SMALLCAP World Fund®
[photo of the side of a mirrored-glass building]
Special feature
Different approaches, one goal
u See page 4
Annual report for the year ended September 30, 2010
SMALLCAP World Fund® seeks long-term growth of capital through investments in smaller companies in the United States and around the world.
This fund is one of the 30 American Funds. American Funds is one of the nation’s largest mutual fund families. For nearly 80 years, 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.
Fund results shown in this report, unless otherwise indicated, are for Class A shares at net asset value. If a sales charge (maximum 5.75%) had been deducted, the results would have been lower. Results are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. For current information and month-end results, visit americanfunds.com.
| Results at a glance | | | | | | | | | | | | |
| For periods ended September 30, 2010, with all distributions reinvested | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | Average annual total returns | |
| | | Total returns | | | | | | | | | Lifetime (since | |
| | | 1 year | | | 5 years | | | 10 years | | | 4/30/90) | |
| | | | | | | | | | | | | |
| SMALLCAP World Fund | | | | | | | | | | | | |
| (Class A shares) | | | 19.1 | % | | | 5.9 | % | | | 3.3 | % | | | 9.6 | % |
| | | | | | | | | | | | | | | | | |
| MSCI All Country World | | | | | | | | | | | | | | | | |
Small Cap Index1,2 | | | 16.1 | | | | 5.3 | | | | 7.4 | | | | n/a | |
| | | | | | | | | | | | | | | | | |
| Lipper Global Small-Cap | | | | | | | | | | | | | | | | |
Funds Average3 | | | 17.3 | | | | 3.8 | | | | 3.6 | | | | 9.6 | |
| | | | | | | | | | | | | | | | | |
1 The market index cited in this report is unmanaged, and its results include reinvested distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or taxes. |
2 The MSCI All Country World Small Cap Index is a free float-adjusted market capitalization weighted index that is designed to measure equity market results of smaller capitalization companies in both developed and emerging markets. |
3 Lipper averages do not reflect the effect of sales charges, account fees or taxes. |
Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. See the Financial Highlights table on pages 26 and 27 for details.
See page 3 for Class A share results with relevant sales charges deducted. Results for other share classes can be found on page 34.
Equity investments are subject to market fluctuations. Investing outside the United States may be subject to additional risks, such as currency fluctuations and political instability. These risks may be heightened in connection with investments in developing countries. Investing in small-capitalization stocks can involve greater risk than is customarily associated with investing in stocks of larger, more established companies. See the prospectus and the Risk Factors section of this report for more information on these and other risks associated with investing in the fund.
Fellow shareholders:
The global economy continued with an uneven and, at this point, incomplete recovery during SMALLCAP World Fund’s most recent fiscal year. Despite this uncertain environment, the fund produced a total return of 19.1% for the 12 months ended September 30, 2010. This total return assumes reinvestment of dividends, which totaled 19.6 cents a share during the period.
This total return surpassed those of its primary benchmark and its peers. The MSCI All Country World Small Cap Index, an unmanaged measure of global small-capitalization stocks, gained 16.1%. The fund’s peer group, as represented by the Lipper Global Small-Cap Funds Average, saw a total return of 17.3%.
The year in review
The global economy, which embarked on recovery in mid-2009, continued to show gradual signs of improvement during the fund’s fiscal year, with its strongest signals of growth coming in late 2009 and early 2010. In developed nations, a coordinated fiscal and monetary stimulus effort appeared to produce short-term benefits, while emerging economies built on their resilience in the 2008–2009 downturn.
The second half of the fiscal year saw a number of issues come to a head, starting with the Greek financial crisis and potential problems for other over-leveraged European nations. This was exacerbated by signs of slowing economic growth in both Europe and the United States. Unemployment in the developed world remains high, and governments with mounting debt have fewer options to further stimulate the economy.
Despite these concerns, most equity markets around the world saw positive gains for the period, with small-capitalization stocks generally outperforming large-cap stocks domestically and abroad. However, most of these gains came in the first six months of the fiscal year. Overall, equity markets have been volatile since then, though small-cap stocks continued to post gains around the world in the most recent quarter.
[photo of the side of a mirrored-glass building]
[Begin Sidebar]
| In this report |
| | |
| | Special feature |
| | |
| 4 | Different approaches, one goal |
| | |
| | The fund’s portfolio counselors have different perspectives on today’s market, but are united in their goals to find the best potential investments for the fund. |
| | |
| | Contents |
| | |
| 1 | Letter to shareholders |
| | |
| 3 | The value of a long-term perspective |
| | |
| 10 | Summary investment |
| | portfolio |
| | |
| 17 | Financial statements |
| | |
| 35 | Board of directors and other officers |
[End Sidebar]
[Begin Sidebar]
Where are SMALLCAP’s holdings located?
[begin pie chart]
| | | |
| | | | |
n United States | | | 39.1 | % |
n Asia & Pacific Basin | | | 27.9 | |
n Europe | | | 19.5 | |
n Other (including Canada | | | | |
| & Latin America) | | | 6.5 | |
n Short-term securities & | | | | |
| other assets less liabilities | | | 7.0 | |
| | | |
| | | | |
n United States | | | 41.1 | % |
n Asia & Pacific Basin | | | 24.7 | |
n Europe | | | 19.9 | |
n Other (including Canada | | | | |
| & Latin America) | | | 5.7 | |
n Short-term securities & | | | | |
| other assets less liabilities | | | 8.6 | |
[end pie chart]
[End Sidebar]
[Begin Sidebar]
| Largest equity holdings | | Percent of net assets | |
| | | | |
| ENN Energy Holdings | | | 1.0 | % |
| Kingboard Chemical Holdings | | | .8 | |
| Container Corp. of India | | | .8 | |
| AAC Acoustic Technologies Holdings | | | .8 | |
| Pacific Rubiales Energy | | | .7 | |
| Dah Sing Financial Holdings | | | .6 | |
| Modern Times Group | | | .6 | |
| MSC Industrial Direct | | | .6 | |
| lululemon athletica | | | .6 | |
| Thoratec | | | .6 | |
[End Sidebar]
How the fund responded
Unlike consumers and governments in the developed world, corporations in both developed and emerging markets have relatively strong balance sheets, making the corporate investment environment more accommodating than the general economic backdrop at this time. In general, valuations of small-cap emerging markets stocks are approaching those of small-cap stocks from the developed world, given the latter regions’ economic uncertainties.
Of the 45 countries that the MSCI All Country World Small Cap Index represents, 37 saw positive total returns for the full fiscal year, measured in U.S. dollars. Of the eight nations with negative returns, four of them — Greece, Ireland, Portugal and Spain — were at the forefront of Europe’s financial crisis. Some of the index’s best returns came from Latin America, particularly Brazil and Chile, as well as from Asia, notably Thailand, Malaysia, the Philippines and China.
Our investments cover a broad range of companies from all over the world and across the industry spectrum. Each of our top 10 holdings produced at least double-digit returns for the period; our fifth-largest holding, Pacific Rubiales Energy, rose 126.7% for the period. The fund’s top holding, ENN Energy Holdings, gained 44.3% as well.
Overall, strong returns from energy and financial stocks helped the fund, as did holdings from emerging markets, while housing-related holdings, both domestic and international, were among those whose returns fell during the past year.
The road ahead
There are a number of growing concerns about the health and trajectory of the current economic recovery, particularly in the developed world. With stimulus spending now waning, there seems little in the way of catalysts to help economies grow at their previous pace.
At the very least, slower economic growth seems like a reasonable forecast for the coming year, but there is also the chance things may worsen further. Nonetheless, the fund’s portfolio counselors believe that their bottom-up, intensive research can help uncover potential investments in almost any economic environment. And as we pointed out earlier, corporations are generally in better shape than governments and consumers. High-quality small companies with sound balance sheets and growth potential should continue to represent strong potential investment opportunities.
For more on the portfolio counselors’ views on the global economy and investing, please read “Different approaches, one goal,” starting on page 4.
We are pleased to report this year’s returns, which surpassed their benchmarks. However, just as the 2008–2009 downturn was an unusually difficult time, we would caution that returns at these levels aren’t typical, either. We continue to focus on long-term investing, and encourage you to take a similar approach to your personal holdings.
Thank you for your continued support. We look forward to reporting to you again in six months.
Sincerely,
/s/ Gordon Crawford
Gordon Crawford
Vice Chairman of the Board
/s/ Gregory W. Wendt
Gregory W. Wendt
President
November 10, 2010
For current information about the fund, visit americanfunds.com.
The value of a long-term perspective
This chart shows how a $10,000 investment in SMALLCAP World Fund’s Class A shares grew from April 30, 1990 — the fund’s inception — through September 30, 2010, the end of the fund’s latest fiscal year. As you can see, the $10,000 would have grown to $61,657 even after deducting the maximum 5.75% sales charge.
Fund results shown reflect deduction of the maximum sales charge of 5.75% on the $10,000 investment.1 Thus, the net amount invested was $9,425.
[begin mountain chart]
| | Date | | | | Date | | | | Date | | MSCI All Country World Small Cap Index2 | |
| | 4/30/1990 | | $ | 9,425 | | 4/30/1990 | | $ | 10,000 | | 4/30/1990 | | $ | 10,000 | |
| Fiscal Year 1990 | | | | | | | | | | | | | | | |
| High | 16-Jul-90 | | $ | 9,963 | | 30-Sep-90 | | $ | 10,295 | | 17-Jul-90 | | $ | 11,596 | |
| Low | 28-Sep-90 | | $ | 8,288 | | 30-Apr-90 | | $ | 10,000 | | 28-Sep-90 | | $ | 8,918 | |
| Close | 30-Sep-90 | | $ | 8,288 | | 30-Sep-90 | | $ | 10,295 | | 30-Sep-90 | | $ | 8,918 | |
| Fiscal Year 1991 | | | | | | | | | | | | | | | |
| High | 30-Sep-91 | | $ | 11,307 | | 30-Sep-91 | | $ | 10,644 | | 17-Apr-91 | | $ | 11,421 | |
| Low | 11-Oct-90 | | $ | 8,231 | | 01-Oct-90 | | $ | 10,357 | | 16-Jan-91 | | $ | 8,897 | |
| Close | 30-Sep-91 | | $ | 11,307 | | 30-Sep-91 | | $ | 10,644 | | 30-Sep-91 | | $ | 11,210 | |
| Fiscal Year 1992 | | | | | | | | | | | | | | | |
| High | 12-Feb-92 | | $ | 12,666 | | 30-Sep-92 | | $ | 10,962 | | 7-Feb-92 | | $ | 11,884 | |
| Low | 9-Oct-91 | | $ | 11,140 | | 01-Oct-91 | | $ | 10,659 | | 12-Aug-92 | | $ | 10,570 | |
| Close | 30-Sep-92 | | $ | 11,640 | | 30-Sep-92 | | $ | 10,962 | | 30-Sep-92 | | $ | 10,999 | |
| Fiscal Year 1993 | | | | | | | | | | | | | | | |
| High | 30-Sep-93 | | $ | 15,418 | | 30-Sep-93 | | $ | 11,257 | | 3-Sep-93 | | $ | 14,469 | |
| Low | 5-Oct-92 | | $ | 11,368 | | 01-Oct-92 | | $ | 11,001 | | 9-Oct-92 | | $ | 10,649 | |
| Close | 30-Sep-93 | | $ | 15,418 | | 30-Sep-93 | | $ | 11,257 | | 30-Sep-93 | | $ | 14,341 | |
| Fiscal Year 1994 | | | | | | | | | | | | | | | |
| High | 3-Feb-94 | | $ | 17,254 | | 30-Sep-94 | | $ | 11,590 | | 2-Sep-94 | | $ | 15,727 | |
| Low | 24-Jun-94 | | $ | 15,474 | | 01-Oct-93 | | $ | 11,303 | | 29-Nov-93 | | $ | 13,616 | |
| Close | 30-Sep-94 | | $ | 16,744 | | 30-Sep-94 | | $ | 11,590 | | 30-Sep-94 | | $ | 15,468 | |
| Fiscal Year 1995 | | | | | | | | | | | | | | | |
| High | 11-Sep-95 | | $ | 20,046 | | 30-Sep-95 | | $ | 11,885 | | 11-Sep-95 | | $ | 16,260 | |
| Low | 30-Jan-95 | | $ | 15,821 | | 03-Oct-94 | | $ | 11,598 | | 13-Dec-94 | | $ | 14,289 | |
| Close | 30-Sep-95 | | $ | 19,856 | | 30-Sep-95 | | $ | 11,885 | | 30-Sep-95 | | $ | 16,221 | |
| Fiscal Year 1996 | | | | | | | | | | | | | | | |
| High | 20-May-96 | | $ | 23,573 | | 30-Sep-96 | | $ | 12,242 | | 20-May-96 | | $ | 18,617 | |
| Low | 18-Dec-95 | | $ | 19,323 | | 31-Dec-95 | | $ | 11,908 | | 27-Oct-95 | | $ | 15,635 | |
| Close | 30-Sep-96 | | $ | 22,877 | | 30-Sep-96 | | $ | 12,242 | | 30-Sep-96 | | $ | 17,857 | |
| Fiscal Year 1997 | | | | | | | | | | | | | | | |
| High | 30-Sep-97 | | $ | 28,689 | | 30-Sep-97 | | $ | 12,506 | | 30-Sep-97 | | $ | 19,522 | |
| Low | 28-Apr-97 | | $ | 22,594 | | 01-Oct-96 | | $ | 12,281 | | 14-Apr-97 | | $ | 16,713 | |
| Close | 30-Sep-97 | | $ | 28,689 | | 30-Sep-97 | | $ | 12,506 | | 30-Sep-97 | | $ | 19,522 | |
| Fiscal Year 1998 | | | | | | | | | | | | | | | |
| High | 13-Oct-97 | | $ | 29,202 | | 30-Sep-98 | | $ | 12,692 | | 21-Apr-98 | | $ | 20,484 | |
| Low | 31-Aug-98 | | $ | 22,174 | | 31-Dec-97 | | $ | 12,514 | | 31-Aug-98 | | $ | 15,352 | |
| Close | 30-Sep-98 | | $ | 22,749 | | 30-Sep-98 | | $ | 12,692 | | 30-Sep-98 | | $ | 15,611 | |
| Fiscal Year 1999 | | | | | | | | | | | | | | | |
| High | 13-Sep-99 | | $ | 33,760 | | 30-Sep-99 | | $ | 13,026 | | 13-Sep-99 | | $ | 21,579 | |
| Low | 8-Oct-98 | | $ | 20,294 | | 31-Dec-98 | | $ | 12,715 | | 8-Oct-98 | | $ | 14,369 | |
| Close | 30-Sep-99 | | $ | 32,172 | | 30-Sep-99 | | $ | 13,026 | | 30-Sep-99 | | $ | 20,984 | |
| Fiscal Year 2000 | | | | | | | | | | | | | | | |
| High | 10-Mar-00 | | $ | 56,595 | | 30-Sep-00 | | $ | 13,476 | | 10-Mar-00 | | $ | 26,069 | |
| Low | 18-Oct-99 | | $ | 31,127 | | 01-Oct-99 | | $ | 13,049 | | 18-Oct-99 | | $ | 20,444 | |
| Close | 30-Sep-00 | | $ | 44,532 | | 30-Sep-00 | | $ | 13,476 | | 30-Sep-00 | | $ | 22,985 | |
| Fiscal Year 2001 | | | | | | | | | | | | | | | |
| High | 2-Oct-00 | | $ | 43,857 | | 30-Sep-01 | | $ | 13,832 | | 2-Oct-00 | | $ | 22,743 | |
| Low | 21-Sep-01 | | $ | 23,450 | | 02-Oct-00 | | $ | 13,499 | | 21-Sep-01 | | $ | 16,368 | |
| Close | 30-Sep-01 | | $ | 24,516 | | 30-Sep-01 | | $ | 13,832 | | 30-Sep-01 | | $ | 17,180 | |
| Fiscal Year 2002 | | | | | | | | | | | | | | | |
| High | 17-Apr-02 | | $ | 31,220 | | 30-Sep-02 | | $ | 14,042 | | 17-May-02 | | $ | 21,364 | |
| Low | 24-Sep-02 | | $ | 22,831 | | 31-Dec-01 | | $ | 13,708 | | 24-Sep-02 | | $ | 16,279 | |
| Close | 30-Sep-02 | | $ | 23,121 | | 30-Sep-02 | | $ | 14,042 | | 30-Sep-02 | | $ | 16,429 | |
| Fiscal Year 2003 | | | | | | | | | | | | | | | |
| High | 19-Sep-03 | | $ | 31,932 | | 30-Sep-03 | | $ | 14,368 | | 19-Sep-03 | | $ | 23,605 | |
| Low | 9-Oct-02 | | $ | 21,288 | | 31-Dec-02 | | $ | 14,034 | | 9-Oct-02 | | $ | 15,159 | |
| Close | 30-Sep-03 | | $ | 30,626 | | 30-Sep-03 | | $ | 14,368 | | 30-Sep-03 | | $ | 22,898 | |
| Fiscal Year 2004 | | | | | | | | | | | | | | | |
| High | 12-Apr-04 | | $ | 38,954 | | 30-Sep-04 | | $ | 14,732 | | 7-Apr-04 | | $ | 28,999 | |
| Low | 1-Oct-03 | | $ | 31,035 | | 31-Dec-03 | | $ | 14,298 | | 1-Oct-03 | | $ | 23,259 | |
| Close | 30-Sep-04 | | $ | 36,736 | | 30-Sep-04 | | $ | 14,732 | | 30-Sep-04 | | $ | 28,339 | |
| Fiscal Year 2005 | | | | | | | | | | | | | | | |
| High | 30-Sep-05 | | $ | 46,392 | | 30-Sep-05 | | $ | 15,423 | | 30-Sep-05 | | $ | 36,324 | |
| Low | 14-Oct-04 | | $ | 36,577 | | 31-Dec-04 | | $ | 14,763 | | 14-Oct-04 | | $ | 28,253 | |
| Close | 30-Sep-05 | | $ | 46,392 | | 30-Sep-05 | | $ | 15,423 | | 30-Sep-05 | | $ | 36,324 | |
| Fiscal Year 2006 | | | | | | | | | | | | | | | |
| High | 9-May-06 | | $ | 58,016 | | 31-Aug-06 | | $ | 15,818 | | 9-May-06 | | $ | 44,841 | |
| Low | 27-Oct-05 | | $ | 43,590 | | 31-Dec-05 | | $ | 15,268 | | 20-Oct-05 | | $ | 34,197 | |
| Close | 30-Sep-06 | | $ | 53,477 | | 30-Sep-06 | | $ | 15,741 | | 30-Sep-06 | | $ | 41,361 | |
| Fiscal Year 2007 | | | | | | | | | | | | | | | |
| High | 19-Jul-07 | | $ | 73,253 | | 17-Sep-07 | | $ | 16,175 | | 13-Jul-07 | | $ | 53,980 | |
| Low | 10-Jan-07 | | $ | 58,657 | | 16-Nov-06 | | $ | 15,632 | | 3-Oct-06 | | $ | 41,194 | |
| Close | 30-Sep-07 | | $ | 72,413 | | 30-Sep-07 | | $ | 16,175 | | 30-Sep-07 | | $ | 51,547 | |
| Fiscal Year 2008 | | | | | | | | | | | | | | | |
| High | 31-Oct-07 | | $ | 76,428 | | 16-Jul-08 | | $ | 17,065 | | 31-Oct-07 | | $ | 53,830 | |
| Low | 29-Sep-08 | | $ | 47,556 | | 01-Oct-07 | | $ | 16,175 | | 29-Sep-08 | | $ | 36,826 | |
| Close | 30-Sep-08 | | $ | 48,685 | | 30-Sep-08 | | $ | 16,973 | | 30-Sep-08 | | $ | 37,157 | |
| Fiscal Year 2009 | | | | | | | | | | | | | | | |
| High | 22-Sep-09 | | $ | 52,124 | | 01-Oct-08 | | $ | 16,973 | | 22-Sep-09 | | $ | 41,186 | |
| Low | 9-Mar-09 | | $ | 28,688 | | 16-Dec-08 | | $ | 16,309 | | 9-Mar-09 | | $ | 21,316 | |
| Close | 30-Sep-09 | | $ | 51,765 | | 30-Sep-09 | | $ | 16,755 | | 30-Sep-09 | | $ | 40,572 | |
| Fiscal Year 2010 | | | | | | | | | | | | | | | |
| High | 30-Sep-10 | | $ | 61,657 | | 16-Sep-10 | | $ | 16,946 | | 26-Apr-10 | | $ | 48,172 | |
| Low | 28-Oct-09 | | $ | 50,003 | | 01-Jul-10 | | $ | 16,910 | | 2-Oct-09 | | $ | 39,125 | |
| Close | 30-Sep-10 | | $ | 61,657 | | 30-Sep-10 | | $ | 16,946 | | 30-Sep-10 | | $ | 47,100 | |
[end mountain chart]
Past results are not predictive of results in future periods. The results shown are before taxes on fund distributions and sale of fund shares.
| | 1As outlined in the prospectus, the sales charge is reduced for accounts (and aggregated investments) of $25,000 or more and is eliminated for purchases of $1 million or more. There is no sales charge on dividends or capital gain distributions that are reinvested in additional shares. |
| | 2This index is unmanaged, and its results include reinvested distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or taxes. Because the index was not in existence at the time of the fund’s inception, cumulative returns through May 1994 reflect the returns of the S&P Developed <$1.2 Billion Index. |
| | 3Computed from data supplied by the U.S. Department of Labor, Bureau of Labor Statistics. |
| | 4For the period April 30, 1990 (when the fund began operations) through September 30, 1990. |
Average annual total returns based on a $1,000 investment (for periods ended September 30, 2010)* | | | | | | | |
| | | | | | | | | | |
| | | 1 year | | | 5 years | | | 10 years | |
| Class A shares | | | 12.25 | % | | | 4.61 | % | | | 2.70 | % |
| *Assumes reinvestment of all distributions and payment of the maximum 5.75% sales charge. | | | | | | | | | | | | |
The total annual fund operating expense ratio was 1.13% for Class A shares as of the most recent fiscal year-end.
Investment results assume all distributions are reinvested and reflect applicable fees and expenses. The fund’s investment adviser waived a portion of its management fees from September 1, 2004, through December 31, 2008. Applicable fund results shown reflect the waiver, without which they would have been lower. See the Financial Highlights table on pages 26 and 27 for details.
Different approaches, one goal
[Begin Photo Caption]
[photo of Gordon Crawford]
Gordon Crawford
[End Photo Caption]
[Begin Photo Caption]
[photo of Brady Enright]
Brady Enright
[End Photo Caption]
[Begin Photo Caption]
[photo of Claudia Huntington]
Claudia Huntington
[End Photo Caption]
[Begin Photo Caption]
[photo of Jonathan Knowles]
Jonathan Knowles
[End Photo Caption]
[Begin Sidebar]
The portfolio counselors of SMALLCAP World Fund have different perspectives on today’s changing investment environment. Yet their approach to investing remains the same: to find strong potential investments among the world’s best up-and-coming companies.
[End Sidebar]
[photo of the side of a mirrored-glass building]
The strength and duration of the current economic recovery are some of the biggest variables investors face today. Growth has returned to the United States and many other developed nations, but problems remain.
Nevertheless, the portfolio counselors of SMALLCAP World Fund continue to put shareholders’ money to work in investments they feel will provide the best returns for the long term. While the portfolio counselors have different ideas about the future of the global economy, they’re unified by a single goal — bringing shareholders the best possible returns.
Recently, four of the fund’s portfolio counselors — Gordon Crawford, Brady Enright, Claudia Huntington and Jonathan Knowles — took the time to answer questions about their views of today’s economic picture and their approaches to investing.
How would you describe the evolution of the global economy over the past year?
Gordon: Certainly, there’s been a recovery among developed nations, but that has been fueled by the stimulus money the U.S. and Europe have poured into the system. That level of stimulus was unprecedented in history. And while it certainly gave us a boost last year, the reality of it is that you’ve seen economic growth start to decline over the past few quarters. The government just doesn’t have any more money to spend, and meanwhile, consumers — who are roughly 70% of the U.S. economy — are dampening their rate of spending while saving more. So you’re seeing the recovery start to slow.
Brady: I don’t think there’s any question that our recovery is going to flatten out, but that’s not the end of the world. There’s strong growth in Asia, particularly in China and wrapping around to India. Latin America is an area of strength. And even in Western Europe and the U.S., there’s still growth happening. It’s not great, but I don’t see a huge amount of downside.
[photo of the reflection of a crane in a mirrored-glass building]
[Begin Sidebar]
I think Asian countries, generally, will continue to do well, and because of that, companies that export to Asia also will do well.
Jonathan Knowles
[End Sidebar]
[Begin Sidebar]
Frankly, I’m seeing opportunities in nearly every market. Every week, our analysts discuss companies that seem really interesting and are worth a close look.
Claudia Huntington
[End Sidebar]
[photo of the side of a mirrored-glass building]
I just think we’ve had a nice bounce-back from the lows, and now we’re going to go forward with slower growth, but growth nonetheless.
Jonathan: The economy today, at least in the United States and Western Europe, reminds me of a bobsled run. It’s a very difficult track, and you can wipe out on either side with the slightest error. You’ve poured a lot of money into the global economy, so you’re running fast. On the one side you have inflation, the other side you have deflation. So far, we’re on the sled and we’ve not driven off the run yet. But it’s a dangerous course. We’re going to have to make all of our turns perfectly from here.
Claudia: I’m not all that pessimistic, actually. We’re in a recovery, even if it’s not the robust one we might hope for. Many investors seem to have expected that the U.S. would climb out of the downturn as rapidly as it sank into it, but it’s not going to work like that this time around in large part due to the recession’s breadth and depth. Clearly there are issues of consumer debt and government deficits, and while these will take a while to work through, we may be surprised that they correct faster than currently expected. It’s going to be bumpy, but in general I believe we are clearly in a recovery and it will continue.
Several of your answers focused on the United States or Europe. What about the economies of the rest of the world?
Claudia: Other economies, particularly in emerging markets, have the problem of figuring out how to slow down rampant growth to avoid inflation or a bubble. That’s not necessarily a bad problem to have, and so far, I would say that many of these nations are doing a pretty good job of managing things.
Jonathan: Many Asian countries are doing particularly well, as Brady said. China is in the process of stimulating its own economy and doing a good job of it. India is a fairly self-sufficient economy, and they have excellent bank regulation. They didn’t see many of the problems the developed world experienced. I think Asian countries, generally, will continue to do well, and because of that, companies that export to Asia also will do well.
Brady: One of the things about the success of emerging markets, though, is that they’re becoming more expensive. Ten years ago, it used to be the case when you found a good emerging-market stock, you could buy it at a nice discount to stocks in the developed world. That’s not the case any more. So while you have faster and stronger growth in the emerging markets world, you’re paying a premium for it, generally speaking. That leaves a tough choice between stocks in the developed world that are cheaper but dealing with slower economies, and stocks in emerging markets that are seeing faster growth but are more expensive.
You each have different views on the economy right now. How do those views play out when you’re forming an investment thesis?
Gordon: If you think that the global economy is going to suffer in the future, then there’s no real silver bullet in terms of investing. My best-case scenario has us sort of grinding it out, with a flat economy for a while, at least here in the U.S. and in Europe. So when I look at the world, I want to look for companies that aren’t going to be as affected by that. You look at the emerging markets like Brazil and India, for example, and you see domestic companies filling domestic needs — telecommunications, retailing, that sort of thing. If those economies grow faster than ours, and I think they will, these companies will do well because they’re domestically focused, and not relying on exporting.
Claudia: Frankly, I’m seeing opportunities in nearly every market. Every week, our analysts discuss companies that seem really interesting and are worth a close look. There are so many crosscurrents now that where I get the most comfort is to focus on the individual investment opportunity. So, I look at companies with respect to the continuum of their evolution, how they might grow, whether their strategy makes sense, etcetera. Even in a volatile economic environment, you can have great companies that are growing revenues and market share and have very fair valuations. And this is one of those times.
Jonathan: Even here in Europe, we’re seeing companies that we’re excited about, and parts of Europe are doing far worse than the United States right now. There are companies that have great balance sheets and are doing smart things, the things they need to do to increase market share and grow. Generally speaking, I do like emerging markets more than developed markets right now, but I also think that there’s opportunity all across the world.
Can you talk about your outlook for the global economy in the year ahead?
Brady: I think you’re seeing two perspectives on this. On the one side, there are folks who think that economic recovery is going to deteriorate further. There’s even some talk about a double-dip recession. But to me, when I look at the world, I see more risk on the upside than down. I think the economy around the world will grow, and I think stocks will see some pretty good returns — not amazing, but certainly good.
Jonathan: I see a two-tiered world ahead, at least for the medium term. You’ll have your Asian economies and some other emerging markets doing very well, and then you’ll have some developed debt-laden economies that will be struggling. How much will they struggle? I’m not optimistic on that account. I think it could be quite protracted.
Gordon: I do think the developing world is in good shape. They generally don’t have a lot of debt, and they’re seeing growth. I have to wonder if we’re seeing the start of a shift of global wealth from the developed world to emerging markets. But there’s a big swath of the globe in the developed world that I’m afraid isn’t going to be growing as rapidly as in the past.
Claudia: This wasn’t a conventional downturn, and this isn’t going to be a conventional recovery. In the U.S. and Europe, we’re going to have to do two things at once — grow our economies conventionally while paying off a lot of government debt, and consumer debt to a degree. That makes growth more difficult. That said, I do think there will be enough growth within private sector businesses to help the developed world continue with recovery.
[photo of the side of a mirrored-glass building]
It seems like the two perspectives Brady mentioned are represented well between the four of you. With such economic uncertainty out there, how do you decide on which investments to make?
Claudia: Lots of ways. One is by listening to each other. Some of us are contrarian investors. Some of us are more value oriented, or more pure growth oriented. That’s one of the big benefits of the multiple portfolio counselor system. By talking through a potential investment, our dialogue is likely to isolate the risks and opportunities of a specific idea. You combine that with your own view of the individual company, the market and country and industry fundamentals, and then make a judgment on valuation.
Gordon: And that collaboration doesn’t result in group-think. We still invest our own portion of the fund according to our beliefs. That helps reduce volatility. If I’m more defensive, that can only help the overall fund if stocks don’t do as well. And if stocks do all right, then part of the fund will be positioned to take advantage of that as well.
[Begin Sidebar]
No matter what happens, I’m going to do my best to find companies in attractive niches where they can grow.
Brady Enright
[End Sidebar]
Brady: For me, it’s never been about which sectors, or which economy. It’s just not the way I view the world. It’s a bottom-up process for me, and I have a real broad assortment of companies in my portfolio. No matter what happens, I’m going to do my best to find companies in attractive niches where they can grow. Maybe it’s because the underlying dynamics are favorable, or maybe they’ve built that better mousetrap or a superior approach to the market. And you can find those companies almost anywhere if you do your homework.
Jonathan: Obviously, I think we all believe in stocks. We’re equity investors. And if you look at the 1970s, or even the last decade, you’ll see that you can make money in a down economy, in a flat market. The onus is on us to pick the right stocks. If we do that, then the environment in which we pick doesn’t matter as much. That’s why we research our potential investments so carefully, because we want stocks that can stand up to whatever the world has to throw at them. We can’t get complacent about it. n
[Begin Sidebar]
The multiple portfolio counselor system
The portfolio counselors of SMALLCAP World Fund have different views on the state of the global economy. Through the multiple portfolio counselor system, they can put their own investment theories to work separately, even as they work together to find potential investments around the world.
Indeed, for more than 50 years, Capital Research and Management Company has relied on this system to provide broad diversification, continuity of management and a history of consistent long-term results.
Under this system, the fund’s assets are divided among the fund’s 13 portfolio counselors. Each counselor can invest as he or she sees fit, within the guidelines of the fund. Another portion is set aside for the fund’s analysts, who share responsibility for investing those assets.
This system provides a great deal of flexibility in terms of accommodating increasing assets and changes in management. It also can help to reduce volatility: The results of portfolio counselors whose philosophies and styles are currently in favor help to temper the results of those whose investments are contrary to the market’s direction.
SMALLCAP World Fund’s counselors bring together a wealth of investment experience. Here are the specific years* of experience for these primary decision makers for the fund:
| Gordon Crawford | 39 years |
| Claudia P. Huntington | 38 years |
| Mark E. Denning | 28 years |
| Kathryn M. Peters | 23 years |
| Noriko H. Chen | 20 years |
| Brady L. Enright | 19 years |
| Jonathan Knowles | 19 years |
| Bradford F. Freer | 18 years |
| J. Blair Frank | 17 years |
| Lawrence Kymisis | 16 years |
| Kristian Stromsoe | 14 years |
| Dylan J. Yolles | 13 years |
| Terrance P. McGuire | 12 years |
*As of December 2010
[End Sidebar]
Notes to financial statements
SMALLCAP World Fund, Inc. (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 through investments in smaller companies in the U.S. and around the world.
On November 24, 2009, shareholders approved a proposal to reorganize the fund from a Maryland corporation to a Delaware statutory trust. The reorganization is expected to be completed in 2011; however, the fund reserves the right to delay the implementation. Shareholders also approved amendments to the fund’s Investment Advisory and Service Agreement and amendments to and elimination of certain fundamental investment policies of the fund.
The fund has 16 share classes consisting of five retail share classes, five 529 college savings plan share classes and six retirement plan share classes. The 529 college savings plan share classes (529-A, 529-B, 529-C, 529-E and 529-F-1) can be used to save for college education. The six retirement plan share classes (R-1, R-2, R-3, R-4, R-5 and R-6) are generally offered only through eligible employer-sponsored retirement plans. The fund’s share classes are described below:
| Share class | Initial sales charge | Contingent deferred sales charge upon redemption | Conversion feature |
| Classes A and 529-A | Up to 5.75% | None (except 1% for certain redemptions within one year of purchase without an initial sales charge) | None |
| Classes B and 529-B* | None | Declines from 5% to 0% for redemptions within six years of purchase | Classes B and 529-B convert to Classes A and 529-A, respectively, after eight years |
| Class C | None | 1% for redemptions within one year of purchase | Class C converts to Class F-1 after 10 years |
| Class 529-C | None | 1% for redemptions within one year of purchase | None |
| Class 529-E | None | None | None |
| Classes F-1, F-2 and 529-F-1 | None | None | None |
| Classes R-1, R-2, R-3, R-4, R-5 and R-6 | None | None | None |
*Class B and 529-B shares of the fund are not available for purchase.
Holders of all share classes have equal pro rata rights to assets, dividends and liquidation proceeds. 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.
| 2. | 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 fund follows the significant accounting policies described below, as well as the valuation policies described in the next section on valuation.
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. 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.
Currency translation – Assets and liabilities, including investment securities, denominated in currencies other than U.S. dollars are translated into U.S. dollars at the exchange rates in effect on the valuation date. 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. On the accompanying financial statements, the effects of changes in 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 currencies other than U.S. dollars are disclosed separately.
Loan transactions – The fund may enter into loan transactions in which the fund acquires a loan either through an agent, by assignment from another holder, or as a participation interest in another holder's portion of a loan. The loan is often administered by a financial institution that acts as agent for the holders of the loan, and the fund may be required to receive approval from the agent and/or borrower prior to the sale of the investment. The loan's interest rate and maturity date may change based on the terms of the loan, including potential early payments of principal.
The fund’s investments are reported at fair value as defined by accounting principles generally accepted in the United States of America. The fund generally determines its net asset value as of approximately 4:00 p.m. New York time each day the New York Stock Exchange is open.
Methods and inputs – The fund uses the following methods and inputs to establish the fair value of its assets and liabilities. Use of particular methods and inputs may vary over time based on availability and relevance as market and economic conditions evolve.
Equity securities are generally 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, including short-term securities purchased with more than 60 days left to maturity, are generally valued at prices obtained as of approximately 3:00 p.m. New York time from one or more pricing vendors. Vendors value such securities based on one or more of the inputs described in the following table. The table provides examples of inputs that are commonly relevant for valuing particular classes of fixed-income securities in which the fund is authorized to invest. However, these classifications are not exclusive, and any of the inputs may be used to value any other class of fixed-income security.
| Fixed-income class | Examples of standard inputs |
| All | Benchmark yields, transactions, bids, offers, quotations from dealers and trading systems, new issues, spreads and other relationships observed in the markets among comparable securities; and proprietary pricing models such as yield measures calculated using factors such as cash flows, financial or collateral performance and other reference data (collectively referred to as “standard inputs”) |
| Corporate bonds & notes; convertible securities | Standard inputs and underlying equity of the issuer |
| Bonds & notes of governments & government agencies | Standard inputs and interest rate volatilities |
Where the investment adviser deems it appropriate to do so (such as when vendor prices are unavailable or not deemed to be representative), fixed-income securities will be valued in good faith at the mean quoted bid and asked prices that are reasonably and timely available (or bid prices, if asked 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, are generally valued in the manner described above for either equity or fixed-income securities, depending on which method is deemed most appropriate by the investment adviser. Short-term securities purchased within 60 days to maturity are valued at amortized cost, which approximates fair value. The value of short-term securities originally purchased with maturities greater than 60 days is determined based on an amortized value to par when they reach 60 days.
Securities and other assets for which representative market quotations are not readily available or are considered unreliable by the investment adviser are fair valued as determined in good faith under guidelines adopted by authority of the fund's board of directors. Market quotations may be considered unreliable if events occur that materially affect the value of securities (particularly equity securities trading outside the U.S.) between the close of trading in those securities and the close of regular trading on the New York Stock Exchange. Various inputs may be reviewed in order to make a good faith determination of a security’s fair value. These inputs 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. Fair valuations and valuations of investments that are not actively trading involve judgment and may differ materially from valuations that would have been used had greater market activity occurred.
Classifications - The fund classifies its assets and liabilities into three levels based on the inputs used to value the assets or liabilities. Level 1 values are based on quoted prices in active markets for identical securities. Level 2 values are based on significant observable market inputs, such as quoted prices for similar securities and quoted prices in inactive markets. Level 3 values are based on significant unobservable inputs that reflect the fund’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 in an active market. The following table presents the fund’s valuation levels as of September 30, 2010 (dollars in thousands):
| Investment securities: | | Level 1 | | | Level 2 | | | | | | Level 3 | | | Total | |
| Common stocks: | | | | | | | | | | | | | | | |
| Consumer discretionary | | $ | 1,429,637 | | | $ | 1,723,131 | | | | | (1) | | $ | 250 | | | $ | 3,153,018 | |
| Industrials | | | 1,068,296 | | | | 1,794,947 | | | | | (1) | | | - | | | | 2,863,243 | |
| Information technology | | | 1,621,031 | | | | 1,051,838 | | | | | (1) | | | 130 | | | | 2,672,999 | |
| Financials | | | 1,165,649 | | | | 1,045,360 | | | | | (1) | | | 40,038 | | | | 2,251,047 | |
| Health care | | | 1,397,445 | | | | 684,199 | | | | | (1) | | | 3 | | | | 2,081,647 | |
| Materials | | | 459,955 | | | | 1,147,826 | | | | | (1) | | | - | | | | 1,607,781 | |
| Energy | | | 681,971 | | | | 541,060 | | | | | (1) | | | 11,887 | | | | 1,234,918 | |
| Consumer staples | | | 209,023 | | | | 659,672 | | | | | (1) | | | - | | | | 868,695 | |
| Utilities | | | 23,565 | | | | 337,668 | | | | | (1) | | | - | | | | 361,233 | |
| Telecommunication services | | | 129,342 | | | | 57,363 | | | | | (1) | | | - | | | | 186,705 | |
| Miscellaneous | | | 527,494 | | | | 474,420 | | | | | (1) | | | 515 | | | | 1,002,429 | |
| Rights & Warrants | | | 10,396 | | | | 564 | | | | | | | | 206 | | | | 11,166 | |
| Convertible securities | | | 12,503 | | | | 19,507 | | | | | | | | 51,285 | | | | 83,295 | |
| Bonds & notes | | | - | | | | 349,655 | | | | | | | | - | | | | 349,655 | |
| Short-term securities | | | - | | | | 1,345,040 | | | | | | | | - | | | | 1,345,040 | |
| Total | | $ | 8,736,307 | | | $ | 11,232,250 | | | | | | | $ | 104,314 | | | $ | 20,072,871 | |
| | | | | | | | | | | | | | | | | | | | | |
(1)Includes certain securities trading outside the U.S. whose values were adjusted as a result of significant market movements following the close of local trading; therefore, $9,501,434,000 of investment securities were classified as Level 2 instead of Level 1. |
| The following table reconciles the valuation of the fund's Level 3 investment securities and related transactions for the year ended September 30, 2010 (dollars in thousands): |
| | | | | | | | | | | | | | | | | | | |
| | | Beginning value at 10/1/2009 | | | Net purchases and sales | | | Net realized loss(2) | | | Net unrealized appreciation(2) | | | Net transfers out of Level 3(3) | | | Ending value at 9/30/2010 | |
| Investment securities | | $ | 60,321 | | | $ | 113,640 | | | $ | (18,524 | ) | | $ | 55,331 | | | $ | (106,454 | ) | | $ | 104,314 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net unrealized appreciation during the period on Level 3 investment securities held at September 30, 2010 (dollars in thousands)(2): | | | $ | 1,903 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
(2)Net realized loss and unrealized appreciation are included in the related amounts on investments in the statement of operations. | |
(3)Transfers into or out of Level 3 are based on the beginning market value of the quarter in which they occurred. | |
Investing 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 securities held by the fund may decline due to market conditions and other factors, including those directly involving the issuers of securities held by the fund.
Investing in growth-oriented stocks — Growth-oriented stocks and other equity-type securities may involve larger price swings and greater potential for loss than other types of investments. These risks may be even greater in the case of smaller capitalization stocks.
Investing in small companies —Investing in smaller companies may pose additional risks. For example, it is often more difficult to value or dispose of small company stocks and more difficult to obtain information about smaller companies. In addition, the prices of their stocks may be more volatile than stocks of larger, more established companies.
Investing outside the U.S. — Securities of issuers domiciled outside the U.S., or with significant operations outside the U.S., may lose value because of political, social or economic developments in the country or region in which the issuer operates. These securities may also lose value due to changes in the exchange rate of the country’s currency against the U.S. dollar. Securities markets in certain countries may be more volatile and/or less liquid than those in the U.S. Investments outside the U.S. may also be subject to different settlement and accounting practices and different regulatory, legal and reporting standards than those in the U.S. The risks of investing outside the U.S. may be heightened in connection with investments in developing countries.
Management — The investment adviser to the fund actively manages the fund’s investments. Consequently, the fund is subject to the risk that the techniques and risk analyses employed by the investment adviser in this process may not produce the desired results. This could cause the fund to lose value or its results to lag relevant benchmarks or other funds with similar objectives.
| 5. | Taxation and distributions |
Federal income taxation – 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. Therefore, no federal income tax provision is required.
As of and during the period ended September 30, 2010, the fund did not have a liability for any unrecognized tax benefits. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the fund did not incur any significant interest or penalties.
The fund is not subject to examination by U.S. federal tax authorities for tax years before 2006, by state tax authorities for tax years before 2005 and by tax authorities outside the U.S. for tax years before 2003.
Non-U.S. 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.
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 different treatment for items such as currency gains and losses; short-term capital gains and losses; capital losses related to sales of certain securities within 30 days of purchase; unrealized appreciation of certain investments in securities outside the U.S.; cost of investments sold; net capital losses; non-U.S. taxes on capital gains; and income on certain inves tments. 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 for financial reporting purposes.
During the year ended September 30, 2010, the fund reclassified $56,943,000 from accumulated net realized loss to distributions in excess of net investment income; and $124,000 from distributions in excess of net investment income to capital paid in on shares of capital stock to align financial reporting with tax reporting.
As of September 30, 2010, the tax basis components of distributable earnings, unrealized appreciation (depreciation) and cost of investment securities were as follows:
| | | (dollars in thousands) | |
| Undistributed ordinary income | | | | | $ | 206,213 | |
| Capital loss carryforwards*: | | | | | | | |
| Expiring 2017 | | $ | (365,461 | ) | | | | |
| Expiring 2018 | | | (2,299,111 | ) | | | (2,664,572 | ) |
| Gross unrealized appreciation on investment securities | | | | | | | 5,162,544 | |
| Gross unrealized depreciation on investment securities | | | | | | | (992,545 | ) |
| Net unrealized appreciation on investment securities | | | | | | | 4,169,999 | |
| Cost of investment securities | | | | | | | 15,902,872 | |
| | |
| *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. |
No distributions were paid to shareholders during the year ended September 30, 2009. Ordinary income distributions paid to shareholders from net investment income during the year ended September 30, 2010, were as follows:
| Share class | | (dollars in thousands) | |
| Class A | | $ | 82,116 | |
| Class B | | | - | |
| Class C | | | 320 | |
| Class F-1 | | | 4,116 | |
| Class F-2 | | | 1,894 | |
| Class 529-A | | | 3,021 | |
| Class 529-B | | | - | |
| Class 529-C | | | - | |
| Class 529-E | | | 109 | |
| Class 529-F-1 | | | 331 | |
| Class R-1 | | | 34 | |
| Class R-2 | | | - | |
| Class R-3 | | | 2,561 | |
| Class R-4 | | | 3,241 | |
| Class R-5 | | | 2,757 | |
| Class R-6 | | | 3,351 | |
| Total | | $ | 103,851 | |
| 6. | Fees and transactions with related parties |
Capital Research and Management Company ("CRMC"), the fund’s investment adviser, is the parent company of American Funds Distributors,® Inc. ("AFD"), the principal underwriter of the fund’s shares, and American Funds Service Company® ("AFS"), the fund’s transfer agent.
Investment advisory services - The Investment Advisory and Service Agreement with CRMC provides for monthly fees accrued daily. These fees are based on a series of decreasing annual rates beginning with 0.800% on the first $1 billion of daily net assets and decreasing to 0.595% on such assets in excess of $27 billion. For the year ended September 30, 2010, the investment advisory services fee was $118,528,000, which was equivalent to an annualized rate of 0.642% 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 Classes F-2, R-5 and R-6. Under the plans, the board of directors approves certain categories of expenses that are used to finance activities primarily intended to sell fund shares and service existing accounts. The plans provide for payments, based on an annualized percentage of average daily net assets, ranging from 0.30% to 1.00% as noted below. In some cases, the board of directors has limited the amounts that may be paid to less than the maximum allowed by the plans. All share classes with a plan 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 tha t have entered into agreements with AFD to provide certain shareholder services. The remaining amounts available to be paid under each plan are paid to dealers to compensate them for their sales activities.
For Classes A and 529-A, the board of directors has also approved the reimbursement of dealer and wholesaler commissions paid by AFD for certain shares sold without a sales charge. These classes reimburse AFD for amounts billed within the prior 15 months but only to the extent that the overall annual expense limit of 0.30% is not exceeded. As of September 30, 2010, there were no unreimbursed expenses subject to reimbursement for Classes A or 529-A.
| Share class | Currently approved limits | Plan limits |
| Class A | 0.30% | 0.30% |
| Class 529-A | 0.30 | 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-1, 529-F-1 and R-4 | 0.25 | 0.50 |
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 as described below.
Administrative services – The fund has an administrative services agreement with CRMC for all share classes, except Classes A and B, to provide certain services, including transfer agent and recordkeeping services; coordinating, monitoring, assisting and overseeing third-party service providers; and educating advisers and shareholders about the impact of market-related events, tax laws affecting investments, retirement plan restrictions, exchange limitations and other related matters. Each relevant share class pays CRMC annual fees up to 0.15% (0.10% for Class R-5 and 0.05% for Class R-6) based on its respective average daily net assets. Each relevant share 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.
Each 529 share class is subject to an additional administrative services fee payable to the Commonwealth of Virginia for the maintenance of the 529 college savings plan. The quarterly fee is based on a series of decreasing annual rates beginning with 0.10% on the first $30 billion of the net assets invested in Class 529 shares of the American Funds and decreasing to 0.06% on such assets between $120 billion and $150 billion. The fee for any given calendar quarter is accrued and calculated on the basis of the average net assets of Class 529 shares of the American Funds for the last month of the prior calendar quarter. Although these amounts are included with administrative services fees on the accompanying financial statements, the Commonwealth of Virginia is not considered a related part y.
Expenses under the agreements described above for the year ended September 30, 2010, were as follows (dollars in thousands):
| | | | | | | | | Administrative services | |
| Share class | | Distribution services | | | Transfer agent services | | | CRMC administrative services | | | Transfer agent services | | | Commonwealth of Virginia administrative services | |
| Class A | | $ | 31,484 | | | $ | 26,347 | | | Not applicable | | | Not applicable | | | Not applicable | |
| Class B | | | 4,068 | | | | 819 | | | Not applicable | | | Not applicable | | | Not applicable | |
| Class C | | | 7,899 | | | Included in administrative services | | | $ | 1,186 | | | $ | 293 | | | Not applicable | |
| Class F-1 | | | 1,478 | | | | | | | | 893 | | | | 116 | | | Not applicable | |
| Class F-2 | | | | Not applicable | | | | 244 | | | | 16 | | | Not applicable | |
| Class 529-A | | | 967 | | | | | | | | 647 | | | | 123 | | | $ | 473 | |
| Class 529-B | | | 513 | | | | | | | | 71 | | | | 24 | | | | 51 | |
| Class 529-C | | | 1,713 | | | | | | | | 236 | | | | 71 | | | | 172 | |
| Class 529-E | | | 138 | | | | | | | | 38 | | | | 7 | | | | 28 | |
| Class 529-F-1 | | | - | | | | | | | | 55 | | | | 10 | | | | 40 | |
| Class R-1 | | | 391 | | | | | | | | 42 | | | | 30 | | | Not applicable | |
| Class R-2 | | | 4,848 | | | | | | | | 967 | | | | 2,240 | | | Not applicable | |
| Class R-3 | | | 2,969 | | | | | | | | 885 | | | | 623 | | | Not applicable | |
| Class R-4 | | | 1,059 | | | | | | | | 629 | | | | 26 | | | Not applicable | |
| Class R-5 | | | | Not applicable | | | | 282 | | | | 10 | | | Not applicable | |
| Class R-6 | | | | Not applicable | | | | 172 | | | | 2 | | | Not applicable | |
| Total | | $ | 57,527 | | | $ | 27,166 | | | $ | 6,347 | | | $ | 3,591 | | | $ | 764 | |
Directors’ deferred compensation – Since the adoption of the deferred compensation plan in 1993, directors 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. Directors’ compensation of $623,000, shown on the accompanying financial statements, includes $488,000 in current fees (either paid in cash or deferred) and a net increase of $135,000 in the value of the deferred amounts.
Affiliated officers and directors – Officers and certain directors of the fund are or may be considered to be affiliated with CRMC, AFS and AFD. No affiliated officers or directors received any compensation directly from the fund.
| 7. | Capital share transactions |
Capital share transactions in the fund were as follows (dollars and shares in thousands):
| | | Sales* | | | Reinvestments of dividends and distributions | | | Repurchases* | | | Net (decrease) increase | |
| Share class | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | | | Amount | | | Shares | |
| Year ended September 30, 2010 | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A | | $ | 1,831,865 | | | | 56,548 | | | $ | 78,893 | | | | 2,504 | | | $ | (2,553,407 | ) | | | (79,601 | ) | | $ | (642,649 | ) | | | (20,549 | ) |
| Class B | | | 25,953 | | | | 842 | | | | - | | | | - | | | | (123,854 | ) | | | (4,048 | ) | | | (97,901 | ) | | | (3,206 | ) |
| Class C | | | 161,750 | | | | 5,306 | | | | 309 | | | | 10 | | | | (167,005 | ) | | | (5,525 | ) | | | (4,946 | ) | | | (209 | ) |
| Class F-1 | | | 239,017 | | | | 7,411 | | | | 3,785 | | | | 121 | | | | (229,350 | ) | | | (7,215 | ) | | | 13,452 | | | | 317 | |
| Class F-2 | | | 98,591 | | | | 3,047 | | | | 1,549 | | | | 49 | | | | (47,932 | ) | | | (1,475 | ) | | | 52,208 | | | | 1,621 | |
| Class 529-A | | | 91,398 | | | | 2,844 | | | | 3,020 | | | | 97 | | | | (48,681 | ) | | | (1,524 | ) | | | 45,737 | | | | 1,417 | |
| Class 529-B | | | 2,502 | | | | 80 | | | | - | | | | - | | | | (10,279 | ) | | | (329 | ) | | | (7,777 | ) | | | (249 | ) |
| Class 529-C | | | 33,679 | | | | 1,092 | | | | - | | | | - | | | | (23,126 | ) | | | (754 | ) | | | 10,553 | | | | 338 | |
| Class 529-E | | | 4,953 | | | | 158 | | | | 109 | | | | 3 | | | | (2,978 | ) | | | (94 | ) | | | 2,084 | | | | 67 | |
| Class 529-F-1 | | | 10,907 | | | | 341 | | | | 331 | | | | 11 | | | | (6,404 | ) | | | (201 | ) | | | 4,834 | | | | 151 | |
| Class R-1 | | | 14,676 | | | | 471 | | | | 34 | | | | 1 | | | | (14,029 | ) | | | (457 | ) | | | 681 | | | | 15 | |
| Class R-2 | | | 202,425 | | | | 6,515 | | | | - | | | | - | | | | (201,145 | ) | | | (6,522 | ) | | | 1,280 | | | | (7 | ) |
| Class R-3 | | | 224,770 | | | | 7,101 | | | | 2,559 | | | | 83 | | | | (195,218 | ) | | | (6,179 | ) | | | 32,111 | | | | 1,005 | |
| Class R-4 | | | 170,724 | | | | 5,318 | | | | 3,239 | | | | 103 | | | | (137,357 | ) | | | (4,321 | ) | | | 36,606 | | | | 1,100 | |
| Class R-5 | | | 111,984 | | | | 3,427 | | | | 2,744 | | | | 86 | | | | (78,067 | ) | | | (2,424 | ) | | | 36,661 | | | | 1,089 | |
| Class R-6 | | | 106,396 | | | | 3,341 | | | | 3,351 | | | | 107 | | | | (77,684 | ) | | | (2,444 | ) | | | 32,063 | | | | 1,004 | |
| Total net increase | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (decrease) | | $ | 3,331,590 | | | | 103,842 | | | $ | 99,923 | | | | 3,175 | | | $ | (3,916,516 | ) | | | (123,113 | ) | | $ | (485,003 | ) | | | (16,096 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended September 30, 2009 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A | | $ | 1,518,160 | | | | 66,129 | | | $ | - | | | | - | | | $ | (2,496,271 | ) | | | (115,414 | ) | | $ | (978,111 | ) | | | (49,285 | ) |
| Class B | | | 33,662 | | | | 1,604 | | | | - | | | | - | | | | (102,029 | ) | | | (4,910 | ) | | | (68,367 | ) | | | (3,306 | ) |
| Class C | | | 118,514 | | | | 5,423 | | | | - | | | | - | | | | (151,900 | ) | | | (7,489 | ) | | | (33,386 | ) | | | (2,066 | ) |
| Class F-1 | | | 189,538 | | | | 8,394 | | | | - | | | | - | | | | (274,502 | ) | | | (12,521 | ) | | | (84,964 | ) | | | (4,127 | ) |
| Class F-2 | | | 138,781 | | | | 5,589 | | | | - | | | | - | | | | (15,874 | ) | | | (659 | ) | | | 122,907 | | | | 4,930 | |
| Class 529-A | | | 58,688 | | | | 2,607 | | | | - | | | | - | | | | (37,550 | ) | | | (1,725 | ) | | | 21,138 | | | | 882 | |
| Class 529-B | | | 3,585 | | | | 174 | | | | - | | | | - | | | | (4,393 | ) | | | (210 | ) | | | (808 | ) | | | (36 | ) |
| Class 529-C | | | 23,679 | | | | 1,084 | | | | - | | | | - | | | | (17,451 | ) | | | (829 | ) | | | 6,228 | | | | 255 | |
| Class 529-E | | | 3,847 | | | | 173 | | | | - | | | | - | | | | (2,835 | ) | | | (131 | ) | | | 1,012 | | | | 42 | |
| Class 529-F-1 | | | 7,052 | | | | 316 | | | | - | | | | - | | | | (4,494 | ) | | | (204 | ) | | | 2,558 | | | | 112 | |
| Class R-1 | | | 11,379 | | | | 514 | | | | - | | | | - | | | | (6,450 | ) | | | (303 | ) | | | 4,929 | | | | 211 | |
| Class R-2 | | | 183,512 | | | | 8,507 | | | | - | | | | - | | | | (121,903 | ) | | | (5,671 | ) | | | 61,609 | | | | 2,836 | |
| Class R-3 | | | 164,814 | | | | 7,409 | | | | - | | | | - | | | | (108,008 | ) | | | (4,940 | ) | | | 56,806 | | | | 2,469 | |
| Class R-4 | | | 176,324 | | | | 7,415 | | | | - | | | | - | | | | (72,671 | ) | | | (3,225 | ) | | | 103,653 | | | | 4,190 | |
| Class R-5 | | | 171,532 | | | | 7,719 | | | | - | | | | - | | | | (335,288 | ) | | | (14,570 | ) | | | (163,756 | ) | | | (6,851 | ) |
Class R-6† | | | 243,388 | | | | 10,650 | | | | - | | | | - | | | | (5,302 | ) | | | (204 | ) | | | 238,086 | | | | 10,446 | |
| Total net increase | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (decrease) | | $ | 3,046,455 | | | | 133,707 | | | $ | - | | | | - | | | $ | (3,756,921 | ) | | | (173,005 | ) | | $ | (710,466 | ) | | | (39,298 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
*Includes exchanges between share classes of the fund. | | | | | | | | | | | | | | | | | | | | | | | | | |
†Class R-6 was offered beginning May 1, 2009. | | | | | | | | | | | | | | | | | | | | | | | | | |
| 8. | Investment transactions |
The fund made purchases and sales of investment securities, excluding short-term securities and U.S. government obligations, if any, of $7,356,512,000 and $8,140,211,000, respectively, during the year ended September 30, 2010.
| | | | | | Income (loss) from investment operations(2) | | | Dividends and distributions | | | | | | | | | | | | | | | | | | | |
| | | Net asset value, beginning of period | | | Net investment income (loss) | | | Net gains (losses) on securities (both realized and unrealized) | | | Total from investment operations | | | Dividends (from net investment income) | | | Distributions (from capital gains) | | | Total dividends and distributions | | | Net asset value, end of period | | | Total return(3) (4) | | | Net assets, end of period (in millions) | | | Ratio of expenses to average net assets before reimbursements/ waivers | | | Ratio of expenses to average net assets after reimbursements/ waivers(4) | | | Ratio of net income (loss) to average net assets(4) | |
| Class A: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | $ | 30.26 | | | $ | .14 | | | $ | 5.62 | | | $ | 5.76 | | | $ | (.20 | ) | | $ | - | | | $ | (.20 | ) | | $ | 35.82 | | | | 19.11 | % | | $ | 14,432 | | | | 1.13 | % | | | 1.13 | % | | | .43 | % |
| Year ended 9/30/2009 | | | 28.46 | | | | .19 | | | | 1.61 | | | | 1.80 | | | | - | | | | - | | | | - | | | | 30.26 | | | | 6.32 | | | | 12,814 | | | | 1.25 | | | | 1.24 | | | | .82 | |
| Year ended 9/30/2008 | | | 47.43 | | | | .31 | | | | (14.35 | ) | | | (14.04 | ) | | | (.76 | ) | | | (4.17 | ) | | | (4.93 | ) | | | 28.46 | | | | (32.77 | ) | | | 13,453 | | | | 1.07 | | | | 1.01 | | | | .80 | |
| Year ended 9/30/2007 | | | 38.87 | | | | .37 | | | | 12.50 | | | | 12.87 | | | | (.70 | ) | | | (3.61 | ) | | | (4.31 | ) | | | 47.43 | | | | 35.41 | | | | 20,913 | | | | 1.04 | | | | .98 | | | | .86 | |
| Year ended 9/30/2006 | | | 34.77 | | | | .25 | | | | 4.94 | | | | 5.19 | | | | (.41 | ) | | | (.68 | ) | | | (1.09 | ) | | | 38.87 | | | | 15.27 | | | | 15,167 | | | | 1.08 | | | | 1.01 | | | | .68 | |
| Class B: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | | 28.66 | | | | (.11 | ) | | | 5.32 | | | | 5.21 | | | | - | | | | - | | | | - | | | | 33.87 | | | | 18.18 | | | | 397 | | | | 1.89 | | | | 1.89 | | | | (.37 | ) |
| Year ended 9/30/2009 | | | 27.16 | | | | .01 | | | | 1.49 | | | | 1.50 | | | | - | | | | - | | | | - | | | | 28.66 | | | | 5.52 | | | | 428 | | | | 2.02 | | | | 2.00 | | | | .06 | |
| Year ended 9/30/2008 | | | 45.49 | | | | .01 | | | | (13.72 | ) | | | (13.71 | ) | | | (.45 | ) | | | (4.17 | ) | | | (4.62 | ) | | | 27.16 | | | | (33.27 | ) | | | 495 | | | | 1.83 | | | | 1.77 | | | | .03 | |
| Year ended 9/30/2007 | | | 37.41 | | | | .04 | | | | 12.02 | | | | 12.06 | | | | (.37 | ) | | | (3.61 | ) | | | (3.98 | ) | | | 45.49 | | | | 34.40 | | | | 815 | | | | 1.81 | | | | 1.74 | | | | .10 | |
| Year ended 9/30/2006 | | | 33.59 | | | | (.03 | ) | | | 4.78 | | | | 4.75 | | | | (.25 | ) | | | (.68 | ) | | | (.93 | ) | | | 37.41 | | | | 14.39 | | | | 581 | | | | 1.85 | | | | 1.78 | | | | (.09 | ) |
| Class C: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | | 28.44 | | | | (.10 | ) | | | 5.28 | | | | 5.18 | | | | (.01 | ) | | | - | | | | (.01 | ) | | | 33.61 | | | | 18.19 | | | | 865 | | | | 1.88 | | | | 1.88 | | | | (.32 | ) |
| Year ended 9/30/2009 | | | 26.93 | | | | .03 | | | | 1.48 | | | | 1.51 | | | | - | | | | - | | | | - | | | | 28.44 | | | | 5.64 | | | | 738 | | | | 1.94 | | | | 1.92 | | | | .13 | |
| Year ended 9/30/2008 | | | 45.18 | | | | .01 | | | | (13.63 | ) | | | (13.62 | ) | | | (.46 | ) | | | (4.17 | ) | | | (4.63 | ) | | | 26.93 | | | | (33.31 | ) | | | 754 | | | | 1.86 | | | | 1.79 | | | | .02 | |
| Year ended 9/30/2007 | | | 37.21 | | | | .02 | | | | 11.95 | | | | 11.97 | | | | (.39 | ) | | | (3.61 | ) | | | (4.00 | ) | | | 45.18 | | | | 34.35 | | | | 1,107 | | | | 1.85 | | | | 1.79 | | | | .04 | |
| Year ended 9/30/2006 | | | 33.45 | | | | (.04 | ) | | | 4.74 | | | | 4.70 | | | | (.26 | ) | | | (.68 | ) | | | (.94 | ) | | | 37.21 | | | | 14.33 | | | | 696 | | | | 1.89 | | | | 1.83 | | | | (.12 | ) |
| Class F-1: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | | 30.03 | | | | .15 | | | | 5.57 | | | | 5.72 | | | | (.22 | ) | | | - | | | | (.22 | ) | | | 35.53 | | | | 19.16 | | | | 654 | | | | 1.10 | | | | 1.10 | | | | .46 | |
| Year ended 9/30/2009 | | | 28.21 | | | | .21 | | | | 1.61 | | | | 1.82 | | | | - | | | | - | | | | - | | | | 30.03 | | | | 6.45 | | | | 543 | | | | 1.14 | | | | 1.13 | | | | .94 | |
| Year ended 9/30/2008 | | | 47.08 | | | | .31 | | | | (14.23 | ) | | | (13.92 | ) | | | (.78 | ) | | | (4.17 | ) | | | (4.95 | ) | | | 28.21 | | | | (32.77 | ) | | | 627 | | | | 1.07 | | | | 1.01 | | | | .82 | |
| Year ended 9/30/2007 | | | 38.65 | | | | .36 | | | | 12.41 | | | | 12.77 | | | | (.73 | ) | | | (3.61 | ) | | | (4.34 | ) | | | 47.08 | | | | 35.41 | | | | 815 | | | | 1.05 | | | | .98 | | | | .84 | |
| Year ended 9/30/2006 | | | 34.58 | | | | .26 | | | | 4.91 | | | | 5.17 | | | | (.42 | ) | | | (.68 | ) | | | (1.10 | ) | | | 38.65 | | | | 15.28 | | | | 446 | | | | 1.08 | | | | 1.01 | | | | .70 | |
| Class F-2: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | | 30.39 | | | | .25 | | | | 5.63 | | | | 5.88 | | | | (.34 | ) | | | - | | | | (.34 | ) | | | 35.93 | | | | 19.46 | | | | 246 | | | | .81 | | | | .81 | | | | .78 | |
| Year ended 9/30/2009 | | | 28.47 | | | | .23 | | | | 1.69 | | | | 1.92 | | | | - | | | | - | | | | - | | | | 30.39 | | | | 6.78 | | | | 158 | | | | .87 | | | | .87 | | | | .91 | |
| Period from 8/1/2008 to 9/30/2008 | | | 33.66 | | | | .08 | | | | (5.27 | ) | | | (5.19 | ) | | | - | | | | - | | | | - | | | | 28.47 | | | | (15.42 | ) | | | 8 | | | | .14 | | | | .13 | | | | .26 | |
| Class 529-A: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | | 30.13 | | | | .13 | | | | 5.58 | | | | 5.71 | | | | (.21 | ) | | | - | | | | (.21 | ) | | | 35.63 | | | | 19.06 | | | | 548 | | | | 1.16 | | | | 1.16 | | | | .41 | |
| Year ended 9/30/2009 | | | 28.32 | | | | .19 | | | | 1.62 | | | | 1.81 | | | | - | | | | - | | | | - | | | | 30.13 | | | | 6.39 | | | | 421 | | | | 1.22 | | | | 1.21 | | | | .84 | |
| Year ended 9/30/2008 | | | 47.23 | | | | .29 | | | | (14.28 | ) | | | (13.99 | ) | | | (.75 | ) | | | (4.17 | ) | | | (4.92 | ) | | | 28.32 | | | | (32.79 | ) | | | 371 | | | | 1.11 | | | | 1.05 | | | | .78 | |
| Year ended 9/30/2007 | | | 38.76 | | | | .34 | | | | 12.44 | | | | 12.78 | | | | (.70 | ) | | | (3.61 | ) | | | (4.31 | ) | | | 47.23 | | | | 35.33 | | | | 479 | | | | 1.10 | | | | 1.04 | | | | .79 | |
| Year ended 9/30/2006 | | | 34.68 | | | | .25 | | | | 4.93 | | | | 5.18 | | | | (.42 | ) | | | (.68 | ) | | | (1.10 | ) | | | 38.76 | | | | 15.25 | | | | 284 | | | | 1.11 | | | | 1.05 | | | | .66 | |
| Class 529-B: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | | 28.98 | | | | (.13 | ) | | | 5.38 | | | | 5.25 | | | | - | | | | - | | | | - | | | | 34.23 | | | | 18.12 | | | | 52 | | | | 1.97 | | | | 1.97 | | | | (.44 | ) |
| Year ended 9/30/2009 | | | 27.47 | | | | .01 | | | | 1.50 | | | | 1.51 | | | | - | | | | - | | | | - | | | | 28.98 | | | | 5.50 | | | | 51 | | | | 2.05 | | | | 2.03 | | | | .02 | |
| Year ended 9/30/2008 | | | 45.96 | | | | (.02 | ) | | | (13.89 | ) | | | (13.91 | ) | | | (.41 | ) | | | (4.17 | ) | | | (4.58 | ) | | | 27.47 | | | | (33.35 | ) | | | 49 | | | | 1.93 | | | | 1.87 | | | | (.05 | ) |
| Year ended 9/30/2007 | | | 37.77 | | | | (.01 | ) | | | 12.14 | | | | 12.13 | | | | (.33 | ) | | | (3.61 | ) | | | (3.94 | ) | | | 45.96 | | | | 34.25 | | | | 71 | | | | 1.92 | | | | 1.86 | | | | (.02 | ) |
| Year ended 9/30/2006 | | | 33.93 | | | | (.07 | ) | | | 4.82 | | | | 4.75 | | | | (.23 | ) | | | (.68 | ) | | | (.91 | ) | | | 37.77 | | | | 14.24 | | | | 48 | | | | 1.97 | | | | 1.90 | | | | (.20 | ) |
| Class 529-C: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | | 28.94 | | | | (.12 | ) | | | 5.37 | | | | 5.25 | | | | - | | | | - | | | | - | | | | 34.19 | | | | 18.10 | | | | 194 | | | | 1.97 | | | | 1.97 | | | | (.40 | ) |
| Year ended 9/30/2009 | | | 27.43 | | | | .01 | | | | 1.50 | | | | 1.51 | | | | - | | | | - | | | | - | | | | 28.94 | | | | 5.54 | | | | 155 | | | | 2.04 | | | | 2.03 | | | | .02 | |
| Year ended 9/30/2008 | | | 45.92 | | | | (.01 | ) | | | (13.89 | ) | | | (13.90 | ) | | | (.42 | ) | | | (4.17 | ) | | | (4.59 | ) | | | 27.43 | | | | (33.36 | ) | | | 140 | | | | 1.93 | | | | 1.86 | | | | (.04 | ) |
| Year ended 9/30/2007 | | | 37.77 | | | | (.01 | ) | | | 12.13 | | | | 12.12 | | | | (.36 | ) | | | (3.61 | ) | | | (3.97 | ) | | | 45.92 | | | | 34.23 | | | | 188 | �� | | | 1.92 | | | | 1.86 | | | | (.02 | ) |
| Year ended 9/30/2006 | | | 33.94 | | | | (.07 | ) | | | 4.83 | | | | 4.76 | | | | (.25 | ) | | | (.68 | ) | | | (.93 | ) | | | 37.77 | | | | 14.27 | | | | 115 | | | | 1.96 | | | | 1.90 | | | | (.19 | ) |
| Class 529-E: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | | 29.70 | | | | .04 | | | | 5.50 | | | | 5.54 | | | | (.13 | ) | | | - | | | | (.13 | ) | | | 35.11 | | | | 18.71 | | | | 31 | | | | 1.46 | | | | 1.46 | | | | .11 | |
| Year ended 9/30/2009 | | | 28.00 | | | | .12 | | | | 1.58 | | | | 1.70 | | | | - | | | | - | | | | - | | | | 29.70 | | | | 6.07 | | | | 25 | | | | 1.52 | | | | 1.51 | | | | .54 | |
| Year ended 9/30/2008 | | | 46.76 | | | | .18 | | | | (14.15 | ) | | | (13.97 | ) | | | (.62 | ) | | | (4.17 | ) | | | (4.79 | ) | | | 28.00 | | | | (33.01 | ) | | | 22 | | | | 1.42 | | | | 1.35 | | | | .47 | |
| Year ended 9/30/2007 | | | 38.40 | | | | .21 | | | | 12.33 | | | | 12.54 | | | | (.57 | ) | | | (3.61 | ) | | | (4.18 | ) | | | 46.76 | | | | 34.93 | | | | 30 | | | | 1.41 | | | | 1.35 | | | | .49 | |
| Year ended 9/30/2006 | | | 34.42 | | | | .12 | | | | 4.89 | | | | 5.01 | | | | (.35 | ) | | | (.68 | ) | | | (1.03 | ) | | | 38.40 | | | | 14.86 | | | | 18 | | | | 1.44 | | | | 1.37 | | | | .34 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class 529-F-1: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | $ | 30.20 | | | $ | .20 | | | $ | 5.59 | | | $ | 5.79 | | | $ | (.27 | ) | | $ | - | | | $ | (.27 | ) | | $ | 35.72 | | | | 19.31 | % | | $ | 47 | | | | .95 | % | | | .95 | % | | | .62 | % |
| Year ended 9/30/2009 | | | 28.33 | | | | .24 | | | | 1.63 | | | | 1.87 | | | | - | | | | - | | | | - | | | | 30.20 | | | | 6.60 | | | | 35 | | | | 1.02 | | | | 1.01 | | | | 1.04 | |
| Year ended 9/30/2008 | | | 47.24 | | | | .37 | | | | (14.28 | ) | | | (13.91 | ) | | | (.83 | ) | | | (4.17 | ) | | | (5.00 | ) | | | 28.33 | | | | (32.66 | ) | | | 30 | | | | .92 | | | | .85 | | | | .98 | |
| Year ended 9/30/2007 | | | 38.77 | | | | .42 | | | | 12.44 | | | | 12.86 | | | | (.78 | ) | | | (3.61 | ) | | | (4.39 | ) | | | 47.24 | | | | 35.56 | | | | 35 | | | | .91 | | | | .85 | | | | .98 | |
| Year ended 9/30/2006 | | | 34.64 | | | | .31 | | | | 4.93 | | | | 5.24 | | | | (.43 | ) | | | (.68 | ) | | | (1.11 | ) | | | 38.77 | | | | 15.44 | | | | 19 | | | | .94 | | | | .87 | | | | .83 | |
| Class R-1: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | | 29.05 | | | | (.09 | ) | | | 5.39 | | | | 5.30 | | | | (.03 | ) | | | - | | | | (.03 | ) | | | 34.32 | | | | 18.25 | | | | 43 | | | | 1.87 | | | | 1.87 | | | | (.30 | ) |
| Year ended 9/30/2009 | | | 27.51 | | | | .02 | | | | 1.52 | | | | 1.54 | | | | - | | | | - | | | | - | | | | 29.05 | | | | 5.60 | | | | 36 | | | | 1.94 | | | | 1.93 | | | | .11 | |
| Year ended 9/30/2008 | | | 46.04 | | | | .02 | | | | (13.91 | ) | | | (13.89 | ) | | | (.47 | ) | | | (4.17 | ) | | | (4.64 | ) | | | 27.51 | | | | (33.29 | ) | | | 28 | | | | 1.84 | | | | 1.77 | | | | .05 | |
| Year ended 9/30/2007 | | | 37.89 | | | | .01 | | | | 12.17 | | | | 12.18 | | | | (.42 | ) | | | (3.61 | ) | | | (4.03 | ) | | | 46.04 | | | | 34.32 | | | | 38 | | | | 1.88 | | | | 1.80 | | | | .03 | |
| Year ended 9/30/2006 | | | 34.07 | | | | (.04 | ) | | | 4.83 | | | | 4.79 | | | | (.29 | ) | | | (.68 | ) | | | (.97 | ) | | | 37.89 | | | | 14.31 | | | | 21 | | | | 1.92 | | | | 1.82 | | | | (.11 | ) |
| Class R-2: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | | 29.03 | | | | (.11 | ) | | | 5.38 | | | | 5.27 | | | | - | | | | - | | | | - | | | | 34.30 | | | | 18.19 | | | | 712 | | | | 1.93 | | | | 1.93 | | | | (.37 | ) |
| Year ended 9/30/2009 | | | 27.55 | | | | (.02 | ) | | | 1.50 | | | | 1.48 | | | | - | | | | - | | | | - | | | | 29.03 | | | | 5.37 | | | | 603 | | | | 2.15 | | | | 2.14 | | | | (.09 | ) |
| Year ended 9/30/2008 | | | 46.13 | | | | (.01 | ) | | | (13.95 | ) | | | (13.96 | ) | | | (.45 | ) | | | (4.17 | ) | | | (4.62 | ) | | | 27.55 | | | | (33.36 | ) | | | 494 | | | | 1.94 | | | | 1.86 | | | | (.04 | ) |
| Year ended 9/30/2007 | | | 37.93 | | | | .03 | | | | 12.18 | | | | 12.21 | | | | (.40 | ) | | | (3.61 | ) | | | (4.01 | ) | | | 46.13 | | | | 34.36 | | | | 673 | | | | 1.93 | | | | 1.77 | | | | .06 | |
| Year ended 9/30/2006 | | | 34.09 | | | | (.03 | ) | | | 4.83 | | | | 4.80 | | | | (.28 | ) | | | (.68 | ) | | | (.96 | ) | | | 37.93 | | | | 14.35 | | | | 414 | | | | 2.06 | | | | 1.80 | | | | (.09 | ) |
| Class R-3: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | | 29.64 | | | | .04 | | | | 5.49 | | | | 5.53 | | | | (.14 | ) | | | - | | | | (.14 | ) | | | 35.03 | | | | 18.71 | | | | 667 | | | | 1.44 | | | | 1.44 | | | | .13 | |
| Year ended 9/30/2009 | | | 27.94 | | | | .12 | | | | 1.58 | | | | 1.70 | | | | - | | | | - | | | | - | | | | 29.64 | | | | 6.05 | | | | 534 | | | | 1.53 | | | | 1.51 | | | | .53 | |
| Year ended 9/30/2008 | | | 46.68 | | | | .18 | | | | (14.12 | ) | | | (13.94 | ) | | | (.63 | ) | | | (4.17 | ) | | | (4.80 | ) | | | 27.94 | | | | (32.99 | ) | | | 435 | | | | 1.42 | | | | 1.35 | | | | .48 | |
| Year ended 9/30/2007 | | | 38.34 | | | | .20 | | | | 12.31 | | | | 12.51 | | | | (.56 | ) | | | (3.61 | ) | | | (4.17 | ) | | | 46.68 | | | | 34.88 | | | | 555 | | | | 1.42 | | | | 1.35 | | | | .47 | |
| Year ended 9/30/2006 | | | 34.39 | | | | .11 | | | | 4.87 | | | | 4.98 | | | | (.35 | ) | | | (.68 | ) | | | (1.03 | ) | | | 38.34 | | | | 14.82 | | | | 319 | | | | 1.49 | | | | 1.42 | | | | .30 | |
| Class R-4: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | | 30.12 | | | | .15 | | | | 5.58 | | | | 5.73 | | | | (.25 | ) | | | - | | | | (.25 | ) | | | 35.60 | | | | 19.15 | | | | 486 | | | | 1.09 | | | | 1.09 | | | | .48 | |
| Year ended 9/30/2009 | | | 28.29 | | | | .20 | | | | 1.63 | | | | 1.83 | | | | - | | | | - | | | | - | | | | 30.12 | | | | 6.47 | | | | 378 | | | | 1.14 | | | | 1.13 | | | | .88 | |
| Year ended 9/30/2008 | | | 47.20 | | | | .32 | | | | (14.29 | ) | | | (13.97 | ) | | | (.77 | ) | | | (4.17 | ) | | | (4.94 | ) | | | 28.29 | | | | (32.78 | ) | | | 236 | | | | 1.07 | | | | 1.01 | | | | .84 | |
| Year ended 9/30/2007 | | | 38.73 | | | | .35 | | | | 12.45 | | | | 12.80 | | | | (.72 | ) | | | (3.61 | ) | | | (4.33 | ) | | | 47.20 | | | | 35.41 | | | | 259 | | | | 1.06 | | | | 1.00 | | | | .82 | |
| Year ended 9/30/2006 | | | 34.68 | | | | .25 | | | | 4.91 | | | | 5.16 | | | | (.43 | ) | | | (.68 | ) | | | (1.11 | ) | | | 38.73 | | | | 15.20 | | | | 126 | | | | 1.11 | | | | 1.04 | | | | .67 | |
| Class R-5: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | | 30.60 | | | | .26 | | | | 5.66 | | | | 5.92 | | | | (.31 | ) | | | - | | | | (.31 | ) | | | 36.21 | | | | 19.50 | | | | 347 | | | | .78 | | | | .78 | | | | .79 | |
| Year ended 9/30/2009 | | | 28.64 | | | | .28 | | | | 1.68 | | | | 1.96 | | | | - | | | | - | | | | - | | | | 30.60 | | | | 6.84 | | | | 260 | | | | .82 | | | | .80 | | | | 1.26 | |
| Year ended 9/30/2008 | | | 47.70 | | | | .44 | | | | (14.45 | ) | | | (14.01 | ) | | | (.88 | ) | | | (4.17 | ) | | | (5.05 | ) | | | 28.64 | | | | (32.57 | ) | | | 440 | | | | .77 | | | | .70 | | | | 1.17 | |
| Year ended 9/30/2007 | | | 39.10 | | | | .48 | | | | 12.56 | | | | 13.04 | | | | (.83 | ) | | | (3.61 | ) | | | (4.44 | ) | | | 47.70 | | | | 35.77 | | | | 403 | | | | .77 | | | | .71 | | �� | | 1.11 | |
| Year ended 9/30/2006 | | | 34.93 | | | | .36 | | | | 4.97 | | | | 5.33 | | | | (.48 | ) | | | (.68 | ) | | | (1.16 | ) | | | 39.10 | | | | 15.60 | | | | 216 | | | | .80 | | | | .74 | | | | .97 | |
| Class R-6: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended 9/30/2010 | | | 30.31 | | | | .27 | | | | 5.62 | | | | 5.89 | | | | (.31 | ) | | | - | | | | (.31 | ) | | | 35.89 | | | | 19.57 | | | | 411 | | | | .73 | | | | .73 | | | | .84 | |
| Period from 5/1/2009 to 9/30/2009 | | | 22.33 | | | | .13 | | | | 7.85 | | | | 7.98 | | | | - | | | | - | | | | - | | | | 30.31 | | | | 35.74 | | | | 317 | | | | .33 | | | | .33 | | | | .51 | |
