American Funds Proposes Fee Overhaul, Board Elections, and Diversification Shift

American Funds Mortgage Fund DEF 14A Filing Summary
FieldDetail
CompanyAmerican Funds Mortgage Fund
Form TypeDEF 14A
Filed DateSep 9, 2025
Risk Levelmedium
Pages15
Reading Time18 min
Key Dollar Amounts$1.70
Sentimentmixed

Sentiment: mixed

Topics: Shareholder Meeting, Proxy Statement, Investment Advisory Fees, Fund Governance, Diversification, Bond Funds, Mutual Funds

TL;DR

**American Funds is shaking up its fee structure and board, aiming for stability and flexibility, but watch out for increased risk in TEFNY's new non-diversified status.**

AI Summary

AMERICAN FUNDS MORTGAGE FUND (AFMF) is part of a complex-wide shareholder meeting on November 25, 2025, addressing three key proposals. Shareholders are asked to elect Board members, a necessary step as it has been several years since the last election, ensuring at least two-thirds of the Board are shareholder-elected as per the 1940 Act. A significant change for AFMF and nine other bond funds is the proposed amendment to the Investment Advisory and Service Agreement, shifting from an asset and income-based fee schedule to an asset-only structure. This aims to stabilize fees, particularly in dynamic interest rate environments, eliminating potential increases during periods of rising rates. Additionally, American Funds Tax-Exempt Fund of New York (TEFNY) seeks approval to reclassify from a 'diversified' to a 'non-diversified' fund, granting its investment adviser, Capital Research and Management Company (CRMC), greater investment flexibility, though this introduces additional risks. The Boards of all Funds unanimously recommend voting 'FOR' these proposals, believing they are in the best interests of shareholders.

Why It Matters

This DEF 14A filing signals significant operational and strategic adjustments across the American Funds and Capital Group ETF complex, directly impacting investors through potential fee structure changes and board governance. The shift to an asset-only advisory fee for bond funds like AFMF could provide greater fee predictability, a crucial factor for fixed-income investors, especially in volatile interest rate markets. For TEFNY, the reclassification to 'non-diversified' offers its adviser, CRMC, enhanced investment flexibility, potentially leading to higher returns but also increased risk concentration. These changes reflect a proactive response to market conditions and regulatory requirements, aiming to optimize fund performance and oversight in a competitive asset management landscape.

Risk Assessment

Risk Level: medium — The risk level is medium due to the proposed reclassification of American Funds Tax-Exempt Fund of New York (TEFNY) from 'diversified' to 'non-diversified.' This change, while offering greater investment flexibility, also introduces 'additional risks associated with investing in a non-diversified fund' as stated in Proposal 3, due to less stringent regulatory limits on asset concentration. While the fee structure change for AFMF aims for stability, the increased risk profile for TEFNY shareholders warrants a medium risk assessment for the overall filing.

Analyst Insight

Investors in American Funds Mortgage Fund and other affected bond funds should vote 'FOR' the fee schedule amendment if they prioritize fee stability over potential income-based fee reductions in certain market conditions. Shareholders of American Funds Tax-Exempt Fund of New York must carefully weigh the benefits of increased investment flexibility against the 'additional risks' of a non-diversified classification before casting their vote.

Key Numbers

  • November 25, 2025 — Date of Joint Special Meetings of Shareholders (Key date for voting on proposals)
  • August 28, 2025 — Record Date for Shareholder Eligibility (Date by which shareholders must own shares to vote)
  • 9:00 a.m. Pacific Time — Meeting Start Time (Time of the shareholder meetings in Los Angeles)
  • 10 — Number of bond funds affected by fee schedule change (Includes American Funds Mortgage Fund and American High-Income Trust)
  • 1 — Number of funds changing diversification classification (American Funds Tax-Exempt Fund of New York)
  • $1.70 — Estimated average cost per shareholder account for proxy solicitation (Funds will bear these costs)
  • 888-615-7476 — Computershare contact number (For shareholder assistance with voting)
  • 67% — Majority of outstanding voting securities threshold (option a) (Required for proposals 2 and 3 if more than 50% of outstanding voting securities are present)
  • 50% — Majority of outstanding voting securities threshold (option b) (Required for proposals 2 and 3 if less than 50% of outstanding voting securities are present)
  • 333 South Hope Street, Los Angeles, California 90071 — Meeting Location (Office of Capital Group)

Key Players & Entities

  • AMERICAN FUNDS MORTGAGE FUND (company) — Fund proposing fee schedule amendment
  • Capital Group (company) — Parent company and meeting host
  • Michael W. Stockton (person) — Executive Vice President of the Funds
  • Capital Research and Management Company (company) — Investment adviser for TEFNY
  • American Funds Tax-Exempt Fund of New York (company) — Fund proposing diversification classification change
  • Computershare Fund Services (company) — Company hired to assist with shareholder meetings and collect votes
  • Jennifer L. Butler (person) — Secretary of the Funds
  • Courtney R. Taylor (person) — Secretary of the Funds
  • Julie E. Lawton (person) — Secretary of the Funds
  • Michael R. Tom (person) — Secretary of the Funds

FAQ

What are the key proposals for AMERICAN FUNDS MORTGAGE FUND shareholders?

AMERICAN FUNDS MORTGAGE FUND shareholders are being asked to vote on three key proposals: the election of Board members, the approval of an amendment to the Investment Advisory and Service Agreement to modify the investment advisory and service fee schedule, and for American Funds Tax-Exempt Fund of New York, a change in diversification classification.

Why is AMERICAN FUNDS MORTGAGE FUND changing its investment advisory fee structure?

AMERICAN FUNDS MORTGAGE FUND is proposing to change its investment advisory fee structure from an asset and income component to an asset-only schedule. This aims to create stability and consistency in fees for investors, eliminating the potential for higher advisory fees during times of rising or higher interest rates.

When is the shareholder meeting for AMERICAN FUNDS MORTGAGE FUND?

The joint special meeting of shareholders for AMERICAN FUNDS MORTGAGE FUND and other funds will be held on November 25, 2025, at 9:00 a.m. Pacific Time at the office of Capital Group, 333 South Hope Street, Los Angeles, California 90071.

What is the impact of American Funds Tax-Exempt Fund of New York changing to a non-diversified fund?

Changing American Funds Tax-Exempt Fund of New York's classification to a non-diversified fund will give its investment adviser, Capital Research and Management Company, greater investment flexibility. However, it also introduces additional risks associated with investing in a non-diversified fund, as it will not be subject to the same regulatory limits on asset concentration as diversified funds.

Who are the current executive officers mentioned in the AMERICAN FUNDS MORTGAGE FUND filing?

The filing mentions Michael W. Stockton as Executive Vice President of the Funds, and Jennifer L. Butler, Courtney R. Taylor, Julie E. Lawton, and Michael R. Tom as Secretaries of the Funds.

How much will it cost to obtain shareholder approval for these proposals?

The Funds will bear the expenses associated with obtaining shareholder approval, including printing, mailing, and proxy solicitation. These costs are estimated to average approximately $1.70 per shareholder account across all Funds.

What happens if the proposals for AMERICAN FUNDS MORTGAGE FUND are not approved?

If there are not enough votes to approve a proposal for AMERICAN FUNDS MORTGAGE FUND, the meeting may be adjourned to permit further solicitation of proxy votes. If a proposal is ultimately not approved, the Fund will continue to operate as it currently does.

What is the role of Computershare Fund Services in this process?

Computershare Fund Services is a company hired by the Funds to help with the shareholder meetings and collect votes. They are not affiliated with the Funds or their advisers and may contact shareholders to solicit votes if they haven't voted before the meeting.

What is the voting standard for electing Board members for AMERICAN FUNDS MORTGAGE FUND?

For AMERICAN FUNDS MORTGAGE FUND (other than EUPAC and EMEF), approval for electing Board members requires the affirmative vote of a plurality of votes cast by shareholders at a meeting where a quorum is present. Since nominees are running unopposed, election is likely if a quorum is met.

How can shareholders of AMERICAN FUNDS MORTGAGE FUND cast their votes?

Shareholders can vote their shares online, by phone, by mail, or in person at the shareholder meeting. Instructions and identifying numbers are provided on the proxy card or meeting notice, and assistance is available by calling Computershare at (888) 615-7476.

Risk Factors

  • 1940 Act Diversification Rules [medium — regulatory]: The Investment Company Act of 1940 imposes specific diversification requirements on 'diversified' funds. A diversified fund cannot invest more than 5% of its assets in any single issuer and cannot hold more than 10% of the outstanding voting securities of any single issuer for 75% of its assets. Changing to a 'non-diversified' status, as proposed for American Funds Tax-Exempt Fund of New York, removes these limits, offering greater investment flexibility but also introducing additional risks.
  • Interest Rate Volatility Impact on Fees [medium — market]: The proposed amendment to the Investment Advisory and Service Agreement for ten bond funds, including American Funds Mortgage Fund, aims to shift from an asset and income-based fee schedule to an asset-only structure. This is intended to stabilize fees, particularly in dynamic interest rate environments where an income component could lead to higher advisory fees during periods of rising rates.
  • Board Member Election Requirements [low — operational]: The Investment Company Act of 1940 requires that at least two-thirds of a fund's Board members be elected by shareholders. The current proposal to elect Board members is necessary because it has been several years since the last election, and the Board composition has changed. This ensures ongoing compliance with the 1940 Act and avoids the expense of additional shareholder meetings for filling vacancies.

Industry Context

The mutual fund industry, particularly the bond fund sector, is subject to evolving regulatory landscapes and market dynamics. Changes in interest rates significantly impact bond fund performance and fee structures. The trend towards greater investment flexibility for advisors, balanced against investor protection, is a key theme.

Regulatory Implications

The proposed changes are directly influenced by the Investment Company Act of 1940. The election of board members ensures compliance with governance requirements, while the reclassification of a fund from diversified to non-diversified grants more flexibility but requires careful shareholder consideration of associated risks.

What Investors Should Do

  1. Vote on the proposed changes: Shareholders are asked to vote on electing Board members, amending the investment advisory fee structure for certain bond funds, and reclassifying American Funds Tax-Exempt Fund of New York. The Board unanimously recommends voting 'FOR' all proposals.
  2. Review the Joint Proxy Statement: Shareholders should read the full proxy statement to understand the details of each proposal, especially the implications of the fee structure change and the diversification reclassification.
  3. Contact for Assistance: Shareholders needing help with voting or with questions can contact Computershare at 888-615-7476.

Key Dates

  • 2025-11-25: Joint Special Meetings of Shareholders — Shareholders will vote on key proposals including Board member elections and changes to advisory agreements.
  • 2025-08-28: Record Date for Shareholder Eligibility — Establishes the date by which shareholders must own shares to be eligible to vote at the meetings.

Glossary

DEF 14A
A filing with the U.S. Securities and Exchange Commission (SEC) that provides detailed information to shareholders about matters to be voted on at a shareholder meeting. It is a proxy statement. (This document is the DEF 14A for American Funds Mortgage Fund and other related funds, outlining the proposals for the upcoming shareholder meeting.)
Investment Company Act of 1940
A U.S. federal law that regulates investment companies, including mutual funds. It sets requirements for fund structure, operations, disclosure, and governance. (Key provisions of this Act are relevant to the proposed Board elections and the classification change for American Funds Tax-Exempt Fund of New York.)
Diversified Fund
Under the 1940 Act, a diversified fund has limitations on its investments in a single issuer. Specifically, it cannot invest more than 5% of its total assets in securities of any one issuer and cannot hold more than 10% of the outstanding voting securities of any one issuer for 75% of its assets. (American Funds Tax-Exempt Fund of New York is proposing to change its classification from diversified to non-diversified, which will alter these investment constraints.)
Non-diversified Fund
A fund that does not meet the diversification requirements of the 1940 Act. These funds have greater flexibility in their investment strategies but may carry higher risks. (American Funds Tax-Exempt Fund of New York is seeking to reclassify as a non-diversified fund to gain more investment flexibility.)
Investment Advisory and Service Agreement
A contract between an investment fund and its investment adviser that outlines the services to be provided and the fees to be paid. (A proposed amendment to this agreement for several bond funds will change the fee structure from asset and income-based to asset-only.)

Year-Over-Year Comparison

This filing is a proxy statement for a shareholder meeting and does not contain comparative financial performance data against a prior year's filing in the same way an annual report would. The key changes highlighted relate to governance and operational adjustments rather than a direct year-over-year financial comparison.

Filing Stats: 4,405 words · 18 min read · ~15 pages · Grade level 13.7 · Accepted 2025-09-09 16:17:58

Key Financial Figures

  • $1.70 — average across all Funds approximately $1.70 per shareholder account. How many vote

Filing Documents

– The Proposals

Part I – The Proposals     Proposal 1 – To elect Board members of the Funds   3 Proposal 2 – To approve the proposed amendment of the Investment Advisory and Service Agreement to modify the investment advisory and service fee schedule for each of American Funds Mortgage Fund, American High -Income Trust, The Bond Fund of America, U.S. Government Securities Fund, Intermediate Bond Fund of America, American High -Income Municipal Bond Fund, Limited Term Tax -Exempt Bond Fund of America, The Tax -Exempt Bond Fund of America, The Tax -Exempt Fund of California, and American Funds Tax -Exempt Fund of New York   8 Proposal 3 – To approve the proposed change to the diversification classification for American Funds Tax -Exempt Fund of New York from a diversified to a non -diversified registered investment company   13 Part II     Additional Information about the Funds   15 Audit Committee   16 Further Information About Voting and the Shareholder Meetings   17 EXHIBITS     Exhibit A – Series and Included Fund(s )     Exhibit B – Form of Nominating and Governance Committee Charte r     APPENDICES     Appendix 1 – Board Member and Nominee Informatio n     Appendix 2 – Board and Committee Meetings; Committee Compositio n     Appendix 3 – Board Member Compensation and Fund Ownershi p     Appendix 4 – Executive Officer s     Appendix 5 – Total Shares Outstandin g     Appendix 6 – Principal Beneficial Holder s     Appendix 7 – Independent Auditors and Related Fee s     Appendix 8 – Comparison of Current and Proposed A

View Full Filing

View this DEF 14A filing on SEC EDGAR

View on ReadTheFiling | About | Contact | Privacy | Terms

Data from SEC EDGAR. Not affiliated with the SEC. Not investment advice. © 2026 OpenDataHQ.