<PAGE>
As filed with the Securities and Exchange Commission on July 19, 1996
File Nos. 33-6502; 811-4708
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 -
Pre-Effective Amendment No. -
Post-Effective Amendment No. 21 X
-
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 -
Amendment No. 18 X
(Check appropriate box or boxes)
SUNAMERICA INCOME FUNDS
(Exact Name of Registrant as Specified in Charter)
The SunAmerica Center
733 Third Avenue - Third Floor
New York, NY 10017-3204
(Address of Principal Executive Office)(Zip Code)
Registrant's telephone number, including area code: (800) 858-8850
Robert M. Zakem, Esq.
Senior Vice President and General Counsel
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue, Third Floor
New York, NY 10017-3204
(Name and Address of Agent for Service)
Copy to:
Margery K. Neale, Esq.
Shereff, Friedman, Hoffman, & Goodman
919 Third Avenue
New York, NY 10022
It is proposed that the filing will become effective (check appropriate box)
immediately upon filing pursuant X on July 29, 1996 pursuant
- to paragraph (b) - to paragraph (b)
60 days after filing pursuant on (date) pursuant to paragraph
- to paragraph (a) - (a) of Rule 485
--------------------
The Registrant has previously elected to register an indefinite number of
shares of beneficial interest, par value $.01 per share under the Securities Act
of 1933, pursuant to Rule 24f-2 under the Investment Company Act 1940.
Registrant filed an amended Rule 24f-2 Notice for its fiscal year ended March
31, 1996 on May 28, 1996.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title Amount Proposed Proposed
of of Maximum Maximum Amount
Securities Shares Offering Aggregate of
Being Being Price Offering Registration
Registered Registered Per Share Price Fee
<S> <C> <C> <C> <C>
Beneficial 73,069,933 $7.74 $565,561,281.40 $100*
Interest
$.01 Par Value
</TABLE>
* This calculation has been made pursuant to Rule 24e-2 under the
Investment Company Act of 1940, as amended. Registrant, during its fiscal year
ended March 31, 1996 redeemed or repurchased 95,382,583 shares. Of these
shares, 62,188,709 were previously used for a reduction pursuant to Paragraph
(c) of Rule 24f-2. 73,032,466 shares are being used for reduction pursuant to
Paragraph (a) of Rule 24e-2 for purposes of this amendment. No previous
filing, other than that described above, during Registrant's current fiscal year
has utilized redeemed or repurchased shares for purposes of such a reduction.
Minimum fee is $100.
================================================================================
<PAGE>
SUNAMERICA INCOME FUNDS
CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
Under the Securities Act of 1933
--------------------------------
<TABLE>
<CAPTION>
PART A
Item No. Registration Statement Caption Caption in Prospectus
- -------- ------------------------------ ---------------------
<S> <C> <C>
1 Cover Page Cover Page
2 Synopsis Summary of Fund Expenses
3 Condensed Financial Information Financial Highlights; Performance
Data
4 General Description of Registrant Investment Objectives and
Policies; Investment Techniques
and Risk Factors; Investment
Restrictions; General Information
5 Management of the Fund Management of the Trust; Portfolio
Transactions and Brokerage and
Turnover
5A Management's Discussion of Fund *
Performance
6 Capital Stock and Other Dividends, Distributions and
Securities Taxes; General Information
7 Purchase of Securities Being Purchase of Shares; Determination
Offered of Net Asset Value
8 Redemption or Repurchase Redemption of Shares; Exchange
Privilege
9 Pending Legal Proceedings Inapplicable
PART B Caption in Statement
Item No. Registration Statement Caption of Additional Information
- -------- ------------------------------ -------------------------
10 Cover Page Cover Page
11 Table of Contents Table of Contents
12 General Information and History History of the Funds
13 Investment Objectives and Investment Objectives and
Policies; Investment Policies
Restrictions; Appendix
14 Management of the Fund Trustees and Officers
15 Contact Persons and Principal Inapplicable
Holders of Securities
16 Investment Advisory and Other Adviser, Personal Securities
Services Trading, Distributor and
Administrator; Additional
Information
17 Brokerage Allocation Portfolio Transactions and
Brokerage
18 Capital Stock and Other Securities Dividends, Distributions and
Taxes; Description of Shares;
Additional Information
19 Purchase, Redemption and Pricing Additional Information Regarding
of Securities Being Offered Purchase of Shares; Additional
Information Regarding Redemption
of Shares; Determination of Net
Asset Value; Retirement Plans;
Additional Information
20 Tax Status Dividends, Distributions and Taxes
21 Underwriters Adviser, Personal Securities
Trading, Distributor and
Administrator
22 Calculation of Performance Data Performance Data
23 Financial Statements Financial Statements
</TABLE>
PART C
The information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C of this Registration Statement.
* Included in the Annual Report to Shareholders for the fiscal year ended March
31, 1995.
<PAGE>
SUNAMERICA INCOME FUNDS
THE SUNAMERICA CENTER, 733 THIRD AVENUE, NEW YORK, NY 10017-3204
GENERAL MARKETING AND SHAREHOLDER INFORMATION
(800) 858-8850
SunAmerica Income Funds is an open-end diversified management investment
company organized as a Massachusetts business trust (the "Trust") with five
different investment funds (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 advised and managed by SunAmerica
Asset Management Corp. (the "Adviser"). An investor may invest in one or more
of the following Funds:
SunAmerica U.S. Government Securities Fund ("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. The Government Securities Fund is
neither insured nor guaranteed by the U.S. government.
SunAmerica Federal Securities Fund ("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. Further, a significant portion of
the Fund's assets will be invested in mortgage-backed securities.
SunAmerica Diversified Income Fund ("Diversified Income Fund")--seeks a high
level of current income consistent with moderate investment risk, with
preservation of capital as a secondary objective. The Fund may invest a
significant portion of its assets in lower-rated bonds, commonly referred to
as "junk bonds."
SunAmerica High Income Fund ("High Income Fund")--seeks maximum current
income by investing primarily in high-yield, high-risk corporate bonds. The
High Income Fund invests predominantly in lower-rated bonds, commonly referred
to as "junk bonds."
SunAmerica Tax Exempt Insured Fund ("Tax Exempt Insured Fund")--seeks as
high a level of current income exempt from Federal income taxes as is
consistent with preservation of capital. Although particular securities of the
Fund may be insured as to the timely payment of principal and interest, the
Fund is not insured by any independent parties or governmental entities.
THE DIVERSIFIED INCOME FUND MAY, AND THE HIGH INCOME FUND WILL, INVEST IN
LOWER-RATED BONDS COMMONLY REFERRED TO AS "JUNK BONDS." THESE SECURITIES ARE
SPECULATIVE AND MAY BE SUBJECT TO GREATER RISK OF LOSS OF PRINCIPAL AND
INTEREST THAN ARE INVESTMENTS IN HIGHER-RATED BONDS. BECAUSE INVESTMENT IN
SUCH SECURITIES ENTAILS GREATER RISKS, AN INVESTMENT IN THE DIVERSIFIED INCOME
FUND AND HIGH INCOME FUND SHOULD NOT CONSTITUTE A COMPLETE INVESTMENT PROGRAM
AND MAY NOT BE APPROPRIATE FOR ALL INVESTORS.
Each Fund currently offers Class A shares and Class B shares. The offering
price is the next-determined net asset value per share, plus for each class a
sales charge which, at the investor's option, may be (i) imposed at the time
of purchase (Class A shares) or (ii) deferred (Class B shares and purchases of
Class A shares in excess of $1 million). Class B shares are offered without an
initial sales charge, although a declining contingent deferred sales charge
("CDSC") may be imposed on redemptions made within six years of purchase.
Class B shares of each Fund will convert automatically to Class A shares on
the first business day of the month seven years after 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 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, as amended (the "1940
Act"). See "Purchase of Shares."
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank through which shares may be sold, and are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other agency.
This Prospectus explains concisely what you should know before investing in
any of the Funds. Please read it carefully before investing and retain it for
future reference. You can find more detailed information about the Funds in
the Statement of Additional Information dated July 29, 1996, which is
incorporated by reference into this Prospectus, and further information about
the performance of the Funds in the Trust's Annual Report to Shareholders. The
Statement of Additional Information and Annual Report to Shareholders may be
obtained without charge by contacting the Trust at the address or telephone
number listed above.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
PROSPECTUS DATED JULY 29, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus.......................... Cover
Summary of Fund Expenses............ 2
Financial Highlights................ 4
Investment Objectives and Policies.. 7
Government Securities Fund.......... 7
Federal Securities Fund............. 7
Diversified Income Fund............. 8
High Income Fund.................... 8
Tax Exempt Insured Fund............. 9
Investment Techniques and Risk Fac-
tors............................... 10
Investment Restrictions............. 17
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management of the Trust.............. 18
Purchase of Shares................... 20
Redemption of Shares................. 22
Exchange Privilege................... 24
Portfolio Transactions, Brokerage and
Turnover............................ 25
Determination of Net Asset Value..... 25
Performance Data..................... 25
Dividends, Distributions and Taxes... 26
General Information.................. 27
</TABLE>
SUMMARY OF FUND EXPENSES
A general comparison of the sales arrangements and other non-recurring ex-
penses applicable to Class A shares and Class B shares follows:
<TABLE>
<CAPTION>
GOVERNMENT FEDERAL TAX EXEMPT
SECURITIES SECURITIES DIVERSIFIED HIGH INCOME INSURED
FUND FUND INCOME FUND FUND FUND
----------- ----------- ----------- ----------- -----------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B A B A B A B A B
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTIONS
EXPENSES
Maximum Initial Sales
Load(/1/)............. 4.75% None 4.75% None 4.75% None 4.75% None 4.75% None
Maximum Sales Load on
Reinvested Dividends.. None None None None None None None None None None
Maximum Deferred Sales
Load(/2/)............. None 4.00% None 4.00% None 4.00% None 4.00% None 4.00%
Redemption Fees(/3/)... None None None None None None None None None None
Exchange Fees.......... None None None None None None None None None None
ANNUAL FUND OPERATING
EXPENSES(/4/)
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
(NET OF FEE WAIVERS/
EXPENSE REIMBURSEMENTS)
Management Fees........ 0.67% 0.67% 0.50% 0.50% 0.65% 0.65% 0.75% 0.75% 0.50% 0.50%
12b-1 Fees(/5/)........ 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00%
Other Expenses......... 0.42% 0.46% 0.52% 0.51% 0.46% 0.41% 0.43% 0.31% 0.37% 0.40%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Operating Ex-
pense(/6/)............. 1.44% 2.13% 1.37% 2.01% 1.46% 2.06% 1.53% 2.06% 1.22% 1.90%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- --------
(1) The front-end sales charge on Class A shares decreases with the size of the
purchase to 0% for purchases of $1,000,000 or more. See "Purchase of
Shares."
(2) 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. The contingent deferred sales charge on Class B shares applies
only if a redemption occurs within six years from their purchase date.
(3) A $15.00 fee may be imposed for wire redemptions.
(4) The information provided is based on data for the current fiscal year ended
March 31, 1996.
(5) 0.25% of the 12b-1 fee comprises an Account Maintenance and Service Fee. A
portion of the Account Maintenance and Service Fee is allocated to member
firms of the National Association of Securities Dealers, Inc. for continu-
ous personal service by such members to investors in the Funds, such as re-
sponding to shareholder inquiries, quoting net asset values, providing cur-
rent marketing material and attending to other shareholder matters. Class B
shareholders who own their shares for an extended period of time may pay
more in Rule 12b-1 distribution fees than the economic equivalent of the
maximum front-end sales charge permitted under the Rules of Fair Practice
of the National Association of Securities Dealers, Inc.
(6) For the fiscal year ended March 31, 1996, the total operating expenses (be-
fore waivers) for Government Securities Fund Class A and High Income Fund
Class B were: 1.48%, and 2.14%, respectively. All of the foregoing fee
waivers and/or expense reimbursements were voluntary, and were terminated
by the Adviser effective May 16, 1996.
2
<PAGE>
EXAMPLE:
You would pay the following expenses on a $1,000 investment over various time
periods assuming (1) a 5% annual rate of return and (2) redemption at the end
of each time period. The 5% return and the expenses used in this example should
not be considered indicative of actual or expected performance or expenses both
of which will vary:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
GOVERNMENT SECURITIES FUND
(Class A Shares)............................... $61 $91 $122 $212
(Class B Shares)*.............................. $62 $97 $134 $220
FEDERAL SECURITIES FUND
(Class A Shares)............................... $61 $89 $119 $204
(Class B Shares)*.............................. $60 $93 $128 $209
DIVERSIFIED INCOME FUND
(Class A Shares)............................... $62 $91 $123 $214
(Class B Shares)*.............................. $61 $95 $131 $216
HIGH INCOME FUND
(Class A Shares)............................... $62 $94 $127 $221
(Class B Shares)*.............................. $61 $95 $131 $219
TAX EXEMPT INSURED FUND
(Class A Shares)............................... $59 $84 $111 $188
(Class B Shares)*.............................. $59 $90 $123 $196
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
GOVERNMENT SECURITIES FUND
(Class A Shares)............................... $61 $91 $122 $212
(Class B Shares)*.............................. $22 $67 $114 $220
FEDERAL SECURITIES FUND
(Class A Shares)............................... $61 $89 $119 $204
(Class B Shares)*.............................. $20 $63 $108 $209
DIVERSIFIED INCOME FUND
(Class A Shares)............................... $62 $91 $123 $214
(Class B Shares)*.............................. $21 $65 $111 $216
HIGH INCOME FUND
(Class A Shares)............................... $62 $94 $127 $221
(Class B Shares)*.............................. $21 $65 $111 $219
TAX EXEMPT INSURED FUND
(Class A Shares)............................... $59 $84 $111 $188
(Class B Shares)*.............................. $19 $60 $103 $196
</TABLE>
The foregoing examples should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
- --------
* Class B shares convert to Class A shares on the first business day of the
month following the seventh anniversary of the purchase of such Class B
shares. Therefore, with respect to the 10-year expense information, years 8,
9 and 10 reflect the expenses attributable to ownership of Class A shares.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following Financial Highlights for the period July 1, 1993 to March 31,
1994, and for each of the years in the period ended March 31, 1996 and for each
of the three years in the period ended June 30, 1993 for the Government
Securities Fund and for each of the years in the period ended March 31, 1996
for the Federal Securities Fund, have been audited by Price Waterhouse LLP,
each Fund's independent accountants, whose reports on the financial statements
containing such information for each of the five years in the period ended
March 31, 1996 are included in the Trust's Annual Report to Shareholders. The
information for the periods from inception to June 30, 1990 for the Government
Securities Fund is derived from the Fund's financial statements, which have
been audited by other independent accountants. These Financial Highlights
should be read in conjunction with each Fund's financial statements and notes
thereto, which are included in the Statement of Additional Information and are
incorporated by reference herein.
GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
NET
GAIN (LOSS) DISTRI-
ON BUTIONS
INVESTMENTS DISTRI- IN EXCESS NET
NET ASSET NET (BOTH DIVIDENDS BUTION OF NET ASSET
VALUE, INVEST- REALIZED TOTAL FROM FROM NET (FROM RETURN INVEST- TOTAL VALUE,
PERIOD BEGINNING MENT AND INVESTMENT INVESTMENT 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-
03/31/94(/3/) $8.68 $0.28 $(0.34) $(0.06) $(0.14) $ -- $(0.01) $(0.08) $(0.23) $8.39 (0.68)%
03/31/95 8.39 0.61 (0.30) 0.31 (0.47) -- -- -- (0.47) 8.23 3.89
03/31/96 8.23 0.62 0.16 0.78 (0.51) -- -- -- (0.51) 8.50 9.62
<CAPTION>
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
06/30/87 $9.92 $0.74 $(0.17) $ 0.57 $(0.78) $ -- $ -- $ -- $(0.78) $9.71 6.73%
06/30/88 9.71 0.88 (0.30) 0.58 (0.88) -- -- -- (0.88) 9.41 6.64
06/30/89 9.41 0.87 (0.30) 0.57 (0.87) -- -- -- (0.87) 9.11 6.64
06/30/90 9.11 0.84 (0.21) 0.63 (0.84) -- -- -- (0.84) 8.90 7.61
06/30/91 8.90 0.82 -- 0.82 (0.73) (0.09) -- -- (0.82) 8.90 9.55
06/30/92 8.90 0.73 (0.02) 0.71 (0.57) (0.16) -- -- (0.73) 8.88 8.33
06/30/93(/5/) 8.88 0.64 (0.17) 0.47 (0.44) (0.17) -- -- (0.61) 8.74 5.49
07/01/93-
03/31/94 8.74 0.43 (0.40) 0.03 (0.24) -- (0.01) (0.13) (0.38) 8.39 0.25
03/31/95 8.39 0.56 (0.30) 0.26 (0.41) -- -- -- (0.41) 8.24 3.25
03/31/96 8.24 0.55 0.17 0.72 (0.45) -- -- -- (0.45) 8.51 8.87
</TABLE>
<TABLE>
<CAPTION>
RATIO OF
NET EXPENSES RATIO OF NET
ASSETS, TO INVESTMENT PORT-
END OF AVERAGE INCOME TO FOLIO
PERIOD YEAR NET AVERAGE TURN-
ENDED (000'S) ASSETS NET ASSETS OVER
- ------ ---------- -------- ------------ -----
CLASS A
-------
<S> <C> <C> <C> <C>
10/01/93-
03/31/94(/3/) $ 76,586 1.35%(/4/)(/6/) 6.83%(/4/)(/6/) 35%
03/31/95 73,399 1.46(/6/) 7.50(/6/) 105
03/31/96 125,504 1.44(/6/) 7.11(/6/) 142
CLASS B
-------
06/30/87 $ 92,977 2.26% 7.51% 120%
06/30/88 191,413 2.04 9.26 95
06/30/89 300,415 2.03 9.59 51
06/30/90 425,890 1.98 9.45 31
06/30/91 513,062 1.98(/6/) 9.31(/6/) 38
06/30/92 1,075,668 1.92 8.21 54
06/30/93(/5/) 1,259,845 1.82(/6/) 7.27(/6/) 73
07/01/93-
03/31/94 886,089 1.95(/4/)(/6/) 6.61(/4/)(/6/) 35
03/31/95 594,779 2.15(/6/) 6.80(/6/) 105
03/31/96 428,772 2.13 6.46 142
</TABLE>
FEDERAL SECURITIES FUND
<TABLE>
<CAPTION>
NET
GAIN (LOSS) DISTRI-
ON BUTIONS
INVESTMENTS IN EXCESS NET NET
NET ASSET NET (BOTH DIVIDENDS OF NET ASSET ASSETS,
VALUE, INVEST- REALIZED TOTAL FROM FROM NET DISTRIBUTION INVEST- TOTAL VALUE, END OF
BEGINNING MENT AND INVESTMENT INVESTMENT FROM CAPITAL MENT DISTRI- END OF TOTAL PERIOD
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-
03/31/94(/3/) $10.58 $0.22(/1/) $(0.34) $(0.12) $(0.23) $(0.01) $ -- $(0.24) $10.22 (1.14)% $ 592
03/31/95 10.22 0.60(/1/) (0.20) 0.40 (0.64) -- -- (0.64) 9.98 4.18 6,259
03/31/96 9.98 0.68(/1/) 0.40 1.08 (0.63) -- -- (0.63) 10.43 10.94 40,278
<CAPTION>
CLASS B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
03/31/87 $10.81 $0.84 $(0.01) $ 0.83 $(0.90) $(0.10) $ -- $(1.00) $10.64 $ 6.99 $220,616
03/31/88 10.64 0.82 (0.49) 0.33 (0.84) -- -- (0.84) 10.13 3.50 186,573
03/31/89 10.13 0.84 (0.45) 0.39 (0.84) -- -- (0.84) 9.68 3.67 163,942
03/31/90 9.68 0.80 0.23 1.03 (0.80) -- -- (0.80) 9.91 10.95 141,277
03/31/91 9.91 0.77 0.44 1.21 (0.77) -- -- (0.77) 10.35 12.78 129,108
03/31/92 10.35 0.77 0.29 1.06 (0.77) -- -- (0.77) 10.64 10.57 120,454
03/31/93 10.64 0.70 0.14 0.84 (0.64) -- -- (0.64) 10.84 8.06 121,267
03/31/94 10.84 0.62(/1/) (0.71) (0.09) (0.49) (0.03) (0.01) (0.53) 10.22 (0.89) 81,011
03/31/95 10.22 0.63(/1/) (0.26) 0.37 (0.58) -- -- (0.58) 10.01 3.81 65,631
03/31/96 10.01 0.56(/1/) 0.44 1.00 (0.56) -- -- (0.56) 10.45 10.13 26,165
</TABLE>
<TABLE>
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT PORT-
EXPENSES INCOME TO FOLIO
PERIOD TO AVERAGE AVERAGE TURN-
ENDED NET ASSETS NET ASSETS OVER
- ------------ ---------- ------------ -----
CLASS A
-------
<S> <C> <C> <C>
10/11/93-
03/31/94(/3/) 1.39%(/4/)(/6/) 4.68%(/4/)(/6/) 68%
03/31/95 1.40(/6/) 6.90(/6/) 267
03/31/96 1.37 6.12 311
<CAPTION>
CLASS B
-------
<S> <C> <C> <C>
03/31/87 1.74% 8.00% 26%
03/31/88 1.82 8.12 22
03/31/89 1.78 8.41 17
03/31/90 1.92 8.06 21
03/31/91 1.93 7.67 23
03/31/92 1.90 7.32 57
03/31/93 1.85 6.36 97
03/31/94 1.98 5.79 68
03/31/95 2.03 6.33 267
03/31/96 2.01 5.64 311
</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) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
6/30/91 6/30/93 3/31/94 3/31/95 3/31/96
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Government Securities Fund
Class A -- -- .10% .07% .04%
Government Securities Fund
Class B .08% .02% .06% .03% --
Federal Securities Fund
Class A -- -- 6.74% 1.26% --
</TABLE>
4
<PAGE>
The following Financial Highlights for each of the periods through March 31,
1996 for the Diversified Income Fund and the High Income Fund, have been
audited by Price Waterhouse LLP, each Fund's independent accountants, whose
reports on the financial statements containing such information for each of the
five years in the period ended March 31, 1996 are included in the Trust's
Annual Report to Shareholders. These Financial Highlights should be read in
conjunction with each Fund's financial statements and notes thereto, which are
included in the Statement of Additional Information and are incorporated by
reference herein.
DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
NET
GAIN (LOSS) ON NET NET
NET ASSET INVESTMENTS DIVIDENDS ASSET ASSETS, RATIO OF
VALUE, NET (BOTH REALIZED TOTAL FROM FROM NET VALUE, END OF EXPENSES
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT END OF TOTAL PERIOD TO AVERAGE
PERIOD ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME PERIOD RETURN(/1/) (000'S) NET 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/)(/8/)
03/31/95 4.79 0.43(/3/) (0.66) (0.23) (0.42) 4.14 (5.10) 14,213 1.59
03/31/96 4.14 0.39(/3/) 0.16 0.55 (0.40) 4.29 13.78 16,762 1.46
CLASS B
-------
4/06/91 -
10/31/91(/6/) $5.29 $0.28 $(0.08) $ 0.20 $(0.28) $5.21 3.40% $ 39,790 0.00%(/4/)(/8/)
10/31/92(/6/) 5.21 0.42 (0.41) 0.01 (0.40) 4.82 0.16 35,409 0.74(/8/)
10/31/93(/5/)(/6/) 4.82 0.38(/3/) 0.24 0.62 (0.37) 5.07 13.35 102,519 1.78(/8/)
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/)
03/31/95 4.79 0.40(/3/) (0.65) (0.25) (0.39) 4.15 (5.46) 132,378 2.12
03/31/96 4.15 0.36(/3/) 0.17 0.53 (0.38) 4.30 13.09 110,949 2.06
RATIO OF NET
INVESTMENT
INCOME TO
AVERAGE NET PORTFOLIO
PERIOD ENDED ASSETS TURNOVER
- ------------ ------------------- ---------
CLASS A
10/05/93 -
10/31/93(/2/)(/5/) 8.92%(/4/) 249%
11/01/93 -
3/31/94 8.25(/4/)(/8/) 48
03/31/95 9.58 160
03/31/96 8.96 166
CLASS B
4/06/91 -
10/31/91(/6/) 8.87%(/4/)(/8/) 8%
10/31/92(/6/) 7.81(/8/) 191
10/31/93(/5/)(/6/) 7.53(/8/) 249
11/01/93 -
3/31/94 7.48(/4/) 48
03/31/95 8.98 160
03/31/96 8.42 166
</TABLE>
HIGH INCOME FUND
<TABLE>
<CAPTION>
NET RATIO OF
GAIN (LOSS) ON NET NET EXPENSES
NET ASSET INVESTMENTS DIVIDENDS ASSET ASSETS, TO
VALUE, NET (BOTH REALIZED TOTAL FROM FROM NET VALUE, END OF AVERAGE
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT END OF TOTAL YEAR 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>
09/19/86-
03/31/87(7) $10.14 $0.57 $(0.05) $ 0.52 $ 0.57 $10.09 5.08% $ 8,272 1.50%(/4/)(/8/)
03/31/88(7) 10.09 1.20 (1.03) 0.17 (1.16) 9.07 1.28 17,709 1.65(/8/)
03/31/89(7) 9.07 1.14 (0.12) 1.02 (1.11) 8.98 11.21 37,122 1.76
03/31/90(/7/) 8.98 1.05 (1.86) (0.81) (1.06) 7.11 (10.45) 23,162 1.94
03/31/91(/7/) 7.11 0.88 (0.27) 0.61 (0.88) 6.84 9.51 19,347 1.90
03/31/92(/7/) 6.84 0.95 1.28 2.23 (1.00) 8.07 35.27 22,607 1.57
03/31/93(/7/) 8.07 0.95 0.18 1.13 (1.08) 8.12 15.05 30,715 1.77
03/31/94(/7/) 8.12 0.87(/3/) (0.14) 0.73 (0.82) 8.03 9.14 33,724 1.72
03/31/95 8.03 0.78(/3/) (1.03) (0.25) (0.83) 6.95 (2.91) 40,585 1.61
03/31/96 6.95 0.67(/3/) 0.02 0.69 (0.69) 6.95 10.43 35,963 1.53
RATIO OF NET
INVESTMENT
INCOME TO
AVERAGE NET PORTFOLIO
PERIOD ENDED ASSETS TURNOVER
- ------------ -------------------- ---------
09/19/86-
03/31/87(7) 10.02%(/4/)(/8/) 43%
03/31/88(7) 11.55(/8/) 55
03/31/89(7) 12.43 135
03/31/90(/7/) 12.59 112
03/31/91(/7/) 12.77 95
03/31/92(/7/) 13.19 208
03/31/93(/7/) 11.08 232
03/31/94(/7/) 10.34 290
03/31/95 10.82 196
03/31/96 9.36 183
CLASS B
10/01/93 -
03/31/94 $ 8.18 $0.38(/3/) $(0.17) $ 0.21 $(0.35) $ 8.04 2.46% $131,713 2.15%(/4/)(/8/)
03/31/95 8.04 0.73(/3/) (1.02) (0.29) (0.79) 6.96 (3.42) 153,034 2.16(/8/)
03/31/96 6.96 0.62(/3/) 0.03 0.65 (0.65) 6.96 9.83 91,800 2.06(/8/)
RATIO OF NET
INVESTMENT
INCOME TO
AVERAGE NET PORTFOLIO
PERIOD ENDED ASSETS TURNOVER
- ------------ -------------------- ---------
10/01/93 -
03/31/94 9.07%(/4/)(/8/) 290%
03/31/95 10.26(/8/) 196
03/31/96 8.85(/8/) 183
</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) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
3/31/87 3/31/88 10/31/91 10/31/92 10/31/93 3/31/94 3/31/95 3/31/96
------- ------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Diversified Income Fund
Class A -- -- -- -- -- .62% -- --
Diversified Income Fund
Class B -- -- 2.31% 1.25% .38% -- -- --
High Income Fund Class A 4.45% .42% -- -- -- -- -- --
High Income Fund Class B -- -- -- -- -- .08% .08% .08%
</TABLE>
5
<PAGE>
The following Financial Highlights for each of the periods through March 31,
1996 for the Tax Exempt Insured Fund, have been audited by Price Waterhouse
LLP, the Fund's independent accountants, whose report on the financial
statements containing such information for each of the five years in the period
ended March 31, 1996 is included in the Trust's Annual Report to Shareholders.
These Financial Highlights should be read in conjunction with the Fund's
financial statements and notes thereto, which are included in the Statement of
Additional Information and are incorporated by reference herein.
TAX EXEMPT INSURED FUND
<TABLE>
<CAPTION>
NET
GAIN (LOSS)
ON
INVESTMENTS NET NET
NET ASSET (BOTH DIVIDENDS ASSET ASSETS RATIO OF
VALUE NET REALIZED TOTAL FROM FROM NET VALUE END OF EXPENSES TO
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT END OF TOTAL PERIOD AVERAGE 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>
11/22/85-
10/31/86 $11.91 $0.81 $ 0.56 $ 1.37 $(0.81) $12.47 11.60% $131,503 0.77%(/5/)(/7/)
10/31/87 12.47 0.86 (1.16) (0.30) (0.86) 11.31 (2.78) 112,681 0.98(/7/)
10/31/88 11.31 0.82 0.87 1.69 (0.82) 12.18 15.27 111,476 1.30
10/31/89 12.18 0.82 0.09 0.91 (0.82) 12.27 7.53 105,834 1.32
10/31/90 12.27 0.82 (0.07) 0.75 (0.82) 12.20 6.28 89,950 1.31
10/31/91 12.20 0.81 0.21 1.02 (0.81) 12.41 8.62 95,246 1.32
10/31/92 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(/7/)
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/)(/7/)
03/31/95 11.95 0.63(/4/) 0.17 0.80 (0.62) 12.13 6.97 137,955 1.20(7)
03/31/96 12.13 0.59(/4/) 0.29 0.88 (0.59) 12.42 7.37 121,957 1.22
<CAPTION>
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/)
03/31/95 11.95 0.54(/4/) 0.19 0.73 (0.54) 12.14 6.29 25,985 1.92
03/31/96 12.14 0.50(/4/) 0.29 0.79 (0.51) 12.42 6.58 29,315 1.90
<CAPTION>
RATIO OF NET
INVESTMENT
INCOME TO AVERAGE PORTFOLIO
PERIOD ENDED NET ASSETS TURNOVER
- -------------------- ----------------- ---------
<S> <C> <C>
11/22/85-
10/31/86 7.12%(/5/)(/7/) 21%
10/31/87 7.06(/7/) 23
10/31/88 6.85 20
10/31/89 6.68 10
10/31/90 6.70 0
10/31/91 6.57 16
10/31/92 6.26 21
10/31/93(/2/) 5.56(/7/) 26
11/01/93-
3/31/94 4.99(/5/)(/7/) 52
03/31/95 5.32(/7/) 162
03/31/96 4.72 46
<CAPTION>
<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
03/31/95 4.60 162
03/31/96 4.03 46
</TABLE>
- --------
(1) Total return is not annualized and does not reflect sales load
(2) Pursuant to 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) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
10/31/86 10/31/87 10/31/93 3/31/94 3/31/95
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Tax Exempt Insured Fund
Class A .55% .27% .10% .11% .04%
</TABLE>
6
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Government Securities Fund is high current
income consistent with relative safety of capital. The investment objective of
the Federal Securities Fund is current income, with capital appreciation as a
secondary objective. The investment objective of the Diversified Income Fund
is a high level of current income consistent with moderate investment risk,
with preservation of capital as a secondary objective. The investment objec-
tive of the High Income Fund is maximum current income. The investment objec-
tive of the Tax Exempt Insured Fund is as high a level of current income ex-
empt from Federal income taxes as is consistent with preservation of capital.
Each Fund seeks to achieve its investment objective through investment primar-
ily in fixed income securities, as described below. There can be no assurance
that the investment objective of a Fund will be achieved.
Except as specifically indicated, the investment policies and strategies de-
scribed herein are not fundamental policies of the Funds and may be changed by
the Board of Trustees (the "Trustees") without the approval of shareholders.
Each Fund's respective investment objective and fundamental investment re-
strictions, however, may not be changed without approval of shareholders of
the affected Fund. See "Investment Restrictions."
GOVERNMENT SECURITIES FUND
The Fund seeks to achieve its investment objective by investing primarily in
securities issued or guaranteed by the U.S. government, or any agency or in-
strumentality thereof ("U.S. government securities"). See, "Investment Tech-
niques and Risk Factors--U.S. Government Securities" for a description of the
various types of U.S. government securities in which the Fund may invest. Un-
der normal circumstances, the Fund's strategy is to invest its assets in such
a way so as to minimize the impact of interest rate volatility.
Under normal market conditions, at least 65% of the Fund's assets will be
invested in U.S. government securities, including certain "mortgage-backed se-
curities". Also, in addition to its primary investments, the Fund may invest
in short-term invest-ments, including short-term U.S. government securities,
repurchase agreements secured by U.S. government securities, and high quality
money market instruments (including commercial paper and bankers' accept-
ances). See "Investment Techniques and Risk Factors" and the Statement of Ad-
ditional Information for a description of other types of securities in which
the Fund may invest, including mortgage-backed securities, asset-backed secu-
rities and zero-coupon securities.
The Adviser considers both the rate of return and the risk of loss in making
investments. While the Adviser anticipates that, over the long term, the Fund
will consist primarily of U.S. government securities, when interest rates are
rising or for temporary defensive purposes, the Fund may also invest rela-
tively greater portions of its assets in short-term investments. The invest-
ment approach of the Adviser will be characterized by gradual, measured
changes, rather than dramatic shifts, in the maturity structure of the Fund to
reflect what the Adviser believes to be measurable interest rate trends. The
Adviser will select debt securities with longer maturities during periods of
lower interest rates and securities with shorter maturities when interest
rates are rising.
Declining interest rates generally encourage strong bond markets; rising in-
terest rates correspondingly tend to foster weak bond markets. As the bond
market weakens, liquidity of a portfolio becomes increasingly important. For
example, in an uncertain market with no clear trend in interest rates, liquid-
ity is a critical factor and effective portfolio maturities may be reduced to
two years or less. In a stable bond market, liquidity would be only a moderate
concern and the maturities may be lengthened to approximately eight to ten
years. In a strong bond market, liquidity would generally be a minor consider-
ation and maturities may range from ten to thirty years.
FEDERAL SECURITIES FUND
The Fund seeks to achieve its objective by investing primarily in U.S. gov-
ernment securities. Under normal circumstances, the Fund's strategy is to in-
vest its assets in such a way so as to maximize capital appreciation in a de-
clining interest rate environment.
7
<PAGE>
Under normal market conditions, at least 80% of the Fund's assets will be
invested in U.S. government securities, including "mortgage-backed securi-
ties". Also, in addition to its primary investments, the Fund may invest in
short-term investments, including short-term U.S. government securities, re-
purchase agreements secured by U.S. government securities, and high quality
money market instruments (including commercial paper and bankers' accept-
ances); privately issued collateralized mortgage obligations; and corporate
debt securities. In general, the Adviser anticipates that, over the long term,
the Fund's investments will consist primarily of U.S. government securities.
However, when interest rates are rising or as a temporary defensive strategy,
the Fund may invest a greater portion of its assets in such other types of in-
vestments. See "Investment Techniques and Risk Factors" and the Statement of
Additional Information for a description of the types of securities in which
the Fund may invest, including U.S. government securities, mortgage-backed se-
curities, asset-backed securities and zero-coupon securities.
The investment approach of the Adviser will be characterized by gradual,
measured changes, rather than dramatic shifts, in the maturity structure of
the Fund to reflect what the Adviser believes to be measurable interest rate
trends. The Adviser will select debt securities with longer maturities during
periods of lower interest rates and securities with shorter maturities when
interest rates are rising.
DIVERSIFIED INCOME FUND
The Diversified Income Fund invests in a diversified portfolio of securities
consisting of: (i) U.S. government securities; (ii) foreign government and
corporate debt securities; and (iii) securities issued by domestic corpora-
tions, including lower-rated high-yield securities, without regard to the ma-
turities of such securities. Under normal conditions, at least 65% of
the Fund's total assets will be invested in income-producing securities, and
the Fund's assets will be invested in each of the three categories. In addi-
tion, the Fund will generally have no more than 75% of its total assets in-
vested in any one category. Distributable income may fluctuate as the Fund
shifts assets among the three categories. See "Investment Techniques and Risk
Factors" and the Statement of Additional Information for a description of the
types of securities in which the Fund may invest, including mortgage-backed
securities, asset-backed securities, zero-coupon securities, participation in-
terests, and foreign securities.
The higher yields and high income sought by the Fund are generally obtain-
able from securities in the lower rating categories of the established rating
services. Such securities are rated "Baa" or lower by Moody's Investors Serv-
ice, Inc. ("Moody's") or "BBB" or lower by Standard & Poor's Ratings Services,
a Division of the McGraw-Hill Companies, Inc. ("S&P"). The Fund may invest in
securities rated as low as "C" by Moody's or "D" by S&P. See the Appendix to
the Statement of Additional Information for a description of securities rat-
ings. Such ratings indicate that the obligations are speculative and may be in
default. The Fund is not obligated to dispose of securities whose issuers sub-
sequently are in default or if the rating of such securities is reduced. The
Fund may also invest in unrated securities which, in the opinion of the Advis-
er, offer comparable yields and risks as those securities which are rated. The
weighted average ratings by Moody's as a percentage of all bonds held in the
Diversified Income Fund's portfolio during the fiscal year ended March 31,
1996 were "AAA" 21.5%; "Ba3" 5.2%; "Ba2" 4.7%; "B1" 17.4%; "B2" 10.4%; "B3"
29.7%; "Caa" 6.4%; and the balance 4.7% in unrated bonds. See "Investment
Techniques and Risk Factors--High Yield/High Risk Securities" below.
HIGH INCOME FUND
The High Income Fund seeks to achieve its objective by investing primarily
in high-yield, high-risk corporate bonds which generally are unrated or carry
ratings lower than those assigned to investment grade bonds by S&P or Moody's.
High yield is ordinarily associated with unrated bonds or bonds in the lower
rating categories of the established rating services (securities rated "Baa"
or lower by Moody's or "BBB" or lower by S&P). See the Appendix to the State-
ment of Additional Information for a description of securities ratings. While
providing higher yields, such bonds, whether rated or unrated, are subject to
greater risks than lower-yielding, higher-rated, fixed income securities.
The market value of bonds generally will be affected by changes in the level
of interest rates. An
8
<PAGE>
increase in interest rates will tend to reduce the market value of bonds, and
a decline in interest rates will tend to increase their value. In addition,
bonds with longer maturities, which tend to produce higher yields, are subject
to potentially greater capital appreciation and depreciation than bonds with
shorter maturities. Fluctuations in the market value of bonds subsequent to
their acquisition will not affect cash income from such bonds, but will be re-
flected in net asset value.
Although the bonds in which the High Income Fund will principally invest
will be in the lower rating categories and have speculative characteristics,
it will not invest in bonds rated less than "B" by Moody's or S&P unless the
Adviser believes, as a result of its own analysis as described below, that the
financial condition of the issuer or the protection afforded to the particular
bonds is stronger than would otherwise be indicated by such low ratings. The
Adviser will select not only rated bonds, but may also select unrated bonds
that offer, in its opinion, an above-average yield without undue risk. The
High Income Fund may invest in instruments rated "Ca," "C" or "D" if the Ad-
viser believes that the opportunity for gain is greater than the risk of such
an investment. From time to time, the Fund will invest in securities which are
composed of both fixed income and equity components. See the Appendix to the
Statement of Additional Information for a description of some of the risks as-
sociated with investing in lower-rated securities. The weighted average rat-
ings by Moody's as a percentage of all bonds held in the High Income Fund's
portfolio during the fiscal year ended March 31, 1996 were "Ba3," 2.5%; "Ba2,"
3.0%; "B1," 3.1%; "B2," 27.1%; "B3," 46.8%; "Caa," 11.4%; "Ca," 1.7%; and the
balance 4.4% in unrated bonds.
The Adviser considers both the opportunity for gain and the risk of loss in
selecting investments. Consistent with the primary objective, the Adviser an-
ticipates that, under normal conditions, at least 80% of the High Income
Fund's total assets will be invested in bonds, as described above. The remain-
ing assets may be invested in other securities, including U.S. government se-
curities, asset-backed securities, short-term debt instruments, and common,
preferred stock and other equity securities. See "In vestment Techniques and
Risk Factors" for a description of the types of securities in which the Fund
may invest.
TAX EXEMPT INSURED FUND
The Tax Exempt Insured Fund seeks to achieve its objective by investing un-
der normal market conditions at least 80% of its total assets in Municipal
Bonds, the income of which is exempt from Federal income taxes, and at least
65% of its total assets in Municipal Bonds that, in addition to having income
which is exempt from Federal income tax, also are insured as to the scheduled
payment of principal and interest for as long as such bonds are held by the
Fund, without regard to the maturities of such securities. The Fund's policy
of investing 80% of its total assets in Municipal Bonds, the income of which
is exempt from Federal income taxes, is a fundamental policy of the Fund which
may not be changed without the approval of the Fund's shareholders. The Fund
will not invest more than 25% of its total assets in Municipal Securities the
issuers of which are located in the same state. Further, the Fund will not in-
vest in Municipal Securities rated below the four highest ratings categories
of Moody's or S&P, or, if unrated, deemed by the Adviser to be of comparable
quality. On a temporary defensive basis or due to market conditions, the Fund
may invest up to 100% of its total assets in Municipal Notes and Short-Term
Taxable Securities (neither of which are insured), as well as in repurchase
agreements collateralized by such securities. See the Appendix to the State-
ment of Additional Information for more information with respect to ratings.
"Municipal Securities" include long-term (i.e., maturing in over 10 years)
and medium-term (i.e., maturing in from 3 to 10 years) municipal bonds ("Mu-
nicipal Bonds") as well as short-term (i.e., maturing in 1 day to 3 years) mu-
nicipal notes and tax-exempt commercial paper ("Municipal Notes"), and in each
case refers to debt obligations issued by or on behalf of states, territories
and possessions of the United States and by the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest from
which is, in the opinion of bond counsel at the time of issuance, exempt from
Federal income tax.
A portion of the Municipal Bonds in which the Fund invests may be issued by
state, county, city or agency authorities established for the purpose of pur-
chasing residential mortgages ("Municipal Housing Bonds"). To the extent prac-
ticable, the Fund will invest in insured Municipal Housing Bonds that are
9
<PAGE>
secured by residential mortgages, when such mortgages are either insured by
the Federal Housing Authority ("FHA") or guaranteed by the Veteran's Adminis-
tration ("VA") of the United States government. Although the Fund will attempt
to diversify its holdings of Municipal Housing Bonds geographically, there may
be similar factors affecting the ability of the mortgagors on the mortgages
underlying such securities to maintain payments under the mortgages. Such fac-
tors could include changes in national and state policies relating to transfer
payments, such as unemployment insurance and welfare, and adverse economic de-
velopments, in particular, those affecting less skilled and low income work-
ers.
Insurance Feature. As discussed above, the Fund will invest at least 65% of
its total assets in Municipal Bonds that, at the time of purchase, either (1)
are insured under a Mutual Fund Insurance Policy issued to the Fund by Finan-
cial Guaranty Insurance Company ("Financial Guaranty") or another insurer; (2)
are insured under an insurance policy obtained by the issuer or underwriter of
such Municipal Bonds at the time of original issuance thereof (a "New Issue
Insurance Policy"); or (3) are without insurance coverage, provided that, an
escrow or trust account has been established pursuant to the documents creat-
ing the Municipal Bonds and containing sufficient U.S. government securities
backed by the U.S. government's full faith and credit pledge in order to en-
sure the payment of principal and interest on such bonds. If a Municipal Bond
already is covered by a New Issue Insurance Policy when acquired by the Fund,
then coverage will not be duplicated by a Mutual Fund Insurance Policy; if a
Municipal Bond, other than that described in (3) above, is not covered by a
New Issue Insurance Policy then it will be covered by a Mutual Fund Insurance
Policy purchased by the Fund. The Fund may also purchase other Municipal Bonds
or Municipal Notes that are insured. However, in general, Municipal Notes
presently are not issued with New Issue Insurance Policies, and the Fund gen-
erally does not expect to cover Municipal Notes under its Mutual Fund Insur-
ance Policies. Accordingly, the Fund does not presently expect that any sig-
nificant portion of the Municipal Notes it purchases will be covered by insur-
ance.
For the fiscal year ended March 31, 1996, the premiums for a Mutual Fund In-
surance Policy were .02% of the average net assets of the Fund.
It should be noted that insurance is not a substitute for the basic credit
of an issuer, but supplements the existing credit and provides additional se-
curity therefor. Moreover, while insurance coverage for the Municipal Bonds
held by the Fund reduces credit risk by insuring that the Fund will receive
payment of principal and interest, it does not protect against market fluctua-
tions caused by changes in interest rates and other factors.
Financial Guaranty. Financial Guaranty is a wholly-owned subsidiary of FGIC
Corporation, a Delaware holding company. Financial Guaranty, domiciled in the
State of New York, commenced its business of providing insurance and financial
guarantees for a variety of investment instruments in January 1984. FGIC Cor-
poration is a subsidiary of General Electric Capital Corporation. Neither FGIC
Corporation nor General Electric Capital Corporation is obligated to pay the
debts of or the claims against Financial Guaranty.
The information relating to Financial Guaranty contained herein has been
furnished by Financial Guaranty. No representation is made herein as to the
accuracy or adequacy of such information subsequent to the date hereof. The
Fund may purchase insurance from Financial Guaranty or from other insurers.
The use of insurance will result in a lower yield to shareholders of the Fund
than would be the case if non-insured securities were purchased.
INVESTMENT TECHNIQUES AND RISK FACTORS
U.S. GOVERNMENT SECURITIES. Each Fund may invest in securities issued or
guaranteed as to principal or interest by the U.S. government or its agencies
or instrumentalities. Direct obligations of the U.S. Treasury include bills,
notes and bonds, which principally differ in their interest rates, maturities
and times of issuance. Such securities are backed by the "full faith and cred-
it" of the United States. Securities issued or guaranteed by agencies or in-
strumentalities are supported by (i) the full faith and credit of the United
States, such as obligations of the Government National Mortgage Association
("Ginnie Mae"), the Farmers Home Administration or the Export-Import Bank;
(ii) the limited authority of the issuer to borrow from the U.S. Treasury,
such as obligations of the Student Loan Marketing Association, the Federal
Home Loan Mortgage Association
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<PAGE>
("Freddie Mac"), or the Tennessee Valley Authority; and (iii) the authority of
the U.S. government to purchase certain obligations of the issuer, such as ob-
ligations of the Federal National Mortgage Association ("Fannie Mae"), the
Federal Farm Credit System or the Federal Home Loan Banks. No assurance can be
given that the U.S. government will provide financial support to its agencies
and instrumentalities as described in (ii) and (iii) above, other than as set
forth, since it is not obligated to do so by law. As such, the Fund must look
principally to the agency or instrumentality issuing or guaranteeing the obli-
gation for ultimate repayment. U.S. government securities also include certain
mortgage-backed securities, described below under "Mortgage-Backed Securi-
ties."
MORTGAGE-BACKED SECURITIES. Each Fund may invest in mortgage-backed securi-
ties, which directly or indirectly provide funds for mortgage loans made to
residential home buyers. These include securities which represent interests in
pools of mortgage loans made by lenders such as commercial banks, savings and
loan institutions, mortgage bankers and others. Pools of mortgage loans are
assembled for sale to investors by various governmental, government-related
and private organizations.
Interests in pools of mortgage-backed securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates. In-
stead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-
through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by prepayments resulting from
the sale of the underlying residential property, refinancing or foreclosure
(net of fees or costs which may be incurred). In addition, pre-payment of
principal on mortgage-backed securities, which often occurs when interest
rates decline, can significantly change the realized yield of these securi-
ties. Some mortgage-backed securities are described as "modified pass-
through." These securities entitle the holders to receive all interest and
principal payments owned on the mortgages in the pool, net of certain fees,
regardless of whether or not the mortgagors actually make the payments.
The principal government guarantor of mortgage-backed securities is Ginnie
Mae. Ginnie Mae is authorized to guarantee, with the full faith and credit of
the U.S. government, the timely payment of principal and interest on securi-
ties issued by approved institutions such as the FHA or VA and backed by pools
of FHA-insured or VA-guaranteed mortgages.
Residential mortgage loans are pooled by various other governmental or pri-
vate entities, including Freddie Mac. Freddie Mac issues Participation Certif-
icates which represent interests in mortgages from Freddie Mac's national
portfolio. Freddie Mac guarantees the timely payment of interest and ultimate
collection of principal.
Fannie Mae purchases residential mortgages from a list of approved
seller/servicers, which include state and federally-chartered savings and loan
associations, mutual savings banks, commercial banks and credit unions and
mortgage bankers. Pass-through securities issued by Fannie Mae are guaranteed
as to timely payment of principal and interest by Fannie Mae.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of mortgage loans and issue fixed-income securities which
are collateralized by mortgage-backed securities issued by Freddie Mac, Fannie
Mae and Ginnie Mae or by pools of conventional mortgages, and are referred to
as "collateralized mortgage obligations" ("CMOs"). Pools created by such non-
governmental issuers and CMOs issued by the pools generally offer a higher
rate of interest than government and government-related pools because there
are no direct or indirect government guarantees of payments in such pools.
However, timely payment of interest and principal of these pools is supported
by various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance. The insurance and guarantees are issued by govern-
mental entities, private insurers and the mortgage poolers. In the case of
CMOs, timely payment of interest and principal is supported by the government-
related securities which collateralize such obligations or by a pool of con-
ventional mortgages. There can be no assurance that the private insurers can
meet their obligations under the policies.
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<PAGE>
Each Fund may also invest in parallel pay CMOs and Planned Amortization
Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments
of principal on each payment date to more than one class. These simultaneous
payments are taken into account in calculating the stated maturity date or fi-
nal distribution date of each class, which, as with other CMO structures, must
be retired by its stated maturity date or final distribution date but may be
retired earlier. PAC Bonds generally require payments of a specified amount of
principal on each payment date. PAC Bonds are always parallel pay CMOs with
the required principal payment on such securities having the highest priority
after interest has been paid to all classes.
The mortgage-backed securities in which the Funds may invest include
stripped mortgage-backed securities. Stripped mortgage-backed securities are
often structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. Stripped
mortgage-backed securities have greater market volatility than other types of
U.S. government securities in which the Funds invest. A common type of
stripped mortgage-backed security has one class receiving some of the interest
and all or most of the principal (the "principal only" class) from the mort-
gage pool, while the other class will receive all or most of the interest (the
"interest only" class). The yield to maturity on an interest only class is ex-
tremely sensitive not only to changes in prevailing interest rates, but also
to the rate of principal payments, including principal prepayments, on the un-
derlying pool of mortgage assets, and a rapid rate of principal payment may
have a material adverse effect on a Fund's yield. Notwithstanding the Funds'
ability to do so, they will not invest in the "principal only" component of
stripped mortgage-backed securities until further notice. While interest only
and principal only securities are generally regarded as being illiquid, such
securities may be deemed to be liquid if they can be disposed of promptly in
the ordinary course of business at a value reasonably close to that used in
the calculation of the Fund's net asset value per share. Only government in-
terest only and principal only securities backed by fixed-rate mortgages and
determined to be liquid under guidelines and standards established by the
Trustees may be considered liquid securities not subject to a Fund's limita-
tion on investments in illiquid securities.
The Diversified Income Fund, Federal Securities Fund and Government Securi-
ties Fund may also enter into "forward roll" transactions with U.S. government
agencies or financial institutions with respect to the mortgage-backed securi-
ties in which it may invest. A Fund would be required to place cash, U.S. gov-
ernment securities or other high-grade debt securities in a segregated account
with its custodian in an amount equal to its obligation under the roll; that
amount is subject to the limitation on borrowing described in the Statement of
Additional Information.
ASSET-BACKED SECURITIES. Each Fund, other than the Diversified Income Fund,
may invest up to 15% of its net assets in asset-backed securities meeting such
Fund's credit quality restrictions. With respect to Diversified Income, the
Fund may invest in asset-backed securities without regard to the aforemen-
tioned net asset limitation. Asset-backed securities, issued by trusts and
special purpose corporations, are backed by a pool of assets, such as credit
card or automobile loan receivables, representing the obligations of a number
of different parties. Corporate asset-backed securities present certain risks.
For instance, in the case of credit card receivables, these securities may not
have the benefit of any security interest in the related collateral. See the
Statement of Additional Information for further information on these securi-
ties.
ZERO-COUPON SECURITIES. The Funds may invest in zero-coupon securities as
follows: (i) The Diversified Income Fund, High Income Fund, Federal Securities
Fund and Government Securities Fund may invest in zero-coupon securities is-
sued by the U.S. Treasury; and, in addition, (ii) the Diversified Income Fund
and High Income Fund may invest in zero-coupon securities issued by both do-
mestic and foreign corporations, and (iii) the Tax Exempt Insured Fund may in-
vest in zero-coupon securities issued by state and local government entities.
Zero-coupon U.S. government securities are: (i) U.S. Treasury notes and bonds
which have been stripped of their unmatured interest coupons and receipts, or
(ii) certificates representing interest in such stripped debt obligations or
coupons. Because a zero-coupon security pays no interest to its holder during
its life or for a substantial period of time, it usually trades at a deep dis-
count from its face or par value and will be subject to greater fluctuations
of market value in response to changing interest rates than debt obliga
12
<PAGE>
tions of comparable maturities which make current distributions of interest.
Because the Funds accrue taxable income from these securities without receiv-
ing cash, the Funds may be required to sell portfolio securities in order to
pay a dividend depending upon the proportion of shareholders who elect to re-
ceive dividends in cash rather than reinvesting dividends in additional shares
of the Funds. Cash distributed or held by the Funds and not reinvested will
hinder the Funds in seeking a high level of current income. Corporate zero-
coupon securities are: (i) notes or debentures which do not pay current inter-
est and are issued at substantial discounts from par value, or (ii) notes or
debentures that pay no current interest until a stated date one or more years
into the future, after which the issuer is obligated to pay interest until ma-
turity, usually at a higher rate than if interest were payable from the date
of issuance and may also make interest payments-in-kind (e.g., with identical
zero-coupon securities). Such corporate zero-coupon securities, in addition to
the risks identified above, are subject to the risk of the issuer's failure to
pay interest and repay principal in accordance with the terms of the obliga-
tion. The Funds must accrue the discount or interest on high-yield bonds
structured as zero-coupon securities as income even though it does not receive
a corresponding cash interest payment until the security's maturity or payment
date. Municipal zero-coupon securities are: (i) notes or bonds which do not
pay current interest and are issued at substantial discounts from par value,
or (ii) notes or bonds that pay no current interest until a stated date one or
more years into the future, after which the securities convert to an interest
bearing on a semi-annual basis. The funds must accrue the discount or interest
on the bonds structured as zero-coupon securities as income even though it
does not receive a corresponding cash interest payment until the security's
maturity or payment date.
PARTICIPATION INTERESTS. The Diversified Income Fund and High Income Fund
may acquire participation interests in senior, fully-secured floating rate
loans that are made primarily to U.S. companies (the "borrower"). Such partic-
ipation interests, which may take the form of interests in, or assignments of,
loans, are acquired from banks which have made loans or are members of lending
syndicates. Each Fund's investments in participation interests are subject to
its 10% of net assets limitation on investments in illiquid securities. The
Funds may purchase only those participation interests that mature in one year
or less, or, if maturing in more than one year, that have a floating rate that
is automatically adjusted at least once each year according to a specified
rate for such investments, such as the percentage of a bank's prime rate. Par-
ticipation interests are primarily dependent upon the creditworthiness of the
borrower for payment of interest and principal. Such borrowers may have diffi-
culty making payments and may have senior securities rated as low as "C" by
Moody's or "D" by S&P. In the event the borrower fails to pay scheduled inter-
est or principal payments, a Fund could experience a reduction in its income
and might experience a decline in the net asset value of its shares.
FOREIGN SECURITIES. The Diversified Income Fund and High Income Fund may in-
vest in U.S. dollar-denominated fixed-income securities issued by domestic
corporations in any industry (industrial, financial or utility). The Funds may
also invest in debt obligations (which may be denominated in U.S. dollars or
in non-U.S. currencies) issued or guaranteed by foreign corporations, certain
supranational entities (such as the World Bank) and foreign governments (in-
cluding political subdivisions having taxing authority) or their agencies or
instrumentalities, and debt obligations issued by U.S. corporations which are
either denominated in non-U.S. currencies or traded in foreign markets (e.g.,
Eurobonds). The Funds may purchase securities issued by issuers in any coun-
try; provided that, the Funds may not invest more than 25% of their respective
total assets in the securities issued by entities domiciled in any one foreign
country. Investment in securities or issuers in non-industrialized countries
generally involves more risk and may be considered highly speculative. There
is no restriction as to the size of the issuer. These investments may include
debt obligations such as bonds, debentures and notes (including variable and
floating rate instruments), zero-coupon securities and sinking fund and call-
able bonds. If a bond held by a Fund is selling at a premium (or discount) and
the issuer exercises a call or makes a mandatory sinking fund payment, the
Fund would realize a loss (or gain) in market value; the income from the rein-
vestment of the proceeds would be determined by current market conditions.
The percentage of the Diversified Income Fund's or High Income Fund's total
assets that will be allocated to foreign securities will vary depending on the
relative yields of foreign and U.S. securities,
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<PAGE>
the economies of foreign countries, the condition of such countries' financial
markets, the interest rate climate of such countries and the relationship of
such countries' currency to the U.S. dollar. These factors are judged on the
basis of fundamental economic criteria (e.g., relative inflation levels and
trends, growth rate forecasts, balance of payments status, and economic poli-
cies) as well as technical and political data. Subsequent foreign currency
losses may result in a Fund having previously distributed more income in a
particular period than was available from investment income, which could re-
sult in a return of capital to shareholders.
The Diversified Income Fund and High Income Fund may each invest in securi-
ties of foreign issuers in the form of American Depositary Receipts ("ADRs"),
European Depositary Receipts ("EDRs") or other similar securities convertible
into securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which may be convert-
ed. ADRs are certificates issued by a U.S. depository (usually a bank) and
represent a specified quantity of shares of an underlying non-U.S. stock on
deposit with a custodian bank as collateral. EDRs and other types of deposi-
tary receipts are typically issued by foreign depositaries, although they may
also be issued by U.S. depositaries, and evidence ownership interests in a se-
curity or pool of securities issued by either a foreign or a U.S. corporation.
See "Foreign Securities" in the Statement of Additional Information for a fur-
ther discussion of these types of securities. Securities of foreign issuers
that are represented by ADRs or that are listed on a U.S. securities exchange
are not considered "foreign securities" for purposes of a Fund's 25% limita-
tion on investments in such securities.
Foreign securities are subject to risks different than those involved in in-
vestment in domestic securities and markets. Foreign investments may be af-
fected favorably or unfavorably by changes in currency rates and exchange-con-
trol regulations and costs will be incurred in connection with conversions be-
tween various currencies. The value of a security may fluctuate as a result of
currency exchange rates in a manner unrelated to the underlying value of the
security. There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
uniform accounting, auditing and financial reporting standards and require-
ments comparable to those applicable to U.S. companies. Securities of some
foreign companies may be less liquid or more volatile than securities of U.S.
companies, and foreign brokerage commissions and custodian fees are generally
higher than in the U.S. In addition, there is generally less governmental reg-
ulation of stock exchanges, brokers and listed companies abroad than in the
U.S. Investments in foreign securities may also be subject to other risks,
different from those affecting U.S. investments, including local political or
economic developments, expropriation or nationalization of assets and imposi-
tion of withholding taxes on dividend or interest payments.
ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets, de-
termined as of the date of purchase, in illiquid securities including repur-
chase agreements which have a maturity of longer than seven days, securities
with legal or contractual restrictions on resale (restricted securities), and
securities that are not readily marketable in securities markets either within
or without the United States. Restricted securities eligible for resale pursu-
ant to Rule 144A under the Securities Act of 1933, as amended (the "Securities
Act"), or certain private placements of commercial paper issued in reliance on
an exemption from the Securities Act pursuant to Section 4(2) thereof, that
have a readily available market are not considered illiquid for purposes of a
Fund's 10% limitation on purchases of illiquid securities. Because it is not
possible to predict with assurance how the market for restricted securities
will develop, the Adviser will monitor the liquidity of such restricted secu-
rities under the supervision of the Trustees. To the extent that, for a period
of time, qualified institutional buyers cease purchasing such restricted secu-
rities pursuant to Rule 144A, the Fund's investing in such securities may have
the effect of increasing the level of illiquidity in the Fund's portfolio dur-
ing such period. See "Illiquid Securities" in the Statement of Additional In-
formation for a discussion of the risks associated with investments in such
securities.
SHORT-TERM AND TEMPORARY DEFENSIVE INVESTMENTS. In addition to their primary
investments, each Fund may also invest up to 10% of its total assets in money
market instruments for liquidity purposes (to meet redemptions and expenses).
For temporary defensive purposes, each Fund may invest up to 100% of its total
assets in short-term fixed-income securities, including corporate debt obliga-
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<PAGE>
tions and money market instruments rated in one of the two highest categories
by a nationally recognized statistical rating organization (or determined by
the Adviser to be of equivalent quality). Money market instruments include se-
curities issued or guaranteed by the U.S. government, its agencies or instru-
mentalities, repurchase agreements, commercial paper, bankers' acceptances and
certificates of deposit. See the Appendix to the Statement of Additional In-
formation for a description of securities ratings.
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements in or-
der to generate income while providing liquidity. When a Fund acquires a secu-
rity from a bank or securities dealer, it may simultaneously enter into a re-
purchase agreement, wherein the seller agrees to repurchase the security at a
mutually agreed-upon time (generally within seven days) and price. The repur-
chase price is in excess of the purchase price by an amount which reflects an
agreed-upon market rate of return, which is not tied to the coupon rate or ma-
turity of the underlying security. Repurchase agreements will be fully collat-
eralized. If, however, the seller defaults on its obligation to repurchase the
underlying security, the Fund may experience delay or difficulty in exercising
its rights to realize upon the security and might incur a loss if the value of
the security has declined. The Fund might also incur disposition costs in liq-
uidating the security. There is no limit on the amount of a Fund's net assets
that may be subject to repurchase agreements having a maturity of seven days
or less for temporary defensive purposes.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. Each Fund may purchase or
sell securities on a when-issued or delayed-delivery basis. When-issued or de-
layed-delivery transactions arise when securities are purchased or sold by a
Fund with payment and delivery taking place a month or more in the future in
order to secure what is considered to be an advantageous price and yield to
the Fund at the time of entering into the transaction. While the Fund
will only purchase securities on a when-issued or delayed-delivery basis with
the intention of acquiring the securities, the Fund may sell the securities
before the settlement date, if it is deemed advisable. At the time the Fund
makes the commitment to purchase securities on a when-issued or delayed-deliv-
ery basis, the Fund will record the transaction and thereafter reflect the
value, each day, of such security in determining the net asset value of the
Fund. At the time of delivery of the securities, the value may be more or less
than the purchase price. The Fund will maintain in a segregated account of the
Fund liquid assets having a value equal to or greater than the Fund's purchase
commitments. The Fund will likewise segregate liquid assets in respect of se-
curities sold on a delayed-delivery basis. Subject to this requirement, each
Fund may purchase securities on such basis without limitation.
LOANS OF PORTFOLIO SECURITIES. Each Fund may lend portfolio securities in
amounts up to 33% of its respective total assets to brokers, dealers and other
financial institutions, provided such loans are callable at any time by the
Fund and are at all times secured by cash or equivalent collateral. By lending
its portfolio securities, a Fund will receive income while retaining the secu-
rities' potential for capital appreciation. As with any extensions of credit,
there are risks of delay in recovery and, in some cases, even loss of rights
in the collateral should the borrower of the securities fail financially. How-
ever, these loans of portfolio securities will only be made to firms deemed by
the Adviser to be creditworthy.
LEVERAGE. In seeking to enhance investment performance, the Federal Securi-
ties Fund, Diversified Income Fund and High Income Fund may borrow money for
investment purposes and may each pledge its assets to secure such borrowings.
This is the speculative factor known as leverage. This practice may help a
Fund increase the net asset value of its shares in an amount greater than
would otherwise be the case when the market values of the securities purchased
through borrowing increase. In the event the return on an investment of bor-
rowed monies does not fully recover the costs of such borrowing, the net asset
value of a Fund's shares would be reduced by a greater amount than would oth-
erwise be the case. The effect of leverage will therefore tend to magnify the
gains or losses to a Fund as a result of investing the borrowed monies. During
periods of substantial borrowings, the net asset value of a Fund's shares
would be reduced due to the added expense of interest on borrowed monies. Each
Fund is authorized to borrow, and to pledge assets to secure such borrowings,
up to the maximum extent permissible under the 1940 Act (i.e., 50% of its net
assets). The time and extent to which a Fund may employ leverage will be de-
termined by the Adviser in light of changing facts and circumstances, includ-
ing general economic and market conditions, and
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<PAGE>
will be subject to applicable lending regulations of the Board of Governors of
the Federal Reserve Board. A Fund's policy regarding the use of leverage is
fundamental, and may not be changed without the approval of the shareholders
of the respective Fund.
Under the 1940 Act, the value of a Fund's assets less liabilities, other
than borrowings, must be at least three times all of the Fund's borrowings,
including the proposed borrowing. If for any reason the value of a Fund's as-
sets falls below the 1940 Act requirement, the Fund must within three business
days reduce its borrowings to satisfy such requirement. To do this, a Fund may
have to sell a portion of its investments at a time when it may be disadvanta-
geous to do so.
HEDGING AND INCOME ENHANCEMENT STRATEGIES. Each Fund may write covered calls
to enhance income. For hedging purposes as a temporary defensive maneuver,
each Fund may use interest rate futures and stock and bond index futures (to-
gether, "Futures"); forward contracts on foreign currencies; and call and put
options on equity and debt securities, Futures, stock and bond indices and
foreign currencies (all of the foregoing are referred to as "Hedging Instru-
ments"). A call or put may be purchased only if, after such purchase, the
value of all call and put options held by the Fund would not exceed 5% of the
Fund's total assets. A Fund will not use Futures and options on Futures for
speculation. All puts and calls on securities, interest rate futures or stock
and bond index futures or options on such Futures purchased or sold by the
Fund will be listed on a national securities or commodities exchange or on
U.S. over-the-counter markets.
Special Risks of Hedging and Income Enhancement Strategies. Participation in
the options or Futures markets and in currency exchange transactions involves
investment risks and transaction costs to which a Fund would not be subject
absent the use of these strategies. If the Adviser's predictions of movements
in the direction of the securities, foreign currency and interest rate markets
are inaccurate, the adverse consequences to the Fund may leave the Fund in a
worse position than if such strategies were not used. Risks inherent in the
use of options, foreign currency and Futures contracts and options on Futures
contracts include (1) dependence on the Adviser's ability to predict correctly
movements in the direction of interest rates, securities prices and currency
markets; (2) imperfect correlation between the price of options and Futures
contracts and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that skills needed to use these strate-
gies are different from those needed to select portfolio securities; (4) the
possible absence of a liquid secondary market for any particular instrument at
any time; (5) the possible need to defer closing out certain hedged positions
to avoid adverse tax consequences; and (6) the possible inability of the Fund
to purchase or sell a portfolio security at a time that otherwise would be fa-
vorable for it to do so, or the possible need for the Fund to sell a portfolio
security at a disadvantageous time, due to the need for the Fund to maintain
"cover" or to segregate securities in connection with hedging transactions. A
transaction is "covered" when the Fund owns the security subject to the option
on such security, or some other security acceptable for applicable escrow re-
quirements. See the Statement of Additional Information for further informa-
tion concerning income enhancement and hedging strategies and the regulation
requirements relating thereto.
HIGH-YIELD/HIGH-RISK SECURITIES. The High Income Fund invests primarily in
high yielding, lower-rated bonds, commonly called "junk bonds." The Diversi-
fied Income Fund may also invest in these securities. Bonds that are rated
"Baa" or lower by Moody's or "BBB" or lower by S&P, or unrated bonds of compa-
rable quality, are generally considered to be high yield bonds. These high
yield bonds are subject to greater risks than lower yielding, higher rated
debt securities.
Risk Factors Applicable to High-Yield/High-Risk Securities. It should be
noted that lower-rated securities are subject to risk factors such as: (a)
vulnerability to economic downturns and changes in interest rates; (b) sensi-
tivity to adverse economic changes and corporate developments; (c) redemption
or call provisions which may be exercised at inopportune times; (d) difficulty
in accurately valuing or disposing of such securities; (e) federal legislation
which could affect the market for such securities; and (f) special adverse tax
consequences associated with investments in certain high-yield, high-risk
bonds (e.g., zero-coupon bonds or pay-in-kind bonds). See "Dividends, Distri-
butions and Taxes."
High-yield bonds, like other bonds, may contain redemption or call provi-
sions. If an issuer exer
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<PAGE>
cises these provisions in a declining interest rate market, the High Income
Fund or Diversified Income Fund would have to replace the security with a
lower yielding security, resulting in lower return for investors. Conversely,
a high yield bond's value will decrease in a rising interest rate market.
There is a thinly traded market for high yield bonds, and recent market quo-
tations may not be available for some of these bonds. Market quotations are
generally available only from a limited number of dealers and may not repre-
sent firm bids from such dealers or prices for actual sales. As a result, the
Diversified Income Fund and High Income Fund may have difficulty valuing the
high yield bonds in their portfolios accurately and disposing of these bonds
at the time or price desired.
Ratings assigned by Moody's and S&P to high yield bonds, like other bonds,
attempt to evaluate the safety of principal and interest payments on those
bonds. However, such ratings do not assess the risk of a decline in the market
value of those bonds. In addition, ratings may fail to reflect recent events
in a timely manner and are subject to change. If a rating with respect to a
portfolio security is changed, the Adviser will determine whether the security
will be retained based upon the factors the Adviser considers in acquiring or
holding other securities in the portfolio. Investment in high yield bonds may
make achievement of a Fund's objective more dependent on the Adviser's own
credit analysis than is the case for higher-rated bonds.
Market prices for high yield bonds tend to be more sensitive than those for
higher-rated securities due to many of the factors described above, including
the credit-worthiness of the issuer, redemption or call provisions, the li-
quidity of the secondary trading market and changes in credit ratings, as well
as interest rate movements and general economic conditions. In addition,
yields on such bonds will fluctuate over time. An economic downturn could se-
verely disrupt the market for high yield bonds. In addition, recent legisla-
tion impacting high yield bonds may have a materially adverse effect on the
market for such bonds.
The risk of default in payment of principal and interest on high yield bonds
is significantly greater than with higher-rated debt securities because high
yield bonds are generally unsecured and are often subordinated to other obli-
gations of the issuer, and because the issuers of high yield bonds usually
have high levels of indebtedness and are more sensitive to adverse economic
conditions, such as recession or increasing interest rates. Upon a default,
bondholders may incur additional expenses in seeking recovery.
As a result of all these factors, the net asset value of the High Income
Fund, and the Diversified Income Fund to the extent it invests in high yield
bonds, is expected to be more volatile than the net asset value of funds which
invest solely in higher-rated debt securities. This volatility may result in
an increased number of redemptions from time to time. High levels of redemp-
tions in turn may cause a fund to sell its portfolio securities at inopportune
times and decrease the asset base upon which expenses can be spread.
FUTURE DEVELOPMENTS. Each Fund may invest in securities and other instru-
ments which do not presently exist but may be developed in the future, pro-
vided that each such investment is consistent with the Fund's investment ob-
jectives, policies and restrictions and is otherwise legally permissible under
federal and state laws. The Prospectus will be amended or supplemented as ap-
propriate to discuss any such new investments.
INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental policies designed to maintain the
diversity of its portfolio and reduce investment risk. With respect to 75% of
a Fund's total assets, such Fund may not invest more than 5% of such assets in
the securities of any one issuer (other than obligations issued or guaranteed
by the U.S. government, its agencies and instrumentalities) or, with respect
to 100% of a Fund's total assets, purchase more than 10% of an issuer's voting
securities. The High Income Fund may not purchase more than 10% of any class
of an issuer's outstanding securities. A Fund may not purchase securities
(other than obligations issued or guaranteed by the U.S. government, its agen-
cies and instrumentalities) if as a result of such purchase more than 25% of a
Fund's total assets would be invested in any one industry. See the Statement
of Additional Information for information concerning other fundamental poli-
cies.
17
<PAGE>
MANAGEMENT OF THE TRUST
TRUSTEES. The Trustees of the Trust are responsible for the overall supervi-
sion of the operation of the Trust and each Fund and perform various duties
imposed on trustees of investment companies by the 1940 Act and by The Common-
wealth of Massachusetts.
THE ADVISER. The Adviser selects and manages the investments of each Fund,
provides various administrative services and supervises the Funds' daily busi-
ness affairs, subject to general review by the Trustees. The Adviser is an in-
direct wholly-owned subsidiary of SunAmerica Inc. ("SunAmerica"), an invest-
ment grade financial services company which has over $29 billion in assets.
SunAmerica's principal executive offices are located at 1 SunAmerica Center,
Century City, Los Angeles, CA 90067-6022. In addition to serving as adviser to
the Funds, the Adviser and its affiliates serve as adviser, manager and/or ad-
ministrator for Anchor Pathway Fund, SunAmerica Equity Funds, SunAmerica Money
Market Funds, Inc., Anchor Series Trust and SunAmerica Series Trust. As of
March 31, 1996, the Adviser and its affiliates managed, advised and/or admin-
istered approximately $7.6 billion of assets for investment companies, indi-
viduals, pension accounts, and corporate and trust accounts.
Pursuant to the Investment Advisory and Management Agreement entered into
between the Adviser and the Trust, on behalf of each Fund, each Fund pays the
Adviser a fee, payable monthly, computed daily at the following annual rates:
<TABLE>
<CAPTION>
FUND FEE
- ---- ---
<S> <C>
Government Securities Fund High Income Fund............ .75% of average daily
net assets up to $200
million; .72% of the
next $200 million; and
.55% of average daily
net assets in excess of
$400 million.
Federal Securities Fund................................ .55% of average daily
net assets up to $25
million; .50% of the
next $25 million; and
.45% of average daily
net assets in excess of
$50 million.
Diversified Income Fund................................ .65% of average daily
net assets up to $350
million; and .60% of
average daily net assets
in excess of $350
million.
Tax Exempt Insured Fund................................ .50% of average daily
net assets up to $350
million; and .45% of
average daily net assets
in excess of $350
million.
</TABLE>
The advisory fee with respect to Government Securities Fund and High Income
Fund is higher than that paid by most other investment companies. For the fis-
cal year ended March 31, 1996, each Fund paid the Adviser a fee equal to the
following percentage of average daily net assets: Government Securities Fund--
.67%; Federal Securities Fund--.50%; Diversified Income Fund--.65%; High In-
come Fund--.75%; and Tax Exempt Insured Fund--.50%.
PORTFOLIO MANAGERS. There are three portfolio managers of the Funds. The
following individuals are primarily responsible for the day-to-day management
of the particular Funds indicated:
Howard B. Udis, formerly assistant portfolio manager of the High Income Fund
assumed responsibility for the portfolio management of the Fund effective Au-
gust 14, 1995. Mr. Udis has been associated with the Adviser since January
1993. Previously, Mr. Udis was an investment manager with Value Line Inc.
P. Christopher Leary has served as portfolio manager of the Diversified In-
come Fund, the Federal Securities Fund and the Government Securities Fund
since December 1992, October 1993 and January 1994, respectively. Mr. Leary is
a Senior Vice President of the Adviser and has been a portfolio manager with
the Adviser since 1990. Previously, Mr. Leary was an investment manager with
Equitable Capital Management.
John Mooney has served as portfolio manager to the Tax Exempt Insured Fund
since May 1994. Mr. Mooney is an Assistant Vice President of the Adviser. Pre-
viously, Mr. Mooney was a tax exempt trader and assistant portfolio manager
with First Investors Management Company. Prior to that he held positions in
portfolio management and trading with Alliance Capital Management L.P., and
The Boston Company, respectively.
THE DISTRIBUTOR. SunAmerica Capital Services, Inc. (the "Distributor"), an
indirect wholly owned subsidiary of SunAmerica, acts as distributor of the
shares of each Fund pursuant to the Distribution Agreement between the Dis-
tributor and the Trust on behalf of each Fund. The Distributor receives all
initial and deferred sales charges in connection with the sale of Fund shares,
all or a portion of which it may reallow to other broker-dealers. The Distrib-
utor and other broker-dealers pay commissions to
18
<PAGE>
salespersons, as well as the cost of printing and mailing prospectuses to po-
tential investors and of any advertising expenses incurred by them in connec-
tion with their distribution of Fund shares.
The Distributor, at its expense, may from time to time, provide additional
compensation to broker-dealers (including in some instances, exclusively to
Royal Alliance Associates, Inc., SunAmerica Securities, Inc. and/or Advantage
Capital Corporation, affiliates of the Distributor) in connection with sales
of shares of the Funds. Such compensation may include (i) full reallowance of
the front-end sales charge on Class A shares; (ii) additional compensation
with respect to the sale of Class A or Class B shares; or (iii) financial as-
sistance to broker-dealers in connection with conferences, sales or training
programs for their employees, seminars for the public, advertising campaigns
regarding one or more of the Funds, and/or other broker-dealer-sponsored spe-
cial events. In some instances, this compensation will be made available only
to certain broker-dealers whose representatives have sold a significant amount
of shares of the Funds. Compensation may also include payment for travel ex-
penses, including lodging, incurred in connection with trips taken by invited
registered representatives and members of their families to locations within
or outside of the United States for meetings or seminars of a business nature.
In addition, the following types of non-cash compensation may be offered
through sales contests: (i) travel mileage on major air carriers; (ii) tickets
for entertainment events (such as concerts or sporting events); or (iii) mer-
chandise (such as clothing, trophies, clocks, pens or other electronic equip-
ment). Broker-dealers may not use sales of the Funds' shares to qualify for
this compensation to the extent receipt of such compensation may be prohibited
by the laws of any state or any self-regulatory agency, such as, for example,
the National Association of Securities Dealers, Inc. Dealers who receive bo-
nuses or other incentives may be deemed to be underwriters under the Securi-
ties Act.
Certain laws and regulations limit the ability of banks and other depository
institutions to underwrite and distribute securities. However, in the opinion
of the Adviser based upon the advice of counsel, these laws and regulations do
not prohibit such depository institutions from providing other services to in-
vestment companies of the type contemplated by the Distribution Plans (as de-
scribed below). The Trustees will consider appropriate modifications to the
operations of the Funds, including discontinuance of payments under the Dis-
tribution Plans to banks and other depository institutions, in the event such
institutions can no longer provide the services called for under their agree-
ments. Banks and other financial services firms may be subject to various
state laws regarding services described, and may be required to register as
dealers pursuant to state laws.
DISTRIBUTION PLANS. Rule 12b-1 under the 1940 Act permits an investment com-
pany directly or indirectly to pay expenses associated with the distribution
of its shares ("distribution expenses") in accordance with a plan adopted by
the investment company's board of directors and approved by its shareholders.
Pursuant to such rule, the Trustees and the shareholders of each class of
shares of each Fund have adopted Distribution Plans hereinafter referred to as
the "Class A Plan" and the "Class B Plan." In adopting the Class A Plan and
the Class B Plan, the Trustees determined that there was a reasonable likeli-
hood that each such Plan would benefit the Trust and the shareholders of the
respective class. The sales charge and distribution fees of a particular class
will not be used to subsidize the sale of shares of any other class.
Under the Class A Plan, the Distributor may receive payments from a Fund at
an annual rate of up to 0.10% of average daily net assets of such Fund's Class
A shares to compensate the Distributor and certain securities firms for pro-
viding sales and promotional activities for distributing that class of shares.
Under the Class B Plan, the Distributor may receive payments from a Fund at
the annual rate of up to 0.75% of the average daily net assets of such Fund's
Class B shares to compensate the Distributor and certain securities firms for
providing sales and promotional activities for distributing that class of
shares. The distribution costs for which the Distributor may be reimbursed out
of such distribution fees include fees paid to broker-dealers that have sold
Fund shares, commissions, and other expenses such as those incurred for sales
literature, prospectus printing and distribution and compensation to wholesal-
ers. 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 distribu-
tion costs as described above. The Distribu-
19
<PAGE>
tion Plans provide that each class of shares of each Fund may also pay the
Distributor an account maintenance and service fee of up to 0.25% of the ag-
gregate average daily net assets of such class of shares for payments to bro-
ker-dealers for providing continuing account maintenance. In this regard, some
payments are used to compensate broker-dealers with account maintenance and
service fees in an amount up to 0.25% per year of the assets maintained in a
Fund by their customers.
For the fiscal year ended March 31, 1996, under the Class A Plan, each Fund
paid the Distributor a fee equal to the following percentages of average daily
net assets: Government Securities Fund--.35%; Federal Securities Fund--.35%;
Diversified Income Fund--.35%; High Income Fund--.35%; and Tax Exempt Insured
Fund--.35%. For the same period, under the Class B Plan, each Fund paid the
Distributor a fee equal to the following percentages of average daily net as-
sets: Government Securities Fund--1.00%; Federal Securities Fund--1.00%; Di-
versified Income Fund--1.00%; High Income Fund--1.00%; and Tax Exempt Insured
Fund--1.00%.
ADMINISTRATOR. The Trust has entered into a Service Agreement under the
terms of which SunAmerica Fund Services, Inc. ("SAFS"), an indirect wholly
owned subsidiary of SunAmerica, assists the Transfer Agent in providing share-
holder service and may receive reimbursement from the Trust of its costs in
providing such services through a fee approved annually by the Trustees.
PURCHASE OF SHARES
GENERAL. Shares of each of the Funds are sold at the respective net asset
value next calculated after receipt of a purchase order, plus a sales charge,
which, at the election of the investor, may be imposed either (i) at the time
of purchase (Class A shares), or (ii) on a deferred basis (Class B shares and
certain Class A shares).
The minimum initial investment in each Fund is $500 and the minimum subse-
quent investment is $100. However, for Individual Retirement Accounts
("IRAs"), Keogh Plan accounts and accounts for other qualified plans, the min-
imum initial investment is $250 and the minimum subsequent investment is $25.
The decision as to which class is most beneficial to an investor depends on
the amount and intended length of the investment. Investors making large in-
vestments, qualifying for a reduced initial sales charge, might consider Class
A shares because there is a lower distribution fee than Class B shares (prior
to conversion). Investors making small investments might consider Class B
shares because 100% of the purchase price is invested immediately. Sharehold-
ers who purchase $1,000,000 or more of shares of the Funds should only pur-
chase Class A shares. Dealers may receive different levels of compensation de-
pending on which class of shares they sell.
Upon making an investment in shares of a Fund, an open account will be es-
tablished under which shares of the applicable Fund and additional shares ac-
quired through reinvestment of dividends and distributions will be held for
each shareholder's account by State Street Bank and Trust Company ("State
Street") and its affiliate, National Financial Data Services ("NFDS") (collec-
tively, the "Transfer Agent"). Shareholders will not be issued certificates
for their shares unless they specifically so request in writing. Shareholders
receive regular statements from the Transfer Agent that report each transac-
tion affecting their accounts. Further information may be obtained by calling
Shareholder/Dealer Services at (800) 858-8850.
CLASS A SHARES. Class A shares are offered at net asset value plus an ini-
tial sales charge, which varies with the size of the purchase as follows:
<TABLE>
<CAPTION>
CONCESSION
SALES CHARGE TO DEALERS
----------------- ----------
% OF % OF NET % OF
OFFERING AMOUNT OFFERING
SIZE OF PURCHASE PRICE INVESTED PRICE
- ---------------- -------- -------- ----------
<S> <C> <C> <C>
Less than $100,000................................. 4.75% 4.99% 4.00%
$100,000 but less than $250,000.................... 3.75% 3.90% 3.00%
$250,000 but less than $500,000.................... 3.00% 3.09% 2.25%
$500,000 but less than $1,000,000.................. 2.10% 2.15% 1.35%
$1,000,000 or more................................. NONE NONE see below
</TABLE>
No sales charge is payable at the time of purchase on investments of $1 mil-
lion or more. Nevertheless, the Distributor will pay a commission to any
dealer who initiates or is responsible for such an investment, in the amount
of 1.00% of the amount
20
<PAGE>
invested. Redemptions of such shares within the twelve months following their
purchase will be subject to a contingent deferred sales charge at the rate of
1.00% of the lesser of the net asset value of the shares being redeemed (ex-
clusive of reinvested dividends and distributions) or the total cost of such
shares. This contingent deferred sales charge is paid to the Distributor. Re-
demptions of such shares held longer than twelve months would not be subject
to a contingent deferred sales charge. However, one-half of the commission
paid with respect to such a purchase is subject to forfeiture by the dealer in
the event the redemption occurs during the second year from the date of pur-
chase. In determining whether a deferred sales charge is payable, it is as-
sumed that shares purchased with reinvested dividends and distributions and
then other shares held the longest are redeemed first.
To the extent that sales are made for personal investment purposes, the
sales charge is waived as to Class A shares purchased by current or retired
officers, directors, and other full-time employees of SunAmerica and its af-
filiates, as well as members of the selling group and family members of the
foregoing. In addition, the sales charge is waived with respect to shares pur-
chased by "wrap accounts" for the benefit of clients of broker-dealers, finan-
cial institutions or financial planners adhering to certain standards estab-
lished by the Distributor. Shares purchased under this waiver are subject to
certain limitations described in the Statement of Additional Information. Com-
plete details concerning how an investor may purchase shares at reduced sales
charges may be obtained by contacting Shareholder/Dealer Services at (800)
858-8850.
There are certain special purchase plans for Class A shares which can reduce
the amount of the initial sales charge to investors in the Funds. For more in-
formation about "Rights of Accumulation," the "Letter of Intent," "Combined
Purchase Privilege," "Reduced Sales Charges for Group Purchases" and the "Net
Asset Value Transfer Program," see the Statement of Additional Information.
CLASS B SHARES. Class B shares are offered at net asset value. Certain re-
demptions of Class B shares within the first six years of the date of purchase
are subject to a CDSC. The charge is assessed on an amount equal to the lesser
of the then-current market value or the purchase price of the shares being re-
deemed. No charge is assessed on shares derived from reinvestment of dividends
or capital gains distributions. In determining whether the CDSC is applicable
to a redemption, the calculation is determined in the manner that results in
the lowest possible rate being charged. Therefore, it is assumed that the re-
demption is first of any Class A shares, second of any shares in the share-
holder's Fund account that are not subject to a CDSC (i.e., shares represent-
ing reinvested dividends and distributions), third of shares held for more
than six years and fourth of shares held the longest during the six-year peri-
od. The CDSC will not be applied to dollar amounts representing an increase in
the net asset value of the shares being redeemed since the time of purchase of
such redeemed shares. The amount of the CDSC, if any, will vary depending on
the number of years from the time of payment for the purchase of Fund shares
until the time of redemption of such shares. Solely for purposes of determin-
ing the number of years from the time of any payment for the purchase of
shares, all payments during a month are aggregated and deemed to have been
made on the first day of the month. The following table sets forth the rates
of the CDSC.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLARS INVESTED OR
PAYMENT WAS MADE REDEMPTION PROCEEDS
- ------------------- -------------------------
<S> <C>
First................................................. 4%
Second................................................ 4%
Third................................................. 3%
Fourth................................................ 3%
Fifth................................................. 2%
Sixth................................................. 1%
Seventh and thereafter................................ 0%
</TABLE>
The CDSC will be waived in connection with redemptions which are (a) re-
quested within one year of the death or the initial determination of disabil-
ity of a shareholder; (b) taxable distributions or loans to participants made
by qualified retirement plans or retirement accounts (not including rollovers)
for which the Adviser serves as fiduciary (e.g., prepares all necessary tax
reporting documents); provided that, in the case of a taxable distribution,
the plan participant or accountholder has attained the age of 59 1/2 at the
time the redemption is made; (c) made pursuant to a Systematic Withdrawal Plan
up to a maximum amount of 12% per year from a shareholder account based on the
value of the account at the time the Plan is established, provided, however,
21
<PAGE>
that all dividends and capital gains distributions are reinvested in Fund
shares; and (d) made of shares in accounts consisting of assets which were
originally individually managed by the Adviser and had paid an investment ad-
visory fee to the Adviser. See the Statement of Additional Information for
further information concerning conditions with respect to (a) above. For Fed-
eral income tax purposes, the amount of the CDSC will reduce the amount real-
ized on the redemption of shares, concomitantly reducing gain or increasing
loss. For information on the imposition and waiver of the CDSC contact
Shareholder/Dealer Services at (800) 858-8850.
Shareholders of a Fund that acquired their Class B shares pursuant to a re-
organization effected with another SunAmerica mutual fund will remain subject
to the terms of the CDSC in effect for the previous fund at the time of such
reorganization. For additional information, see "Additional Information Re-
garding Purchase of Shares" in the Statement of Additional Information.
Conversion Feature. Class B shares (including a pro rata portion of the
Class B shares purchased through the reinvestment of dividends and distribu-
tions) will convert automatically to Class A shares on the first business day
of the month following the seventh anniversary of the issuance of such Class B
shares. Subsequent to the conversion of a Class B share to a Class A share,
such share will no longer be subject to the higher distribution fee of Class B
shares. Such conversion will be on the basis of the relative net asset values
of Class B shares and Class A shares, without the imposition of any sales
load, fee or charge.
ADDITIONAL PURCHASE INFORMATION. All purchases are confirmed to each share-
holder. The Trust and Distributor reserve the right to reject any purchase or-
der and may at any time discontinue the sale of any class of shares of any
Fund. Share certificates are issued upon written request, but no certificate
is issued for fractional shares.
Shares of the Funds may be purchased through the Distributor or SAFS, by
check or federal funds wire and through a dollar cost averaging program.
Shares will be priced at the net asset value next determined after the order
is placed with the Distributor or SAFS. See "Additional Information Regarding
Purchase of Shares" in the Statement of Additional Information for more infor-
mation regarding these services and the procedures involved and when orders
are deemed to be received.
Checks should be made payable to the specific Fund or to "SunAmerica Funds"
or, for retirement plan accounts for which the Adviser serves as fiduciary, to
"Resources Trust Company." Payments to open new accounts should be mailed to
SunAmerica Fund Services, Inc., Mutual Fund Operations, The SunAmerica Center,
733 Third Avenue, New York, New York 10017-3204, together with a completed New
Account Application. Payment for subsequent purchases should be mailed to
SunAmerica Fund Services, Inc., c/o NFDS, P.O. Box 419373, Kansas City, Mis-
souri 64141-6373 and the shareholder's Fund account number should appear on
the check. For fiduciary retirement plan accounts, both initial and subsequent
purchases should be mailed to SunAmerica Fund Services, Inc., Mutual Fund Op-
erations, The SunAmerica Center, 733 Third Avenue, New York, New York 10017-
3204. SAFS reserves the right to reject any check made payable other than in
the manner indicated above. Under certain circumstances, a Fund will accept a
multi-party check (e.g., a check made payable to the shareholder by another
party and then endorsed by the shareholder to the Fund in payment for the pur-
chase of shares); however, the processing of such a check may be subject to a
delay. The Funds do not verify the authenticity of the endorsement of such
multi-party check, and acceptance of the check by a Fund should not be consid-
ered verification thereof. Neither the Funds nor their affiliates will be held
liable for any losses incurred as a result of a fraudulent endorsement.
REDEMPTION OF SHARES
Shares of any Fund may be redeemed at any time at their net asset value next
determined, less any applicable contingent deferred sales charge, after re-
ceipt by the Fund of a redemption request in proper form. Any capital gain or
loss realized by a shareholder upon any redemption of shares must be recog-
nized for Federal income tax purposes. See "Dividends, Distributions and Tax-
es."
REGULAR REDEMPTION. Shareholders may redeem their shares by sending a writ-
ten request to SAFS, Mutual Fund Operations, The SunAmerica Center, 733 Third
Avenue, New York, NY 10017-3204. All
22
<PAGE>
written requests for redemption must be endorsed by the shareholder(s) with
signature(s) guaranteed by an "eligible guarantor institution" which includes:
banks, brokers, dealers, credit unions, securities and exchange associations,
clearing agencies and savings associations. Guarantees must be signed by an
authorized signatory of the eligible guarantor and the words "Signature Guar-
anteed" must appear with the signature. Signature guarantees by notaries will
not be accepted. SAFS may request further documentation from corporations, ex-
ecutors, administrators, trustees or guardians.
REPURCHASE THROUGH DISTRIBUTOR. The Distributor is authorized, as agent for
the Funds, to offer to repurchase shares which are presented by telephone to
the Distributor by investment dealers. Orders received by dealers must be at
least $500. The repurchase price is the net asset value per share of the ap-
plicable class of shares of a Fund next determined after the repurchase order
is received, less any applicable contingent deferred sales charge. Repurchase
orders received by the Distributor after 4:00 P.M., Eastern time, will be
priced based on the next business day's close. Dealers may charge for their
services in connection with the repurchase, but neither the Funds nor the Dis-
tributor imposes any charge. The offer to repurchase may be suspended at any
time, as described below.
TELEPHONE REDEMPTION. The Trust accepts telephone requests for redemption of
shares with a value of less than $100,000. The proceeds of a telephone redemp-
tion may be sent by wire to the shareholder's bank account as set forth in the
New Account Application Form or in a subsequent written authorization. Share-
holders utilizing the redemption through the electronic funds transfer method
will incur a $15.00 transaction fee. The Trust will employ reasonable proce-
dures to confirm that instructions communicated by telephone are genuine.
Failure to do so may result in liability to the Trust for losses incurred due
to unauthorized or fraudulent telephone instructions. Such procedures include,
but are not limited to, requiring some form of personal identification prior
to acting upon instructions received by telephone and/or tape recording of
telephone instructions.
A shareholder making a telephone redemption should call Shareholder/Dealer
Services at (800) 858-8850, and state (i) the name of the shareholder(s) ap-
pearing on the Fund's records, (ii) his or her account number with the Fund,
(iii) the amount to be redeemed, and (iv) the name of the person(s) requesting
the redemption. The Trust reserves the right to terminate or modify the tele-
phone redemption service at any time.
SYSTEMATIC WITHDRAWAL PLAN. Shareholders who have invested at least $5,000
in any of the Funds may provide for the periodic payment from their account
pursuant to the Systematic Withdrawal Plan. At the shareholder's election,
such payment may be made directly to the shareholder or to a third party on a
monthly, quarterly, semi-annual or annual basis. The minimum periodic payment
is $50. Maintenance of a withdrawal plan concurrently with purchases of addi-
tional shares may be disadvantageous to a shareholder because of the sales
charge applicable to such purchases. Shareholders who have been issued share
certificates will not be eligible to participate in the Systematic Withdrawal
Plan and will have to comply with certain additional procedures in order to
redeem shares. Further information may be obtained by calling
Shareholder/Dealer Services at (800) 858-8850.
GENERAL. Normally payment is made on the next business day for shares re-
deemed, but in any event, payment is made by check within seven days after re-
ceipt by the Transfer Agent of share certificates or of a redemption request,
or both, in proper form. Under unusual circumstances, the Funds may suspend
repurchases or postpone payment for up to seven days or longer, as permitted
by the federal securities laws.
At various times, a Fund may be requested to redeem shares for which it has
not yet received good payment. A Fund may delay or cause to be delayed the
mailing of a redemption check until such time as good payment (e.g., cash or
certified check drawn on a United States bank) has been collected for the pur-
chase of such shares, which will not exceed 15 days.
Because of the high cost of maintaining smaller shareholder accounts, the
Funds may redeem on at least 60 days' written notice and without shareholder
consent, any account that, due to a shareholder redemption and not to market
fluctuation of the account's value, has a net asset value of less than
23
<PAGE>
$500 ($250 for retirement plan accounts), as of the close of business on the
day preceding such notice, unless such shareholder increases the account bal-
ance to at least $500 during such 60-day period. In the alternative, the ap-
plicable Fund may impose a $2.00 monthly charge on accounts below the minimum
account size.
If a shareholder redeems shares of any class of a Fund and then within one
year from the date of redemption decides the shares should not have been re-
deemed, the shareholder may use all or any part of the redemption proceeds to
reinstate, free of sales charges (Class A shares) and with the crediting of
any CDSC paid with respect to such reinstated shares at the time of redemption
(Class B shares), all or any part of the redemption proceeds in shares of the
Fund at the then-current net asset value. Reinstatement may affect the tax
status of the prior redemption.
EXCHANGE PRIVILEGE
GENERAL. Shareholders in any of the Funds may exchange their shares for the
same class of shares of any other Fund or other funds in the SunAmerica Family
of Mutual Funds that offer such class at the respective net asset value per
share. Before making an exchange, a shareholder should obtain and review the
prospectus of the fund whose shares are being acquired. All exchanges are sub-
ject to applicable minimum initial investment requirements and can only be ef-
fected if the shares to be acquired are qualified for sale in the state in
which the shareholder resides. Exchanges of shares generally will constitute a
taxable transaction except for IRAs, Keogh Plans and other qualified or tax-
exempt accounts. The exchange privilege may be terminated or modified upon 60
days' written notice. Further information about the exchange privilege may be
obtained by calling Shareholder/Dealer Services at (800) 858-8850.
If a shareholder acquires Class A shares through an exchange from another
fund in the SunAmerica Family of Mutual Funds where the original purchase of
such fund's Class A shares was not subject to an initial sales charge because
the purchase was in excess of $1 million, such shareholder will remain subject
to the 1% CDSC, if any, applicable to such redemptions. In such event, the pe-
riod for which the original shares were held prior to the exchange will be
"tacked" with the holding period of the shares acquired in the exchange for
purposes of determining whether the 1% CDSC is applicable upon a redemption of
any of such shares.
A shareholder who acquires Class B shares through an exchange from another
fund in the SunAmerica Family of Mutual Funds will retain liability for any
deferred sales charge which is outstanding on the date of the exchange. In
such event, the period for which the original shares were held prior to the
exchange will be "tacked" with the holding period of the shares acquired in
the exchange for purposes of determining what, if any, CDSC is applicable upon
a redemption of any of such shares.
RESTRICTIONS ON EXCHANGES. Because excessive trading (including short-term
"market timing" trading) can hurt a Fund's performance, each Fund may refuse
any exchange sell order (i) if it appears to be a market timing transaction
involving a significant portion of a Fund's assets or (ii) from any share-
holder account if previous use of the exchange privilege is considered exces-
sive. Accounts under common ownership or control, including, but not limited
to, those with the same taxpayer identification number and those administered
so as to redeem or purchase shares based upon certain predetermined market in-
dicators, will be considered one account for this purpose.
In addition, a Fund reserves the right to refuse any exchange purchase order
if, in the judgment of the Adviser, the Fund would be unable to invest effec-
tively in accordance with its investment objective and policies, or would oth-
erwise potentially be adversely affected. A shareholder's purchase exchange
may be restricted or refused if the Fund receives or anticipates simultaneous
orders affecting significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincide with a "market timing" strategy may be dis-
ruptive to the Fund and may therefore be refused.
Finally, as indicated under "Purchase of Shares," the Fund and Distributor
reserve the right to refuse any order for the purchase of shares.
24
<PAGE>
PORTFOLIO TRANSACTIONS, BROKERAGE AND TURNOVER
The Adviser is responsible for decisions to buy and sell securities for the
Funds, selection of broker-dealers and negotiations of commission rates. In
the over-the-counter market, securities are generally traded on a "net" basis
with dealers acting as principal for their own accounts without a stated com-
mission (although the price of the security usually includes a profit to the
dealer). In underwritten offerings, securities are purchased at a fixed price
which includes an underwriter's concession or discount. On occasion, certain
money market securities may be purchased directly from an issuer, in which
case no commissions or discounts are paid.
As a general matter, the Adviser selects broker-dealers which, in its best
judgment, provide prompt and reliable execution at favorable security prices
and reasonable commission rates. The Adviser may select broker-dealers which
provide it with research services and may cause a Fund to pay such broker-
dealers commissions which exceed those which other broker-dealers may have
charged, if in the Adviser's view the commissions are reasonable in relation
to the value of the brokerage and/or research services provided by the broker-
dealer. Brokerage arrangements may take into account the distribution of Fund
shares by broker-dealers, subject to best price and execution. The Adviser may
effect portfolio transactions through an affiliated broker-dealer, acting as
agent and not as principal, in accordance with Rule 17e-1 under the 1940 Act
and other applicable securities laws.
Each Fund has no limitation regarding its policy with respect to portfolio
turnover. The portfolio turnover rate is calculated by dividing the lesser of
sales or purchases of portfolio securities, excluding short-term securities,
by the average monthly value of the Fund's long-term portfolio securities.
High portfolio turnover involves correspondingly greater brokerage commissions
and other transaction costs which will be borne directly by the Fund. In addi-
tion, high portfolio turnover may result in short-term capital gains, which,
when distributed to shareholders, are treated as ordinary income.
DETERMINATION OF NET ASSET VALUE
Each Fund calculates the net asset value of each class of its shares sepa-
rately by dividing the total value of each class's net assets by the shares of
each class outstanding. Shares are valued each day as of the close of regular
trading on the New York Stock Exchange ("NYSE") (currently, 4:00 p.m. Eastern
time). Investments for which market quotations are readily available are val-
ued at market as described in the Statement of Additional Information. Securi-
ties and assets for which market quotations are not readily available are val-
ued at fair value following procedures approved by the Trustees. Short-term
investments that 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 exceeds 60 days (unless
the Trustees determine that amortized cost value does not represent fair val-
ue, in which case, fair value will be determined as described above).
PERFORMANCE DATA
Each Fund may advertise performance data that reflects its yield or total
investment return. A brief summary of the computations is provided below and a
detailed discussion is in the Statement of Additional Information. Both yield
and total return figures are based on historical earnings and are not intended
to indicate future performance.
Yield will be calculated based on a 30-day (or one month) period ended on
the date of the applicable Fund's most recent balance sheet and for other such
periods, as deemed appropriate. The net investment income per share earned
during the period will be divided by the maximum offering price per share on
the last day of the period and annualized to obtain the yield. For purposes of
calculating yields, net income is determined by a standard formula prescribed
by the Securities and Exchange Commission to facilitate comparison with yields
quoted by other mutual funds.
Total return performance data may be advertised by each Fund. The average
annual total return may be calculated for one- five-, and ten-year periods or
for the lesser period since inception. These
25
<PAGE>
performance data represent the average annual percentage changes of a hypo-
thetical $1,000 investment and assumes the reinvestment of all dividends and
distributions and includes sales charges and recurring fees that are charged
to shareholder accounts. A Fund's advertisements may also reflect total return
performance data calculated by means of cumulative, aggregate, average, year-
to-date, or other total return figures. Further, the Fund may advertise total
return performance for periods of time in addition to those noted above.
Although expenses for Class B shares may be higher than those for Class A
shares, the performance of Class B shares may be higher than the performance
of Class A shares after giving effect to the impact of the sales charges and
12b-1 fees applicable to each class of shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Dividends from net investment income are de-
clared daily and paid monthly. Dividends are paid on or about the fifteenth
day of the month. Dividends and distributions generally are taxable in the
year in which they are paid, except any dividends paid in January which were
declared in the previous calendar quarter will be treated as paid in December
of the previous year. Dividends and distributions are paid in additional
shares based on the next determined net asset value, unless the shareholder
elects in writing, not less than five business days prior to the payment date,
to receive amounts in excess of $10 in cash.
In addition to having the dividends and distributions of a Fund reinvested
in shares of such Fund, a shareholder may, if he or she so elects on the New
Account Application Form, have dividends and distributions invested in the
same class of shares of any other SunAmerica Mutual Fund at the then-current
net asset value of such Fund(s).
The excess of net realized long-term capital gains over net capital losses,
if any, will be distributed to the shareholders annually. Each Fund's policy
is to offset any prior year's capital loss carry forward against any realized
capital gains, and accordingly, no distribution of capital gains will be made
until gains have been realized in excess of any such loss carry forward.
TAXES. Each Fund is qualified and intends to continue to qualify and elect
to be taxed as a regulated investment company under the Internal Revenue Code
of 1986, as amended. While so qualified, the Trust and each of the Funds will
not be subject to U.S. Federal income tax on the portion of its investment
company taxable income and net capital gains distributed to its shareholders.
For Federal income tax purposes, dividends of net investment income and dis-
tributions of any net realized short-term capital gain, whether paid in cash
or reinvested in shares of the Fund, are taxable to shareholders as ordinary
income (except as described below).
The Federal Securities Fund, Diversified Income Fund, High Income Fund, Gov-
ernment Securities Fund and Tax Exempt Insured Fund must report the discount
or interest on debt securities (such as zero-coupon or pay-in-kind securities)
that contain original issue discount as income even though they do not receive
a corresponding cash interest payment until the security's maturity or payment
date. Therefore, the Fund may have to sell some of its assets in order to dis-
tribute cash to shareholders so as to comply with the distribution require-
ments applicable to regulated investment companies.
With respect to the Tax Exempt Insured Fund, distributions out of net in-
vestment income attributable to interest received on tax-exempt securities
("exempt-interest dividends") will be exempt from Federal income tax when paid
to shareholders. It also should be noted that interest on certain "private ac-
tivity bonds" issued after August 7, 1986 is an item of tax preference for
purposes of the alternative minimum tax (investment in such securities will be
limited to 30% of the Fund's net assets). The Fund anticipates that a portion
of its investment may be made in such "private activity bonds" with the result
that a portion of the exempt-interest dividends paid by the Fund will be an
item of tax preference to shareholders subject to the alternative minimum tax.
Additionally, tax-exempt interest, whether or not a tax preference must be
considered by corporations in determining the amount of the adjustment to al-
ternative minimum taxable income for purposes of the adjustment based on ad-
justed current earnings. Moreover, shareholders should be aware that, while
exempt from Federal income tax, exempt-interest dividends may be taxable for
state and local tax purposes.
26
<PAGE>
Statements as to the tax status of distributions to shareholders of the
Funds will be mailed annually. Shareholders are urged to consult their own tax
advisors regarding specific questions as to Federal, state or local taxes.
Foreign Shareholders are also urged to consult their own tax advisors regard-
ing the foreign tax consequences of ownership of interests in a Fund. See
"Dividends, Distributions and Taxes" in the Statement of Additional Informa-
tion.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS. The Trust sends to its shareholders audited annual
and unaudited semi-annual reports for the Funds. The financial statements ap-
pearing in annual reports are audited by independent accountants. In addition,
the Transfer Agent sends to each shareholder having an account directly with
the Trust a statement confirming transactions in the account.
ORGANIZATION. The Trust, a business trust organized under the laws of the
Commonwealth of Massachusetts on April 24, 1986, is an open-end diversified
management investment company, commonly referred to as a mutual fund. The
Trust consists of five investment series or funds: Government Securities Fund,
Federal Securities Fund, Diversified Income Fund, High Income Fund and Tax Ex-
empt Insured Fund. The Trustees have the authority to issue an unlimited num-
ber of shares of beneficial interest of separate series, par value $.01 per
share, of the Trust, and to divide each such series into one or more classes
of shares.
The Trust does not hold annual shareholder meetings. The Trustees are re-
quired to call a meeting of shareholders for the purpose of voting upon the
question of removal of any Trustee when so requested in writing by the share-
holders of record holding at least 10% of the Trust's outstanding shares. Each
share of each Fund has equal voting rights on each matter pertaining to that
Fund or matters to be voted upon by the Trust, except as noted above. Each
share of each Fund is entitled to participate equally with the other shares of
that Fund in dividends and other distributions and the proceeds of any liqui-
dation, except that, due to the differing expenses borne by the two classes,
such dividends and proceeds are likely to be lower for Class B shares than for
Class A shares. See the Statement of Additional Information for more informa-
tion with respect to the distinctions among classes.
Under Massachusetts law, shareholders of a trust, such as the Trust, in cer-
tain circumstances may be held personally liable as partners for the obliga-
tions of the trust. However the Declaration of Trust, pursuant to which the
Trust was organized, contains an express disclaimer of shareholder liability
for acts or obligations of the Trust. The Declaration of Trust also provides
for indemnification out of the Trust's property for any shareholder held per-
sonally liable for any Trust obligation. Thus the risk of a shareholder being
personally liable, as a partner for obligations of the Trust, is limited to
the unlikely circumstance in which the Trust itself would be unable to meet
its obligations.
INDEPENDENT ACCOUNTANTS AND LEGAL COUNSEL. Price Waterhouse LLP, 1177 Avenue
of the Americas, New York, NY 10036, has been selected as independent accoun-
tants for the Funds. The firm of Shereff, Friedman, Hoffman and Goodman, LLP,
919 Third Avenue, New York, NY 10022, has been selected as legal counsel for
the Funds.
SHAREHOLDER INQUIRIES. All inquiries regarding the Trust should be directed
to the Trust at the telephone number or address on the cover page of this Pro-
spectus. For questions concerning share ownership, dividends, transfer of own-
ership or share redemption, contact SAFS, Mutual Fund Operations, The
SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204, or call
Shareholder/Dealer Services at (800) 858-8850.
27
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE
STATEMENT OF ADDITIONAL INFORMATION AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND, THE ADVISER OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL
OR SOLICITATION OF AN OFFER TO BUY MAY NOT LAWFULLY BE MADE.
[LOGO] SUNAMERICA
CAPITAL SERVICES
DISTRIBUTOR
IFPRO
<PAGE>
SUNAMERICA INCOME FUNDS
Statement of Additional Information
dated July 29, 1996
The SunAmerica Center General Marketing and
733 Third Avenue Shareholder Information
New York, NY 10017-3204 (800) 858-8850
SunAmerica Income Funds is a mutual fund consisting of five different
investment 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. Each Fund has distinct investment
objectives and strategies.
This Statement of Additional Information is not a Prospectus, but should be
read in conjunction with the Funds' Prospectus dated July 29, 1996. To obtain a
Prospectus, please call the Trust (800) 858-8850. Capitalized terms used herein
but not defined have the meanings assigned to them in the Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
History of the Funds..................................................... B- 2
Investment Objectives and Policies....................................... B- 2
Investment Restrictions.................................................. B-37
Trustees and Officers.................................................... B-40
Adviser, Personal Securities Trading, Distributor and Administrator...... B-44
Portfolio Transactions and Brokerage..................................... B-49
Additional Information Regarding Purchase of Shares...................... B-51
Additional Information Regarding Redemption of Shares.................... B-59
Determination of Net Asset Value......................................... B-59
Performance Data......................................................... B-61
Dividends, Distributions and Taxes....................................... B-66
Retirement Plans......................................................... B-71
Description of Shares.................................................... B-72
Additional Information................................................... B-73
Financial Statements..................................................... B-75
Appendix........................................................... Appendix-1
</TABLE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Statement of Additional Information or in the Prospectus, and, if given or made,
such other information or representations must not be relied upon as having been
authorized by the Trust, the Adviser or the Distributor. This Statement of
Additional Information and the Prospectus do not constitute an offer to sell or
a solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction in which such an offer to sell or solicitation of an offer to buy
may not lawfully be made.
<PAGE>
This Statement of Additional Information relates to the five different
investment funds of SunAmerica Income Funds, a Massachusetts business trust,
which is registered as an open-end investment company under the 1940 Act. The
five Funds are: SunAmerica U.S. Government Securities Fund, SunAmerica Federal
Securities Fund, SunAmerica Diversified Income Fund, SunAmerica High Income Fund
and SunAmerica Tax Exempt Insured Fund.
HISTORY OF THE FUNDS
The Trust was organized under the name Integrated Income Portfolios in
1986, and subsequently renamed "SunAmerica Income Portfolios" in 1990. On
October 1, 1993, the Trust reorganized with certain mutual funds in the
SunAmerica Family of Mutual Funds (the "Reorganization") and was renamed the
"SunAmerica Income Funds." In the Reorganization, all outstanding shares of the
two existing series of the Trust, the Government Income Portfolio (the
"Government Income Portfolio") and the High Yield Portfolio (the "High Yield
Portfolio"), were redesignated Class A shares and renamed the Government
Securities Fund and the High Income Fund, respectively. In addition, the
SunAmerica U.S. Government Securities Fund series of SunAmerica Fund Group ("Old
Government Securities") and the SunAmerica High Income Fund series of SunAmerica
Fund Group ("Old High Income") reorganized with, and its shareholders received
Class B shares of, the Government Securities Fund and the High Income Fund,
respectively.
With regard to the three additional series of the Trust, the Federal
Securities Fund, the Diversified Income Fund and the Tax Exempt Insured Fund,
the SunAmerica Federal Securities Fund ("Old Federal Securities") was
reorganized with, and its shareholders received Class B shares of, the Federal
Securities Fund. In addition, the SunAmerica Diversified Income Fund series of
SunAmerica Multi-Asset Portfolios, Inc. ("Old Diversified Income") was
reorganized with, and its shareholders received Class B shares of, the
Diversified Income Fund. Until December 16, 1992, Old Diversified Income had a
different investment objective and was SunAmerica Global Short-Term Income Fund.
Finally, the SunAmerica Tax Exempt Insured Fund series of SunAmerica Tax Free
Portfolios ("Old Tax Exempt Insured") was reorganized with and its shareholders
received Class A shares of, the Tax Exempt Insured Fund.
The Reorganization was approved by the shareholders of the Funds or
their predecessors who were entitled to vote with respect thereto on September
23, 1993.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of each of the Funds are
described in the Funds' Prospectus. Certain types of securities in which the
Funds may invest and certain investment practices which the Funds may employ,
which are described under "Other Investment Practices and Restrictions" in the
Prospectus, are discussed more fully below.
U.S. Government Securities. Each Fund may invest in U.S. Treasury securities,
including bills, notes, bonds and other debt securities issued by the U.S.
Treasury. These instruments are direct
B-2
<PAGE>
obligations of the U.S. government and, as such, are backed by the "full faith
and credit" of the United States. They differ primarily in their interest rates,
the lengths of their maturities and the dates of their issuances. Each Fund may
also invest in securities issued by agencies of the U.S. government or
instrumentalities of the U.S. government. These obligations, including those
which are guaranteed by federal agencies or instrumentalities, may or may not be
backed by the "full faith and credit" of the United States. All of the foregoing
are referred to collectively as "U.S. government securities." Obligations of the
Government National Mortgage Association ("GNMA"), the Farmers Home
Administration and the Export-Import Bank are backed by the full faith and
credit of the United States. In the case of securities not backed by the full
faith and credit of the United States, a Fund must look principally to the
agency issuing or guaranteeing the obligation for ultimate repayment and may not
be able to assert a claim against the United States if the agency or
instrumentality does not meet its commitments. U.S. government securities
include certain mortgage-backed securities, as described below under "Mortgage-
Backed Securities."
Mortgage-Backed Securities. Each Fund may invest in mortgage-backed securities.
These securities represent participation interests in pools of residential
mortgage loans made by lenders such as commercial banks, savings and loan
institutions, mortgage bankers and others, which may or may not be guaranteed by
agencies or instrumentalities of the U.S. government.
Mortgage-backed securities differ from conventional debt securities
which provide for periodic payment of interest in fixed amounts (usually
semiannually) with principal payments at maturity or specified call dates.
Instead, these securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on their residential
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Additional payments are caused by prepayments resulting from the
sale of the underlying residential property, refinancing or foreclosure (net of
fees or costs which may be incurred). In addition, prepayment of principal on
mortgage-backed securities, which often occurs when interest rates decline, can
significantly change the realized yield of these securities. Some mortgage-
backed securities are described as "modified pass-through." These securities
entitle the holders to receive all interest and principal payments owed on the
mortgages in the pool, net of certain fees, regardless of whether or not the
mortgagors actually make the payments.
The yield on mortgage-backed securities is based on the average
expected life of the underlying pool of mortgage loans. The actual life of any
particular pool will be shortened by any unscheduled or early payments of
principal and interest. Principal prepayments generally result from the sale of
the underlying property or the refinancing or foreclosure of underlying
mortgages. The occurrence of prepayments is affected by a wide range of
economic, demographic and social factors and, accordingly, it is not possible to
predict accurately the average life of a particular pool. Yield on such pools
is usually computed by using the historical record of prepayments for that pool,
or, in the case of newly-issued mortgages, the prepayment history of similar
pools. The actual prepayment experience of a pool of mortgage loans may cause
the yield realized by a Fund to differ from the yield calculated on the basis of
the expected average life of the pool.
B-3
<PAGE>
Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. When prevailing interest rates rise, the value of a pass-through
security may decrease as do the value of other debt securities, but, when
prevailing interest rates decline, the value of a pass-through security is not
likely to rise on a comparable basis with other debt securities because of the
prepayment feature of pass-through securities. The reinvestment of scheduled
principal payments and unscheduled prepayments that a Fund receives may occur at
higher or lower rates than the original investment, thus affecting the yield of
the Fund. Monthly interest payments received by a Fund have a compounding effect
which may increase the yield to shareholders more than debt obligations that
pay interest semiannually. Because of those factors, mortgage-backed securities
may be less effective than U.S. Treasury bonds of similar maturity at
maintaining yields during periods of declining interest rates. Accelerated
prepayments adversely affect yields for pass-through securities purchased at a
premium (i.e., at a price in excess of the principal amount) and may involve
additional risk of loss of principal because the premium may not have been fully
amortized at the time the obligation is repaid. The opposite is true for pass-
through securities purchased at a discount. Each Fund may purchase mortgage-
backed securities at a premium or at a discount.
The following is a description of GNMA, FNMA and FHLMC certificates,
the most widely available mortgage-backed securities:
GNMA Certificates. GNMA certificates ("GNMA Certificates") are
-----------------
mortgage-backed securities which evidence an undivided interest in a pool or
pools of mortgages. GNMA Certificates that each Fund may purchase are the
modified pass-through type, which entitle the holder to receive timely payment
of all interest and principal payments due on the mortgage pool, net of fees
paid to the issuer and GNMA, regardless of whether or not the mortgagor actually
makes the payment.
GNMA guarantees the timely payment of principal and interest on
securities backed by a pool of mortgages insured by the FHA or the Farmers' Home
Administration ("FMHA"), or guaranteed by the VA. The GNMA guarantee is
authorized by the National Housing Act and is backed by the full faith and
credit of the United States. The GNMA is also empowered to borrow without
limitation from the U.S. Treasury if necessary to make any payments required
under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosure will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that a Fund has
purchased the certificates at a premium in the secondary market. As prepayment
rates of the individual mortgage pools vary widely, it is not possible to
predict accurately the average life of a particular issue of GNMA Certificates.
The coupon rate of interest of GNMA Certificates is lower than the
interest rate paid on the VA-guaranteed or FHA-insured mortgages underlying the
GNMA Certificates by the amount of the
B-4
<PAGE>
fees paid to GNMA and the issuer. The coupon rate by itself, however, does not
indicate the yield which will be earned on GNMA Certificates. First, GNMA
Certificates may trade in the secondary market at a premium or discount. Second,
interest is earned monthly, rather than semiannually as with traditional bonds;
monthly compounding raises the effective yield earned. Finally, the actual yield
of a GNMA Certificate is influenced by the prepayment experience of the mortgage
pool underlying it. For example, if the higher-yielding mortgages from the pool
are prepaid, the yield on the remaining pool will be reduced.
FHLMC Certificates. The Federal Home Loan Mortgage Corporation
------------------
("FHLMC") issues two types of mortgage pass-through securities: mortgage
participation certificates ("PCS") and guaranteed mortgage certificates ("GMCs")
(collectively, "FHLMC Certificates"). PCS resemble GNMA Certificates in that
each PC represents a pro rata share of all interest and principal payments made
and owed on the underlying pool. Like GNMA Certificates, PCS are assumed to be
prepaid fully in their twelfth year. The FHLMC guarantees timely monthly payment
of interest (and, under certain circumstances, principal) of PCS and the
ultimate payment of principal.
GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semiannually and return principal once a
year in guaranteed minimum payments. The expected average life of these
securities is approximately ten years. The FHLMC guarantee is not backed by the
full faith and credit of the U.S. Government.
FNMA Certificates. The Federal National Mortgage Association ("FNMA")
-----------------
issues guaranteed mortgage pass-through certificates ("FNMA Certificates").
FNMA Certificates represent a pro rata share of all interest and principal
payments made and owed on the underlying pool. FNMA guarantees timely payment
of interest and principal on FNMA Certificates. The FNMA guarantee is not
backed by the full faith and credit of the U.S. Government. However, FNMA
guarantees timely payment of interest on FNMA Certificates and the full return
of principal.
Collateralized Mortgage Obligations. Another type of mortgage-backed
security in which each Fund may invest is a CMO. CMOs are fully-collateralized
bonds which are the general obligations of the issuer thereof (e.g., the U.S.
government, a U.S. government instrumentality, or a private issuer). The
Government Securities Fund will not invest in privately issued CMOs except to
the extent that they are collateralized by securities of entities that are
instrumentalities of the U.S. government. CMOs generally are secured by an
assignment to a trustee (under the indenture pursuant to which the bonds are
issued) of collateral consisting of a pool of mortgages. Payments with respect
to the underlying mortgages generally are made to the trustee under the
indenture. Payments of principal and interest on the underlying mortgages are
not passed through to the holders of the CMOs as such (i.e., the character of
payments of principal and interest is not passed through, and therefore payments
to holders of CMOs attributable to interest paid and principal repaid on the
underlying mortgages do not necessarily constitute income and return of capital,
respectively, to such holders), but such payments are dedicated to payment of
interest on and repayment of principal of the CMOs. CMOs often are issued in
two or more classes with varying maturities and stated rates of interest.
Because interest and principal payments on the underlying mortgages are not
passed
B-5
<PAGE>
through to holders of CMOs, CMOs of varying maturities may be secured by the
same pool of mortgages, the payments on which are used to pay interest on each
class and to retire successive maturities in sequence. Unlike other mortgage-
backed securities, CMOs are designed to be retired as the underlying mortgages
are repaid. In the event of prepayment on such mortgages, the class of CMO first
to mature generally will be paid down. Therefore, although in most cases the
issuer of CMOs will not supply additional collateral in the event of such
prepayment, there will be sufficient collateral to secure CMOs that remain
outstanding.
Certain CMOs may be deemed to be investment companies under the 1940
Act. Each Fund intends to conduct operations in a manner consistent with this
view, and therefore generally may not invest more than 10% of its total assets
in such issuers without obtaining appropriate regulatory relief. In reliance on
recent Securities and Exchange Commission ("SEC") staff interpretations, each
Fund may invest in those CMOs and other mortgage-backed securities that are not
by definition excluded from the provisions of the 1940 Act, but have obtained
exemptive orders from the SEC from such provisions.
Stripped Mortgage-Backed Securities. The mortgage-backed securities
in which each Fund may invest include stripped mortgage-backed securities.
Unlike U.S. Treasury securities, which are stripped into separate securities for
each interest and principal payment, mortgage securities are generally stripped
into only two parts: a PO (principal only) strip representing all principal
payments and an IO (interest-only) strip representing all interest payments.
The feature that makes mortgage strips most useful in portfolio
management is their interest rate sensitivity. In principle, mortgage strips
can be very useful hedging devices for a variety of investors and portfolio
managers. However, determining the degree of interest sensitivity of mortgage
strips in different interest rate environments is extremely complicated.
The precise sensitivity of mortgage-backed securities and their
associated stripped securities to interest rate changes depends on many factors.
First, the prepayment effect makes the interest rate sensitivity of mortgage-
backed securities different from the interest sensitivity of Treasury
securities. Second, the prepayment effect makes the PO and IO mortgage-backed
strips much more sensitive, on average, to interest rates than the underlying
mortgage-backed security. Third, the prepayment effect is sometimes so strong
that an IO mortgage-backed strip will rise in value when interest rates rise and
fall in value when rates fall --precisely the opposite relationship from other
fixed-income securities. This last feature of stripped mortgage-backed
securities, the positive relationship between the value of some IO strips and
interest rates, is particularly useful to investors who need to hedge a
portfolio of other fixed-income securities.
Mortgage-Backed Security Rolls. The Diversified Income Fund, the
Federal Securities Fund and the Government Securities Fund may enter into
"forward roll" transactions with respect to mortgage-backed securities issued by
GNMA, FNMA or FHLMC. In a forward roll transaction, the Fund will sell a
mortgage-backed security to a U.S. government agency or financial institution
and simultaneously agree to repurchase a similar security from the institution
at a later date at an agreed upon price. The mortgage-backed
B-6
<PAGE>
securities that are repurchased will bear the same interest rate as those sold,
but generally will be collateralized by different pools of mortgages with
different prepayment histories than those sold. Risks inherent in mortgage-
backed security rolls include: (i) the risk of prepayment prior to maturity,
(ii) the possibility that a Fund may not be entitled to receive interest and
principal payments on the securities sold and that the proceeds of the sale may
have to be invested in money market instruments (typically repurchase
agreements) maturing not later than the expiration of the roll, and (iii) the
risk that the market value of the securities sold by a Fund may decline below
the price at which a Fund is obligated to purchase the securities. Upon entering
into a mortgage-backed security roll a Fund will be required to place cash, U.S.
government securities or other high-grade debt securities in a segregated
account with its custodian in an amount equal to its obligation under the roll;
that amount is subject to the limitation on borrowing described below under
"Investment Restrictions."
Asset-Backed Securities. Each Fund may invest up to 15% of its net assets in
asset-backed securities meeting such Fund's credit quality restrictions. These
securities, issued by trusts and special purpose corporations, are backed by a
pool of assets, such as credit card and automobile loan receivables,
representing the obligations of a number of different parties. Each Fund may
also invest in privately issued asset-backed securities.
Asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicer to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there
is the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.
Asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors to make payments on underlying assets, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of payments
on the underlying pool occurs in a timely fashion. Protection against losses
resulting from ultimate default ensures payment through insurance policies or
letters of credit obtained by the issuer or sponsor from third parties. The
Fund will not pay any additional or separate fees for credit support. The
degree of credit support provided for each issue is generally based on
historical information respecting the level of credit risk
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associated with the underlying assets. Delinquency or loss in excess of that
anticipated or failure of the credit support could adversely affect the return
on an investment in such a security.
Zero-Coupon Securities. The Diversified Income Fund, the High Income Fund, the
Federal Securities Fund and the Government Securities Fund may invest in zero-
coupon securities issued by the U.S. Treasury and, in addition, (ii) the
Diversified Income Fund and High Income Fund may invest in zero-coupon
securities issued by both domestic and foreign corporations, and (iii) the Tax
Exempt Insured Fund may invest in zero-coupon securities issued by state and
local government entities. Investors earn a return on a zero-coupon bond by
purchasing the bond at a discount, that is, by paying less than the face value
of the bond. Since there are no periodic interest payments to reinvest, there
is no reinvestment risk. The yield of a zero-coupon held to maturity is the
yield quoted when the bond is sold. Because a zero-coupon security pays no
interest to its holder during its life or for a substantial period of time, it
usually trades at a deep discount from its face or par value and will be subject
to greater fluctuations of market value in response to changing interest rates
than debt obligations of comparable maturities which make current distributions
of interest. Because the Funds accrue taxable income from these securities
without receiving cash, the Funds may be required to sell portfolio securities
in order to pay a dividend depending upon the proportion of shareholders who
elect to receive dividends in cash rather than reinvesting dividends in
additional shares of the Funds. The Funds might also sell portfolio securities
to maintain portfolio liquidity. In either case, cash distributed or held by
the Funds and not reinvested will hinder the Funds in seeking a high level of
current income.
Zero-Coupon U.S. Government Securities. Zero-coupon U.S. government
securities are: (i) U.S. Treasury notes and bonds which have been stripped of
their unmatured interest coupons and receipts, or (ii) certificates representing
interest in such stripped debt obligations or coupons.
Corporate Zero-Coupon Securities. Corporate zero-coupon securities
are: (i) notes or debentures which do not pay current interest and are issued
at substantial discounts from par value, or (ii) notes or debentures that pay no
current interest until a stated dated one or more years into the future, after
which the issuer is obligated to pay interest until maturity, usually at a
higher rate than if interest were payable from the date of issuance and may also
make interest payments in kind (e.g., with identical zero-coupon securities).
Such corporate zero-coupon securities, in addition to the risks identified
above, are subject to the risk of the issuer's failure to pay interest and repay
principal in accordance with the terms of the obligation. A Fund must accrue
the discount or interest on high-yield bonds structured as zero-coupon
securities as income even though it does not receive a corresponding cash
interest payment until the security's maturity or payment date. See "Foreign
Securities" for a description of the risks involved in investments in foreign
corporations.
Participation Interests. The Diversified Income Fund and High Income Fund may
invest in loan participation interests, subject to the 10% of net assets
limitation on illiquid investments. These participation interests provide each
Fund an undivided interest in a loan made by the issuing financial institution
in the proportion that the Fund's participation interest bears to the total
principal amount of the loan. The loan participations in which the Funds may
invest will typically be participating interests in loans made by a syndicate of
banks, represented by an agent bank which has negotiated and structured the
loan, to corporate borrowers to finance internal growth, mergers, acquisitions,
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stock repurchases, leveraged buy-outs and other corporate activities. Such
loans may also have been made to governmental borrowers, especially governments
of developing countries (LOC debt). The loans underlying such participations
may be secured or unsecured, and each Fund may invest in loans collateralized by
mortgages on real property or which have no collateral. The loan participations
themselves may extend for the entire term of the loan or may extend only for
short "strips" that correspond to a quarterly or monthly floating rate interest
period on the underlying loan. Thus, a term or revolving credit that extends
for several years may be subdivided into shorter periods.
The loan participations in which each Fund will invest will also vary
in legal structure. Occasionally, lenders assign to another institution both
the lender's rights and obligations under a credit agreement. Since this type
of assignment relieves the original lender of its obligations, it is called a
novation. More typically, a lender assigns only its right to receive payments
of principal and interest under a promissory note, credit agreement or
similar document. A true assignment shifts to the assignee the direct debtor-
creditor relationship with the underlying borrower. Alternatively, a lender may
assign only part of its rights to receive payments pursuant to the underlying
instrument or loan agreement. Such partial assignments, which are more
accurately characterized as "participating interests," do not shift the debtor-
creditor relationship to the assignee, who must rely on the original lending
institution to collect sums due and to otherwise enforce its rights against the
agent bank which administers the loan or against the underlying borrower.
No more than 5% of each Fund's net assets can be invested in
participation interests of the same issuing bank. Each Fund must look to the
creditworthiness of the borrowing entity, which is obligated to make payments of
principal and interest on the loan. In the event the borrower fails to pay
scheduled interest or principal payments, the Fund could experience a reduction
in its income and might experience a decline in the net asset value of its
shares. In the event of a failure by the financial institution to perform its
obligation in connection with the participation agreement, the Fund might incur
certain costs and delays in realizing payment or may suffer a loss or principal
and/or interest.
Foreign Securities. The Diversified Income Fund and High Income Fund may invest
in U.S. dollar denominated fixed-income securities issued by domestic
corporations in any industry. The Funds may also invest in debt obligations
(which may be denominated in U.S. dollars or in non-U.S. currencies) issued or
guaranteed by foreign corporations, certain supranational entities and foreign
governments (including political subdivisions having taxing authority) or their
agencies and instrumentalities, and debt obligations issued by U.S. corporations
which are either denominated in non-U.S. currencies or traded in the foreign
markets (e.g., Eurobonds).
The Adviser may direct the investment of assets of the Diversified
Income Fund and the High Income Fund in securities of foreign issuers in the
form of ADRs, EDRs or other similar securities convertible into securities of
foreign issuers. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying securities. EDRs are European receipts evidencing a similar
arrangement. ADRs may be sponsored or unsponsored. A sponsored ADR is issued
by a depository which has an exclusive relationship with the issuer of the
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underlying security. An unsponsored ADR may be issued by any number of U.S.
depositories. Holders of unsponsored ADRs generally bear all the costs
associated with establishing the unsponsored ADR. The depository of an
unsponsored ADR is under no obligation to distribute shareholder communications
received from the underlying issuer or to pass through to the holders of the
unsponsored ADR voting rights with respect to the deposited securities or pool
of securities. The Funds may invest in either type of ADR. Although the U.S.
investor holds a substitute receipt of ownership rather than direct stock
certificates, the use of the depository receipts in the United States can reduce
costs and delays as well as potential currency exchange and other difficulties.
The Funds may purchase securities in local markets and direct delivery of these
ordinary shares to the local depository of an ADR agent bank in the foreign
country. Simultaneously, the ADR agents create a certificate which settles at
the Fund's custodian in five days. The Funds may also execute trades on the U.S.
markets using existing ADRs. A foreign issuer of the security underlying an ADR
is generally not subject to the same reporting requirements in the United States
as a domestic issuer. Accordingly the information available to a U.S. investor
will be limited to the information the foreign issuer is required to disclose in
its own country and the market value of an ADR may not reflect undisclosed
material information concerning the issuer of the underlying security. For
purposes of a Fund's investment policies, the Fund's investments in these types
of securities will be deemed to be investments in the underlying securities.
Generally, ADRs, in registered form, are dollar denominated securities designed
for use in the U.S. securities markets and EDRs, in bearer form, are designed
for use in the European securities markets.
The obligations of foreign governmental entities may or may not be
supported by the full faith and credit of a foreign government. Obligations of
supranational entities include those of international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and of international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the Inter-American Development Bank. The governmental
members, or "stockholders," usually make initial capital contributions to the
supranational entity and in many cases are committed to make additional capital
contributions if the supranational entity is unable to repay its borrowings.
Each supranational entity's lending activities are limited to a percentage of
its total capital (including "callable capital" contributed by members at the
entity's call), reserves and net income. There is no assurance that foreign
governments will be able or willing to honor their commitments.
Investments in foreign securities, including securities of developing
countries, present special additional investment risks and considerations not
typically associated with investments in domestic securities, including
reduction of income by foreign taxes; fluctuation in value of foreign portfolio
investments due to changes in currency rates and control regulations (e.g.,
currency blockage); transaction charges for currency exchange; lack of public
information about foreign issuers; lack of uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
issuers; less volume on foreign exchanges than on U.S. exchanges; greater
volatility and less liquidity on foreign markets than in the U.S.; less
regulation of foreign issuers, stock exchanges and brokers than in the U.S.;
greater difficulties in commencing lawsuits; higher brokerage commission
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rates than in the U.S.; increased possibilities in some countries of
expropriation, confiscatory taxation, political, financial or social instability
or adverse diplomatic developments; and differences (which may be favorable or
unfavorable) between the U.S. economy and foreign economies.
Because the Diversified Income Fund and the High Income Fund may
purchase securities denominated in foreign currencies, a change in the value of
any such currency against the U.S. dollar will result in a change in the U.S.
dollar value of each Fund's assets and income available for distribution. In
addition, although a portion of each Fund's investment income may be received or
realized in foreign currencies, the Fund will be required to compute and
distribute its income in U.S. dollars, and absorb the cost of currency
fluctuations. Each Fund may engage in foreign currency exchange transactions
for hedging purposes to protect against changes in future exchange rates. See
"Hedging Strategies." Costs will be incurred in connection with conversions
between various currencies.
The values of foreign investments and the investment income derived
from them may also be affected unfavorably by changes in currency exchange
control regulations. Although the Funds will invest only in securities
denominated in foreign currencies that at the time of investment do not have
significant government-imposed restrictions on conversion into U.S. dollars,
there can be no assurance against subsequent imposition of currency controls.
In addition, the values of foreign securities will fluctuate in response to
changes in U.S. and foreign interest rates.
Investments in foreign securities offer potential benefits not
available from investments solely in securities of domestic issuers by offering
the opportunity to invest in foreign issuers that appear to offer growth
potential, or in foreign countries with economic policies or business cycles
different from those of the U.S., or to reduce fluctuations in portfolio value
by taking advantage of foreign stock and bond markets that do not move in a
manner parallel to U.S. markets. From time to time, U.S. government policies
have discouraged certain investments abroad by U.S. investors, through taxation
or other restrictions, and it is possible that such restrictions could be
reimposed.
Illiquid Securities. Each Fund may invest up to 10% of its net assets,
determined as of the date of purchase, in illiquid securities including
repurchase agreements which have a maturity of longer than seven days or in
other securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale. Historically,
illiquid securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under the
Securities Act, securities which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven days. Repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period. Securities which have not been registered under the Securities Act are
referred to as private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the
marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying
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<PAGE>
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them, resulting in additional
expense and delay. There will generally be a lapse of time between a mutual
fund's decision to sell an unregistered security and the registration of such
security promoting sale. Adverse market conditions could impede a public
offering of such securities. When purchasing unregistered securities, each of
the Funds will seek to obtain the right of registration at the expense of the
issuer.
In recent years, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
Restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act for which there is a readily available market will not be
deemed to be illiquid. The Adviser, will monitor the liquidity of such
restricted securities subject to the supervision of the Board of Trustees of the
Trust (the "Trustees"). In reaching liquidity decisions the Adviser will
consider, inter alia, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
Commercial paper issues in which the Funds may invest include
securities issued by major corporations without registration under the
Securities Act in reliance on the exemption from such registration afforded by
Section 3(a)(3) thereof, and commercial paper issued in reliance on the so-
called private placement exemption from registration which is afforded by
Section 4(2) of the Securities Act ("Section 4(2) paper"). Section 4(2) paper
is restricted as to disposition under the Federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity. Section 4(2) paper that is issued by a company that files reports
under the Securities Exchange Act of 1934 is generally eligible to be sold in
reliance on the safe harbor of Rule 144A described above. A Fund's 10%
limitation on investments in illiquid securities includes Section 4(2) paper
other than Section 4(2) paper that the Adviser has determined to be liquid
pursuant to guidelines established by the Trustees. The Trustees delegated to
the Adviser the function of making day-to-day determinations of liquidity with
respect to Section 4(2) paper, pursuant to guidelines approved by the Trustees
that require the Adviser to take into account the same factors described above
for other restricted securities and require the Adviser to perform the same
monitoring and reporting functions.
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The staff of the SEC has taken the position that purchased over-the-
counter ("OTC") options and the assets used as "cover" for written OTC options
are illiquid. The assets used as cover for OTC options written by a Fund will
be considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure will be considered illiquid only
to the extent that the maximum repurchase price under the option formula exceeds
the intrinsic value of the option.
Short-Term and Temporary Defensive Instruments. For temporary defensive
purposes, each Fund may invest up to 100% of its total assets in short-term
fixed-income securities, including corporate debt obligations and money market
instruments rated in one of the two highest categories by a nationally
recognized statistical rating organization (or determined by the Adviser to be
of equivalent quality). A description of securities ratings is contained in the
Appendix to this Statement of Additional Information.
Subject to the limitations described above, the following is a
description of the types of money market and short-term fixed-income securities
in which the Funds may invest:
U.S. Government Securities: See section entitled "U.S. Government
Securities" below.
Commercial Paper: Commercial paper consists of short-term (usually
from 1 to 270 days) unsecured promissory notes issued by entities in order to
finance their current operations. Each Fund's commercial paper investments may
include variable amount master demand notes and floating rate or variable rate
notes. Variable amount master demand notes and variable amount floating rate
notes are obligations that permit the investment of fluctuating amounts by a
Fund at varying rates of interest pursuant to direct arrangements between a
Fund, as lender, and the borrower. Master demand notes permit daily
fluctuations in the interest rates while the interest rate under variable amount
floating rate notes fluctuates on a weekly basis. These notes permit daily
changes in the amounts borrowed. A Fund has the right to increase the amount
under these notes at any time up to the full amount provided by the note
agreement, or to decrease the amount, and the borrower may repay up to the full
amount of the note without penalty. Because these types of notes are direct
lending arrangements between the lender and the borrower, it is not generally
contemplated that such instruments will be traded and there is no secondary
market for these notes. Master demand notes are redeemable (and, thus,
immediately repayable by the borrower) at face value, plus accrued interest, at
any time. Variable amount floating rate notes are subject to next-day
redemption 14 days after the initial investment therein. With both types of
notes, therefore, a Fund's right to redeem depends on the ability of the
borrower to pay principal and interest on demand. In connection with both types
of note arrangements, a Fund considers earning power, cash flow and other
liquidity ratios of the issuer. These notes, as such, are not typically rated
by credit rating agencies. Unless they are so rated, a Fund may invest in them
only if at the time of an investment the issuer has an outstanding issue of
unsecured debt rated in one of the two highest categories by a nationally
recognized statistical rating organization.
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Certificates of Deposit and Bankers' Acceptances: Certificates of
deposit are receipts issued by a bank in exchange for the deposit of funds. The
issuer agrees to pay the amount deposited plus interest to the bearer of the
receipt on the date specified on the certificate. The certificate usually can
be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by another bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most maturities are six months or less.
The Funds will generally open interest-bearing accounts only with, or
purchase certificates of deposit or bankers' acceptances only from, banks or
savings and loan associations whose deposits are federally-insured and whose
capital is at least $50 million.
Corporate Obligations: Corporate debt obligations (including master
demand notes). For a further description of variable amount master demand
notes, see the section entitled "Commercial Paper" above.
Repurchase Agreements and Reverse Repurchase Agreements: See the
sections entitled "Repurchase Agreements" and "Reverse Repurchase Agreements"
below.
Repurchase Agreements. Each Fund may enter into repurchase agreements with
banks, brokers or securities dealers. In such agreements, the seller agrees to
repurchase a security from a Fund at a mutually agreed-upon time and price. The
period of maturity is usually quite short, either overnight or a few days
although it may extend over a number of months. The resale price is in excess
of the purchase price, reflecting an agreed-upon rate of return effective for
the period of time a Fund's money is invested in the security. Whenever a Fund
enters into a repurchase agreement, it obtains collateral having a market value
at least equal to 102% of the amount of the purchase price. The instruments
held as collateral are valued daily and if the value of the instruments
declines, a Fund will require additional collateral. If the seller defaults and
the value of the collateral securing the repurchase agreements declines, a Fund
may incur a loss. In addition, 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. The Trustees have established guidelines to be used
by the Adviser in connection with transactions in repurchase agreements and will
regularly monitor each Fund's use of repurchase agreements. A Fund will not
invest in repurchase agreements maturing in more than seven days if the
aggregate of such investments along with other illiquid securities exceeds 10%
of the value of its total assets. However, there is no limit on the amount of a
Fund's net assets that may be subject to repurchase agreements having a maturity
of seven days or less for temporary defensive purposes.
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Reverse Repurchase Agreements. Each Fund may engage in reverse repurchase
agreements. In a reverse repurchase agreement, the Fund sells a security and
agrees to repurchase it at a mutually agreed upon date and price, reflecting the
interest rate effective for the term of the agreement. The Fund's investment of
the proceeds of a reverse repurchase agreement is the speculative factor known
as leverage. The Funds will enter into a reverse repurchase agreement only if
the interest income from investment of the proceeds is expected to be greater
than the interest expense of the transaction and the proceeds are invested for a
period no longer than the term of the agreement. The Fund will maintain with
the Custodian a separate account with a segregated portfolio of cash, U.S.
government securities or other liquid high grade debt obligations in an amount
at least equal to 102% of its purchase obligations under these agreements
(including accrued interest). In the event that the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, the
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the Fund's repurchase obligation, and the Fund's use of
proceeds of the agreement may effectively be restricted pending such decision.
Reverse repurchase agreements are considered to be borrowings and are subject to
the percentage limitations on borrowings. See "Investment Restrictions."
Interest-Rate Swap Transactions. The Diversified Income and the High Income
Fund may enter into either asset-based interest-rate swaps or liability-based
interest-rate swaps, depending on whether it is hedging its assets or its
liabilities. A Fund will usually enter into interest-rate swaps on a net basis,
i.e., the two payment streams are netted out, with the Fund receiving or paying,
as the case may be, only the net amount of the two payments. Since these
hedging transactions are entered into for good faith hedging purposes and a
segregated account has been established, the Adviser believes such obligations
do not constitute senior securities and, accordingly, will not treat them as
being subject to the borrowing restrictions applicable to each Fund. The net
amount of the excess, if any, of a Fund's obligations over its entitlements with
respect to each interest-rate swap will be accrued on a daily basis and an
amount of cash or liquid high-grade debt securities having an aggregate net
asset value at least equal to the accrued excess will be maintained in a
segregated account by a custodian that satisfies the requirements of the 1940
Act. To the extent that a Fund enters into interest-rate swaps on other than a
net basis, the amount maintained in a segregated account will be the full amount
of the Fund's obligations, if any, with respect to such interest-rate swaps,
accrued on a daily basis. A Fund may pledge up to 5% of its net assets in
connection with interest-rate swap transactions. A Fund will not enter into any
interest-rate swaps unless the unsecured senior debt or the claims-paying
ability of the other party thereto is rated in the highest rating category of at
least one nationally recognized rating organization at the time of entering into
such transaction. If there is a default by the other party to such transaction,
a Fund will have contractual remedies pursuant to the agreement related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid.
The use of interest-rate swaps is a highly speculative activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If incorrect in its forecast of
market values, interest rates and other applicable factors, the investment
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performance of a Fund would diminish compared to what it would have been if this
investment technique was never used.
A Fund may only enter into interest-rate swaps to hedge its portfolio.
Interest-rate swaps do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest-rates swaps is limited to the net amount of interest payments that a
Fund is contractually obligated to make. If the other party to an interest-rate
swap defaults, a Fund's risk of loss consists of the net amount of interest
payments that the Fund is contractually entitled to receive. Since interest-
rate swaps are individually negotiated, a Fund expects to achieve an acceptable
degree of correlation between its rights to receive interest on its portfolio
securities and its rights and obligations to receive and pay interest pursuant
to interest-rate swaps.
When-Issued and Delayed-Delivery Securities. Each Fund may purchase or sell
such securities on a "when-issued" or "delayed-delivery" basis. Although a Fund
will enter into such transactions for the purpose of acquiring securities for
its portfolio or for delivery pursuant to options contracts it has entered into,
the Fund may dispose of a commitment prior to settlement. "When-issued" or
"delayed-delivery" refers to securities whose terms and indenture are available
and for which a market exists, but which are not available for immediate
delivery. When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made, but
delivery and payment for the securities take place at a later date. During the
period between commitment by a Fund and settlement (generally within two months
but not to exceed 120 days), no payment is made for the securities purchased by
the purchaser, and no interest accrues to the purchaser from the transaction.
Such securities are subject to market fluctuation, and the value at delivery may
be less than the purchase price. A Fund will maintain a segregated account with
its custodian, consisting of cash, U.S. government securities or other high
grade debt obligations at least equal to the value of purchase commitments until
payment is made. A Fund will likewise segregate liquid assets in respect of
securities sold on a delayed-delivery basis.
A Fund will engage in when-issued transactions in order to secure what
is considered to be an advantageous price and yield at the time of entering into
the obligation. When a Fund engages in when-issued or delayed-delivery
transactions, it relies on the buyer or seller, as the case may be, to
consummate the transaction. Failure to do so may result in a Fund losing the
opportunity to obtain a price and yield considered to be advantageous. If a
Fund chooses to (i) dispose of the right to acquire a when-issued security prior
to its acquisition or (ii) dispose of its right to deliver or receive against a
forward commitment, it may incur a gain or loss. (At the time a Fund makes a
commitment to purchase or sell a security on a when-issued or forward commitment
basis, it records the transaction and reflects the value of the security
purchased, or if a sale, the proceeds to be received in determining its net
asset value.)
To the extent a Fund engages in when-issued and delayed-delivery
transactions, it will do so for the purpose of acquiring or selling securities
consistent with its investment objectives and policies and not for the purposes
of investment leverage. A Fund enters into such transactions only with the
intention of actually receiving or delivering the securities, although (as noted
above) when-issued
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<PAGE>
securities and forward commitments may be sold prior to the settlement date. In
addition, changes in interest rates in a direction other than that expected by
the Adviser before settlement will affect the value of such securities and may
cause a loss to a Fund.
When-issued transactions and forward commitments may be used to offset
anticipated changes in interest rates and prices. For instance, in periods of
rising interest rates and falling prices, a Fund might sell securities in its
portfolio on a forward commitment basis to attempt to limit its exposure to
anticipated falling prices. In periods of falling interest rates and rising
prices, a Fund might sell portfolio securities and purchase the same or similar
securities on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields.
When, As and If Issued Securities. Each Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization or debt restructuring. The commitment for the
purchase of any such security will not be recognized until the Adviser
determines that issuance of the security is probable. At such time, each Fund
will record the transaction, and, in determining its net asset value, will
reflect the value of the security daily. At such time, each Fund will also
establish a segregated account with its custodian in which it will maintain cash
or liquid debt securities equal in value to recognized commitments for such
securities. The value of a Fund's commitments to purchase the securities of any
one issuer, together with the value of all securities of such issuer owned by a
Fund, may not exceed 5% of the value of the Fund's total assets at the time the
initial commitment to purchase such securities is made. Subject to the
foregoing restrictions, each Fund may purchase securities on such basis without
limit. An increase in the percentage of a Fund's assets committed to the
purchase of securities on a when, as and if issued basis may increase the
volatility of its net asset value. The Adviser does not believe that the net
asset value of the Funds will be adversely affected by its purchase of
securities on such basis.
Loans of Portfolio Securities. Consistent with applicable regulatory
requirements, each Fund may lend portfolio securities in amounts up to 33% of
total assets to brokers, dealers and other financial institutions, provided,
that such loans are callable at any time by the Fund and are at all times
secured by cash or equivalent collateral that is equal to at least 102% of the
market value, determined daily, of the loaned securities. In lending its
portfolio securities, a Fund receives income while retaining the securities'
potential for capital appreciation. The advantage of such loans is that a Fund
continues to receive the interest and dividends on the loaned securities while
at the same time earning interest on the collateral, which will generally be
invested in short-term obligations. A loan may be terminated by the borrower on
one business day's notice or by a Fund at any time. If the borrower fails to
maintain the requisite amount of collateral, the loan automatically terminates,
and the Fund could use the collateral to replace the securities while holding
the borrower liable for any excess of replacement cost over collateral. As with
any extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms deemed by the Adviser to be creditworthy. On termination of the loan, the
borrower is required to return the securities to a Fund; and any gain or loss in
the market price of the loaned security during the loan would inure to the
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Fund. Each Fund will pay reasonable finders', administrative and custodial fees
in connection with a loan of its securities or may share the interest earned on
collateral with the borrower.
Since voting or consent rights which accompany loaned securities pass
to the borrower, each Fund will follow the policy of calling the loan, in whole
or in part as may be appropriate, to permit the exercise of such rights if the
matters involved would have a material effect on the Fund's investment in the
securities which are the subject of the loan.
Preferred Stocks. The Diversified Income Fund's investment in fixed income
securities issued by domestic corporations may include preferred stocks. In
addition, up to 20% of the High Income Fund's total assets may be invested in
common stocks, preferred stocks, or other equity securities. Dividends on some
preferred stock may be "cumulative" if stated dividends from prior periods have
not been paid. Preferred stock also generally has a preference over common
stock on the distribution of a corporation's assets in the event of liquidation
of the corporation, and may be "participating," which means that it may be
entitled to a dividend exceeding the stated dividend in certain cases. The
rights of preferred stock are generally subordinate to rights associated with a
corporation's debt securities.
Warrants and Rights. The Diversified Income Fund may invest up to 5% of its
total assets (at the time of purchase) in warrants and rights. The Fund will
invest only in those warrants or rights: (i) acquired as part of a unit or
attached to other securities purchased by the Fund, or (ii) acquired as part of
a distribution from the issuer. Warrants basically are options to purchase
equity securities at specific prices valid for a specific period of time. Their
prices do not necessarily move parallel to the prices of the underlying
securities. Rights are similar to warrants but normally have a short duration
and are distributed by the issuer to its shareholders. Warrants and rights have
no voting rights, receive no dividends and have no rights with respect to the
assets of the issuer.
Pay-In-Kind Bonds. Investments of the Diversified Income Fund, the High Income
Fund and the Federal Securities Fund in fixed-income securities may include pay-
in-kind bonds. These are securities which pay interest in either cash or
additional securities, at the issuer's option, for a specified period. Pay-in-
kind bonds, like zero-coupon bonds, are designed to give an issuer flexibility
in managing cash flow. Pay-in-kind bonds can be either senior or subordinated
debt and trade flat (i.e., without accrued interest). The price of pay-in-kind
bonds is expected to reflect the market value of the underlying debt plus an
amount representing accrued interest since the last payment. Pay-in-kind bonds
are usually less volatile than zero-coupon bonds, but more volatile than cash
pay securities.
Income Enhancement Strategies. Each Fund may write (i.e., sell) call options
("calls") on securities that are traded on U.S. and foreign securities exchanges
and over-the-counter markets to enhance income through the receipt of premiums
from expired calls and any net profits from closing purchase transactions. After
any such sale up to 100% of a Fund's total assets may be subject to calls. All
such calls written by a Fund must be "covered" while the call is outstanding
(i.e., the Fund must own the securities subject to the call or other securities
acceptable for applicable escrow requirements). Calls
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<PAGE>
on Futures (defined below) used to enhance income must be covered by deliverable
securities or by liquid assets segregated to satisfy the Futures contract. If a
call written by the Fund is exercised, the Fund forgoes any profit from any
increase in the market price above the call price of the underlying investment
on which the call was written. In addition, the Fund could experience capital
losses which might cause previously distributed short-term capital gains to be
re-characterized as a non-taxable return of capital to shareholders.
Hedging Strategies. For hedging purposes as a temporary defensive maneuver, the
Diversified Income Fund and the High Income Fund may use forward contracts on
forward currencies ("Forward Contracts") and each Fund may use interest-rate
futures contracts, foreign currency futures contracts, and stock and bond index
futures contracts (together, "Futures"), as well as call and put options on
equity and debt securities, Futures, stock and bond indices and foreign
currencies (all the foregoing referred to as "Hedging Instruments"); except that
the Government Securities Fund, the Federal Securities Fund and the Tax Exempt
Insured Fund may not engage in foreign currency Futures and options thereon.
Hedging Instruments may be used to attempt to: (i) protect against possible
declines in the market value of a Fund's portfolio resulting from downward
trends in the equity and debt securities markets (generally due to a rise in
interest rates); (ii) protect a Fund's unrealized gains in the value of its
equity and debt securities which have appreciated; (iii) facilitate selling
securities for investment reasons; (iv) establish a position in the equity and
debt securities markets as a temporary substitute for purchasing particular
equity and debt securities; or (v) reduce the risk of adverse currency
fluctuations.
A Fund's strategy of hedging with Futures and options on Futures will
be incidental to its activities in the underlying cash market. When hedging to
attempt to protect against declines in the market value of a Fund's portfolio,
to permit a Fund to retain unrealized gains in the value of portfolio securities
which have appreciated, or to facilitate selling securities for investment
reasons, a Fund could: (i) sell Futures; (ii) purchase puts on such Futures or
securities; or (iii) write calls on securities held by it or on Futures. When
hedging to attempt to protect against the possibility that portfolio securities
are not fully included in a rise in value of the debt securities market, a Fund
could: (i) purchase Futures, or (ii) purchase calls on such Futures or on
securities. When hedging to protect against declines in the dollar value of a
foreign currency-denominated security, the Diversified Income Fund and the High
Income Fund could: (i) purchase puts on that foreign currency and on foreign
currency Futures; (ii) write calls on that currency or on such Futures; or (iii)
enter into Forward Contracts at a lower rate than the spot ("cash") rate.
Additional information about the Hedging Instruments the Funds may use is
provided below.
Options
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Options on Securities. As noted above, each Fund may write and
purchase call and put options on equity and debt securities.
When a Fund writes a call on a security, it receives a premium and
agrees to sell the underlying security to a purchaser of a corresponding call on
the same security during the call period
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(usually not more than 9 months) at a fixed price (which may differ from the
market price of the underlying security), regardless of market price changes
during the call period. A Fund has retained the risk of loss should the price of
the underlying security decline during the call period, which may be offset to
some extent by the premium.
To terminate its obligation on a call it has written, a Fund may
purchase a corresponding call in a "closing purchase transaction." A profit or
loss will be realized, depending upon whether the net of the amount of the
option transaction costs and the premium received on the call written was more
or less than the price of the call subsequently purchased. A profit may also be
realized if the call expires unexercised, because a Fund retains the underlying
security and the premium received. Any such profits are considered short-term
capital gains for Federal income tax purposes, and when distributed by the Fund
are taxable as ordinary income. If a Fund could not effect a closing purchase
transaction due to lack of a market, it would hold the callable securities until
the call expired or was exercised.
When a Fund purchases a call (other than in a closing purchase
transaction), it pays a premium and has the right to buy the underlying
investment from a seller of a corresponding call on the same investment during
the call period at a fixed exercise price. A Fund benefits only if the call is
sold at a profit or if, during the call period, the market price of the
underlying investment is above the sum of the call price plus the transaction
costs and the premium paid and the call is exercised. If the call is not
exercised or sold (whether or not at a profit), it will become worthless at its
expiration date and a Fund will lose its premium payment and the right to
purchase the underlying investment.
A put option on securities gives the purchaser the right to sell, and
the writer the obligation to buy, the underlying investment at the exercise
price during the option period. Writing a put covered by segregated liquid
assets equal to the exercise price of the put has the same economic effect to a
Fund as writing a covered call. The premium a Fund receives from writing a put
option represents a profit as long as the price of the underlying investment
remains above the exercise price. However, a Fund has also assumed the
obligation during the option period to buy the underlying investment from the
buyer of the put at the exercise price, even though the value of the investment
may fall below the exercise price. If the put expires unexercised, a Fund (as
the writer of the put) realizes a gain in the amount of the premium. If the put
is exercised, a Fund must fulfill its obligation to purchase the underlying
investment at the exercise price, which will usually exceed the market value of
the investment at that time. In that case, a Fund may incur a loss, equal to
the sum of the sale price of the underlying investment and the premium received
minus the sum of the exercise price and any transaction costs incurred.
A Fund may effect a closing purchase transaction to realize a profit
on an outstanding put option it has written or to prevent an underlying security
from being put. Furthermore, effecting such a closing purchase transaction will
permit a Fund to write another put option to the extent that the exercise price
thereof is secured by the deposited assets, or to utilize the proceeds from the
sale of such assets for other investments by the Fund. A Fund will realize a
profit or loss from a closing purchase transaction if the cost of the
transaction is less or more than the premium received from
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<PAGE>
writing the option. As described above for writing covered calls, any and all
such profits described herein from writing puts are considered short-term gains
for Federal tax purposes, and when distributed by a Fund, are taxable as
ordinary income.
When a Fund purchases a put, it pays a premium and has the right to
sell the underlying investment to a seller of a corresponding put on the same
investment during the put period at a fixed exercise price. Buying a put on an
investment a Fund owns enables the Fund to protect itself during the put period
against a decline in the value of the underlying investment below the exercise
price by selling such underlying investment at the exercise price to a seller of
a corresponding put. If the market price of the underlying investment is equal
to or above the exercise price and as a result the put is not exercised or
resold, the put will become worthless at its expiration date, and the Fund will
lose its premium payment and the right to sell the underlying investment
pursuant to the put. The put may, however, be sold prior to expiration (whether
or not at a profit.)
Buying a put on an investment a Fund does not own permits the Fund
either to resell the put or buy the underlying investment and sell it at the
exercise price. The resale price of the put will vary inversely with the price
of the underlying investment. If the market price of the underlying investment
is above the exercise price and as a result the put is not exercised, the put
will become worthless on its expiration date. In the event of a decline in the
stock market, a Fund could exercise or sell the put at a profit to attempt to
offset some or all of its loss on its portfolio securities.
When writing put options on securities, to secure its obligation to
pay for the underlying security, a Fund will deposit in escrow liquid assets
with a value equal to or greater than the exercise price of the underlying
securities. A Fund therefore forgoes the opportunity of investing the
segregated assets or writing calls against those assets. As long as the
obligation of a Fund as the put writer continues, it may be assigned an exercise
notice by the broker-dealer through whom such option was sold, requiring a Fund
to take delivery of the underlying security against payment of the exercise
price. A Fund has no control over when it may be required to purchase the
underlying security, since it may be assigned an exercise notice at any time
prior to the termination of its obligation as the writer of the put. This
obligation terminates upon expiration of the put, or such earlier time at which
a Fund effects a closing purchase transaction by purchasing a put of the same
series as that previously sold. Once a Fund has been assigned an exercise
notice, it is thereafter not allowed to effect a closing purchase transaction.
Options on Foreign Currencies. The Diversified Income Fund and the
High Income Fund may write and purchase calls on foreign currencies. A call
written on a foreign currency by a Fund is "covered" if the Fund owns the
underlying foreign currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash consideration (or
for additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other foreign currency held in its portfolio. A
call written by a Fund on a foreign currency is for cross-hedging purposes if it
is not covered, but is designed to provide a hedge against a decline in the U.S.
dollar value of a security which the Fund owns or has the right to acquire and
which is denominated in the currency underlying the option due to an adverse
change in the exchange
B-21
<PAGE>
rate. In such circumstances, a Fund collateralizes the option by maintaining in
a segregated account with the Fund's custodian, cash or U.S. government
securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked-to-market daily.
Options on Securities Indices. As noted above, each Fund may write
and purchase call and put options on securities indices. Puts and calls on
broadly-based securities indices are similar to puts and calls on securities
except that all settlements are in cash and gain or loss depends on changes in
the index in question (and thus on price movements in the securities market
generally) rather than on price movements in individual securities or Futures.
When a Fund buys a call on a securities index, it pays a premium. During the
call period, upon exercise of a call by a Fund, a seller of a corresponding call
on the same investment will pay the Fund an amount of cash to settle the call if
the closing level of the securities index upon which the call is based is
greater than the exercise price of the call. That cash payment is equal to the
difference between the closing price of the index and the exercise price of the
call times a specified multiple (the "multiplier") which determines the total
dollar value for each point of difference. When a Fund buys a put on a
securities index, it pays a premium and has the right during the put period to
require a seller of a corresponding put, upon the Fund's exercise of its put, to
deliver to the Fund an amount of cash to settle the put if the closing level of
the securities index upon which the put is based is less than the exercise price
of the put. That cash payment is determined by the multiplier, in the same
manner as described above as to calls.
Futures and Options on Futures
- ------------------------------
Futures. Upon entering into a Futures transaction, a Fund will be
required to deposit an initial margin payment with the futures commission
merchant (the "futures broker"). The initial margin will be deposited with the
Fund's custodian in an account registered in the futures broker's name; however,
the futures broker can gain access to that account only under specified
conditions. As the Future is marked-to-market to reflect changes in its market
value, subsequent margin payments, called variation margin, will be paid to or
by the futures broker on a daily basis. Prior to expiration of the Future, if a
Fund elects to close out its position by taking an opposite position, a final
determination of variation margin is made, additional cash is required to be
paid by or released to the Fund, and any loss or gain is realized for tax
purposes. All Futures transactions are effected through a clearinghouse
associated with the exchange on which the Futures are traded.
Interest-rate futures contracts are purchased or sold for hedging
purposes to attempt to protect against the effects of interest rate changes on a
Fund's current or intended investments in fixed-income securities. For example,
if a Fund owned long-term bonds and interest rates were expected to increase,
that Fund might sell interest-rate futures contracts. Such a sale would have
much the same effect as selling some of the long-term bonds in that Fund's
portfolio. However, since the Futures market is more liquid than the cash
market, the use of interest-rate futures contracts as a hedging technique allows
a Fund to hedge its interest rate risk without having to sell its portfolio
securities. If interest rates did increase, the value of the debt securities in
the portfolio would decline, but the value of that Fund's interest-rate futures
contracts would be expected to increase at approximately the same rate, thereby
keeping the net asset value of that Fund from declining as much
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<PAGE>
as it otherwise would have. On the other hand, if interest rates were expected
to decline, interest-rate futures contracts may be purchased to hedge in
anticipation of subsequent purchases of long-term bonds at higher prices. Since
the fluctuations in the value of the interest-rate futures contracts should be
similar to that of long-term bonds, a Fund could protect itself against the
effects of the anticipated rise in the value of long-term bonds without actually
buying them until the necessary cash became available or the market had
stabilized. At that time, the interest-rate futures contracts could be
liquidated and that Fund's cash reserves could then be used to buy long-term
bonds on the cash market.
Purchases or sales of stock or bond index futures contracts are used
for hedging purposes to attempt to protect a Fund's current or intended
investments from broad fluctuations in stock or bond prices. For example, a
Fund may sell stock or bond index futures contracts in anticipation of or during
a market decline to attempt to offset the decrease in market value of the Fund's
securities portfolio that might otherwise result. If such decline occurs, the
loss in value of portfolio securities may be offset, in whole or part, by gains
on the Futures position. When a Fund is not fully invested in the securities
market and anticipates a significant market advance, it may purchase stock or
bond index futures contracts in order to gain rapid market exposure that may, in
part or entirely, offset increases in the cost of securities that the Fund
intends to purchase. As such purchases are made, the corresponding positions in
stock or bond index futures contracts will be closed out.
As noted above, the Diversified Income Fund and the High Income Fund
may purchase and sell foreign currency futures contracts for hedging purposes to
attempt to protect current or intended investments from fluctuations in currency
exchange rates. Such fluctuations could reduce the dollar value of portfolio
securities denominated in foreign currencies, or increase the cost of foreign-
denominated securities to be acquired, even if the value of such securities in
the currencies in which they are denominated remains constant. A Fund may sell
futures contracts on a foreign currency, for example, when it holds securities
denominated in such currency and it anticipates a decline in the value of such
currency relative to the dollar. In the event such decline occurs, the
resulting adverse effect on the value of foreign-denominated securities may be
offset, in whole or in part, by gains on the Futures contracts. However, if the
value of the foreign currency increases relative to the dollar, a Fund's loss on
the foreign currency futures contract may or may not be offset by an increase in
the value of the securities since a decline in the price of the security stated
in terms of the foreign currency may be greater than the increase in value as a
result of the change in exchange rates.
Conversely, a Fund could protect against a rise in the dollar cost of
foreign-denominated securities to be acquired by purchasing Futures contracts on
the relevant currency, which could offset, in whole or in part, the increased
cost of such securities resulting from a rise in the dollar value of the
underlying currencies. When a Fund purchases futures contracts under such
circumstances, however, and the price of securities to be acquired instead
declines as a result of appreciation of the dollar, the Fund will sustain losses
on its futures position which could reduce or eliminate the benefits of the
reduced cost of portfolio securities to be acquired.
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<PAGE>
Options on Futures. As noted above, each Fund may purchase and write
options on interest-rate futures contracts and stock and bond index futures
contracts, and the Diversified Income Fund and the High Income Fund may purchase
and write options on foreign currency futures contracts. (Unless otherwise
specified, options on interest-rate futures contracts, options on stock and bond
index futures contracts and options on foreign currency futures contracts are
collectively referred to as "Options on Futures.")
The writing of a call option on a Futures contract constitutes a
partial hedge against declining prices of the securities in a Fund's portfolio.
If the Futures price at expiration of the option is below the exercise price,
the Fund will retain the full amount of the option premium, which provides a
partial hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a Futures contract constitutes a
partial hedge against increasing prices of the securities or other instruments
required to be delivered under the terms of the Futures contract. If the
Futures price at expiration of the put option is higher than the exercise price,
a Fund will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which the Fund
intends to purchase. If a put or call option a Fund has written is exercised,
the Fund will incur a loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes in the value
of its portfolio securities and changes in the value of its Options on Futures
positions, a Fund's losses from exercised Options on Futures may to some extent
be reduced or increased by changes in the value of portfolio securities.
A Fund may purchase Options on Futures for hedging purposes, instead
of purchasing or selling the underlying Futures contract. For example, where a
decrease in the value of portfolio securities is anticipated as a result of a
projected market-wide decline or changes in interest or exchange rates, a Fund
could, in lieu of selling a Futures contract, purchase put options thereon. In
the event that such decrease occurs, it may be offset, in whole or part, by a
profit on the option. If the market decline does not occur, the Fund will
suffer a loss equal to the price of the put. Where it is projected that the
value of securities to be acquired by a Fund will increase prior to acquisition,
due to a market advance or changes in interest or exchange rates, a Fund could
purchase call Options on Futures, rather than purchasing the underlying Futures
contract. If the market advances, the increased cost of securities to be
purchased may be offset by a profit on the call. However, if the market
declines, the Fund will suffer a loss equal to the price of the call but the
securities which the Fund intends to purchase may be less expensive.
Forward Contracts
- -----------------
The Diversified Income Fund and the High Income Fund may use Forward
Contracts. A Forward Contract involves bilateral obligations of one party to
purchase, and another party to sell, a specific currency at a future date (which
may be any fixed number of days from the date of the contract agreed upon by the
parties), at a price set at the time the contract is entered into. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. No price is paid
or received upon the purchase or sale of a Forward Contract.
B-24
<PAGE>
A Fund may use Forward Contracts to protect against uncertainty in the
level of future exchange rates. The use of Forward Contracts does not eliminate
fluctuations in the prices of the underlying securities a Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. In addition,
although Forward Contracts limit the risk of loss due to a decline in the value
of the hedged currencies, at the same time they limit any potential gain that
might result should the value of the currencies' increase. A Fund will not
speculate with Forward Contracts or foreign currency exchange rates.
A Fund may enter into Forward Contracts with respect to specific
transactions. For example, when a Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when a Fund
anticipates receipt of dividend payments in a foreign currency, the Fund may
desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar
equivalent of such payment by entering into a Forward Contract, for a fixed
amount of U.S. dollars per unit of foreign currency, for the purchase or sale of
the amount of foreign currency involved in the underlying transaction. A Fund
will thereby be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the currency exchange rates during
the period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are made or
received.
A Fund may also use Forward Contracts to lock in the U.S. dollar value
of portfolio positions ("position hedge"). In a position hedge, for example,
when a Fund believes that foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a Forward Contract to sell an amount
of that foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency, or when a Fund
believes that the U.S. dollar may suffer a substantial decline against a foreign
currency, it may enter into a Forward Contract to buy that foreign currency for
a fixed dollar amount. In this situation a Fund may, in the alternative, enter
into a Forward Contract to sell a different foreign currency for a fixed U.S.
dollar amount where the Fund believes that the U.S. dollar value of the currency
to be sold pursuant to the forward contract will fall whenever there is a
decline in the U.S. dollar value of the currency in which portfolio securities
of the Fund are denominated ("cross-hedged").
The Fund's custodian will place cash not available for investment or
U.S. government securities or other liquid high-quality debt securities in a
separate account of the Fund having a value equal to the aggregate amount of the
Fund's commitments under Forward Contracts entered into with respect to position
hedges and cross-hedges. If the value of the securities placed in a separate
account declines, additional cash or securities will be placed in the account on
a daily basis so that the value of the account will equal the amount of the
Fund's commitments with respect to such contracts. As an alternative to
maintaining all or part of the separate account, a Fund may purchase a call
option permitting the Fund to purchase the amount of foreign currency being
hedged by a forward sale contract at a price no higher than the Forward Contract
price or the Fund may purchase a put option permitting the Fund to sell the
amount of foreign currency subject to a forward purchase contract at a price as
high or higher than the Forward Contract price. Unanticipated changes in
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<PAGE>
currency prices may result in poorer overall performance for a Fund than if it
had not entered into such contracts.
The precise matching of the Forward Contract amounts and the value of
the securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the Forward Contract
is entered into and the date it is sold. Accordingly, it may be necessary for a
Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase), if the market value of the security is
less than the amount of foreign currency a Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security if its market value
exceeds the amount of foreign currency a Fund is obligated to deliver. The
projection of short-term currency market movements is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
Forward Contracts involve the risk that anticipated currency movements will not
be accurately predicted, causing a Fund to sustain losses on these contracts and
transactions costs.
At or before the maturity of a Forward Contract requiring a Fund to
sell a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, a Fund may
close out a Forward Contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. A Fund would realize a
gain or loss as a result of entering into such an offsetting Forward Contract
under either circumstance to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The cost to a Fund of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because Forward Contracts are usually
entered into on a principal basis, no fees or commissions are involved. Because
such contracts are not traded on an exchange, a Fund must evaluate the credit
and performance risk of each particular counterparty under a Forward Contract.
Although a Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. A Fund may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Foreign exchange
dealers do not charge a fee for conversion, but they do seek to realize a profit
based on the difference between the prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
B-26
<PAGE>
Additional Information About Hedging Instruments and Their Use
- --------------------------------------------------------------
The Fund's custodian, or a securities depository acting for the
custodian, will act as the Fund's escrow agent, through the facilities of the
Options Clearing Corporation ("OCC"), as to the securities on which the Fund has
written options or as to other acceptable escrow securities, so that no margin
will be required for such transaction. OCC will release the securities on the
expiration of the option or upon a Fund's entering into a closing transaction.
An option position may be closed out only on a market which provides
secondary trading for options of the same series and there is no assurance that
a liquid secondary market will exist for any particular option. A Fund's option
activities may affect its turnover rate and brokerage commissions. The exercise
by a Fund of puts on securities will cause the sale of related investments,
increasing portfolio turnover. Although such exercise is within a Fund's
control, holding a put might cause the Fund to sell the related investments for
reasons which would not exist in the absence of the put. A Fund will pay a
brokerage commission each time it buys a put or call, sells a call, or buys or
sells an underlying investment in connection with the exercise of a put or call.
Such commissions may be higher than those which would apply to direct purchases
or sales of such underlying investments. Premiums paid for options are small in
relation to the market value of the related investments, and consequently, put
and call options offer large amounts of leverage. The leverage offered by
trading in options could result in a Fund's net asset value being more sensitive
to changes in the value of the underlying investments.
In the future, each Fund may employ Hedging Instruments and strategies
that are not presently contemplated but which may be developed, to the extent
such investment methods are consistent with a Fund's investment objectives,
legally permissible and adequately disclosed.
Regulatory Aspects of Hedging Instruments
- -----------------------------------------
Each Fund must operate within certain restrictions as to its long and
short positions in Futures and options thereon under a rule (the "CFTC Rule")
adopted by the Commodity Futures Trading Commission (the "CFTC") under the
Commodity Exchange Act (the "CEA"), which excludes the Fund from registration
with the CFTC as a "commodity pool operator" (as defined in the CEA) if it
complies with the CFTC Rule. In particular, the Fund may (i) purchase and sell
Futures and options thereon for bona fide hedging purposes, as defined under
CFTC regulations, without regard to the percentage of the Fund's assets
committed to margin and option premiums, and (ii) enter into non-hedging
transactions, provided that the Fund may not enter into such non-hedging
transactions if, immediately thereafter, the sum of the amount of initial margin
deposits on the Fund's existing Futures positions and option premiums would
exceed 5% of the net assets of its portfolio, after taking into account
unrealized profits and unrealized losses on any such transactions. However, the
Fund intends to engage in Futures transactions and options thereon only for
hedging purposes. Margin deposits may consist of cash or securities acceptable
to the broker and the relevant contract market.
B-27
<PAGE>
Transactions in options by a Fund are subject to limitations
established by each of the exchanges governing the maximum number of options
which may be written or held by a single investor or group of investors acting
in concert, regardless of whether the options were written or purchased on the
same or different exchanges or are held in one or more accounts or through one
or more exchanges or brokers. Thus, the number of options which a Fund may
write or hold may be affected by options written or held by other entities,
including other investment companies having the same or an affiliated investment
adviser. Position limits also apply to Futures. An exchange may order the
liquidation of positions found to be in violation of those limits and may impose
certain other sanctions. Due to requirements under the 1940 Act, when a Fund
purchases a Future, the Fund will maintain, in a segregated account or accounts
with its custodian bank, cash or readily marketable, short-term (maturing in one
year or less) debt instruments in an amount equal to the market value of the
securities underlying such Future, less the margin deposit applicable to it.
Tax Aspects of Hedging Instruments
- ----------------------------------
Each Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"). One of the tests
for such qualification is that less than 30% of its gross income must be derived
from gains realized on the sale of stock or securities held for less than three
months. This limitation may limit the ability of each Fund to engage in options
transactions and, in general, to hedge investment risk.
Possible Risk Factors in Hedging
- --------------------------------
In addition to the risks discussed in the Prospectus and above, there
is a risk in using short hedging by selling Futures to attempt to protect
against decline in value of a Fund's portfolio securities (due to an increase in
interest rates) that the prices of such Futures will correlate imperfectly with
the behavior of the cash (i.e., market value) prices of the Fund's securities.
The ordinary spreads between prices in the cash and Futures markets are subject
to distortions due to differences in the natures of those markets. First, all
participants in the Futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close Futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
Futures markets. Second, the liquidity of the Futures markets depend on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the Futures markets could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the Futures
markets are less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the Futures markets may
cause temporary price distortions.
If a Fund uses Hedging Instruments to establish a position in the debt
securities markets as a temporary substitute for the purchase of individual debt
securities (long hedging) by buying Futures and/or calls on such Futures or on
debt securities, it is possible that the market may decline; if the Adviser then
determines not to invest in such securities at that time because of concerns as
to possible
B-28
<PAGE>
further market decline or for other reasons, the Fund will realize a loss on the
Hedging Instruments that is not offset by a reduction in the price of the debt
securities purchased.
Leverage. In seeking to enhance investment performance, the Federal Securities
Fund, Diversified Income Fund and High Income Fund may each increase its
ownership of securities by borrowing from banks at fixed rates of interest and
investing the borrowed funds, subject to the restrictions stated in the
Prospectus. Any such borrowing will be made only from banks and pursuant to the
requirements of the 1940 Act and will be made only to the extent that the value
of the Fund's assets less its liabilities, other than borrowings, is equal to at
least 300% of all borrowings including the proposed borrowing. If the value of
a Fund's assets, so computed, should fail to meet the 300% asset coverage
requirement, the Fund is required, within three business days, to reduce its
bank debt to the extent necessary to meet such requirement and may have to sell
a portion of its investments at a time when independent investment judgment
would not dictate such sale. Interest on money borrowed is an expense the Fund
would not otherwise incur, so that it may have little or no net investment
income during periods of substantial borrowings. Since substantially all of the
Fund's assets fluctuate in value, but borrowing obligations are fixed when the
Fund has outstanding borrowings, the net asset value per share of the Fund
correspondingly will tend to increase and decrease more when the Fund's assets
increase or decrease in value than would otherwise be the case. The Fund's
policy regarding use of leverage is a fundamental policy which may not be
changed without approval of the shareholders of the Fund.
High-Yield/High-Risk Securities. The Diversified Income Fund may, and the High
Income Fund will, invest in lower-rated bonds commonly referred to as "junk
bonds." These securities are rated "Baa" or lower by Moody's or "BBB" or lower
by S&P. Each Fund may invest in securities rated as low as "C" by Moody's or
"D" by S&P. These ratings indicated that the obligations are speculative and
may be in default. In addition, each such Fund may invest in unrated securities
subject to the restrictions stated in the Prospectus.
Certain Risk Factors Relating to High-Yield, High-Risk Securities.
The descriptions below are intended to supplement the discussion in the
Prospectus under "Risk Factors -- High-Yield/High- Risk Securities."
Growth of High-Yield, High-Risk Bond Market. The widespread expansion
-------------------------------------------
of government, consumer and corporate debt within the U.S. economy has made the
corporate sector more vulnerable to economic downturns or increased interest
rates. Further, an economic downturn could severely disrupt the market for
high-yield, high-risk bonds and adversely affect the value of outstanding bonds
and the ability of the issuers to repay principal and interest.
Sensitivity to Interest Rate and Economic Changes. High-yield, high-
-------------------------------------------------
risk bonds are very sensitive to adverse economic changes and corporate
developments. During an economic downturn or substantial period of rising
interest rates, highly leveraged issuers may experience financial stress that
would adversely affect their ability to service their principal and interest
payment obligations, to meet projected business goals, and to obtain additional
financing. If the issuer of a bond defaulted
B-29
<PAGE>
on its obligations to pay interest or principal or entered into bankruptcy
proceedings, a Fund may incur losses or expenses in seeking recovery of amounts
owed to it. In addition, periods of economic uncertainty and change can be
expected to result in increased volatility of market prices of high-yield, high-
risk bonds and a Fund's net asset value.
Payment Expectations. High-yield, high-risk bonds may contain
--------------------
redemption or call provisions. If an issuer exercised these provisions in a
declining interest rate market, a Fund would have to replace the security with a
lower yielding security, resulting in a decreased return for investors.
Conversely, a high-yield, high-risk bond's value will decrease in a rising
interest rate market, as will the value of the Fund's assets. If the Fund
experiences significant unexpected net redemptions, this may force it to sell
high-yield, high-risk bonds without regard to their investment merits, thereby
decreasing the asset base upon which expenses can be spread and possibly
reducing the Fund's rate of return.
Liquidity and Valuation. There may be little trading in the secondary
-----------------------
market for particular bonds, which may affect adversely a Fund's ability to
value accurately or dispose of such bonds. Adverse publicity and investor
perception, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
Legislation. Federal laws require the divestiture by federally
-----------
insured savings and loan associations of their investments in high yield bonds
and limit the deductibility of interest by certain corporate issuers of high
yield bonds. These laws could adversely affect a Fund's net asset value and
investment practices, the secondary market for high yield securities, the
financial condition of issuers of these securities and the value of outstanding
high yield securities.
Taxes. A Fund may purchase debt securities (such as zero-coupon or
-----
pay-in-kind securities) that contain original issue discount. Original issue
discount that accrues in a taxable year is treated as earned by a Fund and
therefore is subject to the distribution requirements of the Code. Because the
original issue discount earned by the Fund in a taxable year may not be
represented by cash income, the Fund may have to dispose of other securities and
use the proceeds to make distributions to shareholders.
Municipal Securities and Short-Term Taxable Securities. Subject to the
restrictions set forth in the Prospectus, the Tax Exempt Insured Fund seeks to
achieve its investment objective by investing in Municipal Securities and Short-
Term Taxable Securities (defined below).
Municipal Securities. "Municipal Securities" includes long-term
(i.e., maturing in over ten years) and medium-term (i.e., maturing from three to
ten years) municipal bonds ("Municipal Bonds") and short-term (i.e., maturing in
one day to three years) municipal notes and tax-exempt commercial paper
("Municipal Notes"), and in each case refers to debt obligations issued by or on
behalf of states, territories and possessions of the United States and of the
District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest from which is, in the opinion of bond counsel at
the time of issuance, exempt from Federal income tax.
B-30
<PAGE>
The two principal classifications of Municipal Bonds are general
obligation bonds and revenue or special obligation bonds. General obligation
bonds are secured by the issuer's pledge of its faith, credit and taxing power
for the payment of principal and interest. The term "issuer" means the agency,
authority, instrumentality or other political subdivision whose assets and
revenues are available for the payment of principal and interest on the bonds.
Revenue or special obligation bonds are payable only from the revenue derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special tax or other specific revenue source and generally are not
payable from the unrestricted revenues of the issuer. There are, of course,
variations in the quality of Municipal Bonds, both within a particular
classification and between classifications.
Municipal Housing Bonds are Municipal Bonds issued by state and
municipal authorities established to purchase single family and other
residential mortgages from commercial banks and other lending institutions
within the applicable state or municipality. Such Bonds are typically revenue
or special obligation bonds in that they are secured only by the authority
issuing such bonds. Such authorities are located in or have been established by
at least 45 states and generally are intended to facilitate the construction and
sales of housing for low income families. Generally, the authorities are not
entitled to state or municipal appropriations from general tax revenues. As a
result, and because investors in Municipal Housing Bonds receive repayments of
principal as the underlying mortgages are paid prior to maturity, the yields
obtainable on such Bonds exceed those of other similarly rated Municipal Bonds.
Municipal Housing Bonds are used to purchase single family or other residential
mortgages which may or may not be insured by the FHA or guaranteed by the VA.
Some Municipal Housing Bonds, however, are used only to purchase residential
mortgages that are either insured by the FHA or guaranteed by the VA. Under FHA
insurance programs, upon the conveyance of the insured premises and compliance
with certain administrative procedures, the FHA pays to the mortgagee insurance
benefits equal to the unpaid principal amount of the defaulted mortgage loan.
Under a VA guaranty, the VA guarantees the payment of a mortgage loan up to a
maximum. The liability of the VA on any such guaranty is reduced or increased
pro rata with any reduction or increase in the amount of indebtedness, but in no
event will the amount payable on the guaranty exceed the amount of the original
guaranty. Notwithstanding the dollar and percentage limitations of the guaranty,
a mortgagee will ordinarily suffer a monetary loss only when the difference
between the unsatisfied indebtedness and the proceeds of a foreclosure sale of
the mortgaged premises is greater than the original guaranty as adjusted. The
VA may, at its option and without regard to the guaranty, make full payment to a
mortgagee of the unsatisfied indebtedness on a mortgage loan upon its
assignment to the VA of the property. As most Municipal Housing Bonds are
secured only by the mortgages purchased, bonds that are used to purchase
mortgages that are either insured by the FHA or guaranteed by the VA will have
less risk of loss of principal than bonds that are used to purchase comparable
mortgages that are not insured by the FHA or guaranteed by the VA.
The Fund may invest in Municipal Bonds which, on the date of
investment, are within the four highest ratings of Moody's ("Aaa," "Aa," "A,"
"Baa") or S&P ("AAA," "AA," "A," "BBB") or in Municipal Bonds which are not
rated, provided that in the opinion of the Adviser, such Municipal Bonds are
comparable in quality to those within the four highest ratings. Though bonds
rated Baa
B-31
<PAGE>
or BBB normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for such bonds than for bonds in
higher rated categories. Occasional speculative factors apply to some bonds in
this category.
The ratings of Moody's and S&P represent their respective opinions of
the qualities of the securities they undertake to rate and such ratings are
general and are not absolute standards of quality. In determining suitability of
investment in a particular unrated security, the Adviser will take into
consideration asset and debt coverage, the purpose of the financing, history of
the issuer, existence of other rated securities of the issuer and other general
conditions as may be relevant, including comparability to other issuers.
The Fund has no restrictions on the maturity of Municipal Securities
in which it may invest. The Fund seeks to invest in Municipal Securities of
such maturities that, in the judgment of the Adviser will provide a high level
of current income consistent with liquidity requirements and market conditions
after taking into account the cost of any insurance obtainable on such Municipal
Securities. While short-term trading increases the Fund's turnover, the
execution costs for Municipal Securities are substantially less than for
equivalent dollar values of equity securities.
Generally, the value of Municipal Securities will change as the
general level of interest rates fluctuate. During periods of rising interest
rates, the value of outstanding long-term, fixed-income securities generally
decline. Conversely, during periods of falling interest rates, the value of
such securities generally increase. The value of the Fund's shares fluctuates
with the value of its investments. In addition, the individual credit ratings
of issuers' obligations, the ability of such issuers to make payments of
interest and principal on their obligations, and the value of any insurance
applicable thereto also affects the value of the Fund's investments.
Yields on Municipal Bonds vary depending on a variety of factors,
including the general condition of the financial markets and of the municipal
bond market, the size of a particular offering, the maturity of the obligation
and the credit rating of the issuer. Generally, Municipal Bonds of longer
maturities produce higher current yields but are subject to greater price
fluctuation due to changes in interest rates, tax laws and other general market
factors than are Municipal Bonds with shorter maturities. Similarly, lower-rated
Municipal Bonds generally produce a higher yield than higher-rated Municipal
Bonds due to the perception of a greater degree of risk as to the ability of the
issuer to pay principal and interest obligations.
Short-Term Taxable Securities. "Short-Term Taxable Securities" mature
in one year or less from the date of purchase and consist of the following
obligations the income from which is subject to Federal income tax: obligations
of the U.S. Government, its agencies or instrumentalities, some of which may be
secured by the full faith and credit of the U.S. Government and some of which
may be secured only by the credit of the agency or instrumentality of the U.S.
Government issuing such obligations; corporate bonds or debentures rated within
the four highest grades by either Moody's or S&P; commercial paper rated by
either of such rating services (Prime-1 through Prime 2- or A-1
B-32
<PAGE>
through A-2, respectively) or, if not rated, issued by companies having an
outstanding debt issue rated at least "A" by either of such rating services;
certificates of deposit and bankers' acceptances of banks having assets in
excess of $2 billion.
Insurance Feature. As discussed in the Prospectus, the Fund under
normal market conditions invests at least 65% of its total assets in Municipal
Bonds that, at the time of purchase, either (1) are insured under a Mutual Fund
Insurance Policy issued to the Trust for the benefit of the Fund by Financial
Guaranty Insurance Company ("Financial Guaranty") or another insurer (subject to
the limitations set forth below); (2) are insured under an insurance policy
obtained by the issuer or underwriter of such Municipal Bonds at the time of
original issuance thereof (a "New Issue Insurance Policy"); or (3) are without
insurance coverage, provided that, and escrow or trust account has been
established pursuant to the documents creating the Municipal Bonds and
containing sufficient U.S. government securities backed by the U.S. government's
full faith and credit pledge in order to ensure payment of principal and
interest on such bonds. If a Municipal Bond is already covered by a New Issue
Insurance Policy when acquired by the Fund, then coverage will not be duplicated
by a Mutual Fund Insurance Policy; if a Municipal Bond, other than that
described in (3) above, is not covered by a New Issue Insurance Policy then it
may be covered by a Mutual Fund Insurance Policy purchased by the Trust for the
benefit of the Fund. The Fund may also purchase Municipal Notes that are
insured. However, in general, Municipal Notes are not presently issued with New
Issue Insurance Policies and the Fund does not generally expect to cover
Municipal Notes under its Mutual Fund Insurance Policy. Accordingly, the Fund
does not presently expect that any significant portion of the Municipal Notes it
purchases will be covered by insurance. Securities other than Municipal Bonds
and Notes purchased by the Fund are not covered by insurance. Although the
insurance feature reduces certain financial risks, the premiums for a Mutual
Fund Insurance Policy, which are paid from the Fund's assets, and the
restrictions on investments imposed by the guidelines in a Mutual Fund Insurance
Policy, reduce the Fund's current yield. For the fiscal year ended March 31,
1996, the premiums paid by Tax Exempt Insured Fund for a Mutual Fund Insurance
Policy were 0.2% of the average net assets of the Fund.
In order to be considered as eligible insurance by the Fund, such
insurance policies must guarantee the scheduled payment of all principal and
interest on the Municipal Bonds as they become due for as long as such Bonds
remain held by the Fund in the case of a Mutual Fund Insurance Policy, and for
as long as such Bonds are outstanding in the case of a New Issue Insurance
Policy. However, such insurance may provide that in the event of non-payment of
interest or principal, when due, with respect to an insured Municipal Bond, the
insurer is not obligated to make such payment until a specified time period
after it has been notified by the Fund that such non-payment has occurred. (The
Financial Guaranty Fund Policy described below provides that payments will be
made on the later of the date the principal or interest becomes due for payment
or the business day following the day on which Financial Guaranty shall have
received notice of non-payment from the Fund.) For these purposes, a payment of
principal may be due only at final maturity of the Municipal Bond and not at the
time any earlier sinking fund payment is due. The insurance does not guarantee
the market value of the Municipal Bonds or the value of the shares of the Fund
and, except as described below, has no effect on the price or redemption value
of the Fund's shares.
B-33
<PAGE>
It is anticipated that the insured Municipal Bonds held by the Fund
will be insured by Financial Guaranty (see "Financial Guaranty" below).
However, the Fund may obtain insurance on its Municipal Bonds or purchase
insured Municipal Bonds covered by policies issued by other insurers; provided,
any such company has a claims-paying ability rated "AAA" by S&P or "Aaa" by
Moody's. S&P and Moody's have rated the claims-paying ability of Financial
Guaranty and the Municipal Bonds insured by Financial Guaranty at "AAA" and
"Aaa," respectively.
New Issue Insurance Policies. The New Issue Insurance Policies, if
----------------------------
any, will have been obtained by the issuer of the Municipal Bonds and all
premiums with respect to such Bonds for the lives thereof will have been paid in
advance by such issuer. Such policies are generally non-cancelable and will
continue in force so long as the Municipal Bonds are outstanding and the insurer
remains in business. Since New Issue Insurance Policies remain in effect as long
as the Bonds are outstanding, the insurance may have an effect on the resale
value of the Municipal Bonds. Therefore, New Issue Insurance Policies may be
considered to represent an element of market value in regard to Municipal Bonds
thus insured, but the exact effect, if any, of this insurance on such market
value cannot be estimated.
Mutual Fund Insurance Policy. The Trust has obtained a Mutual Fund
----------------------------
Insurance Policy (the "Fund Policy") on behalf of the Fund from Financial
Guaranty. Under the Fund Policy, if the principal of or interest on a bond
covered by the Fund Policy is due for payment, but is unpaid by reason of non-
payment by the issuer, Financial Guaranty, upon proper notice by the Fund, will
make a payment of such amount to a fiscal agent for the benefit of the Fund,
upon the fiscal agent receiving from the Fund (i) evidence of the Fund's right
to receive payment of the principal or interest due for payment and (ii)
evidence that all of the Fund's right to such payment of the principal or
interest due for payment shall thereupon vest with Financial Guaranty. The
principal of a bond is considered due for payment under the Fund Policy at the
stated maturity date of such bond or the date on which the same shall have been
duly called for mandatory sinking fund redemption. The principal of a bond will
not be considered due for payment under the Fund Policy by reason of a call for
redemption (other than a mandatory sinking fund redemption), acceleration or
other advancement of maturity. The interest on a bond is considered due under
the Fund Policy on the stated date for payment. "Non-payment," by an issuer of
bonds, is when that issuer has not provided, on a timely basis, sufficient funds
to the paying agent of the issuer for payment in full of all principal and
interest due for payment.
Financial Guaranty's obligation to insure any particular bond which it
has agreed to insure is subject only to the Fund's becoming the owner of such
bond (i) on or before the 100th day following the date on which the Fund
purchases such bond or (ii) on or before the 150th day following the purchase
date in the case of "when, as and if issued" bonds which the issuer thereof has
failed on a timely basis to deliver in definitive form to the purchasers
thereof. So long as the Fund becomes the owner on or before the 100th or 150th
day following the purchase date, as the case may be, such bond will be insured
as of the purchase date. Once the insurance under the Fund Policy is effective
with respect to the Municipal Bonds, it covers the Municipal Bonds only so long
as the Fund is in existence, Financial Guaranty is still in business, the
covered Municipal Bonds continue to be held by the Fund, and the Fund pays the
insurance premium monthly with respect to the covered Municipal
B-34
<PAGE>
Bonds. In the event of a sale of any Municipal Bond held by the Fund or payment
thereof prior to maturity, the Fund Policy terminates as to such Municipal Bond
and Financial Guaranty is liable only for those payments of principal and
interest which are then due and owing. However, if in the judgment of the
Adviser it would be to the Fund's advantage, the Trust, on behalf of the Fund,
may purchase additional insurance (if available at an acceptable premium) that
will extend the insurance coverage on such Municipal Bond until maturity.
The Fund Policy provides that it is non-cancelable by Financial
Guaranty except for non-payment of premiums. Once the Fund purchases a bond and
begins paying a premium for that bond based upon a stated annual premium, that
annual premium rate cannot be changed by Financial Guaranty so long as the bond
is owned by the Fund and insured under the Fund Policy. Similar Municipal Bonds
purchased at different times, however, may have different premiums. The Trust,
at the request of the Fund, may cancel the Fund Policy at any time upon written
notice to Financial Guaranty and may do so if the Fund determines that the
benefits of the Fund Policy are not justified by the expense involved. In the
event the Fund were to cancel the Fund Policy and not obtain a substitute, the
Fund would satisfy its investment policy concerning the portion of its portfolio
required to be invested in insured Municipal Bonds by limiting such investments
to Municipal Bonds covered by New Issue Insurance Policies. If adequate
quantities of such Municipal Bonds were not available, the Fund would promptly
seek approval of its shareholders to change its name and its fundamental
investment policy.
If the Fund discontinues insuring newly acquired Municipal Bonds with
Financial Guaranty, it has the right to continue paying premiums to Financial
Guaranty for all Municipal Bonds previously insured and still held by the Fund
and keep the insurance in force as to those Municipal Bonds. The insurance
premiums will be payable monthly in advance by the Fund based on a statement of
premiums duly supplied by Financial Guaranty. The amount of premiums due will
be computed on a daily basis for purchases and sales of covered Municipal Bonds
during the month. If the Fund sells a Municipal Bond or that Bond is redeemed,
Financial Guaranty will refund any unused portion of the premium.
Municipal Bonds are eligible for insurance under the Fund Policy if
they are, at the time of purchase by the Fund, identified separately or by
category in qualitative guidelines (based primarily on ratings) furnished by
Financial Guaranty and are in compliance with the aggregate limitations on
amounts set forth in such guidelines. Premium variations are based, in part, on
the rating of the Municipal Bond being insured at the time the Fund purchases
such Bond. Financial Guaranty may be willing to insure only a portion of the
outstanding bonds, or issue of bonds, by any particular issuer. In such event,
Financial Guaranty will advise the Fund, on a quarterly basis, of any
limitation on the insurance available for such Municipal Bonds. Once Financial
Guaranty has established such a limitation, it cannot reduce that limitation for
any issue during that quarter, but Financial Guaranty may, at its sole
discretion, remove at any time, any Municipal Bond from its list of bonds
eligible to be insured, if the credit quality of such Municipal Bond has
materially deteriorated after the quarterly limitation is made. Once such
Municipal Bond is removed from the list of bonds eligible to be insured the Fund
cannot acquire insurance upon such Municipal Bond from Financial Guaranty.
Financial
B-35
<PAGE>
Guaranty, however, must continue to insure the full amount of such bonds
previously acquired so long as they remain held by the Fund and were, at the
time of purchase by the Fund, considered eligible by Financial Guaranty. The
qualitative guidelines and aggregate amount limitations established by Financial
Guaranty, from time to time, will not necessarily be the same as those the
Adviser would use to govern selection of Municipal Bonds for the Fund's
investments. Therefore, from time to time, such guidelines and limitations may
affect investment decisions. When the Fund's investment policies are more
restrictive than the qualitative guidelines and aggregate amount limitations
established by Financial Guaranty or any other insurer, the Fund's policies will
govern.
Because coverage under the Fund Policy terminates upon sale of a
Municipal Bond held by the Fund, the insurance does not have any effect on the
resale value of Municipal Bonds. Therefore, the Adviser may decide to retain
any insured Municipal Bonds which are in default or, in the view of the Adviser,
in significant risk of default and to recommend to the Trustees that the Fund
place a value on the insurance which will be equal to the difference between the
market value of the defaulted Municipal Bond and the market value of similar
Municipal Bonds of minimum investment grade (i.e., rated "BBB") which are not in
default. As a result, the Adviser may be unable to fully manage the Fund's
investments to the extent that it holds defaulted Municipal Bonds, which will
limit the ability of the Adviser in certain circumstances to purchase other
Municipal Bonds. While a defaulted Municipal Bond is held by the Fund, the Fund
continues to pay the insurance premium thereon, but also collects interest
payments from the insurer and retains the rights to collect the full amount of
principal from the insurer when the Municipal Bond comes due. The Fund expects
that the market value of a defaulted Municipal Bond covered by a New Issue
Insurance Policy will generally be greater than the market value of an otherwise
comparable defaulted Municipal Bond covered by the Fund Policy.
Secondary Market Insurance Policies. On behalf of the Fund, the
-----------------------------------
Trust may, at any time, purchase from Financial Guaranty a secondary market
insurance policy (a "Secondary Market Policy") on any Municipal Bond currently
covered by the Fund Policy at the time such Bond was purchased by the Fund. The
coverage and obligation to pay monthly premiums under the Fund Policy would
cease with the purchase by the Trust of a Secondary Market Policy.
By purchasing a Secondary Market Policy, the Trust would, upon payment
of a single premium, obtain similar insurance for the Fund against non-payment
of scheduled principal and interest for the remaining term Municipal Bond,
regardless of whether the Fund then owned the Bond. Such insurance coverage
will be non-cancelable and will continue in force so long as the Municipal Bonds
so insured are outstanding. The purpose of acquiring such a policy would be to
enable the Fund to sell the Municipal Bond to a third party as an "AAA"/"Aaa"
rated insured Municipal Bond at a market price higher than what otherwise might
be obtainable if the security were sold without the insurance coverage. (Such
rating is not automatic, however, and must specifically be requested for each
Municipal Bond.) Any difference between the excess of a Municipal Bond's market
value as an "AAA"/"Aaa" rated Municipal Bond over its market value without such
rating and the single premium payment would inure to the Fund in determining the
net capital gain or loss realized by the Fund upon the sale of the Bond.
B-36
<PAGE>
Since Secondary Market Policies remain in effect as long as the
Municipal Bonds insured thereby are outstanding, such insurance may have an
effect on the resale value of such Bonds. Therefore, Secondary Market Policies
may be considered to represent an element of market value with regard to
Municipal Bonds thus insured, but the exact effect, if any, of this insurance on
such market value cannot be estimated. Since the Fund has the right under the
Mutual Fund Insurance Policy to purchase such Secondary Market Policy even if an
eligible Municipal Bond is currently in default as to any payments by the
issuer, the Fund would have the opportunity to sell such Bond, rather than as
described above, be obligated to hold it in its portfolio in order to continue
the Fund Policy in force.
Financial Guaranty. Financial Guaranty, in addition to providing
------------------
insurance for the payment of interest and principal of municipal bonds and notes
held in mutual fund portfolios, provides insurance for all, or a portion of, new
and secondary market issues of municipal bonds and notes and for municipal bonds
and notes held in unit investment trust portfolios. It is also authorized, in
some states, to write fire, property damage liability, worker's compensation and
employers' liability and fidelity and surety insurance.
Financial Guaranty is currently licensed to provide insurance in 50
states and the District of Columbia, files reports with state insurance
regulatory agencies and is subject to audit and review by such authorities.
Such regulation, however, is no guarantee that Financial Guaranty will be able
to perform its contracts of insurance in the event a claim should be made
thereunder at some time in the future.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that are
fundamental policies and may not be changed without the approval of the holders
of a majority of that Fund's outstanding voting securities. A "majority of the
outstanding voting securities" of a Fund for this purpose means the lesser of
(i) 67% of the shares of the Fund represented at a meeting at which more than
50% of the outstanding shares are present in person or represented by proxy or
(ii) more than 50% of the outstanding shares. Unless otherwise indicated, all
percentage limitations apply to each Fund on an individual basis, and apply only
at the time the investment is made; any subsequent change in any applicable
percentage resulting from fluctuations in value will not be deemed an investment
contrary to these restrictions. Under these restrictions:
(1) Each Fund may not purchase securities on margin, but each Fund may
obtain such short-term credits as may be necessary for the
clearance of transactions;
(2) Each Fund may not make short sales of securities to maintain a
short position, except that each Fund may effect short sales
against the box;
(3) Each Fund may not issue senior securities or borrow money or
pledge its assets (except that (i) each Fund may borrow from a
bank for temporary or emergency
B-37
<PAGE>
purposes in amounts not exceeding 5% (taken at the lower of cost
or current value) of its total assets (not including the amount
borrowed) and pledge its assets to secure such borrowings; (ii)
the Federal Securities Fund, Diversified Income Fund and High
Income Fund may each borrow money to purchase securities in
amounts not exceeding 50% of its net assets and pledge its assets
to secure such borrowings; and (iii) the High Income Fund and
Diversified Income Fund may pledge up to 5% of its assets in
connection with interest-rate swaps.
(4) Each Fund may not purchase any security (other than obligations of
the U.S. Government, its agencies, or instrumentalities) if as a
result: (i) as to 75% of the Fund's total assets (taken at current
value), more than 5% of such assets would then be invested in
securities of a single issuer, or (ii) more than 25% of the Fund's
total assets (taken at current value) would be invested in a
single industry, or (iii) the Fund would then hold more than 10%
of the outstanding voting securities of an issuer;
(5) Each Fund may not buy or sell commodities or commodity contracts
(except financial futures as described under "Investment
Objectives and Policies" above) or real estate or interests in
real estate, although it may purchase and sell securities which
are secured by real estate and securities of companies which
invest or deal in real estate;
(6) Each Fund may not act as underwriter except to the extent that, in
connection with the disposition of Fund securities, it may be
deemed to be an underwriter under certain Federal securities laws;
(7) Each Fund may not make loans, except through (i) repurchase
agreements (repurchase agreements with a maturity of longer than 7
days together with other illiquid assets being limited to 10% of
the Fund's total assets), (ii) loans of portfolio securities
(limited to 33% of a Fund's assets), and (iii) participation in
loans to foreign governments or companies;
The following additional restrictions are not fundamental policies and
may be changed by the Trustees without a shareholder vote:
(8) Each Fund may not purchase any security if as a result the Fund
would then have more than 5% of its total assets (taken at current
value) invested in securities of companies (including
predecessors) less than three years old;
(9) Each Fund may not invest in any securities of any issuer if, to
the knowledge of the Fund, any officer, Trustee or director of the
Trust or of the Adviser owns more than 1/2 of 1% of the
outstanding securities of such issue, and such officers, directors
or Trustees who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer;
B-38
<PAGE>
(10) Each Fund may not make investments for the purpose of exercising
control or management;
(11) The Fund may not invest more than 10% of its net assets in
illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with a maturity
of longer than seven days, securities with legal or contractual
restrictions on resale and securities that are not readily
marketable in securities markets either within or without the
United States. Restricted securities eligible for resale pursuant
to Rule 144A under the Securities Act that have a readily
available market, and commercial paper exempted from registration
under the Securities Act pursuant to Section 4(2) of the
Securities Act that may be offered and sold to "qualified
institutional buyers" as defined in Rule 144A, which the Adviser
has determined to be liquid pursuant to guidelines established by
the Trustees, will not be considered illiquid for purposes of this
10% limitation on illiquid securities.
(12) Each Fund may not invest in securities of other registered
investment companies, except by purchases in the open market
involving only customary brokerage commissions and as a result of
which the Fund will not hold more than 3% of the outstanding
voting securities of any one investment company, will not have
invested more than 5% of its total assets in any one investment
company and will not have invested more than 10% of its total
assets in such securities of one or more investment companies
(each of the above percentages to be determined at the time of
investment), or except as part of a merger, consolidation or other
acquisition.
(13) Each Fund may not invest in interests in oil, gas or other mineral
exploration or development programs, although it may invest in the
securities of companies which invest in or sponsor such programs;
(14) The High Income Fund may not purchase any security if as a result
the Fund would then hold more than 10% of any class of securities
of an issuer (taking all common stock issues of an issuer as a
single class, all preferred stock issues as a single class, and
all debt issues as a single class); and
(15) The High Income Fund may not purchase warrants if as a result the
Fund would then have more than 5% of its total assets (taken at
current value) invested in warrants, or purchase warrants not
listed on the New York or American Stock Exchanges if as a result
more than 2% of its total assets (taken at current value) would be
invested in such warrants.
B-39
<PAGE>
TRUSTEES AND OFFICERS
The following table lists the Trustees and executive officers of the
Trust, their age, business addresses and principal occupations during the past
five years. The SunAmerica Mutual Funds consist of SunAmerica Equity Funds,
SunAmerica Income Funds and SunAmerica Money Market Funds, Inc. An asterisk
indicates those Trustees who are "interested persons" as that term is defined in
the 1940 Act.
<TABLE>
<CAPTION>
Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- --------------------- ------------- -------------------
<S> <C> <C>
S. James Coppersmith, 63 Trustee Director/Trustee of the Boston Stock Exchange,
Emerson College Uno Restaurant Corp., Waban Corp., Kushner-
100 Beacon Street Locke Co., Chayron Inc.; Chairman of the Board of
Boston, MA 02116 Emerson College; formerly, President and General
Manager, WCVB-TV, a division of the Hearst
Corporation from 1982 to 1994 (retired);
Director/Trustee of the SunAmerica Mutual Funds
and Anchor Series Trust.
Samuel M. Eisenstat, 56 Chairman of the Board Attorney in private practice; President and Chief
430 East 86th Street Executive Officer, Abjac Energy Corporation;
New York, NY 10028 Director/Trustee of Atlantic Realty Trust, UMB
Bank and Trust (a subsidiary of United Mizrachi
Bank), North European Royalty Trust, Volt
Information Sciences Funding, Inc. (a subsidiary of
Volt Information Sciences, Inc.) and Venture
Partners International (an Israeli venture capital
fund); Chairman of the Boards of the
Directors/Trustees of the SunAmerica Mutual Funds
and Anchor Series Trust.
Stephen J. Gutman, 53 Trustee Partner and Chief Operating Officer of B.B.
515 East 79th Street Associates LLC (menswear specialty retailing and
New York, NY 10021 other activities) since May 1989; Director/Trustee of
the SunAmerica Mutual Funds and Anchor Series
Trust.
</TABLE>
B-40
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- --------------------- ------------- -------------------
<S> <C> <C>
Peter A. Harbeck, 42 Trustee and President Director and President, SunAmerica Asset
The SunAmerica Center Management Corp. ("SAAMCo"); Director
733 Third Avenue SunAmerica Capital Services, Inc. ("SACS"), since
New York, NY 10017-3204 February 1993; Director and President, SunAmerica
Fund Services, Inc. ("SAFS"), since May 1988;
President of the SunAmerica Mutual Funds and
Anchor Series Trust; Executive Vice President and
Chief Operating Officer, SAAMCo, from May 1988
to August 1995; Executive Vice President SACS,
from November 1991 to August 1995; Director,
Resources Trust Company.
Peter McMillan III*, 38 Trustee Executive Vice President and Chief Investment
1 SunAmerica Center Officer, SunAmerica Investments, Inc. since August
Century City 1989; Director/Trustee of the SunAmerica Mutual
Los Angeles, CA 90067 Funds; Director, Resources Trust Company.
Sebastiano Sterpa, 67 Trustee Founder of Sterpa Realty, Inc., a full service real
Suite 200 estate firm since 1962; Chairman of the Sterpa
200 West Glenoaks Blvd. Group, real estate investments and management
Glendale, CA 91202 company; Director/Trustee of the SunAmerica
Mutual Funds.
Stanton J. Feeley, 59 Executive Vice Executive Vice President and Chief Investment
The SunAmerica Center President Officer, SAAMCo, since February 1992; formerly,
733 Third Avenue Senior Portfolio Manager, Delaware Management
New York, NY10017-3204 Company, Inc., from December 1987 to February
1992.
P. Christopher Leary, 36 Vice President Senior Vice President, SAAMCo, since January
The SunAmerica Center 1994; Vice President and Senior Portfolio Manager,
733 Third Avenue SAAMCo, since June 1991; Fixed Income Portfolio
New York, NY10017-3204 Manager, SAAMCo, since October 1990.
Nancy Kelly, 45 Vice President Vice President and Head Trader, SAAMCo, since
The SunAmerica Center April 1994; Formerly Vice President, Whitehorne &
733 Third Avenue Co. Ltd. (1991-1994); Sales Trader, Lynch, Jones
New York, NY10017-3204 and Ryan (1992-1994).
</TABLE>
B-41
<PAGE>
<TABLE>
<CAPTION>
Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
- --------------------- ------------- -------------------
<S> <C> <C>
Robert M. Zakem, 38 Secretary Senior Vice President and General Counsel,
The SunAmerica Center SAAMCo since April 1993; Executive Vice
733 Third Avenue President and Director, SACS, since February 1993;
New York, NY 10017-3204 Vice President, SAFS, since January 1994; Assistant
Secretary, SunAmerica Series Trust and Anchor
Pathway Fund, since September 1993; formerly, Vice
President and Associate General Counsel, SAAMCo,
March 1992 to April 1993; Associate, Piper &
Marbury from 1989 to 1992.
Peter C. Sutton, 31 Treasurer Vice President, SAAMCo, since September 1994;
The SunAmerica Center Treasurer, SunAmerica Mutual Funds, since
733 Third Avenue February 1996; Vice President, SunAmerica Series
New York, NY 10017-3204 Trust and Anchor Pathway Fund, since October
1994; Controller, SunAmerica Mutual Funds (March
1993 to February 1996); Assistant Controller,
SunAmerica Mutual Funds (1990-1993).
</TABLE>
Trustees and officers of the Trust are also trustees and officers of
some or all of the other investment companies managed, administered or advised
by the Adviser, and distributed by the Distributor and other affiliates of
SunAmerica Inc.
The Trust pays each Trustee, who is not an interested person of the
Trust or the Adviser (each a "disinterested" Trustee) annual compensation in
addition to reimbursement of out-of-pocket expenses in connection with
attendance at meetings of the Trustees. Specifically, each disinterested Trustee
receives a pro rata portion (based upon the Trust's net assets) of $40,000 in
annual compensation for acting as director or trustee to all the retail funds in
the SunAmerica Mutual Funds. In addition, Mr. Eisenstat receives an aggregate
of $2,000 in annual compensation for serving as the Chairman of the Boards of
the SunAmerica Mutual Funds. Officers of the Trust receive no direct
remuneration in such capacity from the Trust or any of the Funds.
In addition, each disinterested Trustee also serves on the Audit
Committee of the Board of Trustees. Each member of the Audit Committee receives
an aggregate of $5,000 in annual compensation for serving on the Audit
Committees of all the SunAmerica Mutual Funds. With respect to the Trust, each
member of the committee receives a pro rata portion of the $5,000 annual
compensation, based on the relative net assets of the Trust. The Trust also has
a Nominating Committee, comprised solely of disinterested Trustees, which
recommends to the Trustees those persons to be nominated for election as
Trustees by shareholders and selects and proposes nominees
B-42
<PAGE>
for election by Trustees between shareholders' meetings. Members of the
Nominating Committee serve without compensation.
The Trustees (and Directors) of the SunAmerica Mutual Funds have
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement Plan
(the "Retirement Plan") effective January 1, 1993 for the Trustees who are
disinterested Trustees. The Retirement Plan provides generally that if a
disinterested Trustee who has at least 10 years of consecutive service as a
disinterested Trustee of any of the SunAmerica Mutual Funds (an "Eligible
Trustee") retires after reaching age 60 but before age 70 or dies while a
Trustee, such person will be eligible to receive a retirement or death benefit
from each SunAmerica Mutual Fund with respect to which he or she is an Eligible
Trustee. As of each birthday, prior to the 70th birthday, each Eligible Trustee
will be credited with an amount equal to (i) 50% of his or her regular fees
(excluding committee fees) for services as a disinterested Trustee of each
SunAmerica Mutual Fund for the calendar year in which such birthday occurs, plus
(ii) 8.5% of any amounts credited under clause (i) during prior years. An
Eligible Trustee may receive any benefits payable under the Retirement Plan, at
his or her election, either in one lump sum or in up to fifteen annual
installments.
As of July 15, 1996, the Trustees and officers of the Trust owned in
the aggregate, less than 1% of the Trust's total outstanding shares.
The following table sets forth information summarizing the
compensation of each disinterested Trustee for his services as Trustee for the
fiscal year ended March 31, 1996. Neither the Trustees who are interested
persons of the Trust nor any officers of the Trust receive any compensation.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Estimated Total Compensation
Compensation Benefits Accrued Annual Benefits from Registrant and
from as Part of Fund Upon Fund Complex Paid to
Trustee Registrant Expenses* Retirement** Trustees*
<S> <C> <C> <C> <C>
S. James $24,646 $33,305 $29,670 $65,000
Coppersmith
Samuel M. Eisenstat $25,738 $17,484 $46,089 $69,000
Stephen J. Gutman $24,646 $18,522 $60,912 $65,000
Sebastiano Sterpa $24,099 $20,463 $ 7,900 $43,333***
</TABLE>
* Information is as of March 31, 1996 for the four investment companies in the
complex which pay fees to these directors/trustees. The complex consists of the
SunAmerica Mutual Funds and Anchor Series Trust.
** Assuming participant elects to receive benefits in 15 yearly installments.
*** Mr. Sterpa is not a trustee of Anchor Series Trust.
B-43
<PAGE>
ADVISER, PERSONAL SECURITIES TRADING, DISTRIBUTOR AND
ADMINISTRATOR
The Adviser. The Adviser, organized as a Delaware corporation in 1982, is
located at The SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204, and
acts as adviser to each of the Funds pursuant to the Investment Advisory and
Management Agreement dated September 23, 1993 (the "Advisory Agreement") with
the Trust, on behalf of each Fund. The Adviser is an indirect wholly owned
subsidiary of SunAmerica Inc. SunAmerica Inc., is incorporated in the State of
Maryland and maintains its principal executive offices at 1 SunAmerica Center,
Century City, Los Angeles, CA 90067-6022, telephone (310) 772-6000.
Under the Advisory Agreement, the Adviser selects and manages the investments
of each Fund, provides various administrative services and supervises the Funds'
daily business affairs, subject to general review by the Trustees.
Except to the extent otherwise specified in the Advisory Agreement, each Fund
pays, or causes to be paid, all other expenses of the Trust and each of the
Funds, including, without limitation, charges and expenses of any registrar,
custodian, transfer and dividend disbursing agent; brokerage commissions; taxes;
engraving and printing of share certificates; registration costs of the Funds
and their shares under Federal and state securities laws; the cost and expense
of printing, including typesetting, and distributing Prospectuses and Statements
of Additional Information respecting the Funds, and supplements thereto, to the
shareholders of the Funds; all expenses of shareholders' and Trustees' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; all expenses incident to any dividend, withdrawal or redemption
options; fees and expenses of legal counsel and independent accountants;
membership dues of industry associations; interest on borrowings of the Funds;
postage; insurance premiums on property or personnel (including Officers and
Trustees) of the Trust which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification relating thereto); and all other costs of the
Trust's operation.
As compensation for its services to the Funds, the Adviser receives a fee from
each Fund, payable monthly, computed daily at the following annual rates:
<TABLE>
<CAPTION>
Fund Fee
- ---- ---
<S> <C>
Government Securities Fund .75% of average daily net assets up to $200 million;
.72% of next 200 million;
and .55% of average daily net assets in excess of $400 million.
Federal Securities Fund .55% of average daily net assets up to $25 million;
.50% of the next $25 million;
and .45% of average daily net assets in excess of $50 million.
</TABLE>
B-44
<PAGE>
<TABLE>
<S> <C>
Diversified Income Fund .65% of average daily net assets up to $350 million;
and .60% of average daily net assets in excess of $350 million.
High Income Fund .75% of average daily net assets up to $200 million;
.72% of the next $200 million;
and .55% of average daily net assets in excess of $400 million.
Tax Exempt Insured Fund .50% of average daily net assets up to $350 million;
and .45% of average daily net assets in excess of $350 million.
</TABLE>
The following table sets forth the total advisory fees received by the Adviser
from each Fund pursuant to the Advisory Agreement for the fiscal years ended
March 31, 1996 and 1995 and for the fiscal period ended March 31, 1994.
Advisory Fees
<TABLE>
<CAPTION>
Fund 1996 1995 1994
<S> <C> <C> <C>
Government Securities Fund $4,212,162 $5,033,634 $5,419,370
Amount Waived -- 226,804 --
Federal Securities Fund 360,738 365,395 506,648
Diversified Income Fund 915,671 1,153,494 393,249
High Income Fund 1,273,169 1,192,998 824,761
Tax Exempt Insured Fund 802,564 874,281 407,968
</TABLE>
Certain states in which the shares of the Funds are qualified for sale impose
limitations on the expenses of the Funds. The current annual expense
limitations require that the Adviser reimburse each Fund in any amount necessary
to prevent such Fund's aggregate ordinary operating expenses (excluding
interest, taxes, distribution and brokerage fees and commissions, and
extraordinary charges such as litigation costs) from exceeding, in any fiscal
year, 2 1/2% of the first $30 million of the average daily net assets of each
Fund, 2% of the next $70 million of such assets, plus 1-1/2% of such assets in
excess of $100 million. In accordance with the terms of the Advisory
Agreement, if the expenses of a Fund exceed the amount of the fees paid by the
Fund to the Adviser, then the Adviser will reimburse the Fund the amount of such
excess. For the fiscal year ended March 31, 1996 no such reimbursement was
required.
With respect to the Class A shares of Federal Securities Fund, for the fiscal
year ended March 31, 1995, voluntary expense reimbursements were given to the
Fund by the Adviser in the amount of $20,954.
B-45
<PAGE>
The Advisory Agreement continues with respect to each Fund from year to year,
if such continuance is approved at least annually by vote of a majority of the
Trustees or by the holders of a majority of the respective Fund's outstanding
voting securities. Any such continuation also requires approval by a majority of
the Trustees who are not parties to the Advisory Agreement or "interested
persons" of any such party as defined in the 1940 Act by vote cast in person at
a meeting called for such purpose. The Advisory Agreement may be terminated
with respect to a Fund at any time, without penalty, on 60 days' written notice
by the Trustees, by the holders of a majority of the respective Fund's
outstanding voting securities or by the Adviser. The Advisory Agreement
automatically terminates with respect to each Fund in the event of its
assignment (as defined in the 1940 Act and the rules thereunder).
Under the terms of the Advisory Agreement, the Adviser is not liable to the
Funds, or their shareholders, for any act or omission by it or for any losses
sustained by the Funds or their shareholders, except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
The Sub-Adviser. With respect to periods prior to August 1, 1994, the
Adviser had entered into a sub-advisory agreement (the "Sub-Advisory Agreement")
with Wellington Management Company (the "Sub-Adviser") pursuant to which the
Sub-Adviser provided the Tax Exempt Insured Fund with investment advisory
services, including the continuous review and administration of such Fund's
investment program. The Sub-Adviser discharged its responsibilities subject to
the direction and control of the Trustees and the oversight and review of the
Adviser. The Adviser paid the Sub-Adviser a monthly fee with respect to the Tax
Exempt Insured Fund, computed daily, at the following annual rate: .15% of
average daily net assets up to $200 million; .125% of the next $300 million; and
.10% of average daily net assets in excess of $500 million. This fee was paid
from the management fee paid to the Adviser and did not increase Fund expenses.
Prior to January 3, 1994, the Sub-Adviser also served as sub-adviser to the
Government Securities Fund. The Sub-Adviser received a monthly fee, computed
daily, at the following annual rate: .11% of average daily net assets up to $200
million; .10% of the next $200 million; and .075% of average daily net assets in
excess of $400 million. This fee was paid by the Adviser.
The Sub-Adviser is a professional investment counseling firm which provides
investment services to investment companies, employee benefit plans, endowments,
foundations and other institutions and individuals. The Sub-Adviser is located
at 75 State Street, Boston, MA 02109.
For the fiscal period April 1, 1994 through July 31, 1994 the Sub-Adviser
earned fees of $92,926 with respect to Tax Exempt Insured Fund. For the fiscal
period ended March 31, 1994, the Sub-Adviser earned fees from the Adviser of
$254,348 as follows: $131,957, Government Securities Fund (until January 2,
1994); and $122,391, Tax Exempt Insured Fund.
Personal Securities Trading. The Trust and the Adviser have adopted a written
Code of Ethics (the "Code of Ethics") which prescribes general rules of conduct
and sets forth guidelines with respect to
B-46
<PAGE>
personal securities trading by "Access Persons" thereof. An Access Person as
defined in the Code of Ethics is an individual who is a trustee, director,
officer, general partner or advisory person of the Trust or the Adviser. The
guidelines on personal securities trading include: (i) securities being
considered for purchase or sale, or purchased or sold, by any Investment Company
advised by the Adviser, (ii) Initial Public Offerings, (iii) private placements,
(iv) blackout periods, (v) short-term trading profits, (vi) gifts, and (vii)
services as a director. These guidelines are substantially similar to those
contained in the Report of the Advisory Group on Personal Investing issued by
the Investment Company Institute's Advisory Panel. The Adviser reports to the
Board of Trustees, on a quarterly basis, as to whether there were any violations
of the Code of Ethics by Access Persons of the Trust or the Adviser during the
quarter.
The Distributor. The Trust, on behalf of each Fund, has entered into a
distribution agreement (the "Distribution Agreement") with the Distributor, a
registered broker-dealer and an indirect wholly owned subsidiary of SunAmerica
Inc., to act as the principal underwriter of the shares of each Fund. The
address of the Distributor is The SunAmerica Center, 733 Third Avenue, New York,
NY 10017-3204. The Distribution Agreement provides that the Distributor has the
exclusive right to distribute shares of the Funds through its registered
representatives and authorized broker-dealers. The Distribution Agreement also
provides that the Distributor will pay the promotional expenses, including the
incremental cost of printing prospectuses, annual reports and other periodic
reports respecting each Fund, for distribution to persons who are not
shareholders of such Fund and the costs of preparing and distributing any other
supplemental sales literature. However, certain promotional expenses may be
borne by the Funds (see "Distribution Plans" below).
The Distribution Agreement continues in effect from year to year, with respect
to each Fund, if such continuance is approved at least annually by vote of a
majority of the Trustees, including a majority of the disinterested Trustees.
The Trust or the Distributor each has the right to terminate the Distribution
Agreement with respect to a Fund on 60 days' written notice, without penalty.
The Distribution Agreement automatically terminates with respect to each Fund in
the event of its assignment (as defined in the 1940 Act and the rules
thereunder).
The Distributor may, from time to time, pay additional commissions or
promotional incentives to brokers, dealers or other financial services firms
that sell shares of the Funds. In some instances, such additional commissions,
fees or other incentives may be offered only to certain firms, including Royal
Alliance Associates, Inc., SunAmerica Securities, Inc. and Advantage Capital
Corporation, affiliates of the Distributor, that sell or are expected to sell
during specified time periods certain minimum amounts of shares of the Funds, or
of other funds underwritten by the Distributor. In addition, the terms and
conditions of any given promotional incentive may differ from firm to firm. Such
differences will, nevertheless, be fair and equitable, and based on such factors
as size, geographic location, or other reasonable determinants, and will in no
way affect the amount paid to any investor.
Distribution Plans. As indicated in the Prospectus, the Trustees of the Trust
and the shareholders of each class of shares of each Fund have adopted
Distribution Plans (the "Class A Plan" and the
B-47
<PAGE>
"Class B Plan," and collectively, the "Distribution Plans"). Reference is made
to "Management of the Trust - Distribution Plans" in the Prospectus for certain
information with respect to the Distribution Plans.
Under the Class A Plan, the Distributor may receive payments from a Fund at an
annual rate of up to 0.10% of average daily net assets of such Fund's Class A
shares to compensate the Distributor and certain securities firms for providing
sales and promotional activities for distributing that class of shares. Under
the Class B Plan, the Distributor may receive payments from a Fund at the annual
rate of up to 0.75% of the average daily net assets of such Fund's Class B
shares to compensate the Distributor and certain securities firms for providing
sales and promotional activities for distributing that class of shares. The
distribution costs for which the Distributor may be reimbursed out of such
distribution fees include fees paid to broker-dealers that have sold Fund
shares, commissions and other expenses such as sales literature, prospectus
printing and distribution and compensation to wholesalers. It is possible that
in any given year the amount paid to the Distributor under the Class A Plan or
Class B Plan will 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 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. In this regard,
some payments are used to compensate broker-dealers with account maintenance and
service fees in an amount up to 0.25% per year of the assets maintained in a
Fund by their customers.
The following table sets forth the distribution and service maintenance fees
the Distributor received from the Funds for the fiscal years ended March 31,
1996 and 1995 and for the fiscal period ended March 31, 1994.
Distribution and Service Maintenance Fees
<TABLE>
<CAPTION>
Fund 1996 1995 1994
Class A Class B Class A Class B Class A Class B
<S> <C> <C> <C> <C> <C> <C>
Government Securities Fund $388,894 $5,201,895 $251,367 $7,088,417 $137,217 $8,132,385
Federal Securities Fund 116,954 384,150 5,831 711,995 598 997,988
Diversified Income Fund 56,515 1,247,253 52,416 1,624,850 6,475 586,500
High Income Fund 144,739 1,284,954 109,589 1,277,571 124,115 756,964
Tax Exempt Insured Fund 462,514 283,659 528,127 239,626 264,951 58,933
</TABLE>
Continuance of the Distribution Plans with respect to each Fund is
subject to annual approval by vote of the Trustees, including a majority of the
disinterested Trustees. A Distribution Plan may not be amended to increase
materially the amount authorized to be spent thereunder with respect to a class
of shares of a Fund, without approval of the shareholders of the affected class
of shares of the
B-48
<PAGE>
Fund. In addition, all material amendments to the Distribution Plans must be
approved by the Trustees in the manner described above. A Distribution Plan may
be terminated at any time with respect to a Fund without payment of any penalty
by vote of a majority of the disinterested Trustees or by vote of a majority of
the outstanding voting securities (as defined in the 1940 Act) of the affected
class of shares of the Fund. So long as the Distribution Plans are in effect,
the election and nomination of the disinterested Trustees of the Trust shall be
committed to the discretion of the disinterested Trustees. In the Trustees'
quarterly review of the Distribution Plans, they will consider the continued
appropriateness of, and the level of, compensation provided in the Distribution
Plans. In their consideration of the Distribution Plans with respect to a Fund,
the Trustees must consider all factors they deem relevant, including information
as to the benefits of the Fund and the shareholders of the relevant class of the
Fund.
The Administrator. The Trust has entered into a Service Agreement, under the
terms of which SunAmerica Fund Services Inc. ("SAFS"), an indirect wholly owned
subsidiary of SunAmerica Inc., acts as a servicing agent assisting State Street
Bank and Trust Company ("State Street") in connection with certain services
offered to the shareholders of each of the Funds. Under the terms of the
Service Agreement, SAFS may receive reimbursement of its costs in providing
such shareholder services. SAFS is located at The SunAmerica Center, 733 Third
Avenue, New York, NY 10017-3204.
The Service Agreement continues in effect from year to year provided
that such continuance is approved annually by vote of a majority of the Trustees
including a majority of the disinterested Trustees.
Pursuant to the Service Agreement, as compensation for services
rendered, SAFS receives a fee from each Fund, computed and payable monthly based
upon an annual rate of 0.22% of average daily net assets. This fee represents
the full cost of providing shareholder and transfer agency services to the
Trust. From this fee, SAFS pays a fee to State Street, and its affiliate,
National Financial Data Services ("NFDS" and with State Street, the "Transfer
Agent") (other than out-of-pocket charges of the Transfer Agent which are paid
by the Trust). For further information regarding the Transfer Agent, see the
section entitled "Additional Information" below.
PORTFOLIO TRANSACTIONS AND BROKERAGE
As discussed in the Prospectus, the Adviser is responsible for
decisions to buy and sell securities for each Fund, selection of broker-dealers
and negotiation of commission rates. Purchases and sales of securities on a
securities exchange are effected through brokers-dealers who charge a negotiated
commission for their services. Orders may be directed to any broker-dealer
including, to the extent and in the manner permitted by applicable law, an
affiliated brokerage subsidiary of the Adviser.
In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission (although the price of the
B-49
<PAGE>
security usually includes a profit to the dealer). In underwritten offerings,
securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments may be
purchased directly from an issuer, in which case no commissions or discounts are
paid.
The primary consideration of the Adviser in effecting a security
transaction is to obtain the best net price and the most favorable execution of
the order. However, the Adviser may select broker-dealers which provide them
with research services and may cause a Fund to pay such broker-dealers
commissions which exceed those that other broker-dealers may have charged, if in
their view the commissions are reasonable in relation to the value of the
brokerage and/or research services provided by the broker-dealer. Certain
research services furnished by brokers may be useful to the Adviser with clients
other than the Trust. No specific value can be determined for research services
furnished without cost to the Adviser by a broker. The Adviser is of the opinion
that because the material must be analyzed and reviewed by its staff, its
receipt does not tend to reduce expenses, but may be beneficial in supplementing
the Adviser's research and analysis. Therefore, it may tend to benefit the Funds
by improving the quality of the Adviser's investment advice. The investment
advisory fees paid by the Funds are not reduced because the Adviser receives
such services. When making purchases of underwritten issues with fixed
underwriting fees, the Adviser may designate the use of broker-dealers who have
agreed to provide the Adviser with certain statistical, research and other
information.
Subject to applicable law and regulations, consideration may also be
given to the willingness of particular brokers to sell shares of a Fund as a
factor in the selection of brokers for transactions effected on behalf of a
Fund, subject to the requirement of best price and execution.
Although the objectives of other accounts or investment companies
which the Adviser manages may differ from those of the Funds, it is possible
that, at times, identical securities will be acceptable for purchase by one or
both of the Funds and one or more other accounts or investment companies which
the Adviser manages. However, the position of each account or company in the
securities of the same issue may vary with the length of the time that each
account or company may choose to hold its investment in those securities. The
timing and amount of purchase by each account and company will also be
determined by its cash position. If the purchase or sale of a security is
consistent with the investment policies of one or more of the Funds and one or
more of these other accounts or companies is considered at or about the same
time, transactions in such securities will be allocated in a manner deemed
equitable by the Adviser. The Adviser may combine such transactions, in
accordance with applicable laws and regulations, where the size of the
transaction would enable it to negotiate a better price or reduced commission.
However, simultaneous transactions could adversely affect the ability of a Fund
to obtain or dispose of the full amount of a security, which it seeks to
purchase or sell, or the price at which such security can be purchased or sold.
B-50
<PAGE>
The following table sets forth the brokerage commissions paid by those
Funds that paid commissions and the amounts of such brokerage commissions which
were paid to affiliated broker-dealers by the Funds for the fiscal year ended
March 31, 1996.
1996 Brokerage Commissions
<TABLE>
<CAPTION>
Aggregate Amount paid to Percentage paid to
Brokerage Affiliated Broker- Affiliated Broker-
Fund Commissions Dealers Dealers
<S> <C> <C> <C>
Federal Securities Fund $400 $0 0%
High Income Fund $30,000 $0 0%
Diversified Income Fund $3,000 $0 0%
</TABLE>
For the fiscal years ended March 31, 1995 and March 31, 1994, the High
Income Fund paid brokerage commissions of $34,028, and $4,250, respectively, of
which $0 was paid to affiliated brokers. None of the other Portfolios of the
Trust paid any commissions during these periods.
ADDITIONAL INFORMATION REGARDING PURCHASE OF SHARES
Shares of each of the Funds are sold at the respective net asset value
next determined after receipt of a purchase order, plus a sales charge, which,
at the election of the investor, may be imposed either (i) at the time of
purchase (Class A shares), or (ii) on a deferred basis (Class B shares and
certain Class A shares). Reference is made to "Purchase of Shares" in the
Prospectus for certain information as to the purchase of Fund shares.
The following tables set forth the front-end sales charges with
respect to Class A shares of each Fund, the amount of the front-end sales
charges which was reallowed to affiliated broker-dealers, and the contingent
deferred sales charges with respect to Class B shares of each Fund, received by
the Distributor for the fiscal years ended March 31, 1996 and 1995 and for the
fiscal period ended March 31, 1994.
1996
<TABLE>
<CAPTION>
Front-End Sales Amount Reallowed to Amount Reallowed to Contingent Deferred
Charges Affiliated Broker- Non-Affiliated Sales Charge - Class B
Fund Class A Shares Dealers Broker-Dealers Shares
<S> <C> <C> <C> <C>
Government $ 34,701 $23,047 $ 6,065 $1,767,247
Securities Fund
Federal Securities 51,871 26,836 17,101 92,902
Fund
</TABLE>
B-51
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Diversified 59,956 41,282 9,079 353,984
Income Fund
High Income Fund 110,516 75,941 17,311 379,578
Tax Exempt 118,382 78,270 19,723 113,374
Insured Fund
</TABLE>
1995
<TABLE>
<CAPTION>
Front-End Sales Amount Reallowed to Amount Reallowed to Contingent Deferred
Concessions Affiliated Broker- Non-Affiliated Sales Charge - Class B
Fund Class A Shares Dealers Broker-Dealers Shares
<S> <C> <C> <C> <C>
Government $ 84,710 $ 56,872 $10,813 $4,729,948
Securities Fund
Federal Securities 19,976 11,597 3,947 68,586
Fund
Diversified 201,057 144,342 26,811 776,679
Income Fund
High Income Fund 148,782 107,889 16,642 420,741
Tax Exempt 149,429 85,321 40,047 85,661
Insured Fund
</TABLE>
1994
<TABLE>
<CAPTION>
Front-End Sales Amount Reallowed to Amount Reallowed to Contingent Deferred
Concessions Affiliated Broker- Non-Affiliated Sales Charge - Class B
Fund Class A Shares Dealers Broker-Dealers Shares
<S> <C> <C> <C> <C>
Government $ 80,688 $ 53,360 $ 13,521 $3,733,888
Securities Fund
Federal Securities 14,286 11,503 0 192,962
Fund
Diversified 167,367 118,893 24,373 131,716
Income Fund
High Income Fund 281,934 191,584 45,772 268,221
Tax Exempt 244,958 102,031 107,207 19,084
Insured Fund
</TABLE>
Contingent Deferred Sales Charges ("CDSCs") Applicable to Certain Class B
Shares. Class B shares of the Government Securities Fund, the Federal
Securities Fund, the Diversified Income Fund and the High Income Fund issued to
shareholders in exchange for shares of Old Government Securities, Old Federal
Securities, Old Diversified Income and Old High Income, respectively, in the
Reorganization, are subject to the CDSC schedule that applied to redemptions of
shares of these
B-52
<PAGE>
funds at the time of reorganization. Upon a redemption of these shares, the
shareholder will receive credit for the periods both prior to and after the
Reorganization during which the shares were held. The following table sets forth
the rates of the CDSC applicable to shares of the Government Securities Fund,
the Federal Securities Fund and the High Income Fund:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
as a Percentage of Dollars
Year Since Purchase Payment Was Made Invested or Redemption Proceeds
- ------------------------------------ -------------------------------
<S> <C>
First 5%
Second 4%
Third 3%
Fourth 2%
Fifth 1%
Sixth and thereafter 0%
</TABLE>
The following table sets forth the rates of CDSC applicable to shares of the
Diversified Income Fund:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
as a Percentage of Dollars
Year Since Purchase Payment Was Made Invested or Redemption Proceeds
- ------------------------------------ -------------------------------
<S> <C>
First 3%
Second 2%
Third 1%
Fourth and thereafter 0%
</TABLE>
Any Class B shares purchased after the date of the Reorganization
(other than through the reinvestment of dividends and distributions, which are
not subject to the CDSC) will be subject to the CDSC schedule reflected in the
Prospectus.
Conversion Feature Applicable to Certain Class B Shares. Shareholders of Class B
shares of the Government Securities Fund, the Federal Securities Fund, the
Diversified Income Fund and the High Income Fund issued in exchange for shares
of Old Government Securities, Old Federal Securities, Old Diversified Income and
Old High Income, respectively, in the Reorganization, will receive credit for
the periods both prior to and after the Reorganization during which the shares
were held, for purposes of computing the seven year holding period applicable to
the conversion feature.
Waiver of Contingent Deferred Sales Charges. As discussed under "Purchase of
Shares" in the Prospectus, CDSCs may be waived on redemptions of Class B shares
under certain circumstances. The conditions set forth below are applicable with
respect to the following situations with the proper documentation:
Death. CDSCs may be waived on redemptions within one year following
------
the death (i) of the sole shareholder on an individual account, (ii) of a joint
tenant where the surviving joint tenant is the
B-53
<PAGE>
deceased's spouse, or (iii) of the beneficiary of a Uniform Gifts to Minors Act,
Uniform Transfers to Minors Act or other custodial account. The CDSC waiver is
also applicable in the case where the shareholder account is registered as
community property. If, upon the occurrence of one of the foregoing, the account
is transferred to an account registered in the name of the deceased's estate,
the date of CDSC will be waived on any redemption from the estate account
occurring within one year of the death. If the Class B shares are not redeemed
within one year of the date of death, they will remain Class B shares and be
subject to the applicable CDSC, if any, when redeemed.
Disability. CDSCs may be waived on redemptions occurring within one
-----------
year after the sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of
the Code). To be eligible for such waiver, (i) the disability must arise
after the purchase of shares and (ii) the disabled shareholder must have been
under age 65 at the time of the initial determination of disability. If the
account is transferred to a new registration and then a redemption is requested,
the applicable CDSC will be charged.
Purchases through the Distributor. An investor may purchase shares of a Fund
through dealers which have entered into selected dealer agreements with the
Distributor. An investor's dealer who has entered into a distribution
arrangement with the Distributor is expected to forward purchase orders and
payment promptly to the Fund. Orders received by the Distributor before the
close of business will be executed at the offering price determined at the close
of regular trading on the NYSE that day. Orders received by the Distributor
after the close of business will be executed at the offering price determined
after the close of the NYSE on the next trading day. The Distributor reserves
the right to cancel any purchase order for which payment has not been received
by the fifth business day following the investment. A Fund will not be
responsible for delays caused by dealers.
Purchase by Check. Checks should be made payable to the specific Fund or to
"SunAmerica Funds" or, for retirement plan accounts for which the Adviser serves
as fiduciary, to "Resources Trust Company." In the case of a new account,
purchase orders by check must be submitted directly by mail to SunAmerica Fund
Services, Inc., Mutual Fund Operations, The SunAmerica Center, 733 Third Avenue,
New York, New York 10017-3204, together with payment for the purchase price of
such shares and a completed New Account Application. Payment for subsequent
purchases should be mailed to SunAmerica Fund Services, Inc., c/o NFDS, P.O. Box
419373, Kansas City, Missouri 64141-6373 and the shareholder's Fund account
number should appear on the check. For fiduciary retirement plan accounts, both
initial and subsequent purchases should be mailed to SunAmerica Fund Services,
Inc., Mutual Fund Operations, The SunAmerica Center, 733 Third Avenue, New York,
New York 10017-3204. Certified checks are not necessary but checks are accepted
subject to collection at full face value in United States funds and must be
drawn on a bank located in the United States. Upon receipt of the completed New
Account Application and payment check, the Transfer Agent will purchase full and
fractional shares of the applicable Fund at the net asset value next computed
after the check is received, plus the applicable sales charge. Subsequent
purchases of shares of each Fund may be purchased directly through the Transfer
Agent. SAFS reserves the right to reject any check made payable other than in
the manner indicated above. Under certain circumstances, a Fund will accept a
multi-party check (e.g., a check made payable to the shareholder by another
party and then endorsed by the shareholder to the Fund in payment for the
purchase of shares); however, the processing of such a check may be subject to a
delay. The Funds do not verify the authenticity of the endorsement of such
multi-party check, and acceptance of the check by a Fund should not be
considered verification thereof. Neither the Funds nor their affiliates will be
held liable for any losses incurred as a result of a fraudulent endorsement.
There are restrictions on the redemption of shares purchased by check for which
funds are being collected. (See "Redemption of Shares.")
Purchase through SAFS. SAFS will effect a purchase order on behalf of a
customer who has an investment account upon confirmation of a verified credit
balance at least equal to the amount of the purchase order (subject to the
minimum $500 investment requirement for wire orders). If such order is received
at or prior to 4:00 P.M., Eastern time, on a day the NYSE is open for business,
the purchase of shares of a Fund will be effected on that day. If the order is
received after 4:00 P.M., Eastern time, the order will be effected on the next
business day.
B-54
<PAGE>
Purchase by Federal Funds Wire. An investor may make purchases by having his or
her bank wire Federal funds to the Trust's Transfer Agent. Federal funds
purchase orders will be accepted only on a day on which the Trust and the
Transfer Agent are open for business. In order to insure prompt receipt of a
Federal funds wire, it is important that these steps be followed:
1. You must have an existing SunAmerica Fund Account before wiring
funds. To establish an account, complete the New Account
Application and send it via facsimile to SunAmerica Fund Services,
Inc. at: (212) 551-5343.
2. Call SunAmerica Fund Services' Shareholder/Dealer Services, toll
free at (800) 858-8850, extension 5125 to obtain your new account
number.
3. Instruct the bank to wire the specified amount to the Transfer
Agent: State Street Bank and Trust Company, Boston, MA, ABA# 0110-
00028; DDA# 99029712, SunAmerica [name of Fund, Class __] (include
shareholder name and account number).
Waiver of Sales Charges With Respect to Certain Purchases of Class A Shares. To
the extent that sales are made for personal investment purposes, the sales
charge is waived as to Class A shares purchased by current or retired officers,
directors, and other full-time employees of SunAmerica and its affiliates, as
well as members of the selling group and family members of the foregoing. In
addition, the sales charge is waived with respect to shares purchased by certain
qualified retirement plans or employee benefit plans (other than IRAs), which
are sponsored or administered by SunAmerica or an affiliate thereof. Further,
the sales charge is waived with respect to shares purchased by "wrap accounts"
for the benefit of clients of broker-dealers, financial institutions or
financial planners adhering to the following standards established by the
Distributor: (i) the broker-dealer, financial institution or financial planner
charges its client(s) an advisory fee based on the assets under management on an
annual basis, and (ii) such broker-dealer, financial institution or financial
planner does not advertise that shares of the Funds may be purchased by clients
at net asset value. Shares purchased under this waiver may not be resold except
to the Fund. Shares are offered at net asset value to the foregoing persons
because of anticipated economies in sales effort and sales related expenses.
Reductions in sales charges apply to purchases or shares by a "single person"
including an individual; members of a family unit comprising husband, wife and
minor children; or a trustee or other fiduciary purchasing for a single
fiduciary account. Complete details concerning how an investor may purchase
shares at reduced sales charges may be obtained by contacting the Distributor.
Reduced Sales Charges (Class A Shares only). As discussed under "Purchase of
Shares" in the Prospectus, investors in Class A shares of a Fund may be entitled
to reduced sales charges pursuant to the following special purchase plans made
available by the Trust.
Combined Purchase Privilege. The following persons may qualify for the sales
- ---------------------------
charge reductions or eliminations by combining purchases of Fund shares into a
single transaction:
B-55
<PAGE>
(i) an individual, or a "company" as defined in Section 2(a)(8)
of the 1940 Act (which includes corporations which are corporate
affiliates of each other);
(ii) an individual, his or her spouse and their minor children,
purchasing for his, her or their own account;
(iii) a trustee or other fiduciary purchasing for a single trust
estate or single fiduciary account (including a pension, profit-
sharing, or other employee benefit trust created pursuant to a plan
qualified under Section 401 of the Code);
(iv) tax-exempt organizations qualifying under Section 501(c)(3)
of the Code (not including 403(b) plans);
(v) employee benefit plans of a single employer or of
affiliated employers, other than 403(b) plans; and
(vi) group purchases as described below.
A combined purchase currently may also include shares of other funds
in the SunAmerica Family of Mutual Funds (other than money market funds)
purchased at the same time through a single investment dealer, if the dealer
places the order for such shares directly with the Distributor.
Rights of Accumulation. A purchaser of Fund shares may qualify for a reduced
- ----------------------
sales charge by combining a current purchase (or combined purchases as described
above) with shares previously purchased and still owned; provided the cumulative
value of such shares (valued at cost or current net asset value, whichever is
higher), amounts to $50,000 or more. In determining the shares previously
purchased, the calculation will include, in addition to other Class A shares of
the particular Fund that were previously purchased, shares of the other classes
of the same Fund, as well as shares of any class of any other Fund or of any of
the other Funds advised by the Adviser, as long as such shares were sold with a
sales charge or acquired in exchange for shares purchased with such a sales
charge.
The shareholder's dealer, if any, or the shareholder, must notify the
Distributor at the time an order is placed of the applicability of the reduced
charge under the Right of Accumulation. Such notification must be in writing by
the dealer or shareholder when such an order is placed by mail. The reduced
sales charge will not be granted if: (a) such information is not furnished at
the time of the order; or (b) a review of the Distributor's or the Transfer
Agent's records fails to confirm the investor's represented holdings.
Letter of Intent. A reduction of sales charges is also available to an investor
- ----------------
who, pursuant to a written Letter of Intent which is set forth in the New
Account Application, establishes a total investment goal in Class A shares of
one or more Funds to be achieved through any number of investments over a
thirteen-month period, of $50,000 or more. Each investment in such Funds made
B-56
<PAGE>
during the period will be subject to a reduced sales charge applicable to the
goal amount. The initial purchase must be at least 5% of the stated investment
goal and shares totaling 5% of the dollar amount of the Letter of Intent will be
held in escrow by the Transfer Agent, in the name of the investor. Shares of any
class of shares of any Fund, or of other funds advised by the Adviser which
impose a sales charge at the time of purchase, which the investor intends to
purchase or has previously purchased during a 30-day period prior to the date of
execution of the Letter of Intent and still owns, may also be included in
determining the applicable reduction; provided, the dealer or shareholder
notifies the Distributor of such prior purchase(s).
The Letter of Intent does not obligate the investor to purchase, nor
the Trust to sell, the indicated amounts of the investment goal. In the event
the investment goal is not achieved within the thirteen-month period, the
investor is required to pay the difference between the sales charge otherwise
applicable to the purchases made during this period and sales charges actually
paid. Such payment may be made directly to the Distributor or, if not paid, the
Distributor is authorized by the Letter of Intent to liquidate a sufficient
number of escrowed shares to obtain such difference. If the goal is exceeded
and purchases pass the next sales charge break-point, the sales charge on the
entire amount of the purchase that results in passing that break-point, and on
subsequent purchases, will be subject to a further reduced sales charge in the
same manner as set forth above under "Rights of Accumulation," but there will be
no retroactive reduction of sales charges on previous purchases. At any time
while a Letter of Intent is in effect, a shareholder may, by written notice to
the Distributor, increase the amount of the stated goal. In that event, shares
of the applicable Funds purchased during the previous 90-day period and still
owned by the shareholder will be included in determining the applicable sales
charge. The 5% escrow and the minimum purchase requirement will be applicable
to the new stated goal. Investors electing to purchase shares of one or more of
the Funds pursuant to this purchase plan should carefully read such Letter of
Intent.
Investors electing to purchase shares of one or more of the Funds
pursuant to this purchase plan should carefully read such Letter of Intent.
Reduced Sales Charge for Group Purchases. Members of qualified groups may
- ----------------------------------------
purchase Class A shares of the Funds under the combined purchase privilege as
described above.
To receive a rate based on combined purchases, group members must
purchase Class A shares of a Fund through a single investment dealer designated
by the group. The designated dealer must transmit each member's initial
purchase to the Distributor, together with payment and completed New Account
Application. After the initial purchase, a member may send funds for the
purchase of Class A shares directly to the Transfer Agent. Purchases of a Fund's
shares are made at the public offering price based on the net asset value next
determined after the Distributor or the Transfer Agent receives payment for the
Class A shares. The minimum investment requirements described above apply to
purchases by any group member. Class B shares are not included in calculating
the purchased amount of a Fund's shares.
B-57
<PAGE>
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or association, or other
organized groups of persons (the members of which may include other qualified
groups) provided that: (i) the group has at least 25 members of which at least
ten members participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some purpose in addition
to the purchase of investment company shares at a reduced sales charge; (iv) the
group's sole organizational nexus or connection is not that the members are
credit card customers of a bank or broker-dealer, clients of an investment
adviser or security holders of a company; (v) the group agrees to provide its
designated investment dealer access to the group's membership by means of
written communication or direct presentation to the membership at a meeting on
not less frequently than an annual basis; (vi) the group or its investment
dealer will provide annual certification, in form satisfactory to the Transfer
Agent, that the group then has at least 25 members and that at least ten members
participated in group purchases during the immediately preceding 12 calendar
months; and (vii) the group or its investment dealer will provide periodic
certification, in form satisfactory to the Transfer Agent, as to the eligibility
of the purchasing members of the group.
Members of a qualified group include: (i) any group which meets the
requirements stated above and which is a constituent member of a qualified
group; (ii) any individual purchasing for his or her own account who is carried
on the records of the group or on the records of any constituent member of the
group as being a good standing employee, partner, member or person of like
status of the group or constituent member; or (iii) any fiduciary purchasing
shares for the account of a member of a qualified group or a member's
beneficiary. For example, a qualified group could consist of a trade
association which would have as its members individuals, sole proprietors,
partnerships and corporations. The members of the group would then consist of
the individuals, the sole proprietors and their employees, the members of the
partnership and their employees, and the corporations and their employees, as
well as the trustees of employee benefit trusts acquiring a Fund's shares for
the benefit of any of the foregoing.
Interested groups should contact their investment dealer or the
Distributor. The Trust reserves the right to revise the terms of or to suspend
or discontinue group sales with respect to shares of the Funds at any time.
Net Asset Value Transfer Program. Investors may purchase Class A
--------------------------------
shares of a Fund at net asset value to the extent that the investment represents
the proceeds from a redemption of a non-SunAmerica mutual fund in which the
investor either (a) paid a front-end sales load or (b) was subject to, or paid a
CDSC on the redemption proceeds. Nevertheless, the Distributor will pay a
commission to any dealer who initiates or is responsible for such an investment,
in the amount of .50% of the amount invested, subject, however, to forfeiture in
the event of a redemption during the first year from the date of purchase. In
addition, it is essential that an NAV Transfer Program Form accompany the New
Account Application to indicate that the investment is intended to participate
in the Net Asset Value Transfer Program (formerly, Exchange Program for
Investment Company Shares). This program may be revised or terminated without
notice by the Distributor. For current information, contact Shareholder/Dealer
Services at (800) 858-8850.
B-58
<PAGE>
ADDITIONAL INFORMATION REGARDING REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for
certain information as to the redemption of Fund shares.
If the Trustees determine that it would be detrimental to the best
interests of the remaining shareholders of a Fund to make payment wholly or
partly in cash, the Trust, having filed with the SEC a notification of election
pursuant to Rule 18f-1 on behalf of each of the Funds, may pay the redemption
price in whole, or in part, by a distribution in kind of securities from a Fund
in lieu of cash. In conformity with applicable rules of the SEC, the Funds are
committed to pay in cash all requests for redemption, by any shareholder of
record, limited in amount with respect to each shareholder during any 90-day
period to the lesser of (i) $250,000, or (ii) 1% of the net asset value of the
applicable Fund at the beginning of such period. If shares are redeemed in
kind, the redeeming shareholder would incur brokerage costs in converting the
assets into cash. The method of valuing portfolio securities is described below
in the section entitled "Determination of Net Asset Value," and such valuation
will be made as of the same time the redemption price is determined.
At various times a Fund may be requested to redeem shares for which it
has not yet received good payment. A Fund may delay or cause to be delayed the
mailing of redemption check until such time as good payment (e.g., cash or
certified check drawn on a United States bank) has been collected for the
purchase of such shares. Normally, this delay will not exceed 15 days.
DETERMINATION OF NET ASSET VALUE
Each Fund calculates the net asset value of its shares separately by
dividing the total value of each class's net assets by the shares of such class
outstanding. Shares are valued each day the NYSE is open as of approximately
4:00 P.M., Eastern time. The net asset value of a Fund's shares will also be
computed on each other day in which there is a sufficient degree of trading in
such Fund's securities that the net asset value of its shares might be
materially affected by changes in the values of the portfolio securities;
provided, however, that on such day the Trust receives a request to purchase or
redeem such Fund's shares. The days and times of such computation may, in the
future, be changed by the Trustees in the event that the portfolio securities
are traded in significant amounts in markets other than the NYSE, or on days or
at times other than those during which the NYSE is open for trading.
Securities that are actively traded over-the-counter, including listed
securities for which the primary market is believed by the Adviser to be over-
the-counter, are valued on the basis of the bid prices provided by principal
market makers. Securities listed on the NYSE or other national securities
exchanges, other than those principally traded over-the-counter, are valued on
the basis of the last sale price on the exchange on which they are primarily
traded. However, if the last sale price on the NYSE is different than the last
sale price on any other exchange, the NYSE price will be used. If there are no
sales on that day, then the securities are valued at the bid price on the NYSE
or other primary exchange for that day. Options traded on national securities
exchanges are valued at the last
B-59
<PAGE>
sale price on such exchanges preceding the valuation, and Futures and options
thereon, which are traded on commodities exchanges, are valued at their last
sale price as of the close of such commodities exchanges.
Securities that are traded on foreign exchanges are ordinarily valued
at the last quoted sales price available before the time when 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.
The above 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
the quantities owned by such Fund. Securities for which quotations are not
readily available and other assets are appraised at fair value, as determined
pursuant to procedures adopted in good faith by the Trustees. Short-term
investments that 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 exceeds 60 days (unless the
Trustees determine that amortized cost value does not represent fair value, in
which case, fair value will be determined as described above). A pricing service
may be utilized to value the Funds' assets under the procedures set forth above.
Any use of a pricing service will be approved and monitored by the Trustees. The
value of all assets and liabilities initially expressed in foreign currencies
will be converted into U.S. dollars at the mean between the bid and offered
prices of such currencies against U.S. dollars last quoted by any large New York
bank which is a dealer in foreign currency.
The values of securities held by the Funds, and other assets used in
computing net asset value, are determined as of the time trading in such
securities is completed each day, which in the case of foreign securities may be
at a time prior to 4:00 P.M., Eastern time. On occasion, the values of foreign
securities and exchange rates may be affected by events occurring between the
time as of which determinations of such values or exchange rates are made and
4:00 P.M., Eastern time. When such events materially affect the values of
securities held by the Funds or their liabilities, such securities and
liabilities will be valued at fair value as determined in good faith by the
Trustees.
PERFORMANCE DATA
Each Fund may advertise performance data that reflects various
measures of total return and yield. An explanation of the data presented and
the methods of computation that will be used are as follows.
A Fund's performance may be compared to the historical returns of
various investments, performance indices of those investments or economic
indicators, including, but not limited to, stocks, bonds, certificates of
deposit, money market funds and U.S. Treasury Bills. Certain of these
alternative investments may offer fixed rates of return and guaranteed principal
and may be insured.
B-60
<PAGE>
Average annual total return is determined separately for Class A and
Class B shares in accordance with a formula specified by the SEC. Average
annual total return is computed by finding the average annual compounded rates
of return for the 1-, 5-, and 10-year periods or for the lesser included periods
of effectiveness. The formula used is as follows:
P(1 + T)/n/ = ERV
P = a hypothetical initial purchase payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or
10-year periods at the end of the 1-, 5-, or
10-year periods (or fractional portion thereof).
The above formula assumes that:
1. The maximum sales load (i.e., either the front-end sales load in
the case of the Class A shares or the deferred sales load that
would be applicable to a complete redemption of the investment at
the end of the specified period in the case of the Class B shares)
is deducted from the initial $1,000 purchase payment;
2. All dividends and distributions are reinvested at net asset value;
and
3. Complete redemption occurs at the end of the 1-, 5-, or 10-year
periods or fractional portion thereof with all nonrecurring
charges deducted accordingly.
The Funds' average annual total return for the 1-, 5- and 10-year periods (or
from date of inception, if sooner) ended March 31, 1996, are as follows:
<TABLE>
<CAPTION>
Class A Shares Since Inception One Year Five Years Ten Years
-------------- --------------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Government Securities Fund /(1)/ 3.02% 4.42% N/A N/A
Federal Securities Fund /(1)/ 3.44% 5.67% N/A N/A
Diversified Income Fund /(1)/ 0.54% 8.38% N/A N/A
High Income Fund /(2)/ 7.73% 5.19% 11.65% N/A
Tax Exempt Insured Fund /(3)/ 6.34% 2.27% 5.00% 5.75%
</TABLE>
- ---------------
/(1)/ From date of October 1, 1993.
/(2)/ From date of inception of September 16, 1986.
/(3)/ From date of inception of November 21, 1985.
B-61
<PAGE>
<TABLE>
<CAPTION>
Class B Shares Since Inception One Year Five Years Ten Years
-------------- --------------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Government Securities Fund /(4)/ 6.28% 4.52% 5.07% 6.28%
Federal Securities Fund /(5)/ 8.29% 5.73% 5.82% 6.88%
Diversified Income Fund /(6)/ 3.63% 8.57% N/A N/A
High Income Fund /(7)/ 2.13% 5.43% N/A N/A
Tax Exempt Insured Fund /(7)/ 1.70% 2.32% N/A N/A
</TABLE>
Each Fund may advertise cumulative, rather than total average return, for
each class of its shares for periods of time other than the 1-, 5-, and 10-year
periods or fractions thereof, as discussed above. Such return data will be
computed in the same manner as that of average annual total return, except that
the actual cumulative return will be computed.
Each Fund may also advertise performance data that reflects yield. Yield
is determined separately for Class A and Class B shares in accordance with a
standardized formula prescribed by the SEC and is not indicative of the amounts
which were or will be paid to shareholders. The current yield quoted in a
Fund's advertisements is computed by dividing the net investment income per
share earned during the 30 day period by the maximum offering price per share on
the last day of the period. The following formula illustrates the computation:
Yield = 2 [{A - B + 1}/6/ - 1 ]
-----
CD
A = dividends and interest earned during the period
B = expenses accrued for the period (net of reimbursements)
C = the average daily number of shares outstanding during
the period that were entitled to receive dividends
D = the maximum offering price per share on the last day of
the period
The yields for the one month periods ended March 31, 1996, 1995 and 1994
are as follows:
- -----------------------------
/(4)/ From date of inception of March 3, 1986.
/(5)/ From date of inception of April 25, 1983.
/(6)/ From date of inception of April 6, 1991.
/(7)/ From date of October 1, 1993.
B-62
<PAGE>
<TABLE>
<CAPTION>
Fund March 31, 1996 March 31, 1995 March 31, 1994
Class Class Class Class Class Class
A B A B A B
<S> <C> <C> <C> <C> <C> <C>
Government Securities Fund 5.71% 5.33% 6.04% 5.64% 4.16% 3.52%
Federal Securities Fund 5.44% 5.09% 6.48% 6.07% 5.31% 4.67%
Diversified Income Fund 8.15% 7.88% 10.39% 10.65% 8.84% 8.43%
High Income Fund 9.02% 8.91% 9.99% 9.93% 11.42% 11.45%
Tax Exempt Insured Fund 4.50% 4.08% 5.10% 4.73% 4.99% 4.55%
</TABLE>
Current yield is not indicative of the amount which was or will be paid to
the shareholders. The amount paid to shareholders is reflected in the quoted
current distribution rate. The current distribution rate is computed by
annualizing the total amount of dividends per share paid by each Fund during the
past month and dividing by the current maximum offering price. Under some
circumstances it may be appropriate to use the dividends paid over the past
year. The current distribution rate differs from current yield in that it
includes amounts distributed to shareholders from sources other than dividends
and interest, such as short-term capital gains or option writing premiums and is
calculated over a different period of time. Such rates will be accompanied in
advertisements by standardized yield calculations as promulgated by the SEC.
Comparisons
- -----------
Each Fund may compare its total return or yield to similar measures as
calculated by various publications, services, indices, or averages. Such
comparisons are made to assist in evaluating an investment in a Fund. The
following references may be used:
a) Dow Jones Composite Average or its component averages --an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks (Dow Jones Utilities Average),
and 20 transportation company stocks (Dow Jones Transportation Average).
Comparisons of performance assume reinvestment of dividends.
b) Standard & Poor's 500 Stock Index or its component indices -- an
unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40
utilities stocks, and 20 transportation stocks. Comparisons of performance
assume reinvestment of dividends.
c) Standard & Poor's 100 Stock Index -- an unmanaged index based on the
prices of 100 blue chip stocks, including 92 industrials, one utility, two
transportation companies, and five financial institutions. The Standard &
Poor's 100 Stock Index is a smaller, more flexible index for options trading.
B-63
<PAGE>
d) The New York Stock Exchange composite or component indices --
unmanaged indices of all industrial, utilities, transportation, and finance
stocks listed on the New York Stock Exchange.
e) Wilshire 5000 Equity Index or its component indices --represents the
return on the market value of all common equity securities for which daily
pricing is available. Comparisons of performance assume reinvestment of
dividends.
f) Russell 3000 and 2000 Indices -- represents the top 3,000 and the next
2,000 stocks traded on the New York Stock Exchange, American Stock Exchange and
National Association of Securities Dealers Automated Quotations, by market
capitalization.
g) Lipper: Mutual Fund Performance Analysis, Fixed Income Analysis, and
Mutual Fund Indices -- measures total return and average current yield for the
mutual fund industry. Ranks individual mutual fund performance over specified
time periods assuming reinvestment of all distributions, exclusive of sales
charges.
h) CDA Mutual Fund Report, published by CDA Investment Technologies,
Inc., analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time periods for
the mutual fund industry.
i) Mutual Fund Source Book, published by Morningstar, Inc. -- analyzes
price, risk and total return for the mutual fund industry.
j) Financial publications: The Wall Street Journal, Business Week,
Changing Times, Financial World, Forbes, Fortune, Money, Pension and Investment
Age, United Mutual Fund Selector, and Wiesenberger Investment Companies Service,
and other publications containing financial analyses which rate mutual fund
performance over specified time periods.
k) Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics -- a statistical measure of periodic change in the
price of goods and services in major expenditure groups.
l) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates
- -- historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, treasury bills, and inflation.
m) Savings and Loan Historical Interest Rates as published in the U.S.
Savings & Loan League Fact Book.
n) Shearson-Lehman Municipal Bond Index and Government/Corporate Bond
Index -- unmanaged indices that track a basket of intermediate and long-term
bonds. Reflect total return and yield and assume dividend reinvestment.
B-64
<PAGE>
o) Salomon GNMA Index published by Salomon Brothers Inc. --Market value
of all outstanding 30-year GNMA Mortgage Pass-Through Securities that includes
single family and graduated payment mortgages.
Salomon Mortgage Pass-Through Index published by Salomon Brothers Inc.
- -- Market value of all outstanding agency mortgage pass-through securities that
includes 15- and 30-year FNMA, FHLMC and GNMA Securities.
p) Value Line Geometric Index -- broad based index made up of
approximately 1700 stocks each of which have an equal weighting.
q) Morgan Stanley Capital International EAFE Index -- an arithmetic,
market value-weighted average of the performance of over 900 securities on the
stock exchanges of countries in Europe, Australia and the Far East.
r) Goldman Sachs 100 Convertible Bond Index -- currently includes 67
bonds and 33 preferred stocks. The original list of names was generated by
screening for convertible issues of $100 million or more in market
capitalization. The index is priced monthly.
s) Salomon Brothers High Grade Corporate Bond Index --consists of
publicly issued, non-convertible corporate bonds rated "AA" or "AAA." It is a
value-weighted, total return index, including approximately 800 issues.
t) Salomon Brothers Broad Investment Grade Bond Index -- is a market-
weighted index that contains approximately 4700 individually priced investment
grade corporate bonds rated "BBB" or better, U.S. Treasury/agency issues and
mortgage pass-through securities.
u) Salomon Brothers World Bond Index -- measures the total return
performance of high-quality securities in major sectors of the international
bond market. The index covers approximately 600 bonds from 10 currencies:
Australian Dollars Netherlands Guilders
Canadian Dollars Swiss Francs
European Currency Units UK Pound Sterling
French Francs U.S. Dollars
Japanese Yen German Deutsche Marks
v) J.P. Morgan Global Government Bond Index -- a total return, market
capitalization-weighted index, rebalanced monthly, consisting of the following
countries: Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan,
The Netherlands, Spain, Sweden, the United Kingdom, and the United States.
<PAGE>
w) Shearson Lehman LONG-TERM Treasury Bond Index -- is comprised of all
bonds covered by the Shearson Lehman Hutton Treasury Bond Index with maturities
of 10 years or greater.
x) NASDAQ Industrial Index -- is comprised of more than 3,000 industrial
issues. It is a value-weighted index calculated on pure change only and does
not include income.
y) The MSCI Combined Far East Free ex Japan Index -- a market
capitalization weighted index comprised of stocks in Hong Kong, Indonesia,
Korea, Malaysia, Philippines, Singapore and Thailand. Korea is included in this
index at 20% of its market capitalization.
z) First Boston High Yield Index -- generally includes over 180 issues
with an average maturity range of seven to ten years with a minimum
capitalization of $100 million. All issues are individually trader-priced
monthly.
aa) Merrill Lynch High Yield Bond Master Index -- generally includes over
500 issues rated "BB+" to "CCC-" with an aggregate par value of approximately
$100 billion.
bb) Morgan Stanley Capital International World Index -- An arithmetic,
market value-weighted average of the performance of over 1,470 securities list
on the stock exchanges of countries in Europe, Australia, the Far East, Canada
and the United States.
In assessing such comparisons of performance, an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to a Fund's portfolio, that the averages are generally
unmanaged and that the items included in the calculations of such averages may
not be identical to the formula used by a Fund to calculate its figures. In
addition, there can be no assurance that a Fund will continue its performance as
compared to such other standards.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions. Each Fund intends to distribute to the registered
holders of its shares substantially all of its net investment income, which
includes dividends, interest and net short-term capital gains, if any, in excess
of any net long-term capital losses. Each Fund intends to distribute any net
long-term capital gains in excess of any net short-term capital losses.
Dividends from net investment income are declared daily and paid monthly.
Dividends are paid on or about the fifteenth day of the month. Net capital
gains, if any, will be paid annually. In determining amounts of capital gains
to be distributed, any capital loss carry-forwards from prior years will be
offset against capital gains.
Distributions will be paid in additional Fund shares based on the net asset
value at the close of business on the record date, unless the dividends total in
excess of $10 per distribution period and the shareholder notifies the Fund at
least five business days prior to the payment date to receive such distributions
in cash.
B-66
<PAGE>
Taxes. Each Fund is qualified and intends to remain qualified and elects to be
treated as a regulated investment company under Subchapter M of the Code for
each taxable year. In order to remain qualified as a regulated investment
company, each Fund generally must, among other things, (a) derive at least 90%
of its gross income from dividends, interest, proceeds from loans of stock or
securities and certain other related income; (b) derive less than 30% of its
gross income from the sale or other disposition of stock or securities held less
than 3 months; and (c) diversify its holdings so that, at the end of each fiscal
quarter, (i) 50% of the market value of each Fund's assets is represented by
cash, government securities, securities of other regulated investment companies
and other securities limited, in respect of any one issuer, to an amount no
greater than 5% of each Fund's assets and not greater than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other than
government securities or the securities of other regulated investment
companies).
As a regulated investment company, each Fund will not be subject to U.S.
Federal income tax on its income and capital gains which it distributes as
dividends or capital gains distributions to shareholders provided that it
distributes to shareholders at least equal to the sum of 90% of its investment
company taxable income and 90% of its net tax-exempt interest income for the
taxable year. Each Fund intends to distribute sufficient income to meet this
qualification requirement.
Under the Code, amounts not distributed on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To avoid the tax, each Fund must distribute during each calendar
year (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) at least 98% of its net
capital gains, i.e., capital gains in excess of its capital losses for the 12-
month period ending on October 31 of the calendar year, and (3) all ordinary
income and net capital gains for the previous years that were not distributed
during such years. To avoid application of the excise tax, each Fund intends to
make distributions in accordance with the calendar year distribution
requirement. A distribution will be treated as paid during the calendar year if
it actually is paid during calendar year or if declared by each Fund in October,
November or December of such year, payable to shareholders of record on a date
in such month and paid by each Fund during January of the following year. Any
such distributions paid during January of the following year will be taxable to
shareholders as of December 31, rather than the date on which the distributions
are received.
Distributions of net investment income and short-term capital gains
("ordinary income dividends") are taxable to the shareholder as ordinary
dividend income regardless of whether the shareholder receives such
distributions in additional shares or in cash. The portion of such dividends
received from each Fund that will be eligible for the dividends received
deduction for corporations will be determined on the basis of the amount of each
Fund's gross income, exclusive of capital gains from sales of stock or
securities, which is derived as dividends from domestic corporations, other than
certain tax-exempt corporations and certain real estate investment trusts, and
will be designated as such in a written notice to shareholders mailed not later
than 60 days after the end of each fiscal year. Because each of the Funds will
invest principally in debt securities, it is not anticipated that a significant
portion of dividends paid by any Fund will qualify for the dividends received
deduction.
B-67
<PAGE>
Distributions of net long-term capital gains, if any, are taxable as
long-term capital gains regardless of whether the shareholder receives such
distributions in additional shares or in cash or how long the investor has held
his or her shares and are not eligible for the dividends received deduction for
corporations. At March 31, 1996, 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 are available to the extent not utilized to
offset future gains from 1997 through 2004. The utilization of such losses will
be subject to annual limitations under the Code and the regulations thereunder.
Upon a sale or exchange of its shares, a shareholder may realize a taxable
gain or loss depending upon its basis in the shares. Such gain or loss will be
treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and will be long-term capital gain or loss if the shares
have been held for more than one year. The amount of any CDSC will reduce the
amount realized on the sale or exchange of shares for purposes of determining
gain or loss. Generally, any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced within a period of
61 days beginning 30 days before and ending 30 days after the shares are
disposed of. Any loss realized by a shareholder on the sale of shares of a Fund
held by the shareholder for six months or less will be treated for tax purposes
as a long-term capital loss to the extent of any distributions of net capital
gains received by the shareholder with respect to such shares.
Under certain circumstances (such as the exercise of an exchange privilege
in certain cases), the tax effect of sales load charges imposed on the purchase
of shares in a regulated investment company is deferred if the shareholder does
not hold the shares for at least 90 days.
Income received by a Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Income tax
treaties between certain countries and the United States may reduce or eliminate
such taxes. It is impossible to determine in advance the effective rate of
foreign tax to which a Fund will be subject, since the amount of that Fund's
assets to be invested in various countries is not known. It is not anticipated
that any Fund will qualify to pass through to its shareholders the ability to
claim as a foreign tax credit their respective shares of foreign taxes paid by
such Fund.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues interest or other receivables
or accrues expenses or other liabilities denominated in a foreign currency and
the time such Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly, gains or losses on
forward foreign currency exchange contracts, sales of currencies or dispositions
of debt securities denominated in a foreign currency attributable to
fluctuations in the value of the foreign currency between the date of
acquisition of the security and the date of disposition generally also are
treated as ordinary gain or loss. These gains, referred to under the Code as
"Section 988" gains or losses, increase or decrease the amount of each Fund's
investment company taxable income available to be distributed to its
shareholders as ordinary income.
B-68
<PAGE>
The Code includes special rules applicable to the listed non-equity
options, regulated futures contracts, and options on futures contracts which a
Fund may write, purchase or sell. Such options and contracts are classified as
Section 1256 contracts under the Code. The character of gain or loss resulting
from the sale, disposition, closing out, expiration or other termination of
Section 1256 contracts, except forward foreign currency exchange contracts, is
generally treated as long-term capital gain or loss to the extent of 60% thereof
and short-term capital gain or loss to the extent of 40% thereof ("60/40 gain or
loss"). Such contracts, when held by a Fund at the end of a fiscal year,
generally are required to be treated as sold at market value on the last day of
such fiscal year for Federal income tax purposes ("marked-to-market"). Over-
the-counter options are not classified as Section 1256 contracts and are not
subject to the marked-to-market rule or to 60/40 gain or loss treatment. Any
gains or losses recognized by a Fund from transactions in over-the-counter
options generally constitute short-term capital gains or losses. When call
options written, or put options purchased, by a Fund are exercised, the gain or
loss realized on the sale of the underlying securities may be either short-term
or long-term, depending on the holding period of the securities. In determining
the amount of gain or loss, the sales proceeds are reduced by the premium paid
for the over-the-counter puts or increased by the premium received for over-the-
counter calls.
A substantial portion of each Fund's transactions in options, futures
contracts and options on futures contracts, particularly its hedging
transactions, may constitute "straddles" which are defined in the Code as
offsetting positions with respect to personal property. A straddle consisting
of a listed option, futures contract, or option on a futures contract and of
U.S. Government securities would constitute a "mixed straddle" under the Code.
The Code generally provides with respect to straddles (i) "loss deferral" rules
which may postpone recognition for tax purposes of losses from certain closing
purchase transactions or other dispositions of a position in the straddle to the
extent of unrealized gains in the offsetting position, (ii) "wash sale" rules
which may postpone recognition for tax purposes of losses where a position is
sold and a new offsetting position is acquired within a prescribed period, (iii)
"short sale" rules which may terminate the holding period of securities owned by
a Fund when offsetting positions are established and which may convert certain
losses from short-term to long-term and (iv) "conversion transaction" rules
which may treat all or a portion of the gain on a transaction as ordinary income
rather than as capital gains. The Code provides that certain elections may be
made for mixed straddles that can alter the character of the capital gain or
loss recognized upon disposition of positions which form part of a straddle.
Certain other elections also are provided in the Code; no determination has been
reached to make any of these elections.
The Federal Securities Fund, Diversified Income Fund, High Income Fund, Tax
Exempt Insured Fund and Government Securities Fund may purchase debt securities
(such as zero-coupon or pay-in-kind securities) that contain original issue
discount. Original issue discount that accrues in a taxable year is treated as
earned by a Fund and therefore is subject to the distribution requirements of
the Code. Because the original issue discount earned by the Fund in a taxable
year may not be represented by cash income, the Fund may have to dispose of
other securities and use the proceeds to make distributions to shareholders.
B-69
<PAGE>
With respect to the Tax Exempt Insured Fund, distributions out of net
investment income attributable to interest received on tax-exempt securities
("exempt-interest dividends") will be exempt from Federal income tax when paid
to shareholders. It should be noted, however, that interest on certain "private
activity bonds" issued after August 7, 1986 is an item of tax preference for
purposes of the alternative minimum tax, and in any event, must be taken into
account by corporate shareholders for purposes of determining the amount of the
adjustment to corporate alternative minimum taxable income based on adjusted
current earnings. The Fund anticipates that a portion of its investment may be
made in such "private activity bonds" with the result that a portion of the
exempt-interest dividends paid by the Fund will be an item of tax preference to
shareholders subject to the alternative minimum tax. Moreover, shareholders
should be aware that, while exempt from Federal income tax, exempt-interest
dividends may be taxable for state and local tax purposes. Any loss realized by
a shareholder on the sale of shares of the Tax Exempt Insured Fund held by the
shareholder for six months or less will be disallowed to the extent of any
exempt-interest dividend received thereon.
Legislation has expanded the market discount rules to apply to tax exempt
bonds purchased after April 30, 1993. Therefore, any gain on the disposition of
such a bond (including the receipt of a partial principal payment) that was
acquired for a price less than the principal amount (or in the case of a bond
issued with original issue discount, the adjusted issue price at the time of
purchase) of the bond is treated as ordinary income to the extent of the
required market discount.
A Fund may be required to backup withhold U.S. Federal income tax at the
rate of 31% of all taxable distributions payable to shareholders who fail to
provide their correct taxpayer identification number or fail to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against a shareholder's U.S. Federal
income tax liability.
Foreign shareholders generally will be subject to a withholding tax at the
rate of 30% (or lower treaty rate) on any ordinary income dividends paid by the
Funds.
The foregoing is a general abbreviated summary of the applicable provisions
of the Code and Treasury regulations currently in effect. Shareholders are
urged to consult their tax advisers regarding specific questions as to Federal,
state and local taxes. In addition, foreign investors should consult with their
own tax advisers regarding the particular tax consequences to them of an
investment in each Fund. Qualification as a regulated investment company under
the Code for tax purposes does not entail government supervision of management
or investment policies.
RETIREMENT PLANS
Shares of each Fund (other than the Tax Exempt Insured Fund) are eligible
to be purchased in conjunction with various types of qualified retirement plans.
The summary below is only a brief description of the Federal income tax laws for
each Plan and does not purport to be complete.
B-70
<PAGE>
Further information or an application to invest in shares of the Fund by
establishing any of the retirement plans described below may be obtained by
calling Retirement Plans at (800) 858-8850. However, it is recommended that a
shareholder considering any retirement plan consult a tax adviser before
participating.
Pension and Profit-Sharing Plans. Sections 401(a) and 401(k) of the Code permit
business employers and certain associations to establish pension and profit
sharing plans for employees. Shares of the Fund may be purchased by those who
would have been covered under the rules governing old H.R. 10 (Keogh) Plans, as
well as by corporate plans. Each business retirement plan provides tax
advantages for owners and participants. Contributions made by the employer are
tax-deductible, and participants do not pay taxes on contributions or earnings
until withdrawn.
Tax-Sheltered Custodial Accounts. Section 403(b)(7) of the Code permits public
school employees and employees of certain types of charitable, educational and
scientific organizations specified in Section 501(c)(3) of the Code, to purchase
shares of the Fund and, subject to certain limitations, exclude the amount of
purchase payments from gross income for tax purposes.
Individual Retirement Accounts (IRA). Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program, including
Simplified Employee Pension Plans, commonly referred to as SEP-IRA. These IRA's
are subject to limitations with respect to the amount that may be contributed,
the eligibility of individuals, and the time in which distributions would be
allowed to commence. In addition, certain distributions from some other types of
retirement plans may be placed on a tax-deferred basis in an IRA.
Salary Reduction Simplified Employee Pension (SARSEP). This plan was introduced
by a provision of the Tax Reform Act of 1986 as a unique way for small employers
to provide the benefit of retirement planning for their employees.
Contributions are deducted from the employee's paycheck before tax deductions
and are deposited into an IRA by the employer. These contributions are not
included in the employee's income and therefore are not reported or deducted on
his or her tax return.
DESCRIPTION OF SHARES
Ownership of the Trust is represented by transferable shares of beneficial
interest. The Declaration of Trust of the Trust (the "Declaration of Trust")
permits the Trustees to issue an unlimited number of full and fractional shares,
$.01 par value, and to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportionate beneficial interests
of the Trust.
Currently, five series of shares of the Trust have been authorized pursuant
to the Declaration of Trust: the Government Securities Fund, the Federal
Securities Fund, the Diversified Income Fund, the High Income Fund and the Tax
Exempt Insured Fund. Each series has been divided into two classes of shares,
designated as Class A and Class B shares. The Trustees may authorize the
creation of additional series of shares so as to be able to offer to investors
additional investment portfolios
B-71
<PAGE>
within the Trust that would operate independently from the Trust's present
portfolios, or to distinguish among shareholders, as may be necessary, to comply
with future regulations or other unforeseen circumstances. Each series of the
Trust's shares represents the interests of the shareholders of that series in a
particular portfolio of Trust assets. In addition, the Trustees may authorize
the creation of additional classes of shares in the future, which may have fee
structures different from those of existing classes and/or may be offered only
to certain qualified investors.
Shareholders are entitled to a full vote for each full share held. The
Trustees have terms of unlimited duration (subject to certain removal
procedures) and have the power to alter the number of Trustees, and appoint
their own successors, provided that at all times at least a majority of the
Trustees have been elected by shareholders. The voting rights of shareholders
are not cumulative, so that holders of more than 50% of the shares voting can,
if they choose, elect all Trustees being elected, while the holders of the
remaining shares would be unable to elect any Trustees. Although the Trust need
not hold annual meetings of shareholders, the Trustees may call special meetings
of shareholders for action by shareholder vote as may be required by the 1940
Act or the Declaration of Trust. Also, a shareholders meeting must be called, if
so requested in writing by the holders of record of 10% or more of the
outstanding shares of the Trust. In addition, the Trustees may be removed by the
action of the holders of record of two-thirds or more of the outstanding shares.
All series of shares will vote with respect to certain matters, such as election
of Trustees. When all series of shares are not affected by a matter to be voted
upon, such as approval of investment advisory agreements or changes in a Fund's
policies, only shareholders of the series affected by the matter may be entitled
to vote.
Both classes of shares of a given series are identical in all respects,
except that (i) each class may bear differing amounts of certain class-specific
expenses, (ii) Class A shares are subject to an initial sales charge, a
distribution fee and an ongoing account maintenance and service fee, (iii) Class
B shares are subject to a contingent deferred sales charge, a distribution fee
and an ongoing account maintenance and service fee, (iv) Class B shares convert
automatically to Class A shares on the first business day of the month seven
years after the purchase of such Class B Shares, (v) each class has voting
rights on matters that pertain to the Rule 12b-1 plan adopted with respect to
such class, except that under certain circumstances, the holders of the Class B
shares may be entitled to vote on material changes to the Class A Rule 12b-1
plan, and (vi) each class of shares will be exchangeable only into the same
class of shares of any other Fund or other funds in the SunAmerica Family of
Mutual Funds that offers that class. All shares of the Trust issued and
outstanding and all shares offered by the Prospectus when issued, are and will
be fully paid and non-assessable. Shares have no preemptive or other
subscription rights and are freely transferable on the books of the Trust. In
addition, shares have no conversion rights, except as described above.
The Declaration of Trust provides that no Trustee, officer, employee or
agent of the Trust is liable to the Trust or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Trust, except as such liability may arise from his or
its own bad faith, willful misfeasance, gross negligence or reckless disregard
of his duties. It also provides that all third persons shall look solely to the
Trust's property for satisfaction of claims arising
B-72
<PAGE>
in connection with the affairs of the Trust. With the exceptions stated, the
Declaration of Trust provides that a Trustee, officer, employee or agent is
entitled to be indemnified against all liability in connection with the affairs
of the Trust. The Trust shall continue, without limitation of time, subject to
the provisions in the Declaration of Trust concerning termination by action of
the shareholders.
ADDITIONAL INFORMATION
Computation of Offering Price per Share
- ---------------------------------------
The offering price for Class A and Class B shares of the Funds, based on
the value of each Fund's net assets as of March 31, 1996, is calculated as
follows:
[This area intentionally left blank.]
B-73
<PAGE>
<TABLE>
<CAPTION>
Government Securities Federal Securities Diversified Income
Class A Class B Class A Class B Class A Class B
<S> <C> <C> <C> <C> <C> <C>
Net Assets $125,503,637 $428,772,048 $40,277,524 $26,164,824 $ 16,761,844 $110,949,367
Number of Shares Outstanding 14,756,884 50,389,486 3,862,927 2,504,077 3,905,764 25,797,521
Net Asset Value (net assets $ 8.50 $ 8.51 $ 10.43 $ 10.45 $ 4.29 $ 4.30
divided by number of shares)
Sales Charge (for Class A Shares: $ 0.42 ** $ 0.52 ** $ 0.21 **
4.75% of offering price (6.10% of
net asset value per share))*
Offering Price $ 8.92 $ 8.51 $ 10.95 $ 10.45 $ 4.50 $ 4.30
</TABLE>
<TABLE>
<CAPTION>
High Income Tax Exempt Insured
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
Net Assets $35,962,610 $91,800,393 $121,957,311 $ 29,314,839
Number of Shares Outstanding 5,176,395 13,190,350 9,818,201 2,359,606
Net Asset Value (net assets $ 6.95 $ 6.96 $ 12.42 $ 12.42
divided by number of shares)
Sales Charge (for Class A Shares: $ 0.35 ** $ 0.62 **
4.75% of offering price (6.10% of
net asset value per share))*
Offering Price $ 7.30 $ 6.96 $ 13.04 $ 12.42
</TABLE>
* Rounded to nearest one-hundredth percent; assumes maximum sales charge is
applicable.
** Class B shares are not subject to an initial sales charge but may be
subject to a contingent deferred sales charge on redemption of shares
within six years of purchase.
B-74
<PAGE>
Reports to Shareholders. The Trust sends audited annual and unaudited semi-
annual reports to shareholders of each of the Funds. In addition, the Transfer
Agent sends a statement to each shareholder having an account directly with the
Trust to confirm transactions in the account.
Custodian and Transfer Agent. State Street Bank and Trust Company, 1776
Heritage Drive, North Quincy, MA 02171, serves as Custodian and Transfer Agent
for the Funds and in those capacities maintains certain financial and accounting
books and records pursuant to agreements with the Trust. Transfer agent
functions are performed for State Street, by National Financial Data Services,
P.O. Box 419572, Kansas City, MO 64141-6572, an affiliate of State Street.
SunAmerica Fund Services, Inc., The SunAmerica Center, 733 Third Avenue, New
York, NY 10017-3204, acts as a servicing agent assisting State Street Bank and
Trust Company in connection with certain services offered to the shareholders of
each of the Funds.
Independent Accountants and Legal Counsel. Price Waterhouse LLP, 1177 Avenue of
the Americas, New York, NY 10036, has been selected to serve as the Trust's
independent accountants and in that capacity examines the annual financial
statements of the Trust. The firm of Shereff, Friedman, Hoffman and Goodman,
LLP, 919 Third Avenue, New York, NY 10022, has been selected as legal counsel to
the Trust.
FINANCIAL STATEMENTS
Set forth following this Statement of Additional Information are the
financial statements of SunAmerica Income Funds with respect to Registrant's
fiscal year ended March 31, 1996.
B-75
<PAGE>
SUNAMERICA INCOME FUNDS
STATEMENT OF ASSETS AND LIABILITIES -- March 31, 1996
<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
$505,857,350;
$58,883,174;
$120,943,172;
$121,290,514 and
$140,630,966,
respectively)........... $505,472,082 $58,969,751 $122,816,785 $124,664,854 $149,454,718
Short-term securities
(cost equals market).... -- 198,814 -- -- --
Joint repurchase
agreements (cost equals
market)................. 109,319,000 16,631,000 3,328,000 1,051,000 --
Cash..................... 29,470 6,933 6,483 889 --
Interest receivable...... 5,042,643 406,756 2,508,277 2,777,526 2,242,339
Receivable for
investments sold........ 1,244,003 145 -- -- 20,108
Receivable for shares of
beneficial interest
sold.................... 32,676 56,315 8,744 72,879 276,316
Prepaid expenses......... 25,038 27,444 2,269 8,941 18,889
Receivable for variation
margin on futures
contracts............... 6,806 1,361 -- -- --
Receivable from
distributor............. 4,276 -- -- 6,873 --
------------ ----------- ------------ ------------ ------------
Total assets............ 621,175,994 76,298,519 128,670,558 128,582,962 152,012,370
------------ ----------- ------------ ------------ ------------
LIABILITIES:
Payable for securities
loaned.................. 63,493,750 9,500,000 -- -- --
Dividends payable........ 1,371,199 174,321 515,198 479,173 308,829
Payable for shares of
beneficial interest
redeemed................ 838,118 43,243 170,623 46,573 148,169
Accrued expenses......... 422,683 68,411 93,977 107,802 93,113
Distribution and service
maintenance fees
payable................. 405,625 34,374 100,987 97,388 61,569
Investment advisory and
management fees payable. 323,986 28,647 72,590 89,023 64,830
Payable for variation
margin on futures
contracts............... 44,948 7,175 5,972 -- --
Payable to custodian..... -- -- -- -- 63,710
------------ ----------- ------------ ------------ ------------
Total liabilities....... 66,900,309 9,856,171 959,347 819,959 740,220
------------ ----------- ------------ ------------ ------------
Net assets........... $554,275,685 $66,442,348 $127,711,211 $127,763,003 $151,272,150
============ =========== ============ ============ ============
NET ASSETS WERE COMPOSED
OF:
Shares of beneficial
interest, $.01 par
value................... $ 651,464 $ 63,670 $ 297,033 $ 183,667 $ 121,778
Paid-in capital.......... 585,381,836 67,613,871 159,376,243 170,695,156 151,543,027
------------ ----------- ------------ ------------ ------------
586,033,300 67,677,541 159,673,276 170,878,823 151,664,805
Accumulated distributions
in excess of net
investment income....... (1,255,322) (174,321) (522,977) (228,649) (308,829)
Accumulated net realized
loss on investments,
futures contracts and
foreign currency........ (30,117,025) (1,147,449) (33,312,686) (46,261,511) (8,907,578)
Net unrealized
appreciation
(depreciation) on
investments............. (385,268) 86,577 1,873,613 3,374,340 8,823,752
Net unrealized
depreciation on foreign
currency, other assets
and liabilities......... -- -- (15) -- --
------------ ----------- ------------ ------------ ------------
Net assets........... $554,275,685 $66,442,348 $127,711,211 $127,763,003 $151,272,150
============ =========== ============ ============ ============
CLASS A (UNLIMITED SHARES
AUTHORIZED):
Net asset value and
redemption price per
share
($125,503,637/14,756,884;
$40,277,524/3,862,927;
$16,761,844/3,905,764;
$35,962,610/5,176,395
and
$121,957,311/9,818,201
net assets and shares of
beneficial interest
issued and outstanding,
respectively)........... $ 8.50 $ 10.43 $ 4.29 $ 6.95 $ 12.42
Maximum sales charge
(4.75% of offering
price).................. 0.42 0.52 0.21 0.35 0.62
------------ ----------- ------------ ------------ ------------
Maximum offering price to
public.................. $ 8.92 $ 10.95 $ 4.50 $ 7.30 $ 13.04
============ =========== ============ ============ ============
CLASS B (UNLIMITED SHARES
AUTHORIZED):
Net asset value, offering
price and redemption
price (less any
applicable contingent
deferred sales charge)
per share
($428,772,048/50,389,486;
$26,164,824/2,504,077;
$110,949,367/25,797,521;
$91,800,393/13,190,350
and
$29,314,839/2,359,606
net assets and shares of
beneficial interest
issued and outstanding,
respectively)........... $ 8.51 $ 10.45 $ 4.30 $ 6.96 $ 12.42
============ =========== ============ ============ ============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
SUNAMERICA INCOME FUNDS
STATEMENT OF OPERATIONS -- For the year ended March 31, 1996
<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............... $54,240,281 $5,439,937 $14,755,985 $18,337,792 $ 9,527,826
Dividends.............. -- -- -- 189,688 --
----------- ---------- ----------- ----------- -----------
Total investment
income................ 54,240,281 5,439,937 14,755,985 18,527,480 9,527,826
----------- ---------- ----------- ----------- -----------
Expenses:
Investment advisory and
management fees....... 4,212,162 360,738 915,671 1,273,169 802,564
Distribution and
service maintenance
fees--Class A......... 388,894 116,954 56,515 144,739 462,514
Distribution and
service maintenance
fees--Class B......... 5,201,895 384,150 1,247,253 1,284,954 283,659
Transfer agent fees and
expenses--Class A..... 288,579 93,492 44,348 116,344 322,325
Transfer agent fees and
expenses--Class B..... 1,329,862 105,331 325,486 329,464 68,813
Custodian fees and
expenses.............. 936,775 115,545 90,515 99,210 100,440
Interest expense....... 153,337 585 49,501 44,123 --
Trustees' fees and
expenses.............. 73,383 8,115 16,165 18,884 18,163
Audit and tax
consulting fees....... 55,490 15,985 21,960 27,200 22,535
Registration fees--
Class A............... 8,869 8,160 7,570 8,739 14,745
Registration fees--
Class B............... 22,688 7,435 11,849 13,945 10,916
Printing expense....... 21,410 2,705 5,350 7,830 3,925
Legal fees and
expenses.............. 17,210 5,395 7,035 7,455 5,795
Insurance expense...... 16,652 1,706 3,956 3,728 30,886
Miscellaneous expenses. 26,737 3,402 5,288 7,096 6,910
----------- ---------- ----------- ----------- -----------
Total expenses......... 12,753,943 1,229,698 2,808,462 3,386,880 2,154,190
Less: expenses waived
by distributor........ (44,445) -- -- (102,796) --
----------- ---------- ----------- ----------- -----------
Net expenses........... 12,709,498 1,229,698 2,808,462 3,284,084 2,154,190
----------- ---------- ----------- ----------- -----------
Net investment income... 41,530,783 4,210,239 11,947,523 15,243,396 7,373,636
----------- ---------- ----------- ----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss)
on investments......... 9,603,179 2,758,114 (8,084,041) (7,236,768) 1,630,756
Net realized gain (loss)
on futures contracts... 45,590 (23,056) (292,616) -- (199,383)
Net change in unrealized
appreciation
(depreciation) on
investments............ 5,738,709 423,129 13,961,546 7,416,828 2,644,616
Net change in unrealized
appreciation
(depreciation) on
foreign currency, other
assets and liabilities. -- -- (102) -- --
----------- ---------- ----------- ----------- -----------
Net realized and
unrealized gain on
investments and foreign
currency............... 15,387,478 3,158,187 5,584,787 180,060 4,075,989
----------- ---------- ----------- ----------- -----------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............. $56,918,261 $7,368,426 $17,532,310 $15,423,456 $11,449,625
=========== ========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
5
<PAGE>
SUNAMERICA INCOME FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND FEDERAL SECURITIES FUND DIVERSIFIED INCOME FUND
--------------------------------- ----------------------------- -----------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1995
--------------- --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
DECREASE IN NET ASSETS:
OPERATIONS:
Net investment income.. $ 41,530,783 $ 53,583,054 $ 4,210,239 $ 4,623,379 $ 11,947,523 $ 16,024,304
Net realized gain
(loss) on
investments .......... 9,603,179 (45,098,323) 2,758,114 (3,546,056) (8,084,041) (23,976,569)
Net realized gain
(loss) on futures
contracts............. 45,590 -- (23,056) -- (292,616) --
Net realized loss on
foreign currency,
other assets and
liabilities........... -- -- -- -- -- (335,830)
Net change in
unrealized
appreciation
(depreciation) on
investments........... 5,738,709 12,685,155 423,129 1,261,503 13,961,546 (1,943,292)
Net change in
unrealized
appreciation
(depreciation) on
foreign currency,
other assets and
liabilities........... -- -- -- -- (102) 4,974
--------------- --------------- ----------- ----------- ------------ ------------
Net increase (decrease)
in net assets resulting
from operations........ 56,918,261 21,169,886 7,368,426 2,338,826 17,532,310 (10,226,413)
--------------- --------------- ----------- ----------- ------------ ------------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)...... (6,676,176) (4,146,499) (1,985,432) (106,644) (1,513,903) (1,404,506)
From net investment
income (Class B)...... (27,782,092) (35,858,561) (2,098,335) (4,158,525) (11,028,301) (14,176,998)
--------------- --------------- ----------- ----------- ------------ ------------
Total dividends and
distributions to
shareholders........... (34,458,268) (40,005,060) (4,083,767) (4,265,169) (12,542,204) (15,581,504)
--------------- --------------- ----------- ----------- ------------ ------------
NET DECREASE IN NET
ASSETS RESULTING FROM
CAPITAL SHARE
TRANSACTIONS (NOTE 7).. (136,362,670) (275,662,086) (8,732,579) (7,785,923) (23,870,313) (14,272,578)
--------------- --------------- ----------- ----------- ------------ ------------
TOTAL DECREASE IN NET
ASSETS................. (113,902,677) (294,497,260) (5,447,920) (9,712,266) (18,880,207) (40,080,495)
NET ASSETS:
Beginning of period..... 668,178,362 962,675,622 71,890,268 81,602,534 146,591,418 186,671,913
--------------- --------------- ----------- ----------- ------------ ------------
End of period [including
undistributed
(distributions in
excess of) net
investment income for
March 31, 1996 and
March 31, 1995 of
$(1,255,322),
$(1,295,646),
$(174,321), $(99,141),
$(522,977) and
$311,631,
respectively].......... $ 554,275,685 $ 668,178,362 $66,442,348 $71,890,268 $127,711,211 $146,591,418
=============== =============== =========== =========== ============ ============
</TABLE>
See Notes to Financial Statements
6
<PAGE>
SUNAMERICA INCOME FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
HIGH INCOME FUND TAX EXEMPT INSURED FUND
-------------------------- --------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income.. $ 15,243,396 $ 16,493,914 $ 7,373,636 $ 9,127,948
Net realized gain
(loss) on investments
...................... (7,236,768) (22,330,854) 1,630,756 (9,524,226)
Net realized loss on
futures contracts..... -- -- (199,383) --
Net realized loss on
foreign currency,
other assets and
liabilities........... -- (105,175) -- --
Net change in
unrealized
appreciation
(depreciation) on
investments........... 7,416,828 1,183,178 2,644,616 11,417,085
Net change in
unrealized
appreciation
(depreciation) on
foreign currency,
other assets and
liabilities........... -- 2,926 -- --
------------ ------------ ------------ ------------
Net increase (decrease)
in net assets resulting
from operations........ 15,423,456 (4,756,011) 11,449,625 11,020,807
------------ ------------ ------------ ------------
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income (Class A)...... (4,100,978) (3,535,939) (6,307,717) (7,962,945)
From net investment
income (Class B)...... (12,111,523) (13,736,255) (1,156,665) (1,089,883)
------------ ------------ ------------ ------------
Total dividends and
distributions to
shareholders........... (16,212,501) (17,272,194) (7,464,382) (9,052,828)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM CAPITAL SHARE
TRANSACTIONS (NOTE 7).. (65,066,720) 50,209,365 (16,652,927) (24,008,980)
------------ ------------ ------------ ------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS................. (65,855,765) 28,181,160 (12,667,684) (22,041,001)
NET ASSETS:
Beginning of period..... 193,618,768 165,437,608 163,939,834 185,980,835
------------ ------------ ------------ ------------
End of period [including
undistributed
(distributions in
excess of) net
investment income for
March 31, 1996 and
March 31, 1995 of
$(228,649), $146,988,
$(308,829) and
$(216,286),
respectively].......... $127,763,003 $193,618,768 $151,272,150 $163,939,834
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
7
<PAGE>
SUNAMERICA INCOME FUNDS
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
NET
GAIN
(LOSS)
ON DISTRI-
INVEST- BUTIONS
MENTS TOTAL DIVIDENDS DISTRI- IN EXCESS NET
NET ASSET (BOTH FROM FROM NET BUTIONS OF NET ASSET
VALUE, NET REALIZED INVEST- INVEST- FROM RETURN INVEST- TOTAL VALUE,
PERIOD BEGINNING INVESTMENT AND MENT MENT OTHER OF MENT DISTRI- END OF TOTAL
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME SOURCES CAPITAL INCOME BUTIONS PERIOD RETURN(2)
- ---------------- --------- ---------- ----------- ---------- --------- ------- ------- --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
10/01/93-
3/31/94(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
RATIO OF RATIO OF
NET EXPENSES NET
ASSETS TO INVESTMENT
END OF AVERAGE INCOME TO
PERIOD PERIOD NET AVERAGE PORTFOLIO
ENDED (000'S) ASSETS NET ASSETS TURNOVER
- ---------------- ---------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
10/01/93-
3/31/94(3)..... $ 76,586 1.35%(4)(6) 6.83%(4)(6) 35%
3/31/95......... 73,399 1.46(6) 7.50(6) 105
3/31/96......... 125,504 1.44(6) 7.11(6) 142
NET
GAIN
(LOSS)
ON DISTRI-
INVEST- BUTIONS
MENTS TOTAL DIVIDENDS DISTRI- IN EXCESS NET
NET ASSET (BOTH FROM FROM NET BUTIONS OF NET ASSET
VALUE, NET REALIZED INVEST- INVEST- FROM RETURN INVEST- TOTAL VALUE,
PERIOD BEGINNING INVESTMENT AND MENT MENT OTHER OF MENT DISTRI- END OF TOTAL
ENDED OF PERIOD INCOME(1) UNREALIZED) OPERATIONS INCOME SOURCES CAPITAL INCOME BUTIONS PERIOD RETURN(2)
- ---------------- --------- ---------- ----------- ---------- --------- ------- ------- --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B
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
RATIO OF RATIO OF
NET EXPENSES NET
ASSETS TO INVESTMENT
END OF AVERAGE INCOME TO
PERIOD PERIOD NET AVERAGE PORTFOLIO
ENDED (000'S) ASSETS NET ASSETS TURNOVER
- ---------------- ---------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
6/30/92(5)...... $1,075,668 1.92% 8.21% 54%
6/30/93(5)...... 1,259,845 1.82(6) 7.27(6) 73
7/01/93-
3/31/94........ 886,089 1.95(4)(6) 6.61(4)(6) 35
3/31/95......... 594,779 2.15(6) 6.80(6) 105
3/31/96......... 428,772 2.13 6.46 142
</TABLE>
- --------------------------------------------------------------------------------
FEDERAL SECURITIES FUND
<TABLE>
<CAPTION>
NET
GAIN
(LOSS)
ON DISTRI-
INVEST- BUTIONS
MENTS TOTAL DIVIDENDS DISTRI- IN EXCESS NET NET
NET ASSET NET (BOTH FROM FROM NET BUTIONS OF NET ASSET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM INVEST- TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL MENT DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS INCOME BUTIONS PERIOD RETURN(2) (000'S)
- ---------------- --------- ------- ----------- ---------- --------- ------- --------- ------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
10/11/93-
3/31/94(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
RATIO OF RATIO OF
EXPENSES NET
TO INVESTMENT
AVERAGE INCOME TO
PERIOD NET AVERAGE PORTFOLIO
ENDED ASSETS NET ASSETS TURNOVER
- ---------------- ------------- -------------- ---------
<S> <C> <C> <C>
10/11/93-
3/31/94(3)..... 1.39%(4)(6) 4.68%(4)(6) 68%
3/31/95......... 1.40(6) 6.90(6) 267
3/31/96......... 1.37 6.12 311
NET
GAIN
(LOSS)
ON DISTRI-
INVEST- BUTIONS
MENTS TOTAL DIVIDENDS DISTRI- IN EXCESS NET NET
NET ASSET NET (BOTH FROM FROM NET BUTIONS OF NET ASSET ASSETS
VALUE, INVEST- REALIZED INVEST- INVEST- FROM INVEST- TOTAL VALUE, END OF
PERIOD BEGINNING MENT AND MENT MENT CAPITAL MENT DISTRI- END OF TOTAL PERIOD
ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME GAINS INCOME BUTIONS PERIOD RETURN(2) (000'S)
- ---------------- --------- ------- ----------- ---------- --------- ------- --------- ------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B
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
RATIO OF RATIO OF
EXPENSES NET
TO INVESTMENT
AVERAGE INCOME TO
PERIOD NET AVERAGE PORTFOLIO
ENDED ASSETS NET ASSETS TURNOVER
- ---------------- ------------- -------------- ---------
<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
</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) 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
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Government
Securities Fund
Class A -- .10% .07% .04%
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
8
<PAGE>
SUNAMERICA INCOME FUNDS
FINANCIAL HIGHLIGHTS
DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
NET GAIN
(LOSS) ON RATIO OF
INVESTMENTS NET NET EXPENSES RATIO OF NET
NET ASSET (BOTH DIVIDENDS ASSET ASSETS TO INVESTMENT
VALUE, NET REALIZED TOTAL FROM FROM NET VALUE, END OF AVERAGE INCOME TO
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT END OF TOTAL PERIOD NET AVERAGE NET
PERIOD ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME PERIOD RETURN(1) (000'S) ASSETS ASSETS
- ---------------- --------- ---------- ----------- ---------- ---------- ------ --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
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) 8.92%(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)(8) 8.25 (4)(8)
3/31/95......... 4.79 0.43(3) (0.66) (0.23) (0.42) 4.14 (5.10) 14,213 1.59 9.58
3/31/96......... 4.14 0.39(3) 0.16 0.55 (0.40) 4.29 13.78 16,762 1.46 8.96
PORTFOLIO
PERIOD ENDED TURNOVER
- ----------------- ---------
<S> <C>
10/05/93 -
10/31/93(2)(5). 249%
11/01/93 -
3/31/94........ 48
3/31/95......... 160
3/31/96......... 166
NET GAIN
(LOSS) ON RATIO OF
INVESTMENTS NET NET EXPENSES RATIO OF NET
NET ASSET (BOTH DIVIDENDS ASSET ASSETS TO INVESTMENT
VALUE, NET REALIZED TOTAL FROM FROM NET VALUE, END OF AVERAGE INCOME TO
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT END OF TOTAL PERIOD NET AVERAGE NET
PERIOD ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME PERIOD RETURN(1) (000'S) ASSETS ASSETS
- ---------------- --------- ---------- ----------- ---------- ---------- ------ --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B
10/31/92(5)(6).. $5.21 $0.42 $(0.41) $0.01 $(0.40) $4.82 0.16 % $ 35,409 0.74%(8) 7.81%(8)
10/31/93(5)(6).. 4.82 0.38(3) 0.24 0.62 (0.37) 5.07 13.35 102,519 1.78 (8) 7.53 (8)
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) 7.48 (4)
3/31/95......... 4.79 0.40(3) (0.65) (0.25) (0.39) 4.15 (5.46) 132,378 2.12 8.98
3/31/96......... 4.15 0.36(3) 0.17 0.53 (0.38) 4.30 13.09 110,949 2.06 8.42
PORTFOLIO
PERIOD ENDED TURNOVER
- ----------------- ---------
<S> <C>
10/31/92(5)(6).. 191%
10/31/93(5)(6).. 249
11/01/93 -
3/31/94........ 48
3/31/95......... 160
3/31/96......... 166
- --------------------------------------------------------------------------------
HIGH INCOME FUND
<CAPTION>
NET GAIN
(LOSS) ON RATIO OF
INVESTMENTS NET NET EXPENSES RATIO OF NET
NET ASSET (BOTH DIVIDENDS ASSET ASSETS TO INVESTMENT
VALUE, NET REALIZED TOTAL FROM FROM NET VALUE, END OF AVERAGE INCOME TO
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT END OF TOTAL PERIOD NET AVERAGE NET
PERIOD ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME PERIOD RETURN(1) (000'S) ASSETS ASSETS
- ---------------- --------- ---------- ----------- ---------- ---------- ------ --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
3/31/92(7)...... $6.84 $0.95 $1.28 $2.23 $(1.00) $8.07 35.27% $ 22,607 1.57% 13.19%
3/31/93(7)...... 8.07 0.95 0.18 1.13 (1.08) 8.12 15.05 30,715 1.77 11.08
3/31/94(7)...... 8.12 0.87(3) (0.14) 0.73 (0.82) 8.03 9.14 33,724 1.72 10.34
3/31/95......... 8.03 0.78(3) (1.03) (0.25) (0.83) 6.95 (2.91) 40,585 1.61 10.82
3/31/96......... 6.95 0.67(3) 0.02 0.69 (0.69) 6.95 10.43 35,963 1.53 9.36
PORTFOLIO
PERIOD ENDED TURNOVER
- ----------------- ---------
<S> <C>
3/31/92(7)...... 208%
3/31/93(7)...... 232
3/31/94(7)...... 290
3/31/95......... 196
3/31/96......... 183
CLASS B
NET GAIN
(LOSS) ON RATIO OF
INVESTMENTS NET NET EXPENSES RATIO OF NET
NET ASSET (BOTH DIVIDENDS ASSET ASSETS TO INVESTMENT
VALUE, NET REALIZED TOTAL FROM FROM NET VALUE, END OF AVERAGE INCOME TO
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT END OF TOTAL PERIOD NET AVERAGE NET
PERIOD ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME PERIOD RETURN(1) (000'S) ASSETS ASSETS
- ---------------- --------- ---------- ----------- ---------- ---------- ------ --------- -------- -------- ------------
<S> <C> <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)(8) 9.07%(4)(8)
3/31/95......... 8.04 0.73(3) (1.02) (0.29) (0.79) 6.96 (3.42) 153,034 2.16 (8) 10.26 (8)
3/31/96......... 6.96 0.62(3) 0.03 0.65 (0.65) 6.96 9.83 91,800 2.06 (8) 8.85 (8)
10/01/93 -
3/31/94(2)..... 290%
3/31/95......... 196
3/31/96......... 183
</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)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
-------- -------- ------- ------- -------
<S> <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%
</TABLE>
See Notes to Financial Statements
9
<PAGE>
SUNAMERICA INCOME FUNDS
FINANCIAL HIGHLIGHTS
TAX EXEMPT INSURED FUND
<TABLE>
<CAPTION>
NET GAIN
(LOSS) ON RATIO OF
INVESTMENTS NET NET EXPENSES
NET ASSET (BOTH DIVIDENDS ASSET ASSETS TO
VALUE, NET REALIZED TOTAL FROM FROM NET VALUE, END OF AVERAGE
BEGINNING INVESTMENT AND INVESTMENT INVESTMENT END OF TOTAL PERIOD NET
PERIOD ENDED OF PERIOD INCOME UNREALIZED) OPERATIONS INCOME PERIOD RETURN(1) (000'S) ASSETS
- ---------------- --------- ---------- ----------- ---------- ---------- ------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
10/31/92(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 (7)
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)(7)
3/31/95......... 11.95 0.63(4) 0.17 0.80 (0.62) 12.13 6.97 137,955 1.20 (7)
3/31/96......... 12.13 0.59(4) 0.29 0.88 (0.59) 12.42 7.37 121,957 1.22
RATIO OF
NET
INVESTMENT
INCOME TO
AVERAGE PORTFOLIO
PERIOD ENDED NET ASSETS TURNOVER
- ----------------- --------------- ---------
<S> <C> <C>
10/31/92(2)..... 6.26% 21%
10/31/93(2)..... 5.56 (7) 26
11/01/93-
3/31/94........ 4.99 (5)(7) 52
3/31/95......... 5.32 (7) 162
3/31/96......... 4.72 46
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
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
RATIO OF
NET
INVESTMENT
INCOME TO
AVERAGE PORTFOLIO
PERIOD ENDED NET ASSETS TURNOVER
- ----------------- --------------- ---------
<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
</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)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
10
<PAGE>
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--28.8%
6.50% due 3/15/24................................. $ 9,624 $ 8,715,864
7.50% due 2/01/22 - 6/01/25....................... 24,289 24,242,475
8.50% due 6/01/01................................. 5 5,679
9.00% due 1/01/02 - 10/01/16...................... 609 636,928
9.25% due 9/01/08 - 3/01/17....................... 526 551,591
9.50% due 9/01/16 - 9/01/21....................... 7,195 7,640,917
9.63% due 5/15/06(2).............................. 5,000 4,687,501
10.00% due 10/01/02 - 8/01/21..................... 24,683 27,138,010
10.00% due 5/01/05(1)............................. 170 173,516
10.50% due 6/01/00 - 1/01/21...................... 969 1,057,083
10.75% due 9/01/00 - 1/01/15...................... 274 300,945
11.00% due 9/01/00 - 6/01/17...................... 2,555 2,838,134
11.25% due 11/01/13............................... 88 97,852
11.50% due 11/01/01 - 7/01/19..................... 1,256 1,407,217
11.75% due 8/01/11 - 10/01/14..................... 188 211,148
12.00% due 7/01/99 - 7/01/20...................... 15,671 17,587,195
12.13% due 9/01/11................................ 877 997,245
12.25% due 10/01/99 - 7/01/15..................... 1,092 1,239,226
12.50% due 8/01/99 - 4/01/19...................... 26,291 30,272,662
12.75% due 2/01/00 - 6/01/15...................... 1,316 1,508,303
13.00% due 5/01/00 - 10/01/15..................... 13,804 16,087,500
13.25% due 11/01/10 - 5/01/15..................... 1,374 1,598,796
13.50% due 2/01/10 - 2/01/19...................... 7,916 9,346,950
13.75% due 7/01/11 - 8/01/14...................... 96 112,997
14.00% due 10/01/09 - 4/01/16..................... 780 921,196
14.50% due 12/01/10 - 5/01/13..................... 140 164,848
14.72% due 2/15/21(1)(2).......................... 221 201,045
------------
TOTAL FEDERAL HOME LOAN
MORTGAGE CORP.
(cost $154,776,200)............................... 159,742,823
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--16.7%
6.00% due 9/01/00(1).............................. 9,200 9,044,783
6.00% due 11/01/03................................ 6,429 6,314,466
6.50% due 8/01/99 - 1/01/01....................... 7,355 7,295,546
8.00% due 12/01/22 - 1/01/23...................... 16,712 17,004,784
8.50% due 9/25/20(1).............................. 600 606,750
9.00% due 12/01/97 - 4/01/07...................... 3,146 3,308,747
9.25% due 12/01/10 - 1/01/17...................... 473 498,255
10.25% due 6/01/14 - 7/01/16...................... 114 124,965
10.50% due 3/01/15................................ 360 392,410
11.00% due 3/01/09 - 8/01/20...................... 1,647 1,833,586
11.50% due 5/01/00 - 3/01/14...................... 797 844,708
11.75% due 3/01/15 - 11/01/15..................... 61 68,789
12.00% due 9/01/07 - 5/01/16...................... 14,009 15,947,455
12.25% due 9/01/99 - 10/01/15..................... 1,930 2,191,959
12.50% due 12/01/97 - 9/01/15..................... 8,241 9,444,558
12.75% due 9/01/12 - 9/01/15...................... 845 972,798
13.00% due 10/01/09 - 9/01/16..................... 10,947 12,773,140
13.25% due 10/01/13 - 2/01/15..................... 239 278,211
13.50% due 10/01/10 - 2/01/17..................... 1,900 2,245,639
13.75% due 11/01/11 - 10/01/14.................... 190 224,583
</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.............................. $ 515 $ 613,962
14.50% due 7/01/11............................... 273 325,892
14.75% due 7/01/12............................... 127 157,382
15.00% due 10/01/12 - 2/01/13.................... 165 196,515
15.50% due 10/01/12.............................. 85 102,712
------------
TOTAL FEDERAL NATIONAL
MORTGAGE ASSOCIATION
(cost $91,364,378)............................... 92,812,595
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--27.0%
6.50% due 12/15/98 - 10/15/04.................... 6,044 5,882,411
7.00% due 11/15/22 - 10/15/23.................... 21,558 21,002,408
7.50% due 1/15/17 - 10/15/23..................... 27,794 27,737,641
8.50% due 6/15/01 - 11/15/20..................... 15,230 15,951,135
9.00% due 5/15/01 - 12/15/20..................... 10,652 11,260,200
9.50% due 2/15/98 - 7/15/20...................... 3,667 3,946,056
10.00% due 3/15/98 - 5/15/19..................... 2,576 2,771,585
10.25% due 7/15/15............................... 50 55,778
10.50% due 11/15/97 - 6/15/21.................... 10,292 11,218,191
11.00% due 2/15/98 - 4/15/21..................... 7,253 8,028,757
11.50% due 3/15/98 - 1/15/21..................... 9,425 10,645,070
11.75% due 7/15/13 - 11/15/15.................... 1,071 1,190,134
12.00% due 9/15/98 - 10/15/19.................... 4,286 4,904,405
12.25% due 8/15/13 - 7/15/15..................... 1,233 1,429,063
12.50% due 4/15/10 - 3/15/16..................... 9,009 10,483,519
12.75% due 10/15/13.............................. 6 6,571
13.00% due 11/15/10 - 6/15/15.................... 4,799 5,635,165
13.25% due 7/15/14 - 11/15/14.................... 119 139,688
13.50% due 5/15/10 - 1/15/15..................... 3,223 3,834,176
14.00% due 5/15/11 - 12/15/14.................... 1,651 1,996,924
15.00% due 6/15/11 - 2/15/13..................... 957 1,159,746
16.00% due 12/15/11 - 7/15/12.................... 295 348,126
------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(cost $151,845,292).............................. 149,626,749
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION II--2.0%
10.00% due 9/20/16 - 4/20/19..................... 25 27,355
11.00% due 7/20/00............................... 38 39,728
11.50% due 8/20/13 - 7/20/20..................... 1,308 1,481,043
11.75% due 11/20/14 - 2/20/16.................... 569 652,550
12.00% due 10/20/13 - 5/20/15.................... 870 994,801
12.25% due 5/20/14 - 10/20/15.................... 84 96,026
12.50% due 9/20/13 - 1/20/15..................... 4,351 5,049,054
12.75% due 11/20/13 - 7/20/15.................... 195 226,804
13.00% due 9/20/13 - 10/20/14.................... 1,993 2,340,956
13.25% due 8/20/14 - 5/20/15..................... 89 103,432
13.50% due 10/20/14.............................. 78 92,771
------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION II
(cost $10,757,426)............................... 11,104,520
------------
</TABLE>
11
<PAGE>
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
U.S. FEDERAL AGENCY--0.2%
United States Department of Veteran Affairs
6.50% due 10/15/05
(cost $986,926).................................. $ 961 $ 959,145
------------
U.S. TREASURY NOTES--8.7%
5.63% due 2/15/06 (3)............................. 30,000 28,453,200
5.88% due 11/15/05 (3)............................ 20,400 19,660,500
------------
TOTAL U.S. TREASURY NOTES
(cost $50,586,524)................................ 48,113,700
------------
U.S. TREASURY BONDS--7.8%
6.00% due 2/15/26................................. 8,000 7,308,720
6.88% due 8/15/25 (3)............................. 19,000 19,296,780
7.63% due 2/15/25................................. 15,000 16,507,050
------------
TOTAL U.S. TREASURY BONDS
(cost $45,540,604)................................ 43,112,550
------------
TOTAL INVESTMENT SECURITIES--91.2%
(cost $505,857,350)............................... 505,472,082
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
REPURCHASE AGREEMENTS--19.7%
Joint Repurchase Agreement Account (Note 3)...... $65,000 $ 65,000,000
Joint Repurchase Agreement Account (Note 3)...... 44,319 44,319,000
------------
TOTAL REPURCHASE AGREEMENTS
(cost $109,319,000).............................. 109,319,000
------------
TOTAL INVESTMENTS--
(cost $615,176,350*)............................. 110.9% 614,791,082
Liabilities in excess of other assets (4)......... (10.9) (60,515,397)
------- ------------
NET ASSETS-- 100.0% $554,275,685
======= ============
</TABLE>
- -------
* See Note 6
(1) Fair valued security; see Note 2
(2) Inverse floater
(3) The security or a portion thereof is out on loan; see Note 2
(4) Reflects a liability for fully collateralized securities on loan; see
Note 2
See Notes to Financial Statements
12
<PAGE>
SUNAMERICA FEDERAL SECURITIES FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
- -------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--11.4%
7.50% due 2/01/23 - 6/01/25....................... $ 4,183 $ 4,176,572
10.00% due 1/01/17................................ 3,056 3,362,044
12.50% due 9/30/13................................ 26 27,386
13.50% due 2/01/14................................ 7 8,598
-----------
TOTAL FEDERAL HOME LOAN
MORTGAGE CORP.
(cost $7,566,708)................................. 7,574,600
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--2.7%
6.00% due 9/01/00(1).............................. 1,840 1,808,957
15.50% due 10/01/12............................... 11 12,683
-----------
TOTAL FEDERAL NATIONAL
MORTGAGE ASSOCIATION
(cost $1,810,303)................................. 1,821,640
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--51.9%
7.00% due 3/15/23 - 9/15/23....................... 13,332 12,994,764
8.50% due 3/15/17 - 9/15/24....................... 12,945 13,539,160
9.00% due 6/15/16 - 5/15/17....................... 4,859 5,210,409
11.00% due 11/15/15............................... 559 625,108
11.25% due 8/15/15................................ 82 92,243
12.00% due 5/15/15................................ 93 107,322
12.25% due 9/15/13 - 7/15/15...................... 927 1,073,791
12.50% due 11/15/10 - 6/15/15..................... 212 246,040
13.00% due 1/15/11 - 4/15/15...................... 370 434,863
13.25% due 10/15/13............................... 20 24,018
13.50% due 5/15/11 - 10/15/14..................... 98 116,219
-----------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
(cost $34,352,991)................................ 34,463,937
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION II--2.5%
10.00% due 10/20/13 - 3/20/17..................... 581 634,862
11.00% due 12/20/13............................... 95 106,594
12.00% due 3/20/15 - 1/20/16...................... 332 379,360
12.25% due 12/20/14 - 10/20/15.................... 404 464,995
13.00% due 6/20/14................................ 18 21,126
13.75% due 9/20/14................................ 15 17,497
-----------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION II
(cost $1,511,074)................................. 1,624,434
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
U.S. TREASURY NOTES--13.4%
5.63% due 2/28/01 (2)............................. $ 5,000 $ 4,901,550
6.50% due 8/15/05................................. 4,000 4,015,640
-----------
TOTAL U.S. TREASURY NOTES
(cost $9,043,346)................................. 8,917,190
-----------
U.S. TREASURY BONDS--6.9%
6.00% due 2/15/26 (2)
(cost $4,598,752) ............................... 5,000 4,567,950
-----------
TOTAL INVESTMENT SECURITIES--88.8%
(cost $58,883,174)................................ 58,969,751
-----------
SHORT-TERM SECURITIES--0.3%
United States Treasury Bills
4.74% due 5/16/96
(cost $198,814).................................. 200 198,814
-----------
REPURCHASE AGREEMENTS--25.0%
Joint Repurchase Agreement Account (Note 3)....... 5,000 5,000,000
Joint Repurchase Agreement Account (Note 3)....... 11,631 11,631,000
-----------
TOTAL REPURCHASE AGREEMENTS
(cost $16,631,000)................................ 16,631,000
-----------
TOTAL INVESTMENTS--
(cost $75,712,988*)............................... 114.1% 75,799,565
Liabilities in excess of other assets (3).......... (14.1) (9,357,217)
------- -----------
NET ASSETS-- 100.0% $66,442,348
======= ===========
</TABLE>
- -------
* See Note 6
(1) Fair valued security; see Note 2
(2) The security or a portion thereof is out on loan; see Note 2
(3) Reflects a liability for fully collateralized securities on loan; see Note
2
See Notes to Financial Statements
13
<PAGE>
SUNAMERICA DIVERSIFIED INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES--46.7%
BROADCASTING--4.4%
Argyle Television, Inc.
Sr. Subordinated Notes
9.75% due 11/01/05................................ $ 1,000 $ 960,000
NWCG Holding Corp.
Sr. Disc. Notes, Series B
zero coupon due 6/15/99........................... 5,000 3,612,500
Sinclair Broadcast Group, Inc.
Sr. Subordinated Notes
10.00% due 9/30/05................................ 1,000 982,500
------------
5,555,000
------------
BUSINESS SERVICES--2.2%
Katz Corp.
Sr. Subordinated Notes
12.75% due 11/15/02............................... 2,500 2,803,125
------------
CABLE--4.2%
Echostar Communications Corp.
Sr. Secured Disc. Notes
zero coupon due 6/01/04(4)........................ 2,000 1,457,500
Echostar Satellite Broadcasting Corp.
Sr. Disc. Notes
zero coupon due 3/15/04(1)(4)..................... 1,250 753,906
International CableTel, Inc.
Sr. Deferred Coupon
zero coupon due 4/15/05(4)........................ 1,000 645,000
International CableTel, Inc.
Sr. Deferred Coupon
zero coupon due 2/01/06(1)(4)..................... 1,000 565,000
United International Holdings, Inc.
Sr. Disc. Notes, Series B
zero coupon due 11/15/99.......................... 1,500 967,500
United International Holdings, Inc.
Sr. Disc. Notes
zero coupon due 11/15/99.......................... 1,500 967,500
------------
5,356,406
------------
CELLULAR--2.6%
Cellular Communications International, Inc.
Sr. Disc. Notes
zero coupon due 8/15/00........................... 2,000 1,220,000
Comcast Cellular Corp.
Notes
zero coupon due 3/05/00........................... 3,000 2,160,000
------------
3,380,000
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
CHEMICALS--2.6%
Arcadian Partners L.P.
Sr. Notes, Series B
10.75% due 5/01/05................................ $ 1,000 $ 1,087,500
LaRoche Industries, Inc.
Sr. Subordinated Notes
13.00% due 8/15/04................................ 2,000 2,175,000
------------
3,262,500
------------
FINANCE--4.7%
CSFB Ltd.
Sr. Secured Notes, Series A
7.00% due 11/15/05(1)(2).......................... 4,000 3,812,500
Olympic Financial Ltd.
Sr. Notes
13.00% due 5/01/00................................ 2,000 2,170,000
------------
5,982,500
------------
FOOD & BEVERAGES--0.7%
Specialty Foods Corp.
Sr. Notes
11.13% due 10/01/02............................... 1,000 935,000
------------
GAMING--2.3%
Station Casinos, Inc.
Sr. Subordinated Notes
10.13% due 3/15/06................................ 1,000 990,625
Trump Castle Funding, Inc.
First Mortgage Notes
11.75% due 11/15/03............................... 2,000 1,950,000
------------
2,940,625
------------
GROCERY--3.5%
Kash 'N Karry Food Stores, Inc.
Sr. Notes
11.50% due 2/01/03................................ 4,517 4,527,822
------------
HEALTH SERVICES-- 4.7%
Amerisource Distribution Corp.
Sr. Debentures
11.25% due 7/15/05................................ 1,028 1,118,086
Dade International, Inc.
Sr. Subordinated Notes, Series B
13.00% due 2/01/05................................ 1,500 1,680,000
OrNda Healthcorp.
Sr. Subordinated Notes
12.25% due 5/15/02................................ 1,000 1,085,000
Tenet Healthcare Corp.
Sr. Subordinated Notes
10.13% due 3/01/05................................ 2,000 2,140,000
------------
6,023,086
------------
</TABLE>
14
<PAGE>
SUNAMERICA DIVERSIFIED INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES (CONTINUED)
LEISURE--0.8%
AMF Group, Inc.
Sr. Subordinated Notes
10.88% due 3/15/06 (1)............................ $ 1,000 $ 998,125
------------
MEDIA--0.8%
Hollinger International
Publishing, Inc.
Sr. Subordinated Notes
9.25% due 2/01/06................................. 1,000 970,000
------------
METALS--2.1%
Renco Metals, Inc.
Sr. Notes
12.00% due 7/15/00................................ 2,500 2,678,125
------------
OIL & GAS--0.4%
DeepTech International, Inc.
Sr. Secured Notes
12.00% due 12/15/00............................... 500 471,250
------------
PACKAGING--1.0%
Riverwood International Corp.
Sr. Subordinated Notes
10.88% due 4/01/08................................ 1,250 1,250,000
------------
PAGING--1.2%
Arch Communications Group, Inc.
Sr. Disc. Notes
zero coupon due 3/15/08(4)........................ 875 500,938
Paging Network, Inc.
Sr. Subordinated Notes
10.13% due 8/01/07................................ 1,000 1,050,000
------------
1,550,938
------------
RETAIL--5.9%
County Seat Stores, Inc.
Sr. Subordinated Notes
12.00% due 10/01/02............................... 2,000 1,480,000
Hills Stores Co.
Sr. Notes
10.25% due 9/30/03................................ 2,000 1,985,000
Thrifty PayLess Holdings, Inc.
Sr. Subordinated Notes
12.25% due 4/15/04(6)............................. 2,000 2,420,000
Thrifty PayLess Holdings, Inc.
Sr. Subordinated Notes
12.25% due 4/15/04................................ 1,500 1,665,000
------------
7,550,000
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
TELECOMMUNICATIONS--2.6%
PanAmSat, L.P.
Sr. Subordinated Notes
zero coupon due 8/01/03(4)........................ $ 4,000 $ 3,360,000
------------
TOTAL CORPORATE BONDS & NOTES
(cost $57,173,575)................................ 59,594,502
------------
FOREIGN BONDS & NOTES--28.8%
BANKS--0.8%
Unibanco--Uniao de Bancos Brasileiros SA
Notes
11.13% due 11/28/97(1)............................ 1,000 1,016,250
------------
CABLE--4.1%
Bell Cablemedia PLC
Sr. Disc. Notes
zero coupon due 9/15/05(4)........................ 1,750 1,106,875
Comcast UK Cable Partners Ltd.
Sr. Disc. Notes
zero coupon due 11/15/07(4)....................... 2,000 1,155,000
Diamond Cable Communications PLC
Sr. Disc. Notes
zero coupon due 12/15/05(4)....................... 2,000 1,170,000
Telewest PLC
Sr. Disc. Notes
zero coupon due 10/01/07(4)....................... 1,875 1,115,625
Videotron Holdings PLC
Sr. Disc. Notes
zero coupon due 8/15/05(4)........................ 1,000 635,000
------------
5,182,500
------------
CEMENT--0.8%
Cemex SA and Tolmex
Debentures
10.00% due 11/05/99............................... 1,000 997,500
------------
FINANCE--0.8%
European Investment Bank
Debentures
6.63% due 3/15/00(3).............................. JPY 100,000 1,095,116
------------
FOOD & BEVERAGES-- 0.8%
Fomento Economico Mexicano
SA de CV
Unsubordinated Notes
9.50% due 7/22/97................................. 1,000 1,005,625
------------
</TABLE>
15
<PAGE>
SUNAMERICA DIVERSIFIED INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
FOREIGN BONDS & NOTES (CONTINUED)
GOVERNMENT AGENCY--12.0%
Federative Republic of Brazil
Variable Rate Disc. Notes
4.25% due 4/15/24(5).............................. $ 4,000 $ 2,025,000
Federative Republic of Brazil
Capitalization Bonds
4.00% due 4/15/14................................. 3,184 1,874,358
Republic of Argentina
Sr. Unsubordinated Bonds
8.38% due 12/20/03................................ 4,000 3,370,000
Republic of Argentina
Bonds
9.25% due 2/23/01................................. 3,000 2,776,875
Republic of Argentina
Sr. Unsubordinated Bonds
10.95% due 11/01/99............................... 2,000 2,065,000
United Mexican States
Par Bonds
6.25% due 12/31/19................................ 2,000 1,265,000
United Mexican States
Global Bonds
9.75% due 2/06/01................................. 2,000 1,961,250
------------
15,337,483
------------
INDUSTRIAL--1.9%
International Semi-Tech Microelectronic, Inc.
Sr. Secured Disc. Notes
zero coupon due 8/15/03(4)........................ 4,000 2,420,000
------------
INSURANCE--0.9%
Terra Nova Insurance United Kingdom Holdings PLC
Sr. Notes
10.75% due 7/01/05................................ 1,000 1,121,250
------------
OIL & GAS--1.6%
Bridas Corp.
Sr. Notes
12.50% due 11/15/99............................... 2,000 2,082,500
------------
TELECOMMUNICATIONS--4.3%
Comunicacion Celular SA
Sr. Deferred Coupon Bond
zero coupon due 11/15/03(1)(4)(6)................. 2,750 1,595,000
Fonorola, Inc.
Sr. Secured Notes
12.50% due 8/15/02................................ 1,000 1,090,000
Telecom Argentina
Debentures
8.38% due 10/18/00................................ 3,000 2,850,000
------------
5,535,000
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS)/ VALUE
SECURITY DESCRIPTION SHARES/WARRANTS (NOTE 2)
<S> <C> <C>
TOBACCO--0.8%
Empresas La Moderna
Bearer Notes
10.25% due 11/12/97.............................. $ 1,000 $ 995,000
------------
TOTAL FOREIGN BONDS & NOTES
(cost $36,664,639)............................... 36,788,224
------------
U.S. GOVERNMENT AND AGENCIES--19.6%
FEDERAL HOME LOAN BANK--3.7%
4.35% due 12/02/97............................... 4,850 4,719,656
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--2.6%
6.00% due 9/01/00(2)............................. 3,385 3,327,443
------------
U.S. TREASURY BONDS--6.9%
6.00% due 2/15/26................................ 1,000 913,590
6.88% due 8/15/25................................ 4,000 4,062,480
11.13% due 8/15/03............................... 3,000 3,832,020
------------
8,808,090
------------
U.S. TREASURY NOTES--6.4%
5.13% due 11/30/98............................... 5,000 4,903,900
7.75% due 2/15/01................................ 3,000 3,205,770
------------
8,109,670
------------
TOTAL U.S. GOVERNMENT AND AGENCIES
(cost $26,012,162)............................... 24,964,859
------------
PREFERRED STOCK--0.9%
FOREST PRODUCTS--0.9%
SDW Holdings Corp.(2)
(cost $950,530)................................. 37,000 1,110,000
------------
COMMON STOCK--0.2%
CABLE--0.2%
Echostar Communications
Corp.+
(cost $83,740)................................... 9,000 303,750
------------
WARRANTS--0.0%+
CABLE--0.0%
United International Holdings, Inc............... 3,000 7,350
------------
FOREST PRODUCTS--0.0%
SDW Holdings Corp.(2)............................ 3,700 48,100
------------
TOTAL WARRANTS
(cost $58,526)................................... 55,450
------------
TOTAL INVESTMENT SECURITIES--96.2%
(cost $120,943,172).............................. 122,816,785
------------
</TABLE>
16
<PAGE>
SUNAMERICA DIVERSIFIED INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT--2.6%
Joint Repurchase Agreement Account (Note 3)
(cost $3,328,000)................................. $ 3,328 $ 3,328,000
------------
TOTAL INVESTMENTS--
(cost $124,271,172*).............................. 98.8% 126,144,785
Other assets less liabilities...................... 1.2 1,566,426
-------- ------------
NET ASSETS-- 100.0% $127,711,211
======== ============
</TABLE>
- --------
* See Note 6
+ Non-income producing security
(1) Resale restricted to qualified institutional buyers
(2) Fair valued security; see Note 2
(3) JPY--Security denominated in Japanese Yen
(4) Represents a zero coupon bond which will convert to an interest-bearing
security at a later date
(5) Variable rate security; rate as of March 31, 1996
(6) Bond issued as part of a unit which includes an equity component
(7) Allocation of net assets by country as of March 31, 1996:
<TABLE>
<S> <C>
United States 67.6%
Argentina 10.3%
Mexico 4.9%
Britain 4.0%
Brazil 3.8%
Canada 2.7%
Colombia 1.2%
Bermuda 0.9%
Japan 0.8%
</TABLE>
See Notes to Financial Statements
17
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES--82.7%
AUTOMOTIVE--1.0%
APS, Inc.
Sr. Subordinated Notes
11.88% due 1/15/06(1)............................. $ 1,250 $ 1,275,000
------------
BROADCASTING--4.3%
NWCG Holding Corp.
Sr. Disc. Notes, Series B
zero coupon due 6/15/99........................... 6,250 4,515,625
Sinclair Broadcast Group, Inc.
Sr. Subordinated Notes
10.00% due 9/30/05................................ 1,000 982,500
------------
5,498,125
------------
BUSINESS SERVICES--4.6%
Katz Corp.
Sr. Subordinated Notes
12.75% due 11/15/02............................... 3,500 3,924,375
Sullivan Graphics, Inc.
Sr. Subordinated Notes
12.75% due 8/01/05................................ 2,000 1,967,500
------------
5,891,875
------------
CABLE--7.9%
Echostar Communications Corp.
Sr. Secured Disc. Notes
zero coupon due 6/01/04(3)........................ 3,000 2,186,250
Echostar Satellite Broadcasting Corp.
Sr. Disc. Notes
zero coupon due 3/15/04(1)(3)..................... 3,000 1,809,375
International CableTel, Inc.
Sr. Deferred Coupon
zero coupon due 4/15/05(3)........................ 2,000 1,290,000
Simmons Cable Co.
Sr. Subordinated Notes(2)(6)...................... 3,000 1,800,000
United International Holdings, Inc.
Sr. Disc. Notes, Series B
zero coupon due 11/15/99.......................... 1,500 967,500
United International Holdings, Inc.
Sr. Disc. Notes
zero coupon due 11/15/99.......................... 1,500 967,500
Wireless One, Inc.
Sr. Notes
13.00% due 10/15/03............................... 1,000 1,062,500
------------
10,083,125
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
CELLULAR--5.4%
Cellular Communications International, Inc.
Sr. Disc. Notes
zero coupon due 8/15/00........................... $ 4,000 $ 2,440,000
Comcast Cellular Corp.
Notes
zero coupon due 3/05/00........................... 4,000 2,880,000
Pricecellular Wireless Corp.
Sr. Disc. Notes
zero coupon due 10/01/03(3)....................... 2,000 1,570,000
------------
6,890,000
------------
CHEMICALS--5.5%
Agriculture Minerals & Chemicals
Sr. Notes
10.75% due 9/30/03................................ 2,500 2,712,500
Arcadian Partners L.P.
Sr. Notes, Series B
10.75% due 5/01/05................................ 1,500 1,631,250
LaRoche Industries, Inc.
Sr. Subordinated Notes
13.00% due 8/15/04................................ 2,500 2,718,750
------------
7,062,500
------------
FINANCE--1.7%
Olympic Financial Ltd.
Sr. Notes
13.00% due 5/01/00................................ 2,000 2,170,000
------------
FOOD & BEVERAGES--1.5%
Specialty Foods Corp.
Sr. Notes
11.13% due 10/01/02............................... 2,000 1,870,000
------------
GAMING--5.6%
Capital Gaming International, Inc.
Promissory Notes
zero coupon due 8/01/95(2)(5)+.................... 20 2,000
Showboat Marina Finance Corp.
First Mortgage Notes
13.50% due 3/15/03(1)............................. 1,250 1,279,687
Showboat, Inc.
Sr. Subordinated Notes
13.00% due 8/01/09................................ 3,000 3,435,000
</TABLE>
18
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES (CONTINUED)
GAMING (CONTINUED)
Station Casinos, Inc.
Sr. Subordinated Notes
10.13% due 3/15/06................................ $ 500 $ 495,313
Trump Castle Funding, Inc.
First Mortgage Notes
11.75% due 11/15/03............................... 2,000 1,950,000
------------
7,162,000
------------
GROCERY--5.9%
Kash 'N Karry Food Stores, Inc.
Sr. Notes
11.50% due 2/01/03................................ 7,473 7,492,015
------------
HEALTH SERVICES--6.1%
Amerisource Distribution Corp.
Sr. Debentures
11.25% due 7/15/05................................ 2,089 2,272,025
Dade International, Inc.
Sr. Subordinated Notes, Series B
13.00% due 2/01/05................................ 2,000 2,240,000
OrNda Healthcorp.
Sr. Subordinated Notes
12.25% due 5/15/02................................ 3,000 3,255,000
------------
7,767,025
------------
INDUSTRIAL--2.7%
Alvey Systems, Inc.
Sr. Subordinated Notes
11.38% due 1/31/03(1)............................. 1,000 1,040,000
J.B. Poindexter & Co.
Sr. Notes
12.50% due 5/15/04(2)............................. 3,000 2,460,000
------------
3,500,000
------------
METALS--2.9%
Renco Metals, Inc.
Sr. Notes
12.00% due 7/15/00................................ 3,500 3,749,375
------------
OFFICE PRODUCTS--1.7%
Williamhouse Regency Delaware, Inc.
Sr. Subordinated Notes
13.00% due 11/15/05(1)............................ 2,000 2,210,000
------------
OIL & GAS--0.7%
DeepTech International, Inc.
Sr. Secured Notes
12.00% due 12/15/00............................... 1,000 942,500
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
PACKAGING--2.0%
Riverwood International Corp.
Sr. Subordinated Notes
10.88% due 4/01/08................................ $ 2,500 $ 2,500,000
------------
PAGING--6.6%
A+ Network, Inc.
Sr. Subordinated Notes
11.88% due 11/01/05............................... 2,000 2,040,000
Arch Communications Group, Inc.
Sr. Disc. Notes
zero coupon due 3/15/08(3)........................ 1,750 1,001,875
Paging Network, Inc.
Sr. Subordinated Notes
10.13% due 8/01/07................................ 3,000 3,150,000
Paging Network, Inc.
Sr. Subordinated Notes
11.75% due 5/15/02................................ 2,000 2,180,000
------------
8,371,875
------------
RETAIL--11.6%
County Seat Stores, Inc.
Sr. Subordinated Notes
12.00% due 10/01/02............................... 3,000 2,220,000
Finlay Fine Jewelry Corp.
Sr. Notes
10.63% due 5/01/03................................ 2,000 1,945,000
Hills Stores Co.
Sr. Notes
10.25% due 9/30/03................................ 3,000 2,977,500
Thrifty PayLess Holdings, Inc
Sr. Subordinated Notes
12.25% due 4/15/04(4)............................. 4,000 4,840,000
Thrifty PayLess Holdings, Inc.
Sr. Subordinated Notes
12.25% due 4/15/04................................ 2,500 2,775,000
------------
14,757,500
------------
TELECOMMUNICATIONS--5.0%
Brooks Fiber Properties
Sr. Disc. Notes
zero coupon due 3/01/06(1)(3)..................... 3,500 2,030,000
Intercel, Inc.
Sr. Disc. Notes
zero coupon due 2/01/06(3)(4)..................... 1,750 1,041,250
PanAmSat, L.P.
Sr. Subordinated Notes
zero coupon due 8/01/03(3)........................ 4,000 3,360,000
------------
6,431,250
------------
TOTAL CORPORATE BONDS & NOTES
(cost $102,506,515)............................... 105,624,165
------------
</TABLE>
19
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS)/ VALUE
SECURITY DESCRIPTION SHARES (NOTE 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
FOREIGN BONDS & NOTES--10.7%
CABLE--7.0%
Bell Cablemedia PLC
Sr. Disc. Notes
zero coupon due 9/15/05(3)....................... $ 3,000 $ 1,897,500
Comcast UK Cable Partners Ltd.
Sr. Disc. Notes
zero coupon due 11/15/07(3)...................... 2,000 1,155,000
Diamond Cable Communications PLC
Sr. Disc. Notes
zero coupon due 12/15/05(3)...................... 2,000 1,170,000
Telewest PLC
Sr. Disc. Notes
zero coupon due 10/01/07(3)...................... 3,750 2,231,250
Videotron Holdings PLC
Sr. Disc. Notes
zero coupon due 8/15/05(3)....................... 4,000 2,540,000
------------
8,993,750
------------
INDUSTRIAL--2.8%
International Semi-Tech Microelectronic, Inc.
Sr. Secured Disc. Notes
zero coupon due 8/15/03(3)....................... 6,000 3,630,000
------------
TELECOMMUNICATIONS--0.9%
Fonorola, Inc.
Sr. Secured Notes
12.50% due 8/15/02............................... 1,000 1,090,000
------------
TOTAL FOREIGN BONDS & NOTES
(cost $13,339,672)............................... 13,713,750
------------
PREFERRED STOCK--1.9%
BANKING--1.0%
Chevy Chase Savings Bank, F.S.B. ................ 40,000 1,250,000
------------
CABLE--0.0%
Maryland Cable Partners L.P.+(2)................. 16,009 16,009
------------
FOREST PRODUCTS--0.9%
SDW Holdings Corp. (2)........................... 37,000 1,110,000
------------
TOTAL PREFERRED STOCK
(cost $2,196,539)................................ 2,376,009
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS)/ VALUE
SECURITY DESCRIPTION SHARES/WARRANTS (NOTE 2)
<S> <C> <C>
COMMON STOCK--2.2%
CABLE--0.4%
Echostar Communications Corp.+................... 13,500 $ 455,625
M.L. Opportunity L.P.+(2)........................ 70,106 70,106
MGCP Holdings, Inc.+(2).......................... 1 0
------------
525,731
------------
COMPUTERS--0.6%
Open Text Corp.+(1)(2)(7)........................ 70,754 749,550
------------
GAMING--0.0%
Capital Gaming
International, Inc.+............................ 30,000 6,563
------------
GROCERY--0.0%
Smittys Supermarkets, Inc........................ 500 4,125
------------
MEDIA--0.0%
TMM, Inc.+(2)(7)................................. 2,000,000 20,000
------------
TELECOMMUNICATIONS--1.2%
PanAmSat Corp. .................................. 50,000 1,525,000
------------
TOTAL COMMON STOCK
(cost $3,105,787)................................ 2,830,969
------------
WARRANTS--0.1%+
CABLE--0.0%
United International
Holdings, Inc................................... 3,000 7,350
Wireless One, Inc................................ 3,000 25,500
------------
32,850
------------
FOREST PRODUCTS--0.1%
SDW Holdings Corp.(2)............................ 3,700 48,100
------------
GAMING--0.0%
Capital Gaming
International, Inc.............................. 45,500 4,266
Casino Magic Finance Corp........................ 24,000 10,620
Fitzgerald Gaming Corp.(1)(2).................... 2,000 20,000
------------
34,886
------------
HOUSEHOLD PRODUCTS--0.0%
Chattem, Inc. ................................... 1,500 4,125
------------
TOTAL WARRANTS
(cost $142,001).................................. 119,961
------------
TOTAL INVESTMENT SECURITIES--97.6%
(cost $121,290,514).............................. 124,664,854
------------
</TABLE>
20
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT--0.8%
Joint Repurchase Agreement Account (Note 3)
(cost $1,051,000)................................. $ 1,051 $ 1,051,000
------------
TOTAL INVESTMENTS--
(cost $122,341,514*)............................... 98.4% 125,715,854
Other assets less liabilities...................... 1.6 2,047,149
---------- ------------
NET ASSETS-- 100.0% $127,763,003
========== ============
</TABLE>
- --------
* See Note 6
+ Non-income producing security
(1) Resale restricted to qualified institutional buyers
(2) Fair valued security; see Note 2
(3) Represents a zero coupon bond which will convert to an interest-bearing
security at a later date
(4) Bond issued as part of a unit which includes an equity component
(5) Bond in default
(6) Principal and interest payments for this security are governed by terms set
forth in an override agreement dated December 31, 1995.
(7) At March 31, 1996 the Fund held restricted securities amounting to 0.6% 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 MARCH 31,
DESCRIPTION ACQUISITION COST 1996
------------------------------------------------- ----------- ----- ---------
<S> <C> <C> <C>
Open Text Corp. ................................. 7/12/95 $3.92 $10.59375
TMM, Inc. ....................................... 2/1/95 .83 .01
</TABLE>
See Notes to Financial Statements
21
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
MUNICIPAL BONDS--98.8%
ALASKA--1.4%
Alaska State Housing Finance Corp.,
7.50% due 12/01/15+............................... $1,975 $ 2,047,522
------------
ARIZONA--0.8%
Maricopa County, Arizona General Obligation,
School District Number 213,
7.00% due 7/01/08+................................ 1,000 1,162,510
------------
ARKANSAS--0.9%
Arkansas State Development Finance Authority,
Single Family Mortgage Revenue,
9.00% due 6/01/14+................................ 150 154,643
Arkansas State Development Finance Authority,
Single Family Mortgage Revenue, Series A,
9.38% due 8/01/14+................................ 295 306,045
Arkansas State, General Obligation, Capital
Appreciation College Savings, Series A
zero coupon due 6/01/15........................... 2,575 839,836
------------
1,300,524
------------
CALIFORNIA--10.2%
California Housing Finance Agency, Home Mortgage
Revenue, Series A,
8.13% due 8/01/19+................................ 840 890,291
California Housing Finance Agency, Home Mortgage
Revenue, Series A,
8.20% due 8/01/17+................................ 1,000 1,047,830
Los Angeles, California Convention And Exhibition
Center Authority, Lease Revenue,
6.00% due 8/15/10+................................ 1,155 1,228,365
San Francisco, California City & County
Redevelopment Agency, Lease Revenue,
6.75% due 7/01/15+................................ 1,000 1,087,750
San Jose, California Redevelopment Agency Tax
Allocation, Merged Area Redevelopment Project,
6.00% due 8/01/11+................................ 3,700 3,909,383
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
CALIFORNIA (CONTINUED)
San Jose, California Airport Revenue,
5.88% due 3/01/07+................................ $2,905 $ 3,070,411
San Jose, California Redevelopment Agency Tax
Allocation, Merged Area Redevelopment Project,
6.00% due 8/01/07+................................ 3,000 3,214,050
Turlock, California Irrigation District Revenue,
Series A
6.00% due 1/01/10+................................ 1,000 1,061,620
------------
15,509,700
------------
COLORADO--0.1%
Colorado Housing Finance Authority, Single Family
Revenue, Series C,
9.38% due 3/01/12+................................ 140 145,090
------------
DISTRICT OF COLUMBIA--0.8%
District of Columbia Housing Finance Agency,
Mortgage Revenue Collateral, Single Family,
Series A,
7.75% due 12/01/18+............................... 1,125 1,172,025
------------
FLORIDA--0.0%
Florida Housing Finance Agency, Single Family
Mortgage, Series A,
9.25% due 7/01/07+................................ 25 25,031
------------
GEORGIA--4.2%
Georgia State General Obligation, Series C,
6.50% due 4/01/07................................. 1,700 1,901,603
Municipal Electric Authority, Georgia Special
Obligation, Fifth Crossover Series,
6.40% due 1/01/09+................................ 1,250 1,373,738
Municipal Electric Authority, Georgia Special
Obligation, Fifth Crossover Series,
6.40% due 1/01/13+................................ 1,000 1,086,120
Paulding County, Georgia, General Obligation,
School District,
6.00% due 2/01/13+................................ 1,875 1,976,925
------------
6,338,386
------------
</TABLE>
22
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
ILLINOIS--5.4%
Cook County, Illinois Community College, District
Number 508,
7.70% due 12/01/07+............................... $4,000 $ 4,858,520
Illinois Health Facilities Authority, Lutheran
General Health System,
7.00% due 4/01/08+................................ 2,850 3,257,179
------------
8,115,699
------------
INDIANA--1.0%
Indiana State Housing Finance Authority, Multi-
Unit Mortgage Program, Series A,
9.00% due 1/01/14+................................ 1,470 1,490,521
------------
KENTUCKY--0.2%
Kentucky Housing Corp., Multi-Family Revenue
Mortgage, Series A,
8.88% due 7/01/19+................................ 250 255,955
------------
LOUISIANA--1.2%
Louisiana State, General Obligation, Series A,
5.80% due 8/01/10+................................ 1,750 1,813,788
------------
MARYLAND--2.0%
Maryland State Community Development
Administration, Multi-Family Housing Revenue,
1985 Series B,
8.75% due 5/15/12................................. 3,000 3,071,970
------------
MASSACHUSETTS--6.5%
Massachusetts State Housing Finance Agency,
Insured Rental, Series A,
6.60% due 7/01/14+................................ 5,375 5,593,655
Massachusetts State Water Resources Authority,
6.25% due 11/01/10+............................... 4,000 4,247,920
------------
9,841,575
------------
MICHIGAN--1.1%
Michigan Municipal Bond Authority, Revenue Capital
Appreciation, Local Government Loan,
zero coupon due 5/01/17+.......................... 2,875 820,324
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
MICHIGAN (CONTINUED)
Michigan Municipal Bond Authority, Revenue Capital
Appreciation, Local Government Loan,
zero coupon due 5/01/16+.......................... $2,735 $ 838,934
------------
1,659,258
------------
MISSOURI--4.4%
Missouri State Housing Development Commission,
Insured, Single Family Mortgage Revenue,
9.38% due 4/01/16+................................ 85 87,876
Sikeston, Missouri Electric, Revenue,
6.20% due 6/01/10+................................ 6,000 6,507,840
------------
6,595,716
------------
NEVADA--3.2%
Nevada Housing Division, Single Family Mortgage,
Series A,
zero coupon due 4/01/16+.......................... 5,945 4,838,338
------------
NEW HAMPSHIRE--0.2%
New Hampshire State Housing Finance Authority,
Single Family Residential Mortgage, Series A,
9.25% due 7/01/11+................................ 285 294,767
------------
NEW JERSEY--1.1%
New Jersey Economic Development Authority, Market
Transition Facility Revenue,
7.00% due 7/01/04+................................ 1,500 1,712,715
------------
NEW MEXICO--0.8%
Las Cruces, New Mexico Electric
Revenue
5.45% due 12/01/08+.............................. 1,000 986,430
New Mexico Mortgage Finance Authority, Single
Family Mortgage Revenue, Series C,
8.63% due 7/01/17+................................ 210 222,728
------------
1,209,158
------------
NEW YORK--12.3%
New York City Industrial Development Agency, Civic
Facility, Revenue,
6.25% due 11/15/06+............................... 2,000 2,184,680
New York City, New York, General Obligation,
Series H
5.75% due 3/15/10................................. 1,000 955,640
</TABLE>
23
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
NEW YORK (CONTINUED)
New York City, New York, General Obligation,
Series E,
6.20% due 8/01/07+................................ $2,250 $ 2,450,812
New York City, New York, General Obligation,
Series G
6.75% due 2/01/09................................. 1,000 1,046,290
New York City, New York, General Obligation,
Series I
6.50% due 3/15/06................................. 1,000 1,043,910
New York State Dormitory Authority Revenue, State
University Educational Facilities, Series A,
5.50% due 5/15/10+................................ 1,720 1,728,273
New York State Medical Care Facilities Finance
Agency, Revenue, New York Hospital, Mortgage A,
6.75% due 8/15/14+................................ 2,850 3,075,492
Niagara Falls, New York, General Obligation,
7.50% due 3/01/14+................................ 555 679,736
Niagara Falls, New York, General Obligation,
7.50% due 3/01/13+................................ 445 542,184
Niagara Falls, New York, General Obligation,
7.50% due 3/01/18+................................ 500 621,260
Suffolk County, New York Industrial Development
Agency, Southwest Sewer Systems Revenue,
6.00% due 2/01/07+................................ 4,000 4,296,600
------------
18,624,877
------------
NORTH CAROLINA--5.0%
Harnett County, North Carolina Certificates of
Participation,
6.20% due 12/01/09+............................... 2,400 2,576,160
North Carolina Municipal Power Agency, Catawba
Electric Revenue,
6.00% due 1/01/11+................................ 2,000 2,112,420
North Carolina Municipal Power Agency, Catawba
Electric Revenue,
6.00% due 1/01/10+................................ 2,750 2,922,232
------------
7,610,812
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
NORTH DAKOTA--0.4%
North Dakota State Housing Finance Agency, Single
Family Mortgage Revenue, Series A,
7.38% due 7/01/17+................................ $ 635 $ 659,251
------------
OHIO--4.0%
Adams County, Ohio Valley Local School District,
General Obligation,
7.00% due 12/01/15+............................... 1,000 1,161,600
Lucas County, Ohio Hospital Revenue, St Vincent
Medical Center,
6.50% due 8/15/07+................................ 3,500 3,826,480
Woodridge, Ohio Local School District, General
Obligation,
6.80% due 12/01/14+............................... 1,000 1,126,540
------------
6,114,620
------------
OKLAHOMA--2.0%
Grand River Dam Authority, Oklahoma Electric
Revenue,
5.75% due 6/01/08+................................ 1,850 1,942,482
Oklahoma State Industrial Authority Revenue
Refunding Integris Baptist Health Systems,
6.00% due 8/15/10+................................ 1,000 1,052,220
------------
2,994,702
------------
OREGON--0.3%
Oregon Health Sciences University Revenue
zero coupon due 7/01/16+.......................... 1,500 459,225
------------
PENNSYLVANIA--5.9%
Northeastern Pennsylvania Hospital & Education
Authority, Health Care Revenue,
6.20% due 1/01/04+................................ 2,000 2,163,220
Pennsbury, Pennsylvania School District, General
Obligation,
6.80% due 8/15/14+................................ 3,800 4,299,320
Pennsylvania Housing Finance Agency, Multi-Family
Mortgage,
9.38% due 8/01/28+................................ 170 174,124
Pennsylvania State Industrial Development
Authority, Economic Development, Series B,
7.00% due 1/01/07+................................ 2,000 2,302,420
------------
8,939,084
------------
</TABLE>
24
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- March 31, 1996 -- (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
PUERTO RICO--3.8%
Puerto Rico Commonwealth, General Obligation
5.50% due 7/01/08+................................ $3,000 $ 3,080,550
Puerto Rico Electric Power Authority, Power
Revenue Refunding,
7.00% due 7/01/06................................. 1,435 1,632,040
University of Puerto Rico, University System
Revenue Refunding, Series N,
6.25% due 6/01/08+................................ 1,000 1,103,250
------------
5,815,840
------------
RHODE ISLAND--0.7%
Rhode Island Housing & Mortgage Finance Corp.,
Supplementary Insurance, Series B,
8.38% due 10/01/16+............................... 1,000 1,060,010
------------
TEXAS--12.8%
Bexar County, Texas Health Facilities Development
Corp., Hospital Revenue,
6.75% due 8/15/19+................................ 4,000 4,276,760
Grand Prairie, Texas Health Facilities Development
Corp., Hospital Revenue,
6.88% due 11/01/10+............................... 1,600 1,763,168
Harris County, Texas Hospital District Mortgage,
Revenue,
7.40% due 2/15/10+................................ 2,500 2,997,325
Houston, Texas Water And Sewer Systems, Revenue,
Series C,
zero coupon due 12/01/09+......................... 1,420 656,764
Houston, Texas Water Conveyance Systems Contract,
Certificates of Participation,
6.13% due 12/15/08+............................... 1,250 1,355,238
Houston, Texas Water Conveyance Systems Contract,
Certificates of Participation
6.13% due 12/15/09+............................... 1,000 1,082,630
Houston, Texas Water Conveyance Systems Contract,
Certificates of Participation,
6.38% due 12/15/07+............................... 3,500 3,857,000
Sherman, Texas Independent School District,
General Obligation,
6.50% due 2/15/20................................. 3,000 3,328,320
------------
19,317,205
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SECURITY DESCRIPTION (IN THOUSANDS) (NOTE 2)
<S> <C> <C>
UTAH--1.2%
Utah State Housing Finance Agency, Single Family
Mortgage, Series B,
7.38% due 7/01/16+................................ $ 260 $ 268,884
Utah State Housing Finance Agency, Single Family
Mortgage, Series D,
7.50% due 7/01/16+................................ 1,410 1,495,728
------------
1,764,612
------------
WASHINGTON--2.6%
Washington State Housing Finance Commission,
Multi-Family Mortgage Revenue, Series A,
9.13% due 7/01/10+................................ 380 405,802
Washington State Series B, General Obligation,
6.00% due 6/01/11................................. 3,400 3,598,288
------------
4,004,090
------------
WEST VIRGINIA--2.1%
West Virginia State Housing Development Fund,
Series A,
7.25% due 5/01/17+................................ 3,000 3,122,520
------------
WISCONSIN--0.2%
Wisconsin Housing & Economic Development
Authority, Homeownership Revenue, 1985 Issue III,
9.13% due 6/01/05+................................ 145 148,971
Wisconsin Housing & Economic Development
Authority, Homeownership Revenue, 1985 Issue I,
9.13% due 12/01/11+............................... 215 218,651
------------
367,622
------------
TOTAL INVESTMENT SECURITIES--98.8%
(COST $140,630,966)............................... 149,454,718
------------
TOTAL INVESTMENTS--
(COST $140,630,966*).............................. 98.8% 149,454,718
Other assets less liabilities...................... 1.2 1,817,432
------ ------------
NET ASSETS-- 100.0% $151,272,150
====== ============
</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") or Capital
Guarantee ("CAP") ($132,054,821 or 87.3% of total assets).
See Notes to Financial Statements
25
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996
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
26
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 -- (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. 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.
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
27
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 -- (continued)
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.
INVESTMENT SECURITIES LOANED: During the year ended March 31, 1996, U.S.
Government Securities Fund, Federal Securities Fund, Diversified Income
Fund and High Income Fund participated in securities lending with qualified
brokers. In lending portfolio securities to brokers the Funds receive cash
as collateral against the loaned securities, which must be maintained at
not less than 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
28
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 -- (continued)
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.
At March 31, 1996, U.S. Government Securities Fund and Federal Securities
Fund have loaned securities having a value of $63,740,849 and $9,531,092,
respectively, and held cash collateral of $63,493,750 and $9,500,000,
respectively, for these loans. The value of the collateral was sufficient
at the time the loan agreements were entered into. As a result of an
increase in the market value of the loaned securities on the last business
day of the fiscal year, the Funds were furnished with additional collateral
on the following business day.
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
29
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 -- (continued)
Fund's exposure in these financial instruments. A Fund's participation in
the futures markets involves certain risks, including imperfect correlation
between movements in the price of futures contracts and movements in the
price of the securities hedged or used for cover. The Funds activities in
futures contracts are conducted through regulated exchanges which do not
result in counterparty credit risks. Pursuant to a contract the Funds agree
to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as "variation margin" and are recorded by the Funds as unrealized
appreciation or depreciation. When a contract is closed, the Funds record a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
FEDERAL INCOME TAXES: It is the Funds' policy to meet the requirements of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute all of their net income (taxable and
tax-exempt) to their shareholders. Therefore, no federal income tax or
excise tax provisions are required.
EXPENSES: Expenses common to all Funds are allocated among the Income Funds
based upon their relative net asset values 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 March 31, 1996, the U.S. Government Securities Fund, Federal
Securities Fund, Diversified Income Fund and High Income Fund had a 60.4%,
4.6%, 3.1% and 1.0% undivided interest which represented $65,000,000,
$5,000,000, $3,328,000 and $1,051,000 respectively, in principal amount in
a joint repurchase agreement with Chemical Securities, Inc. In addition,
the U.S. Government Securities Fund and Federal Securities Fund had a 38.1%
and 10.0% undivided interest which represented $44,319,000 and $11,631,000
respectively, in principal amount in a joint repurchase agreement with
Yamaichi International (America), Inc. As of such date, the repurchase
agreements in the joint account and the collateral therefore were as
follows:
Chemical Securities, Inc. Repurchase Agreement, 5.35% dated 3/29/96, in the
principal amount of $107,576,000 repurchase price $107,623,961 due 4/01/96
collateralized by $50,000,000 U.S. Treasury Bill 5.07% due 10/17/96,
$50,000,000 U.S. Treasury Bill 5.07% due 10/17/96 and $12,815,000 U.S.
Treasury Bill 5.00% due 6/27/96, approximate aggregate value $109,828,144.
Yamaichi International, Inc. Repurchase Agreement, 5.45% dated 3/29/96, in
the principal amount of $116,221,000 repurchase price $116,273,784 due
4/01/96 collateralized by $12,385,000 U.S. Treasury Bond 8.50% due 2/15/20,
$20,850,000 U.S. Treasury Bond 9.875% due 11/15/15, $12,500,000 U.S.
Treasury Bond 12.00% due 8/15/13, $20,000,000 U.S. Treasury Note 7.625% due
2/15/07, $19,430,000 U.S. Treasury Bill 5.33% due 4/18/96 and $15,865,000
U.S. Treasury Note 6.625% due 3/31/97, approximate aggregate value
$117,381,445.
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
30
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 -- (continued)
"Agreement") with SAAMCo. Under the Agreement, SAAMCo provides continuous
supervision of a Fund's portfolio and administers its corporate affairs,
subject to general review by the Trustees. In connection therewith, SAAMCo
furnishes the Funds with office facilities, maintains certain of the Funds'
books and records, and pays the salaries and expenses of all personnel,
including officers of the Funds, who are employees of SAAMCo and its
affiliates.
The 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%
> $200 million 0.72%
> $400 million 0.55%
Federal Securities Fund....................... $0 - $25 million 0.55%
> $25 million 0.50%
> $50 million 0.45%
Diversified Income Fund....................... $0 - $350 million 0.65%
> $350 million 0.60%
Tax Exempt Insured Fund....................... $0 - $350 million 0.50%
> $350 million 0.45%
</TABLE>
SAAMCo has agreed that, in any fiscal year, it will refund or rebate its
management fee to each of the Funds to the extent that the Fund's expenses
(including the fees of SAAMCo and amortization of organizational expenses,
but excluding interest, taxes, brokerage commissions, distribution fees and
other extraordinary expenses) exceed the most restrictive expense
limitation imposed by states where the Fund's shares are sold. The most
restrictive expense limitation is presently believed to be 2 1/2% of the
first $30 million of the Fund's average daily net assets, 2% of the next
$70 million of average net assets and 1 1/2% of such net assets in excess
of $100 million. For the year ended March 31, 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
31
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 -- (continued)
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, 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 year ended March 31, 1996, SACS received
fees (see Statement of Operations) based upon the aforementioned rates (of
which $44,445 and $102,796 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 year ended March 31,
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.............. $34,701 $23,047 $6,065 $1,767,247
Federal Securities Fund. 51,871 26,836 17,101 92,902
Diversified Income Fund. 59,956 41,282 9,079 353,984
High Income Fund........ 110,516 75,941 17,311 379,578
Tax Exempt Insured Fund. 118,382 78,270 19,723 113,374
</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
year ended March 31, 1996, the Funds incurred the following expenses to
reimburse SAFS pursuant to the terms of the Service Agreement:
<TABLE>
<CAPTION>
PAYABLE AT
EXPENSES MARCH 31, 1996
------------------- ---------------
CLASS A CLASS B CLASS A CLASS B
-------- ---------- ------- -------
<S> <C> <C> <C> <C>
U.S. Government Securities Fund.......... $244,448 $1,144,417 $23,517 $81,007
Federal Securities Fund.................. 73,514 84,513 7,523 4,929
Diversified Income Fund.................. 35,524 274,396 3,618 20,950
High Income Fund......................... 90,979 282,690 7,212 18,901
Tax Exempt Insured Fund.................. 290,723 62,405 23,046 5,479
</TABLE>
32
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 -- (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 year
ended March 31, 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..... $880,205,959 $209,939,662 $138,628,017 $274,280,092 $72,677,050
============ ============ ============ ============ ===========
Aggregate sales......... $970,794,439 $216,971,920 $155,167,680 $339,295,010 $88,075,655
============ ============ ============ ============ ===========
</TABLE>
Note 6. Portfolio Securities (Tax Basis)
The costs of securities and the aggregate appreciation and depreciation of
securities for federal income tax purposes at March 31, 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 (tax basis)........ $616,853,175 $76,050,488 $124,864,491 $122,379,322 $140,674,446
============ =========== ============ ============ ============
Appreciation............ $ 9,123,730 $ 624,633 $ 5,457,011 $ 8,226,185 $ 8,971,081
Depreciation............ (11,185,823) (875,556) (4,176,717) (4,889,653) (190,809)
------------ ----------- ------------ ------------ ------------
Unrealized appreciation/
depreciation--net...... $ (2,062,093) $ (250,923) $ 1,280,294 $ 3,336,532 $ 8,780,272
============ =========== ============ ============ ============
</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.
33
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 -- (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 FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1995
------------------------ ------------------------ -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 13,131,939 $112,301,977 2,544,560 $ 20,825,728 9,360,875 $ 79,755,257 10,324,909 $ 84,569,618
Reinvested
dividends...... 410,804 3,519,824 254,756 2,091,612 1,974,201 16,845,172 2,655,859 21,791,813
Shares redeemed. (7,702,779) (65,848,530) (3,015,559) (24,712,085) (33,167,131) (282,936,370) (46,389,311) (380,228,772)
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
Net increase
(decrease)..... 5,839,964 $ 49,973,271 (216,243) $ (1,794,745) (21,832,055) $(186,335,941) (33,408,543) $(273,867,341)
========== ============ ========== ============ =========== ============= =========== =============
<CAPTION>
FEDERAL SECURITIES FUND
----------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- ------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1995
------------------------ ------------------------ -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 4,123,463 $ 43,030,581 859,631 $ 8,566,946 814,487 $ 8,530,005 895,438 $ 9,024,876
Reinvested
dividends...... 111,354 1,172,357 3,735 36,932 153,756 1,604,033 312,480 3,098,412
Shares redeemed. (998,837) (10,515,594) (294,336) (2,931,987) (5,023,383) (52,553,961) (2,574,743) (25,581,102)
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
Net increase
(decrease)..... 3,235,980 $ 33,687,344 569,030 $ 5,671,891 (4,055,140) $(42,419,923) (1,366,825) $ (13,457,814)
========== ============ ========== ============ =========== ============= =========== =============
<CAPTION>
DIVERSIFIED INCOME FUND
----------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- ------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1995
------------------------ ------------------------ -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 2,955,037 $ 12,861,772 1,911,715 $ 8,713,009 2,801,046 $ 12,136,400 13,562,550 $ 62,234,623
Reinvested
dividends...... 195,515 841,738 179,521 791,930 1,377,852 5,943,373 1,784,570 7,929,584
Shares redeemed. (2,674,706) (11,458,461) (1,294,317) (5,722,753) (10,248,505) (44,195,135) (19,804,466) (88,218,971)
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
Net increase
(decrease)..... 475,846 $ 2,245,049 796,919 $ 3,782,186 (6,069,607) $ (26,115,362) (4,457,346) $ (18,054,764)
========== ============ ========== ============ =========== ============= =========== =============
<CAPTION>
HIGH INCOME FUND
----------------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- ------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1995
------------------------ ------------------------ -------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 8,359,027 $ 57,916,776 4,517,500 $32,145,067 12,736,686 $ 88,552,474 18,144,837 $ 132,472,191
Reinvested
dividends...... 368,814 2,562,289 285,804 2,048,889 977,729 6,803,888 982,211 7,057,922
Shares redeemed. (9,390,977) (64,906,948) (3,162,108) (23,140,910) (22,505,915) (155,995,199) (13,525,747) (100,373,794)
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
Net increase
(decrease)..... (663,136) $ (4,427,883) 1,641,196 $11,053,046 (8,791,500) $ (60,638,837) 5,601,301 $ 39,156,319
========== ============ ========== ============ =========== ============= =========== =============
</TABLE>
34
<PAGE>
SUNAMERICA INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS -- March 31, 1996 -- (continued)
<TABLE>
<CAPTION>
TAX EXEMPT INSURED FUND
----------------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------- ------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1995
------------------------ ------------------------ ------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------ ---------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold.......... 561,023 $ 7,051,303 1,153,762 $ 13,706,273 1,455,371 $ 18,163,807 1,052,706 $12,534,448
Reinvested dividends. 264,543 3,294,346 353,885 4,191,241 55,207 688,264 52,888 626,133
Shares redeemed...... (2,378,115) (29,684,179) (3,966,717) (46,779,234) (1,292,255) (16,166,468) (701,719) (8,287,841)
---------- ------------ ---------- ------------ ---------- ------------ --------- -----------
Net increase
(decrease).......... (1,552,549) $(19,338,530) (2,459,070) $(28,881,720) 218,323 $ 2,685,603 403,875 $ 4,872,740
========== ============ ========== ============ ========== ============ ========= ===========
</TABLE>
Note 8. Commitments and Contingencies
State Street Bank and Trust Company has established an uncommitted line of
credit with the SunAmerica Family of Mutual Funds with interest payable at
the Federal Funds rate plus 100 basis points with respect to the U.S.
Government Securities Fund and Federal Securities Fund, and Federal Funds
rate plus 125 basis points with respect to the Diversified Income Fund and
the High Income Fund. Borrowings under the line of credit will commence
when the Fund's cash shortfall exceeds $100,000. During the year ended
March 31, 1996, the High Income Fund had borrowings outstanding for 46 days
under the line of credit and incurred $43,583 in interest charges related
to these borrowings. The High Income Fund's average amount of debt under
the line of credit for the days utilized during the year ended March 31,
1996 was $4,797,070 at a weighted average interest of 7.01%. The Funds did
not have any outstanding borrowings at March 31, 1996.
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 March 31, 1996, U.S. Government Securities Fund,
Federal Securities Fund, Diversified Income Fund, High Income Fund and Tax
Exempt Insured Fund had accrued $30,620, $2,882, $5,893, $5,951 and $6,696,
respectively, for the Retirement Plan, which is included in accrued
expenses on the Statement of Assets and Liabilities and for the year ended
March 31, 1996 expensed $17,403, $1,755, $3,929, $3,681 and $4,188,
respectively, for the Retirement Plan, which is included in Trustees' fees
and expenses on the Statement of Operations.
35
<PAGE>
SUNAMERICA INCOME FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of SunAmerica Income Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of SunAmerica U.S. Government
Securities Fund, SunAmerica Federal Securities Fund, SunAmerica Diversified
Income Fund, SunAmerica High Income Fund and SunAmerica Tax Exempt Insured Fund
(constituting the SunAmerica Income Funds, hereafter referred to as the "Fund")
at March 31, 1996, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at March 31, 1996 by correspondence with the custodian, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
May 13, 1996
36
<PAGE>
SUNAMERICA INCOME FUNDS
SHAREHOLDER TAX INFORMATION--(UNAUDITED)
Certain tax information regarding the SunAmerica Income Funds is required to be
provided to shareholders based upon each Fund's income and distributions for
the taxable periods ended March 31, 1996. The information and distributions
reported herein may differ from the information and distributions taxable to
the shareholders for the calendar year ending December 31, 1996. The
information necessary to complete your income tax returns will be included with
your Form 1099-DIV to be received under separate cover in January 1997.
During the year ended March 31, 1996 Tax Exempt Insured Fund paid tax exempt
interest dividends of $.59 per share to Class A shareholders and $.51 per share
to Class B shareholders. For the year ended March 31, 1996, 1.2% of the
dividends paid from ordinary income by High Income Fund qualified for the 70%
dividends received deductions for corporations.
37
<PAGE>
APPENDIX
BOND, NOTE AND COMMERCIAL PAPER RATINGS
Description of Moody's Investors Service, Inc.'s ("Moody's") Corporate and Tax-
Exempt Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate,
and therefore not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
Appendix-1
<PAGE>
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of the generic rating
category. The foregoing ratings for tax-exempt bonds are sometimes presented in
parentheses preceded with a "con" indicating the bonds are rated conditionally.
Bonds for which the security depends upon the completion of some act or the
fulfillment of some condition are rated conditionally. These are bonds secured
by (a) earnings of projects under construction (b) earnings of projects
unseasoned in operation experience, (c) rentals which begin when facilities are
completed or (d) payments to which some other limiting condition attaches. Such
parenthetical rating denotes the probable credit stature upon completion of
construction or elimination of the basis of the condition.
Description of Moody's Tax-Exempt Note Ratings
The ratings of Moody's for tax-exempt notes are MIG 1, MIG 2, MIG 3 and
MIG 4.
MIG 1 Notes bearing the designation MIG 1 are judged to be of the best
quality, enjoying strong protection from established cash flows
of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG 2 Notes bearing the designation MIG 2 are judged to be of high
quality, with margins of protection ample although not so large
as in the preceding group.
MIG 3 Notes bearing the designation MIG 3 are judged to be of favorable
quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well
established.
MIG 4 Notes bearing the designation MIG 4 are judged to be of adequate
quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly
or predominantly speculative.
Appendix-2
<PAGE>
Description of Moody's Corporate and Tax-Exempt Commercial Paper Ratings
The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representations as to whether such commercial paper is by any other definition
"commercial paper" or is exempt from registration under the Securities Act.
Moody's rating grades for commercial paper are applied to municipal
commercial paper as well as taxable commercial paper.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's makes no representation that such obligations
are exempt from registration under the Securities Act, nor does it represent
that any specific note is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
-- Leading market positions in well established industries
-- High rates of return on funds employed
-- Conservative capitalization structures with moderate reliance on debt
and ample asset protection
-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation
-- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
level of debt protection measurements and the requirement for relatively high
financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Appendix-3
<PAGE>
If an issuer represents to Moody's that its commercial paper obligations
are supported by the credit of another entity or entities, then the name or
names of such supporting entity or entities are listed within parentheses
beneath the name of the issuer, or there is a footnote referring the reader to
another page for the name or names of the supporting entity or entities. In
assigning ratings to such issuers, Moody's evaluates the financial strength of
the indicated affiliated corporations, commercial banks, insurance companies,
foreign governments or other entities, but only as one factor in the total
rating assessment. Moody's makes no representation and gives no opinion on the
legal validity or enforceability of any support arrangement. You are cautioned
to review with your counsel any questions regarding particular support
arrangements.
Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
Description of Standard & Poor's Ratings Services, a Division of The McGraw-Hill
Companies, Inc. ("Standard & Poor's") Corporate and Tax-Exempt Bond Ratings
A Standards & Poor's corporate or municipal rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligers such as guarantors,
insurers, or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.
The ratings are based, in varying degrees, on the following considerations:
(1) likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation: (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Appendix-4
<PAGE>
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher-rated categories.
Debt rated BB, B, CCC, CC and C are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposure to adverse conditions.
BB Debt rated BB has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payment.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB - rating.
B Debt rated B has a greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB-rating.
CCC Debt rated CCC has a current identifiable vulnerability to default, and is
dependent upon favorable business, financial and economic conditions to
meet timely payments of interest and repayments of principal. In the event
of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied B or B- rating.
CC The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
Appendix-5
<PAGE>
C The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC-debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed
but debt service payments are continued.
CI The rating CI is reserved for income bonds on which no interest is being
paid.
D Debt rated D is in default. The D rating is assigned on the day an
interest or principal payment is missed. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or minus (-): The ratings of "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within these
ratings categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.
L The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit
collateral is insured by the Federal Savings & Loan Insurance Corp. or
the Federal Deposit Insurance Corp. and interest is adequately
collateralized.
* Continuance of the rating is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.
NR Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not
rate a particular type of obligation as a matter of policy.
Debt Obligations of Issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the credit worthiness of the obligor but do not take into
account currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Appendix-6
<PAGE>
Description of Standard & Poor's Tax-Exempt Note Ratings
The ratings of Standard & Poor's for municipal notes issued on or after
July 29, 1984 are "SP-1", "SP-2" and "SP-3." Prior to July 29, 1984, municipal
notes carried the same symbols as municipal bonds.
SP-1 The designation "SP-1" indicates a very strong capacity to pay
principal and interest. A "+" is added for those issues determined to
possess overwhelming safety characteristics.
SP-2 An "SP-2" designation indicates a satisfactory capacity to pay
principal and interest.
SP-3 "SP-3" designation indicates speculative capacity to pay principal and
interest.
Description of Standard & Poor's Corporate and Tax-Exempt Commercial Paper
Ratings.
Standard & Poor's rating grades for commercial paper are applied to
municipal commercial paper as well as taxable commercial paper.
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of not more
than 365 days. Ratings are graded into four categories, ranging from "A" for
the highest quality obligations to "D" for the lowest.
A Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree
of safety.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics are denoted with a plus
(+) sign designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated "A-1".
A-3 Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effect of changes in circumstances than obligations carrying
the higher designations.
B Issues rated "B" are regarded as having only adequate capacity for
timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
Appendix-7
<PAGE>
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D This rating indicates that the issue is either in default or is
expected to be in default upon maturity.
The commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.
Appendix-8
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
Set forth in Part B of Registrant's Statement of Additional
Information are the financial statements for the SunAmerica Income
Funds for the fiscal year ended March 31, 1996. Selected per share
data and ratios are set forth in Part A of the Prospectus under the
caption "Financial Highlights." No financial statements are included
in Part C.
All other financial statements, schedules and historical financial
information are omitted because the conditions requiring their filing
do not exist.
(b) Exhibits:
(1) Declaration of Trust, as amended. Incorporated herein by
reference to Post-Effective Amendment No. 20 to Registrant's
Registration Statement on form N-1A filed on July 27, 1995.
(2) By-Laws, as amended. Incorporated herein by reference to
Post-Effective Amendment No. 20 to Registrant's Registration
Statement on form N-1A filed on July 27, 1995.
(3) Inapplicable.
(4) Specimen Certificates.
(5) Investment Advisory and Management Agreement between
Registrant and SunAmerica Asset Management Corp.
Incorporated herein by reference to Post-Effective Amendment
No. 20 to Registrant's Registration Statement on form N-1A
filed on July 27, 1995.
(6) (a) Distribution Agreement between Registrant and SunAmerica
Capital Services, Inc. Incorporated herein by reference to
Post-Effective Amendment No. 20 to Registrant's Registration
Statement on form N-1A filed on July 27, 1995.
(b) Dealer Agreement.
(7) Directors'/Trustees' Retirement Plan.
<PAGE>
(8) Custodian Agreement between Registrant and State Street
Bank and Trust Company.
(9) (a) Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Company.
(b) Service Agreement between Registrant and SunAmerica Fund
Services, Inc. Incorporated herein by reference to Post-
Effective Amendment No. 20 to Registrant's Registration
Statement on form N-1A filed on July 27, 1995.
(10) Opinion of Counsel.
(11) Consent of Independent Accountants.
(12) Inapplicable.
(13) Inapplicable.
(14) Model Retirement Plan. Incorporated herein by reference to
Post-Effective Amendment No. 20 to Registrant's Registration
Statement on form N-1A filed on July 27, 1995.
(15) Distribution Plans pursuant to Rule 12b-1 (Class A Shares
and Class B Shares).
(16) Schedule of Computation of Performance Quotations.
(17) Powers of Attorney.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
There are no persons controlled by or under common control with Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
Number of Record Number of Record
Holders as of Holders as of
Title of Class June 30, 1996 June 30, 1996
- --------------------------------- ---------------- ----------------
<S> <C> <C>
U.S. Government Securities Fund 6,310 17,893
Shares of Beneficial Interest
($.01 par value)
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
Class A Shares Class B Shares
Number of Record Number of Record
Holders as of Holders as of
Title of Class June 30, 1996 June 30, 1996
- --------------------------------- ---------------- ----------------
<S> <C> <C>
Federal Securities Fund 3,333 1,829
Shares of Beneficial Interest
($.01 par value)
Diversified Income Fund 1,099 4,953
Shares of Beneficial Interest
($.01 par value)
High Income Fund 3,119 4,806
Shares of Beneficial Interest
($.01 par value)
Tax Exempt Insured Fund 3,660 651
Shares of Beneficial Interest
</TABLE>
($.01 par value)
ITEM 27. INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, (the "Act") may be permitted to trustees,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such
trustee, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of
its counsel the matter has been settled by the controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of the Investment Adviser.
Information concerning business and other connections of SunAmerica
Asset Management Corp. ("SunAmerica") is incorporated herein by
reference to SunAmerica's Form ADV
C-3
<PAGE>
(File No. 801-19813), which is currently on file with the Securities
and Exchange Commission.
Reference is also made to the caption "Management of the Fund" in the
Prospectus constituting Part A of the Registration Statement and
"Investment Adviser and Distributor" and "Trustees and Officers"
constituting Part B of the Registration Statement.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) The principal underwriter of the Registrant also acts as principal
underwriter for:
SunAmerica Equity Funds
SunAmerica Money Market Funds, Inc.
(b) The following persons are the officers and directors of SunAmerica
Capital Services, Inc., the principal underwriter of Registrant's
Shares:
<TABLE>
<CAPTION>
Name and Principal Position With Position with the
Business Address Underwriter Registrant
- ------------------ ------------- ----------------
<S> <C> <C>
J. Steven Neamtz President None
The SunAmerica Center
733 Third Avenue
New York, NY
10017-3204
Peter A. Harbeck Director President
The SunAmerica Center
733 Third Avenue
New York, NY
10017-3204
Gary W. Krat Director None
The SunAmerica Center
733 Third Avenue
New York, NY
10017-3204
Robert M. Zakem Executive Vice Secretary &
The SunAmerica Center President, and Chief
733 Third Avenue General Counsel Compliance
New York, NY and Director Officer
10017-3204
Joseph M. Tumbler Director None
SunAmerica Inc.
1 Sun America Center
Century City
Los Angeles, CA
90067-6022
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Position With Position with the
Business Address Underwriter Registrant
- ------------------ ------------- ----------------
<S> <C> <C>
Susan L. Harris Secretary None
SunAmerica Inc.
1 Sun America Center
Century City
Los Angeles, CA
90067-6022
Steven E. Rothstein Treasurer None
The SunAmerica Center
733 Third Avenue
New York, NY
10017-3204
</TABLE>
(c) Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
SunAmerica Asset Management Corp., The SunAmerica Center, 733 Third
Avenue, New York, NY 10017-3204, or an affiliate thereof, will
maintain physical possession of each such accounts, books or other
documents of Registrant, except for those maintained by Registrant's
custodian, State Street Bank and Trust Company, 1776 Heritage Drive,
North Quincy, MA 02171, and its affiliate, National Financial Data
Services, P.O. Box 419572, Kansas City, MO 64141-6572.
ITEM 31. MANAGEMENT SERVICES.
Inapplicable.
ITEM 32. UNDERTAKINGS.
(c) The Registrant hereby undertakes to furnish, upon request and without
charge, to each person to whom a Prospectus is delivered a copy of the
Registrant's latest annual report to shareholders.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant certifies that it meets all of the
requirements for effectiveness of the Post-Effective Amendment No. 21 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and that Registrant has duly caused the Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, and State of
New York, on the 18th day of July, 1996.
SUNAMERICA INCOME FUNDS
By:/s/Peter A. Harbeck
Peter A. Harbeck,
President
Pursuant to the requirements of the Securities Act of 1933, the Post-
Effective Amendment No. 21 to Registrant's Registration Statement on Form N-1A
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<S> <C> <C>
/s/Peter A. Harbeck President and Trustee July 18, 1996
Peter A. Harbeck (Principal Executive
Officer)
* Treasurer (Principal July 18, 1996
Peter C. Sutton Financial and Accounting
Officer)
* Trustee July 18, 1996
S. James Coppersmith
* Chairman of the Board July 18, 1996
Samuel M. Eisenstat
* Trustee July 18, 1996
Stephen J. Gutman
* Trustee July 18, 1996
Peter McMillan III
* Trustee July 18, 1996
Sebastiano Sterpa
</TABLE>
*By:/s/Robert M. Zakem
Robert M. Zakem,
Attorney-in-Fact
<PAGE>
SUNAMERICA INCOME FUNDS
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Name
<S> <C>
4 Specimen Certificates
6b Dealer Agreement
7 Directors'/Trustees' Retirement Plan
8 Custodian Agreement
9 Transfer Agency Agreement
10 Opinion of Counsel
11 Consent of Independent Auditors
15 Distribution Plans Pursuant to Rule 12b-1
(Class A Shares and Class B Shares)
16 Schedule for Computation of Performance
Quotations
17 Power of Attorney
27 Financial Data Schedules
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000795307
<NAME> SUNAMERICA INCOME FUNDS
<SERIES>
<NUMBER> 041
<NAME> SUNAMERICA DIVERSIFIED INCOME FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996<F1>
<PERIOD-START> APR-01-1995<F1>
<PERIOD-END> MAR-31-1996<F1>
<INVESTMENTS-AT-COST> 124,271,172<F1>
<INVESTMENTS-AT-VALUE> 126,144,785<F1>
<RECEIVABLES> 2,517,021<F1>
<ASSETS-OTHER> 2,269<F1>
<OTHER-ITEMS-ASSETS> 6,483<F1>
<TOTAL-ASSETS> 128,670,558<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 959,347<F1>
<TOTAL-LIABILITIES> 959,347<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 159,673,276<F1>
<SHARES-COMMON-STOCK> 3,905,764<F2>
<SHARES-COMMON-PRIOR> 3,429,918<F2>
<ACCUMULATED-NII-CURRENT> (522,977)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (33,312,686)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 1,873,598<F1>
<NET-ASSETS> 127,711,211<F1>
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 14,755,985<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 2,808,462<F1>
<NET-INVESTMENT-INCOME> 11,947,523<F1>
<REALIZED-GAINS-CURRENT> (8,376,657)<F1>
<APPREC-INCREASE-CURRENT> 13,961,444<F1>
<NET-CHANGE-FROM-OPS> 17,532,310<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 12,542,204<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,955,037<F2>
<NUMBER-OF-SHARES-REDEEMED> (2,674,706)<F2>
<SHARES-REINVESTED> 195,515<F2>
<NET-CHANGE-IN-ASSETS> (18,880,207)<F1>
<ACCUMULATED-NII-PRIOR> 311,631<F1>
<ACCUMULATED-GAINS-PRIOR> (25,281,914)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 915,671<F1>
<INTEREST-EXPENSE> 49,501<F1>
<GROSS-EXPENSE> 2,808,462<F1>
<AVERAGE-NET-ASSETS> 16,147,186<F2>
<PER-SHARE-NAV-BEGIN> 4.14<F2>
<PER-SHARE-NII> .39<F2>
<PER-SHARE-GAIN-APPREC> .16<F2>
<PER-SHARE-DIVIDEND> (.40)<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 4.29<F1>
<EXPENSE-RATIO> 1.46<F2>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to the SunAmerica Diversified Income Fund as a
whole.
<F2>Information given pertains to SunAmerica Diversified Income Fund Class A.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000795307
<NAME> SUNAMERICA INCOME FUNDS
<SERIES>
<NUMBER> 042
<NAME> SUNAMERICA DIVERSIFIED INCOME FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996<F1>
<PERIOD-START> APR-01-1995<F1>
<PERIOD-END> MAR-31-1996<F1>
<INVESTMENTS-AT-COST> 124,271,172<F1>
<INVESTMENTS-AT-VALUE> 126,144,785<F1>
<RECEIVABLES> 2,517,021<F1>
<ASSETS-OTHER> 2,269<F1>
<OTHER-ITEMS-ASSETS> 6,483<F1>
<TOTAL-ASSETS> 128,670,558<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 959,347<F1>
<TOTAL-LIABILITIES> 959,347<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 159,673,276<F1>
<SHARES-COMMON-STOCK> 25,797,521<F2>
<SHARES-COMMON-PRIOR> 31,867,128<F2>
<ACCUMULATED-NII-CURRENT> (522,977)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (33,312,686)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 1,873,598<F1>
<NET-ASSETS> 127,711,211<F1>
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 14,755,985<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 2,808,462<F1>
<NET-INVESTMENT-INCOME> 11,947,523<F1>
<REALIZED-GAINS-CURRENT> (8,376,657)<F1>
<APPREC-INCREASE-CURRENT> 13,961,444<F1>
<NET-CHANGE-FROM-OPS> 17,532,310<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 12,542,204<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,801,046<F2>
<NUMBER-OF-SHARES-REDEEMED> (10,248,505)<F2>
<SHARES-REINVESTED> 1,377,852<F2>
<NET-CHANGE-IN-ASSETS> (18,880,207)<F1>
<ACCUMULATED-NII-PRIOR> 311,631<F1>
<ACCUMULATED-GAINS-PRIOR> (25,281,914)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 915,671<F1>
<INTEREST-EXPENSE> 49,501<F1>
<GROSS-EXPENSE> 2,808,462<F1>
<AVERAGE-NET-ASSETS> 124,725,312<F2>
<PER-SHARE-NAV-BEGIN> 4.15<F2>
<PER-SHARE-NII> .36<F2>
<PER-SHARE-GAIN-APPREC> .17<F2>
<PER-SHARE-DIVIDEND> (.38)<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 4.30<F1>
<EXPENSE-RATIO> 2.06<F2>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to the SunAmerica Diversified Income Fund as a
whole.
<F2>Information given pertains to SunAmerica Diversified Income Fund Class B.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000795307
<NAME> SUNAMERICA INCOME FUNDS
<SERIES>
<NUMBER> 031
<NAME> SUNAMERICA FEDERAL SECURITIES FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 75,712,988<F1>
<INVESTMENTS-AT-VALUE> 75,799,565<F1>
<RECEIVABLES> 464,577<F1>
<ASSETS-OTHER> 27,444<F1>
<OTHER-ITEMS-ASSETS> 6,933<F1>
<TOTAL-ASSETS> 76,298,519<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 9,856,171<F1>
<TOTAL-LIABILITIES> 9,856,171<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 67,677,541<F1>
<SHARES-COMMON-STOCK> 3,862,927<F2>
<SHARES-COMMON-PRIOR> 626,947<F2>
<ACCUMULATED-NII-CURRENT> (174,321)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,1471,449)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 86,577<F1>
<NET-ASSETS> 66,442,348<F1>
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 5,439,937<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 1,229,698<F1>
<NET-INVESTMENT-INCOME> 4,210,239<F1>
<REALIZED-GAINS-CURRENT> 2,735,058<F1>
<APPREC-INCREASE-CURRENT> 423,129<F1>
<NET-CHANGE-FROM-OPS> 7,368,426<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 4,083,767<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 4,123,463<F2>
<NUMBER-OF-SHARES-REDEEMED> (998,837)<F2>
<SHARES-REINVESTED> 111,354<F2>
<NET-CHANGE-IN-ASSETS> (5,447,920)<F1>
<ACCUMULATED-NII-PRIOR> (99,141)<F1>
<ACCUMULATED-GAINS-PRIOR> (4,084,402)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 360,738<F1>
<INTEREST-EXPENSE> 585<F1>
<GROSS-EXPENSE> 1,229,698<F1>
<AVERAGE-NET-ASSETS> 33,415,566<F2>
<PER-SHARE-NAV-BEGIN> 9.98<F2>
<PER-SHARE-NII> .68<F2>
<PER-SHARE-GAIN-APPREC> .40<F2>
<PER-SHARE-DIVIDEND> (.63)<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.43<F2>
<EXPENSE-RATIO> 1.37<F2>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to the SunAmerica Federal Securities Fund as a
whole.
<F2>Information given pertains to SunAmerica Federal Securities Fund Class A.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000795307
<NAME> SUNAMERICA INCOME FUNDS
<SERIES>
<NUMBER> 032
<NAME> SUNAMERICA FEDERAL SECURITIES FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 75,712,988<F1>
<INVESTMENTS-AT-VALUE> 75,799,565<F1>
<RECEIVABLES> 464,577<F1>
<ASSETS-OTHER> 27,444<F1>
<OTHER-ITEMS-ASSETS> 6,933<F1>
<TOTAL-ASSETS> 76,298,519<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 9,856,171<F1>
<TOTAL-LIABILITIES> 9,856,171<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 67,677,541<F1>
<SHARES-COMMON-STOCK> 2,504,077<F2>
<SHARES-COMMON-PRIOR> 6,559,217<F2>
<ACCUMULATED-NII-CURRENT> (174,321)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,147,449)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 86,577<F1>
<NET-ASSETS> 66,442,348<F1>
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 5,439,937<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 1,229,698<F1>
<NET-INVESTMENT-INCOME> 4,210,239<F1>
<REALIZED-GAINS-CURRENT> 2,735,058<F1>
<APPREC-INCREASE-CURRENT> 423,129<F1>
<NET-CHANGE-FROM-OPS> 7,368,426<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 4,083,767<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 814,487<F2>
<NUMBER-OF-SHARES-REDEEMED> (5,023,383)<F2>
<SHARES-REINVESTED> 153,756<F2>
<NET-CHANGE-IN-ASSETS> (5,447,920)<F1>
<ACCUMULATED-NII-PRIOR> (99,141)<F1>
<ACCUMULATED-GAINS-PRIOR> (4,084,402)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 360,738<F1>
<INTEREST-EXPENSE> 585<F1>
<GROSS-EXPENSE> 1,229,698<F1>
<AVERAGE-NET-ASSETS> 33,415,566<F2>
<PER-SHARE-NAV-BEGIN> 10.01<F2>
<PER-SHARE-NII> .56<F2>
<PER-SHARE-GAIN-APPREC> .44<F2>
<PER-SHARE-DIVIDEND> (.56)<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.45<F2>
<EXPENSE-RATIO> 2.01<F2>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to the SunAmerica Federal Securities Fund as a
whole.
<F2>Information given pertains to SunAmerica Federal Securities Fund Class B.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000795307
<NAME> SUNAMERICA INCOME FUNDS
<SERIES>
<NUMBER> 011
<NAME> SUNAMERICA HIGH INCOME FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996<F1>
<PERIOD-START> APR-01-1995<F1>
<PERIOD-END> MAR-31-1996<F1>
<INVESTMENTS-AT-COST> 122,341,514<F1>
<INVESTMENTS-AT-VALUE> 125,715,854<F1>
<RECEIVABLES> 2,857,278<F1>
<ASSETS-OTHER> 8,941<F1>
<OTHER-ITEMS-ASSETS> 889<F1>
<TOTAL-ASSETS> 128,582,962<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 819,959<F1>
<TOTAL-LIABILITIES> 819,959<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 170,878,823<F1>
<SHARES-COMMON-STOCK> 5,176,395<F2>
<SHARES-COMMON-PRIOR> 5,839,531<F2>
<ACCUMULATED-NII-CURRENT> (228,649)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (46,261,511)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 3,374,340<F1>
<NET-ASSETS> 127,763,003<F1>
<DIVIDEND-INCOME> 189,688<F1>
<INTEREST-INCOME> 18,337,792<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 3,284,084<F1>
<NET-INVESTMENT-INCOME> 15,243,396<F1>
<REALIZED-GAINS-CURRENT> (7,236,768)<F1>
<APPREC-INCREASE-CURRENT> 7,416,828<F1>
<NET-CHANGE-FROM-OPS> 15,423,456<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 16,212,501<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 8,359,027<F2>
<NUMBER-OF-SHARES-REDEEMED> (9,390,977)<F2>
<SHARES-REINVESTED> 368,814<F2>
<NET-CHANGE-IN-ASSETS> (65,855,765)<F1>
<ACCUMULATED-NII-PRIOR> 146,988<F1>
<ACCUMULATED-GAINS-PRIOR> (38,431,275)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,273,169<F1>
<INTEREST-EXPENSE> 44,123<F1>
<GROSS-EXPENSE> 3,386,880<F1>
<AVERAGE-NET-ASSETS> 41,353,907<F2>
<PER-SHARE-NAV-BEGIN> 6.95<F2>
<PER-SHARE-NII> .67<F2>
<PER-SHARE-GAIN-APPREC> .02<F2>
<PER-SHARE-DIVIDEND> (.69)<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 6.95<F2>
<EXPENSE-RATIO> 1.53<F2>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to the SunAmerica High Income Fund as a whole.
<F2>Information given pertains to SunAmerica High Income Fund Class A.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000795307
<NAME> SUNAMERICA INCOME FUNDS
<SERIES>
<NUMBER> 012
<NAME> SUNAMERICA HIGH INCOME FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996<F1>
<PERIOD-START> APR-01-1995<F1>
<PERIOD-END> MAR-31-1996<F1>
<INVESTMENTS-AT-COST> 122,341,514<F1>
<INVESTMENTS-AT-VALUE> 125,715,854<F1>
<RECEIVABLES> 2,857,278<F1>
<ASSETS-OTHER> 8,941<F1>
<OTHER-ITEMS-ASSETS> 889<F1>
<TOTAL-ASSETS> 128,582,962<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 819,959<F1>
<TOTAL-LIABILITIES> 819,959<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 170,878,823<F1>
<SHARES-COMMON-STOCK> 13,190,350<F2>
<SHARES-COMMON-PRIOR> 21,981,850<F2>
<ACCUMULATED-NII-CURRENT> (228,649)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (46,261,511)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 3,374,340<F1>
<NET-ASSETS> 127,763,003<F1>
<DIVIDEND-INCOME> 189,688<F1>
<INTEREST-INCOME> 18,337,792<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 3,284,084<F1>
<NET-INVESTMENT-INCOME> 15,243,396<F1>
<REALIZED-GAINS-CURRENT> (7,236,768)<F1>
<APPREC-INCREASE-CURRENT> 7,416,828<F1>
<NET-CHANGE-FROM-OPS> 15,423,456<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 16,212,501<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 12,736,686<F2>
<NUMBER-OF-SHARES-REDEEMED> (22,505,915)<F2>
<SHARES-REINVESTED> 977,729<F2>
<NET-CHANGE-IN-ASSETS> (65,855,765)<F1>
<ACCUMULATED-NII-PRIOR> 146,988<F1>
<ACCUMULATED-GAINS-PRIOR> (38,431,275)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,273,169<F1>
<INTEREST-EXPENSE> 44,123<F1>
<GROSS-EXPENSE> 3,386,880<F1>
<AVERAGE-NET-ASSETS> 128,495,417<F2>
<PER-SHARE-NAV-BEGIN> 6.96<F2>
<PER-SHARE-NII> .62<F2>
<PER-SHARE-GAIN-APPREC> .03<F2>
<PER-SHARE-DIVIDEND> (.65)<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 6.96<F2>
<EXPENSE-RATIO> 2.06<F2>
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Information given pertains to the SunAmerica High Income Fund as a whole.
<F2>Information given pertains to SunAmerica High Income Fund Class B.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000795307
<NAME> SUNAMERICA INCOME FUNDS
<SERIES>
<NUMBER> 051
<NAME> SUNAMERICA TAX EXEMPT INSURED FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 140,630,966<F1>
<INVESTMENTS-AT-VALUE> 149,454,718<F1>
<RECEIVABLES> 2,538,763<F1>
<ASSETS-OTHER> 18,889<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 152,012,370<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 740,220<F1>
<TOTAL-LIABILITIES> 740,220<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 151,664,805<F1>
<SHARES-COMMON-STOCK> 9,818,201<F2>
<SHARES-COMMON-PRIOR> 11,370,750<F2>
<ACCUMULATED-NII-CURRENT> (308,829)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (8,907,578)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 8,823,752<F1>
<NET-ASSETS> 151,272,150<F1>
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 9,527,826<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 2,154,190<F1>
<NET-INVESTMENT-INCOME> 7,373,636<F1>
<REALIZED-GAINS-CURRENT> 1,431,373<F1>
<APPREC-INCREASE-CURRENT> 2,644,616<F1>
<NET-CHANGE-FROM-OPS> 11,449,625<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 7,464,382<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 561,023<F2>
<NUMBER-OF-SHARES-REDEEMED> (2,378,115)<F2>
<SHARES-REINVESTED> 264,543<F2>
<NET-CHANGE-IN-ASSETS> (12,307,539)<F1>
<ACCUMULATED-NII-PRIOR> (216,286)<F1>
<ACCUMULATED-GAINS-PRIOR> (12,307,539)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 802,564<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,154,190<F1>
<AVERAGE-NET-ASSETS> 132,146,918<F2>
<PER-SHARE-NAV-BEGIN> 12.13<F2>
<PER-SHARE-NII> .59<F2>
<PER-SHARE-GAIN-APPREC> .29<F2>
<PER-SHARE-DIVIDEND> (.59)<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.42<F2>
<EXPENSE-RATIO> 1.22<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to the SunAmerica Tax Exempt Insured Fund as a
whole.
<F2>Information given pertains to SunAmerica Tax Exempt Insured Fund Class A.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000795307
<NAME> SUNAMERICA INCOME FUNDS
<SERIES>
<NUMBER> 052
<NAME> SUNAMERICA TAX EXEMPT INSURED FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 140,630,966<F1>
<INVESTMENTS-AT-VALUE> 149,454,718<F1>
<RECEIVABLES> 2,538,763<F1>
<ASSETS-OTHER> 18,889<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 152,012,370<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 740,220<F1>
<TOTAL-LIABILITIES> 740,220<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 151,664,805<F1>
<SHARES-COMMON-STOCK> 2,359,606<F2>
<SHARES-COMMON-PRIOR> 2,141,283<F2>
<ACCUMULATED-NII-CURRENT> (308,829)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (8,907,578)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 8,823,752<F1>
<NET-ASSETS> 151,272,150<F1>
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 9,527,826<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 2,154,190<F1>
<NET-INVESTMENT-INCOME> 7,373,636<F1>
<REALIZED-GAINS-CURRENT> 1,431,373<F1>
<APPREC-INCREASE-CURRENT> 2,644,616<F1>
<NET-CHANGE-FROM-OPS> 11,449,625<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 7,464,382<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,455,371<F2>
<NUMBER-OF-SHARES-REDEEMED> (1,292,255)<F2>
<SHARES-REINVESTED> 55,207<F2>
<NET-CHANGE-IN-ASSETS> (12,307,539)<F1>
<ACCUMULATED-NII-PRIOR> (216,286)<F1>
<ACCUMULATED-GAINS-PRIOR> (12,307,539)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> (802,564)<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> (2,154,190)<F1>
<AVERAGE-NET-ASSETS> 28,365,912<F2>
<PER-SHARE-NAV-BEGIN> 12.14<F2>
<PER-SHARE-NII> .50<F2>
<PER-SHARE-GAIN-APPREC> .29<F2>
<PER-SHARE-DIVIDEND> (.51)<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 12.42<F2>
<EXPENSE-RATIO> 1.90<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to the SunAmerica Tax Exempt Insured Fund as a
whole.
<F2>Information given pertains to SunAmerica Tax Exempt Insured Fund Class B.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000795307
<NAME> SUNAMERICA INCOME FUNDS
<SERIES>
<NUMBER> 021
<NAME> SUNAMERICA U.S. GOVERNMENT SECURITIES FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 615,176,350<F1>
<INVESTMENTS-AT-VALUE> 614,791,082<F1>
<RECEIVABLES> 6,330,404<F1>
<ASSETS-OTHER> 25,038<F1>
<OTHER-ITEMS-ASSETS> 29,470<F1>
<TOTAL-ASSETS> 621,175,994<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 66,900,309<F1>
<TOTAL-LIABILITIES> 66,900,309<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 586,033,300<F1>
<SHARES-COMMON-STOCK> 14,756,884<F2>
<SHARES-COMMON-PRIOR> 8,916,920<F2>
<ACCUMULATED-NII-CURRENT> (1,255,322)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (30,117,025)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (385,268)<F1>
<NET-ASSETS> 554,275,685<F1>
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 54,240,281<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 12,709,498<F1>
<NET-INVESTMENT-INCOME> 41,530,783<F1>
<REALIZED-GAINS-CURRENT> 9,648,769<F1>
<APPREC-INCREASE-CURRENT> 5,738,709<F1>
<NET-CHANGE-FROM-OPS> 56,918,261<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 34,458,268<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 13,131,939<F2>
<NUMBER-OF-SHARES-REDEEMED> (7,702,779)<F2>
<SHARES-REINVESTED> 410,804<F2>
<NET-CHANGE-IN-ASSETS> (113,902,677)<F1>
<ACCUMULATED-NII-PRIOR> (1,295,646)<F1>
<ACCUMULATED-GAINS-PRIOR> (46,797,985)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 4,212,162<F1>
<INTEREST-EXPENSE> 153,337<F1>
<GROSS-EXPENSE> 12,753,943<F1>
<AVERAGE-NET-ASSETS> 111,112,696<F2>
<PER-SHARE-NAV-BEGIN> 8.23<F2>
<PER-SHARE-NII> .62<F2>
<PER-SHARE-GAIN-APPREC> .16<F2>
<PER-SHARE-DIVIDEND> (.51)<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 8.50<F2>
<EXPENSE-RATIO> 1.44<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to SunAmerica U.S. Government Securities Fund as a
whole.
<F2>Information given pertains to SunAmerica U.S. Government Securities Fund Class
A.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000795307
<NAME> SUNAMERICA INCOME FUNDS
<SERIES>
<NUMBER> 022
<NAME> SUNAMERICA U.S. GOVERNMENT SECURITIES FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 615,176,350<F1>
<INVESTMENTS-AT-VALUE> 614,791,082<F1>
<RECEIVABLES> 6,330,404<F1>
<ASSETS-OTHER> 25,038<F1>
<OTHER-ITEMS-ASSETS> 29,470<F1>
<TOTAL-ASSETS> 621,175,994<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 66,900,309<F1>
<TOTAL-LIABILITIES> 66,900,309<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 586,033,300<F1>
<SHARES-COMMON-STOCK> 50,389,486<F2>
<SHARES-COMMON-PRIOR> 72,221,541<F2>
<ACCUMULATED-NII-CURRENT> (1,255,322)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (30,117,025)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (385,268)<F1>
<NET-ASSETS> 554,275,685<F1>
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 54,240,281<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> 12,709,498<F1>
<NET-INVESTMENT-INCOME> 41,530,783<F1>
<REALIZED-GAINS-CURRENT> 9,648,769<F1>
<APPREC-INCREASE-CURRENT> 5,738,709<F1>
<NET-CHANGE-FROM-OPS> 56,918,261<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> 34,458,268<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 9,360,875<F2>
<NUMBER-OF-SHARES-REDEEMED> (33,167,131)<F2>
<SHARES-REINVESTED> 1,974,201<F2>
<NET-CHANGE-IN-ASSETS> (113,902,677)<F1>
<ACCUMULATED-NII-PRIOR> (1,295,646)<F1>
<ACCUMULATED-GAINS-PRIOR> (46,797,985)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 4,212,162<F1>
<INTEREST-EXPENSE> 153,337<F1>
<GROSS-EXPENSE> 12,753,943<F1>
<AVERAGE-NET-ASSETS> 520,189,478<F2>
<PER-SHARE-NAV-BEGIN> 8.24<F2>
<PER-SHARE-NII> .55<F2>
<PER-SHARE-GAIN-APPREC> .17<F2>
<PER-SHARE-DIVIDEND> (.45)<F2>
<PER-SHARE-DISTRIBUTIONS> 0<F2>
<RETURNS-OF-CAPITAL> 0<F2>
<PER-SHARE-NAV-END> 8.51<F2>
<EXPENSE-RATIO> 2.13<F2>
<AVG-DEBT-OUTSTANDING> 0<F2>
<AVG-DEBT-PER-SHARE> 0<F2>
<FN>
<F1>Information given pertains to SunAmerica U.S. Government Securities Fund as a
whole.
<F2>Information given pertains to SunAmerica U.S. Government Securities Fund Class
B.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.4
NUMBER SHARES
SUNAMERICA DIVERSIFIED INCOME FUND-CLASS A
SUNAMERICA INCOME FUNDS
AN UNINCORPORATED BUSINESS TRUST UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 866918 70 9
FULLY-PAID AND NON-ASSESSABLE CLASS A SHARES OF BENEFICIAL
INTEREST, PAR VALUE OF $.01 EACH OF THE SUNAMERICA INCOME FUNDS,
SUNAMERICA DIVERSIFIED INCOME FUND.
hereafter called the "Trust," transferable on the books of the Trust
by the owner in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be held
subject to the provisions of the Declaration of Trust and By-Laws
of the Trust and all amendments thereof, copies of which are on
file at the office of the Trust, to all of which the holder, by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to
be signed in its name by its proper officers and to be sealed with
its Seal.
Dated:
SUNAMERICA INCOME FUNDS
CORPORATE
SEAL
1986
MASSACHUSETTS
SECRETARY PRESIDENT
/s/ Robert M. Zakem /s/ Charles J. Mohr
COUNTERSIGNED: NATIONAL FINANCIAL DATA SERVICES,
SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY
P.O. BOX 419572, KANSAS CITY, MO 64141-6572
BY
- -------------------------------------------
AUTHORIZED OFFICER
KCK 6502
<PAGE>
This Certificate and the Class A shares represented hereby are issued and
shall be held subject to all the provisions of the Declaration of Trust dated
April 24, 1986 and By-Laws of the Trust, and all amendments thereto, including
the Establishment and Designation relating to the series and class, to all of
which the holder by acceptance hereof assents. Reference is made to the
Declaration of Trust and By-Laws, as well as the Establishment and Designation
of such series and class, for a description of the redemption rights and
obligations of the Trust, the series and class and their shareholders. The Board
of Trustees may authorize additional series and/or classes and shares thereof.
The Trust will furnish to the shareholder, without charge and upon written
request made to the Transfer Agent, a full statement of: (1) the designations
and any preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of each series and/or class authorized by the Board of Trustees; and
(2) the authority of the Board of Trustees to authorize such additional series
and/or classes and shares thereof. The Shares represented by this Certificate
may not be redeemed by the Trust without prior surrender of this Certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -------------Custodian---------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, I/WE Hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFICATION NUMBER OF ASSIGNEE
---------------------------------
- ----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- --------------------------------------------------------(-----------)Class A
shares of the beneficial interest represented by the within Certificate, and do
hereby irrevocably constitute and appoint
- -------------------------------------------------------------------attorney to
transfer the said Class A shares on the books of the within named Massachusetts
Business Trust with full power of substitution in the premises.
<PAGE>
Dated-------------- Signature(s) -------------------------------
SIGNATURE GUARANTEED BY
-----------------------------------------
(THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATSOEVER.)
This certificate is transferable or redeemable at the offices of National
Financial Data Services, 1004 Baltimore, Kansas City, MO 64105, Servicing Agent
for State Street Bank and Trust, Transfer Agent National Data Services, P.O. Box
419572, Kansas City, MO 64141-6572.
A SIGNATURE GUARANTEE MAY BE EXECUTED BY ANY "ELIGIBLE" GUARANTOR.
ELIGIBLE GUARANTORS INCLUDE COMMERCIAL BANKS, TRUST COMPANIES,
SAVINGS AND LOANS AND CREDIT UNIONS AS DEFINED BY THE FEDERAL
DEPOSIT INSURANCE ACT. ALSO INCLUDED ARE MEMBER FIRMS OF A DOMESTIC
STOCK EXCHANGE. YOU SHOULD VERIFY WITH THE INSTITUTION THAT THEY
ARE AN ACCEPTABLE (ELIGIBLE) GUARANTOR PRIOR TO SIGNING.
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
SUNAMERICA DIVERSIFIED INCOME FUND-CLASS A
NUMBER SHARES
KCK
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION IS INCORRECT OR MISSING,
PLEASE PRINT THE CORRECT INFORMATION BELOW, AND RETURN TO:
National Financial Data Services
Servicing Agent for State Street Bank and Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
IDENT. OR SOC. SEC. NO.-----------------
<PAGE>
NUMBER SHARES
SUNAMERICA DIVERSIFIED INCOME FUND-CLASS B
SUNAMERICA INCOME FUNDS
AN UNINCORPORATED BUSINESS TRUST UNDER THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 866918 80 8
FULLY-PAID AND NON-ASSESSABLE CLASS B SHARES OF BENEFICIAL
INTEREST, PAR VALUE OF $.01 EACH OF THE SUNAMERICA INCOME FUNDS,
SUNAMERICA DIVERSIFIED INCOME FUND.
hereafter called the "Trust," transferable on the books of the Trust
by the owner in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be held
subject to the provisions of the Declaration of Trust and By-Laws
of the Trust and all amendments thereof, copies of which are on
file at the office of the Trust, to all of which the holder, by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to
be signed in its name by its proper officers and to be sealed with
its Seal.
Dated:
SUNAMERICA INCOME FUNDS
CORPORATE
SEAL
1986
MASSACHUSETTS
SECRETARY PRESIDENT
/s/ Robert M. Zakem /S/ Charles J. Mohr
COUNTERSIGNED: NATIONAL FINANCIAL DATA SERVICES,
SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY
P.O. BOX 419572, KANSAS CITY, MO 64141-6572
BY
- -------------------------------------------
AUTHORIZED OFFICER
KCK 6102
<PAGE>
This Certificate and the Class B shares represented hereby are issued and
shall be held subject to all the provisions of the Declaration of Trust dated
April 24, 1986 and By-Laws of the Trust, and all amendments thereto, including
the Establishment and Designation relating to the series and class, to all of
which the holder by acceptance hereof assents. Reference is made to the
Declaration of Trust and By-Laws, as well as the Establishment and Designation
of such series and class, for a description of the redemption rights and
obligations of the Trust, the series and class and their shareholders. The Board
of Trustees may authorize additional series and/or classes and shares thereof.
The Trust will furnish to the shareholder, without charge and upon written
request made to the Transfer Agent, a full statement of: (1) the designations
and any preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of each series and/or class authorized by the Board of Trustees; and
(2) the authority of the Board of Trustees to authorize such additional series
and/or classes and shares thereof. The Shares represented by this Certificate
may not be redeemed by the Trust without prior surrender of this Certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -------------Custodian---------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, I/WE Hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFICATION NUMBER OF ASSIGNEE
---------------------------------
- ----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- --------------------------------------------------------(-----------)Class B
shares of the beneficial interest represented by the within Certificate, and do
hereby irrevocably constitute and appoint
- -------------------------------------------------------------------attorney to
transfer the said Class B shares on the books of the within named Massachusetts
Business Trust with full power of substitution in the premises.
<PAGE>
Dated-------------- Signature(s) -------------------------------
SIGNATURE GUARANTEED BY
-----------------------------------------
(THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATSOEVER.)
This certificate is transferable or redeemable at the offices of National
Financial Data Services, 1004 Baltimore, Kansas City, MO 64105, Servicing Agent
for State Street Bank and Trust, Transfer Agent National Data Services, P.O. Box
419572, Kansas City, MO 64141-6572.
A SIGNATURE GUARANTEE MAY BE EXECUTED BY ANY "ELIGIBLE" GUARANTOR. ELIGIBLE
GUARANTORS INCLUDE COMMERCIAL BANKS, TRUST COMPANIES, SAVINGS AND LOANS AND
CREDIT UNIONS AS DEFINED BY THE FEDERAL DEPOSIT INSURANCE ACT. ALSO INCLUDED ARE
MEMBER FIRMS OF A DOMESTIC STOCK EXCHANGE. YOU SHOULD VERIFY WITH THE
INSTITUTION THAT THEY ARE AN ACCEPTABLE (ELIGIBLE) GUARANTOR PRIOR TO SIGNING.
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
SUNAMERICA DIVERSIFIED INCOME FUND-CLASS B
NUMBER SHARES
KCK
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION IS INCORRECT OR MISSING,
PLEASE PRINT THE CORRECT INFORMATION BELOW, AND RETURN TO:
National Financial Data Services
Servicing Agent for State Street Bank and Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
IDENT. OR SOC. SEC. NO.-----------------
<PAGE>
NUMBER SHARES
SUNAMERICA FEDERAL SECURITIES FUND-CLASS A
SUNAMERICA INCOME FUNDS
AN UNINCORPORATED BUSINESS TRUST UNDER THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 866918 40 2
FULLY-PAID AND NON-ASSESSABLE CLASS A SHARES OF BENEFICIAL
INTEREST, PAR VALUE OF $.01 EACH OF THE SUNAMERICA INCOME FUNDS,
SUNAMERICA FEDERAL SECURITIES FUND.
hereafter called the "Trust," transferable on the books of the Trust
by the owner in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be held
subject to the provisions of the Declaration of Trust and By-Laws
of the Trust and all amendments thereof, copies of which are on
file at the office of the Trust, to all of which the holder, by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to
be signed in its name by its proper officers and to be sealed with
its Seal.
Dated:
SUNAMERICA INCOME FUNDS
CORPORATE
SEAL
1986
MASSACHUSETTS
SECRETARY PRESIDENT
/s/ Robert M. Zakem /S/ Charles J. Mohr
COUNTERSIGNED: NATIONAL FINANCIAL DATA SERVICES,
SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY
P.O. BOX 419572, KANSAS CITY, MO 64141-6572
BY
- -------------------------------------------
AUTHORIZED OFFICER
KCK 7502
<PAGE>
This Certificate and the Class A shares represented hereby are issued and
shall be held subject to all the provisions of the Declaration of Trust dated
April 24, 1986 and By-Laws of the Trust, and all amendments thereto, including
the Establishment and Designation relating to the series and class, to all of
which the holder by acceptance hereof assents. Reference is made to the
Declaration of Trust and By-Laws, as well as the Establishment and Designation
of such series and class, for a description of the redemption rights and
obligations of the Trust, the series and class and their shareholders. The Board
of Trustees may authorize additional series and/or classes and shares thereof.
The Trust will furnish to the shareholder, without charge and upon written
request made to the Transfer Agent, a full statement of: (1) the designations
and any preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of each series and/or class authorized by the Board of Trustees; and
(2) the authority of the Board of Trustees to authorize such additional series
and/or classes and shares thereof. The Shares represented by this Certificate
may not be redeemed by the Trust without prior surrender of this Certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -------------Custodian---------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, I/WE Hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFICATION NUMBER OF ASSIGNEE
---------------------------------
- ----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- --------------------------------------------------------(-----------)Class A
shares of the beneficial interest represented by the within Certificate, and do
hereby irrevocably constitute and appoint
- -------------------------------------------------------------------attorney to
transfer the said Class A shares on the books of the within named Massachusetts
Business Trust with full power of substitution in the premises.
<PAGE>
Dated-------------- Signature(s) -------------------------------
SIGNATURE GUARANTEED BY
-----------------------------------------
(THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATSOEVER.)
This certificate is transferable or redeemable at the offices of National
Financial Data Services, 1004 Baltimore, Kansas City, MO 64105, Servicing Agent
for State Street Bank and Trust, Transfer Agent National Data Services, P.O. Box
419572, Kansas City, MO 64141-6572.
A SIGNATURE GUARANTEE MAY BE EXECUTED BY ANY "ELIGIBLE" GUARANTOR.
ELIGIBLE GUARANTORS INCLUDE COMMERCIAL BANKS, TRUST COMPANIES,
SAVINGS AND LOANS AND CREDIT UNIONS AS DEFINED BY THE FEDERAL
DEPOSIT INSURANCE ACT. ALSO INCLUDED ARE MEMBER FIRMS OF A DOMESTIC
STOCK EXCHANGE. YOU SHOULD VERIFY WITH THE INSTITUTION THAT THEY
ARE AN ACCEPTABLE (ELIGIBLE) GUARANTOR PRIOR TO SIGNING.
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
SUNAMERICA FEDERAL SECURITIES FUND-CLASS A
NUMBER SHARES
KCK
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION IS INCORRECT OR MISSING,
PLEASE PRINT THE CORRECT INFORMATION BELOW, AND RETURN TO:
National Financial Data Services
Servicing Agent for State Street Bank and Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
IDENT. OR SOC. SEC. NO.-----------------
<PAGE>
NUMBER SHARES
SUNAMERICA FEDERAL SECURITIES FUND-CLASS B
SUNAMERICA INCOME FUNDS
AN UNINCORPORATED BUSINESS TRUST UNDER THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 866918 86 5
FULLY-PAID AND NON-ASSESSABLE CLASS B SHARES OF BENEFICIAL
INTEREST, PAR VALUE OF $.01 EACH OF THE SUNAMERICA INCOME FUNDS,
SUNAMERICA FEDERAL SECURITIES FUND.
hereafter called the "Trust," transferable on the books of the Trust
by the owner in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be held
subject to the provisions of the Declaration of Trust and By-Laws
of the Trust and all amendments thereof, copies of which are on
file at the office of the Trust, to all of which the holder, by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to
be signed in its name by its proper officers and to be sealed with
its Seal.
Dated:
SUNAMERICA INCOME FUNDS
CORPORATE
SEAL
1986
MASSACHUSETTS
SECRETARY PRESIDENT
/s/ Robert M. Zakem /S/ Charles J. Mohr
COUNTERSIGNED: NATIONAL FINANCIAL DATA SERVICES,
SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY
P.O. BOX 419572, KANSAS CITY, MO 64141-6572
BY
- -------------------------------------------
AUTHORIZED OFFICER
KCK 7102
<PAGE>
This Certificate and the Class B shares represented hereby are issued and
shall be held subject to all the provisions of the Declaration of Trust dated
April 24, 1986 and By-Laws of the Trust, and all amendments thereto, including
the Establishment and Designation relating to the series and class, to all of
which the holder by acceptance hereof assents. Reference is made to the
Declaration of Trust and By-Laws, as well as the Establishment and Designation
of such series and class, for a description of the redemption rights and
obligations of the Trust, the series and class and their shareholders. The Board
of Trustees may authorize additional series and/or classes and shares thereof.
The Trust will furnish to the shareholder, without charge and upon written
request made to the Transfer Agent, a full statement of: (1) the designations
and any preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of each series and/or class authorized by the Board of Trustees; and
(2) the authority of the Board of Trustees to authorize such additional series
and/or classes and shares thereof. The Shares represented by this Certificate
may not be redeemed by the Trust without prior surrender of this Certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -------------Custodian---------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, I/WE Hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFICATION NUMBER OF ASSIGNEE
---------------------------------
- ----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- --------------------------------------------------------(-----------)Class B
shares of the beneficial interest represented by the within Certificate, and do
hereby irrevocably constitute and appoint
- -------------------------------------------------------------------attorney to
transfer the said Class B shares on the books of the within named Massachusetts
Business Trust with full power of substitution in the premises.
<PAGE>
Dated-------------- Signature(s) -------------------------------
SIGNATURE GUARANTEED BY
-----------------------------------------
(THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATSOEVER.)
This certificate is transferable or redeemable at the offices of National
Financial Data Services, 1004 Baltimore, Kansas City, MO 64105, Servicing Agent
for State Street Bank and Trust, Transfer Agent National Data Services, P.O. Box
419572, Kansas City, MO 64141-6572.
A SIGNATURE GUARANTEE MAY BE EXECUTED BY ANY "ELIGIBLE" GUARANTOR. ELIGIBLE
GUARANTORS INCLUDE COMMERCIAL BANKS, TRUST COMPANIES, SAVINGS AND LOANS AND
CREDIT UNIONS AS DEFINED BY THE FEDERAL DEPOSIT INSURANCE ACT. ALSO INCLUDED ARE
MEMBER FIRMS OF A DOMESTIC STOCK EXCHANGE. YOU SHOULD VERIFY WITH THE
INSTITUTION THAT THEY ARE AN ACCEPTABLE (ELIGIBLE) GUARANTOR PRIOR TO SIGNING.
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
SUNAMERICA FEDERAL SECURITIES FUND-CLASS B
NUMBER SHARES
KCK
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION IS INCORRECT OR MISSING,
PLEASE PRINT THE CORRECT INFORMATION BELOW, AND RETURN TO:
National Financial Data Services
Servicing Agent for State Street Bank and Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
IDENT. OR SOC. SEC. NO.-----------------
<PAGE>
NUMBER SHARES
SUNAMERICA HIGH INCOME FUND-CLASS A
SUNAMERICA INCOME FUNDS
AN UNINCORPORATED BUSINESS TRUST UNDER THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 866918 10 5
FULLY-PAID AND NON-ASSESSABLE CLASS A SHARES OF BENEFICIAL
INTEREST, PAR VALUE OF $.01 EACH OF THE SUNAMERICA INCOME FUNDS,
SUNAMERICA HIGH INCOME FUND.
hereafter called the "Trust," transferable on the books of the Trust
by the owner in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be held
subject to the provisions of the Declaration of Trust and By-Laws
of the Trust and all amendments thereof, copies of which are on
file at the office of the Trust, to all of which the holder, by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to
be signed in its name by its proper officers and to be sealed with
its Seal.
Dated:
SUNAMERICA INCOME FUNDS
CORPORATE
SEAL
1986
MASSACHUSETTS
SECRETARY PRESIDENT
/s/ Robert M. Zakem /S/ Charles J. Mohr
COUNTERSIGNED: NATIONAL FINANCIAL DATA SERVICES,
SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY
P.O. BOX 419572, KANSAS CITY, MO 64141-6572
BY
- -------------------------------------------
AUTHORIZED OFFICER
KCK 3102
<PAGE>
This Certificate and the Class A shares represented hereby are issued and
shall be held subject to all the provisions of the Declaration of Trust dated
April 24, 1986 and By-Laws of the Trust, and all amendments thereto, including
the Establishment and Designation relating to the series and class, to all of
which the holder by acceptance hereof assents. Reference is made to the
Declaration of Trust and By-Laws, as well as the Establishment and Designation
of such series and class, for a description of the redemption rights and
obligations of the Trust, the series and class and their shareholders. The Board
of Trustees may authorize additional series and/or classes and shares thereof.
The Trust will furnish to the shareholder, without charge and upon written
request made to the Transfer Agent, a full statement of: (1) the designations
and any preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of each series and/or class authorized by the Board of Trustees; and
(2) the authority of the Board of Trustees to authorize such additional series
and/or classes and shares thereof. The Shares represented by this Certificate
may not be redeemed by the Trust without prior surrender of this Certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -------------Custodian---------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, I/WE Hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFICATION NUMBER OF ASSIGNEE
---------------------------------
- ----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- --------------------------------------------------------(-----------)Class A
shares of the beneficial interest represented by the within Certificate, and do
hereby irrevocably constitute and appoint
- -------------------------------------------------------------------attorney to
transfer the said Class A shares on the books of the within named Massachusetts
Business Trust with full power of substitution in the premises.
<PAGE>
Dated-------------- Signature(s) -------------------------------
SIGNATURE GUARANTEED BY
-----------------------------------------
(THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATSOEVER.)
This certificate is transferable or redeemable at the offices of National
Financial Data Services, 1004 Baltimore, Kansas City, MO 64105, Servicing Agent
for State Street Bank and Trust, Transfer Agent National Data Services, P.O. Box
419572, Kansas City, MO 64141-6572.
A SIGNATURE GUARANTEE MAY BE EXECUTED BY ANY "ELIGIBLE" GUARANTOR.
ELIGIBLE GUARANTORS INCLUDE COMMERCIAL BANKS, TRUST COMPANIES,
SAVINGS AND LOANS AND CREDIT UNIONS AS DEFINED BY THE FEDERAL
DEPOSIT INSURANCE ACT. ALSO INCLUDED ARE MEMBER FIRMS OF A DOMESTIC
STOCK EXCHANGE. YOU SHOULD VERIFY WITH THE INSTITUTION THAT THEY
ARE AN ACCEPTABLE (ELIGIBLE) GUARANTOR PRIOR TO SIGNING.
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
SUNAMERICA HIGH INCOME FUND-CLASS A
NUMBER SHARES
KCK
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION IS INCORRECT OR MISSING,
PLEASE PRINT THE CORRECT INFORMATION BELOW, AND RETURN TO:
National Financial Data Services
Servicing Agent for State Street Bank and Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
IDENT. OR SOC. SEC. NO.-----------------
<PAGE>
NUMBER SHARES
SUNAMERICA HIGH INCOME FUND-CLASS B
SUNAMERICA INCOME FUNDS
AN UNINCORPORATED BUSINESS TRUST UNDER THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 866918 60 0
FULLY-PAID AND NON-ASSESSABLE CLASS B SHARES OF BENEFICIAL
INTEREST, PAR VALUE OF $.01 EACH OF THE SUNAMERICA INCOME FUNDS,
SUNAMERICA HIGH INCOME FUND.
hereafter called the "Trust," transferable on the books of the Trust
by the owner in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be held
subject to the provisions of the Declaration of Trust and By-Laws
of the Trust and all amendments thereof, copies of which are on
file at the office of the Trust, to all of which the holder, by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to
be signed in its name by its proper officers and to be sealed with
its Seal.
Dated:
SUNAMERICA INCOME FUNDS
CORPORATE
SEAL
1986
MASSACHUSETTS
SECRETARY PRESIDENT
/s/ Robert M. Zakem /S/ Charles J. Mohr
COUNTERSIGNED: NATIONAL FINANCIAL DATA SERVICES,
SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY
P.O. BOX 419572, KANSAS CITY, MO 64141-6572
BY
- -------------------------------------------
AUTHORIZED OFFICER
KCK 3502
<PAGE>
This Certificate and the Class B shares represented hereby are issued and
shall be held subject to all the provisions of the Declaration of Trust dated
April 24, 1986 and By-Laws of the Trust, and all amendments thereto, including
the Establishment and Designation relating to the series and class, to all of
which the holder by acceptance hereof assents. Reference is made to the
Declaration of Trust and By-Laws, as well as the Establishment and Designation
of such series and class, for a description of the redemption rights and
obligations of the Trust, the series and class and their shareholders. The Board
of Trustees may authorize additional series and/or classes and shares thereof.
The Trust will furnish to the shareholder, without charge and upon written
request made to the Transfer Agent, a full statement of: (1) the designations
and any preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of each series and/or class authorized by the Board of Trustees; and
(2) the authority of the Board of Trustees to authorize such additional series
and/or classes and shares thereof. The Shares represented by this Certificate
may not be redeemed by the Trust without prior surrender of this Certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -------------Custodian---------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, I/WE Hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFICATION NUMBER OF ASSIGNEE
---------------------------------
- ----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- --------------------------------------------------------(-----------)Class B
shares of the beneficial interest represented by the within Certificate, and do
hereby irrevocably constitute and appoint
- -------------------------------------------------------------------attorney to
transfer the said Class B shares on the books of the within named Massachusetts
Business Trust with full power of substitution in the premises.
<PAGE>
Dated-------------- Signature(s) -------------------------------
SIGNATURE GUARANTEED BY
-----------------------------------------
(THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATSOEVER.)
This certificate is transferable or redeemable at the offices of National
Financial Data Services, 1004 Baltimore, Kansas City, MO 64105, Servicing Agent
for State Street Bank and Trust, Transfer Agent National Data Services, P.O. Box
419572, Kansas City, MO 64141-6572.
A SIGNATURE GUARANTEE MAY BE EXECUTED BY ANY "ELIGIBLE" GUARANTOR. ELIGIBLE
GUARANTORS INCLUDE COMMERCIAL BANKS, TRUST COMPANIES, SAVINGS AND LOANS AND
CREDIT UNIONS AS DEFINED BY THE FEDERAL DEPOSIT INSURANCE ACT. ALSO INCLUDED ARE
MEMBER FIRMS OF A DOMESTIC STOCK EXCHANGE. YOU SHOULD VERIFY WITH THE
INSTITUTION THAT THEY ARE AN ACCEPTABLE (ELIGIBLE) GUARANTOR PRIOR TO SIGNING.
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
SUNAMERICA HIGH INCOME FUND-CLASS B
NUMBER SHARES
KCK
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION IS INCORRECT OR MISSING,
PLEASE PRINT THE CORRECT INFORMATION BELOW, AND RETURN TO:
National Financial Data Services
Servicing Agent for State Street Bank and Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
IDENT. OR SOC. SEC. NO.-----------------
<PAGE>
NUMBER SHARES
SUNAMERICA TAX EXEMPT INSURED FUND-CLASS A
SUNAMERICA INCOME FUNDS
AN UNINCORPORATED BUSINESS TRUST UNDER THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 866918 88 1
FULLY-PAID AND NON-ASSESSABLE CLASS A SHARES OF BENEFICIAL
INTEREST, PAR VALUE OF $.01 EACH OF THE SUNAMERICA INCOME FUNDS,
SUNAMERICA TAX EXEMPT INSURED FUND.
hereafter called the "Trust," transferable on the books of the Trust
by the owner in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be held
subject to the provisions of the Declaration of Trust and By-Laws
of the Trust and all amendments thereof, copies of which are on
file at the office of the Trust, to all of which the holder, by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to
be signed in its name by its proper officers and to be sealed with
its Seal.
Dated:
SUNAMERICA INCOME FUNDS
CORPORATE
SEAL
1986
MASSACHUSETTS
SECRETARY PRESIDENT
/s/ Robert M. Zakem /S/ Charles J. Mohr
COUNTERSIGNED: NATIONAL FINANCIAL DATA SERVICES,
SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY
P.O. BOX 419572, KANSAS CITY, MO 64141-6572
BY
- -------------------------------------------
AUTHORIZED OFFICER
KCK 10002
<PAGE>
This Certificate and the Class A shares represented hereby are issued and
shall be held subject to all the provisions of the Declaration of Trust dated
April 24, 1986 and By-Laws of the Trust, and all amendments thereto, including
the Establishment and Designation relating to the series and class, to all of
which the holder by acceptance hereof assents. Reference is made to the
Declaration of Trust and By-Laws, as well as the Establishment and Designation
of such series and class, for a description of the redemption rights and
obligations of the Trust, the series and class and their shareholders. The Board
of Trustees may authorize additional series and/or classes and shares thereof.
The Trust will furnish to the shareholder, without charge and upon written
request made to the Transfer Agent, a full statement of: (1) the designations
and any preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of each series and/or class authorized by the Board of Trustees; and
(2) the authority of the Board of Trustees to authorize such additional series
and/or classes and shares thereof. The Shares represented by this Certificate
may not be redeemed by the Trust without prior surrender of this Certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -------------Custodian---------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, I/WE Hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFICATION NUMBER OF ASSIGNEE
---------------------------------
- ----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- --------------------------------------------------------(-----------)Class A
shares of the beneficial interest represented by the within Certificate, and do
hereby irrevocably constitute and appoint
- -------------------------------------------------------------------attorney to
transfer the said Class A shares on the books of the within named Massachusetts
Business Trust with full power of substitution in the premises.
<PAGE>
Dated-------------- Signature(s) -------------------------------
SIGNATURE GUARANTEED BY
-----------------------------------------
(THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATSOEVER.)
This certificate is transferable or redeemable at the offices of National
Financial Data Services, 1004 Baltimore, Kansas City, MO 64105, Servicing Agent
for State Street Bank and Trust, Transfer Agent National Data Services, P.O. Box
419572, Kansas City, MO 64141-6572.
A SIGNATURE GUARANTEE MAY BE EXECUTED BY ANY "ELIGIBLE" GUARANTOR.
ELIGIBLE GUARANTORS INCLUDE COMMERCIAL BANKS, TRUST COMPANIES,
SAVINGS AND LOANS AND CREDIT UNIONS AS DEFINED BY THE FEDERAL
DEPOSIT INSURANCE ACT. ALSO INCLUDED ARE MEMBER FIRMS OF A DOMESTIC
STOCK EXCHANGE. YOU SHOULD VERIFY WITH THE INSTITUTION THAT THEY
ARE AN ACCEPTABLE (ELIGIBLE) GUARANTOR PRIOR TO SIGNING.
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
SUNAMERICA TAX EXEMPT INSURED FUND-CLASS A
NUMBER SHARES
KCK
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION IS INCORRECT OR MISSING,
PLEASE PRINT THE CORRECT INFORMATION BELOW, AND RETURN TO:
National Financial Data Services
Servicing Agent for State Street Bank and Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
IDENT. OR SOC. SEC. NO.-----------------
<PAGE>
NUMBER SHARES
SUNAMERICA TAX EXEMPT INSURED FUND-CLASS B
SUNAMERICA INCOME FUNDS
AN UNINCORPORATED BUSINESS TRUST UNDER THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 866918 87 3
FULLY-PAID AND NON-ASSESSABLE CLASS B SHARES OF BENEFICIAL
INTEREST, PAR VALUE OF $.01 EACH OF THE SUNAMERICA INCOME FUNDS,
SUNAMERICA TAX EXEMPT INSURED FUND.
hereafter called the "Trust," transferable on the books of the Trust
by the owner in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be held
subject to the provisions of the Declaration of Trust and By-Laws
of the Trust and all amendments thereof, copies of which are on
file at the office of the Trust, to all of which the holder, by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to
be signed in its name by its proper officers and to be sealed with
its Seal.
Dated:
SUNAMERICA INCOME FUNDS
CORPORATE
SEAL
1986
MASSACHUSETTS
SECRETARY PRESIDENT
/s/ Robert M. Zakem /S/ Charles J. Mohr
COUNTERSIGNED: NATIONAL FINANCIAL DATA SERVICES,
SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY
P.O. BOX 419572, KANSAS CITY, MO 64141-6572
BY
- -------------------------------------------
AUTHORIZED OFFICER
KCK 10502
<PAGE>
This Certificate and the Class B shares represented hereby are issued and
shall be held subject to all the provisions of the Declaration of Trust dated
April 24, 1986 and By-Laws of the Trust, and all amendments thereto, including
the Establishment and Designation relating to the series and class, to all of
which the holder by acceptance hereof assents. Reference is made to the
Declaration of Trust and By-Laws, as well as the Establishment and Designation
of such series and class, for a description of the redemption rights and
obligations of the Trust, the series and class and their shareholders. The Board
of Trustees may authorize additional series and/or classes and shares thereof.
The Trust will furnish to the shareholder, without charge and upon written
request made to the Transfer Agent, a full statement of: (1) the designations
and any preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of each series and/or class authorized by the Board of Trustees; and
(2) the authority of the Board of Trustees to authorize such additional series
and/or classes and shares thereof. The Shares represented by this Certificate
may not be redeemed by the Trust without prior surrender of this Certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -------------Custodian---------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, I/WE Hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFICATION NUMBER OF ASSIGNEE
---------------------------------
- ----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- --------------------------------------------------------(-----------)Class B
shares of the beneficial interest represented by the within Certificate, and do
hereby irrevocably constitute and appoint
- -------------------------------------------------------------------attorney to
transfer the said Class B shares on the books of the within named Massachusetts
Business Trust with full power of substitution in the premises.
<PAGE>
Dated-------------- Signature(s) -------------------------------
SIGNATURE GUARANTEED BY
-----------------------------------------
(THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATSOEVER.)
This certificate is transferable or redeemable at the offices of National
Financial Data Services, 1004 Baltimore, Kansas City, MO 64105, Servicing Agent
for State Street Bank and Trust, Transfer Agent National Data Services, P.O. Box
419572, Kansas City, MO 64141-6572.
A SIGNATURE GUARANTEE MAY BE EXECUTED BY ANY "ELIGIBLE" GUARANTOR. ELIGIBLE
GUARANTORS INCLUDE COMMERCIAL BANKS, TRUST COMPANIES, SAVINGS AND LOANS AND
CREDIT UNIONS AS DEFINED BY THE FEDERAL DEPOSIT INSURANCE ACT. ALSO INCLUDED ARE
MEMBER FIRMS OF A DOMESTIC STOCK EXCHANGE. YOU SHOULD VERIFY WITH THE
INSTITUTION THAT THEY ARE AN ACCEPTABLE (ELIGIBLE) GUARANTOR PRIOR TO SIGNING.
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
SUNAMERICA TAX EXEMPT INSURED FUND-CLASS B
NUMBER SHARES
KCK
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION IS INCORRECT OR MISSING,
PLEASE PRINT THE CORRECT INFORMATION BELOW, AND RETURN TO:
National Financial Data Services
Servicing Agent for State Street Bank and Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
IDENT. OR SOC. SEC. NO.-----------------
<PAGE>
NUMBER SHARES
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND-CLASS A
SUNAMERICA INCOME FUNDS
AN UNINCORPORATED BUSINESS TRUST UNDER THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 866918 20 4
FULLY-PAID AND NON-ASSESSABLE CLASS A SHARES OF BENEFICIAL
INTEREST, PAR VALUE OF $.01 EACH OF THE SUNAMERICA INCOME FUNDS,
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND.
hereafter called the "Trust," transferable on the books of the Trust
by the owner in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be held
subject to the provisions of the Declaration of Trust and By-Laws
of the Trust and all amendments thereof, copies of which are on
file at the office of the Trust, to all of which the holder, by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to
be signed in its name by its proper officers and to be sealed with
its Seal.
Dated:
SUNAMERICA INCOME FUNDS
CORPORATE
SEAL
1986
MASSACHUSETTS
SECRETARY PRESIDENT
/s/ Robert M. Zakem /S/ Charles J. Mohr
COUNTERSIGNED: NATIONAL FINANCIAL DATA SERVICES,
SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY
P.O. BOX 419572, KANSAS CITY, MO 64141-6572
BY
- -------------------------------------------
AUTHORIZED OFFICER
KCK 4102
<PAGE>
This Certificate and the Class A shares represented hereby are issued and
shall be held subject to all the provisions of the Declaration of Trust dated
April 24, 1986 and By-Laws of the Trust, and all amendments thereto, including
the Establishment and Designation relating to the series and class, to all of
which the holder by acceptance hereof assents. Reference is made to the
Declaration of Trust and By-Laws, as well as the Establishment and Designation
of such series and class, for a description of the redemption rights and
obligations of the Trust, the series and class and their shareholders. The Board
of Trustees may authorize additional series and/or classes and shares thereof.
The Trust will furnish to the shareholder, without charge and upon written
request made to the Transfer Agent, a full statement of: (1) the designations
and any preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of each series and/or class authorized by the Board of Trustees; and
(2) the authority of the Board of Trustees to authorize such additional series
and/or classes and shares thereof. The Shares represented by this Certificate
may not be redeemed by the Trust without prior surrender of this Certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -------------Custodian---------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, I/WE Hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFICATION NUMBER OF ASSIGNEE
---------------------------------
- ----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- --------------------------------------------------------(-----------)Class A
shares of the beneficial interest represented by the within Certificate, and do
hereby irrevocably constitute and appoint
- -------------------------------------------------------------------attorney to
transfer the said Class A shares on the books of the within named Massachusetts
Business Trust with full power of substitution in the premises.
<PAGE>
Dated-------------- Signature(s) -------------------------------
SIGNATURE GUARANTEED BY
-----------------------------------------
(THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATSOEVER.)
This certificate is transferable or redeemable at the offices of National
Financial Data Services, 1004 Baltimore, Kansas City, MO 64105, Servicing Agent
for State Street Bank and Trust, Transfer Agent National Data Services, P.O. Box
419572, Kansas City, MO 64141-6572.
A SIGNATURE GUARANTEE MAY BE EXECUTED BY ANY "ELIGIBLE" GUARANTOR. ELIGIBLE
GUARANTORS INCLUDE COMMERCIAL BANKS, TRUST COMPANIES, SAVINGS AND LOANS AND
CREDIT UNIONS AS DEFINED BY THE FEDERAL DEPOSIT INSURANCE ACT. ALSO INCLUDED ARE
MEMBER FIRMS OF A DOMESTIC STOCK EXCHANGE. YOU SHOULD VERIFY WITH THE
INSTITUTION THAT THEY ARE AN ACCEPTABLE (ELIGIBLE) GUARANTOR PRIOR TO SIGNING.
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND-CLASS A
NUMBER SHARES
KCK
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION IS INCORRECT OR MISSING,
PLEASE PRINT THE CORRECT INFORMATION BELOW, AND RETURN TO:
National Financial Data Services
Servicing Agent for State Street Bank and Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
IDENT. OR SOC. SEC. NO.-----------------
<PAGE>
NUMBER SHARES
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND-CLASS B
SUNAMERICA INCOME FUNDS
AN UNINCORPORATED BUSINESS TRUST UNDER THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS
THIS CERTIFIES that is the owner of
*SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 866918 50 1
FULLY-PAID AND NON-ASSESSABLE CLASS B SHARES OF BENEFICIAL
INTEREST, PAR VALUE OF $.01 EACH OF THE SUNAMERICA INCOME FUNDS,
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND.
hereafter called the "Trust," transferable on the books of the Trust
by the owner in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are issued and shall be held
subject to the provisions of the Declaration of Trust and By-Laws
of the Trust and all amendments thereof, copies of which are on
file at the office of the Trust, to all of which the holder, by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Trust has caused this Certificate to
be signed in its name by its proper officers and to be sealed with
its Seal.
Dated:
SUNAMERICA INCOME FUNDS
CORPORATE
SEAL
1986
MASSACHUSETTS
SECRETARY PRESIDENT
/s/ Robert M. Zakem /S/ Charles J. Mohr
COUNTERSIGNED: NATIONAL FINANCIAL DATA SERVICES,
SERVICING AGENT FOR STATE STREET BANK AND TRUST COMPANY
P.O. BOX 419572, KANSAS CITY, MO 64141-6572
BY
- -------------------------------------------
AUTHORIZED OFFICER
KCK 8502
<PAGE>
This Certificate and the Class B shares represented hereby are issued and
shall be held subject to all the provisions of the Declaration of Trust dated
April 24, 1986 and By-Laws of the Trust, and all amendments thereto, including
the Establishment and Designation relating to the series and class, to all of
which the holder by acceptance hereof assents. Reference is made to the
Declaration of Trust and By-Laws, as well as the Establishment and Designation
of such series and class, for a description of the redemption rights and
obligations of the Trust, the series and class and their shareholders. The Board
of Trustees may authorize additional series and/or classes and shares thereof.
The Trust will furnish to the shareholder, without charge and upon written
request made to the Transfer Agent, a full statement of: (1) the designations
and any preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of each series and/or class authorized by the Board of Trustees; and
(2) the authority of the Board of Trustees to authorize such additional series
and/or classes and shares thereof. The Shares represented by this Certificate
may not be redeemed by the Trust without prior surrender of this Certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -------------Custodian---------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, I/WE Hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER TAXPAYER
IDENTIFICATION NUMBER OF ASSIGNEE
---------------------------------
- ----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- --------------------------------------------------------(-----------)Class B
shares of the beneficial interest represented by the within Certificate, and do
hereby irrevocably constitute and appoint
- -------------------------------------------------------------------attorney to
transfer the said Class B shares on the books of the within named Massachusetts
Business Trust with full power of substitution in the premises.
<PAGE>
Dated-------------- Signature(s) -------------------------------
SIGNATURE GUARANTEED BY
-----------------------------------------
(THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATSOEVER.)
This certificate is transferable or redeemable at the offices of National
Financial Data Services, 1004 Baltimore, Kansas City, MO 64105, Servicing Agent
for State Street Bank and Trust, Transfer Agent National Data Services, P.O. Box
419572, Kansas City, MO 64141-6572.
A SIGNATURE GUARANTEE MAY BE EXECUTED BY ANY "ELIGIBLE" GUARANTOR. ELIGIBLE
GUARANTORS INCLUDE COMMERCIAL BANKS, TRUST COMPANIES, SAVINGS AND LOANS AND
CREDIT UNIONS AS DEFINED BY THE FEDERAL DEPOSIT INSURANCE ACT. ALSO INCLUDED ARE
MEMBER FIRMS OF A DOMESTIC STOCK EXCHANGE. YOU SHOULD VERIFY WITH THE
INSTITUTION THAT THEY ARE AN ACCEPTABLE (ELIGIBLE) GUARANTOR PRIOR TO SIGNING.
PLEASE DETACH AND DISCARD UNLESS CHANGES ARE REQUIRED
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND-CLASS B
NUMBER SHARES
KCK
ACCOUNT NO. ALPHA CODE DEALER NO. CONFIRM NO.
TRADE DATE CONFIRM DATE BATCH I.D. NO.
CHANGE NOTICE: IF THE ABOVE INFORMATION IS INCORRECT OR MISSING,
PLEASE PRINT THE CORRECT INFORMATION BELOW, AND RETURN TO:
National Financial Data Services
Servicing Agent for State Street Bank and Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
IDENT. OR SOC. SEC. NO.-----------------
<PAGE>
EXHIBIT 99.6(b)
SUNAMERICA CAPITAL SERVICES INC.
________________________________________
Name of Firm
________________________________________
City State Zip Code
RE: DEALER AGREEMENT
Gentlemen:
We are the national distributor and principal underwriter of
the shares of mutual funds sponsored, managed and/or advised by
SunAmerica Asset Management Corp.(hereinafter referred to as a
"Fund," or collectively as the "Funds"). The Funds and each
individual investment series thereof are set forth on Schedule A,
which may be amended from time to time. We invite you to
participate in making available to your customers shares of the
Funds on the following terms:
1a. NON-BANK PARTICIPANTS ONLY. You represent and warrant
that you are a member of the National Association of Securities
Dealers, Inc. (the "NASD"). You agree to abide by the Rules of Fair
Practice, the Constitution and By-Laws of the NASD and to all other
rules and regulations that are now or may become applicable to
transactions thereunder.
b. BANK PARTICIPANTS ONLY. You represent and warrant to us
that (i)(a) you are a "Bank" as such term is defined in Section
3(a)(6) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or (b) you are a "bank holding company" as such term
is defined in the Bank Holding Act of 1956, as amended (the "Act");
(ii) you are duly organized and an existing "bank" or "bank holding
company" in good standing under the laws of jurisdiction in which
you were organized; (iii) all authorization (if any) required for
your lawful execution of this Agreement and your performance
hereunder have been obtained; and (iv) upon execution and delivery
by you, and assuming due and valid execution and delivery by us,
the Agreement will constitute a valid and binding agreement,
enforceable against you in accordance with its terms. In the event
you are a "bank holding company" as such term is defined in the Act,
you shall attach as an exhibit, and which will be made a part of
this Agreement, which sets forth the names and addresses of the
"banks" on whose behalf you are authorized to execute this
Agreement. You agree to give written notice to us promptly in the
event you shall cease to be a "bank" as such term is defined in
Section 3(a)(6) of the Exchange Act or a "bank holding company" as
such term is defined in the Act. In such event, this Agreement
shall be automatically terminated upon such written notice. You
also agree to abide by the Rules of Fair Practice of the National
<PAGE>
Association of Securities Dealers, Inc. applicable to the sale of
investment company shares to your customers.
We recognize that you may be subject to the provisions of
the Glass-Stegall Act and other laws governing, among other things,
the conduct of activities by federally chartered and supervised
banks and affiliated organizations. Because you will be the only
one having a direct relationship with the customer, you will comply
and are complying with all laws and regulations, including those of
the applicable regulatory authorities and any federal or state
regulatory body having jurisdiction over you or your customers, to
the extent applicable to securities purchases hereunder for the
account of your customer.
2. Orders for shares received from you and accepted by a Fund
will be at its next-determined net asset value, plus the applicable
sales charge, if any, at the time of such acceptance as established
pursuant to the then-current prospectus of the Fund. Procedures
relating to the handling of orders, including the Policies and
Procedures With Respect to Sales of SunAmerica Mutual Funds Under
the Multiple Pricing Structure, as may be amended from time to
time, set forth as Schedule B hereto, shall be subject to
instructions which we shall forward from time to time to all firms
(the "Participants") through which we make available shares of the
Funds. All orders are subject to acceptance by the applicable
Fund, which reserves the right in its sole discretion to reject any
order in whole or in part. We will confirm transactions for each
of your customers, it being understood in all cases that (a) you
are acting as the agent for the customer; (b) the transactions are
without recourse against you by the customer except to the extent
that (i) your failure to transmit orders in a timely fashion
results in a loss to your customer, or (ii) in the event you do not
receive a confirmation of the transaction within ten (10) business
days following the order date, your failure to inquire as to the
status of the transaction during such time period results in a loss
to your customer; (c) as between you and the customer, the customer
shall have beneficial ownership of the Fund shares; (d) each
transaction is initiated solely upon the order of the customer; and
(e) each transaction is for the account of the customer and not for
you account.
3. As a Participant, you agree to purchase shares of the
Funds only through us or from your customers. Purchases through us
shall be made only for the purpose of covering purchase orders
already received from your customers or for your own bona fide
investment.
4. You agree to sell shares of the Funds only (a) to your
customers at the net asset value plus applicable sales charge, if
any, then in effect as established by the then-current prospectus
of the applicable Fund or (b) to us as agent for the Fund or the
Fund itself at the redemption price as described in the prospectus.
<PAGE>
5. We reserve the right in our discretion, and without notice
to you, to suspend sales or withdraw the offering of shares
entirely, or to modify or cancel this Agreement. All sales shall
be subject to the terms and provisions set forth in the Fund's
then-current Prospectus.
6. No person is authorized to make any representations
concerning a Fund or its shares except those contained in its
prospectus and any such information (including any applicable
"Statement of Additional Information") as may be approved by a Fund
as information supplemental to its prospectus. In purchasing
shares through us, you shall rely solely on the representations
contained in the then-effective Prospectus and supplemental
information above-mentioned. You agree to hold us harmless and
indemnify the Funds and us in the event that you, or any of your
sales representatives, should violate any law, rule or regulation,
or any provisions of this Agreement, which may result in liability
to the Funds or us. Additional copies of any prospectus and/or
supplemental information (including any applicable "Statement of
Additional Information") will be supplied by us to you in
reasonable quantities upon request.
7. You shall have no authority whatever to act as agent of
the Funds or us, or any other Participant, and nothing in this
Agreement shall constitute you or the Funds as the agent of the
other. In all transactions in these shares between you and us, we
are acting as agent for the Funds and not as principal.
8. All communication to us shall be sent to SunAmerica
Capital Services, Inc., The SunAmerica Center, 733 Third Avenue,
New York, New York 10017-3204. Any notice to you shall be duly
given if mailed or telegraphed to you at your address set forth
below, unless you give us written instructions otherwise. It is
your responsibility to provide us with updated information
concerning where written communications should be sent.
9. This Agreement may be terminated without penalty upon
written notice by either party at any time, and shall automatically
terminate upon its assignment, or upon any event that terminates a
Fund's Distribution Agreement with us. This Agreement shall be
goverened by and construed in accordance with the laws of the State
of New York. The indemnification provision in Section 6 hereof
shall survive any termination of this Agreement hereunder.
10. NON-BANK PARTICIPANTS ONLY. By accepting this Agreement,
you represent that you are (i) registered as a broker-dealer under
the Securities Exchange Act of 1934; (ii) are qualified to act as
a dealer in the states or other jurisdictions where you transact
business; and (iii) are a member in good standing of the NASD. You
agree that you will maintain such registration, qualifications, and
membership in full force and effect throughout the terms of this
Agreement. You further agree to comply with all applicable federal
laws, the laws of the states or other jurisdictions concerned, and
the rules and regulations promulgated thereunder, and with the
<PAGE>
Constitution, By-Laws and Rules of Fair Practice of the NASD and
that you will not offer or sell the shares of the Funds in any
state or jurisdiction where they may not lawfully be offered or
sold, or where you are not registered as a broker-dealer.
11a. SERVICE FEES. We expect you to provide administration
and marketing services in the promotion of the Funds' shares,
including services and assistance to your customers who own Fund
shares. For such services, you will be entitled to compensation as
set forth in Schedule A, as may be amended from time to time, and
in the Funds' current prospectuses.
b. CONTINGENT DEFERRED SALES CHARGE ("CDSC"). For purchases
of Class B shares (of for certain purchases of Class A shares), we
advance commissions with the presumption that assets will remain in
the Fund(s) long enough for expenses to be recouped. In the event
of a redemption of shares purchased before the holding period
expires, a CDSC is deducted for the redemption proceeds as
described in the Funds' prospectuses.
c. CDSC WAIVERS. An exemptive order issued by the Securities
and Exchange Commission provides for a waiver of the CDSC on the
following redemptions: (a) CDSC Shares (Class B shares and certain
Class A shares) requested to be redeemed within one year of the
death or initial determination of disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986 (the "Code"), of a
shareholder; (b) Class B shares representing taxable distributions
made by qualified retirement plans or retirement accounts (not
including rollovers) for which SunAmerica Asset Management Corp.
serves as fiduciary; provided that, the plan participant or account
holder has attained the age of 59 1/2 at the time the redemption is
made; (c) Class B shares being redeemed up to the limit specified
in the Funds' prospectuses made pursuant to any systematic
withdrawal plan established by the Funds. The CDSC waiver, with
respect to (a) above (i.e., death or disability), is only
applicable in cases where the shareholder account is registered (i)
in the name of an individual person, (ii) as a joint tenency with
rights of survivorship, (iii) as community property, or (iv) in the
name of a minor under the Uniform Gift or Uniform Transfer to
Minors Acts. Notwithstanding the foregoing, we reserve the right
to terminate any or all of these waiver provisions in the future.
d. COMMISSION RECLAIMS. With respect to shares redeemed on
which the CDSC is waived pursuant to (b) above (i.e., taxable
distributions from the qualified retirement plans as described
therein), 100% of the commission advanced to the selling
Broker/Dealer in respect of such shares is subject to reclaim in
the event the redemption occurs within the first year from the date
of purchase, and 50% of the commission advanced is subject to
reclaim if
<PAGE>
the redemption occurs in the second year form the date of purchase. With respect
to Class A shares purchased at net asset value (which were part of a purchase of
$1 million or more, and which were subject to a CDSC if redeemed within one year
of purchase), 50% of the commission advanced is subject to reclaim if the
redemption occurs during the second year from the date of purchase. For all
other purchases of Class A share at net asset value, the entire commission
advanced is subject to reclaim for any redemption occurring within the first two
years form the date of purchase. The foregoing reclamations will be subtracted
from future dealer concession payments payable according to Schedule A and, if
sufficient dealer concession payments are not available to offset these
reclamations, you will reimburse us for these amounts.
12. This Agreement shall become effective upon receipt by us
of a signed copy hereof, and shall continue in effect until and
unless terminated (i) pursuant to Section 9, above, or (ii) on
account of your violation of any representation contained herein.
This Agreement shall supersede all prior Selling Agreements with
you relating to the shares of the Funds. This Agreement may be
amended in writing signed by each of the parties hereto, except
that we may amend Schedule A in our sole discretion upon notice to
you. Any such amendment shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors.
SUNAMERICA CAPITAL SERVICES, INC.
By: __________________________________
Name: ________________________________
Date ________ Title: _______________________________
The undersigned accepts your invitation to make available to
its customers shares of the Funds and agrees to abide by the
foregoing terms and conditions. The undersigned acknowledges
receipt of prospectuses of the Funds in connection with this
offering.
_________________________ _____________________________
Firm Name Authorized Signatory
_________________________ _____________________________
Address Print Name
_________________________ _____________________________
Title of Signatory
_________________________ _____________________________
Telephone Number Date
_________________________
Fax Number
<PAGE>
SCHEDULE A
SUNAMERICA MUTUAL FUNDS
SUNAMERICA INCOME FUNDS
SunAmerica Federal Securities Fund
SunAmerica U.S. Government Securities Fund
SunAmerica High Income Fund
SunAmerica Diversified Income Fund
SunAmerica Tax Exempt Insured Fund
COMPENSATION (concession to selling dealer is based on amount of
purchase)
A SHARES
PURCHASE AMOUNT DEALER CONCESSION
$0 to $99,999 4.00%
$100,000 to $249,999 3.00%
$250,000 to $499,999 2.25%
$500,000 to $999,999 1.35%
$1,000,000 or more 1.00%
Up to .25% Service Fee, paid quarterly, effective immediately
B SHARES - 4.00% (no breakpoints)
Up to .25% Service Fee, paid quarterly, beginning the 13th
month following purchase
___________________________________________________________________
SUNAMERICA EQUITY FUNDS
SunAmerica Blue Chip Growth Fund
SunAmerica Mid-Cap Growth Fund
SunAmerica Small Company Growth Fund
SunAmerica Balanced Assets Fund
SunAmerica Global Balanced Fund
SunAmerica Growth and Income Fund
COMPENSATION (concession to selling dealer is based on amount of
purchase)
A SHARES
PURCHASE AMOUNT DEALER CONCESSION
$0 to $49,999 5.00%
$50,000 to $99,999 4.00%
$100,000 to $249,999 3.00%
$250,000 to $499,999 2.25%
$500,000 to $999,999 1.35%
$1,000,000 or more 1.00%
Up to .25% Service Fee and .25% Marketing Allowance, paid
quarterly, effective immediately
B SHARES - 4.00% (no breakpoints)
<PAGE>
Up to .25% Service Fee, paid quarterly, beginning the 13th
month following purchase
SUNAMERICA MONEY MARKET FUNDS, INC.
SunAmerica Money Market Fund
A SHARES
Up to .15% Service Fee, paid quarterly, effective immediately
B SHARES - 4.00% (no breakpoints)
Up to .15% Service Fee, paid quarterly, beginning the
13th month following purchase
<PAGE>
SCHEDULE B
POLICIES AND PROCEDURES WITH RESPECT TO SALES OF SUNAMERICA
MUTUAL FUNDS UNDER THE MULTIPLE PRICING STRUCTURE
As certain SunAmerica mutual funds (the "Multiple Pricing
Funds") offer shares subject to a front-end sales load ("Class A
Shares") and shares subject to a contingent deferred sales charge
("Class B Shares"), it is important for investors, not only to
choose a mutual fund that best suits their investment objectives,
but also to choose the sales financing method best suits their
particular needs. To assist your clients in these decisions and to
ensure proper supervision of mutual fund purchase recommendations,
we are instituting the following policies:
(1) Any purchase of a SunAmerica Mutual Fund, for less than
$100,000, may be of either Class A Shares or Class B shares.
(2) Any purchase of a SunAmerica Mutual Fund, for either
Class A Shares or Class B Shares, in the amount of $100,000 or
more, but less than $1 million, must be reviewed and approved for
appropriateness by the Broker/Dealer (who must maintain a written
record of this review) in light of the relevant facts and
circumstances pertaining to your client, including, but not limited
to:
(a) the specific purchase order dollar amount;
(b) the length of time the client expects to hold his or
her shares; and
(c) any other relevant circumstances, such as the
availability of purchases under letters of intent
or pursuant to rights of accumulation.
(3) A purchase of any SunAmerica Mutual Fund for $1 million
or more must be for Class A Shares.
(4) Generally, initial purchases of the SunAmerica Money
Market Fund must be of Class A Shares. Class B Shares of such Fund
are only available to those investors exchanging from Class B
shares of another SunAmerica Mutual Fund, or those investors making
an initial purchase who intend to exchange into Class B shares of
another SunAmerica Mutual Fund within 90 days.
<PAGE>
GENERAL GUIDELINES
There are instances where one financing method may be more
advantageous to an investor than the other. For example, investors
who may take advantage of breakpoints and those qualifying for a
discount from the maximum sales load on Class A Shares, may
determine that the purchase of Class A Shares with the payment of
a reduced front-end sales charge is preferable to payment of the
ongoing distribution fee imposed upon Class B Shares for the first
seven years. On the other hand, investors whose orders would not
take advantage of breakpoints to qualify for a discount may wish to
defer the sales load and have all of their funds invested in Class
B Shares initially. After a holding period of seven years, the
Class B Shares convert to Class A Shares, and ongoing charges are
thereafter equal.
A National Association of Securities Dealers, Inc. rule
specifically prohibits "breakpoint sales" of front-end load shares.
A "breakpoint sale" is a sale to an investor of an amount of front-end
load (Class A) shares just below the amount which would be
subject to the next breakpoint on the fund's sales charge schedule.
Because the deferred sales charge on Class B shares is gradually
reduced to 0% over the six-year period in which the shares are
held, a redemption of Class B shares just before an "anniversary
date" is in some ways analogous to a breakpoint sale. An investor
might wish to redeem just before an anniversary date for tax or
other reasons, and an investor who chose to wait would continue to
be at market risk. Nevertheless, you should inform your clients
intending to redeem Class B shares near an anniversary date that,
if the redemption were delayed, the deferred sales charge might be
reduced.
RESPONSIBILITIES OF THE BROKER/DEALER
You must ensure that all employees receiving investor
inquiries about the purchase of shares of Multiple Pricing Funds
have advised the investor of the available financing methods
offered by the mutual funds, and the impact of choosing one method
over another. In certain instances, it may be appropriate to
discuss the purchase directly with the investor. The foregoing
<PAGE>
guidelines, as well as the examples cited above, should assist you
in reviewing purchase orders less than, equal to, or greater than
$100,000.
EFFECTIVENESS
This policy is effective as of October 1, 1993 with respect to
any order for shares of all Multiple Pricing Funds.
Question relating to this policy should be directed to
SunAmerica Capital Services, Inc., The SunAmerica Center, 733 Third
Avenue, New York, NY 10017-3204.
<PAGE>
EXHIBIT 7
SunAmerica Disinterested Trustees' and Directors'
Retirement Plan
Section 1. Adoption and Purpose. The SunAmerica Fund or the Anchor Series
--------------------
Trust designated on Schedule A, as the case may be (the "Adopting Fund"), has
adopted the SunAmerica Disinterested Trustees' and Directors' Retirement Plan
(the "Plan"). The purpose of this Plan is to provide, in accordance with the
following terms, deferred compensation in the nature of pension benefits for (i)
Trustees of the Adopting Fund, if it is organized as a Massachusetts business
trust, and (ii) Directors of the Adopting Fund, if it is organized as a
corporation, who in either such case are not "interested persons" (as that term
is defined in the Investment Company Act of 1940, as amended). Such
disinterested Trustees or disinterested Directors are referred to herein
collectively as "Trustees."
Section 2. Effective Date. This Plan shall be effective as of January 1,
--------------
1993.
Section 3. Participation. Each Trustee shall become a participant in this
-------------
Plan ("Participant") upon the earlier of (a) attainment of age 55 and completion
of ten consecutive years of service as a Trustee of any of the SunAmerica Funds
or the Anchor Series Trust or (b) attainment of age 60 and completion of five
consecutive years of service as a Trustee of any of the SunAmerica Funds or the
Anchor Series Trust. Notwithstanding the foregoing, a Trustee who was a Trustee
on January 1, 1993, and who at that time, was under age 55, shall become a
Participant in this Plan upon completion of ten consecutive years of service,
without regard to his age at the time of completion of such service. Years of
service shall include service prior to the adoption of this Plan, and service as
a Trustee of any predecessor fund of an Adopting Fund.
Section 4. Eligibility for Benefits. Any Participant shall be eligible for
------------------------
the benefits described in Section 5 of the Plan upon (i) his death or disability
(within the meaning of Subsection 5(c) of the Plan) while a Trustee or (ii) the
termination of his tenure as a Trustee, other than by removal for cause, after
becoming a Participant, as provided in Section 3 of the Plan, and on or before
his 70th birthday. No benefits shall be payable to any Trustee whose service as
a Trustee terminates otherwise than as provided in this Section 4. Failure to
satisfy the requirements of this Section 4 shall result in forfeiture of any
benefits to which a Trustee might otherwise have been entitled under this Plan.
Section 5. Benefits.
--------
(a) Amount. As of each of the first ten birthdays, prior to his 70th
------
birthday, on which he is both a Trustee and a Participant, each Participant
shall be credited with an amount equal to 50% of his regular fees,
excluding separate committee meeting fees, for his services as a Trustee of
the Adopting
<PAGE>
Fund for the calendar year in which such birthday occurs (but in no event
shall such amount be less than 50% of the regular fees, excluding separate
committee meeting fees, in effect for 1993). As of each birthday, prior to
his 70th birthday, on which he is both a Trustee and a Participant, each
Participant shall also be credited with an amount equal to 8.50% of any
amount credited under this Section 5(a) as of any previous birthday.
Following a Participant's satisfaction of the requirements of Section 4 for
eligibility for benefits under the Plan, any amounts previously credited
under this Section 5 that have not been distributed as of any subsequent
birthday of the Participant (or any subsequent corresponding date on which
the Participant's birthday would have occurred if he were alive) shall be
credited as of such subsequent birthday or corresponding date with 8.5% of
such undistributed amounts.
(b) Retirement Benefits. On or before the earlier of (i) the last day
-------------------
of the calendar year immediately preceding the calendar year in which
payment of benefits commences under this Subsection 5(b) or (ii) the date
six months preceding the date on which payment of benefits commences under
this Subsection 5(b), each Participant may elect in writing, in a form and
manner acceptable to the Committee, as defined herein in Section 7, the
form for payment of benefits under the Plan. Any such election may be
revoked and a new election made prior to the earlier of (i) the last day of
the calendar year immediately preceding the calendar year in which payment
of benefits commences under this Subsection 5(b) or (ii) the date six
months preceding the date on which payment of benefits commences under this
Subsection 5(b), but any election in effect as of the earlier of such dates
shall be irrevocable. No Participant may make more than one election in any
calendar year, and all elections shall be subject to approval by the
Committee. A Participant may elect to receive such benefits in the form of
either (i) a lump sum or (ii) quarterly, semi-annual or annual installments
for a period of 5, 10 or 15 years, as the Participant may elect, with
payment of each installment on the quarterly, semiannual or annual
anniversary of the initial payment hereunder. The amount of each
installment shall be a quotient, the numerator of which is the aggregate
amount credited to the Participant under Subsection 5(a) as of the date for
payment under this Subsection 5(b), reduced by the amount of all previous
payments under the Plan, and the denominator of which is the number of
installments remaining. Payment of benefits shall commence as soon as
practicable following the Participant's satisfaction of the requirements of
Section 4 by reason of the termination of his tenure as a Trustee. If no
election is in effect at such time, benefits shall be paid in a lump SUM.
(c) Disability Benefits. If a Participant satisfies the requirements
-------------------
of Section 4 by becoming disabled while a Trustee, all amounts credited to
him under Subsection 5(a) shall be paid to him as soon as practicable in
accordance with
<PAGE>
his election for the form for payment of retirement benefits. If no
election is in effect at such time, benefits shall be paid in a lump sum. A
Participant shall be disabled if the Committee determines, in its sole
discretion, that he is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment which
can be expected to result in death or to be of long-continued and
indefinite duration.
(d) Death Benefits. If a Participant dies after satisfying the
--------------
requirements of Section 4 (or satisfies such requirements by reason of his
death) but before receiving all amounts credited to him under Subsection
5(a), any such remaining amounts shall be paid to the beneficiary
designated in writing by the Participant, which designation shall be in a
form and manner acceptable to the Committee, with payment commencing as
soon as practicable after the Participant's death. Payment to the
Participant's designated beneficiary shall be in a lump sum or installments
for a period of years, in accordance with the Participant's election for
the form for payment of retirement benefits. If no election is in effect at
such time, benefits shall be paid in a lump sum. If the Participant fails
to execute a valid beneficiary designation, any amounts otherwise payable
to a designated beneficiary under this Subsection 5(d) shall be paid in a
lump sum to the Participant's estate as soon as practicable after the
Participant's death. If the Committee is unable to locate the Participant's
beneficiary within two years following the Participant's death, any amounts
otherwise payable to the beneficiary under this Subsection 5(d) shall be
paid in a lump sum to the Participant's estate. Notwithstanding any
provision of this Subsection 5(d) or any beneficiary designation by the
Participant to the contrary, any Participant's surviving spouse whose
interests in marital property are determined under the community property
laws of any state shall receive 50% of amounts otherwise payable under this
Subsection 5(d), and the remainder of such amounts shall be paid in
accordance with this Subsection 5(d).
Section 6. Participants' Rights Unfunded and Unsecured. This Plan shall not
-------------------------------------------
be deemed to create any trust, escrow or other funding arrangement. The right of
any Participant to benefits under this Plan shall be an unsecured claim against
the general assets of the Adopting Fund. If the Adopting Fund is merged with any
other SunAmerica Fund(s), the obligations of the Adopting Fund under this Plan
shall become obligations of the merged fund and shall be aggregated with any
similar pre-merger obligations of the other SunAmerica Fund(s) involved in the
merger under any similar retirement plan. If the Adopting Fund is liquidated,
all amounts credited to a Participant under Section 5(a) as of the liquidation
date shall be paid to him in a lump sum as soon as practicable, provided that if
the Participant has not yet reached age 60, such amounts shall be discounted to
reflect payment prior to age 60, using the interest rates used by the Pension
Benefit Guaranty
<PAGE>
Corporation as of the date of distribution to determine the present value of a
lump sum distribution on termination of a tax-qualified pension plan.
Section 7. Administration. This Plan shall be administered by a committee
--------------
(the "Committee"), the members of which shall be appointed by the Board of
Trustees or Board of Directors of the Adopting Fund. The Committee shall be
responsible for the interpretation of the Plan and establishment of the rules
and regulations governing Plan administration. Any decision or action made or
taken by the Committee, arising out of or in connection with the construction,
administration or interpretation of the Plan or of its rules and regulations,
shall be conclusive and binding upon all Participants. In making any such
decision or taking any such action, the Committee shall have full and complete
discretion and authority to make eligibility determinations, construe provisions
of the Plan and resolve factual issues. All expenses of administering the Plan
shall be paid by the Adopting Fund and shall not affect the Participants, right
to or amount of benefits.
Section 8. Termination of Plan. The Board of Trustees of the Adopting Fund
-------------------
may terminate the Plan at any time. Upon termination of the Plan, benefits shall
continue to be credited and paid in accordance with Section 5 hereof to, or in
respect of, any deceased Participant or any Trustee or former Trustee who is a
Participant as of the date of termination of the Plan. No other payments shall
be made to any person under the Plan after the date of termination of the Plan.
Section 9. Amendment of Plan. The Board of Trustees or Board of Directors
-----------------
of the Adopting Fund may, without the consent of any Participant, amend the Plan
at any time and from time to time, provided, however, that no amendment shall
divest any Participant of rights to which he would have been entitled under
Section 8 if the Plan had been terminated on the effective date of such
amendment.
Section 10. Rights Non-Assignable. The rights of a Participant to receive
---------------------
payments under Section 5 shall not be assignable, nor shall they be subject to
garnishment, attachment, or any other legal process of creditors of a
Participant. Nothing in the Plan shall create any benefit, right, cause of
action, assignment, transfer or encumbrance in favor of any spouse, heirs or the
estate of any Participant. Notwithstanding the provisions of this Section 10,
each Participant agrees, as a condition of participation, to hold the Adopting
Fund, its officers, Board of Trustees or Board of Directors, employees and
agents harmless from any claim that may arise out of the Adopting Fund's
compliance with an order of any state or Federal court, whether such order
effects a judgment of such court or is issued to enforce a judgment or order of
another court.
Section 11. Withholding of Taxes. The Adopting Fund shall have the right to
--------------------
retain from distributions payable to a
<PAGE>
Participant amounts required by any government to be withheld and paid to such
government with respect to such payments.
Section 12. No Agreement to Retain Trustees. Nothing in this Plan shall be
-------------------------------
construed to provide any Trustee with an agreement or understanding, express or
implied, that the Trustee shall be retained as a Trustee for any specified
period of time or that the Board of Trustees or Board of Directors of the
Adopting Fund shall nominate the Trustee for reelection.
Section 13. Acceptance. The acceptance of payments under this Plan by any
----------
Participant constitutes his acceptance of the terms of the Plan and his
agreement to be bound thereby.
<PAGE>
SUNAMERICA DIRECTORS'/TRUSTEES' RETIREMENT PLAN
ENROLLMENT APPLICATION FORM
1. PERSONAL DATA
Name:______________________________ Date Elected:____________________________
Address:___________________________ Social Securities Number:________________
___________________________________ Telephone Number:________________________
City, State, Zip:__________________ Birthdate:_______________________________
________________________________________________________________________________
2. METHOD OF PAYMENT OF BENEFITS (Please Check One)
(a)___Lump Sum or
(b)___Quarterly, ___Semi-Annual or ___ Annual installments made
over a period of:
___5 years ___10 years ___15 years
Any such election may be revoked and a new election made prior to the
earlier of (i) the last day of the calendar year immediately preceding the
calendar year in which payment of benefits commences under Subsection 5(b)of the
Plan or (ii) the date six months preceding the date on which payment of benefits
commences under Subsection 5(b), but any election in effect as of the earlier of
such dates shall be irrevocable.
You may make only one election per calendar year, and all elections are
subject to approval by the Committee.
________________________________________________________________________________
3. DESIGNATION OF BENEFICIARY
Name:___________________________________________________________________________
Address:________________________________________________________________________
Telephone:______________________________________________________________________
Social Security Number:_________________________________________________________
If you fail to designate a beneficiary or your beneficiary cannot be
located within two (2) years after your death, any death benefits shall be paid
to your estate in accordance with the provisions of Subsection 5(d) of the Plan.
Notwithstanding any beneficiary designation, if you are subject to the
community property laws of any state, 50% of the amount of the death benefits
shall be payable to your surviving
<PAGE>
spouse under Subsection 5(d) of the Plan.
Any beneficiary named which can be located by reasonable efforts within two
(2) years after your death will receive payments in accordance with your
election for the method of payment of benefits in Part 2 above.
This Form automatically revokes any prior beneficiary designations you have
made.
______________________________________ ____________________________
Participant's Signature Date
________________________________________________________________________________
Acknowledgment
--------------
I understand that I shall become a participant in the Retirement Plan in
accordance with the provisions of Section 3 of the Plan.
Signature ____________________________ Date________________________
<PAGE>
EXHIBIT 99.8
CUSTODIAN CONTRACT
Between
SUNAMERICA INCOME FUNDS
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By
It 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States 3
2.1 Holding Securities 3
2.2 Delivery of Securities 3
2.3 Registration of Securities 8
2.4 Bank Accounts 9
2.5 Availability of Federal Funds 10
2.6 Collection of Income 10
2.7 Payment of Fund Monies 11
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased 14
2.9 Appointment of Agents 14
2.10 Deposit of Fund Assets in Securities System 14
2.11 Segregated Account 17
2.12 ownership certificates for Tax Purposes 19
2.13 Proxies 19
2.14 Communications Relating to Portfolio Securities 19
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States 20
3.1 Appointment of Foreign Sub-Custodians 20
3.2 Assets to be Held 21
3.3 Foreign securities Depositories 21
3.4 Agreements with Foreign Banking Institutions 22
3.5 Access of Independent Accountants of the Fund 22
3.6 Reports by Custodian 23
3.7 Transactions in Foreign Custody Account 23
3.8 Liability of Foreign Sub-Custodians 24
3.9 Liability of Custodian 25
3.10 Reimbursement for Advances 26
3.11 monitoring Responsibilities 26
3.12 Branches of U.S. Banks 27
3.13 Tax Law 27
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund 28
5. Proper Instructions 29
6. Actions Permitted Without Express Authority 30
7. Evidence of Authority 30
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income 31
9. Records 32
<PAGE>
10. Opinion of Fund's Independent Accountants 32
11. Reports to Fund by Independent Public Accountants 33
12. Compensation of Custodian 33
13. Responsibility of Custodian 33
14. Effective Period, Termination and Amendment 35
15. Successor Custodian 36
16. Interpretive and Additional Provisions 38
17. Additional Funds 38
18. Massachusetts Law to Apply 38
19. Prior Contracts 39
20. Shareholder Communications Election 39
<PAGE>
CUSTODIAN CONTRACT
This Contract between SunAmerica Income Funds, a business
trust organized and existing under the laws of Massachusetts,
having its principal place of business at 733 Third Avenue, New
York, New York, 10017-3204, hereinafter called the "Fund", and
State Street Bank and Trust Company, a Massachusetts trust company,
having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate
series, with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in five
series, SunAmerica U.S. Government Securities Fund, SunAmerica
Federal Securities Fund, SunAmerica Diversified Income Fund,
SunAmerica High Income Fund and SunAmerica Tax Exempt Insured Fund
(such series together with all other series subsequently
established by the Fund and made subject to this Contract in
accordance with paragraph 17, being herein referred to as the
"Portfolio(s) 11);
NOW THEREFORE, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as
follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the
assets of the Portfolios of the Fund, including securities which
the Fund, on behalf of the applicable Portfolio desires to be held
in places within the United States ("domestic securities") and
securities it desires to be held outside the United States
("foreign securities") pursuant to the provisions of the
Declaration of Trust. The Fund on behalf of the Portfolio(s)
agrees to deliver to the Custodian all securities and cash of the
Portfolios, and all payments of income, payments of principal or
capital distributions received by it with respect to all securities
owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of
beneficial interest of the Fund representing interests in the
Portfolios, ("Shares") as may be issued or sold from time to time.
The Custodian shall not be responsible for any property of a
Portfolio held or received by the Portfolio and not delivered to
the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of
Article 5), the Custodian shall on behalf of the applicable
Portfolio(s) from time to time employ one or more sub-custodians,
located in the United States but only in accordance with an
applicable vote by the Board of Trustees of the Fund on behalf of
the applicable Portfolio(s), and provided that the Custodian shall
<PAGE>
have no more or less responsibility or liability to the Fund on
account of any actions or omissions of any sub-custodian so
employed than any such sub-custodian has to the Custodian. The
Custodian may employ as sub-custodian for the Fund's foreign
securities on behalf of the applicable Portfolio(s) the foreign
banking institutions and foreign securities depositories designated
in Schedule A hereto but only in accordance with the provisions of
Article 3.
2. Duties of the Custodian with Respect to Property of the
Fund Held By the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Portfolio all non-cash
property, to be held by it in the United States including all
domestic securities owned by such Portfolio, other than (a)
securities which are maintained pursuant to Section 2.10 in a
clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the
Treasury, collectively referred to herein as "Securities
System".
2.2 Delivery of Securities. The Custodian shall release and
deliver domestic securities owned by a Portfolio held by the
Custodian or in a Securities System account of the Custodian
only upon receipt of Proper Instructions from the Fund on
behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, and only
in the following cases:
1) Upon sale of such securities for the account of the
Portfolio and receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities
entered into by the Portfolio;
3) In the case of a sale effected through a Securities
System, in accordance with the provisions of
section 2.10 hereof;
4) To the depository agent in connection with tender
or other similar offers for securities of the
Portfolio;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or
otherwise become payable; provided that, in any
such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer
into the name of the Portfolio or into the name of
any nominee or nominees of the Custodian or into
the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee
name of any sub custodian appointed pursuant to
Article 1; or for exchange for a different number
of bonds, certificates or other evidence
<PAGE>
representing the same aggregate face amount or
number of units; provided that, in any such case,
the new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the account of
the Portfolio, to the broker or its clearing agent,
against a receipt, for examination in accordance
with "street delivery" custom; provided that in any
such case, the Custodian shall have no
responsibility or liability for any loss arising
from the delivery of such securities prior to
receiving payment for such securities except as may
arise from the Custodian's own negligence or
willful misconduct;
8) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization,
reorganization or readjustment of the securities of
the issuer of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities
and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar
securities, the surrender thereof in the exercise
of such warrants, rights or similar securities or
the surrender of interim receipts or temporary
securities for definitive securities; provided
that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of
securities made by the Portfolio, but only against
receipt of adequate collateral as agreed upon from
time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form
of cash or obligations issued by the United States
government, its agencies or instrumentalities,
except that in connection with any loans for which
collateral is to be credited to the Custodian's
account in the book-entry system authorized by the
U.S. Department of the Treasury, the Custodian
will, not be held liable or responsible for the
delivery of securities owned by the Portfolio prior
to the receipt of such collateral;
11) For delivery as security in connection with any
borrowings by the Fund on behalf of the Portfolio
requiring a pledge of assets by the Fund on behalf
of the Portfolio, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of
any agreement among the Fund on behalf of the
Portfolio, the Custodian and a broker dealer
registered under the Securities Exchange Act of
1934 (the "Exchange Act") and a member of The
<PAGE>
National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of
The options Clearing Corporation and of any
registered national securities exchange, or of any
similar organization or organizations, regarding
escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of
any agreement among the Fund on behalf of the
Portfolio, the Custodian, and a Futures commission
Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or
organizations, regarding account deposits in
connection with transactions by the Portfolio of
the Fund;
14) Upon receipt of instructions from the transfer
agent ("Transfer Agent") for the Fund, for delivery
to such Transfer Agent or to the holders of shares
in connection with distributions in kind, as may be
described from time to time in the currently
effective prospectus and statement of additional
information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by
holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only
upon receipt of, in addition to Proper Instructions
from the Fund on behalf of the applicable
Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee
signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary, specifying
the securities of the Portfolio to be delivered,
setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall
be made.
2.3 Registration of Securities. Domestic securities held by the
Custodian (other than bearer securities) shall be registered
in the name of the Portfolio or in the name of any nominee of
the Fund on behalf of the Portfolio or of any nominee of the
Custodian which nominee shall be assigned exclusively to the
Portfolio, unless the Fund has authorized in writing the
appointment of a nominee to be used in common with other
registered investment companies having the same investment
adviser as the Portfolio, or in the name or nominee name of
any agent appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to
Article 1. All securities accepted by the Custodian on behalf
of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the
<PAGE>
Fund directs the Custodian to maintain securities in "street
name", the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to
notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of
calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a
separate bank account or accounts in the United States in the
name of each Portfolio of the Fund, subject only to draft or
order by the Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts, subject
to the provisions hereof, all cash received by it from or for
the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of
1940. Funds held by the Custodian for a Portfolio may be
deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust
company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or
trust company and the funds to be deposited with each such
bank or trust company shall on behalf of each applicable
Portfolio be approved by vote of a majority of the Board of
Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal funds. Upon mutual agreement between
the Fund on behalf of each applicable Portfolio and the
Custodian, the Custodian shall, upon the receipt of Proper
Instructions from the Fund on behalf of a Portfolio, make
federal funds available to such Portfolio as of specified
times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for
Shares of such Portfolio which are deposited into the
Portfoliol's account.
2.6 Collection of Income. Subject to the provisions of Section
2.3, the Custodian shall collect on a timely basis all income
and other payments with respect to registered domestic
securities held hereunder to which each Portfolio shall be
entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and
other payments with respect to bearer domestic securities if,
on the date of payment by the issuer, such securities are held
by the Custodian or its agent thereof and shall credit such
income, as collected, to such Portfoliol's custodian account.
Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they
become due and shall collect interest when due on securities
<PAGE>
held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be
the responsibility of the Fund. The Custodian will have no
duty or responsibility in connection therewith, other than to
provide the Fund with such information or data as may be
necessary to assist the Fund in arranging for the timely
delivery to the Custodian of the income to which the Portfolio
is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions
from the Fund on behalf of the applicable Portfolio, which may
be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out monies of a Portfolio in
the following cases only:
1) Upon the purchase of domestic securities, options,
futures contracts or options on futures contracts
for the account of the Portfolio but only (a)
against the delivery of such securities or evidence
of title to such options, futures contracts or
options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing
business in the United States or abroad which is
qualified under the Investment Company Act of 1940,
as amended, to act as a custodian and has been
designated by the Custodian as its agent for this
purpose) registered in the name of the Portfolio or
in the name of a nominee of the Custodian referred
to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected
through a Securities System, in accordance with the
conditions set forth in Section 2.10 hereof; (c) in
the case of repurchase agreements entered into
between the Fund on behalf of the Portfolio and the
Custodian, or another bank, or a broker-dealer
which is a member of NASD, (i) against delivery of
the securities either in certificate form or
through an entry crediting the Custodian's account
at the Federal Reserve Bank with such securities or
(ii) against delivery of the receipt evidencing
purchase by the Portfolio of securities owned by
the Custodian along with written evidence of the
agreement by the Custodian to repurchase such
securities from the Portfolio or (d) for transfer
to a time deposit account of the Fund in any bank,
whether domestic or foreign; such transfer may be
effected prior to receipt of a confirmation from a
broker and/or the applicable bank pursuant to
Proper Instructions from the Fund as defined in
Article 5;
2) In connection with conversion, exchange or
surrender of securities owned by the Portfolio as
set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued
by the Portfolio as set forth in Article 4 hereof;
<PAGE>
4) For the payment of any expense or liability
incurred by the Portfolio, including but not
limited to the following payments for the account
of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and
operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or
treated as deferred expenses;
5) For the payment of any dividends on Shares of the
Portfolio declared pursuant to the governing
documents of the Fund;
6) For payment of the amount of dividends received in
respect of securities sold short;
7) For any other proper purpose, but only upon receipt
of, in addition to Proper Instructions from the
Fund on behalf of the Portfolio, a certified copy
of a resolution of the Board of Trustees or of the
Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary
or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which
such payment is to be made, declaring such purpose
to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased. Except as specifically stated otherwise in this
Contract, in any and every case where payment for purchase of
domestic securities for the account of a Portfolio is made by
the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from
the Fund on behalf of such Portfolio to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been
received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times
in its discretion appoint (and may at any time remove) any
other bank or trust company which is itself qualified under
the Investment Company Act of 1940, as amended, to act as a
custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in securities Systems. The Custodian
may deposit and/or maintain securities owned by a Portfolio in
a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of
1934, which acts as a securities depository, or in the
book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred
to herein as "Securities System" in accordance with applicable
<PAGE>
Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep securities of the Portfolio
in a Securities System provided that such
securities are represented in an account
("Account") of the Custodian in the Securities
System which shall not include any assets of the
Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
2) The records of the Custodian with respect to
securities of the Portfolio which are maintained in
a securities System shall identify by book-entry
those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased
for the account of the Portfolio upon (i) receipt
of advice from the Securities System that such
securities have been transferred to the Account,
and (ii) the making of an entry on the records of
the Custodian to reflect such payment and transfer
for the account of the Portfolio. The Custodian
shall transfer securities sold for the account of
the Portfolio upon (i) receipt of advice from the
Securities System that payment for such securities
has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian
to reflect such transfer and payment for the
account of the Portfolio. Copies of all advices
from the Securities System of transfers of
securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the
Portfolio by the Custodian and be provided to the
Fund at its request. Upon request, the Custodian
shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the
account of the Portfolio in the form of a written
advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction
sheets reflecting each day's transactions in the
Securities System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the
Portfolio with any report obtained by the Custodian
on the Securities System's accounting system,
internal accounting control and procedures for
safeguarding securities deposited in the Securities
System;
5) The Custodian shall have received from the Fund on
behalf of the Portfolio the initial or annual
certificate, as the case may be, required by
Article 14 hereof;
6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be liable to
the Fund for the benefit of the Portfolio for any
loss or damage to the Portfolio resulting from use
<PAGE>
of the Securities System by reason of any
negligence, misfeasance or misconduct of the
Custodian or any of its agents or of any of its or
their employees or from failure of the Custodian or
any such agent to enforce effectively such rights
as it may have against the Securities System; at
the election of the Fund, it shall be entitled to
be subrogated to the rights of the Custodian with
respect to any claim against the Securities System
or any other person which the Custodian may have as
a consequence of any such loss or damage if and to
the extent that the Portfolio has not been made
whole for any such loss or damage.
2.11 Segregated Account. The Custodian shall upon receipt of
Proper Instructions from the Fund on behalf of each applicable
Portfolio establish and maintain a segregated account or
accounts for and on behalf of each such Portfolio, into which
account or accounts may be transferred cash and/or securities,
including securities maintained in an account by the Custodian
pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Fund on behalf of the
Portfolio, the Custodian and a broker-dealer registered under
the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Portfolio, (ii) for
purposes of segregating cash or government securities in
connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon
purchased or sold by the Portfolio, (iii) for the purposes of
compliance by the Portfolio with the procedures required by
Investment Company Act Release No. 10666, or any subsequent
release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper
corporate purposes, but only, in the case of clause (iv), upon
receipt of, in addition to Proper Instructions from the Fund
on behalf of the applicable Portfolio, a certified copy of a
resolution of the Board of Trustees or of the Executive
Committee signed by an officer of the Fund and certified by
the Secretary or an Assistant Secretary, setting forth the
purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for
all federal and state tax purposes in connection with receipt
of income or other payments with respect to domestic
securities of each Portfolio held by it and in connection with
<PAGE>
transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic
securities held hereunder, cause to be promptly executed by
the registered holder of such securities, if the securities
are registered otherwise than in the name of the Portfolio or
a nominee of the Portfolio, all proxies, without indication of
the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such
securities.
2.14 Communications Relating to Portfolio Securities
Subject to the provisions of Section 2.3, the Custodian shall
transmit promptly to the Fund for each Portfolio all written
information (including, without limitation, pendency of calls
and maturities of domestic securities and expirations of
rights in connection therewith and notices of exercise of call
and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the
securities being held for the Portfolio. With respect to
tender or exchange offers, the Custodian shall transmit
promptly to the Portfolio all written information received by
the Custodian from issuers of the securities whose tender or
exchange is sought and from the party (or his agents) making
the tender or exchange offer. If the Portfolio desires to
take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify
the Custodian at least three business days prior to the date
on which the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund
Held Outside of the United States
3.1 Appointment of Foreign Sub-Custodians
The Fund hereby authorizes and instructs the Custodian to
employ as sub-custodians for the Portfoliol's securities and
other assets maintained outside the United States the foreign
banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians").
Upon receipt of "Proper Instructions", as defined in Section
5 of this Contract, together with a certified resolution of
the Fund's Board of Trustees, the Custodian and the Fund may
agree to amend Schedule A hereto from time to time to
designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt
of Proper Instructions, the Fund may instruct the Custodian to
cease the employment of any one or more such sub-custodians
for maintaining custody of the Portfoliol's assets.
3.2 Assets to be Held. The Custodian shall limit the securities
and other assets maintained in the custody of the foreign
sub-custodians to: (a) "foreign securities", as defined in
<PAGE>
paragraph (c)(1) of Rule 17f-5 under the Investment Company
Act of 1940, and (b) cash and cash equivalents in such amounts
as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfoliol's foreign securities
transactions. The Custodian shall identify on its books as
belonging to the Fund, the foreign securities of the Fund held
by each foreign sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be
agreed upon in writing by the Custodian and the Fund, assets
of the Portfolios shall be maintained in foreign securities
depositories only through arrangements implemented by the
foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing
the provisions set forth in Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement
with a foreign banking institution shall be substantially in
the form set forth in Exhibit 1 hereto and shall provide that:
(a) the assets of each Portfolio will not be subject to any
right, charge, security interest, lien or claim of any kind in
favor of the foreign banking institution or its creditors or
agent, except a claim of payment for their safe custody or
administration; (b) beneficial ownership for the assets of
each Portfolio will be freely transferable without the payment
of money or value other than for custody or administration;
(c) adequate records will be maintained identifying the assets
as belonging to each applicable Portfolio; (d) officers of or
auditors employed by, or other representatives of the
Custodian, including to the extent permitted under applicable
law the independent public accountants for the Fund, will be
given access to the books and records of the foreign banking
institution relating to its actions under its agreement with
the Custodian; and (e) assets of the Portfolios held by the
foreign sub-custodian will be subject only to the instructions
of the Custodian or its agents.
3.5 Access of Independent Accountants of the Fund. Upon request
of the Fund, the Custodian will use its best efforts to
arrange for the independent accountants of the Fund to be
afforded access to the books and records of any foreign
banking institution employed as a foreign sub-custodian
insofar as such books and records relate to the performance of
such foreign banking institution under its agreement with the
Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund
from time to time, as mutually agreed upon, statements in
respect of the securities and other assets of the Portfolio(s)
held by foreign sub-custodians, including but not limited to
an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or
notifications of any transfers of securities to or from each
<PAGE>
custodial account maintained by a foreign banking institution
for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the
identity of the entity having physical possession of such
securities.
3.7 Transactions in Foreign Custody Account
(a) Except as otherwise provided in paragraph (b) of this
Section 3.7, the provision of Sections 2.2 and 2.7 of this
Contract shall apply, mutatis mutandis to the foreign
securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received for
the account of each applicable Portfolio and delivery of
securities maintained for the account of each applicable
Portfolio may be effected in accordance with the customary
established securities trading or securities processing
practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-
custodian may be maintained in the name of such entity's
nominee to the same extent as set forth in Section 2.3 of
this Contract, and the Fund agrees to hold any such nominee
harmless from any liability as a holder of record of such
securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant
to which the Custodian employs a foreign banking institution
as a foreign sub-custodian shall require the institution to
exercise reasonable care in the performance of its duties and
to indemnify, and hold harmless, the Custodian and the Fund
from and against any loss (including reasonable attorneys fees
and court cost), damage, cost, expense, liability or claim
arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund,
it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss (including
reasonable attorneys fees and court cost), damage, cost,
expense, liability or claim if and to the extent that the Fund
has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.9 Liability of Custodian. The Custodian shall be liable for the
acts or omissions of a foreign banking institution to the same
extent as set forth with respect to sub-custodians generally
in this Contract and, regardless of whether assets are
maintained in the custody of a foreign banking institution, a
foreign securities depository or a branch of a U.S. bank as
<PAGE>
contemplated by paragraph 3.12 hereof, the Custodian shall not
be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency
restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this paragraph
3.9, in delegating custody duties to State Street London Ltd.,
the Custodian shall not be relieved of any responsibility to
the Fund for any loss due to such delegation, except such loss
as may result from (a) unforeseen political risk (including,
but not limited to, exchange control restrictions,
confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses
(excluding a bankruptcy or insolvency of State Street London
Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances beyond the
control of the Custodian and State Street.
3.10 Reimbursement for Advances. If the Fund requires the
Custodian to advance cash or securities for any purpose for
the benefit of a Portfolio including the purchase or sale of
foreign exchange or of contracts for foreign exchange, or in
the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of
the applicable Portfolio shall be security therefor and should
the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of
such Portfolios assets to the extent necessary to obtain
reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish
annually to the Fund, during the month of June, information
concerning the foreign sub-custodians employed by the
Custodian. Such information shall be similar in kind and
scope to that furnished to the Fund in connection with the
initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian
learns of a material adverse change in the financial condition
of a foreign sub-custodian or any material loss of the assets
of the Fund or in the case of any foreign sub-custodian not
the subject of an exemptive order from the Securities and
Exchange Commission is notified by such foreign sub-custodian
that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S.
dollars or the equivalent thereof) or that its shareholders'
equity has declined below $200 million (in each case computed
in accordance with generally accepted U.S. accounting
principles).
<PAGE>
3.12 Branches of U.S. Banks
(a) Except as otherwise set forth in this Contract, the
provisions hereof shall not apply where the custody of the
Portfolios' assets are maintained in a foreign branch of a
banking institution which is a "bank" as defined by Section
2(a)(5) of the Investment Company Act of 1940 meeting the
qualification set forth in Section 26(a) of said Act. The
appointment of any such branch as a sub-custodian shall be
governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United
Kingdom shall be maintained in an interest bearing account
established for the Fund with the Custodian's London branch,
which account shall be subject to the direction of the
Custodian, State Street London Ltd. or both.
3.13 Tax Law
The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the
Custodian as custodian of the Fund by the tax law of the
United States of America or any state or political subdivision
thereof. It shall be the responsibility of the Fund to notify
the Custodian of the obligations imposed on the Fund or the
Custodian as custodian of the Fund by the tax law of
jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges,
certifications and governmental reporting. The sole
responsibility of the Custodian with regard to such tax law
shall be to use reasonable efforts to assist the Fund with
respect to any claim for exemption or refund under the tax law
of jurisdictions for which the Fund has provided such
information.
4. Payments for Sales or Repurchases or Redemptions of Shares of
the Fund
The Custodian shall receive from the distributor for the
Shares or from the Transfer Agent of the Fund and deposit into the
account of the appropriate Portfolio such payments as are received
for Shares of that Portfolio issued or sold from time to time by
the Fund. The Custodian will provide timely notification to the
Fund on behalf of each such Portfolio and the Transfer Agent of any
receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but
subject to the limitations of the Declaration of Trust and any
applicable votes of the Board of Trustees of the Fund pursuant
thereto, the Custodian shall, upon receipt of instructions from the
Transfer Agent, make funds available for payment to holders of
Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the
redemption or repurchase of Shares of a Portfolio, the custodian is
authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the
redeeming shareholders. In connection with the redemption or
<PAGE>
repurchase of Shares of the Fund, the Custodian shall honor checks
drawn on the Custodian by a holder of Shares, which checks have
been furnished by the Fund to the holder of Shares, when presented
to the Custodian in accordance with such procedures and controls as
are mutually agreed upon from time to time between the Fund and the
Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a
writing signed or initialled by two or more persons as the Board of
Trustees shall have from time to time authorized. Each such
writing shall set forth the specific transaction or type of
transaction involved, including a specific statement of the purpose
for which such action is requested. Oral instructions will be
considered Proper Instructions if the Custodian reasonably believes
them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Fund
shall cause all oral instructions to be confirmed in writing. Upon
receipt of a certificate of the Secretary or an Assistant Secretary
as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the
Board of Trustees, Proper instructions may include communications
effected directly between electromechanical or electronic devices
provided that the Board of Trustees and the Custodian are satisfied
that such procedures afford adequate safeguards for the Portfolios,
assets. For purposes of this Section, Proper Instructions shall
include instructions received by the Custodian pursuant to any
three-party agreement which requires a segregated asset account in
accordance with Section 2.11.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority
from the Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses
of handling securities or other similar items relating to its
duties under this Contract, provided that all such payments shall
be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for
securities in definitive form;
3) endorse for collection, in the name of the
Portfolio, checks, drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property of the
Portfolio except as otherwise directed by the Board of Trustees of
the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other
instrument or paper believed by it to be genuine and to have been
properly executed by or on behalf of the Fund. The Custodian may
receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of
<PAGE>
any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Trustees pursuant to
the Declaration of Trust as described in such vote, and such vote
may be considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board of
Trustees of the Fund to keep the books of account of each Portfolio
and/or compute the net asset value per share of the outstanding
shares of each Portfolio or, if directed in writing to do so by the
Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so
directed, the Custodian shall also calculate daily the net income
of the Portfolio as described in the Fund's currently effective
prospectus related to such Portfolio and shall advise the Fund and
the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so,
shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of
the net asset value per share and the daily income of each
Portfolio shall be made at the time or times described from time to
time in the Fund's currently effective prospectus related to such
Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and
maintain all records relating to its activities and obligations
under this Contract in such manner as will meet the obligations of
the Fund under the Investment Company Act of 1940, with particular
attention to Section 31 thereof and Rules 3la-1 and 3la-2
thereunder. All such records shall be the property of the Fund and
shall at all times during the regular business hours of the
Custodian be open for inspection by duly authorized officers,
employees or agents of the Fund and employees and agents of the
Securities and Exchange Commission. The Custodian shall, at the
Fund's request, supply the Fund with a tabulation of securities
owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall
be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on
behalf of each applicable Portfolio may from time to time request,
to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in
connection with the preparation of the Fund's Form N-1A, and Form
N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such
Commission.
<PAGE>
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system,
internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts,
including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Fund to
provide reasonable assurance that any material inadequacies would
be disclosed by such examination, and, if there are no such
inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for
its services and expenses as Custodian, as agreed upon from time to
time between the Fund on behalf of each applicable Portfolio and
the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is the exercise of
reasonable care, the Custodian shall not be responsible for the
title, validity or genuineness of any property or evidence of title
thereto received by it or delivered by it pursuant to this Contract
and shall be held harmless in acting upon any notice, request,
consent, certificate or other instrument reasonably believed by it
to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the
terms of a three-party futures or options agreement. The Custodian
shall be held to the exercise of reasonable care in carrying out
the provisions of this Contract, but shall be kept indemnified by
and shall be without liability to the Fund for any action taken or
omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be
counsel for the Fund) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to
such advice.
If the Fund on behalf of a Portfolio requires the Custodian to
take any action with respect to securities, which action involves
the payment of money or which action may, in the opinion of the
Custodian, result in the Custodian or its nominee assigned to the
Fund or the Portfolio being liable for the payment of money or
incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount
and form satisfactory to it.
If the Fund requires the Custodian, its affiliates,
subsidiaries or agents, to advance cash or securities for any
purpose (including but not limited to securities settlements,
foreign exchange contracts and assumed settlement) for the benefit
of a Portfolio including the purchase or sale of foreign exchange
or of contracts for foreign exchange or in the event that the
Custodian or its nominee shall incur or be assessed any taxes,
<PAGE>
charges, expenses, assessments, claims or liabilities in connection
with the performance of this Contract, except such as may arise
from its or its nominee's own negligent action, negligent failure
to act or willful misconduct, any property at any time held for the
account of the applicable Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution,
shall continue in full force and effect until terminated as
hereinafter provided, may be amended at any time by mutual
agreement of the parties hereto and may be terminated by either
party by an instrument in writing delivered or mailed, postage
prepaid to the party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing;
provided, however that the Custodian shall not with respect to a
Portfolio act under Section 2.10 hereof in the absence of receipt
of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Trustees of the Fund has approved the
initial use of a particular Securities System by such Portfolio and
the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has reviewed the use
by such Portfolio of such Securities System, as required in each
case by Rule 17f-4 under the Investment Company Act of 1940, as
amended; provided further, however, that the Fund shall not amend
or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Declaration
of Trust, and further provided, that the Fund on behalf of one or
more of the Portfolios may at any time by action of its Board of
Trustees (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or
(ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event
at the direction of an appropriate regulatory agency or court of
competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such compensation
as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the
Portfolios shall be appointed by the Board of Trustees of the Fund,
the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the
form for transfer, all securities of each applicable Portfolio then
held by it hereunder and shall transfer to an account of the
successor custodian all of the securities of each such Portfolio
held in a Securities System.
If no such successor custodian shall be appointed, the
Custodian shall, in like manner, upon receipt of a certified copy
<PAGE>
of a vote of the Board of Trustees of the Fund, deliver at the
office of the Custodian and transfer such securities, funds and
other properties in accordance with such vote.
In the event that no written order designating a successor
custodian or certified copy of a vote of the Board of Trustees
shall have been delivered to the Custodian on or before the date
when such termination shall become effective, then the Custodian
shall have the right to deliver to a bank or trust company, which
is a "bank" as defined in the Investment Company Act of 1940, doing
business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its
last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian on
behalf of each applicable Portfolio and all instruments held by the
Custodian relative thereto and all other property held by it under
this Contract on behalf of each applicable Portfolio and to
transfer to an account of such successor custodian all of the
securities of each such Portfolio held in any Securities System.
Thereafter, such bank or trust company shall be the successor of
the Custodian under this Contract.
In the event that securities, funds and other properties
remain in the possession of the Custodian after the date of
termination hereof owing to failure of the Fund to procure the
certified copy of the vote referred to or of the Board of Trustees
to appoint a successor custodian, the Custodian shall be entitled
to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating tot he
duties and obligations of the Custodian shall remain in full force
and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the
Custodian and the Fund on behalf of the Portfolios, may form time
to time agree on such provisions interpretive of or in addition to
the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such
interpretive or additional provisions shall be in a writing signed
by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the
Declaration of Trust of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be
deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of
Shares in addition to SunAmerica U.S. Government Securities Fund,
SunAmerica Federal Securities Fund, SunAmerica Diversified Income
Fund, SunAmerica High Income Fund and SunAmerica Tax Exempt Insured
Fund with respect to which it desires to have the Custodian render
services as custodian under the terms hereof, it shall so notify
the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a
<PAGE>
Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of the Commonwealth
of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminated, as of the date
hereof, all prior contracts between the Fund on behalf of each of
the Portfolios and the Custodian relating to the custody of the
Fund's assets.
20. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks
which hold securities for the account of customers to respond to
requests by issuers of securities for the names, addresses and
holdings of beneficial owner has expressly objected to disclosure
of this information. In order to comply with the rule, the
Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position
to requesting companies whose securities the Fund owns. If the
Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the
Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting
to disclosure of this information for all securities owned by the
Fund or any funds or accounts established by the Fund. For the
Fund's protection, the Rule prohibits the requesting company from
using the Fund's name and address for any purpose other than
corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES ( ) The Custodian is authorized to release the Fund's name, address
and share positions.
NO ( x ) The Custodian is not authorized to release the Fund's name,
address, and share positions.
IN WITNESS WHEREOF, each of the parties has caused this
<PAGE>
instrument to be executed in its name and behalf by its duly
authorized representatives and its seal to be hereunder affixed as
of the 29th day of November, 1994.
SUNAMERICA INCOME FUNDS
By /s/ Peter A. Harbeck
ATTEST:
/s/ Robert M. Zakem
STATE STREET BANK AND TRUST COMPANY
By /s/
Executive Vice President
ATTEST:
/s/
<PAGE>
Schedule A
The following foreign banking institutions and foreign
securities depositories have been approved by the Board of Trustees
of SunAmerica Income Funds for use as sub-custodians for the Fund's
securities and other assets:
(Insert banks and securities depositories)
Certified:
Fund's Authorized Officer
Date:
<PAGE>
State Street Bank and Trust Company
SaFire Fee Schedule
SunAmerica, Anchor Series Trust, Anchor Pathway, SunAmerica
Series Trust
I. Installation Fee per fund
$1,500.00 per fund (one time charge)
II. Annual Fees per fund
# of Funds Portfolio and General Ledger Portfolio Only
1-10 $4,000.00 $3,000.00
11-25 $3,500.00 $2,500.00
26 and up $3,000.00 $2,000.00
These charges will be billed in two equal payments semi-annually per each
fund's year-end dates.
III. Payment
The above fee's will be paid within (15) fifteen days of receipt of bill.
SunAmerica Inc. State Street Bank & Trust Co.
Name: /s/Peter C. Sutton Name: /s/
Title: Vice President Title: Vice President
Date: 8/3/93 Date: 7/30/93
<PAGE>
AMENDMENT
STATE STREET BANK & TRUST COMPANY
CUSTODIAN FEE SCHEDULE AMENDMENT
SUNAMERICA FUNDS
Monthly Multiple Class Fee per Additional Class:
2nd Class $1,500
3rd Class $1,000
Each Additional Class $ 750
SUNAMERICA VALUE FUND
SUNAMERICA GROWTH FUND
SUNAMERICA EMERGING GROWTH FUND
SUNAMERICA BALANCED ASSETS FUND
SUNAMERICA TAX-EXEMPT INSURED PORTFOLIO
SUNAMERICA DIVERSIFIED INCOME
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND
SUNAMERICA HIGH INCOME FUND
SUNAMERICA MONEY MARKET FUND
SUNAMERICA FEDERAL SECURITIES PORTFOLIO
By: /s/Lori D. Nawn
Title: Treasurer
Date: 9/17/93
STATE STREET BANK & TRUST CO.
By: /s/ Kevin J. Morrissey
Date: 9/15/93
<PAGE>
EXHIBIT 99.9
TRANSFER AGENCY AND SERVICE AGREEMENT
between
SUNAMERICA INCOME FUNDS
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
Article 1 Terms of Appointment; Duties of the Bank 2
Article 2 Fees and Expenses 6
Article 3 Representations and Warranties of the Bank 6
Article 4 Representations and Warranties of the Fund 6
Article 5 Data Access and Proprietary Information 7
Article 6 Indemnification 10
Article 7 Standard of Care 12
Article 8 Covenants of the Fund and the Bank 12
Article 9 Termination of Agreement 14
Article 10 Additional Funds 14
Article 11 Assignment 14
Article 12 Amendment 15
Article 13 Massachusetts Law to Apply 15
Article 14 Force Majeure 15
Article 15 Consequential Damages 16
Article 16 Merger of Agreement 16
Article 17 Limitations of Liability of the Trustees
and the Shareholders 16
Article 18 Counterparts 16
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 29th day of November, 1994, by
and between SUNAMERICA INCOME FUNDS, a Massachusetts business
trust, having its principal office and place of business at 733
Third Avenue, New York, New York 10017-3204 (the "Fund"), and STATE
STREET BANK AND TRUST COMPANY, a Massachusetts trust company having
its principal office and place of business at 225 Franklin Street,
Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate
series, with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in five
series, SunAmerica U.S. Government Securities Fund, SunAmerica
Federal Securities Fund, SunAmerica Diversified Income Fund,
SunAmerica High Income and SunAmerica Tax Exempt Insured Fund (each
such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in
accordance with Article 10, being herein referred to as a
"Portfolio", and collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to
appoint the Bank as its transfer agent, dividend disbursing agent,
custodian of certain retirement plans and agent in connection with
certain other activities, and the Bank desires to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in
this Agreement, the Fund, on behalf of the Portfolios, hereby
employs and appoints the Bank to act as, and the Bank agrees to act
as its transfer agent for the authorized and issued shares of
beneficial interest of the Fund representing interests in each of
the respective Portfolios ("Shares"), dividend disbursing agent,
custodian of certain retirement plans and agent in connection with
any accumulation, open-account or similar plans provided to the
shareholders of each of the respective Portfolios of the Fund
("Shareholders") and set out in the currently effective prospectus
and statement of additional information ("prospectus") of the Fund
on behalf of the applicable Portfolio, including without limitation
any periodic investment plan or periodic withdrawal program.
1.02 The Bank agrees that it will perform the following
services:
(a) In accordance with procedures established from time
<PAGE>
to time by agreement between the Fund on behalf of each of the
Portfolios, as applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the
purchase of Shares, and promptly deliver
payment and appropriate documentation thereof
to the Custodian of the Fund authorized
pursuant to the Declaration of Trust of the
Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the
appropriate number of Shares and hold such
Shares in the appropriate Shareholder account;
Receive for acceptance redemption requests and
redemption directions and deliver the
appropriate documentation thereof to the
Custodian;
(iv) In respect to the transactions in items
(i), (ii) and (iii) above, the Bank shall
execute transactions directly with
broker-dealers authorized by the Fund who
shall thereby be deemed to be acting on
behalf of the Fund;
(v) At the appropriate time as and when it
receives monies paid to it by the Custodian
with respect to any redemption, pay over or
cause to be paid over in the appropriate
manner such monies as instructed by the
redeeming Shareholders;
(vi) Effect transfers of Shares by the registered
owners thereof upon receipt of appropriate
instructions;
(vii) Prepare and transmit payments for dividends
and distributions declared by the Fund on
behalf of the applicable Portfolio;
(viii) Issue replacement certificates for those
certificates alleged to have been lost, stolen or
destroyed upon receipt by the Bank of
indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at
its option, may issue replacement certificates in
place of mutilated stock certificates upon
presentation thereof and without such indemnity;
(ix) Maintain records of account for and advise the
Fund and its Shareholders as to the foregoing;
and
(x) Record the issuance of Shares of the Fund and
<PAGE>
maintain pursuant to SEC Rule 17Ad-10(e) a
record of the total number of Shares which are
authorized, based upon data provided to it by
the Fund, and issued and outstanding. The
Bank shall also provide the Fund on a regular
basis with the total number of Shares which
are authorized and issued and outstanding and
shall have no obligation, when recording the
issuance of Shares, to monitor the issuance of
such Shares or to take cognizance of any laws
relating to the issue or sale of such Shares,
which functions shall be the sole
responsibility of the Fund.
(b) In addition to and neither in lieu nor in
contravention of the services set forth in the above paragraph (a),
the Bank shall: (i) perform the customary services of a transfer
agent, dividend disbursing agent, custodian of certain retirement
plans and, as relevant, agent in connection with accumulation,
open-account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including
but not limited to: maintaining all Shareholder accounts, preparing
Shareholder meeting lists, mailing proxies, mailing Shareholder
reports and prospectuses to current Shareholders, withholding taxes
on U.S. resident and non-resident alien accounts, preparing and
filing U.S. Treasury Department Forms 1099 and other appropriate
forms required with respect to dividends and distributions by
federal authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for
all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing
activity statements for Shareholders, and providing Shareholder
account information and (ii) provide a system which will enable the
Fund to monitor the total number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank
in writing those transactions and assets to be treated as exempt
from blue sky reporting for each State and (ii) verify the
establishment of transactions for each State on the system prior to
activation and thereafter monitor the daily activity for each
State. The responsibility of the Bank for the Fund's blue sky
State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by the
Fund and the reporting of such transactions to the Fund as provided
above.
(d) Procedures as to who shall provide certain of these
services in Article 1 may be established from time to time by
agreement between the Fund on behalf of each Portfolio and the Bank
per the attached service responsibility schedule. The Bank may at
times perform only a portion of these services and the Fund or its
agent may perform these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf
<PAGE>
of the Fund (i.e., escheatment services) which may be agreed upon
in writing between the Fund and the Bank.
Article 2 Fees and Expenses
2.01 The Custodian shall be entitled to reasonable
compensation (including out of pocket expenses) for its services
and expenses as Custodian, as agreed upon from time to time between
the Fund on behalf of each applicable Portfolio and the Custodian.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing
and in good standing under the laws of the Commonwealth of
Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its
Charter and By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken
to authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the
necessary facilities, equipment and personnel to perform its duties
and obligations under this Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a business trust duly organized and existing
and in good standing under the laws of Massachusetts.
4.02 It is empowered under applicable laws and by its
Declaration of Trust and By-Laws to enter into and perform this
Agreement.
4.03 All corporate proceedings required by said
Declaration of Trust and By-Laws have been taken to authorize it to
enter into and perform this Agreement.
4.04 It is an open-end and diversified management
investment company registered under the Investment Company Act of
1940, as amended.
4.05 A registration statement under the Securities Act of
1933, as amended on behalf of each of the Portfolios is currently
effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made,
with respect to all Shares of the Fund being offered for sale.
<PAGE>
Article 5 Data Access and Proprietary Information
5.01 The Fund acknowledges that the data bases, computer
programs, screen format, report formats, interactive design
techniques, and documentation manuals furnished to the Fund by the
Bank as part of the Fund's ability to access certain Fund-related
data ("Customer Data") maintained by the Bank on data bases under
the control and ownership of the Bank or other third party ("Data
Access Services") constitute copyrighted, trade secret, or other
proprietary information (collectively, "Proprietary Information")
of substantial value to the Bank or other third party. In no event
shall Proprietary Information be deemed Customer Data. The Fund
agrees to treat all Proprietary Information as proprietary to the
Bank and further agrees that it shall not divulge any Proprietary
Information to any person or organization except as may be provided
hereunder. Without limiting the foregoing, the Fund agrees for
itself and its employees and agents:
(a) to access Customer Data solely from locations as
may be designated in writing by the Bank and solely
in accordance with the Bank's applicable user
documentation;
(b) to refrain from copying or duplicating in any way
the Proprietary Information;
(c) to refrain from obtaining unauthorized access to
any portion of the Proprietary Information, and if
such access is inadvertently obtained, to inform in
a timely manner of such fact and dispose of such
information in accordance with the Bank's
instructions;
(d) to refrain from causing or allowing third-party
data required hereunder from being retransmitted to
any other computer facility or other location,
except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those
authorized transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by
the Bank to protect at the Bank's expense the
rights of the Bank in Proprietary Information at
common law, under federal copyright law and under
other federal or state law.
Each party shall take reasonable efforts to advise its
employees of their obligations pursuant to this Article 5. The
obligations of this Article shall survive any earlier termination
of this Agreement.
5.02 If the Fund notifies the Bank that any of the Data
Access Services do not operate in material compliance with the most
<PAGE>
recently issued user documentation for such services, the Bank
shall endeavor in a timely manner to correct such failure.
Organizations from which the Bank may obtain certain data included
in the Data Access Services are solely responsible for the contents
of such data and the Fund agrees to make no claim against the Bank
arising out of the contents of such third-party data, including,
but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND
ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN
CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS.
THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY
STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Fund include
the ability to originate electronic instructions to the Bank in
order to (i) effect the transfer or movement of cash of Shares or
(ii) transmit Shareholder information or other information (such
transactions constituting a "COEFI"), then in such event the Bank
shall be entitled to rely on the validity and authenticity of such
instruction without undertaking any further inquiry as long as such
instruction is undertaken in conformity with security procedures
established by the Bank from time to time.
Article 6 Indemnification
6.01 The Bank shall not be responsible for, and the Fund
shall on behalf of the applicable Portfolio indemnify and hold the
Bank harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out
of or attributable to:
(a) All actions of the Bank or its agent or
subcontractors required to be taken pursuant to this Agreement,
provided that such actions are taken in good faith and without
negligence or willful misconduct.
(b) The negligent or willful breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services which
(i) are received by the Bank or its agents or subcontractors, and
(ii) have been prepared, maintained or performed by the Fund or any
other person or firm on behalf of the Fund including but not
limited to any previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or
its agents or subcontractors of any instructions or requests of the
Fund on behalf of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares be
registered in such state or in violation of any stop order or other
<PAGE>
determination or ruling by any federal agency or any state with
respect to the offer or sale of such Shares in such state.
6.02 At any time the Bank may apply to any officer of the
Fund for instructions, and may consult with legal counsel with
respect to any matter arising in connection with the services to be
performed by the Bank under this Agreement, and the Bank and its
agents or subcontractors shall not be liable and shall be
indemnified by the Fund on behalf of the applicable Portfolio for
any action taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel. The Bank, its
agents and subcontractors shall be protected and indemnified in
acting upon any paper or document furnished by or on behalf of the
Fund, reasonably believed to be genuine and to have been signed by
the proper person or persons, or upon any instruction, information,
data, records or documents provided the Bank or its agents or
subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held
to have notice of any change of authority of any person, until
receipt of written notice thereof from the Fund. The Bank, its
agents and subcontractors shall also be protected and indemnified
in recognizing stock certificates which are reasonably believed to
bear the proper manual or facsimile signatures of the officers of
the Fund, and the proper countersignature of any former transfer
agent or former registrar, or of a co-transfer agent or co-registrar.
6.03 In order that the indemnification provisions
contained in this Article 6 shall apply, upon the assertion of a
claim for which the Fund may be required to indemnify the Bank, the
Bank shall promptly notify the Fund of such assertion, and shall
keep the Fund advised with respect to all developments concerning
such claim. The Fund shall have the option to participate with the
Bank in the defense of such claim or to defend against said claim
in its own name or in the name of the Bank. The Bank shall in no
case confess any claim or make any compromise in any case in which
the Fund may be required to indemnify the Bank except with the
Fund's prior written consent.
Article 7 Standard of Care
7.01 The Bank shall at all times act in good faith and
agrees to use its best efforts to insure the accuracy of all
services performed under this Agreement, but assumes no
responsibility and shall not be liable for loss or damage due to
errors unless said errors are caused by its negligence, bad faith,
or willful misconduct of that of its employees.
Article 8 Covenants of the Fund and the Bank
8.01 The Fund shall on behalf of each of the Portfolios
promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Trustees
<PAGE>
of the Fund authorizing the appointment of the Bank and the
execution and delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of
the Fund and all amendments thereto.
8.02 The Bank hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Fund for
safekeeping of stock certificates, check forms and facsimile
signature imprinting devices, if any; and for the preparation or
use, and for keeping account of, such certificates, forms and
devices.
8.03 The Bank shall keep records relating to the services
to be performed hereunder, in the form and manner as it may deem
advisable. To the extent required by Section 31 of the Investment
Company Act of 1940, as amended, and the Rules thereunder, the Bank
agrees that all such records prepared or maintained by the Bank
relating to the services to be performed by the Bank hereunder are
the property of the Fund and will be preserved, maintained and made
available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its
request.
8.04 The Bank and the Fund agree that all books, records,
information and data pertaining to the business of the other party
which are exchanged or received pursuant to the negotiation or the
carrying out of this Agreement shall remain confidential, and shall
not be voluntarily disclosed to any other person, except as may be
required by law.
8.05 In case of any requests or demands for the
inspection of the Shareholder records of the Fund, the Bank will
endeavor to notify the Fund and to secure instructions from an
authorized officer of the Fund as to such inspection. The Bank
reserves the right, however, to exhibit the Shareholder records to
any person whenever it is advised by its counsel that it may be
held liable for the failure to exhibit the Shareholder records to
such person.
Article 9. Termination of Agreement
9.01 This Agreement may be terminated by either party
upon one hundred twenty (120) days written notice to the other.
9.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and
material will be borne by the Fund on behalf of the applicable
Portfolio(s). Additionally, the Bank reserves the right to charge
for any other reasonable expenses associated with such termination
and/or a charge equivalent to the average of three (3) months'
fees.
Article 10 Additional Funds
<PAGE>
10.01 In the event that the Fund establishes one or more
series of Shares in addition to SunAmerica U.S. Government
Securities Fund, SunAmerica Federal Securities Fund, SunAmerica
Diversified Income Fund, SunAmerica High Income and SunAmerica Tax
Exempt Insured Fund with respect to which it desires to have the
Bank render services as transfer agent under the terms hereof, it
shall so notify the Bank in writing, and if the Bank agrees in
writing to provide such services, such series of Shares shall
become a Portfolio hereunder.
Article 11 Assignment
11.01 Except as provided in Section 11.03 below, neither
this Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the other
party.
11.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors
and assigns.
11.03 The Bank may, without further consent on the part
of the Fund, subcontract for the performance hereof with (i) Boston
Financial Data Services, Inc., a Massachusetts corporation ("BFDS")
which is duly registered as a transfer agent pursuant to Section
17A(c)(1) of the Securities Exchange Act of 1934, as amended
("Section 17A(c)(l)"), (ii) a BFDS subsidiary duly registered as a
transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS
affiliate; provided, however, that the Bank shall be as fully
responsible to the Fund for the acts and omissions of any
subcontractor as it is for its own acts and omissions.
Article 12 Amendment
12.01 This Agreement may be amended or modified by a
written agreement executed by both parties and authorized or
approved by a resolution of the Trustees of the Fund.
Article 13 Massachusetts Law to Apply
13.01 This Agreement shall be construed and the
provisions thereof interpreted under and in accordance with the
laws of the Commonwealth of Massachusetts.
Article 14 Force Majeure
14.01 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of
God, strikes, equipment or transmission failure or damage
reasonably beyond its control, or other causes beyond its control,
such party shall not be liable for damages to the other for any
damages resulting from such failure to perform or otherwise from
such causes.
<PAGE>
Article 15 Consequential Damages
15.01 Neither party to this Agreement shall be liable to
the other party for consequential damages under any provision of
this Agreement or for any consequential damages arising out of any
act or failure to act hereunder.
Article 16 Merger of Agreement
16.01 This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with
respect to the subject matter hereof whether oral or written.
Article 17 Limitations of Liability of the Trustees and
Shareholders
17.01 A copy of the Declaration of Trust of the Trust is
on file with the Secretary of the Commonwealth of Massachusetts,
and notice is hereby given that this instrument is executed on
behalf of the Trustees of the Trust as Trustees and not
individually and that the obligations of this instrument are not
binding upon any of the Trustees or Shareholders individually but
are binding only upon the assets and property of the Fund.
Article 18 Counterparts
18.01 This Agreement may be executed by the parties
hereto on any number of counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf by and
through their duly authorized officers, as of the day and year
first above written.
<PAGE>
SUNAMERICA INCOME FUNDS
BY: /s/Peter A. Harbeck
ATTEST:
/s/ Robert M. Zakem
STATE STREET BANK AND COMPANY
BY: /s/
Executive Vice President
ATTEST:
/s/
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
Bank Fund/Agent
1. Receives orders for the purchase
of Shares. x x
2. Issue Shares and hold Shares in
Shareholders accounts. x
3. Receive redemption requests. x
4. Effect transactions 1-3 above
directly with broker-dealers. x
5. Pay over monies to redeeming
Shareholders. x
6. Effect transfers of Shares. x
7. Prepare and transmit dividends
and distributions. x
8. Issue Replacement Certificates. x
9. Reporting of abandoned property. x
10. Maintain records of account. x
11. Maintain and keep a current and
accurate control book for each
issue of securities. x
12. mail proxies. x
13. Mail Shareholder reports. x
14. Mail prospectuses to current
Shareholders. x
15. Withhold taxes on U.S. resident
and non-resident alien accounts. x
16. Prepare and file U.S. Treasury
Department forms. x
17. Prepare and mail account and
confirmation statements for
Shareholders. x
<PAGE>
Service Performed Responsibility
Bank Fund/Agent
18. Provide Shareholder account x
information.
19. Blue sky reporting. x
* Such services are more fully described in Article 1.02 (a),
(b) and (c) of the Agreement.
SUNAMERICA INCOME FUNDS
BY: /s/ Peter A. Harbeck
ATTEST:
/s/ Robert M. Zakem
STATE STREET BANK COMPANY
BY: /s/
Executive Vice President
ATTEST:
/s/
<PAGE>
EXHIBIT 99.10
SUNAMERICA ASSET MANAGEMENT CORP.
The SunAmerica Center
733 Third Avenue, Third Floor
New York, NY 10017-3204
800.858.8850
July 18, 1996
SunAmerica Income Funds
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Ladies and Gentlemen:
This opinion is being furnished in connection with the filing by
SunAmerica Income Funds (the "Trust"), a Massachusetts business trust, of
Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A (the
"Amendment") which definitely registers 73,069,933 shares of beneficial
interest, $.01 par value (the "Shares").
I am familiar with the proceedings taken by the Trust in connection with
the authorization, issuance and sale of the Shares. In addition, I have
examined the Trust's Declaration of Trust, its By-Laws and such other documents
that have been deemed relevant to the matters referred to in this opinion.
Based upon the foregoing, I am of the opinion that the Shares registered
by the Amendment are legally issued, fully paid and nonassessable shares of
beneficial interest of the Trust.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Amendment of the Trust, and to the
filing of this opinion under the securities laws of any state.
Very truly yours,
SunAmerica Asset Management Corp.
By:/s/Robert M. Zakem
Robert M. Zakem
Senior Vice President and
General Counsel
<PAGE>
Exhibit 99.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-effective Amendment No. 21 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated May
13, 1996, relating to the financial statements and financial highlights of Sun-
America Income Funds, which appears in such Statement of Additional Information,
and to the incorporation by reference of our report into the Prospectus which
constitutes part of this Registration Statement. We also consent to the
reference to us under the heading "Independent Accountants and Legal Counsel" in
such Statement of Additional Information and to the reference to us under the
heading "Financial Highlights" in such Prospectus.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
July 18, 1996
<PAGE>
EXHIBIT 99.15
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS A SHARES AND CLASS B SHARES)
PLAN OF DISTRIBUTION adopted as of the 23 day of
September, 1993, by SunAmerica Income Funds, a Massachusetts
business trust (the "Trust"), on behalf of the Class A shares of
its separately designated series, SunAmerica Diversified Income
Fund (the "Fund").
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end
management investment company; and
WHEREAS, the Fund is a separately designated investment
series of the Trust with its own investment objective, policies and
purposes offering two separate classes of shares of beneficial
interest, par value $.01 per share, of the Trust (the "Shares");
and
WHEREAS, the Trust has entered into a Distribution
Agreement with SunAmerica Capital Services, Inc. (the
"Distributor"), pursuant to which the Distributor acts as the
exclusive distributor and representative of the Trust in the offer
and sale of the Shares to the public; and
WHEREAS, the Trust desires to adopt this Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account
maintenance fee and a distribution fee to the Distributor with
respect to Class A shares of the Fund; and
WHEREAS, the Board of Trustees of the Trust (the
"Trustees") as a whole, and the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial
interest in the operation of this Plan or in any agreement relating
hereto (the "12b-1 Trustees"), having determined, in the exercise
of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act,
that there is a reasonable likelihood that this Plan will benefit
the Fund and its Class A shareholders, have approved this Plan by
votes cast in person at a meeting called for the purpose of voting
hereon and on any agreements related hereto;
NOW THEREFORE, the Trust on behalf of the Fund hereby
adopts this Plan on the following terms:
1. Distribution Activities. The Fund shall pay the
Distributor a distribution fee under the Plan at the end of each
month at the annual rate of 0.10% of average daily net assets
<PAGE>
attributable to Class A shares of the Fund to compensate the
Distributor and certain securities firms ("Securities Firms") for
providing sales and promotional activities and services. Such
activities and services will relate to the sale, promotion and
marketing of the Class A shares. Such expenditures may consist of
sales commissions to financial consultants for selling Class A
shares, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising
expenditures related to the Class A shares of the Fund and the
costs of preparing and distributing promotional materials with
respect to such Class A shares. Payment of the distribution fee
described in this Section 1 shall be subject to any limitations set
forth in applicable regulations of the National Association of
Securities Dealers, Inc. Nothing herein shall prohibit the
Distributior from collecting distribution fees in any given year,
as provided hereunder, in excess of expenditures made in such year
for sales and promotional activities with respect to the Fund.
2. Account Maintenance Activities. The Fund shall pay
the Distributor an account maintenance fee under the Plan at the
end of each month at the annual rate of up to 0.25% of average
daily net assets attributable to Class A shares of the Fund to
compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Fund hereby
authorizes the Distributor to enter into agreements with Securities
Firms to provide compensation to such Securities Firms for
activities and services of the type referred to in Sections 1 and
2 hereof. The Distributor may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and
services. Such agreements shall provide that the Securities Firms
shall deliver to the Distributor such information as is reasonably
necessary to permit the Distributor to comply with the reporting
requirements set forth in Section 5 hereof.
4. Related Agreements. All agreements with any person
relating to implementation of this Plan shall be in writing, and
any agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any
time, without payment of any penalty, by vote of a majority of the
12b-1 Trustees or, by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class A shares of the Fund,
on not more than 60 days' written notice to any other party to the
agreement; and
(b) that such agreement shall terminate
automatically in the event of its assignment.
-2-
<PAGE>
5. Quarterly Reports. The Treasurer of the Trust shall
provide to the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to
this Plan with respect to Class A shares of the Fund and any
related agreement and the purposes for which such expenditures were
made.
6. Term and Termination. (a) This Plan shall become
effective as of the date hereof, and, unless terminated as herein
provided, shall continue from year to year thereafter, so long as
such continuance is specifically approved at least annually by
votes, cast in person at a meeting called for the purpose of voting
on such approval, of a majority of both the (i) the Trustees of the
Trust, and (ii) the 12b-1 Trustees.
(b) This Plan may be terminated at any time by vote
of a majority of the 12b-1 Trustees or by vote of a majority of the
outstanding voting securities (as defined in the Act) of Class A
shares of the Fund.
7. Amendments. This Plan may not be amended to
increase materially the maximum expenditures permitted by Sections
1 and 2 hereof unless such amendment is approved by a vote of a
majority of the outstanding voting securities (as defined in the
Act) of Class A shares of the Fund, and no material amendment to
this Plan shall be made unless approved in the manner provided for
the annual renewal of this Plan in Section 6(a) hereof.
8. Selection and Nomination of Trustees. While this
Plan is in effect, the selection and nomination of those Trustees
of the Trust who are not interested persons of the Trust shall be
committed to the discretion of such disinterested Trustees.
9. Recordkeeping. The Trust shall preserve copies of
this Plan and any related agreement and all reports made pursuant
to Section 5 hereof for a period of not less than six years from
the date of this Plan, any such related agreement or such reports,
as the case may be, the first two years in an easily accessible
place.
10. Definition of Certain Terms. For purposes of this
Plan, the terms "assignment," "interested person," "majority of the
outstanding voting securities," and "principal underwriter" shall
have their respective meanings defined in the Act and the rules and
regulations thereunder, subject, however, to such exemptions as may
be granted to either the Trust or the principal underwriter of the
Shares by the Securities and Exchange Commission, or its staff
under the Act.
11. Personal Liability. The Declaration of Trust
establishing the Trust dated [Date Trust Established], a copy of
-3-
<PAGE>
which, together with all amendments thereto (the "Declaration"), is
on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name "[Name of Trust]" refers to
the Trustees under the Declaration collectively as trustees, but
not as individuals or personally, and no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private
property for satisfaction of any obligation or claim or otherwise
in connection with the affairs of the Trust, but the "Trust
Property" only shall be liable.
12. Separate Series. Pursuant to the provisions of the
Declaration, the Fund is a separate series of the Trust, and all
debts, liabilities and expenses of Class A shares of the Fund shall
be enforceable only against the assets of Class A shares of the
Fund and not against the assets of any other fund or class of
shares or of the Trust as a whole.
IN WITNESS WHEREOF, the Trust has caused this Plan to be
executed as of the day and year first written above.
SUNAMERICA INCOME FUNDS
By:/s/Peter A. Harbeck
Peter A. Harbeck
Executive Vice President
-4-
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS B SHARES)
PLAN OF DISTRIBUTION adopted as of the 23 day of
September, 1993, by SunAmerica Income Funds, a Massachusetts
business trust (the "Trust"), on behalf of the Class B shares of
its separately designated series, SunAmerica Diversified Income
Fund (the "Fund").
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end
management investment company; and
WHEREAS, the Fund is a separately designated investment
series of the Trust with its own investment objective, policies and
purposes offering two separate classes of shares of beneficial
interest, par value $.01 per share, of the Trust (the "Shares");
and
WHEREAS, the Trust has entered into a Distribution
Agreement with SunAmerica Capital Services, Inc. (the
"Distributor"), pursuant to which the Distributor acts as the
exclusive distributor and representative of the Trust in the offer
and sale of the Shares to the public; and
WHEREAS, the Trust desires to adopt this Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account
maintenance fee and a distribution fee to the Distributor with
respect to Class B shares of the Fund; and
WHEREAS, the Board of Trustees of the Trust (the
"Trustees") as a whole, and the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial
interest in the operation of this Plan or in any agreement relating
hereto (the "12b-1 Trustees"), having determined, in the exercise
of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act,
that there is a reasonable likelihood that this Plan will benefit
the Fund and its Class B shareholders, have approved this Plan by
votes cast in person at a meeting called for the purpose of voting
hereon and on any agreements related hereto;
NOW THEREFORE, the Trust on behalf of the Fund hereby
adopts this Plan on the following terms:
1. Distribution Activities. The Fund shall pay the
Distributor a distribution fee under the Plan at the end of each
-5-
<PAGE>
month at the annual rate of 0.75% of average daily net assets
attributable to Class B shares of the Fund to compensate the
Distributor and certain securities firms ("Securities Firms") for
providing sales and promotional activities and services. Such
activities and services will relate to the sale, promotion and
marketing of the Class B shares. Such expenditures may consist of
sales commissions to financial consultants for selling Class B
shares, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising
expenditures related to the Class B shares of the Fund and the
costs of preparing and distributing promotional materials with
respect to such Class B shares. Payment of the distribution fee
described in this Section 1 shall be subject to any limitations set
forth in applicable regulations of the National Association of
Securities Dealers, Inc. Nothing herein shall prohibit the
Distributior from collecting distribution fees in any given year,
as provided hereunder, in excess of expenditures made in such year
for sales and promotional activities with respect to the Fund.
2. Account Maintenance Activities. The Fund shall pay
the Distributor an account maintenance fee under the Plan at the
end of each month at the annual rate of up to 0.25% of average
daily net assets attributable to Class B shares of the Fund to
compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Fund hereby
authorizes the Distributor to enter into agreements with Securities
Firms to provide compensation to such Securities Firms for
activities and services of the type referred to in Sections 1 and
2 hereof. The Distributor may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and
services. Such agreements shall provide that the Securities Firms
shall deliver to the Distributor such information as is reasonably
necessary to permit the Distributor to comply with the reporting
requirements set forth in Section 5 hereof.
4. Related Agreements. All agreements with any person
relating to implementation of this Plan shall be in writing, and
any agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any
time, without payment of any penalty, by vote of a majority of the
12b-1 Trustees or, by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class B shares of the Fund,
on not more than 60 days' written notice to any other party to the
agreement; and
-6-
<PAGE>
(b) that such agreement shall terminate
automatically in the event of its assignment.
5. Quarterly Reports. The Treasurer of the Trust shall
provide to the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to
this Plan with respect to Class B shares of the Fund and any
related agreement and the purposes for which such expenditures were
made.
6. Term and Termination. (a) This Plan shall become
effective as of the date hereof, and, unless terminated as herein
provided, shall continue from year to year thereafter, so long as
such continuance is specifically approved at least annually by
votes, cast in person at a meeting called for the purpose of voting
on such approval, of a majority of both the (i) the Trustees of the
Trust, and (ii) the 12b-1 Trustees.
(b) This Plan may be terminated at any time by vote
of a majority of the 12b-1 Trustees or by vote of a majority of the
outstanding voting securities (as defined in the Act) of Class B
shares of the Fund.
7. Amendments. This Plan may not be amended to
increase materially the maximum expenditures permitted by Sections
1 and 2 hereof unless such amendment is approved by a vote of a
majority of the outstanding voting securities (as defined in the
Act) of Class B shares of the Fund, and no material amendment to
this Plan shall be made unless approved in the manner provided for
the annual renewal of this Plan in Section 6(a) hereof.
8. Selection and Nomination of Trustees. While this
Plan is in effect, the selection and nomination of those Trustees
of the Trust who are not interested persons of the Trust shall be
committed to the discretion of such disinterested Trustees.
9. Recordkeeping. The Trust shall preserve copies of
this Plan and any related agreement and all reports made pursuant
to Section 5 hereof for a period of not less than six years from
the date of this Plan, any such related agreement or such reports,
as the case may be, the first two years in an easily accessible
place.
10. Definition of Certain Terms. For purposes of this
Plan, the terms "assignment," "interested person," "majority of the
outstanding voting securities," and "principal underwriter" shall
have their respective meanings defined in the Act and the rules and
regulations thereunder, subject, however, to such exemptions as may
be granted to either the Trust or the principal underwriter of the
Shares by the Securities and Exchange Commission, or its staff
under the Act.
-7-
<PAGE>
11. Personal Liability. The Declaration of Trust
establishing the Trust dated [Date Trust Established], a copy of
which, together with all amendments thereto (the "Declaration"), is
on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name "[Name of Trust]" refers to
the Trustees under the Declaration collectively as trustees, but
not as individuals or personally, and no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private
property for satisfaction of any obligation or claim or otherwise
in connection with the affairs of the Trust, but the "Trust
Property" only shall be liable.
12. Separate Series. Pursuant to the provisions of the
Declaration, the Fund is a separate series of the Trust, and all
debts, liabilities and expenses of Class B shares of the Fund shall
be enforceable only against the assets of Class B shares of the
Fund and not against the assets of any other fund or class of
shares or of the Trust as a whole.
IN WITNESS WHEREOF, the Trust has caused this Plan to be
executed as of the day and year first written above.
SUNAMERICA INCOME FUNDS
By:/s/Peter A. Harbeck
Peter A. Harbeck
Executive Vice President
-8-
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS A SHARES)
PLAN OF DISTRIBUTION adopted as of the 23 day of
September, 1993, by SunAmerica Income Funds, a Massachusetts
business trust (the "Trust"), on behalf of the Class A shares of
its separately designated series, SunAmerica Federal Securities
Fund (the "Fund").
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end
management investment company; and
WHEREAS, the Fund is a separately designated investment
series of the Trust with its own investment objective, policies and
purposes offering two separate classes of shares of beneficial
interest, par value $.01 per share, of the Trust (the "Shares");
and
WHEREAS, the Trust has entered into a Distribution
Agreement with SunAmerica Capital Services, Inc. (the
"Distributor"), pursuant to which the Distributor acts as the
exclusive distributor and representative of the Trust in the offer
and sale of the Shares to the public; and
WHEREAS, the Trust desires to adopt this Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account
maintenance fee and a distribution fee to the Distributor with
respect to Class A shares of the Fund; and
WHEREAS, the Board of Trustees of the Trust (the
"Trustees") as a whole, and the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial
interest in the operation of this Plan or in any agreement relating
hereto (the "12b-1 Trustees"), having determined, in the exercise
of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act,
that there is a reasonable likelihood that this Plan will benefit
the Fund and its Class A shareholders, have approved this Plan by
votes cast in person at a meeting called for the purpose of voting
hereon and on any agreements related hereto;
NOW THEREFORE, the Trust on behalf of the Fund hereby
adopts this Plan on the following terms:
1. Distribution Activities. The Fund shall pay the
Distributor a distribution fee under the Plan at the end of each
month at the annual rate of 0.10% of average daily net assets
-9-
<PAGE>
attributable to Class A shares of the Fund to compensate the
Distributor and certain securities firms ("Securities Firms") for
providing sales and promotional activities and services. Such
activities and services will relate to the sale, promotion and
marketing of the Class A shares. Such expenditures may consist of
sales commissions to financial consultants for selling Class A
shares, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising
expenditures related to the Class A shares of the Fund and the
costs of preparing and distributing promotional materials with
respect to such Class A shares. Payment of the distribution fee
described in this Section 1 shall be subject to any limitations set
forth in applicable regulations of the National Association of
Securities Dealers, Inc. Nothing herein shall prohibit the
Distributior from collecting distribution fees in any given year,
as provided hereunder, in excess of expenditures made in such year
for sales and promotional activities with respect to the Fund.
2. Account Maintenance Activities. The Fund shall pay
the Distributor an account maintenance fee under the Plan at the
end of each month at the annual rate of up to 0.25% of average
daily net assets attributable to Class A shares of the Fund to
compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Fund hereby
authorizes the Distributor to enter into agreements with Securities
Firms to provide compensation to such Securities Firms for
activities and services of the type referred to in Sections 1 and
2 hereof. The Distributor may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and
services. Such agreements shall provide that the Securities Firms
shall deliver to the Distributor such information as is reasonably
necessary to permit the Distributor to comply with the reporting
requirements set forth in Section 5 hereof.
4. Related Agreements. All agreements with any person
relating to implementation of this Plan shall be in writing, and
any agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any
time, without payment of any penalty, by vote of a majority of the
12b-1 Trustees or, by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class A shares of the Fund,
on not more than 60 days' written notice to any other party to the
agreement; and
(b) that such agreement shall terminate
automatically in the event of its assignment.
-10-
<PAGE>
5. Quarterly Reports. The Treasurer of the Trust shall
provide to the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to
this Plan with respect to Class A shares of the Fund and any
related agreement and the purposes for which such expenditures were
made.
6. Term and Termination. (a) This Plan shall become
effective as of the date hereof, and, unless terminated as herein
provided, shall continue from year to year thereafter, so long as
such continuance is specifically approved at least annually by
votes, cast in person at a meeting called for the purpose of voting
on such approval, of a majority of both the (i) the Trustees of the
Trust, and (ii) the 12b-1 Trustees.
(b) This Plan may be terminated at any time by vote
of a majority of the 12b-1 Trustees or by vote of a majority of the
outstanding voting securities (as defined in the Act) of Class A
shares of the Fund.
7. Amendments. This Plan may not be amended to
increase materially the maximum expenditures permitted by Sections
1 and 2 hereof unless such amendment is approved by a vote of a
majority of the outstanding voting securities (as defined in the
Act) of Class A shares of the Fund, and no material amendment to
this Plan shall be made unless approved in the manner provided for
the annual renewal of this Plan in Section 6(a) hereof.
8. Selection and Nomination of Trustees. While this
Plan is in effect, the selection and nomination of those Trustees
of the Trust who are not interested persons of the Trust shall be
committed to the discretion of such disinterested Trustees.
9. Recordkeeping. The Trust shall preserve copies of
this Plan and any related agreement and all reports made pursuant
to Section 5 hereof for a period of not less than six years from
the date of this Plan, any such related agreement or such reports,
as the case may be, the first two years in an easily accessible
place.
10. Definition of Certain Terms. For purposes of this
Plan, the terms "assignment," "interested person," "majority of the
outstanding voting securities," and "principal underwriter" shall
have their respective meanings defined in the Act and the rules and
regulations thereunder, subject, however, to such exemptions as may
be granted to either the Trust or the principal underwriter of the
Shares by the Securities and Exchange Commission, or its staff
under the Act.
11. Personal Liability. The Declaration of Trust
establishing the Trust dated [Date Trust Established], a copy of
-11-
<PAGE>
which, together with all amendments thereto (the "Declaration"), is
on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name "[Name of Trust]" refers to
the Trustees under the Declaration collectively as trustees, but
not as individuals or personally, and no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private
property for satisfaction of any obligation or claim or otherwise
in connection with the affairs of the Trust, but the "Trust
Property" only shall be liable.
12. Separate Series. Pursuant to the provisions of the
Declaration, the Fund is a separate series of the Trust, and all
debts, liabilities and expenses of Class A shares of the Fund shall
be enforceable only against the assets of Class A shares of the
Fund and not against the assets of any other fund or class of
shares or of the Trust as a whole.
IN WITNESS WHEREOF, the Trust has caused this Plan to be
executed as of the day and year first written above.
SUNAMERICA INCOME FUNDS
By:/s/Peter A. Harbeck
Peter A. Harbeck
Executive Vice President
-12-
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS B SHARES)
PLAN OF DISTRIBUTION adopted as of the 23 day of
September, 1993, by SunAmerica Income Funds, a Massachusetts
business trust (the "Trust"), on behalf of the Class B shares of
its separately designated series, SunAmerica Federal Securities
Fund (the "Fund").
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end
management investment company; and
WHEREAS, the Fund is a separately designated investment
series of the Trust with its own investment objective, policies and
purposes offering two separate classes of shares of beneficial
interest, par value $.01 per share, of the Trust (the "Shares");
and
WHEREAS, the Trust has entered into a Distribution
Agreement with SunAmerica Capital Services, Inc. (the
"Distributor"), pursuant to which the Distributor acts as the
exclusive distributor and representative of the Trust in the offer
and sale of the Shares to the public; and
WHEREAS, the Trust desires to adopt this Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account
maintenance fee and a distribution fee to the Distributor with
respect to Class B shares of the Fund; and
WHEREAS, the Board of Trustees of the Trust (the
"Trustees") as a whole, and the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial
interest in the operation of this Plan or in any agreement relating
hereto (the "12b-1 Trustees"), having determined, in the exercise
of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act,
that there is a reasonable likelihood that this Plan will benefit
the Fund and its Class B shareholders, have approved this Plan by
votes cast in person at a meeting called for the purpose of voting
hereon and on any agreements related hereto;
NOW THEREFORE, the Trust on behalf of the Fund hereby
adopts this Plan on the following terms:
1. Distribution Activities. The Fund shall pay the
Distributor a distribution fee under the Plan at the end of each
-13-
<PAGE>
month at the annual rate of 0.75% of average daily net assets
attributable to Class B shares of the Fund to compensate the
Distributor and certain securities firms ("Securities Firms") for
providing sales and promotional activities and services. Such
activities and services will relate to the sale, promotion and
marketing of the Class B shares. Such expenditures may consist of
sales commissions to financial consultants for selling Class B
shares, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising
expenditures related to the Class B shares of the Fund and the
costs of preparing and distributing promotional materials with
respect to such Class B shares. Payment of the distribution fee
described in this Section 1 shall be subject to any limitations set
forth in applicable regulations of the National Association of
Securities Dealers, Inc. Nothing herein shall prohibit the
Distributior from collecting distribution fees in any given year,
as provided hereunder, in excess of expenditures made in such year
for sales and promotional activities with respect to the Fund.
2. Account Maintenance Activities. The Fund shall pay
the Distributor an account maintenance fee under the Plan at the
end of each month at the annual rate of up to 0.25% of average
daily net assets attributable to Class B shares of the Fund to
compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Fund hereby
authorizes the Distributor to enter into agreements with Securities
Firms to provide compensation to such Securities Firms for
activities and services of the type referred to in Sections 1 and
2 hereof. The Distributor may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and
services. Such agreements shall provide that the Securities Firms
shall deliver to the Distributor such information as is reasonably
necessary to permit the Distributor to comply with the reporting
requirements set forth in Section 5 hereof.
4. Related Agreements. All agreements with any person
relating to implementation of this Plan shall be in writing, and
any agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any
time, without payment of any penalty, by vote of a majority of the
12b-1 Trustees or, by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class B shares of the Fund,
on not more than 60 days' written notice to any other party to the
agreement; and
-14-
<PAGE>
(b) that such agreement shall terminate
automatically in the event of its assignment.
5. Quarterly Reports. The Treasurer of the Trust shall
provide to the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to
this Plan with respect to Class B shares of the Fund and any
related agreement and the purposes for which such expenditures were
made.
6. Term and Termination. (a) This Plan shall become
effective as of the date hereof, and, unless terminated as herein
provided, shall continue from year to year thereafter, so long as
such continuance is specifically approved at least annually by
votes, cast in person at a meeting called for the purpose of voting
on such approval, of a majority of both the (i) the Trustees of the
Trust, and (ii) the 12b-1 Trustees.
(b) This Plan may be terminated at any time by vote
of a majority of the 12b-1 Trustees or by vote of a majority of the
outstanding voting securities (as defined in the Act) of Class B
shares of the Fund.
7. Amendments. This Plan may not be amended to
increase materially the maximum expenditures permitted by Sections
1 and 2 hereof unless such amendment is approved by a vote of a
majority of the outstanding voting securities (as defined in the
Act) of Class B shares of the Fund, and no material amendment to
this Plan shall be made unless approved in the manner provided for
the annual renewal of this Plan in Section 6(a) hereof.
8. Selection and Nomination of Trustees. While this
Plan is in effect, the selection and nomination of those Trustees
of the Trust who are not interested persons of the Trust shall be
committed to the discretion of such disinterested Trustees.
9. Recordkeeping. The Trust shall preserve copies of
this Plan and any related agreement and all reports made pursuant
to Section 5 hereof for a period of not less than six years from
the date of this Plan, any such related agreement or such reports,
as the case may be, the first two years in an easily accessible
place.
10. Definition of Certain Terms. For purposes of this
Plan, the terms "assignment," "interested person," "majority of the
outstanding voting securities," and "principal underwriter" shall
have their respective meanings defined in the Act and the rules and
regulations thereunder, subject, however, to such exemptions as may
be granted to either the Trust or the principal underwriter of the
Shares by the Securities and Exchange Commission, or its staff
under the Act.
-15-
<PAGE>
11. Personal Liability. The Declaration of Trust
establishing the Trust dated [Date Trust Established], a copy of
which, together with all amendments thereto (the "Declaration"), is
on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name "[Name of Trust]" refers to
the Trustees under the Declaration collectively as trustees, but
not as individuals or personally, and no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private
property for satisfaction of any obligation or claim or otherwise
in connection with the affairs of the Trust, but the "Trust
Property" only shall be liable.
12. Separate Series. Pursuant to the provisions of the
Declaration, the Fund is a separate series of the Trust, and all
debts, liabilities and expenses of Class B shares of the Fund shall
be enforceable only against the assets of Class B shares of the
Fund and not against the assets of any other fund or class of
shares or of the Trust as a whole.
IN WITNESS WHEREOF, the Trust has caused this Plan to be
executed as of the day and year first written above.
SUNAMERICA INCOME FUNDS
By:/s/Peter A. Harbeck
Peter A. Harbeck
Executive Vice President
-16-
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS A SHARES)
PLAN OF DISTRIBUTION adopted as of the 23 day of
September, 1993, by SunAmerica Income Funds, a Massachusetts
business trust (the "Trust"), on behalf of the Class A shares of
its separately designated series, SunAmerica High Income Fund (the
"Fund").
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end
management investment company; and
WHEREAS, the Fund is a separately designated investment
series of the Trust with its own investment objective, policies and
purposes offering two separate classes of shares of beneficial
interest, par value $.01 per share, of the Trust (the "Shares");
and
WHEREAS, the Trust has entered into a Distribution
Agreement with SunAmerica Capital Services, Inc. (the
"Distributor"), pursuant to which the Distributor acts as the
exclusive distributor and representative of the Trust in the offer
and sale of the Shares to the public; and
WHEREAS, the Trust desires to adopt this Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account
maintenance fee and a distribution fee to the Distributor with
respect to Class A shares of the Fund; and
WHEREAS, the Board of Trustees of the Trust (the
"Trustees") as a whole, and the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial
interest in the operation of this Plan or in any agreement relating
hereto (the "12b-1 Trustees"), having determined, in the exercise
of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act,
that there is a reasonable likelihood that this Plan will benefit
the Fund and its Class A shareholders, have approved this Plan by
votes cast in person at a meeting called for the purpose of voting
hereon and on any agreements related hereto;
NOW THEREFORE, the Trust on behalf of the Fund hereby
adopts this Plan on the following terms:
1. Distribution Activities. The Fund shall pay the
Distributor a distribution fee under the Plan at the end of each
month at the annual rate of 0.10% of average daily net assets
-17-
<PAGE>
attributable to Class A shares of the Fund to compensate the
Distributor and certain securities firms ("Securities Firms") for
providing sales and promotional activities and services. Such
activities and services will relate to the sale, promotion and
marketing of the Class A shares. Such expenditures may consist of
sales commissions to financial consultants for selling Class A
shares, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising
expenditures related to the Class A shares of the Fund and the
costs of preparing and distributing promotional materials with
respect to such Class A shares. Payment of the distribution fee
described in this Section 1 shall be subject to any limitations set
forth in applicable regulations of the National Association of
Securities Dealers, Inc. Nothing herein shall prohibit the
Distributior from collecting distribution fees in any given year,
as provided hereunder, in excess of expenditures made in such year
for sales and promotional activities with respect to the Fund.
2. Account Maintenance Activities. The Fund shall pay
the Distributor an account maintenance fee under the Plan at the
end of each month at the annual rate of up to 0.25% of average
daily net assets attributable to Class A shares of the Fund to
compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Fund hereby
authorizes the Distributor to enter into agreements with Securities
Firms to provide compensation to such Securities Firms for
activities and services of the type referred to in Sections 1 and
2 hereof. The Distributor may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and
services. Such agreements shall provide that the Securities Firms
shall deliver to the Distributor such information as is reasonably
necessary to permit the Distributor to comply with the reporting
requirements set forth in Section 5 hereof.
4. Related Agreements. All agreements with any person
relating to implementation of this Plan shall be in writing, and
any agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any
time, without payment of any penalty, by vote of a majority of the
12b-1 Trustees or, by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class A shares of the Fund,
on not more than 60 days' written notice to any other party to the
agreement; and
(b) that such agreement shall terminate
automatically in the event of its assignment.
-18-
<PAGE>
5. Quarterly Reports. The Treasurer of the Trust shall
provide to the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to
this Plan with respect to Class A shares of the Fund and any
related agreement and the purposes for which such expenditures were
made.
6. Term and Termination. (a) This Plan shall become
effective as of the date hereof, and, unless terminated as herein
provided, shall continue from year to year thereafter, so long as
such continuance is specifically approved at least annually by
votes, cast in person at a meeting called for the purpose of voting
on such approval, of a majority of both the (i) the Trustees of the
Trust, and (ii) the 12b-1 Trustees.
(b) This Plan may be terminated at any time by vote
of a majority of the 12b-1 Trustees or by vote of a majority of the
outstanding voting securities (as defined in the Act) of Class A
shares of the Fund.
7. Amendments. This Plan may not be amended to
increase materially the maximum expenditures permitted by Sections
1 and 2 hereof unless such amendment is approved by a vote of a
majority of the outstanding voting securities (as defined in the
Act) of Class A shares of the Fund, and no material amendment to
this Plan shall be made unless approved in the manner provided for
the annual renewal of this Plan in Section 6(a) hereof.
8. Selection and Nomination of Trustees. While this
Plan is in effect, the selection and nomination of those Trustees
of the Trust who are not interested persons of the Trust shall be
committed to the discretion of such disinterested Trustees.
9. Recordkeeping. The Trust shall preserve copies of
this Plan and any related agreement and all reports made pursuant
to Section 5 hereof for a period of not less than six years from
the date of this Plan, any such related agreement or such reports,
as the case may be, the first two years in an easily accessible
place.
10. Definition of Certain Terms. For purposes of this
Plan, the terms "assignment," "interested person," "majority of the
outstanding voting securities," and "principal underwriter" shall
have their respective meanings defined in the Act and the rules and
regulations thereunder, subject, however, to such exemptions as may
be granted to either the Trust or the principal underwriter of the
Shares by the Securities and Exchange Commission, or its staff
under the Act.
11. Personal Liability. The Declaration of Trust
establishing the Trust dated [Date Trust Established], a copy of
-19-
<PAGE>
which, together with all amendments thereto (the "Declaration"), is
on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name "[Name of Trust]" refers to
the Trustees under the Declaration collectively as trustees, but
not as individuals or personally, and no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private
property for satisfaction of any obligation or claim or otherwise
in connection with the affairs of the Trust, but the "Trust
Property" only shall be liable.
12. Separate Series. Pursuant to the provisions of the
Declaration, the Fund is a separate series of the Trust, and all
debts, liabilities and expenses of Class A shares of the Fund shall
be enforceable only against the assets of Class A shares of the
Fund and not against the assets of any other fund or class of
shares or of the Trust as a whole.
IN WITNESS WHEREOF, the Trust has caused this Plan to be
executed as of the day and year first written above.
SUNAMERICA INCOME FUNDS
By:/s/Peter A. Harbeck
Peter A. Harbeck
Executive Vice President
-20-
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS B SHARES)
PLAN OF DISTRIBUTION adopted as of the 23 day of
September, 1993, by SunAmerica Income Funds, a Massachusetts
business trust (the "Trust"), on behalf of the Class B shares of
its separately designated series, SunAmerica High Income Fund (the
"Fund").
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end
management investment company; and
WHEREAS, the Fund is a separately designated investment
series of the Trust with its own investment objective, policies and
purposes offering two separate classes of shares of beneficial
interest, par value $.01 per share, of the Trust (the "Shares");
and
WHEREAS, the Trust has entered into a Distribution
Agreement with SunAmerica Capital Services, Inc. (the
"Distributor"), pursuant to which the Distributor acts as the
exclusive distributor and representative of the Trust in the offer
and sale of the Shares to the public; and
WHEREAS, the Trust desires to adopt this Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account
maintenance fee and a distribution fee to the Distributor with
respect to Class B shares of the Fund; and
WHEREAS, the Board of Trustees of the Trust (the
"Trustees") as a whole, and the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial
interest in the operation of this Plan or in any agreement relating
hereto (the "12b-1 Trustees"), having determined, in the exercise
of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act,
that there is a reasonable likelihood that this Plan will benefit
the Fund and its Class B shareholders, have approved this Plan by
votes cast in person at a meeting called for the purpose of voting
hereon and on any agreements related hereto;
NOW THEREFORE, the Trust on behalf of the Fund hereby
adopts this Plan on the following terms:
1. Distribution Activities. The Fund shall pay the
Distributor a distribution fee under the Plan at the end of each
-21-
<PAGE>
month at the annual rate of 0.75% of average daily net assets
attributable to Class B shares of the Fund to compensate the
Distributor and certain securities firms ("Securities Firms") for
providing sales and promotional activities and services. Such
activities and services will relate to the sale, promotion and
marketing of the Class B shares. Such expenditures may consist of
sales commissions to financial consultants for selling Class B
shares, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising
expenditures related to the Class B shares of the Fund and the
costs of preparing and distributing promotional materials with
respect to such Class B shares. Payment of the distribution fee
described in this Section 1 shall be subject to any limitations set
forth in applicable regulations of the National Association of
Securities Dealers, Inc. Nothing herein shall prohibit the
Distributior from collecting distribution fees in any given year,
as provided hereunder, in excess of expenditures made in such year
for sales and promotional activities with respect to the Fund.
2. Account Maintenance Activities. The Fund shall pay
the Distributor an account maintenance fee under the Plan at the
end of each month at the annual rate of up to 0.25% of average
daily net assets attributable to Class B shares of the Fund to
compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Fund hereby
authorizes the Distributor to enter into agreements with Securities
Firms to provide compensation to such Securities Firms for
activities and services of the type referred to in Sections 1 and
2 hereof. The Distributor may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and
services. Such agreements shall provide that the Securities Firms
shall deliver to the Distributor such information as is reasonably
necessary to permit the Distributor to comply with the reporting
requirements set forth in Section 5 hereof.
4. Related Agreements. All agreements with any person
relating to implementation of this Plan shall be in writing, and
any agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any
time, without payment of any penalty, by vote of a majority of the
12b-1 Trustees or, by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class B shares of the Fund,
on not more than 60 days' written notice to any other party to the
agreement; and
-22-
<PAGE>
(b) that such agreement shall terminate
automatically in the event of its assignment.
5. Quarterly Reports. The Treasurer of the Trust shall
provide to the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to
this Plan with respect to Class B shares of the Fund and any
related agreement and the purposes for which such expenditures were
made.
6. Term and Termination. (a) This Plan shall become
effective as of the date hereof, and, unless terminated as herein
provided, shall continue from year to year thereafter, so long as
such continuance is specifically approved at least annually by
votes, cast in person at a meeting called for the purpose of voting
on such approval, of a majority of both the (i) the Trustees of the
Trust, and (ii) the 12b-1 Trustees.
(b) This Plan may be terminated at any time by vote
of a majority of the 12b-1 Trustees or by vote of a majority of the
outstanding voting securities (as defined in the Act) of Class B
shares of the Fund.
7. Amendments. This Plan may not be amended to
increase materially the maximum expenditures permitted by Sections
1 and 2 hereof unless such amendment is approved by a vote of a
majority of the outstanding voting securities (as defined in the
Act) of Class B shares of the Fund, and no material amendment to
this Plan shall be made unless approved in the manner provided for
the annual renewal of this Plan in Section 6(a) hereof.
8. Selection and Nomination of Trustees. While this
Plan is in effect, the selection and nomination of those Trustees
of the Trust who are not interested persons of the Trust shall be
committed to the discretion of such disinterested Trustees.
9. Recordkeeping. The Trust shall preserve copies of
this Plan and any related agreement and all reports made pursuant
to Section 5 hereof for a period of not less than six years from
the date of this Plan, any such related agreement or such reports,
as the case may be, the first two years in an easily accessible
place.
10. Definition of Certain Terms. For purposes of this
Plan, the terms "assignment," "interested person," "majority of the
outstanding voting securities," and "principal underwriter" shall
have their respective meanings defined in the Act and the rules and
regulations thereunder, subject, however, to such exemptions as may
be granted to either the Trust or the principal underwriter of the
Shares by the Securities and Exchange Commission, or its staff
under the Act.
-23-
<PAGE>
11. Personal Liability. The Declaration of Trust
establishing the Trust dated [Date Trust Established], a copy of
which, together with all amendments thereto (the "Declaration"), is
on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name "[Name of Trust]" refers to
the Trustees under the Declaration collectively as trustees, but
not as individuals or personally, and no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private
property for satisfaction of any obligation or claim or otherwise
in connection with the affairs of the Trust, but the "Trust
Property" only shall be liable.
12. Separate Series. Pursuant to the provisions of the
Declaration, the Fund is a separate series of the Trust, and all
debts, liabilities and expenses of Class B shares of the Fund shall
be enforceable only against the assets of Class B shares of the
Fund and not against the assets of any other fund or class of
shares or of the Trust as a whole.
IN WITNESS WHEREOF, the Trust has caused this Plan to be
executed as of the day and year first written above.
SUNAMERICA INCOME FUNDS
By:/s/Peter A. Harbeck
Peter A. Harbeck
Executive Vice President
-24-
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS A SHARES)
PLAN OF DISTRIBUTION adopted as of the 23 day of
September, 1993, by SunAmerica Income Funds, a Massachusetts
business trust (the "Trust"), on behalf of the Class A shares of
its separately designated series, SunAmerica Tax Exempt Insured
Fund (the "Fund").
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end
management investment company; and
WHEREAS, the Fund is a separately designated investment
series of the Trust with its own investment objective, policies and
purposes offering two separate classes of shares of beneficial
interest, par value $.01 per share, of the Trust (the "Shares");
and
WHEREAS, the Trust has entered into a Distribution
Agreement with SunAmerica Capital Services, Inc. (the
"Distributor"), pursuant to which the Distributor acts as the
exclusive distributor and representative of the Trust in the offer
and sale of the Shares to the public; and
WHEREAS, the Trust desires to adopt this Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account
maintenance fee and a distribution fee to the Distributor with
respect to Class A shares of the Fund; and
WHEREAS, the Board of Trustees of the Trust (the
"Trustees") as a whole, and the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial
interest in the operation of this Plan or in any agreement relating
hereto (the "12b-1 Trustees"), having determined, in the exercise
of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act,
that there is a reasonable likelihood that this Plan will benefit
the Fund and its Class A shareholders, have approved this Plan by
votes cast in person at a meeting called for the purpose of voting
hereon and on any agreements related hereto;
NOW THEREFORE, the Trust on behalf of the Fund hereby
adopts this Plan on the following terms:
1. Distribution Activities. The Fund shall pay the
Distributor a distribution fee under the Plan at the end of each
month at the annual rate of 0.10% of average daily net assets
-25-
<PAGE>
attributable to Class A shares of the Fund to compensate the
Distributor and certain securities firms ("Securities Firms") for
providing sales and promotional activities and services. Such
activities and services will relate to the sale, promotion and
marketing of the Class A shares. Such expenditures may consist of
sales commissions to financial consultants for selling Class A
shares, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising
expenditures related to the Class A shares of the Fund and the
costs of preparing and distributing promotional materials with
respect to such Class A shares. Payment of the distribution fee
described in this Section 1 shall be subject to any limitations set
forth in applicable regulations of the National Association of
Securities Dealers, Inc. Nothing herein shall prohibit the
Distributior from collecting distribution fees in any given year,
as provided hereunder, in excess of expenditures made in such year
for sales and promotional activities with respect to the Fund.
2. Account Maintenance Activities. The Fund shall pay
the Distributor an account maintenance fee under the Plan at the
end of each month at the annual rate of up to 0.25% of average
daily net assets attributable to Class A shares of the Fund to
compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Fund hereby
authorizes the Distributor to enter into agreements with Securities
Firms to provide compensation to such Securities Firms for
activities and services of the type referred to in Sections 1 and
2 hereof. The Distributor may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and
services. Such agreements shall provide that the Securities Firms
shall deliver to the Distributor such information as is reasonably
necessary to permit the Distributor to comply with the reporting
requirements set forth in Section 5 hereof.
4. Related Agreements. All agreements with any person
relating to implementation of this Plan shall be in writing, and
any agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any
time, without payment of any penalty, by vote of a majority of the
12b-1 Trustees or, by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class A shares of the Fund,
on not more than 60 days' written notice to any other party to the
agreement; and
(b) that such agreement shall terminate
automatically in the event of its assignment.
-26-
<PAGE>
5. Quarterly Reports. The Treasurer of the Trust shall
provide to the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to
this Plan with respect to Class A shares of the Fund and any
related agreement and the purposes for which such expenditures were
made.
6. Term and Termination. (a) This Plan shall become
effective as of the date hereof, and, unless terminated as herein
provided, shall continue from year to year thereafter, so long as
such continuance is specifically approved at least annually by
votes, cast in person at a meeting called for the purpose of voting
on such approval, of a majority of both the (i) the Trustees of the
Trust, and (ii) the 12b-1 Trustees.
(b) This Plan may be terminated at any time by vote
of a majority of the 12b-1 Trustees or by vote of a majority of the
outstanding voting securities (as defined in the Act) of Class A
shares of the Fund.
7. Amendments. This Plan may not be amended to
increase materially the maximum expenditures permitted by Sections
1 and 2 hereof unless such amendment is approved by a vote of a
majority of the outstanding voting securities (as defined in the
Act) of Class A shares of the Fund, and no material amendment to
this Plan shall be made unless approved in the manner provided for
the annual renewal of this Plan in Section 6(a) hereof.
8. Selection and Nomination of Trustees. While this
Plan is in effect, the selection and nomination of those Trustees
of the Trust who are not interested persons of the Trust shall be
committed to the discretion of such disinterested Trustees.
9. Recordkeeping. The Trust shall preserve copies of
this Plan and any related agreement and all reports made pursuant
to Section 5 hereof for a period of not less than six years from
the date of this Plan, any such related agreement or such reports,
as the case may be, the first two years in an easily accessible
place.
10. Definition of Certain Terms. For purposes of this
Plan, the terms "assignment," "interested person," "majority of the
outstanding voting securities," and "principal underwriter" shall
have their respective meanings defined in the Act and the rules and
regulations thereunder, subject, however, to such exemptions as may
be granted to either the Trust or the principal underwriter of the
Shares by the Securities and Exchange Commission, or its staff
under the Act.
11. Personal Liability. The Declaration of Trust
establishing the Trust dated [Date Trust Established], a copy of
-27-
<PAGE>
which, together with all amendments thereto (the "Declaration"), is
on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name "[Name of Trust]" refers to
the Trustees under the Declaration collectively as trustees, but
not as individuals or personally, and no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private
property for satisfaction of any obligation or claim or otherwise
in connection with the affairs of the Trust, but the "Trust
Property" only shall be liable.
12. Separate Series. Pursuant to the provisions of the
Declaration, the Fund is a separate series of the Trust, and all
debts, liabilities and expenses of Class A shares of the Fund shall
be enforceable only against the assets of Class A shares of the
Fund and not against the assets of any other fund or class of
shares or of the Trust as a whole.
IN WITNESS WHEREOF, the Trust has caused this Plan to be
executed as of the day and year first written above.
SUNAMERICA INCOME FUNDS
By:/s/Peter A. Harbeck
Peter A. Harbeck
Executive Vice President
-28-
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS B SHARES)
PLAN OF DISTRIBUTION adopted as of the 23 day of
September, 1993, by SunAmerica Income Funds, a Massachusetts
business trust (the "Trust"), on behalf of the Class B shares of
its separately designated series, SunAmerica Tax Exempt Insured
Fund (the "Fund").
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end
management investment company; and
WHEREAS, the Fund is a separately designated investment
series of the Trust with its own investment objective, policies and
purposes offering two separate classes of shares of beneficial
interest, par value $.01 per share, of the Trust (the "Shares");
and
WHEREAS, the Trust has entered into a Distribution
Agreement with SunAmerica Capital Services, Inc. (the
"Distributor"), pursuant to which the Distributor acts as the
exclusive distributor and representative of the Trust in the offer
and sale of the Shares to the public; and
WHEREAS, the Trust desires to adopt this Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account
maintenance fee and a distribution fee to the Distributor with
respect to Class B shares of the Fund; and
WHEREAS, the Board of Trustees of the Trust (the
"Trustees") as a whole, and the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial
interest in the operation of this Plan or in any agreement relating
hereto (the "12b-1 Trustees"), having determined, in the exercise
of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act,
that there is a reasonable likelihood that this Plan will benefit
the Fund and its Class B shareholders, have approved this Plan by
votes cast in person at a meeting called for the purpose of voting
hereon and on any agreements related hereto;
NOW THEREFORE, the Trust on behalf of the Fund hereby
adopts this Plan on the following terms:
1. Distribution Activities. The Fund shall pay the
Distributor a distribution fee under the Plan at the end of each
-29-
<PAGE>
month at the annual rate of 0.75% of average daily net assets
attributable to Class B shares of the Fund to compensate the
Distributor and certain securities firms ("Securities Firms") for
providing sales and promotional activities and services. Such
activities and services will relate to the sale, promotion and
marketing of the Class B shares. Such expenditures may consist of
sales commissions to financial consultants for selling Class B
shares, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising
expenditures related to the Class B shares of the Fund and the
costs of preparing and distributing promotional materials with
respect to such Class B shares. Payment of the distribution fee
described in this Section 1 shall be subject to any limitations set
forth in applicable regulations of the National Association of
Securities Dealers, Inc. Nothing herein shall prohibit the
Distributior from collecting distribution fees in any given year,
as provided hereunder, in excess of expenditures made in such year
for sales and promotional activities with respect to the Fund.
2. Account Maintenance Activities. The Fund shall pay
the Distributor an account maintenance fee under the Plan at the
end of each month at the annual rate of up to 0.25% of average
daily net assets attributable to Class B shares of the Fund to
compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Fund hereby
authorizes the Distributor to enter into agreements with Securities
Firms to provide compensation to such Securities Firms for
activities and services of the type referred to in Sections 1 and
2 hereof. The Distributor may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and
services. Such agreements shall provide that the Securities Firms
shall deliver to the Distributor such information as is reasonably
necessary to permit the Distributor to comply with the reporting
requirements set forth in Section 5 hereof.
4. Related Agreements. All agreements with any person
relating to implementation of this Plan shall be in writing, and
any agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any
time, without payment of any penalty, by vote of a majority of the
12b-1 Trustees or, by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class B shares of the Fund,
on not more than 60 days' written notice to any other party to the
agreement; and
-30-
<PAGE>
(b) that such agreement shall terminate
automatically in the event of its assignment.
5. Quarterly Reports. The Treasurer of the Trust shall
provide to the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to
this Plan with respect to Class B shares of the Fund and any
related agreement and the purposes for which such expenditures were
made.
6. Term and Termination. (a) This Plan shall become
effective as of the date hereof, and, unless terminated as herein
provided, shall continue from year to year thereafter, so long as
such continuance is specifically approved at least annually by
votes, cast in person at a meeting called for the purpose of voting
on such approval, of a majority of both the (i) the Trustees of the
Trust, and (ii) the 12b-1 Trustees.
(b) This Plan may be terminated at any time by vote
of a majority of the 12b-1 Trustees or by vote of a majority of the
outstanding voting securities (as defined in the Act) of Class B
shares of the Fund.
7. Amendments. This Plan may not be amended to
increase materially the maximum expenditures permitted by Sections
1 and 2 hereof unless such amendment is approved by a vote of a
majority of the outstanding voting securities (as defined in the
Act) of Class B shares of the Fund, and no material amendment to
this Plan shall be made unless approved in the manner provided for
the annual renewal of this Plan in Section 6(a) hereof.
8. Selection and Nomination of Trustees. While this
Plan is in effect, the selection and nomination of those Trustees
of the Trust who are not interested persons of the Trust shall be
committed to the discretion of such disinterested Trustees.
9. Recordkeeping. The Trust shall preserve copies of
this Plan and any related agreement and all reports made pursuant
to Section 5 hereof for a period of not less than six years from
the date of this Plan, any such related agreement or such reports,
as the case may be, the first two years in an easily accessible
place.
10. Definition of Certain Terms. For purposes of this
Plan, the terms "assignment," "interested person," "majority of the
outstanding voting securities," and "principal underwriter" shall
have their respective meanings defined in the Act and the rules and
regulations thereunder, subject, however, to such exemptions as may
be granted to either the Trust or the principal underwriter of the
Shares by the Securities and Exchange Commission, or its staff
under the Act.
-31-
<PAGE>
11. Personal Liability. The Declaration of Trust
establishing the Trust dated [Date Trust Established], a copy of
which, together with all amendments thereto (the "Declaration"), is
on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name "[Name of Trust]" refers to
the Trustees under the Declaration collectively as trustees, but
not as individuals or personally, and no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private
property for satisfaction of any obligation or claim or otherwise
in connection with the affairs of the Trust, but the "Trust
Property" only shall be liable.
12. Separate Series. Pursuant to the provisions of the
Declaration, the Fund is a separate series of the Trust, and all
debts, liabilities and expenses of Class B shares of the Fund shall
be enforceable only against the assets of Class B shares of the
Fund and not against the assets of any other fund or class of
shares or of the Trust as a whole.
IN WITNESS WHEREOF, the Trust has caused this Plan to be
executed as of the day and year first written above.
SUNAMERICA INCOME FUNDS
By:/s/Peter A. Harbeck
Peter A. Harbeck
Executive Vice President
-32-
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS A SHARES)
PLAN OF DISTRIBUTION adopted as of the 23 day of
September, 1993, by SunAmerica Income Funds, a Massachusetts
business trust (the "Trust"), on behalf of the Class A shares of
its separately designated series, SunAmerica U.S. Government
Securities Fund (the "Fund").
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end
management investment company; and
WHEREAS, the Fund is a separately designated investment
series of the Trust with its own investment objective, policies and
purposes offering two separate classes of shares of beneficial
interest, par value $.01 per share, of the Trust (the "Shares");
and
WHEREAS, the Trust has entered into a Distribution
Agreement with SunAmerica Capital Services, Inc. (the
"Distributor"), pursuant to which the Distributor acts as the
exclusive distributor and representative of the Trust in the offer
and sale of the Shares to the public; and
WHEREAS, the Trust desires to adopt this Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account
maintenance fee and a distribution fee to the Distributor with
respect to Class A shares of the Fund; and
WHEREAS, the Board of Trustees of the Trust (the
"Trustees") as a whole, and the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial
interest in the operation of this Plan or in any agreement relating
hereto (the "12b-1 Trustees"), having determined, in the exercise
of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act,
that there is a reasonable likelihood that this Plan will benefit
the Fund and its Class A shareholders, have approved this Plan by
votes cast in person at a meeting called for the purpose of voting
hereon and on any agreements related hereto;
NOW THEREFORE, the Trust on behalf of the Fund hereby
adopts this Plan on the following terms:
1. Distribution Activities. The Fund shall pay the
Distributor a distribution fee under the Plan at the end of each
month at the annual rate of 0.10% of average daily net assets
-33-
<PAGE>
attributable to Class A shares of the Fund to compensate the
Distributor and certain securities firms ("Securities Firms") for
providing sales and promotional activities and services. Such
activities and services will relate to the sale, promotion and
marketing of the Class A shares. Such expenditures may consist of
sales commissions to financial consultants for selling Class A
shares, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising
expenditures related to the Class A shares of the Fund and the
costs of preparing and distributing promotional materials with
respect to such Class A shares. Payment of the distribution fee
described in this Section 1 shall be subject to any limitations set
forth in applicable regulations of the National Association of
Securities Dealers, Inc. Nothing herein shall prohibit the
Distributior from collecting distribution fees in any given year,
as provided hereunder, in excess of expenditures made in such year
for sales and promotional activities with respect to the Fund.
2. Account Maintenance Activities. The Fund shall pay
the Distributor an account maintenance fee under the Plan at the
end of each month at the annual rate of up to 0.25% of average
daily net assets attributable to Class A shares of the Fund to
compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Fund hereby
authorizes the Distributor to enter into agreements with Securities
Firms to provide compensation to such Securities Firms for
activities and services of the type referred to in Sections 1 and
2 hereof. The Distributor may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and
services. Such agreements shall provide that the Securities Firms
shall deliver to the Distributor such information as is reasonably
necessary to permit the Distributor to comply with the reporting
requirements set forth in Section 5 hereof.
4. Related Agreements. All agreements with any person
relating to implementation of this Plan shall be in writing, and
any agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any
time, without payment of any penalty, by vote of a majority of the
12b-1 Trustees or, by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class A shares of the Fund,
on not more than 60 days' written notice to any other party to the
agreement; and
(b) that such agreement shall terminate
automatically in the event of its assignment.
-34-
<PAGE>
5. Quarterly Reports. The Treasurer of the Trust shall
provide to the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to
this Plan with respect to Class A shares of the Fund and any
related agreement and the purposes for which such expenditures were
made.
6. Term and Termination. (a) This Plan shall become
effective as of the date hereof, and, unless terminated as herein
provided, shall continue from year to year thereafter, so long as
such continuance is specifically approved at least annually by
votes, cast in person at a meeting called for the purpose of voting
on such approval, of a majority of both the (i) the Trustees of the
Trust, and (ii) the 12b-1 Trustees.
(b) This Plan may be terminated at any time by vote
of a majority of the 12b-1 Trustees or by vote of a majority of the
outstanding voting securities (as defined in the Act) of Class A
shares of the Fund.
7. Amendments. This Plan may not be amended to
increase materially the maximum expenditures permitted by Sections
1 and 2 hereof unless such amendment is approved by a vote of a
majority of the outstanding voting securities (as defined in the
Act) of Class A shares of the Fund, and no material amendment to
this Plan shall be made unless approved in the manner provided for
the annual renewal of this Plan in Section 6(a) hereof.
8. Selection and Nomination of Trustees. While this
Plan is in effect, the selection and nomination of those Trustees
of the Trust who are not interested persons of the Trust shall be
committed to the discretion of such disinterested Trustees.
9. Recordkeeping. The Trust shall preserve copies of
this Plan and any related agreement and all reports made pursuant
to Section 5 hereof for a period of not less than six years from
the date of this Plan, any such related agreement or such reports,
as the case may be, the first two years in an easily accessible
place.
10. Definition of Certain Terms. For purposes of this
Plan, the terms "assignment," "interested person," "majority of the
outstanding voting securities," and "principal underwriter" shall
have their respective meanings defined in the Act and the rules and
regulations thereunder, subject, however, to such exemptions as may
be granted to either the Trust or the principal underwriter of the
Shares by the Securities and Exchange Commission, or its staff
under the Act.
11. Personal Liability. The Declaration of Trust
establishing the Trust dated [Date Trust Established], a copy of
-35-
<PAGE>
which, together with all amendments thereto (the "Declaration"), is
on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name "[Name of Trust]" refers to
the Trustees under the Declaration collectively as trustees, but
not as individuals or personally, and no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private
property for satisfaction of any obligation or claim or otherwise
in connection with the affairs of the Trust, but the "Trust
Property" only shall be liable.
12. Separate Series. Pursuant to the provisions of the
Declaration, the Fund is a separate series of the Trust, and all
debts, liabilities and expenses of Class A shares of the Fund shall
be enforceable only against the assets of Class A shares of the
Fund and not against the assets of any other fund or class of
shares or of the Trust as a whole.
IN WITNESS WHEREOF, the Trust has caused this Plan to be
executed as of the day and year first written above.
SUNAMERICA INCOME FUNDS
By:/s/Peter A. Harbeck
Peter A. Harbeck
Executive Vice President
-36-
<PAGE>
PLAN OF DISTRIBUTION PURSUANT
TO RULE 12b-1
(CLASS B SHARES)
PLAN OF DISTRIBUTION adopted as of the 23 day of
September, 1993, by SunAmerica Income Funds, a Massachusetts
business trust (the "Trust"), on behalf of the Class B shares of
its separately designated series, SunAmerica U.S. Government
Securities Fund (the "Fund").
W I T N E S S E T H:
WHEREAS, the Trust is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end
management investment company; and
WHEREAS, the Fund is a separately designated investment
series of the Trust with its own investment objective, policies and
purposes offering two separate classes of shares of beneficial
interest, par value $.01 per share, of the Trust (the "Shares");
and
WHEREAS, the Trust has entered into a Distribution
Agreement with SunAmerica Capital Services, Inc. (the
"Distributor"), pursuant to which the Distributor acts as the
exclusive distributor and representative of the Trust in the offer
and sale of the Shares to the public; and
WHEREAS, the Trust desires to adopt this Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act, pursuant to which the Fund will pay an account
maintenance fee and a distribution fee to the Distributor with
respect to Class B shares of the Fund; and
WHEREAS, the Board of Trustees of the Trust (the
"Trustees") as a whole, and the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial
interest in the operation of this Plan or in any agreement relating
hereto (the "12b-1 Trustees"), having determined, in the exercise
of reasonable business judgment and in light of their fiduciary
duties under state law and under Sections 36(a) and (b) of the Act,
that there is a reasonable likelihood that this Plan will benefit
the Fund and its Class B shareholders, have approved this Plan by
votes cast in person at a meeting called for the purpose of voting
hereon and on any agreements related hereto;
NOW THEREFORE, the Trust on behalf of the Fund hereby
adopts this Plan on the following terms:
1. Distribution Activities. The Fund shall pay the
Distributor a distribution fee under the Plan at the end of each
-37-
<PAGE>
month at the annual rate of 0.75% of average daily net assets
attributable to Class B shares of the Fund to compensate the
Distributor and certain securities firms ("Securities Firms") for
providing sales and promotional activities and services. Such
activities and services will relate to the sale, promotion and
marketing of the Class B shares. Such expenditures may consist of
sales commissions to financial consultants for selling Class B
shares, compensation, sales incentives and payments to sales and
marketing personnel, and the payment of expenses incurred in its
sales and promotional activities, including advertising
expenditures related to the Class B shares of the Fund and the
costs of preparing and distributing promotional materials with
respect to such Class B shares. Payment of the distribution fee
described in this Section 1 shall be subject to any limitations set
forth in applicable regulations of the National Association of
Securities Dealers, Inc. Nothing herein shall prohibit the
Distributior from collecting distribution fees in any given year,
as provided hereunder, in excess of expenditures made in such year
for sales and promotional activities with respect to the Fund.
2. Account Maintenance Activities. The Fund shall pay
the Distributor an account maintenance fee under the Plan at the
end of each month at the annual rate of up to 0.25% of average
daily net assets attributable to Class B shares of the Fund to
compensate the Distributor and Securities Firms for account
maintenance activities.
3. Payments to Other Parties. The Fund hereby
authorizes the Distributor to enter into agreements with Securities
Firms to provide compensation to such Securities Firms for
activities and services of the type referred to in Sections 1 and
2 hereof. The Distributor may reallocate all or a portion of its
account maintenance fee or distribution fee to such Securities
Firms as compensation for the above-mentioned activities and
services. Such agreements shall provide that the Securities Firms
shall deliver to the Distributor such information as is reasonably
necessary to permit the Distributor to comply with the reporting
requirements set forth in Section 5 hereof.
4. Related Agreements. All agreements with any person
relating to implementation of this Plan shall be in writing, and
any agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any
time, without payment of any penalty, by vote of a majority of the
12b-1 Trustees or, by vote of a majority of the outstanding voting
securities (as defined in the Act) of Class B shares of the Fund,
on not more than 60 days' written notice to any other party to the
agreement; and
-38-
<PAGE>
(b) that such agreement shall terminate
automatically in the event of its assignment.
5. Quarterly Reports. The Treasurer of the Trust shall
provide to the Trustees and the Trustees shall review, at least
quarterly, a written report of the amounts expended pursuant to
this Plan with respect to Class B shares of the Fund and any
related agreement and the purposes for which such expenditures were
made.
6. Term and Termination. (a) This Plan shall become
effective as of the date hereof, and, unless terminated as herein
provided, shall continue from year to year thereafter, so long as
such continuance is specifically approved at least annually by
votes, cast in person at a meeting called for the purpose of voting
on such approval, of a majority of both the (i) the Trustees of the
Trust, and (ii) the 12b-1 Trustees.
(b) This Plan may be terminated at any time by vote
of a majority of the 12b-1 Trustees or by vote of a majority of the
outstanding voting securities (as defined in the Act) of Class B
shares of the Fund.
7. Amendments. This Plan may not be amended to
increase materially the maximum expenditures permitted by Sections
1 and 2 hereof unless such amendment is approved by a vote of a
majority of the outstanding voting securities (as defined in the
Act) of Class B shares of the Fund, and no material amendment to
this Plan shall be made unless approved in the manner provided for
the annual renewal of this Plan in Section 6(a) hereof.
8. Selection and Nomination of Trustees. While this
Plan is in effect, the selection and nomination of those Trustees
of the Trust who are not interested persons of the Trust shall be
committed to the discretion of such disinterested Trustees.
9. Recordkeeping. The Trust shall preserve copies of
this Plan and any related agreement and all reports made pursuant
to Section 5 hereof for a period of not less than six years from
the date of this Plan, any such related agreement or such reports,
as the case may be, the first two years in an easily accessible
place.
10. Definition of Certain Terms. For purposes of this
Plan, the terms "assignment," "interested person," "majority of the
outstanding voting securities," and "principal underwriter" shall
have their respective meanings defined in the Act and the rules and
regulations thereunder, subject, however, to such exemptions as may
be granted to either the Trust or the principal underwriter of the
Shares by the Securities and Exchange Commission, or its staff
under the Act.
-39-
<PAGE>
11. Personal Liability. The Declaration of Trust
establishing the Trust dated [Date Trust Established], a copy of
which, together with all amendments thereto (the "Declaration"), is
on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name "[Name of Trust]" refers to
the Trustees under the Declaration collectively as trustees, but
not as individuals or personally, and no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private
property for satisfaction of any obligation or claim or otherwise
in connection with the affairs of the Trust, but the "Trust
Property" only shall be liable.
12. Separate Series. Pursuant to the provisions of the
Declaration, the Fund is a separate series of the Trust, and all
debts, liabilities and expenses of Class B shares of the Fund shall
be enforceable only against the assets of Class B shares of the
Fund and not against the assets of any other fund or class of
shares or of the Trust as a whole.
IN WITNESS WHEREOF, the Trust has caused this Plan to be
executed as of the day and year first written above.
SUNAMERICA INCOME FUNDS
By:/s/Peter A. Harbeck
Peter A. Harbeck
Executive Vice President
-40-
<PAGE>
Exhibit 99.16
PERFORMANCE CALCULATIONS FOR THE FIVE SERIES OF
SUNAMERICA INCOME FUNDS
<PAGE>
Exhibit (16)(a)
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND CLASS A
PERFORMANCE CALCULATIONS
------------------------
FOR THE FISCAL PERIOD ENDED MARCH 31, 1996
Average Annual Total Return:
P(1 + T)/n/ = ERV
Where: P = A hypothetical initial payment of $1000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1-, 5-, or 10-year periods
at the end of the 1-, 5-, or 10-year periods (or
fractional portion thereof)
one-year = P(1 + .0442)/1/ = ERV = 1,044.20
--------
five-year = P(1 + T)/5/ = ERV = N/A
---
since inception = P(1 + .0302)/30/\\12\\ = ERV = 1,077.22
-- --------
Yield:
YIELD = 2 [{a - b +1 }/6/ - 1]
-----
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
YIELD = 2 [{ 775,482.49 - 155,677.41 +1 }/6/ - 1] = 5.71%
-----------------------
14,767,693.807 x 8.92
<PAGE>
Exhibit (16)(b)
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND CLASS B
PERFORMANCE CALCULATIONS
------------------------
FOR THE FISCAL PERIOD ENDED MARCH 31, 1996
Average Annual Total Return:
P(1 + T)/n/ = ERV
Where: P = A hypothetical initial payment of $1000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or 10-year
periods at the end of the 1-, 5-, or 10-year periods
(or fractional portion thereof)
one-year = P(1 + .0452)/1/ = ERV = 1,045.20
--------
five-year = P(1 + .0507)/5/ = ERV = 1,280.54
--------
ten-year = P(1 + .0628)/10 /= ERV = 1,838.72
--------
since inception = P(1 + .0628)/121/\\12\\ = ERV = 1,848.08
--- --------
Yield:
YIELD = 2 [{a - b +1 }/6/ - 1]
-----
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
YIELD = 2 [ 2,670,038.20 - 766,166.37 +1 }/6/ - 1] = 5.33%
-------------------------
50,917,085.181 x 8.51
<PAGE>
Exhibit (16)(c)
SUNAMERICA FEDERAL SECURITIES FUND CLASS A
PERFORMANCE CALCULATIONS
------------------------
FOR THE FISCAL PERIOD ENDED MARCH 31, 1996
Average Annual Total Return:
P(1 + T)/n/ = ERV
Where: P = A hypothetical initial payment of $1000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or
10-year periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof)
one-year = P(1 + .0567)/1/ = ERV = 1,056.70
--------
five-year = P(1 + T)/5/ = ERV = N/A
---
since inception = P(1 + .0344)/30/\\12\\ = ERV = 1,088.23
-- --------
Yield:
YIELD = 2 [{a - b +1 }/6/ - 1]
-----
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
YIELD = 2 [{234,751.94- 44,981.32 +1 }/6/ - 1] = 5.44%
---------------------
3,862,955.798 x 10.95
<PAGE>
Exhibit (16)(d)
SUNAMERICA FEDERAL SECURITIES FUND CLASS B
PERFORMANCE CALCULATIONS
------------------------
FOR THE FISCAL PERIOD ENDED MARCH 31, 1996
Average Annual Total Return:
P(1 + T)/n/ = ERV
Where: P = A hypothetical initial payment of $1000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or
10-year periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof)
one-year = P(1 + .0573)/1/ = ERV = 1,057.30
--------
five-year = P(1 + .0582)/5/ = ERV = 1,326.90
--------
ten-year = P(1 + .0688)/10/ = ERV = 1,945.20
--------
since inception = P(1 + .0829)/155/\\12\\ = ERV = 2,797.48
--- --------
Yield:
YIELD = 2 [{a - b +1 }/6/ - 1]
-----
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
YIELD = 2 [{153,803.32 - 42,971.44 +1 }/6/ - 1] = 5.09%
----------------------
2,524,455.328 x 10.45
<PAGE>
Exhibit (16)(e)
SUNAMERICA DIVERSIFIED INCOME FUND CLASS A
PERFORMANCE CALCULATIONS
------------------------
FOR THE FISCAL PERIOD ENDED MARCH 31, 1996
Average Annual Total Return:
P(1 + T)/n/ = ERV
Where: P = A hypothetical initial payment of $1000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or
10-year periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof)
one-year = P(1 + .0838)/1/ = ERV = 1,083.80
--------
five-year = P(1 + T)/5/ = ERV = N/A
---
since inception = P(1 + .0054)/30/\\12\\ = ERV = 1,013.55
--------
Yield:
YIELD = 2 [{a - b +1 }/6/ - 1]
-----
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
YIELD = 2 [{156,306.90 - 21,319.74 +1 }/6/ - 1] = 8.15%
----------------------
4,489,319.377 x 4.50
<PAGE>
Exhibit (16)(f)
SUNAMERICA DIVERSIFIED INCOME FUND CLASS B
PERFORMANCE CALCULATIONS
------------------------
FOR THE FISCAL PERIOD ENDED MARCH 31, 1996
Average Annual Total Return:
P(1 + T)/n/ = ERV
Where: P = A hypothetical initial payment of $1000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or
10-year periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof)
one-year = P(1 + .0857)/1/ = ERV = 1,085.70
--------
five-year = P(1 + T)/5/ = ERV = N/A
---
since inception = P(1 + .0363)/60/\\12\\ = ERV = 1,195.16
-- --------
Yield:
YIELD = 2 [{a - b +1 }/6/ - 1]
-----
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
YIELD = 2 [{909,622.01 - 184,609.75 +1 }/6/ - 1] = 7.88%
-----------------------
26,092,245.736 x 4.30
<PAGE>
Exhibit (16)(g)
SUNAMERICA HIGH INCOME FUND CLASS A
PERFORMANCE CALCULATIONS
------------------------
FOR THE FISCAL PERIOD ENDED MARCH 31, 1996
Average Annual Total Return:
P(1 + T)/n/ = ERV
Where: P = A hypothetical initial payment of $1000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or
10-year periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof)
one-year = P(1 + .0519)/1/ = ERV = 1,051.90
--------
five-year = P(1 + .1165)/5/ = ERV = 1,734.98
--------
since inception = P(1 + .0773)/114/\\12\\ = ERV = 2,028.61
--- --------
Yield:
YIELD = 2 [{a - b +1 }/6/ - 1]
-----
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
YIELD = 2 [{343,801.76 - 45,555.95 +1 }/6/ - 1] = 9.02%
----------------------
5,539,320.545 x 7.30
<PAGE>
Exhibit (16)(h)
SUNAMERICA HIGH INCOME FUND CLASS B
PERFORMANCE CALCULATIONS
------------------------
FOR THE FISCAL PERIOD ENDED MARCH 31, 1996
Average Annual Total Return:
P(1 + T)/n/ = ERV
Where: P = A hypothetical initial payment of $1000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or
10-year periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof)
one-year = P(1 + .0543)/1/ = ERV = 1,054.30
--------
five-year = P(1 + T)/5/ = ERV = N/A
---
since inception = P(1 + .0213)/30/\\12\\ = ERV = 1,054.10
-- --------
Yield:
YIELD = 2 [{a - b +1 }/6/ - 1]
-----
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
YIELD = 2 [{899,220.98 - 164,466.48 +1 }/6/ - 1] = 8.91%
-----------------------
14,474,245.358 x 6.96
<PAGE>
Exhibit (16)(i)
SUNAMERICA TAX EXEMPT INSURED FUND CLASS A
PERFORMANCE CALCULATIONS
------------------------
FOR THE FISCAL PERIOD ENDED MARCH 31, 1996
Average Annual Total Return:
P(1 + T)/n/ = ERV
Where: P = A hypothetical initial payment of $1000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or
10-year periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof)
one-year = P(1 + .0227)/1/ = ERV = 1,022.70
--------
five-year = P(1 + .0500)/5/ = ERV = 1,276.28
--------
ten-year = P(1 + .0575)/10/ = ERV = 1,749.06
--------
since inception = P(1 + .0634)/124/\\12\\ = ERV = 1,887.41
--- --------
Yield:
YIELD = 2 [{a - b +1 }/6/ - 1]
-----
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
YIELD = 2 [{ 597,618.40 - 118,453.29 +1 }/6/ - 1] = 4.50%
-----------------------
9,898,315.760 x 13.04
<PAGE>
Exhibit (16)(j)
SUNAMERICA TAX EXEMPT INSURED FUND CLASS B
PERFORMANCE CALCULATIONS
------------------------
FOR THE FISCAL PERIOD ENDED MARCH 31, 1996
Average Annual Total Return:
P(1 + T)/n/ = ERV
Where: P = A hypothetical initial payment of $1000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or
10-year periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof)
one-year = P(1 + .0232)/1/ = ERV = 1,023.20
--------
five-year = P(1 + T)/5/ = ERV = N/A
---
since inception = P(1 + .0170)/30/\\12\\ = ERV = 1,043.04
-- --------
Yield:
YIELD = 2 [{a - b +1 }/6/ - 1]
-----
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
YIELD = 2 [{ 142,081.87 - 43,729.47 +1 }/6/ - 1] = 4.08%
----------------------
2,348,318.090 x 12.42
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned trustee
of SunAmerica Income Funds does hereby constitute and appoint Peter
A. Harbeck, Peter C. Sutton and Robert M. Zakem or any of them, the
true and lawful agents and attorneys-in-fact of the undersigned
with respect to all matters arising in connection with the
Registration Statement on Form N-1A and any and all amendments
(including post-effective amendments) thereto, with full power and
authority to execute said Registration Statement for and on behalf
of the undersigned, in my names and in the capacity indicated
below, and to file the same, together with all exhibits thereto and
other documents in connection therewith, with the Securities and
Exchange Commission. The undersigned hereby gives to said agents
and attorneys-in-fact full power and authority to act in the
premises, including, but not limited to, the power to appoint a
substitute or substitutes to act hereunder with the same power and
authority as said agents and attorneys-in fact would have if
personally acting. The undersigned hereby ratifies and confirms
all that said agents and attorneys-in-fact, or any substitute or
substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the
capacity set forth below.
Signature Title Date
/s/Peter McMillan III Trustee December 4, 1995
Peter McMillan III
