<PAGE>
SUNAMERICA INCOME FUNDS
SUPPLEMENT TO THE PROSPECTUS DATED JULY 27, 1998
Effective December 1, 1998, Class C shares of the High Income Fund will
convert to Class II shares and will become subject to a 1% initial sales load
in addition to a contingent deferred sales charge of 1% on certain redemptions
of Class II shares made within eighteen months of the date of purchase. The
imposition of the 1% front-end sales charge and the lengthening of the time in
which the contingent deferred sales charge may be imposed are the only
differences between the institution of the new Class II shares and former
Class C shares. All other fees and charges remain the same. This change will
have no impact on shareholders who purchased Class C shares prior to December
1, 1998. All other provisions relating to Class C shares will apply. PLEASE
NOTE THAT ALL REFERENCES MADE TO "CLASS C SHARES" IN THE PROSPECTUS NOT
OTHERWISE INDICATED IN THIS SUPPLEMENT SHOULD BE REPLACED WITH "CLASS II
SHARES."
The eighth paragraph on page 1 of the Prospectus is replaced in its
entirety with the following:
Each Fund currently offers Class A and Class B shares. The High Income
Fund also offers Class II 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 (i) be imposed at the time of purchase (Class A
shares), (ii) be deferred (Class B shares and purchases of Class A shares
in excess of $1 million), or (iii) contain elements of a sales charge that
is both imposed at the time of purchase and deferred (Class II shares).
Class B shares may be subject to a declining contingent deferred sales
charge ("CDSC") that 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 following the seventh
anniversary of the issuance of such Class B shares. Class II shares may be
subject to a CDSC imposed on redemptions made within eighteen months of
purchase. Each class makes distribution and account maintenance and service
fee payments under a distribution plan adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "1940 Act"). See
"Purchase of Shares."
<PAGE>
The section entitled "SUMMARY OF FUND EXPENSES" on page 2 of the Prospectus
is replaced in its entirety with the following:
SUMMARY OF FUND EXPENSES
A general comparison of the sales arrangements and other non-recurring ex-
penses applicable to Class A, Class B and Class II shares follows:
<TABLE>
<CAPTION>
GOVERNMENT FEDERAL TAX EXEMPT
SECURITIES SECURITIES DIVERSIFIED INSURED
FUND FUND INCOME FUND HIGH INCOME FUND FUND
----------- ----------- ----------- ----------------- -----------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B A B A B A B II A B
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <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 1.00% 4.75% None
Maximum Sales Load on
Reinvested Dividends.. None 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% 1.00% None 4.00%
Redemption Fees(/3/)... None None None None None None None None None None None
Exchange Fees.......... None None None None None None None None None None None
ANNUAL FUND OPERATING
EXPENSES
(AS A PERCENTAGE OF
AVERAGE NET ASSETS)
(NET OF FEE WAIVERS/
EXPENSE REIMBURSEMENTS)
Management Fees........ 0.74% 0.74% 0.53% 0.53% 0.65% 0.65% 0.75% 0.75% 0.75% 0.50% 0.50%
12b-1 Fees(/4/)........ 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 0.35% 1.00% 1.00% 0.35% 1.00%
Other Expenses......... 0.54% 0.52% 0.59% 0.60% 0.45% 0.41% 0.42% 0.38% 0.35% 0.39% 0.40%
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Operating Ex-
penses(/5/)............ 1.63% 2.26% 1.47% 2.13% 1.45% 2.06% 1.52% 2.13% 2.10% 1.24% 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
CDSC on redemptions made within one year of purchase. The CDSC on Class B
shares applies only if a redemption occurs within six years from their
purchase date. The CDSC on Class II shares applies only on redemptions
made within eighteen months of purchase.
(3) A $15.00 fee may be imposed for wire redemptions.
(4) 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
responding to shareholder inquiries, quoting net asset values, providing
current marketing material and attending to other shareholder matters.
Class B or Class II shareholders who own their shares for an extended pe-
riod of time may pay more in Rule 12b-1 distribution fees than the eco-
nomic equivalent of the maximum front-end sales charge permitted under the
Conduct Rules of the National Association of Securities Dealers, Inc.
(5) For the fiscal year ended March 31, 1998, the total operating expenses
(before waivers) for High Income Fund Class II (formerly, Class C shares)
were 7.47%.
S-2
<PAGE>
The "EXAMPLE" set forth on page 3 of the Prospectus is replaced in its
entirety with the following:
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)............................... $63 $96 $132 $232
(Class B Shares)*.............................. $63 $101 $141 $236
FEDERAL SECURITIES FUND
(Class A Shares)............................... $62 $92 $124 $215
(Class B Shares)*.............................. $62 $97 $134 $222
DIVERSIFIED INCOME FUND
(Class A Shares)............................... $62 $92 $123 $213
(Class B Shares)*.............................. $61 $95 $131 $216
HIGH INCOME FUND
(Class A Shares)............................... $62 $93 $126 $220
(Class B Shares)*.............................. $62 $97 $134 $223
(Class II Shares).............................. $41 $75 $122 $251
TAX EXEMPT INSURED FUND
(Class A Shares)............................... $60 $85 $112 $190
(Class B Shares)*.............................. $59 $90 $123 $197
</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)............................... $63 $96 $132 $232
(Class B Shares)*.............................. $23 $71 $121 $236
FEDERAL SECURITIES FUND
(Class A Shares)............................... $62 $92 $124 $215
(Class B Shares)*.............................. $22 $67 $114 $222
DIVERSIFIED INCOME FUND
(Class A Shares)............................... $62 $92 $123 $213
(Class B Shares)*.............................. $21 $65 $111 $216
HIGH INCOME FUND
(Class A Shares)............................... $62 $93 $126 $220
(Class B Shares)*.............................. $22 $67 $114 $223
(Class II Shares).............................. $31 $75 $122 $251
TAX EXEMPT INSURED FUND
(Class A Shares)............................... $60 $85 $112 $190
(Class B Shares)*.............................. $19 $60 $103 $197
</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.
S-3
<PAGE>
The first paragraph in the section entitled "PURCHASE OF SHARES--General" on
page 19 of the Prospectus is replaced in its entirety with the following:
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, either may (i) be imposed at the
time of purchase (Class A shares), (ii) be imposed on a deferred basis
(Class B shares and certain Class A shares), or (iii) contain certain
elements of a sales charge that is imposed at the time of purchase and that
is deferred (Class II shares).
The third full paragraph in the second column on page 21 of the Prospectus
is replaced in its entirety with the following:
Class II Shares. Class II shares are offered at net asset value plus an
initial sales charge as follows:
<TABLE>
<S> <C> <C> <C>
CONCESSION
SALES CHARGE OF DEALERS
------------------------------------------- --------------
% OF
% OF NET AMOUNT % OF
OFFERING PRICE INVESTED OFFERING PRICE
-------------- ---------- --------------
1.00% 1.01% 1.00%
</TABLE>
Certain redemptions of Class II shares made within eighteen months of the
date of purchase (within one year of purchase for Class C shares purchased
prior to December 1, 1998) are subject to a CDSC of 1%. The method for
calculating any such CDSC will be the same method used for calculating the
CDSC for Class B shares. See "Class B Shares" above.
The last paragraph under the subheading "Other Redemption Information" on
page 24 of the Prospectus is replaced in its entirety with the following:
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 redeemed, the shareholder may use all or any part of the redemption
proceeds to reinstate, free of sales charges (Class A and Class II shares)
and with the crediting of any CDSC paid with respect to such reinstated
shares at the time of redemption (Class B and Class II 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.
Dated: December 1, 1998
S-4
