American Funds
Mortgage Fund
®
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Summary prospectus
November 1, 2012
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Class Ticker
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A MFAAX
C MFACX
F-2 MFAFX
529-B CMFBX
529-E CMFEX
R-1 RMAAX
R-3 RMACX
R-5 RMAFX
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Before you invest, you may want to review the fund’s prospectus and statement of additional information, which contain more information about the fund and its risks. You can find the fund’s prospectus, statement of additional information and other information about the fund online at americanfunds.com/prospectus. You can also get this information at no cost by calling 800/421-4225 or by sending an email request to prospectus@americanfunds.com. The current prospectus and statement of additional information, dated November 1, 2012, are incorporated by reference into this summary prospectus.
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The fund’s investment objective is to provide current income and preservation of capital.
Fees and expenses of the fund
This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $100,000 in American Funds. More information about these and other discounts is available from your financial professional and in the “Sales charge reductions and waivers” section on page 26 of the prospectus and on page 58 of the fund’s statement of additional information.
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Shareholder fees
(fees paid directly from your investment)
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Share classes
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A and
529-A
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B and
529-B
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C and
529-C
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529-E
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F-1, F-2
and
529-F-1
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All R
share
classes
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Maximum sales charge (load) imposed on purchases (as a percentage of offering price)
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3.75%
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none
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none
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none
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none
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none
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Maximum deferred sales charge (load) (as a percentage of the amount redeemed)
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1.00*
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5.00%
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1.00%
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none
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none
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none
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Maximum sales charge (load) imposed on reinvested dividends
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none
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none
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none
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none
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none
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none
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Redemption or exchange fees
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none
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none
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none
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none
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none
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none
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Maximum annual account fee
(529 share classes only)
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$10
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$10
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$10
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$10
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$10
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N/A
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Annual fund operating expenses
(expenses that you pay each year as a percentage of the value of your investment)
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Share classes
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A
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B
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C
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F-1
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F-2
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529-A
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529-B
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529-C
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Management fees
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0.26%
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0.26%
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0.26%
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0.26%
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0.26%
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0.26%
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0.26%
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0.26%
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Distribution and/or service (12b-1) fees
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0.20
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1.00
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1.00
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0.25
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none
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0.19
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0.99
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1.00
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Other expenses
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0.19
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0.19
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0.22
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0.17
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0.19
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0.29
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0.29
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0.26
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Total annual fund operating expenses
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0.65
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1.45
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1.48
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0.68
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0.45
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0.74
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1.54
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1.52
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529-E
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529-F-1
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R-1
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R-2
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R-3
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R-4
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R-5
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R-6
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Management fees
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0.26%
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0.26%
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0.26%
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0.26%
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0.26%
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0.26%
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0.26%
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0.26%
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Distribution and/or service (12b-1) fees
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0.49
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0.00
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0.95
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0.66
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0.43
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0.21
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none
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none
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Other expenses
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0.29
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0.30
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0.12
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0.35
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0.20
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0.15
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0.13
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0.11
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Total annual fund operating expenses
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1.04
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0.56
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1.33
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1.27
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0.89
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0.62
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0.39
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0.37
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*
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A contingent deferred sales charge of 1.00% applies on certain redemptions within one year following purchases of $1 million or more made without an initial sales charge.
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Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
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Share classes
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1 year
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3 years
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5 years
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10 years
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A
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$439
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$575
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$ 724
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$1,155
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B
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648
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859
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992
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1,518
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C
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251
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468
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808
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1,768
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F-1
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69
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218
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379
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847
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F-2
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46
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144
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252
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567
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529-A
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468
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642
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830
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1,364
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529-B
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676
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925
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1,097
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1,720
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529-C
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274
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519
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886
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1,912
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529-E
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126
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370
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632
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1,374
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529-F-1
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77
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219
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372
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808
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R-1
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135
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421
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729
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1,601
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R-2
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129
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403
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697
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1,534
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R-3
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91
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284
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493
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1,096
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R-4
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63
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199
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346
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774
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R-5
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40
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125
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219
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493
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R-6
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38
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119
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208
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468
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For the share classes listed below, you would pay the following if you did not redeem your shares:
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Share classes
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1 year
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3 years
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5 years
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10 years
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B
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$148
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$459
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$792
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$1,518
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C
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151
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468
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808
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1,768
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529-B
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176
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525
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897
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1,720
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529-C
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174
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519
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886
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1,912
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Portfolio turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s investment results. During the most recent fiscal year, the fund’s portfolio turnover rate was 442% of the average value of its portfolio.
Principal investment strategies
Normally at least 80% of the fund’s assets will be invested in mortgage-related securities, including securities collateralized by mortgage loans and contracts for future delivery of such securities (such as to be announced contracts and mortgage dollar rolls). The fund will invest primarily in mortgage-related securities that are sponsored or guaranteed by the U.S. government, such as securities issued by government-sponsored entities that are not backed by the full faith and credit of the U.S. government, and nongovernment mortgage-related securities that are rated in the Aaa or AAA rating category (by Nationally Recognized Statistical Rating Organizations designated by the fund’s investment adviser) or unrated but determined to be of equivalent quality by the fund’s investment adviser. The fund may also invest a portion of its assets in debt issued by federal agencies. Each contract for future delivery is normally of short duration and is replaced by another contract prior to maturity. Each such transaction is reflected as turnover in the fund’s portfolio, resulting in a higher portfolio turnover rate than funds that do not employ this investment strategy.
The investment adviser uses a system of multiple portfolio counselors in managing the fund’s assets. Under this approach, the portfolio of the fund is divided into segments managed by individual counselors who decide how their respective segments will be invested.
The fund relies on the professional judgment of its investment adviser to make decisions about the fund’s portfolio investments. The basic investment philosophy of the investment adviser is to seek to invest in attractively priced securities that, in its opinion, represent good, long-term investment opportunities. The investment adviser believes that an important way to accomplish this is by analyzing various factors, which may include the credit strength of the issuer, prices of similar securities issued by comparable issuers, anticipated changes in interest rates, general market conditions and other factors pertinent to the particular security being evaluated. Securities may be sold when the investment adviser believes that they no longer represent relatively attractive investment opportunities.
Principal risks
This section describes the principal risks associated with the fund’s principal investment strategies. You may lose money by investing in the fund. The likelihood of loss may be greater if you invest for a shorter period of time.
Investing in mortgage-related securities —
Mortgage-related securities are subject to prepayment risk as well as the risks associated with investing in debt securities in general. If interest rates fall and the loans underlying these securities are prepaid faster than expected, the fund may have to reinvest the prepaid principal in lower yielding securities, thus reducing the fund’s income. Conversely, if interest rates increase and the loans underlying the securities are prepaid more slowly than expected, the expected duration of the securities may be extended, reducing the cash flow for potential reinvestment in higher yielding securities.
Market conditions —
The prices of, and the income generated by, the securities held by the fund may decline due to market conditions and other factors, including those directly involving the issuers of securities held by the fund.
Investing in bonds —
Rising interest rates will generally cause the prices of bonds and other debt securities to fall. Longer maturity debt securities may be subject to greater price fluctuations than shorter maturity debt securities. In addition, falling interest rates may cause an issuer to redeem, call or refinance a security before its stated maturity, which may result in the fund having to reinvest the proceeds in lower yielding securities.
Bonds and other debt securities are subject to credit risk, which is the possibility that the credit strength of an issuer will weaken 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. Lower quality debt securities generally have higher rates of interest and may be subject to greater price fluctuations than higher quality debt securities.
Thinly traded securities —
There may be little trading in the secondary market for particular bonds or other debt securities, which may make them more difficult to value, acquire or sell.
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. 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 —
Contracts for future delivery of mortgage-related securities, such as to be announced contracts and mortgage dollar rolls, 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 the fund contracts to 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.
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 employed by the investment adviser in this process 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.
It is important to note that neither your investment in the fund nor the fund’s yield is guaranteed by the U.S. government. Your investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency, entity or person. You should consider how this fund fits into your overall investment program.
Investment results
The following bar chart shows the fund’s investment results for its first full calendar year of operations, and the following table shows how the fund’s average annual total returns for various periods compare with different broad measures of market results. This information provides some indication of the risks of investing in the fund. The Lipper U.S. Mortgage Funds Average includes the fund and other funds that disclose investment objectives and/or strategies reasonably comparable to the fund’s objective and/or strategies. The Lipper GNMA Funds Average includes funds that disclose investment objectives and/or strategies reasonably comparable to the fund’s objective and/or strategies. Past investment results (before and after taxes) are not predictive of future investment results. Updated information on the fund’s investment results can be obtained by visiting americanfunds.com.
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Average annual total returns
For the periods ended December 31, 2011 (with maximum sales charge):
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Share class
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Inception date
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1 year
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Lifetime
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A
− Before taxes
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11/1/2010
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2.72%
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0.72%
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− After taxes on distributions
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1.48
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–0.32
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− After taxes on distributions and sale of fund shares
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1.75
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0.01
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Share classes
(before taxes)
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Inception date
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1 year
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Lifetime
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B
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11/1/2010
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0.85%
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–0.05%
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C
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11/1/2010
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4.79
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3.33
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F-1
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11/1/2010
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6.60
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4.01
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F-2
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11/1/2010
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6.87
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4.25
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529-A
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11/1/2010
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2.62
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0.65
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529-B
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11/1/2010
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0.70
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–0.17
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529-C
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11/1/2010
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4.70
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3.26
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529-E
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11/1/2010
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6.24
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3.71
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529-F-1
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11/1/2010
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6.77
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4.16
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R-1
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11/1/2010
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5.85
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3.38
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R-2
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11/1/2010
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6.01
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3.51
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R-3
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11/1/2010
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6.33
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3.78
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R-4
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11/1/2010
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6.63
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4.03
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R-5
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11/1/2010
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6.90
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4.28
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R-6
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11/1/2010
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6.93
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4.31
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Indexes
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1 year
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Lifetime
(from Class A
inception
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Barclays U.S. Mortgage Backed Securities Index
(reflects no deductions for
sales charges, account fees, expenses or taxes)
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6.23%
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4.64%
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Lipper U.S. Mortgage Funds Average
(reflects no deductions for sales charges,
account fees or taxes)
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5.74
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4.07
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Lipper GNMA Funds Average
(reflects no deductions for sales charges,
account fees or taxes)
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6.62
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4.87
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Class A annualized 30-day yield at August 31, 2012: 0.93%
(
For current yield information, please call American FundsLine
®
at 800/325-3590.)
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After-tax returns are shown only for Class A shares; after-tax returns for other share classes will vary. After-tax returns are calculated using the highest individual federal income tax rates in effect during each year of the periods shown and do not reflect the impact of state and local taxes. Your actual after-tax returns depend on your individual tax situation and likely will differ from the results shown above. In addition, after-tax returns are not relevant if you hold your fund shares through a tax-favored arrangement, such as a 401(k) plan, individual retirement account (IRA) or 529 college savings plan.
Management
Investment adviser
Capital Research and Management Company
Portfolio counselors
The individuals primarily responsible for the portfolio management of the fund are:
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Portfolio counselor/
Fund title
(if applicable)
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Portfolio counselor
experience in this fund
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Primary title
with investment adviser
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Fergus N. MacDonald
Senior Vice President
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2 years
(since the fund’s
inception)
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Senior Vice President – Fixed Income,
Capital Research Company
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Wesley K.–S. Phoa
Senior Vice President
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2 years
(since the fund’s
inception)
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Senior Vice President – Fixed Income,
Capital Research Company
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Kevin Adams
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1 year
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Vice President – Fixed Income,
Capital Research Company
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Purchase and sale of fund shares
The minimum amount to establish an account for all share classes is $250 and the minimum to add to an account is $50. For a payroll deduction retirement plan account, payroll deduction savings plan account or employer-sponsored 529 account, the minimum is $25 to establish or add to an account.
If you are a retail investor, you may sell (redeem) shares through your dealer or financial adviser or by writing to American Funds Service Company
®
at P.O. Box 6007, Indianapolis, Indiana 46206-6007; telephoning American Funds Service Company at 800/421-4225; faxing American Funds Service Company at 888/421-4351; or accessing our website at americanfunds.com. Please contact your plan administrator or recordkeeper in order to sell (redeem) shares from your retirement plan.
Tax information
Dividends and capital gain distributions you receive from the fund are subject to federal income taxes and may also be subject to state and local taxes, unless you are tax-exempt or your account is tax-favored.
Payments to broker-dealers and other financial intermediaries
If you purchase shares of the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and the fund’s distributor or its affiliates may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your individual financial adviser to recommend the fund over another investment. Ask your individual financial adviser or visit your financial intermediary’s website for more information.