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[LOGO] SunAmerica
The Retirement Specialist
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INCOME FUNDS
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1999 Annual Report U.S. Government Securities Fund
Federal Securities Fund
Diversified Income Fund
High Income Fund
Tax Exempt Insured Fund
[LOGO] SunAmerica
Mutual Funds
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SunAmerica Income Funds Annual Report
From the Sunamerica Fixed Income Investment Team
Paul Kunz
James McGrath
John Risner
Brian Wiese
Dear Shareholders:
Overall, the U.S. bond markets rallied, continuing the bullish trend
in place since early 1997 and trading up even further as investors
sought a haven of safety from worldwide economic uncertainty. This
strong path was supported by an exuberant, low-inflation economy and an
easier monetary policy. However, the year was split between the U.S.
Treasury rally in the first half and the "spread sectors" (i.e. the
corporate, mortgage, high yield and asset-backed sectors) rally in the
second.
General optimism about the domestic economy enabled the Federal
Reserve Board to keep the Fed Funds target rate steady at 5.5% through
most of the first half of the Funds' fiscal year. However, optimism
turned to worry in early summer as concerns mounted that financial
turmoil overseas would ultimately stall U.S. economic growth. Russia
defaulted on its domestic debt; weak commodity prices dampened the
economic outlook for Latin America; and the well-publicized economic
instability in Asia continued. The bailout by a consortium of Wall
Street firms of the hedge fund, Long Term Capital Management, added to
investors' concerns. With global markets, including the U.S. equity
market, rife with volatility, both foreign investors and domestic equity
investors intensified their flight to quality, investing in the relative
safety and stability of U.S. Treasuries. This, in turn, drove bond
prices higher and the entire Treasury yield curve down to near 5% or
below.
Municipal bonds rallied as well, though not quite to the same extent.
Corporate bonds, high yield bonds, and asset-backed securities, however,
came under serious pressure with investor concerns about both a lack of
liquidity and the negative domestic credit implications of the financial
crisis in foreign markets. The mortgage-backed sector also lagged, as
the expectation of high prepayments was renewed. Credit quality spreads
reached their widest levels since the last recession.
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Citing the prospective effects the global crisis could have on the
U.S. economy, the Federal Reserve Board stepped in by lowering interest
rates in a series of three rapid bursts of 0.25% each from September
29th through November 17th. The moves worked to calm the financial
markets, allowing the government bond markets to finish calendar 1998
with its best returns since 1995.
U.S. Treasuries still outperformed other fixed income sectors for the
fiscal year, with the 30-year Treasury bond yield falling by
approximately 0.25% from March 31, 1998 to March 31, 1999 and ending the
fiscal period at 5.68%. But they did suffer in the first quarter of
1999, as concerns over international turmoil lessened and investor
demand for the higher yields offered by other fixed income sectors
increased. Several events impacted the U.S. Treasury Index overseas, the
Euro currency was born, Brazil devalued its currency, and NATO took
military action in the Balkans. In the U.S., we saw heavy merger
activity, booming debt origination, ongoing strength in U.S. economic
indicators, and concerns that the Federal Reserve Board may have
overextended. Two to five year Treasury yields rose, bringing the short-
to-intermediate portion of the yield curve back to normalcy from the
inverted shape created by the third calendar quarter flight to quality.
Longer-term interest rates also moved higher. Municipal bond yields
increased but only moderately, demonstrating less volatility than other
fixed income sectors primarily because of their domestic investor base.
In contrast, yield spreads in the corporate, mortgage, and asset-
backed sectors tightened substantially with the return of liquidity to
the fixed income markets in the first quarter 1999. Volatility seemed to
decline with the unwinding of the global crisis environment. Their
relative outperformance made what are known as the "spread sectors" even
more attractive. Investors also returned to the high yield market, as
liquidity concerns lessened and the IPO market re-opened.
Internationally, bond markets were impacted by most of the same
factors as the U.S. During the third calendar quarter of 1998, these
markets were shaken by Russia defaulting on its domestic debt only weeks
after entering into a new International Monetary Fund-assisted bailout.
In response to signs of a global economic slowdown, central banks around
the world eased monetary policy to stimulate credit expansion,
triggering an extensive bond rally in the last months of 1998. However,
European interest rates backed up in the first quarter of 1999, as a
result of the same happening in the U.S.
Looking ahead, we anticipate moderate U.S. GDP growth in the 4% range,
low inflation of less than 2%, and a Federal Reserve Board on hold.
This, along with lower interest rates overseas, contracting
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Treasury issuance, and international political unrest, should favor U.S.
bonds and keep market rates moving within a fairly narrow range. For the
near term, we expect yield spreads in the corporate, mortgage, asset-
backed and high yield sectors to remain firm, as technicals strengthen.
Over the longer term, we maintain our generally positive outlook on the
U.S. fixed income markets, including the Treasury market.
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 4.91% compared to 5.29%
for its Lipper category, for the one year ending March 31, 1999.
(Neither return reflects a sales charge.) The Fund is defensively
structured to outperform in a rising rate environment and
underperform in a declining rate environment as compared to longer-
duration portfolios. Given the economic environment of the fiscal
year then, the Fund underperformed primarily because it had a
shorter-than-benchmark duration for most of the year. At the same
time, the Fund's shorter-duration portfolio is designed to and
successfully was managed to maintain a relatively stable net asset
value as well as a continuous income stream.
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.
The Fund is neither insured nor guaranteed by the U.S. government.
Your portfolio historically has been and for most of the year was
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. Mortgages underperformed U.S. Treasuries through
much of 1998, as prepayments sped up in the low interest rate
environment and as the widespread flight to quality favored
Treasuries. But then during the first quarter of 1999, the Fund's
overweighting in mortgages helped its relative performance, as the
sector outperformed U.S. Treasuries. Premium mortgages provided
high current income with reduced market price volatility virtually
throughout.
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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 extremely well for this annual
period. The Fund's Class A returned 6.21% compared to 5.39% for its
Lipper category, for the one year ending March 31, 1999. (Neither
return reflects a sales charge.) This performance ranked the Fund
in the top 3 of its 51 peers for its one-year performance through
the end of the first calendar quarter, according to Lipper
Analytical Services. It is also well worth noting that the Fund
ranked in the top 5% of its peers for the three-year period and in
the top 15% of its peers for the five-year period ending March 31,
1999.
The Fund benefited significantly during the year from its
overweighting in U.S. Treasuries. Its longer-than-benchmark
duration for virtually the entire year also helped its
outperformance, as interest rates fell through most of 1998.
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
or any of its agencies. Normally, the Fund invests its assets to
maximize capital appreciation in a declining interest rate
environment. A significant portion of the Fund's assets may be
invested in mortgage-backed securities.
As a global flight to quality during most of 1998 led to U.S.
Treasury outperformance, your Fund's overweighting in this fixed
income sector was most beneficial. As fears of worldwide recession
moderated in the latter part of the fiscal year, the Fund sought to
decrease its Treasury exposure in favor of investments in the
mortgage sector. Mortgages offered higher current income with
reduced market volatility.
We intend to increase the Fund's allocation to the Treasury
market during the remainder of 1999, while keeping the Fund's
duration targets close to historical average. We believe U.S.
Treasuries continue to offer both reasonable income and total
return potential.
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SunAmerica Diversified Income Fund
Performance
SunAmerica Diversified Income Fund Class A posted a loss of 8.75%
compared to a loss of 0.54% for its Lipper category, for the one
year ending March 31, 1999. (Neither return reflects a sales
charge.) The category is comprised of multi-sector income funds,
which encompass a variety of fixed income securities. The
Diversified Income Fund primarily focuses on three sectors: high
yield, foreign bonds, and U.S. high-grade debt.
The Fund underperformed primarily because of its underweighted
position in U.S. government securities, which were the highest
performing fixed income sector for the fiscal year. The Fund also
was impacted by its holdings in Latin America during the highly
volatile third calendar quarter. Though riding somewhat of a roller
coaster, high yield securities had a positive effect on the Fund's
relative performance, as overseas pressures eased somewhat and the
subsequent search for yield began to drive high yield bonds tighter
to government yields from mid-fourth calendar quarter on through
March.
Portfolio Review
SunAmerica Diversified Income Fund seeks a high level of current
income consistent with moderate investment risk, with preservation
of capital as a secondary objective. The Fund invests in a
diversified portfolio of securities consisting of U.S. government
securities, foreign government and corporate debt securities, and
securities issued by domestic corporations, including lower-rated,
high yield securities.
During the prior fiscal year ending March 31, 1998, your Fund had
particularly strong performance, completely avoiding the
difficulties in the Asian markets and maintaining underweighted
positions in Eastern Europe and Russia. The Fund's foreign
securities remained overweighted in Latin America. Through
September 1998, these securities performed well. But when the
ripple effect of the global economic crisis reached Latin America
in the third calendar quarter of 1998, the Fund's relative
performance was hurt. While it is still too early to declare Brazil
on the mend, the market appears to have stabilized, leading to a
bounce in Latin America as a whole.
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During late 1998 and its turbulent markets, the Fund suffered due
to its underweighted position in U.S. Treasures when the flight to
quality caused investors to favor the perceived safety and relative
stability of U.S. Treasuries. In 1999, however, performance was
helped by this underweighting in U.S. Government securities, when
fears of global recession receded and U.S. Treasuries
underperformed other fixed income sectors.
High yield corporate securities began the fiscal year with
historically tight credit spreads, which started to widen in June
on weakness in Russia. When emerging markets fell in the third
calendar quarter, so, too, did the high yield market, primarily due
to a lack of liquidity. By November, the high yield market was
already beginning to recover and the first quarter of 1999 saw a
sharp rebound, with the rise in commodity prices boosting the
energy and cyclical sectors and the concurrent rise in equity
prices boosting the media and telecommunications sectors. The re-
opening of the IPO market in early 1999 also enabled many high
yield issuers, and the telecommunications companies in particular,
to gain access to capital. This renewed liquidity, along with the
income that this sector provides, kept high yield securities
attractive.
Going forward, we expect the search for yield that caused U.S.
Treasuries to suffer in the latter part of the fiscal year to
continue through the second quarter of 1999. We believe that this
search, in turn, will drive selected emerging markets and high
yield bonds tighter to government yields. Over the longer term, we
believe international pressures remain, and thus we intend to
gradually increase the Fund's allocation to U.S. government
securities.
Winners and Losers
Among your Fund's winners were some of its largest holdings.
These included United Mexican States and Telecom Argentina. Another
strong performer was RSL Communications Ltd., a telephone company
that benefited primarily from enhanced European revenues.
The Fund's holdings in Federal Republic of Brazil, Paging Network
Do Brazil, Tevecap (in the cable sector), and Transtel (in the
telecommunications sector) did not do well during the fiscal year.
However, we continue to hold each of these securities in the
portfolio, as the underlying fundamentals of these issues remain in
place and we are positive on the Latin American markets long term.
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SunAmerica High Income Fund
Performance
SunAmerica High Income Fund Class A posted a loss of 6.07%
compared to a loss of 1.93% for its Lipper category, for the one
year ending March 31, 1999. (Neither return reflects a sales
charge.)
In general, the Fund underperformed due to its untimely entry
into the weak cyclical sectors, such as steel, paper, and
chemicals. At the same time, underweighted positions in the energy,
gaming, and healthcare sectors and overweighted positions in the
defensively-oriented cable and media helped relative performance.
The Fund's overweighting in the telecommunications sector had a
mixed impact. As a whole, we believe that the companies in the
Fund's portfolio still have strong fundamentals and generally good
financial standing.
While the performance of the high yield market and the Fund were
disappointing, we are optimistic for the remainder of 1999. Some
Y2K worries may temporarily dampen the high yield market in the
fourth quarter of 1999, but we believe coupon income will remain
attractive. Our only real concerns center on regulatory matters, as
the healthcare, telecommunications, and cable industries each have
significant regulatory items pending before Congress. In general,
the high yield market is still moving upward from its autumn lows,
and thus we believe this fixed income sector represents excellent
value.
Portfolio Review
SunAmerica High Income Fund seeks maximum current income by
investing primarily in high yield, high risk corporate bonds. We
believe a high income investment may be an important component of a
well-diversified portfolio and may provide a cushion during
volatile stock markets.
We maintained an overweighted position in the telecommunications
sector. This sector remained strong, driven by high levels of
merger and acquisition activity and rallying stock prices. Your
portfolio benefited from this through our holdings in Comcast
Cellular Holdings (acquired by SBC Communications), NTL Inc., and
United International Holdings, the latter two of which were
recipients of large equity investments from Microsoft. However, we
sold some of the portfolio's
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more aggressive telecommunications holdings at significant profits
in June 1998, given that high yield market spreads were tight at
that time.
With some of those profits, we increased the Fund's allocation to
cyclical sector bonds, such as Sterling Chemicals. Unfortunately,
when the emerging markets fell in the third quarter, so, too, did
the cyclical sector along with the broader high yield market. And
when the high yield market rallied back in the fourth quarter,
cyclicals did not bounce back as quickly. It was not until the
first quarter of 1999 when commodity prices began to rise that
steel, paper, and chemical issues started to catch up.
We increased the Fund's holdings in the energy sector in the
second half of the fiscal year, buying when oil prices were at
their lows. Having brought this sector from an underweight to a
neutral market weighting benefited the Fund when oil prices rose in
the first quarter of 1999.
Throughout the fiscal year, we maintained an underweighting in
the gaming sector, a decision based more on valuations than on
fundamental concerns, and in the healthcare sector, where we
preferred to remain with top-tier credits like Tenet Healthcare and
Fresenius Medical Care Capital Trust, both BB credits. Overall, the
Fund remained concentrated in B-rated high yield bonds as compared
with a BB-rated bond concentration in the Merrill Lynch High Yield
Master II Index.
Winners and Losers
Many of the Fund's best performing holdings were in the cable,
cellular, and telecommunications sectors. These high yield winners
included Echostar, a direct TV satellite company, Rhythms
Netconnections, which specializes in digital subscriber lines
(DSLs), and Splitrock Services, a telecommunications network
provider. Other winners included Comcast Cellular Holdings,
Intermedia Communications and Global Crossing Holdings.
We sold Ionica, a U.K.-based telecommunications company at a
loss. But certain other poor performers we still hold, as we
continue to believe in their longer-term and underlying fundamental
strengths. These include Southwest Royalties (a U.S. energy
company), Vialog (a telecommunications company) and Acme Metals (a
U.S. steel company).
We do not anticipate any major changes in sector allocation in
the near term. We will continue to seek attractive values through
proprietary, bottom-up credit research and analysis.
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SunAmerica Tax Exempt Insured Fund
Performance
SunAmerica Tax Exempt Insured Fund performed notably well
considering its conservative management strategy and greater focus
on insured municipal bonds relative to other municipal debt funds.
The Fund's Class A returned 4.55% compared to 5.02% for its Lipper
category, for the one year ending March 31, 1999. (Neither return
reflects a sales charge.)
During the fiscal year, the municipal bond sector as a whole
experienced tremendous new issuance supply, second in volume only
to 1993. On the one hand, municipals lagged U.S. Treasuries for
most of calendar 1998 due to the flight to quality created by
overseas turmoil, and thus demand could not keep up with supply. On
the other hand, this very same backdrop, along with a robust U.S.
economy, created positives for municipal investors. Municipal bonds
were less volatile than other fixed income sectors primarily
because of their domestic investor base. Full tax revenue coffers
and strong fiscal positions for state and local governments led to
more credit quality upgrades than downgrades--by a ratio of about
four to one.
In the first quarter of 1999, the municipal market staged a
comeback, as a weak government bond market and increased demand
from retail investors and property and casualty companies allowed
municipals to outperform. In fact, yields on tax-free bonds were
actually somewhat higher than those of same-duration U.S.
Treasuries on a taxable equivalent basis at the beginning of 1999
making them extremely attractive investments. Over the fiscal year,
credit quality spreads tightened. Looking ahead, continued
favorable state and local credit fundamentals and high municipal to
Treasury yield ratios potentially allow municipals to continue
their strong relative performance.
Portfolio Review
SunAmerica Tax Exempt Insured Fund seeks as high a level of
current income exempt from Federal income taxes as is consistent
with preservation of capital. The Fund normally invests at least
80% of its assets in Federally tax-free municipal bonds, of which
at least 65% are insured as to the scheduled payment of principal
and interest. The Fund is not insured by any independent parties or
governmental entities.
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We continued to seek large, liquid deals, mostly in high tax
states, such as New York. The Fund benefited from this strategy, as
yield spreads on New York paper, for example, narrowed relative to
the market as a whole at the end of 1998. We also concentrated over
the period on issues from Illinois and Texas, where municipal bonds
were trading at relatively cheap levels, and conversely avoided
California and Connecticut, where low supply led to rich trading
levels. We also sought to invest in more Index bonds, i.e. those
included in the Lehman Brothers Municipal Bond Index, to more
closely track the Index. Through most of the fiscal year, the Fund
was underweighted in healthcare, as the sector has suffered, and
housing, as interest rates fell and prepayments were high. The Fund
was overweighted in water, sewer and other essential service issues
and in general obligations.
Your Fund's overall credit quality remained high, with
approximately 90% 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 fiscal year. The
average duration of the Fund at March 31, 1999 was somewhat longer
than the Index at 7.6 years.
In the months ahead, we anticipate increasing the Fund's
allocation to intermediate tax-free bonds. Property and casualty
companies, which are usually large investors in these bonds,
reduced their investments this past year as they were forced to
make large payoffs in a number of natural disasters. This has made
the supply/demand balance of these intermediate bonds attractive
for investment.
Winners and Losers
The New York City bonds the Fund bought during the first half of
the fiscal year performed well, as the City's credit was upgraded
from BBB+ to A-. However, when fears of overdependence on Wall
Street revenues grew during the fourth calendar quarter of 1998, we
sold these bonds at a profit. Atlanta Water & Sewer, also purchased
during this fiscal year, was another top performer.
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Non-callable bonds, which made up about 50% of the Fund's
portfolio, were winners, offering great total return through most
of 1998 and improving the overall quality of the portfolio
throughout the fiscal year. These non-callable bonds tended to
extend the portfolio's duration, which benefited the Fund during
the declining interest rate environment.
We are pleased to say that your Fund was not subject to many
poorly performing municipal issues. However, one issue,
Philadelphia Water & Sewer lagged, and so we sold it during the
first quarter of 1999.
In the months ahead, we anticipate increasing the Fund's
allocation to intermediate tax-free bonds. Property and casualty
companies, which are usually large investors in these bonds,
reduced their investments this past year as they were forced to
make large payoffs in a number of natural disasters. This has made
the supply/demand balance of these intermediate bonds attractive
for investment.
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 Money Market Fund
STATEMENT OF ASSETS AND LIABILITIES -- December 31, 1998
<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 $239,748,567;
$54,974,471;
$69,947,886;
$215,776,172 and
$92,751,658,
respectively).......... $236,822,350 $54,909,959 $59,170,032 $199,273,826 $100,057,023
Short-term securities,
at value (identified
cost $0; $0;
$2,000,000; $0 and
$1,100,000,
respectively).......... -- -- 2,044,420 -- 1,100,000
Repurchase agreements
(cost equals market)... 24,806,000 9,369,000 2,331,000 6,223,000 --
Cash.................... 303 1,008 621 -- 58,758
Receivable for
investments sold....... 5,886,213 -- 368,633 2,430,468 --
Interest and dividends
receivable............. 2,245,247 452,349 1,610,246 4,719,101 1,525,055
Receivable for shares of
beneficial interest
sold................... 74,722 359,683 111,584 1,260,722 83,261
Prepaid expenses........ 24,885 27,654 2,400 9,957 19,116
------------ ----------- ----------- ------------ ------------
Total assets........... 269,859,720 65,119,653 65,638,936 213,917,074 102,843,213
------------ ----------- ----------- ------------ ------------
LIABILITIES:
Payable for securities
loaned................. 13,196,250 2,932,500 -- -- --
Payable for investments
purchased.............. 5,728,376 -- -- 7,968,439 --
Payable for shares of
beneficial interest
redeemed............... 640,025 80,628 118,236 522,174 134,551
Dividends payable....... 465,024 112,784 269,122 791,442 171,834
Accrued expenses........ 273,092 65,160 75,546 139,546 83,919
Distribution and service
maintenance fees
payable................ 142,257 32,200 40,357 130,043 42,614
Investment advisory and
management fees payable
....................... 159,434 26,399 36,348 125,425 43,761
Due to custodian........ -- -- -- 389 --
------------ ----------- ----------- ------------ ------------
Total liabilities...... 20,604,458 3,249,671 539,609 9,677,458 476,679
------------ ----------- ----------- ------------ ------------
Net assets............. $249,255,262 $61,869,982 $65,099,327 $204,239,616 $102,366,534
============ =========== =========== ============ ============
NET ASSETS WERE COMPOSED
OF:
Shares of beneficial
interest, $.01 par
value.................. $ 288,087 $ 57,836 $ 168,311 $ 307,604 $ 78,339
Paid-in capital......... 275,059,441 62,167,381 103,196,560 250,572,595 96,731,564
------------ ----------- ----------- ------------ ------------
275,347,528 62,225,217 103,364,871 250,880,199 96,809,903
Accumulated
undistributed
(distributions in
excess of) net
investment income...... 14,242 (122,329) 28,947 (6,376) (26,179)
Accumulated net realized
loss on investments,
futures, options and
foreign currency....... (23,180,291) (168,394) (27,561,057) (30,131,861) (1,722,555)
Net unrealized
appreciation
(depreciation) on
investments............ (2,926,217) (64,512) (10,733,434) (16,502,346) 7,305,365
------------ ----------- ----------- ------------ ------------
Net assets............. $249,255,262 $61,869,982 $65,099,327 $204,239,616 $102,366,534
============ =========== =========== ============ ============
Class A (unlimited
shares authorized):
Net assets............. $135,734,210 $35,808,934 $28,469,854 $ 69,912,998 $ 80,715,994
Shares of beneficial
interest issued and
outstanding........... 15,690,083 3,351,441 7,369,375 10,537,819 6,177,370
Net asset value and
redemption price per
share................. $ 8.65 $ 10.68 $ 3.86 $ 6.63 $ 13.07
Maximum sales charge
(4.75% of offering
price)................ 0.43 0.53 0.19 0.33 0.65
------------ ----------- ----------- ------------ ------------
Maximum offering price
to public............. $ 9.08 $ 11.21 $ 4.05 $ 6.96 $ 13.72
============ =========== =========== ============ ============
Class B (unlimited
shares authorized):
Net assets............. $113,521,052 $26,061,048 $36,629,473 $124,210,602 $ 21,650,540
Shares of beneficial
interest issued and
outstanding........... 13,118,594 2,432,179 9,461,710 18,701,562 1,656,523
Net asset value,
offering and
redemption price per
share................. $ 8.65 $ 10.72 $ 3.87 $ 6.64 $ 13.07
============ =========== =========== ============ ============
Class II (unlimited
shares authorized):
Net assets............. $ 10,116,016
Shares of beneficial
interest issued and
outstanding........... 1,520,985
Net asset value and
redemption price per
share................. $ 6.65
Maximum sales charge
(1.00% of offering
price) 0.07
------------
Maximum offering price
to public............. $ 6.72
============
</TABLE>
See Notes to Financial Statements
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SunAmerica Income Funds
STATEMENT OF OPERATIONS -- For the year ended March 31, 1999
<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................ $20,159,051 $3,581,218 $ 8,603,674 $ 19,820,403 $ 5,851,211
Dividends .............. -- -- 10,997 199,957 --
----------- ---------- ------------ ------------ -----------
Total Investment
Income............... 20,159,051 3,581,218 8,614,671 20,020,360 5,851,211
----------- ---------- ------------ ------------ -----------
Expenses:
Investment advisory and
management fees........ 2,064,005 281,673 495,242 1,367,902 534,307
Distribution and service
maintenance fees--Class
A...................... 376,010 114,753 89,100 214,403 295,921
Distribution and service
maintenance fees--Class
B...................... 1,709,028 214,746 507,341 1,158,536 223,125
Distribution and service
maintenance fees--Class
II..................... -- -- -- 52,809 --
Custodian fees and
expenses............... 277,740 91,030 67,243 114,162 74,042
Transfer agent fees and
expenses--Class A...... 283,284 90,690 70,214 161,105 212,242
Transfer agent fees and
expenses--Class B...... 436,288 57,867 134,822 290,846 53,724
Transfer agent fees and
expenses--Class II..... -- -- -- 14,280 --
Trustees' fees and
expenses............... 28,951 5,521 7,814 16,883 9,917
Audit and tax consulting
fees................... 28,580 21,055 22,190 24,735 22,885
Printing expense........ 40,150 9,985 11,370 21,100 9,735
Registration fees--Class
A...................... 12,851 9,000 9,088 18,497 13,627
Registration fees--Class
B...................... 17,090 8,676 10,922 20,245 9,375
Registration fees--Class
II..................... -- -- -- 23,251 --
Legal fees and expenses. 7,495 1,379 2,170 5,520 2,700
Insurance expense....... 6,593 797 1,622 2,169 13,566
Interest expense........ -- -- 1,902 27,462 --
Miscellaneous expenses.. 3,699 584 985 1,756 1,279
----------- ---------- ------------ ------------ -----------
Total expenses before
reimbursements and
custody credits...... 5,291,764 907,756 1,432,025 3,535,661 1,476,445
Expenses reimbursed by
investment adviser... -- -- -- (25,146) --
Custody credits earned
on cash balances..... (1,040) (790) (1,733) (6,491) (482)
----------- ---------- ------------ ------------ -----------
Net investment income..... 14,868,327 2,674,252 7,184,379 16,516,336 4,375,248
----------- ---------- ------------ ------------ -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss)
on investments........... 4,318,917 1,258,473 (2,844,122) (8,903,159) 1,631,528
Net realized gain (loss)
on futures contracts..... 422,416 17,386 -- -- (15,097)
Net change in unrealized
appreciation/depreciation
on investments........... (6,697,395) (914,255) (12,524,107) (16,556,387) (1,407,777)
Net change in unrealized
appreciation/depreciation
on futures contracts..... (76,457) -- -- -- --
----------- ---------- ------------ ------------ -----------
Net realized and
unrealized gain (loss) on
investments.............. (2,032,519) 361,604 (15,368,229) (25,459,546) 208,654
----------- ---------- ------------ ------------ -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS............... $12,835,808 $3,035,856 $ (8,183,850) $ (8,943,210) $ 4,583,902
=========== ========== ============ ============ ===========
</TABLE>
See Notes to Financial Statements
15
<PAGE>
SunAmerica Income Funds
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
U.S. Government Securities Fund Federal Securities Fund Diversified Income Fund
-------------------------------- -------------------------- --------------------------
For the year For the year For the year For the year For the year For the year
ended ended ended ended ended ended
March 31, March 31, March 31, March 31, March 31, March 31,
1999 1998 1999 1998 1999 1998
--------------- --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income.... $ 14,868,327 $ 22,374,690 $ 2,674,252 $ 2,716,280 $ 7,184,379 $ 8,050,950
Net realized gain (loss)
on investments.......... 4,318,917 3,606,429 1,258,473 1,918,591 (2,844,122) 5,155,099
Net realized gain on
futures contracts....... 422,416 -- 17,386 -- -- --
Net realized foreign
exchange loss on other
assets and liabilities.. -- -- -- -- -- (4,627)
Net change in unrealized
appreciation/depreciation
on investments.......... (6,697,395) 5,602,705 (914,255) 928,406 (12,524,107) 783,223
Net change in unrealized
appreciation/depreciation
on futures contracts.... (76,457) 76,457 -- -- -- --
--------------- --------------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets resulting from
operations............... 12,835,808 31,660,281 3,035,856 5,563,277 (8,183,850) 13,984,645
--------------- --------------- ----------- ----------- ----------- -----------
Dividends and
distributions to
shareholders:
From net investment
income (Class A)........ (5,261,257) (5,951,438) (1,555,972) (1,684,720) (2,584,052) (1,963,415)
From net investment
income (Class B)........ (7,317,082) (12,224,144) (879,578) (886,109) (4,763,126) (5,673,779)
From net realized gain on
investments
(Class A)............... -- -- (1,486,651) (51,944) -- --
From net realized gain on
investments
(Class B)............... -- -- (1,023,323) (30,053) -- --
--------------- --------------- ----------- ----------- ----------- -----------
Total dividends and
distributions to
shareholders............. (12,578,339) (18,175,582) (4,945,524) (2,652,826) (7,347,178) (7,637,194)
--------------- --------------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets resulting from
capital share
transactions (Note 6).... (56,448,149) (110,250,060) 13,315,452 (1,884,623) (8,283,638) (18,116,083)
--------------- --------------- ----------- ----------- ----------- -----------
Total increase (decrease)
in net assets............ (56,190,680) (96,765,361) 11,405,784 1,025,828 (23,814,666) (11,768,632)
NET ASSETS:
Beginning of period...... 305,445,942 402,211,303 50,464,198 49,438,370 88,913,993 100,682,625
--------------- --------------- ----------- ----------- ----------- -----------
End of period [including
undistributed
(distributions in excess
of) net investment
income for March 31,1999
and March 31, 1998 of
$14,242, $(60,738),
$(122,329), $(75,487),
$28,947, and $191,746,
respectively]........... $ 249,255,262 $ 305,445,942 $61,869,982 $50,464,198 $65,099,327 $88,913,993
=============== =============== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
16
<PAGE>
SunAmerica Income Fund
STATEMENT OF CHANGES IN NET ASSETS - (continued)
<TABLE>
<CAPTION>
High Income Fund Tax Exempt Insured Fund
-------------------------- --------------------------
For the year For the year For the year For the year
ended ended ended ended
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income.... $ 16,516,336 $ 13,096,551 $ 4,375,248 $ 5,107,717
Net realized gain (loss)
on investments.......... (8,903,159) 11,231,344 1,631,528 3,219,309
Net realized loss on
futures contracts....... -- -- (15,097) (10,563)
Net realized foreign
exchange loss on other
assets and liabilities.. -- (2,086) -- --
Net change in unrealized
appreciation/depreciation
on investments.......... (16,556,387) 2,889,820 (1,407,777) 3,147,644
------------ ------------ ------------ ------------
Net increase (decrease) in
net assets resulting from
operations............... (8,943,210) 27,215,629 4,583,902 11,464,107
------------ ------------ ------------ ------------
Dividends to shareholders:
From net investment
income (Class A)........ (5,956,938) (4,011,096) (3,512,446) (4,101,670)
From net investment
income (Class B)........ (10,524,742) (8,387,799) (778,374) (903,110)
From net investment
income (Class II)....... (480,913) (6,158) -- --
------------ ------------ ------------ ------------
Total dividends to
shareholders.............. (16,962,593) (12,405,053) (4,290,820) (5,004,780)
------------ ------------ ------------ ------------
Net increase (decrease) in
net assets resulting from
capital share
transactions (Note 6).... 47,595,068 28,217,413 (9,323,157) (18,491,567)
------------ ------------ ------------ ------------
Total increase (decrease)
in net assets............ 21,689,265 43,027,989 (9,030,075) (12,032,240)
NET ASSETS:
Beginning of period...... 182,550,351 139,522,362 111,396,609 123,428,849
------------ ------------ ------------ ------------
End of period [including
undistributed
(distributions in excess
of) net investment
income for March 31,1999
and March 31, 1998 of
$(6,376), $439,881,
$(26,179) and
$(110,607),
respectively]........... $204,239,616 $182,550,351 $102,366,534 $111,396,609
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
17
<PAGE>
SunAmerica Income Fund
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
- -------------------------------
Net gain
(loss) on Ratio of
investments Net Net expenses Ratio of net
Net Asset (both Dividends Asset Assets to investment
Value, Net realized Total from from net Value, end of average income to
beginning investment and investment investment end of Total period net average net
Period Ended of period income(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%(3) 7.50%(3)
3/31/96......... 8.23 0.62 0.16 0.78 (0.51) 8.50 9.62 125,504 1.44(3) 7.11(3)
3/31/97......... 8.50 0.59 (0.26) 0.33 (0.48) 8.35 3.98 113,171 1.54(3) 7.01(3)
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
Class B
-------
3/31/95......... $8.39 $0.56 $(0.30) $0.26 $(0.41) $8.24 3.25% $594,779 2.15%(3) 6.80%(3)
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
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
- -------------------------------
Portfolio
Period Ended Turnover
- ---------------- ---------
<S> <C> <C>
3/31/95......... 105%
3/31/96......... 142
3/31/97......... 148
3/31/98......... 229
3/31/99......... 291
3/31/95......... 105%
3/31/96......... 142
3/31/97......... 148
3/31/98......... 229
3/31/99......... 291
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERAL SECURITIES FUND
- -----------------------
Net
gain
(loss)
on
invest- Ratio of
ments Total Dividends Distri- Net Net expenses
Net Asset (both from from net butions Asset Assets to
Value, Net realized invest- invest- from Total Value, end of average
beginning investment and ment ment capital distri- end of Total period net
Period Ended of period income(1) unrealized) operations income gains butions period Return(2) (000's) assets
- ---------------- --------- ---------- ----------- ---------- --------- ------- ------- ------ --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A
-------
3/31/95......... $10.22 $0.60 $(0.20) $0.40 $(0.64) $ -- $(0.64) $ 9.98 4.18% $ 6,259 1.40%(3)
3/31/96......... 9.98 0.68 0.40 1.08 (0.63) -- (0.63) 10.43 10.94 40,278 1.37
3/31/97......... 10.43 0.65 (0.10) 0.55 (0.59) -- (0.59) 10.39 5.40 30,509 1.41
3/31/98......... 10.39 0.62 0.63 1.25 (0.59) (0.02) (0.61) 11.03 12.29 31,628 1.47
3/31/99......... 11.03 0.57 0.11 0.68 (0.53) (0.50) (1.03) 10.68 6.21 35,809 1.41
Class B
-------
3/31/95......... $10.22 $0.63 $(0.26) $0.37 $(0.58) $ -- $(0.58) $10.01 3.81% $65,631 2.03%
3/31/96......... 10.01 0.56 0.44 1.00 (0.56) -- (0.56) 10.45 10.13 26,165 2.01
3/31/97......... 10.45 0.57 (0.08) 0.49 (0.52) -- (0.52) 10.42 4.82 18,929 2.07
3/31/98......... 10.42 0.55 0.63 1.18 (0.52) (0.02) (0.54) 11.06 11.54 18,837 2.13
3/31/99......... 11.06 0.50 0.12 0.62 (0.46) (0.50) (0.96) 10.72 5.63 26,061 2.07
<CAPTION>
FEDERAL SECURITIES FUND
- -----------------------
Ratio of
net
investment
income to
average Portfolio
Period Ended net assets Turnover
- ---------------- ----------- ---------
<S> <C> <C>
3/31/95......... 6.90%(3) 267%
3/31/96......... 6.12 311
3/31/97......... 6.11 426
3/31/98......... 5.75 529
3/31/99......... 5.19 456
3/31/95......... 6.33% 267%
3/31/96......... 5.64 311
3/31/97......... 5.46 426
3/31/98......... 5.09 529
3/31/99......... 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>
See Notes to Financial Statements
18
<PAGE>
SunAmerica Income Fund
FINANCIAL HIGHLIGHTS - (continued)
<TABLE>
<CAPTION>
DIVERSIFIED INCOME FUND
- -----------------------
Net gain
(loss) on Ratio of
investments Net Net expenses Ratio of net
Net Asset (both Dividends Asset Assets to investment
Value, Net realized Total from from net Value, end of average income to
beginning investment and investment investment end of Total period net average net
Period Ended of period income(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......... $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 (0.80) (0.40) (0.42) 3.86 (8.75) 28,470 1.46 9.84
Class B
-------
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>
DIVERSIFIED INCOME FUND
- -----------------------
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
3/31/95......... 160%
3/31/96......... 166
3/31/97......... 131
3/31/98......... 157
3/31/99......... 49
- --------------------------------------------------------------------------------
<CAPTION>
HIGH INCOME FUND
- ----------------
Net gain
(loss) on Ratio of
investments Net Net expenses Ratio of net
Net Asset (both Dividends Asset Assets to investment
Value, Net realized Total from from net Value, end of average income to
beginning investment and investment investment end of Total period net average net
Period Ended of period income(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......... $8.03 $0.78 $(1.03) $(0.25) $(0.83) $6.95 (2.91)% $ 40,585 1.61% 10.82%
3/31/96......... 6.95 0.67 0.02 0.69 (0.69) 6.95 10.43 35,963 1.53 9.36
3/31/97......... 6.95 0.65 0.12 0.77 (0.66) 7.06 11.46 41,139 1.50 9.10
3/31/98......... 7.06 0.68 0.68 1.36 (0.64) 7.78 20.07 56,442 1.52 9.13
3/31/99......... 7.78 0.66 (1.12) (0.46) (0.69) 6.63 (6.07) 69,913 1.51 9.48
Class B
-------
3/31/95......... $8.04 $0.73 $(1.02) $(0.29) $(0.79) $6.96 (3.42)% $153,034 2.16%(5) 10.26%(5)
3/31/96......... 6.96 0.62 0.03 0.65 (0.65) 6.96 9.83 91,800 2.06 (5) 8.85 (5)
3/31/97......... 6.96 0.61 0.12 0.73 (0.62) 7.07 10.78 98,383 2.11 (5) 8.49 (5)
3/31/98......... 7.07 0.63 0.69 1.32 (0.60) 7.79 19.31 124,962 2.13 8.51
3/31/99......... 7.79 0.62 (1.13) (0.51) (0.64) 6.64 (6.62) 124,211 2.13 8.84
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) 9.78%(4)(5)
3/31/99......... 7.79 0.59 (1.09) (0.50) (0.64) 6.65 (6.47) 10,116 2.10 (5) 8.92 (5)
<CAPTION>
HIGH INCOME FUND
- ----------------
Portfolio
Period Ended Turnover
- ---------------- ---------
<S> <C>
3/31/95......... 196%
3/31/96......... 183
3/31/97......... 164
3/31/98......... 236
3/31/99......... 120
3/31/95......... 196%
3/31/96......... 183
3/31/97......... 164
3/31/98......... 236
3/31/99......... 120
2/02/98-
3/31/98(3)..... 236%
3/31/99......... 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 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
------- ------- ------- ------- -------
<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>
See Notes to Financial Statements
19
<PAGE>
SunAmerica Income Fund
FINANCIAL HIGHLIGHTS - (continued)
<TABLE>
<CAPTION>
TAX EXEMPT INSURED FUND
- -----------------------
Net gain
(loss) on Ratio of Ratio of
investments Net Net expenses 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
- ---------------- --------- ---------- ----------- ---------- ---------- ------ --------- -------- -------- ----------
<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%(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
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
<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
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>
See Notes to Financial Statements
20
<PAGE>
SunAmerica U.S. Government Securities Fund
PORTFOLIO OF INVESTMENTS - March 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--21.0%
6.00% due 11/01/13................................ $ 8,875 $ 8,819,208
7.50% due 4/01/24-6/01/25......................... 4,861 4,996,041
8.50% due 6/01/01................................. 1 1,127
9.00% due 1/01/02-10/01/16........................ 288 306,710
9.25% due 9/01/08-3/01/17......................... 227 242,358
9.50% due 9/01/16-9/01/21......................... 2,726 2,923,354
10.00% due 10/01/02-8/01/21....................... 10,795 11,664,511
10.50% due 6/01/00-1/01/21........................ 406 444,515
10.75% due 1/01/01-1/01/15........................ 75 82,015
11.00% due 9/01/00-6/01/17........................ 1,117 1,231,562
11.50% due 11/01/01-7/01/19....................... 509 564,091
11.75% due 8/01/11-10/01/14....................... 93 102,865
12.00% due 7/01/99-1/01/15........................ 54 59,300
12.13% due 9/01/11................................ 480 537,629
12.25% due 10/01/99-7/01/15....................... 303 339,394
12.50% due 8/01/99-4/01/19........................ 11,619 13,130,017
12.75% due 9/01/04-6/01/15........................ 454 513,940
13.00% due 5/01/00-5/01/15........................ 661 762,154
13.25% due 11/01/10-5/01/15....................... 669 767,898
13.50% due 11/01/10-2/01/19....................... 3,714 4,288,590
13.75% due 7/01/11-8/01/14........................ 61 70,083
14.00% due 6/01/11-4/01/16........................ 366 425,767
14.50% due 12/01/10-5/01/13....................... 79 92,142
------------
Total Federal Home Loan Mortgage Corp.
(cost $52,663,683)................................ 52,365,271
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--28.9%
6.00% due 10/01/28-12/01/28....................... 26,750 25,997,977
6.50% due 8/01/99-7/01/13......................... 11,187 11,133,346
7.00% due 11/01/11................................ 4,997 5,104,937
7.50% due 5/01/13-7/01/26......................... 14,241 14,652,269
8.00% due 12/01/22-1/01/23........................ 7,209 7,496,938
9.00% due 6/01/01-4/01/07......................... 916 965,186
9.25% due 10/01/16-1/01/17........................ 212 225,660
10.25% due 6/01/14-7/01/16........................ 84 91,355
10.50% due 3/01/15................................ 252 273,861
11.00% due 3/01/09-8/01/20........................ 718 790,963
11.50% due 5/01/00-3/01/14........................ 251 278,418
11.75% due 11/01/15............................... 21 23,722
12.00% due 4/01/13-12/01/15....................... 1,332 1,506,647
12.25% due 1/01/11-6/01/15........................ 722 822,756
12.50% due 3/01/13-5/01/15........................ 505 572,563
12.75% due 9/01/12-7/01/15........................ 268 309,234
13.25% due 10/01/13-2/01/15....................... 100 115,778
13.50% due 10/01/10-2/01/17....................... 730 863,106
13.75% due 11/01/11-10/01/14...................... 87 102,715
14.00% due 10/01/14............................... 246 293,198
14.50% due 7/01/11................................ 114 136,500
14.75% due 7/01/12................................ 73 90,821
15.00% due 10/01/12-2/01/13....................... 65 77,589
15.50% due 10/01/12............................... 40 47,699
------------
Total Federal National Mortgage Association
(cost $72,274,244)................................ 71,973,238
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION--15.1%
7.00% due 7/15/23-9/15/25......................... $10,104 $ 10,288,489
7.50% due 1/15/17-10/15/27........................ 16,240 16,795,049
8.50% due 7/15/08-11/15/20........................ 413 436,964
9.00% due 5/15/01-12/15/20........................ 4,700 5,025,879
9.50% due 9/15/00-7/15/20......................... 932 1,000,817
10.00% due 9/15/00-5/15/19........................ 855 917,412
10.25% due 7/15/15................................ 47 52,694
10.50% due 6/15/99-11/15/03....................... 468 506,984
11.00% due 7/15/00-1/15/11........................ 304 331,573
11.50% due 2/15/00-1/15/21........................ 325 365,151
11.75% due 7/15/13-11/15/15....................... 387 433,338
12.00% due 5/15/00-4/15/14........................ 306 346,891
12.50% due 5/15/10-7/15/10........................ 99 113,385
13.25% due 7/15/14-9/15/14........................ 90 102,379
13.50% due 6/15/10................................ 5 6,222
14.00% due 5/15/11................................ 42 49,105
15.00% due 6/15/11-9/15/12........................ 464 555,026
16.00% due 12/15/11-7/15/12....................... 187 224,084
------------
Total Government National Mortgage Association
(cost $37,535,440)................................ 37,551,442
------------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION II--0.6%
10.00% due 9/20/16-4/20/19........................ 10 10,789
11.50% due 11/20/13-7/20/20....................... 551 616,529
11.75% due 5/20/15-2/20/16........................ 147 163,022
12.00% due 10/20/13-5/20/15....................... 436 490,335
12.25% due 10/20/15............................... 18 19,975
12.50% due 12/20/13............................... 23 26,294
12.75% due 11/20/13-7/20/15....................... 115 129,964
13.25% due 12/20/14-5/20/15....................... 36 41,098
13.50% due 10/20/14............................... 9 10,305
------------
Total Government National Mortgage Association II
(cost $1,503,039)................................. 1,508,311
------------
U.S. GOVERNMENT AGENCIES--14.3%
Federal Farm Credit Bank
5.58% due 9/11/03................................. 20,000 19,953,200
Private Export Funding Corp.
5.87% due 7/31/08................................. 10,000 9,935,900
Small Business Administration
6.30% due 6/01/18................................. 5,849 5,852,996
------------
Total U.S. Government Agencies
(cost $36,329,740)................................ 35,742,096
------------
</TABLE>
21
<PAGE>
SunAmerica U.S. Government Securities Fund
PORTFOLIO OF INVESTMENTS - March 31, 1999 - (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- ---------------------------------------------------
U.S. TREASURY BONDS--9.0%
5.25% due 11/15/28-2/15/29(1)..................... $24,070 $ 22,576,512
------------
(cost $24,002,733)
U.S. TREASURY NOTES 6.1%
4.75% due 11/15/08 3,000 2,889,840
5.63% due 5/15/08................................. 12,000 12,215,640
------------
Total U.S. Treasury Notes
(cost $15,439,688)............................... 15,105,480
------------
Total Investment Securities--95.0%
(cost $239,748,567).............................. 236,822,350
------------
REPURCHASE AGREEMENT--10.0%
State Street Bank & Trust Co.
Joint Repurchase Agreement Account (Note 2)
(cost $24,806,000)(2)............................ 24,806 24,806,000
------------
TOTAL INVESTMENTS--
(cost $264,554,567*)............................. 105.00% 261,628,350
Liabilities in excess of other assets(3)........... (5.0) (12,373,088)
------- ------------
NET ASSETS-- 100.00% $249,255,262
======= ============
</TABLE>
- ------
* See Note 5
(1) The security or a portion thereof is out on loan; see Note 2.
(2) Includes cash received as collateral for securities out on loan in the
amount of $13,196,250.
(3) Includes a liability for fully collateralized securities on loan.
See Notes to Financial Statements
22
<PAGE>
SunAmerica Federal Securities FUnd
PORTFOLIO OF INVESTMENTS - March 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--4.2%
7.50% due 2/01/23 - 6/01/25........................ $ 1,056 $ 1,085,122
10.00% due 1/01/17................................. 1,406 1,514,808
12.50% due 9/30/13(1).............................. 12 11,648
13.50% due 2/01/14................................. 4 4,812
-----------
Total Federal Home Loan Mortgage Corp.
(cost $2,606,163).................................. 2,616,390
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--2.7%
7.00% due 9/01/10.................................. 1,624 1,659,894
15.50% due 10/01/12................................ 5 5,568
-----------
Total Federal National Mortgage Association
(cost $1,663,136).................................. 1,665,462
-----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION--54.7%
6.00% due 12/15/28................................. 7,892 7,667,814
6.50% due 12/15/28 - 1/15/29....................... 6,503 6,474,120
7.00% due 3/15/23 - 9/15/25........................ 4,654 4,731,655
8.00% due 11/15/26................................. 6,027 6,279,330
8.50% due 3/15/17 - 9/15/24........................ 5,403 5,715,479
9.00% due 6/15/16 - 5/15/17........................ 2,243 2,406,409
11.25% due 8/15/15................................. 25 26,981
12.00% due 5/15/15................................. 27 30,273
12.25% due 9/15/13 - 7/15/15....................... 323 361,486
12.50% due 11/15/10 - 6/15/15...................... 63 72,190
13.50% due 5/15/11 - 10/15/14...................... 44 51,850
-----------
Total Government National Mortgage Association
(cost $33,411,241)................................. 33,817,587
-----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION II--0.9%
10.00% due 10/20/13 - 3/20/17...................... 179 192,244
12.00% due 3/20/15 - 1/20/16....................... 117 131,388
12.25% due 12/20/14 - 10/20/15..................... 193 214,991
13.75% due 9/20/14................................. 3 3,819
-----------
Total Government National
Mortgage Association II
(cost $517,584).................................... 542,442
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
U.S. GOVERNMENT AGENCIES--11.2%
Federal Farm Credit Bank
5.58% due 9/11/03................................. $ 5,000 $ 4,988,300
Small Business Administration
6.30% due 6/01/18................................. 1,950 1,950,999
-----------
Total U.S. Government Agencies
(cost $7,069,880)................................. 6,939,299
-----------
U.S. TREASURY BONDS--9.5%
5.25% due 11/15/28-2/15/29(2)..................... 5,655 5,307,778
7.50% due 11/15/16................................ 460 540,141
-----------
Total U.S. Treasury Bonds
(cost $6,185,770)................................. 5,847,919
-----------
U.S. TREASURY NOTES--5.6%
4.75% due 11/15/08................................ 1,500 1,444,920
5.63% due 5/15/08................................. 2,000 2,035,940
-----------
Total U.S. Treasury Notes
(cost $3,520,696)................................. 3,480,860
-----------
Total Investment Securities--88.8%
(cost $54,974,471)................................ 54,909,959
-----------
REPURCHASE AGREEMENT--15.1%
State Street Bank & Trust Co.
Joint Repurchase Agreement Account (Note 2)
(cost $9,369,000)(3)............................. 9,369 9,369,000
-----------
TOTAL INVESTMENTS--
(cost $64,343,471*)............................... 103.90% 64,278,959
Liabilities in excess of other assets(4)........... (3.9) (2,408,977)
------- -----------
NET ASSETS-- 100.0% $61,869,982
======= ===========
</TABLE>
- ------
* See Note 5
(1) Fair valued security; see Note 2.
(2) The security or a portion thereof is out on loan; see Note 2.
(3) Includes cash received as collateral for securities out on loan in the
amount of $2,932,500.
(4) Includes a liability for fully collateralized securities on loan.
See Notes to Financial Statements
23
<PAGE>
SunAmerica Diversified Income Fund
PORTFOLIO OF INVESTMENTS - March 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES--28.0%
Broadcasting--3.0%
Big City Radio, Inc.
Sr. Disc. Notes
zero coupon due 3/15/05(1)........................ $ 750 $ 521,250
Spanish Broadcasting Systems, Inc.
Sr. Notes
12.50% due 6/15/02................................ 1,250 1,404,687
------------
1,925,937
------------
Cable--4.2%
Adelphia Communications Corp.
Sr. Notes
8.13% due 7/15/03................................. 750 759,375
UIH Australia Pacific, Inc.
Sr. Disc. Notes, Series B
zero coupon due 5/15/06(1)........................ 1,000 635,000
United International Holdings, Inc.
Sr. Secured Disc. Notes
zero coupon due 2/15/08(1)........................ 2,000 1,360,000
------------
2,754,375
------------
Cellular--2.0%
International Wireless Communications
Sr. Secured Disc. Notes
zero coupon due 8/15/01........................... 1,750 126,875
McCaw International Ltd.
Sr. Disc. Notes
zero coupon due 4/15/07(1)........................ 500 295,000
Omnipoint Communications, Inc.
Sr. Notes
8.25% due 2/17/06(2)(3)........................... 985 888,852
------------
1,310,727
------------
Energy--0.3%
Southwest Royalties, Inc.
Sr. Notes, Series B
10.50% due 10/15/04............................... 500 220,000
------------
Health Services--2.3%
Fresenius Medical Care Capital Trust II
Sr. Notes
7.88% due 2/01/08................................. 500 492,500
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
Health Services (continued)
Tenet Healthcare Corp.
Sr. Notes
8.00% due 1/15/05................................. $ 1,000 $ 987,500
------------
1,480,000
------------
Manufacturing--4.8%
Lifestyle Furnishings
International Ltd.
Sr. Subordinated Notes
10.88% due 8/01/06................................ 1,000 1,115,000
Trident Automotive PLC
Sr. Subordinated Notes
10.00% due 12/15/05............................... 1,000 1,035,000
Wavetek Corp.
Sr. Subordinated Notes
10.13% due 6/15/07................................ 1,000 966,250
------------
3,116,250
------------
Media--1.1%
Diva Systems Corp.
Sr. Disc. Notes, Series B
zero coupon due 3/01/08(1)........................ 1,250 379,687
Park-N-View, Inc.
Sr. Notes, Series B
13.00% due 5/15/08(2)(4).......................... 625 367,188
------------
746,875
------------
Metals & Mining--3.5%
Acme Metals, Inc.
Sr. Notes
12.50% due 8/01/02(5)............................. 1,000 741,250
Renco Metals, Inc.
Sr. Notes
11.50% due 7/01/03................................ 1,500 1,569,375
------------
2,310,625
------------
Retail--0.5%
Electronic Retailing Systems International
Sr. Disc. Notes
zero coupon due 2/01/04(1)........................ 1,000 333,750
------------
Telecommunications--6.3%
DTI Holdings, Inc.
Sr. Disc. Notes
zero coupon due 3/01/08(1)........................ 1,000 278,750
Globix Corp.
Sr. Notes
13.00% due 5/01/05................................ 500 482,500
</TABLE>
24
<PAGE>
SunAmerica Diversified Income Fund
PORTFOLIO OF INVESTMENTS - March 31, 1999 - (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- -------------------------------------------------------------------------------
CORPORATE BONDS & NOTES (continued)
Telecommunications (continued)
ICG Holdings, Inc.
Sr. Disc. Notes
zero coupon due 3/15/07(1)....................... $ 1,250 $ 912,500
Impsat Corp.
Sr. Notes
zero coupon due 6/15/08.......................... 1,000 895,000
Orbcomm Global LP
Sr. Notes
14.00% due 8/15/04............................... 1,000 965,000
Orion Network Systems
Sr. Disc. Notes
zero coupon due 1/15/07(1)(4).................... 1,000 558,750
------------
4,092,500
------------
Total Corporate Bonds & Notes
(cost $22,474,561)............................... 18,291,039
------------
FOREIGN BONDS & NOTES--50.1%
Broadcasting--3.0%
Central European Media Enterprises Ltd.
Sr. Notes
9.38% due 8/15/04................................ 625 592,188
RBS Participacoes SA
Guaranteed Notes
11.00% due 4/01/07(2)............................ 1,000 522,500
TV Azteca SA de CV
Guaranteed Sr. Notes, Series B 10.50% due
2/15/07.......................................... 1,000 837,500
------------
1,952,188
------------
Cable--5.3%
Australis Holdings Property Ltd.
Sr. Disc. Notes
zero coupon due 11/01/02(1)(5)(6)................ 500 10,000
Comcast UK Cable Partners Ltd.
Debentures
zero coupon due 11/15/07(1)(4)................... 500 436,875
Diamond Holdings PLC
Guaranteed Sr. Notes
9.13% due 2/01/08................................ 1,000 1,042,500
Imasac SA
Guaranteed Sr. Notes
11.00% due 5/02/05(2)............................ 1,000 665,000
Multicanal Participacoes SA
Guaranteed Sr. Notes
12.63% due 6/18/04............................... 1,000 867,500
Tevecap SA
Sr. Notes, Series B
12.63% due 11/26/04.............................. 1,000 400,000
------------
3,421,875
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
Cellular--3.1%
Celcaribe SA
Sr. Notes
13.50% due 3/15/04................................ $ 750 $ 637,500
Occidente Y Caribe Celular SA
Sr. Disc. Notes, Series B
zero coupon due 3/15/04(1)........................ 2,000 1,400,000
------------
2,037,500
------------
Finance--2.0%
Cei Citicorp Holdings SA
Sr. Notes, Series B
9.75% due 2/14/07................................. 1,500 1,286,250
------------
Food Retail--2.7%
Bepensa SA
Sr. Notes
9.75% due 9/30/04(2).............................. 2,000 1,775,000
------------
Food, Beverage & Tobacco--1.5%
DGS International Finance Co. BV
Guaranteed Notes
10.00% due 6/01/07(2)............................. 1,500 963,750
------------
Government Agency--12.1%
Federal Republic of Brazil
Capitalization Bonds
5.00% due 4/15/14(3)(7)........................... 2,355 1,501,466
Republic of Argentina
Bonds
11.38% due 1/30/17................................ 2,500 2,340,625
Republic of Brazil
Bonds
10.13% due 5/15/27................................ 2,562 1,870,260
United Mexican States
Sr. Notes
11.38% due 9/15/16................................ 2,000 2,172,500
------------
7,884,851
------------
Oil & Gas--2.5%
Statia Terminals International NV
Mortgage Notes, Series B 11.75% due 11/15/03...... 1,500 1,597,500
------------
Packaging--1.4%
Vicap Sa de Cv
Guaranteed Sr. Notes
11.38% due 5/15/07(2)............................. 1,000 932,500
------------
</TABLE>
25
<PAGE>
SunAmerica Diversified Income Fund
PORTFOLIO OF INVESTMENTS - March 31, 1999 - (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
FOREIGN BONDS & NOTES (continued)
Paging--0.7%
Paging Network Do Brasil SA
Sr. Notes
13.50% due 6/06/05................................ $ 1,000 $ 457,500
------------
Shipping--0.8%
Golden Ocean Group Ltd.
Sr. Notes
10.00% due 8/31/01................................ 750 155,625
Pegasus Shipping Ltd.
Guaranteed Sr. Mortgage Notes
11.88% due 11/15/04............................... 500 350,000
------------
505,625
------------
Telecommunications--9.9%
Call-Net Enterprises, Inc.
Sr. Notes
8.00% due 8/15/08................................. 750 742,500
Globo Communicacoes E Participacoes SA
Guaranteed Notes
10.63% due 12/05/08............................... 1,000 652,500
RSL Communications Ltd.
Sr. Notes
12.25% due 11/15/06............................... 1,250 1,365,625
Telecom Argentina
Notes
12.00% due 11/15/02............................... 3,000 3,265,200
Transtel Pass Through Trust
Sr. Notes
12.50% due 11/01/07(2)............................ 1,000 432,500
------------
6,458,325
------------
Telephone--1.3%
Comtel Brasileira
Bonds
10.75% due 9/26/04................................ 1,000 837,500
------------
Utilities--3.8%
Companhia Paranaense
Unsubordinated Notes
9.75% due 5/02/05(2).............................. 1,000 817,500
Monterrey Power SA
Sr. Secured Notes
9.63% due 11/15/09................................ 2,000 1,665,000
------------
2,482,500
------------
Total Foreign Bonds & Notes
(cost $39,369,608)................................ 32,592,864
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
(in thousands) Value
Security Description Shares/Warrants (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCIES--12.4%
U.S. Treasury Bonds--7.7%
5.50% due 8/15/28................................ $ 3,000 $ 2,871,090
6.13% due 11/15/27............................... 500 518,905
11.13% due 8/15/03............................... 1,300 1,592,708
------------
4,982,703
------------
U.S. Treasury Notes--4.7%
4.75% due 2/15/04................................ 1,000 984,690
6.13% due 8/15/07................................ 2,000 2,093,740
------------
3,078,430
------------
Total U.S. Government and Agencies
(cost $8,635,972)................................ 8,061,133
------------
PREFERRED STOCK--0.2%
Telecommunications--0.2%
IXC Communications, Inc 6.75%(2)
(cost $151,375).................................. 3,000 120,750
------------
COMMON STOCK--0.0%
Paging--0.0%
Paging Do Brazil Holdings Co. LLC, Class B+(2)(6)
(cost $10)....................................... 1,000 10
------------
WARRANTS--0.2%+
Cable--0.0%
Australis Holdings Property
Ltd. (2)(6)..................................... 500 0
UIH Australia Pacific, Inc....................... 1,000 1,125
------------
1,125
------------
Cellular--0.1%
International Wireless Communications(2)(6)...... 1,750 0
Occidente Y Caribe Celular SA(2)(6).............. 8,000 64,000
------------
64,000
------------
Media--0.0%
Diva Systems Corp.(6)............................ 3,750 38
Knology Holdings, Inc.(2)........................ 1,500 3,007
Park-N-View, Inc.(6)............................. 625 6
------------
3,051
------------
Retail--0.0%
Electronic Retailing Systems International....... 1,000 1,000
------------
</TABLE>
26
<PAGE>
SunAmerica Diversified Income Fund
PORTFOLIO OF INVESTMENTS - March 31, 1999 - (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--0.1%
Bell Technology Group Ltd. ....................... 500 35,000
DTI Holdings, Inc.(2)(6).......................... 5,000 50
------------
35,050
------------
Total Warrants
(cost $59,786).................................... 104,236
------------
Total Investment Securities--90.9%
(cost $69,947,886)................................ 59,170,032
------------
SHORT-TERM SECURITIES--3.1%
Oil & Gas--3.1%
Bridas Corp.
Sr. Notes
12.50% due 11/15/99
(cost $2,000,000)................................. $ 2,000 2,044,420
------------
REPURCHASE AGREEMENT--3.6%
State Street Bank & Trust Co. Joint Repurchase
Agreement Account (Note 2)
(cost $2,331,000)................................ 2,331 2,331,000
------------
TOTAL INVESTMENTS--
(cost $74,278,886*)............................... 97.6% 63,545,452
Other assets less liabilities...................... 2.4 1,553,875
-------- ------------
NET ASSETS-- 100.00% $ 65,099,327
======== ============
</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 March 31, 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) Allocation of investment by country as a percentage of net assets as of
March 31, 1999:
<TABLE>
<S> <C>
United States......................................................... 48.5 %
Brazil................................................................ 12.2 %
Argentina............................................................. 11.6 %
Mexico................................................................ 11.3 %
Bermuda............................................................... 4.1 %
Canada................................................................ 3.6 %
Britain............................................................... 2.3 %
Colombia.............................................................. 2.3 %
Netherlands........................................................... 1.5 %
Liberia............................................................... 0.2 %
------
97.6 %
======
</TABLE>
See Notes to Financial Statements
27
<PAGE>
SunAmerica High Income Fund
PORTFOLIO OF INVESTMENTS - March 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES--83.2%
Broadcasting--6.2%
Big City Radio, Inc.
Sr. Disc. Notes
zero coupon due 3/15/05(1)....................... $ 2,000 $ 1,390,000
Chancellor Media Corp.
Sr. Notes
8.00% due 11/01/08(2)............................ 3,000 3,123,750
Chancellor Media Corp.
Sr. Subordinated Notes
9.00% due 10/01/08............................... 500 535,000
Cumulus Media, Inc.
Sr. Subordinated Notes
10.38% due 7/01/08............................... 2,000 2,155,000
Radio One, Inc.
Sr. Subordinated Notes, Series B
7.00% due 5/15/04................................ 1,385 1,410,969
Shop At Home, Inc.
Sr. Secured Notes
11.00% due 4/01/05............................... 1,500 1,578,750
Spanish Broadcasting Systems, Inc.
Sr. Notes
12.50% due 6/15/02............................... 2,250 2,528,437
------------
12,721,906
------------
Building Materials--2.1%
Ainsworth Lumber Ltd.
Sr. Secured Notes
12.50% due 7/15/07(3)............................ 1,250 1,325,000
Congoleum Corp.
Sr. Notes
8.63% due 8/01/08................................ 750 741,563
MMI Products, Inc.
Sr. Subordinated Notes, Series C
11.25% due 4/15/07(2)............................ 2,000 2,125,000
------------
4,191,563
------------
Cable--8.1%
Adelphia Communications Corp.
Sr. Notes
8.13% due 7/15/03................................ 2,250 2,278,125
Echostar DBS Corp.
Sr. Notes
9.38% due 2/01/09(2)............................. 3,500 3,631,250
International CableTel, Inc.
Sr. Deferred Coupon Notes, Series B
zero coupon due 2/01/06(1)....................... 2,500 2,175,000
Mediacom LLC/Mediacom Capital Corp.
Sr. Notes
7.88% due 2/15/11(2).............................. 2,000 1,955,000
Mediacom LLC/Mediacom Capital Corp.
Sr. Notes
8.50% due 4/15/08................................. 2,500 2,590,625
UIH Australia Pacific, Inc.
Sr. Disc. Notes, Series B
zero coupon due 5/15/06(1)....................... 1,500 952,500
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Cable (continued)
United International Holdings, Inc.
Sr. Secured Disc. Notes
zero coupon due 2/15/08(1)....................... $ 4,500 $ 3,060,000
------------
16,642,500
------------
Cellular--7.6%
Centennial Cellular Operating Co.
Sr. Subordinated Notes
10.75% due 12/15/08(2)........................... 3,500 3,692,500
Comcast Cellular Holdings, Inc.
Sr. Notes, Series B
9.50% due 5/01/07................................ 3,450 3,950,250
International Wireless Communications
Sr. Secured Disc. Notes
zero coupon due 8/15/01........................... 3,250 235,625
McCaw International Ltd.
Sr. Disc. Notes
zero coupon due 4/15/07(1)....................... 1,750 1,032,500
Nextel Communications, Inc.
Sr. Disc. Notes
9.75% due 8/15/04................................ 1,750 1,811,250
Nextel Communications, Inc.
Sr. Disc. Notes
10.13% due 1/15/04............................... 2,280 2,348,400
Nextel Partners
Sr. Disc. Notes
zero coupon due 2/01/09(2)....................... 1,000 581,250
Omnipoint Communications, Inc.
Sr. Notes
8.25% due 2/17/06(2)(4).......................... 1,970 1,777,704
------------
15,429,479
------------
Chemicals--3.3%
American Pacific Corp.
Sr. Notes
9.25% due 3/01/05................................ 1,000 1,015,000
Huntsman Corp.
Sr. Subordinated Notes
8.33% due 7/01/07(2)(4).......................... 2,500 2,390,625
NL Industies, Inc.
Sr. Notes
11.75% due 10/15/03.............................. 2,750 2,945,937
Sterling Chemicals Holdings, Inc.
Sr. Secured Disc. Notes
zero coupon due 8/15/08(1)....................... 1,000 425,000
------------
6,776,562
------------
Consumer Goods--7.9%
Carson, Inc.
Sr. Subordinated Notes, Series B 10.38% due
11/01/07.......................................... 1,000 770,000
Evenflo Co., Inc.
Sr. Subordinated Notes
11.75% due 8/15/06(2)............................. 1,750 1,804,687
</TABLE>
28
<PAGE>
SunAmerica High Income Fund
PORTFOLIO OF INVESTMENTS - March 31, 1999 - (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES (continued)
Consumer Goods (continued)
Finlay Fine Jewelry Corp.
Sr. Notes
8.38% due 5/01/08................................. $ 750 $ 729,375
French Fragrances, Inc.
Sr. Notes, Series B 10.38% due 5/15/07............ 2,250 2,233,125
Phillips Van Heusen Corp.
Debentures
7.75% due 11/15/23................................ 1,500 1,290,615
Phillips Van Heusen Corp.
Sr. Subordinated Notes
9.50% due 5/01/08................................. 1,250 1,243,750
Polymer Group, Inc.
Sr. Subordinated Notes, Series B 8.75% due
3/01/08........................................... 2,000 2,015,000
Polymer Group, Inc.
Sr. Subordinated Notes, Series B 9.00% due
7/01/07........................................... 4,000 4,070,000
Revlon Consumer Products Corp.
Sr. Notes
9.00% due 11/01/06................................ 1,950 1,950,000
------------
16,106,552
------------
Consumer Services--1.2%
Allied Waste North America, Inc.
Sr. Notes, Series B
7.63% due 1/01/06................................. 1,000 975,000
Allied Waste North America, Inc.
Sr. Notes
7.88% due 1/01/09................................. 950 931,000
Protection One, Inc.
Sr. Subordinated Notes
8.13% due 1/15/09(2).............................. 500 509,375
------------
2,415,375
------------
Energy--3.6%
P + L Coal Holdings Corp.
Sr. Notes
8.88% due 5/15/08(2)............................. 1,500 1,569,375
Parker Drilling Co.
Sr. Notes, Series C
9.75% due 11/15/06(2)............................. 3,770 3,129,100
Pogo Producing Co.
Sr. Subordinated Notes
10.38% due 2/15/09(2)............................. 1,500 1,522,500
Southwest Royalties, Inc.
Sr. Notes, Series B
10.50% due 10/15/04............................... 2,500 1,100,000
------------
7,320,975
------------
Energy Services--0.7%
Gulfmark Offshore, Inc.
Sr. Notes
8.75% due 6/01/08................................. 1,500 1,368,750
------------
Financial Services--0.9%
RBF Finance Co.
Sr. Secured Notes
11.38% due 3/15/09(2)............................. 750 793,125
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Financial Services (continued)
Western Financial Savings Bank
Sr. Subordinated Notes
8.88% due 8/01/07................................. $ 1,500 $ 1,125,000
------------
1,918,125
------------
Food & Beverages--2.2%
Richmont Marketing Specialist
Sr. Subordinated Notes
10.13% due 12/15/07(2)............................ 2,000 1,395,000
Specialty Foods Corp.
Sr. Notes, Series B
11.13% due 10/01/02............................... 3,250 3,075,313
------------
4,470,313
------------
Gaming--0.8%
Capital Gaming International, Inc.
Sr. Notes
zero coupon due 8/01/95(6)(7)..................... 20 2
Mohegan Tribal Gaming Authority
Sr. Notes
8.13% due 1/01/06(2).............................. 1,700 1,736,125
------------
1,736,127
------------
Health Services--4.9%
Fresenius Medical Care Capital Trust II
Sr. Notes
7.88% due 2/01/08................................. 2,250 2,216,250
Fresenius Medical Care Capital Trust I
Sr. Notes
9.00% due 12/01/06................................ 500 513,750
Schein Pharmaceutical, Inc.
Sr. Notes
8.13% due 12/15/04(4)............................. 3,000 2,745,000
Tenet Healthcare Corp.
Sr. Notes
8.00% due 1/15/05................................. 4,500 4,443,750
------------
9,918,750
------------
Leisure & Tourism--2.2%
Carmike Cinemas, Inc.
Sr. Subordinated Notes
9.38% due 2/01/09(2).............................. 1,950 1,979,250
ITT Corp.
Notes
6.25% due 11/15/00................................ 2,500 2,434,200
------------
4,413,450
------------
Manufacturing--6.6%
Applied Power, Inc.
Sr. Subordinated Notes
8.75% due 4/01/09................................. 350 353,500
Filtronic Plc
Sr. Notes
10.00% due 12/01/05(2)............................ 2,250 2,340,000
</TABLE>
29
<PAGE>
SunAmerica High Income Fund
PORTFOLIO OF INVESTMENTS - March 31,1999 - (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES (continued)
Manufacturing (continued)
L-3 Communications Corp.
Sr. Subordinated Notes
10.38% due 5/01/07................................ $ 1,950 $ 2,149,875
Lifestyle Furnishings International Ltd.
Sr. Subordinated Notes
10.88% due 8/01/06................................ 3,000 3,345,000
Pentacon, Inc.
Sr. Subordinated Notes
12.25% due 4/01/09(2)............................. 2,000 1,950,000
Trident Automotive PLC
Sr. Subordinated Notes
10.00% due 12/15/05............................... 1,000 1,035,000
Wavetek Corp.
Sr. Subordinated Notes
10.13% due 6/15/07................................ 2,500 2,415,625
------------
13,589,000
------------
Media--1.3%
Diva Systems Corp.
Sr. Disc. Notes, Series B
zero coupon due 3/01/08(1)........................ 2,500 759,375
Knology Holdings, Inc.
Sr. Disc. Notes
zero coupon due 10/15/07(1)....................... 1,500 823,125
Park-N-View, Inc.
Sr. Notes, Series B
13.00% due 5/15/08(2)(5).......................... 1,875 1,101,563
------------
2,684,063
------------
Metals & Mining--5.6%
Acme Metals, Inc.
Sr. Notes
12.50% due 8/01/02(7)............................. 1,500 1,111,875
AK Steel Corp.
Sr. Notes
7.88% due 2/15/09(2).............................. 1,500 1,500,000
California Steel Industries, Inc.
Sr. Notes
8.50% due 4/01/09(2).............................. 1,925 1,974,375
GS Technologies Operating, Inc.
Guaranteed Sr. Notes
12.00% due 9/01/04................................ 1,500 1,018,125
Kaiser Aluminum & Chemical Corp.
Sr. Subordinated Notes
12.75% due 2/01/03................................ 1,500 1,451,250
Metal Management, Inc.
Sr. Subordinated Notes
10.00% due 5/15/08................................ 2,000 1,405,000
Renco Metals, Inc.
Sr. Notes
11.50% due 7/01/03................................ 2,000 2,092,500
Schuff Steel Company
Sr. Notes
10.50% due 6/01/08................................ 1,000 917,500
------------
11,470,625
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Paper Products--0.7%
Buckeye Technologies, Inc.
Sr. Subordinated Notes
8.00% due 10/15/10................................ $ 1,500 $ 1,509,375
------------
Retail--0.2%
Electronic Retailing Systems International
Sr. Disc. Notes
zero coupon due 2/01/04(1)........................ 1,000 333,750
------------
Supermarkets--2.3%
Jitney Jungle Stores America, Inc.
Sr. Subordinated Notes
10.38% due 9/15/07................................ 1,450 1,471,750
Jitney Jungle Stores America, Inc.
Sr. Notes
12.00% due 3/01/06................................ 3,000 3,330,000
------------
4,801,750
------------
Telecommunications--14.0%
Cellnet Data Systems, Inc.
Sr. Notes, Series B
zero coupon due 10/01/07(1)....................... 750 288,750
DTI Holdings, Inc.
Sr. Disc. Notes
zero coupon due 3/01/08(1)........................ 3,000 836,250
E.spire Communications, Inc.
Sr. Disc. Notes
zero coupon due 11/01/05(1)....................... 1,550 1,054,000
Globix Corp.
Sr. Notes
13.00% due 5/01/05................................ 3,250 3,136,250
GST Telecommunications, Inc.
Sr. Secured Disc. Notes
zero coupon due 5/01/08(1)(2)..................... 1,000 520,000
ICG Holdings, Inc.
Sr. Disc. Notes
zero coupon due 3/15/07(1)........................ 2,250 1,642,500
ICG Services, Inc.
Sr. Exchange Disc. Notes
zero coupon due 5/01/08(1)........................ 1,250 712,500
KMC Telecom Holdings, Inc.
Sr. Disc. Notes
zero coupon due 2/15/08(1)........................ 3,650 1,989,250
Orbcomm Global LP
Sr. Notes
14.00% due 8/15/04................................ 2,500 2,412,500
Orion Network Systems
Sr. Disc. Notes
zero coupon due 1/15/07(1)(5)..................... 4,000 2,235,000
Pac-West Telecomm, Inc.
Sr. Notes
13.50% due 2/01/09(2)............................. 1,250 1,237,500
Primus Telecomm Group, Inc.
Sr. Notes
11.25% due 1/15/09(2)............................. 2,250 2,311,875
</TABLE>
30
<PAGE>
SunAmerica High Income Fund
PORTFOLIO OF INVESTMENTS - March 31, 1999 - (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES (continued)
Telecommunications (continued)
Primus Telecomm Group, Inc.
Sr. Notes
11.75% due 8/01/04................................ $ 1,000 $ 1,035,000
Rhythms Netconnections, Inc.
Sr. Disc. Notes
zero coupon due 5/15/08(1)(2)(5).................. 1,250 687,500
RSL Communications Plc
Guaranteed Sr. Notes
10.50% due 11/15/08............................... 950 1,011,750
Splitrock Services, Inc.
Sr. Notes, Series B
11.75% due 7/15/08................................ 2,750 2,619,375
USN Communications, Inc.
Sr. Disc. Notes, Series B
zero coupon due 8/15/04(1)........................ 500 48,750
Verio, Inc.
Sr. Notes
13.50% due 6/15/04................................ 1,500 1,741,875
Vialog Corp.
Sr. Notes, Series B
12.75% due 11/15/01............................... 1,500 1,220,625
Viatel, Inc.
Sr. Notes
11.25% due 4/15/08................................ 1,000 1,012,500
Viatel, Inc.
Sr. Notes
11.50% due 3/15/09(2)............................. 750 778,125
------------
28,531,875
------------
Transportation--0.8%
Travelcenters of America, Inc.
Sr. Subordinated Notes
10.25% due 4/01/07................................ 1,500 1,563,750
------------
Total Corporate Bonds & Notes
(cost $181,948,872)............................... 169,914,615
------------
FOREIGN BONDS & NOTES--9.8%
Broadcasting--0.9%
Central European Media Enterprises Ltd.
Sr. Notes
9.38% due 8/15/04................................. 1,850 1,752,875
------------
Cable--2.1%
Australis Holdings Property Ltd.
Sr. Disc. Notes
zero coupon due 11/01/02(1)(6)(7)................. 1,000 20,000
Comcast UK Cable Partners Ltd.
Debentures
zero coupon due 11/15/07(1)(5).................... 1,500 1,310,625
Diamond Holdings PLC
Guaranteed Sr. Notes
9.13% due 2/01/08................................. 500 521,250
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Cable (continued)
Telewest Communications Plc
Sr. Notes
11.25% due 11/01/08(2)............................ $ 2,000 $ 2,330,000
------------
4,181,875
------------
Cellular--1.1%
Celcaribe SA
Sr. Notes
13.50% due 3/15/04 1,000 850,000
Occidente Y Caribe Celular SA
Sr. Disc. Notes, Series B
zero coupon due 3/15/04(1)........................ 2,000 1,400,000
------------
2,250,000
------------
Energy Services--1.9%
Statia Terminals International NV
Mortgage Notes, Series B
11.75% due 11/15/03............................... 3,700 3,940,500
------------
Manufacturing--0.6%
International Utility Structures
Sr. Subordinated Notes
10.75% due 2/01/08................................ 1,250 1,271,875
------------
Paging--0.3%
Paging Network Do Brasil SA
Sr. Notes
13.50% due 6/06/05................................ 1,400 640,500
------------
Shipping--0.7%
Golden Ocean Group Ltd.
Sr. Notes
10.00% due 8/31/01................................ 3,400 705,500
Pegasus Shipping Ltd.
Guaranteed Sr. Mortgage Notes
11.88% due 11/15/04............................... 1,000 700,000
------------
1,405,500
------------
Telecommunications--2.2%
Call-Net Enterprises, Inc.
Sr. Notes
8.00% due 8/15/08................................. 1,000 990,000
Poland Telecom Finance BV
Guaranteed Sr. Notes, Series B
14.00% due 12/01/07(2)............................ 1,000 915,000
RSL Communications Ltd.
Sr. Notes
12.25% due 11/15/06............................... 1,850 2,021,125
Transtel Pass Through Trust
Sr. Notes
12.50% due 11/01/07(2)............................ 1,500 648,750
------------
4,574,875
------------
Total Foreign Bonds & Notes
(cost $24,887,025)................................ 20,018,000
------------
</TABLE>
31
<PAGE>
SunAmerica High Income Fund
PORTFOLIO OF INVESTMENTS - March 31, 1999 - (continued)
<TABLE>
<CAPTION>
Shares/ Value
Security Description Warrants (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
PREFERRED STOCK--4.3%
Cable--1.6%
CSC Holdings, Inc. 11.13%(3)........................... 28,536 $ 3,281,661
------------
Cellular--0.1%
Omnipoint Communications, Inc. 7.00%(2)................ 6,000 174,000
------------
Financial Services--1.0%
Bankunited Financial Corp. 9.00%....................... 2,000 2,032,500
------------
Telecommunications--1.6%
Global Crossing Holdings Ltd. 10.50%................... 16,000 1,852,000
Intermedia Communications, Inc. 7.00%(2)............... 40,000 850,000
IXC Communications, Inc.
6.75%(2).............................................. 12,000 483,000
------------
3,185,000
------------
Total Preferred Stock
(cost $8,383,366)...................................... 8,673,161
------------
COMMON STOCK--0.0%
Gaming--0.0%
Capital Gaming International, Inc.+(6)................. 77 1
------------
Paging--0.0%
Paging Do Brazil Holdings Co. LLC, Class B+(2)(6)...... 1,400 14
------------
Telecommunications--0.0%
Intermedia Communications, Inc. ....................... 1,624 42,943
------------
Total Common Stock
(cost $164,209)........................................ 42,958
------------
WARRANTS--0.3%+
Cable--0.0%
Australis Holdings Property Ltd.(2)(6)................. 1,000 0
UIH Australia Pacific, Inc. ........................... 1,000 1,125
------------
1,125
------------
Cellular--0.0%
Clearnet Communications, Inc. ......................... 4,950 19,800
International Wireless Communications(2)(6)............ 3,250 0
Occidente Y Caribe Celular
SA(2)(6).............................................. 8,000 64,000
------------
83,800
------------
Gaming--0.0%
Capital Gaming International,
Inc.(6)............................................... 45,500 227
------------
</TABLE>
<TABLE>
<CAPTION>
Warrants/
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Media--0.0%
Diva Systems Corp.(6)............................. $ 7,500 $ 75
Knology Holdings, Inc.(2)......................... 4,500 9,022
Park-N-View, Inc.(6).............................. 1,875 19
------------
9,116
------------
Retail--0.0%
Electronic Retailing Systems International........ 1,000 1,000
------------
Shipping--0.0%
Ermis Maritime Holdings Ltd.(6)................... 1,363 14
Golden Ocean Group Ltd............................ 2,500 25
------------
39
------------
Telecommunications--0.3%
Bell Technology Group Ltd. ....................... 1,250 87,500
Cellnet Data Systems, Inc.(6)..................... 1,200 12,000
DTI Holdings, Inc.(2)(6).......................... 15,000 150
KMC Telecom Holdings, Inc.(6)..................... 3,650 9,125
Poland Telecom Finance BV(6)...................... 1,000 10
Primus Telecomm Group, Inc........................ 1,000 8,500
Rythms Netconnections, Inc.(6).................... 9,000 360,000
Vialog Corp....................................... 1,500 52,500
------------
529,785
------------
Total Warrants
(cost $392,700)................................... 625,092
------------
Total Investment Securities--97.6%
(cost $215,776,172)............................... 199,273,826
------------
REPURCHASE AGREEMENT--3.0%
State Street Bank & Trust Co.
Joint Repurchase Agreement Account (Note 2)
(cost $6,223,000) ............................... $ 6,223 6,223,000
------------
TOTAL INVESTMENTS--
(cost $221,999,172).............................. 100.6% 205,496,826
Liabilities in excess of other assets.............. (0.6) (1,257,210)
---------- ------------
NET ASSETS-- ...................................... 100.00% $204,239,616
========== ============
</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) PIK ("Payment-in-kind") payment made with additional shares in lieu of cash
(4) Variable rate security; rate as of March 31, 1999
(5) Bond issued as part of a unit which includes an equity component
(6) Fair valued security; see Note 2
(7) Bond in default
See Notes to Financial Statements
32
<PAGE>
SunAmerica Tax Exempt Insured Fund
PORTFOLIO OF INVESTMENTS - March 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
MUNICIPAL BONDS--97.7%
Alabama--1.9%
Jefferson County Alabama Sewer Revenue Capital
Improvement Warrants, Series A,
5.13% due 2/01/29+............................... $2,000 $ 1,968,300
------------
Alaska--1.6%
Alaska State Housing Finance Corp., Series A-2,
7.50% due 12/01/15+............................... 1,615 1,648,996
------------
Arizona--3.6%
Northern Arizona University, Revenue,
6.50% due 6/01/10+............................... 1,845 2,169,517
Pima County, Arizona Unified School District
Number 1, General Obligation,
7.50% due 7/01/10+............................... 1,200 1,516,176
------------
3,685,693
------------
Arkansas--0.1%
Arkansas State Development Finance Authority,
Single Family Mortgage Revenue,
9.00% due 6/01/14+............................... 125 127,746
------------
California--5.7%
Anaheim, California Public Financing Authority,
Revenue, Series A,
zero coupon due 9/01/18+......................... 1,500 562,050
California Housing Finance Agency, Revenue, Series
A, 5.40% due 8/01/18+............................ 1,000 1,017,750
Long Beach, California Harbor Revenue Refunding,
Series A, 6.00% due 5/15/17+..................... 1,000 1,122,040
San Francisco, California City & County
Redevelopment Agency, Lease Revenue,
6.75% due 7/01/15+............................... 1,000 1,137,560
San Jose, California Redevelopment Agency,
Tax Allocation, 6.00% due 8/01/11+............... 1,700 1,944,426
------------
5,783,826
------------
Colorado--4.6%
Highlands Ranch Metropolitan District, Colorado
General Obligation, 6.50% due 6/15/09+........... 1,960 2,295,336
Jefferson County, Colorado School District R001,
Refunding, 6.50% due 12/15/11+................... 2,000 2,375,160
------------
4,670,496
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Georgia--3.1%
Municipal Electric Authority, Georgia Special
Obligation, Fifth Crossover Series,
6.40% due 1/01/09+............................... $1,250 $ 1,436,738
Municipal Electric Authority, Georgia Special
Obligation, Fifth Crossover Series,
6.40% due 1/01/13+............................... 1,500 1,750,980
------------
3,187,718
------------
Hawaii--2.6%
Hawaii, Series CR,
General Obligation, 5.25% due 4/01/11+........... 2,565 2,678,373
------------
Idaho--1.0%
Idaho Housing & Finance Association, Single Family
Mortgage,
5.63% due 7/01/15+............................... 1,000 1,028,550
------------
Illinois--11.9%
Chicago Illinois Board Of Education, General
Obligation, 6.75% due 12/01/11+.................. 2,000 2,398,480
Cook & Du Page Counties, Illinois High School,
District Number 210, General Obligation,
zero coupon due 12/01/12+........................ 1,600 821,248
Cook County, Illinois Community College, District
Number 508, 7.70% due 12/01/07+.................. 4,000 4,965,160
Illinois Health Facilities Authority, Lutheran
General Health System, 7.00% due 4/01/08+........ 3,400 4,017,848
------------
12,202,736
------------
Indiana--1.4%
Indiana State Housing Finance Authority, Multi-
Unit Mortgage Program, Series A,
9.00% due 1/01/14+............................... 1,470 1,476,174
------------
Kentucky--5.5%
Kenton County Kentucky Airport, Board Revenue
Refunding, Cincinnati/ Northern Kentucky, Series
A,
6.30% due 3/01/15+............................... 1,500 1,675,710
Louisville & Jefferson County, Kentucky Regional
Airport Authority, Series A, 6.50% due 7/01/17+.. 3,500 3,963,820
------------
5,639,530
------------
</TABLE>
33
<PAGE>
SunAmerica Tax Exempt Insured Fund
PORTFOLIO OF INVESTMENTS - March 31, 1999 - (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- -------------------------------------------------------------------------------
MUNICIPAL BONDS (continued)
Massachusetts--2.8%
Massachusetts State Housing Finance Agency,
Insured Rental, Series A,
6.60% due 7/01/14+............................... $ 955 $1,028,860
Massachusetts State Turnpike Authority,
Metropolitan Highway Systems, Series A, 4.75% due
1/01/34+......................................... 2,000 1,858,860
------------
2,887,720
------------
Michigan--2.2%
Michigan Municipal Bond Authority, Revenue Capital
Appreciation, Local
Government Loan,
zero coupon due 5/01/17+......................... 2,875 1,142,266
Michigan Municipal Bond Authority, Revenue Capital
Appreciation, Local
Government Loan,
zero coupon due 5/01/16+......................... 2,735 1,151,216
------------
2,293,482
------------
Missouri--6.8%
Missouri State Housing Development Commission,
Insured, Single Family Mortgage Revenue,
9.38% due 4/01/16+............................... 30 31,455
Sikeston, Missouri Electric, Revenue,
6.20% due 6/01/10+............................... 6,000 6,915,720
------------
6,947,175
------------
Nevada--4.9%
Nevada Housing Division, Single Family Mortgage
Revenue, Series A,
zero coupon due 4/01/16+(1)...................... 4,945 5,048,845
------------
New Jersey--1.7%
New Jersey State Transportation Trust Fund
Authority, Transportation Systems Revenue, Series
B,
6.50% due 6/15/10+............................... 1,500 1,768,890
------------
New Mexico--0.1%
New Mexico Mortgage Finance Authority, Single
Family Mortgage Revenue, Series C, 8.63% due
7/01/17+......................................... 110 112,475
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
New York--8.3%
Long Island Power Authority, New York Electric,
Revenue
5.13% due 4/01/11+............................... $2,000 $2,082,840
Niagara Falls, New York,
General Obligation,
7.50% due 3/01/14+............................... 555 716,416
Niagara Falls, New York,
General Obligation,
7.50% due 3/01/13+............................... 445 571,994
Port Authority of New York & New Jersey Special
Obligation, Revenue, JFK International Air
Terminal-6,
6.25% due 12/01/11+.............................. 3,000 3,439,830
Port Authority of New York & New Jersey Special
Obligation, Revenue, JFK International Air
Terminal-6,
6.25% due 12/01/10+.............................. 1,500 1,719,960
------------
8,531,040
------------
North Dakota--0.5%
North Dakota State Housing Finance Agency, Single
Family Mortgage Revenue, Series A, 7.38% due
7/01/17+......................................... 485 490,578
------------
Ohio--5.0%
Lucas County, Ohio Hospital Revenue, St Vincent
Medical Center,
6.50% due 8/15/07+............................... 3,500 3,833,130
Woodridge, Ohio Local School District, General
Obligation, 6.80% due 12/01/14+.................. 1,000 1,228,160
------------
5,061,290
------------
Oklahoma--1.7%
Grand River Dam Authority, Oklahoma Revenue
Refunding, 6.25% due 6/01/11+.................... 1,500 1,734,600
------------
Pennsylvania--0.1%
Pennsylvania Housing Finance Agency, Multi-Family
Mortgage, 9.38% due 8/01/28+..................... 120 121,674
------------
Puerto Rico--2.1%
Puerto Rico Commonwealth Highway & Transportation
Authority, Revenue, Series A,
5.50% due 7/01/13+................................ 2,000 2,179,900
------------
</TABLE>
34
<PAGE>
SunAmerica Tax Exempt Insured Fund
PORTFOLIO OF INVESTMENTS - March 31, 1999 - (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (continued)
Rhode Island--0.7%
Rhode Island Housing & Mortgage Finance Corp.,
Revenue,
8.38% due 10/01/16+............................... $ 660 $ 667,280
------------
South Dakota--2.4%
South Dakota State Health And Educational
Facilities Authority, Revenue,
6.25% due 7/01/10+................................ 2,120 2,416,355
------------
Texas--14.0%
Alliance Airport Authority, Inc., Texas Special
Facilities, Revenue,
6.38% due 4/01/21................................. 2,000 2,157,600
Bexar County, Texas Health Facilities Development
Corp., Hospital Revenue,
6.75% due 8/15/19+................................ 2,000 2,299,940
Dallas, Texas Waterworks and Sewer Systems,
Revenue Refunding,
5.00% due 10/01/15................................ 3,200 3,218,176
Harris County, Texas Hospital District Mortgage,
Revenue,
7.40% due 2/15/10+................................ 2,500 2,998,800
Houston, Texas Water Conveyance Systems Contract,
Series J, Certificates of Participation,
6.13% due 12/15/08+............................... 1,250 1,409,262
Houston, Texas Water Conveyance Systems Contract,
Certificates of Participation,
6.13% due 12/15/09+............................... 1,000 1,133,140
San Antonio, Texas Hotel Occupancy, Revenue,
zero coupon due 8/15/17+.......................... 2,700 1,055,160
------------
14,272,078
------------
Virginia--1.0%
Virginia State Housing Development Authority,
Mult- Family, Series H,
5.50% due 5/01/13................................. 1,000 1,041,110
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Washington--0.4%
Washington State Housing Finance Commission,
Multi-Family Mortgage Revenue, Series A,
9.13% due 7/01/10+................................ $ 380 $ 384,393
------------
Total Investment Securities--97.7%
(cost $92,751,658)................................ 100,057,023
------------
SHORT-TERM SECURITIES--1.1%
North Dakota--0.7%
Grand Forks North Dakota Hospital Facilities,
United Hospital Obligation, Revenue
3.10% due 4/01/99(2).............................. 700 700,000
------------
Texas--0.4%
Harris County, Texas Health Facilities Development
Corp. St. Lukes Episcopal Hospital, Revenue,
3.10% due 4/01/99(2).............................. 400 400,000
------------
Total Short-Term Securities
(cost $1,100,000)................................ 1,100,000
------------
TOTAL INVESTMENTS--
(cost $93,851,658)............................... 98.80% 101,157,023
Other assets less liabilities...................... 1.2 1,209,511
------ ------------
NET ASSETS--....................................... 100.00% $102,366,534
====== ============
</TABLE>
- ------
* See Note 5
+ All or part of this security issued by Government National Mortgage
Association ("GNMA"), Financial Security Assurance ("FSA"), Federal Housing
Administration ("FHA"), Financial Guarantee Insurance Corp. ("FGIC"),
Municipal Bond Insurance Association ("MBIA"), or AMBAC ($93,640,137 or 91.5%
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
35
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 1999
Note 1. Organization
SunAmerica Income Funds is an open-end diversified management investment
company organized as a Massachusetts business trust (the "Trust"). It
currently consists of five different investment series (each, a "Fund" and
collectively, the "Funds"). Each Fund is a separate series of the Trust with
distinct investment objectives and/or strategies. Each Fund is managed by
SunAmerica Asset Management Corp. (the "Adviser" or "SAAMCo") An investor
may invest in one or more of the following Funds: SunAmerica U.S. Government
Securities Fund, SunAmerica Federal Securities Fund, SunAmerica Diversified
Income Fund, SunAmerica High Income Fund and SunAmerica Tax Exempt Insured
Fund. The Funds are considered to be separate entities for financial and tax
reporting purposes. The investment objectives for each of the Funds are as
follows:
U.S. Government Securities Fund seeks high current income consistent with
relative safety of capital by investing primarily in securities issued or
guaranteed by the U.S. government, or any agency or instrumentality thereof.
Federal Securities Fund seeks current income, with capital appreciation as a
secondary objective, by investing primarily in securities issued or
guaranteed by the U.S. government or any agency or instrumentality thereof.
Diversified Income Fund seeks a high level of current income consistent with
moderate investment risk, with preservation of capital as a secondary
objective.
High Income Fund seeks maximum current income by investing primarily in
high-yield, high-risk corporate bonds.
Tax Exempt Insured Fund seeks as high a level of current income exempt from
Federal income taxes as is consistent with preservation of capital.
Each Fund currently offers two classes of shares. Class A shares are offered
at net asset value per share plus an initial sales charge. Class B shares
are offered without an initial sales charge, although a declining contingent
sales charge may be imposed on redemptions made within six years of
purchase. High Income Fund also offers Class II shares. 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.
36
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 1999 - (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.
37
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 1999 - (continued)
As of March 31, 1999 the U.S. Government Securities Fund, Federal Securities
Fund, Diversified Income Fund, and High Income Fund had a 10.32%, 3.90%,
1.00%, and 2.59% undivided interest, respectively, which represented
$24,806,000, $9,369,000, $2,331,000 and $6,223,000, 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, 4.82% dated 3/31/99, in
the principal amount of $240,396,000, repurchase price $240,428,186, due
4/01/99, collateralized by $34,340,000 U.S. Treasury Bonds 7.50% due
11/15/16, $17,710,000 U.S. Treasury Bonds 12.75% due 11/15/10, $24,910,000
U.S. Treasury Notes 5.50% due 5/31/00, $49,820,000 U.S. Treasury Notes
5.625% due 11/30/99, $50,000,000 U.S.Treasury Notes 6.00% due 8/15/00 and
$49,760,000 U.S. Treasury Notes 6.375% due 5/15/99, approximate aggregate
value $245,219,238.
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.
38
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 1999 - (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 year ended March 31, 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.
At March 31, 1999, U.S. Government Securities Fund and Federal Securities
Fund have loaned securities having a value of $12,857,181 and $2,857,151,
respectively, and held cash collateral of $13,196,250 and $2,932,500,
respectively, for these loans.
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.
39
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 1999 - (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 year ended March 31, 1999, SAAMCo has agreed to reimburse expenses
of $25,146 on Class II of the High Income Fund.
The Trust, on behalf of each Fund, has a Distribution Agreement with
SunAmerica Capital Services, Inc. ("SACS" or "Distributor"). Each Fund, has
adopted a Distribution Plan (the "Plan") in accordance
40
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 1999 - (continued)
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 year ended March 31,
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 year ended March 31, 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.............. $ 54,336 $ 25,889 $ 18,702 $108,425
Federal Securities Fund. 160,952 39,391 95,975 31,924
Diversified Income Fund. 118,172 28,777 68,304 68,893
High Income Fund........ 646,406 164,766 384,575 304,148
Tax Exempt Insured Fund. 67,138 26,691 29,723 55,250
</TABLE>
41
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 1999 - (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........ $ -- $ -- $ -- $ --
Federal Securities Fund. -- -- -- --
Diversified Income Fund. -- -- -- --
High Income Fund........ 57,413 10,046 47,367 5,712
Tax Exempt Insured Fund. -- -- -- --
</TABLE>
The Trust has entered into a Service Agreement with SunAmerica Fund
Services, Inc. ("SAFS"). 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 year ended March
31, 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 March 31, 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........ $236,349 $375,986 $ -- $24,404 $22,755 $ --
Federal Securities Fund. 72,130 47,244 -- 6,562 4,787 --
Diversified Income Fund. 56,005 111,615 -- 5,268 7,035 --
High Income Fund........ 134,768 254,878 11,618 12,603 22,445 1,754
Tax Exempt Insured Fund. 186,007 49,088 -- 15,199 4,055 --
</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 year ended March 31, 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)............ $ -- $ -- $31,374,009 $250,553,474 $35,885,093
Sales (excluding U.S.
government securities). -- -- 44,074,456 213,097,379 45,356,844
Purchases of U.S.
government securities.. 779,778,579 249,848,480 4,156,250 -- --
Sales of U.S. government
securities............. 795,265,780 231,071,319 787,094 -- --
</TABLE>
42
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 1999 - (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.................... $265,218,745 $64,363,979 $ 74,278,886 $222,255,822 $93,851,658
============ =========== ============ ============ ===========
Appreciation............ $ 843,454 $ 656,987 $ 902,725 $ 3,957,822 $ 7,466,186
Depreciation............ (4,433,849) (742,007) (11,636,159) (20,716,818) (160,821)
------------ ----------- ------------ ------------ -----------
Unrealized appreciation
(depreciation)--net.... $ (3,590,395) $ (85,020) $(10,733,434) $(16,758,996) $ 7,305,365
============ =========== ============ ============ ===========
</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.
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
year ended year ended year ended year ended
March 31, 1999 March 31, 1998 March 31, 1999 March 31, 1998
------------------------ ------------------------ -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 8,264,613 $ 72,464,041 1,561,577 $ 13,510,139 1,305,435 $ 11,513,365 482,064 $ 4,147,772
Reinvested
dividends...... 397,809 3,480,635 440,207 3,777,028 539,911 4,723,751 872,849 7,489,193
Shares redeemed. (4,231,931) (37,087,783) (4,288,472) (36,902,611) (12,730,947) (111,542,158) (11,930,767) (102,271,581)
---------- ------------ ---------- ------------ ----------- ------------- ----------- -------------
Net increase
(decrease) .... 4,430,491 $ 38,856,893 (2,286,688) $(19,615,444) (10,885,601) $ (95,305,042) (10,575,854) $ (90,634,616)
========== ============ ========== ============ =========== ============= =========== =============
</TABLE>
43
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 1999 - (continued)
<TABLE>
<CAPTION>
Federal Securities Fund
------------------------------------------------------------------------------------------------------
Class A Class B
------------------------------------------------- ---------------------------------------------------
For the For the For the For the
year ended year ended year ended year ended
March 31, 1999 March 31, 1998 March 31, 1999 March 31, 1998
------------------------ ----------------------- ------------------------- ------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ----------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 973,487 $ 10,707,321 374,888 $ 4,088,015 1,277,925 $ 14,167,962 358,787 $ 3,922,859
Reinvested
dividends...... 222,232 2,436,734 118,009 1,278,607 144,050 1,582,721 65,988 716,876
Shares redeemed. (712,743) (7,892,874) (560,471) (6,066,157) (693,466) (7,686,412) (537,411) (5,824,823)
---------- ------------ ---------- ----------- ----------- ------------ ---------- ------------
Net increase
(decrease)..... 482,976 $ 5,251,181 (67,574) $ (699,535) 728,509 $ 8,064,271 (112,636) $ (1,185,088)
========== ============ ========== =========== =========== ============ ========== ============
<CAPTION>
Diversified Income Fund
------------------------------------------------------------------------------------------------------
Class A Class B
------------------------------------------------- ---------------------------------------------------
For the For the For the For the
year ended year ended year ended year ended
March 31, 1999 March 31, 1998 March 31, 1999 March 31, 1998
------------------------ ----------------------- ------------------------- ------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ----------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 3,989,403 $ 15,974,448 1,839,412 $ 8,430,833 1,892,787 $ 7,937,250 2,110,864 $ 9,588,048
Reinvested
dividends...... 365,889 1,490,168 240,267 1,101,956 615,323 2,538,684 671,248 3,082,375
Shares redeemed. (2,435,211) (9,859,556) (1,776,362) (8,143,958) (6,554,005) (26,364,632) (7,008,938) (32,175,337)
---------- ------------ ---------- ----------- ----------- ------------ ---------- ------------
Net increase
(decrease)..... 1,920,081 $ 7,605,060 303,317 $ 1,388,831 (4,045,895) $(15,888,698) (4,226,826) $(19,504,914)
========== ============ ========== =========== =========== ============ ========== ============
<CAPTION>
High Income Fund
------------------------------------------------------------------------------------------------------
Class A Class B
------------------------------------------------- ---------------------------------------------------
For the For the For the For the
year ended year ended year ended year ended
March 31, 1999 March 31, 1998 March 31, 1999 March 31, 1998
------------------------ ----------------------- ------------------------- ------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ----------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 6,086,279 $ 42,445,367 2,986,074 $22,434,607 13,399,499 $ 91,660,779 9,598,071 $ 70,922,480
Reinvested
dividends...... 525,820 3,659,806 321,604 2,408,861 829,858 5,809,350 630,317 4,732,950
Shares redeemed. (3,324,718) (23,428,228) (1,885,818) (13,976,905) (11,559,609) (82,094,160) (8,118,195) (59,444,035)
---------- ------------ ---------- ----------- ----------- ------------ ---------- ------------
Net increase.... 3,287,381 $ 22,676,945 1,421,860 $10,866,563 2,669,748 $ 15,375,969 2,110,193 $ 16,211,395
========== ============ ========== =========== =========== ============ ========== ============
<CAPTION>
High Income Fund
-------------------------------------------------
Class II
-------------------------------------------------
For the period
For the February 2, 1998*
year ended through
March 31, 1999 March 31, 1998
------------------------ -----------------------
Shares Amount Shares Amount
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 1,554,031 $ 10,802,791 146,640 $ 1,136,487
Reinvested
dividends...... 38,156 258,431 396 3,080
Shares redeemed. (218,224) (1,519,068) (14) (112)
---------- ------------ ---------- -----------
Net increase.... 1,373,963 $ 9,542,154 147,022 $ 1,139,455
========== ============ ========== ===========
</TABLE>
* Commencement of sale of respective class of shares
44
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 1999 - (continued)
<TABLE>
<CAPTION>
Tax Exempt Insured Fund
------------------------------------------------------------------------------------------------
Class A Class B
-------------------------------------------------- --------------------------------------------
For the For the For the For the
year ended year ended year ended year ended
March 31, 1999 March 31, 1998 March 31, 1999 March 31, 1998
------------------------ ------------------------ --------------------- ---------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ------------ -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold............ 290,778 $ 3,833,108 139,133 $ 1,784,062 328,049 $ 4,319,836 338,073 $ 4,316,434
Reinvested dividends... 142,103 1,866,608 166,540 2,132,131 37,664 494,763 45,130 578,035
Shares redeemed........ (1,046,604) (13,732,604) (1,483,284) (18,915,862) (463,939) (6,104,868) (657,257) (8,386,367)
---------- ------------ ---------- ------------ -------- ----------- -------- -----------
Net decrease........... (613,723) $ (8,032,888) (1,177,611) $(14,999,669) (98,226) $(1,290,269) (274,054) $(3,491,898)
========== ============ ========== ============ ======== =========== ======== ===========
</TABLE>
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
year ended March 31, 1999, the Diversified Income Fund and the High Income
Fund had borrowings outstanding for 16 and 79 days, respectively, under the
line of credit and incurred $1,902 and $27,462, respectively, in interest
charges related to these borrowings. The Diversified Income Fund's and the
High Income Fund's average amount of debt under the line of credit for the
days utilized was $673,134 and $1,951,260, respectively, at a weighted
average interest of 6.36% and 6.41%, respectively. The Funds did not have
any outstanding borrowings at March 31, 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
45
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 1999 - (continued)
Fund and Tax Exempt Insured Fund had accrued $83,466, $9,544, $18,687,
$24,454 and $22,360, respectively, for the Retirement Plan, which is
included in accrued expenses on the Statement of Assets and Liabilities and
for the year ended March 31, 1999 expensed $11,701, $1,870, $3,199, $5,933
and $4,102, respectively, for the Retirement Plan, which is included in
Trustees' fees and expenses on the Statement of Operations.
Note 9. Subsequent Events
Effective June 1, 1999, U.S. Government Securities Fund, Federal Securities
Fund, Diversified Income Fund and Tax Exempt Insured Fund will offer Class
II Shares.
46
<PAGE>
SunAmerica Income Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of SunAmerica Income Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of SunAmerica U.S. Government
Securities Fund, SunAmerica Federal Securities Fund, SunAmerica Diversified
Income Fund, SunAmerica High Income Fund and SunAmerica Tax Exempt Insured Fund
(constituting SunAmerica Income Funds, hereafter referred to as the "Fund") at
March 31, 1999, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at March 31, 1999 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
May 12, 1999
47
<PAGE>
SunAmerica Income Fund
SHAREHOLDER TAX INFORMATION (unaudited)
Certain tax information regarding the SunAmerica Income Funds is required to be
provided to shareholders based upon each Fund's income and distributions for
the taxable periods ended March 31, 1999. The information and distributions
reported herein may differ from the information and distributions taxable to
the shareholders for the calendar year ending December 31, 1999. The
information necessary to complete your income tax returns will be included with
your Form 1099-DIV to be received under separate cover in January 2000.
During the year ended March 31, 1999 the Funds paid the following dividends per
share along with the percentage of ordinary income dividends that qualified for
the 70% dividends received deductions for corporations.
<TABLE>
<CAPTION>
Net Net Net Qualifying % for the
Total Investment Short-Term Long-Term 70% Dividends
Dividends Income Capital gains Capital gains Received Deduction
--------- ---------- ------------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
U.S. Government
Securities Fund
Class A................ $0.43 $0.43 $-- $-- -- %
U.S. Government
Securities Fund
Class B................ 0.37 0.37 -- -- --
Federal Securities Fund
Class A................ 1.03 0.53 0.48 0.02 --
Federal Securities Fund
Class B................ 0.96 0.46 0.48 0.02 --
Diversified Income Fund
Class A................ 0.42 0.42 -- -- 0.13
Diversified Income Fund
Class B................ 0.39 0.39 -- -- 0.13
High Income Fund
Class A................ 0.69 0.69 -- -- 1.23
High Income Fund
Class B................ 0.64 0.64 -- -- 1.23
High Income Fund
Class II............... 0.64 0.64 -- -- 1.23
Tax Exempt Insured Fund
Class A*............... 0.54 0.54 -- -- --
Tax Exempt Insured Fund
Class B*............... 0.46 0.46 -- -- --
</TABLE>
- ------
* Tax exempt interest dividends
48
<PAGE>
SunAmerica Income Funds
SHAREHOLDER INFORMATION (unaudited)
Supplemental Proxy Information: A Special Meeting of the Shareholders of the
SunAmerica Income Funds was held on December 30, 1998. Each of the applicable
Funds voted in favor of adopting the following proposals, therefore, the
results are aggregated for the Funds unless otherwise specified.
1. Election of Trustees:
<TABLE>
<CAPTION>
Votes in Votes
Favor of Abstained
---------- ---------
<S> <C> <C>
S. James Coppersmith .......................... 50,218,796 2,743,930
Samuel M. Eisenstat............................ 50,223,152 2,739,574
Stephen J. Gutman.............................. 50,225,438 2,737,288
Peter A. Harbeck............................... 50,225,438 2,737,288
Sebastiano Sterpa.............................. 50,225,438 2,737,288
</TABLE>
2. To approve a new investment advisory and management agreement between
SunAmerica Income Funds on behalf of each separate investment portfolio
thereof, and SunAmerica Asset Management Corp. the terms of which are
identical in all material respects to the existing investment advisory and
management agreement.
<TABLE>
<CAPTION>
Votes in Votes Votes
Favor of Against Abstained
---------- ------- ---------
<S> <C> <C>
48,986,216 750,224 3,226,280
</TABLE>
3. To approve changing the fundamental investment restriction relating to:
(a) short sales of securities;
<TABLE>
<CAPTION>
Votes in Votes Votes
Favor of Against Abstained
---------- --------- ----------
<S> <C> <C>
38,075,415 2,234,667 12,652,644
</TABLE>
(b) the ability to engage in borrowing transactions; and
<TABLE>
<CAPTION>
Votes in Votes Votes
Favor of Against Abstained
---------- --------- ----------
<S> <C> <C>
37,878,349 2,450,609 12,633,768
</TABLE>
(c) the ability to engage in lending transactions.
<TABLE>
<CAPTION>
Votes in Votes Votes
Favor of Against Abstained
---------- --------- ----------
<S> <C> <C>
38,117,028 2,280,757 12,564,941
</TABLE>
4. To ratify the selection of independent accountants.
<TABLE>
<CAPTION>
Votes in Votes Votes
Favor of Against Abstained
---------- ------- ---------
<S> <C> <C>
49,355,932 578,425 3,028,365
</TABLE>
49
<PAGE>
SunAmerica Income Funds
COMPARISONS: PORTFOLIOS VS. INDEXES
As required by the Securities and Exchange Commission, the following graphs
compare the performance of a $10,000 investment in the SunAmerica Income Funds'
portfolios to a similar investment in an index. Please note that "inception" as
used herein reflects the date a Fund commenced operations without regard to
when a second class of shares was introduced. It is important to note that the
SunAmerica Income Funds are professionally managed mutual funds while the
indices are not available for investment and are unmanaged. The comparison is
shown for illustrative purposes only. The graphs present the performance of the
class of that particular Fund which has been in existence the longest. The
performance of the other classes will vary based upon the difference in sales
charges and fees assessed to shareholders of that class.
U.S. Government Securities Fund
The U.S. Government Securities Fund, while lagging the Index, met its objective
during the fiscal year. We structured the conservative portfolio to provide
current income and principal stability from shorter maturity, higher coupon
premium mortgages and to generate total return from longer maturity U.S.
Treasuries. However, given its inherently defensive, shorter-duration strategy,
we fully anticipated that the Fund would not shine in a declining interest rate
environment, which favored longer-term securities and higher yielding bonds.
Still, in a volatile market such as that experienced over this past fiscal
year, the Fund continues to provide a way to potentially lower risk in your
broader investment portfolio.
[GRAPHIC]
U.S. GOVERNMENT
LEHMAN BROTHERS SECURITIES FUND
GOVERNMENT INDEX CLASS B
---------------- ---------------
10,000 10,000
6/89 10,804 10,377
6/90 11,554 11,167
6/91 12,726 12,233
6/92 14,478 13,252
6/93 16,345 13,980
3/94 16,312 14,015
3/95 17,016 14,476
3/96 18,874 15,760
3/97 19,685 16,282
3/98 22,076 17,715
3/99 23,545 18,467
- ----------------------------------------------------------------------------
Class A Class B
-------------------------------------------------------
U.S. SEC SEC
Government Cumulative Average Cumulative Average
Securities Traditional Annual Traditional Annual
Fund Return+ Return Return+ Return
- ----------------------------------------------------------------------------
1 Year Return 4.91% -0.08% 4.25% 0.25%
- ----------------------------------------------------------------------------
5 Year Return 36.17% 5.34% 31.77% 5.35%
- ----------------------------------------------------------------------------
10 Year Return N/A N/A 84.67% 6.33%
- ----------------------------------------------------------------------------
Since Inception* 35.24% 4.71% 116.64% 6.09%
- ----------------------------------------------------------------------------
+ Traditional returns do not include sales load.
* Inception Date - Class A: 10/1/93; Class B: 3/3/86
For the 12 month period ending March 31, 1999, Sun America U.S Government
Securities Class B returned 0.25%, compared to 6.65% for the Lehman Brothers
Government Index. (Past performance is no guarantee of future results.)
50
<PAGE>
SunAmerica Income Funds
COMPARISONS: PORTFOLIOS VS. INDEXES
Federal Securities Fund
The Federal Securities Fund is the longer duration, more total return-oriented
of SunAmerica's high quality, U.S. government-backed fixed income securities
funds. Its Class A was ranked #3 of the 51 funds in its Lipper category for the
twelve months ended March 31, 1999. The Fund is also a 2-time winner of the
annual Lipper Performance Achievement Award--in 1997 and 1998*. For this fiscal
year, active asset allocation and a longer-than-benchmark intermediate duration
benefited the Fund's performance. As you can see in the chart below, the Fund
underperformed relative to the Salomon Brothers GNMA Index, which is an
unmanaged index that tracks performance of the GNMA portion of the U.S.
government bond market.
[GRAPHIC]
FEDERAL
SALOMON BROTHERS SECURITIES FUND LIPPER GNMA
GNMA INDEX CLASS B CATEGORY
---------------- --------------- -----------
10,000 10,000 10,000
3/90 11,427 11,095 11,189
3/91 13,046 12,513 12,602
3/92 14,628 13,835 13,919
3/93 16,295 14,951 15,491
3/94 16,496 14,818 15,601
3/95 17,528 15,383 16,340
3/96 19,437 16,942 17,918
3/97 20,598 17,757 18,775
3/98 22,837 19,807 20,771
3/99 24,270 20,921 21,890
- ----------------------------------------------------------------------------
Class A Class B
-------------------------------------------------------
SEC SEC
Federal Cumulative Average Cumulative Average
Securities Traditional Annual Traditional Annual
Fund Return+ Return Return+ Return
- ----------------------------------------------------------------------------
1 Year Return 6.21% 1.17% 5.63% 1.63%
- ----------------------------------------------------------------------------
5 Year Return 45.28% 6.71% 41.18% 6.84%
- ----------------------------------------------------------------------------
10 Year Return N/A N/A 109.21% 7.66%
- ----------------------------------------------------------------------------
Since Inception* 43.62% 5.86% 245.52% 8.10%
- ----------------------------------------------------------------------------
+ Traditional returns do not include sales load.
* Inception Date - Class A: 10/11/93; Class B: 4/25/83
For the 12 month period ending March 31, 1999, SunAmerica Federal Securities
Class B returned 1.63%, compared to 6.27% for the Salomon Brothers GNMA Index.
(*Past performance is no guarantee of future results.)
51
<PAGE>
SunAmerica Income Funds
COMPARISONS: PORTFOLIOS VS. INDEXES - (continued)
Diversified Income Fund
For the previous fiscal year ending March 31, 1998, the Diversified Income Fund
finished in the top decile of its Lipper category average. But the twelve
months ending March 31, 1999 were a challenging year for the Fund, as both
emerging markets and high yield bonds fell significantly during the third
calendar quarter of 1998. And the Fund, seeking high potential appreciation,
current income, and total return opportunities, was underweighted in U.S.
Treasuries, a sector that benefited from a flight to quality during this
volatile period. Still, it is worth noting that when high yield and emerging
market bonds rallied back, the Fund's, Class A ranked #13 of 101 funds in its
Lipper category for the first quarter of 1999. Because the Fund invests in
several sectors of the bond market, we did not compare it to any one benchmark.
[GRAPHIC]
JP MORGAN
GLOBAL GOVERNMENT LEHMAN BROTHERS MERRILL LYNCH DIVERSIFIED
BOND GOVERNMENT HIGH YIELD MASTER II INCOME FUND
INDEX INDEX INDEX CLASS B
----------------- --------------- -------------------- -----------
10,000 10,000 10,000 10,000
10/91 10,905 10,808 11,699 10,346
10/92 12,275 11,925 13,657 10,362
10/93 13,625 13,491 16,132 11,699
3/94 13,578 12,991 16,088 11,405
3/95 15,217 13,552 17,202 10,782
3/96 15,032 16,217 19,841 12,194
3/97 15,677 16,559 21,932 13,503
3/98 17,581 17,977 25,354 15,544
3/99 18,752 19,726 25,848 14,102
- ---------------------------------------------------------------------------
Class A Class B
-------------------------------------------------------
SEC SEC
Diversified Cumulative Average Cumulative Average
Income Traditional Annual Traditional Annual
Fund Return+ Return Return+ Return
- ---------------------------------------------------------------------------
1 Year Return -8.75% -13.09% -9.28% -12.91%
- ---------------------------------------------------------------------------
5 Year Return 27.18% 3.91% 23.65% 4.00%
- ---------------------------------------------------------------------------
Since Inception* 25.32% 3.27% 41.02% 4.39%
- ---------------------------------------------------------------------------
+ Traditional returns do not include sales load.
* Inception Date - Class A: 10/5/93; Class B: 4/6/91
For the 12 month period ending March 31, 1999, SunAmerica Diversified Income
Class B returned -12.91%, compared to 1.95% for the Merrill Lynch High Yield
Master II Index. (Past performance is no guarantee of future results.)
52
<PAGE>
SunAmerica Income Funds
COMPARISONS: PORTFOLIOS VS. INDEXES - (continued)
High Income Fund
All high yield sectors traded down in the third calendar quarter of 1998,
impacting the High Income Fund's performance for the fiscal year ending March
31, 1999. The Fund underperformed the Merrill Lynch High Yield Master II Index,
an unmanaged index of high yield bonds. However, when the high yield market in
general and the telecommunications and cyclical sectors in particular began to
rally, the Fund was well positioned to benefit. The Fund ranked in the top
quintile of the 318 funds in its Lipper category for the first quarter of 1999.
Over the past ten years, the high yield bond market has historically
outperformed traditional fixed income instruments. While past performance is no
guarantee of future results, we continue to believe this sector represents
excellent value.
[GRAPHIC]
MERRILL LYNCH HIGH INCOME
HIGH YIELD MASTER II FUND
INDEX CLASS A
---------------- ---------------
10,000 9,525
3/90 9,808 8,586
3/91 11,183 9,406
3/92 14,372 12,715
3/93 16,644 14,641
3/94 17,991 15,974
3/95 19,237 15,509
3/96 22,189 17,127
3/97 24,526 19,091
3/98 28,353 22,923
3/99 28,906 21,532
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Class A Class B Class II
----------------------------------------------------------------------------------
SEC SEC SEC
High Cumulative Average Cumulative Average Cumulative Average
Income Traditional Annual Traditional Annual Traditional Annual
Fund Return+ Return Return+ Return Return+ Return
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Year Return -6.07% -10.53% -6.62% -10.36% -6.47% -7.41%
- -----------------------------------------------------------------------------------------------------
5 Year Return 34.80% 5.13% 30.91% 5.21 N/A N/A
- -----------------------------------------------------------------------------------------------------
10 Year Return 126.13% 7.98% N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Since Inception* 167.64% 7.77% 34.13% 5.34% -4.43% -5.55%
- -----------------------------------------------------------------------------------------------------
</TABLE>
+ Traditional returns do not include sales load
* Inception Date - Class A: 9/19/86; Class B: 10/1/93; Class II: 2/2/98
For the 12 month period ending March 31, 1999, SunAmerica High Income Class A
returned -10.53%, compared to 1.95% for the Merrill Lynch High Yield Master II
Index. (Past performance is no guarantee of future results.)
53
<PAGE>
SunAmerica Income Funds
COMPARISONS: PORTFOLIOS VS. INDEXES
Tax Exempt Insured Fund
The Fund underperformed the return for the Lehman Brothers Municipal Bond
Index, but please note that this is an unmanaged index consisting of municipal
bonds that may not be insured as to the timely payment of principal and
interest. In contrast, at least 65% of the holdings of the Tax Exempt Insured
Fund are insured under normal conditions. In fact, on March 31, 1999,
approximately 90% of the Fund's holdings were either insured or rated AAA. This
Fund continues to be conservatively managed, focusing on individual bonds'
credit quality, coupon and call structure, and relative market demand. We also
manage the Fund as an intermediate to long-term portfolio, designed to provide
potentially greater stability despite rate fluctuations.
[GRAPHIC]
LEHMAN BROTHERS TAX EXEMPT
MUNICIPAL BOND INSURED FUND
INDEX CLASS A
---------------- ---------------
10,000 9,525
Oct-89 10,728 10,041
10/90 11,525 10,672
10/91 12,927 11,592
10/92 14,013 12,280
10/93 15,985 12,502
3/94 15,290 12,880
3/95 16,431 13,778
3/96 17,807 14,793
3/97 18,781 15,421
3/98 20,793 17,006
3/99 22,083 17,779
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Class A Class B
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Tax SEC SEC
Exempt Cumulative Average Cumulative Average
Insured Traditional Annual Traditional Annual
Fund Return+ Return Return+ Return
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1 Year Return 4.55% -0.42% 3.78% -0.22%
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5 Year Return 38.03% 5.63% 33.50% 5.63%
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10 Year Return 86.66% 5.92% N/A N/A
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Since Inception* 138.10% 6.33% 26.74% 4.25%
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+ Traditional returns do not include sales load.
* Inception Date - Class A: 11/22/85; Class B: 10/4/93
For the 12 month period ending March 31, 1999, SunAmerica Tax Exempt Insured
Class A returned -0.42%, compared to 6.20% for the Lehman Brothers Municipal
Bond Index. (Past performance is no guarantee of future results.)
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[LOGO] SunAmerica BULK RATE
Mutual Funds U.S. POSTAGE
PAID
The SunAmerica Center Kansas City, MO
733 Third Avenue Permit No. 2891
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
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.
IF ANN
