[THE AMERICAN FUNDS GROUP(R)]
SEMI-ANNUAL REPORT
FOR THE SIX MONTHS ENDED MAY 31, 1999
THE
NEW
ECONOMY
FUND
[cover: abstract background]
THE NEW ECONOMY FUND
The New Economy Fund's objective is to help you participate in the many
investment opportunities created as society continues the shift from producing
standardized goods to providing a wide array of information and services. The
fund has the flexibility to invest all over the world in industries ranging
from broadcasting and publishing to banking and insurance, gas and electric
utilities to cable television, cellular telephones to merchandising, airlines
to health care, and entertainment to computer software and the Internet - all
of which are able to benefit from the accelerating demand for services and
information.
The New Economy Fund(r) is one of 29 mutual funds in The American Funds
Group,(r) the nation's third-largest mutual fund family. For more than six
decades, Capital Research and Management Company, the American Funds adviser,
has invested with a long-term focus based on thorough research and attention to
risk.
RESULTS AT A GLANCE
for periods ended May 31, 1999 (with all distributions reinvested)
<TABLE>
<CAPTION>
<S> <C>
Six Months (total return) +17.02%
12 Months (total return) +22.08
Lifetime (average annual compound return since December 1, 1983) +16.70
</TABLE>
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the total returns and average annual compound
returns with all distributions reinvested for periods ended June 30, 1999 (the
most recent calendar quarter), assuming payment of the 5.75% maximum sales
charge at the beginning of the stated periods:
<TABLE>
<CAPTION>
<S> <C> <C>
Total Average Annual
Return Compound Return
10 Years +356.45% +16.40%
Five Years +161.22 +21.17
One Year +19.30 -
</TABLE>
Sales charges are lower for accounts of $50,000 or more. THE FIGURES IN THIS
REPORT REFLECT PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. SHARE
PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY. INVESTING FOR SHORT PERIODS
MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT FDIC-INSURED, NOR ARE THEY
DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER ENTITY. OF COURSE, INVESTMENTS
OUTSIDE THE UNITED STATES INVOLVE SPECIAL RISKS SUCH AS CURRENCY FLUCTUATIONS,
POLITICAL INSTABILITY, DIFFERING SECURITIES REGULATIONS, AND PERIODS OF
ILLIQUIDITY. GLOBAL DIVERSIFICATION CAN HELP REDUCE THESE RISKS.
FELLOW SHAREHOLDERS:
We are pleased to report that The New Economy Fund continued to gain ground
during the first half of its 1999 fiscal year, furthering a pattern of strong
results for the past few years. For the six months ended May 31, the value of
your shares increased 17.0% assuming you, like most of the fund's shareholders,
reinvested the income dividend of 10 cents a share and capital gain
distribution of $2.54 a share paid during the period.
MEASURING THE FUND'S RESULTS
Unlike many other growth funds, The New Economy Fund does not fit neatly into
an investment category that can be tracked by just one index. Consequently, we
track the fund's progress relative to three indexes that together represent the
fund's potential investment universe. We're happy to report that the fund
handily outpaced each of these benchmarks.
The first - the Lipper Growth Funds Index, which tracks 30 of the largest
growth-oriented U.S. mutual funds - recorded a total return of 14.5% for the
period. The second - the Russell 2500, an unmanaged measure of small- and
medium-capitalization U.S. stocks - went up 11.8%. The last of the fund's
relative benchmarks - the unmanaged Morgan Stanley Capital International
EAFE(r) (Europe, Australasia, Far East) Index, which measures all major markets
outside North America - rose 4.2% for the six months.
Another widely reported index - the unmanaged Standard & Poor's 500 Composite
Index, which tracks 500 relatively large companies listed primarily on U. S.
exchanges - returned 12.6% for the period.
TELECOMMUNICATIONS LEADS THE WAY
The fund's November to May gain was broadly based, with approximately
two-thirds of all securities held in New Economy's portfolio throughout the
period rising in price.
Once again, telecommunications made particularly strong contributions to
results. This segment of the portfolio continued to benefit from a trend toward
consolidation and strong unit growth. Three of the biggest gainers in your fund
were AirTouch Communications (+75.7%), which has agreed to be acquired by
Vodafone, the British-based mobile phone operator; Sprint (+55.0%) and
Telefonos de Mexico (+71.7%).
Another telecommunications company, AT&T, was the primary catalyst for the
continued strong performance of cable stocks in your fund's portfolio. Having
agreed to acquire Tele-Communications last year, AT&T continued its foray into
the cable television arena with its successful bid for MediaOne in May. Two
other large holdings in the fund benefited from AT&T's expansion into cable:
Time Warner (+28.7%) and Comcast (+58.4%).
On the down side, U.S. financial stocks did not fare quite so well. Toward the
end of the six months, market participants became skittish when fears of rising
inflationary pressure led the Federal Reserve Board to announce a "bias" toward
a pre-emptive hike in short-term interest rates, a move finally made at the end
of June. Other portfolio holdings experienced price weakness related to
earnings. Rentokil, for example - a British service company that was one of the
fund's largest positions at the end of fiscal 1998 - declined 39.9% after
management announced that earnings would be lower than expected.
FINDING INCREASING VALUE IN ASIA
Another significant change in The New Economy Fund since the end of fiscal 1998
has been growth in the amount of the fund's assets invested outside the United
States - to a total of 29.5%, as the table at left reflects. Up from 26.7% one
year ago, this represents the highest amount the fund has ever had invested
outside the United States.
Poor economic conditions in many non-U.S. markets created significant
investment values. In the Asian markets in particular, we found good values for
the fund. Since November 30, the fund's participation in Japanese stocks has
nearly quadrupled, with other increases in Hong Kong, South Korea, Malaysia,
the Philippines and Taiwan.
[Begin Sidebar]
WHERE THE FUND'S ASSETS ARE INVESTED
Geographical distribution of net assets as of May 31, 1999
<TABLE>
<CAPTION>
<S> <C>
PERCENT OF
COUNTRY NET ASSETS
UNITED STATES 58.3%
EUROPE
United Kingdom 3.1
Italy 1.5
Netherlands 1.2
Germany 1.2
Switzerland 1.1
Sweden .9
Denmark .7
France .7
Ireland .1
Luxembourg .1
Greece .1
ASIA/PACIFIC
Japan 5.1
Australia 2.0
Philippines 1.2
Taiwan 1.0
South Korea .5
Hong Kong .4
Malaysia .3
New Zealand .1
LATIN AMERICA & CANADA
Mexico 2.3
Canada 1.9
Argentina .1
Brazil .1
SUPRANATIONAL 3.8
TOTAL NON-U.S. 29.5
CASH & EQUIVALENTS 12.2
Total 100.0%
</TABLE>
[End Sidebar]
KEEPING YOUR EXPECTATIONS REALISTIC
The New Economy Fund's objective is to take advantage of growth in services and
information companies around the world. Our investment philosophy, based on
in-depth research and a value-oriented approach, has helped us continue to find
attractive opportunities in this rapidly changing economy.
In closing, we would like to issue a note of caution. While the fund has
benefited from an unusually strong U.S. stock market, we must nonetheless keep
in mind that markets can and will go down. Your fund will not be immune.
Shareholders who have maintained a long-term perspective through periodic
downturns as well as through bull markets have, over time, been well rewarded.
We look forward to reporting to you again in six months.
Cordially,
/s/William R. Grimsley /s/Timothy D. Armour
William R. Grimsley Timothy D. Armour
Chairman of the Board President
July 15, 1999
<TABLE>
THE NEW ECONOMY FUND
Investment Portfolio, May 31, 1999
<S> <C>
- ---------------------------------------------------
Largest Holdings by Industry
[pie chart]
Broadcasting & Publishing 19.14%
Telecommunications 10.74
Computer Services & Software 7.44
Electronic Data Products 6.47
Miscellaneous Business Services 5.90
All Other Industries 38.06
Cash & Equivalents 12.25
- ---------------------------------------------------
</TABLE>
[end pie chart]
<TABLE>
THE NEW ECONOMY FUND
May 31, 1999
<S> <C> <C>
- -------------------------------------------
Percent
of
10 Largest Equity Holdings Net Assets
AT&T Corp. - Liberty Media Group 4.70%
Viacom 3.16
Time Warner 2.30
Fannie Mae 2.13
Comcast 2.13
Cendant 1.80
Telefonos de Mexico 1.73
Carnival 1.59
Computer Associates International 1.47
Consolidated Stores 1.40
</TABLE>
<TABLE>
The New Economy Fund
Investment Portfolio, May 31, 1999
<S> <C> <C> <C>
Shares or Market Percent
Equity Securitites (common and preferred stocks Principal Value Of Net
and convertible debentures) Amount (000)Assets
- -------------------------------------------- -------- ----------------
BROADCASTING & PUBLISHING - 19.14%
AT&T Corp., Liberty Media Group, Class A (formerly 5,241,635$348,241 4.70%
Tele-Communications, Inc., Liberty Media Group) (1)
Viacom Inc., Class B, nonvoting (1) 6,070,000 233,695 3.16
Time Warner Inc. 2,500,000 170,156 2.30
Comcast Corp., Class A, special stock 4,100,000 157,850 2.13
News Corp. Ltd., preferred (ADR) (Australia) 825,000 25,111
News Corp. Ltd., preferred 2,884,702 21,997
News Corp. Ltd. 2,164,566 17,873
News Corp. Ltd. (ADR) 500,000 16,594 1.10
USA Networks, Inc. (1) 1,650,000 66,000 .89
Mediaset SpA (Italy)(2) 5,760,000 46,361 .63
Nippon Television Network Corp. (Japan) 109,780 37,986 .51
EMAP PLC (United Kingdom) 1,680,000 35,212 .48
Grupo Televisa, SA (ADR) (Mexico) (1) 786,300 32,877 .44
Sinclair Broadcast Group, Inc., Class A (1) 2,340,000 32,467 .44
Fox Entertainment Group, Inc., Class A (1) 1,200,000 30,600 .41
Infinity Broadcasting Corp., Class A (1) 1,068,200 27,306 .37
CANAL + (France) 81,370 23,490 .32
Chris-Craft Industries, Inc. (1) 463,500 21,379 .29
Thomson Corp. (Canada) 600,000 17,713 .24
ProSieben Media AG, nonvoting preferred (Germany) 410,000 17,467 .23
CBS Corp. (1) 300,000 12,525 .17
Adelphia Communications Corp., Class A (1) 131,100 9,898 .13
AUDIOFINA (Luxembourg) 185,000 8,160 .11
Flextech PLC (United Kingdom)(1) 500,000 6,923 .09
TELECOMMUNICATIONS - 10.74%
Telefonos de Mexico, SA de CV, Class L (ADR) (Mexico) 1,601,960 128,057 1.73
Nextel Communications, Inc., Class A (1) 2,250,000 82,969 1.12
NTT Mobile Communications Network, Inc. (Japan) 1,243 67,690 .92
Telecom Italia SpA, nonvoting savings (Italy) 7,907,100 42,692
Telecom Italia SpA 2,400,000 24,673 .91
Mannesmann AG (ADR)(Germany) 475,000 65,075 .88
Swisscom AG (Switzerland)(1) 151,392 54,429 .73
MCI WorldCom, Inc. (1) 576,550 49,799 .67
Vodafone Group PLC (ADR) (United Kingdom) 200,000 38,275 .52
Tele Danmark AS, Class B (ADR) (Denmark) 440,000 22,522
Tele Danmark AS 110,000 11,215 .45
AT&T Corp. 581,775 32,289 .44
SkyTel Communications, Inc.(1) 1,370,000 27,828 .38
AirTouch Communications (1) 275,000 27,637 .37
Korea Telecom Corp. (ADR) (South Korea) (1) 748,900 23,824 .32
Western Wireless Corp., Class A (1) 958,200 23,476 .31
Sprint Corp. 200,000 22,550 .30
Nippon Telegraph and Telephone Corp. (Japan) 1,200 11,666 .16
Telecom Corp. of New Zealand Ltd. (New Zealand) 2,200,000 9,497 .13
Grupo Iusacell, SA de CV, Class L (ADR) (Mexico)(1) 750,000 9,281 .13
Tele Celular Sul Participacoes SA (ADR) (Brazil) 450,000 8,466 .11
Globalstar Telecommunications Ltd. (1) 333,268 5,895 .08
Stet Hellas Telecommunciations SA (ADR)(Greece)(1) 153,100 3,483 .05
Telecom Argentina STET - France Telecom SA, 75,000 2,138 .03
Class B (ADR) (Argentina)
COMPUTER SERVICES & SOFTWARE - 7.44%
Cendant Corp. (1) 7,225,000 133,211 1.80
Computer Associates International, Inc. 2,300,000 108,819 1.47
Oracle Corp. (1) 2,975,000 73,817 1.00
Microsoft Corp. (1) 740,000 59,709 .81
HNC Software Inc. (1) 1,030,000 27,875 .38
PeopleSoft, Inc. (1) 1,650,000 26,709 .36
Autodesk, Inc. 850,900 23,506 .32
Paychex, Inc. 750,000 22,219 .30
Cisco Systems, Inc. (1) 200,000 21,800 .29
Altera Corp. (1) 580,000 20,191 .27
Intuit Inc. (1) 200,000 16,275 .22
CBT Group PLC (ADR) (Ireland)(1) 700,000 10,675 .14
Epicor Software Corp. (formerly Platinum Software Corp.) ( 900,000 6,356 .08
ELECTRONIC DATA PRODUCTS - 6.47%
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan)(1) 20,770,000 74,861 1.01
Applied Materials, Inc. (1) 1,050,000 57,750 .78
Microchip Technology Inc. (1) 1,250,000 54,844 .74
Rohm Co., Ltd. (Japan) 407,000 53,080 .72
Adaptec, Inc. (1) 1,400,000 43,225 .58
Texas Instruments Inc. 300,000 32,813 .44
Telefonaktiebolaget LM Ericsson, Class B (ADR) (Sweden) 780,000 21,011
Telefonaktiebolaget LM Ericsson, Class B 300,000 7,995 .39
Maxim Integrated Products, Inc. (1) 519,000 27,734 .37
Molex Inc. 700,000 21,437 .29
Storage Technology Corp. (1) 850,000 16,894 .23
Intel Corp. 300,000 16,219 .22
ADVANTEST CORP. (Japan) 200,000 15,802 .21
3Com Corp. (1) 500,000 13,656 .19
Electronics for Imaging, Inc. (1) 200,000 9,812 .13
Samsung Electronics Co., Ltd. (South Korea) 135,000 9,394 .13
SCI Systems, Inc.(1) 76,100 3,158 .04
MISCELLANEOUS BUSINESS SERVICES - 5.90%
Robert Half International Inc (1) 2,674,500 75,387 1.02
Rentokil Initial PLC (United Kingdom) 16,025,000 64,389 .87
Concord EFS, Inc. (1) 1,332,450 45,137 .61
Snyder Communications, Inc. (1) 1,625,000 39,711 .53
Stewart Enterprises, Inc., Class A 1,900,000 35,031 .47
Black Box Corp. (1) 740,800 33,799 .45
Metamor Worldwide, Inc. (1) 1,100,000 30,113 .41
Adecco SA (Switzerland) (1) 48,000 25,070 .34
Profit Recovery Group International, Inc. (1) 565,700 20,825 .28
Dun & Bradstreet Corp. 500,000 17,500 .24
Trimble Navigation Ltd. (1) 1,090,000 13,625 .18
Rental Service Corp. (1) 500,000 11,937 .16
Bright Horizons Family Solutions, Inc.(1) 495,000 9,405 .13
Park-Ohio Industries, Inc. (1) 550,000 8,800 .12
ABR Information Services, Inc. (1) 198,100 5,002 .07
InaCom Corp. (1) 100,000 1,106 .01
EarthWatch Inc. 8.5% convertible preferred, 220,580 551 .01
Series C (1)(2)(3)(4)
]
BANKING - 5.10%
Wells Fargo & Co. 2,206,660 88,266 1.19
Sakura Bank, Ltd. (Japan) 24,371,000 82,321
Sakura Finance (Bermuda) Trust 0.75% convertible 864,000,000 5,694 1.19
preference units (Incorporated in Bermuda)
Toronto-Dominion Bank (Canada) 630,000 33,264 .45
Charter One Financial, Inc. 1,146,862 32,614 .44
Westpac Banking Corp. (Australia) 4,477,421 30,633 .41
Associated Banc-Corp 781,250 27,051 .37
STB Cayman Capital, Ltd. 0.50% convertible debentures 2007$2,240,000,0 18,178 .25
Unidanmark A/S, Class A (Denmark) 250,700 17,555 .24
Bank of the Philippine Islands (Philippines) 5,410,600 17,131 .23
First Union Corp. 227,200 10,465 .14
Keystone Financial, Inc. 225,000 7,207 .10
Philippine Commercial International Bank, Inc. (Philippine 682,030 4,814 .06
ForeningsSparbanken AB, Class A (Sweden) 114,500 2,340 .03
MISCELLANEOUS FINANCIAL SERVICES - 5.01%
Fannie Mae 2,321,500 157,862 2.13
Freddie Mac 1,375,000 80,180 1.08
SLM Holding Corp. 1,200,000 49,800 .66
Capital One Financial Corp. 225,000 33,905 .46
Insignia/ESG Holdings, Inc. (formerly Insignia 1,000,000 12,250 .17
Financial Group, Inc.) (1)
ORIX Corp. (Japan) 154,000 12,180 .16
CB Richard Ellis Services, Inc. (1) 500,000 9,687 .13
Fidelity National Financial, Inc. 550,000 9,316 .13
American Capital Strategies, Ltd. 325,000 6,317 .09
MERCHANDISING - 4.99%
Consolidated Stores Corp. (1) 3,018,750 103,770 1.40
Kohl's Corp. (1) 950,000 64,778 .87
Dollar General Corp. 1,375,000 36,523 .49
Circuit City Stores, Inc. - Circuit City Group 475,000 34,111 .46
Michaels Stores, Inc. (1) 1,000,000 26,750 .36
Ito-Yokado Co., Ltd. (Japan) 425,000 25,245 .34
Kingfisher PLC (United Kingdom) 1,250,000 15,728 .21
Coles Myer Ltd. (Australia) 2,800,391 14,635 .20
AutoZone, Inc. (1) 500,000 14,469 .20
PETsMART, Inc. 1,000,000 9,000 .12
MSC Industrial Direct Co., Inc., Class A (1) 460,600 8,694 .12
DFS Furniture Co. PLC (United Kingdom) 1,300,000 6,160 .08
Home Depot, Inc. 98,000 5,574 .08
Circuit City Stores, Inc. - CarMax Group (1) 900,000 4,331 .06
INSURANCE - 4.47%
Fairfax Financial Holdings Ltd. (Canada)(1) 311,000 87,380 1.17
XL Captial Ltd. (formerly EXEL Ltd.) (Bermuda - Incorporat 1,350,000 82,097 1.11
in Cayman Islands)
ING Groep NV (Netherlands) 853,224 45,490
ING Groep NV, warrants, expire 2001(1) 660,000 9,612 .74
American International Group, Inc. 337,500 38,580 .52
PartnerRe Holdings Ltd. (Singapore - Incorporated in Bermu 553,900 20,598 .28
20th Century Industries 1,000,000 18,313 .25
HCC Insurance Holdings, Inc. 622,300 13,846 .19
Mercury General Corp. 300,000 10,819 .15
Allianz AG (Germany) 15,000 4,088 .06
ENTERTAINMENT & LEISURE - 3.43%
Carnival Corp. 2,870,000 117,670 1.59
Mirage Resorts, Inc. (1) 2,750,000 56,375 .76
Star Cruises PLC (United Kingdom) 6,181,000 23,982 .32
Nintendo Co., Ltd. (Japan) 200,000 23,398 .32
MGM Grand, Inc. (1) 400,000 16,800 .23
VTech Holdings Ltd. (Hong Kong) 4,000,000 11,658 .15
Vail Resorts, Inc. (1) 200,000 4,125 .05
Genting International PLC (Malaysia)(1) 1,800,000 414 .01
MISCELLANEOUS PUBLIC SERVICES - 2.12%
Williams Companies, Inc. 1,666,600 86,351 1.16
Hays PLC (United Kingdom) 4,900,000 45,622
Suez Lyonnaise des Eaux (France)(1) 149,500 24,573
Suez Lyonnaise des Eaux, rights, expire 2001 (1) 57,900 552 .62
Suez Lyonnaise des Eaux(1) 259,500 2 .34
ENVIRONMENTAL SERVICES - 0.99%
Allied Waste Industries, Inc. (1) 2,400,000 44,700 .60
Waste Management, Inc. 543,500 28,738 .39
RESTAURANTS - 0.85%
Brinker International, Inc. (1) 2,250,000 63,141 .85
COMPUTER SYSTEMS - 0.74%
International Business Machines Corp. 188,000 21,867 .30
Silicon Graphics, Inc. (1) 1,120,300 13,864 .19
Lexmark International Group, Inc., Class A (1) 50,000 6,806 .09
Gateway 2000, Inc. (1) 100,000 6,081 .08
Compaq Computer Corp. 250,000 5,922 .08
ELECTRIC UTILITIES - 0.71%
Manila Electric Co., Class A (GDR)(Philippines)(1)(3) 1,550,000 20,090
Manila Electric Co., Class B 5,629,930 19,460 .53
National Power PLC (United Kingdom) 940,000 7,307 .10
Scottish and Southern Energy PLC (formerly Southern 600,000 5,686 .08
Electric PLC) (United Kingdom)
DIVERSIFIED SERVICES - 0.68%
Benpres Holdings Corp. (GDR) (Philippines)(1) 6,000,000 28,500 .38
Brambles Industries Ltd. (Australia) 831,538 22,165 .30
HEALTH & HOSPITAL SERVICES - 0.64%
FIRST HEALTH Group Corp. (1) 720,000 14,580 .20
United HealthCare Corp. 200,000 11,650 .16
Columbia/HCA Healthcare Corp. 380,000 8,954 .12
Cardinal Health, Inc. 115,650 6,982 .09
Nu Skin Enterprises, Inc., Class A (1) 290,000 5,220 .07
HEALTH & PERSONAL CARE SERVICES - 0.60%
Quintiles Transnational Corp. (1) 850,000 34,531 .47
Trigon Healthcare, Inc. (1) 264,600 10,088 .13
ADVERTISING - 0.59%
Interpublic Group of Companies, Inc. 300,000 22,725 .31
Omnicom Group Inc. 300,000 21,000 .28
SAFETY & SECURITY SERVICES - 0.58%
Securitas AB, Class B (Sweden) 2,512,000 35,735 .48
Protection One, Inc. (1) 1,350,000 7,425 .10
ENERGY SERVICES - 0.56%
Schlumberger Ltd. (Netherlands Antilles) 513,500 30,906 .42
Linear Technology Corp. 200,000 10,600 .14
LEASING SERVICES - 0.43%
Hertz Corp., Class A 481,300 26,441 .36
IKON Office Solutions, Inc. 382,400 5,330 .07
DELIVERY SERVICES - 0.40%
TNT Post Groep (Netherlands) 1,173,900 29,431 .40
REAL ESTATE - 0.17%
Mitsubishi Estate Co., Ltd. (Japan) 1,320,000 12,506 .17
INFORMATION & PRINTING SERVICES - 0.05%
Primark Corp. (1) 141,910 3,840 .05
MISCELLANEOUS - 4.95%
Other equity securities in initial period of acquisition 367,044 4.95
TOTAL EQUITY SECURITIES (cost: $4,163,233,000) 6,502,00 87.75
Short Term Securities
- --------------------------------------------
Principal Market Percent
Amount Value Of Net
(000) (000) Assets
-------- ----------------
CORPORTATE SHORT-TERM NOTES - 10.48%
Bellsouth Capital Funding Corp. 4.77% due 6/8-6/9/1999(2) 75,200 75,117 1.01
General Electric Capital Corp. 4.79%-4.93% due 6/1-8/2/199 61,500 61,125 .82
Procter & Gamble Co. 4.77% due 6/17-6/25/1999 55,000 54,844 .74
Electronic Data Systems Corp. 4.76%-4.79% due 6/8-7/14/199 54,700 54,556 .74
Associates First Capital Corp. 4.84%-4.86% due 6/1-8/4/199 52,200 51,857 .70
Archer Daniels Midland Co. 4.77%-4.85% due 7/19-9/17/1999 52,100 51,556 .70
Lucent Technologies Inc. 4.78%-4.83% due 6/11-7/28/1999 48,800 48,647 .66
H.J. Heinz Co. 4.78%-4.82% due 6/21-7/26/1999 45,600 45,346 .61
Coca-Cola Co. 4.77%-4.78% due 6/11-8/20/1999 45,000 44,585 .60
Emerson Electric Co. 4.79% due 6/2-6/3/1999 43,500 43,488 .59
Eastman Kodak Co. 4.80%-4.85% due 7/28-9/21/1999 43,400 42,826 .58
Xerox Corp. 4.77%-4.78% due 6/17-6/22/1999 39,900 39,799 .54
Ford Motor Credit Co. 4.77%-4.83% due 6/16-7/9/1999 34,300 34,158 .46
Campbell Soup Co. 4.78%-4.82% due 6/11-6/25/1999 30,600 30,508 .41
Fortune Brands Inc. 4.79%-4.80% due 7/8-7/29/1999(2) 29,900 29,703 .40
International Lease Finance Corp. 4.78%-4.82% due 7/23-8/1 29,010 28,784 .38
Chevron Transportation 4.83% due 7/7/1999(2) 20,000 19,901 .27
General Motors Acceptance Corp. 4.83% due 6/3/1999 19,900 19,892 .27
FEDERAL AGENCY DISCOUNT NOTES - 1.60%
Fannie Mae 4.73%-4.82% due 8/5-8/30/1999 67,548 66,778 .90
Freddie Mac 4.72%-4.81% due 6/10-8/26/1999 52,000 51,600 .70
NON-U.S. CURRENCY - 0.13%
New Taiwanese Dollars NT$301,913 9,261 .13
TOTAL SHORT-TERM SECURITIES (cost: $904,203,000) 904,331 12.21
TOTAL INVESTMENT SECURITIES (cost: $5,067,436,000) 7,406,33 99.96
Excess of cash and receivables over payables 2,938 .04
NET ASSETS $7,409,2100.00%
(1)Non-income-producing security.
(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 Depositary Receipts
GDR = Global Depositary Receipts
See Notes to Financial Statements
</TABLE>
Equity securities appearing in the portfolio
since November 30, 1998
Adecco
ADVANTEST
AT&T
Autodesk
Bank of the Philippine Islands
Dollar General
Dun & Bradstreet
Fidelity National Financial
Grupo Iusacell
Hays
Infinity Broadcasting
Ito-Yokado
Kingfisher
Kohl's
Korea Telecom
Lexmark International Group
Mannesmann
Maxim Integrated Products
Mercury General
Nextel Communications
Nippon Telegraph and Telephone
Nippon Television Network
Paychex
Quintiles Transnational
Robert Half International
Samsung Electronics
Sinclair Broadcast Group
SkyTel Communications
Storage Technology
Swisscom
Tele Celular Sul Participacoes
TNT Post Groep
Toronto-Dominion Bank
Trimble Navigation
VTech Holdings
Western Wireless
Equity securities eliminated from the portfolio
since November 30, 1998
Administaff
America Online
Ascend Communications
Brylane
Claire's Stores
CompuCom Systems
Data Broadcasting
Dickson Concepts (International)
Electric Lightwave
First Data
Garden Ridge
Hong Kong Telecommunications
Host Marriot Services
Human Genome Sciences
ISS - International Service System
JLK Direct Distribution
K N Energy
Life Re
Micron Technology
Midway Games
NTL
Panafon Hellenic Telecommunications
Pittston Brink's
Reuters Group
Royal Bank of Canada
Security Capital Group
Security Dynamics Technologies
SOFT BANK
St. George Bank
Tele-Communications, TCI Ventures Group
Telefonica
Telefonica de Argentina
TeleTech Holdings
Trenwick Group
TV Azteca
USWeb
Walt Disney
YAHOO!
<TABLE>
The New Economy Fund (Unaudited)
Financial Statements
<S> <C> <C>
Statement of Assets and (dollars in
Liabilities at May 31, 1999 thousands)
-------------- ----------------
Assets:
Investment securities at market
(cost: $5,067,436) $7,406,331
Cash 7
Receivables for-
Sales of investments $ 48,923
Sales of fund's shares 11,581
Dividends 5,472 65,976
-------------- ----------------
7,472,314
Liabilities:
Payables for-
Purchases of investments 47,347
Repurchases of fund's shares 9,053
Management services 2,594
Other expenses 4,051 63,045
Net Assets at May 31, 1999- -------------- ----------------
Equivalent to $24.73 per share on
299,566,495 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $7,409,269
=============
Statement of Operations (dollars in
for the six months ended May 31, 1999 thousands)
- ------------------------------------- -------------- ----------------
Investment Income:
Income:
Dividends $ 25,220
Interest 19,440 $ 44,660
----------------
Expenses:
Management services fee 14,115
Distribution expenses 8,410
Transfer agent fee 3,078
Reports to shareholders 199
Registration statement and prospectu 311
Postage, stationery and supplies 569
Trustees' fees 79
Auditing and legal fees 52
Custodian fee 462
Taxes other than federal income tax 81
Other expenses 70 27,426
-------------- ----------------
Net investment income 17,234
----------------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 610,509
Net increase in unrealized
appreciation on investments:
Beginning of period 1,930,694
End of period 2,338,830
Net unrealized appreciation ----------------
on investments 408,136
Net realized gain and unrealized ----------------
appreciation on investments 1,018,645
Net Increase in Net Assets ----------------
Resulting from Operations $1,035,879
=============
(dollars in
Statement of Changes in Net Assets thousands)
- ------------------------------------- ------------- -------------
Six months
ended Year ended
5/31/1999* 11/30/1998
Operations: ------------- -------------
Net investment income $ 17,234 $ 33,166
Net realized gain on investments 610,509 675,033
Net unrealized appreciation
on investments 408,136 422,890
------------- -------------
Net increase in net assets
resulting from operations 1,035,879 1,131,089
------------- -------------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (25,515) (28,423)
Distributions from net realized
gain on investments (648,071) (394,742)
------------- -------------
Total dividends and distributions (673,586) (423,165)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
36,222,383 and 42,169,768
shares, respectively 868,594 937,603
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
29,146,133 and 20,671,001 shares,
respectively 645,821 403,196
Cost of shares repurchased:
21,190,336 and 37,059,740
shares, respectively (506,117) (814,395)
------------- -------------
Net increase in net assets resulting
from capital share transactions 1,008,298 526,404
------------- -------------
Total Increase in Net Assets 1,370,591 1,234,328
Net Assets:
Beginning of period 6,038,678 4,804,350
End of period (including undistribute ------------- -------------
net investment income: $13,408 and
$21,689, respectively) $7,409,269 $6,038,678
============= =============
* Unaudited
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 financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could
differ from those estimates. 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. Short-term securities
maturing within 60 days are valued at amortized cost, which approximates market
value. 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 and 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 and other
assets and liabilities are included with the net realized and unrealized gain
or loss on investment securities.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for as of trade date. Realized gains and losses from securities
transactions are determined based on specific identified cost. Dividend income
is recognized on the ex-dividend date, and interest income is recognized on an
accrual basis. Market discounts, premiums and original issue discounts on
securities purchased are amortized daily over the expected life of the
security.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions
paid to shareholders are recorded on the ex-dividend date.
2. NON-U.S. TAXATION
Dividend and interest income is recorded net of non-U.S. taxes paid. For
the six months ended May 31, 1999, such non-U.S. taxes were $1,571,000. Net
realized currency gains on dividends, interest, withholding taxes reclaimable,
sales of non-U.S. bonds and notes, and other receivables and payables, on a
book basis, were $39,000 for the six months ended May 31, 1999.
3. FEDERAL INCOME TAXATION
The fund complies with the requirements of the Internal Revenue Code
applicable to regulated investment companies and intends to distribute all of
its net taxable income and net capital gains for the fiscal year. As a
regulated investment company, the fund is not subject to income taxes if such
distributions are made. Required distributions are determined on a tax basis
and may differ from net investment income and net realized gains for financial
reporting purposes. In addition, the fiscal year in which amounts are
distributed may differ from the year in which the net investment income and net
realized gains are recorded by the fund.
As of May 31, 1999, net unrealized appreciation on investments for book and
federal income tax purposes aggregated $2,338,895,000, of which $2,545,078,000
related to appreciated securities and $206,183,000 related to depreciated
securities. During the six months ended May 31, 1999, the fund realized, on a
tax basis, a net capital gain of $605,235,000 on securities transactions. Net
gains related to non-U.S. currency transactions of $18,000 were treated as an
adjustment to ordinary income for federal income tax purposes. The cost of
portfolio securities for book and federal income tax purposes was
$5,067,436,000 at May 31, 1999.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $14,115,000 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 an annual rate 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 0.375% 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 six months
ended May 31, 1999, distribution expenses under the Plan were $8,410,000. As of
May 31, 1999, accrued and unpaid distribution expenses were $3,714,000.
American Funds Distributors, Inc. (AFD), the principal underwriter of the
fund's shares, received $2,730,000 (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 $3,078,000.
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 May 31, 1999, aggregate deferred amounts and earnings thereon since
the deferred compensation plan's adoption (1993), net of any payments to
Trustees, were $199,000.
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.
5. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding
short-term securities, of $1,629,372,000 and $1,469,167,000 respectively,
during the six months ended May 31, 1999.
As of May 31, 1999, accumulated undistributed net realized gain on
investments was $604,483,000 and paid-in capital was $4,452,548,000.
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 $462,000 includes $26,000 that was paid by these credits
rather than in cash.
<TABLE>
PER-SHARE DATA AND RATIOS
<S> <C> <C> <C> <C> <C> <C>
Six months
ended Year ended Novembe 30
--------- ---------------------------------------
5/31/1999( 1998 1997 1996 19951994 (2)
--------- ---------------------------------------
Net Asset Value, Beginning
of Period $23.65 20.92 18.5 $16.98 $14.65 $16.47
--------- ---------------------------------------
Income (Loss) from Investment
Operations:
Net investment income .06 .13 .12 .14 .20 .17
Net gains (losses) on securities
(both realized and unrealized) 3.66 4.44 3.57 2.26 2.99 (.59)
Total income (loss)from --------- ---------------------------------------
investment operations 3.72 4.57 3.69 2.4 3.19 -0.42
--------- ---------------------------------------
Less Distributions:
Dividends (from net investment
income) (.10) (.12) (.14) (.19) (.18) (.12)
Distributions (from capital
gains) (2.54) (1.72) (1.13) (.69) (.68) (1.28)
--------- ---------------------------------------
Total distributions (2.64) (1.84) (1.27) (.88) (.86) (1.40)
--------- ---------------------------------------
Net Asset Value, End of Period $24.73 23.65 20.92 18.5 16.98 14.65
========= =======================================
Total Return (3) 17.02%(4 23.73% 21.64% 15.00% 23.22% (2.94)%
Ratios/Supplemental Data:
Net assets, end of period
(in millions) $7,409 $6,039 $4,804 $4,223 $3,523 $2,592
Ratio of expenses to average
net assets .40% (4) .79% .81% .84% .88% .85%
Ratio of net income to
average net assets .25% (4) .60% .66% .85% 1.33% 1.25%
Portfolio turnover rate 24.26% (4)38.55% 31.62% 29.54% 27.03% 25.51%
1 Unaudited
2 Adjusted to reflect the 100% share
dividend effective May 26, 1994.
3 Excludes maximum sales charge of 5.75%.
4 Based on operations for the period shown
and, accordingly, not representative
of a full year.
</TABLE>
[The American Funds Group(r)]
OFFICES OF THE FUND AND
OF THE INVESTMENT ADVISER,
CAPITAL RESEARCH AND
MANAGEMENT COMPANY
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5823
TRANSFER AGENT FOR
SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
CUSTODIAN OF ASSETS
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02105-1713
COUNSEL
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
This report is for the information of shareholders of The New Economy Fund, but
it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
September 30, 1999, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
PREPARING FOR THE YEAR 2000
The fund's key service providers - Capital Research and Management Company, the
investment adviser, and American Funds Service Company, the transfer agent -
have updated all significant computer systems to process date-related
information properly following the turn of the century. Testing of these and
other systems with business partners, vendors and other service providers will
continue through much of 1999. We will continue to keep you up to date in our
regular publications. If you would like more detailed information, call
Shareholder Services at 800/421-0180, ext. 21, or visit our Web site at
www.americanfunds.com.
Printed on recycled paper
Litho in USA BDC/GRS/4215
Lit. No. NEF-013-0799
