THE NEW ECONOMY FUND
The Forces of Change: What's Driving the New Economy?
1999 Annual Report
for the year ended November 30
[Begin Sidebar]
The new economy is transforming much of the world at an accelerating pace.
[End Sidebar]
[illustration: binary numbers surrounding the globe.]
The American Funds Group (r)
The New Economy Fund
The New Economy Fund(r) seeks to help you participate in the many investment
opportunities created as society continues to shift from producing standardized
goods to providing a wide array of information and services. The fund has the
flexibility to invest all over the world in industries ranging from
broadcasting and publishing to banking and insurance, cellular telephones to
merchandising, and health care to computer software and the Internet.
The New Economy Fund(r) is one of 29 mutual funds in The American Funds
Group,(r) the nation's third-largest mutual fund family. For more than six
decades, Capital Research and Management Company, the American Funds adviser,
has invested with a long-term focus based on thorough research and attention to
risk.
<TABLE>
<CAPTION>
Results at a Glance
Average Annual Compound Returns 12 Months Lifetime
<S> <C> <C>
(with all distributions reinvested) 12/1/98 - 12/1/83 -
11/30/99 11/30/99
The New Economy Fund +41.71% +17.54%
Lipper Growth Funds Index +27.21 +15.24
Morgan Stanley Capital International EAFE(r)
(Europe, Australasia, Far East) Index* +21.43 +15.42
Russell 2500 Index* +18.78 +12.98
Standard & Poor's 500 Composite Index* +20.91 +17.61
*Unmanaged
</TABLE>
Fund results in this report were computed without a sales charge unless
otherwise indicated. Here are the total returns and average annual compound
returns with all distributions reinvested for periods ended December 31, 1999
(the most recent calendar quarter), assuming payment of the 5.75% maximum sales
charge at the beginning of the stated periods:
<TABLE>
<CAPTION>
Average Annual
Total Return Compound Return
<S> <C> <C>
10 Years 423.11% 17.99%
Five Years 220.43 26.23
One Year 37.49
</TABLE>
Sales charges are lower for accounts of $25,000 or more.
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. SHARE
PRICE AND RETURN WILL VARY, SO YOU MAY LOSE MONEY. INVESTING FOR SHORT PERIODS
MAKES LOSSES MORE LIKELY. INVESTMENTS ARE NOT FDIC-INSURED, NOR ARE THEY
DEPOSITS OF OR GUARANTEED BY A BANK OR ANY OTHER ENTITY. Of course, investments
outside the United States involve special risks such as currency fluctuations,
political instability, differing securities regulations, and periods of
illiquidity. Global diversification can help reduce these risks.
Fellow Shareholders:
In the fiscal year just completed, The New Economy Fund had the largest
percentage gain of its 16-year lifetime. Your fund rose 41.7% during the 12
months ended November 30 if, like most shareholders, you reinvested the yearly
income dividend of 14 cents a share and capital gain distribution of $2.54 a
share paid in December 1998. In December 1999, the fund paid shareholders
another income dividend of 14 cents a share and a capital gain distribution of
$3.18.
New Economy finished the year well ahead of the benchmarks that together
represent our relevant investment universe. The Lipper Growth Funds Index,
which measures 30 of the largest growth-oriented U.S. mutual funds, recorded
the highest total return among those benchmarks, at 27.2%. The Russell 2500, a
measure of small- and medium-capitalization U.S. stocks, recorded a total
return of 18.8%. The last of the fund's benchmarks - the Morgan Stanley Capital
International EAFE (Europe, Australasia, Far East) Index, which measures all
major stock markets outside North America - rose 21.4%.
Another widely reported index - the Standard & Poor's 500 Composite Index,
which tracks 500 large companies listed primarily on U.S. exchanges - gained
20.9% for the year.
Technology in the driver's seat
The objective of The New Economy Fund is to invest in service and information
companies in the United States and around the world. These sectors of the
global economy continue to grow at a much faster pace than the economy as a
whole. Reflecting that growth, nearly two-thirds of the stocks held in New
Economy's portfolio throughout the year - 82 out of 133 - rose in price. All of
the fund's 10 biggest gainers more than doubled.
Rising global demand for electronics resulted in strong earnings for
semiconductor, or "chip," manufacturers. With plants that are operating at near
capacity and ongoing demand that appears unfettered, this is an area where we
expect to see continued growth.
This is true, too, of telecommunications. The fund's holdings in this industry
were affected positively by continued growth in telecommunications services as
well as significant merger and acquisition activity. For example, Vodafone, the
U.K.-based mobile phone operator, acquired AirTouch Communications in June and
is now making a bid for Mannesmann, the German mobile phone operator. All are
current holdings in the fund.
Of the 25 stocks with the largest share-price appreciation for the fiscal year,
nearly three quarters were in telecommunications and technology-related
businesses. Examples of a few of the fund's strong telecommunications holdings
were Sprint (+90.7%), Telefonos de Mexico (+98.8%) and Mannesmann (+94.1%).
Among the fund's larger technology holdings, substantial returns were posted by
Oracle (+197.0%) and Texas Instruments (+151.6%).
No discussion of technology would be complete without mentioning the climate of
investment opportunities surrounding the Internet. There is a French proverb
that goes something like this: The price spoils the pleasure. Surely this could
be true of many of the Internet stocks that have captured so much attention
this past year. While the fund has participated in some dot-coms at their
initial public offerings, the stock prices have often soared well beyond
reasonable valuations. There are, however, exciting opportunities in businesses
that make communications infrastructure for the Internet, and we've
participated in a number of these investments.
[Begin Sidebar]
The objective of the New Economy Fund is to invest in service and information
companies in the United States and around the world. These sectors of the
global economy continue to grow at a much faster pace than the economy as a
whole.
[End Sidebar]
[Begin Sidebar]
10 Largest Equity Holdings
at the end of our fiscal year
(November 30, 1999)
<TABLE>
<CAPTION>
Percent
of Net
Assets
<S> <C>
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>
[End Sidebar]
[Begin Sidebar]
At the end of fiscal 1999, a total of 38.3% of the fund's assets were invested
in non-U.S. companies.
[End Sidebar]
[Begin Sidebar]
Where the Fund's
Assets Are Invested
(Geographical distribution of net assets as of November 30, 1999)
<TABLE>
<CAPTION>
Country Percent
of Net
Assets
<S> <C>
United States 49.3%
Europe
Germany 2.6
United Kingdom 2.4
Italy 1.2
Sweden 1.1
Switzerland .9
Denmark .8
Netherlands .7
France .2
Luxembourg .1
Asia/Pacific
Japan 14.5
South Korea 2.0
Australia 1.5
Taiwan 1.4
Hong Kong .8
Philippines .7
China .5
Malaysia .4
Thailand .3
Singapore .2
Latin America & Canada
Mexico 2.0
Canada 1.1
Brazil .3
Supranational 2.6
Total Non-U.S. 38.3
Cash & Equivalents 12.4
Total 100.0%
</TABLE>
[End Sidebar]
Asia fuels the ride
Our fund's results also were helped by holdings in companies that are located
outside the United States, particularly in Japan. At the end of fiscal 1999, a
total of 38.3% of the fund's assets were invested in non-U.S. companies (see
the table at left), by far the largest percentage in New Economy's history.
During the year, the Japanese stock market advanced strongly due to corporate
restructuring and the overall perception that the economy had bottomed. The
resulting rise in the yen versus the dollar increased returns in U.S. dollar
terms for our holdings. Several Japanese banks and technology companies did
particularly well. Rohm, a Japanese electronic components producer and the
fund's third-biggest gainer, tripled in price. Sakura Bank, the fund's
fourth-largest holding, more than doubled.
Other stocks on the move
Broadcasting stocks - among the fund's biggest gainers in fiscal 1998 -
continued to add to New Economy's return. Very strong gains were registered by
AT&T Liberty Media (107.4%) and Nippon Television Network (189.9%). These
holdings and others remain among our 10 largest holdings because we believe
they are solid companies that will continue to be good investments over the
long run.
As we go to press on this letter, it has been announced that America Online has
entered an agreement to acquire Time Warner, your fund's 10th largest holding.
This merger has already significantly increased the value of the fund's
holdings in Time Warner.
On the downside, U.S. and European financial stocks continued the lackluster
performance we reported to you six months ago. In the United States, banks and
insurance companies were negatively impacted by rising interest rates.
The road ahead
While we are pleased the fund has benefited from the tremendous growth in
technology-related stocks, one question arises: How much longer can this
continue? The U.S. stock market as a whole, and technology stocks in
particular, are certainly selling at all-time high valuations.
While no one can predict where the market is headed, we will continue to seek
out the very best opportunities in the services and information industries
around the globe. Our strong commitment to research and value-oriented
investing has served us well in the past and should continue to make a
difference over time. We do not expect to produce a gain on the magnitude of
42% every year - and neither should you. Markets can and will go down, and we
encourage shareholders to maintain a long-term perspective.
One final note: William R. Grimsley, who has served as a trustee of the fund
since 1992 and Chairman of the Board since 1998, has retired as of December 31.
Bill has been responsible for countless successful contributions to your fund
and we wish to thank him for his dedicated service over many years.
Cordially,
/s/ Gordon Crawford /s/ Timothy D. Armour
Gordon Crawford Timothy D. Armour
Chairman of the Board President
January 14, 2000
How a $10,000 Investment Has Grown
Here's how a $10,000 investment grew between December 1, 1983 - when The New
Economy Fund began operations - and November 30, 1999, the end of its latest
fiscal year. As you can see, the $10,000 would have increased to $125,047 after
deducting the maximum 5.75% sales charge and reinvesting all distributions, an
average increase of 17.1% a year. The fund's year-by-year results appear under
the chart.
Average Annual Compound Returns*
(for periods ended November 30, 1999)
10 Years +16.65%
Five Years +23.29
One Year +33.58
*Assumes reinvestment of all distributions and payment of the 5.75% sales
charge at the beginning of the stated periods.
$134,013/1/
S&P 500
Composite Index
$125,047 /1/,/2/
New Economy
Fund
$96,685 /1/,/3/
Lipper Growth
Funds Index
$16,630 /4/
Consumer Price
Index (inflation)
$10,000 /2/
original
investment
<TABLE>
<CAPTION>
Lipper Consumer
S&P 500 Growth Price
Year Ended New Economy Composite Funds Index
November 30 Fund /1/ /2/ Index/1/ Index/1/ /3/ (inflation)/4/
<S> <C> <C> <C> <C>
1983 $9,425 $10,000 $10,000 $10,000
1984 9,485 10,285 9,222 10,405
1985 13,144 13,273 11,906 10,771
1986 15,950 16,950 14,566 10,909
1987 15,093 16,140 13,569 11,403
1988 18,462 19,881 16,403 11,887
1989 25,269 26,010 21,252 12,441
1990 21,886 25,083 19,611 13,221
1991 26,413 30,204 24,758 13,617
1992 32,641 35,780 29,299 14,032
1993 42,631 39,384 32,478 14,407
1994 41,376 39,806 32,541 14,792
1995 50,984 54,516 43,359 15,178
1996 58,631 69,712 52,166 15,672
1997 71,317 89,622 64,434 15,959
1998 88,243 110,840 76,003 16,026
1999 125,047 134,013 96,685 16,630
</TABLE>
<TABLE>
<CAPTION>
Year Ended November 30 1984 1985 1986 1987 1988 1989 1990
<S> <C> <C> <C> <C> <C> <C> <C>
Total Value
Dividends Reinvested - $199 140 367 315 421 566
Value at Year-End/2/ $9,485 13,144 15,950 15,093 18,462 25,269 21,886
NEF Total Return (5.2)% 38.6 21.3 (5.4) 22.3 36.9 (13.4)
Year Ended November 30 1991 1992 1993 1994 1995 1996 1997
Total Value
Dividends Reinvested 589 328 189 307 517 578 455
Value at Year-End/2/ 26,413 32,641 42,631 41,376 50,984 58,631 71,317
NEF Total Return 20.7 23.6 30.6 (2.9) 23.2 15.0 21.6
Year Ended November 30 1998 1999
Total Value
Dividends Reinvested 422 540
Value at Year-End/2/ 88,243 125,047
NEF Total Return 23.7 41.7
</TABLE>
Average
annual
compound
return for
16 years:
17.1%/2/
/1/All results are calculated with dividends and capital gains reinvested.
/2/These figures, unlike those shown elsewhere in this report, reflect payment
of the maximum sales charge of 5.75% on the $10,000 investment. Thus, the net
amount invested was $9,425. The maximum initial sales charge was 8.5% prior to
July 1, 1988. No adjustment has been made for income or capital gain taxes.
/3/This index tracks 30 of the largest U.S. growth funds (representing about
52% of all U.S. growth fund assets).
/4/Computed from data supplied by the U.S. Department of Labor, Bureau of Labor
Statistics.
The indexes are unmanaged and do not reflect sales charges, commissions or
expenses.
Past results are not predictive of future results.
The directors of The New Economy Fund have elected to change the fund's
dividend payment policy. Beginning with the December 1999 payment, your
dividend now will be paid annually, rather than twice a year.
The Forces of Change: What's Driving the New Economy?
[illustration: laptop computer, cellular phone, binary numbers, person's hand,
the "enter" key]
In Paris, a man strolling the Jardin des Tuileries finds himself thirsty and
out of pocket change. At a vending machine, he calls a posted number from his
mobile phone and out pops a soft drink, charged to his phone bill.
Fantasy? Hardly. The new economy is transforming much of the world at an
accelerating pace.
From Paris to Tokyo to the Silicon Valley, innovative men and women working for
cellular telephone companies, computer software firms and suppliers of
equipment for communications networks are mapping out the next technological
revolution: wireless access to the Internet, a convergence of the planet's two
most rapidly growing technologies.
The result will be access to all sorts of information - e-mail, news headlines,
stock quotes and the like - from cell phones, pagers or portable computers with
wireless modems. Digital cellular networks - those based on bits and bytes of
computer code - are already replacing analog cellular networks. Carriers are
making these enhancements so consumers can use devices to send or receive
information almost anywhere - even at vending machines.
Technology and the world
The example above illustrates the revolution of information technology, one of
two broad trends that have been shaping the new economy for several years.
Practically every measure of the U.S. economy has surpassed expectations since
1994, roughly coinciding with the time the Internet was popularly embraced.
Most forecasters had anticipated an annual growth rate for the economy far
below its actual growth rate of 3.3%. Real wage growth has accelerated, while
inflation and unemployment have both declined.
Naturally, a transformation as pervasive as this is not without casualties.
Rapid technology changes create a certain amount of dislocation for new and
mature businesses alike. It's important to note that not every new business
will succeed, nor will every investment opportunity prove fruitful for the
fund. Will a soaring new economy mean an end to recessions and other economic
ills? Probably not. High returns may instead bring high risks.
So what does this mean for investors in The New Economy Fund? "We believe our
long-term, value-oriented approach to investing in service and information
companies will provide investors with significant opportunities to participate
in the forces of technology and globalization," explains Gordon Crawford, the
fund's Chairman and one of its portfolio counselors.
Technology
From railroads to automobiles to information
The revolution of information technology is all around us. Fax machines,
cellular phones, personal computers and the Internet represent just the tip of
the iceberg. It's also much more. The digitization of information - words,
pictures and data - provides seemingly limitless applications. For example,
there soon will be widespread use of "smart" phones, a technology already
available in Japan. By next year, tens of millions of users in Europe and Asia
will enjoy handheld access to the Web whenever they turn on their cellular
phones. Other more imaginative scenarios include technologies for the home: the
refrigerator that knows when it is low on milk or eggs and places an order with
a local supermarket, or the microwave oven that checks a database of a family's
allergies or eating habits and issues an alert if an unwanted ingredient is
detected when a package's bar code is waved in front of it.
Like railroads in the 19th century and automobiles in the 20th, this technology
revolution is pervasive, affecting virtually every other industry. It can boost
productivity, reduce costs, cut inventories and facilitate electronic commerce.
"The information revolution touches everything," notes Claudia Huntington,
another of the fund's portfolio counselors and a former technology analyst. "It
transforms how organizations are managed, how products and services are
produced and distributed, how consumers manage their finances and purchasing;
in fact, it affects most areas of the economy either subtlely or directly. Of
course, this means interesting opportunities for investors."
[Begin Sidebar]
The revolution of information technology is all around us. Fax machines,
cellular phones, personal computers and the Internet represent just the tip of
the iceberg.
[End Sidebar]
[Begin Sidebar]
Considering the pace of the current technology revolution, it pays to stay on
top of companies to sort out the survivors from the inevitable fatalities.
[End Sidebar]
As a result, new companies, even new industries, are being created at a pace
that was unfathomable in the "old" days - say, four years ago. According to
Hoover's Online, some 548 companies went public in 1999, an average of more
than one a day. One such company is Juniper Networks, a successful holding in
your fund, profiled for you below.
Like Juniper, companies throughout the information technology industry are
building an infrastructure needed to bring "broadband" communications to the
home. What does this mean? Most of the one-in-three homes that currently have
access to the Internet use a dial-up modem over existing telephone lines to
make their connection. Dial-up modems are easy to use, but their speed of
connection limits their performance. Once broadband technologies are fully
deployed, all of us will have the ability to receive and send text, images,
audio and video at vastly greater speeds, with virtually no delays. The
Internet will always be "on" in the home, ready to help with a simple click of
a key or voice command. These technologies will bring a host of new data,
multimedia and television services. And they will do all of this eventually at
an affordable price.
Investing dot-calmly in a sea of rising prices
No doubt about it - the Internet is an explosive phenomenon, and the
stratospheric rise in the prices of Internet-related stocks over the past two
years has continued to astonish investors, including the analysts and portfolio
counselors of The New Economy Fund.
"We're excited by the opportunities in a variety of Internet-related
industries," says Tim Armour, the fund's President, "but we believe many of the
$pure play' companies just don't make sense for value-oriented, long-term
investors." So-called "pure play" Internet companies are those that derive the
majority of their revenues from Internet sales and usage. He adds, "Many of
those stocks are very volatile, and their market valuations leave us scratching
our heads."
Instead, your fund's portfolio includes the stocks of information and service
companies that are profiting from the Internet. "There are very real growth
opportunities being created by the changes occurring in network and wireless
technologies," notes Claudia. "These opportunities can present themselves in
the form of companies that support the expansion of the Internet as well as
more obvious Internet content or software companies."
[Begin Sidebar]
Juniper Networks, Inc.
In the fund since June 1999
Juniper Networks, a Silicon Valley-based provider of Internet equipment, became
a holding in The New Economy Fund during its initial public offering in June
1999. Since then it has proven its mettle - the share price of its stock has
grown 715.1% since the initial public offering.
"Juniper is an example of a start-up company that capitalized on
next-generation technology," explains Tim Murphy, one of the fund's
communications equipment and technology analysts. The whole networked economy
is built on the Internet and the computer networks within companies. Juniper
develops backbone routers - devices that direct Internet traffic - to enable
Internet and telecommunications service companies to meet the demands of an
increasingly congested World Wide Web.
"In the short time since the company has gone public, it has signed on 45 major
corporate customers," adds Tim. "That's an impressive track record for a
start-up, especially when you consider those clients include several of the
world's leading service providers, such as Cable & Wireless and MCI Worldcom."
[End Sidebar]
Globalization
[illustration: globe]
Having a team of research analysts following companies - as The New Economy
Fund does - is one of the best ways for the fund to identify attractive
investment opportunities. "We have always believed that the closer you are to
the source of information, the more effective your decision-making process is
likely to be," says Armour. Considering the pace of the current technology
revolution, it pays to stay on top of companies to sort out the survivors from
the inevitable fatalities. Observes the February 13, 1999, issue of The
Economist: "Roughly once every generation, a new way of distributing content
emerges, and those companies that fail to invest early come to regret it$ The
Internet is the newest way of delivering content."
A marketplace spanning the globe
The new economy's other major force is globalization. Quite simply, capitalism
is spreading around the world. In the decade since the end of the Cold War and
the fall of communism, the business enterprise has emerged as the primary
player on the world stage. Fundamental economic change now comes more from
companies than capitals. New markets are opening for goods and services. At the
same time, global competition helps dampen inflationary pressures.
Improvements in communication technology have accelerated the pace of
globalization. Global satellites and information technologies make it possible
to speed information across borders as though they don't exist. In global money
markets trading, nearly $2 trillion a day seamlessly travels from London to New
York to Singapore to Chicago. Trade is growing by 8% a year, foreign investment
by 12%. Global corporations are moving operations around the world, wherever
workers are highly skilled, operating expenses are low and tax policies are
more favorable. Whereas coal, steam and iron drove business during the
Industrial Revolution, it is the computer chip that is driving the
globalization of business in the new economy.
[Begin Sidebar]
The adoption of information technologies around the globe may well be one of
the most effective economic stimulants.
[End Sidebar]
The adoption of information technologies around the globe may well be one of
the most effective economic stimulants. On October 11, 1999, Time reported "a
50-member farming cooperative near Cuzco, in Chincheros, Peru, increased its
monthly income fivefold - from $300 for the whole village to $1,500 - after it
connected to the Internet and established an online partnership with an
international export company. Farmers in Sri Lanka are using the Internet to
get information about produce prices in [the capital] Colombo to negotiate
better rates with brokers, increasing their income by as much as 50%$ and in
Africa, the Internet is helping to avert famine by making farmers aware of the
state of crops throughout particular regions or countries."
Today's global marketplace rewards companies that value entrepreneurial
risk-taking and invest heavily in research and development. Taiwan
Semiconductor Manufacturing Company (TSMC), a fund holding profiled for you
below, is a company that has done both of those things.
The fund's global profile
The New Economy Fund's portfolio appropriately reflects the trend toward
globalization. At the end of fiscal 1999, the fund - which can invest up to 40%
of its assets in companies outside the United States - had 38.3% of its assets
invested beyond U.S. borders, the most significant portion ever.
"We are seeing attractive opportunities every day," says Tim Armour. "The
Internet, which began as a U.S.-centric phenomenon, is now a global phenomenon.
We are participating in telecommunications and wireless opportunities in Europe
and elsewhere. And Asia - well, the values there have been remarkable."
In Japan, the expectations of economic recovery and future technological
development have combined to create significant opportunities for the fund. In
March 1999, the Japanese government stepped in to secure the country's banking
system. This, in effect, marked the bottom of Japan's long stock market
decline.
[Begin Sidebar]
Taiwan Semiconductor Manufacturing Company, Ltd.
In the fund since November 1997
Founded in 1987, TSMC is an independent semiconductor-manufacturing foundry
based in Taiwan's "Silicon Valley," the Hsin-chu Science-Based Industrial Park.
In fact, TSMC is the world's largest semiconductor foundry. A foundry
specializes exclusively in manufacturing. It does not design or sell its own
products, which ensures that it does not compete with its own customers.
"TSMC's Chairman, Morris Chang, a Texas Instruments veteran, recognized early
on that there was a better business model for this industry," relates Galen
Hoskin, a technology analyst in our Hong Kong office. "Traditional chip makers
run fully integrated operations incorporating product development,
manufacturing and marketing. Chang felt there would be great value in splitting
off the manufacturing process, that it would substantially lower the barriers
to new companies entering the business."
He was right. In its 12-year lifetime, TSMC has grown to become the world's
second-largest logic semiconductor processor, behind only Intel. Galen explains
that this is only the beginning: "The large integrated semiconductor companies
are coming to the conclusion that outsourcing manufacturing enhances their own
profitability. By using a foundry, they enjoy variable, not fixed,
manufacturing costs. They spend less, risk less, and generate higher returns
for their shareholders. This has resulted in astounding growth for TSMC. And
because the company has grown so fast, it has been able to pour money into
technology, resulting in a capability that is state-of-the-art."
[End Sidebar]
[Begin Sidebar]
NTT Mobile Communications Network, Inc. (NTT Central DoCoMo)
In the fund since October 1998
NTT Central DoCoMo spun off from its parent corporation, Nippon Telegraph and
Telephone Corporation (NTT) - Japan's largest telephone company -in October
1998 to take advantage of a deregulated domestic mobile phone market.
Says research analyst Harry Tai, "This company has benefited tremendously from
the rapid adoption of wireless technology in Japan. The stock has been a
tremendous performer since Day 1."
The New Economy Fund first participated in the stock during its initial public
offering. Over the period the fund has held it, the stock has split five times
and has traded back to nearly its original share price.
NTT Central DoCoMo now enjoys a more than 50% share of the cellular phone
market in Japan. Even with over 40% of the population using cellular phones,
the market continues to grow. In February, the company became the first in the
world to offer "i-mode" wireless data service, which provides users with
various types of Internet services, such as e-mail and mobile banking. This
highly successful service attracted more than 2 million subscribers in seven
months.
[End Sidebar]
"Prior to rescue of the country's banking system, the Japanese market was
trading at only about 30% of its peak level reached nine years before," notes
Harry Tai, who follows Asia from our New York office. "This was among the worst
downturns in the history of financial markets in the world."
Tucked in the crisis' silver lining were many values for investors. One such
stock was NTT Central DoCoMo, a Japanese wireless telecommunications company
whose parent company had languished in the country's worst recession since
World War II. We profile the holding for you above.
Bringing our resources to bear
The service and information industries in which your fund invests are changing
so rapidly it requires careful research and the benefit of a variety of
professional perspectives. That's one of the great benefits of the multiple
portfolio counselor system used by The New Economy Fund and other American
Funds - portfolio counselors and analysts share information with each other to
uncover the very best values for the fund, but act independently and follow
their own convictions when investing.
As we enter the 21st century, the innovations in information technology and the
globalization of business seem boundless. No doubt there will be many exciting
opportunities to come, as well as times when the pace of growth of technology
stocks will stagnate. One can expect peaks and valleys in any long-term
investment plan. The New Economy Fund will continue to search for the best
long-term growth opportunities around the world by relying on the expertise of
our investment professionals to find the most profitable investments for our
shareholders.
[Begin Sidebar]
The service and information industries in which your fund invests are changing
so rapidly it requires careful research and the benefit of a variety of
professional perspectives.
[End Sidebar]
[photo: American flag]
[illustration: globe]
What Makes the American Funds Different?
As a shareholder in The New Economy Fund, you are also a member of The American
Funds Group,(r) the nation's third-largest mutual fund family. You won't find
us advertised, yet thousands of financial advisers recommend the American Funds
for their clients' serious money - money set aside for education, a home,
retirement and other important dreams.
What the 29 funds in our group have in common is a commitment to your best
interests and the proven approach of our investment adviser, Capital Research
and Management Company. In business since 1931, Capital's calling cards
include:
A long-term, value-oriented approach
Rather than follow short-term fads, we rely on our own intensive research to
find well-managed companies with reasonably priced shares and solid, long-term
potential. Despite our size, we offer relatively few funds compared with many
large fund families, allowing us to maintain a careful focus on our objectives
and enabling you to benefit from economies of scale.
A global perspective
We opened our first overseas office in 1962, well before most mutual funds
began investing internationally. Today, the American Funds draw on one of the
industry's most globally integrated research networks. We spend substantial
resources getting to know companies and industries around the world.
A multiple portfolio counselor system
More than 40 years ago, we developed a unique strategy for managing investments
that blends teamwork with individual accountability. Every American Fund is
divided among a number of portfolio counselors, each of whom manages his or her
portion independently, within each fund's objectives; in most cases, research
analysts manage a portion as well. Over time, this method has contributed to
consistency of results and continuity of management.
Experienced investment professionals
Nearly 90% of the portfolio counselors who serve the American Funds were in the
investment business before the stock market decline in October 1987. Long
tenure and experience through a variety of market conditions mean we aren't
"practicing" with your money.
A commitment to low operating expenses
You can't control market returns, but you can control what you invest in and
how much you pay to own it. American Funds provide exceptional value for
shareholders, with operating expenses that are among the lowest in the mutual
fund industry. Our portfolio turnover rates are low as well, keeping
transaction costs and tax consequences contained.
[Begin Sidebar]
We also offer a full line of retirement plans and variable annuities.
[End Sidebar]
A Portfolio for Every Investor
Most financial advisers suggest that investors balance their portfolios by
investing across several types of investments. Which mix is right for you? That
depends on a number of things - including your risk tolerance, investment time
horizon and financial goals. The American Funds Group offers 29 funds with an
array of investment objectives to help you and your financial adviser build a
portfolio specifically tailored to your needs.
Growth Funds
Emphasis on long-term growth through stocks
AMCAP Fund(r)
EuroPacific Growth Fund(r)
The Growth Fund of America(r)
The New Economy Fund(r)
New Perspective Fund(r)
New World Fund(sm)
SMALLCAP World Fund(r)
Growth-and-Income Funds
Emphasis on long-term growth and dividends through stocks
American Mutual Fund(r)
Capital World Growth And Income Fund(sm)
Fundamental Investors(sm)
The Investment Company of America(r)
Washington Mutual Investors Fund(sm)
Equity-Income Funds
Emphasis on above-average income and growth through stocks and/or bonds
Capital Income Builder(r)
The Income Fund of America(r)
Balanced Fund
Emphasis on long-term growth and current income through stocks and bonds
American Balanced Fund(r)
Income Funds
Emphasis on current income through bonds
American High-Income Trust(sm)
The Bond Fund of America(sm)
Capital World Bond Fund(r)
Intermediate Bond Fund of America(r)
U.S. Government Securities Fund(sm)
Tax-Exempt Income Funds
Emphasis on tax-free current income through municipal bonds
American High-Income Municipal Bond Fund(r)
Limited Term Tax-Exempt Bond Fund of America(sm)
The Tax-Exempt Bond Fund of America(r)
State-specific tax-exempt funds:
The Tax-Exempt Fund of California(r)
The Tax-Exempt Fund of Maryland(r)
The Tax-Exempt Fund of Virginia(r)
Money Market Funds
Seek stable monthly income through money market instruments
The Cash Management Trust of America(r)
The Tax-Exempt Money Fund of America(sm)
The U.S. Treasury Money Fund of America(sm)
For more complete information about any of the funds, including charges and
expenses, please obtain a prospectus from your financial adviser, download one
from our Web site at www.americanfunds.com, or phone the fund's transfer agent,
American Funds Service Company at 800/421-0180. Please read the prospectus
carefully before you invest or send money. For more information, ask your
financial adviser for a copy of A Portfolio for Every Investor.
<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.
The New Economy Fund
Board of Trustees
Timothy D. Armour
Los Angeles, California
President of the fund
Director, Capital Research
and Management Company
Ambassador Richard G. Capen, Jr.
Rancho Santa Fe, California
Corporate director and author;
former United States Ambassador to Spain;
former Vice Chairman of the Board,
Knight-Ridder, Inc.; former Chairman of the
Board and Publisher, The Miami Herald
H. Frederick Christie
Rolling Hills Estates, California
Private investor; former President and
Chief Executive Officer, The Mission Group;
former President, Southern California
Edison Company
Gordon Crawford
Los Angeles, California
Chairman of the Board of the fund
Senior Vice President and Director,
Capital Research and Management Company
Alan Greenway
La Jolla, California
Private investor;
President, Greenway Associates, Inc.
(management consulting services)
E. Graham Holloway
Dallas, Texas
Former Chairman of the Board,
American Funds Distributors, Inc.
Leonade D. Jones
Burlingame, California
Management consultant;
former Treasurer, The Washington
Post Company
William H. Kling
St. Paul, Minnesota
President, Minnesota Public Radio;
President, Greenspring Company;
former President, American Public Radio
(now Public Radio International)
Norman R. Weldon, Ph.D.
Evergreen, Colorado
Managing Director, Partisan
Management Group Inc.;
former Chairman of the Board,
Novoste Corporation
Patricia K. Woolf, Ph.D.
Princeton, New Jersey
Private investor; corporate director; lecturer,
Department of Molecular Biology,
Princeton University
Other Officers
Claudia P. Huntington
Los Angeles, California
Senior Vice President of the fund
Senior Vice President,
Capital Research and Management Company
Vincent P. Corti
Los Angeles, California
Vice President of the fund
Vice President - Fund Business
Management Group,
Capital Research and Management Company
Ulrich A. Volk
London, England
Vice President of the fund
Vice President, Capital Research Company
Chad L. Norton
Los Angeles, California
Secretary of the fund
Vice President - Fund Business
Management Group,
Capital Research and Management Company
David A. Pritchett
Norfolk, Virginia
Treasurer of the fund
Vice President - Fund Business
Management Group,
Capital Research and Management Company
Sheryl F. Johnson
Norfolk, Virginia
Assistant Treasurer of the fund
Vice President - Fund Business
Management Group,
Capital Research and Management Company
Alan W. Clements, a Trustee since 1991, retired from the Board at the end of
1999. The Trustees thank him for his many contributions to the fund.
Offices of the fund and of the
investment adviser, Capital Research and
Management Company
333 South Hope Street
Los Angeles, California 90071-1443
135 South State College Boulevard
Brea, California 92821-5823
Transfer agent for shareholder accounts
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 2205
Brea, California 92822-2205
P.O. Box 659522
San Antonio, Texas 78265-9522
P.O. Box 6007
Indianapolis, Indiana 46206-6007
P.O. Box 2280
Norfolk, Virginia 23501-2280
Custodian of assets
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02105-1713
Counsel
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
Independent auditors
Deloitte & Touche LLP
1000 Wilshire Boulevard
Los Angeles, California 90017-2472
Principal underwriter
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, California 90071-1462
FOR INFORMATION ABOUT YOUR ACCOUNT OR ANY OF THE FUND'S SERVICES, PLEASE
CONTACT YOUR FINANCIAL ADVISER. YOU MAY ALSO CALL AMERICAN FUNDS SERVICE
COMPANY, TOLL-FREE, AT 800/421-0180 OR VISIT WWW.AMERICANFUNDS.COM ON THE WORLD
WIDE WEB.
This report is for the information of shareholders of The New Economy Fund, but
it may also be used as sales literature when preceded or accompanied by the
current prospectus, which gives details about charges, expenses, investment
objectives and operating policies of the fund. If used as sales material after
March 31, 2000, this report must be accompanied by an American Funds Group
Statistical Update for the most recently completed calendar quarter.
Printed on recycled paper
Litho in USA BDC/AL/4473
Lit. No. NEF-011-0100
