Annual Report - EuroPacific Growth Fund - American Funds

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Currency translation — Assets and liabilities, including investment securities, denominated in currencies other than U.S. dollars aretranslated into U.S. dollars at the exchange rates supplied by one or more pricing vendors on the valuation date. Purchases and sales ofinvestment securities and income and expenses are translated into U.S. dollars at the exchange rates on the dates of such transactions.The effects of changes in exchange rates on investment securities are included with the net realized gain or loss and net unrealizedappreciation or depreciation on investments in the fund’s statement of operations. The realized gain or loss and unrealized appreciationor depreciation resulting from all other transactions denominated in currencies other than U.S. dollars are disclosed separately.3. ValuationCapital Research and Management Company (“CRMC”), the fund’s investment adviser, values the fund’s investments at fair value asdefined by accounting principles generally accepted in the United States of America. The net asset value of each share class of thefund is generally determined as of approximately 4:00 p.m. New York time each day the New York Stock Exchange is open.Methods and inputs — The fund’s investment adviser uses the following methods and inputs to establish the fair value of the fund’sassets and liabilities. Use of particular methods and inputs may vary over time based on availability and relevance as market andeconomic conditions evolve.Equity securities are generally valued at the official closing price of, or the last reported sale price on, the exchange or market onwhich such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the lastavailable bid price. Prices for each security are taken from the principal exchange or market on which the security trades.Fixed-income securities, including short-term securities purchased with more than 60 days left to maturity, are generally valued atprices obtained from one or more pricing vendors. Vendors value such securities based on one or more of the inputs described inthe following table. The table provides examples of inputs that are commonly relevant for valuing particular classes of fixed-incomesecurities in which the fund is authorized to invest. However, these classifications are not exclusive, and any of the inputs may be usedto value any other class of fixed-income security.Fixed-income classAllCorporate bonds & notes; convertible securitiesBonds & notes of governments & government agenciesExamples of standard inputsBenchmark yields, transactions, bids, offers, quotations from dealers andtrading systems, new issues, spreads and other relationships observed inthe markets among comparable securities; and proprietary pricingmodels such as yield measures calculated using factors such as cashflows, financial or collateral performance and other reference data(collectively referred to as “standard inputs”)Standard inputs and underlying equity of the issuerStandard inputs and interest rate volatilitiesWhen the fund’s investment adviser deems it appropriate to do so (such as when vendor prices are unavailable or not deemed to berepresentative), fixed-income securities will be valued in good faith at the mean quoted bid and ask prices that are reasonably andtimely available (or bid prices, if ask prices are not available) or at prices for securities of comparable maturity, quality and type.Securities with both fixed-income and equity characteristics, or equity securities traded principally among fixed-income dealers, aregenerally valued in the manner described for either equity or fixed-income securities, depending on which method is deemed mostappropriate by the fund’s investment adviser. Short-term securities purchased within 60 days to maturity are valued at amortizedcost, which approximates fair value. The value of short-term securities originally purchased with maturities greater than 60 days isdetermined based on an amortized value to par when they reach 60 days. Forward currency contracts are valued at the mean ofrepresentative quoted bid and ask prices, generally based on prices supplied by one or more pricing vendors.Securities and other assets for which representative market quotations are not readily available or are considered unreliable by thefund’s investment adviser are fair valued as determined in good faith under fair valuation guidelines adopted by authority of the fund’sboard of trustees as further described. The investment adviser follows fair valuation guidelines, consistent with U.S. Securities andExchange Commission rules and guidance, to consider relevant principles and factors when making fair value determinations. Theinvestment adviser considers relevant indications of value that are reasonably and timely available to it in determining the fair value tobe assigned to a particular security, such as 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 rightson the security; related corporate actions; significant events occurring after the close of trading in the security; and changes in overallmarket conditions. In addition, the closing prices of equity securities that trade in markets outside U.S. time zones may be adjusted22 EuroPacific Growth Fund
to reflect significant events that occur after the close of local trading but before the net asset value of each share class of the fund isdetermined. Fair valuations and valuations of investments that are not actively trading involve judgment and may differ materially fromvaluations that would have been used had greater market activity occurred.Processes and structure — The fund’s board of trustees has delegated authority to the fund’s investment adviser to make fair valuedeterminations, subject to board oversight. The investment adviser has established a Joint Fair Valuation Committee (the “Fair ValuationCommittee”) to administer, implement and oversee the fair valuation process, and to make fair value decisions. The Fair ValuationCommittee regularly reviews its own fair value decisions, as well as decisions made under its standing instructions to the investment adviser’svaluation teams. The Fair Valuation Committee reviews changes in fair value measurements from period to period and may, as deemedappropriate, update the fair valuation guidelines to better reflect the results of back testing and address new or evolving issues. The FairValuation Committee reports any changes to the fair valuation guidelines to the board of trustees with supplemental information to supportthe changes. The fund’s board and audit committee also regularly review reports that describe fair value determinations and methods.The fund’s investment adviser has also established a Fixed-Income Pricing Review Group to administer and oversee the fixed-incomevaluation process, including the use of fixed-income pricing vendors. This group regularly reviews pricing vendor information andmarket data. Pricing decisions, processes and controls over security valuation are also subject to additional internal reviews, includingan annual control self-evaluation program facilitated by the investment adviser’s compliance group.Classifications — The fund’s investment adviser classifies the fund’s assets and liabilities into three levels based on the inputs usedto value the assets or liabilities. Level 1 values are based on quoted prices in active markets for identical securities. Level 2 valuesare based on significant observable market inputs, such as quoted prices for similar securities and quoted prices in inactive markets.Certain securities trading outside the U.S. may transfer between Level 1 and Level 2 due to valuation adjustments resulting fromsignificant market movements following the close of local trading. Level 3 values are based on significant unobservable inputs thatreflect the investment adviser’s determination of assumptions that market participants might reasonably use in valuing the securities.The valuation levels are not necessarily an indication of the risk or liquidity associated with the underlying investment. For example,U.S. government securities are reflected as Level 2 because the inputs used to determine fair value may not always be quoted prices inan active market. The following tables present the fund’s valuation levels as of March 31, 2014 (dollars in thousands):Investment securitiesLevel 1 Level 2* Level 3 TotalAssets:Common stocks:Financials $1,913,159 $ 22,829,674 $1,073 $ 24,743,906Information technology 2,143,272 14,020,989 — 16,164,261Health care 931,427 15,083,304 — 16,014,731Consumer discretionary 1,517,054 14,201,510 — 15,718,564Industrials 1,162,755 10,915,091 — 12,077,846Consumer staples 823,527 9,573,111 — 10,396,638Telecommunication services 150,257 4,990,861 — 5,141,118Materials 540,218 4,018,584 — 4,558,802Energy 397,876 1,866,012 — 2,263,888Utilities — 1,818,638 — 1,818,638Miscellaneous 372,026 5,329,638 — 5,701,664Rights — 5,758 — 5,758Bonds, notes & other debt instruments — 409,742 — 409,742Short-term securities — 9,030,766 — 9,030,766Total $9,951,571 $114,093,678 $1,073 $124,046,322Other investments †Level 1 Level 2 Level 3 TotalAssets:Unrealized appreciation on open forward currency contracts $ — $17,861 $ — $17,861Liabilities:Unrealized depreciation on open forward currency contracts — (4,146) — (4,146)Total $ — $13,715 $ — $13,715*Securities with a value of $91,127,553,000, which represented 73.38% of the net assets of the fund, transferred from Level 1 to Level 2 since the prior fiscalyear-end, primarily due to significant market movements following the close of local trading.† Forward currency contracts are not included in the investment portfolio.EuroPacific Growth Fund 23
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Annual Report - EuroPacific Growth Fund - American Funds

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