-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GeM2bX2sdpn5wiUzFRMUe5eLESozcnt1UI0ivOFtqeppoD5ozda5l7Ob+eTMiCNM PberZcxojmAtjq3e9p+y/Q== 0000950130-01-503996.txt : 20010820 0000950130-01-503996.hdr.sgml : 20010820 ACCESSION NUMBER: 0000950130-01-503996 CONFORMED SUBMISSION TYPE: N-14 PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20010817 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 SEC ACT: 1933 Act SEC FILE NUMBER: 333-67840 FILM NUMBER: 1718169 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 1 dn14.txt SUNAMERICA INCOME FUNDS As filed with the Securities and Exchange Commission on August 17, 2001 Securities Act File No. [333-____] ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________ FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 __________________ [ ] Pre-Effective Amendment No.[ ] Post-Effective Amendment 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 to 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 similar in all material respects to 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 such 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 such 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 Income Fund) of SunAmerica Income Funds (the "SunAmerica Strategic Income Fund" or an "Acquiring Fund"), solely in exchange for an equal aggregate value of newly issued shares of the SunAmerica Strategic Income Fund, as described in the accompanying proxy statement and prospectus. The Strategic Income Funds Agreement and Plan also provides for distribution of such shares of the SunAmerica Strategic Income 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's Agreement and Plan also provides for distribution of such 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. 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 1-888-850-2811) or via the Internet at http:proxy.____.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, John I. Fitzgerald Secretary, North American Funds Boston, Massachusetts Dated: September __, 2001 SUBJECT TO COMPLETION 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 describes a proposal to approve or disapprove (i) a new investment advisory agreement (the "New Investment Advisory Agreement") between American General Asset Management Corp. ("AGAM") and North American Funds on behalf of your Fund, the terms of which are the same in all material respects as the previous investment advisory agreement with AGAM (the "Previous Investment Advisory Agreement") and (ii) 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 to the previous Subadvisory agreement between AGAM and AGIM (the "Previous Subadvisory Agreement"). The Board of Trustees (the "NAF Board") of North American Funds, a Massachusetts business trust, is seeking your proxy to vote in favor of this proposal at the Joint Special Meeting of Shareholders (the "Meeting") to be held on November 7, 2001. In addition, the Meeting also has been called to approve or disapprove the proposed Agreement and Plan of Reorganization (each a "Plan" and collectively, the "Plans") between North American Funds on behalf of each of its investment portfolios set forth below (each an "Acquired Fund" and collectively, the "Acquired Funds") and SunAmerica Income Funds, a Massachusetts business trust, on behalf of each of its respective investment portfolios 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 (together with the NAF Core Bond Fund, the "Core Bond Funds" and following the applicable Reorganization, the "Core Bond Combined Fund.") - -------------------------------------------------------------------------------------------------------------------------------- High Yield Bond Fund (the "NAF High Yield Bond Fund") SunAmerica High Income Fund (to be renamed SunAmerica High Yield Bond Fund) (together with the NAF High Yield Bond Fund, the "High Yield Bond Funds" and following the applicable Reorganization, the "High Yield Bond Combined Fund.") - -------------------------------------------------------------------------------------------------------------------------------- Municipal Bond Fund (the "NAF Municipal Bond Fund") SunAmerica Tax Exempt Insured Fund (together with the NAF Municipal Bond Fund, the "Municipal Bond Funds" and following the applicable Reorganization, the "Tax Exempt Insured Combined Fund.") - --------------------------------------------------------------------------------------------------------------------------------
__________________ 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 September __, 2001. - -------------------------------------------------------------------------------------------------------------------------------- Strategic Income Fund (the "NAF Strategic Income Fund") SunAmerica Diversified Income Fund (to be renamed SunAmerica Strategic Income Fund) (together with the NAF Strategic Income Fund, the "Strategic Income Funds" and following the applicable Reorganization, the "Strategic Income Combined Fund.") - -------------------------------------------------------------------------------------------------------------------------------- U.S. Government Securities Fund (the "NAF U.S. Government SunAmerica U.S. Government Securities Fund (together with the Securities Fund") NAF U.S. Government Securities Fund, the "U.S. Government Securities Funds" and following the applicable Reorganization, the "U.S. Government Securities Combined Fund.") - --------------------------------------------------------------------------------------------------------------------------------
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 a "Reorganization" and collectively, 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. You will receive the same class of Corresponding Shares as the shares of your Fund held by you immediately prior to the applicable Reorganization. (However, if you own Class C shares or Institutional Class II shares of an Acquired Fund, you will receive Class II shares or Class Z shares, respectively, of the respective Acquiring Fund.) The aggregate net asset value of the Corresponding Shares will equal the aggregate net asset value of your shares of the respective Acquired 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 remain the same. The Acquired Funds and the Acquiring Funds sometimes are referred to herein collectively as the "Funds" and individually as a "Fund," as the context requires. The Acquiring Funds following the Reorganizations sometimes are referred to herein collectively as the "Combined Funds" and individually as a "Combined Fund." There can be no assurance that, after the Reorganizations, the Combined Funds will achieve their respective investment goals. 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 the Corresponding Shares by the Acquiring Funds to the Acquired Funds 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. Information about the Acquired Funds and the Acquiring Funds is available in other documents that have been filed with the Securities and Exchange Commission (the "Commission"). These other documents are available without charge by writing North American Funds at 286 Congress Street, Boston, Massachusetts 02210, or by calling toll-free 1-800-872-8037 if they relate to the Acquired Funds or by writing SunAmerica Income Funds at The SunAmerica Center, 733 Third Avenue, New York, New York 10017 or by calling toll-free 1- 800-858-8850 if they relate to the Acquiring Funds. These documents are: . The preliminary prospectus relating to the Acquiring Funds, subject to completion, dated August 14, 2001 (the "Acquiring Funds Prospectus"). (1)(2) . The Annual Report to Shareholders of the Acquiring Funds for the year ended March 31, 2001. (1)(2) . The current prospectuses relating to the Acquired Funds, each dated March 1, 2001, as supplemented (the "Acquired Funds Prospectuses"). (2) . A preliminary statement of additional information relating to the Acquiring Funds, subject to completion, dated August 14, 2001 (the "Acquiring Funds Statement"). . A statement of additional information relating to the Acquired Funds, dated March 1, 2001, as supplemented (the "Acquired Funds Statement"). . 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 month period ended April 30, 2001. (1) A copy is included in the package of documents that you received with this Proxy Statement and Prospectus. (2) The document is incorporated herein by reference (legally considered to be part of this Proxy Statement and Prospectus). This Proxy Statement and Prospectus sets forth concisely the information about an Acquiring Fund that shareholders of the respective Acquired Fund should know before considering the applicable Reorganization and should be retained for future reference. The Acquired Funds have authorized the solicitation of proxies solely on the basis of this Proxy Statement and Prospectus and the accompanying documents. 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 of each Combined Fund giving effect to the consummation of the applicable Reorganization, is on file with 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 [September __, 2001] is incorporated by reference into this Proxy Statement and Prospectus. 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. ----------------------- TABLE OF CONTENTS
Page ---- INTRODUCTION........................................................................................... 1 SUMMARY................................................................................................ 2 THE MERGER AND THE NEW INVESTMENT ADVISORY AND SUBADVISORY AGREEMENTS.................................. 2 THE REORGANIZATIONS.................................................................................... 3 FEE TABLES........................................................................................ 6 EXAMPLES.......................................................................................... 13 THE FUNDS......................................................................................... 21 Business of the Acquired Funds.................................................................... 21 Business of the Acquiring Funds................................................................... 21 Comparison of the Funds........................................................................... 21 PRINCIPAL RISK FACTORS AND SPECIAL CONSIDERATIONS...................................................... 27 RISKS OF INVESTING IN THE FUNDS .................................................................. 27 All Funds......................................................................................... 27 Core Bond Funds, High Yield Bond Funds and Strategic Income Funds................................. 28 Municipal Bond Funds and U.S. Government Securities Funds......................................... 28 PROPOSAL NO. 1(a)-(b):................................................................................. 29 APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT AND THE NEW SUBADVISORY AGREEMENT.................... 29 THE MERGER AND THE NEW INVESTMENT ADVISORY AND SUBADVISORY AGREEMENTS.................................. 29 Board Considerations.............................................................................. 29 Description of the New Investment Advisory Agreement.............................................. 30 Additional Information About AGAM................................................................. 31 Description of the New Subadvisory Agreement...................................................... 33 PROPOSALS NOS. 2(a)--(e): APPROVAL OF THE PLANS....................................................... 34 COMPARISON OF THE FUNDS........................................................................... 34 Investment Policies............................................................................... 34 Management Arrangements........................................................................... 39 Distribution and Shareholder Servicing Arrangements............................................... 41 Other Service Agreements with Affiliates.......................................................... 42 Purchase, Exchange and Redemption of Shares....................................................... 42 Performance....................................................................................... 46 Shareholder Rights................................................................................ 51 Tax Information................................................................................... 51 Portfolio Transactions............................................................................ 51 Portfolio Turnover................................................................................ 51 Additional Information............................................................................ 51 THE REORGANIZATIONS.................................................................................... 53 General........................................................................................... 53 Terms of the Plans................................................................................ 54 NAF Board Considerations: Potential Benefits to Shareholders as a Result of the Reorganizations.. 55 Federal Income Tax Consequences of the Reorganizations............................................ 58 Capitalization [Update]........................................................................... 60 GENERAL................................................................................................ 62 INFORMATION CONCERNING THE MEETING..................................................................... 62 Date, Time and Place of Meeting................................................................... 62 Solicitation, Revocation and Use of Proxies....................................................... 62 Record Date and Outstanding Shares................................................................ 62 Security Ownership of Certain Beneficial Owners and Management of the Funds....................... 63 Voting Rights and Required Vote................................................................... 63 ADDITIONAL INFORMATION................................................................................. 64
i LEGAL PROCEEDINGS...................................................................................... 65 LEGAL OPINIONS......................................................................................... 65 EXPERTS................................................................................................ 65 SHAREHOLDER PROPOSALS.................................................................................. 65 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 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 the Acquired Funds is 286 Congress Street, Boston, Massachusetts 02210. The approximate mailing date of this Proxy Statement and Prospectus is September [27], 2001. 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 Agreement All Acquired Funds, each voting separately (b) Approval of New Investment Subadvisory All Acquired Funds, each voting separately Agreement 2. (a) Approval of Plan relating to the Core Bond NAF Core Bond Fund Funds (b) Approval of Plan relating to the High Yield NAF High Yield Bond Fund Bond Funds (c) Approval of Plan relating to the Municipal NAF Municipal Bond Fund Bond Funds (d) Approval of Plan relating to the Strategic NAF Strategic Income Fund Income Funds (e) Approval of Plan relating to the U.S. NAF U.S. Government Securities Fund Government Securities Funds
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 New Investment Advisory Agreement, the New Subadvisory Agreement and in the form of the Plans, attached hereto as Exhibits IA, IB and II, respectively. In this Proxy Statement and Prospectus, the term "Reorganization" refers to (i) the acquisition of substantially all of the assets, and assumption of substantially all of the liabilities, of an Acquired Fund by the respective Acquiring Fund solely in exchange for an equal aggregate value of the Corresponding Shares of such Acquiring Fund, and (ii) the subsequent distribution of such Corresponding Shares to the shareholders of the Acquired Fund. The consummation of one Reorganization is not conditioned on the consummation of any other Reorganization. THE MERGER AND THE NEW INVESTMENT ADVISORY AND SUBADVISORY AGREEMENTS On ____________, 2001, American International Group, Inc. ("AIG"), the parent company of SunAmerica Asset Management Corp. ("SAAMCo"), acquired American General Corporation ("American General"), the parent company of AGAM and AGIM (the "Merger"). As a result of the Merger, AGAM became a subsidiary of AIG. As required by the Investment Company Act of 1940, as amended (the "Investment Company Act"), both the Previous Investment Advisory Agreement and the Previous Subadvisory Agreement (collectively, the "Previous Agreements") provided for automatic termination upon assignment. The consummation of the Merger constituted an assignment, as that term is defined in the Investment Company Act, of the Previous Agreements, and, consequently, their termination. At a meeting of the NAF Board held on July 16-17, 2001, the NAF Board, including all of the Trustees who are not "interested persons" (within the meaning of Section 2(a)(19) of the Investment Company Act) ("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 in order to allow AGAM to continue to serve as investment adviser for the Acquired Funds after the 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. The NAF Board, including all of the Independent Trustees, also unanimously approved an interim Subadvisory agreement (the "Interim Subadvisory Agreement") between AGAM and New AGIM, an affiliate of AGAM, in order to allow New AGIM to continue to serve as the subadviser for the applicable Acquired Funds after the Merger. 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 to those of the Previous Investment Advisory Agreement and previous Subadvisory Agreement, respectively. Under the Investment Company Act, however, AGAM and New AGIM may continue to serve as the investment adviser and 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 a new Subadvisory agreement with New AGIM. Consequently, the NAF Board unanimously approved, and recommended shareholder approval of, the New Investment Advisory Agreement and New Subadvisory Agreement (collectively, 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 Previous Agreements. See "Proposal No. 1(a): Approval of the New Investment Advisory Agreement -- The Merger and the New Investment Advisory Agreement 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 "Proposal No. 1(b): Approval of the New Subadvisory Agreement -- The New Subadvisory Agreement -- Description of the New Subadvisory Agreement" below for a description of the New Subadvisory Agreement and the services to be provided by AGIM thereunder. -2- 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 and AGIM. The NAF Board considered that the 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. 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 Merger. In addition, the NAF Board considered the fact that at some point after consummation of the 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 applicable 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 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 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 On August 2, 2001, the NAF Board unanimously approved, subject to shareholder approval and completion of the Merger, a proposal that each Acquiring Fund 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 such Acquiring Fund's Corresponding Shares to be distributed to the shareholders of such Acquired Fund. Shareholders holding 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 shares, respectively, of the respective Acquiring Fund. For the avoidance of confusion, Institutional Class II with respect to the Acquired Funds is pronounced "Class Double Eye," while Class II with respect to the Acquiring Funds is pronounced "Class 2." See "Proposals Nos. 2(a) - (e): Approval of the Plans -- Comparison of the Funds Purchase, Exchange and Redemption of Shares" below, "Shareholder Account Information" in the Acquiring Funds Prospectus and "Section III: Investing in the North American Funds" in the Acquired Funds Prospectuses for a description of these share classes. 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"). See "Proposals Nos. 2(a) - (e): Approval of the Plans -- The Reorganizations -- NAF Board Considerations: Potential Benefits to Shareholders as a Result of the Reorganizations" for more detailed info regarding the net assets of each Fund. See "Proposals Nos. 2(a) - (e): Approval of the Plans -- The Reorganizations -- NAF Board Considerations: Potential Benefits to Shareholders as a Result of the Reorganizations" for more detailed information regarding the net assets of each 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. See "Proposals Nos. 2(a) - (e): Approval of the Plans -- Comparison of the Funds -- Management Arrangements -- Comparison of Management and Administrative Arrangements and Fees -- Comparison of the NAF Investment Advisory Agreement and SunAmerica Investment Advisory Agreement." 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 identified and considered certain potential benefits to shareholders that are likely to result from the Reorganizations. The NAF Board also considered that, following each Reorganization, shareholders of an Acquired Fund will remain invested in a mutual fund which has substantially the same investment objective and similar, though not identical, investment techniques. An advantage to shareholders identified by the NAF Board relates to the potential for reduced operating expenses due to economies of scale. The net assets of each Acquiring Fund (other than the SunAmerica Core Bond Fund, which has not yet commenced operating) 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. Because SunAmerica has broad distribution channels, -3- it is possible that the asset base for all Combined Funds (including the Core Bond Combined Fund) 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. See "Proposals Nos. 2(a) -(e): Approval of the Plans -- The Reorganizations -- NAF Board Considerations: Potential Benefits to Shareholders as a Result of the Reorganizations" for more detailed information regarding the net assets of each Fund. 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. See "--Fee Tables" and "Proposals Nos. 2(a) - (e): Approval of the Plans -- The Reorganizations -- NAF Board Considerations: Potential Benefits to Shareholders as a Result of the Reorganizations" for additional information regarding 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 on March 31, 2001. In addition, 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 benefit the NAF Funds and 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. 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 those of each Acquired Fund, and will retain New AGIM as subadviser, subject to approval by the shareholders of such Acquiring Funds. As a condition to each applicable 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 Income Combined Funds to those of the respective Acquired Funds. The Board of Trustees of SunAmerica Income 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 Reorganization applicable, subject to approval of the shareholders of the SunAmerica Tax Exempt Insured Fund. The NAF Board, including all of the NAF Independent Trustees, 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 herein). Although, as a result of the Reorganizations, a shareholder of an Acquired Fund (other than the NAF Core Bond Fund) may receive shares of the respective Acquiring Fund 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 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 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; 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 -4- approving the Reorganizations, see "Proposals Nos. 2(a) - (e): The Reorganizations - NAF Board Considerations: Potential Benefits to Shareholders as a result of 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 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. -5- FEE TABLES Actual Fee Table for Shareholders of each of the Acquired Funds+, and each of the Acquiring Funds (as of March 31, 2001) and Proforma Fee Table for each of the Combined Funds as of (March 31, 2001)
NAF Core Bond Fund SunAmerica Core Bond Fund Class Class Class Institutional Class Class Class Class Class ----- ----- ----- ----------------- ----- ----- ----- ----- ----- A B C Class I Class II A B II I Z ----- ----- ----- ------- -------- ----- ----- ----- ----- ----- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on ...... 4.75% None None None None 4.75% None 1.00% None None Purchases (as a percentage of offering price)(1) Maximum Deferred Sales Charge (Load) (as a .. None 5.00% 1.00% None None None 5.00% 1.00% None None percentage of original purchase price or redemption price, whichever is lower)(2) Maximum Sales Charge (Load) Imposed on ...... None None None None None None None None None None Reinvested Dividends Redemption Fee(3) ........................... None 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% 0.60% Distribution and/or Service (12b-1) Fees(4) 0.35% 1.00% 1.00% None None 0.35% 1.00% 1.00% None None Other Expenses ............................ 0.38% 0.38% 0.38% 0.63% 0.38% 0.57% 0.59% 0.62% 0.67% 0.13% Total Annual Fund Operating Expenses Before . 1.33% 1.98% 1.98% 1.23% 0.98% 1.52% 2.19% 2.22% 1.27% 0.73% Expense Reimbursement Expense Reimbursement(5)(6) ................. -- -- -- -- -- 0.19% 0.21% 0.24% 0.04% -- Net Expenses ................................ 1.33% 1.98% 1.98% 1.23% 0.98% 1.33% 1.98% 1.98% 1.23% 0.73% Pro Forma Core Bond Combined Fund* Class Class Class Class Class ------ ----- ----- ----- ----- A B II I** Z** ------ ----- ----- ----- ----- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on ...... 4.75% None 1.00% None None Purchases (as a percentage of offering price)(1) Maximum Deferred Sales Charge (Load) (as a .. None 5.00% 1.00% None None percentage of original purchase price or redemption price, whichever is lower)(2) Maximum Sales Charge (Load) Imposed on ...... None None None None None Reinvested Dividends Redemption Fee(3) ........................... 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% Distribution and/or Service (12b-1) Fees(4) 0.35% 1.00% 1.00% None None Other Expenses ............................ 0.57% 0.59% 0.62% 0.67% 0.13% Total Annual Fund Operating Expenses Before . 1.52% 2.19% 2.22% 1.27% 0.73% Expense Reimbursement Expense Reimbursement(5)(6) ................. 0.19% 0.21% 0.24% 0.04% -- Net Expenses ................................ 1.33% 1.98% 1.98% 1.23% 0.73%
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NAF High Yield Bond Fund SunAmerica High Income Fund Class Class Class Institutional Class Class Class A B C Class I Class II A B II ------- ------- ------- -------- -------- -------- -------- ------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1) ........... 4.75% None None None None 4.75% None 1.00% Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2) ......... None 5.00% 1.00% None None None 5.00% 1.00% Maximum Sales Charge (Load) Imposed on Reinvested Dividends ........................................ None None None None None None None None Redemption Fee(3) ................................. 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% 0.83% 0.83% 0.83% 0.83% 0.75% 0.75% 0.75% Distribution and/or Service (12b-1) Fees(4) ..... 0.35% 1.00% 1.00% None None 0.35% 1.00% 1.00% Other Expenses .................................. 0.39% 0.39% 0.39% 0.64% 0.39% 0.45% 0.43% 0.48% Total Annual Fund Operating Expenses Before Expense Reimbursement .................................... 1.57% 2.22% 2.22% 1.47% 1.22% 1.55% 2.18% 2.23% Expense Reimbursement(5)(6) ....................... -- -- -- -- -- -- -- 0.13% Net Expenses(7) ................................... 1.57% 2.22% 2.22% 1.47% 1.22% 1.55% 2.18% 2.10% Pro Forma High Yield Bond Combined Fund* Class Class Class Class A B II Class I** Z** ----- -------- -------- --------- ------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1) ........... 4.75% None 1.00% None None Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2) ......... None 5.00% 1.00% None None Maximum Sales Charge (Load) Imposed on Reinvested Dividends ........................................ None None None None None Redemption Fee(3) ................................. 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 ................................. 0.75% 0.75% 0.75% 0.75% 0.75% Distribution and/or Service (12b-1) Fees(4) ..... 0.35% 1.00% 1.00% None None Other Expenses .................................. 0.45% 0.43% 0.48% 1.06% 0.20% Total Annual Fund Operating Expenses Before Expense Reimbursement .................................... 1.55% 2.18% 2.23% 1.81% 0.95% Expense Reimbursement(5)(6) ....................... -- -- -- 0.36% -- Net Expenses(7) ................................... 1.55% 2.18% 2.23% 1.45% 0.95%
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NAF Municipal Bond Fund SunAmerica Tax Exempt Insured Fund Class A Class B Class C Class A Class B Class II ------- ------- ------- ---------- ---------- ----------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1)................................ 4.75% None None 4.75% None 1.00% Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2)................................ None 5.00% 1.00% None 5.00% 1.00% 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% 0.50% 0.50% 0.50% Distribution and/or Service (12b-1) Fees(4)................................ 0.15% 1.00% 1.00% 0.35% 1.00% 1.00% Other Expenses.......................... 0.68% 0.68% 0.68% 0.41% 0.47% 2.04% Total Annual Fund Operating Expenses Before Expense Reimbursement............. 1.43% 2.28% 2.28% 1.26% 1.97% 3.54% Expense Reimbursement(5)(6)............... -0.38% -0.38% -0.38% -- -- 1.59% Net Expenses(7)........................... 1.05% 1.90% 1.90% 1.26% 1.97% 1.95% Pro Forma Tax Exempt Insured Combined Fund* Class A Class B Class II ------- ------- -------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1)................................ 4.75% None 1.00% Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2)................................ None 5.00% 1.00% Maximum Sales Charge (Load) Imposed on Reinvested Dividends..................... None None None Redemption Fee(3)......................... None None None Annual Fund Operating Expenses (as a percentage of average net assets) (expenses that are deducted from Fund assets): Management Fees......................... 0.50% 0.50% 0.50% Distribution and/or Service (12b-1) Fees(4)................................ 0.35% 1.00% 1.00% Other Expenses.......................... 0.40% 0.45% 0.62% Total Annual Fund Operating Expenses Before Expense Reimbursement............. 1.25% 1.95% 2.12% Expense Reimbursement(5)(6)............... -- -- -- Net Expenses(7)........................... 1.25% 1.95% 2.12%
-8- Actual and Pro Forma Fee Table for Shareholders of each of the Acquired Funds, each of the Acquiring Funds and each of the Combined Funds on a pro forma basis, each as of March 31, 2001
NAF Strategic Income Fund SunAmerica Diversified Income Fund Institutional Class A Class B Class C Class I Class A Class B Class II ------- ------- ------- -------------- ------- ------- -------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1)..................................... 4.75% None None None 4.75% None 1.00% Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2)...... None 5.00% 1.00% None None 5.00% 1.00% Maximum Sales Charge (Load) Imposed on Reinvested Dividends.......................... None None None None None None None Redemption Fee(3).............................. 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% 0.74% 0.74% 0.74% 0.65% 0.65% 0.65% Distribution and/or Service (12b-1) Fees(4).. 0.35% 1.00% 1.00% None 0.35% 1.00% 1.00% Other Expenses............................... 0.86% 0.86% 0.86% 1.11% 0.54% 0.57% 0.94% Total Annual Fund Operating Expenses Before Expense Reimbursement......................... 1.95% 2.60% 2.60% 1.85% 1.54% 2.22% 2.59% Expense Reimbursement(5)(6).................... -0.38% -0.38% -0.38% -0.38% -- -- 0.44% Net Expenses(7)................................ 1.57% 2.22% 2.22% 1.47% 1.54% 2.22% 2.15% Pro Forma Strategic Income Combined Fund* Class A Class B Class II Class I** ------- ------- -------- -------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1)..................................... 4.75% None 1.00% None Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2)...... None 5.00% 1.00% None Maximum Sales Charge (Load) Imposed on Reinvested Dividends.......................... None None None None Redemption Fee(3).............................. None None None None Annual Fund Operating Expenses (as a percentage of average net assets) (expenses that are deducted from fund assets): Management Fees.............................. 0.65% 0.65% 0.65% 0.65% Distribution and/or Service (12b-1) Fees(4).. 0.35% 1.00% 1.00% None Other Expenses............................... 0.54% 0.57% 0.60% 1.09% Total Annual Fund Operating Expenses Before Expense Reimbursement......................... 1.54% 2.22% 2.25% 1.74% Expense Reimbursement(5)(6).................... -- -- -- 0.30% Net Expenses(7)................................ 1.54% 2.22% 2.25% 1.44%
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NAF U.S. Government Securities Fund SunAmerica U.S. Government Institutional Securities Fund Class A Class B Class C Class I Class A Class B Class II ------- ------- ------- -------------- ------- ------- -------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1)..................................... 4.75% None None None 4.75% None 1.00% Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2)...... None 5.00% 1.00% None None 5.00% 1.00% Maximum Sales Charge (Load) Imposed on Reinvested Dividends.......................... None None None None None None None Redemption Fee(3).............................. 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% 0.75% 0.75% 0.75% Distribution and/or Service (12b-1) Fees(4).. 0.35% 1.00% 1.00% None 0.35% 1.00% 1.00% Other Expenses............................... 0.59% 0.59% 0.59% 0.84% 0.39% 0.42% 1.63% Total Annual Fund Operating Expenses Before Expense Reimbursement......................... 1.54% 2.19% 2.19% 1.44% 1.49% 2.17% 3.38% Expense Reimbursement(5)(6).................... -0.24% -0.24% -0.24% -0.24% -- -- 1.18% Net Expenses................................... 1.30% 1.95% 1.95% 1.20% 1.49% 2.17% 2.20% Pro Forma U.S. Government Securities Combined Fund* Class A Class B Class II Class I** ------- ------- -------- --------- Shareholder Fees (fees paid directly from your investment): Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)(1)..................................... 4.75% None 1.00% None Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption price, whichever is lower)(2)...... None 5.00% 1.00% None Maximum Sales Charge (Load) Imposed on Reinvested Dividends.......................... None None None None Redemption Fee(3).............................. None None None None Annual Fund Operating Expenses (as a percentage of average net assets) (expenses that are deducted from Fund assets): Management Fees.............................. 0.64% 0.64% 0.64% 0.64% Distribution and/or Service (12b-1) Fees(4).. 0.35% 1.00% 1.00% None Other Expenses............................... 0.38% 0.41% 0.51% 0.63% Total Annual Fund Operating Expenses Before Expense Reimbursement......................... 1.37% 2.05% 2.15% 1.27% Expense Reimbursement(5)(6).................... 0.05% 0.05% 0.10% 0.05% Net Expenses................................... 1.32% 2.00% 2.05% 1.22%
-10- __________________ + As reflected in the Acquired Funds Prospectus. * "Other Expenses," "Total Annual Fund Operating Expenses Before Expense Reimbursement" and "Expense Reimbursement" in connection with each of the Acquiring Funds and each of the Combined Funds have been estimated. ** Each 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 Yield Bond Fund will commence offering Class Z shares upon completion of their respective Reorganizations. (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--Comparison of the Funds -- Purchase, Exchange and Redemption of Shares," 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 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). 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 over $1 million 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 -- Comparison of the Funds -- Purchase, Exchange and Redemption of Shares," 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 on-going 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 (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 -11- 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 amount set forth below: Strategic Income Combined Fund, .................... 2.22% High Yield Bond Combined Fund, ..................... 2.18% Tax Exempt Insured Combined Fund, .................. 1.95% 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. -12- These examples are intended to help you compare the cost of investing in the Funds with the cost of investing in other mutual funds. EXAMPLES:
Cumulative Expenses Paid for the Period of: -------------------------------------------- 1 Year 3 Years 5 Years 10 Years(3) ------ ------- ------- ----------- An investor would pay the following expenses on a $10,000 investment and 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: Expenses if you did redeem your shares at the end of the period: --- NAF Core Bond Fund (Class A shares)..................................................... $604 $ 876 $1,169 $2,000 (Class B shares)..................................................... 701 1,021 1,268 2,136 (Class C shares)..................................................... 301 621 1,068 2,306 (Institutional Class I shares)....................................... 125 390 676 1,489 (Class II shares).................................................... 100 312 542 1,201 SunAmerica Core Bond Fund (Class A shares)(1).................................................. $604 $ 876 $1,169 $2,000 (Class B shares)(1).................................................. 701 921 1,268 2,139 (Class II shares)(1)................................................. 399 715 1,157 2,383 (Class I shares)(1).................................................. 125 390 676 1,489 (Class Z shares)..................................................... 75 233 406 906 Pro Forma Core Bond Combined Fund* (Class A shares)(1).................................................. $604 $ 876 $1,169 $2,000 (Class B shares)(1).................................................. 701 921 1,268 2,139 (Class II shares)(1)................................................. 399 715 1,157 2,383 (Class I shares)(1).................................................. 125 390 676 1,489 (Class Z shares)..................................................... 75 233 406 906 NAF High Yield Bond Fund (Class A shares)..................................................... $627 $ 947 $1,290 $2,254 (Class B shares)..................................................... 725 1,094 1,390 2,388 (Class C shares)..................................................... 325 694 1,190 2,554 (Institutional Class I shares)....................................... 150 465 803 1,757 (Class II shares).................................................... 124 387 670 1,477 SunAmerica High Income Fund (Class A shares)..................................................... $625 $ 941 $1,280 $2,233
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Cumulative Expenses Paid for the Period of: -------------------------------------------- 1 Year 3 Years 5 Years 10 Years(3) ------ ------- ------- ----------- An investor would pay the following expenses on a $10,000 investment and 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: Expenses if you did redeem your shares at the end of the period: --- (Class B shares)..................................................... $721 $ 982 $1,369 $2,354 (Class II shares)(1)................................................. 424 790 1,283 2,639 Pro Forma High Yield Bond Combined Fund* (Class A shares)..................................................... $625 $ 941 $1,280 $2,233 (Class B shares)..................................................... 721 982 1,369 2,354 (Class II shares)(2)................................................. 424 790 1,283 2,639 (Class I shares)(1).................................................. 148 459 792 1,735 (Class Z shares)..................................................... 97 303 526 1,166 NAF Municipal Bond Fund(1) (Class A shares)..................................................... $577 $ 870 $1,185 $2,076 (Class B shares)..................................................... 693 1,076 1,386 2,372 (Class C shares)..................................................... 293 676 1,186 2,586 SunAmerica Tax Exempt Insured Fund (Class A shares)..................................................... $597 $ 856 $1,134 $1,925 (Class B shares)..................................................... 700 918 1,262 2,112 (Class II shares)(1)................................................. 396 706 1,142 2,352 Pro Forma Tax Exempt Insured Combined Fund* (Class A shares)..................................................... $596 $ 853 $1,129 $1,915 (Class B shares)..................................................... 698 912 1,252 2,094 (Class II shares)(2)................................................. 413 757 1,228 2,527 NAF Strategic Income Fund(1) (Class A shares)..................................................... $627 $1,023 $1,444 $2,613 (Class B shares)..................................................... 725 1,172 1,546 2,748 (Class C shares)..................................................... 325 772 1,346 2,906 (Institutional Class I shares)....................................... 150 545 965 2,138
-14-
Cumulative Expenses Paid for the Period of: -------------------------------------------- 1 Year 3 Years 5 Years 10 Years(3) ------ ------- ------- ----------- An investor would pay the following expenses on a $10,000 investment and 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: Expenses if you did redeem your shares at the end of the period: --- SunAmerica Diversified Income Fund (Class A shares)..................................................... $624 $ 938 $1,275 $2,222 (Class B shares)..................................................... 725 994 1,390 2,383 (Class II shares)(1)................................................. 416 766 1,243 2,558 Pro Forma Strategic Income Combined Fund* (Class A shares)..................................................... $624 $ 938 $1,275 $2,222 (Class B shares)..................................................... 725 994 1,390 2,383 (Class II shares)(2)................................................. 426 796 1,293 2,659 (Class I shares)(1)..................................... ............ 147 456 787 1,724 NAF U.S. Government Securities Fund(1) (Class A shares)..................................................... $601 $ 916 $1,253 $2,203 (Class B shares)..................................................... 698 1,062 1,353 2,340 (Class C shares)..................................................... 298 662 1,153 2,505 (Institutional Class I shares)....................................... 122 432 764 1,704 SunAmerica U.S. Government Securities Fund (Class A shares)..................................................... $619 $ 933 $1,250 $2,170 (Class B shares)..................................................... 720 979 1,364 2,331 (Class II shares)(1)................................................. 421 781 1,268 2,609 Pro Forma U.S. Government Securities Combined Fund*(1) (Class A shares)..................................................... $603 $ 873 $1,164 $1,990 (Class B shares)..................................................... 703 927 1,278 2,152 (Class II shares).................................................... 406 736 1,192 2,455 (Class I shares)..................................................... 124 387 670 1,477
-15- - ------------------------ * Assuming the Reorganization had taken place on March 31, 2001. (1) Expenses used for the example include fee waivers and expense reimbursements described in footnotes (5) and/or (6) above under "-- Fee Tables." (2) 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. 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 Income Combined Fund................................ 423 787 1,278 2,629
(3) 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. -16-
Cumulative Expenses Paid for the Period of: ------------------------------------------- 1 Year 3 Years 5 Years 10 Years(3) ------ ------- ------- ----------- An investor would pay the following expenses on a $10,000 investment and 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: Expenses if you did not redeem your shares at the end of the period: ------- NAF Core Bond Fund (Class A shares)..................................................... $604 $ 876 $1,169 $ 2,000 (Class B shares)..................................................... 201 621 1,068 2,136 (Class C shares)..................................................... 201 621 1,068 2,306 (Institutional Class I shares)....................................... 125 390 676 1,489 (Class II shares).................................................... 100 312 542 1,201 SunAmerica Core Bond Fund (Class A shares)..................................................... $604 $ 876 $1,169 $ 2,000 (Class B shares)..................................................... 201 621 1,068 2,139 (Class II shares).................................................... 299 715 1,157 2,383 (Class I shares)..................................................... 125 390 676 1,489 (Class Z shares)..................................................... 75 233 406 906 Pro Forma Core Bond Combined Fund*(1) (Class A shares)..................................................... $604 $ 876 $1,169 $ 2,000 (Class B shares)..................................................... 201 621 1,068 2,139 (Class II shares).................................................... 299 715 1,157 2,383 (Class I shares)..................................................... 125 390 676 1,489 (Class Z shares)..................................................... 75 233 406 906 NAF High Yield Bond Fund (Class A shares)..................................................... $627 $ 947 $1,290 $ 2,254 (Class B shares)..................................................... 225 694 1,190 2,388 (Class C shares)..................................................... 225 694 1,190 2,554 (Institutional Class I shares)....................................... 150 465 803 1,757 (Class II shares).................................................... 124 387 670 1,477 SunAmerica High Income Fund (Class A shares)..................................................... $625 $ 941 $1,280 $ 2,233
-17-
Cumulative Expenses Paid for the Period of: -------------------------------------------- 1 Year 3 Years 5 Years 10 Years(3) ------ ------- ------- ----------- An investor would pay the following expenses on a $10,000 investment and 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: Expenses if you did not redeem your shares at the end of the period: ------- (Class B shares)..................................................... $221 $ 682 $1,169 $ 2,354 (Class II shares).................................................... 311 751 1,218 2,507 Pro Forma High Yield Bond Combined Fund*(1) (Class A shares)..................................................... $625 $ 941 $1,280 $ 2,233 (Class B shares)..................................................... 221 682 1,169 2,354 (Class II shares)(2)................................................. 324 790 1,283 2,639 (Class I shares)..................................................... 148 459 792 1,735 (Class Z shares)..................................................... 97 303 526 1,166 NAF Municipal Bond Fund (Class A shares)..................................................... $577 $ 870 $1,185 $ 2,076 (Class B shares)..................................................... 193 676 1,186 2,372 (Class C shares)..................................................... 193 676 1,186 2,586 SunAmerica Tax Exempt Insured Fund (Class A shares)..................................................... $597 $ 856 $1,134 $ 1,925 (Class B shares)..................................................... 200 618 1,062 2,112 (Class II shares).................................................... 296 706 1,142 2,352 Pro Forma Tax Exempt Insured Combined Fund*(1) (Class A shares)..................................................... $596 $ 853 $1,129 $ 1,915 (Class B shares)..................................................... 198 612 1,052 2,094 (Class II shares)(2)................................................. 313 757 1,228 2,527 NAF Strategic Income Fund (Class A shares)..................................................... $627 $1,023 $1,444 $ 2,613 (Class B shares)..................................................... 225 772 1,346 2,748 (Class C shares)..................................................... 225 772 1,346 2,906 (Institutional Class I shares)....................................... 150 545 965 2,138
-18-
Cumulative Expenses Paid for the Period of: -------------------------------------------- 1 Year 3 Years 5 Years 10 Years(3) ------ ------- ------- ----------- An investor would pay the following expenses on a $10,000 investment and 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: Expenses if you did not redeem your shares at the end of the period: ------- SunAmerica Diversified Income Fund (Class A shares)..................................................... $624 $ 938 $1,275 $ 2,222 (Class B shares)..................................................... 225 694 1,190 2,383 (Class II shares).................................................... 316 766 1,243 2,558 Pro Forma Strategic Income Combined Fund*(1) (Class A shares)..................................................... $624 $ 938 $1,275 $ 2,222 (Class B shares)..................................................... 225 694 1,190 2,383 (Class II shares)(2)................................................. 326 796 1,293 2,659 (Class I shares)..................................................... 147 456 787 1,752 NAF U.S. Government Securities Fund (Class A shares)..................................................... $601 $ 916 $1,253 $ 2,203 (Class B shares)..................................................... 198 662 1,153 2,340 (Class C shares)..................................................... 198 662 1,153 2,505 (Institutional Class I shares)....................................... 122 432 764 1,704 SunAmerica U.S. Government Securities Fund (Class A shares)..................................................... $619 $ 933 $1,250 $ 2,170 (Class B shares)..................................................... 220 679 1,164 2,331 (Class II shares).................................................... 321 781 1,268 2,609 Pro Forma U.S. Government Securities Combined Fund*(1) (Class A shares)..................................................... $603 $ 873 $1,164 $ 1,990 (Class B shares)..................................................... 203 627 1,078 2,152 (Class II shares).................................................... 306 736 1,192 2,455 (Class I shares)..................................................... 124 387 670 1,477
-19- - ------------ * Assuming the Reorganization had taken place on March 31, 2001. (1) Expenses used for the example include fee waivers and expense reimbursements described in footnotes (5) and (6) above under "-- Fee Tables." (2) 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. 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 Income Combined Fund................................ 323 787 1,278 2,629
(3) 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 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 -- The Reorganizations -- Potential Benefits to Shareholders as a Result of the Reorganizations," "Proposals Nos. 2(a) - (e): Approval of the Plans -- Comparison of the Funds -- Management Arrangements," and "-- Purchase, Exchange and Redemption of Shares." -20- 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 a 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. The investment objective of each Acquiring Fund is fundamental. The investment objective of each Acquired Fund is fundamental except for the NAF High Yield Bond Fund. 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. 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 Core Bond Combined Fund will have the same investment objective as the NAF Core Bond Fund. Investment Policies - ------------------- Strategies. Both Core Bond Funds pursue their respective investment objectives 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. 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. -21- 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. High Yield Bonds. High-yield bonds are those rated below investment grade -- rated "Baa" or lower by Moody's Investors Service, Inc., ("Moodys") or "BBB" or lower 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 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. Strategic Income 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 Income 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. 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. -22- 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. 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 the Funds -- Management Arrangements -- Comparison of Management and Administrative Arrangements and Fees" for more detailed information regarding the advisory arrangements of the Funds. The table below sets forth the fees, as a percentage of average daily net assets, payable by each Acquired Fund to AGAM for its management and administrative services:
- --------------------------------------------------------------------------------------------------------------------------- Acquired Fund: Advisory Fee: - --------------------------------------------------------------------------------------------------------------------------- First $50 Million Between $50 Between $200 Excess over $500 Million and Million and Million $200 Million $500 Million - --------------------------------------------------------------------------------------------------------------------------- NAF Core Bond Fund 0.600% 0.600% 0.525% 0.475% - --------------------------------------------------------------------------------------------------------------------------- NAF High Yield Bond Fund 0.825% 0.825% 0.725% 0.675% - --------------------------------------------------------------------------------------------------------------------------- NAF Municipal Bond Fund 0.600% 0.600% 0.600% 0.600% - --------------------------------------------------------------------------------------------------------------------------- NAF Strategic Income Fund 0.750% 0.700% 0.650% 0.600% - --------------------------------------------------------------------------------------------------------------------------- NAF U.S. Government Securities Fund 0.600% 0.600% 0.525% 0.475% - ---------------------------------------------------------------------------------------------------------------------------
-23- The table below sets forth the fees, as a percentage of average daily net assets, payable by each Acquiring Fund to SAAMCo for its management and administrative services:
- ------------------------------------------------------------------------------------------------------------------ Acquiring Fund: Advisory Fee - ------------------------------------------------------------------------------------------------------------------ SunAmerica Core Bond Fund Same as NAF Core Bond Fund - ------------------------------------------------------------------------------------------------------------------ SunAmerica High Income Fund 0.75% of average daily net assets up to $200 million; 0.72% of the next $200 million; and 0.55% of average daily net assets in excess of $400 million. - ------------------------------------------------------------------------------------------------------------------ SunAmerica Tax Exempt Insured Fund 0.50% of average daily net assets up to $350 million; and 0.45% of average daily net assets in excess of $350 million. - ------------------------------------------------------------------------------------------------------------------ SunAmerica Diversified Income Fund 0.65% of average daily net assets up to $350 million; and 0.60% of average daily net assets in excess of $350 million. - ------------------------------------------------------------------------------------------------------------------ SunAmerica U.S. Government Securities 0.65% of average daily net assets up to $200 million; 0.62% of the next Fund $200 million; and 0.55% of average daily net assets in excess of $400 million. - ------------------------------------------------------------------------------------------------------------------
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 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:
Combined Fund: Pro Forma Effective Advisory Fee Rate: - ------------------------------------------------------------------------------------------------------------------ Core Bond Combined Fund 0.60% - ------------------------------------------------------------------------------------------------------------------ High Yield Bond Combined Fund 0.75% - ------------------------------------------------------------------------------------------------------------------ Tax Exempt Insured Combined Fund 0.50% - ------------------------------------------------------------------------------------------------------------------ Strategic Income 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 Income 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. -24- 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 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 -- Comparison of the Funds -- Management Arrangements -- Comparison of Management and Administrative Arrangements and Fees --Comparison of the NAF Investment Advisory Agreement and SunAmerica Investment Advisory Agreement" 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, 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. See "Proposals Nos. 2(a) - (e): Approval of the Plans -- Comparison of the Funds -- Management Arrangements - -- Comparison of Management and Administrative Arrangements and Fees -- Comparison of the NAF Subadvisory Agreement and SunAmerica Subadvisory Agreement") for further discussion regarding these agreements. See "Proposals Nos. 2(a) - (e): Approval of the Plans -- Comparison of the Funds -- Management Arrangements -- Comparison of Management and Administrative Arrangements and Fees -- Comparison of the NAF Subadvisory Agreement and SunAmerica Subadvisory Agreement" for further discussion regarding these agreements. 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 -- Comparison of the Funds -- Distribution Arrangements" 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 -- Comparison of the Funds -- Distribution and Shareholder Servicing Arrangements -- Shareholder Servicing Fee for Class I" 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 -- Comparison of the Funds -- Other Service Agreements with Affiliates" 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 on certain Fund matters, including the election of trustees, changes in fundamental policies, or approval of changes in investment advisory agreements. -25- Class Structure. Each of the Acquired Funds currently offers Class A, Class B, Class C shares, and except for the NAF Municipal Bond Fund, each of the Acquired Funds currently offers Institutional Class I shares. In addition, the NAF Core Bond Fund and the NAF High Yield Bond Fund currently offer Institutional Class II shares. Each of the Acquiring Funds (except the SunAmerica Core Bond Fund) currently offers three classes of shares (Class A, Class B and Class II). After consummation of the Reorganization, the Core Bond Combined Fund will offer Class A, Class B and Class II shares. After consummation of the Reorganizations, each Combined Fund (except the Tax Exempt Insured Combined Fund) will also offer Class I shares and the Core Bond Combined Fund and the High Yield Bond Combined Fund will offer Class Z shares. For the avoidance of confusion, Class II with respect to the Acquired Funds is pronounced "Class Double Eye," while Class II with respect to the Acquiring Funds is pronounced "Class 2." 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 -- 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. 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 -- Purchase, Exchange and Redemption of Shares" 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 -- Comparison of the Funds -- Dividend Distribution and Account Policies -- 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 afer 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 -- Comparison of the Funds -- Purchase, Exchange and Redemption of Shares -- Dividend Distribution and Account Policies-- Valuation of Fund Shares" below, "Pricing of Fund Shares" in the Acquired Funds Prospectuses and "Transaction Policies" in the Acquiring Funds Prospectus. 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. For a more detailed discussion regarding potential tax consequences of the Reorganizations, see "Proposals Nos. 2(a) - (e): Approval of the Plans -- The Reorganizations -- Federal Income Tax Consequences of the Reorganizations." -26- PRINCIPAL RISK FACTORS AND SPECIAL CONSIDERATIONS ------------------------------------------------- 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 certain 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 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. 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. Illiquidity Risk - ---------------- Each Fund is subject to the risk that certain securities may be difficult or impossible to sell at the time and the price that the seller would like. 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. Derivatives - ------------ Each Fund may invest in derivatives which are subject to general risks related to heightened sensitivity to market volatility, interest rate fluctuations, illiquidity and creditworthiness of the counterparty to the derivatives transactions. -27- Hedging - ------- Each Fund may employ a hedging strategy in which it uses a derivative security to reduce certain risk characteristics of an underlying security or portfolio of securities. While hedging strategies can be very useful and inexpensive ways of reducing risk, they are sometimes ineffective due to unexpected changes in the market. Moreover, while hedging can reduce or eliminate losses, it can also reduce or eliminate gains. Core Bond Funds, High Yield Bond Funds and 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. Municipal Bond Funds and U.S. Government Securities Funds Prepayment - ---------- 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. -28- PROPOSALS NOS. 1(a)-(b): ------------------------ APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT ------------------------------------------------- AND THE NEW SUBADVISORY AGREEMENT --------------------------------- THE MERGER AND THE NEW INVESTMENT ADVISORY AND SUBADVISORY AGREEMENTS Board Considerations On _________, 2001, the Merger, pursuant to which AIG acquired American General, was consummated. As a result of the Merger, AGAM became a subsidiary of AIG. As required by the Investment Company Act, the Previous Investment Advisory Agreement provided for automatic termination upon its assignment. The consummation of the Merger constituted an assignment, as that term is defined in the Investment Company Act, of the Previous Investment Advisory Agreement, and, consequently, its termination. At a meeting held on July 16-17, 2001, the NAF Board, including all of the NAF Independent Trustees, unanimously approved the Interim Investment Advisory Agreement and Interim Subadvisory Agreement (collectively the "Interim Agreements") pursuant to Rule 15a-4 under the Investment Company Act in order to allow AGAM and New AGIM to continue to serve as investment adviser and subadviser respectively for the Acquired Funds after the 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 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 Investment Advisory Agreement differs from the Previous Investment Advisory Agreement only with respect to the effective date, the term, and the escrow provisions relating to AGAM's fees (as described above). Under the Investment Company Act, however, AGAM and 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 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. The New Investment Advisory Agreement differs from the Previous Investment Advisory 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. 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 and AGIM. The NAF Board considered that the 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. -29- 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 Merger. In addition, the NAF Board considered the fact that at some point after consummation of the 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 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). 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). 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 -- -30- The Funds -- All Funds -- 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 -- The Reorganizations -- 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, $763,875, $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 advisor 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. 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. 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 Merger. AGAM is located at 286 Congress Street, Boston, Massachusetts 02210. Prior to the 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 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, 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) - ------------------------------------------------------------------------------------------------------------------ Alice T. Kane Chief Executive Officer, President and Chairman of the Board of 390 Park Avenue Directors; Executive Vice President, American General Fund New York, NY 10022 Group; Executive Vice President, the Variable Annuity Life Insurance Company and American General Annuity Insurance Company. Ms. Kane also serves as the Chairman of the Board, Trustee and President of North American Funds. - ------------------------------------------------------------------------------------------------------------------ John A. Graf Senior Vice Chairman, Asset Accumulation, American General. 2929 Allen Parkway Houston, TX 77019 - ------------------------------------------------------------------------------------------------------------------
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Name and Address Position with AGAM and Principal Occupation(s) - ------------------------------------------------------------------------------------------------------------------ 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. For the fiscal year ended October 31, 2000, AGAM was paid fees on 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. -32- Proposal No. 1(b) THE NEW SUBADVISORY AGREEMENT Description of the New Subadvisory Agreement As a proposal separate from the proposal to approve the New Investment Advisory Agreement and 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 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 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.
Acquired Fund: Subadvisory Fee: - ------------------------------------------------------------------------------------------------------------------------- First $50 Million Between $50 Million Between $200 Excess Over and $200 Million Million and $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 advisor 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. The Board of Trustees of North American Funds unanimously recommends that the shareholders of each Acquired Fund approve the New Subadvisory Agreement. 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. -33- 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 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 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, 2000, AGIM received total advisory fees of $13,058 and $24,888 in connection with the NAFVPII Core Bond Fund and the NAFVPII High Yield Bond Fund, respectively. 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 Merger. 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 [Principal occupations to come]. - ------------------------------------------------------------------------------------------------------------------ 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. - ------------------------------------------------------------------------------------------------------------------
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 - - - The Funds -- 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. 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. 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. -34- Illiquid Securities. As a non-fundamental restriction, no Fund may invest more than 10% of its net assets (15% for the Core Bond Funds, High Yield Bond Funds and Strategic Income Funds) 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 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%. 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. Tax Exempt Insured Funds ------------------------ Borrowing. Each Tax Exempt Insured 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 similar transactions. When borrowing for temporary or emergency purposes, the NAF Municipal Bond Fund may borrow up to 33% of the value of its respective 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 Tax Exempt Insured 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 Income 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 Income 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% 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. -35- 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. 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.
Name, Age and Address Position Principal Occupations with the Trust During Past 5 Years - ---------------------------------------------------------------------------------------------------------------------- S. James Coppersmith, 68 Trustee Retired; formerly, President and General Manager, WCVB-TV, a division of the Hearst Corp. (1982 to 1994); Director/Trustee of SAMF and Anchor Series Trust ("AST"). - ---------------------------------------------------------------------------------------------------------------------- Samuel M. Eisenstat, 60 Chairman of the Board Attorney, solo practitioner; Chairman of 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 President Director and President, SAAMCo, since 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. - ----------------------------------------------------------------------------------------------------------------------
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- ---------------------------------------------------------------------------------------------------------------------- Robert M. Zakem, 43 Secretary and Chief Senior Vice President and General Counsel, SAAMCo, Compliance Officer 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. -37- 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, 55 Retired Administrator. Trustee, North American 3212 Ewing Street Funds Variable Product Series II, 15 investment Houston, TX 77004 portfolios (November 1998 to present); Director, North American 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 World 1996-1999). - -------------------------------------------------------------------------------------------------------- William F. Devin, 63 Member of the Board of Governors, Boston Stock 44 Woodland Road Exchange (1985 to present); Formerly, Executive Braintree, MA 02184 Vice President, 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 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 -38- 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") 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 will cease 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.
Pension or Aggregate Retirement Estimated Annual Total Compensation Compensation from Benefits Accrued Benefits Upon From Registrant and Trustee Registrant as Part of Trust Retirement** Fund Complex Paid to Expenses* 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. 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 Merger, AGAM and the NAF Distributor were both wholly owned subsidiaries of American General. Prior to the 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, -39- 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): Approval of the New Investment Advisory Agreement -- Description of the New Investment Advisory Agreement." 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 Income 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 The Reorganizations -- NAF Board Considerations: Potential Benefits to Shareholders as a Result of the Reorganizations." The effective 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 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 Funds Management Arrangements." 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 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 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. -40- 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 the 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 7/7/01-10/31/01), 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 Income Combined Fund pursuant to the SunAmerica Subadvisory Agreement subject to shareholder approval of the respective Acquiring Fund. 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 willful misfeasance, bad faith, gross negligence or reckless disregard of New AGIM's (and its affiliates') obligations or duties thereunder ("disabling conduct"), 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, New AGIM will indemnify SAAMCo (and its affiliates) from any liability arising from AGIM's conduct under the SunAmerica Subadvisory Agreement. With respect to the indemnification the NAF Subadvisory Agreement does not contain a similar provision. 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, 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. -41-
Acquired Acquiring Account Maintenance Fund Class Fund Class Distribution 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. 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 investment . non-retirement accounts: $1,000 . non-retirement accounts: $500 . retirement accounts: $50 . retirement accounts: $250 . automatic investment . dollar cost averaging: $500 to programs: $50 open Class B shares are available for purchases of $250,000 or less. Class C shares are available for purchases under $1 million.
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Purchase, Redemption and Exchange Features Acquired Funds Acquiring Funds - ------------------------------------ -------------------------------------- -------------------------------------- Institutional Class I shares are available for purchases of $1 million or more Minimum subsequent investments $50 . non-retirement account: $100 . retirement account: $25 . dollar cost averaging: you must invest at least $25 per month Initial Sales Charge Class A: 4.75% Class A: 4.75% (as 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) Purchases over $1 million are sold Initial sales charge is waived for without an initial sales charge certain investors Deferred Sales Charge Class A: Purchases of shares worth Class A: Purchases of Class A shares over $1 million that are sold without over $1 million that are redeemed an initial sales charge and redeemed within a certain period of time are within 1 year are subject to a 1% subject to a CDSC (1% for redemptions CDSC at redemption within one year of purchase and 0.50% for redemptions after the first year Class B: Shares redeemed within 6 and within the second year of years are subject to a CDSC(b)(c) purchase) Class C: Shares redeemed within one Class B: Shares redeemed within 6 year are subject to a 1% CDSC(c) years are subject to a CDSC(b)(c) Institutional Class I: None Class II: Shares redeemed within 18 months after purchase are subject to a 1% CDSC(c) Class I: None Purchases By mail (check), wire or through By mail (check), wire or through a broker-dealers broker or financial advisor Redemption Class A, B and C: By mail, wire (if Class A, B and II: By mail, wire a minimum of $1,000), telephone or (any amount for requests by mail and through broker-dealers less than $100,000 for requests by telephone), telephone (for amounts Institutional Class I: Contact the less than $100,000) or through a financial intermediary or other broker or financial advisor organization from whom shares were purchased Class I: Contact the financial intermediary or other organization from whom shares were purchased Conversion Class B shares automatically convert Class B shares automatically convert into Class A shares eight years after into Class A shares approximately purchase eight years after purchase Exchanges Shares of an Acquired Fund may be Shares of an Acquiring Fund may be exchanged for shares of the same exchanged for shares of the same
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Purchase, Redemption and Exchange Features Acquired Funds Acquiring Funds - ------------------------------------ -------------------------------------- -------------------------------------- class of any other Acquired Fund or class of any other fund distributed other series of North American Funds by SACS 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 Acquiring Funds, Class I shares will be offered by the Combined Funds upon consummation of the Reorganizations. (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 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. 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 -44- 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 "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 "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 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 -45- 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 Fund's Statement for information about the NAF Core Bond Fund's performance. In addition, after the Reorganizations, the High Yield Bond and Strategic Income 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 Fund's Statement for information about the NAF High Yield Bond Fund's and NAF Strategic Income Fund's performance. There have been no sales of Class I shares of the NAF U.S. Government Securities Fund. Accordingly, no performance information is shown. Important information about the Acquiring Funds 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 -46- 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. -47-
Average Annual Total Returns ----------------------------------------- (periods ended June 30, 2001) ----------------------------------------- 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 ------------ ---------- ---------- ------------- ------------- ---------- --------- --------- 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) ----------------------------------------- NAF Municipal Bond Fund SunAmerica Tax Exempt 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)
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NAF Strategic Income Fund SunAmerica Diversified 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)
______________________ * 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. -49-
Average Annual Total Returns ---------------------------------------------- (for the periods ended June 30, 2001) ---------------------------------------------- NAF U.S. Government Securities Fund SunAmerica U.S. Government 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)
-50- 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 cast one vote per share 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. Additional Information Independent Auditors -------------------- Currently ___________________ serve as the independent auditors of the Acquired Funds (except the NAF High Yield Bond Fund for which ____________ serve as the independent auditors) and also serves as the independent auditors of the Acquiring Funds. If the Reorganizations are completed, it is currently anticipated that ___________________ will serve as the independent auditors of the Combined Funds. The principal business address of ___________________ is -51- 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 $0.01 per share, divided into classes as follows:
- ------------------------------------------------------------------------------------------------------------------ Fund Classes Offered - ------------------------------------------------------------------------------------------------------------------ NAF Core Bond Fund A, B, C, Institutional Class II and Institutional Class I - ------------------------------------------------------------------------------------------------------------------ NAF High Yield Bond Fund A, B, C, Institutional Class II 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:
- ------------------------------------------------------------------------------------------------------------------ Fund Classes Offered - ------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------
-52- 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 -- Fee Tables" 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 "-- Terms of the Plans -- 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 Fund's assets and operations, the possibility that 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. 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 (as defined in the Plans) 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 -53- 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 would 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. 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 next full business day following the Valuation Time (the "Closing Date"), 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. -54- Required Approvals ------------------ The completion of each Reorganization is conditioned upon, among other things, the receipt of certain regulatory approvals. 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. 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 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 Acquiring Funds. . The gross and net expense ratios of the Acquired Funds and the Acquiring Funds before the Reorganizations 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. -55- . The fact that SAAMCo has contractually 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. . 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 those 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 Income 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 Corebond 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. 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 not net assets as of such date. -56-
Total Net Assets as of March 31, 2001 NAF Core Bond Fund SunAmerica Core Bond Fund Pro Forma Core Bond 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 Class II $321,862,517 Total N/A Total $355,724,659 Total $355,724,659 NAF High Yield Bond Fund SunAmerica High Yield Bond Fund Pro Forma High Yield Combined Fund Class A $509,518 Class A $52,966,252 Class A $53,475,770 Class B $3,054,455 Class B $67,138,966 Class B $70,193,451 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 Class II $62,945,618 Total $210,142,822 Total $69,654,837 NAF Municipal Bond Fund SunAmerica Tax Exempt Insured Fund Pro Forma Tax Exempt Insured Combined Fund Class A $8,591,093 Class A $72,393,871 Class A $80,952,650 Class B $7,979,498 Class B $16,301,949 Class B $24,251,433 Class C $4,092,241 Class II $720,950 Class II $4,797,799 Total $20,662,832 Total $89,416,770 Total $110,001,882 NAF Strategic Income Fund SunAmerica Diversified Income Fund Pro Forma Strategic Income 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 $36,189,976 NAF U.S. Government Securities SunAmerica U.S. Government Securities Pro Forma U.S. Government Securities Fund Fund Combined Fund Class A $33,746,846 Class A $169,523,987 Class A $203,242,514 Class B $9,485,878 Class B $32,085,141 Class B $41,563,059 Class C $7,443,184 Class II $3,302,887 Class II $10,739,825 Institutional Total $214,912,015 Class I $ 0 Class I $0 Total $255,545,398 Total $50,675,908
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 having 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 -57- 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 footnote 4 under "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 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 net asset value of the Funds, and therefore the interests of the shareholders of each Acquired Fund would not be diluted as a result of effecting the respective Reorganizations, 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. The SunAmerica Board has also approved the Plans on behalf of the Acquiring Funds. 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. 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," (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 -58- exchange for its 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 the 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. 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 foreign, 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 Combined Funds intend to continue to operate or continue to operate so as 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. -59- 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 Class A Class B Class C Class I Class II Class A Class B Class II Class I Class Z ---------- ---------- ---------- ------------- ------------- ----------- ----------- ----------- ------------------- Total Net $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 Shares $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 Shares $ 509,518 $3,054,455 $1,006,996 $ 2,138,250 $ 62,945,618 $52,966,252 $67,138,996 $20,382,737 Shares Outstanding 101,296 607,248 199,405 425,099 12,514,039 10,532,517 13,341,244 4,039,070 Net Asset Value Per Share $ 5.03 $ 5.03 $ 5.05 $ 5.03 $ 5.03 $ 5.03 $ 5.03 $ 5.05
Pro Forma High Yield Combined Fund Class A Class B Class II Class I Class Z ----------- ----------- ----------- ---------- ----------- Total Net Shares $53,475,770 $70,193,451 $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
Pro Forma Tax Exempt NAF Municipal Bond Fund SunAmerica Tax Exempt Insured Fund Insured Combined Fund Class A Class B Class C Class A Class B Class II Class A Class B Class II ---------- ----------- ----------- ------------- ---------- ----------- ----------- ---------- ----------- Total Net Shares $8,591,093 $ 7,979,498 $ 4,092,241 $72,393,871 $ 16,301,949 $ 720,950 $80,952,650 $24,251,433 $4,797,799 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 Assets Value Per Share $ 10.02 $ 10.03 $ 10.03 $ 13.02 $ 13.02 $ 13.02 $ 13.02 $ 13.02 $ 13.02
-60-
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 Shares $7,497,415 $13,313,079 $12,646,764 $ 2,729,718 $30,923,542 $16,741,565 $4,020,990 Shares Outstanding 2,224,752 3,938,781 3,741,646 810,005 9,178,230 4,959,910 1,190,805 Net Asset Value Per Share $ 3.37 $ 3.38 $ 3.38 $ 3.37 $ 3.37 $ 3.38 $ 3.38
Pro Forma Strategic Income Combined Fund Class A Class B Class II Class I ----------- ----------- ----------- ------ Total Net Shares $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
NAF U.S. Government Securities Fund SunAmerica U.S. Government Securities Fund Institutional Class A Class B Class C Class I Class A Class B Class II ---------- ----------- ----------- ------------- ----------- ----------- ---------- Total Net Shares $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 Institutional Class A Class B Class II Class I ---------- ----------- ----------- ------------- Total Net Shares $203,242,514 $41,563,059 $10,739,825 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 time of the applicable Reorganization. -61- 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.
NAF Fund Class A Shares Class B Shares Class C Shares Class II Shares Institutional Class I Shares - -------------------------------------------------------------------------------------------------------------------------- NAF Core Bond Fund - -------------------------------------------------------------------------------------------------------------------------- NAF High Yield Bond Fund - -------------------------------------------------------------------------------------------------------------------------- NAF Municipal N/A N/A Bond Fund - -------------------------------------------------------------------------------------------------------------------------- NAF Strategic N/A Income Fund - -------------------------------------------------------------------------------------------------------------------------- NAF U.S. N/A Government Securities Fund - --------------------------------------------------------------------------------------------------------------------------
-62- 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:
Name of Fund Name and Address Percentage and type of Percentage of class of of Shareholder ownership shares after the Reorganization on a pro forma basis* NAF Core Bond Fund [Insert [Insert % and type of [Insert %] shareholder(s)] ownership] NAF High Yield Bond Fund [Insert [Insert % and type of [Insert %] shareholder(s)] ownership] NAF Municipal Bond Fund [Insert [Insert % and type of [Insert %] shareholder(s)] ownership] NAF Strategic Income Fund [Insert [Insert % and type of [Insert %] shareholder(s)] ownership] NAF U.S. Government Securities [Insert [Insert % and type of [Insert %] Fund shareholder(s)] ownership] Sun America High Income Fund [Insert [Insert % and type of [Insert %] shareholder(s)] ownership] SunAmerica Tax Exempt Insured [Insert [Insert % and type of [Insert %] Fund shareholder(s)] ownership] SunAmerica Diversified Income [Insert [Insert % and type of [Insert %] Fund shareholder(s)] ownership] SunAmerica U.S. Government [Insert [Insert % and type of [Insert %] Securities Fund shareholder(s)] ownership]
*Assuming that [shareholder] owns the same number of shares of the [Fund] on the date of consummation of the applicable Reorganization as on August 31, 2001, [shareholder] will own of record, on a pro forma basis, ______ shares of the [Fund] after completion of such Reorganization. At August 31, 2001, the directors and officers of North American Funds as a group (___ 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. [confirm] At August 31, 2001, the directors and officers of SunAmerica Income 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. [confirm] 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 -63- 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 will have the same effect as a vote against approval of the New Investment Advisory Agreement or of 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. Any such adjournment will require the 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 to be adjourned. 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. 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 $______ 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 persons 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. 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 -64- 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 and at the New York Regional Office of the Commission at Seven World Trade Center, New York, New York 10048. 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 included in this Proxy Statement and Prospectus have been so included in reliance on the reports of ________________________, independent auditors (and _____ for the NAF High Yield Bond Fund), given on their authority as experts in auditing and accounting. The principal business address of ________________________ is _____________________ . 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 John I. Fitzgerald _____________________________________ Secretary, North American Funds -65- SUBJECT TO COMPLETION 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 Statements and Prospectuses (the "Proxy Statements and Prospectuses"), each dated September __, 2001, which have 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 Statements and Prospectuses 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 each 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 Statements and Prospectuses. 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, 2000 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 September [20], 2001. . The Annual Report of the Existing Acquiring Funds for the year ended March 31, 2001. . The combined Statement of Additional Information of the Acquired Funds, dated March 1, 2001. . 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 date of this Statement of Additional Information is September __, 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. 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
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. 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") New 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 Class II or Class Z shares of the respective Acquiring Fund. 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 Reorganizations 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 September [27], 2001. B-3 For further information about the Reorganizations, see the Proxy Statements and Prospectuses. FINANCIAL STATEMENTS Unaudited Pro forma financial statements reflecting consummation of each Reorganization are included herein. 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. Audited financial statements and accompanying notes for the fiscal year ended March 31, 2000 for the Acquiring Funds and the independent auditor's report thereon are incorporated herein by reference to SunAmerica Income Fund's 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: C-1 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 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 by the Shareholders. (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 C-2 (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. 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: C-3 (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 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 C-4 Registrant by the Distributor specifically for use therein; and the Distributor will reimburse any legal or other expensed 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 C-5 the payment by the Registrant of expenses incurred or 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. ITEM 16. EXHIBITS Exhibit No. - ----------- 1. (a) Declaration of Trust of the Registrant, as ammended. (1) 2. By-laws of the Registrant. (1) 3. Not applicable. 4. Form of Agreement and Plan of Reorganization (4). 5. Instruments defining rights of shareholders (incorporated by reference to Exhibits 1 and 2 above). 6. 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.(4) 12. (a) Opinion and consent of Shearman & Sterling, counsel to the Registrant, regarding certain tax matters relating to the Reorganization between the C-6 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 IncomeFunds. (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) Auditor's Consent. (4) (b) Auditor's Consent. (4) 15. Not applicable. 16. Power of Attorney.(4) 17. (a) Prospectus, dated September [20], 2001 of SunAmerica Income Funds (Class A shares, Class B shares, Class II shares, Class I shares and Class Z shares). (5) (b) Prospectus dated March 1, 2001 of North American Funds (Class A shares, Class B shares and Class C shares). (6) (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 I). (6) C-7 (e) Statement of Additional Information, dated September [20], 2001 of SunAmerica Income Funds. (5) (f) Combined Statement of Additional Information dated March 1, 2001 of North American Funds. (6) (g) Statement of Additional Information dated February 28, 2001 of SunAmerica Style Select Series, Inc. (7) (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. (4) (l) Q&A. (4) (m) Form of Proxy Cards.* * 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 Jyly 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. 29 to the Registrant's Registration Statement on Form N-1A (File No. 33-6502) on September [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. C-8 (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 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-9 SIGNATURES As required by the Securities Act of 1933, this Registration Statement has been signed on behalf of the Registrant, in the city of New York, and State of New York, on the 16th day of August, 2001. SUNAMERICA INCOME FUNDS (Registrant) By: /S/ Peter A. Harbeck ---------------------- 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.
Signatures Title Date - ---------- ----- ---- /S/ Peter A. Harbeck President and Trustee (Principal Executive Officer) August 16, 2001 - --------------------------- Peter A. Harbeck /S/ Peter C. Sutton Treasurer (Principal Financial and Accounting Officer) August 16, 2001 - --------------------------- Peter C. Sutton Trustee - --------------------------- S. James Coppersmith /S/ Samuel M. Eisenstat Trustee August 16, 2001 - --------------------------- Samuel M. Eisenstat /S/ Stephen J. Gutman Trustee August 16, 2001 - --------------------------- Stephen J. Gutman /S/ Sebastiano Sterpa Trustee August 16, 2001 - --------------------------- Sebastiano Sterpa
C-10 EXHIBIT INDEX Exhibit No. - ----------- 17. (m) Form of Proxy Cards. EX-99.17M 3 dex9917m.txt PROXY CARD Core Bond Fund of North American Funds 286 Congress Street Boston, MA 02210 P R O X Y 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, Alice T. Kane and Todd Spillane as proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse hereof, all of the shares of the Core Bond 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 on November 7, 2001 at 10 a.m. Eastern Time and at any adjournment thereof. 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) AND 2. By signing and dating the reverse side of 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 calling a specially designated telephone number (toll free 1-888-850-2811) or via the Internet at http://proxy. ____________ .com. (Continued and to be signed on the reverse side)
1. (a) To approve or disapprove a new investment advisory FOR [ ] AGAINST [ ] ABSTAIN [ ] 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. (b) To approve or disapprove a new Subadvisory agreement between AGAM and American General Investment Management, FOR [ ] AGAINST [ ] ABSTAIN [ ] L.P. ("AGIM") or an affiliate thereof, the terms of which are the same in all material respects to the previous Subadvisory agreement between AGAM and AGIM. 2. To approve the Agreement and Plan of Reorganization between North American Funds on behalf of the Fund and SunAmerica Income FOR [ ] AGAINST [ ] ABSTAIN [ ] Funds on behalf of its Core Bond Fund. 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. 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 RECEIPT OF THE NOTICE OF THE SPECIAL MEETING AND THE ACCOMPANYING corporation, please sign in full corporate name by PROXY STATEMENT IS HEREBY ACKNOWLEDGED. president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. Dated:_________________________________ PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND X______________________________________ RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. Signature X______________________________________ Signature, if held jointly
High Yield Bond Fund of North American Funds 286 Congress Street Boston, MA 02210 P R O X Y 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, Alice T. Kane and Todd Spillane as proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse hereof, all of the shares of the High Yield Bond 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 on November 7, 2001 at 10 a.m. Eastern Time and at any adjournment thereof. 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), (b) AND 2. By signing and dating the reverse side of 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 calling a specially designated telephone number (toll free 1-888-850-2811) or via the Internet at http://proxy. ____________ .com. (Continued and to be signed on the reverse side)
1. (a) To approve or disapprove a new investment advisory FOR [ ] AGAINST [ ] ABSTAIN [ ] agreement between American General Asset Management Corp. ("AGAM") and North American Funds on behalf of each of the Fund, the terms of which are the same in all material respects as the previous investment advisory agreement with AGAM. (b) To approve or disapprove a new Subadvisory agreement between AGAM and American General Investment Management, FOR [ ] AGAINST [ ] ABSTAIN [ ] L.P. ("AGIM") or an affiliate thereof, the terms of which are the same in all material respects to the previous Subadvisory agreement between AGAM and AGIM. FOR [ ] AGAINST [ ] ABSTAIN [ ] 2. To approve the Agreement and Plan of Reorganization between North American Funds on behalf of the Fund and SunAmerica Income Funds on behalf of its High Yield Bond Fund. PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. When shares are held by joint tenants, both should sign. 3. In their discretion, the named proxies may vote to transact When signing as attorney or as executor, such other business as properly may come before the meeting or administrator, trustee or guardian, or as custodian any adjournment thereof. 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. RECEIPT OF THE NOTICE OF THE SPECIAL MEETING AND THE ACCOMPANYING Dated:_________________________________ PROXY STATEMENT IS HEREBY ACKNOWLEDGED. X______________________________________ Signature X______________________________________ Signature, if held jointly PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
Municipal Bond Fund of North American Funds 286 Congress Street Boston, MA 02210 P R O X Y 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, Alice T. Kane and Todd Spillane as proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse hereof, all of the shares of the Municipal Bond 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 on November 7, 2001 at 10 a.m. Eastern Time and at any adjournment thereof. 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), (b) AND 2. By signing and dating the reverse side of 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 calling a specially designated telephone number (toll free 1-888-850-2811) or via the Internet at http://proxy. ____________ .com. (Continued and to be signed on the reverse side) 1. (a) To approve or disapprove a new investment advisory FOR [ ] AGAINST [ ] ABSTAIN [ ] agreement between American General Asset Management Corp. ("AGAM") and North American Funds on behalf of the Fund, the terms of which are the in all material respects as the previous investment advisory agreement with AGAM. (b) To approve or disapprove a new Subadvisory agreement between AGAM and American General Investment Management, FOR [ ] AGAINST [ ] ABSTAIN [ ] L.P. ("AGIM") or an affiliate thereof, the terms of which are the same in all material respects to the previous Subadvisory agreement between AGAM and AGIM. 2. To approve the Agreement and Plan of Reorganization between FOR [ ] AGAINST [ ] ABSTAIN [ ] North American Funds on behalf of the Fund and SunAmerica Income Funds on behalf of its Municipal Bond Fund. 3. In their discretion, the named proxies may vote to transact PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. When such other business as properly may come before the meeting or shares are held by joint tenants, both should sign. any adjournment thereof. 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 RECEIPT OF THE NOTICE OF THE SPECIAL MEETING AND THE ACCOMPANYING partnership, please sign in partnership name by PROXY STATEMENT IS HEREBY ACKNOWLEDGED. authorized persons. Dated:_________________________________ X______________________________________ Signature PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND X______________________________________ RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. Signature, if held jointly
Strategic Income Fund of North American Funds 286 Congress Street Boston, MA 02210 P R O X Y 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, Alice T. Kane and Todd Spillane as proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse hereof, all of the shares of the Strategic Income 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 on November 7, 2001 at 10 a.m. Eastern Time and at any adjournment thereof. 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), (b), AND 2. By signing and dating the reverse side of 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 calling a specially designated telephone number (toll free 1-888-850-2811) or via the Internet at http://proxy. ____________ .com. (Continued and to be signed on the reverse side) 1. (a)To approve or disapprove a new investment advisory FOR [ ] AGAINST [ ] ABSTAIN [ ] 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. (b) To approve or disapprove a new Subadvisory agreement between AGAM and American General Investment Management, FOR [ ] AGAINST [ ] ABSTAIN [ ] L.P. ("AGIM") or an affiliate thereof, the terms of which are the same in all material respects to the previous Subadvisory agreement between AGAM and AGIM. FOR [ ] AGAINST [ ] ABSTAIN [ ] 2. To approve the Agreement and Plan of Reorganization between North American Funds on behalf of the Fund and SunAmerica Income PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. When Funds on behalf of its Strategic Income Fund. shares are held by joint tenants, both should sign. When signing as attorney or as executor, 3. In their discretion, the named proxies may vote to transact administrator, trustee or guardian, or as custodian such other business as properly may come before the meeting or for a minor, please give full title as such. If a any adjournment thereof. corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by RECEIPT OF THE NOTICE OF THE SPECIAL MEETING AND THE ACCOMPANYING authorized persons. PROXY STATEMENT IS HEREBY ACKNOWLEDGED. Dated:_________________________________ X______________________________________ Signature X______________________________________ Signature, if held jointly PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
U.S. Government Securities Fund of North American Funds 286 Congress Street Boston, MA 02210 P R O X Y 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, Alice T. Kane and Todd Spillane as proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse hereof, all of the shares of the U.S. Government Securities 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 on November 7, 2001 at 10 a.m. Eastern Time and at any adjournment thereof. 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 AND 2. By signing and dating the reverse side of 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 calling a specially designated telephone number (toll free 1-888-850-2811) or via the Internet at http://proxy. ____________ .com. (Continued and to be signed on the reverse side) 1. To approve or disapprove a new investment advisory agreement FOR [ ] AGAINST [ ] ABSTAIN [ ] 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. 2. To approve the Agreement and Plan of Reorganization between FOR [ ] AGAINST [ ] ABSTAIN [ ] North American Funds on behalf of the Fund and SunAmerica Income Funds on behalf of its U.S. Government Securities Fund. PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. When shares are held by joint tenants, both should sign. 3. In their discretion, the named proxies may vote to transact When signing as attorney or as executor, such other business as properly may come before the meeting or administrator, trustee or guardian, or as custodian any adjournment thereof. 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 RECEIPT OF THE NOTICE OF THE SPECIAL MEETING AND THE ACCOMPANYING partnership, please sign in partnership name by PROXY STATEMENT IS HEREBY ACKNOWLEDGED. authorized persons. Dated:_________________________________ X______________________________________ Signature X______________________________________ PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND Signature, if held jointly RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
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