UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
Certified Shareholder Report of
Registered Management Investment Companies
Investment Company Act File Number: 811-3735
The New Economy Fund
(Exact Name of Registrant as specified in charter)
333 South Hope Street
Los Angeles, California 90071
(Address of principal executive offices)
Registrant's telephone number, including area code: (213) 486-9200
Date of fiscal year end: November 30, 2003
Date of reporting period: November 30, 2003
Chad L. Norton
Capital Research and Management Company
333 South Hope Street
Los Angeles, California 90071
(name and address of agent for service)
Copies to:
Michael J. Fairclough, Esq.
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
(Counsel for the Registrant)
ITEM 1 - Reports to Stockholders
[logo -American Funds(R)]
The right choice for the long term(R)
THE NEW ECONOMY FUND
20 years of looking to the future
[front cover: woman and toddler working on a computer]
Annual report for the year ended November 30, 2003
THE NEW ECONOMY FUND(R) seeks to help you participate in the many investment
opportunities created as society continues to shift from producing industrial
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.
This fund is one of the 29 American Funds, the nation's third-largest mutual
fund family. For more than seven decades, Capital Research and Management
Company,SM the American Funds adviser, has invested with a long-term focus based
on thorough research and attention to risk.
Contents
Letter to shareholders 1
Chart: The value of a long-term perspective 3
Feature: 20 years of looking to the future 4
Investment portfolio 10
Financial statements 21
Trustees and officers 32
The American Funds family back cover
Here are returns on a $1,000 investment with all distributions reinvested for
periods ended December 31, 2003 (the most recent calendar quarter):
1 YEAR 5 YEARS 10 YEARS
CLASS A SHARES reflecting 5.75% maximum sales charge
Average annual total return -- -0.46% +7.67%
Cumulative total return +30.70% -2.26% +109.33%
Results for other share classes can be found on page 31. Please see the inside
back cover for important information about other share classes.
FIGURES SHOWN ARE PAST RESULTS AND ARE NOT PREDICTIVE OF FUTURE RESULTS. CURRENT
RESULTS MAY BE LOWER OR HIGHER THAN THOSE SHOWN. SHARE PRICE AND RETURN WILL
VARY, SO YOU MAY LOSE MONEY. FOR MORE CURRENT INFORMATION AND MONTH-END RESULTS,
VISIT AMERICANFUNDS.COM. RESULTS SHOWN REFLECT DEDUCTION OF THE MAXIMUM SALES
CHARGE OF 5.75%.
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.
[photo: three children sitting on a log amid wheat plants with a lake in the
background]
FELLOW SHAREHOLDERS:
We are pleased to report that The New Economy Fund posted a 21.2% total return
for the 12 months ended November 30, 2003, helped by a global stock market
recovery and a major upturn in information and service-oriented companies.
That compares with a 20.6% return for the Global Service and Information Index,
a new benchmark that we believe more precisely tracks the types of companies in
which The New Economy Fund invests. The new index is a subset of the unmanaged
MSCI World Index, which is a market-capitalization-weighted index that measures
the returns of stock markets in 23 developed countries. This subset is 70%
U.S.-weighted and consists specifically of service and information industries
that together represent approximately 60% of the MSCI World Index.
We will continue to measure the fund against the Lipper Multi-Cap Growth Funds
Index, which measures 30 growth funds representing a variety of market
capitalizations. That index posted a 22.8% return for the period.
The widely reported Standard & Poor's 500 Composite Index, an unmanaged index
that tracks relatively large companies listed primarily on U.S. exchanges,
gained 15.1% for the fiscal year.
A RECOVERY IN THE STOCK MARKET
The fiscal year got off to a rocky start, with the fund declining by 9.4% and
the S&P 500 declining by 5.9% in December 2002. For both the fund and index, it
was the worst month of the fiscal year. For the remaining 11 months of the
period, however, the fund posted a 33.8% return, surpassing the 30.2% return of
the Global Service and Information Index, the 32.6% return of the Lipper
Multi-Cap Growth Funds Index and the 22.3% return of the S&P 500.
We are pleased to report strong results, but it is important to note that they
follow three disappointing years in the fund. In many regards, we tend to own
more growth-oriented stocks, whose prices typically rise more quickly when
global stock markets are on an upswing and decline more dramatically during
stock market downturns.
INFORMATION AND SERVICE COMPANIES REGAIN STRENGTH
The fund's results this year were the result of significant gains among a broad
range of information and service companies.
Internet companies benefited from greater adoption of the Internet by users
worldwide, the growth of e-commerce and the return of online advertising. As
more users adopt broadband, we believe they will continue to spend increasing
amounts of time online.
A major benefactor of these trends has been Yahoo!, a dominant global Internet
portal company and one of the fund's top 10 holdings. After getting hit hard
during the downturn, the company's stock price is up 135.3% for the fiscal year
ended November 30, thanks to the upswing in online advertising and an increase
in paid subscriptions.
[Begin Sidebar]
RESULTS AT A GLANCE
Average annual total returns (with all distributions reinvested)
1 YEAR 5 YEARS LIFETIME
11/30/02 - 11/30/98 - 12/1/83 -
11/30/03 11/30/03 11/30/03
The New Economy Fund +21.2% +1.7% +12.3%
Lipper Multi-Cap Growth Funds Index +22.8 -0.1 +10.7
Global Service and Information Index* +20.6 -1.5 N/A
Standard & Poor's 500 Composite Index* +15.1 -0.5 +12.6
*Unmanaged
[End Sidebar]
[Begin Sidebar]
Figures shown are past results and are not predictive of future results. Current
results may be lower or higher than those shown. Share price and return will
vary, so you may lose money. For more current information and month-end results,
visit americanfunds.com. Results shown are at net asset value. If the 5.75%
maximum sales charge had been deducted, results would have been lower.
[End Sidebar]
Technology companies also experienced major price recoveries, including holdings
such as Applied Materials (+42.5%) and Taiwan Semiconductor Manufacturing
(+38.0%), both among our top 10 holdings.
Retail companies, which tend to do well in an economic recovery, generally
posted strong gains this period. These include companies such as Dollar General
(+59.6%), Lowe's (+40.5%), Gap (+35.3%) and Japan-based FAST RETAILING (+64.8%).
Some of our larger specialty retail holdings, however, lagged the broader
market, including Target (+11.3%) and Kohl's (-29.5%).
Financial services companies such as Capital One Financial (+76.7%), J.P. Morgan
Chase (+40.5%) and Societe Generale (+42.3%) posted strong returns. Others,
including American International Group (-11.1%), lagged the market due to fears
that interest rates would rise.
Many of our international telecommunications holdings did quite well, including
Deutsche Telekom (+36.0%) and KDDI (+58.3%); some of our U.S. wireless holdings,
however, did not, including AT&T Wireless Services (-0.7%) and Sprint - PCS
Group (-20.3%).
INCREASED EXPOSURE IN THE GLOBAL MARKETS
Non-U.S. markets also experienced a strong recovery, particularly in Asia and,
to a lesser degree, Europe. To take advantage of these opportunities, the fund
increased its exposure to Asia/Pacific by 44% and its exposure to Europe by 12%
over the past fiscal year.
We are particularly excited about the growth of China and its impact on many
companies that will benefit from the economic expansion there. China's growth
has also provided a much-needed boost to Japan, which we believe is finally
recovering from a 13-year depression.
The fund also increased its financial exposure in Europe. Financial stocks in
Europe have been attractive because many have significant dividend yields, the
European economies are improving, loss ratios are declining and interest rates
are expected to remain low.
MAINTAINING A LONG-TERM PERSPECTIVE
Going forward, we believe that stock prices generally reflect a recovering
economy and an anticipation of better earnings growth in this coming calendar
year. Whenever a recovery becomes anticipated, investments become riskier. For
that reason, we continue to focus on aligning the portfolio to create long-term
value. We are constantly revisiting our investment criteria to determine whether
a particular stock continues to represent value.
Over the years, our research-driven investment process and long-term outlook
have allowed The New Economy Fund to provide shareholders with solid returns.
Since its inception on December 1, 1983, the fund has generated an average
annual total return of 12.3% as of November 30, 2003, compared with a 10.7%
average annual return for the Lipper Multi-Cap Growth Funds Index and 12.6% for
the S&P 500.
As always, we thank you for your continued support.
Cordially,
/s/ Gordon Crawford
Gordon Crawford
Chairman of the Board
/s/ Timothy D. Armour
Timothy D. Armour
President
January 13, 2004
[Begin Sidebar]
WHERE THE FUND'S ASSETS ARE INVESTED (percent of net assets)
FISCAL YEAR 2003
[begin pie chart]
o United States 69.2%
o Asia & Pacific Basin 11.5%
o Europe 10.3%
o Other (including Canada & Latin America) 2.3%
o Cash & equivalents 6.7%
[end pie chart]
FISCAL YEAR 2002
[begin pie chart]
o United States 71.7%
o Europe 9.2%
o Asia & Pacific Basin 8.0%
o Other (including Canada & Latin America) 2.7%
o Cash & equivalents 8.4%
[end pie chart]
[end sidebar]
[begin Sidebar]
Figures shown are past results and are not predictive of future results. Current
results may be lower or higher than those shown. Share price and return will
vary, so you may lose money. For more current information and month-end results,
visit americanfunds.com. Results shown are at net asset value. If the 5.75%
maximum sales charge had been deducted, results would have been lower.
[end Sidebar]
THE VALUE OF A LONG-TERM PERSPECTIVE
Here's how a $10,000 investment in The New Economy Fund's Class A shares grew
between December 1, 1983 -- when the fund began operations -- and November 30,
2003, the end of its latest fiscal year. As you can see, the $10,000 would have
increased to $95,764 after deducting the maximum 5.75% sales charge and
reinvesting all distributions, an average annual increase of 12.0%. The fund's
year-by-year results appear under the chart.
[Begin Sidebar]
AVERAGE ANNUAL TOTAL RETURNS
Class A shares (for periods ended November 30, 2003)
1 year +14.26%
5 years +0.47
10 years +7.80
Assuming reinvestment of all distributions and payment of the 5.75% sales charge
at the beginning of the stated periods.
[End Sidebar]
<s> <c> <c> <c> <c>
Lipper
New Economy Multi-Cap Consumer
Fund (1),(2) Growth Price
Year Ended reflecting 5.75% Funds Index
November 30 maximum sales charge S&P 500 (1) Index (1),(3) (inflation) (4)
1983 $ 9,425 $10,000 $ 10,000 $10,000
1984 9,478 10,295 9,117 10,405
1985 13,135 13,276 11,474 10,771
1986 15,939 16,949 14,182 10,909
1987 15,082 16,154 13,143 11,403
1988 18,449 19,915 15,718 11,887
1989 25,252 26,047 21,465 12,441
1990 21,871 25,143 19,635 13,221
1991 26,295 30,246 24,951 13,617
1992 32,619 35,823 30,838 14,032
1993 42,601 39,433 34,947 14,407
1994 41,348 39,845 34,809 14,792
1995 50,949 54,560 47,089 15,178
1996 58,591 69,753 56,344 15,672
1997 71,268 89,635 67,444 15,958
1998 88,183 110,844 76,462 16,206
1999 124,962 134,002 107,933 16,630
2000 115,668 128,346 105,958 17,204
2001 95,236 112,670 80,512 17,530
2002 79,002 94,072 61,957 17,915
2003 95,764 108,259 76,078 18,231
<s> <c> <c> <c> <c> <c> <c> <c>
Year Ended November 30 1984 1985 1986 1987 1988 1989 1990
Total Value
Dividends Reinvested - $ 199 140 367 315 421 565
Value at Year-End (2) $9,478 13,135 15,939 15,082 18,449 25,252 21,871
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 588 327 189 307 516 578 455
Value at Year-End (2) 26,395 32,619 42,601 41,348 50,949 58,591 71,268
NEF Total Return 20.7 23.6 30.6 (2.9) 23.2 15.0 21.6
Year Ended November 30 1998 1999 2000 2001 2002 2003
Total Value
Dividends Reinvested 421 540 585 - - -
Value at Year-End/2/ 88,183 124,962 115,668 95,236 79,002 95,764
NEF Total Return 23.7 41.7 (7.4) (17.7) (17.0) 21.2
These figures 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.
Average annual total return for 20 years,
reflecting 5.75% maximum sales charge: 12.0% (2)
(1) All results are calculated with dividends and capital gains reinvested.
(2) As outlined in the prospectus, the sales charge is reduced for larger
investments.
(3) This index tracks 30 U.S. growth funds representing a variety of market
capitalizations.
(4) Computed from data supplied by the U.S. Department of Labor, Bureau of
Labor Statistics.
The market indexes are unmanaged and do not reflect sales charges, commissions
or expenses. The results shown are before taxes on fund distributions and sale
of fund shares.
[begin Sidebar]
Figures shown are past results and are not predictive of future results. Current
results may be lower or higher than those shown. Share price and return will
vary, so you may lose money. For more current information and month-end results,
visit americanfunds.com. Results shown, unless otherwise indicated, are at net
asset value. If the 5.75% maximum sales charge had been deducted, results would
have been lower.
[end Sidebar]
[photo: little girl sitting at desk in a classromm working on a laptop computer]
20 YEARS OF LOOKING TO THE FUTURE
[begin Sidebar]
Two decades of innovation and growth
1983
[photo: compact disc]
o Compact discs (CDs) introduced.
o HP introduces the touch-screen personal computer, the HP-150.
o Time magazine names computer "Machine of the Year" for 1982.
o Federal Express reaches revenues of $1 billion.
o The first Costco warehouse opens in Seattle, Washington.
o First Beta format camcorder introduced.
1984
[photo: computer cursor arrow pointing to square icon]
o Cellular phone service launched in Los Angeles in time for the Olympic
Games.
o Bell System broken up.
o Apple Macintosh personal computer introduced.
o Prodigy online service provider founded.
o Motorola introduces first 32-bit microprocessor.
o CD-ROMs introduced.
o Daily prime rate is 11.25% as of fiscal year end.
1985
[photo: video cassette recorder with a cassette tape]
o AOL founded, providing limited online services for a small market of PC
users.
o Microsoft introduces Windows program.
o Pay-per-view channels appear in U.S.
o 33 million PCs worldwide.
[end sidebar]
TWO DECADES AGO, THE NEW ECONOMY FUND WAS CREATED TO CAPITALIZE ON A FUNDAMENTAL
SHIFT THAT HAD BEGUN TO TAKE PLACE IN SOCIETY: THE TRANSITION FROM AN ECONOMY
BASED ON THE MASS PRODUCTION OF STANDARDIZED GOODS TO ONE BASED ON PROVIDING A
WIDE ARRAY OF CUSTOMIZED SERVICES AND INFORMATION.
At the time, just 32% of the total market capitalization of Standard & Poor's
500 Composite Index, which tracks relatively large companies listed primarily on
U.S. exchanges, could be attributed to information and service companies. By
2002, information and service companies had grown to represent just under 60% of
the S&P 500's market capitalization, due to the growth of such industries as
technology, media, telecommunications, merchandising, finance, health care,
transportation, and leisure and tourism.
As The New Economy Fund enters its third decade, we thought it was a good time
to look at how the fund is being positioned to take advantage of the next
opportunities for growth. "We never defined the new economy in the way it became
popularly defined in the 1990s," says Tim Armour, president of the fund. "We
always defined it as a broad, global expansion of services, information and
technology-led businesses. It is this same trend -- the growth of the new
economy -- that we expect will continue over the longer term."
THE RE-EMERGENCE OF THE INTERNET
One area that the fund's managers believe has strong potential is the Internet.
In the late 1990s, there was an incredible stock market bubble based in part on
the promise of the Internet. "When that bubble burst and technology stocks
collapsed, people thought technology was dead," says Gordon Crawford, chairman
of the fund. "We never really believed that."
In fact, throughout the downturn the number of Internet users has continued to
grow, as has the amount of time users spend online. "The Internet changes the
way markets work and how people interact on a social and business basis," says
Gordon. "It is becoming an increasingly important part of people's lives."
The boom and bust that happened over the past few years is not unlike other
fast-growing industries of the past, such as electric utilities and railroads.
"These industries also experienced periods of rapid expansion, followed by a
bust, and then growth resumed," says Jeff Lager, a technology analyst with the
fund. "Through the bubble, underlying sources of demand for technology and new
services had continued to increase. The long-term trends did not cease to exist
just because there was a bubble in stock prices."
[begin sidebar]
1988
[photo: abstract picture of fiber optic cables]
o CDs outsell vinyl records for the first time.
o First transatlantic fiber optic cable completed.
o Estimated number of wireless subscribers in U.S. reaches 1.6 million.
o Home Depot's sales reach $2 billion.
o Southwest Airlines has 85 aircraft serving 27 cities.
1990
[photo: two hands holding a palm pilot]
o World Wide Web server and browser developed.
o Wal-Mart becomes America's No. 1 retailer.
o First digital audio tape (DAT) recorders introduced.
o Color fax machines are sold.
1993
[photo: young boy taking a picture of an elderly couple with a digital camera]
o Mosaic, the first graphical Internet browser, is developed.
o Kodak and Apple produce the first digital cameras for consumers.
o Estimated number of wireless subscribers in U.S. reaches 13 million.
[end sidebar]
Along with greater usage, the Internet is gaining popularity as a shopping
destination, as evidenced by the number of airline tickets and hotel rooms
purchased online. In response, advertisers are finding more efficient ways of
reaching consumers. "Paid searches (which allow companies to place their
websites at the top of major search engines) are becoming one of the
fastest-growing sectors of the advertising business," says Gordon.
The number of Internet users around the world is also rising at a rapid pace,
particularly in China. "China has the second-largest number of Internet users
after the U.S.," says Mark Casey, an Internet analyst with the fund. "Chinese
Internet usage will eventually exceed the United States. Over the next five to
10 years, Americans will still be spending more money online, but China will
have a greater number of users." Mark also sees significant increases in Western
Europe. As a result, he says, companies will have to place a higher priority on
being successful outside the United States.
American Funds' global network of research analysts gives The New Economy Fund a
distinct advantage in this area. One example is the fund's investment in Yahoo
Japan, which is a joint venture between Yahoo! and Tokyo-based Softbank. "Yahoo
Japan is the No. 1 search engine in that country and a leading provider of
broadband access and online auction services," says Mark. "Yahoo! entered the
Japanese market so much earlier than everyone else that its competitors are
still behind." As a result, Yahoo! now has an 80% reach in Japan, compared with
a 50% reach in the United States.
"The fund's investment in Yahoo Japan is the result of the fund having analysts
all over the world," says Mark. "Our Japanese analysts had a better
understanding of Yahoo!'s dominance in that country, while U.S. analysts knew
the importance of its auction and search capabilities."
TECHNOLOGY GAINS POWER
Not surprisingly, technology is also expected to be a strong growth area.
"Technology continues to deliver products and components that are faster,
smaller and cheaper every year," says Claudia Huntington, a portfolio counselor
in the fund.
Twenty years ago, technology focused mainly on computing. Today, computing and
communications are far more blended together. "As technology evolves, it is
becoming as much a technology of communications as a technology of computing,"
says Claudia. "Many of those companies that provide faster, smaller and cheaper
products or components will win -- the trend will not stop."
[begin sidebar]
1994
[photo: man taking inventory]
o North American Free Trade Agreement (NAFTA) goes into effect January 1,
1994, opening the door to more trade opportunities between the U.S., Mexico
and Canada.
o 208 million PCs worldwide.
o DirecTV satellite television system is launched.
o Daily prime rate is 8.50% as of fiscal year end.
1995
[photo: hand dialing a cell phone]
o Estimated number of wireless subscribers in U.S. reaches 28 million, twice
as many as two years earlier.
o Microsoft's Internet Explorer browser created.
o Flat screen plasma TVs introduced.
o Amazon.com founded.
o eBay founded.
1996
[photo: couple working on computer]
o President Bill Clinton signs legislation that significantly deregulates
telecommunications, expanding opportunities for broadcasters and cable
companies.
o Target's revenues top $25 billion.
o About 45 million people use the Internet worldwide.
o Palm Pilot introduced.
[end sidebar]
[begin pull quote]
"Many of those companies that provide faster, smaller and cheaper products or
components will win -- the trend will not stop."
[end pull quote]
Mark agrees. "A general rule of thumb is that the processing power per dollar or
square inch doubles every two years. In 10 years, that means it will double five
times, yielding a 32-fold increase in performance per unit of size or price."
The fund's managers also expect to see greater adoption of computing devices
that will be more mobile and have more continuous contact with the network.
"Very soon," says Mark, "we will see a very small device combining one's cell
phone, address book, camera and music and video storage all in one, in addition
to functions we're not even thinking of right now."
A NEW GENERATION OF CONSUMER PRODUCTS
The current cycle in technology is largely being driven by consumer products
such as DVDs, digital music players, camera cell phones and plasma and LCD TVs.
"As prices come down, there will be huge adoption of these items," says Gordon.
The New Economy Fund invests in companies that provide the component parts that
go into these new devices. "Underlying a lot of the technology advances are
semiconductors," says Jeff. "The vast majority of semiconductor products don't
go into computers -- they go into autos, cell phones, toys, set-top boxes for
cable systems, and other such products. We look up the supply chain to find the
companies providing the guts of these consumer advancements." That includes such
holdings as Applied Materials, Texas Instruments and Microchip Technology.
AN INCREASINGLY WIRELESS WORLD
In the telecommunications sector, two themes are emerging, says Chris
Buchbinder, a telecom analyst with the fund. "We are seeing a move from
traditional fixed-line phones toward wireless communications and broadband
connections."
Like the Internet, telecommunications went through a significant boom-and-bust
cycle, but the long-term growth trends have remained strong. "Telecom as a
percentage of gross domestic product has grown over the past four to five
years," says Chris.
Within the telecommunications industry, wireless and broadband are rapidly
gaining market share. Over the past four years, the number of wireless and
broadband subscribers has grown dramatically -- by 72% and 743%, respectively --
while traditional phone lines have declined by 3%. "The current generation of
kids is growing up with the cell phone as their primary phone," says Chris. In
the future, he believes that households will likely have one fixed line, with
family members each having their own cell phone.
"Over the past five years, wireless has taken a share of the voice
communications market," he says. "Over the next five years, it will take a
meaningful share of the data communications market."
[begin sidebar]
1997
[photo: boy wearing headphones working on computer]
o Wal-Mart tops $100 billion in sales and becomes the No. 1 employer in the
U.S.
o 375 million PCs worldwide.
o Smart phones enable Internet access via screen and keyboard.
o 56 kbps modems enter the marketplace.
o First two-way pagers unveiled.
1998
[photo: two people sitting at a table with cups on it]
o Revenues from outsourced services are estimated at $150 billion globally.
o Kohl's joins the S&P 500.
o Sales at Starbucks top $1 billion.
o MP3 standard format developed.
o First DVD players become available.
1999
[photo: Euro currency]
o Y2K readiness is a major concern.
o Euro created as European Union currency.
o The number of Internet users worldwide reaches 150 million, more than half
of whom reside in the U.S.
o Online advertising by direct marketers reaches $1.3 billion.
o Costco's average annual sales per warehouse reaches $100 million.
[end sidebar]
[begin pull quote]
"The universe in which we invest continues to be fertile ground. The underlying
trends driving service and technology have not changed."
[end pull quote]
NEW CONCEPTS IN TRADITIONAL INDUSTRIES
Of course, the new economy is not limited to technology and telecommunications.
It also means new ways of doing business for traditional industries such as
retail. Many retailers are using technology to manage key aspects of their
businesses, helping to train employees, identify key merchandising trends and
replenish inventories.
Retailers such as Kohl's and Target have also capitalized on the desire for
speed and convenience among time-strapped shoppers by locating stores in
freestanding sites with easy access to major thoroughfares.
Another area that offers opportunities is health care. "Health care costs are
rising at a faster rate than the gross domestic product in the United States,"
says Tim. "This trend cannot continue forever. We think companies will emerge
that will focus on containing health care costs and some of these will provide
attractive investment opportunities."
OUTSOURCING CONTINUES TO GROW
The outsourcing trend is another major theme in the fund's portfolio. "Thirty to
40 years ago, in the era of big conglomerates, everything was done under one
umbrella," says Jeff. "In the early 1980s, when this fund started, companies
were beginning to realize they could have other companies handle their non-core
activities better and cheaper than they could themselves, which allowed them to
focus on building their core competencies."
Beneficiaries of this trend have been companies such as Paychex and Ceridian,
which handle payroll processing for companies, and Robert Half International,
which provides professional staffing services.
A particularly fast-growing area of outsourcing is electronics manufacturing,
says Alwyn Heong, a portfolio counselor in the fund. "The Internet has made
competition much more global," he says. "One of the consequences of that is
increased speed to market, because competitors will come hard and fast."
As a result, many technology companies have continued to focus on design,
marketing and sales, but have outsourced their manufacturing to other countries,
such as China and India, where labor costs are low.
This has created a lucrative market for companies like Sanmina-SCI, which
supplies circuit boards to the personal computer and telecommunications
industries, and Jabil Circuit, which provides custom manufacturing services to
electronics companies. "This will also accelerate price declines for technology
products," says Alwyn.
GLOBAL OPPORTUNITIES
"A longer term global trend has to do with the accessibility of emerging
markets, which 20 to 30 years ago were effectively closed economies that were
difficult to invest in, but which have become reasonably open economies today,"
says Claudia.
[begin sidebar]
2000
[photo: hand swiping a debit card through a machine]
o S&P 500 peaks on March 24, 2000; wary investors bring stock plunge;
beginning of the end of the Internet stock bubble.
o "Trading Spaces" debuts on TV, reflecting popularity of home improvement
craze.
o Debit cards represent 11.6% of retail noncash payments, compared with 2% in
1995.
2002
[photo: newspaper showing stock market rates]
o S&P 500 bottoms on October 9, 2002.
o Wal-Mart de Mexico operates 595 stores in Mexico and has annual sales of
over $10 billion. Its first Mexican store, a Sam's Club, opened 11 years
earlier.
o Home Depot expands globally, acquiring Mexico's Del Norte home improvement
chain and opening offices in China to expand purchasing in China and Asia.
2003
[photo: girl talking on a cell phone standing next to a taxi cab]
o Estimated number of wireless subscribers in the U.S. reaches nearly 150
million, a 72% increase from four years earlier. The number of traditional
phone lines decline by 3% for that same period.
o First HDTV camcorders hit the market.
o Southwest Airlines has 388 aircraft serving 58 cities.
o Daily prime rate reaches a 44-year low of 4.00% on June 27.
[end sidebar]
Perhaps no country has greater potential than China, which is the world's
largest market with 1.2 billion people. Already, China has gained significant
market share in global manufacturing, thanks to its large pool of low-cost
workers. "China is the growth engine of the world," says Gordon.
China's economy is also becoming more investor-friendly thanks to its membership
in the World Trade Organization, which it joined in 2001. It is cutting tariff
and other barriers, and opening up sectors of the economy that have long been
closed to foreigners, such as banking and telecommunications.
As countries like China make economic progress, their rising affluence will
create more demand for products and services. "Low costs of production and labor
can help to increase the standard of living globally by offering lower cost
products," says Claudia. "That is inherently positive for global markets."
The accessibility of emerging markets clearly ties into the types of industries
in which The New Economy Fund invests, including consumable technology devices,
services, transportation, restaurants and retailers. "The new economy has become
a global economy," says Jeff.
STAYING ON TRACK
For the past 20 years, The New Economy Fund has capitalized on the long-term
growth of service- and information-based companies, which is evident in its
long-term record. Since its inception on December 1, 1983, the fund has
generated an average annual total return of 12.3% for the period ending November
30, 2003.
"The universe in which we invest continues to be fertile ground," says Tim. "The
underlying trends driving service and technology have not changed. We believe we
have the right resources in terms of analysts and research to find the companies
best positioned to take advantage of these trends as they evolve in the years
ahead."
[begin sidebar]
THE MULTIPLE PORTFOLIO COUNSELOR SYSTEM
[begin photo caption]
[photo: Gordon Crawford]
Gordon Crawford
32 years
[end photo caption]
[begin photo caption]
[photo: Claudia Huntington]
Claudia Huntington
30 years
[end photo caption]
[begin photo caption]
[photo: Tim Armour]
Tim Armour
20 years
[end photo caption]
[begin photo caption]
[photo: Alwyn Heong]
Alwyn Heong
14 years
[end photo caption]
The New Economy Fund's portfolio counselors average 24 years of investment
experience. Why four people to manage one fund? Because Capital Research and
Management Company, adviser to the American Funds, has developed a unique method
we call the "multiple portfolio counselor system." We believe it helps our funds
achieve consistently superior long-term investment results.
Here's how it works: The New Economy Fund's assets are divided into portions.
Each of the fund's four portfolio counselors manages one portion; another is
managed by the fund's research analysts, who bring their own investment
expertise to the table.
THE ADVANTAGES OF THIS SYSTEM ARE MANY:
DIVERSITY
Within the fund's overall guidelines, the counselors get to act on their own
convictions. This offers the best attributes of both individualism and teamwork,
with no need for consensus.
CONSISTENCY
Over time, having more than one person managing assets tends to smooth out the
peaks and valleys of investing.
CONTINUITY
Since the fund is not dependent on any single individual, when one person leaves
or retires, only a portion of the portfolio changes hands. Smooth, gradual
transitions help the fund maintain a steady investment approach.
[end sidebar]
[begin sidebar]
Figures shown are past results and are not predictive of future results. Current
results may be lower or higher than those shown. Share price and return will
vary, so you may lose money. For more current information and month-end results,
visit americanfunds.com. Results shown are at net asset value. If the 5.75%
maximum sales charge had been deducted, results would have been lower.
[end sidebar]
INVESTMENT PORTFOLIO November 30, 2003
INDUSTRY DIVERSIFICATION (percent of net assets)
[begin pie chart]
PERCENT
OF NET
ASSETS
Semiconductors & semiconductor equipment 11.72 %
Media 10.32
Commercial banks 5.38
Insurance 5.16
Internet & catalog retail 4.75
All other industries 55.97
Cash & equivalents 6.70
[end pie chart]
PERCENT
OF NET
LARGEST EQUITY HOLDINGS ASSETS
InterActiveCorp 4.01 %
Time Warner 3.96
American International Group 2.71
Applied Materials 2.42
Taiwan Semiconductor Manufacturing 2.25
Carnival 2.00
Yahoo! 1.77
Target 1.57
Wells Fargo 1.55
Kohl's 1.55
SHARES OR MARKET
PRINCIPAL VALUE
EQUITY SECURITIES (common and preferred stocks and convertible debentures) - 93.30% AMOUNT (000)
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 11.72%
Applied Materials, Inc. (1) 7,000,000 $ 170,100
Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) (1) 84,867,042 158,037
Broadcom Corp., Class A (1) 2,600,000 94,718
Texas Instruments Inc. 2,813,100 83,718
Altera Corp. (1) 1,800,000 45,594
Agere Systems Inc. 6.50% convertible notes 2009 $ 30,000,000 44,625
Maxim Integrated Products, Inc. 800,000 41,664
Microchip Technology Inc. 1,200,000 41,280
KLA-Tencor Corp. (1) 500,000 29,305
Linear Technology Corp. 600,000 25,884
Novellus Systems, Inc. (1) 560,000 24,506
Xilinx, Inc. (1) 600,000 22,554
Rohm Co., Ltd. (Japan) 107,000 12,518
ASML Holding NV (Netherlands) (1) 650,000 12,276
Samsung Electronics Co., Ltd. (South Korea) 20,000 7,737
Tokyo Electron Ltd. (Japan) 100,000 7,078
Nikon Corp. (Japan) (1) 83,000 1,036
Velio Communications, Inc., Series E, convertible preferred (1) (2) (3) 219,780 758
Velio Communications, Inc., Series D, convertible preferred (1) (2) (3) 1,258,242 88
MEDIA - 10.32%
Time Warner Inc. (formerly AOL Time Warner Inc.) (1) 17,095,000 278,307
News Corp. Ltd., preferred (ADR) (Australia) 1,480,000 41,973
News Corp. Ltd., preferred 5,204,820 36,693
Comcast Corp., Class A, special nonvoting stock (1) 2,272,900 68,528
Liberty Media Corp., Class A (1) 5,960,000 65,858
Fox Entertainment Group, Inc., Class A (1) 2,000,000 57,100
Interpublic Group of Companies, Inc. (1) 3,200,000 45,600
Reader's Digest Assn., Inc., Class A 2,000,000 28,600
Gemstar-TV Guide International, Inc. (1) 5,400,000 24,300
UnitedGlobalCom, Inc., Class A (1) 2,450,000 17,689
VNU NV (Netherlands) 551,200 17,168
UGC Europe, Inc. (1) 200,000 14,713
Grupo Televisa, SA, ordinary participation certificates (ADR) (Mexico) 345,000 14,093
Viacom Inc., Class B, nonvoting 300,000 11,796
SET Satellite (Singapore) Pte. Ltd. (India) (1) (2) (3) 775,461 2,117
SET India Ltd. (India) (1) (2) (3) 31,400 1,096
KirchMedia GmbH & Co. KGaA, nonvoting (Germany) (1) (2) (3) 1,775,000 0
COMMERCIAL BANKS - 5.38%
Wells Fargo & Co. 1,900,000 108,927
Societe Generale (France) 881,000 70,527
City National Corp. 799,800 50,595
SMFG Finance (Cayman) Ltd. 2.25% mandatorily exchangeable preferred 2005, units (Japan) 2,076,000,000 33,581
ABN AMRO Holding NV (Netherlands) 1,333,238 29,335
Pusan Bank (South Korea) 5,160,000 28,333
HSBC Holdings PLC (United Kingdom) 1,044,990 15,844
HSBC Holdings PLC 588,945 9,024
Svenska Handelsbanken Group, Class A (Sweden) 815,000 15,059
Bank of the Philippine Islands (Philippines) 13,860,000 10,719
Southwest Bancorporation of Texas, Inc. 170,000 6,499
INSURANCE - 5.16%
American International Group, Inc. 3,283,985 190,307
XL Capital Ltd., Class A 850,000 63,920
Manulife Financial Corp. (Canada) 1,800,000 57,222
PartnerRe Holdings Ltd. (polynational) 540,000 30,089
21st Century Insurance Group 1,500,000 21,000
INTERNET & CATALOG RETAIL - 4.75%
InterActiveCorp (formerly USA Interactive) (1) 8,575,000 281,689
eBay Inc. (1) 930,000 51,940
WIRELESS TELECOMMUNICATION SERVICES - 4.29%
AT&T Wireless Services, Inc. (1) 11,650,000 87,375
Vodafone Group PLC (United Kingdom) 21,400,000 49,167
China Unicom Ltd. (China) 46,226,900 44,939
KDDI Corp. (Japan) 8,474 44,189
Maxis Communications Bhd. (Malaysia) 16,916,100 31,829
Sprint Corp. - PCS Group, Series 1 (1) 6,262,900 28,747
Western Wireless Corp., Class A (1) 800,000 14,936
DIVERSIFIED TELECOMMUNICATION SERVICES - 4.06%
Royal KPN NV (Netherlands) (1) 13,708,900 107,444
Telefonica, SA (Spain) (1) 3,987,154 51,605
Deutsche Telekom AG (Germany) (1) 2,650,500 43,993
AT&T Corp. 1,347,600 26,723
CenturyTel, Inc. 725,000 23,707
Portugal Telecom, SGPS, SA (Portugal) 1,625,743 15,294
BCE Inc. (Canada) 643,142 14,319
Telecom Italia SpA, nonvoting (Italy) (1) 1,098,100 2,099
NTL Inc., Series A, warrants, expire 2011 (1) 52,050 392
MULTILINE RETAIL - 3.72%
Target Corp. 2,850,000 110,352
Kohl's Corp. (1) 2,250,000 108,720
Dollar General Corp. 2,000,000 42,240
IT SERVICES - 3.70%
Ceridian Corp. (1) 2,722,800 57,805
Paychex, Inc. 1,425,000 54,820
First Data Corp. 1,220,000 46,177
Concord EFS, Inc. (1) 2,600,000 29,874
Electronic Data Systems Corp. 970,000 20,971
Sabre Holdings Corp., Class A 800,000 16,680
OBIC Co., Ltd. (Japan) 60,000 12,384
Automatic Data Processing, Inc. 320,000 12,234
Teleca AB, Class B (Sweden) 1,736,734 8,948
COMMERCIAL SERVICES & SUPPLIES - 3.56%
Allied Waste Industries, Inc. (1) 6,200,000 77,190
Robert Half International Inc. (1) 2,410,000 53,647
ServiceMaster Co. 2,900,000 32,480
Arbitron Inc. (1) 670,520 28,631
ChoicePoint Inc. (1) 640,000 24,480
Monster Worldwide Inc. (1) 900,000 21,654
Securitas AB, Class B (Sweden) 815,000 9,931
United Rentals, Inc. (1) 130,000 2,408
HEALTH CARE PROVIDERS & SERVICES - 3.55%
Express Scripts, Inc. (1) 1,560,000 100,979
Service Corp. International (1) 9,500,000 47,025
HCA Inc. 1,050,000 44,005
Aetna Inc. 525,000 33,799
Caremark Rx, Inc. (1) 900,000 24,030
COMMUNICATIONS EQUIPMENT - 3.54%
Cisco Systems, Inc. (1) 4,629,200 104,898
Lucent Technologies Inc. 8.00% convertible subordinated notes 2031 $ 55,000,000 59,538
CIENA Corp. (1) 6,000,000 42,480
Corning Inc. (1) 2,100,000 24,066
QUALCOMM Inc. 405,000 18,043
SPECIALTY RETAIL - 3.29%
Lowe's Companies, Inc. 1,600,000 93,280
Gap, Inc. 3,200,000 68,800
Office Depot, Inc. (1) 2,100,000 33,285
Dixons Group PLC (United Kingdom) 8,500,200 19,968
FAST RETAILING CO., LTD. (Japan) 265,700 15,675
INTERNET SOFTWARE & SERVICES - 3.00%
Yahoo! Inc. (1) 2,900,000 124,642
Yahoo Japan Corp. (Japan) (1) 4,665 61,348
DoubleClick Inc. (1) 1,650,000 15,758
Homestore, Inc. (1) 2,200,000 7,722
ProAct Technologies Corp., Series C, convertible preferred (1) (2) (3) 3,500,000 1,435
SOFTWARE - 2.69%
Microsoft Corp. 2,650,000 68,105
Novell, Inc. (1) 7,000,000 66,500
SAP AG (Germany) 300,000 46,090
Oracle Corp. (1) 720,000 8,647
MMC AS (Norway) (1) (2) (3) 2,500,000 4
HOTELS, RESTAURANTS & LEISURE - 2.49%
Carnival Corp., units 4,000,000 140,760
KangwonLand Inc. (South Korea) 1,860,000 21,354
Rank Group PLC (United Kingdom) 2,500,000 12,477
Hilton Group PLC (United Kingdom) 73,800 269
FOOD & STAPLES RETAILING - 1.96%
Walgreen Co. 1,350,000 49,694
Wal-Mart de Mexico, SA de CV, Series V (Mexico) 13,400,000 38,274
Wal-Mart de Mexico, SA de CV, Series C 130,666 350
Costco Wholesale Corp. (1) 1,000,000 35,820
Koninklijke Ahold NV (Netherlands) 1,690,000 12,192
Koninklijke Ahold NV, rights, expire 2003 1,690,000 1,580
CAPITAL MARKETS - 1.81%
J.P. Morgan Chase & Co. 1,700,000 60,112
Deutsche Bank AG (Germany) 380,000 26,486
Bank of New York Co., Inc. 750,000 23,010
Investment Technology Group, Inc. (1) 1,000,000 17,700
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.56%
Sanmina-SCI Corp. (1) 3,210,000 39,130
Symbol Technologies, Inc. 2,500,000 34,875
Micronic Laser Systems AB (Sweden) (1) 1,555,000 15,447
Jabil Circuit, Inc. (1) 537,000 14,773
Flextronics International Ltd. (Singapore) (1) 348,500 5,586
COMPUTERS & PERIPHERALS - 1.45%
EMC Corp. (1) 2,500,000 34,350
International Business Machines Corp. 265,000 23,993
Quanta Computer Inc. (Taiwan) 5,366,820 12,669
Quanta Computer Inc. (GDR) (1) (2) 929,000 10,869
Anoto Group AB (Sweden) (1) 4,934,193 10,849
Fujitsu Ltd. (Japan) (1) 1,700,000 9,362
Novatel Wireless, Inc., Series C, warrants, expire 2004 (1) (2) (3) 119,904 15
THRIFTS & MORTGAGE FINANCE - 1.42%
Freddie Mac 1,830,000 99,589
AIRLINES - 1.38%
Southwest Airlines Co. 4,180,000 75,156
Ryanair Holdings PLC (ADR) (Ireland) (1) 250,000 11,710
Qantas Airways Ltd. (Australia) 4,043,800 9,747
CONSUMER FINANCE - 1.02%
Capital One Financial Corp. 1,201,200 71,736
CHEMICALS - 0.77%
Nitto Denko Corp. (Japan) 1,077,000 54,391
ENERGY EQUIPMENT & SERVICES - 0.62%
Schlumberger Ltd. 925,000 43,401
MULTI-UTILITIES & UNREGULATED POWER - 0.53%
El Paso Corp. 3,840,900 27,270
Williams Companies, Inc. 1,057,000 9,915
OTHER - 0.89%
ING Groep NV (Netherlands) 848,965 18,181
Fisher Scientific International Inc. (1) 425,000 17,115
Scottish Power PLC (United Kingdom) 1,500,000 9,280
Yamato Transport Co., Ltd. (Japan) 780,000 9,189
LG Electronics Inc. (South Korea) 170,000 8,415
Hong Kong Exchanges and Clearing Ltd. (Hong Kong) 224,000 459
MISCELLANEOUS - 4.67%
Other equity securities in initial period of acquisition 328,063
TOTAL EQUITY SECURITIES (cost: $6,206,228,000) 6,557,836
PRINCIPAL MARKET
AMOUNT VALUE
SHORT-TERM SECURITIES - 6.80% (000) (000)
CORPORATE SHORT-TERM NOTES - 5.86%
CAFCO, LLC 1.05%-1.09% due 12/1/2003-1/23/2004 (2) $ 37,200 $ 37,169
Ciesco LP due 1.03%-1.08% 12/18/2003-1/6/2004 14,800 14,790
Receivables Capital Corp. 1.04%-1.09% due 12/11/2003-1/7/2004 (2) 39,000 38,976
Triple-A One Funding Corp. 1.05% due 12/5/2003 (2) 37,500 37,494
Wal-Mart Stores Inc. 1.00% due 12/9/2003 (2) 36,500 36,491
Edison Asset Securitization LLC 1.08% due 1/8-1/9/2004 (2) 30,000 29,964
Coca-Cola Co. 1.00%-1.03% due 12/22/2003-1/5/2004 28,400 28,374
FCAR Owner Trust I 1.06% due 12/10/2003 25,000 24,993
New Center Asset Trust 1.06% due 12/16/2003 25,000 24,988
E.I. DuPont de Nemours & Co. 1.03% due 12/30/2003 25,000 24,978
Pfizer Inc 1.03% due 1/12-1/16/2004 (2) 25,000 24,968
Netjets Inc. 1.06% due 2/2/2004 (2) 23,100 23,054
Wells Fargo & Co. 1.04% due 12/5/2003 22,800 22,797
Procter & Gamble Co. 1.00% due 12/3/2003 (2) 16,000 15,999
Merck & Co. Inc. 1.02% due 1/15/2004 15,000 14,979
Target Corp. 1.00% due 12/9/2003 12,000 11,997
FEDERAL AGENCY DISCOUNT NOTES - 0.56%
Federal Farm Credit Banks 1.00% due 12/8/2003 29,200 29,193
Student Loan Marketing Assn. 0.97% due 12/1/2003 10,000 10,000
U.S. TREASURIES - 0.38%
U.S. Treasury Bills 0.915%-0.925% due 2/19/2004 26,500 26,448
TOTAL SHORT-TERM SECURITIES (cost: $477,654,000) 477,652
TOTAL INVESTMENT SECURITIES (cost: $6,683,882,000) 7,035,488
New Taiwanese Dollar (cost: $2,374,000) NT$79,482 2,331
OTHER ASSETS LESS LIABILITIES (8,794)
NET ASSETS $7,029,025
(1) Security did not produce income during the last 12 months.
(2) Purchased in a private placement transaction; resale may be limited to
qualified institutional buyers; resale to the public may require
registration.
(3) Valued under fair value procedures adopted by authority of the Board of
Trustees.
ADR = American Depositary Receipts
GDR = Global Depositary Receipts
The descriptions of the companies shown in the portfolio, which were obtained
from published reports and other sources believed to be reliable, are
supplemental and are not covered by the Independent Auditors' Report.
See Notes to Financial Statements
EQUITY SECURITIES APPEARING IN THE PORTFOLIO SINCE MAY 31, 2003
ASML Holding KangwonLand
Broadcom LG Electronics
Caremark Rx Nikon
ChoicePoint Pusan Bank
City National QUALCOMM
Corning Rank Group
Costco Wholesale Reader's Digest Assn.
Deutsche Bank Societe Generale
First Data Southwest Bancorporation of Texas
Fujitsu Symbol Technologies
Gemstar-TV Guide International Telecom Italia
HCA UGC Europe
Hilton Group VNU
Hong Kong Exchanges and Clearing Yamato Transport
EQUITY SECURITIES ELIMINATED FROM THE PORTFOLIO SINCE MAY 31, 2003
Adelphia Communications Hon Hai Precision Industry
Allianz KirchPayTV
Allstate Manila Electric
Apollo Group Mercury General
Barnes & Noble mm02
Berkshire Hathaway Nippon Television Network
Bouygues NTT DoCoMo
Cardinal Health Providian Financial
Clear Channel Communications Swisscom
Dialog Semiconductor Telewest Communications
Electrocomponents Titan
First American
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES at November 30, 2003
(dollars and shares in thousands, except per-share amounts)
ASSETS:
Investment securities at market (cost: $6,683,882) $7,035,488
Cash denominated in non-U.S. currencies (cost: $2,374) 2,331
Cash 643
Receivables for:
Sales of investments $10,574
Sales of fund's shares 7,236
Dividends and interest 5,022 22,832
7,061,294
LIABILITIES:
Payables for:
Purchases of investments 21,057
Repurchases of fund's shares 3,962
Investment advisory services 2,352
Services provided by affiliates 4,147
Deferred Trustees' compensation 568
Other fees and expenses 183 32,269
NET ASSETS AT NOVEMBER 30, 2003 $7,029,025
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest $8,032,751
Undistributed net investment income 2,591
Accumulated net realized loss (1,357,953)
Net unrealized appreciation 351,636
NET ASSETS AT NOVEMBER 30, 2003 $7,029,025
Shares of beneficial interest issued and outstanding - unlimited shares
authorized
NET SHARES NET ASSET
ASSETS OUTSTANDING VALUE PER SHARE (1)
Class A $6,671,413 368,307 $18.11
Class B 143,937 8,190 17.57
Class C 50,577 2,886 17.52
Class F 39,905 2,208 18.07
Class 529-A 20,182 1,114 18.11
Class 529-B 3,865 217 17.82
Class 529-C 5,353 300 17.83
Class 529-E 1,076 60 18.01
Class 529-F 228 13 18.09
Class R-1 809 45 17.92
Class R-2 20,893 1,166 17.92
Class R-3 16,892 937 18.03
Class R-4 10,229 565 18.12
Class R-5 43,666 2,398 18.21
(1) Maximum offering price and redemption price per share were equal to the net
asset value per share for all share classes, except for classes A and
529-A, for which the maximum offering prices per share were $19.21 for
each.
See Notes to Financial Statements
STATEMENT OF OPERATIONS for the year ended November 30, 2003
INVESTMENT INCOME:
Income: (dollars in thousands)
Dividends (net of non-U.S. withholding
tax of $2,766) $49,659
Interest 9,023 $58,682
Fees and expenses:
Investment advisory services 25,076
Distribution services 15,575
Transfer agent services 10,216
Administrative services 386
Reports to shareholders 396
Registration statement and prospectus 272
Postage, stationery and supplies 1,209
Trustees' compensation 290
Auditing and legal 109
Custodian 825
State and local taxes 99
Other 77
Total expenses before reimbursement 54,530
Reimbursement of expenses 92 54,438
Net investment income 4,244
NET REALIZED LOSS AND UNREALIZED APPRECIATION
ON INVESTMENTS AND NON-U.S. CURRENCY:
Net realized loss on:
Investments (366,873)
Non-U.S. currency transactions (1,257) (368,130)
Net unrealized appreciation (depreciation) on:
Investments 1,565,200
Non-U.S. currency translations (3) 1,565,197
Net realized loss and
unrealized appreciation
on investments and non-U.S. currency 1,197,067
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,201,311
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS (dollars in thousands)
Year ended November 30
2003 2002
OPERATIONS:
Net investment income (loss) $4,244 ($1,343)
Net realized loss on investments and non-U.S. currency transactions (368,130) (735,557)
Net unrealized appreciation (depreciation) on investments and
non-U.S. currency translations 1,565,197 (669,615)
Net increase (decrease) in net assets resulting from operations 1,201,311 (1,406,515)
CAPITAL SHARE TRANSACTIONS (251,032) (733,760)
TOTAL INCREASE (DECREASE) IN NET ASSETS 950,279 (2,140,275)
NET ASSETS:
Beginning of year 6,078,746 8,219,021
End of year (including undistributed (accumulated)
net investment income (loss): $2,591 and $(396), respectively) $7,029,025 $6,078,746
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
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.
The fund offers 14 share classes consisting of four retail share classes, five
CollegeAmerica savings plan share classes and five retirement plan share
classes. The CollegeAmerica savings plan share classes (529-A, 529-B, 529-C,
529-E and 529-F) are sponsored by the Commonwealth of Virginia and can be
utilized to save for college education. The five retirement plan share classes
(R-1, R-2, R-3, R-4 and R-5) are sold without any sales charges and do not carry
any conversion rights. The fund's share classes are described below:
- ------------------------------------------------------------------------------------------------------------------
INITIAL CONTINGENT DEFERRED SALES
SHARE CLASS SALES CHARGE CHARGE UPON REDEMPTION CONVERSION FEATURE
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Classes A and 529-A Up to 5.75% None (except 1% for certain None
redemptions within one year
of purchase without an initial
sales charge)
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Classes B and 529-B None Declines from 5% to zero Classes B and 529-B convert
for redemptions within six convert to classes A and 529-A,
six years of purchase respectively, after eight years
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Class C None 1% for redemptions within Class C converts to Class F
one year of purchase after 10 years
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Class 529-C None 1% for redemptions within None
one year of purchase
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Class 529-E None None None
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Classes F and 529-F None None None
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Classes R-1, R-2, R-3, None None None
R-4 and R-5
- ------------------------------------------------------------------------------------------------------------------
Holders of all share classes have equal pro rata rights to assets, dividends and
liquidation. Each share class has identical voting rights, except for the
exclusive right to vote on matters affecting only its class. Share classes have
different fees and expenses ("class-specific fees and expenses"), primarily due
to different arrangements for distribution, administrative and shareholder
services. Differences in class-specific fees and expenses will result in
differences in net investment income and, therefore, the payment of different
per-share dividends by each class.
SIGNIFICANT ACCOUNTING POLICIES - The financial statements have been prepared to
comply with accounting principles generally accepted in the United States of
America. These principles require management to make estimates and assumptions
that affect reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of the significant accounting
policies followed by the fund:
SECURITY VALUATION - Equity securities are valued at the official closing
price of, or 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. Prices for each security are taken from the principal
exchange or market in which the security trades. Fixed-income securities
are valued at prices obtained from an independent pricing service, when
such prices are available. However, where the investment adviser deems it
appropriate, 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. The ability of the issuers
of the debt securities held by the fund to meet their obligations may be
affected by economic developments in a specific industry, state or region.
Forward currency contracts are valued at the mean of their representative
quoted bid and asked prices. Securities and other assets for which
representative market quotations are not readily available are fair valued
as determined in good faith by authority of the fund's Board of Trustees.
Various factors may be reviewed in order to make a good faith determination
of a security's fair value. These factors include, but are not limited to,
the type and cost of the security; contractual or legal restrictions on
resale of the security; relevant financial or business developments of the
issuer; actively traded similar or related securities; conversion or
exchange rights on the security; related corporate actions; significant
events occurring after the close of trading in the security; and changes in
overall market conditions.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are recorded by the fund as of the date the trades are executed with
brokers. Realized gains and losses from security transactions are
determined based on the specific identified cost of the securities. In the
event a security is purchased with a delayed payment date, the fund will
segregate liquid assets sufficient to meet its payment obligations.
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 fixed-income securities are amortized daily over the
expected life of the security.
CLASS ALLOCATIONS - Income, fees and expenses (other than class-specific
fees and expenses) and realized and unrealized gains and losses are
allocated daily among the various share classes based on their relative net
assets. Class-specific fees and expenses, such as distribution,
administrative and shareholder services, are charged directly to the
respective share class.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions
paid to shareholders are recorded on the ex-dividend date.
NON-U.S. CURRENCY TRANSLATION - Assets and liabilities, including
investment securities, denominated in non-U.S. currencies are translated
into U.S. dollars at the exchange rates in effect at the end of the
reporting period. Purchases and sales of investment securities and income
and expenses are translated into U.S. dollars at the exchange rates on the
dates of such transactions. In the accompanying financial statements, the
effects of changes in non-U.S. exchange rates on investment securities are
included with the net realized gain or loss and net unrealized appreciation
or depreciation on investments. The realized gain or loss and unrealized
appreciation or depreciation resulting from all other transactions
denominated in non-U.S. currencies are disclosed separately.
FORWARD CURRENCY CONTRACTS - The fund may enter into forward currency
contracts, which represent agreements to exchange non-U.S. currencies on
specific future dates at predetermined rates. The fund enters into these
contracts to manage its exposure to changes in non-U.S. exchange rates
arising from investments denominated in non-U.S. currencies. Upon entering
into these contracts, risks may arise from the potential inability of
counterparties to meet the terms of their contracts and from possible
movements in non-U.S. exchange rates. Due to these risks, the fund could
incur losses up to the entire contract amount, which may exceed the net
unrealized value shown in the accompanying financial statements. On a daily
basis, the fund values forward currency contracts based on the applicable
exchange rates and records unrealized gains or losses. The fund records
realized gains or losses at the time the forward contract is closed or
offset by another contract with the same broker for the same settlement
date and currency.
2. NON-U.S. INVESTMENTS
INVESTMENT RISK - The risks of investing in securities of non-U.S. issuers 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.
Gains realized by the fund on the sale of securities in certain countries are
subject to non-U.S. taxes. The fund records a liability based on unrealized
gains to provide for potential non-U.S. taxes payable upon the sale of these
securities. For the year ended November 30, 2003, there were no non-U.S. taxes
paid on realized gains. As of November 30, 2003, there were no non-U.S. taxes
provided on unrealized gains.
3. FEDERAL INCOME TAXATION AND DISTRIBUTIONS
The fund complies with the requirements under Subchapter M of the Internal
Revenue Code applicable to mutual funds and intends to distribute substantially
all of its net taxable income and net capital gains each year. The fund is not
subject to income taxes to the extent such distributions are made.
DISTRIBUTIONS - Distributions paid to shareholders are based on net investment
income and net realized gains determined on a tax basis, which may differ from
net investment income and net realized gains for financial reporting purposes.
These differences are due primarily to differing treatment for items such as
non-U.S. currency gains and losses; short-term capital gains and losses; capital
losses related to sales of securities within 30 days of purchase; deferred
expenses; cost of investments sold; and net capital losses. 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, 2003, the cost of investment securities and cash denominated in
non-U.S. currencies for federal income tax purposes was $6,686,972,000.
As of November 30, 2003, the components of distributable earnings on a tax basis
were as follows:
(dollars in thousands)
Undistributed net investment income and currency gains $ 3,226
Loss deferrals related to non-U.S. currency that were realized
during the period November 1, 2003 through November 30, 2003 (66)
Short-term and long-term capital loss deferrals (1,357,237)
Gross unrealized appreciation on investment securities 1,312,762
Gross unrealized depreciation on investment securities (961,915)
Short-term and long-term capital loss deferrals above include capital loss
carryforwards of $187,487,000, $769,921,000 and $399,829,000 expiring in 2009,
2010 and 2011, respectively. The capital loss carryforwards will be used to
offset any capital gains realized by the fund in future years through the
expiration dates. The fund will not make distributions from capital gains while
capital loss carryforwards remain.
4. FEES AND TRANSACTIONS WITH RELATED PARTIES
Capital Research and Management Company ("CRMC"), the fund's investment adviser,
is the parent company of American Funds Service Company ("AFS"), the fund's
transfer agent, and American Funds Distributors, Inc. ("AFD"), the principal
underwriter of the fund's shares.
INVESTMENT ADVISORY SERVICES - The Investment Advisory and Service Agreement
with CRMC provides for monthly fees accrued daily. These fees are based on a
declining series of annual rates beginning with 0.580% on the first $500 million
of daily net assets and decreasing to 0.345% on such assets in excess of $27
billion. For the year ended November 30, 2003, the investment advisory services
fee was $25,076,000, which was equivalent to an annualized rate of 0.417% of
average daily net assets.
CLASS-SPECIFIC FEES AND EXPENSES - Expenses that are specific to individual
share classes are accrued directly to the respective share class. The principal
class-specific fees and expenses are described below:
DISTRIBUTION SERVICES - The fund has adopted plans of distribution for all
share classes, except Class R-5. Under the plans, the Board of Trustees
approves certain categories of expenses that are used to finance activities
primarily intended to sell fund shares. The plans provide for annual
expenses, based on a percentage of average daily net assets, ranging from
0.25% to 1.00% as noted below. In some cases, the Board of Trustees has
approved expense amounts lower than plan limits.
---------------------------------------------------------------------------
SHARE CLASS CURRENTLY APPROVED LIMITS PLAN LIMITS
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Class A 0.25% 0.25%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Class 529-A 0.25 0.50
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Classes B and 529-B 1.00 1.00
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Classes C, 529-C and R-1 1.00 1.00
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Class R-2 0.75 1.00
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Classes 529-E and R-3 0.50 0.75
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Classes F, 529-F and R-4 0.25 0.50
---------------------------------------------------------------------------
All share classes may use up to 0.25% of average daily net assets to pay
service fees, or to compensate AFD for paying service fees, to firms that
have entered into agreements with AFD for providing certain shareholder
services. Expenses in excess of these amounts, up to approved limits, may
be used to compensate dealers and wholesalers for shares sold.
For classes A and 529-A, the Board of Trustees has also approved the
reimbursement of dealer and wholesaler commissions paid by AFD for certain
shares sold without a sales charge. Each class reimburses AFD for amounts
billed within the prior 15 months but only to the extent that the overall
annual expense limit of 0.25% is not exceeded. As of November 30, 2003,
there were no unreimbursed expenses subject to reimbursement for classes A
or 529-A.
TRANSFER AGENT SERVICES - The fund has a transfer agent agreement with AFS
for classes A and B. Under this agreement, these share classes compensate
AFS for transfer agent services including shareholder recordkeeping,
communications and transaction processing. AFS is also compensated for
certain transfer agent services provided to all other share classes from
the administrative services fees paid to CRMC described below.
ADMINISTRATIVE SERVICES - The fund has an administrative services agreement
with CRMC to provide transfer agent and other related shareholder services
for all classes of shares other than classes A and B. Each relevant class
pays CRMC annual fees of 0.15% (0.10% for Class R-5) based on its
respective average daily net assets. Each relevant class also pays AFS
additional amounts for certain transfer agent services. CRMC and AFS may
use these fees to compensate third parties for performing these services.
During the start-up period for classes R-1, R-2, R-3 and R-4, CRMC has
voluntarily agreed to pay a portion of these fees. Each 529 share class is
subject to an additional annual administrative services fee of 0.10% of its
respective average daily net assets; this fee is payable to the
Commonwealth of Virginia for the maintenance of the CollegeAmerica plan.
Although these amounts are included with administrative services fees in
the accompanying financial statements, the Commonwealth of Virginia is not
considered a related party. Administrative services fees are presented
gross of any payments made by CRMC.
Expenses under the agreements described above for the year ended November
30, 2003, were as follows (dollars in thousands):
--------------------------------------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES
------------------------------------------------------------
COMMONWEALTH OF
CRMC VIRGINIA
DISTRIBUTION TRANSFER AGENT ADMINISTRATIVE TRANSFER AGENT ADMINISTRATIVE
SHARE CLASS SERVICES SERVICES SERVICES SERVICES SERVICES
--------------------------------------------------------------------------------------------------------------
Class A $13,838 $9,984 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class B 1,131 232 Not applicable Not applicable Not applicable
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class C 327 Included $49 $23 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class F 60 Included 36 14 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-A 12 Included 19 4 $12
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-B 23 Included 3 2 2
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-C 32 Included 5 3 3
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-E 3 Included 1 -* 1
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class 529-F -* Included -* -* -*
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-1 6 Included 1 2 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-2 80 Included 16 106 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-3 46 Included 14 25 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-4 17 Included 10 1 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Class R-5 Not applicable Included 33 1 Not applicable
in
administrative
services
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Total $15,575 $10,216 $187 $181 $18
----------------==============================================================================================
* Amount less than one thousand.
DEFERRED TRUSTEES' COMPENSATION - Since the adoption of the deferred
compensation plan in 1993, Trustees who are unaffiliated with CRMC may elect to
defer the cash payment of part or all of their compensation. These deferred
amounts, which remain as liabilities of the fund, are treated as if invested in
shares of the fund or other American Funds. These amounts represent general,
unsecured liabilities of the fund and vary according to the total returns of the
selected funds. Trustees' compensation in the accompanying financial statements
includes $165,000 in current fees (either paid in cash or deferred) and a net
increase of $125,000 in the value of the deferred amounts.
AFFILIATED OFFICERS AND TRUSTEES - Officers and certain Trustees of the fund are
or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated
officers or Trustees received any compensation directly from the fund.
5. CAPITAL SHARE TRANSACTIONS
Capital share transactions in the fund were as follows (dollars and shares in
thousands):
REINVESTMENTS
OF DIVIDENDS
SALES(1) AND DISTRIBUTIONS REPURCHASES(1) NET (DECREASE) INCREASE
Share Class Amount Shares Amount Shares Amount Shares Amount Shares
YEAR ENDED NOVEMBER 30, 2003
Class A $654,297 42,661 - - $(1,011,106) (68,130) $ (356,809) (25,469)
Class B 32,595 2,140 - - (15,910) (1,088) 16,685 1,052
Class C 33,567 2,203 - - (15,920) (1,101) 17,647 1,102
Class F 36,523 2,317 - - (17,928) (1,135) 18,595 1,182
Class 529-A 9,660 612 - - (507) (34) 9,153 578
Class 529-B 2,084 135 - - (73) (4) 2,011 131
Class 529-C 2,758 178 - - (101) (7) 2,657 171
Class 529-E 701 46 - - (2) -* 699 46
Class 529-F 189 13 - - (8) (1) 181 12
Class R-1 794 53 - - (320) (19) 474 34
Class R-2 18,627 1,229 - - (4,155) (280) 14,472 949
Class R-3 17,193 1,117 - - (4,564) (293) 12,629 824
Class R-4 6,554 436 - - (1,677) (109) 4,877 327
Class R-5 8,958 554 - - (3,261) (213) 5,697 341
Total net increase
(decrease) $824,500 53,694 - - $(1,075,532) (72,414) $ (251,032) (18,720)
YEAR ENDED NOVEMBER 30, 2002(2)
Class A $723,620 44,969 - - $ (1,552,847) (100,270) $ (829,227) (55,301)
Class B 33,543 2,111 - - (17,829) (1,199) 15,714 912
Class C 33,572 2,225 - - (18,595) (1,299) 14,977 926
Class F 17,842 1,164 - - (8,114) (522) 9,728 642
Class 529-A 8,708 549 - - (184) (13) 8,524 536
Class 529-B 1,388 88 - - (33) (2) 1,355 86
Class 529-C 2,115 133 - - (61) (4) 2,054 129
Class 529-E 216 14 - - -* -* 216 14
Class 529-F 5 1 - - - - 5 1
Class R-1 153 11 - - -* -* 153 11
Class R-2 3,475 265 - - (602) (48) 2,873 217
Class R-3 2,134 161 - - (641) (48) 1,493 113
Class R-4 4,415 351 - - (1,330) (113) 3,085 238
Class R-5 37,934 2,234 - - (2,644) (177) 35,290 2,057
Total net increase
(decrease) $869,120 54,276 - - $ (1,602,880) (103,695) $ (733,760) (49,419)
* Amount less than one thousand.
(1) Includes exchanges between share classes of the fund.
(2) Class 529-A, 529-B, 529-C, 529-E and 529-F shares were offered beginning
February 15, 2002. Class R-1, R-2, R-3, R-4 and R-5 shares were offered
beginning May 15, 2002.
6. RESTRICTED SECURITIES
The fund has invested in certain securities for which resale may be limited to
qualified buyers or which are otherwise restricted. These securities are
identified in the investment portfolio. As of November 30, 2003, the total value
of restricted securities was $260,497,000, which represented 3.71% of the net
assets of the fund.
7. INVESTMENT TRANSACTIONS AND OTHER DISCLOSURES
The fund made purchases and sales of investment securities, excluding short-term
securities, of $2,079,004,000 and $2,285,003,000, respectively, during the year
ended November 30, 2003.
The fund receives a reduction in its custodian fee equal to the amount of
interest calculated on certain cash balances held at the custodian bank. For the
year ended November 30, 2003, the custodian fee of $825,000 included $4,000 that
was offset by this reduction, rather than paid in cash.
FINANCIAL HIGHLIGHTS (1)
Income (loss) from investment operations(2)
Net
Net asset gains(losses)
value, Net on securities Total from
beginning investment (both realized investment
of period income (loss) and unrealized) operations
CLASS A:
Year ended 11/30/2003 $14.94 $.01 $3.16 $3.17
Year ended 11/30/2002 18.01 - (3) (3.07) (3.07)
Year ended 11/30/2001 24.69 .01 (3.76) (3.75)
Year ended 11/30/2000 29.90 .12 (2.01) (1.89)
Year ended 11/30/1999 23.65 .10 8.83 8.93
CLASS B:
Year ended 11/30/2003 14.61 (.11) 3.07 2.96
Year ended 11/30/2002 17.75 (.12) (3.02) (3.14)
Year ended 11/30/2001 24.56 (.16) (3.72) (3.88)
Period from 3/15/2000 to 11/30/2000 31.27 (.06) (6.65) (6.71)
CLASS C:
Year ended 11/30/2003 14.57 (.11) 3.06 2.95
Year ended 11/30/2002 17.70 (.12) (3.01) (3.13)
Period from 3/15/2001 to 11/30/2001 19.75 (.16) (1.89) (2.05)
CLASS F:
Year ended 11/30/2003 14.91 .01 3.15 3.16
Year ended 11/30/2002 17.98 - (3) (3.07) (3.07)
Period from 3/15/2001 to 11/30/2001 19.92 (.04) (1.90) (1.94)
CLASS 529-A:
Year ended 11/30/2003 14.93 .02 3.16 3.18
Period from 2/15/2002 to 11/30/2002 17.14 - (3) (2.21) (2.21)
CLASS 529-B:
Year ended 11/30/2003 14.83 (.13) 3.12 2.99
Period from 2/19/2002 to 11/30/2002 16.76 (.09) (1.84) (1.93)
CLASS 529-C:
Year ended 11/30/2003 14.84 (.13) 3.12 2.99
Period from 2/21/2002 to 11/30/2002 16.55 (.09) (1.62) (1.71)
CLASS 529-E:
Year ended 11/30/2003 14.91 (.05) 3.15 3.10
Period from 3/15/2002 to 11/30/2002 18.26 (.02) (3.33) (3.35)
CLASS 529-F:
Year ended 11/30/2003 14.94 (.01) 3.16 3.15
Period from 10/11/2002 to 11/30/2002 12.30 - (3) 2.64 2.64
CLASS R-1:
Year ended 11/30/2003 14.90 (.11) 3.13 3.02
Period from 6/21/2002 to 11/30/2002 15.45 (.04) (.51) (.55)
CLASS R-2:
Year ended 11/30/2003 14.88 (.11) 3.15 3.04
Period from 5/31/2002 to 11/30/2002 17.02 (.05) (2.09) (2.14)
CLASS R-3:
Year ended 11/30/2003 14.92 (.05) 3.16 3.11
Period from 6/25/2002 to 11/30/2002 15.26 (.02) (.32) (.34)
CLASS R-4:
Year ended 11/30/2003 14.94 .01 3.17 3.18
Period from 7/25/2002 to 11/30/2002 12.85 (.01) 2.10 2.09
CLASS R-5:
Year ended 11/30/2003 14.97 .06 3.18 3.24
Period from 5/15/2002 to 11/30/2002 17.58 .03 (2.64) (2.61)
Dividends and distributions
Dividends
(from net Distributions Total Net asset
investment (from capital dividends and value,end Total
income) gains) distributions of period return(4)
CLASS A:
Year ended 11/30/2003 $- $- $ - $18.11 21.22%
Year ended 11/30/2002 - - - 14.94 (17.05)
Year ended 11/30/2001 - (2.93) (2.93) 18.01 (17.67)
Year ended 11/30/2000 (.14) (3.18) (3.32) 24.69 (7.43)
Year ended 11/30/1999 (.14) (2.54) (2.68) 29.90 41.71
CLASS B:
Year ended 11/30/2003 - - - 17.57 20.26
Year ended 11/30/2002 - - - 14.61 (17.69)
Year ended 11/30/2001 - (2.93) (2.93) 17.75 (18.36)
Period from 3/15/2000 to 11/30/2000 - - - 24.56 (21.46)
CLASS C:
Year ended 11/30/2003 - - - 17.52 20.25
Year ended 11/30/2002 - - - 14.57 (17.68)
Period from 3/15/2001 to 11/30/2001 - - - 17.70 (10.38)
CLASS F:
Year ended 11/30/2003 - - - 18.07 21.19
Year ended 11/30/2002 - - - 14.91 (17.08)
Period from 3/15/2001 to 11/30/2001 - - - 17.98 (9.74)
CLASS 529-A:
Year ended 11/30/2003 - - - 18.11 21.30
Period from 2/15/2002 to 11/30/2002 - - - 14.93 (12.89)
CLASS 529-B:
Year ended 11/30/2003 - - - 17.82 20.16
Period from 2/19/2002 to 11/30/2002 - - - 14.83 (11.52)
CLASS 529-C:
Year ended 11/30/2003 - - - 17.83 20.15
Period from 2/21/2002 to 11/30/2002 - - - 14.84 (10.33)
CLASS 529-E:
Year ended 11/30/2003 - - - 18.01 20.79
Period from 3/15/2002 to 11/30/2002 - - - 14.91 (18.35)
CLASS 529-F:
Year ended 11/30/2003 - - - 18.09 21.08
Period from 10/11/2002 to 11/30/2002 - - - 14.94 21.46
CLASS R-1:
Year ended 11/30/2003 - - - 17.92 20.27
Period from 6/21/2002 to 11/30/2002 - - - 14.90 (3.56)
CLASS R-2:
Year ended 11/30/2003 - - - 17.92 20.43
Period from 5/31/2002 to 11/30/2002 - - - 14.88 (12.57)
CLASS R-3:
Year ended 11/30/2003 - - - 18.03 20.84
Period from 6/25/2002 to 11/30/2002 - - - 14.92 (2.23)
CLASS R-4:
Year ended 11/30/2003 - - - 18.12 21.28
Period from 7/25/2002 to 11/30/2002 - - - 14.94 16.26
CLASS R-5:
Year ended 11/30/2003 - - - 18.21 21.64
Period from 5/15/2002 to 11/30/2002 - - - 14.97 (14.85)
Ratio of Ratio of
Net assets, expenses net income (loss)
end of period to average to average
(in millions) net assets net assets
CLASS A:
Year ended 11/30/2003 $6,671 .89% .09%
Year ended 11/30/2002 5,883 .89 (.01)
Year ended 11/30/2001 8,086 .82 .02
Year ended 11/30/2000 10,418 .81 .42
Year ended 11/30/1999 9,522 .78 .42
CLASS B:
Year ended 11/30/2003 144 1.68 (.70)
Year ended 11/30/2002 104 1.69 (.79)
Year ended 11/30/2001 111 1.63 (.81)
Period from 3/15/2000 to 11/30/2000 85 1.58 (6) (.29) (6)
CLASS C:
Year ended 11/30/2003 51 1.69 (.73)
Year ended 11/30/2002 26 1.70 (.77)
Period from 3/15/2001 to 11/30/2001 15 1.86 (6) (1.19) (6)
CLASS F:
Year ended 11/30/2003 40 .91 .04
Year ended 11/30/2002 15 .95 (.02)
Period from 3/15/2001 to 11/30/2001 7 1.00 (6) (.34) (6)
CLASS 529-A:
Year ended 11/30/2003 20 .85 .11
Period from 2/15/2002 to 11/30/2002 8 1.00 (6) .02 (6)
CLASS 529-B:
Year ended 11/30/2003 4 1.81 (.86)
Period from 2/19/2002 to 11/30/2002 1 1.84 (6) (.82) (6)
CLASS 529-C:
Year ended 11/30/2003 5 1.80 (.84)
Period from 2/21/2002 to 11/30/2002 2 1.80 (6) (.78) (6)
CLASS 529-E:
Year ended 11/30/2003 1 1.25 (.30)
Period from 3/15/2002 to 11/30/2002 - (5) 1.25 (6) (.23) (6)
CLASS 529-F:
Year ended 11/30/2003 - (5) 1.00 (.04)
Period from 10/11/2002 to 11/30/2002 - (5) .14 (.03)
CLASS R-1:
Year ended 11/30/2003 1 1.66 (7) (.69)
Period from 6/21/2002 to 11/30/2002 - (5) .73 (7) (.28)
CLASS R-2:
Year ended 11/30/2003 21 1.62 (7) (.68)
Period from 5/31/2002 to 11/30/2002 3 1.63 (6) (7) (.78) (6)
CLASS R-3:
Year ended 11/30/2003 17 1.24 (7) (.29)
Period from 6/25/2002 to 11/30/2002 2 .54 (7) (.12)
CLASS R-4:
Year ended 11/30/2003 10 .88 (7) .09
Period from 7/25/2002 to 11/30/2002 4 .31 (7) (.03)
CLASS R-5:
Year ended 11/30/2003 44 .56 .41
Period from 5/15/2002 to 11/30/2002 31 .56 (6) .44 (6)
Year ended November 30
2003 2002 2001 2000 1999
Portfolio turnover rate for all
classes of shares 38% 37% 41% 54% 48%
(1) Based on operations for the period shown (unless otherwise noted) and,
accordingly, may not be representative of a full year.
(2) Year ended 1999 is based on shares outstanding on the last day of the year;
all other periods are based on average shares outstanding.
(3) Amount less than one cent.
(4) Total returns exclude all sales charges, including contingent deferred
sales charges.
(5) Amount less than 1 million.
(6) Annualized.
(7) During the start-up period for this class, CRMC voluntarily agreed to pay a
portion of the fees relating to transfer agent services. Had CRMC not paid
such fees, expense ratios would have been 1.96%, 2.35% and 1.37% for
classes R-1, R-2 and R-3, respectively, during the year ended November 30,
2003, and 1.43%, 2.00%, .61% and .33% for classes R-1, R-2, R-3 and R-4,
respectively, during the period ended November 30, 2002. The expense ratio
for Class R-4 was not affected by any payments made by CRMC during the year
ended November 30, 2003.
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, 2003, 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 financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights 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 as of November 30, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing 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 financial highlights referred to
above present fairly, in all material respects, the financial position of The
New Economy Fund as of November 30, 2003, 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 financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Los Angeles, California
January 8, 2004
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 certain distributions received by
shareholders during such fiscal year. No distributions were made by the fund
during the last fiscal year.
SINCE THE INFORMATION ABOVE IS REPORTED FOR THE FUND'S FISCAL YEAR AND NOT THE
CALENDAR YEAR, SHAREHOLDERS SHOULD REFER TO THEIR FORM 1099-DIV OR OTHER TAX
INFORMATION WHICH WILL BE MAILED IN JANUARY 2004 TO DETERMINE THE CALENDAR YEAR
AMOUNTS TO BE INCLUDED ON THEIR 2003 TAX RETURNS. SHAREHOLDERS SHOULD CONSULT
THEIR TAX ADVISERS.
OTHER SHARE CLASS RESULTS (unaudited)
CLASS B, CLASS C, CLASS F AND CLASS 529
Returns for periods ended December 31, 2003 (the most recent calendar quarter): 1 year Life of class
CLASS B SHARES
Reflecting applicable contingent deferred sales charge (CDSC), maximum of 5%,
payable only if shares are sold within six years of purchase
Average annual total return -- -11.08% (1)
Cumulative total return +32.64% -35.96% (1)
Not reflecting CDSC
Average annual total return -- -10.44% (1)
Cumulative total return +37.64% -34.22% (1)
CLASS C SHARES
Reflecting CDSC, maximum of 1%, payable only if shares are sold within one
year of purchase
Average annual total return -- -2.96% (2)
Cumulative total return +36.68% -8.05% (2)
Not reflecting CDSC
Average annual total return -- -2.96% (2)
Cumulative total return +37.68% -8.05% (2)
CLASS F SHARES (3)
Not reflecting annual asset-based fee charged by sponsoring firm
Average annual total return -- -2.17% (2)
Cumulative total return +38.69% -5.94% (2)
CLASS 529-A SHARES
Reflecting 5.75% maximum sales charge
Average annual total return -- +1.73% (4)
Cumulative total return +30.81% +3.26% (4)
Not reflecting maximum sales charge
Average annual total return -- +5.01% (4)
Cumulative total return +38.83% +9.59% (4)
CLASS 529-B SHARES
Reflecting applicable CDSC, maximum of 5%, payable only if shares are sold
within six years of purchase
Average annual total return -- +3.25% (5)
Cumulative total return +32.45% +6.14% (5)
Not reflecting CDSC
Average annual total return -- +5.32% (5)
Cumulative total return +37.45% +10.14% (5)
CLASS 529-C SHARES
Reflecting applicable CDSC, maximum of 1%, payable only if shares are sold
within one year of purchase
Average annual total return -- +6.09% (6)
Cumulative total return +36.43% +11.60% (6)
Not reflecting CDSC
Average annual total return -- +6.09% (6)
Cumulative total return +37.43% +11.60% (6)
CLASS 529-E SHARES (3)
Average annual total return -- +1.24% (7)
Cumulative total return +38.19% +2.25% (7)
CLASS 529-F SHARES (3)
Not reflecting annual asset-based fee charged by sponsoring firm
Average annual total return -- +41.27% (8)
Cumulative total return +38.56% +52.53% (8)
Figures shown are past results and are not predictive of future results. Current
results may be lower or higher than those shown. Share price and return will
vary, so you may lose money. For more current information and month-end results,
visit americanfunds.com.
(1) Average annual total return from March 15, 2000, when Class B shares were
first sold.
(2) Average annual total return from March 15, 2001, when Class C and Class F
shares were first sold.
(3) These shares are sold without any initial or contingent sales charge.
(4) Average annual total return from February 15, 2002, when Class 529-A shares
were first sold.
(5) Average annual total return from February 19, 2002, when Class 529-B shares
were first sold.
(6) Average annual total return from February 21, 2002, when Class 529-C shares
were first sold.
(7) Average annual total return from March 15, 2002, when Class 529-E shares
were first sold.
(8) Average annual total return from October 11, 2002, when Class 529-F shares
were first sold.
BOARD OF TRUSTEES
"NON-INTERESTED" TRUSTEES
Year first
elected a
Trustee of
Name and age the fund (1) Principal occupation(s) during past five years
JOSEPH C. BERENATO, 57 2000 Chairman of the Board, President and CEO, Ducommun Incorporated
AMBASSADOR RICHARD G. 1993 Corporate director and author; former U.S. Ambassador to Spain;
CAPEN, JR., 69 former Vice Chairman, Knight-Ridder, Inc.; former Chairman and
Publisher, The Miami Herald
H. FREDERICK CHRISTIE, 70 1983 Private investor; former President and CEO, The Mission Group
(non-utility holding company, subsidiary of Southern California
Edison Company)
JOHN G. FREUND, 50 2000 Founder and Managing Director, Skyline Ventures; former Managing
Director -- Alternative Asset Management Group, Chancellor Capital
Management
LEONADE D. JONES, 56 1995 Co-founder, VentureThink LLC (developed and managed e-commerce
businesses) and Versura Inc. (education loan exchange); former
Treasurer, The Washington Post Company
WILLIAM H. KLING, 61 1987 President, American Public Media Group
NORMAN R. WELDON, 69 1983 Managing Director, Partisan Management Group, Inc.; former Chairman
of the Board, Novoste Corporation; former President and Director,
Corvita Corporation
PATRICIA K. WOOLF, PH.D., 69 1984 Private investor; corporate director; lecturer, Department of
Molecular Biology, Princeton University
"NON-INTERESTED" TRUSTEES
Number of
boards within the
fund complex (2)
on which
Name and age Trustee serves Other directorships (3) held by Trustee
JOSEPH C. BERENATO, 57 2 Ducommun Incorporated
AMBASSADOR RICHARD G. 14 Carnival Corporation
CAPEN, JR., 69
H. FREDERICK CHRISTIE, 70 19 Ducommun Incorporated; IHOP Corporation; Southwest Water Company;
Valero L.P.
JOHN G. FREUND, 50 2 None
LEONADE D. JONES, 56 6 None
WILLIAM H. KLING, 61 6 Irwin Financial Corporation; St. Paul Companies
NORMAN R. WELDON, 69 3 Novoste Corporation
PATRICIA K. WOOLF, PH.D., 69 6 Crompton Corporation; First Energy Corporation; National Life
Holding Co.
"INTERESTED" TRUSTEES (4)
Year first
elected a Principal occupation(s) during past five years
Name, age and Trustee or officer and positions held with affiliated entities or the
position with fund of the fund (1) principal underwriter of the fund
GORDON CRAWFORD, 57 1999 Senior Vice President and Director, Capital Research
Chairman of the Board and Management Company; Director, The Capital Group
Companies, Inc. (5); Senior Vice President and Director,
Capital Management Services, Inc. (5)
TIMOTHY D. ARMOUR, 43 1991 Executive Vice President and Director, Capital Research and
President Management Company; Director, Capital Research Company (5)
"INTERESTED" TRUSTEES (4)
Number of
boards within the
fund complex (2)
Name, age and on which
position with fund Trustee serves Other directorships (3) held by Trustee
GORDON CRAWFORD, 57 2 None
Chairman of the Board
TIMOTHY D. ARMOUR, 43 1 None
President
THE STATEMENT OF ADDITIONAL INFORMATION INCLUDES ADDITIONAL INFORMATION ABOUT
FUND TRUSTEES AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST BY CALLING AMERICAN
FUNDS SERVICE COMPANY AT 800/421-0180. THE ADDRESS FOR ALL TRUSTEES AND OFFICERS
OF THE FUND IS 333 SOUTH HOPE STREET, LOS ANGELES, CA 90071, ATTENTION: FUND
SECRETARY.
OTHER OFFICERS
Year first
elected an Principal occupation(s) during past five years
Name, age and officer and positions held with affiliated entities or the
position with fund of the fund (1) principal underwriter of the fund
CLAUDIA P. HUNTINGTON, 51 1996 Senior Vice President, Capital Research and
Senior Vice President Management Company
VINCENT P. CORTI, 47 1984 Vice President-- Fund Business Management Group,
Vice President Capital Research and Management Company
ALWYN HEONG, 43 2000 Senior Vice President, Capital Research Company (5)
Vice President
ULRICH A. VOLK, 42 1998 Vice President, Capital Research Company (5)
Vice President
CHAD L. NORTON, 43 1991 Vice President-- Fund Business Management Group,
Secretary Capital Research and Management Company
DAVID A. PRITCHETT, 37 1999 Vice President-- Fund Business Management Group,
Treasurer Capital Research and Management Company
SHERYL F. JOHNSON, 35 1998 Vice President-- Fund Business Management Group,
Assistant Treasurer Capital Research and Management Company
(1) Trustees and officers of the fund serve until their resignation, removal or
retirement.
(2) Capital Research and Management Company manages the American Funds,
consisting of 29 funds. Capital Research and Management Company also
manages American Funds Insurance Series(R) and Anchor Pathway Fund, which
serve as the underlying investment vehicles for certain variable insurance
contracts; and Endowments, whose shareholders are limited to certain
nonprofit organizations.
(3) This includes all directorships (other than those in the American Funds)
that are held by each Trustee as a director of a public company or a
registered investment company.
(4) "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 affiliated entities (including the fund's principal
underwriter).
(5) Company affiliated with Capital Research and Management Company.
OFFICES OF THE FUND AND OF THE INVESTMENT ADVISER
Capital Research and Management Company
333 South Hope Street
Los Angeles, CA 90071-1406
135 South State College Boulevard
Brea, CA 92821-5823
TRANSFER AGENT FOR SHAREHOLDER ACCOUNTS
American Funds Service Company
(Please write to the address nearest you.)
P.O. Box 25065 Santa Ana, CA 92799-5065
P.O. Box 659522 San Antonio, TX 78265-9522
P.O. Box 6007 Indianapolis, IN 46206-6007
P.O. Box 2280 Norfolk, VA 23501-2280
CUSTODIAN OF ASSETS
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02105-1713
COUNSEL
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, CA 90071-2899
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two California Plaza
350 South Grand Avenue
Los Angeles, CA 90071-3462
PRINCIPAL UNDERWRITER
American Funds Distributors, Inc.
333 South Hope Street
Los Angeles, CA 90071-1406
There are several ways to invest in The New Economy Fund. Class A shares are
subject to a 5.75% maximum up-front sales charge that declines for accounts (and
aggregated investments) of $25,000 or more. Other share classes, which are
generally not available for certain employer-sponsored retirement plans, have no
up-front sales charges but are subject to additional annual expenses and fees.
Annual expenses for Class B shares were 0.79 percentage points higher than for
Class A shares; Class B shares convert to Class A shares after eight years of
ownership. If redeemed within six years, Class B shares may also be subject to a
contingent deferred sales charge ("CDSC") of up to 5% that declines over time.
Class C shares were subject to annual expenses 0.80 percentage points higher
than those for Class A shares and a 1% CDSC if redeemed within the first year
after purchase. Class C shares convert to Class F shares after 10 years. Class F
shares, which are available only through certain fee-based programs offered by
broker-dealer firms and registered investment advisers, had higher annual
expenses (by 0.02 percentage points) than did Class A shares, and an annual
asset-based fee charged by the sponsoring firm. Expenses are deducted from
income earned by the fund. As a result, dividends and investment results will
differ for each share class.
INVESTORS SHOULD CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES
OF THE NEW ECONOMY FUND AND COLLEGEAMERICA CAREFULLY. THIS AND OTHER IMPORTANT
INFORMATION IS CONTAINED IN THE PROSPECTUS, WHICH CAN BE OBTAINED FROM YOUR
FINANCIAL ADVISER AND SHOULD BE READ CAREFULLY BEFORE INVESTING.
"AMERICAN FUNDS PROXY VOTING GUIDELINES" -- WHICH DESCRIBES HOW WE VOTE PROXIES
RELATING TO PORTFOLIO SECURITIES -- IS AVAILABLE UPON REQUEST, FREE OF CHARGE,
BY CALLING AMERICAN FUNDS SERVICE COMPANY AT 800/421-0180, VISITING THE AMERICAN
FUNDS WEBSITE AT AMERICANFUNDS.COM OR ACCESSING THE U.S. SECURITIES AND EXCHANGE
COMMISSION WEBSITE AT WWW.SEC.GOV.
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, 2004, this report must be accompanied by an American Funds statistical
update for the most recently completed calendar quarter.
[logo - American Funds(R)]
The right choice for the long term(R)
WHAT MAKES AMERICAN FUNDS DIFFERENT?
For more than 70 years, we have followed a consistent philosophy that we firmly
believe is in our investors' best interests. The range of opportunities offered
by our family of just 29 carefully conceived, broadly diversified funds has
attracted over 20 million shareholder accounts.
Our unique combination of strengths includes these five factors:
o A LONG-TERM, VALUE-ORIENTED APPROACH
Rather than follow fads, we pursue a consistent strategy, focusing on each
investment's long-term potential.
o AN UNPARALLELED GLOBAL RESEARCH EFFORT
American Funds draws on one of the industry's most globally integrated
research networks.
o THE MULTIPLE PORTFOLIO COUNSELOR SYSTEM
Every American Fund is divided among a number of portfolio counselors. Each
takes responsibility for a portion independently, within each fund's
objectives; in most cases, research analysts manage a portion as well. Over
time this method has contributed to a consistency of results and continuity
of management.
o EXPERIENCED INVESTMENT PROFESSIONALS
The recent market decline was not the first for most of the portfolio
counselors who serve the American Funds. Nearly 70% of them were in the
investment business before the sharp market decline of 1987.
o A COMMITMENT TO LOW OPERATING EXPENSES
American Funds' operating expenses are among the lowest in the mutual fund
industry. Our portfolio turnover rates are low as well, keeping transaction
costs and tax consequences contained.
29 MUTUAL FUNDS, CONSISTENT PHILOSOPHY, CONSISTENT RESULTS
o 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 FundSM
SMALLCAP World Fund(R)
o GROWTH-AND-INCOME FUNDS
Emphasis on long-term growth and dividends through stocks
American Mutual Fund(R)
Capital World Growth and Income FundSM
Fundamental InvestorsSM
The Investment Company of America(R)
Washington Mutual Investors FundSM
o 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)
o BALANCED FUND
Emphasis on long-term growth and current income through stocks and bonds
American Balanced Fund(R)
o BOND FUNDS
Emphasis on current income through bonds
American High-Income TrustSM
The Bond Fund of AmericaSM
Capital World Bond Fund(R)
Intermediate Bond Fund of America(R)
U.S. Government Securities FundSM
o TAX-EXEMPT BOND FUNDS
Emphasis on tax-free current income through municipal bonds
American High-Income Municipal Bond Fund(R)
Limited Term Tax-Exempt Bond Fund of AmericaSM
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)
o MONEY MARKET FUNDS
The Cash Management Trust of America(R)
The Tax-Exempt Money Fund of AmericaSM
The U.S. Treasury Money Fund of AmericaSM
THE CAPITAL GROUP COMPANIES
American Funds
Capital Research and Management
Capital International
Capital Guardian
Capital Bank and Trust
Lit. No. MFGEAR-914-0104
Litho in USA BDC/GP/8064
Printed on recycled paper
ITEM 2 - Code of Ethics
This Registrant has adopted a Code of Ethics that applies to its Principal
Executive Officer and Principal Financial Officer. The Registrant undertakes to
provide to any person without charge, upon request, a copy of the Code of
Ethics. Such request can be made to American Funds Service Company at
800/421-0180 or to the Secretary of the Registrant, 333 South Hope Street, Los
Angeles, California 90071.
ITEM 3 - Audit Committee Financial Expert
The Registrant's Board has determined that Joseph C. Berenato, a member of the
Registrant's Audit Committee, is an "audit committee financial expert" and
"independent," as such terms are defined in this Item. This designation will not
increase the designee's duties, obligations or liability as compared to his
duties, obligations and liability as a member of the Audit Committee and of the
Board; nor will it reduce the responsibility of the other Audit Committee
members. There may be other individuals who, through education or experience,
would qualify as "audit committee financial experts" if the Board had designated
them as such. Most importantly, the Board believes each member of the Audit
Committee contributes significantly to the effective oversight of the
Registrant's financial statements and condition.
ITEM 4 - Principal Accountant Fees and Services
Form N-CSR disclosure requirement not yet effective with respect to Registrant.
ITEM 5 - Audit Committee Disclosure for Listed Companies
Not applicable.
ITEM 6 - Reserved
ITEM 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable to this Registrant, insofar as the Registrant is not a closed-end
management investment company.
ITEM 8 - Reserved
ITEM 9 - Controls and Procedures
(a) The officers providing the certifications in this report in accordance with
rule 30a-2 under the Investment Company Act of 1940 have concluded, based
on their evaluation of the Registrant's disclosure controls and procedures
(as such term is defined in such rule), that such controls and procedures
are adequate and reasonably designed to achieve the purposes described in
paragraph (c) of such rule.
(b) There were no changes in the Registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of
1940) that occurred during the Registrant's last fiscal half-year (the
Registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 10 - Exhibits
(a) The Code of Ethics that is the subject of the disclosure required by Item 2
is attached as an exhibit hereto.
(b) The certifications required by Rule 30a-2 of the Investment Company Act of
1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act of
2002 are attached as exhibits hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE NEW ECONOMY FUND
By /s/ Timothy D. Armour
-------------------------------------
Timothy D. Armour, President and PEO
Date: February 5, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Timothy D. Armour
---------------------------------------
Timothy D. Armour, President and PEO
Date: February 5, 2004
By /s/ David A. Pritchett
-------------------------------------------------
David A. Pritchett, Treasurer
Date: February 5, 2004