Annual Report - EuroPacific Growth Fund - American Funds

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4. Risk factorsInvesting in the fund may involve certain risks including, but not limited to, those described below.Market conditions — The prices of, and the income generated by, the common stocks and other securities held by the fund maydecline — sometimes rapidly or unpredictably — due to various factors, including events or conditions affecting the general economyor particular industries; overall market changes; local, regional or global political, social or economic instability; governmental orgovernmental agency responses to economic conditions; and currency, interest rate and commodity price fluctuations.Issuer risks — The values of, and the income generated by, securities held by the fund may also decline in response to various factorsdirectly related to the issuers of such securities, including reduced demand for an issuer’s goods or services, poor managementperformance and strategic initiatives such as mergers, acquisitions or dispositions and the market response to any such initiative.Investing in growth-oriented stocks — Growth-oriented common stocks and other equity-type securities (such as preferred stocks,convertible preferred stocks and convertible bonds) may involve larger price swings and greater potential for loss than other types ofinvestments. These risks may be even greater in the case of smaller capitalization stocks.Investing outside the U.S. — Securities of issuers domiciled outside the U.S., or with significant operations outside the U.S., may losevalue because of adverse political, social, economic or market developments in the countries or regions in which the issuers operate.These securities may also lose value due to changes in foreign currency exchange rates against the U.S. dollar and/or currencies ofother countries. Securities markets in certain countries may be more volatile and/or less liquid than those in the U.S. Investmentsoutside the U.S. may also be subject to different accounting practices and different regulatory, legal and reporting standards, and maybe more difficult to value, than those in the U.S. In addition, the value of investments outside the U.S. may be reduced by foreign taxes,including foreign withholding taxes on interest and dividends. Further, there may be increased risks of delayed settlement of securitiespurchased or sold by the fund. The risks of investing outside the U.S. may be heightened in connection with investments in emergingmarkets.Investing in emerging markets — Investing in emerging markets may involve risks in addition to and greater than those generallyassociated with investing in the securities markets of developed countries. For instance, developing countries may have lessdeveloped legal and accounting systems than those in developed countries. The governments of these countries may be lessstable and more likely to impose capital controls, nationalize a company or industry, place restrictions on foreign ownership andon withdrawing sale proceeds of securities from the country, and/or impose punitive taxes that could adversely affect the prices ofsecurities. In addition, the economies of these countries may be dependent on relatively few industries that are more susceptibleto local and global changes. Securities markets in these countries can also be relatively small and have substantially lower tradingvolumes. As a result, securities issued in these countries may be more volatile and less liquid, and may be more difficult to value, thansecurities issued in countries with more developed economies and/or markets. Additionally, there may be increased settlement risksfor transactions in local securities.Management — The investment adviser to the fund actively manages the fund’s investments. Consequently, the fund is subject to therisk that the methods and analyses employed by the investment adviser in this process may not produce the desired results. This couldcause the fund to lose value or its investment results to lag relevant benchmarks or other funds with similar objectives.5. Certain investment techniquesForward currency contracts — The fund has entered into forward currency contracts, which represent agreements to exchangecurrencies on specific future dates at predetermined rates. The fund’s investment adviser uses forward currency contracts to managethe fund’s exposure to changes in exchange rates. Upon entering into these contracts, risks may arise from the potential inability ofcounterparties to meet the terms of their contracts and from possible movements in exchange rates.On a daily basis, the fund’s investment adviser values forward currency contracts and records unrealized appreciation or depreciationfor open forward currency contracts in the fund’s statement of assets and liabilities. Realized gains or losses are recorded at the timethe forward currency contract is closed or offset by another contract with the same broker for the same settlement date and currency.Closed forward currency contracts that have not reached their settlement date are included in the respective receivables or payablesfor closed forward currency contracts in the fund’s statement of assets and liabilities. Net realized gains or losses from closed forwardcurrency contracts and net unrealized appreciation or depreciation from open forward currency contracts are recorded in the fund’sstatement of operations.24 EuroPacific Growth Fund
The following tables present the financial statement impacts resulting from the fund’s use of forward currency contracts as of March 31,2014 (dollars in thousands):AssetLiabilityLocation on statement ofLocation on statement ofContract assets and liabilities Value assets and liabilities ValueForward currency Unrealized appreciation on open $ 17,861 Unrealized depreciation on open $4,146forward currency contractsforward currency contractsForward currency Receivables for closed forward — Payables for closed forward 778currency contractscurrency contracts$ 17,861 $4,924Net realized lossNet unrealized appreciationLocation on statementLocation on statementContract of operations Value of operations ValueForward currency Net realized loss on forward $(57,023) Net unrealized appreciation on $1,907currency contractsforward currency contractsCollateral — The fund has entered into a collateral program due to its use of forward currency contracts. The program calls for thefund to either receive or pledge collateral based on the net gain or loss on unsettled forward currency contracts by counterparty.The purpose of the collateral is to cover potential losses that could occur in the event that either party cannot meet its contractualobligations.Rights of setoff — The fund has entered into enforceable master netting agreements with certain counterparties for forward currencycontracts, where amounts payable by each party to the other in the same currency, with the same settlement date and with the samecounterparty are settled net of each party’s payment obligation. For financial reporting purposes, the fund does not offset financialassets and financial liabilities that are subject to netting arrangements in the statement of assets and liabilities.The following table presents the fund’s forward currency contracts by counterparty, including those that are subject to potential offseton the statement of assets and liabilities as of March 31, 2014 (dollars in thousands):Gross amounts not offset in thestatement of assets and liabilities andGross amountssubject to a master netting agreementrecognized in thestatement of assets Available Non-cash Cash NetCounterparty and liabilities to offset collateral* collateral amountAssets Bank of America, N.A. $ 2,908 $ — $(2,368) $ — $ 540Bank of New York Mellon 692 — (430) — 262Barclays Bank PLC 5,491 (258) (1,770) — 3,463Citibank 181 (18) (163) — —HSBC Bank 6,365 (1,530) (2,753) — 2,082JPMorgan Chase 1,932 (1,002) (543) — 387UBS AG 292 (292) — — —$17,861 $(3,100) $(8,027) $ — $6,734Liabilities Barclays Bank PLC $ 258 $ (258) $ — $ — $ —Citibank 18 (18) — — —HSBC Bank 1,530 (1,530) — — —JPMorgan Chase 1,002 (1,002) — — —UBS AG 2,116 (292) (1,707) — 117*Non-cash collateral is shown on a settlement basis.$ 4,924 $(3,100) $(1,707) $ — $ 117EuroPacific Growth Fund 25
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Annual Report - EuroPacific Growth Fund - American Funds

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