<PAGE>
SEPTEMBER 30, 1996
SunAmerica
INCOME Funds
[ART]
SEMIANNUAL REPORT
U.S. GOVERNMENT SECURITIES . FEDERAL SECURITIES
DIVERSIFIED INCOME . HIGH INCOME . TAX EXEMPT INSURED
[LOGO]SunAmerica
Asset Management
<PAGE>
SUNAMERICA INCOME FUNDS
SHAREHOLDER LETTER
Dear Shareholder:
Interest rates trended between 6.50% and 7.25% over the last six months
amidst speculation regarding the strength of the economy and concerns that the
rate of economic growth would force the Federal Reserve to raise interest
rates. The primary factor behind the pace of the economy is the continued
growth in the employment market. In the wake of close to 3.50% economic growth
during the first half of 1996, the unemployment rate has trended lower as more
jobs were created than the labor supply offered. This resulted in rising
interest rates during the first half of 1996 as investors worried that the
strength of the labor market would lead to an increase in the rate of
inflation.
The U.S. GOVERNMENT SECURITIES FUND is managed to be less sensitive to
changes in interest rates. This defensive strategy is achieved by keeping a
shorter duration (a measure of price sensitivity) than many other government
bond funds. The strategy proved to be beneficial over the past six months as
interest rates trended higher due to surprise increases in the monthly
employment data. When interest rates rise, prepayment activity on mortgage
products decline as there is no economic incentive to refinance an existing
mortgage or prepay the loan. Given this backdrop of rising rates, the Fund
performed well, ranking in the top quarter of its peer group year-to-date.
Aside from the more defensive duration positioning, the premium mortgages
performed well as they provided the necessary cushion from rising rates. Over
the course of September, we slightly increased the duration of the Fund,
because we believe the longer term outlook on interest rates is favorable.
The FEDERAL SECURITIES FUND has a longer duration than our U.S. Government
Securities Fund, leading to more price sensitivity because the Fund owns
longer maturity securities. Therefore, the rising rate environment hindered
the performance of the Fund relative to shorter duration funds. Our investment
strategy allows us to actively adjust the portfolio to reflect current market
conditions. Longer maturity treasuries are very liquid and can be sold
quickly. The current coupon and seasoned premium mortgages in the Fund
provided a more stable income stream in periods of rising interest rates. The
current duration position is neutral, reflecting our belief that over the next
few months we may see troublesome signs of inflation. However, the longer term
prospects on the economy are favorable for fixed income investments.
The DIVERSIFIED INCOME FUND has performed well over the past six months.
This has been accomplished by a successful allocation within the Fund's three
components: corporate bonds, foreign bonds and U.S. Treasuries. Corporate bond
fundamentals have improved as the economy has strengthened. In addition, we
have seen a large cash inflow into the corporate bond market as investors
believe that the current interest rate environment warrants expanding their
investment alternatives. The foreign bonds performed well due to declining
global interest rates and many of the new issues represented opportunities
into previously untapped markets.
The HIGH INCOME FUND has performed well with a year-to-date total return of
10.17%, above its Lipper group average of 9.77%. With U.S. treasury yields
remaining relatively low and stable, investors have had more confidence to
seek the higher returns in other markets. This is exhibited by the large cash
inflows to high yield products. On balance, we have witnessed a period where
the quality of the earnings of many of the credits are improving. This is
based on a low inflationary environment and the forces of supply and
1
<PAGE>
SUNAMERICA INCOME FUNDS
SHAREHOLDER LETTER
demand that are also pushing prices higher. We focused on credit quality, as
well as identifying companies with strong fundamentals and solid growth
characteristics. We have reduced our exposure to positions which have a high
price correlation to the Treasury market, because we believe that there will
be volatility in the near-term.
Year-to-date the TAX EXEMPT INSURED FUND performed above its peer group
average. This performance was the result of a number of factors which provided
tax-free investors with strong returns on a tax adjusted basis and in
comparison to the returns of the taxable bond market. The primary reason for
the positive returns offered by municipal bonds has been the continued lack of
new municipal bond offerings. Since 1995, new issuance of tax-free bonds has
remained meager as municipalities have been able to use the increased tax
proceeds resulting from a healthy economy rather then borrow money. Further
aggravating the supply situation has been the large number of tax-free bonds
maturing or being redeemed and not being replaced with new issuance. As a
result the overall supply of bonds has been reduced while demand has remained
quite strong. Looking ahead, we see a positive environment for municipal
investors as steady interest rates and a lack of supply lead to solid returns.
OUTLOOK
During the recent quarter concern continued to center around the strength of
the economy and the reactions of the Federal Reserve. These concerns appeared
to be more short-term in nature due to the lack of inflationary pressures even
after the strong period of economic growth during the first half of 1996.
Furthermore, the economy returned to the path of 2% growth during the third
quarter and will most likely end the year close to that level. Due to this
moderation in growth, it is our belief that the Federal Reserve will not be
forced to raise interest rates and inflation will remain close to its current
level.
/s/ P. Christopher Leary
/s/ John C. Mooney
P. Christopher Leary
Portfolio Manager John C. Mooney
Portfolio Manager
2
<PAGE>
SUNAMERICA INCOME FUNDS
STATEMENT OF ASSETS AND LIABILITIES -- September 30, 1996 (unaudited)
<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
$466,503,592;
$52,695,023;
$104,900,990;
$139,362,717 and
$126,489,612,
respectively)........... $468,906,893 $52,557,523 $109,897,097 $144,152,504 $134,364,310
Short-term securities
(cost equals market).... -- -- -- -- 900,000
Joint repurchase
agreement (cost equals
market)................. 4,981,000 2,742,000 -- 5,148,000 --
Cash..................... 760 4,725 -- 192 26,188
Interest and dividends
receivable.............. 4,471,109 404,962 2,213,738 2,754,245 2,183,405
Receivable for
investments sold........ 1,383,755 -- 3,437,944 768,750 1,451,083
Receivable for shares of
beneficial interest
sold.................... 388,352 45,070 460,426 331,281 1,734
Prepaid expenses......... 35,265 28,632 4,752 12,255 21,778
------------ ----------- ------------ ------------ ------------
Total assets............ 480,167,134 55,782,912 116,013,957 153,167,227 138,948,498
------------ ----------- ------------ ------------ ------------
LIABILITIES:
Dividends payable........ 1,199,602 159,667 509,500 612,457 310,864
Payable for shares of
beneficial interest
redeemed................ 635,125 51,634 230,682 507,031 59,299
Accrued expenses......... 343,911 57,737 102,662 111,947 84,752
Distribution and service
maintenance fees
payable................. 336,874 28,183 84,973 99,641 54,968
Investment advisory and
management fees payable. 278,095 23,629 61,116 90,271 56,288
Loan payable............. -- -- 267,035 -- --
Payable for investments
purchased............... -- -- -- 2,250,000 1,439,669
------------ ----------- ------------ ------------ ------------
Total liabilities....... 2,793,607 320,850 1,255,968 3,671,347 2,005,840
------------ ----------- ------------ ------------ ------------
Net assets........... $477,373,527 $55,462,062 $114,757,989 $149,495,880 $136,942,658
============ =========== ============ ============ ============
NET ASSETS WERE COMPOSED
OF:
Shares of beneficial
interest, $.01 par
value................... $ 566,491 $ 53,342 $ 261,507 $ 210,476 $ 110,433
Paid-in capital.......... 513,992,843 56,900,420 144,150,222 189,434,737 137,599,159
------------ ----------- ------------ ------------ ------------
514,559,334 56,953,762 144,411,729 189,645,213 137,709,592
Accumulated undistributed
(distributions in excess
of) net investment
income.................. 2,036,098 (10,094) (436,905) (244,212) (318,824)
Accumulated net realized
loss on investments,
futures contracts and
foreign currency........ (41,625,206) (1,344,106) (34,211,871) (44,694,908) (8,322,808)
Net unrealized
appreciation
(depreciation) on
investments............. 2,403,301 (137,500) 4,996,107 4,789,787 7,874,698
Net unrealized
depreciation on foreign
currency, other assets
and liabilities......... -- -- (1,071) -- --
------------ ----------- ------------ ------------ ------------
Net assets........... $477,373,527 $55,462,062 $114,757,989 $149,495,880 $136,942,658
============ =========== ============ ============ ============
CLASS A (UNLIMITED SHARES
AUTHORIZED):
Net asset value and
redemption price per
share
($108,862,645/12,923,738;
$32,773,920/3,155,056;
$17,621,510/4,023,164;
$39,447,648/5,560,587
and
$107,613,682/8,678,575
net assets and shares of
beneficial interest
issued and outstanding,
respectively)........... $ 8.42 $ 10.39 $ 4.38 $ 7.09 $ 12.40
Maximum sales charge
(4.75% of offering
price).................. 0.42 0.52 0.22 0.35 0.62
------------ ----------- ------------ ------------ ------------
Maximum offering price to
public.................. $ 8.84 $ 10.91 $ 4.60 $ 7.44 $ 13.02
============ =========== ============ ============ ============
CLASS B (UNLIMITED SHARES
AUTHORIZED):
Net asset value, offering
price and redemption
price (less any
applicable contingent
deferred sales charge)
per share
($368,510,882/43,725,332;
$22,688,142/2,179,133;
$97,136,479/22,127,512;
$110,048,232/15,486,992
and
$29,328,976/2,364,747
net assets and shares of
beneficial interest
issued and outstanding,
respectively)........... $ 8.43 $ 10.41 $ 4.39 $ 7.11 $ 12.40
============ =========== ============ ============ ============
</TABLE>
See Notes to Financial Statements
3
<PAGE>
SUNAMERICA INCOME FUNDS
STATEMENT OF OPERATIONS -- For the six months ended September 30, 1996
(unaudited)
<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................. $ 21,991,435 $2,316,137 $5,834,362 $7,801,580 $4,297,304
Dividends................ -- -- 21,175 65,000 --
------------ ---------- ---------- ---------- ----------
Total investment income.. 21,991,435 2,316,137 5,855,537 7,866,580 4,297,304
------------ ---------- ---------- ---------- ----------
Expenses:
Investment advisory and
management fees......... 1,780,979 156,958 382,351 551,266 356,303
Distribution and service
maintenance fees--Class
A....................... 203,224 64,910 28,360 66,192 197,848
Distribution and service
maintenance fees--Class
B....................... 1,982,931 121,559 507,205 545,900 147,325
Transfer agent fees and
expenses--Class A....... 154,556 53,149 23,905 55,214 145,740
Transfer agent fees and
expenses--Class B....... 521,055 35,597 138,519 147,137 36,821
Custodian fees and
expenses................ 447,440 55,910 45,750 46,115 48,285
Trustees' fees and
expenses................ 35,054 4,932 8,057 10,232 9,517
Audit and tax consulting
fees.................... 25,100 8,545 10,505 11,005 11,860
Printing expense......... 12,450 2,555 3,335 4,385 2,465
Registration fees--Class
A....................... 5,807 2,867 1,621 2,124 5,505
Registration fees--Class
B....................... 10,653 2,520 4,939 5,459 3,668
Legal fees and expenses.. 7,395 780 1,420 1,990 2,150
Insurance expense........ 6,477 733 1,473 1,684 14,807
Interest expense......... -- -- 53 2,861 --
Miscellaneous expenses... 6,656 1,831 2,610 2,427 2,611
------------ ---------- ---------- ---------- ----------
Total expenses........... 5,199,777 512,846 1,160,103 1,453,991 984,905
Less: expenses
reimbursed by
distributor............. (6,176) -- -- (11,034) --
------------ ---------- ---------- ---------- ----------
Net expenses............. 5,193,601 512,846 1,160,103 1,442,957 984,905
------------ ---------- ---------- ---------- ----------
Net investment income..... 16,797,834 1,803,291 4,695,434 6,423,623 3,312,399
------------ ---------- ---------- ---------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss)
on investments........... (11,452,044) (219,889) (880,154) 1,566,603 577,895
Net realized gain (loss)
on futures contracts..... (56,137) 23,232 (19,031) -- 6,875
Net change in unrealized
appreciation/depreciation
on investments........... 2,788,569 (224,077) 3,122,494 1,415,447 (949,054)
Net change in unrealized
appreciation/depreciation
on foreign currency,
other assets and
liabilities.............. -- -- (1,056) -- --
------------ ---------- ---------- ---------- ----------
Net realized and
unrealized gain (loss) on
investments and foreign
currency................. (8,719,612) (420,734) 2,222,253 2,982,050 (364,284)
------------ ---------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS............... $ 8,078,222 $1,382,557 $6,917,687 $9,405,673 $2,948,115
============ ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements
4
<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 SIX FOR THE YEAR FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED MONTHS ENDED ENDED MONTHS ENDED ENDED
SEPTEMBER 30, 1996 MARCH 31, SEPTEMBER 30, 1996 MARCH 31, SEPTEMBER 30, 1996 MARCH 31,
(UNAUDITED) 1996 (UNAUDITED) 1996 (UNAUDITED) 1996
------------------ ------------- ------------------ ------------ ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
DECREASE IN NET ASSETS:
OPERATIONS:
Net investment income. $ 16,797,834 $ 41,530,783 $ 1,803,291 $ 4,210,239 $ 4,695,434 $ 11,947,523
Net realized gain
(loss) on
investments.......... (11,452,044) 9,603,179 (219,889) 2,758,114 (880,154) (8,084,041)
Net realized gain
(loss) on futures
contracts............ (56,137) 45,590 23,232 (23,056) (19,031) (292,616)
Net change in
unrealized
appreciation/depreciation
on investments....... 2,788,569 5,738,709 (224,077) 423,129 3,122,494 13,961,546
Net change in
unrealized
appreciation/depreciation
on foreign currency,
other assets and
liabilities.......... -- -- -- -- (1,056) (102)
------------ ------------- ------------ ----------- ------------ ------------
Net increase in net
assets resulting from
operations............ 8,078,222 56,918,261 1,382,557 7,368,426 6,917,687 17,532,310
------------ ------------- ------------ ----------- ------------ ------------
DIVIDENDS TO SHAREHOLDERS:
From net investment
income (Class A)..... (3,352,834) (6,676,176) (1,038,560) (1,985,432) (678,605) (1,513,903)
From net investment
income (Class B)..... (10,153,580) (27,782,092) (600,504) (2,098,335) (3,930,757) (11,028,301)
------------ ------------- ------------ ----------- ------------ ------------
Total dividends to
shareholders.......... (13,506,414) (34,458,268) (1,639,064) (4,083,767) (4,609,362) (12,542,204)
------------ ------------- ------------ ----------- ------------ ------------
NET DECREASE IN NET
ASSETS RESULTING FROM
CAPITAL SHARE
TRANSACTIONS (NOTE 7). (71,473,966) (136,362,670) (10,723,779) (8,732,579) (15,261,547) (23,870,313)
------------ ------------- ------------ ----------- ------------ ------------
TOTAL DECREASE IN NET
ASSETS................ (76,902,158) (113,902,677) (10,980,286) (5,447,920) (12,953,222) (18,880,207)
NET ASSETS:
Beginning of period.... 554,275,685 668,178,362 66,442,348 71,890,268 127,711,211 146,591,418
------------ ------------- ------------ ----------- ------------ ------------
End of period
[including
undistributed
(distributions in
excess of) net
investment income for
September 30, 1996 and
March 31, 1996 of
$2,036,098,
$(1,255,322),
$(10,094), $(174,321),
$(436,905) and
$(522,977),
respectively]......... $477,373,527 $ 554,275,685 $ 55,462,062 $66,442,348 $114,757,989 $127,711,211
============ ============= ============ =========== ============ ============
</TABLE>
See Notes to Financial Statements
5
<PAGE>
SUNAMERICA INCOME FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
HIGH INCOME FUND TAX EXEMPT INSURED FUND
------------------------------- -------------------------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED MONTHS ENDED ENDED
SEPTEMBER 30, 1996 MARCH 31, SEPTEMBER 30, 1996 MARCH 31,
(UNAUDITED) 1996 (UNAUDITED) 1996
------------------ ------------ ------------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income..... $ 6,423,623 $ 15,243,396 $ 3,312,399 $ 7,373,636
Net realized gain (loss)
on investments........... 1,566,603 (7,236,768) 577,895 1,630,756
Net realized gain (loss)
on futures contracts..... -- -- 6,875 (199,383)
Net change in unrealized
appreciation/depreciation
on investments........... 1,415,447 7,416,828 (949,054) 2,644,616
------------ ------------ ------------ ------------
Net increase in net assets
resulting from
operations............... 9,405,673 15,423,456 2,948,115 11,449,625
------------ ------------ ------------ ------------
DIVIDENDS TO SHAREHOLDERS:
From net investment income
(Class A)................ (1,742,193) (4,100,978) (2,712,551) (6,307,717)
From net investment income
(Class B)................ (4,696,993) (12,111,523) (609,843) (1,156,665)
------------ ------------ ------------ ------------
Total dividends to
shareholders............. (6,439,186) (16,212,501) (3,322,394) (7,464,382)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
CAPITAL SHARE
TRANSACTIONS (NOTE 7).... 18,766,390 (65,066,720) (13,955,213) (16,652,927)
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS............ 21,732,877 (65,855,765) (14,329,492) (12,667,684)
NET ASSETS:
Beginning of period....... 127,763,003 193,618,768 151,272,150 163,939,834
------------ ------------ ------------ ------------
End of period [including
distributions in excess
of net investment income
for September 30, 1996
and March 31, 1996 of
$(244,212), $(228,649),
$(318,824) and
$(308,829),
respectively]............ $149,495,880 $127,763,003 $136,942,658 $151,272,150
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
6
<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)
- ---------------- --------- ---------- ----------- ---------- --------- ------- ------- --------- ------- ------ ---------
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/01/93-
3/31/94(3)..... $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
3/31/96......... 8.23 0.62 0.16 0.78 (0.51) -- -- -- (0.51) 8.50 9.62
9/30/96(6)...... 8.50 0.30 (0.14) 0.16 (0.24) -- -- -- (0.24) 8.42 1.95
<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
- ---------------- ---------- ------------- -------------- ---------
CLASS A
-------
<S> <C> <C> <C> <C>
10/01/93-
3/31/94(3)..... $ 76,586 1.35%(4)(7) 6.83%(4)(7) 35%
3/31/95......... 73,399 1.46(7) 7.50(7) 105
3/31/96......... 125,504 1.44(7) 7.11(7) 142
9/30/96(6)...... 108,863 1.52(4)(7) 7.06(4)(7) 74
<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)
- ---------------- --------- ---------- ----------- ---------- --------- ------- ------- --------- ------- ------ ---------
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/30/92(5)...... $8.90 $0.73 $(0.02) $0.71 $(0.57) $(0.16) $ -- $ -- $(0.73) $8.88 8.33%
6/30/93(5)...... 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
3/31/96......... 8.24 0.55 0.17 0.72 (0.45) -- -- -- (0.45) 8.51 8.87
9/30/96(6)...... 8.51 0.27 (0.13) 0.14 (0.22) -- -- -- (0.22) 8.43 1.62
<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
- ---------------- ---------- ------------- -------------- ---------
CLASS B
-------
<S> <C> <C> <C> <C>
6/30/92(5)...... $1,075,668 1.92% 8.21% 54%
6/30/93(5)...... 1,259,845 1.82(7) 7.27(7) 73
7/01/93-
3/31/94........ 886,089 1.95(4)(7) 6.61(4)(7) 35
3/31/95......... 594,779 2.15(7) 6.80(7) 105
3/31/96......... 428,772 2.13 6.46 142
9/30/96(6)...... 368,511 2.17(4) 6.40(4) 74
</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)
- ---------------- --------- ------- ----------- ---------- --------- ------- --------- ------- ------ --------- --------
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/11/93-
3/31/94(3)..... $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
3/31/96......... 9.98 0.68(1) 0.40 1.08 (0.63) -- -- (0.63) 10.43 10.94 40,278
9/30/96(6)...... 10.43 0.32(1) (0.07) 0.25 (0.29) -- -- (0.29) 10.39 2.43 32,774
<CAPTION>
RATIO OF RATIO OF
EXPENSES NET
TO INVESTMENT
AVERAGE INCOME TO
PERIOD NET AVERAGE PORTFOLIO
ENDED ASSETS NET ASSETS TURNOVER
- ---------------- ------------- -------------- ---------
CLASS A
-------
<S> <C> <C> <C>
10/11/93-
3/31/94(3)..... 1.39%(4)(7) 4.68%(4)(7) 68%
3/31/95......... 1.40(7) 6.90(7) 267
3/31/96......... 1.37 6.12 311
9/30/96(6)...... 1.41(4) 6.14(4) 245
<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)
- ---------------- --------- ------- ----------- ---------- --------- ------- --------- ------- ------ --------- --------
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3/31/92......... $10.35 $0.77 $ 0.29 $ 1.06 $(0.77) $ -- $ -- $(0.77) $10.64 10.57% $120,454
3/31/93......... 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
3/31/96......... 10.01 0.56(1) 0.44 1.00 (0.56) -- -- (0.56) 10.45 10.13 26,165
9/30/96(6)...... 10.45 0.28(1) (0.07) 0.21 (0.25) -- -- (0.25) 10.41 2.09 22,688
<CAPTION>
RATIO OF RATIO OF
EXPENSES NET
TO INVESTMENT
AVERAGE INCOME TO
PERIOD NET AVERAGE PORTFOLIO
ENDED ASSETS NET ASSETS TURNOVER
- ---------------- ------------- -------------- ---------
CLASS B
-------
<S> <C> <C> <C>
3/31/92......... 1.90% 7.32% 57%
3/31/93......... 1.85 6.36 97
3/31/94......... 1.98 5.79 68
3/31/95......... 2.03 6.33 267
3/31/96......... 2.01 5.64 311
9/30/96(6)...... 2.07(4) 5.47(4) 245
</TABLE>
- ------------
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Commencement of sale of respective class of shares
(4) Annualized
(5) Pursuant to a reorganization of the SunAmerica Mutual Funds, the Fund
changed its fiscal year end to March 31
(6) Unaudited
(7) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
6/30/93 3/31/94 3/31/95 3/31/96 9/30/96
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
U.S. Government Securities Fund Class A -- .10% .07% .04% .01%
U.S. Government Securities Fund Class B .02% .06% .03% -- --
Federal Securities Fund Class A -- 6.74% 1.26% -- --
</TABLE>
See Notes to Financial Statements
7
<PAGE>
SUNAMERICA INCOME FUNDS
FINANCIAL HIGHLIGHTS
DIVERSIFIED 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
- ---------------- --------- ---------- ----------- ---------- ---------- ------ --------- -------- --------
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/05/93 -
10/31/93(2)(5). $5.05 $0.02(3) $0.01 $0.03 $(0.01) $5.07 0.65 % $ 762 1.40%(4)
11/01/93 -
3/31/94........ 5.07 0.13(3) (0.23) (0.10) (0.18) 4.79 (2.10) 12,600 1.42 (4)(9)
3/31/95......... 4.79 0.43(3) (0.66) (0.23) (0.42) 4.14 (5.10) 14,213 1.59
3/31/96......... 4.14 0.39(3) 0.16 0.55 (0.40) 4.29 13.78 16,762 1.46
9/30/96(8)...... 4.29 0.18(3) 0.09 0.27 (0.18) 4.38 6.42 17,622 1.44 (4)
<CAPTION>
RATIO OF NET
INVESTMENT
INCOME TO
AVERAGE NET PORTFOLIO
PERIOD ENDED ASSETS TURNOVER
- ----------------- ------------ ---------
CLASS A
-------
<S> <C> <C>
10/05/93 -
10/31/93(2)(5). 8.92%(4) 249%
11/01/93 -
3/31/94........ 8.25 (4)(9) 48
3/31/95......... 9.58 160
3/31/96......... 8.96 166
9/30/96(8)...... 8.51 (4) 64
<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
- ---------------- --------- ---------- ----------- ---------- ---------- ------ --------- -------- --------
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/31/92(5)(6).. $5.21 $0.42 $(0.41) $0.01 $(0.40) $4.82 0.16 % $ 35,409 0.74%(9)
10/31/93(5)(6).. 4.82 0.38(3) 0.24 0.62 (0.37) 5.07 13.35 102,519 1.78 (9)
11/01/93 -
3/31/94........ 5.07 0.15(3) (0.27) (0.12) (0.16) 4.79 (2.52) 174,072 2.11 (4)
3/31/95......... 4.79 0.40(3) (0.65) (0.25) (0.39) 4.15 (5.46) 132,378 2.12
3/31/96......... 4.15 0.36(3) 0.17 0.53 (0.38) 4.30 13.09 110,949 2.06
9/30/96(8)...... 4.30 0.17(3) 0.09 0.26 (0.17) 4.39 6.09 97,136 2.06 (4)
<CAPTION>
RATIO OF NET
INVESTMENT
INCOME TO
AVERAGE NET PORTFOLIO
PERIOD ENDED ASSETS TURNOVER
- ----------------- ------------ ---------
CLASS B
-------
<S> <C> <C>
10/31/92(5)(6).. 7.81%(9) 191%
10/31/93(5)(6).. 7.53 (9) 249
11/01/93 -
3/31/94........ 7.48 (4) 48
3/31/95......... 8.98 160
3/31/96......... 8.42 166
9/30/96(8)...... 7.90 (4) 64
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH INCOME FUND
- ----------------
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
- ---------------- --------- ---------- ----------- ---------- ---------- ------ --------- -------- --------
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3/31/92(7)...... $6.84 $0.95 $1.28 $2.23 $(1.00) $8.07 35.27% $ 22,607 1.57%
3/31/93(7)...... 8.07 0.95 0.18 1.13 (1.08) 8.12 15.05 30,715 1.77
3/31/94(7)...... 8.12 0.87(3) (0.14) 0.73 (0.82) 8.03 9.14 33,724 1.72
3/31/95......... 8.03 0.78(3) (1.03) (0.25) (0.83) 6.95 (2.91) 40,585 1.61
3/31/96......... 6.95 0.67(3) 0.02 0.69 (0.69) 6.95 10.43 35,963 1.53
9/30/96(8)...... 6.95 0.32(3) 0.14 0.46 (0.32) 7.09 6.78 39,448 1.51 (4)
<CAPTION>
RATIO OF NET
INVESTMENT
INCOME TO
AVERAGE NET PORTFOLIO
PERIOD ENDED ASSETS TURNOVER
- ----------------- ------------ ---------
CLASS A
-------
<S> <C> <C>
3/31/92(7)...... 13.19% 208%
3/31/93(7)...... 11.08 232
3/31/94(7)...... 10.34 290
3/31/95......... 10.82 196
3/31/96......... 9.36 183
9/30/96(8)...... 9.19 (4) 53
<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
- ---------------- --------- ---------- ----------- ---------- ---------- ------ --------- -------- --------
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/01/93 -
3/31/94(2)..... $8.18 $0.38(3) $(0.17) $ 0.21 $(0.35) $8.04 2.46% $131,713 2.15%(4)(9)
3/31/95......... 8.04 0.73(3) (1.02) (0.29) (0.79) 6.96 (3.42) 153,034 2.16 (9)
3/31/96......... 6.96 0.62(3) 0.03 0.65 (0.65) 6.96 9.83 91,800 2.06 (9)
9/30/96(8)...... 6.96 0.31(3) 0.14 0.45 (0.30) 7.11 6.61 110,048 2.12 (4)(9)
<CAPTION>
RATIO OF NET
INVESTMENT
INCOME TO
AVERAGE NET PORTFOLIO
PERIOD ENDED ASSETS TURNOVER
- ----------------- ------------ ---------
CLASS B
-------
<S> <C> <C>
10/01/93 -
3/31/94(2)..... 9.07%(4)(9) 290%
3/31/95......... 10.26 (9) 196
3/31/96......... 8.85 (9) 183
9/30/96(8)...... 8.58 (4)(9) 53
</TABLE>
- ------------
(1) Total return is not annualized and does not reflect sales load
(2) Commencement of sale of respective class of shares
(3) Calculated based upon average shares outstanding
(4) Annualized
(5) Pursuant to a reorganization of the SunAmerica Mutual Funds, the Fund
changed its fiscal year end to March 31
(6) Restated to reflect 1.889180183-for-1 stock split effective December 16,
1992
(7) Restated to reflect 1.174107276-for-1 stock split effective October 1, 1993
(8) Unaudited
(9) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
10/31/92 10/31/93 3/31/94 3/31/95 3/31/96 9/30/96
-------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Diversified Income Fund Class A -- -- .62% -- -- --
Diversified Income Fund Class B 1.25% .38% -- -- -- --
High Income Fund Class B -- -- .08% .08% .08% .02%
</TABLE>
See Notes to Financial Statements
8
<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
- ---------------- --------- ---------- ----------- ---------- ---------- ------ --------- -------- --------
CLASS A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 (8)
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 (5)(8)
3/31/95......... 11.95 0.63(4) 0.17 0.80 (0.62) 12.13 6.97 137,955 1.20 (8)
3/31/96......... 12.13 0.59(4) 0.29 0.88 (0.59) 12.42 7.37 121,957 1.22
9/30/96(7)...... 12.42 0.30(4) (0.03) 0.27 (0.29) 12.40 2.24 107,614 1.25 (5)
<CAPTION>
RATIO OF
NET
INVESTMENT
INCOME TO
AVERAGE PORTFOLIO
PERIOD ENDED NET ASSETS TURNOVER
- ----------------- --------------- ---------
CLASS A
-------
<S> <C> <C>
10/31/92(2)..... 6.26% 21%
10/31/93(2)..... 5.56 (8) 26
11/01/93-
3/31/94........ 4.99 (5)(8) 52
3/31/95......... 5.32 (8) 162
3/31/96......... 4.72 46
9/30/96(7)...... 4.78 (5) 26
<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
- ---------------- --------- ---------- ----------- ---------- ---------- ------ --------- -------- --------
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/04/93-
10/31/93(2)(6). $12.84 $0.02(4) $(0.05) $(0.03) $(0.02) $12.79 (0.24)% $ 4,922 1.96%(5)
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 (5)
3/31/95......... 11.95 0.54(4) 0.19 0.73 (0.54) 12.14 6.29 25,985 1.92
3/31/96......... 12.14 0.50(4) 0.29 0.79 (0.51) 12.42 6.58 29,315 1.90
9/30/96(7)...... 12.42 0.26(4) (0.03) 0.23 (0.25) 12.40 1.91 29,329 1.90 (5)
<CAPTION>
RATIO OF
NET
INVESTMENT
INCOME TO
AVERAGE PORTFOLIO
PERIOD ENDED NET ASSETS TURNOVER
- ----------------- --------------- ---------
CLASS B
-------
<S> <C> <C>
10/04/93-
10/31/93(2)(6). 4.09%(5) 26%
11/01/93-
3/31/94........ 4.17 (5) 52
3/31/95......... 4.60 162
3/31/96......... 4.03 46
9/30/96(7)...... 4.13 (5) 26
</TABLE>
- ------------
(1) Total return is not annualized and does not reflect sales load
(2) Pursuant to a reorganization of the SunAmerica Mutual Funds, the Fund
changed its fiscal year end to March 31
(3) Prior year amounts reclassified to net investment income
(4) Calculated based upon average shares outstanding
(5) Annualized
(6) Commencement of sale of respective class of shares
(7) Unaudited
(8) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
10/31/93 3/31/94 3/31/95
-------- ------- -------
<S> <C> <C> <C>
Tax Exempt Insured Fund Class A .10% .11% .04%
</TABLE>
See Notes to Financial Statements
9
<PAGE>
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORP.--29.7%
6.50% due 3/15/24................................. $ 9,624 $ 8,475,259
7.50% due 2/01/22 - 6/01/25....................... 23,524 23,534,732
7.68% due 10/15/96(1)............................. 5,000 4,614,063
8.50% due 6/01/01................................. 5 5,152
9.00% due 1/01/02 - 10/01/16...................... 540 565,468
9.25% due 9/01/08 - 3/01/17....................... 511 535,619
9.50% due 9/01/16 - 9/01/21....................... 5,951 6,340,106
10.00% due 10/01/02 - 8/01/21..................... 21,456 23,193,526
10.00% due 5/01/05(2)............................. 136 138,106
10.50% due 6/01/00 - 1/01/21...................... 851 930,598
10.75% due 9/01/00 - 1/01/15...................... 259 284,361
11.00% due 9/01/00 - 6/01/17...................... 2,121 2,353,006
11.25% due 11/01/13............................... 59 65,359
11.50% due 11/01/01 - 7/01/19..................... 1,030 1,155,037
11.75% due 8/01/11 - 10/01/14..................... 181 203,297
12.00% due 7/01/99 - 7/01/20...................... 13,460 15,128,945
12.13% due 9/01/11................................ 756 862,572
12.25% due 10/01/99 - 7/01/15..................... 961 1,093,205
12.50% due 8/01/99 - 4/15/19...................... 22,582 26,092,993
12.75% due 2/01/00 - 6/01/15...................... 1,162 1,336,079
13.00% due 5/01/00 - 10/01/15..................... 11,873 13,902,038
13.25% due 11/01/10 - 5/01/15..................... 1,195 1,395,743
13.50% due 2/01/10 - 2/15/19...................... 7,101 8,426,714
13.75% due 7/01/11 - 8/01/14...................... 94 110,492
14.00% due 10/01/09 - 4/01/16..................... 646 766,160
14.50% due 12/01/10 - 5/01/13..................... 132 157,140
14.52% due 10/15/96(1)(2)......................... 221 204,160
------------
TOTAL FEDERAL HOME LOAN
MORTGAGE CORP.
(cost $137,884,762)............................... 141,869,930
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--17.2%
6.00% due 9/01/00(2).............................. 8,453 8,262,516
6.00% due 11/01/03................................ 5,668 5,546,779
6.50% due 8/01/99 - 1/01/01....................... 6,502 6,392,089
8.00% due 12/01/22 - 1/01/23...................... 15,634 15,770,513
8.50% due 9/25/20(2).............................. 543 549,560
9.00% due 12/01/97 - 4/01/07...................... 2,739 2,847,228
9.25% due 12/01/10 - 1/01/17...................... 454 474,412
10.25% due 6/01/14 - 7/01/16...................... 111 120,507
10.50% due 3/01/15................................ 337 367,794
11.00% due 3/01/09 - 8/01/20...................... 1,554 1,727,547
11.50% due 5/01/00 - 3/01/14...................... 619 655,829
11.75% due 3/01/15 - 11/01/15..................... 60 67,409
12.00% due 9/01/07 - 5/01/16...................... 12,022 13,723,607
12.25% due 9/01/99 - 10/01/15..................... 1,672 1,904,169
12.50% due 12/01/97 - 9/01/15..................... 7,270 8,359,061
12.75% due 9/01/12 - 9/01/15...................... 655 755,904
13.00% due 10/01/09 - 9/01/16..................... 9,420 11,067,678
13.25% due 10/01/13 - 2/01/15..................... 228 267,280
13.50% due 10/01/10 - 2/01/17..................... 1,740 2,073,222
13.75% due 11/01/11 - 10/01/14.................... 168 200,088
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION (CONTINUED)
14.00% due 10/01/14............................... $ 469 $ 563,194
14.50% due 7/01/11................................ 141 169,133
14.75% due 7/01/12................................ 114 142,398
15.00% due 10/01/12 - 2/01/13..................... 150 180,379
15.50% due 10/01/12............................... 65 78,150
------------
TOTAL FEDERAL NATIONAL
MORTGAGE ASSOCIATION
(cost $81,151,172)................................ 82,266,446
------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION--28.0%
6.50% due 12/15/98 - 10/15/04..................... 5,285 5,085,362
7.00% due 11/15/22 - 10/15/23..................... 20,496 19,730,011
7.50% due 1/15/17 - 10/15/23...................... 26,322 25,999,691
8.50% due 6/15/01 - 11/15/20...................... 13,319 13,839,385
9.00% due 5/15/01 - 12/15/20...................... 9,521 9,969,359
9.50% due 2/15/98 - 7/15/20....................... 3,087 3,282,518
10.00% due 3/15/98 - 5/15/19...................... 2,195 2,331,662
10.25% due 7/15/15................................ 50 55,872
10.50% due 11/15/97 - 6/15/21..................... 8,793 9,645,303
11.00% due 2/15/98 - 4/15/21...................... 6,277 7,004,856
11.50% due 3/15/98 - 1/15/21...................... 8,265 9,446,633
11.75% due 7/15/13 - 11/15/15..................... 946 1,064,198
12.00% due 9/15/98 - 10/15/19..................... 3,635 4,217,016
12.25% due 8/15/13 - 7/15/15...................... 1,080 1,260,336
12.50% due 4/15/10 - 3/15/16...................... 7,708 9,065,182
12.75% due 10/15/13............................... 6 6,570
13.00% due 11/15/10 - 6/15/15..................... 4,108 4,874,536
13.25% due 7/15/14 - 11/15/14..................... 113 133,187
13.50% due 5/15/10 - 1/15/15...................... 2,749 3,308,112
14.00% due 5/15/11 - 12/15/14..................... 1,405 1,716,421
15.00% due 6/15/11 - 2/15/13...................... 879 1,088,351
16.00% due 12/15/11 - 7/15/12..................... 292 364,332
------------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
(cost $135,927,908)............................... 133,488,893
------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION II--2.1%
10.00% due 9/20/16 - 4/20/19...................... 22 23,716
11.00% due 7/20/00................................ 34 35,855
11.50% due 8/20/13 - 7/20/20...................... 1,184 1,355,159
11.75% due 11/20/14 - 2/20/16..................... 460 530,782
12.00% due 10/20/13 - 5/20/15..................... 806 929,623
12.25% due 5/20/14 - 10/20/15..................... 83 96,308
12.50% due 9/20/13 - 1/20/15...................... 3,737 4,360,194
12.75% due 11/20/13 - 7/20/15..................... 187 219,192
13.00% due 9/20/13 - 10/20/14..................... 1,810 2,137,627
13.25% due 12/20/14 - 5/20/15..................... 81 95,463
13.50% due 10/20/14............................... 74 89,255
------------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION II
(cost $9,502,648)................................. 9,873,174
------------
</TABLE>
10
<PAGE>
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (unaudited)--(continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY NOTES--11.5%
5.63% due 2/15/06................................. $15,000 $ 13,924,200
7.00% due 7/15/06................................. 15,000 15,311,700
7.25% due 8/15/04................................. 25,000 25,898,500
------------
TOTAL U.S. TREASURY NOTES
(cost $55,479,446)................................ 55,134,400
------------
U.S. TREASURY BONDS--9.7%
6.75% due 8/15/26................................. 40,000 39,093,600
11.25% due 2/15/15................................ 5,000 7,180,450
------------
TOTAL U.S. TREASURY BONDS
(cost $46,557,656)................................ 46,274,050
------------
TOTAL INVESTMENT SECURITIES--98.2%
(cost $466,503,592)............................... 468,906,893
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT--1.1%
Joint Repurchase Agreement Account (Note 3)
(cost $4,981,000)................................ $ 4,981 $ 4,981,000
------------
TOTAL INVESTMENTS--
(cost $471,484,592*).............................. 99.3% 473,887,893
Other assets less liabilities...................... 0.7 3,485,634
------- ------------
NET ASSETS-- 100.0% $477,373,527
======= ============
</TABLE>
- --------
* See Note 6
(1) Inverse floater
(2) Fair valued security; see Note 2
See Notes to Financial Statements
11
<PAGE>
SUNAMERICA FEDERAL SECURITIES FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
FEDERAL HOME LOAN MORTGAGE
CORP.--12.3%
7.50% due 2/01/23 - 6/01/25........................ $ 3,920 $ 3,891,487
10.00% due 1/01/17................................. 2,688 2,911,893
12.50% due 9/30/13................................. 20 22,113
13.50% due 2/01/14................................. 7 7,654
-----------
TOTAL FEDERAL HOME LOAN MORTGAGE CORP.
(cost $6,895,513).................................. 6,833,147
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--3.0%
6.00% due 9/01/00 (1).............................. 1,691 1,652,503
15.50% due 10/01/12................................ 9 10,907
-----------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
(cost $1,662,652).................................. 1,663,410
-----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION--55.5%
7.00% due 3/15/23 - 9/15/23........................ 12,552 12,155,937
8.50% due 3/15/17 - 9/15/24........................ 11,650 12,037,481
9.00% due 6/15/16 - 5/15/17........................ 4,231 4,485,022
11.00% due 11/15/15................................ 468 525,135
11.25% due 8/15/15................................. 34 38,154
12.00% due 5/15/15................................. 68 79,625
12.25% due 9/15/13 - 7/15/15....................... 725 844,291
12.50% due 11/15/10 - 6/15/15...................... 176 206,708
13.00% due 1/15/11 - 4/15/15....................... 274 325,350
13.25% due 10/15/13................................ 20 24,004
13.50% due 5/15/11 - 10/15/14...................... 57 69,008
-----------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(cost $31,018,617)................................. 30,790,715
-----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION II--2.5%
10.00% due 10/20/13 - 3/20/17...................... 479 517,006
11.00% due 12/20/13................................ 63 69,880
12.00% due 3/20/15 - 1/20/16....................... 272 314,090
12.25% due 12/20/14 - 10/20/15..................... 400 463,600
13.00% due 6/20/14................................. 18 21,110
13.75% due 9/20/14................................. 8 9,575
-----------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION II
(cost $1,298,319).................................. 1,395,261
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY NOTES--14.4%
5.75% due 8/15/03.................................. $ 3,000 $ 2,861,730
7.00% due 7/15/06.................................. 5,000 5,103,900
-----------
TOTAL U.S. TREASURY NOTES
(cost $7,966,406).................................. 7,965,630
-----------
U.S. TREASURY BONDS--7.1%
6.75% due 8/15/26
(cost $3,853,516).................................. 4,000 3,909,360
-----------
TOTAL INVESTMENT SECURITIES--94.8%
(cost $52,695,023)................................. 52,557,523
-----------
REPURCHASE AGREEMENT--4.9%
Joint Repurchase Agreement Account (Note 3)
(cost $2,742,000).................................. 2,742 2,742,000
-----------
TOTAL INVESTMENTS--
(cost $55,437,023*)................................ 99.7% 55,299,523
Other assets less liabilities....................... 0.3 162,539
------- -----------
NET ASSETS-- 100.0% $55,462,062
======= ===========
</TABLE>
- --------
* See Note 6
(1) Fair valued security; see Note 2
See Notes to Financial Statements
12
<PAGE>
SUNAMERICA DIVERSIFIED INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- ------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES--52.6%
AUTOMOTIVE--0.9%
AM General Corp.
Sr. Notes, Series B
12.88% due 5/01/02.............................. $ 1,000 $ 983,750
------------
BROADCASTING--7.7%
NWCG Holding Corp.
Sr. Disc. Notes, Series B
zero coupon due 6/15/99......................... 5,000 3,987,500
Park Broadcasting, Inc.
Sr. Notes
11.75% due 5/15/04(1)........................... 1,500 1,713,750
SFX Broadcasting, Inc.
Sr. Subordinated Notes, Series B 10.75% due
5/15/06......................................... 2,000 2,080,000
Sinclair Broadcast Group, Inc.
Sr. Subordinated Notes
10.00% due 9/30/05.............................. 1,000 1,012,500
------------
8,793,750
------------
BUSINESS SERVICES--3.9%
Katz Corp.
Sr. Subordinated Notes
12.75% due 11/15/02............................. 4,000 4,420,000
------------
CABLE--6.4%
Echostar Communications Corp.
Sr. Secured Disc. Notes
zero coupon due 6/01/04(2)...................... 2,000 1,570,000
Echostar Satellite Broadcasting Corp.
Sr. Disc. Notes
zero coupon due 3/15/04(2)...................... 1,250 853,125
International CableTel, Inc.
Sr. Deferred Coupon
zero coupon due 4/15/05(2)...................... 1,000 660,000
International CableTel, Inc.
Sr. Deferred Coupon Notes,
Series B
zero coupon due 2/01/06(2)...................... 1,000 600,000
UIH Australia Pacific, Inc.
Sr. Disc. Notes, Series B
zero coupon due 5/15/06(2)...................... 3,000 1,601,250
United International Holdings, Inc.
Sr. Disc. Notes, Series B
zero coupon due 11/15/99........................ 3,000 2,100,000
------------
7,384,375
------------
CELLULAR--5.6%
Cellular Communications
International, Inc.
Sr. Disc. Notes
zero coupon due 8/15/00(3)...................... 2,000 1,310,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- ------------------------------------------------------------------------------
<S> <C> <C>
CELLULAR (CONTINUED)
Comcast Cellular Corp.
Notes
zero coupon due 3/05/00......................... $ 3,000 $ 2,107,500
Intercel, Inc.
Sr. Disc. Notes
zero coupon due 5/01/06(2)...................... 2,000 1,100,000
Pricellular Wireless Corp.
Sr. Subordinated Disc. Notes
zero coupon due 11/15/01(2)..................... 2,000 1,890,000
------------
6,407,500
------------
CHEMICALS--1.9%
LaRoche Industries, Inc.
Sr. Subordinated Notes
13.00% due 8/15/04.............................. 2,000 2,195,000
------------
FINANCE--3.8%
Homeside, Inc.
Sr. Secured Second Priority
11.25% due 5/15/03(1)........................... 2,000 2,160,000
Olympic Financial Ltd.
Sr. Notes
13.00% due 5/01/00.............................. 2,000 2,240,000
------------
4,400,000
------------
FOOD & BEVERAGE--0.9%
Core Mark International, Inc.
Subordinated Notes
11.38% due 9/15/03(1)........................... 1,000 1,018,750
------------
GAMING--1.7%
Trump Atlantic City Associates
First Mortgage Notes
11.25% due 5/01/06.............................. 2,000 1,970,000
------------
GROCERY--5.8%
Kash 'N Karry Food Stores, Inc.
Sr. Notes
11.50% due 2/01/03.............................. 4,517 4,561,697
Smith's Food & Drug Centers, Inc.
Sr. Subordinated Notes
11.25% due 5/15/07.............................. 2,000 2,125,000
------------
6,686,697
------------
HEALTH SERVICES--3.4%
Dade International, Inc.
Sr. Subordinated Notes, Series B 11.13% due
5/01/06(1)...................................... 1,500 1,605,000
Multicare, Inc.
Sr. Subordinated Notes
12.50% due 7/01/02.............................. 1,150 1,273,625
</TABLE>
13
<PAGE>
SUNAMERICA DIVERSIFIED INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (unaudited) -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
HEALTH SERVICES (CONTINUED)
OrNda Healthcorp.
Sr. Subordinated Notes
12.25% due 5/15/02............................... $ 1,000 $ 1,076,250
------------
3,954,875
------------
METALS & MINING--1.6%
Renco Metals, Inc.
Sr. Notes
11.50% due 7/01/03............................... 1,250 1,303,125
Royal Oak Mines, Inc.
Sr. Subordinated Notes
11.00% due 8/15/06(1)............................ 500 511,875
------------
1,815,000
------------
OFFICE PRODUCTS--0.6%
American Pad & Paper Co.
Sr. Subordinated Notes, Series B
13.00% due 11/15/05.............................. 650 745,875
------------
OIL & GAS--1.0%
DeepTech International, Inc.
Sr. Secured Notes
12.00% due 12/15/00.............................. 500 505,000
Mesa Operating Co.
Sr. Subordinated Disc. Notes
zero coupon due 7/01/06(2)....................... 1,000 640,000
------------
1,145,000
------------
PAGING--0.9%
Paging Network, Inc.
Sr. Subordinated Notes
10.13% due 8/01/07............................... 1,000 1,015,000
------------
RETAIL--2.2%
Thrifty PayLess Holdings, Inc.
Sr. Subordinated Notes
12.25% due 4/15/04............................... 2,275 2,536,625
------------
TELECOMMUNICATIONS--4.3%
PanAmSat, L.P.
Sr. Subordinated Notes
zero coupon due 8/01/03(2)....................... 4,000 3,640,000
Teleport Communications Group
Sr. Subordinated Disc. Notes
zero coupon due 7/01/07(2)....................... 2,000 1,280,000
------------
4,920,000
------------
TOTAL CORPORATE BONDS & NOTES
(COST $56,982,546)................................. 60,392,197
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN BONDS & NOTES--29.6%
BANKS--0.9%
Unibanco--Uniao de Bancos Brasileiros SA
Notes
11.13% due 11/28/97(1).. $ 1,000 $ 1,021,250
------------
CABLE--8.6%
Bell Cablemedia PLC
Sr. Disc. Notes
zero coupon due 9/15/05(2)...................... 1,750 1,181,250
Comcast UK Cable Partners Ltd.
Sr. Disc. Notes
zero coupon due 11/15/07((((((((((((((((((((2).. 2,000 1,267,500
Diamond Cable Communications PLC
Sr. Disc. Notes
zero coupon due 12/15/05(2)..................... 2,000 1,290,000
Kabelmedia Holding
Sr. Disc. Notes
zero coupon due 8/01/06(2)...................... 2,000 1,042,500
Multicanal Participacoes SA
Guaranteed Sr. Notes
12.63% due 6/18/04(1)........................... 3,000 3,206,250
Telewest PLC
Sr. Disc. Notes
zero coupon due 10/01/07(2)..................... 1,875 1,190,625
Videotron Holdings PLC
Sr. Disc. Notes
zero coupon due 8/15/05(2)...................... 1,000 662,500
------------
9,840,625
------------
CELLULAR--1.0%
Millicom International Cellular SA
Sr. Subordinated Disc. Notes
zero coupon due 6/01/06(1)(2)................... 2,000 1,142,500
------------
FINANCE--0.9%
European Investment Bank
Debentures
6.63% due 3/15/00(4)............................ JPY 100,000 1,046,147
------------
FOOD & BEVERAGES--0.9%
Fomento Economico Mexicano
SA de CV
Unsubordinated Notes
9.50% due 7/22/97............................... 1,000 1,013,125
------------
GOVERNMENT AGENCY--9.7%
Federative Republic of Brazil
Capitalization Bonds
4.00% due 4/15/14............................... 3,247 2,285,280
</TABLE>
14
<PAGE>
SUNAMERICA DIVERSIFIED INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (unaudited) -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN BONDS & NOTES (CONTINUED)
GOVERNMENT AGENCY (CONTINUED)
Federative Republic of Brazil
Variable Rate Disc. Notes
5.00% due 4/15/24(5)............................. $ 4,000 $ 2,380,000
Republic of Argentina
Bonds
9.25% due 2/23/01................................ 1,000 975,000
Republic of Argentina
Sr. Unsubordinated Bonds
10.95% due 11/01/99.............................. 2,000 2,092,500
United Mexican States
Par Bonds
6.25% due 12/31/19............................... 2,000 1,382,500
United Mexican States
Bonds
11.38% due 9/15/16............................... 2,000 1,990,000
------------
11,105,280
------------
INDUSTRIAL--2.1%
International Semi-Tech Microelectronic, Inc.
Sr. Secured Disc. Notes
zero coupon due 8/15/03(2)....................... 4,000 2,430,000
------------
OIL & GAS--1.8%
Bridas Corp.
Sr. Notes
12.50% due 11/15/99.............................. 2,000 2,090,000
------------
TELECOMMUNICATIONS--2.8%
Telecom Argentina
Notes
12.00% due 11/15/02.............................. 3,000 3,207,300
------------
3,207,300
------------
TOBACCO--0.9%
Empresas La Moderna
Bearer Notes
10.25% due 11/12/97.............................. 1,000 1,021,250
------------
TOTAL FOREIGN BONDS & NOTES
(COST $31,958,925)............................... 33,917,477
------------
U.S. GOVERNMENT AND AGENCIES--11.5%
FEDERAL NATIONAL MORTGAGE ASSOCIATION--2.7%
6.00% due 9/01/00(6).............................. 3,110 3,039,658
------------
U.S. TREASURY BONDS--4.5%
6.75% due 8/15/26................................. 1,500 1,466,010
11.13% due 8/15/03................................ 3,000 3,737,340
------------
5,203,350
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS)/ VALUE
SECURITY DESCRIPTION SHARES/WARRANTS (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY NOTES--4.3%
5.13% due 11/30/98............................... $ 5,000 $ 4,896,850
------------
TOTAL U.S. GOVERNMENT AND AGENCIES
(COST $13,845,548).............................. 13,139,858
------------
PREFERRED STOCK--1.9%
BROADCASTING--0.9%
Time Warner, Inc. Series K....................... 1,022 1,055,215
------------
FOREST PRODUCTS--1.0%
SDW Holdings Corp.(6)............................ 37,000 1,091,500
------------
TOTAL PREFERRED STOCK
(COST $1,971,705)............................... 2,146,715
------------
COMMON STOCK--0.2%
CABLE--0.2%
Echostar Communications Corp.+................... 9,000 245,250
------------
(cost $83,740)
WARRANTS--0.0%+
CABLE--0.0%
United International Holdings, Inc. ............. 3,000 7,500
------------
FOREST PRODUCTS--0.0%
SDW Holdings Corp.(6)............................ 3,700 48,100
------------
TOTAL WARRANTS
(COST $58,526).................................. 55,600
------------
TOTAL INVESTMENTS--
(cost $104,900,990*)............................. 95.8% 109,897,097
Other assets less liabilities..................... 4.2 4,860,892
-------- ------------
NET ASSETS-- 100.0% $114,757,989
======== ============
</TABLE>
- -------
* See Note 6
+ Non-income producing security
(1) Resale restricted to qualified institutional buyers
(2) Represents a zero coupon bond which will convert to an interest- bearing
security at a later date
(3) Bond issued as part of a unit which includes an equity component
(4) JPY--Security denominated in Japanese Yen
(5) Variable rate security; rate as of September 30, 1996
(6) Fair valued security; see Note 2
(7) Allocation of net assets by country as of September 30, 1996:
<TABLE>
<S> <C>
United States 73.1%
Brazil 6.9%
Britain 3.8%
Argentina 3.6%
Mexico 3.0%
Canada 2.6%
Luxembourg 1.0%
Japan 0.9%
Germany 0.9%
</TABLE>
See Notes to Financial Statements
15
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES--81.4%
AUTOMOTIVE--0.7%
AM General Corp.
Sr. Notes, Series B
12.88% due 5/01/02............................... $ 1,000 $ 983,750
------------
BROADCASTING--7.0%
NWCG Holding Corp.
Sr. Disc. Notes, Series B
zero coupon due 6/15/99.......................... 6,250 4,984,375
Park Broadcasting, Inc.
Sr. Notes
11.75% due 5/15/04(1)............................ 3,000 3,427,500
SFX Broadcasting, Inc.
Sr. Subordinated Notes, Series B
10.75% due 5/15/06................................ 1,000 1,040,000
Sinclair Broadcast Group, Inc.
Sr. Subordinated Notes
10.00% due 9/30/05............................... 1,000 1,012,500
------------
10,464,375
------------
BUSINESS SERVICES--4.9%
Iron Mountain, Inc.
Sr. Subordinated Notes
10.13% due 10/01/06.............................. 1,000 1,019,375
Katz Corp.
Sr. Subordinated Notes
12.75% due 11/15/02.............................. 3,500 3,867,500
Muzak Limited Partnership
Sr. Notes
10.00% due 10/01/03.............................. 500 502,813
Sullivan Graphics, Inc.
Sr. Subordinated Notes
12.75% due 8/01/05............................... 2,000 1,910,000
------------
7,299,688
------------
CABLE--7.8%
Echostar Communications Corp.
Sr. Secured Disc. Notes
zero coupon due 6/01/04(2)........................ 3,000 2,355,000
Echostar Satellite Broadcasting Corp.
Sr. Disc. Notes
zero coupon due 3/15/04(2)....................... 3,000 2,047,500
International CableTel, Inc.
Sr. Deferred Coupon
zero coupon due 4/15/05(2)....................... 2,000 1,320,000
Simmons Cable Co.
Sr. Subordinated Notes (3)(4).................... 3,000 2,310,000
UIH Australia Pacific, Inc.
Sr. Disc. Notes, Series B
zero coupon due 5/15/06(2)....................... 3,000 1,601,250
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
CABLE (CONTINUED)
United International Holdings, Inc. Sr. Disc.
Notes, Series B
zero coupon due 11/15/99......................... $ 3,000 $ 2,100,000
------------
11,733,750
------------
CELLULAR--6.0%
Cellular Communications International, Inc.
Sr. Disc. Notes
zero coupon due 8/15/00(5)....................... 4,000 2,620,000
Comcast Cellular Corp.
Notes
zero coupon due 3/05/00.......................... 4,000 2,810,000
Intercel, Inc.
Sr. Disc. Notes
zero coupon due 2/01/06(2)(5).................... 1,750 1,010,625
Pricecellular Wireless Corp.
Sr. Disc. Notes
zero coupon due 10/01/03(2)...................... 2,000 1,610,000
Pricellular Wireless Corp.
Sr. Subordinated Disc. Notes zero coupon due
11/15/01(2)...................................... 1,000 945,000
------------
8,995,625
------------
CHEMICALS--1.5%
LaRoche Industries, Inc.
Sr. Subordinated Notes
13.00% due 8/15/04............................... 2,000 2,195,000
------------
FINANCE--4.4%
Homeside, Inc.
Sr. Secured Second Priority
11.25% due 5/15/03(1)............................ 4,000 4,320,000
Olympic Financial Ltd.
Sr. Notes
13.00% due 5/01/00............................... 2,000 2,240,000
------------
6,560,000
------------
FOOD & BEVERAGE--0.7%
Core Mark International, Inc.
Subordinated Notes
11.38% due 9/15/03(1)............................ 1,000 1,018,750
------------
GAMING--10.2%
Capital Gaming International, Inc.
Promissory Notes
zero coupon due 8/01/95+(3)(6)................... 20 2,000
Casino America, Inc.
Sr. Secured Notes
12.50% due 8/01/03............................... 2,000 2,092,500
Colorado Gaming & Entertainment Co.
Sr. Secured Notes/PIK
12.00% due 6/01/03(3)(7).......................... 2,500 2,431,250
</TABLE>
16
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (unaudited) -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
GAMING (CONTINUED)
Showboat Marina Finance Corp. First Mortgage Notes
13.50% due 3/15/03............................... $ 1,250 $ 1,356,250
Showboat, Inc.
Sr. Subordinated Notes
13.00% due 8/01/09............................... 3,000 3,405,000
Trump Atlantic City Associates First Mortgage
Notes
11.25% due 5/01/06............................... 6,000 5,910,000
------------
15,197,000
------------
GROCERY--7.9%
Kash 'N Karry Food Stores, Inc.
Sr. Notes
11.50% due 2/01/03............................... 7,473 7,548,065
Smith's Food & Drug Centers, Inc. Sr. Subordinated
Notes
11.25% due 5/15/07............................... 4,000 4,250,000
------------
11,798,065
------------
HEALTH SERVICES--3.6%
Dade International, Inc.
Sr. Subordinated Notes, Series B 11.13% due
5/01/06(1)....................................... 2,000 2,140,000
OrNda Healthcorp. Sr. Subordinated Notes
12.25% due 5/15/02............................... 3,000 3,228,750
------------
5,368,750
------------
INDUSTRIAL--1.9%
J.B. Poindexter & Co.
Sr. Notes
12.50% due 5/15/04............................... 3,000 2,913,750
------------
METALS & MINING--1.9%
Renco Metals, Inc.
Sr. Notes
11.50% due 7/01/03............................... 1,750 1,824,375
Royal Oak Mines, Inc.
Sr. Subordinated Notes
11.00% due 8/15/06(1)............................ 1,000 1,023,750
------------
2,848,125
------------
OFFICE PRODUCTS--2.0%
American Pad & Paper Co.
Sr. Subordinated Notes, Series B 13.00% due
11/15/05......................................... 2,600 2,983,500
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
OIL & GAS--1.7%
DeepTech International, Inc.
Sr. Secured Notes
12.00% due 12/15/00............................. $ 1,000 $ 1,010,000
Mesa Operating Co.
Sr. Subordinated Notes
10.63% due 7/01/06(2)........................... 1,500 1,575,000
------------
2,585,000
------------
PACKAGING--0.7%
Printpack, Inc.
Sr. Subordinated Notes, Series A 10.63% due
8/15/06(1)...................................... 1,000 1,030,000
------------
PAGING--3.5%
Paging Network, Inc.
Sr. Subordinated Notes
10.13% due 8/01/07.............................. 3,000 3,045,000
Paging Network, Inc.
Sr. Subordinated Notes
11.75% due 5/15/02.............................. 2,000 2,140,000
------------
5,185,000
------------
RETAIL--7.9%
Apparel Retailers, Inc.
Sr. Disc. Debentures, Series B
zero coupon due 8/15/05......................... 2,000 1,760,000
Finlay Fine Jewlery Corp.
Sr. Notes
10.63% due 5/01/03.............................. 2,000 2,025,000
Loehmanns, Inc.
Sr. Notes
11.88% due 5/15/03.............................. 1,000 1,050,000
Specialty Retailers, Inc.
Sr. Subordinated Notes, Series B
11.00% due 8/15/03.............................. 1,250 1,281,250
Speedy Muffler King, Inc.
Sr. Notes
10.88% due 10/01/06............................. 1,000 1,030,000
Thrifty PayLess Holdings, Inc.
Sr. Subordinated Notes
12.25% due 4/15/04.............................. 4,225 4,710,875
------------
11,857,125
------------
TECHNOLOGY--1.4%
Advanced Micro Devices, Inc.
Sr. Secured Notes
11.00% due 8/01/03.............................. 2,000 2,065,000
------------
</TABLE>
17
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (unaudited) -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
TELECOMMUNICATIONS--5.7%
Hyperion Telecommunications, Inc.
Sr. Disc. Notes, Series B
zero coupon due 4/15/03(2)....................... $ 4,000 $ 2,380,000
PanAmSat, L.P.
Sr. Subordinated Notes
zero coupon due 8/01/03(2)...................... 4,000 3,640,000
Teleport Communications Group Sr. Subordinated
Disc. Notes zero coupon due 7/01/07(2).......... 4,000 2,560,000
------------
8,580,000
------------
TOTAL CORPORATE BONDS & NOTES
(cost $116,076,696).............................. 121,662,253
------------
FOREIGN BONDS & NOTES -- 12.5%
CABLE--8.6%
Bell Cablemedia PLC
Sr. Disc. Notes
zero coupon due 9/15/05(2)...................... 3,000 2,025,000
Comcast UK Cable Partners Ltd. Sr. Disc. Notes
zero coupon due 11/15/07(2)..................... 2,000 1,267,500
Diamond Cable Communications PLC
Sr. Disc. Notes
zero coupon due 12/15/05(2)..................... 2,000 1,290,000
Kabelmedia Holding Sr. Disc. Notes
zero coupon due 8/01/06(2)...................... 2,000 1,042,500
Multicanal Participacoes SA Guaranteed Sr. Notes
12.63% due 6/18/04(1)(2)........................ 2,000 2,137,500
Telewest PLC
Sr. Disc. Notes
zero coupon due 10/01/07(2)..................... 3,750 2,381,250
Videotron Holdings PLC
Sr. Disc. Notes
zero coupon due 8/15/05(2)...................... 4,000 2,650,000
------------
12,793,750
------------
CELLULAR--1.5%
Millicom International Cellular SA Sr.
Subordinated Disc. Notes zero coupon due
6/01/06(1)(2)................................... 4,000 2,285,000
------------
INDUSTRIAL--2.4%
International Semi-Tech Microelectronic, Inc.
Sr. Secured Disc. Notes
zero coupon due 8/15/03(2)...................... 6,000 3,645,000
------------
TOTAL FOREIGN BONDS & NOTES
(cost $18,289,288)............................... 18,723,750
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SECURITY DESCRIPTION SHARES/WARRANTS (NOTE 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK--1.6%
BANKING--0.9%
Chevy Chase Savings
Bank, F.S.B...................................... 40,000 $ 1,250,000
------------
CABLE--0.0%
Maryland Cable
Partners L.P.+(3)................................ 16,009 16,009
------------
FOREST PRODUCTS--0.7%
SDW Holdings Corp.(3)............................. 37,000 1,091,500
------------
TOTAL PREFERRED STOCK
(cost $2,196,539)................................. 2,357,509
------------
COMMON STOCK--0.8%
CABLE--0.3%
Echostar Communications Corp.+.................... 13,500 367,875
M.L. Opportunity L.P.+(3)......................... 70,106 70,106
MGCP Holdings, Inc.+(3)........................... 1 0
------------
437,981
------------
COMPUTERS--0.2%
Open Text Corp.+(3)(8)............................ 70,754 318,393
------------
GAMING--0.0%
Capital Gaming
International, Inc.+............................. 30,000 3,750
------------
GROCERY--0.0%
Smith's Food & Drug Centers, Inc., Class B........ 1,505 39,882
------------
MEDIA--0.0%
TMM, Inc.+(3)(8).................................. 2,000,000 20,000
------------
TELECOMMUNICATIONS--0.3%
Teleport Communications Group+.................... 16,000 378,000
------------
TOTAL COMMON STOCK
(cost $2,517,713)................................. 1,198,006
------------
WARRANTS--0.1%+
CABLE--0.0%
United International Holdings, Inc................ 3,000 7,500
Wireless One, Inc. ............................... 3,000 18,000
------------
25,500
------------
FOREST PRODUCTS--0.0%
SDW Holdings Corp.(3)............................. 3,700 48,100
------------
</TABLE>
18
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (unaudited) -- (continued)
<TABLE>
<CAPTION>
WARRANTS/
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
WARRANTS (CONTINUED)
GAMING--0.0%
Capital Gaming
International, Inc............................... 45,500 $ 1,422
Casino Magic Finance Corp......................... 24,000 10,620
Fitzgerald Gaming Corp.(3)........................ 2,000 20,000
------------
32,042
------------
HOUSEHOLD PRODUCTS--0.0%
Chattem, Inc...................................... 1,500 5,344
------------
TELECOMMUNICATIONS--0.1%
Hyperion Telecom.................................. 4,000 100,000
------------
TOTAL WARRANTS
(cost $282,481)................................... 210,986
------------
TOTAL INVESTMENT SECURITIES--96.4%
(cost $139,362,717)............................... 144,152,504
------------
REPURCHASE AGREEMENT--3.5%
Joint Repurchase Agreement Account
(Note 3)
(cost $5,148,000)................................ $ 5,148 5,148,000
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
(NOTE 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS--
(cost $144,510,717*)...................................... 99.9% 149,300,504
Other assets less liabilities.............................. 0.1 195,376
----- ------------
NET ASSETS-- 100.0% $149,495,880
===== ============
</TABLE>
- -------
* See Note 6
+ Non-income producing security
(1) Resale restricted to qualified institutional buyers
(2) Represents a zero coupon bond which will convert to an interest-bearing
security at a later date
(3) Fair valued security; see Note 2
(4) Principal and interest payments for this security are governed by terms
set forth in an override agreement dated December 31, 1995.
(5) Bond issued as part of a unit which includes an equity component
(6) Bond in default
(7) PIK ("Payment-in-Kind") payment made with additional securities in lieu of
cash
(8) At September 30, 1996 the Fund held restricted securities amounting to
0.2% 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
AS OF
DATE OF UNIT SEPTEMBER 30,
DESCRIPTION ACQUISITION COST 1996
--------------------------------------------- ----------- ----- -------------
<S> <C> <C> <C>
Open Text Corp. ............................. 7/12/95 $3.92 $4.50
TMM, Inc. ................................... 2/1/95 .83 .01
</TABLE>
See Notes to Financial Statements
19
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS--98.1%
ALASKA--1.9%
Alaska St. Housing Finance,
Capital Appreciation Mortgage,
Series A,
zero coupon due 12/01/27+........................ $3,665 $ 501,335
Alaska State Housing
Finance Corp.,
7.50% due 12/01/15............................... 1,975 2,045,784
------------
2,547,119
------------
ARIZONA--1.9%
Maricopa County, Arizona General Obligation,
School District Number 213,
7.00% due 7/01/08+............................... 1,000 1,153,840
Pima County, Arizona Unified School District
Number 1, 7.50% due 7/01/10+..................... 1,200 1,444,860
------------
2,598,700
------------
ARKANSAS--0.3%
Arkansas State Development Finance Authority,
Single Family Mortgage Revenue,
9.00% due 6/01/14+............................... 150 154,659
Arkansas State Development Finance Authority,
Single Family Mortgage Revenue, Series A, 9.38%
due 8/01/14...................................... 190 196,929
------------
351,588
------------
CALIFORNIA--7.7%
California Housing Finance Agency, Home Mortgage
Revenue, Series A,
8.13% due 8/01/19+............................... 835 879,096
California Housing Finance Agency, Home Mortgage
Revenue, Series A,
8.20% due 8/01/17+............................... 1,000 1,040,460
Foothill Transportation Corridor Agency,
California Toll Road Revenue,
zero coupon due 1/01/30.......................... 3,000 342,900
San Francisco, California City & County
Redevelopment Agency, Lease Revenue,
6.75% due 7/01/15+............................... 1,000 1,099,730
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA (CONTINUED)
San Jose, California Redevelopment Agency Tax
Allocation,
6.00% due 8/01/11+............................... $3,700 $ 3,912,639
San Jose, California Airport Revenue,
5.88% due 3/01/07+............................... 1,905 2,016,786
Whittier, California Health Facility Revenue,
Presbyterian Hospital
6.25% due 6/01/09+............................... 1,145 1,242,142
------------
10,533,753
------------
COLORADO--3.0%
Colorado Housing Finance Authority, Single Family
Revenue, Series C,
9.38% due 3/01/12+............................... 130 134,050
Highlands Ranch Metropolitan District, Colorado
5.00% due 6/15/16+............................... 2,005 1,866,194
Highlands Ranch Metropolitan District, Colorado,
6.50% due 6/15/09+............................... 1,960 2,173,385
------------
4,173,629
------------
DISTRICT OF COLUMBIA--0.5%
District of Columbia Housing Finance Agency,
Single Family, Series A,
7.75% due 12/01/18+.............................. 610 633,156
------------
FLORIDA--2.2%
Dade County, Florida Seaport,
6.50% due 10/01/10+.............................. 1,800 2,000,304
Dade County, Florida, Water And Sewer Systems,
6.25% due 10/01/10+.............................. 1,000 1,086,870
------------
3,087,174
------------
GEORGIA--4.6%
Georgia State General Obligation, Series C,
6.50% due 4/01/07................................ 1,700 1,893,154
Municipal Electric Authority, Georgia Special
Obligation, Fifth Crossover Series,
6.40% due 1/01/09+............................... 1,250 1,364,375
</TABLE>
20
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (unaudited) -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
GEORGIA (CONTINUED)
Municipal Electric Authority, Georgia Special
Obligation, Fifth Crossover Series,
6.40% due 1/01/13+............................... $1,000 $ 1,087,890
Paulding County, Georgia, General Obligation,
School District,
6.00% due 2/01/13+............................... 1,875 1,985,437
------------
6,330,856
------------
ILLINOIS--6.3%
Cook County, Illinois Community College, District
Number 508,
7.70% due 12/01/07+.............................. 4,000 4,818,360
Illinois Health Facilities Authority, Lutheran
General Health System,
7.00% due 4/01/08+............................... 3,400 3,849,140
------------
8,667,500
------------
INDIANA--1.1%
Indiana State Housing Finance Authority, Multi-
Unit Mortgage Program, Series A,
9.00% due 1/01/14+............................... 1,470 1,490,213
------------
KENTUCKY--0.1%
Kentucky Housing Corp., Multi-Family Revenue
Mortgage, Series A,
8.88% due 7/01/19+............................... 85 86,962
------------
MARYLAND--2.2%
Maryland State Community Development
Administration, Multi-Family Housing Revenue,
1985 Series B,
8.75% due 5/15/12................................ 3,000 3,042,150
------------
MASSACHUSETTS--5.2%
Massachusetts State General Obligation, Series B,
4.88% due 10/01/09+.............................. 2,000 1,883,200
Massachusetts State Housing Finance Agency,
Insured Rental, Series A,
6.60% due 7/01/14+............................... 1,000 1,031,780
Massachusetts State Water Resources Authority,
6.25% due 11/01/10+.............................. 4,000 4,214,800
------------
7,129,780
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
MICHIGAN--1.3%
Michigan Municipal Bond Authority, Revenue Capital
Appreciation, Local Government Loan,
zero coupon due 5/01/17+......................... $2,875 $ 867,301
Michigan Municipal Bond Authority, Revenue Capital
Appreciation, Local Government Loan,
zero coupon due 5/01/16+......................... 2,735 876,704
------------
1,744,005
------------
MISSOURI--4.8%
Missouri State Housing Development Commission,
Insured, Single Family Mortgage Revenue,
9.38% due 4/01/16+............................... 75 79,794
Sikeston, Missouri Electric, Revenue,
6.20% due 6/01/10+............................... 6,000 6,483,420
------------
6,563,214
------------
NEVADA--3.7%
Nevada Housing Division, Single Family Mortgage,
Series A,
zero coupon due 4/01/16+......................... 5,945 5,031,848
------------
NEW HAMPSHIRE--0.2%
New Hampshire State Housing Finance Authority,
Single Family Residential Mortgage, Series A,
9.25% due 7/01/11+............................... 285 294,784
------------
NEW JERSEY--1.2%
New Jersey Economic Development Authority, Market
Transition Facility Revenue,
7.00% due 7/01/04+............................... 1,500 1,694,805
------------
NEW MEXICO--0.1%
New Mexico Mortgage Finance Authority, Single
Family Mortgage Revenue, Series C,
8.63% due 7/01/17................................ 195 204,559
------------
</TABLE>
21
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (unaudited) -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
NEW YORK--13.6%
New York City Industrial Development Agency, Civic
Facility, Revenue,
6.25% due 11/15/06+.............................. $2,000 $ 2,172,280
New York City, New York, General Obligation,
Series A,
7.00% due 8/01/06................................ 1,875 2,029,969
New York City, New York, General Obligation,
Series K,
6.25% due 4/01/11................................ 2,000 2,016,320
New York City, New York, General Obligation,
Series E,
6.20% due 8/01/07+............................... 2,250 2,438,302
New York City, New York, General Obligation,
Series I
6.50% due 3/15/06................................ 1,700 1,775,582
New York State Medical Care Facilities Finance
Agency, Revenue, New York Hospital, Mortgage A,
6.75% due 8/15/14+............................... 2,850 3,116,418
Niagara Falls, New York, General Obligation,
7.50% due 3/01/13+............................... 445 541,485
Niagara Falls, New York, General Obligation,
7.50% due 3/01/14+............................... 555 675,524
Niagara Falls, New York, General Obligation,
7.50% due 3/01/18+............................... 500 615,480
Suffolk County, New York Industrial Development
Agency, Southwest Sewer Systems, Revenue,
6.00% due 2/01/07+............................... 3,000 3,219,570
------------
18,600,930
------------
NORTH CAROLINA--4.4%
Harnett County, North Carolina Certificates of
Participation,
6.20% due 12/01/09+.............................. 2,900 3,095,837
North Carolina Municipal Power Agency, Catawba
Electric Revenue,
6.00% due 1/01/10+............................... 2,750 2,912,497
------------
6,008,334
------------
NORTH DAKOTA--0.5%
North Dakota State Housing Finance Agency, Single
Family Mortgage Revenue, Series A,
7.38% due 7/01/17+............................... 620 640,454
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
OHIO--3.6%
Lucas County, Ohio Hospital Revenue, St Vincent
Medical Center,
6.50% due 8/15/07+............................... $3,500 $ 3,793,790
Woodridge, Ohio Local School District, General
Obligation,
6.80% due 12/01/14+.............................. 1,000 1,150,070
------------
4,943,860
------------
PENNSYLVANIA--6.5%
Northeastern Pennsylvania Hospital & Education
Authority, Health Care Revenue,
6.20% due 1/01/04+............................... 2,000 2,150,600
Pennsbury, Pennsylvania School District, General
Obligation,
6.80% due 8/15/14+............................... 3,800 4,272,036
Pennsylvania Housing Finance Agency, Multi-Family
Mortgage,
9.38% due 8/01/28................................ 170 174,379
Pennsylvania State Industrial Development
Authority, Economic Development,
Series B,
7.00% due 1/01/07+............................... 2,000 2,284,800
------------
8,881,815
------------
RHODE ISLAND--0.7%
Rhode Island Housing & Mortgage Finance Corp.,
Series B,
8.38% due 10/01/16+.............................. 1,000 1,028,400
------------
TEXAS--13.5%
Bexar County, Texas Health Facilities Development
Corp., Hospital Revenue,
6.75% due 8/15/19+............................... 4,000 4,378,720
Grand Prairie, Texas Health Facilities Development
Corp., Hospital Revenue,
6.88% due 11/01/10+.............................. 1,600 1,775,904
Harris County, Texas Hospital District Mortgage,
Revenue,
7.40% due 2/15/10+............................... 2,500 2,949,325
Houston, Texas Water And Sewer Systems, Revenue,
Series C,
zero coupon due 12/01/09+........................ 1,420 682,622
Houston, Texas Water Conveyance Systems Contract,
Certificates of Participation,
6.13% due 12/15/08+.............................. 1,250 1,339,388
</TABLE>
22
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1996 (unaudited) -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
TEXAS (CONTINUED)
Houston, Texas Water Conveyance Systems Contract,
Certificates of Participation,
6.13% due 12/15/09+.............................. $1,000 $ 1,065,790
Houston, Texas Water Conveyance Systems Contract,
Certificates of Participation,
6.38% due 12/15/07+.............................. 2,000 2,190,400
San Antonio, Texas Hotel Occupancy Texas Revenue,
zero coupon due 8/15/17+......................... 2,700 792,369
Sherman, Texas Independent School District,
General Obligation,
6.50% due 2/15/20................................ 3,000 3,339,360
------------
18,513,878
------------
UTAH--0.5%
Utah State Housing Finance Agency, Single Family
Mortgage, Series D,
7.50% due 7/01/16+............................... 635 658,813
------------
VIRGINIA--1.2%
Hanover County, Virginia Industrial Development
Authority, Memorial Medical Center,
6.50% due 8/15/09+............................... 1,510 1,665,530
------------
WASHINGTON--2.9%
Washington State Housing Finance Commission,
Multi-Family Mortgage Revenue, Series A,
9.13% due 7/01/10+............................... 380 405,095
Washington State Series B, General Obligation,
6.00% due 6/01/11................................ 3,400 3,593,970
------------
3,999,065
------------
WEST VIRGINIA--2.3%
West Virginia State Housing Development Fund,
Series A,
7.25% due 5/01/17+............................... 3,000 3,094,740
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
WISCONSIN--0.1%
Wisconsin Housing & Economic Development
Authority, Homeownership Revenue, 1985 Issue III,
9.13% due 6/01/05+............................... $ 120 $ 122,696
------------
TOTAL INVESTMENT SECURITIES--98.1%
(cost $126,489,612)............................... 134,364,310
------------
SHORT-TERM SECURITIES--0.7%
GEORGIA--0.2%
Monroe County, Georgia Development Authority
Pollution Control Revenue,
4.00% due 10/01/96............................... 200 200,000
------------
NEW MEXICO--0.5%
Farmington, New Mexico Pollution Control Revenue,
Arizona Public Service Company, Series C,
4.05% due 10/01/96............................... 700 700,000
------------
TOTAL SHORT-TERM SECURITIES
(cost $900,000)................................... 900,000
------------
TOTAL INVESTMENTS--
(cost $127,389,612*).............................. 98.8% 135,264,310
Other assets less liabilities...................... 1.2 1,678,348
------ ------------
NET ASSETS-- 100.0% $136,942,658
====== ============
</TABLE>
- -------
* See Note 6
+ All or part of this security is insured by Municipal Bond Insurance
Association ("MBIA"), Bond Insurance Guarantee ("BIG"), Financial Guarantee
Insurance Corp. ("FGIC"), Financial Security Assurance ("FSA"), Capital
Guarantee ("CAP"), or AMBAC, Inc. ($113,709,254 or 81.8% of total assets).
See Notes to Financial Statements
23
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 (unaudited)
Note 1. Organization
SunAmerica Income Funds is an open-end diversified management investment
company organized as a Massachusetts business trust (the "Trust"). It
currently consists of 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. The investment objectives for each of
the Funds are as follows:
U.S. Government Securities Fund seeks high current income consistent with
relative safety of capital by investing primarily in securities issued or
guaranteed by the U.S. government, or any agency or instrumentality
thereof.
Federal Securities Fund seeks current income, with capital appreciation as
a secondary objective, by investing primarily in securities issued or
guaranteed by the U.S. government or any agency or instrumentality thereof.
Diversified Income Fund seeks a high level of current income consistent
with moderate investment risk, with preservation of capital as a secondary
objective.
High Income Fund seeks maximum current income by investing primarily in
high-yield, high-risk corporate bonds.
Tax Exempt Insured Fund seeks a high level of current income exempt from
Federal income taxes as is consistent with preservation of capital.
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. Additionally, 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
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. 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
24
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 (unaudited) -- (continued)
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 closing 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. Securities that are traded on foreign exchanges are ordinarily valued
at the last quoted sales price available before the time when the assets
are valued. If a securities price is available from more than one foreign
exchange, a Fund uses the exchange that is the primary market for the
security. Values of portfolio securities primarily traded on foreign
exchanges are already translated into U.S. dollars when received from a
quotation service. 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 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 first business
day following 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.
25
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 (unaudited) -- (continued)
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 for 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, 1996, the reclassification arising from
book/tax differences resulted in increases (decreases) to the components of
net assets. The following table discloses the effect of such differences
reclassified between accumulated undistributed net investment income/loss,
accumulated undistributed net realized gain/loss on investments and 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, 1996.
<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........................ $(7,032,191) $7,032,191 $ --
Federal Securities Fund...... (201,652) 201,895 (243)
Diversified Income Fund...... (239,927) 345,885 (105,958)
High Income Fund............. 593,468 (593,468) --
Tax Exempt Insured Fund...... (1,797) 1,968,588 (1,966,791)
</TABLE>
Dividends from net investment income are paid monthly. Capital gain
distributions, if any, are paid annually.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION: The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements.
Actual results could differ from these estimates.
26
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 (unaudited) -- (continued)
INVESTMENT SECURITIES LOANED: During the six months ended September 30,
1996, U.S. Government Securities Fund, Federal Securities Fund and
Diversified 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 102% 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. Alternatively, an interest
expense allocation is recorded on the books when the cash collateral from
the securities on loan is used to cover an overdraft. 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.
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.
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.
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 foreign exchange gains and losses from currency
gains or losses between the trade and settlement dates of securities
transactions, the difference between the amounts of interest, dividends 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
27
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 (unaudited) -- (continued)
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 or other appropriate allocation
methods.
Note 3. 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 September 30, 1996, the U.S. Government Securities Fund, Federal
Securities Fund and High Income Fund had a 3.8%, 2.1% and 3.9% undivided
interest which represented $4,981,000, $2,742,000 and $5,148,000,
respectively, in principal amount in a joint repurchase agreement with
Yamaichi International, Inc. As of such date, the repurchase agreement in
the joint account and the collateral therefore were as follows:
Yamaichi International, Inc. Repurchase Agreement, 5.65% dated 9/30/96, in
the principal amount of $132,158,000 repurchase price $132,178,741 due
10/1/96 collateralized by $32,910,000 U.S. Treasury Notes 6.00% due
8/31/97, $12,410,000 U.S. Treasury Notes 5.75% due 9/30/97, $20,370,000
U.S. Treasury Notes 6.125% due 5/15/98, $37,500,000 U.S. Treasury Notes
6.875% due 3/31/00 and $33,325,000 U.S. Treasury Bonds 6.25% due 8/15/23,
approximate aggregate value $136,584,546.
Note 4. 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.
28
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 (unaudited) -- (continued)
The Funds pay SAAMCo a monthly investment advisory and management fee
calculated daily at the following annual percentages of each Fund's net
assets:
<TABLE>
<CAPTION>
MANAGEMENT
ASSETS FEES
----------------- ----------
<S> <C> <C>
U.S. Government Securities Fund and High In-
come Fund.................................... $0 - $200 million 0.75%
greater than $200 million 0.72%
greater than $400 million 0.55%
Federal Securities Fund....................... $0 - $25 million 0.55%
greater than $25 million 0.50%
greater than $50 million 0.45%
Diversified Income Fund....................... $0 - $350 million 0.65%
greater than $350 million 0.60%
Tax Exempt Insured Fund....................... $0 - $350 million 0.50%
greater than $350 million 0.45%
</TABLE>
SAAMCo agreed that it would 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
was 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 six months ended
September 30, 1996, no such reimbursement was required.
The Trust, on behalf of each Fund, has a Distribution Agreement with
SunAmerica Capital Services, Inc. ("SACS"), an indirect wholly owned
subsidiary of SunAmerica Inc. 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
trustees 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 and Class B Plan, the Distributor receives payments
from a Fund at an annual rate of up to 0.10% and .75%, respectively, of
average daily net assets of such Fund's Class A and 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,
29
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 (unaudited) -- (continued)
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 of 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. Accordingly, for the six months
ended September 30, 1996, SACS received fees (see Statement of Operations)
based upon the aforementioned rates (of which $6,176 and $11,034 was waived
for the U.S. Government Securities Fund Class A and High Income Fund Class
B, respectively).
SACS receives sales charges on each Fund's Class A shares, portions of
which are reallowed to affiliated broker-dealers and non-affiliated broker-
dealers. SACS also receives the proceeds of contingent deferred sales
charges paid by investors in connection with certain redemptions of Class B
fund shares. SACS has advised the Funds that for the six months ended
September 30, 1996, the proceeds received from Class A sales (and paid out
to affiliated and non-affiliated broker-dealers) and Class B redemptions
are as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------- ------------
CONTINGENT
SALES AFFILIATED NON-AFFILIATED DEFERRED
CHARGES BROKER-DEALERS BROKER-DEALERS SALES CHARGE
------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
U.S. Government Securi-
ties Fund.............. $19,148 $ 9,568 $ 6,595 $ 584,112
Federal Securities Fund. 7,137 6,544 1,149 26,368
Diversified Income Fund. 16,948 10,201 4,181 129,361
High Income Fund........ 42,225 21,318 14,472 160,721
Tax Exempt Insured Fund. 20,745 14,172 2,804 20,925
</TABLE>
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
six months ended September 30, 1996, the Funds incurred the following
expenses to reimburse SAFS pursuant to the terms of the Service Agreement:
<TABLE>
<CAPTION>
PAYABLE AT
EXPENSES SEPTEMBER 30, 1996
----------------- -------------------
CLASS A CLASS B CLASS A CLASS B
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
U.S. Government Securities Fund....... $127,741 $436,245 $ 19,688 $67,221
Federal Securities Fund............... 40,801 26,743 5,915 4,130
Diversified Income Fund............... 17,826 111,585 3,063 17,622
High Income Fund...................... 41,607 120,098 7,013 19,466
Tax Exempt Insured Fund............... 124,362 32,412 19,498 5,268
</TABLE>
30
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 (unaudited) -- (continued)
Note 5. Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales and maturities of
long-term investments (excluding U.S. Government securities in the
Diversified Income and High Income Funds, respectively) during the six
months ended September 30, 1996 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..... $375,486,219 $141,241,744 $ 84,654,962 $88,163,020 $51,864,509
============ ============ ============ =========== ===========
Aggregate sales......... $361,478,078 $142,973,491 $101,308,925 $74,280,155 $36,918,220
============ ============ ============ =========== ===========
</TABLE>
Note 6. Portfolio Securities
The costs of securities and the aggregate appreciation and depreciation of
securities at September 30, 1996 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>
Cost.................... $471,484,592 $55,437,023 $104,900,990 $144,510,717 $127,389,612
============ =========== ============ ============ ============
Appreciation............ $ 7,933,949 $ 762,320 $ 6,320,603 $ 8,097,680 $ 7,980,107
Depreciation............ (5,530,648) (899,820) (1,324,496) (3,307,893) (105,409)
------------ ----------- ------------ ------------ ------------
Unrealized appreciation/
depreciation--net...... $ 2,403,301 $ (137,500) $ 4,996,107 $ 4,789,787 $ 7,874,698
============ =========== ============ ============ ============
</TABLE>
Capital losses and currency losses after October 31 within the taxable year
are deemed to arise on the first business day of the Funds' net taxable
year. Accordingly, the U.S. Government Securities Fund, Federal Securities
Fund, Diversified Income Fund and High Income Fund incurred and elected to
defer capital losses of $131,079, $13,833, $875,593 and $1,342,211,
respectively, to the taxable year ended March 31, 1997. Diversified Income
Fund incurred and elected to defer currency losses of $7,779 to the taxable
year ended March 31, 1997. 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, 1996, U.S. Government Securities Fund, Federal Securities
Fund, Diversified Income Fund, High Income Fund and Tax Exempt Insured Fund
had capital loss carryforwards of $28,309,121, $796,117, $31,843,774,
$44,735,276 and $8,864,098, respectively, which were available to the
extent provided in regulations and which will expire between 1997-2004. 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.
U.S. Government Securities Fund and Federal Securities Fund utilized
capital loss carryforwards of $2,453,957 and $2,115,737, respectively, to
offset the Funds' net taxable gains realized and recognized in the year
ended March 31, 1996.
Tax Exempt Insured Fund had capital loss carryforwards expire of $1,573,186
in the year ended March 31, 1996.
31
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 (unaudited) -- (continued)
Note 7. Capital Share Transactions
Transactions in capital shares of each class of each series were as
follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
--------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- ----------------------------------------------------
FOR THE FOR THE
SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE
SEPTEMBER 30, 1996 YEAR ENDED SEPTEMBER 30, 1996 YEAR ENDED
(UNAUDITED) MARCH 31, 1996 (UNAUDITED) MARCH 31, 1996
------------------------ ------------------------ ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 281,545 $ 2,344,930 13,131,939 $112,301,977 453,636 $ 3,818,948 9,360,875 $ 79,755,257
Reinvested
dividends...... 240,053 2,018,702 410,804 3,519,824 720,910 6,064,100 1,974,201 16,845,172
Shares redeemed. (2,354,744) (19,787,999) (7,702,779) (65,848,530) (7,838,700) (65,932,647) (33,167,131) (282,936,370)
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Net increase
(decrease)..... (1,833,146) $(15,424,367) 5,839,964 $ 49,973,271 (6,664,154) $(56,049,599) (21,832,055) $(186,335,941)
========== ============ ========== ============ ========== ============ =========== =============
<CAPTION>
FEDERAL SECURITIES FUND
--------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- ----------------------------------------------------
FOR THE FOR THE
SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE
SEPTEMBER 30, 1996 YEAR ENDED SEPTEMBER 30, 1996 YEAR ENDED
(UNAUDITED) MARCH 31, 1996 (UNAUDITED) MARCH 31, 1996
------------------------ ------------------------ ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 106,944 $ 1,094,692 4,123,463 $ 43,030,581 113,802 $ 1,181,692 814,487 $ 8,530,005
Reinvested
dividends...... 66,654 687,338 111,354 1,172,357 44,459 459,403 153,756 1,604,033
Shares redeemed. (881,469) (9,157,178) (998,837) (10,515,594) (483,205) (4,989,726) (5,023,383) (52,553,961)
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Net increase
(decrease)..... (707,871) $ (7,375,148) 3,235,980 $ 33,687,344 (324,944) $ (3,348,631) (4,055,140) $ (42,419,923)
========== ============ ========== ============ ========== ============ =========== =============
<CAPTION>
DIVERSIFIED INCOME FUND
--------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- ----------------------------------------------------
FOR THE FOR THE
SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE
SEPTEMBER 30, 1996 YEAR ENDED SEPTEMBER 30, 1996 YEAR ENDED
(UNAUDITED) MARCH 31, 1996 (UNAUDITED) MARCH 31, 1996
------------------------ ------------------------ ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 1,103,027 $ 4,749,684 2,955,037 $ 12,861,772 1,465,477 $ 6,323,419 2,801,046 $ 12,136,400
Reinvested
dividends...... 85,372 366,559 195,515 841,738 483,936 2,080,079 1,377,852 5,943,373
Shares redeemed. (1,070,999) (4,596,408) (2,674,706) (11,458,461) (5,619,422) (24,184,880) (10,248,505) (44,195,135)
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Net increase
(decrease)..... 117,400 $ 519,835 475,846 $ 2,245,049 (3,670,009) $(15,781,382) (6,069,607) $ (26,115,362)
========== ============ ========== ============ ========== ============ =========== =============
<CAPTION>
HIGH INCOME FUND
--------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- ----------------------------------------------------
FOR THE FOR THE
SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE
SEPTEMBER 30, 1996 YEAR ENDED SEPTEMBER 30, 1996 YEAR ENDED
(UNAUDITED) MARCH 31, 1996 (UNAUDITED) MARCH 31, 1996
------------------------ ------------------------ ------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 1,133,465 $ 7,888,088 8,359,027 $ 57,916,776 6,016,941 $ 41,975,389 12,736,686 $ 88,552,474
Reinvested
dividends...... 146,280 1,015,143 368,814 2,562,289 374,900 2,605,517 977,729 6,803,888
Shares redeemed. (895,553) (6,219,316) (9,390,977) (64,906,948) (4,095,199) (28,498,431) (22,505,915) (155,995,199)
---------- ------------ ---------- ------------ ---------- ------------ ----------- -------------
Net increase
(decrease)..... 384,192 $ 2,683,915 (663,136) $ (4,427,883) 2,296,642 $ 16,082,475 (8,791,500) $ (60,638,837)
========== ============ ========== ============ ========== ============ =========== =============
</TABLE>
32
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- September 30, 1996 (unaudited) -- (continued)
<TABLE>
<CAPTION>
TAX EXEMPT INSURED FUND
---------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- -----------------------------------------------
FOR THE FOR THE
SIX MONTHS ENDED FOR THE SIX MONTHS ENDED FOR THE
SEPTEMBER 30, 1996 YEAR ENDED SEPTEMBER 30, 1996 YEAR ENDED
(UNAUDITED) MARCH 31, 1996 (UNAUDITED) MARCH 31, 1996
------------------------ ------------------------ --------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold........ 94,400 $ 1,160,605 561,023 $ 7,051,303 360,856 $ 4,445,673 1,455,371 $ 18,163,807
Reinvested
dividends......... 113,148 1,391,933 264,543 3,294,346 30,643 377,083 55,207 688,264
Shares redeemed.... (1,347,174) (16,564,161) (2,378,115) (29,684,179) (386,358) (4,766,346) (1,292,255) (16,166,468)
---------- ------------ ---------- ------------ -------- ----------- ---------- ------------
Net increase
(decrease)........ (1,139,626) $(14,011,623) (1,552,549) $(19,338,530) 5,141 $ 56,410 218,323 $ 2,685,603
========== ============ ========== ============ ======== =========== ========== ============
</TABLE>
Note 8. Commitments and Contingencies
State Street Bank and Trust Company, the Funds' custodian, 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. Borrowings under the line
of credit will commence when the Fund's cash shortfall exceeds $100,000.
During the six months ended September 30, 1996 the Diversified Income and
High Income Fund periodically utilized the uncommitted line of credit and
incurred an interest expense of $53 and $2,861, respectively. At September
30, 1996 the Diversified Income Fund had $267,035 in outstanding borrowings
at an interest rate of 7.125%.
Note 9. 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, but in no event
for a period greater than 10 years, each Eligible Trustee will be credited
with an amount equal to 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. In
addition, an amount equal to 8.5% of any amounts credited under the
preceding clause during prior years is added to each Eligible Trustee's
Account until such Eligible Trustee reaches his or her 70th birthday. 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. As of September 30, 1996, U.S. Government Securities
Fund, Federal Securities Fund, Diversified Income Fund, High Income Fund
and Tax Exempt Insured Fund had accrued $43,364, $4,289, $8,596, $9,177 and
$9,948, respectively, for the Retirement Plan, which is included in accrued
expenses on the Statement of Assets and Liabilities and for the six months
ended September 30, 1996 expensed $12,744, $1,407, $2,703, $3,226 and
$3,252, respectively, for the Retirement Plan, which is included in
Trustees' fees and expenses on the Statement of Operations.
33
<PAGE>
TRUSTEES INVESTMENT ADVISER
S. James Coppersmith SunAmerica Asset Management Corp.
Samuel M. Eisenstat The SunAmerica Center
Stephen J. Gutman 733 Third Avenue
Peter A. Harbeck New York, NY 10017-3204
Peter McMillan III DISTRIBUTOR
Sebastiano Sterpa
SunAmerica Capital Services, Inc.
OFFICERS The SunAmerica Center
Peter A. Harbeck, President 733 Third Avenue
Stanton J. Feeley, New York, NY 10017-3204
Executive Vice President
Nancy Kelly, Vice President SHAREHOLDER SERVICING AGENT
P. Christopher Leary, Vice President SunAmerica Fund Services, Inc.
Robert M. Zakem, Secretary The SunAmerica Center
Peter C. Sutton, Treasurer 733 Third Avenue
John T. Genoy, Assistant Treasurer New York, NY 10017-3204
Donna M. Handel, Assistant Treasurer CUSTODIAN AND TRANSFER AGENT
Hilary R. Kastleman, Assistant Secretary State Street Bank & Trust Company
Abbe P. Stein, Assistant Secretary 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.
The accompanying report has not been
examined by independent accountants
and accordingly no opinion has been
expressed thereon.
SPONSORED BY:
[LOGO]SunAmerica
Asset Manangement
IFANN
