THE NEW ECONOMY FUND
Part B
Statement of Additional Information
March 15, 2000
(as amended September 26, 2000)
This document is not a prospectus but should be read in conjunction with the
current prospectus of The New Economy Fund (the "fund" or "NEF") dated March 15,
2000. The prospectus may be obtained from your investment dealer or financial
planner or by writing to the fund at the following address:
The New Economy Fund
Attention: Secretary
333 South Hope StreetLos Angeles, California 90071
(213) 486-9200
Shareholders who purchase shares at net asset value through eligible retirement
plans should note that not all of the services or features described below may
be available to them, and they should contact their employer for details.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page No.
---- --------
<S> <C>
Certain Investment Limitations and Guidelines . . . . . . . . . . . 2
Description of Certain Securities and Investment Techniques . . . . 2
Fundamental Policies and Investment Restrictions. . . . . . . . . . 6
Fund Organization and Voting Rights . . . . . . . . . . . . . . . . 7
Fund Trustees and Officers. . . . . . . . . . . . . . . . . . . . . 9
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Dividends, Distributions and Taxes. . . . . . . . . . . . . . . . . 15
Purchase of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 20
Sales Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Sales Charge Reductions and Waivers . . . . . . . . . . . . . . . . 24
Individual Retirement Account (IRA) Rollovers . . . . . . . . . . . 27
Price of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Selling Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Shareholder Account Services and Privileges . . . . . . . . . . . . 30
Execution of Portfolio Transactions . . . . . . . . . . . . . . . . 33
General Information . . . . . . . . . . . . . . . . . . . . . . . . 33
Class A Share Investment Results and Related Statistics . . . . . . 35
Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Financial Statements
</TABLE>
The New Economy Fund - Page 1
<PAGE>
CERTAIN INVESTMENT LIMITATIONS AND GUIDELINES
The following limitations and guidelines are considered at the time of purchase,
under normal market conditions, and are based on a percentage of the fund's net
assets unless otherwise noted. This summary is not intended to reflect all of
the fund's investment limitations.
INVESTMENT OBJECTIVE
. Generally, the fund will invest primarily in securities of companies that
derive their revenues primarily from operations in the services and
information area of the global economy. These could include, for example,
companies involved in the areas of telecommunications, computer systems and
software, the internet, broadcasting and publishing, health care,
advertising, leisure, tourism, financial services, distribution and
transportation.
. The fund may invest up to 25% of its assets in companies outside the
services and information area.
DEBT SECURITIES
. The fund may invest up to 10% of its assets in straight debt securities
rated Baa/BBB or below by Moody's Investors Services, Inc. (Moody's) or
Standard & Poor's Corporation (S&P) or in unrated securities that are
determined to be of equivalent quality.
NON-U.S. SECURITIES
. The fund may invest up to 40% of its assets in securities of issuers
domiciled outside the U.S. and not included in the S&P 500 Index, including
securities denominated in currencies other than the U.S. dollar.
The fund may experience difficulty liquidating certain portfolio securities
during significant market declines or periods of heavy redemptions.
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The descriptions below are intended to supplement the material in the prospectus
under "Investment Objective, Strategies and Risks."
EQUITY SECURITIES - Equity securities represent an ownership position in a
company. These securities may include common stocks and securities with equity
conversion or purchase rights. The prices of equity securities fluctuate based
on changes in the financial condition of their issuers and on market and
economic conditions. The fund's results will be related to the overall markets
for these securities.
The growth-oriented, equity-type securities generally purchased by the fund may
involve large price swings and potential for loss, particularly in the case of
smaller capitalization stocks.
INVESTING IN SMALLER CAPITALIZATION STOCKS - The fund may invest in the stocks
of smaller companies (typically companies with market capitalizations of less
than $1.5 billion at the time of purchase). The Investment Adviser believes that
the issuers of smaller capitalization stocks often provide attractive investment
opportunities. However, investing in smaller capitalization stocks can involve
greater risk than is customarily associated with investing in stocks of larger,
more established companies. For example, smaller companies often have limited
product lines, markets, or financial resources, may be dependent for management
on one or a few key
The New Economy Fund - Page 2
<PAGE>
persons, and can be more susceptible to losses. Also, their securities may be
thinly traded (and therefore have to be sold at a discount from current prices
or sold in small lots over an extended period of time), may be followed by fewer
investment research analysts, and may be subject to wider price swings thus
creating a greater chance of loss than securities of larger capitalization
companies.
INVESTING IN VARIOUS COUNTRIES - Investing outside the U.S. involves special
risks, caused by, among other things: currency controls, fluctuating currency
values; different accounting, auditing, and financial reporting regulations and
practices in some countries; changing local and regional economic, political,
and social conditions; expropriation or confiscatory taxation; greater market
volatility; differing securities market structures; and various administrative
difficulties such as delays in clearing and settling portfolio transactions or
in receiving payment of dividends. However, in the opinion of Capital Research
and Management Company, investing outside the U.S. also can reduce certain
portfolio risks due to greater diversification opportunities.
The risks described above are potentially heightened in connection with
investments in developing countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of its industrialization cycle with a low per capita
gross national product. For example, political and/or economic structures in
these countries may be in their infancy and developing rapidly. Historically,
the markets of developing countries have been more volatile than the markets of
developed countries. The fund may only invest in securities of issuers in
developing countries to a limited extent.
Additional costs could be incurred in connection with the fund's investment
activities outside the U.S. Brokerage commissions may be higher outside the
U.S., and the fund will bear certain expenses in connection with its currency
transactions. Furthermore, increased custodian costs may be associated with the
maintenance of assets in certain jurisdictions.
CURRENCY TRANSACTIONS - The fund can purchase and sell currencies to facilitate
securities transactions and enter into forward currency contracts to protect
against changes in currency exchange rates. A forward currency contract is an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. Forward currency contracts
entered into by the fund will involve the purchase or sale of one currency
against the U.S. dollar. While entering into forward currency transactions could
minimize the risk of loss due to a decline in the value of the hedged currency,
it could also limit any potential gain which might result from an increase in
the value of the currency. The fund will not generally attempt to protect
against all potential changes in exchange rates. The fund will segregate liquid
assets which will be marked to market daily to meet its forward contract
commitments to the extent required by the Securities and Exchange Commission.
Certain provisions of the Internal Revenue Code may affect the extent to which
the fund may enter into forward contracts. Such transactions may also affect,
for U.S. federal income tax purposes, the character and timing of income, gain
or loss recognized by the fund.
DEBT SECURITIES - Bonds and other debt securities are used by issuers to borrow
money. Issuers pay investors interest and generally must repay the amount
borrowed at maturity. Some debt securities, such as zero coupon bonds, do not
pay current interest, but are purchased at a discount from their face values.
The prices of debt securities fluctuate depending on such factors
The New Economy Fund - Page 3
<PAGE>
as interest rates, credit quality, and maturity. In general their prices decline
when interest rates rise and vice versa.
Lower quality, lower rated bonds rated Ba or below by Standard & Poor's
Corporation and BB or below by Moody's Investors Services, Inc. (or unrated but
considered to be of equivalent quality) are described by the rating agencies as
speculative and involve greater risk of default or price changes due to changes
in the issuer's creditworthiness than higher rated bonds, or they may already be
in default. The market prices of these securities may fluctuate more than higher
quality securities and may decline significantly in periods of general economic
difficulty. It may be more difficult to dispose of, or to determine the value
of, lower quality, lower rated bonds.
Certain risk factors relating to "lower quality, lower rated bonds" are
discussed below.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES - Lower quality, lower
rated bonds can be sensitive to adverse economic changes and political and
corporate developments and may be less sensitive to interest rate changes.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress that would
adversely affect their ability to service their principal and interest
payment obligations, to meet projected business goals, and to obtain
additional financing. In addition, periods of economic uncertainty and
changes can be expected to result in increased volatility of market prices
and yields of lower quality, lower rated bonds.
PAYMENT EXPECTATIONS - Lower quality, lower rated bonds, like other bonds,
may contain redemption or call provisions. If an issuer exercises these
provisions in a declining interest rate market, the fund would have to
replace the security with a lower yielding security, resulting in a
decreased return for investors. If the issuer of a bond defaults on its
obligations to pay interest or principal or enters into bankruptcy
proceedings, the fund may incur losses or expenses in seeking recovery of
amounts owed to it.
LIQUIDITY AND VALUATION - There may be little trading in the secondary
market for particular bonds, which may affect adversely the fund's ability
to value accurately or dispose of such bonds. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of lower quality, lower rated bonds,
especially in a thin market.
The Investment Adviser attempts to reduce the risks described above through
diversification of the portfolio and by credit analysis of each issuer as well
as by monitoring broad economic trends and corporate and legislative
developments, but there can be no assurance that it will be successful in doing
so.
SECURITIES WITH EQUITY AND DEBT CHARACTERISTICS - The fund may invest in
securities that have a combination of equity and debt characteristics such as
non-convertible preferred stocks and convertible securities. These securities
may at times resemble equity more than debt and vice versa. The risks of
convertible preferred stock may be similar to those of equity securities. Some
types of convertible preferred stock automatically convert into common stock.
Non-convertible preferred stock with stated redemption rates are similar to debt
in that they have a stated dividend rate akin to the coupon of a bond or note
even though they are often classified as equity securities. The prices and
yields of non-convertible preferred stock generally move with changes in
interest rates and the issuer's credit quality, similar to the factors affecting
debt securities.
The New Economy Fund - Page 4
<PAGE>
Bonds, convertible preferred stock, and other securities may sometimes be
converted into common stock or other securities at a stated conversion ratio.
These securities prior to conversion pay a fixed rate of interest or a dividend.
Because convertible securities have both debt and equity characteristics, their
value varies in response to many factors, including the value of the underlying
equity, general market and economic conditions, convertible market valuations,
as well as changes in interest rates, credit spreads, and the credit quality of
the issuer.
U.S. GOVERNMENT SECURITIES - Securities guaranteed by the U.S. Government
include direct obligations of the U.S. Treasury (such as Treasury bills, notes
and bonds). For these securities, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. Such securities are subject to variations in
market value due to fluctuations in interest rates, but, if held to maturity,
will be paid in full.
Certain securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of, nor guaranteed by, the
Treasury. However, they generally involve federal sponsorship in one way or
another; some are backed by specific types of collateral; some are supported by
the issuer's right to borrow from the Treasury; some are supported by the
discretionary authority of the Treasury to purchase certain obligations of the
issuer; and others are supported only by the credit of the issuing government
agency or instrumentality. These agencies and instrumentalities include, but are
not limited to, Farmers Home Administration, Federal Home Loan Bank, Federal
Home Loan Mortgage Corporation, Federal National Mortgage Association, Tennessee
Valley Authority, and Federal Farm Credit Bank System.
CASH AND CASH EQUIVALENTS - These securities include (i) commercial paper (e.g.,
short-term notes up to 9 months in maturity issued by corporations, governmental
bodies or bank/ corporation sponsored conduits (asset backed commercial paper)),
(ii) commercial bank obligations (e.g., certificates of deposit, bankers'
acceptances (time drafts on a commercial bank where the bank accepts an
irrevocable obligation to pay at maturity)), (iii) savings association and
savings bank obligations (e.g., bank notes and certificates of deposit issued by
savings banks or savings associations), (iv) securities of the U.S. Government,
its agencies or instrumentalities that mature, or may be redeemed, in one year
or less, and (v) corporate bonds and notes that mature, or that may be redeemed,
in one year or less.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements, under
which it buys a security and obtains a simultaneous commitment from the seller
to repurchase the security at a specified time and price. Repurchase agreements
permit the fund to maintain liquidity and earn income over periods of time as
short as overnight. The seller must maintain with the fund's custodian
collateral equal to at least 100% of the repurchase price, including accrued
interest, as monitored daily by the Investment Adviser. The fund will only enter
into repurchase agreements involving securities in which it could otherwise
invest and with selected banks and securities dealers whose financial condition
is monitored by the Investment Adviser. If the seller under the repurchase
agreement defaults, the fund may incur a loss if the value of the collateral
securing the repurchase agreement has declined and may incur disposition costs
in connection with liquidating the collateral. If bankruptcy proceedings are
commenced with respect to the seller, realization upon the collateral by the
fund may be delayed or limited.
RESTRICTED SECURITIES AND LIQUIDITY - The fund may purchase securities subject
to restrictions on resale. All such securities not actively traded will be
considered illiquid unless they have been specifically determined to be liquid
under procedures which have been adopted by the fund's
The New Economy Fund - Page 5
<PAGE>
board of trustees, taking into account factors such as the frequency and volume
of trading, the commitment of dealers to make markets and the availability of
qualified investors, all of which can change from time to time. The fund may
incur certain additional costs in disposing of illiquid securities.
FUNDAMENTAL POLICIES AND INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES - The fund has adopted the following fundamental policies
and investment restrictions which may not be changed without approval by holders
of a majority of its outstanding shares. Such majority is defined in the
Investment Company Act of 1940 ("1940 Act") as the vote of the lesser of (i) 67%
or more of the outstanding voting securities present at a meeting, if the
holders of more than 50% of the outstanding voting securities are present in
person or by proxy, or (ii) more than 50% of the outstanding voting securities.
All percentage limitations are considered at the time securities are purchased
and are based on the fund's net assets unless otherwise indicated. None of the
following investment restrictions involving a maximum percentage of assets will
be considered violated unless the excess occurs immediately after, and is caused
by, an acquisition by the fund.
The fund may not:
1. Invest in securities of another issuer (other than the U.S. or its agencies
or instrumentalities), if immediately after and as a result of such investment
more than 5% of the value of the total assets of the fund would be invested in
the securities of such other issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the fund;
2. Invest in companies for the purpose of exercising control or management;
3. Purchase the securities of companies in a particular industry (other than
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities) if thereafter 25% or more of the value of its total assets
would consist of securities issued by companies in that industry;
4. Buy or sell real estate in the ordinary course of its business; however,
the fund may invest in securities secured by real estate or interests therein or
issued by companies, including real estate investment trusts, which invest in
real estate or interests therein;
5. Buy or sell commodities or commodity contracts in the ordinary course of
its business provided, however, that entering into a forward currency contract
shall not be prohibited by this restriction;
6. Invest more than 10% of the value of its total assets in securities which
are not readily marketable or engage in the business of underwriting of
securities of other issuers, except to the extent that the disposal of an
investment position may technically constitute the fund an underwriter as that
term is defined under the Securities Act of 1933;
The New Economy Fund - Page 6
<PAGE>
7. Lend any security or make any other loan if, as a result, more than 15%
of its total assets would be lent to third parties, but this limitation does
not apply to purchases of debt securities or to repurchase agreements;
8. Sell securities short, except to the extent that the fund contemporaneously
owns or has the right to acquire at no additional cost, securities identical to
those sold short;
9. Purchase securities on margin;
10. Enter into any repurchase agreement if, as a result, more than 10% of the
fund's total assets would be subject to repurchase agreements maturing in more
than seven days (see above);
11. Borrow amounts in excess of 5% of the value of its total assets or issue
senior securities; in any event, the fund may borrow only as a temporary measure
for extraordinary or emergency purposes and not for investment in securities;
12. Invest in puts, calls, straddles or spreads, or combinations thereof.
For purposes of investment restriction number 7, the fund does not currently
intend to lend portfolio securities.
The following investment policies of the fund may be changed by action of the
Board of Trustees without shareholder approval: (i) the fund may not invest
in securities of other investment companies, except as permitted by the 1940
Act, as amended; and (ii) the fund may not invest more than 15% of the value
of its net assets in illiquid securities.
FUND ORGANIZATION AND VOTING RIGHTS
The fund, an open-end, diversified management investment company, was organized
as a Massachusetts business trust on May 17, 1983.
All fund operations are supervised by the fund's Board of Trustees which meets
periodically and performs duties required by applicable state and federal laws.
Members of the board who are not employed by Capital Research and Management
Company or its affiliates are paid certain fees for services rendered to the
fund as described in "Trustees and Trustee Compensation" below. They may elect
to defer all or a portion of these fees through a deferred compensation plan in
effect for the fund.
The New Economy Fund - Page 7
<PAGE>
The fund has two classes of shares - Class A and Class B. The shares of each
class represent an interest in the same investment portfolio. Each class has
equal rights as to voting, redemption, dividends and liquidation, except that
each class bears different distribution expenses and may bear different transfer
agent fees and other expenses properly attributable to the particular class as
approved by the Board of Trustees. Class A and Class B shareholders have
exclusive voting rights with respect to the rule 12b-1 Plans adopted in
connection with the distribution of shares and on other matters in which the
interests of one class are different from interests in another class. Shares of
all classes of the fund vote together on matters that affect all classes in
substantially the same manner. Each class votes as a class on matters that
affect that class alone.
The fund does not hold annual meetings of shareholders. However, significant
matters which require shareholder approval, such as certain elections of board
members or a change in a fundamental investment policy, will be presented to
shareholders at a meeting called for such purpose. Shareholders have one vote
per share owned. At the request of the holders of at least 10% of the shares,
the fund will hold a meeting at which any member of the board could be removed
by a majority vote.
The New Economy Fund - Page 8
<PAGE>
FUND TRUSTEES AND OFFICERS
Trustees and Trustee Compensation
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
(INCLUDING VOLUNTARILY
DEFERRED
COMPENSATION/1/)
FROM THE FUND
POSITION DURING FISCAL YEAR
WITH PRINCIPAL OCCUPATION(S) DURING ENDED
NAME, ADDRESS AND AGE REGISTRANT PAST 5 YEARS NOVEMBER 30, 1999
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
+ Timothy D. Armour President and Chairman and Chief Executive Officer, none/4/
333 South Hope Street Trustee Capital Research Company*
Los Angeles, CA 90071
Age: 39
-----------------------------------------------------------------------------------------------------------------
Richard G. Capen, Jr. Trustee Corporate Director and author; former $ 16,500
Box 2494 United States Ambassador to Spain;
Rancho Santa Fe, CA former Vice Chairman of the Board;
92067 Knight Ridder, Inc., former Chairman
Age: 65 and Publisher, The Miami Herald
----------------
-----------------------------------------------------------------------------------------------------------------
H. Frederick Christie Trustee Private Investor. Former President and $16,000/3/
P.O. Box 144 Chief Executive Officer, The Mission
Palos Verdes Estates, Group (non-utility holding company,
CA subsidiary of Southern California
90274 Edison Company)
Age: 66
-----------------------------------------------------------------------------------------------------------------
+ Gordon Crawford Chairman of the Senior Vice President and Director, none/4/
333 South Hope Street Board Capital Research and Management Company
Los Angeles, CA 90071
Age: 53
-----------------------------------------------------------------------------------------------------------------
Alan Greenway Trustee President, Greenway Associates, Inc. $ 16,500
7413 Fairway Road (management consulting services)
La Jolla, CA 92037
Age: 72
-----------------------------------------------------------------------------------------------------------------
+ Graham Holloway Trustee Former Chairman of the Board, American None/4/
17309 Club Hill Drive Funds Distributors, Inc.
Dallas, TX 75248
Age: 69
-----------------------------------------------------------------------------------------------------------------
Leonade D. Jones Trustee Chief Financial Officer and Secretary, $16,500/3/
1536 Los Montes Drive VentureThink LLC; former Treasurer, The
Burlingame, CA 94010 Washington Post Company
Age: 51
-----------------------------------------------------------------------------------------------------------------
William H. Kling Trustee President, Minnesota Public Radio; $14,500/3/
2619 Lake of the Isles President, Greenspring Co.; former
Parkway East President, American Public Radio (now
St. Paul, MN 55408 Public Radio International)
Age: 57
-----------------------------------------------------------------------------------------------------------------
Norman R. Weldon Trustee Managing Director, Partisan Management $ 14,500
7026 Timbers Drive Group, Inc.; former Chairman of the
Evergreen, CO 80439 Board, Novoste Corporation; Director,
Age: 65 Enable Medical; former President and
Director, Corvita Corporation
------------------------
-----------------------------------------------------------------------------------------
Patricia K. Woolf Trustee Private investor; Corporate Director, $ 14,500
506 Quaker Road Lecturer, Department of Molecular
Princeton, NJ 08540 Biology, Princeton University
Age: 65
-----------------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL COMPENSATION
(INCLUDING VOLUNTARILY
DEFERRED
COMPENSATION/1/) FROM
ALL FUNDS MANAGED BY TOTAL NUMBER
CAPITAL RESEARCH AND OF FUND
MANAGEMENT COMPANY BOARDS
OR ITS AFFILIATES/2/ FOR THE ON WHICH
YEAR ENDED TRUSTEE
NAME, ADDRESS AND AGE NOVEMBER 30, 1999 SERVES/2/
-----------------------------------------------------------------------
<S> <C> <C>
+ Timothy D. Armour none/4/ 1
333 South Hope Street
Los Angeles, CA 90071
Age: 39
-----------------------------------------------------------------------
Richard G. Capen, Jr. $ 47,000 8
Box 2494
Rancho Santa Fe, CA
92067
Age: 65
-----------------------------------------------------------------------
H. Frederick Christie $204,200/3/ 18
P.O. Box 144
Palos Verdes Estates,
CA
90274
Age: 66
-----------------------------------------------------------------------
+ Gordon Crawford none/4/ 2
333 South Hope Street
Los Angeles, CA 90071
Age: 53
-----------------------------------------------------------------------
Alan Greenway $ 102,500 4
7413 Fairway Road
La Jolla, CA 92037
Age: 72
-----------------------------------------------------------------------
+ Graham Holloway None/4/ 2
17309 Club Hill Drive
Dallas, TX 75248
Age: 69
-----------------------------------------------------------------------
Leonade D. Jones $136,500/3/ 5
1536 Los Montes Drive
Burlingame, CA 94010
Age: 51
-----------------------------------------------------------------------
William H. Kling $102,250/3/ 6
2619 Lake of the Isles
Parkway East
St. Paul, MN 55408
Age: 57
-----------------------------------------------------------------------
Norman R. Weldon $ 42,250 3
7026 Timbers Drive
Evergreen, CO 80439
Age: 65
-----------------------------------------------------------------------
Patricia K. Woolf $ 139,950 6
506 Quaker Road
Princeton, NJ 08540
Age: 65
-----------------------------------------------------------------------
</TABLE>
The New Economy Fund - Page 9
<PAGE>
The New Economy Fund - Page 10
<PAGE>
+ "Interested persons" within the meaning of the 1940 Act on the basis of their
affiliation with the fund's Investment Adviser, Capital Research and
Management Company, or the parent company of the Investment Adviser, The
Capital Group Companies, Inc.
1 Amounts may be deferred by eligible Trustees under a non-qualified deferred
compensation plan adopted by the fund in 1993. Deferred amounts accumulate at
an earnings rate determined by the total return of one or more funds in The
American Funds Group as designated by the Trustees.
2 Capital Research and Management Company manages The American Funds Group
consisting of 29 funds: AMCAP Fund, Inc., American Balanced Fund, Inc.,
American High-Income Municipal Bond Fund, Inc., American High-Income Trust,
American Mutual Fund, Inc., The Bond Fund of America, Inc., The Cash
Management Trust of America, Capital Income Builder, Inc., Capital World
Growth and Income Fund, Inc., Capital World Bond Fund, Inc., EuroPacific
Growth Fund, Fundamental Investors, Inc., The Growth Fund of America, Inc.,
The Income Fund of America, Inc., Intermediate Bond Fund of America, The
Investment Company of America, Limited Term Tax-Exempt Bond Fund of America,
The New Economy Fund, New Perspective Fund, Inc., New World Fund, Inc.,
SMALLCAP World Fund, Inc., The Tax-Exempt Bond Fund of America, Inc., The
Tax-Exempt Fund of California, The Tax-Exempt Fund of Maryland, The Tax-Exempt
Fund of Virginia, The Tax-Exempt Money Fund of America, The U. S. Treasury
Money Fund of America, U.S. Government Securities Fund and Washington Mutual
Investors Fund, Inc. Capital Research and Management Company also manages
American Variable Insurance Series and Anchor Pathway Fund, which serve as the
underlying investment vehicle for certain variable insurance contracts; and
Endowments, whose shareholders are limited to (i) any entity exempt from
taxation under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended ("501(c)(3) organization"); (ii) any trust, the present or future
beneficiary of which is a 501(c)(3) organization, and (iii) any other entity
formed for the primary purpose of benefiting a 501(c)(3) organization. An
affiliate of Capital Research and Management Company, Capital International,
Inc., manages Emerging Markets Growth Fund, Inc.
3 Since the deferred compensation plan's adoption, the total amount of deferred
compensation accrued by the fund (plus earnings thereon) during the 1999
fiscal year for participating Trustees is as follows: Frederick Christie
($64,737), Leonade D. Jones ($82,967), and William H. Kling ($92,199). Amounts
deferred and accumulated earnings thereon are not funded and are general
unsecured liabilities of the fund until paid to the Trustees.
4 Timothy D. Armour, Gordon Crawford, and E. Graham Holloway are affiliated with
the Investment Adviser and, accordingly, receive no compensation from the
fund.
The New Economy Fund - Page 11
<PAGE>
OFFICERS
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S) DURING
NAME AND ADDRESS AGE WITH REGISTRANT PAST 5 YEARS
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Gordon Crawford 53 Chairman of the Senior Vice President and
(see above) Board Director, Capital Research and
Management Company
-------------------------------------------------------------------------------
Timothy D. Armour 39 President and Chairman and Chief Executive
(see above) Trustee Officer, Capital Research
Company*
-------------------------------------------------------------------------------
Claudia P. Huntington 47 Senior Vice Senior Vice President, Capital
333 South Hope Street President Research and Management Company
Los Angeles, CA 90071
-------------------------------------------------------------------------------
Vincent P. Corti 43 Vice President Vice President -- Fund Business
333 South Hope Street Management Group, Capital
Los Angeles, CA 90071 Research and Management Company.
-------------------------------------------------------------------------------
Ulrich A. Volk 38 Vice President Vice President, Capital Research
25 Bedford Street Company*
London, England WC2E
9HN
-------------------------------------------------------------------------------
Chad L. Norton 39 Secretary Vice President -- Fund Business
333 South Hope Street Management Group, Capital
Los Angeles, CA 90071 Research and Management Company
-------------------------------------------------------------------------------
David A. Pritchett 33 Treasurer Vice President -- Fund Business
333 South Hope Street Management Group, Capital
Los Angeles, CA 90071 Research and Management Company
Sheryl F. Johnson 31 Assistant Assistant Vice President -- Fund
5300 Robin Hood Road Treasurer Business Management Group,
Norfolk, VA 23513 Capital Research and Management
Company
-------------------------------------------------------------------------------
</TABLE>
* Company affiliated with Capital Research and Management Company
All of the officers listed are officers, and/or directors/trustees of one or
more of the other funds for which Capital Research and Management Company serves
as Investment Adviser.
No compensation is paid by the fund to any officer or Trustee who is a director,
officer or employee of the Investment Adviser or affiliated companies. The fund
pays annual fees of $9,000 to Trustees who are not affiliated with the
Investment Adviser, plus $1,000 for each Board of Trustees meeting attended,
plus $500 for each meeting attended as a member of a committee of the Board of
Trustees. No pension or retirement benefits are accrued as part of fund
expenses. The Trustees may elect, on a voluntary basis, to defer all or a
portion of their fees through a deferred compensation plan in effect for the
fund. The fund also reimburses certain expenses of the Trustees who are not
affiliated with the Investment Adviser. As of February 15, 2000 the officers and
Trustees of the fund and their families, as a group, owned beneficially or of
record less than 1% of the outstanding shares of the fund.
The New Economy Fund - Page 12
<PAGE>
MANAGEMENT
INVESTMENT ADVISER - The Investment Adviser, founded in 1931, maintains research
facilities in the U.S. and abroad (Los Angeles, San Francisco, New York,
Washington, D.C., London, Geneva, Hong Kong, Singapore and Tokyo), with a staff
of professionals, many of whom have a number of years of investment experience.
The Investment Adviser is located at 333 South Hope Street, Los Angeles, CA
90071, and at 135 South State College Boulevard, Brea, CA 92821. The Investment
Adviser's research professionals travel several million miles a year, making
more than 5,000 research visits in more than 50 countries around the world. The
Investment Adviser believes that it is able to attract and retain quality
personnel. The Investment Adviser is a wholly owned subsidiary of The Capital
Group Companies, Inc.
The Investment Adviser is responsible for managing more than $300 billion of
stocks, bonds and money market instruments and serves over 11 million
shareholder accounts of all types throughout the world. These investors include
privately owned businesses and large corporations as well as schools, colleges,
foundations and other non-profit and tax-exempt organizations.
INVESTMENT ADVISORY AND SERVICE AGREEMENT - The Investment Advisory and Service
Agreement (the "Agreement") between the fund and the Investment Adviser will
continue in effect until November 30, 2000, unless sooner terminated, and may be
renewed from year to year thereafter, provided that any such renewal has been
specifically approved at least annually by (i) the Board of Trustees, or by the
vote of a majority (as defined in the 1940 Act) of the outstanding voting
securities of the fund, and (ii) the vote of a majority of Trustees who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. The Agreement provides that the Investment Adviser has no
liability to the fund for its acts or omissions in the performance of its
obligations to the fund not involving willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations under the Agreement. The
Agreement also provides that either party has the right to terminate it, without
penalty, upon 60 days' written notice to the other party, and that the Agreement
automatically terminates in the event of its assignment (as defined in the 1940
Act).
The Investment Adviser, in addition to providing investment advisory services,
furnishes the services and pays the compensation and travel expenses of persons
to perform the executive, administrative, clerical and bookkeeping functions of
the fund, and provides suitable office space, necessary small office equipment
and utilities, general purpose accounting forms, supplies, and postage used at
the offices of the fund. The fund pays all expenses not assumed by the
Investment Adviser, including, but not limited to, custodian, stock transfer and
dividend disbursing fees and expenses; costs of the designing, printing and
mailing of reports, prospectuses, proxy statements, and notices to its
shareholders; taxes; expenses of the issuance and redemption of shares of the
fund (including stock certificates, registration and qualification fees and
expenses); expenses pursuant to the fund's Plans of Distribution (described
below); legal and auditing expenses; compensation, fees, and expenses paid to
directors unaffiliated with the Investment Adviser; association dues; costs of
stationery and forms prepared exclusively for the fund; and costs of assembling
and storing shareholder account data.
As compensation for its services, the Investment Adviser receives a monthly fee
which is accrued daily, calculated at the annual rates of 0.58% on the first
$500 million of the fund's net assets, 0.48% on assets from $500 million to $1
billion, 0.44% on net assets from $1 billion to
The New Economy Fund - Page 13
<PAGE>
$1.5 billion, 0.41% on assets from $1.5 billion to $2.5 billion, 0.39% on assets
from $2.5 billion to $4 billion, 0.38% on assets from $4 billion to $6.5
billion, and 0.375% on assets over $6.5 billion. If net assets fall below $3
billion, the Agreement provides for lower fees calculated at the annual rates of
0.60% on the first $300 million of the fund's net assets, 0.48% on assets over
$300 million to $750 million, 0.45% on assets over $750 million to $1.25
billion, and 0.42% on assets over $1.25 billion.
The Agreement provides for a management fee reduction to the extent that the
annual ordinary operating expenses of the fund's Class A shares exceed 1-1/2% of
the first $30 million of the net assets of the fund and 1% of the average net
assets in excess thereof. Expenses which are not subject to these limitations
are interest, taxes, and extraordinary expenses. Expenditures, including costs
incurred in connection with the purchase or sale of portfolio securities, which
are capitalized in accordance with generally accepted accounting principles
applicable to investment companies are accounted for as capital items and not as
expenses. To the extent the fund's management fee must be waived due to Class A
share expense ratios exceeding this limit, management fees will be reduced
similarly for all classes of shares of the fund or other Class A fees will be
waived in lieu of management fees.
For the fiscal years ended November 30, 1999, 1998, and 1997, the Investment
Adviser received advisory fees of $30,866,000, $23,295,000, and $18,971,000,
respectively.
PRINCIPAL UNDERWRITER - American Funds Distributors, Inc. (the "Principal
Underwriter") is the principal underwriter of the fund's shares. The Principal
Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071, 135
South State College Boulevard, Brea, CA 92821, 3500 Wiseman Boulevard, San
Antonio, TX 78251, 8332 Woodfield Crossing Boulevard, Indianapolis, IN 46240,
and 5300 Robin Hood Road, Norfolk, VA 23513. The fund has adopted Plans of
Distribution (the Plans), pursuant to rule 12b-1 under the 1940 Act. The
Principal Underwriter receives amounts payable pursuant to the Plans (see below)
and commissions consisting of that portion of the sales charge remaining after
the discounts which it allows to investment dealers. Commissions retained by the
Principal Underwriter on sales of Class A shares during the 1999 fiscal year
amounted to $5,506,000 after allowance of $27,016,000 to dealers.
During the fiscal years ended 1998 and 1997 the Principal Underwriter retained
$2,489,000 and $1,605,000, respectively on sales of Class A shares after an
allowance of $12,263,000 and $8,007,000 to dealers, respectively.
As required by rule 12b-1 and the 1940 Act, the Plans (together with the
Principal Underwriting Agreement) have been approved by the full Board of
Trustees and separately by a majority of the trustees who are not "interested
persons" of the fund and who have no direct or indirect financial interest in
the operation of the Plans or the Principal Underwriting Agreement. The officers
and trustees who are "interested persons" of the fund may be considered to have
a direct or indirect financial interest in the operation of the Plans due to
present or past affiliations with the Investment Adviser and related companies.
Potential benefits of the Plans to the fund include shareholder services,
savings to the fund in transfer agency costs, savings to the fund in advisory
fees and other expenses, benefits to the investment process from growth or
stability of assets and maintenance of a financially healthy management
organization. The selection and nomination of trustees who are not "interested
persons" of the fund are committed to the discretion of the trustees who are not
"interested persons" during the existence of the Plans. Plan expenses are
reviewed quarterly and the Plans must be renewed annually by the Board of
Trustees.
The New Economy Fund - Page 14
<PAGE>
Under the Plans the fund may expend up to 0.25% of its net assets annually for
Class A shares and up to 1.00% of its net assets annually for Class B shares to
finance any activity which is primarily intended to result in the sale of fund
shares, provided the fund's Board of Trustees has approved the category of
expenses for which payment is being made. For Class A shares these include up to
0.25% in service fees for qualified dealers and dealer commissions and
wholesaler compensation on sales of shares exceeding $1 million purchased
without a sales charge (including purchases by employer-sponsored defined
contribution-type retirement plans investing $1 million or more or with 100 or
more eligible employees, rollover IRA accounts as described in "Individual
Retirement Account (IRA) Rollovers" below, and retirement plans, endowments or
foundations with $50 million or more in assets). For Class B shares these
include 0.25% in service fees for qualified dealers and 0.75% in payments to the
Principal Underwriter for financing commissions paid to qualified dealers
selling Class B shares.
Commissions on sales of Class A shares exceeding $1 million (including purchases
by any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code, including any
"401(k)" plan with 100 or more eligible employees) in excess of the Class A Plan
limitation not reimbursed during the most recent fiscal quarter are recoverable
for five quarters, provided that such commissions do not exceed the annual
expense limit. After five quarters, these commissions are not recoverable.
During the 1999 fiscal year, the fund paid or accrued $18,532,000 for
compensation to dealers or the Principal Underwriter under the Plan for Class A
shares. As of November 30, 1999, accrued and unpaid distribution expenses were
$4,568,000.
OTHER COMPENSATION TO DEALERS - The Principal Underwriter, at its expense (from
a designated percentage of its income), currently provides additional
compensation to dealers. Currently these payments are limited to the top 100
dealers who have sold shares of the fund or other funds in The American Funds
Group. These payments will be based principally on a pro rata share of a
qualifying dealer's sales. The Principal Underwriter will, on an annual basis,
determine the advisability of continuing these payments.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS - The fund intends to follow the practice of distributing
substantially all of its investment company taxable income which includes any
excess of net realized short-term gains over net realized long-term capital
losses. Additional distributions may be made, if necessary. The fund also
intends to follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the fund may retain all or part of such gain for reinvestment, after paying the
related federal taxes for which shareholders may then be able to claim a credit
against their federal tax liability. If the fund does not distribute the amount
of capital gain and/or net investment income required to be distributed by an
excise tax provision of the Code, the fund may be subject to that excise tax. In
certain circumstances, the fund may determine that it is in the interest of
shareholders to distribute less than the required amount. In this case, the fund
will pay any income or excise taxes due.
Dividends will be reinvested in shares of the fund unless shareholders indicate
in writing that they wish to receive them in cash or in shares of other American
Funds, as provided in the prospectus.
TAXES - The fund has elected to be treated as a regulated investment company
under Subchapter M of the Code. A regulated investment company qualifying under
Subchapter M of
The New Economy Fund - Page 15
<PAGE>
the Code is required to distribute to its shareholders at least 90% of its
investment company taxable income (including the excess of net short-term
capital gain over net long-term capital losses) and generally is not subject to
federal income tax to the extent that it distributes annually 100% of its
investment company taxable income and net realized capital gains in the manner
required under the Code. The fund intends to distribute annually all of its
investment company taxable income and net realized capital gains and therefore
does not expect to pay federal income tax, although in certain circumstances the
fund may determine that it is in the interest of shareholders to distribute less
than that amount.
Under the Code, a nondeductible excise tax of 4% is imposed on the excess of a
regulated investment company's "required distribution" for the calendar year
ending within the regulated investment company's taxable year over the
"distributed amount" for such calendar year. The term "required distribution"
means the sum of (i) 98% of ordinary income (generally net investment income)
for the calendar year, (ii) 98% of capital gain (both long-term and short-term)
for the one-year period ending on October 31 (as though the one-year period
ending on October 31 were the regulated investment company's taxable year), and
(iii) the sum of any untaxed, undistributed net investment income and net
capital gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (i) amounts actually distributed
by the fund from its current year's ordinary income and capital gain net income
and (ii) any amount on which the fund pays income tax during the periods
described above. The fund intends to distribute net investment income and net
capital gains so as to minimize or avoid the excise tax liability.
Investment company taxable income generally includes dividends, interest, net
short-term capital gains in excess of net long-term capital losses, and certain
foreign currency gains, if any, less expenses and certain foreign currency
losses, if any. Net capital gains for a fiscal year are computed by taking into
account any capital loss carry-forward of the fund.
If any net long-term capital gains in excess of net short-term capital losses
are retained by the fund for reinvestment, requiring federal income taxes to be
paid thereon by the fund, the fund intends to elect to treat such capital gains
as having been distributed to shareholders. As a result, each shareholder will
report such capital gains as long-term capital gains taxable to individual
shareholders at a maximum 20% capital gains rate, will be able to claim a pro
rata share of federal income taxes paid by the fund on such gains as a credit
against personal federal income tax liability, and will be entitled to increase
the adjusted tax basis on fund shares by the difference between a pro rata share
of the retained gains and their related tax credit.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income.
Distributions of the excess of net long-term capital gains over net short-term
capital losses which the fund properly designates as "capital gain dividends"
generally will be taxable to individual shareholders at a maximum 20% capital
gains rate, regardless of the length of time the shares of the fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less from the date of their
purchase will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain during such six-month
period.
The New Economy Fund - Page 16
<PAGE>
Distributions of investment company taxable income and net realized capital
gains to individual shareholders will be taxable as described above, whether
received in shares or in cash. Shareholders electing to receive distributions in
the form of additional shares will have a cost basis for federal income tax
purposes in each share so received equal to the net asset value of a share on
the reinvestment date.
All distributions of investment company taxable income and net realized capital
gain, whether received in shares or in cash, must be reported by each
shareholder subject to tax on his or her federal income tax return. Dividends
and capital gains distributions declared in October, November or December and
payable to shareholders of record in such a month will be deemed to have been
received by shareholders on December 31 if paid during January of the following
year. Redemptions of shares, including exchanges for shares of another American
Fund, may result in tax consequences (gain or loss) to the shareholder and must
also be reported on the shareholder's federal income tax return.
Dividends from domestic corporations are expected to comprise some portion of
the fund's gross income. To the extent that such dividends constitute any of the
fund's gross income, a portion of the income distributions of the fund will be
eligible for the deduction for dividends received by corporations. Shareholders
will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent that either the fund
shares, or the underlying shares of stock held by the fund, with respect to
which dividends are received, are treated as debt-financed under federal income
tax law and is eliminated if the shares are deemed to have been held by the
shareholder or the fund, as the case may be, for less than 46 days.
Distributions by the fund result in a reduction in the net asset value of the
fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of investment
capital. For this reason, investors should consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a partial return of investment
capital upon the distribution, which will nevertheless be taxable to them.
A portion of the difference between the issue price of zero coupon securities
and their face value ("original issue discount") is considered to be income to
the fund each year, even though the fund will not receive cash interest payments
from these securities. This original issue discount (imputed income) will
comprise a part of the investment company taxable income of the fund which must
be distributed to shareholders in order to maintain the qualification of the
fund as a regulated investment company and to avoid federal income tax at the
level of the fund. Shareholders will be subject to income tax on such original
issue discount, whether or not they elect to receive their distributions in
cash.
The fund will be required to report to the IRS all distributions of investment
company taxable income and capital gains as well as gross proceeds from the
redemption or exchange of fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of investment company taxable income and capital gains and
proceeds from the redemption or exchange of the shares of a regulated investment
company may be subject to withholding of federal income tax at the rate of 31%
in the case of non-exempt U.S. shareholders who fail to furnish the investment
company with their
The New Economy Fund - Page 17
<PAGE>
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.
Shareholders of the fund may be subject to state and local taxes on
distributions received from the fund and on redemptions of the fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year fund shareholders will
receive a statement of the federal income tax status of all distributions.
Dividend and interest income received by the fund from sources outside the U.S.
may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however. Most foreign countries do not impose
taxes on capital gains in respect of investments by foreign investors.
The fund may make the election permitted under Section 853 of the Code so that
shareholders may (subject to limitations) be able to claim a credit or deduction
on their federal income tax returns for, and will be required to treat as part
of the amounts distributed to them, their pro rata portion of qualified taxes
paid by the Fund to foreign countries (which taxes relate primarily to
investment income). The fund may make an election under Section 853 of the Code,
provided that more than 50% of the value of the total assets of the fund at the
close of the taxable year consists of securities in foreign corporations. The
foreign tax credit available to shareholders is subject to certain limitations
imposed by the Code.
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the fund accrues receivables or liabilities
denominated in a foreign currency and the time the fund actually collects such
receivables, or pays such liabilities, generally are treated as ordinary income
or ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain futures contracts, forward
contracts and options, gains or losses attributable to fluctuations in the value
of foreign currency between the date of acquisition of the security or contract
and the date of disposition are also treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of the fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
If the fund invests in stock of certain passive foreign investment companies,
the fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the fund at
the highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would
The New Economy Fund - Page 18
<PAGE>
be included in the fund's investment company taxable income and, accordingly,
would not be taxable to the fund to the extent distributed by the fund as a
dividend to its shareholders.
To avoid such tax and interest, the fund intends to elect to treat these
securities as sold on the last day of its fiscal year and recognize any gains
for tax purposes at that time. Under this election, deductions for losses are
allowable only to the extent of any prior recognized gains, and both gains and
losses will be treated as ordinary income or loss. The fund will be required to
distribute any resulting income, even though it has not sold the security and
received cash to pay such distributions.
The foregoing discussion of U.S. federal income tax law relates solely to the
application of that law to U.S. persons, i.e., U.S. citizens and residents and
U.S. corporations, partnerships, trusts and estates. Each shareholder who is not
a U.S. person should consider the U.S. and foreign tax consequences of ownership
of shares of the fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an
applicable income tax treaty) on dividend income received by him or her.
Shareholders should consult their tax advisers about the application of the
provisions of tax law described in this statement of additional information in
light of their particular tax situations.
The New Economy Fund - Page 19
<PAGE>
PURCHASE OF SHARES
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENTS
-------------------------------------------------------------------------------
<S> <C> <C>
See "Purchase $50 minimum (except where a
Minimums" for initial lower minimum is noted under
investment minimums. "Purchase Minimums").
-------------------------------------------------------------------------------
By contacting Visit any investment Mail directly to your
your investment dealer dealer who is investment dealer's address
registered in the printed on your account
state where the statement.
purchase is made and
who has a sales
agreement with
American Funds
Distributors.
-------------------------------------------------------------------------------
By mail Make your check Fill out the account additions
payable to the fund form at the bottom of a recent
and mail to the account statement, make your
address indicated on check payable to the fund,
the account write your account number on
application. Please your check, and mail the check
indicate an investment and form in the envelope
dealer on the account provided with your account
application. statement.
-------------------------------------------------------------------------------
By telephone Please contact your Complete the "Investments by
investment dealer to Phone" section on the account
open account, then application or American
follow the procedures FundsLink Authorization Form.
for additional Once you establish the
investments. privilege, you, your financial
advisor or any person with your
account information can call
American FundsLine(R) and make
investments by telephone
(subject to conditions noted in
"Shareholder Account Services
and Privileges - Telephone and
Computer Purchases, Redemptions
and Exchanges" below).
-------------------------------------------------------------------------------
By computer Please contact your Complete the American FundsLink
investment dealer to Authorization Form. Once you
open account, then established the privilege, you,
follow the procedures your financial advisor or any
for additional person with your account
investments. information may access American
FundsLine OnLine(R) on the
Internet and make investments
by computer (subject to
conditions noted in
"Shareholder Account Services
and Privileges - Telephone and
Computer Purchases, Redemptions
and Exchanges" below).
-------------------------------------------------------------------------------
By wire Call 800/421-0180 to Your bank should wire your
obtain your account additional investments in the
number(s), if same manner as described under
necessary. Please "Initial Investment."
indicate an investment
dealer on the account.
Instruct your bank to
wire funds to:
Wells Fargo Bank
155 Fifth Street,
Sixth Floor
San Francisco, CA
94106
(ABA#121000248)
For credit to the
account of:
American Funds Service
Company a/c#
4600-076178
(fund name)
(your fund acct. no.)
-------------------------------------------------------------------------------
THE FUNDS AND AMERICAN FUNDS DISTRIBUTORS RESERVE THE RIGHT TO REJECT ANY
PURCHASE ORDER.
-------------------------------------------------------------------------------
</TABLE>
PURCHASE MINIMUMS - The minimum initial investment for all funds in The American
Funds Group, except the money market funds and the state tax-exempt funds, is
$250. The minimum initial investment for the money market funds (The Cash
Management Trust of America, The Tax--
The New Economy Fund - Page 20
<PAGE>
Exempt Money Fund of America, and The U.S. Treasury Money Fund of America) and
the state tax-exempt funds (The Tax-Exempt Fund of California, The Tax-Exempt
Fund of Maryland, and The Tax-Exempt Fund of Virginia) is $1,000. Purchase
minimums are reduced to $50 for purchases through "Automatic Investment Plans"
(except for the money market funds) or to $25 for purchases by retirement plans
through payroll deductions and may be reduced or waived for shareholders of
other funds in The American Funds Group. TAX-EXEMPT FUNDS SHOULD NOT SERVE AS
RETIREMENT PLAN INVESTMENTS. The minimum is $50 for additional investments
(except as noted above).
PURCHASE MAXIMUM FOR CLASS B SHARES - The maximum purchase order for Class B
shares for all American Funds is $100,000. For investments above $100,000 Class
A shares are generally a less expensive option over time due to sales charge
reductions or waivers.
FUND NUMBERS - Here are the fund numbers for use with our automated phone line,
American FundsLine/(R)/ (see description below):
<TABLE>
<CAPTION>
FUND FUND
NUMBER NUMBER
FUND CLASS A CLASS B
---- ------- -------
<S> <C> <C>
STOCK AND STOCK/BOND FUNDS
AMCAP Fund/(R)/ . . . . . . . . . . . . . . . . . . . . 02 202
American Balanced Fund/(R)/ . . . . . . . . . . . . . . 11 211
American Mutual Fund/(R)/ . . . . . . . . . . . . . . . 03 203
Capital Income Builder/(R)/ . . . . . . . . . . . . . . 12 212
Capital World Growth and Income Fund/SM/ . . . . . . . 33 233
EuroPacific Growth Fund/(R)/ . . . . . . . . . . . . . 16 216
Fundamental Investors/SM/ . . . . . . . . . . . . . . . 10 210
The Growth Fund of America/(R)/ . . . . . . . . . . . . 05 205
The Income Fund of America/(R)/ . . . . . . . . . . . . 06 206
The Investment Company of America/(R)/ . . . . . . . . 04 204
The New Economy Fund/(R)/ . . . . . . . . . . . . . . . 14 214
New Perspective Fund/(R)/ . . . . . . . . . . . . . . . 07 207
New World Fund/SM/ . . . . . . . . . . . . . . . . . . 36 236
SMALLCAP World Fund/(R)/ . . . . . . . . . . . . . . . 35 235
Washington Mutual Investors Fund/SM/ . . . . . . . . . 01 201
BOND FUNDS
American High-Income Municipal Bond Fund/(R)/ . . . . . 40 240
American High-Income Trust/SM/ . . . . . . . . . . . . 21 221
The Bond Fund of America/SM/ . . . . . . . . . . . . . 08 208
Capital World Bond Fund/(R)/ . . . . . . . . . . . . . 31 231
Intermediate Bond Fund of America/SM/ . . . . . . . . . 23 223
Limited Term Tax-Exempt Bond Fund of America/SM/ . . . 43 243
The Tax-Exempt Bond Fund of America/(R)/ . . . . . . . 19 219
The Tax-Exempt Fund of California/(R)/* . . . . . . . . 20 220
The Tax-Exempt Fund of Maryland/(R)/* . . . . . . . . . 24 224
The Tax-Exempt Fund of Virginia/(R)/* . . . . . . . . . 25 225
U.S. Government Securities Fund/SM/ . . . . . . . . . . 22 222
MONEY MARKET FUNDS
The Cash Management Trust of America/(R)/ . . . . . . . 09 209
The Tax-Exempt Money Fund of America/SM/ . . . . . . . 39 N/A
The U.S. Treasury Money Fund of America/SM/ . . . . . . 49 N/A
___________
*Available only in certain states.
</TABLE>
The New Economy Fund - Page 21
<PAGE>
SALES CHARGES
CLASS A SALES CHARGES - The sales charges you pay when purchasing Class A shares
of stock, stock/bond, and bond funds of The American Funds Group are set forth
below. The money market funds of The American Funds Group are offered at net
asset value. (See "Fund Numbers" for a listing of the funds.)
<TABLE>
<CAPTION>
DEALER
SALES CHARGE AS CONCESSION
PERCENTAGE OF THE: AS PERCENTAGE
------------------ OF THE
AMOUNT OF PURCHASE
AT THE OFFERING PRICE NET AMOUNT OFFERING OFFERING
-INVESTED- PRICE PRICE
------------------------------------------ -------- ----- -----
<S> <C> <C> <C>
STOCK AND STOCK/BOND FUNDS
Less than $25,000 . . . . . . . . . 6.10% 5.75% 5.00%
$25,000 but less than $50,000 . . . 5.26 5.00 4.25
$50,000 but less than $100,000. . 4.71 4.50 3.75
BOND FUNDS
Less than $100,000 . . . . . . . . 3.90 3.75 3.00
STOCK, STOCK/BOND, AND BOND FUNDS
$100,000 but less than $250,000 . 3.63 3.50 2.75
$250,000 but less than $500,000 . 2.56 2.50 2.00
$500,000 but less than $750,000 . 2.04 2.00 1.60
$750,000 but less than $1 million 1.52 1.50 1.20
$1 million or more . . . . . . . . . . none none (see below)
-----------------------------------------------------------------------------
</TABLE>
CLASS A PURCHASES NOT SUBJECT TO SALES CHARGES - Investments of $1 million or
more are sold with no initial sales charge. HOWEVER, A 1% CONTINGENT DEFERRED
SALES CHARGE (CDSC) MAY BE IMPOSED IF REDEMPTIONS ARE MADE WITHIN ONE YEAR OF
PURCHASE. Employer-sponsored defined contribution-type plans investing $1
million or more, or with 100 or more eligible employees, and Individual
Retirement Account rollovers from retirement plan assets invested in the
American Funds (see "Individual Retirement Account (IRA) Rollovers" below) may
invest with no sales charge and are not subject to a contingent deferred sales
charge. Investments made by
The New Economy Fund - Page 22
<PAGE>
investors in certain qualified fee-based programs, and retirement plans,
endowments or foundations with $50 million or more in assets may also be made
with no sales charge and are not subject to a CDSC. A dealer concession of up
to 1% may be paid by the fund under its Plan of Distribution on investments made
with no initial sales charge.
In addition, Class A shares of the stock, stock/bond and bond funds may be sold
at net asset value to:
(1) current or retired directors, trustees, officers and advisory board members
of, and certain lawyers who provide services to, the funds managed by Capital
Research and Management Company, current or retired employees of Washington
Management Corporation, current or retired employees and partners of The Capital
Group Companies, Inc. and its affiliated companies, certain family members and
employees of the above persons, and trusts or plans primarily for such persons;
(2) current registered representatives, retired registered representatives with
respect to accounts established while active, or full-time employees (and their
spouses, parents, and children) of dealers who have sales agreements with the
Principal Underwriter (or who clear transactions through such dealers) and plans
for such persons or the dealers;
(3) companies exchanging securities with the fund through a merger, acquisition
or exchange offer;
(4) trustees or other fiduciaries purchasing shares for certain retirement
plans of organizations with retirement plan assets of $50 million or more;
(5) insurance company separate accounts;
(6) accounts managed by subsidiaries of The Capital Group Companies, Inc.; and
(7) The Capital Group Companies, Inc., its affiliated companies and Washington
Management Corporation. Shares are offered at net asset value to these persons
and organizations due to anticipated economies in sales effort and expense.
CONTINGENT DEFERRED SALES CHARGE ON CLASS A SHARES - A contingent deferred
sales charge of 1% applies to redemptions made from funds, other than the money
market funds, within 12 months following Class A share purchases of $1 million
or more made without an initial sales charge. The charge is 1% of the lesser of
the value of the shares redeemed (exclusive of reinvested dividends and capital
gain distributions) or the total cost of such shares. Shares held the longest
are assumed to be redeemed first for purposes of calculating this CDSC. The CDSC
may be waived in certain circumstances. See "CDSC Waivers for Class A Shares"
below.
DEALER COMMISSIONS ON CLASS A SHARES - The following commissions (up to 1%) will
be paid to dealers who initiate and are responsible for purchases of $1 million
or more, for purchases by any employer-sponsored defined contribution plan
investing $1 million or more, or with 100 or more eligible employees, IRA
rollover accounts (as described in "Individual Retirement Account (IRA)
Rollovers" below), and for purchases made at net asset value by certain
retirement plans, endowments and foundations with collective assets of $50
million or more: 1.00% on amounts of $1 million to $4 million, 0.50% on amounts
over $4 million to $10 million, and 0.25% on amounts over $10 million.
The New Economy Fund - Page 23
<PAGE>
CLASS B SALES CHARGES - Class B shares are sold without any initial sales
charge. However, a CDSC may be applied to shares you sell within six years of
purchase, as shown in the table below:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
ON SHARES SOLD WITHIN YEAR AS A % OF SHARES BEING SOLD
------------------------------------------------------------------------------
<S> <C>
1 5.00%
2 4.00%
3 4.00%
4 3.00%
5 2.00%
6 1.00%
</TABLE>
There is no CDSC on appreciation in share value above the initial purchase price
or on shares acquired through reinvestment of dividends or capital gain
distributions. In addition, the CDSC may be waived in certain circumstances.
See "CDSC Waivers for Class B shares" below. The CDSC is based on the original
purchase cost or the current market value of the shares being sold, whichever is
less. In processing redemptions of Class B shares, shares that are not subject
to any CDSC will be redeemed first and then shares that you have owned the
longest during the six-year period. CLASS B SHARES ARE NOT AVAILABLE TO CERTAIN
RETIREMENT PLANS, INCLUDING GROUP RETIREMENT PLANS SUCH AS 401(K) PLANS,
EMPLOYER-SPONSORED 403(B) PLANS, AND MONEY PURCHASE PENSION AND PROFIT SHARING
PLANS.
Compensation equal to 4% of the amount invested is paid by the Principal
Underwriter to dealers who sell Class B shares.
CONVERSION OF CLASS B SHARES TO CLASS A SHARES - Class B shares automatically
convert to Class A shares in the month of the eight-year anniversary of the
purchase date. The conversion of Class B shares to Class A shares after eight
years is subject to the Internal Revenue Service's continued position that the
conversion of Class B shares is not subject to federal income tax. In the event
the Internal Revenue Service no longer takes this position, the automatic
conversion feature may be suspended, in which event no further conversions of
Class B shares would occur while such suspension remained in effect. At your
option, Class B shares may still be exchanged for Class A shares on the basis of
relative net asset value of the two classes, without the imposition of a sales
charge or fee; HOWEVER, SUCH AN EXCHANGE COULD CONSTITUTE A TAXABLE EVENT FOR
YOU, AND ABSENT SUCH AN EXCHANGE, CLASS B SHARES WOULD CONTINUE TO BE SUBJECT TO
HIGHER EXPENSES FOR LONGER THAN EIGHT YEARS.
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGE - You and your "immediate family" (your
spouse and your children under age 21) may combine investments to reduce your
costs. You must let your investment dealer or American Funds Service Company
(the "Transfer Agent") know if you qualify for a reduction in your sales charge
using one or any combination of the methods described below.
The New Economy Fund - Page 24
<PAGE>
STATEMENT OF INTENTION - You may enter into a non-binding commitment to
purchase shares of a fund(s) over a 13-month period and receive the same
sales charge as if all shares had been purchased at once. This includes
purchases made during the previous 90 days, but does not include
appreciation of your investment or reinvested distributions. The reduced
sales charges and offering prices set forth in the Prospectus apply to
purchases of $25,000 or more made within a 13-month period subject to the
following statement of intention (the "Statement"). The Statement is not a
binding obligation to purchase the indicated amount. When a shareholder
elects to use a Statement in order to qualify for a reduced sales charge,
shares equal to 5% of the dollar amount specified in the Statement will be
held in escrow in the shareholder's account out of the initial purchase (or
subsequent purchases, if necessary) by the Transfer Agent. All dividends
and any capital gain distributions on shares held in escrow will be
credited to the shareholder's account in shares (or paid in cash, if
requested). If the intended investment is not completed within the
specified 13-month period, the purchaser will remit to the Principal
Underwriter the difference between the sales charge actually paid and the
sales charge which would have been paid if the total of such purchases had
been made at a single time. If the difference is not paid by the close of
the period, the appropriate number of shares held in escrow will be
redeemed to pay such difference. If the proceeds from this redemption are
inadequate, the purchaser will be liable to the Principal Underwriter for
the balance still outstanding. The Statement may be revised upward at any
time during the 13-month period, and such a revision will be treated as a
new Statement, except that the 13-month period during which the purchase
must be made will remain unchanged. Existing holdings eligible for rights
of accumulation (see below), as well as purchases of Class B shares, and
any individual investments in American Legacy variable annuities and
variable life insurance policies (American Legacy, American Legacy II and
American Legacy III variable annuities, American Legacy Life, American
Legacy Variable Life, and American Legacy Estate Builder) may be credited
toward satisfying the Statement. During the Statement period reinvested
dividends and capital gain distributions, investments in money market
funds, and investments made under a right of reinstatement will not be
credited toward satisfying the Statement.
When the trustees of certain retirement plans purchase shares by payroll
deduction, the sales charge for the investments made during the 13-month
period will be handled as follows: The regular monthly payroll deduction
investment will be multiplied by 13 and then multiplied by 1.5. The current
value of existing American Funds investments (other than money market fund
investments) and any rollovers or transfers reasonably anticipated to be
invested in non-money market American Funds during the 13-month period, and
any individual investments in American Legacy variable annuities and
variable life insurance policies are added to the figure determined above.
The sum is the Statement amount and applicable breakpoint level. On the
first investment and all other investments made pursuant to the Statement,
a sales charge will be assessed according to the sales charge breakpoint
thus determined. There will be no retroactive adjustments in sales charges
on investments made during the 13-month period.
Shareholders purchasing shares at a reduced sales charge under a Statement
indicate their acceptance of these terms with their first purchase.
AGGREGATION - Sales charge discounts are available for certain aggregated
investments. Qualifying investments include those by you, your spouse and
your children under the age of 21, if all parties are purchasing shares for
their own accounts and/or:
The New Economy Fund - Page 25
<PAGE>
. employee benefit plan(s), such as an IRA, individual-type 403(b) plan,
or single-participant Keogh-type plan;
. business accounts solely controlled by these individuals (for example,
the individuals own the entire business);
. trust accounts established by the above individuals. However, if the
person(s) who established the trust is deceased, the trust account may
be aggregated with accounts of the person who is the primary
beneficiary of the trust.
Individual purchases by a trustee(s) or other fiduciary(ies) may also be
aggregated if the investments are:
. for a single trust estate or fiduciary account, including an employee
benefit plan other than those described above;
. made for two or more employee benefit plans of a single employer or of
affiliated employers as defined in the 1940 Act, again excluding
employee benefit plans described above; or
. for a diversified common trust fund or other diversified pooled
account not specifically formed for the purpose of accumulating fund
shares.
Purchases made for nominee or street name accounts (securities held in the
name of an investment dealer or another nominee such as a bank trust
department instead of the customer) may not be aggregated with those made
for other accounts and may not be aggregated with other nominee or street
name accounts unless otherwise qualified as described above.
CONCURRENT PURCHASES - You may combine purchases of Class A and/or B shares
of two or more funds in The American Funds Group, as well as individual
holdings in American Legacy variable annuities and variable life insurance
policies. Direct purchases of the money market funds are excluded. Shares
of money market funds purchased through an exchange, reinvestment or
cross-reinvestment from a fund having a sales charge do qualify.
RIGHTS OF ACCUMULATION - You may take into account the current value of
your existing Class A and B holdings in The American Funds Group, as well
as your holdings in Endowments (shares of which may be owned only by
tax-exempt organizations), to determine your sales charge on investments in
accounts eligible to be aggregated, or when making a gift to an individual
or charity. When determining your sales charge, you may also take into
account the value of your individual holdings, as of the end of the week
prior to your investment, in various American Legacy variable annuities and
variable life insurance policies. Direct purchases of the money market
funds are excluded.
CDSC WAIVERS FOR CLASS A SHARES - Any CDSC on Class A shares may be waived in
the following cases:
(1) Exchanges (except if shares acquired by exchange are then redeemed within
12 months of the initial purchase).
The New Economy Fund - Page 26
<PAGE>
(2) Distributions from 403(b) plans or IRAs due to death, post-purchase
disability or attainment of age 59-1/2.
(3) Tax-free returns of excess contributions to IRAs.
(4) Redemptions through systematic withdrawal plans (see "Automatic
Withdrawals" below), not exceeding 12% of the net asset value of the account
each year.
CDSC WAIVERS FOR CLASS B SHARES - Any CDSC on Class B shares may be waived in
the following cases:
(1) Systematic withdrawal plans (SWPs) - investors who set up a SWP (see
"Automatic Withdrawals" below) may withdraw up to 12% of the net asset value of
their account each year without incurring any CDSC. Shares not subject to a
CDSC (such as shares representing reinvestment of distributions) will be
redeemed first and will count toward the 12% limitation. If there are
insufficient shares not subject to a CDSC, shares subject to the lowest CDSC
will be redeemed next until the 12% limit is reached.
The 12% fee from CDSC limit is calculated on a pro rata basis at the time the
first payment is made and is recalculated thereafter on a pro rata basis at the
time of each SWP payment. Shareholders who establish a SWP should be aware that
the amount of that payment not subject to a CDSC may vary over time depending on
fluctuations in net asset value of their account. This privilege may be revised
or terminated at any time.
(2) Required minimum distributions taken from retirement accounts upon the
attainment of age 70-1/2.
(3) Distributions due to death or post-purchase disability of a shareholder. In
the case of joint tenant accounts, if one joint tenant dies, the surviving joint
tenant(s), at the time they notify the Transfer Agent of the decedent's death
and remove his/her name from the account, may redeem shares from the account
without incurring a CDSC. Redemptions subsequent to the notification to the
Transfer Agent of the death of one of the joint owners will be subject to a
CDSC.
INDIVIDUAL RETIREMENT ACCOUNT (IRA) ROLLOVERS
Assets from an employer-sponsored retirement plan (plan assets) may be invested
in any class of shares of the American Funds (except as described below) through
an IRA rollover plan. All such rollover investments will be subject to the terms
and conditions for Class A and B shares contained in the fund's current
prospectus and statement of additional information. In the case of an IRA
rollover involving plan assets from a plan that offered the American Funds, the
assets may only be invested in Class A shares of the American Funds. Such
investments will be at net asset value and will not be subject to a contingent
deferred sales charge. Dealers who initiate and are responsible for such
investments will be compensated pursuant to the schedule applicable to
investments of $1 million or more (see "Dealer Commissions on Class A Shares"
above).
PRICE OF SHARES
Shares are purchased at the offering price next determined after the purchase
order is received and accepted by the fund or the Transfer Agent; this offering
price is effective for orders received
The New Economy Fund - Page 27
<PAGE>
prior to the time of determination of the net asset value and, in the case of
orders placed with dealers, accepted by the Principal Underwriter prior to its
close of business. In the case of orders sent directly to the fund or the
Transfer Agent, an investment dealer MUST be indicated. The dealer is
responsible for promptly transmitting purchase orders to the Principal
Underwriter. Orders received by the investment dealer, the Transfer Agent, or
the fund after the time of the determination of the net asset value will be
entered at the next calculated offering price. Prices which appear in the
newspaper do not always indicate prices at which you will be purchasing and
redeeming shares of the fund, since such prices generally reflect the previous
day's closing price whereas purchases and redemptions are made at the next
calculated price.
The price you pay for shares, the offering price, is based on the net asset
value per share which is calculated once daily as of approximately 4:00 p.m. New
York time, which is the normal close of trading on the New York Stock Exchange
each day the Exchange is open. If, for example, the Exchange closes at 1:00
p.m., the fund's share price would still be determined as of 4:00 p.m. New York
time. The New York Stock Exchange is currently closed on weekends and on the
following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas Day.
All portfolio securities of funds managed by Capital Research and Management
Company (other than money market funds) are valued, and the net asset value per
share is determined as follows:
1. Equity securities, including depositary receipts, are valued at the last
reported sale price on the exchange or market on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where equity
securities are traded on more than one exchange, the securities are valued on
the exchange or market determined by the Investment Adviser to be the broadest
and most representative market, which may be either a securities exchange or the
over-the-counter market. Fixed-income securities are valued at prices obtained
from a pricing service, when such prices are available; however, in
circumstances where the Investment Adviser deems it appropriate to do so, such
securities will be valued at the mean quoted bid and asked prices or at prices
for securities of comparable maturity, quality and type.
Short-term securities maturing within 60 days are valued at amortized cost which
approximates market value.
Assets or liabilities initially expressed in terms of non-U.S. currencies are
translated prior to the next determination of the net asset value of the fund's
shares into U.S. dollars at the prevailing market rates.
Securities and assets for which representative market quotations are not readily
available are valued at fair value as determined in good faith under policies
approved by the fund's Board. The fair value of all other assets is added to the
value of securities to arrive at the total assets;
2. Liabilities, including accruals of taxes and other expense items, are
deducted from total assets; and
3. Net assets so obtained are then divided by the total number of shares
outstanding, and the result, rounded to the nearer cent, is the net asset value
per share
The New Economy Fund - Page 28
<PAGE>
Any purchase order may be rejected by the Principal Underwriter or by the fund.
The Principal Underwriter will not knowingly sell shares of the fund directly or
indirectly to any person or entity, where, after the sale, such person or entity
would own beneficially directly or indirectly more than 4.5% of the outstanding
shares of the fund without the consent of a majority of the fund's Board of
Trustees.
SELLING SHARES
Shares are sold at the net asset value next determined after your request is
received in good order by the Transfer Agent. Sales of certain Class A and B
shares may be subject to deferred sales charges. You may sell (redeem) shares
in your account in any of the following ways:
THROUGH YOUR DEALER (certain charges may apply)
- Shares held for you in your dealer's street name must be sold
through the dealer.
WRITING TO AMERICAN FUNDS SERVICE COMPANY
- Requests must be signed by the registered shareholder(s)
- A signature guarantee is required if the redemption is:
- Over $50,000;
- Made payable to someone other than the registered shareholder(s);
or
- Sent to an address other than the address of record, or an
address of record which has been changed within the last 10 days.
Your signature may be guaranteed by a domestic stock exchange or the National
Association of Securities Dealers, Inc., bank, savings association or credit
union that is an eligible guarantor institution.
- Additional documentation may be required for sales of shares held in
corporate, partnership or fiduciary accounts.
- You must include any shares you wish to sell that are in certificate
form.
TELEPHONING OR FAXING AMERICAN FUNDS SERVICE COMPANY, OR BY USING AMERICAN
FUNDSLINE/(R)/ OR AMERICAN FUNDSLINE ONLINE/(R)/
- Redemptions by telephone or fax (including American FundsLine/(R)/ and
American FundsLine OnLine/(R)/) are limited to $50,000 per shareholder each
day.
- Checks must be made payable to the registered shareholder(s).
- Checks must be mailed to an address of record that has been used with
the account for at least 10 days.
The New Economy Fund - Page 29
<PAGE>
MONEY MARKET FUNDS
- You may have redemptions of $1,000 or more wired to your bank by writing
American Funds Service Company.
- You may establish check writing privileges (use the money market funds
application).
- If you request check writing privileges, you will be provided with
checks that you may use to draw against your account. These checks may
be made payable to anyone you designate and must be signed by the
authorized number or registered shareholders exactly as indicated on
your checking account signature card.
- Check writing is not available for Class B shares of The Cash
Management Trust.
If you sell Class B shares and request a specific dollar amount to be sold, we
will sell sufficient shares so that the sale proceeds, after deducting any
contingent deferred sales charge, equals the dollar amount requested.
Redemption proceeds will not be mailed until sufficient time has passed to
provide reasonable assurance that checks or drafts (including certified or
cashier's checks) for shares purchased have cleared (which may take up to 15
calendar days from the purchase date). Except for delays relating to clearance
of checks for share purchases or in extraordinary circumstances (and as
permissible under the 1940 Act), sale proceeds will be paid on or before the
seventh day following receipt and acceptance of an order. Interest will not
accrue or be paid on amounts that represent uncashed distribution or redemption
checks.
You may reinvest proceeds from a redemption or a dividend or capital gain
distribution of Class A or Class B shares without a sales charge in the Class A
shares of any fund in The American Funds Group within 90 days after the date of
the redemption or distribution (any contingent deferred sales charge on Class A
shares will be credited to your account). Redemption proceeds of shares
representing direct purchases in the money market funds are excluded. Proceeds
will be reinvested at the next calculated net asset value after your request is
received and accepted by the Transfer Agent.
SHAREHOLDER ACCOUNT SERVICES AND PRIVILEGES
AUTOMATIC INVESTMENT PLAN - An automatic investment plan enables you to make
monthly or quarterly investments into The American Funds through automatic
debits from your bank account. To set up a plan you must fill out an account
application and specify the amount you would like to invest ($50 minimum) and
the date on which you would like your investments to occur. The plan will begin
within 30 days after your account application is received. Your bank account
will be debited on the day or a few days before your investment is made,
depending on the bank's capabilities. The Transfer Agent will then invest your
money into the fund you specified on or around the date you specified. For
example, if the date you specified falls on a weekend or holiday, your money
will be invested on the next business day. If your bank account cannot be
debited due to insufficient funds, a stop-payment or the closing of the account,
the
The New Economy Fund - Page 30
<PAGE>
plan may be terminated and the related investment reversed. You may change the
amount of the investment or discontinue the plan at any time by writing to the
Transfer Agent.
AUTOMATIC REINVESTMENT - Dividends and capital gain distributions are reinvested
in additional shares of the same class at no sales charge unless you indicate
otherwise on the account application. You also may elect to have dividends
and/or capital gain distributions paid in cash by informing the fund, the
Transfer Agent or your investment dealer.
If you have elected to receive dividends and/or capital gain distributions in
cash, and the postal or other delivery service is unable to deliver checks to
your address of record, or you do not respond to mailings from American Funds
Service Company with regard to uncashed distribution checks, your distribution
option will automatically be converted to having all dividends and other
distributions reinvested in additional shares.
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS - You may cross-reinvest
dividends and capital gains ("distributions") of the same share class into any
other fund in The American Funds Group at net asset value, subject to the
following conditions:
(a) The aggregate value of your account(s) in the fund(s) paying distributions
equals or exceeds $5,000 (this is waived if the value of the account in the fund
receiving the distributions equals or exceeds that fund's minimum initial
investment requirement),
(b) If the value of the account of the fund receiving distributions is below
the minimum initial investment requirement, distributions must be automatically
reinvested,
(c) If you discontinue the cross-reinvestment of distributions, the value of
the account of the fund receiving distributions must equal or exceed the minimum
initial investment requirement. If you do not meet this requirement within 90
days of notification, the fund has the right to automatically redeem the
account.
EXCHANGE PRIVILEGE - You may only exchange shares into other funds in The
American Funds Group within the same class. However, exchanges from Class A
shares of The Cash Management Trust of America may be made to Class B shares of
any other American Fund for dollar cost averaging purposes. Exchange purchases
are subject to the minimum investment requirements of the fund purchased and no
sales charge generally applies. However, exchanges of shares from the money
market funds are subject to applicable sales charges on the fund being
purchased, unless the money market fund shares were acquired by an exchange from
a fund having a sales charge, or by reinvestment or cross-reinvestment of
dividends or capital gain distributions.
You may exchange shares by writing to the Transfer Agent (see "Redeeming
Shares"), by contacting your investment dealer, by using American FundsLine and
American FundsLine OnLine (see "American FundsLine and American FundsLine
OnLine" below), or by telephoning 800/421-0180 toll-free, faxing (see "Principal
Underwriter and Transfer Agent" in the prospectus for the appropriate fax
numbers) or telegraphing the Transfer Agent. (See "Telephone and Computer
Purchases, Redemptions and Exchanges" below.) Shares held in corporate-type
retirement plans for which Capital Guardian Trust Company serves as trustee may
not be exchanged by telephone, computer, fax or telegraph. Exchange redemptions
and purchases are processed simultaneously at the share prices next determined
after the exchange order is
The New Economy Fund - Page 31
<PAGE>
received. (See "Purchase of Shares--Price of Shares.") THESE TRANSACTIONS HAVE
THE SAME TAX CONSEQUENCES AS ORDINARY SALES AND PURCHASES.
AUTOMATIC EXCHANGES - You may automatically exchange shares of the same class in
amounts of $50 or more among any of the funds in The American Funds Group on any
day (or preceding business day if the day falls on a non-business day of each
month you designate.
AUTOMATIC WITHDRAWALS - Withdrawal payments are not to be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value would reduce the aggregate value of the shareholder's account. The
Transfer Agent arranges for the redemption by the fund of sufficient shares,
deposited by the shareholder with the Transfer Agent, to provide the withdrawal
payment specified.
ACCOUNT STATEMENTS - Your account is opened in accordance with your registration
instructions. Transactions in the account, such as additional investments will
be reflected on regular confirmation statements from the Transfer Agent.
Dividend and capital gain reinvestments and purchases through automatic
investment plans and certain retirement plans will be confirmed at least
quarterly.
AMERICAN FUNDSLINE AND AMERICAN FUNDSLINE ONLINE - You may check your share
balance, the price of your shares, or your most recent account transaction,
redeem shares (up to $50,000 per shareholder each day), or exchange shares
around the clock with American FundsLine and American FundsLine OnLine. To use
these services, call 800/325-3590 from a TouchTone(TM) telephone or access the
American Funds Web site on the Internet at www.americanfunds.com. Redemptions
and exchanges through American FundsLine and American FundsLine OnLine are
subject to the conditions noted above and in "Shareholder Account Services and
Privileges - Telephone and Computer Purchases, Redemptions and Exchanges" below.
You will need your fund number (see the list of funds in The American Funds
Group under "Purchase of Shares - Purchase Minimums" and "Purchase of Shares -
Fund Numbers"), personal identification number (generally the last four digits
of your Social Security number or other tax identification number associated
with your account) and account number.
TELEPHONE AND COMPUTER PURCHASES, REDEMPTIONS AND EXCHANGES - By using the
telephone (including American FundsLine) or computer (including American
FundsLine OnLine), fax or telegraph purchase, redemption and/or exchange
options, you agree to hold the fund, the Transfer Agent, any of its affiliates
or mutual funds managed by such affiliates, and each of their respective
directors, trustees, officers, employees and agents harmless from any losses,
expenses, costs or liability (including attorney fees) which may be incurred in
connection with the exercise of these privileges. Generally, all shareholders
are automatically eligible to use these options. However, you may elect to opt
out of these options by writing the Transfer Agent (you may also reinstate them
at any time by writing the Transfer Agent). If the Transfer Agent does not
employ reasonable procedures to confirm that the instructions received from any
person with appropriate account information are genuine, the fund may be liable
for losses due to unauthorized or fraudulent instructions. In the event that
shareholders are unable to reach the fund by telephone because of technical
difficulties, market conditions, or a natural disaster, redemption and exchange
requests may be made in writing only.
The New Economy Fund - Page 32
<PAGE>
REDEMPTION OF SHARES - The fund's Declaration of Trust permits the fund to
direct the Transfer Agent to redeem the shares of any shareholder for their then
current net asset value per share if at such time the shareholder owns of record
shares having an aggregate net asset value of less than the minimum initial
investment amount required of new shareholders as set forth in the fund's
current registration statement under the 1940 Act, and subject to such further
terms and conditions as the Board of Trustees of the fund may from time to time
adopt.
While payment of redemptions normally will be in cash, the fund's declaration of
trust permit payment of the redemption price wholly or partly in securities or
other property included in the assets belonging to the fund when in the opinion
of the fund's Board of Trustees, which shall be conclusive, conditions exist
which make payment wholly in cash unwise or undesirable.
SHARE CERTIFICATES - Shares are credited to your account and certificates are
not issued unless you request them by writing to the Transfer Agent.
EXECUTION OF PORTFOLIO TRANSACTIONS
The Investment Adviser places orders for the fund's portfolio securities
transactions. The Investment Adviser strives to obtain the best available prices
in its portfolio transactions taking into account the costs and quality of
executions. When, in the opinion of the Investment Adviser, two or more brokers
(either directly or through their correspondent clearing agents) are in a
position to obtain the best price and execution, preference may be given to
brokers who have sold shares of the fund or who have provided investment
research, statistical, or other related services to the Investment Adviser. The
fund does not consider that it has an obligation to obtain the lowest available
commission rate to the exclusion of price, service and qualitative
considerations.
There are occasions on which portfolio transactions for the fund may be executed
as part of concurrent authorizations to purchase or sell the same security for
other funds served by the Investment Adviser, or for trusts or other accounts
served by affiliated companies of the Investment Adviser. Although such
concurrent authorizations potentially could be either advantageous or
disadvantageous to the fund, they are effected only when the Investment Adviser
believes that to do so is in the interest of the fund. When such concurrent
authorizations occur, the objective is to allocate the executions in an
equitable manner. The fund will not pay a mark-up for research in principal
transactions.
Brokerage commissions paid on portfolio transactions for the fiscal years ended
November 30, 1999, 1998 and 1997, amounted to $7,477,000, $4,096,000 and
$3,337,000, respectively.
GENERAL INFORMATION
CUSTODIAN OF ASSETS - Securities and cash owned by the fund, including proceeds
from the sale of shares of the fund and of securities in the fund's portfolio,
are held by State Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02101, as Custodian. If the fund holds non-U.S. securities, the Custodian may
hold these securities pursuant to sub-custodial arrangements in non-U.S. banks
or non-U.S. branches of U.S. banks.
TRANSFER AGENT - American Funds Service Company, a wholly owned subsidiary of
the Investment Adviser, maintains the records of each shareholder's account,
processes purchases and redemptions of the fund's shares, acts as dividend and
capital gain distribution disbursing
The New Economy Fund - Page 33
<PAGE>
agent, and performs other related shareholder service functions. American Funds
Service Company was paid a fee of $6,843,000 for the 1999 fiscal year.
INDEPENDENT AUDITORS - Deloitte & Touche LLP, 1000 Wilshire Boulevard, 15th
Floor, Los Angeles, CA 90017, serves as the fund's independent auditors
providing audit services, preparation of tax returns and review of certain
documents to be filed with the Securities and Exchange Commission. The financial
statements included in this Statement of Additional Information from the Annual
Report have been so included in reliance on the report of Deloitte & Touche LLP,
independent auditors, given on the authority of said firm as experts in
accounting and auditing. The selection of the fund's independent auditors is
reviewed and determined annually by the Board of Trustees.
PROSPECTUSES AND REPORTS TO SHAREHOLDERS - The fund's fiscal year ends on
November 30. Shareholders are provided updated prospectuses annually. In
addition, shareholders are provided at least semiannually with reports showing
the investment portfolio, financial statements and other information. The fund's
annual financial statements are audited by the fund's independent auditors,
Deloitte & Touche LLP. In an effort to reduce the volume of mail shareholders
receive from the fund when a household owns more than one account, the Transfer
Agent has taken steps to eliminate duplicate mailings of prospectuses and
shareholder reports. To receive additional copies of a prospectus or report,
shareholders should contact the Transfer Agent.
PERSONAL INVESTING POLICY - The fund, Capital Research and Management Company
and its affiliated companies, including the fund's principal underwriter, have
adopted codes of ethics which allow for personal investments. The personal
investing policy is consistent with Investment Company Institute guidelines.
This policy includes: a ban on acquisitions of securities pursuant to an initial
public offering; restrictions on acquisitions of private placement securities;
pre-clearance and reporting requirements; review of duplicate confirmation
statements; annual recertification of compliance with codes of ethics; blackout
periods on personal investing for certain investment personnel; ban on
short-term trading profits for investment personnel; limitations on service as a
director of publicly traded companies; and disclosure of personal securities
transactions.
OTHER INFORMATION - The financial statements including the investment portfolio
and the report of Independent Auditors contained in the Annual Report are
included in this Statement of Additional Information. The following information
is not included in the Annual Report:
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND
MAXIMUM OFFERING PRICE PER SHARE FOR CLASS A SHARES -- NOVEMBER 30, 1999
<TABLE>
<CAPTION>
<S> <C>
Net asset value and redemption price per share
(Net assets divided by shares outstanding) . . . . . . . . . $29.90
Maximum offering price per share
(100/94.25 of net asset value per share,
which takes into account the fund's current maximum
sales charge). . . . . . . . . . . . . . . . . . . . . . . . $31.72
</TABLE>
The New Economy Fund - Page 34
<PAGE>
CLASS A SHARE INVESTMENT RESULTS AND RELATED STATISTICS
The fund's yield was 0.32% based on a 30-day (or one month) period ended
November 30, 1999, computed by dividing the net investment income per share
earned during the period by the maximum offering price per share on the last day
of the period, according to the following formula:
YIELD = 2[( a-b/cd + 1)/6/ -1]
Where: a = dividends and interest earned during the period.
b =
expenses accrued for the period (net of reimbursements).
c =
the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d =
the maximum offering price per share on the last day of the
period.
The fund may also calculate a distribution rate on a taxable and tax equivalent
basis. The distribution rate is computed by dividing the dividends paid by the
fund over the last 12 months by the sum of the month-end net asset value or
maximum offering price and the capital gains paid over the last 12 months. The
distribution rate may differ from the yield.
The fund's one year total return and average annual total return for the five-
and ten-year periods ended November 30, 1999 were 33.58%, 23.29% and 16.65%,
respectively. The fund's average annual total return at net asset value for the
one-, five- and ten-year periods ended on November 30, 1999 were 41.71%, 24.76%
and 17.34%, respectively.
The average total return ("T") is computed by equating the value at the end of
the period ("ERV") with a hypothetical initial investment of $1,000 ("P") over a
period of years ("n") according to the following formula as required by the
Securities and Exchange Commission: P(1+T)/n/ = ERV.
In calculating average annual total return, the fund assumes: (1) deduction of
the maximum sales load of 5.75% from the $1,000 initial investment; (2)
reinvestment of dividends and distributions at net asset value on the
reinvestment date determined by the Board; and (3) a complete redemption at the
end of any period illustrated. In addition, the fund will provide lifetime
average total return figures. From time to time, the fund may calculate
investment results for Class B shares.
The fund may also, at times, calculate total return based on net asset value per
share (rather than the offering price), in which case the figure would not
reflect the effect of any sales charges which would have been paid if shares
were purchased during the period reflected in the computation. Consequently,
total return calculated in this manner will be higher. These total returns may
be calculated over periods in addition to those described above. Total return
for the unmanaged indices will be calculated assuming reinvestment of dividends
and interest, but will not reflect any deductions for advisory fees, brokerage
costs or administrative expenses.
The fund may include information on its investment results and/or comparisons of
its investment results to various unmanaged indices (such as the Dow Jones
Average of 30 Industrial Stocks and the Standard and Poor's 500 Composite Stock
Index) or results of other mutual funds or
The New Economy Fund - Page 35
<PAGE>
investment or savings vehicles in advertisements or in reports furnished to
present or prospective shareholders. The fund may also, from time to time,
combine its results with those of other funds in The American Funds Group for
purposes of illustrating investment strategies involving multiple funds.
The fund may refer to results and surveys compiled by organizations such as CDA/
Wiesenberger, Ibbotson Associates, Lipper Analytical Services, Morningstar,
Inc., and by the U.S. Department of Commerce. Additionally, the fund may refer
to results published in various newspapers and periodicals, including Barron's,
Forbes, Fortune, Institutional Investor, Kiplinger's Personal Finance Magazine,
Money, U.S. News and World Report and The Wall Street Journal.
The fund may illustrate the benefits of tax-deferral by comparing taxable
investments to investments made through tax-deferred retirement plans.
The fund may compare its investment results with the Consumer Price Index, which
is a measure of the average change in prices over time in a fixed market basket
of goods and services (e.g. food, clothing, and fuels, transportation, and other
goods and services that people buy for day-to-day living).
The New Economy Fund - Page 36
<PAGE>
APPENDIX
Description of Bond Ratings
BOND RATINGS - The ratings of Moody's Investors Service, Inc. (Moody's) and
Standard & Poor's Corporation (S&P) represent their opinions as to the quality
of the municipal bonds which they undertake to rate. It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, municipal bonds with the same maturity, coupon and rating may
have different yields, while municipal bonds of the same maturity and coupon
with different ratings may have the same yield.
Moody's rates the long-term debt securities issued by various entities from
-------
"Aaa" to "C." Moody's applies the numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category. Ratings are described as follows:
"Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as 'gilt edge.'
Interest payments are protected by a large or by an exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues."
"Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities."
"Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future."
"Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well."
"Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class."
"Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small."
The New Economy Fund - Page 37
<PAGE>
"Bonds which are rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest."
"Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings."
"Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing."
S & P rates the long-term securities debt of various entities in categories
-----
ranging from "AAA" to "D" according to quality. The ratings from "AA" to "CCC"
may be modified by the addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories. Ratings are described as follows:
"Debt rated 'AAA' has the highest rating assigned by S & P. Capacity to pay
interest and repay principal is extremely strong."
"Debt rated 'AA' has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree."
"Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories."
"Debt rated 'BBB' is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories."
"Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or impled 'BBB-' rating.
"Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating."
"The rating 'CC' is typically applied to debt subordinated to senior debt that
is assigned an actual or implied 'CCC' rating."
"The rating 'C' is typically applied to debt subordinated to senior debt which
is assigned an actual or implied 'CCC-' debt rating. The 'C' rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued."
"The rating 'C1' is reserved for income bonds on which no interest is being
paid."
The New Economy Fund - Page 38
<PAGE>
"Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The 'D' rating also will be used upon
the filing of a bankruptcy petition if debt service payments are jeopardized."
The New Economy Fund - Page 39
<TABLE>
<S> <C>
THE NEW ECONOMY FUND
Investment Portfolio, November 30, 1999
------------------------------------------- -------------
Largest Holdings by Industry
Broadcasting & Publishing 16.23
Telecommunications 13.26
Electronic Data Products 12.76
Computer Services & Software 8.55
Banking 5.14
All Other Industries 31.69
Cash & Equivalents 12.37
------------------------------------------- -------------
</TABLE>
<TABLE>
<S> <C>
THE NEW ECONOMY FUND
November 30, 1999
-------------------------------------------
Percent
of
10 Largest Equity Holdings Net Assets
Viacom 3.21
NTT Mobile Communications Network 3.16
AT&T Liberty Media Group 2.70
Sakura Bank 2.31
Computer Associates International 1.74
Fannie Mae 1.62
Telefonos de Mexico 1.41
Nippon Television Network 1.41
Oracle 1.35
Time Warner 1.33
</TABLE>
<TABLE>
<S> <C> <C> <C>
The New Economy Fund
Investment Portfolio, November 30, 1999
Shares or Market Percent
Principal Value of Net
Equity Securitites Amount (000) Assets
(common and preferred stocks and convertible debentures)
------------------------------------------------------ -------- -------- --------
BROADCASTING & PUBLISHING - 16.23%
Viacom Inc., Class B, nonvoting (1) 6,150,000 305,963 3.21
AT&T Corp. Liberty Media Group, Class A (1) 6,150,200 257,155 2.70
Nippon Television Network Corp. (Japan) 140,000 133,826 1.41
Time Warner Inc. 2,057,100 126,897 1.33
News Corp. Ltd., preferred (ADR) (Australia) 825,000 25,523
News Corp. Ltd., preferred 2,896,615 22,537 .88
News Corp. Ltd. 2,167,882 18,786
News Corp. Ltd. (ADR) 500,000 17,125
KirchMedia GmbH & Co. KGaA, nonvoting (Germany) (1)(2)(3) 1,775,000 78,368 .82
USA Networks, Inc. (1) 1,650,000 66,000 .69
Mediaset SpA (Italy) (2) 5,760,000 65,799 .69
UnitedGlobalCom, Inc., Class A (1) 500,000 52,094 .55
MediaOne Group, Inc. (1) 520,000 41,210 .43
Infinity Broadcasting Corp., Class A (1) 1,068,200 38,923 .41
Grupo Televisa, SA (ADR) (Mexico)(1) 786,300 38,381 .40
CBS Corp. (1) 700,000 36,400 .38
Chris-Craft Industries, Inc. (1) 463,500 32,155 .34
EMAP PLC (United Kingdom) 1,680,000 29,499 .31
Clear Channel Communications, Inc. (1) 350,000 28,131 .30
Fox Entertainment Group, Inc., Class A (1) 1,200,000 27,600 .29
Sinclair Broadcast Group, Inc., Class A (1) 2,340,000 26,910 .28
ProSieben Media AG, nonvoting preferred (Germany) 410,000 19,083 .20
Thomson Corp. (Canada) 600,000 16,671 .18
AUDIOFINA (Luxembourg) 263,000 14,182 .15
Flextech PLC (United Kingdom)(1) 535,000 9,262 .10
Spanish Broadcasting System, Inc., Class A (1) 199,000 6,318 .07
Ziff-Davis Inc. (1) 331,300 6,108 .06
Insight Communications Co., LP, Class A(1) 200,000 4,950 .05
TELECOMMUNICATIONS - 13.26%
NTT Mobile Communications Network, Inc. (Japan) 8,550 301,329 3.16
Telefonos de Mexico, SA de CV, Class L (ADR) (Mexico) 1,451,960 134,397 1.41
Mannesmann AG (ADR) (Germany) 475,000 99,750 1.05
Vodafone Group PLC (ADR) (United Kingdom) 1,687,500 79,629 .84
Nippon Telegraph and Telephone Corp. (Japan) 4,096 73,791 .77
Intermedia Communications Inc. (1) 2,175,000 60,628 .64
Western Wireless Corp., Class A(1) 958,200 56,115 .59
MCI WorldCom, Inc. (1) 660,592 54,623 .57
Korea Telecom Corp. (ADR) (South Korea)(1) 988,800 52,406 .55
Swisscom AG (Switzerland) 151,392 51,381 .54
China Telecom (Hong Kong) Ltd. (China)(1) 8,716,000 46,801 .49
Telecom Italia SpA (Italy) 2,400,000 26,246 .47
Telecom Italia SpA, nonvoting savings shares 3,359,500 18,103
Tele Danmark AS, Class B (ADR) (Denmark) 880,000 28,105 .44
Tele Danmark AS 220,000 14,184
Sprint Corp. 585,000 40,584 .43
Nextel Communications, Inc., Class A (1) 392,000 38,857 .41
Hikari Tsushin, Inc. (Japan) 16,000 25,202 .26
Qwest Communications International Inc. (1) 600,000 20,512 .22
Grupo Iusacell, SA de CV, Class L (ADR) (Mexico)(1) 1,573,147 19,664 .21
Tele Celular Sul Participacoes SA, preferred 450,000 9,000 .09
nominative(ADR) (Brazil)
Equant NV (Netherlands)(1) 77,200 7,276 .08
Telecom Argentina STET-France Telecom SA, 75,000 2,203 .02
Class B (ADR) (Argentina)
Stet Hellas Telecommunications SA (ADR) (Greece)(1) 97,500 1,926 .02
ELECTRONIC DATA PRODUCTS - 12.76%
Rohm Co., Ltd. (Japan) 457,000 124,530 1.31
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan)(1) 25,547,100 120,055 1.26
Samsung Electro-Mechanics Co. (South Korea)(1) 1,380,000 107,161 1.13
Applied Materials, Inc. (1) 1,050,000 102,309 1.07
Microchip Technology Inc. (1) 1,250,000 79,219 .83
PMC-Sierra, Inc. (1) 680,000 70,083 .74
Telefonaktiebolaget LM Ericsson, Class B (ADR) (Sweden) 780,000 37,586 .67
Telefonaktiebolaget LM Ericsson, Class B 550,000 26,682
ADVANTEST CORP. (Japan) 350,000 58,643 .62
Texas Instruments Inc. 600,000 57,638 .61
Cisco Systems, Inc. (1) 600,000 53,513 .56
MIPS Technologies, Inc., Class A(1) 1,200,000 52,950 .56
KLA-Tencor Corp.(1) 600,000 50,738 .53
Micrel, Inc. (1) 744,400 36,662 .38
Dallas Semiconductor Corp. 573,700 33,095 .35
Adaptec, Inc. (1) 610,000 32,864 .34
Maxim Integrated Products, Inc. (1) 350,000 28,109 .30
Intel Corp. 300,000 23,006 .24
3Com Corp. (1) 500,000 19,906 .21
Samsung Electronics Co., Ltd. (South Korea) 90,000 18,637 .20
Nikon Corp. (Japan) 700,000 17,848 .19
hi/fn, inc. (1) 350,000 15,400 .16
Storage Technology Corp. (1) 700,000 13,825 .14
SIPEX Corp. (1) 800,000 11,100 .12
SCI Systems, Inc.(1) 153,400 10,412 .11
Electronics for Imaging, Inc. (1) 200,000 8,913 .09
Nanovation Technologies, Inc.,convertible preferred, 267,000 4,005 .04
Class A(1), (2), (3)
COMPUTER SERVICES & SOFTWARE - 8.55%
Computer Associates International, Inc. 2,550,000 165,750 1.74
Oracle Corp. (1) 1,900,000 128,844 1.35
Microsoft Corp. (1) 1,000,000 91,047 .96
Cendant Corp. (1) 4,524,622 74,939 .79
HNC Software Inc. (1) 1,030,000 73,130 .77
Siebel Systems, Inc. (1) 1,000,000 70,125 .74
Juniper Networks, Inc. (1) 180,300 49,966 .52
Power Integrations, Inc.(1) 900,800 35,919 .38
Intuit Inc. (1) 600,000 30,000 .31
Paychex, Inc. 750,000 29,953 .31
Autodesk, Inc. 650,000 19,053 .20
Cymer, Inc. (1) 304,100 12,164 .13
PeopleSoft, Inc. (1) 600,000 11,287 .12
Altera Corp.(1) 200,000 10,775 .11
Vantive Corp. (1) 400,000 6,200 .07
Hewlett-Packard Co. 50,000 4,744 .05
BANKING - 5.14%
Sakura Bank, Ltd. (Japan) 27,871,000 207,153 2.31
Sakura Finance (Bermuda) Trust 0.75% convertible 864,000,000 12,758
preference units(Incorporated in Bermuda)
Wells Fargo & Co. 2,456,660 114,235 1.20
STB Cayman Capital, Ltd. 0.50% convertible $2,240,000,000 38,370 .40
debentures 2007 (Japan)
Westpac Banking Corp. (Australia) 4,477,421 30,176 .32
Charter One Financial, Inc. 1,204,205 26,116 .27
Bangkok Bank PCL (Thailand)(1) 11,400,000 24,414 .26
Unidanmark A/S, Class A (Denmark) 250,700 19,015 .20
Bank of the Philippine Islands (Philippines) 5,410,600 14,287 .15
Equitable Banking Corp. (Philippines) 1,656,090 3,300 .03
MISCELLANEOUS BUSINESS SERVICES - 4.77%
Concord EFS, Inc. (1) 2,841,375 75,296 .79
Rentokil Initial PLC (United Kingdom) 16,025,000 61,404 .65
Black Box Corp. (1) 740,800 44,078 .46
Robert Half International Inc (1) 1,200,000 33,600 .35
Adecco SA (Switzerland)(1) 48,000 30,681 .32
Metamor Worldwide, Inc. (1) 1,007,200 26,565 .28
Snyder Communications, Inc. (1) 1,950,000 26,203 .28
Galileo International, Inc. 800,000 25,600 .27
Focal Communications Corp. (1) 900,000 21,262 .22
Trimble Navigation Ltd. (1) 1,090,000 18,394 .19
Lason, Inc. (1) 550,000 13,406 .14
ISS-International Service System A/S, 217,500 12,667 .13
Class B (Denmark) (1)
Sabre Group Holdings, Inc., Class A (1) 250,000 11,375 .12
Profit Recovery Group International, Inc. (1) 300,000 11,114 .12
Digex, Inc., Class A (1) 320,000 10,720 .11
Bright Horizons Family Solutions, Inc.(1) 495,000 7,642 .08
Park-Ohio Holdings Corp. (1), (4) 550,000 6,600 .07
Ceridian Corp. (1) 300,000 6,488 .07
Cintas Corp. 115,400 5,301 .06
China.com Corp., Class A (Hong Kong)(1) 25,700 2,878 .03
MSC Industrial Direct Co., Inc., Class A (1) 303,200 2,748 .03
EarthWatch Inc., 8.50% convertible preferred, 224,590 386 .00
Series C (1),(2),(3),(5)
MERCHANDISING - 4.53%
Ito-Yokado Co., Ltd. (Japan) 794,000 85,982 .90
Kohl's Corp. (1) 950,000 68,578 .72
Consolidated Stores Corp. (1) 3,518,750 55,420 .58
Dollar General Corp. 1,717,800 42,086 .44
Michaels Stores, Inc. (1) 1,000,000 31,375 .33
Lowe's Companies, Inc. 620,000 30,884 .32
Walgreen Co. 1,011,200 29,451 .31
Too, Inc. (1) 970,000 17,945 .19
Coles Myer Ltd. (Australia) 2,800,391 14,264 .15
AutoZone, Inc. (1) 500,000 13,781 .15
EM.TV & Merchandising AG (Germany)(1) 178,700 13,496 .14
Kingfisher PLC (United Kingdom) 1,257,733 11,706 .12
Bombay Co., Inc. (1), (4) 1,850,000 9,250 .10
PETsMART, Inc. (1) 1,000,000 4,313 .05
Chip Shot Golf Corp., Series C, preferred (1), (2), (3) 1,215,000 2,680 .03
MISCELLANEOUS FINANCIAL SERVICES - 4.29%
Fannie Mae 2,321,500 154,670 1.62
Freddie Mac 1,375,000 67,891 .71
SLM Holding Corp. 1,200,000 59,475 .63
ORIX Corp. (Japan) 324,000 53,011 .56
Capital One Financial Corp. 675,000 31,430 .33
Citigroup Inc. 338,600 18,242 .19
Mycal Card Inc. (Japan) 350,000 16,883 .18
American Capital Strategies, Ltd. 325,000 6,540 .07
ENTERTAINMENT & LEISURE - 2.79%
Carnival Corp. 2,100,000 92,662 .97
Star Cruises PLC (United Kingdom) 5,800,000 55,390 .58
Pixar (1) 950,000 39,900 .42
Nintendo Co., Ltd. (Japan) 200,000 33,491 .35
VTech Holdings Ltd. (Hong Kong) 6,000,000 20,242 .21
Kinowelt Medien AG (Germany)(1) 170,000 11,898 .13
Harrah's Entertainment, Inc. (1) 325,000 8,978 .09
Vail Resorts, Inc. (1) 200,000 3,438 .04
INSURANCE - 2.75%
ING Groep NV (Netherlands) 862,407 48,503 .62
ING Groep NV, warrants, expire 2001 (1) 660,000 10,368
XL Capital Ltd. (Bermuda - Incorporated 1,000,000 51,000 .54
in Cayman Islands)
American International Group, Inc. 421,875 43,559 .46
Fairfax Financial Holdings Ltd. (Canada)(1) 281,000 41,374 .43
20th Century Industries 1,000,000 19,375 .20
PartnerRe Holdings Ltd. (Singapore - 553,900 16,271 .17
Incorporated in Bermuda)
HCC Insurance Holdings, Inc. 1,300,000 13,812 .15
Mercury General Corp. 550,000 12,856 .13
Allianz AG (Germany) 15,000 4,392 .05
COMPUTER SYSTEMS - 2.49%
Fujitsu Ltd. (Japan) 2,500,000 89,092 .94
NEC Corp. (Japan) 3,750,000 88,046 .93
International Business Machines Corp. 188,000 19,376 .20
Gateway, Inc. (formerly Gateway 2000, Inc.) (1) 200,000 15,275 .16
Silicon Graphics, Inc. (1) 1,120,300 10,573 .11
Lexmark International Group, Inc., Class A (1) 100,000 8,300 .09
Compaq Computer Corp. 250,000 6,110 .06
MISCELLANEOUS PUBLIC SERVICES - 0.96%
Williams Companies, Inc. 1,420,600 47,945 .50
Suez Lyonnaise des Eaux (France) 149,500 21,995 .23
Hays PLC (United Kingdom) 1,400,000 21,344 .23
DIVERSIFIED SERVICES - 0.81%
First Pacific Co. Ltd. (Hong Kong) 88,354,198 47,784 .50
Benpres Holdings Corp. (GDR) (Philippines)(1) 6,000,000 18,000 .19
Brambles Industries Ltd. (Australia) 400,000 10,988 .12
HEALTH & HOSPITAL SERVICES - 0.57%
First Health Group Corp. (1) 720,000 18,135 .19
Cardinal Health, Inc. 300,650 15,728 .17
Columbia/HCA Healthcare Corp. 380,000 10,355 .11
Universal Health Services, Inc., Class B (1) 200,000 6,588 .07
Nu Skin Enterprises Inc., Class A (1) 290,000 3,244 .03
ENVIRONMENTAL SERVICES - 0.55%
Allied Waste Industries, Inc. (1) 4,700,000 38,187 .40
Waste Management, Inc. 900,000 14,625 .15
ELECTRIC UTILITIES - 0.46%
Manila Electric Co., Class A (GDR) (Philippines)(3) 1,550,000 17,006 .33
Manila Electric Co., Class B 5,629,930 14,453
Scottish and Southern Energy PLC (United Kingdom) 900,000 6,552 .07
National Power PLC (United Kingdom) 940,000 5,913 .06
SAFETY & SECURITY SERVICES - 0.44%
Securitas AB, Class B (Sweden) 2,512,000 41,803 .44
RESTAURANTS - 0.36%
Brinker International, Inc. (1) 1,500,000 33,937 .36
ENERGY SERVICES - 0.30%
Schlumberger Ltd. (Netherlands Antilles) 470,000 28,229 .30
ADVERTISING - 0.30%
Interpublic Group of Companies, Inc. 600,000 28,200 .30
HEALTH & PERSONAL CARE SERVICES - 0.29%
Quintiles Transnational Corp. (1) 917,800 20,249 .21
Trigon Healthcare, Inc. (1) 264,600 7,789 .08
AIRLINES- 0.18%
Deutsche Lufthansa AG (Germany) 800,000 17,610 .18
DELIVERY SERVICES - 0.15%
United Parcel Service, Inc., Class B 220,800 14,587 .15
FOOD SERVICES - 0.11%
Mikuni Coca-Cola Bottling Co., Ltd. (Japan) 550,000 10,331 .11
LEASING SERVICES - 0.10%
Hertz Corp., Class A 166,100 7,028 .07
IKON Office Solutions, Inc. 382,400 2,557 .03
REAL ESTATE - 0.08%
New World China Land Ltd. (China - Incorporated 16,310,000 7,246 .08
in the Cayman Islands) (1)
RAIL & ROAD SERVICES - 0.07%
C.H. Robinson Worldwide, Inc. 205,500 7,167 .07
ENGINEERING & CONSTRUCTION - 0.06%
Foster Wheeler Corp. 600,000 6,113 .06
INFORMATION & PRINTING SERVICES - 0.04%
Primark Corp. (1) 141,910 3,769 .04
MISCELLANEOUS - 4.24%
Other equity securities in initial period of acquisition 403,642 4.24
--------
TOTAL EQUITY SECURITIES (cost: $4,859,632,000) 8,344,318 87.63
--------
Principal Market
Amount Value
Short-Term Securities (000) (000)
-------------------------------------------- -------- --------
Corporate Short-Term Notes - 9.96%
Corporate Asset Funding Co. Inc. 5.30%-6.02% 88,500 88,026 .92
due 12/7/1999-1/27/2000 (2)
IBM Credit Corp. 5.31%-5.92% due 12/9/1999-1/10/2000 85,000 84,607 .89
Motiva Enterprises LLC 5.85%-5.93% due 1/19-1/25/2000 62,900 62,349 .66
Ford Motor Credit Co. 5.25%-5.28% due 12/15-12/28/1999 61,000 60,837 .64
Procter & Gamble Co. 5.27%-5.82% 60,600 60,308 .63
due 12/16/1999-1/11/2000
American Express Credit Corp. 5.29%-5.85% 57,600 57,185 .60
due 12/15/1999-2/1/2000
General Electric Capital Corp. 5.84%-6.00% 57,700 57,153 .60
due 1/18-2/22/2000
USAA Capital Corp. 5.85%-5.94% due 1/28-1/31/2000 57,239 56,673 .60
Associates First Capital Corp. 5.33%-5.71% 56,700 56,483 .59
due 12/1/1999-1/10/2000
General Motors Acceptance Corp. 5.29%-5.85% 52,680 52,478 .55
due 12/1/1999-1/18/2000
BellSouth Capital Funding Corp. 5.80%-5.83% 48,000 47,378 .50
due 1/24-3/16/2000 (2)
Pfizer Inc 5.66%-5.80% due 2/2-3/31/2000 (2) 45,000 44,257 .46
National Rural Utilities Cooperative Finance Corp. 41,700 41,605 .44
5.30%-5.80% due 12/2/1999-2/7/2000
Coca-Cola Co. 5.29%-5.80% due 12/2/1999-1/28/2000 40,000 39,879 .42
Motorola, Inc. 5.80%-5.95% due 1/21-3/3/2000 40,000 39,561 .42
Household Finance Corp. 5.70%-5.87% due 1/26/2000 36,400 36,063 .38
Gannett Co., Inc. 5.85% due 1/14/2000 (2) 30,000 29,782 .31
E.I. du Pont de Nemours and Co. 5.29% due 12/3/1999 23,700 23,690 .25
Eastman Kodak Co. 5.30% due 12/6/1999 10,000 9,991 .10
Federal Agency Discount Notes - 2.30%
Freddie Mac 5.19%-5.52% due 12/7/1999-3/2/2000 137,400 136,860 1.44
Fannie Mae 5.23%-5.48% due 12/2/1999-4/10/2000 82,370 82,009 .86
Non-U.S. Currency - 0.04%
New Taiwanese Dollar NT$102,370 3,240 .04
--------
TOTAL SHORT-TERM SECURITES (cost: $1,170,254,000) 1,170,414 12.30
--------
TOTAL INVESTMENT SECURITIES (cost: $6,029,886,000) 9,514,732 99.93
Excess of cash and receivables over payables 6,968 .07
--------
NET ASSETS 9,521,700 100.00
=======
(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) Represents an affiliated company as defined under
the Investment Company Act of 1940.
(5) 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
Equity securities appearing in the portfolio
since May 31, 1999
Bangkok Bank
Bombay Co.
Ceridian
China.com
China Telecom (Hong Kong)
Chip Shot Golf
C.H. Robinson Worldwide
Cintas
Citigroup
Clear Channel Communications
Cymer
Dallas Semiconductor
Deutsche Lufthansa
Digex
EM.TV & Merchandising
Equant
Equitable Banking
First Pacific
Focal Communications
Foster Wheeler
Fujitsu
Galileo International
Harrah's Entertainment
Hewlett-Packard
hi/fn
Hikari Tsushin
Insight Communications
Intermedia Communications
ISS-International Service System
Juniper Networks
Kinowelt Medien
KirchMedia
KLA-Tencor
Lason
Lowe's Companies
MediaOne Group
Micrel
Mikuni Coca-Cola Bottling
MIPS Technologies
Mycal Card
Nanovation Technologies
NEC
New World China Land
Nikon
Pixar
PMC-Sierra
Power Integrations
Qwest Communications International
Sabre Group Holdings
Samsung Electro-Mechanics
Siebel Systems
SIPEX
Spanish Broadcasting System
Too
UnitedGlobalCom
United Parcel Service
Universal Health Services
Vantive
Walgreen
Ziff-Davis
Equity securities eliminated from the portfolio
since May 31, 1999
ABR Information Services
Adelphia Communications
AirTouch Communications
Associated Banc-Corp
AT&T
CANAL+
CB Richard Ellis Services
CBT Group
Circuit City Stores-CarMax Group
Circuit City Stores-Circuit City Group
Comcast
DFS Furniture
Dun & Bradstreet
Epicor Software
Fidelity National Financial
First Union
ForeningsSparbanken
Genting International
Globalstar Telecommunications
Home Depot
InaCom
Insignia/ESG Holdings
Keystone Financial
Linear Technology
MGM Grand
Mirage Resorts
Mitsubishi Estate
Molex
Omnicom Group
Philippine Commercial International Bank
Protection One
Rental Service
SkyTel Communications
Stewart Enterprises
Telecom Corp. of New Zealand
TNT Post Groep
Toronto-Dominion Bank
United HealthCare
</TABLE>
<TABLE>
<S> <C> <C>
The New Economy Fund
Financial Statements
Statement of Assets and (dollars in
Liabilities at November 30, 1999 thousands)
-------- --------
Assets:
Investment securities at market
(cost: $6,029,886) $9,514,732
Cash 12,495
Receivables for-
Sales of investments $ 32,466
Sales of fund's shares 13,934
Dividends 4,365 50,765
-------- --------
9,577,992
Liabilities:
Payables for-
Purchases of investments 40,353
Repurchases of fund's shares 7,734
Management services 3,078
Other expenses 5,127 56,292
Net Assets at November 30, 1999- -------- --------
Equivalent to $29.90 per share on
318,454,397 shares of beneficial
interest issued and outstanding;
unlimited shares authorized $9,521,700
========
Statement of Operations (dollars in
for the year ended November 30, 1999 thousands)
----------------------------------- -------- --------
Investment Income:
Income:
Dividends $ 46,249
Interest 44,696 $ 90,945
--------
Expenses:
Management services fee 30,886
Distribution expenses 18,532
Transfer agent fee 6,843
Reports to shareholders 294
Registration statement and prospectus 414
Postage, stationery and supplies 1,045
Trustees' fees 114
Auditing and legal fees 61
Custodian fee 1,063
Taxes other than federal income tax 92
Other expenses 91 59,435
-------- --------
Net investment income 31,510
--------
Realized Gain and Unrealized
Appreciation on Investments:
Net realized gain 1,065,572
Net increase in unrealized
appreciation on investments:
Beginning of year 1,930,694
End of year 3,484,857
Net unrealized appreciation --------
on investments 1,554,163
Net realized gain and unrealized --------
appreciation on investments 2,619,735
Net Increase in Net Assets --------
Resulting from Operations $2,651,245
========
(dollars in
Statement of Changes in Net Assets thousands)
----------------------------------- -------- --------
year ended November 30
1999 1998
Operations: -------- --------
Net investment income $ 31,510 $ 33,166
Net realized gain on investments 1,065,572 675,033
Net unrealized appreciation
on investments 1,554,163 422,890
-------- --------
Net increase in net assets
resulting from operations 2,651,245 1,131,089
-------- --------
Dividends and Distributions Paid to
Shareholders:
Dividends from net investment income (37,556) (28,423)
Distributions from net realized
gain on investments (648,071) (394,742)
-------- --------
Total dividends and distributions (685,627) (423,165)
-------- --------
Capital Share Transactions:
Proceeds from shares sold:
69,401,406 and 42,169,768
shares, respectively 1,758,922 937,603
Proceeds from shares issued in
reinvestment of net investment income
dividends and distributions of net
realized gain on investments:
29,589,151 and 20,671,001 shares,
respectively 657,311 403,196
Cost of shares repurchased:
35,924,475 and 37,059,740
shares, respectively (898,829) (814,395)
-------- --------
Net increase in net assets resulting
from capital share transactions 1,517,404 526,404
-------- --------
Total increase in net assets 3,483,022 1,234,328
Net Assets:
Beginning of year 6,038,678 4,804,350
End of year (including undistributed -------- --------
net investment income: $16,052 and
$21,689, respectively) $9,521,700 $6,038,678
======== ========
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. Forward currency contracts are valued at the mean of their
representative quoted bid and asked prices. 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 the trade date. Realized gains and losses from securities
transactions are determined based on specific identified cost. In the event
securities are purchased on a delayed delivery or $when-issued$ basis, the fund
will instruct the custodian to segregate liquid assets sufficient to meet its
payment obligations in these transactions. 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.
FORWARD CURRENCY CONTRACTS - The fund may enter into forward currency
contracts, which represent agreements to exchange currencies of different
countries at specified future dates at specified rates. The fund enters into
these contracts to manag its exposure to fluctuations in foreign exchange rates
arising from investments denominated in non-U.S. currencies.
2. NON-U.S. INVESTMENTS
INVESTMENT RISK - Investments in securities of non-U.S. issuers in certain
countries involve special investment risks. These risks may include, but are
not limited to, investment and repatriation restrictions, revaluation of
currencies, adverse political, social, and economic developments, government
involvement in the private sector, limited and less reliable investor
information, lack of liquidity, certain local tax law considerations, and
limited regulation of the securities markets.
TAXATION - Dividend and interest income is recorded net of non-U.S. taxes paid.
For the year ended November 30, 1999, such non-U.S. taxes were $2,796,000.
CURRENCY GAINS AND LOSSES - Net realized currency gains on dividends, interest,
and other receivables and payables, on a book basis, were $163,000 for the year
ended November 30, 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 November 30, 1999, net unrealized appreciation on investments for book
and federal income tax purposes aggregated $3,484,846,000; $3,744,664,000
related to appreciated securities and $259,818,000 related to depreciated
securities. During the year ended November 30, 1999, the fund realized, on a
tax basis, a net capital gain of $1,062,397,000 on securities transactions. Net
gains related to non-U.S. currency transactions of $388,000 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
$6,029,886,000 at November 30, 1999.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
INVESTMENT ADVISORY FEE - The fee of $30,886,000 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
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, 1999,
distribution expenses under the Plan were $18,532,000. As of November 30, 1999,
accrued and unpaid distribution expenses were $4,568,000.
American Funds Distributors, Inc. (AFD), the principal underwriter of the
fund's shares, received $5,506,000 (after llowances 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 $6,843,000.
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, 1999, aggregate deferred amounts and earnings thereon
since the deferred compensation plan's adoption (1993), net of any payments to
Trustees, were $240,000.
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 $3,604,638,000 and $3,209,301,000, respectively,
during the year ended November 30, 1999.
As of November 30, 1999, accumulated undistributed net realized gain on
investments was $1,014,794,000 and additional paid-in capital was
$4,687,543,000. The fund reclassified $44,344,000 from undistributed net
realized gains to additional paid-in capital during the year ended November 30,
1999, as a result of permanent differences between book and tax. Additionally,
the fund reclassified $409,000 of currency gains from undistributed net
realized gains to undistributed net investment income for the year ended
November 30, 1999.
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 $1,063,000 includes $59,000 that was paid by these credits
rather than in cash.
6. TRANSACTIONS WITH AFFILIATES
The fund owns 5.09% of the outstanding voting securities of Bombay Co., Inc.
and 5.20% of Park-Ohio Holdings Corp. and thus is considered an affiliate as
defined in the Investment Company Act of 1940.
<TABLE>
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA AND RATIOS
Year ended November 30
----- ----- ----- ----- -----
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
Net Asset Value, Beginning
of Year 23.65 20.92 18.50 16.98 14.65
----- ----- ----- ----- -----
Income from Investment
Operations:
Net investment income .10 .13 .12 .14 .20
Net gains on securities
(both realized and unrealized) 8.83 4.44 3.57 2.26 2.99
Total from investment ----- ----- ----- ----- -----
operations 8.93 4.57 3.69 2.40 3.19
----- ----- ----- ----- -----
Less Distributions:
Dividends (from net investment
income) (.14) (.12) (.14) (.19) (.18)
Distributions (from capital
gains) (2.54) (1.72) (1.13) (.69) (.68)
----- ----- ----- ----- -----
Total distributions (2.68) (1.84) (1.27) (.88) (.86)
----- ----- ----- ----- -----
Net Asset Value, End of Year 29.90 23.65 20.92 18.50 16.98
===== ===== ===== ===== =====
Total Return (1) 41.71% 23.73% 21.64% 15.00% 23.22%
Ratios/Supplemental Data:
Net assets, end of year
(in millions) $9,522 $6,039 $4,804 $4,223 $3,523
Ratio of expenses to average
net assets .78% .79% .81% .84% .88%
Ratio of net income to
average net assets .42% .60% .66% .85% 1.33%
Portfolio turnover rate 47.93% 38.55% 31.62% 29.54% 27.03%
1 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, 1999, 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, 1999 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, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the per-share data and ratios for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Los Angeles, California
January 7, 2000
1999 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>
<CAPTION>
Dividends and Distributions per Share
From Net From Net Realized
To Shareholders of Record Payment Date Investment Income Long-Term Gains
<S> <C> <C> <C>
December 22, 1998 December 23, 1998 $.10 $2.54
June 18, 1999 June 21, 1999 .04 -
</TABLE>
Corporate shareholders may exclude up to 70% of qualifying dividends received
during the year. For purposes of computing this exclusion, 27% 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 2000 TO DETERMINE THE CALENDAR YEAR AMOUNTS TO BE INCLUDED ON
THEIR 1999 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISERS.
