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[LOGO] SunAmerica
The Retirement Specialist
[GRAPHIC]
I N C O M E F U N D S
2000 Semiannual Report
U.S. Government Securities Fund
GNMA Fund
Diversified Income Fund
High Income Fund
Tax Exempt Insured Fund
[LOGO]SunAmerica
Mutual Funds
<PAGE>
SunAmerica Income Funds Semiannual Report
From the SunAmerica Fixed Income Investment Team
Michael Cheah
Paul Kunz
James T. McGrath
John Risner
Shaun Sterling
Brian Wiese
Dear Shareholders:
Overall, the U.S. fixed income markets performed strongly during the
semiannual period. However, the markets continued to be dominated by the
policies of the Federal Reserve Board, and there was high volatility and great
divergence in performance among the fixed income sectors.
Market Review
During most of the second calendar quarter, the U.S. fixed income markets
remained under pressure amid signs of excessive demand growth in the U.S.
economy and Fed tightening. The Fed's rate hike of 0.50% in May brought the
cumulative rise in interest rates since June 1999 to 1.75%, leaving the
targeted federal funds rate at 6.50%. Yield curves generally inverted in this
tightening environment, especially in the U.S. Treasury market, where
reductions in debt supply actually pushed long-term yields down.
Beginning in early summer, U.S. fixed income markets rallied sharply,
triggered by several important factors.
. A general belief that the Federal Reserve Board had engineered a "soft
landing" for the U.S. economy and thus had completed its cycle of raising
interest rates. Evidence of moderating U.S. economic growth eased
inflation concerns and moved the Federal Reserve Board to the sidelines.
So, too, did a favorable backdrop of low unemployment and higher
productivity with no sign of higher wages, potential GDP stronger than
earlier anticipated, and rising oil prices--all with virtually no
inflation. This background created a suitable environment for investors
to re-enter the bond markets. As a result, yield curves steepened during
the third calendar quarter, dramatically reversing the significant
inversion of prior months.
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. A flight to quality. Equity market volatility as well as some profit-
taking in the equity markets after the strong double-digit returns of
1999 contributed to the U.S. Treasury market's rally, especially at the
long-term end of the yield curve.
. A perceived scarcity value. The U.S. Treasury announced its decision in
mid-March to reduce the number of auctions held and to institute a
buyback program, whereby the U.S. Treasury would buy back its own longer-
dated issues with budget surplus monies. The result during the semiannual
period was less supply.
In the last few weeks of the period, uncertainty surrounding the nearing
election and the future of taxes and budget surpluses, among other factors,
surfaced, and yields began to rise again. For the third calendar quarter as a
whole, mortgage and asset-backed sectors outperformed comparable duration
Treasuries, while the investment grade corporate and high yield sectors
underperformed.
For the semiannual period overall, international bond yields, with the
exception of the U.K., were generally higher, primarily due to increases in
interest rates by the U.S. Federal Reserve Board as well as by the European
Central Bank. As in the U.S., the U.K. yield curve flattened and long-term
rates were slightly lower. Within the international sector, emerging market
bonds as a whole performed comparatively well, especially at the longer-term
end of the yield curve.
Market Outlook
The outlook for U.S. fixed income markets is generally favorable. The U.S.
economy is showing signs of coming into better balance, i.e. demand moderating
and productivity rising. At the end of the semiannual period, labor markets
were not as tight as they had been over the last several months, a leading
indicator, we believe, that the economy will be able to achieve a relatively
smooth adjustment to a more sustainable growth path by 2001. We agree with the
consensus outlook that the Federal Reserve Board is nearing the end of its
tightening bias.
Further, the supply/demand picture for U.S. bonds is constructive. We
believe that regardless of who wins the 2000 Presidential election, the fiscal
surplus of approximately $230 billion for the year 2000 and $250-$300 billion
for the year 2001 will still be there. This, in turn, indicates that the U.S.
Treasury will continue to reduce its supply of bonds. For the full year 2000,
the U.S. Treasury is anticipated to buy back roughly $30 billion of its own
longer-dated issues with budget surplus monies.
These positive conditions should present us with attractive opportunities to
invest new cash flows. With this backdrop, we 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
In spite of its conservative nature relative to other U.S. government
funds, the SunAmerica U.S. Government Securities Fund performed well. The
Fund's Class A returned 4.46% compared to 4.14% for its Lipper category
for the six months ended September 30, 2000.* (Returns do not reflect
sales charges.)
Average Annual Returns as of 9/30/00
<TABLE>
<CAPTION>
Return
Since
Inception
1 yr 5 yr 10/01/93
----- ----- ---------
<S> <C> <C> <C>
A Shares
At Net Asset Value... 5.66% 5.33% 5.19%
A Shares With
Maximum Sales Charge. 0.64% 4.31% 4.46%
</TABLE>
* Past performance is no
guarantee of future results.
Index performance is
hypothetical and is not
indicative of any mutual fund
investment.
Portfolio Review
Rather than any duration or yield curve positioning strategy, the
Fund's outperformance during the semiannual period was primarily due to
effective sector positioning. Because the U.S. bond market was so
volatile from sector to sector, we chose to move away from the "one-
third" structure among premium mortgages, short-dated securities, and
U.S. Treasuries that the Fund had long held. Instead, we chose to trade
the bond market on an opportunistic basis, investing in those sectors
that we believed offered the potential for greater total return. As of
September 30, 2000, the Fund was invested 47.7% in U.S. government
agencies, 29.8% in FNMAs and Freddie Macs, 17.6% in GNMAs, and the
remainder in Federal Home Loan Bank Corp. Discount Notes, cash and cash
equivalents.
3
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SunAmerica GNMA Fund
(formerly SunAmerica Federal Securities Fund)
As GNMAs outperformed U.S. Treasuries for the semiannual period, the
SunAmerica GNMA Fund performed well. The Fund's Class A returned 4.99%
compared to 4.69% for its Lipper category for the six months ended
September 30, 2000.* (Returns do not reflect sales charges.)
Average Annual Returns as of 9/30/00
<TABLE>
<CAPTION>
Return
Since
Inception
1 yr 5 yr 10/11/93
----- ----- ---------
<S> <C> <C> <C>
A Shares
At Net Asset
Value............ 7.53% 6.78% 6.43%
A Shares With
Maximum Sales
Charge........... 2.42% 5.74% 5.69%
</TABLE>
* Past performance is no
guarantee of future results.
Index performance is
hypothetical and is not
indicative of any mutual fund
investment.
Effective July 28, 2000, we changed the name of the Fund (formerly
known as Federal Securities Fund) to the SunAmerica GNMA Fund. We believe
that the new name more accurately reflects our investment focus on GNMAs,
which are the only U.S. agency securities explicitly guaranteed by the
U.S. government. The Fund's management team and its principal investment
practices remain the same.
Portfolio Review
The Fund benefited most during the semiannual period from its emphasis
on GNMA mortgage-backed securities. With a reduced supply of U.S.
Treasuries resulting from the fiscal surplus and the U.S. Treasury
buyback program, investors have been seeking an alternative government-
guaranteed investment. Earlier this year, Treasury Under-Secretary Gary
Gensler suggested making several changes to the relationship between the
U.S. Government and Government Sponsored Entities, specifically
recommending repealing their discretionary lines of credit. Since GNMAs
remain the only U.S. government-guaranteed, non-Treasury securities
unencumbered by credit line concerns, they outperformed both Fannie Maes
and Freddie Macs.
As of September 30, 2000, the Fund was invested 62.5% in GNMAs, 28.8%
in U.S. government agencies, 3.6% in FNMAs and Freddie Macs, and the
remainder in Federal Home Loan Bank Corp Discount Notes, cash and cash
equivalents.
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SunAmerica Diversified Income Fund
SunAmerica Diversified Income Fund Class A posted a return of -1.41%
for the six months ended September 30, 2000.* (Returns do not reflect
sales charges.) The Fund's underperformance was primarily due to its
underweighting in the emerging markets sector, its full allocation to the
high yield sector, and its shorter-than-benchmark duration positioning in
the U.S. Government sector.
Average Annual Returns as of 9/30/00
<TABLE>
<CAPTION>
Return
Since
Inception
1 yr 5 yr 10/05/93
----- ----- ---------
<S> <C> <C> <C>
A Shares
At Net Asset
Value............ 6.26% 6.15% 4.42%
A Shares With
Maximum Sales
Charge........... 1.21% 5.12% 3.69%
</TABLE>
* Past performance is no
guarantee of future results.
Portfolio Review
International Bonds. Emerging markets bonds performed well over the
semiannual period, as those markets came to believe the Federal Reserve
Board tightening cycle would soon be coming to an end. Their performance
was assisted during the second calendar quarter in particular by a smooth
election in Mexico, several interest rate cuts in Brazil in an effort to
spur economic growth and a stabilizing of Latin American currencies.
We chose to reduce the Fund's exposure to South American sovereign debt
and to increase some of our emerging market corporate positions. Based on
concerns regarding economic conditions in these nations, we eliminated
from the portfolio the Republic of Argentina and the Republic of Brazil,
and we added to Celcaribe, a cellular telephone issue, at attractive
levels. We maintained our positions in Mexico. As anticipated in our last
shareholder report, we also established a position in Asian bonds through
Indonesian corporate Asia Pulp & Paper (APP International Finance).
High Yield. The high yield market posted negative returns for the early
part of the second calendar quarter, but then seemed to have bounced off
its lows of May with three of the four weeks in June seeing positive cash
inflows. This helped spreads tighten modestly and allowed several new
issues that had been
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shelved during previous months to be priced. The high yield sector then
suffered in the third quarter from several high profile earnings
revisions. The Fund's positions in Mpower Communications and ICG
Communications were the major sources of underperformance in this portion
of the portfolio. These and other telecommunications names that the Fund
does not hold had a severe negative impact on the entire high yield
market. High yield sectors such as energy and gaming held up very well
over the semiannual period, but only partially offset the weakness in
telecommunications.
U.S. Treasuries. U.S. Government technicals remained favorable through
much of the semiannual period, as Treasury buybacks continued and benign
economic numbers boosted the hope for the ending of the Federal Reserve
Board's active tightening policy. In fact, after the May rate hike of
0.50%, the Fed has been on hold. The targeted federal funds rate remained
at 6.50%, but most government bonds continued to trade well under the
funds rate. Maintaining our focus on the 3 to 5 year maturity range,
which is shorter than the benchmark, we did not fully participate in the
third calendar quarter Treasury market rally at the longer end of the
yield curve.
Going forward, we expect to continue the allocation strategy we began
implementing during the last fiscal year--that is, to evenly balance the
portfolio's allocation among the three major components of the Fund. In
the emerging markets sector, we intend to continue focusing on corporate
positions rather than sovereign debt and are actively considering
investing in more longer-dated, as opposed to intermediate, issues. In
the high yield sector, September and October tend to be seasonal low
points, followed by a strengthening in November and December. We expect
this pattern to continue through the end of 2000, and thus, while there
are pockets of distress, we believe the broad high yield market currently
represents good value. Our confidence in the U.S. Government sector is
tempered somewhat by strength in oil prices and weakness in the euro.
Winners and Losers
As indicated above, most of the Fund's disappointments were in the high
yield sector, including ICG Communications and Mpower Communications.
Asia Pulp & Paper (APP International Finance) also disappointed, although
we continue to believe its fundamentals remain favorable.
Among the Fund's winners were IMPSAT Fiber Networks Corp., an
Argentinian satellite telecommunications company, and GulfMark Offshore,
a U.S. energy services company. Given the recent high volatility in the
various sectors of the fixed income market, it is important to keep in
mind that we remain disciplined in our process, and we continue to carry
out integrated fundamental and technical analysis.
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SunAmerica High Income Fund
During a challenging period for the high yield market, SunAmerica High
Income Fund Class A posted a return of -2.67% for the six months ended
September 30, 2000.* (Returns do not reflect sales charges.) The Fund was
impacted most by its overweighting in the telecommunications sector.
Average Annual Returns as of 9/30/00
<TABLE>
<CAPTION>
Return
Since
Inception
1 yr 5 yr 10 yr 9/19/86
------ ----- ----- ---------
<S> <C> <C> <C> <C>
A Shares
At Net Asset
Value........... 0.38% 5.88% 9.40% 7.21%
A Shares With
Maximum Sales
Charge.......... -4.39% 4.86% 8.87% 6.84%
</TABLE>
* Past performance is no
guarantee of future results.
Portfolio Review
The broad high yield market appeared to have troughed toward the end of
May, as liquidity and new issuance slowed fairly dramatically. In late
August and early September, the announcement of several positive merger
and acquisition transactions buoyed the market. Specifically, these were
WorldCom's purchase of Intermedia Communications and Verizon's investment
in NorthPoint in the telecommunications sector and Transocean's
acquisition of R&B Falcon in the energy sector. The Fund owned bonds of
each of the companies acquired, and all of these bonds rose upon their
acquisition by investment grade companies.
This momentum, however, was quickly halted in mid-September by several
high profile earnings shortfalls in the telecommunications sector.
Impacting the Fund were ICG Communications and Mpower Communications.
These shortfalls, and many others from overextended telecommunications
companies that the Fund does not hold, sent the high yield market
reeling. At the same time, it is worth noting that within the
telecommunications sector, the wireless sub-sector performed markedly
better than the landline group. Cyclical sectors, such as steel and
chemicals, were also hit hard over the period, primarily due to high
inventory and high energy prices, respectively. The Fund benefited from
being underweight in these cyclical sectors.
7
<PAGE>
Sectors with better industry fundamentals, notably energy and gaming,
continued to perform well. Energy, where the Fund was modestly
overweighted, benefited from rising oil prices over the semiannual
period. Fund holdings Parker Drilling and R&B Falcon performed
particularly well. Gaming, where the Fund is modestly underweighted,
benefited from a strong economy and leisure spending. Fund holdings
Venetian Casino Resort and Mandalay Bay were strong performers.
During the semiannual period, we reduced the total number of names in
the portfolio--while staying broadly diversified--to further enhance the
Fund's focus. The number of names in the portfolio on September 30, 2000
was 90, down from 117 at the beginning of the period. We expect to
maintain this approximate number of names for the foreseeable future.
We also continue to use proprietary, bottom-up credit research and
analysis to emphasize the strength of the company issuing the bond over
the quality of the bond itself. As of September 30, 2000, approximately
20% of the Fund's assets were rated in the BB range and more than 50% in
the B range.
While there are pockets of distress and this fixed income sector is
currently out of favor, looking ahead we remain generally positive on the
broad high yield market for several reasons.
. Historically, September and October are weak months in the high yield
sector, followed by a strengthening in November and December. We expect
this pattern to continue through the end of 2000.
. The yield spread between high yield bonds and investment grade bonds,
such as Treasuries, continues to reflect value in the high-yield
market. In fact, the broad high yield market currently offers a spread
over Treasury notes exceeding 6.50%--a level not seen since September
1998.
. We optimistically anticipate that the year 2001 could bring coupon
returns from high yield bonds of 10%-10.5% plus a modest appreciation
of principal of 2%-3%.
In this environment, we are focused on principal protection and income
and remain confident the market will reward patient investors seeking
current income.
Winners and Losers
R&B Falcon, NorthPoint Communications, Intermedia Communications and
Schein Pharmaceutical were among the Fund's best performing holdings. In
addition to ICG Communications and Mpower Communications, PSI Net,
Orbcomm Global, and Metal Management were poor performers for the Fund.
8
<PAGE>
SunAmerica Tax Exempt Insured Fund
Given its conservative management and greater focus on insured
municipal bonds relative to other municipal debt funds, SunAmerica Tax
Exempt Insured Fund closely tracked its Lipper category average. The
Fund's Class A returned 3.27% compared to 3.43% for its Lipper category
average for the six months ended September 30, 2000. For the quarter
ended September 30, 2000, the Fund's Class A slightly outperformed its
Lipper category average, with total returns of 2.17% and 2.15%,
respectively.* (Returns do not reflect sales charges.)
Average Annual Returns as of 9/30/00
<TABLE>
<CAPTION>
Return
Since
Inception
1 yr 5 yr 10 yr 11/22/85
----- ----- ----- ---------
<S> <C> <C> <C> <C>
A Shares
At Net Asset
Value........... 5.30% 4.71% 5.52% 6.16%
A Shares
With Maximum
Sales Charge.... 0.30% 3.70% 5.01% 5.81%
</TABLE>
* Past performance is no
guarantee of future results.
Index performance is
hypothetical and is not
indicative of any mutual fund
investment.
The municipal bond market mirrored the Treasury market for much of the
semiannual period. Both markets sold off dramatically in the first six
weeks for several reasons. Fear that the Federal Reserve Board was behind
the curve in staving off inflation was the primary reason. The second
factor was the perceived overreaction to the effect the Treasury's
scheduled buyback of longer-dated bonds would have on rates. Both of
these concerns were addressed in the following three months or so, as
several benign economic numbers were reported. The municipal market, like
the Treasury market, rallied. In the last three weeks of the semiannual
period, fears of inflation resurfaced with the spike in oil prices, and
municipal bond yields rose again. Still, for the semiannual period
overall, 30-year municipal bond yields fell 0.08%, from 5.62% to 5.54%,
having reached a peak of 6.00% in May 2000.
The supply/demand picture was constructive. There remained a compelling
lack of municipal supply--down nearly 8% for the second quarter of 2000
over the same period one year prior and down nearly 18% for the third
quarter. New issue volume was relatively stable, but there was a
significant reduction in refundings, as municipalities had little
incentive to refinance in a higher interest rate environment. Demand for
municipals from the retail buyer was even stronger than it was last year,
due in part to the perception that budget surpluses at the federal, state
and local levels would cut supply further and therefore create a
9
<PAGE>
scarcity value. Insurance companies and other institutions, historically
large buyers of municipal bonds, were relatively quiet during the first
part of the semiannual period but came back into the market during August
and September when the relative value of municipals versus Treasuries
became quite attractive.
Credit upgrades to downgrades continued at approximately a 3:1 ratio,
indicating greater economic diversity, increased financial flexibility
and still healthy tax coffers in many locales, solidified by the
sustained national economic expansion. Particularly noteworthy was New
York City's credit upgrade in the third calendar quarter, as this market
is the nation's largest local issuer of municipal debt.
Portfolio Review
Over the semiannual period, we kept the Fund's average duration shorter
than the benchmark, based on ongoing strength in the U.S. economy and the
Federal Reserve Board's bias toward raising interest rates. This
positioning, however, impacted Fund performance when the municipal market
rallied following the Fed's last rate hike in May. Toward the end of the
period, we slightly lengthened the Fund's duration by selling Jefferson
County, Colorado Utilities and buying Washington State General
Obligations. This strategy added yield to Fund returns. The average
duration of the Fund at September 30, 2000 was 7.4 years.
We remained concentrated on issues from Illinois and Texas, which
offered the highest yields coupled with good liquidity and attractive
pricing. We sold almost all of the Fund's California holdings, taking
profits in most, as this state's paper was trading very rich to the
general market. We redeployed those assets into housing paper, seeking
higher current yield. We bought, for example, North Carolina Housing
Finance Agency and Maine State Housing Finance Authority. The Fund
remained diversified among 29 states at the end of the semiannual period.
We maintained the Fund's high portfolio quality. As of September 30,
2000, more than 94% of the Fund's assets were in "Aaa"-rated bonds or in
bonds backed by publicly held municipal insurers, such as American
Municipal Bond Assurance Corp., Financial Guarantee Insurance Company and
Municipal Bond Investors Assurance Corp. The remainder of the portfolio
was in "Aa"-rated bonds.
Looking ahead, municipals should benefit from positive supply/demand
technicals as well as local governments' improving fiscal profiles due to
healthy tax revenue growth. In the near term, we intend to lengthen the
Fund's average duration further toward a neutral position and to focus on
yield over total return.
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<PAGE>
Winners and Losers
The Fund's holdings in shorter-term paper disappointed, including Bexar
County, Texas Health Facilities Development Corp. and Harris County,
Texas Hospital District, but we continue to hold both. Our California
holdings that we sold at a profit performed well for the Fund, especially
Long Beach, California Harbor Revenue and San Francisco City and County
Redevelopment Agency. Other winners for the Fund included Houston, Texas
Independent School District General Obligation and New Orleans General
Obligations.
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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<PAGE>
SunAmerica Income Funds
STATEMENT OF ASSETS AND LIABILITIES -- September 30, 2000 (unaudited)
<TABLE>
<CAPTION>
U.S. Government GNMA Diversified High Tax Exempt
Securities Fund Fund Income Fund Income Fund Insured Fund
--------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment securities,
at value (identified
cost $174,205,447;
$72,302,104;
$55,927,108;
$166,383,894; and
$76,818,315
respectively).......... $171,229,073 $71,979,009 $48,700,307 $139,682,115 $80,439,956
Short-term securities
(identified cost
$14,986,625;
$14,986,625; $690,168;
$3,129,015; and
$900,000 respectively). 14,986,625 14,986,625 119,063 540,350 900,000
Repurchase agreements
(cost equals market)... 8,674,000 3,801,000 109,000 -- --
Cash.................... 461,145 28,284 604 106,859 21,201
Interest and dividends
receivable............. 2,205,566 526,482 1,274,412 3,508,719 1,383,535
Receivable for
investments sold....... -- -- -- 995,700 --
Receivable for shares of
beneficial interest
sold................... 17,077 340,288 65,460 376,887 933,182
Receivable due from
adviser................ 853 21,893 1,885 3,077 1,172
Prepaid expenses........ 2,256 748 961 1,604 969
------------ ----------- ----------- ------------ -----------
Total assets........... 197,576,595 91,684,329 50,271,692 145,215,311 83,680,015
------------ ----------- ----------- ------------ -----------
LIABILITIES:
Payable for investments
purchased.............. 16,443,132 15,278,021 -- 2,161,481 --
Dividends payable....... 397,871 177,342 186,900 599,946 154,565
Payable for shares of
beneficial interest
redeemed............... 301,335 302,543 32,626 1,002,331 54,117
Accrued expenses........ 198,723 62,589 75,717 142,270 85,848
Investment advisory and
management fees
payable................ 111,271 30,684 27,177 96,215 34,382
Distribution and service
maintenance fees
payable................ 67,062 33,666 20,675 95,564 32,457
------------ ----------- ----------- ------------ -----------
Total liabilities...... 17,519,394 15,884,845 343,095 4,097,807 361,369
------------ ----------- ----------- ------------ -----------
Net assets............. $180,057,201 $75,799,484 $49,928,597 $141,117,504 $83,318,646
============ =========== =========== ============ ===========
NET ASSETS WERE COMPOSED
OF:
Shares of beneficial
interest, $.01 par
value.................. $ 212,918 $ 71,140 $ 138,622 $ 249,672 $ 66,711
Paid-in capital......... 212,372,380 76,153,673 91,995,303 213,967,144 82,318,149
------------ ----------- ----------- ------------ -----------
212,585,298 76,224,813 92,133,925 214,216,816 82,384,860
Accumulated
undistributed net
investment
income................. 400,306 66,823 158,127 270,720 63,019
Accumulated net realized
loss on investments,
futures,
options and foreign
currency............... (29,952,029) (169,057) (34,565,549) (44,079,588) (2,750,874)
Net unrealized
appreciation
(depreciation) on
investments............ (2,976,374) (323,095) (7,797,906) (29,290,444) 3,621,641
------------ ----------- ----------- ------------ -----------
Net assets............. $180,057,201 $75,799,484 $49,928,597 $141,117,504 $83,318,646
============ =========== =========== ============ ===========
Class A (unlimited
shares authorized):
Net assets............. $153,025,890 $52,600,090 $29,655,403 $ 54,295,476 $68,079,157
Shares of beneficial
interest issued and
outstanding........... 18,095,768 4,940,492 8,239,962 9,612,277 5,451,157
Net asset value and
redemption price per
share................. $ 8.46 $ 10.65 $ 3.60 $ 5.65 $ 12.49
Maximum sales charge
(4.75% of offering
price)................ 0.42 0.53 0.18 0.28 0.62
------------ ----------- ----------- ------------ -----------
Maximum offering price
to public............. $ 8.88 $ 11.18 $ 3.78 $ 5.93 $ 13.11
============ =========== =========== ============ ===========
Class B (unlimited
shares authorized):
Net assets............. $ 26,145,816 $19,964,988 $17,782,567 $ 73,165,002 $14,580,615
Shares of beneficial
interest issued and
outstanding........... 3,091,345 1,870,692 4,931,533 12,944,407 1,167,227
Net asset value,
offering and
redemption price per
share................. $ 8.46 $ 10.67 $ 3.61 $ 5.65 $ 12.49
============ =========== =========== ============ ===========
Class II (unlimited
shares authorized):
Net assets............. $ 885,495 $ 3,234,406 $ 2,490,627 $ 13,657,026 $ 658,874
Shares of beneficial
interest issued and
outstanding........... 104,679 302,767 690,672 2,410,489 52,763
Net asset value and
redemption price per
share................. $ 8.46 $ 10.68 $ 3.61 $ 5.67 $ 12.49
Maximum sales charge
(1.00% of offering
price)................ 0.09 0.11 0.04 0.06 0.13
------------ ----------- ----------- ------------ -----------
Maximum offering price
to public............. $ 8.55 $ 10.79 $ 3.65 $ 5.73 $ 12.62
============ =========== =========== ============ ===========
</TABLE>
See Notes to Financial Statements
12
<PAGE>
SunAmerica Income Funds
STATEMENT OF OPERATIONS -- For the six months ended September 30, 2000
(unaudited)
<TABLE>
<CAPTION>
U.S. Government Diversified High Tax Exempt
Securities Fund GNMA Fund Income Fund Income Fund Insured Fund
--------------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest................. $6,378,680 $2,401,077 $ 2,771,171 $ 9,155,294 $2,423,022
Dividends................ -- -- 184,069 467,572 --
---------- ---------- ----------- ------------ ----------
Total Investment
Income................ 6,378,680 2,401,077 2,955,240 9,622,866 2,423,022
---------- ---------- ----------- ------------ ----------
Expenses:
Investment advisory and
management fees......... 696,746 176,832 171,283 579,611 210,140
Distribution and service
maintenance fees--Class
A....................... 264,464 82,195 51,360 105,166 118,824
Distribution and service
maintenance fees--Class
B....................... 169,294 105,079 107,887 403,182 77,693
Distribution and service
maintenance fees--Class
II...................... 4,092 11,263 8,881 69,159 3,107
Transfer agent fees and
expenses--Class A....... 196,264 64,116 42,860 85,131 90,646
Transfer agent fees and
expenses--Class B....... 45,975 29,642 32,418 105,369 20,271
Transfer agent fees and
expenses--Class II...... 1,766 4,056 2,875 18,043 1,665
Custodian fees and
expenses................ 40,658 33,264 33,935 44,025 34,962
Printing expense......... 19,860 6,360 5,855 11,850 4,300
Audit and tax consulting
fees.................... 10,860 10,980 10,980 10,845 10,980
Registration fees--Class
A....................... 7,556 6,064 5,212 6,009 6,790
Registration fees--Class
B....................... 4,212 5,368 5,096 8,064 4,494
Registration fees--Class
II...................... 3,698 6,028 6,547 6,707 4,765
Trustees' fees and
expenses................ 6,896 2,456 2,118 5,892 2,677
Legal fees and expenses.. 6,070 2,240 2,947 4,530 3,890
Insurance expense........ 318 202 50 281 1,805
Interest expense......... -- -- 554 69,248 --
Miscellaneous expenses... 106 39 154 441 356
---------- ---------- ----------- ------------ ----------
Total expenses before
reimbursements and
custody credits....... 1,478,835 546,184 491,012 1,533,553 597,365
Expenses reimbursed by
investment adviser.... (3,993) (122,889) (6,832) (12,957) (5,461)
Custody credits earned
on cash balances...... (1,623) (9) (1,973) (7,585) (832)
---------- ---------- ----------- ------------ ----------
Net expenses........... 1,473,219 423,286 482,207 1,513,011 591,072
---------- ---------- ----------- ------------ ----------
Net investment income..... 4,905,461 1,977,791 2,473,033 8,109,855 1,831,950
---------- ---------- ----------- ------------ ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss)
on investments........... (444,392) 683,098 (2,261,860) (4,549,074) 316,192
Net realized loss on
futures contracts........ -- -- -- -- (38,952)
Net change in unrealized
appreciation/depreciation
on investments........... 3,331,096 733,777 (1,075,639) (7,795,859) 528,404
---------- ---------- ----------- ------------ ----------
Net realized and
unrealized gain (loss) on
investments.............. 2,886,704 1,416,875 (3,337,499) (12,344,933) 805,644
---------- ---------- ----------- ------------ ----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS............... $7,792,165 $3,394,666 $ (864,466) $ (4,235,078) $2,637,594
========== ========== =========== ============ ==========
</TABLE>
See Notes to Financial Statements
13
<PAGE>
SunAmerica Income Funds
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
U.S. Government Securities Fund GNMA Fund Diversified Income Fund
--------------------------------- ------------------------- -------------------------
For the For the
For the period ended For the period ended For the
period ended For the September 30, year ended September 30, year ended
September 30, year ended 2000 March 31, 2000 March 31,
2000 (unaudited) March 31, 2000 (unaudited) 2000 (unaudited) 2000
----------------- --------------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income.... $ 4,905,461 $ 11,603,811 $ 1,977,791 $ 3,138,717 $ 2,473,033 $ 5,811,797
Net realized gain (loss)
on investments.......... (444,392) (7,129,844) 683,098 (759,353) (2,261,860) (4,742,632)
Net change in unrealized
appreciation/depreciation
on investments.......... 3,331,096 (3,381,253) 733,777 (992,360) (1,075,639) 4,011,167
--------------- --------------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets resulting from
operations............... 7,792,165 1,092,714 3,394,666 1,387,004 (864,466) 5,080,332
--------------- --------------- ----------- ----------- ----------- -----------
Dividends and
distributions to
shareholders:
From net investment
income (Class A)........ (3,903,897) (7,316,206) (1,284,303) (1,945,620) (1,320,478) (3,008,723)
From net investment
income (Class B)........ (759,044) (3,267,610) (504,074) (1,036,234) (898,331) (2,822,580)
From net investment
income (Class II)....... (18,050) (55,903) (54,691) (26,842) (73,965) (31,573)
--------------- --------------- ----------- ----------- ----------- -----------
Total dividends and
distributions to
shareholders............. (4,680,991) (10,639,719) (1,843,068) (3,008,696) (2,292,774) (5,862,876)
--------------- --------------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets resulting from
capital share
transactions (Note 6).... (17,209,639) (45,552,591) 6,311,087 7,688,509 (3,477,946) (7,753,000)
--------------- --------------- ----------- ----------- ----------- -----------
Total increase (decrease)
in net assets............ (14,098,465) (55,099,596) 7,862,685 6,066,817 (6,635,186) (8,535,544)
NET ASSETS:
Beginning of period...... 194,155,666 249,255,262 67,936,799 61,869,982 56,563,783 65,099,327
--------------- --------------- ----------- ----------- ----------- -----------
End of period [including
undistributed
(distributions in excess
of) net investment
income for September 30,
2000 and March 31, 2000
of $400,306, $175,836,
$66,823, $(67,900),
$158,127 and $(22,132),
respectively]........... $ 180,057,201 $ 194,155,666 $75,799,484 $67,936,799 $49,928,597 $56,563,783
=============== =============== =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
14
<PAGE>
SunAmerica Income Funds
STATEMENT OF CHANGES IN NET ASSETS -- (continued)
<TABLE>
<CAPTION>
High Income Fund Tax Exempt Insured Fund
--------------------------- --------------------------
For the For the
period ended For the period ended For the
September 30, year ended September 30, year ended
2000 March 31, 2000 March 31,
(unaudited) 2000 (unaudited) 2000
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income.... $ 8,109,855 $ 17,748,996 $ 1,831,950 $ 3,978,886
Net realized gain (loss)
on investments.......... (4,549,074) (9,398,653) 316,192 (1,316,581)
Net realized gain (loss)
on futures contracts.... -- -- (38,952) 11,048
Net change in unrealized
appreciation/depreciation
on investments.......... (7,795,859) (4,992,239) 528,404 (4,212,128)
------------ ------------ ----------- ------------
Net increase (decrease) in
net assets resulting from
operations............... (4,235,078) 3,358,104 2,637,594 (1,538,775)
------------ ------------ ----------- ------------
Dividends to shareholders:
From net investment
income (Class A)........ (3,078,104) (6,739,003) (1,529,542) (3,187,067)
From net investment
income (Class B)........ (3,873,487) (9,974,079) (296,982) (686,786)
From net investment
income (Class II)....... (666,122) (1,250,960) (12,159) (9,128)
------------ ------------ ----------- ------------
Total dividends to
shareholders............. (7,617,713) (17,964,042) (1,838,683) (3,882,981)
------------ ------------ ----------- ------------
Net decrease in net assets
resulting from capital
share transactions
(Note 6)................. (14,052,416) (22,610,967) (2,976,833) (11,448,210)
------------ ------------ ----------- ------------
Total decrease in net
assets................... (25,905,207) (37,216,905) (2,177,922) (16,869,966)
NET ASSETS:
Beginning of period...... 167,022,711 204,239,616 85,496,568 102,366,534
------------ ------------ ----------- ------------
End of period [including
undistributed
(distributions in excess
of) net investment
income for September 30,
2000 and March 31, 2000
of $270,720, $(221,422),
$63,019 and $69,752,
respectively]........... $141,117,504 $167,022,711 $83,318,646 $ 85,496,568
============ ============ =========== ============
</TABLE>
See Notes to Financial Statements
15
<PAGE>
SunAmerica Income Funds
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
-------------------------------
Net gain
(loss) on Net
Net Asset investments Dividends Asset
Value, Net (both realized Total from from net Value,
beginning investment and investment investment end of
Period Ended of period income(1) unrealized) operations income period
---------------- --------- ---------- -------------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Class A
-------
3/31/96......... $8.23 $0.62 $ 0.16 $0.78 $(0.51) $8.50
3/31/97......... 8.50 0.59 (0.26) 0.33 (0.48) 8.35
3/31/98......... 8.35 0.58 0.21 0.79 (0.48) 8.66
3/31/99......... 8.66 0.49 (0.07) 0.42 (0.43) 8.65
3/31/00......... 8.65 0.44 (0.37) 0.07 (0.41) 8.31
9/30/00(6)...... 8.31 0.22 0.14 0.36 (0.21) 8.46
Class B
-------
3/31/96......... $8.24 $0.55 $ 0.17 $0.72 $(0.45) $8.51
3/31/97......... 8.51 0.54 (0.26) 0.28 (0.43) 8.36
3/31/98......... 8.36 0.52 0.20 0.72 (0.42) 8.66
3/31/99......... 8.66 0.45 (0.09) 0.36 (0.37) 8.65
3/31/00......... 8.65 0.40 (0.38) 0.02 (0.36) 8.31
9/30/00(6)...... 8.31 0.20 0.14 0.34 (0.19) 8.46
Class II
--------
6/01/99-
3/31/00(3)..... $8.49 $0.31 $(0.20) $0.11 $(0.28) $8.32
9/30/00(6)...... 8.32 0.19 0.13 0.32 (0.18) 8.46
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
-------------------------------
Ratio of
Net expenses Ratio of net
Assets to investment
end of average income to
Total period net average net Portfolio
Period Ended Return(2) (000's) assets assets Turnover
---------------- --------- -------- -------------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
3/31/96......... 9.62% $125,504 1.44%(5) 7.11%(5) 142%
3/31/97......... 3.98 113,171 1.54 (5) 7.01 (5) 148
3/31/98......... 9.62 97,496 1.63 6.73 229
3/31/99......... 4.91 135,734 1.50 5.72 291
3/31/00......... 0.89 150,975 1.51 5.33 717
9/30/00(6)...... 4.45 153,026 1.46 (4) 5.41 (4) 861
3/31/96......... 8.87% $428,772 2.13% 6.46% 142%
3/31/97......... 3.31 289,040 2.18 6.36 148
3/31/98......... 8.80 207,950 2.26 6.11 229
3/31/99......... 4.25 113,521 2.15 5.10 291
3/31/00......... 0.23 42,273 2.18 4.69 717
9/30/00(6)...... 4.11 26,146 2.14 4.74 (4) 861
6/01/99-
3/31/00(3)..... 1.30% $ 907 2.20%(4)(5) 4.50%(4)(5) 717%
9/30/00(6)...... 4.07 885 2.20 (4)(5) 4.67 (4)(5) 861
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GNMA FUND
---------
Net gain
(loss) on Distri-
Net Asset investments Dividends butions
Value, Net (both realized Total from from net from
beginning investment and investment investment capital
Period Ended of period income(1) unrealized) operations income gains
---------------- --------- ---------- -------------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A
-------
3/31/96......... $ 9.98 $0.68 $ 0.40 $1.08 $(0.63) $ --
3/31/97......... 10.43 0.65 (0.10) 0.55 (0.59) --
3/31/98......... 10.39 0.62 0.63 1.25 (0.59) (0.02)
3/31/99......... 11.03 0.57 0.11 0.68 (0.53) (0.50)
3/31/00......... 10.68 0.53 (0.29) 0.24 (0.50) --
9/30/00(6)...... 10.42 0.30 0.21 0.51 (0.28) --
Class B
-------
3/31/96......... $10.01 $0.56 $ 0.44 $1.00 $(0.56) $ --
3/31/97......... 10.45 0.57 (0.08) 0.49 (0.52) --
3/31/98......... 10.42 0.55 0.63 1.18 (0.52) (0.02)
3/31/99......... 11.06 0.50 0.12 0.62 (0.46) (0.50)
3/31/00......... 10.72 0.46 (0.30) 0.16 (0.44) --
9/30/00(6)...... 10.44 0.27 0.21 0.48 (0.25) --
Class II
--------
6/01/99-
3/31/00(3)...... $10.52 $0.37 $(0.09) $0.28 $(0.34) $ --
9/30/00(6)...... 10.46 0.27 0.20 0.47 (0.25) --
<CAPTION>
GNMA FUND
---------
Ratio of
Net Net expenses Ratio of net
Asset Assets to investment
Total Value, end of average income to
distri- end of Total period net average net Portfolio
Period Ended butions period Return(2) (000's) assets assets Turnover
---------------- -------- ------ --------- ------- -------------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
3/31/96......... $(0.63) $10.43 10.94% $40,278 1.37% 6.12% 311%
3/31/97......... (0.59) 10.39 5.40 30,509 1.41 6.11 426
3/31/98......... (0.61) 11.03 12.29 31,628 1.47 5.75 529
3/31/99......... (1.03) 10.68 6.21 35,809 1.41 5.19 456
3/31/00......... (0.50) 10.42 2.40 44,155 1.37 5.06 910
9/30/00(6)...... (0.28) 10.65 4.99 52,600 0.99 (4)(5) 5.85 (4)(5) 511
3/31/96......... $(0.56) $10.45 10.13% $26,165 2.01% 5.64% 311%
3/31/97......... (0.52) 10.42 4.82 18,929 2.07 5.46 426
3/31/98......... (0.54) 11.06 11.54 18,837 2.13 5.09 529
3/31/99......... (0.96) 10.72 5.63 26,061 2.07 4.53 456
3/31/00......... (0.44) 10.44 1.55 22,376 2.03 4.41 910
9/30/00(6)...... (0.25) 10.67 4.65 19,965 1.64 (4)(5) 5.19 (4)(5) 511
6/01/99-
3/31/00(3)...... $(0.34) $10.46 2.72% $ 1,406 2.10%(4)(5) 4.34%(4)(5) 910%
9/30/00(6)...... (0.25) 10.68 4.54 3,234 1.64 (4)(5) 5.21 (4)(5) 511
</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>
3/31/96 3/31/97 3/31/00 9/30/00
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Government Securities
Fund Class A .04% .01% -- --
U.S. Government Securities
Fund Class II -- -- 0.86% 0.98%
GNMA Fund Class A -- -- -- 0.32
GNMA Fund Class B -- -- -- 0.36
GNMA Fund Class II -- -- 1.98 0.92
</TABLE>
(6)Unaudited
See Notes to Financial Statements
16
<PAGE>
SunAmerica Income Funds
FINANCIAL HIGHLIGHTS -- (continued)
<TABLE>
<CAPTION>
DIVERSIFIED INCOME FUND
-----------------------
Net gain
(loss) on Net
Net Asset investments Dividends Asset
Value, Net (both realized Total from from net Value,
beginning investment and investment investment end of
Period Ended of period income(1) unrealized) operations income period
---------------- --------- ---------- -------------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Class A
-------
3/31/96......... $4.14 $0.39 $ 0.16 $ 0.55 $(0.40) $4.29
3/31/97......... 4.29 0.37 0.10 0.47 (0.37) 4.39
3/31/98......... 4.39 0.40 0.27 0.67 (0.38) 4.68
3/31/99......... 4.68 0.40 (0.80) (0.40) (0.42) 3.86
3/31/00......... 3.86 0.38 (0.04) 0.34 (0.38) 3.82
9/30/00(6)...... 3.82 0.18 (0.23) (0.05) (0.17) 3.60
Class B
-------
3/31/96......... $4.15 $0.36 $ 0.17 $ 0.53 $(0.38) $4.30
3/31/97......... 4.30 0.35 0.10 0.45 (0.35) 4.40
3/31/98......... 4.40 0.38 0.26 0.64 (0.35) 4.69
3/31/99......... 4.69 0.39 (0.82) (0.43) (0.39) 3.87
3/31/00......... 3.87 0.36 (0.04) 0.32 (0.36) 3.83
9/30/00(6)...... 3.83 0.17 (0.23) (0.06) (0.16) 3.61
Class II
--------
6/01/99-
3/31/00(3)..... $3.83 $0.25 $ 0.03 $ 0.28 $(0.28) $3.83
9/30/00(6)...... 3.83 0.16 (0.22) (0.06) (0.16) 3.61
<CAPTION>
DIVERSIFIED INCOME FUND
-----------------------
Ratio of
Net expenses Ratio of net
Assets to investment
end of average income to
Total period net average net Portfolio
Period Ended Return(2) (000's) assets assets Turnover
---------------- --------- -------- -------------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
3/31/96......... 13.78% $ 16,762 1.46% 8.96% 166%
3/31/97......... 11.43 22,601 1.42 8.68 131
3/31/98......... 15.84 25,517 1.45 8.83 157
3/31/99......... (8.75) 28,470 1.46 9.84 49
3/31/00......... 9.49 30,633 1.51 9.99 62
9/30/00(6)...... (1.41) 29,655 1.54 (4) 9.67 (4) 22
3/31/96......... 13.09% $110,949 2.06% 8.42% 166%
3/31/97......... 10.73 78,081 2.04 8.05 131
3/31/98......... 15.11 63,397 2.06 8.14 157
3/31/99......... (9.28) 36,629 2.09 9.22 49
3/31/00......... 8.79 24,476 2.17 9.45 62
9/30/00(6)...... (1.72) 17,783 2.20 (4) 9.04 (4) 22
6/01/99-
3/31/00(3)..... 7.77% $ 1,454 2.15%(4)(5) 9.06%(4)(5) 62%
9/30/00(6)...... (1.70) 2,491 2.15 (4)(5) 8.92 (4)(5) 22
--------------------------------------------------------------------------------
<CAPTION>
HIGH INCOME FUND
----------------
Net gain
(loss) on Net
Net Asset investments Dividends Asset
Value, Net (both realized Total from from net Value,
beginning investment and investment investment end of
Period Ended of period income(1) unrealized) operations income period
---------------- --------- ---------- -------------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Class A
-------
3/31/96......... $6.95 $0.67 $ 0.02 $ 0.69 $(0.69) $6.95
3/31/97......... 6.95 0.65 0.12 0.77 (0.66) 7.06
3/31/98......... 7.06 0.68 0.68 1.36 (0.64) 7.78
3/31/99......... 7.78 0.66 (1.12) (0.46) (0.69) 6.63
3/31/00......... 6.63 0.64 (0.51) 0.13 (0.65) 6.11
9/30/00(6)...... 6.11 0.32 (0.48) (0.16) (0.30) 5.65
Class B
-------
3/31/96......... $6.96 $0.62 $ 0.03 $ 0.65 $(0.65) $6.96
3/31/97......... 6.96 0.61 0.12 0.73 (0.62) 7.07
3/31/98......... 7.07 0.63 0.69 1.32 (0.60) 7.79
3/31/99......... 7.79 0.62 (1.13) (0.51) (0.64) 6.64
3/31/00......... 6.64 0.61 (0.53) 0.08 (0.61) 6.11
9/30/00(6)...... 6.11 0.30 (0.47) (0.17) (0.29) 5.65
Class II
--------
2/02/98-
3/31/98(3)..... $7.70 $0.10 $ 0.07 $ 0.17 $(0.08) $7.79
3/31/99......... 7.79 0.59 (1.09) (0.50) (0.64) 6.65
3/31/00......... 6.65 0.60 (0.52) 0.08 (0.61) 6.12
9/30/00(6)...... 6.12 0.31 (0.47) (0.16) (0.29) 5.67
<CAPTION>
HIGH INCOME FUND
----------------
Ratio of
Net expenses Ratio of net
Assets to investment
end of average income to
Total period net average net Portfolio
Period Ended Return(2) (000's) assets assets Turnover
---------------- --------- -------- -------------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
3/31/96......... 10.43% $ 35,963 1.53% 9.36% 183%
3/31/97......... 11.46 41,139 1.50 9.10 164
3/31/98......... 20.07 56,442 1.52 9.13 236
3/31/99......... (6.07) 69,913 1.51 9.48 120
3/31/00......... 2.04 63,415 1.52 10.10 124
9/30/00(6)...... (2.67) 54,295 1.58 (4) 10.86 (4) 55
3/31/96......... 9.83% $ 91,800 2.06%(5) 8.85%(5) 183%
3/31/97......... 10.78 98,383 2.11 (5) 8.49 (5) 164
3/31/98......... 19.31 124,962 2.13 8.51 236
3/31/99......... (6.62) 124,211 2.13 8.84 120
3/31/00......... 1.25 91,357 2.15 9.48 124
9/30/00(6)...... (2.97) 73,165 2.21 (4) 10.25 (4) 55
2/02/98-
3/31/98(3)..... 2.18% $ 1,146 2.10%(4)(5) 9.78%(4)(5) 236%
3/31/99......... (6.47) 10,116 2.10 (5) 8.92 (5) 120
3/31/00......... 1.28 12,251 2.10 (5) 9.51 (5) 124
9/30/00(6)...... (2.78) 13,657 2.10 (4)(5) 10.35 (4)(5) 55
</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>
3/31/96 3/31/97 3/31/98 3/31/99 3/31/00 9/30/00
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Diversified Income Fund Class II -- -- -- -- 4.16% 0.77%
High Income Fund
Class B .08% .01% -- -- -- --
High Income Fund
Class II -- -- 5.37% 0.48% 0.12% 0.19%
</TABLE>
(6)Unaudited
See Notes to Financial Statements
17
<PAGE>
SunAmerica Income Funds
FINANCIAL HIGHLIGHTS -- (continued)
<TABLE>
<CAPTION>
TAX EXEMPT INSURED FUND
-----------------------
Net gain
(loss) on Net
Net Asset investments Dividends Asset
Value, Net (both realized Total from from net Value,
beginning investment and investment investment end of
Period Ended of period income(1) unrealized) operations income period
---------------- --------- ---------- -------------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Class A
-------
3/31/96......... $12.13 $0.59 $ 0.29 $ 0.88 $(0.59) $12.42
3/31/97......... 12.42 0.59 (0.07) 0.52 (0.59) 12.35
3/31/98......... 12.35 0.58 0.67 1.25 (0.57) 13.03
3/31/99......... 13.03 0.56 0.02 0.58 (0.54) 13.07
3/31/00......... 13.07 0.55 (0.71) (0.16) (0.54) 12.37
9/30/00(6)...... 12.37 0.28 0.12 0.40 (0.28) 12.49
Class B
-------
3/31/96......... $12.14 $0.50 $ 0.29 $ 0.79 $(0.51) $12.42
3/31/97......... 12.42 0.52 (0.08) 0.44 (0.51) 12.35
3/31/98......... 12.35 0.49 0.68 1.17 (0.48) 13.04
3/31/99......... 13.04 0.47 0.02 0.49 (0.46) 13.07
3/31/00......... 13.07 0.47 (0.71) (0.24) (0.46) 12.37
9/30/00(6)...... 12.37 0.24 0.12 0.36 (0.24) 12.49
Class II
--------
6/01/99-
3/31/00(3)..... $12.83 $0.37 $(0.47) $(0.10) $(0.36) $12.37
9/30/00(6)...... 12.37 0.24 0.12 0.36 (0.24) 12.49
<CAPTION>
TAX EXEMPT INSURED FUND
-----------------------
Ratio of
Net expenses Ratio of net
Assets to investment
end of average income to
Total period net average net Portfolio
Period Ended Return(2) (000's) assets assets Turnover
---------------- --------- -------- -------------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
3/31/96......... 7.37% $121,957 1.22% 4.72% 46%
3/31/97......... 4.24 98,376 1.24 4.77 51
3/31/98......... 10.28 88,519 1.24 4.52 48
3/31/99......... 4.55 80,716 1.24 4.23 34
3/31/00......... (1.20) 68,650 1.28 4.41 33
9/30/00(6)...... 3.27 68,079 1.28 (4) 4.49 (4) 7
3/31/96......... 6.58% $ 29,315 1.90% 4.03% 46%
3/31/97......... 3.57 25,053 1.88 4.13 51
3/31/98......... 9.65 22,878 1.90 3.86 48
3/31/99......... 3.78 21,651 1.91 3.57 34
3/31/00......... (1.83) 16,269 1.92 3.77 33
9/30/00(6)...... 2.93 14,581 1.96 (4) 3.81 (4) 7
6/01/99-
3/31/00(3)..... (0.76)% $ 577 1.95%(4)(5) 3.82%(4)(5) 33%
9/30/00(6)...... 2.93 659 1.95 (4)(5) 3.83 (4)(5) 7
</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>
3/31/00 9/30/00
------- -------
<S> <C> <C>
Tax Exempt Insured Fund
Class II 5.20% 1.76
</TABLE>
(6)Unaudited
See Notes to Financial Statements
18
<PAGE>
SunAmerica U.S. Government Securities Fund
PORTFOLIO OF INVESTMENTS -- September 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
--------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--14.0%
6.00% due 11/01/13................................. $ 7,168 $ 6,915,062
7.50% due 6/01/25.................................. 319 318,102
9.50% due 4/01/20.................................. 798 827,424
10.00% due 1/01/17 - 8/01/21....................... 6,977 7,417,359
12.50% due 1/01/16................................. 6,340 7,039,949
13.50% due 2/01/19................................. 2,292 2,639,261
-----------
Total Federal Home Loan Mortgage Corp.
(cost $26,022,460)................................. 25,157,157
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--15.8%
6.00% due 10/01/28 - 12/01/28...................... 24,080 22,492,562
7.50% due 7/01/26.................................. 2,232 2,241,529
8.00% due 12/01/22 - 1/01/23....................... 3,756 3,804,836
-----------
Total Federal National Mortgage Association
(cost $29,935,309)................................. 28,538,927
-----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION--17.6%
7.00% due 7/15/23 - 9/15/25........................ 5,869 5,797,278
7.50% due 4/15/17 - 10/15/23....................... 9,427 9,512,606
8.00% due TBA(1)................................... 3,000 3,053,430
8.50% due TBA(1)................................... 13,000 13,361,530
-----------
Total Government National
Mortgage Association
(cost $32,055,617)................................. 31,724,844
-----------
U.S. GOVERNMENT AND AGENCIES--8.1%
Private Export Funding Corp.
5.87% due 7/31/08................................. 10,000 9,409,400
Small Business Administration
6.30% due 6/01/18................................. 5,367 5,122,305
-----------
Total U.S. Government and Agencies
(cost $15,366,592)................................. 14,531,705
-----------
U.S. TREASURY BONDS--31.3%
6.13% due 8/15/29.................................. 14,000 14,299,740
6.25% due 5/15/30.................................. 40,000 42,037,600
-----------
Total U.S. Treasury Bonds
(cost $55,915,313)................................. 56,337,340
-----------
U.S. TREASURY NOTES--8.3%
5.75% due 8/15/10
(cost $14,910,156)................................ 15,000 14,939,100
-----------
Total Investment Securities--95.1%
(cost $174,205,447)................................ 171,229,073
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
SHORT TERM SECURITIES--8.3%
Federal Home Loan Bank Discount Notes
6.42% due 10/6/00(2)
(cost $14,986,625)............................... $15,000 $ 14,986,625
------------
REPURCHASE AGREEMENT--4.8%
PaineWebber Group, Inc.
Joint Repurchase Agreement (Note 2)(2).......... 7,000 7,000,000
State Street Bank & Trust Co. Joint Repurchase
Agreement (Note 2).............................. 1,674 1,674,000
------------
Total Repurchase Agreement
(cost $8,674,000)................................ 8,674,000
------------
TOTAL INVESTMENTS--
(cost $197,866,072*)............................. 108.2% 194,889,698
Liabilities in excess of other assets............. (8.2) (14,832,497)
------- ------------
NET ASSETS-- 100.0% $180,057,201
======= ============
</TABLE>
------
* See Note 5.
TBA Securities purchased on a forward commitment basis with an approximate
principal amount and no definitive maturity date. The actual principal and
maturity date will be determined upon settlement date
(1) TBA mortgage-backed dollar rolls
(2) The security or a portion thereof represents collateral for the open TBA
mortgage-backed dollar rolls
See Notes to Financial Statements.
19
<PAGE>
SunAmerica GNMA Fund
PORTFOLIO OF INVESTMENTS -- September 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
--------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE
CORP.--2.2%
7.50% due 5/01/24 - 6/01/25........................ $ 703 $ 705,218
10.00% due 1/01/17................................. 923 978,934
12.50% due 9/30/13(1).............................. 6 6,456
-----------
Total Federal Home Loan Mortgage Corp.
(cost $1,716,685).................................. 1,690,608
-----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION--1.4%
7.00% due 9/01/10
(cost $1,126,130)................................. 1,103 1,101,493
-----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION--62.5%
6.00% due 12/15/28................................. 4,290 4,024,329
6.50% due 12/15/28 - 1/15/29....................... 6,132 5,905,700
7.00% due 3/15/23 - 9/15/25........................ 3,971 3,921,869
8.00% due TBA(2)................................... 15,000 15,267,150
8.00% due 11/15/26-5/15/30......................... 14,085 14,338,176
8.50% due 3/15/17 - 9/15/24........................ 2,897 2,984,599
9.00% due 7/15/16 - 10/15/16....................... 859 902,910
-----------
Total Government National
Mortgage Association
(cost $47,573,237)................................. 47,344,733
-----------
U.S. GOVERNMENT AGENCIES--2.2%
Small Business Administration
6.30% due 6/01/18
(cost $1,788,864).................................. 1,789 1,707,435
-----------
U.S. TREASURY BONDS--6.9%
6.13% due 8/15/29.................................. 2,000 2,042,820
6.25% due 5/15/30.................................. 3,000 3,152,820
-----------
Total U.S. Treasury Bonds
(cost $5,208,125).................................. 5,195,640
-----------
U.S. TREASURY NOTES--19.7%
5.75% due 8/15/10
(cost $14,889,063)................................. 15,000 14,939,100
-----------
Total Investment Securities--94.9%
(cost $72,302,104)................................. 71,979,009
-----------
SHORT TERM SECURITIES--19.8%
Federal Home Loan Bank
Discount Notes
6.42% due 10/06/00(3)
(cost $14,986,625)................................ $15,000 $14,986,625
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
REPURCHASE AGREEMENT--5.0%
State Street Bank & Trust Co.
Joint Repurchase Agreement (Note 2)(3)
(cost $3,801,000).................................. $ 3,801 $ 3,801,000
-----------
TOTAL INVESTMENTS--
(cost $91,089,729*)................................ 119.7% 90,766,634
Liabilities in excess of other assets.............. (19.7) (14,967,150)
------- -----------
NET ASSETS-- 100.0% $75,799,484
======= ===========
</TABLE>
------
* See Note 5
TBA Securities purchased on a forward commitment basis with an approximate
principal amount and no definitive maturity date. The actual principal and
maturity date will be determined upon settlement date
(1) Fair valued security; see Note 2
(2) TBA mortgage-backed dollar rolls
(3) The security or a portion thereof represents collateral for the open TBA
mortgage-backed dollar rolls
See Notes to Financial Statements
20
<PAGE>
SunAmerica Diversified Income Fund
PORTFOLIO OF INVESTMENTS -- September 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
-------------------------------------------------------------------------------
CORPORATE BONDS & NOTES--39.0%
Broadcasting--6.3%
Big City Radio, Inc.
Sr. Disc. Notes
zero coupon due 3/15/05(1)........................ $ 1,050 $ 616,875
Chancellor Media Corp.
Sr. Notes
8.00% due 11/01/08................................ 1,000 1,016,250
Echostar DBS Corp.
Sr. Notes
9.25% due 2/01/06................................. 750 738,750
Radio One, Inc.
Sr. Subordinated Notes, Series B
12.00% due 5/15/04................................ 750 787,500
-----------
3,159,375
-----------
Building Materials--0.9%
Ainsworth Lumber Ltd.
Sr. Secured Notes
12.50% due 7/15/07(4)............................. 500 465,000
-----------
Cable--10.1%
Adelphia Communications Corp.
Sr. Notes, Series B
8.13% due 7/15/03................................. 1,050 976,500
Comcast UK Cable Partners Ltd.
Sr. Disc. Notes
zero coupon due 11/15/07(1)....................... 500 472,500
Diamond Holdings PLC
Sr. Notes
9.13% due 2/01/08................................. 1,000 910,000
International CableTel, Inc.
zero coupon 2/01/06(1)............................ 500 470,625
NTL, Inc.
Sr. Subordinated Notes
5.75% due 12/15/09(5)............................. 250 173,125
UIH Australia Pacific, Inc.
Sr. Disc. Notes, Series B
zero coupon due 5/15/06(1)........................ 1,500 1,365,000
United International Holdings, Inc.
Sr. Disc. Notes, Series B
zero coupon due 2/15/08(1)........................ 1,000 685,000
-----------
5,052,750
-----------
Cellular--3.5%
Airgate PCS, Inc.
Sr. Subordinated Disc. Notes
zero coupon due 10/01/09(1)(3).................... 500 300,000
Leap Wireless International, Inc.
Sr. Notes
12.50% due 4/15/10................................ 500 390,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Cellular (continued)
McCaw International Ltd.
Sr. Disc. Notes
zero coupon due 4/15/07(1)....................... $ 750 $ 577,500
Spectrasite Holdings, Inc.
Senior Disc. Notes
zero coupon due 4/15/09(1)....................... 900 490,500
-----------
1,758,000
-----------
Consumer Goods--1.2%
Polymer Group, Inc.
Sr. Subordinated Notes, Series B
9.00% due 7/01/07................................ 750 577,500
-----------
Energy--2.5%
Parker Drilling Co.
Sr. Notes, Series C
9.75% due 11/15/06............................... 500 498,750
Triton Energy Ltd.
Sr. Notes
9.25% due 4/15/05................................ 750 763,125
-----------
1,261,875
-----------
Energy Services--0.6%
Gulfmark Offshore, Inc.
Sr. Notes
8.75% due 6/01/08................................ 300 285,000
-----------
Health Services--3.5%
Fresenius Medical Care Capital Trust I
Sr. Notes
9.00% due 12/01/06............................... 750 746,250
Tenet Healthcare Corp.
Sr. Notes
8.00% due 1/15/05................................ 1,000 985,000
-----------
1,731,250
-----------
Leisure & Tourism--1.8%
ITT Corp.
New Notes
6.75% due 11/15/05............................... 950 886,759
-----------
Manufacturing--0.7%
Pentacon, Inc.
Sr. Subordinated Notes, Series B
12.25% due 4/01/09............................... 600 336,000
-----------
Media--1.2%
Orion Network Systems
Sr. Disc. Notes
zero coupon due 1/15/07(1)(3).................... 1,000 340,000
</TABLE>
21
<PAGE>
SunAmerica Diversified Income Fund
PORTFOLIO OF INVESTMENTS -- September 30, 2000 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
--------------------------------------------------------------------------------
CORPORATE BONDS & NOTES (continued)
Media (continued)
Park-N-View, Inc.
Sr. Notes, Series B
13.00% due 5/15/08................................ $ 625 $ 256,250
-----------
596,250
-----------
Metals & Minerals--1.7%
Acme Metals, Inc.
Sr. Notes
12.50% due 8/01/02(8)............................. 1,000 845,000
-----------
Telecommunications--5.0%
Frontier Corp.
Notes
7.25% due 5/15/04................................. 1,000 929,860
Globix Corp.
Sr. Notes
12.50% due 2/01/10................................ 500 360,000
ICG Holdings, Inc.
Sr. Disc. Notes
zero coupon due 3/15/07(1)........................ 1,000 180,000
Mpower Communications Corp.
Sr. Notes
13.00% due 4/01/10................................ 1,000 650,000
Orbcomm Global LP/Capital
Sr. Notes, Series B
14.00% due 8/15/04(8)............................. 500 75,000
PSINet, Inc.
Sr. Notes
11.50% due 11/01/08............................... 500 332,500
-----------
2,527,360
-----------
Total Corporate Bonds & Notes
(cost $23,256,555)................................. 19,482,119
-----------
FOREIGN BONDS & NOTES--29.7%
Broadcasting--2.0%
Central European Media
Enterprises Ltd.
Sr. Notes
9.38% due 8/15/04(8).............................. 750 142,500
RBS Participacoes SA
Guaranteed Notes
11.00% due 4/01/07(5)............................. 1,000 845,000
-----------
987,500
-----------
Cable--2.8%
Australis Holdings Property Ltd.
Sr. Disc. Notes
zero coupon due 11/01/02(1)(6)(8)................. 500 10,000
Callahan NRH
Senior Disc. Notes
zero coupon due 7/15/10(1)(5)..................... 750 345,000
Multicanal Participacoes SA
Guaranteed Sr. Notes, Series B
12.63% due 6/18/04................................ 1,000 1,030,000
-----------
1,385,000
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Cellular--4.1%
Celcaribe SA
Sr. Notes
14.50% due 3/15/04................................ $ 750 $ 586,875
Occidente Y Caribe Celular SA
Sr. Disc. Notes, Series B
zero coupon due 3/15/04(1)........................ 2,000 1,450,000
-----------
2,036,875
-----------
Energy Services--3.3%
Statia Terminals International NV
Mortgage Notes, Series B
11.75% due 11/15/03............................... 1,625 1,635,156
-----------
Finance--2.9%
Cei Citicorp Holdings SA
Sr. Notes, Series B
9.75% due 2/14/07................................. 1,500 1,470,000
-----------
Food Retail--3.7%
Bepensa SA
Sr. Notes
9.75% due 9/30/04(5).............................. 2,000 1,840,000
-----------
Forest Products--0.9%
APP International Finance Co. BV
Guaranteed Notes
11.75% due 10/01/05............................... 1,000 480,000
-----------
Government Agency--3.8%
Federal Republic of Brazil
Capitalization Bonds
8.00% due 4/15/14(7).............................. 2,463 1,883,713
-----------
Packaging--1.7%
Vicap SA
Guaranteed Sr. Notes
11.38% due 5/15/07................................ 1,000 870,000
-----------
Paging--0.1%
Paging Network Do Brasil SA
Sr. Notes
13.50% due 6/06/05................................ 1,000 65,000
-----------
Telecommunications--4.4%
Globo Communicacoes E Participacoes SA
Guaranteed Notes
10.63% due 12/05/08(2)(5)......................... $ 1,000 $ 870,000
Impsat Fiber Networks Corp.
Sr. Notes
12.38% due 6/15/08................................ 1,000 780,000
Telecom Argentina Notes
12.00% due 11/15/02............................... 500 527,500
-----------
2,177,500
-----------
Total Foreign Bonds & Notes
(cost $18,266,131)................................. 14,830,744
-----------
</TABLE>
22
<PAGE>
SunAmerica Diversified Income Fund
PORTFOLIO OF INVESTMENTS -- September 30, 2000 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Principal Amount
(in thousands)/ Value
Security Description Shares/Warrants (Note 2)
<S> <C> <C>
--------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCIES--21.9%
U.S. Government Agencies--4.0%
Federal National Mortgage Association 6.63% due
9/15/09......................................... $ 2,000 $ 1,976,240
-----------
U.S Treasury Bonds--2.0%
6.13% due 11/15/27............................... 500 504,610
6.25% due 5/15/30................................ 500 525,470
-----------
1,030,080
-----------
U.S. Treasury Notes--15.9%
4.75% due 2/15/04................................ 2,000 1,928,740
5.88% due 11/15/04............................... 4,000 3,995,640
6.00% due 8/15/09................................ 2,000 2,010,000
-----------
7,934,380
-----------
Total U.S. Government and
Agencies
(cost $10,955,206)............................... 10,940,700
-----------
PREFERRED STOCK--6.7%
Cable--2.7%
CSC Holdings, Inc. 11.13%(4)..................... 12,676 1,343,655
-----------
Cellular--1.5%
Nextel Communications, Inc. 11.13%(4)............ 792 760,320
-----------
Telecommunications--2.5%
Broadwing Communications, Inc. 12.50%............ 1,000 1,010,000
Global Crossings Ltd. 7.00%(5)................... 1,250 241,719
-----------
1,251,719
-----------
Total Preferred Stock
(cost $3,353,612)................................ 3,355,694
-----------
COMMON STOCK -- 0.0%
Cellular--0.0%
International Wireless Communications Holdings,
Inc.(6)......................................... 84,603 8,460
-----------
Paging--0.0%
Paging Do Brazil Holdings Co. LLC, Class
B+(5)(6)........................................ 1,000 10
-----------
Total Common Stock
(cost $93,073)................................... 8,470
-----------
WARRANTS--0.2%+
Cable--0.1%
Knology Holdings, Inc. (5)(6).................... 2 3,750
UIH Australia Pacific, Inc. (6).................. 1 60,000
-----------
63,750
-----------
</TABLE>
<TABLE>
<CAPTION>
Warrants/Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Cellular--0.1%
Leap Wireless International, Inc.(5)........... 1 $ 15,000
Occidente Y Caribe Celular SA(5)(6)............ 8 80
-----------
15,080
-----------
Media--0.0%
Park-N-View, Inc.(6)........................... 1 3,750
-----------
Shipping--0.0%
Golden Ocean Group Ltd.(6)..................... 1 0
-----------
Total Warrants
(cost $2,531).................................. 82,580
-----------
Total Investment Securities--97.5%
(cost $55,927,108)............................. 48,700,307
-----------
SHORT TERM SECURITIES--0.3%
Shipping--0.3%
Golden Ocean Group Ltd.
10.00% due 8/31/01(8) (cost $690,168)......... $ 750 119,063
-----------
REPURCHASE AGREEMENT--0.2%
State Street Bank & Trust Co.
Joint Repurchase Agreement Account (Note 2)
(cost $109,000)............................... 109 109,000
-----------
TOTAL INVESTMENTS--
(cost $56,726,276*)............................ 98.0% 48,928,370
Other assets less liabilities................... 2.0 1,000,227
------- -----------
NET ASSETS-- 100.0% $49,928,597
======= ===========
</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) A portion of the coupon interest is received in cash and a portion is
capitalized in the principal of the security
(3) Bond issued as part of a unit which includes an equity component
(4) PIK ("Payment-in-kind") payment made with additional shares in lieu of cash
(5) Resale restricted to qualified institutional buyers
(6) Fair valued security; see note 2
(7) Variable rate security; rate as of September 30, 2000
(8) Bond in default
(9) Allocation of investment by country as a percentage of net assets as of
September 30, 2000:
<TABLE>
<S> <C>
United States........................................................... 69.8%
Brazil.................................................................. 9.4%
Mexico.................................................................. 5.4%
Colombia................................................................ 4.1%
Argentina............................................................... 4.0%
Netherlands............................................................. 3.3%
Indonesia............................................................... 1.0%
Bermuda................................................................. 0.8%
Liberia................................................................. 0.2%
-----
98.0%
=====
</TABLE>
See Notes to Financial Statements
23
<PAGE>
SunAmerica High Income Fund
PORTFOLIO OF INVESTMENTS -- September 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
------------------------------------------------------------------------------
BONDS & NOTES--80.9%
Broadcasting--5.9%
Big City Radio, Inc.
Sr. Disc. Notes
zero coupon due 3/15/05(1)...................... $ 2,500 $ 1,468,750
Echostar DBS Corp.
Sr. Notes
9.25% due 2/01/06............................... 3,750 3,693,750
Radio One, Inc.
Sr. Subordinated Notes, Series B
12.00% due 5/15/04(3)........................... 1,000 1,050,000
Shop At Home, Inc.
Sr. Secured Notes
11.00% due 4/01/05.............................. 1,500 1,395,000
XM Satellite Radio, Inc.
Sr. Notes
14.00% due 3/15/10(5)........................... 1,000 700,000
------------
8,307,500
------------
Building Materials--1.6%
Ainsworth Lumber Ltd.
Sr. Secured Notes
12.50% due 7/15/07(4)........................... 2,350 2,185,500
------------
Business Services--0.7%
Earthwatch, Inc.
Sr. Disc. Notes
zero coupon due 7/15/07(1)...................... 1,750 1,050,000
------------
Cable--13.4%
Adelphia Communications Corp.
Sr. Notes, Series B
8.13% due 7/15/03............................... 4,000 3,720,000
Comcast UK Cable Partners Ltd.
Sr. Disc. Notes
zero coupon due 11/15/07(1)..................... 1,875 1,771,875
Diamond Holdings PLC
Sr. Notes
9.13% due 2/01/08............................... 2,500 2,275,000
Mediacom LLC
Sr. Notes
8.50% due 4/15/08............................... 3,000 2,760,000
NTL, Inc.
Sr. Notes, Series B
zero coupon due 4/01/08(1)...................... 1,500 930,000
NTL, Inc.
Sr. Subordinated Notes
5.75% due 12/15/09(5)........................... 1,000 692,500
Telewest Communication PLC
Sr. Disc. Notes
zero coupon due 2/01/10(1)(5)................... 750 399,375
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Cable (continued)
Telewest Communication PLC
Sr. Notes
11.25% due 11/01/08............................. $ 2,000 $ 1,940,000
UIH Australia Pacific, Inc.
Sr. Disc. Notes, Series B
zero coupon due 5/15/06(1)...................... 2,750 2,502,500
United International Holdings, Inc.
Sr. Disc. Notes, Series B
zero coupon due 2/15/08(1)...................... 2,775 1,900,875
------------
18,892,125
------------
Cellular--7.2%
Airgate PCS, Inc.
Sr. Subordinated Disc. Notes
zero coupon due 10/01/09(1)(2).................. 1,750 1,050,000
Alamosa PCS Holdings, Inc.
Sr. Disc. Notes
zero coupon due 2/15/10(1)...................... 1,500 810,000
Dolphin Telecom PLC
Sr. Disc. Notes, Series B
zero coupon due 5/15/09(1)...................... 750 150,000
Leap Wireless International, Inc.
Sr. Notes
12.50% due 4/15/10.............................. 2,250 1,755,000
McCaw International Ltd.
Sr. Disc. Notes
zero coupon due 4/15/07(1)...................... 3,750 2,887,500
Nextel Partners, Inc.
Sr. Notes
11.00% due 3/15/10(5)........................... 1,000 1,007,500
Spectrasite Holdings, Inc.
Senior Disc. Notes
zero coupon due 4/15/09(1)...................... 3,000 1,635,000
US Unwired, Inc.
Sr. Subordinated Disc. Notes,
Series B
zero coupon due 11/01/09(1)..................... 1,500 795,000
------------
10,090,000
------------
Chemicals--1.1%
Huntsman Corp.
Sr. Subordinated Notes
10.26% due 7/01/07(3)(5)........................ 2,000 1,600,000
------------
Consumer Goods--4.0%
Evenflo Co., Inc.
Sr. Notes, Series B
11.75% due 8/15/06.............................. 3,500 3,395,000
</TABLE>
24
<PAGE>
SunAmerica High Income Fund
PORTFOLIO OF INVESTMENTS -- September 30, 2000 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
------------------------------------------------------------------------------
BONDS & NOTES (continued)
Consumer Goods (continued)
Polymer Group, Inc.
Sr. Subordinated Notes, Series B
8.75% due 3/01/08............................... $ 750 $ 592,500
Polymer Group, Inc.
Sr. Subordinated Notes, Series B
9.00% due 7/01/07............................... 2,100 1,617,000
------------
5,604,500
------------
Consumer Services--2.2%
Allied Waste North America, Inc.
Sr. Notes, Series B
7.63% due 1/01/06............................... 3,500 3,132,500
------------
Energy-4.1%
P&L Coal Holdings Corp.
Sr. Notes, Series B
8.88% due 5/15/08............................... 3,250 3,209,375
Parker Drilling Co.
Sr. Notes, Series C
9.75% due 11/15/06.............................. 250 249,375
Triton Energy Ltd.
Sr. Notes
8.75% due 4/15/02............................... 1,250 1,256,250
Triton Energy Ltd.
Sr. Notes
9.25% due 4/15/05............................... 1,000 1,017,500
------------
5,732,500
------------
Energy Services--5.5%
Gulfmark Offshore, Inc.
Sr. Notes
8.75% due 6/01/08............................... 2,000 1,900,000
Key Energy Services, Inc.
Sr. Subordinated Notes, Series B
14.00% due 1/15/09.............................. 1,500 1,706,250
R&B Falcon Corp.
Sr. Notes
12.25% due 3/15/06.............................. 2,000 2,302,500
Western Gas Resources, Inc.
Sr. Subordinated Notes
10.00% due 6/15/09.............................. 1,750 1,828,750
------------
7,737,500
------------
Financial Services--3.6%
Bank United Capital Trust
Sr. Notes
10.25% due 12/31/26............................. 2,000 1,622,500
Labranche & Company, Inc.
Sr. Subordinated Notes
12.00% due 3/02/07.............................. 2,000 2,140,000
</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 $ 1,372,500
------------
5,135,000
------------
Gaming--2.6%
Circus Circus Enterprises, Inc.
Sr. Subordinated Notes
6.75% due 7/15/03................................ 500 463,750
Park Place Entertainment Corp.
Sr. Subordinated Notes
9.38% due 2/15/07................................ 1,000 1,018,750
Station Casinos, Inc.
Sr. Subordinated Notes
9.88% due 7/01/10................................ 1,400 1,401,750
Venetian Casino Resort LLC
Sr. Subordinated Notes
12.25% due 11/15/04.............................. 750 772,500
------------
3,656,750
------------
Health Services--4.2%
Fresenius Medical Care Capital Trust I
Sr. Notes
9.00% due 12/01/06............................... 2,750 2,736,250
Fresenius Medical Care Capital Trust II
Sr. Notes
7.88% due 2/01/08................................ 1,250 1,181,250
Tenet Healthcare Corp.
Sr. Notes
8.00% due 1/15/05................................ 2,000 1,970,000
------------
5,887,500
------------
Housing--0.7%
Ryland Group, Inc.
Sr. Notes
9.75% due 9/01/10................................ 1,000 1,000,000
------------
Leisure & Tourism--1.3%
HMH Properties, Inc.
Sr. Note Series A
7.88% due 8/01/05................................ 1,000 945,000
ITT Corp.
New Notes 6.75% due 11/15/05..................... 1,000 933,430
------------
1,878,430
------------
</TABLE>
25
<PAGE>
SunAmerica High Income Fund
PORTFOLIO OF INVESTMENTS -- September 30, 2000 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
--------------------------------------------------------------------------------
BONDS & NOTES (continued)
Manufacturing--1.0%
Pentacon, Inc.
Sr. Subordinated Notes, Series B
12.25% due 4/01/09............................... $ 2,600 $ 1,456,000
------------
Media--1.5%
Orion Network Systems
Sr. Disc. Notes
zero coupon due 1/15/07(1)(2).................... 4,000 1,360,000
Park-N-View, Inc.
Sr. Notes, Series B
13.00% due 5/15/08............................... 2,000 820,000
------------
2,180,000
------------
Metals & Minerals--4.1%
Acme Metals, Inc.
Sr. Notes
12.50% due 8/01/02(7)............................ 1,500 1,267,500
Armco, Inc.
Sr. Notes
8.88% due 12/01/08................................ 3,000 2,857,500
Metal Management, Inc.
Sr. Subordinated Notes
10.00% due 5/15/08................................ 3,000 300,000
Schuff Steel Co.
Sr. Notes
10.50% due 6/01/08................................ 2,000 1,422,500
------------
5,847,500
------------
Real Estate Investment Trusts--1.0%
Felcor Lodging LP
Sr. Notes
9.50% due 9/15/08(5).............................. 1,500 1,475,775
------------
Telecommunications--15.2%
AMSC Acquisition Co., Inc.
Sr. Notes, Series B
12.25% due 4/01/08................................ 1,750 1,303,750
At Home Corp.
Subordinated Notes Convertible
4.75% due 12/15/06................................ 1,250 835,938
Conexant Systems, Inc.
Subordinated Convertible Notes
4.00% due 2/01/07................................. 1,250 902,612
E.spire Communications, Inc.
Sr. Disc. Notes
zero coupon due 11/01/05(1)....................... 1,025 512,500
Flag Ltd.
Sr. Notes
8.25% due 1/30/08................................. 1,250 1,100,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Telecommunications (continued)
Flag Telecom Holdings Ltd.
Sr. Notes
11.63% due 3/30/10................................ $ 750 $ 682,500
Globix Corp.
Sr. Notes
12.50% due 2/01/10................................ 2,750 1,980,000
ICG Holdings, Inc.
Sr. Disc. Notes
zero coupon due 3/15/07(1)........................ 1,500 270,000
ICG Services, Inc.
Sr. Exchange Disc. Notes
zero coupon due 5/01/08(1)........................ 1,750 236,250
Intermedia Communications, Inc.
Sr. Disc. Notes, Series B
zero coupon due 7/15/07(1)........................ 1,500 1,245,000
Intermedia Communications, Inc.
Sr. Notes, Series B
8.88% due 11/01/07................................ 1,000 960,000
MPower Communications Corp.
Sr. Notes
13.00% due 4/01/10................................ 2,250 1,462,500
Nextlink Communications, Inc.
Sr. Disc. Notes
zero coupon due 12/01/09(1)....................... 1,000 520,000
NorthPoint Communications Group, Inc. Sr. Notes
12.88% due 2/15/10............................... 750 750,000
Orbcomm Global LP/Capital
Sr. Notes, Series B
14.00% due 8/15/04(7)............................. 1,250 187,500
Primus Telecommunications, Inc.
Sr. Notes
12.75% due 10/15/09............................... 1,750 910,000
PSINet, Inc.
Sr. Notes
11.00% due 8/01/09................................ 1,250 812,500
PSINet, Inc.
Sr. Notes
11.50% due 11/01/08............................... 3,250 2,161,250
Telehub Communications Corp.
Sr. Disc. Notes
zero coupon due 7/31/05(1)........................ 1,500 240,000
Vialog Corp.
Sr. Notes
12.75% due 11/15/01............................... 1,500 1,200,000
Viatel, Inc.
Sr. Disc. Notes
zero coupon due 4/15/08(1)........................ 2,000 720,000
</TABLE>
26
<PAGE>
SunAmerica High Income Fund
PORTFOLIO OF INVESTMENTS -- September 30, 2000 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
-------------------------------------------------------------------------------
BONDS & NOTES (continued)
Telecommunications (continued)
Worldwide Fiber, Inc.
Sr. Notes
12.50% due 12/15/05.............................. $ 2,500 $ 2,425,000
------------
21,417,300
------------
Total Bonds & Notes
(cost $134,694,314).............................. 114,266,380
------------
FOREIGN BONDS & NOTES--8.6%
Broadcasting--0.3%
Central European Media Enterprises Ltd.
Sr. Notes
9.38% due 8/15/04................................ 1,800 342,000
------------
Cable--0.5%
Australis Holdings Property Ltd.
Sr. Disc. Notes
zero coupon
due 11/01/02(1)(6)(7)............................ 1,000 20,000
Callahan NRH
Senior Disc. Notes
zero coupon due 7/15/10(1)(5).................... 1,500 690,000
------------
710,000
------------
Cellular--1.7%
Celcaribe SA
Sr. Notes
14.50% due 3/15/04(5)............................ 1,250 978,125
Occidente Y Caribe Celular SA
Sr. Disc. Notes, Series B
zero coupon due 3/15/04(1)...................... 2,000 1,450,000
------------
2,428,125
------------
Energy Services--3.2%
Statia Terminals International NV Mortgage Notes,
Series B
11.75% due 11/15/03............................. 4,500 4,528,125
------------
Manufacturing--2.3%
Filtronic PLC
Sr. Notes
10.00% due 12/01/05............................. 2,000 1,860,000
International Utility Structures
Sr. Subordinated Notes
10.75% due 2/01/08.............................. 2,000 1,440,000
------------
3,300,000
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
(in thousands) / Value
Security Description Shares (Note 2)
<S> <C> <C>
Paging--0.1%
Paging Network Do Brasil SA
Sr. Notes
13.50% due 6/06/05............................. $ 1,400 $ 91,000
------------
Telecommunications--0.5%
GT Group Telecom, Inc.
Senior Discount Exchange Note
zero coupon due 2/01/10(1)..................... 1,500 645,000
Poland Telecom Finance BV
Guaranteed Sr. Notes, Series B
14.00% due 12/01/07(6)(7)...................... 1,000 30,000
------------
675,000
------------
Total Foreign Bonds & Notes
(cost $17,540,999).............................. 12,074,250
------------
PREFERRED STOCK--9.1%
Business Services--0.0%
Earthwatch, Inc., Series C
8.50%(4)(5)(6)................................. 85,916 859
------------
Cable--3.7%
CSC Holdings, Inc. 11.13%(4).................... 49,122 5,206,955
------------
Cellular--1.9%
Nextel Communications, Inc.
11.13%(4)..................................... 2,745 2,635,200
------------
Telecommunications--3.5%
Broadwing Communications, Inc. 12.50%........... 4,000 4,040,000
Global Crossing Ltd. 6.75%(5)................... 750 186,188
Global Crossings Ltd.
7.00%(5)....................................... 2,600 502,775
Mpower Communications Corp. 7.25%............... 10,000 141,250
------------
4,870,213
------------
Total Preferred Stock
(cost $13,225,419).............................. 12,713,227
------------
</TABLE>
27
<PAGE>
SunAmerica High Income Fund
PORTFOLIO OF INVESTMENTS -- September 30, 2000 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Shares/ Value
Security Description Warrants (Note 2)
<S> <C> <C>
------------------------------------------------------------------------------
COMMON STOCK--0.0%
Cellular--0.0%
International Wireless Communications
Holdings, Inc.(6).................................... 157,120 $ 15,712
------------
Gaming--0.0%
Capital Gaming International, Inc.+(6)................ 241 2
------------
Paging--0.0%
Paging Do Brazil Holdings Co.
LLC, Class B+(5)(6).................................. 1,400 14
------------
Total Common Stock
(cost $294,434)....................................... 15,728
------------
WARRANTS--0.4%+
Broadcasting--0.1%
XM Satellite Radio, Inc............................... 1,000 140,000
------------
Cable--0.1%
Knology Holdings, Inc.(5)(6).......................... 5 11,250
UIH Australia Pacific, Inc.(6)........................ 1 60,000
------------
71,250
------------
Cellular--0.0%
Leap Wireless International, Inc.(5).................. 2 67,500
Occidente Y Caribe Celular SA(5)(6)................... 8 80
------------
67,580
------------
Energy Services--0.1%
Key Energy Services, Inc. ............................ 2 122,550
------------
Media--0.0%
Park-N-View, Inc.(6).................................. 2 12,000
------------
Shipping--0.0%
Golden Ocean Group Ltd.(6) ........................... 3 0
------------
Telecommunications--0.1%
GT Group Telecom, Inc................................. 2 120,000
KMC Telecom Holdings, Inc.(5)(6)...................... 4 9,125
Motient Corp. ........................................ 2 70,000
Poland Telecom Finance BV(2)(5)(6).................... 1 10
Telehub Communications Corp.(5)(6).................... 2 15
------------
199,150
------------
Total Warrants
(cost $628,729)....................................... 612,530
------------
Total Investment Securities--99.0%
(cost $166,383,894)................................... 139,682,115
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
SHORT-TERM SECURITIES--0.4%
Gaming--0.0%
Capital Gaming International, Inc.
Sr. Secured Notes
12.00% due 5/28/01(6)............................ $ 1 $ 600
------------
Shipping--0.4%
Golden Ocean Group Ltd.
Sr. Notes
10.00% due 8/31/01(7) ........................... 3,400 539,750
------------
Total Short-term Securities
(cost $3,129,015)................................. 540,350
------------
TOTAL INVESTMENTS--
(cost $169,512,909*).............................. 99.4% 140,222,465
Other assets less liabilities...................... 0.6 895,039
-------- ------------
NET ASSETS-- 100.0% $141,117,504
======== ============
</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) Bond issued as part of a unit which includes an equity component
(3) Variable rate security; rate as of September 30, 2000
(4) PIK ("Payment-in-kind") payment made with additional shares in lieu of cash
(5) Resale restricted to qualified institutional buyers
(6) Fair valued security; see Note 2
(7) Bond in default
(8) A portion of the coupon interest is received in cash and a portion is
capitalized in the principal of the security
See Notes to Financial Statements
28
<PAGE>
SunAmerica Tax-Exempt Insured Fund
PORTFOLIO OF INVESTMENTS -- September 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
-------------------------------------------------------------------------------
MUNICIPAL BONDS--96.5%
Alaska--0.8%
Alaska State Housing Finance Corp., Series A-2,
7.50% due 12/01/15+............................... $ 695 $ 695,931
-----------
Arizona--1.7%
Pima County, Arizona Unified School District Number
1,
General Obligation,
7.50% due 7/01/10+................................ 1,200 1,445,232
-----------
Arkansas--0.1%
Arkansas State Development Finance Authority,
Single Family Mortgage Revenue,
9.00% due 6/01/14+................................ 120 121,326
-----------
California--0.7%
Anaheim, California Public Financing Authority,
Revenue, Series A,
zero coupon due 9/01/18+.......................... 1,500 554,535
-----------
Colorado--2.6%
Highlands Ranch Metropolitan District, Colorado
General Obligation,
6.50% due 6/15/09+................................ 1,960 2,187,380
-----------
Georgia--3.7%
Municipal Electric Authority, Georgia Special
Obligation, Series Y,
6.40% due 1/01/09+................................ 1,250 1,372,388
Municipal Electric Authority, Georgia Special
Obligation, Series Y,
6.40% due 1/01/13+................................ 1,500 1,667,250
-----------
3,039,638
-----------
Idaho--1.0%
Idaho Housing & Finance Association, Single Family
Mortgage,
5.63% due 7/01/15................................. 865 863,201
-----------
Illinois--14.0%
Chicago Illinois Board Of Education, General
Obligation,
6.75% due 12/01/11+............................... 2,000 2,292,960
Cook & Du Page Counties, Illinois High School,
District Number 210, General Obligation,
zero coupon due 12/01/12+......................... 1,600 839,440
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Illinois (continued)
Cook County, Illinois Community College, District
Number 508,
7.70% due 12/01/07+............................... $4,000 $ 4,699,120
Illinois Health Facilities Authority, Lutheran
General Health Systems,
7.00% due 4/01/08+................................ 3,400 3,834,792
-----------
11,666,312
-----------
Kentucky--4.5%
Louisville & Jefferson County, Kentucky Regional
Airport Authority, Series A,
6.50% due 7/01/17+................................ 3,500 3,752,070
-----------
Louisiana--3.0%
New Orleans, Louisiana,
Revenue Refunding,
5.50% due 12/01/21+............................... 2,500 2,472,050
-----------
Maine--2.1%
Maine State Housing Authority Mortgage Purchase,
Revenue, Series C 5.95% due 11/15/20.............. 1,700 1,708,755
-----------
Massachusetts--1.1%
Massachusetts State Housing Finance Agency, Insured
Rental, Series A,
6.60% due 7/01/14+................................ 875 909,169
-----------
Michigan--4.0%
Michigan Municipal Bond Authority, Revenue Capital
Appreciation, Local
Government Loan,
zero coupon due 5/01/16+.......................... 2,735 1,147,469
Michigan Municipal Bond Authority, Revenue Capital
Appreciation, Local
Government Loan,
zero coupon due 5/01/17+.......................... 2,875 1,131,686
Michigan State Hospital Finance Authority, Revenue,
Series A,
6.25% due 11/15/14+............................... 1,000 1,058,370
-----------
3,337,525
-----------
Minnesota--2.6%
Minneapolis & St. Paul Minnesota, Metropolitan
Airports,
Revenue, Series B1
5.63% due 1/01/14+................................ 2,100 2,128,392
-----------
</TABLE>
29
<PAGE>
SunAmerica Tax Exempt Insured Fund
PORTFOLIO OF INVESTMENTS -- September 30, 2000 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
-------------------------------------------------------------------------------
MUNICIPAL BONDS (continued)
Missouri--6.6%
Missouri State Housing Development Commission,
Insured, Single Family Mortgage, Revenue,
9.38% due 4/01/16+................................ $ 5 $ 5,001
Sikeston, Missouri Electric, Revenue,
6.20% due 6/01/10+................................ 5,000 5,507,700
-----------
5,512,701
-----------
Nevada--7.6%
Clark County, Nevada Public Facilities, General
Obligation, Series C,
5.00% due 6/01/24+................................ 1,500 1,350,000
Nevada Housing Division, Single Family Mortgage
Revenue, Series A,
8.63% due 4/01/16+(1)............................. 4,945 5,013,587
-----------
6,363,587
-----------
New Jersey--3.4%
New Jersey State Transportation Trust Fund
Authority, Transportation Systems Revenue, Series
B,
6.50% due 6/15/10+................................ 2,500 2,822,450
-----------
New Mexico--0.1%
New Mexico Mortgage Finance Authority, Single
Family Mortgage Revenue, Series C,
8.63% due 7/01/17+................................ 85 85,166
-----------
New York--5.4%
Niagara Falls, New York, General Obligation,
7.50% due 3/01/13+................................ 445 540,519
Niagara Falls, New York, General Obligation,
7.50% due 3/01/14+................................ 555 677,200
Port Authority of New York & New Jersey Special
Obligation, Revenue, JFK International
Air Terminal 6,
6.25% due 12/01/11+............................... 3,000 3,301,560
-----------
4,519,279
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
North Carolina--2.5%
North Carolina Housing Finance Agency, Revenue,
Home Ownership, Series 8 A
6.20% due 7/01/16................................. $2,000 $ 2,061,360
-----------
North Dakota--0.5%
North Dakota State Housing Finance Agency, Single
Family Mortgage Revenue, Series A, 7.38% due
7/01/17+.......................................... 395 395,988
-----------
Ohio--5.0%
Lucas County, Ohio Hospital Revenue, St Vincent
Medical Center,
6.50% due 8/15/07+................................ 2,885 3,026,769
Woodridge, Ohio Local School District, General
Obligation,
6.80% due 12/01/14+............................... 1,000 1,162,020
-----------
4,188,789
-----------
Oklahoma--2.0%
Grand River Dam Authority, Oklahoma Revenue
Refunding,
6.25% due 6/01/11+................................ 1,500 1,658,730
-----------
Pennsylvania--0.1%
Pennsylvania Housing Finance Agency, Multi-Family
Mortgage,
9.38% due 8/01/28+................................ 120 121,448
-----------
South Dakota--2.8%
South Dakota St Health & Educational Facilities
Authority, Revenue,
6.25% due 7/01/10+................................ 2,120 2,319,004
-----------
Texas--14.4%
Bexar County, Texas Health Facilities Development
Corp., Hospital Revenue,
6.75% due 8/15/19+................................ 2,000 2,180,800
Harris County, Texas Hospital District Mortgage,
Revenue,
7.40% due 2/15/10+................................ 2,500 2,826,000
Houston, Texas Independent School District, General
Obligation, Series A,
5.00% due 2/15/19+................................ 5,000 4,588,200
</TABLE>
30
<PAGE>
SunAmerica Tax Exempt Insured Fund
PORTFOLIO OF INVESTMENTS -- September 30, 2000 (unaudited) -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
--------------------------------------------------------------------------------
MUNICIPAL BONDS (continued)
Texas (continued)
Houston, Texas Water Conveyance Systems Contract,
Series J, Certificates of Participation,
6.13% due 12/15/08+............................... $1,250 $ 1,348,000
San Antonio, Texas, Hotel Occupancy, Revenue,
zero coupon due 8/15/17+.......................... 2,700 1,032,048
-----------
11,975,048
-----------
Virginia--1.2%
Virginia State Housing Development Authority,
Multi-Family, Series H,
5.50% due 5/01/13................................. 1,000 1,000,630
-----------
Washington--3.0%
Washington State, Series C,
6.00% due 7/01/15.................................. 2,000 2,150,380
Washington State Housing Finance Commission, Multi-
Family Mortgage Revenue, Series A,
9.13% due 7/01/10+................................ 380 383,880
-----------
2,534,260
-----------
Total Investment Securities--96.5%
(cost $76,818,315)................................. 80,439,956
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
SHORT TERM INVESTMENTS--1.1%
Texas--1.1%
Harris County Texas Health
Facilities Development Corp.
St. Lukes Episcopal
Hospital, Revenue,
5.55% due 10/0100
(cost $900,000)(1)................................ $ 900 $ 900,000
-----------
TOTAL INVESTMENTS--
(cost $77,718,315*)................................ 97.6% 81,339,956
Other assets less liabilities....................... 2.4 1,978,690
------- -----------
NET ASSETS-- 100.00% $83,318,646
======= ===========
</TABLE>
------
* See Note 5.
+ All or part of this security is insured by the Government National Mortgage
Association ("GNMA"), Financial Security Assurance ("FSA"), Financial
Guarantee Insurance Corp. ("FGIC"), Municipal Bond Insurance Association
("MBIA"), Permenent School Fund
("PSF") or American Municipal Bond Assurance Corp. ("AMBAC") ($72,655,630 or
86.8% of Net Assets)
(1) Variable rate security; maturity date reflects next reset date
See Notes to Financial Statements.
31
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS -- September 30, 2000 (unaudited)
Note 1. Organization
SunAmerica Income Funds is an open-end diversified management investment
company organized as a Massachusetts business trust (the "Trust"). It
currently consists of five different investment series (each, a "Fund" and
collectively, the "Funds"). Each Fund is a separate series of the Trust with
distinct investment objectives and/or strategies. Each Fund is managed by
SunAmerica Asset Management Corp. (the "Adviser" or "SAAMCo"), an indirect
wholly-owned subsidiary of American International Group, Inc. ("AIG"). An
investor may invest in one or more of the following Funds: SunAmerica U.S.
Government Securities Fund, SunAmerica GNMA Fund, SunAmerica Diversified
Income Fund, SunAmerica High Income Fund and SunAmerica Tax Exempt Insured
Fund. The Funds are considered to be separate entities for financial and tax
reporting purposes. The investment objectives for each of the Funds are as
follows:
U.S. Government Securities Fund seeks high current income consistent with
relative safety of capital by investing primarily in securities of high
credit quality and relatively low duration issued or guaranteed by the U.S.
government, or any agency or instrumentality thereof.
GNMA Fund (formerly Federal Securities Fund) seeks current income, with
capital appreciation as a secondary objective, by investing primarily in
securities of high credit quality and relatively high duration issued or
guaranteed by the U.S. government, or any agency or instrumentality thereof,
with a significant portion invested in mortgage-backed securities.
Diversified Income Fund seeks a high level of current income consistent with
moderate investment risk, with preservation of capital as a secondary
objective.
High Income Fund seeks maximum current income by investing primarily in
high-yield, high-risk corporate bonds generally with relatively low
duration.
Tax Exempt Insured Fund seeks as high a level of current income exempt from
federal income taxes as is consistent with preservation of capital.
Each Fund currently offers three classes of shares. Class A shares are
offered at net asset value per share plus an initial sales charge. Class B
shares are offered without an initial sales charge, although a declining
contingent sales charge may be imposed on redemptions made within six years
of purchase. Class II shares are offered at net asset value per share plus
an initial sales charge and may be subject to a contingent deferred sales
charge on redemptions made within eighteen months of purchase. Additionally,
any purchases of Class A shares in excess of $1,000,000 will be purchased at
net asset value but will be subject to a contingent deferred sales charge on
redemptions made within two years 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
32
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS -- September 30, 2000 (unaudited) --
(continued)
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.
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
33
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS -- September 30, 2000 (unaudited) --
(continued)
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.
As of September 30, 2000 the U.S. Government Securities Fund had a 3.50%
undivided interest, which represented $7,000,000 in principal amount in a
joint repurchase agreement with PaineWebber, Inc. In addition, the U.S.
Government Securities Fund, GNMA Fund, and Diversified Income Fund had a
1.06%, 2.40%, and 0.07% undivided interest which represented $1,674,000,
$3,801,000, and $109,000, respectively, in principal amount in a joint
repurchase agreement with State Street Bank and Trust Co. As of such date,
the repurchase agreements in the joint account and the collateral therefore
were as follows:
PaineWebber, Inc. Repurchase Agreement, 6.40% dated 9/29/00, in the
principal amount of $200,000,000, repurchase price $200,106,667 due
10/02/00, collateralized by $100,000,000 U.S. Treasury Notes 13.88% due
5/15/11, $32,000,000 U.S. Treasury Bonds 7.50% due 11/15/16, and $25,030,000
U.S. Treasury Notes 5.50% due 7/31/01, approximate aggregate value
$204,340,631.
State Street Bank & Trust Co. Repurchase Agreement, 6.35% dated 9/29/00 in
the principle amount of $158,414,000, repurchase price $158,497,827 due
10/02/00, collateralized by $166,435,000 U.S. Treasury Bills 6.58% due
3/22/01 approximate aggregate value $161,608,385.
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
34
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS -- September 30, 2000 (unaudited) --
(continued)
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.
For the year ended March 31, 2000, 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......................... $(802,498) $802,498 $--
Federal Securities Fund....... (75,592) 75,592 --
Diversified Income Fund....... -- -- --
High Income Fund.............. -- -- --
Tax Exempt Insured Fund....... 26 (26) --
</TABLE>
Investment Securities Loaned: During the six months ended September 30,
2000, U.S. Government Securities Fund and GNMA Fund participated in
securities lending with qualified brokers. In lending portfolio securities
to brokers the Funds receive cash as collateral against the loaned
securities, which must be maintained at not less than 102% of the market
value of the loaned securities during the period of the loan. The Funds may
use the cash collateral received to invest in short-term investments which
earn interest income or to cover bank overdrafts. Any interest earned from
the investment of the collateral is recorded by the Funds net of the portion
of interest that is rebated to the borrowing broker. If the amounts are used
to cover bank overdrafts, the broker rebates incurred are reflected as
interest expense on the Statement of Operations. As with other extensions of
credit, should the borrower of the securities fail financially, the Funds
may bear the risk of delay in recovery or may be subject to replacing the
loaned securities by purchasing them with the cash collateral held, which
may be less than 100% of the market value of such securities at the time of
replacement.
Foreign Currency Translation: The books and records of the Funds are
maintained in U.S. dollars. Assets and liabilities denominated in foreign
currencies and commitments under forward foreign currency contracts are
translated into U.S. dollars at the mean of the quoted bid and asked prices
of such currencies against the U.S. dollar.
The Fund does not isolate that portion of the results of operations arising
as a result of changes in the foreign exchange rates from the changes in the
market prices of securities held at fiscal year-end. Similarly, the Fund
does not isolate the effect of changes in foreign exchange rates from the
changes in the market prices of portfolio securities sold during the year.
35
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS -- September 30, 2000 (unaudited) --
(continued)
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.
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.
Mortgage-Backed Dollar Rolls: During the six months ended September 30,
2000, the U.S. Government Securities Fund and the GNMA Fund entered into
dollar rolls using "to be announced" ("TBA") mortgage-backed securities
("TBA Rolls"). The Funds' policy is to record the components of TBA Rolls as
purchase/sale transactions. Any difference between the purchase and sale
price is recorded as a realized gain or loss on the date the transaction is
entered into. The U.S. Government Securities Fund and the GNMA Fund had TBA
Rolls outstanding at period-end, which are included in receivable for
investments sold and payable for investments purchased in the Statement of
Assets and Liabilities.
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.
36
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS -- September 30, 2000 (unaudited) --
(continued)
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%
> $200 million 0.72%
> $400 million 0.55%
GNMA Fund..................................... $0 - $25 million 0.55%
> $25 million 0.50%
> $50 million 0.45%
Diversified Income Fund....................... $0 - $350 million 0.65%
> $350 million 0.60%
Tax Exempt Insured Fund....................... $0 - $350 million 0.50%
> $350 million 0.45%
</TABLE>
For the six months ended September 30, 2000, SAAMCo has agreed to reimburse
expenses as follows:
<TABLE>
<S> <C>
U.S. Government Securities Fund Class II................... $ 3,993
GNMA Fund Class A.......................................... 75,193
GNMA Fund Class B.......................................... 37,388
GNMA Fund Class II......................................... 10,308
Diversified Income Fund Class II........................... 6,832
High Income Fund Class II.................................. 12,957
Tax Exempt Insured Fund Class II........................... 5,461
</TABLE>
The Trust, on behalf of each Fund, has a Distribution Agreement with
SunAmerica Capital Services, Inc. ("SACS" or "Distributor"), an affiliate of
the Adviser. Each Fund, has adopted a Distribution Plan (the "Plan") in
accordance with the provisions of Rule 12b-1 under the 1940 Act. Rule 12b-1
under the 1940 Act permits an investment company directly or indirectly to
pay expenses associated with the distribution of its shares ("distribution
expenses") in accordance with a plan adopted by the investment company's
board of trustees and approved by its shareholders. Pursuant to such rule,
the Trustees and the shareholders of each class of shares of each Fund have
adopted Distribution Plans, hereinafter referred to as the "Class A Plan,"
the "Class B Plan" and the "Class II Plan." In adopting the Class A Plan,
the Class B Plan and the Class II Plan, the Trustees determined that there
was a reasonable likelihood that each Plan would benefit the Trust and the
shareholders of the respective class. The sales charge and distribution fees
of a particular class will not be used to subsidize the sale of shares of
any other class.
Under the Class A Plan, Class B Plan and Class II Plan, the Distributor
receives payments from a Fund at an annual rate of up to 0.10%, 0.75% and
0.75%, 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
37
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS -- September 30, 2000 (unaudited) --
(continued)
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 six months ended September 30, 2000, 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 six months ended September 30, 2000, 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 Securities
Fund..................... $38,297 $13,748 $16,003 $22,717
GNMA Fund................. 83,612 41,528 26,187 35,110
Diversified Income Fund... 31,142 12,840 12,395 29,794
High Income Fund.......... 84,986 39,024 28,463 92,162
Tax Exempt Insured Fund... 39,339 17,434 13,809 9,687
<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..................... $ 3,069 $ 2,854 $ 215 $ 3,069
GNMA Fund................. 17,285 6,145 11,140 1,789
Diversified Income Fund... 10,928 4,127 6,801 717
High Income Fund.......... 39,684 6,865 32,819 14,475
Tax Exempt Insured Fund... 1,845 4,359 (2,514) 179
</TABLE>
The Trust has entered into a Service Agreement with SunAmerica Fund
Services, Inc. ("SAFS"), an affiliate of the Adviser. Under the Service
Agreement, SAFS performs certain shareholder account functions by assisting
the Funds' transfer agent in connection with the services that it offers to
the shareholders of the Funds. The Service Agreement permits the Funds to
compensate SAFS for services rendered, based upon an annual rate of 0.22% of
average daily net assets, which is approved annually by the Trustees. For
the six months ended September 30, 2000 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:
38
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS -- September 30, 2000 (unaudited) --
(continued)
<TABLE>
<CAPTION>
Payable At
Expenses September 30, 2000
----------------------- -------------------
Class Class Class Class
Class A Class B II A B II
-------- ------- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Securities
Fund.......................... $166,235 $37,245 $ 900 27,518 4,970 151
GNMA Fund...................... 51,666 23,116 2,478 9,368 3,569 558
Diversified Income Fund........ 32,284 23,735 1,954 5,301 3,467 431
High Income Fund............... 66,104 88,700 15,215 11,075 14,436 2,712
Tax Exempt Insured Fund........ 74,686 17,092 684 12,336 2,672 121
</TABLE>
Note 4. Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales and maturities of
long-term investments during the six months ended September 30, 2000 were as
follows:
<TABLE>
<CAPTION>
U.S.
Government Diversified High Tax Exempt
Securities GNMA Income Income Insured
Fund Fund Fund Fund Fund
-------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Purchases (excluding
U.S. government
securities)............ $ -- $ -- $11,110,220 $ 82,856,281 $ 5,887,460
Sales (excluding U.S.
government securities). -- -- 15,233,591 99,181,026 9,218,542
Purchases of U.S.
government securities.. 1,239,003,605 328,925,074 541,563 -- --
Sales of U.S. government
securities............. 1,230,517,868 321,422,444 1,961,094 -- --
Note 5. Portfolio Securities
Each Fund intends 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 book purposes (which approximates tax basis), including
short-term securities and repurchase agreements, were as follows:
<CAPTION>
U.S.
Government Diversified High Tax Exempt
Securities GNMA Income Income Insured
Fund Fund Fund Fund Fund
-------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Cost.................... $ 197,866,072 $ 91,089,729 $56,726,276 $169,512,909 $77,718,315
============== ============ =========== ============ ===========
Appreciation............ $ 504,994 $ 434,386 $ 636,689 $ 1,818,588 $ 3,661,807
Depreciation............ 3,481,368 757,481 8,434,595 31,109,032 40,166
-------------- ------------ ----------- ------------ -----------
Unrealized appreciation
(depreciation)--net.... $ (2,976,374) $ (323,095) $(7,797,906) $(29,290,444) $ 3,621,641
============== ============ =========== ============ ===========
</TABLE>
39
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS -- September 30, 2000 (unaudited) --
(continued)
At March 31, 2000, U.S. Government Securities Fund, GNMA Fund, Diversified
Income Fund, High Income Fund and Tax Exempt Insured Fund had capital loss
carryforwards of $28,752,971, $766,687, $29,533,536, $34,344,180 and
$2,332,376, respectively, which were available to the extent provided in
regulations and which will expire between 2003-2008. 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, GNMA Fund, Diversified Income Fund, High
Income Fund and Tax Exempt Insured Fund had post October 31, 1999 capital
loss deferrals of $734,665, $68,907, $2,760,176, $4,816,587 and $695,084,
respectively.
Note 6. Capital Share Transactions
Transactions in capital shares of each class of each series were as follows:
<TABLE>
<CAPTION>
U.S. Government Securities Fund
-------------------------------------------------------------------------------------------------------
Class A Class B
-------------------------------------------------- ---------------------------------------------------
For the For the For the For the
six months ended year ended six months ended year ended
September 30, 2000 March 31, 2000 September 30, 2000 March 31, 2000
------------------------ ------------------------ ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 3,128,922 $ 26,062,533 8,952,098 $ 75,324,127 229,935 $ 1,866,650 1,913,093 $ 16,144,616
Reinvested
dividends...... 307,073 2,563,749 574,827 4,824,903 63,857 532,808 264,380 2,227,767
Shares redeemed. (3,500,799) (29,180,680) (7,056,436) (59,082,137) (2,287,058) (19,019,362) (10,211,456) (85,944,767)
---------- ------------ ---------- ------------ ---------- ------------ ----------- ------------
Net increase
(decrease)..... (64,804) $ (554,398) 2,470,489 $ 21,066,893 (1,993,266) $(16,619,904) (8,033,983) $(67,572,384)
========== ============ ========== ============ ========== ============ =========== ============
<CAPTION>
U.S. Government Securities
Fund
--------------------------------------------------
Class II
--------------------------------------------------
For the period
For the June 1, 1999*
six months ended through
September 30, 2000 March 31, 2000
------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 40,714 $ 342,496 520,411 $ 4,361,789
Reinvested
dividends...... 2,015 16,826 6,036 50,475
Shares redeemed. (47,128) (394,659) (417,369) (3,459,364)
---------- ------------ ---------- ------------
Net increase
(decrease)..... (4,399) $ (35,337) 109,078 $ 952,900
========== ============ ========== ============
</TABLE>
* Commencement of sale of respective class of shares
40
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS -- September 30, 2000 (unaudited) --
(continued)
<TABLE>
<CAPTION>
GNMA Fund
-------------------------------------------------------------------------------------------------
Class A Class B
------------------------------------------------ -----------------------------------------------
For the For the For the For the
six months ended year ended six months ended year ended
September 30, 2000 March 31, 2000 September 30, 2000 March 31, 2000
---------------------- ------------------------ --------------------- ------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
--------- ----------- ---------- ------------ -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold............ 1,194,499 $12,396,296 2,075,249 $ 21,624,849 267,504 $ 2,759,813 1,015,469 $ 10,632,909
Reinvested dividends... 87,691 920,368 144,517 1,505,157 35,415 372,326 76,513 799,808
Shares redeemed........ (579,697) (5,924,942) (1,333,208) (13,858,079) (574,597) (5,978,891) (1,381,791) (14,420,366)
--------- ----------- ---------- ------------ -------- ----------- ---------- ------------
Net increase
(decrease)............ 702,493 $ 7,391,722 886,558 $ 9,271,927 (271,678) $(2,846,752) (289,809) $ (2,987,649)
========= =========== ========== ============ ======== =========== ========== ============
<CAPTION>
GNMA Fund
------------------------------------------------
Class II
------------------------------------------------
For the period
For the June 1, 1999*
six months ended through
September 30, 2000 March 31, 2000
---------------------- ------------------------
Shares Amount Shares Amount
--------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold............ 177,538 $ 1,864,278 182,286 $ 1,899,598
Reinvested dividends... 4,552 48,011 2,300 23,931
Shares redeemed........ (13,788) (146,172) (50,121) (519,298)
--------- ----------- ---------- ------------
Net increase........... 168,302 $ 1,766,117 134,465 $ 1,404,231
========= =========== ========== ============
</TABLE>
* Commencement of sale of respective class of shares
<TABLE>
<CAPTION>
Diversified Income Fund
---------------------------------------------------------------------------------------------------
Class A Class B
------------------------------------------------ -------------------------------------------------
For the For the For the For the
six months ended year ended six months ended year ended
September 30, 2000 March 31, 2000 September 30, 2000 March 31, 2000
----------------------- ----------------------- ----------------------- ------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ----------- ---------- ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold......... 1,383,698 $ 5,089,590 2,852,211 $10,815,152 517,257 $ 1,913,223 1,159,770 $ 4,401,412
Reinvested
dividends.......... 181,638 673,133 423,205 1,603,381 136,171 505,725 416,385 1,583,197
Shares redeemed..... (1,342,991) (4,978,531) (2,627,174) (9,961,131) (2,115,188) (7,828,018) (4,644,572) (17,645,412)
---------- ----------- ---------- ----------- ---------- ----------- ---------- ------------
Net increase
(decrease)......... 222,345 $ 784,192 648,242 $ 2,457,402 (1,461,760) $(5,409,070) (3,068,417) $(11,660,803)
========== =========== ========== =========== ========== =========== ========== ============
<CAPTION>
Diversified Income
Fund
------------------------------------------------
Class II
------------------------------------------------
For the period
For the June 1, 1999*
six months ended through
September 30, 2000 March 31, 2000
----------------------- -----------------------
Shares Amount Shares Amount
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold......... 336,179 $ 1,242,021 395,901 $ 1,511,781
Reinvested
dividends.......... 16,681 61,875 6,660 25,132
Shares redeemed..... (42,266) (156,964) (22,483) (86,512)
---------- ----------- ---------- -----------
Net increase........ 310,594 $ 1,146,932 380,078 $ 1,450,401
========== =========== ========== ===========
</TABLE>
* Commencement of sale of respective class of shares
41
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS -- September 30, 2000 (unaudited) --
(continued)
<TABLE>
<CAPTION>
High Income Fund
-------------------------------------------------------------------------------------------------------
Class A Class B
-------------------------------------------------- ---------------------------------------------------
For the For the For the For the
six months ended year ended six months ended year ended
September 30, 2000 March 31, 2000 September 30, 2000 March 31, 2000
------------------------ ------------------------ ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 4,638,327 $ 27,283,211 6,048,152 $ 38,286,926 3,923,833 $ 23,116,994 8,810,923 $ 55,949,603
Reinvested
dividends...... 308,472 1,821,093 634,192 4,033,854 320,341 1,893,474 826,011 5,274,504
Shares redeemed. (5,721,687) (33,556,812) (6,832,998) (43,512,831) (6,248,574) (37,065,905) (13,389,689) (85,885,750)
---------- ------------ ---------- ------------ ---------- ------------ ----------- ------------
Net decrease.... (774,888) $ (4,452,508) (150,654) $ (1,192,051) (2,004,400) $(12,055,437) (3,752,755) $(24,661,643)
========== ============ ========== ============ ========== ============ =========== ============
<CAPTION>
High Income
Fund
--------------------------------------------------
Class II
--------------------------------------------------
For the For the
six months ended year ended
September 30, 2000 March 31, 2000
------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 1,222,261 $ 7,221,492 3,704,462 $ 23,505,992
Reinvested
dividends...... 42,738 253,150 95,689 608,097
Shares redeemed. (855,591) (5,019,113) (3,320,055) (20,871,362)
---------- ------------ ---------- ------------
Net increase.... 409,408 $ 2,455,529 480,096 $ 3,242,727
========== ============ ========== ============
<CAPTION>
Tax Exempt Insured Fund
-------------------------------------------------------------------------------------------------------
Class A Class B
-------------------------------------------------- ---------------------------------------------------
For the For the For the For the
six months ended year ended six months ended year ended
September 30, 2000 March 31, 2000 September 30, 2000 March 31, 2000
------------------------ ------------------------ ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 452,562 $ 5,623,673 250,692 $ 3,125,661 77,118 $ 953,059 206,798 $ 2,569,322
Reinvested
dividends...... 66,784 827,703 137,926 1,719,934 11,576 143,394 29,849 372,813
Shares redeemed. (617,746) (7,668,729) (1,016,431) (12,619,306) (236,337) (2,931,278) (578,300) (7,196,953)
---------- ------------ ---------- ------------ ---------- ------------ ----------- ------------
Net decrease.... (98,400) $ (1,217,353) (627,813) $ (7,773,711) (147,643) $ (1,834,825) (341,653) $ (4,254,818)
========== ============ ========== ============ ========== ============ =========== ============
<CAPTION>
Tax Exempt Insured
Fund
--------------------------------------------------
Class II
--------------------------------------------------
For the period
For the June 1, 1999*
six months ended through
September 30, 2000 March 31, 2000
------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 9,207 $ 112,968 47,959 $ 596,931
Reinvested
dividends...... 628 7,789 631 7,770
Shares redeemed. (3,722) (45,412) (1,940) (24,382)
---------- ------------ ---------- ------------
Net increase.... 6,113 $ 75,345 46,650 $ 580,319
========== ============ ========== ============
</TABLE>
* Commencement of sale of respective class of shares
42
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS -- September 30 2000 (unaudited) --
(continued)
Note 7. Commitments and Contingencies
The SunAmerica Family of Mutual Funds has established committed and
uncommitted lines of credit with State Street Bank and Trust Company, the
Funds' custodian. Interest is currently payable at the Federal Funds rate
plus 50 basis points on the committed line and Federal Funds rate plus 100
basis points on the uncommitted line of credit. There is also a commitment
fee of 8 basis points per annum on the daily unused portion of the committed
line of credit. Borrowings under the line of credit will commence when the
Fund's cash shortfall exceeds $100,000. During the six months ended
September 30, 2000, the Diversified Income Fund and the High Income Fund had
borrowings outstanding for 16 and 66 days, respectively, under the line of
credit and incurred $544 and $69,248, respectively in interest charges
related to these borrowings. The Diversified Income and the High Income
Fund's average amount of debt under the line of credit for the days utilized
was $2,861,792 and 5,665,755 at a weighted average interest of 6.98% and
6.71%, respectively.
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. Any
undistributed amounts shall continue to accrue interest at 8.5%. As of
September 30, 2000, U.S. Government Securities Fund, GNMA Fund, Diversified
Income Fund, High Income Fund and Tax Exempt Insured Fund had accrued
$92,775, $11,778, $21,106, $31,458 and $26,048, respectively, for the
Retirement Plan, which is included in accrued expenses on the Statement of
Assets and Liabilities and for the six months ended September 30, 2000
expensed $2,106, $626, $544, $1,728 and $847, respectively, for the
Retirement Plan, which is included in Trustees' fees and expenses on the
Statement of Operations.
43
<PAGE>
[LOGO]SunAmerica
Mutual Funds
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Trustees
S. James Coppersmith
Samuel M. Eisenstat
Stephen J. Gutman
Peter A. Harbeck
Sebastiano Sterpa
Officers
Peter A. Harbeck, President
Michael Cheah, Vice President
Laura E. Filippone, Assistant Treasurer
James T. McGrath, Vice President
J. Steven Neamtz, Vice President
John Risner, Vice President
Robert M. Zakem, Secretary
Peter C. Sutton, Treasurer
Donna M. Handel, Assistant Treasurer
Cheryl L. Hawthorne, Assistant Treasurer
Peter E. Pisapia, Assistant Secretary
Abbe P. Stein, Assistant Secretary
Investment Adviser
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Distributor
SunAmerica Capital Services, Inc.
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Shareholder Servicing Agent
SunAmerica Fund Services, Inc.
The SunAmerica Center
733 Third Avenue
New York, NY 10017-3204
Custodian and Transfer Agent
State Street Bank and Trust Company
P.O. Box 419572
Kansas City, MO 64141-6572
This report is submitted solely for the general information of shareholders of
the Fund. Distribution of this report to persons other than shareholders of the
Fund is authorized only in connection with a currently effective prospectus,
setting forth details of the Fund, which must precede or accompany this report.
The accompanying report has not been examined by independent accountants and
accordingly no opinion has been expressed thereon.
Distributed by:
SunAmerica Capital Services, Inc.
[LOGO OF AIG] Member of American International Group, Inc.
INSAN-9/00
