<PAGE>
June 1, 1999 PROSPECTUS
SUNAMERICA INCOME FUNDS
[SUNAMERICA LOGO APPEARS HERE]
SunAmerica U.S. Government Securities Fund
[SUNAMERICA LOGO APPEARS HERE]
SunAmerica Federal Securities Fund
[SUNAMERICA LOGO APPEARS HERE]
SunAmerica Diversified Income Fund
[SUNAMERICA LOGO APPEARS HERE]
SunAmerica High Income Fund
[SUNAMERICA LOGO APPEARS HERE]
SunAmerica Tax Exempt Insured Fund
The Securities and
Exchange Commission has
not approved or
disapproved these
securities or passed
upon the adequacy of
this prospectus. Any
representation to the
contrary is a criminal
offense.
[SUNAMERICA MUTUAL FUNDS
LOGO APPEARS HERE]
<PAGE>
Table of Contents
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<TABLE>
<S> <C>
FUND HIGHLIGHTS........................................ 2
FINANCIAL HIGHLIGHTS................................... 11
SHAREHOLDER ACCOUNT INFORMATION........................ 14
MORE INFORMATION ABOUT THE FUNDS....................... 22
Fund Investment Strategies........................... 22
Glossary............................................. 24
Investment Terminology.............................. 24
Risk Terminology.................................... 25
FUND MANAGEMENT........................................ 26
</TABLE>
[SUNAMERICA MUTUAL FUNDS
LOGO APPEARS HERE]
<PAGE>
Fund Highlights
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Q&A
The strategy of
"fixed income
investing" in
which each Fund
engages includes
utilizing
economic research
and analysis of
current economic
conditions,
potential
fluctuations in
interest rates,
and, where
relevant--
particularly with
respect to the
issuers of high-
yield, high-risk
bonds--the
strength of the
underlying
issuer. Each Fund
will utilize this
strategy to
achieve current
income, as
consistent with
its stated level
of risk, as
described in the
chart.
Duration is a
measure of the
volatility or
sensitivity of a
bond's market
value to changes
in interest
rates. Generally,
the higher the
duration, the
more sensitive a
bond's market
value will be to
interest rate
changes.
The Tax Exempt
Insured Fund's
policy of
investing 80% of
its total assets
in municipal
bonds, the income
of which is
exempt from
federal income
taxes, is a
fundamental
policy of the
Fund, which may
not be changed
without the
approval of the
Fund's
shareholders.
The following questions and answers are designed to give you an overview of the
Trust, and to provide you with information about the Trust's five investment
portfolios, or "Funds," and their investment goals and principal strategies. No
goal may be changed without shareholder approval. There can be no assurance
that any Fund's investment goal will be met or that the net return on an in-
vestment will exceed what could have been obtained through other investment or
savings vehicles. More complete investment information is provided in chart
form, under "More Information About the Funds," which is on page 22, and the
glossary that follows on page 24.
Q: What are the Funds' investment goals, strategies and techniques?
A:
<TABLE>
<CAPTION>
Principal
Investment Investment Principal Investment
Fund Goal Strategy Techniques
<C> <C> <C> <S>
U.S. Government high current fixed invests primarily in
Securities Fund income income securities of high credit
consistent investing quality and relatively low
with duration issued or guaranteed
relative by the U.S. government, or any
safety of agency or instrumentality
capital thereof
Federal Securities Fund current fixed invests primarily in
income, with income securities of high credit
capital investing quality and relatively high
appreciation duration issued or guaranteed
as a by the U.S. government, or any
secondary agency or instrumentality
objective thereof, with a significant
portion invested in mortgage-
backed securities
Diversified Income Fund a high level fixed invests in a diversified
of current income portfolio of securities
income investing consisting of: (i) U.S.
consistent government securities; (ii)
with foreign government and
moderate corporate debt securities; and
investment (iii) fixed income securities
risk, with issued by domestic
preservation corporations, including lower-
of capital rated high-yield securities
as a and securities with varying
secondary credit quality, without regard
objective to the maturities of such
securities
High Income Fund maximum fixed invests primarily in high-
current income yield, high-risk corporate
income investing bonds generally with
relatively low duration
Tax Exempt Insured Fund as high a fixed invests, under normal market
level of income conditions, at least 80% of
current investing its total assets in municipal
income bonds, the income of which is
exempt from exempt from federal income
federal taxes, and at least 65% of its
income taxes total assets in municipal
as is bonds that, in addition to
consistent having income exempt from
with federal income tax, are
preservation insured as to the scheduled
of capital payment of principal and
interest for as long as such
bonds are held by the Fund,
without regard to the
maturities of such securities
</TABLE>
2
<PAGE>
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Q:What are the principal risks of investing in the Funds?
A: The following section describes the principal risks of each Fund, while the
chart on page 22 describes various additional risks.
Risks of Investing in Bonds
The bond market as a whole could go up or down (sometimes dramatically).
Interest rates and bond prices typically move inversely to each other,
therefore, as with any bond fund, the value of your investment in these
Funds may go up or down in response to changes in interest rates. Also, de-
faults (or even the potential for future default) by bond issuers may cause
the value of your investment in these Funds to go up or down.
Additional Principal Risks
In addition, shares of the Funds are not bank deposits and are not guaran-
teed or insured by any bank, government entity or the Federal Deposit In-
surance Corporation. Also, securities selected by a portfolio manager may
fail to produce the intended return. As with any mutual fund, there is no
guarantee that any fund will be able to achieve its investment goals. If
the value of the assets of the Fund goes down, you could lose money.
Additional Risks Specific to the Diversified Income, High Income and Tax
Exempt Insured Funds
The Diversified Income, High Income and Tax Exempt Insured Funds will in-
vest in bonds with various credit ratings. The creditworthiness of the is-
suer is always a factor in analyzing fixed income securities. An issuer
with a lower credit rating will be more likely than a higher rated issuer
to default or otherwise become unable to honor its financial obligations.
Additional Risks Specific to the Diversified Income and High Income Funds
The Diversified Income Fund may, and the High Income Fund will, invest in
"junk bonds," which are considered speculative. While SunAmerica seeks to
diversify the Fund and to engage in a credit analysis of each junk bond is-
suer in which it invests, junk bonds carry a substantial risk of default or
they may already be in default. The market price for junk bonds may fluctu-
ate more than higher-quality securities and may decline significantly. In
addition, it may be more difficult for a Fund to dispose of junk bonds or
to determine their value. Junk bonds may contain redemption or call provi-
sions that, if exercised during a period of declining interest rates, may
force a Fund to replace the security with a lower yielding security, which
would decrease the return on such Fund.
Additional Risks Specific to the Federal Securities Fund
The Federal Securities Fund will invest significantly in mortgage-backed
securities, which entails the risk that the underlying principal may be
"prepaid" at any time. As a result of prepayments, in periods of declining
interest rates the Fund may be required to reinvest its assets in securi-
ties with lower interest rates. In periods of increasing interest rates,
prepayments generally may decline, with the effect that the securities sub-
ject to prepayment risk held by the Fund may exhibit price characteristics
of longer-term debt securities.
Q:How have the Funds performed historically?
A: The following Risk/Return Bar Charts and Tables illustrate the risks of in-
vesting in the Funds by showing changes in the Funds' performance from cal-
endar year to calendar year, and compare the Funds' average annual returns
to those of an appropriate market index. Sales charges are not reflected in
the bar charts. If these amounts were reflected, returns would be less than
those shown. Of course, past performance is not necessarily an indication of
how a Fund will perform in the future.
3
<PAGE>
Fund Highlights
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U.S. GOVERNMENT SECURITIES FUND (Class B)
[BAR GRAPH]
8.28% 9.01% 9.87% 5.26% 4.39% -1.37% 14.88% 2.34% 7.21% 6.07%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
During the 10-year period shown in
the bar chart, the highest return
for a quarter was 4.56% (quarter
ended 12/31/95) and the lowest
return for a quarter was -1.84%
(quarter ended 3/31/96). The year-
to-date return as of 3/31/99 was -
1.16%.
<TABLE>
<CAPTION>
Return Past Ten
Average Annual Total Returns Years/Since Inception*
(as of Past Ten
the calendar year ended Past One Past Five Years/Since Lehman Brothers
December 31, 1998) Year Years Inception* Government Index***
<S> <C> <C> <C> <C> <C>
U.S. Government
Securities Fund** Class A 1.78% 5.36% 5.15% 6.84%
Class B 2.07% 5.37% 6.51% 9.21%
Lehman Brothers
Government Index*** 9.84% 7.27% See Above
</TABLE>
*Inception Date: Class A: 10/1/93; Class B: 3/3/86
**Includes sales charges.
***The Lehman Brothers Government Index is a broad index composed solely of
U.S. Treasury Securities maturing from 1-30 years. The index is derived from
1,970 securities.
FEDERAL SECURITIES FUND (Class B)
[BAR GRAPH]
12.01% 9.55% 14.35% 4.37% 2.44% -1.64% 17.30% 3.47% 9.47% 7.89%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
During the 10-year period shown in
the bar chart, the highest return
for a quarter was 6.75% (quarter
ended 6/30/89) and the lowest
return for a quarter was -1.91%
(quarter ended 3/31/96). The year-
to-date return as of 3/31/99 was -
0.88%.
<TABLE>
<CAPTION>
Return Past Ten
Years/Since Inception*
Average Annual Total Returns Past Ten
(as of the calendar year ended Past One Past Five Years/Since Salomon Brothers
December 31, 1998) Year Years Inception* GNMA Index***
<S> <C> <C> <C> <C> <C>
Federal Securities
Fund** Class A 3.44% 6.71% 6.32% 7.11%
Class B 3.89% 6.81% 7.78% 9.27%
Salomon Brothers GNMA
Index*** 6.82% 7.30% See Above
</TABLE>
*Inception Date: Class A: 10/1/93; Class B: 4/25/83
**Includes sales charges.
***The Salomon Brothers GNMA Index is comprised of 126 issues of 15 and 30-year
fixed-rate pass-through mortgage-backed securities.
4
<PAGE>
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DIVERSIFIED INCOME FUND (Class B)
[BAR GRAPH]
3.97% -0.27% 14.39% -8.93% 11.95% 12.44% 9.45% -6.73%
1991 1992 1993 1994 1995 1996 1997 1998
During the 8-year period shown in
the bar chart, the highest return
for a quarter was 5.93% (quarter
ended 3/31/93) and the lowest
return for a quarter was -12.74%
(quarter ended 9/30/98). The year-
to-date return as of 3/31/99 was
1.60%.
<TABLE>
<CAPTION>
Return Since Inception*
Average Annual Total Returns Past One Past Five Since Lehman JP Morgan Merrill Lynch
(as of the calendar year ended Year Years Inception* Brothers Global High Yield
December 31, 1998) Government Government Master II
Index*** Bond Index**** Index*****
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Diversified Income
Fund** Class A -10.65% 2.82% 3.09% 6.84% 8.11% 9.56%
Class B -10.73% 2.84% 4.32% 8.65% 9.72% 12.88%
Lehman Brothers
Government Index*** 9.84% 7.27% See Above
JP Morgan Global
Government Bond
Index**** 15.30% 8.48% See Above
Merrill Lynch High Yield
Master II Index***** 3.87% 9.31% See Above
</TABLE>
*Inception Date: Class A: 10/5/93; Class B: 4/6/91
**Includes sales charges.
***The Lehman Brothers Government Index is a broad index composed solely of
U.S. Treasury Securities with maturities ranging from 1-30 years. The index
is derived from 1,970 securities.
****The JP Morgan Global Government Bond Index is comprised of 514 issues from
13 countries including the U.S., U.K., Japan, Germany and Canada.
*****The Merrill Lynch High Yield Master II Index is an index composed solely
of high yield bonds. The index is derived from 1,085 bonds.
5
<PAGE>
Fund Highlights
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HIGH INCOME FUND (Class A)
[BAR GRPAH]
- -4.38% -7.08% 36.59% 20.92% 17.05% -8.98% 13.15% 15.46% 13.98% -5.68%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
During the 10-year period shown in
the bar chart, the highest return
for a quarter was 12.30% (quarter
ended 3/31/91) and the lowest
return for a quarter was -9.89%
(quarter ended 9/30/98). The year-
to-date return as of 3/31/99 was
4.02%.
<TABLE>
<CAPTION>
Return Past Ten
Years/Since Inception*
Average Annual Total Returns Past One Past Five Past Ten Merrill Lynch High
(as of the calendar year ended Year Years Years/Since Yield Master II
December 31, 1998) Inception* Index***
<S> <C> <C> <C> <C> <C> <C>
High Income Fund** Class A 10.16% 4.02% 7.66% 11.28%
Class B 10.23% 4.12% 4.83% 9.56%
Merrill Lynch High Yield
Master II Index*** 3.87% 9.31% See Above See Above
</TABLE>
*Inception Date: Class A: 9/19/86; Class B: 10/1/93; Class II: 2/2/98 (There is
no relevant performance information to supply for Class II shares because Class
II shares have not been in existence for a complete calendar year.)
**Includes sales charges.
***The Merrill Lynch High Yield Master II Index is an index composed solely of
high yield bonds. The index is derived from 1,085 bonds.
TAX EXEMPT INSURED FUND (Class A)
[BAR GRAPH]
8.08% 5.81% 8.67% 6.59% 7.85% -3.99% 15.66% 3.33% 8.63% 5.55%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
During the 10-year period shown in
the bar chart, the highest return
for a quarter was 6.07% (quarter
ended 3/31/95) and the lowest
return for a quarter was -4.80%
(quarter ended 3/31/94). The year-
to-date return as of 3/31/99 was -
0.12%.
<TABLE>
<CAPTION>
Return Past Ten
Years/Since Inception*
Average Annual Total Returns Past Ten Lehman Brothers
(as of the calendar year ended Past One Past Five Years/Since Municipal Bond
December 31, 1998) Year Years Inception* Index***
<S> <C> <C> <C> <C> <C> <C>
Tax Exempt Insured
Fund** Class A 0.54% 4.62% 6.00% 8.22%
Class B 0.86% 4.58% 4.51% 6.21%
Lehman Brothers
Municipal Bond
Index*** 6.48% 6.23% See Above See Above
</TABLE>
*Inception Date: Class A: 11/22/85; Class B: 10/4/93
**Includes sales charges.
***The Lehman Brothers Municipal Bond Index is a broad market performance
benchmark for the tax-exempt bond market. It is currently derived from
approximately 40,000 issues.
6
<PAGE>
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(THIS PAGE INTENTIONALLY LEFT BLANK)
7
<PAGE>
Fund Highlights
- --------------------------------------------------------------------------------
Q:What are the Funds' expenses?
A:The following table describes the fees and expenses that you may pay if you
buy and hold shares of the Funds.
<TABLE>
<CAPTION>
U.S. Government Securities Federal Securities
Fund Fund
-------------------------- ------------------
Class A Class B Class II Class A Class B Class II
-------- -------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Fees
(fees paid
directly from your investment)
Maximum Sales
Charge (Load)
Imposed on
Purchases (as a percentage
of offering
price)(/2/) 4.75% None 1.00% 4.75% None 1.00%
Maximum
Deferred Sales
Charge (Load)
(as a
percentage of
amount
redeemed)(/3/) None 4.00% 1.00% None 4.00% 1.00%
Maximum Sales
Charge (Load)
Imposed on
Reinvested
Dividends None None None None None None
Redemption
Fee(/4/) None None None None None None
Exchange Fee None None None None None None
Maximum Account
Fee None None None None None None
Annual Fund
Operating
Expenses
(expenses that
are deducted
from Fund
assets)
Management Fees 0.74% 0.74% 0.74% 0.52% 0.52% 0.52%
Distribution
(12b-1)
Fees(/5/) 0.35% 1.00% 1.00% 0.35% 1.00% 1.00%
Other Expenses 0.41% 0.41% 2.76% 0.54% 0.55% 2.98%
Total Annual
Fund Operating
Expenses 1.50% 2.15% 4.50%(/6/) 1.41% 2.07% 4.50%(/6/)
Expense
Reimbursement(/7/) -- -- (2.30%) -- -- (2.40%)
Net Expenses 1.50% 2.15% 2.20% 1.41% 2.07% 2.10%
</TABLE>
(1) Previously designated Class C shares.
(2) The front-end sales charge on Class A shares decreases with the size of the
purchase to 0% for purchases of $1 million or more.
(3) Purchases of Class A shares over $1 million will be subject to a contingent
deferred sales charge (CDSC) on redemptions made within one year of pur-
chase. The CDSC on Class B shares applies only if shares are redeemed
within six years of their purchase. The CDSC on Class II shares applies
only if shares are redeemed within eighteen months of their purchase.
(4) A $15.00 fee may be imposed on wire redemptions.
(5) Because these fees are paid out of a Portfolio's assets on an on-going ba-
sis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
8
<PAGE>
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<TABLE>
<CAPTION>
Diversified Income High Income Tax Exempt Insured
Fund Fund Fund
------------------ ----------- ------------------
Class A Class B Class II Class A Class B Class II(/1/) Class A Class B Class II
- ------- ------- -------- ------- ------- ------------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4.75% None 1.00% 4.75% None 1.00% 4.75% None 1.00%
None 4.00% 1.00% None 4.00% 1.00% None 4.00% 1.00%
None None None None None None None None None
None None None None None None None None None
None None None None None None None None None
None None None None None None None None None
0.65% 0.65% 0.65% 0.75% 0.75% 0.75% 0.50% 0.50% 0.50%
0.35% 1.00% 1.00% 0.35% 1.00% 1.00% 0.35% 1.00% 1.00%
0.46% 0.44% 2.85% 0.41% 0.38% 0.83% 0.39% 0.41% 3.00%
1.46% 2.09% 4.50%(/6/) 1.51% 2.13% 2.58% 1.24% 1.91% 4.50%(/6/)
-- -- (2.35%) -- -- (0.48%) -- -- (2.55%)
1.46% 2.09% 2.15% 1.51% 2.13% 2.10% 1.24% 1.91% 1.95%
</TABLE>
(6) The offering of Class II shares commenced for these Funds on December 1,
1998. The amounts shown are estimated based on expenses expected to have
been incurred if Class II shares had been in existence for these Funds
throughout the fiscal year ended March 31, 1999.
(7) The Board of Directors, including a majority of the Independent Directors,
approved the Investment Advisory and Management Agreement subject to the
net expense ratio set forth above. The Adviser may not increase such ra-
tios, which are contractually required by agreement with the Board of Di-
rectors, without the approval of the Directors, including a majority of the
Independent Directors. The expense waivers and fee reimbursements will con-
tinue indefinitely, subject to termination by the Directors, including a
majority of the Independent Directors.
9
<PAGE>
Fund Highlights
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EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in a Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions and the net expenses shown in
the fee table your costs would be:
If you redeem your investment at the end of the periods indicated:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
U.S. Government Securities Fund
(Class A shares)............................... $620 $927 $1,255 $2,180
(Class B shares)*.............................. 618 973 1,354 2,240
(Class II shares).............................. 421 781 1,268 2,609
Federal Securities Fund
(Class A shares)............................... 612 900 1,209 2,086
(Class B shares)*.............................. 610 949 1,314 2,152
(Class II shares).............................. 411 751 1,218 2,507
Diversified Income Fund
(Class A shares)............................... 617 915 1,235 2,138
(Class B shares)*.............................. 612 955 1,324 2,185
(Class II shares).............................. 416 766 1,243 2,558
High Income Fund
(Class A shares)............................... 621 930 1,260 2,191
(Class B shares)*.............................. 616 697 1,344 2,231
(Class II shares).............................. 411 751 1,218 2,507
Tax Exempt Insured Fund
(Class A shares)............................... 595 850 1,124 1,904
(Class B shares)*.............................. 594 900 1,232 1,977
(Class II shares).............................. 396 706 1,142 2,352
You would pay the following expenses if you did not redeem your shares:
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
U.S. Government Securities Fund
(Class A shares)............................... $620 $927 $1,255 $2,180
(Class B shares)*.............................. 218 673 1,154 2,240
(Class II shares).............................. 321 781 1,268 2,609
Federal Securities Fund
(Class A shares)............................... 612 900 1,209 2,086
(Class B shares)*.............................. 210 649 1,114 2,152
(Class II shares).............................. 311 751 1,218 2,507
Diversified Income Fund
(Class A shares)............................... 617 915 1,235 2,138
(Class B shares)*.............................. 212 655 1,124 2,185
(Class II shares).............................. 316 766 1,243 2,558
High Income Fund
(Class A shares)............................... 621 930 1,260 2,191
(Class B shares)*.............................. 216 667 1,144 2,231
(Class II shares).............................. 311 751 1,218 2,507
Tax Exempt Insured Fund
(Class A shares)............................... 595 850 1,124 1,904
(Class B shares)*.............................. 194 600 1,032 1,977
(Class II shares).............................. 296 706 1,142 2,352
</TABLE>
10
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The Financial Highlights table for each Fund is intended to
help you understand the Fund's financial performance for the
past 5 years. Certain information reflects financial results
for a single Fund share. The total returns in each table repre-
sent the rate that an investor would have earned (or lost) on
an investment in a Fund (assuming reinvestment of all dividends
and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with each
Fund's financial statements, are included in the Trust's annual
report to shareholders, which is available upon request.
U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
Net
gain (loss)
on Invest-
Net Asset ments (both Dividends Net Asset Net Assets Ratio of
Value, Net realized Total from from net Value, end of expenses
Period beginning Investment and Investment Investment end of Total Period to average
Ended of period Income(/1/) unrealized) Operations Income period Return(/2/) (000's) net assets
- ------ --------- ----------- ----------- ---------- ---------- --------- ----------- ---------- ----------
Class A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3/31/95........, $8.39 $0.61 $(0.30) $0.31 $(0.47) $8.23 3.89% $ 73,999 1.46%(/3/)
3/31/96......... 8.23 0.62 0.16 0.78 (0.51) 8.50 9.62 125,504 1.44(/3/)
3/31/97......... 8.50 0.59 (0.26) 0.33 (0.48) 8.35 3.98 113,171 1.54(/3/)
3/31/98......... 8.35 0.58 0.21 0.79 (0.48) 8.66 9.62 97,496 1.63
3/31/99......... 8.68 0.49 (0.07) 0.42 (0.43) 8.65 4.91 135,734 1.50
<CAPTION>
Class B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3/31/95......... $8.39 $0.56 $(0.30) $0.26 $(0.41) $8.24 3.25% $594,779 2.15%(/3/)
3/31/96......... 8.24 0.55 0.17 0.72 (0.45) 8.51 8.87 428,772 2.13
3/31/97......... 8.51 0.54 (0.26) 0.28 (0.43) 8.36 3.31 289,040 2.18
3/31/98......... 8.38 0.52 0.20 0.72 (0.42) 8.66 8.80 207,950 2.26
3/31/99......... 8.66 0.45 (0.09) 0.36 (0.37) 8.65 4.25 113,521 2.15
<CAPTION>
Ratio of net
Investment
Income
Period to average Portfolio
Ended net assets Turnover
- ------ --------------- ---------
<S> <C> <C>
3/31/95........, 7.50%(/3/) 105%
3/31/96......... 7.11(/3/) 142
3/31/97......... 7.01(/3/) 148
3/31/98......... 6.73 229
3/31/99......... 5.72 291
<CAPTION>
<S> <C> <C>
3/31/95......... $6.80(/3/) 105%
3/31/96......... 6.46 142
3/31/97......... 6.36 148
3/31/98......... 6.11 229
3/31/99......... 5.10 291
</TABLE>
- --------------------------------------------------------------------------------
FEDERAL SECURITIES FUND
<TABLE>
<CAPTION>
Net
gain (loss)
on Invest- Total Dividends Distri-
Net Asset Net ments (both from from net butions Net Asset Net Assets
Value, Invest- realized Invest- Invest- from Total Value, end of
Period beginning ment and ment ment capital distri- end of Total 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) -- (0.58) 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
<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
<CAPTION>
Ratio of net
Investment
Ratio of Income
expenses to
Period to average average Portfolio
Ended net assets net assets Turnover
- ------ ------------- -------------- ---------
<S> <C> <C> <C>
3/31/95......... 1.40%(/3/) 6.90%(/3/) 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
<CAPTION>
<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
</TABLE>
- ----
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
3/31/95 3/31/96 3/31/97
------- ------- -------
<S> <C> <C> <C>
U.S. Government Securities Fund Class A............ .07% .04% .01%
U.S. Government Securities Fund Class B............ .03% -- --
Federal Securities Fund Class A.................... 1.26% -- --
</TABLE>
11
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
Net
gain (loss)
on Invest- Net Ratio of net
Net Asset ments (both Dividends Asset Net Assets Ratio of Investment
Value, Net realized Total from from net Value, end of expenses Income
beginning Investment and Investment Investment end of Total period to average to average
Period Ended of period Income(/1/) unrealized) operations Income period Return(/2/) (000's) net assets net assets
- ------------ --------- ----------- ----------- ---------- ---------- ------ ----------- ---------- ---------- ------------
Class A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3/31/95......... $4.79 $0.43 $(0.66) $(0.23) $(0.42) $4.14 (5.10)% $ 14,213 1.59% 9.58%
3/31/96......... 4.14 0.39 0.16 0.55 (0.40) 4.29 13.78 16,762 1.46 8.96
3/31/97......... 4.29 0.37 0.10 0.47 (0.37) 4.39 11.43 22,601 1.42 8.68
3/31/98......... 4.39 0.40 0.27 0.67 (0.38) 4.68 15.84 25,517 1.45 8.83
3/31/99......... 4.68 0.40 (0.08) (0.40) (0.42) 3.86 (8.75) 28,470 1.46 9.84
<CAPTION>
Class B
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3/31/95......... $4.79 $0.40 (0.65) $(0.25) $(0.39) $4.15 (5.46)% $132,378 2.12% 8.98%
3/31/96......... 4.15 0.36 0.17 0.53 (0.38) 4.30 13.09 110,949 2.06 8.42
3/31/97......... 4.30 0.35 0.10 0.45 (0.35) 4.40 10.73 78,081 2.04 8.05
3/31/98......... 4.40 0.38 0.26 0.64 (0.35) 4.69 15.11 63,397 2.06 8.14
3/31/99......... 4.69 0.39 (0.82) (0.43) (0.39) 3.87 (9.28) 36,629 2.09 9.22
<CAPTION>
Portfolio
Period Ended Turnover
- ------------ ---------
<S> <C>
3/31/95......... 160%
3/31/96......... 166
3/31/97......... 131
3/31/98......... 157
3/31/99......... 49
<CAPTION>
<S> <C>
3/31/95......... 160%
3/31/96......... 166
3/31/97......... 131
3/31/98......... 157
3/31/99......... 49
</TABLE>
- --------------------------------------------------------------------------------
HIGH INCOME FUND
<TABLE>
<CAPTION>
Net
gain (loss)
on Invest- Net
Net Asset ments (both Dividends Asset Net Assets Ratio of
Value, Net realized Total from from net Value, end of expenses
beginning Investment and Investment Investment end of Total period to average
Period Ended of period Income(/1/) unrealized) operations Income period Return(/2/) (000's) net assets
- ------------ --------- ----------- ----------- ---------- ---------- ------ ----------- ---------- ----------
Class A
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
Class B
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
Class II
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2/2/98-
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/)
<CAPTION>
Ratio of
net
Investment
Income
to average Portfolio
Period Ended net 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
<CAPTION>
<S> <C> <C>
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
<CAPTION>
<S> <C> <C>
2/2/98-
3/31/98(/3/)... 9.78%(/4/)(/5/) 236%
3/31/99......... 8.92(/5/) 120
</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 class of shares
(4) Annualized
(5) Net of the following expense reimbursements (based on average net as-
sets):
<TABLE>
<CAPTION>
3/31/95 3/31/96 3/31/97 3/31/98 3/31/99
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Diversified Income Fund
Class A................ -- -- -- -- --
High Income Fund Class
B...................... .08% .08% .01% -- --
High Income Fund Class
II..................... -- -- -- 5.37% 0.48%
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
TAX EXEMPT INSURED FUND
<TABLE>
<CAPTION>
Net gain
(loss) on Ratio of
Investments Net Net expenses Ratio of net
Net Asset (both Dividends Asset Assets to Investment
Value, Net realized Total from from net Value, end of average Income to
beginning Investment and Investment Investment end of Total Period net average
Period Ended of period Income(/1/) unrealized) Operations Income period Return(/2/) (000's) assets net assets
- ------------ --------- ----------- ----------- ---------- ---------- ------ ----------- -------- -------- ------------
Class A
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3/31/95......... $11.95 $0.63 $0.17 $0.80 $(0.62) $12.13 6.97% $137,955 1.20%(/3/) 5.32%(/3/)
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
<CAPTION>
Class B
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
Portfolio
Period Ended Turnover
- ------------ ---------
<S> <C> <C> <C>
3/31/95......... 162%
3/31/96......... 46
3/31/97......... 51
3/31/98......... 48
3/31/99......... 34
<CAPTION>
<S> <C> <C> <C>
3/31/95......... 162%
3/31/96......... 46
3/31/97......... 51
3/31/98......... 48
3/31/99......... 34
</TABLE>
- ------
(1) Calculated based upon average shares outstanding
(2) Total return is not annualized and does not reflect sales load
(3) Net of the following expense reimbursements (based on average net assets):
<TABLE>
<CAPTION>
3/31/95
-------
<S> <C>
Tax Exempt Insured Fund Class A...... .04%
</TABLE>
13
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
SELECTING A SHARE CLASS
Each Fund offers three classes of shares: Class A, Class B and Class II shares.
Each class of shares has its own cost structure, so you can choose the one best
suited to your investment needs. Your broker or financial advisor can help you
determine which class is right for you.
Class A Class B Class II
. Front-end sales . No front-end . Front-end sales
charges, as sales charge; charge, as
described below. all your money described below.
There are goes to work for
several ways to you right away. . Higher annual
reduce these . Higher annual expenses than
charges, also expenses than Class A shares.
described below. Class A shares.
. Lower annual . Deferred sales
expenses than charge on shares . Deferred sales
Class B or Class you sell within charge on shares
II shares. six years of you sell within
purchase, as eighteen months
described below. of purchase, as
described below.
. No conversion to
. Automatic Class A.
conversion to
Class A shares
after
approximately
one year after
such time that
no CDSC would be
payable upon
redemption, as
described below,
thus reducing
future annual
expenses.
CALCULATION OF SALES CHARGES
Class A Sales Charges are as follows:
<TABLE>
<CAPTION>
Concession to
Sales Charge Dealers
-------------------------------
% of % of Net % of
Offering Amount Offering
Your Investment Price Invested Price
-------------------------------
<S> <C> <C> <C>
Less than $100,000.............................. 4.75% 4.99% 4.00%
$100,000 but less than $250,000................. 3.75% 3.90% 3.00%
$250,000 but less than $500,000................. 3.00% 3.09% 2.25%
$500,000 but less than $1,000,000............... 2.10% 2.15% 1.35%
$1,000,000 or more.............................. None None 1.00%
</TABLE>
Investments of $1 million or more Class A shares are available with no front-
end sales charge. However, there is a 1% CDSC on any shares you sell within one
year of purchase.
Class B Shares are offered at their net asset value per share, without any ini-
tial sales charge. However, there is a CDSC on shares you sell within six years
of buying them. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
Class B deferred charges:
<TABLE>
<CAPTION>
Years after purchase CDSC on shares being sold
<S> <C>
1st or 2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
7th year and thereafter None
</TABLE>
For purposes of the CDSC, we count all purchases you make during a calendar
month as having been made on the FIRST day of that month.
Class II Sales Charges are as follows:
<TABLE>
<CAPTION>
Concession
Sales Charge to Dealers
---------------------------------------------------------------------------------------
% of % of Net % of
Offering Amount Offering
Price Invested Price
---------------------------------------------------------------------------------------
<S> <C> <C>
1.00% 1.01% 1.00%
</TABLE>
There is also a CDSC of 1% on shares you sell within eighteen months after you
buy them.
Determination of CDSC Each CDSC is based on the original purchase cost or the
current market value of the shares being sold, whichever is less. There is no
CDSC on shares you purchase through reinvestment of dividends. To keep your
CDSC as low as possible, each time you place a request to sell shares we will
first sell any shares in your account that are not subject to a CDSC. If there
are not enough of these shares available, we will sell shares that have the
lowest CDSC.
14
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Waivers for Certain Investors Various individuals and institutions may purchase
Class A shares without front-end sales charges, including:
. financial planners, institutions, broker-dealer representatives or regis-
tered investment advisers utilizing Fund shares in fee-based investment
products under an agreement with the Distributor (this waiver may also ap-
ply to front-end sales charges of Class II shares)
. participants in certain retirement plans that meet applicable conditions
. Trustees and other individuals who are affiliated with any Fund or other
SunAmerica Mutual Funds and their families
. selling brokers and their employees and sales representatives and their
families
. participants in "Net Asset Value Transfer Program"
We will generally waive the CDSC for Class B or Class II shares in the follow-
ing cases:
. within one year of the shareholder's death or becoming disabled
. taxable distributions or loans to participants made by qualified retire-
ment plans or retirement accounts (not including rollovers) for which
SunAmerica serves as fiduciary
. Trustees and other individuals who are affiliated with any Fund or other
SunAmerica Mutual Funds and their families
. to make taxable distributions from certain retirement plans
. to make payments through the Systematic Withdrawal Plan (subject to cer-
tain conditions)
. participants in "Net Asset Value Transfer Program"
Reducing your Class A sales charges There are several special purchase plans
that allow you to combine multiple purchases of Class A shares of SunAmerica
Mutual Funds to take advantage of the breakpoints in the sales charge schedule.
For information about the "Rights of Accumulation," "Letter of Intent," "Com-
bined Purchase Privilege," and "Reduced Sales Charges for Group Purchases,"
contact your broker or financial advisor, or consult the Statement of Addi-
tional Information.
To utilize: if you think you may be eligible for a sales charge reduction or
CDSC waiver, contact your broker or financial advisor.
Reinstatement privilege If you sell shares of a Fund, you may invest some or
all of the proceeds in the same share class of the same Fund within one year
without a sales charge. If you paid a CDSC when you sold your shares, we will
credit your account with the dollar amount of the CDSC at the time of sale. All
accounts involved must be registered in the same name(s).
12b-1 FEES
Each class of shares of each Fund has its own 12b-1 plan that provides for dis-
tribution and account maintenance and service fees (payable to the Distributor)
based on a percentage of average daily net assets, as follows:
<TABLE>
<CAPTION>
Account Maintenance and
Class Distribution Fee Service Fee
<S> <C> <C>
A 0.10% 0.25%
B 0.75% 0.25%
II 0.75% 0.25%
</TABLE>
Because 12b-1 fees are paid out of the Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
OPENING AN ACCOUNT
Read this prospectus carefully.
Determine how much you want to invest. The minimum initial investments for the
Funds are as follows:
. non-retirement account: $500
. retirement account: $250
. dollar cost averaging: $500 to open; you must invest at least $25 a month
The minimum subsequent investments for the Funds are as follows:
. non-retirement account: $100
. retirement account: $25
. Complete the appropriate parts of the Account Application, carefully fol-
lowing the instructions. If you have questions, please contact your broker
or financial advisor or call Shareholder/Dealer Services at 1-800-858-
8850.
. Complete the appropriate parts of the Supplemental Account Application. By
applying for additional investor services now, you can avoid the delay and
inconvenience of having to submit an additional application if you want to
add services later.
. Make your initial investment using the chart on the next page. You can
initiate any purchase, exchange or sale of shares through your broker or
financial advisor.
15
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
BUYING SHARES
Opening an account Adding to an account
By check
................................................................................
. Make out a check for the . Make out a check for the
investment amount, investment amount payable
payable to the specific to the specific Fund or
Fund or SunAmerica Funds. SunAmerica Funds.
. Deliver the check and . Include the stub from
your completed Account your Fund statement or a
Application (and note specifying the Fund
Supplemental Account name, your share class,
Application, if your account number and
applicable) to your the name(s) in which the
broker or financial account is registered.
advisor, or mail them to: . Indicate the Fund and
account number in the
memo section of your
check.
SunAmerica Fund Services, Inc.
Mutual Fund Operations, 3rd Floor
The SunAmerica Center . Deliver the check and
733 Third Avenue your note to your broker
New York, New York 10017-3204. or financial advisor, or
mail them to
Non-Retirement Accounts:
SunAmerica Fund Services,
Inc.
c/o NFDS
P.O. Box 419373
Kansas City, Missouri
64141-6373
Retirement Accounts:
SunAmerica Fund Services,
Inc.
Mutual Fund Operations, 3rd
Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-
3204
By wire
................................................................................
. Instruct your bank to
. Deliver your completed wire the amount of your
application to your investment to:
broker or financial
advisor or fax it to
SunAmerica Fund Services,
Inc. at 212-551-5585.
State Street Bank & Trust
Company
Boston, MA
. Obtain your account num- ABA #0110-00028
ber by referring to your DDA # 99029712
statement or by calling
your broker or financial
advisor or
Shareholder/Dealer Serv-
ices at 1-800-858-8850,
ext. 5125.
Specify the Fund name, your
share class, your Fund num-
ber, account number and the
name(s) in which the account
is registered. Your bank may
. Instruct your bank to charge a fee to wire funds.
wire the amount of your
investment to:
State Street Bank & Trust Company
Boston, MA
ABA #0110-00028
DDA # 99029712
Specify the Fund name, your
choice of share class, your
new Fund number and account
number and the name(s) in
which the account is regis-
tered. Your bank may charge a
fee to wire funds.
To open or add to an account using dollar cost averaging, see "Additional In-
vestor Services."
16
<PAGE>
- --------------------------------------------------------------------------------
SELLING SHARES
How Requirements
Through Your Broker or Financial Advisor
................................................................................
. Accounts of any type. . Call your broker or
. Sales of any amount. financial advisor to
place your order to sell
shares.
By mail
................................................................................
. Accounts of any type. . Write a letter of
. Sales of any amount. instruction indicating
the Fund name, your share
class, your account
number, the name(s) in
which the account is
registered and the dollar
value or number of shares
you wish to sell.
. Include all signatures
and any additional
documents that may be
required (see next page).
. A check will normally be
mailed on the next
business day to the
name(s) and address in
which the account is
registered, or otherwise
according to your letter
of instruction.
. Mail the materials to:
SunAmerica Fund Services,
Inc.
Mutual Fund Operations, 3rd
Floor
The SunAmerica Center
733 Third Avenue
New York, New York 10017-
3204
By phone
................................................................................
. Most accounts. . Call Shareholder/Dealer
. Sales of less than Services at 1-800-858-
$100,000. 8850 between 8:30 a.m.
and 7:00 p.m. (Eastern
time) on most business
days. State the Fund
name, the name of the
person requesting the
redemption, your share
class, your account
number, the name(s) in
which the account is
registered and the dollar
value or number of shares
you wish to sell.
. A check will be mailed to
the name(s) and address
in which the account is
registered, or to a dif-
ferent address indicated
in a written authoriza-
tion previously provided
to the Fund by the share-
holder(s) on the account.
By wire
................................................................................
. Request by mail to sell . Proceeds will normally be
any amount (accounts of wired on the next
any type). business day. A $15 fee
. Request by phone to sell will be deducted from
less than $100,000. your account.
To sell shares through a systematic withdrawal plan, see "Additional Investor
Services."
17
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. Corporations, executors, administrators,
trustees or guardians may need to include additional items with a request to
sell shares. You may also need to include a signature guarantee, which protects
you against fraudulent orders. You will need a signature guarantee if:
. your address of record has changed within the past 30 days
. you are selling more than $100,000 worth of shares
. you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
. a broker or securities dealer
. a federal savings, cooperative or other type of bank
. a savings and loan or other thrift institution
. a credit union
. a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for each Fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (generally 4:00 p.m., Eastern time) by dividing the net assets
of each class by the number of such class's outstanding shares. Investments for
which market quotations are readily available are valued at their price as of
the close of regular trading on the New York Stock Exchange for the day. All
other securities and assets for which market quotations are not readily avail-
able are valued at fair value following procedures approved by the Trustees.
Short-term investments that mature in less than 60 days are valued at amortized
cost if their original maturity was 60 days or less, or by amortizing their
value on the 61st day prior to maturity, if their original term exceeds 60 days
(unless the Trustees determine that amortized cost value does not represent
fair value, in which case, fair value will be determined as described above).
Buy and sell prices When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable CDSCs.
Execution of requests Each Fund is open on those days when the New York Stock
Exchange is open for regular trading. We execute buy and sell requests at the
next NAV to be calculated after the Trust receives your request in good order.
If the Trust or the Distributor receives your order before the Fund's close of
business (generally 4:00 p.m., Eastern time), you will receive that day's clos-
ing price. If the Trust or the Distributor receives your order after that time,
you will receive the next business day's closing price. If you place your order
through a broker or financial advisor, you should make sure the order is trans-
mitted to the Fund before its close of business. The Trust and the Distributor
reserve the right to reject any order to buy shares.
During periods of extreme volatility or market crisis, a Fund may temporarily
suspend the processing of sell requests, or may postpone payment of proceeds
for up to three business days or longer, as allowed by federal securities laws.
Each of the Diversified Income Fund and High Income Fund may invest to a large
extent in securities that are primarily listed on foreign exchanges that trade
on weekends or other days when such Fund does not price its shares. As a re-
sult, the value of the Fund's shares may change on days when you will not be
able to purchase or redeem your shares.
If the Trust determines that it would be detrimental to the best interests of
the remaining shareholders of the Trust to make payment of redemption proceeds
wholly or partly in cash, the Trust may pay the redemption price by a distribu-
tion in kind of securities from the Trust in lieu of cash. However, the Trust
has made an election that requires it to pay a certain portion of redemption
proceeds in cash.
Telephone transactions For your protection, telephone requests are recorded in
order to verify their accuracy. In addition, Shareholder/Dealer Services will
take measures to verify the identity of the caller, such as asking for name,
account number, social security or other taxpayer ID number and other relevant
information. If appropriate measures are not taken, the Trust is responsible
for any losses that may occur to any account due to an unauthorized telephone
call. Also for your protection, telephone transactions are not permitted on ac-
counts whose names or addresses have changed within the past 30 days. At times
of peak activity, it may be difficult to place requests by phone. During these
times, consider sending your request in writing.
Exchanges You may exchange shares of a Fund for shares of the same class of any
other SunAmerica Mutual Fund. Before making an exchange, you should review a
copy of the prospectus of the fund into which you would like to exchange. All
exchanges are subject to applicable minimum investment requirements. A System-
atic Exchange Program is described under "Additional Investor Services."
18
<PAGE>
- --------------------------------------------------------------------------------
If you exchange shares that were purchased subject to a CDSC, the CDSC will
continue to apply following the exchange. In determining the CDSC applicable to
shares being sold after an exchange, we will take into account the length of
time you held those shares prior to the exchange. Your CDSC schedule will not
change if you exchange Class C or Class II shares that you purchased prior to
December 1, 1998 for another portfolio or fund's Class II shares (which cur-
rently have a longer CDSC schedule).
To protect the interests of other shareholders, we may cancel the exchange
privileges of any investors that, in the opinion of the Fund, are using market
timing strategies or making excessive exchanges. A Fund may change or cancel
its exchange privilege at any time, upon 60 days' written notice to its share-
holders. A Fund may also refuse any exchange order.
Certificated shares. Most shares are electronically recorded. If you wish to
have certificates for your shares, please call Shareholder/Dealer Services at
1-800-858-8850 for further information. You may sell or exchange certificated
shares only by returning the certificates to the Funds, along with a letter of
instruction and a signature guarantee. The Funds do not issue certificates for
fractional shares.
Multi-party checks. The Trust may agree to accept a "multi-party check" in pay-
ment for Fund shares. This is a check made payable to the investor by another
party and then endorsed over to the Trust by the investor. If you use a multi-
party check to purchase shares, you may experience processing delays. In addi-
tion, the Trust is not responsible for verifying the authenticity of any en-
dorsement and assumes no liability for any losses resulting from a fraudulent
endorsement.
ADDITIONAL INVESTOR SERVICES
To select one or more of these additional services, complete the relevant
part(s) of the Supplemental Account Application. To add a service to an exist-
ing account, contact your broker or financial advisor, or call
Shareholder/Dealer Services at 1-800-858-8850.
Dollar Cost Averaging lets you make regular investments from your bank account
to the SunAmerica Mutual Funds of your choice. You determine the frequency and
amount of your investments, and you can terminate your participation at any
time.
Systematic Withdrawal Plan may be used for routine bill payment or periodic
withdrawals from your account. To use:
. Make sure you have at least $5,000 worth of shares in your account.
. Make sure you are not planning to invest more money in this account (buy-
ing shares during a period when you are also selling shares of the same
Fund is not advantageous to you, because of sales charges).
. Specify the payee(s) and amount(s). The payee may be yourself or any other
party, and there is no limit to the number of payees you may have, as long
as they are all on the same payment schedule. Each withdrawal must be at
least $50.
. Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
. Make sure your dividends and capital gains are being reinvested.
You cannot elect the systematic withdrawal plan if you have requested certifi-
cates for your shares.
Systematic Exchange Program may be used to exchange shares of a Fund periodi-
cally for the same class of shares of one or more other SunAmerica Mutual
Funds. To use:
. Specify the SunAmerica Mutual Fund(s) from which you would like money
withdrawn and into which you would like money invested.
. Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
. Specify the amount(s). Each exchange must be worth at least $25.
. Accounts must be registered identically; otherwise a signature guarantee
will be required.
Asset Protection Plan (optional) Anchor National Life Insurance Company offers
an Asset Protection Plan to certain investors in the Funds. The benefits of
this optional coverage payable at death will be related to the amounts paid to
purchase Fund shares and to the value of the Fund shares held for the benefit
of the insured persons. However, to the extent the purchased shares are re-
deemed prior to death, coverage with respect to these shares will terminate.
Purchasers of the Asset Protection Plan are required to authorize periodic re-
demptions of Fund shares to pay the premiums for this coverage. These redemp-
tions will not be subject to CDSCs but will have the same tax consequences as
any other Fund redemptions.
The Asset Protection Plan will be available to eligible persons who enroll for
the coverage within a limited time period after shares in any Fund are ini-
tially purchased or transferred. In addition, coverage cannot be made available
unless Anchor National knows for whose benefit shares are purchased. For in-
stance, coverage cannot be made available for shares registered in the name of
your broker unless the broker provides Anchor National with information regard-
ing the beneficial owners of the shares. In addition, coverage is available
only to shares purchased on behalf of natural persons between 21 and 75 years
of age; coverage is not available with respect to shares purchased for a re-
tirement account. Other restrictions on the coverage apply. This coverage may
not be available in all states and may be subject to additional restrictions or
limitations. Purchasers of shares should also make themselves familiar with the
impact on the Asset Protection Plan coverage of purchasing additional shares,
reinvestment of dividends and capital gains distributions and redemptions.
19
<PAGE>
Shareholder Account Information
- --------------------------------------------------------------------------------
Anchor National is a SunAmerica company.
Please call 1-800-858-8850 for more information, including the cost of the As-
set Protection Plan option.
Retirement plans SunAmerica Mutual Funds offer a range of qualified retirement
plans, including IRAs, Roth IRAs, Simple IRAs, SARSEPs, 401(k) plans, 403(b)
plans and other pension and profit-sharing plans. Using these plans, you can
invest in any SunAmerica Mutual Fund with a low minimum investment of $250 or,
for some group plans, no minimum investment at all. To find out more, call
Shareholder/Dealer Services at 1-800-858-8850.
TAX, DIVIDEND AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
. after every transaction that affects your account balance (except a divi-
dend reinvestment or automatic purchase from your bank account)
. after any changes of name or address of the registered owner(s)
. in all other circumstances, quarterly or annually, depending upon the Fund
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The Funds generally distribute most or all of their net earnings in
the form of dividends. Ordinary income dividends, if any, are declared daily
and paid monthly. Capital gains distributions, if any, are paid annually by the
Funds.
Dividend Reinvestments Your dividends and distributions, if any, will be auto-
matically reinvested in additional shares of the same Fund and share class on
which they were paid, unless the shareholder elects in writing, not less than
five business days prior to the payment date, to receive amounts in excess of
$10 in cash. Alternatively, dividends and distributions may be reinvested in
any other SunAmerica Mutual Fund or paid in cash (if more than $10). You will
need to complete the relevant part of the Account Application to elect one of
these other options. For existing accounts, contact your broker or financial
advisor or call Shareholder/Dealer Services at 1-800-858-8850 to change divi-
dend and distribution payment options.
Taxability of dividends As long as a Fund meets the requirements for being a
tax-qualified regulated investment company, which each Fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it dis-
tributes to shareholders.
Consequently, dividends you receive from a Fund whether reinvested or taken as
cash, are generally considered taxable. Distributions of a Fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income. For an individual, the maximum long-term
capital gains rate is 20%.
Dividends paid by the Tax Exempt Insured Fund generally will be exempt from
federal income taxes, as long as 50% or more of the value of that Fund's assets
at the end of each quarter is invested in state, municipal, and other obliga-
tions, the interest on which is excluded from gross income for federal tax pur-
poses. As mentioned, at least 80% of the Tax Exempt Insured Fund's assets will
be invested in such obligations during normal market conditions. Dividends at-
tributable to the taxable bonds, market discount and short-term capital gains,
however, will be subject to federal, state and local income tax at ordinary in-
come tax rates. Some shareholders may be subject to federal alternative minimum
tax liability. Tax-exempt interest from certain bonds is treated as an item of
tax preference, and may be attributed to shareholders. A portion of all tax-ex-
empt interest is includable as an upward adjustment in determining a corpora-
tion's alternative minimum taxable income. These rules could make you liable
for the alternative minimum income tax (AMT).
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional. Some dividends paid in January may be taxable as if they
had been paid the previous December.
Taxability of transactions Any time you sell or exchange shares, it is consid-
ered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions. If you hold Class B shares, you will not have a taxable event
when they convert into Class A shares.
Other Tax Considerations If you are neither a lawful permanent resident nor a
citizen of the U.S. or if you are a foreign entity, ordinary income dividends
paid to you (which include distributions of net short-term capital gains) will
generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate
applies.
By law, each Fund must withhold 31% of your distributions and proceeds if you
have not provided a taxpayer identification number or social security number.
This section summarizes some of the consequences under current federal tax law
of an investment in a Fund. It is not a substitute for professional tax advice.
Consult your tax advisor about the potential tax consequences of an investment
in a Fund under all applicable laws.
Small accounts If you draw down an account so that its total value is less than
$500 ($250 for retirement plan accounts), you may be asked to purchase more
shares within 60 days. If you do not take action, the Trust may close out your
account and mail you the proceeds. Alternatively, you may be charged a $2.00
monthly charge to maintain your account. Your account will not be closed if its
drop in value is due to Fund performance or the effects of sales charges.
20
<PAGE>
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(THIS PAGE INTENTIONALLY LEFT BLANK)
21
<PAGE>
More Information About the Funds
- --------------------------------------------------------------------------------
FUND INVESTMENT STRATEGIES
Each Fund has
its own
investment
goal and a
strategy for
pursuing it.
The chart
summarizes
information
about each
Fund's in-
vestment ap-
proach. Fol-
lowing this
chart is a
glossary that
further de-
scribes the
investment
and risk ter-
minology that
we use.
Please review
the glossary
in conjunc-
tion with
this chart.
<TABLE>
<CAPTION>
Government Securities
Fund Federal Securities Fund
<S> <C> <C>
What is the Fund's high current income current income, with capital
investment goal? consistent with appreciation as a secondary
relative safety of objective
capital
- -------------------------------------------------------------------------------------------
What are the Fund's fixed income investing fixed income investing
principal investment
strategies?
- -------------------------------------------------------------------------------------------
What are the Fund's invests primarily in invests primarily in securities
principal investment securities of high issued or guaranteed by the
techniques? credit quality and U.S. government, or any agency
relatively low or instrumentality thereof,
duration issued or with a significant portion
guaranteed by the U.S. invested in mortgage-backed
government, or any securities
agency or
instrumentality
thereof
- -------------------------------------------------------------------------------------------
What are the Fund's .bond market .bond market volatility
principal risks? volatility .securities selection
.securities selection .interest rate fluctuations
.interest rate .prepayment
fluctuations
- -------------------------------------------------------------------------------------------
What other investment
strategies can the Fund use?
.Fixed income securities:
Investment grade Yes Yes
U.S. government securities Yes Yes
Asset-backed securities Yes (up to 15%) Yes (up to 15%)
Mortgage-backed securities Yes See principal investments above
Junk bonds No No
Short-term money market Yes Yes
instruments
.Participation interests No No
.Defensive investments Yes Yes
.Foreign securities No No
Foreign debt obligations No No
Emerging markets No No
ADRs/EDRs/GDRs No No
.Illiquid securities Yes (up to 10%) Yes (up to 10%)
.Options and futures Yes Yes
.Zero-coupon securities Yes Yes
.When-issued /delayed Yes Yes
delivery transactions
.Securities lending Yes (up to 33%) Yes (up to 33%)
.Borrowing for temporary or Yes (up to 5%) Yes (up to 5%)
emergency purposes
.Future developments
- -------------------------------------------------------------------------------------------
What other potential risks .illiquidity .illiquidity
can affect the Fund ? .prepayment .derivatives
.derivatives .hedging
.hedging
</TABLE>
22
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Diversified
Income High Income Tax Exempt Insured
Fund Fund Fund
<S> <C> <C>
a high level of maximum current income as high a level of current
current income income exempt from federal
consistent with income taxes as is
moderate consistent with
investment preservation of capital
risk, with
preservation of
capital as a
secondary
objective
- -------------------------------------------------------------------------------
fixed income fixed income investing fixed income investing
investing
- -------------------------------------------------------------------------------
invests in U.S. invests in high-yield, invests at least 80% in
government high-risk corporate bonds tax-exempt Municipal Bonds
securities; generally with relatively and at least 65% in
foreign low duration Municipal Bonds that, in
government and addition to having income
corporate debt exempt from federal income
securities; and tax, also are insured as
fixed income to the scheduled payment
securities of principal and interest
issued by for as long as such bonds
domestic are held by the Fund,
corporations, without regard to the
including maturities of such
lower-rated securities
high-yield
securities and
securities with
varying credit
quality without
regard to the
maturities of
such securities
- -------------------------------------------------------------------------------
.bond market .bond market volatility .bond market volatility
volatility
.securities .securities selection .securities selection
selection
.interest rate .interest rate .interest rate
fluctuations fluctuations fluctuations
.credit quality .credit quality .credit quality
.junk bonds .junk bonds
- -------------------------------------------------------------------------------
Yes Yes Yes
Yes Yes Yes
Yes (without Yes (up to 15%) Yes (up to 15%)
limit)
Yes Yes Yes
Yes See principal investments No
above
Yes Yes Yes
Yes Yes No
Yes Yes Yes
Yes Yes No
Yes Yes No
Yes Yes No
Yes Yes No
Yes (up to 10%) Yes (up to 10%) Yes (up to 10%)
Yes Yes Yes
Yes Yes Yes
Yes Yes Yes
Yes (up to 33%) Yes (up to 33%) Yes (up to 33%)
Yes (up to 5%) Yes (up to 5%) Yes (up to 5%)
Yes Yes Yes
- -------------------------------------------------------------------------------
.foreign .foreign exposure .illiquidity
exposure
.emerging .emerging markets .prepayment
markets
.euro .euro conversion .derivatives
conversion
.illiquidity .illiquidity .hedging
.prepayment .prepayment
.derivatives .derivatives
.hedging .hedging
</TABLE>
23
<PAGE>
More Information About the Funds
- --------------------------------------------------------------------------------
GLOSSARY
The two best-
known debt
rating agen-
cies are
Standard &
Poor's Rat-
ings Servic-
es, a Divi-
sion of The
McGraw-Hill
Companies,
Inc. and
Moody's In-
vestors Serv-
ice, Inc.
"Investment
grade" refers
to any secu-
rity rated
"BBB" or
above by
Standard &
Poor's or
"Baa" or
above by
Moody's.
INVESTMENT TERMINOLOGY
Capital appreciation is growth of the value of an investment.
Preservation of capital means investing in a manner that tries to protect the
value of an investment against market movements and other economic events.
Fixed income securities provide consistent interest or dividend payments. They
include corporate bonds, notes, debentures, preferred stocks, convertible secu-
rities, U.S. government securities and mortgage-backed and asset-backed securi-
ties. The issuer of a senior fixed income security is obligated to make pay-
ments on this security ahead of other payments to security holders. An invest-
ment grade fixed income security is rated in one of the top four ratings cate-
gories by a debt rating agency (or is considered of comparable quality by the
Adviser).
A "junk bond" is a high yield, high risk bond that does not meet the credit
quality standards of investment grade securities.
U.S. government securities are issued or guaranteed by the U.S. government, its
agencies and instrumentalities. Some U.S. government securities are issued or
unconditionally guaranteed by the U.S. Treasury. They are of the highest possi-
ble credit quality. While these securities are subject to variations in market
value due to fluctuations in interest rates, they will be paid in full if held
to maturity. Other U.S. government securities are neither direct obligations
of, nor guaranteed by, the U.S. Treasury. However, they involve federal spon-
sorship in one way or another. For example some are backed by specific types of
collateral; some are supported by the issuer's right to borrow from the Trea-
sury; some are supported by the discretionary authority of the Treasury to pur-
chase certain obligations of the issuer; and others are supported only by the
credit of the issuing government agency or instrumentality.
A municipal bond is a debt obligation of a state or local government entity,
which may support general governmental needs or special projects.
Asset-backed securities issued by trusts and special purpose corporations are
backed by a pool of assets, such as credit card or automobile loan receivables
representing the obligations of a number of different parties.
Mortgage-backed securities directly or indirectly provide funds for mortgage
loans made to residential home buyers. These include securities that represent
interests in pools of mortgage loans made by lenders such as commercial banks,
savings and loan institutions, mortgage bankers and others.
Short-term investments include money market securities such as short-term U.S.
government obligations, repurchase agreements, commercial paper, bankers' ac-
ceptances and certificates of deposit. These securities provide a Fund with
sufficient liquidity to meet redemptions and cover expenses.
Participation interests, which may take the form of interests in or assignments
of loans, are acquired from banks that have made loans or are members of lend-
ing syndicates.
Defensive investments include high quality fixed income securities, repurchase
agreements and other money market instruments. A Fund will make temporary de-
fensive investments in response to adverse market, economic, political or other
conditions. When a Fund takes a defensive position, it may miss out on invest-
ment opportunities that could have resulted from investing in accordance with
its principal investment strategy. As a result, a Fund may not achieve its in-
vestment goal.
Foreign securities are issued by companies located outside of the United States
and include securities issued by companies located in emerging markets and for-
eign debt obligations. Foreign securities may include American Depositary Re-
ceipts (ADRs) or other similar securities that convert into foreign securities
such as European Depository Receipts (EDRs) and Global Depository Receipts
(GDRs).
Foreign debt obligations (which may be denominated in U.S. dollars or in non-
U.S. currencies), include debt obligations issued or guaranteed by foreign cor-
porations, certain supranational entities (such as the World Bank) and foreign
governments (including political subdivisions having taxing authority), their
agencies or instrumentalities, and debt obligations issued by U.S. corporations
which are either denominated in non-U.S. currencies or traded in foreign mar-
kets (e.g., Eurobonds).
An emerging market country is one that the World Bank, the International Fi-
nance Corporation or the United Nations or its authorities has determined to
have a low or middle income economy.
Illiquid securities are subject to legal or contractual restrictions that may
make them difficult to sell. A security that cannot easily be sold within seven
days will generally be considered illiquid. Certain restricted securities (such
as Rule 144A securities) are not generally considered illiquid because of their
established trading market.
A derivative instrument is a contract, such as an option or a future, whose
value is based on the performance of an underlying financial instrument.
24
<PAGE>
- --------------------------------------------------------------------------------
Options and futures are contracts involving the right to receive or obligation
to deliver assets or money depending on the performance of one or more under-
lying assets or a market or economic index.
A zero-coupon security is a security that makes no periodic interest payments
but instead is sold at a deep discount from its face value.
When-issued/delayed delivery transactions generally involve the purchase or
sale of a security with payment and delivery at some time in the future--i.e.
beyond normal settlement.
Securities lending involves a loan of securities by a Fund in exchange for cash
or collateral. The Fund earns interest on the loan while retaining ownership of
the security.
A Fund may borrow for temporary or emergency purposes including to meet redemp-
tions. Borrowing may exaggerate changes in the net asset value of Fund shares
and in the yield on a Fund's portfolio. Borrowing will cost a Fund interest ex-
pense and other fees. The costs of borrowing may reduce a Fund's return.
Future developments refer to securities and other instruments which do not
presently exist but may be developed in the future, provided that each such in-
vestment is consistent with the Fund's investment objectives, policies and re-
strictions and is otherwise legally permissible under federal and state laws.
The Prospectus will be amended or supplemented as appropriate to discuss any
such new investments.
Risk Terminology
Bond market volatility: The bond markets as a whole could go up or down (some-
times dramatically). This could affect the value of the securities in a Fund's
portfolio.
Securities selection: A strategy used by a Fund, or securities selected by its
portfolio manager, may fail to produce the intended return.
Interest rate fluctuations: Volatility of the bond market is due principally to
changes in interest rates. As interest rates rise, bond prices typically fall;
and as interest rates fall, bond prices typically rise. Longer-term and lower
coupon bonds tend to be more sensitive to changes in interest rates.
Credit quality: The creditworthiness of the issuer is always a factor in ana-
lyzing fixed income securities. An issuer with a lower credit rating will be
more likely than a higher rated issuer to default or otherwise become unable to
honor its financial obligations. This type of issuer will typically issue junk
bonds. In addition to the risk of default, junk bonds may be more volatile,
less liquid, more difficult to value and more susceptible to adverse economic
conditions or investor perceptions than other bonds.
Prepayment: Prepayment risk is the possibility that the principal of the loans
underlying mortgage-backed or other asset-backed securities may be prepaid at
any time. As a general rule, prepayments increase during a period of falling
interest rates and decrease during a period of rising interest rates. As a re-
sult of prepayments, in periods of declining interest rates a Fund may be re-
quired to reinvest its assets in securities with lower interest rates. In peri-
ods of increasing interest rates, prepayments generally may decline, with the
effect that the securities subject to prepayment risk held by a Fund may ex-
hibit price characteristics of longer-term debt securities.
Foreign exposure: Investors in foreign countries are subject to a number of
risks. A principal risk is that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may negatively affect an investment. In ad-
dition, there may be less publicly available information about a foreign com-
pany and it may not be subject to the same uniform accounting, auditing and fi-
nancial reporting standards as U.S. companies. Foreign governments may not reg-
ulate securities markets and companies to the same degree as the U.S. govern-
ment. Foreign investments will also be affected by local political or economic
developments and governmental actions. Consequently, foreign securities may be
less liquid, more volatile and more difficult to price than U.S. securities.
Historical experience indicates that the markets of emerging market countries
have been more volatile than more developed markets; however, such markets can
provide higher rates of return to investors.
Euro conversion: Effective January 1, 1999, several European countries irrevo-
cably fixed their existing national currencies to a new single European cur-
rency unit, the "euro." Certain European investments may be subject to addi-
tional risks as a result of this conversion. These risks include adverse tax
and accounting consequences, as well as difficulty in processing transactions.
The Adviser is aware of such potential problems and is coordinating efforts to
prevent or alleviate their adverse impact on the Funds. There can be no assur-
ance that a Fund will not suffer any adverse consequences as a result of the
euro conversion.
Illiquidity: Certain securities may be difficult or impossible to sell at the
time and the price that the seller would like.
Derivatives: Derivatives are subject to general risks relating to heightened
sensitivity to market volatility, interest rate fluctuations, illiquidity and
creditworthiness of the counterparty to the derivatives transactions.
Hedging: Hedging is a strategy in which the Adviser uses a derivative security
to reduce certain risk characteristics of an underlying security or portfolio
of securities. While hedging strategies can be very useful and inexpensive ways
of reducing risk, they are sometimes ineffective due to unexpected changes in
the market. Moreover, while hedging can reduce or eliminate losses, it can also
reduce or eliminate gains.
25
<PAGE>
Fund Management
- --------------------------------------------------------------------------------
Adviser. SunAmerica Asset Management Corp., which was organized in 1982 under
the laws of Delaware, selects and manages the investments, provides various ad-
ministrative services, and supervises the daily business affairs of each Fund.
In addition to managing the Funds, the Adviser serves as adviser, manager
and/or administrator for Anchor Pathway Fund, Anchor Series Trust, Style Select
Series, Seasons Series Trust, SunAmerica Equity Funds, SunAmerica Money Market
Funds, Inc., and SunAmerica Series Trust. The Adviser managed, advised or ad-
ministered assets in excess of $16 billion as of March 25, 1999.
For the fiscal year ended March 31, 1999, each Fund paid the Adviser a fee
equal to the following percentage of average daily net assets:
<TABLE>
<CAPTION>
Fund Fee
---- ---
<S> <C>
U.S. Government Securities Fund 0.74%
Federal Securities Fund 0.52%
Diversified Income Fund 0.65%
High Income Fund 0.75%
Tax Exempt Insured Fund 0.50%
</TABLE>
The Fixed Income Investment Team is responsible for the portfolio management of
each of the Funds. The Team is composed of four portfolio managers and research
analysts.
Distributor. SunAmerica Capital Services, Inc. distributes each Fund's shares.
The Distributor, a SunAmerica company, receives the initial and deferred sales
charges, all or a portion of which may be re-allowed to other broker-dealers.
In addition, the Distributor receives fees under each Fund's 12b-1 plans.
The Distributor, at its expense, may from time to time provide additional com-
pensation to broker-dealers (including in some instances, affiliates of the
Distributor) in connection with sales of shares of a Fund. This compensation
may include (i) full re-allowance of the front-end sales charge on Class A
shares; (ii) additional compensation with respect to the sale of Class A, Class
B or Class II shares; or (iii) financial assistance to broker-dealers in con-
nection with conferences, sales or training programs for their employees, semi-
nars for the public, advertising campaigns regarding one or more of the Funds,
and/or other broker-dealer sponsored special events. In some instances, this
compensation will be made available only to certain broker-dealers whose repre-
sentatives have sold a significant number of shares of the Fund. Compensation
may also include payment for travel expenses, including lodging, incurred in
connection with trips taken by invited registered representatives for meetings
or seminars of a business nature. In addition, the following types of non-cash
compensation may be offered through sales contests: (i) travel mileage on major
air carriers; (ii) tickets for entertainment events (such as concerts or sport-
ing events); or (iii) merchandise (such as clothing, trophies, clocks, pens or
other electronic equipment). Broker-dealers may not use sales of the Fund's
shares to qualify for this compensation to the extent receipt of such compensa-
tion may be prohibited by applicable law or the rules of any self-regulatory
agency, such as the National Association of Securities Dealers, Inc. Dealers
who receive bonuses or other incentives may be deemed to be underwriters under
the Securities Act of 1933.
Certain laws and regulations limit the ability of banks and other depository
institutions to underwrite and distribute securities. However, in the opinion
of the Distributor based upon the advice of counsel, these laws and regulations
do not prohibit such depository institutions from providing other services to
investment companies of the type contemplated by the Funds' 12b-1 plans. Banks
and other financial services firms may be subject to various state laws regard-
ing these services, and may be required to register as dealers pursuant to
state law.
Administrator. SunAmerica Fund Services, Inc. assists the Funds' transfer agent
in providing shareholder services. The Administrator, a SunAmerica company, is
paid a monthly fee by each Fund for its services at the annual rate of .22% of
average daily net assets. This fee represents the full cost of providing share-
holder and transfer agency services to the Trust.
The Adviser, Distributor and Administrator are all located in The SunAmerica
Center, 733 Third Avenue, New York, New York 10017.
Year 2000. Many computer and computer-based systems cannot distinguish the year
2000 from the year 1900 because of the way they encode and calculate dates.
This is popularly known as the "Year 2000 Issue." The Year 2000 Issue could po-
tentially have an adverse impact on the handling of security trades, the pay-
ment of interest and dividends, pricing and account services. We recognize the
importance of the Year 2000 Issue and are taking appropriate steps necessary in
preparation for the year 2000. The Trust's management fully anticipates that
their systems will be adapted in time for the year 2000, and to further this
goal they have coordinated a plan to repair, adapt or replace their systems as
necessary. They have also obtained representations from their outside service
providers that they are doing the same. The Trust's management completed their
plan significantly by the end of the 1998 calendar year and expects to perform
appropriate systems testing during the 1999 calendar year. If the problem has
not been fully addressed, however, the Trust could be negatively impacted. The
Year 2000 Issue could also have a negative impact on the companies in which the
Trust invests, which could hurt the Trust's investment returns.
26
<PAGE>
For More Information
- --------------------------------------------------------------------------------
The following documents contain more information about the Funds and are avail-
able free of charge upon request:
Annual and Semiannual Reports. Contain financial statements, performance
data and information on portfolio holdings. The reports also contain a writ-
ten analysis of market conditions and investment strategies that signifi-
cantly affected a Fund's performance during the applicable period.
Statement of Additional Information (SAI). Contains additional information
about the Funds' policies, investment restrictions and business structure.
This prospectus incorporates the SAI by reference.
You may obtain copies of these documents or ask questions about the Funds by
contacting:
SunAmerica Fund Services, Inc.
Mutual Fund Operations
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
1-800-858-8850
or
by calling your broker or financial advisor.
Information about the Funds (including the SAI) can be reviewed and copied at
the Public Reference Room of the Securities and Exchange Commission, Washing-
ton, D.C. Call (800) SEC-0330 for information on the operation of the Public
Reference Room. Information about the Funds is also available on the Securities
and Exchange Commission's web-site at http://www.sec.gov and copies may be ob-
tained upon payment of a duplicating fee by writing the Public Reference Sec-
tion of the Securities and Exchange Commission, Washington, D.C. 20549-6009.
You should rely only on the information contained in this prospectus. No one is
authorized to provide you with any different information.
DISTRIBUTOR:
SunAmerica Capital Services
INVESTMENT COMPANY ACT
File No. 811-4708
[SUN AMERICA MUTUAL
FUNDS LOGO APPEARS HERE]
IFPRO
