Statement of Additional Information - American Funds Mortgage Fund

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 marketdaily in an amount sufficient to meet its payment obligations in these transactions. Although these transactions will not be entered intofor leveraging purposes, to the extent the fund’s aggregate commitments in connection with these transactions exceed its segregatedassets, the fund temporarily could be in a leveraged position (because it may have an amount greater than its net assets subject tomarket risk). Should market values of the fund’s portfolio securities decline while the fund is in a leveraged position, greaterdepreciation of its net assets would likely occur than if it were not in such a position. The fund will not borrow money to settle thesetransactions and, therefore, will liquidate other portfolio securities in advance of settlement if necessary to generate additional cash tomeet its obligations. After a transaction is entered into, the fund may still dispose of or renegotiate the transaction. Additionally, prior toreceiving delivery of securities as part of a transaction, the fund may sell such securities.Repurchase agreements — The fund may enter into repurchase agreements under which the fund buys a security and obtains asimultaneous commitment from the seller to repurchase the security at a specified time and price. Because the security purchasedconstitutes collateral for the repurchase obligation, a repurchase agreement may be considered a loan by the fund that iscollateralized by the security purchased. Repurchase agreements permit the fund to maintain liquidity and earn income over periodsof time as short as overnight. The seller must maintain with the fund’s custodian collateral equal to at least 100% of the repurchaseprice, including accrued interest, as monitored daily by the investment adviser. The fund will only enter into repurchase agreementsinvolving securities in which it could otherwise invest and with selected banks and securities dealers whose financial condition ismonitored by the investment adviser. If the seller under the repurchase agreement defaults, the fund may incur a loss if the value ofthe collateral securing the repurchase agreement has declined and may incur disposition costs in connection with liquidating thecollateral. If bankruptcy proceedings are commenced with respect to the seller, realization of the collateral by the fund may be delayedor limited.The fund may also enter into reverse repurchase agreements. A reverse repurchase agreement involves the sale of a security by afund and its agreement to repurchase the security at a specified time and price. The fund will segregate liquid assets that will bemarked to market daily in an amount sufficient to meet its payment obligations under reverse repurchase agreements with brokerdealers(no collateral is required for reverse repurchase agreements with banks).Restricted or illiquid securities — The fund may purchase securities subject to restrictions on resale. Restricted securities may onlybe sold pursuant to an exemption from registration under the Securities Act of 1933 (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 aconsiderable period may elapse between the time it decides to seek registration and the time it may be permitted to sell a securityunder an effective registration statement. Difficulty in selling such securities may result in a loss to the fund or cause it to incuradditional administrative costs.Securities (including restricted securities) not actively traded will be considered illiquid unless they have been specifically determinedto be liquid under procedures adopted by the fund’sPage 8