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[LOGO] SunAmerica
The Retirement Specialist
[GRAPHIC]
INCOME FUNDS
2000 Annual Report
U.S. Government Securities Fund
Federal Securites Fund
Diversified Income Fund
High Income Fund
Tax Exempt Insured Fund
[LOGO] SunAmerica
Mutual Funds
<PAGE>
SunAmerica Income Funds Annual Report
Comments from the SunAmerica Fixed Income Investment Team
Michael Cheah
Paul Kunz
William Lin
James McGrath
John Risner
Brian Wiese
Dear Shareholders:
Five interest rate hikes dominated the U.S. bond markets during this
past fiscal year. The resulting yield increase clearly hurt the fixed
income markets. Despite this difficult environment, all five of the
SunAmerica Income Funds outperformed their peers for the twelve months
ended March 31, 2000.*
Market Review
During the annual period, the U.S. economy remained vibrant, and
inflation remained benign. Productivity improvements helped contain wage
and price pressures. The unemployment rate reached its lowest level in a
generation. Housing, retail and auto sales were all at historic levels.
Crude oil prices, which reached a high of $35/barrel, dropped after the
OPEC agreement to $27/barrel by the end of the annual period.
Still, the Federal Reserve Board believed that the productivity
improvements could not indefinitely offset an extremely tight labor
market. Inflation fears persisted. The Fed methodically raised interest
rates by 0.25% three times in 1999--on June 30, August 24, and November
16--and twice in the first quarter of 2000--on February 2 and March 21.
During the first quarter of 2000, the Treasury yield curve inverted--
an unusual market anomaly when short-term bond yields rise above long-
term bond yields. For the annual period, U.S. Treasuries outperformed
municipal, high yield, corporate, mortgage, and asset-backed securities.
This rally was primarily triggered by three factors:
* Past performance is no guarantee of future results.
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. Flight to Quality. The high volatility within the global equity
markets, especially at the end of March benefited longer-term Treasury
bonds.
. Changes in Government Credit. The U.S. agency sector of the fixed
income market, such as Fannie Maes and Freddie Macs, no longer hold an
implicit government guarantee. This also heightened the preference for
Treasury bonds.
. Perceived Scarcity Value. The U.S. Treasury announced their decision
during the quarter to reduce the number of auctions held and to
institute a buyback program, whereby the U.S. Treasury would buy back
its own 30-year issues with budget surplus monies. The result was less
supply.
Like U.S. bonds, international bond yields were generally higher
primarily due to increases in interest rates by the U.S. Federal Reserve
Board and the European Central Bank. Within the international sector,
however, emerging market bonds as a whole performed quite well, even
outperforming U.S. Treasuries.
Market Outlook
In the near-term, we believe the U.S. economy still has substantial
momentum. Recent indicators suggest that inflation is rising. Thus, we
believe that more 0.25% incremental increases in rates are forthcoming
from the Federal Reserve Board over the next few months. Clearly, the
degree of tightening and the timing of the Federal Reserve Board's next
moves will be key to U.S. bond market performance in the months ahead.
Provided the cooling in U.S. growth is modest and orderly, the rest of
the world should take it in stride.
Given this outlook, we believe the first quarter of 2000 fixed income
rally may reverse over the near term, and yields may drift a bit higher.
Yield spreads for the corporate, mortgage and asset-backed sectors may
widen. Within the U.S. Treasury market, higher rates along with an
ongoing declining supply/stronger demand trend, could lead to further
inversion of the yield curve, whereby short-term Treasury yields
continue to go up, but long-term Treasury yields continue to move down.
These conditions should present us with attractive, but limited,
opportunities to invest new cash flows at higher yields. Over the longer
term, we maintain a generally positive but cautious outlook for the U.S.
fixed income markets.
With this backdrop, we are pleased to present you with a portfolio
review for each of the SunAmerica Income Funds on the following pages.
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SunAmerica U.S. Government Securities Fund
In spite of its conservative nature relative to other U.S. government
funds, SunAmerica U.S. Government Securities Fund performed well. The
Fund's Class A returned 0.89% compared to 0.75% for its Lipper category
for the twelve months ended March 31, 2000. (Returns do not reflect
sales charges.)
The Fund's outperformance was primarily due to duration positioning
during the first half of the fiscal year and to yield curve positioning
during the second half. Our duration strategy was particularly effective
during the third quarter of 1999 when the Fund primarily maintained a
neutral to shorter-than-benchmark duration while the Federal Reserve
Board was in active tightening mode. Our yield curve strategy was
particularly effective during the first quarter of 2000 when the Fund
was overweighted in the longer-term end of the yield curve, which
rallied due to the flight to quality and the decreased supply of long-
term Treasuries.
Portfolio Review
Your diversified portfolio generally is structured with one-third of
assets invested in premium mortgages, one-third in short-dated
securities, and the remaining one-third in U.S. Treasuries. Yields on
mortgages rose over the year, and as of March 31, 2000, had fully
reversed the declines seen during the global crisis of 1997/98. During
the second six months of the Fund's fiscal year, an increase in the
general level of interest rates, a reduction in volatility, and a
slowdown in prepayments benefited mortgage securities. U.S. Treasury
yields increased as well for the year and Treasuries outperformed
mortgages. Premium mortgages provided the Fund with high current income
and reduced market price volatility.
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SunAmerica Federal Securities Fund
SunAmerica Federal Securities Fund performed well during this
challenging period. The Fund's Class A returned 2.40% compared to
1.53% for its Lipper category for the twelve months ended March 31,
2000. (Returns do not reflect sales charges.) While the Fund
primarily invests in securities issued or guaranteed by the U.S.
government and in mortgage-backed securities, the Fund
distinguishes itself with its strategic focus on global factors and
Federal Reserve Board monetary policy. These analyses are the
primary basis for both our asset allocation and duration and yield
curve positioning decisions.
Portfolio Review
The Fund benefited most during the annual period from active
sector and duration positioning during the first half of the fiscal
year and from active sector and yield curve positioning during the
second half. The Fund invested primarily in GNMAs and strictly
limited its investments in other government agency securities, such
as Fannie Maes and Freddie Macs. In fact, as of March 31, 2000, the
Fund was invested 70.8% in GNMAs. This strategy was particularly
important during the first quarter of 2000 when there was
speculation of a pull-back of the credit line from what are known
as Government Sponsored Entities, i.e. the U.S. agency sector of
the fixed income market including Fannie Maes and Freddie Macs. As
a result these securities suffered. Explicitly guaranteed by the
U.S. government and unencumbered by credit line concerns, GNMAs
outperformed Fannie Maes during the first quarter. Long-term
Treasuries, where the Fund was overweighted, also rallied on a
flight to quality.
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SunAmerica Diversified Income Fund
SunAmerica Diversified Income Fund significantly outperformed its
category average for the annual period through March 31, 2000,
according to Lipper Analytical Services. Diversified Income Class A
returned 9.49% compared to 2.13% for its Lipper category for the
twelve months ended March 31, 2000. (Returns do not reflect sales
charges.)
Portfolio Review
This fiscal year demonstrated the emphasis of the Fund to spread
fixed income investments among multiple sectors to provide a high
level of current income consistent with moderate investment risk.
International Bonds. Effective security selection in the emerging
markets, the single best performing fixed income group during the
period, primarily drove the Fund's performance. The strong gains
from this sector more than offset the slight decline posted by the
high yield fixed income sector.
We gradually reduced the Fund's overweighting in emerging
markets, taking profits along the way, as these markets had staged
a broad recovery during the year. Within this sector, the Fund
still maintained an overweighting in the Latin American region,
where it benefited most from an upgrade of Mexican bonds. The Fund
remained underweighted in Asia, Eastern Europe, and Russia. We
reallocated the profits from our emerging market sales into
intermediate U.S. Treasuries, both to protect our gains and balance
our exposures.
High yield. These bonds added incremental value to the Fund
through the benefits of higher coupon income, which provided a
powerful advantage in a rising interest rate environment.
The high yield market posted negative returns for the twelve
months as a whole, due primarily to supply/demand imbalances and a
dramatic rise in the default rate. Still, the telecommunications
sector, where the Fund is overweighted, did comparatively well
based on heightened merger and acquisition activity, accelerating
industry growth, and the early success of what we believe will be a
broadband revolution.
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U.S. Treasuries. Finally, the Fund benefited from its duration
positioning within its U.S. government allocation. Given the
anticipated and then actual Federal Reserve Board interest rate
hikes, we focused our U.S. government holdings on the 3 to 5 year
maturity range, which is shorter than the benchmark.
Going forward, we expect to continue the allocation strategy we
began implementing during this fiscal year--that is, to evenly
balance the portfolio's allocation among the three major components
of the Fund. In the high yield sector, we intend to maintain our
focus on the media and telecommunications sectors. In the U.S.
government sector, we intend to maintain our bias toward short- to
intermediate-term bonds, as we believe interest rates are still on
the increase. And in the emerging market sector, we are actively
considering shifting some assets from Latin American to Asian
bonds.
Winners and Losers
While the Fund's holdings in Central European Media and Paging
Network Do Brazil (in the broadcasting and paging sector) and
Golden Ocean Group (in the shipping sector) were disappointments
over the period, we were pleased with most of the portfolio's
holdings.
For example, United Mexican States was sold at a profit. Other
strong performers included two of the Fund's largest holdings--
Mexican food retail company Bepensa and U.S. electronic test
equipment company Wavetek Corp. Brazilian Brady bonds, Argentinian
media investment company CEI Citicorp Holdings and cable and media
company UIH Australia Pacific also contributed to the Fund's strong
performance.
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SunAmerica High Income Fund
SunAmerica High Income Fund Class A posted a return of 2.04% and
outperformed the 0.06% return for its Lipper category for the
twelve months ended March 31, 2000. (Returns do not reflect sales
charges.)
Portfolio Review
The Fund benefited from strong individual security selection,
avoidance of any material impact from defaulted bonds, and its
effective sector allocation. We remained overweighted in the
telecommunications and energy sectors and underweighted in the
retailing, gaming, and healthcare sectors.
This was a challenging period for the high yield market. The
market was impacted by pricing inefficiencies inherent in supply
and demand imbalances and by a default rate that continued to rise
to a level of more than 5%, the highest it had been since 1991. Two
high profile defaults accounted for much of this spike, namely
satellite companies Iridium and ICO Global, which combined had
approximately $2 billion in debt outstanding. Several issues rated
BB also defaulted during the year. The Fund did not own any of
these securities. To a lesser degree, the high yield market was
also affected by rising interest rates.
During the fiscal year, we reduced the total number of names in
the portfolio--while staying broadly diversified--to enhance the
fund's focus. The number of names in the portfolio on March 31,
2000 was 117, down from almost 150 one year prior.
We also continued 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. For example, over the
first half of the Fund's fiscal year we had actively sought to
upgrade the portfolio's quality, shifting a significant portion of
the portfolio from B to BB names. In December 1999, with Y2K
concerns looming, the intra-market quality spread widened, and we
then swapped some of our BB holdings back into B holdings at
attractive yield levels. Often, we swapped within the same company,
such as Nextel Communications, Chancellor Media, Broadwing
(formerly IXC Communications), and Cablevision Systems. As of March
31, 2000, approximately 16% of the Fund's assets were rated in the
BB range and more than 54% in the B range.
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The Fund's telecommunications holdings continued to do well,
driven by heightened merger and acquisition activity, accelerating
industry growth, and the early success of what we believe will be a
broadband revolution. This sector further benefited from the
favorable resolution of certain regulatory issues that had been
pending before Congress. We continue to like this sector, although
as supply temporarily outstrips demand, we will carefully monitor
the competitive picture within this industry.
Having brought the energy sector from a neutral to a modest
overweighting during the earlier part of the fiscal year when oil
prices were still comparatively low, this sector performed well for
the Fund as oil prices rose. Even though we believe oil prices will
decline to the low $20/barrel range, we still view the bonds of
energy companies as representing good value.
Within the cyclical sector, steel and paper rebounded during the
second half of the fiscal year, although chemicals continued to
lag. We focused on issue specific evaluation in these cyclicals.
The Fund maintained its underweighting in healthcare, staying
concentrated in such top-tier credits as Tenet Healthcare and
Fresenius Medical Care Capital Trust, both BB credits.
Looking ahead, our key concern is the rise in the high yield
default rate. Defaults have not been a major worry for the Fund's
holdings, but we must stay vigilant, keeping a close eye on each
issuer's access to capital, which is clearly paramount to getting
through challenging times, regardless of the industry. We do expect
heightened merger and acquisition activity to enhance credit
quality and, as a result, principal appreciation. While we can not
point to any event that will ignite a significant rally in the near
term, we believe the high yield market continues to offer an
attractive risk/reward profile for the patient investor.
Winners and Losers
Throughout the fiscal year, many of the Fund's best performing
holdings were in the cable, cellular, and telecommunications
sectors. For example, U.S. electronic test equipment company
Wavetek Corp. was one of the primary drivers of the Fund's
outperformance. Nextel Communications, EchoStar Communications,
Global Crossing, and NTL also did particularly well.
As evidenced by the Fund's outperformance, we are pleased to
report that during a challenging period in the high yield market,
the Fund did not have any material losers.
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SunAmerica Tax Exempt Insured Fund
During a challenging period for municipal securities, SunAmerica
Tax Exempt Insured Fund performed well relative to its benchmark.
Its management was conservative, with greater focus on insured
municipal bonds relative to other municipal debt funds. The Fund's
Class A returned -1.20% compared to -2.23% for its Lipper category
for the twelve months ended March 31, 2000. (Returns do not reflect
sales charges.)
Municipal bond yields rose significantly during the period. Three
interest rate hikes by the Federal Reserve Board in 1999 and
expectations of further tightenings, the ongoing strong economy,
rising oil prices, and Y2K liquidity fears imposed pressure on the
fixed income market, especially during the first nine months of the
fiscal year. During the first quarter of 2000, municipals rallied
even though the Fed tightened interest rates twice.
Municipal bonds were less volatile than U.S. Treasuries over the
annual period. In addition, low municipal supply--down 20% from the
prior year and down 32% for the first quarter of 2000 over the same
period one year prior--helped the sector's performance and caused a
narrowing of credit spreads. In addition, demand for municipals
from the retail buyer was strong, but insurance companies and other
institutions, historically large buyers of municipal bonds,
decreased their allocations within this sector.
Portfolio Review
The Fund benefited primarily from strong sector and specific
issue selection. For example, we concentrated over the period on
issues from Illinois and Texas, which offered the highest yields
coupled with good liquidity and attractive pricing. We took profits
from some Florida securities, reduced our holdings in New York and
Massachusetts, and added to our exposure in New Jersey, Michigan
and Minnesota, primarily on an issue-specific basis. We continued
to avoid Connecticut and California during the twelve months, as
low supply resulted in high prices there. The Fund remained
diversified among 27 states at the end of the annual period.
Fund performance was positively impacted by its underweighted
position in healthcare credits. We also reduced the Fund's
allocation to utilities. For example, in July 1999, we sold our
9
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Long Island Power Authority (New York) holding, and in August we
sold our Jefferson County Utilities (Alabama) position.
We increased portfolio quality over the annual period by selling
the Fund's last holding rated "Baa." As of March 31, 2000, more
than 95% 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.
Over the annual 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. The average duration of the Fund at March 31, 2000
was 7.5 years.
In the near term, we intend to shorten the Fund's average
duration further, maintaining a defensive stance against more
interest rate hikes by the Federal Reserve Board and a strong U.S.
economy. Once the Fed finishes raising interest rates, we will then
look to extend the Fund's duration.
Winners and Losers
Our Houston Higher Ed-Rice University and Jefferson County
Utilities holdings disappointed, and we sold both. The Minneapolis
& St. Paul Airport-AMT bonds the Fund bought in March 2000
performed particularly well. So, too, did the Fund's New Jersey
State Transportation Trust Fund Authority holdings.
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If you would like additional information:
[_] Call FastFacts--Call our 24 hour automated account and fund
information hotline at 800-854-4760.
[_] Visit SunAmerica on the World WIde Web. Visit our site at
www.sunamericafunds.com for more up-to-date information.
SunAmerica Mutual Funds
thanks you for your continued support.
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SunAmerica Money Market Fund
STATEMENT OF ASSETS AND LIABILITIES -- March 31, 2000
<TABLE>
<CAPTION>
U.S. Government Federal Diversified High Tax Exempt
Securities Fund Securities Fund Income Fund Income Fund Insured Fund
--------------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investment securities,
at value (identified
cost $171,855,376;
$65,781,941;
$61,470,441;
$181,407,616 and
$79,811,440,
respectively).......... $165,547,906 $ 64,725,069 $ 54,748,174 $159,921,231 $82,904,677
Short-term securities
(identified cost
$36,875,999;
$24,929,934; $0;
$2,469,450 and
$1,500,000,
respectively).......... 36,875,999 24,929,934 -- 2,461,250 1,500,000
Repurchase agreements
(cost equals market)... 6,946,000 2,995,000 963,000 -- --
Cash.................... 396 8,995 875 2,035,333 82,074
Receivable for
investments sold....... 25,251,298 8,093,250 271,181 6,620,742 --
Interest and dividends
receivable............. 1,536,813 393,161 1,329,170 3,778,215 1,435,577
Receivable for shares of
beneficial interest
sold................... 679,004 395,766 113,581 829,364 914
Prepaid expenses........ 1,846 417 488 1,122 1,414
Receivable due from
adviser................ 652 1,386 2,792 2,398 1,798
------------ ------------ ------------ ------------ -----------
Total assets........... 236,839,914 101,542,978 57,429,261 175,649,655 85,926,454
------------ ------------ ------------ ------------ -----------
LIABILITIES:
Payable for investments
purchased.............. 41,544,954 33,298,271 320,625 2,702,233 --
Dividends payable....... 409,951 134,421 216,040 706,445 165,481
Payable for shares of
beneficial interest
redeemed............... 286,610 44,480 190,369 3,814,074 104,688
Accrued expenses........ 235,676 67,351 75,648 130,324 88,857
Investment advisory and
management fees
payable................ 124,075 28,733 31,410 110,898 36,211
Distribution and service
maintenance fees
payable................ 82,982 32,923 31,386 110,663 34,649
Loan payable............ -- -- -- 1,052,307 --
------------ ------------ ------------ ------------ -----------
Total liabilities...... 42,684,248 33,606,179 865,478 8,626,944 429,886
------------ ------------ ------------ ------------ -----------
Net assets............. $194,155,666 $ 67,936,799 $ 56,563,783 $167,022,711 $85,496,568
============ ============ ============ ============ ===========
NET ASSETS WERE COMPOSED
OF:
Shares of beneficial
interest, $.01 par
value.................. $ 233,543 $ 65,148 $ 147,910 $ 273,371 $ 69,111
Paid-in capital......... 229,561,394 69,848,578 95,463,961 227,995,861 85,292,582
------------ ------------ ------------ ------------ -----------
229,794,937 69,913,726 95,611,871 228,269,232 85,361,693
Accumulated
undistributed
(distributions in
excess of) net
investment income...... 175,836 (67,900) (22,132) (221,422) 69,752
Accumulated net realized
loss on investments,
futures, options and
foreign currency....... (29,507,637) (852,155) (32,303,689) (39,530,514) (3,028,114)
Net unrealized
appreciation
(depreciation) on
investments............ (6,307,470) (1,056,872) (6,722,267) (21,494,585) 3,093,237
------------ ------------ ------------ ------------ -----------
Net assets............. $194,155,666 $ 67,936,799 $ 56,563,783 $167,022,711 $85,496,568
============ ============ ============ ============ ===========
Class A (unlimited
shares authorized):
Net assets............. $150,975,307 $ 44,155,192 $ 30,632,865 $ 63,415,033 $68,650,161
Shares of beneficial
interest issued and
outstanding........... 18,160,572 4,237,999 8,017,617 10,387,165 5,549,557
Net asset value and
redemption price per
share................. $ 8.31 $ 10.42 $ 3.82 $ 6.11 $ 12.37
Maximum sales charge
(4.75% of offering
price)................ 0.41 0.52 0.19 0.30 0.62
------------ ------------ ------------ ------------ -----------
Maximum offering price
to public............. $ 8.72 $ 10.94 $ 4.01 $ 6.41 $ 12.99
============ ============ ============ ============ ===========
Class B (unlimited
shares authorized):
Net assets............. $ 42,273,241 $ 22,375,600 $ 24,476,483 $ 91,357,002 $16,269,401
Shares of beneficial
interest issued and
outstanding........... 5,084,611 2,142,370 6,393,293 14,948,807 1,314,870
Net asset value,
offering and
redemption price per
share................. $ 8.31 $ 10.44 $ 3.83 $ 6.11 $ 12.37
============ ============ ============ ============ ===========
Class II (unlimited
shares authorized):
Net assets............. $ 907,118 $ 1,406,007 $ 1,454,435 $ 12,250,676 $ 577,006
Shares of beneficial
interest issued and
outstanding........... 109,078 134,465 380,078 2,001,081 46,650
Net asset value and
redemption price per
share................. $ 8.32 $ 10.46 $ 3.83 $ 6.12 $ 12.37
Maximum sales charge
(1.00% of offering
price)................ 0.08 0.11 0.04 0.06 0.12
------------ ------------ ------------ ------------ -----------
Maximum offering price
to public............. $ 8.40 $ 10.57 $ 3.87 $ 6.18 $ 12.49
============ ============ ============ ============ ===========
</TABLE>
See Notes to Financial Statements
12
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SunAmerica Income Funds
STATEMENT OF OPERATIONS -- For the year ended March 31, 2000
<TABLE>
<CAPTION>
U.S. Government Federal Diversified High Tax Exempt
Securities Fund Securities Fund Income Fund Income Fund Insured Fund
--------------- --------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income:
Interest................ $ 15,559,536 $ 4,201,399 $ 6,881,452 $ 20,898,806 $ 5,289,874
Dividends............... -- -- 33,563 353,337 --
------------ ----------- ----------- ------------ -----------
Total Investment
Income............... 15,559,536 4,201,399 6,915,015 21,252,143 5,289,874
------------ ----------- ----------- ------------ -----------
Expenses:
Investment advisory and
management fees........ 1,695,635 331,379 388,921 1,371,154 464,485
Distribution and service
maintenance fees--Class
A...................... 521,036 140,057 104,007 230,301 258,727
Distribution and service
maintenance fees--Class
B...................... 769,994 246,526 297,771 1,041,826 187,292
Distribution and service
maintenance fees--Class
II..................... 13,242 6,378 3,410 128,854 2,458
Transfer agent fees and
expenses--Class A...... 398,335 107,703 82,240 174,596 203,096
Transfer agent fees and
expenses--Class B...... 211,517 65,298 84,094 259,269 45,179
Transfer agent fees and
expenses--Class II..... 4,329 2,800 2,422 32,019 1,875
Custodian fees and
expenses............... 204,131 87,215 69,680 107,782 68,260
Printing expense........ 33,045 10,735 10,215 22,940 7,950
Audit and tax consulting
fees................... 28,355 27,945 28,030 28,060 28,030
Legal fees and expenses. 27,830 11,900 11,300 21,165 13,015
Trustees' fees and
expenses............... 17,880 4,525 5,110 15,456 7,369
Registration fees--Class
A...................... 17,578 12,069 8,885 11,936 13,012
Registration fees--Class
B...................... 10,927 8,922 10,016 16,771 7,883
Registration fees--Class
II..................... 11,335 12,220 12,739 10,513 11,663
Insurance expense....... 2,773 341 670 935 4,043
Interest expense........ -- -- -- 51,025 --
Miscellaneous expenses.. 3,078 597 792 1,673 1,123
------------ ----------- ----------- ------------ -----------
Total expenses before
reimbursements and
custody credits...... 3,971,020 1,076,610 1,120,302 3,526,275 1,325,460
Expenses reimbursed by
investment adviser... (11,439) (12,638) (14,189) (14,981) (12,777)
Custody credits earned
on cash balances..... (3,856) (1,290) (2,895) (8,147) (1,695)
------------ ----------- ----------- ------------ -----------
Net expenses.......... 3,955,725 1,062,682 1,103,218 3,503,147 1,310,988
------------ ----------- ----------- ------------ -----------
Net investment income..... 11,603,811 3,138,717 5,811,797 17,748,996 3,978,886
------------ ----------- ----------- ------------ -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on
investments.............. (7,129,844) (759,353) (4,742,632) (9,398,653) (1,316,581)
Net realized gain on
futures contracts........ -- -- -- -- 11,048
Net change in unrealized
appreciation/depreciation
on investments........... (3,381,253) (992,360) 4,011,167 (4,992,239) (4,212,128)
------------ ----------- ----------- ------------ -----------
Net realized and
unrealized loss on
investments.............. (10,511,097) (1,751,713) (731,465) (14,390,892) (5,517,661)
------------ ----------- ----------- ------------ -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS............... $ 1,092,714 $ 1,387,004 $ 5,080,332 $ 3,358,104 $(1,538,775)
============ =========== =========== ============ ===========
</TABLE>
See Notes to Financial Statements
13
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SunAmerica Income Funds
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
U.S. Government Securities Fund Federal Securities Fund Diversified Income Fund
------------------------------- ------------------------- -------------------------
For the For the year For the
For the year For the year year ended ended year ended For the year
ended March 31, ended March 31, March 31, March 31, March 31, ended March
2000 1999 2000 1999 2000 31, 1999
--------------- --------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income.... $ 11,603,811 $ 14,868,327 $ 3,138,717 $ 2,674,252 $ 5,811,797 $ 7,184,379
Net realized gain (loss)
on investments.......... (7,129,844) 4,318,917 (759,353) 1,258,473 (4,742,632) (2,844,122)
Net realized gain on
futures contracts....... -- 422,416 -- 17,386 -- --
Net change in unrealized
appreciation/depreciation
on investments.......... (3,381,253) (6,697,395) (992,360) (914,255) 4,011,167 (12,524,107)
Net change in unrealized
appreciation/depreciation
on futures contracts.... -- (76,457) -- -- -- --
--------------- --------------- ----------- ----------- ----------- ------------
Net increase (decrease) in
net assets resulting from
operations............... 1,092,714 12,835,808 1,387,004 3,035,856 5,080,332 (8,183,850)
--------------- --------------- ----------- ----------- ----------- ------------
Dividends and
distributions to
shareholders:
From net investment
income (Class A)........ (7,316,206) (5,261,257) (1,945,620) (1,555,972) (3,008,723) (2,584,052)
From net investment
income (Class B)........ (3,267,610) (7,317,082) (1,036,234) (879,578) (2,822,580) (4,763,126)
From net investment
income (Class II)....... (55,903) -- (26,842) -- (31,573) --
From net realized gain on
investments (Class A)... -- -- -- (1,486,651) -- --
From net realized gain on
investments (Class B)... -- -- -- (1,023,323) -- --
From net realized gain on
investments (Class II).. -- -- -- -- -- --
--------------- --------------- ----------- ----------- ----------- ------------
Total dividends and
distributions to
shareholders............. (10,639,719) (12,578,339) (3,008,696) (4,945,524) (5,862,876) (7,347,178)
--------------- --------------- ----------- ----------- ----------- ------------
Net increase (decrease) in
net assets resulting from
capital share
transactions (Note 6).... (45,552,591) (56,448,149) 7,688,509 13,315,452 (7,753,000) (8,283,638)
--------------- --------------- ----------- ----------- ----------- ------------
Total increase (decrease)
in net assets............ (55,099,596) (56,190,680) 6,066,817 11,405,784 (8,535,544) (23,814,666)
NET ASSETS:
Beginning of period...... 249,255,262 305,445,942 61,869,982 50,464,198 65,099,327 88,913,993
--------------- --------------- ----------- ----------- ----------- ------------
End of period [including
undistributed
(distributions in excess
of) net investment
income for March 31,
2000 and March 31, 1999
of $175,836, $14,242,
$(67,900), $(122,329),
$(22,132) and $28,947,
respectively]........... $ 194,155,666 $ 249,255,262 $67,936,799 $61,869,982 $56,563,783 $ 65,099,327
=============== =============== =========== =========== =========== ============
</TABLE>
See Notes to Financial Statements
14
<PAGE>
SUNAMERICA INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS - (continued)
<TABLE>
<CAPTION>
High Income Fund Tax Exempt Insured Fund
-------------------------- --------------------------
For the year For the year For the year For the year
ended ended ended ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
Operations:
Net investment income.... $ 17,748,996 $ 16,516,336 $ 3,978,886 $ 4,375,248
Net realized gain (loss)
on investments.......... (9,398,653) (8,903,159) (1,316,581) 1,631,528
Net realized gain (loss)
on futures contracts.... -- -- 11,048 (15,097)
Net change in unrealized
appreciation/depreciation
on investments.......... (4,992,239) (16,556,387) (4,212,128) (1,407,777)
------------ ------------ ------------ ------------
Net increase (decrease) in
net assets resulting from
operations............... 3,358,104 (8,943,210) (1,538,775) 4,583,902
------------ ------------ ------------ ------------
Dividends to shareholders:
From net investment
income (Class A)........ (6,739,003) (5,956,938) (3,187,067) (3,512,446)
From net investment
income (Class B)........ (9,974,079) (10,524,742) (686,786) (778,374)
From net investment
income (Class II)....... (1,250,960) (480,913) (9,128) --
------------ ------------ ------------ ------------
Total dividends to
shareholders.............. (17,964,042) (16,962,593) (3,882,981) (4,290,820)
------------ ------------ ------------ ------------
Net increase (decrease) in
net assets resulting from
capital share
transactions (Note 6).... (22,610,967) 47,595,068 (11,448,210) (9,323,157)
------------ ------------ ------------ ------------
Total increase (decrease)
in net assets............ (37,216,905) 21,689,265 (16,869,966) (9,030,075)
NET ASSETS:
Beginning of period...... 204,239,616 182,550,351 102,366,534 111,396,609
------------ ------------ ------------ ------------
End of period [including
undistributed
(distributions in excess
of) net investment
income for March 31,
2000 and March 31, 1999
of $(221,422), $(6,376),
$69,752 and $(26,179),
respectively]........... $167,022,711 $204,239,616 $ 85,496,568 $102,366,534
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
15
<PAGE>
SUNAMERICA INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES FUND
- -------------------------------
Net gain
(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
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
Class II
--------
6/01/99-
3/31/00(3)..... $8.49 $0.31 $(0.20) $0.11 $(0.28) $8.32
<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
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
6/01/99-
3/31/00(3)..... 1.30% $ 907 2.20%(4)(5) 4.50%(4)(5) 717%
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERAL SECURITIES 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) --
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) --
Class II
--------
6/01/99-
3/31/00(3)...... $10.52 $0.37 $(0.09) $0.28 $(0.34) $ --
<CAPTION>
FEDERAL SECURITIES 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
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
6/01/99-
3/31/00(3)...... $(0.34) $10.46 2.72% $ 1,406 2.10%(4)(5) 4.34%(4)(5) 910%
</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
------- ------- -------
<S> <C> <C> <C>
U.S. Government Securities Fund Class
A .04% .01% --
U.S. Government Securities Fund Class
II -- -- 0.86%
Federal Securities Fund Class II -- -- 1.98%
</TABLE>
See Notes to Financial Statements
16
<PAGE>
SUNAMERICA INCOME FUND
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
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
Class II
--------
6/01/99-
3/31/00(3)..... $3.83 $0.25 $ 0.03 $ 0.28 $(0.28) $3.83
<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
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
6/01/99-
3/31/00(3)..... 7.77% $ 1,454 2.15%(4)(5) 9.06%(4)(5) 62%
- --------------------------------------------------------------------------------
<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
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
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
<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
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
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
</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
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Diversified Income Fund Class II -- -- -- -- 4.16%
High Income Fund
Class B .08% .01% -- -- --
High Income Fund
Class II -- -- 5.37% 0.48% 0.12%
</TABLE>
See Notes to Financial Statements
17
<PAGE>
SUNAMERICA INCOME FUND
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
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
Class II
--------
6/01/99-
3/31/00(3)..... $12.83 $0.37 $(0.47) $(0.10) $(0.36) $12.37
<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
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
6/01/99-
3/31/00(3)..... (0.76)% $ 577 1.95%(4)(5) 3.82%(4)(5) 33%
</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
-------
<S> <C>
Tax Exempt Insured Fund Class II 5.20%
</TABLE>
See Notes to Financial Statements
18
<PAGE>
SunAmerica U.S. Government Securities Fund
PORTFOLIO OF INVESTMENTS - March 31, 2000
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--14.2%
6.00% due 11/01/13................................. $7,725 $ 7,278,751
7.50% due 6/01/25.................................. 322 316,683
9.50% due 4/01/20.................................. 877 923,181
10.00% due 1/01/17 - 8/01/21....................... 7,775 8,290,518
12.50% due 1/01/16................................. 7,292 7,995,168
13.50% due 2/01/19................................. 2,503 2,813,444
-----------
Total Federal Home Loan Mortgage Corp.
(cost $28,891,173)................................ 27,617,745
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 18.8%
6.00% due 10/01/28 - 12/01/28...................... 25,472 23,195,267
6.50% due 7/01/13.................................. 7,355 6,972,480
7.50% due 7/01/26.................................. 2,391 2,362,578
8.00% due 12/01/22 - 1/01/23....................... 3,932 3,942,924
-----------
Total Federal National Mortgage Association
(cost $39,064,251)................................ 36,473,249
-----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION--16.7%
7.00% due 7/15/23 - 9/15/25........................ 6,194 6,026,500
7.50% due 4/15/17 - 10/15/23....................... 10,042 10,045,015
8.00% due TBA(1)................................... 3,000 3,034,230
8.50% due TBA(1)................................... 13,000 13,339,170
-----------
Total Government National
Mortgage Association
(cost $32,939,525)................................ 32,444,915
-----------
U.S. GOVERNMENT AGENCIES--17.2%
Federal Farm Credit Bank
5.58% due 9/11/03................................. 20,000 19,109,400
Private Export Funding Corp.
5.87% due 7/31/08................................. 10,000 9,129,700
Small Business Administration
6.30% due 6/01/18................................. 5,543 5,140,107
-----------
Total U.S. Government Agencies (cost $36,023,396).. 33,379,207
-----------
U.S. TREASURY BONDS--5.2%
6.13% due 8/15/29
(cost $9,759,375)................................. 10,000 10,192,200
-----------
U.S. TREASURY NOTES--13.1%
5.88% due 11/15/04................................. 1,000 981,870
6.00% due 8/15/09.................................. 8,000 7,898,720
6.50% due 2/15/10.................................. 16,000 16,560,000
-----------
Total U.S. Treasury Notes
(cost $25,177,656)................................ 25,440,590
-----------
Total Investment Securities--85.2%
(cost $171,855,376)................................ 165,547,906
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- -------------------------------------------------------------------------------
SHORT-TERM SECURITIES--19.0%
Federal National Mortgage Association Discount
Notes 5.90% due 4/24/00......................... $21,000 $ 20,920,841
Federal Home Loan Mortgage Discount Notes
5.94% due 4/18/00(2)............................ 16,000 15,955,158
------------
Total Short-Term Securities
(cost $36,875,999).............................. 36,875,999
------------
REPURCHASE AGREEMENT--3.6%
State Street Bank & Trust Co. Joint Repurchase
Agreement Account (Note 2)(2)
(cost $6,946,000)............................... 6,946 6,946,000
------------
TOTAL INVESTMENTS--
(cost $215,677,375*)............................ 107.8% 209,369,905
Liabilities in excess of other assets............. (7.8) (15,214,239)
------- ------------
NET ASSETS-- 100.0% $194,155,666
======= ============
</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 U.S. Government Securities Fund
PORTFOLIO OF INVESTMENTS - March 31, 2000 - (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands). (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--2.6%
7.50% due 5/01/24 - 6/01/25........................ $ 710 $ 701,139
10.00% due 1/01/17................................. 1,019 1,082,941
12.50% due 9/30/13(1).............................. 6 6,456
----------
Total Federal Home Loan Mortgage Corp.
(cost $1,828,360)................................. 1,790,536
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--1.8%
7.00% due 9/01/10 (cost $1,247,423)................ 1,221 1,200,665
----------
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION--70.8%
6.00% due 12/15/28................................. 4,483 4,102,971
6.50% due 12/15/28 - 1/15/29....................... 6,327 5,968,441
7.00% due 3/15/23 - 9/15/25........................ 4,164 4,052,061
8.00% due 11/15/26................................. 4,354 4,407,933
8.00% due TBA(2)................................... 25,000 25,267,730
8.50% due 3/15/17 - 9/15/24........................ 3,149 3,236,080
9.00% due 7/15/16 - 10/15/16....................... 996 1,036,063
----------
Total Government National
Mortgage Association
(cost $48,630,735)................................. 48,071,279
----------
U.S. GOVERNMENT AGENCIES--9.5%
Federal Farm Credit Bank
5.58% due 9/11/03.................................. 5,000 4,777,350
Small Business Administration
6.30% due 6/01/18.................................. 1,848 1,713,369
----------
Total U.S. Government Agencies
(cost $6,967,766).................................. 6,490,719
----------
U.S. TREASURY BONDS--1.6%
6.25% due 5/15/30
(cost $1,035,469)................................. 1,000 1,057,190
----------
U.S. TREASURY NOTES--9.0%
6.00% due 8/15/09.................................. 2,000 1,974,680
6.50% due 2/15/10.................................. 4,000 4,140,000
----------
Total U.S. Treasury Notes
(cost $6,072,188).................................. 6,114,680
----------
Total Investment Securities--95.3%
(cost $65,781,941)................................. 64,725,069
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
SHORT-TERM SECURITIES--36.7%
Federal Home Loan Mortgage Discount Notes
5.94% due 4/18/00(3)
(cost $24,929,934).............................. $25,000 $ 24,929,934
------------
REPURCHASE AGREEMENT--4.4%
State Street Bank & Trust Co.
Joint Repurchase Agreement Account (Note 2)(3)
(cost $2,995,000)............................... 2,995 2,995,000
------------
TOTAL INVESTMENTS--
(cost $93,706,875*).............................. 136.4% 92,650,003
Liabilities in excess of other assets............. (36.4) (24,713,204)
------- ------------
NET ASSETS-- 100.0% $ 67,936,799
======= ============
</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 - March 31, 2000
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES--37.4%
Broadcasting--5.2%
Big City Radio, Inc.
Sr. Disc. Notes
zero coupon due 3/15/05(1)........................ $ 1,050 $ 653,625
Chancellor Media Corp.
Sr. Notes
8.00% due 11/01/08................................ 1,000 985,000
Chancellor Media Corp.
Sr. Subordinated Notes, Series B
8.13% due 12/15/07................................ 500 492,500
Radio One, Inc.
Sr. Subordinated Notes, Series B
7.00% due 5/15/04(6).............................. 750 798,750
------------
2,929,875
------------
Cable--8.8%
Adelphia Communications Corp.
Sr. Notes, Series B
8.13% due 7/15/03................................. 1,050 1,005,375
Comcast UK Cable Partners Ltd.
Sr. Disc. Notes
zero coupon due 11/15/07(1)....................... 500 475,000
Diamond Holdings PLC
Sr. Notes
9.13% due 2/01/08................................. 1,000 957,500
Echostar DBS Corp.
Sr. Notes
9.25% due 2/01/06................................. 950 921,500
UIH Australia Pacific, Inc.
Sr. Disc. Notes, Series B
zero coupon due 5/15/06(1)........................ 1,000 930,000
United International Holdings, Inc.
Sr. Disc. Notes, Series B
zero coupon due 2/15/08(1)........................ 1,000 675,000
------------
4,964,375
------------
Cellular--2.4%
International Wireless Communications
Sr. Secured Disc. Notes
zero coupon due 8/15/01(5)........................ 1,750 113,750
McCaw International Ltd.
Sr. Disc. Notes
zero coupon due 4/15/07(1)........................ 500 360,000
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Cellular (continued)
PTC International Finance II SA
Sr. Subordinated Guaranteed Notes
11.25% due 12/01/09(3)............................ $ 500 $ 507,989
Spectrasite Holdings, Inc.
Sr. Disc. Notes
zero coupon due 3/15/10(1)(3)..................... 750 369,375
------------
1,351,114
------------
Consumer Goods--1.2%
Polymer Group, Inc.
Sr. Subordinated Notes, Series B
9.00% due 7/01/07................................. 750 660,000
------------
Energy Services--0.5%
Gulfmark Offshore, Inc.
Sr. Notes
8.75% due 6/01/08................................. 300 272,250
------------
Health Services--2.5%
Fresenius Medical Care Capital Trust I
Sr. Notes
9.00% due 12/01/06................................ 500 475,000
Tenet Healthcare Corp.
Sr. Notes
8.00% due 1/15/05................................. 1,000 942,500
------------
1,417,500
------------
Manufacturing--1.9%
Wavetek Corp.
Sr. Subordinated Notes
10.13% due 6/15/07................................ 1,000 1,092,500
------------
Media--1.5%
Orion Network Systems
Sr. Disc. Notes
zero coupon due 1/15/07(1)(4)..................... 1,000 478,750
Park-N-View, Inc.
Sr. Notes, Series B
13.00% due 5/15/08................................ 625 404,687
------------
883,437
------------
Metals & Mining--1.4%
Acme Metals, Inc.
Sr. Notes
12.50% due 8/01/02 (5)............................ 1,000 792,500
------------
</TABLE>
21
<PAGE>
SunAmerica Diversifvied Income Fund
PORTFOLIO OF INVESTMENTS - March 31, 2000 -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES (continued)
Telecommunications--12.0%
Frontier Corp.
Notes
7.25% due 5/15/04................................. $ 1,000 $ 962,850
ICG Holdings, Inc.
Sr. Disc. Notes
zero coupon due 3/15/07(1)........................ 1,000 710,000
Impsat Fiber Networks Corp.
Sr. Notes
12.38% due 6/15/08 1,000 890,000
MGC Communications, Inc.
Sr. Notes
13.00% due 4/01/10(3)............................. 1,000 957,500
Netia Holdings II BV
Guaranteed Sr. Notes, Series B
13.13% due 6/15/09................................ 1,000 1,020,000
Orbcomm Global LP/Capital
Sr. Notes, Series B
14.00% due 8/15/04................................ 750 676,875
PSINet, Inc.
Sr. Notes
11.50% due 11/01/08............................... 1,000 995,000
Transtel Pass Through Trust
Trust Certificate
12.50% due 11/01/07............................... 1,000 602,500
------------
6,814,725
------------
Total Corporate Bonds & Notes
(cost $24,507,965)................................ 21,178,276
------------
FOREIGN BONDS & NOTES--32.9%
Broadcasting--2.0%
Central European Media Enterprises Ltd.
Sr. Notes
9.38% due 8/15/04................................. 750 305,625
RBS Participacoes SA
Guaranteed Notes
11.00% due 4/01/07 (3)............................ 1,000 855,000
------------
1,160,625
------------
Cable--1.9%
Australis Holdings Property Ltd.
Sr. Disc. Notes
zero coupon due 11/01/02 (1)(2)(5)................ 500 10,000
Multicanal Participacoes SA
Guaranteed Sr. Notes, Series B
12.63% due 6/18/04................................ 1,000 1,040,000
------------
1,050,000
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Cellular--3.0%
Celcaribe SA
Sr. Notes
14.50% due 3/15/04(3)............................. $ 500 $ 424,375
Occidente Y Caribe Celular SA
Sr. Disc. Notes, Series B
zero coupon due 3/15/04(1)........................ 2,000 1,290,000
------------
1,714,375
------------
Energy Services--2.2%
Statia Terminals International NV
Mortgage Notes, Series B
11.75% due 11/15/03............................... 1,250 1,237,500
------------
Finance--2.6%
Cei Citicorp Holdings SA
Sr. Notes, Series B
9.75% due 2/14/07................................. 1,500 1,451,250
------------
Food Retail--3.3%
Bepensa SA
Sr. Notes
9.75% due 9/30/04(3).............................. 2,000 1,870,000
------------
Forest Products--1.5%
APP International Finance Co. BV
Guaranteed Notes
11.75% due 10/01/05............................... 1,000 867,500
------------
Government Agency--6.4%
Federal Republic of Brazil
Capitalization Bonds
5.00% due 4/15/14(7).............................. 2,426 1,810,716
Republic of Argentina
Unsubordinated Notes
11.38% due 1/30/17................................ 1,000 972,500
Republic of Brazil
Bonds
10.13% due 5/15/27................................ 1,000 816,250
------------
3,599,466
------------
Packaging--1.7%
Vicap SA
Guaranteed Sr. Notes
11.38% due 5/15/07................................ 1,000 977,500
------------
</TABLE>
22
<PAGE>
SunAmerica Diversified Income Fund
PORTFOLIO OF INVESTMENTS - March 31, 2000 -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
FOREIGN BONDS & NOTES (continued)
Paging--0.3%
Paging Network Do Brasil SA
Sr. Notes
13.50% due 6/06/05................................ $ 1,000 $ 152,500
------------
Shipping--0.2%
Golden Ocean Group Ltd.
Sr. Notes
10.00% due 8/31/01(4)(5).......................... 750 90,000
------------
Telecommunications--5.3%
Call-Net Enterprises, Inc.
Sr. Notes
8.00% due 8/15/08................................. 750 545,625
Globo Communicacoes E Participacoes SA
Guaranteed Notes
10.63% due 12/05/08(3)............................ 1,000 875,000
Telecom Argentina
Notes
12.00% due 11/15/02............................... 1,500 1,608,750
------------
3,029,375
------------
Utilities--2.5%
Monterrey Power SA
Sr. Secured Notes
9.63% due 11/15/09(3)............................. 1,500 1,421,250
------------
Total Foreign Bonds & Notes
(cost $21,882,471)................................ 18,621,341
------------
U.S. GOVERNMENT AND AGENCIES--21.6%
U.S. Government Agencies--3.4%
Federal National Mortgage Association
6.63% due 9/15/09................................. 2,000 1,923,440
------------
U.S Treasury Bonds--0.9%
6.13% due 11/15/27................................ 500 504,920
------------
U.S. Treasury Notes--17.3%
4.75% due 2/15/04................................. 2,500 2,363,675
5.88% due 11/15/04................................ 4,500 4,418,415
6.00% due 8/15/09................................. 2,000 1,974,680
6.50% due 3/31/02................................. 1,000 1,000,000
------------
9,756,770
------------
Total U.S. Government and Agencies
(cost $12,401,733)................................ 12,185,130
------------
</TABLE>
<TABLE>
<CAPTION>
Shares/ Value
Security Description Warrants (Note 2)
<S> <C> <C>
PREFERRED STOCK--4.8%
Cable--1.6%
CSC Holdings, Inc. 11.13%(8).......................... 8,069 $ 865,438
------------
Cellular--1.3%
Nextel Communications, Inc. 11.13%(8)................. 751 737,858
------------
Telecommunications--1.9%
Global Crossings Ltd. 7.00%(3)........................ 1,250 303,437
IXC Communications, Inc., Series B 12.50%............. 750 780,000
------------
1,083,437
------------
Total Preferred Stock
(cost $2,677,009)..................................... 2,686,733
------------
COMMON STOCK--0.0%
Paging--0.0%
Paging Do Brazil Holdings Co. LLC, Class B+(2)(3)
(cost $10)........................................... 1,000 10
------------
WARRANTS--0.1%+
Cable--0.1%
Knology Holdings, Inc.(3)............................. 1,500 3,000
UIH Australia Pacific, Inc.(2)........................ 1,000 60,000
------------
63,000
------------
Cellular--0.0%
International Wireless Communications(2)(3)........... 1,750 0
Occidente Y Caribe Celular SA (2)(3).................. 8,000 80
------------
80
------------
Media--0.0%
Park-N-View, Inc.(2).................................. 625 13,594
------------
Shipping--0.0%
Golden Ocean Group Ltd. .............................. 1,000 10
------------
Total Warrants
(cost $1,253)......................................... 76,684
------------
Total Investment Securities--96.8%
(cost $61,470,441).................................... 54,748,174
------------
</TABLE>
23
<PAGE>
SunAmerica Diversified Income Fund
PORTFOLIO OF INVESTMENTS - March 31, 1999 -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- ---------------------------------------------------
REPURCHASE AGREEMENT--1.7%
State Street Bank & Trust Co. Joint Repurchase
Agreement Account (Note 2)
(cost $963,000)................................... $ 963 $ 963,000
------------
TOTAL INVESTMENTS--
(cost $62,433,441*)............................... 98.5% 55,711,174
Other assets less liabilities...................... 1.5 852,609
-------- ------------
NET ASSETS-- 100.0% $ 56,563,783
======== ============
</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) Fair valued security; see Note 2
(3) Resale restricted to qualified institutional buyers
(4) Bond issued as part of a unit which includes an equity component
(5) Bond in default
(6) Variable rate security; rate as of March 31, 2000
(7) A portion of the coupon interest is received in cash and a portion is
capitalized in the principal of the security
(8) PIK ("Payment-in-kind") payment made with additional shares in lieu of cash
(9) Allocation of investment by country as a percentage of net assets as of
March 31, 2000:
<TABLE>
<S> <C>
United States........................................................... 65.0%
Brazil.................................................................. 9.8%
Mexico.................................................................. 7.6%
Argentina............................................................... 7.1%
Colombia................................................................ 3.0%
Netherlands............................................................. 2.2%
Singapore............................................................... 1.5%
Bermuda................................................................. 1.1%
Canada.................................................................. 1.0%
Liberia................................................................. 0.2%
-----
98.5%
=====
</TABLE>
See Notes to Financial Statements
24
<PAGE>
SunAmerica High Income Fund
PORTFOLIO OF INVESTMENTS - March 31, 2000
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES--82.1%
Broadcasting--3.8%
Big City Radio, Inc.
Sr. Disc. Notes
zero coupon due 3/15/05(1)........................ $ 3,500 $ 2,178,750
CD Radio, Inc.
Sr. Disc. Notes
zero coupon due 12/01/07(1)(2).................... 1,000 550,000
Chancellor Media Corp.
Sr. Notes
8.00% due 11/01/08................................ 1,000 985,000
Radio One, Inc.
Sr. Subordinated Notes, Series B
7.00% due 5/15/04(3).............................. 1,000 1,065,000
Shop At Home, Inc.
Sr. Secured Notes
11.00% due 4/01/05................................ 1,500 1,503,750
------------
6,282,500
------------
Building Materials--0.9%
Ainsworth Lumber Ltd.
Sr. Secured Notes
12.50% due 7/15/07(4)............................. 1,500 1,590,000
------------
Business Services--1.9%
Earthwatch, Inc.
Sr. Disc. Notes
zero coupon due 7/15/07(1)(2)(5).................. 1,750 1,093,750
URS Corp.
Sr. Subordinated Notes, Series B
12.25% due 5/01/09................................ 2,000 2,015,000
------------
3,108,750
------------
Cable--13.9%
Adelphia Communications Corp.
Sr. Notes, Series B
8.13% due 7/15/03................................. 4,000 3,830,000
Comcast UK Cable Partners Ltd.
Sr. Disc. Notes
zero coupon due 11/15/07(1)....................... 1,500 1,425,000
Diamond Holdings PLC
Sr. Notes
9.13% due 2/01/08................................. 2,500 2,393,750
Echostar DBS Corp.
Sr. Notes
9.25% due 2/01/06................................. 4,750 4,607,500
Mediacom LLC
Sr. Notes
7.88% due 2/15/11................................. 1,750 1,509,375
NTL, Inc.
Sr. Notes, Series B
zero coupon due 4/01/08(1)........................ 1,500 952,500
NTL, Inc.
Sr. Notes
5.75% due 12/15/09(5)............................. 750 767,812
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Cable (continued)
Telewest Communication PLC
Sr. Disc. Notes
zero coupon due 2/01/10(1)(5)..................... $ 750 $ 420,000
Telewest Communication PLC
Sr. Notes
11.25% due 11/01/08............................... 2,000 2,065,000
UIH Australia Pacific, Inc.
Sr. Disc. Notes, Series B
zero coupon due 5/15/06(1)........................ 2,500 2,325,000
United International Holdings, Inc.
Sr. Disc. Notes, Series B
zero coupon due 2/15/08(1)........................ 4,275 2,885,625
------------
23,181,562
------------
Cellular--6.1%
Airgate PCS, Inc.
Sr. Subordinated Disc. Notes
zero coupon due 10/01/09(1)(2).................... 450 245,250
Alamosa PCS Holdings, Inc.
Sr. Disc. Notes
zero coupon due 2/15/10(1)........................ 1,500 725,625
Centennial Cellular Operating Co.
Sr. Subordinated Notes
10.75% due 12/15/08............................... 3,000 2,940,000
Dolphin Telecom PLC
Sr. Disc. Notes, Series B
zero coupon due 5/15/09(1)........................ 750 308,438
International Wireless Communications
Sr. Secured Disc. Notes
zero coupon due 8/15/01(7)........................ 3,250 211,250
Leap Wireless International, Inc.
Sr. Disc. Notes
14.50% due 4/15/10(2)(5).......................... 2,250 1,136,250
McCaw International Ltd.
Sr. Disc. Notes
zero coupon due 4/15/07(1)........................ 1,750 1,260,000
Nextel Partners, Inc.
Sr. Notes
11.00% due 3/15/10(5)............................. 1,500 1,440,000
Spectrasite Holdings, Inc.
Sr. Disc. Notes
zero coupon due 3/15/10(1)(5)..................... 1,850 911,125
US Unwired, Inc.
Sr. Subordinated Disc. Notes
zero coupon due 11/01/09(1)(5).................... 2,000 1,070,000
------------
10,247,938
------------
Chemicals--1.8%
Georgia Gulf Corp.
Sr. Subordinated Notes
10.38% due 11/01/07(5)............................ 1,175 1,188,219
Huntsman Corp.
Sr. Subordinated Notes
9.38% due 7/01/07(3)(5)........................... 2,000 1,800,000
------------
2,988,219
------------
</TABLE>
25
<PAGE>
SunAmerica High Income Fund
PORTFOLIO OF INVESTMENTS - March 31, 2000 - (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES (continued)
Consumer Goods--4.1%
Evenflo Co., Inc.
Sr. Notes, Series B
11.75% due 8/15/06................................ $ 3,500 $ 3,430,000
Polymer Group, Inc.
Sr. Subordinated Notes, Series B
8.75% due 3/01/08................................. 1,250 1,096,875
Polymer Group, Inc.
Sr. Subordinated Notes, Series B
9.00% due 7/01/07................................. 2,560 2,252,800
------------
6,779,675
------------
Consumer Services--1.0%
Allied Waste North America, Inc.
Sr. Notes, Series B
7.63% due 1/01/06................................. 2,000 1,685,000
------------
Energy--2.5%
P&L Coal Holdings Corp.
Sr. Notes, Series B
8.88% due 5/15/08................................. 3,000 2,722,500
Parker Drilling Co.
Sr. Subordinated Notes
5.50% due 8/01/04................................. 900 678,375
Southwest Royalties, Inc.
Sr. Notes, Series B
10.50% due 10/15/04............................... 1,250 721,875
------------
4,122,750
------------
Energy Services--4.4%
Gulfmark Offshore, Inc.
Sr. Notes
8.75% due 6/01/08................................. 2,000 1,815,000
Key Energy Services, Inc.
Sr. Subordinated Notes, Series B
14.00% due 1/15/09................................ 1,500 1,640,625
R&B Falcon Corp.
Sr. Notes
12.25% due 3/15/06................................ 2,000 2,142,500
Western Gas Resources, Inc.
Sr. Subordinated Notes
10.00% due 6/15/09................................ 1,750 1,789,375
------------
7,387,500
------------
Financial Services--2.0%
Labranche & Company, Inc.
Sr. Subordinated Notes
12.00% due 3/01/07(5)............................. 2,000 1,972,500
Western Financial Savings Bank
Sr. Subordinated Notes
8.88% due 8/01/07................................. 1,500 1,297,500
------------
3,270,000
------------
Food, Beverage & Tobacco--1.9%
SFC New Holdings, Inc.
Sr. Notes
12.13% due 10/01/02............................... 3,250 3,209,375
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Food, Beverage & Tobacco (continued)
SFC Subordinated, Inc.
Sr. Subordinated Disc. Debentures
zero coupon due 12/15/09(1)(6).................... $ 156 $ 16
------------
3,209,391
------------
Gaming--0.8%
Capital Gaming International, Inc.
Sr. Secured Notes
12.00% due 5/28/01(6)............................. 1 600
Venetian Casino Resort LLC
Sr. Subordinated Notes
12.25% due 11/15/04............................... 1,500 1,395,000
------------
1,395,600
------------
Health Services--5.4%
Fresenius Medical Care Capital Trust I
Sr. Notes
9.00% due 12/01/06................................ 2,000 1,900,000
Fresenius Medical Care Capital Trust II
Sr. Notes
7.88% due 2/01/08................................. 1,250 1,137,500
Schein Pharmaceutical, Inc.
Sr. Notes
9.04% due 12/15/04(3)............................. 3,000 2,692,500
Tenet Healthcare Corp.
Sr. Notes
8.00% due 1/15/05................................. 3,500 3,298,750
------------
9,028,750
------------
Manufacturing--4.8%
Filtronic PLC
Sr. Notes
10.00% due 12/01/05............................... 2,000 1,960,000
Pentacon, Inc.
Sr. Subordinated Notes, Series B
12.25% due 4/01/09................................ 2,200 1,716,000
Wavetek Corp.
Sr. Subordinated Notes
10.13% due 6/15/07................................ 4,000 4,370,000
------------
8,046,000
------------
Media--1.9%
Orion Network Systems
Sr. Disc. Notes
zero coupon due 1/15/07(1)(2)..................... 4,000 1,915,000
Park-N-View, Inc.
Sr. Notes, Series B
13.00% due 5/15/08................................ 2,000 1,295,000
------------
3,210,000
------------
Metals & Minerals--5.1%
Acme Metals, Inc.
Sr. Notes
12.50% due 8/01/02(7)............................. 1,500 1,188,750
</TABLE>
26
<PAGE>
SunAmerica High Income Fund
PORTFOLIO OF INVESTMENTS - March 31, 2000 -- (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES (continued)
Metals & Minerals (continued)
AK Steel Holding Corp.
Sr. Notes
9.13% due 12/15/06................................ $ 1,000 $ 975,000
Armco, Inc.
Sr. Notes
8.88% due 12/01/08................................ 3,000 2,928,750
Metal Management, Inc.
Sr. Subordinated Notes
10.00% due 5/15/08................................ 2,500 1,890,625
Schuff Steel Co.
Sr. Notes
10.50% due 6/01/08................................ 2,000 1,515,000
------------
8,498,125
------------
Telecommunications--19.8%
AMSC Acquisition Co., Inc.
Sr. Notes, Series B
12.25% due 4/01/08................................ 1,500 1,185,000
COLO.COM
Sr. Notes
13.88% due 3/15/10(5)............................. 1,400 1,414,000
E.spire Communications, Inc.
Sr. Disc. Notes
zero coupon due 11/01/05(1)....................... 1,025 562,469
Global Crossing Holdings Ltd.
Sr. Notes
9.50% due 11/15/09(5)............................. 1,750 1,680,000
Globix Corp.
Sr. Notes
12.50% due 2/01/10(5)............................. 1,375 1,251,250
GT Group Telecom, Inc.
Sr. Disc. Notes
zero coupon due 2/01/10(1)(2)(5).................. 1,500 840,000
ICG Holdings, Inc.
Sr. Disc. Notes
zero coupon due 3/15/07(1)........................ 1,500 1,065,000
ICG Services, Inc.
Sr. Exchange Disc. Notes
zero coupon due 5/01/08(1)........................ 1,750 951,562
Intermedia Communications, Inc.
Sr. Notes, Series B
9.50% due 3/01/09................................. 3,000 2,775,000
Mcleodusa, Inc.
Sr. Disc. Notes
zero coupon due 3/01/07(1)........................ 1,400 1,099,000
MGC Communications, Inc.
Sr. Notes
13.00% due 4/01/10(5)............................. 2,250 2,154,375
Nextlink Communications, Inc.
Sr. Disc. Notes
zero coupon due 12/01/09(1)(5).................... 1,000 540,000
Northpoint Commerce Group, Inc.
Sr. Notes
12.88% due 2/15/10(5)............................. 1,500 1,331,250
Orbcomm Global LP/Capital
Sr. Notes, Series B
14.00% due 8/15/04................................ 1,750 1,579,375
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Telecommunications (continued)
Primus Telecommunications, Inc.
Sr. Notes
12.75% due 10/15/09............................... $ 2,750 $ 2,674,375
PSINet, Inc.
Sr. Notes
11.00% due 8/01/09................................ 2,500 2,425,000
PSINet, Inc.
Sr. Notes
11.50% due 11/01/08............................... 500 497,500
Telehub Communications Corp.
Sr. Discount Notes
zero coupon due 7/31/05(1)........................ 1,500 148,125
Transtel Pass Through Trust
Trust Certificates
12.50% due 11/01/07............................... 1,500 903,750
Verio, Inc.
Sr. Notes
13.50% due 6/15/04................................ 1,000 1,075,000
Vialog Corp.
Sr. Notes
12.75% due 11/15/01............................... 1,500 1,125,000
Viatel, Inc.
Sr. Disc. Notes
zero coupon due 4/15/08(1)........................ 3,750 2,100,000
Williams Communication Group, Inc.
Sr. Notes
10.88% due 10/01/09............................... 1,250 1,231,250
Worldwide Fiber, Inc.
Sr. Notes
12.50% due 12/15/05............................... 2,500 2,468,750
------------
33,077,031
------------
Total Corporate Bonds & Notes
(cost $151,166,886)............................... 137,108,791
------------
FOREIGN BONDS & NOTES--6.1%
Broadcasting--0.4%
Central European Media Enterprises Ltd.
Sr. Notes
9.38% due 8/15/04................................. 1,800 733,500
------------
Cable--0.0%
Australis Holdings Property Ltd.
Sr. Disc. Notes
zero coupon due 11/01/02(1)(6)(7)................. 1,000 20,000
------------
Cellular--1.0%
Celcaribe SA
Sr. Notes
14.50% due 3/15/04(5)............................. 500 424,375
Occidente Y Caribe Celular SA
Sr. Disc. Notes, Series B
zero coupon due 3/15/04(1)........................ 2,000 1,290,000
------------
1,714,375
------------
Energy Services--2.7%
Statia Terminals International NV
Mortgage Notes, Series B
11.75% due 11/15/03............................... 4,500 4,455,000
------------
</TABLE>
27
<PAGE>
SunAmerica High Income Fund
PORTFOLIO OF INVESTMENTS - March 31, 200 - (continued)
<TABLE>
<CAPTION>
Principal
Amount
(in thousands)/ Value
Security Description Shares (Note 2)
<S> <C> <C>
- --------------------------------------------------------------------------------
FOREIGN BONDS & NOTES (continued)
Manufacturing--1.0%
International Utility Structures
Sr. Subordinated Notes
10.75% due 2/01/08............................... $ 2,000 $ 1,715,000
------------
Paging--0.1%
Paging Network Do Brasil SA
Sr. Notes
13.50% due 6/06/05............................... 1,400 213,500
------------
Shipping--0.3%
Golden Ocean Group Ltd.
Sr. Notes
10.00% due 8/31/01(2)(7)......................... 3,400 408,000
------------
Telecommunications--0.6%
Call-Net Enterprises, Inc.
Sr. Notes
8.00% due 8/15/08................................ 1,000 727,500
Poland Telecom Finance BV
Guaranteed Sr. Notes, Series B
14.00% due 12/01/07.............................. 1,000 290,000
------------
1,017,500
------------
Total Foreign Bonds & Notes
(cost $17,508,737)............................... 10,276,875
------------
PREFERRED STOCK--7.2%
Cable--2.3%
CSC Holdings, Inc. 11.13%(4)..................... 35,498 3,807,111
------------
Cellular--1.3%
Nextel Communications, Inc.
11.13%(4)........................................ 2,252 2,212,590
------------
Financial Services--1.0%
Bankunited Financial Corp. 9.00%................. 2,000,000 1,605,000
------------
Telecommunications--2.6%
Global Crossings Ltd. 7.00%(5)................... 2,600 631,150
IXC Communications, Inc.,
Series B 12.50%................................. 3,000 3,120,000
MGC Communications, Inc. 7.25%(4)................ 10,000 615,000
------------
4,366,150
------------
Total Preferred Stock
(cost $12,162,060)............................... 11,990,851
------------
COMMON STOCK--0.0%
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
------------
Telecommunications--0.0%
Vialog Corp.+.................................... 15,132 79,443
------------
Total Common Stock
(cost $212,451).................................. 79,459
------------
</TABLE>
<TABLE>
<CAPTION>
Warrants/
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
WARRANTS--0.3%+
Cable--0.1%
Knology Holdings, Inc.(5)......................... 4,500 $ 9,000
UIH Australia Pacific, Inc.(6).................... 1,000 60,000
------------
69,000
------------
Cellular--0.0%
International Wireless Communications(5)(6)....... 3,250 0
Occidente Y Caribe Celular SA(5)(6)............... 8,000 80
------------
80
------------
Energy Services--0.1%
Key Energy Services, Inc.......................... 1,900 171,000
------------
Media--0.0%
Park-N-View, Inc.(6).............................. 2,000 43,500
------------
Shipping--0.0%
Golden Ocean Group Ltd............................ 2,500 25
------------
Telecommunications--0.1%
American Mobile Satellite Co.(5).................. 1,500 172,500
KMC Telecom Holdings, Inc.(5)(6).................. 3,650 9,125
Poland Telecom Finance BV(2)(5)(6)................ 1,000 10
Telehub Communications Corp.(5)(6)................ 1,500 15
------------
181,650
------------
Total Warrants
(cost $357,482)................................... 465,255
------------
Total Investment Securities--95.7%
(cost $181,407,616)............................... 159,921,231
------------
SHORT-TERM SECURITIES--1.5%
Leisure & Tourism--1.5%
ITT Corp.
Notes
6.25% due 11/15/00 (cost $2,469,450).............. $ 2,500 2,461,250
------------
TOTAL INVESTMENTS--
(cost $183,877,066*).............................. 97.2% 162,382,481
Other assets less liabilities...................... 2.8 4,640,230
-------- ------------
NET ASSETS-- 100.0% $167,022,711
======== ============
</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 March 31, 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 Insurance Fund
PORTFOLIO OF INVESTMENTS - March 31, 2000
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- -------------------------------------------------------------------------------
MUNICIPAL BONDS--97.0%
Alaska--1.1%
Alaska State Housing Finance Corp., Series A-2,
7.50% due 12/01/15+.............................. $ 895 $ 900,110
------------
Arizona--1.7%
Pima County, Arizona Unified School District
Number 1, General Obligation,
7.50% due 7/01/10+............................... 1,200 1,431,792
------------
Arkansas--0.1%
Arkansas State Development Finance Authority,
Single Family Mortgage Revenue,
9.00% due 6/01/14+............................... 125 127,599
------------
California--6.4%
Anaheim, California Public Financing Authority,
Revenue, Series A,
zero coupon due 9/01/18+......................... 1,500 519,615
California Housing Finance Agency, Revenue, Series
A,
5.40% due 8/01/18+............................... 1,000 955,130
Long Beach, California Harbor Revenue Refunding,
Series A,
6.00% due 5/15/17+............................... 1,000 1,061,800
San Francisco, California City & County
Redevelopment Agency, Lease Revenue,
6.75% due 7/01/15+............................... 1,000 1,081,170
San Jose, California Redevelopment Agency, Tax
Allocation,
6.00% due 8/01/11+............................... 1,700 1,850,195
------------
5,467,910
------------
Colorado--5.1%
Highlands Ranch Metropolitan District, Colorado
General Obligation,
6.50% due 6/15/09+............................... 1,960 2,166,996
Jefferson County, Colorado School District R001,
Refunding,
6.50% due 12/15/11+.............................. 2,000 2,234,960
------------
4,401,956
------------
Georgia--3.5%
Municipal Electric Authority, Georgia Special
Obligation, Series Y,
6.40% due 1/01/09+............................... 1,250 1,356,450
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
Georgia (continued)
Municipal Electric Authority, Georgia Special
Obligation, Series Y,
6.40% due 1/01/13+............................... $1,500 $ 1,659,600
------------
3,016,050
------------
Idaho--1.0%
Idaho Housing & Finance Association, Single Family
Mortgage,
5.63% due 7/01/15................................ 880 872,362
------------
Illinois--13.5%
Chicago Illinois Board Of Education, General
Obligation,
6.75% due 12/01/11+.............................. 2,000 2,274,080
Cook & Du Page Counties, Illinois High School,
District Number 210, General Obligation,
zero coupon due 12/01/12+........................ 1,600 800,768
Cook County, Illinois Community College, District
Number 508,
7.70% due 12/01/07+.............................. 4,000 4,651,600
Illinois Health Facilities Authority, Lutheran
General Health Systems,
7.00% due 4/01/08+............................... 3,400 3,775,258
------------
11,501,706
------------
Kentucky--4.4%
Louisville & Jefferson County, Kentucky Regional
Airport Authority, Series A,
6.50% due 7/01/17+............................... 3,500 3,720,990
------------
Louisiana--2.8%
New Orleans, Louisiana, Revenue Refunding,
5.50% due 12/01/21+.............................. 2,500 2,431,975
------------
Massachusetts--1.1%
Massachusetts State Housing Finance Agency,
Insured Rental, Series A,
6.60% due 7/01/14+............................... 875 905,607
------------
Michigan--3.8%
Michigan Municipal Bond Authority, Revenue Capital
Appreciation, Local Government Loan,
zero coupon due 5/01/16+......................... 2,735 1,095,559
Michigan Municipal Bond Authority, Revenue Capital
Appreciation, Local Government Loan,
zero coupon due 5/01/17+......................... 2,875 1,078,959
</TABLE>
29
<PAGE>
SunAmerica Tax Exempt Insured Fund
PORTFOLIO OF INVESTMENTS - March 31, 2000 - (continued)
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
- -------------------------------------------------------------------------------
MUNICIPAL BONDS (continued)
Michigan (continued)
Michigan State Hospital Finance Authority,
Revenue, Series A,
6.25% due 11/15/14+.............................. $1,000 $ 1,062,140
------------
3,236,658
------------
Minnesota--2.5%
Minneapolis & St. Paul
Minnesota, Metropolitan Airports, Revenue, Series
B,
5.63%, due 1/01/14+.............................. 2,100 2,125,998
------------
Missouri--7.7%
Missouri State Housing Development Commission,
Insured, Single Family Mortgage Revenue,
9.38% due 4/01/16+............................... 10 10,196
Sikeston, Missouri Electric, Revenue,
6.20% due 6/01/10+............................... 6,000 6,542,940
------------
6,553,136
------------
Nevada--7.4%
Clark County, Nevada Public Facilities, General
Obligation, Series C,
5.00% due 6/01/24+............................... 1,500 1,325,445
Nevada Housing Division,
Single Family Mortgage Revenue, Series A,
8.63% due 4/01/16+(1)............................ 4,945 5,009,681
------------
6,335,126
------------
New Jersey--3.2%
New Jersey State Transportation Trust Fund
Authority,
Transportation Systems Revenue, Series B,
6.50% due 6/15/10+............................... 2,500 2,767,150
------------
New Mexico--0.1%
New Mexico Mortgage Finance Authority, Single
Family Mortgage Revenue, Series C,
8.63% due 7/01/17+............................... 90 90,530
------------
New York--5.2%
Niagara Falls, New York, General Obligation,
7.50% due 3/01/13+............................... 445 538,032
Niagara Falls, New York, General Obligation,
7.50% due 3/01/14+............................... 555 673,481
Port Authority of New York & New Jersey Special
Obligation,
Revenue, JFK International Air Terminal-6,
6.25% due 12/01/11+.............................. 3,000 3,264,450
------------
4,475,963
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
Security Description (in thousands) (Note 2)
<S> <C> <C>
North Dakota--0.5%
North Dakota State Housing Finance Agency,
Single Family Mortgage Revenue, Series A,
7.38% due 7/01/17+.............................. $ 400 $ 400,988
------------
Ohio--5.3%
Lucas County, Ohio Hospital Revenue,
St Vincent Medical Center,
6.50% due 8/15/07+.............................. 3,205 3,368,807
Woodridge, Ohio Local School District, General
Obligation,
6.80% due 12/01/14+............................. 1,000 1,158,190
------------
4,526,997
------------
Oklahoma--1.9%
Grand River Dam Authority,
Oklahoma Revenue Refunding,
6.25% due 6/01/11+.............................. 1,500 1,642,680
------------
Pennsylvania--0.1%
Pennsylvania Housing Finance Agency, Multi-Family
Mortgage,
9.38% due 8/01/28+.............................. 120 121,404
------------
Rhode Island--0.4%
Rhode Island Housing & Mortgage Finance Corp.,
Revenue,
8.38% due 10/01/16+............................. 345 345,000
------------
South Dakota--2.7%
South Dakota St Health & Educational Facilities
Authority, Revenue,
6.25% due 7/01/10+.............................. 2,120 2,282,710
------------
Texas--13.9%
Bexar County, Texas Health Facilities Development
Corp., Hospital Revenue,
6.75% due 8/15/19+.............................. 2,000 2,172,140
Harris County, Texas Hospital District Mortgage,
Revenue,
7.40% due 2/15/10+.............................. 2,500 2,811,300
Houston, Texas Independent School District,
General Obligation, Series A,
5.00% due 2/15/19+.............................. 5,000 4,539,100
Houston, Texas Water Conveyance Systems Contract,
Series J, Certificates of Participation,
6.13% due 12/15/08+............................. 1,250 1,332,725
</TABLE>
30
<PAGE>
SunAmerica Tax Exempt Insured Fund
PORTFOLIO OF INVESTMENTS - March 31, 2000 -- (continued)
<TABLE>
<CAPTION>
Principal
Security Amount Value
Description (in thousands) (Note 2)
<S> <C> <C>
- ----------------------------------------------
MUNICIPAL BONDS
(continued)
Texas (continued)
San Antonio,
Texas, Hotel
Occupancy,
Revenue,
zero coupon due
8/15/17+....... $2,700 $ 991,602
------------
11,846,867
------------
Virginia--1.2%
Virginia State
Housing
Development
Authority,
Multi-Family,
Series H,
5.50% due
5/01/13........ 1,000 991,670
------------
Washington--0.4%
Washington State
Housing Finance
Commission,
Multi-Family
Mortgage
Revenue, Series
A,
9.13% due
7/01/10+....... 380 383,743
------------
Total Investment
Securities--
97.0%
(cost
$79,811,440) 82,904,677
------------
SHORT-TERM
INVESTMENTS--
1.7%
Texas--1.7%
North Central
Texas Health
Facility
Development
Corp., Revenue,
4.10% due
4/03/00+
(cost
$1,500,000)(1). 1,500 1,500,000
------------
TOTAL
INVESTMENTS--
(cost
$81,311,440*).. 98.7% 84,404,677
Other assets less
liabilities..... 1.3 1,091,891
------ ------------
NET ASSETS--..... 100.0% $ 85,496,568
====== ============
</TABLE>
- ------
* See Note 5
+ All or part of this security is insured by the Government National Mortgage
Association ("GNMA"), Financial Security Assurance ("FSA"), Federal Housing
Administration ("FHA"), Financial Guarantee Insurance Corp. ("FGIC"),
Municipal Bond Insurance Association ("MBIA"), Permanent School Fund ("PSF")
or American Municipal Bond Assurance Corp. ("AMBAC") ($82,540,645 or 96.5% of
Net Assets)
(1) Variable rate security; maturity date reflects next reset date
See Notes to Financial Statements
31
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 2000
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 Federal Securities Fund, SunAmerica
Diversified Income Fund, SunAmerica High Income Fund and SunAmerica Tax
Exempt Insured Fund. The Funds are considered to be separate entities for
financial and tax reporting purposes. The investment objectives for each of
the Funds are as follows:
U.S. Government Securities Fund seeks high current income consistent with
relative safety of capital by investing primarily in securities of high
credit quality and relatively low duration issued or guaranteed by the U.S.
government, or any agency or instrumentality thereof.
Federal Securities Fund seeks current income, with capital appreciation as a
secondary objective, by investing primarily in securities of high credit
quality and relatively high duration issued or guaranteed by the U.S.
government, or any agency or instrumentality thereof, with a significant
portion invested in mortgage-backed securities.
Diversified Income Fund seeks a high level of current income consistent with
moderate investment risk, with preservation of capital as a secondary
objective.
High Income Fund seeks maximum current income by investing primarily in
high-yield, high-risk corporate bonds generally with relatively low
duration.
Tax Exempt Insured Fund seeks as high a level of current income exempt from
federal income taxes as is consistent with preservation of capital.
Each Fund currently offers three classes of shares. Class A shares are
offered at net asset value per share plus an initial sales charge. Class B
shares are offered without an initial sales charge, although a declining
contingent sales charge may be imposed on redemptions made within six years
of purchase. Class II shares are offered at net asset value per share plus
an initial sales charge and may be subject to a contingent deferred sales
charge on redemptions made within eighteen months of purchase. Additionally,
any purchases of Class A shares in excess of $1,000,000 will be purchased at
net asset value but will be subject to a contingent deferred sales charge on
redemptions made within 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 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.
32
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 2000 - (continued)
Note 2. Significant Accounting Policies
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from these estimates.
The following is a summary of the significant accounting policies followed
by the Funds in the preparation of their financial statements:
Security Valuations: Securities that are actively traded in the over-the-
counter market, including listed securities for which the primary market is
believed by the Adviser to be over-the-counter, are valued at the quoted bid
price provided by principal market makers. Securities listed on the New York
Stock Exchange ("NYSE") or other national securities exchanges, are valued
on the basis of the last sale price on the exchange on which they are
primarily traded. If there is no sale on that day, then securities are
valued at the closing bid price on the NYSE or other primary exchange for
that day. However, if the last sale price on the NYSE is different than the
last sale price on any other exchange, the NYSE price is used. Securities
that are traded on foreign exchanges are ordinarily valued at the last
quoted sales price available before the time when the assets are valued. If
a securities price is available from more than one foreign exchange, a Fund
uses the exchange that is the primary market for the security. Options
traded on national securities exchanges are valued as of the close of the
exchange on which they are traded. Futures and options traded on commodities
exchanges are valued at their last sale price as of the close of such
exchange. The Funds may make use of a pricing service in the determination
of their net asset values. The preceding procedures need not be used to
determine the value of debt securities owned by a Fund if, in the opinion of
the Trustees, some other method would more accurately reflect the fair
market value of such debt securities in quantities owned by such Fund.
Securities for which market quotations are not readily available and other
assets are valued at fair value as determined pursuant to procedures adopted
in good faith by the Trustees. Short-term investments which mature in less
than 60 days are valued at amortized cost, if their original maturity was 60
days or less, or by amortizing their value on the 61st day prior to
maturity, if their original term to maturity exceeded 60 days.
Repurchase Agreements: Pursuant to exemptive relief granted by the
Securities and Exchange Commission, the Funds are permitted to participate
in joint repurchase agreement transactions with other affiliated investment
companies. The Funds, along with other affiliated registered investment
companies, transfer uninvested cash balances into a single joint account,
the daily aggregate balance of which is invested in one or more repurchase
agreements collateralized by U.S. Treasury or federal agency obligations.
The Funds' custodian takes possession of the collateral pledged for
investments in repurchase agreements. The underlying collateral is valued
daily on a mark to market basis to ensure that the value, including accrued
interest, is at least equal to the repurchase price. In the event of default
of the obligation to repurchase, a Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. If the
seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
33
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 2000 - (continued)
As of March 31, 2000 the U.S. Government Securities Fund, Federal Securities
Fund and Diversified Income Fund had a 2.34%, 1.01% and 0.32% undivided
interest, respectively, which represented $6,946,000, $2,995,000 and
$963,000, respectively, in principal amount in a joint repurchase agreement
with State Street Bank & Trust Co. As of such date, the repurchase agreement
in the joint account and the collateral therefore were as follows:
State Street Bank & Trust Co. Repurchase Agreement, 6.10% dated 3/31/00 in
the principal amount of $297,045,000, repurchase price $297,195,998 due
4/03/00, collateralized by $48,355,000 U.S. Treasury Notes 5.00% due
2/28/01, $25,565,000 U.S. Treasury Notes 5.38% due 2/15/01, $25,420,000 U.S.
Treasury Notes 5.25% due 5/31/01, $25,315,000 U.S. Treasury Notes 5.75% due
10/31/02, $98,575,000 U.S. Treasury Bonds 8.75% due 5/15/17, $25,405,000
U.S. Treasury Notes 4.00% due 10/31/00 and $25,330,000 U.S. Treasury Notes
5.50% due 12/31/00, approximate aggregate value $303,036,721.
Securities Transactions, Investment Income, Dividends and Distributions to
Shareholders: Securities transactions are recorded on a trade date basis.
Realized gains and losses on sales of investments are calculated on the
identified cost basis. Interest income is recorded on the accrual basis;
dividend income is recorded on the ex-dividend date. The Funds do not
amortize market premiums (except for Tax Exempt Insured Fund) or accrete
market discounts (except for Diversified Income Fund and High Income Fund)
except original issue discounts for which amortization is required for
federal income tax purposes.
Net investment income, other than class specific expenses, and realized and
unrealized gains and losses are allocated daily to each class of shares
based upon the relative net asset value of outstanding shares (or the value
of dividend-eligible shares, as appropriate) of each class of shares at the
beginning of the day (after adjusting for the current capital share activity
of the respective class).
Expenses common to all funds are allocated among the Funds based upon their
relative net asset values or other appropriate allocation methods.
Dividends from net investment income are accrued daily and paid monthly.
Capital gain distributions, if any, are paid annually. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Net investment income/loss, net realized gain/loss and net assets are not
affected.
34
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 2000 - (continued)
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 year ended March 31, 2000, U.S.
Government Securities Fund and Federal Securities Fund participated in
securities lending with qualified brokers. In lending portfolio securities
to brokers the Funds receive cash as collateral against the loaned
securities, which must be maintained at not less than 102% of the market
value of the loaned securities during the period of the loan. The Funds may
use the cash collateral received to invest in short-term investments which
earn interest income or to cover bank overdrafts. Any interest earned from
the investment of the collateral is recorded by the Funds net of the portion
of interest that is rebated to the borrowing broker. If the amounts are used
to cover bank overdrafts, the broker rebates incurred are reflected as
interest expense on the Statement of Operations. As with other extensions of
credit, should the borrower of the securities fail financially, the Funds
may bear the risk of delay in recovery or may be subject to replacing the
loaned securities by purchasing them with the cash collateral held, which
may be less than 100% of the market value of such securities at the time of
replacement.
Foreign Currency Translation: The books and records of the Funds are
maintained in U.S. dollars. Assets and liabilities denominated in foreign
currencies and commitments under forward foreign currency contracts are
translated into U.S. dollars at the mean of the quoted bid and asked prices
of such currencies against the U.S. dollar.
The Fund does not isolate that portion of the results of operations arising
as a result of changes in the foreign exchange rates from the changes in the
market prices of securities held at fiscal year-end. Similarly, the Fund
does not isolate the effect of changes in foreign exchange rates from the
changes in the market prices of portfolio securities sold during the year.
Realized foreign exchange gains and losses on other assets and liabilities
and change in unrealized foreign exchange gains and losses on other assets
and liabilities include foreign exchange gains and losses from currency
gains or losses realized between the trade and settlement dates of
securities transactions, the difference between the amounts of interest,
dividends and foreign withholding taxes recorded on the Fund's books and the
U.S. dollar equivalent amounts actually received or paid and changes in the
unrealized foreign exchange gains and losses relating to other assets and
liabilities arising as a result of changes in the exchange rate.
35
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 2000 - (continued)
Futures Contracts: A futures contract is an agreement between two parties to
buy and sell a financial instrument at a set price on a future date. Upon
entering into such a contract the Funds are required to pledge to the broker
an amount of cash or U.S. government securities equal to the minimum
"initial margin" requirements of the exchange on which the futures contract
is traded. The Funds' activities in futures contracts are for hedging
purposes and are conducted through regulated exchanges which do not result
in counterparty credit risks. A Fund's participation in the futures markets
involves certain risks, including imperfect correlation between movements in
the price of futures contracts and movements in the price of the securities
hedged or used for cover. Pursuant to a contract the Funds agree to receive
from or pay to the broker an amount of cash equal to the daily fluctuation
in value of the contract. Such receipts or payments are known as "variation
margin" and are recorded by the Funds as unrealized appreciation or
depreciation. Futures contracts involve elements of risk in excess of the
amount reflected in the Statement of Assets and Liabilities. When a contract
is closed, the Funds record a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed.
Mortgage-Backed Dollar Rolls: During the year ended March 31, 2000, the U.S.
Government Securities Fund and the Federal Securities 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 Federal Securities
Fund had TBA Rolls outstanding at year-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 - March 31, 2000 - (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%
Federal Securities 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 periods ended March 31, 2000, SAAMCo has agreed to reimburse
expenses of $11,439, $12,638, $14,189, $14,981 and $12,777 on Class II of
the U.S. Government Securities Fund, Federal Securities Fund, Diversified
Income Fund, High Income Fund and Tax Exempt Insured Fund, respectively.
The Trust, on behalf of each Fund, has a Distribution Agreement with
SunAmerica Capital Services, Inc. ("SACS" or "Distributor"), an affiliate of
the Adviser. Each Fund, has adopted a Distribution Plan (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 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
37
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS - March 31, 2000 - (continued)
each class of shares of each Fund may also pay the Distributor an account
maintenance and service fee at the annual rate of up to 0.25% of the
aggregate average daily net assets of such class of shares for payments to
broker-dealers for providing continuing account maintenance. Accordingly,
for the periods ended March 31, 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 periods ended March 31, 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 Securi-
ties Fund.............. $ 84,853 $49,148 $ 20,524 $ 95,089
Federal Securities Fund. 95,420 57,010 24,241 77,090
Diversified Income Fund. 46,104 25,167 10,207 70,290
High Income Fund........ 289,495 58,490 185,465 316,518
Tax Exempt Insured Fund. 51,425 21,451 19,549 63,686
</TABLE>
<TABLE>
<CAPTION>
Class II Class II
------------------------------------- ------------
Contingent
Sales Affiliated Non-affiliated Deferred
Charges Broker-dealers Broker-dealers Sales Charge
------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
U.S. Government
Securities Fund........ $34,174 $19,005 $15,169 $ 202
Federal Securities Fund. 14,174 11,866 2,308 325
Diversified Income Fund. 12,506 11,017 1,489 --
High Income Fund........ 96,016 26,726 69,290 12,665
Tax Exempt Insured Fund. 4,367 940 3,247 --
</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 periods ended March 31, 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 - March 31, 2000 - (continued)
<TABLE>
<CAPTION>
Payable At
Expenses March 31, 2000
-------------------------- ------------------------
Class A Class B Class II Class A Class B Class II
-------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
Securities Fund........ $327,508 $169,399 $ 2,913 $27,907 $ 8,334 $ 155
Federal Securities Fund. 88,036 54,236 1,403 8,079 4,164 252
Diversified Income Fund. 65,376 65,510 750 5,733 4,686 213
High Income Fund........ 144,761 229,202 28,348 12,591 17,581 2,358
Tax Exempt Insured Fund. 162,628 41,204 541 12,785 3,046 102
</TABLE>
Note 4. Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales and maturities of
long-term investments during the year ended March 31, 2000 were as follows:
<TABLE>
<CAPTION>
U.S.
Government Federal Diversified High Tax Exempt
Securities Securities Income Income Insured
Fund Fund Fund Fund Fund
------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Purchases (excluding
U.S. government
securities)............ $ -- $ -- $24,217,484 $224,054,572 $29,800,565
Sales (excluding U.S.
government securities). -- -- 35,697,042 249,333,517 41,446,982
Purchases of U.S.
government securities.. 1,439,662,899 561,036,671 10,888,788 -- --
Sales of U.S. government
securities............. 1,489,882,832 560,518,523 6,151,031 -- --
</TABLE>
Note 5. Portfolio Securities (Tax Basis)
The Funds intend to comply with the requirements of the Internal Revenue
Code, as amended, applicable to regulated investment companies and to
distribute all of their net income (taxable and tax exempt) to their
shareholders. Therefore, no federal income tax or excise tax provisions are
required.
The amounts of aggregate unrealized gain (loss) and the cost of investment
securities for federal tax purposes, including short-term securities and
repurchase agreements, were as follows:
<TABLE>
<CAPTION>
U.S.
Government Federal Diversified High Tax Exempt
Securities Securities Income Income Insured
Fund Fund Fund Fund Fund
------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Cost.................... $215,697,375 $93,723,438 $62,443,418 $184,246,813 $81,312,094
============ =========== =========== ============ ===========
Appreciation............ $ 790,800 $ 408,428 $ 617,133 $ 1,753,979 $ 3,266,422
Depreciation............ (7,118,270) (1,481,863) (7,349,377) (23,618,311) (173,839)
------------ ----------- ----------- ------------ -----------
Unrealized appreciation
(depreciation)--net.... $ (6,327,470) $(1,073,435) $(6,732,244) $(21,864,332) $ 3,092,583
============ =========== =========== ============ ===========
</TABLE>
39
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS - March 31, 2000 - (continued)
At March 31, 2000, U.S. Government Securities Fund, Federal Securities 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, Federal Securities 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
year ended year ended year ended year ended
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
--------------------------- ------------------------ ------------------------- --------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------------- ------------- ---------- ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 8,952,098 $ 75,324,127 8,264,613 $ 72,464,041 1,913,093 $ 16,144,616 1,305,435 $ 11,513,365
Reinvested
dividends...... 574,827 4,824,903 397,809 3,480,635 264,380 2,227,767 539,911 4,723,751
Shares redeemed. (7,056,436) (59,082,137) (4,231,931) (37,087,783) (10,211,456) (85,944,767) (12,730,947) (111,542,158)
------------ ------------- ---------- ------------ ----------- ------------ ----------- -------------
Net increase
(decrease) .... 2,470,489 $ 21,066,893 4,430,491 $ 38,856,893 (8,033,983) $(67,572,384) (10,885,601) $ (95,305,042)
============ ============= ========== ============ =========== ============ =========== =============
<CAPTION>
U.S. Government Securities
Fund
--------------------------
Class II
---------------------------
For the period
June 1, 1999*
through
March 31, 2000
---------------------------
Shares Amount
------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 520,411 $ 4,361,789
Reinvested
dividends...... 6,036 50,475
Shares redeemed. (417,369) (3,459,364)
------------ -------------
Net increase.... 109,078 $ 952,900
============ =============
</TABLE>
* Commencement of sale of respective class of shares
40
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS - March 31, 2000 - (continued)
<TABLE>
<CAPTION>
Federal Securities Fund
-----------------------------------------------------------------------------------------------------
Class A Class B
------------------------------------------------- --------------------------------------------------
For the For the For the For the
year ended year ended year ended year ended
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
------------------------ ----------------------- ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ----------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold....... 2,075,249 $ 21,624,849 973,487 $10,707,321 1,015,469 $ 10,632,909 1,277,925 $ 14,167,962
Reinvested
dividends........ 144,517 1,505,157 222,232 2,436,734 76,513 799,808 144,050 1,582,721
Shares redeemed... (1,333,208) (13,858,079) (712,743) (7,892,874) (1,381,791) (14,420,366) (693,466) (7,686,412)
---------- ------------ ---------- ----------- ---------- ------------ ---------- ------------
Net increase
(decrease)....... 886,558 $ 9,271,927 482,976 $ 5,251,181 (289,809) $ (2,987,649) 728,509 $ 8,064,271
========== ============ ========== =========== ========== ============ ========== ============
<CAPTION>
Federal Securities Fund
------------------------
Class II
------------------------
For the period
June 1, 1999*
through
March 31, 2000
------------------------
Shares Amount
---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold....... 182,286 $ 1,899,598
Reinvested
dividends........ 2,300 23,931
Shares redeemed... (50,121) (519,298)
---------- ------------
Net increase...... 134,465 $ 1,404,231
========== ============
<CAPTION>
Diversified Income Fund
-----------------------------------------------------------------------------------------------------
Class A Class B
------------------------------------------------- --------------------------------------------------
For the For the For the For the
year ended year ended year ended year ended
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
------------------------ ----------------------- ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ----------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold....... 2,852,211 $ 10,815,152 3,989,403 $15,974,448 1,159,770 $ 4,401,412 1,892,787 $ 7,937,250
Reinvested
dividends........ 423,205 1,603,381 365,889 1,490,168 416,385 1,583,197 615,323 2,538,684
Shares redeemed... (2,627,174) (9,961,131) (2,435,211) (9,859,556) (4,644,572) (17,645,412) (6,554,005) (26,364,632)
---------- ------------ ---------- ----------- ---------- ------------ ---------- ------------
Net increase
(decrease)....... 648,242 $ 2,457,402 1,920,081 $ 7,605,060 (3,068,417) $(11,660,803) (4,045,895) $(15,888,698)
========== ============ ========== =========== ========== ============ ========== ============
<CAPTION>
Diversified Income Fund
------------------------
Class II
------------------------
For the period
June 1, 1999*
through
March 31, 2000
------------------------
Shares Amount
---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold....... 395,901 $ 1,511,781
Reinvested
dividends........ 6,660 25,132
Shares redeemed... (22,483) (86,512)
---------- ------------
Net increase...... 380,078 $ 1,450,401
========== ============
</TABLE>
* Commencement of sale of respective class of shares
41
<PAGE>
SunAmerica Income Funds
NOTES TO FINANCIAL STATEMENTS - March 31, 2000 - (continued)
<TABLE>
<CAPTION>
High Income Fund
--------------------------------------------------------------------------------------------------------
Class A Class B
-------------------------------------------------- ----------------------------------------------------
For the For the For the For the
year ended year ended year ended year ended
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
------------------------ ------------------------ ------------------------- -------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 6,048,152 $ 38,286,926 6,086,279 $ 42,445,367 8,810,923 $ 55,949,603 13,399,499 $ 91,660,779
Reinvested
dividends...... 634,192 4,033,854 525,820 3,659,806 826,011 5,274,504 829,858 5,809,350
Shares redeemed. (6,832,998) (43,512,831) (3,324,718) (23,428,228) (13,389,689) (85,885,750) (11,559,609) (82,094,160)
---------- ------------ ---------- ------------ ----------- ------------ ----------- ------------
Net increase
(decrease)..... (150,654) $ (1,192,051) 3,287,381 $ 22,676,945 (3,752,755) $(24,661,643) 2,669,748 $ 15,375,969
========== ============ ========== ============ =========== ============ =========== ============
<CAPTION>
High Income Fund
--------------------------------------------------
Class II
--------------------------------------------------
For the For the
year ended year ended
March 31, 2000 March 31, 1999
------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 3,704,462 $ 23,505,992 1,554,031 $ 10,802,791
Reinvested
dividends...... 95,689 608,097 38,156 258,431
Shares redeemed. (3,320,055) (20,871,362) (218,224) (1,519,068)
---------- ------------ ---------- ------------
Net increase.... 480,096 $ 3,242,727 1,373,963 $ 9,542,154
========== ============ ========== ============
<CAPTION>
Tax Exempt Insured Fund
--------------------------------------------------------------------------------------------------------
Class A Class B
-------------------------------------------------- ----------------------------------------------------
For the For the For the For the
year ended year ended year ended year ended
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
------------------------ ------------------------ ------------------------- -------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 250,692 $ 3,125,661 290,778 $ 3,833,108 206,798 $ 2,569,322 328,049 $ 4,319,836
Reinvested
dividends...... 137,926 1,719,934 142,103 1,866,608 29,849 372,813 37,664 494,763
Shares redeemed. (1,016,431) (12,619,306) (1,046,604) (13,732,604) (578,300) (7,196,953) (463,939) (6,104,868)
---------- ------------ ---------- ------------ ----------- ------------ ----------- ------------
Net decrease.... (627,813) $ (7,773,711) (613,723) $ (8,032,888) (341,653) $ (4,254,818) (98,226) $ (1,290,269)
========== ============ ========== ============ =========== ============ =========== ============
<CAPTION>
Tax Exempt Insured
Fund
------------------------
Class II
------------------------
For the period
June 1, 1999*
through
March 31, 2000
------------------------
Shares Amount
---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 47,959 $ 596,931
Reinvested
dividends...... 631 7,770
Shares redeemed. (1,940) (24,382)
---------- ------------
Net increase.... 46,650 $ 580,319
========== ============
</TABLE>
* Commencement of sale of respective class of shares
42
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 2000 - (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 day for 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 year ended March 31,
2000, the High Income Fund had borrowings outstanding for 154 days under the
line of credit and incurred $51,025 in interest charges related to these
borrowings. The High Income Fund's average amount of debt under the line of
credit for the days utilized was $1,945,939 at a weighted average interest
of 6.17%.
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 March
31, 2000, U.S. Government Securities Fund, Federal Securities Fund,
Diversified Income Fund, High Income Fund and Tax Exempt Insured Fund had
accrued $90,646, $11,150, $20,572, $29,730 and $25,199, respectively, for
the Retirement Plan, which is included in accrued expenses on the Statement
of Assets and Liabilities and for the year ended March 31, 2000 expensed
$7,180, $1,606, $1,885, $5,276 and $2,839, respectively, for the Retirement
Plan, which is included in Trustees' fees and expenses on the Statement of
Operations.
Note 9. Transactions with Affiliates
Effective January 1, 1999 SAAMCO, the investment adviser, became a wholly-
owned subsidiary of AIG. During the year ended March 31, 2000, the High
Income Fund recorded a realized loss and income of $45,866 and $26,166,
respectively, on security transactions of Crown Castle International Corp.,
a subsidiary of AIG.
43
<PAGE>
SunAmerica Income Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of SunAmerica Income Funds
In our opinion, the accompanying statement of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of SunAmerica U.S. Government
Securities Fund, SunAmerica Federal Securities Fund, SunAmerica Diversified
Income Fund, SunAmerica High Income Fund and SunAmerica Tax Exempt Insured Fund
(constituting SunAmerica Income Funds, hereafter referred to as the "Fund") at
March 31, 2000, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at March 31, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
May 10, 2000
44
<PAGE>
SunAmerica Income Fund
SHAREHOLDER INFORMATION (unaudited)
Certain tax information regarding the SunAmerica Income Funds is required to be
provided to shareholders based upon each Fund's income and distributions for
the taxable periods ended March 31, 2000. The information and distributions
reported herein may differ from the information and distributions taxable to
the shareholders for the calendar year ending December 31, 2000. The
information necessary to complete your income tax returns will be included with
your Form 1099-DIV to be received under separate cover in January 2001.
During the year ended March 31, 2000 the Funds paid the following dividends per
share along with the percentage of ordinary income dividends that qualified for
the 70% dividends received deductions for corporations.
<TABLE>
<CAPTION>
Net Net Net Qualifying % for the
Total Investment Short-Term Long-Term 70% Dividends
Dividends Income Capital gains Capital gains Received Deduction
--------- ---------- ------------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
U.S. Government
Securities Fund
Class A................ $0.41 $0.41 $-- $-- -- %
U.S. Government
Securities Fund
Class B................ 0.36 0.36 -- -- --
U.S. Government
Securities Fund
Class II............... 0.28 0.28 -- -- --
Federal Securities Fund
Class A................ 0.50 0.50 -- -- --
Federal Securities Fund
Class B................ 0.44 0.44 -- -- --
Federal Securities Fund
Class II............... 0.34 0.34 -- -- --
Diversified Income Fund
Class A................ 0.38 0.38 -- -- 0.56%
Diversified Income Fund
Class B................ 0.36 0.36 -- -- 0.56%
Diversified Income Fund
Class II............... 0.28 0.28 -- -- 0.56%
High Income Fund
Class A................ 0.65 0.65 -- -- 1.92%
High Income Fund
Class B................ 0.61 0.61 -- -- 1.92%
High Income Fund
Class II............... 0.61 0.61 -- -- 1.92%
Tax Exempt Insured Fund
Class A*............... 0.54 0.54 -- -- --
Tax Exempt Insured Fund
Class B*............... 0.46 0.46 -- -- --
Tax Exempt Insured Fund
Class II*.............. 0.36 0.36 -- -- --
</TABLE>
- ------
* Tax exempt interest dividends
45
<PAGE>
SunAmerica Income Fund
COMPARISONS: PORTFOLIOS VS. INDEXES
As required by the Securities and Exchange Commission, the following graphs
compare the performance of a $10,000 investment in the SunAmerica Income Funds'
portfolios to a similar investment in an index. Please note that "inception" as
used herein reflects the date a Fund commenced operations without regard to
when a second class of shares was introduced. It is important to note that the
SunAmerica Income Funds are professionally managed mutual funds while the
indices are not available for investment and are unmanaged. The comparison is
shown for illustrative purposes only. The graphs present the performance of the
class of that particular Fund which has been in existence the longest. The
performance of the other classes will vary based upon the difference in sales
charges and fees assessed to shareholders of that class.
U.S. Government Securities Fund
Volatility remained high in the world's financial markets during the annual
period due largely to global fears of rising inflation and interest rates in
the U.S. For example, U.S. fixed income yields increased in reaction to the
Federal Reserve Board's three interest rate hikes in 1999, causing negative
returns. Then, in the first quarter of 2000, even with two more rate hikes by
the Fed, long-term Treasury yields rallied primarily reflecting the dramatic
shrinkage in supply. In such an environment that favored longer-term
securities, the defensively-structured, conservative U.S. Government Securities
Fund underperformed the Lehman Brothers Government Index. Still, the Fund did
outperform its peers for the twelve month period, primarily due to its
effective duration and yield curve positioning. The Fund also met its objective
of providing current income consistent with relative safety of capital. In a
volatile market such as that experienced over this past fiscal year, the Fund
continues to provide a way to potentially lower risk in your broader investment
portfolio.
[LINE GRAPH]
U.S. GOVERNMENT LEHMAN BROTHERS
SECURITIES FUND CLASS B GOVERNMENT INDEX
6/89 10,000 10,000
6/90 10,194 10,350
6/91 11,168 11,399
6/92 12,098 12,968
6/93 12,763 14,641
3/94 12,795 14,611
3/95 13,215 15,242
3/96 14,388 16,907
3/97 14,865 17,633
3/98 16,173 19,774
3/99 16,860 21,091
3/00 16,898 21,617
Class A Class B Class II
- ------------------------------------------------------------------------------
U.S SEC SEC
Government Cumulative Average Cumulative Average Cumulative
Securities Traditional Annual Traditional Annual Traditional
Fund Return+ Return Return+ Return Return+
- ------------------------------------------------------------------------------
1 Year Return 0.89% -3.90% 0.23% -3.77% N/A
- ------------------------------------------------------------------------------
5 Year Return 32.25% 4.72% 27.87% 4.71% N/A
- ------------------------------------------------------------------------------
10 Year Return N/A N/A 68.98% 5.39% N/A
- ------------------------------------------------------------------------------
Since Inception* 36.44% 4.11% 117.13% 5.66% 1.30%
- ------------------------------------------------------------------------------
U.S SEC
Government Average
Securities Annual
Fund Return
- ---------------------------
1 Year Return N/A
- ---------------------------
5 Year Return N/A
- ---------------------------
10 Year Return N/A
- ---------------------------
Since Inception* N/A
- ---------------------------
+ Traditional returns do not include sales load
* Inception Date - Class A: 10/1/93; Class B: 3/3/86; Class II: 6/1/99
For the 12 month period ending March 31, 2000, Sun America U.S. Government
Securities Class B returned -3.77%, compared to 2.49% for the Lehman Brothers
Government Index. (Past performance is no guarantee of future results.)
46
<PAGE>
SunAmerica Income Fund
COMPARISONS: PORTFOLIOS VS. INDEXES -- (continued)
Federal Securities Fund
The Federal Securities Fund ranked #1 of its peers for the three-year period
(out of 48 GNMA Funds) and for the five-year period (out of 42 GNMA Funds)
ended March 31, 2000, as tracked by Lipper Analytical Services.* For this
fiscal year, active duration positioning during the first half and active yield
curve positioning during the second half benefited the Fund's performance. Its
focus on GNMAs, which are explicitly guaranteed by the U.S. government, was
also critical to the Fund's performance. For the year, the Fund underperformed
relative to the Salomon Brothers GNMA Index, which is an unmanaged index that
tracks performance of the GNMA portion of the U.S. government bond market.
Managed for total return, the Fund continues to provide flexibility in a
volatile market.
[LINE GRAPH]
SALOMON BROTHERS FEDERAL SECURITIES
GNMA INDEX FUND CLASS B LIPPER GNMA
3/90 10,000 10,000 10,000
3/91 11,417 11,278 11,263
3/92 12,801 12,470 12,440
3/93 14,260 13,476 13,844
3/94 14,436 13,356 13,943
3/95 15,339 13,865 14,604
3/96 17,010 15,270 16,014
3/97 18,026 16,005 16,780
3/98 19,985 17,852 18,564
3/99 21,239 18,857 19,564
3/00 21,868 19,149 19,863
- ------------------------------------------------------------------------------
Class A Class B Class II
- ------------------------------------------------------------------------------
SEC SEC
Federal Cumulative Average Cumulative Average Cumulative
Securities Traditional Annual Traditional Annual Traditional
Fund Return+ Return Return+ Return Return+
- ------------------------------------------------------------------------------
1 Year Return 2.40% -2.47% 1.55% -2.45% N/A
- ------------------------------------------------------------------------------
5 Year Return 42.79% 6.34% 38.11% 6.36% N/A
- ------------------------------------------------------------------------------
10 Year Return N/A N/A 91.49% 6.71% N/A
- ------------------------------------------------------------------------------
Since Inception* 47.06% 5.39% 250.88% 7.70% 2.72%
- ------------------------------------------------------------------------------
- ---------------------------
SEC
Federal Average
Securities Annual
Fund Return
- ---------------------------
1 Year Return N/A
- ---------------------------
5 Year Return N/A
- ---------------------------
10 Year Return N/A
- ---------------------------
Since Inception* N/A
- ---------------------------
+ Traditional returns do not include sales load.
* Inception Date - Class A: 10/11/93; Class B: 4/25/83; Class II: 6/1/99
For the 12 month period ending March 31, 2000, SunAmerica Federal Securities
Class B returned -2.45%, compared to 2.96% for the Salomon Brothers GNMA Index.
(*Past performance is no guarantee of future results.)
47
<PAGE>
SunAmerica Income Fund
COMPARISONS: PORTFOLIOS VS. INDEXES -- (continued)
Diversified Income Fund
The Diversified Income Fund significantly outperformed the Merrill Lynch High
Yield Master II Index, the Lehman Brothers Government Index, and the JP Morgan
Global Government Bond Index for the twelve months ended March 31, 2000. The
Fund's Class B produced an annual return of 8.79% as compared to the indices'
returns of -0.98%, 2.49%, and -0.86%, respectively. (Returns do not reflect
sales charges.) The Fund also outperformed its peers, ranking #4 out of 117
multi-sector income funds for the one-year period, as tracked by Lipper
Analytical Services.* Such strong performance was due primarily to effective
security selection in the emerging markets and duration positioning within its
U.S. government allocation. Although the Fund has not outperformed the
individual indices over the longer term, we believe that over time, a
diversified income fund that invests in a variety of fixed income sectors may
provide less risk than other single sector, high yield fixed income vehicles.
[LINE GRAPH]
JP MORGAN GLOBAL LEHMAN BROTHERS MERRILL LYNCH DIVERSIFIED
GOVERNMENT GOVERNMENT HIGH YIELD INCOME FUND
10/90 10,000 10,000 10,000 10,000
10/91 10,905 10,808 11,699 10,346
10/92 10,886 11,925 13,657 10,362
10/93 12,083 13,491 16,132 11,699
3/94 12,041 12,991 16,088 11,405
3/95 13,495 13,552 17,202 10,782
3/96 14,382 15,032 19,841 12,194
3/97 14,685 15,667 21,932 13,503
3/98 15,942 17,581 25,354 15,544
3/99 17,494 18,752 25,812 14,102
3/00 17,343 19,219 25,560 15,342
Class A Class B Class II
------- ------- --------
SEC SEC SEC
Diversified Cumulative Average Cumulative Average Cumulative Average
Income Traditional Annual Traditional Annual Traditional Annual
Fund Return+ Return Return+ Return Return+ Return
- ------------- ----------- ------- ----------- ------- ----------- --------
1 Year Return 9.49% 4.29% 8.79% 4.79% N/A N/A
- ------------- ----------- ------- ---------- ------- ----------- --------
5 Year Return 46.73% 6.92% 42.29% 7.01% N/A N/A
- ------------- ----------- ------- ---------- ------- ----------- --------
Since Inception* 37.21% 4.20% 53.42% 4.87% 7.77% N/A
- -------------------------------------------------------------------------------
+ Traditional returns do not include sales load.
* Inception Date-Class A: 10/5/93; Class B: 4/6/91; Class II: 6/1/99
For the 12 month period ending March 31, 2000, SunAmerica Diversified
Income Class B returned 4.79%, compared to -0.98% for the Merrill Lynch High
Master II Index. (*Past performance is no guarantee of future results.)
48
<PAGE>
SunAmerica Income Fund
COMPARISONS: PORTFOLIOS VS. INDEXES -- (continued)
High Income Fund
The High Income Fund outperformed the Merrill Lynch High Yield Master II Index
for the twelve months ended March 31, 2000. The Fund's Class A posted a one-
year return of 2.04%, as compared to -0.98% for the Index. (Returns do not
reflect sales charges.) The Fund also outperformed its peers for the fiscal
year, according to Lipper, benefiting from its strong individual security
selection, its avoidance of any material impact from defaulted bonds, and its
effective sector allocation. Over the past ten years, the high yield bond
market has historically outperformed traditional fixed income instruments.
Also, high yield returns historically are not highly correlated with interest
rates, and so this sector may provide a cushion in volatile markets. While past
performance is no guarantee of future results, we continue to believe this
sector represents an important component of a well-diversified portfolio.
[LINE GRAPH]
MERRILL LYNCH
HIGH YIELD MASTER II INDEX HIGH INCOME FUND CLASS A
3/90 10,000 9,525
3/91 11,401 10,435
3/92 14,652 14,106
3/93 16,969 16,243
3/94 18,342 17,721
3/95 19,612 17,205
3/96 22,622 19,000
3/97 25,005 21,179
3/98 28,907 25,430
3/99 29,429 23,887
3/00 29,141 24,373
- ------------------------------------------------------------------------------
Class A Class B Class II
- ------------------------------------------------------------------------------
SEC SEC
High Cumulative Average Cumulative Average Cumulative
Income Traditional Annual Traditional Annual Traditional
Fund Return+ Return Return+ Return Return+
- ------------------------------------------------------------------------------
1 Year Return 2.04% -2.81% 1.25% -2.75% 1.28%
- ------------------------------------------------------------------------------
5 Year Return 41.66% 6.18% 37.23% 6.22% N/A
- ------------------------------------------------------------------------------
10 Year Return 155.82% 9.32 N/A N/A N/A
- ------------------------------------------------------------------------------
Since Inception* 173.09% 7.34% 35.80% 4.82% -3.21%
- ------------------------------------------------------------------------------
- ---------------------------
SEC
High Average
Income Annual
Fund Return
- ---------------------------
1 Year Return -0.73%
- ---------------------------
5 Year Return N/A
- ---------------------------
10 Year Return N/A
- ---------------------------
Since Inception* -1.96%
- ---------------------------
+ Traditional returns do not include sales load.
* Inception Date - Class A: 9/19/86; Class B: 10/1/93; Class II: 2/2/98
For the 12 month period ending March 31, 2000, SunAmerica High Income Class A
returned -2.81% compared to -0.98% for the Merrill Lynch High Yield Master II
Index (Past performance is no guarantee of future results.)
49
<PAGE>
SunAmerica Income Fund
NOTES TO FINANCIAL STATEMENTS - March 31, 1999 - (continued)
Tax Exempt Insured Fund
The tax exempt fixed income sector as a whole experienced a challenging fiscal
year, producing negative returns. Still, the Tax Exempt Insured Fund
outperformed its peers for the twelve months ended March 31, 2000, ranking in
the top quartile of all insured muni debt funds (#10 of 48 funds), as tracked
by Lipper Analytical Services.* The Fund underperformed the return for the
Lehman Brothers Municipal Bond Index, but please note that this is an unmanaged
index consisting of municipal bonds that may not be insured as to the timely
payment of principal and interest. In contrast, on March 31, 2000, more than
95% of the Fund's holdings were either insured or rated AAA. This Fund
continues to be conservatively managed with a long-term focus. Municipal bonds
are relatively insulated from international volatility, and intermediate
securities offer attractive yield levels in the current environment. In fact,
yields on intermediate tax free bonds at the end of the annual period were
approximately 83% of the yields of same-duration U.S. Treasuries. On a taxable
equivalent basis, this made municipal bond yields particularly attractive for
investment.
[LINE GRAPH]
LEHMAN BROTHERS TAX EXEMPT INSURED
MUNICIPAL BOND INDEX FUND CLASS A
10/89 10,000 9,525
10/90 10,425 9,836
10/91 11,694 10,684
10/92 12,676 11,318
10/93 14,460 12,445
3/94 13,832 11,871
3/95 14,864 12,699
3/96 16,108 13,635
3/97 16,989 14,213
3/98 18,810 15,674
3/99 19,976 16,386
3/00 19,960 16,189
- ------------------------------------------------------------------------------
Class A Class B Class II
- ------------------------------------------------------------------------------
Tax SEC SEC
Exempt Cumulative Average Cumulative Average Cumulative
Insured Traditional Annual Traditional Annual Traditional
Fund Return+ Return Return+ Return Return+
- ------------------------------------------------------------------------------
1 Year Return -1.20% -5.89% -1.83% -5.83% N/A
- ------------------------------------------------------------------------------
5 Year Return 27.49% 3.96% 23.31% 3.94% N/A
- ------------------------------------------------------------------------------
10 Year Return 69.97% 4.94% N/A N/A N/A
- ------------------------------------------------------------------------------
Since Inception* 135.24% 5.79% 24.42% 3.46% -0.76%
- ------------------------------------------------------------------------------
- ---------------------------
Tax SEC
Exempt Average
Insured Annual
Fund Return
- ---------------------------
1 Year Return N/A
- ---------------------------
5 Year Return N/A
- ---------------------------
10 Year Return N/A
- ---------------------------
Since Inception* N/A
- ---------------------------
+ Traditional returns do not include sales load.
* Inception Date - Class A: 11/22/85; Class B: 10/4/93; Class II: 6/1/99
For the 12 month period ending March 31, 2000, SunAmerica Tax Exempt Insured
Class -5.89%, compared to -0.08% for the Lehman Brothers Municipal Bond Index.
(*Past performance is no guarantee of future results.)
50
<PAGE>
----------------
[LOGO]SunAmerica PRSRT STD
Mutual Funds U.S. POSTAGE
PAID
SunAmerica
The SunAmerica Center ----------------
733 Third Avenue
New York, NY 10017-3204
<TABLE>
<S> <C> <C>
Trustees Investment Adviser This report is submitted solely for the
S. James Coppersmith SunAmerica Asset Management Corp. general information of shareholders of
Samuel M. Eisenstat The SunAmerica Center the Fund. Distribution of this report to
Stephen J. Gutman 733 Third Avenue persons other than shareholders of the
Peter A. Harbeck New York, NY 10017-3204 Fund is authorized only in connection
Sebastiano Sterpa with a currently effective prospectus,
Distributor setting forth details of the Fund, which
Officers SunAmerica Capital Services, Inc. must precede or accompany this report.
Peter A. Harbeck, President The SunAmerica Center
Michael Cheah, Vice President 733 Third Avenue
James T. McGrath, Vice President New York, NY 10017-3204
J. Steven Neamtz, Vice President
John Risner, Vice President Shareholder Servicing Agent
Robert M. Zakem, Secretary SunAmerica Fund Services, Inc.
Peter C. Sutton, Treasurer The SunAmerica Center
Laura Filippone, Assistant Treasurer 733 Third Avenue
John T. Genoy, Assistant Treasurer New York, NY 10017-3204
Donna M. Handel, Assistant Treasurer
Cheryl L. Hawthorne, Assistant Treasurer Custodian and Transfer Agent
Peter E. Pisapia, Assistant Secretary State Street Bank and Trust Company
Abbe P. Stein, Assistant Secretary P.O. Box 419572
Kansas City, MO 64141-6572
</TABLE>
Distributed by:
SunAmerica Capital Services, Inc.
AIG Member of American International Group, Inc.
INANN-3/00
