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[GRAPHIC]
SunAmerica
The Retirement Specialist
INCOME FUNDS
1999 Semiannual Report
U.S. Government Securities Fund
Federal Securities Fund
Diversified Income Fund
High Income Fund
Tax Exempt Insured Fund
[GRAPIC]
[LOGO OF SUNAMERICA]
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SUNAMERICA INCOME FUNDS SEMIANNUAL REPORT
From the SunAmerica Fixed Income Investment Team
Michael Cheah
Paul Kunz
James T. McGrath
John Risner
Brian Wiese
Dear Shareholders:
Overall, the U.S. bond markets were impacted by a dramatic increase in
interest rates, renewed fears of inflation, and a reversal in Federal
Reserve Board policy during the six months ending September 30, 1999.
But given what was clearly a disappointing period in absolute terms, we
are pleased to report that all five of the SunAmerica Income Funds
posted strong relative performance, either outperforming or closely
tracking their respective Lipper category averages for the semiannual
period.
Market Review
The U.S. economy remained vibrant and inflation remained benign.
However, the Federal Reserve Board seemed concerned that strong retail
sales and an extremely tight labor market could signal future inflation
and adopted a policy bias toward higher rates at its May meeting.
Fixed income yields increased as a result of rate hike expectations,
consumer optimism, signs of global growth, and above-trend U.S. growth.
As expected, the Fed raised the Fed Funds rate by a total of 0.50% in
two subsequent moves on June 30 and August 24.
U.S. Treasuries outperformed municipal, corporate, mortgage, and
asset-backed bonds for the semiannual period. The high yield bond market
outperformed U.S. Treasuries for the six months, although this sector
did have a disappointing period within the semiannual period. Rising
interest rates hurt this sector, as did a deluge of supply, as companies
sought to borrow all they could during these months to avoid any
potential Y2K problems at year end.
International bond markets, like U.S. bonds, were generally lower in
price during the semiannual period. This was primarily due to concerns
of continued strong global growth, global inflation as reflected
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by significantly higher commodity prices, and either actual or
anticipated interest rate hikes. Within the international sector,
however, emerging market bonds as a whole performed well.
Market Outlook
Looking ahead, the main driver of the U.S. bond market is global
growth. Economic momentum continues to build around the world, and we
expect such global growth trends to accelerate in the months ahead. This
brighter world economic picture should continue to fuel the sale of U.S.
Treasuries by foreign investors. At the same time, we believe that
shifts by foreign investors to comparatively less conservative asset
classes should provide a lift to the corporate, mortgage, and asset-
backed spread sectors.
In the U.S., we expect inflation to remain moderate. The labor markets
are very tight, which could increase wage pressures. However, we believe
corporate restructuring and the accompanying job insecurity continue to
dampen these pressures. Equally important, the Federal Reserve Board
seems to believe that productivity continues to grow. In our opinion,
any further tightening by the Fed in the months ahead would be limited
at most.
In short, we anticipate that fixed income yields may drift a bit
higher over the near term, as Y2K and liquidity concerns arise, but over
the longer term, we maintain our generally positive, if cautious,
outlook for the U.S. fixed income markets. The U.S. Treasury market in
particular may benefit from ongoing volatility in the equity markets, as
investors seek the relative safety and stability of these government
securities.
With this backdrop, we are pleased to present you with a portfolio
review for each of the SunAmerica Income Funds on the following pages.
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SunAmerica U.S. Government Securities Fund
Performance
In spite of its conservative nature relative to other U.S.
government funds, SunAmerica U.S. Government Securities Fund
performed well. The Fund's Class A returned -0.27% compared to
-1.05% for its Lipper category, for the six months ending September
30, 1999. It is worth noting that for the three months since
Michael Cheah became portfolio manager of the Fund in early June
1999, its Class A ranked #1 of all 184 peer funds in its category
with a quarterly return of 1.10% compared to 0.34% for its Lipper
average. (Returns do not reflect a sales charge.)
The Fund's strong relative performance was primarily due to
duration positioning, especially during the third calendar quarter
when the Fund primarily maintained a neutral to shorter-than-
benchmark duration while the Federal Reserve Board was in active
tightening mode.
Portfolio Review
SunAmerica 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 of its agencies. Normally, the Fund invests its assets in
such a way as to minimize the impact of interest rate volatility,
and thus enhance the stability of its net asset value. The Fund is
neither insured nor guaranteed by the U.S. Government.
Both historically and for most of the semiannual period, your
Fund has been structured with one-third of assets invested in
premium mortgages, one-third in total return mortgages, and the
remaining one-third in U.S. Treasuries. Mortgage yields rose
dramatically from the end of March through early August, primarily
due to a heavy sell-off in the corporate bond market. Mortgages
underperformed U.S. Treasuries during this time and yield spreads
between mortgages and Treasuries widened to levels not seen since
the height of the Asian financial crisis one year prior. But then,
from mid-August through the end of September, the yield spread
between the two sectors narrowed, as supply of corporate bonds
moderated. Mortgages outperformed Treasuries during these last six
weeks of the semiannual period. Premium mortgages provided the Fund
high current income with reduced market price volatility.
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SunAmerica Federal Securities Fund
Performance
Lipper Analytics awarded the SunAmerica Federal Securities Fund
its Performance Achievement Award (#1 ranking based on total
return) for both 1997 and 1998. SunAmerica Federal Securities Fund
continued this trend and performed well during this challenging
period. The Fund's Class A returned -0.02% compared to -0.16% for
its Lipper category, for the six months ending September 30, 1999.
It is noteworthy that for the three months since Michael Cheah
became portfolio manager of the Fund in early June 1999, its Class
A ranked #2 of its 56 peers with a quarterly return of 1.19%
compared to 0.78% for its Lipper average. Furthermore, the Fund
ranked in the top 5% of its peers for the three-year period and in
the top 6% of its peers for the five-year period ending September
30, 1999. (Returns do not reflect a sales charge.)
The Fund benefited most during the semiannual period from active
sector and duration positioning.
Portfolio Review
SunAmerica 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
and in mortgage-backed securities. What distinguishes this Fund
from other funds in its category perhaps is our strategic focus on
global factors and on Federal Reserve Board monetary policy as the
primary basis for both our asset allocation and duration
positioning decisions.
Early in the third calendar quarter, while the Federal Reserve
Board was in active tightening mode, the Fund moved from a neutral
to shorter-than-benchmark duration. The Fund also increased its
weighting in U.S. Treasuries and significantly underweighted its
allocation to GNMAs in early July. This sector allocation benefited
Fund performance when heavy front-loading of corporate bond supply
dragged mortgage yields up and U.S. Treasuries outperformed.
During the last six weeks of the semiannual period when mortgages
outperformed Treasuries, we increased the Fund's weighting in
GNMAs. As of September 30, 1999, the Fund was invested 65.8% in
GNMAs. We believe that mortgages will likely continue to outperform
U.S. Treasuries through the fourth calendar quarter of 1999, and so
we intend to further increase the Fund's weighting in mortgage-
backed securities in the near term.
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SunAmerica Diversified Income Fund
Performance
SunAmerica Diversified Income Fund significantly outperformed its
category average for the semiannual period and ranked in the top
10% of its peers for both its six month and one year performance
through September 30, 1999, according to Lipper Analytical
Services. Diversified Income Class A returned 1.59% compared to -
0.53% for its Lipper category, for the six months ending September
30, 1999. (Neither return reflects a sales charge.)
The Fund outperformed primarily due to its investments in
emerging market bonds, which was the best performing fixed income
sector. The gains from this sector more than offset the slight
declines posted by the U.S. Government and high yield fixed income
sectors. The Fund also benefited from its duration positioning
within its U.S. government allocation. Given anticipated and then
actual Federal Reserve Board interest rate hikes, we focused our
U.S. government holdings on the three to five year maturity range,
which is shorter than the benchmark. High yield bonds added
incremental value to the Fund through the benefits of higher coupon
income, providing a powerful advantage in a rising interest rate
environment.
Portfolio Review
Overall, emerging markets staged a broad recovery from the sharp
losses of the previous year, as global commodity prices, especially
oil, troughed and Asia's economic recovery proved to be stronger
than expected. Although Ecuador's eurobond default and Brazil's
currency devaluation cast a cloud over the Latin American region,
where the Fund is overweighted, this region's fixed income market
performed well on better than expected news from Brazil and Mexico.
The Fund remained underweighted in Asia, Eastern Europe, and
Russia.
Toward the end of the semiannual period, the emerging markets
lost some ground and we sold some of the portfolio's emerging
market holdings at their strengths. We then re-allocated these
profits into intermediate U.S. Government securities, both to
protect our gains and balance our exposures. U.S. Treasuries
historically do well during periods of global uncertainty.
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The high yield market posted negative returns for the six months
as a whole, as the positive effect of higher stock prices was
drowned out by rising interest rates and a deluge of supply. Still,
the high yield sector outperformed U.S. Treasuries for the
semiannual period. Merger and acquisition activity in the media and
telecommunications sectors, where the Fund is overweighted, was
brisk, with several of the Fund's holdings involved in credit
enhancing transactions.
Going forward, we expect to evenly balance the portfolio's
allocation amongst the three major components of the Fund, shifting
to a structure of one-third of assets invested in emerging market
foreign bonds, one-third in high yield bonds, and one-third in U.S.
government bonds.
Winners and Losers
Among your Fund's winners were United Mexican States, one of the
portfolio's largest holdings. Other strong performers included
Bepensa, a Mexican food retail company; Multicanal Participacoes, a
Brazilian cable company; and UIH Australia Pacific, an Australian
cable and media company.
The Fund's holdings in Central European Media, Paging Network Do
Brazil and Tevecap (in the broadcasting and cable sectors), and
Golden Ocean Group (in the shipping sector) were the worst
performers over the period. We have sold Tevecap, and are currently
evaluating the recovery potential in the others.
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SunAmerica High Income Fund
Performance
SunAmerica High Income Fund Class A posted a loss of -1.22%
compared to a loss of -0.91% for its Lipper category, for the six
months ending September 30, 1999. (Neither return reflects a sales
charge.)
The high yield market was impacted primarily by rising interest
rates and by pricing inefficiencies inherent in supply and demand
imbalances. Also affecting the high yield market as a whole was a
default rate that continued to rise to a level of about 5%, the
highest it had been since 1991. Two high profile defaults accounted
for much of this spike, namely satellite companies Iridium and ICO
Global, which combined had approximately $2 billion in debt
outstanding. The Fund did not own either of these securities.
The Fund benefited from its overweighted positions in the media
and telecommunications and energy sectors and from its
underweighted positions in the retailing, gaming, and healthcare
sectors.
Portfolio Review
Given the rising interest rates and our anticipation of a rising
default rate in the high yield market, we actively sought to
upgrade the portfolio's quality over the semiannual period. In
fact, we shifted a significant portion of the portfolio from B
holdings to BB names. As of September 30, 1999, approximately 22%
of the Fund's assets were rated in the BB range.
We also maintained an overweighted position in the media and
telecommunications sectors. These sectors were driven by brisk
merger and acquisition activity. Your portfolio benefited from this
through our holdings in Chancellor Media, Global Crossing, IXC
Communications and Omnipoint, each of which was involved in a
credit enhancing transaction. This sector further benefited from
certain regulatory items that had been pending before Congress. The
resolution of these matters was actually more favorable than our
initial expectations. We continue to like these sectors and believe
further gains lie ahead.
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Having brought the energy sector from an underweight to a neutral
market weighting in the second half of the past fiscal year, we
assumed a modest overweighting in the energy sector early in this
semiannual period when oil prices were still comparatively low. As
oil prices began to rise in the spring of 1999, this overweighting
proved to be a good strategy.
The cyclical sector improved its performance from last fiscal
year to this semiannual period, as commodity prices increased.
However, the steel, paper, and chemical issues that had previously
moved primarily as a group did not do so during these six months.
Thus, we focused on issue specific evaluation in these cyclicals.
Throughout the semiannual period, we maintained underweightings
in the gaming and retail sectors. We also remained underweighted in
healthcare. Regulatory matters pending before Congress negatively
impacted this sector, particularly in the long-term care segment.
We stayed concentrated in such top-tier credits as Tenet Healthcare
and Fresenius Medical Care Capital Trust, both BB credits.
Looking ahead, some Y2K worries may temporarily dampen the high
yield market in the fourth quarter of 1999, but we believe coupon
income will remain attractive. While we can not point to any near
term event that will ignite a significant rally in the high yield
market, we believe the current oversold condition will be remedied
by the first quarter of the year 2000. The default rate is not a
major concern for the Fund's holdings, and thus we believe the high
yield market continues to offer an attractive risk/reward profile
for the patient investor.
We intend to reduce the total number of names in the portfolio
over the months ahead--while staying broadly diversified--to
enhance both our focus and our ability to monitor company activity.
We will continue to seek attractive values through proprietary,
bottom-up credit research and analysis.
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Winners and Losers
Many of the Fund's best performing holdings were in the cable,
cellular, and telecommunications sectors. In addition to those
involved in merger and acquisition activity as mentioned above,
these high yield winners included Rhythms Netconnections, which
specializes in digital subscriber lines (DSLs), and Nextel
Communications, a wireless telecommunications company.
We sold Jitney Jungle Stores America at a modest loss, as this
southeastern supermarket chain came under competitive pressures it
could not bear. But certain other poor performers we still hold,
including Golden Ocean Group, a shipping company whose tanker rates
did not achieve our targets, and Central European Media, an eastern
European television company impacted by regional politics more than
by business fundamentals.
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SunAmerica Tax Exempt Insured Fund
Performance
During a challenging period for municipal securities, SunAmerica
Tax Exempt Insured Fund performed well--especially given its
conservative management strategy and greater focus on insured
municipal bonds relative to other municipal debt funds. The Fund's
Class A returned -3.11% compared to -3.90% for its Lipper category,
for the six months ending September 30, 1999. (Neither return
reflects a sales charge.)
Municipal bonds are traditionally less volatile than other fixed
income sectors primarily because of their domestic investor base.
But during the third quarter of 1999, a lack of institutional
buying brought municipal yields to their lowest levels relative to
Treasuries in 12 months. Even though supply of municipal paper
year-to-date is down nearly 21% versus the same time period in
1998, investors have sought higher absolute yields elsewhere. With
the Federal Reserve Board tightening monetary policy twice during
the third calendar quarter, the municipal market underperformed
U.S. Treasuries due to these combined factors.
Portfolio Review
Over the semiannual period, we shortened the Fund's average
duration based on ongoing strength in the U.S. economy and the
Federal Reserve Board's bias toward raising interest rates. This
more defensive strategy proved to be a prudent one, as longer-
duration municipal bonds suffered most in this environment. The
average duration of the Fund at September 30, 1999 was 7.7 years.
We concentrated over the period on issues from Illinois and
Texas, which offered the highest yielding issues at the most
attractively priced levels. Conversely, we continued to avoid
California and Connecticut, where low supply resulted in high
prices. We reduced our holdings in New York and Massachusetts in
favor of issues from Georgia and Florida, currently considered the
highest quality securities available.
Fund performance was positively impacted by its holdings in pre-
refunded bonds and its underweighted position in healthcare
credits, the latter of which came under pressure as talk of
reforming reimbursement payments heated up heading into an election
year. We reduced the Fund's allocation to water, sewer, and other
essential service issues based on several specific
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opportunities to sell bonds at healthy profits. This also fits into
our defensive positioning for the portfolio overall.
Your Fund's overall credit quality remained high, with more than
89% of assets in "Aaa"-rated bonds or in bonds backed by publicly
held municipal insurers such as American Municipal Bond Assurance
Corp., Financial Guaranty Insurance Company and Municipal Bond
Investors Assurance Corp. Such insurance minimizes volatility
relative to uninsured municipal bonds. The Fund was diversified
among 28 states plus Puerto Rico at the end of the semiannual
period.
In the months ahead, we intend to stay short to the Index in
terms of average duration. We also anticipate increasing the Fund's
allocation to credits in both the housing and healthcare sectors.
In the housing sector, we are seeking the higher yields and lower
volatility traditionally provided by these shorter duration bonds.
In the healthcare sector, we anticipate certain supply to soon be
available at attractively priced levels. Reflecting both our
ongoing defensive posture and our intention to maintain a high
degree of liquidity at the end of the year, we will likely increase
our cash position as well.
Winners and Losers
The Financial Guaranty Insurance Company-insured New Orleans
bonds the Fund bought during the semiannual period performed
particularly well. So, too, did the Fund's Nevada Housing Division
holdings.
We are pleased to say that your Fund was not subject to many
poorly performing municipal issues. However, we continued to hold
Massachusetts Bay Transit Authorities, a long-term discount bond
that declined with the market.
If you would like additional information:
[_] Call FastFacts--Call our 24 hour automated account and fund
information hotline at 800-654-4760.
[_] Visit SunAmerica on the World Wide Web. Visit our site at
www.sunamericafunds.com for more up-to-date information.
SunAmerica Mutual Funds
thanks you for your continued support.
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SUNAMERICA INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES -- September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
U.S. Government Federal Diversified High Tax Exempt
Securities Fund Securities Fund Income Fund Income Fund Insured Fund
--------------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment securities,
at value (identified
cost $243,115,237;
$77,641,451;
$65,516,453;
$186,426,415 and
$85,290,934,
respectively).......... $238,050,465 $76,849,264 $ 54,215,350 $162,411,143 $88,014,946
Short-term securities,
at value (identified
cost $144,218; $0;
$2,000,000; $0 and
$3,280,000,
respectively).......... 142,414 -- 2,009,884 -- 3,280,000
Repurchase agreements
(cost equals market)... 11,819,000 1,793,000 3,506,000 1,294,000 --
Cash.................... 7,450 609 807 13,094 36,488
Receivable for
investments sold....... 9,081,080 9,152,592 -- 6,489,515 --
Interest and dividends
receivable............. 2,097,205 452,806 1,483,118 4,144,237 1,566,705
Receivable for shares of
beneficial interest
sold................... 33,845 628,509 18,776 527,463 116,768
Prepaid expenses........ 25,662 32,237 6,531 8,156 22,906
Receivable due from
adviser................ 1,640 1,174 1,103 1,622 1,075
------------ ----------- ------------ ------------ -----------
Total assets........... 261,258,761 88,910,191 61,241,569 174,889,230 93,038,888
------------ ----------- ------------ ------------ -----------
LIABILITIES:
Payable for investments
purchased.............. 18,178,487 22,193,541 1,941,289 8,597,561 --
Payable for shares of
beneficial interest
redeemed............... 489,313 26,676 42,593 442,936 108,566
Dividends payable....... 475,565 127,105 251,790 753,108 167,502
Accrued expenses........ 249,120 57,827 66,527 125,644 76,186
Investment advisory and
management fees
payable................ 147,229 27,076 31,550 103,066 38,188
Distribution and service
maintenance fees
payable................ 115,990 32,255 32,889 104,309 37,045
------------ ----------- ------------ ------------ -----------
Total liabilities...... 19,655,704 22,464,480 2,366,638 10,126,624 427,487
------------ ----------- ------------ ------------ -----------
Net assets............ $241,603,057 $66,445,711 $ 58,874,931 $164,762,606 $92,611,401
============ =========== ============ ============ ===========
NET ASSETS WERE COMPOSED
OF:
Shares of beneficial
interest, $.01 par
value.................. $ 286,868 $ 63,624 $ 157,732 $ 263,634 $ 74,693
Paid-in capital......... 273,875,986 68,256,021 99,136,258 222,026,992 92,123,126
------------ ----------- ------------ ------------ -----------
274,162,854 68,319,645 99,293,990 222,290,626 92,197,819
Accumulated
undistributed
(distributions in
excess of) net
investment income...... 636,567 (3,691) 278,796 434,617 22,528
Accumulated net realized
loss on investments,
futures, options and
foreign currency....... (28,129,788) (1,078,056) (29,406,636) (33,947,365) (2,332,958)
Net unrealized
appreciation
(depreciation) on
investments............ (5,066,576) (792,187) (11,291,219) (24,015,272) 2,724,012
------------ ----------- ------------ ------------ -----------
Net assets............ $241,603,057 $66,445,711 $ 58,874,931 $164,762,606 $92,611,401
============ =========== ============ ============ ===========
Class A (unlimited
shares authorized):
Net assets............. $156,825,765 $40,746,656 $ 29,789,629 $ 61,292,071 $73,352,944
Shares of beneficial
interest issued and
outstanding........... 18,621,646 3,905,934 7,989,257 9,814,779 5,916,332
Net asset value and
redemption price per
share................. $ 8.42 $ 10.43 $ 3.73 $ 6.24 $ 12.40
Maximum sales charge
(4.75% of offering
price)................ 0.42 0.52 0.19 0.31 0.62
------------ ----------- ------------ ------------ -----------
Maximum offering price
to public............. $ 8.84 $ 10.95 $ 3.92 $ 6.55 $ 13.02
============ =========== ============ ============ ===========
Class B (unlimited
shares authorized):
Net assets............. $ 82,319,754 $25,046,758 $ 28,788,826 $ 90,247,443 $18,956,793
Shares of beneficial
interest issued and
outstanding........... 9,773,249 2,394,129 7,704,620 14,437,043 1,528,589
Net asset value,
offering and
redemption price per
share................. $ 8.42 $ 10.46 $ 3.74 $ 6.25 $ 12.40
============ =========== ============ ============ ===========
Class II (unlimited
shares authorized):
Net assets............. $ 2,457,538 $ 652,297 $ 296,476 $ 13,223,092 $ 301,664
Shares of beneficial
interest issued and
outstanding........... 291,868 62,293 79,347 2,111,624 24,330
Net asset value and
redemption price per
share................. $ 8.42 $ 10.47 $ 3.74 $ 6.26 $ 12.40
Maximum sales charge
(1.00% of offering
price)................ 0.09 0.11 0.04 0.06 0.13
------------ ----------- ------------ ------------ -----------
Maximum offering price
to public............. $ 8.51 $ 10.58 $ 3.78 $ 6.32 $ 12.53
============ =========== ============ ============ ===========
See Notes to Financial
Statements
</TABLE>
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SUNAMERICA INCOME FUND
STATEMENT OF OPERATIONS -- For the six months ended September 30, 1999
(unaudited)
<TABLE>
<CAPTION>
U.S. Government Federal Diversified High Tax Exempt
Securities Fund Securities Fund Income Fund Income Fund Insured Fund
--------------- --------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest................ $ 8,262,772 $ 2,060,835 $ 3,839,985 $ 11,023,433 $ 2,729,504
Dividends............... -- -- 5,063 126,656 --
----------- ----------- ----------- ------------ -----------
Total Investment
Income............... 8,262,772 2,060,835 3,845,048 11,150,089 2,729,504
----------- ----------- ----------- ------------ -----------
Expenses:
Investment advisory and
management fees........ 888,687 162,101 202,153 711,554 243,936
Distribution and service
maintenance fees--Class
A...................... 251,271 66,596 50,849 116,041 135,345
Distribution and service
maintenance fees--Class
B...................... 471,628 127,313 164,853 556,918 100,467
Distribution and service
maintenance fees--Class
II..................... 3,077 969 872 60,754 705
Transfer agent fees and
expenses--Class A...... 190,646 51,560 39,938 85,850 106,487
Transfer agent fees and
expenses--Class B...... 129,807 33,910 47,244 139,931 24,946
Transfer agent fees and
expenses--Class II..... 1,366 524 432 15,845 367
Custodian fees and
expenses............... 140,053 43,445 33,010 59,331 35,204
Printing expense........ 15,495 4,625 4,725 9,805 3,535
Audit and tax consulting
fees................... 12,475 12,360 12,475 12,475 12,475
Legal fees and expenses. 11,890 4,965 5,400 6,845 5,960
Trustees' fees and
expenses............... 9,956 2,542 2,869 7,514 3,794
Registration fees--Class
A...................... 9,870 6,640 5,247 7,140 7,129
Registration fees--Class
B...................... 7,943 5,747 5,602 11,138 5,349
Registration fees--Class
II..................... 4,346 3,852 3,824 5,342 3,781
Insurance expense....... 3,013 365 736 1,004 4,111
Interest expense........ -- -- -- 32,542 --
Miscellaneous expenses.. 1,438 279 362 440 546
----------- ----------- ----------- ------------ -----------
Total expenses before
reimbursements and
custody credits...... 2,152,961 527,793 580,591 1,840,469 694,137
Expenses reimbursed by
investment adviser... (4,784) (4,008) (3,989) (8,250) (3,925)
Custody credits earned
on cash balances..... (238) (900) (1,045) (3,901) (1,189)
----------- ----------- ----------- ------------ -----------
Net expenses.......... 2,147,939 522,885 575,557 1,828,318 689,023
----------- ----------- ----------- ------------ -----------
Net investment income..... 6,114,833 1,537,950 3,269,491 9,321,771 2,040,481
----------- ----------- ----------- ------------ -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on
investments.............. (4,949,497) (909,662) (1,845,579) (3,815,504) (610,403)
Net change in unrealized
appreciation/depreciation
on investments........... (2,140,359) (727,675) (557,785) (7,512,926) (4,581,353)
----------- ----------- ----------- ------------ -----------
Net realized and
unrealized loss on
investments.............. (7,089,856) (1,637,337) (2,403,364) (11,328,430) (5,191,756)
----------- ----------- ----------- ------------ -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS............... $ (975,023) $ (99,387) $ 866,127 $ (2,006,659) $(3,151,275)
=========== =========== =========== ============ ===========
</TABLE>
See Notes to Financial Statements
13
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SUNAMERICA INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
U.S. Government Securities Fund Federal Securities Fund Diversified Income Fund
--------------------------------- --------------------------- ---------------------------
For the period For the period For the period
ended For the year ended For the year ended For the year
September 30, ended September 30, ended September 30, ended
1999 March 31, 1999 March 31, 1999 March 31,
(unaudited) 1999 (unaudited) 1999 (unaudited) 1999
---------------- --------------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income.... $ 6,114,833 $ 14,868,327 $ 1,537,950 $ 2,674,252 $ 3,269,491 $ 7,184,379
Net realized gain (loss)
on investments.......... (4,949,497) 4,318,917 (909,662) 1,258,473 (1,845,579) (2,844,122)
Net realized gain on
futures contracts....... -- 422,416 -- 17,386 -- --
Net change in unrealized
appreciation/depreciation
on investments.......... (2,140,359) (6,697,395) (727,675) (914,255) (557,785) (12,524,107)
Net change in unrealized
appreciation/depreciation
on futures contracts.... -- (76,457) -- -- -- --
--------------- --------------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets resulting from
operations............... (975,023) 12,835,808 (99,387) 3,035,856 866,127 (8,183,850)
--------------- --------------- ----------- ----------- ----------- -----------
Dividends and
distributions to
shareholders:
From net investment
income (Class A)........ (3,494,311) (5,261,257) (898,048) (1,555,972) (1,461,398) (2,584,052)
From net investment
income (Class B)........ (1,985,445) (7,317,082) (517,386) (879,578) (1,550,028) (4,763,126)
From net investment
income (Class II)....... (12,752) -- (3,878) -- (8,216) --
From net realized gain on
investments
(Class A)............... -- -- -- (1,486,651) -- --
From net realized gain on
investments
(Class B)............... -- -- -- (1,023,323) -- --
From net realized gain on
investments
(Class II).............. -- -- -- -- -- --
--------------- --------------- ----------- ----------- ----------- -----------
Total dividends and
distributions to
shareholders............. (5,492,508) (12,578,339) (1,419,312) (4,945,524) (3,019,642) (7,347,178)
--------------- --------------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets resulting from
capital share
transactions (Note 6).... (1,184,674) (56,448,149) 6,094,428 13,315,452 (4,070,881) (8,283,638)
--------------- --------------- ----------- ----------- ----------- -----------
Total increase (decrease)
in net assets............ (7,652,205) (56,190,680) 4,575,729 11,405,784 (6,224,396) (23,814,666)
NET ASSETS:
Beginning of period...... 249,255,262 305,445,942 61,869,982 50,464,198 65,099,327 88,913,993
--------------- --------------- ----------- ----------- ----------- -----------
End of period [including
undistributed
(distributions in excess
of) net investment
income for September 30,
1999 and March 31, 1999
of $636,567, $14,242,
$(3,691), $(122,329),
$278,796 and $28,947,
respectively]........... $ 241,603,057 $ 249,255,262 $66,445,711 $61,869,982 $58,874,931 $65,099,327
=============== =============== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
14
<PAGE>
SUNAMERICA INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS -- (continued)
<TABLE>
<CAPTION>
High Income Fund Tax Exempt Insured Fund
--------------------------- ---------------------------
For the period For the period
ended For the year ended For the year
September 30, ended September 30, ended
1999 March 31, 1999 March 31,
(unaudited) 1999 (unaudited) 1999
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income.... $ 9,321,771 $ 16,516,336 $ 2,040,481 $ 4,375,248
Net realized gain (loss)
on investments.......... (3,815,504) (8,903,159) (610,403) 1,631,528
Net realized loss on
futures contracts....... -- -- -- (15,097)
Net change in unrealized
appreciation/depreciation
on investments.......... (7,512,926) (16,556,387) (4,581,353) (1,407,777)
------------ ------------ ----------- ------------
Net increase (decrease) in
net assets resulting from
operations............... (2,006,659) (8,943,210) (3,151,275) 4,583,902
------------ ------------ ----------- ------------
Dividends to shareholders:
From net investment
income (Class A)........ (3,243,486) (5,956,938) (1,631,490) (3,512,446)
From net investment
income (Class B)........ (5,077,234) (10,524,742) (357,768) (778,374)
From net investment
income (Class II)....... (560,058) (480,913) (2,516) --
------------ ------------ ----------- ------------
Total dividends to
shareholders............. (8,880,778) (16,962,593) (1,991,774) (4,290,820)
------------ ------------ ----------- ------------
Net increase (decrease) in
net assets resulting from
capital share
transactions (Note 6).... (28,589,573) 47,595,068 (4,612,084) (9,323,157)
------------ ------------ ----------- ------------
Total increase (decrease)
in net assets............ (39,477,010) 21,689,265 (9,755,133) (9,030,075)
NET ASSETS:
Beginning of period...... 204,239,616 182,550,351 102,366,534 111,396,609
------------ ------------ ----------- ------------
End of period [including
undistributed
(distributions in excess
of) net investment
income for September 30,
1999 and March 31, 1999
of $434,617, $(6,376),
$22,528 and $(26,179),
respectively]........... $164,762,606 $204,239,616 $92,611,401 $102,366,534
============ ============ =========== ============
</TABLE>
See Notes to Financial Statements
15
<PAGE>
SUNAMERICA INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
- -------------------------------
Net gain Ratio of
(loss) on Net Net expenses Ratio of net
Net Asset investments Dividends Asset Assets to investment
Value, Net (both 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(1) unrealized) operations income period Return(2) (000's) assets assets
- ---------------- --------- ---------- -------------- ---------- ---------- ------ --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
-------
3/31/95......... $8.39 $0.61 $(0.30) $0.31 $(0.47) $8.23 3.89% $ 73,399 1.46%(5) 7.50%(5)
3/31/96......... 8.23 0.62 0.16 0.78 (0.51) 8.50 9.62 125,504 1.44(5) 7.11(5)
3/31/97......... 8.50 0.59 (0.26) 0.33 (0.48) 8.35 3.98 113,171 1.54(5) 7.01(5)
3/31/98......... 8.35 0.58 0.21 0.79 (0.48) 8.66 9.62 97,496 1.63 6.73
3/31/99......... 8.66 0.49 (0.07) 0.42 (0.43) 8.65 4.91 135,734 1.50 5.72
9/30/99(6)...... 8.65 0.23 (0.25) (0.02) (0.21) 8.42 (0.27) 156,826 1.54(4) 5.38(4)
Class B
-------
3/31/95......... $8.39 $0.56 $(0.30) $0.26 $(0.41) $8.24 3.25% $594,779 2.15%(5) 6.80%(5)
3/31/96......... 8.24 0.55 0.17 0.72 (0.45) 8.51 8.87 428,772 2.13 6.46
3/31/97......... 8.51 0.54 (0.26) 0.28 (0.43) 8.36 3.31 289,040 2.18 6.36
3/31/98......... 8.36 0.52 0.20 0.72 (0.42) 8.66 8.80 207,950 2.26 6.11
3/31/99......... 8.66 0.45 (0.09) 0.36 (0.37) 8.65 4.25 113,521 2.15 5.10
9/30/99(6)...... 8.65 0.20 (0.25) (0.05) (0.18) 8.42 (0.59) 82,320 2.20(4) 4.74(4)
Class II
--------
6/01/99-
9/30/99(3)(6).. $8.49 $0.12 $(0.09) $0.03 $(0.10) $8.42 0.37% $ 2,458 2.20%(4)(5) 4.52%(4)(5)
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
- -------------------------------
Portfolio
Period Ended Turnover
- ---------------- ---------
<S> <C>
Class A
-------
3/31/95......... 105%
3/31/96......... 142
3/31/97......... 148
3/31/98......... 229
3/31/99......... 291
9/30/99(6)...... 193
Class B
-------
3/31/95......... 105%
3/31/96......... 142
3/31/97......... 148
3/31/98......... 229
3/31/99......... 291
9/30/99(6)...... 193
Class II
--------
6/01/99-
9/30/99(3)(6).. 193%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERAL SECURITIES FUND
- -----------------------
Net gain
(loss) on Distri- Net Net
Net Asset investments Dividends butions Asset Assets
Value, Net (both realized Total from from net from Total Value, end of
beginning investment and investment investment capital distri- end of Total period
Period Ended of period income(1) unrealized) operations income gains butions period Return(2) (000's)
------------ --------- ---------- -------------- ---------- ---------- ------- ------- ------ --------- -------
Class A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3/31/95......... $10.22 $0.60 $(0.20) $0.40 $(0.64) $ -- $(0.64) $ 9.98 4.18% $ 6,259
3/31/96......... 9.98 0.68 0.40 1.08 (0.63) -- (0.63) 10.43 10.94 40,278
3/31/97......... 10.43 0.65 (0.10) 0.55 (0.59) -- (0.59) 10.39 5.40 30,509
3/31/98......... 10.39 0.62 0.63 1.25 (0.59) (0.02) (0.61) 11.03 12.29 31,628
3/31/99......... 11.03 0.57 0.11 0.68 (0.53) (0.50) (1.03) 10.68 6.21 35,809
9/30/99(6)...... 10.68 0.26 (0.26) -- (0.25) -- (0.25) 10.43 (0.02) 40,747
<CAPTION>
Class B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3/31/95......... $10.22 $0.63 $(0.26) $0.37 $(0.58) $ -- $(0.58) $10.01 3.81% $65,631
3/31/96......... 10.01 0.56 0.44 1.00 (0.56) -- (0.56) 10.45 10.13 26,165
3/31/97......... 10.45 0.57 (0.08) 0.49 (0.52) -- (0.52) 10.42 4.82 18,929
3/31/98......... 10.42 0.55 0.63 1.18 (0.52) (0.02) (0.54) 11.06 11.54 18,837
3/31/99......... 11.06 0.50 0.12 0.62 (0.46) (0.50) (0.96) 10.72 5.63 26,061
9/30/99(6)...... 10.72 0.23 (0.28) (0.05) (0.21) -- (0.21) 10.46 (0.43) 25,047
<CAPTION>
Class II
--------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6/01/99-
9/30/99(3)(6)... $10.52 $0.13 $(0.06) $0.07 $(0.12) $ -- $(0.12) $10.47 0.66% $ 652
<CAPTION>
FEDERAL SECURITIES FUND
- -----------------------
Ratio of
expenses Ratio of net
to investment
average income to
net average net Portfolio
Period Ended assets assets Turnover
------------ ------------- --------------- ---------
Class A
-------
<S> <C> <C> <C>
3/31/95......... 1.40%(5) 6.90%(5) 267%
3/31/96......... 1.37 6.12 311
3/31/97......... 1.41 6.11 426
3/31/98......... 1.47 5.75 529
3/31/99......... 1.41 5.19 456
9/30/99(6)...... 1.38 (4) 5.09 (4) 276
<CAPTION>
Class B
-------
<S> <C> <C> <C>
3/31/95......... 2.03% 6.33% 267%
3/31/96......... 2.01 5.64 311
3/31/97......... 2.07 5.46 426
3/31/98......... 2.13 5.09 529
3/31/99......... 2.07 4.53 456
9/30/99(6)...... 2.03 (4) 4.44 (4) 276
<CAPTION>
Class II
--------
<S> <C> <C> <C>
6/01/99-
9/30/99(3)(6)... 2.10%(4)(5) 4.37%(4)(5) 276%
</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) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
3/31/95 3/31/96 3/31/97 9/30/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Government Securities
Fund Class A .07% .04% .01% --
U.S. Government Securities
Fund Class B .03% -- -- --
U.S. Government Securities
Fund Class II -- -- -- 1.55%
Federal Securities Fund Class
A 1.26% -- -- --
Federal Securities Fund Class
II -- -- -- 4.14%
</TABLE>
(6) Unaudited
See Notes to Financial Statements
16
<PAGE>
SUNAMERICA INCOME FUND
FINANCIAL HIGHLIGHTS -- (continued)
<TABLE>
<CAPTION>
DIVERSIFIED INCOME FUND
- -----------------------
Net gain Ratio of
(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 period net
Period Ended of period income(1) unrealized) operations income period Return(2) (000's) assets
- ---------------- --------- ---------- -------------- ---------- ---------- ------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
-------
3/31/95......... $4.79 $0.43 $(0.66) $(0.23) $(0.42) $4.14 (5.10)% $ 14,213 1.59%
3/31/96......... 4.14 0.39 0.16 0.55 (0.40) 4.29 13.78 16,762 1.46
3/31/97......... 4.29 0.37 0.10 0.47 (0.37) 4.39 11.43 22,601 1.42
3/31/98......... 4.39 0.40 0.27 0.67 (0.38) 4.68 15.84 25,517 1.45
3/31/99......... 4.68 0.40 (0.80) (0.40) (0.42) 3.86 (8.75) 28,470 1.46
9/30/99(6)...... 3.86 0.21 (0.15) 0.06 (0.19) 3.73 1.59 29,790 1.50 (4)
Class B
-------
3/31/95......... $4.79 $0.40 $(0.65) $(0.25) $(0.39) $4.15 (5.46)% $132,378 2.12%
3/31/96......... 4.15 0.36 0.17 0.53 (0.38) 4.30 13.09 110,949 2.06
3/31/97......... 4.30 0.35 0.10 0.45 (0.35) 4.40 10.73 78,081 2.04
3/31/98......... 4.40 0.38 0.26 0.64 (0.35) 4.69 15.11 63,397 2.06
3/31/99......... 4.69 0.39 (0.82) (0.43) (0.39) 3.87 (9.28) 36,629 2.09
9/30/99(6)...... 3.87 0.20 (0.15) 0.05 (0.18) 3.74 1.27 28,789 2.16 (4)
Class II
--------
6/01/99-
9/30/99(3)(6).. $3.83 $0.13 $(0.12) $ 0.01 $(0.10) $3.74 0.31% $ 296 2.15%(4)(5)
<CAPTION>
DIVERSIFIED INCOME FUND
- -----------------------
Ratio of net
investment
income to
average net Portfolio
Period Ended assets Turnover
- ---------------- ----------------- ---------
<S> <C> <C>
3/31/95......... 9.58% 160%
3/31/96......... 8.96 166
3/31/97......... 8.68 131
3/31/98......... 8.83 157
3/31/99......... 9.84 49
9/30/99(6)...... 10.87 (4) 12
3/31/95......... 8.98% 160%
3/31/96......... 8.42 166
3/31/97......... 8.05 131
3/31/98......... 8.14 157
3/31/99......... 9.22 49
9/30/99(6)...... 10.19 (4) 12
6/01/99-
9/30/99(3)(6).. 10.59%(4)(5) 12%
- --------------------------------------------------------------------------------
<CAPTION>
HIGH INCOME FUND
- ----------------
Net gain Ratio of
(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 period net
Period Ended of period income(1) unrealized) operations income period Return(2) (000's) assets
- ---------------- --------- ---------- -------------- ---------- ---------- ------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
-------
3/31/95......... $8.03 $0.78 $(1.03) $(0.25) $(0.83) $6.95 (2.91)% $ 40,585 1.61%
3/31/96......... 6.95 0.67 0.02 0.69 (0.69) 6.95 10.43 35,963 1.53
3/31/97......... 6.95 0.65 0.12 0.77 (0.66) 7.06 11.46 41,139 1.50
3/31/98......... 7.06 0.68 0.68 1.36 (0.64) 7.78 20.07 56,442 1.52
3/31/99......... 7.78 0.66 (1.12) (0.46) (0.69) 6.63 (6.07) 69,913 1.51
9/30/99(6)...... 6.63 0.33 (0.40) (0.07) (0.32) 6.24 (1.22) 61,292 1.51 (4)
Class B
-------
3/31/95......... $8.04 $0.73 $(1.02) $(0.29) $(0.79) $6.96 (3.42)% $153,034 2.16%(5)
3/31/96......... 6.96 0.62 0.03 0.65 (0.65) 6.96 9.83 91,800 2.06 (5)
3/31/97......... 6.96 0.61 0.12 0.73 (0.62) 7.07 10.78 98,383 2.11 (5)
3/31/98......... 7.07 0.63 0.69 1.32 (0.60) 7.79 19.31 124,962 2.13
3/31/99......... 7.79 0.62 (1.13) (0.51) (0.64) 6.64 (6.62) 124,211 2.13
9/30/99(6)...... 6.64 0.32 (0.41) (0.09) (0.30) 6.25 (1.52) 90,247 2.15 (4)
Class II
--------
2/02/98-
3/31/98(3)..... $7.70 $0.10 $ 0.07 $ 0.17 $(0.08) $7.79 2.18% $ 1,146 2.10%(4)(5)
3/31/99......... 7.79 0.59 (1.09) (0.50) (0.64) 6.65 (6.47) 10,116 2.10 (5)
9/30/99(6)...... 6.65 0.31 (0.40) (0.09) (0.30) 6.26 (1.51) 13,223 2.10 (4)(5)
<CAPTION>
HIGH INCOME FUND
- ----------------
Ratio of net
investment
income to
average net Portfolio
Period Ended assets Turnover
- ---------------- ----------------- ---------
<S> <C> <C>
3/31/95......... 10.82% 196%
3/31/96......... 9.36 183
3/31/97......... 9.10 164
3/31/98......... 9.13 236
3/31/99......... 9.48 120
9/30/99(6)...... 10.23 (4) 52
3/31/95......... 10.26%(5) 196%
3/31/96......... 8.85 (5) 183
3/31/97......... 8.49 (5) 164
3/31/98......... 8.51 236
3/31/99......... 8.84 120
9/30/99(6)...... 9.60 (4) 52
2/02/98-
3/31/98(3)..... 9.78%(4)(5) 236%
3/31/99......... 8.92 (5) 120
9/30/99(6)...... 9.66 (4)(5) 52
</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) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
3/31/95 3/31/96 3/31/97 3/31/98 3/31/99 9/30/99
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Diversified Income Fund Class II -- -- -- -- -- 4.57%
High Income Fund
Class B .08% .08% .01% -- -- --
High Income Fund
Class II -- -- -- 5.37% 0.48% 0.14%
</TABLE>
(6) Unaudited
See Notes to Financial Statements
17
<PAGE>
SUNAMERICA INCOME FUND
FINANCIAL HIGHLIGHTS -- (continued)
<TABLE>
<CAPTION>
TAX EXEMPT INSURED FUND
- -----------------------
Net gain Ratio of
(loss) on Net Net expenses Ratio of net
Net Asset investments Dividends Asset Assets to investment
Value, Net (both 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(1) unrealized) operations income period Return(2) (000's) assets assets
- ---------------- --------- ---------- -------------- ---------- ---------- ------ --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
-------
3/31/95......... $11.95 $0.63 $ 0.17 $ 0.80 $(0.62) $12.13 6.97% $137,955 1.20%(5) 5.32%(5)
3/31/96......... 12.13 0.59 0.29 0.88 (0.59) 12.42 7.37 121,957 1.22 4.72
3/31/97......... 12.42 0.59 (0.07) 0.52 (0.59) 12.35 4.24 98,376 1.24 4.77
3/31/98......... 12.35 0.58 0.67 1.25 (0.57) 13.03 10.28 88,519 1.24 4.52
3/31/99......... 13.03 0.56 0.02 0.58 (0.54) 13.07 4.55 80,716 1.24 4.23
9/30/99(6)...... 13.07 0.27 (0.67) (0.40) (0.27) 12.40 (3.11) 73,353 1.28 (4) 4.32 (4)
Class B
-------
3/31/95......... $11.95 $0.54 $ 0.19 $ 0.73 $(0.54) $12.14 6.29% $ 25,985 1.92% 4.60%
3/31/96......... 12.14 0.50 0.29 0.79 (0.51) 12.42 6.58 29,315 1.90 4.03
3/31/97......... 12.42 0.52 (0.08) 0.44 (0.51) 12.35 3.57 25,053 1.88 4.13
3/31/98......... 12.35 0.49 0.68 1.17 (0.48) 13.04 9.65 22,878 1.90 3.86
3/31/99......... 13.04 0.47 0.02 0.49 (0.46) 13.07 3.78 21,651 1.91 3.57
9/30/99(6)...... 13.07 0.23 (0.67) (0.44) (0.23) 12.40 (3.42) 18,957 1.93 (4) 3.66 (4)
Class II
--------
6/01/99-
9/30/99(3)(6).. $12.83 $0.15 $(0.45) $(0.30) $(0.13) $12.40 (2.15)% $ 302 1.95%(4)(5) 3.72%(4)(5)
<CAPTION>
TAX EXEMPT INSURED FUND
- -----------------------
Portfolio
Period Ended Turnover
- ---------------- ---------
<S> <C>
3/31/95......... 162%
3/31/96......... 46
3/31/97......... 51
3/31/98......... 48
3/31/99......... 34
9/30/99(6)...... 26
3/31/95......... 162%
3/31/96......... 46
3/31/97......... 51
3/31/98......... 48
3/31/99......... 34
9/30/99(6)...... 26
6/01/99-
9/30/99(3)(6).. 26%
</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)Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
3/31/95 9/30/99
------- -------
<S> <C> <C>
Tax Exempt Insured Fund Class A .04% --
Tax Exempt Insured Fund
Class II -- 5.57
</TABLE>
(6)Unaudited
See Notes to Financial Statements
18
<PAGE>
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORP.--14.5%
6.00% due 11/01/13................................ $ 8,211 $ 7,905,682
7.50% due 3/01/25-6/01/25......................... 441 443,368
8.50% due 6/01/01................................. 1 888
9.50% due 4/01/20................................. 992 1,048,440
10.00% due 10/01/02-8/01/21....................... 8,773 9,474,320
10.50% due 1/01/21................................ 192 210,087
11.00% due 8/01/13-9/01/15........................ 545 601,019
11.50% due 6/01/15................................ 194 215,584
12.13% due 9/01/11................................ 437 487,580
12.25% due 7/01/15................................ 1 1,633
12.50% due 1/01/14-2/01/19........................ 9,345 10,505,067
13.00% due 5/01/15................................ 465 531,854
13.50% due 2/01/19................................ 2,751 3,173,389
13.75% due 7/01/11-8/01/14........................ 55 62,646
14.00% due 4/01/16................................ 222 258,892
------------
Total Federal Home Loan Mortgage Corp.
(cost $35,687,250)................................ 34,920,449
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--18.8%
6.00% due 10/01/28-12/01/28....................... 25,870 24,123,866
6.50% due 11/01/00-7/01/13........................ 8,217 7,933,943
7.50% due 7/01/26................................. 2,598 2,614,270
7.93% due 9/20/06................................. 5,000 5,001,803
8.00% due 12/01/22-1/01/23........................ 4,176 4,260,491
10.50% due 3/01/15................................ 214 233,226
11.00% due 3/01/09................................ 246 268,593
11.50% due 3/01/14................................ 133 148,443
12.00% due 8/01/15................................ 207 232,347
12.50% due 5/01/15................................ 333 371,354
14.00% due 10/01/14............................... 178 207,167
------------
Total Federal National Mortgage Association
(cost $47,309,980)................................ 45,395,503
------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION--15.5%
7.00% due 7/15/23-9/15/25......................... 6,430 6,333,436
7.50% due TBA..................................... 13,000 13,040,690
7.50% due 1/15/17-10/15/23........................ 11,653 11,772,023
8.50% due 7/15/16-11/15/20........................ 98 102,416
9.00% due 5/15/01-12/15/20........................ 3,852 4,068,971
9.50% due 2/15/01-7/15/20......................... 719 767,685
10.00% due 10/15/00-5/15/19....................... 647 696,090
10.25% due 7/15/15................................ 47 52,191
10.50% due 10/15/00-11/15/03...................... 219 237,053
11.00% due 12/15/00-2/15/01....................... 164 178,561
11.50% due 4/15/15-1/15/21........................ 43 47,794
11.75% due 7/15/13-10/15/15....................... 79 88,483
13.25% due 7/15/14-9/15/14........................ 89 101,771
------------
Total Government National Mortgage Association
(cost $38,012,243)................................ 37,487,164
------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION II--0.2%
11.50% due 5/20/15................................ 89 97,817
12.00% due 4/20/14-5/20/15........................ 283 313,217
12.75% due 11/20/13-6/20/14....................... 67 75,903
13.25% due 12/20/14............................... 9 10,395
------------
Total Government National Mortgage Association II
(cost $501,112)................................... 497,332
------------
U.S. GOVERNMENT AGENCIES--14.2%
Federal Farm Credit Bank
5.58% due 9/11/03................................. 20,000 19,406,200
Private Export Funding Corp
5.87% due 7/31/08................................. 10,000 9,414,100
Small Business Administration
6.30% due 6/01/18................................. 5,753 5,505,997
------------
Total U.S. Government Agencies
(cost $36,233,245)................................ 34,326,297
------------
U.S. TREASURY BONDS--6.3%
6.13% due 8/15/29
(cost $15,062,813)................................ 15,000 15,147,600
------------
U.S. TREASURY NOTES--29.1%
5.50% due 8/31/01................................. 29,000 28,927,500
6.00% due 8/15/04................................. 10,000 10,096,900
6.00% due 8/15/09................................. 31,000 31,251,720
------------
Total U.S. Treasury Notes
(cost $70,308,594)................................ 70,276,120
------------
Total Investment Securities--98.5%
(cost $243,115,237)............................... 238,050,465
------------
SHORT-TERM SECURITIES --0.0%
FEDERAL HOME LOAN MORTGAGE
CORP.--0.0%
12.00% due 12/01/99-4/01/00....................... 10 10,621
12.25% due 10/01/99-8/01/00....................... 3 3,644
12.50% due 5/01/00................................ 18 18,428
------------
Total Federal Home Loan Mortgage
Corp.............................................. 32,693
------------
</TABLE>
19
<PAGE>
SUNAMERICA U.S. GOVERNMENT SECURITIES FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1999 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION--0.0%
9.50% due 9/15/00................................ $ 4 $ 3,858
10.00% due 9/15/00............................... 4 3,951
10.50% due 4/15/00-9/15/00....................... 59 63,638
11.00% due 7/15/00............................... 1 750
11.50% due 2/15/00-7/15/00....................... 24 26,759
12.00% due 5/15/00-6/15/00....................... 10 10,765
------------
Total Government National Mortgage Association.... 109,721
------------
Total Short-Term Securities
(cost $144,218).................................. 142,414
------------
REPURCHASE AGREEMENT--4.9%
State Street Bank & Trust Co.
Joint Repurchase Agreement Account (Note 2)
(cost $11,819,000).............................. 11,819 11,819,000
------------
TOTAL INVESTMENTS--
(cost $255,078,455*)............................. 103.5% 250,011,879
Liabilities in excess of other
assets........................................... (3.5) (8,408,822)
------- ------------
NET ASSETS-- 100.0% $241,603,057
======= ============
</TABLE>
- ------
* See Note 5
TBA--Securities purchased on a forward commitment basis with an approximate
principal amount and no definitive maturity date. The actual principal and
maturity date will be determined upon settlement date.
See Notes to Financial Statements
20
<PAGE>
SUNAMERICA FEDERAL SECURITIES FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORP.--3.1%
7.50% due 2/01/23 - 6/01/25....................... $ 844 $ 850,210
10.00% due 1/01/17................................ 1,122 1,206,972
12.50% due 9/30/13(1)............................. 10 9,612
13.50% due 2/01/14................................ 1 23
------------
Total Federal Home Loan Mortgage Corp.
(cost $2,078,727)................................. 2,066,817
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--2.0%
7.00% due 9/01/10
(cost $1,372,426)................................. 1,344 1,343,032
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--65.2%
6.00% due 12/15/28................................ 4,706 4,366,128
6.50% due 12/15/28 - 1/15/29...................... 6,420 6,137,537
7.00% due 3/15/23 - 9/15/25....................... 4,401 4,336,164
7.50% due TBA..................................... 17,000 17,053,210
8.00% due 11/15/26................................ 4,712 4,814,556
8.50% due 3/15/17 - 9/15/24....................... 4,234 4,408,448
9.00% due 6/15/16 - 5/15/17....................... 1,778 1,877,159
12.00% due 5/15/15................................ 17 18,830
12.25% due 9/15/13 - 4/15/14...................... 171 193,104
12.50% due 11/15/10 - 6/15/15..................... 49 55,421
13.50% due 5/15/11 - 10/15/14..................... 43 49,694
------------
Total Government National Mortgage Association
(cost $43,735,413)................................ 43,310,251
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION II--0.6%
10.00% due 10/20/13 - 3/20/17..................... 133 141,244
12.00% due 3/20/15 - 1/20/16...................... 95 105,270
12.25% due 12/20/14 - 10/20/15.................... 128 143,628
------------
Total Government National Mortgage Association II
(cost $375,000)................................... 390,142
------------
U.S. GOVERNMENT AGENCIES--10.1%
Federal Farm Credit Bank
5.58% due 9/11/03................................. $ 5,000 $ 4,851,550
Small Business Administration
6.30% due 6/01/18................................. 1,918 1,835,332
------------
Total U.S. Government Agencies
(cost $7,037,715)................................. 6,686,882
------------
U.S. TREASURY BONDS--3.0%
6.13% due 8/15/29
(cost $2,004,375)................................. 2,000 2,019,680
------------
U.S. TREASURY NOTES--31.7%
5.50% due 8/31/01................................. 13,000 12,967,500
6.00% due 8/15/09................................. 8,000 8,064,960
------------
Total U.S. Treasury Notes
(cost $21,037,795)................................ 21,032,460
------------
Total Investment Securities--115.7%
(cost $77,641,451)................................ 76,849,264
------------
REPURCHASE AGREEMENT--2.7%
State Street Bank & Trust Co. Joint Repurchase
Agreement Account (Note 2)
(cost $1,793,000)................................ 1,793 1,793,000
------------
TOTAL INVESTMENTS--
(cost $79,434,451*)............................... 118.4% 78,642,264
Liabilities in excess of other assets.............. (18.4) (12,196,553)
------- ------------
NET ASSETS-- 100.0% $ 66,445,711
======= ============
</TABLE>
- ------
* See Note 5
TBA--Securities purchased on a forward commitment basis with an approximate
principal amount and no definitive maturity date. The actual principal and
maturity date will be determined upon settlement date.
(1) Fair valued security; see Note 2
See Notes to Financial Statements
21
<PAGE>
SUNAMERICA DIVERSIFIED INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
- ------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES--29.1%
Broadcasting--6.9%
Big City Radio, Inc.
Sr. Disc. Notes
zero coupon due 3/15/05(1)...................... $ 750 $ 531,562
Chancellor Media Corp.
Sr. Notes
8.00% due 11/01/08.............................. 1,200 1,164,000
Echostar Dbs Corp.
Sr. Notes
9.25% due 2/01/06............................... 950 935,750
Spanish Broadcasting Systems, Inc.
Sr. Notes
12.50% due 6/15/02.............................. 1,250 1,421,875
------------
4,053,187
------------
Cable--3.1%
Adelphia Communications Corp.
Sr. Notes, Series B
8.13% due 7/15/03............................... 750 721,875
UIH Australia Pacific, Inc.
Sr. Disc. Notes, Series B
zero coupon due 5/15/06(1)...................... 1,000 790,000
United International Holdings, Inc.
Sr. Secured Disc. Notes
zero coupon due 2/15/08(1)...................... 500 302,500
------------
1,814,375
------------
Cellular--2.4%
International Wireless Communications
Sr. Secured Disc. Notes
zero coupon due 8/15/01(5)...................... 1,750 148,750
McCaw International Ltd.
Sr. Disc. Notes
zero coupon due 4/15/07(1)...................... 500 300,000
Omnipoint Communications, Inc.
Sr. Notes
8.76% due 12/17/06(2)(3)........................ 969 964,291
------------
1,413,041
------------
Consumer Goods--1.2%
Polymer Group, Inc.
Sr. Subordinated Notes,
Series B
9.00% due 7/01/07............................... 750 708,750
------------
Energy--0.4%
Southwest Royalties, Inc.
Sr. Notes, Series B
10.50% due 10/15/04............................. 500 243,750
------------
Energy Services--0.8%
Gulfmark Offshore, Inc.
Sr. Notes
8.75% due 6/01/08............................... 475 444,125
------------
Health Services--2.4%
Fresenius Medical Care Capital Trust
Sr. Notes
7.88% due 2/01/08............................... 500 467,500
Tenet Healthcare Corp.
Sr. Notes
8.00% due 1/15/05............................... 1,000 950,000
------------
1,417,500
------------
Manufacturing--1.4%
Wavetek Corp.
Sr. Subordinated Notes
10.13% due 6/15/07.............................. 1,000 847,500
------------
Media--1.5%
Orion Network Systems
Sr. Disc. Notes
zero coupon due 1/15/07(1)(4)................... 1,000 550,000
Park-N-View, Inc.
Sr. Notes, Series B
13.00% due 5/15/08.............................. 625 323,438
------------
873,438
------------
Metals & Minerals--1.3%
Acme Metals, Inc.
Sr. Notes
12.50% due 8/01/02(5)........................... 1,000 796,250
------------
Retail--0.5%
Electronic Retailing Systems International
Sr. Disc. Notes
zero coupon due 2/01/04(1)...................... 1,000 283,750
------------
Telecommunications--7.2%
DTI Holdings, Inc.
Sr. Disc. Notes, Series B
zero coupon due 3/01/08(1)...................... 250 87,187
Globix Corp.
Sr. Notes
13.00% due 5/01/05.............................. 500 441,250
ICG Holdings, Inc.
Sr. Disc. Notes
zero coupon due 3/15/07(1)...................... 1,000 710,000
</TABLE>
22
<PAGE>
SUNAMERICA DIVERSIFIED INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1999 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
- ------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES (continued)
Telecommunications (continued)
Impsat Corp.
Sr. Notes
12.38% due 6/15/08.............................. $1,000 $ 832,500
Netia Holdings II BV
Guaranteed Sr. Disc. Notes
13.13% due 6/15/09(2)........................... 1,000 1,006,160
Orbcomm Global LP/Capital
Sr. Notes, Series B
14.00% due 8/15/04.............................. 750 660,000
Transtel Pass Through Trust
Trust Certificate
12.50% due 11/01/07............................. 1,000 482,500
------------
4,219,597
------------
Total Corporate Bonds & Notes
(cost $21,728,165)............................... 17,115,263
------------
FOREIGN BONDS & NOTES--45.4%
Broadcasting--1.6%
Central European Media
Enterprises Ltd.
Sr. Notes
9.38% due 8/15/04............................... 500 198,750
RBS Participacoes SA
Guaranteed Notes
11.00% due 4/01/07(2)........................... 1,000 727,500
------------
926,250
------------
Cable--5.2%
Australis Holdings Property Ltd.
Sr. Disc. Notes
zero coupon due 11/01/02(1)(5)(6)............... 500 10,000
Comcast UK Cable Partners Ltd.
Sr. Disc. Notes
zero coupon due 11/15/07(1)..................... 500 452,500
Diamond Holdings PLC
Sr. Notes
9.13% due 2/01/08............................... 1,000 992,500
Imasac SA
Guaranteed Sr. Notes
11.00% due 5/02/05(2)........................... 1,000 607,500
Multicanal Participacoes SA
Series B
12.63% due 6/18/04.............................. 1,000 990,000
------------
3,052,500
------------
Cellular--2.9%
Celcaribe SA
Sr. Notes
14.50% due 3/15/04.............................. 750 603,750
Occidente Y Caribe Celular SA
Sr. Disc. Notes, Series B
zero coupon due 3/15/04(1)...................... 2,000 1,120,000
------------
1,723,750
------------
Energy Services--2.3%
Statia Terminals International NV
Mortgage Notes, Series B
11.75% due 11/15/03............................. 1,250 1,334,375
------------
Finance--2.1%
Cei Citicorp Holdings SA
Sr. Notes, Series B
9.75% due 2/14/07............................... 1,500 1,233,750
------------
Food Retail--2.9%
Bepensa SA
Sr. Notes
9.75% due 9/30/04(2)............................ 2,000 1,705,000
------------
Food, Beverage & Tobacco--1.1%
DGS International Finance Co. BV
Guaranteed Notes
10.00% due 6/01/07(2)........................... 1,000 667,500
------------
Government Agency--11.9%
Federal Republic of Brazil
Capitalization Bonds
8.00% due 4/15/14(3)(7)......................... 2,391 1,523,982
Republic of Argentina
Unsubordinated Notes
11.38% due 1/30/17.............................. 1,500 1,411,875
Republic of Brazil
Bonds
10.13% due 5/15/27.............................. 2,562 1,921,500
United Mexican States
Sr. Notes
11.38% due 9/15/16.............................. 2,000 2,120,000
------------
6,977,357
------------
Packaging--1.5%
Vicap Sa de Cv
Guaranteed Sr. Notes
11.38% due 5/15/07.............................. 1,000 887,500
------------
</TABLE>
23
<PAGE>
SUNAMERICA DIVERSIFIED INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1999 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN BONDS & NOTES (continued)
Paging--0.4%
Paging Network Do Brasil SA
Sr. Notes
13.50% due 6/06/05............................... $ 1,000 $ 227,500
------------
Shipping--0.3%
Golden Ocean Group Ltd.
Sr. Notes
10.00% due 8/31/01(4)(5)......................... 750 78,750
Pegasus Shipping Ltd.
Sr. Mortgage Notes, Series A
11.88% due 11/15/04.............................. 500 123,750
------------
202,500
------------
Telecommunications--9.6%
Call-Net Enterprises, Inc.
Sr. Notes
8.00% due 8/15/08................................ 750 600,000
Globo Communicacoes E Participacoes SA
Guaranteed Notes
10.63% due 12/05/08(2)........................... 1,000 737,500
RSL Communications Ltd.
Sr. Notes
12.25% due 11/15/06.............................. 1,250 1,243,750
Telecom Argentina
Notes
12.00% due 11/15/02.............................. 3,000 3,086,038
------------
5,667,288
------------
Telephone--1.5%
Comtel Brasileira
Bonds
10.75% due 9/26/04(2)............................ 1,000 887,500
------------
Utilities--2.1%
Monterrey Power SA
Sr. Secured Notes
9.63% due 11/15/09(2)............................ 1,500 1,233,750
------------
Total Foreign Bonds & Notes
(cost $32,422,378)................................ 26,726,520
------------
U.S. GOVERNMENT AND AGENCIES--15.5%
U.S Treasury Bonds--8.0%
5.50% due 8/15/28................................. 3,000 2,685,000
6.13% due 11/15/27................................ 500 485,545
11.13% due 8/15/03................................ 1,300 1,528,722
------------
4,699,267
------------
<CAPTION>
Principal
Amount
(in thousands)/ Value
Security Description Shares/Warrants (Note 2)
<S> <C> <C>
U.S. GOVERNMENT AND AGENCIES (continued)
U.S. Treasury Notes--7.5%
4.75% due 2/15/04................................ $ 2,500 $ 2,398,050
6.13% due 8/15/07................................ 2,000 2,002,180
------------
4,400,230
------------
Total U.S. Government and Agencies
(cost $10,119,617)............................... 9,099,497
------------
PREFERRED STOCK--2.0%
Cable--1.8%
CSC Holdings, Inc. 11.13%(8)..................... 10,139 1,084,880
------------
Telecommunications--0.2%
IXC Communications, Inc. 6.75%(2)................ 3,000 118,125
------------
Total Preferred Stock
(cost $1,241,375)................................ 1,203,005
------------
COMMON STOCK--0.0%
Paging--0.0%
Paging Do Brazil Holdings Co. LLC, Class B+(6)... 1,000 10
------------
WARRANTS--0.1%+
Cable--0.0%
Australis Holdings Property Ltd.(2)(6)........... 500 5
Knology Holdings, Inc.(2)........................ 1,500 3,011
UIH Australia Pacific, Inc.(6)................... 1,000 20,000
------------
23,016
------------
Cellular--0.1%
International Wireless Communications(6)......... 1,750 0
Occidente Y Caribe Celular SA(2)(6).............. 8,000 48,000
------------
48,000
------------
Media--0.0%
Park-N-View, Inc.(6)............................. 625 6
------------
Retail--0.0%
Electronic Retailing Systems
International(6)................................ 1,000 10
------------
</TABLE>
24
<PAGE>
SUNAMERICA DIVERSIFIED INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1999 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Warrants/
Principal
Amount Value
Security Description (in thousands) (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
WARRANTS (continued)
Shipping--0.0%
Golden Ocean Group Ltd. ......................... 1,000 $ 10
------------
Telecommunications--0.0%
DTI Holdings, Inc.(2)(6)......................... 1,250 13
------------
Total Warrants
(cost $4,908).................................... 71,055
------------
Total Investment Securities--92.1%
(cost $65,516,453)............................... 54,215,350
------------
SHORT-TERM SECURITIES--3.4%
Oil & Gas--3.4%
Bridas Corp.
Sr. Notes
12.50% due 11/15/99
(cost $2,000,000)............................... $ 2,000 2,009,884
------------
REPURCHASE AGREEMENT--6.0%
State Street Bank & Trust Co.
Joint Repurchase Agreement
Account (Note 2) (cost $3,506,000).............. 3,506 3,506,000
------------
TOTAL INVESTMENTS--
(cost $71,022,453*).............................. 101.5% 59,731,234
Liabilities in excess of other assets............. (1.5) (856,303)
-------- ------------
NET ASSETS-- 100.0% $ 58,874,931
======== ============
</TABLE>
* See Note 5
+ Non-income producing security
(1) Represents a zero coupon bond which will convert to an interest-bearing
security at a later date
(2) Resale restricted to qualified institutional buyers
(3) Variable rate security; rate as of September 30, 1999
(4) Bond issued as part of a unit which includes an equity component
(5) Bond in default
(6) Fair valued security; see Note 2
(7) A portion of the coupon interest is received in cash and a portion is
capitalized in the principal of the security
(8) PIK ("Payment-in-kind") payment made with additional shares in lieu of cash
(9) Allocation of investment by country as a percentage of net assets as of
September 30, 1999:
<TABLE>
<S> <C>
United States......................................................... 53.7%
Brazil................................................................ 11.9%
Argentina............................................................. 10.8%
Mexico................................................................ 10.1%
Britain............................................................... 5.9%
Colombia.............................................................. 3.0%
Bermuda............................................................... 2.7%
Netherlands........................................................... 2.3%
Canada................................................................ 1.0%
Liberia............................................................... 0.1%
------
101.5%
======
</TABLE>
See Notes to Financial Statements
25
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES--81.5%
Broadcasting--7.4%
Big City Radio, Inc.
Sr. Disc. Notes
zero coupon due 3/15/05(1)....................... $ 2,000 $ 1,417,500
Chancellor Media Corp.
Sr. Notes
8.00% due 11/01/08............................... 1,250 1,212,500
Chancellor Media Corp.
Sr. Subordinated Notes
9.38% due 10/01/04............................... 1,500 1,501,875
Echostar Dbs Corp.
Sr. Notes
9.25% due 2/01/06................................ 3,250 3,201,250
Radio One, Inc.
Sr. Subordinated Notes, Series B
7.00% due 5/15/04................................ 1,385 1,416,162
Shop At Home, Inc.
Sr. Secured Notes
11.00% due 4/01/05............................... 1,500 1,483,125
Spanish Broadcasting Systems, Inc. Sr. Notes
12.50% due 6/15/02............................... 1,750 1,990,625
------------
12,223,037
------------
Building Materials--1.6%
Congoleum Corp.
Sr. Notes
8.63% due 8/01/08................................ 750 650,625
MMI Products, Inc.
Sr. Subordinated Notes, Series B
11.25% due 4/15/07(2)............................ 2,000 2,025,000
------------
2,675,625
------------
Business Services--1.3%
Earthwatch, Inc.
Sr. Disc. Notes
zero coupon due 7/15/07(1)(2)(3)................. 1,750 1,203,125
URS Corp.
Sr. Subordinated Notes, Series B
12.25% due 5/01/09............................... 1,000 1,001,250
------------
2,204,375
------------
Cable--7.7%
Adelphia Communications Corp.
Sr. Notes, Series B
8.13% due 7/15/03................................ 2,250 2,165,625
Knology Holdings, Inc.
Sr. Disc. Notes
zero coupon due 10/15/07(1)...................... 1,500 853,125
Mediacom LLC/Capital Corp.
Sr. Notes
7.88% due 2/15/11(2)............................. 3,000 2,617,500
Mediacom LLC/Capital Corp.
Sr. Notes
8.50% due 4/15/08................................ 1,500 1,402,500
Telewest Communication PLC
Sr. Notes
11.25% due 11/01/08.............................. 2,000 2,140,000
UIH Australia Pacific, Inc.
Sr. Disc. Notes, Series B
zero coupon due 5/15/06(1)....................... 2,500 1,975,000
United International Holdings, Inc. Sr. Secured
Disc. Notes
zero coupon due 2/15/08(1)....................... 2,500 1,512,500
------------
12,666,250
------------
Cellular--3.2%
AirGate PCS, Inc.
Sr. Subordinated Disc. Notes
zero coupon due 10/01/09(1)(3)................... 1,500 817,500
International Wireless Communications
Sr. Secured Disc. Notes
zero coupon due 8/15/01(6)....................... 3,250 276,250
McCaw International Ltd.
Sr. Disc. Notes
zero coupon due 4/15/07(1)....................... 1,750 1,050,000
Omnipoint Communications, Inc. Sr. Notes
8.76% due 2/17/06(2)(4).......................... 1,938 1,928,581
Telecorp Pcs, Inc.
Sr. Subordinated Disc. Notes
zero coupon due 4/15/09(1)(2).................... 1,000 585,000
Tritel Pcs, Inc.
Sr. Subordinated Disc. Notes
zero coupon due 5/15/09(1)(2).................... 1,000 572,500
------------
5,229,831
------------
Chemicals--3.9%
American Pacific Corp.
Sr. Notes
9.25% due 3/01/05................................. 1,000 1,007,500
Huntsman Corp.
Sr. Subordinated Notes
8.87% due 7/01/07(2)(4).......................... 2,500 2,312,500
NL Industries, Inc.
Sr. Notes
11.75% due 10/15/03.............................. 2,750 2,839,375
Sterling Chemicals Holdings, Inc.
Sr. Secured Disc. Notes
zero coupon due 8/15/08(1)....................... 1,000 200,000
------------
6,359,375
------------
Consumer Goods--4.6%
Evenflo, Inc.
Sr. Notes, Series B
11.75% due 8/15/06............................... 3,500 3,438,750
</TABLE>
26
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1999 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES (continued)
Consumer Goods (continued)
Polymer Group, Inc.
Sr. Subordinated Notes, Series B 8.75% due
3/01/08.......................................... $ 500 $ 467,500
Polymer Group, Inc.
Sr. Subordinated Notes, Series B 9.00% due
7/01/07.......................................... 2,000 1,890,000
Revlon Consumer Products Corp. Sr. Notes
9.00% due 11/01/06............................... 1,950 1,764,750
------------
7,561,000
------------
Consumer Services--1.6%
Allied Waste North America, Inc.
Sr. Notes, Series B
7.63% due 1/01/06................................ 2,925 2,632,500
------------
Energy--2.2%
P&L Coal Holdings Corp.
Sr. Notes, Series B
8.88% due 5/15/08................................ 1,500 1,477,500
Southwest Royalties, Inc.
Sr. Notes, Series B
10.50% due 10/15/04.............................. 2,500 1,218,750
Western Gas Resources, Inc.
Sr. Subordinated Notes
10.00% due 6/15/09(2)............................ 1,000 1,016,250
------------
3,712,500
------------
Energy Services--3.5%
Eott Energy Partners LP
Sr. Notes
11.00% due 10/01/09.............................. 1,750 1,780,625
Gulfmark Offshore, Inc.
Sr. Notes
8.75% due 6/01/08................................ 2,550 2,406,563
Key Energy Services, Inc.
Sr. Subordinated Notes, Series B
14.00% due 1/15/09............................... 1,500 1,571,250
------------
5,758,438
------------
Financial Services--0.8%
Western Financial Savings Bank
Sr. Subordinated Notes
8.88% due 8/01/07................................ 1,500 1,327,500
------------
Food, Beverage & Tobacco--1.9%
SFC New Holdings, Inc.
Sr. Notes
12.13% due 10/01/02.............................. 3,250 3,152,500
SFC Subordinated, Inc.
Sr. Subordinated Disc. Debentures
zero coupon due 12/15/09(1)(5)................... 156 16
------------
3,152,516
------------
Gaming--1.7%
Mohegan Tribal Gaming Authority Sr. Notes
8.13% due 1/01/06................................ 1,700 1,661,750
Venetian Casino Resort LLC
Sr. Subordinated Notes
10.00% due 11/15/05(1)........................... 1,500 1,151,250
------------
2,813,000
------------
Health Services--5.6%
Fresenius Medical Care Capital Trust Sr. Notes
7.88% due 2/01/08................................ 2,000 1,870,000
Fresenius Medical Care Capital Trust Sr. Notes
9.00% due 12/01/06............................... 1,250 1,225,000
Schein Pharmaceutical, Inc.
Sr. Notes
8.31% due 12/15/04(4)............................ 3,000 2,733,750
Tenet Healthcare Corp.
Sr. Notes
8.00% due 1/15/05................................ 3,500 3,325,000
------------
9,153,750
------------
Leisure & Tourism--2.0%
ITT Corp.
Notes
6.25% due 11/15/00............................... 2,500 2,452,525
ITT Corp.
Debentures
7.38% due 11/15/15............................... 1,000 831,260
------------
3,283,785
------------
Manufacturing--5.6%
Filtronic Plc
Sr. Notes
10.00% due 12/01/05(2)........................... 2,250 2,193,750
L-3 Communications Corp.
Sr. Subordinated Notes, Series B
10.38% due 5/01/07............................... 1,950 2,023,125
Pentacon, Inc.
Sr. Subordinated Notes, Series B
12.25% due 4/01/09............................... 2,200 2,134,000
Wavetek Corp.
Sr. Subordinated Notes
10.13% due 6/15/07............................... 3,500 2,966,250
------------
9,317,125
------------
</TABLE>
27
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1999 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
- ------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES (continued)
Media--1.9%
Orion Network Systems
Sr. Disc. Notes
zero coupon due 1/15/07(1)(3)................... $ 4,000 $ 2,200,000
Park-N-View, Inc.
Sr. Notes
13.00% due 5/15/08.............................. 1,875 970,313
------------
3,170,313
------------
Metals & Minerals--7.7%
Acme Metals, Inc.
Sr. Notes
12.50% due 8/01/02(6)........................... 1,500 1,194,375
AK Steel Holding Corp.
Sr. Notes
9.13% due 12/15/06.............................. 1,000 1,002,500
Armco, Inc.
Sr. Notes
8.88% due 12/01/08.............................. 3,500 3,438,750
California Steel Industries, Inc.
Sr. Notes
8.50% due 4/01/09(2)............................ 1,300 1,228,500
GS Technologies Operating, Inc.
Guaranteed Sr. Notes
12.00% due 9/01/04.............................. 1,500 1,233,750
Metal Management, Inc.
Sr. Subordinated Notes
10.00% due 5/15/08.............................. 1,000 752,500
R&B Falcon Corp.
Sr. Notes
12.25% due 3/15/06.............................. 2,000 2,100,000
Schuff Steel Co.
Sr. Notes
10.50% due 6/01/08.............................. 2,000 1,735,000
------------
12,685,375
------------
Real Estate Investment Trusts--0.6%
Host Marriot LP
Sr. Notes, Series E
8.38% due 2/15/06............................... 1,000 945,000
------------
Retail--0.2%
Electronic Retailing Systems International
Sr. Disc. Notes
zero coupon due 2/01/04(1)...................... 1,000 283,750
------------
Telecommunications--15.6%
DTI Holdings, Inc.
Sr. Disc. Notes, Series B
zero coupon due 3/01/08(1)...................... 1,500 523,125
e.spire Communications, Inc.
Sr. Disc. Notes
zero coupon due 11/01/05(1)..................... 2,250 1,372,500
Globix Corp.
Sr. Notes
13.00% due 5/01/05.............................. 3,575 3,154,937
GST Telecommunications, Inc.
Sr. Secured Disc. Notes
zero coupon due 5/01/08(1)(2)................... 2,000 940,000
ICG Holdings, Inc.
Sr. Disc. Notes
zero coupon due 3/15/07(1)...................... 1,500 1,065,000
ICG Services, Inc.
Sr. Exchange Disc. Notes
9.88% due 5/01/08(1)............................ 1,750 995,313
KMC Telecom Holdings, Inc.
Sr. Disc. Notes
zero coupon due 2/15/08(1)...................... 3,650 1,948,187
MGC Communications, Inc.
Sr. Secured Notes, Series B
13.00% due 10/01/04............................. 1,000 890,000
Orbcomm Global LP/Capital
Sr. Notes, Series B
14.00% due 8/15/04.............................. 1,750 1,540,000
Pac-West Telecommuncations, Inc.
Sr. Notes
13.50% due 2/01/09(2)........................... 1,500 1,524,375
Primus Telecommunications Group, Inc.
Sr. Notes
11.25% due 1/15/09.............................. 2,250 2,154,375
Rhythms Netconnections, Inc.
Sr. Disc. Notes, Series B
zero coupon due 5/15/08(1)...................... 500 245,000
Splitrock Services, Inc.
Sr. Notes, Series B
11.75% due 7/15/08.............................. 1,500 1,346,250
Telehub Communications Corp.
Sr. Disc. Notes
zero coupon due 7/31/05(1)...................... 1,500 703,125
Transtel Pass Through Trust
Trust Certificate
12.50% due 11/01/07............................. 1,500 723,750
Vialog Corp.
Sr. Notes, Series B
12.75% due 11/15/01............................. 1,500 1,198,125
Viatel, Inc.
Sr. Disc. Notes
zero coupon due 4/15/08(1)...................... 3,750 2,100,000
Williams Communication Group, Inc.
Sr. Notes
10.88% due 10/01/09............................. 1,500 1,488,750
Worldwide Fiber, Inc.
Sr. Notes
12.00% due 8/01/09(2)........................... 1,000 977,500
Worldwide Fiber, Inc.
Sr. Notes
12.50% due 12/15/05............................. 750 752,813
------------
25,643,125
------------
</TABLE>
28
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1999 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS & NOTES (continued)
Transportation--0.9%
Travelcenters of America, Inc.
Sr. Subordinated Notes
10.25% due 4/01/07............................... $ 1,500 $ 1,481,250
------------
Total Corporate Bonds & Notes
(cost $150,728,874).............................. 134,279,420
------------
FOREIGN BONDS & NOTES--9.9%
Broadcasting--0.4%
Central European Media Enterprises Ltd.
Sr. Notes
9.38% due 8/15/04................................ 1,500 596,250
------------
Cable--2.3%
Australis Holdings Property Ltd.
Sr. Disc. Notes
zero coupon due 11/01/02(1)(5)(6)................ 1,000 20,000
Comcast UK Cable Partners Ltd.
Sr. Disc. Notes
zero coupon due 11/15/07(1)...................... 1,500 1,357,500
Diamond Holdings PLC
Sr. Notes
9.13% due 2/01/08................................ 2,500 2,481,250
------------
3,858,750
------------
Cellular--1.2%
Celcaribe SA
Sr. Notes
14.50% due 3/15/04............................... 1,000 805,000
Occidente Y Caribe Celular SA
Sr. Disc. Notes, Series B
zero coupon due 3/15/04(1)....................... 2,000 1,120,000
------------
1,925,000
------------
Energy Services--2.9%
Statia Terminals International NV
Mortgage Notes, Series B
11.75% due 11/15/03.............................. 4,500 4,803,750
------------
Manufacturing--0.4%
International Utility Structures
Sr. Subordinated Notes
10.75% due 2/01/08............................... 750 699,375
------------
Paging--0.2%
Paging Network Do Brasil SA
Sr. Notes
13.50% due 6/06/05............................... 1,400 318,500
------------
Shipping--0.4%
Golden Ocean Group Ltd.
Sr. Notes
10.00% due 8/31/01(3)(6)......................... 3,400 357,000
Pegasus Shipping Ltd.
Sr. Mortgage Notes, Series A
11.88% due 11/15/04............................... 1,000 247,500
----------
604,500
----------
Telecommunications--2.1%
Call-Net Enterprises, Inc.
Sr. Notes
8.00% due 8/15/08................................. 1,000 800,000
Poland Telecom Finance BV
Guaranteed Sr. Notes, Series B
14.00% due 12/01/07............................... 1,000 900,000
RSL Communications Ltd.
Sr. Notes
12.25% due 11/15/06............................... 1,850 1,840,750
----------
3,540,750
----------
Total Foreign Bonds & Notes
(cost $23,624,228)................................. 16,346,875
----------
PREFERRED STOCK--7.1%
Cable--2.9%
CSC Holdings, Inc. 11.13%(7)....................... 43,604 4,665,623
----------
Cellular--0.6%
Nextel Communications, Inc.
11.13%(7)......................................... 979 1,005,922
----------
Financial Services--1.2%
Bankunited Financial Corp. 10.25%.................. 2,000,000 2,025,000
----------
Telecommunications--2.4%
Dobson Communications Corp.
12.25%(7)......................................... 1,031 948,488
Global Crossing Holdings Ltd.
10.50%(7)......................................... 16,000 1,696,000
Intermedia Communications, Inc.
7.00%(2).......................................... 40,000 775,000
IXC Communications, Inc.
6.75%(2).......................................... 12,000 472,500
----------
3,891,988
----------
Total Preferred Stock
(cost $11,587,898)................................. 11,588,533
----------
COMMON STOCK--0.0%
Gaming--0.0%
Capital Gaming International,
Inc. +(5)......................................... 241 2
----------
Paging--0.0%
Paging Do Brazil Holdings Co.
LLC +(2)(5)....................................... 1,400 14
----------
</TABLE>
29
<PAGE>
SUNAMERICA HIGH INCOME FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1999 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Shares/ Value
Security Description Warrants (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (continued)
Telecommunications--0.0%
Vialog Corp. +.......................................... 15,133 $ 54,857
-----------
Total Common Stock
(cost $212,453)......................................... 54,873
-----------
WARRANTS--0.1%+
Cable--0.0%
Australis Holdings Property Ltd.(2)(5)................. 1,000 10
Knology Holdings, Inc.(2)............................... 4,500 9,034
UIH Australia Pacific, Inc.(5).......................... 1,000 20,000
-----------
29,044
-----------
Cellular--0.1%
Clearnet Communications, Inc. .......................... 4,950 25,369
International Wireless
Communications(5)...................................... 3,250 0
Occidente Y Caribe Celular SA(2)(5)..................... 8,000 48,000
-----------
73,369
-----------
Energy Services--0.0%
Key Energy Services, Inc................................ 1,500 3,750
-----------
Media--0.0%
Park-N-View, Inc.(5).................................... 1,875 19
-----------
Retail--0.0%
Electronic Retailing Systems International(5)........... 1,000 10
-----------
Shipping--0.0%
Golden Ocean Group Ltd. ................................ 2,500 25
-----------
Telecommunications--0.0%
Cellnet Data Systems, Inc.(5)........................... 1,200 6,000
DTI Holdings, Inc.(2)(5)................................ 7,500 75
KMC Telecom Holdings, Inc.(2)(5)........................ 3,650 9,125
Poland Telecom Finance BV (2)(5)........................ 1,000 10
Primus Telecommunications Group, Inc.................... 1,000 20,000
Telehub Communications Corp. (2)(5)..................... 1,500 15
-----------
35,225
-----------
Total Warrants
(cost $272,962)......................................... 141,442
-----------
Total Investment Securities--98.6%
(cost $186,426,415)..................................... 162,411,143
-----------
REPURCHASE AGREEMENT--0.8%
State Street Bank & Trust Co.
Joint Repurchase Agreement
Account (Note 2)................................. 1,294 1,294,000
------------
(cost $1,294,000)
TOTAL INVESTMENTS--
(cost $187,720,415*).............................. 99.4% 163,705,143
Other assets less liabilities...................... 0.6 1,057,463
----------- ------------
NET ASSETS-- 100.0% $164,762,606
=========== ============
</TABLE>
- ------
* See Note 5
+ Non-income producing security
(1) Represents a zero coupon bond which will convert to an interest-bearing
security at a later date
(2) Resale restricted to qualified institutional buyers
(3) Bond issued as part of a unit which includes an equity component
(4) Variable rate security; rate as of September 30, 1999
(5) Fair valued security; see Note 2
(6) Bond in default
(7) PIK ("Payment-in-kind") payment made with additional shares in lieu of cash
See Notes to Financial Statements
30
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
- -------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS--95.0%
Alaska--1.2%
Alaska State Housing Finance Corp., Series A-2,
7.50% due 12/01/15+.............................. $1,140 $ 1,153,760
------------
Arizona--1.6%
Pima County, Arizona Unified School District
Number 1, General Obligation,
7.50% due 7/01/10+............................... 1,200 1,434,324
------------
Arkansas--0.1%
Arkansas State Development Finance Authority,
Single Family Mortgage Revenue,
9.00% due 6/01/14+............................... 125 127,643
------------
California--5.9%
Anaheim, California Public Financing Authority,
Revenue, Series A,
zero coupon due 9/01/18+......................... 1,500 509,460
California Housing Finance Agency, Revenue, Series
A,
5.40% due 8/01/18+............................... 1,000 946,770
Long Beach, California Harbor Revenue Refunding,
Series A,
6.00% due 5/15/17+............................... 1,000 1,050,110
San Francisco, California City & County
Redevelopment Agency, Lease Revenue,
6.75% due 7/01/15+............................... 1,000 1,098,310
San Jose, California Redevelopment Agency, Tax
Allocation,
6.00% due 8/01/11+............................... 1,700 1,851,946
------------
5,456,596
------------
Colorado--4.8%
Highlands Ranch Metropolitan District, Colorado
General Obligation,
6.50% due 6/15/09+............................... 1,960 2,180,578
Jefferson County, Colorado School District R001,
Refunding,
6.50% due 12/15/11+.............................. 2,000 2,238,400
------------
4,418,978
------------
Florida--3.0%
Port St Lucie, Florida Special Assessment,
Revenue,
5.00% due 10/01/13+.............................. 2,900 2,795,310
------------
Georgia--3.2%
Municipal Electric Authority, Georgia Special
Obligation,
Fifth Crossover Series,
6.40% due 1/01/09+............................... $1,250 1,366,625
Municipal Electric Authority, Georgia Special
Obligation,
Fifth Crossover Series,
6.40% due 1/01/13+............................... 1,500 1,639,035
------------
3,005,660
------------
Idaho--1.0%
Idaho Housing & Finance Association, Single Family
Mortgage,
5.63% due 7/01/15................................ 975 958,425
------------
Illinois--12.5%
Chicago Illinois Board Of Education, General
Obligation,
6.75% due 12/01/11+.............................. 2,000 2,261,320
Cook & Du Page Counties, Illinois High School,
District Number 210, General Obligation,
zero coupon due 12/01/12+........................ 1,600 772,112
Cook County, Illinois Community College, District
Number 508,
7.70% due 12/01/07+.............................. 4,000 4,732,000
Illinois Health Facilities Authority, Lutheran
General Health Systems,
7.00% due 4/01/08+............................... 3,400 3,833,704
------------
11,599,136
------------
Indiana--1.6%
Indiana State Housing Finance Authority, Multi-
Unit Mortgage Program, Series A,
9.00% due 1/01/14+............................... 1,470 1,475,571
------------
Kentucky--4.0%
Louisville & Jefferson County, Kentucky Regional
Airport Authority, Series A,
6.50% due 7/01/17+............................... 3,500 3,704,190
------------
Louisiana--2.6%
New Orleans, Louisiana, Revenue Refunding,
5.50% due 12/01/21+.............................. 2,500 2,449,625
------------
</TABLE>
31
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1999 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS
(continued)
Massachusetts--3.0%
Massachusetts Bay
Transportation
Authority, General
Transportation Systems,
Series C,
5.00% due 3/01/24................................ $2,000 $ 1,752,200
Massachusetts State
Housing Finance Agency,
Insured Rental, Series
A,
6.60% due 7/01/14+............................... 955 1,000,334
------------
2,752,534
------------
Michigan--2.3%
Michigan Municipal Bond
Authority, Revenue
Capital Appreciation,
Local
Government Loan,
zero coupon due
5/01/16+......................................... 2,735 1,057,816
Michigan Municipal Bond
Authority, Revenue
Capital Appreciation,
Local
Government Loan,
zero coupon due
5/01/17+......................................... 2,875 1,042,906
------------
2,100,722
------------
Missouri--7.1%
Missouri State Housing
Development Commission,
Insured, Single Family
Mortgage Revenue,
9.38% due 4/01/16+............................... 20 20,444
Sikeston, Missouri
Electric, Revenue,
6.20% due 6/01/10+............................... 6,000 6,542,580
------------
6,563,024
------------
Nevada--5.5%
Nevada Housing Division,
Single Family Mortgage
Revenue, Series A,
8.63% due 4/01/16+(1)............................ 4,945 5,056,263
------------
New Jersey--1.8%
New Jersey State
Transportation Trust
Fund Authority,
Transportation Systems
Revenue, Series B,
6.50% due 6/15/10+............................... 1,500 1,674,120
------------
New Mexico--0.1%
New Mexico Mortgage Finance Authority,
Single Family Mortgage Revenue,
Series C, 8.63% due 7/01/17+..................... 100 101,203
------------
New York--4.8%
Niagara Falls, New York, General Obligation,
7.50% due 3/01/13+............................... $ 445 $ 535,508
Niagara Falls, New York, General Obligation,
7.50% due 3/01/14+............................... 555 669,136
Port Authority of New York & New Jersey Special
Obligation, Revenue, JFK International Air
Terminal-6,
6.25% due 12/01/11+.............................. 3,000 3,252,960
------------
4,457,604
------------
North Dakota--0.5%
North Dakota State Housing Finance Agency, Single
Family Mortgage Revenue, Series A, 7.38% due
7/01/17+......................................... 450 453,627
------------
Ohio--4.9%
Lucas County, Ohio Hospital Revenue, St. Vincent
Medical Center,
6.50% due 8/15/07+............................... 3,205 3,422,203
Woodridge, Ohio Local School District, General
Obligation,
6.80% due 12/01/14+.............................. 1,000 1,145,650
------------
4,567,853
------------
Oklahoma--1.8%
Grand River Dam Authority, Oklahoma Revenue
Refunding,
6.25% due 6/01/11+............................... 1,500 1,639,110
------------
Pennsylvania--0.1%
Pennsylvania Housing Finance Agency, Multi-Family
Mortgage,
9.38% due 8/01/28+............................... 120 121,493
------------
Puerto Rico--2.2%
Puerto Rico Commonwealth Highway & Transportation
Authority, Revenue, Series A, 5.50% due 7/01/13+. 2,000 2,044,420
------------
Rhode Island--0.4%
Rhode Island Housing & Mortgage Finance Corp.,
Revenue,
8.38% due 10/01/16+.............................. 345 346,763
------------
South Dakota--2.5%
South Dakota St. Health & Educational Facilities
Authority, Revenue,
6.25% due 7/01/10+............................... 2,120 2,285,063
------------
</TABLE>
32
<PAGE>
SUNAMERICA TAX EXEMPT INSURED FUND
PORTFOLIO OF INVESTMENTS -- September 30, 1999 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (continued)
Texas--15.0%
Alliance Airport Authority, Inc., Texas Special
Facilities, Revenue,
6.38% due 4/01/21................................ $2,000 $ 1,997,680
Bexar County, Texas Health Facilities Development
Corp., Hospital Revenue,
6.75% due 8/15/19+............................... 2,000 2,221,320
Harris County, Texas Hospital District Mortgage,
Revenue,
7.40% due 2/15/10+............................... 2,500 2,867,875
Houston, Texas Independent School District,
General Obligation,
5.00% due 2/15/19+............................... 5,000 4,510,900
Houston, Texas Water Conveyance Systems Contract,
Series J, Certificates of Participation,
6.13% due 12/15/08+.............................. 1,250 1,341,200
San Antonio, Texas, Hotel Occupancy, Revenue,
zero coupon due 8/15/17+......................... 2,700 956,583
------------
13,895,558
------------
Virginia--1.1%
Virginia State Housing Development Authority,
Multi-Family, Series H,
5.50% due 5/01/13................................ 1,000 992,400
------------
Washington--0.4%
Washington State Housing Finance Commission,
Multi-Family Mortgage Revenue, Series A,
9.13% due 7/01/10+............................... 380 383,971
------------
Total Municipal Bonds
(cost $85,290,934)................................ 88,014,946
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
SHORT-TERM SECURITIES--3.6%
Texas--1.7%
Harris County, Texas
Health Facilities
Development Corp.,
Revenue,
3.80% due 10/01/99(2)..... $1,580 $ 1,580,000
------------
Washington--1.9%
Washington State Public
Power Supply, Nuclear
Project Number 1,
Revenue, 3.85% due
10/01/99(2)............... 1,700 1,700,000
------------
Total Short-Term
Securities
(cost $3,280,000)....... 3,280,000
------------
TOTAL INVESTMENTS--
(cost $88,570,934*)..... 98.6% 91,294,946
Other assets less
liabilities.............. 1.4 1,316,455
------ ------------
NET ASSETS-- 100.0% $ 92,611,401
====== ============
</TABLE>
- ------
* See Note 5
+ All or part of this security is insured by Government National Mortgage
Association ("GNMA"), Financial Security Assurance ("FSA"), Federal Housing
Administration ("FHA"), Financial Guarantee Insurance Corp. ("FGIC"),
Municipal Bond Insurance Association ("MBIA"), Permanent School Fund ("PSF"),
or American Municipal Bond Assurance Corp. ("AMBAC") ($82,314,241 or 88.9% of
Net Assets)
(1) Represents a zero coupon bond which will convert to an interest-bearing
security at a later date
(2) Variable rate security; maturity date reflects next reset date
See Notes to Financial Statements
33
<PAGE>
SUNAMERICA INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- September 30, 1999 (unaudited)
Note 1. Organization
SunAmerica Income Funds is an open-end diversified management investment
company organized as a Massachusetts business trust (the "Trust"). It
currently consists of five different investment series (each, a "Fund" and
collectively, the "Funds"). Each Fund is a separate series of the Trust with
distinct investment objectives and/or strategies. Each Fund is managed by
SunAmerica Asset Management Corp. (the "Adviser" or "SAAMCo"), an indirect
wholly-owned subsidiary of American International Group, Inc. 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 of high
credit quality and relatively low duration 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 of high credit
quality and relatively high duration issued or guaranteed by the U.S.
government, or any agency or instrumentality thereof, with a significant
portion invested in mortgage-backed securities.
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 generally with relatively low
duration.
Tax Exempt Insured Fund seeks as high a level of current income exempt from
federal income taxes as is consistent with preservation of capital.
Each Fund currently offers three 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. Class II shares are offered at net asset value per share plus
an initial sales charge and may be subject to a contingent deferred sales
charge on redemptions made within eighteen months of purchase. Additionally,
any purchases of Class A shares in excess of $1,000,000 will be purchased at
net asset value but 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 and Class II shares are subject to
higher distribution fee rates.
34
<PAGE>
SUNAMERICA INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- September 30, 1999 (unaudited) -- (continued)
Note 2. Significant Accounting Policies
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.
The following is a summary of the significant accounting policies followed
by the Funds in the preparation of their financial statements:
Security Valuations: Securities that are actively traded in the over-the-
counter market, including listed securities for which the primary market is
believed by the Adviser to be over-the-counter, are valued at the quoted bid
price provided by principal market makers. Securities listed on the New York
Stock Exchange ("NYSE") or other national securities exchanges, are valued
on the basis of the last sale price on the exchange on which they are
primarily traded. If there is no sale on that day, then securities are
valued at the closing bid price on the NYSE or other primary exchange for
that day. However, if the last sale price on the NYSE is different than the
last sale price on any other exchange, the NYSE price is used. Securities
that are traded on foreign exchanges are ordinarily valued at the last
quoted sales price available before the time when the assets are valued. If
a securities price is available from more than one foreign exchange, a Fund
uses the exchange that is the primary market for the security. 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: Pursuant to exemptive relief granted by the
Securities and Exchange Commission, the Funds are permitted to participate
in joint repurchase agreement transactions with other affiliated investment
companies. 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.
35
<PAGE>
SUNAMERICA INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- September 30, 1999 (unaudited) -- (continued)
As of September 30, 1999 the U.S. Government Securities Fund, Federal
Securities Fund, Diversified Income Fund and High Income Fund had a 4.08%,
0.62%, 1.21% and 0.45% undivided interest, respectively, which represented
$11,819,000, $1,793,000, $3,506,000 and $1,294,000, respectively, in
principal amount in a joint repurchase agreement with State Street Bank &
Trust Co. As of such date, the repurchase agreement in the joint account and
the collateral therefore were as follows:
State Street Bank & Trust Co. Repurchase Agreement, 5.05% dated 9/30/99 in
the principal amount of $289,688,000, repurchase price $289,728,637 due
10/1/99, collateralized by $75,315,000 U.S. Treasury Notes 6.13% due
7/31/00, $51,510,000 U.S. Treasury Notes 4.50% due 9/30/00, $50,500,000 U.S.
Treasury Notes 6.38% due 3/31/01, $49,710,000 U.S. Treasury Notes 5.75% due
10/31/00, $40,090,000 U.S. Treasury Notes 3.88% due 1/15/09, $25,510,000
U.S. Treasury Notes 4.63% due 12/31/00 and $45,000 U.S. Treasury Bonds 7.25%
due 5/15/16, approximate aggregate value $295,517,691.
Securities Transactions, Investment Income, Dividends and Distributions to
Shareholders: Securities transactions are recorded on a trade date basis.
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 accrete
market discounts (except for Diversified Income Fund and High Income Fund)
except original issue discounts 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).
Expenses common to all funds are allocated among the Funds based upon their
relative net asset values or other appropriate allocation methods.
Dividends from net investment income are accrued daily and paid monthly.
Capital gain distributions, if any, are paid annually. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Net investment income/loss, net realized gain/loss, and net assets are not
affected.
36
<PAGE>
SUNAMERICA INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- September 30, 1999 (unaudited) -- (continued)
For the year ended March 31, 1999, the following reclassifications arising
from book/tax differences were primarily the result of market discount and
paydown losses.
<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....................... $(2,215,008) $2,215,008 $ --
Federal Securities Fund..... (285,544) 285,544 --
Diversified Income Fund..... -- -- --
High Income Fund............ -- 1,680,742 (1,680,742)
Tax Exempt Insured Fund..... -- -- --
</TABLE>
Investment Securities Loaned: During the six months ended September 30,
1999, U.S. Government Securities Fund and Federal Securities 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. The
Funds may use the cash collateral received to invest in short-term
investments which earn interest income or to cover bank overdrafts. Any
interest earned from the investment of the collateral is recorded by the
Funds net of the portion of interest that is rebated to the borrowing
broker. If the amounts are used to cover bank overdrafts, the broker rebates
incurred are reflected as interest expense on the Statement of Operations.
As with other extensions of credit, should the borrower of the securities
fail financially, the Funds may bear the risk of delay in recovery or may be
subject to replacing the loaned securities by purchasing them with the cash
collateral held, which may be less than 100% of the market value of such
securities at the time of replacement.
Foreign Currency Translation: The books and records of the Funds are
maintained in U.S. dollars. 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.
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. Similarly, 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 realized 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 rate.
37
<PAGE>
SUNAMERICA INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- September 30, 1999 (unaudited) -- (continued)
Futures Contracts: A futures contract is an agreement between two parties to
buy and sell a financial instrument at a set price on a future date. 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 Funds' activities in futures contracts are for hedging
purposes and are conducted through regulated exchanges which do not result
in counterparty credit risks. 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. 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. Futures contracts involve elements of risk in excess of the
amount reflected in the Statement of Assets and Liabilities. 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.
Note 3. Investment Advisory and Management Agreement, Distribution Agreement
and Service Agreement
The Trust, on behalf of each Fund, has an Investment Advisory and Management
Agreement (the "Agreement") with SAAMCo. Under the Agreement, SAAMCo
provides continuous supervision of a Fund's portfolio and administers its
corporate affairs, subject to general review by the Trustees. In connection
therewith, SAAMCo furnishes the Funds with office facilities, maintains
certain of the Funds' books and records, and pays the salaries and expenses
of all personnel, including officers of the Funds, who are employees of
SAAMCo and its affiliates.
The Funds pay SAAMCo a monthly investment advisory and management fee
calculated daily at the following annual percentages of each Fund's average
daily net assets:
<TABLE>
<CAPTION>
Management
Assets Fees
----------------- ----------
<S> <C> <C>
U.S. Government Securities Fund and High
Income Fund.................................. $0 - $200 million 0.75%
greater than $200 million 0.72%
greater than $400 million 0.55%
Federal Securities Fund....................... $0 - $25 million 0.55%
greater than $25 million 0.50%
greater than $50 million 0.45%
Diversified Income Fund....................... $0 - $350 million 0.65%
greater than $350 million 0.60%
Tax Exempt Insured Fund....................... $0 - $350 million 0.50%
greater than $350 million 0.45%
</TABLE>
For the periods ended September 30, 1999, SAAMCo has agreed to reimburse
expenses of $4,784, $4,008, $3,989, $8,250 and $3,925 on Class II of the
U.S. Government Securities Fund, Federal Securities Fund, Diversified Income
Fund, High Income Fund and Tax Exempt Insured Fund, respectively.
The Trust, on behalf of each Fund, has a Distribution Agreement with
SunAmerica Capital Services, Inc. ("SACS" or "Distributor"), an affiliate of
the Adviser. Each Fund, has adopted a Distribution Plan
38
<PAGE>
SUNAMERICA INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- September 30, 1999 (unaudited) -- (continued)
(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," the "Class B Plan" and the "Class II Plan." In
adopting the Class A Plan, the Class B Plan and the Class II Plan, the
Trustees determined that there was a reasonable likelihood that each 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, Class B Plan and Class II Plan, the Distributor
receives payments from a Fund at an annual rate of up to 0.10%, .75% and
.75%, respectively, of average daily net assets of such Fund's Class A,
Class B and Class II 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, Class
B Plan or Class II 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 periods ended September
30, 1999, SACS received fees (see the Statement of Operations) based upon
the aforementioned rates.
SACS receives sales charges on each Fund's Class A and Class II 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 and Class II fund shares. SACS has advised the Funds
that for the periods ended September 30, 1999, the proceeds received from
Class A and Class II sales (and paid out to affiliated and non-affiliated
broker-dealers) and Class B and Class II redemptions were 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.............. $ 26,002 $13,795 $ 7,904 $48,311
Federal Securities Fund. 53,011 29,093 17,250 31,121
Diversified Income Fund. 34,122 17,850 9,293 31,789
High Income Fund........ 216,909 49,835 133,356 155,016
Tax Exempt Insured Fund. 29,156 10,034 14,289 26,052
</TABLE>
39
<PAGE>
SUNAMERICA INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- September 30, 1999 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Class II Class II
------------------------------------- ------------
Contingent
Sales Affiliated Non-affiliated Deferred
Charges Broker-dealers Broker-dealers Sales Charge
------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
U.S. Government
Securities Fund........ $21,782 $ 9,573 $12,209 $ --
Federal Securities Fund. 4,101 2,906 1,195 193
Diversified Income Fund. 1,067 132 935 --
High Income Fund........ 63,356 17,272 46,084 4,682
Tax Exempt Insured Fund. 1,311 500 811 --
</TABLE>
The Trust has entered into a Service Agreement with SunAmerica Fund
Services, Inc. ("SAFS"), an affiliate of the Adviser. 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
compensate SAFS for services rendered, based upon an annual rate of .22% of
average daily net assets, which is approved annually by the Trustees. For
the periods ended September 30, 1999 the Funds incurred the following
expenses which are included in transfer agent fees and expenses in the
Statement of Operations to compensate SAFS pursuant to the terms of the
Service Agreement:
<TABLE>
<CAPTION>
Payable At
Expenses September 30, 1999
-------------------------- ------------------------
Class A Class B Class II Class A Class B Class II
-------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
Securities Fund........ $157,942 $103,758 $ 677 $27,640 $15,486 $ 358
Federal Securities Fund. 41,861 28,009 213 7,136 4,520 78
Diversified Income Fund. 31,962 36,268 192 5,298 5,329 52
High Income Fund........ 72,940 122,522 13,366 11,208 16,632 2,394
Tax Exempt Insured Fund. 85,074 22,103 155 13,312 3,452 39
</TABLE>
Note 4. Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales and maturities of
long-term investments during the six months ended September 30, 1999 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>
Purchases (excluding
U.S. government
securities)............ $ -- $ -- $5,365,687 $96,091,028 $24,287,128
Sales (excluding U.S.
government securities). -- -- 10,344,115 122,066,669 31,142,084
Purchases of U.S.
government securities.. 459,019,295 192,259,149 1,481,016 -- --
Sales of U.S. government
securities............. 431,033,537 164,612,012 -- -- --
</TABLE>
40
<PAGE>
SUNAMERICA INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- September 30, 1999 (unaudited) -- (continued)
Note 5. Portfolio Securities (Tax Basis)
The Funds intend to comply with the requirements of the Internal Revenue
Code, 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.
The amounts of aggregate unrealized gain (loss) and the cost of investment
securities for federal tax purposes, including short-term securities and
repurchase agreements, 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.................... $255,078,455 $79,434,451 $ 71,022,453 $187,720,415 $88,570,934
============ =========== ============ ============ ===========
Appreciation............ $ 157,845 $ 310,506 $ 549,818 $ 922,274 $ 3,424,879
Depreciation............ (5,224,421) (1,102,693) (11,841,037) (24,937,546) (700,867)
------------ ----------- ------------ ------------ -----------
Unrealized appreciation
(depreciation)--net.... $ (5,066,576) $ (792,187) $(11,291,219) $(24,015,272) $ 2,724,012
============ =========== ============ ============ ===========
</TABLE>
At March 31, 1999, U.S. Government Securities Fund, Diversified Income Fund,
High Income Fund and Tax Exempt Insured Fund had capital loss carryforwards
of $21,489,722, $26,768,374, $26,090,783 and $1,722,555, respectively, which
were available to the extent provided in regulations and which will expire
between 2003-2007. 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, Federal Securities Fund, Diversified Income
Fund and High Income Fund had post October 31, 1998 capital loss deferrals
of $1,026,390, $158,519, $792,683 and $3,784,428, respectively.
U.S. Government Securities Fund and Tax Exempt Insured Fund utilized capital
loss carryforwards of $7,977,687 and $1,616,431, respectively, to offset the
Funds' net taxable gains realized and recognized in the year ended March 31,
1999.
High Income Fund had capital loss carryforwards expire of $1,680,742 in the
year ended March 31, 1999.
41
<PAGE>
SUNAMERICA INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- September 30, 1999 (unaudited) -- (continued)
Note 6. 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
six months ended year ended six months ended year ended
September 30, 1999 March 31, 1998 September 30, 1999 March 31, 1998
---------------------------- ------------------------ ------------------------ --------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------------- -------------- ---------- ------------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 5,573,841 $ 47,225,729 8,264,613 $ 72,464,041 1,625,040 $ 13,749,710 1,305,435 $ 11,513,365
Reinvested
dividends...... 269,350 2,281,678 397,809 3,480,635 157,914 1,340,713 539,911 4,723,751
Shares redeemed. (2,911,628) (24,646,504) (4,231,931) (37,087,783) (5,128,299) (43,584,660) (12,730,947) (111,542,158)
------------ -------------- ---------- ------------ ---------- ------------ ----------- -------------
Net increase
(decrease) .... 2,931,563 $ 24,860,903 4,430,491 $ 38,856,893 (3,345,345) $(28,494,237) (10,885,601) $ (90,305,042)
============ ============== ========== ============ ========== ============ =========== =============
<CAPTION>
U.S. Government Securities
Fund
--------------------------
Class II
----------------------------
For the period
June 1, 1999*
through
September 30, 1999
----------------------------
Shares Amount
------------- --------------
<S> <C> <C>
Shares sold..... 307,648 $ 2,581,378
Reinvested
dividends...... 923 7,755
Shares redeemed. (16,703) (140,473)
------------ --------------
Net increase.... 291,868 $ 2,448,660
============ ==============
</TABLE>
* Commencement of sale of respective class of shares
42
<PAGE>
SUNAMERICA INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- September 30, 1999 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Federal Securities Fund
---------------------------------------------------------------------------------------------------
Class A Class B
------------------------------------------------ -------------------------------------------------
For the For the For the For the
six months ended year ended six months ended year ended
September 30, 1999 March 31, 1999 September 30, 1999 March 31, 1999
----------------------- ----------------------- ----------------------- ------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ----------- ---------- ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold.......... 1,078,867 $11,331,156 973,487 $10,707,321 577,874 $ 6,091,799 1,277,925 $ 14,167,962
Reinvested dividends. 65,614 687,283 222,232 2,436,734 38,367 403,291 144,050 1,582,721
Shares redeemed...... (589,988) (6,187,253) (712,743) (7,892,874) (654,291) (6,884,353) (693,466) (7,686,412)
---------- ----------- ---------- ----------- ---------- ----------- ---------- ------------
Net increase
(decrease).......... 554,493 $ 5,831,186 482,976 $ 5,251,181 (38,050) $ (389,263) 728,509 $ 8,064,271
========== =========== ========== =========== ========== =========== ========== ============
<CAPTION>
Federal Securities
Fund
-----------------------
Class II
-----------------------
For the period
June 1, 1999*
through
September 30, 1999
-----------------------
Shares Amount
---------- -----------
<S> <C> <C>
Shares sold.......... 63,834 $ 668,601
Reinvested dividends. 307 3,201
Shares redeemed...... (1,848) (19,297)
---------- -----------
Net increase......... 62,293 $ 652,505
========== ===========
<CAPTION>
Diversified Income Fund
---------------------------------------------------------------------------------------------------
Class A Class B
------------------------------------------------ -------------------------------------------------
For the For the For the For the
six months ended year ended six months ended year ended
September 30, 1999 March 31, 1999 September 30, 1999 March 31, 1999
----------------------- ----------------------- ----------------------- ------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ----------- ---------- ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold.......... 1,784,674 $ 6,812,335 3,989,403 $15,974,448 599,164 $ 2,293,433 1,892,787 $ 7,937,250
Reinvested dividends. 204,223 780,345 365,889 1,490,168 225,764 865,555 615,323 2,538,684
Shares redeemed...... (1,369,015) (5,236,231) (2,435,211) (9,859,556) (2,582,018) (9,889,027) (6,554,005) (26,364,632)
---------- ----------- ---------- ----------- ---------- ----------- ---------- ------------
Net increase
(decrease).......... 619,882 $ 2,356,449 1,920,081 $ 7,605,060 (1,757,090) $(6,730,039) (4,045,895) $(15,888,698)
========== =========== ========== =========== ========== =========== ========== ============
<CAPTION>
Diversified Income
Fund
-----------------------
Class II
-----------------------
For the period
June 1, 1999*
through
September 30, 1999
-----------------------
Shares Amount
---------- -----------
<S> <C> <C>
Shares sold.......... 77,491 $ 295,727
Reinvested dividends. 1,856 6,982
Shares redeemed...... -- --
---------- -----------
Net increase......... 79,347 $ 302,709
========== ===========
</TABLE>
* Commencement of sale of respective class of shares
43
<PAGE>
SUNAMERICA INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- September 30, 1999 (unaudited) -- (continued)
<TABLE>
<CAPTION>
High Income Fund
-------------------------------------------------------------------------------------------------------
Class A Class B
-------------------------------------------------- ---------------------------------------------------
For the For the For the For the
six months ended year ended six months ended year ended
September 30, 1999 March 31, 1998 September 30, 1999 March 31, 1998
------------------------ ------------------------ ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 2,593,538 $ 16,925,102 6,086,279 $ 42,445,367 3,903,491 $ 25,589,158 13,399,499 $ 91,660,779
Reinvested
dividends...... 295,291 1,931,592 525,820 3,659,806 411,246 2,698,352 829,858 5,809,350
Shares redeemed. (3,611,869) (23,596,864) (3,324,718) (23,428,228) (8,579,256) (56,067,681) (11,559,609) (82,094,160)
---------- ------------ ---------- ------------ ---------- ------------ ----------- ------------
Net increase
(decrease)..... (723,040) $ (4,740,170) 3,287,381 $ 22,676,945 (4,264,519) $(27,780,171) 2,669,748 $ 15,375,969
========== ============ ========== ============ ========== ============ =========== ============
<CAPTION>
High Income Fund
--------------------------------------------------
Class II
--------------------------------------------------
For the For the
six months ended year ended
September 30, 1999 March 31, 1999
------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold..... 1,614,130 $ 10,540,550 1,554,031 $ 10,802,791
Reinvested
dividends...... 40,555 264,916 38,156 258,431
Shares redeemed. (1,064,046) (6,874,698) (218,224) (1,519,068)
---------- ------------ ---------- ------------
Net increase.... 590,639 $ 3,930,768 1,373,963 $ 9,542,154
========== ============ ========== ============
<CAPTION>
Tax Exempt Insured Fund
-------------------------------------------------------------------------------------------------------
Class A Class B
-------------------------------------------------- ---------------------------------------------------
For the For the For the For the
six months ended year ended six months ended year ended
September 30, 1999 March 31, 1999 September 30, 1999 March 31, 1998
------------------------ ------------------------ ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 119,427 $ 1,528,081 290,778 $ 3,833,108 125,551 $ 1,584,373 328,049 $ 4,319,836
Reinvested
dividends...... 69,589 883,317 142,103 1,866,608 15,861 201,518 37,664 494,763
Shares redeemed. (450,054) (5,692,015) (1,046,604) (13,732,604) (269,346) (3,425,992) (463,939) (6,104,868)
---------- ------------ ---------- ------------ ---------- ------------ ----------- ------------
Net decrease.... (261,038) $ (3,280,617) (613,723) $ (8,032,888) (127,934) $ (1,640,101) (98,226) $ (1,290,269)
========== ============ ========== ============ ========== ============ =========== ============
<CAPTION>
Tax Exempt Insured
Fund
------------------------
Class II
------------------------
For the period
June 1, 1999*
through
September 30, 1999
------------------------
Shares Amount
---------- ------------
<S> <C> <C>
Shares sold..... 25,562 $ 324,283
Reinvested
dividends...... 172 2,152
Shares redeemed. (1,404) (17,801)
---------- ------------
Net increase.... 24,330 $ 308,634
========== ============
</TABLE>
* Commencement of sale of respective class of shares
44
<PAGE>
SUNAMERICA INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- September 30, 1999 (unaudited) -- (continued)
Note 7. Commitments and Contingencies
The SunAmerica Family of Mutual Funds has established an uncommitted line of
credit with the State Street Bank and Trust Company, the Funds' custodian,
with interest payable at the Federal Funds rate plus 100 basis points with
respect to the U.S. Government Securities Fund and Federal Securities Fund,
and Federal Funds rate plus 125 basis points with respect to the Diversified
Income Fund and the High Income Fund. Borrowings under the line of credit
will commence when the Fund's cash shortfall exceeds $100,000. During the
six months ended September 30, 1999, High Income Fund had borrowings
outstanding for 79 days under the line of credit and incurred $32,542 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 was $2,481,191
at a weighted average interest of 6.00%. The Funds did not have any
outstanding borrowings at September 30, 1999.
Note 8. 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, 1999, U.S. Government Securities Fund, Federal Securities Fund,
Diversified Income Fund, High Income Fund and Tax Exempt Insured Fund had
accrued $87,547, $10,406, $19,761, $27,393 and $23,969, respectively, for
the Retirement Plan, which is included in accrued expenses on the Statement
of Assets and Liabilities and for the six months ended September 30, 1999
expensed $4,081, $862, $1,074, $2,939 and $1,609, respectively, for the
Retirement Plan, which is included in Trustees' fees and expenses on the
Statement of Operations.
45
<PAGE>
[This page intentionally left blank]
<PAGE>
[LOGO OF SUNAMERICA]
---------------
Bulk Rate
U.S. Postage
PAID
Kansas City, MO
Permit No. 2891
---------------
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Trustees
S. James Coppersmith
Samuel M. Eisenstat
Stephen J. Gutman
Peter A. Harbeck
Sebastiano Sterpa
Officers
Peter A. Harbeck, President
Michael Cheah, Vice President
James T. McGrath, Vice President
John Risner, Vice President
Robert M. Zakem, Secretary
Peter C. Sutton, Treasurer
John T. Genoy, Assistant Treasurer
Donna M. Handel, Assistant Treasurer
Cheryl L. Hawthorne, Assistant Treasurer
Peter E. Pisapia, Assistant Secretary
Abbe P. Stein, Assistant Secretary
Investment Adviser
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Distributor
SunAmerica Capital Services, Inc.
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Shareholder Servicing Agent
SunAmerica Fund Services, Inc.
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Custodian and Transfer Agent
State Street Bank and Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
This report is submitted solely for the general information of shareholders of
the Fund. Distribution of this report to persons other than shareholders of the
Fund is authorized only in connection with a currently effective prospectus,
setting forth details of the Fund, which must precede or accompany this report.
The accompanying report has not been examined by independent accountants and
accordingly no opinion has been expressed thereon.
Distributed by:
SunAmerica Capital Services, Inc.
AIG Member of American International Group, Inc.
