0000950109-01-504069.txt : 20011009 0000950109-01-504069.hdr.sgml : 20011009 ACCESSION NUMBER: 0000950109-01-504069 CONFORMED SUBMISSION TYPE: N-14/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20011003 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNAMERICA INCOME FUNDS CENTRAL INDEX KEY: 0000795307 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-14/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-67840 FILM NUMBER: 1751324 BUSINESS ADDRESS: STREET 1: 733 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2123537651 MAIL ADDRESS: STREET 1: 733 THIRD AVENUE STREET 2: 3RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: INTEGRATED INCOME PORTFOLIOS DATE OF NAME CHANGE: 19900306 FORMER COMPANY: FORMER CONFORMED NAME: SUNAMERICA INCOME PORTFOLIOS DATE OF NAME CHANGE: 19920703 N-14/A 1 dn14a.txt SUNAMERICA INCOME FUNDS As filed with the Securities and Exchange Commission on October 3, 2001 Securities Act File No. 333-67840 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- [_] Post-Effective Amendment [X] Pre-Effective Amendment No. 1 No. (Check appropriate box or boxes) ---------------- SUNAMERICA INCOME FUNDS (Exact Name of Registrant as Specified in its Charter) ---------------- 1-800-858-8850 (Area Code and Telephone Number) ---------------- 733 Third Avenue Third Floor New York, NY 10017 (Address of Principal Executive Offices: Number, Street, City, State, Zip Code) ---------------- Robert M. Zakem, Esq. c/o SunAmerica Asset Management Corp. 733 Third Avenue Third Floor New York, NY 10017 (Name and Address of Agent for Service) ---------------- Copies to: Counsel for the Fund: Shearman & Sterling 599 Lexington Avenue New York, NY 10022 Attention: Joel H. Goldberg, Esq. ---------------- Approximate Date of Proposed Public Offering: As soon as practicable after the Registration Statement becomes effective under the Securities Act of 1933. Title of Securities Being Registered: Shares of Beneficial Interest, Par Value $.01 per share. No filing fee is required because of reliance on Section 24(f) under the Investment Company Act of 1940, as amended. The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NORTH AMERICAN FUNDS Core Bond Fund High Yield Bond Fund Municipal Bond Fund Strategic Income Fund U.S. Government Securities Fund 286 Congress Street Boston, Massachusetts 02210 ---------------- NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS ---------------- TO BE HELD ON NOVEMBER 7, 2001 To our Shareholders: Notice is Hereby Given that a joint special meeting of shareholders (the "Meeting") of the Core Bond Fund (the "NAF Core Bond Fund"), High Yield Bond Fund (the "NAF High Yield Bond Fund"), Municipal Bond Fund (the "NAF Municipal Bond Fund"), Strategic Income Fund (the "NAF Strategic Income Fund") and U.S. Government Securities Fund (the "NAF U.S. Government Securities Fund," and together with the NAF Core Bond Fund, NAF High Yield Bond Fund, NAF Municipal Bond Fund and NAF Strategic Income Fund, the "Acquired Funds") of North American Funds will be held at the principal executive offices of the North American Funds, 286 Congress Street, Boston, Massachusetts 02210 on November 7, 2001 at 10:00 a.m. Eastern Time, for the following purposes: (1) (a) All Acquired Funds: to approve or disapprove a new investment advisory agreement (the "New Investment Advisory Agreement") between American General Asset Management Corp. ("AGAM") and North American Funds on behalf of each of the Acquired Funds, the terms of which are the same in all material respects as the previous investment advisory agreement with AGAM; (b) All Acquired Funds: to approve or disapprove a new subadvisory agreement (the "New Subadvisory Agreement") between AGAM and American General Investment Management, L.P. ("AGIM") or an affiliate thereof (collectively, "New AGIM"), the terms of which are the same in all material respects as the previous subadvisory agreement between AGAM and AGIM; (2) (a) NAF Core Bond Fund: to approve or disapprove an Agreement and Plan of Reorganization (the "Core Bond Funds Agreement and Plan") providing for the acquisition of substantially all of the assets, and assumption of substantially all of the liabilities, of the NAF Core Bond Fund by the SunAmerica Core Bond Fund (the "SunAmerica Core Bond Fund" or an "Acquiring Fund") of SunAmerica Income Funds, solely in exchange for an equal aggregate value of newly issued shares of the SunAmerica Core Bond Fund, as described in the accompanying proxy statement and prospectus. The SunAmerica Core Bond Fund is a newly created series of SunAmerica Income Funds, created for the purpose of receiving the assets from the NAF Core Bond Fund. The Core Bond Funds Agreement and Plan also provides for distribution of the shares of the SunAmerica Core Bond Fund to shareholders of the NAF Core Bond Fund. A vote in favor of this proposal will constitute a vote in favor of the termination of the NAF Core Bond Fund as a separate investment portfolio of North American Funds; (b) NAF High Yield Bond Fund: to approve or disapprove an Agreement and Plan of Reorganization (the "High Yield Bond Funds Agreement and Plan") providing for the acquisition of substantially all of the assets, and assumption of substantially all of the liabilities, of the NAF High Yield Bond Fund by the SunAmerica High Income Fund (which will be renamed the SunAmerica High Yield Bond Fund) of SunAmerica Income Funds (the "SunAmerica High Yield Bond Fund" or an "Acquiring Fund"), solely in exchange for an equal aggregate value of newly issued shares of the SunAmerica High Yield Bond Fund, as described in the accompanying proxy statement and prospectus. The High Yield Bond Funds Agreement and Plan also provides for distribution of the shares of the SunAmerica High Yield Bond Fund to shareholders of the NAF High Yield Bond Fund. A vote in favor of this proposal will constitute a vote in favor of the termination of the NAF High Yield Bond Fund as a separate investment portfolio of North American Funds; (c) NAF Municipal Bond Fund: to approve or disapprove an Agreement and Plan of Reorganization (the "Municipal Bond Funds Agreement and Plan") providing for the acquisition of substantially all of the assets, and assumption of substantially all of the liabilities, of the NAF Municipal Bond Fund by the SunAmerica Tax Exempt Insured Fund of SunAmerica Income Funds (the "SunAmerica Tax Exempt Insured Fund" or an "Acquiring Fund"), solely in exchange for an equal aggregate value of newly issued shares of the SunAmerica Tax Exempt Insured Fund, as described in the accompanying proxy statement and prospectus. The Municipal Bond Funds Agreement and Plan also provides for distribution of the shares of the SunAmerica Tax Exempt Insured Fund to shareholders of the NAF Municipal Bond Fund. A vote in favor of this proposal will constitute a vote in favor of the termination of the NAF Municipal Bond Fund as a separate investment portfolio of North American Funds; (d) NAF Strategic Income Fund: to approve or disapprove an Agreement and Plan of Reorganization (the "Strategic Income Funds Agreement and Plan") providing for the acquisition of substantially all of the assets, and assumption of substantially all of the liabilities, of the NAF Strategic Income Fund by the SunAmerica Diversified Income Fund (which will be renamed the SunAmerica Strategic Bond Fund) of SunAmerica Income Funds (the "SunAmerica Strategic Bond Fund" or an "Acquiring Fund"), solely in exchange for an equal aggregate value of newly issued shares of the SunAmerica Strategic Bond Fund, as described in the accompanying proxy statement and prospectus. The Strategic Income Funds Agreement and Plan also provides for distribution of the shares of the SunAmerica Strategic Bond Fund to shareholders of the NAF Strategic Income Fund. A vote in favor of this proposal will constitute a vote in favor of the termination of the NAF Strategic Income Fund as a separate investment portfolio of North American Funds; (e) NAF U.S. Government Securities Fund: to approve or disapprove an Agreement and Plan of Reorganization (the "U.S. Government Securities Funds Agreement and Plan") providing for the acquisition of substantially all of the assets, and assumption of substantially all of the liabilities, of the NAF U.S. Government Securities Fund by the SunAmerica U.S. Government Securities Fund of SunAmerica Income Funds (the "SunAmerica U.S. Government Securities Fund" or an "Acquiring Fund"), solely in exchange for an equal aggregate value of newly issued shares of the SunAmerica U.S. Government Securities Fund, as described in the accompanying proxy statement and prospectus. The U.S. Government Securities Fund Agreement and Plan also provides for distribution of the shares of the SunAmerica U.S. Government Securities Fund to shareholders of the NAF U.S. Government Securities Fund. A vote in favor of this proposal will constitute a vote in favor of the termination of the NAF U.S. Government Securities Fund as a separate investment portfolio of North American Funds; and (3) To transact such other business as properly may come before the Meeting or any adjournment thereof. The Board of Trustees of North American Funds has fixed the close of business on September 17, 2001 as the record date for the determination of shareholders entitled to notice of, and to vote at, the Meeting or any adjournment thereof. A complete list of the shareholders of each of the Acquired Funds entitled to vote at the Meeting will be available and open to the examination of any shareholders of each Acquired Fund for any purpose germane to such Meeting during ordinary business hours from and after October 24, 2001 at the offices of North American Funds, 286 Congress Street, Boston, Massachusetts and at the Meeting. 2 You are cordially invited to attend the Meeting. Shareholders who do not expect to attend the Meeting in person are requested to complete, date and sign the enclosed respective form of proxy and return it promptly in the postage- paid envelope provided for that purpose. Alternatively, you may vote your shares by calling a specially designated telephone number (toll free 1-888-221- 0697) or via the Internet at http://www.proxyweb.com. Each of the enclosed proxies is being solicited on behalf of the Board of Trustees of North American Funds. The Board of Trustees of North American Funds unanimously recommends that the shareholders of each Acquired Fund approve the New Investment Advisory Agreement, the New Subadvisory Agreement and the respective Agreement and Plan of Reorganization. By Order of the Board of Trustees, /s/ John I. Fitzgerald Secretary, North American Funds Boston, Massachusetts Dated: October 1, 2001 3 COMBINED PROXY STATEMENT AND PROSPECTUS SUNAMERICA INCOME FUNDS NORTH AMERICAN FUNDS --------------- JOINT SPECIAL MEETING OF SHAREHOLDERS OF CORE BOND FUND HIGH YIELD BOND FUND MUNICIPAL BOND FUND STRATEGIC INCOME FUND AND U.S. GOVERNMENT SECURITIES FUND OF NORTH AMERICAN FUNDS --------------- NOVEMBER 7, 2001 This Proxy Statement and Prospectus is furnished to you because you are a shareholder of one or more of the North American Funds referenced above. The Funds are holding a Joint Special Meeting of Shareholders (the "Meeting") on November 7, 2001 to consider the proposals described in this Proxy Statement and Prospectus. This Proxy Statement and Prospectus describes a proposal to approve or disapprove (i) a new investment advisory agreement with American General Asset Management Corp. ("AGAM") for your Fund, and (ii) a new subadvisory agreement between AGAM and American General Investment Management, L.P. ("AGIM") or an affiliate thereof (collectively, "New AGIM") for your Fund. The terms of the new investment advisory and subadvisory agreement are the same in all material respects as your Fund's current agreements. Your Board of Trustees is seeking your proxy to vote in favor of these proposals. In addition, your Board of Trustees is seeking your approval of a transaction involving your Fund. Under the proposal, your Fund would reorganize with a comparable portfolio of SunAmerica Income Funds, as set forth in the chart below. If this reorganization is approved by shareholders, you will become a shareholder of the SunAmerica fund listed opposite your Fund's name.
Your Fund SunAmerica Fund --------- --------------- Core Bond Fund SunAmerica Core Bond Fund High Yield Bond Fund SunAmerica High Income Fund (to be renamed SunAmerica High Yield Bond Fund) Municipal Bond Fund SunAmerica Tax Exempt Insured Fund Strategic Income Fund SunAmerica Diversified Income Fund (to be renamed SunAmerica Strategic Bond Fund) U.S. Government Securities Fund SunAmerica U.S. Government Securities Fund
This Proxy Statement and Prospectus serves as a prospectus of SunAmerica Income Funds under the Securities Act of 1933, as amended (the "Securities Act"), in connection with the issuance of shares to you pursuant to the terms of the reorganizations. Both North American Funds and SunAmerica Income Funds are open-end series management investment companies organized as Massachusetts business trusts. The SunAmerica Core Bond Fund is newly created and has not yet commenced operations. --------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------- The Date of this Proxy Statement and Prospectus is October 1, 2001. The following documents are included in the package of documents that you received with this Proxy Statement and Prospectus: . The prospectus relating to SunAmerica Income Funds, dated July 27, 2001, as supplemented (the "Acquiring Funds Prospectus"). This document is incorporated herein by reference (legally considered to be part of this Proxy Statement and Prospectus). . The Annual Report to Shareholders of SunAmerica Income Funds for the year ended March 31, 2001. This document is incorporated herein by reference (legally considered to be part of this Proxy Statement and Prospectus). Additional information contained in a statement of additional information relating to this Proxy Statement and Prospectus (the "Statement of Additional Information"), including pro forma financial statements giving effect to the consummation of a reorganization, if applicable, is on file with the Securities and Exchange Commission (the "Commission"). The Statement of Additional Information is available without charge, upon request by calling one of the toll free numbers set forth below or by writing North American Funds or SunAmerica Income Funds at the addresses set forth below. The Statement of Additional Information, dated October 1, 2001 is incorporated by reference into this Proxy Statement and Prospectus. Other documents containing information about the Funds have been filed with the Commission. These other documents are available without charge by writing to the address or calling the toll free number set forth below: If they relate to North American Funds: If they relate to SunAmerica Income Funds: North American Funds SunAmerica Income Funds 286 Congress Street The SunAmerica Center Boston, Massachusetts 02210 733 Third Avenue 1-800-872-8037 New York, New York 10017 1-800-858-8850
These documents are: . A statement of additional information relating to SunAmerica Income Funds, dated July 28, 2001, as supplemented (the "Acquiring Funds Statement"). . The preliminary prospectus relating to SunAmerica Income Funds, subject to completion and dated August 14, 2001, as supplemented. . The preliminary statement of additional information relating to SunAmerica Income Funds, subject to completion and dated August 14, 2001, as supplemented. . The prospectuses relating to the North American Funds, each dated March 1, 2001, as supplemented (the "Acquired Funds Prospectuses"). These documents are incorporated herein by reference (legally considered to be a part of this Proxy Statement and Prospectus). . A statement of additional information relating to North American Funds, dated March 1, 2001, as supplemented (the "Acquired Funds Statement"). . The Annual Report to Shareholders of North American Funds for the year ended October 31, 2000 and the Semi-Annual Report to Shareholders of North American Funds for the six month period ended April 30, 2001. This Proxy Statement and Prospectus sets forth concisely the information about SunAmerica Income Funds that you should know before considering a reorganization and should be retained for future reference. North American Funds has authorized the solicitation of proxies solely on the basis of this Proxy Statement and Prospectus and the accompanying documents. The Commission maintains a web site (http://www.sec.gov) that contains the Statement of Additional Information, the Acquiring Funds Prospectus, the Acquired Funds Prospectuses, the Acquiring Funds Statement, the Acquired Funds Statement, other material incorporated by reference and other information regarding the Funds. The address of the principal executive offices of SunAmerica Income Funds is The SunAmerica Center, 733 Third Avenue, New York, New York 10017, the telephone number is 1-800-858-8850 and the web address is http://www.sunamericafunds.com. The address of the principal executive offices of North American Funds is 286 Congress Street, Boston, Massachusetts 02210, the telephone number is 1-800-872-8037 and the web address is http://www.northamericanfunds.com.
Proposal Fund -------- ---- 1. (a) Approval of New Investment Advisory All North American Funds referenced Agreement above, each voting separately (b) Approval of New Investment Subadvisory Agreement All Funds, each voting separately 2. (a) Approval of Agreement and Plan of Core Bond Fund Reorganization relating to Core Bond Funds (b) Approval of Agreement and Plan of High Yield Bond Fund Reorganization relating to High Yield Bond Funds (c) Approval of Agreement and Plan of Municipal Bond Fund Reorganization relating to Municipal Bond Funds (d) Approval of Agreement and Plan of Strategic Income Fund Reorganization relating to Strategic Income Funds (e) Approval of Agreement and Plan of U.S. Government Securities Fund Reorganization relating to U.S. Government Securities Funds
---------------- TABLE OF CONTENTS
Page ---- INTRODUCTION............................................................. 2 SUMMARY.................................................................. 4 THE AIG MERGER AND THE NEW INVESTMENT ADVISORY AND SUBADVISORY AGREEMENTS.............................................................. 4 THE REORGANIZATIONS...................................................... 5 FEE TABLES AND EXAMPLES.................................................. 7 THE FUNDS................................................................ 23 Business of the Acquired Funds......................................... 23 Business of the Acquiring Funds........................................ 23 Comparison of the Funds................................................ 23 PRINCIPAL RISK FACTORS AND SPECIAL CONSIDERATIONS........................ 30 PRINCIPAL RISKS OF INVESTING IN THE FUNDS................................ 30 All Funds.............................................................. 30 Core Bond Funds........................................................ 30 Strategic Income Funds................................................. 31 Strategic Income Funds and High Yield Bond Funds....................... 31 PROPOSALS NOS. 1(a)-(b): APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT AND THE NEW SUBADVISORY AGREEMENT............................. 32 THE AIG MERGER AND THE NEW INVESTMENT ADVISORY AND SUBADVISORY AGREEMENTS.............................................................. 32 Board Considerations................................................... 32 Description of the New Investment Advisory Agreement................... 34 Additional Information About AGAM...................................... 35 Description of the New Subadvisory Agreement........................... 37 Additional Information About AGIM...................................... 38 PROPOSALS NOS. 2(a)-(e): APPROVAL OF THE PLANS........................... 39 COMPARISON OF THE FUNDS.................................................. 39 Investment Policies.................................................... 39 Trustees and Officers.................................................. 40 Management Arrangements................................................ 44 Distribution and Shareholder Servicing Arrangements.................... 45 Other Service Agreements with Affiliates............................... 46 Purchase, Exchange and Redemption of Shares............................ 47 Performance............................................................ 50 Shareholder Rights..................................................... 53 Tax Information........................................................ 53 Portfolio Transactions................................................. 53 Portfolio Turnover..................................................... 53 Additional Information................................................. 54 THE REORGANIZATIONS...................................................... 56 General................................................................ 56 Terms of the Plans..................................................... 57
i
Page ---- NAF Board Considerations: Potential Benefits to Shareholders as a Result of the Reorganizations................................................. 58 Federal Income Tax Consequences of the Reorganizations.................. 62 Capitalization.......................................................... 63 GENERAL................................................................... 64 INFORMATION CONCERNING THE MEETING........................................ 64 Date, Time and Place of Meeting......................................... 64 Solicitation, Revocation and Use of Proxies............................. 64 Record Date and Outstanding Shares...................................... 64 Security Ownership of Certain Beneficial Owners and Management of the Funds.................................................................. 65 Voting Rights and Required Vote......................................... 70 ADDITIONAL INFORMATION.................................................... 71 LEGAL PROCEEDINGS......................................................... 71 LEGAL OPINIONS............................................................ 71 EXPERTS................................................................... 71 SHAREHOLDER PROPOSALS..................................................... 72 EXHIBIT IA................................................................ IA-1 EXHIBIT IB................................................................ IB-1 EXHIBIT II................................................................ II-1
ii INTRODUCTION This Proxy Statement and Prospectus is furnished in connection with the solicitation of proxies on behalf of the Board of Trustees of North American Funds (the "NAF Board") for use at the Meeting to be held at the principal executive offices of North American Funds, 286 Congress Street, Boston, Massachusetts 02210, on November 7, 2001, at 10:00 a.m., Eastern Time. The mailing address for North American Funds is 286 Congress Street, Boston, Massachusetts 02210. The approximate mailing date of this Proxy Statement and Prospectus is October 5, 2001. Before we describe the proposals any further, we need to define certain words or phrases that are used in this Proxy Statement and Prospectus: Acquired Fund: Your Fund, which is a portfolio of North American Funds. Acquiring Fund: The portfolio of SunAmerica Income Funds that is acquiring a comparable portfolio of North American Funds. Combined Fund: The Acquiring Fund after completion of the Reorganization. Core Bond Funds: The Core Bond Fund of North American Funds and the SunAmerica Core Bond Fund. Core Bond Combined Fund: The SunAmerica Core Bond Fund after the Reorganization. Fund: Either the Acquired Fund or Acquiring Fund, depending on the context. High Yield Bond Funds: The High Yield Bond Fund of North American Funds and the SunAmerica High Income Fund. High Yield Bond Combined Fund: The SunAmerica High Income Fund after the Reorganization. Investment Company Act: The Investment Company Act of 1940, as amended. Municipal Bond Funds: The Municipal Bond Fund of North American Funds and the SunAmerica Tax Exempt Insured Fund. NAF Core Bond Fund: The Core Bond Fund of North American Funds. NAF High Yield Bond Fund: The High Yield Bond Fund of North American Funds. NAF Municipal Bond Fund: The Municipal Bond Fund of North American Funds. NAF Strategic Income Fund: The Strategic Income Fund of North American Funds. NAF U.S. Government Securities Fund: The U.S. Government Securities Fund of North American Funds. Plan: The Agreement and Plan of Reorganization, which sets forth the terms of each Reorganization and is being submitted for shareholder approval. Reorganization: The transaction through which an Acquired Fund will be acquired by an Acquiring Fund and shareholders of an Acquired Fund will become shareholders of an Acquiring Fund. Strategic Income Funds: The Strategic Income Fund of North American Funds and the SunAmerica Diversified Income Fund. Strategic Combined Fund: The SunAmerica Diversified Income Fund after the Reorganization. 2 Tax Exempt Insured Combined Fund: The SunAmerica Tax Exempt Insured Fund after the Reorganization. U.S. Government Securities Funds: The U.S. Government Securities Fund of North American Funds and the SunAmerica U.S. Government Securities Fund. U.S. Government Securities Combined Fund: The SunAmerica U.S. Government Securities Fund after the Reorganization. The shareholders solicited and entitled to vote on Proposals 1a, 1b, 2a, 2b, 2c, 2d and 2e of this Proxy Statement and Prospectus are outlined in the following table:
Proposal Fund -------- ---- 1. (a) Approval of New Investment Advisory All North American Funds referenced Agreement above, each voting separately (b) Approval of New Investment Subadvisory Agreement All Funds, each voting separately 2. (a) Approval of Agreement and Plan of Core Bond Fund Reorganization relating to Core Bond Funds (b) Approval of Agreement and Plan of High Yield Bond Fund Reorganization relating to High Yield Bond Funds (c) Approval of Agreement and Plan of Municipal Bond Fund Reorganization relating to Municipal Bond Funds (d) Approval of Agreement and Plan of Strategic Income Fund Reorganization relating to Strategic Income Funds (e) Approval of Agreement and Plan of U.S. Government Securities Fund Reorganization relating to U.S. Government Securities Funds
3 SUMMARY The following is a summary of certain information contained elsewhere in this Proxy Statement and Prospectus (including documents incorporated by reference) and is qualified in its entirety by reference to the more complete information contained in this Proxy Statement and Prospectus and in the forms of the New Investment Advisory Agreement, the New Subadvisory Agreement and the Plans, attached hereto as Exhibits IA, IB and II, respectively. THE AIG MERGER AND THE NEW INVESTMENT ADVISORY AND SUBADVISORY AGREEMENTS On August 29, 2001, American International Group, Inc. ("AIG") acquired American General Corporation ("American General"), the parent company of AGAM and AGIM (the "AIG Merger"). As a result of the AIG Merger, AGAM and AGIM each became subsidiaries of AIG. AIG is also the parent company of SunAmerica Asset Management Corp. ("SAAMCo"). As a result of the AIG Merger, applicable law requires shareholder approval of a new investment advisory agreement (the "New Investment Advisory Agreement") and a new subadvisory agreement (the "New Subadvisory Agreement") for your Fund. The terms of the New Investment Advisory Agreement and New Subadvisory Agreement (the "New Agreements") are the same in all material respects as those of your Fund's previous investment advisory agreement (the "Previous Investment Advisory Agreement") and those of the previous subadvisory agreement between AGAM and AGIM (the "Previous Subadvisory Agreement"), respectively. See "Proposal No. 1(a): Approval of the New Investment Advisory Agreement" below for a description of the New Investment Advisory Agreement and the services to be provided by AGAM thereunder, and "Proposal No. 1(b): Approval of the New Subadvisory Agreement" below for a description of the New Subadvisory Agreement and the services to be provided by New AGIM thereunder. In connection with its approval of the New Agreements, the NAF Board received a presentation relating to AIG and SAAMCo, as well as a presentation from AGAM. The NAF Board considered that the AIG Merger did not involve any changes in the overall form of the advisory or subadvisory contracts, the advisory fees, or any of the Acquired Funds' objectives or policies. The NAF Board also considered that AGAM and SAAMCo had indicated that while they intended to propose the Reorganizations to the NAF Board at a subsequent meeting, until such Reorganizations were approved and consummated, SAAMCo and AIG represented there would be no material change in the nature and quality of services provided by AGAM. As part of its deliberations, the NAF Board also took into account the following, among other factors: the nature and quality of the services provided or reasonably anticipated to be provided and the results achieved or reasonably anticipated to be achieved by AGAM and/or New AGIM; the amount and structure of investment advisers' fees generally and the fees payable under the New Agreements; the financial strength of AIG; the management, personnel and operations of AIG and SAAMCo; the commitment of AIG to the financial services industry, and the structure of the AIG Merger. In addition, the NAF Board considered the fact that at some point after consummation of the AIG Merger, the operations of AGIM might be consolidated with those of another affiliate within the AIG group of companies to eliminate duplication and attempt to create economies of scale within the organization. The NAF Board was assured that any such internal reorganization would not result in a change in the personnel 4 responsible for providing services to the Acquired Funds or in the nature or quality of those services. Accordingly, the NAF Board approved the New Subadvisory Agreement with AGIM or an affiliate that in the future conducts the advisory business previously conducted by AGIM (previously defined as "New AGIM"). AGAM and AGIM are wholly owned subsidiaries of American General. Prior to the AIG Merger, American General was a part of one of the nation's largest diversified financial services organizations with assets of approximately $128 billion and market capitalization of $23 billion at June 30, 2001. SAAMCo is the investment adviser for the Acquiring Funds. SAAMCo has been in the business of investment management since 1982 and as of June 30, 2001, managed, advised and/or administered approximately $28.5 billion of assets. AIG, SAAMCo's parent, a Delaware corporation, is a holding company which through its subsidiaries is engaged in a broad range of insurance and insurance-related activities and financial services in the United States and abroad. THE REORGANIZATIONS What Shareholders of an Acquired Fund Will Receive in a Reorganization If shareholders approve their Fund's Reorganization and the Reorganization takes place: . The Acquiring Fund will acquire substantially all of the assets and assume substantially all of the liabilities of the Acquired Fund; . Shareholders of the Acquired Fund will become shareholders of the Acquiring Fund; . Shareholders holding Class A, Class B, Class C, Institutional Class I and Institutional Class II shares of the Acquired Fund will receive Class A, Class B, Class II, Class I and Class Z shares, respectively, as applicable, of the Acquiring Fund (the "Corresponding Shares"); and . Corresponding Shares received by shareholders of the Acquired Fund will have the same aggregate net asset value as the shares of the Acquired Fund held immediately prior to the Reorganization. No sales charges will be imposed on the Corresponding Shares issued in connection with the Reorganizations. Each Reorganization has been structured with the intention that it qualify for Federal income tax purposes as a tax- free reorganization under the Internal Revenue Code of 1986, as amended (the "Code"). This means that, in the opinion of counsel, no gain or loss will be recognized by a shareholder of an Acquired Fund for Federal income tax purposes as a result of a Reorganization. Reasons for the Reorganizations On August 2, 2001, the NAF Board unanimously approved each Reorganization, subject to shareholder approval and completion of the AIG Merger. The NAF Board, including all of the NAF Independent Trustees (as defined below), has determined that each Reorganization is in the best interests of the respective Acquired Fund and its shareholders. In addition, the NAF Board, including all of the NAF Independent Trustees, has determined that the interests of existing shareholders of each Acquired Fund will not be diluted as a result of effecting the respective Reorganization because each such shareholder will receive Corresponding Shares of the Acquiring Fund having an aggregate net asset value equal to the aggregate net asset value of his or her shares of the Acquired Fund outstanding as of the Valuation Time (as defined in the Plans). Although, as a result of the Reorganizations, a shareholder of an Acquired Fund may receive Corresponding Shares which represent a smaller percentage of ownership in the respective Acquiring Fund than he or she held in that Acquired Fund prior to the respective Reorganization, the total dollar value of the shares will be the same. The NAF Independent Trustees are the Trustees who are not "interested persons" of North American Funds (within the meaning of the Investment Company Act). 5 The NAF Board unanimously recommends that you vote FOR the Plan relating to the Reorganization involving your Fund. Your Board has based this recommendation on its consideration of the principal reasons underlying each Reorganization, including the following: . the fact that following each Reorganization, shareholders of each Acquired Fund would remain invested in a mutual fund having substantially the same or a similar investment objective and similar investment techniques; . the fees and expenses of the Acquired Funds, the Acquiring Funds and the Combined Funds; . potential benefits to shareholders likely to result from each Reorganization, such as the potential for reduced operating expenses over time due to economies of scale (except with respect to the Core Bond Funds Reorganization); and . the fact that the Reorganizations will not result in dilution of the interests of Acquired Fund shareholders. For a more detailed discussion of the factors considered by your Board in approving the Reorganizations, see "Proposals Nos. 2(a)-(e): The Reorganizations" below. If all of the requisite approvals are obtained and certain conditions are either met or waived, it is anticipated that (i) AGAM will continue to serve as the investment adviser of the Acquired Funds and New AGIM will serve as subadviser to each of the Acquired Funds until the closing of the Reorganizations (which is currently anticipated to occur during the fourth calendar quarter of 2001), (ii) the Reorganizations will occur as soon as practicable thereafter, provided that the Funds have obtained prior to that time an opinion of counsel concerning the tax consequences of the Reorganizations as set forth in the Plans, and (iii) after the consummation of the Reorganizations, SAAMCo will manage the assets of the Acquired Funds as part of the Combined Funds, and New AGIM will serve as subadviser to the Core Bond, High Yield Bond, Tax Exempt Insured and Strategic Income Combined Funds (subject to shareholder approval of the respective Acquiring Funds). The Plans may be terminated, and the Reorganizations abandoned, whether before or after the requisite approval by the shareholders of the Acquired Funds, at any time prior to the Closing Date (as defined herein), (i) by mutual agreement of the NAF Board and the Board of Trustees of SunAmerica Income Funds ("the SunAmerica Board"); (ii) by an Acquired Fund if any condition to such Acquired Fund's obligations has not been fulfilled or waived; or (iii) by an Acquiring Fund if any condition to such Acquiring Fund's obligations has not been fulfilled or waived. 6 FEE TABLES AND EXAMPLES Actual Fee Table for Shareholders of each of the Acquired Funds+ and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table for each of the Combined Funds (as of March 31, 2001)*
Class A Shares Class B Shares Class C/Class II Shares ------------------------------ ------------------------------ ------------------------------ Actual Pro Forma Actual Pro Forma Actual Pro Forma -------------------- --------- -------------------- --------- -------------------- --------- NAF SunAmerica Core Bond NAF SunAmerica Core Bond NAF SunAmerica Core Bond Core Bond Core Bond Combined Core Bond Core Bond Combined Core Bond Core Bond Combined Fund Fund Fund Fund Fund Fund Fund Fund Fund --------- ---------- --------- --------- ---------- --------- --------- ---------- --------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1)............... 4.75% 4.75% 4.75% None None None None 1.00% 1.00% Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2).. None None None 5.00% 5.00% 5.00% 1.00% 1.00% 1.00% Maximum Sales Charge (Load) Imposed on Reinvested Dividends.... None None None None None None None None None Redemption Fee(3)....... None None None None None None None None None Annual Fund Operating Expenses (as a percentage of average net assets) (expenses that are deducted from Fund assets): Management Fees........ 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% Distribution and/or Service (12b-1) Fees(4)................ 0.35% 0.35% 0.35% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Other Expenses......... 0.38% 0.57% 0.57% 0.38% 0.59% 0.59% 0.38% 0.62% 0.62% Total Annual Fund Operating Expenses Before Expense Reimbursement........... 1.33% 1.52% 1.52% 1.98% 2.19% 2.19% 1.98% 2.22% 2.22% Expense Reimbursement(5)(6)..... -- 0.19% 0.19% -- 0.21% 0.21% -- 0.24% 0.24% Net Expenses............ 1.33% 1.33% 1.33% 1.98% 1.98% 1.98% 1.98% 1.98% 1.98%
7 Actual Fee Table for Shareholders of each of the Acquired Funds+ and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table for each of the Combined Funds (as of March 31, 2001)*
Institutional Class I/Class I Institutional Class II/Class Z Shares Shares -------------------------------- -------------------------------- Actual Pro Forma** Actual Pro Forma** -------------------- ----------- -------------------- ----------- NAF SunAmerica Core Bond NAF SunAmerica Core Bond Core Bond Core Bond Combined Core Bond Core Bond Combined Fund Fund Fund Fund Fund Fund --------- ---------- ----------- --------- ---------- ----------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1)............... None None None None None None Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2).. None None None None None None Maximum Sales Charge (Load) Imposed on Reinvested Dividends.... None None None None None None Redemption Fee(3)....... None None None None None None Annual Fund Operating Expenses (as a percentage of average net assets) (expenses that are deducted from Fund assets): Management Fees........ 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% Distribution and/or Service (12b-1) Fees(4)................ None None None None None None Other Expenses......... 0.63% 0.67% 0.67% 0.38% 0.13% 0.13% Total Annual Fund Operating Expenses Before Expense Reimbursement........... 1.23% 1.27% 1.27% 0.98% 0.73% 0.73% Expense Reimbursement(5)(6)..... -- 0.04% 0.04% -- -- -- Net Expenses............ 1.23% 1.23% 1.23% 0.98% 0.73% 0.73%
8 These examples are intended to help you compare the cost of investing in the Core Bond Funds with the cost of investing in other mutual funds. Examples: An investor would pay the following expenses on a $10,000 investment, assuming (1) the Total Annual Fund Operating Expenses set forth in the table above for the relevant Fund and (2) a 5% annual return throughout the period.
Cumulative Expenses Paid for the Period of: ----------------------------------- 1 Year 3 Years 5 Years 10 Years(11) ------ ------- ------- ------------ Expenses if you did redeem your shares at the end of the period: Class A NAF Core Bond Fund...................... $604 $ 876 $1,169 $2,000 SunAmerica Core Bond Fund(8)............ 604 876 1,169 2,000 Pro Forma Core Bond Combined Fund***(8)............................. 604 876 1,169 2,000 Class B NAF Core Bond Fund...................... $701 $1,021 $1,268 $2,139 SunAmerica Core Bond Fund(8)............ 701 921 1,268 2,139 Pro Forma Core Bond Combined Fund***(8)............................. 701 921 1,268 2,139 Class C/Class II NAF Core Bond Fund(8)................... $301 $ 621 $1,068 $2,306 SunAmerica Core Bond Fund(8)............ 399 715 1,157 2,383 Pro Forma Core Bond Combined Fund***(8)............................. 399 715 1,157 2,383 Institutional Class I/Class I NAF Core Bond Fund(8)................... $125 $ 390 $ 676 $1,489 SunAmerica Core Bond Fund(8)............ 125 390 676 1,489 Pro Forma Core Bond Combined Fund***(8)............................. 125 390 676 1,489 Institutional Class II/Class Z NAF Core Bond Fund(8)................... $100 $ 312 $ 542 $1,201 SunAmerica Core Bond Fund............... 75 233 406 906 Pro Forma Core Bond Combined Fund***.... 75 233 406 906
Cumulative Expenses Paid for the Period of: ----------------------------------- 1 Year 3 Years 5 Years 10 Years(11) ------ ------- ------- ------------ Expenses if you did not redeem your shares at the end of the period: Class A NAF Core Bond Fund(8)................... $604 $876 $1,169 $2,000 SunAmerica Core Bond Fund............... 604 876 1,169 2,000 Pro Forma Core Bond Combined Fund***(8)............................. 604 876 1,169 2,000 Class B NAF Core Bond Fund(8)................... $201 $621 $1,068 $2,139 SunAmerica Core Bond Fund............... 201 621 1,068 2,139 Pro Forma Core Bond Combined Fund***(8)............................. 201 621 1,068 2,139 Class C/Class II NAF Core Bond Fund(8)................... $201 $621 $1,068 $2,306 SunAmerica Core Bond Fund............... 299 715 1,157 2,383 Pro Forma Core Bond Combined Fund***(8)............................. 299 715 1,157 2,383 Institutional Class I/Class I NAF Core Bond Fund(8)................... $125 $390 $ 676 $1,489 SunAmerica Core Bond Fund............... 125 390 676 1,489 Pro Forma Core Bond Combined Fund***(8)............................. 125 390 676 1,489 Institutional Class II/Class Z NAF Core Bond Fund(8)................... $100 $312 $ 542 $1,201 SunAmerica Core Bond Fund............... 75 233 406 906 Pro Forma Core Bond Combined Fund***.... 75 233 406 906
9 Actual Fee Table for Shareholders of each of the Acquired Funds+ and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table for each of the Combined Funds (as of March 31, 2001)*
Class A Shares Class B Shares Class C/Class II Shares ------------------------------- ------------------------------- ------------------------------- Actual Pro Forma Actual Pro Forma Actual Pro Forma --------------------- --------- --------------------- --------- --------------------- --------- High High High SunAmerica Yield SunAmerica Yield SunAmerica Yield NAF High Bond NAF High Bond NAF High Bond High Yield Income Combined High Yield Income Combined High Yield Income Combined Bond Fund Fund Fund Bond Fund Fund Fund Bond Fund Fund Fund ---------- ---------- --------- ---------- ---------- --------- ---------- ---------- --------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1).............. 4.75% 4.75% 4.75% None None None None 1.00% 1.00% Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2).............. None None None 5.00% 5.00% 5.00% 1.00% 1.00% 1.00% Maximum Sales Charge (Load) Imposed on Reinvested Dividends... None None None None None None None None None Redemption Fee(3)...... None None None None None None None None None Annual Fund Operating Expenses (as a percentage of average net assets) (expenses that are deducted from Fund assets): Management Fees....... 0.83% 0.75% 0.75% 0.83% 0.75% 0.75% 0.83% 0.75% 0.75% Distribution and/or Service (12b-1) Fees(4)............... 0.35% 0.35% 0.35% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Other Expenses........ 0.39% 0.45% 0.45% 0.39% 0.43% 0.43% 0.39% 0.48% 0.48% Total Annual Fund Operating Expenses Before Expense Reimbursement.......... 1.57% 1.55% 1.55% 2.22% 2.18% 2.18% 2.22% 2.23% 2.23% Expense Reimbursement(5)(6)(7).. -- -- -- -- -- -- -- 0.13% -- Net Expenses........... 1.57% 1.55% 1.55% 2.22% 2.18% 2.18% 2.22% 2.10% 2.23%
10 Actual Fee Table for Shareholders of each of the Acquired Funds+ and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table for each of the Combined Funds (each as of March 31, 2001)*
Institutional Class I/Class I Institutional Class II/Class Z Shares Shares -------------------------------- -------------------------------- Actual Pro Forma Actual Pro Forma ---------------------- --------- ---------------------- --------- High High SunAmerica Yield SunAmerica Yield NAF High Income Bond NAF High Income Bond High Yield Bond Combined High Yield Bond Combined Bond Fund Fund Fund** Bond Fund Fund Fund** ---------- ----------- --------- ---------- ----------- --------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1)............... None N/A None None N/A None Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2).. None N/A None None N/A None Maximum Sales Charge (Load) Imposed on Reinvested Dividends.... None N/A None None N/A None Redemption Fee(3)....... None N/A None None N/A None Annual Fund Operating Expenses (as a percentage of average net assets) (expenses that are deducted from Fund assets): Management Fees........ 0.83% N/A 0.75% 0.83% N/A 0.75% Distribution and/or Service (12b-1) Fees(4)................ None N/A None None N/A None Other Expenses......... 0.64% N/A 1.06% 0.39% N/A 0.20% Total Annual Fund Operating Expenses Before Expense Reimbursement........... 1.47% N/A 1.81% 1.22% N/A 0.95% Expense Reimbursement(5)(6)..... -- N/A 0.36% -- N/A -- Net Expenses............ 1.47% N/A 1.45% 1.22% N/A 0.95%
11 These examples are intended to help you compare the cost of investing in the High Yield Bond Funds with the cost of investing in other mutual funds. Examples: An investor would pay the following expenses on a $10,000 investment, assuming (1) the Total Annual Fund Operating Expenses set forth in the table above for the relevant Fund and (2) a 5% annual return throughout the period.
Cumulative Expenses Paid for the Period of: ----------------------------------- 1 Year 3 Years 5 Years 10 Years(11) ------ ------- ------- ------------ Expenses if you did redeem your shares at the end of the period: Class A NAF High Yield Bond Fund(8)............. $627 $ 947 $1,290 $2,254 SunAmerica High Income Fund(8).......... 625 941 1,280 2,233 Pro Forma High Yield Bond Combined Fund***................................ 625 941 1,280 2,233 Class B NAF High Yield Bond Fund(8)............. $725 $1,094 $1,390 $2,388 SunAmerica High Income Fund............. 721 982 1,369 2,354 Pro Forma High Yield Bond Combined Fund***................................ 721 982 1,369 2,354 Class C/Class II NAF High Yield Bond Fund(8)............. $325 $ 694 $1,190 $2,554 SunAmerica High Income Fund(8).......... 411 751 1,218 2,507 Pro Forma High Yield Bond Combined Fund***(9)............................. 424 790 1,283 2,639 Institutional Class I/Class I NAF High Yield Bond Fund(8)............. $150 $ 465 $ 803 $1,757 Pro Forma High Yield Bond Combined Fund***(8)............................. 148 459 792 1,735 Institutional Class II/Class Z NAF High Yield Bond Fund(8)............. $124 $ 387 $ 670 $1,477 Pro Forma High Yield Bond Combined Fund***................................ 97 303 526 1,166
Cumulative Expenses Paid for the Period of: ----------------------------------- 1 Year 3 Years 5 Years 10 Years(11) ------ ------- ------- ------------ Expenses if you did not redeem your shares at the end of the period: Class A NAF High Yield Bond Fund................ $627 $947 $1,290 $2,254 SunAmerica High Income Fund(8).......... 625 941 1,280 2,233 Pro Forma High Yield Bond Combined Fund***................................ 625 941 1,280 2,233 Class B NAF High Yield Bond Fund................ $225 $694 $1,190 $2,388 SunAmerica High Income Fund............. 221 682 1,169 2,354 Pro Forma High Yield Bond Combined Fund***................................ 221 682 1,169 2,354 Class C/Class II NAF High Yield Bond Fund................ $225 $694 $1,190 $2,554 SunAmerica High Income Fund(8).......... 311 751 1,218 2,507 Pro Forma High Yield Bond Combined Fund***(10)............................ 324 790 1,283 2,639 Institutional Class I/Class I NAF High Yield Bond Fund................ $150 $465 $ 803 $1,757 Pro Forma High Yield Bond Combined Fund***(8)............................. 148 459 792 1,735 Institutional Class II/Class Z NAF High Yield Bond Fund(8)............. $124 $387 $670 $1,477 Pro Forma High Yield Combined Fund***... 97 303 526 1,166
12 Actual Fee Table for Shareholders of each of the Acquired Funds+ and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table for each of the Combined Funds (as of March 31, 2001)*
Class A Shares Class B Shares Class C/II Shares ------------------------------- ------------------------------- ------------------------------- Actual Pro Forma Actual Pro Forma Actual Pro Forma -------------------- ---------- -------------------- ---------- -------------------- ---------- SunAmerica Tax Exempt SunAmerica Tax Exempt SunAmerica Tax Exempt NAF Tax Exempt Insured NAF Tax Exempt Insured NAF Tax Exempt Insured Municipal Insured Combined Municipal Insured Combined Municipal Insured Combined Bond Fund Fund Fund Bond Fund Fund Fund Bond Fund Fund Fund --------- ---------- ---------- --------- ---------- ---------- --------- ---------- ---------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1).............. 4.75% 4.75% 4.75% None None None None 1.00% 1.00% Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2).............. None None None 5.00% 5.00% 5.00% 1.00% 1.00% 1.00% Maximum Sales Charge (Load) Imposed on Reinvested Dividends... None None None None None None None None None Redemption Fee(3)...... None None None None None None None None None Annual Fund Operating Expenses (as a percentage of average net assets) (expenses that are deducted from Fund assets): Management Fees....... 0.60% 0.50% 0.50% 0.60% 0.50% 0.50% 0.60% 0.50% 0.50% Distribution and/or Service (12b-1) Fees(4)............... 0.15% 0.35% 0.35% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Other Expenses........ 0.68% 0.41% 0.40% 0.68% 0.47% 0.45% 0.68% 2.04% 0.62% Total Annual Fund Operating Expenses Before Expense Reimbursement.......... 1.43% 1.26% 1.25% 2.28% 1.97% 1.95% 2.28% 3.54% 2.12% Expense Reimbursement(5)(6)(7).. 0.38% -- -- 0.38% -- -- 0.38% 1.59% -- Net Expenses........... 1.05% 1.26% 1.25% 1.90% 1.97% 1.95% 1.90% 1.95% 2.12%
13 These examples are intended to help you compare the cost of investing in the Municipal Bond Funds with the cost of investing in other mutual funds. Examples: An investor would pay the following expenses on a $10,000 investment, assuming (1) the Total Annual Fund Operating Expenses set forth in the table above for the relevant Fund and (2) a 5% annual return throughout the period.
Cumulative Expenses Paid for the Period of: --------------------------------------------------- 1 Year 3 Years 5 Years 10 Years(11) --------- ----------- ----------- -------------- Expenses if you did redeem your shares at the end of the period: Class A NAF Municipal Bond Fund(8)................ $577 $ 870 $1,185 $2,076 SunAmerica Tax Exempt Insured Fund........... 597 856 1,134 1,925 Pro Forma Tax Exempt Insured Combined Fund***................ 596 853 1,129 1,915 Class B NAF Municipal Bond Fund(8)................ $693 $1,076 $1,386 $2,372 SunAmerica Tax Exempt Insured Fund........... 700 918 1,262 2,112 Pro Forma Tax Exempt Insured Combined Fund***................ 698 912 1,252 2,094 Class C/Class II NAF Municipal Bond Fund(8)................ $293 $676 $1,186 $2,586 SunAmerica Tax Exempt Insured Fund(8)........ 396 706 1,142 2,352 Pro Forma Tax Exempt Insured Combined Fund***(9)............. 413 757 1,228 2,527
Cumulative Expenses Paid for the Period of: -------------------------------------------------- 1 Year 3 Years 5 Years 10 Years(11) --------- ---------- ----------- --------------- Expenses if you did not redeem your shares at the end of the period: Class A NAF Municipal Bond Fund(8).................. $ 577 $ 870 $ 1,185 $ 2,076 SunAmerica Tax Exempt Insured Fund............. 597 856 1,134 1,925 Pro Forma Tax Exempt Insured Combined Fund***.................. 596 853 1,129 1,915 Class B NAF Municipal Bond Fund(8).................. $ 193 $ 676 $ 1,186 $ 2,372 SunAmerica Tax Exempt Insured Fund............. 200 618 1,062 2,112 Pro Forma Tax Exempt Insured Combined Fund***.................. 198 612 1,052 2,094 Class C/Class II NAF Municipal Bond Fund(8).................. $ 193 $ 676 $ 1,186 $ 2,586 SunAmerica Tax Exempt Insured Fund(8).......... 296 706 1,142 2,352 Pro Forma Tax Exempt Insured Combined Fund***(10).............. 313 757 1,228 2,527
14 Actual Fee Table for Shareholders of each of the Acquired Funds+ and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table for each of the Combined Funds (each as of March 31, 2001)*
Class A Shares Class B Shares Class C/Class II Shares ------------------------------- ------------------------------- ------------------------------- Actual Pro Forma Actual Pro Forma Actual Pro Forma --------------------- --------- --------------------- --------- --------------------- --------- NAF NAF NAF Strategic SunAmerica Strategic Strategic SunAmerica Strategic Strategic SunAmerica Strategic Income Diversified Combined Income Diversified Combined Income Diversified Combined Fund Income Fund Fund Fund Income Fund Fund Fund Income Fund Fund --------- ----------- --------- --------- ----------- --------- --------- ----------- --------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1).............. 4.75% 4.75% 4.75% None None None None 1.00% 1.00% Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2).............. None None None 5.00% 5.00% 5.00% 1.00% 1.00% 1.00% Maximum Sales Charge (Load) Imposed on Reinvested Dividends... None None None None None None None None None Redemption Fee(3)...... None None None None None None None None None Annual Fund Operating Expenses (as a percentage of average net assets) (expenses that are deducted from Fund assets): Management Fees....... 0.74% 0.65% 0.65% 0.74% 0.65% 0.65% 0.74% 0.65% 0.65% Distribution and/or Service (12b-1) Fees(4)............... 0.35% 0.35% 0.35% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Other Expenses........ 0.86% 0.54% 0.54% 0.86% 0.57% 0.57% 0.86% 0.94% 0.60% Total Annual Fund Operating Expenses Before Expense Reimbursement.......... 1.95% 1.54% 1.54% 2.60% 2.22% 2.22% 2.60% 2.59% 2.25% Expense Reimbursement(5)(6)(7).. 0.38% -- -- 0.38% -- -- 0.38% 0.44% -- Net Expenses........... 1.57% 1.54% 1.54% 2.22% 2.22% 2.22% 2.22% 2.15% 2.25%
15 Actual Fee Table for Shareholders of each of the Acquired Funds+ and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table for each of the Combined Funds (each as of March 31, 2001)*
Institutional Class I/Class I Shares ------------------------------- Actual Pro Forma --------------------- --------- NAF Strategic SunAmerica Strategic Income Diversified Combined Fund Income Fund Fund** --------- ----------- --------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1)..................................... None N/A None Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2)...... None N/A None Maximum Sales Charge (Load) Imposed on Reinvested Dividends.......................... None N/A None Redemption Fee(3)............................. None N/A None Annual Fund Operating Expenses (as a percentage of average net assets) (expenses that are deducted from Fund assets): Management Fees.............................. 0.74% N/A 0.65% Distribution and/or Service (12b-1) Fees(4).. None N/A None Other Expenses............................... 1.11% N/A 1.09% Total Annual Fund Operating Expenses Before Expense Reimbursement......................... 1.85% N/A 1.74% Expense Reimbursement(5)(6)................... 0.38% N/A 0.30% Net Expenses.................................. 1.47% N/A 1.44%
16 These examples are intended to help you compare the cost of investing in the Strategic Income Funds with the cost of investing in other mutual funds. Examples: An investor would pay the following expenses on a $10,000 investment, assuming (1) the Total Annual Fund Operating Expenses set forth in the Table above for the relevant Fund and (2) a 5% annual return throughout the period.
Cumulative Expenses Paid for the Period of: --------------------------------- 3 5 1 Year Years Years 10 Years(11) ------ ------ ------ ------------ Expenses if you did redeem your shares at the end of the period: Class A NAF Strategic Income Fund(8).............. $627 $1,023 $1,444 $2,613 SunAmerica Diversified Income Fund........ 624 938 1,275 2,222 Pro Forma Strategic Combined Fund***...... 624 938 1,275 2,222 Class B NAF Strategic Income Fund(8).............. $725 $1,172 $1,546 $2,748 SunAmerica Diversified Income Fund........ 725 994 1,390 2,383 Pro Forma Strategic Combined Fund***...... 725 994 1,390 2,383 Class C/Class II NAF Strategic Income Fund(8).............. $325 $ 772 $1,346 $2,906 SunAmerica Diversified Income Fund(8)..... 416 766 1,243 2,558 Pro Forma Strategic Combined Fund***(9)... 426 796 1,293 2,659 Institutional Class I/Class I NAF Strategic Income Fund(8).............. $150 $ 545 $ 965 $2,138 Pro Forma Strategic Combined Fund***(8)... 147 456 787 1,724
Cumulative Expenses Paid for the Period of: --------------------------------- 3 5 1 Year Years Years 10 Years(11) ------ ------ ------ ------------ Expenses if you did not redeem your shares at the end of the period: Class A NAF Strategic Income Fund(8).............. $627 $1,023 $1,444 $2,613 SunAmerica Diversified Income Fund........ 624 938 1,275 2,222 Pro Forma Strategic Combined Fund***...... 624 938 1,275 2,222 Class B NAF Strategic Income Fund(8).............. $225 $ 772 $1,346 $2,748 SunAmerica Diversified Income Fund........ 225 694 1,190 2,383 Pro Forma Strategic Combined Fund***(8)... 225 694 1,190 2,383 Class C/Class II NAF Strategic Income Fund(8).............. $225 $ 772 $1,346 $2,906 SunAmerica Diversified Income Fund(8)..... 316 766 1,243 2,558 Pro Forma Strategic Combined Fund***(8)(10)........................... 326 796 1,293 2,659 Institutional Class I/Class I NAF Strategic Income Fund(8).............. $150 $ 545 $ 965 $2,138 Pro Forma Strategic Combined Fund***(8)... 147 456 787 1,724
17 Actual Fee Table for Shareholders of each of the Acquired Funds+ and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table for each of the Combined Funds (as of March 31, 2001)*
Class A Shares Class B Shares Class C/Class II Shares -------------------------------- -------------------------------- -------------------------------- Actual Pro Forma Actual Pro Forma Actual Pro Forma --------------------- ---------- --------------------- ---------- --------------------- ---------- NAF SunAmerica U.S. NAF SunAmerica U.S. NAF SunAmerica U.S. U.S. U.S. Government U.S. U.S. Government U.S. U.S. Government Government Government Securities Government Government Securities Government Government Securities Securities Securities Combined Securities Securities Combined Securities Securities Combined Fund Fund Fund Fund Fund Fund Fund Fund Fund ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1).. 4.75% 4.75% 4.75% None None None None 1.00% 1.00% Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2)........... None None None 5.00% 5.00% 5.00% 1.00% 1.00% 1.00% Maximum Sales Charge (Load) Imposed on Reinvested Dividends........... None None None None None None None None None Redemption Fee(3)... None None None None None None None None None Annual Fund Operating Expenses (as a percentage of average net assets) (expenses that are deducted from Fund assets): Management Fees.... 0.60% 0.75% 0.64% 0.60% 0.75% 0.64% 0.60% 0.75% 0.64% Distribution and/or Service (12b-1) Fees(4)............ 0.35% 0.35% 0.35% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Other Expenses..... 0.59% 0.39% 0.38% 0.59% 0.42% 0.41% 0.59% 1.63% 0.51% Total Annual Fund Operating Expenses Before Expense Reimbursement....... 1.54% 1.49% 1.37% 2.19% 2.17% 2.05% 2.19% 3.38% 2.15% Expense Reimbursement(5)(6).. 0.24% -- 0.05% 0.24% -- 0.05% 0.24% 1.18% 0.10% Net Expenses........ 1.30% 1.49% 1.32% 1.95% 2.17% 2.00% 1.95% 2.20% 2.05%
18 Actual Fee Table for Shareholders of each of the Acquired Funds+ and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table for each of the Combined Funds (as of March 31, 2001)*
Institutional Class I/Class I Shares -------------------------------- Actual Pro Forma --------------------- ---------- NAF SunAmerica U.S. U.S. U.S. Government Government Government Securities Securities Securities Combined Fund Fund Fund** ---------- ---------- ---------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1).................................... None N/A None Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2)..... None N/A None Maximum Sales Charge (Load) Imposed on Reinvested Dividends......................... None N/A None Redemption Fee(3)............................ None N/A None Annual Fund Operating Expenses (as a percentage of average net assets) (expenses that are deducted from Fund assets): Management Fees............................. 0.60% N/A 0.64% Distribution and/or Service (12b-1) Fees(4)..................................... None N/A None Other Expenses.............................. 0.84% N/A 0.63% Total Annual Fund Operating Expenses Before Expense Reimbursement........................ 1.44% N/A 1.27% Expense Reimbursement(5)(6).................. 0.24% N/A 0.05% Net Expenses................................. 1.20% N/A 1.22%
19 These examples are intended to help you compare the cost of investing in the U.S. Government Securities Funds with the cost of investing in other mutual funds. Examples: An investor would pay the following expenses on a $10,000 investment, assuming (1) the Total Annual Fund Operating Expenses set forth in the Table above for the relevant Fund and (2) a 5% annual return throughout the period.
Cumulative Expenses Paid for the Period of: ----------------------------------- 1 Year 3 Years 5 Years 10 Years(11) ------ ------- ------- ------------ Expenses if you did redeem your shares at the end of the period: Class A NAF U.S. Government Securities Fund(8).. $601 $ 916 $1,253 $2,203 SunAmerica U.S. Government Securities Fund................................... 619 933 1,250 2,170 Pro Forma U.S. Government Securities Combined Fund***(8).................... 603 873 1,164 1,990 Class B NAF U.S. Government Securities Fund(8).. $698 $1,062 $1,353 $2,340 SunAmerica U.S. Government Securities Fund................................... 720 979 1,364 2,331 Pro Forma U.S. Government Securities Combined Fund***(8).................... 703 927 1,278 2,152 Class C/Class II NAF U.S. Government Securities Fund(8).. $298 $ 662 $1,153 $2,505 SunAmerica U.S. Government Securities Fund(8)................................ 421 781 1,268 2,609 Pro Forma U.S. Government Securities Combined Fund***(8).................... 406 736 1,192 2,455 Institutional Class I/Class I NAF U.S. Government Securities Fund(8).. $122 $ 432 $ 764 $1,704 Pro Forma U.S. Government Securities Combined Fund***(8).................... 124 387 670 1,477
Cumulative Expenses Paid for the Period of: ----------------------------------- 1 Year 3 Years 5 Years 10 Years(11) ------ ------- ------- ------------ Expenses if you did not redeem your shares at the end of the period: Class A NAF U.S. Government Securities Fund(8).. $601 $916 $1,253 $2,203 SunAmerica U.S. Government Securities Fund................................... 619 933 1,250 2,170 Pro Forma U.S. Government Securities Combined Fund***(8).................... 603 873 1,164 1,990 Class B NAF U.S. Government Securities Fund(8).. $198 $662 $1,153 $2,340 SunAmerica U.S. Government Securities Fund................................... 220 679 1,164 2,331 Pro Forma U.S. Government Securities Combined Fund***(8).................... 203 627 1,078 2,152 Class C/Class II NAF U.S. Government Securities Fund(8).. $198 $662 $1,153 $2,505 SunAmerica U.S. Government Securities Fund(8)................................ 321 781 1,268 2,609 Pro Forma U.S. Government Securities Combined Fund***(8).................... 306 736 1,192 2,455 Institutional Class I/Class I NAF U.S. Government Securities Fund(8).. $122 $432 $ 764 $1,704 Pro Forma U.S. Government Securities Combined Fund***(8).................... 124 387 670 1,477
20 -------- + As reflected in the Acquired Funds Prospectuses. * "Other Expenses," "Total Annual Fund Operating Expenses Before Expense Reimbursement" and "Expense Reimbursement" in connection with the SunAmerica Core Bond Fund and each of the Combined Funds have been estimated. ** Each Combined Fund (except the Tax Exempt Insured Combined Fund) will commence offering Class I shares upon completion of the applicable Reorganization. In addition, the SunAmerica Core Bond Fund and the SunAmerica High Income Fund will commence offering Class Z shares upon completion of their respective Reorganizations. *** Assuming the Reorganization had taken place on March 31, 2001. (1) The front-end sales charge on Class A shares decreases with the size of the purchase to 0% for purchases of $1 million or more. (2) With respect to the Acquired Funds, (i) purchases of Class A shares of $1 million or more are subject to a CDSC of 1.00% on redemptions made within one year of purchase, (ii) the CDSC on Class B shares applies only if shares are redeemed within six years of their purchase in accordance with the Acquired Funds' CDSC schedule set forth under "Proposals Nos. 2(a)- (e): Approval of the Plans," and (iii) the CDSC on Class C shares applies only if shares are redeemed within one year of their purchase. See the Acquired Funds Prospectuses for more information regarding the CDSCs applicable to the Acquired Funds. The CDSC schedules applicable to Class A, Class B and Class C shares of an Acquired Fund will continue to apply to the respective Corresponding Shares received in the applicable Reorganization by shareholders of a Combined Fund who were shareholders of the corresponding Acquired Fund as of the date of the closing of such Reorganization (even if you exchange your shares for shares of another fund distributed by SACS (as defined below). Future purchases of Class A, Class B or Class II shares of a Combined Fund will be subject to the CDSC schedule applicable to the Combined Fund. With respect to the Acquiring Funds (and to future purchases of Class A, Class B or Class II shares of the Combined Funds after the closing of the Reorganizations), (i) purchases of Class A shares of $1 million or more are subject to a CDSC on redemptions made within two years of purchase (1.00% on shares sold within one year of purchase and 0.50% on shares sold after the first year and within the second year after purchase), (ii) the CDSC on Class B shares applies only if shares are redeemed within six years of their purchase in accordance with the Acquiring Funds' CDSC schedule set forth under "Proposals Nos. 2(a)-(d): Approval of the Plans," and (iii) the CDSC on Class II shares applies only if shares are redeemed within eighteen months of their purchase. See the Acquiring Funds Prospectus for more information about the CDSCs applicable to the Acquiring Funds and the Combined Funds. (3) In the case of the Acquiring Funds (and hence the Combined Funds) a $15.00 fee may be imposed on wire and overnight mail redemptions. (4) Because these fees are paid out of a Fund's assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. (5) With respect to each Acquired Fund, amounts reflect AGAM's contractual obligation to waive, and to the extent necessary, reimburse certain fees and expenses of such Acquired Fund through February 28, 2002. If shareholders do not approve the Reorganizations, there is no assurance AGAM would continue to provide such fee reductions and expense reimbursements past such date. ( 6) With respect to certain classes of shares of the Acquiring Funds and the Combined Funds, the SunAmerica Board, including a majority of the Trustees who are not "interested persons" (within the meaning of Section 2(a)(19) of the Investment Company Act) of SunAmerica Income Funds (the "SunAmerica Independent Trustees"), approved the Acquiring Funds' and the Combined Funds' Investment Advisory and Management Agreement with SAAMCo subject to the net expense ratios set forth above. SunAmerica may not increase such ratios, which are contractually required by agreement with the SunAmerica Board, without the approval of the SunAmerica Board, including a majority of the SunAmerica Independent 21 Trustees. The expense waivers and fee reimbursements will continue indefinitely, subject to termination by the SunAmerica Board, including a majority of the SunAmerica Independent Trustees. (7) SAAMCo is voluntarily waiving fees and/or reimbursing expenses so that the total net expense ratios for Class II shares of the following Combined Funds do not exceed the amounts set forth below: High Yield Bond Combined Fund........................................ 2.18% Tax Exempt Insured Combined Fund..................................... 1.95% Strategic Combined Fund.............................................. 2.22%
These waivers and reimbursements will continue indefinitely, but may be terminated at any time. (8) Expenses used for the example include fee waivers and expense reimbursements described in footnotes (5) and/or (6) above under "--Fee Tables." (9) SAAMCo is voluntarily waiving fees and/or reimbursing expenses for Class II shares of the following Combined Funds. However, this fee waiver and/or expense reimbursement is not reflected in the example above. These waivers and reimbursements will continue indefinitely, but may be terminated at any time. The following are your costs after these fee waivers and/or expense reimbursements:
1 year 3 years 5 years 10 years ------ ------- ------- -------- High Yield Bond Combined Fund.............. 418 775 1,258 2,588 Tax Exempt Insured Combined Fund........... 396 706 1,142 2,352 Strategic Combined Fund.................... 423 787 1,278 2,629
(10) SAAMCo is voluntarily waiving fees and/or reimbursing expenses for Class II shares of the following Acquiring Funds. However, this fee waiver and/or expense reimbursement is not reflected in the example above. These waivers and reimbursements will continue indefinitely, but may be terminated at any time. The following are your costs after these fee waivers and/or expense reimbursements:
1 year 3 years 5 years 10 years ------ ------- ------- -------- High Yield Bond Combined Fund.............. 318 775 1,258 2,588 Tax Exempt Insured Combined Fund........... 296 706 1,142 2,352 Strategic Combined Fund.................... 323 787 1,278 2,629
(11) Class B shares generally convert to Class A shares approximately eight years after purchase. Therefore, expense information for years 9 and 10 is the same for both Class A and Class B shares. ------- The foregoing Fee Table is intended to assist investors in understanding the costs and expenses that a shareholder bears directly or indirectly as compared to the costs and expenses that would be borne by such investors on a pro forma basis taking into account the consummation of the Reorganizations. All pro forma amounts are based on what the estimated expenses of the Pro Forma Combined Fund would be assuming the Reorganizations were completed on March 31, 2001. The Examples set forth above assume reinvestment of all dividends and distributions and utilize a 5% annual rate of return as mandated by Commission regulations. The Examples should not be considered a representation of past or future expenses or annual rates of return, and actual expenses or annual rates of return may be more or less than those assumed for purposes of the Examples. See "Proposals Nos. 2(a)-(e): Approval of the Plans." 22 THE FUNDS Business of the Acquired Funds Each Acquired Fund is a separate investment portfolio or series of North American Funds, a Massachusetts business trust, which was established on September 28, 1988 pursuant to its Declaration of Trust. Business of the Acquiring Funds Each Acquiring Fund is a separate investment portfolio or series of SunAmerica Income Funds, a Massachusetts business trust, which was established on April 24, 1986 pursuant to its Declaration of Trust. The SunAmerica Core Bond Fund is newly created and has not yet commenced operations. Comparison of the Funds A discussion of the investment objectives and principal investment policies of the Funds is set forth below. Those objectives and policies that are identified as fundamental may not be changed without shareholder approval. Each of the Funds is diversified. As a condition to the Reorganizations involving the High Yield Bond Funds and the Strategic Income Funds, the respective Acquiring Funds must obtain shareholder approval to change the investment objective of the respective Acquiring Fund to resemble more closely that of the Acquired Fund. Accordingly, the comparisons of these Funds assumes that shareholders of the Acquiring Funds have approved the necessary changes and reflects a comparison of the Acquired Fund and the respective Combined Fund. The investment objective of each Acquiring Fund (except the SunAmerica Core Bond Fund) is fundamental. Shareholders of the SunAmerica Diversified Income Fund, SunAmerica High Income Fund and SunAmerica Tax Exempt Insured Fund are currently being asked to vote on a proposal to make their respective investment objectives non-fundamental. The investment objective of each Acquired Fund is fundamental except for the NAF High Yield Bond Fund. The main differences in the principal investment strategies of the Funds, each of which is discussed in more detail below, are as follows: With respect to the Core Bond Funds, . that the NAF Core Bond Fund may invest up to 35% of its assets in foreign securities pursuant to a non-fundamental investment restriction, while the SunAmerica Core Bond Fund is not similarly restricted. With respect to the Municipal Bond Funds, . that the SunAmerica Tax Exempt Insured Fund will invest, under normal market conditions, at least 65% of its total assets in municipal bonds that, in addition to having income exempt from federal income tax, are insured as to the scheduled payment of principal and interest for as long as such bonds are held by the Fund, without regard to the maturities of such securities, while the NAF Municipal Bond Fund is not similarly restricted. Core Bond Funds Investment Objectives The investment objective of the NAF Core Bond Fund is to provide a high level of current income consistent with the maintenance of principal and liquidity. The SunAmerica Core Bond Fund has the same investment objective as the NAF Core Bond Fund. 23 Investment Policies Strategies. Each of the Core Bond Funds pursues or will pursue its respective investment objective by investing primarily in a combination of fixed-income securities, including in securities issued or guaranteed by the U.S. Government, mortgage-backed or asset-backed securities and U.S. dollar- denominated fixed-income securities issued by foreign issuers. Foreign Securities. The NAF Core Bond Fund may invest up to 35% of its assets in foreign securities pursuant to a non-fundamental investment restriction. The SunAmerica Core Bond Fund is not similarly restricted. High Yield Bond Funds Investment Objectives The investment objective of the NAF High Yield Bond Fund is to seek the highest possible total return consistent with conservation of capital. The investment objective of the High Yield Combined Fund will be to seek a high level of total return. These objectives are substantially similar. Investment Policies Strategies. Both High Yield Bond Funds pursue their respective investment objectives by investing primarily in high-yield, high-risk corporate bonds (commonly referred to as junk bonds), generally with relatively low duration. The SunAmerica High Income Fund currently pursues its investment objective by investing, under normal market conditions, at least 65% of its assets in bonds as described in the Acquiring Funds Prospectus. Beginning on July 31, 2002, the Fund will adopt a policy of investing, under normal market conditions, at least 80% of its assets in such securities. For purposes of this policy, bonds include fixed-income securities other than short-term commercial paper and preferred stock. High Yield Bonds. High-yield bonds are those rated below investment grade-- rated below "Baa" by Moody's Investors Service, Inc. ("Moodys") or below "BBB" by Standard & Poor's Corporation ("S&P"), or, if unrated, determined to be of equivalent quality by the subadviser. Municipal Bond Funds Investment Objectives The investment objective of the NAF Municipal Bond Fund is to achieve a high level of current income that is exempt from regular federal income taxes. The NAF Municipal Bond Fund is also particularly concerned with preserving capital. The investment objective of the SunAmerica Tax Exempt Insured Fund is to seek as high a level of current income exempt from federal income taxes as is consistent with preservation of capital. Accordingly, the investment objectives of the NAF Municipal Bond Fund and the Tax Exempt Insured Fund are substantially similar. Investment Policies Strategies. The NAF Municipal Bond Fund and the SunAmerica Tax Exempt Insured Fund each invests in a portfolio comprised primarily of municipal fixed income securities exempt from federal income taxes. Specifically, the NAF Municipal Bond Fund invests at least 80% of total assets in investment grade municipal fixed-income securities, such as municipal bonds, municipal notes and other municipal obligations. The SunAmerica Tax Exempt Insured Fund will invest, under normal market conditions, at least 80% of its total assets in municipal bonds, the income of which is exempt from federal income taxes, and at least 65% of its total assets in municipal bonds that, in addition to having income exempt from federal income tax, are insured as to the scheduled payment of principal and interest for as long as such bonds are held by the Fund, without regard to the maturities of such securities. The NAF Municipal Bond Fund is not similarly restricted. 24 Strategic Funds Investment Objectives The investment objective of the NAF Strategic Income Fund is to seek a high level of total return consistent with preservation of capital. The investment objective of the Strategic Combined Fund will be to seek a high level of total return. These objectives are substantially similar. Investment Policies Strategies. Both Strategic Income Funds pursue their respective investment objectives by investing primarily in a broad range of fixed-income securities, including investment grade bonds, U.S. Government and agency obligations, mortgage-backed securities, and U.S. and foreign high-risk, high-yield bonds. The SunAmerica Diversified Income Fund currently pursues its investment objective by investing, under normal market conditions, at least 65% of its assets in bonds as described in the Acquiring Funds Prospectus. Beginning on July 31, 2002, the Fund will adopt a policy of investing, under normal market conditions, at least 80% of its assets in such securities. For purposes of this policy, bonds include fixed-income securities other than short-term commercial paper and preferred stock. U.S. Government Securities Funds Investment Objectives The investment objective of the NAF U.S. Government Securities Fund is to obtain a high level of current income consistent with preservation of capital and maintenance of liquidity. The investment objective of the SunAmerica U.S. Government Securities Fund is high current income consistent with relative safety of capital. Accordingly, the investment objective of the two Funds are substantially similar. Investment Policies Strategies. The NAF U.S. Government Securities Fund and the SunAmerica U.S. Government Securities Fund each invests in a portfolio comprised primarily of securities issued by the U.S. Government, or any agency or instrumentality thereof. All Funds Principal Risk Factors For a discussion of the principal risks of investing in each Fund, see "Principal Risk Factors and Special Considerations." Trustees and Officers Each of North American Funds and SunAmerica Income Funds is governed by a Board of Trustees that meets regularly to review its respective Funds' investments, performance, expenses, and other business affairs. Each Board of Trustees elects its respective Funds' officers. Management Arrangements Comparison of Management and Administrative Arrangements and Fees. AGAM serves as the investment adviser for the Acquired Funds and SAAMCo serves as the investment adviser for the Acquiring Funds. Each of AGAM and SAAMCo is responsible for the management of the investment portfolio of each Acquired Fund and Acquiring Fund, respectively, and for providing certain administrative services to such Fund. See "Proposals Nos. 2(a)-(e): Approval of the Plans-- Comparison of Management and Administrative Arrangements and Fees" for more detailed information regarding the advisory arrangements of the Funds. 25 The table below sets forth the fees, as a percentage of average daily net assets, payable by each Acquired Fund and each Acquiring Fund to AGAM and SAAMCo, respectively, for their respective management and administrative services:
Advisory Fee: ---------------------------------------------------------------------------- Between Between Between Between $50 Million $200 Million $350 Million $400 Million Excess First and and and and over Acquired Fund $50 Million $200 Million $350 Million $400 Million $500 Million $500 Million ------------- ----------- ------------ ------------ ------------ ------------ ------------ NAF Core Bond Fund...... 0.600% 0.600% 0.525% 0.525% 0.525% 0.475% SunAmerica Core Bond Fund................... 0.600% 0.600% 0.525% 0.525% 0.525% 0.475% NAF High Yield Bond Fund................... 0.825% 0.825% 0.725% 0.725% 0.725% 0.675% SunAmerica High Income Fund................... 0.750% 0.750% 0.720% 0.720% 0.550% 0.550% NAF Municipal Bond Fund................... 0.600% 0.600% 0.600% 0.600% 0.600% 0.600% SunAmerica Tax Exempt Insured Fund........... 0.500% 0.500% 0.500% 0.450% 0.450% 0.450% NAF Strategic Income Fund................... 0.750% 0.700% 0.650% 0.650% 0.650% 0.600% SunAmerica Diversified Income Fund............ 0.650% 0.650% 0.650% 0.600% 0.600% 0.600% NAF U.S. Government Securities Fund........ 0.600% 0.600% 0.525% 0.525% 0.525% 0.475% SunAmerica U.S. Government Securities Fund................... 0.650% 0.650% 0.620% 0.620% 0.550% 0.550%
The schedule of fees payable by SunAmerica U.S. Government Securities Fund set out above will become effective on November 9, 2001 if the shareholders in the Fund approve the U.S. Government Securities Funds Reorganization. SunAmerica Core Bond Fund is a newly created investment portfolio and will commence operations upon consummation of the respective Reorganization. The advisory fee rate payable by each Combined Fund after consummation of the Reorganizations will be the same as the advisory fee rates currently paid by the Acquiring Funds. After the Reorganizations, the net assets of each Combined Fund will increase by the amount of the net assets of the respective Acquired Fund. With respect to the High Yield Bond Combined Fund, this increase in net assets may cause a lower advisory fee rate to apply in accordance with the break point schedule referenced above. The table below sets forth the pro forma effective fee rate of each Combined Fund as of March 31, 2001, as a percentage of average daily net assets, assuming the Reorganizations had been completed as of such date:
Pro Forma Effective Advisory Fee Combined Fund: Rate: -------------- ------------ Core Bond Combined Fund...................................... 0.60% High Yield Bond Combined Fund................................ 0.75% Tax Exempt Insured Combined Fund............................. 0.50% Strategic Combined Fund...................................... 0.65% U.S. Government Securities Combined Fund..................... 0.64%
The Core Bond Combined Fund will pay advisory fees at the same annual rate as the NAF Core Bond Fund. The High Yield Bond, Tax Exempt Insured and Strategic Combined Funds will pay advisory fees at a lower annual rate than the respective Acquired Fund. The U.S. Government Securities Combined Fund will pay advisory fees at a higher annual rate than the respective Acquired Fund. Investment Advisory Agreements. The investment advisory agreement between SunAmerica Income Funds on behalf of the Acquiring Funds and SAAMCo (the "SunAmerica Investment Advisory Agreement") is 26 similar to both the New and Previous Investment Advisory Agreements applicable to the Acquired Funds (collectively, the "NAF Investment Advisory Agreement"), except for certain matters including the advisory fees, the effective dates, and the identity of the adviser. See "Proposals Nos. 2(a)-(e): Approval of the Plans" for further discussion regarding these agreements. Subadvisory Arrangements. New AGIM currently serves as subadviser to each of the Acquired Funds. After the Core Bond Funds, High Yield Bond Funds, Municipal Bond Funds, and the Strategic Income Funds Reorganizations, and subject to approval of shareholders of the respective Acquiring Fund (as necessary) New AGIM will serve as the subadviser to these Funds pursuant to a new subadvisory agreement with SAAMCo (the "SunAmerica Subadvisory Agreement"). The SunAmerica Subadvisory Agreement is similar to both the New and Previous Subadvisory Agreements applicable to the respective Acquired Funds (collectively, the "NAF Subadvisory Agreement"), except for certain matters including the effective dates and the identity of the investment adviser. Distribution and Shareholder Servicing Arrangements Distributor. American General Funds Distributors, Inc. ("AGFD" or the "NAF Distributor"), an affiliate of AGAM, acts as the distributor of the shares of the Acquired Funds. SunAmerica Capital Services, Inc. ("SACS" or the "SunAmerica Distributor"), an affiliate of SAAMCo, acts as the distributor of the shares of the Acquiring Funds. See "Proposals Nos. 2(a)-(e): Approval of the Plans" for additional information regarding the Funds' distribution arrangements. Shareholder Servicing Fees for Class I. AGAM provides certain recordkeeping and shareholder services to retirement and employee benefit plans and certain asset allocation funds of North American Funds that invest in Institutional Class I shares of the Acquired Funds. SACS will provide these services after the Reorganization with respect to Class I shares of the Combined Funds. See "Proposals Nos. 2(a)-(e): Approval of the Plans" for additional information regarding these services. Other Service Agreements with Affiliates SunAmerica Fund Services, Inc. ("SAFS"), an affiliate of SAAMCo, acts as a servicing agent assisting State Street Bank and Trust Company ("State Street"), the transfer agent and custodian of the Acquiring Funds, in connection with certain services offered to the shareholders of the Acquiring Funds. See "Proposals Nos. 2(a)-(e): Approval of the Plans" for additional information regarding these service agreements. Other Shares. As with all mutual funds, investors purchase shares when they invest in the Funds. Share certificates are not generally issued. Each full share and fractional share entitles the shareholder to receive a proportional interest in the respective Fund's capital gain distributions and cast one vote per share, with fractional shares voting proportionally, on certain Fund matters, including the election of trustees, changes in fundamental policies, or approval of changes in investment advisory agreements. 27 Class Structure. The following chart illustrates the classes of shares currently offered by the Acquired Funds and the Acquiring Funds as well as the classes of shares to be offered by the Combined Funds after consummation of the respective Reorganizations:
Fund: Classes Offered: ----- ------------------------------------------ NAF Core Bond Fund A, B, C, Institutional I, Institutional II SunAmerica Core Bond Fund* A, B, II, I, Z Core Bond Combined Fund A, B, II, I, Z NAF High Yield Bond Fund A, B, C, Institutional I, Institutional II SunAmerica High Income Fund A, B, II High Yield Bond Combined Fund A, B, II, I, Z NAF Municipal Bond Fund A, B, C SunAmerica Tax Exempt Insured Fund A, B, II Tax Exempt Insured Combined Fund A, B, II NAF Strategic Income Fund A, B, C, Institutional I SunAmerica Diversified Income Fund A, B, II Strategic Combined Fund A, B, II, I NAF U.S. Government Securities Fund A, B, C, Institutional I SunAmerica U.S. Government Securities Fund A, B, II U.S. Government Securities Combined Fund A, B, II, I
* The SunAmerica Core Bond Fund has not yet commenced operations and therefore has not yet issued shares of any class. Purchase of Shares. The procedures for purchasing shares are similar, but not identical, for all Funds. See "Proposals Nos. 2(a)-(e): Approval of the Plans--Purchase, Exchange and Redemption of Shares" below, "Investing in the North American Funds" in the Acquired Funds Prospectuses and "Shareholder Account Information" in the Acquiring Funds Prospectus. Redemption of Shares. The procedures for redeeming shares are similar, but not identical, for all Funds. See "Comparison of the Funds--Purchase, Exchange and Redemption of Shares" below, "Investing in the North American Funds" in the Acquired Funds Prospectuses and "Shareholder Account Information" in the Acquiring Funds Prospectus. Exchanges of Shares. The procedures for exchanging shares are similar, but not identical, for all Funds. See "Comparison of the Funds" below, "Account Services" and "Section III: Investing in the North American Funds Institutional Classes of Shares" in the Acquired Funds Prospectuses and "Transaction Policies" in the Acquiring Funds Prospectus. Dividends. The Funds currently have the same policies with respect to dividends. See "Proposals Nos. 2(a)-(e): Approval of the Plans--Dividends" below, "Pricing of Shares" and "Dividends and Distributions from North American Funds" in the Acquired Funds Prospectuses and "Dividend Distribution and Account Policies" in the Acquiring Funds Prospectus. Net Asset Value. The price at which each Fund's shares are purchased or redeemed is the Fund's next determined net asset value per share after receipt of the purchase or redemption order. The net asset value per share is calculated once daily as of the close of regular trading on the New York Stock Exchange ("NYSE") (currently 4:00 p.m., Eastern Time). For further discussion on net asset value and how it is determined, see "Proposals Nos. 2(a)-(e): Approval of the Plans--Valuation of Fund Shares" below, "Pricing of Fund Shares" in the Acquired Funds Prospectuses and "Transaction Policies" in the Acquiring Funds Prospectus. 28 Tax Considerations. The tax consequences associated with an investment in shares of an Acquired Fund are substantially the same as the tax consequences associated with an investment in shares of the respective Acquiring Fund. See "Taxes" in the Acquired Funds Prospectuses and "Dividend, Distribution and Account Policies" in the Acquiring Funds Prospectuses. Each Reorganization has been structured with the intention that it qualify for Federal income tax purposes as a tax-free reorganization under the Code. This means that, in the opinion of counsel, no gain or loss will be recognized by a shareholder of an Acquired Fund for Federal income tax purposes as a result of a Reorganization. For a more detailed discussion regarding potential tax consequences of the Reorganizations, see "Proposals Nos. 2(a)-(e): Approval of the Plans." 29 PRINCIPAL RISK FACTORS AND SPECIAL CONSIDERATIONS PRINCIPAL RISKS OF INVESTING IN THE FUNDS Many of the investment risks associated with an investment in an Acquired Fund are substantially the same as those associated with an investment in the respective Acquiring Fund. A discussion of the principal risks of investing in the Funds is set forth below. See the Acquired Funds Prospectuses, the Acquiring Funds Prospectus, the Acquired Funds Statement and the Acquiring Funds Statement for more detailed discussions of investment risks associated with an investment in the Funds. There is no guarantee that the investment objective of a Fund will be achieved or that the value of a shareholder's investment in the Fund will not decrease. As a condition to the Reorganizations involving the High Yield Bond Funds and the Strategic Income Funds, the respective Acquiring Funds must obtain shareholder approval to change the investment objective of the respective Acquiring Fund to conform more closely to that of the Acquired Fund. Accordingly, the comparisons of the risks of investing in these Funds assumes that shareholders of the Acquiring Funds have approved the necessary changes and reflects a comparison of the Acquired Fund and the respective Combined Fund. The principal risks of the Funds are substantially similar. All Funds Bond Market Volatility As with any bond fund, each Fund is subject to the risk that bond markets as a whole could go up or down (sometimes dramatically). This could affect the value of the securities in a Fund's portfolio. Credit Quality Risk Each Fund is subject to credit quality risk, which is the risk that the issuers in which the Funds invest, or with which it does business, will fail financially or otherwise fail to honor their financial obligations. This risk is heightened for the High Yield Bond Funds, which invest primarily in lower quality bonds. Interest Rate Fluctuations Volatility in the bond market is due principally to changes in interest rates. As interest rates rise, bond prices typically fall; and as interest rates fall, bond prices typically rise. Longer-term and lower coupon bonds tend to be more sensitive to changes in interest rates. Each Fund is susceptible to this risk. Securities Selection Risk Each Fund is subject to the risk that a strategy used by a Fund, or securities selected by its portfolio manager, may fail to produce the intended return. Core Bond Funds Prepayment Risk The Funds are subject to the risk that the principal of the loans underlying mortgage-backed or other asset-backed securities may be prepaid at any time. As a general rule, prepayments increase during a period of falling interest rates and decrease during a period of rising interest rates. As a result of prepayments, in periods of declining interest rates a Fund may be required to reinvest its assets in securities with lower interest rates. In periods of increasing interest rates, prepayments generally may decline, with the effect that the securities subject to prepayment risk held by the Fund may exhibit price characteristics of longer-term debt securities. 30 Strategic Income Funds Foreign Investment Risk Each Fund is subject to the risk that the value of the Fund's foreign investments will decline as a result of foreign political, social or economic changes. Furthermore, there may be less publicly available information about a foreign company and it may not be subject to the same uniform accounting, auditing and financial reporting standards as U.S. companies. Foreign governments may not regulate securities markets and companies to the same degree as the U.S. government. Consequently, foreign securities may be less liquid, more volatile and more difficult to price than U.S. securities. These risks are heightened when the issuer is in an emerging market. In addition, a principal risk is that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. Strategic Income Funds and High Yield Bond Funds Junk Bond Risk The Strategic Income Funds may, and the High Yield Bond Funds will, invest in "junk bonds," which are considered speculative. Junk bonds carry a substantial risk of default or may already be in default. The market price for junk bonds may fluctuate more than higher-quality securities and may decline significantly, and it may be more difficult for a Fund to dispose of junk bonds or to determine their value. Junk bonds may contain redemption or call provisions that, if exercised during a period of declining interest rates, may force a Fund to replace the security with a lower yielding security, which could decrease the return on such Fund. 31 PROPOSALS NOS. 1(a)-(b): APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT AND THE NEW SUBADVISORY AGREEMENT THE AIG MERGER AND THE NEW INVESTMENT ADVISORY AND SUBADVISORY AGREEMENTS Board Considerations On August 29, 2001, AIG acquired American General in the AIG Merger. As a result of the AIG Merger, AGAM and AGIM each became a subsidiary of AIG. As required by the Investment Company Act, the Previous Investment Advisory Agreement and Previous Subadvisory Agreement (collectively, the "Previous Agreements") provided for automatic termination upon "assignment." Under the Investment Company Act, a change of control of an investment adviser (or subadviser) constitutes an "assignment." The consummation of the AIG Merger resulted in the assignment of the Previous Agreements and their automatic termination. Therefore, as described below, shareholders are being asked to approve the New Agreements. At a meeting held on July 16-17, 2001, the NAF Board, including all of the NAF Independent Trustees, unanimously approved an interim investment advisory agreement (the "Interim Investment Advisory Agreement") between AGAM and North American Funds with respect to the Acquired Funds and an interim subadvisory agreement (the "Interim Subadvisory Agreement" and, together with the Interim Investment Advisory Agreement, the "Interim Agreements") between AGAM and New AGIM, an affiliate of AGIM, with respect to the Acquired Funds pursuant to Rule 15a-4 under the Investment Company Act. This allowed AGAM and New AGIM to continue to serve as investment adviser and subadviser, respectively, for the Acquired Funds after the AIG Merger. This Rule allows, under certain circumstances, interim advisory agreements to take effect, and to remain in effect for up to 150 days, without receiving prior shareholder approval, as long as the fees payable under such agreement do not exceed the fees payable under the predecessor agreement that had been approved by the shareholders and certain other contractual provisions are included in the interim agreement. The Interim Agreements require all fees earned by AGAM and New AGIM to be escrowed pending shareholder approval of the New Agreements. If the New Agreements are not approved, AGAM and New AGIM will be entitled to receive from escrow the lesser of any costs incurred in performing the Interim Agreements (plus interest earned on the amount while in escrow), and the total amount in the escrow account (plus interest earned). The Interim Agreements will terminate on the earlier of the effective date of the New Agreements or 150 days after the completion of the AIG Merger. Pursuant to the terms of the Interim Investment Advisory Agreement, AGAM is responsible for the management of the investment portfolio of each Acquired Fund and for providing certain administrative services to each Acquired Fund. Pursuant to the terms of the Interim Subadvisory Agreement, New AGIM is responsible for managing the investment and reinvestment of the assets of each Acquired Fund, subject to the supervision of the NAF Board. The terms of the Interim Investment Advisory Agreement and Interim Subadvisory Agreement are similar in all material respects as those of the Previous Investment Advisory Agreement and Previous Subadvisory Agreement, respectively. The Interim Agreements differ from the Previous Agreements only with respect to the effective date, the term, and the escrow provisions relating to fees (as described above). Under the Investment Company Act, however, AGAM and New AGIM may continue to serve as the investment adviser or subadviser for each Acquired Fund beyond an interim period of 150 days only if shareholders of such Acquired Fund approve a new investment advisory agreement with AGAM and subadvisory agreement with New AGIM. Consequently, the NAF Board unanimously approved, and recommended shareholder approval of, the New Agreements on July 16-17, 2001. The New Agreements, if approved by shareholders, would take effect immediately upon such approval. The terms of each New Agreement, including advisory fees, are the same in all material respects as those of the respective Previous Agreement. Each New Agreement differs from the respective Previous 32 Agreement only with respect to its effective date. See "--Description of the New Investment Advisory Agreement" below for a description of the New Investment Advisory Agreement and the services to be provided by AGAM thereunder and "--Description of New Subadvisory Agreement" below for a description of the New Subadvisory Agreement and the services to be provided by New AGIM thereunder. In connection with its approval of the New Agreements, the NAF Board received a presentation from representatives of AIG and SAAMCo, as well as from AGAM. The NAF Board considered that the AIG Merger did not involve any changes in the overall form of the advisory or subadvisory contracts, the advisory fees, or any of the Acquired Funds' objectives or policies. The NAF Board also considered that AGAM and SAAMCo had indicated that while they intended to propose the Reorganizations to the NAF Board at a subsequent meeting, until such Reorganizations were approved and consummated, SAAMCo and AIG represented there would be no material change in the nature and quality of services provided by AGAM or New AGIM. As part of their deliberations, the NAF Board also took into account the following, among other factors: the nature and quality of the services provided or reasonably anticipated to be provided and the results achieved or reasonably anticipated to be achieved by AGAM and/or New AGIM; the amount and structure of investment advisers' fees generally and the fees payable under the New Agreements; the financial strength of AIG; the management, personnel and operations of AIG and SAAMCo; the commitment of AIG to the financial services industry; and the structure of the AIG Merger. In addition, the NAF Board considered the fact that at some point after consummation of the AIG Merger, the operations of AGIM might be consolidated with those of another affiliate within the AIG group of companies to eliminate duplication and attempt to create economies of scale within the organization. The NAF Board was assured that any such internal reorganization would not result in a change in the personnel responsible for providing services to the Acquired Funds or in the nature or quality of those services. Accordingly, the NAF Board approved each of the Interim Subadvisory Agreement and the New Subadvisory Agreement with New AGIM. Section 15(f) of the Investment Company Act provides that an investment adviser (such as AGAM or New AGIM) to a registered investment company, and the affiliates of such adviser, may receive any amount or benefit in connection with a sale of any interest in such investment adviser which results in an assignment of an investment advisory contract if the following two conditions are satisfied: (1) for a period of three years after such assignment, at least 75% of the board of directors of the investment company are not "interested persons" (within the meaning of Section 2(a)(19) of the Investment Company Act) of the new investment adviser or its predecessor; and (2) no "unfair burden" (as defined in the Investment Company Act) may be imposed on the investment company as a result of the assignment or any express or implied terms, conditions or understandings applicable thereto. Consistent with the first condition of Section 15(f), AIG advised the NAF Board that for a period of three years after the AIG Merger, it will not take or recommend any action that would cause more than 25% of the NAF Board (or SunAmerica Board) to be interested persons of SAAMCo, AGAM or New AGIM. With respect to the second condition of Section 15(f), an "unfair burden" on an investment company is defined in the Investment Company Act to include any arrangement during the two-year period after any such transaction occurs whereby the investment adviser or its predecessor or successor, or any interested person of such adviser, predecessor or successor, receives or is entitled to receive any compensation of two types, either directly or indirectly. The first type is compensation from any person in connection with the purchase or sale of securities or other property to, from or on behalf of the investment company, other than bona fide ordinary compensation as principal underwriter for such company. The second type is compensation from the investment company or its security holders for other than bona fide investment advisory or other services. AIG advised the NAF Board that it will not take or recommend any action that would constitute an unfair burden on North American Funds (or the Acquiring Funds) within the meaning of Section 15(f). 33 PROPOSAL NO. 1(a) NEW INVESTMENT ADVISORY AGREEMENT Description of the New Investment Advisory Agreement As a proposal separate from the proposal to approve a Reorganization, shareholders of each Acquired Fund are being asked to approve the New Investment Advisory Agreement with AGAM to cover the period subsequent to the shareholder approval and prior to consummation of the Reorganization (which is currently anticipated to occur during the fourth calendar quarter of 2001). If this proposal is approved by the shareholders of an Acquired Fund, but a Reorganization is not approved, AGAM will continue to serve as that Acquired Fund's adviser under the New Investment Advisory Agreement. The terms of the New Investment Advisory Agreement are the same in all material respects as those of the Previous Investment Advisory Agreement. The New Investment Advisory Agreement differs from the Previous Investment Advisory Agreement only with respect to the effective date. The Previous Investment Advisory Agreement is dated June 1, 2000 and was last approved by the shareholders of the Acquired Funds at a meeting held on the same date in connection with its initial approval. A description of the New Investment Advisory Agreement and the services to be provided by AGAM is set forth below. This description is qualified in its entirety by reference to the form of the New Investment Advisory Agreement attached to this Proxy Statement and Prospectus as Exhibit IA. As compensation for its services under the New Investment Advisory Agreement, the Acquired Funds will pay to AGAM the same fee, as a percentage of average daily net assets, that was payable to AGAM under the Previous Investment Advisory Agreement. Such fee will be payable monthly and accrued daily. See "Summary--Management Arrangements" for a description of the Fee payable to AGAM under the Previous Investment Advisory Agreement. AGAM has agreed, until February 28, 2002, to reduce fees payable to it by, or reimburse expenses to, the Acquired Funds. See "Summary--Fee Tables" or "Proposals Nos. 2(a)-(e): Approval of the Plans--NAF Board Considerations: Potential Benefits to Shareholders as a Result of the Reorganizations." For the fiscal year ended October 31, 2000, North American Funds paid total advisory fees to AGAM of $7,339,733. Of such amount, $663,440, $170,074, $76,875, $322,001 and $300,110 were attributable to the NAF Core Bond Fund, the NAF High Yield Bond Fund (for the period from July 7, 2000 to October 31, 2000), the NAF Municipal Bond Fund, the NAF Strategic Income Fund and the NAF U.S. Government Securities Fund, respectively. From November 1, 1999 to July 7, 2000, The Variable Annuity Life Insurance Company ("VALIC"), an affiliate of AGAM, served as investment adviser to the NAF High Yield Bond Fund. During this period, North American Funds paid total advisory fees to VALIC of $540,574. Of such amount, $310,091 was attributable to the NAF High Yield Bond Fund. These amounts do not reflect certain fee waivers and expense reimbursements for which the Acquired Funds were reimbursed. The Board of Trustees of North American Funds unanimously recommends that the shareholders of each Acquired Fund approve the New Investment Advisory Agreement. Shareholders of each Acquired Fund vote separately on the approval of the New Investment Advisory Agreement. Approval of the New Investment Advisory Agreement by one Acquired Fund is not contingent upon approval of the New Investment Advisory Agreement by any other Acquired Fund. If the New Investment Advisory Agreement is not approved by shareholders of an Acquired Fund, the NAF Board will determine the appropriate actions in the best interests of shareholders to be taken with respect to such Acquired Fund's advisory arrangements at that time. 34 Additional Information About AGAM General CypressTree Investments, Inc. ("CypressTree") and its affiliates were formed in 1996 to acquire, advise and distribute mutual funds through broker-dealers and other intermediaries. CypressTree Asset Management Corporation, Inc. ("CAM") was CypressTree's wholly owned advisory subsidiary and CypressTree Funds Distributors, Inc. ("CFD") was CypressTree's wholly owned distribution subsidiary. On March 10, 2000, CypressTree sold substantially all of its assets, including all of the stock of CAM and CFD, to American General. Thereafter, CAM was renamed American General Asset Management Corp. and CFD was renamed American General Funds Distributors, Inc. Pursuant to the Previous Advisory Agreement, AGAM oversaw the administration of all aspects of the business and affairs of the Acquired Funds, and selected, contracted with and compensated subadvisers to manage the assets of the Acquired Funds. AGAM has continued to perform these functions under the Interim Investment Advisory agreement since the completion of the AIG Merger. AGAM is located at 286 Congress Street, Boston, Massachusetts 02210. Prior to the AIG Merger, AGAM and AGIM were wholly owned by American General, which is located at 2929 Allen Parkway, Houston, Texas 77019. As a result of the AIG Merger, American General is wholly owned by AIG. The principal address of AIG is 70 Pine Street, New York, New York 10270. The directors and principal executive officer of AGAM, if any, their business addresses, position(s) with AGAM and a description of their principal occupations are set forth below.
Name and Address Position with AGAM and Principal Occupation(s) ---------------- ---------------------------------------------- John A. Graf ...... Senior Vice Chairman, Asset Accumulation, American 2929 Allen Parkway General. Houston, TX 77019 Kent E. Barrett ... Director and Treasurer; Senior Vice President and General 2929 Allen Parkway Auditor, American General Houston, TX 77019
In addition, the following officers of North American Funds also are employees of AGAM: Thomas J. Brown, Treasurer and Vice President of North American Funds and Chief Financial Officer and Chief Administrative Officer of AGAM. John I. Fitzgerald, Secretary and Vice President of North American Funds and Assistant Secretary and Counsel of AGAM. John N. Packs, Vice President of North American Funds and Director of Research of AGAM. Additional Payments to AGAM and its Affiliates by Acquired Funds The Previous Investment Advisory Agreement provided for reimbursement to AGAM for various expenses related to financial, accounting and administrative services provided to the Acquired Funds. For the fiscal year ended October 31, 2000, North American Funds paid in the aggregate $1,387,842 to AGAM for such services. Of such amount, $130,390, $21,839, $19,678, $70,665 and $81,338 were attributable to the NAF Core Bond Fund, the NAF High Yield Bond Fund, the NAF Municipal Bond Fund, the NAF Strategic Income Fund and the NAF U.S. Government Securities Fund, respectively. From November 1, 1999 to July 7, 2000, VALIC, an affiliate of AGAM, provided accounting services for the NAF High Yield Bond Fund under an accounting services agreement. For this period, the North American Funds paid VALIC, in the aggregate, $27,375 for these services. Of such amount, $13,289 was attributable to the NAF High Yield Bond Fund. 35 For the fiscal year ended October 31, 2000, AGAM was paid fees on Institutional Class I shares under the NAF Services Agreement (as defined below) of $12,555, $85, $0, $1,662 and $0 by the NAF Core Bond Fund, the NAF High Yield Bond Fund, the NAF Municipal Bond Fund, the NAF Strategic Income Fund and the NAF U.S. Government Securities Fund, respectively. For the fiscal year ended October 31, 2000, the Acquired Funds paid the NAF Distributor the following distribution and service fees:
Distribution and Service Fees -------------------------- Class A Class B Class C -------- -------- -------- NAF Core Bond Fund.................................. $ 12,104 $ 44,808 $ 35,079 NAF High Yield Bond Fund*........................... 281 4,873 744 NAF Municipal Bond Fund............................. 7,687 46,249 30,606 NAF Strategic Income Fund........................... 26,192 180,981 165,037 NAF U.S. Government Securities Fund................. 110,086 98,571 87,079
* For period July 7, 2000 to October 31, 2000. For the period November 1, 1999 to July 7, 2000, the NAF Distributor and the Underwriter to the VALIC Funds received underwriting commissions of $307,778. Of such amount, $9,565 was attributable to the NAF High Yield Bond Fund. Of the underwriting commissions received during this period, $32,166 was retained by the NAF Distributor. The balance of such commissions was paid to American General Financial Advisors, Inc., an affiliated broker-dealer. During this period, the NAF Distributor did not receive directly or indirectly from the NAF High Yield Bond Fund any compensation on the redemption or repurchase of Fund Shares, brokerage commissions or other underwriting compensation. For the fiscal year ended October 31, 2000, the Acquired Funds did not pay brokerage commissions to any affiliated brokers. 36 PROPOSAL NO. 1(b) THE NEW SUBADVISORY AGREEMENT Description of the New Subadvisory Agreement As a proposal separate from the proposal to approve a Reorganization, shareholders of each Acquired Fund are being asked to approve the New Subadvisory Agreement between AGAM and New AGIM to ensure that the Acquired Funds receive subadvisory services during the period prior to consummation of the Reorganization. The approval of the New Subadvisory Agreement is contingent upon approval of the New Investment Advisory Agreement, and accordingly, will not take effect if the New Investment Advisory Agreement is not approved. If Proposals Nos. 1(a) and (b) are approved, but a Reorganization is not approved by the shareholders of an Acquired Fund, New AGIM will continue to serve as that Acquired Fund's subadviser under the New Subadvisory Agreement. The terms of the New Subadvisory Agreement are the same in all material respects as those of the Previous Subadvisory Agreement. The New Subadvisory Agreement differs from the Previous Subadvisory Agreement only with respect to the effective date and the potential for the subadvisory services to be rendered by an affiliate of AGIM through New AGIM. The Previous Subadvisory Agreement is dated June 1, 2000 and was last approved by the shareholders of the Acquired Funds at a meeting held on the same date in connection with its initial approval. A description of the New Subadvisory Agreement and the services to be provided by New AGIM is set forth below. This description is qualified in its entirety by reference to the form of the New Subadvisory Agreement attached to this Proxy Statement and Prospectus as Exhibit IB. Under the terms of the New Subadvisory Agreement between AGAM and New AGIM, New AGIM will manage the investment and reinvestment of the assets of each of the Acquired Funds, subject to the supervision of the NAF Board. New AGIM will formulate a continuous investment program for each Acquired Fund consistent with its investment objectives and policies. New AGIM will also implement such programs by purchases and sales of securities and will regularly report to AGAM and the NAF Board with respect to their implementation. As compensation for its services under the New Subadvisory Agreement, New AGIM will receive a fee, as a percentage of average daily net assets, payable monthly and accrued daily as set forth in the table below. This fee is payable by AGAM at no additional cost to Acquired Fund shareholders.
Subadvisory Fee: -------------------------------------------------- Between Between $50 Million $200 Million Excess First and and Over Acquired Fund: $50 Million $200 Million $500 Million $500 Million -------------- ----------- ------------ ------------ ------------ NAF Core Bond Fund......... 0.250% 0.250% 0.200% 0.150% NAF High Yield Bond Fund... 0.450% 0.450% 0.350% 0.300% NAF Municipal Bond Fund.... 0.250% 0.250% 0.220% 0.150% NAF Strategic Income Fund.. 0.350% 0.350% 0.250% 0.200% NAF U.S. Government Securities Fund........... 0.225% 0.225% 0.150% 0.100%
For the fiscal year ended October 31, 2000, AGAM paid total subadvisory fees to AGIM of $3,194,477. Of such amount, $265,944, $91,401 (for the period July 7, 2000 to October 31, 2000), $31,952, $150,251 and $112,544 were attributable to the NAF Core Bond Fund, the NAF High Yield Bond Fund, the NAF Municipal Bond Fund, the NAF Strategic Income Fund and the NAF U.S. Government Services Fund, respectively. From November 1, 1999 to July 7, 2000, VALIC, an affiliate of AGAM, served as investment adviser for the NAF High Yield Bond Fund. During this period, VALIC paid total subadvisory fees of $276,034. Of such amount, $199,342 was attributable to the NAF High Yield Bond Fund. AGIM also manages the investment portfolios of the Core Bond Fund of North American Funds Variable Products II (the "NAFVPII Core Bond Fund") and the High Yield Bond Fund of North American Funds 37 Variable Products II (the "NAFVPII High Yield Bond Fund"), mutual funds with substantially similar investment objectives to the NAF Core Bond Fund and the NAF High Yield Bond Fund, respectively. As of August 31, 2001, the total net asset value of the NAFVPII Core Bond Fund and the NAFVPII High Yield Bond Fund was $31,198,945 and $17,046,920, respectively. As compensation for its advisory services in connection with the NAFVPII Core Bond Fund and the NAFVPII High Yield Bond Fund, AGIM receives advisory fees of 0.50% and 0.70%, respectively, of average daily net assets payable monthly and accrued daily. For the fiscal year ended August 31, 2001, AGIM received total advisory fees of $54,049 and $51,707 in connection with the NAFVPII Core Bond Fund and the NAFVPII High Yield Bond Fund, respectively. No fees were waived with respect to these Funds. The Board of Trustees of North American Funds unanimously recommends that the shareholders of each Acquired Fund approve the New Subadvisory Agreement. Shareholders of each Acquired Fund vote separately on the approval of the New Subsidiary Agreement. Approval of the New Subadvisory Agreement by one Acquired Fund is not contingent upon approval of the New Subadvisory Agreement by any other Acquired Fund. If the New Subadvisory Agreement is not approved by shareholders of an Acquired Fund, the NAF Board will determine the appropriate actions to be taken with respect to such Acquired Fund's subadvisory arrangements at that time. Additional Information About AGIM AGIM has been the subadviser to the NAF Core Bond Fund, the NAF Municipal Bond Fund, the NAF Strategic Income Fund and the NAF U.S. Government Securities Fund since March 2000, and the NAF High Yield Bond Fund since its inception. AGIM was formed in 1998 as a successor to the investment management division of American General. Pursuant to the Previous Subadvisory Agreement, AGIM managed the investment and reinvestment of the assets of each Acquired Fund subject to the supervision of the NAF Board. AGIM has continued to perform these functions under the Interim Subadvisory Agreement since the completion of the AIG Merger. As of September 20, 2001 AGIM had approximately $1.45 billion in assets under management. AGIM is located at 2929 Allen Parkway, Houston, Texas 77019. The directors and principal executive officer of AGIM, their position(s) with AGIM and a description of their principal occupations are set forth below. Unless otherwise indicated, the business address of each is 2929 Allen Parkway, Houston, Texas 77019.
Name and Address Position with AGIM and Principal Occupation(s) ---------------- ---------------------------------------------- Richard W. Scott..... Director, President and Chief Executive Officer; Senior Managing Director and head of U.S. Fixed Income for AIG Global Investment Corp.; formerly Vice Chairman, Investment Management for American General. Albert Gutierrez..... Director and Executive Vice President (since April 2000); prior to working at AGIM, Mr. Gutierrez was Senior Vice President responsible for non-equity research, trading and various insurance company portfolios with Conseco Capital Management from 1987 to 2000.
38 PROPOSALS NOS. 2(a)-(e): APPROVAL OF THE PLANS COMPARISON OF THE FUNDS Investment Policies In addition to the principal investment policies set forth under "Summary-- Comparison of the Funds" above, the Funds may also employ the following investment policies. As a condition to the Reorganizations involving the High Yield Bond Funds and the Strategic Income Funds, the respective Acquiring Funds must obtain shareholder approval to change the investment objective of the respective Acquiring Fund to more closely resemble that of the Acquired Fund. In addition, these Acquiring Funds are seeking shareholder approval of a proposal to change their investment restrictions on borrowing. Accordingly, the comparisons of these Funds assumes that shareholders of the Acquiring Funds have approved these changes and reflects a comparison of the Acquired Fund and the respective Combined Fund. The principal difference in the investment policies of the Acquired Funds vis-a-vis the corresponding Acquiring Funds relates to their respective borrowing policies, which are discussed in more detail below. All Funds Lending. The Funds may not make loans, except through repurchase agreements and the purchase of portfolio securities consistent with a Fund's investment objectives and policies. In addition, each Fund may lend portfolio securities subject to comparable limitations. Illiquid Securities. Each Acquiring Fund (except the SunAmerica Core Bond Fund) currently may invest up to 10% of its net assets in illiquid securities. Each Acquired Fund and the SunAmerica Core Bond Fund may invest up to 15% of its net assets in illiquid securities, and, if the respective reorganization is approved, upon consummation of the reorganization each of the Combined High Yield Bond Fund, Combined Municipal Bond Fund and Combined Strategic Fund may invest up to 15% of its net assets in illiquid securities. Short Sales. As a non-fundamental policy, no Fund may engage in short sales, except short sales "against the box." A short sale is against the box to the extent that the Fund contemporaneously owns, or has the right to obtain without payment, securities identical to those sold short. Core Bond Funds Borrowing. Each Core Bond Fund may borrow for temporary or emergency purposes and in connection with reverse repurchase agreements, mortgage rolls and similar transactions. The Core Bond Funds are subject to similar limitations on borrowing. Each Fund's policy regarding the use of leverage is a fundamental policy. High Yield Bond Funds Borrowing. The NAF High Yield Bond Fund may not borrow from banks or enter into reverse repurchase agreements, or employ similar investment techniques, and pledge its assets in connection therewith, unless immediately after each borrowing there is asset coverage of 300%. In other words, the NAF High Yield Bond Fund may borrow up to 33 1/3% of its total assets. The High Yield Bond Combined Fund may borrow up to 33 1/3% of the value of its total assets (not including amounts borrowed) less liabilities (other than borrowing). The High Yield Bond Combined Fund may borrow money to purchase securities in amounts not exceeding 50% of its net assets and pledge its assets to secure such borrowings. The High Yield Bond Combined Fund may also pledge up to 5% of its assets in connection with interest rate swaps. Each Fund's policy regarding the use of leverage is a fundamental policy. Municipal Bond Funds Borrowing. Each Municipal Bond Fund may borrow for temporary or emergency purposes and the NAF Municipal Bond Fund may also borrow in connection with reverse repurchase agreements, mortgage rolls and 39 similar transactions. When borrowing for temporary or emergency purposes, the NAF Municipal Bond Fund may borrow up to 33 1/3% of the value of its total assets (including amounts borrowed) less liabilities (other than borrowing) while the SunAmerica Tax Exempt Insured Fund may borrow up to 5% of the value of its respective total assets (valued at the lower of cost or current value not including borrowings). Both Municipal Bond Funds may pledge their respective assets to secure such borrowings. Each Fund's policy regarding the use of leverage is a fundamental policy. Strategic Income Funds Borrowing. Each Strategic Income Fund may borrow for temporary or emergency purposes and may also borrow in connection with reverse repurchase agreements, mortgage rolls and similar transactions. When borrowing for temporary or emergency purposes, the two Funds are subject to comparable limitations. In addition, the Strategic Combined Fund may borrow money to purchase securities in amounts not exceeding 50% of its net assets and pledge its assets to secure such borrowings. The Strategic Combined Fund may also pledge up to 5% of its assets in connection with interest rate swaps. Each Fund's policy regarding the use of leverage is a fundamental policy. U.S. Government Securities Funds Borrowing. Each U.S. Government Securities Fund may borrow for temporary or emergency purposes and the NAF U.S. Government Securities Fund may also borrow in connection with reverse repurchase agreements, mortgage rolls and similar transactions. When borrowing for temporary or emergency purposes, the NAF U.S. Government Securities Fund may borrow up to 33 1/3% of the value of its respective total assets (including amounts borrowed) less liabilities (other than borrowing) while the SunAmerica U.S. Government Securities Fund may borrow up to 5% of the value of its respective assets (valued at the lower of cost or current value not including borrowings). Both U.S. Government Securities Funds may pledge their assets to secure such borrowings. Each Fund's policy regarding the use of leverage is a fundamental policy. Trustees and Officers SunAmerica Income Funds is governed by the SunAmerica Board which currently consists of five individuals, four of whom are SunAmerica Independent Trustees. The SunAmerica Board is responsible for the overall supervision of SunAmerica Income Funds and performs various duties imposed on trustees of investment companies by the Investment Company Act and under Massachusetts law. Trustees and officers of SunAmerica Income Funds are also trustees and officers of some or all of the other investment companies managed, administered or advised by SAAMCo, and distributed by SACS and other affiliates. The SunAmerica Board elects the Acquiring Funds' officers. See "Trustees and Officers" in the Acquiring Funds Statement. 40 The following table lists the Trustees and executive officers of SunAmerica Income Funds, their ages and principal occupations during the past five years. The business address of each Trustee and executive officer is The SunAmerica Center, 733 Third Avenue, New York, New York 10017-3204. For the purposes of this Proxy Statement and Prospectus, the SunAmerica Mutual Funds ("SAMF") consist of SunAmerica Equity Funds, SunAmerica Income Funds, SunAmerica Money Market Funds, Inc., SunAmerica Style Select Series, Inc. and SunAmerica Strategic Investment Series, Inc. An asterisk indicates that the Trustee is an interested person of SunAmerica Income Funds within the meaning of Section 2(a)(19) of the Investment Company Act.
Position with the Name, Age and Address Trust Principal Occupations During Past 5 Years --------------------- ----------------- ----------------------------------------- S. James Coppersmith, Trustee Retired; formerly, President and General 68..................... Manager, WCVB-TV, a division of the Hearst Corp. (1982 to 1994); Director/Trustee of SAMF and Anchor Series Trust ("AST"). Samuel M. Eisenstat, Chairman of the Attorney, solo practitioner; Chairman of 60..................... Board the Boards of Directors/Trustees of SAMF and AST. Stephen J. Gutman, 58... Trustee Partner and Managing Member of B.B. Associates LLC (menswear specialty retailing and other activities) since June 1988; Director/Trustee of SAMF and AST. Peter A. Harbeck*, 47... Trustee and Director and President, SAAMCo, since President August 1995; Director, AIG Asset Management International, Inc. ("AIGAMI") since February 2000; Managing Director, John McStay Investment Counsel, L.P. ("JMIC") since June 1999; Director, SACS, since August 1993; Director and President, SunAmerica Fund Services, Inc. ("SAFS"), since May 1988; President, SAMF and AST. Sebastiano Sterpa, 72... Trustee Founder and Chairman of the Board of the Sterpa Group (real estate) since 1962; Director, Real Estate Business Service and Countrywide Financial; Director/Trustee of SAMF. J. Steven Neamtz, 42.... Vice President Executive Vice President, SAAMCo, since April 1996; Director and Chairman of the Board, AIGAMI, since February 2000; Vice President, SAMF, since November 1999; Director and President, SACS, since April 1996. Peter C. Sutton, 36..... Treasurer Senior Vice President, SAAMCo, since April 1997; Vice President, AIGAMI, since February 2000; Treasurer and Controller of Seasons Series Trust ("Seasons"), SunAmerica Series Trust ("SAST") and Anchor Pathway Fund ("APF") since February 2000; Treasurer of SAMF and AST since February 1996; Vice President of SAST and APF since 1994; formerly Assistant Treasurer of SAST and APF from 1994 to February 2000; Vice President, Seasons, since April 1997; formerly Vice President, SAAMCo, from 1994 to 1997.
41
Position with the Name, Age and Address Trust Principal Occupations During Past 5 Years --------------------- ----------------- ----------------------------------------- Robert M. Zakem, 43..... Secretary and Chief Senior Vice President and General Counsel, Compliance Officer SAAMCo, since April 1993; Vice President, General Counsel and Assistant Secretary, AIGAMI, since February 2000; Executive Vice President, General Counsel and Director, SACS, since August 1993; Vice President, General Counsel and Assistant Secretary, SAFS, since January 1994; Vice President, SAST, APF and Seasons; Assistant Secretary, SAST and APF, since September 1993; Assistant Secretary, Seasons, since April 1997.
At a meeting of the SunAmerica Board held on August 22, 2001, the SunAmerica Board elected Dr. Judith L. Craven and William F. Devin to the SunAmerica Board, effective on or about November 9, 2001. Dr. Craven and Mr. Devin are currently members of the NAF Board. Dr. Craven and Mr. Devin would join the SunAmerica Board as SunAmerica Independent Trustees and as members of the Audit and Nominating Committees. The following table lists the ages, business addresses and principal occupations during the past five years of Dr. Craven and Mr. Devin. Dr. Judith L. Craven, Retired Administrator. Trustee, North American Funds 55..................... Variable Product Series II, 15 investment portfolios 3212 Ewing Street (November 1998 to present); Director, North American Houston, TX 77004 Funds Variable Product Series I, 21 investment portfolios (August 1998 to present); Director, USLIFE Income Fund, Inc. (November 1998 to present); Director, Compaq Computer Corporation (1992 to present); Director, A.G. Belo Corporation, a media company (1992 to present); Director, Sysco Corporation, a food marketing and distribution company (1996 to present); Director, Luby's Inc., a restaurant chain (1998 to present); Director, University of Texas Board of Regents (May 2001 to present). Formerly, Director, CypressTree Senior Floating Rate Fund, Inc. (June 2000 to May 2001); Formerly, President, United Way of the Texas Gulf Coast, a not for profit organization (1992-1998); Formerly, Director, Houston Branch of the Federal Reserve Bank of Dallas (1992-2000); Formerly, Board Member, Sisters of Charity of the Incarnate Word 1996-1999). William F. Devin, 63.... Member of the Board of Governors, Boston Stock Exchange 44 Woodland Road (1985 to present); Formerly, Executive Vice President, Braintree, MA 02184 Fidelity Capital Markets, a division of National Financial Services Corporation (1966-1996); Formerly, Director, CypressTree Senior Floating Rate Fund, Inc. (October 1997 to May 2001).
SunAmerica Income Funds pays each SunAmerica Independent Trustee annual compensation in addition to reimbursement of out-of-pocket expenses in connection with attendance at meetings of the SunAmerica Board. Specifically, each SunAmerica Independent Trustee received a pro rata portion (based upon the SunAmerica Income Funds' net assets) of an aggregate of $40,000 in annual compensation for acting as director or trustee to SAMF. In addition, each SunAmerica Independent Trustee received $20,000 in annual compensation for acting as trustee to AST. Beginning January 1, 2001 each SunAmerica Independent Trustee of the retail funds in SAMF receives an additional $2,500 per quarterly meeting. In addition, Mr. Eisenstat receives an aggregate of $2,000 in annual compensation for serving as Chairman of the Boards of the retail 42 funds in SAMF. Officers of SunAmerica Income Funds receive no direct remuneration in such capacity from SunAmerica Income Funds or any of the Acquiring Funds. In addition, each SunAmerica Independent Trustee also serves on the Audit Committee of the SunAmerica Board. The Audit Committee is charged with recommending to the full SunAmerica Board the engagement or discharge of SunAmerica Income Funds' independent accountants; directing investigations into matters within the scope of the independent accountant's duties; reviewing with the independent accountants the audit plan and results of the audit; approving professional services provided by the independent accountants and other accounting firms; reviewing the independence of the independent accountants; considering the range of audit and non-audit fees; and preparing and submitting Committee minutes to the full SunAmerica Board. Each member of the Audit Committee receives an aggregate of $5,000 in annual compensation for serving on the Audit Committee of SAMF and AST. With respect to SunAmerica Income Funds, each member of the Committee receives a pro rata portion of the $5,000 annual compensation, based on the relative net assets of SunAmerica Income Funds. SunAmerica Income Funds also has a Nominating Committee, comprised solely of SunAmerica Independent Trustees, which recommends to the SunAmerica Board those persons to be nominated for election as Trustees by shareholders and selects and proposes nominees for election by Trustees between shareholders' meetings. Members of the Nominating Committee serve without compensation. The Trustees (and Directors) of SAMF and AST have adopted the SunAmerica Disinterested Trustees' and Directors' Retirement Plan (the "Retirement Plan") effective January 1, 1993 for the SunAmerica Independent Trustees. The Retirement Plan provides generally that if a SunAmerica Independent Trustee who has at least 10 years of consecutive service as a disinterested Trustee of any of SAMF or AST (an "Eligible Trustee") and 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 SAMF with respect to which he or she is an Eligible Trustee. With respect to Sebastiano Sterpa, the SunAmerica Independent Trustees have determined to make an exception to existing policy and allow Mr. Sterpa to remain on the SunAmerica Board past age 70, until he has served for ten years. Mr. Sterpa ceased accruing retirement benefits upon reaching age 70, although such benefits will continue to accrue interest as provided for in the Retirement Plan. As of each birthday, prior to the 70th birthday, each Eligible Trustee will be credited with an amount equal to (i) 50% of his or her regular fees (excluding committee fees) for services as a disinterested Trustee of each SAMF for the calendar year in which such birthday occurs, plus (ii) 8.5% of any amounts credited under clause (i) during prior years. 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. The following table sets forth information summarizing the aggregate compensation of each SunAmerica Independent Trustee for his services as a member of the SunAmerica Board for the fiscal year ended March 31, 2001. Neither the Trustees who are interested persons of SunAmerica Income Funds nor any officers of SunAmerica Income Funds receive any compensation.
Total Pension or Compensation Retirement Estimated From Aggregate Benefits Annual Registrant Compensation Accrued as Benefits and Fund from Part of Upon Complex Paid Trustee Registrant Trust Expenses* Retirement** to Trustees* ------- ------------ --------------- ------------ ------------ S. James Coppersmith..... $4,025 $51,702 $29,670 $67,500 Samuel M. Eisenstat...... $4,246 $44,289 $46,089 $71,500 Stephen J. Gutman........ $4,025 $45,567 $60,912 $67,500 Sebastiano Sterpa***..... $4,196 $ 9,623 $ 7,900 $45,833
-------- * Information is as of March 31, 2001 for the five investment companies in the complex that pay fees to these directors/trustees. The complex consists of SAMF and AST. ** Assuming participant elects to receive benefits in 15 yearly installments. *** Mr. Sterpa is not a trustee of AST. 43 Management Arrangements Comparison of Management and Administrative Arrangements and Fees AGAM serves as the investment adviser for the Acquired Funds and SAAMCo serves as the investment adviser for the Acquiring Funds. Each of AGAM and SAAMCo is responsible for the management of the investment portfolio of each Acquired Fund and Acquiring Fund, respectively (except to the extent delegated to a subadviser), and for providing certain administrative services to such Fund. AGAM was organized as a Delaware corporation in 1996 and is located at 286 Congress Street, Boston, Massachusetts, 02210. Prior to the AIG Merger, AGAM and the NAF Distributor were both wholly owned subsidiaries of American General. Prior to the AIG Merger, American General was one of the nation's largest diversified financial services organizations with assets of approximately $128 billion and market capitalization of $23 billion at June 30, 2001. AGAM is now a subsidiary of AIG. The principal executive offices of AIG are located at 70 Pine Street, New York, New York 10270. SAAMCo was organized as a Delaware corporation in 1982 and is located at The SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204. SAAMCo is a wholly owned subsidiary of SunAmerica Inc., which in turn is a wholly owned subsidiary of AIG. AIG, a Delaware corporation, is a holding company which through its subsidiaries is engaged in a broad range of insurance and insurance-related activities and financial services in the United States and abroad. AIG's primary activities include both general and life insurance operations. Other significant activities include financial services and asset management. As of June 30, 2001, SAAMCo managed, advised and/or administered more than $28.5 billion of assets. Comparison of the NAF Investment Advisory Agreement and SunAmerica Investment Advisory Agreement. The SunAmerica Investment Advisory Agreement is similar to the NAF Investment Advisory Agreement, except for certain matters, including the advisory fees, the effective dates and the identity of the adviser. The advisory fees payable by the Acquired Funds to AGAM are discussed above under "Proposal No. 1(a): New Investment Advisory Agreement" and "Summary-Management Arrangements." The Core Bond Combined Fund will pay advisory fees at the same annual rate as the NAF Core Bond Fund. The High Yield Bond, Tax Exempt Insured and Strategic Combined Funds will pay advisory fees at a lower annual rate than the respective Acquired Fund. The U.S. Government Securities Combined Fund will pay advisory fees at a higher annual rate than the respective Acquired Fund. See "Proposals Nos. 2(a)-(e): Approval of the Plans--NAF Board Considerations: Potential Benefits to Shareholders as a Result of the Reorganizations." The advisory fee rate payable by each Combined Fund after consummation of the Reorganizations will be the same as the advisory fee rates payable by the Acquiring Funds. After the Reorganizations, the net assets of each Combined Fund (except the Core Bond Combined Fund, which currently has no assets) will increase by the amount of the net assets of the respective Acquired Fund. With respect to the High Yield Bond Combined Fund, this increase in net assets may cause a lower advisory fee rate to apply in accordance with the advisory fee breakpoint schedule applicable to such Acquiring Fund. The pro forma effective fee rate of each Combined Fund, as a percentage of average daily net assets, after taking into account the completion of the Reorganizations, is shown above under "Summary." The SunAmerica Investment Advisory Agreement provides that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of SAAMCo's (and its affiliates') obligations or duties thereunder ("disabling conduct"), SAAMCo is not subject to liability to an Acquiring Fund (or to any shareholder thereof) for any act or omission in the course of rendering services to such Acquiring Fund (except to the extent specified in the Investment Company Act concerning loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services). The SunAmerica Investment Advisory Agreement also provides that except for such disabling conduct, an Acquired Fund will indemnify SAAMCo (and its affiliates) from any 44 liability arising from SAAMCo's conduct under the SunAmerica Investment Advisory Agreement. The NAF Investment Advisory Agreement does not contain similar provisions. Both the NAF Investment Advisory Agreement and the SunAmerica Investment Advisory Agreement provide that the adviser may, at its own cost and expense and subject to the requirements of the Investment Company Act, retain one or more subadvisers (each, a "Subadviser") to manage all or a portion of the investment portfolio of an Acquired Fund or Acquiring Fund, respectively. Comparison of Subadvisory Arrangements. Under the terms of each of the Subadvisory Agreements between AGAM and New AGIM (the "Subadvisory Agreements"), New AGIM manages the investment and reinvestment of the assets of each Acquired Fund, subject to the supervision of the NAF Board. New AGIM formulates a continuous investment program for each Acquired Fund consistent with its investment objectives and policies. New AGIM implements such programs by purchases and sales of securities and regularly reports to AGAM and the NAF Board with respect to their implementation. As compensation for its services, New AGIM receives fees from AGAM computed separately for each Acquired Fund. Such fees are paid out of AGAM's advisory fee at no additional cost to the Acquired Funds or their shareholders. The Subadvisory fees payable by AGAM to New AGIM are discussed above under "Proposal No. 1(b): Approval of the New Investment Subadvisory Agreement-- Description of the New Investment Subadvisory Agreement." For the fiscal year ended October 31, 2000, AGAM paid subadvisory fees to AGIM as follows; $265,944, $91,401, $31,952, $150,251 and $112,544 were attributable to the NAF Core Bond Fund, the NAF High Yield Bond Fund (for the period from July 7, 2000 to October 31, 2000), the NAF Municipal Bond Fund, the NAF Strategic Income Fund and the NAF U.S. Government Securities Fund, respectively. After the Reorganization, New AGIM will serve as the subadviser to the Core Bond Combined Fund, the High Yield Bond Combined Fund, the Tax Exempt Insured Combined Fund and the Strategic Combined Fund pursuant to the SunAmerica Subadvisory Agreement subject to shareholder approval of the respective Acquiring Fund, as necessary. The terms of the NAF Subadvisory Agreement and the SunAmerica Subadvisory Agreement are similar all material respects, including subadvisory fee rates. The SunAmerica Subadvisory Agreement provides that in the absence of disabling conduct (i.e., willful misfeasance, bad faith, gross negligence or reckless disregard of New AGIM's (and its affiliates') obligations or duties thereunder), New AGIM is not subject to liability to an Acquiring Fund (or to any shareholder thereof) for any act or omission in the course of rendering services to such Acquiring Fund (except to the extent specified in the Investment Company Act concerning loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services). The SunAmerica Subadvisory Agreement also provides that except for such disabling conduct, SAAMCo will indemnify New AGIM (and its affiliates) from any liability arising from New AGIM's conduct under the SunAmerica Subadvisory Agreement. If SAAMCo were required to indemnify New AGIM under the SunAmerica Subadvisory Agreement, it would in turn seek indemnification for such expenditure from the applicable Acquiring Fund(s). The NAF Subadvisory Agreement does not contain similar provisions. Distribution and Shareholder Servicing Arrangements Distributor American General Funds Distributors, Inc. (previously defined as "AGFD" or the "NAF Distributor"), an affiliate of AGAM, acts as the principal distributor of the shares of the Acquired Funds. SunAmerica Capital Services, Inc. (previously defined as "SACS" or the "SunAmerica Distributor"), an affiliate of SAAMCo, acts as the distributor of the shares of the Acquiring Funds. As compensation for their respective services, AGFD and SACS receive the initial and deferred sales charges in respect of the Acquired Funds and Acquiring Funds, 45 respectively. In addition, AGFD and SACS receive fees under each respective Acquired Fund's and Acquiring Fund's plan pursuant to Rule 12b-1 under the Investment Company Act. The address of the NAF Distributor is 286 Congress Street, Boston, Massachusetts 02210. The address of the SunAmerica Distributor is The SunAmerica Center, 733 Third Avenue, New York, New York 10017-3204. After consummation of the Reorganizations, the SunAmerica Distributor will continue to provide distribution services to each Combined Fund. Distribution and Service (12b-1) Fees Each of the Acquired Funds and Acquiring Funds have adopted a plan under Rule 12b-1 under the Investment Company Act that allows it to pay distribution and other fees for the sale and distribution of its shares. Class A, Class B and Class C shares of each Acquired Fund and Class A, Class B and Class II shares of each Acquiring Fund are subject to the same respective distribution and account maintenance and service fees pursuant to a plan under Rule 12b-1. The table below sets forth the distribution and account maintenance and service fees for each of these classes.
Acquired Acquiring Distribution Account Maintenance Fund Class Fund Class Fee and Service Fee ---------- ---------- ------------ ------------------- A A 0.10% 0.25% B B 0.75% 0.25% C II 0.75% 0.25%
Because these fees are paid out of a Fund's assets on an ongoing basis, over time they will increase the cost of your investment and may cost you more than paying other types of sales charges. Shareholder Servicing Fee for Class I The Acquired Funds have entered into a Services Agreement (the "NAF Services Agreement") with AGAM for the provision of recordkeeping and shareholder services to retirement and employee benefit plans and certain asset allocation funds of North American Funds that invest in Institutional Class I shares of the Acquired Funds. Under the NAF Services Agreement, as compensation for services rendered, AGAM receives a fee on Institutional Class I shares of each Acquired Fund equal to .25% of average net assets of such class. SACS will provide these services after the Reorganizations with respect to Class I shares of the Combined Funds for the same fee. Other Service Agreements with Affiliates SAFS acts as a servicing agent assisting State Street in connection with certain services offered to the shareholders of each of the Acquiring Funds pursuant to the terms of a Service Agreement (the "SunAmerica Service Agreement"). Under the SunAmerica Service Agreement, as compensation for transfer agency services rendered, SAFS receives a fee from each Acquiring Fund, computed and payable monthly based upon an annual rate of .22% of average daily net assets of each Acquiring Fund with respect to Class A, Class B and Class II shares. Upon completion of the Reorganizations, SAFS will receive the same fee with respect to Class I shares of each Acquiring Fund. For Class Z shares, SAFS receives reimbursements from the Funds of its costs, which include all direct transfer agency fees and out-of-pocket expenses allocated to providing services to Class Z shares. From this fee, SAFS pays a fee to State Street, and its affiliate, National Financial Data Services. In addition, pursuant to the Service Agreement, SAFS may receive reimbursement of its costs in providing shareholder services on behalf of the Acquiring Funds. SAFS is located at The SunAmerica Center, 733 Third Avenue, New York, New York 10017- 3204. 46 Purchase, Exchange and Redemption of Shares The following chart highlights the purchase, redemption and exchange features of the Acquired Funds as compared to such features of the Acquiring Funds.
Purchase, Redemption and Exchange Features Acquired Funds Acquiring Funds ------------------------ -------------- --------------- Minimum initial .non-retirement accounts: .non-retirement accounts: investment $1,000 $500 .retirement accounts: $50 .retirement accounts: $250 . automatic investment . dollar cost averaging: programs: $50 $500 to open Class B shares are available for purchases of $250,000 or less Class C shares are available for purchases under $1 million Institutional Class I shares are available for purchases of $1 million or more Minimum subsequent $50 . non-retirement account: investments $100 . retirement account: $25 . dollar cost averaging: at least $25 per month Initial Sales Charge (as Class A: 4.75% Class A: 4.75% a percentage of offering price) Class B: None Class B: None Class C: None Class II: 1.00% Institutional Class I: None Class I: None (a) Institutional Class II: None Class Z: None (a) Purchases over $1 million Initial sales charge is are sold without an initial waived for certain investors sales charge Deferred Sales Charge Class A: Purchases of shares Class A: Purchases of Class worth $1 million or more A shares of $1 million or that are sold without an more that are redeemed initial sales charge and within a certain period of redeemed within 1 year are time are subject to a CDSC subject to a 1% CDSC at (1% for redemptions within redemption (c) one year of purchase and 0.50% for redemptions after the first year and within the second year of purchase) (c) Class B: Shares redeemed Class B: Shares redeemed within 6 years are subject within 6 years are subject to a CDSC (b)(c) to a CDSC (b)(c) Class C: Shares redeemed Class II: Shares redeemed within one year are subject within 18 months after to a 1% CDSC (c) purchase are subject to a 1% CDSC (c) Institutional Class I: None Class I: None (a) Institutional Class II: None Class Z: None (a) Purchases By mail (check), wire or By mail (check), wire or through a broker or through broker-dealers financial advisor
47
Purchase, Redemption and Exchange Features Acquired Funds Acquiring Funds ----------------- -------------- --------------- Redemption Class A, B and C: By mail, Class A, B and II: By mail wire (if a minimum of (any amount), wire, $1,000), telephone or telephone (for amounts less through broker-dealers than $100,000) or through a broker or financial advisor Institutional Class I and Class I and Class Z: Contact Institutional Class II: the financial intermediary Contact the financial or other organization from intermediary or other whom shares were organization from whom purchased (a) shares were purchased Conversion Class B shares automatically Class B shares automatically convert into Class A shares convert into Class A shares eight years after purchase approximately eight years after purchase Exchanges Shares of an Acquired Fund Shares of an Acquiring Fund may be exchanged for shares may be exchanged for shares of the same class of any of the same class of any other Acquired Fund or other other fund distributed by series of North American SACS Funds For Institutional Class I shares, all or part of an existing plan balance may be exchanged from one investment option to another if permitted by an employer retirement plan
-------- (a) Although not currently offered by the respective Acquiring Funds, Class I shares will be offered by the High Yield Bond, Strategic Income and U.S. Government Securities Combined Funds upon consummation of the Reorganizations, and Class Z shares will be offered at that time by the High Yield Bond Combined Fund. All share classes of the Core Bond Fund will be offered after it commences operations. (b) The CDSC of Class B shares of the Acquiring Funds is either the same as or less than the CDSC relating to Class B shares of the Acquired Funds. The table below sets forth the schedule of Class B CDSC for all Funds.
CDSC on shares being sold ------------------------------ Years after Purchase Acquired Funds Acquiring Funds -------------------- -------------- --------------- 1st year................................... 5.00% 5.00% 2nd year................................... 5.00% 4.00% 3rd year................................... 4.00% 3.00% 4th year................................... 3.00% 3.00% 5th year................................... 2.00% 2.00% 6th year................................... 1.00% 1.00% 7th year and thereafter.................... None None
(c) The CDSC schedules applicable to Class A, Class B and Class C shares of an Acquired Fund will continue to apply to the respective Corresponding Shares received in the applicable Reorganization by shareholders of a Combined Fund who were shareholders of the respective Acquired Fund as of the date of the closing of such Reorganization (even if you exchange your shares for shares of another fund distributed by SACS). Each CDSC is based on the original purchase cost or the current market value of the shares being sold, whichever is less. Future purchases of Class A, Class B or Class II Shares of a Combined Fund will be subject to the CDSC schedule applicable to the Combined Fund. There is no CDSC on Combined Fund shares that are purchased through reinvestment of dividends. In the case of a partial redemption of Combined Fund shares, those shares in the shareholder's account that are not subject to a CDSC will be sold first. If there are not enough of these shares available, shares that have the lowest CDSC will be sold next. 48 Dividend Distribution and Account Policies The following is a summary of the dividend distribution and account policies of each of the Funds and is qualified in its entirety by the more complete information contained in the Acquired Funds Prospectuses, Acquiring Funds Prospectuses, Acquired Funds Statement and Acquiring Funds Statement. Valuation of Fund Shares. The net asset value per share for each Fund and class is determined once daily as of the close of regular trading on the New York Stock Exchange (generally 4 p.m. Eastern Time) by dividing the net assets (the value of all assets less liabilities) of each class by the number of its shares outstanding. See "Purchase, Redemption and Pricing--Determination of Net Asset Value" in the Acquired Funds Statement and "Determination of Net Asset Value" in the Acquiring Funds Statement. Buy and Sell Prices. When you buy shares of a Fund, you pay the net asset value plus any applicable sales charges. When you sell shares of a Fund, you receive the net asset value minus any applicable CDSCs. Dividends. Each of the Acquired Funds declares income dividends daily and pays capital gains and income dividends, if any, annually. Income dividends, if any, are declared daily and paid monthly by Acquiring Funds. Capital gains distributions, if any, are paid annually by the Acquiring Funds. See "Pricing of Fund Shares" in the Acquired Funds Prospectus and "Tax, Dividends, Distributions and Taxes--Dividends and Distributions" in the Acquiring Funds Statement. Dividend Reinvestments. The policy relating to dividend reinvestments is substantially the same for all Funds. Unless cash payment is requested (and such payment is more than $10 in the case of the Acquiring Funds), all dividends and distributions, if any, will be reinvested. Alternatively, in the case of the Acquiring Funds, dividends and distributions may be reinvested in any fund distributed by SACS. See "Pricing of Fund Shares" in the Acquired Funds Prospectus and "Tax, Dividends, Distributions and Taxes--Dividends and Distributions" in the Acquiring Funds Statement. Redemptions-in-kind. Each Acquired Fund reserves the right to pay redemption proceeds in whole or in part by a distribution "in kind" of securities held by the Acquired Fund, subject to the limitation that each Acquired Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net asset value of the Acquired Fund during any 90-day period for any one account. Subject to this same limitation, each Acquiring Fund also may pay redemption proceeds by a distribution "in kind" of securities held by the Acquiring Fund, if it determines that it would be detrimental to the best interests of the remaining shareholders of the Acquiring Fund to make payment of redemption proceeds wholly or partly in cash. See "Purchase Redemption and Pricing--Redemption in Kind" in the Acquired Funds Statement and "Additional Information Regarding Redemption of Shares" in the Acquiring Funds Statement. Payment Following Redemption. Each Fund will normally send the proceeds from a redemption (less any applicable CDSC) on the next business day, but may delay payment for up to seven days. Payment may be delayed if the shares to be redeemed were purchased by a check that has not cleared. During periods of extreme volatility or market crisis, each Fund may temporarily suspend the right to redemption and may postpone the payment of proceeds, as allowed by the federal securities laws. See "Shareholder Account Information--Transaction Policies" and "Additional Information Regarding Redemption of Shares" in the Acquiring Funds Prospectus and Acquiring Funds Statement, respectively, and "Section III: Investing in the North American Funds" and "Purchase, Redemption and Pricing--Payment for the Shares Presented" in the Acquired Funds Prospectuses and Acquired Funds Statement, respectively. Programs that Reduce Sales Charges. Each of the Funds offer programs pursuant to which shareholders pay reduced sales charges. With respect to the Acquiring Funds, these programs are only applicable to purchases of Class A shares. Under the Rights of Accumulation program, a shareholder pays the sales charge applicable to the shareholder's total account balance in all classes of shares. Under a Letter of Intent (or statement of intention), a shareholder agrees to invest a certain amount over 13 months and will pay the sales charge based on the shareholder's goal. In addition, the Acquiring Funds also offer reduced sales charges for 49 group purchases, pursuant to which members of qualified groups may purchase Class A shares of an Acquiring Fund under the Rights of Accumulation program described above. The Acquiring Funds also offer a Combined Purchase Privilege, pursuant to which certain persons may qualify for sales charge reductions or elimination by combining purchases of Acquiring Fund shares into a single transaction. See "Section III: Investing in the North American Funds" in the Acquired Funds Prospectuses and "Additional Information Regarding Purchase of Shares" in the Acquiring Funds Statement for more information regarding these programs. Reinstatement Privileges. Each of the Funds offers a reinstatement privilege. In the case of the Acquired Funds, if a shareholder redeems Class A shares (under $1 million) and reinvests within 90 days, the shareholder will not have to pay a sales charge. If a shareholder redeems Class A shares over $1 million, or Class B or Class C shares and pays a CDSC and then reinvests within 90 days, the shareholder's account will be credited the amount of the CDSC. In the case of the Acquiring Funds, a shareholder may redeem shares of an Acquiring Fund and within one year after the sale invest some or all of the proceeds in the same share class of the same Acquiring Fund without a sales charge. A shareholder may use the reinstatement privilege only one time after redeeming such shares. If a shareholder paid a CDSC on the redemption of his or her shares, the shareholder's account will be credited with the dollar amount of the CDSC at the time of redemption. See "Account Services" in the Acquired Funds Prospectus relating to Class A, Class B, and Class C shares and "Shareholder Account Information" in the Acquiring Funds Prospectus for more information regarding this privilege. Other Shareholder Services. Each of the Acquired Funds and Acquiring Funds offers other shareholder services which are similar, although not identical, such as automatic investment plans and systematic withdrawal plans. In addition, Anchor National Life Insurance Company offers an Asset Protection Plan to certain investors in the Acquiring Funds, which provides for benefits payable at death that relate to the amounts paid to purchase Acquiring Fund shares (and not subsequently redeemed prior to death) and to the value of Acquiring Fund shares held for the benefit of insured persons. Anchor National Life Insurance company charges a premium for this coverage. For additional information regarding these additional shareholder services, see "Account Services" in the Acquired Funds Prospectuses and "Shareholder Account Information" and "Additional Information Regarding Purchase of Shares" in the Acquiring Funds Prospectus and Acquiring Funds Statement, respectively. Small Accounts. The Acquired Funds require that you maintain a minimum account balance of $500, or $50 for retirement plans and other automatic investing programs. The Acquiring Funds require that you maintain a minimum account balance of $500, or $250 for retirement plan accounts. If your account with an Acquiring Fund falls below the minimum requirement due to withdrawals, you may be asked to purchase more shares within 60 days. If you do not take action, the Acquiring Fund may close out your account and mail you the proceeds. Alternatively, you may be charged a $2.00 monthly charge to maintain your account with an Acquiring Fund. Your account with an Acquiring Fund will not be closed if its drop in value is due to performance of the Acquiring Fund or the effects of sales charges. Performance General The following tables provide performance information for shares of the Funds for the periods indicated. Past performance is not indicative of future performance. The SunAmerica Core Bond Fund has been recently created and has not yet commenced operations; consequently, it does not have an investment performance record. After the Reorganization, the Core Bond Combined Fund, as the successor to the NAF Core Bond Fund, will assume and publish the investment performance record of the NAF Core Bond Fund. See Performance Information in the Acquired Funds Statement for information about the NAF Core Bond Fund's performance. 50 In addition, after the Reorganizations, the High Yield Bond and Strategic Combined Funds will assume and publish the investment performance records of the NAF High Yield Bond Fund and NAF Strategic Income Fund, respectively. See Performance Information in the Acquired Funds Statement for information about the NAF High Yield Bond Fund's and NAF Strategic Income Fund's performance. There have been no sales of Institutional Class I shares of the NAF U.S. Government Securities Fund. Accordingly, no performance information is shown. Important information about the Acquiring Funds (other than SunAmerica Core Bond Fund) is also contained in management's discussion of each Acquiring Fund's performance contained in the Annual Report to Shareholders of the Acquiring Funds for the year ended March 31, 2001, which accompanies this Proxy Statement and Prospectus. Average annual total return is determined separately for each Class in accordance with a formula specified by the Commission. Average annual total return is computed by finding the average annual compounded rates of return for the 1-, 5-, and 10-year periods or for the lesser included periods of effectiveness. The calculation assumes that: (a) The maximum sales load (i.e., either the front-end sales load or the CDSC that would be applicable to a complete redemption of the investment at the end of the specified period) is deducted from the initial $1,000 purchase payment; (b) All dividends and distributions are reinvested at net asset value; and (c) Complete redemption occurs at the end of the 1-, 5-, or 10-year periods or fractional portion thereof with all nonrecurring charges deducted accordingly. 51 Average Annual Total Returns* (periods ended June 30, 2001)
SunAmerica NAF High Yield Bond Fund** High Income Fund ------------------------------------------------------------------------------- -------------------------- Institutional Institutional Class A Class B Class C Class I Class II Class A Class B Class II --------------- --------------- --------------- --------------- --------------- -------- -------- -------- Year to Date.... (2.35)% (2.82)% 1.18% 2.58% 2.48% (5.68)% (6.38)% (3.41)% One year........ (7.72)% (8.73)% N/A (3.11)% (3.08)% (15.53)% (16.27)% (13.57)% Three year...... N/A N/A N/A N/A N/A (7.16)% (7.22)% (6.50)% Five year....... N/A N/A N/A N/A N/A 1.04% 0.98% N/A Ten year........ N/A N/A N/A N/A N/A 6.57% N/A N/A Since Inception...... (1.55)% (2.03)% (6.20)% 0.35% 0.54% 5.78% 2.22% (5.08)% (since 11/2/98) (since 11/2/98) (since 8/21/00) (since 11/2/98) (since 11/2/98)
Average Annual Total Returns (periods ended June 30, 2001)
SunAmerica Tax Exempt NAF Municipal Bond Fund** Insured Fund -------------------------------------------- ------------------------ Class A Class B Class C Class A Class B Class II -------------- -------------- -------------- ------- ------- -------- Year to Date............ (2.85)% (3.43)% 0.57% (2.89)% (3.39)% (0.38)% One year................ 3.56% 2.81% 6.80% 3.85% 3.25% 6.21% Three year.............. 1.84% 1.38% 2.65% 2.29% 2.34% N/A Five year............... 4.56% 4.38% 4.71% 4.46% 4.45% N/A Ten year................ N/A N/A N/A 5.07% N/A N/A Since Inception......... 4.24% 5.02% 5.02% 5.97% 4.09% 3.47% (since 7/6/93) (since 4/1/94) (since 4/1/94)
SunAmerica Diversified NAF Strategic Income Fund** Income Fund ------------------------------------------------------------- ------------------------ Institutional Class A Class B Class C Class I Class A Class B Class II --------------- -------------- -------------- --------------- ------- ------- -------- Year to Date............ (1.98)% (2.42)% 1.58% 2.99% (5.21)% (5.72)% (2.70)% One year................ (0.38)% (1.05)% 2.94% N/A (9.18)% (9.73)% (6.81)% Three year.............. 0.30% (0.03)% 1.29% N/A (2.81)% (2.81)% N/A Five year............... 4.36% 4.37% 4.71% N/A 2.60% 2.61% N/A Ten year................ N/A N/A N/A N/A N/A 3.65% N/A Since Inception......... 5.15% 6.16% 6.16% 4.22% 2.79% 3.63% 0.17% (since 11/1/93) (since 4/1/94) (since 4/1/94) (since 7/10/00)
Average Annual Total Returns (for the periods ended June 30, 2001)
SunAmerica U.S. Government NAF U.S. Government Securities Fund** Securities Fund ----------------------------------------------- ------------------------ Class A Class B Class C Class A Class B Class II ----------------- -------------- -------------- ------- ------- -------- Year to Date............ (2.12)% (2.44)% 1.56% (2.76)% (3.35)% (0.35)% One year................ 4.29% 3.79% 7.79% 5.61% 5.12% 8.00% Three year.............. 3.31% 3.17% 4.41% 3.69% 3.77% N/A Five year............... 5.09% 5.13% 5.46% 5.20% 5.21% N/A Ten year................ 6.01% N/A N/A N/A 5.39% N/A Since Inception......... 6.39% 5.41% 5.41% 5.05% 5.95% 5.55% (since 8/28/1989) (since 4/1/94) (since 4/1/94)
-------- * The SunAmerica Core Bond Fund has been recently created and has not commenced operations; consequently it does not have an investment performance record. ** AGAM has waived certain fees in respect of the Acquired Funds. Absent such waivers, the returns for the Acquired Funds shown above would be lower. 52 Shareholder Rights Shareholders rights are the same in all of the Funds. Each full share and fractional share of a Fund entitles the shareholder to receive a proportional interest in the respective Fund's capital gain distributions and to cast one vote per share, with fractional shares voting proportionally, on certain Fund matters, including the election of directors, changes in fundamental policies, or approval of changes in the Fund's investment advisory agreement. Corresponding Shares issued in the Reorganizations will be fully paid and nonassessable and will have no preemptive rights. In the event of the liquidation of a Fund, shareholders of such Fund are entitled to share pro rata in the net assets of such Fund available for distribution to shareholders. The Funds are not required to hold annual meetings and do not intend to do so except when certain matters, such as a change in a Fund's fundamental policies, are to be decided. In addition, shareholders representing at least 10% of all eligible votes may call a special meeting if they wish, for the purpose of voting on the removal of any Fund trustee. Tax Information The tax consequences associated with an investment in shares of an Acquired Fund are substantially the same as the tax consequences associated with an investment in shares of the respective Acquiring Fund. See "Taxes" in the Acquired Funds Prospectuses and "Dividend, Distribution and Account Policies" in the Acquiring Funds Prospectus. Portfolio Transactions The procedures for engaging in portfolio transactions are generally the same for the Acquired Funds and the Acquiring Funds. Each of the Acquired Funds' Subadvisers and SAAMCo may consider the nature and extent of research services provided when brokers are selected and may cause a Fund to pay such broker- dealer's commissions that exceed those that other broker-dealers may have charged, if in their view the commissions are reasonable in relation to the value of the brokerage and/or research services provided. For further discussion of these procedures, see "Portfolio Brokerage" in the Acquired Funds Statement and "Portfolio Transactions and Brokerage" in the Acquiring Funds Statement. Portfolio Turnover None of the Funds has placed a limit on its portfolio turnover and portfolio changes are made when the Fund's investment adviser (or Subadviser) believes they are advisable, usually without reference to the length of time that a security has been held. The table below sets forth the portfolio turnover rates for the Acquired Funds and the Acquiring Funds for the fiscal years ended October 31, 2000 and March 31, 2001, respectively. The SunAmerica Core Bond Fund has been recently created and has not yet commenced operations; consequently, it does not have portfolio turnover figures. Some of these portfolio turnover rates exceed 100%. A 100% portfolio turnover rate would occur if all of the securities in the portfolio were replaced during the period. Higher portfolio turnover rates increase the brokerage costs a Fund pays and may adversely affect its performance. Higher portfolio turnover may also result in an increased proportion of capital gains constituting short-term capital gains instead of long-term capital gains. If a Fund realizes capital gains when it sells portfolio investments, it generally must pay those gains out to shareholders, increasing their taxable distributions. This may adversely affect the after-tax performance of a Fund for shareholders with taxable accounts.
NAF SunAmerica NAF High SunAmerica SunAmerica NAF NAF U.S. U.S. Core SunAmerica Yield High NAF Tax Exempt Strategic SunAmerica Government Government Bond Core Bond Bond Income Municipal Insured Income Diversified Securities Securities Fund Fund* Fund Fund Bond Fund Fund Fund Income Fund Fund Fund ---- ---------- ----- ---------- --------- ---------- --------- ----------- ---------- ---------- 94% N/A 57% 119% 48% 24% 46% 57% 193% 1,561%**
-------- * The SunAmerica Core Bond Fund has not yet commenced operations. ** SunAmerica U.S. Government Securities Fund's holdings of "TBA" securities during the year ended March 31, 2001 was a substantial factor in the higher portfolio turnover rate for the Fund for such fiscal period. 53 Additional Information Independent Auditors Currently PricewaterhouseCoopers LLP serves as the independent auditors of the Acquired Funds and also serves as the independent auditors of the Acquiring Funds. If the Reorganizations are completed, it is currently anticipated that PricewaterhouseCoopers LLP will serve as the independent auditors of the Combined Funds. The principal business address of PricewaterhouseCoopers LLP is 1177 Avenue of the Americas, New York, New York 10036. Custodian State Street acts as the custodian of the assets of the Acquired Funds and Acquiring Funds. If the Reorganizations are completed, it is currently anticipated that State Street will continue to serve as the custodian of the Combined Funds. The principal business address of State Street is 1776 Heritage Drive, North Quincy, Massachusetts 02171. Transfer Agent Boston Financial Data Services, Inc., 66 Brooks Drive, Braintree, Massachusetts 02184, serves as the transfer agent with respect to each Acquired Fund. State Street, 1776 Heritage Drive, North Quincy, MA 02171, serves as the transfer agent with respect to each Acquiring Fund. Transfer agent functions are performed for State Street by National Financial Data Services, P.O. Box 219572, Kansas City, MO 64121-5972, an affiliate of State Street. Each transfer agent is responsible for the issuance, transfer and redemption of shares and the opening, maintenance and servicing of shareholder accounts for the respective Fund. If the Reorganizations are completed, it is currently anticipated that State Street will continue to serve as the transfer agent of the Combined Funds. Capital Stock Each Acquired Fund is authorized to issue an unlimited number of full and fractional shares of beneficial interest, par value $0.001 per share, divided into classes as follows:
Fund Classes Offered ---- --------------- A, B, C, Institutional Class II NAF Core Bond Fund and Institutional Class I A, B, C, Institutional Class II NAF High Yield Bond Fund and Institutional Class I NAF Municipal Bond Fund A, B and C NAF Strategic Income Fund A, B, C and Institutional Class I NAF U.S. Government Securities Fund A, B, C and Institutional Class I
Each Acquiring Fund is authorized to issue an unlimited number of full and fractional shares of beneficial interest, par value $0.01 per share, divided into classes as follows:
Classes Offered (upon consummation of the Fund reorganization) ---- --------------- SunAmerica Core Bond Fund A, B, II, Z and I SunAmerica High Income Fund A, B, II, Z and I SunAmerica Tax Exempt Insured Fund A, B and II SunAmerica Diversified Income Fund A, B, II and I SunAmerica U.S. Government Securities Fund A, B, II and I
54 See "--Shareholder Rights" above and "Capital Stock" in the North American Funds Statement and "Description of Shares" in the SunAmerica Income Funds Statement for further discussion of the rights and preferences attributable to shares of each Acquired Fund and each Acquiring Fund, respectively. See "Summary" above and "Section II: Fees and Expenses" (in the case of Class A, Class B and Class C shares), "Section II: Fees and Expenses of the North American Funds--Institutional Class I Shares" (in the case of Institutional Class I shares) and "Section II: Fees and Expenses of the North American Funds--Class II Shares" (in the case of Class II shares) in the Acquired Funds Prospectuses and "Fund Highlights--What are the Fund's Expenses?" in the Acquiring Funds Prospectus for further discussion on the expenses attributable to shares of the Acquired Funds and the Acquiring Funds, respectively. See "Issuance and Distribution of Corresponding Shares" for a description of the classes of Corresponding Shares to be issued in the Reorganizations. Each of North American Funds and SunAmerica Income Funds is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of such a trust may, under certain circumstances, be held personally liable as partners for its obligations. However, the Declaration of Trust of each of North American Funds and SunAmerica Income Funds contains an express disclaimer of shareholder liability for acts or obligations of each Acquired Fund and Acquiring Fund, respectively, and provides for indemnification and reimbursement of expenses out of that Fund's property for any shareholder held personally liable for the obligations of that Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Funds themselves would be unable to meet their obligations. Given the above limitations on shareholder personal liability and the nature of the Funds' assets and operations, the possibility that such a Fund would be unable to meet its obligations is remote and each of North American Funds and SunAmerica Income Funds believes the risk of personal liability to shareholders is also, therefore, remote. Shareholder Inquiries Shareholder inquiries with respect to the Acquired Funds may be addressed to each Acquired Fund at 286 Congress Street, Boston, Massachusetts 02210 or by calling toll free 1-800-872-8037. Shareholder inquiries with respect to the Acquiring Funds may be addressed to each Acquiring Fund at The SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204 or by calling toll free 1- 800-858-8850. 55 THE REORGANIZATIONS General Under each Plan, the applicable Acquiring Fund will acquire substantially all of the assets, and assume substantially all of the liabilities, of the respective Acquired Fund solely in exchange for an equal aggregate value of Corresponding Shares of such Acquiring Fund. Upon receipt by an Acquired Fund of Corresponding Shares, such Acquired Fund will distribute such Corresponding Shares to its shareholders, as described below. All issued and outstanding shares of the Acquired Funds will be cancelled, and each Acquired Fund's existence as a separate investment portfolio of North American Funds will be terminated as soon as practicable following consummation of the respective Reorganization. Generally, the assets transferred by an Acquired Fund to the respective Acquiring Fund will include all investments of such Acquired Fund held in its portfolio as of the Valuation Time and all other assets of such Acquired Fund as of such time. In the course of each Reorganization, each holder, if any, of Class A, Class B, Class C, Institutional Class II and Institutional Class I shares of an Acquired Fund will receive Class A, Class B, Class II, Class Z and Class I Corresponding Shares, respectively, of the respective Acquiring Fund. No sales charges will be imposed on the Corresponding Shares issued in connection with the Reorganizations. Each Acquired Fund will distribute the Corresponding Shares received by it in connection with its Reorganization pro rata to its shareholders in exchange for such shareholders' proportional interests in such Acquired Fund. The Corresponding Shares received by an Acquired Fund's shareholders will have the same aggregate net asset value as each such shareholder's interest in such Acquired Fund as of the Valuation Time. See "--Terms of the Plans--Valuation of Assets and Liabilities" for information concerning the calculation of net asset value. Since the Corresponding Shares will be issued at net asset value in exchange for the net assets of an Acquired Fund having a value equal to the aggregate net asset value of the shares of such Acquired Fund as of the Valuation Time, the net asset value per share of the respective Acquiring Fund should remain virtually unchanged solely as a result of the applicable Reorganization. Thus, the Reorganizations should not result in dilution of the net asset value of the Acquired Funds or the Acquiring Funds immediately following consummation of the Reorganizations. However, as a result of the Reorganizations, a shareholder of an Acquired Fund may hold a smaller percentage of ownership in the respective Acquiring Fund than he or she did in the Acquired Fund prior to the Reorganizations. In addition, a shareholder of an Acquired Fund may end up with a different number of shares compared to what he or she originally held, but the total dollar value of shares held will remain the same. If the shareholders of the Acquired Funds approve the Reorganizations at the Meeting, all required regulatory approvals are obtained, and certain conditions are either met or waived, it is expected that the Reorganizations will take place during the fourth calendar quarter of 2001. One Reorganization is not dependent on the consummation of any other Reorganization. If an Acquired Fund's shareholders do not approve the respective Reorganization, the NAF Board will consider other possible courses of action which may be in the best interests of shareholders. 56 Terms of the Plans The following is a summary of the significant terms of the Plans. This summary is qualified in its entirety by reference to the Plans, a form of which is attached hereto as Exhibit II. Valuation of Assets and Liabilities The respective assets and liabilities of the Acquired Funds and the Acquiring Funds will be valued as of the Valuation Time. The assets in each Fund will be valued according to the procedures set forth under "Transaction Policies--Valuation of Shares" and "Determination of Net Asset Value" in the Acquiring Funds Prospectus and the Acquiring Funds Statement, respectively. Purchase orders for an Acquired Fund's shares which have not been confirmed as of the Valuation Time will be treated as assets of such Acquired Fund for purposes of the respective Reorganization; redemption requests with respect to an Acquired Fund's shares which have not settled as of the Valuation Time will be treated as liabilities of such Acquired Fund for purposes of the respective Reorganization. Issuance and Distribution of Corresponding Shares On the Closing Date (as defined in the Plans), each Acquiring Fund will issue to the respective Acquired Fund a number of full and fractional Corresponding Shares the aggregate net asset value of which will equal the aggregate net asset value of shares of such Acquired Fund as of the Valuation Time. Such Acquired Fund will then distribute the Corresponding Shares received by it pro rata to its shareholders of record as of the Valuation Time in exchange for such shareholders' proportional interests in such Acquired Fund. Such issuance and distribution will be done as follows: each holder, if any, of Class A, Class B, Class C, Institutional Class II and Institutional Class I shares of an Acquired Fund will receive Class A, Class B, Class II, Class Z and Class I Corresponding Shares, respectively, of the respective Acquiring Fund. The Corresponding Shares received by an Acquired Fund's shareholder will have the same aggregate net asset value as such shareholder's interest in such Acquired Fund as of the Valuation Time. Expenses All costs of the Reorganizations will be borne by AIG or an affiliate thereof, regardless of whether the Reorganizations are consummated. No portion of the expenses of the Reorganizations will be borne directly or indirectly by the Funds or their shareholders. Required Approvals The completion of each Reorganization is conditioned upon, among other things, the receipt of certain regulatory approvals, including the receipt of an order from the Commission pursuant to Section 17(b) of the Investment Company Act. An application for such order has been filed with the Commission; however, there is no assurance that it will be received. In addition, the Declaration of Trust of North American Funds (as amended to date) requires approval of each Reorganization by the affirmative vote of the respective Acquired Fund's shareholders representing no less than a majority of the outstanding voting securities of that Fund, voting together as a single class, cast at a meeting at which a quorum is present. "Majority" for this purpose under the Investment Company Act means the lesser of (i) more than 50% of the outstanding shares of the applicable Acquired Fund and (ii) 67% or more of the shares of that Acquired Fund represented at the Meeting if more than 50% of such shares are represented. As a condition to the Reorganizations involving the High Yield Bond Funds and the Strategic Income Funds, the respective Acquiring Funds must obtain shareholder approval to change the investment objective of the respective Acquiring Fund to resemble more closely that of the Acquired Fund. 57 Amendments and Conditions The Plans may be amended at any time prior to the Closing Date with respect to any of the terms therein. The obligations of each Acquired Fund and Acquiring Fund pursuant to the respective Plan are subject to various conditions, including the requisite approval of the respective Reorganization by such Acquired Fund's shareholders, the receipt of an opinion of counsel as to tax matters and the confirmation by the respective Acquired Fund and Acquiring Fund of the continuing accuracy of their respective representations and warranties contained in such Plan. Termination, Postponement and Waivers Each Plan may be terminated, and the respective Reorganization abandoned at any time, whether before or after adoption thereof by the respective Acquired Fund's shareholders, prior to the Closing Date or the Closing Date may be postponed: (i) by mutual agreement of the NAF Board and the SunAmerica Board; (ii) by an Acquired Fund if any condition to such Acquired Fund's obligations has not been fulfilled or waived; or (iii) by an Acquiring Fund if any condition to such Acquiring Fund's obligations has not been fulfilled or waived. NAF Board Considerations: Potential Benefits to Shareholders as a Result of the Reorganizations In approving the Reorganizations, based upon their evaluation of all relevant information, and after meeting with counsel to the NAF Independent Trustees regarding the legal issues involved, the NAF Board considered that, following each Reorganization, shareholders of an Acquired Fund will remain invested in a mutual fund which has substantially the same or a similar investment objective and similar, though not identical, investment techniques. In addition, the NAF Board considered the following, among other things: . Terms and conditions of the Reorganizations. . The fact that the Acquiring Funds will assume substantially all the liabilities of the respective Acquired Funds. . The historical performance records of the Acquired Funds and the Acquiring Funds (other than SunAmerica Core Bond Fund). . The gross and net expense ratios of the Acquired Funds and the Acquiring Funds before the Reorganizations, the anticipated gross and net expense ratios of the SunAmerica Core Bond Fund and the estimated expense ratios of the Combined Funds on a pro forma basis after the Reorganizations. . The relative annual rates of advisory fees payable by the Acquired and Acquiring Funds. . The fact that the Reorganizations would not result in dilution of Acquired Fund shareholders' interests. . The fact that AGAM has agreed to waive fees or reimburse expenses for the Acquired Funds, but there is no assurance that the current fee waivers and expense reimbursements would continue after February 28, 2002. . The fact that SAAMCo has contractually and voluntarily agreed to waive fees or reimburse expenses for certain classes of Acquiring Fund shares. . The investment experience, expertise and resources of SAAMCo and other service providers to the Acquiring Funds in the areas of distribution, investment, and shareholder services. . The service and distribution resources available to the Acquiring Funds and compatibility of the Funds' service features available to shareholders. 58 . The fact that each Reorganization has been structured with the intention that it qualify for Federal income tax purposes as a tax-free reorganization under the Code. . The fact that AIG or an affiliate thereof will bear all expenses relating to the Reorganizations. . The effect of the Reorganizations on Acquired Fund shareholders and the value of their interests. . Alternatives available to Acquired Fund shareholders, including the ability to redeem their shares. With respect to the NAF High Yield Bond Fund and NAF Strategic Income Fund, the NAF Board considered that the respective Acquiring Fund will change its investment objective and policies to more closely resemble that of each Acquired Fund, and will retain New AGIM as Subadviser, subject to approval by Acquiring Fund shareholders. As a condition to each Reorganization, the respective Acquiring Fund will seek shareholder approval of a change in investment objective to align the investment strategies and techniques of the High Yield Bond and Strategic Combined Funds to those of the respective Acquired Funds. The SunAmerica Board has already approved the necessary changes. In addition, the SunAmerica Board has approved the retention of New AGIM to serve as Subadviser to the Tax Exempt Insured Combined Fund upon consummation of the applicable Reorganization, subject to approval of the shareholders of the SunAmerica Tax Exempt Insured Fund. In addition, the NAF Board considered the potential for reduced operating expenses due to economies of scale following the Reorganizations. The net assets of each Acquiring Fund (other than the Core Bond Combined Fund) will increase by the amount of the net assets of each of the respective Acquired Funds at the time of the Reorganizations. Since the fixed expenses of the Combined Funds (other than the Core Bond Combined Fund) will be spread over a larger asset base, management anticipates that shareholders of these Funds are likely to benefit from reduced overall operating expenses over time as a result of economies of scale expected after the Reorganizations. With respect to the High Yield Bond Combined Fund, this increase in net assets may cause a lower advisory fee rate to apply in accordance with the applicable advisory fee break point schedule. Although the operating expenses of certain Combined Funds on a pro forma basis (as though the Reorganizations were completed on March 31, 2001) are higher than those of the respective Acquired Fund, this is after taking into account certain fee waivers and expense reimbursements that are in place with respect to the Acquired Funds through February 28, 2002. There can be no assurance that AGAM would continue with these waivers and reimbursements past that date. 59 The table below sets forth the total net assets of each of the Acquiring Funds and each of the Acquired Funds, in each case as of March 31, 2001, as well as the net assets of each of the Combined Funds, on a pro forma basis, assuming the Reorganizations had been completed on such date. The SunAmerica Core Bond Fund is newly created and has not yet commenced operations. Accordingly, it had no assets as of such date. Total Net Assets as of March 31, 2001 SunAmerica Core Bond Pro Forma Core Bond NAF Core Bond Fund Fund Combined Fund Class A $ 4,515,465 Class A N/A Class A $ 4,515,465 Class B $ 4,249,519 Class B N/A Class B $ 4,249,519 Class C $ 3,013,782 Class II N/A Class II $ 3,013,782 Institutional Class I N/A Class I $ 22,083,376 Class I $ 22,083,376 Class Z N/A Class Z $321,862,517 Institutional Class II $321,862,517 Total N/A Total $355,724,659 Total $355,724,659 SunAmerica High Pro Forma High Yield NAF High Yield Bond Fund Income Fund Bond Combined Fund Class A $ 509,518 Class A $ 52,966,252 Class A $ 53,475,770 Class B $ 3,054,455 Class B $ 67,138,996 Class B $ 70,193,421 Class C $ 1,006,996 Class II $ 20,382,737 Class II $ 21,389,733 Institutional Total $140,487,955 Class I $ 2,138,250 Class I $ 2,138,250 Class Z $ 62,945,618 Institutional Class II $ 62,945,618 Total $210,142,792 Total $ 69,654,837 SunAmerica Tax Exempt Pro Forma Municipal NAF Municipal Bond Fund Insured Fund Bond Combined Fund Class A $ 8,591,093 Class A $ 72,393,871 Class A $ 80,984,964 Class B $ 7,979,498 Class B $ 16,301,949 Class B $ 24,281,447 Class C $ 4,092,241 Class II $ 720,950 Class II $ 4,813,191 Total $ 20,662,832 Total $ 89,416,770 Total $110,079,602 SunAmerica Diversified Pro Forma Strategic NAF Strategic Income Fund Income Fund Combined Fund Class A $ 7,497,415 Class A $ 30,923,542 Class A $ 38,420,957 Class B $ 13,313,079 Class B $ 16,741,565 Class B $ 30,054,644 Class C $ 12,646,764 Class II $ 4,020,990 Class II $ 16,667,754 Institutional Total $ 51,686,097 Class I $ 2,729,718 Class I $ 2,729,718 Total $ 87,873,073 Total $ 36,186,976 SunAmerica U.S. Pro Forma U.S. NAF U.S. Government Government Securities Government Securities Securities Fund Fund Combined Fund Class A $ 33,746,846 Class A $169,523,987 Class A $203,270,833 Class B $ 9,485,878 Class B $ 32,085,141 Class B $ 41,571,019 Class C $ 7,443,184 Class II $ 3,302,887 Class II $ 10,746,071 Institutional Total $204,912,015 Class I $ 0 Class I $ 0 Total $255,587,923 Total $ 50,675,908
60 In addition to the potential economies of scale which may be realized through combination of the Funds, the NAF Board also considered the advantage of eliminating the competition and duplication of effort inherent in marketing funds that have similar investment objectives. The NAF Board considered that certain fixed costs, such as printing of prospectuses and reports sent to shareholders, legal and audit fees, and registration fees would be spread across a larger asset base (except for the Core Bond Combined Fund). Over time, this would tend to lower the expense ratio borne by shareholders of both the Acquiring Funds and the Acquired Funds. To illustrate potential benefits to the Acquired Funds as a result of the Reorganizations, including potential economies of scale, see the total and net operating expenses, as a percentage of net assets, for the Acquired Funds and the Acquiring Funds as of March 31, 2001, and the total and net operating expenses, as a percentage of net assets, for the Combined Funds, on a pro forma basis, assuming the Reorganizations had been completed as of such date, under "Fee Tables" above. In addition, because SunAmerica has broad distribution channels, it is also possible that the asset base for the Combined Funds will increase over the long term, which would tend to result in a lower overall operating expense ratio. Of course, there is no guarantee that such increases in asset base would in fact occur. AGAM is contractually obligated to provide the fee reductions and expense reimbursements referenced in the "Fee Tables" above through February 28, 2002. If shareholders do not approve the Reorganizations, each Acquired Fund will continue with its current fee structure except that there is no assurance that AGAM would continue to provide such fee reductions and reimbursements past this date. If shareholders approve the Reorganizations, the respective Combined Funds' expense structure will apply. Based on the foregoing, together with other factors and information considered to be relevant and recognizing that there can be no assurance that any operating efficiencies or other benefits will in fact be realized, the NAF Board concluded that the Reorganizations present no significant risks or costs (including legal, accounting and administrative costs) that would outweigh the benefits discussed above. In connection with the approval of the Reorganizations, the NAF Board also approved directed brokerage arrangements with certain brokers to reduce the costs that might otherwise be incurred to align the portfolios of each of the Acquired Funds with those of the respective Acquiring Funds to facilitate a smooth transition upon consummation of the Reorganizations. Because the Acquired Funds and Acquiring Funds have substantially the same or similar investment objectives and similar investment strategies, it is not anticipated that the securities held by an Acquired Fund will be sold in significant amounts in order to comply with the objectives and investment practices of the respective Acquiring Fund in connection with the applicable Reorganization. The Acquired Funds will not dispose of assets to an extent or in a manner that would jeopardize the tax-free nature of the Reorganizations under the Code. However, the disposition of assets by an Acquired Fund may result in the realization of taxable gains or losses by Acquired Fund shareholders. In approving the Reorganizations, the NAF Board, including all of the NAF Independent Trustees, determined that each Reorganization is in the best interests of the respective Acquired Fund and its shareholders. In addition, the NAF Board, including all of the NAF Independent Trustees, also determined that the interests of the shareholders of each Acquired Fund would not be diluted as a result of effecting the respective Reorganization, because each such shareholder will receive Corresponding Shares of the Acquiring Fund having an aggregate net asset value equal to the aggregate net asset value of his or her shares of the Acquired Fund outstanding as of the Valuation Time. Consequently, the NAF Board approved the Plans and directed that each Plan be submitted to the shareholders of each respective Acquired Fund for approval. The Board of Trustees of North American Funds unanimously recommends that the shareholders of each Acquired Fund approve the respective Plan. Approval of the respective Plan by one Acquired Fund is not contingent upon approval of the respective Plan by any other Acquired Fund. The SunAmerica Board has also approved the Plans on behalf of the Acquiring Funds. 61 Federal Income Tax Consequences of the Reorganizations General Each Reorganization has been structured with the intention that it qualify for Federal income tax purposes as a tax-free reorganization under Section 368(a) of the Code. This means that, in the opinion of counsel, no gain or loss will be recognized by a shareholder of an Acquiring Fund for Federal income tax purposes as a result of a Reorganization. As a condition to the closing of each Reorganization, each of the Acquired Funds and Acquiring Funds will receive an opinion of Shearman & Sterling, counsel to the Acquiring Funds, substantially to the effect that, among other things, for Federal income tax purposes, upon consummation of each Reorganization (i) no gain or loss will be recognized by an Acquired Fund or an Acquiring Fund as a result of its respective Reorganization, (ii) no gain or loss will be recognized by a shareholder of an Acquired Fund upon his or her receipt of Corresponding Shares in the respective Reorganization solely in exchange for his or her shares of such Acquired Fund, (iii) each Acquired Fund and each Acquiring Fund will be a "party to a reorganization" under Section 386(b) of the Code, (iv) the holding period of the assets of an Acquired Fund acquired by the respective Acquiring Fund will include the period during which such assets were held by the Acquired Fund, (v) the holding period for Corresponding Shares of an Acquiring Fund received by each shareholder of the respective Acquired Fund in exchange for his or her shares in the Acquired Fund will include the period during which such shareholder held shares of the Acquired Fund (provided the Acquired Fund shares were held as capital assets on the date of the exchange), and (vi) immediately after a Reorganization, the tax basis of the Corresponding Shares received by shareholders of the respective Acquired Fund in such Reorganization will be equal, in the aggregate, to the tax basis of the shares of such Acquired Fund surrendered in exchange therefor. Shearman & Sterling's opinion will be based upon certain representations made by the parties to the Reorganizations. An opinion of counsel does not have the effect of a private letter ruling from the Internal Revenue Service ("IRS") and is not binding on the IRS or any court. If a Reorganization is consummated but fails to qualify as a reorganization within the meaning of Section 368 of the Code, the Reorganization would be treated as a taxable sale of assets followed by a taxable liquidation of the respective Acquired Fund, and Acquired Fund shareholders would recognize a taxable gain or loss equal to the difference between their basis in the Acquired Fund shares and the fair market value of the Corresponding Shares received. To the extent an Acquiring Fund has unrealized capital gains at the time of the respective Reorganization, the respective Acquired Fund's shareholders may incur taxable gains in the year that such Acquiring Fund realizes and distributes those gains. This will be true notwithstanding that the unrealized gains were reflected in the price of such Acquiring Fund's shares at the time they were exchanged for assets of such Acquired Fund in the respective Reorganization. Conversely, shareholders of an Acquiring Fund would share in unrealized capital gains of the respective Acquired Fund after the respective Reorganization and bear a tax consequence on the subsequent realization of such gains. This paragraph is not relevant for the NAF Core Bond Fund because its Acquiring Fund is newly formed. To the extent that an Acquired Fund has loss carryforwards at the time of the respective Reorganization, Acquired Fund shareholders may not be able to benefit from such loss carryforwards after the Reorganizations. Shareholders should consult their tax advisers regarding the effect of the Reorganizations in light of their individual circumstances. As the foregoing relates only to Federal income tax consequences, shareholders also should consult their tax advisers as to the non-United States, state, local and other tax consequences of the Reorganizations. Status as a Regulated Investment Company The Acquired Funds, the SunAmerica High Income Fund, the SunAmerica Tax Exempt Insured Fund, the SunAmerica Diversified Income Fund and the SunAmerica U.S. Government Securities Fund have elected and qualified and the SunAmerica Core Bond Fund intends to elect and qualify to be taxed as regulated investment companies under Sections 851-855 of the Code, and, after the Reorganizations, the Acquiring Funds intend to continue to operate or continue to qualify as regulated investment companies. An Acquired Fund's existence as a separate investment portfolio of North American Funds will be terminated as soon as practicable following the consummation of the applicable Reorganization. 62 Capitalization The following table sets forth the capitalization of each Acquired Fund and each Acquiring Fund as of March 31, 2001, and the capitalization of each Combined Fund, on a pro forma basis, as if the Reorganizations had occurred on that date. As a newly created series of SunAmerica Income Funds, the SunAmerica Core Bond Fund had no assets as of March 31, 2001.
NAF Core Bond Fund SunAmerica Core Bond Fund ------------------------------------------------------------ ---------------------------------------- Institutional Institutional Class A Class B Class C Class I Class II Class A Class B Class II Class I Class Z ---------- ---------- ---------- ------------- ------------- ------- ------- -------- ------- ------- Total Net Assets.......... $4,515,465 $4,249,519 $3,013,782 $22,083,376 $321,862,517 N/A N/A N/A N/A N/A Shares Outstanding..... 457,086 430,487 305,287 2,227,897 32,558,483 N/A N/A N/A N/A N/A Net Asset Value Per Share....... $ 9.88 $ 9.87 $ 9.87 $ 9.91 $ 9.89 N/A N/A N/A N/A N/A Pro Forma Core Bond Combined Fund --------------------------------------------------------- Class A Class B Class II Class I Class Z ---------- ---------- ---------- ----------- ------------ Total Net Assets.......... $4,515,465 $4,249,519 $3,013,782 $22,083,376 $321,862,517 Shares Outstanding..... 457,086 430,487 305,287 2,227,897 32,558,483 Net Asset Value Per Share....... $ 9.88 $ 9.87 $ 9.87 $ 9.91 $ 9.89
NAF High Yield Bond Fund SunAmerica High Income Fund --------------------------------------------------------- ----------------------------------- Institutional Institutional Class A Class B Class C Class I Class II Class A Class B Class II -------- --------- ---------- ------------- ------------- ----------- ----------- ----------- Total Net Assets.......... $509,770 3,055,963 $1,007,493 2,139,306 62,926,703 $52,966,252 $67,138,966 $20,382,737 Shares Outstanding..... 61,382 368,456 121,476 258,058 7,611,784 10,532,517 13,341,244 4,039,070 Net Asset Value Per Share....... $ 8.30 $ 8.29 $ 8.29 $ 8.29 $ 8.27 $ 5.03 $ 5.03 $ 5.05 Pro Forma High Yield Bond Combined Fund ---------------------------------------------------------- Class A Class B Class II Class I Class Z ----------- ----------- ----------- ---------- ----------- Total Net Assets.......... $53,475,770 $70,193,421 $21,389,733 $2,138,250 $62,945,618 Shares Outstanding..... 10,633,813 13,948,492 4,238,475 425,099 12,514,039 Net Asset Value Per Share....... $ 5.03 $ 5.03 $ 5.05 $ 5.03 $ 5.03
SunAmerica Tax Exempt Insured Pro Forma Municipal Bond Combined NAF Municipal Bond Fund Fund Fund -------------------------------- -------------------------------- ---------------------------------- Class A Class B Class C Class A Class B Class II Class A Class B Class II ---------- ---------- ---------- ----------- ----------- -------- ----------- ----------- ---------- Total Net Assets... $8,591,093 $7,979,498 $4,092,241 $72,393,871 $16,301,949 $720,950 $80,984,964 $24,281,447 $4,813,191 Shares Outstanding........ 857,262 795,479 407,967 5,560,423 1,251,982 55,383 6,217,779 1,862,541 368,505 Net Asset Value Per Share.............. $ 10.02 $ 10.03 $ 10.03 $ 13.02 $ 13.02 $ 13.02 $ 13.02 $ 13.02 $ 13.02
NAF Strategic Income Fund SunAmerica Diversified Income Fund ------------------------------------------------ ---------------------------------- Institutional Class A Class B Class C Class I Class A Class B Class II ---------- ----------- ----------- ------------- ----------- ----------- ---------- Total Net Assets.......... $7,509,117 $13,333,858 $12,666,503 $2,733,978 $30,923,542 $16,741,565 $4,020,990 Shares Outstanding..... 934,033 1,658,275 1,575,224 339,570 9,178,230 4,959,910 1,190,805 Net Asset Value Per Share.. $ 8.04 $ 8.04 $ 8.04 $ 8.05 $ 3.37 $ 3.38 $ 3.38 Pro Forma Strategic Combined Fund ---------------------------------------------- Class A Class B Class II Class I ----------- ----------- ----------- ---------- Total Net Assets.......... $38,420,957 $30,054,644 $16,667,754 $2,729,718 Shares Outstanding..... 11,402,982 8,898,691 4,932,451 810,005 Net Asset Value Per Share.. $ 3.37 $ 3.38 $ 3.38 $ 3.37
SunAmerica U.S. Government NAF U.S. Government Securities Fund Securities Fund ----------------------------------------------- ----------------------------------- Institutional Class A Class B Class C Class I Class A Class B Class II ----------- ---------- ---------- ------------- ------------ ----------- ---------- Total Net Assets.......... $33,746,846 $9,485,878 $7,443,184 N/A $169,523,987 $32,085,141 $3,302,887 Shares Outstanding..... 3,434,666 965,374 757,505 N/A 19,032,935 3,602,311 370,663 Net Asset Value Per Share....... $ 9.83 $ 9.83 $ 9.83 N/A $ 8.91 $ 8.91 $ 8.91 Pro Forma U.S. Government Securities Combined Fund -------------------------------------------- Class A Class B Class II Class I ------------ ----------- ----------- ------- Total Net Assets.......... $203,270,883 $41,571,019 $10,746,071 N/A Shares Outstanding..... 22,817,281 4,666,050 1,205,336 N/A Net Asset Value Per Share....... $ 8.91 $ 8.91 $ 8.91 N/A
The table set forth above should not be relied upon to reflect the number of shares to be received in the Reorganizations; the actual number of shares to be received will depend upon the net asset value and number of shares outstanding of each Fund at the Valuation Time. A stock split of 1.650255775, 1.648086922, 1.641518889, 1.647300219 and 1.644034959 for NAF High Yield Bond Fund Class A, Class B, Class C, Institutional Class I and Institutional Class II, respectively, is assumed to have occurred prior to the Reorganization. A stock split of 2.381877541, 2.375227733, 2.375310530 and 2.385385462 for NAF Strategic Income Fund Class A, Class B, Class C and Institutional Class I, respectively, is assumed to have occurred prior to the reorganization. 63 GENERAL INFORMATION CONCERNING THE MEETING Date, Time and Place of Meeting The Meeting will be held on November 7, 2001, at the principal executive office of North American Funds, 286 Congress Street, Boston, Massachusetts 02210 at 10:00 a.m., Eastern Time. Solicitation, Revocation and Use of Proxies A shareholder executing and returning a proxy has the power to revoke it at any time prior to its exercise by executing a superseding proxy (i.e., later- dated and signed), by submitting a notice of revocation to the Secretary of North American Funds or by subsequently registering his or her vote by telephone or via the Internet. In addition, although mere attendance at the Meeting will not revoke a proxy, a shareholder present at the Meeting may withdraw his or her proxy and vote in person. All shares represented by properly executed proxies received at or prior to the Meeting, unless such proxies previously have been revoked, will be voted at the Meeting in accordance with the directions on the proxies; if no direction is indicated on a properly executed proxy, such shares will be voted "FOR" approval of the New Investment Advisory Agreement, the New Subadvisory Agreement and the respective Plan. It is not anticipated that any matters other than the approval of the New Investment Advisory Agreement, the New Subadvisory Agreement and approval of the respective Plan will be brought before the Meeting. If, however, any other business properly is brought before the Meeting, proxies will be voted in accordance with the judgment of the persons designated on such proxies. Record Date and Outstanding Shares Only holders of record of shares of the Acquired Funds at the close of business on September 17, 2001 (the "Record Date") are entitled to vote at the Meeting or any adjournment thereof. The following chart sets forth the shares of each class of the Acquired Funds issued and outstanding and entitled to vote at the close of business on the Record Date.
Institutional Institutional Total Shares NAF Fund Class A Shares Class B Shares Class C Shares Class II Shares Class I Shares for each Fund -------- -------------- -------------- -------------- --------------- -------------- --------------- NAF Core Bond Fund...... 585,319.3610 733,014.6370 458,926.0800 31,828,093.3140 2,230,188.3110 35,835,541.7030 NAF High Yield Bond Fund................... 87,499.2410 392,563.0120 294,784.3630 8,048,542.4980 388,650.5310 9,212,039.6450 NAF Municipal Bond Fund................... 835,944.7210 571,660.7380 220,451.6550 N/A N/A 1,628,057.1140 NAF Strategic Income Fund................... 992,521.1010 1,534,273.5080 1,550,765.8110 N/A 355,550.9740 4,363,111.3940 NAF U.S. Government Securities Fund........ 3,577,239.9830 860,369.8060 729,899.8580 N/A N/A 5,167,509.6470
64 Security Ownership of Certain Beneficial Owners and Management of the Funds To the knowledge of each Fund, as of the August 31, 2001, the following shareholders, if any, owned more than 5% of the outstanding voting securities of such Fund:
Percentage of Class of Shares of Combined Fund After the Percentage of Reorganization on Name and Address Class of Shares and a Pro Forma Name of Fund of Shareholder Type of Ownership Basis* ------------ ---------------- ------------------- ---------------- NAF Core Bond Fund Aggressive 9.39% of 9.39% of Class I Growth LifeStyle Institutional Fund Class I, owned c/o VALIC of record 2919 Allen Pkwy #L7-01 Houston TX 77019 Moderate Growth 34.83% of 34.83% of Class LifeStyle Fund Institutional I c/o VALIC Class I, owned 2919 Allen Pkwy of record #L7-01 Houston TX 77019 Bear Sterns 54.59% of Class 54.59% of Class Securities Corp B, beneficially B FBO 044-51064-12 owned 1 Metrotech Center Brooklyn NY 11201 Bear Sterns 9.07% of Class 9.07% of Class B Securities Corp B, beneficially FBO 046-55300-12 owned 1 Metrotech Center North Brooklyn NY 11201-3870 Bear Sterns 8.99% of Class 8.99% of Class A Securities Corp A, beneficially FBO 220-59840-12 owned 1 Metrotech Center North Brooklyn NY 11201-3870 SSBT-FBO 7.42% of Class 7.42% of Class A Spousal IRA A, beneficially Dewey J. James owned 7728 S. Bennett Ave., Chicago, IL 60649-4606 Donaldson Lufkin 35.84% of Class 35.84% of Class Jenrette C, owned of II Securities record Corporation, Inc., PO Box 2052 Jersey City, NJ 07303-2052 SSBT-FBO 11.61% of Class 11.61% of Class Shirley Einhorn C, beneficially II IRA owned R/O IRA, 10662 SW 79 Terr, Miami Fl 33173- 2913 SSBT-FBO 10.06% of Class 10.06% of Class Ronald Cruz IRA C, beneficially II R/O Ronald C. owned Cruz 3913 Crestmont Dr. Santa Maria, CA 93455-3027
65
Percentage of Class of Shares of Combined Fund After the Percentage of Reorganization on Name and Address Class of Shares and a Pro Forma Name of Fund of Shareholder Type of Ownership Basis* ------------ ---------------- ------------------- ---------------- Conservative 42.02% of 42.02% of Class Growth Lifestyle Institutional I Fund Class I, owned c/o VALIC of record Attn: Greg Seward 2919 Allen Pkwy #L7-01 Houston TX 77019 Valic Trust FBO 5.05% of 5.05% of Class I Def. Comp. Plan Institutional Attn: Kathleen Class I, Janos, beneficially 2929 Allen owned Parkway #L3-00 Houston, TX 77019-7100 American General 100.00% of 100.00% of Class Beth Dobbs Plan Institutional Z Admin, Class II, owned 2929 Allen of record Parkway #L3-00 Houston, TX 77019-7100 NAF High Yield Bond American General 99.98% of 99.98% of Class Fund Beth Dobbs Plan Institutional Z Admin, Class II, 2929 Allen owned of record Parkway #L3-00 Houston, TX 77019-7100 Moderate Growth 85.23% of 85.23% of Class Lifestyle Fund Institutional I c/o VALIC Class I, owned Attn: Greg of record Seward 2919 Allen Pkwy #L7-01 Houston, TX 77019 INVESCO FBO AG 25.89% of 25.89% of Class Employees Thrift Institutional I & Incentive Plan Class I, #001248 beneficially PO Box 4054 owned Concord, CA 94524-4054 Louise Kritic 12.43% of Class 0.13% of Class A UMT Robert A, Kristic, owned of record Myra Bortoli PO Box 772 Ferndale, CA 95536-0772 SSBT FBO 10.42% of Class 0.11% of Class A Shirley C A, beneficially Karfunkle owned 106 Doe Ln, Kennet Sq, PA 19348-2722 Kenneth Royce 9.11% of 0.10% of Class A Barrett Class A, & Ariel Cecil owned of record Barrett TOD, 2160 Swift Blvd, Houston, TX 77030-1216
66
Percentage of Class of Shares of Combined Fund After the Percentage of Reorganization on Name and Address Class of Shares and a Pro Forma Name of Fund of Shareholder Type of Ownership Basis* ------------ ---------------- ------------------- ---------------- Stifel Nicolaus 7.03% of Class 0.08% of Class A & Co. Inc. A/C A, beneficially 7017-4242 owned Lucretia L Reno Trust, 501 North Broadway, St Louis, MO 63102-2188 Donna R. Labadie 6.93% of Class 0.07% of Class A 8811 Gallant A, Dr., Huntington owned of record Beach, CA 92646- 4625 Roy E. Diemer 5.51% of Class 0.06% of Class A 8021 Christian A, CT owned of record #306, Oxmoor Lodge, Louisville, KY 40222 Bear Sterns FBO 5.60% of Class 0.23% of Class B 046-07518-29 B, 1 Metrotech beneficially Center North, owned Brooklyn, NY 11201-3870 SSBT FBO 8.91% of Class 0.89% of Class Mary Ann Shutes C, II 69253 Parkside beneficially Dr., Dsrt owned Hot Spgs, CA 92241-8205 Elva C. Black 7.84% of Class 0.78% of Class TOD Douglas C. C, II Black, Dennis E. owned of record Black, 27100 W 107th St., Olathe, KS 66061-7488 Peggy J. Davis 7.02% of Class 0.70% of Class TTTEE C, II Peggy J Davis owned of record Trust, DTD 12/30/97, 2010 W 93rd St. Lenexa, KS 66220-3664 Jon W. Davis 7.02% of Class 0.70% of Class TTTEE C, II John W Davis owned of record Trust, DTD 12/30/97, 20100 W 93rd St, Lenexa, KS 66220-3664 NAF Municipal Bond VALIC Seed 30.04% of Class 3.14% of Class A Fund Account, Attn: A, Greg Kingston, owned of record 2912 Allen Pkwy #L7-01, Houston, TX 77019-2142 VALIC Seed 43.36% of Class 13.12% of Class Account, Attn: B, owned of B Greg Kingston, record 2912 Allen Pkwy #L7-01, Houston, TX 77019-2142
67
Percentage of Class of Shares of Combined Fund After the Percentage of Reorganization on Name and Address Class of Shares and a Pro Forma Name of Fund of Shareholder Type of Ownership Basis* ------------ ---------------- ------------------- ---------------- Roselyn 5.13% of Class 1.55% of Class B Indictor, B, Tod Penny & beneficially Craig Indictor owned 402 Slema Street, Philadelphia, PA 19116-2754 Claire Koh 33.00% of Class 18.87% of Class 963C Heritage C, II Hills Drive, owned of record Somers, NY 10589-1913 NFSC FBO 10.02% of Class 5.73% of Class Scott B. C, II Huchingson, owned of record Christine A Huchinson, 12843 Westledge Ln, St. Louis, MO 63131-2237 Donaldson Lufkin 6.84% of Class 3.91% of Class Jenrette C, II Securities owned of record Corporation Inc., PO Box 2052, Jersey City, NJ 07303-2052 Louise T. 5.23% of Class 2.99% of Class Futrell C, II PO Box 1314 owned of record Southern Pines, NC 28388-1314 NAF Strategic VALIC Seed 15.47% of Class 3.22% of Class A Income Fund Account A, owned of Attn: Greg record Kingston, 2919 Allen Pkwy #L7-01, Houston, TX 77019-2142 VALIC Seed 7.84% of Class 3.18% of Class B Account B, owned of Attn: Greg record Kingston, 2919 Allen Pkwy #L7-01, Houston, TX 77019-2142 VALIC Seed 100.00% of 100.0% of Class Account Institutional I Attn: Greg Class I, owned Kingston, of record 2919 Allen Pkwy #L7-01, Houston, TX 77019-2142 Bear Sterns 7.23% of Class 2.93% of Class B Securities Corp- B, beneficially FBO 044-51064-12 owned 1 Metrotech Center North, Brooklyn, NY 11201-3870 NAF U.S. Government Paine Webber- 5.30% of Class 0.96% of Class A Securities Fund FBO First A, beneficially Federal Savings owned Attn: Walter Manijak, 633 Lasalle Street, Ottowa, IL 61350-2931
68
Percentage of Class of Shares of Combined Fund After the Percentage of Reorganization on Name and Address Class of Shares and a Pro Forma Name of Fund of Shareholder Type of Ownership Basis* ------------ ---------------- ------------------- ---------------- SSBT-FBO 7.03% of Class 4.80% of Class Rollover IRA C, beneficially II Carole A. owned Eisenstein 122 Totowa Road, Totowa, NJ 07512-2709 Paget Partners 6.30% of Class 4.51% of Class L.P. C, owned of II PO Box 5430, record Incline VLG, NV 89450-5430 SunAmerica Core None N/A N/A Bond Fund** Sun America High None N/A N/A Income Fund SunAmerica Tax Merrill Lynch, 23.26% of Class 16.21% of Class Exempt Insured Pierce, Fenner & B, owned of B Fund Smith, Inc., record Attn: Service Team Sec # 97MD7 4800 Deer Lake Dr. East Jacksonville, FL 32246 Donaldson Lufkin 5.52% of Class 3.85% of Class B Jenrette B, Securities owned of record Corporation Inc., PO Box 2052 Jersey City, NJ 07303 SunAmerica Asset 12.26% of Class 5.66% of Class Management Corp II, owned of II Attn: Frank record Carram The SunAmerica Center 733 Third Ave. 4th Floor New York, NY 10017 First Clearing 11.49% of Class 5.31% of Class Corp., Robert P. II, owned of II Mayhoffer, record A/C 5493-7235 10164 Empire Road Lafayette, CO 80026 Donaldson Lufkin 31.30% of Class 14.46% of Class Jenrette II, owned of II Securities record Corporation Inc., PO Box 2052 Jersey City, NJ 07303 SunAmerica Merrill Lynch, 6.60% of Class 3.93% of Class B Diversified Income Pierce, Fenner & B, Fund Smith, Inc., owned of record Attn: Service Team Sec # 97MD7 4800 Deer Lake Dr. East Jacksonville, FL 32246 SunAmerica U.S. Merrill Lynch, 6.34% of Class 4.90% of Class B Government Securities Fund Pierce, Fenner & B, Smith, Inc., owned of record Attn: Service Team Sec # 97OK6 4800 Deer Lake Dr. East Jacksonville, FL 32246 Merrill Lynch, 11.06% of Class 3.73% of Class Pierce, II, owned of II Fenner & Smith, record Inc., Attn: Service Team Sec # 97MD4 4800 Deer Lake Dr. East Jacksonville, FL 32246
69 -------- * Assuming that the value of the shareholder's interest in the Fund on the date of consummation of the applicable Reorganization was the same as on August 31, 2001. ** The SunAmerica Core Bond Fund has not yet commenced operations. At August 31, 2001, the directors and officers of North American Funds as a group (13 persons) owned an aggregate of less than 1% of the outstanding shares of each Acquired Fund and owned an aggregate of less than 1% of the outstanding shares of common stock of North American Funds. At August 31, 2001, the directors and officers of SunAmerica Income Funds as a group (8 persons) owned an aggregate of less than 1% of the outstanding shares of each Acquiring Fund and owned an aggregate of less than 1% of the outstanding shares of common stock of SunAmerica Income Funds. Voting Rights and Required Vote Each share of an Acquired Fund is entitled to one vote, with fractional shares voting proportionally. Shareholders of each Acquired Fund vote separately on whether to approve the New Investment Advisory Agreement and approval with respect to one Acquired Fund is not dependent on approval with respect to any other Acquired Fund. Shareholders of each Acquired Fund also vote separately on whether to approve the New Subadvisory Agreement and approval with respect to one Acquired Fund is not dependent upon approval with respect to any other Acquired Fund. Approval of the Plan with respect to one Acquired Fund is not dependent on approval of the Plan with respect to any other Acquired Fund. Approval of the New Investment Advisory Agreement and each Plan with respect to an Acquired Fund requires the affirmative vote of a majority of the outstanding voting securities of that Fund, voting together as a single class, cast at a meeting at which a quorum is present. "Majority" for this purpose under the Investment Company Act means the lesser of (i) more than 50% of the outstanding shares of the applicable Acquired Fund and (ii) 67% or more of the shares of that Acquired Fund represented at the Meeting if more than 50% of such shares are represented. Broker-dealer firms holding shares of any of the Acquired Funds in "street name" for the benefit of their customers and clients will request the instructions of such customers and clients on how to vote their shares before the Meeting. Broker-dealer firms will not be permitted to grant voting authority without instructions with respect to the approval of the Plans. Each of the Acquired Funds will include shares held of record by broker-dealers as to which such authority has been granted in its tabulation of the total number of shares present for purposes of determining whether the necessary quorum of shareholders exists. Properly executed proxies that are returned but that are marked "abstain" or with respect to which a broker-dealer has declined to vote on any proposal ("broker non-votes") will be counted as present for the purposes of determining a quorum. Assuming the presence of a quorum, abstentions and broker non-votes if applicable will have the same effect as a vote against approval of the New Investment Advisory Agreement, New Subadvisory Agreement, or the applicable Plan, as the case may be. A quorum for each Acquired Fund for purposes of the Meeting consists of thirty percent of the shares of such Acquired Fund entitled to vote at the Meeting, present in person or by proxy. If, by the time scheduled for each Meeting, a quorum of the applicable Acquired Fund's shareholders is not present or if a quorum is present but sufficient votes in favor of approval of the New Investment Advisory Agreement or of the applicable Plan are not received from the shareholders of the respective Acquired Fund, the persons named as proxies may propose one or more adjournments of such Meeting to permit further solicitation of proxies from shareholders. An affirmative vote of less than thirty percent of the shares of the applicable Acquired Fund present in person or by proxy and entitled to vote at the session of the Meeting will suffice for any such adjournment. The persons named as proxies will vote in favor of any such adjournment if they determine that adjournment and additional solicitation are reasonable and in the interests of the shareholders of such Acquired Fund. The votes of shareholders of the Acquiring Funds are not being solicited by this Proxy Statement and Prospectus and are not required to carry out the respective Reorganizations. 70 ADDITIONAL INFORMATION The expenses of preparation, printing and mailing of the enclosed form of proxy, the accompanying Notice and this Proxy Statement and Prospectus will be borne by AIG or an affiliate thereof. Such expenses are currently estimated to be approximately $250,000 in the aggregate. AIG or an affiliate thereof will reimburse banks, brokers and others for their reasonable expenses in forwarding proxy solicitation materials to beneficial owners of the Acquired Funds and will reimburse certain officers or employees that it may employ for their reasonable expenses in assisting in the solicitation of proxies from such beneficial owners. In order to obtain the necessary quorums at the Meetings, supplementary solicitation may be made by mail, telephone, telegraph or personal interview by officers of the Acquired Funds. North American Funds has retained Georgeson Shareholder, 17 State Street, New York, New York 10004 to aid in the solicitation of proxies at a cost estimated not to exceed $16,600, plus out-of- pocket expenses. The cost of soliciting proxies will be borne by AIG or an affiliate thereof. This Proxy Statement and Prospectus does not contain all of the information set forth in the registration statements and the exhibits relating thereto which North American Funds and SunAmerica Income Funds have filed on behalf of their respective Funds with the Commission under the Securities Act and the Investment Company Act, to which reference is hereby made. The Funds are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act, and in accordance therewith file reports and other information with the Commission. Proxy material, reports and other information filed by the Funds (or by North American Funds on behalf of the Acquired Funds or SunAmerica Income Funds on behalf of the Acquiring Funds) can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such materials also can be obtained by mail from the Public Reference Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington, D.C. 20549, at prescribed rates. The Commission maintains a web site (http://www.sec.gov) that contains the Statements of Additional Information and Prospectuses of the Acquired Funds and Acquiring Funds, as well as other material incorporated by reference and other information regarding the Funds. LEGAL PROCEEDINGS There are no material legal proceedings to which any of the Funds is a party. LEGAL OPINIONS Certain legal matters in connection with the issuance of Corresponding Shares have been passed upon by Robert M. Zakem, Esq., General Counsel for SAAMCo. Certain tax matters in connection with the Reorganizations will be passed upon for the Funds by Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022, counsel for the Acquiring Funds. EXPERTS The financial highlights of the Acquired Funds and Acquiring Funds (other than the SunAmerica Core Bond Fund) incorporated by reference into this Proxy Statement and Prospectus have been so included in reliance on the reports of PricewaterhouseCoopers LLP, independent auditors, given on their authority as experts in auditing and accounting. The principal business address of PricewaterhouseCoopers LLP is 1177 Avenue of the Americas, New York, New York 10036. 71 SHAREHOLDER PROPOSALS A shareholder proposal intended to be presented at any subsequent meeting of shareholders of an Acquired Fund must be received by such Acquired Fund in a reasonable time before the solicitation by the Board of Trustees of North American Funds relating to such meeting is to be made in order to be considered in such Acquired Fund's proxy statement and form of proxy relating to the meeting. If proposals Nos. 2(a)-(e) are approved at the Meeting, there will likely not be any future shareholder meetings of the Acquired Funds. By Order of the Board of Trustees of North American Funds /s/ John I. Fitzgerald John I. Fitzgerald Secretary, North American Funds 72 EXHIBIT IA INVESTMENT ADVISORY AGREEMENT INVESTMENT ADVISORY AGREEMENT made as of this day of , 2001, between NORTH AMERICAN FUNDS, a Massachusetts business trust (the "Trust"), and AMERICAN GENERAL ASSET MANAGEMENT CORP., a Delaware corporation (the "Adviser"). In consideration of the mutual covenants contained herein, the parties agree as follows: 1. APPOINTMENT OF ADVISER The Trust hereby appoints the Adviser, subject to the supervision of the Trustees of the Trust and the terms of this Agreement, as the investment adviser for each of the portfolios of the Trust specified in Appendix A to this Agreement (the "Funds"). The Adviser accepts such appointment and agrees to render the services and to assume the obligations set forth in this Agreement commencing on its effective date. The Adviser will be an independent contractor and will have no authority to act for or represent the Trust in any way or otherwise be deemed an agent unless expressly authorized in this Agreement or another writing by the Trust and Adviser. 2. DUTIES OF THE ADVISER a. Subject to the general supervision of the Trustees of the Trust and the terms of this Agreement, the Adviser will at its own expense select, contract with, and compensate investment subadvisers ("Subadvisers") to manage the investments and determine the composition of the assets of the Funds; provided, that any contract with a Subadviser (the "Subadvisory Agreement") shall be in compliance with and approved as required by the Investment Company Act of 1940, as amended ("Investment Company Act"). Subject always to the direction and control of the Trustees of the Trust, the Adviser will monitor compliance of each Subadviser with the investment objectives and related investment policies, as set forth in the Trust's registration statement as filed with the Securities and Exchange Commission, of any Fund or Funds under the management of such Subadviser, and review and report to the Trustees of the Trust on the performance of such Subadviser. b. The Adviser will oversee the administration of all aspects of the Trust's business and affairs and in that connection will furnish to the Trust the following services: (1) Office and Other Facilities. The Adviser shall furnish to the Trust office space in the offices of the Adviser or in such other place as may be agreed upon by the parties hereto from time to time and such other office facilities, utilities and office equipment as are necessary for the Trust's operations. (2) Trustees and Officers. The Adviser agrees to permit individuals who are directors, officers or employees of the Adviser to serve (if duly elected or appointed) as Trustees or President, Vice President, Treasurer or Secretary of the Trust, without remuneration from or other cost to the Trust. (3) Other Personnel. The Adviser shall furnish to the Trust, at the Trust's expense, any other personnel necessary for the operations of the Trust. (4) Financial, Accounting, and Administrative Services. The Adviser shall maintain the existence and records of the Trust; maintain the registrations and qualifications of Trust shares under federal and state law; and perform all administrative, financial, accounting, bookkeeping and recordkeeping functions of the Trust except for any such functions that may be performed by a third party pursuant to a custodian, transfer agency or service agreement executed by the Trust. The Trust shall reimburse the Adviser for its expenses associated with all such services, including the compensation and related personnel expenses and expenses of office space, office equipment, utilities and miscellaneous office expenses, except any such expenses directly attributable to officers or employees of the Adviser who are serving as President, Vice President, Treasurer or Secretary of the Trust. The Adviser shall determine the expenses to be reimbursed by the Trust pursuant to expense allocation procedures established by the Adviser in accordance with generally accepted accounting principles. IA-1 (5) Liaisons with Agents. The Adviser, at its own expense, shall maintain liaison with the various agents and other persons employed by the Trust (including the Trust's transfer agent, custodian, independent accountants and legal counsel) and assist in the coordination of their activities on behalf of the Trust. Fees and expenses of such agents and other persons will be paid by the Trust. (6) Reports to Trust. The Adviser shall furnish to or place at the disposal of the Trust such information, reports, valuations, analyses and opinions as the Trust may, at any time or from time to time, reasonably request or as the Adviser may deem helpful to the Trust, provided that the expenses associated with any such materials furnished by the Adviser at the request of the Trust shall be borne by the Trust. (7) Reports and Other Communications to Trust Shareholders. The Adviser shall assist the Trust in developing (but not pay for) all general shareholder communications including regular shareholder reports. 3. EXPENSES ASSUMED BY THE TRUST In addition to paying the advisory fee provided for in Section 4, the Trust will pay all expenses of its organization, operations and business not specifically assumed or agreed to be paid by the Adviser as provided in this Agreement, by a Subadviser as provided in a Subadvisory Agreement, or by the Distributor as provided in the Distribution Agreement. Without limiting the generality of the foregoing, the Trust, in addition to certain expenses described in Section 2 above, shall pay or arrange for the payment of the following: a. Custody and Accounting Services. All expenses of the transfer, receipt, safekeeping, servicing and accounting for the Trust's cash, securities, and other property, including all charges of depositories, custodians and other agents, if any; b. Shareholder Servicing. All expenses of maintaining and servicing shareholder accounts, including all charges of the Trust's transfer, shareholder recordkeeping, dividend disbursing, redemption, and other agents, if any; c. Shareholder Communications. All expenses of preparing, setting in type, printing, and distributing reports and other communications to shareholders; d. Shareholder Meetings. All expenses incidental to holding meetings of Trust shareholders, including the printing of notices and proxy material, and proxy solicitation therefor; e. Prospectuses. All expenses of preparing, setting in type, and printing of annual or more frequent revisions of the Trust's prospectus and statement of additional information and any supplements thereto and of mailing them to shareholders; f. Pricing. All expenses of computing the net asset value per share for each of the Funds, including the cost of any equipment or services used for obtaining price quotations and valuing its investment portfolio; g. Communication Equipment. All charges for equipment or services used for communication between the Adviser or the Trust and the custodian, transfer agent or any other agent selected by the Trust; h. Legal and Accounting Fees and Expenses. All charges for services and expenses of the Trust's legal counsel and independent auditors; i. Trustees and Officers. Except as expressly provided otherwise in paragraph 2.b.(2), all compensation of Trustees and officers, all expenses incurred in connection with the service of Trustees and officers, and all expenses of meetings of the Trustees and Committees of Trustees; j. Federal Registration Fees. All fees and expenses of registering and maintaining the registration of the Trust under the Investment Company Act and the registration of the Trust's shares under the Securities Act of 1933, as amended (the "1933 Act"), including all fees and expenses incurred in connection with the preparation, setting in type, printing and filing of any registration statement and prospectus under the 1933 Act or the Investment Company Act, and any amendments or supplements that may be made from time to time; IA-2 k. State Registration Fees. All fees and expenses of qualifying and maintaining qualification of the Trust and of the Trust's shares for sale under securities laws of various states or jurisdictions, and of registration and qualification of the Trust under all other laws applicable to the Trust or its business activities (including registering the Trust as a broker-dealer, or any officer of the Trust or any person as agent or salesman of the Trust in any state); l. Issue and Redemption of Trust Shares. All expenses incurred in connection with the issue, redemption, and transfer of Trust shares, including the expense of confirming all share transactions, and of preparing and transmitting certificates for shares of beneficial interest in the Trust; m. Bonding and Insurance. All expenses of bond, liability and other insurance coverage required by law or regulation or deemed advisable by the Trust's Trustees including, without limitation, such bond, liability and other insurance expense that may from time to time be allocated to the Trust in a manner approved by its Trustees; n. Brokerage Commissions. All brokers' commissions and other charges incident to the purchase, sale, or lending of the Trust's portfolio securities; o. Taxes. All taxes or governmental fees payable by or with respect to the Trust to federal, state, or other governmental agencies, domestic or foreign, including stamp or other transfer taxes, and all expenses incurred in the preparation of tax returns; p. Trade Association Fees. All fees, dues, and other expenses incurred in connection with the Trust's membership in any trade association or other investment organization; and q. Nonrecurring and Extraordinary Expenses. Such nonrecurring expenses as may arise, including the costs of actions, suits, or proceedings to which the Trust is, or is threatened to be made, a party and the expenses the Trust may incur as a result of its legal obligation to provide indemnification to its Trustees, officers, agents and shareholders. 4. COMPENSATION OF ADVISER The Adviser will pay the Subadviser with respect to each Fund the compensation specified in Appendix A to this Agreement (the "Compensation"). 5. NON-EXCLUSIVITY The services of the Adviser to the Trust are not to be deemed to be exclusive, and the Adviser shall be free to render investment advisory or other services to others (including other investment companies) and to engage in other activities. It is understood and agreed that the directors, officers, and employees of the Adviser are not prohibited from engaging in any other business activity or from rendering services to any other person, or from serving as partners, officers, directors, trustees or employees of any other firm or corporation, including other investment companies. 6. SUPPLEMENTAL ARRANGEMENTS The Adviser may enter into arrangements with other persons affiliated with the Adviser to better enable it to fulfill its obligations under this Agreement for the provision of certain personnel and facilities to the Adviser. 7. CONFLICTS OF INTEREST It is understood that Trustees, officers, agents and shareholders of the Trust are or may be interested in the Adviser as directors, officers, stockholders, or otherwise; that directors, officers, agents and stockholders of the Adviser are or may be interested in the Trust as Trustees, officers, shareholders or otherwise; that the Adviser may be interested in the Trust; and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder except as otherwise provided in the Agreement and Declaration of Trust of the Trust and the Articles of Incorporation of the Adviser, respectively, or by specific provision of applicable law. IA-3 8. REGULATION The Adviser shall submit to all regulatory and administrative bodies having jurisdiction over the services provided pursuant to this Agreement any information, reports or other material which any such body by reason of this Agreement may request or require pursuant to applicable laws and regulations. The Adviser will comply in all material respects with Rule 17j-1 under the Investment Company Act. 9. DURATION AND TERMINATION OF AGREEMENT Unless sooner terminated, this Agreement will continue in effect for a period more than two years from the date of its execution only so long as such continuance is specifically approved at least annually either by the Trustees of the Trust or by a majority of the outstanding voting securities of each of the Portfolios, provided that in either event such continuance shall also be approved by the vote of a majority of the Trustees of the Trust who are not interested persons (as defined in the Investment Company Act) of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. This Agreement may be terminated at any time, without the payment of any penalty, by the Trustees of the Trust, by the vote of a majority of the outstanding voting securities of the Trust, or with respect to any Fund by the vote of a majority of the outstanding voting securities of such Fund, on sixty days' written notice to the Adviser, or by the Adviser on sixty days' written notice to the Trust. This Agreement will automatically terminate, without the payment of any penalty, in the event of its assignment (as defined in the Investment Company Act). 10. PROVISION OF CERTAIN INFORMATION BY ADVISER The Adviser will promptly notify the Trust in writing of the occurrence of any of the following events: a. the Adviser fails to be registered as an investment adviser under the Investment Advisers Act or under the laws of any jurisdiction in which the Adviser is required to be registered as an investment adviser in order to perform its obligations under this Agreement; b. the Adviser is served or otherwise receives notice of any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, involving the affairs of the Trust; and c. the chief executive officer or controlling stockholder of the Adviser or the portfolio manager of any Fund changes. 11. AMENDMENTS TO THE AGREEMENT This Agreement may be amended by the parties only if such amendment is specifically approved by the vote of a majority of the outstanding voting securities of each of the Funds affected by the amendment and by the vote of a majority of the Trustees of the Trust who are not interested persons of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval shall be effective with respect to any Fund if a majority of the outstanding voting securities of the series of shares of that Fund vote to approve the amendment, notwithstanding that the amendment may not have been approved by a majority of the outstanding voting securities of (a) any other Fund affected by the amendment or (b) all the Funds of the Trust. 12. ENTIRE AGREEMENT This Agreement contains the entire understanding and agreement of the parties. 13. HEADINGS The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. IA-4 14. NOTICES All notices required to be given pursuant to this Agreement shall be delivered or mailed to the last known business address of the Trust or Adviser in person or by registered mail or a private mail or delivery service providing the sender with notice of receipt. Notice shall be deemed given on the date delivered or mailed in accordance with this section. 15. SEVERABILITY Should any portion of this Agreement for any reason be held to be void in law or in equity, the Agreement shall be construed, insofar as is possible, as if such portion had never been contained herein. 16. GOVERNING LAW The provisions of this Agreement shall be construed and interpreted in accordance with the laws of The Commonwealth of Massachusetts, or any of the applicable provisions of the Investment Company Act. To the extent that the laws of The Commonwealth of Massachusetts, or any of the provisions in this Agreement, con-flict with applicable provisions of the Investment Company Act, the latter shall control. 17. LIMITATION OF LIABILITY The Declaration of Trust establishing the Trust, dated September 29, 1988, as amended and restated February 18, 1994, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of The Commonwealth of Massachusetts, provides that the name "North American Funds" refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of the Trust shall be held to any personal liability, nor shall resort be had to their private property, for the satisfaction of any obligation or claim, in connection with the affairs of the Trust or any Fund thereof, but only the assets belonging to the Trust, or to the particular Fund with which the obligee or claimant dealt, shall be liable. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal by their duly authorized officers as of the date first mentioned above. North American Funds By: _________________________________ American General Asset Management Corp. By: _________________________________ IA-5 NORTH AMERICAN FUNDS EXHIBIT IB SUBADVISORY AGREEMENT AGREEMENT made as of , 2001, between AMERICAN GENERAL ASSET MANAGEMENT CORP., a Delaware corporation (the "Adviser"), AND AMERICAN GENERAL INVESTMENT MANAGEMENT L.P. (or an affiliate), a Delaware limited partnership (the "Subadviser"). In consideration of the mutual covenants contained herein, the parties agree as follows: 1. APPOINTMENT OF SUBADVISER The Subadviser undertakes to act as investment subadviser to, and, subject to the supervision of the Trustees of North American Funds (the "Trust") and the terms of this Agreement, to manage the investment and reinvestment of the assets of the series of the Trust specified in Appendix A to this Agreement as it shall be amended by the Adviser and the Subadviser from time to time (the "Funds"). The Subadviser will be an independent contractor and will have no authority to act for or represent the Trust or Adviser in any way except as expressly authorized in this Agreement or another writing by the Trust and Adviser. 2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST a. Subject always to the direction and control of the Trustees of the Trust, the Subadviser will manage the investments and determine the composition of the assets of the Funds in accordance with the Funds' registration statement, as amended. In fulfilling its obligations to manage the investments and reinvestments of the assets of the Funds, the Subadviser will: i. obtain and evaluate pertinent economic, statistical, financial and other information affecting the economy generally and individual companies or industries the securities of which are included in the Funds or are under consideration for inclusion in the Funds; ii. formulate and implement a continuous investment program for each Fund consistent with the investment objectives and related investment policies for each such Fund as described in the Trust's registration statement, as amended; iii. take whatever steps are necessary to implement these investment programs by the purchase and sale of securities including the placing of orders for such purchases and sales; iv. regularly report to the Trustees of the Trust with respect to the implementation of these investment programs; v. provide assistance to the Trust's Custodian regarding the fair value of securities held by the Funds for which market quotations are not readily available for purposes of enabling the Trust's Custodian to calculate net asset value; and vi. vote proxies in accordance with the Proxy Voting Policy of the Trust. b. The Subadviser, at its expense, will furnish (i) all necessary investment and management facilities, including salaries of personnel required for it to execute its duties faithfully, and (ii) administrative facilities, including bookkeeping, clerical personnel and equipment necessary for the efficient conduct of the investment affairs of the Funds (excluding determination of net asset value and shareholder accounting services). c. The Subadviser will select brokers and dealers to effect all transactions subject to the following conditions: The Subadviser will place all orders with brokers, dealers, or issuers, and will negotiate brokerage commissions if applicable. The Subadviser is directed at all times to seek to execute brokerage transactions for the Funds in accordance with such policies or practices as may be established by the Trustees and described in the Trust's registration statement as amended. The Subadviser may pay a broker-dealer which provides research and brokerage services a higher spread or commission for a particular IB-1 transaction than otherwise might have been charged by another broker- dealer, if the Subadviser determines that the higher spread or commission is reasonable in relation to the value of the brokerage and research services that such broker-dealer provides, viewed in terms of either the particular transaction or the Subadviser's overall responsibilities with respect to accounts managed by the Subadviser. The Subadviser may use for the benefit of the Subadviser's other clients, or make available to companies affiliated with the Subadviser or to its directors for the benefit of its clients, any such brokerage and research services that the Subadviser obtains from brokers or dealers. d. On occasions when the Subadviser deems the purchase or sale of a security to be in the best interest of the Fund as well as other clients of the Subadviser, the Subadviser to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be purchased or sold to attempt to obtain a more favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Subadviser in the manner the Subadviser considers to be the most equitable and consistent with its fiduciary obligations to the Fund and to its other clients. e. The Subadviser will maintain all accounts, books and records with respect to the Funds as are required of an investment adviser of a registered investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act") and Investment Advisers Act of 1940, as amended (the "Investment Advisers Act") and the rules thereunder. f. The Subadviser agrees to observe and comply with Rule 17j-1 under the Investment Company Act and its Code of Ethics (which shall comply in all material respects with Rule 17j-1, as the same may be amended from time to time). On a quarterly basis, the Subadviser will either (i) certify to the Adviser that the Subadviser and its Access Persons have complied with the Subadviser's Code of Ethics with respect to the Fund or (ii) identify any material violations which have occurred with respect to the Fund. In addition, the Subadviser will report at least annually to the Adviser concerning any other violations of the Subadviser's Code of Ethics which required significant remedial action and which were not previously reported. 3. COMPENSATION OF SUBADVISER The Adviser will pay the Subadviser with respect to each Fund the compensation specified in Appendix A to this Agreement. During the term of this Agreement, the following conditions apply: a. The fee shall be held in an interest-bearing escrow account with State Street Bank and Trust Company; b. If a majority of a Covered Fund's outstanding voting securities approve a new investment sub-advisory agreement (the "New Sub-Advisory Agreement") with the SUB-ADVISER within 150 days after the date hereof, the amount in the escrow account (including interest earned thereon) with respect to such Covered Fund shall be paid to the SUB-ADVISER; and c. If a majority of a Covered Fund's outstanding voting securities do not approve a New Sub-Advisory Agreement with the SUB-ADVISER within such 150-day period, the SUB-ADVISER shall be paid from the escrow account, the lesser of an amount equal to (i) any costs incurred in performing this Agreement (plus interest earned on that amount in the escrow account); or (ii) the total amount in the escrow account (plus interest earned thereon). IB-2 4. LIABILITY OF SUBADVISER Neither the Subadviser nor any of its employees shall be liable to the Adviser or Trust for any loss suffered by the Adviser or Trust resulting from any error of judgment made in the good faith exercise of the Subadviser's investment discretion in connection with selecting Fund investments except for losses resulting from willful misfeasance, bad faith or gross negligence of, or from reckless disregard of, the duties of the Subadviser or any of its partners or employees; and neither the Subadviser nor any of its employees shall be liable to the Adviser or Trust for any loss suffered by the Adviser or Trust resulting from any other matters to which this Agreement relates (i.e., those other matters specified in Sections 2 and 8 of this Agreement), except for losses resulting from willful misfeasance, bad faith, or gross negligence in the performance of, or from disregard of, the duties of the Subadviser or any of its partners or employees. 5. SUPPLEMENTAL ARRANGEMENTS The Subadviser may enter into arrangements with other persons affiliated with the Subadviser to better enable it to fulfill its obligations under this Agreement for the provision of certain personnel and facilities to the Subadviser. 6. CONFLICTS OF INTEREST It is understood that trustees, officers, agents and shareholders of the Trust are or may be interested in the Subadviser as trustees, officers, partners or otherwise; that directors, officers, agents and partners of the Subadviser are or may be interested in the Trust as trustees, officers, shareholders or otherwise; that the Subadviser may be interested in the Trust; and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder except as otherwise provided in the Agreement and Declaration of Trust of the Trust and the Certificate of Incorporation of the Subadviser, respectively, or by specific provision of applicable law. 7. REGULATION The Subadviser shall submit to all regulatory and administrative bodies having jurisdiction over the services provided pursuant to this Agreement any information, reports or other material which any such body by reason of this Agreement may request or require pursuant to applicable laws and regulations. 8. DURATION AND TERMINATION OF AGREEMENT Unless sooner terminated, this Agreement will continue in effect for a period more than two years from the date of its execution only so long as such continuance is specifically approved at least annually either by the Trustees of the Trust or by a majority of the outstanding voting securities of each of the Portfolios, provided that in either event such continuance shall also be approved by the vote of a majority of the Trustees of the Trust who are not interested persons (as defined in the Investment Company Act) of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. This Agreement may be terminated at any time, without the payment of any penalty, by the Trustees of the Trust, by the vote of a majority of the outstanding voting securities of the Trust, or with respect to any Portfolio by the vote of a majority of the outstanding voting securities of such Portfolio, on sixty days' written notice to the Adviser and the Subadviser, or by the Adviser or Subadviser on sixty days' written notice to the Trust and the other party. This Agreement will automatically terminate, without the payment of any penalty, in the event of its assignment (as defined in the Investment Company Act) or in the event the Advisory Agreement between the Adviser and the Trust terminates for any reason; provided that the termination of the Interim Investment Advisory Agreement between the Trust and the Adviser pursuant to Rule 15a-4 under the Investment Company Act upon shareholder approval of a definitive Investment Advisory Agreement with respect to a Portfolio shall not result in the termination of this Agreement as to such Portfolio. IB-3 9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER The Subadviser will promptly notify the Adviser in writing of the occurrence of any of the following events: a. the Subadviser fails to be registered as an investment adviser under the Investment Advisers Act or under the laws of any jurisdiction in which the Subadviser is required to be registered as an investment adviser in order to perform its obligations under this Agreement; b. the Subadviser is served or otherwise receives notice of any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board or body, involving the affairs of the Trust; and c. any change in actual control or management of the Subadviser or the portfolio manager of any Fund. 10. PROVISION OF CERTAIN INFORMATION BY THE ADVISER The Adviser shall furnish the Subadviser with copies of the Trust's Prospectus and Statement of Additional Information, and any reports made by the Trust to its shareholders, as soon as practicable after such documents become available. The Adviser shall furnish the Subadviser with any further documents, materials or information that the Subadviser may reasonably request to enable it to perform its duties pursuant to this Agreement. 11. SERVICES TO OTHER CLIENTS The Adviser understand, and has advised the Trust's Board of Trustees, that the Subadviser now acts, or may in the future act, as an investment adviser to fiduciary and other managed accounts and as investment adviser or subadviser to other investment companies. Further, the Adviser understands, and has advised the Trust's Board of Trustees that the Subadviser and its affiliates may give advice and take action for its accounts, including investment companies, which differs from advice given on the timing or nature of action taken for the Fund. The Subadviser is not obligated to initiate transaction for the Portfolio in any security which the Subadviser, its principals, affiliates or employees may purchase or sell for their own accounts or other clients. 12. AMENDMENTS TO THE AGREEMENT This Agreement may be amended by the parties only if such amendment is specifically approved by the vote of a majority of the outstanding voting securities of each of the Funds affected by the amendment and by the vote of a majority of the Trustees of the Trust who are not interested persons of any party to this Agreement cast in person at a meeting called for the purpose of voting on such approval. The required shareholder approval shall be effective with respect to any Fund if a majority of the outstanding voting securities of that Fund vote to approve the amendment, notwithstanding that the amendment may not have been approved by a majority of the outstanding voting securities of (a) any other Fund affected by the amendment or (b) all the series of the Trust. 13. ENTIRE AGREEMENT This Agreement contains the entire understanding and agreement of the parties. 14. HEADINGS The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. IB-4 15. NOTICES All notices required to be given pursuant to this Agreement shall be delivered or mailed to the last known business address of the Trust or applicable party in person or by registered mail or a private mail or delivery service providing the sender with notice of receipt. Notice shall be deemed given on the date delivered or mailed in accordance with this paragraph. 16. SEVERABILITY Should any portion of this Agreement for any reason be held to be void in law or in equity, the Agreement shall be construed, insofar as is possible, as if such portion had never been contained herein. 17. GOVERNING LAW The provisions of this Agreement shall be construed and interpreted in accordance with the laws of The Commonwealth of Massachusetts, or any of the applicable provisions of the Investment Company Act. To the extent that the laws of The Commonwealth of Massachusetts, or any of the provisions in this Agreement, conflict with applicable provisions of the Investment Company Act, the latter shall control. 18. LIMITATION OF LIABILITY The Amended and Restated Agreement and Declaration of Trust dated February 18, 1994, a copy of which, together with all amendments thereto (the "Declaration"), is on file in the office of the Secretary of The Commonwealth of Massachusetts, provides that the name "North American Funds" refers to the Trustees under the Declaration collectively as Trustees, but not as individuals or personally; and no Trustee, shareholder, officer, employee or agent of the Trust shall be held to any personal liability, nor shall resort be had to their private property, for the satisfaction of any obligation or claim, in connection with the affairs of the Trust or any portfolio thereof, but only the assets belonging to the Trust, or to the particular portfolio with which the obligee or claimant dealt, shall be liable. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal by their duly authorized officers as of the date first mentioned above. American General Asset Management Corp. By: _________________________________ American General Investment Management, L.P. By: _________________________________ IB-5 EXHIBIT II Agreement and Plan of Reorganization Dated as of September 28, 2001 Table of Contents
Page No. -------- 1.Defined Terms; Sections and Exhibits; Miscellaneous Terms........... 2 a.Definitions....................................................... 2 b.Use of Defined Terms.............................................. 6 c.Sections and Exhibits............................................. 6 d.Miscellaneous Terms............................................... 6 2.The Reorganization(s)............................................... 6 a.Transfer of Assets................................................ 6 b.Assumption of Liabilities......................................... 6 c.Issuance and Valuation of Corresponding Shares in the Reorganization..................................................... 6 d.Distribution of Corresponding Shares to the Acquired Fund Shareholders....................................................... 7 e.Interest; Proceeds................................................ 7 f.Valuation Time.................................................... 7 g.Evidence of Transfer.............................................. 7 h.Termination....................................................... 7 i.Separate Agreements; Reorganizations Not Conditioned on One Another............................................................ 7 3.Representations and Warranties of the Acquired Fund................. 7 a.Formation and Qualification....................................... 7 b.Licenses.......................................................... 8 c.Authority......................................................... 8 d.Financial Statements.............................................. 8 e.Semi-Annual Report to Shareholders................................ 8 f.Prospectus and Statement of Additional Information................ 8 g.Litigation........................................................ 8 h.Material Contracts................................................ 9 i.No Conflict....................................................... 9 j.Undisclosed Liabilities........................................... 9 k.Taxes............................................................. 9 l.Assets............................................................ 9 m.Consents.......................................................... 9 n.N-14 Registration Statement....................................... 9 o.Capitalization.................................................... 10 p.Books and Records................................................. 10 4.Representations and Warranties of the Acquiring Fund................ 10 a.Formation and Qualification....................................... 10 b.Licenses.......................................................... 10 c.Authority......................................................... 10 d.Financial Statements.............................................. 11 e.Intentionally Left Blank.......................................... 11 f.Prospectuses and Statements of Additional Information............. 11 g.Litigation........................................................ 11 h.Material Contracts................................................ 11 i.No Conflict....................................................... 11 j.Undisclosed Liabilities........................................... 11 k.Taxes............................................................. 11 l.Consents.......................................................... 12 m.N-l4 Registration Statement....................................... 12 n.Capitalization.................................................... 12 o.Corresponding Shares.............................................. 12
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Page No. -------- 5.Covenants of the Acquired Fund and the Acquiring Fund............... 12 a.Special Shareholders' Meeting..................................... 12 b.Unaudited Financial Statements.................................... 13 c.Share Ledger Records of the Acquiring Fund........................ 13 d.Conduct of Business............................................... 13 e.Termination of the Acquired Fund.................................. 13 f.Filing of N-14 Registration Statement............................. 13 g.Corresponding Shares.............................................. 13 h.Tax Returns....................................................... 13 i.Combined Proxy Statement and Prospectus Mailing................... 14 j.Confirmation of Tax Basis......................................... 14 k.Shareholder List.................................................. 14 6.Closing Date........................................................ 14 7.Conditions of the Acquired Fund..................................... 14 a.Representations and Warranties.................................... 14 b.Performance....................................................... 14 c.Shareholder Approval.............................................. 15 d.Approval of Board of Trustees..................................... 15 e.Deliveries by the Acquiring Fund.................................. 15 f.No Material Adverse Change........................................ 15 g.Absence of Litigation............................................. 16 h.Proceedings and Documents......................................... 16 i.N-14 Registration Statement; Acquiring Fund Post-Effective Amendment.......................................................... 16 j.Compliance with Laws; No Adverse Action or Decision............... 16 k.Commission Orders or Interpretations.............................. 16 8.Conditions of the Acquiring Fund.................................... 16 a.Representations and Warranties.................................... 16 b.Performance....................................................... 16 c.Shareholder Approval.............................................. 16 d.Approval of Board of Trustees..................................... 17 e.Deliveries by the Acquired Fund................................... 17 f.No Material Adverse Change........................................ 17 g.Absence of Litigation............................................. 17 h.Proceedings and Documents......................................... 17 i.N-l4 Registration Statement; Acquiring Fund Post-Effective Amendment.......................................................... 17 j.Compliance with Laws; No Adverse Action or Decision............... 17 k.Commission Orders or Interpretations.............................. 18 l.Dividends......................................................... 18 9.Termination, Postponement and Waivers............................... 18 a.Termination of Agreement.......................................... 18 b.Commission Order.................................................. 18 c.Effect of Termination............................................. 18 d.Waivers; Non-Material Changes..................................... 19 10.Survival of Representations and Warranties......................... 19 11.Other Matters...................................................... 19 a.Obligations....................................................... 19 b.Further Assurances................................................ 19 c.Notices........................................................... 19 d.Entire Agreement.................................................. 20 e.Amendment......................................................... 20 f.Governing Law..................................................... 20
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Page No. -------- g.Assignment......................................................... 20 h.Costs of the Reorganization........................................ 20 i.Severability....................................................... 20 j.Headings........................................................... 20 k.Counterparts....................................................... 20
iii AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of the 28th day of September 2001, by and between NORTH AMERICAN FUNDS, a Massachusetts business trust, on behalf of each Acquired Fund (as defined herein), each a separate investment portfolio of North American Funds, and SUNAMERICA INCOME FUNDS, a Massachusetts business trust, on behalf of each Acquiring Fund (as defined herein), each a separate investment portfolio of SunAmerica Income Funds. PLANS OF REORGANIZATION WHEREAS, this Agreement constitutes a separate agreement and plan of reorganization between North American Funds on behalf of each of its separate investment portfolios (each an "Acquired Fund," and collectively, the "Acquired Funds") and SunAmerica Income Funds on behalf of each of its separate investment portfolios (each an "Acquiring Fund," and collectively, the "Acquiring Funds") set forth below:
Acquired Fund: Acquiring Fund: -------------- --------------- High Yield Bond Fund (the "NAF High Yield Bond Fund")................................. SunAmerica High Income Fund, to be renamed SunAmerica High Yield Bond Fund (the "SunAmerica High Yield Bond Fund") U.S. Government Securities Fund (the "NAF U.S. Government Securities Fund")........... SunAmerica U.S. Government Securities Fund (the "SunAmerica U.S. Government Securities Fund") Municipal Bond Fund (the "NAF Municipal Bond Fund")...................................... SunAmerica Tax Exempt Insured Fund (the "SunAmerica Tax Exempt Insured Fund") Core Bond Fund (the "NAF Core Bond Fund").... SunAmerica Core Bond Fund (the "SunAmerica Core Bond Fund") Strategic Income Fund (the "NAF Strategic Income Fund")............................... SunAmerica Diversified Income Fund, to be renamed SunAmerica Strategic Income Fund (the "SunAmerica Strategic Income Fund")
WHEREAS, each Acquired Fund owns securities that generally are assets of the character in which the respective Acquiring Fund is permitted to invest; WHEREAS, each reorganization will consist of (i) the acquisition of an Acquired Fund's Assets (as defined herein), and assumption of that Acquired Fund's Assumed Liabilities (as defined herein), by the respective Acquiring Fund solely in exchange for an aggregate value of newly issued shares of beneficial interest, $.01 par value per share, of such Acquiring Fund (the "Shares"), equal to the net asset value of such Acquired Fund's Assets determined in accordance with Section 2(c) hereof, and (ii) the subsequent distribution by that Acquired Fund of the Shares to its shareholders in liquidation of the Acquired Fund, all upon and subject to the terms hereinafter set forth (each a "Reorganization," and collectively, the "Reorganizations"); WHEREAS, in the course of each Reorganization, shares of an Acquiring Fund will be issued to an Acquired Fund and distributed to the shareholders thereof as follows: each holder, if any, of Class A, Class B, Class C, Institutional Class I and Institutional Class II Shares of an Acquired Fund will be entitled to receive Class A, Class B, Class II, Class I and Class Z Shares, respectively (the "Corresponding Shares"), of the respective Acquiring Fund on the Closing Date (as defined herein); WHEREAS, the aggregate net asset value of the Corresponding Shares to be received by each shareholder of an Acquired Fund will equal the aggregate net asset value of the respective Acquired Fund shares owned by such shareholder as of the Valuation Time (as defined herein); WHEREAS, it is intended that each Reorganization described herein shall be a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and any successor provision and the parties intend, by executing this Agreement, to adopt a plan of reorganization within the meaning of Section 368(a) of the Code; and WHEREAS, the consummation of one Reorganization is not conditioned upon the consummation of any other Reorganization. AGREEMENT NOW, THEREFORE, in order to consummate each Reorganization and in consideration of the premises and the covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, each Acquired Fund and Acquiring Fund hereby agrees as follows: 1. Defined Terms; Sections and Exhibits; Miscellaneous Terms. a. Definitions. As used herein the following terms have the following respective meanings: "Acquired Fund" has the meaning ascribed thereto under the heading "Plans of Reorganization." For purposes of this Agreement, the term "Acquired Fund" shall refer to the NAF High Yield Bond Fund in respect of the High Yield Bond Funds Reorganization, the NAF U.S. Government Securities Fund in respect of the U.S. Government Securities Funds Reorganization, the NAF Municipal Bond Fund in respect of the Municipal Bond Funds Reorganization, the NAF Core Bond Fund in respect of the Core Bond Funds Reorganization, and the NAF Strategic Income Fund in respect of the Strategic Income Funds Reorganization. "Acquiring Fund" has the meaning ascribed thereto under the heading "Plans of Reorganization." For purposes of this Agreement, the term "Acquiring Fund" shall refer to the SunAmerica High Yield Bond Fund in respect of the High Yield Bond Funds Reorganization, the SunAmerica U.S. Government Securities Fund in respect of the U.S. Government Securities Funds Reorganization, the SunAmerica Tax Exempt Insured Fund in respect of the Municipal Bond Funds Reorganization, the SunAmerica Core Bond Fund in respect of the Core Bond Funds Reorganization, and the SunAmerica Strategic Income Fund in respect of the Strategic Income Funds Reorganization. "Acquiring Fund Post-Effective Amendment" has the meaning ascribed thereto in Section 5(l) hereof. "Agreement" has the meaning ascribed thereto in the introduction hereof. "Assets" has the meaning ascribed thereto in Section 2(a) hereof. For purposes of this Agreement, the term "Assets" shall refer to Assets of (i) the NAF High Yield Bond Fund in the case of the High Yield Bond Funds Reorganization, (ii) the NAF U.S. Government Securities in the case of the U.S. Government Securities Funds Reorganization, (iii) the NAF Municipal Bond Fund in the case of the Municipal Bond Funds Reorganization, (iv) the NAF Core Bond Fund in the case of the Core Bond Funds Reorganization, and (v) the NAF Strategic Income Fund in the case of the Strategic Income Funds Reorganization. "Assumed Liabilities" has the meaning ascribed thereto in Section 2(b) hereof. For purposes of this Agreement, the term "Assumed Liabilities" shall refer to the Assumed Liabilities of (i) the NAF High Yield Bond Fund in the case of the High Yield Bond Funds Reorganization, (ii) the NAF U.S. Government Securities Fund in the case of the U.S. Government Securities Funds Reorganization, (iii) the NAF Municipal Bond Fund in the case of the Municipal Bond Funds Reorganization, (iv) the NAF Core Bond in the case of the Core Bond Funds Reorganization, and (v) the NAF Strategic Income Fund in the case of the Strategic Income Funds Reorganization. "Closing Date" has the meaning ascribed thereto in Section 6 hereof. 2 "Code" has the meaning ascribed thereto under the heading "Plans of Reorganization." "Commission" shall mean the Securities and Exchange Commission. "Core Bond Funds Reorganization" consists of (i) the acquisition of the NAF Core Bond Fund's Assets, and assumption of the NAF Core Bond Fund's Assumed Liabilities, by the SunAmerica Core Bond Fund solely in exchange for an aggregate value of Corresponding Shares of the SunAmerica Core Bond Fund, equal to the net asset value of the NAF Core Bond Fund's Assets determined in accordance with Section 2(c) hereof, and (ii) the subsequent distribution by the NAF Core Bond Fund of such Corresponding Shares to its shareholders in proportion to such shareholders' interest in the NAF Core Bond Fund in liquidation of the NAF Core Bond Fund. "Corresponding Shares" has the meaning ascribed thereto under the heading "Plans of Reorganization." For purposes of this Agreement, the term "Corresponding Shares" shall refer to the Corresponding Shares of (i) the SunAmerica High Yield Bond Fund in the case of the High Yield Bond Funds Reorganization, (ii) the SunAmerica U.S. Government Securities Fund in the case of the U.S. Government Securities Funds Reorganization, (iii) the SunAmerica Tax Exempt Insured Fund in the case of the Municipal Bond Funds Reorganization, (iv) the SunAmerica Core Bond Fund in the case of the Core Bond Funds Reorganization, and (v) the SunAmerica Strategic Income Fund in the case of the Strategic Income Funds Reorganization. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Governmental Authority" shall mean any governmental or quasi- governmental authority, including, without limitation, any Federal, state, territorial, county, municipal or other governmental or quasi-governmental agency, board, branch, bureau, commission, court, arbitral body, department or other instrumentality or political unit or subdivision, whether domestic or foreign. "High Yield Bond Funds Reorganization" consists of (i) the acquisition of the NAF High Yield Bond Fund's Assets, and assumption of the NAF High Yield Bond Fund's Assumed Liabilities, by the SunAmerica High Yield Bond Fund solely in exchange for an aggregate value of Corresponding Shares of the SunAmerica High Yield Bond Fund, equal to the net asset value of the NAF High Yield Bond Fund's Assets determined in accordance with Section 2(c) hereof, and (ii) the subsequent distribution by the NAF High Yield Bond Fund of such Corresponding Shares to its shareholders in proportion to such shareholders' interest in the NAF High Yield Bond Fund in liquidation of the NAF High Yield Bond Fund. "Investment Company Act" shall mean the Investment Company Act of 1940, as amended. "Investments" shall mean, with respect to any Person, (i) the investments of such Person shown on the schedule of its investments as of the date set forth therein, with such additions thereto and deletions therefrom as may have arisen in the course of such Person's business up to such date; and (ii) all other assets owned by such Person or liabilities incurred as of such date. "Licenses" has the meaning ascribed thereto in Section 3(b) hereof. "Lien" shall mean any security agreement, financing statement (whether or not filed), mortgage, lien (statutory or otherwise), charge, pledge, hypothecation, conditional sales agreement, adverse claim, title retention agreement or other security interest, encumbrance, restriction, deed of trust, indenture, option, limitation, exception to or other title defect in or on any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale, lease, consignment or bailment given for security purposes, trust receipt or other title retention agreement with respect to any property or asset of such Person, whether direct, indirect, accrued or contingent. "Majority Shareholder Vote" shall mean 3 the lesser of (i) more than 50% of the outstanding shares of the Acquired Fund and (ii) 67% or more of the shares of the Acquired Fund represented at the special shareholders' meeting referenced in Section 5(a) hereof if more than 50% of such shares are represented. "Material Adverse Effect" shall mean, with respect to any Person, any event, circumstance or condition that, individually or when aggregated with all other similar events, circumstances or conditions could reasonably be expected to have, or has had, a material adverse effect on: (i) the business, property, operations, condition (financial or otherwise), results of operations or prospects of such Person or (ii) the ability of such Person to consummate the transactions contemplated hereunder in the manner contemplated hereby, other than, in each case, any change relating to the economy or securities markets in general. "Municipal Bond Funds Reorganization" consists of (i) the acquisition of the NAF Municipal Bond Fund's Assets, and assumption of the NAF Municipal Bond Fund's Assumed Liabilities, by the SunAmerica Tax Exempt Insured Fund solely in exchange for an aggregate value of Corresponding Shares of the SunAmerica Tax Exempt Insured Fund, equal to the net asset value of the NAF Municipal Bond Fund's Assets determined in accordance with Section 2(c) hereof, and (ii) the subsequent distribution by the NAF Municipal Bond Fund of such Corresponding Shares to its shareholders in proportion to such shareholders' interest in the NAF Municipal Bond Fund in liquidation of the NAF Municipal Bond Fund. "NAF Core Bond Fund" has the meaning ascribed thereto under the heading "Plans of Reorganization." "NAF High Yield Bond Fund" has the meaning ascribed thereto under the heading "Plans of Reorganization." "NAF Municipal Bond Fund" has the meaning ascribed thereto under the heading "Plans of Reorganization." "NAF Strategic Income Fund" has the meaning ascribed thereto under the heading "Plans of Reorganization." "NAF U.S. Government Securities Fund" has the meaning ascribed thereto under the heading "Plans of Reorganization." "North American Funds Declaration of Trust" shall mean the Amended and Restated Agreement and Declaration of Trust of North American Funds dated as of February 18, 1994, as amended or supplemented from time to time. "North American Funds Prospectuses" shall mean the prospectuses relating to the Acquired Funds each dated March 1, 2001, in each case as amended or supplemented. "North American Funds Statement of Additional Information" shall mean the statement of additional information relating to the Acquired Funds, dated March 1, 2001, as amended or supplemented. "N-14 Registration Statement" has the meaning ascribed thereto in Section 3(n) hereof. "Permitted Liens" shall mean, with respect to any Person, any Lien arising by reason of (i) taxes, assessments, governmental charges or claims that are either not yet delinquent, or being contested in good faith for which adequate reserves have been recorded, (ii) the Federal or state securities laws, and (iii) imperfections of title or encumbrances as do not materially detract from the value or use of the Assets or materially affect title thereto. "Person" shall mean any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint stock company, trust, unincorporated organization, or government or any agency or political subdivision thereof. "Reorganization" has the meaning ascribed thereto in the third paragraph under the heading "Plans of Reorganization" hereof. For purposes of this Agreement, the term "Reorganization" shall refer to the High Yield Bond Funds Reorganization, the U.S. Government Securities Funds Reorganization, the 4 Municipal Bond Funds Reorganization, the Core Bond Funds Reorganization or the Strategic Income Funds Reorganization, as the context requires. "RICs" has the meaning ascribed thereto in Section 3(b) hereof. "Rule 17a-8(a)" shall mean Rule 17a-8(a) under the Investment Company Act. "S&S" shall mean Shearman & Sterling, counsel to SunAmerica Income Funds and the Acquiring Funds. "Section 17 Order" shall mean an order obtained from the Commission pursuant to Section 17(b) of the Investment Company Act to exempt consummation of a Reorganization from the prohibitions of Section 17(a) of such Act. "Securities Act" shall mean the Securities Act of 1933, as amended. "Shares" has the meaning ascribed thereto under the heading "Plans of Reorganization. " "Strategic Income Funds Reorganization" consists of (i) the acquisition of the NAF Strategic Income Fund's Assets, and assumption of the NAF Strategic Income Fund's Assumed Liabilities, by the SunAmerica Strategic Income Fund solely in exchange for an aggregate value of Corresponding Shares of the SunAmerica Strategic Income Fund, equal to the net asset value of the NAF Strategic Income Fund's Assets determined in accordance with Section 2(c) hereof, and (ii) the subsequent distribution by the NAF Strategic Income Fund of such Corresponding Shares to its shareholders in proportion to such shareholders interest in the NAF Strategic Income Fund in liquidation of the NAF Strategic Income Fund. "SunAmerica Core Bond Fund" has the meaning ascribed thereto under the heading "Plans of Reorganization." "SunAmerica High Yield Bond Fund" has the meaning ascribed thereto under the heading "Plans of Reorganization." "SunAmerica Income Funds Declaration of Trust" shall mean the Declaration of Trust of SunAmerica Income Funds, dated as of April 24, 1996, as amended or supplemented from time to time. "SunAmerica Income Funds Prospectuses" shall mean the prospectuses relating to the Acquiring Funds, (other than the SunAmerica Core Bond Fund) dated July 27, 2000 in the case of Class A, Class B and Class II Shares and the preliminary prospectus contained in the Acquiring Fund Post-Effective Amendment in the case of Class I and Class Z Shares, in each case as amended or supplemented. "SunAmerica Income Funds Statements of Additional Information" shall mean the statement of additional information relating to the Acquiring Funds, dated July 28, 2000 in the case of Class A, Class B and Class II Shares and the preliminary statement of additional information contained in the Acquiring Fund Post-Effective Amendment in the case of Class I and Class Z Shares, in each case as amended or supplemented. "SunAmerica Proxy Proposals" shall mean the proposals contained in that certain proxy statement mailed, or to be mailed, to shareholders of SunAmerica High Yield Bond Fund, SunAmerica Strategic Income Fund and SunAmerica Tax Exempt Insured Fund on or about October 5, 2001. These proposals relate to the approval of a new subadvisory agreement for all such funds and approval of changes in the investment objectives and fundamental policies with respect to the SunAmerica High Yield Bond Fund and SunAmerica Strategic Income Fund. "SunAmerica Strategic Income Fund" has the meaning ascribed thereto under the heading "Plans of Reorganization." "SunAmerica Tax Exempt Insured Fund" has the meaning ascribed thereto under the heading "Plans of Reorganization." "SunAmerica U.S. Government Securities Fund" has the meaning ascribed thereto under the heading "Plans of Reorganization." 5 "U.S. Government Securities Funds Reorganization" consists of (i) the acquisition of the NAF U.S. Government Securities Fund's Assets, and assumption of the NAF U.S. Government Securities Fund's Assumed Liabilities, by the SunAmerica U.S. Government Securities Fund solely in exchange for an aggregate value of Corresponding Shares of the SunAmerica U.S. Government Securities Fund, equal to the net asset value of the NAF U.S. Government Securities Fund's Assets determined in accordance with Section 2(c) hereof, and (ii) the subsequent distribution by the NAF U.S. Government Securities Fund of such Corresponding Shares to its shareholders in proportion to such shareholders' interest in the NAF U.S. Government Securities Fund in liquidation of the NAF U.S. Government Securities Fund. "Valuation Time" has the meaning ascribed thereto in Section 2(f) hereof. b. Use of Defined Terms. Any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. The use of any gender shall be applicable to all genders. c. Sections and Exhibits. References in this Agreement to Sections, Exhibits and Schedules are to Sections, Exhibits and Schedules of and to this Agreement. The Exhibits and Schedules to this Agreement are hereby incorporated herein by this reference as if fully set forth herein. d. Miscellaneous Terms. The term "or" shall not be exclusive. The terms "herein," "hereof," "hereto," "hereunder" and other terms similar to such terms shall refer to this Agreement as a whole and not merely to the specific article, section, paragraph or clause where such terms may appear. The term "including" shall mean "including, but not limited to." 2. The Reorganization(s). a. Transfer of Assets. Subject to receiving the requisite approval of the shareholders of the Acquired Fund, and to the other terms and conditions contained herein and on the basis of the representations and warranties contained herein, on the Closing Date, the Acquired Fund shall convey, transfer and deliver to the Acquiring Fund, and the Acquiring Fund shall purchase, acquire and accept from the Acquired Fund, free and clear of all Liens (other than Permitted Liens), all of the property and assets (including cash, securities, commodities, interests in futures and dividends, any deferred or prepaid expenses and interest accrued on debt instruments, in each case as of the Valuation Time) owned by the Acquired Fund (as to each Acquired Fund, such assets are collectively referred to herein as the "Assets"). b. Assumption of Liabilities. Subject to receiving the requisite approval of the shareholders of the Acquired Fund, and to the other terms and conditions contained herein and on the basis of the representations and warranties contained herein, on the Closing Date, the Acquiring Fund will assume and agree to pay, perform and discharge when due all of the obligations and liabilities of the Acquired Fund then existing, whether absolute, accrued, contingent or otherwise (as to each Acquired Fund, such liabilities are collectively referred to herein as the "Assumed Liabilities"). c. Issuance and Valuation of Corresponding Shares in the Reorganization. Full Corresponding Shares, and to the extent necessary, a fractional Corresponding Share, of an aggregate net asset value equal to the net asset value of the Assets (after deducting the Assumed Liabilities) acquired by the Acquiring Fund hereunder, determined as hereinafter provided shall be issued by the Acquiring Fund to the Acquired Fund in exchange for such Assets. The net asset value of each of the Acquired Fund's Assets and the Acquiring Fund's Corresponding Shares shall be determined in accordance with the procedures described in the SunAmerica Income Funds Prosepectuses and the SunAmerica Income Funds Statements of Additional Information as of the Valuation Time. Such valuation and determination shall be made by the Acquiring Fund in cooperation with the Acquired Fund. 6 d. Distribution of Corresponding Shares to the Acquired Fund Shareholders. Pursuant to this Agreement, as soon as practicable after the Valuation Time, the Acquired Fund will distribute all Corresponding Shares received by it from the Acquiring Fund in connection with the Reorganization to its shareholders in proportion to such shareholders' interest in the Acquired Fund. Such distribution shall be accomplished by the opening of shareholder accounts on the share ledger records of the Acquiring Fund in the amounts due the shareholders of the Acquired Fund based on their respective holdings in the Acquired Fund as of the Valuation Time. e. Interest; Proceeds. The Acquired Fund will pay or cause to be paid to the Acquiring Fund any interest or proceeds it receives on or after the Closing Date with respect to its Assets. f. Valuation Time. i. The Valuation Time shall be the close of the New York Stock Exchange (generally 4:00 P.M., New York time) on November 9, 2001, or such earlier or later day and time as may be mutually agreed upon in writing between the parties hereto (the "Valuation Time"). ii. In the event that at the Valuation Time (a) the New York Stock Exchange or another primary trading market for portfolio securities of the Acquiring Fund or the Acquired Fund shall be closed to trading or trading thereon shall be restricted; or (b) trading or the reporting of trading on said Exchange or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Valuation Time shall be postponed until the close of the New York Stock Exchange on the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. g. Evidence of Transfer. The Acquiring Fund and the Acquired Fund will jointly file any instrument as may be required by the Commonwealth of Massachusetts to effect the transfer of the Assets to the Acquiring Fund. h. Termination. The Acquired Fund's existence as a separate investment portfolio of North American Funds will be terminated as soon as practicable following the consummation of the applicable Reorganization by making any required filings with the Commonwealth of Massachusetts, as provided in Section 5(e) hereof. i. Separate Agreements; Reorganizations Not Conditioned on One Another. Each of the respective parties hereto hereby agrees that this Agreement shall constitute a separate agreement and plan of reorganization as to each of (i) the High Yield Bond Funds Reorganization, (ii) the U.S. Government Securities Funds Reorganization, (iii) the Municipal Bond Funds Reorganization, (iv) the Core Bond Funds Reorganization, and (v) the Strategic Income Funds Reorganization. The parties further agree that the consummation of one Reorganization shall not be conditioned on the consummation of any other Reorganization. 3. Representations and Warranties of the Acquired Fund. The Acquired Fund represents and warrants to the Acquiring Fund as follows: a. Formation and Qualification. The Acquired Fund is a separate investment portfolio of North American Funds, a business trust duly organized, validly existing and in good standing in conformity with the laws of the Commonwealth of Massachusetts, and the Acquired Fund has all requisite power and authority to own all of its properties or assets and carry on its business as presently conducted. North American Funds is duly qualified, registered or licensed to do business and is in good standing in each jurisdiction in which the ownership of its properties or assets or the character of its present operations makes such qualification, registration or licensing necessary, except where the failure to so qualify or be in good standing would not have a Material Adverse Effect on the Acquired Fund. 7 b. Licenses. The Acquired Fund (or North American Funds on behalf of the Acquired Fund) holds all permits, consents, registrations, certificates, authorizations and other approvals (collectively, "Licenses") required for the conduct of its business as now being conducted; all such Licenses are in full force and effect and no suspension or cancellation of any of them is pending or threatened; and none of such Licenses will be affected by the consummation of the transactions contemplated by this Agreement in a manner that would have a Material Adverse Effect on the Acquired Fund. North American Funds is duly registered under the Investment Company Act as an open-end management investment company (File No. 811-05797), and such registration has not been suspended, revoked or rescinded and is in full force and effect. The Acquired Fund has elected and qualified for the special tax treatment afforded regulated investment companies ("RICs") under Sections 851-855 of the Code at all times since its inception and intends to continue to so qualify for its current taxable year. c. Authority. North American Funds, on behalf of the Acquired Fund, has full power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of the Acquired Fund and no other proceedings on the part of North American Funds or the Acquired Fund are necessary to authorize this Agreement or the consummation of the transactions contemplated hereby, except for the approval of the Acquired Fund shareholders as provided in Section 7(c) hereof. This Agreement has been duly and validly executed by North American Funds, on behalf of the Acquired Fund, and, subject to receipt of the requisite shareholder approval, and assuming due authorization, execution and delivery of this Agreement by the Acquiring Fund, this Agreement constitutes a legal, valid and binding obligation of the Acquired Fund enforceable against the Acquired Fund in accordance with its terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto and the remedy of specific performance and injunctive and other forms of equitable relief. d. Financial Statements. The Acquiring Fund has been furnished with an accurate, correct and complete statement of assets and liabilities and a schedule of Investments of the Acquired Fund, each as of October 31, 2000, said financial statements having been audited by PricewaterhouseCoopers LLP, independent public accountants. Such audited financial statements fairly present in all material respects the financial position of the Acquired Fund as of the dates and for the periods referred to therein and in conformity with generally accepted accounting principles applied on a consistent basis. e. Semi-Annual Report to Shareholders. The Acquiring Fund has been furnished with the Acquired Fund's Semi-Annual Report to Shareholders for the six months ended April 30, 2001, and the unaudited financial statements appearing therein fairly present in all material respects the financial position of the Acquired Fund as of the dates and for the periods referred to therein and in conformity with generally accepted accounting principles applied on a consistent basis. f. Prospectus and Statement of Additional Information. The Acquiring Fund has been furnished with the North American Funds Prospectuses and the North American Funds Statement of Additional Information, and insofar as they relate to the Acquired Fund, said Prospectuses and Statement of Additional Information do not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. g. Litigation. There are no claims, actions, suits or legal, administrative or other proceedings pending or, to the knowledge of the Acquired Fund, threatened against the Acquired Fund that could reasonably be expected to have a Material Adverse Effect on the Acquired Fund. The Acquired Fund is not charged with or, to its knowledge, threatened with any violation, or investigation of any possible violation, of any provisions of 8 any Federal, state or local law or regulation or administrative ruling relating to any aspect of its business that could reasonably be expected to have a Material Adverse Effect on the Acquired Fund. h. Material Contracts. There are no material contracts outstanding to which North American Funds on behalf of the Acquired Fund is a party that have not been disclosed in the N-14 Registration Statement, the North American Funds Prospectuses or the North American Funds Statement of Additional Information. i. No Conflict. The execution and delivery of this Agreement by North American Funds on behalf of the Acquired Fund and the consummation of the transactions contemplated hereby will not contravene or constitute a default under or violation of (i) North American Funds' Declaration of Trust or by- laws, each as amended, supplemented and in effect as of the date hereof, (ii) any agreement or contract (or require the consent of any Person under any agreement or contract that has not been obtained) to which North American Funds on behalf of the Acquired Fund is a party or to which its assets or properties are subject, or (iii) any judgment, injunction, order or decree, or other instrument binding upon the Acquired Fund or any of its assets or properties, except where such contravention, default or violation would not have a Material Adverse Effect on the Acquired Fund. j. Undisclosed Liabilities. The Acquired Fund has no material liabilities, contingent or otherwise, other than those shown on its statements of assets and liabilities referred to herein, those incurred in the ordinary course of its business since April 30, 2001, and those incurred in connection with the Reorganization. k. Taxes. The Acquired Fund has filed (or caused to be filed), or has obtained extensions to file, all Federal, state and local tax returns which are required to be filed by it, and has paid (or caused to be paid) or has obtained extensions to pay, all taxes shown on said returns to be due and owing and all assessments received by it, up to and including the taxable year in which the Closing Date occurs. All tax liabilities of the Acquired Fund have been adequately provided for on its books, and no tax deficiency or liability of the Acquired Fund has been asserted and no question with respect thereto has been raised by the Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid, up to and including the taxable year in which the Closing Date occurs. l. Assets. The Acquired Fund has good and marketable title to the Assets, free and clear of all Liens, except for Permitted Liens. The Acquired Fund is the direct sole and exclusive owner of the Assets. At the Closing Date, upon consummation of the transactions contemplated hereby, the Acquiring Fund will have good and marketable title to the Assets, free and clear of all Liens, except for Permitted Liens. m. Consents. No filing or registration with, or consent, approval, authorization or order of, any Person is required for the consummation by the Acquired Fund of the Reorganization, except for (i) such as may be required under the Securities Act, the Exchange Act, the Investment Company Act or state securities laws (which term as used herein shall include the laws of the District of Columbia and Puerto Rico), (ii) a Majority Shareholder Vote, and (iii) if necessary, receipt of a Section 17 Order. n. N-14 Registration Statement. The registration statement filed, or to be filed, by SunAmerica Income Funds on Form N-14 relating to the Corresponding Shares to be issued pursuant to this Agreement, which includes the proxy statement of the Acquired Fund and the prospectus of the Acquiring Fund with respect to the transactions contemplated hereby, and any supplement or amendment thereto or to the documents therein (as amended and supplemented, the "N-14 Registration Statement"), on the effective date of the N-14 Registration Statement, at the time of the shareholders' meeting referred to in Section 5(a) hereof and on the Closing Date, insofar as it relates to the Acquired Fund (i) complied, or will comply, as the case may be, in all material respects, with the applicable provisions of the Securities Act, the Exchange Act and the Investment Company Act and the rules and regulations promulgated thereunder, and (ii) did not, or will not, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 9 o. Capitalization. Under the Declaration of Trust of North American Funds, the Acquired Fund is authorized to issue an unlimited number of full and fractional shares of beneficial interest, par value $0.001 per share, divided into three classes designated Class A, Class B and Class C in the case of the NAF Municipal Bond Fund, four classes designated Class A, Class B, Class C and Institutional Class I in the case of the NAF Strategic Income Fund and the NAF U.S. Government Securities Fund, and five classes designated Class A, Class B, Class C, Institutional Class I and Institutional Class II in the case of the NAF Core Bond Fund and the NAF High Yield Bond Fund. All issued and outstanding shares of the Acquired Fund are duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights. Except for (i) the right of Class B Shares of the Acquired Fund to automatically convert to Class A Shares of the Acquired Fund eight years after the purchase thereof, or (ii) in connection with any automatic dividend reinvestment plan available to the Acquired Fund shareholders, there are no options warrants, subscriptions, calls or other rights, agreements or commitments obligating the Acquired Fund to issue any of its shares or securities convertible into its shares. p. Books and Records. The books and records of the Acquired Fund made available to the Acquiring Fund and/or its counsel are substantially true and correct and contain no material misstatements or omissions with respect to the operations of the Acquired Fund. 4. Representations and Warranties of the Acquiring Fund. The Acquiring Fund represents and warrants to the Acquired Fund as follows: a. Formation and Qualification. The Acquiring Fund is a separate investment portfolio of SunAmerica Income Funds, a business trust duly organized, validly existing and in good standing in conformity with the laws of the Commonwealth of Massachusetts, and the Acquiring Fund has all requisite power and authority to own all of its properties or assets and carry on its business as presently conducted. SunAmerica Income Funds is duly qualified, registered or licensed as a foreign corporation to do business and is in good standing in each jurisdiction in which the ownership of its properties or assets or the character of its present operations makes such qualification, registration or licensing necessary, except where the failure to so qualify or be in good standing would not have a Material Adverse Effect on the Acquiring Fund. The SunAmerica Core Bond Fund has not yet commenced operations, and the only shares issued have been to an initial seed investor. b. Licenses. The Acquiring Fund (or SunAmerica Income Funds on behalf of the Acquiring Fund) holds all Licenses required for the conduct of its business as now being conducted; all such Licenses are in full force and effect and no suspension or cancellation of any of them is pending or threatened; and none of such Licenses will be affected by the consummation of the transactions contemplated by this Agreement in a manner that would have a Material Adverse Effect on the Acquiring Fund. SunAmerica Income Funds is duly registered under the Investment Company Act as an open-end management investment company (File No. 811-4708), and such registration has not been revoked or rescinded and is in full force and effect. The Acquiring Fund has elected and qualified for the special tax treatment afforded to RICs under Sections 851-855 of the Code at all times since its inception (if applicable) and intends to continue to so qualify both until consummation of the Reorganization and thereafter. c. Authority. SunAmerica Income Funds, on behalf of the Acquiring Fund, has full power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of the Acquiring Fund and no other proceedings on the part of the Acquiring Fund are necessary to authorize this Agreement or the consummation of the transactions contemplated hereby. This Agreement has been duly and validly executed by SunAmerica Income Funds, on behalf of the Acquiring Fund, and assuming due authorization, execution and delivery of this Agreement by the Acquired Fund, this Agreement constitutes a legal, valid and binding obligation of the Acquiring Fund enforceable against the Acquiring Fund in accordance with its terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors' 10 rights generally and court decisions with respect thereto and the remedy of specific performance and injunctive and other forms of equitable relief. d. Financial Statements. Other than in the case of the Core Bond Funds Reorganization, the Acquired Fund has been furnished with an accurate, correct and complete statement of assets and liabilities and a schedule of Investments of the Acquiring Fund, each as of March 31, 2001, said financial statements having been audited by PricewaterhouseCoopers LLP, independent public accountants. Such audited financial statements fairly present in all material respects the financial position of such Acquiring Fund as of the dates and for the periods referred to therein and in conformity with generally accepted accounting principles applied on a consistent basis. e. Intentionally Left Blank. f. Prospectuses and Statements of Additional Information. The Acquired Fund has been furnished with the SunAmerica Income Funds Prospectuses and the SunAmerica Income Funds Statements of Additional Information, and insofar as they relate to the Acquiring Fund, said Prospectuses and Statements of Additional Information do not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. g. Litigation. There are no claims, actions, suits or legal, administrative or other proceedings pending or, to the knowledge of the Acquiring Fund, threatened against the Acquiring Fund that could reasonably be expected to have a Material Adverse Effect on the Acquiring Fund. The Acquiring Fund is not charged with or, to its knowledge, threatened with any violation, or investigation of any possible violation, of any provisions of any Federal, state or local law or regulation or administrative ruling relating to any aspect of its business that could reasonably be expected to have a Material Adverse Effect on the Acquiring Fund. h. Material Contracts. There are no material contracts outstanding to which SunAmerica Income Funds on behalf of the Acquiring Fund is a party that have not been disclosed in the N-14 Registration Statement, the SunAmerica Income Funds Prospectuses, or the SunAmerica Income Funds Statements of Additional Information. i. No Conflict. The execution and delivery of this Agreement by SunAmerica Income Funds on behalf of the Acquiring Fund and the consummation of the transactions contemplated hereby will not contravene or constitute a default under or violation of (i) the SunAmerica Income Funds Declaration of Trust or by-laws, each as amended, supplemented and in effect as of the date hereof, (ii) any agreement or contract (or require the consent of any Person under any agreement or contract that has not been obtained) to which SunAmerica Income Funds on behalf of the Acquiring Fund is a party or to which its assets or properties are subject, or (iii) any judgment, injunction, order or decree, or other instrument binding upon the Acquiring Fund or any of its assets or properties, except where such contravention, default or violation would not have a Material Adverse Effect on the Acquiring Fund. j. Undisclosed Liabilities. Other than in the case of the Core Bond Fund's Reorganization, the Acquiring Fund has no material liabilities, contingent or otherwise, other than those shown on its statements of assets and liabilities referred to herein, those incurred in the ordinary course of its business as an investment company since March 31, 2001 and those incurred in connection with the Reorganization. k. Taxes. Other than in the case of the Core Bond Funds Reorganization, the Acquiring Fund has filed (or caused to be filed), or has obtained extensions to file, all Federal, state and local tax returns which are required to be filed by it, and has paid (or caused to be paid) or has obtained extensions to pay, all taxes shown on said returns to be due and owing, and all assessments received by it, up to and including the taxable year in which the Closing Date occurs. All tax liabilities of such Acquiring Fund have been adequately provided for on its books, and no tax deficiency or liability of such Acquiring Fund has been asserted and no question with 11 respect thereto has been raised by the Internal Revenue Service or by any state or local tax authority for taxes in excess of those already paid, up to and including the taxable year in which the Closing Date occurs. l. Consents. No filing or registration with, or consent, approval, authorization or order of, any Person is required for the consummation by the Acquiring Fund of the Reorganization, except for (i) such as may be required under the Securities Act, the Exchange Act, the Investment Company Act, or state securities laws (which term as used herein shall include the laws of the District of Columbia and Puerto Rico) (ii) such actions as shall be necessary to have the Acquiring Fund establish and offer Class A, Class B, Class II, Class I Shares and/or Class Z Shares, as applicable, and (iii) if necessary, receipt of a Section 17 Order. m. N-14 Registration Statement. The N-14 Registration Statement, on its effective date, at the time of the shareholders' meeting referred to in Section 5(a) hereof and on the Closing Date, insofar as it relates to the Acquiring Fund (i) complied, or will comply, as the case may be, in all material respects, with the applicable provisions of the Securities Act, the Exchange Act and the Investment Company Act and the rules and regulations promulgated thereunder, and (ii) did not, or will not, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. n. Capitalization. Under the Declaration of Trust of SunAmerica Income Funds, the Acquiring Fund is authorized to issue an unlimited number of full and fractional shares of beneficial interest, par value $0.01 per share, divided into five classes designated Class A, Class B, Class II, Class I, and Class Z in the case of the SunAmerica High Yield Bond Fund and the SunAmerica Core Bond Fund, four classes designated Class A, Class B, Class II, and Class I in the case of the SunAmerica Strategic Income Fund, and three classes designated Class A, Class B and Class II in the case of the SunAmerica U.S. Government Securities (if any) Fund and the SunAmerica Tax Exempt Insured Fund. All issued and outstanding shares of the Acquiring Fund are duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights. Except for (i) the right of Class B Shares of the Acquiring Fund to automatically convert to Class A Shares of the Acquiring Fund approximately eight years after the purchase thereof or (ii) in connection with any automatic dividend reinvestment plan available to the Acquiring Fund shareholders, there are no options, warrants, subscriptions, calls or other rights, agreements or commitments obligating the Acquiring Fund to issue any of its shares or securities convertible into its shares. o. Corresponding Shares. i. The Corresponding Shares to be issued by the Acquiring Fund to the Acquired Fund and subsequently distributed by the Acquired Fund to its shareholders as provided in this Agreement have been, or will be, as applicable, duly and validly authorized and, when issued and delivered pursuant to this Agreement, will be legally and validly issued and will be fully paid and nonassessable and will have full voting rights, and no shareholder of the Acquiring Fund will have any preemptive right of subscription or purchase in respect thereof. ii. At or prior to the Closing Date, the Corresponding Shares to be issued by the Acquiring Fund to the Acquired Fund on the Closing Date will be duly qualified for offering to the public in all states of the United States in which the sale of shares of the Acquiring Fund presently are qualified, and there are a sufficient number of such shares registered under the Securities Act, the Investment Company Act and with each pertinent state securities commission to permit the Reorganization to be consummated. 5. Covenants of the Acquired Fund and the Acquiring Fund. a. Special Shareholders' Meeting. The Acquired Fund agrees to call a special meeting of its shareholders to be held as soon as practicable after the effective date of the N-14 Registration Statement for the purpose of considering the Reorganization as described in this Agreement and to take all other action necessary to obtain shareholder approval of the transactions contemplated herein. 12 b. Unaudited Financial Statements. i. The Acquired Fund hereby agrees to furnish or cause its agents to furnish to the Acquiring Fund, at or prior to the Closing Date, for the purpose of determining the number of Corresponding Shares to be issued by the Acquiring Fund to the Acquired Fund pursuant to Section 2(c) hereof, an accurate, correct and complete unaudited statement of assets and liabilities of the Acquired Fund with values determined in accordance with Section 2(c) hereof and an unaudited schedule of Investments of the Acquired Fund (including the respective dates and costs of acquisition thereof), each as of the Valuation Time. Such unaudited financial statements will fairly present in all material respects the financial position of the Acquired Fund as of the dates and for the periods referred to therein and in conformity with generally accepted accounting principles applied on a consistent basis. ii. The Acquiring Fund hereby agrees to furnish or cause its agents to furnish to the Acquired Fund, at or prior to the Closing Date, for the purpose of determining the number of Corresponding Shares to be issued by the Acquiring Fund to the Acquired Fund pursuant to Section 2(c) hereof, an accurate, correct and complete unaudited statement of assets and liabilities of the Acquiring Fund with values determined in accordance with Section 2(c) hereof and an unaudited schedule of Investments of the Acquiring Fund (including the respective dates and costs of acquisition thereof), each as of the Valuation Time. Such unaudited financial statements will fairly present in all material respects the financial position of the Acquiring Fund as of the dates and for the periods referred to therein and in conformity with generally accepted accounting principles applied on a consistent basis. c. Share Ledger Records of the Acquiring Fund. The Acquiring Fund agrees, as soon as practicable after the Valuation Time, to open shareholder accounts on its share ledger records for the shareholders of the Acquired Fund in connection with the distribution of Corresponding Shares by the Acquired Fund to such shareholders in accordance with Section 2(d) hereof. d. Conduct of Business. The Acquired Fund and the Acquiring Fund (except the SunAmerica Core Bond Fund) each covenants and agrees to operate its respective business in the ordinary course as presently conducted between the date hereof and the Closing Date, it being understood that such ordinary course of business will include customary dividends and distributions. e. Termination of the Acquired Fund. North American Funds agrees that as soon as practicable following the consummation of the Reorganization, it will terminate the existence of the Acquired Fund in accordance with the laws of the Commonwealth of Massachusetts and any other applicable law. f. Filing of N-14 Registration Statement. SunAmerica Income Funds, on behalf of the Acquiring Fund, will file or cause its agents to file the N-14 Registration Statement with the Commission and will use its best efforts to cause the N-14 Registration Statement to become effective as promptly as practicable after the filing thereof. The Acquired Fund and the Acquiring Fund agree to cooperate fully with each other, and each will furnish to the other the information relating to itself to be set forth in the N-14 Registration Statement as required by the Securities Act, the Exchange Act, the Investment Company Act, and the rules and regulations thereunder and the state securities or blue sky laws (if applicable). g. Corresponding Shares. The Acquired Fund will not sell or otherwise dispose of any of the Corresponding Shares to be received by it from the Acquiring Fund in connection with the Reorganization, except in distribution to the shareholders of the Acquired Fund in accordance with the terms hereof. h. Tax Returns. Other than in the case of the Core Bond Funds Reorganization, the Acquired Fund and the Acquiring Fund each agrees that by the Closing Date all of its Federal and other tax returns and reports required to be filed on or before such date shall have been filed and all taxes shown as due on said returns either shall have been paid or adequate liability reserves shall have been provided for the payment of such taxes. In connection with this provision, the Acquiring Fund and the Acquired Fund agree to cooperate with each other in filing any tax return, amended return or claim for refund, determining a liability for taxes or a right to a refund of taxes or participating in or conducting any audit or other proceeding in respect of taxes. 13 i. Combined Proxy Statement and Prospectus Mailing. The Acquired Fund agrees to mail to its shareholders of record entitled to vote at the special meeting of shareholders at which action is to be considered regarding this Agreement, in sufficient time to comply with requirements as to notice thereof, a combined Proxy Statement and Prospectus which complies in all material respects (except as to information therein relating to the Acquiring Fund) with the applicable provisions of Section 14(a) of the Exchange Act and Section 20(a) of the Investment Company Act, and the rules and regulations promulgated thereunder. j. Confirmation of Tax Basis. The Acquired Fund will deliver to the Acquiring Fund on the Closing Date confirmations or other adequate evidence as to the tax basis of each of the Assets delivered to the Acquiring Fund hereunder. k. Shareholder List. As soon as practicable after the close of business on the Closing Date, the Acquired Fund shall deliver to the Acquiring Fund a list of the names and addresses of all of the shareholders of record of the Acquired Fund on the Closing Date and the number of shares of the Acquired Fund owned by each such shareholder as of such date, certified to the best of its knowledge and belief by the transfer agent or by North American Funds on behalf of the Acquired Fund. l. Class I Shares and New Series. SunAmerica Income Funds on behalf of the Acquiring Fund shall (i) cause a post-effective amendment to its Registration Statement on Form N-1A (the "Acquiring Fund Post-Effective Amendment") to be filed with the Commission in a timely fashion to register the Class A, Class B, Class II, Class I and Class Z Shares of the SunAmerica Core Bond Fund in the case of the Core Bond Funds Reorganization, and Class I Shares of the Acquiring Fund in the case of each other Reorganization (other than the Tax Exempt Insured Funds Reorganization and the U.S. Government Securities Funds Reorganization) in each case for sale under the Securities Act prior to the Closing Date, and (ii) prior to the Closing Date, amend the Acquiring Fund's plan under Rule 18f-3 under the Investment Company Act to reflect the addition of such shares and take such other steps as may be necessary to establish a new class of shares of such Acquiring Fund. m. SunAmerica Income Funds. On behalf of the respective Acquiring Funds, shall cause a proxy statement to be filed with the Commission and then mailed to shareholders to seek shareholder approval of the SunAmerica proxy proposals. 6. Closing Date. The closing of the transactions contemplated by this Agreement shall be at the offices of Shearman & Sterling, 599 Lexington Avenue, New York, NY 10022 after the close of the New York Stock Exchange on November 9, 2001, or at such other place, time and date agreed to by the Acquired Fund and the Acquiring Fund. The date and time upon which such closing is to take place shall be referred to herein as the "Closing Date." To the extent that any Assets, for any reason, are not transferable on the Closing Date, the Acquired Fund shall cause such Assets to be transferred to the Acquiring Fund's custody account with State Street Bank and Trust Company at the earliest practicable date thereafter. 7. Conditions of the Acquired Fund. The obligations of the Acquired Fund hereunder shall be subject to the satisfaction, at or before the Closing Date (or such other date specified herein), of the conditions set forth below. The benefit of these conditions is for the Acquired Fund only and, other than with respect to the condition set forth in Section 7(c) hereof, may be waived, in whole or in part, by the Acquired Fund at any time in its sole discretion. a. Representations and Warranties. The representations and warranties of the Acquiring Fund made in this Agreement shall be true and correct in all material respects when made, as of the Valuation Time and as of the Closing Date all with the same effect as if made at and as of such dates, except that any representations and warranties that relate to a particular date or period shall be true and correct in all material respects as of such date or period. 14 b. Performance. The Acquiring Fund shall have performed, satisfied and complied with all covenants, agreements and conditions required to be performed, satisfied or complied with by it under this Agreement at or prior to the Closing Date. c. Shareholder Approval. (i) This Agreement shall have been adopted, and the Reorganization shall have been approved, by a Majority Shareholder Vote. (ii) In the case of the High Yield Bonds Funds Reorganization and Strategic Income Funds Reorganization, the SunAmerica proxy proposals with respect to each such Acquiring Fund changing its respective investment objective shall have been adopted by the requisite vote of shareholders of the Acquiring Fund. d. Approval of Board of Trustees. This Agreement shall have been adopted and the Reorganization shall have been approved by the Board of Trustees of SunAmerica Income Funds, on behalf of the Acquiring Fund, including a majority of the Trustees who are not "interested persons" of North American Funds or SunAmerica Income Funds as defined in Section 2(a)(19) of the Investment Company Act, which shall have found, as required by Rule 17a-8(a), that (i) participation in the Reorganization is in the best interests of the Acquiring Fund and (ii) the interests of the existing shareholders of the Acquiring Fund will not be diluted as a result of the Reorganization. e. Deliveries by the Acquiring Fund. At or prior to the Closing Date, the Acquiring Fund shall deliver to the Acquired Fund the following: i. a certificate, in form and substance reasonably satisfactory to the Acquired Fund, executed by the President (or a Vice President) of SunAmerica Income Funds on behalf of the Acquiring Fund, dated as of the Closing Date, certifying that the conditions specified in Sections 7(a), (b), (d) and (f) have been fulfilled; ii. the unaudited financial statements of the Acquiring Fund required by Section 5(b)(ii) hereof; and iii. an opinion of S&S, in form and substance reasonably satisfactory to the Acquired Fund, to the effect that, for Federal income tax purposes, (i) the transfer of the Assets to the Acquiring Fund in return solely for the Corresponding Shares and the assumption by the Acquiring Fund of the Assumed Liabilities as provided for in the Agreement will constitute a reorganization within the meaning of Section 368(a) of the Code, and assuming that such transfer, issuance and assumption qualifies as a reorganization within the meaning of Section 368(a) of the Code, the Acquired Fund and the Acquiring Fund will each be deemed to be a "party to a reorganization" within the meaning of Section 368(b) of the Code; (ii) in accordance with Sections 357 and 361 of the Code, no gain or loss will be recognized to the Acquired Fund as a result of the Asset transfer solely in return for the Corresponding Shares and the assumption by the Acquiring Fund of the Assumed Liabilities or on the distribution (whether actual or constructive) of the Corresponding Shares to the Acquired Fund shareholders as provided for in the Agreement; (iii) under Section 1032 of the Code, no gain or loss will be recognized to the Acquiring Fund on the receipt of the Assets in return for the Corresponding Shares and the assumption by the Acquiring Fund of the Assumed Liabilities as provided for in the Agreement; (iv) in accordance with Section 354(a)(1) of the Code, no gain or loss will be recognized to the shareholders of the Acquired Fund on the receipt (whether actual or constructive) of Corresponding Shares in return for their shares of the Acquired Fund; (v) in accordance with Section 362(b) of the Code, the tax basis of the Assets in the hands of the Acquiring Fund will be the same as the tax basis of such Assets in the hands of the Acquired Fund immediately prior to the consummation of the Reorganization; (vi) in accordance with Section 358 of the Code, immediately after the Reorganization, the tax basis of the Corresponding Shares received (whether actually or constructively) by the shareholders of the Acquired Fund in the Reorganization will be equal, in the aggregate, to the tax basis of the shares of the Acquired Fund surrendered in return therefor; (vii) in accordance with Section 1223 of the Code, a shareholder's holding period for the Corresponding Shares will be determined by including the period for which such shareholder held the shares of the Acquired Fund exchanged therefor, 15 provided the Acquired Fund shares were held as a capital asset; (viii) in accordance with Section 1223 of the Code, the Acquiring Fund's holding period with respect to the Assets acquired by it will include the period for which such Assets were held by the Acquired Fund; and (ix) in accordance with Section 381(a) of the Code and regulations thereunder, the Acquiring Fund (except the SunAmerica Core Bond Fund) will succeed to and take into account certain tax attributes of the Acquired Fund, subject to applicable limitations, such as earnings and profits, capital loss carryovers and method of accounting. f. No Material Adverse Change. There shall have occurred no material adverse change in the financial position of the Acquiring Fund since March 31, 2001 other than, if applicable, changes in its portfolio securities since that date, changes in the market value of its portfolio securities or changes in connection with the payment of the Acquiring Fund's customary operating expenses, each in the ordinary course of business. g. Absence of Litigation. There shall not be pending before any Governmental Authority any material litigation with respect to the matters contemplated by this Agreement. h. Proceedings and Documents. All proceedings contemplated by this Agreement, the Reorganization, and all of the other documents incident thereto, shall be reasonably satisfactory to the Acquired Fund and its counsel, and the Acquired Fund and its counsel shall have received all such counterpart originals or certified or other copies of such documents as the Acquired Fund or its counsel may reasonably request. i. N-14 Registration Statement; Acquiring Fund Post-Effective Amendment. The N-14 Registration Statement and Acquiring Fund Post-Effective Amendment each shall have become effective under the Securities Act, and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of the Acquiring Fund or the Acquired Fund, contemplated by the Commission. j. Compliance with Laws; No Adverse Action or Decision. Since the date hereof, (i) no law, statute, ordinance, code, rule or regulation shall have been promulgated, enacted or entered that restrains, enjoins, prevents, materially delays, prohibits or otherwise makes illegal the performance of this Agreement, the Reorganization or the consummation of any of the transactions contemplated hereby and thereby; (ii) the Commission shall not have issued an unfavorable advisory report under Section 25(b) of the Investment Company Act, nor instituted or threatened to institute any proceeding seeking to enjoin consummation of the Reorganization under Section 25(c) of the Investment Company Act, and (iii) no other legal, administrative or other proceeding shall be instituted or threatened by any Governmental Authority which would materially affect the financial condition of the Acquiring Fund or that seeks to restrain, enjoin, prevent, materially delay, prohibit or otherwise make illegal the performance of this Agreement, the Reorganization or the consummation of any of the transactions contemplated hereby or thereby. k. Commission Orders or Interpretations. The Acquired Fund shall have received from the Commission such orders or interpretations, including a Section 17 Order, as counsel to the Acquired Fund deems reasonably necessary or desirable under the Securities Act and the Investment Company Act in connection with the Reorganization; provided that such counsel shall have requested such orders or interpretations as promptly as practicable, and all such orders shall be in full force and effect. 8. Conditions of the Acquiring Fund. The obligations of the Acquiring Fund hereunder shall be subject to the satisfaction, at or before the Closing Date (or such other date specified herein), of the conditions set forth below. The benefit of these conditions is for the Acquiring Fund only and, other than with respect to the condition set forth in Section 8(c) hereof, may be waived, in whole or in part, by the Acquiring Fund at any time in its sole discretion. a. Representations and Warranties. The representations and warranties of the Acquired Fund made in this Agreement shall be true and correct in all material respects when made, as of the Valuation Time and as of the Closing Date all with the same effect as if made at and as of such dates, except that any representations and 16 warranties that relate to a particular date or period shall be true and correct in all material respects as of such date or period. b. Performance. The Acquired Fund shall have performed, satisfied and complied with all covenants, agreements and conditions required to be performed, satisfied or complied with by it under this Agreement at or prior to the Closing Date. c. Shareholder Approval. (i) This Agreement shall have been adopted, and the Reorganization shall have been approved, by a Majority Shareholder Vote. (ii) In the case of the High Yield Bond Funds Reorganization and Strategic Income Funds Reorganization, the SunAmerica Proxy Proposals with respect to each such Acquiring Fund changing its respective investment objective shall have been adopted by the requisite vote of the shareholders of the Acquiring Fund. d. Approval of Board of Trustees. This Agreement shall have been adopted and the Reorganization shall have been approved by the Board of Trustees of North American Funds, on behalf of the Acquired Fund, including a majority of the Trustees who are not "interested persons" of North American Funds or SunAmerica Income Funds within the meaning of Section 2(a)(19) of the Investment Company Act, which shall have found, as required by Rule 17a-8(a), that (i) participation in the Reorganization is in the best interests of the Acquired Fund and (ii) the interests of the existing shareholders of the Acquired Fund will not be diluted as a result of the Reorganization. e. Deliveries by the Acquired Fund. At or prior to the Closing Date, the Acquired Fund shall deliver to the Acquiring Fund the following: (i.) a certificate, in form and substance reasonably satisfactory to the Acquiring Fund, executed by the President (or a Vice President) of North American Funds on behalf of the Acquired Fund, dated as of the Closing Date, certifying that the conditions specified in Sections 8(a), (b), (c), (d) and (f) have been fulfilled; (ii.) the unaudited financial statements of the Acquired Fund required by Section 5(b)(i) hereof; and (iii.) an opinion of S&S, in form and substance reasonably satisfactory to the Acquiring Fund, with respect to the matters specified in Section 7(e)(iii) hereof. f. No Material Adverse Change. There shall have occurred no material adverse change in the financial position of the Acquired Fund since April 30, 2001 other than changes in its portfolio securities since that date, changes in the market value of its portfolio securities or changes in connection with the payment of the Acquired Fund's customary operating expenses, each in the ordinary course of business. The Acquired Fund reserves the right to sell any of its portfolio securities in the ordinary course of business, but will not, without the prior written consent of the Acquiring Fund, acquire any additional securities other than securities of the type in which the Acquiring Fund is permitted to invest. g. Absence of Litigation. There shall not be pending before any Governmental Authority any material litigation with respect to the matters contemplated by this Agreement. h. Proceedings and Documents. All proceedings contemplated by this Agreement, the Reorganization, and all of the other documents incident thereto, shall be reasonably satisfactory to the Acquiring Fund and its counsel, and the Acquiring Fund and its counsel shall have received all such counterpart originals or certified or other copies of such documents as the Acquiring Fund or its counsel may reasonably request. i. N-l4 Registration Statement; Acquiring Fund Post-Effective Amendment. The N-14 Registration Statement and Acquiring Fund Post-Effective Amendment each shall have become effective under the Securities Act, and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of the Acquired Fund or the Acquiring Fund, contemplated by the Commission. 17 j. Compliance with Laws; No Adverse Action or Decision. Since the date hereof, (i) no law, statute, ordinance, code, rule or regulation shall have been promulgated, enacted or entered that restrains, enjoins, prevents, materially delays, prohibits or otherwise makes illegal the performance of this Agreement, the Reorganization or the consummation of any of the transactions contemplated hereby and thereby; (ii) the Commission shall not have issued an unfavorable advisory report under Section 25(b) of the Investment Company Act, nor instituted or threatened to institute any proceeding seeking to enjoin consummation of the Reorganization under Section 25(c) of the Investment Company Act; and (iii) no other legal, administrative or other proceeding shall be instituted or threatened by any Governmental Authority which would materially affect the financial condition of the Acquired Fund or that seeks to restrain, enjoin, prevent, materially delay, prohibit or otherwise make illegal the performance of this Agreement, the Reorganization or the consummation of any of the transactions contemplated hereby or thereby. k. Commission Orders or Interpretations. The Acquiring Fund shall have received from the Commission such orders or interpretations, including a Section 17 Order, as counsel to the Acquiring Fund deems reasonably necessary or desirable under the Securities Act and the Investment Company Act in connection with the Reorganization; provided that such counsel shall have requested such orders or interpretations as promptly as practicable, and all such orders shall be in full force and effect. l. Dividends. Prior to the Closing Date, if applicable, the Acquired Fund shall have declared a dividend or dividends which, together with all such previous dividends, shall have the effect of distributing to its shareholders all of its investment company taxable income as of the Closing Date, if any (computed without regard to any deduction for dividends paid), and all of its net capital gain, if any, realized as of the Closing Date. 9. Termination, Postponement and Waivers. a. Termination of Agreement. Notwithstanding anything contained in this Agreement to the contrary, subject to Section 10 hereof, this Agreement may be terminated and the Reorganization abandoned at any time (whether before or after approval thereof by the shareholders of the Acquired Fund) prior to the Closing Date, or the Closing Date may be postponed, by notice in writing prior to the Closing Date: (i) by the Acquired Fund or the Acquiring Fund if: (1) the Board of Trustees of North American Funds and the Board of Trustees of SunAmerica Income Funds so mutually agree in writing; or (2) any Governmental Authority of competent jurisdiction shall have issued any judgment, injunction, order, ruling or decree or taken any other action restraining, enjoining or otherwise prohibiting this Agreement, the Reorganization or the consummation of any of the transactions contemplated hereby or thereby and such judgment, injunction, order, ruling, decree or other action becomes final and non-appealable; provided that the party seeking to terminate this Agreement pursuant to this Section 9(a)(i)(3) shall have used its reasonable best efforts to have such judgment, injunction, order, ruling, decree or other action lifted, vacated or denied; (ii) by the Acquired Fund if any condition of the Acquired Fund's obligations set forth in Section 7 of this Agreement has not been fulfilled or waived by it; or (iii) by the Acquiring Fund if any condition of the Acquiring Fund's obligations set forth in Section 8 of this Agreement has not been fulfilled or waived by it. b. Commission Order. If any order or orders of the Commission with respect to this Agreement, the Reorganization or any of the transactions contemplated hereby or thereby shall be issued prior to the Closing Date and shall impose any terms or conditions which are determined by action of the Board of Trustees of North American Funds and the Board of Trustees of SunAmerica Income Funds to be acceptable, such terms and conditions shall be binding as if a part of this Agreement without further vote or approval of the 18 shareholders of the Acquired Fund, unless such terms and conditions shall result in a change in the method of computing the number of Corresponding Shares to be issued by the Acquiring Fund to the Acquired Fund in which event, unless such terms and conditions shall have been included in the proxy solicitation materials furnished to the shareholders of the Acquired Fund prior to the meeting at which the Reorganization shall have been approved, this Agreement shall not be consummated and shall terminate unless the Acquired Fund promptly shall call a special meeting of shareholders at which such conditions so imposed shall be submitted for approval and the requisite approval of such conditions shall be obtained. c. Effect of Termination. In the event of termination of this Agreement pursuant to the provisions hereof, the same shall become null and void and have no further force or effect, and there shall not be any liability on the part of either the Acquired Fund or the Acquiring Fund, North American Funds or SunAmerica Income Funds, or Persons who are their directors, trustees, officers, agents or shareholders in respect of this Agreement. d. Waivers; Non-Material Changes. At any time prior to the Closing Date, any of the terms or conditions of this Agreement may be waived by the party that is entitled to the benefit thereof if such action or waiver will not have a material adverse effect on the benefits intended under this Agreement to the shareholders of such party on behalf of which such action is taken. In addition, each party has delegated to its investment adviser the ability to make non-material changes to this Agreement if such investment adviser deems it to be in the best interests of the Acquired Fund or Acquiring Fund for which it serves as investment adviser to do so. 10. Survival of Representations and Warranties. The respective representations and warranties contained in Sections 3 and 4 hereof shall expire with, and be terminated by, the consummation of the Reorganization, and neither the Acquired Fund nor the Acquiring Fund nor any of their officers, trustees, agents or shareholders shall have any liability with respect to such representations or warranties after the Closing Date. This provision shall not protect any officer, trustee or agent of the Acquired Fund or the Acquiring Fund, or of North American Funds or SunAmerica Income Funds against any liability to the entity for which such Person serves in such capacity, or to its shareholders, to which such Person would be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties in the conduct of such office. 11. Other Matters. a. Obligations. Copies of the North American Funds Declaration of Trust and SunAmerica Income Funds Declaration of Trust are on file with the Secretary of State of the Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Trustees of North American Funds on behalf of the Acquired Fund and on behalf of the Trustees of SunAmerica Income Funds on behalf of the Acquiring Fund, as trustees and not individually, and that the obligations of or arising out of this instrument are not binding upon any of the trustees, officers, employees, agents or shareholders of North American Funds or SunAmerica Income Funds individually, but are binding solely upon the assets and property of the Acquired Fund and the Acquiring Fund, respectively. b. Further Assurances. Each party hereto covenants and agrees to provide the other party hereto and its agents and counsel with any and all documentation, information, assistance and cooperation that may become necessary from time to time with respect to the transactions contemplated by this Agreement. c. Notices. Any notice, report or other communication hereunder shall be in writing and shall be given to the Person entitled thereto by hand delivery, prepaid certified mail or overnight service, addressed to the Acquired Fund or the Acquiring Fund, as applicable, at the address set forth below. If the notice is sent by certified mail, it shall be deemed to have been given to the Person entitled thereto upon receipt and if the notice is sent by overnight service, it shall be deemed to have been given to the Person entitled thereto one (1) business day after it was deposited with the courier service for delivery to that Person. Notice of any change in any address listed below also shall be given in the manner set forth above. Whenever the giving of notice is required, the giving of such notice may be waived by the party entitled to receive such notice. 19 If to the Acquired Fund, to: North American Funds 286 Congress Street Boston, MA 02210 Attention: Nori Gabert, Esq. With a copy to: Sullivan & Worcester LLP 1025 Connecticut Avenue, N.W. Suite 1000 Washington, DC 20036 Attention: David M. Leahy, Esq. If to the Acquiring Fund, to: SunAmerican Income Funds 733 Third Avenue, Third Floor New York, NY 10017 Attention: Robert M. Zakem, Esq. With a copy to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Attention: Margery K. Neale, Esq. d. Entire Agreement. This Agreement contains the entire agreement between the parties hereto with respect to the matters contemplated herein and supersedes all previous agreements or understandings between the parties related to such matters. e. Amendment. Except as set forth in Section 9(d) hereof, this Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms or covenants hereof may be waived, only by a written instrument executed by all of the parties hereto or, in the case of a waiver, by the party waiving compliance; provided that, following the meeting of shareholders of the Acquired Fund pursuant to Section 5(a) hereof, no such amendment may have the effect of changing the provisions for determining the number of Corresponding Shares to be issued to the Acquired Fund shareholders under this Agreement to the detriment of such shareholders without their further approval. Except as otherwise specifically provided in this Agreement, no waiver by either party hereto of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar provision or condition at the same or at any prior or subsequent time. f. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of New York applicable to agreements made and to be performed in said state, without giving effect to the principles of conflicts of law thereof. g. Assignment. This Agreement shall not be assigned by any of the parties hereto, in whole or in part, whether by operation of law or otherwise, without the prior written consent of the other party hereto. Any purported assignment contrary to the terms hereof shall be null, void and of no effect. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm, or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. h. Costs of the Reorganization. All costs of the Reorganization shall be borne by American International Group, Inc. or an affiliate thereof, regardless of whether the Reorganization is consummated. i. Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms and provisions of this Agreement in any other jurisdiction. 20 j. Headings. Headings to sections in this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the heading of any section. k. Counterparts. This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be deemed to be an original but all such counterparts together shall constitute but one instrument. 21 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. Attest: North American Funds on behalf of High Yield Bond Fund U.S. Government Securities Fund By: _________________________________ Municipal Bond Fund Name: Core Bond Fund Title: Strategic Income Fund By: __________________________________ Attest: Name: SunAmerica Income Funds on behalf of Title: SunAmerica High Income Fund SunAmerica U.S. Government Securities By: _________________________________ Fund Name: SunAmerica Tax Exempt Insured Fund Title: SunAmerica Core Bond Fund SunAmerica Diversified Income Fund By: __________________________________ Name: Title: 22 STATEMENT OF ADDITIONAL INFORMATION SUNAMERICA INCOME FUNDS 733 Third Avenue, Third Floor New York, NY 10017 (800) 858-8850 ---------------- This Statement of Additional Information is not a prospectus and should be read in conjunction with the Proxy Statement and Prospectus (the "Proxy Statement and Prospectus"), dated October 1, 2001, which has been filed with the Securities and Exchange Commission by SunAmerica Income Funds (sometimes referred to herein as the "Registrant") with respect to the matters described in "General Information" below. Copies of the Proxy Statement and Prospectus may be obtained at no charge upon request by writing to the Registrant at the address indicated above or by calling toll-free 1-800-858-8850. This Statement of Additional Information has been incorporated by reference into the Proxy Statement and Prospectus. Unless otherwise indicated, capitalized terms used herein and not otherwise defined have the same meanings as are given to them in the Proxy Statement and Prospectus. Further information about the Acquiring Funds is contained in the Acquiring Funds' Preliminary Prospectus and Preliminary Statement of Additional Information, each subject to completion and dated August 14, 2001, and the Annual Reports to Shareholders of the Existing Acquiring Funds (as defined below) for the year ended March 31, 2001 and the Semi-Annual Report to Shareholders of the Existing Acquiring Funds for the six months ended September 30, 2001. Further information about the Acquired Funds is contained in the Acquired Funds' Prospectuses and Statement of Additional Information, each dated March 1, 2001, the Annual Report to Shareholders of the Acquired Funds for the year ended October 31, 2000 and the Semi-Annual Report to Shareholders of the Acquired Funds for the six months ended April 30, 2001. The following documents are incorporated herein by reference and accompany this Statement of Additional Information: . The Statement of Additional Information of the Acquiring Funds, dated July 28, 2001, as supplemented. . The Annual Report of the Existing Acquiring Funds for the year ended March 31, 2001. . The Statement of Additional Information of the Acquired Funds, dated March 1, 2001, as supplemented. . The Annual Report to Shareholders of the Acquired Funds for the year ended October 31, 2000. . The Semi-Annual Report to Shareholders of the Acquired Funds for the six months ended April 30, 2001. The Securities and Exchange Commission maintains a web site (http://www.sec.gov) that contains the prospectuses and combined statements of additional information of the Funds, other material incorporated by reference and other information regarding the Funds. The date of this Statement of Additional Information is October 1, 2001. B-1 TABLE OF CONTENTS General Information........................................................ B-3 Financial Statements....................................................... B-4 NAF Strategic Income Fund and SunAmerica Diversified Income Fund Pro Forma Combined Statement of Assets and Liabilities (unaudited) as of March 31, 2001.......................................................... B-5 Pro Forma Combined Statement of Operations (unaudited) as of March 31, 2001.................................................................... B-7 Pro Forma Combined Schedule of Investments (unaudited) as of March 31, 2001.................................................................... B-8 Notes to Pro Forma Financial Statements.................................. B-15 NAF High Yield Bond Fund and SunAmerica High Income Fund Pro Forma Combined Statement of Assets and Liabilities (unaudited) as of March 31, 2001.......................................................... B-18 Pro Forma Combined Statement of Operations (unaudited) as of March 31, 2001.................................................................... B-20 Pro Forma Combined Schedule of Investments (unaudited) as of March 31, 2001.................................................................... B-21 Notes to Pro Forma Financial Statements.................................. B-28 NAF Municipal Bond Fund and SunAmerica Tax Exempt Insured Fund Pro Forma Combined Statement of Assets and Liabilities (unaudited) as of March 31, 2001.......................................................... B-31 Pro Forma Combined Statement of Operations (unaudited) as of March 31, 2001.................................................................... B-33 Pro Forma Combined Schedule of Investments (unaudited) as of March 31, 2001.................................................................... B-34 Notes to Pro Forma Financial Statements.................................. B-38 NAF U.S. Government Securities Fund and SunAmerica U.S. Government Securities Fund Pro Forma Combined Statement of Assets and Liabilities (unaudited) as of March 31, 2001.......................................................... B-40 Pro Forma Combined Statement of Operations (unaudited) as of March 31, 2001.................................................................... B-42 Pro Forma Combined Schedule of Investments (unaudited) as of March 31, 2001.................................................................... B-43 Notes to Pro Forma Financial Statements.................................. B-48
B-2 GENERAL INFORMATION The shareholders of each separate investment portfolio of North American Funds, a Massachusetts business trust, set forth below (each an "Acquired Fund," collectively, the "Acquired Funds"), are being asked to approve or disapprove a new investment advisory agreement (the "New Investment Advisory Agreement") between American General Asset Management Corp. ("AGAM") and North American Funds on behalf of each of the Acquired Funds, the terms of which are the same in all material respects as the previous investment advisory agreement with AGAM. The shareholders also are being asked to approve or disapprove a new subadvisory agreement (the "New Sub-Advisory Agreement") between AGAM and American General Investment Management, L.P. (or an affiliate) on behalf of the Acquired Funds, the terms of which are the same in all material respects as the previous subadvisory agreements for the Funds. In addition, shareholders of each Acquired Fund are being asked to approve or disapprove an Agreement and Plan of Reorganization (each a "Plan") between each of the Acquired Funds and the respective investment portfolio of SunAmerica Income Funds, a Massachusetts business trust, set forth below (each an "Acquiring Fund," and collectively, the "Acquiring Funds"):
Acquired Fund Acquiring Fund ------------- -------------- Core Bond Fund (the "NAF Core Bond Fund")............................ SunAmerica Core Bond Fund High Yield Bond Fund (the "NAF High Yield Bond Fund")................. SunAmerica High Income Fund Municipal Bond Fund (the "NAF Municipal Bond Fund")............. SunAmerica Tax Exempt Insured Fund Strategic Income Fund (the "NAF Strategic Income Fund")........... SunAmerica Diversified Income Fund U.S. Government Securities Fund (the "NAF U.S. Government Securities Fund")................. SunAmerica U.S. Government Securities Fund
The SunAmerica High Income Fund, SunAmerica Tax Exempt Insured Fund, SunAmerica Diversified Income Fund and SunAmerica U.S. Government Securities Fund of SunAmerica Income Funds are sometimes referred to herein as the "Existing Acquiring Funds." Each Plan provides for the acquisition by an Acquiring Fund of substantially all of the assets, and assumption of substantially all of the liabilities, of the respective Acquired Fund, solely in exchange for an equal aggregate value of newly issued shares (the "Corresponding Shares") of such Acquiring Fund. Each such transaction is referred to herein as a "Reorganization" and collectively, as the "Reorganizations." Immediately thereafter, and as part of the respective Reorganization, such Acquired Fund will distribute the Corresponding Shares received in such Reorganization to its shareholders. The consummation of one Reorganization is not conditioned upon the consummation of any other Reorganization. The Acquired Funds and the Acquiring Funds are sometimes collectively referred to herein as the "Funds." Shareholders will receive the same class of Corresponding Shares as the shares of the respective Acquired Fund held by them immediately prior to the applicable Reorganization although the name of the class may be different. For example, if a shareholder owns Class C or Institutional Class II shares of an Acquired Fund, he or she will receive, respectively, Class II or Class Z shares of the respective Acquiring Fund since the Acquiring Funds do not have classes of shares called Class C or Institutional Class II. The aggregate net asset value of the Corresponding Shares will equal the aggregate net asset value of a shareholder's Acquired Fund shares. This means that a shareholder may end up with a different number of shares compared to the number that he or she originally held, but the total dollar value of the shares will be the same. A Joint Special Meeting of the Acquired Funds' shareholders to consider the New Investment Advisory Agreement and the Plans will be held at the principal executive offices of North American Funds, 286 Congress Street, Boston, Massachusetts 02210 on November 7, 2001, at 10:00 a.m., Eastern Time. The approximate mailing date of the Proxy Statement and Prospectus is October 5, 2001. For further information about the Reorganizations, see the Proxy Statement and Prospectus. B-3 FINANCIAL STATEMENTS Unaudited Pro Forma financial statements reflecting consummation of each Reorganization (except the Core Bond Fund Reorganization) are included herein. Unaudited Pro Forma financial statements reflecting consummation of the Reorganization relating to the SunAmerica Core Bond Fund are not included because the SunAmerica Core Bond Fund is a newly created investment portfolio of the SunAmerica Income Funds. Acquired Funds Audited financial statements and accompanying notes for the fiscal year ended October 31, 2000 for the Acquired Funds and the independent auditor's report thereon are incorporated herein by reference from the Acquired Funds' Annual Report to Shareholders, which accompanies this Statement of Additional Information. Unaudited financial statements and accompanying notes for the six months ended April 30, 2001 for the Acquired Funds are incorporated herein by reference from the Acquired Funds' Semi-Annual Report to Shareholders, which accompanies this Statement of Additional Information. Acquiring Funds Audited financial statements and accompanying notes for the fiscal year ended March 31, 2001 for the Existing Acquiring Funds and the independent auditor's report thereon are incorporated herein by reference from the Existing Acquiring Funds' Annual Report to Shareholders, which accompanies this Statement of Additional Information. B-4 SUNAMERICA INCOME FUNDS DIVERSIFIED INCOME FUND NORTH AMERICAN FUNDS STRATEGIC INCOME FUND PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2001 (unaudited)
North American Fund SunAmerica Income Funds Strategic Income Diversified Income Fund Fund -------------------- ------------------------ ASSETS: Investment securities, at value (identified cost $36,939,945, $54,975,452 and $91,915,397, respectively) $ 35,072,278 $ 47,488,132 Repurchase agreements (cost equals market) 710,000 3,567,000 Cash 163 1,187 Foreign cash 257,394 -- Receivable for investments sold 951,627 139,898 Receivable for shares of beneficial interest sold 5,000 298,505 Interest and dividends receivable 773,965 1,122,908 Receivable from investment adviser -- 42 Receivable for foreign tax withholding reclaims 10,013 -- Prepaid expenses and other assets 115,260 968 -------------- ------------- Total assets 37,895,700 52,618,640 -------------- ------------- LIABILITIES: Payable for investments purchased 1,264,575 453,897 Payable for shares of beneficial interest redeemed 28,267 182,554 Dividends payable 157,819 154,555 Investment advisory and management fees payable 8,469 28,698 Distribution and service maintenance fees payable 25,628 27,293 Other accrued expenses 143,734 85,546 Custodian and transfer agent fees 23,389 -- Dividend and withholding tax 363 -- -------------- ------------- Total liabilities 1,652,244 932,543 -------------- ------------- Net assets $ 36,243,456 $ 51,686,097 ============== ============= NET ASSETS WERE COMPOSED OF: Common Stock, $.0001, $.01, and $.01, par value $ 4,507 $ 153,289 Paid-in capital 46,432,583 96,984,465 -------------- ------------- 46,437,090 97,137,754 Accumulated undistributed net investment income (loss) (181,694) 80,693 Accumulated undistributed net realized gain (loss) on investments, foreign currency, and other assets and liabilities (8,123,399) (38,045,030) Net unrealized appreciation (depreciation) on investments (1,867,667) (7,487,320) Net unrealized appreciation (depreciation) of foreign currency, and other assets and liabilities (20,874) ---- Net assets $ 36,243,456 $ 51,686,097 ============== =============
Pro Forma Pro Forma Combined Adjustments (Note 1) -------------- --------------- ASSETS: Investment securities, at value (identified cost $36,939,945, $54,975,452 and $91,915,397, respectively) -- $ 82,560,410 Repurchase agreements (cost equals market) -- 4,277,000 Cash -- 1,350 Foreign cash -- 257,394 Receivable for investments sold -- 1,091,525 Receivable for shares of beneficial interest sold -- 303,505 Interest and dividends receivable -- 1,896,873 Receivable from investment adviser -- 42 Receivable for foreign tax withholding reclaims -- 10,013 Prepaid expenses and other assets (56,480)(A) 59,748 ------------- -------------- Total assets (56,480) 90,457,860 ------------- -------------- LIABILITIES: Payable for investments purchased -- 1,718,472 Payable for shares of beneficial interest redeemed -- 210,821 Dividends payable 312,374 Investment advisory and management fees payable -- 37,167 Distribution and service maintenance fees payable -- 52,921 Other accrued expenses -- 229,280 Custodian and transfer agent fees -- 23,389 Dividend and withholding tax -- 363 ------------- -------------- Total liabilities 0 2,584,787 ------------- -------------- Net assets ($ 56,480) $ 87,873,073 ============= ============== NET ASSETS WERE COMPOSED OF: Common Stock, $.0001, $.01, and $.01, par value $ 102,645 260,441 Paid-in capital (102,645) 143,314,403 ------------- -------------- -- 143,574,844 Accumulated undistributed net investment income (loss) (56,480)(A) (157,481) Accumulated undistributed net realized gain (loss) on investments, foreign currency, and other assets and liabilities -- (46,168,429) Net unrealized appreciation (depreciation) on investments -- (9,354,987) Net unrealized appreciation (depreciation) of foreign currency, and other assets and liabilities -- (20,874) ------------- -------------- Net assets ($ 56,480) $ 87,873,073 ============= ==============
B-5 SUNAMERICA INCOME FUNDS DIVERSIFIED INCOME FUND@ NORTH AMERICAN FUNDS STRATEGIC INCOME FUND PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2001 (unaudited)
North American Funds SunAmerica Income Funds Strategic Income Diversified Income Fund Fund --------------------- ------------------------ Class A: Net assets $ 7,509,117 $ 30,923,542 Shares outstanding 934,033 9,178,230 Net asset value and redemption price per share $ 8.04 $ 3.37 Maximum sales charge (4.75% of offering price) 0.40 0.17 ------------ ------------ Maximum offering price to public $ 8.44 $ 3.54 ============ ============ Class B: Net assets $ 13,333,858 $ 16,741,565 Shares outstanding 1,658,275 4,959,910 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) $ 8.04 $ 3.38 ============ ============ Class II: Net assets -- $ 4,020,990 Shares outstanding -- 1,190,805 Net asset value and redemption price per share (excluding any applicable contingent deferred sales charge) -- $ 3.38 Maximum sales charge (1.00% of offering price) -- 0.03 ------------ ------------ Maximum offering price to public -- $ 3.41 ============ ============ Class C: Net assets $ 12,666,503 -- Shares outstanding 1,575,224 -- Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) $ 8.04 -- ============ ============ Class I: Net assets $ 2,733,978 -- Shares outstanding 339,570 -- Net asset value, offering and redemption price per share $ 8.05 $ 3.37 ============ ============
Pro Forma Pro Forma Combined Adjustments (Note 1) --------------- ---------------- Class A: Net assets ($11,702)(A) $ 38,420,957 Shares outstanding 1,290,719 (B) 11,402,982 Net asset value and redemption price per share -- $ 3.37 Maximum sales charge (4.75% of offering price) -- 0.17 --------------- -------------- Maximum offering price to public -- $ 3.54 =============== ============== Class B: Net assets ($20,779)(A) $ 30,054,644 Shares outstanding 2,280,506 (C) 8,898,691 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) -- $ 3.38 =============== ============== Class II: Net assets $12,646,764 (A) $ 16,667,754 Shares outstanding 3,741,646 (F) 4,932,451 Net asset value and redemption price per share (excluding any applicable contingent deferred sales charge) -- $ 3.38 Maximum sales charge (1.00% of offering price) -- 0.03 --------------- -------------- Maximum offering price to public -- $ 3.41 =============== ============== Class C: Net assets ($12,666,503)(A) $ 0 Shares outstanding (1,575,224)(D)(F) 0 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) -- -- =============== ============== Class I: Net assets ($ 4,260)(A) $ 2,729,718 Shares outstanding $ 470,435 (E) 810,005 Net asset value, offering and redemption price per share -- $ 3.37 =============== ==============
@ To be renamed the SunAmerica Income Funds Strategic Income Fund (A) To adjust for the remaining balances of any prepaid expenses on the North American Funds Strategic Income Fund to be expensed prior to the reorganization (B) Prior to the merger North American Funds Strategic Income Class A shareholders will receive 2.381877541 shares for every one share previously held (C) Prior to the merger North American Funds Strategic Income Class B shareholders will receive 2.375227733 shares for every one share previously held (D) Prior to the merger North American Funds Strategic Income Class C shareholders will receive 2.375310530 shares for every one share previously held (E) Prior to the merger North American Funds Strategic Income Class I shareholders will receive 2.385385462 shares for every one share previously held (F) Class C shares of North American Funds Strategic Income will be redesignated Class II shares See Notes to Pro Forma Financial Statements B-6 SUNAMERICA INCOME FUNDS DIVERSIFIED INCOME FUND@ NORTH AMERICAN FUNDS STRATEGIC INCOME FUND PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED MARCH 31, 2001 (unaudited)
North American Funds SunAmerica Income Funds Strategic Income Diversified Income Fund Fund ---------------------------------------------- INVESTMENT INCOME: Income: Interest $ 3,797,106 $ 5,313,227 Dividends 41,850 287,194 ----------- ----------- Total investment income 3,838,956 5,600,421 ----------- ----------- Expenses: Investment advisory and management fees 266,369 333,983 Distribution and service maintenance fees Class A 25,634 103,166 Class B 131,551 194,577 Class II 0 24,482 Class C 123,082 0 Class I 6,821 0 Transfer agent fees and expenses 106,059 0 Class A 0 81,077 Class B 0 56,105 Class II 0 6,818 Class I 0 0 Registration fees 26,182 0 Class A 0 13,194 Class B 0 10,726 Class II 0 10,555 Class I 0 0 Accounting/administration 37,910 0 Custodian fees and expenses 68,546 66,803 Audit and legal fees 16,600 35,502 Miscellaneous expenses 22,192 16,224 ----------- ----------- Total expenses 830,946 953,212 Less: expenses waived/reimbursed by investment adviser (112,959) (10,804) Less: custody credits earned on cash balances 0 (3,243) ----------- ----------- Net expenses 717,987 939,165 ----------- ----------- Net investment income (loss) 3,120,969 4,661,256 ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments (750,988) (5,741,341) Net realized gain (loss) on foreign currency and other assets and liabilities (39,479) 0 Net change in unrealized appreciation/depreciation of investments 236,205 (765,053) Net change in unrealized appreciation/depreciation on foreign currency and other assets and liabilities 28,931 0 ----------- ----------- Net realized and unrealized gain on investments, foreign currency and other assets and liabilities (525,331) (6,506,394) ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS: $ 2,595,638 ($1,845,138) =========== ===========
Pro Forma Pro Forma Combined Adjustments (Note 1) ------------- --------------- INVESTMENT INCOME: Income: Interest $ 0 $ 9,110,333 Dividends 0 329,044 ----------- ----------- Total investment income 0 9,439,377 ----------- ----------- Expenses: Investment advisory and management fees (35,518)(G) 564,834 Distribution and service maintenance fees Class A 0 128,800 Class B 0 326,128 Class II 123,082 (F) 147,564 Class C (123,082)(F) 0 Class I 0 6,821 Transfer agent fees and expenses (106,059)(G) 0 Class A 20,507 (G) 101,584 Class B 38,150 (G) 94,255 Class II 35,694 (G) 42,512 Class I 9,004 (G) 9,004 Registration fees (26,182)(G) 0 Class A 3,806 (G) 17,000 Class B 6,274 (G) 17,000 Class II 3,445 (G) 14,000 Class I 8,500 (G) 8,500 Accounting/administration (37,910)(G) 0 Custodian fees and expenses (65,349)(G) 70,000 Audit and legal fees (17,102)(H) 35,000 Miscellaneous expenses (18,416)(H) 20,000 ----------- ----------- Total expenses (181,156) 1,603,002 Less: expenses waived/reimbursed by investment adviser 100,821 (I) (22,942) Less: custody credits earned on cash balances 0 (3,243) ----------- ----------- Net expenses (80,335) 1,576,817 ----------- ----------- Net investment income (loss) 80,335 7,862,560 ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments 0 (6,492,329) Net realized gain (loss) on foreign currency and other assets and liabilities 0 (39,479) Net change in unrealized appreciation/depreciation of investments 0 (528,848) Net change in unrealized appreciation/depreciation on foreign currency and other assets and liabilities 0 28,931 ----------- ----------- Net realized and unrealized gain on investments, foreign currency and other assets and liabilities 0 (7,031,725) ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS: $ 80,335 $ 830,835 =========== ===========
(F) Class C shares of North American Funds Strategic Income will be redesignated Class II shares (G) Reflects adjustments to expenses based on fee schedules and combined net assets for the reorganized fund (H) Reflects the elimination of duplicate services or fees (I) Reflects adjustments to expenses waived/reimbused by investment adviser based on pro forma expenses See Notes to Pro Forma Financial Statements B-7 SunAmerica Income Funds Diversified Income Fund North American Funds Strategic Income Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ------------------------------------------------------ Strategic Diversified Pro Forma Income Income Combined Description Coupon ---------------- -------------- ---------------- ----------------------------------------------------------------------------- CORPORATE BONDS & NOTES Aerospace & Military Technology 50,000 50,000 BE Aerospace, Inc. 9.50 30,000 30,000 Dunlop Standard Aerospace Holdings PLC 11.88 50,000 50,000 Sequa Corp. (3) 8.88 Apparel & Textiles 175,000 175,000 Galey & Lord Inc. 9.13 Automotive 500,000 500,000 Breed Technologies, Inc. 9.25 50,000 50,000 Prestolite Electric, Inc. 9.63 275,000 275,000 Stanadyne Automotive Corp. 10.25 Banks 30,000 30,000 Western Financial Bank 8.88 Broadcasting 750,000 750,000 Big City Radio, Inc. 11.25 1,000,000 1,000,000 Chancellor Media Corp. 8.00 25,000 25,000 Coaxial Communications of Central Ohio Inc. 10.00 290,000 290,000 Cumulus Media Inc. 10.38 750,000 750,000 Radio one, Inc. 12.00 100,000 100,000 Shop At Home, Inc. 11.00 Business Services 100,000 100,000 Cendant Corp 7.75 25,000 25,000 Condor Systems, Inc. 11.88 250,000 250,000 Iron Mountain, Inc. 10.13 25,000 25,000 National Equipment Services, Inc., Series B 10.00 25,000 25,000 National Equipment Services, Inc., Series C 10.00 Cable 46,998 46,998 Adelphia Communications (6) 9.50 1,250,000 1,250,000 Adelphia Communications Corp. 8.13 500,000 500,000 Echostar Communications Corp. 4.88 750,000 750,000 Echostar DBS Corp. 9.25 400,000 400,000 Frontiervision Holdings LP 11.88 750,000 750,000 Mediacom LLC/Capital Corp. 8.50 1,500,000 1,500,000 UIH Australia Pacific, Inc. (1) 0.00 1,000,000 1,000,000 UnitedGlobalCom, Inc. (1) 0.00 Cellular 250,000 250,000 Airgate PCS, Inc. (1)(2) 0.00 100,000 100,000 AT&T Wireless Services, Inc (2)(3) 7.88 1,250,000 1,250,000 Leap Wireless International, Inc. (1) 0.00 750,000 750,000 McCaw International Ltd. (1) 0.00 750,000 750,000 Nextel Communications Inc (1) 0.00 50,000 50,000 Spectrasite Holdings Inc. 10.75 600,000 600,000 Spectrasite Holdings Inc. (1) 0.00 900,000 900,000 Spectrasite Holdings, Inc. (1) 0.00 Chemicals 250,000 250,000 Borden Chemicals & Plastics 9.50 20,000 20,000 GEO Specialty Chemicals, Inc. 10.13 Conglomerate 175,000 175,000 Grove Worldwide LLC (5) 9.25 Consumer Goods 250,000 250,000 Penhall International, Inc. 12.00 750,000 750,000 Polymer Group, Inc. 9.00 Consumer Services 750,000 750,000 Allied Waste North America, Inc. 7.63 160,000 160,000 Allied Waste North America, Inc. 10.00 300,000 300,000 Rent-A-center, Inc. 11.00
Strategic Diversified Pro Forma Description Maturity Date Income Income Combined -------------------------------------------------------------------------------------------------------------- CORPORATE BONDS & NOTES 51.7% 42.1% 46.2% Aerospace & Military Technology 0.4% 0.0% 0.2% BE Aerospace, Inc. 11/1/08 Dunlop Standard Aerospace Holdings PLC 5/15/09 Sequa Corp. (3) 4/1/08 Apparel & Textiles 0.3% 0.0% 0.1% Galey & Lord Inc. 3/1/08 Automotive 0.7% 0.0% 0.3% Breed Technologies, Inc. 4/15/08 Prestolite Electric, Inc. 2/1/08 Stanadyne Automotive Corp. 12/15/07 Banks 0.1% 0.0% 0.0% Western Financial Bank 8/1/07 Broadcasting 1.1% 4.2% 2.9% Big City Radio, Inc. 3/15/05 Chancellor Media Corp. 11/1/08 Coaxial Communications of Central Ohio Inc. 8/15/06 Cumulus Media Inc. 7/1/08 Radio one, Inc. 5/15/04 Shop At Home, Inc. 4/1/05 Business Services 1.1% 0.0% 0.5% Cendant Corp 12/1/03 Condor Systems, Inc. 5/1/09 Iron Mountain, Inc. 10/1/06 National Equipment Services, Inc., Series B 11/30/04 National Equipment Services, Inc., Series C 11/30/04 Cable 1.2% 8.5% 5.5% Adelphia Communications (6) 2/15/04 Adelphia Communications Corp. 7/15/03 Echostar Communications Corp. 1/1/07 Echostar DBS Corp. 2/1/06 Frontiervision Holdings LP 9/15/07 Mediacom LLC/Capital Corp. 4/15/08 UIH Australia Pacific, Inc. (1) 5/15/06 UnitedGlobalCom, Inc. (1) 2/15/08 Cellular 2.5% 2.6% 2.6% Airgate PCS, Inc. (1)(2) 10/1/09 AT&T Wireless Services, Inc (2)(3) 3/1/11 Leap Wireless International, Inc. (1) 4/15/10 McCaw International Ltd. (1) 4/15/07 Nextel Communications Inc (1) 2/15/08 Spectrasite Holdings Inc. 3/15/10 Spectrasite Holdings Inc. (1) 3/15/10 Spectrasite Holdings, Inc. (1) 4/15/09 Chemicals 0.3% 0.0% 0.1% Borden Chemicals & Plastics 5/1/05 GEO Specialty Chemicals, Inc. 8/1/08 Conglomerate 0.0% 0.0% 0.0% Grove Worldwide LLC (5) 5/1/08 Consumer Goods 0.7% 0.7% 0.7% Penhall International, Inc. 8/1/06 Polymer Group, Inc. 7/1/07 Consumer Services 1.3% 1.4% 1.4% Allied Waste North America, Inc. 1/1/06 Allied Waste North America, Inc. 8/1/09 Rent-A-center, Inc. 8/15/08
Market Value --------------------------------------------------- Strategic Diversified Pro Forma Description Income Income Combined -------------------------------------------------------------------------------- ---------------- CORPORATE BONDS & NOTES Aerospace & Military Technology BE Aerospace, Inc. 51,375 - 51,375 Dunlop Standard Aerospace Holdings PLC 31,950 - 31,950 Sequa Corp. (3) 50,188 - 50,188 Apparel & Textiles Galey & Lord Inc. 117,250 - 117,250 Automotive Breed Technologies, Inc. 2,500 - 2,500 Prestolite Electric, Inc. 22,500 - 22,500 Stanadyne Automotive Corp. 239,250 - 239,250 Banks Western Financial Bank 28,988 - 28,988 Broadcasting Big City Radio, Inc. - 352,500 352,500 Chancellor Media Corp. - 1,036,250 1,036,250 Coaxial Communications of Central Ohio Inc. 24,813 - 24,813 Cumulus Media Inc. 270,425 - 270,425 Radio one, Inc. - 787,500 787,500 Shop At Home, Inc. 98,500 - 98,500 Business Services Cendant Corp 100,570 - 100,570 Condor Systems, Inc. 18,500 - 18,500 Iron Mountain, Inc. 262,500 - 262,500 National Equipment Services, Inc., Series B 20,875 - 20,875 National Equipment Services, Inc., Series C 20,875 - 20,875 Cable Adelphia Communications (6) 45,706 - 45,706 Adelphia Communications Corp. - 1,215,625 1,215,625 Echostar Communications Corp. - 442,500 442,500 Echostar DBS Corp. - 746,250 746,250 Frontiervision Holdings LP 400,000 400,000 Mediacom LLC/Capital Corp. - 701,250 701,250 UIH Australia Pacific, Inc. (1) - 825,000 825,000 UnitedGlobalCom, Inc. (1) - 480,000 480,000 Cellular Airgate PCS, Inc. (1)(2) - 148,750 148,750 AT&T Wireless Services, Inc (2)(3) 100,005 - 100,005 Leap Wireless International, Inc. (1) - 331,250 331,250 McCaw International Ltd. (1) - 480,000 480,000 Nextel Communications Inc (1) 506,250 - 506,250 Spectrasite Holdings Inc. 43,500 - 43,500 Spectrasite Holdings Inc. (1) 264,000 - 264,000 Spectrasite Holdings, Inc. (1) - 405,000 405,000 Chemicals Borden Chemicals & Plastics 90,000 - 90,000 GEO Specialty Chemicals, Inc. 17,400 - 17,400 Conglomerate Grove Worldwide LLC (5) 15,750 - 15,750 Consumer Goods Penhall International, Inc. 246,250 - 246,250 Polymer Group, Inc. - 360,000 360,000 Consumer Services Allied Waste North America, Inc. - 730,313 730,313 Allied Waste North America, Inc. 163,000 163,000 Rent-A-center, Inc. 303,000 303,000
B-8 SunAmerica Income Funds Diversified Income Fund North American Funds Strategic Income Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ------------------------------------------------------ Strategic Diversified Pro Forma Income Income Combined Description Coupon ---------------- -------------- ---------------- ----------------------------------------------------------------------------- Energy 500,000 500,000 Costilla Energy, Inc. 10.25 200,000 200,000 Frontier Oil Corp. 11.75 25,000 25,000 Grey Wolf, Inc. 8.88 50,000 50,000 HS Resources, Inc. 9.25 250,000 250,000 HS Resources, Inc. 9.25 250,000 250,000 Tesoro Petroleum Corp. 9.00 Energy Services 160,000 1,000,000 1,160,000 AES Corp. 8.75 250,000 250,000 AmeriGas Partners LP/AmeriGas Eagle Finance Corp (2)(3) 10.00 500,000 500,000 CMS Energy Corp 8.50 50,000 50,000 Key Energy Services, Inc. (3) 8.38 300,000 300,000 Gulfmark Offshore, Inc. 8.75 500,000 500,000 Western Gas Resources, Inc. 10.00 Financial Services 200,000 200,000 Alamosa Delaware, Inc (3) 12.50 750,000 750,000 Americredit Corp. 9.88 25,000 25,000 AmeriCredit Corp. 9.25 50,000 50,000 Caithness Coso Funding Corp. 9.05 1,200,000 1,200,000 Commercial Mortgage Asset Trust 7.35 9,443,818 9,443,818 DLJ Commercial Mortgage Corp. (strips) 0.69 7,420,820 7,420,820 DLJ Commercial Mortgage Corp. (strips) 0.83 973,014 973,014 GE Capital management Services, Inc. 6.75 407,923 407,923 PNC Mortgage Securities Corp. 6.74 339,041 339,041 PNC Mortgage Securities Corp. 6.75 489,271 489,271 PNC Mortgage Securities Corp. 6.77 459,283 459,283 PNC Mortgage Securities Corp. 6.84 436,711 436,711 PNC Mortgage Securities Corp. 6.91 238,747 238,747 First Union Residential Securities 7.00 Food, Beverage & Tobacco 300,000 300,000 Agrilink Foods, Inc. 11.88 Forest Products 285,000 285,000 Bear Island Paper Co LLC 10.00 125,000 125,000 Fibermark, Inc. 9.38 Gaming 1,000,000 1,000,000 MGM Grand, Inc. 6.95 400,000 400,000 Hollywood Casino Shreveport/Shreveport Capital Corp. 13.00 25,000 25,000 Isle of Capri Casinos, Inc 8.75 320,000 320,000 Riviera Black Hawk Inc. 13.00 Health Services 1,000,000 1,000,000 Fresenius Medical Care Capital Trust I 9.00 50,000 50,000 LifePoint Hospitals Holdings, Inc. 10.75 135,000 135,000 IASIS Healthcare Corp. 13.00 250,000 250,000 Manor Care, Inc 7.50 1,000,000 1,000,000 Tenet Healthcare Corp. 8.00 350,000 350,000 Universal Hospital Services 10.25 Housing 25,000 25,000 Beazer Homes USA, Inc. 8.88 25,000 25,000 Beazer Homes USA, Inc. 9.00 125,000 125,000 Lennar Corp 9.95 1,247,091 1,247,091 Mid-State Trust 7.34 Leisure & Tourism 100,000 100,000 Cinemark USA, Inc. 9.63 100,000 100,000 HMH Properties, Inc. 7.88 300,000 300,000 Courtyard BY Marriott 01 10.75 350,000 350,000 Speedway Motorsports, Inc. 8.50
Strategic Diversified Pro Forma Description Maturity Date Income Income Combined ------------------------------------------------------------------------------------------------------------------------------- Energy 2.2% 0.0% 0.9% Costilla Energy, Inc. 10/1/06 Frontier Oil Corp. 11/15/09 Grey Wolf, Inc. 7/1/07 HS Resources, Inc. 11/15/06 HS Resources, Inc. 11/15/06 Tesoro Petroleum Corp. 7/1/08 Energy Services 1.3% 4.5% 3.2% AES Corp. 12/15/02 AmeriGas Partners LP/AmeriGas Eagle Finance Corp (2)(3) 4/15/06 CMS Energy Corp 4/15/11 Key Energy Services, Inc. (3) 3/1/08 Gulfmark Offshore, Inc. 6/1/08 Western Gas Resources, Inc. 6/15/09 Financial Services 14.4% 1.8% 7.0% Alamosa Delaware, Inc (3) 2/1/11 Americredit Corp. 4/15/06 AmeriCredit Corp. 2/1/04 Caithness Coso Funding Corp. 12/15/09 Commercial Mortgage Asset Trust 8/17/13 DLJ Commercial Mortgage Corp. (strips) 6/10/31 DLJ Commercial Mortgage Corp. (strips) 11/12/31 GE Capital management Services, Inc. 11/25/28 PNC Mortgage Securities Corp. 7/25/28 PNC Mortgage Securities Corp. 5/25/28 PNC Mortgage Securities Corp. 3/25/29 PNC Mortgage Securities Corp. 5/25/28 PNC Mortgage Securities Corp. 4/25/29 First Union Residential Securities 8/25/28 Food, Beverage & Tobacco 0.7% 0.0% 0.3% Agrilink Foods, Inc. 11/1/08 Forest Products 1.1% 0.0% 0.4% Bear Island Paper Co LLC 12/1/07 Fibermark, Inc. 10/15/06 Gaming 2.1% 1.9% 2.0% MGM Grand, Inc. 2/1/05 Hollywood Casino Shreveport/Shreveport Capital Corp. 8/1/06 Isle of Capri Casinos, Inc 4/15/09 Riviera Black Hawk Inc. 5/1/05 Health Services 2.0% 4.0% 3.3% Fresenius Medical Care Capital Trust I 12/1/06 LifePoint Hospitals Holdings, Inc. 5/15/09 IASIS Healthcare Corp. 10/15/09 Manor Care, Inc 6/15/06 Tenet Healthcare Corp. 1/15/05 Universal Hospital Services 3/1/08 Housing 4.1% 0.0% 1.7% Beazer Homes USA, Inc. 4/1/08 Beazer Homes USA, Inc. 3/1/04 Lennar Corp 5/1/10 Mid-State Trust 7/1/35 Leisure & Tourism 3.2% 1.8% 2.4% Cinemark USA, Inc. 8/1/08 HMH Properties, Inc. 8/1/08 Courtyard BY Marriott 01 2/1/08 Speedway Motorsports, Inc. 8/15/07
Market Value --------------------------------------------------- Strategic Diversified Pro Forma Description Income Income Combined --------------------------------------------------------------------------------------------------- ---------------- Energy Costilla Energy, Inc. 0 - 0 Frontier Oil Corp. 208,500 - 208,500 Grey Wolf, Inc. 25,250 - 25,250 HS Resources, Inc. 51,250 - 51,250 HS Resources, Inc. 258,750 - 258,750 Tesoro Petroleum Corp. 254,375 - 254,375 Energy Services AES Corp. 162,400 1,015,000 1,177,400 AmeriGas Partners LP/AmeriGas Eagle Finance Corp (2)(3) 248,773 - 248,773 CMS Energy Corp - 488,380 488,380 Key Energy Services, Inc. (3) 51,449 - 51,449 Gulfmark Offshore, Inc. - 300,750 300,750 Western Gas Resources, Inc. - 530,000 530,000 Financial Services Alamosa Delaware, Inc (3) - 198,500 198,500 Americredit Corp. - 742,500 742,500 AmeriCredit Corp. 24,500 - 24,500 Caithness Coso Funding Corp. 45,500 - 45,500 Commercial Mortgage Asset Trust 1,253,505 - 1,253,505 DLJ Commercial Mortgage Corp. (strips) 351,055 - 351,055 DLJ Commercial Mortgage Corp. (strips) 348,065 - 348,065 GE Capital management Services, Inc. 941,810 - 941,810 PNC Mortgage Securities Corp. 382,187 - 382,187 PNC Mortgage Securities Corp. 317,602 - 317,602 PNC Mortgage Securities Corp. 473,668 - 473,668 PNC Mortgage Securities Corp. 436,223 - 436,223 PNC Mortgage Securities Corp. 412,285 - 412,285 First Union Residential Securities 228,734 - 228,734 Food, Beverage & Tobacco Agrilink Foods, Inc. 252,000 - 252,000 Forest Products Bear Island Paper Co LLC 261,844 - 261,844 Fibermark, Inc. 121,250 - 121,250 Gaming MGM Grand, Inc. - 995,900 995,900 Hollywood Casino Shreveport/Shreveport Capital Corp. 428,000 - 428,000 Isle of Capri Casinos, Inc 22,625 - 22,625 Riviera Black Hawk Inc. 320,000 - 320,000 Health Services Fresenius Medical Care Capital Trust I - 1,012,500 1,012,500 LifePoint Hospitals Holdings, Inc. 55,500 - 55,500 IASIS Healthcare Corp. 144,450 - 144,450 Manor Care, Inc 250,905 - 250,905 Tenet Healthcare Corp. - 1,025,000 1,025,000 Universal Hospital Services 287,000 - 287,000 Housing Beazer Homes USA, Inc. 24,250 - 24,250 Beazer Homes USA, Inc. 24,688 - 24,688 Lennar Corp 134,063 - 134,063 Mid-State Trust 1,289,567 - 1,289,567 Leisure & Tourism Cinemark USA, Inc. 78,000 - 78,000 HMH Properties, Inc. 95,250 - 95,250 Courtyard BY Marriott 01 306,750 - 306,750 Speedway Motorsports, Inc. 354,375 - 354,375
B-9 SunAmerica Income Funds Diversified Income Fund North American Funds Strategic Income Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ------------------------------------------------------ Strategic Diversified Pro Forma Income Income Combined Description Coupon ---------------- -------------- ---------------- ------------------------------------------------------------------------------ 950,000 950,000 ITT Corp. 6.75 325,000 325,000 True Temper Sports, Inc. 10.88 Manufacturing 600,000 600,000 Pentacon, Inc. 12.25 Media 280,000 280,000 Benedek Communications Corp. 13.25 175,000 175,000 Century Communications Corp. 8.88 50,000 50,000 Susquehanna Media Co. 8.50 400,000 400,000 Charter Communications Holdings LLC 10.75 35,000 35,000 Pegasus Communications Corp. 9.75 400,000 400,000 Golden Sky DBS, Inc. (1) 0.00 1,000,000 1,000,000 Orion Network Systems, Inc. (1)(2) 0.00 625,000 625,000 Park-N-View, Inc. (4)(5) 13.00 Medical Products 150,000 150,000 PSS World Medical, inc. 8.50 Metals & Minerals 1,000,000 1,000,000 Acme Metals, Inc. (4)(5) 12.50 100,000 100,000 Renco Steel Holdings, Inc. 10.88 500,000 500,000 Schuff Steel Co. 10.50 275,000 275,000 WCI Steel Inc. 10.00 Pharmaceuticals 50,000 50,000 Express Scripts, Inc. 9.63 20,000 20,000 ICN Pharmaceuticals, Inc.(2)(3) 8.75 150,000 150,000 ICN Pharmaceuticals, Inc.(3) 9.75 325,000 325,000 Pharmacia, Inc. 8.38 Real Estate 700,000 700,000 LNR Property Corp 10.50 135,000 135,000 Omega Healthcare Investors, Inc. 6.95 Retail 125,000 125,000 Big 5 Corp. 10.88 100,000 100,000 PEP Boys-Manny Moe & Jack 6.52 Telecommunications 100,000 100,000 Allegiance Telecommunications, Inc 12.88 150,000 150,000 Concentric Network Corp./XO Communications, Inc. 12.75 350,000 350,000 Crown Castle International Corp. (1) 0.00 1,000,000 1,000,000 Frontier Corp. 7.25 160,000 800,000 960,000 Globix Corp. 12.50 1,000,000 1,000,000 IMPsat Fiber Networks Corp. 12.38 750,000 750,000 Intermedia Communications, Inc. 8.88 500,000 500,000 Level 3 Communications, Inc. 11.00 550,000 550,000 Level 3 Communications, Inc. (1) 0.00 325,000 325,000 Microcell Telecommunications (1) 0.00 800,000 800,000 Mpower Communications Corp. 13.00 100,000 100,000 NTL Communications Corp. 11.50 500,000 500,000 PSINet, Inc. 11.50 15,000 15,000 PSINet, Inc. (5) 11.00 200,000 200,000 Williams Communications Group 11.70 Utilities 150,000 150,000 Avista Corp. (3) 9.75 100,000 100,000 BRL Universal Equipment LP, Series A (3) 8.88 200,000 200,000 Leviathan Gas Pipeline Partners 10.38 Total Corporate Bonds & Notes (cost $20,114,429; $26,927,872; $47,042,311) FOREIGN BONDS & NOTES Broadcasting
Strategic Diversified Pro Forma Description Maturity Date Income Income Combined -------------------------------------------------------------------------------------------------------------------------------- ITT Corp. 11/15/05 True Temper Sports, Inc. 12/1/08 Manufacturing 0.0% 0.5% 0.3% Pentacon, Inc. 4/1/09 Media 3.1% 0.6% 1.6% Benedek Communications Corp. 5/15/06 Century Communications Corp. 1/15/07 Susquehanna Media Co. 5/15/09 Charter Communications Holdings LLC 10/1/09 Pegasus Communications Corp. 12/1/06 Golden Sky DBS, Inc. (1) 3/1/07 Orion Network Systems, Inc. (1)(2) 1/15/07 Park-N-View, Inc. (4)(5) 5/15/08 Medical Products 0.3% 0.0% 0.1% PSS World Medical, inc. 10/1/07 Metals & Minerals 0.8% 1.9% 1.4% Acme Metals, Inc. (4)(5) 8/1/02 Renco Steel Holdings, Inc. 2/1/05 Schuff Steel Co. 6/1/08 WCI Steel Inc. 12/1/04 Pharmaceuticals 1.4% 0.0% 0.6% Express Scripts, Inc. 6/15/09 ICN Pharmaceuticals, Inc.(2)(3) 11/15/08 ICN Pharmaceuticals, Inc.(3) 11/15/08 Pharmacia, Inc. 4/1/08 Real Estate 0.3% 1.4% 0.9% LNR Property Corp 1/15/09 Omega Healthcare Investors, Inc. 6/15/02 Retail 0.5% 0.0% 0.2% Big 5 Corp. 11/15/07 PEP Boys-Manny Moe & Jack 7/16/07 Telecommunications 3.2% 6.3% 5.1% Allegiance Telecommunications, Inc 5/15/08 Concentric Network Corp./XO Communications, Inc. 12/15/07 Crown Castle International Corp. (1) 5/15/11 Frontier Corp. 5/15/04 Globix Corp. 2/1/10 IMPsat Fiber Networks Corp. 6/15/08 Intermedia Communications, Inc. 11/1/07 Level 3 Communications, Inc. 3/15/08 Level 3 Communications, Inc. (1) 3/15/10 Microcell Telecommunications (1) 6/1/09 Mpower Communications Corp. 4/1/10 NTL Communications Corp. 10/1/08 PSINet, Inc. 11/1/08 PSINet, Inc. (5) 8/1/09 Williams Communications Group 8/1/08 Utilities 1.3% 0.0% 0.5% Avista Corp. (3) 6/1/08 BRL Universal Equipment LP, Series A (3) 2/15/08 Leviathan Gas Pipeline Partners 6/1/09 Total Corporate Bonds & Notes (cost $20,114,429; $26,927,872; $47,042,311) FOREIGN BONDS & NOTES 29.5% 16.7% 22.0% Broadcasting 0.0% 0.7% 0.4%
Market Value --------------------------------------------------- Strategic Diversified Pro Forma Description Income Income Combined ------------------------------------------------------------------------------------------------- ---------------- ITT Corp. - 937,127 937,127 True Temper Sports, Inc. 331,500 - 331,500 Manufacturing Pentacon, Inc. - 240,000 240,000 Media Benedek Communications Corp. 187,600 - 187,600 Century Communications Corp. 164,500 - 164,500 Susquehanna Media Co. 50,625 - 50,625 Charter Communications Holdings LLC 426,000 - 426,000 Pegasus Communications Corp. 33,425 - 33,425 Golden Sky DBS, Inc. (1) 248,000 - 248,000 Orion Network Systems, Inc. (1)(2) - 265,000 265,000 Park-N-View, Inc. (4)(5) - 62,500 62,500 Medical Products PSS World Medical, inc. 123,750 - 123,750 Metals & Minerals Acme Metals, Inc. (4)(5) - 550,000 550,000 Renco Steel Holdings, Inc. 42,000 - 42,000 Schuff Steel Co. - 430,000 430,000 WCI Steel Inc. 239,250 - 239,250 Pharmaceuticals Express Scripts, Inc. 53,625 - 53,625 ICN Pharmaceuticals, Inc.(2)(3) 19,800 - 19,800 ICN Pharmaceuticals, Inc.(3) 148,125 - 148,125 Pharmacia, Inc. 281,937 - 281,937 Real Estate LNR Property Corp - 703,500 703,500 Omega Healthcare Investors, Inc. 120,243 - 120,243 Retail Big 5 Corp. 115,000 - 115,000 PEP Boys-Manny Moe & Jack 83,000 - 83,000 Telecommunications Allegiance Telecommunications, Inc 98,000 - 98,000 Concentric Network Corp./XO Communications, Inc. 105,000 - 105,000 Crown Castle International Corp. (1) 245,000 - 245,000 Frontier Corp. - 988,750 988,750 Globix Corp. 48,000 232,000 280,000 IMPsat Fiber Networks Corp. - 510,000 510,000 Intermedia Communications, Inc. - 735,000 735,000 Level 3 Communications, Inc. - 390,000 390,000 Level 3 Communications, Inc. (1) 225,500 - 225,500 Microcell Telecommunications (1) 195,000 - 195,000 Mpower Communications Corp. - 328,000 328,000 NTL Communications Corp. 89,000 - 89,000 PSINet, Inc. - 45,000 45,000 PSINet, Inc. (5) 1,350 - 1,350 Williams Communications Group 157,000 - 157,000 Utilities Avista Corp. (3) 149,502 - 149,502 BRL Universal Equipment LP, Series A (3) 103,250 - 103,250 Leviathan Gas Pipeline Partners 213,750 - 213,750 --------------- -------------- ---------------- Total Corporate Bonds & Notes 18,781,050 21,767,595 40,548,645 --------------- -------------- ---------------- (cost $20,114,429; $26,927,872; $47,042,311) FOREIGN BONDS & NOTES Broadcasting
B-10 SunAmerica Income Funds Diversified Income Fund North American Funds Strategic Income Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ------------------------------------------------------ Strategic Diversified Pro Forma Income Income Combined Description Coupon ---------------- -------------- ---------------- ---------------------------------------------------------------------------- 1,000,000 1,000,000 Central European Media Enterprises Ltd. 9.38 Building Materials 500,000 500,000 Ainsworth Lumber Ltd. (6) 12.50 Cable 500,000 500,000 Australis Holdings Property Ltd. (4)(5) 15.00 750,000 750,000 Callahan Nordrhein Westfalen (1)(3) 0.00 210,000 210,000 Callahan Nordrhein-Westfalen (3) 14.00 600,000 600,000 Diamond Cable Communications PLC 13.25 500,000 500,000 Diamond Holdings PLC 9.13 500,000 500,000 Telewest Communications PLC (1) 11.00 1,000,000 1,000,000 Multicanal Participacoes SA, Series B 12.63 Cellular 750,000 750,000 Celcaribe SA 14.50 1,250,000 1,250,000 Occidente Y Caribe Celular SA 14.00 250,000 250,000 United Pan-Europe Communications N.V. (1) 11.25 Electrical Equipment 60,000 60,000 Flextronics International Ltd. 8.75 135,000 135,000 Flextronics International Ltd. 9.88 Energy Services 1,000,000 1,000,000 Statia Terminals International NV 11.75 Energy 500,000 500,000 PennzEnergy Co. 10.25 Food Retail 1,000,000 1,000,000 Bepensa SA 9.75 Financial Services 600,000 600,000 Ono Finance (2) 13.00 Forest Products 500,000 500,000 APP International Finance Co. BV (5) 11.75 Government Agency 350,000 350,000 Brazilian Government International Bond 12.25 600,000 600,000 Federal Republic of Brazil (7) 8.00 1,493,700 1,231,410 2,725,110 Federal Republic of Brazil (7) 8.00 110,000 110,000 Federal Republic of Germany 4.00 200,000 200,000 Federal Republic of Germany 4.25 120,000 120,000 Federal Republic of Germany 5.27 125,000 125,000 Government of France 5.50 4,000,000 4,000,000 Kingdom of Norway 5.75 80,000 80,000 Kingdom of Spain 6.15 800,000 800,000 Kingdom of Sweden 10.25 400,000 400,000 National Republic of Bulgaria 3.00 144,000 144,000 Republic of Argentina 7.62 800,000 800,000 Republic of Ecuador 4.00 146,735 146,735 Republic of Greece 8.80 110,000 110,000 Republic of Italy 5.25 1,400,000 1,400,000 Republic of Peru 3.75 3,500,000 3,500,000 Republic of South Africa 12.00 3,500,000 3,500,000 Republic of South Africa 13.00 619,045 619,045 Republic of Venezuela 7.63 1,000,000 1,000,000 Russian Federation (3) 5.00 1,400,000 1,400,000 United Mexican States 6.25 250,000 250,000 United Mexican States 6.25 Media 130,000 130,000 Ekabel Hessen (3) 14.50 Packaging 1,000,000 1,000,000 Vicap SA 11.38 Telecommunications
Strategic Diversified Pro Forma Description Maturity Date Income Income Combined ---------------------------------------------------------------------------------------------------------------------- Central European Media Enterprises Ltd. 8/15/04 Building Materials 0.0% 0.8% 0.5% Ainsworth Lumber Ltd. (6) 7/15/07 Cable 1.9% 4.6% 3.5% Australis Holdings Property Ltd. (4)(5) 11/1/02 Callahan Nordrhein Westfalen (1)(3) 7/15/10 Callahan Nordrhein-Westfalen (3) 7/15/10 Diamond Cable Communications PLC 9/30/04 Diamond Holdings PLC 2/1/08 Telewest Communications PLC (1) 10/1/07 Multicanal Participacoes SA, Series B 6/18/04 Cellular 0.2% 2.8% 1.8% Celcaribe SA 3/15/04 Occidente Y Caribe Celular SA 3/15/04 United Pan-Europe Communications N.V. (1) 2/1/10 Electrical Equipment 0.5% 0.0% 0.2% Flextronics International Ltd. 10/15/07 Flextronics International Ltd. 7/1/10 Energy Services 0.0% 2.0% 1.2% Statia Terminals International NV 11/15/03 Energy 1.6% 0.0% 0.7% PennzEnergy Co. 11/1/05 Food Retail 0.0% 1.9% 1.1% Bepensa SA 9/30/04 Financial Services 1.3% 0.0% 0.5% Ono Finance (2) 5/1/09 Forest Products 0.0% 0.2% 0.1% APP International Finance Co. BV (5) 10/1/05 Government Agency 22.5% 1.8% 10.3% Brazilian Government International Bond 3/6/30 Federal Republic of Brazil (7) 4/15/12 Federal Republic of Brazil (7) 4/15/14 Federal Republic of Germany 7/4/09 Federal Republic of Germany 11/26/04 Federal Republic of Germany 1/4/28 Government of France 4/25/29 Kingdom of Norway 11/30/04 Kingdom of Spain 1/31/13 Kingdom of Sweden 5/5/03 National Republic of Bulgaria 7/28/12 Republic of Argentina 3/31/05 Republic of Ecuador 8/15/30 Republic of Greece 6/19/07 Republic of Italy 11/1/29 Republic of Peru 3/7/17 Republic of South Africa 2/28/05 Republic of South Africa 8/31/10 Republic of Venezuela 3/31/07 Russian Federation (3) 3/31/30 United Mexican States 12/31/19 United Mexican States 12/31/19 Media 0.4% 0.0% 0.1% Ekabel Hessen (3) 9/1/10 Packaging 0.0% 1.5% 0.9% Vicap SA 5/15/07 Telecommunications 1.1% 0.4% 0.7%
Market Value --------------------------------------------------- Strategic Diversified Pro Forma Description Income Income Combined ---------------------------------------------------------------------------------- ---------------- Central European Media Enterprises Ltd. - 352,500 352,500 Building Materials Ainsworth Lumber Ltd. (6) - 412,500 412,500 Cable Australis Holdings Property Ltd. (4)(5) - 10,000 10,000 Callahan Nordrhein Westfalen (1)(3) - 352,500 352,500 Callahan Nordrhein-Westfalen (3) 212,100 212,100 Diamond Cable Communications PLC - 585,000 585,000 Diamond Holdings PLC - 407,500 407,500 Telewest Communications PLC (1) 488,750 - 488,750 Multicanal Participacoes SA, Series B - 1,020,000 1,020,000 Cellular Celcaribe SA - 547,500 547,500 Occidente Y Caribe Celular SA - 912,500 912,500 United Pan-Europe Communications N.V. (1) 85,000 - 85,000 Electrical Equipment Flextronics International Ltd. 57,000 - 57,000 Flextronics International Ltd. 130,950 - 130,950 Energy Services Statia Terminals International NV - 1,025,000 1,025,000 Energy PennzEnergy Co. 581,280 - 581,280 Food Retail Bepensa SA - 950,000 950,000 Financial Services Ono Finance (2) 468,000 - 468,000 Forest Products APP International Finance Co. BV (5) - 100,000 100,000 Government Agency Brazilian Government International Bond 309,750 - 309,750 Federal Republic of Brazil (7) 423,780 - 423,780 Federal Republic of Brazil (7) 1,163,442 946,573 2,110,015 Federal Republic of Germany 92,461 - 92,461 Federal Republic of Germany 176,028 - 176,028 Federal Republic of Germany 109,174 - 109,174 Government of France 110,534 - 110,534 Kingdom of Norway 427,043 - 427,043 Kingdom of Spain 76,084 - 76,084 Kingdom of Sweden 86,579 - 86,579 National Republic of Bulgaria 301,520 - 301,520 Republic of Argentina 121,104 - 121,104 Republic of Ecuador 328,000 - 328,000 Republic of Greece 155,399 - 155,399 Republic of Italy 90,226 - 90,226 Republic of Peru 868,000 - 868,000 Republic of South Africa 441,090 - 441,090 Republic of South Africa 454,778 - 454,778 Republic of Venezuela 510,712 - 510,712 Russian Federation (3) 402,500 - 402,500 United Mexican States 1,267,000 - 1,267,000 United Mexican States 222,188 - 222,188 Media Ekabel Hessen (3) 127,400 - 127,400 Packaging Vicap SA - 787,500 787,500 Telecommunications
B-11 SunAmerica Income Funds Diversified Income Fund North American Funds Strategic Income Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ------------------------------------------------------ Strategic Diversified Pro Forma Income Income Combined Description Coupon ---------------- -------------- ---------------- ------------------------------------------------------------------------------ 150,000 150,000 GT Group Telecom, Inc. 13.25 300,000 300,000 Netia Holdings BV 13.13 150,000 150,000 VersaTel Telecom International N.V. 13.25 50,000 50,000 VersaTel Telecom International N.V. 13.25 500,000 500,000 Worldwide Fiber, Inc. 12.50 Total Foreign Bonds & Notes (cost $11,481,953; $10,732,917; $22,214,870) U.S. GOVERNMENT AND AGENCIES U.S. Government Agencies 117,111 117,111 Federal Home Loan Mortgage Corp. 11.57 181,039 181,039 Federal Home Loan Mortgage Corp. 10.00 217,998 217,998 Federal Home Loan Mortgage Corp. 8.50 196,531 196,531 Federal Home Loan Mortgage Corp. 7.00 135,965 135,965 Federal Home Loan Mortgage Corp. 6.50 33,000 33,000 Federal National Mortgage Association 13.00 43,965 43,965 Federal National Mortgage Association 10.40 279,815 279,815 Federal National Mortgage Association 8.80 403,668 403,668 Federal National Mortgage Association 8.00 241,575 241,575 Federal National Mortgage Association 7.50 490,167 490,167 Federal National Mortgage Association 7.50 3,275 3,275 Federal National Mortgage Association 7.39 2,000,000 2,000,000 Federal National Mortgage Association 6.63 438,441 438,441 Federal National Mortgage Association 5.50 45,354 45,354 Federal National Mortgage Association 5.50 5,489,905 5,489,905 Federal National Mortgage Association (interest only) 1.59 6,074,989 6,074,989 Federal National Mortgage Association (interest only) 1.03 4,493,783 4,493,783 Federal National Mortgage Association (interest only) 0.53 12,498,895 12,498,895 Federal National Mortgage Association (interest only) 0.50 244,510 244,510 Government National Mortgage Association 7.50 59,550 59,550 Government National Mortgage Association 7.50 220,071 220,071 Government National Mortgage Association 7.50 U.S Treasury Bonds 500,000 500,000 United States Treasury Bonds 6.13 500,000 500,000 United States Treasury Bonds 6.25 500,000 500,000 United States Treasury Bonds 5.38 U.S Treasury Notes 2,000,000 2,000,000 United States Treasury Notes 4.75 2,000,000 2,000,000 United States Treasury Notes 6.00 4,000,000 4,000,000 United States Treasury Notes 5.88 1,000,000 1,000,000 United States Treasury Notes 5.75 1,000,000 1,000,000 United States Treasury Notes 5.00 Total U.S. Government and Agencies (cost $4,564,902; $13,539,149; $18,104,051) Loan Agreements 540,000 540,000 Algeria Tanche III 6.38 323,810 323,810 Kingdom of Morrocco Tranche A 6.84 Total Loan Agreements (cost $604,244; $0; $604,244) PREFERRED STOCK Apparel & Textiles 15,487 15,487 Anvil Holdings, Inc. 13% (6) Cable 2,500 2,500 Adelphia Communications Corp. 13%
Strategic Diversified Pro Forma Description Maturity Date Income Income Combined ---------------------------------------------------------------------------------------------------------------------------- GT Group Telecom, Inc. 2/1/10 Netia Holdings BV 06/15/2009 VersaTel Telecom International N.V. 5/15/08 VersaTel Telecom International N.V. 5/15/08 Worldwide Fiber, Inc. 12/15/05 Total Foreign Bonds & Notes (cost $11,481,953; $10,732,917; $22,214,870) U.S. GOVERNMENT AND AGENCIES U.S. Government Agencies 11.1% 4.1% 7.0% Federal Home Loan Mortgage Corp. 6/15/21 Federal Home Loan Mortgage Corp. 5/15/20 Federal Home Loan Mortgage Corp. 5/1/08 Federal Home Loan Mortgage Corp. 6/1/29 Federal Home Loan Mortgage Corp. 5/1/29 Federal National Mortgage Association 11/15/15 Federal National Mortgage Association 4/25/19 Federal National Mortgage Association 1/25/19 Federal National Mortgage Association 11/1/28 Federal National Mortgage Association 9/1/30 Federal National Mortgage Association 1/1/30 Federal National Mortgage Association 8/17/03 Federal National Mortgage Association 9/15/09 Federal National Mortgage Association 6/1/29 Federal National Mortgage Association 1/1/29 Federal National Mortgage Association (interest only) 2/25/35 Federal National Mortgage Association (interest only) 6/25/38 Federal National Mortgage Association (interest only) 3/17/20 Federal National Mortgage Association (interest only) 10/17/36 Government National Mortgage Association 10/15/27 Government National Mortgage Association 10/15/27 Government National Mortgage Association 7/15/27 U.S Treasury Bonds 0.0% 3.1% 1.8% United States Treasury Bonds 11/15/27 United States Treasury Bonds 5/15/30 United States Treasury Bonds 2/15/31 U.S Treasury Notes 0.0% 20.1% 11.8% United States Treasury Notes 2/15/04 United States Treasury Notes 8/15/09 United States Treasury Notes 11/15/04 United States Treasury Notes 8/15/10 United States Treasury Notes 2/15/11 Total U.S. Government and Agencies (cost $4,564,902; $13,539,149; $18,104,051) Loan Agreements 2.0% 0.0% 0.8% Algeria Tanche III 3/4/10 Kingdom of Morrocco Tranche A 1/1/09 Total Loan Agreements (cost $604,244; $0; $604,244) PREFERRED STOCK 1.5% 5.6% 3.9% Apparel & Textiles 0.8% 0.0% 0.3% Anvil Holdings, Inc. 13% (6) Cable 0.7% 2.8% 1.9% Adelphia Communications Corp. 13%
Market Value -------------------------------------------------- Strategic Diversified Pro Forma Description Income Income Combined ------------------------------------------------------------------------------------------------ ---------------- GT Group Telecom, Inc. 57,000 - 57,000 Netia Holdings BV 231,000 - 231,000 VersaTel Telecom International N.V. 96,000 - 96,000 VersaTel Telecom International N.V. 30,500 - 30,500 Worldwide Fiber, Inc. - 200,000 200,000 --------------- -------------- ---------------- Total Foreign Bonds & Notes 10,702,372 8,609,073 19,311,445 --------------- -------------- ---------------- (cost $11,481,953; $10,732,917; $22,214,870) U.S. GOVERNMENT AND AGENCIES U.S. Government Agencies Federal Home Loan Mortgage Corp. 21,578 - 21,578 Federal Home Loan Mortgage Corp. 191,335 - 191,335 Federal Home Loan Mortgage Corp. 229,030 - 229,030 Federal Home Loan Mortgage Corp. 199,171 - 199,171 Federal Home Loan Mortgage Corp. 135,667 - 135,667 Federal National Mortgage Association 38,950 - 38,950 Federal National Mortgage Association 48,059 - 48,059 Federal National Mortgage Association 295,555 - 295,555 Federal National Mortgage Association 418,170 - 418,170 Federal National Mortgage Association 247,043 - 247,043 Federal National Mortgage Association 500,887 - 500,887 Federal National Mortgage Association 3,268 - 3,268 Federal National Mortgage Association - 2,126,240 2,126,240 Federal National Mortgage Association 414,598 - 414,598 Federal National Mortgage Association 42,888 - 42,888 Federal National Mortgage Association (interest only) 259,967 - 259,967 Federal National Mortgage Association (interest only) 266,519 - 266,519 Federal National Mortgage Association (interest only) 79,468 - 79,468 Federal National Mortgage Association (interest only) 78,986 - 78,986 Government National Mortgage Association 250,774 - 250,774 Government National Mortgage Association 61,076 - 61,076 Government National Mortgage Association 225,709 - 225,709 U.S Treasury Bonds United States Treasury Bonds - 533,515 533,515 United States Treasury Bonds - 549,295 549,295 United States Treasury Bonds - 493,595 493,595 U.S Treasury Notes United States Treasury Notes - 2,020,000 2,020,000 United States Treasury Notes - 2,138,740 2,138,740 United States Treasury Notes - 4,180,000 4,180,000 United States Treasury Notes - 1,054,680 1,054,680 United States Treasury Notes - 1,005,160 1,005,160 --------------- -------------- ---------------- Total U.S. Government and Agencies 4,008,698 14,101,225 18,109,923 --------------- -------------- ---------------- (cost $4,564,902; $13,539,149; $18,104,051) Loan Agreements Algeria Tanche III 426,600 - 426,600 Kingdom of Morrocco Tranche A 285,762 - 285,762 --------------- -------------- ---------------- Total Loan Agreements 712,362 - 712,362 --------------- -------------- ---------------- (cost $604,244; $0; $604,244) PREFERRED STOCK Apparel & Textiles Anvil Holdings, Inc. 13% (6) 298,125 - 298,125 Cable Adelphia Communications Corp. 13% 250,625 - 250,625
B-12 SunAmerica Income Funds Diversified Income Fund North American Funds Strategic Income Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ------------------------------------------------------ Strategic Diversified Pro Forma Income Income Combined Description ---------------- -------------- ---------------- ---------------------------------------------------------------- 13,028 13,028 CSC Holdings, Inc. 11.13% (6) Cellular 836 836 Nextel Communications, Inc. 11.13% (6) Telecommunications 650 650 Broadwing Communications, Inc. 12.50% 1,250 1,250 Global Crossings Ltd. 7.00% (3) 150 150 Global Crossing Ltd. 6.75% Other 570 570 TCR Holdings, Class B + 314 314 TCR Holdings, Class C + 827 827 TCR Holdings, Class D + 1,711 1,711 TCR Holdings, Class E + Total Preferred Stock (cost $540,069; $2,987,884; $3,527,953) COMMON STOCK Cellular 84,603 84,603 International Wireless Communications Holdings, Inc. +(4) Energy Services 5,689 5,689 Frontline Ltd. + Financial Services 100 100 Ono Finance (3) Total Common Stock (cost $0; $784,774; $784,774) RIGHTS + Conglomerate 2,000 2,000 Terex Corp. (3) WARRANTS + Cable 1,500 1,500 Knology Holdings, Inc. (4) 1,000 1,000 UIH Australia Pacific, Inc. (4) Cellular 500 500 Leap Wireless International, Inc. 350 350 Leap Wireless International, Inc. 7,250 7,250 Occidente Y Caribe Celular SA (3)(4) Forest Products 500 500 Berry Plastics Corp. Media 625 625 Park-N-View, Inc. (4) Telecommunications 150 150 GT Group Telecommunications, Inc. Utilities 1,000 1,000 In-Flight Phone Corp. Total Warrants (cost $7,176; $2,856; $10,031) PUT OPTIONS Real Estate Investment trust 326,000 326,000 Meditrust Exercisable Put Options Securities Trust (3) Total Investment Securities (cost $36,939,945; $54,975,452; $91,915,397) REPURCHASE AGREEMENTS
Strategic Diversified Description Coupon Maturity Date Income Income ----------------------------------------------------------------------------------------------------------------------------- CSC Holdings, Inc. 11.13% (6) Cellular 0.0% 1.2% Nextel Communications, Inc. 11.13% (6) Telecommunications 0.0% 1.6% Broadwing Communications, Inc. 12.50% Global Crossings Ltd. 7.00% (3) Global Crossing Ltd. 6.75% Other 0.0% 0.0% TCR Holdings, Class B + TCR Holdings, Class C + TCR Holdings, Class D + TCR Holdings, Class E + Total Preferred Stock (cost $540,069; $2,987,884; $3,527,953) COMMON STOCK 0.0% 0.2% Cellular 0.0% 0.0% International Wireless Communications Holdings, Inc. +(4) Energy Services 0.0% 0.2% Frontline Ltd. + Financial Services 0.0% 0.0% Ono Finance (3) Total Common Stock (cost $0; $784,774; $784,774) RIGHTS + 0.1% 0.0% Conglomerate 0.1% 0.0% Terex Corp. (3) WARRANTS + 0.0% 0.0% Cable 0.0% 0.0% Knology Holdings, Inc. (4) UIH Australia Pacific, Inc. (4) Cellular 0.0% 0.0% Leap Wireless International, Inc. Leap Wireless International, Inc. Occidente Y Caribe Celular SA (3)(4) Forest Products 0.0% 0.0% Berry Plastics Corp. Media 0.0% 0.0% Park-N-View, Inc. (4) Telecommunications 0.0% 0.0% GT Group Telecommunications, Inc. Utilities 0.0% 0.0% In-Flight Phone Corp. Total Warrants (cost $7,176; $2,856; $10,031) PUT OPTIONS 0.8% 0.0% Real Estate Investment trust 0.8% 0.0% Meditrust Exercisable Put Options Securities Trust (3) 7.11 8/15/04 Total Investment Securities 96.7% 91.9% (cost $36,939,945; $54,975,452; $91,915,397) REPURCHASE AGREEMENTS 2.0% 6.9%
Market Value --------------------------------------------------- Pro Forma Strategic Diversified Pro Forma Description Combined Income Income Combined ------------------------------------------------------------------------------------------------------ ---------------- CSC Holdings, Inc. 11.13% (6) - 1,416,795 1,416,795 Cellular 0.7% Nextel Communications, Inc. 11.13% (6) - 610,280 610,280 Telecommunications 1.0% Broadwing Communications, Inc. 12.50% - 663,000 663,000 Global Crossings Ltd. 7.00% (3) - 158,594 158,594 Global Crossing Ltd. 6.75% - 23,588 23,588 Other 0.0% TCR Holdings, Class B + 6 - 6 TCR Holdings, Class C + 3 - 3 TCR Holdings, Class D + 8 - 8 TCR Holdings, Class E + 17 - 17 --------------- -------------- ---------------- Total Preferred Stock 548,784 2,872,256 3,421,040 --------------- -------------- ---------------- (cost $540,069; $2,987,884; $3,527,953) COMMON STOCK 0.1% Cellular 0.0% International Wireless Communications Holdings, Inc. +(4 - 8,460 8,460 Energy Services 0.1% Frontline Ltd. + - 99,185 99,185 Financial Services 0.0% Ono Finance (3) 4,013 - 4,013 --------------- -------------- ---------------- Total Common Stock 4,013 107,645 111,658 --------------- -------------- ---------------- (cost $0; $784,774; $784,774) RIGHTS + 0.0% Conglomerate 0.0% Terex Corp. (3) 35,250 - 35,250 --------------- -------------- ---------------- WARRANTS + 0.0% Cable 0.0% Knology Holdings, Inc. (4) - 15 15 UIH Australia Pacific, Inc. (4) - 10,000 10,000 Cellular 0.0% Leap Wireless International, Inc. - 15,000 15,000 Leap Wireless International, Inc. - 5,250 5,250 Occidente Y Caribe Celular SA (3)(4) - 73 73 Forest Products 0.0% Berry Plastics Corp. - - - Media 0.0% Park-N-View, Inc. (4) - - - Telecommunications 0.0% GT Group Telecommunications, Inc. 4,279 - 4,279 Utilities 0.0% In-Flight Phone Corp. - - - --------------- -------------- ---------------- Total Warrants 4,279 30,338 34,617 --------------- -------------- ---------------- (cost $7,176; $2,856; $10,031) PUT OPTIONS 0.3% Real Estate Investment trust 0.3% Meditrust Exercisable Put Options Securities Trust (3) 275,470 - 275,470 --------------- -------------- ---------------- Total Investment Securities 93.9% 35,072,278 47,488,132 82,560,410 --------------- -------------- ---------------- (cost $36,939,945; $54,975,452; $91,915,397) REPURCHASE AGREEMENTS 4.9%
B-13 SunAmerica Income Funds Diversified Income Fund North American Funds Strategic Income Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ------------------------------------------------------ Strategic Diversified Pro Forma Income Income Combined Description Coupon ---------------- -------------- ---------------- ------------------------------------------------------------------------------ 3,567,000 3,567,000 State Street Bank & Trust Co. Repurchase Agreement 6.35 710,000 710,000 State Street Bank & Trust Co. Repurchase Agreement 4.50 Total Repurchase Agreements (cost $710,000; $3,567,000; 4,277,000) TOTAL INVESTMENTS (cost $37,649,945; $58,542,452; $96,192,397) Other assets less liabilities (8) NET ASSETS
Strategic Diversified Pro Forma Description Maturity Date Income Income Combined --------------------------------------------------------------------------------------------------------------------------- State Street Bank & Trust Co. Repurchase Agreement 4/2/01 State Street Bank & Trust Co. Repurchase Agreement 4/2/01 Total Repurchase Agreements (cost $710,000; $3,567,000; 4,277,000) TOTAL INVESTMENTS 98.7% 98.8% 98.8% (cost $37,649,945; $58,542,452; $96,192,397) Other assets less liabilities (8) 1.3% 1.2% 1.2% ----------- ------------ ------------ NET ASSETS 100.0% 100.0% 100.0% =========== ============ ============
Market Value --------------------------------------------------- Strategic Diversified Pro Forma Description Income Income Combined ------------------------------------------------------------------------------------------------ ---------------- State Street Bank & Trust Co. Repurchase Agreement 3,567,000 3,567,000 State Street Bank & Trust Co. Repurchase Agreement 710,000 710,000 --------------- -------------- ---------------- Total Repurchase Agreements 710,000 3,567,000 4,277,000 --------------- -------------- ---------------- (cost $710,000; $3,567,000; 4,277,000) TOTAL INVESTMENTS 35,782,278 51,055,132 86,837,410 --------------- -------------- ---------------- (cost $37,649,945; $58,542,452; $96,192,397) Other assets less liabilities (8) 461,178 630,965 1,035,663 --------------- -------------- ---------------- NET ASSETS $36,243,456 $51,686,097 $87,873,073 =============== ============== ================
+ 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) Resale restricted to qualified institutional buyers (4) Fair valued security (5) Bond in default (6) PIK ("Payment-in-Kind") payment made with additional shares in lieu of cash (7) Variable rate security; rate as of March 31, 2001 (8) To adjust ($56,480) for prepaid expenses on the North American Funds Strategic Income Fund to be expensed prior to the reorganization Management does not anticipate having to sell any securities as a result of the reorganization, however, securities may be sold due to differing portfolio management style. See Notes to Pro Forma Financial Statements B-14 SUNAMERICA INCOME FUNDS DIVERSIFIED INCOME FUND NORTH AMERICAN FUNDS STRATEGIC INCOME FUND NOTES TO PRO FORMA FINANCIAL STATEMENTS March 31, 2001 (unaudited) 1. BASIS OF COMBINATION The Pro Forma Combined Statement of Assets and Liabilities, including the Portfolio of Investments at March 31, 2001, and related Statement of Operations ("Pro Forma Statements") for the twelve months ended March 31, 2001, reflect the accounts of the Diversified Income Portfolio ("Diversified Income") a separately managed portfolio of SunAmerica Income Funds, and Strategic Income Fund ("Strategic Income") a separately managed portfolio of North American Funds. Strategic Income will be reorganized into Diversified Income Fund (to be renamed the SunAmerica Strategic Income Fund). However, based on generally accepted accounting principles, from a financial reporting standpoint, Strategic Income is the surviving entity in this reorganization. Accordingly, the Pro Forma Combined Statement of Assets and Liabilities reflect a stock split of 2.381877541, 2.375227733, 2.375310530, and 2.385385462 for Strategic Income Class A, Class B, Class C, and Class I, respectively. The stock split is assumed to have occurred prior to the reorganization. Strategic Income Class C will be redesignated Class II. The Pro Forma Combined Statement of Assets and Liabilities has been restated to reflect an exchange of shares as of the close of business on March 31, 2001. Notwithstanding the foregoing, Diversified Income is the surviving entity in the transaction for legal and tax reporting purposes. American International Group, Inc. will pay the cost of the reorganization. The Pro Forma Statements should be read in conjunction with the historical financial statements of Diversified Income and Strategic Income included in their respective Statements of Additional Information. 2. VALUATION 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 markers. 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 sale price available before the time when the assets are valued. If a security's price is available from more than one foreign exchange, a Portfolio uses the exchange that is the primary market for the security. Values of portfolio securities primarily traded B-15 on foreign exchanges are already translated into U.S. dollars when received from a quotation service. Options traded on national 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 Portfolios may make use of a pricing service in the determination of their net asset values. 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 Directors. Short- term securities 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. 3. CAPITAL SHARES The pro forma combined net asset value per share assumes the issuance of additional shares of Strategic Income which would have been issued at March 31, 2001 in connection with the proposed reorganization. The amount of additional shares assumed to be issued was calculated based on the March 31, 2001 net asset value (after the aforementioned stock split and redesignation of shares) of Strategic Income Class A ($3.37), Class B ($3.38), Class II ($3.38), and Class I ($3.37).
The pro forma number of shares outstanding are as follows: Class A Class B Class II Class I ----------------------------------- ---------------- ----------------- --------------- ---------------- Shares of Strategic Income 2,224,752 3,938,781 3,741,646 810,005 ----------------------------------- ---------------- ----------------- --------------- ---------------- Additional Shares assumed to be issued to Diversified Income 9,178,230 4,959,910 1,190,805 0 ----------------------------------- ---------------- ----------------- --------------- ---------------- Pro Forma Shares outstanding 11,402,982 8,898,691 4,932,451 810,005 ----------------------------------- ---------------- ----------------- --------------- ----------------
These pro forma financial statements assume that all shares of Diversified Income Class A, Class B, and Class II outstanding on March 31, 2001 were exchanged for Strategic Income Class A, Class B, and Class II shares, respectively. Class I shares were not affected by the combination. 4. PRO FORMA OPERATING EXPENSES The Pro Forma Statement of Operations assumes expense adjustments based on the agreements of Diversified Income. Certain accounts have been adjusted to reflect the expenses of the combined entity more closely. Pro forma operating expenses include the expenses of Diversified Income and Strategic Income combined, adjusted for certain items which are factually supportable. Advisory fees have been charged to the combined B-16 entity based upon the contract in effect for Diversified Income at the level of assets of the combined fund for the stated period. B-17 SUNAMERICA INCOME FUNDS HIGH INCOME FUND@ NORTH AMERICAN FUNDS HIGH YIELD BOND FUND PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2001 (unaudited)
North American Funds SunAmerica Equity Funds High Yield Bond High Income Fund Fund --------------------- ----------------------- ASSETS: Investment securities, at value (identified cost $71,636,616, $167,455,685, and $239,092,301, respectively) $ 65,692,944 $ 134,110,526 Short-term securities (identified cost $0, $1,736,569, and $1,736,569, respectively) -- 1,732,500 Repurchase agreements (cost equals market) 3,908,000 -- Receivable for investments sold 782,312 1,927,262 Receivable for shares of beneficial interest sold 57,986 1,788,944 Interest and dividends receivable 1,763,149 3,533,864 Receivable from investment adviser -- 1,726 Receivable for foreign tax withholding reclaims 80 -- Prepaid expenses and other assets 62,479 1,826 ------------- ------------- Total assets 72,266,950 143,096,648 ------------- ------------- LIABILITIES: Payable for investments purchased 1,834,155 500,000 Payable for shares of beneficial interest redeemed 627,796 Dividends payable 635,764 520,337 Investment advisory and management fees payable 23,000 96,143 Distribution and service maintenance fees payable 3,504 94,875 Other accrued expenses 81,292 144,916 Due to custodian bank -- 8,141 Loan payable -- 616,455 ------------- ------------- Total liabilities 2,577,715 2,608,663 ------------- ------------- Net assets $ 69,689,235 $ 140,487,985 ============= ============= NET ASSETS WERE COMPOSED OF: Common Stock, $0.001, $.01, and $.01 par value $ 8,421 $ 279,128 Paid-in capital 81,782,337 228,872,011 ------------- ------------- 81,790,758 229,151,139 Accumulated undistributed net investment income (loss) 213,551 233,766 Accumulated undistributed net realized gain (loss) on investments, foreign currency, and other assets and liabilities (6,371,402) (55,547,692) Net unrealized appreciation (depreciation) on investments (5,943,672) (33,349,228) ------------- ------------- Net assets $ 69,689,235 $ 140,487,985 ============= =============
Pro Forma Pro Forma Combined Adjustments (Note 1) ----------------- ----------- ASSETS: Investment securities, at value (identified cost $71,636,616, $167,455,685, and $239,092,301, respectively) -- $ 199,803,470 Short-term securities (identified cost $0, $1,736,569, and $1,736,569, respectively) -- 1,732,500 Repurchase agreements (cost equals market) -- 3,908,000 Receivable for investments sold -- 2,709,574 Receivable for shares of beneficial interest sold -- 1,846,930 Interest and dividends receivable -- 5,297,013 Receivable from investment adviser -- 1,726 Receivable for foreign tax withholding reclaims -- 80 Prepaid expenses and other assets ($34,398)(A) 29,907 ------------- ------------- Total assets (34,398) 215,329,200 ------------- ------------- LIABILITIES: Payable for investments purchased -- 2,334,155 Payable for shares of beneficial interest redeemed -- 627,796 Dividends payable -- 1,156,101 Investment advisory and management fees payable -- 119,143 Distribution and service maintenance fees payable -- 98,379 Other accrued expenses -- 226,208 Due to custodian bank -- 8,141 Loan payable -- 616,455 ------------- ------------- Total liabilities 0 5,186,378 ------------- ------------- Net assets ($34,398) $ 210,142,822 ============= ============= NET ASSETS WERE COMPOSED OF: Common Stock, $0.001, $.01, and $.01 par value 130,050 417,599 Paid-in capital (130,050) 310,524,298 ------------- ------------- 0 310,941,897 Accumulated undistributed net investment income (loss) (34,398)(A) 412,919 Accumulated undistributed net realized gain (loss) on investments, foreign currency, and other assets and liabilities -- (61,919,094) Net unrealized appreciation (depreciation) on investments -- (39,292,900) ------------- ------------- Net assets ($34,398) $ 210,142,822 ============= =============
B-18 SUNAMERICA INCOME FUNDS HIGH INCOME FUND@ NORTH AMERICAN FUNDS HIGH YIELD BOND FUND PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2001 (unaudited)
North American Funds SunAmerica Equity Funds High Yield Bond High Income Fund Fund ------------------------- ----------------------------- - Class A: Net assets $ 509,770 $ 52,966,252 Shares outstanding 61,382 10,532,517 Net asset value and redemption price per share $ 8.30 $ 5.03 Maximum sales charge (4.75% of offering price) 0.41 0.25 ----------- -------------- Maximum offering price to public $ 8.71 $ 5.28 =========== ============== Class B: Net assets $ 3,055,963 $ 67,138,996 Shares outstanding 368,456 13,341,244 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) $ 8.29 $ 5.03 =========== ============== Class II: Net assets -- $ 20,382,737 Shares outstanding -- 4,039,070 Net asset value and redemption price per share (excluding any applicable contingent deferred sales charge) -- $ 5.05 Maximum sales charge (1.00% of offering price) -- 0.05 ----------- -------------- Maximum offering price to public -- $ 5.10 =========== ============== Class C: Net assets $ 1,007,493 -- Shares outstanding 121,476 -- Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) $ 8.29 -- =========== ============== Class I: Net assets $ 2,139,306 -- Shares outstanding 258,058 -- Net asset value, offering and redemption price per share $ 8.29 -- =========== ============== Class II: Net assets $62,976,703 -- Shares outstanding 7,611,784 -- Net asset value, offering and redemption price per share $ 8.27 -- =========== ============== Class Z: Net assets -- -- Shares outstanding -- -- Net asset value, offering and redemption price per share -- -- =========== ==============
Pro Forma Pro Forma Combined Adjustments (Note 1) --------------------- -------------------- Class A: Net assets ($252)(A) $53,475,770 Shares outstanding 39,914 (B) 10,633,813 Net asset value and redemption price per share -- $ 5.03 Maximum sales charge (4.75% of offering price) -- 0.25 --------------- ----------- Maximum offering price to public -- $ 5.28 =============== =========== Class B: Net assets ($1,508)(A) $70,193,451 Shares outstanding 238,792 (C) 13,948,492 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) -- $ 5.03 =============== =========== Class II: Net assets $1,006,996 (C) $21,389,733 Shares outstanding 199,405 (H) 4,238,475 Net asset value and redemption price per share (excluding any applicable contingent deferred sales charge) -- $ 5.05 Maximum sales charge (1.00% of offering price) -- 0.05 --------------- ----------- Maximum offering price to public -- $ 5.10 =============== =========== Class C: Net assets ($1,007,493)(A)(H) $ 0 Shares outstanding (121,476)(D)(H) 0 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) -- -- =============== =========== Class I: Net assets ($1,056)(A) $ 2,138,250 Shares outstanding 167,041 (E) 425,099 Net asset value, offering and redemption price per share -- $ 5.03 =============== =========== Class II: Net assets ($62,976,703)(A) $ 0 Shares outstanding (7,611,784)(F)(G) 0 Net asset value, offering and redemption price per share -- -- =============== =========== Class Z: Net assets $62,945,618 (A) $62,945,618 Shares outstanding 12,514,039 (G) 12,514,039 Net asset value, offering and redemption price per share -- $ 5.03 =============== ===========
@ To be renamed the SunAmerica Income Funds High Yield Bond Fund (A) To adjust for the remaining balances of any prepaid expenses on the North American Funds High Yield Bond Fund to be expensed prior to the reorganization (B) Prior to the merger North American Funds High Yield Bond Class A shareholders will receive 1.650255775 shares for every one share previously held (C) Prior to the merger North American Funds High Yield Bond Class B shareholders will receive 1.648086922 shares for every one share previously held (D) Prior to the merger North American Funds High Yield Bond Class C shareholders will receive 1.641518889 shares for every one share previously held (E) Prior to the merger North American Funds High Yield Bond Class I shareholders will receive 1.647300219 shares for every one share previously held (F) Prior to the merger North American Funds High Yield Bond Class II shareholders will receive 1.644034959 shares for every one share previously held (G) Class II shares of North American Funds High Yield Bond will be redesignated Class Z shares (H) Class C shares of North American Funds High Yield Bond will be redesignated Class II shares See Notes to Pro Forma Financial Statements B-19 SUNAMERICA INCOME FUNDS HIGH INCOME FUND@ NORTH AMERICAN FUNDS HIGH YIELD BOND FUND PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED MARCH 31, 2001 (unaudited)
North American Funds SunAmerica Income Funds High Yield Bond High Income Fund Fund -------------------- ----------------------- INVESTMENT INCOME: Income: Interest $ 7,835,798 $ 17,883,356 Dividends 78,000 908,633 ------------ ------------ Total investment income 7,913,798 18,791,989 ------------ ------------ Expenses: Investment advisory and management fees 565,659 1,110,891 Distribution and service maintenance fees Class A 1,731 206,332 Class B 24,449 747,281 Class II 0 144,388 Class C 13,749 0 Class I 4,673 0 Transfer agent fees and expenses 113,761 0 Class A 0 161,289 Class B 0 190,154 Class II 0 36,764 Class I 0 0 Class Z 0 0 Registration fees 45,056 0 Class A 0 12,634 Class B 0 13,099 Class II 0 10,751 Class I 0 0 Class Z 0 0 Accounting/administration 73,965 0 Custodian fees and expenses 37,963 73,095 Audit and legal fees 29,583 39,385 Miscellaneous expenses 30,604 124,433 ------------ ------------ Total expenses 941,193 2,870,496 Less: expenses waived/reimbursed by investment adviser (108,097) (19,084) Less: custody credits earned on cash balances 0 (9,390) ------------ ------------ Net expenses 833,096 2,842,022 ------------ ------------ Net investment income (loss) 7,080,702 15,949,967 ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments (4,239,102) (16,143,908) Net realized gain (loss) on foreign currency and other assets and liabilities 0 (8,968) Net change in unrealized appreciation/depreciation of investments 352,120 (11,854,643) ------------ ------------ Net realized and unrealized gain (loss) on investments, foreign currency and other assets and liabilities (3,886,982) (28,007,519) ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS: $ 3,193,720 ($12,057,552) ============ ============
Pro Forma Pro Forma Combined Adjustments (Note 1) ------------------------ -------------------- INVESTMENT INCOME: Income: Interest $ 0 $ 25,719,154 Dividends 0 986,633 ------------ ------------ Total investment income 0 26,705,787 ------------ ------------ Expenses: Investment advisory and management fees (56,428)(I) 1,620,122 Distribution and service maintenance fees Class A 0 208,063 Class B 0 771,730 Class II 13,749 (H) 158,137 Class C (13,749)(H) 0 Class I 0 4,673 Transfer agent fees and expenses (113,761)(I) 0 Class A 1,335 (I) 162,624 Class B 6,112 (I) 196,266 Class II 3,987 (I) 40,751 Class I 6,542 (I) 6,542 Class Z 24,952 (I) 24,952 Registration fees (45,056)(I) 0 Class A 2,366 (I) 15,000 Class B 3,901 (I) 17,000 Class II 1,249 (I) 12,000 Class I 8,500 (I) 8,500 Class Z 15,000 (I) 15,000 Accounting/administration (73,965)(I) 0 Custodian fees and expenses (3,681)(I) 107,377 Audit and legal fees (33,968)(J) 35,000 Miscellaneous expenses (25,037)(J) 130,000 ------------ ------------ Total expenses (277,952) 3,533,737 Less: expenses waived/reimbursed by investment adviser 99,894 (K) (27,287) Less: custody credits earned on cash balances 0 (9,390) ------------ ------------ Net expenses (178,058) 3,497,060 ------------ ------------ Net investment income (loss) 178,058 23,208,727 ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments 0 (20,383,010) Net realized gain (loss) on foreign currency and other assets and liabilities 0 (8,968) Net change in unrealized appreciation/depreciation of investments 0 (11,502,523) ------------ ------------ Net realized and unrealized gain (loss) on investments, foreign currency and other assets and liabilities 0 (31,894,501) ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS: $ 178,058 ($ 8,685,774) ============ ============
(H) Class C shares of North American Funds High Yield Bond will be redesignated Class II shares (I) Reflects adjustments to expenses based on fee schedules and combined net assets for the reorganized fund (J) Reflects the elimination of duplicate services or fees (K) Reflects adjustments to expenses waived/reimbused by investment adviser based on pro forma expenses See Notes to Pro Forma Financial Statements B-20 SunAmerica Income Funds High Income Fund North American Funds High Yield Bond Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ----------------------------------------------------------- High Yield High Pro Forma Bond Income Combined Description Coupon ---------------- ----------------------- --------------------------------------------------------------- --------- CORPORATE BONDS & NOTES Aerospace & Military Technology 130,000 - 130,000 BE Aerospace Inc. 9.50 700,000 - 700,000 K & F Industries Inc. 9.25 100,000 - 100,000 Sequa Corp. 8.88 Apparel & Textiles 300,000 - 300,000 Anvil Knitwear Inc. 10.88 675,000 - 675,000 Galey & Lord Inc. 9.13 Automotive 250,000 - 250,000 Diamond Triumph Auto Glass Inc. 9.25 800,000 - 800,000 Prestolite Electric Inc. 9.63 750,000 - 750,000 Stanadyne Automotive Corp. 10.25 Banks 500,000 - 500,000 Western Financial Bank 8.50 Broadcasting - 1,600,000 1,600,000 Big City Radio, Inc. 11.25 - 375,000 375,000 CD Radio, Inc. (1)(2) 0.00 600,000 - 600,000 Coaxial Communications of Central Ohio, Inc. 10.00 870,000 - 870,000 Cumulus Media, Inc. 10.38 - 1,000,000 1,000,000 Radio One, Inc., Series B 12.00 750,000 1,500,000 2,250,000 Shop At Home, Inc. 11.00 300,000 - 300,000 STC Broadcasting, Inc. 11.00 - 1,000,000 1,000,000 XM Satellite Radio, Inc. 14.00 Business Services 1,500,000 - 1,500,000 Anthony Crane Rental L.P. 10.38 - 1,750,000 1,750,000 Earthwatch, Inc. (1) 0.00 300,000 - 300,000 Integrated Electrical Services 9.38 Cable - 3,925,000 3,925,000 Adelphia Communications Corp., Series B 8.13 - 1,625,000 1,625,000 Comcast UK Cable Partners Ltd. 11.20 - 1,500,000 1,500,000 Echostar Communications Corp. 4.88 - 2,000,000 2,000,000 Echostar DBS Corp. 9.25 1,000,000 - 1,000,000 Frontiervision Holdings LP 0.00 - 2,500,000 2,500,000 Mediacom LLC/Capital Corp., Series B 8.50 - 2,750,000 2,750,000 UIH Australia Pacific, Inc., Series B (1) 0.00 - 2,775,000 2,775,000 UnitedGlobalCom, Inc., Series B (1) 0.00 Cellular 900,000 1,000,000 1,900,000 Airgate PCS, Inc. (1)(2) 0.00 525,000 - 525,000 American Cellular Corp. 9.50 250,000 - 250,000 AT&T Wireless Services, Inc. (2) 7.88 - 4,500,000 4,500,000 Leap Wireless International, Inc. (1) 0.00 - 3,750,000 3,750,000 McCaw International Ltd. (1) 0.00 350,000 - 350,000 Nextel Communications, Inc. 9.38 - 1,000,000 1,000,000 SBA Communications Corp. (2) 10.25 75,000 - 75,000 Spectrasite Holdings Inc. 10.75 1,000,000 - 1,000,000 Spectrasite Holdings Inc. (1) 0.00 - 1,500,000 1,500,000 Spectrasite Holdings Inc. (1) 0.00 175,000 - 175,000 Triton PCS, Inc. 9.38 Chemicals 1,000,000 - 1,000,000 Borden Chemicals & Plastics (6) 9.50 350,000 - 350,000 GEO Specialty Chemicals 10.13 - 500,000 500,000 Hercules, Inc. (2)(3) 11.13 - 2,000,000 2,000,000 Huntsman Corp. (3)(4) 9.45 350,000 - 350,000 Koppers Industries, Inc. 9.88 500,000 - 500,000 Royster-Clark, Inc. 10.25 Conglomerate
SunAmerica Income Funds High Income Fund North American Funds High Yield Bond Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
High Yield High Pro Forma Description Maturity Date Bond Income Combined ------------------------------------------------- ---------------- ---------- ---------- ------------ CORPORATE BONDS & NOTES 83.3% 69.8% 74.3% Aerospace & Military Technology 1.4% 0.0% 0.5% BE Aerospace Inc. 11/01/08 K & F Industries Inc. 10/15/07 Sequa Corp. 4/1/08 Apparel & Textiles 1.1% 0.0% 0.4% Anvil Knitwear Inc. 3/15/07 Galey & Lord Inc. 3/1/08 Automotive 1.8% 0.0% 0.6% Diamond Triumph Auto Glass Inc. 4/1/08 Prestolite Electric Inc. 2/1/08 Stanadyne Automotive Corp. 12/15/07 Banks 0.7% 0.0% 0.2% Western Financial Bank 7/1/03 Broadcasting 3.5% 2.8% 3.1% Big City Radio, Inc. 3/15/05 CD Radio, Inc. (1)(2) 12/1/07 Coaxial Communications of Central Ohio, Inc. 8/15/06 Cumulus Media, Inc. 7/1/08 Radio One, Inc., Series B 5/15/04 Shop At Home, Inc. 4/1/05 STC Broadcasting, Inc. 3/15/07 XM Satellite Radio, Inc. 3/15/10 Business Services 1.4% 1.1% 1.2% Anthony Crane Rental L.P. 8/1/08 Earthwatch, Inc. (1) 7/15/07 Integrated Electrical Services 2/1/09 Cable 1.5% 9.8% 7.0% Adelphia Communications Corp., Series B 7/15/03 Comcast UK Cable Partners Ltd. 11/15/07 Echostar Communications Corp. 1/1/07 Echostar DBS Corp. 2/1/06 Frontiervision Holdings LP 9/15/07 Mediacom LLC/Capital Corp., Series B 4/15/08 UIH Australia Pacific, Inc., Series B (1) 5/15/06 UnitedGlobalCom, Inc., Series B (1) 2/15/08 Cellular 3.2% 4.1% 3.8% Airgate PCS, Inc. (1)(2) 10/1/09 American Cellular Corp. 10/15/09 AT&T Wireless Services, Inc. (2) 3/1/11 Leap Wireless International, Inc. (1) 4/15/10 McCaw International Ltd. (1) 4/15/07 Nextel Communications, Inc. 11/15/09 SBA Communications Corp. (2) 2/1/09 Spectrasite Holdings Inc. 3/15/10 Spectrasite Holdings Inc. (1) 3/15/10 Spectrasite Holdings Inc. (1) 4/15/09 Triton PCS, Inc. 2/1/11 Chemicals 2.0% 1.5% 1.6% Borden Chemicals & Plastics (6) 5/1/05 GEO Specialty Chemicals 8/1/08 Hercules, Inc. (2)(3) 11/15/07 Huntsman Corp. (3)(4) 7/1/07 Koppers Industries, Inc. 12/1/07 Royster-Clark, Inc. 4/1/09 Conglomerate 0.5% 0.0% 0.2%
Market Value ------------------------------------------------------ High Yield High Pro Forma Description Bond Income Combined ------------------------------------------------- ---------------- -------------- ---------------- CORPORATE BONDS & NOTES Aerospace & Military Technology BE Aerospace Inc. 133,575 - 133,575 K & F Industries Inc. 721,000 - 721,000 Sequa Corp. 100,375 - 100,375 Apparel & Textiles Anvil Knitwear Inc. 285,000 - 285,000 Galey & Lord Inc. 452,250 - 452,250 Automotive Diamond Triumph Auto Glass Inc. 220,000 - 220,000 Prestolite Electric Inc. 360,000 - 360,000 Stanadyne Automotive Corp. 652,500 - 652,500 Banks Western Financial Bank 486,625 - 486,625 Broadcasting Big City Radio, Inc. - 752,000 752,000 CD Radio, Inc. (1)(2) - 146,250 146,250 Coaxial Communications of Central Ohio, Inc. 595,500 - 595,500 Cumulus Media, Inc. 811,275 - 811,275 Radio One, Inc., Series B - 1,050,000 1,050,000 Shop At Home, Inc. 738,750 1,479,375 2,218,125 STC Broadcasting, Inc. 282,000 - 282,000 XM Satellite Radio, Inc. - 550,000 550,000 Business Services Anthony Crane Rental L.P. 663,750 - 663,750 Earthwatch, Inc. (1) - 1,502,550 1,502,550 Integrated Electrical Services 291,375 - 291,375 Cable Adelphia Communications Corp., Series B - 3,817,063 3,817,063 Comcast UK Cable Partners Ltd. - 1,462,500 1,462,500 Echostar Communications Corp. - 1,332,750 1,332,750 Echostar DBS Corp. - 1,990,000 1,990,000 Frontiervision Holdings LP 1,000,000 - 1,000,000 Mediacom LLC/Capital Corp., Series B - 2,350,000 2,350,000 UIH Australia Pacific, Inc., Series B (1) - 1,512,500 1,512,500 UnitedGlobalCom, Inc., Series B (1) - 1,332,000 1,332,000 Cellular Airgate PCS, Inc. (1)(2) 535,500 595,000 1,130,500 American Cellular Corp. 506,625 - 506,625 AT&T Wireless Services, Inc. (2) 250,012 - 250,012 Leap Wireless International, Inc. (1) - 1,192,500 1,192,500 McCaw International Ltd. (1) - 2,400,000 2,400,000 Nextel Communications, Inc. 296,188 - 296,188 SBA Communications Corp. (2) - 950,000 950,000 Spectrasite Holdings Inc. 65,250 - 65,250 Spectrasite Holdings Inc. (1) 440,000 - 440,000 Spectrasite Holdings Inc. (1) - 675,000 675,000 Triton PCS, Inc. 168,000 - 168,000 Chemicals Borden Chemicals & Plastics (6) 360,000 - 360,000 GEO Specialty Chemicals 304,500 - 304,500 Hercules, Inc. (2)(3) - 505,000 505,000 Huntsman Corp. (3)(4) - 1,540,000 1,540,000 Koppers Industries, Inc. 329,000 - 329,000 Royster-Clark, Inc. 400,000 - 400,000 Conglomerate
B-21 SunAmerica Income Funds High Income Fund North American Funds High Yield Bond Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ----------------------------------------------------------- High Yield High Pro Forma Bond Income Combined Description Coupon ---------------- ----------------------- ------------------------------------------------------------- --------- 900,000 - 900,000 Grove Worldwide LLC (6) 9.25 300,000 - 300,000 Penhall International, Inc. 12.00 Consumer Goods - 3,000,000 3,000,000 Evenflo Co., Inc., Series B 11.75 - 2,300,000 2,300,000 Polymer Group, Inc., Series B 9.00 - 1,500,000 1,500,000 Polymer Group, Inc., Series B 8.75 Consumer Services 540,000 - 540,000 Allied Waste North America, Inc. 10.00 - 3,000,000 3,000,000 Allied Waste North America, Inc., Series B 7.63 1,000,000 - 1,000,000 KinderCare Learning Centers 9.50 300,000 - 300,000 Rent-A-Center, Inc. 11.00 Electrical Equipment 750,000 - 750,000 Metromedia Fiber Network, Inc. 10.00 150,000 - 150,000 Viasystems, Inc. 9.75 Energy 850,000 - 850,000 Frontier Oil Corp. 11.75 135,000 - 135,000 Grey Wolf, Inc. 8.88 625,000 - 625,000 HS Resources, Inc. 9.25 650,000 - 650,000 HS Resources, Inc. 9.25 550,000 - 550,000 KCS Energy, Inc. 8.88 - 3,250,000 3,250,000 P&L Coal Holdings Corp., Series B 8.88 315,000 - 315,000 Triton Energy Ltd. 9.25 Energy Services 150,000 2,000,000 2,150,000 AES Corp. 8.75 525,000 - 525,000 AmeriGas Partners LP/AmeriGas Eagle Finance Corp. (2)(3) 10.00 - 1,500,000 1,500,000 CMS Energy Corp 8.50 90,000 - 90,000 Grant Prideco, Inc. (2)(3) 9.63 - 1,000,000 1,000,000 Gulfmark Offshore, Inc. 8.75 110,000 - 110,000 Key Energy Services, Inc. (3) 8.38 - 1,500,000 1,500,000 Key Energy Services, Inc., Series B 14.00 - 1,000,000 1,000,000 R&B Falcon Corp. 6.95 25,000 - 25,000 R&B Falcon Corp. 9.50 - 1,500,000 1,500,000 R&B Falcon Corp. 12.25 50,000 - 50,000 Swift Energy Co. 10.25 - 2,250,000 2,250,000 Western Gas Resources, Inc. (3) 10.00 Financial Services - 1,000,000 1,000,000 Alamosa Delaware, Inc. (3) 12.50 625,000 1,500,000 2,125,000 Americredit Corp. 9.25 - 500,000 500,000 Americredit Corp., Series B 9.88 - 2,000,000 2,000,000 Bank United Capital Trust (5) 10.25 800,000 - 800,000 Caithness Coso Funding Corp. 9.05 80,000 - 80,000 Charter Communications Holdings Capital Corp. 10.75 500,000 - 500,000 Charter Communications Holdings Capital Corp. 11.13 600,000 - 600,000 Insight Capital, Inc. (2)(3) 10.50 555,000 1,750,000 2,305,000 LaBranche & Company, Inc. 12.00 250,000 - 250,000 Nexstar Finance LLC/Nexstar Finance, Inc. (3) 12.00 530,000 - 530,000 Telewest Finance Ltd. (3) 6.00 300,000 - 300,000 Unilab Finance Corp. 12.75 250,000 1,500,000 1,750,000 Western Financial Savings Bank 8.88 Food, Beverage & Tobacco 1,000,000 - 1,000,000 Agrilink Foods, Inc. 11.88 500,000 - 500,000 Fleming Cos., Inc. 10.63 Forest Products 1,200,000 - 1,200,000 Bear Island Paper Co. LLC 10.00 300,000 - 300,000 Fibermark, Inc. 9.38 750,000 - 750,000 Packaged Ice, Inc. 9.75
High Yield High Pro Forma Description Maturity Date Bond Income Combined ----------------------------------------------- ---------------- ---------- ---------- ------------ Grove Worldwide LLC (6) 5/1/08 Penhall International, Inc. 8/1/06 Consumer Goods 0.0% 2.9% 1.9% Evenflo Co., Inc., Series B 8/15/06 Polymer Group, Inc., Series B 7/1/07 Polymer Group, Inc., Series B 3/1/08 Consumer Services 2.6% 2.1% 2.2% Allied Waste North America, Inc. 8/1/09 Allied Waste North America, Inc., Series B 1/1/06 KinderCare Learning Centers 2/15/09 Rent-A-Center, Inc. 8/15/08 Electrical Equipment 1.0% 0.0% 0.3% Metromedia Fiber Network, Inc. 12/15/09 Viasystems, Inc. 6/1/07 Energy 4.6% 2.4% 3.1% Frontier Oil Corp. 11/15/09 Grey Wolf, Inc. 7/1/07 HS Resources, Inc. 11/15/06 HS Resources, Inc. 11/15/06 KCS Energy, Inc. 1/15/06 P&L Coal Holdings Corp., Series B 5/15/08 Triton Energy Ltd. 4/15/05 Energy Services 1.4% 8.3% 6.0% AES Corp. 12/15/02 AmeriGas Partners LP/AmeriGas Eagle Finance Corp. (2)(3) 4/15/06 CMS Energy Corp 4/15/11 Grant Prideco, Inc. (2)(3) 12/1/07 Gulfmark Offshore, Inc. 6/1/08 Key Energy Services, Inc. (3) 3/1/08 Key Energy Services, Inc., Series B 1/15/09 R&B Falcon Corp. 4/15/08 R&B Falcon Corp. 12/15/08 R&B Falcon Corp. 3/15/06 Swift Energy Co. 8/1/09 Western Gas Resources, Inc. (3) 6/15/09 Financial Services 6.4% 5.7% 6.0% Alamosa Delaware, Inc. (3) 2/1/11 Americredit Corp. 2/1/04 Americredit Corp., Series B 4/15/06 Bank United Capital Trust (5) 12/31/26 Caithness Coso Funding Corp. 12/15/09 Charter Communications Holdings Capital Corp. 10/1/09 Charter Communications Holdings Capital Corp. 1/15/11 Insight Capital, Inc. (2)(3) 11/1/10 LaBranche & Company, Inc. 3/2/07 Nexstar Finance LLC/Nexstar Finance, Inc. (3) 4/1/08 Telewest Finance Ltd. (3) 7/7/05 Unilab Finance Corp. 10/1/09 Western Financial Savings Bank 8/1/07 Food, Beverage & Tobacco 1.9% 0.0% 0.6% Agrilink Foods, Inc. 11/1/08 Fleming Cos., Inc. 7/31/07 Forest Products 2.9% 0.0% 1.0% Bear Island Paper Co. LLC 12/1/07 Fibermark, Inc. 10/15/06 Packaged Ice, Inc. 2/1/05
Market Value ------------------------------------------------------ High Yield High Pro Forma Description Bond Income Combined ----------------------------------------------- ---------------- -------------- ---------------- Grove Worldwide LLC (6) 81,000 - 81,000 Penhall International, Inc. 295,500 - 295,500 Consumer Goods Evenflo Co., Inc., Series B - 2,250,000 2,250,000 Polymer Group, Inc., Series B - 1,104,000 1,104,000 Polymer Group, Inc., Series B - 690,000 690,000 Consumer Services Allied Waste North America, Inc. 550,125 - 550,125 Allied Waste North America, Inc., Series B - 2,910,000 2,910,000 KinderCare Learning Centers 950,000 - 950,000 Rent-A-Center, Inc. 303,000 - 303,000 Electrical Equipment Metromedia Fiber Network, Inc. 615,000 - 615,000 Viasystems, Inc. 94,500 - 94,500 Energy Frontier Oil Corp. 886,125 - 886,125 Grey Wolf, Inc. 136,350 - 136,350 HS Resources, Inc. 640,625 - 640,625 HS Resources, Inc. 672,750 - 672,750 KCS Energy, Inc. 514,250 - 514,250 P&L Coal Holdings Corp., Series B - 3,388,125 3,388,125 Triton Energy Ltd. 327,600 - 327,600 Energy Services AES Corp. 152,250 2,030,000 2,182,250 AmeriGas Partners LP/AmeriGas Eagle Finance Corp. (2)(3) 522,422 - 522,422 CMS Energy Corp - 1,465,140 1,465,140 Grant Prideco, Inc. (2)(3) 94,500 - 94,500 Gulfmark Offshore, Inc. - 1,002,500 1,002,500 Key Energy Services, Inc. (3) 113,187 - 113,187 Key Energy Services, Inc., Series B - 1,755,000 1,755,000 R&B Falcon Corp. - 1,019,155 1,019,155 R&B Falcon Corp. 29,375 - 29,375 R&B Falcon Corp. - 1,946,250 1,946,250 Swift Energy Co. 52,625 - 52,625 Western Gas Resources, Inc. (3) - 2,385,000 2,385,000 Financial Services Alamosa Delaware, Inc. (3) - 992,500 992,500 Americredit Corp. 612,500 1,470,000 2,082,500 Americredit Corp., Series B - 495,000 495,000 Bank United Capital Trust (5) - 1,700,000 1,700,000 Caithness Coso Funding Corp. 728,000 - 728,000 Charter Communications Holdings Capital Corp. 85,200 - 85,200 Charter Communications Holdings Capital Corp. 536,250 - 536,250 Insight Capital, Inc. (2)(3) 639,000 - 639,000 LaBranche & Company, Inc. 621,600 1,960,000 2,581,600 Nexstar Finance LLC/Nexstar Finance, Inc. (3) 247,500 - 247,500 Telewest Finance Ltd. (3) 417,503 - 417,503 Unilab Finance Corp. 333,750 - 333,750 Western Financial Savings Bank 241,563 1,449,375 1,690,938 Food, Beverage & Tobacco Agrilink Foods, Inc. 840,000 - 840,000 Fleming Cos., Inc. 500,000 - 500,000 Forest Products Bear Island Paper Co. LLC 1,102,500 - 1,102,500 Fibermark, Inc. 291,000 - 291,000 Packaged Ice, Inc. 648,750 - 648,750
B-22 SunAmerica Income Funds High Income Fund North American Funds High Yield Bond Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ----------------------------------------------------------- High Yield High Pro Forma Bond Income Combined Description ---------------- ----------------------- --------------------------------------------------------------------------- Gaming - 1,500,000 1,500,000 Circus Circus Enterprises, Inc. 1,000,000 - 1,000,000 Hollywood Casino Shreveport 500,000 - 500,000 Horseshoe Gaming LLC 450,000 - 450,000 Isle of Capri Casinos Inc - 3,500,000 3,500,000 MGM Grand, Inc. 790,000 - 790,000 Riviera Black Hawk Inc. - 1,500,000 1,500,000 Station Casinos, Inc. Housing 350,000 - 350,000 Beazer Homes USA, Inc. 450,000 - 450,000 Beazer Homes USA, Inc. Household Products 750,000 - 750,000 Sealy Mattress Co. (1) 200,000 - 200,000 Sleepmaster LLC (3) Health Services - 1,750,000 1,750,000 Fresenius Medical Care Capital Trust I - 1,750,000 1,750,000 Fresenius Medical Care Capital Trust II 200,000 - 200,000 Healthsouth Corp 460,000 - 460,000 IASIS Healthcare Corporation 230,000 - 230,000 LifePoint Hospitals Holdings, Inc. 250,000 - 250,000 Manor Care Inc (OLD) 500,000 - 500,000 Omega Healthcare Investors, Inc. - 3,250,000 3,250,000 Tenet Healthcare Corp. 1,000,000 - 1,000,000 Universal Hospital Services, Inc. Leisure & Tourism 800,000 - 800,000 Cinemark USA, Inc. 800,000 - 800,000 Courtyard By Marriott, Inc. 500,000 - 500,000 Felcor Lodging LP 150,000 - 150,000 Felcor Lodging LP (3) - 1,500,000 1,500,000 Felcor Suites LP - 2,000,000 2,000,000 HMH Properties, Inc., Series A - 1,000,000 1,000,000 ITT Corp. 500,000 - 500,000 Pinnacle Entertainment, Inc. 350,000 - 350,000 Pinnacle Entertainment, Inc. 750,000 - 750,000 True Temper Sports, Inc 700,000 - 700,000 YankeeNets LLC (3) Machinery 200,000 - 200,000 Calpine Corp 400,000 - 400,000 Lennar Corp Manufacturing - 2,600,000 2,600,000 Pentacon, Inc., Series B - 500,000 500,000 Terex Corp. (2)(3) Media - 3,400,000 3,400,000 Orion Network Systems, Inc. (1)(2) - 2,000,000 2,000,000 Park-N-View, Inc., Series B (5)(6) 250,000 - 250,000 Pegasus Communications Corp. Medical Products 500,000 - 500,000 PSS World Medical, Inc. Metals & Mining - 1,500,000 1,500,000 Acme Metals, Inc. (5)(6) - 3,000,000 3,000,000 Armco, Inc. 50,000 - 50,000 California Steel Industries, Inc. - 2,000,000 2,000,000 Kaiser Aluminum & Chemical Corp. - 3,000,000 3,000,000 Metal Management, Inc. (6) 300,000 - 300,000 Metals USA, Inc. 300,000 - 300,000 National Steel Corp.
High Yield High Description Coupon Maturity Date Bond Income ------------------------------------------------------------- --------- ---------------- ---------- ---------- Gaming 4.0% 4.6% Circus Circus Enterprises, Inc. 6.45 2/1/06 Hollywood Casino Shreveport 13.00 8/1/06 Horseshoe Gaming LLC 9.38 6/15/07 Isle of Capri Casinos Inc 8.75 4/15/09 MGM Grand, Inc. 6.95 2/1/05 Riviera Black Hawk Inc. 13.00 5/1/05 Station Casinos, Inc. 9.88 7/1/10 Housing 1.1% 0.0% Beazer Homes USA, Inc. 9.00 3/1/04 Beazer Homes USA, Inc. 8.88 4/1/08 Household Products 1.2% 0.0% Sealy Mattress Co. (1) 0.00 12/15/07 Sleepmaster LLC (3) 11.00 5/15/09 Health Services 3.6% 4.8% Fresenius Medical Care Capital Trust I 9.00 12/1/06 Fresenius Medical Care Capital Trust II 7.88 2/1/08 Healthsouth Corp 10.75 10/1/08 IASIS Healthcare Corporation 13.00 10/15/09 LifePoint Hospitals Holdings, Inc. 10.75 5/15/09 Manor Care Inc (OLD) 7.50 6/15/06 Omega Healthcare Investors, Inc. 6.95 6/15/02 Tenet Healthcare Corp. 8.00 1/15/05 Universal Hospital Services, Inc. 10.25 3/1/08 Leisure & Tourism 6.3% 3.1% Cinemark USA, Inc. 9.63 8/1/08 Courtyard By Marriott, Inc. 10.75 2/1/08 Felcor Lodging LP 9.50 9/15/08 Felcor Lodging LP (3) 9.50 9/15/08 Felcor Suites LP 7.38 10/1/20 HMH Properties, Inc., Series A 7.88 8/1/05 ITT Corp. 6.75 11/15/05 Pinnacle Entertainment, Inc. 9.25 2/15/07 Pinnacle Entertainment, Inc. 9.50 8/1/07 True Temper Sports, Inc 10.88 12/1/08 YankeeNets LLC (3) 12.75 3/1/07 Machinery 0.9% 0.0% Calpine Corp 7.75 4/15/09 Lennar Corp 9.95 5/1/10 Manufacturing 0.0% 1.1% Pentacon, Inc., Series B 12.25 4/1/09 Terex Corp. (2)(3) 10.38 4/1/11 Media 0.3% 0.8% Orion Network Systems, Inc. (1)(2) 0.00 1/15/07 Park-N-View, Inc., Series B (5)(6) 13.00 5/15/08 Pegasus Communications Corp. 9.75 12/1/06 Medical Products 0.6% 0.0% PSS World Medical, Inc. 8.50 10/1/07 Metals & Mining 2.6% 5.2% Acme Metals, Inc. (5)(6) 12.50 8/1/02 Armco, Inc. 8.88 12/1/08 California Steel Industries, Inc. 8.50 4/1/09 Kaiser Aluminum & Chemical Corp. 12.75 2/1/03 Metal Management, Inc. (6) 10.00 5/15/08 Metals USA, Inc. 8.63 2/15/08 National Steel Corp. 9.88 3/1/09
Market Value ------------------------------------------------------ Pro Forma High Yield High Pro Forma Description Combined Bond Income Combined ----------------------------------------------- -------- ---------------- -------------- ---------------- Gaming 4.4% Circus Circus Enterprises, Inc. - 1,397,070 1,397,070 Hollywood Casino Shreveport 1,070,000 - 1,070,000 Horseshoe Gaming LLC 515,000 - 515,000 Isle of Capri Casinos Inc 407,250 - 407,250 MGM Grand, Inc. - 3,485,650 3,485,650 Riviera Black Hawk Inc. 790,000 - 790,000 Station Casinos, Inc. - 1,548,750 1,548,750 Housing 0.4% Beazer Homes USA, Inc. 345,625 - 345,625 Beazer Homes USA, Inc. 436,500 - 436,500 Household Products 0.4% Sealy Mattress Co. (1) 646,875 - 646,875 Sleepmaster LLC (3) 184,500 - 184,500 Health Services 4.4% Fresenius Medical Care Capital Trust I - 1,771,875 1,771,875 Fresenius Medical Care Capital Trust II - 1,697,500 1,697,500 Healthsouth Corp 212,500 - 212,500 IASIS Healthcare Corporation 492,200 - 492,200 LifePoint Hospitals Holdings, Inc. 255,300 - 255,300 Manor Care Inc (OLD) 250,905 - 250,905 Omega Healthcare Investors, Inc. 445,345 - 445,345 Tenet Healthcare Corp. - 3,331,250 3,331,250 Universal Hospital Services, Inc. 830,000 - 830,000 Leisure & Tourism 4.2% Cinemark USA, Inc. 624,000 - 624,000 Courtyard By Marriott, Inc. 818,000 - 818,000 Felcor Lodging LP 515,470 - 515,470 Felcor Lodging LP (3) 155,250 - 155,250 Felcor Suites LP - 1,462,845 1,462,845 HMH Properties, Inc., Series A - 1,935,000 1,935,000 ITT Corp. - 986,450 986,450 Pinnacle Entertainment, Inc. 495,000 - 495,000 Pinnacle Entertainment, Inc. 347,375 - 347,375 True Temper Sports, Inc 765,000 - 765,000 YankeeNets LLC (3) 690,375 - 690,375 Machinery 0.3% Calpine Corp 194,514 - 194,514 Lennar Corp 429,000 - 429,000 Manufacturing 0.7% Pentacon, Inc., Series B - 1,040,000 1,040,000 Terex Corp. (2)(3) - 505,000 505,000 Media 0.6% Orion Network Systems, Inc. (1)(2) - 901,000 901,000 Park-N-View, Inc., Series B (5)(6) - 200,000 200,000 Pegasus Communications Corp. 238,750 - 238,750 Medical Products 0.2% PSS World Medical, Inc. 412,500 - 412,500 Metals & Mining 4.4% Acme Metals, Inc. (5)(6) - 825,000 825,000 Armco, Inc. - 2,790,000 2,790,000 California Steel Industries, Inc. 45,750 - 45,750 Kaiser Aluminum & Chemical Corp. - 1,720,000 1,720,000 Metal Management, Inc. (6) - 75,000 75,000 Metals USA, Inc. 213,000 - 213,000 National Steel Corp. 111,000 - 111,000
B-23 SunAmerica Income Funds High Income Fund North American Funds High Yield Bond Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ----------------------------------------------------------- High Yield High Pro Forma Bond Income Combined Description Coupon ---------------- ----------------------- --------------------------------------------------------------------------- -------- 50,000 - 50,000 PMD Group, Inc. (2)(3) 11.00 1,150,000 - 1,150,000 Renco Metals, Inc. (6) 11.50 300,000 - 300,000 Renco Steel Holdings, Inc. 10.88 300,000 - 300,000 Russel Metals, Inc. 10.00 - 2,250,000 2,250,000 Schuff Steel Co. 10.50 1,000,000 - 1,000,000 WCI Steel, Inc. (2) 10.00 Pharmaceuticals 200,000 - 200,000 Caremark Rx, Inc. 7.38 600,000 - 600,000 Express Scripts, Inc. 9.63 250,000 - 250,000 ICN Pharmaceuticals, Inc. 9.25 1,425,000 - 1,425,000 ICN Pharmaceuticals, Inc. (3) 9.75 100,000 - 100,000 ICN Pharmaceuticals, Inc. (2)(3) 8.75 220,000 - 220,000 King Pharmaceuticals, Inc. 10.75 750,000 - 750,000 PharMerica, Inc. 8.38 Real Estate 650,000 - 650,000 La Quinta Properties, Inc. 7.51 - 1,450,000 1,450,000 LNR Property Corp. 10.50 300,000 - 300,000 WCI Communities, Inc. (3) 10.63 Restaurants 300,000 - 300,000 Domino's, Inc. 10.38 Retail 250,000 - 250,000 Big 5 Corp., Series B 10.88 110,000 - 110,000 PEP Boys-Manny Moe & Jack 6.63 430,000 - 430,000 PEP Boys-Manny Moe & Jack 6.52 Telecommunications - 1,750,000 1,750,000 AMSC Acquisition Co., Inc., Series B 12.25 150,000 - 150,000 Arch Communications, Inc. 12.75 1,350,000 - 1,350,000 Benedek Communications Corp. (1) 13.25 1,170,000 - 1,170,000 Concentric Network Corp. 12.75 500,000 - 500,000 Condor Systems, Inc. 11.88 350,000 - 350,000 Crown Castle International Corp. (1) 0.00 350,000 - 350,000 Crown Castle International Corp. (1) 0.00 310,000 - 310,000 Exodus Communications, Inc. 11.63 - 1,250,000 1,250,000 Flag Telecom Holdings Ltd. 8.25 - 1,250,000 1,250,000 Flag Telecom Holdings Ltd. 11.63 1,205,000 3,575,000 4,780,000 Globix Corp. 12.50 900,000 - 900,000 Golden Sky DBS, Inc. (1) 0.00 - 1,750,000 1,750,000 ICG Services, Inc. (1) 0.00 - 2,000,000 2,000,000 Intermedia Communications, Inc., Series B 8.88 500,000 2,500,000 3,000,000 Level 3 Communications, Inc. 11.00 750,000 - 750,000 Level 3 Communications, Inc. (1) 0.00 300,000 - 300,000 McLeodUSA Inc 11.38 1,500,000 - 1,500,000 Microcell Telecommunications (1) 0.00 - 1,850,000 1,850,000 Mpower Communications Corp. 13.00 150,000 - 150,000 Netia Holdings BV 13.13 250,000 - 250,000 Netia Holdings BV 10.25 500,000 - 500,000 Netia Holdings BV (1) 0.00 - 1,000,000 1,000,000 Nextel Partners, Inc. 11.00 - 1,000,000 1,000,000 Nextel Partners, Inc. 11.00 700,000 - 700,000 NTL Communications Corp. 11.50 400,000 1,500,000 1,900,000 NTL, Inc., Series B (1) 0.00 500,000 - 500,000 Orbcomm Global LP (6) 14.00 - 1,750,000 1,750,000 Primus Telecommunications, Inc. 12.75 280,000 - 280,000 PSINet, Inc. 11.00 - 1,500,000 1,500,000 PSINet, Inc. 11.50 - 1,500,000 1,500,000 Telehub Communications Corp. 1.00
High Yield High Pro Forma Description Maturity Date Bond Income Combined -------------------------------------------------------------- ---------------- ---------- ---------- ------------ PMD Group, Inc. (2)(3) 2/28/11 Renco Metals, Inc. (6) 7/1/03 Renco Steel Holdings, Inc. 2/1/05 Russel Metals, Inc. 6/1/09 Schuff Steel Co. 6/1/08 WCI Steel, Inc. (2) 12/1/04 Pharmaceuticals 5.0% 0.0% 1.7% Caremark Rx, Inc. 10/1/06 Express Scripts, Inc. 6/15/09 ICN Pharmaceuticals, Inc. 8/15/05 ICN Pharmaceuticals, Inc. (3) 11/15/08 ICN Pharmaceuticals, Inc. (2)(3) 11/15/08 King Pharmaceuticals, Inc. 2/15/09 PharMerica, Inc. 4/1/08 Real Estate 1.1% 1.0% 1.1% La Quinta Properties, Inc. 9/26/03 LNR Property Corp. 1/15/09 WCI Communities, Inc. (3) 2/15/11 Restaurants 0.4% 0.0% 0.2% Domino's, Inc. 1/15/09 Retail 1.0% 0.0% 0.3% Big 5 Corp., Series B 11/15/07 PEP Boys-Manny Moe & Jack 5/15/03 PEP Boys-Manny Moe & Jack 7/16/07 Telecommunications 11.1% 8.5% 9.3% AMSC Acquisition Co., Inc., Series B 4/1/08 Arch Communications, Inc. 7/1/07 Benedek Communications Corp. (1) 5/15/06 Concentric Network Corp. 12/15/07 Condor Systems, Inc. 5/1/09 Crown Castle International Corp. (1) 11/15/07 Crown Castle International Corp. (1) 5/15/11 Exodus Communications, Inc. 7/15/10 Flag Telecom Holdings Ltd. 1/30/08 Flag Telecom Holdings Ltd. 3/30/10 Globix Corp. 2/1/10 Golden Sky DBS, Inc. (1) 3/1/07 ICG Services, Inc. (1) 5/1/08 Intermedia Communications, Inc., Series B 11/1/07 Level 3 Communications, Inc. 3/15/08 Level 3 Communications, Inc. (1) 3/15/10 McLeodUSA Inc 1/1/09 Microcell Telecommunications (1) 6/1/09 Mpower Communications Corp. 4/1/10 Netia Holdings BV 6/15/09 Netia Holdings BV 11/1/07 Netia Holdings BV (1) 11/1/07 Nextel Partners, Inc. 3/15/10 Nextel Partners, Inc. 3/15/10 NTL Communications Corp. 10/1/08 NTL, Inc., Series B (1) 4/1/08 Orbcomm Global LP (6) 8/15/04 Primus Telecommunications, Inc. 10/15/09 PSINet, Inc. 8/1/09 PSINet, Inc. 11/1/08 Telehub Communications Corp. 7/31/05
Market Value ------------------------------------------------------ High Yield High Pro Forma Description Bond Income Combined -------------------------------------------------------------- ---------------- -------------- ---------------- PMD Group, Inc. (2)(3) 52,000 - 52,000 Renco Metals, Inc. (6) 112,125 - 112,125 Renco Steel Holdings, Inc. 126,000 - 126,000 Russel Metals, Inc. 280,500 - 280,500 Schuff Steel Co. - 1,935,000 1,935,000 WCI Steel, Inc. (2) 870,000 - 870,000 Pharmaceuticals Caremark Rx, Inc. 188,000 - 188,000 Express Scripts, Inc. 643,500 - 643,500 ICN Pharmaceuticals, Inc. 253,750 - 253,750 ICN Pharmaceuticals, Inc. (3) 1,407,188 - 1,407,188 ICN Pharmaceuticals, Inc. (2)(3) 99,000 - 99,000 King Pharmaceuticals, Inc. 234,850 - 234,850 PharMerica, Inc. 650,625 - 650,625 Real Estate La Quinta Properties, Inc. 491,288 - 491,288 LNR Property Corp. - 1,399,250 1,399,250 WCI Communities, Inc. (3) 309,750 - 309,750 Restaurants Domino's, Inc. 304,500 - 304,500 Retail Big 5 Corp., Series B 230,000 - 230,000 PEP Boys-Manny Moe & Jack 91,300 - 91,300 PEP Boys-Manny Moe & Jack 356,900 - 356,900 Telecommunications AMSC Acquisition Co., Inc., Series B - 743,750 743,750 Arch Communications, Inc. 51,000 - 51,000 Benedek Communications Corp. (1) 904,500 - 904,500 Concentric Network Corp. 819,000 - 819,000 Condor Systems, Inc. 370,000 - 370,000 Crown Castle International Corp. (1) 290,500 - 290,500 Crown Castle International Corp. (1) 245,000 - 245,000 Exodus Communications, Inc. 244,900 - 244,900 Flag Telecom Holdings Ltd. - 1,125,000 1,125,000 Flag Telecom Holdings Ltd. - 975,000 975,000 Globix Corp. 361,500 1,036,750 1,398,250 Golden Sky DBS, Inc. (1) 558,000 - 558,000 ICG Services, Inc. (1) - 96,250 96,250 Intermedia Communications, Inc., Series B - 1,960,000 1,960,000 Level 3 Communications, Inc. 390,000 1,950,000 2,340,000 Level 3 Communications, Inc. (1) 307,500 - 307,500 McLeodUSA Inc 295,500 - 295,500 Microcell Telecommunications (1) 900,000 - 900,000 Mpower Communications Corp. - 758,500 758,500 Netia Holdings BV 115,500 - 115,500 Netia Holdings BV 170,000 - 170,000 Netia Holdings BV (1) 295,000 - 295,000 Nextel Partners, Inc. - 865,000 865,000 Nextel Partners, Inc. - 875,000 875,000 NTL Communications Corp. 623,000 - 623,000 NTL, Inc., Series B (1) 240,000 862,500 1,102,500 Orbcomm Global LP (6) 8,125 - 8,125 Primus Telecommunications, Inc. - 490,000 490,000 PSINet, Inc. 25,200 - 25,200 PSINet, Inc. - 135,000 135,000 Telehub Communications Corp. - - -
B-24 SunAmerica Income Funds High Income Fund North American Funds High Yield Bond Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ----------------------------------------------------------- High Yield High Pro Forma Bond Income Combined Description Coupon ---------------- ----------------------- --------------------------------------------------------------------------- -------- 450,000 - 450,000 Williams Communications Group 11.70 275,000 - 275,000 WinStar Communications Inc. (6) 12.75 750,000 - 750,000 WinStar Communications Inc. (6) 14.75 Transportation 800,000 - 800,000 Aircraft Service International Group, Inc. 11.00 225,000 - 225,000 Atlas Air, Inc. 9.25 414,820 - 414,820 Atlas Air, Inc. 8.77 200,000 - 200,000 Atlas Air, Inc. 9.70 200,000 - 200,000 Decrane Aircraft Holdings, Inc. 12.00 Utilities 700,000 - 700,000 Avista Corp. (1) 9.75 200,000 - 200,000 BRL Universal Equipment LP, Series A (1) 8.88 560,000 - 560,000 Leviathan Gas Pipeline Partners, Inc. 10.38 400,000 - 400,000 Tesoro Petroleum Corp. 9.00 300,000 - 300,000 WCG Note Trust Corp. (3) 8.25 500,000 - 500,000 XO Communications, Inc. (1) 0.00 Total Corporate Bonds & Notes (cost $63,045,705; $119,630,631; $182,676,336 ) FOREIGN BONDS & NOTES Aerospace & Military Technology 200,000 - 200,000 Dunlop Standard Aerospace Holdings PLC 11.88 Broadcasting - 3,050,000 3,050,000 Central European Media Enterprises Ltd. 9.38 Building Materials - 2,350,000 2,350,000 Ainsworth Lumber Ltd. (7) 12.50 Business Services 100,000 - 100,000 Pierce Leahy Command Co. 8.13 Cable - 1,000,000 1,000,000 Australis Holdings Property Ltd. (5)(6) 15.00 - 1,500,000 1,500,000 Callahan Nordrhein Westfalen (1)(3) 0.00 165,000 - 165,000 Callahan Nordrhein-Westfalen (3) 14.00 - 1,000,000 1,000,000 Diamond Cable Communications PLC 13.25 - 1,500,000 1,500,000 Diamond Holdings PLC 9.13 400,000 - 400,000 Telewest Communications PLC 11.00 - 2,000,000 2,000,000 Telewest Communications PLC 11.25 - 750,000 750,000 Telewest Communications PLC (1) 0.00 1,400,000 - 1,400,000 United Pan-Europe Communications NV (1) 0.00 Cellular - 1,250,000 1,250,000 Celcaribe SA 14.50 - 1,750,000 1,750,000 Occidente Y Caribe Celular SA, Series B 0.00 Electrical Equipment 605,000 - 605,000 Flextronics International Ltd 9.88 Energy 150,000 - 150,000 AES Drax Energy Ltd. (2)(3) 11.50 - 2,000,000 2,000,000 Baytex Energy Ltd. 10.50 Energy Services - 3,625,000 3,625,000 Statia Terminals International NV, Series B 11.75 Financial Services 750,000 - 750,000 Ono Finance 13.00 Manufacturing - 2,000,000 2,000,000 Filtronic PLC 10.00 - 2,000,000 2,000,000 International Utility Structures, Inc. 10.75 Telecommunications 630,000 - 630,000 Ekabel Hessen 14.50 600,000 - 600,000 Esat Holdings Ltd. 0.00
High Yield High Pro Forma Description Maturity Date Bond Income Combined ------------------------------------------------------------ ---------------- ---------- ---------- ------------ Williams Communications Group 8/1/08 WinStar Communications Inc. (6) 4/15/10 WinStar Communications Inc. (6) 4/15/10 Transportation 2.8% 0.0% 0.9% Aircraft Service International Group, Inc. 8/15/05 Atlas Air, Inc. 4/15/08 Atlas Air, Inc. 1/2/11 Atlas Air, Inc. 1/2/08 Decrane Aircraft Holdings, Inc. 9/30/08 Utilities 3.4% 0.0% 1.1% Avista Corp. (1) 6/1/08 BRL Universal Equipment LP, Series A (1) 2/15/08 Leviathan Gas Pipeline Partners, Inc. 6/1/09 Tesoro Petroleum Corp. 7/1/08 WCG Note Trust Corp. (3) 3/15/04 XO Communications, Inc. (1) 12/1/09 Total Corporate Bonds & Notes (cost $63,045,705; $119,630,631; $182,676,336 ) FOREIGH BONDS & NOTES 9.0% 16.5% 14.0% Aerospace & Military Technology 0.3% 0.0% 0.1% Dunlop Standard Aerospace Holdings PLC 5/15/09 Broadcasting 0.0% 0.8% 0.5% Central European Media Enterprises Ltd. 8/15/04 Building Materials 0.0% 1.4% 0.9% Ainsworth Lumber Ltd. (7) 7/15/07 Business Services 0.1% 0.0% 0.1% Pierce Leahy Command Co. 5/15/08 Cable 1.5% 3.8% 3.0% Australis Holdings Property Ltd. (5)(6) 11/1/02 Callahan Nordrhein Westfalen (1)(3) 7/15/10 Callahan Nordrhein-Westfalen (3) 7/15/10 Diamond Cable Communications PLC 9/30/04 Diamond Holdings PLC 2/1/08 Telewest Communications PLC 10/1/07 Telewest Communications PLC 11/1/08 Telewest Communications PLC (1) 2/1/10 United Pan-Europe Communications NV (1) 2/1/10 Cellular 0.0% 1.6% 1.0% Celcaribe SA 3/15/04 Occidente Y Caribe Celular SA, Series B 3/15/04 Electrical Equipment 0.9% 0.0% 0.3% Flextronics International Ltd 7/1/10 Energy 0.2% 1.4% 1.0% AES Drax Energy Ltd. (2)(3) 8/30/10 Baytex Energy Ltd. 2/15/11 Energy Services 0.0% 2.6% 1.8% Statia Terminals International NV, Series B 11/15/03 Financial Services 0.9% 0.0% 0.3% Ono Finance 5/1/09 Manufacturing 0.0% 2.0% 1.4% Filtronic PLC 12/1/05 International Utility Structures, Inc. 2/1/08 Telecommunications 3.9% 2.9% 3.2% Ekabel Hessen 9/1/10 Esat Holdings Ltd. 2/1/07
Market Value ----------------------------------------------------- High Yield High Pro Forma Description Bond Income Combined ------------------------------------------------------------ --------------- -------------- ---------------- Williams Communications Group 353,250 - 353,250 WinStar Communications Inc. (6) 90,750 - 90,750 WinStar Communications Inc. (6) 97,500 - 97,500 Transportation Aircraft Service International Group, Inc. 904,000 - 904,000 Atlas Air, Inc. 225,000 - 225,000 Atlas Air, Inc. 442,994 - 442,994 Atlas Air, Inc. 211,566 - 211,566 Decrane Aircraft Holdings, Inc. 192,250 - 192,250 Utilities Avista Corp. (1) 697,676 - 697,676 BRL Universal Equipment LP, Series A (1) 206,500 - 206,500 Leviathan Gas Pipeline Partners, Inc. 598,500 - 598,500 Tesoro Petroleum Corp. 407,000 - 407,000 WCG Note Trust Corp. (3) 298,779 - 298,779 XO Communications, Inc. (1) 155,000 - 155,000 Total Corporate Bonds & Notes --------------- -------------- ---------------- (cost $63,045,705; $119,630,631; $182,676,336 ) 58,058,600 98,025,923 156,084,523 --------------- -------------- ---------------- FOREIGH BONDS & NOTES Aerospace & Military Technology Dunlop Standard Aerospace Holdings PLC 213,000 - 213,000 Broadcasting Central European Media Enterprises Ltd. - 1,075,125 1,075,125 Building Materials Ainsworth Lumber Ltd. (7) - 1,938,750 1,938,750 Business Services Pierce Leahy Command Co. 98,500 - 98,500 Cable Australis Holdings Property Ltd. (5)(6) - 20,000 20,000 Callahan Nordrhein Westfalen (1)(3) - 705,000 705,000 Callahan Nordrhein-Westfalen (3) 166,650 - 166,650 Diamond Cable Communications PLC - 975,000 975,000 Diamond Holdings PLC - 1,222,500 1,222,500 Telewest Communications PLC 391,000 - 391,000 Telewest Communications PLC - 2,010,000 2,010,000 Telewest Communications PLC (1) - 427,500 427,500 United Pan-Europe Communications NV (1) 476,000 - 476,000 Cellular Celcaribe SA - 912,500 912,500 Occidente Y Caribe Celular SA, Series B - 1,277,500 1,277,500 Electrical Equipment Flextronics International Ltd 586,850 - 586,850 Energy AES Drax Energy Ltd. (2)(3) 164,250 - 164,250 Baytex Energy Ltd. - 1,970,000 1,970,000 Energy Services Statia Terminals International NV, Series B - 3,715,625 3,715,625 Financial Services Ono Finance 585,000 - 585,000 Manufacturing Filtronic PLC - 1,540,000 1,540,000 International Utility Structures, Inc. - 1,300,000 1,300,000 Telecommunications Ekabel Hessen 617,400 - 617,400 Esat Holdings Ltd. 604,563 - 604,563
B-25 SunAmerica Income Funds High Income Fund North American Funds High Yield Bond Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ----------------------------------------------------------- High Yield High Pro Forma Bond Income Combined Description Coupon ---------------- ----------------------- --------------------------------------------------------------------------- -------- 1,000,000 - 1,000,000 Global Crossing Holdings Ltd. 9.63 - 2,000,000 2,000,000 Global Crossing Holdings Ltd. 9.13 1,400,000 2,000,000 3,400,000 GT Group Telecom, Inc. (1) 1.00 - 1,000,000 1,000,000 Poland Telecom Finance BV, Series B (5)(6) 14.00 - 3,500,000 3,500,000 Worldwide Fiber, Inc. 12.50 Utilities 650,000 - 650,000 VersaTel Telecom International NV 13.25 150,000 - 150,000 VersaTel Telecom International NV 13.25 500,000 - 500,000 VersaTel Telecom International NV 11.88 Total Foreign Bonds & Notes (cost $7,206,484; $30,655,488; $37,861,972) PREFERRED STOCK Apparel & Textiles 25,812 - 25,812 Anvil Holdings Inc. 13% (7) Business Services - 96,895 96,895 Earthwatch, Inc., Series C 8.50% (3)(5)(7) Cable 6,000 - 6,000 Adelphia Communications Corp. 13% 49,974 49,974 CSC Holdings, Inc. 11.13% (7) Cellular - 2,899 2,899 Nextel Communications, Inc. 11.13% (7) Telecommunications - 3,700 3,700 Broadwing Communications, Inc. 12.50% - 3,100 3,100 Global Crossing Ltd. 6.75% (3) - 2,600 2,600 Global Crossings Ltd. 7.00% - 10,000 10,000 Mpower Communications Corp. 7.25% Total Preferred Stock (cost $1,090,991; $13,133,022; $14,224,013) COMMON STOCK Cellular - 157,119 157,119 International Wireless Communications Holdings, Inc. +(5) Energy Services - 25,290 25,290 Frontline Ltd. + Gaming - 241 241 Capital Gaming International, Inc. +(5) Total Common Stock (cost $0; $3,369,159; $3,369,159 ) WARRANTS + Broadcasting - 1,000 1,000 XM Satellite Radio, Inc. Cable - 4,500 4,500 Knology Holdings, Inc. (5) - 1,000 1,000 UIH Australia Pacific, Inc. (5) Cellular - 2,250 2,250 Leap Wireless International, Inc. (3) - 1,950 1,950 Leap Wireless International, Inc. (3) - 7,750 7,750 Occidente Y Caribe Celular SA (5) Energy Services - 1,900 1,900 Key Energy Services, Inc. Financial Services 500 - 500 Ono Finance Media
High Yield High Pro Forma Description Maturity Date Bond Income Combined ------------------------------------------------------------ ---------------- ---------- ---------- ------------ Global Crossing Holdings Ltd. 5/15/08 Global Crossing Holdings Ltd. 11/15/06 GT Group Telecom, Inc. (1) 2/1/10 Poland Telecom Finance BV, Series B (5)(6) 12/1/07 Worldwide Fiber, Inc. 12/15/05 Utilities 1.2% 0.0% 0.4% VersaTel Telecom International NV 05/15/2008 VersaTel Telecom International NV 05/15/2008 VersaTel Telecom International NV 07/15/2009 Total Foreign Bonds & Notes (cost $7,206,484; $30,655,488; $37,861,972) PREFERRED STOCK 1.6% 8.7% 6.3% Apparel & Textiles 0.7% 0.0% 0.2% Anvil Holdings Inc. 13% (7) Business Services 0.0% 0.0% 0.0% Earthwatch, Inc., Series C 8.50% (3)(5)(7) Cable 0.9% 3.9% 2.9% Adelphia Communications Corp. 13% CSC Holdings, Inc. 11.13% (7) Cellular 0.0% 1.5% 1.0% Nextel Communications, Inc. 11.13% (7) Telecommunications 0.0% 3.3% 2.2% Broadwing Communications, Inc. 12.50% Global Crossing Ltd. 6.75% (3) Global Crossings Ltd. 7.00% Mpower Communications Corp. 7.25% Total Preferred Stock (cost $1,090,991; $13,133,022; $14,224,013) COMMON STOCK 0.0% 0.3% 0.2% Cellular 0.0% 0.0% 0.0% International Wireless Communications Holdings, Inc. +(5) Energy Services 0.0% 0.3% 0.2% Frontline Ltd. + Gaming 0.0% 0.0% 0.0% Capital Gaming International, Inc. +(5) Total Common Stock (cost $0; $3,369,159; $3,369,159 ) WARRANTS + 0.1% 0.2% 0.2% Broadcasting 0.0% 0.0% 0.0% XM Satellite Radio, Inc. Cable 0.0% 0.0% 0.0% Knology Holdings, Inc. (5) UIH Australia Pacific, Inc. (5) Cellular 0.0% 0.1% 0.1% Leap Wireless International, Inc. (3) Leap Wireless International, Inc. (3) Occidente Y Caribe Celular SA (5) Energy Services 0.0% 0.1% 0.1% Key Energy Services, Inc. Financial Services 0.0% 0.0% 0.0% Ono Finance Media 0.0% 0.0% 0.0%
Market Value ------------------------------------------------------ High Yield High Pro Forma Description Bond Income Combined ------------------------------------------------------------ ---------------- -------------- ---------------- Global Crossing Holdings Ltd. 942,500 - 942,500 Global Crossing Holdings Ltd. - 1,885,000 1,885,000 GT Group Telecom, Inc. (1) 532,000 760,000 1,292,000 Poland Telecom Finance BV, Series B (5)(6) - 10,000 10,000 Worldwide Fiber, Inc. - 1,400,000 1,400,000 Utilities VersaTel Telecom International NV 416,000 - 416,000 VersaTel Telecom International NV 91,500 - 91,500 VersaTel Telecom International NV 295,000 - 295,000 Total Foreign Bonds & Notes ---------------- -------------- ---------------- (cost $7,206,484; $30,655,488; $37,861,972) 6,180,213 23,144,500 29,324,713 ---------------- -------------- ---------------- PREFERRED STOCK Apparel & Textiles Anvil Holdings Inc. 13% (7) 496,881 - 496,881 Business Services Earthwatch, Inc., Series C 8.50% (3)(5)(7) - 969 969 Cable Adelphia Communications Corp. 13% 601,500 - 601,500 CSC Holdings, Inc. 11.13% (7) - 5,434,672 5,434,672 Cellular Nextel Communications, Inc. 11.13% (7) - 2,116,270 2,116,270 Telecommunications Broadwing Communications, Inc. 12.50% - 3,774,000 3,774,000 Global Crossing Ltd. 6.75% (3) - 487,475 487,475 Global Crossings Ltd. 7.00% - 329,875 329,875 Mpower Communications Corp. 7.25% - 73,750 73,750 Total Preferred Stock ---------------- -------------- ---------------- (cost $1,090,991; $13,133,022; $14,224,013) 1,098,381 12,217,011 13,315,392 ---------------- -------------- ---------------- COMMON STOCK Cellular International Wireless Communications Holdings, Inc. +(5) - 15,712 15,712 Energy Services Frontline Ltd. + - 440,920 440,920 Gaming Capital Gaming International, Inc. +(5) - 2 2 Total Common Stock -------------- ---------------- (cost $0; $3,369,159; $3,369,159 ) - 456,634 456,634 -------------- ---------------- WARRANTS + Broadcasting XM Satellite Radio, Inc. - 3,000 3,000 Cable Knology Holdings, Inc. (5) - 45 45 UIH Australia Pacific, Inc. (5) - 10,000 10,000 Cellular Leap Wireless International, Inc. (3) - 67,500 67,500 Leap Wireless International, Inc. (3) - 29,250 29,250 Occidente Y Caribe Celular SA (5) - 77 77 Energy Services Key Energy Services, Inc. - 150,404 150,404 Financial Services Ono Finance 20,062 - 20,062 Media
B-26 SunAmerica Income Funds High Income Fund North American Funds High Yield Bond Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ----------------------------------------------------------- High Yield High Pro Forma Bond Income Combined Description Coupon ---------------- ----------------------- --------------------------------------------------------------------------- -------- - 2,000 2,000 Park-N-View, Inc. (5) Telecommunications 1,400 2,000 3,400 GT Group Telecom, Inc. (3)(5) - 3,650 3,650 KMC Telecom Holdings, Inc. (3)(5) - 1,750 1,750 Motient Corp. (3) - 1,000 1,000 Poland Telecom Finance BV (2)(3)(5) - 1,500 1,500 Telehub Communications Corp. (3)(5) Total Warrants (cost $67,479; $667,385; $734,864) PUT OPTIONS 350,000 - 350,000 Meditrust Exercisable Put Options Securities Trust + 7.11 (cost $225,957; $0; $225,957) Total Investment Securities - (cost $71,636,616; $167,455,685; $239,092,301) SHORT-TERM SECURITIES Gaming - 600 600 Capital Gaming International Inc. 12.00 Telecommunications - 1,750,000 1,750,000 Vialog Corp 12.75 Total Short-Term Securities (cost $0; $1,736,569; $1,736,569) REPURCHASE AGREEMENT 3,908,000 - 3,908,000 State Street Bank & Trust Repurchase Agreement 5.25 (cost $3,908,000; $0; $3,908,000) TOTAL INVESTMENTS (cost $75,544,616; $169,192,254; $244,736,870) Other assets less liablities (8) NET ASSETS
High Yield High Pro Forma Description Maturity Date Bond Income Combined ------------------------------------------------------------ ---------------- ---------- ---------- ------------ Park-N-View, Inc. (5) Telecommunications 0.1% 0.0% 0.0% GT Group Telecom, Inc. (3)(5) KMC Telecom Holdings, Inc. (3)(5) Motient Corp. (3) Poland Telecom Finance BV (2)(3)(5) Telehub Communications Corp. (3)(5) Total Warrants (cost $67,479; $667,385; $734,864) PUT OPTIONS 0.4% 0.0% 0.1% Meditrust Exercisable Put Options Securities Trust + 8/15/04 (cost $225,957; $0; $225,957) Total Investment Securities 94.3% 95.5% 95.1% (cost $71,636,616; $167,455,685; $239,092,301) SHORT-TERM SECURITIES 0.0% 1.2% 0.8% Gaming 0.0% 0.0% 0.0% Capital Gaming International Inc. 5/28/01 Telecommunications 0.0% 1.2% 0.8% Vialog Corp 11/15/01 Total Short-Term Securities (cost $0; $1,736,569; $1,736,569) REPURCHASE AGREEMENT 5.6% 0.0% 1.9% State Street Bank & Trust Repurchase Agreement 4/2/01 (cost $3,908,000; $0; $3,908,000) TOTAL INVESTMENTS 99.9% 96.7% 97.8% (cost $75,544,616; $169,192,254; $244,736,870) Other assets less liablities (8) 0.1% 3.3% 2.2% ---------- ---------- ------------ NET ASSETS 100.0% 100.0% 100.0% ========== ========== ============
Market Value ------------------------------------------------------ High Yield High Pro Forma Description Bond Income Combined ------------------------------------------------------------ ---------------- -------------- ---------------- Park-N-View, Inc. (5) - - - Telecommunications GT Group Telecom, Inc. (3)(5) 39,938 20 39,958 KMC Telecom Holdings, Inc. (3)(5) - 37 37 Motient Corp. (3) - 6,125 6,125 Poland Telecom Finance BV (2)(3)(5) - - - Telehub Communications Corp. (3)(5) - - - Total Warrants ---------------- -------------- ---------------- (cost $67,479; $667,385; $734,864) 60,000 266,458 326,457 ---------------- -------------- ---------------- PUT OPTIONS Meditrust Exercisable Put Options Securities Trust + 295,750 - 295,750 ---------------- -------------- ---------------- (cost $225,957; $0; $225,957) Total Investment Securities 65,692,944 134,110,525 199,803,469 ---------------- -------------- ---------------- (cost $71,636,616; $167,455,685; $239,092,301) SHORT-TERM SECURITIES Gaming Capital Gaming International Inc. - - - Telecommunications Vialog Corp - 1,732,500 1,732,500 Total Short-Term Securities ---------------- -------------- ---------------- (cost $0; $1,736,569; $1,736,569) - 1,732,500 1,732,500 ---------------- -------------- ---------------- REPURCHASE AGREEMENT State Street Bank & Trust Repurchase Agreement 3,908,000 - 3,908,000 ---------------- -------------- ---------------- (cost $3,908,000; $0; $3,908,000) TOTAL INVESTMENTS 69,600,944 135,843,025 205,443,969 (cost $75,544,616; $169,192,254; $244,736,870) Other assets less liablities (8) 88,291 4,644,960 4,698,853 ---------------- -------------- ---------------- NET ASSETS $69,689,235 $140,487,985 $210,142,822 ================ ============== ================
+ 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) Resale restricted to qualified institutional buyers (4) Variable rate security; rate as of March 31, 2001 (5) fair valued security (6) Bond in default (7) PIK ("payment-in-kind") payment made with additional shares in lieu of cash (8) To adjust ($34,398) for prepaid expenses on the North American Funds High Yield Bond Fund to be expensed prior to the reorganization Management does not anticipate having to sell any securities as a result of the reorganization, however, securities may be sold due to differing portfolio management style. See Notes to Pro Forma Financial Statements B-27 SUNAMERICA INCOME FUNDS HIGH INCOME FUND NORTH AMERICAN FUNDS HIGH YIELD BOND FUND NOTES TO PRO FORMA FINANCIAL STATEMENTS March 31, 2001 (unaudited) 1. BASIS OF COMBINATION The Pro Forma Combined Statement of Assets and Liabilities, including the Portfolio of Investments at March 31, 2001, and related Statement of Operations ("Pro Forma Statements") for the twelve months ended March 31, 2001, reflect the accounts of the High Income Portfolio ("High Income") a separately managed portfolio of SunAmerica Income Funds, and High Yield Bond Fund ("High Yield Bond") a separately managed portfolio of North American Funds. High Yield Bond will be reorganized into High Income Fund (to be renamed the SunAmerica High Yield Bond Fund). However, based on generally accepted accounting principles, from a financial reporting standpoint, High Yield Bond is the surviving entity in this reorganization. Accordingly, the Pro Forma Combined Statement of Assets and Liabilities reflect a stock split of 1.650255775, 1.648086922, 1.641518889, 1.647300219, and 1.644034959 for High Yield Bond Class A, Class B, Class C, Class I and Class II, respectively. The stock split is assumed to have occurred prior to the reorganization. High Yield Bond Class C and Class II will be redesignated Class II and Class Z, respectively. The Pro Forma Combined Statement of Assets and Liabilities has been restated to reflect an exchange of shares as of the close of business on March 31, 2001. Notwithstanding the foregoing, High Income is the surviving entity in the transaction for legal and tax reporting purposes. American International Group, Inc. will pay the cost of the reorganization. The Pro Forma Statements should be read in conjunction with the historical financial statements of High Income and High Yield Bond included in their respective Statements of Additional Information. 2. VALUATION 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 markers. 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 sale price available before the time when the assets are valued. If a security's price is available from more than one foreign exchange, a Portfolio uses the exchange that is the primary market for the security. Values of portfolio securities primarily traded B-28 on foreign exchanges are already translated into U.S. dollars when received from a quotation service. Options traded on national 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 Portfolios may make use of a pricing service in the determination of their net asset values. 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 Directors. Short- term securities 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. 3. CAPITAL SHARES The pro forma combined net asset value per share assumes the issuance of additional shares of High Yield Bond which would have been issued at March 31, 2001 in connection with the proposed reorganization. The amount of additional shares assumed to be issued was calculated based on the March 31, 2001 net asset value (after the aforementioned stock split and redesignation of shares) of High Yield Class A ($5.03), Class B ($5.03), Class II ($5.05), Class I ($5.03) and Class Z ($5.03). The pro forma number of shares outstanding are as follows:
Class A Class B Class II Class I Class Z ----------------------------------- ---------------- ----------------- --------------- ---------------- ----------------- Shares of High Yield Bond 101,296 607,248 199,405 425,099 12,514,039 ----------------------------------- ---------------- ----------------- --------------- ---------------- ----------------- Additional Shares assumed to be issued to High Income 10,532,517 13,341,244 4,039,070 0 0 ----------------------------------- ---------------- ----------------- --------------- ---------------- ----------------- Pro Forma Shares outstanding 10,633,813 13,948,492 4,238,475 425,099 12,514,039 ----------------------------------- ---------------- ----------------- --------------- ---------------- -----------------
These pro forma financial statements assume that all shares of High Income Class A, Class B, and Class II outstanding on March 31, 2001 were exchanged for High Yield Bond Class A, Class B, and Class II shares, respectively. Class I and Class Z were not affected by the combination. 4. PRO FORMA OPERATING EXPENSES The Pro Forma Statement of Operations assumes expense adjustments based on the agreements of High Income. Certain accounts have been adjusted to reflect the expenses of the combined entity more closely. Pro forma operating expenses include the expenses of High Income and High Yield Bond combined, adjusted for certain items which are factually supportable. Advisory fees have been charged B-29 to the combined entity based upon the contract in effect for High Income at the level of assets of the combined fund for the stated period. B-30 SUNAMERICA INCOME FUNDS TAX EXEMPT INSURED FUND NORTH AMERICAN FUNDS MUNICIPAL BOND FUND PROFORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2001 (unaudited)
North American Funds SunAmerica Income Funds Municipal Bond Tax Exempt Insured Fund Fund --------------------- ------------------------- ASSETS: Investment securities, at value (identified cost $21,586,687, $79,449,448, and $101,036,135, respectively) $ 22,156,887 $ 86,314,394 Short-term securities (identified cost $38,104, $3,100,000, and $3,138,104, respectively) 38,104 3,100,000 Cash 266 71,310 Receivable for investments sold 1,100,312 -- Receivable for shares of beneficial interest sold -- 27,801 Interest and dividends receivable 248,620 1,418,942 Prepaid expenses and other assets 115,699 1,021 ------------- ------------- Total assets 23,659,888 90,933,468 ------------- ------------- LIABILITIES: Payable for investments purchased 2,863,933 -- Payable for shares of beneficial interest redeemed -- 1,206,989 Dividends payable 60,955 135,331 Investment advisory and management fees payable 919 37,360 Distribution and service maintenance fees payable 11,477 34,928 Other accrued expenses 59,772 102,090 ------------- ------------- Total liabilities 2,997,056 1,516,698 ------------- ------------- Net assets $ 20,662,832 $ 89,416,770 ============= ============= NET ASSETS WERE COMPOSED OF: Common Stock, $.001, $.01, and $.01, par value $ 2,061 $ 68,678 Paid-in capital 20,362,190 84,924,283 ------------- ------------- 20,364,251 84,992,961 Accumulated undistributed net investment income (loss) -- 28,741 Accumulated undistributed net realized gain (loss) on investments, foreign currency, and other assets and liabilities (271,619) (2,469,878) Net unrealized appreciation (depreciation) on investments 570,200 6,864,946 ------------- ------------- Net assets $ 20,662,832 $ 89,416,770 ============= =============
Pro Forma Pro Forma Combined Adjustments (Note 1) -------------- ------------------- ASSETS: Investment securities, at value (identified cost $21,586,687, $79,449,448, and $101,036,135, respectively) -- $ 108,471,281 Short-term securities (identified cost $38,104, $3,100,000, and $3,138,104, respectively) -- 3,138,104 Cash -- 71,576 Receivable for investments sold -- 1,100,312 Receivable for shares of beneficial interest sold -- 27,801 Interest and dividends receivable -- 1,667,562 Prepaid expenses and other assets (77,720)(A) 39,000 ------------- ------------- Total assets (77,720) 114,515,636 ------------- ------------- LIABILITIES: Payable for investments purchased -- 2,863,933 Payable for shares of beneficial interest redeemed -- 1,206,989 Dividends payable -- 196,286 Investment advisory and management fees payable -- 38,279 Distribution and service maintenance fees payable -- 46,405 Other accrued expenses -- 161,862 ------------- ------------- Total liabilities 0 4,513,754 ------------- ------------- Net assets ($77,720) $ 110,001,882 ============= ============= NET ASSETS WERE COMPOSED OF: Common Stock, $.001, $.01, and $.01, par value $13,749 (B) 84,488 Paid-in capital (13,749)(B) 105,272,724 ------------- ------------- 0 105,357,212 Accumulated undistributed net investment income (loss) (77,720)(A) (48,979) Accumulated undistributed net realized gain (loss) on investments, foreign currency, and other assets and liabilities -- (2,741,497) Net unrealized appreciation (depreciation) on investments -- 7,435,146 ------------- ------------- Net assets ($77,720) $ 110,001,882 ============= =============
B-31 SUNAMERICA INCOME FUNDS TAX EXEMPT INSURED FUND NORTH AMERICAN FUNDS MUNICIPAL BOND FUND PROFORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2001 (unaudited)
North American Funds SunAmerica Income Funds Municipal Bond Tax Exempt Insured Fund Fund -------------------- ----------------------- Class A: Net assets $ 8,591,093 $ 72,393,871 Shares outstanding 857,262 5,560,423 Net asset value and redemption price per share $ 10.02 $ 13.02 Maximum sales charge (4.75% of offering price) 0.50 0.65 ----------- -------------- Maximum offering price to public $ 10.52 $ 13.67 =========== ============== Class B: Net assets $ 7,979,498 $ 16,301,949 Shares outstanding 795,479 1,251,982 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) $ 10.03 $ 13.02 =========== ============== Class II: Net assets -- $ 720,950 Shares outstanding -- 55,383 Net asset value and redemption price per share (excluding any applicable contingent deferred sales charge) -- $ 13.02 Maximum sales charge (1.00% of offering price) -- 0.13 ----------- -------------- Maximum offering price to public -- $ 13.15 =========== ============== Class C: Net assets $ 4,092,241 -- Shares outstanding 407,967 -- Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) $ 10.03 -- =========== ==============
Pro Forma Pro Forma Combined Adjustments (Note 1) --------------- ----------- Class A: Net assets ($32,314)(A) $80,952,650 Shares outstanding (199,906)(B) 6,217,779 Net asset value and redemption price per share -- $ 13.02 Maximum sales charge (4.75% of offering price) -- 0.65 ----------- ----------- Maximum offering price to public -- $ 13.67 =========== =========== Class B: Net assets ($30,014)(A) $24,251,433 Shares outstanding (184,920)(B) 1,862,541 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) -- $ 13.02 =========== =========== Class II: Net assets $4,076,849 (C) $ 4,797,799 Shares outstanding 313,122 (B)(C) 368,505 Net asset value and redemption price per share (excluding any applicable contingent deferred sales charge) -- $ 13.02 Maximum sales charge (1.00% of offering price) -- 0.13 ----------- ----------- Maximum offering price to public -- $ 13.15 =========== =========== Class C: Net assets ($4,092,241)(A)(C) $ 0 Shares outstanding (407,967)(B)(C) 0 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) -- -- =========== ===========
(A) To adjust for the remaining balances of any prepaid expenses on the North American Funds Municipal Bond Fund to be expensed prior to the reorganization (B) To adjust for a tax free exchange of North American Funds Municipal Bond Fund shares for shares of SunAmerica Income Funds Tax Exempt Insured (C) Class C shares of North American Funds Municipal Bond will receive Class II shares of SunAmerica Income Funds Tax Exempt Insured See Notes to Pro Forma Financial Statements B-32 SUNAMERICA INCOME FUNDS TAX EXEMPT INSURED FUND NORTH AMERICAN FUNDS MUNICIPAL BOND FUND PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED MARCH 31, 2001 (unaudited)
North American Funds SunAmerica Income Funds Municipal Bond Tax Exempt Insured Fund Fund ---------------------------- -------------------------- INVESTMENT INCOME: Income: Interest $ 982,046 $ 4,787,224 ----------- ----------- Expenses: Investment advisory and management fees 117,385 421,750 Distribution and service maintenance fees Class A 12,630 242,251 Class B 74,279 145,428 Class II 0 5,943 Class C 37,160 0 Transfer agent fees and expenses 76,990 0 Class A 0 173,999 Class B 0 36,781 Class II 0 2,744 Registration fees 15,477 0 Class A 0 13,963 Class B 0 11,026 Class II 0 8,560 Accounting/administration 21,192 0 Custodian fees and expenses 10,838 70,120 Audit and legal fees 8,353 33,820 Miscellaneous expenses 12,259 17,937 ----------- ----------- Total expenses 386,563 1,184,322 Less: expenses waived/reimbursed by investment adviser (89,414) (9,477) Less: custody credits earned on cash balances 0 (1,690) ----------- ----------- Net expenses 297,149 1,173,155 ----------- ----------- Net investment income (loss) 684,897 3,614,069 ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments (3,392) 542,824 Net realized gain (loss) on futures and options contracts 0 15,412 Net change in unrealized appreciation/depreciation of investments 205,287 3,771,709 ----------- ----------- Net realized and unrealized gain (loss) on investments, foreign currency and other assets and liabilities 201,895 4,329,945 ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS: $ 886,792 $ 7,944,014 =========== ===========
Pro Forma Pro Forma Combined Adjustments (Note 1) ----------------------- --------------------- INVESTMENT INCOME: Income: Interest $ 0 $ 5,769,270 ----------- ----------- Expenses: Investment advisory and management fees (19,557)(D) 519,578 Distribution and service maintenance fees Class A 0 254,881 Class B 0 219,707 Class II 37,160 (C) 43,103 Class C (37,160)(C) 0 Transfer agent fees and expenses (76,990)(D) 0 Class A 9,021 (D) 183,020 Class B 18,570 (D) 55,351 Class II 11,891 (D) 14,635 Registration fees (15,477)(D) 0 Class A 2,037 (D) 16,000 Class B 1,974 (D) 13,000 Class II 440 (D) 9,000 Accounting/administration (21,192)(D) 0 Custodian fees and expenses (10,838)(D) 70,120 Audit and legal fees (7,173)(E) 35,000 Miscellaneous expenses (10,196)(E) 20,000 ----------- ----------- Total expenses (117,491) 1,453,395 Less: expenses waived/reimbursed by investment adviser 91,563 (F) (7,328) Less: custody credits earned on cash balances 0 (1,690) ----------- ----------- Net expenses (25,927) 1,444,377 ----------- ----------- Net investment income (loss) 25,927 4,324,893 ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments 0 539,432 Net realized gain (loss) on futures and options contracts 0 15,412 Net change in unrealized appreciation/depreciation of investments 0 3,976,996 ----------- ----------- Net realized and unrealized gain (loss) on investments, foreign currency and other assets and liabilities 0 4,531,840 ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS: 25,927 $ 8,856,733 =========== ===========
(C) Class C shares of North American Funds Municipal Bond will receive Class II shares of SunAmerica Income Funds Tax Exempt Insured (D) Reflects adjustments to expenses based on surviving fund's fee schedules and combined net assets (E) Reflects the elimination of duplicate services or fees (F) Reflects adjustments to expenses waived/reimbused by investment adviser based on pro forma expenses See Notes to Pro Forma Financial Statements B-33 SunAmerica Income Funds Tax Exempt Insured Fund North American Funds Municipal Bond Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares --------------------------------------------------- Municipal Tax Exempt Pro Forma Bond Insured Combined Description --------------- -------------- --------------------------------------------------------------------------------------------------- MUNICIPAL BONDS Alabama 130,000 - 130,000 Alabama Housing Finance Authority Single Family Mortgage Revenue Collateralized Home Mortgage Program, Series B-2 (1) Alaska - 545,000 545,000 Alaska State Housing Finance Corp., Series A-2 (1) 615,000 - 615,000 Anchorage, Alaska, Lease Revenue Bonds (1) Arizona 1,000,000 - 1,000,000 Maricopa County, AZ, Industrial Development Authority (2) Arkansas - 110,000 110,000 Arkansas State Development Finance Authority, Single Family Mortgage Revenue (1) 250,000 - 250,000 Camden, Arkansas, Pollution Control, (International Paper Company Project) California - 1,500,000 1,500,000 Anaheim, California Public Financing Authority, Revenue, Series A (1) 1,000,000 - 1,000,000 California Housing Finance Agency Home Ownership & Home Improvement 1,000,000 - 1,000,000 California State Public Works Board, (Regents Univ.), Series A 1,000,000 - 1,000,000 Los Angeles, CA, Department of Water, Series A (1) Colorado - 2,500,000 2,500,000 Denver Colorado City & County School District Number 1 (1) 750,000 - 750,000 Denver, Colorado, City & County Airport 2,000,000 - 2,000,000 El Paso County, Colorado, Single Family Prerefunded - 1,960,000 1,960,000 Highlands Ranch Metropolitan District, Colorado General Obligation (1) Delaware 750,000 - 750,000 Delaware Valley Regioinal Financial Authority District of Columbia 650,000 - 650,000 District of Columbia Refunding (1) Georgia - 1,500,000 1,500,000 Municipal Electric Authority, Georgia Special Obligation, Series Y (1) - 1,250,000 1,250,000 Municipal Electric Authority, Georgia Special Obligation, Series Y (1) Idaho - 825,000 825,000 Idaho Housing & Finance Association, Single Family Mortgage Illinois - 2,000,000 2,000,000 Chicago Illinois Board Of Education, General Obligation (1) 450,000 - 450,000 Chicago, Illinois, Water Revenue (1) - 1,600,000 1,600,000 Cook & Du Page Counties, Illinois High School, District Number 210, General Obligation (1) - 4,000,000 4,000,000 Cook County, Illinois Community College, District Number 508 (1) - 3,400,000 3,400,000 Illinois Health Facilities Authority, Lutheran General Health Systems (1) 225,000 - 225,000 Illinois State Highway Authority Toll, Series A (1) Indiana 250,000 - 250,000 Elkhart County, Indiana, Hospital Authority Kansas City 225,000 - 225,000 Wyandotte County, Kansas City, Unified Government (1) 150,000 - 150,000 Wyandotte County, Kansas City, Unified Government Utility System Revenue (1) Kentucky - 3,500,000 3,500,000 Louisville & Jefferson County, Kentucky Regional Airport Authority, Series A (1) Louisiana 250,000 - 250,000 Louisiana Public Facilities Authority Hospital Revenue Refunding - 2,500,000 2,500,000 New Orleans, Louisiana, Revenue Refunding (1)
Municipal Description Coupon Maturity Date Bond ------------------------------------------------------------------------------------------- --------------- ------------ MUNICIPAL BONDS 107.2% Alabama 0.6% Alabama Housing Finance Authority Single Family Mortgage Revenue Collateralized Home Mortgage Program, Series B-2 (1) 6.40 04/01/25 Alaska 3.3% Alaska State Housing Finance Corp., Series A-2 (1) 7.50 12/01/15 Anchorage, Alaska, Lease Revenue Bonds (1) 5.88 02/01/13 Arizona 4.8% Maricopa County, AZ, Industrial Development Authority (2) 3.75 11/01/14 Arkansas 1.3% Arkansas State Development Finance Authority, Single Family Mortgage Revenue (1) 9.00 06/01/14 Camden, Arkansas, Pollution Control, (International Paper Company Project) 5.70 09/01/12 California 15.2% Anaheim, California Public Financing Authority, Revenue, Series A (1) 0.00 09/01/18 California Housing Finance Agency Home Ownership & Home Improvement 6.15 08/01/16 California State Public Works Board, (Regents Univ.), Series A 5.25 06/01/13 Los Angeles, CA, Department of Water, Series A (1) 5.38 07/01/18 Colorado 8.7% Denver Colorado City & County School District Number 1 (1) 5.00 12/01/23 Denver, Colorado, City & County Airport 6.00 11/15/15 El Paso County, Colorado, Single Family Prerefunded 0.00 09/01/15 Highlands Ranch Metropolitan District, Colorado General Obligation (1) 6.50 06/15/09 Delaware 3.8% Delaware Valley Regioinal Financial Authority 5.50 08/01/28 District of Columbia 3.4% District of Columbia Refunding (1) 5.50 06/01/09 Georgia 0.0% Municipal Electric Authority, Georgia Special Obligation, Series Y (1) 6.40 01/01/13 Municipal Electric Authority, Georgia Special Obligation, Series Y (1) 6.40 01/01/09 Idaho 0.0% Idaho Housing & Finance Association, Single Family Mortgage 5.63 07/01/15 Illinois 3.8% Chicago Illinois Board Of Education, General Obligation (1) 6.75 12/01/11 Chicago, Illinois, Water Revenue (1) 6.50 11/01/15 Cook & Du Page Counties, Illinois High School, District Number 210, General Obligation (1) 0.00 12/01/12 Cook County, Illinois Community College, District Number 508 (1) 7.70 12/01/07 Illinois Health Facilities Authority, Lutheran General Health Systems (1) 7.00 04/01/08 Illinois State Highway Authority Toll, Series A (1) 5.50 01/01/15 Indiana 1.1% Elkhart County, Indiana, Hospital Authority 5.25 08/15/28 Kansas City 1.7% Wyandotte County, Kansas City, Unified Government (1) 4.50 09/01/28 Wyandotte County, Kansas City, Unified Government Utility System Revenue (1) 5.75 09/01/24 Kentucky 0.0% Louisville & Jefferson County, Kentucky Regional Airport Authority, Series A (1) 6.50 07/01/17 Louisiana 1.1% Louisiana Public Facilities Authority Hospital Revenue Refunding 5.50 08/15/19 New Orleans, Louisiana, Revenue Refunding (1) 5.50 12/01/21
Tax Exempt Pro Forma Description Insured Combined ---------------------------------------------------------------------------------- -------------- ------------- MUNICIPAL BONDS 96.5% 98.6% Alabama 0.0% 0.1% Alabama Housing Finance Authority Single Family Mortgage Revenue Collateralized Home Mortgage Program, Series B-2 (1) Alaska 0.6% 1.1% Alaska State Housing Finance Corp., Series A-2 (1) Anchorage, Alaska, Lease Revenue Bonds (1) Arizona 0.0% 0.9% Maricopa County, AZ, Industrial Development Authority (2) Arkansas 0.1% 0.4% Arkansas State Development Finance Authority, Single Family Mortgage Revenue (1) Camden, Arkansas, Pollution Control, (International Paper Company Project) California 0.7% 3.4% Anaheim, California Public Financing Authority, Revenue, Series A (1) California Housing Finance Agency Home Ownership & Home Improvement California State Public Works Board, (Regents Univ.), Series A Los Angeles, CA, Department of Water, Series A (1) Colorado 5.3% 5.9% Denver Colorado City & County School District Number 1 (1) Denver, Colorado, City & County Airport El Paso County, Colorado, Single Family Prerefunded Highlands Ranch Metropolitan District, Colorado General Obligation (1) Delaware 0.0% 0.7% Delaware Valley Regioinal Financial Authority District of Columbia 0.0% 0.6% District of Columbia Refunding (1) Georgia 3.6% 2.9% Municipal Electric Authority, Georgia Special Obligation, Series Y (1) Municipal Electric Authority, Georgia Special Obligation, Series Y (1) Idaho 0.9% 0.8% Idaho Housing & Finance Association, Single Family Mortgage Illinois 13.5% 11.7% Chicago Illinois Board Of Education, General Obligation (1) Chicago, Illinois, Water Revenue (1) Cook & Du Page Counties, Illinois High School, District Number 210, General Obligation (1) Cook County, Illinois Community College, District Number 508 (1) Illinois Health Facilities Authority, Lutheran General Health Systems (1) Illinois State Highway Authority Toll, Series A (1) Indiana 0.0% 0.2% Elkhart County, Indiana, Hospital Authority Kansas City 0.0% 0.3% Wyandotte County, Kansas City, Unified Government (1) Wyandotte County, Kansas City, Unified Government Utility System Revenue (1) Kentucky 4.4% 3.6% Louisville & Jefferson County, Kentucky Regional Airport Authority, Series A (1) Louisiana 3.0% 2.6% Louisiana Public Facilities Authority Hospital Revenue Refunding New Orleans, Louisiana, Revenue Refunding (1)
Market Value ---------------------------------------------- Municipal Tax Exempt Pro Forma Description Bond Insured Combined ---------------------------------------------------------------------------------- - -------------- --------------- --------------- MUNICIPAL BONDS Alabama Alabama Housing Finance Authority Single Family Mortgage Revenue Collateralized Home Mortgage Program, Series B-2 (1) 131,395 - 131,395 Alaska Alaska State Housing Finance Corp., Series A-2 (1) - 545,485 545,485 Anchorage, Alaska, Lease Revenue Bonds (1) 676,992 - 676,992 Arizona Maricopa County, AZ, Industrial Development Authority (2) 1,000,000 - 1,000,000 Arkansas Arkansas State Development Finance Authority, Single Family Mortgage Revenue (1) - 111,275 111,275 Camden, Arkansas, Pollution Control, (International Paper Company Project) 265,747 265,747 California Anaheim, California Public Financing Authority, Revenue, Series A (1) - 613,380 613,380 California Housing Finance Agency Home Ownership & Home Improvement 1,047,810 - 1,047,810 California State Public Works Board, (Regents Univ.), Series A 1,079,370 - 1,079,370 Los Angeles, CA, Department of Water, Series A (1) 1,023,460 - 1,023,460 Colorado Denver Colorado City & County School District Number 1 (1) - 2,449,350 2,449,350 Denver, Colorado, City & County Airport 813,855 - 813,855 El Paso County, Colorado, Single Family Prerefunded 985,360 - 985,360 Highlands Ranch Metropolitan District, Colorado General Obligation (1) - 2,268,641 2,268,641 Delaware Delaware Valley Regioinal Financial Authority 791,175 - 791,175 District of Columbia District of Columbia Refunding (1) 705,074 - 705,074 Georgia Municipal Electric Authority, Georgia Special Obligation, Series Y (1) - 1,753,935 1,753,935 Municipal Electric Authority, Georgia Special Obligation, Series Y (1) - 1,429,278 1,429,278 Idaho Idaho Housing & Finance Association, Single Family Mortgage - 850,443 850,443 Illinois Chicago Illinois Board Of Education, General Obligation (1) - 2,394,740 2,394,740 Chicago, Illinois, Water Revenue (1) 533,219 - 533,219 Cook & Du Page Counties, Illinois High School, District Number 210, General Obligation (1) - 918,832 918,832 Cook County, Illinois Community College, District Number 508 (1) - 4,846,320 4,846,320 Illinois Health Facilities Authority, Lutheran General Health Systems (1) - 3,945,564 3,945,564 Illinois State Highway Authority Toll, Series A (1) 243,063 - 243,063 Indiana Elkhart County, Indiana, Hospital Authority 221,687 - 221,687 Kansas City Wyandotte County, Kansas City, Unified Government (1) 199,507 - 199,507 Wyandotte County, Kansas City, Unified Government Utility System Revenue (1) 159,234 - 159,234 Kentucky Louisville & Jefferson County, Kentucky Regional Airport Authority, Series A (1) - 3,957,170 3,957,170 Louisiana Louisiana Public Facilities Authority Hospital Revenue Refunding 238,585 - 238,585 New Orleans, Louisiana, Revenue Refunding (1) - 2,659,725 2,659,725
B-34 SunAmerica Income Funds Tax Exempt Insured Fund North American Funds Municipal Bond Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares --------------------------------------------------- Municipal Tax Exempt Pro Forma Bond Insured Combined Description --------------- -------------- --------------------------------------------------------------------------------------------------- Maine - 1,700,000 1,700,000 Maine State Housing Authority Mortgage Purchase (1) 25,000 - 25,000 Maine State Housing Authority Mortgage Purchase, Revenue Series A-4 Maryland 250,000 - 250,000 Maryland State Transit Authority, Facility Projects Revenue Board Massachusetts 200,000 - 200,000 Massachusetts State Health & Educational Facilities, Partners Healthcare System - 875,000 875,000 Massachusetts State Housing Finance Agency, Insured Rental, Series A (1) - 1,000,000 1,000,000 Massachusetts State Port Authority Revenue (1) 1,000,000 - 1,000,000 Massachusetts State Turnpike Authority Michigan - 2,000,000 2,000,000 Detroit Michigan Sewage Disposal Revenue (1) - 2,735,000 2,735,000 Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government Loan (1) - 2,875,000 2,875,000 Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government Loan (1) 250,000 - 250,000 Michigan State Hospital Finance Authority, Ascension Health Credit Service (1) - 1,000,000 1,000,000 Michigan State Hospital Finance Authority, Revenue, Series A (1) Minnesota - 2,100,000 2,100,000 Minneapolis & St. Paul Minnesota, Metropolitan Airports, Revenue, Series B (1) Missouri 200,000 - 200,000 Missouri Higher Education Loan Authority (2) - 5,000,000 5,000,000 Sikeston, Missouri Electric, Revenue (1) Nevada - 1,500,000 1,500,000 Clark County, Nevada Public Facilities, General Obligation, Series C (1) - 4,945,000 4,945,000 Nevada Housing Division, Single Family Mortgage Revenue, Series A (1) (2) 225,000 - 225,000 Nevada Housing Division, Single-Family Revenue Program, B-2 285,000 - 285,000 Nevada Housing Division, Single-Family Revenue Program, Issue C (1) New Jersey 800,000 - 800,000 New Jersey State Highway, Garden State Parkway (1) - 2,500,000 2,500,000 New Jersey State Transportation Trust Fund Authority, Transportation Systems Revenue, Series B (1) New Mexico - 80,000 80,000 New Mexico Mortgage Finance Authority, Single Family Mortgage Revenue, Series C (1) New York 345,000 - 345,000 New York Mortgage Agency 225,000 - 225,000 New York Mortgage Agency - 3,000,000 3,000,000 New York State Dormitory Authority Revenue (1) 250,000 - 250,000 New York State Dormitory Authority 480,000 - 480,000 New York State Environmental Facilities Corp. 750,000 - 750,000 New York, New York, Series B, General Obligation - 445,000 445,000 Niagara Falls, New York, General Obligation (1) - 555,000 555,000 Niagara Falls, New York, General Obligation (1) North Carolina - 2,000,000 2,000,000 North Carolina Housing Finance Agency, Revenue, Home Ownership, Series 8A North Dakota 640,000 - 640,000 North Dakota State Water Commission Facilities Authority Revenue, Series A (1) Ohio - 2,885,000 2,885,000 Lucas County, Ohio Hospital Revenue, St. Vincent Medical Center (1) - 1,000,000 1,000,000 Woodridge, Ohio Local School District, General Obligation (1)
Description Coupon Maturity Date ----------------------------------------------------------------------------------------------- ---------- --------------- Maine Maine State Housing Authority Mortgage Purchase (1) 5.95 11/15/20 Maine State Housing Authority Mortgage Purchase, Revenue Series A-4 6.38 11/15/12 Maryland Maryland State Transit Authority, Facility Projects Revenue Board 6.80 07/01/16 Massachusetts Massachusetts State Health & Educational Facilities, Partners Healthcare System 5.13 07/01/19 Massachusetts State Housing Finance Agency, Insured Rental, Series A (1) 6.60 07/01/14 Massachusetts State Port Authority Revenue (1) 6.25 07/01/17 Massachusetts State Turnpike Authority 5.00 01/01/13 Michigan Detroit Michigan Sewage Disposal Revenue (1) 5.00 07/01/27 Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government Loan (1) 0.00 05/01/16 Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government Loan (1) 0.00 05/01/17 Michigan State Hospital Finance Authority, Ascension Health Credit Service (1) 5.25 11/15/09 Michigan State Hospital Finance Authority, Revenue, Series A (1) 6.25 11/15/14 Minnesota Minneapolis & St. Paul Minnesota, Metropolitan Airports, Revenue, Series B (1) 5.63 01/01/14 Missouri Missouri Higher Education Loan Authority (2) 3.65 03/01/20 Sikeston, Missouri Electric, Revenue (1) 6.20 06/01/10 Nevada Clark County, Nevada Public Facilities, General Obligation, Series C (1) 5.00 06/01/24 Nevada Housing Division, Single Family Mortgage Revenue, Series A (1) (2) 8.63 04/01/16 Nevada Housing Division, Single-Family Revenue Program, B-2 6.95 10/01/26 Nevada Housing Division, Single-Family Revenue Program, Issue C (1) 6.35 10/01/12 New Jersey New Jersey State Highway, Garden State Parkway (1) 5.25 01/01/18 New Jersey State Transportation Trust Fund Authority, Transportation Systems Revenue, Series B (1) 6.50 06/15/10 New Mexico New Mexico Mortgage Finance Authority, Single Family Mortgage Revenue, Series C (1) 8.63 07/01/17 New York New York Mortgage Agency 6.35 04/01/21 New York Mortgage Agency 4.70 04/01/11 New York State Dormitory Authority Revenue (1) 4.75 08/01/27 New York State Dormitory Authority 6.00 02/15/07 New York State Environmental Facilities Corp. 7.13 07/01/12 New York, New York, Series B, General Obligation 5.75 08/01/14 Niagara Falls, New York, General Obligation (1) 7.50 03/01/13 Niagara Falls, New York, General Obligation (1) 7.50 03/01/14 North Carolina North Carolina Housing Finance Agency, Revenue, Home Ownership, Series 8A 6.20 07/01/16 North Dakota North Dakota State Water Commission Facilities Authority Revenue, Series A (1) 6.00 08/01/12 Ohio Lucas County, Ohio Hospital Revenue, St. Vincent Medical Center (1) 6.50 08/15/07 Woodridge, Ohio Local School District, General Obligation (1) 6.80 12/01/14
Municipal Tax Exempt Pro Forma Description Bond Insured Combined --------------------------------------------------------------------------------- ------------ -------------- ------------- Maine 0.1% 2.0% 1.6% Maine State Housing Authority Mortgage Purchase (1) Maine State Housing Authority Mortgage Purchase, Revenue Series A-4 Maryland 1.4% 0.0% 0.3% Maryland State Transit Authority, Facility Projects Revenue Board Massachusetts 6.0% 2.3% 3.0% Massachusetts State Health & Educational Facilities, Partners Healthcare System Massachusetts State Housing Finance Agency, Insured Rental, Series A (1) Massachusetts State Port Authority Revenue (1) Massachusetts State Turnpike Authority Michigan 1.3% 6.2% 5.3% Detroit Michigan Sewage Disposal Revenue (1) Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government Loan (1) Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government Loan (1) Michigan State Hospital Finance Authority, Ascension Health Credit Service (1) Michigan State Hospital Finance Authority, Revenue, Series A (1) Minnesota 0.0% 2.5% 2.0% Minneapolis & St. Paul Minnesota, Metropolitan Airports, Revenue, Series B (1) Missouri 1.0% 6.4% 5.4% Missouri Higher Education Loan Authority (2) Sikeston, Missouri Electric, Revenue (1) Nevada 2.6% 7.3% 6.4% Clark County, Nevada Public Facilities, General Obligation, Series C (1) Nevada Housing Division, Single Family Mortgage Revenue, Series A (1) (2) Nevada Housing Division, Single-Family Revenue Program, B-2 Nevada Housing Division, Single-Family Revenue Program, Issue C (1) New Jersey 3.9% 3.3% 3.4% New Jersey State Highway, Garden State Parkway (1) New Jersey State Transportation Trust Fund Authority, Transportation Systems Revenue, Series B (1) New Mexico 0.0% 0.1% 0.1% New Mexico Mortgage Finance Authority, Single Family Mortgage Revenue, Series C (1) New York 10.5% 4.5% 5.7% New York Mortgage Agency New York Mortgage Agency New York State Dormitory Authority Revenue (1) New York State Dormitory Authority New York State Environmental Facilities Corp. New York, New York, Series B, General Obligation Niagara Falls, New York, General Obligation (1) Niagara Falls, New York, General Obligation (1) North Carolina 0.0% 2.4% 1.9% North Carolina Housing Finance Agency, Revenue, Home Ownership, Series 8A North Dakota 3.4% 0.0% 0.7% North Dakota State Water Commission Facilities Authority Revenue, Series A (1) Ohio 0.0% 4.8% 3.9% Lucas County, Ohio Hospital Revenue, St. Vincent Medical Center (1) Woodridge, Ohio Local School District, General Obligation (1)
Market Value --------------------------------------------- Municipal Tax Exempt Pro Forma Description Bond Insured Combined --------------------------------------------------------------------------------- ------------- --------------- --------------- Maine Maine State Housing Authority Mortgage Purchase (1) - 1,766,793 1,766,793 Maine State Housing Authority Mortgage Purchase, Revenue Series A-4 25,612 - 25,612 Maryland Maryland State Transit Authority, Facility Projects Revenue Board 297,555 - 297,555 Massachusetts Massachusetts State Health & Educational Facilities, Partners Healthcare System 188,990 - 188,990 Massachusetts State Housing Finance Agency, Insured Rental, Series A (1) - 924,053 924,053 Massachusetts State Port Authority Revenue (1) - 1,089,680 1,089,680 Massachusetts State Turnpike Authority 1,050,780 - 1,050,780 Michigan Detroit Michigan Sewage Disposal Revenue (1) - 1,932,620 1,932,620 Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government Loan (1) - 1,277,519 1,277,519 Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government Loan (1) - 1,264,856 1,264,856 Michigan State Hospital Finance Authority, Ascension Health Credit Service (1) 265,103 - 265,103 Michigan State Hospital Finance Authority, Revenue, Series A (1) - 1,109,500 1,109,500 Minnesota Minneapolis & St. Paul Minnesota, Metropolitan Airports, Revenue, Series B (1) - 2,208,696 2,208,696 Missouri Missouri Higher Education Loan Authority (2) 200,000 - 200,000 Sikeston, Missouri Electric, Revenue (1) - 5,745,950 5,745,950 Nevada Clark County, Nevada Public Facilities, General Obligation, Series C (1) - 1,455,435 1,455,435 Nevada Housing Division, Single Family Mortgage Revenue, Series A (1) (2) - 5,060,911 5,060,911 Nevada Housing Division, Single-Family Revenue Program, B-2 233,825 - 233,825 Nevada Housing Division, Single-Family Revenue Program, Issue C (1) 293,430 - 293,430 New Jersey New Jersey State Highway, Garden State Parkway (1) 806,448 - 806,448 New Jersey State Transportation Trust Fund Authority, Transportation Systems Revenue, Series B (1) - 2,954,025 2,954,025 New Mexico New Mexico Mortgage Finance Authority, Single Family Mortgage Revenue, Series C (1) - 80,177 80,177 New York New York Mortgage Agency 357,068 - 357,068 New York Mortgage Agency 226,413 - 226,413 New York State Dormitory Authority Revenue (1) - 2,773,380 2,773,380 New York State Dormitory Authority 275,385 - 275,385 New York State Environmental Facilities Corp. 488,568 - 488,568 New York, New York, Series B, General Obligation 816,143 - 816,143 Niagara Falls, New York, General Obligation (1) - 566,623 566,623 Niagara Falls, New York, General Obligation (1) - 711,060 711,060 North Carolina North Carolina Housing Finance Agency, Revenue, Home Ownership, Series 8A - 2,128,020 2,128,020 North Dakota North Dakota State Water Commission Facilities Authority Revenue, Series A (1) 719,232 - 719,232 Ohio Lucas County, Ohio Hospital Revenue, St. Vincent Medical Center (1) - 3,054,667 3,054,667 Woodridge, Ohio Local School District, General Obligation (1) - 1,226,380 1,226,380
B-35 SunAmerica Income Funds Tax Exempt Insured Fund North American Funds Municipal Bond Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares --------------------------------------------------- Municipal Tax Exempt Pro Forma Bond Insured Combined Description --------------- -------------- --------------------------------------------------------------------------------------------------- Oklahoma - 1,500,000 1,500,000 Grand River Dam Authority, Oklahoma Revenue Refunding (1) 250,000 - 250,000 Oklahoma Development Finance Authority, Public Service of Oklahoma Project (2) Oregon 225,000 - 225,000 Port Portland Oregon Airport Revenue Bonds, Portland International Airport, Series 12B Pennsylvania - 120,000 120,000 Pennsylvania Housing Finance Agency, Multi-Family Mortgage (1) 450,000 - 450,000 Philadelphia, Pennsylvania, Water & Wastewater Revenue (1) 300,000 - 300,000 Pine Richland School District, Series A South Carolina 1,000,000 - 1,000,000 Greenville, South Carolina, Hospital Systems Facility 250,000 - 250,000 South Carolina State Public Revenue South Dakota - 2,120,000 2,120,000 South Dakota St. Health & Educational Facilities Authority, Revenue (1) Tennessee 450,000 - 450,000 Humphreys County, Tennessee, Industrial Development Board Solid Waste Disposal Revenue Texas 270,000 - 270,000 Argyle, Texas, Independent School District 400,000 - 400,000 Austin, Texas, Water & Wastewater (1) - 2,000,000 2,000,000 Bexar County, Texas Health Facilities Development Corp., Hospital Revenue (1) - 1,050,000 1,050,000 Harris County Texas Hospital District Mortgage Revenue (1) - 1,450,000 1,450,000 Harris County Texas Hospital District Mortgage Revenue (1) - 5,000,000 5,000,000 Houston, Texas Independent School District, General Obligation - 1,250,000 1,250,000 Houston, Texas Water Conveyance Systems Contract, Series J, Certificates of Participation (1) 200,000 - 200,000 Kerrville, Texas, Independent School District (1) 200,000 - 200,000 Lower Colorado River Authority, Texas Prerefunded 250,000 - 250,000 Lower Colorado River Authority, Texas Revenue (1) 900,000 - 900,000 Port Arthur, Texas, Navigation District - 2,700,000 2,700,000 San Antonio, Texas, Hotel Occupancy, Revenue (1) 65,000 - 65,000 Texas State Veterans Housing Assistance, General Obligation Virginia - 1,000,000 1,000,000 Virginia State Housing Development Authority, Multi-Family, Series H, Washington 225,000 - 225,000 Central Puget Sound, Washington, Regional (1) - 2,000,000 2,000,000 Washington State Housing Wisconsin 55,000 - 55,000 Wisconsin Housing & Economic Development Authority Home Ownership Revenue, Series D (1) 500,000 - 500,000 Wisconsin State Health & Educational Facilities Authority Revenue, Mercy Hospital of Janesville, Inc. Wyoming 140,000 - 140,000 Green River-Sweetwater County, Wyoming (1) Total Investment Securities (cost $21,586,687; $79,449,448; $101,036,135) SHORT-TERM SECURITIES Nevada - 1,100,000 1,100,000 Clark County Nevada School District Texas
Description Coupon Maturity Date ---------------------------------------------------------------------------------- ---------- --------------- Oklahoma Grand River Dam Authority, Oklahoma Revenue Refunding (1) 6.25 06/01/11 Oklahoma Development Finance Authority, Public Service of Oklahoma Project (2) 4.88 06/01/14 Oregon Port Portland Oregon Airport Revenue Bonds, Portland International Airport, Series 12B 5.25 07/01/11 Pennsylvania Pennsylvania Housing Finance Agency, Multi-Family Mortgage (1) 9.38 08/01/28 Philadelphia, Pennsylvania, Water & Wastewater Revenue (1) 6.25 08/01/12 Pine Richland School District, Series A 0.00 09/01/23 South Carolina Greenville, South Carolina, Hospital Systems Facility 5.50 05/01/26 South Carolina State Public Revenue 5.63 01/01/13 South Dakota South Dakota St. Health & Educational Facilities Authority, Revenue (1) 6.25 07/01/10 Tennessee Humphreys County, Tennessee, Industrial Development Board Solid Waste Disposal Revenue 6.70 05/01/24 Texas Argyle, Texas, Independent School District 0.00 08/15/14 Austin, Texas, Water & Wastewater (1) 6.50 05/15/05 Bexar County, Texas Health Facilities Development Corp., Hospital Revenue (1) 6.75 08/15/19 Harris County Texas Hospital District Mortgage Revenue (1) 7.40 02/15/10 Harris County Texas Hospital District Mortgage Revenue (1) 7.40 02/15/10 Houston, Texas Independent School District, General Obligation 5.00 02/15/19 Houston, Texas Water Conveyance Systems Contract, Series J, Certificates of Participation (1) 6.13 12/15/08 Kerrville, Texas, Independent School District (1) 6.00 08/15/13 Lower Colorado River Authority, Texas Prerefunded 5.25 01/01/15 Lower Colorado River Authority, Texas Revenue (1) 6.00 05/15/10 Port Arthur, Texas, Navigation District 0.00 03/01/10 San Antonio, Texas, Hotel Occupancy, Revenue (1) 0.00 08/15/17 Texas State Veterans Housing Assistance, General Obligation 6.80 12/01/23 Virginia Virginia State Housing Development Authority, Multi-Family, Series H, 5.50 05/01/13 Washington Central Puget Sound, Washington, Regional (1) 5.25 02/01/13 Washington State Housing 6.00 07/01/15 Wisconsin Wisconsin Housing & Economic Development Authority Home Ownership Revenue, Series D (1) 6.10 07/01/24 Wisconsin State Health & Educational Facilities Authority Revenue, Mercy Hospital of Janesville, Inc. 6.60 08/15/22 Wyoming Green River-Sweetwater County, Wyoming (1) 4.50 03/01/14 Total Investment Securities (cost $21,586,687; $79,449,448; $101,036,135) SHORT-TERM SECURITIES Nevada Clark County Nevada School District 3.85 04/02/01 Texas
Municipal Tax Exempt Pro Forma Description Bond Insured Combined --------------------------------------------------------------------------------- ------------ -------------- ------------- Oklahoma 1.2% 1.9% 1.8% Grand River Dam Authority, Oklahoma Revenue Refunding (1) Oklahoma Development Finance Authority, Public Service of Oklahoma Project (2) Oregon 1.2% 0.0% 0.2% Port Portland Oregon Airport Revenue Bonds, Portland International Airport, Series 12B Pennsylvania 3.0% 0.1% 0.7% Pennsylvania Housing Finance Agency, Multi-Family Mortgage (1) Philadelphia, Pennsylvania, Water & Wastewater Revenue (1) Pine Richland School District, Series A South Carolina 6.3% 0.0% 1.2% Greenville, South Carolina, Hospital Systems Facility South Carolina State Public Revenue South Dakota 0.0% 2.7% 2.2% South Dakota St. Health & Educational Facilities Authority, Revenue (1) Tennessee 2.4% 0.0% 0.4% Humphreys County, Tennessee, Industrial Development Board Solid Waste Disposal Revenue Texas 9.5% 14.1% 13.3% Argyle, Texas, Independent School District Austin, Texas, Water & Wastewater (1) Bexar County, Texas Health Facilities Development Corp., Hospital Revenue (1) Harris County Texas Hospital District Mortgage Revenue (1) Harris County Texas Hospital District Mortgage Revenue (1) Houston, Texas Independent School District, General Obligation Houston, Texas Water Conveyance Systems Contract, Series J, Certificates of Participation (1) Kerrville, Texas, Independent School District (1) Lower Colorado River Authority, Texas Prerefunded Lower Colorado River Authority, Texas Revenue (1) Port Arthur, Texas, Navigation District San Antonio, Texas, Hotel Occupancy, Revenue (1) Texas State Veterans Housing Assistance, General Obligation Virginia 0.0% 1.2% 1.0% Virginia State Housing Development Authority, Multi-Family, Series H, Washington 1.2% 2.6% 2.3% Central Puget Sound, Washington, Regional (1) Washington State Housing Wisconsin 2.7% 0.0% 0.5% Wisconsin Housing & Economic Development Authority Home Ownership Revenue, Series D (1) Wisconsin State Health & Educational Facilities Authority Revenue, Mercy Hospital of Janesville, Inc. Wyoming 0.7% 0.0% 0.1% Green River-Sweetwater County, Wyoming (1) Total Investment Securities 107.2% 96.5% 98.6% (cost $21,586,687; $79,449,448; $101,036,135) SHORT-TERM SECURITIES 0.2% 3.5% 2.8% Nevada 0.0% 1.2% 1.0% Clark County Nevada School District Texas 0.0% 2.3% 1.8%
Market Value --------------------------------------------- Municipal Tax Exempt Pro Forma Description Bond Insured Combined ---------------------------------------------------------------------------------------------- --------------- --------------- Oklahoma Grand River Dam Authority, Oklahoma Revenue Refunding (1) - 1,734,780 1,734,780 Oklahoma Development Finance Authority, Public Service of Oklahoma Project (2) 252,285 - 252,285 Oregon - Port Portland Oregon Airport Revenue Bonds, Portland International Airport, Series 12B 239,258 - 239,258 Pennsylvania Pennsylvania Housing Finance Agency, Multi-Family Mortgage (1) - 121,566 121,566 Philadelphia, Pennsylvania, Water & Wastewater Revenue (1) 520,596 - 520,596 Pine Richland School District, Series A 91,245 - 91,245 South Carolina Greenville, South Carolina, Hospital Systems Facility 1,020,760 - 1,020,760 South Carolina State Public Revenue 272,215 - 272,215 South Dakota South Dakota St. Health & Educational Facilities Authority, Revenue (1) - 2,413,578 2,413,578 Tennessee Humphreys County, Tennessee, Industrial Development Board Solid Waste Disposal Revenue 490,689 - 490,689 Texas Argyle, Texas, Independent School District 139,841 - 139,841 Austin, Texas, Water & Wastewater (1) 441,656 - 441,656 Bexar County, Texas Health Facilities Development Corp., Hospital Revenue (1) - 2,237,980 2,237,980 Harris County Texas Hospital District Mortgage Revenue (1) - 1,217,559 1,217,559 Harris County Texas Hospital District Mortgage Revenue (1) - 1,704,141 1,704,141 Houston, Texas Independent School District, General Obligation - 4,920,200 4,920,200 Houston, Texas Water Conveyance Systems Contract, Series J, Certificates of Participation (1) - 1,399,975 1,399,975 Kerrville, Texas, Independent School District (1) 223,540 - 223,540 Lower Colorado River Authority, Texas Prerefunded 212,286 - 212,286 Lower Colorado River Authority, Texas Revenue (1) 281,373 - 281,373 Port Arthur, Texas, Navigation District 600,417 - 600,417 San Antonio, Texas, Hotel Occupancy, Revenue (1) - 1,163,052 1,163,052 Texas State Veterans Housing Assistance, General Obligation 67,975 - 67,975 Virginia Virginia State Housing Development Authority, Multi-Family, Series H, - 1,043,660 1,043,660 Washington Central Puget Sound, Washington, Regional (1) 239,276 - 239,276 Washington State Housing - 2,283,420 2,283,420 Wisconsin Wisconsin Housing & Economic Development Authority Home Ownership Revenue, Series D (1) 56,244 - 56,244 Wisconsin State Health & Educational Facilities Authority Revenue, Mercy Hospital of Janesville, Inc. 506,960 - 506,960 Wyoming Green River-Sweetwater County, Wyoming (1) 140,186 - 140,186 ------------- --------------- --------------- Total Investment Securities 22,156,887 86,314,394 108,471,281 ------------- --------------- --------------- (cost $21,586,687; $79,449,448; $101,036,135) SHORT-TERM SECURITIES Nevada Clark County Nevada School District - 1,100,000 1,100,000 Texas
B-36 SunAmerica Income Funds Tax Exempt Insured Fund North American Funds Municipal Bond Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares --------------------------------------------------- Municipal Tax Exempt Pro Forma Bond Insured Combined Description Coupon --------------- -------------- ---------------------------------------------------------------------------------------------- - 2,000,000 2,000,000 North Central Texas Health Facility Development Corp., Revenue 3.90 Other 38,104 - 38,104 SSGA Municipal Money Market Fund Total Short-Term Securities (cost $38,104; $3,100,000; $3,138,104) TOTAL INVESTMENTS (cost $21,624,791; $82,549,448; $104,174,239) Other assets less liabilities (3) NET ASSETS
Municipal Tax Exempt Pro Forma Description Maturity Date Bond Insured Combined ----------------------------------------------------------------- --------------- ------------ -------------- ------------- North Central Texas Health Facility Development Corp., Revenue 04/02/01 Other 0.2% 0.0% 0.0% SSGA Municipal Money Market Fund Total Short-Term Securities (cost $38,104; $3,100,000; $3,138,104) TOTAL INVESTMENTS 107.4% 100.0% 101.4% (cost $21,624,791; $82,549,448; $104,174,239) Other assets less liabilities (3) (7.4)% 0.0% (1.4)% ------------ -------------- ------------- NET ASSETS 100.0% 100.0% 100.0% ============ ============== =============
Market Value --------------------------------------------- Municipal Tax Exempt Pro Forma Description Bond Insured Combined ------------------------------------------------------------------------------ --------------- --------------- North Central Texas Health Facility Development Corp., Revenue - 2,000,000 2,000,000 Other SSGA Municipal Money Market Fund 38,104 - 38,104 ------------- --------------- --------------- Total Short-Term Securities 38,104 3,100,000 3,138,104 ------------- --------------- --------------- (cost $38,104; $3,100,000; $3,138,104) TOTAL INVESTMENTS 22,194,991 89,414,394 111,609,385 (cost $21,624,791; $82,549,448; $104,174,239) - - - Other assets less liabilities (3) (1,532,159) 2,376 (1,607,503) ------------- --------------- --------------- NET ASSETS $20,662,832 $89,416,770 $110,001,882 ============= =============== ===============
(1) 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") ($6,939,798 or 33.6% of Net Assets; $70,106,577 or 78.4% of Net Assets; $77,046,375 or 70.0% of Net Assets) (2) Variable rate security; rate as of March 31, 2001 (3) To adjust ($77,720) for prepaid expenses on the North American Funds Municipal Bond Fund to be expensed prior to the reorganization Management does not anticipate having to sell any securities as a result of the reorganization, however, securities may be sold due to differing portfolio management style. See Notes to Pro Forma Financial Statements B-37 SUNAMERICA INCOME FUNDS TAX EXEMPT INSURED FUND NORTH AMERICAN FUNDS MUNICIPAL BOND FUND NOTES TO PRO FORMA FINANCIAL STATEMENTS MARCH 31, 2001 (unaudited) 1. BASIS OF COMBINATION The Pro Forma Combined Statement of Assets and Liabilities, including the Portfolio of Investments at March 31, 2001, and related Statement of Operations ("Pro Forma Statements") for the twelve months ended March 31, 2001, reflect the accounts of the Tax Exempt Insured Fund ("Tax Exempt Insured") a separately managed portfolio of SunAmerica Income Funds, and Municipal Bond Fund ("Municipal Bond") a separately managed portfolio of North American Funds. The Pro Forma Combined Statement of Assets and Liabilities has been restated to reflect a tax free exchange of Municipal Bond Class A, Class B and Class C shares as of the close of business on March 31, 2001. American International Group, Inc. will pay the cost of the reorganization. The Pro Forma Statements give effect to the proposed transfer of all assets and liabilities of Municipal Bond in exchange for shares of Tax Exempt Insured. In conjunction with the reorganization, Tax Exempt Insured is the surviving fund. The Pro Forma Statements should be read in conjunction with the historical financial statements of Tax Exempt Insured and Municipal Bond included in their respective Statements of Additional Information. 2. VALUATION 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 markers. 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 sale price available before the time when the assets are valued. If a security's price is available from more than one foreign exchange, a Portfolio uses the exchange that is the primary market for the security. Values of portfolio securities primarily traded on foreign exchanges are already translated into U.S. dollars when received from a quotation service. Options traded on national 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 Portfolios may make use of a pricing service in the determination of their net asset B-38 values. 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 Directors. Short-term securities 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. 3. CAPITAL SHARES The pro forma combined net asset value per share assumes the issuance of additional shares of Tax Exempt Insured which would have been issued at March 31, 2001 in connection with the proposed reorganization. The amount of additional shares assumed to be issued was calculated based on the March 31, 2001 net asset value of Tax Exempt Insured Class A ($13.02), Class B ($13.02), and Class II ($13.02). The Class C shares of Municipal Bond will receive Class II shares of Tax Exempt Insured. The pro forma number of shares outstanding are determined as follows:
Class A Class B Class II ----------------------------------- ---------------- ----------------- --------------- Shares of Tax Exempt Insured 5,560,423 1,251,982 55,383 ----------------------------------- ---------------- ----------------- --------------- Additional Shares to be issued to Municipal Bond 657,356 610,559 313,122 ----------------------------------- ---------------- ----------------- --------------- Pro Forma Shares outstanding 6,217,779 1,862,541 368,505 --------------------------------------------------------------------------------------
These pro forma financial statements assume that all shares of Municipal Bond Class A, Class B and Class C outstanding on March 31, 2001 were exchanged, tax free, for Tax Exempt Insured Class A, Class B, and Class II shares, respectively. 4. PRO FORMA OPERATING EXPENSES The Pro Forma Statement of Operations assumes expense adjustments based on the agreements of Tax Exempt Insured, the surviving entity. Certain accounts have been adjusted to reflect the expenses of the combined entity more closely. Pro forma operating expenses include the expenses of Tax Exempt Insured and Municipal Bond combined, adjusted for certain items which are factually supportable. Advisory fees have been charged to the combined entity based upon the contract in effect for Tax Exempt Insured at the level of assets of the combined fund for the stated period. B-39 NORTH AMERICAN FUNDS U.S. GOVERNMENT SECURITIES FUND SUNAMERICA INCOME FUNDS U.S. GOVERNMENT SECURITIES FUND PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2001 (unaudited)
North American Funds SunAmerica Income Funds U.S. Government U.S. Government Securities Fund Securities Fund -------------------------- ----------------------- ASSETS: Investment securities, at value (identified cost $49,283,651, $204,215,882, and $253,499,533, respectively) $ 49,972,658 $ 204,371,607 Short-term securities (identified cost $0, $24,831,303, and $24,831,303, respectively) -- 24,831,303 Repurchase agreements (cost equals market) 4,123,000 27,983,000 Cash 860 -- Receivable for investments sold 7,984 11,274,404 Receivable for shares of beneficial interest sold 1,002,685 689,487 Interest and dividends receivable 374,507 1,653,907 Receivable from investment adviser -- 13 Prepaid expenses and other assets 117,636 2,327 ------------- ------------- Total assets 55,599,330 270,806,048 ------------- ------------- LIABILITIES: Payable for investments purchased 4,343,454 50,621,508 Payable for securities loaned -- 11,302,500 Payable for shares of beneficial interest redeemed 4,945 3,113,150 Dividends payable 431,104 343,793 Investment advisory and management fees payable 13,697 127,495 Distribution and service maintenance fees payable 24,134 76,419 Other accrued expenses 106,088 237,091 Due to custodian bank -- 72,077 ------------- ------------- Total liabilities 4,923,422 65,894,033 ------------- ------------- Net assets $ 50,675,908 $ 204,912,015 ============= ============= NET ASSETS WERE COMPOSED OF: Common Stock,$.001, $.01, and $.01 par value $ 5,158 $ 230,059 Paid-in capital 52,820,107 227,565,797 ------------- ------------- 52,825,265 227,795,856 Accumulated undistributed net investment income (loss) (469,209) 60,202 Accumulated undistributed net realized gain (loss) on investments, foreign currency, and other assets and liabilities (2,369,155) (23,099,768) Net unrealized appreciation (depreciation) on investments 689,007 155,725 ------------- ------------- Net assets $ 50,675,908 $ 204,912,015 ============= =============
Pro Forma Pro Forma Combined Adjustments (Note 1) -------------------- --------------------- ASSETS: Investment securities, at value (identified cost $49,283,651, $204,215,882, and $253,499,533, respectively) -- $ 254,344,265 Short-term securities (identified cost $0, $24,831,303, and $24,831,303, respectively) -- 24,831,303 Repurchase agreements (cost equals market) -- 32,106,000 Cash -- 860 Receivable for investments sold -- 11,282,388 Receivable for shares of beneficial interest sold -- 1,692,172 Interest and dividends receivable -- 2,028,414 Receivable from investment adviser -- 13 Prepaid expenses and other assets (42,525)(A) 77,438 ------------- ------------- Total assets (42,525) 326,362,853 ------------- ------------- LIABILITIES: Payable for investments purchased -- 54,964,962 Payable for securities loaned -- 11,302,500 Payable for shares of beneficial interest redeemed -- 3,118,095 Dividends payable -- 774,897 Investment advisory and management fees payable -- 141,192 Distribution and service maintenance fees payable -- 100,553 Other accrued expenses -- 343,179 Due to custodian bank -- 72,077 ------------- ------------- Total liabilities 0 70,817,455 ------------- ------------- Net assets ($ 42,525) $ 255,545,398 ============= ============= NET ASSETS WERE COMPOSED OF: Common Stock,$.001, $.01, and $.01 par value $51,670 (B) 286,887 Paid-in capital (51,670)(B) 280,334,234 ------------- ------------- 0 280,621,121 Accumulated undistributed net investment income (loss) (42,525)(A) (451,532) Accumulated undistributed net realized gain (loss) on investments, foreign currency, and other assets and liabilities -- (25,468,923) Net unrealized appreciation (depreciation) on investments -- 844,732 ------------- ------------- Net assets ($ 42,525) $ 255,545,398 ============= =============
B-40 NORTH AMERICAN FUNDS U.S. GOVERNMENT SECURITIES FUND SUNAMERICA INCOME FUNDS U.S. GOVERNMENT SECURITIES FUND PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2001 (unaudited)
North American Funds SunAmerica Income Funds U.S. Government U.S. Government Securities Fund Securities Fund ---------------------- ----------------------- Class A: Net assets $ 33,746,846 $ 169,523,987 Shares outstanding 3,434,666 19,032,935 Net asset value and redemption price per share $ 9.83 $ 8.91 Maximum sales charge (4.75% of offering price) 0.49 0.44 ------------ --------------- Maximum offering price to public $ 10.32 $ 9.35 ============ =============== Class B: Net assets $ 9,485,878 $ 32,085,141 Shares outstanding 965,374 3,602,311 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) $ 9.83 $ 8.91 ============ =============== Class II: Net assets -- $ 3,302,887 Shares outstanding -- 370,663 Net asset value and redemption price per share (excluding any applicable contingent deferred sales charge) -- $ 8.91 Maximum sales charge (1.00% of offering price) -- 0.09 ------------ --------------- Maximum offering price to public -- $ 9.00 ============ =============== Class C: Net assets $ 7,443,184 -- Shares outstanding 757,505 -- Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) $ 9.83 -- ============ =============== Class I: Net assets -- -- Shares outstanding -- -- Net asset value, offering and redemption price per share -- -- ============ ===============
Pro Forma Pro Forma Combined Adjustments (Note 1) ------------------ ------------- Class A: Net assets ($ 28,319)(A) $203,242,514 Shares outstanding 349,680 (B) 22,817,281 Net asset value and redemption price per share -- $ 8.91 Maximum sales charge (4.75% of offering price) -- 0.44 -------------- ------------ Maximum offering price to public -- $ 9.35 ============== ============ Class B: Net assets ($ 7,960)(A) $ 41,563,059 Shares outstanding 98,365 (B) 4,666,050 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) -- $ 8.91 ============== ============ Class II: Net assets $ 7,436,938 (D) $ 10,739,825 Shares outstanding 834,673 (B)(D) 1,205,336 Net asset value and redemption price per share (excluding any applicable contingent deferred sales charge) -- $ 8.91 Maximum sales charge (1.00% of offering price) -- 0.09 -------------- ------------ Maximum offering price to public -- $ 9.00 ============== ============ Class C: Net assets ($ 7,443,184)(A)(D) $ 0 Shares outstanding (757,505)(B)(D) 0 Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) -- -- ============== ============ Class I: Net assets -- -- Shares outstanding -- -- Net asset value, offering and redemption price per share -- $ 8.91 (C) ============== ============
(A) To adjust for the remaining balances of any prepaid expenses on the North American Funds U.S. Government Securities Fund to be expensed prior to the reorganization (B) To adjust for a tax free exchange of North American Funds U.S. Government Securities Fund shares for shares of SunAmerica Income Funds U.S. Government Securities Fund (C) Class I shares will be offered on SunAmerica Income Funds U.S. Government Securities and will assume the net asset value of Class A (D) Class C shares of North American Funds U.S. Government Securities Fund will receive Class II shares of SunAmerica Income Funds U.S. Government Securities Fund See Notes to Pro Forma Financial Statements B-41 NORTH AMERICAN FUNDS U.S. GOVERNMENT SECURITIES FUND SUNAMERICA INCOME FUNDS U.S. GOVERNMENT SECURITIES FUND PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED MARCH 31, 2001 (unaudited)
North American Funds SunAmerica Income Funds U.S. Government U.S. Government Securities Fund Securities Fund -------------------- ---------------------- INVESTMENT INCOME: Income: Interest $ 3,176,412 $ 12,703,624 ------------ ------------ Expenses: Investment advisory and management fees 291,743 1,408,067 Distribution and service maintenance fees Class A 111,431 547,430 Class B 95,420 299,456 Class II 0 13,977 Class C 72,443 0 Transfer agent fees and expenses 116,418 0 Class A 0 417,133 Class B 0 83,281 Class II 0 5,090 Registration fees 32,363 0 Class A 0 12,870 Class B 0 8,768 Class II 0 16,079 Accounting/administration 51,121 0 Custodian fees and expenses 26,909 76,312 Audit and legal fees 20,634 38,420 Miscellaneous expenses 24,309 112,141 ------------ ------------ Total expenses 842,791 3,039,024 Less: expenses waived/reimbursed by investment adviser (109,345) (16,427) Less: custody credits earned on cash balances 0 (3,737) ------------ ------------ Net expenses 733,446 3,018,860 ------------ ------------ Net investment income (loss) 2,442,966 9,684,764 ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments 513,044 6,314,865 Net change in unrealized appreciation/depreciation of investments 620,353 6,463,195 ------------ ------------ Net realized and unrealized gain (loss) on investments, foreign currency and other assets and liabilities 1,133,397 12,778,060 ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS: $ 3,576,363 $ 22,462,824 ============ ============
Pro Forma Pro Forma Combined Adjustments (Note 1) ------------ --------- INVESTMENT INCOME: Income: Interest $ 0 $ 15,880,036 ------------ ------------ Expenses: Investment advisory and management fees (174,281)(E) 1,525,529 Distribution and service maintenance fees Class A 0 658,861 Class B 0 394,876 Class II 72,443 (D) 86,420 Class C (72,443)(D) 0 Transfer agent fees and expenses (116,418)(E) 0 Class A 85,961 (E) 503,094 Class B 26,718 (E) 109,999 Class II 23,906 (E) 28,996 Registration fees (32,363)(E) 0 Class A 4,130 (E) 17,000 Class B 3,232 (E) 12,000 Class II (6,079)(E) 10,000 Accounting/administration (51,121)(E) 0 Custodian fees and expenses (8,671)(E) 94,550 Audit and legal fees (24,054)(F) 35,000 Miscellaneous expenses (21,450)(F) 115,000 ------------ ------------ Total expenses (290,490) 3,591,325 Less: expenses waived/reimbursed by investment adviser 3,263 (G) (122,509) Less: custody credits earned on cash balances 0 (3,737) ------------ ------------ Net expenses (287,227) 3,465,079 ------------ ------------ Net investment income (loss) 287,227 12,414,957 ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments 0 6,827,909 Net change in unrealized appreciation/depreciation of investments 0 7,083,548 ------------ ------------ Net realized and unrealized gain (loss) on investments, foreign currency and other assets and liabilities 0 13,911,457 ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS: $ 287,227 $ 26,326,414 ============ ============
(D) Class C shares of North American Funds U.S. Government Securities Fund will receive Class II shares of SunAmerica Income Funds U.S. Government Securities Fund (E) Reflects adjustments to expenses based on surviving fund's fee schedules and combined net assets (F) Reflects the elimination of duplicate services or fees (G) Reflects adjustments to expenses waived/reimbursed by investment adviser based on pro forma expenses See Notes to Pro Forma Financial Statements B-42 SunAmerica Income Funds U.S. Government Securities Fund North American Funds U.S. Government Securities Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ---------------------------------------------------------- North American SunAmerica U.S. Government U.S. Government Pro Forma Securities Securities Combined Description Coupon ---------------------- ------------- --------------- ---------------------------------------------------------------- FEDERAL HOME LOAN MORTGAGE CORP. 2,000,000 - 2,000,000 Federal Home Loan Mortgage Corp. 5.63 500,000 - 500,000 Federal Home Loan Mortgage Corp. 5.88 - 6,842,632 6,842,632 Federal Home Loan Mortgage Corp. 6.00 2,800,000 - 2,800,000 Federal Home Loan Mortgage Corp. 6.50 7,500,000 - 7,500,000 Federal Home Loan Mortgage Corp. 6.88 - 10,000,000 10,000,000 Federal Home Loan Mortgage Corp. 6.88 1,000,000 - 1,000,000 Federal Home Loan Mortgage Corp. 7.00 593,677 - 593,677 Federal Home Loan Mortgage Corp. 7.50 861,580 - 861,580 Federal Home Loan Mortgage Corp. 7.50 446,166 - 446,166 Federal Home Loan Mortgage Corp. 7.50 1,028,758 - 1,028,758 Federal Home Loan Mortgage Corp. 7.50 - 315,018 315,018 Federal Home Loan Mortgage Corp. 7.50 222,364 - 222,364 Federal Home Loan Mortgage Corp. 8.00 1,299,104 - 1,299,104 Federal Home Loan Mortgage Corp. 8.00 378,537 - 378,537 Federal Home Loan Mortgage Corp. 8.00 98,974 - 98,974 Federal Home Loan Mortgage Corp. 8.00 72,719 - 72,719 Federal Home Loan Mortgage Corp. 8.25 378,880 - 378,880 Federal Home Loan Mortgage Corp. 8.50 1,640,779 - 1,640,779 Federal Home Loan Mortgage Corp. 8.50 335,588 - 335,588 Federal Home Loan Mortgage Corp. 8.50 4,143,643 - 4,143,643 Federal Home Loan Mortgage Corp. 8.50 100,709 - 100,709 Federal Home Loan Mortgage Corp. 8.50 88,685 - 88,685 Federal Home Loan Mortgage Corp. 8.50 186,815 - 186,815 Federal Home Loan Mortgage Corp. 8.50 96,920 - 96,920 Federal Home Loan Mortgage Corp. 8.50 - 731,878 731,878 Federal Home Loan Mortgage Corp. 9.50 - 2,382,187 2,382,187 Federal Home Loan Mortgage Corp. 10.00 - 3,871,228 3,871,228 Federal Home Loan Mortgage Corp. 10.00 30,009 - 30,009 Federal Home Loan Mortgage Corp. 11.75 - 5,615,443 5,615,443 Federal Home Loan Mortgage Corp. 12.50 - 1,944,376 1,944,376 Federal Home Loan Mortgage Corp. 13.50 Total Federal Home Loan Mortgage Corp. (cost $26,288,190; $34,202,624; $60,490,815) FEDERAL NATIONAL MORTGAGE ASSOCIATION 1,000,000 - 1,000,000 Federal National Mortgage Association 5.50 500,000 - 500,000 Federal National Mortgage Association 5.50 260,000 - 260,000 Federal National Mortgage Association 5.69 - 5,900,725 5,900,725 Federal National Mortgage Association 6.00 - 16,847,917 16,847,917 Federal National Mortgage Association 6.00 2,750,000 - 2,750,000 Federal National Mortgage Association 6.53 1,708,583 - 1,708,583 Federal National Mortgage Association (1) 6.54
North American SunAmerica U.S. Government U.S. Government Pro Forma Description Maturity Date Securities Securities Combined ------------------------------------------------------------------ ------------------- ------------------- ------------- FEDERAL HOME LOAN MORTGAGE CORP. 52.8% 16.7% 23.9% Federal Home Loan Mortgage Corp. 03/20/06 Federal Home Loan Mortgage Corp. 03/21/11 Federal Home Loan Mortgage Corp. 11/01/13 Federal Home Loan Mortgage Corp. TBA Federal Home Loan Mortgage Corp. 01/15/05 Federal Home Loan Mortgage Corp. 09/15/10 Federal Home Loan Mortgage Corp. TBA Federal Home Loan Mortgage Corp. 07/01/15 Federal Home Loan Mortgage Corp. 12/01/15 Federal Home Loan Mortgage Corp. 01/01/16 Federal Home Loan Mortgage Corp. 02/01/16 Federal Home Loan Mortgage Corp. 06/01/25 Federal Home Loan Mortgage Corp. 06/01/30 Federal Home Loan Mortgage Corp. 12/01/30 Federal Home Loan Mortgage Corp. 01/01/31 Federal Home Loan Mortgage Corp. 06/01/08 Federal Home Loan Mortgage Corp. 07/01/06 Federal Home Loan Mortgage Corp. 04/01/30 Federal Home Loan Mortgage Corp. 05/01/30 Federal Home Loan Mortgage Corp. 06/01/30 Federal Home Loan Mortgage Corp. 09/01/30 Federal Home Loan Mortgage Corp. 10/01/30 Federal Home Loan Mortgage Corp. 05/01/08 Federal Home Loan Mortgage Corp. 06/01/25 Federal Home Loan Mortgage Corp. 12/01/29 Federal Home Loan Mortgage Corp. 04/01/20 Federal Home Loan Mortgage Corp. 01/01/17 Federal Home Loan Mortgage Corp. 08/01/21 Federal Home Loan Mortgage Corp. 08/01/13 Federal Home Loan Mortgage Corp. 01/01/16 Federal Home Loan Mortgage Corp. 02/01/19 Total Federal Home Loan Mortgage Corp. (cost $26,288,190; $34,202,624; $60,490,815) FEDERAL NATIONAL MORTGAGE ASSOCIATION 27.7% 13.5% 16.3% Federal National Mortgage Association 03/16/06 Federal National Mortgage Association 03/15/11 Federal National Mortgage Association 01/23/06 Federal National Mortgage Association 10/01/28 Federal National Mortgage Association 12/01/28 Federal National Mortgage Association 05/25/30 Federal National Mortgage Association (1) 12/28/28
Market Value --------------------------------------------------------- North American SunAmerica U.S. Government U.S. Government Pro Forma Description Securities Securities Combined ---------------------------------------------------------------------- ------------------ ------------------ FEDERAL HOME LOAN MORTGAGE CORP. Federal Home Loan Mortgage Corp. 2,007,180 - 2,007,180 Federal Home Loan Mortgage Corp. 494,610 - 494,610 Federal Home Loan Mortgage Corp. - 6,834,079 6,834,079 Federal Home Loan Mortgage Corp. 2,834,132 - 2,834,132 Federal Home Loan Mortgage Corp. 7,962,900 - 7,962,900 Federal Home Loan Mortgage Corp. - 10,815,600 10,815,600 Federal Home Loan Mortgage Corp. 1,013,130 - 1,013,130 Federal Home Loan Mortgage Corp. 611,297 - 611,297 Federal Home Loan Mortgage Corp. 887,151 - 887,151 Federal Home Loan Mortgage Corp. 459,409 - 459,409 Federal Home Loan Mortgage Corp. 1,059,292 - 1,059,292 Federal Home Loan Mortgage Corp. - 322,203 322,203 Federal Home Loan Mortgage Corp. 229,520 - 229,520 Federal Home Loan Mortgage Corp. 1,340,908 - 1,340,908 Federal Home Loan Mortgage Corp. 390,718 - 390,718 Federal Home Loan Mortgage Corp. 101,908 - 101,908 Federal Home Loan Mortgage Corp. 74,989 - 74,989 Federal Home Loan Mortgage Corp. 395,457 - 395,457 Federal Home Loan Mortgage Corp. 1,712,563 - 1,712,563 Federal Home Loan Mortgage Corp. 350,270 - 350,270 Federal Home Loan Mortgage Corp. 4,324,927 - 4,324,927 Federal Home Loan Mortgage Corp. 105,115 - 105,115 Federal Home Loan Mortgage Corp. 92,201 - 92,201 Federal Home Loan Mortgage Corp. 197,849 - 197,849 Federal Home Loan Mortgage Corp. 101,160 - 101,160 Federal Home Loan Mortgage Corp. - 765,266 765,266 Federal Home Loan Mortgage Corp. - 2,607,732 2,607,732 Federal Home Loan Mortgage Corp. - 4,214,064 4,214,064 Federal Home Loan Mortgage Corp. 33,832 - 33,832 Federal Home Loan Mortgage Corp. - 6,388,915 6,388,915 Federal Home Loan Mortgage Corp. - 2,298,116 2,298,116 ------------------ ------------------ ------------------ Total Federal Home Loan Mortgage Corp. 26,780,518 34,245,975 61,026,493 ------------------ ------------------ ------------------ (cost $26,288,190; $34,202,624; $60,490,815) FEDERAL NATIONAL MORTGAGE ASSOCIATION Federal National Mortgage Association 1,005,160 - 1,005,160 Federal National Mortgage Association 490,625 - 490,625 Federal National Mortgage Association 260,894 - 260,894 Federal National Mortgage Association - 5,764,301 5,764,301 Federal National Mortgage Association - 16,458,393 16,458,393 Federal National Mortgage Association 2,800,257 - 2,800,257 Federal National Mortgage Association (1) 1,745,250 - 1,745,250
B-43 SunAmerica Income Funds U.S. Government Securities Fund North American Funds U.S. Government Securities Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ---------------------------------------------------------- North American SunAmerica U.S. Government U.S. Government Pro Forma Securities Securities Combined Description Coupon ---------------------- ------------- --------------- ---------------------------------------------------------------- 521,814 - 521,814 Federal National Mortgage Association (1) 6.78 5,500,000 - 5,500,000 Federal National Mortgage Association 7.13 74,698 - 74,698 Federal National Mortgage Association 7.50 756,842 - 756,842 Federal National Mortgage Association 7.50 304,895 - 304,895 Federal National Mortgage Association 7.50 - 2,068,209 2,068,209 Federal National Mortgage Association 7.50 7,099 - 7,099 Federal National Mortgage Association 8.00 - 1,905,790 1,905,790 Federal National Mortgage Association 8.00 - 1,379,845 1,379,845 Federal National Mortgage Association 8.00 11,705 - 11,705 Federal National Mortgage Association 8.50 261 - 261 Federal National Mortgage Association 11.00 124,681 - 124,681 Federal National Mortgage Association 11.50 Total Federal National Mortgage Association (cost $13,776,181; $27,966,724; $41,742,905) FEDERAL HOME LOAN BANK 1,500,000 - 1,500,000 Federal Home Loan Bank 5.80 275,000 - 275,000 Federal Home Loan Bank 6.70 Total Federal Home Loan Banks (cost $1,849,282; $0; $1,849,282) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 10,000,000 10,000,000 Government National Mortgage Association (1) 6.00 - 20,000,000 20,000,000 Government National Mortgage Association 6.00 - 2,488,126 2,488,126 Government National Mortgage Association 7.00 - 580,969 580,969 Government National Mortgage Association 7.00 - 791,234 791,234 Government National Mortgage Association 7.00 - 3,987,230 3,987,230 Government National Mortgage Association 7.00 - 372,806 372,806 Government National Mortgage Association 7.00 - 71,494 71,494 Government National Mortgage Association 7.00 37,255 - 37,255 Government National Mortgage Association 7.50 - 140,772 140,772 Government National Mortgage Association 7.50 - 2,047,282 2,047,282 Government National Mortgage Association 7.50 - 6,207,733 6,207,733 Government National Mortgage Association 7.50 - 31,915 313,915 Government National Mortgage Association 7.50 28,834 - 28,834 Government National Mortgage Association 7.75 8,644 - 8,644 Government National Mortgage Association 8.00 11,187 - 11,187 Government National Mortgage Association 8.00 516,530 - 516,530 Government National Mortgage Association 9.00 2,438 - 2,438 Government National Mortgage Association 11.00 2,611 - 2,611 Government National Mortgage Association 11.00 2,406 - 2,406 Government National Mortgage Association 11.00 3,687 - 3,687 Government National Mortgage Association 11.25
North American SunAmerica U.S. Government U.S. Government Pro Forma Description Maturity Date Securities Securities Combined --------------------------------------------------------------------- ------------------- ------------------- ------------ Federal National Mortgage Association (1) 01/17/03 Federal National Mortgage Association 02/15/05 Federal National Mortgage Association 07/01/15 Federal National Mortgage Association 08/01/15 Federal National Mortgage Association 10/01/15 Federal National Mortgage Association 07/01/26 Federal National Mortgage Association 08/01/04 Federal National Mortgage Association 12/01/22 Federal National Mortgage Association 01/01/23 Federal National Mortgage Association 08/01/02 Federal National Mortgage Association 02/01/15 Federal National Mortgage Association 09/01/19 Total Federal National Mortgage Association (cost $13,776,181; $27,966,724; $41,742,905) FEDERAL HOME LOAN BANK 3.5% 0.0% 0.7% Federal Home Loan Bank 09/02/08 Federal Home Loan Bank 05/07/03 Total Federal Home Loan Banks (cost $1,849,282; $0; $1,849,282) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 2.9% 22.8% 18.9% Government National Mortgage Association (1) TBA Government National Mortgage Association TBA Government National Mortgage Association 11/20/30 Government National Mortgage Association 07/15/23 Government National Mortgage Association 10/15/23 Government National Mortgage Association 09/15/25 Government National Mortgage Association 03/20/29 Government National Mortgage Association 06/20/29 Government National Mortgage Association 04/15/02 Government National Mortgage Association 04/15/17 Government National Mortgage Association 08/15/23 Government National Mortgage Association 09/15/23 Government National Mortgage Association 10/15/23 Government National Mortgage Association 04/15/04 Government National Mortgage Association 11/15/06 Government National Mortgage Association 02/15/08 Government National Mortgage Association 12/15/16 Government National Mortgage Association 11/20/14 Government National Mortgage Association 08/20/15 Government National Mortgage Association 09/20/15 Government National Mortgage Association 10/20/15
Market Value -------------------------------------------------------- North American SunAmerica U.S. Government U.S. Government Pro Forma Description Securities Securities Combined --------------------------------------------------------------------- ------------------ ------------------ Federal National Mortgage Association (1) 524,425 - 524,425 Federal National Mortgage Association 5,890,170 - 5,890,170 Federal National Mortgage Association 76,892 - 76,892 Federal National Mortgage Association 779,070 - 779,070 Federal National Mortgage Association 313,850 - 313,850 Federal National Mortgage Association - 2,116,688 2,116,688 Federal National Mortgage Association 7,194 - 7,194 Federal National Mortgage Association - 1,965,346 1,965,346 Federal National Mortgage Association - 1,422,965 1,422,965 Federal National Mortgage Association 11,817 - 11,817 Federal National Mortgage Association 296 - 296 Federal National Mortgage Association 142,604 - 142,604 ----------------- ------------------ ------------------ Total Federal National Mortgage Association 14,048,504 27,727,693 41,776,197 ----------------- ------------------ ------------------ (cost $13,776,181; $27,966,724; $41,742,905) FEDERAL HOME LOAN BANK Federal Home Loan Bank 1,516,410 - 1,516,410 Federal Home Loan Bank 275,558 - 275,558 ----------------- ------------------ ------------------ Total Federal Home Loan Banks 1,791,968 - 1,791,968 ----------------- ------------------ ------------------ (cost $1,849,282; $0; $1,849,282) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION Government National Mortgage Association (1) - 9,800,000 9,800,000 Government National Mortgage Association - 19,650,000 19,650,000 Government National Mortgage Association - 2,516,117 2,516,117 Government National Mortgage Association - 590,044 590,044 Government National Mortgage Association - 803,593 803,593 Government National Mortgage Association - 4,049,511 4,049,511 Government National Mortgage Association - 377,000 377,000 Government National Mortgage Association - 72,298 72,298 Government National Mortgage Association 37,667 - 37,667 Government National Mortgage Association - 144,291 144,291 Government National Mortgage Association - 2,098,464 2,098,464 Government National Mortgage Association - 6,362,926 6,362,926 Government National Mortgage Association - 321,763 321,763 Government National Mortgage Association 29,682 - 29,682 Government National Mortgage Association 9,029 - 9,029 Government National Mortgage Association 11,715 - 11,715 Government National Mortgage Association 546,907 - 546,907 Government National Mortgage Association 2,669 - 2,669 Government National Mortgage Association 2,882 - 2,882 Government National Mortgage Association 2,649 - 2,649 Government National Mortgage Association 4,040 - 4,040
B-44 SunAmerica Income Funds U.S. Government Securities Fund North American Funds U.S. Government Securities Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ---------------------------------------------------------- North American SunAmerica U.S. Government U.S. Government Pro Forma Securities Securities Combined Description ---------------------- ------------- --------------- --------------------------------------------------------- 31,971 - 31,971 Government National Mortgage Association 39,739 - 39,739 Government National Mortgage Association 102,688 - 102,688 Government National Mortgage Association 43,487 - 43,487 Government National Mortgage Association 14,613 - 14,613 Government National Mortgage Association 22,865 - 22,865 Government National Mortgage Association 16,304 - 16,304 Government National Mortgage Association 15,549 - 15,549 Government National Mortgage Association 32,488 - 32,488 Government National Mortgage Association 13,183 - 13,183 Government National Mortgage Association 1,315 - 1,315 Government National Mortgage Association 11,613 - 11,613 Government National Mortgage Association 11,842 - 11,842 Government National Mortgage Association 2,102 - 2,102 Government National Mortgage Association 6,766 - 6,766 Government National Mortgage Association 7,454 - 7,454 Government National Mortgage Association 12,140 - 12,140 Government National Mortgage Association 2,218 - 2,218 Government National Mortgage Association 20,390 - 20,390 Government National Mortgage Association 23,175 - 23,175 Government National Mortgage Association 6,468 - 6,468 Government National Mortgage Association 11,700 - 11,700 Government National Mortgage Association 37,929 - 37,929 Government National Mortgage Association 16,516 - 16,516 Government National Mortgage Association 16,098 - 16,098 Government National Mortgage Association 2,885 - 2,885 Government National Mortgage Association 869 - 869 Government National Mortgage Association 10,799 - 10,799 Government National Mortgage Association 1,469 - 1,469 Government National Mortgage Association 2,754 - 2,754 Government National Mortgage Association 1,208 - 1,208 Government National Mortgage Association 17,402 - 17,402 Government National Mortgage Association 2,207 - 2,207 Government National Mortgage Association 6,997 - 6,997 Government National Mortgage Association 107,129 - 107,129 Government National Mortgage Association 8,960 - 8,960 Government National Mortgage Association Total Government National Mortgage Association (cost $1,431,502; $46,546,088; $47,977,590) U.S GOVERNMENT AGENCIES 500,000 - 500,000 Federal Farm Credit Bank 200,000 - 200,000 Federal Farm Credit Bank 500,000 - 500,000 Federal Farm Credit Bank
North American SunAmerica U.S. Government U.S. Government Description Coupon Maturity Date Securities Securities -------------------------------------------------------------------------------------------- ------------------- ----------------- Government National Mortgage Association 11.50 03/15/13 Government National Mortgage Association 11.50 06/15/13 Government National Mortgage Association 11.50 08/15/13 Government National Mortgage Association 11.50 07/20/14 Government National Mortgage Association 11.50 05/20/15 Government National Mortgage Association 11.50 07/20/15 Government National Mortgage Association 11.50 09/20/15 Government National Mortgage Association 12.50 09/15/14 Government National Mortgage Association 13.00 01/15/11 Government National Mortgage Association 13.00 02/15/11 Government National Mortgage Association 13.00 03/15/11 Government National Mortgage Association 13.00 04/15/11 Government National Mortgage Association 13.00 02/15/12 Government National Mortgage Association 13.00 01/15/13 Government National Mortgage Association 13.00 09/15/13 Government National Mortgage Association 13.00 10/15/13 Government National Mortgage Association 13.00 11/15/13 Government National Mortgage Association 13.00 01/15/14 Government National Mortgage Association 13.00 10/20/14 Government National Mortgage Association 13.00 01/15/15 Government National Mortgage Association 13.00 02/20/15 Government National Mortgage Association 13.00 06/15/15 Government National Mortgage Association 13.25 07/15/14 Government National Mortgage Association 13.50 01/15/12 Government National Mortgage Association 13.50 02/15/13 Government National Mortgage Association 15.00 07/15/11 Government National Mortgage Association 15.00 08/15/11 Government National Mortgage Association 15.00 11/15/11 Government National Mortgage Association 15.00 01/15/12 Government National Mortgage Association 15.00 02/15/12 Government National Mortgage Association 15.00 05/15/12 Government National Mortgage Association 15.00 06/15/12 Government National Mortgage Association 15.00 09/15/12 Government National Mortgage Association 15.50 08/15/11 Government National Mortgage Association 15.50 09/15/11 Government National Mortgage Association 16.00 01/15/11 Total Government National Mortgage Association (cost $1,431,502; $46,546,088; $47,977,590) U.S GOVERNMENT AGENCIES 10.4% 22.2% Federal Farm Credit Bank 6.30 12/03/13 Federal Farm Credit Bank 6.00 03/07/11 Federal Farm Credit Bank 5.64 04/04/11
Market Value --------------------------------------------------------- North American SunAmerica Pro Forma U.S. Government U.S. Government Pro Forma Description Combined Securities Securities Combined ------------------------------------------------------------------- ------------------ ------------------ ------------------ Government National Mortgage Association 35,815 - 35,815 Government National Mortgage Association 44,305 - 44,305 Government National Mortgage Association 115,034 - 115,034 Government National Mortgage Association 48,338 - 48,338 Government National Mortgage Association 16,304 - 16,304 Government National Mortgage Association 25,576 - 25,576 Government National Mortgage Association 18,237 - 18,237 Government National Mortgage Association 17,796 - 17,796 Government National Mortgage Association 37,824 - 37,824 Government National Mortgage Association 15,348 - 15,348 Government National Mortgage Association 1,531 - 1,531 Government National Mortgage Association 13,521 - 13,521 Government National Mortgage Association 13,796 - 13,796 Government National Mortgage Association 2,419 - 2,419 Government National Mortgage Association 7,887 - 7,887 Government National Mortgage Association 8,689 - 8,689 Government National Mortgage Association 14,152 - 14,152 Government National Mortgage Association 2,587 - 2,587 Government National Mortgage Association 23,306 - 23,306 Government National Mortgage Association 26,920 - 26,920 Government National Mortgage Association 7,492 - 7,492 Government National Mortgage Association 13,652 - 13,652 Government National Mortgage Association 43,488 - 43,488 Government National Mortgage Association 18,978 - 18,978 Government National Mortgage Association 18,915 - 18,915 Government National Mortgage Association 3,446 - 3,446 Government National Mortgage Association 1,030 - 1,030 Government National Mortgage Association 12,897 - 12,897 Government National Mortgage Association 1,754 - 1,754 Government National Mortgage Association 3,289 - 3,289 Government National Mortgage Association 1,452 - 1,452 Government National Mortgage Association 20,782 - 20,782 Government National Mortgage Association 2,653 - 2,653 Government National Mortgage Association 8,328 - 8,328 Government National Mortgage Association 127,516 - 127,516 Government National Mortgage Association 10,791 - 10,791 ------------------ ------------------ ------------------ Total Government National Mortgage Association 1,433,088 46,786,007 48,219,095 ------------------ ------------------ ------------------ (cost $1,431,502; $46,546,088; $47,977,590) U.S GOVERNMENT AGENCIES 19.8% Federal Farm Credit Bank 513,334 - 513,334 Federal Farm Credit Bank 202,062 - 202,062 Federal Farm Credit Bank 490,625 - 490,625
B-45 SunAmerica Income Funds U.S. Government Securities Fund North American Funds U.S. Government Securities Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited)
Principal/Shares ---------------------------------------------------------- North American SunAmerica U.S. Government U.S. Government Pro Forma Securities Securities Combined Description ---------------------- ------------- --------------- ------------------------------------------------------------------ 350,000 - 350,000 International Bank for Reconstruction & Development - 10,000,000 10,000,000 Private Export Funding Corp. - 5,222,343 5,222,343 Small Business Administration 500,000 30,000,000 30,500,000 Student Loan Marketing Association 3,250,000 - 3,250,000 Tennessee Valley Authority Total U.S. Government Agencies (cost $5,290,133; $45,067,243; $50,357,376) U.S. TREASURY BONDS 600,000 - 600,000 United States Treasury Bonds - 22,000,000 22,000,000 United States Treasury Bonds Total U.S Treasury Bonds (cost $648,361; $21,832,812; $22,481,176) U.S. TREASURY NOTES - 9,000,000 9,000,000 United States Treasury Notes - 19,000,000 19,000,000 United States Treasury Notes Total U.S. Treasury Notes (cost $0; $28,600,391; $28,600,301) Total Investment Securities (cost $49,283,651; $204,215,882; $253,499,533) SHORT-TERM SECURITIES - 5,000,000 5,000,000 Federal National Mortgage Association Discount Notes (3) - 20,000,000 20,000,000 International Bank for Reconstruction & Development Discount Notes Total Short-Term Securities (cost $0; $24,831,303; $24,831,303) REPURCHASE AGREEMENTS 4,123,000 - 4,123,000 State Street Bank & Trust Co. Repurchase Agreemment - 7,983,000 7,983,000 State Street Bank & Trust Co. Repurchase Agreemment (3) - 20,000,000 20,000,000 UBS Warburg LLC Repurchase Agreement (4) Total Repurchase Agreements (cost $4,123,000; $27,983,000; $32,106,000) TOTAL INVESTMENTS (cost $53,406,651; $257,030,185; $310,436,836) Liabilities in excess of other assets (5)(6) NET ASSETS
North American SunAmerica U.S. Government U.S. Government Description Coupon Maturity Date Securities Securities -------------------------------------------------------------------------------------------- ------------------- ---------------- International Bank for Reconstruction & Development 5.00 03/28/06 Private Export Funding Corp. 5.87 07/31/08 Small Business Administration 6.30 06/01/18 Student Loan Marketing Association 5.25 03/15/06 Tennessee Valley Authority 5.63 01/18/11 Total U.S. Government Agencies (cost $5,290,133; $45,067,243; $50,357,376) U.S. TREASURY BONDS 1.3% 10.6% United States Treasury Bonds 6.13 08/15/29 United States Treasury Bonds 5.38 02/15/31 Total U.S Treasury Bonds (cost $648,361; $21,832,812; $22,481,176) U.S. TREASURY NOTES 0.0% 13.9% United States Treasury Notes 5.75 11/15/05 United States Treasury Notes 5.00 02/15/11 Total U.S. Treasury Notes (cost $0; $28,600,391; $28,600,301) Total Investment Securities 98.6% 99.7% (cost $49,283,651; $204,215,882; $253,499,533) SHORT-TERM SECURITIES 0.0% 12.1% Federal National Mortgage Association Discount Notes (3) 4.38 09/13/01 International Bank for Reconstruction & Development Discount Notes 4.73 04/27/01 Total Short-Term Securities (cost $0; $24,831,303; $24,831,303) REPURCHASE AGREEMENTS 8.1% 13.7% State Street Bank & Trust Co. Repurchase Agreemment 5.25 04/02/01 State Street Bank & Trust Co. Repurchase Agreemment (3) 5.15 04/02/01 UBS Warburg LLC Repurchase Agreement (4) 5.28 04/02/01 Total Repurchase Agreements (cost $4,123,000; $27,983,000; $32,106,000) TOTAL INVESTMENTS 106.7% 125.5% (cost $53,406,651; $257,030,185; $310,436,836) Liabilities in excess of other assets (5)(6) (6.7)% (25.5) ------------------- ---------------- NET ASSETS 100.0% 100.0% =================== ================
Market Value --------------------------------------------------------- North American SunAmerica Forma U.S. Government U.S. Government Pro Forma Description Combined Securities Securities Combined -------------------------------------------------------------------------- ------------------ ------------------ ----------------- International Bank for Reconstruction & Development 346,580 - 346,580 Private Export Funding Corp. - 10,150,000 10,150,000 Small Business Administration - 5,212,122 5,212,122 Student Loan Marketing Association 499,845 29,990,700 30,490,545 Tennessee Valley Authority 3,221,790 - 3,221,790 ------------------ ------------------ ----------------- Total U.S. Government Agencies 5,274,236 45,352,822 50,627,058 ------------------ ------------------ ----------------- (cost $5,290,133; $45,067,243; $50,357,376) U.S. TREASURY BONDS 8.7% United States Treasury Bonds 644,345 - 644,345 United States Treasury Bonds - 21,718,180 21,718,180 ------------------ ------------------ ----------------- Total U.S Treasury Bonds 644,345 21,718,180 22,362,525 ------------------ ------------------ ----------------- (cost $648,361; $21,832,812; $22,481,176) U.S. TREASURY NOTES 11.2% United States Treasury Notes - 9,442,890 9,442,890 United States Treasury Notes - 19,098,040 19,098,040 ------------------ ------------------ ----------------- Total U.S. Treasury Notes - 28,540,930 28,540,930 ------------------ ------------------ ----------------- (cost $0; $28,600,391; $28,600,301) Total Investment Securities 99.5% 49,972,659 204,371,607 254,344,266 ------------------ ------------------ ----------------- (cost $49,283,651; $204,215,882; $253,499,533) SHORT-TERM SECURITIES 9.7% Federal National Mortgage Association Discount Notes (3) - 4,899,625 4,899,625 International Bank for Reconstruction & Development Discount Notes - 19,931,678 19,931,678 ------------------ ------------------ ----------------- Total Short-Term Securities - 24,831,303 24,831,303 ------------------ ------------------ ----------------- (cost $0; $24,831,303; $24,831,303) REPURCHASE AGREEMENTS 12.6% State Street Bank & Trust Co. Repurchase Agreemment 4,123,000 - 4,123,000 State Street Bank & Trust Co. Repurchase Agreemment (3) - 7,983,000 7,983,000 UBS Warburg LLC Repurchase Agreement (4) - 20,000,000 20,000,000 ------------------ ------------------ ----------------- Total Repurchase Agreements 4,123,000 27,983,000 32,106,000 ------------------ ------------------ ----------------- (cost $4,123,000; $27,983,000; $32,106,000) TOTAL INVESTMENTS 121.8% 54,095,659 257,185,910 311,281,569 (cost $53,406,651; $257,030,185; $310,436,836) Liabilities in excess of other assets (5)(6) (21.8)% (3,419,751) (52,273,895) (55,736,171 --------- ------------------ ------------------ ----------------- NET ASSETS 100.0% $50,675,908 $204,912,015 $255,545,398 ========= ================== ================== =================
B-46 SunAmerica Income Funds U.S. Government Securities Fund North American Funds U.S. Government Securities Fund Pro Forma Combined Portfolio of Investments As of March 31, 2001 (unaudited) 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 portion thereof is out on loan (3) The security or portion thereof represents collateral for the open TBA mortgage-backed dollar rolls (4) Includes cash received as collateral for securities out on loan in the amount of $11,302,500 (5) Includes a liability for fully collateralized securities on loan (6) To adjust ($42,525,) for prepaid expenses on the North American Funds U.S. Government Securities Fund to be expensed prior to the reorganization Management does not anticipate having to sell any securities as a result of the reorganization, however, securities may be sold due to differing portfolio management style. See Notes to Pro Forma Financial Statements B-47 SUNAMERICA INCOME FUNDS U.S. GOVERNMENT SECURITIES FUND NORTH AMERICAN FUNDS U.S. GOVERNMENT SECURITIES FUND NOTES TO PRO FORMA FINANCIAL STATEMENTS MARCH 31, 2001 (unaudited) 1. BASIS OF COMBINATION The Pro Forma Combined Statement of Assets and Liabilities, including the Portfolio of Investments at March 31, 2001, and related Statement of Operations ("Pro Forma Statements") for the twelve months ended March 31, 2001, reflect the accounts of the U.S. Government Securities Fund ("SunAmerica U.S. Government Securities") a separately managed portfolio of SunAmerica Income Funds, and U.S. Government Securities Fund ("U.S. Government Securities") a separately managed portfolio of North American Funds. The Pro Forma Combined Statement of Assets and Liabilities has been restated to reflect a tax free exchange of U.S. Government Securities Class A, Class B and Class C shares as of the close of business on March 31, 2001. American International Group, Inc. will pay the cost of the reorganization. The Pro Forma Statements give effect to the proposed transfer of all assets and liabilities of U.S. Government Securities in exchange for shares of SunAmerica U.S. Government Securities. In conjunction with the reorganization, SunAmerica U.S. Government Securities is the surviving fund. The Pro Forma Statements should be read in conjunction with the historical financial statements of SunAmerica U.S. Government Securities and U.S. Government Securities included in their respective Statements of Additional Information. 2. VALUATION 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 markers. 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 sale price available before the time when the assets are valued. If a security's price is available from more than one foreign exchange, a Portfolio uses the exchange that is the primary market for the security. Values of portfolio securities primarily traded on foreign exchanges are already translated into U.S. dollars when received from a quotation service. Options traded on national exchanges are valued as of the close of the exchange on which they are traded. Futures and options traded on commodities B-48 exchanges are valued at their last sale price as of the close of such exchange. The Portfolios may make use of a pricing service in the determination of their net asset values. 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 Directors. Short-term securities 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. 3. CAPITAL SHARES The pro forma combined net asset value per share assumes the issuance of additional shares of SunAmerica U.S. Government Securities which would have been issued at March 31, 2001 in connection with the proposed reorganization. The amount of additional shares assumed to be issued was calculated based on the March 31, 2001 net asset value of SunAmerica U.S. Government Securities Class A ($8.91), Class B ($8.91), and Class II ($8.91). Class I shares will be offered on SunAmerica U.S. Government Securities and will assume the net asset value of Class A. The Class C shares of U.S. Government Securities will receive Class II shares of SunAmerica U.S. Government Securities. The pro forma number of shares outstanding are determined as follows:
Class A Class B Class II Class I ----------------------------------- ---------------- ----------------- --------------- ------------- Shares of SunAmerica U.S. Government Securities 19,032,935 3,602,311 370,663 0 ----------------------------------- ---------------- ----------------- --------------- ------------- Additional Shares to be issued to U.S. Government Securities 3,784,346 1,063,739 834,673 0 ----------------------------------- ---------------- ----------------- --------------- ------------- Pro Forma Shares outstanding 22,817,281 4,666,050 1,205,336 0 ----------------------------------- ---------------- ----------------- --------------- -------------
These pro forma financial statements assume that all shares of U.S. Government Securities Class A, Class B, and Class C outstanding on March 31, 2001 were exchanged, tax free, for SunAmerica U.S. Government Securities Class A, Class B, and Class II shares, respectively. 4. PRO FORMA OPERATING EXPENSES The Pro Forma Statement of Operations assumes expense adjustments based on the agreements of SunAmerica U.S. Government Securities, the surviving entity. Certain accounts have been adjusted to reflect the expenses of the combined entity more closely. Pro forma operating expenses include the expenses of SunAmerica U.S. Government B-49 Securities and U.S. Government Securities combined, adjusted for certain items which are factually supportable. Advisory fees have been charged to the combined entity based upon the contract in effect for SunAmerica U.S. Government Securities at the level of assets of the combined fund for the stated period. B-50 PART C OTHER INFORMATION ITEM 15. INDEMNIFICATION Reference is made to Section 5.1 of the Registrant's By-Laws which is set forth below. 5.1 Indemnification of Trustees, Officers, Employees And Agents The Registrant shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Registrant or any of its shareholders) by reason of the fact that he is or was a Trustee, officer, employee or agent of the Registrant. The indemnification shall be against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with the action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Registrant, and, with respect to any criminal action or proceedings, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendre or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Registrant, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. The Registrant shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or on behalf of the Registrant or any of its shareholders to obtain a judgment or decree in its favor by reason of the fact that he is or was a Trustee, officer, employee or agent of the Registrant. The indemnification shall be against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the defense or settlement of the action or suit, if acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Registrant; except that such indemnification shall preclude payment upon any liability, whether or not there is an adjudication of liability, arising by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of duties as described in Section 17(h) and (i) of the Investment Company Act of 1940 (the "Investment Company Act"). To the extent that a Trustee, officer, employee or agent of the Registrant has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) or (b) or in defense of any claim, issue or matter therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection therewith. (1) Unless a court orders otherwise, any indemnification under subsections (a) or (b) above may be made by the Registrant only as authorized in the specific case after a determination that indemnification of the Trustee, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) or (b). (2) The determination shall be made: (i) by the Trustees, by a majority vote of a quorum which consists of Trustees who were not parties to the action, suit or proceeding; or (ii) if the required quorum is not obtainable, or if a quorum of disinterested Trustees so directs, by independent legal counsel in a written opinion; or (iii) by the Shareholders. C-1 (3) Notwithstanding the provisions of Section 5.1 of the Registrant's By- Laws, no person shall be entitled to indemnification for any liability, whether or not there is an adjudication of liability, arising by reason of willful malfeasance, bad faith, gross negligence or reckless disregard of duties as described in Section 17(h) and (i) of the Investment Company Act ("Disabling Conduct"). A person shall be deemed not liable by reason of Disabling Conduct if, either: (i) a final decision on the merits is made by a court or other body before whom the proceeding was brought that the person to be indemnified ("Indemnitee") was not liable by reason of Disabling Conduct; or (ii) in the absence of such a decision, a reasonable determination, based upon a review of the facts, that the Indemnitee was not liable by reason of Disabling Conduct, is made by either: (A) a majority of a quorum of Trustees who are neither "interested persons" of the Registrant, as defined in section 2(a)(19) of the Investment Company Act, nor parties to the action, suit or proceeding; (B) an independent legal counsel in a written opinion. Expenses, including attorneys' fees, incurred by a Trustee, officer, employee or agent of the Registrant in defending a civil or criminal action, suit or proceeding may be paid by the Registrant in advance of the final disposition thereof if: (1) authorized in the specific case by the Trustees; and (2) the Registrant receives an undertaking by or on behalf of the Trustee, officer, employee or agent of the Registrant to repay the advance if it is not ultimately determined that such person is entitled to be indemnified by the Registrant; and (3) either, (i) such person provides a security for his undertaking; or (ii) the Registrant is insured against losses by reason of any lawful advances; or (iii) a determination, based on a review or readily available facts, that there is reason to believe that such person ultimately will be found entitled to indemnification, is made by either (A) a majority of a quorum which consists of Trustees who are neither "interested persons" of the Registrant, as defined in section 2(a)(19) of the Investment Company Act, nor parties to the action, suit or proceeding; or (B) an independent legal counsel in a written opinion. The indemnification provided by Section 5.1 of the Registrant's By-Laws shall not be deemed exclusive of any other rights to which a person may be entitled under any by-law, agreement, vote of Shareholders or disinterested Trustees or otherwise, both as to action in his official capacity and as to action in another application while holding office, and shall continue as to a person who has ceased to be a Trustee, officer, employee or agent and inure to the benefit of the heirs, executors and administrators of such person; provided that no person may satisfy any right of indemnity or reimbursement granted herein or to which he may be otherwise entitled except out of the property of the Registrant, and no Shareholder, as such, shall be personally liable with respect to any claim for indemnity or reimbursement or otherwise. The Registrant may purchase and maintain insurance on behalf of any person who is or was a Trustee, officer, employee or agent of the Registrant, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such. However, in no event will the Registrant pay that portion of insurance premiums, if any, attributable to coverage which would indemnify any officer or Trustee against liability for Disabling Conduct. C-2 Nothing contained in Section 5.1 of the Registrant's By-laws shall be construed to protect any Trustee or officer of the Registrant against any liability to the Registrant or to its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Reference is made to Section 5.3 of the Registrant's Declaration of Trust which provides that Trustees shall provide for indemnification by the Registrant of any person who is, or has been a Trustee, officer, employee or agent of the Registrant against all liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Trustee, officer, employee or agent and against amounts paid or incurred by him in the settlement thereof, in such manner as the Trustees may provide from time to time in the By-Laws of the Registrant. The words "claim," "action," "suit" or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal or other, including appeals), actual or threatened; and the words "liability" and "expenses" shall include, without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities. Reference is made to Section 5 of the Distribution Agreement (the "Distribution Agreement") between SunAmerica Capital Services, Inc. (the "Distributor") and the Registrant which is set forth below: (a) The Registrant will indemnify and hold harmless the Distributor and each person, if any, who controls the Distributor within the meaning of the Investment Company Act against any losses, claims, damages or liabilities to which the Distributor or such controlling person may become subject, under the Investment Company Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registrant's Registration Statement, Prospectus or Statement Additional Information or any other written sales material prepared by the Registrant or the separate investment portfolios of the Registrant (the "Funds") which is utilized by the Distributor in connection with the sale of shares of beneficial interest of a Fund (the "Shares") or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or (in the case of the Registrant's Registration Statement, Prospectus and Statement of Additional Information) necessary to make the statement therein not misleading or (in the case of such other sales material) necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and will reimburse the Distributor and each such controlling person for any legal or other expenses reasonably incurred by the Distributor or such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Registrant or the Funds will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Statement, Prospectus or Statement of Additional Information in conformity with written information furnished to the Registrant by the Distributor specifically for use therein; and provided, further, that nothing in the Distribution Agreement shall be so construed as to protect the Distributor against any liability to the Registrant or the Funds, or the security holders of the Funds to which the Distributor would otherwise be subject by reason of Disabling Conduct. This indemnity provision will be in addition to any liability which the Registrant may otherwise have. (b) The Distributor will indemnify and hold harmless the Registrant, each of its Trustees and officers and each person, if any, who controls the Registrant within the meaning of the Investment Company Act, against any losses, claims, damages or liabilities to which the Registrant or any such Trustee, officer or controlling person may become subject under the Investment Company Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registrant's Registration Statement, Prospectus or Statement of Additional Information or any sales material not prepared by the C-3 Registrant or the Funds which is utilized in connection with the sale of the Shares or arise out of or are based upon the omissions or the alleged omission to state therein a material fact required to be stated therein or (in the case of the Registrant's Registration Statement, Prospectus and Statement of Additional Information) necessary to make the statement therein not misleading or (in the case of such other sales material) necessary to make the statement therein not misleading in the light of the circumstances under which they were made, in the case of the Registrant's Registration Statement, Prospectus and Statement of Additional Information to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in conformity with written information furnished to the Registrant by the Distributor specifically for use therein; and the Distributor will reimburse any legal or other expenses reasonably incurred by the Registrant or any such Trustee, officer or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action. This indemnity provision will be in addition to any liability which the Distributor may otherwise have. Reference is made to Section 7 of the Investment Advisory and Management Agreement (the "Advisory Agreement") between the Registrant and SunAmerica Asset Management Corp. ("SAAMCo") which is set forth below. 7. Liability of Adviser. In the absence of Disabling Conduct on the part of SAAMCo (and its officers, directors, agents, employees, controlling persons, shareholders and any other person or entity affiliated with SAAMCo) SAAMCo shall not be subject to liability to the Registrant or to any shareholder of the Registrant for any act or omission in the course of, or connected with, rendering services under the Advisory Agreement, including without limitation, any error of judgment or mistake of law or for any loss suffered by any of them in connection with the matters to which the Advisory Agreement relates, except to the extent specified in Section 36(b) of the Investment Company Act concerning loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services. Except for such Disabling Conduct, the Registrant shall indemnify SAAMCo (and its officers, directors, partners, agents, employees, controlling persons, shareholders and any other person or entity affiliated with SAAMCo) (collectively, the "Indemnified Parties") from any liability arising from SAAMCo's conduct under the Advisory Agreement. Indemnification to SAAMCo or any of its personnel or affiliates shall be made when (i) a final decision on the merits rendered, by a court or other body before whom the proceeding was brought, that the person to be indemnified was not liable by reason of Disabling Conduct or, (ii) in the absence of such a decision, a reasonable determination, based upon a review of the facts, that the person to be indemnified was not liable by reason of Disabling Conduct, by (a) the vote of a majority of a quorum of the Trustees who are neither "interested persons" of the Registrant as defined in section 2(a)(19) of the Investment Company Act nor parties to the proceeding ("disinterested, non-party Trustees") or (b) an independent legal counsel in a written opinion. The Registrant may, by vote of a majority of the disinterested, non-party Trustees advance attorneys' fees or other expenses incurred by an Indemnified Party in defending a proceeding upon the undertaking by or on behalf of the Indemnified Party to repay the advance unless it is ultimately determined that he is entitled to indemnification. Such advance shall be subject to at least one of the following: (1) the person to be indemnified shall provide a security for his undertaking, (2) the Registrant shall be insured against losses arising by reason of any lawful advances, or (3) a majority of a quorum of the disinterested, non-party Trustees or an independent legal counsel in a written opinion, shall determine, based on a review of readily available facts, that there is reason to believe that the person to be indemnified ultimately will be found entitled to indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act") may be permitted to Trustees, officers and controlling persons of the Registrant and the principal underwriter pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or C-4 paid by a Trustee, officer, or controlling person of the Registrant and the principal underwriter in connection with the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person or the principal underwriter in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. C-5 ITEM 16. EXHIBITS
Exhibit No. ----------- 1. (a) Declaration of Trust of the Registrant, as amended. (1) (b) Amendment to Declaration of Trust of Registrant.* 2. By-laws of the Registrant. (1) 3. Not applicable. 4. Form of Agreement and Plan of Reorganization (filed herewith as Exhibit II to the Proxy Statement and Prospectus contained in this Registration Statement). 5. Instruments defining rights of shareholders (incorporated by reference to Exhibits 1 and 2 above). 6. Amended and Restated Investment Advisory and Management Agreement between the Registrant and SunAmerica Asset Management Corp. (2) 7. (a) Distribution Agreement between the Registrant and SunAmerica Capital Services, Inc. (2) (b) Form of Dealer Agreement. (3) 8. Directors'/Trustees' Retirement Plan. (3) 9. Custody Agreement between the Registrant and State Street Bank and Trust Company. (3) 10. (a) Form of Distribution Plan pursuant to Rule 12b-1 (Class A shares). (2) (b) Form of Distribution Plan pursuant to Rule 12b-1 (Class B shares). (2) (c) Form of Distribution Plan pursuant to Rule 12b-1 (Class II shares). (2) (d) Plan pursuant to Rule 18f-3. (3) 11. Opinion and consent of Robert M. Zakem, Esq.* 12. (a) Opinion and consent of Shearman & Sterling, counsel to the Registrant, regarding certain tax matters relating to the Reorganization between the Core Bond Fund of North American Funds and the SunAmerica Core Bond Fund of SunAmerica Income Funds. (4) (b) Opinion and consent of Shearman & Sterling, counsel to the Registrant, regarding certain tax matters relating to the Reorganization between the High Yield Bond Fund of North American Funds and the SunAmerica High Income Bond Fund of SunAmerica Income Funds. (4) (c) Opinion and consent of Shearman & Sterling, counsel to the Registrant, regarding certain tax matters relating to the Reorganization between the Municipal Bond Fund of North American Funds and the SunAmerica Tax Exempt Insured Fund of SunAmerica Equity Funds. (4) (d) Opinion and consent of Shearman & Sterling, counsel to the Registrant, regarding certain tax matters relating to the Reorganization between the Strategic Income Fund of North American Funds and the SunAmerica Diversified Income Fund of SunAmerica Income Funds. (4) (e) Opinion and consent of Shearman & Sterling, counsel to the Registrant, regarding certain tax matters relating to the Reorganization between the U.S. Government Securities Fund of North American Funds and the SunAmerica U.S. Government Securities Fund of SunAmerica Income Funds. (4) 13. (a) Transfer Agency and Service Agreement between the Registrant and State Street Bank and Trust Company. (3) (b) Service Agreement, as amended, between the Registrant and SunAmerica Fund Services, Inc. (1) 14. (a) Consents of PricewaterhouseCoopers LLP.* (b) Consent of Ernst & Young LLP.* 15. Not applicable. 16. Power of Attorney.* 17. (a) Prospectus, dated July 27, 2001 of SunAmerica Income Funds, as supplemented. (5) (b) Prospectus dated March 1, 2001 of North American Funds (Class A shares, Class B shares and Class C shares). (6)
C-6
Exhibit No. ----------- (c) Prospectus dated March 1, 2001 of North American Funds (Institutional Class I shares). (6) (d) Prospectus dated March 1, 2001 of North American Funds (Institutional Class II shares). (6) (e) Statement of Additional Information, dated July 28, 2001 of SunAmerica Income Funds, as supplemented. (5) (f) Combined Statement of Additional Information dated March 1, 2001 of North American Funds. (6) (g) (h) Combined Semi-Annual Report to Shareholders of North American Funds for the six-month period ended April 30, 2001. (7) (i) Combined Annual Report to Shareholders of SunAmerica Income Funds for the year ended March 1, 2001. (8) (j) Combined Annual Report to Shareholders of North American Funds for the year ended October 31, 2000. (9) (k) President's Letter.* (l) Question and Answer Sheet.* (m) Form of Proxy Cards.* (n) Form of Investment Advisory Agreement between North American Funds and American General Asset Management Corp. (filed herewith as Exhibit I(a) to each Proxy Statement and Prospectus contained in the Registration Statement). (o) Form of Investment Subadvisory Agreement between American General Asset Management Corp. and American General Investment Management, L.P. (filed herewith as Exhibit I(b) to each Proxy Statement and Prospectus contained in this Registration Statement).
-------- * Filed herewith. (1) Previously filed with Post-Effective Amendment No. 20 to the Registrant's Registration Statement on Form N-1A (File No. 33-6502) on July 27, 1995, and incorporated herein by this reference. (2) Previously filed with Post-Effective Amendment No. 6 to the Registrant's Registration Statement on Form N-1A (File No. 33-6502) on June 1, 1999, and incorporated herein by this reference. (3) Previously filed with Post-Effective Amendment No. 19 to the Registrant's Registration Statement on Form N-1A (File No. 33-6502) on July 19, 1996, and incorporated herein by this reference. (4) To be filed by amendment. (5) Previously filed with Post-Effective Amendment No. 28 to the Registrant's Registration Statement on Form N-1A (File No. 33-6502) on July 20, 2001, and incorporated herein by this reference. (6) Previously filed with Post-Effective Amendment No. 35 to North American Funds' Registration Statement on Form N-1A (File No. 33-27958) on March 1, 2001, and incorporated herein by this reference. (7) Previously filed on Form N-30D of North American Funds (File No. 811-05797) on July 3, 2001, and incorporated herein by this reference. (8) Previously filed on Form N-30D of SunAmerica Income Funds (File No. 811- 04708) on May 30, 2001, and incorporated herein by this reference. (9) Previously filed on Form N-30D of North American Funds (File No. 811-05797) on January 17, 2001, and incorporated herein by this reference. ITEM 17. UNDERTAKINGS. (a) The undersigned Registrant agrees to prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (b) The undersigned Registrant agrees that every prospectus that is filed under paragraph (a) above will be filed as part of an amendment to the Registration Statement and will not be used until the amendment is C-7 effective, and that, in determining any liability under the Securities Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. (c) The undersigned Registrant undertakes to file, by post-effective amendment, the opinions of counsel received as to certain tax matters, within a reasonable time after receipt of such opinion. C-8 SIGNATURES As required by the Securities Act of 1933, this Pre-Effective Amendment No. 1 to the Registration Statement has been signed on behalf of the Registrant, in the City of New York, and State of New York, on the 28th day of September, 2001. SunAmerica Income Funds (Registrant) /s/ Peter A. Harbeck By: _________________________________ Peter A. Harbeck, President and Trustee As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Peter A. Harbeck President and Trustee September 28, 2001 ______________________________________ (Principal Executive Peter A. Harbeck Officer) * Treasurer (Principal ______________________________________ Financial and Accounting Peter C. Sutton Officer) * Trustee ______________________________________ S. James Coppersmith * Trustee ______________________________________ Samuel M. Eisenstat * Trustee ______________________________________ Stephen J. Gutman * Trustee ______________________________________ Sebastiano Sterpa /s/ Peter A. Harbeck September 28, 2001 *By: _________________________________ (Peter A. Harbeck, Attorney-in-Fact)
C-9 EXHIBIT INDEX
Exhibit No. ----------- 1(b). Amendment to Declaration of Trust of Registrant 11. Opinion and Consent of Robert M. Zakem, Esq. 14. (a) Consents of PricewaterhouseCoopers LLP (b) Consent of Ernst & Young LLP 16. Power of Attorney 17. (k)President's Letter (l)Question and Answer Sheet (m)Form of Proxy Cards
EX-99.1(B) 3 dex991b.txt AMEND. TO DECLARATION OF TRUST OF REGISTRANT EXHIBIT 1(B) SUNAMERICA INCOME FUNDS Establishment and Designation of Shares --------------------------------------- The undersigned, being the Vice President and Assistant Secretary of SunAmerica Income Funds (hereinafter referred to as the "Trust"), a trust with transferable shares of the type commonly called a Massachusetts business trust, DOES HEREBY CERTIFY that, pursuant to the authority conferred upon the Trustees of the Trust by Section 6.4 of the Declaration of Trust, dated April 24, 1986, as amended from time to time, respectively (hereinafter, as so amended, referred to as the "Declaration of Trust"), and by the affirmative vote of the entire Board of Trustees of the Trust, the following is hereby authorized: (1) That one series of the Trust's unissued shares of beneficial interest, $.01 par value, is hereby established to have all the rights and preferences described in the Declaration of Trust, to be designated as follows: Core Bond Fund (2) That the shares of beneficial interest of the Trust, $.01 par value, of the Core Bond Fund (the "Fund") are hereby further classified as four classes of shares, which are designated Class A, Class B, Class II and Class I shares. (3) That the Class A, Class B, Class II and Class I shares of the Core Bond Fund shall represent identical interests in the Trust and have identical voting (except with respect to those matters affecting a particular class of shares), dividend, liquidation and other rights, as set forth in the Declaration of Trust; provided, however, that notwithstanding anything in the Declaration of -------- ------- Trust to the contrary: (a) the Class A, Class B, Class II and Class I shares may be issued and sold subject to such different sales loads or charges, whether initial, deferred or contingent, or any combination thereof, as the Board of Trustees shall from time to time determine; (b) expenses related solely to a particular class (including, without limitation, distribution expenses under a Rule 12b-1 plan and administrative expenses under an administration or service agreement, plan or other arrangement, however designated) shall be borne by that class and shall be appropriately reflected (in the manner determined by the Board of Trustees) in the net asset value of, or the dividends and distributions on, the shares of that class; (c) except as otherwise provided, on the first business day of the month following the eighth anniversary of the issuance of Class B shares of the Core Bond Fund to a holder thereof, such Class B shares (as well as a pro rata portion of any Class B shares purchased through -1- the reinvestment of dividends and other distributions paid in respect of all Class B shares held by such holder) shall automatically convert to Class A shares of the Fund on the basis of the respective current net asset values per share of the Class B shares and the Class A shares of the Fund on the conversion date; provided, however, that any conversion of Class B shares shall be subject -------- ------- to the continuing availability of an opinion of counsel to the effect that (i) the assessment of higher distribution fees or transfer agency costs with respect to Class B shares does not result in the Trust's dividends or distributions constituting "preferred dividends" under the Internal Revenue Code of 1986, as amended, and (ii) such conversion does not constitute a taxable event under federal income tax law, and the Board of Trustees, in its sole discretion, may suspend the conversion of Class B shares if such opinion is no longer available; (d) the Class A, Class B, Class II and Class I shares of the Core Bond Fund may have such different exchange rights as the Board of Trustees shall provide in compliance with the Investment Company Act of 1940. (4) (a) That unissued shares of beneficial interest of the Trust, $.01 par value, of the GNMA fund, are hereby further classified as and designated Class I shares. (b) That the Class I shares of the GNMA Fund, offered without a front-end, back-end or asset-based sales charge, as set forth in the Declaration of Trust, represent identical interests in the Trust and have identical voting (except with respect to those matters affecting this particular class of shares), dividend, liquidation and other rights as the previously classified and designated Class A, Class B and Class II shares. The actions contained herein shall be effective as of September 27, 2001. By: /s/ Peter E. Pisapia --------------------------------------- Peter E. Pisapia Vice President and Assistant Secretary SunAmerica Income Funds -2- EX-99.11 4 dex9911.txt OPINION & CONSENT OF ROBERT M. ZAKEM, ESQ. EXHIBIT 11 October 1, 2001 [SunAmerica Letterhead] SunAmerica Income Funds The SunAmerica Center 733 Third Avenue New York, New York 10017-3204 Ladies and Gentlemen: I have acted as counsel for SunAmerica Income Funds (the "Fund"), a Massachusetts business trust, in connection with the proposed acquisition by each separate investment portfolio of the Fund designated as an "Acquiring Fund" (each, an "Acquiring Fund" and, collectively, the "Acquiring Funds") in the Agreement and Plan of Reorganization dated September 28, 2001 (the "Agreement") by and between the Fund and North American Funds, a Massachusetts business trust ("NAF"), of all of the assets of the corresponding investment portfolio of NAF designated as an "Acquired Fund" (each, an "Acquired Fund" and, collectively, the "Acquired Funds") in the Agreement, in exchange solely for shares of the respective Acquiring Fund and such Acquiring Fund's assumption of all of the liabilities of the Acquired Fund. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed hereto in the Proxy Statement and Prosepectus (as defined below). This opinion is furnished in connection with the Fund's Registration Statement on Form N-14 under the Securities Act of 1933, as amended (the "Registration Statement"), relating to Class A, Class B, Class II and Class I shares of beneficial interest, in the case of SunAmerica Diversified Income Fund and SunAmerica U.S. Government Securities Fund, Class A, Class B, Class II, Class I and Class Z shares in the case of SunAmerica Core Bond Fund and SunAmerica High Income Fund, and to Class A, Class B and Class II shares, in the case of SunAmerica Tax Exempt Insured Fund, par value $0.01 per share (the "Shares"), to be issued in each Reorganization. As counsel for the Fund, I am familiar with the proceedings taken by it in connection with the proposed authorization, issuance and sale of the Shares. In addition, I have examined and am familiar with the Declaration of Trust and the By-Laws of the Fund, in each case as amended, supplemented, and in effect on the date hereof. I have also examined a certificate issued by the Secretary of the Commonwealth of Massachusetts, certifying the existence of the Fund and that it is duly authorized to exercise the powers recited in its Declaration of Trust and to transact business in the Commonwealth of Massachusetts, and such other documents as I have deemed relevant to the matters referred to in this opinion. Subject to the effectiveness of the Registration Statement and compliance with applicable state securities laws, and based on and subject to the foregoing examination, I am of the opinion that subsequent to the approval of the Agreement as set forth in the proxy statement and prospectus constituting a part of the Registration Statement (the "Proxy Statement and Prospectus"), the Shares, upon issuance in the manner referred to in the Registration Statement, for consideration not less than the par value thereof, will be legally issued, fully paid and non-assessable shares of beneficial interest of the Fund (except for certain possible liability of shareholders described in the Proxy Statement and Prospectus under "Proposals Nos. 2(a)-(e): Approval of the Plans--Comparison of the Funds--Additional Information--Capital Stock"). I am a member of the Bar of the State of Maryland. Insofar as any opinion expressed herein involves the laws of the Commonwealth of Massachusetts, such opinion should be understood to be based on my review of the published statutes of such state, and, where applicable, published cases of the courts and rules or regulations of regulatory bodies of such state. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of my name in the Proxy Statement and Prospectus constituting a part thereof. Very truly yours, /s/ Robert M. Zakem Robert M. Zakem, Esq. EX-99.14(A) 5 dex9914a.txt CONSENTS OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 14(a) Consent of Independent Accountants We hereby consent to the incorporation by reference in the Combined Proxy Statement and Prospectus and Statement of Additional Information constituting parts of this registration statement on Form N-14 (the "N-14 Registration Statement") of our report dated May 16, 2001, relating to the financial statements and financial highlights of SunAmerica Income Funds which appears in the March 31, 2001. Annual Report to Shareholders of SunAmerica Income Funds, which are also incorporated by reference into the N-14 Registration Statement. We also consent to the references to us under the headings "Additional Information - Independent Auditors" and "Experts" in such Registration Statement. We also consent to the references in us under the headings "Financial Highlights" and "Additional Information - Independent Accountants and Legal Counsel" in SunAmerica Income Funds' registration statement on Form N-1A, dated July 18, 2001, which is incorporated by reference into this N-14 Registration Statement. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York September 28, 2001 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Combined Proxy Statement and Prospectus and Statement of Additional Information constituting parts of this registration statement on Form N-14 (the "N-14 Registration Statement") of our report dated December 27, 2000, relating to the financial statements and financial highlights of Growth & Income, Large Cap Growth (formerly Growth Equity), Mid Cap Growth (formerly Small/Mid Cap), Science & Technology, Small Cap Growth (formerly Emerging Growth), Global Equity, International Equity, International Small Cap, Balanced, Core Bond (formerly Investment Quality Bond), Municipal Bond (formerly National Municipal Bond), Strategic Income, U.S. Government Securities, Money Market, Mid Cap Value, Stock Index, High Yield Bond, Municipal Money Market, Aggressive Growth LifeStyle (formerly Growth LifeStyle), Moderate Growth LifeStyle and Conservative Growth LifeStyle Funds (portfolios of North American Funds) appearing in the October 31, 2000 Annual Report to Shareholders of North American Funds, which are also incorporated by reference into the N-14 Registration Statement. We also consent to the references to us under the headings "Independent Auditors" and "Experts" in such Registration Statement. We also consent to the references to us under the heading "Financial Highlights" in the Prospectus of the North American Funds dated March 1, 2001 and under the heading "Independent Accountants" in the Statement of Additional Information of the North American Funds dated March 1, 2001 which are incorporated by reference into the Registration Statement. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts September 28, 2001 EX-99.14(B) 6 dex9914b.txt CONSENT OF ERNST & YOUNG LLP EXHIBIT 14(b) CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Financial Highlights" in this Registration Statement (Form N-14 No. 333-67856) of the SunAmerica Income Funds. /s/ Ernst & Young LLP ERNST & YOUNG LLP New York, New York September 28, 2001 EX-99.16 7 dex9916.txt POWER OF ATTORNEY EXHIBIT 16 KNOW ALL MEN BY THESE PRESENTS, that the undersigned Directors/Trustees and Principal Financial and Accounting Officer of SunAmerica Equity Funds, SunAmerica Income Funds, SunAmerica Money Market Funds, Inc., SunAmerica Strategic Investment Series, Inc. and SunAmerica Style Select Series, Inc. (collectively the "Funds") do hereby severally constitute and appoint Peter A. Harbeck, Peter C. Sutton, Robert M. Zakem and Peter E. Pisapia or any of them, the true and lawful agents and attorneys-in-fact of the undersigned with respect to all matters arising in connection with its Registration Statement on Form N-14 filed with the Securities and Exchange Commission on August 17, 2001, any and all amendments (including post-effective amendments) thereto and any other of the Funds' filings with the Securities and Exchange Commission in connection therewith, with full power and authority to execute said Registration Statement or filing for and on behalf of the undersigned, in our names and in the capacity indicated below, and to file the same, together with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission. The undersigned hereby gives to said agents and attorneys-in-fact full power and authority to act in the premises, including, but not limited to, the power to appoint a substitute or substitutes to act hereunder with the same power and authority as said agents and attorneys-in fact would have if personally acting. The undersigned hereby ratify and confirm all that said agents and attorneys-in-fact, or any substitute or substitutes, may do by virtue hereof. WITNESS the due execution hereof on the date and in the capacity set forth below.
Signature Title Date --------- ----- ---- /s/ Peter A. Harbeck Director/Trustee and August 27, 2001 ______________________________________ President (Principal Peter A. Harbeck Executive Officer) /s/ Peter C. Sutton Treasurer (Principal August 27, 2001 ______________________________________ Financial and Accounting Peter C. Sutton Officer) /s/ S. James Coppersmith Director/Trustee August 27, 2001 ______________________________________ S. James Coppersmith /s/ Samuel M. Eisenstat Director/Trustee August 27, 2001 ______________________________________ Samuel M. Eisenstat /s/ Stephen J. Gutman Director/Trustee August 27, 2001 ______________________________________ Stephen J. Gutman /s/ Sebastiano Sterpa Director/Trustee August 27, 2001 ______________________________________ Sebastiano Sterpa
EX-99.17(K) 8 dex9917k.txt PRESIDENT'S LETTER Exhibit 17(k) NORTH AMERICAN FUNDS Core Bond Fund High Yield Bond Fund Municipal Bond Fund Strategic Income Fund U.S. Government Securities Fund Dear Shareholder: Each of your Funds will hold a Joint Special Meeting of Shareholders on November 7, 2001 at 10:00 a.m., Eastern Time, at the principal executive offices of North American Funds, 286 Congress Street, Boston, Massachusetts 02210. If you are a shareholder of record as of the close of business on Monday, September 17, 2001, you are entitled to vote at the meeting and at any adjournment of the meeting. The meeting has been called to give you the opportunity to vote on certain important proposals affecting your Fund. These proposals have arisen in connection with the recent acquisition of American General Corporation by American International Group, Inc. First, you are being asked to vote on the approval of a new investment advisory agreement between North American Funds, on behalf of your Fund, and American General Asset Management Corp. ("AGAM"), and a new subadvisory agreement between AGAM and American General Investment Management, L.P., or an affiliate. In addition, you are being asked to vote on an Agreement and Plan of Reorganization that would reorganize your Fund into a corresponding SunAmerica Mutual Fund. In connection with this reorganization, you will receive shares of the corresponding SunAmerica fund in exchange for shares of your Fund. The shares of the SunAmerica fund that you receive will have the same aggregate net asset value as the shares of your Fund immediately prior to the reorganization. This means that you may end up with a different number of shares compared to what you originally held, but the total dollar value of your shares will be the same. The accompanying proxy statement and prospectus includes a detailed description of each proposal. Please read the enclosed materials carefully and cast your vote. Remember, your vote is extremely important, no matter how large or small your holdings. By voting now, you can help avoid additional costs that would be incurred with follow-up letters and calls. To vote, you may use any of the following methods: . By Mail. You can vote your shares by completing and signing the enclosed proxy card(s), and mailing it in the enclosed postage paid envelope. If you need any assistance, or have any questions regarding a proposal, please call North American Funds' information agent, Georgeson Shareholder, at 1-888-850-2811. . By Telephone. If you have any questions on how to vote your shares or if you would like to vote by telephone, call 1-888-221-0697 toll free. Enter your 14 digit control number from your proxy card to enter your vote. . By Internet. Finally, you may vote via the Internet. To do so, have your proxy card available and go to the website: http://www.proxyweb.com. Follow the instructions on the website and be prepared to enter your 14 digit control number from your proxy card to enter your vote. Very truly yours, /s/ John I. Fitzgerald John I. Fitzgerald Secretary, North American Funds 1 EX-99.17(L) 9 dex9917l.txt Q&A Exhibit 17(l) NORTH AMERICAN FUNDS Core Bond Fund High Yield Bond Fund Municipal Bond Fund Strategic Income Fund U.S. Government Securities Fund ---------------- IMPORTANT NEWS FOR SHAREHOLDERS ---------------- While we encourage you to read the full text of the enclosed Proxy Statement and Prospectus, here is a brief overview of some matters affecting your Fund that require a shareholder vote. Q&A: QUESTIONS AND ANSWERS Q. WHAT IS HAPPENING? A. American International Group, Inc. ("AIG") acquired American General Corporation on August 29, 2001 in a transaction we call the "AIG Merger." AIG is a leading U.S.-based international insurance and financial services organization. As a result of the AIG Merger, American General Asset Management Corp. ("AGAM") and American General Investment Management, L.P. ("AGIM") became part of AIG. AGAM serves as investment adviser to your Fund and AGIM serves as subadviser. SunAmerica Asset Management Corp. ("SAAMCo") is also part of AIG and serves as investment adviser to the SunAmerica Mutual Funds, a $7 billion mutual fund complex. You are being presented with several important matters to vote on as a result of the AIG Merger: . The continuation of your Fund's investment advisory agreement with AGAM following the AIG Merger; . The continuation of your Fund's subadvisory agreement with AGIM, or an affiliate, following the AIG Merger; and . A proposal to reorganize your Fund with a SunAmerica Mutual Fund. As described in more detail below, there is a proposal to combine each series of North American Funds with a single corresponding SunAmerica Mutual Fund. We refer to each series of North American Funds as a "North American Fund," each series of the SunAmerica Mutual Funds as a "SunAmerica Fund," and each proposed transaction between them as a "Reorganization." Q. WHY AM I BEING ASKED TO VOTE ON THE PROPOSED NEW INVESTMENT ADVISORY AGREEMENT WITH AGAM IN PROPOSAL NO. 1(a)? A. Applicable securities laws require a shareholder vote on a new investment advisory agreement whenever there is a change in control of a fund's investment adviser, because upon such a change in control, the agreement between the investment adviser and the fund terminates automatically. Accordingly, because the AIG Merger resulted in a change in control of AGAM, and therefore the termination of North American Funds' investment advisory agreement with AGAM, shareholder approval of the new investment advisory agreement with AGAM is required. The new investment advisory agreement that shareholders are being asked to approve is the same in all material respects as the North American Funds' previous investment advisory agreement with AGAM. The new investment advisory agreement, as approved by shareholders, will take effect immediately. If you approve the Reorganization applicable to your Fund, the agreement with AGAM will terminate when the Reorganization is completed. The Board of Trustees of North American Funds, including all of the Independent Trustees, unanimously recommends that you vote FOR the proposal to approve the new investment advisory agreement with AGAM. Q. WHY AM I BEING ASKED TO VOTE ON THE PROPOSED NEW SUBADVISORY AGREEMENT IN PROPOSAL NO. 1(b)? A. The relevant provisions of the securities laws relating to the change in control of an investment adviser also apply to a subadviser. Because the AIG Merger resulted in the change in control of AGIM, and therefore the termination of the subadvisory agreement between AGAM and AGIM, shareholder approval of the new subadvisory agreement between AGAM and AGIM, or an affiliate, is required. The new subadvisory agreement that the shareholders are being asked to approve is the same in all material respects as the previous subadvisory agreement with AGIM. The new subadvisory agreement, as approved by shareholders, will take effect immediately. If you approve the Reorganization applicable to your Fund, the subadvisory agreement between AGAM and AGIM, or an affiliate, will terminate when the Reorganization is completed. The Board of Trustees of North American Funds, including all of the Independent Trustees, unanimously recommends that you vote FOR the proposal to approve the new subadvisory agreement with AGIM, or an affiliate. Q. WHAT ARE THE REORGANIZATIONS? A. In anticipation of completion of the AIG Merger, AGAM and SAAMCo presented to the Board of Trustees of North American Funds a proposal to reorganize your Fund with a single comparable SunAmerica Fund. Under each relevant proposal, your Fund would be combined with the SunAmerica Fund, and you would become a shareholder of the corresponding SunAmerica Fund. The Board of Trustees of North American Funds unanimously approved each Reorganization. North American Fund shareholders are asked to approve the Reorganization. The attached Proxy Statement and Prospectus describes each proposed Reorganization. Specifically, you will find information relating to the following Reorganizations:
North American Fund: SunAmerica Fund: -------------------- ---------------- Core Bond Fund SunAmerica Core Bond Fund High Yield Bond Fund SunAmerica High Income Fund (to be renamed the SunAmerica High Yield Bond Fund) Municipal Bond Fund SunAmerica Tax Exempt Insured Fund Strategic Income Fund SunAmerica Diversified Income Fund (to be renamed the SunAmerica Strategic Income Fund) U.S. Government Securities Fund SunAmerica U.S. Government Securities Fund
The Board of Trustees of North American Funds, including all of the Independent Trustees, unanimously recommends that you vote FOR the Reorganization. Q. HOW WILL THE REORGANIZATIONS AFFECT MY ACCOUNT? A. If shareholders approve a Reorganization, your North American Fund shares will be exchanged, on a tax-free basis, for an equal aggregate dollar value of shares of the SunAmerica Fund. This means that you may end up with a different number of shares compared to what you originally held, but the total dollar value of your shares will be the same. You will receive the same class of SunAmerica Fund shares as the North American Fund shares you hold immediately prior to the Reorganization. (However, if you own Class C or Institutional Class II shares of a North American Fund, you will receive Class II and Class Z shares, respectively, of the SunAmerica Fund since these are the classes of SunAmerica Fund shares that correspond to North American Fund Class C and Institutional Class II shares, respectively.) 2 Q. WHY DOES THE BOARD RECOMMEND THE REORGANIZATIONS? A. Your Board has based this recommendation on its consideration of the principal reasons underlying each Reorganization, including the following: the fact that, following each Reorganization, shareholders of each North American Fund would remain invested in a mutual fund having substantially the same or similar investment objective and similar, though not identical, investment techniques; the fees and expenses of each Fund; potential benefits to shareholders, such as the potential for reduced operating expenses over time due to economies of scale; and the fact that no Reorganization will adversely affect the interests of the corrresponding North American Fund shareholders. After each Reorganization, shareholders of a North American Fund will hold shares of the same aggregate net asset value in the corresponding SunAmerica Fund. Q. WHO WILL MANAGE MY FUND AFTER THE REORGANIZATION? A. AGAM currently manages the assets of each North American Fund. AGIM is currently the subadviser to your Fund. After completion of the Reorganizations, SAAMCo will be the manager of each North American Fund as part of the corresponding SunAmerica Fund AGIM (or an affiliate) will be the subadviser responsible for the day-to-day portfolio management of each SunAmerica Fund except the SunAmerica U.S. Government Securities Fund. Q. WILL THE REORGANIZATIONS BE TAX-FREE? A. The Reorganizations will be accomplished on a tax-free basis. This means that you should not realize any federal capital gains (or losses) when your North American Fund shares are exchanged for SunAmerican Fund shares. Q. HOW DOES THE BOARD OF TRUSTEES OF NORTH AMERICAN FUNDS RECOMMEND THAT I VOTE? A. After careful consideration, based upon their evaluation of all relevant information, and after meeting with counsel to the Independent Trustees regarding the legal issues involved, the Board, including the Independent Trustees, recommends that you vote FOR all of the proposals on the enclosed proxy card. Q. WHO GETS TO VOTE? A. If you owned shares of a North American Fund on September 17, 2001, you are entitled to vote with respect to your Fund, even if you later sold the shares. Each share of a North American Fund is entitled to one vote, with fractional shares voting proportionally. Q. WHY ARE MULTIPLE PROXY CARDS ENCLOSED? A. If you are a shareholder of more than one of the North American Funds, you will receive a proxy card for each North American Fund in which you own shares. Q. I'M A SMALL INVESTOR. WHY SHOULD I VOTE? A. Your vote makes a difference. If many small shareholders just like you fail to vote their proxies, your Fund may not receive enough votes to go forward with the Special Meeting of Shareholders and additional costs will be incurred through further proxy solicitations. Q. HOW DO I VOTE? A. You have several different ways to vote. They include mail, speaking with a representative on the telephone, and voting on-line over the Internet. If you need more information or have any questions on how to vote call 1-888- 221-0697. If you have any questions on a proposal, please call North American Funds' information agent, Georgeson Shareholder, at 1-888-850- 2811. Your vote is important. Please vote promptly to avoid the additional expense of another solicitation. 3 EX-99.17(M) 10 dex9917m.txt FORMS OF PROXY CARDS Exhibit 17(m) North American Funds P.O. Box 9132 Hingham, MA 02043-9132 VOTE TODAY BY MAIL, TOUCH-TONE PHONE OR THE INTERNET CALL TOLL-FREE 1-888-221-0697 OR LOG ON TO WWW.PROXYWEB.COM **** CONTROL NUMBER: 999 999 999 999 99 **** . Please fold and detach card at perforation before mailing . CORE BOND FUND PROXY This proxy is solicited on behalf of the Board of Trustees of North American Funds The undersigned hereby appoints John I. Fitzgerald, Thomas Brown, Nori L. Gabert and Todd Spillane, or any of them, as proxies, each with the power to appoint his or her substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse side of this card, all of the shares of the above-referenced Fund (the "Fund") of North American Funds held of record by the undersigned on September 17, 2001, at a Special Meeting of Shareholders of the Fund to be held at the principal executive offices of North American Funds, 286 Congress Street, Boston, Massachusetts 02210 on November 7, 2001 at 10 a.m. Eastern Time and at any adjournment thereof. By signing and dating this card, you authorize the proxies to vote each proposal as marked, or if not marked, to vote "FOR" each proposal, and to use their discretion to vote for any other matter as may properly come before the meeting or any adjournment thereof. If you do not intend to personally attend the meeting, please complete and return this card at once in the enclosed envelope. Alternatively, you may vote your shares by following the phone or Internet instructions above. . Dated: SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE ------------------------------------- ------------------------------------- Signature (or signatures if held jointly) Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, or as custodian for a minor, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. . . \/ Please fold and detach card at perforation before mailing \/ \/ Please fill in box(es) as shown using black or blue ink or number 2 \/ pencil. [X] PLEASE DO NOT USE FINE POINT PENS. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1(a), 1(b) or 2. THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING:
1. (a) To approve or disapprove a new FOR AGAINST ABSTAIN investment advisory agreement between American General Asset Management Corp. ("AGAM") and North American Funds on behalf of the Fund, the [_] [_] [_] terms of which are the same in all material respects as the previous investment advisory agreement with AGAM. 1. (b) To approve or disapprove a new [_] [_] [_] subadvisory agreement between AGAM and American General Investment Management L.P. ("AGIM") or an affiliate thereof, the terms of which are the same in all material respects as the previous subadvisory agreement between AGAM and AGIM. 2. To approve or disapprove the Agreement and [_] [_] [_] Plan of Reorganization as described in the accompanying proxy statement and prospectus.
3. In their discretion, the named proxies may vote to transact such other business as properly may come before the meeting or any adjournment thereof. RECEIPT OF THE NOTICE OF THE SPECIAL MEETING AND THE ACCOMPANYING PROXY STATEMENT IS HEREBY ACKNOWLEDGED. \/ (Continued and to be signed on the reverse side) \/ North American Funds P.O. Box 9132 Hingham, MA 02043-9132 VOTE TODAY BY MAIL, TOUCH-TONE PHONE OR THE INTERNET CALL TOLL-FREE 1-888-221-0697 OR LOG ON TO WWW.PROXYWEB.COM **** CONTROL NUMBER: 999 999 999 999 99 **** \/ Please fold and detach card at perforation before mailing \/ HIGH YIELD BOND FUND PROXY This proxy is solicited on behalf of the Board of Trustees of North American Funds The undersigned hereby appoints John I. Fitzgerald, Thomas Brown, Nori L. Gabert and Todd Spillane, or any of them, as proxies, each with the power to appoint his or her substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse side of this card, all of the shares of the above-referenced Fund (the "Fund") of North American Funds held of record by the undersigned on September 17, 2001, at a Special Meeting of Shareholders of the Fund to be held at the principal executive offices of North American Funds, 286 Congress Street, Boston, Massachusetts 02210 on November 7, 2001 at 10 a.m. Eastern Time and at any adjournment thereof. By signing and dating this card, you authorize the proxies to vote each proposal as marked, or if not marked, to vote "FOR" each proposal, and to use their discretion to vote for any other matter as may properly come before the meeting or any adjournment thereof. If you do not intend to personally attend the meeting, please complete and return this card at once in the enclosed envelope. Alternatively, you may vote your shares by following the phone or Internet instructions above. \/ Dated:_________________ SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE ------------------------------------ ------------------------------------ Signature (or signatures, if held jointly) Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, or as custodian for a minor, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. \/ \/ \/ Please fold and detach card at perforation before mailing \/ \/ Please fill in box(es) as shown using black or blue ink or number 2 \/ pencil. [X] PLEASE DO NOT USE FINE POINT PENS. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1(a), 1(b) or 2. THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING:
1. (a) To approve or disapprove a new FOR AGAINST ABSTAIN investment advisory agreement between American General Asset Management Corp. ("AGAM") and North American Funds on behalf of the Fund, the [_] [_] [_] terms of which are the same in all material respects as the previous investment advisory agreement with AGAM. 1. (b) To approve or disapprove a new [_] [_] [_] subadvisory agreement between AGAM and American General Investment Management L.P. ("AGIM") or an affiliate thereof, the terms of which are the same in all material respects as the previous subadvisory agreement between AGAM and AGIM. 2. To approve or disapprove the Agreement and [_] [_] [_] Plan of Reorganization as described in the accompanying proxy statement and prospectus. 3. In their discretion, the named proxies may vote to transact such other business as properly may come before the meeting or any adjournment thereof.
RECEIPT OF THE NOTICE OF THE SPECIAL MEETING AND THE ACCOMPANYING PROXY STATEMENT IS HEREBY ACKNOWLEDGED. \/ (Continued and to be signed on the reverse side) \/ North American Funds P.O. Box 9132 Hingham, MA 02043-9132 VOTE TODAY BY MAIL, TOUCH-TONE PHONE OR THE INTERNET CALL TOLL-FREE 1-888-221-0697 OR LOG ON TO WWW.PROXYWEB.COM **** CONTROL NUMBER: 999 999 999 999 99 **** \/ Please fold and detach card at perforation before mailing \/ MUNICIPAL BOND FUND PROXY This proxy is solicited on behalf of the Board of Trustees of North American Funds The undersigned hereby appoints John I. Fitzgerald, Thomas Brown, Nori L. Gabert and Todd Spillane, or any of them, as proxies, each with the power to appoint his or her substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse side of this card, all of the shares of the above-referenced Fund (the "Fund") of North American Funds held of record by the undersigned on September 17, 2001, at a Special Meeting of Shareholders of the Fund to be held at the principal executive offices of North American Funds, 286 Congress Street, Boston, Massachusetts 02210 on November 7, 2001 at 10 a.m. Eastern Time and at any adjournment thereof. By signing and dating this card, you authorize the proxies to vote each proposal as marked, or if not marked, to vote "FOR" each proposal, and to use their discretion to vote for any other matter as may properly come before the meeting or any adjournment thereof. If you do not intend to personally attend the meeting, please complete and return this card at once in the enclosed envelope. Alternatively, you may vote your shares by following the phone or Internet instructions above. \/ Dated:__________________ SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE ------------------------------------- ------------------------------------- Signature (or signatures, if held jointly) Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, or as custodian for a minor, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. \/ \/ \/ Please fold and detach card at perforation before mailing \/ \/ Please fill in box(es) as shown using black or blue ink or number 2 \/ pencil. [X] PLEASE DO NOT USE FINE POINT PENS. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1(a), 1(b) or 2. THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING:
1. (a) To approve or disapprove a new FOR AGAINST ABSTAIN investment advisory agreement between American General Asset Management Corp. ("AGAM") and North American Funds on behalf of the Fund, the [_] [_] [_] terms of which are the same in all material respects as the previous investment advisory agreement with AGAM. 1. (b) To approve or disapprove a new [_] [_] [_] subadvisory agreement between AGAM and American General Investment Management L.P. ("AGIM") or an affiliate thereof, the terms of which are the same in all material respects as the previous subadvisory agreement between AGAM and AGIM. 2. To approve or disapprove the Agreement and [_] [_] [_] Plan of Reorganization as described in the accompanying proxy statement and prospectus. 3. In their discretion, the named proxies may vote to transact such other business as properly may come before the meeting or any adjournment thereof.
RECEIPT OF THE NOTICE OF THE SPECIAL MEETING AND THE ACCOMPANYING PROXY STATEMENT IS HEREBY ACKNOWLEDGED. \/ (Continued and to be signed on the reverse side) \/ North American Funds P.O. Box 9132 Hingham, MA 02043-9132 VOTE TODAY BY MAIL, TOUCH-TONE PHONE OR THE INTERNET CALL TOLL-FREE 1-888-221-0697 OR LOG ON TO WWW.PROXYWEB.COM **** CONTROL NUMBER: 999 999 999 999 99 **** \/ Please fold and detach card at perforation before mailing \/ STRATEGIC INCOME FUND PROXY This proxy is solicited on behalf of the Board of Trustees of North American Funds The undersigned hereby appoints John I. Fitzgerald, Thomas Brown, Nori L. Gabert and Todd Spillane, or any of them, as proxies, each with the power to appoint his or her substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse side of this card, all of the shares of the above-referenced Fund (the "Fund") of North American Funds held of record by the undersigned on September 17, 2001, at a Special Meeting of Shareholders of the Fund to be held at the principal executive offices of North American Funds, 286 Congress Street, Boston, Massachusetts 02210 on November 7, 2001 at 10 a.m. Eastern Time and at any adjournment thereof. By signing and dating this card, you authorize the proxies to vote each proposal as marked, or if not marked, to vote "FOR" each proposal, and to use their discretion to vote for any other matter as may properly come before the meeting or any adjournment thereof. If you do not intend to personally attend the meeting, please complete and return this card at once in the enclosed envelope. Alternatively, you may vote your shares by following the phone or Internet instructions above. \/ Dated:__________________ SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE ------------------------------------ ------------------------------------ Signature (or signatures, if held jointly) Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, or as custodian for a minor, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. \/ \/ \/ Please fold and detach card at perforation before mailing \/ \/ Please fill in box(es) as shown using black or blue ink or number 2 \/ pencil. [X] PLEASE DO NOT USE FINE POINT PENS. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1(a), 1(b) or 2. THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING:
1. (a) To approve or disapprove a new FOR AGAINST ABSTAIN investment advisory agreement between American General Asset Management Corp. ("AGAM") and North American Funds on behalf of the Fund, the [_] [_] [_] terms of which are the same in all material respects as the previous investment advisory agreement with AGAM. 1. (b) To approve or disapprove a new [_] [_] [_] subadvisory agreement between AGAM and American General Investment Management L.P. ("AGIM") or an affiliate thereof, the terms of which are the same in all material respects as the previous subadvisory agreement between AGAM and AGIM. 2. To approve or disapprove the Agreement and [_] [_] [_] Plan of Reorganization as described in the accompanying proxy statement and prospectus. 3. In their discretion, the named proxies may vote to transact such other business as properly may come before the meeting or any adjournment thereof.
RECEIPT OF THE NOTICE OF THE SPECIAL MEETING AND THE ACCOMPANYING PROXY STATEMENT IS HEREBY ACKNOWLEDGED. \/ (Continued and to be signed on the reverse side) \/ North American Funds P.O. Box 9132 Hingham, MA 02043-9132 VOTE TODAY BY MAIL, TOUCH-TONE PHONE OR THE INTERNET CALL TOLL-FREE 1-888-221-0697 OR LOG ON TO WWW.PROXYWEB.COM **** CONTROL NUMBER: 999 999 999 999 99 **** \/ Please fold and detach card at perforation before mailing \/ U.S. GOVERNMENT SECURITIES FUND PROXY This proxy is solicited on behalf of the Board of Trustees of North American Funds The undersigned hereby appoints John I. Fitzgerald, Thomas Brown, Nori L. Gabert and Todd Spillane, or any of them, as proxies, each with the power to appoint his or her substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse side of this card, all of the shares of the above-referenced Fund (the "Fund") of North American Funds held of record by the undersigned on September 17, 2001, at a Special Meeting of Shareholders of the Fund to be held at the principal executive offices of North American Funds, 286 Congress Street, Boston, Massachusetts 02210 on November 7, 2001 at 10 a.m. Eastern Time and at any adjournment thereof. By signing and dating this card, you authorize the proxies to vote each proposal as marked, or if not marked, to vote "FOR" each proposal, and to use their discretion to vote for any other matter as may properly come before the meeting or any adjournment thereof. If you do not intend to personally attend the meeting, please complete and return this card at once in the enclosed envelope. Alternatively, you may vote your shares by following the phone or Internet instructions above. \/ Dated:__________________ SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE ------------------------------------ ------------------------------------ Signature (or signatures, if held jointly) Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, or as custodian for a minor, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. \/ \/ \/ Please fold and detach card at perforation before mailing \/ \/ Please fill in box(es) as shown using black or blue ink or number 2 \/ pencil. [X] PLEASE DO NOT USE FINE POINT PENS. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1(a), 1(b) or 2. THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING:
1. (a) To approve or disapprove a new FOR AGAINST ABSTAIN investment advisory agreement between American General Asset Management Corp. ("AGAM") and [_] [_] [_] North American Funds on behalf of the Fund, the terms of which are the same in all material respects as the previous investment advisory agreement with AGAM. 1. (b) To approve or disapprove a new [_] [_] [_] subadvisory agreement between AGAM and American General Investment Management L.P. ("AGIM") or an affiliate thereof, the terms of which are the same in all material respects as the previous subadvisory agreement between AGAM and AGIM. 2. To approve or disapprove the Agreement and [_] [_] [_] Plan of Reorganization as described in the accompanying proxy statement and prospectus. 3. In their discretion, the named proxies may vote to transact such other business as properly may come before the meeting or any adjournment thereof.
RECEIPT OF THE NOTICE OF THE SPECIAL MEETING AND THE ACCOMPANYING PROXY STATEMENT IS HEREBY ACKNOWLEDGED. \/ (Continued and to be signed on the reverse side) \/