Untitled Document

 

 

 

New World Fund,® Inc.

Part B
Statement of Additional Information

January 1, 2021

This document is not a prospectus but should be read in conjunction with the current prospectus of New World Fund, Inc. (the “fund”) dated January 1, 2021. You may obtain a prospectus from your financial professional, by calling American Funds Service Company® at (800) 421-4225 or by writing to the fund at the following address:

New World Fund, Inc.
Attention: Secretary

333 South Hope Street
Los Angeles, California 90071

Certain privileges and/or services described below may not be available to all shareholders (including shareholders who purchase shares at net asset value through eligible retirement plans) depending on the shareholder’s investment dealer or retirement plan recordkeeper. Please see your financial professional, investment dealer, plan recordkeeper or employer for more information.

           
Class A NEWFX Class 529-A CNWAX Class R-1 RNWAX
Class C NEWCX Class 529-C CNWCX Class R-2 RNWBX
Class T TNWFX Class 529-E CNWEX Class R-2E RNEBX
Class F-1 NWFFX Class 529-T TWNFX Class R-3 RNWCX
Class F-2 NFFFX Class 529-F-1 CNWFX Class R-4 RNWEX
Class F-3 FNWFX Class 529-F-2 FNFWX Class R-5E RNWHX
    Class 529-F-3 FWWNX Class R-5 RNWFX
        Class R-6 RNWGX

 

Table of Contents

   
Item Page no.
   
Certain investment limitations and guidelines 2
Description of certain securities, investment techniques and risks 3
Fund policies 25
Management of the fund 27
Execution of portfolio transactions 55
Disclosure of portfolio holdings 59
Price of shares 61
Taxes and distributions 64
Purchase and exchange of shares 67
Sales charges 72
Sales charge reductions and waivers 75
Selling shares 80
Shareholder account services and privileges 81
General information 84
Appendix 94

Investment portfolio
Financial statements

New World Fund — Page 1

Certain investment limitations and guidelines

The following limitations and guidelines are considered at the time of purchase, under normal circumstances, and are based on a percentage of the fund’s net assets (excluding, for the avoidance of doubt, collateral held in connection with securities lending activities) unless otherwise noted. This summary is not intended to reflect all of the fund’s investment limitations.

General

· The fund will invest at least 35% of its assets in equity and debt securities of issuers based primarily in qualified countries with developing economies and/or markets. The prospectus contains information on factors considered in determining whether a country is qualified, as well as information on the qualified developing countries in which the fund may currently invest.

· In determining the domicile of an issuer, the fund’s investment adviser will consider the domicile determination of a leading provider of global indexes, such as Morgan Stanley Capital International, and may also take into account such factors as where the issuer’s securities are listed and where the issuer is legally organized, maintains principal corporate offices, conducts its principal operations and/or generates revenues.

Equity securities

· The fund may invest its assets in equity securities of any company, regardless of where it is based, if the fund’s investment adviser determines that a significant portion of its assets or revenues (generally 20% or more) is attributable to developing countries.

Debt instruments

· The fund may invest in nonconvertible debt securities, including government bonds and securities rated Ba1 or below and BB+ or below by Nationally Recognized Statistical Rating Organizations designated by the fund’s investment adviser or unrated but determined to be of equivalent quality, of issuers primarily based in qualified countries with developing economies and/or markets, or of issuers that the fund’s investment adviser determines have a significant portion of their assets or revenues (generally 20% or more) attributable to developing countries. The fund will generally purchase debt securities considered consistent with its objective of long-term capital appreciation. The fund currently intends to look to the ratings from Moody’s Investors Service, Standard & Poor’s Ratings Services and Fitch Ratings. If rating agencies differ, securities will be considered to have received the highest of these ratings, consistent with the fund's investment policies.

* * * * * *

The fund may experience difficulty liquidating certain portfolio securities during significant market declines or periods of heavy redemptions.

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Description of certain securities, investment techniques and risks

The descriptions below are intended to supplement the material in the prospectus under “Investment objective, strategies and risks.”

Market conditions – The value of, and the income generated by, the securities in which the fund invests may decline, sometimes rapidly or unpredictably, due to factors affecting certain issuers, particular industries or sectors, or the overall markets. Rapid or unexpected changes in market conditions could cause the fund to liquidate its holdings at inopportune times or at a loss or depressed value. The value of a particular holding may decrease due to developments related to that issuer, but also due to general market conditions, including real or perceived economic developments such as changes in interest rates, credit quality, inflation, or currency rates, or generally adverse investor sentiment. The value of a holding may also decline due to factors that negatively affect a particular industry or sector, such as labor shortages, increased production costs, or competitive conditions.

Global economies and financial markets are highly interconnected, and conditions and events in one country, region or financial market may adversely impact issuers in a different country, region or financial market. Furthermore, local, regional and global events such as war, acts of terrorism, social unrest, natural disasters, the spread of infectious illness or other public health threats could also adversely impact issuers, markets and economies, including in ways that cannot necessarily be foreseen. The fund could be negatively impacted if the value of a portfolio holding were harmed by such conditions or events.

Significant market disruptions, such as those caused by pandemics, natural or environmental disasters, war, acts of terrorism, or other events, can adversely affect local and global markets and normal market operations. Market disruptions may exacerbate political, social, and economic risks. Additionally, market disruptions may result in increased market volatility; regulatory trading halts; closure of domestic or foreign exchanges, markets, or governments; or market participants operating pursuant to business continuity plans for indeterminate periods of time. Such events can be highly disruptive to economies and markets and significantly impact individual companies, sectors, industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value of the fund’s investments and operation of the fund. These events could disrupt businesses that are integral to the fund’s operations or impair the ability of employees of fund service providers to perform essential tasks on behalf of the fund.

Governmental and quasi-governmental authorities may take a number of actions designed to support local and global economies and the financial markets in response to economic disruptions. Such actions may include a variety of significant fiscal and monetary policy changes, including, for example, direct capital infusions into companies, new monetary programs and significantly lower interest rates. These actions may result in significant expansion of public debt and may result in greater market risk. Additionally, an unexpected or quick reversal of these policies, or the ineffectiveness of these policies, could negatively impact overall investor sentiment and further increase volatility in securities markets.

Equity securities — Equity securities represent an ownership position in a company. Equity securities held by the fund typically consist of common stocks and may also include securities with equity conversion or purchase rights. The prices of equity securities fluctuate based on, among other things, events specific to their issuers and market, economic and other conditions. For example, prices of these securities can be affected by financial contracts held by the issuer or third parties (such as derivatives) relating to the security or other assets or indices. Holders of equity securities are not creditors of the issuer. If an issuer liquidates, holders of equity securities are entitled to their pro rata share of the issuer’s assets, if any, after creditors (including the holders of fixed income securities and senior equity securities) are paid.

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There may be little trading in the secondary market for particular equity securities, which may adversely affect the fund’s ability to value accurately or dispose of such equity securities. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the value and/or liquidity of equity securities.

The growth-oriented, equity-type securities generally purchased by the fund may involve large price swings and potential for loss particularly in the case of smaller capitalization stocks.

Investing in smaller capitalization stocks — The fund may invest in the stocks of smaller capitalization companies. Investing in smaller capitalization stocks can involve greater risk than is customarily associated with investing in stocks of larger, more established companies. For example, smaller companies often have limited product lines, limited operating histories, limited markets or financial resources, may be dependent on one or a few key persons for management and can be more susceptible to losses. Also, their securities may be less liquid or illiquid (and therefore have to be sold at a discount from current prices or sold in small lots over an extended period of time), may be followed by fewer investment research analysts and may be subject to wider price swings, thus creating a greater chance of loss than securities of larger capitalization companies.

Investing outside the U.S. — Securities of issuers domiciled outside the United States, or with significant operations or revenues outside the United States, may lose value because of adverse political, social, economic or market developments (including social instability, regional conflicts, terrorism and war) in the countries or regions in which the issuers are domiciled, operate or generate revenue. These issuers may also be more susceptible to actions of foreign governments such as the imposition of price controls or punitive taxes that could adversely impact the value of these securities. To the extent the fund invests in securities that are denominated in currencies other than the U.S. dollar, these securities may also lose value due to changes in foreign currency exchange rates against the U.S. dollar and/or currencies of other countries. Securities markets in certain countries may be more volatile or less liquid than those in the United States. Investments outside the United States may also be subject to different accounting practices and different regulatory, legal and reporting standards, and may be more difficult to value, than those in the United States. In addition, the value of investments outside the United States may be reduced by foreign taxes, including foreign withholding taxes on interest and dividends. Further, there may be increased risks of delayed settlement of securities purchased or sold by the fund. The risks of investing outside the United States may be heightened in connection with investments in developing countries.

Additional costs could be incurred in connection with the fund’s investment activities outside the United States. Brokerage commissions may be higher outside the United States, and the fund will bear certain expenses in connection with its currency transactions. Furthermore, increased custodian costs may be associated with maintaining assets in certain jurisdictions.

Investing in developing countries — Investing in developing countries may involve risks in addition to and greater than those generally associated with investing in the securities markets of developed countries. For instance, developing countries may have less developed legal and accounting systems than those in developed countries. The governments of these countries may be less stable and more likely to impose capital controls, nationalize a company or industry, place restrictions on foreign ownership and on withdrawing sale proceeds of securities from the country, and/or impose punitive taxes that could adversely affect the prices of securities. In addition, the economies of these countries may be dependent on relatively few industries that are more susceptible to local and global changes. Securities markets in these countries can also be relatively small and have substantially lower trading volumes. As a result, securities issued in these countries may be more volatile and less liquid, and may be more difficult to value, than securities issued in countries with more developed economies and/or markets. Additionally, there may be increased settlement risks for transactions in local securities.

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Although there is no universally accepted definition, the investment adviser generally considers a developing country to be a country that is in the earlier stages of its industrialization cycle with a low per capita gross domestic product (“GDP”) and a low market capitalization to GDP ratio relative to those in the United States and the European Union, and would include markets commonly referred to as “frontier markets.”

Certain risk factors related to developing countries

Currency fluctuations — Certain developing countries’ currencies have experienced and in the future may experience significant declines against the U.S. dollar. For example, if the U.S. dollar appreciates against foreign currencies, the value of the fund’s developing countries securities holdings would generally depreciate and vice versa. Further, the fund may lose money due to losses and other expenses incurred in converting various currencies to purchase and sell securities valued in currencies other than the U.S. dollar, as well as from currency restrictions, exchange control regulation and currency devaluations.

Government regulation — Certain developing countries lack uniform accounting, auditing and financial reporting and disclosure standards, have less governmental supervision of financial markets than in the United States, and do not honor legal rights enjoyed in the United States. Certain governments may be more unstable and present greater risks of nationalization or restrictions on foreign ownership of local companies. Repatriation of investment income, capital and the proceeds of sales by foreign investors may require governmental registration and/or approval in some developing countries. While the fund will only invest in markets where these restrictions are considered acceptable by the investment adviser, a country could impose new or additional repatriation restrictions after the fund’s investment. If this happened, the fund’s response might include, among other things, applying to the appropriate authorities for a waiver of the restrictions or engaging in transactions in other markets designed to offset the risks of decline in that country. Such restrictions will be considered in relation to the fund’s liquidity needs and other factors. Further, some attractive equity securities may not be available to the fund if foreign shareholders already hold the maximum amount legally permissible.

While government involvement in the private sector varies in degree among developing countries, such involvement may in some cases include government ownership of companies in certain sectors, wage and price controls or imposition of trade barriers and other protectionist measures. With respect to any developing country, there is no guarantee that some future economic or political crisis will not lead to price controls, forced mergers of companies, expropriation, or creation of government monopolies to the possible detriment of the fund’s investments.

Fluctuations in inflation rates — Rapid fluctuations in inflation rates may have negative impacts on the economies and securities markets of certain emerging market countries.

Less developed securities markets — Developing countries may have less well-developed securities markets and exchanges. These markets have lower trading volumes than the securities markets of more developed countries and may be unable to respond effectively to increases in trading volume. Consequently, these markets may be substantially less liquid than those of more developed countries, and the securities of issuers located in these markets may have limited marketability. These factors may make prompt liquidation of substantial portfolio holdings difficult or impossible at times.

Settlement risks — Settlement systems in developing countries are generally less well organized than those of developed markets. Supervisory authorities may also be unable to

New World Fund — Page 5

apply standards comparable to those in developed markets. Thus, there may be risks that settlement may be delayed and that cash or securities belonging to the fund may be in jeopardy because of failures of or defects in the systems. In particular, market practice may require that payment be made before receipt of the security being purchased or that delivery of a security be made before payment is received. In such cases, default by a broker or bank (the “counterparty”) through whom the transaction is effected might cause the fund to suffer a loss. The fund will seek, where possible, to use counterparties whose financial status is such that this risk is reduced. However, there can be no certainty that the fund will be successful in eliminating this risk, particularly as counterparties operating in developing countries frequently lack the standing or financial resources of those in developed countries. There may also be a danger that, because of uncertainties in the operation of settlement systems in individual markets, competing claims may arise with respect to securities held by or to be transferred to the fund.

Insufficient market information — The fund may encounter problems assessing investment opportunities in certain developing countries in light of limitations on available information and different accounting, auditing and financial reporting standards. In such circumstances, the fund’s investment adviser will seek alternative sources of information, and to the extent the investment adviser is not satisfied with the sufficiency of the information obtained with respect to a particular market or security, the fund will not invest in such market or security.

Taxation — Taxation of dividends, interest and capital gains received by the fund varies among developing countries and, in some cases, is comparatively high. In addition, developing countries typically have less well-defined tax laws and procedures and such laws may permit retroactive taxation so that the fund could become subject in the future to local tax liability that it had not reasonably anticipated in conducting its investment activities or valuing its assets.

Litigation — The fund and its shareholders may encounter substantial difficulties in obtaining and enforcing judgments against individuals residing outside of the U.S. and companies domiciled outside of the U.S.

Fraudulent securities — Securities purchased by the fund may subsequently be found to be fraudulent or counterfeit, resulting in a loss to the fund.

Investing through Stock Connect — The fund may invest in China A-shares of certain Chinese companies listed and traded on the Shanghai Stock Exchange and on the Shenzhen Stock Exchange (together, the “Exchanges”) through the Shanghai-Hong Kong Stock Connect Program and the Shenzhen-Hong Kong Stock Connect Program, respectively (together, “Stock Connect”). Stock Connect is a securities trading and clearing program developed by the Exchange of Hong Kong, the Exchanges and the China Securities Depository and Clearing Corporation Limited. Stock Connect facilitates foreign investment in the People’s Republic of China (“PRC”) via brokers in Hong Kong. Persons investing through Stock Connect are subject to PRC regulations and Exchange listing rules, among others. These could include limitations on or suspension of trading. These regulations are relatively new and subject to changes which could adversely impact the fund’s rights with respect to the securities. As Stock Connect is relatively new, there are no assurances that the necessary systems to run the program will function properly. Stock Connect is subject to aggregate and daily quota limitations on purchases and the fund may experience delays in transacting via Stock Connect. The fund’s shares are held in an omnibus account and registered in nominee name. Please also see the sections on risks relating to investing outside the U.S. and investing in developing countries.

Synthetic local access instruments — Participation notes, market access warrants and other similar structured investment vehicles (collectively, “synthetic local access instruments”) are instruments used by investors to obtain exposure to equity investments in local markets where direct ownership by

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foreign investors is not permitted or is otherwise restricted by local law. Synthetic local access instruments, which are generally structured and sold over-the-counter by a local branch of a bank or broker-dealer that is permitted to purchase equity securities in the local market, are designed to replicate exposure to one or more underlying equity securities. The price and performance of a synthetic local access instrument are normally intended to track the price and performance of the underlying equity assets as closely as possible. However, there can be no assurance that the results of synthetic local access instruments will replicate exactly the performance of the underlying securities due to transaction costs, taxes and other fees and expenses. The holder of a synthetic local access instrument may also be entitled to receive any dividends paid in connection with the underlying equity assets, but usually does not receive voting rights as it would if such holder directly owned the underlying assets.

Investments in synthetic local access instruments involve the same risks associated with a direct investment in the shares of the companies the instruments seek to replicate, including, in particular, the risks associated with investing outside the United States. Synthetic local access instruments also involve risks that are in addition to the risks normally associated with a direct investment in the underlying equity securities. For instance, synthetic local access instruments represent unsecured, unsubordinated contractual obligations of the banks or broker-dealers that issue them. Consequently, a purchaser of a synthetic local access instrument relies on the creditworthiness of such a bank or broker-dealer counterparty and has no rights under the instrument against the issuer of the underlying equity securities. Additionally, there is no guarantee that a liquid market for a synthetic local access instrument will exist or that the issuer of the instrument will be willing to repurchase the instrument when an investor wishes to sell it.

Loan assignments and participations — The fund may invest in loans or other forms of indebtedness that represent interests in amounts owed by corporations or other borrowers (collectively "borrowers"). The investment adviser defines debt securities to include investments in loans, such as loan assignments and participations. Most corporate loans are variable or floating rate obligations.

Some loans may represent revolving credit facilities or delayed funding loans, in which a lender agrees to make loans up to a maximum amount upon demand by the borrower during a specified term. These commitments may have the effect of requiring the fund to increase its investment in a company at a time when it might not otherwise decide to do so (including at a time when the company’s financial condition makes it unlikely that such amounts will be repaid). To the extent that the fund is committed to advance additional funds, the fund will segregate assets determined to be liquid in an amount sufficient to meet such commitments.

Some loans may represent debtor-in-possession financings (commonly known as “DIP financings”). DIP financings are arranged when an entity seeks the protections of the bankruptcy court under Chapter 11 of the U.S. Bankruptcy Code. These financings allow the entity to continue its business operations while reorganizing under Chapter 11. Such financings constitute senior liens on unencumbered collateral (i.e., collateral not subject to other creditors’ claims). There is a risk that the entity will not emerge from Chapter 11 and will be forced to liquidate its assets under Chapter 7 of the U.S. Bankruptcy Code. In the event of liquidation, the fund’s only recourse will be against the collateral securing the DIP financing.

The fund normally acquires loan obligations through an assignment from another lender, but may also acquire loan obligations by purchasing a participation interest from a lender or other holder of the interest. When the fund purchases assignments, it acquires direct contractual rights against the borrower on the loan. The fund acquires the right to receive principal and interest payments directly from the borrower and to enforce its rights as a lender directly against the borrower. However, because assignments are arranged through private negotiations between potential assignees and potential assignors, the rights and obligations acquired by a fund as the purchaser of an assignment may differ from, and be more limited than, those held by the assigning lender. Loan assignments are

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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 purchase of a loan. Risks may also arise due to the ability of the agent to meet its obligations under the loan agreement.

Loan participations are loans or other direct debt instruments that are interests in amounts owed by the borrower to another party. The fund will have the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the participation and only upon receipt by the lender of the payments from the borrower. In connection with purchasing participations, the fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement and may not directly benefit from any collateral supporting the loan. As a result, the fund will be subject to the credit risk of both the borrower and the lender that is selling the participation. In the event of the insolvency of the lender selling a participation, a fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower.

Loan assignments and participations are generally subject to legal or contractual restrictions on resale and are not currently listed on any securities exchange or automatic quotation system. Risks may arise due to delayed settlements of loan assignments and participations. If there is no active secondary market for a particular loan, it may be difficult for the investment adviser to sell its interest in such loan at a price that is acceptable to it and to obtain pricing information on such loan.

Investments in loan participations and assignments present the possibility that the fund could be held liable as a co-lender under emerging legal theories of lender liability. In addition, if the loan is foreclosed, the fund could be part owner of any collateral and could bear the costs and liabilities of owning and disposing of the collateral. In addition, some loan participations and assignments may not be rated by major rating agencies and may not be protected by securities laws.

Real estate investment trusts — Real estate investment trusts ("REITs"), which primarily invest in real estate or real estate-related loans, may issue equity or debt securities. Equity REITs own real estate properties, while mortgage REITs hold construction, development and/or long-term mortgage loans. The values of REITs may be affected by changes in the value of the underlying property of the trusts, the creditworthiness of the issuer, property taxes, interest rates, tax laws and regulatory requirements, such as those relating to the environment. Both types of REITs are dependent upon management skill and the cash flows generated by their holdings, the real estate market in general and the possibility of failing to qualify for any applicable pass-through tax treatment or failing to maintain any applicable exemptive status afforded under relevant laws.

Currency transactions — The fund may enter into currency transactions on a spot (i.e., cash) basis at the prevailing rate in the currency exchange market to provide for the purchase or sale of a currency needed to purchase a security denominated in such currency. In addition, the fund may enter into forward currency contracts to protect against changes in currency exchange rates, to increase exposure to a particular foreign currency, to shift exposure to currency fluctuations from one currency to another or to seek to increase returns. A forward currency contract is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. Some forward currency contracts, called non-deliverable forwards or NDFs, do not call for physical delivery of the currency and are instead settled through cash payments. Forward currency contracts are typically privately negotiated and traded in the interbank market between large commercial banks (or other currency traders) and their customers. Although forward contracts entered into by the fund will typically involve the purchase or sale of a currency against the U.S. dollar, the fund also may purchase or sell a non-U.S. currency against another non-U.S. currency.

Currency exchange rates generally are determined by forces of supply and demand in the foreign exchange markets and the relative merits of investment in different countries as viewed from an

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international perspective. Currency exchange rates, as well as foreign currency transactions, can also be affected unpredictably by intervention by U.S. or foreign governments or central banks or by currency controls or political developments in the United States or abroad. Such intervention or other events could prevent the fund from entering into foreign currency transactions, force the fund to exit such transactions at an unfavorable time or price or result in penalties to the fund, any of which may result in losses to the fund.

Generally, the fund will not attempt to protect against all potential changes in exchange rates and the use of forward contracts does not eliminate the risk of fluctuations in the prices of the underlying securities. If the value of the underlying securities declines or the amount of the fund’s commitment increases because of changes in exchange rates, the fund may need to provide additional cash or securities to satisfy its commitment under the forward contract. The fund is also subject to the risk that it may be delayed or prevented from obtaining payments owed to it under the forward contract as a result of the insolvency or bankruptcy of the counterparty with which it entered into the forward contract or the failure of the counterparty to comply with the terms of the contract.

The realization of gains or losses on foreign currency transactions will usually be a function of the investment adviser’s ability to accurately estimate currency market movements. Entering into forward currency transactions may change the fund’s exposure to currency exchange rates and could result in losses to the fund if currencies do not perform as expected by the fund’s investment adviser. For example, if the fund’s investment adviser increases the fund’s exposure to a foreign currency using forward contracts and that foreign currency’s value declines, the fund may incur a loss. In addition, while entering into forward currency transactions could minimize the risk of loss due to a decline in the value of the hedged currency, it could also limit any potential gain that may result from an increase in the value of the currency. See also the “Derivatives” section under "Description of certain securities, investment techniques and risks" for a general description of investment techniques and risks relating to derivatives, including certain currency forwards.

Forward currency contracts may give rise to leverage, or exposure to potential gains and losses in excess of the initial amount invested. Leverage magnifies gains and losses and could cause the fund to be subject to more volatility than if it had not been leveraged, thereby resulting in a heightened risk of loss. The fund will segregate liquid assets that will be marked to market daily to meet its forward contract commitments to the extent required by the U.S. Securities and Exchange Commission.

Forward currency transactions also may affect the character and timing of income, gain, or loss recognized by the fund for U.S. tax purposes. The use of forward currency contracts could result in the application of the mark-to-market provisions of the Internal Revenue Code and may cause an increase (or decrease) in the amount of taxable dividends paid by the fund.

Derivatives — In pursuing its investment objective, the fund may invest in derivative instruments. A derivative is a financial instrument, the value of which depends on, or is otherwise derived from, another underlying variable. Most often, the variable underlying a derivative is the price of a traded asset, such as a traditional cash security (e.g., a stock or bond), a currency or a commodity; however, the value of a derivative can be dependent on almost any variable, from the level of an index or a specified rate to the occurrence (or non-occurrence) of a credit event with respect to a specified reference asset. In addition to investing in forward currency contracts, as described above under “Currency transactions,” the fund may take positions in futures contracts, interest rate swaps and credit default swap indices, each of which is a derivative instrument described in greater detail below.

Derivative instruments may be distinguished by the manner in which they trade: some are standardized instruments that trade on an organized exchange while others are individually negotiated and traded in the over-the-counter (OTC) market. Derivatives also range broadly in complexity, from simple derivatives to more complex instruments. As a general matter, however, all

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derivatives — regardless of the manner in which they trade or their relative complexities — entail certain risks, some of which are different from, and potentially greater than, the risks associated with investing directly in traditional cash securities.

As is the case with traditional cash securities, derivative instruments are generally subject to counterparty credit risk; however, in some cases, derivatives may pose counterparty risks greater than those posed by cash securities. The use of derivatives involves the risk that a loss may be sustained by the fund as a result of the failure of the fund’s counterparty to make required payments or otherwise to comply with its contractual obligations. For some derivatives, though, the value of — and, in effect, the return on — the instrument may be dependent on both the individual credit of the fund’s counterparty and on the credit of one or more issuers of any underlying assets. If the fund does not correctly evaluate the creditworthiness of its counterparty and, where applicable, of issuers of any underlying reference assets, the fund’s investment in a derivative instrument may result in losses. Further, if a fund’s counterparty were to default on its obligations, the fund’s contractual remedies against such counterparty may be subject to applicable bankruptcy and insolvency laws, which could affect the fund’s rights as a creditor and delay or impede the fund’s ability to receive the net amount of payments that it is contractually entitled to receive.

The value of some derivative instruments in which the fund invests may be particularly sensitive to changes in prevailing interest rates, currency exchange rates or other market conditions. Like the fund’s other investments, the ability of the fund to successfully utilize such derivative instruments may depend in part upon the ability of the fund’s investment adviser to accurately forecast interest rates and other economic factors. The success of the fund’s derivative investment strategy will also depend on the investment adviser’s ability to assess and predict the impact of market or economic developments on the derivative instruments in which the fund invests, in some cases without having had the benefit of observing the performance of a derivative under all possible market conditions. If the investment adviser incorrectly forecasts such factors and has taken positions in derivative instruments contrary to prevailing market trends, or if the investment adviser incorrectly predicts the impact of developments on a derivative instrument, the fund could be exposed to the risk of loss.

Certain derivatives may also be subject to liquidity and valuation risks. The potential lack of a liquid secondary market for a derivative (and, particularly, for an OTC derivative) may cause difficulty in valuing or selling the instrument. If a derivative transaction is particularly large or if the relevant market is illiquid, as is often the case with many privately-negotiated OTC derivatives, the fund may not be able to initiate a transaction or to liquidate a position at an advantageous time or price. Particularly when there is no liquid secondary market for the fund’s derivative positions, the fund may encounter difficulty in valuing such illiquid positions. The value of a derivative instrument does not always correlate perfectly with its underlying asset, rate or index, and many derivatives, and OTC derivatives in particular, are complex and often valued subjectively. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to the fund.

Because certain derivative instruments may obligate the fund to make one or more potential future payments, which could significantly exceed the value of the fund’s initial investments in such instruments, derivative instruments may also have a leveraging effect on the fund’s portfolio. Certain derivatives have the potential for unlimited loss, irrespective of the size of the fund’s investment in the instrument. When a fund leverages its portfolio, investments in that fund will tend to be more volatile, resulting in larger gains or losses in response to market changes. In accordance with applicable regulatory requirements, the fund will generally segregate or earmark liquid assets, or enter into offsetting financial positions, to cover its obligations under derivative instruments, effectively limiting the risk of leveraging the fund’s portfolio. Because the fund is legally required to maintain asset coverage or offsetting positions in connection with leveraging derivative instruments, the fund’s investments in such derivatives may also require the fund to buy or sell portfolio securities at disadvantageous times or prices in order to comply with applicable requirements.

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Futures — The fund may enter into futures contracts to seek to manage the fund’s interest rate sensitivity by increasing or decreasing the duration of the fund or a portion of the fund’s portfolio. A futures contract is an agreement to buy or sell a security or other financial instrument (the “reference asset”) for a set price on a future date. Futures contracts are standardized, exchange-traded contracts, and, when a futures contract is bought or sold, the fund will incur brokerage fees and will be required to maintain margin deposits.

Unlike when the fund purchases or sells a security, such as a stock or bond, no price is paid or received by the fund upon the purchase or sale of a futures contract. When the fund enters into a futures contract, the fund is required to deposit with its futures broker, known as a futures commission merchant (FCM), a specified amount of liquid assets in a segregated account in the name of the FCM at the applicable derivatives clearinghouse or exchange. This amount, known as initial margin, is set by the futures exchange on which the contract is traded and may be significantly modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract, which is returned to the fund upon termination of the contract, assuming all contractual obligations have been satisfied. Additionally, on a daily basis, the fund pays or receives cash, or variation margin, equal to the daily change in value of the futures contract. Variation margin does not represent a borrowing or loan by the fund but is instead a settlement between the fund and the FCM of the amount one party would owe the other if the futures contract expired. In computing daily net asset value, the fund will mark-to-market its open futures positions. In the event of the bankruptcy or insolvency of an FCM that holds margin on behalf of the fund, the fund may be entitled to return of margin owed to it only in proportion to the amount received by the FCM’s other customers, potentially resulting in losses to the fund. An event of bankruptcy or insolvency at a clearinghouse or exchange holding initial margin could also result in losses for the fund.

When the fund invests in futures contracts and deposits margin with an FCM, the fund becomes subject to so-called “fellow customer” risk – that is, the risk that one or more customers of the FCM will default on their obligations and that the resulting losses will be so great that the FCM will default on its obligations and margin posted by one customer, such as the fund, will be used to cover a loss caused by a different defaulting customer. Applicable rules generally prohibit the use of one customer’s funds to meet the obligations of another customer and limit the ability of an FCM to use margin posed by non-defaulting customers to satisfy losses caused by defaulting customers. As a general matter, an FCM is required to use its own funds to meet a defaulting customer’s obligations. While a customer’s loss would likely need to be substantial before non-defaulting customers would be exposed to loss on account of fellow customer risk, applicable rules nevertheless permit the commingling of margin and do not limit the mutualization of customer losses from investment losses, custodial failures, fraud or other causes. If the loss is so great that, notwithstanding the application of an FCM’s own funds, there is a shortfall in the amount of customer funds required to be held in segregation, the FCM could default and be placed into bankruptcy. Under these circumstances, bankruptcy law provides that non-defaulting customers will share pro rata in any shortfall. A shortfall in customer segregated funds may also make the transfer of the accounts of non-defaulting customers to another FCM more difficult.

Although certain futures contracts, by their terms, require actual future delivery of and payment for the reference asset, in practice, most futures contracts are usually closed out before the delivery date by offsetting purchases or sales of matching futures contracts. Closing out an open futures contract purchase or sale is effected by entering into an offsetting futures contract sale or purchase, respectively, for the same aggregate amount of the identical reference asset and the same delivery date with the same FCM. If the offsetting purchase price is less than the original sale price (in each case taking into account transaction costs, including brokerage fees), the fund realizes a gain; if it is more, the fund realizes a loss. Conversely, if the

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offsetting sale price is more than the original purchase price (in each case taking into account transaction costs, including brokerage fees), the fund realizes a gain; if it is less, the fund realizes a loss.

The fund is generally required to segregate liquid assets equivalent to the fund’s outstanding obligations under each futures contract. With respect to long positions in futures contracts that are not legally required to cash settle, the fund will segregate or earmark liquid assets in an amount equal to the contract price the fund will be required to pay on settlement less the amount of margin deposited with an FCM. For short positions in futures contracts that are not legally required to cash settle, the fund will segregate or earmark liquid assets in an amount that, when added to the amounts deposited with an FCM as margin, equals the market value of the reference asset underlying the futures contract. With respect to futures contracts that are required to cash settle, however, the fund is permitted to segregate or earmark liquid assets in an amount that, when added to the amounts deposited with an FCM as margin, equals the fund’s daily marked-to-market (net) obligation under the contract (i.e., the daily market value of the contract itself), if any; in other words, the fund may set aside its daily net liability, if any, rather than the notional value of the futures contract. By segregating or earmarking assets equal only to its net obligation under cash-settled futures, the fund may be able to utilize these contracts to a greater extent than if the fund were required to segregate or earmark assets equal to the full contract price or current market value of the futures contract. Such segregation of assets is intended to ensure that the fund has assets available to satisfy its obligations with respect to futures contracts and to limit any potential leveraging of the fund’s portfolio. However, segregation of liquid assets will not limit the fund’s exposure to loss. To maintain a sufficient amount of segregated assets, the fund may also have to sell less liquid portfolio securities at disadvantageous prices, and the earmarking of liquid assets will have the effect of limiting the fund’s ability to otherwise invest those assets in other securities or instruments.

The value of a futures contract tends to increase and decrease in tandem with the value of its underlying reference asset. Purchasing futures contracts will, therefore, tend to increase the fund’s exposure to positive and negative price fluctuations in the reference asset, much as if the fund had purchased the reference asset directly. When the fund sells a futures contract, by contrast, the value of its futures position will tend to move in a direction contrary to the market for the reference asset. Accordingly, selling futures contracts will tend to offset both positive and negative market price changes, much as if the reference asset had been sold.

There is no assurance that a liquid market will exist for any particular futures contract at any particular time. Futures exchanges may establish daily price fluctuation limits for futures contracts and may halt trading if a contract’s price moves upward or downward more than the limit in a given day. On volatile trading days, when the price fluctuation limit is reached and a trading halt is imposed, it may be impossible to enter into new positions or close out existing positions. If the market for a futures contract is not liquid because of price fluctuation limits or other market conditions, the fund may be prevented from promptly liquidating unfavorable futures positions and the fund could be required to continue to hold a position until delivery or expiration regardless of changes in its value, potentially subjecting the fund to substantial losses. Additionally, the fund may not be able to take other actions or enter into other transactions to limit or reduce its exposure to the position. Under such circumstances, the fund would remain obligated to meet margin requirements until the position is cleared. As a result, the fund’s access to other assets held to cover its futures positions could also be impaired.

Although futures exchanges generally operate similarly in the United States and abroad, foreign futures exchanges may follow trading, settlement and margin procedures that are different than those followed by futures exchanges in the United States. Futures contracts traded outside the United States may not involve a clearing mechanism or related guarantees

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and may involve greater risk of loss than U.S.-traded contracts, including potentially greater risk of losses due to insolvency of a futures broker, exchange member, or other party that may owe initial or variation margin to the fund. Margin requirements on foreign futures exchanges may be different than those of futures exchanges in the United States, and, because initial and variation margin payments may be measured in foreign currency, a futures contract traded outside the United States may also involve the risk of foreign currency fluctuations.

Interest rate swaps — The fund may enter into interest rate swaps to seek to manage the interest rate sensitivity of the fund by increasing or decreasing the duration of the fund or a portion of the fund’s portfolio. An interest rate swap is an agreement between two parties to exchange or swap payments based on changes in an interest rate or rates. Typically, one interest rate is fixed and the other is based on a designated short-term interest rate such as the London Interbank Offered Rate (LIBOR), prime rate or other benchmark. Interest rate swaps generally do not involve the delivery of securities or other principal amounts. Rather, cash payments are exchanged by the parties based on the application of the designated interest rates to a notional amount, which is the predetermined dollar principal of the trade upon which payment obligations are computed. Accordingly, the fund’s current obligation or right under the swap agreement is generally equal to the net amount to be paid or received under the swap agreement based on the relative value of the position held by each party. The fund will generally segregate assets with a daily value at least equal to the excess, if any, of the fund’s accrued obligations under the swap agreement over the accrued amount the fund is entitled to receive under the agreement, less the value of any posted margin or collateral on deposit with respect to the position.

The use of interest rate swaps involves certain risks, including losses if interest rate changes are not correctly anticipated by the fund’s investment adviser. To the extent the fund enters into bilaterally negotiated swap transactions, the fund will enter into swap agreements only with counterparties that meet certain credit standards; however, if the counterparty’s creditworthiness deteriorates rapidly and the counterparty defaults on its obligations under the swap agreement or declares bankruptcy, the fund may lose any amount it expected to receive from the counterparty. Certain interest rate swap transactions are currently subject to mandatory central clearing or may be eligible for voluntary central clearing. Because clearing interposes a central clearinghouse as the ultimate counterparty to each participant’s swap, central clearing is intended to decrease (but not eliminate) counterparty risk relative to uncleared bilateral swaps. Additionally, the term of an interest rate swap can be days, months or years and, as a result, certain swaps may be less liquid than others.

Credit default swap indices — In order to assume exposure to a diversified portfolio of credits or to hedge against existing credit risks, the fund may invest in credit default swap indices, including CDX and iTraxx indices (collectively referred to as “CDSIs”). A CDSI is based on a portfolio of credit default swaps with similar characteristics, such as credit default swaps on high-yield bonds. In a typical CDSI transaction, one party — the protection buyer — is obligated to pay the other party — the protection seller — a stream of periodic payments over the term of the contract. If a credit event, such as a default or restructuring, occurs with respect to any of the underlying reference obligations, the protection seller must pay the protection buyer the loss on those credits. Also, if a restructuring credit event occurs in an iTraxx index, the fund as protection buyer may receive a single name credit default swap (CDS) contract representing the relevant constituent.

The fund may enter into a CDSI transaction as either protection buyer or protection seller. If the fund is a protection buyer, it would pay the counterparty a periodic stream of payments over the term of the contract and would not recover any of those payments if no credit events were to occur with respect to any of the underlying reference obligations. However, if a credit event did occur, the fund, as a protection buyer, would have the right to deliver the referenced

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debt obligations or a specified amount of cash, depending on the terms of the applicable agreement, and to receive the par value of such debt obligations from the counterparty protection seller. As a protection seller, the fund would receive fixed payments throughout the term of the contract if no credit events were to occur with respect to any of the underlying reference obligations. If a credit event were to occur, however, the value of any deliverable obligation received by the fund, coupled with the periodic payments previously received by the fund, may be less than the full notional value that the fund, as a protection seller, pays to the counterparty protection buyer, effectively resulting in a loss of value to the fund. Furthermore, as a protection seller, the fund would effectively add leverage to its portfolio because it would have investment exposure to the notional amount of the swap transaction.

The use of CDSI, like all other swap agreements, is subject to certain risks, including the risk that the fund’s counterparty will default on its obligations. If such a default were to occur, any contractual remedies that the fund might have may be subject to applicable bankruptcy laws, which could delay or limit the fund’s recovery. Thus, if the fund’s counterparty to a CDSI transaction defaults on its obligation to make payments thereunder, the fund may lose such payments altogether or collect only a portion thereof, which collection could involve substantial costs or delays. Certain CDSI transactions are subject to mandatory central clearing or may be eligible for voluntary central clearing. Because clearing interposes a central clearinghouse as the ultimate counterparty to each participant’s swap, central clearing is intended to decrease (but not eliminate) counterparty risk relative to uncleared bilateral swaps.

Additionally, when the fund invests in a CDSI as a protection seller, the fund will be indirectly exposed to the creditworthiness of issuers of the underlying reference obligations in the index. If the investment adviser to the fund does not correctly evaluate the creditworthiness of issuers of the underlying instruments on which the CDSI is based, the investment could result in losses to the fund.

Pursuant to regulations and published positions of the U.S. Securities and Exchange Commission, the fund’s obligations under a CDSI agreement will be accrued daily and, where applicable, offset against any amounts owing to the fund. In connection with CDSI transactions in which the fund acts as protection buyer, the fund will segregate liquid assets with a value at least equal to the fund’s exposure (i.e., any accrued but unpaid net amounts owed by the fund to any counterparty), on a marked-to-market basis, less the value of any posted margin. When the fund acts as protection seller, the fund will segregate liquid assets with a value at least equal to the full notional amount of the swap, less the value of any posted margin. Such segregation is intended to ensure that the fund has assets available to satisfy its obligations with respect to CDSI transactions and to limit any potential leveraging of the fund’s portfolio. However, segregation of liquid assets will not limit the fund’s exposure to loss. To maintain this required margin, the fund may also have to sell portfolio securities at disadvantageous prices, and the earmarking of liquid assets will have the effect of limiting the fund’s ability to otherwise invest those assets in other securities or instruments.

Warrants and rights — Warrants and rights may be acquired by the fund in connection with other securities or separately. Warrants generally entitle, but do not obligate, their holder to purchase other equity or fixed income securities at a specified price at a later date. Rights are similar to warrants but typically have a shorter duration and are issued by a company to existing holders of its stock to provide those holders the right to purchase additional shares of stock at a later date. Warrants and rights do not carry with them the right to dividends or voting rights with respect to the securities that they entitle their holder to purchase, and they do not represent any rights in the assets of the issuing company. Additionally, a warrant or right ceases to have value if it is not exercised prior to its expiration date. As a result, warrants and rights may be considered more speculative than certain other types of investments. Changes in the value of a warrant or right do not necessarily correspond to changes in the value of its underlying security. The price of a warrant or right may be more volatile than the price

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of its underlying security, and they therefore present greater potential for capital appreciation and capital loss. The effective price paid for warrants or rights added to the subscription price of the related security may exceed the value of the subscribed security’s market price, such as when there is no movement in the price of the underlying security. The market for warrants or rights may be very limited and it may be difficult to sell them promptly at an acceptable price.

Depositary receipts — Depositary receipts are securities that evidence ownership interests in, and represent the right to receive, a security or a pool of securities that have been deposited with a bank or trust depository. The fund may invest in American Depositary Receipts (“ADRs”), European Depositary Receipts (“EDRs”), Global Depositary Receipts (“GDRs”), and other similar securities. For ADRs, the depository is typically a U.S. financial institution and the underlying securities are issued by a non-U.S. entity. For other depositary receipts, the depository may be a non-U.S. or a U.S. entity, and the underlying securities may be issued by a non-U.S. or a U.S. entity. Depositary receipts will not necessarily be denominated in the same currency as their underlying securities. Generally, ADRs are issued in registered form, denominated in U.S. dollars, and designed for use in the U.S. securities markets. Other depositary receipts, such as EDRs and GDRs, may be issued in bearer form, may be denominated in either U.S. dollars or in non-U.S. currencies, and are primarily designed for use in securities markets outside the United States. ADRs, EDRs and GDRs can be sponsored by the issuing bank or trust company or the issuer of the underlying securities. Although the issuing bank or trust company may impose charges for the collection of dividends and the conversion of such securities into the underlying securities, generally no fees are imposed on the purchase or sale of these securities other than transaction fees ordinarily involved with trading stock. Such securities may be less liquid or may trade at a lower price than the underlying securities of the issuer. Additionally, the issuers of securities underlying depositary receipts may not be obligated to timely disclose information that is considered material under the securities laws of the United States. Therefore, less information may be available regarding these issuers than about the issuers of other securities and there may not be a correlation between such information and the market value of the depositary receipts.

Debt instruments — Debt securities, also known as “fixed income securities,” are used by issuers to borrow money. Bonds, notes, debentures, asset-backed securities (including those backed by mortgages), and loan participations and assignments are common types of debt securities. Generally, issuers pay investors periodic interest and repay the amount borrowed either periodically during the life of the security and/or at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest, but are purchased at a discount from their face values and their values accrete over time to face value at maturity. Some debt securities bear interest at rates that are not fixed, but that vary with changes in specified market rates or indices. The market prices of debt securities fluctuate depending on such factors as interest rates, credit quality and maturity. In general, market prices of debt securities decline when interest rates rise and increase when interest rates fall. These fluctuations will generally be greater for longer-term debt securities than for shorter-term debt securities. Prices of these securities can also be affected by financial contracts held by the issuer or third parties (such as derivatives) relating to the security or other assets or indices.

Lower rated debt securities, rated Ba1/BB+ or below by Nationally Recognized Statistical Rating Organizations, are described by the rating agencies as speculative and involve greater risk of default or price changes due to changes in the issuer’s creditworthiness than higher rated debt securities, or they may already be in default. Such securities are sometimes referred to as “junk bonds” or high yield bonds. The market prices of these securities may fluctuate more than higher quality securities and may decline significantly in periods of general economic difficulty. It may be more difficult to dispose of, and to determine the value of, lower rated debt securities. Investment grade bonds in the ratings categories A or Baa/BBB also may be more susceptible to changes in market or economic conditions than bonds rated in the highest rating categories.

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Certain additional risk factors relating to debt securities are discussed below:

Sensitivity to interest rate and economic changes — Debt securities may be sensitive to economic changes, political and corporate developments, and interest rate changes. In addition, during an economic downturn or a period of rising interest rates, issuers that are highly leveraged may experience increased financial stress that could adversely affect their ability to meet projected business goals, to obtain additional financing and to service their principal and interest payment obligations. Periods of economic change and uncertainty also can be expected to result in increased volatility of market prices and yields of certain debt securities and derivative instruments. For example, during the financial crisis of 2007-2009, the Federal Reserve implemented a number of economic policies that impacted, and may continue to impact, interest rates and the market. These policies, as well as potential actions by governmental entities both in and outside of the U.S., may expose fixed income markets to heightened volatility and may reduce liquidity for certain investments, which could cause the value of the fund’s portfolio to decline.

Payment expectations — Debt securities may contain redemption or call provisions. If an issuer exercises these provisions in a lower interest rate market, the fund may have to replace the security with a lower yielding security, resulting in decreased income to investors. If the issuer of a debt security defaults on its obligations to pay interest or principal or is the subject of bankruptcy proceedings, the fund may incur losses or expenses in seeking recovery of amounts owed to it.

Liquidity and valuation — There may be little trading in the secondary market for particular debt securities, which may affect adversely the fund’s ability to value accurately or dispose of such debt securities. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the value and/or liquidity of debt securities.

The investment adviser attempts to reduce the risks described above through diversification of the fund’s portfolio and by credit analysis of each issuer, as well as by monitoring broad economic trends and corporate and legislative developments, but there can be no assurance that it will be successful in doing so.

Credit ratings for debt securities provided by rating agencies reflect an evaluation of the safety of principal and interest payments, not market value risk. The rating of an issuer is a rating agency’s view of past and future potential developments related to the issuer and may not necessarily reflect actual outcomes. There can be a lag between the time of developments relating to an issuer and the time a rating is assigned and updated. The investment adviser considers these ratings of securities as one of many criteria in making its investment decisions.

Bond rating agencies may assign modifiers (such as +/–) to ratings categories to signify the relative position of a credit within the rating category. Investment policies that are based on ratings categories should be read to include any security within that category, without giving consideration to the modifier except where otherwise provided. See the Appendix to this statement of additional information for more information about credit ratings.

Securities with equity and debt characteristics — Certain securities have a combination of equity and debt characteristics. Such securities may at times behave more like equity than debt or vice versa.

Preferred stock — Preferred stock represents an equity interest in an issuer that generally entitles the holder to receive, in preference to common stockholders and the holders of certain other stocks, dividends and a fixed share of the proceeds resulting from a liquidation of the issuer. Preferred stocks may pay fixed or adjustable rates of return, and preferred stock

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dividends may be cumulative or non-cumulative and participating or non-participating. Cumulative dividend provisions require all or a portion of prior unpaid dividends to be paid before dividends can be paid to the issuer’s common stockholders, while prior unpaid dividends on non-cumulative preferred stock are forfeited. Participating preferred stock may be entitled to a dividend exceeding the issuer’s declared dividend in certain cases, while non-participating preferred stock is entitled only to the stipulated dividend. Preferred stock is subject to issuer-specific and market risks applicable generally to equity securities. As with debt securities, the prices and yields of preferred stocks often move with changes in interest rates and the issuer’s credit quality. Additionally, a company’s preferred stock typically pays dividends only after the company makes required payments to holders of its bonds and other debt. Accordingly, the price of preferred stock will usually react more strongly than bonds and other debt to actual or perceived changes in the issuing company’s financial condition or prospects. Preferred stock of smaller companies may be more vulnerable to adverse developments than preferred stock of larger companies.

Convertible securities — A convertible security is a debt obligation, preferred stock or other security that may be converted, within a specified period of time and at a stated conversion rate, into common stock or other equity securities of the same or a different issuer. The conversion may occur automatically upon the occurrence of a predetermined event or at the option of either the issuer or the security holder. Under certain circumstances, a convertible security may also be called for redemption or conversion by the issuer after a particular date and at predetermined price specified upon issue. If a convertible security held by the fund is called for redemption or conversion, the fund could be required to tender the security for redemption, convert it into the underlying common stock, or sell it to a third party.

The holder of a convertible security is generally entitled to participate in the capital appreciation resulting from a market price increase in the issuer’s common stock and to receive interest paid or accrued until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities have characteristics similar to non-convertible debt or preferred securities, as applicable. Convertible securities rank senior to common stock in an issuer’s capital structure and, therefore, normally entail less risk than the issuer’s common stock. However, convertible securities may also be subordinate to any senior debt obligations of the issuer, and, therefore, an issuer’s convertible securities may entail more risk than such senior debt obligations. Convertible securities usually offer lower interest or dividend yields than non-convertible debt securities of similar credit quality because of the potential for capital appreciation. In addition, convertible securities are often lower-rated securities.

Because of the conversion feature, the price of a convertible security will normally fluctuate in some proportion to changes in the price of the underlying asset, and, accordingly, convertible securities are subject to risks relating to the activities of the issuer and/or general market and economic conditions. The income component of a convertible security may cushion the security against declines in the price of the underlying asset but may also cause the price of the security to fluctuate based upon changes in interest rates and the credit quality of the issuer. As with a straight fixed income security, the price of a convertible security tends to increase when interest rates decline and decrease when interest rates rise. Like the price of a common stock, the price of a convertible security also tends to increase as the price of the underlying stock rises and to decrease as the price of the underlying stock declines.

Hybrid securities — A hybrid security is a type of security that also has equity and debt characteristics. Like equities, which have no final maturity, a hybrid security may be perpetual. On the other hand, like debt securities, a hybrid security may be callable at the option of the issuer on a date specified at issue. Additionally, like common equities, which may stop paying dividends at virtually any time without violating any contractual terms or conditions, hybrids

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typically allow for issuers to withhold payment of interest until a later date or to suspend coupon payments entirely without triggering an event of default. Hybrid securities are normally at the bottom of an issuer’s debt capital structure because holders of an issuer’s hybrid securities are structurally subordinated to the issuer’s senior creditors. In bankruptcy, hybrid security holders should only get paid after all senior creditors of the issuer have been paid but before any disbursements are made to the issuer’s equity holders. Accordingly, hybrid securities may be more sensitive to economic changes than more senior debt securities. Such securities may also be viewed as more equity-like by the market when the issuer or its parent company experiences financial difficulties.

Contingent convertible securities, which are also known as contingent capital securities, are a form of hybrid security that are intended to either convert into equity or have their principal written down upon the occurrence of certain trigger events. One type of contingent convertible security has characteristics designed to absorb losses, by providing that the liquidation value of the security may be adjusted downward to below the original par value or written off entirely under certain circumstances. For instance, if losses have eroded the issuer’s capital level below a specified threshold, the liquidation value of the security may be reduced in whole or in part. The write-down of the security’s par value may occur automatically and would not entitle holders to institute bankruptcy proceedings against the issuer. In addition, an automatic write-down could result in a reduced income rate if the dividend or interest payment associated with the security is based on the security’s par value. Such securities may, but are not required to, provide for circumstances under which the liquidation value of the security may be adjusted back up to par, such as an improvement in capitalization or earnings. Another type of contingent convertible security provides for mandatory conversion of the security into common shares of the issuer under certain circumstances. The mandatory conversion might relate, for example, to the issuer’s failure to maintain a capital minimum. Since the common stock of the issuer may not pay a dividend, investors in such instruments could experience reduced yields (or no yields at all) and conversion would deepen the subordination of the investor, effectively worsening the investor’s standing in the case of the issuer’s insolvency. An automatic write-down or conversion event with respect to a contingent convertible security will typically be triggered by a reduction in the issuer’s capital level, but may also be triggered by regulatory actions, such as a change in regulatory capital requirements, or by other factors.

Obligations backed by the “full faith and credit” of the U.S. government — U.S. government obligations include the following types of securities:

U.S. Treasury securities — U.S. Treasury securities include direct obligations of the U.S. Treasury, such as Treasury bills, notes and bonds. For these securities, the payment of principal and interest is unconditionally guaranteed by the U.S. government, and thus they are of high credit quality. Such securities are subject to variations in market value due to fluctuations in interest rates and in government policies, but, if held to maturity, are expected to be paid in full (either at maturity or thereafter).

Federal agency securities — The securities of certain U.S. government agencies and government-sponsored entities are guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government. Such agencies and entities include, but are not limited to, the Federal Financing Bank (“FFB”), the Government National Mortgage Association (“Ginnie Mae”), the Veterans Administration (“VA”), the Federal Housing Administration (“FHA”), the Export-Import Bank (“Exim Bank”), the Overseas Private Investment Corporation (“OPIC”), the Commodity Credit Corporation (“CCC”) and the Small Business Administration (“SBA”).

Other federal agency obligations — Additional federal agency securities are neither direct obligations of, nor guaranteed by, the U.S. government. These obligations include securities issued by certain U.S.

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government agencies and government-sponsored entities. However, they generally involve some form of federal sponsorship: some operate under a congressional charter; some are backed by collateral consisting of “full faith and credit” obligations as described above; some are supported by the issuer’s right to borrow from the Treasury; and others are supported only by the credit of the issuing government agency or entity. These agencies and entities include, but are not limited to: the Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation (“Freddie Mac”), the Federal National Mortgage Association (“Fannie Mae”), the Tennessee Valley Authority and the Federal Farm Credit Bank System.

In 2008, Freddie Mac and Fannie Mae were placed into conservatorship by their new regulator, the Federal Housing Finance Agency (“FHFA”). Simultaneously, the U.S. Treasury made a commitment of indefinite duration to maintain the positive net worth of both firms. As conservator, the FHFA has the authority to repudiate any contract either firm has entered into prior to the FHFA’s appointment as conservator (or receiver should either firm go into default) if the FHFA, in its sole discretion determines that performance of the contract is burdensome and repudiation would promote the orderly administration of Fannie Mae’s or Freddie Mac’s affairs. While the FHFA has indicated that it does not intend to repudiate the guaranty obligations of either entity, doing so could adversely affect holders of their mortgage-backed securities. For example, if a contract were repudiated, the liability for any direct compensatory damages would accrue to the entity’s conservatorship estate and could only be satisfied to the extent the estate had available assets. As a result, if interest payments on Fannie Mae or Freddie Mac mortgage-backed securities held by the fund were reduced because underlying borrowers failed to make payments or such payments were not advanced by a loan servicer, the fund’s only recourse might be against the conservatorship estate, which might not have sufficient assets to offset any shortfalls.

The FHFA, in its capacity as conservator, has the power to transfer or sell any asset or liability of Fannie Mae or Freddie Mac. The FHFA has indicated it has no current intention to do this; however, should it do so a holder of a Fannie Mae or Freddie Mac mortgage-backed security would have to rely on another party for satisfaction of the guaranty obligations and would be exposed to the credit risk of that party.

Certain rights provided to holders of mortgage-backed securities issued by Fannie Mae or Freddie Mac under their operative documents may not be enforceable against the FHFA, or enforcement may be delayed during the course of the conservatorship or any future receivership. For example, the operative documents may provide that upon the occurrence of an event of default by Fannie Mae or Freddie Mac, holders of a requisite percentage of the mortgage-backed security may replace the entity as trustee. However, under the Federal Housing Finance Regulatory Reform Act of 2008, holders may not enforce this right if the event of default arises solely because a conservator or receiver has been appointed.

Forward commitment, when issued and delayed delivery transactions — The fund may enter into commitments to purchase or sell securities at a future date. When the fund agrees to purchase such securities, it assumes the risk of any decline in value of the security from the date of the agreement. If the other party to such a transaction fails to deliver or pay for the securities, the fund could miss a favorable price or yield opportunity, or could experience a loss.

The fund may enter into roll transactions, such as a mortgage dollar roll where the fund sells mortgage-backed securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (same type, coupon, and maturity) securities on a specified future date, at a pre-determined price. During the period between the sale and repurchase (the “roll period”), the fund forgoes principal and interest paid on the mortgage-backed securities. The fund is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the “drop”), if any, as well as by the interest earned on the cash proceeds of the initial sale. The fund could suffer a loss if the contracting party fails to perform the future transaction

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and the fund is therefore unable to buy back the mortgage-backed securities it initially sold. The fund also takes the risk that the mortgage-backed securities that it repurchases at a later date will have less favorable market characteristics than the securities originally sold (e.g., greater prepayment risk). These transactions are accounted for as purchase and sale transactions, which increase the fund’s portfolio turnover rate.

With to be announced (TBA) transactions, the particular securities (i.e., specified mortgage pools) to be delivered or received are not identified at the trade date, but are “to be announced” at a later settlement date. However, securities to be delivered must meet specified criteria, including face value, coupon rate and maturity, and be within industry-accepted “good delivery” standards.

The fund will not use these transactions for the purpose of leveraging and will segregate liquid assets that will be marked to market daily in an amount sufficient to meet its payment obligations in these transactions. Although these transactions will not be entered into for leveraging purposes, to the extent the fund’s aggregate commitments in connection with these transactions exceed its segregated assets, the fund temporarily could be in a leveraged position (because it may have an amount greater than its net assets subject to market risk). Should market values of the fund’s portfolio securities decline while the fund is in a leveraged position, greater depreciation of its net assets would likely occur than if it were not in such a position. The fund will not borrow money to settle these transactions and, therefore, will liquidate other portfolio securities in advance of settlement if necessary to generate additional cash to meet its obligations. After a transaction is entered into, the fund may still dispose of or renegotiate the transaction. Additionally, prior to receiving delivery of securities as part of a transaction, the fund may sell such securities.

Inflation-linked bonds — The fund may invest in inflation-linked bonds issued by governments, their agencies or instrumentalities and corporations.

The principal amount of an inflation-linked bond is adjusted in response to changes in the level of an inflation index, such as the Consumer Price Index for Urban Consumers (“CPURNSA”). If the index measuring inflation falls, the principal value or coupon of these securities will be adjusted downward. Consequently, the interest payable on these securities will be reduced. Also, if the principal value of these securities is adjusted according to the rate of inflation, the adjusted principal value repaid at maturity may be less than the original principal. In the case of U.S. Treasury Inflation-Protected Securities (“TIPS”), currently the only inflation-linked security that is issued by the U.S Treasury, the principal amounts are adjusted daily based upon changes in the rate of inflation (as currently represented by the non-seasonally adjusted CPURNSA, calculated with a three-month lag). TIPS may pay interest semi-annually, equal to a fixed percentage of the inflation-adjusted principal amount. The interest rate on these bonds is fixed at issuance, but over the life of the bond this interest may be paid on an increasing or decreasing principal amount that has been adjusted for inflation. The current market value of TIPS is not guaranteed and will fluctuate. However, the U.S. government guarantees that, at maturity, principal will be repaid at the higher of the original face value of the security (in the event of deflation) or the inflation adjusted value.

Other non-U.S. sovereign governments also issue inflation-linked securities that are tied to their own local consumer price indexes and that offer similar deflationary protection. In certain of these non-U.S. jurisdictions, the repayment of the original bond principal upon the maturity of an inflation-linked bond is not guaranteed, allowing for the amount of the bond repaid at maturity to be less than par. Corporations also periodically issue inflation-linked securities tied to CPURNSA or similar inflationary indexes. While TIPS and non-U.S. sovereign inflation-linked securities are currently the largest part of the inflation-linked market, the fund may invest in corporate inflation-linked securities.

The value of inflation-linked securities is expected to change in response to the changes in real interest rates. Real interest rates, in turn, are tied to the relationship between nominal interest rates and the

New World Fund — Page 20

rate of inflation. If inflation were to rise at a faster rate than nominal interest rates, real interest rates would decline, leading to an increase in value of the inflation-linked securities. In contrast, if nominal interest rates were to increase at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of inflation-linked securities. There can be no assurance, however, that the value of inflation-linked securities will be directly correlated to the changes in interest rates. If interest rates rise due to reasons other than inflation, investors in these securities may not be protected to the extent that the increase is not reflected in the security’s inflation measure.

The interest rate for inflation-linked bonds is fixed at issuance as a percentage of this adjustable principal. Accordingly, the actual interest income may both rise and fall as the principal amount of the bonds adjusts in response to movements of the consumer price index. For example, typically interest income would rise during a period of inflation and fall during a period of deflation.

The market for inflation-linked securities may be less developed or liquid, and more volatile, than certain other securities markets. There is a limited number of inflation-linked securities currently available for the fund to purchase, making the market less liquid and more volatile than the U.S. Treasury and agency markets.

Cash and cash equivalents — The fund may hold cash or invest in cash equivalents. Cash equivalents include, but are not limited to: (a) shares of money market or similar funds managed by the investment adviser or its affiliates; (b) shares of other money market funds; (c) commercial paper; (d) short-term bank obligations (for example, certificates of deposit, bankers’ acceptances (time drafts on a commercial bank where the bank accepts an irrevocable obligation to pay at maturity)) or bank notes; (e) savings association and savings bank obligations (for example, bank notes and certificates of deposit issued by savings banks or savings associations); (f) securities of the U.S. government, its agencies or instrumentalities that mature, or that may be redeemed, in one year or less; and (g) higher quality corporate bonds and notes that mature, or that may be redeemed, in one year or less.

Commercial paper — The fund may purchase commercial paper. Commercial paper refers to short-term promissory notes issued by a corporation to finance its current operations. Such securities normally have maturities of thirteen months or less and, though commercial paper is often unsecured, commercial paper may be supported by letters of credit, surety bonds or other forms of collateral. Maturing commercial paper issuances are usually repaid by the issuer from the proceeds of new commercial paper issuances. As a result, investment in commercial paper is subject to rollover risk, or the risk that the issuer cannot issue enough new commercial paper to satisfy its outstanding commercial paper. Like all fixed income securities, commercial paper prices are susceptible to fluctuations in interest rates. If interest rates rise, commercial paper prices will decline and vice versa. However, the short-term nature of a commercial paper investment makes it less susceptible to volatility than many other fixed income securities because interest rate risk typically increases as maturity lengths increase. Commercial paper tends to yield smaller returns than longer-term corporate debt because securities with shorter maturities typically have lower effective yields than those with longer maturities. As with all fixed income securities, there is a chance that the issuer will default on its commercial paper obligations and commercial paper may become illiquid or suffer from reduced liquidity in these or other situations.

Commercial paper in which the fund may invest includes commercial paper issued in reliance on the exemption from registration afforded by Section 4(a)(2) of the 1933 Act. Section 4(a)(2) commercial paper has substantially the same price and liquidity characteristics as commercial paper generally, except that the resale of Section 4(a)(2) commercial paper is limited to institutional investors who agree that they are purchasing the paper for investment purposes and not with a view to public distribution. Technically, such a restriction on resale renders Section 4(a)(2) commercial paper a restricted security under the 1933 Act. In practice, however, Section 4(a)(2) commercial paper typically can be resold as easily as any other unrestricted security held by the fund. Accordingly, Section 4(a)(2)

New World Fund — Page 21

commercial paper has been generally determined to be liquid under procedures adopted by the fund’s board of directors.

Restricted or illiquid securities — The fund may purchase securities subject to restrictions on resale. Restricted securities may only be sold pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “1933 Act”), or in a registered public offering. Where registration is required, the holder of a registered security may be obligated to pay all or part of the registration expense and a considerable period may elapse between the time it decides to seek registration and the time it may be permitted to sell a security under an effective registration statement. Difficulty in selling such securities may result in a loss to the fund or cause it to incur additional administrative costs.

Some fund holdings (including some restricted securities) may be deemed illiquid if the fund expects that a reasonable portion of the holding cannot be sold in seven calendar days or less without the sale significantly changing the market value of the investment. The determination of whether a holding is considered illiquid is made by the fund’s adviser under a liquidity risk management program adopted by the fund’s board and administered by the fund’s adviser. The fund may incur significant additional costs in disposing of illiquid securities.

Cybersecurity risks — With the increased use of technologies such as the Internet to conduct business, the fund has become potentially more susceptible to operational and information security risks through breaches in cybersecurity. In general, a breach in cybersecurity can result from either a deliberate attack or an unintentional event. Cybersecurity breaches may involve, among other things, infection by computer viruses or other malicious software code or unauthorized access to the fund’s digital information systems, networks or devices through “hacking” or other means, in each case for the purpose of misappropriating assets or sensitive information (including, for example, personal shareholder information), corrupting data or causing operational disruption or failures in the physical infrastructure or operating systems that support the fund. Cybersecurity risks also include the risk of losses of service resulting from external attacks that do not require unauthorized access to the fund’s systems, networks or devices. For example, denial-of-service attacks on the investment adviser’s or an affiliate’s website could effectively render the fund’s network services unavailable to fund shareholders and other intended end-users. Any such cybersecurity breaches or losses of service may cause the fund to lose proprietary information, suffer data corruption or lose operational capacity, which, in turn, could cause the fund to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. While the fund and its investment adviser have established business continuity plans and risk management systems designed to prevent or reduce the impact of cybersecurity attacks, there are inherent limitations in such plans and systems due in part to the ever-changing nature of technology and cybersecurity attack tactics, and there is a possibility that certain risks have not been adequately identified or prepared for.

In addition, cybersecurity failures by or breaches of the fund’s third-party service providers (including, but not limited to, the fund’s investment adviser, transfer agent, custodian, administrators and other financial intermediaries) may disrupt the business operations of the service providers and of the fund, potentially resulting in financial losses, the inability of fund shareholders to transact business with the fund and of the fund to process transactions, the inability of the fund to calculate its net asset value, violations of applicable privacy and other laws, rules and regulations, regulatory fines, penalties, reputational damage, reimbursement or other compensatory costs and/or additional compliance costs associated with implementation of any corrective measures. The fund and its shareholders could be negatively impacted as a result of any such cybersecurity breaches, and there can be no assurance that the fund will not suffer losses relating to cybersecurity attacks or other informational security breaches affecting the fund’s third-party service providers in the future, particularly as the fund cannot control any cybersecurity plans or systems implemented by such service providers.

New World Fund — Page 22

Cybersecurity risks may also impact issuers of securities in which the fund invests, which may cause the fund’s investments in such issuers to lose value.

Interfund borrowing and lending — Pursuant to an exemptive order issued by the U.S. Securities and Exchange Commission, the fund may lend money to, and borrow money from, other funds advised by Capital Research and Management Company or its affiliates. The fund will borrow through the program only when the costs are equal to or lower than the costs of bank loans. The fund will lend through the program only when the returns are higher than those available from an investment in repurchase agreements. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one day's notice. The fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in repayment to a lending fund could result in a lost investment opportunity or additional borrowing costs.

Securities lending activities – The fund may lend portfolio securities to brokers, dealers or other institutions that provide cash or U.S. Treasury securities as collateral in an amount at least equal to the value of the securities loaned. While portfolio securities are on loan, the fund will continue to receive the equivalent of the interest and the dividends or other distributions paid by the issuer on the securities, as well as a portion of the interest on the investment of the collateral. Additionally, although the fund will not have the right to vote on securities while they are on loan, the fund has a right to consent on corporate actions and a right to recall each loan to vote on proposals, including proposals involving material events affecting securities loaned. The fund has delegated the decision to lend portfolio securities to the investment adviser. The adviser also has the discretion to consent on corporate actions and to recall securities on loan to vote. In the event the adviser deems a corporate action or proxy vote material, as determined by the adviser based on factors relevant to the fund, it will use reasonable efforts to recall the securities and consent to or vote on the matter.  

Securities lending involves risks, including the risk that the loaned securities may not be returned in a timely manner or at all and/or the risk of a loss of rights in the collateral if a borrower or the lending agent defaults. These risks could be greater for non-U.S. securities. Additionally, the fund may lose money from the reinvestment of collateral received on loaned securities in investments that decline in value, default or do not perform as expected. The fund will make loans only to parties deemed by the fund’s adviser to be in good standing and when, in the adviser’s judgment, the income earned would justify the risks.

JPMorgan Chase Bank, N.A. (“JPMorgan”) serves as securities lending agent for the fund. As the securities lending agent, JPMorgan administers the fund’s securities lending program pursuant to the terms of a securities lending agent agreement entered into between the fund and JPMorgan. Under the terms of the agreement, JPMorgan is responsible for making available to approved borrowers securities from the fund’s portfolio. JPMorgan is also responsible for the administration and management of the fund’s securities lending program, including the preparation and execution of an agreement with each borrower governing the terms and conditions of any securities loan, ensuring that securities loans are properly coordinated and documented, ensuring that loaned securities are valued daily and that the corresponding required collateral is delivered by the borrowers, arranging for the investment of collateral received from borrowers, and arranging for the return of loaned securities to the fund in accordance with the fund’s instructions or at loan termination. As compensation for its services, JPMorgan receives a portion of the amount earned by the fund for lending securities.

New World Fund — Page 23

The following table sets forth, for the fund’s most recently completed fiscal year, the fund’s dollar amount of income and fees and/or other compensation related to its securities lending activities. Net income from securities lending activities may differ from the amount reported in the fund’s annual report, which reflects estimated accruals.

   
Gross income from securities lending activities  $1,667,461
Fees paid to securities lending agent from a revenue split  66,774
Fees paid for any cash collateral management service (including fees deducted from a pooled cash collateral reinvestment vehicle) not included in the revenue split  0
Administrative fees not included in the revenue split  0
Indemnification fees not included in the revenue split  0
Rebates (paid to borrower) 331,879
Other fees not included in the revenue split  0
Aggregate fees/compensation for securities lending activities 398,653
Net income from securities lending activities 1,268,808

* * * * * *

Portfolio turnover — Portfolio changes will be made without regard to the length of time particular investments may have been held. Short-term trading profits are not the fund’s objective, and changes in its investments are generally accomplished gradually, though short-term transactions may occasionally be made. Higher portfolio turnover may involve correspondingly greater transaction costs in the form of dealer spreads or brokerage commissions. It may also result in the realization of net capital gains, which are taxable when distributed to shareholders, unless the shareholder is exempt from taxation or his or her account is tax-favored.

The fund’s portfolio turnover rates for the fiscal years ended October 31, 2020 and 2019 were 40% and 37%, respectively. The increase in turnover was due to increased trading activity during the period. The portfolio turnover rate would equal 100% if each security in a fund’s portfolio were replaced once per year. See “Financial highlights” in the prospectus for the fund’s annual portfolio turnover rate for each of the last five fiscal years.

New World Fund — Page 24

Fund policies

All percentage limitations in the following fund policies are considered at the time securities are purchased and are based on the fund’s net assets (excluding, for the avoidance of doubt, collateral held in connection with securities lending activities) unless otherwise indicated. None of the following policies involving a maximum percentage of assets will be considered violated unless the excess occurs immediately after, and is caused by, an acquisition by the fund. In managing the fund, the fund’s investment adviser may apply more restrictive policies than those listed below.

Fundamental policies — The fund has adopted the following policies, which may not be changed without approval by holders of a majority of its outstanding shares. Such majority is currently defined in the Investment Company Act of 1940, as amended (the “1940 Act”), as the vote of the lesser of (a) 67% or more of the voting securities present at a shareholder meeting, if the holders of more than 50% of the outstanding voting securities are present in person or by proxy, or (b) more than 50% of the outstanding voting securities.

1. Except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation of registered investment companies, or interpretations or modifications thereof by the U.S. Securities and Exchange Commission (“SEC”), SEC staff or other authority of competent jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction, the fund may not:

a. Borrow money;

b. Issue senior securities;

c. Underwrite the securities of other issuers;

d. Purchase or sell real estate or commodities;

e. Make loans; or

f. Purchase the securities of any issuer if, as a result of such purchase, the fund’s investments would be concentrated in any particular industry.

2. The fund may not invest in companies for the purpose of exercising control or management.

Nonfundamental policies — The following policy may be changed without shareholder approval:

The fund may not acquire securities of open-end investment companies or unit investment trusts registered under the 1940 Act in reliance on Sections 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.

New World Fund — Page 25

Additional information about the fund’s policies — The information below is not part of the fund’s fundamental or nonfundamental policies. This information is intended to provide a summary of what is currently required or permitted by the 1940 Act and the rules and regulations thereunder, or by the interpretive guidance thereof by the SEC or SEC staff, for particular fundamental policies of the fund. Information is also provided regarding the fund’s current intention with respect to certain investment practices permitted by the 1940 Act.

For purposes of fundamental policy 1a, the fund may borrow money in amounts of up to 33-1/3% of its total assets from banks for any purpose. Additionally, the fund may borrow up to 5% of its total assets from banks or other lenders for temporary purposes (a loan is presumed to be for temporary purposes if it is repaid within 60 days and is not extended or renewed). The percentage limitations in this policy are considered at the time of borrowing and thereafter.

For purposes of fundamental policies 1a and 1e, the fund may borrow money from, or loan money to, other funds managed by Capital Research and Management Company or its affiliates to the extent permitted by applicable law and an exemptive order issued by the SEC.

For purposes of fundamental policy 1b, a senior security does not include any promissory note or evidence of indebtedness if such loan is for temporary purposes only and in an amount not exceeding 5% of the value of the total assets of the fund at the time the loan is made (a loan is presumed to be for temporary purposes if it is repaid within 60 days and is not extended or renewed). Further, to the extent the fund covers its commitments under certain types of agreements and transactions, including derivatives, mortgage-dollar-roll transactions, sale-buybacks, when-issued, delayed-delivery, or forward commitment transactions, and other similar trading practices, by segregating or earmarking liquid assets equal in value to the amount of the fund’s commitment (in accordance with applicable SEC or SEC staff guidance), such agreement or transaction will not be considered a senior security by the fund.

For purposes of fundamental policy 1c, the policy will not apply to the fund to the extent the fund may be deemed an underwriter within the meaning of the 1933 Act in connection with the purchase and sale of fund portfolio securities in the ordinary course of pursuing its investment objectives and strategies.

For purposes of fundamental policy 1e, the fund may not lend more than 33-1/3% of its total assets, provided that this limitation shall not apply to the fund’s purchase of debt obligations.

For purposes of fundamental policy 1f, the fund may not invest more than 25% of its total assets in the securities of issuers in a particular industry. This policy does not apply to investments in securities of the U.S. government, its agencies or government sponsored enterprises or repurchase agreements with respect thereto.

New World Fund — Page 26

Management of the fund

Board of directors and officers

Independent directors1

The fund’s nominating and governance committee and board select independent directors with a view toward constituting a board that, as a body, possesses the qualifications, skills, attributes and experience to appropriately oversee the actions of the fund’s service providers, decide upon matters of general policy and represent the long-term interests of fund shareholders. In doing so, they consider the qualifications, skills, attributes and experience of the current board members, with a view toward maintaining a board that is diverse in viewpoint, experience, education and skills.

The fund seeks independent directors who have high ethical standards and the highest levels of integrity and commitment, who have inquiring and independent minds, mature judgment, good communication skills, and other complementary personal qualifications and skills that enable them to function effectively in the context of the fund’s board and committee structure and who have the ability and willingness to dedicate sufficient time to effectively fulfill their duties and responsibilities.

Each independent director has a significant record of accomplishments in governance, business, not-for-profit organizations, government service, academia, law, accounting or other professions. Although no single list could identify all experience upon which the fund’s independent directors draw in connection with their service, the following table summarizes key experience for each independent director. These references to the qualifications, attributes and skills of the directors are pursuant to the disclosure requirements of the SEC, and shall not be deemed to impose any greater responsibility or liability on any director or the board as a whole. Notwithstanding the accomplishments listed below, none of the independent directors is considered an “expert” within the meaning of the federal securities laws with respect to information in the fund’s registration statement.

New World Fund — Page 27

         
Name, year of
birth and position
with fund (year first
elected as a director2)
Principal
occupation(s)
during the
past five years
Number of
portfolios in fund complex
overseen
by
director3
Other directorships4 held by director
during the
past five years
Other relevant experience
Vanessa C. L. Chang, 1952
Director (2005)
Former Director, EL & EL Investments (real estate) 16 Edison International/
Southern California Edison; Sykes Enterprises;
Transocean Ltd.

· Service as a chief executive officer, insurance-related (claims/dispute resolution) internet company

· Senior management experience, investment banking

· Former partner, public accounting firm

· Corporate board experience

· Service on advisory and trustee boards for charitable, educational and nonprofit organizations

· Former member of the Governing Council of the Independent Directors Council

· CPA (inactive)

Pablo R. González Guajardo, 1967
Director (2014)
CEO, Kimberly-Clark de México, SAB de CV 16 América Móvil, SAB de CV; Grupo Lala, SAB de CV; Grupo Sanborns, SAB de CV; Kimberly-Clark de México, SAB de CV

· Service as a chief executive officer

· Senior corporate management experience

· Corporate board experience

· Service on advisory and trustee boards for nonprofit organizations

· MBA

Martin E. Koehler, 1957
Director (2015)
Independent management consultant 3 Former director of Deutsche Lufthansa AG (until 2020)

· Senior management experience

· Corporate board experience

· Service on advisory and trustee boards for charitable and nonprofit organizations

· MBA

· MS, industrial engineering

New World Fund — Page 28

         
Name, year of
birth and position
with fund (year first
elected as a director2)
Principal
occupation(s)
during the
past five years
Number of
portfolios in fund complex
overseen
by
director3
Other directorships4 held by director
during the
past five years
Other relevant experience
Pascal Millaire, 1983
Director (2019)
CEO and Director, CyberCube Analytics, Inc. (cyber risk software for insurers); former Vice President and General Manager, Symantec Corporation (cybersecurity company) 3 None

· Service as chief executive officer

· Senior management experience

· Corporate board experience

· Service on advisory and trustee boards for charitable and nonprofit organizations

· Global management consultant

· Cybersecurity experience

· MBA

William I. Miller, 1956
Chairman of the Board (Independent and Non-Executive) (1999)
President, The Wallace Foundation 3 Cummins, Inc.

· Service as chief executive officer

· Corporate board experience

· Service on advisory and trustee boards for charitable, educational and nonprofit organizations

· MBA

Josette Sheeran, 1954
Director (2015)
President and CEO, Asia Society; United Nations Special Envoy for Haiti 7 None

· Service as chief executive officer

· Senior management experience

· Government service

· Service on advisory councils and commissions for international and governmental organizations

· Service on advisory and trustee boards for charitable and nonprofit organizations

New World Fund — Page 29

         
Name, year of
birth and position
with fund (year first
elected as a director2)
Principal
occupation(s)
during the
past five years
Number of
portfolios in fund complex
overseen
by
director3
Other directorships4 held by director
during the
past five years
Other relevant experience
Christopher E. Stone, 1956
Director (2020)
Professor of Practice of Public Integrity, University of Oxford, Blavatnik School of Government; former President, Open Society Foundations 9 None

· Service on advisory and trustee boards for charitable, international jurisprudence and nonprofit organizations

· Former professor, practice of criminal justice

· JD, MPhil, criminology

Amy Zegart, PhD, 1967
Director (2019)
Senior Fellow, Hoover Institution, Stanford University; Senior Fellow, Freeman Spogli Institute, Stanford University 3 Kratos Defense & Security Solutions

· Senior academic leadership positions

· Corporate board experience

· Author

· Consultant

· PhD, Political Science

New World Fund — Page 30

Interested director(s)5,6

Interested directors have similar qualifications, skills and attributes as the independent directors. Interested directors are senior executive officers and/or directors of Capital Research and Management Company or its affiliates. Such management roles with the fund’s service providers also permit the interested directors to make a significant contribution to the fund’s board.

       
Name, year of birth
and position with fund
(year first elected
as a director/officer2)
Principal occupation(s)
during the
past five years
and positions
held with affiliated
entities or the
Principal Underwriter
of the fund
Number of
portfolios
in fund
complex
overseen
by director3
Other directorships4
held by director
during the
past five years
Carl M. Kawaja, 1964
Senior Vice President and Director (2019)
Chairman and Director, Capital Research and Management Company; Partner – Capital World Investors, Capital Research and Management Company; Partner - Capital World Investors, Capital Bank and Trust Company 3 None
Joanna F. Jonsson, 1963
Director (2019)
Partner – Capital World Investors, Capital Research and Management Company; Vice Chair and President, Capital Research and Management Company; Director, The Capital Group Companies, Inc.* 3 None

Other officers6

   
Name, year of birth
and position with fund
(year first elected
as an officer2)
Principal occupation(s) during the past five years
and positions held with affiliated entities
or the Principal Underwriter of the fund
Nicholas J. Grace, 1966
Co-President
(2008)
Partner – Capital Research Global Investors, Capital Research Company*
Jonathan Knowles, PhD, 1961
Co-President (2019)
Partner – Capital World Investors, Capital International, Inc.*
Robert W. Lovelace, 1962
Co-President
(1999)
Vice Chairman of the Board and President, The Capital Group Companies, Inc.*; Chief Executive Officer and Director, Capital Research and Management Company; Partner – Capital International Investors, Capital Bank and Trust Company*; Partner – Capital International Investors, Capital Research and Management Company
Walter R. Burkley, 1966
Executive Vice President
(2012)
Senior Vice President and Senior Counsel – Fund Business Management Group, Capital Research and Management Company; Director, Capital Research Company*; Director, Capital Research and Management Company
Bradford F. Freer, 1969
Senior Vice President (2006)
Partner – Capital Research Global Investors, Capital Research and Management Company; Director, The Capital Group Companies, Inc.*
Winnie Kwan, 1972
Senior Vice President (2010)
Partner – Capital Research Global Investors, Capital International, Inc.*

New World Fund — Page 31

   
Name, year of birth
and position with fund
(year first elected
as an officer2)
Principal occupation(s) during the past five years
and positions held with affiliated entities
or the Principal Underwriter of the fund
Piyada Phanaphat, 1978
Senior Vice President (2020)
Partner – Capital World Investors, Capital International Inc.
Akira Shiraishi, 1974
Senior Vice President (2020)
Partner – Capital International Investors, Capital Research and Management Company
Kirstie Spence, 1973
Senior Vice President (2019)
Partner - Capital Fixed Income Investors, Capital International Limited*; Director, Capital Research Company*; Vice President and Director, Capital International Limited*
Tomonori Tani, 1977
Senior Vice President (2018)
Partner – Capital World Investors, Capital International, Inc.*
Lisa Thompson, 1965
Senior Vice President (2019)
Partner – Capital International Investors, Capital Research and Management Company; Partner – Capital International Investors, Capital Bank and Trust Company*; Director, Capital Research and Management Company
Christopher Thomsen, 1970
Senior Vice President (2014)
Partner – Capital Research Global Investors, Capital Research Company*; Director, Capital Research and Management Company
Michael W. Stockton, 1967
Secretary (2013)
Senior Vice President — Fund Business Management Group, Capital Research and Management Company
Brian C. Janssen, 1972
Treasurer (2010)
Vice President – Investment Operations, Capital Research and Management Company
Jennifer L. Butler, 1966
Assistant Secretary (2013)
Assistant Vice President – Fund Business Management Group, Capital Research and Management Company
Sandra Chuon, 1972
Assistant Treasurer (2019)
Assistant Vice President – Investment Operations, Capital Research and Management Company
Gregory F. Niland, 1971
Assistant Treasurer (2016)
Vice President - Investment Operations, Capital Research and Management Company

* Company affiliated with Capital Research and Management Company.

1 The term independent director refers to a director who is not an “interested person” of the fund within the meaning of the 1940 Act.

Directors and officers of the fund serve until their resignation, removal or retirement.

3 Funds managed by Capital Research and Management Company or its affiliates.

4 This includes all directorships/trusteeships (other than those in the American Funds or other funds managed by Capital Research and Management Company or its affiliates) that are held by each director as a director/trustee of a public company or a registered investment company. Unless otherwise noted, all directorships/trusteeships are current.

5 The term interested director refers to a director who is an “interested person” of the fund within the meaning of the 1940 Act, on the basis of his or her affiliation with the fund’s investment adviser, Capital Research and Management Company, or affiliated entities (including the fund’s principal underwriter).

6 All of the directors and/or officers listed, with the exception of Piyada Phanaphat and Akira Shiraishi, are officers and/or directors/trustees of one or more of the other funds for which Capital Research and Management Company serves as investment adviser.

The address for all directors and officers of the fund is 333 South Hope Street, 55th Floor, Los Angeles, California 90071, Attention: Secretary.

New World Fund — Page 32

Fund shares owned by directors as of December 31, 2019:

         
Name Dollar range1,2
of fund
shares owned
Aggregate
dollar range1
of shares
owned in
all funds
in the
American Funds
family overseen
by director
Dollar
range1,2 of
independent
directors
deferred compensation3 allocated
to fund
Aggregate
dollar
range1,2 of
independent
directors
deferred
compensation3 allocated to
all funds
within
American Funds
family overseen
by director
Independent directors
Vanessa C. L. Chang Over $100,000 Over $100,000 N/A N/A
Pablo R. González Guajardo $10,001 – $50,000 Over $100,000 Over $100,000 Over $100,000
Martin E. Koehler $50,001 – $100,000 Over $100,000 Over $100,000 Over $100,000
Pascal Millaire Over $100,000 Over $100,000 N/A N/A
William I. Miller Over $100,000 Over $100,000 Over $100,000 Over $100,000
Josette Sheeran $50,001 – $100,000 Over $100,000 N/A N/A
Christopher E. Stone4 N/A Over $100,000 N/A N/A
Amy Zegart $10,001 – $50,000 Over $100,000 N/A N/A
     
Name Dollar range1,2
of fund
shares owned
Aggregate
dollar range1
of shares
owned in
all funds
in the
American Funds
family overseen
by directors
Interested directors
Carl M. Kawaja Over $100,000 Over $100,000
Joanna F. Jonsson Over $100,000 Over $100,000

1 Ownership disclosure is made using the following ranges: None; $1 – $10,000; $10,001 – $50,000; $50,001 – $100,000; and Over $100,000. The amounts listed for interested directors include shares owned through The Capital Group Companies, Inc. retirement plan and 401(k) plan.

2 N/A indicates that the listed individual, as of December 31, 2019, was not a director of a particular fund, did not allocate deferred compensation to the fund or did not participate in the deferred compensation plan.

3 Eligible directors may defer their compensation under a nonqualified deferred compensation plan. Amounts deferred by the director accumulate at an earnings rate determined by the total return of one or more American Funds as designated by the director.

4 Mr. Stone was elected to the board effective June 9, 2020.

New World Fund — Page 33

Director compensation — No compensation is paid by the fund to any officer or director who is a director, officer or employee of the investment adviser or its affiliates. Except for the independent directors listed in the “Board of directors and officers — Independent directors” table under the “Management of the fund” section in this statement of additional information, all other officers and directors of the fund are directors, officers or employees of the investment adviser or its affiliates. The boards of funds advised by the investment adviser typically meet either individually or jointly with the boards of one or more other such funds with substantially overlapping board membership (in each case referred to as a “board cluster”). The fund typically pays each independent director an annual retainer fee based primarily on the total number of board clusters on which that independent director serves.

In addition, the fund generally pays independent directors attendance and other fees for meetings of the board and its committees. Board and committee chairs receive additional fees for their services.

Independent directors also receive attendance fees for certain special joint meetings and information sessions with directors and trustees of other groupings of funds advised by the investment adviser. The fund and the other funds served by each independent director each pay a portion of these attendance fees.

No pension or retirement benefits are accrued as part of fund expenses. Independent directors may elect, on a voluntary basis, to defer all or a portion of their fees through a deferred compensation plan in effect for the fund. The fund also reimburses certain expenses of the independent directors.

New World Fund — Page 34

Director compensation earned during the fiscal year ended October 31, 2020:

     
Name Aggregate compensation
(including voluntarily
deferred compensation1)
from the fund
Total compensation (including
voluntarily deferred
compensation1)
from all funds managed by
Capital Research and
Management
Company or its affiliates
Elisabeth Allison
(retired December 31, 2019)
$17,500 $52,500
Vanessa C. L. Chang 26,490 396,250
Pablo R. González Guajardo2 27,710 389,125
Martin E. Koehler2 42,738 224,000
Pascal Millaire 40,410 215,500
William I. Miller2 54,386 276,500
Alessandro Ovi
(retired December 31, 2019)
18,083 54,250
Josette Sheeran2 24,582 299,500
Christopher E. Stone2 5,706 329,334
Amy Zegart
(service began January 1, 2019)
40,938 219,250

Amounts may be deferred by eligible directors under a nonqualified deferred compensation plan adopted by the fund in 1999. Deferred amounts accumulate at an earnings rate determined by the total return of one or more American Funds as designated by the directors. Compensation shown in this table for the fiscal year ended October 31, 2020 does not include earnings on amounts deferred in previous fiscal years. See footnote 2 to this table for more information.

2 Since the deferred compensation plan’s adoption, the total amount of deferred compensation accrued by the fund (plus earnings thereon) through the end of the 2020 fiscal year for participating directors is as follows: Pablo R. González Guajardo ($399,416), Martin E. Koehler ($138,496), William I. Miller ($295,224), Josette Sheeran ($286,573) and Christopher E. Stone ($1,933). Amounts deferred and accumulated earnings thereon are not funded and are general unsecured liabilities of the fund until paid to the directors.

Fund organization and the board of directors — The fund, an open-end, diversified management investment company, was organized as a Maryland corporation on November 13, 1998. At a meeting of the fund’s shareholders on November 24, 2009, shareholders approved the reorganization of the fund to a Delaware statutory trust. The reorganization may be completed in the next year; however, the fund reserves the right to delay the implementation. A summary comparison of the governing documents and state laws affecting the Delaware statutory trust and the current form of organization of the fund can be found in a joint proxy statement available on the SEC’s website at sec.gov. Although the board of directors has delegated day-to-day oversight to the investment adviser, all fund operations are supervised by the fund’s board, which meets periodically and performs duties required by applicable state and federal laws.

Under Maryland law, the business affairs of a fund are managed under the direction of the board of directors, and all powers of the fund are exercised by or under the authority of the board except as reserved to the shareholders by law or the fund’s charter or by-laws. Maryland law requires each director to perform his/her duties as a director, including his/her duties as a member of any board committee on which he/she serves, in good faith, in a manner he/she reasonably believes to be in the best interest of the fund, and with the care that an ordinarily prudent person in a like position would use under similar circumstances.

Independent board members are paid certain fees for services rendered to the fund as described above. They may elect to defer all or a portion of these fees through a deferred compensation plan in effect for the fund.

New World Fund — Page 35

The fund has several different classes of shares. Shares of each class represent an interest in the same investment portfolio. Each class has pro rata rights as to voting, redemption, dividends and liquidation, except that each class bears different distribution expenses and may bear different transfer agent fees and other expenses properly attributable to the particular class as approved by the board of directors and set forth in the fund’s rule 18f-3 Plan. Each class’ shareholders have exclusive voting rights with respect to the respective class’ rule 12b-1 plans adopted in connection with the distribution of shares and on other matters in which the interests of one class are different from interests in another class. Shares of all classes of the fund vote together on matters that affect all classes in substantially the same manner. Each class votes as a class on matters that affect that class alone. Note that 529 college savings plan account owners invested in Class 529 shares are not shareholders of the fund and, accordingly, do not have the rights of a shareholder, such as the right to vote proxies relating to fund shares. As the legal owner of the fund’s Class 529 shares, Virginia College Savings PlanSM (Virginia529SM) will vote any proxies relating to the fund’s Class 529 shares.

The fund does not hold annual meetings of shareholders. However, significant matters that require shareholder approval, such as certain elections of board members or a change in a fundamental investment policy, will be presented to shareholders at a meeting called for such purpose. Shareholders have one vote per share owned. At the request of the holders of at least 10% of the shares, the fund will hold a meeting at which any member of the board could be removed by a majority vote.

The fund’s articles of incorporation and by-laws, as well as separate indemnification agreements with independent directors, provide in effect that, subject to certain conditions, the fund will indemnify its officers and directors against liabilities or expenses actually and reasonably incurred by them relating to their service to the fund. However, directors are not protected from liability by reason of their willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their office.

Leadership structure — The board’s chair is currently an independent director who is not an “interested person” of the fund within the meaning of the 1940 Act. The board has determined that an independent chair facilitates oversight and enhances the effectiveness of the board. The independent chair’s duties include, without limitation, generally presiding at meetings of the board, approving board meeting schedules and agendas, leading meetings of the independent directors in executive session, facilitating communication with committee chairs, and serving as the principal independent director contact for fund management and counsel to the independent directors and the fund.

Risk oversight — Day-to-day management of the fund, including risk management, is the responsibility of the fund’s contractual service providers, including the fund’s investment adviser, principal underwriter/distributor and transfer agent. Each of these entities is responsible for specific portions of the fund’s operations, including the processes and associated risks relating to the fund’s investments, integrity of cash movements, financial reporting, operations and compliance. The board of directors oversees the service providers’ discharge of their responsibilities, including the processes they use to manage relevant risks. In that regard, the board receives reports regarding the operations of the fund’s service providers, including risks. For example, the board receives reports from investment professionals regarding risks related to the fund’s investments and trading. The board also receives compliance reports from the fund’s and the investment adviser’s chief compliance officers addressing certain areas of risk.

Committees of the fund’s board, which are comprised of independent board members, none of whom is an “interested person” of the fund within the meaning of the 1940 Act, as well as joint committees of independent board members of funds managed by Capital Research and Management Company, also explore risk management procedures in particular areas and then report back to the full board. For example, the fund’s audit committee oversees the processes and certain attendant risks relating to

New World Fund — Page 36

financial reporting, valuation of fund assets, and related controls. Similarly, a joint review and advisory committee oversees certain risk controls relating to the fund’s transfer agency services.

Not all risks that may affect the fund can be identified or processes and controls developed to eliminate or mitigate their effect. Moreover, it is necessary to bear certain risks (such as investment-related risks) to achieve the fund’s objectives. As a result of the foregoing and other factors, the ability of the fund’s service providers to eliminate or mitigate risks is subject to limitations.

Committees of the board of directors — The fund has an audit committee comprised of Pablo R. González Guajardo, Pascal Millaire, Josette Sheeran and Amy Zegart. The committee provides oversight regarding the fund’s accounting and financial reporting policies and practices, its internal controls and the internal controls of the fund’s principal service providers. The committee acts as a liaison between the fund’s independent registered public accounting firm and the full board of directors. The audit committee held five meetings during the 2020 fiscal year.

The fund has a contracts committee comprised of all of its independent board members. The committee’s principal function is to request, review and consider the information deemed necessary to evaluate the terms of certain agreements between the fund and its investment adviser or the investment adviser’s affiliates, such as the Investment Advisory and Service Agreement, Principal Underwriting Agreement, Administrative Services Agreement and Plans of Distribution adopted pursuant to rule 12b-1 under the 1940 Act, that the fund may enter into, renew or continue, and to make its recommendations to the full board of directors on these matters. The contracts committee held one meeting during the 2020 fiscal year.

The fund has a nominating and governance committee comprised of Vanessa C. L. Chang, Martin E. Koehler and William I. Miller. The committee periodically reviews such issues as the board’s composition, responsibilities, committees, compensation and other relevant issues, and recommends any appropriate changes to the full board of directors. The committee also coordinates annual self-assessments of the board and evaluates, selects and nominates independent director candidates to the full board of directors. While the committee normally is able to identify from its own and other resources an ample number of qualified candidates, it will consider shareholder suggestions of persons to be considered as nominees to fill future vacancies on the board. Such suggestions must be sent in writing to the nominating and governance committee of the fund, addressed to the fund’s secretary, and must be accompanied by complete biographical and occupational data on the prospective nominee, along with a written consent of the prospective nominee for consideration of his or her name by the committee. The nominating and governance committee held two meetings during the 2020 fiscal year.

Proxy voting procedures and principles — The fund’s investment adviser, in consultation with the fund’s board, has adopted Proxy Voting Procedures and Principles (the “Principles”) with respect to voting proxies of securities held by the fund, other American Funds and American Funds Insurance Series. The complete text of these principles is available at capitalgroup.com. Proxies are voted by a committee of the appropriate equity investment division of the investment adviser under authority delegated by the funds’ boards. The boards of American Funds have established a Joint Proxy Committee (“JPC”) composed of independent board members from each American Funds board. The JPC’s role is to facilitate appropriate oversight of the proxy voting process and provide valuable input on corporate governance and related matters.

The Principles, which have been in effect in substantially their current form for many years, provide an important framework for analysis and decision-making by all funds. However, they are not exhaustive and do not address all potential issues. The Principles provide a certain amount of flexibility so that all relevant facts and circumstances can be considered in connection with every vote. As a result, each proxy received is voted on a case-by-case basis considering the specific circumstances of each

New World Fund — Page 37

proposal. The voting process reflects the funds’ understanding of the company’s business, its management and its relationship with shareholders over time.

The investment adviser seeks to vote all U.S. proxies; however, in certain circumstances it may be impracticable or impossible to do so. Proxies for companies outside the U.S. also are voted, provided there is sufficient time and information available. Certain regulators have granted investment limit relief to the investment adviser and its affiliates, conditioned upon limiting its voting power to specific voting ceilings. To comply with these voting ceilings, the investment adviser will scale back its votes across all funds and clients on a pro-rata basis based on assets. After a proxy statement is received, the investment adviser prepares a summary of the proposals contained in the proxy statement. A notation of any potential conflicts of interest also is included in the summary (see below for a description of Capital Research and Management Company’s special review procedures).

For proxies of securities managed by a particular equity investment division of the investment adviser, the initial voting recommendation is made by one or more of the division’s investment analysts familiar with the company and industry. A second recommendation is made by a proxy coordinator (an investment analyst or other individual with experience in corporate governance and proxy voting matters) within the appropriate investment division, based on knowledge of these Principles and familiarity with proxy-related issues. The proxy summary and voting recommendations are made available to the appropriate proxy voting committee for a final voting decision. In cases where a fund is co-managed and a security is held by more than one of the investment adviser’s equity investment divisions, the divisions may develop different voting recommendations for individual ballot proposals. If this occurs, and if permitted by local market conventions, the fund’s position will generally be voted proportionally by divisional holding, according to their respective decisions. Otherwise, the outcome will be determined by the equity investment division or divisions with the larger position in the security as of the record date for the shareholder meeting.

In addition to its proprietary proxy voting, governance and executive compensation research, Capital Research and Management Company may utilize research provided by Institutional Shareholder Services, Glass-Lewis & Co. or other third-party advisory firms on a case-by-case basis. It does not, as a policy, follow the voting recommendations provided by these firms. It periodically assesses the information provided by the advisory firms and reports to the JPC, as appropriate.

From time to time the investment adviser may vote proxies issued by, or on proposals sponsored or publicly supported by (a) a client with substantial assets managed by the investment adviser or its affiliates, (b) an entity with a significant business relationship with Capital Group, or (c) a company with a director of an American Funds on its board (each referred to as an “Interested Party”). Other persons or entities may also be deemed an Interested Party if facts or circumstances appear to give rise to a potential conflict. The investment adviser analyzes these proxies and proposals on their merits and does not consider these relationships when casting its vote.

The investment adviser has developed procedures to identify and address instances where a vote could appear to be influenced by such a relationship. Under the procedures, prior to a final vote being cast by the investment adviser, the relevant proxy committees’ voting results for proxies issued by Interested Parties are reviewed by a Special Review Committee (“SRC”) of the investment division voting the proxy if the vote was in favor of the Interested Party.

If a potential conflict is identified according to the procedure above, the SRC will be provided with a summary of any relevant communications with the Interested Party, the rationale for the voting decision, information on the organization’s relationship with the party and any other pertinent information. The SRC will evaluate the information and determine whether the decision was in the best interest of fund shareholders. It will then accept or override the voting decision or determine

New World Fund — Page 38

alternative action. The SRC includes senior investment professionals and legal and compliance professionals.

Information regarding how the fund voted proxies relating to portfolio securities during the 12-month period ended June 30 of each year will be available on or about September 1 of such year (a) without charge, upon request by calling American Funds Service Company at (800) 421-4225, (b) on the Capital Group website and (c) on the SEC’s website at sec.gov.

The following summary sets forth the general positions of American Funds, American Funds Insurance Series and the investment adviser on various proposals. A copy of the full Principles is available upon request, free of charge, by calling American Funds Service Company or visiting the Capital Group website.

Director matters — The election of a company’s slate of nominees for director generally is supported. Votes may be withheld for some or all of the nominees if this is determined to be in the best interest of shareholders or if, in the opinion of the investment adviser, such nominee has not fulfilled his or her fiduciary duty. Separation of the chairman and CEO positions also may be supported.

Governance provisions — Typically, proposals to declassify a board (elect all directors annually) are supported based on the belief that this increases the directors’ sense of accountability to shareholders. Proposals for cumulative voting generally are supported in order to promote management and board accountability and an opportunity for leadership change. Proposals designed to make director elections more meaningful, either by requiring a majority vote or by requiring any director receiving more withhold votes than affirmative votes to tender his or her resignation, generally are supported.

Shareholder rights — Proposals to repeal an existing poison pill generally are supported. (There may be certain circumstances, however, when a proxy voting committee of a fund or an investment division of the investment adviser believes that a company needs to maintain anti-takeover protection.) Proposals to eliminate the right of shareholders to act by written consent or to take away a shareholder’s right to call a special meeting typically are not supported.

Compensation and benefit plans — Option plans are complicated, and many factors are considered in evaluating a plan. Each plan is evaluated based on protecting shareholder interests and a knowledge of the company and its management. Considerations include the pricing (or repricing) of options awarded under the plan and the impact of dilution on existing shareholders from past and future equity awards. Compensation packages should be structured to attract, motivate and retain existing employees and qualified directors; however, they should not be excessive.

Routine matters — The ratification of auditors, procedural matters relating to the annual meeting and changes to company name are examples of items considered routine. Such items generally are voted in favor of management’s recommendations unless circumstances indicate otherwise.

New World Fund — Page 39

Principal fund shareholders — The following table identifies those investors who own of record, or are known by the fund to own beneficially, 5% or more of any class of its shares as of the opening of business on December 1, 2020. Unless otherwise indicated, the ownership percentages below represent ownership of record rather than beneficial ownership.

       
NAME AND ADDRESS OWNERSHIP OWNERSHIP PERCENTAGE
EDWARD D JONES & CO
FOR THE BENEFIT OF CUSTOMERS
OMNIBUS ACCOUNT
SAINT LOUIS MO
RECORD CLASS A 27.03%
  CLASS F-3 42.08
  CLASS 529-A 10.00
     
PERSHING LLC
OMNIBUS ACCOUNT
JERSEY CITY NJ
RECORD CLASS A 8.37
  CLASS C 9.27
  CLASS F-1 5.86
  CLASS F-2 30.07
  CLASS F-3 15.70
     
WELLS FARGO CLEARING SERVICES LLC
SPECIAL CUSTODY ACCT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMER
SAINT LOUIS MO
RECORD CLASS A 7.17
  CLASS C 15.31
  CLASS F-2 13.42
  CLASS 529-C 5.23
     
NATIONAL FINANCIAL SERVICES LLC
FOR EXCLUSIVE BENEFIT OF OUR CUSTOMERS
OMNIBUS ACCOUNT
JERSEY CITY NJ
RECORD CLASS A 5.04
  CLASS C 6.28
  CLASS F-1 14.55
  CLASS F-2 10.97
  CLASS F-3 10.05
     
MORGAN STANLEY SMITH BARNEY LLC
FOR THE BENEFIT OF ITS CUSTOMERS
OMNIBUS ACCOUNT
NEW YORK NY
RECORD CLASS C 7.43
  CLASS F-2 7.29
  CLASS 529-A 8.10
  CLASS 529-C 11.83
     
RAYMOND JAMES
OMNIBUS FOR MUTUAL FUNDS
HOUSE ACCOUNT
ST PETERSBURG FL
RECORD CLASS C 5.79
  CLASS F-2 5.68
  CLASS 529-C 5.88
     
LPL FINANCIAL
--OMNIBUS CUSTOMER ACCOUNT--
SAN DIEGO CA
RECORD CLASS C 5.70
  CLASS F-2 10.25
     
CHARLES SCHWAB & CO INC
SPECIAL CUSTODY ACCT FOR EXCLUSIVE
BENEFIT OF CUSTOMERS - RIA ACCT #1
SAN FRANCISCO CA
RECORD CLASS F-1 32.85
     
     
     
TD AMERITRADE INC FOR THE
EXCLUSIVE BENEFIT OF OUR CLIENTS
OMNIBUS ACCOUNT
OMAHA NE
RECORD CLASS F-1 11.96
     
     
     

New World Fund — Page 40

       
NAME AND ADDRESS OWNERSHIP OWNERSHIP PERCENTAGE

UBS WM USA

OMNIBUS ACCOUNT

WEEHAWKEN NJ

RECORD CLASS F-2 6.64
     
     
CHARLES SCHWAB & CO INC
OMNIBUS ACCOUNT #2
SAN FRANCISCO CA
RECORD CLASS F-3 17.37
     
     
CAPITAL RESEARCH & MANAGEMENT CO
CORPORATE ACCOUNT
LOS ANGELES CA
RECORD CLASS 529-F-1 100.00
  CLASS 529-F-3 100.00
     
DCGT TRUSTEE & OR CUSTODIAN
FBO PLIC VARIOUS RETIREMENT PLANS
OMNIBUS
DES MOINES IA
RECORD CLASS R-1 18.12
  CLASS R-3 9.62
     
     
MASSACHUSETTS MUTUAL LIFE
OMNIBUS ACCOUNT
ATLANTA GA
RECORD CLASS R-1 5.34
   
     
AXA EQUITABLE
RETIREMENT PLANS
JERSEY CITY NJ
RECORD
BENEFICIAL
CLASS R-2 5.13
     
     
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY 401K
SPRINGFIELD MA
RECORD
BENEFICIAL
CLASS R-2E 12.11
   
     
HARTFORD
401K PLAN
HARTFORD CT
RECORD
BENEFICIAL
CLASS R-2E 11.88
     
     
NATIONAL FINANCIAL SERVICES LLC
401K PLAN
JERSEY CITY NJ
RECORD
BENEFICIAL
CLASS R-2E 5.67
CLASS R-5 5.15
     
NATIONWIDE LIFE INSURANCE CO #1
COLUMBUS OH
RECORD CLASS R-4 10.90
     
NATIONWIDE LIFE INSURANCE CO #2
COLUMBUS OH
RECORD CLASS R-4 7.17
     
MLPF&S FOR THE SOLE BENEFIT OF
ITS CUSTOMERS
OMNIBUS ACCOUNT
JACKSONVILLE FL
RECORD CLASS R-4 6.48
  CLASS R-5 11.16
     
     
NATIONWIDE LIFE INSCURANCE CO #3
COLUMBUS OH
RECORD CLASS R-5E 8.29
     
401K PLAN
COVINGTON KY
BENEFICIAL CLASS R-5E 5.50
   
     
AMERICAN FUNDS 2040 TARGET DATE
RETIREMENT FUND
NORFOLK VA
RECORD CLASS R-6 9.63
     
     

New World Fund — Page 41

       
NAME AND ADDRESS OWNERSHIP OWNERSHIP PERCENTAGE

AMERICAN FUNDS 2035 TARGET DATE

RETIREMENT FUND

NORFOLK VA

RECORD CLASS R-6 7.87
     
     
AMERICAN FUNDS 2045 TARGET DATE
RETIREMENT FUND
NORFOLK VA
RECORD CLASS R-6 7.83
     
     
AMERICAN FUNDS 2050 TARGET DATE
RETIREMENT FUND
NORFOLK VA
RECORD CLASS R-6 6.63
     
     

Because Class T and Class 529-T shares are not currently offered to the public, Capital Research and Management Company, the fund’s investment adviser, owns 100% of the fund‘s outstanding Class T and Class 529-T shares.

As of December 1, 2020, the officers and directors of the fund, as a group, owned beneficially or of record less than 1% of the outstanding shares of the fund.

Unless otherwise noted, references in this statement of additional information to Class F shares, Class R shares or Class 529 shares refer to all F share classes, all R share classes or all 529 share classes, respectively.

Investment adviser — Capital Research and Management Company, the fund’s investment adviser, founded in 1931, maintains research facilities in the United States and abroad (Beijing, Geneva, Hong Kong, London, Los Angeles, Mumbai, New York, San Francisco, Singapore, Tokyo and Washington, D.C.). These facilities are staffed with experienced investment professionals. The investment adviser is located at 333 South Hope Street, Los Angeles, CA 90071. It is a wholly owned subsidiary of The Capital Group Companies, Inc., a holding company for several investment management subsidiaries. Capital Research and Management Company manages equity assets through three equity investment divisions and fixed income assets through its fixed income investment division, Capital Fixed Income Investors. The three equity investment divisions — Capital World Investors, Capital Research Global Investors and Capital International Investors — make investment decisions independently of one another. Portfolio managers in Capital International Investors rely on a research team that also provides investment services to institutional clients and other accounts advised by affiliates of Capital Research and Management Company. The investment adviser, which is deemed under the Commodity Exchange Act (the “CEA”) to be the operator of the fund, has claimed an exclusion from the definition of the term commodity pool operator under the CEA with respect to the fund and, therefore, is not subject to registration or regulation as such under the CEA with respect to the fund.

The investment adviser has adopted policies and procedures that address issues that may arise as a result of an investment professional’s management of the fund and other funds and accounts. Potential issues could involve allocation of investment opportunities and trades among funds and accounts, use of information regarding the timing of fund trades, investment professional compensation and voting relating to portfolio securities. The investment adviser believes that its policies and procedures are reasonably designed to address these issues.

Compensation of investment professionals — As described in the prospectus, the investment adviser uses a system of multiple portfolio managers in managing fund assets. In addition, Capital Research and Management Company’s investment analysts may make investment decisions with respect to a portion of a fund’s portfolio within their research coverage.

New World Fund — Page 42

Portfolio managers and investment analysts are paid competitive salaries by Capital Research and Management Company. In addition, they may receive bonuses based on their individual portfolio results. Investment professionals also may participate in profit-sharing plans. The relative mix of compensation represented by bonuses, salary and profit-sharing plans will vary depending on the individual’s portfolio results, contributions to the organization and other factors.

To encourage a long-term focus, bonuses based on investment results are calculated by comparing pretax total investment returns to relevant benchmarks over the most recent one-, three-, five- and eight-year periods, with increasing weight placed on each succeeding measurement period. For portfolio managers, benchmarks may include measures of the marketplaces in which the fund invests and measures of the results of comparable mutual funds. For investment analysts, benchmarks may include relevant market measures and appropriate industry or sector indexes reflecting their areas of expertise. Capital Research and Management Company makes periodic subjective assessments of analysts’ contributions to the investment process and this is an element of their overall compensation. The investment results of each of the fund’s portfolio managers may be measured against one or more benchmarks, depending on his or her investment focus, such as: MSCI All Country World Index; Lipper Global Funds Index; Lipper Emerging Markets Funds Index; JP Morgan Emerging Markets Bond Index Global Diversified; MSCI Emerging Markets Index; and a custom average consisting of one share class per fund of emerging markets debt funds that disclose investment objectives and strategies comparable to those of the fund. From time to time, Capital Research and Management Company may adjust or customize these benchmarks to better reflect the universe of comparably managed funds of competitive investment management firms.

Portfolio manager fund holdings and other managed accounts — As described below, portfolio managers may personally own shares of the fund. In addition, portfolio managers may manage portions of other mutual funds or accounts advised by Capital Research and Management Company or its affiliates.

New World Fund — Page 43

The following table reflects information as of October 31, 2020:

                 
Portfolio
manager
Dollar range
of fund
shares
owned1
Number
of other
registered
investment
companies (RICs)
for which
portfolio
manager
is a manager
(assets of RICs
in billions)2
Number
of other
pooled
investment
vehicles (PIVs)
for which
portfolio
manager
is a manager
(assets of PIVs
in billions)2
Number
of other
accounts
for which
portfolio
manager
is a manager
(assets of
other accounts
in billions)2,3
Carl M. Kawaja Over $1,000,000 3 $382.8 4 $10.66 None
Nicholas J. Grace $500,001 – $1,000,000 3 $166.7 2 $1.99 None
Jonathan Knowles $100,001 – $500,000 5 $333.7 4 $11.71 None
Robert W. Lovelace Over $1,000,000 2 $111.5 6 $10.42 16 $6.42
Bradford F. Freer $500,001 – $1,000,000 5 $84.5 1 $0.35 None
Winnie Kwan $100,001 – $500,000 4 $118.2 2 $0.57 None
Piyada Phanaphat $100,001 –$500,000 1 $3.6 1 $0.35 None
Akira Shiraishi $100,001 – $500,000 1 $3.6 4 $0.77 144 $8.68
Kirstie Spence $100,001 – $500,000 3 $5.1 4 $2.61 5 $2.46
Tomonori Tani $100,001 – $500,000 2 $4.0 1 $0.35 None
Lisa Thompson $100,001 – $500,000 2 $19.6 4 $0.77 6 $0.66
Christopher Thomsen Over $1,000,000 3 $173.8 2 $1.99 None

Ownership disclosure is made using the following ranges: None; $1 – $10,000; $10,001 – $50,000; $50,001 – $100,000; $100,001 – $500,000; $500,001 – $1,000,000; and Over $1,000,000. The amounts listed include shares owned through The Capital Group Companies, Inc. retirement plan and 401(k) plan.

Indicates other RIC(s), PIV(s) or other accounts managed by Capital Research and Management Company or its affiliates for which the portfolio manager also has significant day to day management responsibilities. Assets noted are the total net assets of the RIC(s), PIV(s) or other accounts and are not the total assets managed by the individual, which is a substantially lower amount. No RIC, PIV or other account has an advisory fee that is based on the performance of the RIC, PIV or other account, unless otherwise noted.

Personal brokerage accounts of portfolio managers and their families are not reflected.

4 The advisory fee of four of these accounts (representing $6.77 billion in total assets) is based partially on its investment results.

The fund’s investment adviser has adopted policies and procedures to mitigate material conflicts of interest that may arise in connection with a portfolio manager’s management of the fund, on the one hand, and investments in the other pooled investment vehicles and other accounts, on the other hand, such as material conflicts relating to the allocation of investment opportunities that may be suitable for both the fund and such other accounts.

New World Fund — Page 44

Investment Advisory and Service Agreement — The Investment Advisory and Service Agreement (the “Agreement”) between the fund and the investment adviser will continue in effect until January 31, 2022, unless sooner terminated, and may be renewed from year to year thereafter, provided that any such renewal has been specifically approved at least annually by (a) the board of directors, or by the vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the fund, and (b) the vote of a majority of directors who are not parties to the Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. The Agreement provides that the investment adviser has no liability to the fund for its acts or omissions in the performance of its obligations to the fund not involving willful misconduct, bad faith, gross negligence or reckless disregard of its obligations under the Agreement. The Agreement also provides that either party has the right to terminate it, without penalty, upon 60 days’ written notice to the other party, and that the Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act). In addition, the Agreement provides that the investment adviser may delegate all, or a portion of, its investment management responsibilities to one or more subsidiary advisers approved by the fund’s board, pursuant to an agreement between the investment adviser and such subsidiary. Any such subsidiary adviser will be paid solely by the investment adviser out of its fees.

In addition to providing investment advisory services, the investment adviser furnishes the services and pays the compensation and travel expenses of persons to perform the fund’s executive, administrative, clerical and bookkeeping functions, and provides suitable office space, necessary small office equipment and utilities, general purpose accounting forms, supplies and postage used at the fund’s offices. The fund pays all expenses not assumed by the investment adviser, including, but not limited to: custodian, stock transfer and dividend disbursing fees and expenses; shareholder recordkeeping and administrative expenses; costs of the designing, printing and mailing of reports, prospectuses, proxy statements and notices to its shareholders; taxes; expenses of the issuance and redemption of fund shares (including stock certificates, registration and qualification fees and expenses); expenses pursuant to the fund’s plans of distribution (described below); legal and auditing expenses; compensation, fees and expenses paid to independent directors; association dues; costs of stationery and forms prepared exclusively for the fund; and costs of assembling and storing shareholder account data.

New World Fund — Page 45

As compensation for its services, the investment adviser receives a monthly fee that is accrued daily, calculated at the annual rate of:

     
Rate Net asset level
In excess of Up to
0.850% $ 0 $ 500,000,000
0.770 500,000,000 1,000,000,000
0.710 1,000,000,000 1,500,000,000
0.660 1,500,000,000 2,500,000,000
0.620 2,500,000,000 4,000,000,000
0.580 4,000,000,000 6,500,000,000
0.540 6,500,000,000 10,500,000,000
0.510 10,500,000,000 17,000,000,000
0.500 17,000,000,000 21,000,000,000
0.490 21,000,000,000 27,000,000,000
0.485 27,000,000,000 34,000,000,000
0.480 34,000,000,000 44,000,000,000
0.477 44,000,000,000  

For the fiscal years ended October 31, 2020, 2019 and 2018, the investment adviser earned from the fund management fees of $220,887,000, $198,846,000 and $189,890,000, respectively. The fund's board of directors approved an amended Investment Advisory and Service Agreement, pursuant to which the annualized rate payable to the investment adviser on daily net assets in excess of certain levels will be decreased.

New World Fund — Page 46

Administrative services — The investment adviser and its affiliates provide certain administrative services for shareholders of the fund’s Class A, C, T, F, R and 529 shares. Administrative services are provided by the investment adviser and its affiliates to help assist third parties providing non-distribution services to fund shareholders. These services include providing in-depth information on the fund and market developments that impact fund investments. Administrative services also include, but are not limited to, coordinating, monitoring and overseeing third parties that provide services to fund shareholders.

These services are provided pursuant to an Administrative Services Agreement (the “Administrative Agreement”) between the fund and the investment adviser relating to the fund’s Class A, C, T, F, R and 529 shares. The Administrative Agreement will continue in effect until January 31, 2022, unless sooner renewed or terminated, and may be renewed from year to year thereafter, provided that any such renewal has been specifically approved at least annually by the vote of a majority of the members of the fund’s board who are not parties to the Administrative Agreement or interested persons (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of voting on such approval. The fund may terminate the Administrative Agreement at any time by vote of a majority of independent board members. The investment adviser has the right to terminate the Administrative Agreement upon 60 days’ written notice to the fund. The Administrative Agreement automatically terminates in the event of its assignment (as defined in the 1940 Act).

The Administrative Services Agreement between the fund and the investment adviser provides the fund the ability to charge an administrative services fee of .05% for all share classes. The fund’s investment adviser receives an administrative services fee at the annual rate of .03% of the average daily net assets of the fund attributable to each of the share classes (which could be increased as noted above) for its provision of administrative services. Administrative services fees are paid monthly and accrued daily.

During the 2020 fiscal year, administrative services fees were:

   
  Administrative services fee
Class A $3,818,000
Class C 185,000
Class T —*
Class F-1 338,000
Class F-2 3,854,000
Class F-3 1,348,000
Class 529-A 268,000
Class 529-C 27,000
Class 529-E 11,000
Class 529-T —*
Class 529-F-1 27,000
Class R-1 8,000
Class R-2 86,000
Class R-2E 10,000
Class R-3 171,000
Class R-4 228,000
Class R-5E 14,000
Class R-5 89,000
Class R-6 2,265,000

* Amount less than $1,000.

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Principal Underwriter and plans of distribution — American Funds Distributors, Inc. (the “Principal Underwriter”) is the principal underwriter of the fund’s shares. The Principal Underwriter is located at 333 South Hope Street, Los Angeles, CA 90071; 6455 Irvine Center Drive, Irvine, CA 92618; 3500 Wiseman Boulevard, San Antonio, TX 78251; and 12811 North Meridian Street, Carmel, IN 46032.

The Principal Underwriter receives revenues relating to sales of the fund’s shares, as follows:

· For Class A and 529-A shares, the Principal Underwriter receives commission revenue consisting of the balance of the Class A and 529-A sales charge remaining after the allowances by the Principal Underwriter to investment dealers.

· For Class C and 529-C shares, the Principal Underwriter receives any contingent deferred sales charges that apply during the first year after purchase.

In addition, the fund reimburses the Principal Underwriter for advancing immediate service fees to qualified dealers and financial professionals upon the sale of Class C and 529-C shares. The fund also reimburses the Principal Underwriter for service fees (and, in the case of Class 529-E shares, commissions) paid on a quarterly basis to intermediaries, such as qualified dealers or financial professionals, in connection with investments in Class T, F-1, 529-E, 529-T, 529-F-1, R-1, R-2, R-2E, R-3 and R-4 shares.

Commissions, revenue or service fees retained by the Principal Underwriter after allowances or compensation to dealers were:

       
  Fiscal year Commissions,
revenue
or fees retained
Allowance or
compensation
to dealers
Class A 2020 $1,736,000 $7,524,000
  2019 2,051,000 8,797,000
  2018 2,965,000 12,551,000
Class C 2020 136,000 529,000
  2019 199,000 682,000
  2018 204,000 1,247,000
Class 529-A 2020 200,000 869,000
  2019 228,000 1,023,000
  2018 307,000 1,331,000
Class 529-C 2020 13,000 64,000
  2019 19,000 82,000
  2018 4,000 120,000

New World Fund — Page 48

Plans of distribution — The fund has adopted plans of distribution (the “Plans”) pursuant to rule 12b-1 under the 1940 Act. The Plans permit the fund to expend amounts to finance any activity primarily intended to result in the sale of fund shares, provided the fund’s board of directors has approved the category of expenses for which payment is being made.

Each Plan is specific to a particular share class of the fund. As the fund has not adopted a Plan for Class F-2, F-3, 529-F-2, 529-F-3, R-5E, R-5 or R-6, no 12b-1 fees are paid from Class F-2, F-3, 529-F-2, 529-F-3, R-5E, R-5 or R-6 share assets and the following disclosure is not applicable to these share classes.

Payments under the Plans may be made for service-related and/or distribution-related expenses. Service-related expenses include paying service fees to qualified dealers. Distribution-related expenses include commissions paid to qualified dealers. The amounts actually paid under the Plans for the past fiscal year, expressed as a percentage of the fund’s average daily net assets attributable to the applicable share class, are disclosed in the prospectus under “Fees and expenses of the fund.” Further information regarding the amounts available under each Plan is in the “Plans of Distribution” section of the prospectus.

Following is a brief description of the Plans:

Class A and 529-A — For Class A and 529-A shares, up to .25% of the fund’s average daily net assets attributable to such shares is reimbursed to the Principal Underwriter for paying service-related expenses, and the balance available under the applicable Plan may be paid to the Principal Underwriter for distribution-related expenses. The fund may annually expend up to .30% for Class A shares and up to .50% for Class 529-A shares under the applicable Plan; however, for Class 529-A shares, the board of trustees has approved payments to the Principal Underwriter of up to .30% of the fund’s average daily net assets, in the aggregate, for paying service- and distribution-related expenses.

Distribution-related expenses for Class A and 529-A shares include dealer commissions and wholesaler compensation paid on sales of shares of $1 million or more purchased without a sales charge. Commissions on these “no load” purchases (which are described in further detail under the “Sales Charges” section of this statement of additional information) in excess of the Class A and 529-A Plan limitations and not reimbursed to the Principal Underwriter during the most recent fiscal quarter are recoverable for 15 months, provided that the reimbursement of such commissions does not cause the fund to exceed the annual expense limit. After 15 months, these commissions are not recoverable.

Class T and 529-T — For Class T and 529-T shares, the fund may annually expend up to .50% under the applicable Plan; however, the fund’s board of trustees has approved payments to the Principal Underwriter of up to .25% of the fund’s average daily net assets attributable to Class T and 529-T shares for paying service-related expenses.

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Other share classes — The Plans for each of the other share classes that have adopted Plans provide for payments to the Principal Underwriter for paying service-related and distribution-related expenses of up to the following amounts of the fund’s average daily net assets attributable to such shares:

       
Share class Service
related
payments1
Distribution
related
payments1
Total
allowable
under
the Plans2
Class C 0.25% 0.75% 1.00%
Class F-1 0.25 0.50
Class 529-C 0.25 0.75 1.00
Class 529-E 0.25 0.25 0.75
Class 529-F-1 0.25 0.50
Class R-1 0.25 0.75 1.00
Class R-2 0.25 0.50 1.00
Class R-2E 0.25 0.35 0.85
Class R-3 0.25 0.25 0.75
Class R-4 0.25 0.50

Amounts in these columns represent the amounts approved by the board of directors under the applicable Plan.

The fund may annually expend the amounts set forth in this column under the current Plans with the approval of the board of directors.

Payment of service fees — For purchases of less than $1 million, payment of service fees to investment dealers generally begins accruing immediately after establishment of an account in Class A, C, 529-A or 529-C shares. For purchases of $1 million or more, payment of service fees to investment dealers generally begins accruing 12 months after establishment of an account in Class A or 529-A shares. Service fees are not paid on certain investments made at net asset value including accounts established by registered representatives and their family members as described in the “Sales charges” section of the prospectus.

During the 2020 fiscal year, 12b-1 expenses accrued and paid, and if applicable, unpaid, were:

     
  12b-1 expenses 12b-1 unpaid liability
outstanding
Class A $31,361,000 $2,975,000
Class C 6,075,000 570,000
Class T
Class F-1 2,800,000 355,000
Class 529-A 1,991,000 189,000
Class 529-C 862,000 54,000
Class 529-E 183,000 19,000
Class 529-T
Class 529-F-1
Class R-1 254,000 26,000
Class R-2 2,158,000 272,000
Class R-2E 202,000 30,000
Class R-3 2,852,000 354,000
Class R-4 1,900,000 196,000

New World Fund — Page 50

Approval of the Plans — As required by rule 12b-1 and the 1940 Act, the Plans (together with the Principal Underwriting Agreement) have been approved by the full board of directors and separately by a majority of the independent directors of the fund who have no direct or indirect financial interest in the operation of the Plans or the Principal Underwriting Agreement. In addition, the selection and nomination of independent directors of the fund are committed to the discretion of the independent directors during the existence of the Plans.

Potential benefits of the Plans to the fund and its shareholders include enabling shareholders to obtain advice and other services from a financial professional at a reasonable cost, the likelihood that the Plans will stimulate sales of the fund benefiting the investment process through growth or stability of assets and the ability of shareholders to choose among various alternatives in paying for sales and service. The Plans may not be amended to materially increase the amount spent for distribution without shareholder approval. Plan expenses are reviewed quarterly by the board of directors and the Plans must be renewed annually by the board of directors.

A portion of the fund’s 12b-1 expense is paid to financial professionals to compensate them for providing ongoing services. If you have questions regarding your investment in the fund or need assistance with your account, please contact your financial professional. If you need a financial professional, please call American Funds Distributors at (800) 421-4120 for assistance.

Fee to Virginia529 — Class 529 shares are offered to certain American Funds by Virginia529 through CollegeAmerica and Class ABLE shares are offered to certain American Funds by Virginia529 through ABLEAmerica, a tax-advantaged savings program for individuals with disabilities. As compensation for its oversight and administration of the CollegeAmerica and ABLEAmerica savings plans, Virginia529 is entitled to receive a quarterly fee based on the combined net assets invested in Class 529 shares and Class ABLE shares across all American Funds. The quarterly fee is accrued daily and calculated at the annual rate of .09% on the first $20 billion of net assets invested in American Funds Class 529 shares and Class ABLE shares, .05% on net assets between $20 billion and $100 billion and .03% on net assets over $100 billion. The fee for any given calendar quarter is accrued and calculated on the basis of average net assets of American Funds Class 529 and Class ABLE shares for the last month of the prior calendar quarter. Virginia529 is currently waiving that portion of its fee attributable to Class ABLE shares. Such waiver is expected to remain in effect until the earlier of (a) the date on which total net assets invested in Class ABLE shares reach $300 million and (b) June 30, 2023.

New World Fund — Page 51

Other compensation to dealers — As of February 2020, the top dealers (or their affiliates) that American Funds Distributors anticipates will receive additional compensation (as described in the prospectus) include:

   
Advisor Group  
FSC Securities Corporation  
Royal Alliance Associates, Inc.  
SagePoint Financial, Inc.  
Woodbury Financial Services, Inc.  
American Portfolios Financial Services, Inc.  
Ameriprise  
Ameriprise Financial Services, Inc.  
AXA Advisors  
AXA Advisors, LLC  
Cambridge  
Cambridge Investment Research Advisors, Inc.  
Cambridge Investment Research, Inc.  
Cetera Financial Group  
Cetera Advisor Networks LLC  
Cetera Advisors LLC  
Cetera Financial Specialists LLC  
Cetera Investment Services LLC  
First Allied Securities Inc.  
Summit Brokerage Services, Inc.  
Charles Schwab Network  
Charles Schwab & Co., Inc.  
Charles Schwab Bank  
Commonwealth  
Commonwealth Financial Network  
D.A. Davidson & Co.  
Edward Jones  
Fidelity  
Fidelity Investments  
Fidelity Retirement Network  
National Financial Services LLC  
Hefren-Tillotson  
Hefren-Tillotson, Inc.  
HTK  
Hornor, Townsend & Kent, LLC  
J.J.B. Hilliard Lyons  
Hilliard Lyons Trust Company LLC  
J.J.B. Hilliard, W. L. Lyons, LLC  
J.P. Morgan Chase Banc One  
J.P. Morgan Securities LLC  
JP Morgan Chase Bank, N.A.  
Janney Montgomery Scott  
Janney Montgomery Scott LLC  

New World Fund — Page 52

   
Kestra Securities  
H. Beck, Inc.  
Kestra Investment Services LLC  
NFP Advisor Services LLC  
Ladenburg Thalmann Group  
Investacorp, Inc.  
KMS Financial Services, Inc.  
Ladenburg, Thalmann & Co., Inc.  
Ladenburg Thalmann Asset Management Inc.  
Securities America, Inc.  
Securities Service Network Inc.  
Triad Advisors LLC  
Lincoln Network  
Lincoln Financial Advisors Corporation  
Lincoln Financial Securities Corporation  
LPL Group  
LPL Financial LLC  
Private Advisor Group, LLC  
Merrill  
Bank of America, NA  
Bank of America Private Bank  
Merrill Lynch, Pierce, Fenner & Smith Incorporated  
MML Investors Services  
MassMutual Trust Company FSB  
MML Distributors LLC  
MML Investors Services, LLC  
The MassMutual Trust Company FSB  
Morgan Stanley Wealth Management  
NMIS  
Northwestern Mutual Investment Services, LLC  
Park Avenue Securities LLC  
PNC Network  
PNC Bank, National Association  
PNC Investments LLC  
Raymond James Group  
Raymond James & Associates, Inc.  
Raymond James Financial Services Inc.  
RBC  
RBC Capital Markets LLC  
Robert W. Baird  
Robert W. Baird & Co, Incorporated  
Stifel, Nicolaus & Co  
Stifel, Nicolaus & Company, Incorporated  
UBS  
UBS Financial Services, Inc.  
UBS Securities, LLC  

New World Fund — Page 53

   
Voya Financial  
Voya Financial Advisors, Inc.  
Wells Fargo Network  
Wells Fargo Advisors Financial Network, LLC  
Wells Fargo Advisors Latin American Channel  
Wells Fargo Advisors LLC (WBS)  
Wells Fargo Advisors Private Client Group  
Wells Fargo Bank, N.A.  
Wells Fargo Clearing Services LLC  
Wells Fargo Securities, LLC  

New World Fund — Page 54

Execution of portfolio transactions

The investment adviser places orders with broker-dealers for the fund’s portfolio transactions. Purchases and sales of equity securities on a securities exchange or an over-the-counter market are effected through broker-dealers who receive commissions for their services. Generally, commissions relating to securities traded on foreign exchanges will be higher than commissions relating to securities traded on U.S. exchanges and may not be subject to negotiation. Equity securities may also be purchased from underwriters at prices that include underwriting fees. Purchases and sales of fixed income securities are generally made with an issuer or a primary market maker acting as principal with no stated brokerage commission. The price paid to an underwriter for fixed income securities includes underwriting fees. Prices for fixed income securities in secondary trades usually include undisclosed compensation to the market maker reflecting the spread between the bid and ask prices for the securities.

In selecting broker-dealers, the investment adviser strives to obtain “best execution” (the most favorable total price reasonably attainable under the circumstances) for the fund’s portfolio transactions, taking into account a variety of factors. These factors include the size and type of transaction, the nature and character of the markets for the security to be purchased or sold, the cost, quality, likely speed and reliability of execution and settlement, the broker-dealer’s or execution venue’s ability to offer liquidity and anonymity and the trade-off between market impact and opportunity costs. The investment adviser considers these factors, which involve qualitative judgments, when selecting broker-dealers and execution venues for fund portfolio transactions. The investment adviser views best execution as a process that should be evaluated over time as part of an overall relationship with particular broker-dealer firms. The investment adviser and its affiliates negotiate commission rates with broker-dealers based on what they believe is reasonably necessary to obtain best execution. They seek, on an ongoing basis, to determine what the reasonable levels of commission rates for execution services are in the marketplace, taking various considerations into account, including the extent to which a broker-dealer has put its own capital at risk, historical commission rates and commission rates that other institutional investors are paying. The fund does not consider the investment adviser as having an obligation to obtain the lowest commission rate available for a portfolio transaction to the exclusion of price, service and qualitative considerations. Brokerage commissions are only a small part of total execution costs and other factors, such as market impact and speed of execution, contribute significantly to overall transaction costs.

The investment adviser may execute portfolio transactions with broker-dealers who provide certain brokerage and/or investment research services to it but only when in the investment adviser’s judgment the broker-dealer is capable of providing best execution for that transaction. The investment adviser makes decisions for procurement of research separately and distinctly from decisions on the choice of brokerage and execution services. The receipt of these research services permits the investment adviser to supplement its own research and analysis and makes available the views of, and information from, individuals and the research staffs of other firms. Such views and information may be provided in the form of written reports, telephone contacts and meetings with securities analysts. These services may include, among other things, reports and other communications with respect to individual companies, industries, countries and regions, economic, political and legal developments, as well as scheduling meetings with corporate executives and seminars and conferences related to relevant subject matters. Research services that the investment adviser receives from broker-dealers may be used by the investment adviser in servicing the fund and other funds and accounts that it advises; however, not all such services will necessarily benefit the fund.

As of January 1, 2019, the investment adviser has undertaken to bear the cost of all third-party investment research services for all client accounts it advises. However, in order to compensate certain U.S. broker-dealers for research consumed, and valued, by the investment adviser’s investment professionals, the investment adviser continues to operate a limited commission sharing arrangement with commissions on equity trades for certain registered investment companies it advises. The

New World Fund — Page 55

investment adviser voluntarily reimburses such registered investment companies for all amounts collected into the commission sharing arrangement. In order to operate the commission sharing arrangement, the investment adviser may cause such registered investment companies to pay commissions in excess of what other broker-dealers might have charged for certain portfolio transactions in recognition of brokerage and/or investment research services. In this regard, the investment adviser has adopted a brokerage allocation procedure consistent with the requirements of Section 28(e) of the U.S. Securities Exchange Act of 1934. Section 28(e) permits the investment adviser and its affiliates to cause an account to pay a higher commission to a broker-dealer to compensate the broker-dealer or another service provider for certain brokerage and/or investment research services provided to the investment adviser and its affiliates, if the investment adviser and each affiliate makes a good faith determination that such commissions are reasonable in relation to the value of the services provided by such broker-dealer to the investment adviser and its affiliates in terms of that particular transaction or the investment adviser’s overall responsibility to the fund and other accounts that it advises. Certain brokerage and/or investment research services may not necessarily benefit all accounts paying commissions to each such broker-dealer; therefore, the investment adviser and its affiliates assess the reasonableness of commissions in light of the total brokerage and investment research services provided to the investment adviser and its affiliates. Further, investment research services may be used by all investment associates of the investment adviser and its affiliates, regardless of whether they advise accounts with trading activity that generates eligible commissions.

In accordance with their internal brokerage allocation procedure, the investment adviser and its affiliates periodically assess the brokerage and investment research services provided by each broker-dealer and each other service provider from which they receive such services. As part of its ongoing relationships, the investment adviser and its affiliates routinely meet with firms to discuss the level and quality of the brokerage and research services provided, as well as the value and cost of such services. In valuing the brokerage and investment research services the investment adviser and its affiliates receive from broker-dealers and other research providers in connection with its good faith determination of reasonableness, the investment adviser and its affiliates take various factors into consideration, including the quantity, quality and usefulness of the services to the investment adviser and its affiliates. Based on this information and applying their judgment, the investment adviser and its affiliates set an annual research budget.

Research analysts and portfolio managers periodically participate in a research poll to determine the usefulness and value of the research provided by individual broker-dealers and research providers. Based on the results of this research poll, the investment adviser and its affiliates may, through commission sharing arrangements with certain broker-dealers, direct a portion of commissions paid to a broker-dealer by the fund and other registered investment companies managed by the investment adviser or its affiliates to be used to compensate the broker-dealer and/or other research providers for research services they provide. While the investment adviser and its affiliates may negotiate commission rates and enter into commission sharing arrangements with certain broker-dealers with the expectation that such broker-dealers will be providing brokerage and research services, none of the investment adviser, any of its affiliates or any of their clients incurs any obligation to any broker-dealer to pay for research by generating trading commissions. The investment adviser and its affiliates negotiate prices for certain research that may be paid through commission sharing arrangements or by themselves with cash.

When executing portfolio transactions in the same equity security for the funds and accounts, or portions of funds and accounts, over which the investment adviser, through its equity investment divisions, has investment discretion, each investment division within the adviser and its affiliates normally aggregates its respective purchases or sales and executes them as part of the same transaction or series of transactions. When executing portfolio transactions in the same fixed income security for the fund and the other funds or accounts over which it or one of its affiliated companies has investment discretion, the investment adviser normally aggregates such purchases or sales and executes them as part of the same transaction or series of transactions. The objective of aggregating

New World Fund — Page 56

purchases and sales of a security is to allocate executions in an equitable manner among the funds and other accounts that have concurrently authorized a transaction in such security. The investment adviser and its affiliates serve as investment adviser for certain accounts that are designed to be substantially similar to another account. This type of account will often generate a large number of relatively small trades when it is rebalanced to its reference fund due to differing cash flows or when the account is initially started up. The investment adviser may not aggregate program trades or electronic list trades executed as part of this process. Non-aggregated trades performed for these accounts will be allocated entirely to that account. This is done only when the investment adviser believes doing so will not have a material impact on the price or quality of other transactions.

The investment adviser currently owns an interest in IEX Group and Luminex Trading and Analytics. The investment adviser may place orders on these or other exchanges or alternative trading systems in which it, or one of its affiliates, has an ownership interest, provided such ownership interest is less than five percent of the total ownership interests in the entity. The investment adviser is subject to the same best execution obligations when trading on any such exchange or alternative trading system.

Purchase and sale transactions may be effected directly among and between certain funds or accounts advised by the investment adviser or its affiliates, including the fund. The investment adviser maintains cross-trade policies and procedures and places a cross-trade only when such a trade is in the best interest of all participating clients and is not prohibited by the participating funds’ or accounts’ investment management agreement or applicable law.

The investment adviser may place orders for the fund’s portfolio transactions with broker-dealers who have sold shares of the funds managed by the investment adviser or its affiliated companies; however, it does not consider whether a broker-dealer has sold shares of the funds managed by the investment adviser or its affiliated companies when placing any such orders for the fund’s portfolio transactions.

Purchases and sales of futures contracts for the fund will be effected through executing brokers and FCMs that specialize in the types of futures contracts that the fund expects to hold. The investment adviser will use reasonable efforts to choose executing brokers and FCMs capable of providing the services necessary to obtain the most favorable price and execution available. The full range and quality of services available will be considered in making these determinations. The investment adviser will monitor the executing brokers and FCMs used for purchases and sales of futures contracts for their ability to execute trades based on many factors, such as the sizes of the orders, the difficulty of executions, the operational facilities of the firm involved and other factors.

Forward currency contracts are traded directly between currency traders (usually large commercial banks) and their customers. The cost to the fund of engaging in such contracts varies with factors such as the currency involved, the length of the contract period and the market conditions then prevailing. Because such contracts are entered into on a principal basis, their prices usually include undisclosed compensation to the market maker reflecting the spread between the bid and ask prices for the contracts. The fund may incur additional fees in connection with the purchase or sale of certain contracts.

Brokerage commissions (net of any reimbursements described below) borne by the fund for the fiscal years ended October 31, 2020, 2019 and 2018 amounted to $18,936,000, $18,031,000 and $16,651,000, respectively. Beginning January 1, 2019, the investment adviser is reimbursing the fund for all amounts collected into the commission sharing arrangement. For the fiscal years ended October 31, 2020 and 2019, the investment adviser reimbursed the fund $434,000 and $442,000, respectively, for commissions paid to broker-dealers through a commission sharing arrangement to compensate such broker-dealers for research services. Increases (or decreases) in the dollar amount of brokerage commissions borne by the fund over the last three fiscal years resulted from increases (or decreases) in the volume of trading activity.

New World Fund — Page 57

The fund is required to disclose information regarding investments in the securities of its “regular” broker-dealers (or parent companies of its regular broker-dealers) that derive more than 15% of their revenue from broker-dealer, underwriter or investment adviser activities. A regular broker-dealer is (a) one of the 10 broker-dealers that received from the fund the largest amount of brokerage commissions by participating, directly or indirectly, in the fund’s portfolio transactions during the fund’s most recently completed fiscal year; (b) one of the 10 broker-dealers that engaged as principal in the largest dollar amount of portfolio transactions of the fund during the fund’s most recently completed fiscal year; or (c) one of the 10 broker-dealers that sold the largest amount of securities of the fund during the fund’s most recently completed fiscal year.

At the end of the fund’s most recently completed fiscal year, the fund’s regular broker-dealers included UBS AG. At the end of the fund’s most recently completed fiscal year, the fund held equity securities of UBS AG in the amount of $33,627,000.

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Disclosure of portfolio holdings

The fund’s investment adviser, on behalf of the fund, has adopted policies and procedures with respect to the disclosure of information about fund portfolio securities. These policies and procedures have been reviewed by the fund’s board of directors, and compliance will be periodically assessed by the board in connection with reporting from the fund’s Chief Compliance Officer.

Under these policies and procedures, the fund’s complete list of portfolio holdings available for public disclosure, dated as of the end of each calendar quarter, is permitted to be posted on the Capital Group website no earlier than the 10th day after such calendar quarter. In practice, the publicly disclosed portfolio is typically posted on the Capital Group website within 30 days after the end of the calendar quarter. The publicly disclosed portfolio may exclude certain securities when deemed to be in the best interest of the fund as permitted by applicable regulations. In addition, the fund’s list of top 10 equity portfolio holdings measured by percentage of net assets, dated as of the end of each calendar month, is permitted to be posted on the Capital Group website no earlier than the 10th day after such month. Such portfolio holdings information may be disclosed to any person pursuant to an ongoing arrangement to disclose portfolio holdings information to such person no earlier than one day after the day on which the information is posted on the Capital Group website.

Certain intermediaries are provided additional information about the fund’s management team, including information on the fund’s portfolio securities they have selected. This information is provided to larger intermediaries that require the information to make the fund available for investment on the firm’s platform. Intermediaries receiving the information are required to keep it confidential and use it only to analyze the fund.

The fund’s custodian, outside counsel, auditor, financial printers, proxy voting service providers, pricing information vendors, consultants or agents operating under a contract with the investment adviser or its affiliates, co-litigants (such as in connection with a bankruptcy proceeding related to a fund holding) and certain other third parties described below, each of which requires portfolio holdings information for legitimate business and fund oversight purposes, may receive fund portfolio holdings information earlier. See the “General information” section in this statement of additional information for further information about the fund’s custodian, outside counsel and auditor.

The fund‘s portfolio holdings, dated as of the end of each calendar month, are made available to up to 20 key broker-dealer relationships with research departments to help them evaluate the fund for eligibility on approved lists or in model portfolios. These firms include certain of those listed under the “Other compensation to dealers” section of this statement of additional information and certain broker-dealer firms that offer trading platforms for registered investment advisers. Monthly holdings may be provided to these intermediaries no earlier than the 10th day after the end of the calendar month. In practice, monthly holdings are provided within 30 days after the end of the calendar month. Holdings may also be disclosed more frequently to certain statistical and data collection agencies including Morningstar, Lipper, Inc., Value Line, Vickers Stock Research, Bloomberg and Thomson Financial Research.

Affiliated persons of the fund, including officers of the fund and employees of the investment adviser and its affiliates, who receive portfolio holdings information are subject to restrictions and limitations on the use and handling of such information pursuant to applicable codes of ethics, including requirements not to trade in securities based on confidential and proprietary investment information, to maintain the confidentiality of such information, and to pre-clear securities trades and report securities transactions activity, as applicable. For more information on these restrictions and limitations, please see the “Code of ethics” section in this statement of additional information and the Code of Ethics. Third-party service providers of the fund and other entities, as described in this statement of additional information, receiving such information are subject to confidentiality

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obligations and obligations that would prohibit them from trading in securities based on such information. When portfolio holdings information is disclosed other than through the Capital Group website to persons not affiliated with the fund, such persons will be bound by agreements (including confidentiality agreements) or fiduciary or other obligations that restrict and limit their use of the information to legitimate business uses only. None of the fund, its investment adviser or any of their affiliates receives compensation or other consideration in connection with the disclosure of information about portfolio securities.

Subject to board policies, the authority to disclose a fund’s portfolio holdings, and to establish policies with respect to such disclosure, resides with the appropriate investment-related committees of the fund’s investment adviser. In exercising their authority, the committees determine whether disclosure of information about the fund’s portfolio securities is appropriate and in the best interest of fund shareholders. The investment adviser has implemented policies and procedures to address conflicts of interest that may arise from the disclosure of fund holdings. For example, the investment adviser’s code of ethics specifically requires, among other things, the safeguarding of information about fund holdings and contains prohibitions designed to prevent the personal use of confidential, proprietary investment information in a way that would conflict with fund transactions. In addition, the investment adviser believes that its current policy of not selling portfolio holdings information and not disclosing such information to unaffiliated third parties until such holdings have been made public on the Capital Group website (other than to certain fund service providers and other third parties for legitimate business and fund oversight purposes) helps reduce potential conflicts of interest between fund shareholders and the investment adviser and its affiliates.

The fund’s investment adviser and its affiliates provide investment advice to clients other than the fund that have investment objectives that may be substantially similar to those of the fund. These clients also may have portfolios consisting of holdings substantially similar to those of the fund and generally have access to current portfolio holdings information for their accounts. These clients do not owe the fund’s investment adviser or the fund a duty of confidentiality with respect to disclosure of their portfolio holdings.

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Price of shares

Shares are purchased at the offering price or sold at the net asset value price next determined after the purchase or sell order is received by the fund or the Transfer Agent provided that your request contains all information and legal documentation necessary to process the transaction. The Transfer Agent may accept written orders for the sale of fund shares on a future date. These orders are subject to the Transfer Agent’s policies, which generally allow shareholders to provide a written request to sell shares at the net asset value on a specified date no more than five business days after receipt of the order by the Transfer Agent. Any request to sell shares on a future date will be rejected if the request is not in writing, if the requested transaction date is more than five business days after the Transfer Agent receives the request or if the request does not contain all information and legal documentation necessary to process the transaction.

The offering or net asset value price is effective for orders received prior to the time of determination of the net asset value and, in the case of orders placed with dealers or their authorized designees, accepted by the Principal Underwriter, the Transfer Agent, a dealer or any of their designees. In the case of orders sent directly to the fund or the Transfer Agent, an investment dealer should be indicated. The dealer is responsible for promptly transmitting purchase and sell orders to the Principal Underwriter.

Prices that appear in the newspaper do not always indicate prices at which you will be purchasing and redeeming shares of the fund, since such prices generally reflect the previous day’s closing price, while purchases and redemptions are made at the next calculated price. The price you pay for shares, the offering price, is based on the net asset value per share, which is calculated once daily as of the close of regular trading on the New York Stock Exchange, normally 4 p.m. New York time, each day the New York Stock Exchange is open. If the New York Stock Exchange makes a scheduled (e.g. the day after Thanksgiving) or an unscheduled close prior to 4 p.m. New York time, the net asset value of the fund will be determined at approximately the time the New York Stock Exchange closes on that day. If on such a day market quotations and prices from third-party pricing services are not based as of the time of the early close of the New York Stock Exchange but are as of a later time (up to approximately 4 p.m. New York time), for example because the market remains open after the close of the New York Stock Exchange, those later market quotations and prices will be used in determining the fund’s net asset value.

Orders in good order received after the New York Stock Exchange closes (scheduled or unscheduled) will be processed at the net asset value (plus any applicable sales charge) calculated on the following business day. The New York Stock Exchange is currently closed on weekends and on the following holidays: New Year’s Day; Martin Luther King Jr. Day; Presidents’ Day; Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving; and Christmas Day. Each share class of the fund has a separately calculated net asset value (and share price).

Orders received by the investment dealer or authorized designee, the Transfer Agent or the fund after the time of the determination of the net asset value will be entered at the next calculated offering price. Note that investment dealers or other intermediaries may have their own rules about share transactions and may have earlier cut-off times than those of the fund. For more information about how to purchase through your intermediary, contact your intermediary directly.

All portfolio securities of funds managed by Capital Research and Management Company (other than American Funds U.S. Government Money Market Fund) are valued, and the net asset values per share for each share class are determined, as indicated below. The fund follows standard industry practice by typically reflecting changes in its holdings of portfolio securities on the first business day following a portfolio trade.

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Equity securities, including depositary receipts, 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 on which the security trades.

Fixed income securities, including short-term securities, are generally valued at prices obtained from one or more pricing vendors. The pricing vendors base prices on, among other things, benchmark yields, transactions, bids, offers, quotations from dealers and trading systems, new issues, underlying equity of the issuer, interest rate volatilities, 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, prepayment information, default rates, delinquency and loss assumptions, financial or collateral characteristics or performance, credit enhancements, liquidation value calculations, specific deal information and other reference data. The fund’s investment adviser performs certain checks on vendor prices prior to calculation of the fund’s net asset value. When 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 ask prices that are reasonably and timely available (or bid prices, if ask prices are not available) or at prices for securities of comparable maturity, quality and type.

Securities with both fixed income and equity characteristics (e.g., convertible bonds, preferred stocks, units comprised of more than one type of security, etc.), 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.

Forward currency contracts are valued at the mean of representative quoted bid and ask prices, generally based on prices supplied by one or more pricing vendors.

Futures contracts are generally valued at the official settlement price of, or the last reported sale price on, the principal exchange or market on which such instruments are traded, as of the close of business on the day the contracts are being valued or, lacking any sales, at the last available bid price.

Swaps, including both interest rate swaps and positions in credit default swap indices, are valued using market quotations or valuations provided by one or more pricing vendors.

Assets or liabilities initially expressed in terms of currencies other than U.S. dollars are translated prior to the next determination of the net asset value of the fund’s shares into U.S. dollars at the prevailing market rates.

Securities and other assets for which representative market quotations are not readily available or are considered unreliable by the investment adviser are valued at fair value as determined in good faith under fair value guidelines adopted by authority of the fund’s board. Subject to board oversight, the fund’s board has appointed the fund’s investment adviser to make fair valuation determinations, which are directed by a valuation committee established by the fund’s investment adviser. The board receives regular reports describing fair-valued securities and the valuation methods used.

The valuation committee has adopted guidelines and procedures (consistent with SEC rules and guidance) to consider certain relevant principles and factors when making fair value determinations. As a general principle, securities lacking readily available market quotations, or that have quotations that are considered unreliable by the investment adviser, are valued in good faith by the valuation committee based upon what the fund might reasonably expect to receive upon their current sale. Fair valuations and valuations of investments that are not actively trading involve judgment and may differ

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materially from valuations that would have been used had greater market activity occurred. The valuation committee considers relevant indications of value that are reasonably and timely available to it in determining the fair value to be assigned to a particular security, such as the type and cost of the security, contractual or legal restrictions on resale of the security, relevant financial or business developments of the issuer, actively traded similar or related securities, conversion or exchange rights on the security, related corporate actions, significant events occurring after the close of trading in the security and changes in overall market conditions. The valuation committee employs additional fair value procedures to address issues related to equity securities that trade principally in markets outside the United States. Such securities may trade in markets that open and close at different times, reflecting time zone differences. If significant events occur after the close of a market (and before the fund’s net asset values are next determined) which affect the value of equity securities held in the fund’s portfolio, appropriate adjustments from closing market prices may be made to reflect these events. Events of this type could include, for example, earthquakes and other natural disasters or significant price changes in other markets (e.g., U.S. stock markets).

Each class of shares represents interests in the same portfolio of investments and is identical in all respects to each other class, except for differences relating to distribution, service and other charges and expenses, certain voting rights, differences relating to eligible investors, the designation of each class of shares, conversion features and exchange privileges. Expenses attributable to the fund, but not to a particular class of shares, are borne by each class pro rata based on relative aggregate net assets of the classes. Expenses directly attributable to a class of shares are borne by that class of shares. Liabilities attributable to particular share classes, such as liabilities for repurchase of fund shares, are deducted from total assets attributable to such share classes.

Net assets so obtained for each share class are then divided by the total number of shares outstanding of that share class, and the result, rounded to the nearest cent, is the net asset value per share for that class.

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Taxes and distributions

Disclaimer: Some of the following information may not apply to certain shareholders, including those holding fund shares in a tax-favored account, such as a retirement plan or education savings account. Shareholders should consult their tax advisors about the application of federal, state and local tax law in light of their particular situation.

Taxation as a regulated investment company — The fund intends to qualify each year as a “regulated investment company” under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), so that it will not be liable for federal tax on income and capital gains distributed to shareholders. In order to qualify as a regulated investment company, and avoid being subject to federal income taxes, the fund intends to distribute substantially all of its net investment income and realized net capital gains on a fiscal year basis, and intends to comply with other tests applicable to regulated investment companies under Subchapter M.

The Code includes savings provisions allowing the fund to cure inadvertent failures of certain qualification tests required under Subchapter M. However, should the fund fail to qualify under Subchapter M, the fund would be subject to federal, and possibly state, corporate taxes on its taxable income and gains.

Amounts not distributed by the fund on a timely basis in accordance with a calendar year distribution requirement may be subject to a nondeductible 4% excise tax. Unless an applicable exception applies, to avoid the tax, the fund must distribute during each calendar year an amount equal to the sum of (a) at least 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (b) at least 98.2% of its capital gains in excess of its capital losses for the twelve month period ending on October 31, and (c) all ordinary income and capital gains for previous years that were not distributed during such years and on which the fund paid no U.S. federal income tax.

Dividends paid by the fund from ordinary income or from an excess of net short-term capital gain over net long-term capital loss are taxable to shareholders as ordinary income dividends. Shareholders of the fund that are individuals and meet certain holding period requirements with respect to their fund shares may be eligible for reduced tax rates on “qualified dividend income,” if any, distributed by the fund to such shareholders.

The fund may declare a capital gain distribution consisting of the excess of net realized long-term capital gains over net realized short-term capital losses. Net capital gains for a fiscal year are computed by taking into account any capital loss carryforward of the fund.

The fund may retain a portion of net capital gain for reinvestment and may elect to treat such capital gain as having been distributed to shareholders of the fund. Shareholders may receive a credit for the tax that the fund paid on such undistributed net capital gain and would increase the basis in their shares of the fund by the difference between the amount of includible gains and the tax deemed paid by the shareholder.

Distributions of net capital gain that the fund properly reports as a capital gain distribution generally will be taxable as long-term capital gain, regardless of the length of time the shares of the fund have been held by a shareholder. Any loss realized upon the redemption of shares held at the time of redemption for six months or less from the date of their purchase will be treated as a long-term capital loss to the extent of any capital gain distributions (including any undistributed amounts treated as distributed capital gains, as described above) during such six-month period.

Capital gain distributions by the fund result in a reduction in the net asset value of the fund’s shares. Investors should consider the tax implications of buying shares just prior to a capital gain distribution.

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The price of shares purchased at that time includes the amount of the forthcoming distribution. Those purchasing just prior to a distribution will subsequently receive a partial return of their investment capital upon payment of the distribution, which will be taxable to them.

Redemptions and exchanges of fund shares — Redemptions of shares, including exchanges for shares of other American Funds, may result in federal, state and local tax consequences (gain or loss) to the shareholder.

Any loss realized on a redemption or exchange of shares of the fund will be disallowed to the extent substantially identical shares are reacquired within the 61-day period beginning 30 days before and ending 30 days after the shares are disposed of. Any loss disallowed under this rule will be added to the shareholder’s tax basis in the new shares purchased.

If a shareholder exchanges or otherwise disposes of shares of the fund within 90 days of having acquired such shares, and if, as a result of having acquired those shares, the shareholder subsequently pays a reduced or no sales charge for shares of the fund, or of a different fund acquired before January 31st of the year following the year the shareholder exchanged or otherwise disposed of the original fund shares, the sales charge previously incurred in acquiring the fund’s shares will not be taken into account (to the extent such previous sales charges do not exceed the reduction in sales charges) for the purposes of determining the amount of gain or loss on the exchange, but will be treated as having been incurred in the acquisition of such other fund(s).

Tax consequences of investing in non-U.S. securities — Dividend and interest income received by the fund from sources outside the United States may be subject to withholding and other taxes imposed by such foreign jurisdictions. Tax conventions between certain countries and the United States, however, may reduce or eliminate these foreign taxes. Some foreign countries impose taxes on capital gains with respect to investments by foreign investors.

If more than 50% of the value of the total assets of the fund at the close of the taxable year consists of securities of foreign corporations, the fund may elect to pass through to shareholders the foreign taxes paid by the fund. If such an election is made, shareholders may claim a credit or deduction on their federal income tax returns for, and will be required to treat as part of the amounts distributed to them, their pro rata portion of qualified taxes paid by the fund to foreign countries. The application of the foreign tax credit depends upon the particular circumstances of each shareholder.

Foreign currency gains and losses, including the portion of gain or loss on the sale of debt securities attributable to fluctuations in foreign exchange rates, are generally taxable as ordinary income or loss. These gains or losses may increase or decrease the amount of dividends payable by the fund to shareholders. A fund may elect to treat gain and loss on certain foreign currency contracts as capital gain and loss instead of ordinary income or loss.

If the fund invests in stock of certain passive foreign investment companies (PFICs), the fund intends to mark-to-market these securities and recognize any gains at the end of its fiscal and excise tax years. Deductions for losses are allowable only to the extent of any previously recognized gains. Both gains and losses will be treated as ordinary income or loss, and the fund is required to distribute any resulting income. If the fund is unable to identify an investment as a PFIC security and thus does not make a timely mark-to-market election, the fund may be subject to adverse tax consequences.

Tax consequences of investing in derivatives — The fund may enter into transactions involving derivatives, such as futures, swaps and forward contracts. Special tax rules may apply to these types of transactions that could defer losses to the fund, accelerate the fund’s income, alter the holding period of certain securities or change the classification of capital gains. These tax rules may therefore impact the amount, timing and character of fund distributions.

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Other tax considerations — After the end of each calendar year, individual shareholders holding fund shares in taxable accounts will receive a statement of the federal income tax status of all distributions. Shareholders of the fund also may be subject to state and local taxes on distributions received from the fund.

For fund shares acquired on or after January 1, 2012, the fund is required to report cost basis information for redemptions, including exchanges, to both shareholders and the IRS.

Shareholders may obtain more information about cost basis online at capitalgroup.com/costbasis.

Under the backup withholding provisions of the Code, the fund generally will be required to withhold federal income tax on all payments made to a shareholder if the shareholder either does not furnish the fund with the shareholder’s correct taxpayer identification number or fails to certify that the shareholder is not subject to backup withholding. Backup withholding also applies if the IRS notifies the shareholder or the fund that the taxpayer identification number provided by the shareholder is incorrect or that the shareholder has previously failed to properly report interest or dividend income.

The foregoing discussion of U.S. federal income tax law relates solely to the application of that law to U.S. persons (i.e., U.S. citizens and legal residents and U.S. corporations, partnerships, trusts and estates). Each shareholder who is not a U.S. person should consider the U.S. and foreign tax consequences of ownership of shares of the fund, including the possibility that such a shareholder may be subject to U.S. withholding taxes.

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Unless otherwise noted, all references in the following pages to Class A, C, T or F shares also refer to the corresponding Class 529-A, 529-C, 529-T or 529-F shares. Class 529 shareholders should also refer to the applicable program description for information on policies and services specifically relating to these accounts. Shareholders holding shares through an eligible retirement plan should contact their plan’s administrator or recordkeeper for information regarding purchases, sales and exchanges.

Purchase and exchange of shares

Purchases by individuals — As described in the prospectus, you may generally open an account and purchase fund shares by contacting a financial professional or investment dealer authorized to sell the fund’s shares. You may make investments by any of the following means:

Contacting your financial professional — Deliver or mail a check to your financial professional.

By mail — For initial investments, you may mail a check, made payable to the fund, directly to the address indicated on the account application. Please indicate an investment dealer on the account application. You may make additional investments by filling out the “Account Additions” form at the bottom of a recent transaction confirmation and mailing the form, along with a check made payable to the fund, using the envelope provided with your confirmation.

The amount of time it takes for us to receive regular U.S. postal mail may vary and there is no assurance that we will receive such mail on the day you expect. Mailing addresses for regular U.S. postal mail can be found in the prospectus. To send investments or correspondence to us via overnight mail or courier service, use either of the following addresses:

American Funds

12711 North Meridian Street

Carmel, IN 46032-9181

American Funds

5300 Robin Hood Road

Norfolk, VA 23513-2407

By telephone — Using the American FundsLine. Please see the “Shareholder account services and privileges” section of this statement of additional information for more information regarding this service.

By Internet — Using capitalgroup.com. Please see the “Shareholder account services and privileges” section of this statement of additional information for more information regarding this service.

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By wire — If you are making a wire transfer, instruct your bank to wire funds to:

Wells Fargo Bank

ABA Routing No. 121000248

Account No. 4600-076178

Your bank should include the following information when wiring funds:

For credit to the account of:

American Funds Service Company

(fund’s name)

For further credit to:

(shareholder’s fund account number)

(shareholder’s name)

You may contact American Funds Service Company at (800) 421-4225 if you have questions about making wire transfers.

Other purchase information — Class 529 shares may be purchased only through CollegeAmerica by investors establishing qualified higher education savings accounts. Class 529-E shares may be purchased only by investors participating in CollegeAmerica through an eligible employer plan. American Funds state tax-exempt funds are qualified for sale only in certain jurisdictions, and tax-exempt funds in general should not serve as retirement plan investments. In addition, the fund and the Principal Underwriter reserve the right to reject any purchase order.

Class R-5 and R-6 shares may be made available to certain charitable foundations organized and maintained by The Capital Group Companies, Inc. or its affiliates. Class R-6 shares are also available to corporate investment accounts established by The Capital Group Companies, Inc. and its affiliates.

Class R-5 and R-6 shares may also be made available to Virginia529 for use in the Virginia Education Savings Trust and the Virginia Prepaid Education Program and other registered investment companies approved by the fund’s investment adviser or distributor. Class R-6 shares are also available to other post employment benefits plans.

Purchase minimums and maximums — All investments are subject to the purchase minimums and maximums described in the prospectus. As noted in the prospectus, purchase minimums may be waived or reduced in certain cases.

In the case of American Funds non-tax-exempt funds, the initial purchase minimum of $25 may be waived for the following account types:

· Payroll deduction retirement plan accounts (such as, but not limited to, 403(b), 401(k), SIMPLE IRA, SARSEP and deferred compensation plan accounts); and

· Employer-sponsored CollegeAmerica accounts.

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The following account types may be established without meeting the initial purchase minimum:

· Retirement accounts that are funded with employer contributions; and

· Accounts that are funded with monies set by court decree.

The following account types may be established without meeting the initial purchase minimum, but shareholders wishing to invest in two or more funds must meet the normal initial purchase minimum of each fund:

· Accounts that are funded with (a) transfers of assets, (b) rollovers from retirement plans, (c) rollovers from 529 college savings plans or (d) required minimum distribution automatic exchanges; and

· American Funds U.S. Government Money Market Fund accounts registered in the name of clients of Capital Group Private Client Services.

Certain accounts held on the fund’s books, known as omnibus accounts, contain multiple underlying accounts that are invested in shares of the fund. These underlying accounts are maintained by entities such as financial intermediaries and are subject to the applicable initial purchase minimums as described in the prospectus and this statement of additional information. However, in the case where the entity maintaining these accounts aggregates the accounts’ purchase orders for fund shares, such accounts are not required to meet the fund’s minimum amount for subsequent purchases.

Exchanges — With the exception of Class T shares, for which rights of exchange are not generally available, you may only exchange shares without a sales charge into other American Funds within the same share class; however, Class A, C, T or F shares may also generally be exchanged without a sales charge for the corresponding 529 share class. Clients of Capital Group Private Client Services may exchange the shares of the fund for those of any other fund(s) managed by Capital Research and Management Company or its affiliates.

Notwithstanding the above, exchanges from Class A shares of American Funds U.S. Government Money Market Fund may be made to Class C shares of other American Funds for dollar cost averaging purposes.

Exchange purchases are subject to the minimum investment requirements of the fund purchased and no sales charge generally applies. However, exchanges of shares from American Funds U.S. Government Money Market Fund are subject to applicable sales charges, unless the American Funds U.S. Government Money Market Fund shares were acquired by an exchange from a fund having a sales charge, or by reinvestment or cross-reinvestment of dividends or capital gain distributions.

Exchanges of Class F shares generally may only be made through fee-based programs of investment firms that have special agreements with the fund’s distributor and certain registered investment advisors.

You may exchange shares of other classes by contacting the Transfer Agent, by contacting your investment dealer or financial advisor, by using American FundsLine or capitalgroup.com, or by telephoning (800) 421-4225 toll-free, or faxing (see “American Funds Service Company service areas” in the prospectus for the appropriate fax numbers) the Transfer Agent. For more information, see “Shareholder account services and privileges” in this statement of additional information. These transactions have the same tax consequences as ordinary sales and purchases.

Shares held in employer-sponsored retirement plans may be exchanged into other American Funds by contacting your plan administrator or recordkeeper. Exchange redemptions and purchases are

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processed simultaneously at the share prices next determined after the exchange order is received (see “Price of shares” in this statement of additional information).

Conversion — Class C shares of the fund automatically convert to Class A shares in the month of the 8-year anniversary of the purchase date. Class 529-C shares of the fund automatically convert to Class 529-A shares in the month of the 5-year anniversary of the purchase date.

Frequent trading of fund shares — As noted in the prospectus, certain redemptions may trigger a restriction under the fund’s “frequent trading policy.” Under this policy, systematic redemptions will not trigger a restriction and systematic purchases will not be prevented if the entity maintaining the shareholder account is able to identify the transaction as a systematic redemption or purchase. For purposes of this policy, systematic redemptions include, for example, regular periodic automatic redemptions and statement of intention escrow share redemptions. Systematic purchases include, for example, regular periodic automatic purchases and automatic reinvestments of dividends and capital gain distributions. Generally, purchases and redemptions will not be considered “systematic” unless the transaction is prescheduled for a specific date.

Potentially abusive activity — American Funds Service Company will monitor for the types of activity that could potentially be harmful to the American Funds — for example, short-term trading activity in multiple funds. When identified, American Funds Service Company will request that the shareholder discontinue the activity. If the activity continues, American Funds Service Company will freeze the shareholder account to prevent all activity other than redemptions of fund shares.

Moving between share classes

If you wish to “move” your investment between share classes (within the same fund or between different funds), we generally will process your request as an exchange of the shares you currently hold for shares in the new class or fund. Below is more information about how sales charges are handled for various scenarios.

Exchanging Class C shares for Class A or Class T shares — If you exchange Class C shares for Class A or Class T shares, you are still responsible for paying any Class C contingent deferred sales charges and applicable Class A or Class T sales charges.

Exchanging Class C shares for Class F shares — If you are part of a qualified fee-based program or approved self-directed platform and you wish to exchange your Class C shares for Class F shares to be held in the program, you are still responsible for paying any applicable Class C contingent deferred sales charges.

Exchanging Class F shares for Class A shares — You can exchange Class F shares held in a qualified fee-based program for Class A shares without paying an initial Class A sales charge if you are leaving or have left the fee-based program. Your financial intermediary can also convert Class F-1 shares to Class A shares without a sales charge if they are held in a brokerage account and they were initially transferred to the account or converted from Class C shares. You can exchange Class F shares received in a conversion from Class C shares for Class A shares at any time without paying an initial Class A sales charge if you notify American Funds Service Company of the conversion when you make your request. If you have already redeemed your Class F shares, the foregoing requirements apply and you must purchase Class A shares within 90 days after redeeming your Class F shares to receive the Class A shares without paying an initial Class A sales charge.

Exchanging Class A or Class T shares for Class F shares — If you are part of a qualified fee-based program or approved self-directed platform and you wish to exchange your Class A or

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Class T shares for Class F shares to be held in the program, any Class A or Class T sales charges (including contingent deferred sales charges) that you paid or are payable will not be credited back to your account.

Exchanging Class A shares for Class R shares — Provided it is eligible to invest in Class R shares, a retirement plan currently invested in Class A shares may exchange its shares for Class R shares. Any Class A sales charges that the retirement plan previously paid will not be credited back to the plan’s account. No contingent deferred sales charge will be assessed as part of the share class conversion.

Moving between Class F shares — If you are part of a qualified fee-based program that offers Class F shares, you may exchange your Class F shares for any other Class F shares to be held in the program. For example, if you hold Class F-2 shares, you may exchange your shares for Class F-1 or Class F-3 shares to be held in the program.

Moving between other share classes — If you desire to move your investment between share classes and the particular scenario is not described in this statement of additional information, please contact American Funds Service Company at (800) 421-4225 for more information.

Non-reportable transactions — Automatic conversions described in the prospectus will be non-reportable for tax purposes. In addition, an exchange of shares from one share class of a fund to another share class of the same fund will be treated as a non-reportable exchange for tax purposes, provided that the exchange request is received in writing by American Funds Service Company and processed as a single transaction. However, a movement between a 529 share class and a non-529 share class of the same fund will be reportable.

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Sales charges

Class A purchases

Purchases by certain 403(b) plans

A 403(b) plan may not invest in American Funds Class A or C shares unless such plan was invested in Class A or C shares before January 1, 2009.

Participant accounts of a 403(b) plan that invested in American Funds Class A or C shares and were treated as an individual-type plan for sales charge purposes before January 1, 2009, may continue to be treated as accounts of an individual-type plan for sales charge purposes. Participant accounts of a 403(b) plan that invested in American Funds Class A or C shares and were treated as an employer-sponsored plan for sales charge purposes before January 1, 2009, may continue to be treated as accounts of an employer-sponsored plan for sales charge purposes. Participant accounts of a 403(b) plan that was established on or after January 1, 2009, are treated as accounts of an employer-sponsored plan for sales charge purposes.

Purchases by SEP plans and SIMPLE IRA plans

Participant accounts in a Simplified Employee Pension (SEP) plan or a Savings Incentive Match Plan for Employees of Small Employers IRA (SIMPLE IRA) will be aggregated at the plan level for Class A sales charge purposes if an employer adopts a prototype plan produced by American Funds Distributors, Inc. or (a) the employer or plan sponsor submits all contributions for all participating employees in a single contribution transmittal or the contributions are identified as related to the same plan; (b) each transmittal is accompanied by checks or wire transfers and generally must be submitted through the transfer agent’s automated contribution system if held on the fund’s books; and (c) if the fund is expected to carry separate accounts in the name of each plan participant and (i) the employer or plan sponsor notifies the funds’ transfer agent or the intermediary holding the account that the separate accounts of all plan participants should be linked and (ii) all new participant accounts are established by submitting the appropriate documentation on behalf of each new participant. Participant accounts in a SEP or SIMPLE plan that are eligible to aggregate their assets at the plan level may not also aggregate the assets with their individual accounts.

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Other purchases

In addition, American Funds Class A and Class 529-A shares may be offered at net asset value to companies exchanging securities with the fund through a merger, acquisition or exchange offer and to certain individuals meeting the criteria described above who invested in Class A and Class 529-A shares before Class F-2 and Class 529-F-2 shares were made available under this privilege.

Transfers to CollegeAmerica — A transfer from the Virginia Prepaid Education ProgramSM or the Virginia Education Savings TrustSM to a CollegeAmerica account will be made with no sales charge. No commission will be paid to the dealer on such a transfer. Investment dealers will be compensated solely with an annual service fee that begins to accrue immediately.

Class F-2 and Class 529-F-2 purchases

If requested, American Funds Class F-2 and Class 529-F-2 shares will be sold to:

     
  (1) current or retired directors, trustees, officers and advisory board members of, and certain lawyers who provide services to the funds managed by Capital Research and Management Company, current or retired employees of The Capital Group Companies, Inc. and its affiliated companies, certain family members of the above persons, and trusts or plans primarily for such persons; and
  (2) The Capital Group Companies, Inc. and its affiliated companies.

Once an account in Class F-2 or Class 529-F-2 is established under this privilege, additional investments can be made in Class F-2 or Class 529-F-2 for the life of the account. Depending on the financial intermediary holding your account, these privileges may be unavailable. Investors should consult their financial intermediary for further information.

Moving between accounts — American Funds investments by certain account types may be moved to other account types without incurring additional Class A sales charges. These transactions include:

· redemption proceeds from a non-retirement account (for example, a joint tenant account) used to purchase fund shares in an IRA or other individual-type retirement account;

· required minimum distributions from an IRA or other individual-type retirement account used to purchase fund shares in a non-retirement account; and

· death distributions paid to a beneficiary’s account that are used by the beneficiary to purchase fund shares in a different account.

Investors may not move investments from a Capital Bank & Trust Company SIMPLE IRA Plus to a Capital Bank & Trust Company SIMPLE IRA unless it is part of a plan transfer or to a current employer’s Capital Bank & Trust Company SIMPLE IRA plan.

These privileges are generally available only if your account is held directly with the fund’s transfer agent or if the financial intermediary holding your account has the systems, policies and procedures to support providing the privileges on its systems. Investors should consult their financial intermediary for further information.

Loan repayments — Repayments on loans taken from a retirement plan are not subject to sales charges if American Funds Service Company is notified of the repayment.

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Dealer commissions and compensation — Commissions (up to 1.00%) are paid to dealers who initiate and are responsible for certain Class A share purchases not subject to initial sales charges. These purchases consist of a) purchases of $1 million or more, and b) purchases by employer-sponsored defined contribution-type retirement plans investing $1 million or more or with 100 or more eligible employees. Commissions on such investments (other than IRA rollover assets that roll over at no sales charge under the fund’s IRA rollover policy as described in the prospectus) are paid to dealers at the following rates: 1.00% on amounts of less than $10 million, .50% on amounts of at least $10 million but less than $25 million and .25% on amounts of at least $25 million. Commissions are based on cumulative investments over the life of the account with no adjustment for redemptions, transfers, or market declines. For example, if a shareholder has accumulated investments in excess of $10 million (but less than $25 million) and subsequently redeems all or a portion of the account(s), purchases following the redemption will generate a dealer commission of .50%.

A dealer concession of up to 1% may be paid by the fund under its Class A plan of distribution to reimburse the Principal Underwriter in connection with dealer and wholesaler compensation paid by it with respect to investments made with no initial sales charge.

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Sales charge reductions and waivers

Reducing your Class A sales charge — As described in the prospectus, there are various ways to reduce your sales charge when purchasing Class A shares. Additional information about Class A sales charge reductions is provided below.

Statement of intention — By establishing a statement of intention (the "Statement"), you enter into a nonbinding commitment to purchase shares of American Funds (excluding American Funds U.S. Government Money Market Fund) over a 13-month period and receive the same sales charge (expressed as a percentage of your purchases) as if all shares had been purchased at once, unless the Statement is upgraded as described below.

The Statement period starts on the date on which your first purchase made toward satisfying the Statement is processed. Your accumulated holdings (as described in the paragraph below titled “Rights of accumulation”) eligible to be aggregated as of the day immediately before the start of the Statement period may be credited toward satisfying the Statement.

You may revise the commitment you have made in your Statement upward at any time during the Statement period. If your prior commitment has not been met by the time of the revision, the Statement period during which purchases must be made will remain unchanged. Purchases made from the date of the revision will receive the reduced sales charge, if any, resulting from the revised Statement. If your prior commitment has been met by the time of the revision, your original Statement will be considered met and a new Statement will be established.

The Statement will be considered completed if the shareholder dies within the 13-month Statement period. Commissions to dealers will not be adjusted or paid on the difference between the Statement amount and the amount actually invested before the shareholder’s death.

When a shareholder elects to use a Statement, shares equal to 5% of the dollar amount specified in the Statement may be held in escrow in the shareholder’s account out of the initial purchase (or subsequent purchases, if necessary) by the Transfer Agent. All dividends and any capital gain distributions on shares held in escrow will be credited to the shareholder’s account in shares (or paid in cash, if requested). If the intended investment is not completed within the specified Statement period the investments made during the statement period will be adjusted to reflect the difference between the sales charge actually paid and the sales charge which would have been paid if the total of such purchases had been made at a single time. Any dealers assigned to the shareholder’s account at the time a purchase was made during the Statement period will receive a corresponding commission adjustment if appropriate.

In addition, if you currently have individual holdings in American Legacy variable annuity contracts or variable life insurance policies that were established on or before March 31, 2007, you may continue to apply purchases under such contracts and policies to a Statement.

Shareholders purchasing shares at a reduced sales charge under a Statement indicate their acceptance of these terms and those in the prospectus with their first purchase.

The Statement period may be extended in cases where the fund’s distributor determines it is appropriate to do so; for example in periods when there are extenuating circumstances such as a natural disaster that may limit an individual’s ability to meet the investment required under the Statement.

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Aggregation — Qualifying investments for aggregation include those made by you and your “immediate family” as defined in the prospectus, if all parties are purchasing shares for their own accounts and/or:

· individual-type employee benefit plans, such as an IRA, single-participant Keogh-type plan, or a participant account of a 403(b) plan that is treated as an individual-type plan for sales charge purposes (see “Purchases by certain 403(b) plans” under “Sales charges” in this statement of additional information);

· SEP plans and SIMPLE IRA plans established after November 15, 2004, by an employer adopting any plan document other than a prototype plan produced by American Funds Distributors, Inc.;

· business accounts solely controlled by you or your immediate family (for example, you own the entire business);

· trust accounts established by you or your immediate family (for trusts with only one primary beneficiary, upon the trustor’s death the trust account may be aggregated with such beneficiary’s own accounts; for trusts with multiple primary beneficiaries, upon the trustor’s death the trustees of the trust may instruct American Funds Service Company to establish separate trust accounts for each primary beneficiary; each primary beneficiary’s separate trust account may then be aggregated with such beneficiary’s own accounts);

· endowments or foundations established and controlled by you or your immediate family; or

· 529 accounts, which will be aggregated at the account owner level (Class 529-E accounts may only be aggregated with an eligible employer plan).

Individual purchases by a trustee(s) or other fiduciary(ies) may also be aggregated if the investments are:

· for a single trust estate or fiduciary account, including employee benefit plans other than the individual-type employee benefit plans described above;

· made for two or more employee benefit plans of a single employer or of affiliated employers as defined in the 1940 Act, excluding the individual-type employee benefit plans described above;

· for a diversified common trust fund or other diversified pooled account not specifically formed for the purpose of accumulating fund shares;

· for nonprofit, charitable or educational organizations, or any endowments or foundations established and controlled by such organizations, or any employer-sponsored retirement plans established for the benefit of the employees of such organizations, their endowments, or their foundations;

· for participant accounts of a 403(b) plan that is treated as an employer-sponsored plan for sales charge purposes (see “Purchases by certain 403(b) plans” under “Sales charges” in this statement of additional information), or made for participant accounts of two or more such plans, in each case of a single employer or affiliated employers as defined in the 1940 Act; or

· for a SEP or SIMPLE IRA plan established after November 15, 2004, by an employer adopting a prototype plan produced by American Funds Distributors, Inc.

Purchases made for nominee or street name accounts (securities held in the name of an investment dealer or another nominee such as a bank trust department instead of the

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customer) may not be aggregated with those made for other accounts and may not be aggregated with other nominee or street name accounts unless otherwise qualified as described above.

Joint accounts may be aggregated with other accounts belonging to the primary owner and/or his or her immediate family. The primary owner of a joint account is the individual responsible for taxes on the account.

Concurrent purchases — As described in the prospectus, you may reduce your Class A sales charge by combining purchases of all classes of shares in American Funds. Shares of American Funds U.S. Government Money Market Fund purchased through an exchange, reinvestment or cross-reinvestment from a fund having a sales charge also qualify. However, direct purchases of American Funds U.S. Government Money Market Fund Class A shares are excluded. If you currently have individual holdings in American Legacy variable annuity contracts or variable life insurance policies that were established on or before March 31, 2007, you may continue to combine purchases made under such contracts and policies to reduce your Class A sales charge.

Rights of accumulation — Subject to the limitations described in the aggregation policy, you may take into account your accumulated holdings in all share classes of American Funds to determine your sales charge on investments in accounts eligible to be aggregated. Direct purchases of American Funds U.S. Government Money Market Fund Class A shares are excluded. Subject to your investment dealer’s or recordkeeper’s capabilities, your accumulated holdings will be calculated as the higher of (a) the current value of your existing holdings (the “market value”) as of the day prior to your American Funds investment or (b) the amount you invested (including reinvested dividends and capital gains, but excluding capital appreciation) less any withdrawals (the “cost value”). Depending on the entity on whose books your account is held, the value of your holdings in that account may not be eligible for calculation at cost value. For example, accounts held in nominee or street name may not be eligible for calculation at cost value and instead may be calculated at market value for purposes of rights of accumulation.

The value of all of your holdings in accounts established in calendar year 2005 or earlier will be assigned an initial cost value equal to the market value of those holdings as of the last business day of 2005. Thereafter, the cost value of such accounts will increase or decrease according to actual investments or withdrawals. You must contact your financial professional or American Funds Service Company if you have additional information that is relevant to the calculation of the value of your holdings.

When determining your American Funds Class A sales charge, if your investment is not in an employer-sponsored retirement plan, you may also continue to take into account the market value (as of the day prior to your American Funds investment) of your individual holdings in various American Legacy variable annuity contracts and variable life insurance policies that were established on or before March 31, 2007. An employer-sponsored retirement plan may also continue to take into account the market value of its investments in American Legacy Retirement Investment Plans that were established on or before March 31, 2007.

You may not purchase Class C or 529-C shares if such combined holdings cause you to be eligible to purchase Class A or 529-A shares at the $1 million or more sales charge discount rate (i.e. at net asset value).

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If you make a gift of American Funds Class A shares, upon your request, you may purchase the shares at the sales charge discount allowed under rights of accumulation of all of your American Funds and applicable American Legacy accounts.

Reducing your Class T sales charge — As described in the prospectus, the initial sales charge you pay each time you buy Class T shares may differ depending upon the amount you invest and may be reduced for larger purchases. Additionally, Class T shares acquired through reinvestment of dividends or capital gain distributions are not subject to an initial sales charge. Sales charges on Class T shares are applied on a transaction-by-transaction basis, and, accordingly, Class T shares are not eligible for any other sales charge waivers or reductions, including through the aggregation of Class T shares concurrently purchased by other related accounts or in other American Funds. The sales charge applicable to Class T shares may not be reduced by establishing a statement of intention, and rights of accumulation are not available for Class T shares.

CDSC waivers for Class A and C shares — As noted in the prospectus, a contingent deferred sales charge (“CDSC”) will be waived for redemptions due to death or post-purchase disability of a shareholder (this generally excludes accounts registered in the names of trusts and other entities). In the case of joint tenant accounts, if one joint tenant dies, a surviving joint tenant, at the time he or she notifies the Transfer Agent of the other joint tenant’s death and removes the decedent’s name from the account, may redeem shares from the account without incurring a CDSC. Redemptions made after the Transfer Agent is notified of the death of a joint tenant will be subject to a CDSC.

In addition, a CDSC will be waived for the following types of transactions, if they do not exceed 12% of the value of an “account” (defined below) annually (the “12% limit”):

· Required minimum distributions taken from retirement accounts in accordance with IRS regulations.

· Redemptions through an automatic withdrawal plan (“AWP”) (see “Automatic withdrawals” under “Shareholder account services and privileges” in this statement of additional information). For each AWP payment, assets that are not subject to a CDSC, such as shares acquired through reinvestment of dividends and/or capital gain distributions, will be redeemed first and will count toward the 12% limit. If there is an insufficient amount of assets not subject to a CDSC to cover a particular AWP payment, shares subject to the lowest CDSC will be redeemed next until the 12% limit is reached. Any dividends and/or capital gain distributions taken in cash by a shareholder who receives payments through an AWP will also count toward the 12% limit. In the case of an AWP, the 12% limit is calculated at the time an automatic redemption is first made, and is recalculated at the time each additional automatic redemption is made. Shareholders who establish an AWP should be aware that the amount of a payment not subject to a CDSC may vary over time depending on fluctuations in the value of their accounts. This privilege may be revised or terminated at any time.

For purposes of this paragraph, “account” means your investment in the applicable class of shares of the particular fund from which you are making the redemption.

The CDSC on American Funds Class A shares may be waived in cases where the fund’s transfer agent determines the benefit to the fund of collecting the CDSC would be outweighed by the cost of applying it.

CDSC waivers are allowed only in the cases listed here and in the prospectus. For example, CDSC waivers will not be allowed on redemptions of Class 529-C shares due to termination of CollegeAmerica; a determination by the Internal Revenue Service that CollegeAmerica does not qualify as a qualified tuition program under the Code; proposal or enactment of law that eliminates or

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limits the tax-favored status of CollegeAmerica; or elimination of the fund by Virginia529 as an option for additional investment within CollegeAmerica.

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Selling shares

The methods for selling (redeeming) shares are described more fully in the prospectus. If you wish to sell your shares by contacting American Funds Service Company directly, any such request must be signed by the registered shareholders. To contact American Funds Service Company via overnight mail or courier service, see “Purchase and exchange of shares.”

A signature guarantee may be required for certain redemptions. In such an event, your signature may be guaranteed by a domestic stock exchange or the Financial Industry Regulatory Authority, bank, savings association or credit union that is an eligible guarantor institution. The Transfer Agent reserves the right to require a signature guarantee on any redemptions.

Additional documentation may be required for sales of shares held in corporate, partnership or fiduciary accounts. You must include with your written request any shares you wish to sell that are in certificate form.

If you sell Class A or C shares and request a specific dollar amount to be sold, we will sell sufficient shares so that the sale proceeds, after deducting any applicable CDSC, equals the dollar amount requested.

If you hold multiple American Funds and a CDSC applies to the shares you are redeeming, the CDSC will be calculated based on the applicable class of shares of the particular fund from which you are making the redemption.

Redemption proceeds will not be mailed until sufficient time has passed to provide reasonable assurance that checks or drafts (including certified or cashier’s checks) for shares purchased have cleared (normally seven business days from the purchase date). Except for delays relating to clearance of checks for share purchases or in extraordinary circumstances (and as permissible under the 1940 Act), the fund typically expects to pay redemption proceeds one business day following receipt and acceptance of a redemption order. Interest will not accrue or be paid on amounts that represent uncashed distribution or redemption checks.

You may request that redemption proceeds of $1,000 or more from American Funds U.S. Government Money Market Fund be wired to your bank by writing American Funds Service Company. A signature guarantee is required on all requests to wire funds and you may be subject to a fee for the transaction.

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Shareholder account services and privileges

The following services and privileges are generally available to all shareholders. However, certain services and privileges described in the prospectus and this statement of additional information may not be available for Class 529 shareholders or if your account is held with an investment dealer or through an employer-sponsored retirement plan.

Automatic investment plan — An automatic investment plan enables you to make monthly or quarterly investments in American Funds through automatic debits from your bank account. To set up a plan, you must fill out an account application and specify the amount that you would like to invest and the date on which you would like your investments to occur. The plan will begin within 30 days after your account application is received. Your bank account will be debited on the day or a few days before your investment is made, depending on the bank’s capabilities. The Transfer Agent will then invest your money into the fund you specified on or around the date you specified. If the date you specified falls on a weekend or holiday, your money will be invested on the following business day. However, if the following business day falls in the next month, your money will be invested on the business day immediately preceding the weekend or holiday. If your bank account cannot be debited due to insufficient funds, a stop-payment or the closing of the account, the plan may be terminated and the related investment reversed. You may change the amount of the investment or discontinue the plan at any time by contacting the Transfer Agent.

Automatic reinvestment — Dividends and capital gain distributions are reinvested in additional shares of the same class and fund at net asset value unless you indicate otherwise on the account application. You also may elect to have dividends and/or capital gain distributions paid in cash by informing the fund, the Transfer Agent or your investment dealer. Dividends and capital gain distributions paid to retirement plan shareholders or shareholders of the 529 share classes will be automatically reinvested.

If you have elected to receive dividends and/or capital gain distributions in cash, and the postal or other delivery service is unable to deliver checks to your address of record, or you do not respond to mailings from American Funds Service Company with regard to uncashed distribution checks, your distribution option may be automatically converted to having all dividends and other distributions reinvested in additional shares.

Cross-reinvestment of dividends and distributions — For all share classes, except Class T shares and the 529 classes of shares, you may cross-reinvest dividends and capital gains (distributions) into other American Funds in the same share class at net asset value, subject to the following conditions:

(1) the aggregate value of your account(s) in the fund(s) paying distributions equals or exceeds $5,000 (this is waived if the value of the account in the fund receiving the distributions equals or exceeds that fund’s minimum initial investment requirement);

(2) if the value of the account of the fund receiving distributions is below the minimum initial investment requirement, distributions must be automatically reinvested; and

(3) if you discontinue the cross-reinvestment of distributions, the value of the account of the fund receiving distributions must equal or exceed the minimum initial investment requirement. If you do not meet this requirement within 90 days of notification, the fund has the right to automatically redeem the account.

Depending on the financial intermediary holding your account, your reinvestment privileges may be unavailable or differ from those described in this statement of additional information. Investors should consult their financial intermediary for further information.

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Automatic exchanges — For all share classes other than Class T shares, you may automatically exchange shares of the same class in amounts of $50 or more among any American Funds on any day (or preceding business day if the day falls on a nonbusiness day) of each month you designate.

Automatic withdrawals — Depending on the type of account, for all share classes except R shares, you may automatically withdraw shares from any of the American Funds. You can make automatic withdrawals of $50 or more. You can designate the day of each period for withdrawals and request that checks be sent to you or someone else. Withdrawals may also be electronically deposited to your bank account. The Transfer Agent will withdraw your money from the fund you specify on or around the date you specify. If the date you specified falls on a weekend or holiday, the redemption will take place on the previous business day. However, if the previous business day falls in the preceding month, the redemption will take place on the following business day after the weekend or holiday. You should consult with your financial professional or intermediary to determine if your account is eligible for automatic withdrawals.

Withdrawal payments are not to be considered as dividends, yield or income. Generally, automatic investments may not be made into a shareholder account from which there are automatic withdrawals. Withdrawals of amounts exceeding reinvested dividends and distributions and increases in share value would reduce the aggregate value of the shareholder’s account. The Transfer Agent arranges for the redemption by the fund of sufficient shares, deposited by the shareholder with the Transfer Agent, to provide the withdrawal payment specified.

Redemption proceeds from an automatic withdrawal plan are not eligible for reinvestment without a sales charge.

Account statements — Your account is opened in accordance with your registration instructions. Transactions in the account, such as additional investments, will be reflected on regular confirmation statements from the Transfer Agent. Dividend and capital gain reinvestments, purchases through automatic investment plans and certain retirement plans, as well as automatic exchanges and withdrawals, will be confirmed at least quarterly.

American FundsLine and capitalgroup.com — You may check your share balance, the price of your shares or your most recent account transaction; redeem shares (up to $125,000 per American Funds shareholder each day) from nonretirement plan accounts; or exchange shares around the clock with American FundsLine or using capitalgroup.com. To use American FundsLine, call (800) 325-3590 from a TouchTone™ telephone. Redemptions and exchanges through American FundsLine and capitalgroup.com are subject to the conditions noted above and in “Telephone and Internet purchases, redemptions and exchanges” below. You will need your fund number (see the list of American Funds under the “General information — fund numbers” section in this statement of additional information), personal identification number (generally the last four digits of your Social Security number or other tax identification number associated with your account) and account number.

Generally, all shareholders are automatically eligible to use these services. However, if you are not currently authorized to do so, you may complete an American FundsLink Authorization Form. Once you establish this privilege, you, your financial professional or any person with your account information may use these services.

Telephone and Internet purchases, redemptions and exchanges — By using the telephone (including American FundsLine) or the Internet (including capitalgroup.com), or fax purchase, redemption and/or exchange options, you agree to hold the fund, the Transfer Agent, any of its affiliates or mutual funds managed by such affiliates, and each of their respective directors, trustees, officers, employees and agents harmless from any losses, expenses, costs or liabilities (including attorney fees) that may be incurred in connection with the exercise of these privileges. Generally, all shareholders are

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automatically eligible to use these services. However, you may elect to opt out of these services by writing the Transfer Agent (you may also reinstate them at any time by writing the Transfer Agent). If the Transfer Agent does not employ reasonable procedures to confirm that the instructions received from any person with appropriate account information are genuine, it and/or the fund may be liable for losses due to unauthorized or fraudulent instructions. In the event that shareholders are unable to reach the fund by telephone because of technical difficulties, market conditions or a natural disaster, redemption and exchange requests may be made in writing only.

Redemption of shares — The fund’s articles of incorporation permit the fund to direct the Transfer Agent to redeem the shares of any shareholder for their then current net asset value per share if at such time the shareholder of record owns shares having an aggregate net asset value of less than the minimum initial investment amount required of new shareholders as set forth in the fund’s current registration statement under the 1940 Act, and subject to such further terms and conditions as the board of directors of the fund may from time to time adopt.

While payment of redemptions normally will be in cash, the fund’s articles of incorporation permit payment of the redemption price wholly or partly with portfolio securities or other fund assets under conditions and circumstances determined by the fund’s board of directors. For example, redemptions could be made in this manner if the board determined that making payments wholly in cash over a particular period would be unfair and/or harmful to other fund shareholders.

Share certificates — Shares are credited to your account. The fund does not issue share certificates.

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General information

Custodian of assets — Securities and cash owned by the fund, including proceeds from the sale of shares of the fund and of securities in the fund’s portfolio, are held by JP Morgan Chase Bank N.A., 270 Park Avenue, New York, NY 10017-2070, as custodian. If the fund holds securities of issuers outside the U.S., the custodian may hold these securities pursuant to subcustodial arrangements in banks outside the U.S. or branches of U.S. banks outside the U.S.

Transfer agent services — American Funds Service Company, a wholly owned subsidiary of the investment adviser, maintains the records of shareholder accounts, processes purchases and redemptions of the fund’s shares, acts as dividend and capital gain distribution disbursing agent, and performs other related shareholder service functions. The principal office of American Funds Service Company is located at 6455 Irvine Center Drive, Irvine, CA 92618. Transfer agent fees are paid according to a fee schedule, based on the number of accounts serviced or a percentage of fund assets, contained in a Shareholder Services Agreement between the fund and American Funds Service Company.

In the case of certain shareholder accounts, third parties who may be unaffiliated with the investment adviser provide transfer agency and shareholder services in place of American Funds Service Company. These services are rendered under agreements with American Funds Service Company or its affiliates and the third parties receive compensation according to such agreements. Compensation for transfer agency and shareholder services, whether paid to American Funds Service Company or such third parties, is ultimately paid from fund assets and is reflected in the expenses of the fund as disclosed in the prospectus.

During the 2020 fiscal year, transfer agent fees, gross of any payments made by American Funds Service Company to third parties, were:

   
  Transfer agent fee
Class A $21,492,000
Class C 1,069,000
Class T —*
Class F-1 1,603,000
Class F-2 14,387,000
Class F-3 474,000
Class 529-A 1,381,000
Class 529-C 150,000
Class 529-E 28,000
Class 529-T —*
Class 529-F-1 137,000
Class R-1 48,000
Class R-2 1,053,000
Class R-2E 75,000
Class R-3 990,000
Class R-4 811,000
Class R-5E 72,000
Class R-5 159,000
Class R-6 163,000

* Amount less than $1,000.

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Independent registered public accounting firm — Deloitte & Touche LLP, 695 Town Center Drive, Costa Mesa, CA 92626, serves as the fund’s independent registered public accounting firm, providing audit services and review of certain documents to be filed with the SEC. Deloitte Tax LLP prepares tax returns for the fund. The financial statements included in this statement of additional information from the annual report have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such financial statements have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The selection of the fund’s independent registered public accounting firm is reviewed and determined annually by the board of directors.

Independent legal counsel — Dechert LLP, One Bush Street, Suite 1600, San Francisco, CA 94104, serves as independent legal counsel (“counsel”) for the fund and for independent directors in their capacities as such. A determination with respect to the independence of the fund’s counsel will be made at least annually by the independent directors of the fund, as prescribed by applicable 1940 Act rules.

Prospectuses, reports to shareholders and proxy statements — The fund’s fiscal year ends on October 31. Shareholders are provided updated summary prospectuses annually and at least semi-annually with reports showing the fund’s investment portfolio or summary investment portfolio, financial statements and other information. Shareholders may request a copy of the fund’s current prospectus at no cost by calling (800) 421-4225 or by sending an email request to [email protected]. Shareholders may also access the fund’s current summary prospectus, prospectus, statement of additional information and shareholder reports at capitalgroup.com/prospectus. The fund’s annual financial statements are audited by the fund’s independent registered public accounting firm, Deloitte & Touche LLP. In addition, shareholders may also receive proxy statements for the fund. In an effort to reduce the volume of mail shareholders receive from the fund when a household owns more than one account, the Transfer Agent has taken steps to eliminate duplicate mailings of summary prospectuses, shareholder reports and proxy statements. To receive additional copies of a summary prospectus, report or proxy statement, shareholders should contact the Transfer Agent.

Shareholders may also elect to receive updated summary prospectuses, annual reports and semi-annual reports electronically by signing up for electronic delivery on our website, capitalgroup.com. Upon electing the electronic delivery of updated summary prospectuses and other reports, a shareholder will no longer automatically receive such documents in paper form by mail. A shareholder who elects electronic delivery is able to cancel this service at any time and return to receiving updated summary prospectuses and other reports in paper form by mail.

Summary prospectuses, prospectuses, annual reports and semi-annual reports that are mailed to shareholders by the Capital Group organization are printed with ink containing soy and/or vegetable oil on paper containing recycled fibers.

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Codes of ethics — The fund and Capital Research and Management Company and its affiliated companies, including the fund’s Principal Underwriter, have adopted codes of ethics that allow for personal investments, including securities in which the fund may invest from time to time. These codes include a ban on acquisitions of securities pursuant to an initial public offering; restrictions on acquisitions of private placement securities; preclearance and reporting requirements; review of duplicate confirmation statements; annual recertification of compliance with codes of ethics; blackout periods on personal investing for certain investment personnel; ban on short-term trading profits for investment personnel; limitations on service as a director of publicly traded companies; disclosure of personal securities transactions; and policies regarding political contributions.

Credit facility — The fund, together with other U.S. registered investment funds managed by Capital Research and Management Company, has entered into a committed line of credit facility pursuant to which the funds may borrow up to $1.5 billion as a source of temporary liquidity on a first-come, first-served basis. Under the credit facility, loans are generally unsecured; however, a borrowing fund must collateralize any borrowings under the facility on an equivalent basis if it has certain other collateralized borrowings.

Determination of net asset value, redemption price and maximum offering price per share for Class A shares — October 31, 2020

   
Net asset value and redemption price per share
(Net assets divided by shares outstanding)  
$73.88
Maximum offering price per share
(100/94.25 of net asset value per share, which takes into account the fund’s current maximum sales charge)  
$78.39

Other information — The fund reserves the right to modify the privileges described in this statement of additional information at any time.

The fund’s financial statements, including the investment portfolio and the report of the fund’s independent registered public accounting firm contained in the annual report, are included in this statement of additional information.

New World Fund — Page 86

Fund numbers — Here are the fund numbers for use with our automated telephone line, American FundsLine®, or when making share transactions:

             
  Fund numbers
Fund Class A Class C Class T Class F-1 Class F-2 Class F-3
Stock and stock/fixed income funds            
AMCAP Fund®  002 302 43002 402 602 702
American Balanced Fund®  011 311 43011 411 611 711
American Funds Developing World Growth and Income FundSM  30100 33100 43100 34100 36100 37100
American Funds Global Balanced FundSM  037 337 43037 437 637 737
American Funds Global Insight FundSM  30122 33122 43122 34122 36122 37122
American Funds International Vantage FundSM  30123 33123 43123 34123 36123 37123
American Mutual Fund®  003 303 43003 403 603 703
Capital Income Builder®  012 312 43012 412 612 712
Capital World Growth and Income Fund®  033 333 43033 433 633 733
EuroPacific Growth Fund®  016 316 43016 416 616 716
Fundamental Investors®  010 310 43010 410 610 710
The Growth Fund of America®  005 305 43005 405 605 705
The Income Fund of America®  006 306 43006 406 606 706
International Growth and Income FundSM  034 334 43034 434 634 734
The Investment Company of America®  004 304 43004 404 604 704
The New Economy Fund®  014 314 43014 414 614 714
New Perspective Fund®  007 307 43007 407 607 707
New World Fund®  036 336 43036 436 636 736
SMALLCAP World Fund®  035 335 43035 435 635 735
Washington Mutual Investors FundSM  001 301 43001 401 601 701
Fixed income funds            
American Funds Emerging Markets Bond Fund ®  30114 33114 43114 34114 36114 37114
American Funds Corporate Bond Fund ®  032 332 43032 432 632 732
American Funds Inflation Linked Bond Fund®  060 360 43060 460 660 760
American Funds Mortgage Fund®  042 342 43042 442 642 742
American Funds Multi-Sector Income FundSM  30126 33126 43126 34126 36126 37126
American Funds Short-Term Tax-Exempt
Bond Fund® 
039 N/A 43039 439 639 739
American Funds Strategic Bond FundSM  30112 33112 43112 34112 36112 37112
American Funds Tax-Exempt Fund of
New York® 
041 341 43041 441 641 741
American High-Income Municipal Bond Fund® 040 340 43040 440 640 740
American High-Income Trust®  021 321 43021 421 621 721
The Bond Fund of America®  008 308 43008 408 608 708
Capital World Bond Fund®  031 331 43031 431 631 731
Intermediate Bond Fund of America®  023 323 43023 423 623 723
Limited Term Tax-Exempt Bond Fund
of America® 
043 343 43043 443 643 743
Short-Term Bond Fund of America®  048 348 43048 448 648 748
The Tax-Exempt Bond Fund of America®  019 319 43019 419 619 719
The Tax-Exempt Fund of California®  020 320 43020 420 620 720
U.S. Government Securities Fund®  022 322 43022 422 622 722
Money market fund            
American Funds U.S. Government
Money Market FundSM 
059 359 43059 459 659 759

New World Fund — Page 87

                   
  Fund numbers
Fund Class
529-A
Class
529-C
Class
529-E
Class
529-T
Class
529-F-1
Class
529-F-2
Class
529-F-3
Class
ABLE-A
Class
ABLE-F-2
Stock and stock/fixed income funds                  
AMCAP Fund  1002 1302 1502 46002 1402 1602 1702 N/A N/A
American Balanced Fund  1011 1311 1511 46011 1411 1611 1711 N/A N/A
American Funds Developing World Growth and Income Fund  10100 13100 15100 46100 14100 16100 17100 N/A N/A
American Funds Global Balanced Fund  1037 1337 1537 46037 1437 1637 1737 N/A N/A
American Funds Global Insight Fund  10122 13122 15122 46122 14122 16122 17122 N/A N/A
American Funds International Vantage Fund  10123 13123 15123 46123 14123 16123 17123 N/A N/A
American Mutual Fund  1003 1303 1503 46003 1403 1603 1703 N/A N/A
Capital Income Builder  1012 1312 1512 46012 1412 1612 1712 N/A N/A
Capital World Growth and Income Fund  1033 1333 1533 46033 1433 1633 1733 N/A N/A
EuroPacific Growth Fund  1016 1316 1516 46016 1416 1616 1716 N/A N/A
Fundamental Investors  1010 1310 1510 46010 1410 1610 1710 N/A N/A
The Growth Fund of America  1005 1305 1505 46005 1405 1605 1705 N/A N/A
The Income Fund of America  1006 1306 1506 46006 1406 1606 1706 N/A N/A
International Growth and Income Fund  1034 1334 1534 46034 1434 1634 1734 N/A N/A
The Investment Company of America  1004 1304 1504 46004 1404 1604 1704 N/A N/A
The New Economy Fund  1014 1314 1514 46014 1414 1614 1714 N/A N/A
New Perspective Fund  1007 1307 1507 46007 1407 1607 1707 N/A N/A
New World Fund  1036 1336 1536 46036 1436 1636 1736 N/A N/A
SMALLCAP World Fund  1035 1335 1535 46035 1435 1635 1735 N/A N/A
Washington Mutual Investors Fund  1001 1301 1501 46001 1401 1601 1701 N/A N/A
Fixed income funds                  
American Funds Emerging Markets Bond Fund   10114 13114 15114 46114 14114 16114 17114 N/A N/A
American Funds Corporate Bond Fund   1032 1332 1532 46032 1432 1632 1732 N/A N/A
American Funds Inflation Linked Bond Fund  1060 1360 1560 46060 1460 1660 1760 N/A N/A
American Funds Mortgage Fund  1042 1342 1542 46042 1442 1642 1742 N/A N/A
American Funds Multi-Sector Income Fund  10126 13126 15126 46126 14126 16126 17126 N/A N/A
American Funds Strategic Bond Fund  10112 13112 15112 46112 14112 16112 17112 N/A N/A
American High-Income Trust  1021 1321 1521 46021 1421 1621 1721 N/A N/A
The Bond Fund of America  1008 1308 1508 46008 1408 1608 1708 N/A N/A
Capital World Bond Fund  1031 1331 1531 46031 1431 1631 1731 N/A N/A
Intermediate Bond Fund of America  1023 1323 1523 46023 1423 1623 1723 N/A N/A
Short-Term Bond Fund of America  1048 1348 1548 46048 1448 1648 1748 N/A N/A
U.S. Government Securities Fund  1022 1322 1522 46022 1422 1622 1722 N/A N/A
Money market fund                  
American Funds U.S. Government
Money Market Fund 
1059 1359 1559 46059 1459 1659 1759 48059 60059

New World Fund — Page 88

                 
  Fund numbers
Fund Class
R-1
Class
R-2
Class
R-2E
Class
R-3
Class
R-4
Class
R-5E
Class
R-5
Class
R-6
Stock and stock/fixed income funds                
AMCAP Fund  2102 2202 4102 2302 2402 2702 2502 2602
American Balanced Fund  2111 2211 4111 2311 2411 2711 2511 2611
American Funds Developing World Growth and Income Fund  21100 22100 41100 23100 24100 27100 25100 26100
American Funds Global Balanced Fund  2137 2237 4137 2337 2437 2737 2537 2637
American Funds Global Insight Fund 21122 22122 41122 23122 24122 27122 25122 26122
American Funds International Vantage Fund  21123 22123 41123 23123 24123 27123 25123 26123
American Mutual Fund  2103 2203 4103 2303 2403 2703 2503 2603
Capital Income Builder  2112 2212 4112 2312 2412 2712 2512 2612
Capital World Growth and Income Fund 2133 2233 4133 2333 2433 2733 2533 2633
EuroPacific Growth Fund  2116 2216 4116 2316 2416 2716 2516 2616
Fundamental Investors  2110 2210 4110 2310 2410 2710 2510 2610
The Growth Fund of America  2105 2205 4105 2305 2405 2705 2505 2605
The Income Fund of America  2106 2206 4106 2306 2406 2706 2506 2606
International Growth and Income Fund  2134 2234 41034 2334 2434 27034 2534 2634
The Investment Company of America 2104 2204 4104 2304 2404 2704 2504 2604
The New Economy Fund  2114 2214 4114 2314 2414 2714 2514 2614
New Perspective Fund  2107 2207 4107 2307 2407 2707 2507 2607
New World Fund  2136 2236 4136 2336 2436 2736 2536 2636
SMALLCAP World Fund  2135 2235 4135 2335 2435 2735 2535 2635
Washington Mutual Investors Fund  2101 2201 4101 2301 2401 2701 2501 2601
Fixed income funds                
American Funds Emerging Markets Bond Fund  21114 22114 41114 23114 24114 27114 25114 26114
American Funds Corporate Bond Fund  2132 2232 4132 2332 2432 2732 2532 2632
American Funds Inflation Linked Bond Fund  2160 2260 4160 2360 2460 2760 2560 2660
American Funds Mortgage Fund  2142 2242 4142 2342 2442 2742 2542 2642
American Funds Multi-Sector Income Fund  21126 22126 41126 23126 24126 27126 25126 26126
American Funds Strategic Bond Fund  21112 22112 41112 23112 24112 27112 25112 26112
American High-Income Trust  2121 2221 4121 2321 2421 2721 2521 2621
The Bond Fund of America  2108 2208 4108 2308 2408 2708 2508 2608
Capital World Bond Fund  2131 2231 4131 2331 2431 2731 2531 2631
Intermediate Bond Fund of America 2123 2223 4123 2323 2423 2723 2523 2623
Short-Term Bond Fund of America  2148 2248 4148 2348 2448 2748 2548 2648
U.S. Government Securities Fund  2122 2222 4122 2322 2422 2722 2522 2622
Money market fund                
American Funds U.S. Government
Money Market Fund 
2159 2259 4159 2359 2459 2759 2559 2659

New World Fund — Page 89

             
  Fund numbers
Fund Class A Class C Class T Class F-1 Class F-2 Class F-3
American Funds Target Date Retirement Series®            
American Funds 2065 Target Date Retirement FundSM 30185 33185 43185 34185 36185 37185
American Funds 2060 Target Date Retirement Fund® 083 383 43083 483 683 783
American Funds 2055 Target Date Retirement Fund® 082 382 43082 482 682 782
American Funds 2050 Target Date Retirement Fund® 069 369 43069 469 669 769
American Funds 2045 Target Date Retirement Fund® 068 368 43068 468 668 768
American Funds 2040 Target Date Retirement Fund® 067 367 43067 467 667 767
American Funds 2035 Target Date Retirement Fund® 066 366 43066 466 36066 766
American Funds 2030 Target Date Retirement Fund® 065 365 43065 465 665 765
American Funds 2025 Target Date Retirement Fund® 064 364 43064 464 664 764
American Funds 2020 Target Date Retirement Fund® 063 363 43063 463 663 763
American Funds 2015 Target Date Retirement Fund® 062 362 43062 462 662 762
American Funds 2010 Target Date Retirement Fund® 061 361 43061 461 661 761
                 
  Fund numbers
Fund Class
R-1
Class
R-2
Class
R-2E
Class
R-3
Class
R-4
Class
R-5E
Class
R-5
Class
R-6
American Funds Target Date Retirement Series®                
American Funds 2065
Target Date Retirement FundSM
21185 22185 41185 23185 24185 27185 25185 26185
American Funds 2060
Target Date Retirement Fund®
2183 2283 4183 2383 2483 2783 2583 2683
American Funds 2055
Target Date Retirement Fund®
2182 2282 4182 2382 2482 2782 2582 2682
American Funds 2050
Target Date Retirement Fund®
2169 2269 4169 2369 2469 2769 2569 2669
American Funds 2045
Target Date Retirement Fund®
2168 2268 4168 2368 2468 2768 2568 2668
American Funds 2040
Target Date Retirement Fund®
2167 2267 4167 2367 2467 2767 2567 2667
American Funds 2035
Target Date Retirement Fund®
2166 2266 4166 2366 2466 2766 2566 2666
American Funds 2030
Target Date Retirement Fund®
2165 2265 4165 2365 2465 2765 2565 2665
American Funds 2025
Target Date Retirement Fund®
2164 2264 4164 2364 2464 2764 2564 2664
American Funds 2020
Target Date Retirement Fund®
2163 2263 4163 2363 2463 2763 2563 2663
American Funds 2015
Target Date Retirement Fund®
2162 2262 4162 2362 2462 2762 2562 2662
American Funds 2010
Target Date Retirement Fund®
2161 2261 4161 2361 2461 2761 2561 2661

New World Fund — Page 90

               
  Fund numbers
Fund Class
529-A
Class
529-C
Class
529-E
Class
529-T
Class
529-F-1
Class
529-F-2
Class
529-F-3
American Funds College Target Date Series®              
American Funds College 2039 FundSM  10136 13136 15136 46136 14136 16136 17136
American Funds College 2036 FundSM  10125 13125 15125 46125 14125 16125 17125
American Funds College 2033 Fund®  10103 13103 15103 46103 14103 16103 17103
American Funds College 2030 Fund®  1094 1394 1594 46094 1494 1694 1794
American Funds College 2027 Fund®  1093 1393 1593 46093 1493 1693 1793
American Funds College 2024 Fund®  1092 1392 1592 46092 1492 1692 1792
American Funds College 2021 Fund®  1091 1391 1591 46091 1491 1691 1791
American Funds College Enrollment Fund®  1088 1388 1588 46088 1488 1688 1788

New World Fund — Page 91

             
  Fund numbers
Fund Class A Class C Class T Class F-1 Class F-2 Class F-3
American Funds Portfolio SeriesSM            
American Funds Global Growth PortfolioSM  055 355 43055 455 655 755
American Funds Growth PortfolioSM  053 353 43053 453 653 753
American Funds Growth and Income PortfolioSM  051 351 43051 451 651 751
American Funds Moderate Growth and Income PortfolioSM  050 350 43050 450 650 750
American Funds Conservative Growth and Income PortfolioSM  047 347 43047 447 647 747
American Funds Tax-Aware Conservative
Growth and Income PortfolioSM 
046 346 43046 446 646 746
American Funds Preservation PortfolioSM  045 345 43045 445 645 745
American Funds Tax-Exempt Preservation PortfolioSM 044 344 43044 444 644 744
                   
  Fund numbers
Fund Class
529-A
Class
529-C
Class
529-E
Class
529-T
Class
529-F-1
Class
529-F-2
Class
529-F-3
Class
ABLE-A
Class
ABLE-F-2
American Funds Global Growth Portfolio  1055 1355 1555 46055 1455 1655 1755 48055 60055
American Funds Growth Portfolio  1053 1353 1553 46053 1453 1653 1753 48053 60053
American Funds Growth and Income Portfolio  1051 1351 1551 46051 1451 1651 1751 48051 60051
American Funds Moderate Growth and Income Portfolio  1050 1350 1550 46050 1450 1650 1750 48050 60050
American Funds Conservative Growth and Income Portfolio  1047 1347 1547 46047 1447 1647 1747 48047 60047
American Funds Tax-Aware Conservative Growth and Income Portfolio  N/A N/A N/A N/A N/A N/A N/A N/A N/A
American Funds Preservation Portfolio  1045 1345 1545 46045 1445 1645 1745 48045 60045
American Funds Tax-Exempt Preservation Portfolio  N/A N/A N/A N/A N/A N/A N/A N/A N/A
                 
  Fund numbers
Fund Class
R-1
Class
R-2
Class
R-2E
Class
R-3
Class
R-4
Class
R-5E
Class
R-5
Class
R-6
American Funds Global Growth Portfolio  2155 2255 4155 2355 2455 2755 2555 2655
American Funds Growth Portfolio  2153 2253 4153 2353 2453 2753 2553 2653
American Funds Growth and Income Portfolio  2151 2251 4151 2351 2451 2751 2551 2651
American Funds Moderate Growth and Income Portfolio  2150 2250 4150 2350 2450 2750 2550 2650
American Funds Conservative Growth and Income Portfolio  2147 2247 4147 2347 2447 2747 2547 2647
American Funds Tax-Aware Conservative
Growth and Income Portfolio 
N/A N/A N/A N/A N/A N/A N/A N/A
American Funds Preservation Portfolio  2145 2245 4145 2345 2445 2745 2545 2645
American Funds Tax-Exempt Preservation Portfolio N/A N/A N/A N/A N/A N/A N/A N/A

New World Fund — Page 92

             
  Fund numbers
Fund Class A Class C Class T Class F-1 Class F-2 Class F-3
American Funds Retirement Income Portfolio SeriesSM            
American Funds Retirement Income Portfolio – ConservativeSM  30109 33109 43109 34109 36109 37109
American Funds Retirement Income Portfolio – ModerateSM  30110 33110 43110 34110 36110 37110
American Funds Retirement Income Portfolio – EnhancedSM  30111 33111 43111 34111 36111 37111
                 
  Fund numbers
Fund Class
R-1
Class
R-2
Class
R-2E
Class
R-3
Class
R-4
Class
R-5E
Class
R-5
Class
R-6
American Funds Retirement Income Portfolio – Conservative  21109 22109 41109 23109 24109 27109 25109 26109
American Funds Retirement Income Portfolio – Moderate  21110 22110 41110 23110 24110 27110 25110 26110
American Funds Retirement Income Portfolio – Enhanced  21111 22111 41111 23111 24111 27111 25111 26111

New World Fund — Page 93

Appendix

The following descriptions of debt security ratings are based on information provided by Moody’s Investors Service, Standard & Poor’s Ratings Services and Fitch Ratings, Inc.

Description of bond ratings

Moody’s
Long-term rating scale

Aaa
Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.

Aa
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.

A
Obligations rated A are considered upper-medium grade and are subject to low credit risk.

Baa
Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.

Ba
Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.

B
Obligations rated B are considered speculative and are subject to high credit risk.

Caa
Obligations rated Caa are judged to be speculative and of poor standing and are subject to very high credit risk.

Ca
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.

C
Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest.

Note: Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. Additionally, a “(hyb)” indicator is appended to all ratings of hybrid securities issued by banks, insurers, finance companies and securities firms.

New World Fund — Page 94

Standard & Poor’s
Long-term issue credit ratings

AAA
An obligation rated AAA has the highest rating assigned by Standard & Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.

AA
An obligation rated AA differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.

A
An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.

BBB
An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

BB, B, CCC, CC, and C

Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.

BB
An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.

B
An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.

CCC
An obligation rated CCC is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.

CC
An obligation rated CC is currently highly vulnerable to nonpayment. The CC rating is used when a default has not occurred, but Standard & Poor’s expects default to be a virtual certainty, regardless of the anticipated time to default.

New World Fund — Page 95

C
An obligation rated C is currently highly vulnerable to nonpayment, and the obligation is expected to have lower relative seniority or lower ultimate recovery compared to obligations that are rated higher.

D
An obligation rated D is in default or in breach of an imputed promise. For non-hybrid capital instruments, the D rating category is used when payments on an obligation are not made on the date due, unless Standard & Poor’s believes that such payments will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30 calendar days. The D rating also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. An obligation’s rating is lowered to D if it is subject to a distressed exchange offer.

Plus (+) or minus (–)

The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

NR

This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor’s does not rate a particular obligation as a matter of policy.

New World Fund — Page 96

Fitch Ratings, Inc.
Long-term credit ratings

AAA
Highest credit quality. AAA ratings denote the lowest expectation of default risk. They are assigned only in case of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.

AA
Very high credit quality. AA ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.

A
High credit quality. A ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings.

BBB
Good credit quality. BBB ratings indicate that expectations of default risk are low. The capacity for payment of financial commitments is considered adequate but adverse changes in circumstances and economic conditions are more likely to impair this capacity.

BB
Speculative. BB ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists which supports the servicing of financial commitments.

B
Highly speculative. B ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment.

CCC
Substantial credit risk. Default is a real possibility.

CC
Very high levels of credit risk. Default of some kind appears probable.

C
Exceptionally high levels of credit risk. Default is imminent or inevitable, or the issuer is in standstill. Conditions that are indicative of a C category rating for an issuer include:

· The issuer has entered into a grace or cure period following nonpayment of a material financial obligation;

· The issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; or

· Fitch Ratings otherwise believes a condition of RD or D to be imminent or inevitable, including through the formal announcement of a distressed debt exchange.

New World Fund — Page 97

RD
Restricted default. RD ratings indicate an issuer that in Fitch Ratings’ opinion has experienced an uncured payment default on a bond, loan or other material financial obligation but which has not entered into bankruptcy filings, administration, receivership, liquidation or other formal winding up procedure, and which has not otherwise ceased operating. This would include:

· The selective payment default on a specific class or currency of debt;

· The uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank loan, capital markets security or other material financial obligation;

· The extension of multiple waivers or forbearance periods upon a payment default on one or more material financial obligations, either in series or in parallel; or

· Execution of a distressed debt exchange on one or more material financial obligations.

D
Default. D ratings indicate an issuer that in Fitch Ratings’ opinion has entered into bankruptcy filings, administration, receivership, liquidation or other formal winding up procedure, or which has otherwise ceased business.

Default ratings are not assigned prospectively to entities or their obligations; within this context, nonpayment on an instrument that contains a deferral feature or grace period will generally not be considered a default until after the expiration of the deferral or grace period, unless a default is otherwise driven by bankruptcy or other similar circumstance, or by a distressed debt exchange.

Imminent default typically refers to the occasion where a payment default has been intimated by the issuer, and is all but inevitable. This may, for example, be where an issuer has missed a scheduled payment, but (as is typical) has a grace period during which it may cure the payment default. Another alternative would be where an issuer has formally announced a distressed debt exchange, but the date of the exchange still lies several days or weeks in the immediate future.

In all cases, the assignment of a default rating reflects the agency’s opinion as to the most appropriate rating category consistent with the rest of its universe of ratings, and may differ from the definition of default under the terms of an issuer’s financial obligations or local commercial practice.

Note: The modifiers “+” or “–” may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the AAA long-term rating category, or to categories below B.

New World Fund — Page 98

Description of commercial paper ratings

Moody’s

Global short-term rating scale

P-1

Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.

P-2

Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.

P-3

Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.

NP

Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.

Standard & Poor’s

Commercial paper ratings (highest three ratings)

A-1

A short-term obligation rated A-1 is rated in the highest category by Standard & Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitment on these obligations is extremely strong.

A-2

A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s capacity to meet its financial commitment on the obligation is satisfactory.

A-3

A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

New World Fund — Page 99

 

 

 

Investment portfolio October 31, 2020

 

Industry sector diversification Percent of net assets

 

 

 

Country diversification by domicile   Percent of
net assets
United States     22.17 %
China     18.87  
Eurozone*     10.60  
India     7.72  
Brazil     7.22  
Japan     4.02  
Hong Kong     3.62  
Taiwan     2.46  
Switzerland     2.30  
Other countries     14.81  
Short-term securities & other assets less liabilities     6.21  
* Countries using the euro as a common currency; those represented in the fund’s portfolio are Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands and Spain.

 

Common stocks 89.10%   Shares     Value
(000)
 
Information technology 18.44%                
Microsoft Corp.     5,368,500     $ 1,086,960  
Taiwan Semiconductor Manufacturing Company, Ltd.1     51,088,500       771,028  
PagSeguro Digital Ltd., Class A2     15,399,487       563,775  
Mastercard Inc., Class A     1,759,300       507,804  
StoneCo Ltd., Class A2     9,524,895       500,438  
Adobe Inc.2     920,500       411,556  
PayPal Holdings, Inc.2     2,205,300       410,473  
Keyence Corp.1     874,400       396,517  
Broadcom Inc.     1,126,200       393,753  
ASML Holding NV1     877,729       319,102  
Visa Inc., Class A     1,509,400       274,273  
Silergy Corp.1     4,332,000       267,443  
EPAM Systems, Inc.2     679,321       209,876  
Cree, Inc.2     3,277,050       208,420  
Samsung Electronics Co., Ltd.1     3,944,196       197,787  
Ant Group Co., Ltd., Class H1,2,3     18,181,900       187,624  
Accenture PLC, Class A     559,000       121,253  
Apple Inc.     1,068,200       116,284  
Kingdee International Software Group Co. Ltd.1     42,400,699       112,110  
Oneconnect Financial Technology Co., Ltd. (ADR)2     5,357,074       107,891  
Trimble Inc.2     1,867,900       89,902  
Hexagon AB, Class B1,2     1,173,200       85,678  
MediaTek Inc.1     3,317,000       78,199  
FleetCor Technologies, Inc.2     343,800       75,949  
Edenred SA1     1,463,939       68,358  
Tokyo Electron Ltd.1     238,800       64,003  
Halma PLC1     2,046,600       62,826  
Inphi Corp.2     413,000       57,721  
NetEase, Inc.1     2,300,900       40,231  
Logitech International SA1     476,000       40,095  
Autodesk, Inc.2     159,600       37,592  
Nokia Corp.1,2     10,245,487       34,393  
Advanced Micro Devices, Inc.2     422,400       31,803  
Chindata Group Holdings Ltd., Class A (ADR)2,4     2,222,200       30,977  
Aspen Technology, Inc. (USA)2     247,900       27,222  
Nice Ltd. (ADR)2     119,000       27,163  
ON Semiconductor Corp.2     1,069,900       26,844  
Micron Technology, Inc.2     498,600       25,100  
Globant SA2     134,800       24,346  
Hangzhou Hikvision Digital Technology Co., Ltd., Class A1     3,605,165       24,205  
Amphenol Corp., Class A     213,000       24,035  
Atlassian Corp. PLC, Class A2     115,625       22,156  
Elastic NV, non-registered shares2     207,100       21,002  

 

New World Fund 5
Common stocks (continued)   Shares     Value
(000)
 
Information technology (continued)                
Cognizant Technology Solutions Corp., Class A     274,000     $ 19,569  
Hamamatsu Photonics KK1     392,000       19,562  
SAP SE1     155,400       16,562  
Intel Corp.     367,300       16,264  
GDS Holdings Ltd., Class A1,2     1,477,400       15,520  
CMC Materials, Inc.     108,500       15,428  
KLA Corp.     72,300       14,256  
Network International Holdings PLC1,2     4,442,441       12,827  
VeriSign, Inc.2     66,899       12,758  
Vontier Corp.2     392,000       11,266  
Amadeus IT Group SA, Class A, non-registered shares1     193,593       9,279  
Coforge Ltd.1     260,197       7,705  
Temenos AG1     59,378       6,365  
              8,361,528  
                 
Consumer discretionary 14.50%                
Alibaba Group Holding Ltd.1,2     27,773,962       1,057,325  
Alibaba Group Holding Ltd. (ADR)2     187,800       57,221  
MercadoLibre, Inc.2     715,750       868,956  
LVMH Moët Hennessy-Louis Vuitton SE1     753,531       353,768  
Naspers Ltd., Class N1,2     1,675,652       327,768  
Delivery Hero SE1,2     2,770,050       319,964  
Meituan, Class B1,2     7,090,960       265,251  
Hermès International1     254,786       237,428  
Galaxy Entertainment Group Ltd.1     35,745,990       235,788  
Kering SA1     360,570       218,146  
EssilorLuxottica1,2     1,578,181       195,524  
Fast Retailing Co., Ltd.1     251,600       175,953  
Evolution Gaming Group AB1     2,334,931       173,526  
General Motors Company     4,562,000       157,526  
XPeng Inc., Class A (ADR)2     6,396,007       123,955  
Sony Corp.1     1,348,400       112,385  
NIKE, Inc., Class B     913,100       109,645  
Gree Electric Appliances, Inc. of Zhuhai, Class A1     11,513,892       100,873  
adidas AG1,2     314,472       93,442  
Cie. Financière Richemont SA, Class A1     1,485,499       93,048  
Booking Holdings Inc.2     52,950       85,911  
Melco Resorts & Entertainment Ltd. (ADR)     5,266,800       84,901  
Li Ning Co. Ltd.1,4     15,826,617       82,164  
Jumbo SA1     5,625,631       78,753  
Marriott International, Inc., Class A     775,300       72,010  
YUM! Brands, Inc.     673,600       62,867  
Zhongsheng Group Holdings Ltd.1     8,744,750       62,493  
Wyndham Hotels & Resorts, Inc.     1,250,000       58,138  
IDP Education Ltd.1     4,136,404       56,357  
Allegro.eu1,2     2,411,900       49,017  
Suzuki Motor Corp.1     1,111,300       47,859  
Midea Group Co., Ltd., Class A1     3,946,874       46,014  
Lufax Holding Ltd. (ADR)2     3,525,000       45,893  
China MeiDong Auto Holdings Ltd.1     10,368,000       42,546  
Wynn Macau, Ltd.1,2     30,079,600       41,563  
Prosus NV1     413,258       41,308  
Domino’s Pizza, Inc.     96,000       36,319  
Maruti Suzuki India Ltd.1     363,485       34,258  
Ferrari NV1     186,900       33,350  
Flutter Entertainment PLC (GBP denominated)1     160,346       27,768  
Hyundai Motor Co.1     161,455       23,618  
Shangri-La Asia Ltd.1,2     28,650,000       22,503  
Samsonite International SA1,2     21,630,000       21,896  
Lojas Americanas SA, ordinary nominative     4,974,400       17,486  
Aptiv PLC     181,000       17,465  
InterContinental Hotels Group PLC1,2     334,060       16,909  
Industria de Diseño Textil, SA1     642,800       15,906  
GVC Holdings PLC1,2     1,202,000       15,055  
Astra International Tbk PT1     39,878,300       14,738  
Vivo Energy PLC1     11,251,842       11,036  
China Tourism Group Duty Free Corp. Ltd., Class A1     342,659       10,157  

 

6 New World Fund
Common stocks (continued)   Shares     Value
(000)
 
Consumer discretionary (continued)                
Levi Strauss & Co., Class A     575,500     $ 9,081  
Peugeot SA1,2     498,700       8,971  
Bayerische Motoren Werke AG1     74,500       5,092  
              6,576,894  
                 
Health care 12.25%                
Thermo Fisher Scientific Inc.     1,116,820       528,390  
Zai Lab Ltd. (ADR)2,5     4,810,800       394,726  
Carl Zeiss Meditec AG, non-registered shares1     2,647,080       343,390  
WuXi Biologics (Cayman) Inc.1,2     11,447,168       321,630  
AstraZeneca PLC1     3,004,416       302,416  
Abbott Laboratories     2,593,500       272,603  
BeiGene, Ltd. (ADR)2     604,854       179,351  
BeiGene, Ltd.1,2     693,600       15,754  
bioMérieux SA1     1,233,000       184,064  
BioMarin Pharmaceutical Inc.2     2,221,213       165,325  
Asahi Intecc Co., Ltd.1     5,298,400       164,391  
Notre Dame Intermédica Participações SA     14,311,760       163,995  
CSL Ltd.1     751,000       152,638  
Pharmaron Beijing Co., Ltd., Class H1     5,606,600       81,200  
Pharmaron Beijing Co., Ltd., Class A1     3,462,800       59,575  
Yunnan Baiyao Group Co., Ltd., Class A1     8,798,900       135,639  
Jiangsu Hengrui Medicine Co., Ltd., Class A1     10,080,370       134,140  
Hugel, Inc.1,2,5     683,391       126,732  
WuXi AppTec Co., Ltd., Class H1     5,890,604       94,321  
WuXi AppTec Co., Ltd., Class A1     1,918,110       32,407  
Koninklijke Philips NV (EUR denominated)1,2     2,658,438       123,503  
Shionogi & Co., Ltd.1     2,301,200       108,639  
PerkinElmer, Inc.     812,270       105,230  
Novo Nordisk A/S, Class B1,4     1,431,310       91,535  
Guangzhou Kingmed Diagnostics Group Co., Ltd., Class A1     5,508,430       86,791  
Straumann Holding AG1     80,620       84,088  
Olympus Corp.1     4,396,700       84,066  
Pfizer Inc.     2,179,000       77,311  
CanSino Biologics Inc., Class H1,2,4     3,794,097       74,398  
Hypera SA, ordinary nominative     14,839,266       72,154  
Illumina, Inc.2     232,000       67,906  
Alcon Inc.1,2     1,152,500       65,363  
Zoetis Inc., Class A     396,000       62,786  
Danaher Corp.     266,135       61,089  
Hikma Pharmaceuticals PLC1     1,750,418       56,935  
Alibaba Health Information Technology Ltd1,2     21,315,000       56,091  
Novartis AG1     711,200       55,506  
Hangzhou Tigermed Consulting Co., Ltd., Class A1     2,929,251       54,446  
Teva Pharmaceutical Industries Ltd. (ADR)2     6,229,000       54,317  
Medtronic PLC     510,000       51,291  
Baxter International Inc.     611,400       47,426  
HOYA Corp.1     416,000       47,100  
Grifols, SA, Class A, non-registered shares1     1,100,000       29,719  
Grifols, SA, Class B (ADR)     401,870       6,824  
Lupin Ltd.1     1,780,000       21,862  
Mettler-Toledo International Inc.2     21,300       21,255  
Aier Eye Hospital Group Co., Ltd., Class A1     1,829,557       17,055  
OdontoPrev SA, ordinary nominative     6,977,400       15,334  
Legend Biotech Corp., (ADR)2     63,764       1,650  
NMC Health PLC1,2,6     812,918       10  
              5,554,367  
                 
Financials 10.04%                
Kotak Mahindra Bank Ltd.1,2     35,520,071       741,336  
HDFC Bank Ltd.1,2     32,892,396       526,299  
HDFC Bank Ltd. (ADR)2     984,400       56,544  
AIA Group Ltd.1     58,113,800       548,089  
B3 SA - Brasil, Bolsa, Balcao     33,980,500       302,321  
XP Inc., Class A2     6,095,565       244,310  
Société Générale1,2     15,769,898       215,356  
Ping An Insurance (Group) Company of China, Ltd., Class H1     17,699,700       181,703  
Ping An Insurance (Group) Company of China, Ltd., Class A1     432,343       5,044  

 

New World Fund 7
Common stocks (continued)   Shares     Value
(000)
 
Financials (continued)                
Capitec Bank Holdings Ltd.1,2     2,519,225     $ 176,715  
Sberbank of Russia PJSC (ADR)1     13,045,700       131,831  
Sberbank of Russia PJSC (ADR)     2,932,600       29,649  
Bajaj Finance Ltd.1     3,388,000       151,107  
UniCredit SpA1,2     14,833,236       111,123  
HDFC Life Insurance Company Ltd.1,2     13,667,000       108,996  
Moody’s Corp.     413,600       108,735  
S&P Global Inc.     296,500       95,689  
Hong Kong Exchanges and Clearing Ltd.1     1,974,000       94,681  
ICICI Bank Ltd. (ADR)2     6,472,532       68,285  
ICICI Bank Ltd.1,2     4,819,247       25,507  
Banco Bilbao Vizcaya Argentaria, SA1     23,689,100       68,206  
Fairfax Financial Holdings Ltd., subordinate voting shares     218,700       57,493  
Discovery Ltd.1     7,814,375       51,390  
Bank Central Asia Tbk PT1     23,930,000       47,047  
TCS Group Holding PLC (GDR)1     1,609,668       38,497  
TCS Group Holding PLC (GDR)1,7     264,560       6,327  
China Merchants Bank Co., Ltd., Class H1     7,726,600       40,198  
AU Small Finance Bank Ltd.1,2     3,318,252       34,859  
UBS Group AG1     2,900,000       33,627  
PICC Property and Casualty Co. Ltd., Class H1     46,682,000       31,652  
Moscow Exchange MICEX-RTS PJSC1     17,974,799       30,334  
The People’s Insurance Co. (Group) of China Ltd., Class H1     87,716,451       26,098  
Chubb Ltd.     200,000       25,982  
Kasikornbank PCL, foreign registered1     9,589,500       23,212  
Bank Rakyat Indonesia (Persero) Tbk PT1     98,845,000       22,394  
Axis Bank Ltd.1,2     2,786,000       18,498  
Bank of the Philippine Islands1     10,761,000       16,354  
BOC Hong Kong (Holdings) Ltd.1,4     5,466,500       15,169  
BB Seguridade Participações SA     3,569,500       14,731  
Banco Santander México, SA, Institución de Banca Múltiple, Grupo Financiero Santander México, Class B     16,008,410       11,819  
Alpha Bank SA1,2     19,935,000       10,101  
Credicorp Ltd.     64,000       7,340  
              4,554,648  
                 
Communication services 9.44%                
Tencent Holdings Ltd.1     14,258,100       1,093,688  
Facebook, Inc., Class A2     2,515,562       661,870  
Sea Ltd., Class A (ADR)2     3,835,022       604,783  
Alphabet Inc., Class C2     294,711       477,729  
Alphabet Inc., Class A2     44,800       72,402  
Netflix, Inc.2     624,143       296,930  
Yandex NV, Class A2     3,647,109       209,964  
América Móvil, SAB de CV, Series L (ADR)     16,090,500       191,799  
Electronic Arts Inc.2     1,098,200       131,597  
Activision Blizzard, Inc.     1,679,400       127,181  
Bharti Infratel Ltd.1     31,555,426       79,176  
JOYY Inc., Class A (ADR)     840,000       76,759  
China Tower Corp. Ltd., Class H1     376,848,000       58,846  
Vodafone Group PLC1     42,513,300       56,790  
Bharti Airtel Ltd.1     6,534,738       38,227  
Z Holdings Corp.1     4,986,000       34,740  
SoftBank Group Corp.1     513,600       33,753  
Informa PLC1     2,700,000       14,654  
Perusahaan Perseroan (Persero) Telekomunikasi Indonesia Tbk PT, Class B1     57,520,000       10,189  
JCDecaux SA1,2     615,000       9,523  
              4,280,600  
                 
Consumer staples 6.18%                
Kweichow Moutai Co., Ltd., Class A1     3,301,548       825,289  
Nestlé SA1     2,690,696       302,309  
Foshan Haitian Flavouring and Food Co. Ltd., Class A1     9,953,466       238,962  
Nongfu Spring Co., Ltd., Class H1,2     26,166,978       119,823  
Anheuser-Busch InBev SA/NV1     2,290,684       118,954  
Carlsberg A/S, Class B1     717,838       90,910  
Raia Drogasil SA, ordinary nominative     20,435,000       85,687  
Pernod Ricard SA1     506,023       81,658  

 

8 New World Fund
Common stocks (continued)   Shares     Value
(000)
 
Consumer staples (continued)                
Reckitt Benckiser Group PLC1     685,000     $ 60,359  
Mondelez International, Inc.     1,104,300       58,660  
Unilever NV (EUR denominated)1,4     987,031       55,751  
Avenue Supermarts Ltd.1,2     1,827,432       55,245  
AAK AB1,2     2,780,000       54,187  
British American Tobacco PLC1     1,510,800       48,001  
United Spirits Ltd.1,2     6,916,320       47,038  
Fomento Económico Mexicano, SAB de CV     8,062,200       43,212  
Uni-Charm Corp.1     924,200       42,910  
Wal-Mart de México, SAB de CV, Series V (ADR)     1,500,000       35,940  
Wal-Mart de México, SAB de CV, Series V     2,595,000       6,270  
Japan Tobacco Inc.1     2,166,800       40,976  
Shiseido Company, Ltd.1     654,500       40,516  
Inner Mongolia Yili Industrial Group Co., Ltd., Class A1     6,586,500       38,275  
ITC Ltd.1     15,000,000       33,390  
Jonjee Hi-Tech Industrial And Commercial Holding Co., Ltd., Class A1     3,468,887       32,617  
Kimberly-Clark de México, SAB de CV, Class A     21,001,800       31,218  
Kirin Holdings Company, Ltd.1     1,506,600       27,204  
L’Oréal SA, non-registered shares1     83,828       27,148  
Herbalife Nutrition Ltd.2     545,700       24,633  
Heineken NV1     252,000       22,375  
Colgate-Palmolive Company     242,000       19,091  
Constellation Brands, Inc., Class A     106,000       17,514  
Chengdu Hongqi Chain Co., Ltd.1     14,108,171       16,424  
Coca-Cola Company     330,000       15,860  
McCormick & Co., Inc., nonvoting shares     84,000       15,163  
Danone SA1     272,455       15,059  
JBS SA, ordinary nominative     3,341,374       11,326  
Diageo PLC1     145,966       4,722  
              2,804,676  
                 
Materials 5.54%                
Vale SA, ordinary nominative     16,689,062       176,112  
Vale SA, ordinary nominative (ADR)     15,278,958       161,499  
Sika AG1     912,962       224,440  
Asian Paints Ltd.1     6,439,229       192,434  
First Quantum Minerals Ltd.     16,437,000       188,884  
Gerdau SA (ADR)     46,530,700       177,282  
Shin-Etsu Chemical Co., Ltd.1     728,900       97,534  
Freeport-McMoRan Inc.     5,065,708       87,839  
Linde PLC     383,500       84,500  
AngloGold Ashanti Ltd. (ADR)     2,691,278       62,276  
AngloGold Ashanti Ltd.1     922,907       21,135  
Givaudan SA1     20,171       82,101  
Koninklijke DSM NV1     507,000       81,183  
Rio Tinto PLC1     1,376,000       77,976  
Shree Cement Ltd.1     235,995       69,052  
LANXESS AG1     1,267,000       64,226  
Arkema SA1     573,600       56,251  
BHP Group PLC1     2,478,000       48,093  
Air Liquide SA, non-registered shares1     323,357       47,331  
CCL Industries Inc., Class B, nonvoting shares     1,209,000       46,099  
Akzo Nobel NV1     464,888       44,793  
Umicore SA1     1,117,163       43,010  
Beijing Oriental Yuhong Waterproof Technology Co., Ltd., Class A1     7,008,943       39,060  
Chr. Hansen Holding A/S1     357,199       35,986  
BASF SE1     612,700       33,598  
Loma Negra Compania Industrial Argentina SA (ADR)5     7,675,388       32,851  
SIG Combibloc Group AG1     1,570,000       32,249  
Alrosa PJSC1     33,822,582       30,431  
Wheaton Precious Metals Corp. (CAD denominated)     613,845       28,170  
Air Products and Chemicals, Inc.     99,000       27,348  
Amcor PLC (CDI)1     2,116,000       22,051  
Celanese Corp.     187,300       21,260  
Turquoise Hill Resources Ltd.2     2,046,200       16,062  
Turquoise Hill Resources Ltd. (CAD denominated)2     608,350       4,781  

 

New World Fund 9
Common stocks (continued)   Shares     Value
(000)
 
Materials (continued)                
Barrick Gold Corp.     750,000     $ 20,048  
Dow Inc.     417,600       18,997  
Asahi Kasei Corp.1     1,659,500       14,413  
              2,511,355  
                 
Industrials 5.43%                
Shanghai International Airport Co., Ltd., Class A1     32,979,582       326,164  
Airbus SE, non-registered shares1,2     3,149,297       231,329  
Safran SA1,2     2,030,650       215,792  
CCR SA, ordinary nominative     81,821,782       159,139  
IMCD NV1     1,280,366       148,383  
DSV Panalpina A/S1     830,418       134,560  
International Container Terminal Services, Inc.1     54,681,000       129,924  
SMC Corp.1     214,699       113,361  
Wizz Air Holdings PLC1,2     2,444,888       101,183  
Nidec Corp.1     773,200       77,727  
Rumo SA2     23,006,325       73,534  
TransDigm Group Inc.     147,000       70,179  
Fortive Corp.     980,000       60,368  
Han’s Laser Technology Industry Group Co., Ltd., Class A1     9,942,191       59,894  
Daikin Industries, Ltd.1     304,300       56,971  
Spirax-Sarco Engineering PLC1     371,000       54,251  
Airports of Thailand PCL, foreign registered1     30,288,000       50,478  
Centre Testing International Group Co., Ltd.1     12,445,239       50,104  
Guangzhou Baiyun International Airport Co. Ltd., Class A1     19,285,179       36,212  
A-Living Smart City Services Co., Ltd., Class H1     8,552,000       36,040  
Jardine Matheson Holdings Ltd.1     755,000       33,591  
Ryanair Holdings PLC (ADR)2     413,200       33,304  
Epiroc AB, Class B1     2,302,349       33,027  
Copa Holdings, SA, Class A     630,479       31,070  
Experian PLC1     723,000       26,392  
ABB Ltd1     1,059,474       25,691  
Komatsu Ltd.1     1,055,000       23,679  
Atlas Copco AB, Class B1     479,500       18,397  
Havells India Ltd.1     1,601,000       15,719  
Air Lease Corp., Class A     568,800       15,494  
Boeing Company     91,000       13,140  
Carrier Global Corp.     177,200       5,917  
              2,461,014  
                 
Energy 3.46%                
Reliance Industries Ltd.1     37,690,890       1,044,307  
Reliance Industries Ltd., interim shares1     2,092,418       33,533  
Petróleo Brasileiro SA (Petrobras), ordinary nominative (ADR)     47,338,698       313,855  
Rosneft Oil Company PJSC (GDR)1     16,710,800       73,265  
Schlumberger Ltd.     2,204,500       32,935  
Total SE1     987,624       29,908  
Royal Dutch Shell PLC, Class B1     1,794,800       21,647  
Chevron Corp.     186,100       12,934  
United Tractors Tbk PT1     3,960,700       5,636  
              1,568,020  
                 
Real estate 2.18%                
Shimao Services Holdings Ltd.2     79,560,680       168,095  
American Tower Corp. REIT     581,200       133,473  
ESR Cayman Ltd.1,2     40,300,251       121,797  
KE Holdings Inc., Class A (ADR)2     1,356,780       94,635  
China Overseas Land & Investment Ltd.1     30,440,000       76,216  
CK Asset Holdings Ltd.1     16,372,500       75,860  
Embassy Office Parks REIT1     14,332,205       66,600  
Ayala Land, Inc.1     88,803,200       60,563  
Shimao Group Holdings Ltd.1     16,389,500       57,856  
CIFI Holdings (Group) Co. Ltd.1     77,173,131       53,420  
BR Malls Participações SA, ordinary nominative2     33,551,124       47,713  
Longfor Group Holdings Ltd.1     6,383,000       34,943  
              991,171  

 

10 New World Fund
Common stocks (continued)   Shares     Value
(000)
 
Utilities 1.64%                
ENN Energy Holdings Ltd.1     20,940,300     $ 265,364  
China Gas Holdings Ltd.1     71,415,666       218,840  
AES Corp.     4,510,000       87,945  
Enel SpA1     8,394,776       66,859  
China Resources Gas Group Ltd.1     14,018,000       60,769  
Engie SA1,2     3,522,463       42,698  
              742,475  
                 
Total common stocks (cost: $26,429,683,000)             40,406,748  
                 
Preferred securities 0.75%                
Consumer discretionary 0.20%                
Volkswagen AG, nonvoting preferred shares1     460,000       67,018  
Lojas Americanas SA, preferred nominative     6,307,026       25,534  
              92,552  
                 
Industrials 0.20%                
Azul SA, preferred nominative (ADR)2,4     4,592,225       54,418  
GOL Linhas Aéreas Inteligentes SA, preferred nominative2     10,906,600       29,823  
GOL Linhas Aéreas Inteligentes SA, preferred nominative (ADR)2,4     944,799       5,168  
              89,409  
                 
Health care 0.11%                
Grifols, SA, Class B, nonvoting preferred, non-registered shares1     3,009,716       50,921  
                 
Consumer staples 0.08%                
Henkel AG & Co. KGaA, nonvoting preferred shares1     353,500       34,500  
                 
Information technology 0.06%                
Samsung Electronics Co., Ltd., nonvoting preferred shares1     575,000       25,513  
                 
Materials 0.04%                
Gerdau SA, preferred nominative     4,713,800       17,917  
                 
Energy 0.04%                
Petróleo Brasileiro SA (Petrobras), preferred nominative (ADR)     1,328,500       8,781  
Petróleo Brasileiro SA (Petrobras), preferred nominative     2,382,000       7,863  
              16,644  
                 
Financials 0.02%                
Itaúsa SA, preferred nominative     6,560,700       10,393  
                 
Real estate 0.00%                
Ayala Land, Inc., preferred shares1,6     30,910,900       8
                 
Total preferred securities (cost: $363,245,000)             337,849  
                 
Rights & warrants 0.83%                
Health care 0.72%                
Aier Eye Hospital Group Co., Ltd., Class A, warrants, expires 20211,7     17,064,992       159,080  
Aier Eye Hospital Group Co., Ltd., Class A, warrants, expires 20211,7     662,600       5,992  
Aier Eye Hospital Group Co., Ltd., Class A, warrants, expires 20211,2,7     264,679       2,393  
WuXi AppTec Co., Ltd., Class A, warrants, expire 20211,7     9,370,956       158,322  
              325,787  
                 
Consumer staples 0.11%                
Foshan Haitian Flavouring and Food Co., Ltd., Class A, warrants, expire 20221,7     2,126,840       51,061  
                 
Total rights & warrants (cost: $168,413,000)             376,848  

 

New World Fund 11
Convertible bonds & notes 0.00%   Shares     Value
(000)
 
Health care 0.00%                
BioMarin Pharmaceutical Inc., convertible bonds, 1.25% 20277     1,450     $ 1,401  
                 
Total convertible bonds & notes (cost: $1,450,000)             1,401  
                 
Bonds, notes & other debt instruments 3.11%   Principal amount
(000)
         
Bonds & notes of governments & government agencies outside the U.S. 2.66%                
Abu Dhabi (Emirate of) 2.50% 20297   $ 22,000       23,446  
Abu Dhabi (Emirate of) 1.70% 20317     5,740       5,680  
Angola (Republic of) 9.50% 2025     9,700       8,365  
Angola (Republic of) 8.25% 2028     3,470       2,740  
Angola (Republic of) 8.00% 20297     30,500       23,672  
Angola (Republic of) 8.00% 2029     4,830       3,749  
Argentine Republic 1.00% 2029     4,613       1,905  
Argentine Republic 0.125% 20309     13,141       4,823  
Argentine Republic 0.125% 20359     53,246       17,518  
Argentine Republic 0.125% 20389     10,333       3,875  
Argentine Republic 0.125% 20419     71,900       24,447  
Armenia (Republic of) 7.15% 2025     6,000       6,475  
Bahrain (Kingdom of) 6.75% 20297     6,450       6,998  
Belarus (Republic of) 6.875% 2023     20,180       20,009  
Belarus (Republic of) 5.875% 2026     2,470       2,356  
Belarus (Republic of) 7.625% 2027     4,650       4,628  
Belarus (Republic of) 6.20% 2030     2,500       2,370  
Buenos Aires (City of) 8.95% 2021     4,518       4,180  
Cameroon (Republic of) 9.50% 2025     10,142       10,668  
Colombia (Republic of) 4.50% 2029     13,425       15,117  
Colombia (Republic of) 7.375% 2037     10,950       15,453  
Colombia (Republic of) 4.125% 2051     4,360       4,556  
Costa Rica (Republic of) 4.375% 2025     4,337       3,735  
Costa Rica (Republic of) 6.125% 20317     15,400       12,878  
Costa Rica (Republic of) 7.00% 2044     1,467       1,157  
Costa Rica (Republic of) 7.158% 2045     691       552  
Dominican Republic 7.50% 2021     3,817       3,917  
Dominican Republic 11.00% 2026   DOP 121,900       2,285  
Dominican Republic 11.00% 2026     61,700       1,169  
Dominican Republic 5.95% 2027   $ 7,820       8,543  
Dominican Republic 8.625% 20277     4,950       5,903  
Dominican Republic 11.25% 2027   DOP 100       2  
Dominican Republic 6.00% 20287   $ 4,360       4,812  
Dominican Republic 11.375% 2029   DOP 195,700       3,817  
Dominican Republic 7.45% 20447   $ 8,950       10,261  
Dominican Republic 7.45% 2044     5,700       6,535  
Dominican Republic 6.85% 20457     2,000       2,153  
Dominican Republic 5.875% 20607     10,273       9,862  
Egypt (Arab Republic of) 5.75% 20247     6,410       6,579  
Egypt (Arab Republic of) 5.625% 2030   3,225       3,497  
Egypt (Arab Republic of) 7.625% 20327   $ 14,100       14,317  
Egypt (Arab Republic of) 8.50% 2047     10,000       9,971  
Egypt (Arab Republic of) 8.15% 20597     15,000       14,256  
Ethiopia (Federal Democratic Republic of) 6.625% 2024     14,600       14,746  
Export-Import Bank of India 3.25% 2030     14,800       15,114  
Gabonese Republic 6.375% 2024     30,200       28,852  
Guatemala (Republic of) 4.375% 2027     6,715       7,343  
Honduras (Republic of) 6.25% 2027     19,495       21,961  
Honduras (Republic of) 5.625% 20307     2,460       2,724  
Indonesia (Republic of) 6.625% 2037     8,612       12,044  
Indonesia (Republic of) 5.25% 2042     18,644       23,549  
Iraq (Republic of) 6.752% 2023     11,500       10,752  
Jordan (Hashemite Kingdom of) 4.95% 20257     7,500       7,649  
Jordan (Hashemite Kingdom of) 5.75% 20277     21,135       21,876  
Kazakhstan (Republic of) 5.125% 20257     9,750       11,354  
Kazakhstan (Republic of) 5.125% 2025     5,700       6,638  
Kazakhstan (Republic of) 6.50% 20457     7,865       12,440  
Kenya (Republic of) 6.875% 20247     5,175       5,494  
Kenya (Republic of) 8.25% 20487     29,120       29,844  
Malaysia (Federation of), Series 0418, 4.893% 2038   MYR 18,100       5,123  

 

12 New World Fund
Bonds, notes & other debt instruments (continued) Principal amount
(000)
    Value
(000)
 
Bonds & notes of governments & government agencies outside the U.S. (continued)                
Pakistan (Islamic Republic of) 5.50% 2021   $ 5,208     $ 5,209  
Pakistan (Islamic Republic of) 8.25% 2024     7,355       7,685  
Pakistan (Islamic Republic of) 8.25% 20257     9,222       9,702  
Pakistan (Islamic Republic of) 6.875% 20277     14,600       14,328  
Panama (Republic of) 3.75% 20267     20,790       22,523  
Panama (Republic of) 4.50% 2047     15,445       19,102  
Panama (Republic of) 4.50% 2050     4,525       5,617  
Panama (Republic of) 4.30% 2053     6,400       7,776  
Paraguay (Republic of) 4.625% 2023     1,450       1,536  
Paraguay (Republic of) 5.00% 2026     7,095       8,099  
Paraguay (Republic of) 5.00% 20267     4,475       5,108  
Paraguay (Republic of) 4.70% 20277     8,790       9,968  
Paraguay (Republic of) 4.70% 2027     5,500       6,237  
Paraguay (Republic of) 4.95% 2031     3,415       3,996  
Peru (Republic of) 6.55% 2037     10,417       15,800  
Peru (Republic of) 5.625% 2050     1,240       1,976  
PETRONAS Capital Ltd. 3.50% 20307     3,400       3,796  
PETRONAS Capital Ltd. 4.55% 20507     3,400       4,294  
Philippines (Republic of) 2.457% 2030     6,700       7,175  
Philippines (Republic of) 2.95% 2045     13,400       14,131  
PT Indonesia Asahan Aluminium Tbk 5.23% 20217     3,045       3,168  
PT Indonesia Asahan Aluminium Tbk 4.75% 20257     5,513       5,982  
PT Indonesia Asahan Aluminium Tbk 6.53% 20287     1,330       1,622  
PT Indonesia Asahan Aluminium Tbk 6.53% 2028     1,287       1,570  
Qatar (State of) 4.50% 20287     45,000       53,989  
Qatar (State of) 3.75% 20307     6,200       7,212  
Republic of Costa Rica 6.125% 2031     6,186       5,173  
Republic of Costa Rica 5.625% 2043     365       267  
Romania 2.00% 2032   18,275       21,349  
Romania 5.125% 20487   $ 20,600       24,918  
Russian Federation 4.375% 20297     10,000       11,440  
Russian Federation 4.375% 2029     4,000       4,576  
Russian Federation 5.10% 2035     18,000       21,924  
Russian Federation 5.25% 2047     12,000       15,779  
Senegal (Republic of) 4.75% 2028   13,200       15,257  
Serbia (Republic of) 3.125% 2027     12,500       15,863  
South Africa (Republic of) 5.875% 2030   $ 28,100       29,763  
Sri Lanka (Democratic Socialist Republic of) 5.75% 2022     1,900       1,302  
Sri Lanka (Democratic Socialist Republic of) 5.875% 2022     14,000       9,030  
Sri Lanka (Democratic Socialist Republic of) 6.825% 2026     16,820       9,166  
Sri Lanka (Democratic Socialist Republic of) 7.55% 20307     7,500       4,049  
Sri Lanka (Democratic Socialist Republic of) 6.125% 2025     3,380       1,926  
Sri Lanka (Democratic Socialist Republic of) 6.85% 2025     10,530       5,896  
Sri Lanka (Democratic Socialist Republic of) 6.75% 2028     5,360       2,894  
Sri Lanka (Democratic Socialist Republic of) 7.55% 2030     4,740       2,559  
Tunisia (Republic of) 6.75% 2023   1,830       1,914  
Tunisia (Republic of) 5.625% 2024     10,725       10,770  
Tunisia (Republic of) 5.75% 2025   $ 8,645       7,334  
Turkey (Republic of) 6.375% 2025     5,935       5,812  
Turkey (Republic of) 6.00% 2041     16,795       13,696  
Turkey (Republic of) 5.75% 2047     31,345       24,398  
Ukraine 7.75% 2027     28,014       28,288  
Ukraine 9.75% 2028     6,200       6,777  
Ukraine 7.375% 2032     29,200       28,103  
United Mexican States 3.90% 2025     4,930       5,391  
United Mexican States 4.50% 2029     13,100       14,814  
United Mexican States 4.75% 2032     10,480       12,000  
United Mexican States 4.75% 2044     13,300       14,754  
Venezuela (Bolivarian Republic of) 7.00% 201810     870       84  
Venezuela (Bolivarian Republic of) 7.75% 201910     15,668       1,512  
Venezuela (Bolivarian Republic of) 6.00% 202010     12,912       1,246  
Venezuela (Bolivarian Republic of) 12.75% 202210     1,162       112  
Venezuela (Bolivarian Republic of) 9.00% 202310     18,851       1,819  
Venezuela (Bolivarian Republic of) 8.25% 202410     4,062       392  
Venezuela (Bolivarian Republic of) 7.65% 202510     1,741       168  
Venezuela (Bolivarian Republic of) 11.75% 202610     870       84  
Venezuela (Bolivarian Republic of) 9.25% 202710     2,321       224  

 

New World Fund 13
Bonds, notes & other debt instruments (continued) Principal amount
(000)
    Value
(000)
 
Bonds & notes of governments & government agencies outside the U.S. (continued)                
Venezuela (Bolivarian Republic of) 9.25% 202810   $ 4,346     $ 419  
Venezuela (Bolivarian Republic of) 11.95% 203110     1,449       140  
Venezuela (Bolivarian Republic of) 7.00% 203810     1,448       140  
              1,207,857  
                 
Corporate bonds, notes & loans 0.45%                
Energy 0.11%                
Oleoducto Central SA 4.00% 20277     3,450       3,616  
Petrobras Global Finance Co. 5.60% 2031     7,100       7,659  
Petrobras Global Finance Co. 6.85% 2115     4,340       4,677  
Petróleos Mexicanos 6.875% 20257     8,000       7,920  
Petróleos Mexicanos 6.875% 2026     8,024       7,722  
Petróleos Mexicanos 6.49% 2027     11,700       10,899  
PTT Exploration and Production PCL 2.587% 20277     4,769       4,931  
              47,424  
                 
Financials 0.09%                
Bangkok Bank PCL 3.733% 2034 (UST Yield Curve Rate T Note Constant Maturity 5-year + 1.90% on 9/25/2029)9     13,100       12,853  
BBVA Bancomer SA 6.50% 20217     787       801  
HSBK (Europe) BV 7.25% 20217     11,150       11,338  
Power Financial Corp Ltd., 6.15% 2028     5,334       6,066  
Power Financial Corp. Ltd., 5.25% 2028     5,907       6,337  
Power Financial Corp. Ltd. 4.50% 2029     2,959       3,039  
              40,434  
                 
Industrials 0.07%                
DP World Crescent 4.848% 20287     11,175       12,498  
Empresa de Transporte de Pasajeros Metro SA 4.70% 20507     4,520       5,473  
Lima Metro Line 2 Finance Ltd. 5.875% 20347     1,597       1,935  
Mexico City Airport Trust 4.25% 2026     11,060       10,435  
Mexico City Airport Trust 3.875% 2028     1,040       932  
              31,273  
                 
Utilities 0.06%                
AES Panama Generation Holdings SRL 4.375% 20307     3,485       3,697  
Empresas Publicas de Medellin ESP 4.25% 20297     4,980       5,123  
Empresas Publicas de Medellin ESP 4.375% 20317     4,380       4,484  
State Grid Overseas Investment Ltd. 3.50% 20277     14,225       15,818  
              29,122  
                 
Materials 0.06%                
Braskem Idesa Sapi 7.45% 2029     8,100       7,671  
Braskem Idesa Sapi 7.45% 20297     5,000       4,735  
CSN Resources SA 7.625% 2023     15,900       16,520  
              28,926  
                 
Communication services 0.05%                
Axiata Spv5 Labuan Ltd. 3.064% 2050     4,446       4,299  
PLDT Inc. 2.50% 2031     2,590       2,663  
Tencent Holdings Ltd. 3.975% 2029     6,300       7,095  
Tencent Holdings Ltd. 3.24% 20507     7,100       7,134  
              21,191  
                 
Consumer discretionary 0.01%                
Sands China Ltd. 4.375% 20307     2,675       2,750  
                 
Total corporate bonds, notes & loans             201,120  
                 
Total bonds, notes & other debt instruments
(cost: $1,406,507,000)
            1,408,977  

 

14 New World Fund
Short-term securities 6.86%   Shares     Value
(000)
 
Money market investments 6.86%                
Capital Group Central Cash Fund 0.11%5,11     30,201,627     $ 3,020,465  
BlackRock Liquidity Funds – FedFund, Institutional Shares (0.01)%11,12     30,200,000       30,200  
Goldman Sachs Financial Square Government Fund, Institutional Shares 0%11,12     30,200,000       30,200  
Invesco Short-Term Investments Trust – Government & Agency Portfolio, Institutional Class 0.01%11,12     15,206,722       15,207  
State Street Institutional U.S. Government Money Market Fund, Premier Class 0.03%11,12     9,100,000       9,100  
RBC Funds Trust – U.S. Government Money Market Fund, RBC Institutional Class 1 0.02%11,12     4,500,000       4,500  
Morgan Stanley Institutional Liquidity Funds – Government Portfolio, Institutional Class 0.02%11,12     1,800,000       1,800  
Fidelity Investments Money Market Government Portfolio, Class I 0.01%11,12     300,000       300  
                 
Total short-term securities (cost: $3,111,406,000)             3,111,772  
Total investment securities 100.65% (cost: $31,480,704,000)             45,643,595  
Other assets less liabilities (0.65)%             (294,260 )
                 
Net assets 100.00%           $ 45,349,335  

 

Futures contracts

 

                            Unrealized  
                            appreciation  
                Notional     Value at     (depreciation)  
        Number of       amount 13   10/31/2020 14   at 10/31/2020  
Contracts   Type   contracts   Expiration   (000)     (000)     (000)  
10 Year Ultra U.S. Treasury Note Futures   Short   98   December 2020     $ (9,800 )     $ (15,413 )     $ 292  
30 Year Ultra U.S. Treasury Bond Futures   Long   272   December 2020     27,200       58,480         (1,070 )
                                  $ (778 )

 

Forward currency contracts

 

                Unrealized  
Contract amount           appreciation  
Purchases
(000)
  Sales
(000)
  Counterparty   Settlement date   at 10/31/2020
(000)
 
USD42,635   EUR36,050   HSBC Bank   12/3/2020     $617  

 

New World Fund 15

Investments in affiliates5

 

    Value of
affiliates at
11/1/2019
(000)
    Additions
(000)
    Reductions
(000)
    Net
realized
(loss) gain
(000)
    Net
unrealized
appreciation
(depreciation)
(000)
    Value of
affiliates at
10/31/2020
(000)
    Dividend
income
(000)
 
Common stocks 1.22%                                                        
Energy 0.00%                                                        
Gulf Keystone Petroleum Ltd.1,2,15   $ 38,680     $     $ 28,590     $ (75,019 )   $ 64,929     $     $  
Indus Gas Ltd.1,2,15     37,827             4,654       (140,818 )     107,645              
Energean Oil & Gas PLC1,2,15     113,364             114,643       51,859       (50,580 )            
                                                       
Materials 0.07%                                                        
Loma Negra Compania Industrial Argentina SA (ADR)     45,669                         (12,818 )     32,851       1,996  
Health care 1.15%                                                        
Zai Lab Ltd. (ADR)2           265,349       5,344       581       134,140       394,726        
Hugel, Inc.1,2     60,736       11,327                   54,669       126,732        
                                              521,458          
Total common stocks                                             554,309          
Short-term securities 6.66%                                                        
Money market investments 6.66%                                                        
Capital Group Central Cash Fund 0.11%11     3,619,704       5,791,094       6,389,908       (125 )     (300 )     3,020,465       25,730  
Total 7.88%                           $ (163,522 )   $ 297,685     $ 3,574,774     $ 27,726  

 

1 Valued under fair value procedures adopted by authority of the board of directors. The total value of all such securities was $24,534,878,000, which represented 54.10% of the net assets of the fund. This amount includes $24,293,449,000 related to certain securities trading outside the U.S. whose values were adjusted as a result of significant market movements following the close of local trading.
2 Security did not produce income during the last 12 months.
3 Acquired in an initial public offering (IPO). Subsequent to October 31, 2020, the IPO was unexpectedly suspended by the local government and as a result, the trade was canceled and the security was removed from the portfolio.
4 All or a portion of this security was on loan. The total value of all such securities was $133,716,000, which represented .29% of the net assets of the fund. Refer to Note 5 for more information on securities lending.
5 Affiliate of the fund or part of the same group of investment companies as the fund, in each case as defined under the Investment Company Act of 1940.
6 Value determined using significant unobservable inputs.
7 Acquired in a transaction exempt from registration under Rule 144A of the Securities Act of 1933. May be resold in the U.S. in transactions exempt from registration, normally to qualified institutional buyers. The total value of all such securities was $891,126,000, which represented 1.97% of the net assets of the fund.
8 Amount less than one thousand.
9 Step bond; coupon rate may change at a later date.
10 Scheduled interest and/or principal payment was not received.
11 Rate represents the seven-day yield at 10/31/2020.
12 Security purchased with cash collateral from securities on loan. Refer to Note 5 for more information on securities lending.
13 Notional amount is calculated based on the number of contracts and notional contract size.
14 Value is calculated based on the notional amount and current market price.
15 Unaffiliated issuer at 10/31/2020.

 

Key to abbreviations and symbols

ADR = American Depositary Receipts
CAD = Canadian dollars
CDI = CREST Depository Interest
DOP = Dominican pesos
EUR/€ = Euros
GBP = British pounds
GDR = Global Depositary Receipts
MYR = Malaysian ringgits
USD/$ = U.S. dollars

 

See notes to financial statements.

 

16 New World Fund

Financial statements

 

Statement of assets and liabilities  
at October 31, 2020 (dollars in thousands)

 

Assets:                
Investment securities, at value (includes $133,716 of investment securities on loan):                
Unaffiliated issuers (cost: $28,043,830)   $ 42,068,821          
Affiliated issuers (cost: $3,436,874)     3,574,774     $ 45,643,595  
Cash             36,400  
Cash collateral pledged for futures contracts             2,818  
Cash collateral pledged for forward currency contracts             30  
Cash denominated in currencies other than U.S. dollars (cost: $51,134)             51,179  
Unrealized appreciation on open forward currency contracts             617  
Receivables for:                
Sales of investments     35,124          
Sales of fund’s shares     175,039          
Dividends and interest     58,853          
Securities lending income     113          
Variation margin on futures contracts     34          
Other     327       269,490  
              46,004,129  
Liabilities:                
Collateral for securities on loan             91,307  
Payables for:                
Purchases of investments     307,082          
Repurchases of fund’s shares     147,412          
Investment advisory services     20,365          
Services provided by related parties     6,478          
Directors’ deferred compensation     3,089          
Variation margin on futures contracts     144          
Non-U.S. taxes     75,162          
Other     3,755       563,487  
Net assets at October 31, 2020           $ 45,349,335  
                 
Net assets consist of:                
Capital paid in on shares of capital stock           $ 31,399,778  
Total distributable earnings             13,949,557  
Net assets at October 31, 2020           $ 45,349,335  

 

See notes to financial statements.

 

New World Fund 17

Statement of assets and liabilities

at October 31, 2020 (continued)

(dollars and shares in thousands, except per-share amounts)

 

Total authorized capital stock — 1,000,000 shares,
$.01 par value (614,475 total shares outstanding)

 

    Net assets     Shares
outstanding
    Net asset value
per share
 
Class A   $ 13,340,835       180,580     $ 73.88  
Class C     532,795       7,508       70.96  
Class T     13       *     73.86  
Class F-1     1,097,559       14,956       73.39  
Class F-2     14,085,528       190,834       73.81  
Class F-3     4,850,146       65,467       74.08  
Class 529-A     971,573       13,275       73.19  
Class 529-C     46,554       654       71.13  
Class 529-E     38,135       526       72.57  
Class 529-T     14       *     73.84  
Class 529-F-1     17       *     73.20  
Class 529-F-2     96,796       1,310       73.88  
Class 529-F-3     10       *     73.88  
Class R-1     24,236       341       71.14  
Class R-2     292,598       4,114       71.13  
Class R-2E     35,108       483       72.67  
Class R-3     562,562       7,741       72.67  
Class R-4     758,896       10,334       73.44  
Class R-5E     56,786       775       73.23  
Class R-5     303,964       4,094       74.24  
Class R-6     8,255,210       111,483       74.05  

 

* Amount less than one thousand.

 

See notes to financial statements.

 

18 New World Fund

Financial statements (continued)

 

Statement of operations  
for the year ended October 31, 2020 (dollars in thousands)

 

Investment income:                
Income:                
Dividends (net of non-U.S. taxes of $39,433; also includes $27,726 from affiliates)   $ 499,893          
Interest (net of non-U.S. taxes of $16)     94,161          
Securities lending income (net of fees)     1,263     $ 595,317  
Fees and expenses*:                
Investment advisory services     220,887          
Distribution services     50,638          
Transfer agent services     44,090          
Administrative services     12,747          
Reports to shareholders     2,927          
Registration statement and prospectus     1,227          
Directors’ compensation     649          
Auditing and legal     582          
Custodian     8,796          
State and local taxes     1          
Other     1,472       344,016  
Net investment income             251,301  
                 
Net realized loss and unrealized appreciation:                
Net realized (loss) gain on:                
Investments (net of non-U.S. taxes of $85):                
Unaffiliated issuers     25,965          
Affiliated issuers     (163,522 )        
Futures contracts     1,231          
Forward currency contracts     (2,198 )        
Currency transactions     (14,114 )     (152,638 )
Net unrealized appreciation (depreciation) on:                
Investments (net of non-U.S. taxes of $75,162):                
Unaffiliated issuers     3,974,445          
Affiliated issuers     297,685          
Futures contracts     (778 )        
Forward currency contracts     755          
Currency translations     (8,469 )     4,263,638  
Net realized loss and unrealized appreciation             4,111,000  
                 
Net increase in net assets resulting from operations           $ 4,362,301  

 

* Additional information related to class-specific fees and expenses is included in the notes to financial statements.

 

See notes to financial statements.

 

New World Fund 19

Financial statements (continued)

 

Statements of changes in net assets  
  (dollars in thousands)

 

    Year ended October 31,  
    2020     2019  
Operations:                
Net investment income   $ 251,301     $ 469,098  
Net realized (loss) gain     (152,638 )     1,135,289  
Net unrealized appreciation     4,263,638       4,971,643  
Net increase in net assets resulting from operations     4,362,301       6,576,030  
                 
Distributions paid to shareholders     (1,641,032 )     (786,789 )
                 
Net capital share transactions     857,807       2,525,661  
                 
Total increase in net assets     3,579,076       8,314,902  
                 
Net assets:                
Beginning of year     41,770,259       33,455,357  
End of year   $ 45,349,335     $ 41,770,259  

 

See notes to financial statements.

 

20 New World Fund

Notes to financial statements

 

1. Organization

 

New 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 capital appreciation. Shareholders approved a proposal to reorganize the fund into a Delaware statutory trust. The reorganization may be completed in the next 12 months; however, the fund reserves the right to delay the implementation.

 

The fund has 21 share classes consisting of six retail share classes (Classes A, C, T, F-1, F-2 and F-3), seven 529 college savings plan share classes (Classes 529-A, 529-C, 529-E, 529-T, 529-F-1, 529-F-2 and 529-F-3) and eight retirement plan share classes (Classes R-1, R-2, R-2E, R-3, R-4, R-5E, R-5 and R-6). The 529 college savings plan share classes can be used to save for college education. The retirement plan share classes are generally offered only through eligible employer-sponsored retirement plans. The fund’s share classes are described further in the following table:

 

Share class   Initial sales charge   Contingent deferred sales charge upon
redemption
  Conversion feature
Classes A and 529-A   Up to 5.75%1   None (except 1% for certain redemptions within 18 months of purchase without an initial sales charge)   None
Classes C and 529-C   None   1% for redemptions within one year of purchase   Class C converts to Class F-1 and Class 529-C converts to Class 529-A after 10 years2
Class 529-E   None   None   None
Classes T and 529-T3   Up to 2.50%   None   None
Classes F-1, F-2, F-3, 529-F-1, 529-F-2 and 529-F-3   None   None   None
Classes R-1, R-2, R-2E, R-3, R-4, R-5E, R-5 and R-6   None   None   None

 

1 Up to 3.50% for Class 529-A shares purchased on or after June 30, 2020.
2 Effective June 30, 2020, Class C converts to Class A after eight years and Class 529-C converts to Class 529-A after five years.
3 Class T and 529-T shares are not available for purchase.

 

Holders of all share classes have equal pro rata rights to the assets, dividends and liquidation proceeds of the fund. 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, transfer agent and administrative 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 share class.

 

2. Significant accounting policies

 

The fund is an investment company that applies the accounting and reporting guidance issued in Topic 946 by the U.S. Financial Accounting Standards Board. The fund’s financial statements have been prepared to comply with U.S. generally accepted accounting principles (“U.S. GAAP“). These principles require the fund’s investment adviser to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. Subsequent events, if any, have been evaluated through the date of issuance in the preparation of the financial statements. The fund follows the significant accounting policies described in this section, 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. In the event a security is purchased with a delayed payment date, the fund will segregate liquid assets sufficient to meet its payment obligations. Dividend income is recognized on the ex-dividend date and interest income is recognized on an accrual basis. Market discounts, premiums and original issue discounts on fixed-income securities are amortized daily over the expected life of the security.

 

Class allocations — Income, fees and expenses (other than class-specific fees and expenses), realized gains and losses and unrealized appreciation and depreciation are allocated daily among the various share classes based on their relative net assets. Class-specific fees and expenses, such as distribution, transfer agent and administrative services, are charged directly to the respective share class.

 

New World Fund 21

Distributions paid to shareholders — Income dividends and capital gain distributions 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 supplied by one or more pricing vendors 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. 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 in the fund’s statement of operations. 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.

 

3. Valuation

 

Capital Research and Management Company (“CRMC”), the fund’s investment adviser, values the fund’s investments at fair value as defined by U.S. GAAP. The net asset value per share is calculated once daily as of the close of regular trading on the New York Stock Exchange, normally 4 p.m. New York time, each day the New York Stock Exchange is open.

 

Methods and inputs — The fund’s investment adviser uses the following methods and inputs to establish the fair value of the fund’s 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 on which the security trades.

 

Fixed-income securities, including short-term securities, are generally valued at prices obtained 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 & loans; convertible securities   Standard inputs and underlying equity of the issuer
Bonds & notes of governments & government agencies   Standard inputs and interest rate volatilities

 

When the fund’s investment adviser deems it appropriate to do so (such as when vendor prices are unavailable or deemed to be not representative), fixed-income securities will be valued in good faith at the mean quoted bid and ask prices that are reasonably and timely available (or bid prices, if ask prices are not available) or at prices for securities of comparable maturity, quality and type.

 

Securities with both fixed-income and equity characteristics, or equity securities traded principally among fixed-income dealers, are generally valued in the manner described for either equity or fixed-income securities, depending on which method is deemed most appropriate by the fund’s investment adviser. The Capital Group Central Cash Fund (“CCF”), a fund within the Capital Group Central Fund Series (“Central Funds“), is valued based upon a floating net asset value, which fluctuates with changes in the value of CCF’s portfolio securities. The underlying securities are valued based on the policies and procedures in CCF’s statement of additional information. Exchange-traded futures are generally valued at the official settlement price of the exchange or market on which such instruments are traded, as of the close of business on the day the futures are being valued. Forward currency contracts are valued based on the spot and forward exchange rates obtained from one or more pricing vendors.

 

Securities and other assets for which representative market quotations are not readily available or are considered unreliable by the fund’s investment adviser are fair valued as determined in good faith under fair valuation guidelines adopted by authority of the fund’s board of directors as further described. The investment adviser follows fair valuation guidelines, consistent with U.S. Securities and Exchange Commission rules and guidance, to consider relevant principles and factors when making fair value determinations. The investment adviser considers relevant indications of value that are reasonably and timely available to it in determining the fair value to be assigned to a particular security, such as the type and cost of the security; contractual or legal restrictions on resale of the security; relevant financial or

 

22 New World Fund

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. In addition, the closing prices of equity securities that trade in markets outside U.S. time zones may be adjusted to reflect significant events that occur after the close of local trading but before the net asset value of each share class of the fund is determined. 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.

 

Processes and structure — The fund’s board of directors has delegated authority to the fund’s investment adviser to make fair value determinations, subject to board oversight. The investment adviser has established a Joint Fair Valuation Committee (the “Fair Valuation Committee”) to administer, implement and oversee the fair valuation process, and to make fair value decisions. The Fair Valuation Committee regularly reviews its own fair value decisions, as well as decisions made under its standing instructions to the investment adviser’s valuation teams. The Fair Valuation Committee reviews changes in fair value measurements from period to period and may, as deemed appropriate, update the fair valuation guidelines to better reflect the results of back testing and address new or evolving issues. The Fair Valuation Committee reports any changes to the fair valuation guidelines to the board of directors. The fund’s board and audit committee also regularly review reports that describe fair value determinations and methods.

 

The fund’s investment adviser has also established a Fixed-Income Pricing Review Group to administer and oversee the fixed-income valuation process, including the use of fixed-income pricing vendors. This group regularly reviews pricing vendor information and market data. Pricing decisions, processes and controls over security valuation are also subject to additional internal reviews, including an annual control self-evaluation program facilitated by the investment adviser’s compliance group.

 

Classifications — The fund’s investment adviser classifies the fund’s assets and liabilities into three levels based on the inputs 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. Certain securities trading outside the U.S. may transfer between Level 1 and Level 2 due to valuation adjustments resulting from significant market movements following the close of local trading. Level 3 values are based on significant unobservable inputs that reflect the investment adviser’s determination of assumptions that market participants might reasonably use in valuing the securities. The valuation levels are not necessarily an indication of the risk or liquidity associated with the underlying investment. For example, U.S. government securities are reflected as Level 2 because the inputs used to determine fair value may not always be quoted prices in an active market. The following tables present the fund’s valuation levels as of October 31, 2020 (dollars in thousands):

 

    Investment securities  
      Level 1       Level 2       Level 3       Total  
Assets:                                
Common stocks:                                
Information technology   $ 5,524,109     $ 2,837,419     $     $ 8,361,528  
Consumer discretionary     1,807,374       4,769,520             6,576,894  
Health care     2,348,963       3,205,394       10       5,554,367  
Financials     1,022,898       3,531,750             4,554,648  
Communication services     2,851,014       1,429,586             4,280,600  
Consumer staples     364,574       2,440,102             2,804,676  
Materials     1,154,008       1,357,347             2,511,355  
Industrials     462,145       1,998,869             2,461,014  
Energy     359,724       1,208,296             1,568,020  
Real estate     443,916       547,255             991,171  
Utilities     87,945       654,530             742,475  
Preferred securities     159,897       177,952       *     337,849  
Rights & warrants           376,848             376,848  
Convertible bonds & notes           1,401             1,401  
Bonds, notes & other debt instruments           1,408,977             1,408,977  
Short-term securities     3,111,772                   3,111,772  
Total   $ 19,698,339     $ 25,945,246     $ 10     $ 45,643,595  

 

New World Fund 23
    Other investments  
    Level 1     Level 2     Level 3     Total  
Assets:                                
Unrealized appreciation on futures contracts   $ 292     $     $     $ 292  
Unrealized appreciation on open forward currency contracts           617             617  
Liabilities:                                
Unrealized depreciation on futures contracts     (1,070 )                 (1,070 )
Total   $ (778 )   $ 617     $     $ (161 )

 

* Amount less than one thousand.
Futures contracts and forward currency contracts are not included in the investment portfolio.

 

4. Risk factors

 

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 common stocks and other securities held by the fund may decline — sometimes rapidly or unpredictably — due to various factors, including events or conditions affecting the general economy or particular industries; overall market changes; local, regional or global political, social or economic instability; governmental, governmental agency or central bank responses to economic conditions; and currency exchange rate, interest rate and commodity price fluctuations.

 

Economies and financial markets throughout the world are highly interconnected. Economic, financial or political events, trading and tariff arrangements, wars, terrorism, cybersecurity events, natural disasters, public health emergencies (such as the spread of infectious disease) and other circumstances in one country or region, including actions taken by governmental or quasi-governmental authorities in response to any of the foregoing, could have impacts on global economies or markets. As a result, whether or not the fund invests in securities of issuers located in or with significant exposure to the countries affected, the value and liquidity of the fund’s investments may be negatively affected by developments in other countries and regions.

 

Issuer risks — The prices of, and the income generated by, securities held by the fund may decline in response to various factors directly related to the issuers of such securities, including reduced demand for an issuer’s goods or services, poor management performance, major litigation, investigations or other controversies related to the issuer, changes in government regulations affecting the issuer or its competitive environment and strategic initiatives such as mergers, acquisitions or dispositions and the market response to any such initiatives.

 

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 of investments. 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 or revenues outside the U.S., may lose value because of adverse political, social, economic or market developments (including social instability, regional conflicts, terrorism and war) in the countries or regions in which the issuers operate or generate revenue. These securities may also lose value due to changes in foreign currency exchange rates against the U.S. dollar and/or currencies of other countries. Issuers of these securities may be more susceptible to actions of foreign governments, such as nationalization, currency blockage or the imposition of price controls or punitive taxes, each of which could adversely impact the value of these securities. 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 accounting practices and different regulatory, legal and reporting standards and practices, and may be 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 securities purchased or sold by the fund. The risks of investing outside the U.S. may be heightened in connection with investments in developing countries.

 

Investing in developing countries — Investing in countries with developing economies and/or markets may involve risks in addition to and greater than those generally associated with investing in developed countries. For instance, emerging market countries may have less developed legal and accounting systems than those in developed countries. The governments of these countries may be less stable and more likely to impose capital controls, nationalize a company or industry, place restrictions on foreign ownership and on withdrawing sale proceeds of securities from the country, and/or impose punitive taxes that could adversely affect the prices of securities. In addition, the economies of these countries may be dependent on relatively few industries that are more susceptible to local and global changes. Securities markets in these countries can also be relatively small and have substantially lower trading volumes. As a result, securities

 

24 New World Fund

issued in these countries may be more volatile and less liquid, and may be more difficult to value, than securities issued in countries with more developed economies and/or markets. Less certainty with respect to security valuations may lead to additional challenges and risks in calculating the fund’s net asset value. Additionally, emerging markets are more likely to experience problems with the clearing and settling of trades and the holding of securities by banks, agents and depositories that are less established than those in developed countries.

 

Investing in debt instruments — The prices of, and the income generated by, bonds and other debt securities held by the fund may be affected by factors such as the interest rates, maturities and credit ratings of these securities. A bond’s effective maturity is the market’s trading assessment of its maturity.

 

Rising interest rates will generally cause the prices of bonds and other debt securities to fall. A general rise in interest rates may cause investors to sell debt securities on a large scale, which could also adversely affect the price and liquidity of debt securities and could also result in increased redemptions from the fund. Falling interest rates may cause an issuer to redeem, call or refinance a debt security before its stated maturity, which may result in the fund failing to recoup the full amount of its initial investment and having to reinvest the proceeds in lower yielding securities. Longer maturity debt securities generally have greater sensitivity to changes in interest rates and may be subject to greater price fluctuations than shorter maturity debt securities.

 

Bonds and other debt securities are also subject to credit risk, which is the possibility that the credit strength of an issuer or guarantor will weaken or be perceived to be weaker, and/or an issuer of a debt security will fail to make timely payments of principal or interest and the security will go into default. A downgrade or default affecting any of the fund’s securities could cause the value of the fund’s shares to decrease. Lower quality debt securities generally have higher rates of interest and may be subject to greater price fluctuations than higher quality debt securities. Credit risk is gauged, in part, by the credit ratings of the debt securities in which the fund invests. However, ratings are only the opinions of the rating agencies issuing them and are not guarantees as to credit quality or an evaluation of market risk. The fund’s investment adviser relies on its own credit analysts to research issuers and issues in seeking to assess credit and default risks.

 

Investing in lower rated debt instruments — Lower rated bonds and other lower rated debt securities generally have higher rates of interest and involve greater risk of default or price declines due to changes in the issuer’s creditworthiness than those of higher quality debt securities. The market prices of these securities may fluctuate more than the prices of higher quality debt securities and may decline significantly in periods of general economic difficulty. These risks may be increased with respect to investments in junk bonds.

 

Liquidity risk — Certain fund holdings may be or may become difficult or impossible to sell, particularly during times of market turmoil. Liquidity may be impacted by the lack of an active market for a holding, legal or contractual restrictions on resale, or the reduced number and capacity of market participants to make a market in such holding. Market prices for less liquid or illiquid holdings may be volatile, and reduced liquidity may have an adverse impact on the market price of such holdings. Additionally, the sale of less liquid or illiquid holdings may involve substantial delays (including delays in settlement) and additional costs and the fund may be unable to sell such holdings when necessary to meet its liquidity needs or may be forced to sell at a loss.

 

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 than about larger companies. Furthermore, smaller companies often have limited product lines, operating histories, markets and/or financial resources, may be dependent on one or a few key persons for management, and can be more susceptible to losses. Moreover, the prices of their stocks may be more volatile than stocks of larger, more established companies, particularly during times of market turmoil.

 

Management — The investment adviser to the fund actively manages the fund’s investments. Consequently, the fund is subject to the risk that the methods and analyses, including models, tools and data, employed by the investment adviser in this process may be flawed or incorrect and may not produce the desired results. This could cause the fund to lose value or its investment results to lag relevant benchmarks or other funds with similar objectives.

 

5. Certain investment techniques

 

Securities lending — The fund has entered into securities lending transactions in which the fund earns income by lending investment securities to brokers, dealers or other institutions. Each transaction involves three parties: the fund, acting as the lender of the securities, a borrower, and a lending agent that acts as an intermediary.

 

Securities lending transactions are entered into by the fund under a securities lending agent agreement with the lending agent. The lending agent facilitates the exchange of securities between the fund and approved borrowers, ensures that securities loans are properly

 

New World Fund 25

coordinated and documented, marks-to-market the value of collateral daily, secures additional collateral from a borrower if it falls below preset terms, and may reinvest cash collateral on behalf of the fund according to agreed parameters. The lending agent provides indemnification to the fund against losses resulting from a borrower default. Although risk is mitigated by the collateral and indemnification, the fund could experience a delay in recovering its securities and a potential loss of income or value if a borrower fails to return securities, collateral investments decline in value or the lending agent fails to perform.

 

The borrower is required to post highly liquid assets, such as cash or U.S. government securities, as collateral for the loan in an amount at least equal to the value of the securities loaned. Investments made with cash collateral are recognized as assets in the fund’s investment portfolio. The same amount is recorded as a liability in the fund’s statement of assets and liabilities. While securities are on loan, the fund will continue to receive the equivalent of the interest, dividends or other distributions paid by the issuer, as well as a portion of the interest on the investment of the collateral. Additionally, although the fund does not have the right to vote on securities while they are on loan, the fund has a right to consent on corporate actions and a right to recall loaned securities to vote. A borrower is obligated to return loaned securities at the conclusion of a loan or, during the pendency of a loan, on demand from the fund.

 

As of October 31, 2020, the total value of securities on loan was $133,716,000, and the total value of collateral received was $139,494,000. Collateral received includes cash of $91,307,000 and U.S. government securities of $48,187,000. Investment securities purchased from cash collateral, if any, are disclosed in the investment portfolio as short-term securities. Securities received as collateral, if any, are not recognized as fund assets. The contractual maturity of cash collateral received under the securities lending agreement is classified as overnight and continuous.

 

Futures contracts — The fund has entered into futures contracts, which provide for the future sale by one party and purchase by another party of a specified amount of a specific financial instrument for a specified price, date, time and place designated at the time the contract is made. Futures contracts are used to strategically manage the fund’s interest rate sensitivity by increasing or decreasing the duration of the fund or a portion of the fund’s portfolio.

 

Upon entering into futures contracts, and to maintain the fund’s open positions in futures contracts, the fund is required to deposit with a futures broker, known as a futures commission merchant (“FCM”), in a segregated account in the name of the FCM an amount of cash, U.S. government securities or other liquid securities, known as initial margin. The margin required for a particular futures contract is set by the exchange on which the contract is traded to serve as collateral, and may be significantly modified from time to time by the exchange during the term of the contract.

 

On a daily basis, the fund pays or receives variation margin based on the increase or decrease in the value of the futures contracts and records variation margin on futures contracts in the statement of assets and liabilities. In addition, the fund segregates liquid assets equivalent to the fund’s outstanding obligations under the contract in excess of the initial margin and variation margin, if any. Futures contracts may involve a risk of loss in excess of the variation margin shown on the fund’s statement of assets and liabilities. The fund records realized gains or losses at the time the futures contract is closed or expires. Net realized gains or losses and net unrealized appreciation or depreciation from futures contracts are recorded in the fund’s statement of operations. The average month-end notional amount of futures contracts while held was $21,700,000.

 

Forward currency contracts — The fund has entered into forward currency contracts, which represent agreements to exchange currencies on specific future dates at predetermined rates. The fund’s investment adviser uses forward currency contracts to manage the fund’s exposure to changes in exchange rates. Upon entering into these contracts, risks may arise from the potential inability of counterparties to meet the terms of their contracts and from possible movements in exchange rates.

 

On a daily basis, the fund’s investment adviser values forward currency contracts and records unrealized appreciation or depreciation for open forward currency contracts in the fund’s statement of assets and liabilities. Realized gains or losses are recorded at the time the 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 payables for closed forward currency contracts in the fund’s statement of assets and liabilities. Net realized gains or losses from closed forward currency contracts and net unrealized appreciation or depreciation from open forward currency contracts are recorded in the fund’s statement of operations. The average month-end notional amount of open forward currency contracts while held was $72,049,000.

 

26 New World Fund

The following tables identify the location and fair value amounts on the fund’s statement of assets and liabilities and the effect on the fund’s statement of operations resulting from the fund’s use of futures contracts and forward currency contracts as of, or for the year ended, October 31, 2020 (dollars in thousands):

 

        Assets     Liabilities  
Contracts   Risk type   Location on statement of
assets and liabilities
  Value     Location on statement of
assets and liabilities
  Value  
Futures   Interest   Unrealized appreciation*   $ 292     Unrealized depreciation*   $ 1,070  
Forward currency   Currency   Unrealized appreciation on open forward currency contracts     617     Unrealized depreciation on open forward currency contracts      
            $ 909         $ 1,070  
                             
        Net realized gain (loss)     Net unrealized (depreciation) appreciation  
Contracts   Risk type   Location on statement of operations   Value     Location on statement of operations   Value  
Futures   Interest   Net realized gain on futures contracts   $ 1,231     Net unrealized depreciation on futures contracts   $ (778 )
Forward currency   Currency   Net realized loss on forward currency contracts     (2,198 )   Net unrealized appreciation on forward currency contracts     755  
            $ (967 )       $ (23 )

 

* Includes cumulative appreciation/depreciation on futures contracts as reported in the applicable table following the fund’s investment portfolio. Only current day’s variation margin is reported within the statement of assets and liabilities.

 

Collateral — The fund receives or pledges highly liquid assets, such as cash or U.S. government securities, as collateral due to securities lending and its use of futures contracts and forward currency contracts. For securities lending, the fund receives collateral in exchange for lending investment securities. The purpose of the collateral is to cover potential losses that could occur in the event the borrower cannot meet its contractual obligation. The lending agent may reinvest cash collateral from securities lending transactions according to agreed parameters. Cash collateral reinvested by the lending agent, if any, is disclosed in the fund’s investment portfolio. For futures contracts, the fund pledges collateral for initial and variation margin by contract. For forward currency contracts, the fund either receives or pledges 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 contractual obligation. Non-cash collateral pledged by the fund, if any, is disclosed in the fund’s investment portfolio, and cash collateral pledged by the fund, if any, is held in a segregated account with the fund’s custodian, which is reflected as pledged cash collateral in the fund’s statement of assets and liabilities.

 

Rights of offset — The fund has entered into enforceable master netting agreements with certain counterparties for forward currency contracts, where on any date amounts payable by each party to the other (in the same currency with respect to the same transaction) may be closed or offset by each party’s payment obligation. If an early termination date occurs under these agreements following an event of default or termination event, all obligations of each party to its counterparty are settled net through a single payment in a single currency (“close-out netting”). For financial reporting purposes, the fund does not offset financial assets and financial liabilities that are subject to these master netting arrangements in the statement of assets and liabilities.

 

The following table presents the fund’s forward currency contracts by counterparty that are subject to master netting agreements but that are not offset in the fund’s statement of assets and liabilities. The net amount column shows the impact of offsetting on the fund’s statement of assets and liabilities as of October 31, 2020, if close-out netting was exercised (dollars in thousands):

 

    Gross amounts
recognized in the
    Gross amounts not offset in the
statement of assets and liabilities and
subject to a master netting agreement
       
    statement of assets     Available     Non-cash     Cash     Net  
Counterparty   and liabilities     to offset     collateral*     collateral*     amount  
Assets:                                        
HSBC Bank   $ 617     $     $ (558 )   $     $ 59  

 

* Collateral is shown on a settlement basis.

 

New World Fund 27

6. 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 year ended October 31, 2020, 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’s tax returns are not subject to examination by federal, state and, if applicable, non-U.S. tax authorities after the expiration of each jurisdiction’s statute of limitations, which is generally three years after the date of filing but can be extended in certain jurisdictions.

 

Non-U.S. taxation — Dividend and interest income are recorded net of non-U.S. taxes paid. The fund may file withholding tax reclaims in certain jurisdictions to recover a portion of amounts previously withheld. As a result of rulings from European courts, the fund filed for additional reclaims related to prior years. These reclaims are recorded when the amount is known and there are no significant uncertainties on collectability. During the year ended October 31, 2020, the fund recognized $2,002,000 in reclaims related to European court rulings, net of fees, which is included in dividend income in the fund’s statement of operations. Gains realized by the fund on the sale of securities in certain countries, if any, may be subject to non-U.S. taxes. If applicable, the fund records an estimated deferred tax 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.; deferred expenses; cost of investments sold; net capital losses and income on certain investments. 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. The fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.

 

During the year ended October 31, 2020, the fund reclassified $6,463,000 from total distributable earnings to capital paid in on shares of capital stock to align financial reporting with tax reporting.

 

As of October 31, 2020, the tax basis components of distributable earnings, unrealized appreciation (depreciation) and cost of investments were as follows (dollars in thousands):

 

Undistributed ordinary income   $ 147,358  
Capital loss carryforward*     (135,641 )
Gross unrealized appreciation on investments     15,635,365  
Gross unrealized depreciation on investments     (1,618,274 )
Net unrealized appreciation on investments     14,017,091  
Cost of investments     31,626,343  

 

* The capital loss carryforward will be used to offset any capital gains realized by the fund in future years. The fund will not make distributions from capital gains while a capital loss carryforward remains.

 

28 New World Fund

Distributions paid were characterized for tax purposes as follows (dollars in thousands):

 

    Year ended October 31, 2020     Year ended October 31, 2019  
Share class   Ordinary
income
    Long-term
capital gains
    Total
distributions
paid
    Ordinary
income
    Long-term
capital gains
    Total
distributions
paid
 
Class A   $ 137,417     $ 342,582     $ 479,999     $ 110,855     $ 135,573     $ 246,428  
Class C     1,977       18,974       20,951       691       8,708       9,399  
Class T     *     *     *     *     *     *
Class F-1     12,960       31,643       44,603       9,446       12,232       21,678  
Class F-2     169,638       331,050       500,688       123,476       112,557       236,033  
Class F-3     64,294       117,206       181,500       42,105       35,996       78,101  
Class 529-A     9,092       23,630       32,722       7,273       9,507       16,780  
Class 529-C     286       3,124       3,410       54       1,430       1,484  
Class 529-E     322       1,026       1,348       244       429       673  
Class 529-T     *     *     *     *     *     *
Class 529-F-1     1,082       2,306       3,388       909       886       1,795  
Class 529-F-2                                          
Class 529-F-3                                          
Class R-1     89       783       872       29       343       372  
Class R-2     1,265       8,303       9,568       466       3,473       3,939  
Class R-2E     250       896       1,146       146       311       457  
Class R-3     4,849       16,244       21,093       3,775       7,049       10,824  
Class R-4     8,945       21,514       30,459       7,817       9,113       16,930  
Class R-5E     536       1,053       1,589       223       205       428  
Class R-5     4,230       8,061       12,291       5,420       4,708       10,128  
Class R-6     105,024       190,381       295,405       71,021       60,319       131,340  
Total   $ 522,256     $ 1,118,776     $ 1,641,032     $ 383,950     $ 402,839     $ 786,789  

 

* Amount less than one thousand.
Class 529-F-2 and 529-F-3 shares began investment operations on October 30, 2020.

 

7. Fees and transactions with related parties

 

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. CRMC, AFD and AFS are considered related parties to the fund.

 

Investment advisory services — The fund has an investment advisory and service agreement with CRMC that provides for monthly fees accrued daily. These fees are based on a series of decreasing annual rates beginning with 0.850% on the first $500 million of daily net assets and decreasing to 0.477% on such assets in excess of $44 billion. For the year ended October 31, 2020, the investment advisory services fee was $220,887,000, which was equivalent to an annualized rate of 0.520% 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 further described below:

 

Distribution services — The fund has plans of distribution for all share classes, except Class F-2, F-3, 529-F-2, 529-F-3, R-5E, R-5 and R-6 shares. 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 in this section. 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 that have entered into

 

New World Fund 29

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.

 

Share class   Currently approved limits   Plan limits
Class A     0.30 %     0.30 %
Class 529-A     0.30       0.50  
Classes C, 529-C and R-1     1.00       1.00  
Class R-2     0.75       1.00  
Class R-2E     0.60       0.85  
Classes 529-E and R-3     0.50       0.75  
Classes T, F-1, 529-T, 529-F-1 and R-4     0.25       0.50  

 

For Class A and 529-A shares, distribution-related expenses include the reimbursement of dealer and wholesaler commissions paid by AFD for certain shares sold without a sales charge. These share classes reimburse AFD for amounts billed within the prior 15 months but only to the extent that the overall annual expense limits are not exceeded. As of October 31, 2020, there were no unreimbursed expenses subject to reimbursement for Class A or 529-A shares.

 

Transfer agent services — The fund has a shareholder services agreement with AFS under which the fund compensates AFS for providing transfer agent services to each of the fund’s share classes. These services include recordkeeping, shareholder communications and transaction processing. In addition, the fund reimburses AFS for amounts paid to third parties for performing transfer agent services on behalf of fund shareholders.

 

Administrative services — The fund has an administrative services agreement with CRMC under which the fund compensates CRMC for providing administrative services to all share classes. Administrative services are provided by CRMC and its affiliates to help assist third parties providing non-distribution services to fund shareholders. These services include providing in-depth information on the fund and market developments that impact fund investments. Administrative services also include, but are not limited to, coordinating, monitoring and overseeing third parties that provide services to fund shareholders. The agreement provides the fund the ability to charge an administrative services fee at the annual rate of 0.05% of the average daily net assets attributable to each share class of the fund. Currently the fund pays CRMC an administrative services fee at the annual rate of 0.03% of average daily net assets attributable to each share class of the fund for CRMC’s provision of administrative services.

 

529 plan services — Each 529 share class is subject to service fees to compensate the Virginia College Savings Plan (“Virginia529”) for its oversight and administration of the CollegeAmerica 529 college savings plan. The fee is based on the combined net assets invested in Class 529 and ABLE shares of the American Funds. Class ABLE shares are offered on other American Funds by Virginia529 through ABLEAmerica®, a tax-advantaged savings program for individuals with disabilities. The quarterly fee is based on a series of decreasing annual rates beginning with 0.09% on the first $20 billion of the combined net assets invested in the American Funds and decreasing to 0.03% on such assets in excess of $100 billion. The fee for any given calendar quarter is accrued and calculated on the basis of the average net assets of Class 529 and ABLE shares of the American Funds for the last month of the prior calendar quarter. The fee is included in other expenses in the fund’s statement of operations. Virginia529 is not considered a related party to the fund.

 

30 New World Fund

For the year ended October 31, 2020, class-specific expenses under the agreements were as follows (dollars in thousands):

 

Share class   Distribution
services
    Transfer agent
services
    Administrative
services
    529 plan
services
 
Class A     $31,361       $21,492       $3,818     Not applicable  
Class C     6,075       1,069       185     Not applicable  
Class T           *     *   Not applicable  
Class F-1     2,800       1,603       338     Not applicable  
Class F-2     Not applicable       14,387       3,854     Not applicable  
Class F-3     Not applicable       472       1,348     Not applicable  
Class 529-A     1,991       1,381       268     $557  
Class 529-C     862       150       27     56  
Class 529-E     183       28       11     23  
Class 529-T           *     *   *
Class 529-F-1           137       27     55  
Class 529-F-2     Not applicable                  
Class 529-F-3     Not applicable                  
Class R-1     254       48       8     Not applicable  
Class R-2     2,158       1,053       86     Not applicable  
Class R-2E     202       75       10     Not applicable  
Class R-3     2,852       990       171     Not applicable  
Class R-4     1,900       811       228     Not applicable  
Class R-5E     Not applicable       72       14     Not applicable  
Class R-5     Not applicable       159       89     Not applicable  
Class R-6     Not applicable       163       2,265     Not applicable  
Total class-specific expenses     $50,638       $44,090       $12,747     $691  

 

* Amount less than one thousand.
Class 529-F-2 and 529-F-3 shares began investment operations on October 30, 2020.

 

Directors’ deferred compensation — 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 $649,000 in the fund’s statement of operations reflects $302,000 in current fees (either paid in cash or deferred) and a net increase of $347,000 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, AFD and AFS. No affiliated officers or directors received any compensation directly from the fund.

 

Investment in CCF — The fund holds shares of CCF, an institutional prime money market fund managed by CRMC. CCF invests in high-quality, short-term money market instruments. CCF is used as the primary investment vehicle for the fund’s short-term investments. CCF shares are only available for purchase by CRMC, its affiliates, and other funds managed by CRMC or its affiliates, and are not available to the public. CRMC does not receive an investment advisory services fee from CCF.

 

Security transactions with related funds — The fund purchased securities from, and sold securities to, other funds managed by CRMC (or funds managed by certain affiliates of CRMC) under procedures adopted by the fund’s board of directors. The funds involved in such transactions are considered related by virtue of having a common investment adviser (or affiliated investment advisers), common directors and/or common officers. Each transaction was executed at the current market price of the security and no brokerage commissions or fees were paid in accordance with Rule 17a-7 of the 1940 Act. During the year ended October 31, 2020, the fund engaged in such purchase and sale transactions with related funds in the amounts of $433,820,000 and $618,748,000, respectively, which generated $50,337,000 of net realized gains from such sales.

 

Interfund lending — Pursuant to an exemptive order issued by the SEC, the fund, along with other CRMC-managed funds (or funds managed by certain affiliates of CRMC), may participate in an interfund lending program. The program provides an alternate credit facility that permits the funds to lend or borrow cash for temporary purposes directly to or from one another, subject to the conditions of the exemptive order. The fund did not lend or borrow cash through the interfund lending program at any time during the year ended October 31, 2020.

 

New World Fund 31

8. Committed line of credit

 

The fund participates with other funds managed by CRMC (or funds managed by certain affiliates of CRMC) in a $1.5 billion credit facility (the “line of credit”) to be utilized for temporary purposes to support shareholder redemptions. The fund has agreed to pay commitment fees on its pro-rata portion of the line of credit, which are reflected in other expenses in the fund’s statement of operations. The fund did not borrow on this line of credit at any time during the year ended October 31, 2020.

 

9. Capital share transactions

 

Capital share transactions in the fund were as follows (dollars and shares in thousands):

 

    Sales1   Reinvestments of
distributions
  Repurchases1   Net (decrease)
increase
 
Share class   Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares  
                                                 
Year ended October 31, 2020                                  
                                                 
Class A   $ 1,025,468       15,042     $ 472,019       6,717     $ (1,898,148 )     (28,710 )   $ (400,661 )     (6,951 )
Class C     62,497       957       20,812       306       (283,665 )     (4,305 )     (200,356 )     (3,042 )
Class T                                                
Class F-1     334,514       5,022       43,926       629       (512,132 )     (7,840 )     (133,692 )     (2,189 )
Class F-2     4,045,285       60,960       483,003       6,898       (3,561,493 )     (54,999 )     966,795       12,859  
Class F-3     1,353,998       20,072       177,744       2,531       (1,317,396 )     (19,924 )     214,346       2,679  
Class 529-A     146,973       2,127       32,711       470       (151,086 )     (2,234 )     28,598       363  
Class 529-C     9,422       144       3,409       50       (88,278 )     (1,296 )     (75,447 )     (1,102 )
Class 529-E     3,172       48       1,348       19       (7,006 )     (104 )     (2,486 )     (37 )
Class 529-T                 2     2                 2     2
Class 529-F-1     18,270       274       3,381       49       (114,437 )     (1,585 )     (92,786 )     (1,262 )
Class 529-F-23     96,796       1,310                               96,796       1,310  
Class 529-F-33     10       2                             10       2
Class R-1     4,349       67       863       13       (10,893 )     (170 )     (5,681 )     (90 )
Class R-2     56,053       861       9,555       140       (93,231 )     (1,430 )     (27,623 )     (429 )
Class R-2E     9,594       144       1,146       17       (10,508 )     (158 )     232       3  
Class R-3     122,019       1,832       20,987       303       (219,932 )     (3,312 )     (76,926 )     (1,177 )
Class R-4     161,796       2,442       30,453       436       (315,175 )     (4,704 )     (122,926 )     (1,826 )
Class R-5E     29,624       437       1,588       22       (16,124 )     (240 )     15,088       219  
Class R-5     72,101       1,054       12,226       174       (102,882 )     (1,525 )     (18,555 )     (297 )
Class R-6     1,700,611       25,325       289,164       4,120       (1,296,694 )     (19,159 )     693,081       10,286  
Total net increase (decrease)   $ 9,252,552       138,118     $ 1,604,335       22,894     $ (9,999,080 )     (151,695 )   $ 857,807       9,317  

 

32 New World Fund
    Sales1   Reinvestments of
distributions
  Repurchases1   Net (decrease)
increase
 
Share class   Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares  
                                                 
Year ended October 31, 2019                                                
                                                 
Class A   $ 984,863       15,458     $ 242,396       4,338     $ (1,556,029 )     (24,452 )   $ (328,770 )     (4,656 )
Class C     81,971       1,337       9,337       173       (214,094 )     (3,468 )     (122,786 )     (1,958 )
Class T                                                
Class F-1     302,343       4,756       21,445       386       (333,484 )     (5,251 )     (9,696 )     (109 )
Class F-2     3,618,621       57,117       227,081       4,078       (2,461,394 )     (39,083 )     1,384,308       22,112  
Class F-3     1,392,150       21,637       73,831       1,323       (696,670 )     (10,922 )     769,311       12,038  
Class 529-A     84,991       1,344       16,772       303       (135,570 )     (2,127 )     (33,807 )     (480 )
Class 529-C     12,570       205       1,484       27       (32,388 )     (523 )     (18,334 )     (291 )
Class 529-E     3,560       57       672       12       (7,167 )     (113 )     (2,935 )     (44 )
Class 529-T                 2     2                 2     2
Class 529-F-1     13,540       215       1,791       32       (14,581 )     (230 )     750       17  
Class R-1     6,425       104       371       7       (10,776 )     (174 )     (3,980 )     (63 )
Class R-2     56,521       915       3,931       73       (85,132 )     (1,384 )     (24,680 )     (396 )
Class R-2E     10,945       173       457       8       (8,488 )     (136 )     2,914       45  
Class R-3     136,068       2,168       10,786       196       (218,087 )     (3,460 )     (71,233 )     (1,096 )
Class R-4     200,473       3,167       16,928       305       (233,909 )     (3,683 )     (16,508 )     (211 )
Class R-5E     24,338       385       428       8       (7,220 )     (112 )     17,546       281  
Class R-5     206,552       3,323       10,096       180       (237,132 )     (3,599 )     (20,484 )     (96 )
Class R-6     1,607,052       24,912       128,959       2,311       (731,966 )     (11,624 )     1,004,045       15,599  
Total net increase (decrease)   $ 8,742,983       137,273     $ 766,765       13,760     $ (6,984,087 )     (110,341 )   $ 2,525,661       40,692  

 

1 Includes exchanges between share classes of the fund.
2 Amount less than one thousand.
3 Class 529-F-2 and 529-F-3 shares began investment operations on October 30, 2020.

 

10. Investment transactions

 

The fund made purchases and sales of investment securities, excluding short-term securities and U.S. government obligations, if any, of $16,156,500,000 and $15,851,542,000, respectively, during the year ended October 31, 2020.

 

New World Fund 33

Financial highlights

 

            Income (loss) from
investment operations1 
    Dividends and distributions                                      
Period ended   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
return2,3 
    Net assets,
end of period
(in millions)
    Ratio of
expenses to
average net
assets before
reimburse-
ments4 
    Ratio of
expenses to
average net
assets after
reimburse-
ments3,4 
    Ratio of
net income
(loss)
to average
net assets3 
 
Class A:                                                                                                        
10/31/2020   $ 69.13     $ .27     $ 7.06     $ 7.33     $ (.74 )   $ (1.84 )   $ (2.58 )   $ 73.88       10.78 %   $ 13,341       1.00 %     1.00 %     .40 %
10/31/2019     59.37       .69       10.36       11.05       (.58 )     (.71 )     (1.29 )     69.13       19.15       12,964       1.02       1.02       1.07  
10/31/2018     66.29       .66       (6.31 )     (5.65 )     (.63 )     (.64 )     (1.27 )     59.37       (8.73 )     11,410       .99       .99       1.00  
10/31/2017     53.67       .55       12.55       13.10       (.48 )           (.48 )     66.29       24.66       13,022       1.04       1.04       .94  
10/31/2016     51.37       .52       2.08       2.60       (.30 )           (.30 )     53.67       5.10       11,103       1.07       1.07       1.03  
Class C:                                                                                                        
10/31/2020     66.46       (.22 )     6.75       6.53       (.19 )     (1.84 )     (2.03 )     70.96       9.98       533       1.74       1.74       (.33 )
10/31/2019     57.02       .19       10.02       10.21       (.06 )     (.71 )     (.77 )     66.46       18.21       701       1.79       1.79       .30  
10/31/2018     63.75       .13       (6.07 )     (5.94 )     (.15 )     (.64 )     (.79 )     57.02       (9.45 )     713       1.79       1.79       .20  
10/31/2017     51.60       .08       12.12       12.20       (.05 )           (.05 )     63.75       23.68       851       1.84       1.84       .14  
10/31/2016     49.48       .10       2.02       2.12                         51.60       4.26       777       1.88       1.88       .21  
Class T:                                                                                                        
10/31/2020     69.12       .43       7.05       7.48       (.90 )     (1.84 )     (2.74 )     73.86       11.05 5      6      .76 5      .76 5      .62 5 
10/31/2019     59.39       .82       10.35       11.17       (.73 )     (.71 )     (1.44 )     69.12       19.39 5      6      .78 5      .78 5      1.28 5 
10/31/2018     66.35       .78       (6.32 )     (5.54 )     (.78 )     (.64 )     (1.42 )     59.39       (8.57 )5      6      .79 5      .79 5      1.18 5 
10/31/20177,8      57.00       .44       8.91       9.35                         66.35       16.40 5,9       6      .85 5,10      .85 5,10      1.27 5,10 
Class F-1:                                                                                                        
10/31/2020     68.68       .29       7.01       7.30       (.75 )     (1.84 )     (2.59 )     73.39       10.83       1,097       .98       .98       .43  
10/31/2019     58.95       .69       10.30       10.99       (.55 )     (.71 )     (1.26 )     68.68       19.16       1,177       1.00       1.00       1.09  
10/31/2018     65.85       .65       (6.27 )     (5.62 )     (.64 )     (.64 )     (1.28 )     58.95       (8.75 )     1,017       1.00       1.00       .98  
10/31/2017     53.31       .56       12.46       13.02       (.48 )           (.48 )     65.85       24.69       1,407       1.02       1.02       .97  
10/31/2016     51.03       .50       2.10       2.60       (.32 )           (.32 )     53.31       5.14       1,172       1.03       1.03       1.00  
Class F-2:                                                                                                        
10/31/2020     69.06       .48       7.05       7.53       (.94 )     (1.84 )     (2.78 )     73.81       11.14       14,085       .70       .70       .70  
10/31/2019     59.35       .88       10.32       11.20       (.78 )     (.71 )     (1.49 )     69.06       19.49       12,291       .72       .72       1.37  
10/31/2018     66.27       .85       (6.32 )     (5.47 )     (.81 )     (.64 )     (1.45 )     59.35       (8.49 )     9,250       .72       .72       1.28  
10/31/2017     53.69       .71       12.53       13.24       (.66 )           (.66 )     66.27       25.02       8,100       .75       .75       1.22  
10/31/2016     51.39       .71       2.06       2.77       (.47 )           (.47 )     53.69       5.45       6,392       .76       .76       1.39  
Class F-3:                                                                                                
10/31/2020     69.30       .55       7.08       7.63       (1.01 )     (1.84 )     (2.85 )     74.08       11.25       4,850       .60       .60       .81  
10/31/2019     59.54       .96       10.34       11.30       (.83 )     (.71 )     (1.54 )     69.30       19.62       4,351       .62       .62       1.48  
10/31/2018     66.49       .91       (6.34 )     (5.43 )     (.88 )     (.64 )     (1.52 )     59.54       (8.40 )     3,022       .63       .63       1.38  
10/31/20177,11      54.47       .65       11.37       12.02                         66.49       22.07 9      2,503       .65 10      .65 10      1.38 10 
Class 529-A:                                                                                                
10/31/2020     68.50       .25       6.99       7.24       (.71 )     (1.84 )     (2.55 )     73.19       10.77       971       1.02       1.02       .37  
10/31/2019     58.83       .65       10.28       10.93       (.55 )     (.71 )     (1.26 )     68.50       19.08       884       1.06       1.06       1.03  
10/31/2018     65.72       .62       (6.26 )     (5.64 )     (.61 )     (.64 )     (1.25 )     58.83       (8.78 )     788       1.05       1.05       .95  
10/31/2017     53.22       .52       12.43       12.95       (.45 )           (.45 )     65.72       24.60       867       1.09       1.09       .89  
10/31/2016     50.93       .49       2.07       2.56       (.27 )           (.27 )     53.22       5.05       709       1.13       1.13       .97  

 

See end of table for footnotes.

 

34 New World Fund

Financial highlights (continued)

 

            Income (loss) from
investment operations1 
    Dividends and distributions                                      
Period ended   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
return2,3 
    Net assets,
end of period
(in millions)
    Ratio of
expenses to
average net
assets before
reimburse-
ments4 
    Ratio of
expenses to
average net
assets after
reimburse-
ments3,4 
    Ratio of
net income
(loss)
to average
net assets3 
 
Class 529-C:                                                                                                
10/31/2020   $ 66.62     $ (.21 )   $ 6.73     $ 6.52     $ (.17 )   $ (1.84 )   $ (2.01 )   $ 71.13       9.93 %   $ 47       1.78 %     1.78 %     (.32 )%
10/31/2019     57.14       .16       10.06       10.22       (.03 )     (.71 )     (.74 )     66.62       18.18       117       1.82       1.82       .27  
10/31/2018     63.76       .09       (6.07 )     (5.98 )           (.64 )     (.64 )     57.14       (9.49 )     117       1.83       1.83       .14  
10/31/2017     51.64       .06       12.12       12.18       (.06 )           (.06 )     63.76       23.61       173       1.88       1.88       .11  
10/31/2016     49.55       .09       2.00       2.09                         51.64       4.22       147       1.92       1.92       .18  
Class 529-E:                                                                                                
10/31/2020     67.94       .13       6.92       7.05       (.58 )     (1.84 )     (2.42 )     72.57       10.55       38       1.22       1.22       .19  
10/31/2019     58.32       .53       10.21       10.74       (.41 )     (.71 )     (1.12 )     67.94       18.86       38       1.26       1.26       .83  
10/31/2018     65.17       .48       (6.21 )     (5.73 )     (.48 )     (.64 )     (1.12 )     58.32       (8.98 )     35       1.26       1.26       .73  
10/31/2017     52.78       .39       12.35       12.74       (.35 )           (.35 )     65.17       24.34       41       1.30       1.30       .68  
10/31/2016     50.50       .38       2.05       2.43       (.15 )           (.15 )     52.78       4.84       33       1.34       1.34       .76  
Class 529-T:                                                                                                
10/31/2020     69.10       .40       7.06       7.46       (.88 )     (1.84 )     (2.72 )     73.84       11.00 5      6      .79 5      .79 5      .59 5 
10/31/2019     59.37       .79       10.35       11.14       (.70 )     (.71 )     (1.41 )     69.10       19.34 5      6      .82 5      .82 5      1.24 5 
10/31/2018     66.33       .75       (6.30 )     (5.55 )     (.77 )     (.64 )     (1.41 )     59.37       (8.60 )5      6      .83 5      .83 5      1.14 5 
10/31/20177,8      57.00       .43       8.90       9.33                         66.33       16.37 5,9      6      .89 5,10      .89 5,10      1.23 5,10 
Class 529-F-1:                                                                                                
10/31/2020     68.51       .41       6.98       7.39       (.86 )     (1.84 )     (2.70 )     73.20       11.01 5      6      .80 5      .80 5      .60 5 
10/31/2019     58.90       .80       10.25       11.05       (.73 )     (.71 )     (1.44 )     68.51       19.36       86       .84       .84       1.25  
10/31/2018     65.78       .76       (6.26 )     (5.50 )     (.74 )     (.64 )     (1.38 )     58.90       (8.58 )     73       .83       .83       1.15  
10/31/2017     53.28       .64       12.43       13.07       (.57 )           (.57 )     65.78       24.85       58       .88       .88       1.10  
10/31/2016     50.99       .59       2.07       2.66       (.37 )           (.37 )     53.28       5.28       44       .93       .93       1.17  
Class 529-F-2:                                                                                                
10/31/20207,12      73.88                                           73.88       9      97       9      9      9 
Class 529-F-3:                                                                                                
10/31/20207,12      73.88                                           73.88       9      6      9      9      9 
Class R-1:                                                                                                
10/31/2020     66.65       (.24 )     6.78       6.54       (.21 )     (1.84 )     (2.05 )     71.14       9.96       24       1.77       1.77       (.37 )
10/31/2019     57.18       .19       10.05       10.24       (.06 )     (.71 )     (.77 )     66.65       18.23       29       1.78       1.78       .31  
10/31/2018     63.93       .14       (6.08 )     (5.94 )     (.17 )     (.64 )     (.81 )     57.18       (9.44 )     28       1.77       1.77       .22  
10/31/2017     51.78       .09       12.15       12.24       (.09 )           (.09 )     63.93       23.68       32       1.82       1.82       .15  
10/31/2016     49.63       .13       2.02       2.15                         51.78       4.33       29       1.83       1.83       .26  

 

See end of table for footnotes.

 

New World Fund 35

Financial highlights (continued)

 

            Income (loss) from
investment operations1 
    Dividends and distributions                                      
Period ended   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
return2,3 
    Net assets,
end of period
(in millions)
    Ratio of
expenses to
average net
assets before
reimburse-
ments4 
    Ratio of
expenses to
average net
assets after
reimburse-
ments3,4 
    Ratio of
net income
(loss)
to average
net assets3 
 
Class R-2:                                                                                                        
10/31/2020   $ 66.67     $ (.20 )   $ 6.78     $ 6.58     $ (.28 )   $ (1.84 )   $ (2.12 )   $ 71.13       10.03 %   $ 293       1.70 %     1.70 %     (.30 )%
10/31/2019     57.19       .23       10.06       10.29       (.10 )     (.71 )     (.81 )     66.67       18.32       303       1.72       1.72       .37  
10/31/2018     63.96       .17       (6.09 )     (5.92 )     (.21 )     (.64 )     (.85 )     57.19       (9.41 )     283       1.72       1.72       .27  
10/31/2017     51.79       .14       12.16       12.30       (.13 )           (.13 )     63.96       23.82       349       1.73       1.73       .25  
10/31/2016     49.63       .15       2.01       2.16                         51.79       4.35       311       1.79       1.79       .31  
Class R-2E:                                                                                                        
10/31/2020     68.10       13      6.92       6.92       (.51 )     (1.84 )     (2.35 )     72.67       10.34       35       1.41       1.41       (.01 )
10/31/2019     58.48       .42       10.24       10.66       (.33 )     (.71 )     (1.04 )     68.10       18.66       33       1.43       1.43       .66  
10/31/2018     65.48       .37       (6.22 )     (5.85 )     (.51 )     (.64 )     (1.15 )     58.48       (9.13 )     25       1.43       1.43       .57  
10/31/2017     53.25       .33       12.39       12.72       (.49 )           (.49 )     65.48       24.16       23       1.44       1.44       .56  
10/31/2016     51.02       .43       1.99       2.42       (.19 )           (.19 )     53.25       4.76       6       1.45       1.45       .84  
Class R-3:                                                                                                        
10/31/2020     68.03       .10       6.93       7.03       (.55 )     (1.84 )     (2.39 )     72.67       10.51       563       1.26       1.26       .14  
10/31/2019     58.39       .52       10.21       10.73       (.38 )     (.71 )     (1.09 )     68.03       18.83       607       1.28       1.28       .82  
10/31/2018     65.26       .47       (6.21 )     (5.74 )     (.49 )     (.64 )     (1.13 )     58.39       (8.99 )     585       1.28       1.28       .71  
10/31/2017     52.87       .40       12.36       12.76       (.37 )           (.37 )     65.26       24.35       691       1.30       1.30       .69  
10/31/2016     50.60       .39       2.05       2.44       (.17 )           (.17 )     52.87       4.84       513       1.34       1.34       .78  
Class R-4:                                                                                                        
10/31/2020     68.72       .31       7.01       7.32       (.76 )     (1.84 )     (2.60 )     73.44       10.87       759       .94       .94       .46  
10/31/2019     59.03       .72       10.29       11.01       (.61 )     (.71 )     (1.32 )     68.72       19.20       836       .97       .97       1.12  
10/31/2018     65.95       .68       (6.28 )     (5.60 )     (.68 )     (.64 )     (1.32 )     59.03       (8.70 )     730       .97       .97       1.02  
10/31/2017     53.45       .58       12.47       13.05       (.55 )           (.55 )     65.95       24.72       787       .98       .98       1.00  
10/31/2016     51.15       .56       2.07       2.63       (.33 )           (.33 )     53.45       5.18       523       1.01       1.01       1.10  
Class R-5E:                                                                                                        
10/31/2020     68.56       .44       7.01       7.45       (.94 )     (1.84 )     (2.78 )     73.23       11.08       57       .74       .74       .66  
10/31/2019     58.94       .86       10.25       11.11       (.78 )     (.71 )     (1.49 )     68.56       19.46       38       .76       .76       1.34  
10/31/2018     65.92       .86       (6.32 )     (5.46 )     (.88 )     (.64 )     (1.52 )     58.94       (8.53 )     16       .77       .77       1.33  
10/31/2017     53.51       .73       12.39       13.12       (.71 )           (.71 )     65.92       24.93       2       .79       .79       1.21  
10/31/20167,14      51.81       .59       1.64       2.23       (.53 )           (.53 )     53.51       4.37 9      6      .90 10      .89 10      1.24 10 
Class R-5:                                                                                                        
10/31/2020     69.43       .52       7.09       7.61       (.96 )     (1.84 )     (2.80 )     74.24       11.20       304       .64       .64       .76  
10/31/2019     59.67       .89       10.40       11.29       (.82 )     (.71 )     (1.53 )     69.43       19.57       305       .67       .67       1.40  
10/31/2018     66.60       .88       (6.35 )     (5.47 )     (.82 )     (.64 )     (1.46 )     59.67       (8.45 )     268       .67       .67       1.32  
10/31/2017     53.92       .76       12.58       13.34       (.66 )           (.66 )     66.60       25.11       427       .68       .68       1.30  
10/31/2016     51.61       .71       2.09       2.80       (.49 )           (.49 )     53.92       5.49       298       .71       .71       1.40  
Class R-6:                                                                                                        
10/31/2020     69.27       .56       7.07       7.63       (1.01 )     (1.84 )     (2.85 )     74.05       11.26       8,255       .59       .59       .82  
10/31/2019     59.52       .95       10.35       11.30       (.84 )     (.71 )     (1.55 )     69.27       19.62       7,010       .61       .61       1.48  
10/31/2018     66.45       .92       (6.33 )     (5.41 )     (.88 )     (.64 )     (1.52 )     59.52       (8.38 )     5,095       .62       .62       1.39  
10/31/2017     53.83       .79       12.54       13.33       (.71 )           (.71 )     66.45       25.16       4,217       .64       .64       1.34  
10/31/2016     51.52       .76       2.07       2.83       (.52 )           (.52 )     53.83       5.56       2,661       .65       .65       1.48  
                               
    Year ended October 31,
      2020     2019     2018     2017     2016
Portfolio turnover rate for all share classes15      40 %     37 %     36 %     37 %     30 %

 

36 New World Fund

Financial highlights (continued)

1  Based on average shares outstanding.
2  Total returns exclude any applicable sales charges, including contingent deferred sales charges.
3  This column reflects the impact, if any, of certain reimbursements from CRMC. During some of the periods shown, CRMC reimbursed a portion of transfer agent services fees for certain share classes.
4  Ratios do not include expenses of any Central Funds. The fund indirectly bears its proportionate share of the expenses of any Central Funds.
5  All or a significant portion of assets in this class consisted of seed capital invested by CRMC and/or its affiliates. Fees for distribution services are not charged or accrued on these seed capital assets. If such fees were paid by the fund on seed capital assets, fund expenses would have been higher and net income and total return would have been lower.
6  Amount less than $1 million.
7  Based on operations for a period that is less than a full year.
8  Class T and 529-T shares began investment operations on April 7, 2017.
9  Not annualized.
10  Annualized.
11  Class F-3 shares began investment operations on January 27, 2017.
12  Class 529-F-2 and Class 529-F-3 shares began investment operations on October 30, 2020.
13  Amount less than $.01.
14  Class R-5E shares began investment operations on November 20, 2015.
15  Rates do not include the fund’s portfolio activity with respect to any Central Funds.

 

See notes to financial statements.

 

New World Fund 37

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Board of Directors of New World Fund, Inc.:

 

Opinion on the Financial Statements and Financial Highlights

 

We have audited the accompanying statement of assets and liabilities of New World Fund, Inc. (the “Fund”), including the investment portfolio, as of October 31, 2020, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of October 31, 2020, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

 

Deloitte & Touche LLP

 

Costa Mesa, California
December 10, 2020

 

We have served as the auditor of one or more American Funds investment companies since 1956.

 

38 New World Fund