[THE AMERICAN FUNDS GROUP(R)]
1998 ANNUAL REPORT
FOR THE YEAR ENDED NOVEMBER 30
THE NEW ECONOMY FUND
Investing with a long-term focus in a rapidly changing economy
[photo image: close-up of satellite dish]
THE NEW ECONOMY FUND
RESULTS AT A GLANCE
<TABLE>
<CAPTION>
<S> <C> <C>
Average Annual 12 Months Lifetime
Compound Returns
(with all 12/1/97 - 11/30/98 12/1/83 - 11/30/98
distributions
reinvested)
The New Economy +23.7% +16.1%
Fund
Lipper Growth +18.0 +14.5
Funds Index
Morgan Stanley Capital International EAFE(r)
(Europe, +16.8 +15.0
Australasia, Far
East) Index*
Russell 2500 Index* -3.6 +12.6
Standard & Poor's 500 Composite Index* +23.7 +17.4
</TABLE>
*Unmanaged
The New Economy Fund's(r) objective is to help you participate in the many
investment opportunities that are being created as society continues to shift
from producing 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,
entertainment to computer software and airlines to health care - all of which
are able to benefit from the accelerating demand for services and information.
The New Economy Fund is one of the 28 funds in The American Funds Group,(r)
managed by Capital Research and Management Company. Since 1931, Capital has
invested with a long-term focus based on thorough research and attention to
risk.
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the total returns and average annual compound
returns with all distributions reinvested for periods ended December 31, 1998
(the most recent calendar quarter), assuming payment of the 5.75% maximum sales
charge at the beginning of the stated periods:
<TABLE>
<CAPTION>
<S> <C> <C>
Average Annual
Total Return Compound Return
10 years 372.48% 16.80%
Five years 101.85 15.08
One year 21.42
Sales charges are lower for accounts of $50,000 or more.
</TABLE>
FIGURES SHOWN ARE PAST 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 U.S. involve special risks
such as currency fluctuations, political instability, differing securities
regulations and periods of illiquidity. Global diversification can help reduce
these risks.
About our cover: The photograph is an extreme close-up of part of a satellite
dish, one of the symbols of the new economy.
FELLOW SHAREHOLDERS:
Despite increased volatility in U.S. and global stock markets in fiscal 1998,
The New Economy Fund had a very good year. For the 12 months ended November 30,
the value of your holdings rose 23.7% if, like most shareholders, you
reinvested income dividends totaling 12 cents a share and the capital gain
distribution of $1.72 a share paid in December 1997.
SERVICE COMPANIES THRIVED
The New Economy Fund was founded in 1983 on the perception that service and
information companies in the United States and around the world were growing
much faster than manufacturing businesses and would continue to do so. This
dichotomy proved to be true in the past 12 months. Some manufacturers exposed
to the turmoil in global markets experienced earnings difficulties and laid off
thousands of employees. Boeing, Gillette and Minnesota Mining and Manufacturing
(3M), for example, announced significant job cuts.
In contrast, service industries are working overtime to meet booming domestic
demand. Business Week reported in mid-December that factories eliminated
245,000 jobs between March and November, while service companies created more
than a million jobs over the same period.
FUND OUTPACED RELEVANT INDEXES
As we have noted in previous reports, we track the fund's progress relative to
three indexes that correspond to New Economy's potential investment universe.
We do this because there is no single index that is an adequate benchmark for
the fund. In the fiscal year ended November 30, the fund's 23.7% total return
clearly outpaced each of these indexes: 1) the Lipper Growth Funds Index, which
tracks 30 of the largest growth-oriented U.S. mutual funds; 2) the unmanaged
Russell 2500 Index, which tracks small and medium-size U.S. stocks; and 3) the
unmanaged Morgan Stanley Capital International EAFE (Europe, Australasia, Far
East) Index, which measures all major markets outside North America.
The unmanaged Standard & Poor's 500 Composite Index, a widely used gauge of the
U.S. stock market, posted a total return for this period of 23.7%, the same as
that of the fund. Keep in mind that the S&P 500's results were driven by larger
corporations while the fund's portfolio includes many smaller firms. In
addition, the S&P 500 is made up almost entirely of U.S. securities, while the
fund can invest up to 40% of its assets outside the United States. Currently,
the fund has 26.7% of its portfolio invested overseas.
LARGEST HOLDINGS DID WELL
Gains in the fund's portfolio were broadly based, with stocks in the
telecommunications, financial services, cable and entertainment industries all
making strong contributions.
Our largest holdings did particularly well. Seven of the fund's 10 largest
holdings at the beginning of the fiscal year remained in the top 10 for the
full year. All seven stocks handily outpaced the broad market. The group
included three media stocks: Viacom (+90.2%), Time Warner (+81.5%) and
Tele-Communications, Liberty Media Group (+79.2%). Two financial services
stocks, Freddie Mac (+46.7%) and Fannie Mae (+37.8%), contributed importantly.
Rentokil, a United Kingdom-based global service company, rose 58.6%. Carnival,
one of the world's largest cruise companies, increased 27.6%.
[Begin Sidebar]
New Economy's gain exceeded the returns of the three indexes we use to measure
the fund.
[End Sidebar]
[Begin Sidebar]
10 LARGEST EQUITY HOLDINGS
AT THE BEGINNING OF OUR FISCAL YEAR
(November 30, 1997)
<TABLE>
<CAPTION>
<S> <C>
Percent
of Net
Assets
Fannie Mae 3.19%
Freddie Mac 2.66
Time Warner 2.35
Tele-Communications,
Liberty Media Group 2.21
Carnival 2.10
Tele-Communications, 1.91
TCI Group
Viacom 1.81
America Online 1.77
Telefonos de Mexico 1.59
Rentokil Group 1.53
</TABLE>
[End Sidebar]
[Begin Sidebar]
We continue to believe that many service and information companies around the
world offer great opportunities.
[End Sidebar]
[Begin Sidebar]
WHERE THE FUND'S
ASSETS ARE INVESTED
(as of November 30, 1998)
<TABLE>
<CAPTION>
<S> <C>
Percent
of Net
Country Assets
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
Cash & Equivalents 12.0
Total 100.0%
</TABLE>
[End Sidebar]
Of the three stocks no longer among our top 10 largest holdings, two - America
Online (+363.9%) and TeleCommunications, TCI Group (+84.4%) - rose so much in
price that we opted to take profits and significantly reduced our holdings.
Telefonos de Mexico declined 5.9% and fell out of the top 10.
Of the three stocks new to the top 10 list, two - Cendant and Oracle - arrived
there as a result of additional purchases. Both companies experienced problems
during the year that presented exceptional buying opportunities. Cendant, a
diversified company with holdings in franchise businesses, fell 33.9% after
auditors found improper accounting procedures at a recently acquired
subsidiary. Oracle, the world's leading supplier of database management
software, fell 29.1% in the first half of the fiscal year but bounced back
after announcing record first-quarter results, finishing up 2.8%. The final
stock, Comcast, like most cable television stocks, performed extremely well
during the year (+73.7%).
TELECOMMUNICATIONS STANDS OUT
For some time we have been convinced that global telecommunications offered
good opportunities because of the worldwide boom in wireless telephones and
growing privatization of goverment-owned telephone companies. Indeed, it was a
segment of the portfolio that helped returns during the past fiscal year.
Vodafone, a provider of mobile telephone services in the United Kingdom and
Europe, was up 123.8%, and Mannesmann, a diversified mobile telephone operator
in Germany, rose 132.6%. Impressive results were also posted by Tele Danmark
(+86.1%), MCI WorldCom (+84.4%), Spain's Telefonica (+62.6%), AirTouch
Communications (+45.7%) and Telecom Italia (+32.5%).
SEEKING OPPORTUNITIES OUTSIDE THE LARGEST U.S. STOCKS
While it is always gratifying to see the fund do so well, we note that
investors should not expect these types of returns to continue indefinitely.
This year's 23.7% return follows gains of 21.6% in fiscal 1997, 15.0% in 1996
and 23.2% in 1995. The average annual return of 20.8% over this period far
outpaces the fund's lifetime return of 16.1% a year and the stock market's
70-year annual average return of 10.4%, as measured by the S&P 500.
Over the past few years, the largest U.S. stocks have done very well - so well,
in fact, that we believe there are better opportunities elsewhere, in smaller
U.S. companies and in companies domiciled outside the United States that have
lagged the U.S. bull market. We continue to believe that many service and
information companies around the world offer great investment opportunities. On
the following pages, you will find a feature on how The New Economy Fund
maintains a long-term perspective while investing in rapidly changing
industries. We hope it will help you understand how the fund works.
Cordially,
/s/William R. Grimsley
William R. Grimsley
Chairman of the Board
/s/Timothy D. Armour
Timothy D. Armour
President
January 15, 1999
HOW A $10,000 INVESTMENT HAS GROWN
Here's how a $10,000 investment grew between December 1, 1983 - when The New
Economy Fund began operations - and November 30, 1998, the end of its latest
fiscal year. As you can see, the $10,000 would have increased to $88,243 after
deducting the maximum 5.75% sales charge and reinvesting all distributions, an
average increase of 15.6% a year. The fund's year-by-year results appear under
the chart.
[Begin Sidebar]
AVERAGE ANNUAL COMPOUND RETURNS*
(for periods ended November 30, 1998)
10 Years +16.24%
Five Years +14.30
One Year +16.60
*Assumes reinvestment of all distributions and payment of the 5.75% sales
charge at the beginning of the stated periods.
$110,840/1/
S&P 500
Composite Index
$88,243/1//2//3/
New Economy Fund
$76,003/1//4/
Lipper Growth
Funds Index
$16,206/5/
Consumer Price
Index (inflation)
$10,000/2/
original investment
<TABLE>
<CAPTION>
Lipper Consumer
S&P 500 Growth Price
Year Ended New Economy Composite Funds Index
November 30 Fund /1/ /2/ /3/ Index/1/ Index/1/ /4/ (inflation)/5/
<S> <C> <C> <C> <C>
1983 $9,425 $10,000 $10,000 $10,000
1984 9,485 10,285 9,222 10,405
1985 13,144 13,273 11,906 10,771
1986 15,950 16,950 14,566 10,909
1987 15,093 16,140 13,569 11,403
1988 18,462 19,881 16,403 11,887
1989 25,269 26,010 21,252 12,441
1990 21,886 25,083 19,611 13,221
1991 26,413 30,204 24,758 13,617
1992 32,641 35,780 29,299 14,032
1993 42,631 39,384 32,478 14,407
1994 41,376 39,806 32,541 14,792
1995 50,984 54,516 43,359 15,178
1996 58,631 69,712 52,166 15,672
1997 71,317 89,622 64,434 15,959
1988 88,243 110,840 76,003 16,026
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year Ended November 30 1984 1985 1986 1987 1988
Total Value Dividends Reinvested - $199 140 367 315
Value at Year-End /3/ $9,485 13,144 15,950 15,093 18,462
NEF TOTAL RETURN (5.2)% 38.6 21.3 (5.4) 22.3
Year Ended November 30 1989 1990 1991 1992 1993
Total Value Dividends Reinvested 421 566 589 328 189
Value at Year-End /3/ 25,269 21,886 26,413 32,641 42,631
NEF TOTAL RETURN 36.9 (13.4) 20.7 23.6 30.6
Year Ended November 30 1994 1995 1996 1997 1998
Total Value Dividends Reinvested 307 517 578 455 422
Value at Year-End /3/ 41,376 50,984 58,631 71,317 88,243
NEF TOTAL RETURN (2.9) 23.2 15.0 21.6 23.7
</TABLE>
[end mountain chart]
Average annual compound return for 15 years: 15.6%/2/
/1/ All results are calculated with dividends and capital gains reinvested.
/2/ These figures, unlike those shown elsewhere in this report, reflect payment
of the maximum sales charge of 5.75% on the $10,000 investment. Thus, the net
amount invested was $9,425. As outlined in the prospectus, the sales charge is
reduced for larger investments. There is no sales charge on dividends or
capital gain distributions that are reinvested in additional shares. The
maximum initial sales charge was 8.5% prior to July 1, 1988. No adjustment has
been made for income or capital gain taxes.
/3/ Includes reinvested dividends of $5,393 and reinvested capital gain
distributions of $26,267.
/4/ This index tracks 30 of the largest U.S. growth funds (representing about
52% of all U.S. growth fund assets).
/5/ Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
The indexes are unmanaged and do not reflect sales charges, commissions or
expenses.
Past results are not predictive of future results.
[End Sidebar]
INVESTING FOR THE LONG TERM IN A RAPIDLY CHANGING ECONOMY
[photos: close-up of cellular phone, laptop computer, satellite]
The most sweeping change in the U.S. labor market since World War II has been
the transformation from an industrial-based to a service-based economy. Around
the world, growing populations, advancing technologies and rising standards of
living are changing the ways we live and work. The result is a new economy that
grows each time you eat in a restaurant, watch television, use a credit card or
surf the Internet.
When The New Economy Fund was founded in 1983, services had recently surpassed
manufacturing for the first time as the largest employer among major U.S.
industry groups. Then, as now, the fund's objective was to seek attractive
investment opportunities created by this burgeoning new economy and to find
values among dynamic companies that could respond to growing changes in
consumer demand.
FUND'S CONCEPT IS TIMELY
The fund's founding concept is as timely today as it was 15 years ago. Service
and information industries have become the engine of growth for the American
economy and, increasingly, the world's. From just after World War II through
the mid-1990s, the service industry's contribution to the U.S. gross domestic
product (GDP) rose from 9% to more than 19%; in the same period, the
contribution made by manufacturing fell from approximately 30% to 17%.
The chart at right shows that services have grown more rapidly and more
steadily than the U.S. economy as a whole. In other words, not only are the
growth rates for service industries higher, they also tend to hold up much
better whenever the economy turns down.
By the year 2000, eight of every 10 working Americans are expected to be
employed in the service sector, compared with six of 10 in 1970.
SPENDING MORE ON SERVICES
Another way to consider the growth of the new economy is to look at our
changing personal spending patterns.
In a study reported in Business Week in March 1998, increases in spending for
key "old economy" items were measured against those of key "new economy" items.
On average, Americans spent 12% more in 1997 than they did the previous year on
service and information such as home computers, entertainment, financial
services and the telephone. Comparatively, they spent less than 1% more for
manufactured products such as clothing, automobiles and food.
Every business, large or small, relies on service and information companies for
its prosperity. In every type of commercial activity - manufacturing,
transportation, energy, trade and finance - companies rely on the edge service
and information companies offer for their business success.
On the following pages, we will discuss the service and information components
of the fund in more detail and cite examples of industries that play key roles
in the growth of the new economy. They are industries that affect your life
each and every day.
But first, it's important to look at how The New Economy Fund is managed
because we believe it is one of the most critical elements of the fund's
long-term success.
[Begin Sidebar]
On average, Americans spent 12% more in 1997 than they did the previous year on
service and information.
[End Sidebar]
[Begin Sidebar]
WHY INVEST IN THE NEW ECONOMY?
The service industries have experienced dynamic growth with more stability than
the economy as a whole.
<TABLE>
<S> <C> <C>
Economy-Wide Service Sector
Gross Domestic Product Gross Domestic Product
1964 Q4 100.00 100.00
1965 Q1 102.53 100.86
Q2 103.89 102.46
Q3 105.81 103.91
Q4 108.42 105.78
1966 Q1 111.05 106.67
Q2 111.53 108.05
Q3 112.29 109.03
Q4 113.24 110.32
1967 Q1 114.14 112.04
Q2 114.23 113.20
Q3 115.13 114.72
Q4 116.00 115.72
1968 Q1 118.12 117.10
Q2 120.16 119.10
Q3 121.04 120.76
Q4 121.59 122.18
1969 Q1 123.44 123.45
Q2 123.74 124.92
Q3 124.46 126.33
Q4 123.83 127.84
1970 Q1 123.61 129.21
Q2 123.80 130.23
Q3 124.94 131.62
Q4 123.71 132.57
1971 Q1 127.07 133.78
Q2 127.78 135.03
Q3 128.62 136.15
Q4 128.99 138.03
1972 Q1 131.57 140.11
Q2 134.61 141.59
Q3 136.01 143.26
Q4 138.35 146.11
1973 Q1 142.07 147.85
Q2 143.05 149.48
Q3 142.61 150.68
Q4 144.07 151.38
1974 Q1 142.65 152.33
Q2 143.18 154.02
Q3 141.62 154.55
Q4 140.68 156.29
1975 Q1 138.73 157.60
Q2 139.99 159.38
Q3 142.61 160.26
Q4 144.27 162.32
1976 Q1 147.63 164.53
Q2 148.64 165.51
Q3 149.23 167.73
Q4 150.62 170.42
1977 Q1 152.44 171.79
Q2 155.50 172.85
Q3 158.03 175.31
Q4 157.98 177.02
1978 Q1 158.61 179.92
Q2 164.64 182.26
Q3 166.15 183.66
Q4 168.04 184.75
1979 Q1 168.11 186.81
Q2 168.47 187.94
Q3 169.54 188.37
Q4 169.95 189.94
1980 Q1 170.79 190.98
Q2 166.68 190.09
Q3 166.53 192.80
Q4 169.80 195.00
1981 Q1 172.98 194.21
Q2 171.44 196.25
Q3 173.49 196.72
Q4 171.33 196.84
1982 Q1 168.48 197.84
Q2 169.18 198.56
Q3 168.34 199.49
Q4 168.57 202.15
1983 Q1 170.20 204.39
Q2 173.87 207.37
Q3 176.99 209.38
Q4 180.28 211.45
1984 Q1 184.46 214.07
Q2 187.35 216.06
Q3 188.72 218.13
Q4 189.94 220.63
1985 Q1 191.89 224.20
Q2 192.86 225.98
Q3 195.63 228.62
Q4 196.87 231.40
1986 Q1 199.32 233.45
Q2 199.54 234.52
Q3 200.62 236.86
Q4 201.73 239.52
1987 Q1 203.01 243.11
Q2 205.06 246.01
Q3 206.86 248.23
Q4 209.90 250.12
1988 Q1 211.17 254.11
Q2 213.31 256.13
Q3 214.58 259.16
Q4 217.28 260.52
1989 Q1 219.40 262.39
Q2 221.03 263.03
Q3 222.21 264.84
Q4 222.42 267.43
1990 Q1 224.57 269.15
Q2 225.27 272.31
Q3 224.19 274.31
Q4 221.89 273.97
1991 Q1 220.74 272.41
Q2 221.73 275.46
Q3 222.29 276.19
Q4 222.85 277.61
1992 Q1 225.42 281.35
Q2 226.82 283.30
Q3 228.52 284.50
Q4 230.94 286.79
1993 Q1 230.97 288.16
Q2 232.14 289.50
Q3 233.37 292.07
Q4 236.41 293.83
1994 Q1 238.15 295.75
Q2 240.91 298.66
Q3 241.98 300.12
Q4 244.14 301.81
1995 Q1 245.19 303.90
Q2 245.44 306.73
Q3 247.45 309.60
Q4 249.14 311.36
1996 Q1 251.20 313.90
Q2 254.92 316.69
Q3 256.23 318.20
Q4 258.90 321.82
1997 Q1 261.59 323.59
Q2 264.14 326.68
Q3 266.86 330.55
Q4 268.81 333.49
1998 Q1 272.46 336.08
Q2 273.70 340.28
Q3 276.31 343.97
</TABLE>
Index: fourth quarter 1964 = 100
Source: U.S. Department of Commerce. Bureau of Economic Analysis
[End Sidebar]
[Begin Sidebar]
TELECOMMUNICATIONS
[photo: close-up of cellular phone]
Of all the industries in the new economy, telecommunications has been perhaps
the most dynamic.
Today, the global telecom market is a dog-eat-dog battlefield. Worldwide
deregulation of the industry has combined with quickly advancing technologies
to create a climate of competition in which upstart companies are able to
compete with long-standing leaders to be your telephone or cellular service
provider. The development and growth of the Internet has given companies an
important new medium for commerce, and it has given consumers a virtual
marketplace.
Yet the telecommunications infrastructure needed to support many information
services is still relatively underdeveloped in much of the world. Many
governments are embarking upon ambitious programs to enhance this
infrastructure in recognition of the many benefits of telecom products and
services.
[End Sidebar]
HOW THE FUND INVESTS
Like the other American Funds, The New Economy Fund relies on a process of
investing called the multiple portfolio counselor system. The fund's assets are
divided into six segments. Five pieces are individually managed by veteran
portfolio counselors Bill Grimsley, Tim Armour, Claudia Huntington, Gordon
Crawford and Bill Newton. The sixth segment of the fund is assigned to a group
of research analysts. In brief, portfolio counselors are "generalists" who
select from a wide range of investments. Research analysts are "specialists"
who buy and sell companies among the industries they follow.
PORTFOLIO COUNSELORS ACT INDEPENDENTLY
Unlike a committee, where decisions are made by consensus, each portfolio
counselor operates autonomously and invests his or her portion as if it were an
entire fund. The independence that individual counselors enjoy means they can
focus on and invest in those companies they really believe in and understand.
They don't have to drift beyond their fields of expertise to provide
diversification. The other counselors and research analysts - each of whom also
invests on his or her strongest convictions - provide ample diversification.
ANALYSTS PLAY KEY ROLE
In turn, research analysts help add value because they focus narrowly on a
specific industry or type of company. They spend more time on the road talking
to company officials, competitors, suppliers and creditors to get a
well-rounded view of a company's prospects.
"We have always believed that the closer you are to the source of information,
the more effective your decision-making process is likely to be," says Tim
Armour, president of The New Economy Fund. "That is one reason why research
analysts play such an important role in the fund."
Research analysts benefit because they invest in the companies they follow. At
many other investment firms, research analysts simply make recommendations to
others about the purchase and sale of stocks.
SMOOTHING THE UPS AND DOWNS
The American Funds have been using this system for more than 40 years. It has
tended to smooth out the ups and downs of individual results, and it encourages
diversification of styles and approaches. It has also provided a measure of
consistency, continuity and flexibility. While one portfolio counselor may be
having an off year, another may be having an outstanding one.
The multiple portfolio counselor system has worked especially well for The New
Economy Fund. Investing in rapidly changing service and information industries
calls for a system that allows investment professionals to follow their
strongest convictions and to act quickly when an opportunity arises. Our
portfolio counselors and research analysts can do that, yet the system allows
them to share information and viewpoints.
Brady Enright, a San Francisco-based research analyst who covers small
companies for the fund, appreciates the system's strengths. "We get the best of
both individual and team management," he says. "We don't have the institutional
inertia of waiting for a consensus to buy a stock. Yet we bring the expertise
of multiple investment professionals to bear on every investment decision."
[Begin Sidebar]
"The use of mobile phones continued to gain momentum globally with
approximately 200 million cellular subscribers at the end of 1997, up from 135
million at the beginning of the year. The industry estimates that by the end of
the year 2000, the global subscriber base will increase to around 470 million."
- - 1997 Nokia annual report
Sales of airline tickets purchased over the Internet
1996 $276 million
1997 827 million
The Financial Times
[End Sidebar]
[Begin Sidebar]
The finance revolution in the past 25 years rivals the one that gave us the
microchip.
- - Business Week, August 31, 1998
In America alone there are:
* More than 9,000 commercial banks
* Some 8,000 insurance companies
* Over 5,500 securities firms
* About 500 mutual fund companies
- - Business Economics, October 1998
The insurance industry in the United States - with more than $600 billion in
premiums - is the second largest in the world after Japan.
- - Business America, April 1998
Financial services firms are among the biggest high-tech users, spending more
than $60 billion annually on information technology.
- - Business Week, December 21, 1998
[End Sidebar]
The multiple portfolio counselor system has been good for shareholders because
it has given them the opportunity to benefit from the viewpoints and
perspectives of a wide range of investment professionals with differing
approaches and styles.
Brady believes that part of the value of working with portfolio counselors is
that "they bring a broader perspective to the process. Usually, there are four
or five key issues that are important to a stock. The counselors help you focus
on the key questions. Otherwise, you can lose your way in the forest by
concentrating too closely on the trees."
CHOOSING THE WINNERS
Now that we have discussed how The New Economy Fund is managed, let's find out
how the fund's analysts and portfolio counselors go about finding good
investments in the service and information industries. As we have indicated,
there is no one way to accomplish this, and one of the fund's strengths is the
wide variety of styles of its investment professionals.
FOCUSING ON THE NEXT THREE TO FIVE YEARS
Jeff Lager, a research analyst who covers business and environmental service
companies for the fund, says that an important thing to remember is that the
service and information industries are still emerging, so you have to focus on
the future - not on what is happening now. Jeff puts it this way: "A great
hockey player once said that the trick is not to go where the puck is - but to
go to the empty space where the puck is going to be. We try hard to figure out
where a company is going to be three to five years from now."
It's more difficult than researching an old-line manufacturing company, Jeff
says. "Many of these service companies don't have products. They consist of
people and a process. They run a business driven off intellectual capital. So
you can't kick the tires on a car or tour a factory floor. It's a separate
discipline. You have to assess what the market's need is for this service. What
is the company's intellectual capital? You have to assess how good the
management is and how good the service is that the company is selling to the
market."
SEEKING ECONOMICALLY COMPELLING SERVICES
Brady Enright looks for companies that have what he calls "a sustainable
business model." The company "has to offer a service or product that is
economically compelling. The service or product has to be very important to the
customer. In cases where these factors exist, companies can benefit from a lack
of pricing pressure.
One example is a small company called Profit Recovery Group International,
Brady says. Based in Atlanta, the company provides accounts-payable audit
services for retailers. The firm goes through old accounts-payable receipts and
makes sure the client didn't overpay. The company usually comes up with a
fairly predictable number of errors and is remunerated for a percentage of what
it finds. "For Profit Recovery's customers, it's all found money," Brady says.
Another profitable company is Allied Waste Industries, a provider of waste
management services in the United States. "It has very attractive long-term
fundamentals," says Jeff Lager. "It generates a lot of cash and provides
essential services. The fund has a mix of different types of service companies
- - some of them mundane and some of them cutting edge. A service orientation is
the link."
[Begin Sidebar]
FINANCIAL SERVICES
[photo: close-up of laptop computer]
By most accounts, the finance sector of the economy is booming. Each week
brings news of another financial services acquisition, a reminder that it is an
industry in the midst of unprecedented change.
Regulations once designed to restrict mergers within and across financial
service industries are falling by the wayside as changing consumer demand,
advancing technology and increasing globalization challenge the ways financial
products and services are delivered. Consumer credit has grown 60% in the past
eight years as credit cards have become more widely accepted in such places as
movie theaters, fast-food restaurants and grocery stores. Transactions at
automated teller machines have nearly doubled since 1990, and streamlined
mortgage underwriting has made obtaining a home loan cheaper and faster.
The Internet is also affecting change. Online trading has lowered the average
commissions paid to brokerages, spurring a related decrease in costs.
Bottom line? The financial sector of the economy - which includes insurance and
real estate - fueled 18% of corporate profits in the 1990s, up from 11% in the
1980s.
[End Sidebar]
[Begin Sidebar]
ENTERTAINMENT & LEISURE
[photo: close-up of satellite]
Studies have shown that Americans spend a third of their time and income on
entertainment and leisure, making these industries a significant force in our
economy.
Consider the variety of ways you spend your free time and discretionary income
- - on movies, home electronics, television, travel, music, sporting goods,
amusements, toys and recreation equipment like boats, motor homes and bicycles.
A quick accounting of your own spending will point out the incredible array of
products and services that comprise this sector of the economy.
As long as the economy remains stable and growing, it is likely we will
continue to enjoy leisure pursuits in growing numbers.
[End Sidebar]
SEARCHING FOR VALUE IN INTERNET COMPANIES
Bill Grimsley, chairman of the fund, says New Economy analysts and portfolio
counselors have done as much research on Internet-related companies as any
investment firm in the business, but the portfolio doesn't yet show a long list
of Internet companies. "We stay on top of these companies," Bill says, "but it
is a very difficult area for value-oriented, long-term investors."
An example is America Online, the dominant Internet online service company. "We
know the company very well, but at certain valuations we feel it is just not
appropriate as a long-term holding," Bill says. America Online's stock rose
363.9% in price during the past fiscal year, and the fund sold most of its
position in the company, taking substantial profits. "In the near term, it
looks like America Online's high stock price reflects overzealous enthusiasm
and speculation," Bill says.
However, continuous, intensive research on Internet-related companies is
important because "services and products that were not on people's radar
screens six or eight years ago have become very big parts of the new economy,"
Bill says. "So you must do the research to stay ahead."
TAKING A GLOBAL APPROACH TO THE NEW ECONOMY
It's important to recognize that the fund takes a global approach to investing
in service and information companies. It can invest up to 40% of its assets in
companies outside the United States. At the end of fiscal 1998, it had 26.7% of
its assets invested outside the United States.
The fund's approach to its telecommunications investments is a clear example,
says Tim Armour. "The boom in cellular telephones is a worldwide phenomenon -
and we look at it that way," Tim says. The fund has significant investments in
Vodafone Group, a leading provider of mobile telephone services in the United
Kingdom and Europe; Mannesmann, which operates a digital mobile telephone
network in Germany; and AirTouch Communications, a wireless telecommunications
company based in the United States, which receives about half of its revenues
from overseas operations.
Other kinds of companies are also well represented among our non-U.S. holdings.
One of the fund's 10 largest holdings as of November 30 was Rentokil, a global
service company based in the United Kingdom.
THE BOTTOM LINE FOR INVESTORS
So what does all this mean for investors in The New Economy Fund? Over the long
term, we believe our approach to investing in service and information
industries will provide investors with opportunities to participate in the
fastest growing industries around the world. Over the past 15 years, the fund's
16.1% average annual return has clearly outpaced those of the three indexes we
measure it against (as shown on the inside front cover). Shareholders who have
remained with us over the long run have realized the benefits of investing in
the new economy.
[Begin Sidebar]
"To be able to use leisure intelligently will be the last product of an
intelligent civilization."
- - Bertrand Russell
Over the past decade, U.S. travel and tourism exports have grown nearly 250%.
- - Business America, April 1998
Spending by international visitors reached a record $90 billion in 1996, with
nearly $70 billion injected directly into the U.S. economy.
- - Business America, April 1998
Of the 211 million TV households in the United States, 60.5 million subscribe
to cable TV.
- - The Independent Producer's Manual
Over 70% of the population rents or goes to movies regularly, thus accounting
for more than 1.5 billion movie attendances each year in the United States.
- -The Independent Producer's Manual
[End Sidebar]
<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>
Equity securities appearing in the
portfolio since May 31, 1998
- -------------------------------------------
Adelphia Communications
Allianz
Applied Materials
Ascend Communications
Brylane
CBT Group
Cardinal Health
Cisco Systems
Compaq Computer
Computer Associates International
Data Broadcasting
Electric Lightwave
Electronics for Imaging
Fox Entertainment Group
Gateway 2000
Genting International
ISS-International Service System
Linear Technology
Microsoft
Molex
NTL
NTT Mobile Communications Network
Panafon Hellenic Telecommunications
Park-Ohio Industries
Profit Recovery Group International
Protection One
SCI Systems
Stet Hellas Telecommunications
Suez Lyonnaise des Eaux
Telefonaktiebolaget LM Ericsson
Trigon Healthcare
USWeb
Vail Resorts
Williams Companies
Yahoo!A69
Equity securities eliminated from the
portfolio since May 31, 1998
- -------------------------------------------
Aetna
American Management Systems
APAC TeleServices
Banco de Santander
Broderbund Software
Cerner
Circus Circus Enterprises
Ecolab
Electronic Arts
Foodmaker
France Telecom
Golden Books Family Entertainment
Greyhound Lines
Grupo Financiero Banamex Accival
Gymboree
LCI International
Limited
MacNeal-Schwendler
Mandamus
McDonald's
National Westminster Bank
Norwest
Orthodontic Centers of America
Policy Management Systems
Scholastic
Shared Medical Systems
SITEL
Sizzler International
Societe Generale de Belgique
Sodexho Marriott Services
Southwest Airlines
Tele-Communications International
Telefonica del Peru
Tesco
USA Waste Services
Viking Office Products
Young Broadcasting
<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 18.50 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 18.50 16.98 14.65
========= ========= ========= ======== ========
Total Return (2) 23.73% 21.64% 15.00% 23.22% (2.94)%
Ratios/Supplemental Data:
Net assets, end of 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.
SHAREHOLDER SERVICES
[graphic: telephone receiver]
AMERICAN FUNDSLINE(R)
Use our 24-hour automated phone system for fund information and transactions.
[graphic: computer]
FUNDSLINE ONLINE(R)
Visit our Web site when you want to access your account, download a prospectus,
or find fund information.
[graphic: coins]
REDUCED SALES CHARGE
Larger purchases may qualify for a reduced sales charge. To help reach a
breakpoint, you may -
* Add your present purchase to the value of all eligible household accounts
and/or
* Add your present purchase to purchases you intend to make over 13 months
Assets in money market funds generally do not apply when determining sales
charges.
[graphic: sign post with 3 signs: SIMPLE, IRA, 401(K)]
RETIREMENT PLANS
A wide range of fund choices for individual and company-sponsored retirement
plans.
[graphic: building]
AMERICAN FUNDSLINK/SM/
Link you fund account to your bank account for direct transfers between the two
and to purchase shares using American FundsLine or FundsLine OnLine.
[graphic: calendar]
AUTOMATIC TRANSACTIONS
Use this service when you want to purchase, sell and exchange shares on a
regular basis.
[graphic: dollar signs moving from one box to another, being coordinated by a
conductor]
FLEXIBLE DIVIDEND OPTIONS
Use your dividend and capital gain distributions to meet your changing
needs.You may -
* Invest dividends and capital gain distributions back into the fund
* Diversify by investing dividends and capital gain distributions into another
American Fund
* Take dividends in cash
* Have dividends paid directly to someone else
BECAUSE CERTAIN TRANSACTIONS HAVE RESTRICTIONS OR TAX CONSEQUENCES, PLEASE
CONSULT YOUR FINANCIAL ADVISER BEFORE REQUESTING CHANGES.
WOULD YOU LIKE MORE INFORMATION?
Your financial adviser will be happy to explain these services in greater
detail, or you may contact American Funds Service Company.
TO CONTACT AMERICAN FUNDS SERVICE COMPANY:
SHAREHOLDER SERVICES REPRESENTATIVE - 8 a.m. to 8 p.m. Eastern time -
800/421-0180
AMERICAN FUNDSLINE - 24-hour automated telephone system - 800/325-3590
FUNDSLINE ONLINE - Web site - www.americanfunds.com
By mail - Write to the service center nearest you.
(If you live outside the United States, please write to the western service
center.)
[maps: western, west central, east central, and eastern service areas]
WESTERN
AMERICAN FUNDS
SERVICE COMPANY
P.O. Box 2205
Brea, CA
92822-2205
WEST CENTRAL
American Funds
Service Company
P.O. Box 659522
San Antonio,TX
78265-9522
EAST CENTRAL
American Funds
Service Company
P.O. Box 6007
Indianapolis, IN
46206-6007
EASTERN
American Funds
Service Company
P.O. Box 2280
Norfolk,VA
23501-2280
Please obtain the applicable prospectuses from you financial adviser or our Web
site and read them carefully before investing or sending money. American Funds
reserves the right to terminate or modify these services.
THE NEW ECONOMY FUND
BOARD OF TRUSTEES
TIMOTHY D. ARMOUR
Los Angeles, California
President of the fund
Director, Capital Research and
Management Company;
Chairman of the Board and Chief Executive
Officer, Capital Research Company
AMBASSADOR RICHARD G. CAPEN, JR.
Rancho Santa Fe, California
Corporate director and author;
former United States Ambassador to Spain;
former Vice Chairman of the Board,
Knight-Ridder, Inc.; former Chairman of the
Board and Publisher, The Miami Herald
H. FREDERICK CHRISTIE
Rolling Hills Estates, California
Private investor; former President and
Chief Executive Officer, The Mission Group;
former President, Southern California
Edison Company
ALAN W. CLEMENTS
London, England
Private investor;
former Executive Director - Finance,
Imperial Chemical Industries PLC
ALAN GREENWAY
La Jolla, California
Private investor; President, Greenway Associates, Inc.
(management consulting services)
WILLIAM R. GRIMSLEY
San Francisco, California
Chairman of the Board of the fund
Senior Vice President and Director,
Capital Research and Management Company
E. GRAHAM HOLLOWAY
Dallas, Texas
Former Chairman of the Board,
American Funds Distributors, Inc.
LEONADE D. JONES
Burlingame, California
Former Treasurer, The Washington
Post Company
WILLIAM H. KLING
St. Paul, Minnesota
President, Minnesota Public Radio;
President, Greenspring Company;
former President, American Public Radio
(now Public Radio International)
NORMAN R. WELDON, PH.D.
Evergreen, Colorado
Managing Director, Partisan
Management Group Inc.;
Chairman of the Board, Novoste Corporation
PATRICIA K. WOOLF, PH.D.
Princeton, New Jersey
Private investor; lecturer,
Department of Molecular Biology,
Princeton University; corporate director
OTHER OFFICERS
CLAUDIA P. HUNTINGTON
Los Angeles, California
Senior Vice President of the fund
Senior Vice President,
Capital Research and Management Company
VINCENT P. CORTI
Los Angeles, California
Vice President of the fund
Vice President - Fund Business
Management Group,
Capital Research and Management Company
ULRICH A. VOLK
London, England
Vice President of the fund
Vice President, Capital Research Company
CHAD L. NORTON
Los Angeles, California
Secretary of the fund
Vice President - Fund Business
Management Group,
Capital Research and Management Company
ROBERT P. SIMMER
Norfolk, Virginia
Treasurer of the fund
Vice President - Fund Business
Management Group,
Capital Research and Management Company
SHERYL F. JOHNSON
Norfolk, Virginia
Assistant Treasurer of the fund
Vice President - Fund Business
Management Group,
Capital Research and Management Company
Printed on recycled paper
Litho in USA
BDA/GRS/3923
Lit. No. NEF-011-0199
[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
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT www.americanfunds.com ON THE WORLD
WIDE WEB.
This report is for the information of shareholders of The New Economy Fund, but
it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
March 31, 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'd like more detailed information, call Shareholder
Services at 800/421-0180, ext. 21, or visit our Web site at
www.americanfunds.com.
