<PAGE>
March 31, 1995
SunAmerica
Income Funds
[ART]
Annual
Report
U.S. Government Securities
Federal Securities
Diversified Growth
High Income
Tax Exempt Insured
LOGO SunAmerica
Asset Management
<PAGE>
SUNAMERICA INCOME FUNDS
Dear Shareholders:
The first quarter of 1995 was marked by a reversal in the upward trend of
interest rates which characterized the fixed-income markets throughout most of
1994. The decline in interest rates developed out of a growing perception that
the economy was beginning to slow, in response to the Federal Reserve Board's
series of interest rate tightenings. Recently released economic data, such as
retail sales and housing starts, confirm that interest rate sensitive sectors
of the economy are feeling the pressure of higher rates and beginning to slow
down from 1994's levels.
While the growth of the economy appears to be moderating in comparison to the
fourth quarter Gross Domestic Product (GDP) of 5.1%, it is still on a firm path
of expansion. Current estimates for the first quarter GDP are for growth of 3%,
which is slightly above the 2.5% level viewed by the Federal Reserve as the
maximum amount of growth acceptable without creating inflationary pressures.
Even with growth at the 3% level, inflation remains relatively benign due to a
lack of any substantial wage pressures and the ability of producers to offset
rising intermediate goods' prices with productivity gains. The fixed-income
market's belief that the Federal Reserve is on the correct path towards
achieving its goal of 2.5% growth can be seen in the current shape of the yield
curve. Whereas short term rates rose more than long term rates in the fourth
quarter in an effort to discount further interest rate hikes, the first quarter
has brought about rapidly falling short term rates. This steepening of the
yield curve signals the markets perception that the Federal Reserve is close to
the end of its tightening cycle.
One aspect which has tempered the decline of interest rates has been the
collapse of the U.S. dollar versus the Yen and Deutschemark. The primary reason
for this setback has been the devaluation of the Mexican Peso and the
subsequent economic crisis in Mexico and other emerging markets. The perception
that U.S. monetary policy would become linked to Mexico's in order to bolster
the Peso, caused the dollar to lose almost 11% in value compared to the Yen and
Deutschemark. A declining dollar is negative for foreign holders of dollar-
denominated assets because it erodes the value of the security in comparison to
other currencies, which can deter investing in U.S. markets. Until this
situation is resolved, interest rates may come under pressure as investor
sentiment changes regarding the currency risk involved with dollar-denominated
assets.
Looking ahead in 1995, we see an economy which has been impacted by the Federal
Reserve's seven interest rate hikes, making a transition from interest rate
sensitive areas such as housing to export growth and manufacturing. This change
in the direction of the economy will result in slower growth and subdue any
inflationary pressures.
U.S. GOVERNMENT SECURITIES FUND
The U.S. Treasury market performed well throughout the first quarter of 1995 in
contrast to the under performance of 1994. The current rally brought rates down
sharply, as the market began to see signs of a moderating economy following
last year's fast paced economic growth. Slowing economic data from the interest
rate sensitive sectors of the economy, such as retail sales and housing starts,
have many believing that the economy may be entering a "soft landing" phase of
2.5% growth. In response to this economic data, we have continued to extend the
U.S. Government Fund's duration in an effort to fully participate in the recent
rally. The increase in interest rate sensitive sectors will leave the Fund's
duration slightly less than the peer group average and allow the Fund's net
asset value to appreciate as bond prices rise. We have also increased our
exposure to U.S. Treasury
<PAGE>
SUNAMERICA INCOME FUNDS
securities, which is still heavily weighted with mortgage-backed securities. It
is this active style of management that allowed us to protect the portfolio
during 1994's bear market and is now helping the portfolio achieve better
performance during the recent fall in rates.
FEDERAL SECURITIES FUND
As the U.S. fixed-income markets rebounded from the bear market of 1994, the
first quarter of 1995 was a successful period for the Federal Securities Fund.
The advance was fostered by a growing perception that the economy is slowing
from 1994's level of growth, and the Federal Reserve will not have to continue
its policy of interest rate hikes. Slowing economic growth indicates that the
economy is making a transition from being led by the interest rate sensitive
sectors to a more moderate-paced export and manufacturing sector. In an effort
to maximize the portfolio's benefit from the fall in rates, we have continued
to lengthen the Fund's duration and increased our exposure to U.S. Treasuries.
This will increase the Fund's interest rate sensitivity, which should enable
the net asset value to appreciate as interest rates fall. The increase in U.S.
Treasuries will add convexity to the portfolio which will offset some of the
characteristics of the mortgage-backed securities. As we finish the first
quarter of 1995, the U.S. Treasury market has entered a tight trading range of
7.25-7.50% on 30-year bonds with a fundamental bias towards higher prices.
However, the market appears to be waiting until further economic data is
released before it can break through the current range. We believe that the
upcoming economic data will support higher prices as the economic growth
moderates from 1994's level.
DIVERSIFIED INCOME FUND
Emerging market debt continued to depreciate in spite of the Mexican support
package from the United States, affecting the foreign securities component of
the Diversified Income Fund. Although the support package had a positive short
term impact on the Mexican Peso, it did not remove the longer term questions
concerning the strength of the Mexican economic system. The long term impact of
higher interest rates remains a concern. Many of the traditional buyers have
not returned so prices have not appreciated as quickly as anticipated. We have
gradually reduced the foreign securities component from approximately 33%, down
to less than 20%. These holdings have less upside potential because an economic
slowdown already exists in most countries which will negatively impact
earnings. Although the emerging markets have performed poorly, we believe that
on a relative value basis they are worth holding. The high yield component
received most of the cash raised in the foreign bond sales and this
reallocation has benefited the Fund. We have focused on structuring a flexible
and liquid portfolio to be able to maneuver in very volatile markets.
HIGH INCOME FUND
As we predicted, the high yield market charged out of the blocks in 1995 with a
strong 6.01% return for the first quarter, as measured by Merrill Lynch's
broadest high yield bond index. This was the market's best performance since
the first quarter of 1992. Modest investor inflows into high yield bond mutual
funds and rallies in U.S. Treasury securities and U.S. stock markets
contributed to the good tone in the high yield bond market. Among the best
performing sectors of the high yield market in 1995's first quarter were two of
the worst losers in 1994, gaming and housing. Despite the bullish sentiment
building among high yield bond portfolio managers, the second half of 1995 may
prove to be more difficult for the high yield bond market than the opening half
due to the difficult cash flow comparisons that many companies may face with
the strong third and fourth quarters of 1994. Within the high yield market, we
believe that portfolio managers will underweight cyclicals and overweight
recession-resistant sectors. Although our view on high yield bonds is cautious
at this juncture, we
2
<PAGE>
SUNAMERICA INCOME FUNDS
believe that this market will still outperform stocks over the next six to nine
months on a total return basis. At year end, our strategy was to maximize the
capital appreciation potential of cyclicals held by the portfolio and then swap
into recession-resistant, stable or improving cash flow situations when it
appeared the market had reached a plateau. We believe that the market is close
to reaching that plateau and have begun to gradually implement the second part
of our strategy.
TAX EXEMPT INSURED FUND
The municipal bond market ended the first quarter 1995 on a strong note having
outperformed most other fixed-income products. Yields on municipal bonds fell,
as a lack of supply and a large amount of new money flowing into the market
resulted in one of the best performing quarters in recent years. As we had
expected, the supply of municipal securities has been drastically reduced from
the amounts offered in 1994. Current estimates for new issue supply in 1995
suggest that the amount of new securities will be 60% less then the prior year.
More importantly, 1995 will also feature one of the largest amounts of bonds
being called, with close to $50 billion in securities being redeemed. This
combination of reduced supply and a major increase in money which will need to
be reinvested should support the municipal market and allow it to continue to
outperform other sectors. The Fund continues to maintain an average maturity of
17 years which remains the most attractive part of the yield curve. In response
to the recent drop in rates, we have made an effort to bolster the call
protection of the Fund's assets. This increased protection against our bonds
being exchanged for cash prior to maturity should stabilize the dividend and
allow us to lock in the recently found higher yields.
The fixed-income markets experienced one of their worst years ever in 1994 and
caused a great deal of anguish. The driving force behind this poor performance
was clearly the underlying strength of the economy and the seven rate increases
by the Federal Reserve. The current economic backdrop suggests that the economy
shows signs of re-acceleration. Under any scenario, we are either close to the
end of tightening or have already seen the last Federal increase. The first
three months of the year have been exceptional for the fixed-income markets and
some consolidation would only be natural at this point. However, the remainder
of the year should bring forth lower rates and better bond prices as the
economy slows of its own weight or further nudging from the Federal Reserve.
/s/ P. Christopher Leary /s/ John C. Mooney
P. Christopher Leary John C. Mooney
Portfolio Manager Portfolio Manager
/s/ Charles J. Dudley
Charles J. Dudley
Portfolio Manager
3
<PAGE>
SUNAMERICA INCOME FUNDS
STATEMENT OF ASSETS AND LIABILITIES -- March 31, 1995
<TABLE>
<CAPTION>
U.S. GOVERNMENT FEDERAL DIVERSIFIED HIGH TAX EXEMPT
SECURITIES FUND SECURITIES FUND INCOME FUND INCOME FUND INSURED FUND
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------
ASSETS:
Investment securities, at
value (identified cost
$684,450,797;
$69,800,933;
$151,255,975;
$190,061,209 and
$154,140,202, respective-
ly)...................... $678,326,383 $69,464,381 $139,167,872 $186,018,721 $160,319,338
Short-term securities
(identified cost
$392,434; $99,924;
$196,055; $0 and
$1,300,000, respectively) 392,871 99,924 196,225 -- 1,300,000
Joint repurchase agree-
ment..................... 101,505,000 11,266,000 3,422,000 3,489,000 --
Cash...................... 333 7,287 226 230 6,550
Interest and dividends re-
ceivable................. 8,665,442 745,096 3,684,907 5,324,370 2,831,127
Receivable for investments
sold..................... 1,570,138 881,252 1,041,173 4,478,904 4,141,878
Receivable for shares of
beneficial interest sold. 233,738 36,693 101,745 276,423 649,878
Prepaid expenses.......... 41,174 28,889 6,080 12,034 21,939
Receivable from distribu-
tor...................... 2,511 -- -- 10,233 --
Receivable from custodian. -- -- -- 102,123 --
------------ ----------- ------------ ------------ ------------
Total assets............. 790,737,590 82,529,522 147,620,228 199,712,038 169,270,710
------------ ----------- ------------ ------------ ------------
LIABILITIES:
Payable for securities
loaned................... 118,343,750 10,262,500 -- -- --
Payable for shares of ben-
eficial interest re-
deemed................... 1,522,680 49,616 233,965 101,248 473,269
Dividends payable......... 1,445,863 177,961 497,015 772,273 344,381
Distribution and service
maintenance fees payable. 532,909 58,000 117,257 139,777 62,917
Investment advisory and
management fees payable.. 378,391 30,830 81,325 121,361 69,840
Accrued expenses.......... 335,635 60,347 99,248 88,156 86,797
Payable for investments
purchased................ -- -- -- 4,870,455 4,293,672
------------ ----------- ------------ ------------ ------------
Total liabilities........ 122,559,228 10,639,254 1,028,810 6,093,270 5,330,876
------------ ----------- ------------ ------------ ------------
Net assets............ $668,178,362 $71,890,268 $146,591,418 $193,618,768 $163,939,834
============ =========== ============ ============ ============
NET ASSETS WERE COMPOSED
OF:
Shares of beneficial in-
terest, $.01 par value... $ 811,385 $ 71,862 $ 352,970 $ 278,214 $ 135,120
Paid-in capital........... 721,584,585 76,338,501 183,296,577 235,667,329 170,149,403
------------ ----------- ------------ ------------ ------------
722,395,970 76,410,363 183,649,547 235,945,543 170,284,523
Accumulated undistributed
(distribution in excess
of) net investment in-
come..................... (1,295,646) (99,141) 311,631 146,988 (216,286)
Accumulated net realized
loss on investments and
futures contracts........ (46,797,985) (4,084,402) (24,941,003) (38,285,060) (12,307,539)
Accumulated net realized
loss on foreign currency,
other assets and liabili-
ties..................... -- -- (340,911) (146,215) --
Net unrealized
appreciation/depreciation
of investments........... (6,123,977) (336,552) (12,087,933) (4,042,488) 6,179,136
Net unrealized apprecia-
tion of foreign currency,
other
assets and liabilities... -- -- 87 -- --
------------ ----------- ------------ ------------ ------------
Net assets............ $668,178,362 $71,890,268 $146,591,418 $193,618,768 $163,939,834
============ =========== ============ ============ ============
CLASS A (UNLIMITED SHARES
AUTHORIZED):
Net asset value and re-
demption price per share
($73,399,166/8,916,920;
$6,258,798/626,947;
$14,213,004/3,429,918;
$40,584,603/5,839,531
and
$137,955,296/11,370,750
net assets and shares of
beneficial interest is-
sued and outstanding,
respectively)........... $ 8.23 $ 9.98 $ 4.14 $ 6.95 $ 12.13
Maximum sales charge
(4.75% of offering
price).................. 0.41 0.50 0.21 0.35 0.60
------------ ----------- ------------ ------------ ------------
Maximum offering price to
public.................. $ 8.64 $ 10.48 $ 4.35 $ 7.30 $ 12.73
============ =========== ============ ============ ============
CLASS B (UNLIMITED SHARES
AUTHORIZED):
Net asset value, offering
and redemption price per
share
($594,779,196/72,221,541;
$65,631,470/6,559,217;
$132,378,414/31,867,128;
$153,034,165/21,981,850
and
$25,984,538/2,141,283
net assets and shares of
beneficial interest is-
sued and outstanding,
respectively)........... $ 8.24 $ 10.01 $ 4.15 $ 6.96 $ 12.14
============ =========== ============ ============ ============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
SUNAMERICA INCOME FUNDS
STATEMENT OF OPERATIONS -- For the year ended March 31, 1995
<TABLE>
<CAPTION>
U.S. GOVERNMENT FEDERAL DIVERSIFIED HIGH TAX EXEMPT
SECURITIES FUND SECURITIES FUND INCOME FUND INCOME FUND INSURED FUND
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest (net of with-
holding taxes of $8,285
on
High Income Fund)....... $69,875,267 $6,094,155 $ 19,709,044 $19,395,424 $11,391,581
Dividends................ -- -- -- 367,063 --
----------- ---------- ------------ ----------- -----------
Total investment income.. 69,875,267 6,094,155 19,709,044 19,762,487 11,391,581
----------- ---------- ------------ ----------- -----------
Expenses:
Investment advisory and
management fees......... 5,033,634 365,395 1,153,494 1,192,998 874,281
Distribution and service
maintenance fees--Class
A....................... 251,367 5,831 52,416 109,589 528,127
Distribution and service
maintenance fees--Class
B....................... 7,088,417 711,995 1,624,850 1,277,571 239,626
Transfer agent fees and
expenses--Class A....... 173,233 19,375 48,353 75,195 386,424
Transfer agent fees and
expenses--Class B....... 1,771,111 206,755 435,516 314,182 59,466
Custodian fees and ex-
penses.................. 1,099,225 109,990 132,395 156,015 108,960
Legal fees and expenses.. 117,925 1,386 6,285 15,105 --
Trustees' fees and ex-
penses.................. 81,098 6,408 17,483 15,640 17,655
Audit and tax consulting
fees.................... 73,610 17,385 32,070 24,500 30,840
Registration fees--Class
A....................... 10,520 7,650 11,097 12,392 16,604
Registration fees--Class
B....................... 68,208 12,709 16,548 20,165 12,522
Insurance expense........ 47,458 1,035 2,979 4,996 31,840
Printing expense......... 18,820 -- 5,360 3,565 2,450
Interest expense......... 678,771 21,542 143,682 143,908 10,217
Miscellaneous expenses... 34,348 4,274 2,212 4,958 5,835
----------- ---------- ------------ ----------- -----------
Total expenses........... 16,547,745 1,491,730 3,684,740 3,370,779 2,324,847
Less: Expenses
waived/reimbursed by
investment adviser
and distributor....... (255,532) (20,954) -- (102,206) (61,214)
----------- ---------- ------------ ----------- -----------
Net expenses............. 16,292,213 1,470,776 3,684,740 3,268,573 2,263,633
----------- ---------- ------------ ----------- -----------
Net investment income..... 53,583,054 4,623,379 16,024,304 16,493,914 9,127,948
----------- ---------- ------------ ----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVEST-
MENTS:
Net realized loss on in-
vestments and futures
contracts................ (45,098,323) (3,546,056) (23,976,569) (22,330,854) (9,524,226)
Net realized loss on for-
eign currency, other as-
sets and
liabilities.............. -- -- (335,830) (105,175) --
Net change in unrealized
appreciation/depreciation
of
investments.............. 12,685,155 1,261,503 (1,943,292) 1,183,178 11,417,085
Net change in unrealized
appreciation/depreciation
of foreign currency,
other assets and liabili-
ties..................... -- -- 4,974 2,926 --
----------- ---------- ------------ ----------- -----------
Net realized and
unrealized gain (loss) on
investments and foreign
currency................. (32,413,168) (2,284,553) (26,250,717) (21,249,925) 1,892,859
----------- ---------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS $21,169,886 $2,338,826 $(10,226,413) $(4,756,011) $11,020,807
=========== ========== ============ =========== ===========
</TABLE>
See Notes to Financial Statements
5
<PAGE>
SUNAMERICA INCOME FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND FEDERAL SECURITIES FUND DIVERSIFIED INCOME FUND
--------------------------------- -------------------------- ----------------------------
FOR THE YEAR FOR THE PERIOD FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1995 1994 (A) 1995 1994 1995 1994(A)
--------------- ---------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income.... $ 53,583,054 $ 58,428,019 $ 4,623,379 $ 6,035,408 $ 16,024,304 $ 4,556,587
Net realized gain (loss)
on investments and
futures contracts....... (45,098,323) (20,974,300) (3,546,056) (1,301,198) (23,976,569) 170,629
Net realized loss on
foreign currency, other
assets and liabilities.. -- -- -- -- (335,830) (5,081)
Net change in unrealized
appreciation/depreciation
of investments.......... 12,685,155 (32,131,136) 1,261,503 (5,391,717) (1,943,292) (10,708,669)
Net change in unrealized
appreciation/depreciation
of foreign currency,
other assets and
liabilities............. -- -- -- -- 4,974 (2,422)
--------------- ---------------- ----------- ----------- ------------ ------------
Increase (decrease) in net
assets resulting
from operations.......... 21,169,886 5,322,583 2,338,826 (657,507) (10,226,413) (5,988,956)
--------------- ---------------- ----------- ----------- ------------ ------------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)........ (4,146,499) (2,119,372) (106,644) (8,142) (1,404,506) (150,231)
From net investment
income (Class B)........ (35,858,561) (29,655,321) (4,158,525) (4,786,019) (14,176,998) (4,400,324)
In excess of net
investment income
(Class A) .............. -- (1,147,456) -- (198) -- --
In excess of net
investment income
(Class B)............... -- (16,055,780) -- (116,160) -- --
Return of capital (Class
A)...................... -- (157,768) -- -- -- --
Return of capital (Class
B)...................... -- (2,207,573) -- -- -- --
From net realized gain
(Class A)............... -- -- -- (576) -- --
From net realized gain
(Class B)............... -- -- -- (338,071) -- --
--------------- ---------------- ----------- ----------- ------------ ------------
Total dividends and
distributions to
shareholders............ (40,005,060) (51,343,270) (4,265,169) (5,249,166) (15,581,504) (4,550,555)
--------------- ---------------- ----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
CAPITAL SHARE
TRANSACTIONS (NOTE 9).... (275,662,086) (251,148,315) (7,785,923) (33,758,032) (14,272,578) 93,930,677
--------------- ---------------- ----------- ----------- ------------ ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS............ (294,497,260) (297,169,002) (9,712,266) (39,664,705) (40,080,495) 83,391,166
NET ASSETS:
Beginning of period....... 962,675,622 1,259,844,624 81,602,534 121,267,239 186,671,913 103,280,747
--------------- ---------------- ----------- ----------- ------------ ------------
End of period [including
undistributed
(distributions in excess
of) net investment income
for March 31, 1995 and
March 31, 1994 of
$(1,295,646),
$(1,886,428), $(99,141),
$(154,916), $311,631 and
$(131,169),
respectively]............ $ 668,178,362 $ 962,675,622 $71,890,268 $81,602,534 $146,591,418 $186,671,913
=============== ================ =========== =========== ============ ============
</TABLE>
-----------
(a) For the periods beginning July 1, 1993 and November 1, 1993 for U.S.
Government Securities Fund and Diversified Income Fund, respectively.
See Notes to Financial Statements
6
<PAGE>
SUNAMERICA INCOME FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
HIGH INCOME FUND TAX EXEMPT INSURED FUND
-------------------------- ----------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, 1994
1995 1994 1995 (A)
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income.... $ 16,493,914 $ 10,531,121 $ 9,127,948 $ 4,026,095
Net realized gain (loss)
on investments and
futures contracts....... (22,330,854) 3,729,025 (9,524,226) (1,045,254)
Net realized loss on
foreign currency, other
assets and liabilities.. (105,175) (39,593) -- --
Net change in unrealized
appreciation/depreciation
of investments.......... 1,183,178 (6,471,318) 11,417,085 (12,089,113)
Net change in unrealized
appreciation/depreciation
of foreign currency,
other assets and
liabilities............. 2,926 (2,926) -- --
------------ ------------ ------------ ------------
Increase (decrease) in
net assets resulting
from operations......... (4,756,011) 7,746,309 11,020,807 (9,108,272)
------------ ------------ ------------ ------------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)........ (3,535,939) (3,488,366) (7,962,945) (3,784,886)
From net investment
income (Class B)........ (13,736,255) (6,963,506) (1,089,883) (249,641)
------------ ------------ ------------ ------------
Total dividends and
distributions to
shareholders............ (17,272,194) (10,451,872) (9,052,828) (4,034,527)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
CAPITAL SHARE
TRANSACTIONS (NOTE 9).... 50,209,365 137,428,490 (24,008,980) 2,851,723
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS............ 28,181,160 134,722,927 (22,041,001) (10,291,076)
NET ASSETS:
Beginning of period....... 165,437,608 30,714,681 185,980,835 196,271,911
------------ ------------ ------------ ------------
End of period [including
undistributed
(distributions in excess
of) net investment income
for March 31, 1995 and
March 31, 1994 of
$146,988, $661,552,
$(216,286) and
$(304,804),
respectively]............ $193,618,768 $165,437,608 $163,939,834 $185,980,835
============ ============ ============ ============
</TABLE>
------------
(a) For the period beginning November 1, 1993 for Tax Exempt Insured Fund.
See Notes to Financial Statements
7
<PAGE>
SUNAMERICA INCOME FUNDS
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
NET
GAIN
(LOSS)
ON DISTRI-
INVEST- BUTIONS
MENTS TOTAL DIVIDENDS DISTRI- IN EXCESS NET
NET ASSET (BOTH FROM FROM NET BUTIONS OF NET ASSET
VALUE, NET REALIZED INVEST- INVEST- FROM RETURN INVEST- TOTAL VALUE,
PERIOD BEGINNING INVESTMENT AND MENT MENT OTHER OF MENT DISTRI- END OF TOTAL
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME SOURCES CAPITAL INCOME BUTIONS PERIOD RETURN(2)
---------------- --------- ---------- ----------- ---------- --------- ------- ------- --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
-------
10/01/93-
3/31/94(11).... $8.68 $0.28 $(0.34) $(0.06) $(0.14) $ -- $(0.01) $(0.08) $(0.23) $8.39 (0.68)%
3/31/95......... 8.39 0.61 (0.30) 0.31 (0.47) -- -- -- (0.47) 8.23 3.89
Class B
-------
6/30/91(6)...... $8.90 $0.82 $ -- $ 0.82 $(0.73) $(0.09) $ -- $ -- $(0.82) $8.90 9.55%
6/30/92(6)...... 8.90 0.73 (0.02) 0.71 (0.57) (0.16) -- -- (0.73) 8.88 8.33
6/30/93(6)...... 8.88 0.64 (0.17) 0.47 (0.44) (0.17) -- -- (0.61) 8.74 5.49
7/01/93-
3/31/94........ 8.74 0.43 (0.40) 0.03 (0.24) -- (0.01) (0.13) (0.38) 8.39 0.25
3/31/95......... 8.39 0.56 (0.30) 0.26 (0.41) -- -- -- (0.41) 8.24 3.25
<CAPTION>
RATIO OF RATIO OF
NET EXPENSES NET
ASSETS TO INVESTMENT
END OF AVERAGE INCOME TO
PERIOD PERIOD NET AVERAGE PORTFOLIO
ENDED (000'S) ASSETS NET ASSETS TURNOVER
---------------- ---------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
Class A
-------
10/01/93-
3/31/94(11).... $ 76,586 1.35%(3)(4) 6.83%(3)(4) 35%
3/31/95......... 73,399 1.46(5) 7.50(5) 105
Class B
-------
6/30/91(6)...... $ 513,062 1.98%(7) 9.31%(7) 38%
6/30/92(6)...... 1,075,668 1.92 8.21 54
6/30/93(6)...... 1,259,845 1.82(8) 7.27(8) 73
7/01/93-
3/31/94........ 886,089 1.95(3)(9) 6.61(3)(9) 35
3/31/95......... 594,779 2.15(10) 6.80(10) 105
</TABLE>
--------------------------------------------------------------------------------
FEDERAL SECURITIES FUND
<TABLE>
<CAPTION>
NET
GAIN
(LOSS)
ON DISTRI-
INVEST- BUTIONS
MENTS TOTAL DIVIDENDS DISTRI- IN EXCESS NET NET
NET ASSET NET (BOTH FROM FROM NET BUTIONS OF NET ASSET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM INVEST- TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL MENT DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS INCOME BUTIONS PERIOD RETURN(2) (000'S)
---------------- --------- ------- ----------- ---------- --------- ------- --------- ------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
-------
10/11/93-
3/31/94(11) $10.58 $0.22(1) $(0.34) $(0.12) $(0.23) $(0.01) $ -- $(0.24) $10.22 (1.14)% $ 592
3/31/95......... 10.22 0.60(1) (0.20) 0.40 (0.64) -- -- (0.64) 9.98 4.18 6,259
Class B
-------
3/31/91(14)..... $ 9.91 $0.77 $ 0.44 $ 1.21 $(0.77) $ -- $ -- $(0.77) $10.35 12.78 % $129,108
3/31/92(14)..... 10.35 0.77 0.29 1.06 (0.77) -- -- (0.77) 10.64 10.57 120,454
3/31/93(14)..... 10.64 0.70 0.14 0.84 (0.64) -- -- (0.64) 10.84 8.06 121,267
3/31/94......... 10.84 0.62(1) (0.71) (0.09) (0.49) (0.03) (0.01) (0.53) 10.22 (0.89) 81,011
3/31/95......... 10.22 0.63(1) (0.26) 0.37 (0.58) -- -- (0.58) 10.01 3.81 65,631
<CAPTION>
RATIO OF RATIO OF
EXPENSES NET
TO INVESTMENT
AVERAGE INCOME TO
PERIOD NET AVERAGE PORTFOLIO
ENDED ASSETS NET ASSETS TURNOVER
---------------- -------------- --------------- ---------
<S> <C> <C> <C>
Class A
-------
10/11/93-
3/31/94(11) 1.39%(3)(12) 4.68%(3)(12) 68%
3/31/95......... 1.40(13) 6.90(13) 267
Class B
-------
3/31/91(14)..... 1.93% 7.67% 23%
3/31/92(14)..... 1.90 7.32 57
3/31/93(14)..... 1.85 6.36 97
3/31/94......... 1.98 5.79 68
3/31/95......... 2.03 6.33 267
</TABLE>
------------
(1) Calculated based upon average shares outstanding.
(2) Total return is not annualized and does not reflect sales load.
(3) Annualized
(4) Net of expense reimbursement equivalent to .10% of average net assets in
fiscal 1994.
(5) Net of expense reimbursement equivalent to .07% of average net assets in
fiscal 1995.
(6) Shares of SAUSGF have been redesignated as Class B shares of U.S.
Government Securities Fund.
(7) Net of expense reimbursement equivalent to .08% of average net assets in
fiscal 1991.
(8) Net of expense reimbursement equivalent to .02% of average net assets in
fiscal 1993.
(9) Net of expense reimbursement equivalent to .06% of average net assets in
fiscal 1994.
(10) Net of expense reimbursement equivalent to .03% of average net assets in
fiscal 1995.
(11) Commencement of sale of respective class of shares.
(12) Net of expense reimbursement equivalent to 6.74% of average net assets in
fiscal 1994.
(13) Net of expense reimbursement equivalent to 1.26% of average net assets in
fiscal 1995.
(14) Shares of SAFSF have been redesignated as Class B shares of Federal
Securities Fund.
See Notes to Financial Statements
8
<PAGE>
SUNAMERICA INCOME FUNDS
FINANCIAL HIGHLIGHTS
DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
NET GAIN
(LOSS) ON RATIO OF RATIO OF
INVESTMENTS NET NET EXPENSES NET
NET ASSET (BOTH DIVIDENDS ASSET ASSETS TO INVESTMENT
VALUE, NET REALIZED TOTAL FROM FROM NET VALUE, END OF AVERAGE INCOME TO
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT END OF TOTAL PERIOD NET AVERAGE
PERIOD ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME PERIOD RETURN(1) (000'S) ASSETS NET ASSETS
---------------- --------- ---------- ----------- ---------- ---------- ------ --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
-------
10/05/93 -
10/31/93(3).... $5.05 $0.02(2) $0.01 $0.03 $(0.01) $5.07 0.65% $ 762 1.40%(4) 8.92%(4)
11/01/93 -
3/31/94........ 5.07 0.13(2) (0.23) (0.10) (0.18) 4.79 (2.10) 12,600 1.42 (4)(5) 8.25 (4)(5)
3/31/95......... 4.79 0.43(2) (0.66) (0.23) (0.42) 4.14 (5.10) 14,213 1.59 9.58
Class B
-------
4/06/91 -
10/31/91(6)(7). $5.29 $0.28 $(0.08) $0.20 $(0.28) $5.21 3.40% $ 39,790 0.00%(4)(8) 8.87%(4)(8)
10/31/92(6)(7).. 5.21 0.42 (0.41) 0.01 (0.40) 4.82 0.16 35,409 0.74 (9) 7.81 (9)
10/31/93(6)(7).. 4.82 0.38(2) 0.24 0.62 (0.37) 5.07 13.35 102,519 1.78 (10) 7.53 (10)
11/01/93 -
3/31/94........ 5.07 0.15(2) (0.27) (0.12) (0.16) 4.79 (2.52) 174,072 2.11 (4) 7.48 (4)
3/31/95......... 4.79 0.40(2) (0.65) (0.25) (0.39) 4.15 (5.46) 132,378 2.12 8.98
<CAPTION>
PORTFOLIO
PERIOD ENDED TURNOVER
----------------- ---------
<S> <C>
Class A
-------
10/05/93 -
10/31/93(3).... 249%
11/01/93 -
3/31/94........ 48
3/31/95......... 160
Class B
-------
4/06/91 -
10/31/91(6)(7). 8%
10/31/92(6)(7).. 191
10/31/93(6)(7).. 249
11/01/93 -
3/31/94........ 48
3/31/95......... 160
</TABLE>
--------------------------------------------------------------------------------
HIGH INCOME FUND
<TABLE>
<CAPTION>
NET GAIN
(LOSS) ON RATIO OF
INVESTMENTS NET NET EXPENSES
NET ASSET (BOTH DIVIDENDS ASSET ASSETS TO
VALUE, NET REALIZED TOTAL FROM FROM NET VALUE, END OF AVERAGE
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT END OF TOTAL PERIOD NET
PERIOD ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME PERIOD RETURN(1) (000'S) ASSETS
---------------- --------- ---------- ----------- ---------- ---------- ------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
-------
03/31/91(11)(12). $7.11 $0.88 $(0.27) $ 0.61 $(0.88) $6.84 9.51% $ 19,347 1.90%
03/31/92(11)(12). 6.84 0.95 1.28 2.23 (1.00) 8.07 35.27 22,607 1.57
03/31/93(11)(12). 8.07 0.95 0.18 1.13 (1.08) 8.12 15.05 30,715 1.77
03/31/94(11)(12). 8.12 0.87(2) (0.14) 0.73 (0.82) 8.03 9.14 33,724 1.72
3/31/95......... 8.03 0.78(2) (1.03) (0.25) (0.83) 6.95 (2.91) 40,585 1.61
Class B
-------
10/01/93 -
03/31/94(3).... $8.18 $0.38(2) $(0.17) $ 0.21 $(0.35) $8.04 2.46% $131,713 2.15%(4)(13)
3/31/95......... 8.04 0.73(2) (1.02) (0.29) (0.79) 6.96 (3.42) 153,034 2.16 (14)
<CAPTION>
RATIO OF
NET
INVESTMENT
INCOME TO
AVERAGE PORTFOLIO
PERIOD ENDED NET ASSETS TURNOVER
------------------ ---------------- ---------
<S> <C> <C>
Class A
-------
03/31/91(11)(12). 12.77% 95%
03/31/92(11)(12). 13.19 208
03/31/93(11)(12). 11.08 232
03/31/94(11)(12). 10.34 290
3/31/95......... 10.82 196
Class B
-------
10/01/93 -
03/31/94(3).... 9.07%(4)(13) 290%
3/31/95......... 10.26 (14) 196
</TABLE>
------------
(1) Total return is not annualized and does not reflect sales load.
(2) Calculated based upon average shares outstanding.
(3) Commencement of sale of respective class of shares.
(4) Annualized
(5) Net of expense reimbursement equivalent to .62% of average net assets in
fiscal 1994.
(6) Shares of SADIF have been redesignated as Class B shares of Diversified
Income Fund.
(7) Restated to reflect 1.889180183-for-1 stock split effective December 16,
1992.
(8) Net of expense reimbursement equivalent to 2.31% of average net assets in
fiscal 1991.
(9) Net of expense reimbursement equivalent to 1.25% of average net assets in
fiscal 1992.
(10) Net of expense reimbursement equivalent to .38% of average net assets in
fiscal 1993.
(11) Shares of SAHYP have been redesignated as Class A shares of High Income
Fund.
(12) Restated to reflect 1.174107276-for-1 stock split effective October 1,
1993.
(13) Net of expense reimbursement equivalent to .08% of average net assets in
fiscal 1994.
(14) Net of expense reimbursement equivalent to .08% of average net assets in
fiscal 1995.
See Notes to Financial Statements
9
<PAGE>
SUNAMERICA INCOME FUNDS
FINANCIAL HIGHLIGHTS
TAX EXEMPT INSURED FUND
<TABLE>
<CAPTION>
NET GAIN
(LOSS) ON RATIO OF
INVESTMENTS NET NET EXPENSES
NET ASSET (BOTH DIVIDENDS ASSET ASSETS TO
VALUE, NET REALIZED TOTAL FROM FROM NET VALUE, END OF AVERAGE
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT END OF TOTAL PERIOD NET
PERIOD ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME PERIOD RETURN(1) (000'S) ASSETS
---------------- --------- ---------- ----------- ---------- ---------- ------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
-------
10/31/91 (2).... $12.20 $0.81 $ 0.21 $ 1.02 $(0.81) $12.41 8.62% $ 95,246 1.32%
10/31/92 (2).... 12.41 0.79 (0.07) 0.72 (0.80)(3) 12.33 5.93 110,364 1.25
10/31/93 (2).... 12.33 0.70(4) 0.50 1.20 (0.74) 12.79 9.95 191,350 1.10 (5)
11/01/93-
3/31/94........ 12.79 0.26(4) (0.84) (0.58) (0.26) 11.95 (4.61) 165,216 1.28 (6)(7)
3/31/95......... 11.95 0.63(4) 0.17 0.80 (0.62) 12.13 6.97 137,955 1.20 (9)
Class B
-------
10/04/93-
10/31/93(8).... $12.84 $0.02(4) $(0.05) $(0.03) $(0.02) $12.79 (0.24)% $ 4,922 1.96%(6)
11/01/93-
3/31/94........ 12.79 0.22(4) (0.83) (0.61) (0.23) 11.95 (4.84) 20,765 2.12 (6)
3/31/95......... 11.95 0.54(4) 0.19 0.73 (0.54) 12.14 6.29 25,985 1.92
<CAPTION>
RATIO OF
NET
INVESTMENT
INCOME TO
AVERAGE PORTFOLIO
PERIOD ENDED NET ASSETS TURNOVER
---------------- --------------- ---------
<S> <C> <C>
Class A
-------
10/31/91 (2).... 6.57% 16%
10/31/92 (2).... 6.26 21
10/31/93 (2).... 5.56 (5) 26
11/01/93-
3/31/94........ 4.99 (6)(7) 52
3/31/95......... 5.32 (9) 162
Class A
-------
10/04/93-
10/31/93(8).... 4.09%(6) 26%
11/01/93-
3/31/94........ 4.17 (6) 52
3/31/95......... 4.60 162
</TABLE>
------------
(1) Total return is not annualized and does not reflect sales load.
(2) Shares of SATEF have been redesignated as Class A shares of Tax Exempt
Insured Fund.
(3) Prior year amounts reclassified to net investment income.
(4) Calculated based upon average shares outstanding.
(5) Net of expense reimbursement equivalent to .10% of average net assets in
fiscal 1993.
(6) Annualized
(7) Net of expense reimbursement equivalent to .11% of average net assets in
fiscal 1994.
(8) Commencement of sale of respective class of shares.
(9) Net of expense reimbursement equivalent to .04% of average net assets in
fiscal 1995.
See Notes to Financial Statements
10
<PAGE>
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1995
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERAL HOME LOAN MORTGAGE
CORP.--22.9%
<S> <C> <C>
6.94% due 5/15/06 (3)................................. $ 5,000 $ 4,060,938
7.50% due 6/25/23..................................... 10,000 9,721,800
8.00% due 3/15/17 (1)................................. 34,896 4,179,334
8.50% due 6/01/01-1/01/02............................. 67 68,446
9.00% due 1/01/02 - 10/01/16.......................... 753 769,018
9.25% due 9/01/08 - 3/01/17........................... 742 759,287
9.50% due 9/01/16 - 9/01/21........................... 9,343 9,733,466
10.00% due 10/01/02 - 8/01/21......................... 19,577 20,775,806
10.00% due 5/01/05 (2)................................ 228 230,957
10.50% due 6/01/00 - 1/01/21.......................... 1,221 1,305,911
10.75% due 9/01/00 - 1/01/15.......................... 294 314,574
11.00% due 9/01/00 - 6/01/17.......................... 3,069 3,296,679
11.25% due 11/01/13................................... 89 95,775
11.50% due 11/01/01 - 7/01/19......................... 1,479 1,594,144
11.75% due 8/01/11 - 10/01/14......................... 203 218,270
12.00% due 7/01/99 - 7/01/20.......................... 20,187 21,946,699
12.13% due 9/01/11.................................... 981 1,066,983
12.25% due 10/01/99 - 7/01/15......................... 1,453 1,577,222
12.50% due 8/01/99 - 7/01/19.......................... 32,530 36,017,999
12.52% due 2/15/21 (2)(3)............................. 221 200,344
12.75% due 2/01/00 - 6/01/15.......................... 1,616 1,785,988
13.00% due 5/01/00 - 12/01/15......................... 17,191 19,197,528
13.25% due 11/01/10 - 5/01/15......................... 1,620 1,806,754
13.50% due 11/01/01 - 2/01/19......................... 9,704 10,922,728
13.75% due 7/01/11 - 8/01/14.......................... 101 113,409
14.00% due 10/01/09 - 4/01/16......................... 908 1,022,136
14.50% due 1/01/10 - 5/01/13.......................... 175 196,616
14.75% due 3/01/10.................................... 2 2,438
-------------
TOTAL FEDERAL HOME LOAN
MORTGAGE CORP.
(cost $153,341,740)................................... 152,981,249
-------------
<CAPTION>
FEDERAL NATIONAL MORTGAGE
ASSOCIATION--16.7%
<S> <C> <C>
5.20% due 11/25/21 (1)................................ 879 12,625,144
6.00% due 11/01/03.................................... 8,002 7,590,722
6.50% due 8/01/99 - 1/01/01........................... 8,423 8,144,279
8.00% due 12/01/22 - 1/01/23.......................... 19,344 19,150,735
8.50% due 9/25/20 (2)................................. 600 600,000
9.00% due 12/01/97 - 5/01/07.......................... 4,288 4,441,144
9.25% due 12/01/10 - 1/01/17.......................... 483 497,162
10.25% due 6/01/14 - 7/01/16.......................... 147 156,240
10.50% due 3/01/15.................................... 440 473,599
11.00% due 3/01/09 - 8/01/20.......................... 2,117 2,298,676
11.50% due 5/01/00 - 3/01/14.......................... 964 1,029,264
11.75% due 3/01/15 - 11/01/15......................... 62 67,392
12.00% due 9/01/07 - 4/01/19.......................... 17,780 19,558,975
12.25% due 9/01/99 - 10/01/15......................... 2,385 2,617,786
12.50% due 12/01/97 - 9/01/15......................... 10,366 11,474,158
12.75% due 9/01/12 - 9/01/15.......................... 947 1,048,928
13.00% due 10/01/09 - 9/01/16......................... 13,280 14,873,185
13.25% due 10/01/12 - 2/01/15......................... 337 376,831
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (CONTINUED)
<S> <C> <C>
13.50% due 1/01/10 - 2/01/17......................... $ 2,470 $ 2,779,075
13.75% due 11/01/11 - 10/01/14....................... 220 246,981
14.00% due 10/01/14.................................. 531 602,603
14.50% due 7/01/11................................... 303 343,826
14.75% due 7/01/12................................... 148 174,800
15.00% due 10/01/12 - 2/01/13........................ 199 225,386
15.50% due 10/01/12.................................. 101 115,329
-----------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
(cost $108,977,811).................................. 111,512,220
-----------
<CAPTION>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--26.1%
<S> <C> <C>
6.50% due 12/15/98 - 10/15/04........................ 7,638 7,100,844
7.00% due 11/15/22 - 10/15/23........................ 23,267 21,761,449
7.50% due 1/15/17 - 10/15/23......................... 30,579 29,517,999
8.50% due 6/15/01 - 7/15/17.......................... 18,789 19,282,312
9.00% due 6/15/01 - 12/15/20......................... 13,586 14,056,511
9.50% due 2/15/98 - 7/15/20.......................... 4,703 4,936,614
10.00% due 3/15/98 - 5/15/19......................... 3,458 3,653,314
10.25% due 7/15/15................................... 102 112,414
10.50% due 11/15/97 - 6/15/21........................ 12,977 13,989,358
11.00% due 2/15/98 - 4/15/21......................... 8,970 9,802,233
11.50% due 3/15/98 - 1/15/21......................... 11,652 12,910,385
11.75% due 7/15/13 - 11/15/15........................ 1,436 1,560,532
12.00% due 9/15/98 - 10/15/19........................ 5,624 6,270,821
12.25% due 8/15/13 - 7/15/15......................... 1,473 1,629,489
12.50% due 4/15/10 - 3/15/16......................... 11,170 12,615,005
12.75% due 10/15/13.................................. 6 6,284
13.00% due 11/15/10 - 6/15/15........................ 5,753 6,467,777
13.25% due 7/15/14 - 11/15/14........................ 133 147,307
13.50% due 5/15/10 - 5/15/15......................... 4,087 4,621,855
14.00% due 5/15/11 - 12/15/14........................ 1,979 2,252,776
15.00% due 6/15/11 - 9/15/12......................... 1,152 1,333,941
16.00% due 12/15/11 - 7/15/12........................ 375 435,723
-----------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(cost $181,887,750).................................. 174,464,943
-----------
<CAPTION>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION II--2.0%
<S> <C> <C>
10.00% due 9/20/16 - 4/20/19......................... 31 33,057
11.00% due 7/20/00................................... 45 47,403
11.50% due 8/20/13 - 7/20/20......................... 1,928 2,092,043
11.75% due 11/20/14 - 2/20/16........................ 748 814,935
12.00% due 10/20/13 - 5/20/15........................ 1,191 1,302,895
12.25% due 2/20/14 - 10/20/15........................ 156 170,736
12.50% due 9/20/13 - 1/20/15......................... 5,525 6,104,319
12.75% due 11/20/13 - 7/20/15........................ 255 279,551
13.00% due 9/20/13 - 10/20/14........................ 2,355 2,599,467
</TABLE>
11
<PAGE>
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1995 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION II (CONTINUED)
13.25% due 8/20/14 - 5/20/15.......................... $ 90 $ 98,281
13.50% due 10/20/14................................... 81 89,687
-------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION II
(cost $13,898,177).................................... 13,632,374
-------------
U.S. FEDERAL AGENCY--5.8%
United States Department Veteran Affairs
6.00% due 5/15/07.................................... 16,504 15,854,732
6.50% due 10/15/05................................... 22,577 22,497,982
7.75% due 9/15/04.................................... 697 697,381
-------------
TOTAL U.S. FEDERAL AGENCY
(cost $40,665,319).................................... 39,050,095
-------------
U.S. TREASURY NOTES--13.4%
5.00% due 1/31/99..................................... 15,000 13,996,800
5.63% due 8/31/97..................................... 25,000 24,316,500
7.25% due 8/15/04..................................... 30,000 30,004,800
7.88% due 11/15/04.................................... 20,000 20,862,400
-------------
TOTAL U.S. TREASURY NOTES
(cost $90,007,031).................................... 89,180,500
-------------
U.S. TREASURY BONDS--14.6%
7.50% due 11/15/24.................................... 65,000 65,121,550
7.63% due 2/15/25..................................... 31,700 32,383,452
-------------
TOTAL U.S. TREASURY BONDS
(cost $95,672,969).................................... 97,505,002
-------------
TOTAL INVESTMENT SECURITIES--101.5%
(cost $684,450,797)................................... 678,326,383
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM SECURITIES--0.1%
United States Treasury Bills
6.19% due 7/20/95
(cost $392,434)............................ $ 400 $ 392,871
-------------
REPURCHASE AGREEMENT--15.2%
Joint Repurchase Agreement Account (Note 5)
(cost $101,505,000)........................ 101,505 101,505,000
-------------
TOTAL INVESTMENTS--
(cost $786,348,231*)........................ 116.8% 780,224,254
Liabilities in excess of other assets........ (16.8) (112,045,892)
------- -------------
NET ASSETS-- 100.0% $ 668,178,362
======= =============
</TABLE>
--------
* See Note 8
(1) PAC IO ("Planned Amortization Class Interest Only") Bond
(2) Fair valued security, see Note 4
(3) Inverse floaters
See Notes to Financial Statements
12
<PAGE>
SUNAMERICA FEDERAL SECURITIES FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
-------------------------------------------------------------------------------
<S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORP.--0.1%
12.50% due 9/30/13..................................... $ 28 $ 28,358
13.50% due 2/01/14..................................... 8 8,877
14.75% due 3/01/10..................................... 13 14,890
------------
TOTAL FEDERAL HOME LOAN MORTGAGE CORP.
(cost $49,198)......................................... 52,125
------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION--0.0%
15.50% due 10/01/12
(cost $10,795)......................................... 13 14,320
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--65.7%
7.00% due 3/15/23...................................... 14,170 13,253,615
8.50% due 3/15/17 - 9/15/24............................ 15,307 15,527,764
9.00% due 9/15/08 - 5/15/17............................ 14,604 15,147,476
11.00% due 11/15/15.................................... 824 906,350
11.25% due 8/15/15..................................... 126 136,796
12.00% due 5/15/15..................................... 144 160,804
12.25% due 9/15/13..................................... 1,101 1,217,497
12.50% due 11/15/10.................................... 225 254,063
13.00% due 12/15/10 - 1/15/11.......................... 419 472,040
13.25% due 10/15/13.................................... 21 22,910
13.50% due 5/15/11 - 10/15/12.......................... 100 113,123
------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(cost $48,004,709)..................................... 47,212,438
------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION II--2.7%
10.00% due 10/20/13.................................... 668 703,068
11.00% due 12/20/13.................................... 97 104,087
12.00% due 3/20/15..................................... 474 518,885
12.25% due 12/20/14.................................... 536 588,387
13.00% due 6/20/14..................................... 18 20,091
13.75% due 9/20/14..................................... 15 16,680
------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION II
(cost $1,894,825)...................................... 1,951,198
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY BONDS--28.1%
7.50% due 11/15/24..................................... $10,000 $ 10,018,700
7.63% due 2/15/25...................................... 10,000 10,215,600
------------
TOTAL U.S. TREASURY BONDS
(cost $19,841,406)..................................... 20,234,300
------------
TOTAL INVESTMENT SECURITIES--96.6%
(cost $69,800,933)..................................... 69,464,381
------------
SHORT-TERM SECURITIES--0.1%
United States Treasury Bills
5.47% due 4/6/95 (cost $99,924)........................ 100 99,924
------------
REPURCHASE AGREEMENT--15.7%
Joint Repurchase Agreement
Account (Note 5)
(cost $11,266,000)..................................... 11,266 11,266,000
------------
TOTAL INVESTMENTS--
(cost $81,166,857*).................................... 112.4% 80,830,305
Liabilities in excess of other assets................... (12.4) (8,940,037)
------- ------------
NET ASSETS-- 100.0% $71,890,268
======= ============
</TABLE>
--------
* See Note 8
See Notes to Financial Statements
13
<PAGE>
SUNAMERICA DIVERSIFIED INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES--56.9%
BROADCASTING--2.0%
NWCG Holding Corp.
Sr. Disc. Notes, Series B
zero coupon due 6/15/99............................... $ 5,000 $ 2,887,500
------------
CABLE--2.6%
Adelphia Communications Corp.
Sr. Notes, Series B/PIK
9.50% due 2/15/04(1).................................. 2,192 1,624,524
American Telecasting, Inc.
Sr. Disc. Notes
zero coupon due 6/15/04(3)............................ 2,000 1,015,000
United International Holdings, Inc.
Sr. Disc. Notes
zero coupon due 11/15/99(6)........................... 2,000 1,115,000
------------
3,754,524
------------
CHEMICALS--3.9%
Arcadian Partners L.P.
Sr. Notes, Series B
10.75% due 5/01/05.................................... 1,000 982,500
LaRoche Industries, Inc.
Sr. Subordinated Notes
13.00% due 8/15/04.................................... 3,500 3,500,000
OSI Specialties Holdings Co.
Sr. Secured Disc. Debentures,
Series B
zero coupon due 4/15/04(3)............................ 2,000 1,310,000
------------
5,792,500
------------
COMPUTERS--4.1%
Computervision Corp.
Sr. Subordinated Notes
11.38% due 8/15/99.................................... 3,000 2,745,000
Unisys Corp.
Credit Sensitive Notes
13.50% due 7/01/97.................................... 3,000 3,277,500
------------
6,022,500
------------
FOOD & BEVERAGES--0.6%
All American Bottling Corp.
Sr. Secured Notes
13.00% due 8/15/01.................................... 1,000 825,000
------------
FOREST PRODUCTS--4.9%
Fort Howard Corp.
Subordinated Debentures
12.63% due 11/01/00................................... 3,000 3,097,500
Ivex Holdings Corp.
Sr. Debentures, Series B
zero coupon due 3/15/05(3)............................ 2,000 960,000
Stone Container Corp.
Sr. Notes
11.50% due 10/01/04................................... 3,000 3,150,000
------------
7,207,500
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
GAMING--0.7%
Harrah's Jazz Co.
First Mortgage Notes
14.25% due 11/15/01................................... $ 1,000 $ 1,070,000
------------
GROCERY--4.4%
Farm Fresh, Inc.
Sr. Notes
12.25% due 10/01/00................................... 1,750 1,627,500
Kash 'N Karry Food Stores, Inc.
Sr. Notes/PIK
11.50% due 2/01/03(1)................................. 4,930 4,760,561
------------
6,388,061
------------
HEALTH SERVICES--3.6%
Amerisource Distribution Corp.
Sr. Debentures/PIK
11.25% due 7/15/05(1)................................. 1,056 1,140,750
Dade International, Inc.
Sr. Subordinated Notes
13.00% due 2/01/05(2)................................. 1,500 1,522,500
National Medical Enterprises, Inc.
Sr. Subordinated Notes
10.13% due 3/01/05.................................... 2,500 2,565,625
------------
5,228,875
------------
HOTELS & RESTAURANTS--2.7%
American Restaurant Group, Inc.
Sr. Secured Notes
12.00% due 9/15/98.................................... 2,000 1,820,000
Carrols Corp.
Sr. Notes
11.50% due 8/15/03.................................... 1,000 920,000
Flagstar Corp.
Sr. Subordinated Debentures
11.25% due 11/01/04................................... 1,500 1,260,000
------------
4,000,000
------------
HOUSING--0.6%
Peters (J.M.) Co., Inc.
Sr. Notes
12.75% due 5/01/02.................................... 1,000 825,000
------------
INDUSTRIAL--4.1%
Calmar, Inc.
Sr. Secured Notes
12.00% due 12/15/97................................... 2,000 2,020,000
Georgia Marble Co.
Subordinated Notes
17.00% due 1/01/96(5)................................. 2,000 1,230,000
International Semi-Tech Microelectronic, Inc.
Sr. Secured Disc. Notes
zero coupon due 8/15/03(3)............................ 4,000 1,760,000
</TABLE>
14
<PAGE>
SUNAMERICA DIVERSIFIED INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1995 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
INDUSTRIAL (CONTINUED)
MVE, Inc.
Sr. Secured Notes
12.50% due 2/15/02(6).................................... $ 1,000 $1,025,000
----------
6,035,000
----------
MEDIA--3.8%
Katz Corp.
Sr. Subordinated Notes
12.75% due 11/15/02...................................... 3,000 3,135,000
Sullivan Graphics, Inc.
Sr. Subordinated Debentures
15.00% due 2/01/00....................................... 2,300 2,432,250
----------
5,567,250
----------
OIL & GAS--0.6%
DeepTech International, Inc.
Sr. Secured Notes
12.00% due 12/15/00...................................... 1,000 880,000
----------
RETAIL--8.2%
County Seat Stores, Inc.
Sr. Subordinated Notes
12.00% due 10/01/01...................................... 2,000 1,990,000
Hills Stores Co.
Sr. Notes
10.25% due 9/30/03....................................... 2,000 1,940,000
Parisian, Inc.
Sr. Subordinated Notes
9.88% due 7/15/03........................................ 3,000 2,062,500
Rickel Home Centers, Inc.
Sr. Notes
13.50% due 12/15/01(6)................................... 2,000 1,900,000
Thrifty Payless Holdings, Inc.
Sr. Subordinated Notes
12.25% due 4/15/04(6).................................... 2,000 2,150,000
Thrifty Payless Holdings, Inc.
Sr. Subordinated Notes
12.25% due 4/15/04....................................... 2,000 2,020,000
----------
12,062,500
----------
STEEL--1.4%
A.K. Steel Corp.
Sr. Notes
10.75% due 4/01/04....................................... 2,000 2,017,500
----------
TELECOMMUNICATIONS--7.5%
Comcast Cellular Corp.
Notes
zero coupon due 3/05/00.................................. 3,000 2,160,000
Dial Page, Inc.
Sr. Notes
12.25% due 2/15/00....................................... 3,000 3,030,000
Echostar Communications Corp.
Sr. Disc. Notes
zero coupon due 6/01/04(3)(6)............................ 3,000 1,440,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
Mobile Telecommunication Technologies Corp.
Sr. Subordinated Disc. Notes
13.50% due 12/15/02............................... $ 1,000 $ 1,038,750
PanAmSat, L.P.
Sr. Subordinated Notes
zero coupon due 8/01/03(3)........................ 5,000 3,300,000
------------
10,968,750
------------
TRANSPORTATION--1.2%
Burlington Motor Holdings, Inc.
Sr. Subordinated Notes
11.50% due 11/01/03............................... 2,000 1,780,000
------------
TOTAL CORPORATE BONDS & NOTES
(cost $85,695,914)................................ 83,312,460
------------
FOREIGN BONDS & NOTES--18.1%
BANKS--1.1%
Banco Rio de La Plata SA
Notes
8.75% due 12/15/03................................ 1,000 592,500
Unibanco - Uniao de Bancos
Brasileiros SA
Notes
11.13% due 11/28/97(2)............................ 1,000 955,000
------------
1,547,500
------------
CEMENT--0.5%
Cemex SA and Tolmex
Debentures
10.00% due 11/05/99............................... 1,000 715,000
------------
CONGLOMERATES--0.9%
Grupo IRSA SA de CV
Notes
8.38% due 7/15/98................................. 2,000 1,271,250
------------
FINANCE--0.9%
European Investment Bank
Debentures
6.63% due 3/15/00(4).............................. JPY 100,000 1,331,491
------------
FOOD & BEVERAGES--0.5%
Grupo Embatellador de Mexico
Bearer Notes
10.75% due 11/19/97............................... 1,000 725,000
------------
FOREST PRODUCTS--1.4%
Grupo Industrial Durango SA
de CV
Sr. Notes
12.00% due 7/15/01................................ 3,000 2,085,000
------------
GOVERNMENT/AGENCY--8.5%
Federative Republic of Brazil
Capitalization Bonds
4.00% due 4/15/14................................. 7,140 2,623,950
</TABLE>
15
<PAGE>
SUNAMERICA DIVERSIFIED INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1995 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN
THOUSANDS)/ VALUE
SECURITY DESCRIPTION WARRANTS (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN BONDS & NOTES (CONTINUED)
GOVERNMENT/AGENCY (CONTINUED)
Federative Republic of Brazil
Disc. Notes
4.00% due 4/15/24(7).................................. $ 4,000 $ 1,447,500
Republic of Argentina
Disc. Notes
4.25% due 3/31/23(7).................................. 4,500 1,842,187
Republic of Argentina
Disc. Notes
7.13% due 3/31/23(7).................................. 4,000 2,102,500
Republic of Argentina
Sr. Unsubordinated
8.38% due 12/20/03.................................... 4,000 2,630,000
Republic of Argentina
Bonds
10.95% due 11/01/99................................... 2,000 1,778,750
------------
12,424,887
------------
OIL & GAS--1.7%
Bridas Corp.
Sr. Notes
12.50% due 11/15/99................................... 2,000 1,610,000
Petroleos Mexicanos
Debentures
8.63% due 12/01/23.................................... 2,000 950,000
------------
2,560,000
------------
TELECOMMUNICATIONS--1.6%
Telecom Argentina
Debentures
8.38% due 10/18/00.................................... 3,000 2,317,500
------------
TOBACCO--1.0%
Empresas La Moderna
Bearer Notes
10.25% due 11/12/97(2)................................ 2,000 1,510,000
------------
TOTAL FOREIGN BONDS & NOTES
(cost $34,443,292).................................... 26,487,628
------------
WARRANTS--0.0%+
CABLE--0.0%
American Telecasting, Inc.(8)......................... 10,000 100
------------
CHEMICALS--0.0%
OSI Specialties Holdings Co........................... 2,000 40,000
------------
FOOD & BEVERAGES--0.0%
Browne Bottling Co.(8)................................ 475 5
------------
HOUSING--0.0%
Peters (J.M.) Co., Inc.(8)............................ 7,900 79
------------
TOTAL WARRANTS
(cost $105)........................................... 40,184
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCIES--20.0%
FEDERAL HOME LOAN BANK--3.2%
4.35% due 12/02/97.................................... $ 5,000 $ 4,687,000
------------
U.S. TREASURY BONDS--6.6%
6.25% due 8/15/23..................................... 7,000 5,963,090
11.13% due 8/15/03.................................... 3,000 3,720,930
------------
9,684,020
------------
U.S. TREASURY NOTES--10.2%
5.13% due 11/30/98.................................... 5,000 4,700,800
5.50% due 7/31/97..................................... 2,000 1,942,180
7.75% due 2/15/01..................................... 3,000 3,089,070
8.00% due 8/15/99..................................... 3,000 3,106,410
8.88% due 11/15/98.................................... 2,000 2,118,120
------------
14,956,580
------------
TOTAL U.S. GOVERNMENT AND AGENCIES
(cost $31,116,664).................................... 29,327,600
------------
TOTAL INVESTMENT SECURITIES--95.0%
(cost $151,255,975)................................... 139,167,872
------------
SHORT-TERM SECURITIES--0.1%
United States Treasury Bills
6.07% due 7/27/95
(cost $196,055)...................................... 200 196,225
------------
REPURCHASE AGREEMENT--2.3%
Joint Repurchase Agreement
Account (Note 5)
(cost $3,422,000).................................... 3,422 3,422,000
------------
TOTAL INVESTMENTS--
(cost $154,874,030*).................................. 97.4% 142,786,097
Other assets less liabilities.......................... 2.6 3,805,321
-------- ------------
NET ASSETS-- 100.0% $146,591,418
======== ============
</TABLE>
-------
* See Note 8
+ Non-income producing security
(1) PIK ("Payment-in-Kind") payment made with additional securities in lieu of
cash
(2) Resale restricted to qualified institutional buyers
(3) Represents a zero-coupon bond which will convert to an interest-bearing
security at a later date
(4) JPY-Security denominated in Japanese Yen
(5) Bond in default
(6) Bond issued as part of a unit which includes an equity component
(7) Variable rate security, rate as of March 31, 1995
(8) Fair valued security, see Note 4
(9) Allocation of net assets by country as of March 31, 1995:
<TABLE>
<S> <C>
United States 75.9%
Argentina 8.1
Mexico 5.2
Brazil 3.6
Canada 1.3
Japan 0.9
</TABLE>
See Notes to Financial Statements
16
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES--93.3%
AEROSPACE--0.1%
Fairchild Corp.
Subordinated Debentures
12.00% due 10/15/01...................................... $ 307 $ 264,020
----------
BROADCASTING--2.5%
NWCG Holding Corp.
Sr. Disc. Notes, Series B
zero coupon due 6/15/99.................................. 6,250 3,609,375
Univision Network Holding
Subordinated Notes
zero coupon due 12/17/02(4)............................. 2,000 1,190,000
----------
4,799,375
----------
CABLE--5.1%
Adelphia Communications Corp.
Sr. Notes, Series B/PIK
9.50% due 2/15/04(1)..................................... 2,287 1,695,536
Adelphia Communications Corp.
Sr. Notes
12.50% due 5/15/02....................................... 1,000 955,000
American Telecasting, Inc.
Sr. Disc. Notes
zero coupon due 6/15/04(4)............................... 3,000 1,522,500
Falcon Holding Group, L.P.
Sr. Subordinated Notes/PIK 11.00% due 9/15/03(1)......... 29 25,540
Simmons Cable Co.
Sr. Subordinated Notes
zero coupon due 4/30/96(3)+.............................. 3,000 1,575,000
United International Holdings, Inc.
Sr. Disc. Notes
zero coupon due 11/15/99(4)(7)........................... 3,000 1,672,500
Videotron Holdings PLC
Sr. Subordinated Notes
zero coupon due 7/01/04(4).............................. 4,000 2,380,000
----------
9,826,076
----------
CHEMICALS--5.5%
Arcadian Partners L.P.
Sr. Notes, Series B
10.75% due 5/01/05....................................... 3,500 3,438,750
GI Holdings, Inc.
Sr. Notes, Series B
zero coupon due 10/01/98(4).............................. 2,000 1,290,000
Georgia Gulf Corp.
Sr. Subordinated Notes
15.00% due 4/15/00....................................... 500 500,625
LaRoche Industries, Inc.
Sr. Subordinated Notes
13.00% due 8/15/04...................................... 4,000 4,000,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
CHEMICALS (CONTINUED)
OSI Specialties Holdings Co.
Sr. Secured Disc. Debentures,
Series B
zero coupon due 4/15/04(4)........................... $ 2,000 $ 1,310,000
------------
10,539,375
------------
COMPUTERS--1.8%
Computervision Corp.
Sr. Subordinated Notes
11.38% due 8/15/99.................................... 3,800 3,477,000
------------
FOOD & BEVERAGES--0.4%
All American Bottling Corp.
Sr. Secured Notes
13.00% due 8/15/01.................................... 1,000 825,000
------------
FOREST PRODUCTS--8.8%
Fort Howard Corp.
Jr. Subordinated Disc. Debentures
14.13% due 4/15/95................................... 6,550 6,582,750
Ivex Holdings Corp.
Sr. Debentures, Series B
zero coupon due 3/15/05(4)........................... 2,000 960,000
Pacific Lumber Co.
Sr. Notes
10.50% due 3/01/03.................................... 3,000 2,820,000
Southwest Forest Industries, Inc.
Subordinated Debentures
12.13% due 9/15/01................................... 2,500 2,512,500
Stone Container Corp.
Sr. Notes
11.50% due 10/01/04.................................. 4,000 4,200,000
------------
17,075,250
------------
GAMING--7.0%
Capital Gaming International, Inc.
Promissory Notes
zero coupon due 8/01/95(2)............................ 20 20,000
Capital Gaming International, Inc.
Sr. Secured Notes, Series B 11.50% due 2/01/01........ 2,000 1,500,000
Empress River Casino Finance Corp.
Sr. Notes
10.75% due 4/01/02................................... 3,000 2,910,000
Fitzgerald Gaming Corp.
Sr. Secured Notes
13.00% due 3/15/96(2)(3)(7)........................... 1,000 530,000
Harrah's Jazz Co.
First Mortgage Notes
14.25% due 11/15/01................................... 2,000 2,140,000
</TABLE>
17
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1995 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
GAMING (CONTINUED)
Showboat, Inc.
First Mortgage Bonds
9.25% due 5/01/08....................................... $ 2,000 $1,745,000
Showboat, Inc.
Sr. Subordinated Notes
13.00% due 8/01/09...................................... 3,000 3,105,000
Stratosphere Corp.
Guaranteed First Mortgage Notes 14.25% due 5/15/02....... 1,500 1,533,750
----------
13,483,750
----------
GROCERY--6.0%
Farm Fresh, Inc.
Sr. Notes
12.25% due 10/01/00...................................... 1,000 930,000
Kash 'N Karry Food Stores, Inc.
Sr. Notes/PIK
11.50% due 2/01/03(1).................................... 6,998 6,757,064
Ralph's Grocery Co.
Sr. Subordinated Notes
10.25% due 7/15/02....................................... 3,500 3,465,000
Smittys Super Value, Inc.
Sr. Subordinated Notes, Series B
12.75% due 6/15/04...................................... 500 470,000
----------
11,622,064
----------
HEALTH SERVICES--9.2%
Amerisource Distribution Corp.
Sr. Debentures/PIK
11.25% due 7/15/05(1).................................... 1,848 1,996,312
Dade International, Inc.
Sr. Subordinated Notes
13.00% due 2/01/05(2)................................... 2,000 2,030,000
Integrated Health Services, Inc.
Sr. Subordinated Notes
10.75% due 7/15/04...................................... 1,500 1,552,500
Multicare, Inc.
Sr. Subordinated Notes
12.50% due 7/01/02...................................... 2,000 2,255,000
National Medical Enterprises, Inc.
Sr. Subordinated Notes
10.13% due 3/01/05...................................... 4,500 4,618,125
OrNda Health Corp.
Sr. Subordinated Notes
12.25% due 5/15/02...................................... 2,000 2,180,000
Surgical Health Corp.
Sr. Notes
11.50% due 7/15/04...................................... 3,000 3,240,000
----------
17,871,937
----------
HOTELS & RESTAURANTS--6.3%
American Restaurant Group, Inc.
Sr. Secured Notes
12.00% due 9/15/98...................................... 2,000 1,820,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
HOTELS & RESTAURANTS (CONTINUED)
Carrols Corp.
Sr. Notes
11.50% due 8/15/03...................................... $ 3,000 $2,760,000
Flagstar Corp.
Sr. Subordinated Debentures
11.25% due 11/01/04..................................... 4,250 3,570,000
Host Marriott Corp.
Sr. Notes, Series K
11.25% due 7/18/05...................................... 2,000 2,010,000
Motels of America, Inc.
Sr. Subordinated Notes
12.00% due 4/15/04...................................... 2,000 2,035,000
----------
12,195,000
----------
HOUSEHOLD PRODUCTS--0.7%
Chattem, Inc.
Sr. Secured Notes, Series B
12.75% due 6/15/04....................................... 1,500 1,368,750
----------
HOUSING--0.4%
Peters (J.M.) Co., Inc.
Sr. Notes
12.75% due 5/01/02....................................... 1,000 825,000
----------
INDUSTRIAL--6.2%
Calmar, Inc.
Sr. Secured Notes
12.00% due 12/15/97...................................... 2,000 2,020,000
Georgia Marble Co.
Subordinated Notes
17.00% due 1/01/96(6).................................... 3,750 2,306,250
International Semi-Tech Microelectronic, Inc.
Sr. Secured Disc. Notes
zero coupon due 8/15/03(4)............................... 4,000 1,760,000
J.B. Poindexter & Co.
Sr. Notes
12.50% due 5/15/04....................................... 3,000 2,842,500
MVE, Inc.
Sr. Secured Notes
12.50% due 2/15/02(7).................................... 2,000 2,050,000
Thermadyne Holdings Corp.
Sr. Subordinated Notes
10.75% due 11/01/03..................................... 1,000 975,000
----------
11,953,750
----------
MEDIA--4.3%
Katz Corp.
Sr. Subordinated Notes
12.75% due 11/15/02...................................... 5,000 5,225,000
</TABLE>
18
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1995 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
MEDIA (CONTINUED)
Sullivan Graphics, Inc.
Sr. Subordinated Debentures
15.00% due 2/01/00....................................... $ 3,000 $3,172,500
----------
8,397,500
----------
METALS--2.1%
Kaiser Aluminum & Chemical Corp.
Sr. Subordinated Notes
12.75% due 2/01/03...................................... 1,000 1,035,000
Renco Metals, Inc.
Sr. Notes
12.00% due 7/15/00....................................... 3,000 2,970,000
----------
4,005,000
----------
OIL & GAS--2.0%
DeepTech International, Inc.
Sr. Secured Notes
12.00% due 12/15/00...................................... 2,000 1,760,000
Petroleum Heat & Power, Inc.
Subordinated Debentures
12.25% due 2/01/05...................................... 2,000 2,080,000
----------
3,840,000
----------
RETAIL--11.8%
County Seat Stores, Inc.
Sr. Subordinated Notes
12.00% due 10/01/01...................................... 3,000 2,985,000
Eckerd Jack Corp.
Subordinated Debentures
11.13% due 5/01/01...................................... 3,000 3,015,000
Finlay Fine Jewelry Corp.
Sr. Notes
10.63% due 5/01/03...................................... 2,000 1,860,000
Hills Store Co.
Sr. Notes
10.25% due 9/30/03...................................... 2,000 1,940,000
Parisian, Inc.
Sr. Subordinated Notes
9.88% due 7/15/03........................................ 3,000 2,062,500
Rickel Home Centers, Inc.
Sr. Notes
13.50% due 12/15/01(7).................................. 2,000 1,900,000
Thrifty PayLess Holdings, Inc.
Sr. Subordinated Notes
12.25% due 4/15/04(7).................................... 4,000 4,300,000
Thrifty PayLess Holdings, Inc.
Sr. Subordinated Notes
12.25% due 4/15/04...................................... 2,000 2,020,000
Wickes Lumber Co.
Sr. Subordinated Notes
11.63% due 12/15/03...................................... 2,910 2,764,500
----------
22,847,000
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN
THOUSANDS)/ VALUE
SECURITY DESCRIPTION SHARES (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
STEEL--2.8%
A.K. Steel Corp.
Sr. Notes
10.75% due 4/01/04...................................... $ 4,000 $ 4,035,000
WCI Steel, Inc.
Sr. Notes, Series B
10.50% due 3/01/02..................................... 1,500 1,447,500
-----------
5,482,500
-----------
TELECOMMUNICATIONS--9.4%
Comcast Cellular Corp.
Notes
zero coupon due 3/05/00(4)............................. 4,000 2,880,000
Dial Page, Inc.
Sr. Notes
12.25% due 2/15/00..................................... 4,000 4,040,000
Echostar Communications Corp.
Sr. Disc. Notes
zero coupon due 6/01/04(4)(7)........................... 5,000 2,400,000
Mobile Telecommunication
Technologies Corp.
Sr. Subordinated Disc. Notes
13.50% due 12/15/02.................................... 4,000 4,155,000
PanAmSat, L.P.
Sr. Subordinated Notes
zero coupon due 8/01/03(4)............................. 7,000 4,620,000
-----------
18,095,000
-----------
TRANSPORTATION--0.9%
Burlington Motor Holdings, Inc.
Sr. Subordinated Notes
11.50% due 11/01/03..................................... 2,000 1,780,000
-----------
TOTAL CORPORATE BONDS & NOTES
(cost $184,606,569)..................................... 180,573,347
-----------
COMMON STOCK--1.6%
CABLE--0.0%
M.L. Opportunity L.P.(3)+............................... 70,106 70,106
MCGP Holdings, Inc.(3)+................................. 1 0
-----------
70,106
-----------
FOREST PRODUCTS--0.6%
Fort Howard Corp.+...................................... 95,000 1,199,375
-----------
GAMING--0.1%
Capital Gaming International, Inc.+..................... 50,000 262,500
-----------
</TABLE>
19
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1995 -- (continued)
<TABLE>
<CAPTION>
SHARES/ VALUE
SECURITY DESCRIPTION WARRANTS (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
MEDIA--0.9%
TMM, Inc.(3)(8)+........................................ 2,000,000 $ 1,660,000
-----------
TOTAL COMMON STOCK
(cost $3,066,356)....................................... 3,191,981
-----------
PREFERRED STOCK--1.1%
BANKING--1.1%
Chevy Chase Savings Bank, F.S.B.
13.00% Series A ....................................... 57,000 1,567,500
Chevy Chase Savings Bank, F.S.B.
13.00% Series A(8)..................................... 18,000 495,000
-----------
2,062,500
-----------
CABLE--0.0%
Maryland Cable Partners L.P.(3)+........................ 16,009 16,009
-----------
TOTAL PREFERRED STOCK
(cost $2,317,259)....................................... 2,078,509
-----------
WARRANTS--0.1%+
CABLE--0.0%
American Telecasting, Inc.(3)........................... 15,000 150
-----------
CHEMICALS--0.0%
OSI Specialties Holdings Co............................. 2,000 40,000
-----------
FOOD & BEVERAGES--0.0%
Browne Bottling Co.(3).................................. 475 5
-----------
GAMING--0.1%
Capital Gaming International, Inc....................... 45,500 113,750
Casino Magic Finance Corp............................... 24,000 11,400
-----------
125,150
-----------
GROCERY--0.0%
Smittys Supermarkets, Inc............................... 500 5,000
-----------
HOUSEHOLD PRODUCTS--0.0%
Chattem, Inc............................................ 1,500 4,500
-----------
HOUSING--0.0%
Peters (J.M.) Co., Inc.(3).............................. 7,900 79
-----------
TOTAL WARRANTS
(cost $71,025).......................................... 174,884
-----------
TOTAL INVESTMENT SECURITIES--96.1%
(cost $190,061,209)..................................... 186,018,721
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT--1.8%
Joint Repurchase Agreement
Account (Note 5)
(cost $3,489,000)..................................... $3,489 $ 3,489,000
------------
TOTAL INVESTMENTS--
(cost $193,550,209*).................................. 97.9% 189,507,721
Other assets less liabilities.......................... 2.1 4,111,047
----- ------------
NET ASSETS-- 100.0% $193,618,768
===== ============
</TABLE>
-------
* See Note 8
+ Non-income producing security
(1) PIK ("Payment-in-kind") payment made with additional securities in lieu of
cash
(2) Resale restricted to qualified institutional buyers
(3) Fair valued security, see Note 4
(4) Represents a zero-coupon bond which will convert to an interest-bearing
security at a later date
(5) Variable rate security, rate as of March 31, 1995
(6) Bond in default
(7) Bond issued as part of a unit which includes an equity component
(8) At March 31, 1995 the Fund held two restricted securities amounting to
1.1% of net assets. The Fund will not bear any costs, including those
involved in registration under the Securities Act of 1933, in connection
with the disposition of the following securities.
<TABLE>
<CAPTION>
VALUATION
DATE OF UNIT AS OF
DESCRIPTION ACQUISITION COST MARCH 31, 1995
-------------------------------------------- ----------- ------ --------------
<S> <C> <C> <C>
Chevy Chase Savings Bank F.S.B. ............ 9/8/93 $30.75 $27.50
TMM, Inc. .................................. 2/1/95 .83 .83
</TABLE>
See Notes to Financial Statements
20
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS--97.8%
ALASKA--1.3%
Alaska State Housing Finance Corp.,
7.50% due 12/01/15.................................... $ 1,975 $ 2,068,062
------------
ARIZONA--0.8%
Maricopa County, Arizona
General Obligation, School
District Number 213,
7.00% due 7/01/08+.................................... 1,000 1,138,690
Maricopa County, Arizona
School District 80,
zero coupon due 7/11/11+.............................. 600 224,562
------------
1,363,252
------------
ARKANSAS--0.4%
Arkansas State Development Finance Authority, Single
Family Mortgage Revenue,
Conventional Mortgage Loans,
9.00% due 6/01/14+.................................... 150 157,494
Arkansas State Development Finance Authority, Single
Family Mortgage Revenue, Conventional & FHA Insured,
Series A,
9.38% due 8/01/14..................................... 410 428,840
------------
586,334
------------
CALIFORNIA--9.2%
California Housing Finance Agency, Home Mortgage Reve-
nue,
Series A,
8.13% due 8/01/19+.................................... 940 998,712
California Housing Finance Agency, Home Mortgage Reve-
nue,
Series A,
8.20% due 8/01/17+.................................... 1,000 1,056,900
Los Angeles, California Convention And Exhibition
Center Authority, Lease Revenue,
6.00% due 8/15/10+.................................... 1,155 1,178,181
San Francisco, California City & County Redevelopment
Agency, Lease Revenue,
6.75% due 7/01/15+.................................... 1,000 1,064,810
San Jose, California Airport Revenue,
5.88% due 3/01/07+.................................... 2,905 2,958,423
San Jose, California Redevelopment Agency Tax
Allocation, Merged Area Redevelopment Project,
6.00% due 8/01/06+.................................... 1,000 1,044,230
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA (CONTINUED)
San Jose, California Redevelopment Agency Tax
Allocation, Merged Area Redevelopment Project,
6.00% due 8/01/07+..................................... $ 3,000 $ 3,113,670
San Jose, California Redevelopment Agency Tax
Allocation, Merged Area Redevelopment Project,
6.00% due 8/01/11+..................................... 3,700 3,753,613
-----------
15,168,539
-----------
COLORADO--0.1%
Colorado Housing Finance Authority, Single Family
Revenue, Series C,
9.38% due 3/01/12+..................................... 140 146,020
-----------
DISTRICT OF COLUMBIA--0.9%
District of Columbia Housing Finance Agency, Mortgage
Revenue Collateral, Single Family, Series A,
7.75% due 12/01/18..................................... 1,370 1,447,748
-----------
FLORIDA--2.9%
Florida Housing Finance Agency, Residential Mortgage,
1985 Series 1,
8.50% due 6/15/06+..................................... 2,500 2,601,750
Florida Housing Finance Agency, Single Family Mortgage,
Series A,
9.25% due 7/01/07+..................................... 85 88,948
Indian Trace Community Development District, Florida,
Special Benefit, Series A,
5.75% due 5/01/11+..................................... 2,000 1,989,500
-----------
4,680,198
-----------
GEORGIA--6.2%
Georgia State, General Obligation, Series C,
6.50% due 4/01/07...................................... 1,700 1,879,435
Georgia State, General Obligation,
7.20% due 3/01/05...................................... 3,000 3,457,590
Georgia State, General Obligation,
7.20% due 3/01/07...................................... 3,000 3,478,440
Municipal Electric Authority, Georgia Special
Obligation, Fifth Crossover Project 1,
6.40% due 1/01/09+..................................... 1,250 1,320,238
-----------
10,135,703
-----------
</TABLE>
21
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1995 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
ILLINOIS--3.2%
Cook County, Illinois, Community College, District
Number 508,
7.70% due 12/01/07+................................... $ 2,000 $ 2,367,120
Illinois Health Facilities Authority, Lutheran General
Health System,
7.00% due 4/01/08+.................................... 2,500 2,773,675
Illinois Housing Development Authority, Multi-Family
Housing, Series B,
9.25% due 7/01/28..................................... 45 46,465
------------
5,187,260
------------
INDIANA--1.0%
Indiana State Housing Finance Authority, Multi-Unit
Mortgage Program, Series A,
9.00% due 1/01/14..................................... 1,470 1,509,954
Indiana State Housing Finance Authority, Single Family
Mortgage Revenue, Series B,
9.38% due 1/01/06..................................... 160 164,725
------------
1,674,679
------------
KENTUCKY--0.2%
Kentucky Housing Corp., Multi-
Family Revenue Mortgage,
Series A,
8.88% due 7/01/19+.................................... 250 259,933
------------
LOUISIANA--1.2%
Louisiana Housing Finance Agency, Single Family Mort-
gage Revenue, 1985 Series A,
9.38% due 2/01/15+.................................... 135 141,170
Louisiana State, General Obligation, Series A,
5.80% due 8/01/10+.................................... 1,750 1,751,592
------------
1,892,762
------------
MARYLAND--3.3%
Baltimore, Maryland, General
Obligation, Series A,
7.25% due 10/15/05+................................... 2,000 2,289,120
Maryland State Community
Development Administration,
Multi-Family Housing Revenue, 1985 Series B,
8.75% due 5/15/12..................................... 3,000 3,093,390
------------
5,382,510
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
MASSACHUSETTS--7.1%
Massachusetts State Housing Finance Agency, Insured
Rental, Series A,
6.60% due 7/01/14+.................................... $ 5,375 $ 5,511,579
Massachusetts State Housing Finance Agency, Multi-Fam-
ily Housing, Series A,
8.88% due 7/01/18+.................................... 990 1,029,303
Massachusetts State Housing Finance Agency, Multi-Fam-
ily Mortgage, GNMA, Series A,
9.00% due 12/01/09.................................... 500 520,035
Massachusetts State Housing Finance Agency, Multi-Fam-
ily Mortgage, GNMA, Series A,
9.13% due 12/1/20.................................... 485 508,037
Massachusetts State Water
Resources Authority,
6.25% due 11/01/10+................................... 4,000 4,145,520
------------
11,714,474
------------
MICHIGAN--1.5%
Goodrich, Michigan, School District General Obliga-
tion,
5.70% due 5/01/15+.................................... 1,000 962,920
Michigan Municipal Bond Authority, Revenue Capital Ap-
preciation,
Local Government Loan,
zero coupon due 5/01/16+.............................. 2,735 744,111
Michigan Municipal Bond Authority, Revenue Capital Ap-
preciation,
Local Government Loan,
zero coupon due 5/01/17+.............................. 2,875 733,815
------------
2,440,846
------------
MISSISSIPPI--0.1%
Mississippi Housing Finance Corp., Single Family
Mortgage Purchase Revenue, Series A,
8.80% due 4/15/10+.................................... 185 194,363
------------
MISSOURI--3.9%
Missouri State Housing Development Commission,
Insured, Single Family Mortgage Revenue,
9.38% due 4/01/16+.................................... 110 117,328
Sikeston, Missouri Electric,
Revenue,
6.20% due 6/01/10+.................................... 6,000 6,313,740
------------
6,431,068
------------
</TABLE>
22
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1995 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
NEVADA--2.7%
Nevada Housing Division, Single Family Mortgage,
Series A,
zero coupon due 4/01/16+.............................. $ 5,945 $ 4,381,108
------------
NEW HAMPSHIRE--0.2%
New Hampshire State Housing Finance Authority, Single
Family Residential Mortgage, Series A,
9.25% due 7/01/11+.................................... 285 298,010
------------
NEW JERSEY--1.4%
New Jersey Economic Development Authority, Market
Transition Facility Revenue,
7.00% due 7/01/04+.................................... 2,000 2,252,080
New Jersey State Housing & Mortgage Finance Agency,
Revenue, Series B,
9.13% due 4/01/15+.................................... 15 15,522
------------
2,267,602
------------
NEW MEXICO--0.3%
New Mexico Mortgage Finance Authority, Single Family
Mortgage Revenue, Series C,
8.63% due 7/01/17..................................... 230 244,863
New Mexico Mortgage Finance Authority, Single Family
Mortgage Program, Series A,
9.25% due 7/01/12+.................................... 200 208,588
------------
453,451
------------
NEW YORK--8.8%
New York City Industrial Development Agency, Civic
Facility, Revenue,
6.25% due 11/15/06+................................... 2,000 2,125,620
New York State Dormitory
Authority Revenue, State University Educational
Facilities, Series A,
5.50% due 5/15/10+.................................... 1,000 979,830
New York State Medical Care Facilities, Finance
Agency, Revenue, New York Hospital, FHA Insured
Mortgage A,
6.75% due 8/15/14..................................... 2,850 3,039,382
New York, New York, Series E,
6.20% due 8/01/07+.................................... 2,250 2,372,963
Niagara Falls, New York,
General Obligation,
7.50% due 3/01/13+.................................... 445 534,156
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
NEW YORK (CONTINUED)
Niagara Falls, New York,
General Obligation,
7.50% due 3/01/14+....................................... $ 555 $ 663,180
Niagara Falls, New York,
General Obligation,
7.50% due 3/01/18+....................................... 500 607,705
Suffolk County, New York, Industrial Development Agency,
Southwest Sewer Systems Revenue,
6.00% due 2/01/07+....................................... 4,000 4,161,320
----------
14,484,156
----------
NORTH CAROLINA--4.8%
Cumberland County, North Carolina, Certificates of
Participation, Civic Center Project, Series A,
6.40% due 12/01/19+...................................... 2,050 2,121,361
Harnett County, North Carolina, Certificates of
Participation,
6.20% due 12/01/09+...................................... 2,400 2,505,168
North Carolina Municipal Power Agency, Catawba Electric
Revenue,
6.00% due 1/01/10+....................................... 1,250 1,280,637
North Carolina Municipal Power Agency, Catawba Electric
Revenue,
6.00% due 1/01/11+....................................... 2,000 2,042,780
----------
7,949,946
----------
NORTH DAKOTA--0.5%
North Dakota State Housing Finance Agency, Single Family
Mortgage Revenue, Series A,
7.38% due 7/01/17+....................................... 695 720,555
North Dakota State Housing Finance Agency, Single Family
Mortgage Revenue, Series A,
9.13% due 7/01/16+....................................... 160 164,400
----------
884,955
----------
OHIO--4.2%
Lucas County, Ohio, Hospital Revenue, St. Vincent Medical
Center,
6.50% due 8/15/07+....................................... 3,500 3,766,595
Ohio State Water Development Authority Revenue,
5.50% due 12/01/11+...................................... 2,000 1,940,400
</TABLE>
23
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1995 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
OHIO (CONTINUED)
Woodridge, Ohio, Local School District, General
Obligation,
6.80% due 12/01/14+................................... $ 1,000 $ 1,123,880
------------
6,830,875
------------
OKLAHOMA--1.1%
Grand River Dam Authority, Oklahoma, Electric Revenue,
5.75% due 6/01/08+.................................... 1,850 1,865,115
------------
PENNSYLVANIA--6.5%
Northeastern Pennsylvania Hospital & Education
Authority, Health Care Revenue,
6.20% due 1/01/04+.................................... 2,000 2,104,500
Northeastern Pennsylvania Hospital & Education
Authority, Health Care Revenue,
6.50% due 1/01/07+.................................... 1,000 1,066,840
Pennsbury, Pennsylvania, School District, General
Obligation,
6.80% due 8/15/14+.................................... 3,800 4,071,434
Pennsylvania Housing Finance Agency, Multi-Family, FHA
Insured, Issue B,
8.88% due 8/01/28+.................................... 985 1,032,369
Pennsylvania Housing Finance Agency, Multi-Family
Mortgage,
9.38% due 8/01/28+.................................... 170 177,789
Pennsylvania State Industrial Development Authority,
Economic Development,
7.00% due 1/01/07+.................................... 2,000 2,249,460
------------
10,702,392
------------
PUERTO RICO--1.0%
Puerto Rico Electric Power Authority, Revenue,
7.00% due 7/01/06..................................... 1,435 1,585,675
------------
RHODE ISLAND--0.6%
Rhode Island Housing & Mortgage Finance Corp.,
Supplementary Insurance, Series B,
8.38% due 10/01/16+................................... 1,000 1,058,730
------------
TEXAS--12.6%
Bexar County, Texas, Health Facilities Development
Corp., Hospital Revenue,
6.75% due 8/15/19+.................................... 4,000 4,200,560
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
TEXAS (CONTINUED)
Garland, Texas, Independent School District, General
Obligation,
5.50% due 2/15/16..................................... $ 1,335 $ 1,247,010
Grand Prairie, Texas, Health Facilities Development
Corp., Hospital Revenue,
6.88% due 11/01/10+................................... 1,600 1,732,256
Harris County, Texas Flood
Control District, Series A,
General Obligation,
5.13% due 10/01/12.................................... 1,000 905,980
Harris County, Texas Hospital District Mortgage,
Revenue,
7.40% due 2/15/10+.................................... 2,500 2,867,625
Houston, Texas Water and Sewer Systems, Revenue,
Series C,
zero coupon due 12/01/09+............................. 1,420 589,896
Houston, Texas Water Conveyance Systems Contract,
Certificates of Participation,
6.13% due 12/15/08+................................... 1,250 1,305,988
Houston, Texas Water Conveyance Systems Contract,
Certificates of Participation,
6.13% due 12/15/09+................................... 1,000 1,037,770
Houston, Texas Water Conveyance Systems Contract,
Certificates of Participation,
6.38% due 12/15/07+................................... 3,500 3,757,075
Sherman, Texas Independent School District, General
Obligation,
6.50% due 2/15/20..................................... 3,000 3,098,940
------------
20,743,100
------------
UTAH--1.3%
Utah State Housing Finance Agency, Single Family
Mortgage, Series B,
7.38% due 7/01/16+.................................... 310 319,189
Utah State Housing Finance Agency, Single Family
Mortgage, Series D,
7.50% due 7/01/16+.................................... 1,685 1,766,638
------------
2,085,827
------------
VIRGINIA--3.9%
Metropolitan, Washington District of Columbia, Airport
Authority, General Airport Revenue,
5.50% due 10/01/24+................................... 4,000 3,622,880
Metropolitan, Washington District of Columbia, Airport
Authority, General Airport Revenue,
5.75% due 10/01/20+................................... 3,000 2,824,470
------------
6,447,350
------------
</TABLE>
24
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1995 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
WASHINGTON--2.4%
Washington State Housing Finance Commission,
Multi-Family Mortgage Revenue, Series A,
9.13% due 7/01/10+................................... $ 380 $ 398,601
Washington State, Series B, General Obligation,
6.00% due 6/01/11.................................... 3,400 3,470,380
-----------
3,868,981
-----------
WEST VIRGINIA--1.9%
West Virginia State Housing Development Fund, Series A,
7.25% due 5/01/17+.................................... 3,000 3,123,630
-----------
WISCONSIN--0.3%
Wisconsin Housing & Economic Development Authority,
Homeownership Revenue, 1985 Issue I,
9.13% due 6/01/05+................................... 160 166,304
Wisconsin Housing & Economic Development Authority,
Homeownership Revenue, 1985 Issue I,
9.13% due 12/01/11+.................................. 335 348,380
-----------
514,684
-----------
TOTAL MUNICIPAL BONDS
(cost $154,140,202). 160,319,338
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN VALUE
SECURITY DESCRIPTION THOUSANDS) (NOTE 4)
--------------------------------------------------------------------------------
<S> <C> <C>
VARIABLE RATE MUNICIPAL BONDS --0.8%
LOUISIANA--0.8%
Louisiana State Recovery District Sales Tax Revenue,
4.60% due 7/01/97(1)
(cost $1,300,000).................................... $ 1,300 $ 1,300,000
------------
TOTAL INVESTMENT SECURITIES--98.6%
(cost $155,440,202)................................... 161,619,338
------------
TOTAL INVESTMENTS--
(cost $155,440,202*).................................. 98.6% 161,619,338
Other assets less liabilities.......................... 1.4 2,320,496
----- ------------
NET ASSETS-- 100.0% $163,939,834
===== ============
</TABLE>
-------
* See Note 8
+ All or part of this security position is insured by Municipal Bond Insurance
Association ("MBIA"), Bond Insurance Guarantee ("BIG") or Financial
Guarantee Insurance Corporation ("FGIC") ($125,714,483 or 76.7% of total
assets)
(1) Rate as of March 31, 1995
See Notes to Financial Statements
25
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1995
Note 1. Organization
The SunAmerica Income Funds is an open-end diversified management
investment company organized as a Massachusetts business trust (the
"Trust") with five different investment series (each, a "Fund" and
collectively, the "Funds"). Each Fund is a separate series of the Trust
with distinct investment objectives and/or strategies. Each Fund is managed
by SunAmerica Asset Management Corp. (the "Adviser" or "SAAMCo"). An
investor may invest in one or more of the following Funds: SunAmerica U.S.
Government Securities Fund, SunAmerica Federal Securities Fund, SunAmerica
Diversified Income Fund, SunAmerica High Income Fund and SunAmerica Tax
Exempt Insured Fund. The Funds are considered to be separate entities for
financial and tax reporting purposes.
Each Fund currently offers two classes of shares. Class A shares are
offered at net asset value per share plus an initial sales charge. Class B
shares are offered without an initial sales charge, although a declining
contingent sales charge may be imposed on redemptions made within six years
of purchase and any purchases of Class A shares in excess of $1,000,000
will be subject to a contingent deferred sales charge on redemptions made
within one year of purchase. Class B shares of each Fund will convert
automatically to Class A shares on the first business day of the month
following the seventh anniversary of the issuance of such Class B shares
and at such time will be subject to the lower distribution fee applicable
to Class A shares. Each class of shares bears the same voting, dividend,
liquidation and other rights and conditions and each makes distribution and
account maintenance and service fee payments under a distribution plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940
Act") except that Class B shares are subject to higher distribution fee
rates.
Note 2. Reorganization
On March 31, 1993 and September 23, 1993, the Board of Directors/Trustees
and Shareholders, respectively, of the various funds comprising the
SunAmerica Mutual Funds approved the Agreements and Plans of Reorganization
dated March 13, 1993, whereby all of the assets and liabilities of the
determined Funds were transferred in a tax-free reorganization for shares
of the series of the Trust. The details of the reorganization transactions,
which were consummated on October 1, 1993, are set forth below.
Prior to the Reorganization, the Trust was known as SunAmerica Income
Portfolios and consisted of two series, SunAmerica High Yield Portfolio and
SunAmerica Government Income Portfolio. Upon consummation of the
reorganization, SunAmerica High Yield Portfolio ("SAHYP") and SunAmerica
Government Income Portfolio ("SAGIP") were renamed SunAmerica High Income
Fund ("High Income Fund") and SunAmerica U.S. Government Securities Fund
("U.S. Government Securities Fund"), respectively, and the then-outstanding
shares were redesignated as Class A shares of such Funds and the name of
the Trust was changed from SunAmerica Income Portfolios to SunAmerica
Income Funds.
On October 1, 1993, Class A shareholders of the High Income Fund were
issued 1.174107276 shares of High Income Fund stock for each share of stock
owned as of that date. The financial highlights included in these financial
statements have been adjusted to reflect this stock split as if it had
taken place as of the commencement of operations.
26
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1995 -- (continued)
SunAmerica High Income Fund portfolio of SunAmerica Fund Group ("SAHIF")
was reorganized into High Income Fund. In exchange for all of the assets
and liabilities of SAHIF, the High Income Fund issued 16,026,407 Class B
shares to SAHIF shareholders at a net asset value of $8.18 per share or
$131,166,516, which was the equivalent of the net assets of SAHIF
(including $431,265 of unrealized appreciation) as of the close of business
on October 1, 1993. In the reorganization, the High Income Fund acquired
$11,787,012 of net capital loss carryforwards of SAHIF. The net assets of
SAHYP were $31,895,603 as of October 1, 1993.
SunAmerica U.S. Government Securities Fund portfolio of SunAmerica Fund
Group ("SAUSGF") was reorganized into U.S. Government Securities Fund.
However, based on generally accepted accounting principles, from a
financial reporting standpoint, SAUSGF is the surviving entity in this
reorganization transaction. Accordingly, in exchange for all of the assets
and liabilities of SAGIP, SAUSGF was deemed to have issued 7,553,768 Class
A shares of U.S. Government Securities Fund at a net asset value of $8.68
per share or $65,566,703, which was the equivalent of the net assets of
SAGIP (including $1,468,106 of unrealized appreciation) as of the close of
business on October 1, 1993. In the reorganization, the U.S. Government
Securities Fund acquired $12,720,078 of net capital loss carryforwards of
SAUSGF and the net assets of SAUSGF were $1,216,098,153 as of October 1,
1993. Notwithstanding the foregoing, SAGIP is the surviving entity in the
transaction for legal and tax reporting purposes.
SunAmerica Diversified Income Fund ("SADIF"), SunAmerica Federal Securities
Fund ("SAFSF"), and SunAmerica Tax Exempt Insured Fund ("SATEF") were
reorganized into three new series, SunAmerica Diversified Income Fund
("Diversified Income Fund"), SunAmerica Federal Securities Fund ("Federal
Securities Fund") and SunAmerica Tax Exempt Insured Fund ("Tax Exempt
Insured Fund"), respectively, whereby substantially all of the assets and
liabilities of each acquired fund were transferred to the respective
acquiring fund and the then-respective shareholders received Class B shares
in the case of Diversified Income Fund and Federal Securities Fund, and
Class A shares in the case of Tax Exempt Insured Fund. In the
reorganization, the Diversified Income Fund, Federal Securities Fund and
Tax Exempt Insured Fund acquired $2,109,587, $489,787 and $2,067,457, of
net capital loss carryforwards of SADIF, SAFSF and SATEF, respectively, and
the net assets of SADIF, SAFSF and SATEF were $91,231,340, $104,568,882 and
$190,954,771, respectively, on October 1, 1993. Diversified Income Fund and
Tax Exempt Insured Fund also changed their respective year ends from
October 31 to March 31.
Note 3. Acquisition
On June 18, 1991, SAAMCo and SunAmerica Capital Services, Inc. ("SACS"),
indirect wholly-owned subsidiaries of SunAmerica Inc., completed the
acquisition of certain assets related to the mutual fund business of Siebel
Capital Management, Incorporated ("SCMI"), Equitec Securities Corporation
("ESC"), and their parent corporation, Equitec Financial Group, Inc. (the
"transaction").
At the time of the transaction, the Fund Group changed its name from
Equitec Siebel Fund Group to SunAmerica Fund Group and each of the
individual series of the Fund group changed its name including SAUSGF and
SAHIF, which were previously known as Equitec Siebel U.S. Government
Securities Fund and Equitec Siebel High Yield Bond Fund, respectively.
27
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1995 -- (continued)
On June 11, 1992, SAHIF acquired all of the assets and liabilities of the
SunAmerica Income Plus Fund, Inc. ("Income Plus Fund"), a regulated
investment company registered under the Investment Company Act of 1940. The
acquisition was executed pursuant to an agreement and plan of
reorganization approved by the shareholders of Income Plus Fund on June 11,
1992. The agreement was adopted as a tax-free reorganization of Income Plus
Fund.
In exchange for all of the assets and liabilities of Income Plus Fund,
SAHIF issued 1,034,599 shares to Income Plus Fund shareholders at a net
asset value of $8.01 per share, totalling $8,287,137, which was the
equivalent of the net assets of Income Plus Fund (including $688,981 of net
unrealized appreciation) as of the close of business on June 11, 1992. In
the reorganization, SAHIF assumed $9,692,412 of net capital loss
carryforwards of Income Plus Fund. The net assets of SAHIF were $37,600,732
at June 11, 1992.
Note 4. Significant Accounting Policies
The following is a summary of the significant accounting policies followed
by the Funds in the preparation of their financial statements:
SECURITY VALUATIONS: Securities that are actively traded in the over-the-
counter market, including listed securities for which the primary market is
believed by the Adviser to be over-the-counter, are valued at the quoted
bid price provided by principal market makers. Securities for which the
primary market is on an exchange are valued at the last sale price on such
exchange on the day of valuation or, if there was no sale on such day, the
last bid price quoted on such day. Securities listed on the New York Stock
Exchange ("NYSE") or other national securities exchanges, are valued on the
basis of the last sale price on the exchange on which they are primarily
traded. If there is no sale on that day, then securities are valued at the
bid price on the NYSE or other primary exchange for that day. However, if
the last sale price on the NYSE is different than the last sale price on
any other exchange, the NYSE price is used. Options traded on national
securities exchanges are valued as of the close of the exchange on which
they are traded. Futures and options traded on commodities exchanges are
valued at their last sale price as of the close of such exchange. The Funds
may make use of a pricing service in the determination of their net asset
values. The preceding procedures need not be used to determine the value of
debt securities owned by a Fund if, in the opinion of the Trustees, some
other method would more accurately reflect the fair market value of such
debt securities in quantities owned by such Fund. Securities for which
market quotations are not readily available and other assets are valued at
fair value as determined pursuant to procedures adopted in good faith by
the Trustees. Short-term investments which mature in less than 60 days are
valued at amortized cost, if their original maturity was 60 days or less,
or by amortizing their value on the 61st day prior to maturity, if their
original term to maturity exceeded 60 days.
REPURCHASE AGREEMENTS: The Funds, along with other affiliated registered
investment companies, transfer uninvested cash balances into a single joint
account, the daily aggregate balance of which is invested in one or more
repurchase agreements collateralized by U.S. Treasury or federal agency
obligations. The Funds' custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral
is valued daily on a mark to market basis to ensure
28
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1995 -- (continued)
that the value, including accrued interest, is at least equal to the
repurchase price. In the event of default of the obligation to repurchase,
a Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. If the seller defaults and the value of the
collateral declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the Fund
may be delayed or limited.
SECURITIES TRANSACTIONS, INVESTMENT INCOME, DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS: Securities transactions are recorded on the trade date.
Realized gains and losses on sales of investments are calculated on the
identified cost basis. Interest income is recorded on the accrual basis;
dividend income is recorded on the ex-dividend date. The Funds do not
amortize market premiums (except for Tax Exempt Insured Fund) or accrue
market discounts (except for Diversified Income Fund) except original issue
discounts and interest only securities for which amortization is required
for federal income tax purposes.
Net investment income other than class specific expenses, and realized and
unrealized gains and losses are allocated daily to each class of shares
based upon the relative net asset value of outstanding shares (or the value
of dividend-eligible shares, as appropriate) of each class of shares at the
beginning of the day (after adjusting for the current capital share
activity of the respective class).
The Fund records dividends and distributions to its shareholders on the ex-
dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in
accordance with federal income tax regulations, which may differ from
generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within
the capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions
which exceed net investment income and net realized capital gains for
financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent distributions exceed current and
accumulated earnings and profits for federal income tax purposes, they are
reported as distributions of paid-in-capital.
The Funds Account and report distributions to shareholders in accordance
with AICPA Statement of Position 93-2: Determination, Disclosure and
Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies.
For the year ended March 31, 1995, the reclassification arising from
book/tax differences resulted in increases (decreases) to the components of
net assets. The following table discloses the current year effect of such
differences reclassified from undistributed accumulated net investment
income/loss and accumulated undistributed net realized gain/loss on
investments to paid-in capital. These reclassifications were primarily the
result of market discount, paydown loss and expiration of capital loss
carryover for the year ended March 31, 1995.
29
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1995 -- (continued)
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED NET UNDISTRIBUTED NET
INVESTMENT REALIZED PAID-IN
INCOME/(LOSS) GAIN/(LOSS) CAPITAL
----------------- ----------------- --------
<S> <C> <C> <C>
U.S. Government Securities
Fund.......................... (12,987,212) 12,987,212 --
Federal Securities Fund........ (302,435) 302,435 --
Diversified Income Fund........ -- -- --
High Income Fund............... 263,716 (263,716) --
Tax Exempt Insured Fund........ 13,398 266,034 (279,432)
</TABLE>
Dividends from net investment income are paid monthly. Capital gain
distributions, if any, are paid annually.
INVESTMENT SECURITIES LOANED: During the year ended March 31, 1995, U.S.
Government Securities Fund, Federal Securities Fund, Diversified Income
Fund and High Income Fund participated in securities lending with qualified
brokers. In lending portfolio securities to brokers the Funds receive cash
as collateral against the loaned securities, which must be maintained at
not less than 100% of the market value of the loaned securities during the
period of the loan. To the extent income is earned on the cash collateral
invested, it is recorded as interest income. As with other extensions of
credit, should the borrower of the securities fail financially, the Funds
may bear the risk of delay in recovery or may be subject to replacing the
loaned securities by purchasing them with the cash collateral held, which
may be less than 100% of the market value of such securities at the time of
replacement.
At March 31, 1995, U.S. Government Securities Fund and Federal Securities
Fund loaned securities having a value of $115,988,750 and $10,018,700 and
received cash collateral of $118,343,750 and $10,262,500 for these loans.
FOREIGN CURRENCY TRANSLATION: The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars at published rates on the following basis:
(i) market value of investment securities, other assets and
liabilities--at the prevailing rate of exchange at the valuation date.
(ii) purchases and sales of investment securities, income and expenses--
at the rate of exchange prevailing on the respective dates of such
transactions.
Assets and liabilities denominated in foreign currencies and commitments
under forward foreign currency contracts are translated into U.S. dollars
at the mean of the quoted bid and asked prices of such currencies against
the U.S. dollar at the year end date. Purchases and sales of portfolio
securities are translated at the rate of exchange prevailing when such
securities were acquired or sold. Income and expenses are translated at
rates of exchange prevailing when earned or incurred.
The Fund does not isolate that portion of the results of operations arising
as a result of changes in the foreign exchange rates from the changes in
the market prices of securities held at fiscal year-end. The Fund does not
isolate the effect of changes in foreign exchange rates from the changes in
the market prices of portfolio securities sold during the year.
30
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1995 -- (continued)
Realized foreign exchange gains and losses on other assets and liabilities
and change in unrealized foreign exchange gains and losses on other assets
and liabilities include realized foreign exchange gains and losses from
currency gains or losses realized between the trade and settlement dates of
securities transactions, the difference between the amounts of interest,
dividends, discount and foreign withholding taxes recorded on the Fund's
books and the U.S. dollar equivalent amounts actually received or paid and
changes in the unrealized foreign exchange gains and losses relating to
other assets and liabilities arising as a result of changes in the exchange
rates.
FUTURES CONTRACTS: A futures contract is an agreement between two parties
to buy and sell a security at a set price on a future date. Each Fund may
purchase and sell financial futures contracts which are traded on a
commodities exchange or board of trade for certain hedging and risk
management purposes. Upon entering into such a contract the Funds are
required to pledge to the broker an amount of cash or U.S. government
securities equal to the minimum "initial margin" requirements of the
exchange on which the futures contract is traded. The contract amount
reflects the extent of a Fund's exposure in these financial instruments. A
Fund's participation in the futures markets involves certain risks,
including imperfect correlation between movements in the price of futures
contracts and movements in the price of the securities hedged or used for
cover. The Funds activities in futures contracts are conducted through
regulated exchanges which do not result in counterparty credit risks.
Pursuant to a contract the Funds agree to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the contract.
Such receipts or payments are known as "variation margin" and are recorded
by the Funds as unrealized appreciation or depreciation. When a contract is
closed, the Funds record a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value
at the time it was closed.
FEDERAL INCOME TAXES: It is the Funds' policy to meet the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute all of their net income (taxable and
tax-exempt) to their shareholders. Therefore, no federal income tax or
excise tax provisions are required.
EXPENSES: Expenses common to all Funds are allocated among the Income Funds
based upon their relative net asset values.
Note 5. Joint Repurchase Agreement Account
Pursuant to exemptive relief granted by the Securities and Exchange
Commission, the Funds are permitted to participate in joint Repurchase
Agreement transactions.
As of March 31, 1995, the U.S. Government Securities Fund, Federal
Securities Fund, Diversified Income Fund and High Income Fund had a 64.1%,
7.1%, 2.2% and 2.2% undivided interest which represented $101,505,000,
$11,266,000, $3,422,000 and $3,489,000, respectively, in principal amount
in a repurchase agreement in the joint account. As of such date, the
repurchase agreement in the joint account and the collateral therefore were
as follows:
Yamaichi International (America), Inc. Repurchase Agreement, 6.25% dated
3/31/95, in the principal amount of $158,263,000 repurchase price
$158,345,429 due 4/3/95 collateralized by $10,475,000 U.S. Treasury Notes
6.75% due 5/31/99, $29,045,000 U.S. Treasury Notes 8.50% due 5/15/97,
31
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1995 -- (continued)
$50,000,000 U.S. Treasury Notes 7.50% due 12/31/96, $50,000,000 U.S.
Treasury Notes 4.25% due 5/15/96, $16,530,000 U.S. Treasury Notes 8.50% due
5/15/97 and $925,000 U.S. Treasury Notes 8.50% due 4/15/97, approximate
aggregate value $161,235,774.
Note 6. Investment Advisory and Management Agreement, Distribution Agreement
and Service Agreement
The Trust, on behalf of each Fund, has an Investment Advisory and
Management Agreement (the "Agreement") with SAAMCo. Under the Agreement,
SAAMCo provides continuous supervision of a Fund's portfolio and
administers its corporate affairs, subject to general review by the
Trustees. In connection therewith, SAAMCo furnishes the Funds with office
facilities, maintains certain of the Funds' books and records, and pays the
salaries and expenses of all personnel, including officers of the Funds who
are employees of SAAMCo and its affiliates. The investment advisory and
management fee payable to SAAMCo with respect to U.S. Government Securities
Fund and High Income Fund is computed daily, and payable monthly, at an
annual rate of .75% of average daily net assets up to $200 million; .72% of
the next $200 million; and .55% of average daily net assets in excess of
$400 million. The investment advisory and management fee payable to SAAMCo
with respect to Federal Securities Fund is computed daily, and payable
monthly, at an annual rate of .55% of average daily net assets up to $25
million; .50% of the next $25 million; and .45% of average daily net assets
in excess of $50 million. The investment advisory and management fee
payable to SAAMCo with respect to Diversified Income Fund is computed
daily, and payable monthly, at an annual rate of .65% of average daily net
assets of up to $350 million; and .60% of average daily net assets in
excess of $350 million. The investment advisory and management fee payable
to SAAMCo with respect to Tax Exempt Insured Fund is computed daily, and
payable monthly, at an annual rate of .50% of average daily net assets up
to $350 million; and .45% of average daily net assets in excess of $350
million. For the year ended March 31, 1995, SAAMCo earned fees of
$5,033,634, $365,395, $1,153,494, $1,192,998 and $874,281 for U.S.
Government Securities Fund, Federal Securities Fund, Diversified Income
Fund, High Income Fund and Tax Exempt Insured Fund, respectively (of which
SAAMCo agreed to waive $226,804 for U.S. Government Securities Fund).
Through July 31, 1994, SAAMCo had a Sub-Advisory Agreement with Wellington
Management Company ("WMC") under which WMC acted as sub-adviser to the Tax
Exempt Insured Fund. Under the Sub-Advisory Agreement SAAMCo paid WMC a
monthly fee calculated at an annual rate of .15% of average daily net
assets up to $200 million, .125% of the next $300 million and .10% of such
average net assets in excess of $500 million. For the period April 1, 1994
through July 31, 1994 WMC earned fees of $92,926. Effective August 1, 1994,
the Sub-Advisory Agreement with WMC was terminated. As of that date, SAAMCo
assumed all portfolio management responsibilities for the Fund.
SAAMCo has agreed that, in any fiscal year, it will refund or rebate its
management fee to each of the Funds to the extent that the Fund's expenses
(including the fees of SAAMCo and amortization of organizational expenses,
but excluding interest, taxes, brokerage commissions, distribution fees and
other extraordinary expenses) exceed the most restrictive expense
limitation imposed by states where the Fund's shares are sold. The most
restrictive expense limitation is presently believed to be 2 1/2% of the
first $30 million of the Fund's average daily net assets, 2% of the next
$70 million of average net assets and 1 1/2% of such net assets in excess
of $100 million. For the year ended March 31, 1995, no such reimbursement
was required.
32
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1995 -- (continued)
For the year ended March 31, 1995, SAAMCo agreed to voluntarily waive fees
and reimburse expenses of $20,954 for Federal Securities Fund (Class A)
related to registration and transfer agent fees.
The Trust, on behalf of each Fund has a Distribution Agreement with
SunAmerica Capital Services, Inc. ("SACS"). Each Fund, with respect to each
class of Shares, has adopted a Distribution Plan (the "Plan") in accordance
with the provisions of Rule 12b-1 under the 1940 Act. Rule 12b-1 under the
1940 Act permits an investment company directly or indirectly to pay
expenses associated with the distribution of its shares ("distribution
expenses") in accordance with a plan adopted by the investment company's
board of directors and approved by its shareholders. Pursuant to such rule,
the Trustees and the shareholders of each class of shares of each Fund have
adopted Distribution Plans, hereinafter referred to as the "Class A Plan"
and the "Class B Plan." In adopting the Class A Plan and the Class B Plan,
the Trustees determined that there was a reasonable likelihood that each
such Plan would benefit the Trust and the shareholders of the respective
class. The sales charge and distribution fees of a particular class will
not be used to subsidize the sale of shares of any other class.
Under the Class A Plan, the Distributor receives payments from a Fund at an
annual rate of up to 0.10% of average daily net assets of such Fund's Class
A shares to compensate the Distributor and certain securities firms for
providing sales and promotional activities for distributing that class of
shares. Under the Class B Plan, the Distributor receives payments from a
Fund at the annual rate up to 0.75% of the average daily net assets of such
Fund's Class B shares to compensate the Distributor and certain securities
firms for providing sales and promotional activities for distributing that
class of shares. The distribution costs for which the Distributor may be
reimbursed out of such distribution fees include fees paid to broker-
dealers that have sold Fund shares, commissions, and other expenses such as
those incurred for sales literature, prospectus printing and distribution
and compensation to wholesalers. It is possible that in any given year the
amount paid to the Distributor under the Class A Plan or Class B Plan may
exceed the Distributor's distribution costs as described above. The
Distribution Plans provide that each class of shares of each Fund may also
pay the Distributor an account maintenance and service fee at the annual
rate up to 0.25% of the aggregate average daily net assets of such class of
shares for payments to broker-dealers for providing continuing account
maintenance. In this regard, some payments are used to compensate broker-
dealers with account maintenance and service fees in an amount up to 0.25%
per year of the assets maintained in a Fund by their customers. For the
year ended March 31, 1995, SACS earned fees of $7,339,784, $717,826,
$1,677,266, $1,387,160 and $767,753 for U.S. Government Securities Fund,
Federal Securities Fund, Diversified Income Fund, High Income Fund and Tax
Exempt Insured Fund, respectively, (of which $28,728, $102,206 and $61,214
was waived by U.S. Government Securities Fund Class A, High Income Fund
Class B and Tax Exempt Insured Fund Class A, respectively).
For the year ended March 31, 1995, SACS has advised the following Funds
that it has received sales concessions on each Fund's Class A shares,
portions of which are reallowed to affiliated broker-dealers and non-
affiliated broker-dealers as follows:
33
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1995 -- (continued)
<TABLE>
<CAPTION>
SALES AFFILIATED NON-AFFILIATED
CONCESSIONS BROKER-DEALERS BROKER-DEALERS
----------- -------------- --------------
<S> <C> <C> <C>
U.S. Government Securities Fund... $ 84,710 $ 56,872 $10,813
Federal Securities Fund........... 19,976 11,597 3,947
Diversified Income Fund........... 201,057 144,342 26,811
High Income Fund.................. 148,782 107,889 16,642
Tax Exempt Insured Fund........... 149,429 85,321 40,047
</TABLE>
SACS also receives the proceeds of contingent deferred sales charges paid
by investors in connection with certain redemptions of Class B fund shares.
For the year ended March 31, 1995, SACS informed U.S. Government Securities
Fund, Federal Securities Fund, Diversified Income Fund, High Income Fund
and Tax Exempt Insured Fund that it received approximately $4,729,948,
$68,586, $776,679, $420,741, and $85,661, respectively, in contingent
deferred sales charges.
The Trust has entered into a Service Agreement with SunAmerica Fund
Services, Inc. ("SAFS"), an indirect wholly owned subsidiary of SunAmerica
Inc. Under the Service Agreement, SAFS performs certain shareholder account
functions by assisting the Funds' transfer agent in connection with the
services that it offers to the shareholders of the Funds. The Service
Agreement permits the Funds to reimburse SAFS for costs incurred in
providing such services which is approved annually by the Trustees. For the
year ended March 31, 1995, U.S. Government Securities Fund, Federal
Securities Fund, Diversified Income Fund, High Income Fund and Tax Exempt
Insured Fund incurred expenses of $1,432,118, $103,960, $306,639, $261,605
and $327,191, respectively, to reimburse SAFS pursuant to the terms of the
Service Agreement. Of these amounts $126,217, $13,516, $27,525, $35,599 and
$30,730, respectively, were payable to SAFS at March 31, 1995.
Note 7. Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales and maturities of
investments (excluding U.S. Government securities and short-term
investments in the Diversified Income, High Income and Tax Exempt Insured
Funds, respectively) during the year ended March 31, 1995 were as follows:
<TABLE>
<CAPTION>
U.S.
GOVERNMENT FEDERAL DIVERSIFIED HIGH TAX EXEMPT
SECURITIES SECURITIES INCOME INCOME INSURED
FUND FUND FUND FUND FUND
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Aggregate purchases..... $838,709,561 $191,048,807 $277,796,086 $339,639,174 $274,639,486
============ ============ ============ ============ ============
Aggregate sales......... $940,780,360 $191,986,373 $281,659,858 $307,240,643 $285,209,218
============ ============ ============ ============ ============
</TABLE>
Note 8. Portfolio Securities (Tax Basis)
The costs of securities and the aggregate appreciation and depreciation of
securities for federal income tax purposes at March 31, 1995 were as
follows:
34
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1995 -- (continued)
<TABLE>
<CAPTION>
U.S.
GOVERNMENT FEDERAL DIVERSIFIED HIGH TAX EXEMPT
SECURITIES SECURITIES INCOME INCOME INSURED
FUND FUND FUND FUND FUND
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cost (tax basis)........ $788,087,294 $81,420,763 $156,690,936 $193,829,055 $155,483,682
============ =========== ============ ============ ============
Appreciation............ $ 7,523,855 $ 629,339 $ 1,881,981 $ 3,112,126 $ 6,236,435
Depreciation............ (15,386,895) (1,219,797) (15,786,820) (7,433,460) (100,779)
------------ ----------- ------------ ------------ ------------
Unrealized appreciation/
depreciation--net...... $ (7,863,040) $ (590,458) $(13,904,839) $ (4,321,334) $ 6,135,656
============ =========== ============ ============ ============
</TABLE>
Capital losses and currency losses incurred after October 31 within the
taxable year are deemed to arise on the first business day of the Funds'
next taxable year. Accordingly, the U.S. Government Securities Fund,
Federal Securities Fund, Diversified Income Fund, High Income Fund and Tax
Exempt Insured Fund incurred and elected to defer capital losses of
$14,295,844, $918,642, $9,487,289, $6,684,269 and $2,040,040, respectively,
to the taxable year ended March 31, 1996. Diversified Income Fund and High
Income Fund incurred and elected to defer currency losses of $218,508 and
$55,430, respectively, to the taxable year ended March 31, 1996. To the
extent these losses are permitted under regulations to be used to offset
future gains, it is probable that the gains so offset will not be
distributed.
At March 31, 1995, U.S. Government Securities Fund, Federal Securities
Fund, Diversified Income Fund, High Income Fund and Tax Exempt Insured Fund
had capital loss carryforwards of $30,763,078, $2,911,854, $13,636,808,
$31,090,077 and $10,224,019, respectively, which were available to the
extent provided in regulations and which will expire between 1996-2003. To
the extent that these carryover losses are used to offset future capital
gains, it is probable that the gains so offset will not be distributed.
Note 9. Capital Share Transactions
Transactions in capital shares of each class of each series for the year
ended March 31, 1995 and for each respective series' prior year end were as
follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
----------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- ------------------------------------------------------
FOR THE OCTOBER 1, 1993(A) FOR THE FOR THE NINE
YEAR ENDED TO YEAR ENDED MONTHS ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1995 MARCH 31, 1994(B)
------------------------ ------------------------ -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 2,544,560 $ 20,825,728 4,462,031 $ 38,529,472 10,324,909 $ 84,569,618 8,952,578 $ 77,543,467
Shares issued in
connection with
the acquisition
of SAGIP....... N/A N/A 7,553,768 65,566,703 N/A N/A N/A N/A
Reinvested
dividends...... 254,756 2,091,612 142,059 1,217,955 2,655,859 21,791,813 3,408,586 29,466,241
Shares redeemed. (3,015,559) (24,712,085) (3,024,695) (25,979,204) (46,389,311) (380,228,772) (50,858,102) (437,492,949)
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
Net increase
(decrease)..... (216,243) $ (1,794,745) 9,133,163 $ 79,334,926 (33,408,543) $(273,867,341) (38,496,938) $(330,483,241)
========== ============ ========== ============ =========== ============= =========== =============
</TABLE>
(a) Commencement of sale of respective class of shares.
(b) Shares of SAUSGF have been redesignated as Class B shares of U.S.
Government Securities Fund.
35
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1995 -- (continued)
<TABLE>
<CAPTION>
FEDERAL SECURITIES FUND
----------------------------------------------------------------------------------------------------------
CLASS A CLASS B
--------------------------------------------------- -----------------------------------------------------
FOR THE OCTOBER 11, 1993(A) FOR THE FOR THE
YEAR ENDED TO YEAR ENDED YEAR ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1995 MARCH 31, 1994(B)
------------------------ ------------------------- -------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- ------------ ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 859,631 $ 8,566,946 105,417 $ 1,100,201 895,438 $ 9,024,876 494,459 $ 5,283,474
Reinvested
dividends...... 3,735 36,932 374 3,892 312,480 3,098,412 372,096 3,954,732
Shares redeemed. (294,336) (2,931,987) (47,874) (495,934) (2,574,743) (25,581,102) (4,122,658) (43,604,397)
---------- ------------ ----------- ------------ ----------- ------------- ----------- ------------
Net increase
(decrease)..... 569,030 $ 5,671,891 57,917 $ 608,159 (1,366,825) $ (13,457,814) (3,256,103) $(34,366,191)
========== ============ =========== ============ =========== ============= =========== ============
(a) Commencement of sale of respective class of shares.
(b) Shares of SAFSF have been redesignated as Class B shares of Federal
Securities Fund.
<CAPTION>
DIVERSIFIED INCOME FUND
----------------------------------------------------------------------------------------------------------
CLASS A CLASS B
--------------------------------------------------- -----------------------------------------------------
FOR THE FOR THE FIVE FOR THE FOR THE FIVE
YEAR ENDED MONTHS ENDED YEAR ENDED MONTHS ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1995 MARCH 31, 1994
------------------------ ------------------------- -------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- ------------ ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 1,911,715 $ 8,713,009 2,610,194 $ 13,104,161 13,562,550 $ 62,234,623 20,679,502 $104,260,485
Reinvested
dividends...... 179,521 791,930 16,109 80,587 1,784,570 7,929,584 496,470 2,503,044
Shares redeemed. (1,294,317) (5,722,753) (143,613) (718,641) (19,804,466) (88,218,971) (5,053,725) (25,298,959)
---------- ------------ ----------- ------------ ----------- ------------- ----------- ------------
Net increase
(decrease)..... 796,919 $ 3,782,186 2,482,690 $ 12,466,107 (4,457,346) $ (18,054,764) 16,122,247 $ 81,464,570
========== ============ =========== ============ =========== ============= =========== ============
<CAPTION>
HIGH INCOME FUND
----------------------------------------------------------------------------------------------------------
CLASS A CLASS B
--------------------------------------------------- -----------------------------------------------------
FOR THE FOR THE FOR THE OCTOBER 1, 1993(B)
YEAR ENDED YEAR ENDED YEAR ENDED TO
MARCH 31, 1995 MARCH 31, 1994(A) MARCH 31, 1995 MARCH 31, 1994
------------------------ ------------------------- -------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- ------------ ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 4,517,500 $32,145,067 13,843,654 $ 44,331,545 18,144,837 $ 132,472,191 10,270,626 $ 85,366,881
Shares
issued in
connection with
stock split*... N/A N/A 578,211 N/A N/A N/A N/A N/A
Shares
issued in
connection with
the acquisition
of SAHIF....... N/A N/A N/A N/A N/A N/A 16,026,407 131,166,516
Reinvested
dividends...... 285,804 2,048,889 222,545 1,995,474 982,211 7,057,922 445,888 3,715,009
Shares redeemed. (3,162,108) (23,140,910) (13,668,674) (42,944,507) (13,525,747) (100,373,794) (10,362,372) (86,202,428)
---------- ------------ ----------- ------------ ----------- ------------- ----------- ------------
Net increase.... 1,641,196 $11,053,046 975,736 $ 3,382,512 5,601,301 $ 39,156,319 16,380,549 $134,045,978
========== ============ =========== ============ =========== ============= =========== ============
</TABLE>
(a) Shares of SAHYP were redesignated as Class A shares of High Income
Fund.
(b) Commencement of sale of respective class of shares.
* Shares reflect a 1.174107276-for-1 stock split effective October 1, 1993.
36
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1995 -- (continued)
<TABLE>
<CAPTION>
TAX EXEMPT INSURED FUND
---------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- -----------------------------------------------
FOR THE FOR THE FIVE FOR THE FOR THE FIVE
YEAR ENDED MONTHS ENDED YEAR ENDED MONTHS ENDED
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1995 MARCH 31, 1994
------------------------ ------------------------ ---------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold......... 1,153,762 $ 13,706,273 881,905 $ 11,156,175 1,052,706 $12,534,448 1,432,092 $ 18,041,232
Reinvested
dividends.......... 353,885 4,191,241 169,879 2,142,357 52,888 626,133 10,874 136,709
Shares redeemed..... (3,966,717) (46,779,234) (2,182,075) (27,503,059) (701,719) (8,287,841) (90,440) (1,121,691)
---------- ------------ ---------- ------------ --------- ----------- --------- ------------
Net increase
(decrease)......... (2,459,070) $(28,881,720) (1,130,291) $(14,204,527) 403,875 $ 4,872,740 1,352,526 $ 17,056,250
========== ============ ========== ============ ========= =========== ========= ============
</TABLE>
Note 10. Commitments and Contingencies
State Street Bank and Trust Company has established an uncommitted line of
credit with the SunAmerica Family of Mutual Funds with interest payable at
the Federal Funds rate plus 100 basis points with respect to the U.S.
Government Securities Fund, and Federal Securities Fund, and Federal Funds
rate plus 125 basis points with respect to the Diversified Income Fund and
the High Income Fund. Effective February 1, 1995, Tax Exempt Insured Fund
was removed from the existing line of credit arrangement. Borrowings under
the line of credit will commence when the Fund's cash shortfall exceeds
$100,000. The U.S. Government Securities Fund, Diversified Income Fund, and
Tax Exempt Insured Fund periodically utilized the uncommitted line of
credit and incurred interest expense of $721, $4,162 and $10,217,
respectively, for the year ended March 31, 1995. During the year ended
March 31, 1995, the High Income Fund had borrowings outstanding for 141
days under the line of credit and incurred $143,946 in interest charges
related to these borrowings. The High Income Fund's average amount of debt
under the line of credit during the year ended March 31, 1995, was
$6,169,053 at a weighted average interest of 6.04%. The Funds did not have
any outstanding borrowings at March 31, 1995.
Note 11. Trustees Retirement Plan
The Trustees (and Directors) of the SunAmerica Family of Mutual Funds have
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement
Plan (the "Retirement Plan") effective January 1, 1993 for the unaffiliated
Trustees. The Retirement Plan provides generally that if an unaffiliated
Trustee who has at least 10 years of consecutive service as a Disinterested
Trustee of any of the SunAmerica mutual funds (an "Eligible Trustee")
retires after reaching age 60 but before age 70 or dies while a Trustee,
such person will be eligible to receive a retirement or death benefit from
each SunAmerica mutual fund with respect to which he or she is an Eligible
Trustee. As of each birthday, prior to the 70th birthday, each Eligible
Trustee will be credited with an amount equal to (i) 50% of his or her
regular fees (excluding committee fees) for services as a Disinterested
Trustee of each SunAmerica mutual fund for the calendar year in which such
birthday occurs, plus (ii) 8.5% of any amounts credited under clause (i)
during prior years. An Eligible Trustee may receive any benefits payable
under the Retirement Plan, at his or her election, either in one lump sum
or in up to fifteen annual installments. For the year ended March 31, 1995,
the Funds had accrued and expensed $13,165, $1,119, $1,936, $2,258 and
$2,486 for the U.S. Government Securities Fund, Federal Securities Fund,
Diversified Income Fund, High Income Fund and Tax Exempt Insured Fund,
respectively, for the Retirement Plan which is included in accrued expenses
on the Statement of Assets and Liabilities.
37
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1995 -- (continued)
Note 12. Legal Matters
High Income Fund Class B and U.S. Government Securities Fund Class B, as
successors to SAHIF and SAUSGF series, respectively, of SunAmerica Fund
Group ("Fund Group") (the successor to Equitec Siebel Fund Group), are,
pursuant to Fund Group's By-Laws (and other documents executed pursuant
thereto) obligated, under certain circumstances, to indemnify their
officers and trustees for reasonable legal fees and expenses that such
persons might incur in connection with their fund-related activities (as
used in this Note 12, High Income Fund Class B and U.S. Government
Securities Fund Class B shall herein after be referred to as the "Funds").
In connection therewith, and subject to certain conditions, the Funds may
advance such expenses before a final determination has been made that
indemnification is required, subject to recoupment if it is later
determined that the indemnified party is not entitled to such
indemnification by reason of conduct deemed to constitute gross negligence,
willful misfeasance or reckless disregard of his or her duties as an
officer or trustee; provided, however, that such advancement is secured by
appropriate collateral.
On November 8, 1993, the Trustees of Income Funds determined, based upon an
opinion of independent counsel, that the former trustees of Fund Group were
entitled to indemnification and, as such, the collateral which they had
posted to secure the advancement of legal costs should be returned to them.
Further, the Trustees reviewed and made a determination as to the
reasonableness of the legal bills submitted by the former trustees for
indemnification. They determined, based on various factors, that, in the
aggregate for the three trustees, of the $691,609 claim for
indemnification, $488,831 constituted a reasonable amount for legal fees
and expenses, and they have authorized the Funds to pay a pro rata portion
of such amount based on their net assets. Final payments were made in the
amount of $231,879 and $25,450 for the U.S. Government Fund and High Income
Fund, respectively, and any collateral posted by the former trustees to
receive the advancement of legal fees has been returned to them.
On February 11, 1994, the Trustees of Income Funds determined, based on an
opinion of independent counsel, that a former officer was entitled to
indemnification. Further, the Trustees reviewed and made a determination as
to the reasonableness of the legal bills submitted by the former officer
for indemnification. They determined, based on various factors, that the
entire amount claimed for indemnification, $42,076, constituted a
reasonable amount for legal fees and expenses, and they have authorized the
Funds to pay a pro rata portion of such amount based on their net assets.
Payment was made in the amount of $34,502 and $3,787 for the U.S.
Government Securities Fund and High Income Fund, respectively.
On May 20, 1994, the Trustees of Income Funds determined, based on an
opinion of independent counsel, that two former officers were entitled to
indemnification. Further, the Trustees reviewed and made a determination as
to the reasonableness of the legal bills submitted by such former officers
for indemnification. They determined, based on various factors, that the
entire amount claimed for indemnification, $87,897, constituted a
reasonable amount for legal fees and expenses, and they have authorized the
Funds to pay a pro rata portion of such amount based on their net assets.
Payment was made in the amount of $72,076 and $7,911 for the U.S.
Government Securities Fund and High Income Fund, respectively.
38
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1995 -- (concluded)
Pursuant to the agreements executed in connection with the acquisition
transaction described in Note 3 above, certain sums relating to the
purchase price were held in reserve in the event that certain specified
contingencies arose after the consummation of the transaction. Fund Group
has made a claim against, and received funds from, the holdback account in
the amount of $686,970 relating to the indemnification of the former Fund
Group trustees and officer, as described above, plus direct legal fees and
expenses incurred by the Funds in the matter. The Funds have received a pro
rata portion based on net assets of any monies received from this claim.
Because these payments and accruals represent extraordinary legal expenses,
they are not subject to the expense limitation discussed in Note 6 above.
39
<PAGE>
SUNAMERICA INCOME FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of SunAmerica Income Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of SunAmerica U.S. Government
Securities Fund, SunAmerica Federal Securities Fund, SunAmerica Diversified
Income Fund, SunAmerica High Income Fund and SunAmerica Tax Exempt Insured Fund
(constituting the SunAmerica Income Funds, hereafter referred to as the "Fund")
at March 31, 1995, the results of each of their operations for the year then
ended and the changes in each of their net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 1995 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
May 11, 1995
SHAREHOLDER TAX INFORMATION
Certain tax information regarding the SunAmerica Income Funds is required to be
provided to shareholders based upon each Fund's income and distributions for
the taxable periods ended March 31, 1995. The information and distributions
reported herein may differ from the information and distributions taxable to
the shareholders for the calendar year ending December 31, 1995. The
information necessary to complete your income tax returns will be included with
your Form 1099-DIV to be received under separate cover in January 1996.
FOR THE YEAR ENDED MARCH 31, 1995:
During the year ended March 31, 1995 Tax Exempt Insured Fund paid tax exempt
interest dividends of $.62 per share to Class A shareholders and $.54 per share
to Class B shareholders. For the year ended March 31, 1995, 2.3% of the
dividends paid from ordinary income by High Income Fund qualified for the 70%
dividends received deductions for corporations.
40
<PAGE>
SUNAMERICA INCOME FUNDS
COMPARISONS: PORTFOLIOS VS. INDICES
As required by the Securities and Exchange Commission, the following graphs
compare the performance of a $10,000 investment in the SunAmerica Income
Funds' portfolios to a similar investment in an index. Please note that
"inception" as used herein reflects the date a Fund commenced operations
without regard to when a second class of shares was introduced. For
comparative graphical purposes, however, we have assumed that each class of
shares' historical performance began on the original inception date and
runs up to the point that a new class of shares commenced operations. At
such time performance between the classes differs. Each index has been
chosen by the particular portfolio's manager as an appropriate comparison
and is accompanied by a brief discussion from the portfolio manager about
why the portfolio performed the way it did relative to the index.
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
U.S. Government Securities Lehman Bros.
Class A* Class B* Government Index
<S> <C> <C> <C>
Inception* 10000 10000 10000
6/86 10030 10030 10951
10705 10705 11402
6/88 11416 11416 12220
12173 12173 13693
6/90 13099 13099 14643
14350 14350 16129
6/92 15545 15545 18349
16400 16400 20715
16536
3/94 16923 16441 20673
3/95 17061 16974 21565
</TABLE>
*Inception dates for Class A and Class B are 10/01/93 and 3/03/86, respectively.
<TABLE>
<CAPTION>
U.S. Government Securities Fund Class Class
Average Annual Total Returns A B
<S> <C> <C>
1 Year Return -1.05% -0.88%
5 Year Return N/A 5.30%
Since Inception -1.15% 6.00%
</TABLE>
Manager's Comments:
U.S. Government Fund is managed to provide a relatively stable net asset value
and high current income. This strategy is intended to produce better performance
on a relative basis when interest rates rise. When interest rates decline, the
Fund should underperform. This is due to the Fund's shorter duration than the
Lehman Brothers Government Index. Over the course of the fiscal year, the Fund
performed well as interest rates initially rose and the shorter duration helped
reduce the net asset value volatility. However, the sharp decline in rates which
began in December of 1994 and has continued into 1995 has caused the performance
to slightly trail the Index. Over the last twelve months ended March 31, 1995,
the Fund ranked 83 out of 151 U.S. Government Funds monitored by Lipper
Analytical Services.
FEDERAL SECURITIES FUND
<TABLE>
<CAPTION>
Federal Securities Salomon Bros.
Class A* Class B* GNMA Index
<S> <C> <C> <C>
10000 10000 10000
3/86 11919 11919 12853
3/87 12752 12752 14232
3/88 13199 13199 15038
3/89 13683 13683 15856
3/90 15181 15181 18119
3/91 17121 17121 20686
3/92 18931 18931 23194
3/93 20457 20457 25837
20498
3/94 20764 20276 26157
3/95 21112 21049 27793
</TABLE>
*Inception dates for Class A and Class B are 10/11/93 and 4/25/83, respectively.
<TABLE>
<CAPTION>
Federal Securities Class Class
Average Annual Total Returns A B
<S> <C> <C>
1 Year Return -0.77% -0.34%
5 Year Return N/A 6.23%
10 Year Return N/A 7.73%
Since Inception -1.27% 8.14%
</TABLE>
Manager's Comments:
The Federal Securities Fund is currently managed as a total return GNMA Fund.
The Fund performed well during most of 1994 as the duration of the Fund was
shorter than the Salomon Brothers GNMA Index. However, the Fund's duration was
too short entering the rally in December 1994, resulting in one year performance
slightly below the average. On a pure group analysis, the Fund had a calender
year-to-date rank of 37 out of 58 GNMA Funds monitored by Lipper Analytical
Services.
41
<PAGE>
SUNAMERICA INCOME FUNDS
COMPARISONS: PORTFOLIOS VS. INDICES -- (continued)
DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
Diversified Lehman Bros. Salomon Bros. Salomon Bros. Merrill Lynch
Income Government High Yield World Bond High Yield
Class A* Class B* Index Market Index Index Bond Index
<S> <C> <C> <C> <C> <C> <C>
Inception 10000 10000 10000 10000 10000 10000
10/91 10340 10340 10691 11331 10872 11176
10/92 10356 10356 11795 13304 12428 13155
10/93 11692 11692 13344 15996 14688 15593
11548
3/94 10879 11398 12850 15799 14264 15699
3/95 10799 10775 13404 16824 15995 16895
</TABLE>
*Inception dates for Class A and Class B are 10/05/93 and 4/06/91, respectively.
<TABLE>
<CAPTION>
Diversified Income Class Class
Average Annual Total Returns A B
<S> <C> <C>
1 Year Return -9.61% -9.24%
Since Inception -7.43% 1.37%
</TABLE>
Manager's Comments:
The Diversified Income Fund's current primary investment objective is a high
level of current income consistent with moderate investment risk. In the fiscal
year ended March 31, 1995, the Fund underperformed its comparative indices due
to poor credit selection in the yield bond allocation and exposure to Latin
American bond markets, which declined substantially from December to March.
Please note that the Fund's investment objective was changed at the end of 1992.
Therefore, comparisons between the Fund and the respective indices for the
period from inception through the end of 1992 do not reflect the implementation
of the current investment objectives of the Fund.
HIGH INCOME FUND
<TABLE>
<CAPTION>
High Income Salomon Bros. High Merrill Lynch High
Class A* Class B* Yield Market Index Yield Bond Index
<S> <C> <C> <C> <C>
Inception* 10000 10000 10000 10000
3/87 10508 10508 11047 10900
3/88 10643 10643 11594 11373
3/89 11835 11835 12762 12506
3/90 10599 10599 12233 12503
3/91 11607 11607 13946 13877
3/92 15700 15700 17954 17677
3/93 18062 18062 21035 20627
19144
3/94 19713 19616 22773 22560
3/95 19278 18944 24251 24279
</TABLE>
*Inception dates for Class A and Class B are 9/19/86 and 10/01/93, respectively.
<TABLE>
<CAPTION>
High Income Class Class
Average Annual Total Returns A B
<S> <C> <C>
1 Year Return -7.52% -7.28%
5 Year Return 11.46% N/A
Since Inception 7.41% -3.36%
</TABLE>
Manager's Comments:
The High Income Fund has underperformed the Merrill Lynch High Yield Bond Index
and the Salomon Brothers High Yield Market Index for the period illustrated. The
Indices are unaffected by expenses typically associated with managing a fund and
would outperform any fund which simply owned all of the securities that comprise
the Indices. The Fund seeks maximum current income by investing primarily in
high yield, high risk corporate bonds. Over the last twelve months, the Fund has
underperformed the Indices due primarily to poor credit selection. Recently,
however, the Fund's performance has improved, resulting in a calendar year-to-
date rank of 16 out of 112 High Yield Funds as monitored by Lipper Analytical
Services.
42
<PAGE>
SUNAMERICA INCOME FUNDS
COMPARISONS: PORTFOLIOS VS. INDICES -- (continued)
TAX EXEMPT INSURED FUND
<TABLE>
<CAPTION>
Tax Exempt Insured Lehman Bros.
Class A* Class B* Municipal Bond Index
<S> <C> <C> <C>
Inception 10000 10000 10000
10/86 11160 11160 11733
10/87 10849 10849 11634
10/88 12506 12506 13327
10/89 13448 13448 14405
10/90 14292 14292 15474
10/91 15525 15525 17358
10/92 16446 16446 18816
10/93 18083 18073 21463
3/94 17250 17157 20531
3/95 18452 18236 22063
</TABLE>
*Inception dates for Class A and Class B are 11/22/85 and 10/04/93,
respectively.
<TABLE>
<CAPTION>
Tax Exempt Insured Class Class
Average Annual Total Returns A B
<S> <C> <C>
1 Year Return 1.89% 2.04%
5 Year Return 4.89% N/A
Since Inception 6.23% -2.10%
</TABLE>
Manager's Comments:
The investment objective of the Tax Exempt Insured Fund remains designed to
produce a lower price volatility relative to the Fund's Lipper Analytical
Services peer group average. This is accomplished by keeping a shorter duration
than the Lehman Brothers Municipal Bond Index, enabling the Fund to be less
sensitive to interest rate changes. The Fund also continues to be invested in
high quality municipal securities with an average maturity of 17 years. This low
volatility structure allowed the Fund to outperform its Lipper peer group
average over the 12 months ended March 31, 1995, and achieve a rank of 15 out of
41 Insured Municipal Funds.
43
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
TRUSTEES INVESTMENT ADVISER
Eli Broad SunAmerica Asset Management Corp.
S. James Coppersmith The SunAmerica Center
Samuel M. Eisenstat 733 Third Avenue
Stephen J. Gutman New York, NY 10017-3204
Sebastiano Sterpa
Jay S. Wintrob DISTRIBUTOR
SunAmerica Capital Services, Inc.
OFFICERS The SunAmerica Center
Peter A. Harbeck, President 733 Third Avenue
Stanton J. Feeley, Executive Vice New York, NY 10017-3204
President
Charles J. Dudley, Vice President SHAREHOLDER SERVICING AGENT
Nancy Kelly, Vice President SunAmerica Fund Services, Inc.
P. Christopher Leary, Vice President The SunAmerica Center
Robert M. Zakem, Secretary 733 Third Avenue
Peter C. Sutton, Controller New York, NY 10017-3204
Donna M. Handel, Assistant Controller
Hilary R. Kastleman, Assistant Secretary
Abbe P. Stein, Assistant Secretary CUSTODIAN AND TRANSFER AGENT
State Street Bank & Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
BULK RATE
SUNAMERICA INCOME FUNDS U.S. POSTAGE
THE SUNAMERICA CENTER PAID
733 THIRD AVENUE Kansas City,
NEW YORK, NY 10017-3204 MO
1-800-858-8850 PERMIT NO.
3657
This report is submitted solely for
the general information of
shareholders of the Fund.
Distribution of this report to
persons other than shareholders of
the Fund is authorized only in
connection with a currently effective
prospectus, setting forth details of
the Fund, which must precede or
accompany this report.
SPONSORED BY:
LOGO SunAmerica
Asset Management
IFANN
