Statement of Additional Information - American Funds Mortgage Fund

Obligations backed by the “full faith and credit” of the U.S. government — U.S. government obligations include the followingtypes 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 tofluctuations in interest rates, but, if held to maturity, will be paid in full.Federal agency securities — The securities of certain U.S. government agencies and government-sponsored entities areguaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government. Suchagencies and entities include The Federal Financing Bank (FFB), the Government National Mortgage Association (GinnieMae), the Veterans Administration (VA), the Federal Housing Administration (FHA), the Export-Import Bank (Exim Bank), theOverseas Private Investment Corporation (OPIC), the Commodity Credit Corporation (CCC) and the Small BusinessAdministration (SBA).Other federal agency obligations — Additional federal agency securities are neither direct obligations of, nor guaranteed by, theU.S. government. These obligations include securities issued by certain U.S. government agencies and government-sponsoredentities. However, they generally involve some form of federal sponsorship: some operate under a government charter; some arebacked by specific types of collateral; some are supported by the issuer’s right to borrow from the Treasury; and others are supportedonly by the credit of the issuing government agency or entity. These agencies and entities include, but are not limited to: FederalHome Loan Bank, Federal Home Loan Mortgage Corporation (Freddie Mac), Federal National Mortgage Association (Fannie Mae),Tennessee Valley Authority and Federal Farm Credit Bank System.On September 7, 2008, Freddie Mac and Fannie Mae were placed into conservatorship by their new regulator, the Federal HousingFinance Agency (“FHFA”). Simultaneously, the U.S. Treasury made a commitment of indefinite duration to maintain the positive networth of both firms. As conservator, the FHFA has the authority to repudiate any contract either firm has entered into prior to FHFA’sappointment as conservator (or receiver should either firm go into default) if the FHFA, in its sole discretion determines thatperformance of the contract is burdensome and repudiation would promote the orderly administration of Fannie Mae’s or FreddieMac’s affairs. While the FHFA has indicated that it does not intend to repudiate the guaranty obligations of either entity, doing so couldadversely affect holders of their mortgage-backed securities. For example, if a contract were repudiated, the liability for any directcompensatory damages would accrue to the entity’s conservatorship estate and could only be satisfied to the extent the estate hadavailable assets. As a result, if interest payments on Fannie Mae or Freddie Mac mortgage-backed securities held by the fund werereduced because underlying borrowers failed to make payments or such payments were not advanced by a loan servicer, the fund’sonly 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. TheFHFA has indicated it has no current intention to do this; however, should it do so a holder of a Fannie Mae or Freddie Mac mortgagebackedsecurity would have to rely on another party for satisfaction of the guaranty obligations and would be exposed to the credit riskof that party.Page 6