N-CSRS 1 afmf_ncsrs.htm N-CSRS

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

Certified Shareholder Report of

Registered Management Investment Companies

 

Investment Company Act File Number: 811-22449

 

American Funds Mortgage Fund

(Exact Name of Registrant as Specified in Charter)

 

6455 Irvine Center Drive

Irvine, California 92618

(Address of Principal Executive Offices)

 

Registrant's telephone number, including area code: (949) 975-5000

 

Date of fiscal year end: August 31

 

Date of reporting period: February 29, 2020

 

Brian C. Janssen

American Funds Mortgage Fund

6455 Irvine Center Drive

Irvine, California 92618

(Name and Address of Agent for Service)

 
 

 

ITEM 1 – Reports to Stockholders

 

American Funds
Mortgage Fund®

 

Semi-annual report
for the six months ended
February 29, 2020

 

 

Seeking income
and diversification
through investments
in high-quality
mortgages

 

Beginning January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, we intend to no longer mail paper copies of the fund’s shareholder reports, unless specifically requested from American Funds or your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on the Capital Group website (capitalgroup.com); you will be notified by mail and provided with a website link to access the report each time a report is posted. If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. If you prefer to receive shareholder reports and other communications electronically, you may update your mailing preferences with your financial intermediary, or enroll in e-delivery at capitalgroup.com (for accounts held directly with the fund).

 

You may elect to receive paper copies of all future reports free of charge. If you invest through a financial intermediary, you may contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the fund, you may inform American Funds that you wish to continue receiving paper copies of your shareholder reports by contacting us at (800) 421-4225. Your election to receive paper reports will apply to all funds held with American Funds or through your financial intermediary.

 

 

American Funds Mortgage Fund seeks to provide current income and preservation of capital.

 

This fund is one of more than 40 offered by Capital Group, home of American Funds, one of the nation’s largest mutual fund families. For nearly 90 years, Capital Group has invested with a long-term focus based on thorough research and attention to risk.

 

Fund results shown in this report, unless otherwise indicated, are for Class A shares at net asset value. If a sales charge (maximum 3.75%) had been deducted, the results would have been lower. Results are for past periods and are not predictive of results for future periods. Current and future results may be lower or higher than those shown. Prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. For current information and month-end results, visit capitalgroup.com.

 

Here are the average annual total returns on a $1,000 investment with all distributions reinvested for periods ended March 31, 2020 (the most recent calendar quarter-end):

 

Class A shares   1 year   5 years   Lifetime
(since 11/1/10)
             
Reflecting 3.75% maximum sales charge   3.39%   1.94%   2.24%

 

For other share class results, visit capitalgroup.com and americanfundsretirement.com.

 

The total annual fund operating expense ratio was 0.71% for Class A shares as of the prospectus dated November 1, 2019. The expense ratio is restated to reflect current fees.

 

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. When applicable, investment results reflect expense reimbursements, without which results would have been lower. Visit capitalgroup.com for more information.

 

The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings. Investments in mortgage-related securities involve additional risks, such as prepayment risk, as more fully described in the prospectus. Refer to the fund prospectus and the Risk Factors section of this report for more information on these and other risks associated with investing in the fund.

 

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

 

Fellow investors:

 

Shown in the table below are American Funds Mortgage Fund’s results for the six months ended February 29, 2020. Also shown are the results of its primary benchmark and peer groups.

 

For additional information about the fund, its investment results, holdings and portfolio managers, visit capitalgroup.com/individual/investments/fund/mfaax. You can also access information about Capital Group’s American Funds and read our insights about the markets, retirement, saving for college, investing fundamentals and more at capitalgroup.com.

 

Results at a glance

 

For periods ended February 29, 2020, with all distributions reinvested

 

   Cumulative
total returns
  Average annual total returns
   6 months  1 year  3 years  5 years  Lifetime
(since 11/1/10)
                
American Funds Mortgage Fund (Class A shares)   2.47%   6.84%   2.76%   2.43%   2.47%
Bloomberg Barclays U.S. Mortgage Backed Securities Index*   2.54    7.45    3.69    2.80    2.91 
Lipper Intermediate U.S. Government Funds Average   2.57    8.63    3.35    2.31    2.24 
Lipper GNMA Funds Average   1.65    6.21    2.64    1.94    2.22 
   
* Source: Bloomberg Index Services Ltd. The market index is unmanaged and, therefore, has no expenses. Investors cannot invest directly in an index.
Source: Refinitiv Lipper. Lipper averages reflect the current composition of all eligible mutual funds (all share classes) within a given category. Lipper categories are dynamic and averages may have few funds, especially over longer periods. To see the number of funds included in the Lipper category for each fund’s lifetime, please see the Quarterly Statistical Update available on our website.

 

The fund’s 30-day yield for Class A shares as of March 31, 2020, calculated in accordance with the U.S. Securities and Exchange Commission (SEC) formula, was 0.91%. The fund’s 12-month distribution rate for Class A shares as of that date was 1.92%. Both reflect the 3.75% maximum sales charge. The SEC yield reflects the rate at which the fund is earning income on its current portfolio of securities while the distribution rate reflects the fund’s past dividends paid to shareholders. Accordingly, the fund’s SEC yield and distribution rate may differ.

 

American Funds Mortgage Fund 1
 
Summary investment portfolio February 29, 2020 unaudited
   
Portfolio by type of security Percent of net assets

 

 

Portfolio quality summary* Percent of
net assets
U.S. Treasury and agency 17.29%
AAA/Aaa 67.59 
AA/Aa .11 
A .05 
Short-term securities & other assets less liabilities 14.96 
   
* Bond ratings, which typically range from AAA/Aaa (highest) to D (lowest), are assigned by credit rating agencies such as Standard & Poor’s, Moody’s and/or Fitch as an indication of an issuer’s creditworthiness. In assigning a credit rating to a security, the fund looks specifically to the ratings assigned to the issuer of the security by Standard & Poor’s, Moody’s and/or Fitch. If agency ratings differ, the security will be considered to have received the highest of those ratings, consistent with the fund’s investment policies.
These securities are guaranteed by the full faith and credit of the U.S. government.

 

2 American Funds Mortgage Fund
 
Bonds, notes & other debt instruments 85.04%  Principal amount
(000)
   Value
(000)
 
Mortgage-backed obligations 67.26%          
Federal agency mortgage-backed obligations 64.56%          
Fannie Mae Pool #MA3490 4.00% 20331  $84,342   $88,640 
Fannie Mae Pool #MA3896 2.50% 20351   54,341    55,810 
Fannie Mae Pool #AL9531 4.087% 20411,2   40,534    42,579 
Fannie Mae Pool #AL9326 4.333% 20411,2   44,285    46,533 
Fannie Mae Pool #AL9532 4.127% 20421,2   55,387    57,652 
Fannie Mae Pool #AL9530 4.337% 20421,2   38,653    40,247 
Fannie Mae Pool #MA3692 3.50% 20491   73,495    76,316 
Fannie Mae Pool #MA3905 3.00% 20501   40,331    41,598 
Fannie Mae 2.28%–5.00% 2025–20531,2   642,880    672,095 
Freddie Mac Pool #ZS8710 3.00% 20331   127,871    132,635 
Freddie Mac Pool #G18715 3.00% 20331   86,398    89,804 
Freddie Mac Pool #SB8015 2.50% 20341   47,921    49,216 
Freddie Mac Pool #SB8026 2.50% 20351   90,250    92,689 
Freddie Mac Pool #ZT2086 3.50% 20491   70,144    72,873 
Freddie Mac 2.50%–6.00% 2023–20491,2   229,932    238,897 
Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2017-4, Class HT, 2.75% 20571,2   78,576    83,367 
Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2017-4, Class MT, 3.50% 20571   50,323    54,608 
Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2019-4, Class MA, 3.00% 20591   45,281    47,599 
Freddie Mac Seasoned Loan Structured Transaction Trust, Series 2018-2, Class A1, 3.50% 20281   81,780    87,223 
Freddie Mac Seasoned Loan Structured Transaction Trust, Series 2019-3, Class A1C, 2.75% 20291   65,738    67,988 
Freddie Mac Seasoned Loan Structured Transaction Trust, Series 2019-1, Class A1, 3.50% 20291   117,031    125,040 
Government National Mortgage Assn. 4.00% 20471   108,962    115,587 
Government National Mortgage Assn. Pool #MA5137 4.00% 20481   86,166    90,983 
Government National Mortgage Assn. Pool #MA5986 4.00% 20491   412,003    429,111 
Government National Mortgage Assn. Pool #MA5931 4.00% 20491   180,997    189,020 
Government National Mortgage Assn. 4.50% 20491   56,733    59,793 
Government National Mortgage Assn. Pool #MA6156 4.50% 20491   55,650    58,649 
Government National Mortgage Assn. Pool #MA6041 4.50% 20491   40,887    43,041 
Government National Mortgage Assn. 3.00%–6.50% 2032–20661,3   216,276    226,375 
Uniform Mortgage-Backed Security 3.00% 20351,3   774,982    802,142 
Uniform Mortgage-Backed Security 3.00% 20351,3   57,042    59,088 
Uniform Mortgage-Backed Security 3.50% 20501,3   183,224    190,288 
Uniform Mortgage-Backed Security 4.50% 20501,3   171,000    182,353 
Uniform Mortgage-Backed Security 4.50% 20501,3   74,099    79,089 
Uniform Mortgage-Backed Securities 2.50%–4.00% 2035–20501,3   2,489    2,568 
Other securities        133,422 
         4,924,918 
           
Collateralized mortgage-backed obligations (privately originated) 2.70%          
Other securities        206,210 
           
Total mortgage-backed obligations        5,131,128 

 

American Funds Mortgage Fund 3
 
Bonds, notes & other debt instruments (continued)  Principal amount
(000)
   Value
(000)
 
U.S. Treasury bonds & notes 17.29%          
U.S. Treasury 16.26%          
U.S. Treasury 1.375% 2022  $95,000   $95,815 
U.S. Treasury 1.75% 2022   133,000    135,286 
U.S. Treasury 1.875% 2022   52,000    53,304 
U.S. Treasury 1.875% 2022   44,000    44,898 
U.S. Treasury 2.125% 20224   157,000    161,127 
U.S. Treasury 2.125% 20224   111,000    114,796 
U.S. Treasury 2.75% 2023   90,000    95,172 
U.S. Treasury 2.875% 2023   51,866    55,446 
U.S. Treasury 2.875% 2023   40,500    43,348 
U.S. Treasury 2.00% 2025   90,000    94,579 
U.S. Treasury 1.50%–3.38% 2021–20484   328,833    346,928 
         1,240,699 
           
U.S. Treasury inflation-protected securities 1.03%          
U.S. Treasury Inflation-Protected Securities 0.75%–2.13% 2041–20494,5   66,086    78,575 
           
Total U.S. Treasury bonds & notes        1,319,274 
           
Asset-backed obligations 0.49%          
Other securities        37,258 
           
Total bonds, notes & other debt instruments (cost: $6,342,336,000)        6,487,660 
           
Short-term securities 31.61%          
Federal agency discount notes 15.58%          
Federal Home Loan Bank 1.50%-1.58% due 3/6/2020–5/13/2020  $1,010,400    1,008,776 
Freddie Mac 1.51%-1.64% due 3/18/2020–5/19/2020   180,000    179,655 
         1,188,431 
           
U.S. Treasury bills & notes 10.60%          
U.S. Treasury Bills 1.49%-1.57% due 3/10/2020–4/14/2020   809,500    808,788 
           
Commercial paper 5.43%          
Eli Lilly and Co. 1.56% due 3/3/2020–3/4/20206   54,600    54,588 
Exxon Mobil Corp. 1.59% due 4/16/2020–4/21/2020   90,000    89,809 
General Dynamics Corp. 1.58% due 3/12/20206   50,000    49,972 
IBM Credit LLC 1.54% due 3/23/20206   73,000    72,925 
Nordea Bank AB 1.56% due 3/2/20206   40,400    40,395 
Simon Property Group, LP 1.58% due 3/2/20206   42,100    42,095 
Other securities        64,108 
         413,892 
           
Total short-term securities (cost: $2,410,750,000)        2,411,111 
Total investment securities 116.65% (cost: $8,753,086,000)        8,898,771 
Other assets less liabilities (16.65)%        (1,270,145)
           
Net assets 100.00%       $7,628,626 

 

4 American Funds Mortgage Fund
 

This summary investment portfolio is designed to streamline the report and help investors better focus on the fund’s principal holdings. See the inside back cover for details on how to obtain a complete schedule of portfolio holdings.

 

“Other securities” includes all issues that are not disclosed separately in the summary investment portfolio.

 

Futures contracts

 

Contracts  Type  Number of
contracts
  Expiration  Notional
amount7
(000)
   Value at
2/29/20208
(000)
   Unrealized
appreciation
at 2/29/2020
(000)
 
2 Year U.S. Treasury Note Futures  Long  6,207  July 2020  $1,241,400   $1,355,163            $10,418 
5 Year U.S. Treasury Note Futures  Long  10,706  July 2020   1,070,600    1,314,161      21,433 
10 Year U.S. Treasury Note Futures  Long  4,484  June 2020   448,400    604,219      11,642 
20 Year U.S. Treasury Bond Futures  Long  988  June 2020   98,800    168,207      5,723 
30 Year Ultra U.S. Treasury Bond Futures  Long  105  June 2020   10,500    21,788      849 
                        $50,065 

 

Swap contracts

 

Interest rate swaps

 

Receive  Pay  Expiration
date
  Notional
(000)
   Value at
2/29/2020
(000)
   Upfront
payments/
receipts
(000)
   Unrealized
appreciation
(depreciation)
at 2/29/2020
(000)
 
1.5155%  U.S. EFFR  3/18/2020  $3,839,500   $104          $              $104 
1.5135%  U.S. EFFR  3/18/2020   3,838,800    100            100 
1.531%  U.S. EFFR  3/18/2020   2,005,700    70            70 
1.515%  U.S. EFFR  3/18/2020   1,816,000    49            49 
3-month USD-LIBOR  2.806%  8/29/2020   80,500    (588)           (588)
1.454%  U.S. EFFR  12/10/2020   428,100    1,786            1,786 
1.4555%  U.S. EFFR  12/10/2020   361,900    1,514            1,514 
1.491%  U.S. EFFR  12/16/2020   392,600    1,804            1,804 
1.487%  U.S. EFFR  12/16/2020   387,400    1,768            1,768 
1.426%  U.S. EFFR  2/11/2021   450,000    2,364            2,364 
1.424%  U.S. EFFR  2/11/2021   450,000    2,356            2,356 
1.34%  U.S. EFFR  10/18/2021   437,000    4,202            4,202 
1.3615%  U.S. EFFR  11/1/2021   836,500    8,647            8,647 
1.281%  U.S. EFFR  11/4/2021   837,500    7,575            7,575 
U.S. EFFR  1.335%  11/26/2021   633,000    (6,590)           (6,590)
1.402%  U.S. EFFR  1/14/2022   246,220    3,116            3,116 
1.403%  U.S. EFFR  1/14/2022   232,780    2,950            2,950 
1.082%  U.S. EFFR  2/26/2022   337,700    2,435            2,435 
1.074%  U.S. EFFR  2/26/2022   336,500    2,373            2,373 
3-month USD-LIBOR  1.265%  2/26/2022   336,900    (1,945)           (1,945)
3-month USD-LIBOR  1.271%  2/26/2022   337,450    (1,989)           (1,989)
1.07625%  U.S. EFFR  2/27/2022   333,195    2,364            2,364 
1.0405%  U.S. EFFR  2/27/2022   333,195    2,126            2,126 
3-month USD-LIBOR  1.23%  2/27/2022   333,010    (1,698)           (1,698)
   
American Funds Mortgage Fund 5
 

Swap contracts (continued)

 

Interest rate swaps (continued)

 

Receive  Pay  Expiration
date
  Notional
(000)
   Value at
2/29/2020
(000)
   Upfront
payments/
receipts
(000)
   Unrealized
appreciation
(depreciation)
at 2/29/2020
(000)
 
3-month USD-LIBOR  1.262%  2/27/2022  $333,010   $(1,908)         $              $(1,908)
1.0465%  U.S. EFFR  2/28/2022   342,910    2,229            2,229 
3-month USD-LIBOR  1.233%  2/28/2022   343,130    (1,800)           (1,800)
3-month USD-LIBOR  1.785%  3/27/2022   35,000    (594)           (594)
2.009%  3-month USD-LIBOR  10/4/2022   102,000    2,792            2,792 
2.1045%  3-month USD-LIBOR  10/31/2022   125,000    3,831            3,831 
3-month USD-LIBOR  2.2835%  1/5/2023   228,000    (8,630)           (8,630)
2.21875%  U.S. EFFR  3/14/2024   155,000    9,603            9,603 
3-month USD-LIBOR  2.322%  5/2/2024   181,900    (10,463)           (10,463)
3-month USD-LIBOR  2.325%  5/2/2024   418,100    (24,100)           (24,100)
3-month USD-LIBOR  1.547%  10/25/2024   252,000    (6,944)           (6,944)
3-month USD-LIBOR  1.548%  10/28/2024   42,000    (1,160)           (1,160)
3-month USD-LIBOR  2.05%  7/18/2029   118,000    (10,372)           (10,372)
U.S. EFFR  1.4869%  10/23/2029   67,000    (4,014)           (4,014)
U.S. EFFR  1.485%  10/23/2029   73,400    (4,385)           (4,385)
U.S. EFFR  1.446%  10/24/2029   8,200    (460)           (460)
U.S. EFFR  1.4495%  10/24/2029   63,000    (3,554)           (3,554)
U.S. EFFR  1.453%  10/24/2029   85,100    (4,829)           (4,829)
U.S. EFFR  1.4741%  10/24/2029   85,300    (5,009)           (5,009)
1.419%  U.S. EFFR  11/26/2029   134,000    7,205            7,205 
3-month USD-LIBOR  3.238%  8/8/2044   6,000    (2,541)           (2,541)
3-month USD-LIBOR  2.4945%  1/9/2045   7,000    (1,861)           (1,861)
3-month USD-LIBOR  2.454%  1/15/2045   7,000    (1,800)           (1,800)
3-month USD-LIBOR  2.525%  10/20/2045   10,000    (2,792)           (2,792)
3-month USD-LIBOR  2.516%  10/20/2045   15,000    (4,157)           (4,157)
3-month USD-LIBOR  2.5315%  10/26/2045   16,000    (4,493)           (4,493)
3-month USD-LIBOR  2.57067%  11/9/2045   6,600    (1,914)           (1,914)
3-month USD-LIBOR  2.6485%  11/16/2045   6,525    (2,008)           (2,008)
3-month USD-LIBOR  2.52822%  11/23/2045   13,350    (3,747)           (3,747)
3-month USD-LIBOR  2.59125%  12/16/2045   13,500    (3,995)           (3,995)
3-month USD-LIBOR  2.4095%  1/14/2046   10,000    (2,549)           (2,549)
3-month USD-LIBOR  1.9905%  6/13/2046   4,000    (647)           (647)
3-month USD-LIBOR  1.991%  6/13/2046   6,000    (971)           (971)
3-month USD-LIBOR  1.7985%  6/30/2046   12,000    (1,409)           (1,409)
3-month USD-LIBOR  1.935%  12/17/2049   2,910    (479)           (479)
3-month USD-LIBOR  2.007%  12/19/2049   8,800    (1,611)           (1,611)
3-month USD-LIBOR  1.961%  1/9/2050   24,200    (4,146)           (4,146)
3-month USD-LIBOR  1.678%  2/21/2050   21,630    (2,139)           (2,139)
                     $     $(70,928)
   
6 American Funds Mortgage Fund
 

The following footnotes apply to either the individual securities noted or one or more of the securities aggregated and listed as a single line item.

 

1 Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date.
2 Coupon rate may change periodically. Reference rate and spread are as of the most recent information available. Some coupon rates are determined by the issuer or agent based on current market conditions; therefore, the reference rate and spread are not available.
3 Purchased on a TBA basis.
4 All or a portion of this security was pledged as collateral. The total value of pledged collateral was $70,932,000, which represented .93% of the net assets of the fund.
5 Index-linked bond whose principal amount moves with a government price index.
6 Acquired in a transaction exempt from registration under Rule 144A or Section 4(2) 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, including those in “Other securities,” was $515,583,000, which represented 6.76% of the net assets of the fund.
7 Notional amount is calculated based on the number of contracts and notional contract size.
8 Value is calculated based on the notional amount and current market price.

 

Key to abbreviations and symbol

EFFR = Effective Federal Funds Rate

LIBOR = London Interbank Offered Rate

TBA = To-be-announced

USD/$ = U.S. dollars

 

See notes to financial statements.

 

American Funds Mortgage Fund 7
 
Financial statements  
   
Statement of assets and liabilities
at February 29, 2020
unaudited
(dollars in thousands)
   
Assets:          
Investment securities in unaffiliated issuers, at value (cost: $8,753,086)       $8,898,771 
Cash        4,710 
Receivables for:          
Sales of investments  $1,412,068      
Sales of fund’s shares   4,876      
Interest   19,607      
Variation margin on futures contracts   24,630      
Variation margin on swap contracts   28,582    1,489,763 
         10,393,244 
Liabilities:          
Payables for:          
Purchases of investments   2,725,326      
Repurchases of fund’s shares   4,029      
Dividends on fund’s shares   2      
Investment advisory services   1,254      
Services provided by related parties   274      
Trustees’ deferred compensation   35      
Variation margin on swap contracts   33,692      
Other   6    2,764,618 
Net assets at February 29, 2020       $7,628,626 
           
Net assets consist of:          
Capital paid in on shares of beneficial interest       $7,481,289 
Total distributable earnings        147,337 
Net assets at February 29, 2020       $7,628,626 

 

See notes to financial statements.

 

8 American Funds Mortgage Fund
 

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

 

Shares of beneficial interest issued and outstanding (no stated par value) —
unlimited shares authorized (742,155 total shares outstanding)

 

   Net assets   Shares
outstanding
   Net asset value
per share
 
Class A  $216,679    21,080   $10.28 
Class C   17,098    1,670    10.24 
Class T   10    1    10.28 
Class F-1   18,419    1,792    10.28 
Class F-2   137,828    13,403    10.28 
Class F-3   21,352    2,077    10.28 
Class 529-A   26,686    2,597    10.28 
Class 529-C   4,819    471    10.23 
Class 529-E   1,692    165    10.28 
Class 529-T   11    1    10.28 
Class 529-F-1   8,619    839    10.28 
Class R-1   7,740    755    10.24 
Class R-2   3,000    293    10.22 
Class R-2E   198    19    10.26 
Class R-3   36,241    3,532    10.26 
Class R-4   5,050    491    10.28 
Class R-5E   350    34    10.28 
Class R-5   944    92    10.28 
Class R-6   7,121,890    692,843    10.28 

 

See notes to financial statements.

 

American Funds Mortgage Fund 9
 
Statement of operations
for the six months ended February 29, 2020
unaudited
(dollars in thousands)
 
Investment income:          
Income:          
Interest       $78,193 
Fees and expenses*:          
Investment advisory services  $7,694      
Distribution services   554      
Transfer agent services   383      
Administrative services   1,046      
Reports to shareholders   22      
Registration statement and prospectus   348      
Trustees’ compensation   13      
Auditing and legal   3      
Custodian   8      
Other   40      
Total fees and expenses before reimbursements   10,111      
Less transfer agent services reimbursements        
Total fees and expenses after reimbursements        10,111 
Net investment income        68,082 
           
Net realized gain and unrealized appreciation:          
Net realized gain (loss) on:          
Investments in unaffiliated issuers   48,002      
Futures contracts   16,185      
Swap contracts   (3,366)   60,821 
Net unrealized appreciation (depreciation) on:          
Investments in unaffiliated issuers   27,264      
Futures contracts   48,912      
Swap contracts   (10,214)   65,962 
Net realized gain and unrealized appreciation        126,783 
           
Net increase in net assets resulting from operations       $194,865 
   
* Additional information related to class-specific fees and expenses is included in the notes to financial statements.
Amount less than one thousand.

 

See notes to financial statements.

 

10 American Funds Mortgage Fund
 

Statements of changes in net assets

 

(dollars in thousands)

 

   Six months ended
February 29,
2020*
   Year ended
August 31,
2019
 
Operations:          
Net investment income  $68,082   $134,997 
Net realized gain   60,821    163,443 
Net unrealized appreciation   65,962    68,081 
Net increase in net assets resulting from operations   194,865    366,521 
           
Distributions paid or accrued to shareholders   (137,883)   (144,716)
           
Net capital share transactions   1,012,362    1,451,181 
           
Total increase in net assets   1,069,344    1,672,986 
           
Net assets:          
Beginning of period   6,559,282    4,886,296 
End of period  $7,628,626   $6,559,282 

 

*Unaudited.

 

See notes to financial statements.

 

American Funds Mortgage Fund 11
 
Notes to financial statements unaudited

 

1. Organization

 

American Funds Mortgage Fund (the “fund”) is registered under the Investment Company Act of 1940 as an open-end, diversified management investment company. The fund seeks to provide current income and preservation of capital.

 

The fund has 19 share classes consisting of six retail share classes (Classes A, C, T, F-1, F-2 and F-3), five 529 college savings plan share classes (Classes 529-A, 529-C, 529-E, 529-T and 529-F-1) 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 3.75%   None (except 1% for certain redemptions within 18 months of purchase without an initial sales charge)   None
Class C   None   1% for redemptions within one year of purchase   Class C converts to Class F-1 after 10 years
Class 529-C   None   1% for redemptions within one year of purchase   Class 529-C converts to Class 529-A after 10 years
Class 529-E   None   None   None
Classes T and 529-T*   Up to 2.50%   None   None
Classes F-1, F-2, F-3 and 529-F-1   None   None   None
Classes R-1, R-2, R-2E, R-3, R-4, R-5E, R-5 and R-6   None   None   None
* 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.

 

12 American Funds Mortgage Fund
 
 

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. 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) are allocated daily among the various share classes based on the relative value of their settled shares. Realized and unrealized gains and losses are allocated daily among the various share classes based on their relative net assets. Class-specific fees and expenses, such as distribution, transfer agent and administrative services, are charged directly to the respective share class.

 

Distributions paid or accrued to shareholders — Income dividends are declared daily after the determination of the fund’s net investment income and are paid to shareholders monthly. Capital gain distributions are recorded on the ex-dividend date.

 

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 of each share class of the fund is generally determined as of approximately 4:00 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.

 

American Funds Mortgage Fund 13
 
 

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”)
Bonds & notes of governments & government agencies   Standard inputs and interest rate volatilities
Mortgage-backed; asset-backed obligations   Standard inputs and cash flows, prepayment information, default rates, delinquency and loss assumptions, collateral characteristics, credit enhancements and specific deal information
Municipal securities   Standard inputs and, for certain distressed securities, cash flows or liquidation values using a net present value calculation based on inputs that include, but are not limited to, financial statements and debt contracts

 

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.

 

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. Interest rate swaps are generally valued by pricing vendors based on market inputs that include the index and term of index, reset frequency, payer/receiver, currency and pay frequency.

 

14 American Funds Mortgage Fund
 
 

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 trustees 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 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 trustees 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 trustees. 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.

 

American Funds Mortgage Fund 15
 
 

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 February 29, 2020 (dollars in thousands):

 

   Investment securities  
   Level 1   Level 2   Level 3   Total 
Assets:                    
Bonds, notes & other debt instruments:                    
Mortgage-backed obligations  $   $5,131,128   $   $5,131,128 
U.S. Treasury bonds & notes       1,319,274        1,319,274 
Asset-backed obligations       37,258        37,258 
Short-term securities       2,411,111        2,411,111 
Total  $   $8,898,771   $   $8,898,771 
                        
   Other investments* 
   Level 1   Level 2   Level 3   Total 
Assets:                    
Unrealized appreciation on futures contracts  $50,065   $   $   $50,065 
Unrealized appreciation on interest rate swaps       73,363        73,363 
Liabilities:                    
Unrealized depreciation on interest rate swaps       (144,291)       (144,291)
Total  $50,065   $(70,928)  $   $(20,863)

 

* Futures contracts and interest rate swaps are not included in the investment portfolio.

 

16 American Funds Mortgage Fund
 
 

4. Risk factors

 

Investing in the fund may involve certain risks including, but not limited to, those described below.

 

Investing in mortgage-related and other asset-backed securities — Mortgage-related securities, such as mortgage-backed securities, and other asset-backed securities, include debt obligations that represent interests in pools of mortgages or other income-bearing assets, such as consumer loans or receivables. Such securities often involve risks that are different from or more acute than the risks associated with investing in other types of debt securities. Mortgage-backed and other asset-backed securities are subject to changes in the payment patterns of borrowers of the underlying debt, potentially increasing the volatility of the securities and the fund’s net asset value. When interest rates fall, borrowers are more likely to refinance or prepay their debt before its stated maturity. This may result in the fund having to reinvest the proceeds in lower yielding securities, effectively reducing the fund’s income. Conversely, if interest rates rise and borrowers repay their debt more slowly than expected, the time in which the mortgage-backed and other asset-backed securities are paid off could be extended, reducing the fund’s cash available for reinvestment in higher yielding securities. Mortgage-backed securities are also subject to the risk that underlying borrowers will be unable to meet their obligations and the value of property that secures the mortgages may decline in value and be insufficient, upon foreclosure, to repay the associated loans. Investments in asset-backed securities are subject to similar risks.

 

Market conditions — The prices of, and the income generated by, the 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.

 

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 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 debt instruments — The prices of, and the income generated by, bonds and other debt securities held by the fund may be affected by changing interest rates and by changes in the effective maturities and credit ratings of these securities.

 

American Funds Mortgage Fund 17
 
 

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.

 

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 securities backed by the U.S. government — Securities backed by the U.S. Treasury or the full faith and credit of the U.S. government are guaranteed only as to the timely payment of interest and principal when held to maturity. Accordingly, the current market values for these securities will fluctuate with changes in interest rates and the credit rating of the U.S. government. Securities issued by government-sponsored entities and federal agencies and instrumentalities that are not backed by the full faith and credit of the U.S. government are neither issued nor guaranteed by the U.S. government.

 

Investing in future delivery contracts — The fund may enter into contracts, such as to-be-announced contracts and mortgage dollar rolls, that involve the fund selling mortgage-related securities and simultaneously contracting to repurchase similar securities for delivery at a future date at a predetermined price. This can increase the fund’s market exposure, and the market price of the securities that the fund contracts to

 

18 American Funds Mortgage Fund
 
 

repurchase could drop below their purchase price. While the fund can preserve and generate capital through the use of such contracts by, for example, realizing the difference between the sale price and the future purchase price, the income generated by the fund may be reduced by engaging in such transactions. In addition, these transactions may increase the turnover rate of the fund.

 

Investing in inflation-linked bonds — The values of inflation-linked bonds generally fluctuate in response to changes in real interest rates — i.e., rates of interest after factoring in inflation. A rise in real interest rates may cause the prices of inflation-linked securities to fall, while a decline in real interest rates may cause the prices to increase. Inflation-linked bonds may experience greater losses than other debt securities with similar durations when real interest rates rise faster than nominal interest rates. There can be no assurance that the value of an inflation-linked security will be directly correlated to changes in interest rates; for example, if interest rates rise for reasons other than inflation, the increase may not be reflected in the security’s inflation measure.

 

Investing in inflation-linked bonds may also reduce the fund’s distributable income during periods of deflation. If prices for goods and services decline throughout the economy, the principal and income on inflation-linked securities may decline and result in losses to the fund.

 

Investing in derivatives — The use of derivatives involves a variety of risks, which may be different from, or greater than, the risks associated with investing in traditional securities, such as stocks and bonds. Changes in the value of a derivative may not correlate perfectly with, and may be more sensitive to market events than, the underlying asset, rate or index, and a derivative instrument may expose the fund to losses in excess of its initial investment. Derivatives may be difficult to value, difficult for the fund to buy or sell at an opportune time or price and difficult, or even impossible, to terminate or otherwise offset. The fund’s use of derivatives may result in losses to the fund, and investing in derivatives may reduce the fund’s returns and increase the fund’s price volatility. The fund’s counterparty to a derivative transaction (including, if applicable, the fund’s clearing broker, the derivatives exchange or the clearinghouse) may be unable or unwilling to honor its financial obligations in respect of the transaction. In certain cases, the fund may be hindered or delayed in exercising remedies against or closing out derivative instruments with a counterparty, which may result in additional losses.

 

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.

 

American Funds Mortgage Fund 19
 
 

5. Certain investment techniques

 

Index-linked bonds — The fund has invested in index-linked bonds, which are fixed-income securities whose principal value is periodically adjusted to a government price index. Over the life of an index-linked bond, interest is paid on the adjusted principal value. Increases or decreases in the principal value of index-linked bonds are recorded as interest income in the fund’s statement of operations.

 

Mortgage dollar rolls — The fund has entered into mortgage dollar roll transactions in which the fund sells a mortgage-backed security to a counterparty and simultaneously enters into an agreement with the same counterparty to buy back a similar security on a specific future date at a predetermined price. Mortgage dollar rolls are accounted for as purchase and sale transactions. Portfolio turnover rates excluding and including mortgage dollar rolls are presented at the end of the fund’s financial highlights table.

 

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 $3,208,442,000.

 

20 American Funds Mortgage Fund
 
 

Interest rate swaps — The fund has entered into interest rate swap contracts, which are agreements to exchange one stream of future interest payments for another based on a specified notional amount. Typically, interest rate swaps exchange a fixed interest rate for a payment that floats relative to a benchmark or vice versa. The fund’s investment adviser uses 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. Risks may arise as a result of the fund’s investment adviser incorrectly anticipating changes in interest rates, increased volatility, reduced liquidity and the potential inability of counterparties to meet the terms of their agreements.

 

Upon entering into an interest rate swap contract, the fund is required to deposit cash, U.S. government securities or other liquid securities, which is known as initial margin. Generally, the initial margin required for a particular interest rate swap is set and held as collateral by the clearinghouse on which the contract is cleared. The amount of initial margin required may be significantly modified from time to time by the clearinghouse during the term of the contract.

 

On a daily basis, the fund’s investment adviser records daily interest accruals related to the exchange of future payments as a receivable and payable in the fund’s statement of assets and liabilities. The fund also pays or receives a variation margin based on the increase or decrease in the value of the interest rate swaps, including accrued interest, and records variation margin on interest rate swaps in the statement of assets and liabilities. The fund records realized gains and losses on both the net accrued interest and any gain or loss recognized at the time the interest rate swap is closed or expires. Net realized gains or losses, as well as any net unrealized appreciation or depreciation, from interest rate swaps are recorded in the fund’s statement of operations. The average month-end notional amount of interest rate swaps while held was $11,779,341,000.

 

American Funds Mortgage Fund 21
 
 

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 interest rate swaps as of, or for the six months ended, February 29, 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*  $50,065   Unrealized depreciation*  $ 
Swap  Interest  Unrealized appreciation*   73,363   Unrealized depreciation*   144,291 
         $123,428      $144,291 
                    
      Net realized gain (loss)   Net unrealized appreciation
(depreciation)
 
Contracts  Risk type  Location on statement of
operations
   Value   Location on statement of
operations
   Value 
Futures  Interest  Net realized gain on futures contracts  $16,185   Net unrealized appreciation on futures contracts  $48,912 
Swap  Interest  Net realized loss on swap contracts   (3,366)  Net unrealized depreciation on swap contracts   (10,214)
         $12,819      $38,698 

 

* Includes cumulative appreciation/depreciation on futures contracts and interest rate swaps as reported in the applicable tables 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 its use of futures contracts, interest rate swaps and future delivery contracts. For futures contracts and interest rate swaps, the fund pledges collateral for initial and variation margin by contract. For future delivery contracts, the fund either receives or pledges collateral based on the net gain or loss on unsettled contracts by certain counterparties. 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.

 

22 American Funds Mortgage Fund
 
 

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 period ended February 29, 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.

 

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 short-term capital gains and losses; capital losses related to sales of certain securities within 30 days of purchase; cost of investments sold; paydowns on fixed-income securities; amortization of premiums and discounts 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 components of distributable earnings on a tax basis are reported as of the fund’s most recent year-end. As of August 31, 2019, the components of distributable earnings on a tax basis were as follows (dollars in thousands):

 

Undistributed ordinary income  $40,673 
Undistributed long-term capital gains   23,325 

 

As of February 29, 2020, the tax basis unrealized appreciation (depreciation) and cost of investments were as follows (dollars in thousands):

 

Gross unrealized appreciation on investments  $270,194 
Gross unrealized depreciation on investments   (146,270)
Net unrealized appreciation on investments   123,924 
Cost of investments   8,753,984 

 

American Funds Mortgage Fund 23
 
 

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

 

   Six months ended February 29, 2020   Year ended August 31, 2019 
Share class  Ordinary
income
   Long-term
capital gains
   Total
distributions
paid or
accrued
   Ordinary
income
   Long-term
capital gains
   Total
distributions
paid
 
Class A  $2,912   $666   $3,578   $4,156   $   $4,156 
Class C   172    53    225    216        216 
Class T   *   *   *   *       *
Class F-1   259    58    317    372        372 
Class F-2   2,033    425    2,458    2,526        2,526 
Class F-3   315    64    379    404        404 
Class 529-A   353    83    436    462        462 
Class 529-C   46    14    60    57        57 
Class 529-E   20    5    25    28        28 
Class 529-T   *   *   *   *       *
Class 529-F-1   126    27    153    183        183 
Class R-1   71    25    96    62        62 
Class R-2   36    11    47    51        51 
Class R-2E   2    1    3    2        2 
Class R-3   475    119    594    729        729 
Class R-4   70    16    86    111        111 
Class R-5E   5    1    6    3        3 
Class R-5   16    3    19    32        32 
Class R-6   107,550    21,851    129,401    135,322        135,322 
Total  $114,461   $23,422   $137,883   $144,716   $   $144,716 

 

* Amount less than one thousand.

 

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 0.300% on the first $60 million of daily net assets and decreasing to 0.140% on such assets in excess of $10 billion. The agreement also provides for monthly fees, accrued daily, based on a series of decreasing rates beginning with 3.00% on the first $3,333,333 of the fund’s monthly gross income and decreasing to 2.00% on such income in excess of $8,333,333. For the six months ended February 29, 2020, the investment advisory services fee was $7,694,000, which was equivalent to an annualized rate of 0.221% of average daily net assets.

 

24 American Funds Mortgage Fund
 
 

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, R-5E, R-5 and R-6 shares. Under the plans, the board of trustees 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 trustees 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 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   0.25%   0.30%
  Class 529-A   0.25    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 February 29, 2020, unreimbursed expenses subject to reimbursement totaled $115,000 for Class A shares. There were no unreimbursed expenses subject to reimbursement for Class 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.

 

American Funds Mortgage Fund 25
 
 

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 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 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. Prior to January 1, 2020, the quarterly fee was based on a series of decreasing annual rates beginning with 0.10% 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. Effective January 1, 2020, the quarterly fee was amended to 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.

 

26 American Funds Mortgage Fund
 
 

For the six months ended February 29, 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   $253    $164    $30   Not applicable  
Class C   80    13    2   Not applicable  
Class T       *   *  Not applicable  
Class F-1   22    12    3   Not applicable  
Class F-2   Not applicable    85    19   Not applicable  
Class F-3   Not applicable    1    3   Not applicable  
Class 529-A   31    18    4   $8  
Class 529-C   22    3    1   1  
Class 529-E   4    1    *  *
Class 529-T       *   *  *
Class 529-F-1       6    1   3  
Class R-1   29    7    1   Not applicable  
Class R-2   13    7    *  Not applicable  
Class R-2E   1    *   *  Not applicable  
Class R-3   93    61    6   Not applicable  
Class R-4   6    3    1   Not applicable  
Class R-5E   Not applicable    *   *  Not applicable  
Class R-5   Not applicable    1    *  Not applicable  
Class R-6   Not applicable    1    975   Not applicable  
Total class-specific expenses   $554    $383    $1,046   $12  

 

* Amount less than one thousand.

 

Trustees’ deferred compensation — Trustees 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. Trustees’ compensation of $13,000 in the fund’s statement of operations reflects $11,000 in current fees (either paid in cash or deferred) and a net increase of $2,000 in the value of the deferred amounts.

 

Affiliated officers and trustees — Officers and certain trustees of the fund are or may be considered to be affiliated with CRMC, AFD and AFS. No affiliated officers or trustees received any compensation directly from the fund.

 

Security transactions with related funds — The fund may purchase securities from, or sell securities to, other funds managed by CRMC (or funds managed by certain affiliates of CRMC) under procedures adopted by the fund’s board of trustees. The funds involved in such transactions are considered related by virtue of having a common investment adviser (or affiliated investment advisers), common trustees and/or common officers. When such transactions occur, each transaction is executed at the current market price of the security and no brokerage commissions or fees are paid in accordance with Rule 17a-7 of the 1940 Act. During the six months ended February 29, 2020, the fund did not engage in any such purchase or sale transactions with any related funds.

 

American Funds Mortgage Fund 27
 
 

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 six months ended February 29, 2020.

 

8. Capital share transactions

 

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

 

   Sales*   Reinvestments of
distributions
   Repurchases*   Net increase
(decrease)
 
Share class  Amount   Shares   Amount   Shares   Amount     Shares   Amount   Shares 
                                 
Six months ended February 29, 2020                           
                                         
Class A  $29,331    2,890   $3,537    350   $(15,623)   (1,540)  $17,245    1,700 
Class C   2,975    294    223    22    (2,248)   (222)   950    94 
Class T                                
Class F-1   2,631    259    316    32    (3,030)   (299)   (83)   (8)
Class F-2   37,783    3,722    2,440    241    (25,310)   (2,494)   14,913    1,469 
Class F-3   4,792    472    379    38    (1,751)   (172)   3,420    338 
Class 529-A   5,026    495    435    43    (2,689)   (265)   2,772    273 
Class 529-C   1,248    124    61    6    (580)   (58)   729    72 
Class 529-E   314    31    25    3    (182)   (18)   157    16 
Class 529-T                            
Class 529-F-1   1,496    148    152    15    (1,108)   (109)   540    54 
Class R-1   5,288    522    95    9    (1,664)   (164)   3,719    367 
Class R-2   593    59    47    4    (1,132)   (112)   (492)   (49)
Class R-2E   40    4    3       (2)      41    4 
Class R-3   4,608    455    589    58    (9,881)   (974)   (4,684)   (461)
Class R-4   630    62    86    8    (497)   (49)   219    21 
Class R-5E   80    8    5       (1)      84    8 
Class R-5   97    10    19    2    (259)   (26)   (143)   (14)
Class R-6   933,486    92,018    129,325    12,775    (89,836)   (8,854)   972,975    95,939 
Total net increase (decrease)  $1,030,418    101,573   $137,737    13,606   $(155,793)   (15,356)  $1,012,362    99,823 

 

28 American Funds Mortgage Fund
 
 
   Sales*   Reinvestments of
distributions
   Repurchases*   Net (decrease)
increase
 
Share class  Amount   Shares   Amount   Shares   Amount     Shares   Amount   Shares 
                             
Year ended August 31, 2019                            
                                 
Class A  $39,375    3,954   $4,080    409   $(49,124)   (4,972)  $(5,669)   (609)
Class C   4,255    429    214    22    (4,681)   (475)   (212)   (24)
Class T                                
Class F-1   10,846    1,094    370    37    (6,987)   (702)   4,229    429 
Class F-2   98,847    9,962    2,486    249    (57,433)   (5,778)   43,900    4,433 
Class F-3   10,676    1,070    335    33    (7,192)   (719)   3,819    384 
Class 529-A   7,531    754    459    46    (6,235)   (627)   1,755    173 
Class 529-C   1,319    133    56    6    (1,869)   (189)   (494)   (50)
Class 529-E   500    50    28    3    (389)   (39)   139    14 
Class 529-T                            
Class 529-F-1   2,698    272    182    18    (2,615)   (263)   265    27 
Class R-1   1,049    106    61    6    (1,764)   (177)   (654)   (65)
Class R-2   1,195    121    51    5    (1,278)   (129)   (32)   (3)
Class R-2E   44    4    2       (3)      43    4 
Class R-3   20,365    2,051    723    72    (15,687)   (1,573)   5,401    550 
Class R-4   1,280    129    109    11    (2,721)   (276)   (1,332)   (136)
Class R-5E   176    18    3       (4)      175    18 
Class R-5   305    31    32    3    (467)   (46)   (130)   (12)
Class R-6   1,397,146    140,299    135,321    13,540    (132,489 )   (13,321)   1,399,978    140,518 
Total net increase (decrease)  $1,597,607    160,477   $144,512    14,460   $(290,938)   (29,286)  $1,451,181    145,651 

 

* Includes exchanges between share classes of the fund.
Amount less than one thousand.

 

9. Investment transactions

 

The fund made purchases and sales of investment securities, excluding short-term securities and U.S. government obligations, if any, of $21,561,432,000 and $22,512,865,000, respectively, during the six months ended February 29, 2020.

 

10. Ownership concentration

 

At February 29, 2020, three shareholders held more than 10% of the fund’s outstanding shares. The three shareholders were American Funds 2030 Target Date Retirement Fund, American Funds 2025 Target Date Retirement Fund and American Funds 2020 Target Date Retirement Fund, with aggregate ownership of the fund’s outstanding shares of 18%, 17% and 14%, respectively. CRMC is the investment adviser to the three target date retirement funds.

 

American Funds Mortgage Fund 29
 
 

Financial highlights

 

       Income (loss) from investment operations1
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
 
Class A:                    
2/29/20204,5  $10.21   $.08   $.17   $.25 
8/31/2019   9.84    .20    .39    .59 
8/31/2018   10.20    .14    (.32)   (.18)
8/31/2017   10.23    .10    .09    .19 
8/31/2016   10.22    .08    .22    .30 
8/31/2015   10.21    .04    .17    .21 
Class C:                    
2/29/20204,5   10.17    .04    .17    .21 
8/31/2019   9.80    .12    .39    .51 
8/31/2018   10.17    .06    (.33)   (.27)
8/31/2017   10.19    .02    .11    .13 
8/31/2016   10.18    8   .22    .22 
8/31/2015   10.19    (.05)   .17    .12 
Class T:                    
2/29/20204,5   10.21    .09    .17    .26 
8/31/2019   9.83    .22    .40    .62 
8/31/2018   10.20    .16    (.33)   (.17)
8/31/20174,11   10.10    .06    .10    .16 
Class F-1:                    
2/29/20204,5   10.21    .08    .17    .25 
8/31/2019   9.84    .20    .39    .59 
8/31/2018   10.20    .14    (.32)   (.18)
8/31/2017   10.23    .10    .09    .19 
8/31/2016   10.22    .08    .22    .30 
8/31/2015   10.21    .04    .17    .21 
Class F-2:                    
2/29/20204,5   10.22    .09    .16    .25 
8/31/2019   9.84    .23    .40    .63 
8/31/2018   10.21    .17    (.33)   (.16)
8/31/2017   10.23    .12    .11    .23 
8/31/2016   10.22    .11    .22    .33 
8/31/2015   10.21    .07    .17    .24 
Class F-3:                    
2/29/20204,5   10.22    .10    .16    .26 
8/31/2019   9.84    .24    .40    .64 
8/31/2018   10.20    .18    (.32)   (.14)
8/31/20174,12   10.07    .09    .14    .23 

 

30 American Funds Mortgage Fund
 
Dividends and distributions             
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-
ments
   Ratio of
expenses to
average net
assets after
reimburse-
ments3
   Ratio of
net income
(loss) to
average
net assets3
 
                                           
$(.09)  $(.09)  $(.18)  $10.28    2.47%6    $217    .67%7   .67%7   1.57%7
 (.22)       (.22)   10.21    6.05    198    .69    .69    2.03 
 (.15)   (.03)   (.18)   9.84    (1.81)   197    .68    .68    1.41 
 (.13)   (.09)   (.22)   10.20    1.94    218    .69    .69    .98 
 (.16)   (.13)   (.29)   10.23    2.90    229    .68    .68    .79 
 (.10)   (.10)   (.20)   10.22    2.09    164    .70    .70    .40 
                                           
 (.05)   (.09)   (.14)   10.24    2.106   17    1.427   1.427   .827
 (.14)       (.14)   10.17    5.26    16    1.46    1.46    1.25 
 (.07)   (.03)   (.10)   9.80    (2.68)   16    1.47    1.47    .60 
 (.06)   (.09)   (.15)   10.17    1.25    21    1.48    1.48    .18 
 (.08)   (.13)   (.21)   10.19    2.10    26    1.48    1.48    (.01)
 (.03)   (.10)   (.13)   10.18    1.14    17    1.50    1.50    (.40)
                                           
 (.10)   (.09)   (.19)   10.28    2.586,9   10   .457,9   .457,9   1.807,9
 (.24)       (.24)   10.21    6.409   10   .469   .469   2.269
 (.17)   (.03)   (.20)   9.83    (1.68)9   10   .459   .459   1.659
 (.06)       (.06)   10.20    1.636,9   10   .186,9   .186,9   .556,9
                                           
 (.09)   (.09)   (.18)   10.28    2.486   18    .657   .657   1.597
 (.22)       (.22)   10.21    6.06    18    .68    .68    2.05 
 (.15)   (.03)   (.18)   9.84    (1.83)   14    .70    .70    1.39 
 (.13)   (.09)   (.22)   10.20    1.92    14    .70    .70    .94 
 (.16)   (.13)   (.29)   10.23    2.91    23    .67    .67    .92 
 (.10)   (.10)   (.20)   10.22    2.08    10    .71    .71    .41 
                                           
 (.10)   (.09)   (.19)   10.28    2.616   138    .407   .407   1.857
 (.25)       (.25)   10.22    6.46    122    .39    .39    2.33 
 (.18)   (.03)   (.21)   9.84    (1.64)   74    .40    .40    1.73 
 (.16)   (.09)   (.25)   10.21    2.30    47    .44    .44    1.20 
 (.19)   (.13)   (.32)   10.23    3.18    53    .41    .41    1.28 
 (.13)   (.10)   (.23)   10.22    2.37    12    .42    .42    .67 
                                           
 (.11)   (.09)   (.20)   10.28    2.576   21    .277   .277   1.977
 (.26)       (.26)   10.22    6.56    18    .30    .30    2.43 
 (.19)   (.03)   (.22)   9.84    (1.45)   13    .31    .31    1.80 
 (.10)       (.10)   10.20    2.336   11    .317   .317   1.557

 

See end of table for footnotes.

 

American Funds Mortgage Fund 31
 

Financial highlights (continued)

 

       Income (loss) from investment operations1
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
 
Class 529-A:                    
2/29/20204,5  $10.21   $.08   $.17   $.25 
8/31/2019   9.83    .20    .39    .59 
8/31/2018   10.20    .13    (.33)   (.20)
8/31/2017   10.23    .10    .09    .19 
8/31/2016   10.21    .08    .22    .30 
8/31/2015   10.21    .02    .17    .19 
Class 529-C:                    
2/29/20204,5   10.16    .04    .17    .21 
8/31/2019   9.79    .12    .39    .51 
8/31/2018   10.15    .05    (.31)   (.26)
8/31/2017   10.18    .01    .10    .11 
8/31/2016   10.17    (.01)   .22    .21 
8/31/2015   10.18    (.06)   .17    .11 
Class 529-E:                    
2/29/20204,5   10.21    .07    .17    .24 
8/31/2019   9.84    .18    .38    .56 
8/31/2018   10.20    .11    (.32)   (.21)
8/31/2017   10.23    .07    .10    .17 
8/31/2016   10.21    .05    .22    .27 
8/31/2015   10.21    8   .17    .17 
Class 529-T:                    
2/29/20204,5   10.21    .09    .17    .26 
8/31/2019   9.83    .22    .40    .62 
8/31/2018   10.20    .16    (.33)   (.17)
8/31/20174,11   10.10    .05    .11    .16 
Class 529-F-1:                    
2/29/20204,5   10.21    .09    .17    .26 
8/31/2019   9.84    .22    .39    .61 
8/31/2018   10.20    .16    (.32)   (.16)
8/31/2017   10.23    .12    .09    .21 
8/31/2016   10.22    .09    .22    .31 
8/31/2015   10.21    .06    .17    .23 
Class R-1:                    
2/29/20204,5   10.18    .04    .16    .20 
8/31/2019   9.81    .12    .40    .52 
8/31/2018   10.17    .06    (.32)   (.26)
8/31/2017   10.20    .03    .08    .11 
8/31/2016   10.19    .01    .22    .23 
8/31/2015   10.19    8   .17    .17 

 

32 American Funds Mortgage Fund
 
Dividends and distributions                         
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-
ments
   Ratio of
expenses to
average net
assets after
reimburse-
ments3
   Ratio of
net income
(loss) to
average
net assets3
 
                                           
$(.09)  $(.09)  $(.18)  $10.28    2.45%6    $27    .72%7   .72%7   1.52%7
 (.21)       (.21)   10.21    6.09    24    .75    .75    1.97 
 (.14)   (.03)   (.17)   9.83    (1.98)   21    .75    .75    1.36 
 (.13)   (.09)   (.22)   10.20    1.98    19    .74    .74    .94 
 (.15)   (.13)   (.28)   10.23    2.81    18    .76    .76    .71 
 (.09)   (.10)   (.19)   10.21    1.91    13    .79    .79    .32 
                                           
 (.05)   (.09)   (.14)   10.23    2.096   5    1.467   1.467   .787
 (.14)       (.14)   10.16    5.22    4    1.51    1.51    1.20 
 (.07)   (.03)   (.10)   9.79    (2.64)   4    1.52    1.52    .54 
 (.05)   (.09)   (.14)   10.15    1.10    6    1.53    1.53    .14 
 (.07)   (.13)   (.20)   10.18    2.04    7    1.55    1.55    (.06)
 (.02)   (.10)   (.12)   10.17    1.10    5    1.57    1.57    (.47)
                                           
 (.08)   (.09)   (.17)   10.28    2.346   2    .927   .927   1.327
 (.19)       (.19)   10.21    5.77    2    .96    .96    1.77 
 (.12)   (.03)   (.15)   9.84    (2.09)   1    .96    .96    1.14 
 (.11)   (.09)   (.20)   10.20    1.65    2    .98    .98    .71 
 (.12)   (.13)   (.25)   10.23    2.66    1    1.01    1.01    .45 
 (.07)   (.10)   (.17)   10.21    1.65    1    1.04    1.04    .06 
                                           
 (.10)   (.09)   (.19)   10.28    2.566,9   10   .487,9   .487,9   1.767,9
 (.24)       (.24)   10.21    6.349   10   .519   .519   2.219
 (.17)   (.03)   (.20)   9.83    (1.74)9   10   .529   .529   1.599
 (.06)       (.06)   10.20    1.606,9   10   .206,9   .206,9   .536,9
                                           
 (.10)   (.09)   (.19)   10.28    2.576   9    .487   .487   1.777
 (.24)       (.24)   10.21    6.23    8    .52    .52    2.20 
 (.17)   (.03)   (.20)   9.84    (1.66)   8    .52    .52    1.60 
 (.15)   (.09)   (.24)   10.20    2.11    7    .53    .53    1.17 
 (.17)   (.13)   (.30)   10.23    3.03    6    .55    .55    .89 
 (.12)   (.10)   (.22)   10.22    2.22    6    .57    .57    .54 
                                           
 (.05)   (.09)   (.14)   10.24    2.106   8    1.497   1.497   .767
 (.15)       (.15)   10.18    5.30    4    1.45    1.45    1.26 
 (.07)   (.03)   (.10)   9.81    (2.58)   4    1.47    1.47    .65 
 (.05)   (.09)   (.14)   10.17    1.13    4    1.49    1.49    .33 
 (.09)   (.13)   (.22)   10.20    2.27    10   1.33    1.33    .18 
 (.07)   (.10)   (.17)   10.19    1.61    10   1.13    1.13    (.06)

 

See end of table for footnotes.

 

American Funds Mortgage Fund 33
 

Financial highlights (continued)

 

       Income (loss) from investment operations1
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
 
Class R-2:                    
2/29/20204,5  $10.16   $.04   $.16   $.20 
8/31/2019   9.79    .13    .39    .52 
8/31/2018   10.15    .07    (.32)   (.25)
8/31/2017   10.18    .02    .10    .12 
8/31/2016   10.17    8   .22    .22 
8/31/2015   10.18    (.06)   .17    .11 
Class R-2E:                    
2/29/20204,5   10.20    .06    .16    .22 
8/31/2019   9.82    .16    .40    .56 
8/31/2018   10.19    .10    (.33)   (.23)
8/31/2017   10.21    .06    .11    .17 
8/31/2016   10.22    .08    .22    .30 
8/31/2015   10.21    .06    .17    .23 
Class R-3:                    
2/29/20204,5   10.20    .06    .16    .22 
8/31/2019   9.83    .17    .39    .56 
8/31/2018   10.19    .11    (.32)   (.21)
8/31/2017   10.22    .08    .08    .16 
8/31/2016   10.21    .04    .22    .26 
8/31/2015   10.21    8   .17    .17 
Class R-4:                    
2/29/20204,5   10.21    .08    .17    .25 
8/31/2019   9.84    .20    .39    .59 
8/31/2018   10.20    .15    (.33)   (.18)
8/31/2017   10.23    .10    .09    .19 
8/31/2016   10.22    .08    .22    .30 
8/31/2015   10.21    .05    .17    .22 
Class R-5E:                    
2/29/20204,5   10.21    .09    .17    .26 
8/31/2019   9.84    .23    .38    .61 
8/31/2018   10.20    .18    (.33)   (.15)
8/31/2017   10.23    .13    .10    .23 
8/31/20164,13   10.25    .08    .17    .25 
Class R-5:                    
2/29/20204,5   10.21    .10    .17    .27 
8/31/2019   9.84    .24    .38    .62 
8/31/2018   10.20    .18    (.33)   (.15)
8/31/2017   10.23    .13    .10    .23 
8/31/2016   10.22    .11    .22    .33 
8/31/2015   10.21    .07    .17    .24 

 

34 American Funds Mortgage Fund
 
Dividends and distributions                         
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-
ments
   Ratio of
expenses to
average net
assets after
reimburse-
ments3
   Ratio of
net income
(loss) to
average
net assets3
 
                                           
$(.05)  $(.09)  $(.14)  $10.22    2.02%6    $3    1.41%7   1.41%7   .84%7
 (.15)       (.15)   10.16    5.33    3    1.40    1.40    1.32 
 (.08)   (.03)   (.11)   9.79    (2.54)   3    1.42    1.42    .69 
 (.06)   (.09)   (.15)   10.15    1.18    3    1.46    1.46    .22 
 (.08)   (.13)   (.21)   10.18    2.10    3    1.49    1.49    (.01)
 (.02)   (.10)   (.12)   10.17    1.08    2    1.62    1.62    (.51)
                                           
 (.07)   (.09)   (.16)   10.26    2.186   10   1.167   1.077   1.177
 (.18)       (.18)   10.20    5.74    10   1.14    1.09    1.64 
 (.11)   (.03)   (.14)   9.82    (2.30)9   10   1.179   1.079   1.049
 (.10)   (.09)   (.19)   10.19    1.699   10   1.129   1.119   .639
 (.18)   (.13)   (.31)   10.21    2.929   10   .709   .609   .849
 (.12)   (.10)   (.22)   10.22    2.229   10   .579   .579   .549
                                           
 (.07)   (.09)   (.16)   10.26    2.226   36    1.097   1.097   1.167
 (.19)       (.19)   10.20    5.75    41    1.00    1.00    1.74 
 (.12)   (.03)   (.15)   9.83    (2.15)   34    1.02    1.02    1.10 
 (.10)   (.09)   (.19)   10.19    1.59    26    1.02    1.02    .79 
 (.12)   (.13)   (.25)   10.22    2.57    3    1.00    1.00    .52 
 (.07)   (.10)   (.17)   10.21    1.68    2    1.01    1.01    .09 
                                           
 (.09)   (.09)   (.18)   10.28    2.486   5    .647   .647   1.607
 (.22)       (.22)   10.21    6.08    5    .66    .66    2.04 
 (.15)   (.03)   (.18)   9.84    (1.80)   6    .66    .66    1.55 
 (.13)   (.09)   (.22)   10.20    1.94    2    .69    .69    .97 
 (.16)   (.13)   (.29)   10.23    2.93    3    .65    .65    .88 
 (.11)   (.10)   (.21)   10.22    2.16    2    .63    .63    .48 
                                           
 (.10)   (.09)   (.19)   10.28    2.596   10   .457   .447   1.807
 (.24)       (.24)   10.21    6.28    10   .48    .46    2.28 
 (.18)   (.03)   (.21)   9.84    (1.53)   10   .48    .45    1.79 
 (.17)   (.09)   (.26)   10.20    2.25    10   .56    .40    1.28 
 (.14)   (.13)   (.27)   10.23    2.396   10   .537   .537   1.017
                                           
 (.11)   (.09)   (.20)   10.28    2.636   1    .357   .357   1.907
 (.25)       (.25)   10.21    6.40    1    .36    .36    2.36 
 (.18)   (.03)   (.21)   9.84    (1.50)   1    .36    .36    1.77 
 (.17)   (.09)   (.26)   10.20    2.25    1    .38    .38    1.31 
 (.19)   (.13)   (.32)   10.23    3.19    1    .39    .39    1.14 
 (.13)   (.10)   (.23)   10.22    2.40    10   .38    .38    .72 

 

See end of table for footnotes.

 

American Funds Mortgage Fund 35
 

Financial highlights (continued)

 

       Income (loss) from investment operations1
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
 
Class R-6:                    
2/29/20204,5  $10.21   $.10   $.17   $.27 
8/31/2019   9.84    .24    .39    .63 
8/31/2018   10.20    .18    (.32)   (.14)
8/31/2017   10.23    .14    .09    .23 
8/31/2016   10.22    .11    .22    .33 
8/31/2015   10.21    .08    .17    .25 

 

Portfolio turnover rate for all share
classes15
  Six months
ended
February 29,
  Year ended August 31,
  20204,5,6  2019  2018  2017  2016  2015
Excluding mortgage dollar roll transactions   75%   129%   66%   104%   159%   130%
Including mortgage dollar roll transactions   362%   605%   1,009%   635%   1,041%   1,205%

 

See notes to financial statements.

 

36 American Funds Mortgage Fund
 
Dividends and distributions                         
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-
ments
   Ratio of
expenses to
average net
assets after
reimburse-
ments3
   Ratio of
net income
(loss) to
average
net assets3
 
                                           
$(.11)  $(.09)  $(.20)  $10.28    2.68%6    $7,122    .26%7   .26%7   1.98%7
 (.26)       (.26)   10.21    6.47    6,095    .29    .29    2.43 
 (.19)   (.03)   (.22)   9.84    (1.44)   4,490    .30    .30    1.83 
 (.17)   (.09)   (.26)   10.20    2.33    3,227    .31    .31    1.40 
 (.19)   (.13)   (.32)   10.23    3.27    2,157    .31    .31    1.16 
 (.14)   (.10)   (.24)   10.22    2.48    1,553    .32    .32    .80 
   
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 the fund’s transfer agent services fees for certain share classes.
4 Based on operations for a period that is less than a full year.
5 Unaudited.
6 Not annualized.
7 Annualized.
8 Amount less than $.01.
9 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.
10 Amount less than $1 million.
11 Class T and 529-T shares began investment operations on April 7, 2017.
12 Class F-3 shares began investment operations on January 27, 2017.
13 Class R-5E shares began investment operations on November 20, 2015.
15 Refer to Note 5 for more information on mortgage dollar rolls.

 

American Funds Mortgage Fund 37
 
Expense example unaudited

 

As a fund shareholder, you incur two types of costs: (1) transaction costs, such as initial sales charges on purchase payments and contingent deferred sales charges on redemptions (loads), and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period (September 1, 2019, through February 29, 2020).

 

Actual expenses:

The first line of each share class in the table on the following page provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading titled “Expenses paid during period” to estimate the expenses you paid on your account during this period.

 

Hypothetical example for comparison purposes:

The second line of each share class in the table on the following page provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio for the share class and an assumed rate of return of 5.00% per year before expenses, which is not the actual return of the share class. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5.00% hypothetical example with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.

 

Notes:

Retirement plan participants may be subject to certain fees charged by the plan sponsor, and Class F-1, F-2, F-3 and 529-F-1 shareholders may be subject to fees charged by financial intermediaries, typically ranging from 0.75% to 1.50% of assets annually depending on services offered. You can estimate the impact of these fees by adding the amount of the fees to the total estimated expenses you paid on your account during the period as calculated above. In addition, your ending account value would be lower by the amount of these fees.

 

Note that the expenses shown in the table on the following page are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line of each share class in the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

38 American Funds Mortgage Fund
 
 
   Beginning
account value
9/1/2019
   Ending
account value
2/29/2020
   Expenses paid
during period*
   Annualized
expense ratio
 
Class A – actual return  $1,000.00   $1,024.69   $3.37    .67%
Class A – assumed 5% return   1,000.00    1,021.53    3.37    .67 
Class C – actual return   1,000.00    1,021.02    7.14    1.42 
Class C – assumed 5% return   1,000.00    1,017.80    7.12    1.42 
Class T – actual return   1,000.00    1,025.82    2.27    .45 
Class T – assumed 5% return   1,000.00    1,022.63    2.26    .45 
Class F-1 – actual return   1,000.00    1,024.82    3.27    .65 
Class F-1 – assumed 5% return   1,000.00    1,021.63    3.27    .65 
Class F-2 – actual return   1,000.00    1,026.10    2.02    .40 
Class F-2 – assumed 5% return   1,000.00    1,022.87    2.01    .40 
Class F-3 – actual return   1,000.00    1,025.74    1.36    .27 
Class F-3 – assumed 5% return   1,000.00    1,023.52    1.36    .27 
Class 529-A – actual return   1,000.00    1,024.45    3.62    .72 
Class 529-A – assumed 5% return   1,000.00    1,021.28    3.62    .72 
Class 529-C – actual return   1,000.00    1,020.88    7.34    1.46 
Class 529-C – assumed 5% return   1,000.00    1,017.60    7.32    1.46 
Class 529-E – actual return   1,000.00    1,023.44    4.63    .92 
Class 529-E – assumed 5% return   1,000.00    1,020.29    4.62    .92 
Class 529-T – actual return   1,000.00    1,025.65    2.42    .48 
Class 529-T – assumed 5% return   1,000.00    1,022.48    2.41    .48 
Class 529-F-1 – actual return   1,000.00    1,025.71    2.42    .48 
Class 529-F-1 – assumed 5% return   1,000.00    1,022.48    2.41    .48 
Class R-1 – actual return   1,000.00    1,020.99    7.49    1.49 
Class R-1 – assumed 5% return   1,000.00    1,017.45    7.47    1.49 
Class R-2 – actual return   1,000.00    1,020.16    7.08    1.41 
Class R-2 – assumed 5% return   1,000.00    1,017.85    7.07    1.41 
Class R-2E – actual return   1,000.00    1,021.79    5.38    1.07 
Class R-2E – assumed 5% return   1,000.00    1,019.54    5.37    1.07 
Class R-3 – actual return   1,000.00    1,022.15    5.48    1.09 
Class R-3 – assumed 5% return   1,000.00    1,019.44    5.47    1.09 
Class R-4 – actual return   1,000.00    1,024.84    3.22    .64 
Class R-4 – assumed 5% return   1,000.00    1,021.68    3.22    .64 
Class R-5E – actual return   1,000.00    1,025.87    2.22    .44 
Class R-5E – assumed 5% return   1,000.00    1,022.68    2.21    .44 
Class R-5 – actual return   1,000.00    1,026.34    1.76    .35 
Class R-5 – assumed 5% return   1,000.00    1,023.12    1.76    .35 
Class R-6 – actual return   1,000.00    1,026.79    1.31    .26 
Class R-6 – assumed 5% return   1,000.00    1,023.57    1.31    .26 

 

* The “expenses paid during period” are equal to the “annualized expense ratio,” multiplied by the average account value over the period, multiplied by the number of days in the period, and divided by 366 (to reflect the one-half year period).

 

American Funds Mortgage Fund 39
 
 

Liquidity Risk Management Program

 

The fund has adopted a liquidity risk management program (the “program”). The fund’s board has designated Capital Research and Management Company (“CRMC”) as the administrator of the program. Personnel of CRMC or its affiliates conduct the day-to-day operation of the program pursuant to policies and procedures administered by the Capital Group Liquidity Risk Management Committee.

 

Under the program, CRMC manages the fund’s liquidity risk, which is the risk that the fund could not meet shareholder redemption requests without significant dilution of remaining shareholders’ interests in the fund. This risk is managed by monitoring the degree of liquidity of the fund’s investments, limiting the amount of the fund’s illiquid investments, and utilizing various risk management tools and facilities available to the fund for meeting shareholder redemptions, among other means. CRMC’s process of determining the degree of liquidity of the fund’s investments is supported by one or more third-party liquidity assessment vendors.

 

The fund’s board reviewed a report prepared by CRMC regarding the operation and effectiveness of the program for the period December 1, 2018, through September 30, 2019. No significant liquidity events impacting the fund were noted in the report. In addition, CRMC provided its assessment that the program had been effective in managing the fund’s liquidity risk.

 

40 American Funds Mortgage Fund
 
 

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American Funds Mortgage Fund 41
 
 

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42 American Funds Mortgage Fund
 
 

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American Funds Mortgage Fund 43
 
 

Office of the fund

6455 Irvine Center Drive

Irvine, CA 92618-4518

 

Investment adviser

Capital Research and Management Company

333 South Hope Street

Los Angeles, CA 90071-1406

 

Transfer agent for shareholder accounts

American Funds Service Company

(Write to the address near you.)

 

P.O. Box 6007

Indianapolis, IN 46206-6007

 

P.O. Box 2280

Norfolk, VA 23501-2280

 

Custodian of assets

Bank of New York Mellon

One Wall Street

New York, NY 10286

 

Counsel

Morgan, Lewis & Bockius LLP

One Federal Street

Boston, MA 02110-1726

 

Independent registered public accounting firm

PricewaterhouseCoopers LLP

601 South Figueroa Street

Los Angeles, CA 90017-3874

 

Principal underwriter

American Funds Distributors, Inc.

333 South Hope Street

Los Angeles, CA 90071-1406

 

44 American Funds Mortgage Fund
 
 

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectus and summary prospectus, which can be obtained from your financial professional and should be read carefully before investing. You may also call American Funds Service Company (AFS) at (800) 421-4225 or visit the Capital Group website at capitalgroup.com.

 

“American Funds Proxy Voting Procedures and Principles” — which describes how we vote proxies relating to portfolio securities — is available on our website or upon request by calling AFS. The fund files its proxy voting record with the U.S. Securities and Exchange Commission (SEC) for the 12 months ended June 30 by August 31. The proxy voting record is available free of charge on the SEC website at sec.gov and on our website.

 

A complete February 29, 2020, portfolio of American Funds Mortgage Fund’s investments is available free of charge by calling AFS or visiting the SEC website (where it is part of Form N-CSR).

 

American Funds Mortgage Fund files a complete list of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form NPORT-P. This filing is available free of charge on the SEC website. Additionally, the list of portfolio holdings is available by calling AFS.

 

This report is for the information of shareholders of American Funds Mortgage Fund, but it also may be used as sales literature when preceded or accompanied by the current prospectus or summary prospectus, which gives details about charges, expenses, investment objectives and operating policies of the fund. If used as sales material after June 30, 2020, this report must be accompanied by an American Funds statistical update for the most recently completed calendar quarter.

 

Bloomberg® is a trademark of Bloomberg Finance L.P. (collectively with its affiliates, “Bloomberg”). Barclays® is a trademark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Neither Bloomberg nor Barclays approves or endorses this material, guarantees the accuracy or completeness of any information herein and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

 

American Funds Distributors, Inc., member FINRA.

 
 

The Capital Advantage®

 

Since 1931, Capital Group, home of American Funds, has helped investors pursue long-term investment success. Our consistent approach — in combination with The Capital SystemSM — has resulted in superior outcomes.

 

  Aligned with investor success
  We base our decisions on a long-term perspective, which we believe aligns our goals with the interests of our clients. Our portfolio managers average 28 years of investment experience, including 22 years at our company, reflecting a career commitment to our long-term approach.1
   
  The Capital System
  The Capital System combines individual accountability with teamwork. Funds using The Capital System are divided into portions that are managed independently by investment professionals with diverse backgrounds, ages and investment approaches. An extensive global research effort is the backbone of our system.
   
  American Funds’ superior outcomes
  Equity funds have beaten their Lipper peer indexes in 92% of 10-year periods and 99% of 20-year periods.2 Fixed income funds have helped investors achieve diversification through attention to correlation between bonds and equities.3 Fund management fees have been among the lowest in the industry.4

 

  1 Portfolio manager experience as of December 31, 2019.
  2 Based on Class F-2 share results for rolling periods through December 31, 2019. Periods covered are the shorter of the fund’s lifetime or since the comparable Lipper index inception date (except Capital Income Builder and SMALLCAP World Fund, for which the Lipper average was used). Expenses differ for each share class, so results will vary. Visit capitalgroup.com for more information on specific expense adjustments and the actual dates of first sale.
  3 Based on Class F-2 share results as of December 31, 2019. Fifteen of the 17 fixed income American Funds that have been in existence for the three-year period showed a three-year correlation below 0.2. Standard & Poor’s 500 Composite Index was used as an equity market proxy. Correlation based on monthly total returns. Correlation is a statistical measure of how two securities move in relation to each other. A correlation ranges from –1 to 1. A positive correlation close to 1 implies that as one security moves, either up or down, the other security will move in “lockstep,” in the same direction. A negative correlation close to –1 indicates that the securities have moved in the opposite direction.
  4 On average, our management fees were in the lowest quintile 65% of the time, based on the 20-year period ended December 31, 2019, versus comparable Lipper categories, excluding funds of funds.

 

Class F-2 shares were first offered on August 1, 2008. Class F-2 share results prior to the date of first sale are hypothetical based on the results of the original share class of the fund without a sales charge, adjusted for typical estimated expenses. Results for certain funds with an inception date after August 1, 2008, also include hypothetical returns because those funds’ Class F-2 shares sold after the funds’ date of first offering. Visit capitalgroup.com for more information on specific expense adjustments and the actual dates of first sale.

 

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.

 

 

 

ITEM 2 – Code of Ethics

 

Not applicable for filing of semi-annual reports to shareholders.

 

ITEM 3 – Audit Committee Financial Expert

 

Not applicable for filing of semi-annual reports to shareholders.

 

ITEM 4 – Principal Accountant Fees and Services

 

Not applicable for filing of semi-annual reports to shareholders.

 

ITEM 5 – Audit Committee of Listed Registrants

 

Not applicable to this Registrant, insofar as the Registrant is not a listed issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934.

 

ITEM 6 – Schedule of Investments

 

 

 

 

American Funds Mortgage Fund®

Investment portfolio

February 29, 2020

 

 

unaudited

 

 

Bonds, notes & other debt instruments 85.04%
Mortgage-backed obligations 67.26%
Federal agency mortgage-backed obligations 64.56%
Principal amount
(000)
Value
(000)
Fannie Mae 3.00% 20331 $388 $401
Fannie Mae 5.00% 20401 465 494
Fannie Mae 4.00% 20431 5,189 5,598
Fannie Mae 4.50% 20471 4,071 4,277
Fannie Mae Pool #AE8705 3.00% 20251 2 2
Fannie Mae Pool #MA2776 2.50% 20261 2,577 2,646
Fannie Mae Pool #AK3264 3.00% 20271 898 932
Fannie Mae Pool #AK9045 3.00% 20271 22 23
Fannie Mae Pool #AP1102 3.00% 20271 6 6
Fannie Mae Pool #BM4299 3.00% 20301 28,621 29,659
Fannie Mae Pool #BD2402 3.00% 20311 383 398
Fannie Mae Pool #BM4151 2.50% 20321 10,130 10,450
Fannie Mae Pool #CA3274 3.00% 20321 871 910
Fannie Mae Pool #BM1275 3.00% 20321 827 867
Fannie Mae Pool #BE3641 3.00% 20321 739 768
Fannie Mae Pool #BJ5987 3.00% 20321 701 729
Fannie Mae Pool #MA3188 3.00% 20321 139 144
Fannie Mae Pool #BM3716 3.00% 20321 59 61
Fannie Mae Pool #MA3218 3.00% 20321 35 36
Fannie Mae Pool #MA1640 2.50% 20331 1,709 1,760
Fannie Mae Pool #AB9299 2.50% 20331 463 475
Fannie Mae Pool #MA3437 3.00% 20331 1,730 1,794
Fannie Mae Pool #BK1943 3.00% 20331 890 924
Fannie Mae Pool #BK4390 3.00% 20331 857 891
Fannie Mae Pool #CA2545 3.00% 20331 829 861
Fannie Mae Pool #CA1624 3.00% 20331 790 825
Fannie Mae Pool #BK0785 3.00% 20331 715 742
Fannie Mae Pool #BJ4876 3.00% 20331 559 584
Fannie Mae Pool #BK0857 3.00% 20331 477 496
Fannie Mae Pool #BM5111 3.00% 20331 323 339
Fannie Mae Pool #BK3714 3.00% 20331 221 230
Fannie Mae Pool #BJ7193 3.00% 20331 211 220
Fannie Mae Pool #BJ5923 3.00% 20331 165 171
Fannie Mae Pool #BK7894 3.00% 20331 157 163
Fannie Mae Pool #BJ4856 3.00% 20331 150 157
Fannie Mae Pool #BM5108 3.00% 20331 67 70
Fannie Mae Pool #BJ4573 3.00% 20331 24 25
Fannie Mae Pool #BM3919 3.00% 20331 19 20
Fannie Mae Pool #BJ9000 3.50% 20331 275 290
Fannie Mae Pool #CA2106 3.50% 20331 58 61
Fannie Mae Pool #MA3490 4.00% 20331 84,342 88,640
Fannie Mae Pool #MA3439 4.00% 20331 11,076 11,658
Fannie Mae Pool #MA3797 2.50% 20341 36,133 37,108
Fannie Mae Pool #BP0033 2.50% 20341 15,143 15,552
Fannie Mae Pool #MA3827 2.50% 20341 12,686 13,028
Fannie Mae Pool #MA3764 2.50% 20341 11,779 12,096

 

American Funds Mortgage Fund — Page 1 of 12

 


 

 

unaudited

 

 

Bonds, notes & other debt instruments (continued)
Mortgage-backed obligations (continued)
Federal agency mortgage-backed obligations (continued)
Principal amount
(000)
Value
(000)
Fannie Mae Pool #BO6247 2.50% 20341 $9,780 $10,075
Fannie Mae Pool #MA3737 2.50% 20341 7,859 8,071
Fannie Mae Pool #MA3709 2.50% 20341 5,256 5,397
Fannie Mae Pool #FM2057 2.50% 20341 5,150 5,289
Fannie Mae Pool #BO7771 2.50% 20341 4,102 4,212
Fannie Mae Pool #MA3864 2.50% 20341 1,576 1,618
Fannie Mae Pool #MA3674 2.50% 20341 1,128 1,158
Fannie Mae Pool #BJ9733 2.50% 20341 1,072 1,101
Fannie Mae Pool #BO8239 2.50% 20341 1,052 1,080
Fannie Mae Pool #BO7207 2.50% 20341 1,043 1,072
Fannie Mae Pool #MA3729 2.50% 20341 432 444
Fannie Mae Pool #BO6861 2.50% 20341 199 205
Fannie Mae Pool #BO5145 2.50% 20341 99 102
Fannie Mae Pool #CA4922 3.00% 20341 32,186 33,375
Fannie Mae Pool #SB8021 3.00% 20341 4,618 4,790
Fannie Mae Pool #BN6580 3.00% 20341 1,196 1,240
Fannie Mae Pool #BJ7631 3.00% 20341 354 367
Fannie Mae Pool #MA3828 3.00% 20341 313 324
Fannie Mae Pool #BN5298 3.00% 20341 178 184
Fannie Mae Pool #MA3896 2.50% 20351 54,341 55,810
Fannie Mae Pool #MA3955 2.50% 20351 13,360 13,721
Fannie Mae Pool #MA3897 3.00% 20351 8,632 8,952
Fannie Mae Pool #MA2746 4.00% 20361 5,074 5,472
Fannie Mae Pool #AS7224 4.00% 20361 4,236 4,506
Fannie Mae Pool #MA2717 4.00% 20361 3,090 3,332
Fannie Mae Pool #MA2819 4.00% 20361 2,856 3,080
Fannie Mae Pool #MA2787 4.00% 20361 1,439 1,551
Fannie Mae Pool #MA2630 4.00% 20361 628 678
Fannie Mae Pool #MA3186 4.00% 20371 11,999 12,840
Fannie Mae Pool #889101 3.367% 20381,2 1,022 1,065
Fannie Mae Pool #964279 4.499% 20381,2 654 686
Fannie Mae Pool #964708 4.64% 20381,2 86 90
Fannie Mae Pool #AE7629 3.724% 20401,2 821 862
Fannie Mae Pool #AL9335 4.091% 20401,2 35,873 37,719
Fannie Mae Pool #AE0844 3.824% 20411,2 4,481 4,704
Fannie Mae Pool #AE0789 3.841% 20411,2 4,497 4,719
Fannie Mae Pool #AL9531 4.087% 20411,2 40,534 42,579
Fannie Mae Pool #AL0073 4.178% 20411,2 3,663 3,837
Fannie Mae Pool #AL9326 4.333% 20411,2 44,285 46,533
Fannie Mae Pool #AL9327 4.424% 20411,2 30,560 32,188
Fannie Mae Pool #AP7819 3.91% 20421,2 4,394 4,545
Fannie Mae Pool #AL9532 4.127% 20421,2 55,387 57,652
Fannie Mae Pool #AL9530 4.337% 20421,2 38,653 40,247
Fannie Mae Pool #AL2000 4.335% 20421,2 5,708 5,918
Fannie Mae Pool #AL9533 4.389% 20421,2 24,080 25,037
Fannie Mae Pool #AL2184 4.418% 20421,2 8,656 8,990
Fannie Mae Pool #AL1941 4.447% 20421,2 7,503 7,789
Fannie Mae Pool #AU0626 2.275% 20431 181 180
Fannie Mae Pool #AT7470 2.275% 20431 118 117
Fannie Mae Pool #AU8121 2.275% 20431 102 101
Fannie Mae Pool #AU8120 2.275% 20431 80 79
Fannie Mae Pool #AU0627 2.525% 20431 205 210
Fannie Mae Pool #AU3962 2.525% 20431 136 139
Fannie Mae Pool #AU1583 2.525% 20431 131 134

 

American Funds Mortgage Fund — Page 2 of 12

 


 

 

unaudited

 

 

Bonds, notes & other debt instruments (continued)
Mortgage-backed obligations (continued)
Federal agency mortgage-backed obligations (continued)
Principal amount
(000)
Value
(000)
Fannie Mae Pool #AT4747 2.525% 20431 $127 $130
Fannie Mae Pool #AU1575 2.525% 20431 125 128
Fannie Mae Pool #AU1584 2.525% 20431 114 116
Fannie Mae Pool #AU3963 2.525% 20431 97 99
Fannie Mae Pool #AU8122 2.525% 20431 93 95
Fannie Mae Pool #AT7476 2.525% 20431 92 94
Fannie Mae Pool #AU8124 2.525% 20431 81 83
Fannie Mae Pool #AU8123 2.525% 20431 77 79
Fannie Mae Pool #AU6340 2.525% 20431 76 77
Fannie Mae Pool #AU1585 2.525% 20431 65 66
Fannie Mae Pool #AU3961 2.525% 20431 63 65
Fannie Mae Pool #AU4814 2.525% 20431 47 48
Fannie Mae Pool #AU1577 2.775% 20431 341 352
Fannie Mae Pool #AU8126 2.775% 20431 340 351
Fannie Mae Pool #AU4816 2.775% 20431 317 327
Fannie Mae Pool #AT9853 2.775% 20431 214 220
Fannie Mae Pool #AU3964 2.775% 20431 202 207
Fannie Mae Pool #AU4817 2.775% 20431 135 139
Fannie Mae Pool #AU1587 2.775% 20431 123 126
Fannie Mae Pool #AT9852 2.775% 20431 100 103
Fannie Mae Pool #AU8125 2.775% 20431 94 97
Fannie Mae Pool #AU1576 2.775% 20431 74 76
Fannie Mae Pool #AU3965 2.775% 20431 58 60
Fannie Mae Pool #AT8826 2.775% 20431 56 57
Fannie Mae Pool #AU8127 2.775% 20431 53 54
Fannie Mae Pool #AT8825 2.775% 20431 43 44
Fannie Mae Pool #AU3966 3.025% 20431 327 337
Fannie Mae Pool #AT7457 3.025% 20431 199 205
Fannie Mae Pool #AU3968 3.025% 20431 181 186
Fannie Mae Pool #AU3967 3.025% 20431 130 134
Fannie Mae Pool #AU8129 3.025% 20431 102 105
Fannie Mae Pool #AU1589 3.025% 20431 91 94
Fannie Mae Pool #AU4819 3.025% 20431 88 90
Fannie Mae Pool #AU1588 3.025% 20431 83 85
Fannie Mae Pool #AU6343 3.025% 20431 79 81
Fannie Mae Pool #AU0630 3.025% 20431 73 76
Fannie Mae Pool #AU6342 3.025% 20431 42 44
Fannie Mae Pool #AU6344 3.275% 20431 138 143
Fannie Mae Pool #AT8820 3.275% 20431 69 71
Fannie Mae Pool #AU8131 3.275% 20431 59 61
Fannie Mae Pool #AU1591 3.275% 20431 31 32
Fannie Mae Pool #BD2440 3.50% 20471 1,122 1,183
Fannie Mae Pool #BH2597 4.00% 20471 15,401 16,454
Fannie Mae Pool #BM4488 3.433% 20481,2 24,075 25,330
Fannie Mae Pool #BK3204 3.50% 20481 2,625 2,760
Fannie Mae Pool #MA3443 4.00% 20481 10,131 10,696
Fannie Mae Pool #BK5328 4.00% 20481 122 129
Fannie Mae Pool #BK7117 4.00% 20481 82 86
Fannie Mae Pool #BM2006 4.00% 20481 77 82
Fannie Mae Pool #CA2493 4.50% 20481 4,045 4,324
Fannie Mae Pool #MA3496 4.50% 20481 1,431 1,534
Fannie Mae Pool #BN1576 4.50% 20481 276 295
Fannie Mae Pool #CA1574 5.00% 20481 21,216 23,046
Fannie Mae Pool #BO5176 3.00% 20491 7,174 7,563

 

American Funds Mortgage Fund — Page 3 of 12

 


 

 

unaudited

 

 

Bonds, notes & other debt instruments (continued)
Mortgage-backed obligations (continued)
Federal agency mortgage-backed obligations (continued)
Principal amount
(000)
Value
(000)
Fannie Mae Pool #MA3692 3.50% 20491 $73,495 $76,316
Fannie Mae Pool #MA3686 3.50% 20491 24,056 24,978
Fannie Mae Pool #CA4358 3.50% 20491 15,673 16,310
Fannie Mae Pool #MA3803 3.50% 20491 11,159 11,604
Fannie Mae Pool #MA3775 3.50% 20491 10,579 10,988
Fannie Mae Pool #CA4813 3.50% 20491 10,311 10,753
Fannie Mae Pool #CA3309 3.50% 20491 7,160 7,478
Fannie Mae Pool #CA4566 3.50% 20491 4,573 4,760
Fannie Mae Pool #BN6249 3.50% 20491 1,240 1,291
Fannie Mae Pool #CA4026 3.50% 20491 1,144 1,193
Fannie Mae Pool #MA3597 3.50% 20491 926 963
Fannie Mae Pool #FM1596 3.50% 20491 725 756
Fannie Mae Pool #FM0020 3.50% 20491 658 683
Fannie Mae Pool #BN6683 3.50% 20491 654 681
Fannie Mae Pool #BN4595 3.50% 20491 92 96
Fannie Mae Pool #FM1499 3.50% 20491 24 25
Fannie Mae Pool #BJ8402 3.533% 20491,2 3,913 4,137
Fannie Mae Pool #BO2995 4.00% 20491 26 28
Fannie Mae Pool #MA3639 4.50% 20491 23,136 24,712
Fannie Mae Pool #MA3564 4.50% 20491 14,401 15,374
Fannie Mae Pool #BJ7731 4.50% 20491 1,349 1,441
Fannie Mae Pool #BN6006 4.50% 20491 1,047 1,123
Fannie Mae Pool #MA3593 4.50% 20491 156 166
Fannie Mae Pool #MA3905 3.00% 20501 40,331 41,598
Fannie Mae Pool #AS0745 3.50% 20531 1,715 1,750
Freddie Mac 4.00% 20361 1,287 1,389
Freddie Mac 4.00% 20361 1,218 1,314
Freddie Mac 4.00% 20361 945 1,019
Freddie Mac 6.00% 20381 103 120
Freddie Mac 4.00% 20411 349 368
Freddie Mac 3.50% 20461 269 280
Freddie Mac 4.50% 20461 1,294 1,413
Freddie Mac 4.00% 20471 2,498 2,607
Freddie Mac 3.50% 20481 3,988 4,165
Freddie Mac 5.00% 20481 2,631 2,858
Freddie Mac Pool #ZS7228 2.50% 20251 8 8
Freddie Mac Pool #ZA2597 3.00% 20251 274 284
Freddie Mac Pool #ZK7598 3.00% 20271 7,311 7,586
Freddie Mac Pool #G15537 2.50% 20281 1,776 1,832
Freddie Mac Pool #G15975 2.50% 20291 3,264 3,367
Freddie Mac Pool #ZK7590 3.00% 20291 12,490 12,973
Freddie Mac Pool #ZS8675 2.50% 20321 23 24
Freddie Mac Pool #G18655 3.00% 20321 658 684
Freddie Mac Pool #ZS8087 2.50% 20331 64 66
Freddie Mac Pool #ZS8710 3.00% 20331 127,871 132,635
Freddie Mac Pool #G18715 3.00% 20331 86,398 89,804
Freddie Mac Pool #ZS8715 3.00% 20331 5,599 5,804
Freddie Mac Pool #ZT0716 3.00% 20331 2,933 3,039
Freddie Mac Pool #ZK9250 3.00% 20331 379 394
Freddie Mac Pool #SB8015 2.50% 20341 47,921 49,216
Freddie Mac Pool #QN1197 2.50% 20341 8,905 9,174
Freddie Mac Pool #SB8008 2.50% 20341 4,996 5,131
Freddie Mac Pool #ZT2094 2.50% 20341 3,662 3,761
Freddie Mac Pool #SB8020 2.50% 20341 2,027 2,081

 

American Funds Mortgage Fund — Page 4 of 12

 


 

 

unaudited

 

 

Bonds, notes & other debt instruments (continued)
Mortgage-backed obligations (continued)
Federal agency mortgage-backed obligations (continued)
Principal amount
(000)
Value
(000)
Freddie Mac Pool #ZT2022 2.50% 20341 $1,381 $1,418
Freddie Mac Pool #SB0021 2.50% 20341 561 576
Freddie Mac Pool #SB8004 2.50% 20341 481 494
Freddie Mac Pool #QN1174 2.50% 20341 396 407
Freddie Mac Pool #SB8013 2.50% 20341 110 113
Freddie Mac Pool #ZT2019 3.00% 20341 119 123
Freddie Mac Pool #SB8026 2.50% 20351 90,250 92,689
Freddie Mac Pool #SB8035 2.50% 20351 28,056 28,814
Freddie Mac Pool #SB8027 3.00% 20351 20,496 21,270
Freddie Mac Pool #840222 4.053% 20401,2 7,911 8,346
Freddie Mac Pool #760012 3.04% 20451,2 1,908 1,964
Freddie Mac Pool #760013 3.188% 20451,2 1,466 1,514
Freddie Mac Pool #760014 3.507% 20451,2 11,367 11,803
Freddie Mac Pool #760015 3.241% 20471,2 3,246 3,306
Freddie Mac Pool #V84817 3.50% 20471 78 81
Freddie Mac Pool #V84872 3.50% 20481 388 405
Freddie Mac Pool #SI2002 4.00% 20481 2,218 2,359
Freddie Mac Pool #ZS4785 4.00% 20481 1,043 1,101
Freddie Mac Pool #ZA6124 4.50% 20481 958 1,023
Freddie Mac Pool #QA4673 3.00% 20491 9,976 10,518
Freddie Mac Pool #ZT2086 3.50% 20491 70,144 72,873
Freddie Mac Pool #SD8005 3.50% 20491 26,502 27,523
Freddie Mac Pool #ZT1951 3.50% 20491 16,396 17,021
Freddie Mac Pool #ZT1863 3.50% 20491 11,993 12,458
Freddie Mac Pool #V85471 3.50% 20491 10,052 10,492
Freddie Mac Pool #ZT1776 3.50% 20491 2,111 2,193
Freddie Mac Pool #V85284 3.50% 20491 904 942
Freddie Mac Pool #ZA7047 3.50% 20491 372 388
Freddie Mac Pool #RA1824 3.50% 20491 26 27
Freddie Mac Pool #ZA6548 4.00% 20491 4 4
Freddie Mac, Series KS01, Class A2, Multi Family, 2.522% 20231 462 473
Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2017-2, Class HA, 2.905% 20561,2 14,698 15,337
Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2017-2, Class MA, 3.00% 20561 14,222 14,982
Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2017-1, Class HA, 3.00% 20561,2 10,675 11,189
Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2017-3, Class HA, 3.25% 20561,2 20,021 21,124
Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2017-4, Class HT, 2.75% 20571,2 78,576 83,367
Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2017-4, Class MT, 3.50% 20571 50,323 54,608
Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2018-2, Class MT, 3.50% 20571 32,154 35,014
Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2018-4, Class MT, 3.50% 20571 2,493 2,717
Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2018-3, Class MA, 3.50% 20571 3 3
Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2019-2, Class MA, 3.50% 20581 7,584 8,109
Freddie Mac Seasoned Credit Risk Transfer Trust, Series 2019-4, Class MA, 3.00% 20591 45,281 47,599
Freddie Mac Seasoned Loan Structured Transaction Trust, Series 2018-2, Class A1, 3.50% 20281 81,780 87,223
Freddie Mac Seasoned Loan Structured Transaction Trust, Series 2018-1, Class A1, 3.50% 20281 19,190 20,351
Freddie Mac Seasoned Loan Structured Transaction Trust, Series 2019-3, Class A1C, 2.75% 20291 65,738 67,988
Freddie Mac Seasoned Loan Structured Transaction Trust, Series 2019-1, Class A1, 3.50% 20291 117,031 125,040
Government National Mortgage Assn. 4.00% 20321 744 786
Government National Mortgage Assn. 4.00% 20321 568 600
Government National Mortgage Assn. 6.50% 20321 651 750
Government National Mortgage Assn. 3.75% 20341 1,009 1,058
Government National Mortgage Assn. 4.25% 20341 1,020 1,083
Government National Mortgage Assn. 3.25% 20351 2,442 2,546
Government National Mortgage Assn. 3.25% 20351 1,696 1,768
Government National Mortgage Assn. 3.25% 20351 1,358 1,416

 

American Funds Mortgage Fund — Page 5 of 12

 


 

 

unaudited

 

 

Bonds, notes & other debt instruments (continued)
Mortgage-backed obligations (continued)
Federal agency mortgage-backed obligations (continued)
Principal amount
(000)
Value
(000)
Government National Mortgage Assn. 3.25% 20351 $1,254 $1,308
Government National Mortgage Assn. 5.00% 20351 408 439
Government National Mortgage Assn. 3.75% 20371 401 422
Government National Mortgage Assn. 6.50% 20381 342 401
Government National Mortgage Assn. 6.50% 20381 54 59
Government National Mortgage Assn. 6.00% 20391 2,099 2,383
Government National Mortgage Assn. 3.25% 20401 1,033 1,078
Government National Mortgage Assn. 3.25% 20401 857 893
Government National Mortgage Assn. 3.25% 20401 601 626
Government National Mortgage Assn. 5.00% 20401 57 61
Government National Mortgage Assn. 5.50% 20401 2,337 2,637
Government National Mortgage Assn. 4.00% 20411 1,054 1,066
Government National Mortgage Assn. 4.50% 20411 1,131 1,202
Government National Mortgage Assn. 4.50% 20411 733 779
Government National Mortgage Assn. 4.50% 20411 592 622
Government National Mortgage Assn. 4.50% 20411 274 290
Government National Mortgage Assn. 4.50% 20411 221 232
Government National Mortgage Assn. 5.00% 20411 2,338 2,507
Government National Mortgage Assn. 5.00% 20411 1,794 1,978
Government National Mortgage Assn. 5.00% 20411 712 765
Government National Mortgage Assn. 6.50% 20411 79 86
Government National Mortgage Assn. 2.75% 20421 512 529
Government National Mortgage Assn. 2.75% 20421 376 387
Government National Mortgage Assn. 2.75% 20421 368 380
Government National Mortgage Assn. 2.75% 20421 242 250
Government National Mortgage Assn. 2.75% 20421 239 246
Government National Mortgage Assn. 2.75% 20421 65 67
Government National Mortgage Assn. 2.75% 20421 57 58
Government National Mortgage Assn. 3.50% 20421 638 691
Government National Mortgage Assn. 4.00% 20421 513 547
Government National Mortgage Assn. 4.00% 20421 513 545
Government National Mortgage Assn. 4.00% 20421 462 487
Government National Mortgage Assn. 4.50% 20421 1,257 1,332
Government National Mortgage Assn. 3.50% 20431 876 921
Government National Mortgage Assn. 3.50% 20431 811 853
Government National Mortgage Assn. 4.00% 20431 904 931
Government National Mortgage Assn. 3.75% 20441 1,432 1,510
Government National Mortgage Assn. 4.25% 20441 756 823
Government National Mortgage Assn. 4.00% 20461 3,743 3,882
Government National Mortgage Assn. 4.00% 20471 108,962 115,587
Government National Mortgage Assn. 4.50% 20491 56,733 59,793
Government National Mortgage Assn. 3.00% 20501,4 29,343 30,320
Government National Mortgage Assn. 3.00% 20501,4 12,343 12,741
Government National Mortgage Assn. 3.50% 20501,4 13,730 14,227
Government National Mortgage Assn. 3.50% 20501,4 8,544 8,847
Government National Mortgage Assn. 4.00% 20501,4 2,116 2,203
Government National Mortgage Assn. 4.50% 20501,4 24,136 25,413
Government National Mortgage Assn. Pool #792276 3.50% 20421 484 520
Government National Mortgage Assn. Pool #MA4837 3.50% 20471 2,649 2,774
Government National Mortgage Assn. Pool #MA5137 4.00% 20481 86,166 90,983
Government National Mortgage Assn. Pool #MA5264 4.00% 20481 1,887 1,981
Government National Mortgage Assn. Pool #MA6339 3.50% 20491 21,630 22,540
Government National Mortgage Assn. Pool #MA6284 3.50% 20491 3,017 3,139
Government National Mortgage Assn. Pool #MA5986 4.00% 20491 412,003 429,111

 

American Funds Mortgage Fund — Page 6 of 12

 


 

 

unaudited

 

 

Bonds, notes & other debt instruments (continued)
Mortgage-backed obligations (continued)
Federal agency mortgage-backed obligations (continued)
Principal amount
(000)
Value
(000)
Government National Mortgage Assn. Pool #MA5931 4.00% 20491 $180,997 $189,020
Government National Mortgage Assn. Pool #MA6155 4.00% 20491 1,156 1,208
Government National Mortgage Assn. Pool #MA6156 4.50% 20491 55,650 58,649
Government National Mortgage Assn. Pool #MA6041 4.50% 20491 40,887 43,041
Government National Mortgage Assn. Pool #MA5877 4.50% 20491 18,596 19,584
Government National Mortgage Assn. Pool #MA6092 4.50% 20491 15,503 16,327
Government National Mortgage Assn. Pool #MA6042 5.00% 20491 93 99
Government National Mortgage Assn. Pool #MA6474 3.00% 20501 10,590 10,968
Government National Mortgage Assn. Pool #MA6410 3.50% 20501 3,691 3,849
Government National Mortgage Assn. Pool #MA6400 3.50% 20501 2,266 2,317
Government National Mortgage Assn. Pool #MA6411 4.00% 20501 5,680 5,979
Government National Mortgage Assn. Pool #721640 4.81% 20611 3 3
Government National Mortgage Assn. Pool #773441 4.938% 20621 9 10
Government National Mortgage Assn. Pool #AG8235 5.337% 20641 2 3
Government National Mortgage Assn. Pool #AI2366 4.719% 20651 131 134
Government National Mortgage Assn. Pool #AQ8290 4.861% 20661 22 23
Government National Mortgage Assn. Pool #AQ8292 5.088% 20661 16 17
Government National Mortgage Assn., Series 2011-H02, Class BA, 4.45% 20611,2 9 9
Government National Mortgage Assn., Series 2016-H04, Class CI, interest only, 2.291% 20621,2 819 14
Government National Mortgage Assn., Series 2016-H13, Class IO, interest only, 0.632% 20661,2 78,254 1,448
Uniform Mortgage-Backed Security 2.50% 20351,4 1,977 2,029
Uniform Mortgage-Backed Security 3.00% 20351,4 774,982 802,142
Uniform Mortgage-Backed Security 3.00% 20351,4 57,042 59,088
Uniform Mortgage-Backed Security 3.50% 20501,4 183,224 190,288
Uniform Mortgage-Backed Security 4.00% 20501,4 333 351
Uniform Mortgage-Backed Security 4.00% 20501,4 179 188
Uniform Mortgage-Backed Security 4.50% 20501,4 171,000 182,353
Uniform Mortgage-Backed Security 4.50% 20501,4 74,099 79,089
    4,924,918
Collateralized mortgage-backed obligations (privately originated) 2.70%    
Arroyo Mortgage Trust, Series 2018-1, Class A1, 3.763% 20481,2,5 3,139 3,198
Cascade Funding Mortgage Trust, Series 2019-HB1, Class A, 2.386% 20291,2,5 5,214 5,256
Finance of America HECM Buyout, Series 2020-HB1, Class A, 2.012% 20301,2,5 19,000 19,101
Finance of America HECM Buyout, Series 2019-AB1, Class A, 2.656% 20491,5 12,706 12,858
Finance of America Structured Securities Trust, Series 2019-HB1, Class A, 3.279% 20291,2,5 14,231 14,262
Homeward Opportunities Fund Trust, Series 2018-1, 3.766% 20481,2,5 5,497 5,581
JPMorgan Mortgage Trust, Series 2019-INV3, Class A13, 3.50% 20501,2,5 12,156 12,575
JPMorgan Mortgage Trust, Series 2019-INV3, Class A3, 3.50% 20501,2,5 11,598 12,029
Mello Warehouse Securitization Trust, Series 2019-2, Class A,
(1-month USD-LIBOR + 0.75%) 2.411% 20521,2,5
22,507 22,574
Mello Warehouse Securitization Trust, Series 2019-1, Class A, 2.427% 20521,2,5 6,710 6,731
Nationstar HECM Loan Trust, Series 2018-2, Class A, 3.188% 20281,2,5 2,759 2,764
Nationstar HECM Loan Trust, Series 2018-3A, Class A, 3.555% 20281,2,5 3,034 3,044
Nationstar HECM Loan Trust, Series 2019-2A, Class A, 2.272% 20291,2,5 10,770 10,841
Nationstar HECM Loan Trust, Series 2019-1A, Class A, 2.651% 20291,2,5 10,190 10,239
Onslow Bay Financial LLC, Series 2020-INV1, Class A5, 3.50% 20491,2,5 8,919 9,228
Reverse Mortgage Investment Trust, Series 2018-1, Class A, 3.436% 20281,2,5 1,416 1,419
Reverse Mortgage Investment Trust, Series 2020-1, Class A, 2.158% 20301,2,5 1,264 1,279
RMF Proprietary Issuance Trust, Series 2019-1, Class A, 2.75% 20631,2,5 24,719 24,881
Station Place Securitization Trust, Series 2019-WL1, Class A, (1-month USD-LIBOR + 0.65%) 2.277% 20521,2,5 21,327 21,385

 

American Funds Mortgage Fund — Page 7 of 12

 


 

 

unaudited

 

 

Bonds, notes & other debt instruments (continued)
Mortgage-backed obligations (continued)
Collateralized mortgage-backed obligations (privately originated) (continued)
Principal amount
(000)
Value
(000)
Towd Point Mortgage Trust, Series 2017-5, Class A1, 2.227% 20571,2,5 $1,519 $1,521
Towd Point Mortgage Trust, Series 2015-2, Class 2A11, 3.00% 20571,2,5 5,398 5,444
    206,210
Total mortgage-backed obligations   5,131,128
U.S. Treasury bonds & notes 17.29%
U.S. Treasury 16.26%
   
U.S. Treasury 1.625% 2021 17,000 17,135
U.S. Treasury 1.625% 2021 5,700 5,770
U.S. Treasury 1.75% 2021 5,000 5,069
U.S. Treasury 2.00% 2021 24,000 24,283
U.S. Treasury 2.00% 2021 12,000 12,228
U.S. Treasury 2.75% 2021 277 285
U.S. Treasury 1.375% 2022 95,000 95,815
U.S. Treasury 1.75% 2022 133,000 135,286
U.S. Treasury 1.75% 2022 20,000 20,325
U.S. Treasury 1.875% 2022 52,000 53,304
U.S. Treasury 1.875% 2022 44,000 44,898
U.S. Treasury 1.875% 2022 28,000 28,548
U.S. Treasury 2.00% 2022 25,500 26,259
U.S. Treasury 2.125% 20226 157,000 161,127
U.S. Treasury 2.125% 20226 111,000 114,796
U.S. Treasury 1.625% 2023 35,321 36,134
U.S. Treasury 1.625% 2023 5,000 5,113
U.S. Treasury 2.50% 2023 24,679 26,014
U.S. Treasury 2.625% 2023 20,000 21,125
U.S. Treasury 2.75% 2023 90,000 95,172
U.S. Treasury 2.875% 2023 51,866 55,446
U.S. Treasury 2.875% 2023 40,500 43,348
U.S. Treasury 1.50% 2024 16,404 16,820
U.S. Treasury 1.50% 2024 7,913 8,116
U.S. Treasury 2.125% 2024 10,000 10,531
U.S. Treasury 2.125% 2024 8,847 9,272
U.S. Treasury 2.375% 2024 324 342
U.S. Treasury 2.50% 20246 28,000 29,812
U.S. Treasury 2.00% 2025 90,000 94,579
U.S. Treasury 2.875% 2028 4,300 4,911
U.S. Treasury 1.625% 2029 600 625
U.S. Treasury 2.375% 2029 600 665
U.S. Treasury 2.875% 20466 21,000 26,384
U.S. Treasury 3.125% 2048 7,000 9,263
U.S. Treasury 3.375% 2048 1,368 1,899
    1,240,699
U.S. Treasury inflation-protected securities 1.03%    
U.S. Treasury Inflation-Protected Security 2.125% 20417 563 802
U.S. Treasury Inflation-Protected Security 0.75% 20426,7 34,477 39,251
U.S. Treasury Inflation-Protected Security 1.00% 20496,7 31,046 38,522
    78,575
Total U.S. Treasury bonds & notes   1,319,274

 

American Funds Mortgage Fund — Page 8 of 12

 


 

 

unaudited

 

 

Bonds, notes & other debt instruments (continued)
Asset-backed obligations 0.49%
Principal amount
(000)
Value
(000)
Avis Budget Rental Car Funding AESOP LLC, Series 2020-1A, Class A, 2.33% 20261,5 $2,802 $2,877
Credit Acceptance Auto Loan Trust, Series 2020-1A, Class A, 2.01% 20291,5 2,557 2,583
Drive Auto Receivables Trust, Series 2017-3, Class C, 2.80% 20221 241 241
Drivetime Auto Owner Trust, Series 2019-3, Class A, 2.55% 20221,5 5,228 5,249
Ford Credit Floorplan Master Owner Trust, Series 2019-3, Class A1, 2.23% 20241 14,000 14,333
OSW Structured Asset Trust, Series 2020-RPL1, Class A1, 3.072% 20601,2,5 3,667 3,708
Palmer Square Loan Funding, CLO, Series 2019-2, Class A1,
(3-month USD-LIBOR + 0.97%) 2.789% 20271,2,5
5,285 5,287
Symphony Ltd., CLO, Series 2013-12A, Class AR, (3-month USD-LIBOR + 1.03%) 2.861% 20251,2,5 1,459 1,460
Toyota Auto Receivables Owner Trust, Series 2018-B, Class A2A, 2.64% 20211 1,317 1,318
Westlake Automobile Receivables Trust, Series 2018-2A, Class A2A, 2.84% 20211,5 108 108
Westlake Automobile Receivables Trust, Series 2017-1A, Class C, 2.70% 20221,5 93 94
    37,258
Total bonds, notes & other debt instruments (cost: $6,342,336,000)   6,487,660
Short-term securities 31.61%
Federal agency discount notes 15.58%
   
Federal Home Loan Bank 1.50%-1.58% due 3/6/2020-5/13/2020 1,010,400 1,008,776
Freddie Mac 1.51%-1.64% due 3/18/2020-5/19/2020 180,000 179,655
    1,188,431
U.S. Treasury bills & notes 10.60%    
U.S. Treasury Bills 1.49%-1.57% due 3/10/2020-4/14/2020 809,500 808,788
Commercial paper 5.43%    
Chevron Corp. 1.56% due 4/27/20205 28,100 28,032
Eli Lilly and Co. 1.56% due 3/3/2020-3/4/20205 54,600 54,588
Exxon Mobil Corp. 1.59% due 4/16/2020-4/21/2020 90,000 89,809
General Dynamics Corp. 1.58% due 3/12/20205 50,000 49,972
IBM Credit LLC 1.54% due 3/23/20205 73,000 72,925
Nordea Bank AB 1.56% due 3/2/20205 40,400 40,395
Paccar Financial Corp. 1.56%-1.57% due 3/3/2020-3/19/2020 36,100 36,076
Simon Property Group, LP 1.58% due 3/2/20205 42,100 42,095
    413,892
Total short-term securities (cost: $2,410,750,000)   2,411,111
Total investment securities 116.65% (cost: $8,753,086,000)   8,898,771
Other assets less liabilities (16.65)%   (1,270,145)
Net assets 100.00%   $7,628,626

 

American Funds Mortgage Fund — Page 9 of 12

 


 

 

unaudited

 

Futures contracts


 

Contracts Type Number of
contracts
Expiration Notional
amount8
(000)
Value at
2/29/20209
(000)
Unrealized
appreciation
at 2/29/2020
(000)
2 Year U.S. Treasury Note Futures Long 6,207 July 2020 $1,241,400 $1,355,163 $10,418
5 Year U.S. Treasury Note Futures Long 10,706 July 2020 1,070,600 1,314,161 21,433
10 Year U.S. Treasury Note Futures Long 4,484 June 2020 448,400 604,219 11,642
20 Year U.S. Treasury Bond Futures Long 988 June 2020 98,800 168,207 5,723
30 Year Ultra U.S. Treasury Bond Futures Long 105 June 2020 10,500 21,788 849
            $50,065

Swap contracts


Interest rate swaps

 

Receive Pay Expiration
date
Notional
(000)
Value at
2/29/2020
(000)
Upfront
payments/
receipts
(000)
Unrealized
appreciation
(depreciation)
at 2/29/2020
(000)
1.5155% U.S. EFFR 3/18/2020 $3,839,500 $104 $— $104
1.5135% U.S. EFFR 3/18/2020 3,838,800 100 100
1.531% U.S. EFFR 3/18/2020 2,005,700 70 70
1.515% U.S. EFFR 3/18/2020 1,816,000 49 49
3-month USD-LIBOR 2.806% 8/29/2020 80,500 (588) (588)
1.454% U.S. EFFR 12/10/2020 428,100 1,786 1,786
1.4555% U.S. EFFR 12/10/2020 361,900 1,514 1,514
1.491% U.S. EFFR 12/16/2020 392,600 1,804 1,804
1.487% U.S. EFFR 12/16/2020 387,400 1,768 1,768
1.426% U.S. EFFR 2/11/2021 450,000 2,364 2,364
1.424% U.S. EFFR 2/11/2021 450,000 2,356 2,356
1.34% U.S. EFFR 10/18/2021 437,000 4,202 4,202
1.3615% U.S. EFFR 11/1/2021 836,500 8,647 8,647
1.281% U.S. EFFR 11/4/2021 837,500 7,575 7,575
U.S. EFFR 1.335% 11/26/2021 633,000 (6,590) (6,590)
1.402% U.S. EFFR 1/14/2022 246,220 3,116 3,116
1.403% U.S. EFFR 1/14/2022 232,780 2,950 2,950
1.082% U.S. EFFR 2/26/2022 337,700 2,435 2,435
1.074% U.S. EFFR 2/26/2022 336,500 2,373 2,373
3-month USD-LIBOR 1.265% 2/26/2022 336,900 (1,945) (1,945)
3-month USD-LIBOR 1.271% 2/26/2022 337,450 (1,989) (1,989)
1.07625% U.S. EFFR 2/27/2022 333,195 2,364 2,364
1.0405% U.S. EFFR 2/27/2022 333,195 2,126 2,126
3-month USD-LIBOR 1.23% 2/27/2022 333,010 (1,698) (1,698)
3-month USD-LIBOR 1.262% 2/27/2022 333,010 (1,908) (1,908)
1.0465% U.S. EFFR 2/28/2022 342,910 2,229 2,229
3-month USD-LIBOR 1.233% 2/28/2022 343,130 (1,800) (1,800)
3-month USD-LIBOR 1.785% 3/27/2022 35,000 (594) (594)
2.009% 3-month USD-LIBOR 10/4/2022 102,000 2,792 2,792
2.1045% 3-month USD-LIBOR 10/31/2022 125,000 3,831 3,831
3-month USD-LIBOR 2.2835% 1/5/2023 228,000 (8,630) (8,630)
2.21875% U.S. EFFR 3/14/2024 155,000 9,603 9,603
3-month USD-LIBOR 2.322% 5/2/2024 181,900 (10,463) (10,463)
3-month USD-LIBOR 2.325% 5/2/2024 418,100 (24,100) (24,100)
3-month USD-LIBOR 1.547% 10/25/2024 252,000 (6,944) (6,944)
3-month USD-LIBOR 1.548% 10/28/2024 42,000 (1,160) (1,160)

 

American Funds Mortgage Fund — Page 10 of 12

 


 

 

unaudited

 

Swap contracts  (continued)


Interest rate swaps  (continued)

 

Receive Pay Expiration
date
Notional
(000)
Value at
2/29/2020
(000)
Upfront
payments/
receipts
(000)
Unrealized
appreciation
(depreciation)
at 2/29/2020
(000)
3-month USD-LIBOR 2.05% 7/18/2029 $118,000 $(10,372) $— $(10,372)
U.S. EFFR 1.4869% 10/23/2029 67,000 (4,014) (4,014)
U.S. EFFR 1.485% 10/23/2029 73,400 (4,385) (4,385)
U.S. EFFR 1.446% 10/24/2029 8,200 (460) (460)
U.S. EFFR 1.4495% 10/24/2029 63,000 (3,554) (3,554)
U.S. EFFR 1.453% 10/24/2029 85,100 (4,829) (4,829)
U.S. EFFR 1.4741% 10/24/2029 85,300 (5,009) (5,009)
1.419% U.S. EFFR 11/26/2029 134,000 7,205 7,205
3-month USD-LIBOR 3.238% 8/8/2044 6,000 (2,541) (2,541)
3-month USD-LIBOR 2.4945% 1/9/2045 7,000 (1,861) (1,861)
3-month USD-LIBOR 2.454% 1/15/2045 7,000 (1,800) (1,800)
3-month USD-LIBOR 2.525% 10/20/2045 10,000 (2,792) (2,792)
3-month USD-LIBOR 2.516% 10/20/2045 15,000 (4,157) (4,157)
3-month USD-LIBOR 2.5315% 10/26/2045 16,000 (4,493) (4,493)
3-month USD-LIBOR 2.57067% 11/9/2045 6,600 (1,914) (1,914)
3-month USD-LIBOR 2.6485% 11/16/2045 6,525 (2,008) (2,008)
3-month USD-LIBOR 2.52822% 11/23/2045 13,350 (3,747) (3,747)
3-month USD-LIBOR 2.59125% 12/16/2045 13,500 (3,995) (3,995)
3-month USD-LIBOR 2.4095% 1/14/2046 10,000 (2,549) (2,549)
3-month USD-LIBOR 1.9905% 6/13/2046 4,000 (647) (647)
3-month USD-LIBOR 1.991% 6/13/2046 6,000 (971) (971)
3-month USD-LIBOR 1.7985% 6/30/2046 12,000 (1,409) (1,409)
3-month USD-LIBOR 1.935% 12/17/2049 2,910 (479) (479)
3-month USD-LIBOR 2.007% 12/19/2049 8,800 (1,611) (1,611)
3-month USD-LIBOR 1.961% 1/9/2050 24,200 (4,146) (4,146)
3-month USD-LIBOR 1.678% 2/21/2050 21,630 (2,139) (2,139)
          $— $(70,928)

The following footnotes apply to either the individual securities noted or one or more of the securities aggregated and listed as a single line item.

 

1 Principal payments may be made periodically. Therefore, the effective maturity date may be earlier than the stated maturity date.
2 Coupon rate may change periodically. Reference rate and spread are as of the most recent information available. Some coupon rates are determined by the issuer or agent based on current market conditions; therefore, the reference rate and spread are not available.
3 Amount less than one thousand.
4 Purchased on a TBA basis.
5 Acquired in a transaction exempt from registration under Rule 144A or Section 4(2) 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 $515,583,000, which represented 6.76% of the net assets of the fund.
6 All or a portion of this security was pledged as collateral. The total value of pledged collateral was $70,932,000, which represented .93% of the net assets of the fund.
7 Index-linked bond whose principal amount moves with a government price index.
8 Notional amount is calculated based on the number of contracts and notional contract size.
9 Value is calculated based on the notional amount and current market price.

 

Key to abbrevations and symbol
CLO = Collateralized Loan Obligations
EFFR = Effective Federal Funds Rate
LIBOR = London Interbank Offered Rate
TBA = To-be-announced
USD/$ = U.S. dollars

 

American Funds Mortgage Fund — Page 11 of 12

 


 

 

unaudited

 

Additional financial disclosures are included in the fund’s current shareholder report and should be read in conjunction with this report.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectus and summary prospectus, which can be obtained from your financial professional and should be read carefully before investing. You may also call American Funds Service Company (AFS) at (800) 421-4225 or visit the Capital Group website at capitalgroup.com.

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.

American Funds Distributors, Inc., member FINRA.

© 2020 Capital Group. All rights reserved.

 

 

MFGEFPX-042-0420O-S73199 American Funds Mortgage Fund — Page 12 of 12

  

ITEM 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies

 

Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.

 

ITEM 8 – Portfolio Managers of Closed-End Management Investment Companies

 

Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.

 

ITEM 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers

 

Not applicable to this Registrant, insofar as the Registrant is not a closed-end management investment company.

 

ITEM 10 – Submission of Matters to a Vote of Security Holders

 

There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of trustees since the Registrant last submitted a proxy statement to its shareholders. The procedures are as follows. The Registrant has a nominating and governance committee comprised solely of persons who are not considered ‘‘interested persons’’ of the Registrant within the meaning of the Investment Company Act of 1940, as amended. 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 trustees. While the committee normally is able to identify from its own 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 Registrant, c/o the Registrant’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 nominating and governance committee.

 

ITEM 11 – Controls and Procedures

 

(a) The Registrant’s Principal Executive Officer and Principal Financial Officer have concluded, based on their evaluation of the Registrant’s disclosure controls and procedures (as such term is defined in Rule 30a-3 under the Investment Company Act of 1940), that such controls and procedures are adequate and reasonably designed to achieve the purposes described in paragraph (c) of such rule.
   
(b)

There were no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the Registrant’s semi-annual period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

 

 

ITEM 12 – Exhibits

 

(a)(1) Not applicable for filing of semi-annual reports to shareholders.
   
(a)(2) The certifications required by Rule 30a-2 of the Investment Company Act of 1940 and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are attached as exhibits hereto.

 

 
 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  AMERICAN FUNDS MORTGAGE FUND
   
  By __/s/ Kristine M. Nishiyama____________________
 

Kristine M. Nishiyama, Executive Vice President and

Principal Executive Officer

   
  Date: April 30, 2020

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

 

 

By __/s/ Kristine M. Nishiyama_________________

Kristine M. Nishiyama, Executive Vice President and

Principal Executive Officer

 
Date: April 30, 2020

 

 

 

By ___/s/ Brian C. Janssen    __________

Brian C. Janssen, Treasurer and

Principal Financial Officer

 
Date: April 30, 2020