject to conditions
noted in "Shareholder Account
Services and Privileges -
Telephone and Computer Purchases,
Redemptions and Exchanges"
below).
By wire Call 800/421-0180 to obtain your Your bank should wire your
account number(s), if necessary. additional investments in the
Please indicate an investment dealer same manner as described under
on the account. Instruct your bank "Initial Investment."
to wire funds to:
Wells Fargo Bank
155 Fifth Street, 6th Floor
San Francisco, CA 94106
(ABA #121000248)
For credit to the account of:
American Funds Service Company
a/c #4600-076178
(fund name)
(your fund acct. no.)
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY PURCHASE
ORDER.
</TABLE>
INVESTMENT MINIMUMS AND FUND NUMBERS -- Here are the minimum initial
investments required by the funds in The American Funds Group along with fund
numbers for use with our automated phone line, American FundsLine(R) (see
description below):
<TABLE>
<CAPTION>
<S> <C> <C>
FUND MINIMUM FUND
INITIAL NUMBER
INVESTMENT
STOCK AND STOCK/BOND FUNDS
AMCAP Fund(R) $1,000 02
American Balanced Fund(R) 500 11
American Mutual Fund(R) 250 03
Capital Income Builder(R) 1,000 12
Capital World Growth and Income Fund(SM) 1,000 33
EuroPacific Growth Fund(R) 250 16
Fundamental Investors(SM) 250 10
The Growth Fund of America(R) 1,000 05
The Income Fund of America(R) 1,000 06
The Investment Company of America(R) 250 04
The New Economy Fund(R) 1,000 14
New Perspective Fund(R) 250 07
SMALLCAP World Fund(R) 1,000 35
Washington Mutual Investors Fund(SM) 250 01
BOND FUNDS
American High-Income Municipal Bond 1,000 40
Fund(R)
American High-Income Trust(SM) 1,000 21
The Bond Fund of America(SM) 1,000 08
Capital World Bond Fund(R) 1,000 31
Intermediate Bond Fund of America(SM) 1,000 23
Limited Term Tax-Exempt Bond Fund of 1,000 43
America(SM)
The Tax-Exempt Bond Fund of 1,000 19
America(R)
The Tax-Exempt Fund of 1,000 20
California(R)*
The Tax-Exempt Fund of Maryland(R)* 1,000 24
The Tax-Exempt Fund of Virginia(R)* 1,000 25
U.S. Government Securities Fund(SM) 1,000 22
MONEY MARKET FUNDS
The Cash Management Trust of 2,500 09
America(R)
The Tax-Exempt Money Fund of 2,500 39
America(SM)
The U.S. Treasury Money Fund of 2,500 49
America(SM)
*Available only in certain states.
</TABLE>
For retirement plan investments, the minimum is $250, except that the money
market funds have a minimum of $1,000 for IRAs. Minimums are reduced to $50
for purchases through "Automatic Investment Plans" (except for the money market
funds) or to $25 for purchases by retirement plans through payroll deductions
and may be reduced or waived for shareholders of other funds in The American
Funds Group. TAX-EXEMPT FUNDS SHOULD NOT SERVE AS RETIREMENT PLAN INVESTMENTS.
The minimum is $50 for additional investments (except as noted above).
SALES CHARGES -- The sales charges you pay when purchasing the stock,
stock/bond, and bond funds of The American Funds Group are set forth below.
The money market funds of The American Funds Group are offered at net asset
value. (See "Investment Minimums and Fund Numbers" for a listing of the
funds.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AMOUNT OF PURCHASE SALES CHARGE AS DEALER
AT THE OFFERING PRICE PERCENTAGE OF THE: CONCESSION
AS PERCENTAGE
OF THE
OFFERING
PRICE
NET AMOUNT OFFERING
INVESTED PRICE
STOCK AND STOCK/BOND
FUNDS
Less than $50,000 6.10% 5.75% 5.00%
$50,000 but less than $100,000 4.71 4.50 3.75
BOND FUNDS
Less than $25,000 4.99 4.75 4.00
$25,000 but less than 4.71 4.50 3.75
$50,000
$50,000 but less than 4.17 4.00 3.25
$100,000
STOCK, STOCK/BOND, AND
BOND FUNDS
$100,000 but less than 3.63 3.50 2.75
$250,000
$250,000 but less than 2.56 2.50 2.00
$500,000
$500,000 but less than 2.04 2.00 1.60
$1,000,000
$1,000,000 or more none none (see below)
</TABLE>
PURCHASES NOT SUBJECT TO SALES CHARGES - Investments of $1 million or more and
investments made by employer-sponsored defined contribution-type plans with 100
or more eligible employees are sold with no initial sales charge. A contingent
deferred sales charge may be imposed on certain redemptions by these accounts
made within one year of purchase. Investments by retirement plans, foundations
or endowments with $50 million or more in assets, and employer-sponsored
defined contribution-type plans with 100 or more eligible employees may be made
with no sales charge and are not subject to a contingent deferred sales charge.
In addition, the stock, stock/bond and bond funds may sell shares at net asset
value to:
(1) current or retired directors, trustees, officers and advisory board
members of the funds managed by Capital Research and Management Company,
employees of Washington Management Corporation, employees and partners of The
Capital Group Companies, Inc. and its affiliated companies, certain family
members of the above persons, and trusts or plans primarily for such persons;
(2) current registered representatives, retired registered representatives with
respect to accounts established while active, or full-time employees (and their
spouses, parents, and children) of dealers who have sales agreements with
American Funds Distributors (or who clear transactions through such dealers)
and plans for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer;
(4) trustees or other fiduciaries purchasing shares for certain retirement
plans of organizations with retirement plan assets of $50 million or more;
(5) insurance company separate accounts;
(6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; and
(7) The Capital Group Companies, Inc., its affiliated companies and Washington
Management Corporation. Shares are offered at net asset value to these persons
and organizations due to anticipated economies in sales effort and expense.
DEALER COMMISSIONS -- Commissions of up to 1% will be paid to dealers who
initiate and are responsible for purchases of $1 million or more, for purchases
by any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Code including a "401(k)" plan with
100 or more eligible employees, and for purchases made at net asset value by
certain retirement plans of organizations with collective retirement plan
assets of $50 million or more: 1.00% on amounts of $1 million to $2 million,
0.80% on amounts over $2 million to $3 million, 0.50% on amounts over $3
million to $50 million, 0.25% on amounts over $50 million to $100 million, and
0.15% on amounts over $100 million. The level of dealer commissions will be
determined based on sales made over a 12-month period commencing from the date
of the first sale at net asset value.
OTHER COMPENSATION TO DEALERS -- American Funds Distributors, at its expense
(from a designated percentage of its income), currently provides additional
compensation to dealers. Currently these payments are limited to the top 100
dealers who have sold shares of the fund or other funds in The American Funds
Group. These payments will be based on a pro rata share of a qualifying
dealer's sales. The American Funds Distributors will, on an annual basis,
determine the advisability of continuing these payments.
Qualified dealers currently are paid a continuing service fee not to exceed
0.25% of average net assets (0.15% in the case of the money market funds)
annually in order to promote selling efforts and to compensate them for
providing certain services. These services include processing purchase and
redemption transactions, establishing shareholder accounts and providing
certain information and assistance with respect to the fund.
REDUCING YOUR SALES CHARGE -- You and your immediate family may combine
investments to reduce your costs. You must let your investment dealer or
American Funds Service Company know if you qualify for a reduction in your
sales charge using one or any combination of the methods described below.
STATEMENT OF INTENTION -- You may enter into a non-binding commitment to
purchase shares of a fund(s) over a 13-month period and receive the same sales
charge as if all shares had been purchased at once. This includes purchases
made during the previous 90 days, but does not include appreciation of your
investment or reinvested distributions. The reduced sales charges and offering
prices set forth in the Prospectus apply to purchases of $50,000 or more made
within a 13-month period subject to the following statement of intention (the
Statement) terms. The Statement is not a binding obligation to purchase the
indicated amount. When a shareholder elects to utilize a Statement in order to
qualify for a reduced sales charge, shares equal to 5% of the dollar amount
specified in the Statement will be held in escrow in the shareholder's account
out of the initial purchase (or subsequent purchases, if necessary) by the
American Funds Service Company (the Transfer Agent). All dividends and any
capital gain distributions on shares held in escrow will be credited to the
shareholder's account in shares (or paid in cash, if requested). If the
intended investment is not completed within the specified 13-month period, the
purchaser will remit to the Principal Underwriter the difference between the
sales charge actually paid and the sales charge which would have been paid if
the total of such purchases had been made at a single time. If the difference
is not paid within 45 days after written request by the Principal Underwriter
or the securities dealer, the appropriate number of shares held in escrow will
be redeemed to pay such difference. If the proceeds from this redemption are
inadequate, the purchaser will be liable to the Principal Underwriter for the
balance still outstanding. The Statement may be revised upward at any time
during the 13-month period, and such a revision will be treated as a new
Statement, except that the 13-month period during which the purchase must be
made will remain unchanged and there will be no retroactive reduction of the
sales charges paid on prior purchases. Existing holdings eligible for rights
of accumulation (see the account application) may be credited toward
satisfying the Statement. During the Statement period reinvested dividends and
capital gain distributions, investments in money market funds, and investments
made under a right of reinstatement will not be credited toward satisfying the
Statement.
When the trustees of certain retirement plans purchase shares by payroll
deduction, the sales charge for the investments made during the 13-month period
will be handled as follows: The regular monthly payroll deduction investment
will be multiplied by 13 and then multiplied by 1.5. The current value of
existing American Funds investments (other than money market fund investments)
and any rollovers or transfers reasonably anticipated to be invested in
non-money market American Funds during the 13-month period are added to the
figure determined above. The sum is the Statement amount and applicable
breakpoint level. On the first investment and all other investments made
pursuant to the Statement, a sales charge will be assessed according to the
sales charge breakpoint thus determined. There will be no retroactive
adjustments in sales charges on investments previously made during the 13-month
period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION -- Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and your
children under the age of 21, if (I) all parties are purchasing shares for
their own account(s), which may include purchases through employee benefit
plan(s) such as an IRA, individual-type 403(b) plan or single-participant
Keogh-type plan or by a business solely controlled by these individuals (for
example, the individuals own the entire business) or by a trust (or other
fiduciary arrangement) solely for the benefit of these individuals or (ii)
these individuals are making gifts to other individuals or charities.
Individual purchases by a trustee(s) or other fiduciary(ies) may also be
aggregated if the investments are (1) for a single trust estate or fiduciary
account, including an employee benefit plan other than those described above or
(2) made for two or more employee benefit plans of a single employer or of
affiliated employers as defined in the 1940 Act, again excluding employee
benefit plans described above, or (3) for a diversified common trust fund or
other diversified pooled account not specifically formed for the purpose of
accumulating fund shares. Purchases made for nominee or street name accounts
(securities held in the name of an investment dealer or another nominee such as
a bank trust department instead of the customer) may not be aggregated with
those made for other accounts and may not be aggregated with other nominee or
street name accounts unless otherwise qualified as described above.
CONCURRENT PURCHASES - You may combine purchases of two or more funds in The
American Funds Group, except direct purchases of the money market funds.
Shares of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHT OF ACCUMULATION - You may take into account the current value of your
existing holdings in The American Funds Group, as well as your holdings in
Endowments (shares of which may be owned only by tax-exempt organizations), to
determine your sales charge on investments in accounts eligible to be
aggregated, or when making a gift to an individual or charity. Direct
purchases of the money market funds are excluded.
PRICE OF SHARES -- Shares are purchased at the offering price next determined
after the purchase order is received by the fund or American Funds Service
Company; this offering price is effective for orders received prior to the time
of determination of the net asset value and, in the case of orders placed with
dealers, accepted by the American Funds Distributors prior to its close of
business. In the case of orders sent directly to the fund or American Funds
Service Company, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to American Funds
Distributors. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. The prices which appear in the
newspaper are not always indicative of prices at which you will be purchasing
and redeeming shares of the fund, since such prices generally reflect the
previous day's closing price whereas purchases and redemptions are made at the
next calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily at the close of trading
(currently 4:00 p.m., New York Time) each day the New York Stock Exchange is
open . For example, if the Exchange closes at 1:00 p.m. on one day and at 4:00
p.m. on the next, the fund's share price would be dtermnined as of 4:00 p.m.
New York time on both days. The New York Stock Exchange is currently closed on
weekends and on the following holidays: New Year's Day, Martin Luther King, Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day. The net asset value per share is determined as
follows:
1. 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. Fixed-income securities are valued at prices
obtained from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
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. Forward currency contracts are valued at the mean
of representative quoted bid and asked prices.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not
readily available are valued at fair value as determined in good faith under
policies approved by the fund's Board. The fair value of all other assets is
added to the value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share.
Any purchase order may be rejected by the Principal Underwriter or the fund.
The Principal Underwriter will not knowingly sell shares of the fund directly
or indirectly to any person or entity, where, after the sale, such person or
entity would own beneficially directly or indirectly more than 4.5% of the
outstanding shares of the fund without the consent of a majority of the Board
of Trustees.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by American Funds Service Company. You may sell
(redeem) shares in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- - Shares held for you in your dealer's street name must be sold through the
dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- - Requests must be signed by the registered shareholder(s)
- - A signature guarantee is required if the redemption is:
-- Over $50,000;
-- Made payable to someone other than the registered shareholder(s); or
-- Sent to an address other than the address of record, or an address of
record which has been changed within the last 10 days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution.
- - Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
- - You must include any shares you wish to sell that are in certificate form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE(R) OR AMERICAN FUNDSLINE ONLINE(SM)
- - Redemptions by telephone or fax (including American FundsLine(R) and
American FundsLine OnLine(SM)) are limited to $50,000 per shareholder each day.
- - Checks must be made payable to the registered shareholder(s).
- - Checks must be mailed to an address of record that has been used with the
account for at least 10 days.
MONEY MARKET FUNDS
- - You may have redemptions of $1,000 or more wired to your bank by writing
American Funds Service Company.
- - You may establish check writing privileges (use the money market funds
application)
-- If you request check writing privileges, you will be provided with checks
that you may use to draw against your account. These checks may be made
payable to anyone you designate and must be signed by the authorized number or
registered shareholders exactly as indicated on your checking account signature
card.
Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the Investment Company Act of 1940), sale proceeds will be
paid on or before the seventh day following receipt and acceptance of an order.
Interest will not accrue or be paid on amounts that represent uncashed
distribution or redemption checks.
The fund may, with 60 days' written notice, close your account if due to a sale
of shares the account has a value of less than the minimum required initial
investment.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution without a sales charge (any contingent deferred sales charge paid
will be credited to your account) in any fund in The American Funds Group
within 90 days after the date of the redemption or distribution. Redemption
proceeds of shares representing direct purchases in the money market funds are
excluded. Proceeds will be reinvested at the next calculated net asset value
after your request is received and accepted by American Funds Service Company.
CONTINGENT DEFERRED SALES CHARGE -- A contingent deferred sales charge of 1%
applies to certain redemptions from funds other than the money market funds
made within twelve months of purchase on investments of $1 million or more
(other than redemptions by employer-sponsored retirement plans). The charge is
1% of the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the total cost of such shares.
Shares held for the longest period are assumed to be redeemed first for
purposes of calculating this charge. The charge is waived for exchanges
(except if shares acquired by exchange were then redeemed within 12 months of
the initial purchase); for distributions from qualified retirement plans and
other employee benefit plans; for distributions from 403(b) plans or IRAs due
to death, disability or attainment of age 591/2; for tax-free returns of excess
contributions to IRAs; and for redemptions through certain automatic
withdrawals not exceeding 10% of the amount that would otherwise be subject to
the charge.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN -- The automatic investment plan enables shareholders
to make regular monthly or quarterly investments in shares through automatic
charges to their bank accounts. With shareholder authorization and bank
approval, the Transfer Agent will automatically charge the bank account for the
amount specified ($50 minimum), which will be automatically invested in shares
at the offering price on or about the dates you select. Bank accounts will be
charged on the day or a few days before investments are credited, depending on
the bank's capabilities, and shareholders will receive a confirmation statement
at least quarterly. Participation in the plan will begin within 30 days after
receipt of the account application. If the shareholder's bank account cannot
be charged due to insufficient funds, a stop-payment order or closing of the
account, the plan may be terminated and the related investment reversed. The
shareholder may change the amount of the investment or discontinue the plan at
any time by writing to the Transfer Agent.
AUTOMATIC REINVESTMENT -- Dividends and capital gain distributions are
reinvested in additional shares at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, the
Transfer Agent or your investment dealer.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS -- You may cross-reinvest
dividends and capital gains ("distributions") into any other fund in The
American Funds Group at net asset value, subject to the following conditions:
a) The aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5000 (this is waived if the value of the account in the fund
receiving the distributions equals or exceeds that fund's minimum initial
investment requirement),
b) If the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, distributions must be automatically
reinvested,
c) If you discontinue the cross-reinvestment of distributions, the value of
the account of the fund receiving distribution must equal or exceed the minimum
initial investment requirement. If you do not meet this requirement within 90
days of notification, the fund has the right to automatically redeem the
account.
EXCHANGE PRIVILEGE -- You may exchange shares into other funds in The American
Funds Group. Exchange purchases are subject to the minimum investment
requirements of the fund purchased and no sales charge generally applies.
However, exchanges of shares from the money market funds are subject to
applicable sales charges on the fund being purchased, unless the money market
fund shares were acquired by an exchange from a fund having a sales charge, or
by reinvestment or cross-reinvestment of dividends or capital gain
distributions.
You may exchange shares by writing to the Transfer Agent (see "Redeeming
Shares"), by contacting your investment dealer, by using American FundsLine(R)
or American FundsLine Online (SM) (see "American FundsLine(R) and American
FundsLine Online (SM)" below), or by telephoning 800/421-0180 toll-free, faxing
(see "Principal Underwriter and Transfer Agent" in the prospectus for the
appropriate fax numbers) or telegraphing the Transfer Agent. (See "Telephone
and Computer Purchases, Redemptions and Exchanges" below.) Shares held in
corporate-type retirement plans for which Capital Guardian Trust Company serves
as trustee may not be exchanged by telephone, computer, fax or telegraph.
Exchange redemptions and purchases are processed simultaneously at the share
prices next determined after the exchange order is received. (See "Purchase of
Shares--Price of Shares.") THESE TRANSACTIONS HAVE THE SAME TAX CONSEQUENCES AS
ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES --You may automatically exchange shares (in amounts of $50
or more) among any of the funds in The American Funds Group on any day (or
preceding business day if the day falls on a non-business day) of each month
you designate. You must either meet the minimum initial investment requirement
for the receiving fund OR the originating fund's balance must be at least
$5,000 and the receiving fund's minimum must be met within one year.
AUTOMATIC WITHDRAWALS -- Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS -- Your account is opened in accordance with your
registration instructions. Transactions in the account, such as additional
investments and dividend reinvestments, will be reflected on regular
confirmation statements from the Transfer Agent. Dividend and capital gain
reinvestments and purchases through automatic investment plans and certain
retirement plans will be confirmed at least quarterly.
AMERICAN FUNDSLINE(R) AND AMERICAN FUNDSLINE ONLINE (SM) -- You may check your
share balance, the price of your shares, or your most recent account
transaction, redeem shares (up to $50,000 per shareholder each day), or
exchange shares around the clock with American FundsLine(R) and American
FundsLine Online (SM). To use this service, call 800/325-3590 from a TouchTone
(TM) telephone or access the American Funds Web site on the Internet at
www.americanfunds.com. Redemptions and exchanges through American FundsLine(R)
and American FundsLine Online (SM) are subject to the conditions noted above
and in "Shareholder Account Services and Privileges --Telephone and Computer
Purchases, Redemptions and Exchanges" below. You will need your fund number
(see the list of funds in The American Funds Group under "Purchase of Shares --
Investment Minimums and Fund Numbers"), personal identification number (the
last four digits of your Social Security number or other tax identification
number associated with your account) and account number.
TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES -- By using the
telephone or computer (including American FundsLine(R) or American FundsLine
Online (SM)), fax or telegraph purchase, redemption and/or exchange options,
you agree to hold the fund, the Transfer Agent, any of its affiliates or mutual
funds managed by such affiliates, and each of their respective directors,
trustees, officers, employees and agents harmless from any losses, expenses,
costs or liability (including attorney fees) which may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these options. However, you may elect to opt
out of these options by writing the Transfer Agent (you may also reinstate them
at any time by writing the Transfer Agent). If the Transfer Agent does not
employ reasonable procedures to confirm that the instructions received from any
person with appropriate account information are genuine, the fund may be liable
for losses due to unauthorized or fraudulent instructions. In the event that
shareholders are unable to reach the fund by telephone because of technical
difficulties, market conditions, or a natural disaster, redemption and exchange
requests may be made in writing only.
SHARE CERTIFICATES -- Shares are credited to your account and certificates are
not issued unless you request them by writing to American Funds Service
Company.
EXECUTION OF PORTFOLIO TRANSACTIONS
Orders for the fund's portfolio securities transactions are placed by the
Investment Adviser. The Investment Adviser strives to obtain the best
available prices in its portfolio transactions taking into account the costs
and promptness of executions. When circumstances relating to a proposed
transaction indicate that a particular broker (either directly or through their
correspondent clearing agents) is in a position to obtain the best price and
execution, the order is placed with that broker. This may or may not be a
broker who has provided investment research, statistical, or other related
services to the Investment Adviser or has sold shares of the fund or other
funds served by the Investment Adviser. The fund does not consider that it has
an obligation to obtain the lowest available commission rate to the exclusion
of price, service and qualitative considerations.
There are occasions on which portfolio transactions for the fund may be
executed as part of concurrent authorizations to purchase or sell the same
security for other funds served by the Investment Adviser, or for trusts or
other accounts served by affiliated companies of the Investment Adviser.
Although such concurrent authorizations potentially could be either
advantageous or disadvantageous to the fund, they are effected only when the
Investment Adviser believes that to do so is in the interest of the fund. When
such concurrent authorizations occur, the objective is to allocate the
executions in an equitable manner. The fund will not pay a mark-up for
research in principal transactions.
Brokerage commissions paid on portfolio transactions for the fiscal years ended
November 30, 1998, 1997 and 1996 amounted to $4,096,000, $3,337,000 and
$2,495,000 respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS -- Securities and cash owned by the fund, including
proceeds from the sale of shares of the fund and of securities in the fund's
portfolio, are held by State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA 02101, as Custodian. Non-U.S. securities may be held by the
Custodian pursuant to sub-custodial arrangements in non-U.S. banks or foreign
branches of U.S. banks.
TRANSFER AGENT -- American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing agent, and performs other related
shareholder service functions. American Funds Service Company was paid a fee
of $4,606,000 for the fiscal year ended November 30, 1998.
INDEPENDENT AUDITORS -- Deloitte & Touche LLP, 1000 Wilshire Boulevard, Los
Angeles, CA 90017, have served as the fund's independent auditors since its
inception, providing audit services, preparation of tax returns and review of
certain documents to be filed with the Securities and Exchange Commission. The
financial statements included in this Statement of Additional Information from
the Annual Report have been so included in reliance on the report of Deloitte &
Touche LLP given on the authority of said firm as experts in auditing and
accounting.
REPORTS TO SHAREHOLDERS -- The fund's fiscal year ends on November 30.
Shareholders are provided at least semi-annually with reports showing the
investment portfolio, financial statements and other information. The
financial statements are audited annually by the fund's independent auditors,
Deloitte & Touche LLP, whose selection is determined annually by the Board of
Trustees. In an effort to reduce the volume of mail shareholders receive from
the fund when a household owns more than one account, the Transfer Agent has
taken steps to eliminate duplicate mailings of shareholder reports. To receive
additional copies of a report, shareholders should contact the Transfer Agent.
YEAR 2000 - The fund and its shareholders depend on the proper functioning of
computer systems maintained by the Investment Adviser and its affiliates and
other key service providers. Many computer systems in use today will require
reprogramming or replacement prior to the year 2000 because of the way they
store dates and make date-related calculations. The fund understands that
these service providers are taking steps to address the "Year 2000 problem".
However, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the fund. In addition, the fund's investments could be
adversely affected by the Year 2000 problem. For example, the markets for
securities in which the fund invests could experience settlement problems and
liquidity issues. Corporate and governmental data processing errors may cause
losses for individual companies and overall economic uncertainties. Earnings of
individual issuers are likely to be affected by the costs of addressing the
problem, which may be substantial and may be reported inconsistently.
PERSONAL INVESTING POLICY -- The Investment Adviser and its affiliated
companies have adopted a personal investing policy consistent with Investment
Company Institute guidelines. This policy includes: a ban on acquisitions of
securities pursuant to an initial public offering; restrictions on acquisitions
of private placement securities; pre-clearance and reporting requirements;
review of duplicate confirmation statements; annual recertification of
compliance with codes of ethics; blackout periods on personal investing for
certain investment personnel; a ban on short-term trading profits for
investment personnel; limitations on service as a director of publicly traded
companies; and disclosure of personal securities transactions.
SHAREHOLDER AND TRUSTEE RESPONSIBILITY -- Under the laws of certain states,
including Massachusetts where the fund was organized and California where the
fund's principal office is located, shareholders of a Massachusetts business
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the fund. However, the risk of a shareholder incurring
any financial loss on account of shareholder liability is limited to
circumstances in which the fund itself would be unable to meet its obligations.
The Declaration of Trust contains an express disclaimer of shareholder
liability for acts, omissions, obligations or affairs of the fund and provides
that notice of the disclaimer may be given in each agreement, obligation, or
instrument which is entered into or executed by the fund or Trustees. The
Declaration of Trust provides for indemnification out of fund property of any
shareholder held personally liable for the obligations of the fund and also
provides for the fund to reimburse such shareholder for all legal and other
expenses reasonably incurred in connection with any such claim or liability.
Under the Declaration of Trust, the Trustees, officers, employees or agents of
the fund are not liable for actions or failure to act; however, they are not
protected from liability by reason of their willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct
of their office.
SHAREHOLDER VOTING RIGHTS -- The fund does not hold annual meetings of
shareholders. However, significant matters that require shareholder approval,
such as certain elections of board members or a change in a fundamental
investment policy, will be presented to shareholders at a meeting called for
such purpose. At any meeting of shareholders, duly called and at which a
quorum is present, the shareholders holding a majority of the votes entitled to
be cast thereon, may remove any trustee or trustees from office any may elect a
successor or successors to fill any resulting vacancies for the unexpired terms
of removed trustees. The fund has made an undertaking, at the request of the
staff of the Securities and Exchange Commission, to apply the provisions of
section 16(c) of the 1940 Act with respect to the removal of trustees, as
though the fund were a common-law trust. Accordingly, the trustees of the fund
shall promptly call a meeting of shareholders for the purpose of voting upon
the question of removal of any trustee when requested in writing to do so by
the record holders of not less than 10% of the outstanding shares.
OTHER INFORMATION -- The financial statements including the investment
portfolio and the report of Independent Auditors contained in the Annual Report
are included in this Statement of Additional Information. The following
information is not included in the Annual Report:
<TABLE>
<CAPTION>
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE -- NOVEMBER 30, 1998
<S> <C>
Net asset value and redemption price per share $23.65
(Net assets divided by shares outstanding)
Maximum offering price per share (100/94.25 of per $25.09
share net asset value, which takes into account
the fund's current maximum sales load)
</TABLE>
INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield is 0.54% based on a 30-day (or one month) period ended
November 30, 1998, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last
day of the period, according to the following formula:
YIELD = 2[(a-b/cd+1)/6/-1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The fund's one-year total return and average annual total returns over the past
five- and ten-year periods as of November 30, 1998 were 16.60%, 14.30% and
16.24%, respectively. The average total return ("T") is computed by equating
the value at the end of the period ("ERV") with a hypothetical initial
investment of $1,000 ("P") over a period of years ("n") according to the
following formula as required by the Securities and Exchange Commission:
P(1+T)/n/ = ERV.
To calculate total return, an initial investment is divided by the public
offering price (which includes the sales charge) as of the first day of the
period in order to determine the initial number of shares purchased. Subsequent
dividends and capital gain distributions are reinvested at net asset value on
the reinvestment date determined by the Board of Trustees. The sum of the
initial shares purchased and shares acquired through reinvestment is multiplied
by the net asset value per share as of the end of the period in order to
determine ending value. The difference between the ending and the initial
investment value divided by the initial investment converted to a percentage
equals total return. The resulting percentage indicates the positive or
negative investment results that an investor would have experienced from
reinvested dividends and capital gain distributions and changes in share price
during the periods. Total return may be calculated for one-year, five-years,
ten-years and for other periods. The average annual total return over periods
greater than one year may also be computed by utilizing ending values as
determined above.
The following assumptions will be reflected in computations made in accordance
with the formulas stated above: (1) deduction of the maximum sales load of
5.75% from the $1,000 initial investment; (2) reinvestment of dividends and
distributions at net asset value on the reinvestment date determined by the
Board; and (3) a complete redemption at the end of any period illustrated.
The fund may also, at times, calculate total return based on net asset value
per share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Consequently,
total return calculated in this manner will be higher. These total returns may
be calculated over periods in addition to those described above. Total return
for the unmanaged indices will be calculated assuming reinvestment of dividends
and interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
The fund may also calculate a distribution rate on a taxable and tax equivalent
basis. The distribution rate is computed by dividing the dividends paid by the
fund over the last 12 months by the sum of the month-end net asset value or
maximum offering price and the capital gains paid over the last 12 months. The
distribution rate may differ from the yield.
The fund may include information on its investment results and/or comparisons
of its investment results to various unmanaged indices (such as The Dow Jones
Average of 30 Industrial Stocks and The Standard and Poor's 500 Stock Composite
Index) or results of other mutual funds or investment or savings vehicles in
advertisements or in reports furnished to present or prospective shareholders.
The fund may also, from time to time, combine its results with those of other
funds in The American Fudns Group for purposes of illustrating investment
strategies involving multiple funds. For educational purposes, fund literature
may contain discussions and/or illustrations of volatility, risk tolerance,
asset allocation and investment strategies.
The fund may refer to results compiled by organizations such as CDA Investment
Technologies, Ibbottson Associates, Lipper Analytical Services, Morningstar,
Inc., Wiesenberger Investment Companies Services and the U.S. Department of
Commerce. Additionally, the fund may, from time to time, refer to results
published in various periodicals, including BARRON'S, FORBES, FORTUNE,
INSTITUTIONAL INVESTOR, KIPLINGER'S PERSONAL FINANCE MAGAZINE, MONEY, U.S. NEWS
AND WORLD REPORT and THE WALL STREET JOURNAL.
The fund may, from time to time, compare its investment results with the
Consumer Price Index, which is a measure of the average change in prices over
time in a fixed market basket of goods and services (e.g. food, clothing,
shelter, and fuels, transportation fares, charges for doctors' and dentists'
services, prescription medicines, and other goods and services that people buy
for day-to-day living).
The fund may, from time to time, illustrate the benefits of tax-deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans.
EXPERIENCE OF INVESTMENT ADVISER -- Capital Research and Management Company
manages nine growth and growth-income funds that are at least 10 years old.
In the rolling 10-year periods since January 1, 1969 (138 in all) those funds
have had better total returns than their comparable Lipper indexes in 128 of
138 periods.
Note that past results are not an indication of future investment results.
Also, the fund has different investment policies than the funds mentioned
above. These results are included solely for the purpose of informing
investors about the experience and history of Capital Research and Management
Company.
The investment results set forth below were calculated as described in the
fund's prospectus. The fund's results will vary from time to time depending
upon market conditions, the composition of the fund's portfolio and operating
expenses of the fund, so that any investment results reported by the fund
should not be considered representative of what an investment in the fund may
earn in any future period. These factors and possible differences in
calculation methods should be considered when comparing the fund's investment
results with those published for other mutual funds, other investment vehicles
and unmanaged indices. The fund's results also should be considered relative
to the risks associated with the fund's investment objective and policies.
NEF VS. VARIOUS UNMANAGED INDICES
<TABLE>
<CAPTION>
Period NEF S&P 500/1/ DJIA/2/ NYSE /3/
<S> <C> <C> <C> <C>
12/1/83 - 11/30/98 +782% +1,008% +1,065% +494%
</TABLE>
/1/ The Standard and Poor's 500 Stock Index is comprised of industrial,
transportation, public utilities and financial stocks, and represents a large
portion of the value of issues traded on the New York Stock Exchange. Selected
issues traded on the American Stock Exchange are also included.
/2/ The Dow Jones Average of 30 Industrial Stocks is comprised of 30 industrial
companies such as General Motors and General Electric.
/3/ Index is a capitalization weighted index of all The New York Stock Exchange
Composite common stocks listed on the exchange.
IF YOU ARE CONSIDERING NEF FOR AN INDIVIDUAL RETIREMENT ACCOUNT...
<TABLE>
<CAPTION>
Here's how much you would have if you had invested $2,000
a year in NEF:
<S> <C> <C> <C>
2 Years 5 Years 7 Years 10 Years
(12/1/96- (12/1/93 - (12/1/91- (12/1/88-
11/30/98) 11/30/98) 11/30/98) 11/30/98)
$5,169 $16,354 $27,541 $50,732
</TABLE>
SEE THE DIFFERENCE TIME CAN MAKE IN AN INVESTMENT PROGRAM:
<TABLE>
<CAPTION>
If you had Periods ...and taken all
invested 12/1-11/30 distributions in
$10,000 in NEF shares, your investment
this many would have been worth
years... this much at November
Number 30, 1998:
of Years Value ($)
1 1997 - 1998 11,660
<S> <C> <C>
2 1996 - 1998 14,184
3 1995 - 1998 16,309
4 1994 - 1998 20,106
5 1993 - 1998 19,509
6 1992 - 1998 25,477
7 1991 - 1998 31,487
8 1990 - 1998 37,993
9 1989 - 1998 32,917
10 1988 - 1998 45,047
11 1987 - 1998 55,116
12 1986 - 1998 52,153
13 1985 - 1998 63,285
14 1984 - 1998 87,701
15 1983 - 1998 88,243
</TABLE>
Illustration of a $10,000 investment in NEF with
dividends reinvested and capital gain distributions taken in shares
(For the lifetime of the fund, December 1, 1983 through November 30, 1998)
<TABLE>
<CAPTION>
COST OF SHARES VALUE OF SHARES
Fiscal Annual Total Investment From From Dividends Total
Year End Dividends Dividends Cost Initial Capital Gains Reinvested Value
11/30 (cumulative) Investment Reinvested
<S> <C> <C> <C> <C> <C> <C> <C>
1984 $ -- $-- $ 10,000 $ 9,485 $-- $-- $ 9,485
1985 199 199 10,199 12,864 -- 280 13,144
1986 140 339 10,339 14,560 913 477 15,950
1987 367 706 10,706 12,761 1,586 746 15,093
1988 315 1,021 11,021 14,396 2,858 1,208 18,462
1989 421 1,442 11,442 18,159 5,042 2,068 25,269
1990 566 2,008 12,008 13,462 6,417 2,007 21,886
1991 589 2,597 12,597 15,076 8,427 2,910 26,413
1992 328 2,925 12,925 18,091 10,676 3,874 32,641
1993 189 3,114 13,114 22,617 14,934 5,080 42,631
1994 307 3,421 13,421 20,124 16,436 4,816 41,376
1995 517 3,938 13,938 23,324 21,446 6,214 50,984
1996 578 4,516 14,516 25,412 25,793 7,426 58,631
1997 455 4,971 14,971 28,736 33,632 8,949 71,317
1998 422 5,393 15,393 32,486 45,155 10,602 88,243
</TABLE>
The dollar amount of capital gain distributions during the period was $26,267
DESCRIPTION OF BOND RATINGS
CORPORATE DEBT SECURITIES
MOODY'S INVESTORS SERVICE, INC. rates the long-term debt securities issued by
various entities from "Aaa" to "C".
"Aa -- Best quality. These securities carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest payments are
protected by a large, or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues."
"Aa -- High quality by all standards. They are rated lower than the best bond
because margins of protection may not be as large as in Aa securities,
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present which make the long-term risks appear somewhat greater."
"A -- Upper medium grade obligations. These bonds possess many favorable
investment attributes. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future."
"Baa -- Medium grade obligations. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well."
"Ba -- Have speculative elements; future cannot be considered as well assured.
The protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Bonds in this class are characterized by uncertainty of position."
"B -- Generally lack characteristics of the desirable investment; assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small."
"Caa -- Of poor standing. Issues may be in default or there may be present
elements of danger with respect to principal or interest."
"Ca -- Speculative in a high degree; often in default or have other marked
shortcomings."
"C -- Lowest rated class of bonds; can be regarded as having extremely poor
prospects of ever attaining any real investment standing."
STANDARD & POOR'S CORPORATION rates the long-term securities debt of various
entities in categories ranging from "AAA" to "D" according to quality.
"AAA -- Highest rating. Capacity to pay interest and repay principal is
extremely strong."
"AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree."
"A -- Have a strong capacity to pay interest and repay principal, although they
are somewhat more susceptible to the adverse effects of change in circumstances
and economic conditions, than debt in higher rated categories."
"BBB -- Regarded as having adequate capacity to pay interest and repay
principal. These bonds normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal than for debt in
higher rated categories."
"BB, B, CCC, CC, C -- Regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
the highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions."
"C1 -- Reserved for income bonds on which no interest is being paid."
"D -- In default and payment of interest and/or repayment of principal is in
arrears."~
<TABLE>
THE NEW ECONOMY FUND
Investment Portfolio, November 30, 1998
<S> <C>
- ------------------------------------------ -------------
Largest Holdings by Industry
Broadcasting & Publishing 18.23%
Telecommunications 10.39
Computer Services & Software 8.09
Miscellaneous Financial Services 7.54
Insurance 5.70
All Other Industries 38.07
Cash & Equivalents 11.98
- ------------------------------------------ -------------
</TABLE>
<TABLE>
THE NEW ECONOMY FUND
November 30, 1998
- -------------------------------------------
Percent
of
Largest Equity Holdings Net Assets
<S> <C>
Tele-Communications, Liberty Media Group 3.53%
Viacom 3.35
Fannie Mae 2.80
Freddie Mac 2.61
Time Warner 2.50
Cendant 2.34
Carnival 2.01
Comcast 2.00
Rentokil Initial 1.77
Oracle 1.76
</TABLE>
<TABLE>
THE NEW ECONOMY FUND
Investment Portfolio, November 30, 1998
<S> <C> <C> <C>
Market Percent
Equity Securities (common and Shares or Value of Net
preferred stocks and convertible debentures) Principal Amoun (000) Assets
- ---------------------------------------- ------------- -----------------------
BROADCASTING & PUBLISHING - 18.23%
Tele-Communications, Inc., Series A, Liberty Media Group (1) 5,282,762 $212,961 3.53%
Viacom Inc., Class B, non-voting (1) 3,035,000 202,017 3.35
Time Warner Inc. 1,425,000 150,694 2.50
Comcast Corp., Class A, special stock 2,485,000 120,833 2.00
Tele-Communications, Inc., Series A, TCI Group (1) 1,834,059 77,489 1.28
News Corp. Ltd., preferred (Australia) 2,875,326 18,014
News Corp. Ltd. 2,161,906 15,133
News Corp. Ltd. (ADR) 500,000 14,000
News Corp. Ltd., preferred (ADR) 275,000 6,927 .89
Mediaset SpA (Italy) (2) 5,760,000 40,835 .68
NTL Inc. (United Kingdom) (1) 515,000 28,679 .47
EMAP PLC (United Kingdom) 1,400,000 26,757 .44
Fox Entertainment Group, Inc., Class A (1) 1,000,000 23,625 .39
TV Azteca, SA de CV (ADR) (Mexico) 3,005,000 22,538 .37
Grupo Televisa, SA (ADR)(Mexico) (1) 786,300 20,002 .33
ProSieben Media AG, nonvoting, preferred (Germany) 410,000 19,648 .32
CANAL+ (France) 81,370 18,693 .31
Data Broadcasting Corp. (1) 1,635,800 17,380 .29
Chris-Craft Industries, Inc. (1) 350,000 16,188 .27
Thomson Corp. (Canada) 600,000 14,204 .24
Adelphia Communications Corp., Class A (1) 400,000 13,975 .23
AUDIOFINA (Luxembourg) 185,000 8,231 .14
CBS Corp. 200,434 5,975 .10
Flextech PLC (United Kingdom) (1) 500,000 4,794 .08
SOFT BANK CORP. (Japan) 20,460 1,180 .02
TELECOMMUNICATIONS - 10.39%
AirTouch Communications (1) 1,500,000 85,781 1.42
Telefonica, SA (Spain) 1,162,200 54,625
Telefonica, SA (ADR) 150,000 20,906 1.25
Telefonos de Mexico, SA de CV, Class L (ADR) (Mexico) 1,601,960 74,591 1.24
Tele Danmark AS, Class B (ADR) (Denmark) 540,000 29,936
Tele Danmark AS, Class B 200,000 22,334 .87
Mannesmann AG (Germany) 475,000 51,378 .85
Telecom Italia SpA, nonvoting, savings (Italy) 4,385,000 27,184
Telecom Italia SpA 2,400,000 19,427 .77
Tele-Communications, Inc., Series A, TCI Ventures Group (1) 2,234,480 44,271 .73
MCI WorldCom, Inc. (formerly MCI Communications Corp.) (1) 621,950 36,695 .61
Vodafone Group PLC (ADR) (United Kingdom) 200,000 29,537 .49
Ascend Communications, Inc. (1) 500,000 28,094 .47
Telecom Corp. of New Zealand Ltd. (New Zealand) 2,200,000 9,354
Telecom Corp. of New Zealand Ltd. (2) 2,028,400 8,624
Telecom Corp. of New Zealand Ltd., installment receipt 3,602,400 7,696 .42
Sprint Corp. 350,500 25,499 .42
Hong Kong Telecommunications Ltd. (Hong Kong) 5,094,984 9,740 .16
Telecom Argentina SA, Class B (ADR) (Argentina) 261,000 7,961 .13
Globalstar Telecommunications Ltd. (1) 333,268 6,582 .11
NTT Mobile Communications Network, Inc. (Japan) (1) 168 6,416 .10
TeleTech Holdings, Inc. (1) 600,000 5,475 .09
Stet Hellas Telecommunications SA (ADR) (Greece) (1) 153,100 5,320 .09
Telefonica de Argentina SA, Class B (ADR) (Argentina) 128,700 4,167 .07
Panafon Hellenic Telecommunications Co. SA (Greece) (1)(3) 199,600 3,578 .06
Electric Lightwave, Inc., Class A (1) 400,000 2,450 .04
COMPUTER SERVICES & SOFTWARE - 8.09%
Cendant Corp. (1) 7,425,000 141,075 2.34
Oracle Corp. (1) 3,100,000 106,175 1.76
Microsoft Corp. (1) 370,000 45,140 .75
PeopleSoft, Inc. (1) 2,023,000 41,598 .69
HNC Software Inc. (1) 900,000 29,700 .49
Intuit Inc. (1) 500,000 28,937 .48
USWeb Corp. (1) 1,181,800 26,886 .44
Altera Corp.(1) 400,000 19,625 .32
Cisco Systems, Inc. (1) 200,000 15,075 .25
Computer Associates International, Inc. 217,200 9,611 .16
Platinum Software Corp. (1) 900,000 9,563 .16
Security Dynamics Technologies, Inc. (1) 500,000 7,625 .13
CBT Group PLC (ADR) (Ireland) (1) 700,000 7,350 .12
MISCELLANEOUS FINANCIAL SERVICES - 7.54%
Fannie Mae 2,321,500 168,889 2.80
Freddie Mac 2,600,000 157,300 2.61
SLM Holding Corp. 1,200,000 52,800 .88
Capital One Financial Corp. 225,000 24,750 .41
First Data Corp. 800,000 21,350 .35
ORIX Corp. (Japan) 154,000 11,000 .18
CB Richard Ellis Services, Inc. (1) 500,000 8,875 .15
Insignia Financial Group, Inc., Class A (1) 374,700 5,082 .08
American Capital Strategies, Ltd. 325,000 4,956 .08
INSURANCE - 5.70%
Fairfax Financial Holdings Ltd. (Canada)(1) 281,000 90,101 1.49
EXEL Ltd., Class A (Incorporated in Bermuda) 1,150,000 86,394 1.43
ING Groep NV (Netherlands) 853,224 48,849
ING Groep NV, warrants, expire 2001 (1) 210,000 3,239 .86
American International Group, Inc. 337,500 31,725 .53
PartnerRe Holdings Ltd. (Incorporated in Bermuda) 553,900 24,510 .41
20th Century Industries 1,000,000 24,312 .41
Life Re Corp. 150,000 14,128 .23
Trenwick Group Inc. 255,000 8,096 .13
HCC Insurance Holdings, Inc. 400,000 7,425 .12
Allianz AG (Germany) 15,000 5,398 .09
MISCELLANEOUS BUSINESS SERVICES - 5.46%
Rentokil Initial PLC (United Kingdom) 16,025,000 107,059 1.77
Concord EFS, Inc. (1) 1,332,450 42,389 .70
ABR Information Services, Inc. (1) 1,400,000 23,800 .39
Yahoo Inc. (1) 100,000 19,200 .33
Profit Recovery Group International, Inc. (1) 565,700 19,092 .32
Black Box Corp. (1) 450,000 15,806 .26
Administaff, Inc. (1) 515,800 13,959 .23
Metamor Worldwide, Inc. (1) 584,700 13,850 .23
Snyder Communications, Inc. (1) 350,000 12,447 .21
Pittston Brink's Group 400,000 12,000 .20
Bright Horizons Family Solutions, Inc. (formerly CorporateFamily Solutions, In 495,000 11,694 .19
Rental Service Corp. (1) 500,000 10,594 .18
Security Capital Group Inc., Class A (1) 13,500 9,517
Security Capital Group Inc., Class B (1) 52,800 779 .17
Park-Ohio Industries, Inc. (1) 500,000 8,219 .14
Stewart Enterprises, Inc., Class A 200,000 4,463 .07
ISS-International Service System A/S, Class B (Denmark) 34,000 2,241 .04
InaCom Corp. (1) 100,000 2,075 .03
EarthWatch Inc., 12.0% convertible preferred, Series C (1) (2) (3) (4) 500,000 250 .00
BANKING - 4.44%
Wells Fargo & Co. 2,206,660 79,440 1.32
Charter One Financial, Inc. 1,146,862 34,047 .56
Westpac Banking Corp. (Australia) 4,383,609 29,166 .49
Associated Banc-Corp 781,250 26,660 .44
Unidanmark A/S (Denmark) 250,700 20,453 .34
STB Cayman Capital Ltd., 0.50% convertible debentures 2007 (Japan) $2,240,000,000 13,925 .23
ForeningsSparbanken AB, Class A (Sweden) 490,000 13,729 .23
Royal Bank of Canada (Canada) 250,000 12,326 .20
Keystone Financial, Inc. 375,000 12,141 .20
First Union Corp. 150,000 9,112 .15
Sakura Finance (Bermuda) Trust, .75% convertible preference units (Japan) 864,000,000 4,318
Sakura Bank, Ltd. 1,371,000 3,498 .13
St. George Bank Ltd. (Australia) 140,000 6,860 .11
Philippine Commercial International Bank, Inc. (Philippines) .04
ENTERTAINMENT & LEISURE - 4.38%
Carnival Corp. 3,520,000 121,440 2.01
Walt Disney Co. 2,100,000 67,594 1.12
Mirage Resorts, Inc. (1) 2,400,000 35,700 .59
Nintendo Co., Ltd. (Japan) 120,000 11,126 .18
MGM Grand, Inc. (1) 400,000 10,275 .17
Star Cruises PLC (United Kingdom) (1) 5,454,000 8,781 .15
Vail Resorts, Inc. (1) 200,000 5,050 .09
Midway Games Inc. (1) 440,900 4,492 .07
Genting International PLC (Malaysia) (1) 1,800,000 216 .00
ELECTRONIC DATA PRODUCTS - 4.10%
Applied Materials, Inc. (1) 1,000,000 38,750 .64
Telefonaktiebolaget LM Ericsson, Class B (ADR) (Sweden) 780,000 21,548
Telefonaktiebolaget LM Ericsson, Class B 300,000 8,332 .50
Microchip Technology Inc. (1) 760,000 26,457 .44
Molex Inc. 700,000 25,244 .42
Texas Instruments Inc. 300,000 22,913 .38
Adaptec, Inc. (1) 1,400,000 22,750 .38
Intel Corp. 195,000 20,987 .35
3Com Corp. (1) 500,000 19,344 .32
Rohm Co., Ltd. (Japan) 150,000 12,677 .21
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) (1) 3,770,000 9,137 .15
America Online, Inc. (1) 70,000 6,129 .10
Electronics for Imaging, Inc.(1) 200,000 5,362 .09
Micron Technology, Inc. (1) 100,000 4,131 .07
SCI Systems, Inc. (1) 76,100 3,700 .05
MERCHANDISING - 3.99%
Consolidated Stores Corp. (1) 3,018,750 64,903 1.08
USA Networks, Inc. (1) 1,650,000 52,078 .86
Circuit City Stores, Inc. - Circuit City Group 575,000 20,808 .34
AutoZone, Inc. (1) 500,000 15,062 .25
Coles Myer Ltd. (Australia) 2,800,209 14,473 .24
Michaels Stores, Inc. (1) 800,000 14,400 .24
Brylane Inc. (1) 800,000 12,700 .21
MSC Industrial Direct Co., Inc., Class A (1) 452,400 10,773 .18
Claire's Stores, Inc. 540,800 9,194 .15
PETsMART, Inc. (1) 1,000,000 8,562 .14
Home Depot, Inc. 98,000 4,875 .08
Circuit City Stores, Inc. - CarMax Group (1) 900,000 4,838 .08
DFS Furniture Co. PLC (United Kingdom) 1,300,000 3,644 .06
Garden Ridge Corp. (1) 200,000 1,575 .03
Dickson Concepts (International) Ltd. (Hong Kong--Incorporated in Bermuda) 1,278,400 1,379 .02
CompuCom Systems, Inc. (1) 263,400 1,021 .02
JLK Direct Distribution Inc., Class A (1) 82,200 899 .01
MISCELLANEOUS PUBLIC SERVICES - 1.79%
Williams Companies, Inc. 1,666,600 48,019 .79
Suez Lyonnaise des Eaux (France) (1) 29,943
Suez Lyonnaise des Eaux, rights, expire 2001 (1) 976
Suez Lyonnaise des Eaux (1) 7 .51
K N Energy, Inc. 670,000 29,313 .49
HEALTH & HOSPITAL SERVICES - 1.32%
Columbia/HCA Healthcare Corp. .58
FIRST HEALTH Group Corp. (1) .19
Human Genome Sciences, Inc. (1) 300,000 .16
United HealthCare Corp. .15
Cardinal Health, Inc., Class A .13
Nu Skin Enterprises, Inc., Class A (1) 290,000 6,942 .11
RESTAURANTS - 1.29%
Brinker International, Inc. (1) 1.29
ENVIRONMENTAL SERVICES - 1.11%
Allied Waste Industries, Inc. (1) 43,963 .73
Waste Management, Inc. 23,303 .38
SAFETY & SECURITY SERVICES - 0.76%
Securitas AB, Class B (Sweden) 2,212,00 32,891 .54
Protection One, Inc. (1) 12,994 .22
COMPUTER SYSTEMS - 0.71%
International Business Machines Corp. 94,000 15,510 .26
Silicon Graphics, Inc. (1) 1,120,300 13,724 .23
Compaq Computer Corp. 250,000 8,125 .13
Gateway 2000, Inc. (1) 100,000 5,612 .09
ELECTRIC UTILITIES - 0.70%
Manila Electric Co., Class B (Philippines) .30
Southern Electric PLC (United Kingdom) .27
National Power PLC (United Kingdom) .13
ADVERTISING - 0.70%
Omnicom Group Inc. 400,00 21,37 .36
Interpublic Group of Companies, Inc. .34
DIVERSIFIED SERVICES - 0.63%
Brambles Industries Ltd. (Australia) 1,040,00 25,41 .42
Benpres Holdings Corp. (GDR) (Philippines) (1) 4,591,536 12,397 .21
INFORMATION & PRINTING SERVICES - 0.61%
Reuters Group PLC (ADR) (United Kingdom) 24,920 .41
Primark Corp. (1) 12,013 .20
REAL ESTATE - 0.53%
Host Marriott Services Corp. (1) 1,300,000 19,094 .32
Mitsubishi Estate Co., Ltd. (Japan) 1,320,000 12,614 .21
ENERGY SERVICES - 0.52%
Schlumberger Ltd. (Netherlands Antilles) 540,000 24,131 .40
Linear Technology Corp. 100,000 7,007 .12
LEASING SERVICES - 0.35%
Hertz Corp., Class A 481,30 17,688 .29
IKON Office Solutions, Inc. 3,728 .06
HEALTH & PERSONAL CARE SERVICES - 0.16%
Trigon Healthcare, Inc. (1) 264,600 9,807 .16
MISCELLANEOUS - 4.52%
Other equity securities in initial period of aquisition 273,007 4.52
-----------------------
TOTAL EQUITY SECURITIES
(COST: $3,384,675,000) 5,314,972 88.02
Principal -----------------------
Amount
Short-Term Securities (000)
- ---------------------------------------- ------------- ------------
CORPORATE SHORT-TERM NOTES - 9.96%
IBM Credit Corp. 5.05% due 1/11/1999 $50,000 $49,691 .82%
Ford Motor Credit Co. 5.13% due 1/14/1999 50,000 49,669 .82
Associates First Capital Corp 5.26%-5.34% due 1/7-1/25/1999 45,300 45,006 .74
Pfizer Inc 5.05% due 12/4/1998 (2) 39,300 39,278 .65
PepsiCo, Inc. 5.40%-5.46% due 12/14/1998 (2) 38,900 38,822 .64
General Electric Capital Corp. 5.24%-5.45% due 12/1/1998-1/21/1999 38,000 37,809 .63
Coca-Cola Co. 5.00%-5.30% due 12/1/1998-1/22/1999 38,000 37,742 .63
Lucent Technologies Inc. 5.00%-5.10% due 12/10/1998-1/12/1999 34,200 34,015 .56
Procter & Gamble Co. 4.90%-5.00% due 1/20-1/27/1999 33,800 33,536 .56
Shell Oil Co. 5.14% due 12/3/1998 31,000 30,987 .52
H. J. Heinz Co. 5.16% due 12/2/1998 29,000 28,992 .48
Hershey Foods Corp. 5.07% due 12/11/1998 29,000 28,955 .48
Emerson Electric Co. 4.95%-5.09% due 12/7-12/22/1998 27,250 27,203 .46
PACCAR Financial Corp. 5.02%-5.13% due 12/3/1998-1/15/1999 25,600 25,466 .42
Abbott Laboratories 5.08% due 12/1/1998 25,200 25,196 .42
General Motors Acceptance Corp. 5.06% due 1/13/1999 24,900 24,740 .41
American Express Credit Corp. 5.02% due 12/18/1998 23,300 23,241 .38
Motorola, Inc. 5.08% due 1/28/1999 21,000 20,824 .34
FEDERAL AGENCY DISCOUNT NOTES - 2.48%
Federal Home Loan Banks 4.76%-4.86% due 1/15-1/29/1999 83,400 82,797 1.37
Freddie Mac 4.80%-5.10% due 12/23/1998-1/29/1999 35,000 34,796 .58
Fannie Mae 5.00%-5.28% due 12/9/1998-1/15/1999 32,600 32,415 .53
NON-U.S. CURRENCY - 0.29%
New Taiwanese Dollar NT$563,057 17,384 .29
TOTAL SHORT-TERM SECURITIES ------------------------
(COST: $768,219,000) 768,564 12.73
------------------------
TOTAL INVESTMENT SECURITIES
(COST: $4,152,894,000) 6,083,536 100.75
Excess of payables over cash and receivables 44,858 .75
-----------------------
NET ASSETS $6,038,678 100.00%
=======================
(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.
ADR = American Depository Receipts
GDR = Global Depository Receipts
The descriptions of the companies shown in the portfolio, which were obtained
from published reports and other sources believed to be reliable, are
supplemental and are not covered by the Independent Auditors' Report.
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
The New Economy Fund
Financial Statements
Statement of Assets and (dollars in
Liabilities at November 30, 1998 thousands)
---------------- ----------------
<S> <C> <C>
Assets:
Investment securities at market
(cost: $4,152,894) $6,083,536
Cash 304
Receivables for-
Sales of investments $ 8,027
Sales of fund's shares 5,889
Dividends 2,539 16,455
---------------- ----------------
6,100,295
Liabilities:
Payables for-
Purchases of investments 52,190
Repurchases of fund's shares 4,064
Management services 2,022
Other expenses 3,341 61,617
Net Assets at November 30, 1998- ---------------- ----------------
Equivalent to $23.65 per share on
255,388,315 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $6,038,678
=============
Statement of Operations (dollars in
for the year ended November 30, 1998 thousands)
- ---------------------------------------- ---------------- ----------------
Investment Income:
Income:
Dividends $ 41,372
Interest 35,174 $ 76,546
----------------
Expenses:
Management services fee 23,295
Distribution expenses 12,940
Transfer agent fee 4,606
Reports to shareholders 221
Registration statement and prospectus 246
Postage, stationery and supplies 901
Trustees' fees 119
Auditing and legal fees 67
Custodian fee 805
Taxes other than federal income tax 66
Other expenses 114 43,380
---------------- ----------------
Net investment income 33,166
----------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 675,033
Net increase in unrealized
appreciation on investments:
Beginning of year 1,507,804
End of year 1,930,694
Net unrealized appreciation ----------------
on investments 422,890
Net realized gain and unrealized ----------------
appreciation on investments 1,097,923
Net Increase in Net Assets ----------------
Resulting from Operations $1,131,089
=============
(dollars in
Statement of Changes in Net Assets thousands)
- ---------------------------------------- ------------- -------------
year ended November 30
1998 1997
Operations: ------------- -------------
Net investment income $ 33,166 $ 28,767
Net realized gain on investments 675,033 396,363
Net unrealized appreciation
on investments 422,890 440,324
------------- -------------
Net increase in net assets
resulting from operations 1,131,089 865,454
------------- -------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (28,423) (32,176)
Distributions from net realized
gain on investments (394,742) (257,536)
------------- -------------
Total dividends and distributions (423,165) (289,712)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
42,169,768 and 28,930,089
shares, respectively 937,603 535,948
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
20,671,001 and 16,361,452 shares,
respectively 403,196 275,377
Cost of shares repurchased:
37,059,740 and 43,976,233
shares, respectively (814,395) (806,006)
------------- -------------
Net increase in net assets resulting
from capital share transactions 526,404 5,319
------------- -------------
Total increase in net assets 1,234,328 581,061
Net Assets:
Beginning of year 4,804,350 4,223,289
End of year (including undistributed ------------- -------------
net investment income: $21,689 and
$17,008, respectively) $6,038,678 $4,804,350
============= =============
See Notes to Financial Statements
</TABLE>
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - 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.
SIGNIFICANT ACCOUNTING POLICIES - The following is a summary of the
significant accounting policies consistently followed by the fund in the
preparation of its financial statements:
SECURITY VALUATION - 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 60/th/ day, based on the value determined on the 61/st/
day. 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.
NON-U.S. CURRENCY TRANSLATION - Assets or liabilities initially expressed in
terms of non-U.S. 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 non-U.S. currency exchange rates on investment securities are
included with the net realized and unrealized gain or loss on investment
securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - As is customary in the
mutual fund industry, securities transactions are accounted for on the date the
securities are purchased or sold. Realized gains and losses from securities
transactions are reported on an identified cost basis. Dividend and interest
income is reported on the accrual basis. Discounts and premiums on securities
purchased are amortized.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions paid
to shareholders are recorded on the ex-dividend date.
2. FEDERAL INCOME TAXATION
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, 1998, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $1,930,642,000, of which
$2,168,330,000 related to appreciated securities and $237,688,000 related to
depreciated securities. During the year ended November 30, 1998, the fund
realized, on a tax basis, a net capital gain of $680,330,000 on securities
transactions. Net losses related to non-U.S. currency transactions of $45,000
were treated as an adjustment to ordinary income for federal income tax
purposes. In addition, the fund has deferred, for tax purposes, the recognition
of losses related to capital gains and non-U.S. currency transactions totaling
$5,236,000 and $21,000, respectively, for the year ended November 30, 1998. The
cost of portfolio securities for book and federal income tax purposes was
$4,152,894,000 at November 30, 1998.
3. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $23,295,000 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, based on annual rates of 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 .375% of such assets in excess of $6.5 billion. If
net assets fall below $3 billion, the Agreement provides for lower fees based
on 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; 0.42%
of such assets in excess of $1.25 billion.
DISTRIBUTION EXPENSES - 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, 1998, distribution expenses under the Plan were $12,940,000. As of
November 30, 1998, accrued and unpaid distribution expenses were $3,036,000.
American Funds Distributors, Inc. (AFD), the principal underwriter of the
fund's shares, received $2,489,000 (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.
TRANSFER AGENT FEE - American Funds Service Company (AFS), the transfer agent
for the fund, was paid a fee of $4,606,000.
DEFERRED TRUSTEES' FEES - 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, 1998, aggregate amounts deferred and earnings thereon
were $168,000.
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. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,884,420,000 and $1,931,534,000, respectively,
during the year ended November 30, 1998.
As of November 30, 1998, accumulated undistributed net realized gain on
investments was $642,045,000 and paid-in capital was $3,444,250,000. The fund
reclassified $62,000 from undistributed net income to undistributed net
realized gain, and $33,125,000 from undistributed net realized gain to paid-in
capital for the year ended November 30, 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 $805,000 includes $28,000 that was paid by these credits
rather than in cash.
Dividend and interest income is recorded net of non-U.S. taxes paid. For the
year ended November 30, 1998, such non-U.S. taxes were $2,687,000. Net realized
currency losses on dividends and withholding taxes reclaimable on a book basis,
were $90,000 for the year ended November 30, 1998.
The fund owns 5.1% of the outstanding voting securities of Data Broadcasting
Corp. and thus is considered an affiliate as defined in the Investment Company
Act of 1940.
<TABLE>
PER-SHARE DATA AND RATIOS
Year ended November 30
--------- --------- --------- -------- --------
1998 1997 1996 1995 1994 (1)
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Year 20.92 18.5 16.98 14.65 16.47
--------- --------- --------- -------- --------
Income (loss) from Investment
Operations:
Net investment income .13 .12 .14 .20 .17
Net gains (losses) on securities
(both realized and unrealized) 4.44 3.57 2.26 2.99 (.59)
Total income (loss)from --------- --------- --------- -------- --------
investment operations 4.57 3.69 2.40 3.19 (.42)
--------- --------- --------- -------- --------
Less Distributions:
Dividends (from net investment
income) (.12) (.14) (.19) (.18) (.12)
Distributions (from capital
gains) (1.72) (1.13) (.69) (.68) (1.28)
--------- --------- --------- -------- --------
Total distributions (1.84) (1.27) (.88) (.86) (1.40)
--------- --------- --------- -------- --------
Net Asset Value, End of Year 23.65 20.92 18.5 16.98 14.65
========= ========= ========= ======== ========
Total Return (2) 23.73% 21.64% 15.00% 23.22% (2.94)%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $6,039 $4,804 $4,223 $3,523 $2,592
Ratio of expenses to average
net assets .79% .81% .84% .88% .85%
Ratio of net income to
average net assets .60% .66% .85% 1.33% 1.25%
Portfolio turnover rate 38.55% 31.62% 29.54% 27.03% 25.51%
1 Adjusted to reflect the 100%
share dividend effective May
26, 1994.
2 Unaudited
2 Excludes maximum sales charge
of 5.75%.
</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 (the "fund"), including the investment portfolio, as of
November 30, 1998, 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, 1998 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, 1998, 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.
DELOITTE & TOUCHE LLP
Los Angeles, California
December 24, 1998
1998 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. The distributions made during the fiscal year by the
fund were earned from the following sources:
<TABLE> Distributions
Dividends and per Share
To Shareholders From Net From Net Realized
of Record Payment Date Investment Income Long-Term Gains
<S> <C> <C> <C>
December 15, 1997 December 16, 1997 $.08 $1.72
June 5, 1998 June 8, 1998 $.04 -
</TABLE>
The fund also designates as a capital gain distribution a portion of earnings
and profits paid to shareholders in redemption of their shares.
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 45% 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 retirement plan 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 1999 TO DETERMINE THE CALENDAR YEAR AMOUNTS TO BE INCLUDED ON
THEIR 1998 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.
