N-CSR 1 dncsr.txt SUNAMERICA INCOME FUNDS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-04708 --------------------------------------------- SunAmerica Income Funds -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) Harborside Financial Center, 3200 Plaza 5 Jersey City, NJ 07311 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Robert M. Zakem, Esq. Senior Vice President & General Counsel AIG SunAmerica Asset Management Corp. Harborside Financial Center, 3200 Plaza 5 Jersey City, NJ 07311 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (201) 324-6363 ----------------------------- Date of fiscal year end: March 31 -------------------------- Date of reporting period: March 31, 2004 ------------------------- Item 1. Reports to Shareholders SunAmerica Income Funds, Annual Report at March 31, 2004. [GRAPHIC] SunAmerica THE RETIREMENT SPECIALIST Income Funds 2004 ANNUAL REPORT [LOGO] AIG Sun America Mutual Funds March 31, 2004 ANNUAL REPORT SUNAMERICA INCOME FUNDS SunAmerica Core Bond Fund (NAIBX) SunAmerica U.S. Government Securities Fund (SGTAX) SunAmerica GNMA Fund (GNMAX) SunAmerica Strategic Bond Fund (SDIAX) SunAmerica High Yield Bond Fund (SHNAX) SunAmerica Tax Exempt Insured Fund (STEAX) Table of Contents SHAREHOLDER LETTER................................ 2 STATEMENT OF ASSETS AND LIABILITIES............... 3 STATEMENT OF OPERATIONS........................... 5 STATEMENT OF CHANGES IN NET ASSETS................ 7 FINANCIAL HIGHLIGHTS.............................. 10 PORTFOLIO OF INVESTMENTS.......................... 16 NOTES TO FINANCIAL STATEMENTS..................... 52 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM............................................. 68 TRUSTEE INFORMATION............................... 69 SHAREHOLDER TAX INFORMATION....................... 72 COMPARISONS: PORTFOLIOS VS. INDEXES............... 73
Shareholder Letter Dear Shareholders: Over the past twelve months the fixed income markets have posted solid performance during a fairly volatile period. The bell weather ten-year U.S. Treasury experienced a sharp rally during the Spring of 2003 in anticipation of a possible 13th reduction of the Federal Funds rate by the Federal Reserve. Nevertheless, the 25 basis point reduction to 1% disappointed markets that had been expecting 50 basis points and left participants with the distinct impression that this was quite possibly the final easing move in the current cycle. Hence, a sharp sell-off ensued as 10-year bond yields increased by over 100 basis points, or 1%. Expectations of job growth failed to materialize, while inflation remained at bay, and yields subsequently retraced their summer spike. The 10-year note ended March at 3.85%, nearly the same level at which it began this reporting period. Economic growth improved as the year progressed. The monetary and fiscal stimulus took hold with third quarter 2003 GDP growing at 8.2% followed by over 4% growth in both the 4th quarter of 2003 and the first quarter of 2003. While productivity growth was strong, there were few signs of consistent job growth or inflation. Core inflation--the Consumer Price Index (CPI) minus food and energy prices--fell from 1.7% to 1.1% by the end of the period. This was a level we have not seen since February 1966. Low inflation and stagnant job creation kept any interest rate tightening by the Federal Reserve on hold throughout the period. Another important driver in the Treasury market over the past 12 months was the buying of U.S. Government securities by Foreign Central Banks. This group is estimated to have purchased a total of $217 billion in 2003 and $93 billion in the first quarter of 2004. The volatility in the Treasury market over the summer impacted GNMA and other mortgage securities, as they underperformed dramatically over this period. Nevertheless, these securities rebounded in the later half of 2003 as a relatively stable trading range was established in the U.S. Treasury market. The improvements in the economy and corresponding strengthening of corporation's balance sheets clearly benefited the corporate credit sector, particularly high yield. Investors were attracted to the high yield market's double-digit average yields in a low interest rate environment. Emerging market debt was another higher risk fixed income asset class that benefited from a strengthening global economy and a low interest rate environment. The municipal market continued to present an attractive after-tax alternative. Many municipalities, California clearly being the most notable, have faced budget pressure that has led to a record supply of municipal bonds during the period. Thank you for your continued investment in our Funds and we encourage you to visit our website, www.sunamericafunds.com, for current information. Sincerely, The AIG SunAmerica Income Funds Investment Professionals AIG SunAmerica Asset Management Corp. AIG Global Investment Corp. ------------------------------------- - Michael Cheah Greg Braun Steven Guterman Brian Tesseyman Hutch Bryan Rob Vandem Assem Brian Wiese
-------- Past performance is no guarantee of future results. 2 SunAmerica Income Funds STATEMENT OF ASSETS AND LIABILITIES -- March 31, 2004
U.S. Government Core Bond Securities GNMA Strategic Fund Fund Fund Bond Fund ------------ --------------- ------------ ------------ ASSETS: Investment securities, at value*............................... $227,933,519 $255,855,859 $510,095,911 $ 95,039,093 Short-term securities*......................................... -- -- -- 860,000 Repurchase agreements (cost equals market)..................... 7,071,000 8,986,000 69,767,000 3,365,000 Deposit with brokers for securities sold short................. -- -- -- -- Cash........................................................... 329 -- 1,240 5,420,310 Foreign cash*.................................................. -- -- -- 27,431 Receivables for: Shares of beneficial interest sold........................... 572,710 130,738 1,297,990 669,433 Dividends and interest....................................... 1,962,413 1,384,577 2,045,941 1,790,680 Investments sold............................................. 6,764,908 472,593 -- 1,336,288 Prepaid expenses and other assets.............................. 1,329 1,222 2,293 335 Due from investment adviser.................................... 65,074 61,068 205,360 -- ------------ ------------ ------------ ------------ Total assets................................................. 244,371,282 266,892,057 583,415,735 108,508,570 ------------ ------------ ------------ ------------ LIABILITIES: Payables for: Shares of beneficial interest redeemed....................... 5,650,640 291,768 1,354,594 303,170 Investments purchased........................................ 11,212,665 9,135,938 10,151,042 1,910,555 Investment advisory and management fees...................... 120,981 139,246 219,765 102,171 Distribution and service maintenance fees.................... 50,307 104,537 291,451 62,554 Other accrued expenses....................................... 280,968 247,186 195,205 139,244 Interest payable on securities sold short...................... -- -- -- -- Dividends payable.............................................. 8,078 139,933 189,115 205,987 Due to custodian............................................... 471,794 Securities sold short, at value#............................... -- -- -- -- Unrealized depreciation on forward foreign currency contracts.. -- -- -- 46,043 ------------ ------------ ------------ ------------ Total liabilities............................................ 17,323,639 10,530,402 12,401,172 2,769,724 ------------ ------------ ------------ ------------ Net assets.................................................. $227,047,643 $256,361,655 $571,014,563 $105,738,846 ============ ============ ============ ============ NET ASSETS WERE COMPOSED OF: Shares of beneficial interest, $.01 par value.................. $ 216,368 $ 265,815 $ 501,296 $ 309,782 Paid-in capital................................................ 221,683,791 261,065,249 563,121,348 135,502,754 ------------ ------------ ------------ ------------ 221,900,159 261,331,064 563,622,644 135,812,536 Accumulated undistributed net investment income (loss)......... 198,080 (138,253) 4,199 160,688 Accumulated net realized gain (loss) on investments, futures contracts, options contracts and foreign exchange transaction................................................... 1,911,024 (10,030,026) (544,936) (36,349,625) Unrealized appreciation (depreciation) on investments.......... 3,038,380 5,198,870 7,932,656 6,159,833 Unrealized foreign exchange gain (loss) on other assets and liabilities................................................... -- -- -- (44,586) Unrealized appreciation (depreciation) on securities sold short -- -- -- -- ------------ ------------ ------------ ------------ Net assets.................................................. $227,047,643 $256,361,655 $571,014,563 $105,738,846 ============ ============ ============ ============ *Identified cost Investment securities........................................ $224,895,139 $250,656,989 $502,163,255 $ 88,879,260 ============ ============ ============ ============ Short-term securities........................................ $ -- $ -- $ -- $ 860,000 ============ ============ ============ ============ Foreign cash................................................. $ -- $ -- $ -- $ 27,376 ============ ============ ============ ============ #Proceeds from securities sold short........................... $ -- $ -- $ -- $ -- ============ ============ ============ ============
High Yield Bond Tax Exempt Fund Insured Fund ------------- ------------ ASSETS: Investment securities, at value*............................... $ 286,419,758 $ 84,513,304 Short-term securities*......................................... -- 15,908,754 Repurchase agreements (cost equals market)..................... 6,025,000 -- Deposit with brokers for securities sold short................. 715,005 -- Cash........................................................... 331 -- Foreign cash*.................................................. 70,010 -- Receivables for: Shares of beneficial interest sold........................... 3,122,111 128,881 Dividends and interest....................................... 6,369,586 1,232,251 Investments sold............................................. 8,130,835 -- Prepaid expenses and other assets.............................. 839 427 Due from investment adviser.................................... 3,212 -- ------------- ------------ Total assets................................................. 310,856,687 101,783,617 ------------- ------------ LIABILITIES: Payables for: Shares of beneficial interest redeemed....................... 318,117 109,430 Investments purchased........................................ 10,496,879 9,841,058 Investment advisory and management fees...................... 187,818 41,488 Distribution and service maintenance fees.................... 136,821 40,057 Other accrued expenses....................................... 180,017 137,597 Interest payable on securities sold short...................... 8,850 -- Dividends payable.............................................. 529,904 81,551 Due to custodian............................................... Securities sold short, at value#............................... 610,555 -- Unrealized depreciation on forward foreign currency contracts.. -- -- ------------- ------------ Total liabilities............................................ 12,468,961 10,251,181 ------------- ------------ Net assets.................................................. $ 298,387,726 $ 91,532,436 ============= ============ NET ASSETS WERE COMPOSED OF: Shares of beneficial interest, $.01 par value.................. $ 704,425 $ 69,564 Paid-in capital................................................ 410,799,748 85,507,577 ------------- ------------ 411,504,173 85,577,141 Accumulated undistributed net investment income (loss)......... (1,327,919) (6,949) Accumulated net realized gain (loss) on investments, futures contracts, options contracts and foreign exchange transaction................................................... (119,672,871) 1,060,644 Unrealized appreciation (depreciation) on investments.......... 7,880,470 4,901,600 Unrealized foreign exchange gain (loss) on other assets and liabilities................................................... (2,312) -- Unrealized appreciation (depreciation) on securities sold short 6,185 -- ------------- ------------ Net assets.................................................. $ 298,387,726 $ 91,532,436 ============= ============ *Identified cost Investment securities........................................ $ 278,539,288 $ 79,611,704 ============= ============ Short-term securities........................................ $ -- $ 15,908,754 ============= ============ Foreign cash................................................. $ 71,727 $ -- ============= ============ #Proceeds from securities sold short........................... $ 616,740 $ -- ============= ============
See Notes to Financial Statements 3 SunAmerica Income Funds STATEMENT OF ASSETS AND LIABILITIES -- March 31, 2004 -- (continued)
U.S. Government Strategic High Yield Tax Exempt Core Bond Securities GNMA Bond Bond Insured Fund Fund Fund Fund Fund Fund ------------ --------------- ------------ ----------- ----------- ----------- Class A (unlimited shares authorized): Net assets........................................ $140,877,441 $204,617,729 $337,467,225 $43,840,234 $93,817,728 $69,097,572 Shares of beneficial interest issued and outstanding...................................... 13,430,222 21,216,627 29,662,686 12,848,942 22,191,303 5,251,975 Net asset value and redemption price per share.... $ 10.49 $ 9.64 $ 11.38 $ 3.41 $ 4.23 $ 13.16 Maximum sales charge (4.75% of offering price).... 0.52 0.48 0.57 0.17 0.21 0.66 ------------ ------------ ------------ ----------- ----------- ----------- Maximum offering price to public.................. $ 11.01 $ 10.12 $ 11.95 $ 3.58 $ 4.44 $ 13.82 ============ ============ ============ =========== =========== =========== Class B (unlimited shares authorized): Net assets........................................ $ 5,682,585 $ 36,604,863 $136,922,792 $36,109,541 $73,751,279 $16,632,346 Shares of beneficial interest issued and outstanding...................................... 543,012 3,793,849 12,003,256 10,587,501 17,408,241 1,263,607 Net asset value, offering and redemption price per share........................................ $ 10.46 $ 9.65 $ 11.41 $ 3.41 $ 4.24 $ 13.16 ============ ============ ============ =========== =========== =========== Class C (unlimited shares authorized)+: Net assets........................................ $ 5,352,356 $ 15,139,063 $ 88,183,693 $22,063,998 $52,867,919 $ 5,802,518 Shares of beneficial interest issued and outstanding...................................... 510,851 1,570,983 7,722,637 6,448,860 12,433,254 440,818 Net asset value, offering and redemption price per share........................................ $ 10.48 $ 9.64 $ 11.42 $ 3.42 $ 4.25 $ 13.16 ============ ============ ============ =========== =========== =========== Class I (unlimited shares authorized): Net assets........................................ $ 3,092,037 $ -- $ -- $ 3,725,073 $ -- $ -- Shares of beneficial interest issued and outstanding...................................... 294,368 -- -- 1,092,884 -- -- Net asset value, offering and redemption price per share........................................ $ 10.50 $ -- $ -- $ 3.41 $ -- $ -- ============ ============ ============ =========== =========== =========== Class Z (unlimited shares authorized): Net assets........................................ $ 72,043,224 $ -- $ -- $ -- $77,950,800 $ -- Shares of beneficial interest issued and outstanding...................................... 6,858,395 -- -- -- 18,409,633 -- Net asset value, offering and redemption price per share........................................ $ 10.50 $ -- $ -- $ -- $ 4.23 $ -- ============ ============ ============ =========== =========== =========== Class X (unlimited shares authorized): Net assets........................................ $ -- $ -- $ 8,440,853 $ -- $ -- $ -- Shares of beneficial interest issued and outstanding...................................... -- -- 741,007 -- -- -- Net asset value, offering and redemption price per share........................................ $ -- $ -- $ 11.39 $ -- $ -- $ -- ============ ============ ============ =========== =========== ===========
-------- +Effective February 23, 2004, Class II shares were redesignated to Class C shares. See Notes to Financial Statements 4 SunAmerica Income Funds STATEMENT OF OPERATIONS -- For the year ended March 31, 2004
Core U.S. Government Bond Fund Securities Fund GNMA Fund ----------- --------------- ----------- INVESTMENT INCOME: Income: Interest.......................................... $11,331,834 $11,171,090 $20,508,963 Dividends......................................... 558 -- -- ----------- ----------- ----------- Total investment income......................... 11,332,392 11,171,090 20,508,963 ----------- ----------- ----------- Expenses: Investment advisory and management fees........... 1,776,079 1,741,755 2,707,596 Distribution and service maintenance fees: Class A......................................... 240,853 709,846 1,062,751 Class B......................................... 67,798 488,148 1,656,499 Class C+........................................ 52,978 196,231 1,179,045 Service fees--Class I............................. 51,775 -- 58 Transfer agent fees: Class A......................................... 172,949 501,936 748,503 Class B......................................... 19,070 121,746 408,598 Class C+........................................ 12,851 48,403 290,618 Class I......................................... 52,882 -- 182 Class Z......................................... -- -- -- Class X......................................... -- -- 14,039 Registration fees: Class A......................................... 53,666 29,032 91,556 Class B......................................... 8,300 8,052 18,018 Class C+........................................ 8,248 6,006 12,790 Class I......................................... 46,848 -- 15,015 Class Z......................................... -- -- -- Class X......................................... -- -- -- Custodian fees and expenses....................... 108,234 100,338 201,114 Reports to shareholders........................... 78,856 65,388 155,310 Audit and tax fees................................ 50,624 53,966 55,162 Legal fees and expenses........................... 4,876 8,052 15,738 Trustees' fees.................................... 33,222 27,782 56,480 Interest expense.................................. -- 4,441 1,308 Interest expense on securities sold short......... -- -- -- Miscellaneous expenses............................ 16,366 20,564 32,637 ----------- ----------- ----------- Total expenses before reimbursements and custody credits................................ 2,856,475 4,131,686 8,723,017 Expenses reimbursed by investment adviser....... (131,640) (996,898) (1,018,112) Custody credits earned on cash balances......... (1,662) (1,152) (1,022) ----------- ----------- ----------- Net expenses.................................... 2,723,173 3,133,636 7,703,883 ----------- ----------- ----------- Net investment income (loss)....................... 8,609,219 8,037,454 12,805,080 ----------- ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments............ 7,228,394 2,311,744 1,476,272 Net realized foreign exchange gain (loss) on other assets and liabilities...................... -- -- -- Net realized gain (loss) on securities sold short.. -- -- -- Change in unrealized appreciation (depreciation) on investments.................................... (2,724,903) (2,984,953) (1,054,237) Change in unrealized foreign exchange gain (loss) on transactions and other assets and liabilities.. -- -- -- Change in unrealized appreciation (depreciation) on securities sold short.......................... -- -- -- ----------- ----------- ----------- Net realized and unrealized gain (loss) on investments, securities sold short and foreign exchange gain (loss) on other assets and liabilities....................................... 4,503,491 (673,209) 422,035 ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................... $13,112,710 $ 7,364,245 $13,227,115 =========== =========== ===========
-------- +Effective February 23, 2004, Class II shares were redesignated to Class C shares. See Notes to Financial Statements 5 SunAmerica Income Funds STATEMENT OF OPERATIONS -- For the year ended March 31, 2004 -- (continued)
Strategic High Yield Tax Exempt Bond Fund Bond Fund Insured Fund ----------- ----------- ------------ INVESTMENT INCOME: Income: Interest.......................................... $ 7,464,570 $26,467,552 $4,020,680 Dividends......................................... 43,147 198,506 460 ----------- ----------- ---------- Total investment income......................... 7,507,717 26,666,058 4,021,140 ----------- ----------- ---------- Expenses: Investment advisory and management fees........... 613,549 2,048,638 483,168 Distribution and service maintenance fees: Class A......................................... 140,141 308,325 254,209 Class B......................................... 331,476 716,075 180,783 Class C+........................................ 177,220 449,010 59,240 Service fees--Class I............................. 8,705 47 -- Transfer agent: Class A......................................... 104,485 222,270 172,931 Class B......................................... 83,521 183,523 46,081 Class C+........................................ 41,417 105,558 19,295 Class I......................................... 7,910 1,406 -- Class Z......................................... -- 14,025 -- Class X......................................... -- -- -- Registration fees: Class A......................................... 9,864 17,202 12,912 Class B......................................... 8,836 13,908 8,264 Class C+........................................ 4,500 8,392 5,284 Class I......................................... 5,060 15,288 -- Class Z......................................... -- -- -- Class X......................................... -- -- -- Custodian fees and expenses....................... 148,742 96,866 58,892 Reports to shareholders........................... 37,996 59,692 14,014 Audit and tax fees................................ 53,868 30,368 50,500 Legal fees and expenses........................... 6,680 8,060 3,682 Trustees' fees and expenses....................... 8,390 21,865 10,518 Interest expense.................................. -- 10,687 -- Interest expense on securities sold short......... -- 100,473 -- Miscellaneous expenses............................ 10,754 17,968 12,955 ----------- ----------- ---------- Total expenses before reimbursements and custody credits................................ 1,803,114 4,449,646 1,392,728 Expenses reimbursed by investment adviser....... (3,530) (25,138) (7,229) Custody credits earned on cash balances......... (18,922) (3,546) (90) ----------- ----------- ---------- Net expenses.................................... 1,780,662 4,420,962 1,385,409 ----------- ----------- ---------- Net investment income (loss)....................... 5,727,055 22,245,096 2,635,731 ----------- ----------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments............ 4,435,448 16,516,375 1,897,409 Net realized foreign exchange gain (loss) on other assets and liabilities...................... (53,027) (8,548) -- Net realized gain (loss) on securities sold short.. -- (360,483) -- Change in unrealized appreciation (depreciation) on investments.................................... 4,812,532 22,633,366 (129,136) Change in unrealized foreign exchange gain (loss) on transactions and other assets and liabilities.. (47,293) (2,312) -- Change in unrealized appreciation (depreciation) on securities sold short.......................... -- 16,685 -- ----------- ----------- ---------- Net realized and unrealized gain (loss) on investments, securities sold short and foreign exchange gain (loss) on other assets and liabilities....................................... 9,147,660 38,795,083 1,768,273 ----------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................................... $14,874,715 $61,040,179 $4,404,004 =========== =========== ==========
-------- +Effective February 23, 2004, Class II shares were redesignated to Class C shares. See Notes to Financial Statements 6 SunAmerica Income Funds STATEMENT OF CHANGES IN NET ASSETS
U.S. Government Core Bond Fund Securities Fund -------------------------- -------------------------- For the year For the year For the year For the year ended ended ended ended March 31, March 31, March 31, March 31, 2004 2003 2004 2003 ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income (loss)............................... $ 8,609,219 $ 14,216,026 $ 8,037,454 $ 10,214,465 Net realized gain (loss) on investments.................... 7,228,394 5,090,925 2,311,744 13,675,462 Net realized foreign exchange gain (loss) on other assets and liabilities.......................................... -- -- -- -- Net realized gain (loss) on securities sold short.......... -- -- -- -- Net increase from payment by affiliates (Note 3)........... -- -- -- -- Net change in unrealized appreciation (depreciation) on investments.............................................. (2,724,903) 12,127,059 (2,984,953) 10,528,243 Net change in unrealized foreign exchange gain (loss) on transactions and other assets and liabilities............ -- -- -- -- Net change in unrealized appreciation (depreciation) on securities sold short.................................... -- -- -- -- ------------ ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments...... 13,112,710 31,434,010 7,364,245 34,418,170 ------------ ------------ ------------ ------------ Dividends and distributions to shareholders from: Net investment income (Class A)............................ (1,752,869) (320,620) (6,367,993) (8,637,623) Net investment income (Class B)............................ (128,070) (171,529) (1,202,312) (1,881,087) Net investment income (Class C)+........................... (100,070) (145,853) (488,725) (652,207) Net investment income (Class I)............................ (539,121) (899,952) -- -- Net investment income (Class Z)............................ (6,618,532) (13,648,311) -- -- Net realized gain on investments (Class A)................. -- -- -- -- Net realized gain on investments (Class B)................. -- -- -- -- Net realized gain on investments (Class C)+................ -- -- -- -- Net realized gain on investments (Class I)................. -- -- -- -- Net realized gain on investments (Class Z)................. -- -- -- -- ------------ ------------ ------------ ------------ Total dividends and distributions to shareholders........... (9,138,662) (15,186,265) (8,059,030) (11,170,917) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from capital share transactions (Note 6)........................ (99,825,778) (24,440,061) (40,708,822) 35,816,062 ------------ ------------ ------------ ------------ Total increase (decrease) in net assets..................... (95,851,730) (8,192,316) (41,403,607) 59,063,315 NET ASSETS: Beginning of period......................................... 322,899,373 331,091,689 297,765,262 238,701,947 ------------ ------------ ------------ ------------ End of period*.............................................. $227,047,643 $322,899,373 $256,361,655 $297,765,262 ============ ============ ============ ============ *Includes accumulated undistributed net investment income (loss)..................................................... $ 198,080 $ 29,877 $ (138,253) $ (893,062) ============ ============ ============ ============
-------- +Effective February 23, 2004, Class II shares were redesignated to Class C shares. See Notes to Financial Statements 7 SunAmerica Income Funds STATEMENT OF CHANGES IN NET ASSETS -- (continued)
GNMA Fund Strategic Bond Fund -------------------------- ------------------------- For the year For the year For the year For the year ended ended ended ended March 31, March 31, March 31, March 31, 2004 2003 2004 2003 ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income (loss)............................... $ 12,805,080 $ 12,837,322 $ 5,727,055 $ 5,132,006 Net realized gain (loss) on investments.................... 1,476,272 16,538,167 4,435,448 (5,545,727) Net realized foreign exchange gain (loss) on other assets and liabilities.......................................... -- -- (53,027) 137,052 Net realized gain (loss) on securities sold short.......... -- -- -- -- Net increase from payment by affiliates (Note 3)........... -- -- -- 12,000 Net change in unrealized appreciation (depreciation) on investments.............................................. (1,054,237) 12,469,714 4,812,532 6,796,966 Net change in unrealized foreign exchange gain (loss) on transactions and other assets and liabilities............ -- -- (47,293) 2,526 Net change in unrealized appreciation (depreciation) on securities sold short.................................... -- -- -- -- ------------ ------------ ------------ ----------- Net realized and unrealized gain (loss) on investments...... 13,227,115 41,845,203 14,874,715 6,534,823 ------------ ------------ ------------ ----------- Dividends and distributions to shareholders from: Net investment income (Class A)............................ (8,229,827) (7,006,789) (2,573,307) (2,134,446) Net investment income (Class B)............................ (3,268,894) (4,139,556) (1,914,488) (1,417,388) Net investment income (Class C)+........................... (2,301,935) (2,377,356) (1,049,774) (771,300) Net investment income (Class I)............................ (586) (1,520) (233,825) (184,184) Net investment income (Class Z)............................ (187,234) (72,532) -- -- Net realized gain on investments (Class A)................. (5,268,652) (2,283,804) -- -- Net realized gain on investments (Class B)................. (2,564,269) (1,663,779) -- -- Net realized gain on investments (Class C)+................ (1,788,770) (1,112,326) -- -- Net realized gain on investments (Class I)................. (487) (394) -- -- Net realized gain on investments (Class Z)................. (115,741) (27,923) -- -- ------------ ------------ ------------ ----------- Total dividends and distributions to shareholders........... (23,726,395) (18,685,979) (5,771,394) (4,507,318) ------------ ------------ ------------ ----------- Net increase (decrease) in net assets resulting from capital share transactions (Note 6)........................ (4,226,113) 317,715,065 14,052,523 1,137,195 ------------ ------------ ------------ ----------- Total increase (decrease) in net assets..................... (14,725,393) 340,874,289 23,155,844 3,164,700 NET ASSETS: Beginning of period......................................... 585,739,956 244,865,667 82,583,002 79,418,302 ------------ ------------ ------------ ----------- End of period*.............................................. $571,014,563 $585,739,956 $105,738,846 $82,583,002 ============ ============ ============ =========== *Includes accumulated undistributed net investment income (loss)..................................................... $ 4,199 $ (293,949) $ 160,688 $ (38,581) ============ ============ ============ ===========
-------- +Effective February 23, 2004, Class II shares were redesignated to Class C shares. See Notes to Financial Statements 8 SunAmerica Income Funds STATEMENT OF CHANGES IN NET ASSETS -- (continued)
High Yield Bond Tax Exempt Insured Fund -------------------------- -------------------------- For the year For the year For the year For the year ended ended ended ended March 31, March 31, March 31, March 31, 2004 2003 2004 2003 ------------ ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: Operations: Net investment income (loss)......................................... $ 22,245,096 $ 18,665,069 $ 2,635,731 $ 2,975,322 Net realized gain (loss) on investments.............................. 16,516,375 (25,417,328) 1,897,409 3,277,158 Net realized foreign exchange gain (loss) on other assets and liabilities........................................................ (8,548) -- -- -- Net realized gain (loss) on securities sold short.................... (360,483) (320,650) -- -- Net increase from payment by affiliates (Note 3)..................... -- -- -- -- Net change in unrealized appreciation (depreciation) on investments.. 22,633,366 3,758,281 (129,136) 2,350,133 Net change in unrealized foreign exchange gain (loss) on transactions and other assets and liabilities...................... (2,312) -- -- -- Net change in unrealized appreciation (depreciation) on securities sold short......................................................... 16,685 (10,500) -- -- ------------ ------------ ------------ ------------ Net realized and unrealized gain (loss) on investments................ 61,040,179 (3,325,128) 4,404,004 8,602,613 ------------ ------------ ------------ ------------ Dividends and distributions to shareholders from: Net investment income (Class A)...................................... (7,714,823) (4,718,507) (2,009,916) (2,517,853) Net investment income (Class B)...................................... (5,797,385) (4,944,952) (366,880) (492,738) Net investment income (Class C)+..................................... (3,614,674) (1,795,180) (122,956) (136,989) Net investment income (Class I)...................................... (1,687) (1,256) -- -- Net investment income (Class Z)...................................... (6,692,901) (5,928,841) -- -- Net realized gain on investments (Class A)........................... -- -- (2,345,579) (500,751) Net realized gain on investments (Class B)........................... -- -- (558,969) (130,729) Net realized gain on investments (Class C)+.......................... -- -- (187,274) (35,541) Net realized gain on investments (Class I)........................... -- -- -- -- Net realized gain on investments (Class Z)........................... -- -- -- -- ------------ ------------ ------------ ------------ Total dividends and distributions to shareholders..................... (23,821,470) (17,388,736) (5,591,574) (3,814,601) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from capital share transactions (Note 6)................................................ 47,785,931 24,494,021 (11,118,979) 1,795,166 ------------ ------------ ------------ ------------ Total increase (decrease) in net assets............................... 85,004,640 3,780,157 (12,306,549) 6,583,178 NET ASSETS: Beginning of period................................................... 213,383,086 209,602,929 103,838,985 97,255,807 ------------ ------------ ------------ ------------ End of period*........................................................ $298,387,726 $213,383,086 $ 91,532,436 $103,838,985 ============ ============ ============ ============ *Includes accumulated undistributed net investment income (loss)...... $ (1,327,919) $ (139,760) $ (6,949) $ 74,152 ============ ============ ============ ============
-------- +Effective February 23, 2004, Class II shares were redesignated to Class C shares. See Notes to Financial Statements 9 SunAmerica Income Funds FINANCIAL HIGHLIGHTS
CORE BOND FUND -------------- Net gain (loss) on investments Net Asset (both Dividends Value, Net realized Total from from net Total beginning investment and investment investment Return of Distri- Period Ended of period income(1) unrealized) operations income capital butions ------------------------------------------------- --------- ---------- ----------- ---------- ---------- --------- ------- Class A ------- 11/01/98-10/31/99 $10.63 $0.66 $(0.77) $(0.11) $(0.67) $ -- $(0.67) 11/01/99-10/31/00 9.85 0.62 (0.21) 0.41 (0.60) (0.06) (0.66) 11/01/00-10/31/01 9.60 0.55 0.65 1.20 (0.51) -- (0.51) 11/01/01-3/31/02# 10.29 0.20 (0.48) (0.28) (0.19) -- (0.19) 4/01/02-3/31/03 9.82 0.34 0.58 0.92 (0.42) -- (0.42) 4/01/03-3/31/04 10.32 0.24 0.20 0.44 (0.27) -- (0.27) Class B ------- 11/01/98-10/31/99 $10.62 $0.59 $(0.75) $(0.16) $(0.61) $ -- $(0.61) 11/01/99-10/31/00 9.85 0.58 (0.24) 0.34 (0.55) (0.05) (0.60) 11/01/00-10/31/01 9.59 0.48 0.64 1.12 (0.45) -- (0.45) 11/01/01-3/31/02# 10.26 0.17 (0.49) (0.32) (0.16) -- (0.16) 4/01/02-3/31/03 9.78 0.31 0.55 0.86 (0.36) -- (0.36) 4/01/03-3/31/04 10.28 0.18 0.19 0.37 (0.19) -- (0.19) Class C* -------- 11/01/98-10/31/99 $10.62 $0.59 $(0.75) $(0.16) $(0.61) $ -- $(0.61) 11/01/99-10/31/00 9.85 0.57 (0.23) 0.34 (0.55) (0.05) (0.60) 11/01/00-10/31/01 9.59 0.48 0.64 1.12 (0.45) -- (0.45) 11/01/01-3/31/02# 10.26 0.18 (0.49) (0.31) (0.16) -- (0.16) 4/01/02-3/31/03 9.79 0.31 0.56 0.87 (0.36) -- (0.36) 4/01/03-3/31/04 10.30 0.18 0.19 0.37 (0.19) -- (0.19) Class I ------- 7/10/00-10/31/00@ $ 9.65 $0.19 $(0.02) $ 0.17 $(0.18) $(0.02) $(0.20) 11/01/00-10/31/01 9.62 0.57 0.65 1.22 (0.52) -- (0.52) 11/01/01-3/31/02# 10.32 0.21 (0.52) (0.31) (0.19) -- (0.19) 2/01/02-3/31/03 9.82 0.40 0.55 0.95 (0.44) -- (0.44) 4/01/03-3/31/04 10.33 0.20 0.24 0.44 (0.27) -- (0.27) Class Z* -------- 7/10/00-10/31/00@ $ 9.64 $0.19 $(0.03) $ 0.16 $(0.18) $(0.02) $(0.20) 11/01/00-10/31/01 9.60 0.59 0.65 1.24 (0.55) -- (0.55) 11/01/01-3/31/02# 10.29 0.21 (0.47) (0.26) (0.21) -- (0.21) 4/01/02-3/31/03 9.82 0.47 0.53 1.00 (0.49) -- (0.49) 4/01/03-3/31/04 10.33 0.32 0.18 0.50 (0.33) -- (0.33)
Ratio Net Net of net Asset Assets, Ratio of investment Value, end of expenses income to end of Total period to average average Portfolio Period Ended period Return(2) (000's) net assets net assets Turnover ------------------------------------------------- ------ --------- -------- ---------- ---------- --------- 11/01/98-10/31/99 $ 9.85 (1.08)% $ 3,507 1.25%(4) 4.775%(4) 43% 11/01/99-10/31/00 9.60 4.35 3,858 1.29(4) 6.45(4) 94 11/01/00-10/31/01 10.29 12.85 5,901 1.31(4) 5.51(4) 215 11/01/01-3/31/02# 9.82 (2.77) 5,312 1.33(3)(4) 5.03(3)(4) 94 4/01/02-3/31/03 10.32 9.58 21,260 1.33(4) 3.72(4) 179 4/01/03-3/31/04 10.49 4.30 140,877 1.25(4) 2.50(4) 229 11/01/98-10/31/99 $ 9.85 (1.56)% $ 4,295 1.90%(4) 5.71%(4) 43% 11/01/99-10/31/00 9.59 3.70 4,937 1.95(4) 5.95(4) 94 11/01/00-10/31/01 10.26 11.93 6,444 1.97(4) 4.88(4) 215 11/01/01-3/31/02# 9.78 (3.14) 3,220 1.98(3)(4) 4.36(3)(4) 94 4/01/02-3/31/03 10.28 8.90 7,198 1.98(4) 3.15(4) 179 4/01/03-3/31/04 10.46 3.68 5,683 1.92(4) 1.75(4) 229 11/01/98-10/31/99 $ 9.85 (1.56)% $ 4,593 1.90%(4) 5.70%(4) 43% 11/01/99-10/31/00 9.59 3.70 2,778 1.95(4) 5.84(4) 94 11/01/00-10/31/01 10.26 11.93 4,541 1.97(4) 4.79(4) 215 11/01/01-3/31/02# 9.79 (3.04) 3,772 1.98(3)(4) 4.39(3)(4) 94 4/01/02-3/31/03 10.30 9.00 5,598 1.98(4) 3.13(4) 179 4/01/03-3/31/04 10.48 3.68 5,352 1.93(4) 1.77(4) 229 7/10/00-10/31/00@ $ 9.62 1.85% $ 19,971 1.16%(3) 6.18%(3) 94% 11/01/00-10/31/01 10.32 13.01 22,782 1.22(4) 5.68(4) 215 11/01/01-3/31/02# 9.82 (3.01) 21,707 1.23(3)(4) 5.12(3)(4) 94 2/01/02-3/31/03 10.33 9.80 20,617 1.24(4) 3.98(4) 179 4/01/03-3/31/04 10.50 4.35 3,092 1.23(4) 2.39(4) 229 7/10/00-10/31/00@ $ 9.60 1.81% $317,842 0.95%(3)(4) 6.39%(3)(4) 94% 11/01/00-10/31/01 10.29 13.37 323,570 0.97(4) 5.97(4) 215 11/01/01-3/31/02# 9.82 (2.57) 297,081 0.74(3)(4) 5.62(3)(4) 94 4/01/02-3/31/03 10.33 10.38 268,226 0.67 4.56 179 4/01/03-3/31/04 10.50 4.92 72,043 0.66(4) 2.97(4) 229
------------------------------- -------- * In conjunction with the reorganization on November 16, 2001, Class C was redesignated as Class II and Class II was redesignated as Class Z. Effective February 23, 2004, Class II was redesignated to Class C. @ Inception date of class. # Effective November 16, 2001, the SunAmerica Core Bond, a newly created portfolio of the SunAmerica Income Funds, acquired all the assets and liabilities of the North American Core Bond Fund. (1)Calculated based upon average shares outstanding. (2)Total return is not annualized and does not reflect sales load, but does include expense reimbursements. (3)Annualized (4)Net of the following expense reimbursements and custody credits, if applicable (based on average net assets):
10/31/99 10/31/00 10/31/01 3/31/02(3) 3/31/03 3/31/04 -------- -------- -------- ---------- ------- ------- Core Bond Fund Class A.................. 0.45% 0.49% 0.04% 0.19% 0.11% 0.10% Core Bond Fund Class B.................. 0.49 0.50 0.03 0.32 0.23 0.15 Core Bond Fund Class C.................. 0.48 0.54 0.04 0.32 0.18 0.14 Core Bond Fund Class I.................. -- -- 0.03 0.13 0.05 0.05 Core Bond Fund Class Z.................. -- 0.01(3) 0.03 0.02 -- 0.02
See Notes to Financial Statements 10 SunAmerica Income Funds FINANCIAL HIGHLIGHTS -- (continued)
U.S. GOVERNMENT SECURITIES FUND ------------------------------- Net gain (loss) on investments Net Net Asset (both Dividends Asset Value, Net realized Total from from net Total Value, beginning investment and investment investment Distri- end of Total Period Ended of period income(1) unrealized) operations income butions period Return(2) -------------------------------------------- --------- ---------- ----------- ---------- ---------- ------- ------ --------- Class A ------- 3/31/00 $8.65 $0.44 $(0.37) $0.07 $(0.41) $(0.41) $8.31 0.89% 3/31/01 8.31 0.45 0.60 1.05 (0.45) (0.45) 8.91 13.06 3/31/02 8.91 0.37(5) (0.08) 0.29 (0.40) (0.40) 8.80 3.25 3/31/03 8.80 0.37 0.86 1.23 (0.40) (0.40) 9.63 14.14 3/31/04 9.63 0.30 0.01 0.31 (0.30) (0.30) 9.64 3.29 Class B ------- 3/31/00 $8.65 $0.40 $(0.38) $0.02 $(0.36) $(0.36) $8.31 0.23% 3/31/01 8.31 0.39 0.61 1.00 (0.40) (0.40) 8.91 12.29 3/31/02 8.91 0.31(5) (0.08) 0.23 (0.34) (0.34) 8.80 2.55 3/31/03 8.80 0.30 0.87 1.17 (0.33) (0.33) 9.64 13.51 3/31/04 9.64 0.24 0.01 0.25 (0.24) (0.24) 9.65 2.62 Class C* -------- 6/01/99-3/31/00@ $8.49 $0.31 $(0.20) $0.11 $(0.28) $(0.28) $8.32 1.30% 3/31/01 8.32 0.37 0.61 0.98 (0.39) (0.39) 8.91 12.10 3/31/02 8.91 0.29(5) (0.09) 0.20 (0.32) (0.32) 8.79 2.40 3/31/03 8.79 0.30 0.87 1.17 (0.33) (0.33) 9.63 13.52 3/31/04 9.63 0.24 0.01 0.25 (0.24) (0.24) 9.64 2.62
Ratio Net of net Assets, Ratio of investment end of expenses income to period to average average Portfolio Period Ended (000's) net assets net assets Turnover -------------------------------------------- -------- ---------- ---------- --------- 3/31/00 $150,975 1.51% 5.33% 717% 3/31/01 169,524 1.49 5.27 1,561 3/31/02 187,615 1.42 4.12(5) 570 3/31/03 210,848 1.12(4) 3.88(4) 614 3/31/04 204,618 0.99(4) 3.14(4) 256 3/31/00 $ 42,273 2.18% 4.69% 717% 3/31/01 32,085 2.17 4.59 1,561 3/31/02 38,878 2.09(4) 3.42(4)(5) 570 3/31/03 62,595 1.76(4) 3.20(4) 614 3/31/04 36,605 1.64(4) 2.45(4) 256 6/01/99-3/31/00@ $ 907 2.20%(3)(4) 4.50%(3)(4) 717% 3/31/01 3,303 2.20(4) 4.48(4) 1,561 3/31/02 12,209 2.10(4) 3.33(4)(5) 570 3/31/03 24,322 1.75(4) 3.18(4) 614 3/31/04 15,139 1.64(4) 2.45(4) 256
-------- * Effective February 23, 2004, Class II was redesignated to Class C. @ Inception date of class. (1) Calculated based upon average shares outstanding. (2) Total return is not annualized and does not reflect sales load, but does include expense reimbursements. (3) Annualized (4) Net of the following expense reimbursements and custody credits, if applicable (based on average net assets):
3/31/00 3/31/01 3/31/02 3/31/03 3/31/04 ------- ------- ------- ------- ------- U.S. Government Securities Fund Class A. -- % -- % -- % 0.21% 0.37% U.S. Government Securities Fund Class B. -- -- 0.01 0.23 0.37 U.S. Government Securities Fund Class C. 0.86(3) 1.18 0.16 0.27 0.38
(5)The Trust has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount and amortizing premium on debt securities. The per share effect of this change for the year ended March 31, 2002 on investment income and realized and unrealized gains and losses was less than $0.01 per share for all classes of shares. The effect of this change was to decrease the ratio of net investment income to average net assets by 0.11% for all classes of shares. Per share data and ratios for periods prior to March 31, 2002 have not been restated to reflect this change in accounting policy. See Notes to Financial Statements 11 SunAmerica Income Funds FINANCIAL HIGHLIGHTS -- (continued)
GNMA FUND --------- Net gain (loss) on investments Net Asset (both Dividends Distributions Value, Net realized Total from from net from net Total beginning investment and investment investment realized distri Period Ended of period income(1) unrealized) operations income gains butions ------------------------------------------------- --------- ---------- ----------- ---------- ---------- ------------- ------- Class A ------- 3/31/00 $10.68 $0.53 $(0.29) $0.24 $(0.50) $ -- $(0.50) 3/31/01 10.42 0.61 0.72 1.33 (0.62) (0.01) (0.63) 3/31/02 11.12 0.51(6) (0.03) 0.48 (0.51) (0.32) (0.83) 3/31/03 10.77 0.37 0.93 1.30 (0.42) (0.11) (0.53) 3/31/04 11.54 0.28 0.07 0.35 (0.31) (0.20) (0.51) Class B ------- 3/31/00 $10.72 $0.46 $(0.30) $0.16 $(0.44) $ -- $(0.44) 3/31/01 10.44 0.53 0.74 1.27 (0.55) (0.01) (0.56) 3/31/02 11.15 0.44(6) (0.03) 0.41 (0.44) (0.32) (0.76) 3/31/03 10.80 0.30 0.93 1.23 (0.35) (0.11) (0.46) 3/31/04 11.57 0.21 0.06 0.27 (0.23) (0.20) (0.43) Class C* -------- 6/01/99-3/31/00@ $10.52 $0.37 $(0.09) $0.28 $(0.34) $ -- $(0.34) 3/31/01 10.46 0.49 0.77 1.26 (0.55) (0.01) (0.56) 3/31/02 11.16 0.44(6) (0.03) 0.41 (0.44) (0.32) (0.76) 3/31/03 10.81 0.29 0.94 1.23 (0.35) (0.11) (0.46) 3/31/04 11.58 0.20 0.07 0.27 (0.23) (0.20) (0.43) Class X ------- 3/19/02-3/31/02@ $10.80 $0.02(6) $(0.01) $0.01 $(0.02) $ -- $(0.02) 3/31/03 10.79 0.36 0.95 1.31 (0.44) (0.11) (0.55) 3/31/04 11.55 0.32 0.06 0.38 (0.34) (0.20) (0.54)
Ratio Net Net of net Asset Assets, Ratio of investment Value, end of expenses income to end of Total period to average average Portfolio Period Ended period Return(2) (000's) net assets net assets Turnover ------------------------------------------------- ------ --------- -------- ---------- ---------- --------- 3/31/00 $10.42 2.40% $ 44,155 1.37% 5.06% 910% 3/31/01 11.12 13.10 72,092 0.99(5) 5.78(5) 833 3/31/02 10.77 4.45 118,440 0.99(4)(5) 4.61(4)(5)(6) 537 3/31/03 11.54 12.29 255,096 0.99(5) 3.36(5) 421 3/31/04 11.38 3.06 337,467 0.99(5) 2.51(5) 213 3/31/00 $10.44 1.55% $ 22,376 2.03% 4.41% 910% 3/31/01 11.15 12.45 38,190 1.64(5) 5.11(5) 833 3/31/02 10.80 3.78 90,011 1.64(4)(5) 3.96(4)(5)(6) 537 3/31/03 11.57 11.54 189,323 1.64(5) 2.71(5) 421 3/31/04 11.41 2.39 136,923 1.64(5) 1.77(5) 213 6/01/99-3/31/00@ $10.46 2.72% $ 1,406 2.10%(3)(5) 4.34%(3)(5) 910% 3/31/01 11.16 12.33 15,851 1.64(5) 4.99(5) 833 3/31/02 10.81 3.78 36,258 1.64(4)(5) 3.96(4)(5)(6) 537 3/31/03 11.58 11.53 137,173 1.64(5) 2.59(5) 421 3/31/04 11.42 2.39 88,184 1.64(5) 1.74(5) 213 3/19/02-3/31/02@ $10.79 0.08% $ 106 0.89%(3)(4)(5) 3.84%(3)(4)(5)(6) 537% 3/31/03 11.55 12.36 4,107 0.78(5) 3.31(5) 421 3/31/04 11.39 3.31 8,441 0.75 2.88(5) 213
-------- * Effective February 23, 2004, Class II was redesignated to Class C. @ Inception date of class. (1) Calculated based upon average shares outstanding. (2) Total return is not annualized and does not reflect sales load, but does include expense reimbursements. (3) Annualized (4) The ratios reflect an expense cap of 0.99%, 1.64% and 1.64% for Class A, Class B and Class C, respectively, which are net of custody credits of 0.01% for Class A, Class B, and Class C or waivers/reimbursements if applicable. Custody credits for Class X are less than 0.01%. (5) Net of the following expense reimbursements and custody credits, if applicable (based on average net assets):
3/31/00 3/31/01 3/31/02 3/31/03 3/31/04 ------- ------- ------- ------- ------- GNMA Fund Class A....................... -- % 0.30% 0.19% 0.13% 0.18% GNMA Fund Class B....................... -- 0.33 0.19 0.14 0.16 GNMA Fund Class C....................... 1.98(3) 0.62 0.21 0.13 0.16 GNMA Fund Class X....................... -- -- 56.17(3) 0.37 0.03
(6) The Trust has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount and amortizing premium on debt securities. The per share effect of this change for the year ended March 31, 2002 on investment income and realized and unrealized gains and losses was less than $0.01 per share on all classes of shares. The effect of this change was to decrease the ratio of net investment income to average net assets by 0.03% for all classes of shares. Per share data and ratios for periods prior to March 31, 2002 have not been restated to reflect this change in accounting policy. See Notes to Financial Statements 12 SunAmerica Income Funds FINANCIAL HIGHLIGHTS -- (continued)
STRATEGIC BOND FUND** --------------------- Net gain (loss) on investments Dividends Net Asset (both Dividends from net Value, Net realized Total from from net realized beginning investment and investment investment gain on Return of Period Ended of period+ income(1)+ unrealized)+ operations+ income+ investments+ capital+ -------------------------------------------- ---------- ---------- ------------ ----------- ---------- ------------ --------- Class A ------- 11/01/98-10/31/99 $3.52 $0.28 $(0.20) $ 0.08 $(0.29) $(0.02) $ -- 11/01/99-10/31/00 3.29 0.28 (0.14) 0.14 (0.26) -- (0.04) 11/01/00-10/31/01 3.13 0.28 (0.09) 0.19 (0.28) -- -- 11/01/01-3/31/02 3.04 0.11(6) (0.03) 0.08 (0.12) -- -- 4/01/02-3/31/03 3.00 0.20 0.06 0.26 (0.18) -- -- 4/01/03-3/31/04 3.08 0.21 0.33 0.54 (0.21) -- -- Class B ------- 11/01/98-10/31/99 $3.53 $0.26 $(0.21) $ 0.05 $(0.26) $(0.02) $ -- 11/01/99-10/31/00 3.30 0.26 (0.14) 0.12 (0.24) -- (0.04) 11/01/00-10/31/01 3.14 0.26 (0.09) 0.17 (0.26) -- -- 11/01/01-3/31/02 3.05 0.10(6) (0.04) 0.06 (0.11) -- -- 4/01/02-3/31/03 3.00 0.18 0.06 0.24 (0.16) -- -- 4/01/03-3/31/04 3.08 0.19 0.33 0.52 (0.19) -- -- Class C* -------- 11/01/98-10/31/99 $3.53 $0.26 $(0.20) $ 0.06 $(0.26) $(0.02) $ -- 11/01/99-10/31/00 3.31 0.26 (0.16) 0.10 (0.24) -- (0.03) 11/01/00-10/31/01 3.14 0.26 (0.09) 0.17 (0.26) -- -- 11/01/01-3/31/02 3.05 0.10(6) (0.03) 0.07 (0.11) -- -- 4/01/02-3/31/03 3.01 0.19 0.05 0.24 (0.16) -- -- 4/01/03-3/31/04 3.09 0.19 0.34 0.53 (0.20) -- -- Class I ------- 7/10/00-10/31/00@ $3.21 $0.08 $(0.08) $(0.00) $(0.07) $ -- $(0.01) 11/01/00-10/31/01 3.13 0.29 (0.09) 0.20 (0.29) -- -- 11/01/01-3/31/02 3.04 0.11(6) (0.03) 0.08 (0.12) -- -- 4/01/02-3/31/03 3.00 0.21 0.06 0.27 (0.19) -- -- 4/01/03-3/31/04 3.08 0.21 0.34 0.55 (0.22) -- --
Ratio Net Net of net Asset Assets, Ratio of investment Total Value, end of expense income to Distri- end of Total period to average average Portfolio Period Ended butions period+ Return(2) (000's) net assets net assets Turnover -------------------------------------------- ------- ------- --------- ------- ---------- ---------- --------- 11/01/98-10/31/99 $(0.31) $3.29 2.10% $ 8,997 1.50%(5) 8.21%(5) 119% 11/01/99-10/31/00 (0.30) 3.13 4.09 6,439 1.55(5) 8.70(5) 46 11/01/00-10/31/01 (0.28) 3.04 6.48 8,478 1.57(5) 9.07(5) 49 11/01/01-3/31/02 (0.12) 3.00 2.46 35,365 1.52(3)(4)(5) 8.09(3)(4)(5)(6) 99 4/01/02-3/31/03 (0.18) 3.08 9.07(7) 37,136 1.62(8) 6.93(8) 65 4/01/03-3/31/04 (0.21) 3.41 18.04 43,840 1.55(5)(9) 6.41(9) 69 11/01/98-10/31/99 $(0.28) $3.30 1.56% $21,340 2.15%(5) 7.58%(5) 119% 11/01/99-10/31/00 (0.28) 3.14 3.33 15,131 2.20(5) 8.00(5) 46 11/01/00-10/31/01 (0.26) 3.05 5.65 9,964 2.21(5) 8.41(5) 49 11/01/01-3/31/02 (0.11) 3.00 2.05 26,892 2.19(3)(4)(5) 7.48(3)(4)(5)(6) 99 4/01/02-3/31/03 (0.16) 3.08 8.36(7) 27,879 2.28(8) 6.26(8) 65 4/01/03-3/31/04 (0.19) 3.41 17.29 36,110 2.19(5)(9) 5.76(9) 69 11/01/98-10/31/99 $(0.28) $3.31 $ 1.56 $20,749 2.15%(5) 7.57%(5) 119% 11/01/99-10/31/00 (0.27) 3.14 3.32 13,056 2.20(5) 8.04(5) 46 11/01/00-10/31/01 (0.26) 3.05 5.65 11,461 2.22(5) 8.41(5) 49 11/01/01-3/31/02 (0.11) 3.01 2.25 14,289 2.22(3)(4)(5) 7.34(3)(4)(5)(6) 99 4/01/02-3/31/03 (0.16) 3.09 8.47(7) 14,423 2.17(5)(8) 6.37(5)(8) 65 4/01/03-3/31/04 (0.20) 3.42 17.43 22,064 2.16(5)(9) 5.78(5)(9) 69 7/10/00-10/31/00@ $(0.08) $3.13 (0.10)% $ 2,636 1.45%(4)(5) 7.87%(4)(5) 46% 11/01/00-10/31/01 (0.29) 3.04 6.63 2,811 1.46(5) 9.17(5) 49 11/01/01-3/31/02 (0.12) 3.00 2.59 2,872 1.44(3)(4)(5) 8.13(3)(4)(5)(6) 99 4/01/02-3/31/03 (0.19) 3.08 9.29(7) 3,145 1.42(5)(8) 7.13(8)(5) 65 4/01/03-3/31/04 (0.22) 3.41 18.38 3,725 1.44(5)(9) 6.52(5)(9) 69
-------- * In conjunction with the reorganization on November 16, 2001, Class C was redesignated as Class II. Effective February 23, 2004, Class II was redesignated to Class C. ** The financial information for the fiscal periods prior to November 16, 2001 reflect the financial information of the North American Strategic Income Fund, which was reorganized in SunAmerica Strategic Bond Fund on that date. + Prior to the fund merger, the North American Strategic Income Fund issued a stock split. The per share information for all periods prior to the stock split have been restated. For amounts reflecting activity subsequent to November 16, 2001, no restatement was necessary. @ Inception date of the class. (1)Calculated based upon average shares outstanding. (2)Total return is not annualized and does not reflect sales load, but does include expense reimbursements. (3)The ratios reflect an expense cap of 2.22%, and 1.44% for Class C and Class I, respectively, which is net of custody credits of 0.02% for these classes. Class A and Class B are gross of custody credits of 0.03% for the period ended March 31, 2002. (4)Annualized (5)Net of the following expense reimbursements and custody credits, if applicable (based on average net assets):
10/31/99 10/31/00 10/31/01 03/31/02(4) 3/31/03 3/31/04 -------- -------- -------- ----------- ------- ------- Strategic Bond Fund Class A............. 0.17% 0.32% 0.17% 0.01% -- % 0.02% Strategic Bond Fund Class B............. 0.17 0.32 0.18 0.01 -- 0.02 Strategic Bond Fund Class C............. 0.17 0.32 0.17 0.08 0.11 0.02 Strategic Bond Fund Class I............. -- 0.26(4) 0.18 0.24 0.48 0.12
(6)The Trust has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount and amortizing premium on debt securities. The effect of this change for the year ended March 31, 2002 on net investment income and realized and unrealized gains and losses was less than $0.01 per share for all classes. The effect of this change on the ratio of net investment income to average net asset was less than 0.01% for all classes. Per share data and ratios for the periods prior to March 31, 2002 have not been restated to reflect this change in accounting policy. (7)Total return for each class was increased by less than 0.01% from reimbursements for losses realized on the disposal of investments in violation of investment restrictions (See Note 4). (8)Gross of custody credits of 0.01%. (9)Gross of custody credits of 0.02%. See Notes to Financial Statements 13 SunAmerica Income Funds FINANCIAL HIGHLIGHTS -- (continued)
HIGH YIELD BOND FUND** ---------------------- Net gain (loss) on investments Net Net Asset (both Dividends Asset Value, Net realized Total from from net Total Value, beginning investment and investment investment Distri- end of Period Ended of period+ income(1)+ unrealized)+ operations+ income+ butions period+ ------------------------------------------------- ---------- ---------- ------------ ----------- ---------- ------- ------- Class A ------- 11/01/98-10/31/99 $5.63 $0.46 $(0.32) $ 0.14 $(0.46) $(0.46) $5.31 11/01/99-10/31/00 5.31 0.50 (0.49) 0.01 (0.50) (0.50) 4.82 11/01/00-10/31/01 4.82 0.44 (0.55) (0.11) (0.46) (0.46) 4.25 11/01/01-3/31/02 4.25 0.18(6) (0.11) 0.07 (0.19) (0.19) 4.13 4/01/02-3/31/03 4.13 0.37 (0.49) (0.12) (0.35) (0.35) 3.66 4/01/03-3/31/04 3.66 0.33 0.60 0.93 (0.36) (0.36) 4.23 Class B ------- 11/01/98-10/31/99 $5.64 $0.42 $(0.32) $ 0.10 $(0.42) $(0.42) $5.32 11/01/99-10/31/00 5.32 0.46 (0.50) (0.04) (0.46) (0.46) 4.82 11/01/00-10/31/01 4.82 0.41 (0.54) (0.13) (0.43) (0.43) 4.26 11/01/01-3/31/02 4.26 0.16(6) (0.11) 0.05 (0.18) (0.18) 4.13 4/01/02-3/31/03 4.13 0.35 (0.49) (0.14) (0.33) (0.33) 3.66 4/01/03-3/31/04 3.66 0.31 0.60 0.91 (0.33) (0.33) 4.24 Class C* -------- 8/21/00-10/31/00@ $5.09 $0.11 $(0.28) $(0.17) $(0.09) $(0.09) $4.83 11/01/00-10/31/01 4.83 0.40 (0.52) (0.12) (0.44) (0.44) 4.27 11/01/01-3/31/02 4.27 0.17(6) (0.11) 0.06 (0.18) (0.18) 4.15 4/01/02-3/31/03 4.15 0.34 (0.48) (0.14) (0.33) (0.33) 3.68 4/01/03-3/31/04 3.68 0.30 0.60 0.90 (0.33) (0.33) 4.25 Class Z* -------- 11/01/98-10/31/99 $5.64 $0.49 $(0.32) $ 0.17 $(0.49) $(0.49) $5.32 11/01/99-10/31/00 5.32 0.54 (0.51) 0.03 (0.52) (0.52) 4.83 11/01/00-10/31/01 4.83 0.47 (0.57) (0.10) (0.48) (0.48) 4.25 11/01/01-3/31/02 4.25 0.19(6) (0.11) 0.08 (0.20) (0.20) 4.13 4/01/02-3/31/03 4.13 0.39 (0.49) (0.10) (0.37) (0.37) 3.66 4/01/03-3/31/04 3.66 0.36 0.59 0.95 (0.38) (0.38) 4.23
Ratio Net of net Assets, Ratio of investment end of expense income to Total period to average average Portfolio Period Ended Return(2) (000's) net assets net assets Turnover ------------------------------------------------- --------- ------- ---------- ---------- --------- 11/01/98-10/31/99 2.28% $ 34 1.25%(5) 5.69%(5) 72% 11/01/99-10/31/00 0.04 286 1.38(5) 10.13(5) 57 11/01/00-10/31/01 (2.23) 722 1.57(5) 9.73(5) 83 11/01/01-3/31/02 1.67 59,075 1.48(3)(4) 9.56(3)(4)(6) 61 4/01/02-3/31/03 (2.45) 66,521 1.56 10.26 117 4/01/03-3/31/04 26.05 93,818 1.49 8.15 126 11/01/98-10/31/99 1.53% $ 652 2.00%(5) 7.30%(5) 72% 11/01/99-10/31/00 (0.83) 1,594 2.10(5) 9.41(5) 57 11/01/00-10/31/01 (2.84) 2,911 2.21(5) 9.17(5) 83 11/01/01-3/31/02 1.23 67,599 2.12(3)(4) 8.91(3)(4)(6) 61 4/01/02-3/31/03 (3.06) 57,596 2.18 9.63 117 4/01/03-3/31/04 25.55 73,751 2.14 7.52 126 8/21/00-10/31/00@ (3.29)% $ 545 2.07%(4) 9.10%(4) 57% 11/01/00-10/31/01 (2.84) 2,274 2.21(5) 9.02(5) 83 11/01/01-3/31/02 1.43 20,670 2.17(3)(4)(5) 8.86(3)(4)(5)(6) 61 4/01/02-3/31/03 (2.97) 27,814 2.15(5) 9.67(5) 117 4/01/03-3/31/04 25.14 52,868 2.11(5) 7.53(5) 126 11/01/98-10/31/99 2.74% $62,506 0.88%(5) 8.84%(5) 72% 11/01/99-10/31/00 0.30 62,702 0.96(5) 10.41(5) 57 11/01/00-10/31/01 (2.07) 61,451 1.15(5) 10.45(5) 83 11/01/01-3/31/02 1.98 62,245 0.93(3)(4)(5) 10.04(3)(4)(5)(6) 61 4/01/02-3/31/03 (1.84) 61,439 0.92(5) 10.90(5) 117 4/01/03-3/31/04 26.83 77,951 0.88 8.80(5) 126
-------- * In conjunction with the reorganization on November 16, 2001, Class C was redesignated as Class II and Class II was redesignated as Class Z. Effective February 23, 2004, Class II was redesignated to Class C. ** The financial information for the fiscal periods prior to November 16, 2001 reflect the financial information of the North American High Yield Bond Fund, which was reorganized in SunAmerica High Yield Bond Fund on that date. + Prior to the fund merger, the North American High Yield Bond Fund issued a stock split. The per share information for all periods prior to the stock split have been restated. For amounts subsequent to November 16, 2001, no restatement was necessary. See Note 2 for further discussion. @ Inception date of class. (1)Calculated based upon average shares outstanding. (2)Total return is not annualized and does not reflect sales load, but does include expense reimbursements. (3)Gross of custody credits of 0.01%. (4)Annualized (5)Net of the following expense reimbursements and custody credits, if applicable (based on average net assets):
10/31/99 10/31/00 10/31/01 3/31/02(4) 3/31/03 3/31/04 -------- -------- -------- ---------- ------- ------- High Yield Bond Fund Class A............ 0.76% 0.43% 0.18% -- % -- % -- % High Yield Bond Fund Class B............ 0.37 0.42 0.18 -- -- -- High Yield Bond Fund Class C............ -- -- 0.18 0.01 0.10 0.01 High Yield Bond Fund Class Z............ 0.47 0.60 0.18 0.03 0.03 0.00
(6)The Trust has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount and amortizing premium on debt securities. The effect of this change for the year ended March 31, 2002 on net investment income and realized and unrealized gains and losses was less than $0.01 per share for all classes. The effect of this change on the ratio of net investment income to average net assets was less than 0.01%. Per share data and ratios for the years prior to March 31, 2002 have not been restated to reflect this change in accounting policy. See Notes to Financial Statements 14 SunAmerica Income Funds FINANCIAL HIGHLIGHTS -- (continued)
TAX EXEMPT INSURED FUND ----------------------- Net gain (loss) on investments Net Asset (both Dividends Value, Net realized Total from from net Distributions Total beginning investment and investment investment from net Distri- Period Ended of period income(1) unrealized) operations income realized gains butions ------------------------------------------------- --------- ---------- ----------- ---------- ---------- -------------- ------- Class A ------- 3/31/00 $13.07 $0.55 $(0.71) $(0.16) $(0.54) $ -- $(0.54) 3/31/01 12.37 0.56 0.66 1.22 (0.57) -- (0.57) 3/31/02 13.02 0.52(6) (0.30) 0.22 (0.52) -- (0.52) 3/31/03 12.72 0.41 0.73 1.14 (0.43) (0.09) (0.52) 3/31/04 13.34 0.39 0.24 0.63 (0.37) (0.44) (0.81) Class B ------- 3/31/00 $13.07 $0.47 $(0.71) $(0.24) $(0.46) $ -- $(0.46) 3/31/01 12.37 0.47 0.66 1.13 (0.48) -- (0.48) 3/31/02 13.02 0.41(6) (0.28) 0.13 (0.43) -- (0.43) 3/31/03 12.72 0.32 0.73 1.05 (0.34) (0.09) (0.43) 3/31/04 13.34 0.30 0.23 0.53 (0.27) (0.44) (0.71) Class C* -------- 6/01/99-3/31/00@ $12.83 $0.37 $(0.47) $(0.10) $(0.36) $ -- $(0.36) 3/31/01 12.37 0.47 0.66 1.13 (0.48) -- (0.48) 3/31/02 13.02 0.41(6) (0.28) 0.13 (0.43) -- (0.43) 3/31/03 12.72 0.31 0.74 1.05 (0.34) (0.09) (0.43) 3/31/04 13.34 0.30 0.24 0.54 (0.28) (0.44) (0.72)
Ratio Net Net of net Asset Assets, Ratio of investment Value, end of expenses income to end of Total period to average average Portfolio Period Ended period Return(2) (000's) net assets net assets Turnover ------------------------------------------------- ------ --------- ------- ---------- ---------- --------- 3/31/00 $12.37 (1.20)% $68,650 1.28% 4.41% 33% 3/31/01 13.02 10.08 72,394 1.26 4.41 24 3/31/02 12.72 1.70 75,071 1.29(3) 3.99(3)(6) 140 3/31/03 13.34 9.08 78,358 1.24 3.12 195 3/31/04 13.16 4.86 69,098 1.26 2.90 131 3/31/00 $12.37 (1.83)% $16,269 1.92% 3.77% 33% 3/31/01 13.02 9.31 16,302 1.97 3.71 24 3/31/02 12.72 0.95 18,090 2.04(3) 3.22(3)(6) 140 3/31/03 13.34 8.30 19,031 1.97 2.39 195 3/31/04 13.16 4.10 16,632 1.96 2.20 131 6/01/99-3/31/00@ $12.37 (0.76)% $ 577 1.95%(4)(5) 3.82%(4)(5) 33% 3/31/01 13.02 9.32 721 1.95(5) 3.73(5) 24 3/31/02 12.72 0.99 4,095 1.95(3)(5) 3.21(3)(5)(6) 140 3/31/03 13.34 8.32 6,451 1.95 2.40 195 3/31/04 13.16 4.14 5,803 1.95(5) 2.21(5) 131
-------- * Effective February 23, 2004, Class II was redesignated to Class C. @ Inception date of class. (1) Calculated based upon average shares outstanding. (2) Total return is not annualized and does not reflect sales load, but does include expense reimbursements. (3) The ratios for Class C reflects an expense cap of 1.95%, which is net of custody credits of 0.01%. Ratios for Class A and Class B are gross of custody credits of 0.01%. (4) Annualized (5) Net of the following expense reimbursements and custody credits, if applicable (based on average net assets):
3/31/00(4) 3/31/01 3/31/02 3/31/03 3/31/04 ---------- ------- ------- ------- ------- Tax Exempt Insured Fund Class C......... 5.20% 1.59% 0.56% -- % 0.12%
(6)The Trust has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount and amortizing premium on debt securities. The effect of this change for the year ended March 31, 2002 on net investment income and net realized and unrealized gains and losses was less than $0.01 per share for all classes. The effect of this change on the ratio of net investment income to average net assets was less than 0.01%. Per share date and ratios for the years prior to March 31, 2002 have not been restated to reflect this change in accounting policy. See Notes to Financial Statements 15 SunAmerica Core Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004
Principal Amount Value Security Description (in thousands) (Note 2) ---------------------------------------------------- BONDS & NOTES -- 40.1% Aerospace & Military Technology -- 0.5% Goodrich Corp. Sr. Notes 6.45% due 12/15/07...... $289 $ 323,534 Northrop Grumman Corp. Guaranteed Sr. Notes 7.13% due 2/15/11....... 297 351,057 Raytheon Co. Notes 4.85% due 1/15/11....... 480 495,610 ---------- 1,170,201 ---------- Automotive -- 0.8% Ford Motor Co. Bonds 6.63% due 10/01/28...... 309 284,047 General Motors Corp. Notes 7.20% due 1/15/11....... 373 408,784 General Motors Corp. Sr. Debentures 8.25% due 7/15/23....... 616 687,583 Hertz Corp. Sr. Notes 4.70% due 10/02/06...... 541 554,514 ---------- 1,934,928 ---------- Banks -- 2.4% Banc One Corp. Sub. Debentures 7.63% due 10/15/26...... 346 427,862 Bank of America Corp. Sr. Notes, Series J 1.27% due 2/17/09(6).... 622 622,402 Bank of America Corp. Guaranteed Capital 2.11% due 6/18/04(6).... 592 596,569 Huntington National Bank Notes 2.75% due 10/16/06...... 541 554,227 Key Bank NA Sr. Notes 4.10% due 6/30/05....... 482 497,888 Key Bank NA Sub. Notes 7.00% due 2/01/11....... 249 291,320 KeyCorp Notes 2.75% due 2/27/07....... 579 586,876 National City Bank Notes 2.50% due 4/17/06....... 534 541,693 PNC Funding Corp. Guaranteed Sr. Notes 5.75% due 8/01/06....... 565 609,998 Westpac Capital Trust IV Notes 5.26% due 12/29/49*..... 718 718,000 ---------- 5,446,835 ----------
Principal Amount Value Security Description (in thousands) (Note 2) ---------------------------------------------------------------- Broadcasting & Media -- 2.6% AOL Time Warner Guaranteed Sr. Notes 6.13% due 4/15/06................... $ 321 $ 345,851 Charter Communications Holdings, LLC Sr. Sub. Notes 11.13% due 1/15/11.................. 525 459,375 Comcast Cable Commerce, Inc. Sr. Notes 6.88% due 6/15/09................... 159 181,349 CSC Holdings, Inc. Sr. Debentures 7.88% due 2/15/18................... 1,050 1,126,125 Insight Communications Co., Inc. Sr. Sub. Disc. Notes 12.25% due 2/15/06(5)............... 375 316,875 Liberty Media Corp. Sr. Notes 3.50% due 9/25/06................... 541 550,903 News America Holdings, Inc. Guaranteed Sr. Notes 7.75% due 12/01/45.................. 226 274,846 News America, Inc. Guaranteed Sr. Debentures 7.63% due 11/30/28.................. 346 411,295 TCI Communications, Inc. Notes 6.88% due 2/15/06................... 271 293,555 TCI Communications, Inc. Debentures 7.88% due 8/01/13................... 578 696,879 Time Warner Entertainment Co. LP Sr. Debentures 8.38% due 3/15/23................... 310 386,656 Time Warner, Inc. Guaranteed Sr. Notes 6.63% due 5/15/29................... 346 361,538 Time Warner, Inc. Guaranteed Sr. Notes 6.88% due 6/15/18................... 165 185,240 Young Broadcasting, Inc. Guaranteed Sr. Sub. Notes 10.00% due 3/01/11.................. 275 294,250 ---------- 5,884,737 ---------- Business Services -- 0.4% Allied Waste North America, Inc. Secured Sr. Notes 5.75% due 2/15/11*.................. 344 332,820 USA Waste Services, Inc. Sr. Notes 7.00% due 7/15/28................... 331 367,987 Waste Management, Inc. Guaranteed Sr. Notes 7.38% due 5/15/29................... 170 196,930 ---------- 897,737 ----------
16 SunAmerica Core Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) ----------------------------------------------------------------- BONDS & NOTES (continued) Chemicals -- 0.4% Dow Chemical Co. Debentures 8.55% due 10/15/09................... $299 $ 367,944 Huntsman International, LLC Sr. Secured Notes 11.63% due 10/15/10.................. 450 472,500 ICI North America, Inc. Debentures 8.88% due 11/15/06................... 42 48,436 ---------- 888,880 ---------- Communication Equipment -- 0.2% Rural Cellular Corp. Sr. Sub. Notes 9.75% due 1/15/10.................... 625 559,375 ---------- Computer Software -- 0.2% Computer Sciences Corp. Notes 6.75% due 6/15/06.................... 321 351,817 ---------- Computers & Business Equipment -- 0.4% International Business Machines Corp. Sr. Debentures 6.22% due 8/01/27.................... 675 730,708 Xerox Corp. Sr. Notes 7.63% due 6/15/13.................... 225 239,625 ---------- 970,333 ---------- Conglomerate -- 0.6% Brascan Corp. Bonds 7.38% due 3/01/33.................... 663 764,405 Tyco International Group SA Guaranteed Sr. Notes 6.38% due 2/15/06.................... 319 339,638 Tyco International Group SA Guaranteed Notes 6.88% due 1/15/29.................... 359 376,784 ---------- 1,480,827 ---------- Electronics -- 0.1% Amkor Technology, Inc. Sr. Notes 7.13% due 3/15/11*................... 300 300,000 ---------- Energy Services -- 0.1% Hanover Compressor Co. Sub. Notes zero coupon due 3/31/07.............. 375 288,750 ---------- Energy Sources -- 1.6% Amerada Hess Corp. Notes 6.65% due 8/15/11.................... 638 704,950 Amerada Hess Corp. Notes 7.30% due 8/15/31.................... 325 347,135 Chesapeake Energy Corp. Guaranteed Sr. Notes 7.75% due 1/15/15.................... 275 304,563
Principal Amount Value Security Description (in thousands) (Note 2) ------------------------------------------------------------------------- Energy Sources (continued) Conoco, Inc. Sr. Notes 6.95% due 4/15/29............................ $ 348 $ 405,612 Occidental Petroleum Corp. Sr. Notes 6.50% due 4/01/05............................ 530 555,851 Pennzoil Co. Debentures 10.25% due 11/01/05.......................... 132 148,104 Plains All American Pipeline LP Sr. Notes 5.63% due 12/15/13*.......................... 638 664,317 XTO Energy, Inc. Senior Notes 7.50% due 4/15/12............................ 338 401,920 ---------- 3,532,452 ---------- Financial Services -- 13.9% Alamosa Delaware, Inc. Guaranteed Sr. Disc. Notes 12.00% due 7/31/05(5)........................ 900 819,000 Athena Neurosciences Finance, LLC Guaranteed Sr. Notes 7.25% due 2/21/08............................ 400 401,500 Bear Stearns Commercial Mtg. Securities, Inc. Commercial Mtg. Certificates, Series 2004 PWR4, Class A4 4.72% due 2/11/41............................ 1,900 1,939,672 Bear Stearns Commercial Mtg. Securities, Inc. Commercial Mtg. Certificates, Series 2001-Top4, Class A3 5.61% due 11/15/33........................... 100 109,847 Bear Stearns Commercial Mtg. Securities, Inc. Commercial Mtg. Certificates, Series 1999-C1, Class A2 6.02% due 2/14/31............................ 525 586,676 Bear Stearns Cos., Inc. Notes 3.25% due 3/25/09............................ 622 616,562 Boeing Capital Corp. Sr. Notes 6.10% due 3/01/11............................ 288 319,891 Bunge Ltd. Finance Corp. Notes 4.38% due 12/15/08*.......................... 237 245,326 Capital One Bank Notes 4.25% due 12/01/08........................... 351 361,067 Capital One Bank Sr. Notes 5.13% due 2/15/14............................ 289 293,820 Capital One Financial Corp. Notes 6.25% due 11/15/13........................... 319 340,513 Chukchansi Economic Development Authority Sr. Notes 14.50% due 6/15/09*.......................... 500 586,250
17 SunAmerica Core Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) --------------------------------------------------------------- BONDS & NOTES (continued) Financial Services (continued) CIT Group, Inc. Sr. Notes 4.75% due 12/15/10................. $ 190 $ 197,186 Conoco Funding Co. Guaranteed Notes 6.35% due 10/15/11................. 303 347,792 DLJ Commercial Mtg. Corp. Commercial Mtg. Certificates, Series 1999-CG3, Class A1B 7.34% due 10/10/32................. 1,000 1,183,021 Duke Capital Corp. Sr. Notes 5.50% due 3/01/14.................. 533 538,800 Duke Capital Corp. Sr. Notes, Series A 6.25% due 7/15/05.................. 264 277,184 Ford Motor Credit Co. Global Notes 5.63% due 10/01/08................. 503 519,159 Ford Motor Credit Co. Sr. Notes 5.80% due 1/12/09.................. 859 885,614 FPL Group Capital, Inc. Notes 3.25% due 4/11/06.................. 528 540,348 General Electric Capital Corp. Notes 6.13% due 2/22/11.................. 541 610,481 General Electric Capital Corp. Bonds 6.75% due 3/15/32.................. 324 374,274 General Motors Acceptance Corp. Notes 2.00% due 5/18/04(6)............... 568 566,830 General Motors Acceptance Corp. Notes 4.50% due 7/15/06.................. 462 477,409 General Motors Acceptance Corp. Notes 7.75% due 1/19/10.................. 534 605,374 Glencore Funding, LLC Guaranteed Notes 6.00% due 4/15/14*................. 526 522,239 Goldman Sachs Group, Inc. Sr. Notes 6.13% due 2/15/33.................. 383 394,910 Honda Auto Receivables Owner Trust Asset Backed Notes, Series 2002-4, Class A4 2.70% due 4/01/04.................. 2,000 2,031,578 Honda Auto Receivables Owner Trust Asset Backed Notes, Series 2003-3, Class A4 2.77% due 11/21/08................. 1,000 1,016,071 Household Finance Corp. Notes 3.38% due 2/21/06.................. 415 425,655
Principal Amount Value Security Description (in thousands) (Note 2) ------------------------------------------------------------------------ Financial Services (continued) J.P. Morgan Chase & Co. Notes 4.50% due 11/15/10.......................... $ 578 $ 596,213 J.P. Morgan Chase & Co. Notes 5.25% due 5/30/07........................... 541 584,205 Lehman Brothers Holdings, Inc. Notes 4.80% due 3/13/14........................... 533 536,369 MassMutual Global Funding II Notes 3.25% due 6/15/07*.......................... 381 392,020 Morgan Stanley Global Sub. Notes 4.75% due 4/01/14........................... 678 664,867 Morgan Stanley Dean Witter & Co. Bonds 6.75% due 4/15/11........................... 321 370,791 Morgan Stanley Dean Witter Capital I Commercial Mtg. Certificates, Series 2002-Top1, Class A4 6.66% due 2/15/33........................... 200 231,535 Morgan Stanley Dean Witter Capital I Commercial Mtg. Certificates, Series 2000-LIF2, Class A2 7.20% due 4/01/04........................... 2,125 2,510,702 National Rural Utilities Cooperative Finance Corp. Secured Collateral Trust Bonds 3.88% due 2/15/08........................... 578 597,125 NiSource Finance Corp. Guaranteed Sr. Notes 7.63% due 11/15/05.......................... 311 338,357 Pemex Project Funding Master Trust Guaranteed Notes 8.63% due 2/01/22........................... 627 724,185 PPL Capital Funding, Inc. Guaranteed Notes 4.33% due 3/01/09*.......................... 532 537,129 Pricoa Global Funding Notes 3.90% due 12/15/08*......................... 85 86,955 Principal Life Global Funding Secured Notes 5.13% due 6/28/07*.......................... 482 517,968 Qwest Capital Funding, Inc. Guaranteed Notes 7.90% due 8/15/10........................... 675 607,500 Residential Funding Mtg. Securities II Series 2004 HI1, Class A3 3.05% due 7/25/16........................... 1,100 1,104,975 Textron Financial Corp. Notes, Series E 2.75% due 6/01/06........................... 534 539,342 TIAA Global Markets, Inc. Notes 4.13% due 11/15/07*......................... 321 337,904
18 SunAmerica Core Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) ------------------------------------------------------------ BONDS & NOTES (continued) Financial Services (continued) Unilever Capital Corp. Guaranteed Bonds 5.90% due 11/15/32............. $310 $ 322,848 Verizon Global Funding Corp. Sr. Notes 7.75% due 12/01/30............. 361 438,537 Washington Mutual Finance Corp. Sr. Notes 6.25% due 5/15/06.............. 529 575,193 Washington Mutual, Inc. Sub. Notes 4.63% due 4/01/14.............. 283 277,340 Washington Mutual, Inc. Notes 4.00% due 1/15/09.............. 258 263,486 Wells Fargo & Co. Sub. Notes 5.13% due 9/01/12.............. 306 322,731 ----------- 31,612,326 ----------- Food, Beverage & Tobacco -- 0.6% Anheuser-Busch Cos., Inc. Sr. Debentures 5.95% due 1/15/33.............. 310 330,946 Cargill, Inc. Notes 3.63% due 3/04/09*............. 265 266,716 Pepsi Bottling Group, Inc. Guaranteed Sr. Notes, Series B 7.00% due 3/01/29.............. 619 732,727 ----------- 1,330,389 ----------- Forest Products -- 0.9% Domtar, Inc. Notes 5.38% due 12/01/13............. 108 109,094 Georgia-Pacific Corp. Debentures 7.75% due 11/15/29............. 300 304,500 Georgia-Pacific Corp. Debentures 8.63% due 4/30/25.............. 425 447,312 Weyerhaeuser Co. Notes 5.50% due 3/15/05.............. 528 547,683 Weyerhaeuser Co. Notes 6.13% due 3/15/07.............. 532 582,012 ----------- 1,990,601 ----------- Health Services -- 0.5% HCA, Inc. Sr. Notes 6.95% due 5/01/12.............. 425 463,557 Highmark, Inc. Notes 6.80% due 8/15/13*............. 263 294,735
Principal Amount Value Security Description (in thousands) (Note 2) ------------------------------------------------------------------- Health Services (continued) Tenet Healthcare Corp. Sr. Notes 5.00% due 7/01/07...................... $325 $ 296,563 ---------- 1,054,855 ---------- Household Products -- 0.2% Procter & Gamble Co. Bonds 5.50% due 2/01/34...................... 347 349,510 ---------- Insurance -- 1.1% ING Security Life Institutional Funding Notes 2.70% due 2/15/07*..................... 578 585,074 Kingsway America, Inc. Sr. Notes 7.50% due 2/01/14*..................... 319 323,061 Markel Capital Trust I Guaranteed Capital, Series B 8.71% due 1/01/46...................... 599 644,092 Nationwide Mutual Insurance Co. Bonds 6.60% due 4/15/34*..................... 643 641,560 Prudential Financial, Inc. Notes 4.75% due 4/01/14...................... 263 263,352 ---------- 2,457,139 ---------- Leisure & Tourism -- 0.7% American Airlines, Inc. Pass-Thru Certificates, Series 2001-1, Class A2 6.82% due 5/23/11...................... 550 508,054 Atlas Air, Inc. Pass-Thru Certificates, Series 1999-1, Class A-2 6.88% due 1/02/11...................... 400 368,979 Atlas Air, Inc. Pass-Thru Certificates, Series 1999-1, Class B 7.63% due 1/02/15...................... 221 128,114 Continental Airlines, Inc. Pass-Thru Certificates, Series 1998-1, Class A 6.65% due 9/15/17...................... 60 58,334 Continental Airlines, Inc. Pass-Thru Certificates, Series 1997-4, Class A 6.90% due 1/02/18...................... 83 83,048 Continental Airlines, Inc. Pass-Thru Certificates, Series 1999-1, Class C 6.95% due 8/02/09...................... 327 283,124 Continental Airlines, Inc. Pass-Thru Certificates, Series 1998-3, Class C1 7.08% due 11/01/04..................... 13 12,701 Riviera Holdings Corp. Guaranteed Sr. Notes 11.00% due 6/15/10..................... 75 78,844
19 SunAmerica Core Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) ------------------------------------------------------------------- BONDS & NOTES (continued) Leisure & Tourism (continued) United Airlines, Inc. Pass-Thru Certificates, Series 2000-2, Class A1 7.03% due 10/01/10..................... $ 8 $ 7,097 ---------- 1,528,295 ---------- Machinery -- 0.2% Dana Corp. Notes 9.00% due 8/15/11...................... 300 360,750 ---------- Medical Products -- 0.3% Johnson & Johnson Debentures 4.95% due 5/15/33...................... 619 587,003 ---------- Metals & Mining -- 0.1% Alcan, Inc. Bonds 6.13% due 12/15/33..................... 87 91,738 Owens-Brockway Glass Container, Inc. Guaranteed Sr. Secured Notes 8.88% due 2/15/09...................... 225 243,000 ---------- 334,738 ---------- Pharmaceuticals -- 0.5% GlaxoSmithKline Capital, Inc. Bonds 5.38% due 4/15/34...................... 635 629,001 Pfizer, Inc. Global Notes 2.50% due 3/15/07...................... 578 583,695 ---------- 1,212,696 ---------- Real Estate Companies -- 0.2% EOP Operating LP Guaranteed Notes 4.75% due 3/15/14...................... 565 557,582 ---------- Real Estate Investment Trusts -- 0.2% Omega Healthcare Investors, Inc. Sr. Notes 7.00% due 4/01/14*..................... 425 435,625 ---------- Retail Stores -- 1.8% Fortune Brands, Inc Notes 2.88% due 12/01/06..................... 541 549,288 Fred Meyer, Inc. Notes 7.38% due 3/01/05...................... 541 568,712 J.C. Penney Co., Inc. Debentures 7.13% due 11/15/23..................... 475 536,750 Rent-Way, Inc. Sr. Secured Notes 11.88% due 6/15/10..................... 150 168,000 Safeway, Inc. Notes 2.50% due 11/01/05..................... 541 543,805
Principal Amount Value Security Description (in thousands) (Note 2) -------------------------------------------------------------- Retail Stores (continued) Safeway, Inc. Sr. Notes 7.00% due 9/15/07................. $635 $ 718,103 Wal-Mart Stores, Inc. Sr. Notes 6.88% due 8/10/09................. 809 949,425 ---------- 4,034,083 ---------- Telecommunications -- 2.3% AT&T Corp. Notes 6.00% due 3/15/09................. 370 399,087 AT&T Corp. Sr. Notes 8.75% due 11/15/31................ 331 390,437 AT&T Wireless Services, Inc. Sr. Notes 7.88% due 3/01/11................. 20 23,851 AT&T Wireless Services, Inc. Sr. Notes 8.75% due 3/01/31................. 674 874,180 GTE Corp. Debentures 5.50% due 1/15/09................. 379 410,893 Iridium, LLC Guaranteed Sr. Notes, Series C 11.25% due 7/15/05+(1)............ 25 2,375 MJD Communications, Inc. Sr. Sub. Notes, Series B 9.50% due 5/01/08................. 700 707,000 Nextel Communications, Inc. Sr. Notes 7.38% due 8/01/15................. 875 947,188 Sprint Capital Corp. Guaranteed Sr. Notes 6.13% due 11/15/08................ 396 436,507 US West Communications, Inc. Debentures 7.13% due 11/15/43................ 750 675,000 Verizon Pennsylvania, Inc. Notes, Series A 5.65% due 11/15/11................ 271 291,624 ---------- 5,158,142 ---------- Transportation -- 1.2% Burlington Northern Santa Fe Corp. Debentures 8.13% due 4/15/20................. 492 612,101 CSX Corp. Notes 2.75% due 2/15/06................. 257 259,225 FedEx Corp. Notes 2.65% due 4/01/07*................ 610 609,294 Norfolk Southern Corp. Sr. Notes 7.05% due 5/01/37................. 693 795,181
20 SunAmerica Core Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) ---------------------------------------------------------------------- BONDS & NOTES (continued) Transportation (continued) Union Pacific Corp. Sr. Notes 7.38% due 9/15/09......................... $441 $ 521,469 ---------- 2,797,270 ---------- Utilities -- 5.1% AES Corp. Sr. Notes 7.75% due 3/01/14......................... 600 600,750 Alabama Power Co. Sr. Notes 2.80% due 12/01/06........................ 541 547,200 Appalachian Power Co. Sr. Notes, Series E 4.80% due 6/15/05......................... 643 666,091 Carolina Power & Light Co. 1st Mtg. Bonds 6.13% due 9/15/33......................... 325 343,289 Constellation Energy Group, Inc. Notes, Series A 7.88% due 4/01/05......................... 541 573,913 Consumers Energy Co. 1st Mtg. Bonds, Series F 4.00% due 5/15/10......................... 267 264,039 Dominion Resources, Inc. Sr. Notes, Series B 7.63% due 7/15/05......................... 530 568,684 Dynegy Holdings, Inc. Sr. Notes 8.75% due 2/15/12......................... 700 661,500 Edison Mission Energy Sr. Notes 9.88% due 4/15/11......................... 875 920,937 El Paso Production Holding Co. Guaranteed Sr. Notes 7.75% due 6/01/13......................... 375 347,813 FirstEnegy Corp. Sr. Notes, Series A 5.50% due 11/15/06........................ 319 339,189 Georgia Power Co. Sr. Notes, Series G 6.20% due 2/01/06......................... 643 691,163 Indianapolis Power & Light Co. 1st Mtg. Bonds 6.60% due 1/01/34*........................ 228 242,319 NRG Energy, Inc. Guaranteed Sr. Secured Notes 8.00% due 12/15/13*....................... 600 619,500 Old Dominion Electric Cooperative 1st Mtg. Bonds, Series A 5.68% due 12/01/28........................ 289 307,415 Panhandle Eastern Pipe Line Co. Notes 2.75% due 3/15/07*........................ 339 340,464 Progress Energy, Inc. Sr. Notes 6.75% due 3/01/06......................... 533 577,687
Principal Amount Value Security Description (in thousands) (Note 2) ----------------------------------------------------------- Utilities (continued) Reliant Energy Resources Corp. Notes, Series B 8.13% due 7/15/05............. $ 283 $ 302,630 Reliant Resources, Inc. Secured Notes 9.50% due 7/15/13............. 650 716,625 Southern California Edison Co. 1st Mtg. Bonds 8.00% due 2/15/07............. 381 437,084 TECO Energy, Inc. Sr. Notes 7.50% due 6/15/10............. 48 51,720 Virginia Electric & Power Co. Notes 4.10% due 12/15/08............ 381 393,746 Westar Energy, Inc. 1st Mtg. Bonds 7.88% due 5/01/07............. 267 304,380 Williams Cos., Inc. Notes 8.75% due 3/15/32............. 700 742,000 ----------- 11,560,138 ----------- Total Bonds & Notes (cost $90,028,930)............ 91,068,014 ----------- FOREIGN BONDS & NOTES -- 4.8% Banks -- 0.3% European Investment Bank Bonds 4.00% due 3/15/05............. 643 660,180 ----------- Broadcasting & Media -- 0.3% Telenet Group Holding NV Sr. Disc. Notes 11.50% due 12/15/08*(5)....... 1,000 610,000 ----------- Business Services -- 0.0% SCL Terminal Aereo Santiago SA Sr. Secured Notes 6.95% due 7/01/12*............ 85 94,595 ----------- Financial Services -- 0.6% Coca Cola HBC Finance BV Notes 5.13% due 9/17/13............. 271 282,009 Nationwide Building Society Sr. Notes 2.63% due 1/30/07*............ 578 581,609 Rio Tinto Finance USA, Ltd. Notes 2.63% due 9/30/08............. 535 523,970 ----------- 1,387,588 ----------- Food, Beverage & Tobacco -- 0.2% Cia Brasileira de Bebida Notes 8.75% due 9/15/13*............ 390 428,025 -----------
21 SunAmerica Core Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) ------------------------------------------------------------ FOREIGN BONDS & NOTES (continued) Forest Products -- 0.1% Norske Skogindustrier ASA Bonds 7.13% due 10/15/33*............. $202 $ 216,334 ---------- Government Agency -- 1.2% Korea Highway Corp. Notes 4.88% due 4/17/14*.............. 234 231,702 Quebec Province Canada Notes 5.00% due 7/17/09............... 643 696,185 Quebec Province Canada Debentures 7.50% due 7/15/23............... 619 797,461 United Kingdom Notes 2.25% due 7/08/08*.............. 749 733,413 United Mexican States Notes 8.00% due 9/24/22............... 265 306,075 ---------- 2,764,836 ---------- Insurance -- 0.2% Fairfax Financial Holdings, Ltd. Notes 7.75% due 7/15/37............... 100 90,000 Fairfax Financial Holdings, Ltd. Notes 8.25% due 10/01/15.............. 300 309,000 ---------- 399,000 ---------- Metals & Mining -- 0.6% Crown European Holdings SA Sr. Secured Notes 10.88% due 3/01/13.............. 375 436,875 Noranda, Inc. Debentures 7.00% due 7/15/05............... 285 299,916 Noranda, Inc. Sr. Notes 7.25% due 7/15/12............... 264 306,965 Placer Dome, Inc. Bonds 6.45% due 10/15/35*............. 341 366,310 ---------- 1,410,066 ---------- Telecommunications -- 0.9% France Telecom SA Sr. Notes 8.75% due 9/01/04............... 585 714,465 Koninklijke KPN NV Sr. Notes 7.50% due 10/01/05.............. 439 475,259 Koninklijke KPN NV Notes 8.00% due 10/01/10.............. 541 658,938 Telus Corp. Notes 8.00% due 6/01/11............... 161 193,942 ---------- 2,042,604 ----------
Principal Amount Value Security Description (in thousands) (Note 2) --------------------------------------------------------------- Utilities -- 0.4% Calpine Canada Energy Finance, ULC Guaranteed Sr. Notes 8.50% due 5/01/08................. $ 800 $ 592,000 Great Lakes Power, Inc. Sr. Notes 8.30% due 3/01/05................. 267 281,646 ----------- 873,646 ----------- Total Foreign Bonds & Notes (cost $10,774,883)................. 10,886,874 ----------- U.S. GOVERNMENT OBLIGATIONS -- 6.5% U.S. Treasury Bonds -- 5.8% 5.25% due 2/15/29.................. 1,091 1,153,392 5.38% due 2/15/31.................. 4,649 5,067,410 6.25% due 8/15/23.................. 2,868 3,410,118 6.88% due 8/15/25.................. 599 765,199 7.13% due 2/15/23.................. 711 924,328 7.25% due 8/15/22.................. 1,461 1,919,389 ----------- 13,239,836 ----------- U.S. Treasury Notes -- 0.7% 4.00% due 2/15/14.................. 296 299,885 4.25% due 8/15/13.................. 885 917,081 5.00% due 2/15/11.................. 283 312,405 ----------- 1,529,371 ----------- Total U.S. Government Obligations (cost $14,491,163)................ 14,769,207 ----------- U.S. GOVERNMENT AGENCIES -- 49.0% Federal Farm Credit Bank -- 1.7% 2.38% due 10/02/06................. 1,257 1,266,212 2.50% due 3/15/06.................. 1,394 1,413,980 4.38% due 4/15/05.................. 1,021 1,054,526 ----------- 3,734,718 ----------- Federal Home Loan Bank -- 1.7% 1.88% due 6/15/06.................. 1,365 1,365,550 4.50% due 9/16/13.................. 985 1,007,609 5.25% due 8/15/06.................. 1,365 1,466,942 ----------- 3,840,101 ----------- Federal Home Loan Mortgage Corporation -- 20.4% 2.00% due 2/23/06.................. 1,812 1,820,429 2.50% due 12/04/06................. 1,450 1,452,847 2.63% due 9/17/07.................. 856 859,649 2.85% due 2/23/07.................. 2,465 2,479,907 3.00% due 10/27/06................. 1,103 1,113,504 4.50% due 1/15/14.................. 1,120 1,137,431 4.50% due 11/01/18................. 3,337 3,384,134 4.50% due 2/01/19.................. 2,400 2,433,637 5.00% due 10/01/33................. 66 66,381 5.00% due 3/01/34.................. 3,400 3,419,536 5.00% due 3/01/34.................. 1,650 1,659,481 5.00% TBA due Apr.................. 3,900 3,918,283 5.50% due 2/01/18.................. 2,612 2,724,387 5.50% due 10/01/33................. 1,932 1,981,068 5.63% due 3/15/11.................. 764 852,576 6.00% due 2/01/32.................. 85 88,040 6.00% due 10/01/33................. 1,000 1,039,558
22 SunAmerica Core Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands)/ (Note 2) ---------------------------------------------------------------- U.S. GOVERNMENT AGENCIES (continued) Federal Home Loan Mortgage Corporation (continued) 6.00% due 11/01/33................ $ 2,000 $ 2,079,314 6.50% due 8/01/16................. 27 28,411 6.50% due 6/01/32................. 2,000 2,101,599 6.50% due 8/01/32................. 4,000 4,203,253 6.50% due 2/01/33................. 600 630,548 6.63% due 9/15/09................. 2,515 2,931,338 7.00% due 3/01/12................. 20 20,906 7.00% due 11/01/16................ 127 135,534 7.50% due 4/01/31................. 1,016 1,093,538 7.50% due 12/01/31................ 1,843 1,983,380 8.00% due 10/01/29................ 34 36,657 8.00% due 7/01/30................. 12 12,904 8.00% due 8/01/30................. 44 47,707 8.00% due 10/01/30................ 71 76,301 8.00% due 11/01/30................ 97 104,780 8.00% due 12/01/30................ 186 201,170 8.00% due 1/01/31................. 164 176,964 ----------- 46,295,152 ----------- Federal National Mortgage Association -- 24.0% 2.20% due 12/30/05................ 1,203 1,208,274 2.50% due 5/12/06................. 1,368 1,369,964 4.38% due 9/15/12................. 2,228 2,278,057 4.50% due 6/01/18................. 979 992,390 5.00% due 6/01/18................. 2,794 2,874,731 5.00% due 9/01/18................. 945 972,929 5.00% due 10/01/18................ 943 970,640 5.00% due 10/01/18................ 949 976,325 5.00% due 11/01/18................ 1,600 1,646,433 5.00% due 11/01/33................ 66 65,862 5.00% due 3/01/34................. 4,100 4,122,277 5.50% due 12/01/33................ 11,877 12,175,799 5.50% due 12/01/33................ 3,162 3,241,915 5.50% due 3/01/34................. 1,200 1,230,157 6.00% due 12/01/16................ 1,559 1,642,796 6.00% due 5/01/17................. 289 304,413 6.00% due 3/01/33................. 4,355 4,534,070 6.00% due 8/01/33................. 3,300 3,436,014 6.18% due 7/01/08................. 19 20,607 6.27% due 11/01/07................ 51 56,178 6.30% due 1/01/08................. 19 20,464 6.31% due 2/01/08................. 185 200,796 6.34% due 1/01/08................. 18 19,639 6.43% due 1/01/08................. 19 20,533 6.50% due 3/01/17................. 800 851,069 6.50% due 4/01/29................. 103 108,289 6.50% due 2/01/32................. 1,105 1,160,846 6.50% due 7/01/32................. 427 448,677 6.63% due 11/15/30................ 1,629 1,942,848 6.85% due 6/01/07................. 10 11,105 7.00% due 9/01/10................. 3 3,173 7.00% due 7/01/11................. 1 1,116 7.00% due 11/01/11................ 3 2,843 7.00% due 5/01/12................. 3 3,584
Principal Amount (in thousands)/ Value Security Description shares/warrants (Note 2) ---------------------------------------------------------------- Federal National Mortgage Association (continued) 7.00% due 5/01/12................. $ 1 $ 1,241 7.00% due 6/01/12................. 4 3,760 7.00% due 6/01/12................. 3 2,916 7.00% due 9/01/12................. 3 3,629 7.00% due 10/01/12................ 2 2,343 7.00% due 7/01/13................. 3 3,700 7.00% due 4/01/28................. 29 31,313 7.00% due 10/01/28................ 5 5,267 7.00% due 9/01/31................. 2,328 2,470,115 7.04% due 3/01/07................. 18 20,438 7.25% due 1/15/10................. 2,213 2,660,508 7.50% due 10/01/10................ 205 220,229 7.50% due 11/01/14................ 11 11,355 7.50% due 5/01/15................. 6 6,845 7.50% due 6/01/15................. 137 146,688 7.50% due 7/01/15................. 41 43,582 7.50% due 8/01/15................. 33 35,632 7.50% due 10/01/15................ 7 7406 ------------ 54,591,780 ------------ Government National Mortgage Association -- 1.2% 6.50% due 6/15/29................. 201 212,069 6.50% due 7/15/32................. 2,074 2,189,597 7.00% due 12/15/22................ 124 133,074 7.00% due 8/15/29................. 141 150,604 8.00% due 4/15/30................. 56 61,501 ------------ 2,746,845 ------------ Total U.S. Government Agencies (cost $109,591,547).............. 111,208,596 ------------ COMMON STOCK -- 0.0% Health Services -- 0.0% MEDIQ, Inc.(2)(4)................. 18 0 ------------ Machinery -- 0.0% Manitowoc Co., Inc................ 28 828 ------------ Total Common Stock (cost $8,616)..................... 828 ------------ PREFERRED STOCK -- 0.0% Machinery -- 0.0% Fairfield Manufacturing Co., Inc. 11.75%(2)(3)(4).................. 28 0 ------------ WARRANTS -- 0.0% Communication Equipment -- 0.0% Concentric Network Corp. Expires 12/15/07(2)(4)........... 5 0 ------------ Telecommunications -- 0.0% KMC Telecom Holdings, Inc. Expires 1/31/08(2)(4)............ 50 0 ------------ Total Warrants (cost $0)......................... 0 ------------ Total Investment Securities -- 100.4% (cost $224,895,139).............. 227,933,519 ------------
23 SunAmerica Core Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) ------------------------------------------------------------------------ REPURCHASE AGREEMENT -- 3.1% Agreement with State Street Bank & Trust Co., bearing interest at 0.93%, dated 3/31/04 to be repurchased 4/01/04 in the amount of $7,071,183 and collateralized by $6,790,000 of Federal National Mortgage Association Notes, bearing interest at 5.25% due 1/15/06 having an approximate value of $7,286,444@ (cost $7,071,000)............ $7,071 $ 7,071,000 ------------ TOTAL INVESTMENTS -- (cost $231,966,139) (Note 5)............. 103.5% 235,004,519 Liabilities in excess of other assets....... (3.5) (7,956,876) ------ ------------ NET ASSETS -- 100.0% $227,047,643 ====== ============
-------- * Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. The aggregate value is $12,861,264 representing 5.7%of net assets. + Non-income producing security TBA --Securities purchased on a forward commitments basis with an approximate principal amount and no definitive maturity date. The actual principal and maturity date will be determined upon settlement date. (1) Bond in default (2) Fair valued security (3) PIK ("Payment-in-kind") payment made with additional securities in lieu of cash. (4) Illiquid security (5) Security is a "step-up" bond where the coupon rate increases or steps up at a predetermined rate. Rate shown reflects the increased rate. (6) Security is a "floating rate" bond where the coupon rate fluctuates. The rate steps up or down for each rate downgrade or upgrade. The rate reflected is as of March 31, 2004. @ The security or a portion thereof represents collateral for TBA. See Notes to Financial Statements 24 SunAmerica U.S. Government Securities Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004
Principal Amount Value Security Description (in thousands) (Note 2) ------------------------------------------------------------ U.S. GOVERNMENT OBLIGATIONS -- 37.3% U.S. Treasury Bonds -- 7.8% 5.38% due 2/15/31.............. $18,250 $19,892,500 ----------- U.S. Treasury Notes -- 29.5% 2.63% due 3/15/09.............. 15,000 14,892,180 4.00% due 2/15/14.............. 60,000 60,787,500 ----------- 75,679,680 ----------- Total U.S. Government Obligations (cost $94,665,296)............ 95,572,180 ----------- U.S. GOVERNMENT AGENCIES -- 62.5% Federal Farm Credit Bank -- 10.5% 2.50% due 3/15/06.............. 5,000 5,071,665 3.88% due 12/15/04............. 20,000 20,383,020 5.64% due 4/04/11.............. 500 558,355 6.00% due 3/07/11.............. 200 227,213 6.30% due 12/03/13............. 500 579,471 ----------- 26,819,724 ----------- Federal Home Loan Mortgage Corporation -- 1.9% 6.00% due 11/01/13@............ 1,220 1,287,573 6.00% due 10/01/16............. 547 576,917 6.50% due 9/01/16.............. 486 516,735 7.00% due 11/01/31............. 547 580,246 7.50% due 6/01/25.............. 90 96,683 8.00% due 6/01/08.............. 29 30,430 8.25% due 7/01/06.............. 10 10,477 8.50% due 5/01/08.............. 10 10,149 9.50% due 4/01/20.............. 234 262,047 10.00% due 8/01/21............. 1,124 1,256,293 11.26% due 4/01/04(1).......... 136 155,303 ----------- 4,782,853 ----------- Federal National Mortgage Association -- 1.5% 6.53% due 5/25/30.............. 2,750 2,978,722 7.50% due 7/01/26.............. 215 231,235 8.00% due 12/01/22............. 263 287,675 8.00% due 1/01/23.............. 23 25,360 8.00% due 1/01/23.............. 15 15,870 8.00% due 1/01/23.............. 155 169,497 11.00% due 2/01/15............. 0 43 11.50% due 9/01/19............. 35 40,011 ----------- 3,748,413 ----------- Government National Mortgage Association -- 42.4% 4.50% due 5/15/18.............. 1,925 1,958,212 4.50% due 8/15/18.............. 2,882 2,932,242 4.50% due 9/15/18.............. 7,715 7,849,792 4.50% due 10/15/18............. 6,810 6,928,986 4.50% due 9/15/33.............. 4,857 4,761,951 4.50% due 9/15/33.............. 1,980 1,941,480 5.00% TBA due Apr.............. 9,000 9,061,875 5.00% due 4/15/18.............. 8,995 9,311,195 5.00% due 8/15/33.............. 1,000 1,008,239 5.00% due 8/15/33.............. 10,391 10,477,974 5.00% due 9/15/33.............. 1,578 1,590,769 5.00% due 10/15/33............. 618 623,558 5.50% due 11/15/32............. 29 30,204 5.50% due 3/15/33.............. 1,104 1,137,023 5.50% due 4/15/33.............. 1,080 1,111,677
Principal Amount Value Security Description (in thousands) (Note 2) --------------------------------------------------- Government National Mortgage Association (continued) 5.50% due 4/15/33.... $ 432 $ 444,251 5.50% due 5/15/33.... 2,315 2,382,880 5.50% due 5/15/33.... 994 1,023,552 5.50% due 6/15/33.... 8,000 8,236,098 5.50% due 6/15/33.... 4,000 4,117,637 5.50% due 6/15/33.... 3,856 3,970,157 5.50% due 7/15/33.... 2,629 2,706,723 5.50% due 7/15/33.... 1,472 1,515,286 5.50% due 10/15/33... 3,954 4,070,733 5.50% due 12/15/33... 852 877,269 5.50% due 1/15/34.... 2,997 3,085,634 5.50% due 2/15/34.... 3,994 4,112,198 6.00% due 3/15/29.... 138 144,057 6.00% due 4/15/29.... 143 150,061 6.00% due 5/15/29.... 228 238,791 6.00% due 12/15/31... 855 894,095 6.50% due 2/15/29.... 52 55,337 6.50% due 5/15/31.... 143 150,589 6.50% due 6/15/31.... 186 196,127 6.50% due 7/15/31.... 302 318,853 6.50% due 8/15/31.... 326 344,247 6.50% due 9/15/31.... 367 387,076 6.50% due 10/15/31... 107 112,786 6.50% due 10/15/31... 936 987,854 6.50% due 11/15/31... 57 59,833 6.50% due 12/15/31... 84 88,639 6.50% due 1/15/32.... 116 122,125 6.50% due 2/15/32.... 1,444 1,524,927 6.50% due 2/15/32.... 1,224 1,292,199 6.50% due 6/15/32.... 570 602,289 7.00% due 7/15/23.... 117 125,976 7.00% due 10/15/23... 235 251,818 7.00% due 9/15/25.... 650 695,676 7.00% due 3/20/29.... 64 67,707 7.00% due 6/20/29.... 11 12,128 7.00% due 11/20/30... 299 317,480 7.50% due 4/15/17.... 29 31,558 7.50% due 8/15/23.... 49 52,619 7.50% due 8/15/23.... 132 142,924 7.50% due 8/15/23.... 164 177,680 7.50% due 8/15/23.... 135 146,180 7.50% due 9/15/23.... 337 364,504 7.50% due 9/15/23.... 1,044 1,129,964 7.50% due 10/15/23... 37 40,481 8.00% due 11/15/06... 2 2,206 8.00% due 2/15/08.... 3 3,023 9.00% due 12/15/16... 141 156,833 11.00% due 8/20/15... 1 690 11.00% due 9/20/15... 1 1,040 11.50% due 3/15/13... 27 31,342 11.50% due 6/15/13... 30 33,952 11.50% due 5/20/15... 4 5,010 12.50% due 9/15/14... 9 10,450 13.00% due 1/15/11... 5 5,265 13.00% due 2/15/11... 9 10,031 13.00% due 3/15/11... 0 399 13.00% due 4/15/11... 1 829 13.00% due 4/15/11... 4 4,875
25 SunAmerica U.S. Government Securities Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) ---------------------------------------------------------- U.S. GOVERNMENT AGENCIES (continued) Government National Mortgage Association (continued) 13.00% due 9/15/13........... $ 6 $ 6,977 13.00% due 10/20/14.......... 5 5,284 13.00% due 11/15/14.......... 1 1,131 13.00% due 2/20/15........... 3 3,209 13.50% due 2/15/13........... 14 16,331 15.00% due 1/15/12........... 1 709 15.00% due 2/15/12........... 1 1,640 15.00% due 6/15/12........... 15 17,712 15.00% due 9/15/12........... 1 954 15.50% due 8/15/11........... 6 7,088 15.50% due 9/15/11........... 44 53,046 16.00% due 11/15/11.......... 8 9,069 ------------ 108,883,270 ------------ International Bank for Reconstruction and Development -- 0.1% 5.00% due 3/28/26.............. 350 372,766 ------------ Private Export Funding Corp. -- 4.4% 5.87% due 7/31/08.............. 10,000 11,207,140 ------------ Small Business Administration -- 1.5% 6.30% due 6/01/18.............. 3,595 3,936,029 ------------ Student Loan Marketing Association -- 0.2% 5.25% due 3/15/06.............. 500 533,484 ------------ Total U.S. Government Agencies (cost $155,991,693)........... 160,283,679 ------------ Total Investment Securities -- 99.8% (cost $250,656,989)........... 255,855,859 ------------
Principal Amount Value Security Description (in thousands) (Note 2) ------------------------------------------------------------------ REPURCHASE AGREEMENTS -- 3.5% State Street Bank & Trust Co. Joint Repurchase Agreement@ (Note 2)..... $ 986 $ 986,000 UBS Warburg, LLC. Joint Repurchase Agreement@ (Note 2)................ 8,000 8,000,000 ------------ Total Repurchase Agreements (cost $8,986,000).................. 8,986,000 ------------ TOTAL INVESTMENTS -- (cost $259,642,989) (Note 5)....... 103.3% 264,841,859 Liabilities in excess of other assets. (3.3) (8,480,204) ------- ------------ NET ASSETS -- 100.00% $256,361,655 ======= ============
-------- 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. @ The security or a portion thereof represents collateral for TBA. (1) Variable rate security -- the rate reflected is as of March 31, 2004; maturity date reflects next reset date. See Notes to Financial Statements 26 SunAmerica GNMA Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004
Principal Amount Value Security Description (in thousands) (Note 2) U.S. GOVERNMENT OBLIGATIONS -- 5.2% U.S. Treasury Notes -- 5.2% 2.63% due 3/15/09 (cost $29,867,578). $30,000 $29,784,360 ----------- U.S. GOVERNMENT AGENCIES -- 84.1% Federal Farm Credit Bank -- 2.7% 2.50% due 3/15/06@................... 15,000 15,214,995 ----------- Federal Home Loan Mortgage Corporation -- 0.1% 7.50% due 5/01/24.................... 24 25,677 7.50% due 6/01/25.................... 69 75,055 10.00% due 1/01/17................... 324 359,420 ----------- 460,152 ----------- Federal National Mortgage Association -- 0.0% 7.00% due 9/01/10.................... 196 210,146 ----------- Government National Mortgage Association -- 81.1% 4.50% due 5/15/18.................... 3,849 3,916,425 4.50% due 6/15/18.................... 1,920 1,953,353 4.50% due 9/15/18.................... 5,781 5,881,362 4.50% due 10/15/18................... 7,788 7,923,495 4.50% due 8/15/33.................... 5,248 5,145,721 4.50% due 9/15/33.................... 5,591 5,481,747 5.00% due 3/15/18.................... 1,433 1,483,367 5.00% due 4/15/18.................... 13,940 14,429,975 5.00% due 5/15/18.................... 20,876 21,610,479 5.00% due 11/15/32................... 72 72,755 5.00% due 1/15/33.................... 25 24,811 5.00% due 5/15/33.................... 23 23,646 5.00% due 7/15/33.................... 1,413 1,424,676 5.00% due 8/15/33@................... 29,879 30,129,297 5.00% due 8/15/33.................... 4,023 4,056,832 5.00% due 8/15/33.................... 11,819 11,917,748 5.00% due 8/15/33@................... 16,775 16,914,966 5.00% due 8/15/33.................... 509 513,635 5.00% due 9/15/33.................... 993 1,001,095 5.00% due 9/15/33.................... 1,127 1,136,332 5.00% due 9/15/33@................... 993 1,001,061 5.00% due 9/15/33.................... 16,865 17,005,796 5.00% due 9/15/33.................... 30,102 30,353,646 5.00% due 10/15/33................... 11,497 11,593,410 5.00% due 10/15/33@.................. 63,489 64,020,259 5.00% due 10/15/33@.................. 21,732 21,914,165 5.00% TBA due Apr.................... 10,000 10,068,750 5.50% due 6/15/29.................... 14 13,998 5.50% due 12/15/32................... 1,788 1,840,474 5.50% due 1/15/33.................... 937 965,164 5.50% due 2/15/33.................... 630 649,684 5.50% due 2/15/33.................... 4,003 4,121,182 5.50% due 3/15/33.................... 31 32,280 5.50% due 3/15/33.................... 2,707 2,786,688 5.50% due 4/15/33.................... 1,056 1,087,428 5.50% due 4/15/33.................... 7,981 8,216,253 5.50% due 4/15/33.................... 5,860 6,025,235 5.50% due 5/15/33.................... 8,000 8,236,100 5.50% due 5/15/33.................... 7,347 7,563,690 5.50% due 5/15/33.................... 3,101 3,192,288 5.50% due 6/15/33.................... 18,822 19,377,354 5.50% due 7/15/33.................... 1,031 1,061,586 5.50% due 8/15/33.................... 504 518,642 5.50% due 8/15/33.................... 5,908 6,082,679
Principal Amount Value Security Description (in thousands) (Note 2) Government National Mortgage Association (continued) 5.50% due 9/15/33.... $ 1,009 $ 1,038,948 5.50% due 10/15/33... 15,405 15,859,692 5.50% due 12/15/33... 12,871 13,250,661 5.50% due 12/15/33... 2,644 2,721,691 5.50% due 1/15/34.... 14,871 15,311,374 5.50% due 1/15/34.... 1,395 1,435,859 5.50% due 1/15/34.... 8,289 8,534,356 5.50% due 2/15/34.... 181 186,706 5.50% due 2/15/34.... 2,878 2,962,716 6.00% due 11/15/23... 11 11,893 6.00% due 1/15/24.... 14 14,534 6.00% due 12/15/28... 586 614,200 6.00% due 1/15/29.... 494 517,465 6.00% due 1/15/29.... 1,178 1,233,768 6.00% due 1/15/29.... 134 139,932 6.00% due 2/15/29.... 119 124,971 6.00% due 2/15/29.... 1,569 1,643,209 6.00% due 2/15/29.... 64 67,058 6.00% due 3/15/29.... 159 166,656 6.00% due 3/15/29.... 1,159 1,213,766 6.00% due 3/15/29.... 102 106,423 6.00% due 4/15/29.... 1,510 1,581,556 6.00% due 4/15/29.... 1,075 1,125,998 6.00% due 4/15/29.... 152 159,633 6.00% due 4/15/29.... 578 605,178 6.00% due 5/15/29.... 423 442,902 6.00% due 5/15/29.... 186 194,329 6.00% due 6/15/29.... 657 687,685 6.00% due 6/15/29.... 30 30,980 6.00% due 7/15/29.... 459 480,743 6.00% due 7/15/29.... 134 140,407 6.00% due 8/15/29.... 70 73,730 6.00% due 10/15/29... 288 302,097 6.00% due 4/15/31.... 46 48,512 6.00% due 7/15/31.... 81 84,369 6.00% due 10/15/31... 212 221,467 6.00% due 11/15/31... 2,067 2,161,299 6.00% due 11/15/31... 427 446,772 6.00% due 11/15/31... 972 1,016,025 6.00% due 12/15/31... 587 613,841 6.00% due 7/15/32.... 307 320,713 6.00% due 2/15/33.... 6,716 7,016,230 6.50% due 3/15/28.... 75 79,821 6.50% due 8/15/28.... 184 194,289 6.50% due 12/15/28... 4 4,386 6.50% due 1/15/29.... 15 15,348 6.50% due 2/15/29.... 6 6,463 6.50% due 3/15/29.... 320 338,192 6.50% due 4/15/29.... 6 5,814 6.50% due 5/15/29.... 37 39,307 6.50% due 5/15/29.... 5 5,695 6.50% due 6/15/29.... 124 131,333 6.50% due 7/15/29.... 17 17,959 6.50% due 10/15/29... 10 10,981 6.50% due 8/15/31.... 715 755,314 6.50% due 9/15/31.... 63 66,936 6.50% due 10/15/31... 936 987,855 6.50% due 11/15/31... 493 520,627 6.50% due 11/15/31... 274 289,756
27 SunAmerica GNMA Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) U.S. GOVERNMENT AGENCIES (continued) Government National Mortgage Association (continued) 6.50% due 12/15/31... $ 924 $ 975,943 6.50% due 2/15/32.... 1,541 1,626,891 6.50% due 5/15/32.... 227 240,027 6.50% due 5/15/32.... 2,717 2,868,708 6.50% due 5/15/32.... 1,369 1,445,346 6.50% due 5/15/32.... 622 657,005 6.50% due 6/15/32.... 68 71,602 6.50% due 6/15/32.... 328 345,804 7.00% due 3/15/23.... 224 240,694 7.00% due 1/15/24.... 2 2,548 7.00% due 3/15/24.... 2 2,443 7.00% due 7/15/25.... 12 12,939 7.00% due 9/15/25.... 282 302,118 7.00% due 1/20/29.... 147 156,183 7.00% due 2/20/29.... 29 30,192 7.00% due 6/20/29.... 57 60,140 7.00% due 7/20/29.... 208 221,152 7.00% due 9/20/29.... 19 20,411 7.00% due 10/20/29... 40 42,466 7.00% due 11/20/29... 15 16,367 7.00% due 3/20/30.... 17 17,865 7.00% due 6/20/30.... 36 38,438 7.00% due 8/20/30.... 120 127,188 7.00% due 9/20/30.... 89 93,990 7.00% due 10/20/30... 132 140,695 8.00% due 11/15/26... 802 879,611 8.00% due 12/15/29... 55 60,064 8.00% due 1/15/30.... 3 3,645 8.00% due 4/15/30.... 71 77,949 8.00% due 5/15/30.... 15 16,076 8.00% due 8/15/30.... 157 171,664 8.50% due 3/15/17.... 72 80,049 8.50% due 5/15/21.... 95 104,849 8.50% due 12/15/22... 188 208,990
Principal Amount Value Security Description (in thousands) (Note 2) Government National Mortgage Association (continued) 8.50% due 1/15/23................... $ 228 $ 252,603 8.50% due 9/15/24................... 132 146,244 9.00% due 7/15/16................... 142 159,172 9.00% due 10/15/16.................. 41 46,228 ------------ 463,114,248 ------------ Small Business Administration -- 0.2% 6.30% due 6/01/18................... 1,198 1,312,010 ------------ Total U.S. Government Agencies (cost $472,295,677)................ 480,311,551 ------------ Total Investment Securities -- 89.3% (cost $502,163,255)................ 510,095,911 ------------ REPURCHASE AGREEMENTS -- 12.2% State Street Bank & Trust Co. Joint Repurchase Agreement@ (Note 2)..... 767 767,000 UBS Warburg, LLC. Joint Repurchase Agreement@ (Note 2)................ 69,000 69,000,000 ------------ Total Repurchase Agreements (cost $69,767,000)................. 69,767,000 ------------ TOTAL INVESTMENTS -- (cost $571,930,255) (Note 5)....... 101.5% 579,862,911 Liabilities in excess of other assets. (1.5) (8,848,348) ------- ------------ NET ASSETS -- 100.0% $571,014,563 ======= ============
-------- 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. @ The security or a portion thereof represents collateral for TBA. See Notes to Financial Statements 28 SunAmerica Strategic Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004
Principal Amount Value Security Description (in thousands) (Note 2) BONDS & NOTES -- 42.8% Aerospace & Military Technology -- 0.0% Condor Systems, Inc. Guaranteed Sr. Sub. Notes, Series B 11.88% due 5/01/09+(1)(2).................. $ 25 $ 1,750 -------- Apparel & Textiles -- 0.1% Warnaco, Inc. Sr. Notes 8.88% due 6/15/13.......................... 50 53,875 -------- Automotive -- 0.2% BREED Technologies, Inc. Guaranteed Sr. Sub. Notes 9.25% due 4/15/08+(1)(2)................... 500 0 Diamond Triumph Auto Glass, Inc. Guaranteed Sr. Sub. Notes 9.25% due 4/01/08.......................... 100 94,000 General Motors Corp. Sr. Notes 7.13% due 7/15/13.......................... 125 136,552 -------- 230,552 -------- Banks -- 0.3% J.P. Morgan Chase & Co. Notes 5.35% due 3/01/07.......................... 250 270,615 LaBranche & Co., Inc. Sr. Notes 9.50% due 8/15/04.......................... 50 50,625 -------- 321,240 -------- Broadcasting & Media -- 5.1% Affinity Group, Inc. Sr. Sub. Notes 9.00% due 2/15/12.......................... 150 159,750 American Lawyer Media, Inc. Guaranteed Sr. Notes, Series B 9.75% due 12/15/07......................... 150 146,250 Cablevision Systems Corp. Sr. Notes 8.00% due 4/15/12*......................... 250 249,375 Charter Communications Holdings, LLC Sr. Sub. Disc. Notes 9.92% due 4/01/11(3)....................... 125 103,437 Charter Communications Holdings, LLC Sr. Sub. Notes 9.63% due 11/15/09......................... 925 781,625 Charter Communications Holdings, LLC Sr. Notes 10.00% due 5/15/11......................... 75 62,250 Charter Communications Holdings, LLC Sr. Sub. Notes 10.25% due 1/15/10......................... 25 21,188 Charter Communications Holdings, LLC Sr. Sub. Notes 10.75% due 10/01/09........................ 450 393,750 Charter Communications Holdings, LLC Sr. Sub. Notes 11.13% due 1/15/11......................... 425 371,875
Principal Amount Value Security Description (in thousands) (Note 2) Broadcasting & Media (continued) Cinemark, Inc. Sr. Disc. Notes 9.75% due 3/15/14*(3)................. $250 $ 155,000 CSC Holdings, Inc. Sr. Notes 6.75% due 4/15/12*.................... 75 75,750 CSC Holdings, Inc. Sr. Debentures 7.63% due 7/15/18..................... 700 738,500 CSC Holdings, Inc. Sr. Debentures 7.88% due 2/15/18..................... 175 187,687 Haights Cross Operating Co. Guaranteed Sr. Notes 11.75% due 8/15/11.................... 100 108,125 Insight Communications Co., Inc. Sr. Sub. Disc. Notes 12.25% due 2/15/11(3)................. 575 485,875 Paxson Communications Corp. Guaranteed Sr. Sub. Disc. Notes 12.25% due 1/15/09(3)................. 275 233,750 Pegasus Satellite Communications, Inc. Sr. Sub. Disc. Notes 13.50% due 3/01/07(3)................. 175 129,500 Rogers Cable, Inc. Bonds 8.75% due 5/01/32..................... 50 59,375 Rogers Cablesystems, Ltd. Guaranteed Sr. Sub. Notes 11.00% due 12/01/15................... 200 232,000 Salem Communications Holding Corp. Guaranteed Sr. Sub. Notes 7.75% due 12/15/10.................... 125 132,031 Salem Communications Holding Corp. Guaranteed Sr. Sub. Notes, Series B 9.00% due 7/01/11..................... 50 54,563 Susquehanna Media Co. Sr. Sub. Notes 7.38% due 4/15/13..................... 100 106,125 Young Broadcasting, Inc. Sr. Sub. Notes 8.75% due 1/15/14*.................... 125 128,750 Young Broadcasting, Inc. Guaranteed Sr. Sub. Notes 10.00% due 3/01/11.................... 250 267,500 ---------- 5,384,031 ---------- Business Services -- 0.7% Allied Waste North America, Inc. Sr. Notes 7.88% due 4/15/13..................... 75 81,937 Allied Waste North America, Inc. Guaranteed Sr. Notes 9.25% due 9/01/12..................... 100 113,750 ERICO International Corp. Sr. Sub. Notes 8.88% due 3/01/12*.................... 50 52,375
29 SunAmerica Strategic Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) BONDS & NOTES (continued) Business Services (continued) HydroChem Industrial Services, Inc. Guaranteed Sr. Sub. Notes, Series B 10.38% due 8/01/07.................. $150 $ 150,000 Mobile Mini, Inc. Sr. Notes 9.50% due 7/01/13................... 100 109,000 Monitronics International, Inc. Sr. Sub. Notes 11.75% due 9/01/10*................. 200 212,000 ---------- 719,062 ---------- Chemicals -- 1.4% Associated Materials, Inc. Sr. Disc. Notes 11.25% due 3/01/14*(3).............. 225 136,688 Equistar Chemicals LP Sr. Notes 10.63% due 5/01/11.................. 175 188,562 Freeport McMoRan Resources Sr. Notes 7.00% due 2/15/08................... 125 131,250 Huntsman International, LLC Guaranteed Sr. Notes 9.88% due 3/01/09................... 225 247,500 Huntsman International, LLC Sr. Sub. Notes 10.13% due 7/01/09.................. 150 175,629 Huntsman International, LLC Sr. Secured Notes 11.63% due 10/15/10................. 125 131,250 IMC Global, Inc. Sr. Notes 10.88% due 8/01/13.................. 75 93,938 KCS Energy, Inc. Sr. Notes 7.13% due 4/01/12*.................. 50 50,875 Rockwood Specialties, Inc. Sr. Sub. Notes 10.63% due 5/15/11.................. 150 165,750 Westlake Chemical Corp. Sr. Notes 8.75% due 7/15/11................... 125 138,125 ---------- 1,459,567 ---------- Communication Equipment -- 0.4% American Tower Escrow Corp. Disc. Notes zero coupon due 8/01/08............. 150 105,375 Rural Cellular Corp. Sr. Sub. Notes 9.63% due 5/15/08................... 125 114,062 Rural Cellular Corp. Sr. Sub. Notes 9.75% due 1/15/10................... 225 201,375 ---------- 420,812 ---------- Computers & Business Equipment -- 0.2% Xerox Corp. Sr. Notes 7.13% due 6/15/10................... 50 53,000 Xerox Corp. Notes 7.20% due 4/01/16................... 25 26,000
Principal Amount Value Security Description (in thousands) (Note 2) Computers & Business Equipment (continued) Xerox Corp. Sr. Notes 7.63% due 6/15/13................ $125 $133,125 -------- 212,125 -------- Education -- 0.1% KinderCare Learning Centers, Inc. Sr. Sub. Notes, Series B 9.50% due 2/15/09................ 57 57,902 -------- Electronics -- 0.4% Amkor Technology, Inc. Sr. Notes 7.13% due 3/15/11*............... 100 99,750 Amkor Technology, Inc. Sr. Notes 7.75% due 5/15/13................ 50 51,000 Amkor Technology, Inc. Sr. Sub. Notes 9.25% due 2/15/08................ 100 110,250 ON Semiconductor Corp. Guaranteed Sr. Secured Notes 12.00% due 3/15/10............... 49 60,515 Sanmina-SCI Corp. Guaranteed Sr. Secured Notes 10.38% due 1/15/10............... 75 88,500 -------- 410,015 -------- Energy Services -- 0.7% Hanover Compressor Co. Sub. Notes zero coupon due 3/31/07.......... 375 288,750 Hanover Compressor Co. Sr. Notes 8.63% due 12/15/10............... 50 53,750 Oslo Seismic Services, Inc. 1st Mtg. Notes 8.28% due 6/01/11................ 181 181,098 Trico Marine Services, Inc. Sr. Notes 8.88% due 5/15/12(6)............. 300 156,000 Universal Compression, Inc. Sr. Notes 7.25% due 5/15/10................ 100 107,250 -------- 786,848 -------- Energy Sources -- 2.0% Chesapeake Energy Corp. Sr. Notes 6.88% due 1/15/16................ 50 52,500 Chesapeake Energy Corp. Sr. Notes 7.50% due 9/15/13................ 50 55,250 Chesapeake Energy Corp. Guaranteed Sr. Notes 7.75% due 1/15/15................ 25 27,688 Chesapeake Energy Corp. Guaranteed Sr. Notes 9.00% due 8/15/12................ 25 28,906 CITGO Petroleum Corp. Sr. Notes 11.38% due 2/01/11............... 100 116,750
30 SunAmerica Strategic Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) ------------------------------------------------------------------------ BONDS & NOTES (continued) Energy Sources (continued) Colorado Interstate Gas Co. Sr. Debentures 6.85% due 6/15/37........................... $ 150 $ 153,750 Costilla Energy, Inc. Sr. Notes 10.25% due 10/01/06+(1)(2).................. 500 0 Encore Acquisition Co. Sr. Sub. Notes 6.25% due 4/15/14*.......................... 50 50,734 Encore Acquisition Co. Guaranteed Sr. Notes 8.38% due 6/15/12........................... 100 110,000 Exco Resources, Inc. Guaranteed Sr. Notes 7.25% due 1/15/11*.......................... 75 77,438 Mission Energy Holding Co. Sr. Secured Notes 13.50% due 7/15/08.......................... 975 1,004,250 North American Energy Partners, Inc. Sr. Notes 8.75% due 12/01/11*......................... 75 75,750 Roseton Danskammer Guaranteed Pass-Thru Certificates, Series B 7.67% due 11/08/16.......................... 150 135,750 Southern Natural Gas Co. Sr. Notes 8.88% due 3/15/10........................... 125 138,750 Westport Resources Corp. Guaranteed Sr. Sub. Notes 8.25% due 11/01/11.......................... 100 111,250 ---------- 2,138,766 ---------- Entertainment Products -- 0.2% Steinway Musical Instruments, Inc. Guaranteed Sr. Notes 8.75% due 4/15/11........................... 175 189,438 ---------- Financial Services -- 11.4% Alamosa Delaware, Inc. Guaranteed Sr. Disc. Notes 12.00% due 7/31/09(3)....................... 493 448,630 Athena Neurosciences Finance, LLC Guaranteed Sr. Notes 7.25% due 2/21/08........................... 600 602,250 Bear Island Paper Co., LLC Sr. Secured Notes, Series B 10.00% due 12/01/07......................... 250 226,250 Bluewater Finance, Ltd. Guaranteed Sr. Notes 10.25% due 2/15/12.......................... 175 182,000 Boeing Capital Corp. Sr. Notes 5.75% due 2/15/07........................... 250 271,547 Chukchansi Economic Development Authority Sr. Notes 14.50% due 6/15/09*......................... 500 586,250 Commercial Mtg. Asset Trust Commercial Mtg. Certificates, Series 1999-C1, Class C 7.35% due 4/01/04........................... 1,200 1,443,194
Principal Amount Value Security Description (in thousands) (Note 2) Financial Services (continued) Couche-Tard U.S. LP Sr. Sub. Notes 7.50% due 12/15/13*............................... $ 25 $ 26,750 Credit Suisse First Boston USA, Inc. Global Sr. Notes 4.63% due 1/15/08................................. 250 264,839 DLJ Commercial Mtg. Corp. Commercial Mtg. Certificates, Series 1998-CG1, Class S 0.85% due 4/01/04(4)IO............................ 8,299 215,518 DLJ Commercial Mtg. Corp. Commercial Mtg. Certificates, Series 1998-CF2, Class S 1.01% due 4/01/04(4)IO............................ 6,833 231,776 EIRCOM Funding Sr. Sub. Notes 8.25% due 8/15/13................................. 150 167,250 ESI Tractebel Acquisition Corp. Guaranteed Secured Bonds, Series B 7.99% due 12/30/11................................ 238 246,330 First Union Residential Securitization Trans, Inc. Mtg. Certificates, Series 1998-A, Class B2 7.00% due 8/25/28................................. 164 163,724 Ford Motor Credit Co. Notes 6.50% due 1/25/07................................. 250 267,051 General Electric Capital Corp. Notes 5.00% due 6/15/07................................. 250 269,018 General Motors Acceptance Corp. Notes 6.85% due 6/17/04................................. 250 252,795 Hilcorp Energy I LP/Hilcorp Finance Co. Sr. Notes 10.50% due 9/01/10*............................... 200 222,000 Household Finance Corp. Notes 5.75% due 1/30/07................................. 250 272,283 Huntsman Advanced Materials, LLC Sr. Secured Notes 11.00% due 7/15/10*............................... 75 84,750 Jet Equipment Trust Sr. Notes, Series 1995, Class A 8.24% due 5/01/15*+(1)............................ 136 113,325 LaBranche & Co., Inc. Sr. Sub. Notes 12.00% due 3/02/07................................ 150 157,875 Madison River Capital, LLC/ Madison River Finance Corp. Sr. Notes, Series B 13.25% due 3/01/10................................ 500 545,000 Mid-State Trust Asset Backed Notes, Series 6, Class A1 7.34% due 7/01/35................................. 897 977,982 Nexstar Finance Holdings, LLC Guaranteed Sr. Disc. Notes 11.38% due 4/01/13(3)............................. 300 220,500
31 SunAmerica Strategic Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) ----------------------------------------------------------- BONDS & NOTES (continued) Financial Services (continued) PCA, LLC Guaranteed Sr. Notes 11.88% due 8/01/09............ $175 $ 193,375 PDVSA Finance, Ltd. Bonds 6.80% due 11/15/08............ 275 269,500 PDVSA Finance, Ltd. Notes 8.50% due 11/16/12............ 100 97,000 PNC Mtg. Securities Corp. Commercial Mtg. Certificates, Series 1998-5, Class CB3 6.74% due 4/01/04(4).......... 300 299,498 PNC Mtg. Securities Corp. Commercial Mtg. Certificates, Series 1998-4, Class 3B3 6.75% due 5/25/28............. 236 237,181 PNC Mtg. Securities Corp. Commercial Mtg. Certificates, Series 1999-1, Class CB2 6.79% due 4/01/04(4).......... 396 407,623 PNC Mtg. Securities Corp. Commercial Mtg. Certificates, Series 1998-4, Class CB3 6.85% due 4/01/04(4).......... 335 337,340 PNC Mtg. Securities Corp. Commercial Mtg. Certificates, Series 1992-2, Class DB3 6.91% due 4/01/04(4).......... 402 417,039 Px Escrow Corp. Sr. Sub. Disc. Notes 9.63% due 2/01/06(3).......... 125 102,188 Qwest Capital Funding, Inc. Guaranteed Notes 7.25% due 2/15/11............. 225 193,500 Qwest Capital Funding, Inc. Guaranteed Notes 7.63% due 8/03/21............. 475 399,000 Qwest Capital Funding, Inc. Notes 7.75% due 2/15/31............. 50 41,000 Qwest Capital Funding, Inc. Guaranteed Notes 7.90% due 8/15/10............. 350 315,000 Terra Capital, Inc. Guaranteed Sr. Sec. Notes 11.50% due 6/01/10............ 175 190,750 Terra Capital, Inc. Guaranteed Sr. Sec. Notes 12.88% due 10/15/08........... 75 88,500 US West Capital Funding, Inc. Guaranteed Notes 6.88% due 7/15/28............. 75 58,125 ----------- 12,105,506 ----------- Food, Beverage & Tobacco -- 0.3% Del Monte Corp. Sr. Sub. Notes 8.63% due 12/15/12............ 75 84,375 Doane Pet Care Co. Sr. Sub. Notes 9.75% due 5/15/07............. 50 44,125
Principal Amount Value Security Description (in thousands) (Note 2) Food, Beverage & Tobacco (continued) Doane Pet Care Co. Guaranteed Sr. Notes 10.75% due 3/01/10.................. $ 50 $ 52,125 Fleming Cos., Inc. Guaranteed Sr. Sub. Notes, Series D 10.63% due 7/31/07+(1).............. 150 187 Smithfield Foods, Inc. Sr. Notes, Series B 7.75% due 5/15/13................... 100 110,000 Smithfield Foods, Inc. Sr. Notes, Series B 8.00% due 10/15/09.................. 50 55,875 ---------- 346,687 ---------- Forest Products -- 1.3% Constar International, Inc. Sr. Sub. Notes 11.00% due 12/01/12................. 50 42,750 Crown Cork & Seal Co., Inc. Notes 8.00% due 4/15/23................... 250 241,250 FiberMark, Inc. Sr. Notes 10.75% due 4/15/11(6)............... 125 70,625 Georgia-Pacific Corp. Debentures 7.75% due 11/15/29.................. 350 355,250 Georgia-Pacific Corp. Debentures 8.63% due 4/30/25................... 150 157,875 Georgia-Pacific Corp. Debentures 9.13% due 7/01/22................... 125 129,219 Pliant Corp. Sr. Secured Disc. Notes 11.13% due 6/15/09*(3).............. 100 80,000 Speciality Paperboard, Inc. Sr. Notes 9.38% due 10/15/06(6)............... 550 306,625 ---------- 1,383,594 ---------- Health Services -- 1.1% Genesis Healthcare Corp. Sr. Sub. Notes 8.00% due 10/15/13*................. 50 53,250 HCA, Inc. Sr. Notes 6.95% due 5/01/12................... 200 218,144 IASIS Healthcare Corp. Guaranteed Sr. Sub. Notes 8.50% due 10/15/09.................. 75 80,250 National Nephrology Associates, Inc. Sr. Sub. Notes 9.00% due 11/01/11*................. 25 29,000 Pediatric Services of America, Inc. Guaranteed Sr. Sub. Notes 10.00% due 4/15/08(2)............... 25 25,000
32 SunAmerica Strategic Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) BONDS & NOTES (continued) Health Services (continued) Psychiatric Solutions, Inc. Guaranteed Sr. Sub. Notes 10.63% due 6/15/13..................... $100 $ 114,250 Team Health, Inc. Sr. Sub. Notes 9.00% due 4/01/12*..................... 100 97,250 Tenet Healthcare Corp. Sr. Notes 5.00% due 7/01/07...................... 200 182,500 Tenet Healthcare Corp. Sr. Notes 6.50% due 6/01/12...................... 75 64,688 Tenet Healthcare Corp. Notes 7.38% due 2/01/13...................... 50 45,125 Triad Hospitals, Inc. Sr. Sub. Notes 7.00% due 11/15/13*.................... 75 76,875 Universal Hospital Services, Inc. Sr. Notes 10.13% due 11/01/11*................... 125 135,000 ---------- 1,121,332 ---------- Insurance -- 0.3% Crum & Forster Holdings Corp. Sr. Notes 10.38% due 6/15/13*.................... 250 282,500 LNR Property Corp. Sr. Sub. Notes 7.63% due 7/15/13...................... 75 79,500 ---------- 362,000 ---------- Leisure & Tourism -- 3.2% American Airlines, Inc. Pass-Thru Certificates, Series 2001-1, Class A2 6.82% due 5/23/11...................... 200 184,747 American Airlines, Inc. Pass-Thru Certificates, Series 2001-2, Class C 7.80% due 10/01/06..................... 300 282,180 Atlas Air, Inc. Pass-Thru Certificates, Series 1999-1, Class A-2 6.88% due 1/02/11...................... 125 115,306 Atlas Air, Inc. Pass-Thru Certificates, Series 1999-1, Class A-1 7.20% due 1/02/19...................... 133 124,873 Atlas Air, Inc. Pass-Thru Certificates, Series 1999-1, Class B 7.63% due 1/02/15...................... 663 384,341 Atlas Air, Inc. Pass-Thru Certificates, Series 2000-1 Class A 8.71% due 1/02/20...................... 87 82,860
Principal Amount Value Security Description (in thousands) (Note 2) Leisure & Tourism (continued) Bally Total Fitness Holding Corp. Sr. Notes 10.50% due 7/15/11..................... $ 50 $ 47,000 Continental Airlines, Inc. Pass-Thru Certificates, Series 1997-4, Class A 6.90% due 1/02/18...................... 167 166,096 Continental Airlines, Inc. Pass-Thru Certificates, Series 1999-1, Class C 6.95% due 8/02/09...................... 147 127,023 Continental Airlines, Inc. Pass-Thru Certificates, Series 1999-2, Class C1 7.73% due 3/15/11...................... 47 38,587 Continental Airlines, Inc. Secured Pass-Thru Certificates, Series 2000-2, Class B 8.31% due 10/02/19..................... 140 123,678 Courtyard by Marriott II Sr. Secured Notes, Series B 10.75% due 2/01/08..................... 150 150,375 Delta Air Lines, Inc. Pass-Thru Certificates, Series 2002-1, Class C 7.78% due 1/02/12...................... 167 135,432 Hollywood Casino Shreveport/Shreveport Capital Corp. Guaranteed Sr. Secured Notes 13.00% due 8/01/06+(1)................. 400 284,000 John Q Hammons Hotels LP 1st Sr. Mtg. Notes, Series B 8.88% due 5/15/12...................... 75 83,437 Mandalay Resort Group Sr. Notes 6.38% due 12/15/11*.................... 75 79,125 Prime Hospitality Corp. Sr. Sub. Notes, Series B 8.38% due 5/01/12...................... 50 52,750 Riviera Holdings Corp. Guaranteed Sr. Notes 11.00% due 6/15/10..................... 185 194,481 True Temper Sports, Inc. Guaranteed Sr. Sub. Notes 8.38% due 9/15/11*..................... 150 153,000 United Air Lines, Inc. Pass-Thru Certificates, Series 2000, Class A-2 7.73% due 7/01/10...................... 75 67,688 United Air Lines, Inc. Pass-Thru Certificates, Series 2000-1, Class A-1 7.78% due 1/01/14...................... 63 57,078 Waterford Gaming, LLC Sr. Notes 8.63% due 9/15/12*..................... 188 201,160 Worldspan LP Sr. Notes 9.63% due 6/15/11...................... 200 206,500 ---------- 3,341,717 ----------
33 SunAmerica Strategic Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) BONDS & NOTES (continued) Machinery -- 0.4% Briggs & Stratton Corp. Guaranteed Sr. Notes 8.88% due 3/15/11.................. $100 $ 123,500 Dana Corp. Notes 9.00% due 8/15/11.................. 180 216,450 Dresser, Inc. Guaranteed Sr. Sub. Notes 9.38% due 4/15/11.................. 75 81,750 Exide Corp. Sr. Notes 10.00% due 4/15/05+(1)............. 225 46,125 Venture Holdings Co., LLC Guaranteed Sr. Sub. Notes 11.00% due 6/01/07+(1)............. 100 4,000 ---------- 471,825 ---------- Medical Products -- 0.1% Inverness Medical Innovations, Inc. Sr. Sub. Notes 8.75% due 2/15/12*................. 100 101,500 ---------- Metals & Mining -- 1.2% CSN Islands VII Corp. Guaranteed Notes 10.75% due 9/12/08*................ 150 159,750 CSN Islands VIII Corp. Guaranteed Sr. Notes 9.75% due 12/16/13*................ 175 171,500 Eagle-Picher, Inc. Sr. Notes 9.75% due 9/01/13.................. 125 136,875 MMI Products, Inc. Sr. Sub. Notes, Series B 11.25% due 4/15/07................. 100 83,500 NGC Corp. Capital Trust I Guaranteed Sub. Notes, Series B 8.32% due 6/01/27.................. 800 636,000 Renco Metals, Inc. Guaranteed Sr. Notes 11.50% due 7/01/49+(1)(2).......... 500 0 Ryerson Tull, Inc. Notes 9.13% due 7/15/06.................. 75 77,250 ---------- 1,264,875 ---------- Real Estate Investment Trusts -- 0.6% National Health Investors, Inc. Notes 7.30% due 7/16/07.................. 200 207,000 Omega Healthcare Investors, Inc. Sr. Notes 6.95% due 8/01/07.................. 50 52,500 Omega Healthcare Investors, Inc. Sr. Notes 7.00% due 4/01/14*................. 75 76,875 RFS Partnership LP Guaranteed Sr. Notes 9.75% due 3/01/12.................. 50 54,250
Principal Amount Value Security Description (in thousands) (Note 2) Real Estate Investment Trusts (continued) Senior Housing Properties Trust Sr. Notes 8.63% due 1/15/12..................... $252 $ 286,020 ---------- 676,645 ---------- Restaurants -- 0.2% Tricon Global Restaurants, Inc. Sr. Notes 8.88% due 4/15/11..................... 125 156,094 ---------- Retail Stores -- 1.5% Collins & Aikman Floor Cover Guaranteed Sr. Sub. Notes 9.75% due 2/15/10..................... 75 80,250 Host Marriott LP Sr. Notes 7.13% due 11/01/13.................... 50 51,875 J.C. Penney Co., Inc. Notes 6.88% due 10/15/15.................... 250 275,625 J.C. Penney Co., Inc. Debentures 7.13% due 11/15/23.................... 200 226,000 Jostens Holding Corp. Sr. Disc. Notes 10.25% due 12/01/13(3)................ 190 124,450 Rent-Way, Inc. Sr. Secured Notes 11.88% due 6/15/10.................... 175 196,000 Rite Aid Corp. Sr. Debentures 7.70% due 2/15/27..................... 175 160,125 Rite Aid Corp. Guaranteed Sr. Secured Notes 8.13% due 5/01/10..................... 50 53,500 Saks, Inc. Guaranteed Notes 9.88% due 10/01/11.................... 100 123,000 Sealy Mattress Co. Sr. Sub. Notes 8.25% due 6/15/14*.................... 25 25,158 Service Corp. International Sr. Notes 6.75% due 4/01/16*.................... 100 100,500 Suburban Propane Partners LP Sr. Notes 6.88% due 12/15/13*................... 125 130,000 ---------- 1,546,483 ---------- Telecommunications -- 4.4% AirGate PCS, Inc. Sr. Sub. Secured Notes 9.38% due 9/01/09..................... 373 352,798 Alaska Communications Holdings, Inc. Guaranteed Sr. Sub. Notes 9.38% due 5/15/09..................... 275 269,500 American Cellular Corp. Sr. Notes, Series B 10.00% due 8/01/11.................... 100 96,000
34 SunAmerica Strategic Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) BONDS & NOTES (continued) Telecommunications (continued) Cincinnati Bell, Inc. Notes 7.25% due 6/15/23......................... $ 25 $ 24,750 Cincinnati Bell, Inc. Guaranteed Sr. Sub. Notes 8.38% due 1/15/14......................... 25 24,500 Dobson Communications Corp. Sr. Notes 10.88% due 7/01/10........................ 200 177,000 FairPoint Communications, Inc. Sr. Sub. Notes 12.50% due 5/01/10........................ 250 280,000 Insight Midwest LP/ Insight Capital, Inc. Sr. Notes 10.50% due 11/01/10....................... 25 26,875 Insight Midwest LP/Insight Capital, Inc. Sr. Sub. Notes 9.75% due 10/01/09........................ 25 26,063 iPCS, Inc. Sr. Disc. Notes 14.00% due 7/15/10+(1).................... 550 148,500 IWO Holdings, Inc. Guaranteed Sr. Notes 14.00% due 1/15/11........................ 1,300 312,000 LCI International, Inc. Sr. Notes 7.25% due 6/15/07......................... 400 366,000 MJD Communications, Inc. Sr. Sub. Notes, Series B 9.50% due 5/01/08......................... 325 328,250 Nextel Communications, Inc. Sr. Notes 7.38% due 8/01/15......................... 375 405,937 PanAmSat Corp. Notes 6.38% due 1/15/08......................... 125 129,844 PanAmSat Corp. Guaranteed Sr. Notes 8.50% due 2/01/12......................... 50 52,250 Telewest Communications, PLC Sr. Disc. Notes 9.25% due 4/15/09(3)...................... 150 77,250 TSI Telecommunications Services, Inc. Guaranteed Sr. Sub. Notes 12.75% due 2/01/09........................ 50 54,750 Ubiquitel Operating Co. Sr. Notes 9.88% due 3/01/11*........................ 75 73,125 United States West Communications, Inc. Debentures 7.25% due 10/15/35........................ 450 416,250 US Unwired, Inc. Guaranteed Sr. Sub. Disc. Notes, Series B 13.38% due 11/01/09(3).................... 825 771,375 US West Communications, Inc. Debentures 7.13% due 11/15/43........................ 300 270,000 ---------- 4,683,017 ----------
Principal Amount Value Security Description (in thousands) (Note 2) Transportation -- 0.1% Overseas Shipholding Group, Inc. Sr. Notes 7.50% due 2/15/24.................. $ 75 $ 75,937 Petroleum Helicopters, Inc. Guaranteed Sr. Notes, Series B 9.38% due 5/01/09.................. 50 54,938 -------- 130,875 -------- Utilities -- 4.9% AES Corp. Sr. Secured Notes 8.75% due 5/15/13*................. 155 170,500 AES Corp. Sr. Sub. Debentures 8.88% due 11/01/27................. 550 533,500 AES Drax Energy, Ltd. Guaranteed Sr. Sub. Secured Notes, Series B 11.50% due 8/30/10+(1)............. 725 3,625 Cincinnati Bell Telephone Co. Notes 7.18% due 12/15/23................. 50 47,500 Cincinnati Bell Telephone Co. Guaranteed Notes 7.20% due 11/29/23................. 225 213,750 Dynegy Holdings, Inc. Sr. Notes 8.75% due 2/15/12.................. 100 94,500 Edison Mission Energy Sr. Notes 7.73% due 6/15/09.................. 100 96,500 Edison Mission Energy Sr. Notes 9.88% due 4/15/11.................. 150 157,875 Edison Mission Energy Sr. Notes 10.00% due 8/15/08................. 175 184,188 El Paso Natural Gas Co. Debentures 8.63% due 1/15/22.................. 450 468,000 El Paso Production Holding Co. Guaranteed Sr. Notes 7.75% due 6/01/13.................. 475 440,562 Mirant Americas Generation, LLC Sr. Notes 7.20% due 10/01/08+(1)(8).......... 225 166,500 Mirant Americas Generation, LLC Sr. Notes 7.63% due 5/01/06+(1)(8)........... 75 55,500 Mirant Americas Generation, LLC Sr. Notes 8.30% due 5/01/11+(1)(8)........... 625 460,937 Mirant Americas Generation, LLC Sr. Notes 8.50% due 10/01/21+(1)(8).......... 450 333,000 NRG Energy, Inc. Guaranteed Sr. Secured Notes 8.00% due 12/15/13*................ 175 180,688
35 SunAmerica Strategic Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands)** (Note 2) BONDS & NOTES (continued) Utilities (continued) Reliant Resources, Inc. Sr. Secured Notes 9.25% due 7/15/10................... $ 200 $ 217,000 Reliant Resources, Inc. Secured Notes 9.50% due 7/15/13................... 300 330,750 Tiverton/Rumford Power Assoc., Ltd. Guaranteed Notes 9.00% due 7/15/18*.................. 125 106,875 Transcontinental Gas Pipe Line Corp. Sr. Notes 8.88% due 7/15/12................... 100 118,500 Williams Cos., Inc. Notes 8.75% due 3/15/32................... 725 768,500 ----------- 5,148,750 ----------- Total Bonds & Notes (cost $43,986,435).................. 45,226,883 ----------- FOREIGN BONDS & NOTES -- 31.5% Broadcasting & Media -- 0.2% CF Cable TV, Inc. Guaranteed Secured Sr. Notes 9.13% due 7/15/07................... 50 52,505 Telenet Group Holding NV Sr. Disc. Notes 11.50% due 6/15/14*(3).............. 300 183,000 ----------- 235,505 ----------- Government Agency -- 28.2% Australia Commonwealth Bonds 7.50% due 7/15/05................... AUD 620 486,163 Canadian Government Bonds 5.75% due 6/01/29................... CAD 420 352,535 Canadian Government Bonds 5.75% due 9/01/06................... CAD 615 504,022 Deutsche Bundesrepublik Bonds 4.00% due 7/04/09................... EUR 110 140,749 Deutsche Bundesrepublik Bonds 5.63% due 1/04/28................... EUR 120 166,180 Federal Republic of Brazil Bonds 2.06% due 4/15/04................... 1,025 896,875 Federal Republic of Brazil Bonds 8.00% due 4/15/14................... 1,648 1,606,436 Federal Republic of Brazil Bonds 8.25% due 1/20/34................... 180 153,000 Federal Republic of Brazil Bonds 8.88% due 4/15/24................... 275 251,625
Principal Amount Value Security Description (in thousands)** (Note 2) Government Agency (continued) Federal Republic of Brazil Bonds 10.13% due 5/15/27......... $ 125 $ 126,500 Federal Republic of Brazil Global Notes 10.25% due 6/17/13......... 900 965,250 Federal Republic of Brazil Bonds 11.00% due 8/17/40......... 1,215 1,297,620 Federal Republic of Brazil Global Bonds 12.00% due 4/15/10......... 150 174,375 Federal Republic of Brazil Notes 14.50% due 10/15/09........ 250 318,875 Federal Republic of Brazil Notes 11.00% due 1/11/12......... 600 668,100 Federal Republic Of Germany Bonds 4.50% due 8/18/06.......... EUR 255 329,351 Kingdom of Sweden Bonds 5.00% due 1/28/09.......... SEK 3,000 424,762 Republic of Bulgaria Bonds, Series A 2.00% due 7/28/04.......... 324 319,276 Republic of Bulgaria Bonds 8.25% due 1/15/15.......... 100 122,500 Republic of Chile Notes 1.52% due 1/28/08(7)....... 150 150,187 Republic of Chile Notes 6.88% due 4/28/09.......... 200 229,860 Republic of Colombia Bonds 10.38% due 1/28/33......... 125 142,937 Republic of Colombia Notes 10.75% due 1/15/13......... 450 540,675 Republic of Colombia Bonds 11.75% due 2/25/20......... 300 384,000 Republic of Ecuador Bonds 7.00% due 8/15/04.......... 725 645,250 Republic of El Salvador Bonds 7.75% due 1/24/23.......... 200 224,000 Republic of Greece Sr. Notes 4.65% due 4/19/07.......... EUR 300 390,836 Republic of Italy Bonds 5.25% due 12/15/05......... EUR 100 129,213
36 SunAmerica Strategic Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands)** (Note 2) FOREIGN BONDS & NOTES (continued) Government Agency (continued) Republic of Italy Bonds 5.25% due 11/01/29............ EUR 110 $ 142,849 Republic of Panama Global Bonds 9.38% due 1/16/23............. 25 28,187 Republic of Panama Bonds 9.63% due 2/08/11............. 400 476,000 Republic of Peru Bonds 5.00% due 3/01/07............. 182 168,350 Republic of Peru Guaranteed Global Bonds 9.13% due 2/21/12............. 305 345,412 Republic of Peru Notes 9.88% due 2/06/15............. 75 88,088 Republic of Peru Bonds 4.50% due 3/07/05............. 100 88,000 Republic of Turkey Notes 8.00% due 2/14/34............. 270 284,850 Republic of Turkey Notes 9.50% due 1/15/14............. 130 153,400 Republic of Turkey Notes 11.00% due 1/14/13............ 590 748,194 Republic of Turkey Bonds 11.75% due 6/15/10............ 625 798,437 Republic of Uruguay Bonds 7.50% due 3/15/15............. 75 64,688 Republic of Venezuela Debentures 2.13% due 6/18/04............. 762 718,529 Republic of Venezuela Bonds 9.25% due 9/15/27............. 550 489,225 Republic of Venezuela Bonds 9.38% due 1/13/34............. 100 88,250 Russian Federation Debentures 3.00% due 5/14/08............. 975 899,437 Russian Federation Bonds 7.50% due 3/31/07*(3)......... 875 876,094 Russian Federation Bonds 8.25% due 3/31/10............. 1,400 1,589,000 Russian Federation Bonds 5.00% due 3/31/07............. 2,600 2,603,900
Principal Amount Value Security Description (in thousands)** (Note 2) Government Agency (continued) Spanish Government Bonds 5.15% due 7/30/09............... EUR 468 $ 630,639 Spanish Government Bonds 6.15% due 1/31/13............... EUR 196 281,742 Ukraine Government Notes 6.88% due 3/04/11*.............. 250 256,250 United Kingdom Notes 5.00% due 3/07/08............... 100 186,603 United Kingdom Bonds 6.25% due 11/25/10.............. GBP 70 140,345 United Kingdom Bonds 7.50% due 12/07/06.............. 152 300,450 United Mexican States Notes 1.84% due 4/13/04............... 143 143,858 United Mexican States Notes 5.88% due 1/15/14............... 200 207,700 United Mexican States Notes 6.38% due 1/16/13............... 600 649,800 United Mexican States Notes 6.63% due 3/03/15............... 825 898,425 United Mexican States Notes 7.50% due 1/14/12............... 1,175 1,365,937 United Mexican States Bonds 8.13% due 12/30/19.............. 445 528,438 United Mexican States Bonds 8.30% due 8/15/31............... 425 499,375 United Mexican States Notes 8.38% due 1/14/11............... 525 638,137 United Mexican States Notes 9.88% due 2/01/10............... 275 353,650 ----------- 29,873,391 ----------- Insurance -- 0.3% Fairfax Financial Holdings, Ltd. Notes 7.75% due 7/15/37............... 50 45,000 Fairfax Financial Holdings, Ltd. Notes 8.25% due 10/01/15.............. 250 257,500 ----------- 302,500 -----------
37 SunAmerica Strategic Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) --------------------------------------------------------------- FOREIGN BONDS & NOTES (continued) Metals & Mining -- 0.2% Crown European Holdings SA Sr. Secured Notes 10.88% due 3/01/13................ $ 90 $ 104,850 Vitro SA de CV Notes 11.75% due 11/01/13*.............. 75 71,250 ----------- 176,100 ----------- Pharmaceuticals -- 0.6% Abbott Japan Co. Ltd Guaranteed Bonds 1.05% due 11/06/08................ 65,000 631,271 ----------- Telecommunications -- 0.0% Empresa Brasielera de Telecom SA Guaranteed Notes 11.00% due 12/15/08*.............. 25 27,000 ----------- Utilities -- 2.0% Calpine Canada Energy Finance, ULC Guaranteed Sr. Notes 8.50% due 5/01/08................. 2,750 2,035,000 Companhia De Saneamento Basico do Estado de Sao Paulo Notes 12.00% due 6/20/08*............... 75 78,000 ----------- 2,113,000 ----------- Total Foreign Bonds & Notes (cost $29,089,406)................ 33,358,767 ----------- U.S. GOVERNMENT OBLIGATIONS -- 11.0% U.S. Treasury Bonds -- 4.2% 5.38% due 2/15/31.................. 3,000 3,270,000 6.13% due 11/15/27................. 500 589,883 6.25% due 5/15/30.................. 500 603,652 ----------- 4,463,535 ----------- U.S. Treasury Notes -- 6.8% 3.50% due 11/15/06................. 1,000 1,042,305 5.00% due 2/15/11.................. 2,000 2,207,812 5.00% due 8/15/11.................. 585 644,620 5.88% due 11/15/04................. 3,000 3,089,064 6.88% due 5/15/06.................. 177 196,325 ----------- 7,180,126 ----------- Total U.S. Government Obligations (cost $11,029,882)................ 11,643,661 ----------- U.S. GOVERNMENT AGENCIES -- 3.1% Federal Farm Credit Bank -- 0.5% 5.45% due 12/11/13................ 500 545,971 ----------- Federal Home Loan Mortgage Corporation -- 0.2% 6.50% due 5/01/29................. 28 29,638 7.00% due 6/01/29................. 31 32,725 8.50% due 5/01/08................. 58 62,690 10.00% due 5/15/20................ 46 45,840 11.57% due 4/01/04 IO............. 32 548 ----------- 171,441 -----------
Principal Amount (in thousands)/ Value Security Description Shares (Note 2) Federal National Mortgage Association -- 2.2% 0.44% due 4/01/04 IO.............. $ 4,480 $ 68,411 0.53% due 4/01/04 IO.............. 1,920 21,549 0.85% due 4/01/04 IO.............. 4,320 176,968 1.37% due 4/01/04 IO.............. 2,314 30,042 5.50% due 1/01/29................. 21 21,657 5.50% due 6/01/29................. 255 261,848 6.00% due 2/01/32................. 315 327,907 6.63% due 9/15/09................. 1,000 1,166,540 7.50% due 1/01/30................. 46 49,059 7.50% due 9/01/30................. 23 24,712 8.00% due 11/01/28................ 74 80,304 8.80% due 1/25/19................. 96 105,435 10.40% due 4/25/19................ 16 17,668 13.00% due 11/15/15............... 16 18,558 ---------- 2,370,658 ---------- Government National Mortgage Association -- 0.2% 7.50% due 7/15/27................. 41 43,730 7.50% due 10/15/27................ 137 147,237 ---------- 190,967 ---------- Total U.S. Government Agencies (cost $3,059,992)................. 3,279,037 ---------- COMMON STOCK -- 0.4% Financial Services -- 0.0% Ono Finance, PLC(2)................ 100 0 ---------- Machinery -- 0.1% NES Rentals Holding, Inc........... 19,435 174,915 ---------- Telecommunications -- 0.3% AirGate PCS, Inc................... 15,419 231,270 Dobson Communications Corp......... 270 780 IMPSAT Fiber Networks, Inc.+....... 9,294 64,407 ---------- 296,457 ---------- Total Common Stock (cost $887,971)................... 471,372 ---------- PREFERRED STOCK -- 1.0% Broadcasting & Media -- 0.3% Paxson Communications Corp. 14.25%(5)......................... 26 234,000 Pegasus Communications Corp. 6.50%. 2,300 99,188 ---------- 333,188 ---------- Communication Equipment -- 0.4% Rural Cellular Corp. 11.38%(5)..... 325 289,250 Rural Cellular Corp. 12.25%(5)..... 210 156,450 ---------- 445,700 ---------- Financial Services -- 0.0% TCR Holdings, Class B(2)........... 570 6 TCR Holdings, Class C(2)........... 314 3 TCR Holdings, Class D(2)........... 827 8 TCR Holdings, Class E(2)........... 1,711 17 ---------- 34 ----------
38 SunAmerica Strategic Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Shares/Warrants/ Principal Amount Value Security Description (in thousands)** (Note 2) PREFERRED STOCK (continued) Retail Stores -- 0.2% General Nutrition Centers Series 12.00%*(2)(9)................. $ 100 $ 105,500 Rent-Way, Inc.(2)(9).................. 3 25,000 ----------- 130,500 ----------- Telecommunications -- 0.1% Alamosa Holdings, Inc. 7.50%.......... 208 97,074 ----------- Total Preferred Stock (cost $815,542)...................... 1,006,496 ----------- RIGHTS -- 0.0% Government Agency -- 0.0% United Mexico States - C(2)........... 1,400,000 24,500 United Mexico States - E(2)........... 1,400,000 10,500 United Mexico States - D(2)........... 1,400,000 17,500 ----------- 52,500 ----------- Total Rights (cost $0)............................ 52,500 ----------- WARRANTS -- 0.0% Broadcasting & Media -- 0.0% Knology Holdings, Inc. Expires 10/22/07+(2)................. 1,500 375 UIH Australia Pacific, Inc. Expires 5/15/06...................... 1,000 0 ----------- Forest Products -- 0.0% Berry Plastics Corp. Expires 4/15/04(2)................... 500 0 ----------- Telecommunications -- 0.0% GT Group Telecom, Inc. Expires 2/1/10+(2)................... 150 2 Leap Wireless International, Inc. Expires 4/15/10+(2).................. 500 0 Leap Wireless International, Inc. Expires 4/15/10+(2).................. 350 0 ----------- 2 ----------- Total Warrants (cost $10,032)....................... 377 ----------- Total Investment Securities -- 89.8% (cost $88,879,260)................... 95,039,093 ----------- SHORT-TERM SECURITIES -- 0.8% Time Deposit with State Street Bank & Trust Co. (cost $860,000)...................... 860 860,000 -----------
Principal Amount Value Security Description (in thousands)** (Note 2) REPURCHASE AGREEMENTS -- 3.2% State Street Bank & Trust Co. Joint Repurchase Agreement (Note 2)...... $ 365 $ 365,000 UBS Warburg, LLC. Joint Repurchase Agreement (Note 2)................. 3,000 3,000,000 ------------ Total Repurchase Agreements (cost $3,365,000).................. 3,365,000 ------------ TOTAL INVESTMENTS -- (cost $93,104,260)(Note 5)......... 93.9% 99,264,093 Other assets less liabilities......... 6.1 6,474,753 ------ ------------ NET ASSETS -- 100.0% $105,738,846 ====== ============
-------- * Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. The aggregate value is $6,478,285 which represents 6.1% of net assets. ** In United States dollars unless otherwise indicated AUD --Australian Dollar CAD --Canadian Dollar EUR --Euro GBP --Pound Sterling SEK --Swedish Krona IO Interest only securities. + Non-income producing security. (1) Bond in default. (2) Fair valued security; see Note 2. (3) Security is a "step-up" bond where the coupon rate increases or steps up at a predetermined rate. Rate shown reflects the increased rate. (4) Variable rate security -- the rate reflected is as of March 31, 2004; maturity date reflects next reset date. (5) PIK ("Payment-in-Kind") payment made with additional securities in lieu of cash. (6) Subsequent to March 31, 2004, bond is in default. (7) Security is a "floating rate" bond where the coupon rate fluctuates. The rate steps up or down for each rate downgrade or upgrade. The rate reflected is as of March 31, 2004. (8) Company has filed Chapter 11 bankruptcy. (9) To the extent permitted by the Statement of Additional Information, the Strategic Bond Fund may invest in restricted securities. This restricted security is valued pursuant to Note 2. Restricted securities held by a Fund may not be sold except in exempt transactions or in a public offering registered under the Securities Act of 1933. The risk of investing in such securities is generally greater than the risk of investing in the securities of widely held, publicly traded companies. Lack of a secondary market and resale restrictions may result in the inability of a Fund to sell a security at a fair price and may substantially delay the sale of the security. In addition, these securities may exhibit greater price volatility than securities for which secondary markets exist. As of March 31, 2004, the Strategic Bond Fund held the following restricted securities:
Value as a Acquisition Acquisition Market % of Name Date Share/Par Cost Value Net Assets ---- ----------- --------- ----------- ------- ---------- Rent-Way, Inc., Preferred Stock. 05/29/2003 3 25,000 25,000 0.02% General Nutrition Centers Series 12.00% Preferred Stock. 12/18/2003 100 100,600 105,500 0.01
39 SunAmerica Strategic Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued) Allocation of investment by country as a percentage of net assets as of March 31, 2004. United States. 61.9% Brazil........ 6.2 Russia........ 5.6 Mexico........ 5.1 Canada........ 3.2 Turkey........ 1.8 Venezuela..... 1.2 Columbia...... 1.0 Spain......... 0.9 Germany....... 0.6 Japan......... 0.6 Peru.......... 0.6 United Kingdom 0.6 Ecuador....... 0.6 Australia..... 0.5 Panama........ 0.5 Chile......... 0.4 Greece........ 0.4 Sweden........ 0.4 Bulgaria...... 0.4 Cayman Islands 0.2 Ireland....... 0.2 Belgium....... 0.2 El Salvador... 0.2 Italy......... 0.2 Ukraine....... 0.2 France........ 0.1 Uruguay....... 0.1 ---- 93.9% ====
Open Forward Foreign Currency Contracts
Unrealized/ Contract In Delivery Appreciation/ to Deliver Exchange For Date (Depreciation) ------------------------------ EUR 1,800,000 USD...... 2,182,410 05/06/2004 $(28,087) CAD 1,120,000 USD...... 835,946 05/06/2004 (17,956) -------- Net Unrealized Appreciation (Depreciation) $(46,043) ========
-------- CAD -- Canadian Dollar EUR -- Euro USD -- United States Dollar See Notes to Financial Statements 40 SunAmerica High Yield Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004
Principal Amount Value Security Description (in thousands) (Note 2) -------------------------------------------------------------------- BONDS & NOTES -- 86.4% Aerospace & Military Technology -- 0.1% Condor Systems, Inc. Guaranteed Sr. Sub. Notes, Series B 11.88% due 5/01/09+(1)(3)............... $ 500 $ 35,000 DeCrane Aircraft Holdings Guaranteed Sr. Sub. Notes, Series B 12.00% due 9/30/08...................... 500 330,625 ---------- 365,625 ---------- Apparel & Textiles -- 0.1% Warnaco, Inc. Sr. Notes 8.88% due 6/15/13....................... 350 377,125 ---------- Automotive -- 0.5% Diamond Triumph Auto Glass, Inc. Guaranteed Sr. Sub. Notes 9.25% due 4/01/08....................... 695 653,300 General Motors Corp. Sr. Notes 7.13% due 7/15/13....................... 750 819,314 ---------- 1,472,614 ---------- Banks -- 0.1% LaBranche & Co., Inc. Sr. Notes 9.50% due 8/15/04....................... 375 379,688 ---------- Broadcasting & Media -- 12.1% Affinity Group, Inc. Sr. Sub. Notes 9.00% due 2/15/12*...................... 975 1,038,375 American Lawyer Media, Inc. Guaranteed Sr. Notes, Series B 9.75% due 12/15/07...................... 1,050 1,023,750 Cablevision Systems Corp. Sr. Notes 8.00% due 4/15/12*...................... 1,650 1,645,875 Charter Communications Holdings, LLC Sr. Sub. Disc. Notes 9.92% due 4/01/11(2).................... 3,375 2,792,812 Charter Communications Holdings, LLC Sr. Sub. Notes 9.63% due 11/15/09...................... 4,850 4,098,250 Charter Communications Holdings, LLC Sr. Notes 10.00% due 5/15/11...................... 450 373,500 Charter Communications Holdings, LLC Sr. Sub. Notes 10.25% due 1/15/10...................... 375 317,813 Charter Communications Holdings, LLC Sr. Sub. Notes 10.75% due 10/01/09..................... 2,075 1,815,625 Charter Communications Holdings, LLC Sr. Sub. Notes 11.13% due 1/15/11...................... 2,775 2,428,125 Cinemark, Inc. Sr. Disc. Notes 9.75% due 3/15/14*(2)................... 1,625 1,007,500
Principal Amount Value Security Description (in thousands) (Note 2) ----------------------------------------------------------------- Broadcasting & Media (continued) CSC Holdings, Inc. Sr. Notes 6.75% due 4/15/12................... $ 450 $ 454,500 CSC Holdings, Inc. Sr. Debentures 7.63% due 7/15/18................... 1,100 1,160,500 CSC Holdings, Inc. Sr. Debentures 7.88% due 2/15/18................... 4,975 5,335,687 Haights Cross Operating Co. Guaranteed Sr. Notes 11.75% due 8/15/11.................. 775 837,969 Insight Communications Co., Inc. Sr. Sub. Disc. Notes 12.25% due 2/15/11(2)............... 3,575 3,020,875 Paxson Communications Corp. Guaranteed Sr. Sub. Disc. Notes 12.25% due 1/15/09(2)............... 1,725 1,466,250 Rogers Cable, Inc. Bonds 8.75% due 5/01/32................... 450 534,375 Rogers Cablesystems, Ltd. Guaranteed Sr. Sub. Notes 11.00% due 12/01/15................. 1,250 1,450,000 Salem Communications Holding Corp. Guaranteed Sr. Sub. Notes 7.75% due 12/15/10.................. 825 871,406 Salem Communications Holding Corp. Guaranteed Sr. Sub. Notes, Series B 9.00% due 7/01/11................... 375 409,219 Susquehanna Media Co. Sr. Sub. Notes 7.38% due 4/15/13................... 825 875,531 Young Broadcasting, Inc. Sr. Sub. Notes 8.75% due 1/15/14*.................. 950 978,500 Young Broadcasting, Inc. Guaranteed Sr. Sub. Notes 10.00% due 3/01/11.................. 1,900 2,033,000 ----------- 35,969,437 ----------- Business Services -- 1.8% Allied Waste North America, Inc. Sr. Notes 7.88% due 4/15/13................... 1,625 1,775,312 ERICO International Corp. Sr. Sub. Notes 8.88% due 3/01/12*.................. 325 340,438 HydroChem Industrial Services, Inc. Guaranteed Sr. Sub. Notes, Series B 10.38% due 8/01/07.................. 950 950,000 Mobile Mini, Inc. Sr. Notes 9.50% due 7/01/13................... 575 626,750 Monitronics International, Inc. Sr. Sub. Notes 11.75% due 9/01/10*................. 1,525 1,616,500 ----------- 5,309,000 -----------
41 SunAmerica High Yield Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) --------------------------------------------------------- BONDS & NOTES (continued) Chemicals -- 3.3% Associated Materials, Inc. Sr. Disc. Notes 11.2590 due 3/01/14*(2)..... $1,425 $ 865,687 Equistar Chemicals LP Sr. Notes 10.63% due 5/01/11.......... 1,225 1,319,937 Freeport McMoRan Resources Sr. Notes 7.00% due 2/15/08........... 725 761,250 Huntsman International, LLC Guaranteed Sr. Notes 9.88% due 3/01/09........... 1,405 1,545,500 Huntsman International, LLC Sr. Sub. Notes 10.13% due 7/01/09.......... 1,125 1,317,218 Huntsman International, LLC Sr. Secured Notes 11.63% due 10/15/10......... 850 892,500 IMC Global, Inc. Sr. Notes 10.88% due 8/01/13.......... 575 720,188 KCS Energy, Inc. Sr. Notes 7.13% due 4/01/12*.......... 325 330,688 Rockwood Specialties, Inc. Sr. Sub. Notes 10.63% due 5/15/11.......... 750 828,750 Royster Clark, Inc. 1st Mtg. Notes 10.25% due 4/01/09.......... 300 292,500 Westlake Chemical Corp. Sr. Notes 8.75% due 7/15/11........... 725 801,125 ---------- 9,675,343 ---------- Communication Equipment -- 1.0% American Tower Escrow Corp. Disc. Notes zero coupon due 8/01/08..... 1,025 720,062 Rural Cellular Corp. Sr. Sub. Notes 9.63% due 5/15/08........... 900 821,250 Rural Cellular Corp. Sr. Sub. Notes 9.75% due 1/15/10........... 1,425 1,275,375 ---------- 2,816,687 ---------- Computers & Business Equipment -- 0.5% Xerox Corp. Sr. Notes 7.13% due 6/15/10........... 375 397,500 Xerox Corp. Notes 7.20% due 4/01/16........... 25 26,000 Xerox Corp. Sr. Notes 7.63% due 6/15/13........... 925 985,125 ---------- 1,408,625 ----------
Principal Amount Value Security Description (in thousands) (Note 2) ------------------------------------------------------------- Education -- 0.1% KinderCare Learning Centers, Inc. Sr. Sub. Notes, Series B 9.50% due 2/15/09................ $ 365 $ 370,778 ---------- Electronics -- 0.9% Amkor Technology, Inc. Sr. Notes 7.13% due 3/15/11*............... 550 548,625 Amkor Technology, Inc. Sr. Notes 7.75% due 5/15/13................ 125 127,500 Amkor Technology, Inc. Sr. Sub. Notes 9.25% due 2/15/08................ 800 882,000 ON Semiconductor Corp. Guaranteed Sr. Secured Notes 12.00% due 3/15/10............... 423 522,405 Sanmina-SCI Corp. Guaranteed Sr. Secured Notes 10.38% due 1/15/10............... 550 649,000 ---------- 2,729,530 ---------- Energy Services -- 1.7% Hanover Compressor Co. Sub. Notes zero coupon due 3/31/07.......... 2,550 1,963,500 Hanover Compressor Co. Sr. Notes 8.63% due 12/15/10............... 300 322,500 Oslo Seismic Services, Inc. 1st Mtg. Notes 8.28% due 6/01/11................ 1,087 1,086,590 Trico Marine Services, Inc. Sr. Notes 8.88% due 5/15/12(7)............. 1,975 1,027,000 Universal Compression, Inc. Sr. Notes 7.25% due 5/15/10................ 700 750,750 ---------- 5,150,340 ---------- Energy Sources -- 5.1% Chesapeake Energy Corp. Sr. Notes 6.88% due 1/15/16................ 275 288,750 Chesapeake Energy Corp. Sr. Notes 7.50% due 9/15/13................ 325 359,125 Chesapeake Energy Corp. Guaranteed Sr. Notes 7.75% due 1/15/15................ 350 387,625 Chesapeake Energy Corp. Guaranteed Sr. Notes 9.00% due 8/15/12................ 175 202,344 CITGO Petroleum Corp. Sr. Notes 11.38% due 2/01/11............... 775 904,812 Colorado Interstate Gas Co. Sr. Debentures 6.85% due 6/15/37................ 1,000 1,025,000
42 SunAmerica High Yield Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) ----------------------------------------------------------------------- BONDS & NOTES (continued) Energy Sources (continued) Encore Acquisition Co. Sr. Sub. Notes 6.25% due 4/15/14*........................ $ 300 $ 304,407 Encore Acquisition Co. Guaranteed Sr. Notes 8.38% due 6/15/12......................... 1,050 1,155,000 Exco Resources, Inc. Guaranteed Sr. Notes 7.25% due 1/15/11*........................ 525 542,063 Mission Energy Holding Co. Sr. Secured Notes 13.50% due 7/15/08........................ 6,850 7,055,500 North American Energy Partners, Inc. Sr. Notes 8.75% due 12/01/11*....................... 475 479,750 Roseton Danskammer Guaranteed Pass-Thru Certificates, Series B 7.67% due 11/08/16........................ 1,125 1,018,125 Southern Natural Gas Co. Sr. Notes 8.88% due 3/15/10......................... 725 804,750 Westport Resources Corp. Guaranteed Sr. Sub. Notes 8.25% due 11/01/11........................ 525 584,062 ----------- 15,111,313 ----------- Entertainment Products -- 0.4% Steinway Musical Instruments, Inc. Guaranteed Sr. Notes 8.75% due 4/15/11......................... 1,150 1,244,875 ----------- Financial Services -- 12.6% Alamosa Delaware, Inc. Guaranteed Sr. Disc. Notes 12.00% due 7/31/09(2)..................... 3,659 3,329,690 Athena Neurosciences Finance, LLC Guaranteed Sr. Notes 7.25% due 2/21/08......................... 3,575 3,588,406 Bear Island Paper Co., LLC Sr. Secured Notes, Series B 10.00% due 12/01/07....................... 1,850 1,674,250 Bluewater Finance, Ltd. Guaranteed Sr. Notes 10.25% due 2/15/12........................ 1,075 1,118,000 Chukchansi Economic Development Authority Sr. Notes 14.50% due 6/15/09*....................... 2,850 3,341,625 Couche-Tard U.S. LP Sr. Sub. Notes 7.50% due 12/15/13*....................... 325 347,750 EIRCOM Funding Sr. Sub. Notes 8.25% due 8/15/13......................... 1,025 1,142,875 ESI Tractebel Acquisition Corp. Guaranteed Secured Bonds, Series B 7.99% due 12/30/11........................ 817 845,595 Hilcorp Energy I LP/Hilcorp Finance Co. Sr. Notes 10.50% due 9/01/10*....................... 1,200 1,332,000
Principal Amount Value Security Description (in thousands) (Note 2) ---------------------------------------------------------------------- Financial Services (continued) Huntsman Advanced Materials, LLC Sr. Secured Notes 11.00% due 7/15/10*...................... $ 600 $ 678,000 Jet Equipment Trust Sr. Notes, Series 1995, Class A 8.24% due 5/01/15*+(1)................... 1,344 1,117,058 LaBranche & Co., Inc. Sr. Sub. Notes 12.00% due 3/02/07....................... 1,125 1,184,063 Madison River Capital, LLC/ Madison River Finance Corp. Sr. Notes, Series B 13.25% due 3/01/10....................... 2,925 3,188,250 Nexstar Finance Holdings, LLC Guaranteed Sr. Disc. Notes 11.38% due 4/01/13(2).................... 2,100 1,543,500 PCA, LLC Guaranteed Sr. Notes 11.88% due 8/01/09....................... 1,075 1,187,875 PDVSA Finance, Ltd. Bonds 6.80% due 11/15/08....................... 1,425 1,396,500 PDVSA Finance, Ltd. Notes 8.50% due 11/16/12....................... 825 800,250 Px Escrow Corp. Sr. Sub. Disc. Notes 9.63% due 2/01/06(2)..................... 725 592,688 Qwest Capital Funding, Inc. Guaranteed Notes 7.25% due 2/15/11........................ 2,100 1,806,000 Qwest Capital Funding, Inc. Guaranteed Notes 7.63% due 8/03/21........................ 1,450 1,218,000 Qwest Capital Funding, Inc. Notes 7.75% due 2/15/31........................ 625 512,500 Qwest Capital Funding, Inc. Guaranteed Notes 7.90% due 8/15/10........................ 2,800 2,520,000 Terra Capital, Inc. Guaranteed Sr. Sec. Notes 11.50% due 6/01/10....................... 1,125 1,226,250 Terra Capital, Inc. Guaranteed Sr. Sec. Notes 12.88% due 10/15/08...................... 1,125 1,327,500 US West Capital Funding, Inc. Guaranteed Notes 6.88% due 7/15/28........................ 900 697,500 ----------- 37,716,125 ----------- Food, Beverage & Tobacco -- 0.7% Del Monte Corp. Sr. Sub. Notes 8.63% due 12/15/12....................... 450 506,250 Doane Pet Care Co. Sr. Sub. Notes 9.75% due 5/15/07........................ 200 176,500
43 SunAmerica High Yield Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) ---------------------------------------------------------------- BONDS & NOTES (continued) Food, Beverage & Tobacco (continued) Doane Pet Care Co. Guaranteed Sr. Notes 10.75% due 3/01/10.................. $ 500 $ 521,250 Fleming Cos., Inc. Guaranteed Sr. Sub. Notes, Series D 10.63% due 7/31/07+(1).............. 1,050 1,313 Smithfield Foods, Inc. Sr. Notes, Series B 7.75% due 5/15/13................... 550 605,000 Smithfield Foods, Inc. Sr. Notes, Series B 8.00% due 10/15/09.................. 250 279,375 ---------- 2,089,688 ---------- Forest Products -- 3.2% Constar International, Inc. Sr. Sub. Notes 11.00% due 12/01/12................. 475 406,125 Crown Cork & Seal Co., Inc. Notes 8.00% due 4/15/23................... 1,500 1,447,500 FiberMark, Inc. Sr. Notes 10.75% due 4/15/11(7)............... 750 423,750 Georgia-Pacific Corp. Debentures 7.70% due 6/15/15................... 75 82,125 Georgia-Pacific Corp. Debentures 7.75% due 11/15/29.................. 2,200 2,233,000 Georgia-Pacific Corp. Debentures 8.63% due 4/30/25................... 1,725 1,815,562 Georgia-Pacific Corp. Debentures 9.13% due 7/01/22................... 825 852,844 Pliant Corp. Sr. Secured Disc. Notes 11.13% due 6/15/09(2)............... 675 540,000 Specialty Paperboard, Inc. Sr. Notes 9.38% due 10/15/06(7)............... 3,275 1,825,813 ---------- 9,626,719 ---------- Health Services -- 2.5% Genesis Healthcare Corp. Sr. Sub. Notes 8.00% due 10/15/13*................. 350 372,750 HCA, Inc. Sr. Notes 6.95% due 5/01/12................... 1,100 1,199,794 IASIS Healthcare Corp. Guaranteed Sr. Sub. Notes 8.50% due 10/15/09.................. 200 214,000 National Nephrology Associates, Inc. Sr. Sub. Notes 9.00% due 11/01/11*................. 275 319,000
Principal Amount Value Security Description (in thousands) (Note 2) --------------------------------------------------------------- Health Services (continued) Pediatric Services Of America, Inc. Guaranteed Sr. Sub. Notes 10.00% due 4/15/08(3).............. $ 200 $ 200,000 Psychiatric Solutions, Inc. Guaranteed Sr. Sub. Notes 10.63% due 6/15/13................. 625 714,063 Team Health, Inc. Sr. Sub. Notes 9.00% due 4/01/12*................. 600 583,500 Tenet Healthcare Corp. Sr. Notes 5.00% due 7/01/07.................. 1,425 1,300,312 Tenet Healthcare Corp. Sr. Notes 6.50% due 6/01/12.................. 300 258,750 Tenet Healthcare Corp. Notes 7.38% due 2/01/13.................. 575 518,938 Triad Hospitals, Inc. Sr. Sub. Notes 7.00% due 11/15/13*................ 575 589,375 Universal Hospital Services, Inc. Sr. Notes 10.13% due 11/01/11*............... 1,000 1,080,000 ---------- 7,350,482 ---------- Insurance -- 0.8% Crum & Forster Holdings Corp. Sr. Notes 10.38% due 6/15/13*................ 1,625 1,836,250 LNR Property Corp. Sr. Sub. Notes 7.63% due 7/15/13.................. 500 530,000 ---------- 2,366,250 ---------- Leisure & Tourism -- 7.2% American Airlines, Inc. Pass-Thru Certificates, Series 2001-1, Class A2 6.82% due 5/23/11.................. 1,200 1,108,481 American Airlines, Inc. Pass-Thru Certificates, Series 2001-2, Class C 7.80% due 10/01/06................. 1,925 1,810,655 Atlas Air, Inc. Pass-Thru Certificates, Series 1999-1, Class A-2 6.88% due 1/02/11.................. 800 737,958 Atlas Air, Inc. Pass-Thru Certificates, Series 1999-1, Class A-1 7.20% due 1/02/19.................. 887 832,484 Atlas Air, Inc. Pass-Thru Certificates, Series 1999-1, Class B 7.63% due 1/02/15.................. 4,089 2,370,103
44 SunAmerica High Yield Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) ------------------------------------------------------------------- BONDS & NOTES (continued) Leisure & Tourism (continued) Atlas Air, Inc. Pass-Thru Certificates, Series 2000-1 Class A 8.71% due 1/02/20...................... $ 628 $ 600,736 Bally Total Fitness Holding Corp. Sr. Notes 10.50% due 7/15/11..................... 325 305,500 Continental Airlines, Inc. Pass-Thru Certificates, Series 1997-4, Class A 6.90% due 1/02/18...................... 999 996,576 Continental Airlines, Inc. Pass-Thru Certificates, Series 1999-1, Class C 6.95% due 8/02/09...................... 761 658,073 Continental Airlines, Inc. Pass-Thru Certificates, Series 1999-2, Class C1 7.73% due 3/15/11...................... 351 289,399 Continental Airlines, Inc. Secured Pass-Thru Certificates, Series 2000-2, Class B 8.31% due 10/02/19..................... 1,000 886,359 Courtyard by Marriott II Sr. Secured Notes, Series B 10.75% due 2/01/08..................... 1,000 1,002,500 Delta Air Lines, Inc. Pass-Thru Certificates, Series 2002-1, Class C 7.78% due 1/02/12...................... 981 795,662 Hollywood Casino Shreveport/Shreveport Capital Corp. Guaranteed Sr. Secured Notes 12.00% due 8/01/06+(1)................. 2,311 1,640,810 John Q Hammons Hotels LP 1st Sr. Mtg. Notes, Series B 8.88% due 5/15/12...................... 500 556,250 Mandalay Resort Group Sr. Notes 6.38% due 12/15/11*.................... 1,025 1,081,375 Prime Hospitality Corp. Sr. Sub. Notes, Series B 8.38% due 5/01/12...................... 350 369,250 Riviera Holdings Corp. Guaranteed Sr. Notes 11.00% due 6/15/10..................... 1,075 1,130,094 True Temper Sports, Inc. Guaranteed Sr. Sub. Notes 8.38% due 9/15/11*..................... 950 969,000 United Air Lines, Inc. Pass-Thru Certificates, Series 2000, Class A-2 7.73% due 7/01/10...................... 500 451,251 United Air Lines, Inc. Pass-Thru Certificates , Series 2000-1, Class A-1 7.78% due 1/01/14...................... 465 418,573
Principal Amount Value Security Description (in thousands) (Note 2) ---------------------------------------------------------------- Leisure & Tourism (continued) Waterford Gaming, LLC Sr. Notes 8.63% due 9/15/12*................. $1,105 $ 1,182,350 Worldspan LP Sr. Notes 9.63% due 6/15/11.................. 1,250 1,290,625 ----------- 21,484,064 ----------- Machinery -- 1.2% Anthony Crane Rental LP Guaranteed Sr. Secured Notes 9.38% due 2/01/08(3)(4)(6)......... 1,262 126 Briggs & Stratton Corp. Guaranteed Sr. Notes 8.88% due 3/15/11.................. 775 957,125 Dana Corp. Notes 9.00% due 8/15/11.................. 1,325 1,593,313 Dresser, Inc. Guaranteed Sr. Sub. Notes 9.38% due 4/15/11.................. 500 545,000 Exide Corp. Sr. Notes 10.00% due 4/15/05+(1)............. 1,650 338,250 Venture Holdings Co., LLC Guaranteed Sr. Sub. Notes 11.00% due 6/01/07+(1)............. 550 22,000 ----------- 3,455,814 ----------- Medical Products -- 0.2% Inverness Medical Innovations, Inc. Sr. Sub. Notes 8.75% due 2/15/12*................. 675 685,125 ----------- Metals & Mining -- 3.1% CSN Islands VII Corp. Guaranteed Notes 10.75% due 9/12/08*................ 925 985,125 CSN Islands VIII Corp. Guaranteed Sr. Notes 9.75% due 12/16/13*................ 1,500 1,470,000 Eagle-Picher, Inc. Sr. Notes 9.75% due 9/01/13.................. 850 930,750 MMI Products, Inc. Sr. Sub. Notes, Series B 11.25% due 4/15/07................. 775 647,125 NGC Corp. Capital Trust I Guaranteed Sub. Notes, Series B 8.32% due 6/01/27.................. 5,850 4,650,750 Renco Metals, Inc. Guaranteed Sr. Notes 11.50% due 7/01/49+(1)(3).......... 2,150 0 Ryerson Tull, Inc. Notes 9.13% due 7/15/06.................. 525 540,750 ----------- 9,224,500 -----------
45 SunAmerica High Yield Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) --------------------------------------------------------------- BONDS & NOTES (continued) Real Estate Investment Trusts -- 1.4% National Health Investors, Inc. Notes 7.30% due 7/16/07................. $ 1,120 $1,159,200 Omega Healthcare Investors, Inc. Sr. Notes 6.95% due 8/01/07................. 300 315,000 Omega Healthcare Investors, Inc. Sr. Notes 7.00% due 4/01/14*................ 600 615,000 RFS Partnership LP Guaranteed Sr. Notes 9.75% due 3/01/12................. 350 379,750 Senior Housing Properties Trust Sr. Notes 8.63% due 1/15/12................. 1,625 1,844,375 ---------- 4,313,325 ---------- Restaurants -- 0.3% Tricon Global Restaurants, Inc. Sr. Notes 8.88% due 4/15/11(5).............. 800 999,000 ---------- Retail Stores -- 3.5% Collins & Aikman Floor Cover Guaranteed Sr. Sub. Notes 9.75% due 2/15/10................. 480 513,600 Host Marriott LP Sr. Notes 7.13% due 11/01/13................ 450 466,875 J.C. Penney Co., Inc. Notes 6.88% due 10/15/15................ 1,800 1,984,500 J.C. Penney Co., Inc. Debentures 7.13% due 11/15/23................ 1,050 1,186,500 Jostens Holding Corp. Sr. Disc. Notes 10.25% due 12/01/13(2)............ 1,275 835,125 Rent-Way, Inc. Sr. Secured Notes 11.88% due 6/15/10................ 1,175 1,316,000 Rite Aid Corp. Sr. Debentures 7.70% due 2/15/27................. 1,125 1,029,375 Rite Aid Corp. Guaranteed Sr. Secured Notes 8.13% due 5/01/10................. 450 481,500 Saks, Inc. Guaranteed Notes 9.88% due 10/01/11................ 725 891,750 Sealy Mattress Co. Sr. Sub. Notes 8.25% due 6/15/14*................ 175 176,104 Service Corp. International Sr. Notes 6.75% due 4/01/16*................ 575 577,875
Principal Amount Value Security Description (in thousands) (Note 2) --------------------------------------------------------------------- Retail Stores (continued) Suburban Propane Partners LP Sr. Notes 6.88% due 12/15/13*..................... $ 825 $ 858,000 ----------- 10,317,204 ----------- Telecommunications -- 10.6% AirGate PCS, Inc. Sr. Sub. Secured Notes 9.38% due 9/01/09....................... 2,533 2,393,985 Alaska Communications Holdings, Inc. Guaranteed Sr. Sub. Notes 9.38% due 5/15/09....................... 1,125 1,102,500 American Cellular Corp. Sr. Notes, Series B 10.00% due 8/01/11...................... 800 768,000 Cincinnati Bell, Inc. Notes 7.25% due 6/15/23....................... 225 222,750 Cincinnati Bell, Inc. Guaranteed Sr. Sub. Notes 8.38% due 1/15/14....................... 300 294,000 Dobson Communications Corp. Sr. Notes 10.88% due 7/01/10...................... 1,100 973,500 Excelcomindo Finance Co. Sr. Notes 8.00% due 1/27/09*...................... 175 173,250 FairPoint Communications, Inc. Sr. Sub. Notes 12.50% due 5/01/10...................... 175 196,000 Insight Midwest LP/Insight Capital, Inc. Sr. Notes 10.50% due 11/01/10..................... 400 430,000 Insight Midwest LP/Insight Capital, Inc. Sr. Sub. Notes 9.75% due 10/01/09...................... 200 208,500 iPCS, Inc. Sr. Disc. Notes 14.00% due 7/15/10+(1).................. 1,400 378,000 IWO Holdings, Inc. Guaranteed Sr. Notes 14.00% due 1/15/11...................... 8,400 2,016,000 LCI International, Inc. Sr. Notes 7.25% due 6/15/07....................... 3,725 3,408,375 MJD Communications, Inc. Sr. Sub. Notes, Series B 9.50% due 5/01/08....................... 4,175 4,216,750 Nextel Communications, Inc. Sr. Notes 7.38% due 8/01/15....................... 2,600 2,814,500 PanAmSat Corp. Notes 6.38% due 1/15/08....................... 575 597,281 PanAmSat Corp. Guaranteed Sr. Notes 8.50% due 2/01/12....................... 450 470,250
46 SunAmerica High Yield Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) BONDS & NOTES (continued) Telecommunications (continued) Telewest Communications, PLC Sr. Disc. Notes 9.25% due 4/15/09(2)................. $1,150 $ 592,250 TSI Telecommunications Services, Inc. Guaranteed Sr. Sub. Notes 12.75% due 2/01/09................... 400 438,000 Ubiquitel Operating Co. Sr. Notes 9.88% due 3/01/11*................... 750 731,250 United States West Communications, Inc. Debentures 7.25% due 10/15/35................... 2,275 2,104,375 US Unwired, Inc. Guaranteed Sr. Sub. Disc. Notes, Series B 13.38% due 11/01/09(2)............... 5,575 5,212,625 US West Communications, Inc. Secured Debentures 7.50% due 6/15/23.................... 50 46,750 US West Communications, Inc. Debentures 7.13% due 11/15/43................... 2,150 1,935,000 ----------- 31,723,891 ----------- Transportation -- 0.2% Overseas Shipholding Group, Inc. Sr. Notes 7.50% due 2/15/24.................... 425 430,313 Petroleum Helicopters, Inc. Guaranteed Sr. Notes, Series B 9.38% due 5/01/09.................... 275 302,156 ----------- 732,469 ----------- Utilities -- 11.2% AES Corp. Sr. Sub. Debentures 8.88% due 11/01/27................... 3,600 3,492,000 AES Drax Energy, Ltd. Guaranteed Sr. Sub. Secured Notes, Series B 11.50% due 8/30/10+(1)............... 4,460 22,300 Cincinnati Bell Telephone Co. Notes 7.18% due 12/15/23................... 375 356,250 Cincinnati Bell Telephone Co. Guaranteed Notes 7.20% due 11/29/23................... 1,525 1,448,750 Dynegy Holdings, Inc. Sr. Notes 8.75% due 2/15/12.................... 775 732,375 Edison Mission Energy Sr. Notes 7.73% due 6/15/09.................... 275 265,375 Edison Mission Energy Sr. Notes 9.88% due 4/15/11.................... 1,225 1,289,312
Principal Amount Value Security Description (in thousands) (Note 2) Utilities (continued) Edison Mission Energy Sr. Notes 10.00% due 8/15/08.................. $1,300 $ 1,368,250 El Paso Natural Gas Co. Debentures 8.63% due 1/15/22................... 2,900 3,016,000 El Paso Production Holding Co. Guaranteed Sr. Notes 7.75% due 6/01/13................... 3,150 2,921,625 Mirant Americas Generation, LLC Sr. Notes 7.20% due 10/01/08+(1)(8)........... 1,525 1,128,500 Mirant Americas Generation, LLC Sr. Notes 7.63% due 5/01/06+(1)(8)............ 525 388,500 Mirant Americas Generation, LLC Sr. Notes 8.30% due 5/01/11+(1)(8)............ 4,650 3,429,375 Mirant Americas Generation, LLC Sr. Notes 8.50% due 10/01/21+(1)(8)........... 3,075 2,275,500 NRG Energy, Inc. Guaranteed Sr. Secured Notes 8.00% due 12/15/13*................. 1,175 1,213,188 Reliant Resources, Inc. Sr. Secured Notes 9.25% due 7/15/10................... 800 868,000 Reliant Resources, Inc. Secured Notes 9.50% due 7/15/13................... 2,175 2,397,937 Tiverton/Rumford Power Assoc., Ltd. Guaranteed Notes 9.00% due 7/15/18*.................. 1,100 940,500 Transcontinental Gas Pipe Line Corp. Sr. Notes 8.88% due 7/15/12................... 625 740,625 Williams Cos., Inc. Notes 8.75% due 3/15/32................... 4,700 4,982,000 ------------ 33,276,362 ------------ Total Bonds & Notes (cost $247,224,616)................. 257,741,998 ------------ FOREIGN BONDS & NOTES -- 6.5% Broadcasting & Media -- 0.6% CF Cable TV, Inc. Guaranteed Secured Sr. Notes 9.13% due 7/15/07................... 400 420,039 Telenet Group Holding NV Sr. Disc. Notes 11.50% due 6/15/14*(2).............. 2,125 1,296,250 ------------ 1,716,289 ------------ Insurance -- 0.7% Fairfax Financial Holdings, Ltd. Notes 7.75% due 7/15/37................... 350 315,000
47 SunAmerica High Yield Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount (in thousands)/ Value Security Description Shares (Note 2) FOREIGN BONDS & NOTES (continued) Insurance (continued) Fairfax Financial Holdings, Ltd. Notes 8.25% due 10/01/15....................... $ 1,600 $ 1,648,000 ----------- 1,963,000 ----------- Metals & Mining -- 0.6% Crown European Holdings SA Sr. Secured Notes 10.88% due 3/01/13....................... 800 932,000 International Utility Structures, Inc. Sr. Sub. Notes 10.75% due 2/01/08+(1)................... 2,150 430,000 Vitro SA de CV Notes 11.75% due 11/01/13*..................... 575 546,250 ----------- 1,908,250 ----------- Telecommunications -- 0.0% Empresa Brasielera de Telecom SA Guaranteed Notes 11.00% due 12/15/08*..................... 150 162,000 ----------- Utilities -- 4.6% Calpine Canada Energy Finance, ULC Guaranteed Sr. Notes 8.50% due 5/01/08........................ 17,600 13,024,000 Companhia De Saneamento Basico do Estado de Sao Paulo Notes 12.00% due 6/20/08*...................... 550 572,000 ----------- 13,596,000 ----------- Total Foreign Bonds & Notes (cost $21,512,160)....................... 19,345,539 ----------- COMMON STOCK -- 1.1% Energy Sources -- 0.0% Tri-Union Development Corp.+(3)(6)........ 1,061 11 Tribo Petroleum Corp.+(3)(6).............. 1,800 18 ----------- 29 ----------- Financial Services -- 0.0% Ono Finance, PLC+(3)(6)................... 500 0 ----------- Leisure & Tourism -- 0.0% Capital Gaming International, Inc.+(3)(6). 77 0 ----------- Machinery -- 0.5% NES Rentals Holding, Inc.................. 150,124 1,351,116 ----------- Telecommunications -- 0.7% AirGate PCS, Inc.......................... 104,631 1,569,360 Dobson Communications Corp................ 147,082 425,067 ----------- 1,994,427 ----------- Total Common Stock (cost $4,312,789)........................ 3,345,572 -----------
Shares / Warrants / Principal Amount Value Security Description (in thousands) (Note 2) PREFERRED STOCK -- 2.0% Broadcasting & Media -- 0.7% Paxson Communications Corp. 14.25%(4).......................... 159 $ 1,431,000 Pegasus Communications Corp. 6.50%.. 15,000 646,875 UIH Australia Pacific, Inc. Expires 5/15/06.................... 1,000 0 ------------ 2,077,875 ------------ Communication Equipment -- 0.8% Rural Cellular Corp. 11.38%(4)...... 2,075 1,846,750 Rural Cellular Corp. 12.25%(4)...... 819 610,155 ------------ 2,456,905 ------------ Retail Stores -- 0.3% General Nutrition Centers, Series 12.00%*(3)(9)............... 725 764,875 Rent-Way, Inc. (3)(9)............... 10 100,000 ------------ 864,875 ------------ Telecommunications -- 0.2% Alamosa Holdings, Inc. 7.50%........ 1,176 548,843 ------------ Total Preferred Stock (cost $5,167,862).................. 5,948,498 ------------ WARRANTS -- 0.0% Broadcasting & Media -- 0.0% Knology Holdings, Inc. Expires 10/22/07+(3)............... 4,500 1,125 XM Satellite Radio, Inc. Expires 3/15/10+................... 1,000 37,000 ------------ 38,125 ------------ Telecommunications -- 0.0% GT Group Telecom, Inc. Expires 2/1/10+(3)(4)(6)........... 2,650 26 KMC Telecom Holdings, Inc. Expires 1/31/08(+)(3)(4)(6)........ 3,650 0 Leap Wireless International, Inc. 4/15/10+(3)(4)(6).................. 2,250 0 Leap Wireless International, Inc. 4/15/10+(3)(4)(6).................. 1,950 0 ------------ 26 ------------ Total Warrants (cost $321,861).................... 38,151 ------------ Total Investment Securities -- 96.0% (cost $278,539,288)................ 286,419,758 ------------ REPURCHASE AGREEMENT -- 2.0% State Street Bank & Trust Co. Joint Repurchase Agreement (Note 2)...... $ 25 25,000 UBS Warburg, LLC. Joint Repurchase Agreement (Note 2)................. 6,000 6,000,000 ------------ Total Repurchase Agreements (cost $6,025,000).................. 6,025,000 ------------ TOTAL INVESTMENTS -- (cost $284,564,288) (Note 5)....... 98.0% 292,444,758 Other assets less liabilities......... 2.0 5,942,968 ------- ------------ NET ASSETS -- 100.00% $298,387,726 ======= ============
48 SunAmerica High Yield Bond Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) BOND & NOTES SOLD SHORT -- (0.2%) Forest Products -- (0.2%) Abitibi-Consolidated, Inc. Debentures 8.85% due 8/01/2030 (Proceeds $616,740)........ $(600) $(610,555) ----- ---------
-------- * Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. The aggregate value is $36,295,233 which represents 12.1% of net assets. + Non-income producing securities. ** In United State dollars unless otherwise indicated. (1)Bond in default. (2)Security is a "step-up" bond where the coupon rate increases or steps up at a predetermined rate. Rate shown reflects the increased rate. (3)Fair valued security; see Note 2. (4)PIK ("Payment-in-Kind") payment made with additional securities in lieu of cash. (5)The security or a portion thereof represents collateral for securities sold short. (6)Illiquid security. (7)Subsequent to March 31, 2004, bond is in default. (8)Company has filed Chapter 11 bankruptcy. See Notes to Financial Statements (9)To the extent permitted by the Statement of Additional Information, the High Yield Bond Fund may invest in restricted securities. This restricted security is valued pursuant to Note 2. Restricted securities held by a Fund may not be sold except in exempt transactions or in a public offering registered under the Securities Act of 1933. The risk of investing in such securities is generally greater than the risk of investing in the securities of widely held, publicly traded companies. Lack of a secondary market and resale restrictions may result in the inability of a Fund to sell a security at a fair price and may substantially delay the sale of the security. In addition, these securities may exhibit greater price volatility than securities for which secondary markets exist. As of March 31, 2004, the High Yield Bond Fund held the following restricted securities:
Value as Acquisition Acquisition Market a % of Name Date Share/Par Cost Value Net Assets ---- ----------- --------- ----------- ------- ---------- Rent-Way, Inc. Preferred Stock. 05/29/2003 10 100,000 100,000 0.03% General Nutrition Centers Series 12.00% Preferred Stock. 12/18/2003 725 729,350 764,875 0.26
Allocation of investment by country as a percentage of net assets as of March 31, 2004 United States. 90.0% Canada........ 5.6 Cayman Islands 0.5 Belgium....... 0.4 Ireland....... 0.4 Brazil........ 0.3 France........ 0.3 Mexico........ 0.2 Netherlands... 0.1 ---- 97.8% ====
49 SunAmerica Tax Exempt Insured Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004
Principal Amount Value Security Description (in thousands) (Note 2) MUNICIPAL BONDS -- 92.3% Alabama -- 5.6% Jefferson County, Alabama Sewer Revenue, Capital Improvement, Series D 5.25% due 2/01/26+........................... $4,500 $ 5,165,595 ----------- California -- 13.7% California State Department Water Resources, Central Valley Project Revenue, Series X, 5.13% due 12/01/22+.......................... 3,000 3,193,470 California State, Revenue Anticipation Warrants, Series A, 2.00% due 6/16/04............................ 2,500 2,504,800 Sacramento, California Municipal Utility District Electric Revenue, Sacramento MUD, Series R, 5.00% due 8/15/20+........................... 2,500 2,670,200 San Ramon Valley, California Unified School District, General Obligation, 5.00% due 8/01/23+........................... 4,000 4,198,520 ----------- 12,566,990 ----------- Colorado -- 2.5% Highlands Ranch Metropolitan District No. 2, General Obligation, 6.50% due 6/15/09+........................... 1,960 2,328,735 ----------- Connecticut -- 3.7% Connecticut State, General Obligation, Series B, 5.00% due 6/01/11+........................... 3,000 3,390,240 ----------- Florida -- 8.4% Lee County, Florida, Airport Revenue, Series A, 5.75% due 10/01/22+.......................... 5,000 5,549,350 Orange County, Florida Sales Tax Revenue, Series A, 5.13% due 1/01/23+........................... 2,000 2,122,500 ----------- 7,671,850 ----------- Georgia -- 0.2% Georgia Municipal Electric Authority, Power Revenue, Series Y, 6.40% due 1/01/09+........................... 60 70,835 Georgia Municipal Electric Authority, Power Revenue, Series Y, 6.40% due 1/01/13+........................... 85 103,582 ----------- 174,417 ----------- Illinois -- 4.2% Illinois Health Facilities Authority Revenue, Lutheran General Health Systems, Series C, 7.00% due 4/01/08+........................... 3,400 3,786,886 ----------- Massachusetts -- 1.0% Massachusetts State Housing Finance Agency, Insured Rental, Series A, 6.60% due 7/01/14+........................... 875 896,866 ----------- Missouri -- 6.5% Sikeston, Missouri, Electric Revenue, 6.20% due 6/01/10+........................... 5,000 5,942,400 -----------
Principal Amount Value Security Description (in thousands) (Note 2) New Jersey -- 8.3% New Jersey Economic Development Authority, School Facilities Construction, Series C, 5.00% due 6/15/12+......................... $4,000 $ 4,491,800 New Jersey State Transportation Trust Fund Authority, Transportation Systems, Series B, 6.00% due 6/15/05+......................... 2,000 2,115,440 Passaic Valley, New Jersey Sewer Systems, Series F, 5.00% due 12/01/12+........................ 850 956,250 ----------- 7,563,490 ----------- New York -- 13.9% New York State Thruway Authority, Highway & Bridge Trust Fund, Series C, 5.25% due 4/01/11+......................... 4,000 4,550,520 New York, New York, General Obligation, Series I, 5.00% due 8/01/20.......................... 2,500 2,594,825 Niagara Falls, New York, Public Improvement, General Obligation, 7.50% due 3/01/14+......................... 555 736,019 Niagara Falls, New York, Public Improvement, General Obligation, 7.50% due 3/01/13+......................... 445 581,602 Triborough Bridge & Tunnel Authority New York, Series A, MBIA 5.25% due 11/15/30+........................ 4,000 4,278,400 ----------- 12,741,366 ----------- Ohio -- 12.2% Cuyahoga County, Ohio Revenue, Cleveland Clinic Health Systems, Series A, 5.75% due 1/01/24.......................... 2,000 2,138,360 Franklin County, Ohio Hospital Revenue, OhioHealth Corp., Series C, 5.25% due 5/15/23.......................... 4,000 4,121,360 Summit County, Ohio, Refunding, Series A, 5.00% due 12/01/13+........................ 3,285 3,698,745 Woodridge, Ohio Local School District, General Obligation, 6.80% due 12/01/14+........................ 1,000 1,226,090 ----------- 11,184.555 ----------- Oklahoma -- 0.3% Oklahoma Development Finance Authority, Public Service of Oklahoma Project, 4.88% due 6/01/14.......................... 250 250,655 ----------- Pennsylvania -- 5.9% Pennsylvania State Turnpike Commission, Oil Franchise Tax Revenue, Series A 5.25% due 12/01/23+........................ 5,000 5,373,750 ----------- South Dakota -- 2.7% South Dakota State Health & Educational Facilities Revenue, McKennan Hospital, 6.25% due 7/01/10+......................... 2,120 2,511,903 -----------
50 SunAmerica Tax Exempt Insured Fund PORTFOLIO OF INVESTMENTS -- March 31, 2004 -- (continued)
Principal Amount Value Security Description (in thousands) (Note 2) ------------------------------------------------------------------------- MUNICIPAL BONDS (continued) Texas -- 3.2% Harris County, Texas Hospital District, Mtg. Revenue, 7.40% due 2/15/10+.......................... $1,290 $ 1,481,036 San Antonio, Texas, Hotel Occupancy Revenue, Henry B. Gonzalez Project, zero coupon due 8/15/17+(1)................. 2,700 1,482,570 ----------- 2,963,606 ----------- Total Investment Securities -- (cost $79,611,704).......................... 84,513,304 ----------- SHORT-TERM INVESTMENTS -- 17.4% Arizona -- 1.1% Maricopa County, Arizona Industrial Development Revenue, JIA Corp. Project, 1.20% due 04/08/04(2)....................... 145 145,000 Tempe, Arizona Industrial Development Revenue, Centers For Habilitation, 1.13% due 04/08/04(2)....................... 840 840,029 ----------- 985,029 ----------- Illinois -- 1.3% Illinois Development Finance Authority Revenue, Jewish Federal Metropolitan Chicago Projects, 0.98% due 04/08/04+(2)...................... 1,200 1,200,000 ----------- Iowa -- 1.6% Iowa Finance Authority Children's Care Facilities Revenue, Childserve Project, Series B, 1.13% due 04/08/04(2)....................... 350 350,000 Linn County, Iowa Revenue, Goodwill Industries, Southwest Project, 1.13% due 04/08/04(2)....................... 1,115 1,115,000 ----------- 1,465,000 ----------- Louisiana -- 2.8% East Baton Rouge Parish, Louisiana Pollution Control Revenue, Exxon Project, 0.91% due 04/07/04(2)....................... 2,600 2,600,000 ----------- Missouri -- 0.2% Missouri Higher Education Loan, Student Loan Revenue, Series B, 1.10% due 04/07/04+(2)...................... 100 100,000 Wright City, Missouri Industrial Revenue, Watlow Process Systems, Inc., 1.15% due 04/08/04(2)....................... 95 95,000 ----------- 195,000 -----------
Principal Amount Value Security Description (in thousands) (Note 2) ------------------------------------------------------------------------- New York -- 5.1% New York City, New York, Series B, 0.94% due 04/08/04+(2).................... $ 700 $ 700,000 New York, New York City Transitional Finance Revenue, NYC Recovery, Series 1, Sub 1D, 0.93% due 04/07/04(2)..................... 4,000 4,000,000 ------------ 4,700,000 ------------ Pennsylvania -- 0.9% Pennsylvania State Higher Educational Facilities Revenue, Carnegie Mellon University, Series B, 0.95% due 04/07/04(2)..................... 800 800,000 ------------ South Carolina -- 0.9% Piedmont Municipal Power Agency South Carolina Electric Revenue, Series B, 1.05% due 04/07/04+(2).................... 800 800,000 ------------ Texas -- 3.4% Brownsville, Texas Utility System Revenue, Series A, 1.00% due 04/07/04+(2).................... 2,100 2,100,000 Harris County Texas Health Facilities Development, Methodist Hospital, 0.97% due 04/08/04(2)..................... 1,000 1,000,000 ------------ 3,100,000 ------------ Registered Investment Companies -- 0.1% SSGA Municipal Money Market Fund Tax Free Money Market Fund................ 64 63,725 ------------ Total Short-Term Investments (cost $15,908,754)........................ 15,908,754 ------------ TOTAL INVESTMENTS -- (cost $95,520,458) (Note 5)............... 109.7% 100,422,058 Liabilities in excess of other assets........ (9.7) (8,889,622) ------- ------------ NET ASSETS -- 100.00% $ 91,532,436 ======= ============
-------- + All or part of this security is insured by the Financial Security Assurance ("FSA"), Financial Guaranteed Insurance Corp. ("FGIC"), Municipal Bond Insurance Association ("MBIA"), or American Municipal Bond Assurance Corp. ("AMBAC") The aggregate value is $77,803,304 which represents 85.0% of net assets. (1)Represents a zero coupon bond which will convert to an interest-bearing security at a later date. (2)Variable rate security -- the rate reflected is as of March 31, 2004; maturity date reflects next reset date. See Notes to Financial Statements 51 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2004 Note 1. Organization SunAmerica Income Funds is an open-end diversified management investment company organized as a Massachusetts business trust (the "Trust"). It currently consists of six different investment series (each, a "Fund" and collectively, the "Funds"). Each Fund is a separate series of the Trust with distinct investment objectives and/or strategies. Each Fund is managed by AIG SunAmerica Asset Management Corp. (the "Adviser" or "SAAMCo"), an indirect wholly-owned subsidiary of American International Group, Inc. ("AIG"). An investor may invest in one or more of the following Funds: SunAmerica Core Bond Fund, SunAmerica U.S. Government Securities Fund, SunAmerica GNMA Fund, SunAmerica Strategic Bond Fund, SunAmerica High Yield Bond Fund and SunAmerica Tax Exempt Insured Fund. The Funds are considered to be separate entities for financial and tax reporting purposes. The investment objectives for each of the Funds are as follows: CORE BOND FUND seeks a high level of current income consistent with relative safety of capital by the active trading of investment-grade fixed-income securities, or in securities issued or guaranteed by the U.S. Government and mortgage-backed or asset-backed securities without regard to the maturities of such securities. Under normal market conditions, at least 80% of the Fund's assets plus borrowing for investment purposes will be invested in bonds. U.S. GOVERNMENT SECURITIES FUND seeks high current income consistent with relative safety of capital by the active trading of securities of high credit quality, issued or guaranteed by the U.S. government, or any agency or instrumentality thereof without regard to the maturities of such securities. Under normal market conditions, at least 80% of the Fund's assets plus borrowing for investment purposes will be invested in such securities. GNMA FUND seeks current income, with capital appreciation as a secondary objective by the active trading of mortgage-backed securities of high credit quality issued or guaranteed by the Government National Mortgage Association (GNMA) without regard to the maturities of such securities. Under normal market conditions, at least 80% of the Fund's assets plus borrowing for investment purposes will be invested in such securities. STRATEGIC BOND FUND seeks a high level of total return by the active trading of a broad range of bonds, including both investment grade and non-investment grade bonds (which may include "junk bonds"), U.S. Government and agency obligations, and mortgage-backed securities, without regard to the maturities of such securities. Under normal market conditions, at least 80% of the Fund's assets plus borrowing for investment purposes will be invested in bonds. HIGH YIELD BOND FUND seeks a high level of total return by the active trading of below-investment grade U.S. and foreign junk bonds (rated below Baa by Moody's and below BBB by S&P) without regard to the maturities of such securities and bank debt. For purposes of this policy, bonds include fixed-income securities other than short-term commercial paper and preferred stock. Under normal market conditions, at least 80% of the Funds assets plus borrowing for investment purposes will be invested in such securities. TAX EXEMPT INSURED FUND seeks as high a level of current income exempt from federal income taxes as is consistent with preservation of capital by investing, under normal market conditions, at least 80% of its assets in municipal bonds, the income of which is exempt from federal income taxes, and that 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. Each Fund offers multiple classes of shares. The classes within each Fund are presented in the Statement of Assets and Liabilities. The cost structure for each class is as follows: Class A shares are offered at net asset value per share plus an initial sales charge. Additionally, any purchases of Class A shares in excess of $1,000,000 will be purchased at net asset value but will be subject to a contingent deferred sales charge on redemptions made within two years of purchase. Class B shares are offered without an initial sales charge, although a declining contingent deferred sales charge may be imposed on redemptions made within six years of purchase. Class B shares of each Fund convert automatically to Class A shares on the first business day of the month following the eighth anniversary of the issuance of such Class B shares and at such time will be subject to the lower distribution fee applicable to Class A shares. 52 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2004 -- (continued) Class C shares are offered at net asset value per share without an initial sales charge and may be subject to a contingent deferred sales charge on redemptions made within 12 months of purchase. Effective February 23, 2004, Class II shares were redesignated to Class C shares. Class I, Class Z, and Class X are offered at net asset value per share. These classes are offered exclusively to participants in certain employee retirement plans and other programs. Effective December 29, 2003, Class I shares of the GNMA Fund and High Yield Bond Fund are no longer being offered for sale. Each class of shares bears the same voting, dividend, liquidation and other rights and conditions and each (other than Class I, Class X and Class Z) makes distribution and account maintenance and service fee payments under a distribution plan pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act") except that Class B and Class C shares are subject to higher distribution fee rates. INDEMNIFICATIONS: Under the Funds' organizational documents, its officers and trustees are indemnified against certain liability arising out of the performance of their duties to the Funds. In addition, in the normal course of business the Funds enter into contracts that contain a variety of representations and warranties which provide general indemnifications. The Funds' maximum exposure under these arrangements are unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds expect the risk of loss to be remote. Note 2. Significant Accounting Policies The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates. The following is a summary of the significant accounting policies followed by the Funds in the preparation of their financial statements: SECURITY VALUATIONS: Stocks are generally valued based upon closing sales prices reported on recognized securities exchanges. Securities listed on the NASDAQ exchange are valued using the NASDAQ Official Closing Price ("NOCP"). Generally, the NOCP will be the last sale price unless the reported trade for the securities is outside the range of the bid/ask price. In such cases, the NOCP will be normalized to the nearer of the bid or ask price. For listed securities having no sales reported and for unlisted securities, such securities will be valued based upon the last reported bid price. Nonconvertible bonds, debentures, other long-term debt securities, and short-term securities with original or remaining maturities in excess of 60 days are valued at prices obtained for the day of valuation from a bond pricing service of a major dealer in bonds when such prices are available; however, in circumstances where the investment adviser deems it appropriate to do so, an over-the-counter or exchange quotation at the mean of representative bid or asked prices may be used. As of the close of regular trading on the New York Stock Exchange, securities traded primarily on securities exchanges outside the United States are valued at the last sale price on such exchanges on the day of valuation, or if there is no sale on the day of valuation, at the last-reported bid price. However, depending on the foreign market, closing prices may be up to 15 hours old when they are used to price the Fund's shares, and the Fund may determine that certain closing prices are unreliable. This determination will be based on review of a number of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. If the Fund determines that closing prices do not reflect the fair value of the securities, the Fund will adjust the previous closing prices in accordance with pricing procedures approved by the Board to reflect what it believes to be the fair value of the securities as of the close of regular trading on the New York Stock Exchange. A Fund may also fair value securities in other situations, for example, when a particular foreign market is closed but the Fund is open. Short-term securities with 60 days or less to maturity are amortized to maturity based on their cost to the Trust if acquired within 60 days of maturity or, if already held by the Trust on the 60th day, are amortized to maturity based on the value determined on the 61st day. Securities for which quotations are not readily available or if a development/event occurs that may significantly impact the value of the securities, then these securities may be fair valued as determined pursuant to procedures adopted in good faith under the direction of the Trust's Trustees. 53 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2004 -- (continued) Repurchase Agreements: Pursuant to exemptive relief granted by the Securities and Exchange Commission, the Funds are permitted to participate in joint repurchase agreement transactions with other affiliated investment companies. The Funds, along with other affiliated registered investment companies, transfer uninvested cash balances into a single joint account, the daily aggregate balance of which is invested in one or more repurchase agreements collateralized by U.S. Treasury or federal agency obligations. The Funds' custodian takes possession of the collateral pledged for investments in repurchase agreements. The underlying collateral is valued daily on a mark to market basis to ensure that the value, including accrued interest, is at least equal to the repurchase price. In the event of default of the obligation to repurchase, a Fund has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited. As of March 31, 2004, the U.S. Government Securities Fund, GNMA Fund, Strategic Bond Fund and High Yield Bond Fund have a 1.4%, 1.1%, 0.5% and 0.0% undivided interest, respectively, which represented $986,000, $767,000, $365,000 and $25,000, respectively, in principal amount in a joint repurchase agreement with State Street Bank & Trust Co. As of such date, the repurchase agreement in the joint account and collateral therefore were as follows: State Street Bank & Trust Co. Repurchase Agreement 0.92% dated 3/31/04, in the principal amount of $72,011,000, repurchase price $72,012,840 due 4/01/04, collateralized by the following:
Type of Collateral Interest Rate Maturity Date Principal Amount Market Value ------------------ ------------- ------------- ---------------- ------------ U.S. Treasury Bills 0.93% 5/06/2004 $20,430,000 $20,404,463 U.S. Treasury Bills 0.86 6/10/2004 12,280,000 12,255,440 U.S. Treasury Notes 4.63 5/15/2006 18,920,000 20,405,239 U.S. Treasury Notes 6.88 5/15/2006 17,995,000 20,403,523
As of March 31, 2004, the U.S. Government Securities Fund, GNMA Fund, Strategic Bond Fund and High Yield Bond Fund have a 5.3%, 46.0%, 2.0% and 4.0% undivided interest, respectively, which represented $8,000,000, $69,000,000, $3,000,000 and $6,000,000, respectively, in principal amount in a joint repurchase agreement with UBS Warburg, LLC. As of such date, the repurchase agreement in the joint account and collateral therefore were as follows: UBS Warburg, LLC, Repurchase Agreement 0.99% dated 3/31/04, in the principal amount of $150,000,000 repurchase price $150,004,125 due 4/01/04 collateralized by the following:
Type of Collateral Interest Rate Maturity Date Principal Amount Market Value ------------------ ------------- ------------- ---------------- ------------ U.S. Treasury Inflation Index Note 3.00% 7/15/2012 $130,075,000 $153,003,320
Securities Transactions, Investment Income, Dividends and Distributions to Shareholders: Securities transactions are recorded on a trade date basis. Realized gains and losses on sales of investments are calculated on the identified cost basis. Interest income, including adjustments for amortization of premiums and accretion of discounts, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except for certain dividends from foreign securities, which are recorded as soon as the Trust is informed after the ex-dividend date. For financial statement purposes, the Funds amortize all premiums and accrete all discounts on fixed income securities. Funds which earn foreign income and capital gains may be subject to foreign withholding taxes at various rates. Common expenses incurred by the Trust are allocated among the Funds based on relative net assets or other appropriate methods. In all other respects, expenses are charged to each Fund as incurred on a specific identification basis. Interest earned on cash balances held at the custodian are shown as custody credits on the Statement of Operations. Net investment income, other than class specific expenses, and realized and unrealized gains and losses are allocated daily to each class of shares based upon the relative net asset value of outstanding shares (or the value of dividend-eligible shares, as appropriate) of each class of shares at the beginning of the day (after adjusting for the current capital share activity of the respective class). 54 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2004 -- (continued) Dividends from net investment income are accrued daily and paid monthly. Capital gain distributions, if any, are paid annually. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts at fiscal year end based on their federal tax-basis treatment; temporary differences do not require reclassification. Net investment income/loss, net realized gain/loss and net assets are not affected. Each Fund intends to comply with the requirements of the Internal Revenue Code, as amended, applicable to regulated investment companies and to distribute all of their net income (taxable and tax exempt) to their shareholders. Therefore, no federal tax provision is required. Each Fund is considered a separate entity for tax purposes. Investment Securities Loaned: During the period ended March 31, 2004, U.S. Government Securities Fund and GNMA Fund participated in securities lending with qualified brokers. In lending portfolio securities to brokers the Funds receive cash as collateral against the loaned securities, which must be maintained at not less than 102% of the market value of the loaned securities during the period of the loan. The Funds may use the cash collateral received to invest in short-term investments which earn interest income or to cover bank overdrafts. Any interest earned from the investment of the collateral is recorded by the Funds net of the portion of interest that is rebated to the borrowing broker. If the amounts are used to cover bank overdrafts, the broker rebates incurred are reflected as interest expense on the Statement of Operations. During the year ended March 31, 2004, $3,117 and $1,225 of broker rebates were reclassified to interest expense for the U.S. Government and GNMA funds, respectively. As with other extensions of credit, should the borrower of the securities fail financially, the Funds may bear the risk of delay in recovery or may be subject to replacing the loaned securities by purchasing them with the cash collateral held, which may be less than 100% of the market value of such securities at the time of replacement. At March 31, 2004 there were no loaned securities outstanding in the U.S. Government Securities Fund or the GNMA Fund. FORWARD FOREIGN CURRENCY CONTRACTS: Certain Portfolios may enter into forward foreign currency contracts ("forward contracts") to attempt to protect securities and related receivables and payables against changes in future foreign exchange rates or to enhance return. A forward contract is an agreement between two parties to buy or sell currency at a set price on a future date. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked-to-market daily using the forward rate and the change in market value is recorded by the Portfolio as unrealized gain or loss. On the settlement date, the Portfolio records either realized gains or losses when the contract is closed equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Forward contracts involve elements of risk in excess of the amount reflected in the Statement of Assets and Liabilities. The Trust bears the risk of an unfavorable change in the foreign exchange rate underlying the forward contract. Foreign Currency Translation: The books and records of the Funds are maintained in U.S. dollars. Assets and liabilities denominated in foreign currencies and commitments under forward foreign currency contracts are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. The Fund does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of securities held at the end of the period. Similarly, the Fund does not isolate the effect of changes in foreign exchange rates from the changes in the market prices of portfolio securities sold during the year. Realized foreign exchange gains and losses on other assets and liabilities and change in unrealized foreign exchange gains and losses on other assets and liabilities include foreign exchange gains and losses from currency gains or losses realized between the trade and settlement dates of securities transactions, the difference between the amounts of interest, dividends and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent amounts actually received or paid and changes in the unrealized foreign exchange gains and losses relating to other assets and liabilities arising as a result of changes in the exchange rate. Short Sales: The High Yield Bond Fund ("Fund") may sell a security it does not own in anticipation of a decline in the market value of that security (short sales). To complete such a transaction, the Fund must borrow the security to make delivery to the buyer. The Fund then is obligated to replace the security borrowed by purchasing it at market price at the time of replacement. 55 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2004 -- (continued) The price at such time may be more or less than the price at which the security was sold by the Fund. Until the security is replaced, the Fund is required to pay to the lender any dividends or interest that accrue during the period of the loan. To borrow the security, the Fund also may be required to pay a premium, which would increase the cost of the security sold. The proceeds of the short sale will be retained by the broker, to the extent necessary to meet margin requirements, until the short position is closed out. Until the Fund replaces a borrowed security, the Fund will maintain daily a segregated account, containing cash or liquid securities, at such a level that (i) the amount deposited in the account plus the amount deposited with the broker as collateral will equal the current value of the security sold short and (ii) the amount deposited in the segregated account plus the amount deposited with the broker as collateral will not be less than the market value of the security at the time it was sold short. Liabilities for securities sold short are reported at market value in the financial statements. Such liabilities are subject to off balance sheet risk to the extent of any future increases in market value of the securities sold short. The ultimate liability for securities sold short could exceed the liabilities recorded in the Statement of Assets and Liabilities. The Fund bears the risk of potential inability of the broker to meet their obligation to perform. MORTGAGE-BACKED DOLLAR ROLLS: During the period ended March 31, 2004, the Core Bond Fund, U.S. Government Securities Fund and the GNMA Fund entered into dollar rolls using "to be announced" ("TBA") mortgage-backed securities ("TBA Rolls"). The Funds' policy is to record the components of TBA Rolls as purchase/sale transactions. Any difference between the purchase and sale price is recorded as a realized gain or loss on the date the transaction is entered into. The Core Bond Fund, U.S. Government Securities Fund and the GNMA Fund had TBA Rolls outstanding at period-end, which are included in receivable for investments sold and payable for investments purchased in the Statement of Assets and Liabilities. Dollar roll transactions involve the risk that the market value of the securities held by the Fund may decline below the price of the securities that the Fund has sold but is obligated to repurchase under the agreement. In the event that the buyer of securities in a dollar roll transaction files bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale of the securities may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. The return earned by the Fund with the proceeds of the dollar roll transaction may not exceed transaction costs. Note 3. Investment Advisory and Management Agreement, Distribution Agreement and Service Agreement The Trust, on behalf of each Fund, has an Investment Advisory and Management Agreement (the "Agreement") with SAAMCo. Under the Agreement, SAAMCo provides continuous supervision of a Fund's portfolio and administers its corporate affairs, subject to general review by the Trustees. In connection therewith, SAAMCo furnishes the Funds with office facilities, maintains certain of the Funds' books and records, and pays the salaries and expenses of all personnel, including officers of the Funds, who are employees of SAAMCo and its affiliates. The Funds pay SAAMCo a monthly investment advisory and management fee calculated daily at the following annual percentages of each Fund's average daily net assets:
Management Assets Fees --------------------------- ---------- Core Bond Fund................. $0 - $200 million 0.600% (greater than) $200 million 0.525 (greater than) $500 million 0.475 U.S. Government Securities Fund $0 - $200 million 0.650 (greater than) $200 million 0.620 (greater than) $400 million 0.550 GNMA Fund...................... $0 - $25 million 0.550 (greater than) $25 million 0.500 (greater than) $50 million 0.450 Strategic Bond Fund............ $0 - $350 million 0.650 (greater than) $350 million 0.600 High Yield Bond Fund........... $0 - $200 million 0.750 (greater than) $200 million 0.720 (greater than) $400 million 0.550 Tax Exempt Insured Fund........ $0 - $350 million 0.500 (greater than) $350 million 0.450
56 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2004 -- (continued) The Core Bond Fund, Strategic Bond Fund, High Yield Bond Fund and Tax Exempt Insured Fund are subadvised by AIG Global Investment Corp. ("AIGGIC") pursuant to a subadvisory agreement with SAAMCo. AIGGIC is an indirect wholly-owned subsidiary of AIG and an affiliate of SAAMCo. AIGGIC receives the following fees from SAAMCo., based upon each Fund's average daily net assets:
Sub-advisory Fees ----------------------------------------------- Core Bond Strategic Bond High Yield Tax Exempt Assets Fund Fund Bond Fund Insured Fund ------ --------- -------------- ---------- ------------ $0 - $200 million............ 0.25% 0.35% 0.45% 0.25% (greater than) $200 million 0.20 0.25 0.35 0.22 (greater than) $500 million 0.15 0.20 0.30 0.15
For the period ended March 31, 2004, expenses were reimbursed to the Funds as follows:
SAAMCO -------- Core Bond Class A...................... $ 68,026 Core Bond Class B...................... 10,294 Core Bond Class C...................... 7,508 Core Bond Class I...................... 36,239 Core Bond Class Z...................... 9,573 U.S. Government Securities Fund Class A 743,747 U.S. Government Securities Fund Class B 179,111 U.S. Government Securities Fund Class C 74,040 GNMA Fund Class A...................... 556,056 GNMA Fund Class B...................... 261,327 GNMA Fund Class C...................... 183,738 GNMA Fund Class I...................... 15,169 GNMA Fund Class X...................... 1,822 Strategic Bond Class A................. -- Strategic Bond Class B................. -- Strategic Bond Class C................. -- Strategic Bond Class I................. 3,530 High Yield Bond Class A................ -- High Yield Bond Class B................ -- High Yield Bond Class C................ 5,158 High Yield Bond Class I................ 16,634 High Yield Bond Class Z................ 3,346 Tax Exempt Insured Fund Class A........ -- Tax Exempt Insured Fund Class B........ -- Tax Exempt Insured Fund Class C........ 7,229
The Trust, on behalf of each Fund, has a Distribution Agreement with AIG SunAmerica Capital Services, Inc. ("SACS" or "Distributor"), an affiliate of the Adviser. Each Fund, has adopted a Distribution Plan (the "Plan") in accordance with the provisions of Rule 12b-1 under the 1940 Act. Rule 12b-1 under the 1940 Act permits an investment company directly or indirectly to pay expenses associated with the distribution of its shares ("distribution expenses") in accordance with a plan adopted by the investment company's board of trustees and approved by its shareholders. Pursuant to such rule, the Trustees and the shareholders of each class of shares of each Fund have adopted Distribution Plans, hereinafter referred to as the "Class A Plan," the "Class B Plan" and the "Class C Plan." In adopting the Class A Plan, the Class B Plan and the Class C Plan, the Trustees determined that there was a reasonable likelihood that each Plan would benefit the Trust and the shareholders of the respective class. The sales charge and distribution fees of a particular class will not be used to subsidize the sale of shares of any other class. Under the Class A Plan, Class B Plan and Class C Plan, the Distributor receives payments from the Funds at an annual rate of up to 0.10%, 0.75% and 0.75%, respectively, of average daily net assets of such Fund's Class A, Class B and Class C shares to compensate the Distributor and certain securities firms for providing sales and promotional activities for distributing that class of shares. The distribution costs for which the Distributor may be compensated for, include fees paid to broker-dealers that have 57 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2004 -- (continued) sold Fund shares, commissions, and other expenses such as those incurred for sales literature, prospectus printing and distribution and compensation to wholesalers. It is possible that in any given year the amount paid to the Distributor under the Class A Plan, Class B Plan or Class C Plan may exceed the Distributor's distribution costs as described above. The Distribution Plans provide that each class of shares of each Fund may also pay the Distributor an account maintenance and service fee at the annual rate of up to 0.25% of the aggregate average daily net assets of such class of shares for payments to broker-dealers for providing continuing account maintenance. Accordingly, for the period ended March 31, 2004, SACS received fees (see the Statement of Operations) based upon the aforementioned rates. In addition, AIG SunAmerica Capital Services, Inc. is paid a fee of 0.25% of average daily net assets of Class I shares in compensation for providing additional shareholder services to Class I shareholders. SACS receives sales charges on each Fund's Class A and Class C shares, portions of which are reallowed to affiliated broker-dealers and non-affiliated broker-dealers. Effective February 23, 2004, the front-end sales charge for Class C is no longer in effect. SACS also receives the proceeds of contingent deferred sales charges paid by investors in connection with certain redemptions of Class A, Class B and Class C shares. SACS has advised the Funds that for the period ended March 31, 2004, the proceeds received from Class A and Class C sales (and paid out to affiliated and non-affiliated broker-dealers) and Class A, Class B and Class C redemptions were as follows:
Class A Class B -------------------------------------- -------------- Contingent Sales Affiliated Non-affiliated Deferred Sales Charges Broker-dealers Broker-dealers Charges -------- -------------- -------------- -------------- U.S. Government Securities Fund $165,901 $ 68,506 $ 69,566 $233,981 GNMA Fund...................... 855,015 356,102 347,492 872,683 Strategic Bond Fund............ 189,271 62,924 92,087 99,531 High Yield Bond Fund........... 539,327 67,930 374,591 259,076 Core Bond Fund................. 31,698 11,227 14,623 22,958 Tax Exempt Insured Fund........ 80,343 26,696 38,693 35,277
Class C Class C -------------------------------------- -------------- Contingent Sales Affiliated Non-affiliated Deferred Sales Charges Broker-dealers Broker-dealers Charges -------- -------------- -------------- -------------- U.S. Government Securities Fund $ 33,440 $ 5,418 $ 28,022 $ 28,260 GNMA Fund...................... 206,354 69,937 136,417 211,226 Strategic Bond Fund............ 37,205 6,441 30,764 7,406 High Yield Bond Fund........... 189,184 12,820 176,364 47,022 Core Bond Fund................. 9,976 910 9,066 892 Tax Exempt Insured Fund........ 13,926 1,546 12,380 8,084
The Trust has entered into a Service Agreement with AIG SunAmerica Fund Services, Inc. ("SAFS"), an affiliate of the Adviser. Under the Service Agreement, SAFS performs certain shareholder account functions by assisting the Funds' transfer agent in connection with the services that it offers to the shareholders of the Funds. The Service Agreement permits the Funds to compensate SAFS for services rendered, based upon an annual rate of 0.22% of average daily net assets, which is approved annually by the Trustees. For the period ended March 31, 2004 the Funds incurred the following expenses which are included in transfer agent fees and expenses in the Statement of Operations to compensate SAFS pursuant to the terms of the Service Agreement: 58 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2004 -- (continued)
Payable at Expenses March 31, 2004 -------- -------------- Core Bond Fund Class A................. 151,400 $25,357 Core Bond Fund Class B................. 14,916 1,066 Core Bond Fund Class C................. 11,655 986 Core Bond Fund Class I................. 45,560 567 Core Bond Fund Class Z................. -- -- U.S. Government Securities Fund Class A 446,189 37,859 U.S. Government Securities Fund Class B 107,392 6,966 U.S. Government Securities Fund Class C 43,171 2,782 GNMA Fund Class A...................... 668,027 61,874 GNMA Fund Class B...................... 364,430 25,786 GNMA Fund Class C...................... 259,390 16,682 GNMA Fund Class I...................... 68 -- GNMA Fund Class X...................... 13,481 1,543 Strategic Bond Class A................. 88,089 8,110 Strategic Bond Class B................. 72,925 6,720 Strategic Bond Class C................. 38,989 4,031 Strategic Bond Class I................. 7,660 692 High Yield Bond Class A................ 193,804 17,282 High Yield Bond Class B................ 157,537 14,166 High Yield Bond Class C................ 98,783 9,887 High Yield Bond Class I................ 55 -- High Yield Bond Class Z................ -- -- Tax Exempt Insured Fund Class A........ 159,789 13,047 Tax Exempt Insured Fund Class B........ 39,772 3,159 Tax Exempt Insured Fund Class C........ 13,031 1,087
At March 31, 2004, AIGGIC, an indirect wholly owned subsidiary of AIG, owned 100% of the outstanding Class Z shares of Core Bond Fund and High Yield Bond Fund. The Variable Annuity Life Insurance Company ("VALIC"), an indirect wholly owned subsidiary of AIG, owned 85%, 100% and 17% of the outstanding shares of Core Bond Fund Class I, Strategic Bond Fund Class I and Tax Exempt Insured Class B, respectively. SAAMCo owned 37%, 7% and 6% of the outstanding shares of GNMA Fund Class A, U.S. Government Securities Fund Class A and High Yield Bond Fund Class A and 94% of the outstanding shares of Core Bond Class A. On November 20, 2003, AIGGIC, the subadvisor for the Tax Exempt Insured Fund purchased a security that caused the fund to exceed 25% of fund assets in issuers representing more than 5% of gross assets. Upon discovery of the investment restriction violation, AIGGIC sold the position at no gain or loss to the fund. On April 18, 2002, AIGGIC, the subadviser for the Strategic Bond Fund, reimbursed the Fund for $12,000 due to a violation of the investment restrictions prohibiting the Fund from investing in short sales. The $12,000 reimbursement increased the total return of each class of shares by less than 0.01%. Note 4. Purchases and Sales of Investment Securities The aggregate cost of purchases and proceeds from sales and maturities of long-term investments during the period ended March 31, 2004 were as follows:
U.S. Government High Tax Exempt Core Bond Securities GNMA Strategic Yield Bond Insured Fund Fund Fund Bond Fund Fund Fund ------------ --------------- -------------- ----------- ------------ ------------ Purchases (excluding U.S. government securities)........................ $326,661,517 $ -- $ -- $76,548,339 $402,394,255 $114,933,038 Sales (excluding U.S. government securities)........................ 318,898,335 -- -- 59,287,038 326,251,440 119,534,094 Purchases of U.S. government securities......................... 354,428,717 719,382,472 1,532,641,297 354,693 -- -- Sales of U.S. government securities. 394,947,303 688,236,987 1,236,920,981 1,700,781 -- --
59 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2004 -- (continued) Note 5. Federal Income Taxes The following details the tax basis of distributions as well as the components of distributable earnings. The tax basis components of distributable earnings differ from the amounts reflected in the Statement of Assets and Liabilities by temporary book/tax differences primarily arising from wash sales, post October losses, Fund mergers, treatment of defaulted securities and derivative transactions.
Tax Distributions Distributable Earnings For the year ended For the year ended March 31, 2004 March 31, 2004 -------------------------------------- --------------------------------- Long-term Unrealized Long-term Ordinary Gains/Capital Appreciation Ordinary Capital Income Loss Carryover (Depreciation) Income Gains Tax Exempt -------- -------------- -------------- ----------- ---------- ---------- Core Bond Fund................. $225,952 $ 2,408,211 $2,541,194 $ 9,138,662 $ -- $ -- U.S. Government Securities Fund 188,740 (9,473,697) 4,567,615 8,059,030 -- -- GNMA Fund...................... 195,646 (333,039) 7,809,721 21,435,452 2,290,943 -- Strategic Bond Fund............ 527,492 (36,270,706) 6,068,759 5,771,394 -- -- High Yield Bond Fund........... 290,774 (119,235,552) 7,471,117 23,821,470 -- -- Tax Exempt Insured Fund........ 644,786 516,899 4,908,813 4,169,977 1,421,597 2,499,752
Tax Distributions For the year ended March 31, 2003 ------------------------------------ Ordinary Long-term Income Capital Gains Tax Exempt ----------- ------------- ---------- Core Bond Fund................. $15,186,265 $ -- $ -- U.S. Government Securities Fund 11,170,917 -- -- GNMA Fund...................... 18,685,979 -- -- Strategic Bond Fund............ 4,507,318 -- -- High Yield Bond Fund........... 17,388,739 -- -- Tax Exempt Insured Fund........ 125,409 667,022 3,022,170
The amounts of aggregate unrealized gain (loss) and the cost of investment securities for federal tax purposes, including short-term securities and repurchase agreements, were as follows:
U.S. Core Government Tax Exempt Bond Securities GNMA Strategic High Yield Insured Fund Fund Fund Bond Fund Bond Fund Fund ------------ ------------ ------------ ----------- ------------ ----------- Cost......................................... $232,463,325 $260,274,244 $572,053,190 $93,196,791 $284,977,514 $95,513,245 ============ ============ ============ =========== ============ =========== Appreciation................................. 3,225,185 5,235,657 8,087,094 9,608,087 21,268,187 5,015,250 Depreciation................................. (683,991) (668,042) (277,373) (3,540,785) (13,800,943) (106,437) ------------ ------------ ------------ ----------- ------------ ----------- Unrealized appreciation (depreciation) -- net $ 2,541,194 $ 4,567,615 $ 7,809,721 $ 6,067,302 $ 7,467,244 $ 4,908,813 ============ ============ ============ =========== ============ ===========
At March 31, 2004, U.S. Government Securities Fund, GNMA Fund, Strategic Bond Fund and High Yield Bond Fund had capital loss carry forwards of $9,473,697, $333,039, $36,270,706 and $119,235,552, respectively, which were available to the extent provided in regulations and which will expire between 2005-2012. To the extent that these carryover losses are used to offset future capital gains, it is probable that the gains so offset will not be distributed. Included in the capital loss carryover amounts at March 31, 2004 are the amounts of losses acquired from the following acquired Funds as a result of the reorganizations of the North American Funds ("NA Funds") on November 7, 2001. North American U.S. Government Securities Fund $ 997,836 North American Strategic Income Fund.......... 9,347,515 North American High Yield Bond Fund........... 13,574,972 North American Municipal Bond Fund............ --
As of March 31, 2004, GNMA Fund had post October 31, 2003 capital loss deferrals of $50,562. The High Yield Bond Fund had post October 31, 2003 currency loss deferrals of $8,548. 60 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2004 -- (continued) Core Bond Fund, U.S. Government Securities Fund and Strategic Bond Fund and High Yield Bond Fund utilized capital loss carry forwards of $4,465,152, $1,647,446, $3,757,332 and $14,023,345, respectively, to offset the Fund's net taxable gains realized and recognized in the year ended March 31, 2004. As of March 31, 2004, Strategic Bond Fund had $14,474,804 of capital loss carry forwards that expired. As a result of reorganizations into some of these portfolios during the period ended March 31, 2002, certain capital loss carryforwards may be subject to limitations on use pursuant to applicable U.S. Federal Income Tax Law. Therefore, it is possible not all of these capital losses will be available for use. For the period ended March 31, 2004, the reclassification arising from book/tax differences primarily due to net paydown adjustments, expiration of capital loss carry forward amounts and treatment of foreign currency resulted in increases (decreases) to the components of net assets as follows:
Accumulated Accumulated Undistributed Undistributed Net Realized Net Investment Paid in Gain/(Loss) Income/(Loss) Capital ------------- -------------- ------------ Core Bond Fund................. $ (706,891) $ 697,646 $ 9,245 U.S. Government Securities Fund (776,385) 776,385 -- GNMA Fund...................... (1,481,548) 1,481,544 4 Strategic Bond Fund............ 13,839,737 1,000,855 (14,840,592) High Yield Bond Fund........... (388,215) 388,215 -- Tax Exempt Insured Fund........ 217,080 (217,080) --
Note 6. Capital Share Transactions Transactions in capital shares of each class of each series were as follows:
Core Bond Fund ----------------------------------------------------------------------------------------------------------- Class A Class B -------------------------------------------------- ------------------------------------------------------- For the For the For the For the year ended year ended year ended year ended March 31, 2004 March 31, 2003 March 31, 2004 March 31, 2003 ------------------------- ---------------------- -------------------------- ------------------------- Shares Amount Shares Amount Shares Amount Shares Amount ---------- ------------ --------- ----------- ---------- ------------ ---------- ------------ Shares sold...... 12,157,837** $126,019,538** 1,911,203* $19,558,165* 230,410 $ 2,390,630 529,865 $ 5,366,262 Reinvested shares.... 166,183 1,724,538 28,114 286,234 9,326 96,502 14,634 147,929 Shares redeemed.. (954,192) (9,874,674) (420,056) (4,235,193) (396,722)** (4,094,764)** (173,661)* (1,758,943)* ---------- ------------ --------- ----------- ---------- ------------ ---------- ------------ Net increase (decrease) 11,369,828 $117,869,402 1,519,261 $15,609,206 (156,986) $ (1,607,632) 370,838 $ 3,755,248 ========== ============ ========= =========== ========== ============ ========== ============ Core Bond Fund ----------------------------------------------------------------------------------------------------------- Class C+ Class I -------------------------------------------------- ------------------------------------------------------- For the For the For the For the year ended year ended year ended year ended March 31, 2004 March 31, 2003 March 31, 2004 March 31, 2003 ------------------------- ---------------------- -------------------------- ------------------------- Shares Amount Shares Amount Shares Amount Shares Amount ---------- ------------ --------- ----------- ---------- ------------ ---------- ------------ Shares sold...... 311,782 $ 3,235,617 561,314 $ 5,690,211 794,446 $ 8,247,779 1,738,602 $ 17,572,086 Reinvested shares.... 8,152 84,453 12,948 131,275 48,795 505,629 94,315 954,643 Shares redeemed.. (352,835) (3,659,430) (415,830) (4,169,367) (2,544,683) (26,520,623) (2,046,585) (20,720,266) ---------- ------------ --------- ----------- ---------- ------------ ---------- ------------ Net increase (decrease) (32,901) $ (339,360) 158,432 $ 1,652,119 (1,701,442) $(17,767,215) (213,668) $ (2,193,537) ========== ============ ========= =========== ========== ============ ========== ============
+ Effective February 23, 2004, Class II shares were redesignated to Class C shares. * Includes automatic conversion of 22,026 shares of Class B shares in the amount of $222,847 to 21,961 shares of Class A shares in the amount of $222,847. ** Includes automatic conversion of 11,101 shares of Class B shares in the amount of $115,303 to 11,069 shares of Class A shares in the amount of $115,303. 61 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2004 -- (continued)
Core Bond Fund -------------------------------------------------------- Class Z -------------------------------------------------------- For the For the year ended year ended March 31, 2004 March 31, 2003 --------------------------- -------------------------- Shares Amount Shares Amount ----------- ------------- ----------- ------------- Shares sold...... -- $ -- -- $ -- Reinvested shares.... 638,407 6,619,027 1,430,838 14,476,065 Shares redeemed.. (19,744,617) (204,600,000) (5,717,731) (57,739,162) ----------- ------------- ----------- ------------- Net increase (decrease) (19,106,210) $(197,980,973) (4,286,893) $ (43,263,097) =========== ============= =========== ============= U.S. Government Securities Fund ----------------------------------------------------------------------------------------------------------------- Class A Class B -------------------------------------------------------- ------------------------------------------------------- For the For the For the For the year ended year ended year ended year ended March 31, 2004 March 31, 2003 March 31, 2004 March 31, 2003 --------------------------- -------------------------- -------------------------- ------------------------- Shares Amount Shares Amount Shares Amount Shares Amount ----------- ------------- ----------- ------------- ---------- ------------ ---------- ------------ Shares sold...... 8,249,574** $ 79,163,236** 16,172,319* $ 152,218,301* 604,504 $ 5,811,186 4,495,676 $ 42,228,815 Reinvested shares.... 485,614 4,631,195 667,786 6,191,337 95,405 911,700 157,230 1,481,363 Shares redeemed.. (9,407,755) (89,858,298) (16,276,413) (152,748,051) (3,402,329)** (32,359,944)** (2,574,910)* (24,236,111)* ----------- ------------- ----------- ------------- ---------- ------------ ---------- ------------ Net increase (decrease) (672,567) $ (6,063,867) 563,692 $ 5,661,587 (2,702,420) $(25,637,058) 2,077,996 $ 19,474,067 =========== ============= =========== ============= ========== ============ ========== ============ U.S. Government Securities Fund -------------------------------------------------------- Class C+ -------------------------------------------------------- For the For the year ended year ended March 31, 2004 March 31, 2003 --------------------------- -------------------------- Shares Amount Shares Amount ----------- ------------- ----------- ------------- Shares sold...... 769,814 $ 7,424,108 2,365,163 $ 22,258,658 Reinvested shares.... 40,198 383,624 61,152 576,229 Shares redeemed.. (1,765,228) (16,815,629) (1,288,558) (12,154,479) ----------- ------------- ----------- ------------- Net increase (decrease) (955,216) $ (9,007,897) 1,137,757 $ 10,680,408 =========== ============= =========== =============
+ Effective February 23, 2004, Class II shares were redesignated to Class C shares. * Includes automatic conversion of 534,577 shares of Class B shares in the amount of $4,991,021 to 534,765 shares of Class A shares in the amount of $4,991,021. ** Includes automatic conversion of 246,879 shares of Class B shares in the amount of $2,357,940 to 246,951 shares of Class A shares in the amount of $2,357,940. 62 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2003 -- (continued)
GNMA Fund ----------------------------------------------------------------------------------------------------------------- Class A Class B -------------------------------------------------------- ------------------------------------------------------- For the For the For the For the year ended year ended year ended year ended March 31, 2004 March 31, 2003 March 31, 2004 March 31, 2003 --------------------------- -------------------------- -------------------------- ------------------------- Shares Amount Shares Amount Shares Amount Shares Amount ----------- ------------- ----------- ------------- ---------- ------------ ---------- ------------ Shares sold. 20,547,588** $ 235,257,794** 20,986,110* $ 237,799,506* 2,951,236 $ 34,058,784 12,763,664 $145,111,925 Reinvested shares..... 1,035,426 11,718,293 667,003 7,573,715 377,158 4,280,751 385,948 4,393,569 Shares redeemed... (14,030,583) (159,555,489) (10,535,852) (119,630,103) (7,691,285)** (87,771,353)** (5,116,327)* (58,203,016)* ----------- ------------- ----------- ------------- ---------- ------------ ---------- ------------ Net increase (decrease). 7,552,431 $ 87,420,598 11,117,261 $ 125,743,118 (4,362,891) $(49,431,818) 8,033,285 $ 91,302,478 =========== ============= =========== ============= ========== ============ ========== ============ GNMA Fund ----------------------------------------------------------------------------------------------------------------- Class C+ Class I -------------------------------------------------------- ------------------------------------------------------- For the For the For the For the year ended year ended year ended year ended March 31, 2004 March 31, 2003 March 31, 2004 March 31, 2003 --------------------------- -------------------------- -------------------------- ------------------------- Shares Amount Shares Amount Shares Amount Shares Amount ----------- ------------- ----------- ------------- ---------- ------------ ---------- ------------ Shares sold. 3,729,057 $ 43,094,583 11,565,832 $ 131,890,842 (126) $ (1,423) -- $ -- Reinvested shares..... 274,348 3,116,823 245,826 2,806,505 78 877 170 1,919 Shares redeemed... (8,127,227) (92,785,359) (3,318,648) (37,928,650) (3,502) (39,640) (1,350) (14,552) ----------- ------------- ----------- ------------- ---------- ------------ ---------- ------------ Net increase (decrease). (4,123,822) $ (46,573,953) 8,493,010 $ 96,768,697 (3,550) $ (40,186) (1,180) $ (12,633) =========== ============= =========== ============= ========== ============ ========== ============ GNMA Fund -------------------------------------------------------- Class X -------------------------------------------------------- For the For the year ended year ended March 31, 2004 March 31, 2003 --------------------------- -------------------------- Shares Amount Shares Amount ----------- ------------- ----------- ------------- Shares sold. 407,941 $ 4,654,916 374,832 $ 4,250,363 Reinvested shares..... 26,729 302,771 8,750 100,073 Shares redeemed... (49,150) (558,441) (37,889) (437,031) ----------- ------------- ----------- ------------- Net increase (decrease). 385,520 $ 4,399,246 345,693 $ 3,913,405 =========== ============= =========== =============
+ Effective February 23, 2004, Class II shares were redesignated to Class C shares. * Includes automatic conversion of 195,681 shares of Class B shares in the amount of $2,233,137 to 196,215 shares of Class A shares in the amount of $2,233,137. ** Includes automatic conversion of 149,977 shares of Class B in the amount of $1,707,937 to 149,914 shares of Class A shares in the amount of $1,707,937. 63 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2004 -- (continued)
Strategic Bond Fund ------------------------------------------------------------------------------------------------------------- Class A Class B ---------------------------------------------------- ------------------------------------------------------- For the For the For the For the year ended year ended year ended year ended March 31, 2004 March 31, 2003 March 31, 2004 March 31, 2003 ------------------------- ------------------------ -------------------------- ------------------------- Shares Amount Shares Amount Shares Amount Shares Amount ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ Shares sold...... 4,819,218** $ 15,918,204** 5,749,864* $ 17,063,277* 4,759,644 $ 15,630,339 3,650,173 $ 10,909,683 Reinvested shares 467,498 1,542,884 442,757 1,316,774 333,984 1,103,198 261,564 777,454 Shares redeemed.. (4,479,867) (14,659,821) (5,933,899) (17,581,335) (3,552,293)** (11,726,594)** (3,827,323)* (11,336,035)* ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ Net increase (decrease)...... 806,849 $ 2,801,267 258,722 $ 798,716 1,541,335 $ 5,006,943 84,414 $ 351,102 ========== ============ ========== ============ ========== ============ ========== ============ Strategic Bond Fund ------------------------------------------------------------------------------------------------------------- Class C+ Class I ---------------------------------------------------- ------------------------------------------------------- For the For the For the For the year ended year ended year ended year ended March 31, 2004 March 31, 2003 March 31, 2004 March 31, 2003 ------------------------- ------------------------ -------------------------- ------------------------- Shares Amount Shares Amount Shares Amount Shares Amount ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ Shares sold...... 3,749,967 $ 12,469,971 2,361,199 $ 7,058,032 -- $ -- -- $ -- Reinvested shares 188,761 626,355 162,201 483,955 70,772 233,826 65,251 194,149 Shares redeemed.. (2,151,437) (7,085,839) (2,604,349) (7,748,759) -- -- -- -- ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------ Net increase (decrease)...... 1,787,291 $ 6,010,487 (80,949) $ (206,772) 70,772 $ 233,826 65,251 $ 194,149 ========== ============ ========== ============ ========== ============ ========== ============
+ Effective February 23, 2004, Class II shares were redesignated to Class C shares. * Includes automatic conversion of 860,996 shares of Class B shares in the amount of $2,545,720 to 860,854 shares of Class A shares in the amount of $2,545,720. ** Includes automatic conversion of 426,671 shares of Class B shares in the amount of $1,417,374 to 424,151 shares of Class A shares in the amount of $1,417,374. 64 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2004 -- (continued)
High Yield Bond Fund --------------------------------------------------------------------------------------------------------------- Class A Class B ------------------------------------------------------ ------------------------------------------------------- For the For the For the For the year ended year ended year ended year ended March 31, 2004 March 31, 2003 March 31, 2004 March 31, 2003 -------------------------- ------------------------- -------------------------- ------------------------- Shares Amount Shares Amount Shares Amount Shares Amount ----------- ------------ ----------- ------------ ---------- ------------ ---------- ------------ Shares sold...... 24,186,781** $ 97,119,896** 15,410,944* $ 54,586,537* 8,482,068 $ 34,228,906 5,717,346 $ 20,569,651 Reinvested shares.... 1,176,656 4,828,068 783,484 2,876,224 657,839 2,698,352 600,801 2,209,929 Shares redeemed.. (21,361,447) (86,944,156) (12,321,331) (45,700,839) (7,449,571)** (30,359,369)** (6,957,270)* (25,671,684)* ----------- ------------ ----------- ------------ ---------- ------------ ---------- ------------ Net increase (decrease) 4,001,990 $ 15,003,808 3,873,097 $ 11,761,922 1,690,336 $ 6,567,889 (639,123) $ (2,892,104) =========== ============ =========== ============ ========== ============ ========== ============ High Yield Bond Fund --------------------------------------------------------------------------------------------------------------- Class C+ Class I ------------------------------------------------------ ------------------------------------------------------- For the For the For the For the year ended year ended year ended year ended March 31, 2004 March 31, 2003 March 31, 2004 March 31, 2003 -------------------------- ------------------------- -------------------------- ------------------------- Shares Amount Shares Amount Shares Amount Shares Amount ----------- ------------ ----------- ------------ ---------- ------------ ---------- ------------ Shares sold...... 10,265,844 $ 41,606,962 5,002,813 $ 18,337,823 50,125 $ 199,923 -- $ -- Reinvested shares.... 460,883 1,902,362 263,054 965,355 227 905 361 1,319 Shares redeemed.. (5,858,398) (23,969,331) (2,686,939) (9,901,331) (54,097) (219,345) -- -- ----------- ------------ ----------- ------------ ---------- ------------ ---------- ------------ Net increase (decrease) 4,868,329 $ 19,539,993 2,578,928 $ 9,401,847 (3,745) $ (18,517) 361 $ 1,319 =========== ============ =========== ============ ========== ============ ========== ============ High Yield Bond Fund ------------------------------------------------------ Class Z ------------------------------------------------------ For the For the year ended year ended March 31, 2004 March 31, 2003 -------------------------- ------------------------- Shares Amount Shares Amount ----------- ------------ ----------- ------------ Shares sold...... -- $ -- 8 $ 30 Reinvested shares.... 1,634,144 6,692,758 1,700,227 6,221,007 Shares redeemed.. -- -- -- -- ----------- ------------ ----------- ------------ Net increase (decrease) 1,634,144 $ 6,692,758 1,700,235 $ 6,221,037 =========== ============ =========== ============
+ Effective February 23, 2004, Class II shares were redesignated to Class C shares. * Includes automatic conversion of 483,813 shares of Class B shares in the amount of $1,813,086 to 484,737 of shares of Class A shares in the amount of $1,813,086. ** Includes automatic conversion of 702,453 shares of Class B shares in the amount of $2,892,417 to 704,002 shares of Class A shares in the amount of $2,892,417. 65 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2004 -- (continued)
Tax Exempt Insured Fund ------------------------------------------------------------------------------------------------------- Class A Class B ---------------------------------------------------- ------------------------------------------------- For the For the For the For the year ended year ended year ended year ended March 31, 2004 March 31, 2003 March 31, 2004 March 31, 2003 ------------------------- ------------------------ ----------------------- ---------------------- Shares Amount Shares Amount Shares Amount Shares Amount ---------- ------------ ---------- ------------ -------- ----------- -------- ----------- Shares sold............ 682,967** $ 9,118,210** 1,796,170* $ 23,825,662* 114,501 $ 1,538,768 453,361 $ 6,022,337 Reinvested shares...... 223,173 2,932,244 145,158 1,916,793 43,442 569,970 27,036 357,478 Shares redeemed........ (1,529,607) (20,408,255) (1,969,797) (26,214,114) (321,289)** (4,281,374)** (475,903)* (6,259,772)* ---------- ------------ ---------- ------------ -------- ----------- -------- ----------- Net increase (decrease) (623,467) $ (8,357,801) (28,469) $ (471,659) (163,346) $(2,172,636) 4,494 $ 120,043 ========== ============ ========== ============ ======== =========== ======== =========== Tax Exempt Insured Fund ---------------------------------------------------- Class C+ ---------------------------------------------------- For the For the year ended year ended March 31, 2004 March 31, 2003 ------------------------- ------------------------ Shares Amount Shares Amount ---------- ------------ ---------- ------------ Shares sold............ 138,250 $ 1,836,415 345,981 $ 4,588,301 Reinvested shares...... 15,551 204,119 9,084 120,117 Shares redeemed........ (196,573) (2,629,076) (193,507) (2,561,636) ---------- ------------ ---------- ------------ Net increase (decrease) (42,772) $ (588,542) 161,558 $ 2,146,782 ========== ============ ========== ============
+ Effective February 23, 2004, Class II shares were redesignated to Class C shares. * Includes automatic conversion of 97,811 shares of Class B shares in the amount of $1,288,353 to 97,827 shares of Class A shares in the amount of $1,288,353. ** Includes automatic conversion of 85,689 shares of Class B shares in the amount of $1,140,500 to 85,710 shares of Class A shares in the amount of $1,140,500. Note 7. Commitments and Contingencies The SunAmerica Family of Mutual Funds has established $75 million committed and $50 million uncommitted lines of credit with State Street Bank and Trust Company, the Funds' custodian. Interest is currently payable at the Federal Funds rate plus 50 basis points on the committed line and State Street's discretionary bid rate on the uncommitted line of credit. There is also a commitment fee of 10 basis points per annum on the daily unused portion of the $75 million committed line of credit, which is included in interest expense of the Statement of Operations. Borrowings under the line of credit will commence when the Fund's cash shortfall exceeds $100,000. During the period ended March 31, 2004, the U.S. Government Securities Fund, GNMA Fund and High Yield Bond Fund had borrowings outstanding for 7, 4 and 40 days, respectively, under the line of credit and incurred $1,324, $83, and $10,687, respectively, in interest charges related to these borrowings. The U.S. Government Securities Fund, GNMA Fund, and High Yield Bond Fund's average amount of debt under the line of credit for the days utilized was $4,534,456, $484,668 and $6,232,103, respectively, at a weighted average interest rate of 1.51%, 1.55% and 1.57%, respectively. The Funds, pursuant to exemptive relief granted by the Securities and Exchange Commission are permitted to participate in an interfund lending program among investment companies advised by SAAMCo or an affiliate. The interfund lending program allows the participating Funds to borrow money from and loan money to each other for temporary or emergency purposes. An interfund loan will be made under this facility only if the participating Funds receive a more favorable interest rate than would otherwise be available from a typical bank for a comparable transaction. For the period ended March 31, 2004 none of the Funds participated in this program. 66 SunAmerica Income Funds NOTES TO FINANCIAL STATEMENTS -- March 31, 2004 -- (continued) Note 8. Trustees Retirement Plan The Trustees (and Directors) of the SunAmerica Income Funds have adopted the AIG SunAmerica Disinterested Trustees' and Directors' Retirement Plan (the "Retirement Plan") effective January 1, 1993 for the unaffiliated Trustees. The Retirement Plan provides generally that if an unaffiliated Trustee who has at least 10 years of consecutive service as a Disinterested Trustee of any of the SunAmerica mutual funds (an "Eligible Trustee") retires after reaching age 60 but before age 70, or who has at least 5 years of consecutive service after reaching age 65 but before age 70, or dies while a Trustee, such person will be eligible to receive a retirement or death benefit from each SunAmerica mutual fund with respect to which he or she is an Eligible Trustee. As of each birthday, prior to the 70th birthday, but in no event for a period greater than 10 years, each Eligible Trustee will be credited with an amount equal to 50% of his or her regular fees (excluding committee fees) for services as a Disinterested Trustee of each SunAmerica mutual fund for the calendar year in which such birthday occurs. In addition, an amount equal to 8.5% of any amounts credited under the preceding clause during prior years is added to each Eligible Trustee's Account until such Eligible Trustee reaches his or her 70th birthday. An Eligible Trustee may receive any benefits payable under the Retirement Plan, at his or her election, either in one lump sum or in up to fifteen annual installments. The following amounts of the Retirement Plan liability are included in the accrued expense on the Statement of Assets and Liabilities and the amount for the Retirement Plan expenses are included in the Trustees' fees on the Statement of Operations.
Retirement Retirement Retirement Plan Plan Plan Liability Expense Payments ---------- ---------- ---------- As of March 31, 2004 -------------------------------- Core Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $ 19,794 $12,360 $ 216 U.S. Government Securities Fund . . . . . . . . . . . . . . . . . . . . . ........... 112,134 11,678 2,721 GNMA Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,732 21,468 587 Strategic Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 26,580 3,159 618 High Yield Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 45,905 7,894 930 Tax Exempt Insured Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... 33,650 4,066 762
67 SunAmerica Income Funds REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Trustees and Shareholders of the SunAmerica Income Funds In our opinion, the accompanying statements of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the SunAmerica Core Bond Fund, SunAmerica U.S. Government Securities Fund, SunAmerica GNMA Fund, SunAmerica Strategic Bond Fund, SunAmerica High Yield Bond Fund and SunAmerica Tax Exempt Insured Fund (constituting the SunAmerica Income Funds, hereafter referred to as the "Funds") at March 31, 2004, the results of each of their operations for the year then ended, and the changes in each of their net assets and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States of America), which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP May 18, 2004 New York, New York 68 SunAmerica Income Funds TRUSTEE INFORMATION -- March 31, 2004 -- (unaudited) The following table contains basic information regarding the Trustees that oversee operations of the Funds and other investment companies within the Fund complex.
Number of Funds in Position Term of Fund Other Name, Held With Office and Complex Directorships Address and SunAmerica Length of Time Principal Occupations Overseen by Held by Date of Birth* Complex Served(4) During Past 5 Years Trustee(1) Trustee(2) -------------- ---------- -------------- ----------------------------- ----------- ---------------------------- Jeffrey S. Burum(5) Trustee 2004 - present Founder and CEO of 32 None DOB: February 27, 1963 National Housing Development Corp. S. James Coppersmith(5) Trustee 1986 - 2004 Retired. 41 Director of BJ's Wholesale DOB: February 21, 1933 Club, Inc.; Director, Boston Stock Exchange. Dr. Judith L. Craven Trustee 2001 - present Retired. 70 Director, A.G. Belo DOB: October 6, 1945 Corporation (1992 to present); Director, Sysco Corporation (1996 to present); Director, Luby's Inc. (1998 to present). William F. Devin Trustee 2001 - present Retired. 70 Member of the Board of DOB: December 30, 1938 Governors, Boston Stock Exchange (1985-Present). Samuel M. Eisenstat Chairman 1986 - present Attorney, solo practitioner. 42 Director, North European DOB: March 7, 1940 of the Oil Royalty Trust. Board Stephen J. Gutman Trustee 1986 - present Partner and Member of 42 None DOB: May 10, 1943 Managing Directors, Beau Brummell-Soho, LLC (licensing of menswear specialty retailing and other activities) (June 1988 to present).
69 SunAmerica Income Funds TRUSTEE INFORMATION -- March 31, 2004 -- (unaudited) (continued)
Number of Funds in Position Term of Fund Other Name, Held With Office and Complex Directorships Address and SunAmerica Length of Time Principal Occupations Overseen by Held by Date of Birth* Complex Served(4) During Past 5 Years Trustee(1) Trustee(2) -------------- ---------- -------------- ---------------------------- ----------- ---------------------- PeterA. Harbeck(3) Trustee 1995 - present President, CEO and Director, 79 None DOB: January 23, 1954 AIG SunAmerica Asset Management Corp. ("SAAMCo") (August 1995 to present); Director, AIG SunAmerica Capital Services, Inc. ("SACS") (August 1993 to present). Sebastiano Sterpa(5) Trustee 1993 - 2004 Founder and Chairman of the 32 Director, Real Estate DOB: July 18, 1929 Board of the Sterpa Group Business Service and (real estate investment and Countrywide Financial. management) (1962 to present).
-------- * The business address for each Trustee is the Harborside Financial Center, 3200 Plaza 5, Jersey City, NJ 07311-4992. (1) The "Fund Complex" consists of all registered investment company portfolios for which SAAMCo serves as investment adviser or business manager. The "Fund Complex" includes the SunAmerica Money Market Funds (2 funds), SunAmerica Equity Funds (9 funds), SunAmerica Income Funds (6 funds), SunAmerica Focused Series, Inc. (15 portfolios), Anchor Series Trust (9 portfolios), SunAmerica Senior Floating Rate Fund, Inc. (1 fund), SunAmerica Series Trust (32 portfolios), VALIC Company I (22 portfolios), VALIC Company II (15 funds), and Seasons Series Trust (19 portfolios). (2) Directorships of companies required to report to the Securities and Exchange Commission under the Securities Exchange Act of 1934 (i.e. "public companies") or other investment companies registered under the Investment Company Act of 1940. (3) Interested trustee, as defined within the Investment Company Act of 1940. (4) Trustees serve until their successors are duly elected and qualified, subject to the Trustee's retirement plan discussed in Note 8 of the financial statements. (5) Effective on February 23, 2004, S. James Coppersmith and Sebastian Sterpa retired as Trustees and Jeffrey S. Burum began serving as Trustee. Additional information concerning the Trustees is contained in the Statement of Additional Information and is available without charge by calling (800) 858-8850. 70 SunAmerica Income Funds SPECIAL MEETING OF SHAREHOLDERS -- Proxy Voting Results -- March 31, 2004 (unaudited) A Special Meeting of the Shareholders of SunAmerica Income Funds was held on January 30, 2004. The Funds voted in favor the following proposal. 1. To elect as Directors/Trustees the following nominees:
Jeffery S. Burum Dr. Judith L. Cravin William F. Devin Samuel M. Eisenstat ----------------- -------------------- ---------------- ------------------- Votes Affirmative 175,372,150 175,329,688 175,395,834 175,352,242 Votes Withhold... 1,509,288 1,551,750 1,485,604 1,529,196 Stephen J. Gutman Peter A. Harbeck William J. Shea* ----------------- -------------------- ---------------- Votes Affirmative 175,371,883 175,383,962 175,350,888 Votes Withhold... 1,509,555 1,497,476 1,530,550
* Mr Shea never assumed his position on the Board of Trustees'. 71 SunAmerica Income Funds SHAREHOLDER TAX INFORMATION -- March 31, 2004 -- (unaudited) Certain tax information regarding the SunAmerica Income Funds is required to be provided to shareholders based upon each Fund's income and distributions for the taxable periods ended March 31, 2004. The information and distributions reported herein may differ from the information and distributions taxable to the shareholders for the calendar year ending December 31, 2004. The information necessary to complete your income tax returns will be included with your Form 1099-DIV to be received under separate cover in January 2005. During the year ended March 31, 2004 the Funds paid the following dividends per share along with the percentage of ordinary income dividends that qualified for the 70% dividends received deductions for corporations.
Net Net Net Long- Qualifying % for the Total Investment Short-Term Term 70% Dividends Dividends Income Capital Gains Capital Gains Received Deduction --------- ---------- ------------- ------------- -------------------- Core Bond Class A...................... 0.27 0.27 -- -- -- % Core Bond Class B...................... 0.19 0.19 -- -- -- Core Bond Class C...................... 0.19 0.19 -- -- -- Core Bond Class I...................... 0.27 0.27 -- -- -- Core Bond Class Z...................... 0.33 0.33 -- -- -- U.S. Government Securities Fund Class A 0.30 0.30 -- -- -- U.S. Government Securities Fund Class B 0.24 0.24 -- -- -- U.S. Government Securities Fund Class C 0.24 0.24 -- -- -- GNMA Fund Class A...................... 0.51 0.31 0.15 0.05 -- GNMA Fund Class B...................... 0.43 0.23 0.15 0.05 -- GNMA Fund Class C...................... 0.43 0.23 0.15 0.05 -- GNMA Fund Class I...................... 0.42 0.22 0.15 0.05 -- GNMA Fund Class X...................... 0.54 0.34 0.15 0.05 -- Strategic Bond Fund Class A............ 0.21 0.21 -- -- 0.86 Strategic Bond Fund Class B............ 0.19 0.19 -- -- 0.86 Strategic Bond Fund Class C............ 0.20 0.20 -- -- 0.86 Strategic Bond Fund Class I............ 0.22 0.22 -- -- 0.86 High Yield Bond Fund Class A........... 0.36 0.36 -- -- 0.96 High Yield Bond Fund Class B........... 0.33 0.33 -- -- 0.96 High Yield Bond Fund Class C........... 0.33 0.33 -- -- 0.96 High Yield Bond Fund Class I........... 0.27 0.27 -- -- 0.96 High Yield Bond Fund Class Z........... 0.38 0.38 -- -- 0.96 Tax Exempt Insured Class A*............ 0.81 0.37 0.24 0.20 -- Tax Exempt Insured Class B*............ 0.71 0.27 0.24 0.20 -- Tax Exempt Insured Class C*............ 0.72 0.28 0.24 0.20 --
-------- * Tax exempt interest dividends For the year ended March 31, 2004, certain dividends paid by the Strategic Bond Fund and High Yield Bond Fund may be subject to a maximum tax rate of 15%, as provided by the Jobs and Growth Tax Relief Reconciliation Act of 2003. Of the distributions paid during the fiscal year, the following represents the maximum percentage that may be considered qualified dividend income:
Qualified Dividend Portfolio Income Percentage --------- ------------------ Strategic Bond Fund. 0.72% High Yield Bond Fund 0.85%
72 SunAmerica Income Funds COMPARISONS: PORTFOLIOS vs. INDEXES As required by the Securities and Exchange Commission, the following graphs compare the performance of a $10,000 investment in the SunAmerica Income Funds' portfolios to a similar investment in an index. Please note that "inception" as used herein reflects the date on which a specific class of shares commenced operations. It is important to note that the SunAmerica Income Funds are professionally managed mutual funds while the indices are not available for investment and are unmanaged. The comparison is shown for illustrative purposes only. The graphs present the performance of the class of that particular Fund which has been in existence the longest. The performance of the other classes will vary based upon the difference in sales charges and fees assessed to shareholders of that class. 73 SunAmerica Income Funds COMPARISONS: PORTFOLIOS vs. INDEXES -- (continued) Core Bond Fund For the annual period ended March 31, 2004, the SunAmerica Core Bond Fund Class A returned 4.30% at NAV. The Fund's peer group, the Lipper Corporate Debt Funds A Rated Category, returned 6.11% during the same time frame. The Fund's benchmark, the Lehman Brothers U.S. Aggregate Bond Index returned 5.41% for the twelve-month period. The corporate credit sector was the primary driver of the fund's performance. The Fund entered the period overweight in this asset class and benefited from the sector's positive momentum. In contrast, the fund's performance suffered as a result of being overweight in the Agency sector at inopportune times. An overweight position in U.S. Agencies detracted from performance over the June/July time frame, as this sector was especially hurt by the dramatic technical sell-off in the U.S. Treasury market. Positions in collateralized mortgage-backed securities and asset-backed securities performed well in the first quarter of 2004. In the government sector the portfolio was structured to best take advantage of an anticipated flattening of the yield curve. This failed to materialize as quickly as anticipated and a slightly long position in duration during the June/July period contributed to the fund's performance drag. A dramatic sell-off in the fixed income last summer led to underperformance in the Agency and mortgage-backed securities markets. The Fund benefited from being overweight in the Telecom, Cable and Utilities sectors, all of which outperformed. To boost yield, the Fund purchased generally higher yielding Treasury securities. In the Agency sector, short maturity, and one-time call bonds were purchased which offered good yield enhancement. The Fund also garnered additional yield by purchasing Freddie Mac and Fannie Mae subordinated notes. [CHART] Lehman Brothers Core Bond Fund Class A/#/ U.S. Aggregate Bond Index ------------------------ -------------------- 3/94 $ 9,524 $10,000 3/95 9,882 10,500 3/96 10,932 11,631 3/97 11,346 12,202 3/98 12,747 13,666 3/99 13,335 14,551 3/00 13,404 14,825 3/01 14,589 16,681 3/02 15,035 17,572 3/03 16,475 19,626 3/04 17,183 20,687
Class A Class B Class C Class I Class Z ------------------ ------------------ ------------------ ------------------ ------------------ SEC SEC SEC SEC SEC Core Average Average Average Average Average Bond Annual Cumulative Annual Cumulative Annual Cumulative Annual Cumulative Annual Cumulative Fund Return Return+ Return Return+ Return Return+ Return Return+ Return Return+ ---------------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- 1 Year Return -0.61% 4.30% -0.32% 3.68% 2.68% 3.68% 4.35% 4.35% 4.92% 4.92% --------------------------------------------------------------------------------------------------------------- 5 Year Return 4.18% 28.86% 4.17% 24.68% 4.51% 24.68% N/A N/A N/A N/A --------------------------------------------------------------------------------------------------------------- 10 Year Return 5.56% 80.41% N/A N/A N/A N/A N/A N/A N/A N/A --------------------------------------------------------------------------------------------------------------- Since Inception* 6.20% 128.29% 5.55% 71.58% 5.43% 69.73% 6.81% 27.78% 7.28% 29.90% ---------------------------------------------------------------------------------------------------------------
+ Cumulative returns do not include sales load. If sales load had been included, the return would be lower. * Inception Date - Class A: 5/1/91; Class B: 4/1/94; Class C: 4/1/94; Class I: 7/10/00; Class Z: 7/10/00 # For the purposes of the graph and the accompanying table, it has been assumed that the maximum sales charge, of 4.75% of offering price, was deducted from the initial $10,000 investment in the Fund. For the 12 month period ending March 31, 2004, the SunAmerica Core Bond Class A returned -0.61%, compared to 5.41% for the Lehman Brothers Aggregate Bond Index. (The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.) -------- Performance data quoted represents past performance and is no guarantee of future results. Maximum Sales Charge: Class A: 4.75%, Class B: 4.00% Contingent Deferred Sales Charge (CDSC), Class C: 1.00% CDSC. The fund's daily net asset values are not guaranteed and shares are not insured by the FDIC, the Federal Reserve Board or any other agency. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be higher or lower than the original cost. Current performance may be higher or lower than that shown. Performance as of the most recent month end is available at www.sunamericafunds.com. 74 SunAmerica Income Funds COMPARISONS: PORTFOLIOS vs. INDEXES -- (continued) U.S. Government Securities Fund For the annual period ended March 31, 2004, the SunAmerica U.S. Government Securities Fund Class A and Class B returned 3.29% and 2.62% at NAV, respectively. The Fund's peer class, the Lipper General U.S. Government Funds Category, returned 2.96% in the same period. The Fund's benchmark, the Lehman Brothers Government Bond Index returned 4.24%. The past twelve months have witnessed one of the most volatile periods in the Government Securities markets in years. The 10-Year Treasury note rallied sharply in June as its yield hit levels not seen since the late 1950s. This was quickly reversed, however, over the summer as inflation worries sent the 10-year Treasury note into its largest one-month decline in 15 years. By the close of the third quarter, the 10-year note had recovered and yields trended steadily downward throughout the rest of the reporting period. The U.S. Government Securities Fund maintained an underweight position in U.S. Treasuries and an overweight position in GNMA Securities relative to its benchmark. While a longer duration posture caused the fund to underperform over the summer, the fund profited from the drop in yields when the market recovered. The Fund benefited by being overweight GNMAs as spreads narrowed from 120 to 100 basis points and from being longer in duration than the benchmark in the later part of the reporting period. For the year ended 3/31/04, the duration of the Fund was longer than the Fund's Lehman Brothers Government Bond Index benchmark. [CHART] U.S. Government Lehman Brothers Securities Fund Class B Government Bond Index ----------------------- ---------------- 3/94 $10,000 $10,000 3/95 10,329 10,431 3/96 11,245 11,523 3/97 11,618 12,018 3/98 12,640 13,478 3/99 13,177 14,378 3/00 13,207 14,737 3/01 14,833 16,555 3/02 15,235 17,207 3/03 17,388 19,514 3/04 17,960 20,342
Class A Class B Class C U.S. ---------------------- ---------------------- ---------------------- Government SEC Average SEC Average SEC Average Securities Annual Cumulative Annual Cumulative Annual Cumulative Fund Return Return+ Return Return+ Return Return+ ---------------- ----------- ---------- ----------- ---------- ----------- ---------- 1 Year Return -1.61% 3.29% -1.38% 2.62% 1.62% 2.62% ------------------------------------------------------------------------------------- 5 Year Return 5.79% 39.11% 5.82% 34.67% N/A N/A ------------------------------------------------------------------------------------- 10 Year Return 6.08% 89.43% 6.03% 79.60% N/A N/A ------------------------------------------------------------------------------------- Since Inception* 5.72% 88.14% 6.49% 211.39% 6.52% 35.70% -------------------------------------------------------------------------------------
+ Cumulative returns do not include sales load. If sales load had been included, the return would be lower. * Inception Date - Class A: 10/1/93; Class B: 3/3/86; Class C: 6/1/99. For the 12 month period ending March 31, 2004, the SunAmerica U.S. Government Securities Class B returned -1.38%, compared to 4.24% for the Lehman Brothers Government Bond Index. (The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.) -------- Performance data quoted represents past performance and is no guarantee of future results. Maximum Sales Charge: Class A: 4.75%, Class B: 4.00% Contingent Deferred Sales Charge (CDSC), Class C: 1.00% CDSC. The fund's daily net asset values are not guaranteed and shares are not insured by the FDIC, the Federal Reserve Board or any other agency. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be higher or lower than the original cost. Current performance may be higher or lower than that shown. Performance as of the most recent month end is available at www.sunamericafunds.com. 75 SunAmerica Income Funds COMPARISONS: PORTFOLIOS vs. INDEXES -- (continued) GNMA Fund For the annual period ended March 31, 2004, the SunAmerica GNMA Fund Class A and Class B returned 3.06% and 2.39% at NAV, respectively. The Fund's peer class, the Lipper GNMA Funds Category, returned 2.72% in the same period. The Fund's benchmark, the Citigroup Mortgage GNMA Index, returned 3.79%. The mortgage-backed securities markets were strongly impacted early in the reporting period by wide swings in the Treasury markets. The 10-year Treasury note rallied sharply in June on strong mortgage prepayment activity as more homeowners refinanced their loans. While the Fund's overweight position in low coupons cushioned it from significant underperformance during the rally, it hurt performance over the summer as the Treasury markets reversed course. However, by September, the markets had reversed once again. The fund recouped much of its losses and GNMA securities went on to outperform Treasuries throughout the remainder of the reporting period. The GNMA Fund remained long in duration through the summer, creating some performance setbacks as the Treasury and mortgage-backed securities markets whipsawed up and down. The Fund recouped losses, however, when yields dropped and spreads narrowed in the third quarter of 2003. Given the media focus on Freddie Mac and the Federal National Mortgage Association (Fannie Mae) and potential for credit downgrades, the fund benefited from a commitment to invest solely in securities with explicit guarantees by the Federal Government. [CHART] Citigroup Mortgage GNMA Fund Class B GNMA Index ----------------- ------------------ 3/94 $10,000 $10,000 3/95 10,381 10,619 3/96 11,433 11,773 3/97 11,983 12,476 3/98 13,354 13,832 3/99 14,118 14,701 3/00 14,337 15,135 3/01 16,124 16,941 3/02 16,760 18,055 3/03 18,693 19,576 3/04 19,141 20,317
Class A Class B Class C Class X ------------------ ------------------ ------------------ ------------------ SEC SEC SEC SEC Average Average Average Average GNMA Annual Cumulative Annual Cumulative Annual Cumulative Annual Cumulative Fund Return Return+ Return Return+ Return Return+ Return Return+ ---------------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- 1 Year Return -1.87% 3.06% -1.55% 2.39% 1.41% 2.39% 3.31% 3.31% -------------------------------------------------------------------------------------------- 5 Year Return 5.97% 40.25% 5.96% 35.58% N/A N/A N/A N/A -------------------------------------------------------------------------------------------- 10 Year Return 6.86% 103.75% 6.71% 91.41% N/A N/A N/A N/A -------------------------------------------------------------------------------------------- Since Inception* 6.42% 101.43% 7.99% 400.21% 6.73% 36.99% 7.64% 16.17% --------------------------------------------------------------------------------------------
+ Cumulative returns do not include sales load. If sales load had been included, the return would be lower. * Inception Date - Class A: 10/11/93; Class B: 4/25/83; Class C: 6/1/99; Class X: 3/19/02. For the 12 month period ending March 31, 2004, the SunAmerica GNMA Class B returned -1.55%, compared to 3.79% for the Citigroup Mortgage GNMA Index. (The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.) -------- Performance data quoted represents past performance and is no guarantee of future results. Maximum Sales Charge: Class A: 4.75%, Class B: 4.00% Contingent Deferred Sales Charge (CDSC), Class C: 1.00% CDSC. The fund's daily net asset values are not guaranteed and shares are not insured by the FDIC, the Federal Reserve Board or any other agency. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be higher or lower than the original cost. Current performance may be higher or lower than that shown. Performance as of the most recent month end is available at www.sunamericafunds.com. 76 SunAmerica Income Funds COMPARISONS: PORTFOLIOS vs. INDEXES -- (continued) Strategic Bond Fund For the annual period ended March 31, 2004, the SunAmerica Strategic Bond Fund Class A returned 18.04% at NAV. The Fund outperformed both its peer group, the Lipper Multi-Sector Income Funds Category, which returned 14.03%, and its benchmark, the Lehman Brothers U.S. Aggregate Bond Index, which returned 5.41% for the twelve-month period. The high yield bond rally that had begun in late 2002 continued, spurred by declining default rates and continuing balance sheet improvements. Investors were attracted to the sector's double-digit average yields in a historically low interest rate environment. At the same time, emerging market debt benefited as investors grew more confident that signs of strength in the United States and Asia will be enough to keep the world in a mode of positive economic growth. Both sectors enjoyed credit market improvements, but not enough to spur an interest rate hike from the Federal Reserve. The U.S. investment grade bond sector, however, experienced one of its most volatile periods in years. The bell weather 10-Year U.S. Treasury rallied sharply in June, only to turn around and sell-off dramatically in July and August. This hurt the performance of mortgage-backed securities, which suffered as extension risk haunted the market. Meanwhile the corporate debt market languished as investors sought higher returns elsewhere. As of March 31, 2004, the fund's assets were allocated in the following percentage ranges: 40% high yield bonds; 30% U.S. investment-grade bonds; 20% emerging market debt; and approximately a 10% investment in non-U.S. dollar bonds issued by large, developed countries. The Fund's positions in the high yield and emerging markets sectors drove its strong performance in the twelve-month period covered by this report and accounted for its significant outperformance of its benchmark, the Lehman Brothers U.S. Aggregate Bond Index. The Fund also benefited from its non-U.S. dollar allocation to Euro denominated government bonds. As the Euro appreciated versus the U.S. dollar, this segment turned in strong results. In addition, emerging market debt holdings in Brazil rallied as the country moved towards operating in a fiscally conservative manner. An underweight in high-grade corporate bonds buffered the fund from declining prices spurred by historically low interest rates. [CHART] Strategic Bond Lehman Brothers Fund Class A/#/ U.S. Aggregate Bond Index --------------- -------------------- 3/94 $ 9,529 $10,000 3/95 9,582 10,500 3/96 11,490 11,631 3/97 12,913 12,202 3/98 14,551 13,666 3/99 14,388 14,551 3/00 14,700 14,825 3/01 15,460 16,681 3/02 16,145 17,572 3/03 17,610 19,626 3/04 20,786 20,687
Class A Class B Class C Class I ------------------ ------------------ ------------------ ------------------ SEC SEC SEC SEC Average Average Average Average Strategic Annual Cumulative Annual Cumulative Annual Cumulative Annual Cumulative Bond Fund Return Return+ Return Return+ Return Return+ Return Return+ ------------------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- 1 Year Return 12.56% 18.04% 13.29% 17.29% 16.43% 17.43% 18.38% 18.38% ----------------------------------------------------------------------------------------------------------- 5 Year Return 6.58% 44.47% 6.57% 39.38% 7.02% 40.37% N/A N/A ----------------------------------------------------------------------------------------------------------- 10 Year Return 7.59% 118.13% N/A N/A N/A N/A N/A N/A ----------------------------------------------------------------------------------------------------------- Since Inception* 6.79% 108.08% 7.52% 106.52% 7.46% 105.36% 9.92% 42.22% -----------------------------------------------------------------------------------------------------------
+ Cumulative returns do not include sales load. If sales load had been included, the return would be lower. * Inception Date - Class A: 11/1/93; Class B: 4/1/94; Class C: 4/1/94; Class I: 7/10/00 # For the purposes of the graph and the accompanying table, it has been assumed that the maximum sales charge, of 4.75% of offering price, was deducted from the initial $10,000 investment in the Fund. For the 12 month period ending March 31, 2004, the SunAmerica Strategic Bond Class A returned 12.56%, compared to 5.41% for the Lehman Brothers U.S. Aggregate Bond Index. (The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.) -------- Performance data quoted represents past performance and is no guarantee of future results. Maximum Sales Charge: Class A: 4.75%, Class B: 4.00% Contingent Deferred Sales Charge (CDSC), Class C: 1.00% CDSC. The fund's daily net asset values are not guaranteed and shares are not insured by the FDIC, the Federal Reserve Board or any other agency. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be higher or lower than the original cost. Current performance may be higher or lower than that shown. Performance as of the most recent month end is available at www.sunamericafunds.com. 77 SunAmerica Income Funds COMPARISONS: PORTFOLIOS vs. INDEXES -- (continued) High Yield Bond Fund For the twelve-month period ended March 31, 2004, the SunAmerica High Yield Bond Fund Class A returned 26.05% at NAV. The Fund outperformed both its peer group, the Lipper High Current Yield Funds Category, which returned 19.71%, and its benchmark, the Citigroup High Yield Market Index, which returned 22.39% for the same period. In the last twelve months the high yield market provided very strong performance. The sector was buoyed by improvements in the economy, improvements in company balance sheets and a declining default rate. Yields remained very attractive relative to other asset classes and heightened demand for high yield bonds led to increased liquidity in the market. This contributes to a declining default rate as some companies that were at the margin primarily due to a debt profile that featured too much short-term debt were able to take advantage of the existing market to refinance short-term debt with longer-term bonds. The Fund benefited from security selection and overall market performance. Positions in Wireless, Healthcare and Media Cable drove Fund returns and accounted for the bulk of Fund's outperformance versus the benchmark. In the latter part of the reporting period, the Fund began to rotate out of Wireless positions that had become fully valued and took on new positions that were still trading at cheap levels. It added IWO Wireless and Rural Cellular, for example, and continued to benefit from an existing position in American Cellular. The fund also increased its weightings in Utilities, including Edison Mission, which rallied strongly in the first quarter of 2004. The performance in the Healthcare segment was heavily influenced by the resolution of securities fraud issues and accompanying rebound in Healthsouth. [CHART] High Yield Bond Citigroup Fund Class A/#/ High Yield Market Index --------------- ----------------------- 11/98 $ 9,524 $10,000 3/99 9,999 10,651 3/00 9,710 10,397 3/01 9,877 10,679 3/02 9,692 10,828 3/03 9,454 11,361 3/04 11,917 13,904
Class A Class B Class C Class Z ------------------ ------------------ ------------------ ------------------ SEC SEC SEC SEC Average Average Average Average High Yield Annual Cumulative Annual Cumulative Annual Cumulative Annual Cumulative Bond Fund Return Return+ Return Return+ Return Return+ Return Return+ ---------------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- 1 Year Return 20.14% 26.05% 21.55% 25.55% 24.14% 25.14% 26.83% 26.83% -------------------------------------------------------------------------------------------- 5 Year Return 2.56% 19.18% 2.59% 15.12% N/A N/A 4.08% 22.15% -------------------------------------------------------------------------------------------- 10 Year Return N/A N/A N/A N/A N/A N/A N/A N/A -------------------------------------------------------------------------------------------- Since Inception* 3.30% 25.12% 3.39% 20.53% 4.13% 15.72% 4.73% 28.42% --------------------------------------------------------------------------------------------
+ Cumulative returns do not include sales load. If sales load had been included, the return would be lower. * Inception Date - Class A: 11/1/98; Class B: 11/1/98; Class C: 8/21/00; Class Z: 11/1/98 # For the purposes of the graph and the accompanying table, it has been assumed that the maximum sales charge, of 4.75% of offering price, was deducted from the initial $10,000 investment in the Fund. For the 12 month period ending March 31, 2004, the SunAmerica High Yield Bond Class A returned 20.14%, compared to 22.39% for the Citigroup High Yield Market Index. (The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.) -------- Performance data quoted represents past performance and is no guarantee of future results. Maximum Sales Charge: Class A: 4.75%, Class B: 4.00% Contingent Deferred Sales Charge (CDSC), Class C: 1.00% CDSC. The fund's daily net asset values are not guaranteed and shares are not insured by the FDIC, the Federal Reserve Board or any other agency. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be higher or lower than the original cost. Current performance may be higher or lower than that shown. Performance as of the most recent month end is available at www.sunamericafunds.com. 78 SunAmerica Income Funds COMPARISONS: PORTFOLIOS vs. INDEXES -- (continued) Tax Exempt Insured Fund For the twelve months ended March 31, 2004, the SunAmerica Tax Exempt Insured Fund Class A returned 4.86% at NAV, outperforming its peer group, the Lipper Insured Municipal Debt Funds Category, which returned 4.75% in the same period. The Fund's benchmark, the Lehman Brothers Municipal Bond Index, returned 5.86% Over the reporting period the fund was positioned to take advantage of a flattening yield curve. While the yield curve has failed to flatten as quickly as anticipated, the fund benefited from being overweight the 8-12 year and 17-22 year maturity ranges. Both segments outperformed the Lehman Municipal Bond Index. In addition, the fund benefited from a combination of sector selections. The Fund continued to favor the high yields available in the hospital and transportation sectors. The Fund remained overweight in these sectors, and both sectors outperformed the Index. The Fund also continued to remain overweight essential revenue issues. This is at the expense of general obligation issues, which have weakened in the face of rising state deficits. Within the transportation sector, the Fund took advantages of price weakness in the market to purchase Pennsylvania Turnpike Commission Revenue 5.25% 12/1/23 and Triborough Bridge and Tunnel Authority Revenue, New York 5.25% 11/15/30 bonds. The Fund also added Franklin County, Ohio Hospital Revenue (OhioHealth Corp.) 5.25% 5/15/23 to its hospital holdings. This bond was purchased at new issue, and its price rose after the bonds were distributed. An additional purchase that has benefited the fund was New York City, New York General Obligation 5.0% 8/1/20. [CHART] Tax Exempt Lehman Brothers Insured Fund Class A/#/ Municipal Bond Index ----------------------- -------------------- 3/94 $ 9,522 $10,000 3/95 10,186 10,743 3/96 10,936 11,643 3/97 11,400 12,278 3/98 12,572 13,593 3/99 13,143 14,436 3/00 12,985 14,425 3/01 14,295 16,000 3/02 14,564 16,610 3/03 15,886 18,252 3/04 16,670 19,322
Class A Class B Class C ------------------ ------------------ ------------------ SEC SEC SEC Average Average Average Annual Cumulative Annual Cumulative Annual Cumulative Tax Exempt Insured Fund Return Return+ Return Return+ Return Return+ ----------------------- ------- ---------- ------- ---------- ------- ---------- 1 Year Return -0.16% 4.86% 0.15% 4.10% 3.14% 4.14% -------------------------------------------------------------------------------- 5 Year Return 3.86% 26.83% 3.78% 22.40% N/A N/A -------------------------------------------------------------------------------- 10 Year Return 5.24% 75.07% 5.19% 65.78% N/A N/A -------------------------------------------------------------------------------- Since Inception* 5.93% 202.02% 4.46% 57.98% 4.54% 23.92% --------------------------------------------------------------------------------
+ Cumulative returns do not include sales load. If sales load had been included, return would be lower. * Inception Date - Class A: 11/22/85; Class B: 10/4/93; Class C: 6/1/99. # For the purposes of the graph and the accompanying table, it has been assumed that the maximum sales charge, of 4.75% of offering price, was deducted from the initial $10,000 investment in the Fund. For the 12 month period ending March 31, 2004, SunAmerica Tax Exempt Insured Class A returned -0.16%, compared to 5.86% for the Lehman Brothers Municipal Bond Index. (The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.) -------- Performance data quoted represents past performance and is no guarantee of future results. Maximum Sales Charge: Class A: 4.75%, Class B: 4.00% Contingent Deferred Sales Charge (CDSC), Class C: 1.00% CDSC. The fund's daily net asset values are not guaranteed and shares are not insured by the FDIC, the Federal Reserve Board or any other agency. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be higher or lower than the original cost. Current performance may be higher or lower than that shown. Performance as of the most recent month end is available at www.sunamericafunds.com. 79 [LOGO] AIG Sun America Mutual Funds Harborside Financial Center 3200 Plaza 5 Jersey City, NJ 07311-4992 Directors/Trustees Investment Adviser This report is submitted Samuel M. Eisenstat solely for the general Peter A. Harbeck AIG SunAmerica Asset Management Corp. information of Dr. Judith L. Craven Harborside Financial shareholders of the Fund. William F. Devin Center Distribution of this Stephen J. Gutman 3200 Plaza 5 report to persons other Jeffrey S. Burum Jersey City, NJ than shareholders of 07311-4992 the Fund is authorized Officers only in connection with a Robert M. Zakem, Distributor currently effective President AIG SunAmerica Capital prospectus, setting forth Donna M. Handel, Services, Inc. details of the Fund, Treasurer Harborside Financial which must precede or Michael Cheah, Vice Center accompany this report. President 3200 Plaza 5 J. Steven Neamtz, Vice Jersey City, NJ VOTING PROXIES ON FUND President 07311-4992 PORTFOLIO SECURITIES. Abbe P. Stein, Vice A description of the President and Shareholder Servicing policies and procedures Assistant Secretary Agent that the Trust uses to Joseph P. Kelly, AIG SunAmerica Fund determine how to vote Secretary Services, Inc. proxies relating to Stacey V. Morrison, Harborside Financial securities held in the Assistant Secretary Center Fund's portfolio which is Gregory R. Kingston, 3200 Plaza 5 available in the Trust's Vice President and Jersey City, NJ Statement of Additional Assistant Treasurer 07311-4992 Information, may be Robert A. Chopyak, obtained without charge Assistant Treasurer Custodian and Transfer upon request, by calling Agent (800) 858-8850. This State Street Bank and information is also Trust Company available from the EDGAR P.O. Box 419572 database on the Kansas City, MO Securities and Exchange 64141-6572 Commission's Internet site at http://www.sec.gov.
Distributed by: AIG SunAmerica Capital Services, Inc. INANN-3/04 Item 2. Code of Ethics The SunAmerica Income Funds ("the Trust") has adopted a Code of Ethics applicable to its Principal Executive and Principal Accounting Officers pursuant to Section 406 of the Sarbanes-Oxley Act of 2002. Item 3. Audit Committee Financial Expert. Currently, the SunAmerica Income Funds does not have an Audit Committee member who possesses all of the attributes required to be an "audit committee financial expert" as defined in instruction 2(b) of Item 3 of Form N-CSR. However, the Board of Directors believes that each member of the Audit Committee has substantial experience relating to the review of financial statements and the operations of audit committees. Accordingly, the Board believes that the members are qualified to evaluate the Trust's financial statements, supervise the Trust's preparation of its financial statements, and oversee the work of the Trust's independent auditors. Item 4. Principal Accountant Fees and Services. (a)-(d) Aggregate fees billed to the Trust for the last two fiscal years for professional services rendered by the Trust's principal accountant were as follows: 2003 2004 Audit Fees $122,375 $152,460 Audit-Related Fees $ 62,400 $ 61,820 Tax Fees $ 56,599 $ 58,871 All Other Fees $ 0 $ 0 Audit Fees include amounts related to the audit of the Trust's annual financial statements and services normally provided by the principal accountant in connection with statutory and regulatory filings. Audit-Related Fees principally include a SAS No. 100 review of the Trust's Semiannual Shareholder Report. Tax Fees principally include tax compliance, tax advice, tax planning and preparation of tax returns. (e) (1) The Fund's audit committee pre-approves all audit services provided by the Fund's principal accountant for the Fund and all non-audit services provided by the Fund's principal accountant for the Fund, its investment adviser and any entity controlling, controlled by, or under common control with the investment adviser ("Adviser Affiliate") that provides ongoing services to the Fund, if the engagement by the investment adviser or Adviser Affiliate relates directly to the operations and financial reporting of the Fund. (2) No services included in (b)-(d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Not Applicable. (g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the Trust's principal accountant for non-audit services rendered to the Registrant, its investment adviser, and Adviser Affiliate that provides ongoing services to the Fund for 2004 and 2003 were $1,493,934 and $783,854, respectively. (h) Non-audit services rendered to the Registrant's investment adviser and any Adviser Affiliate that were not pre-approved pursuant to Paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X were considered by the Trust's audit committee as to whether they were compatible with maintaining the principal accountant's independence. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. Schedule of Investments. Not applicable. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Purchases of equity securities by Closed-End Management Investment Company and affiliated purchasers. Not applicable. Item 9. Submission of matters to a vote of security holders. Not applicable. Item 10. Controls and Procedures. (a) An evaluation was performed within 90 days of the filing of this report, under the supervision and with the participation of the registrant's management, including the President and Treasurer, of the effectiveness of the design and operation of the registrant's disclosure controls and procedures. Based on that evaluation, the registrant's management, including the President and Treasurer, concluded that the registrant's disclosure controls and procedures are effective. (b) There was no change in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act) that occurred during the Registrant's second fiscal half-year that has materially affected, or is reasonably likely to materially affect, the Registrant's internal contro1 over financial reporting. Item 11. Exhibits. (a) (1) Code of Ethics applicable to its Principal Executive and Principal Accounting Officers pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 attached hereto as Exhibit 99.406.Code of Ethics. (2) Certification pursuant to Rule 30a-2 under the Investment Company Act of 1940 (17 CFR 270.30a-2) attached hereto as Exhibit 99.CERT. (3) Not applicable. (b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto as Exhibit 99.906.CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SunAmerica Income Funds By: /s/ Robert M. Zakem ------------------- Robert M. Zakem President Date: June 9, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Robert M. Zakem ------------------- Robert M. Zakem President Date: June 9, 2004 By: /s/ Donna M. Handel ------------------- Donna M. Handel Treasurer Date: June 9, 2004