As filed with the Securities and Exchange Commission on October 3, 2001
Securities Act File No. 333-67840
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
[_] Post-Effective Amendment
[X] Pre-Effective Amendment No. 1 No.
(Check appropriate box or boxes)
----------------
SUNAMERICA INCOME FUNDS
(Exact Name of Registrant as Specified in its Charter)
----------------
1-800-858-8850
(Area Code and Telephone Number)
----------------
733 Third Avenue
Third Floor
New York, NY 10017
(Address of Principal Executive Offices:
Number, Street, City, State, Zip Code)
----------------
Robert M. Zakem, Esq.
c/o SunAmerica Asset Management Corp.
733 Third Avenue
Third Floor
New York, NY 10017
(Name and Address of Agent for Service)
----------------
Copies to:
Counsel for the Fund:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Attention: Joel H. Goldberg, Esq.
----------------
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
Title of Securities Being Registered: Shares of Beneficial Interest, Par
Value $.01 per share.
No filing fee is required because of reliance on Section 24(f) under the
Investment Company Act of 1940, as amended.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NORTH AMERICAN FUNDS
Core Bond Fund
High Yield Bond Fund
Municipal Bond Fund
Strategic Income Fund
U.S. Government Securities Fund
286 Congress Street
Boston, Massachusetts 02210
----------------
NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
----------------
TO BE HELD ON NOVEMBER 7, 2001
To our Shareholders:
Notice is Hereby Given that a joint special meeting of shareholders (the
"Meeting") of the Core Bond Fund (the "NAF Core Bond Fund"), High Yield Bond
Fund (the "NAF High Yield Bond Fund"), Municipal Bond Fund (the "NAF Municipal
Bond Fund"), Strategic Income Fund (the "NAF Strategic Income Fund") and U.S.
Government Securities Fund (the "NAF U.S. Government Securities Fund," and
together with the NAF Core Bond Fund, NAF High Yield Bond Fund, NAF Municipal
Bond Fund and NAF Strategic Income Fund, the "Acquired Funds") of North
American Funds will be held at the principal executive offices of the North
American Funds, 286 Congress Street, Boston, Massachusetts 02210 on November 7,
2001 at 10:00 a.m. Eastern Time, for the following purposes:
(1) (a) All Acquired Funds: to approve or disapprove a new investment
advisory agreement (the "New Investment Advisory Agreement") between
American General Asset Management Corp. ("AGAM") and North American Funds
on behalf of each of the Acquired Funds, the terms of which are the same in
all material respects as the previous investment advisory agreement with
AGAM;
(b) All Acquired Funds: to approve or disapprove a new subadvisory
agreement (the "New Subadvisory Agreement") between AGAM and American
General Investment Management, L.P. ("AGIM") or an affiliate thereof
(collectively, "New AGIM"), the terms of which are the same in all material
respects as the previous subadvisory agreement between AGAM and AGIM;
(2) (a) NAF Core Bond Fund: to approve or disapprove an Agreement and
Plan of Reorganization (the "Core Bond Funds Agreement and Plan") providing
for the acquisition of substantially all of the assets, and assumption of
substantially all of the liabilities, of the NAF Core Bond Fund by the
SunAmerica Core Bond Fund (the "SunAmerica Core Bond Fund" or an "Acquiring
Fund") of SunAmerica Income Funds, solely in exchange for an equal
aggregate value of newly issued shares of the SunAmerica Core Bond Fund, as
described in the accompanying proxy statement and prospectus. The
SunAmerica Core Bond Fund is a newly created series of SunAmerica Income
Funds, created for the purpose of receiving the assets from the NAF Core
Bond Fund. The Core Bond Funds Agreement and Plan also provides for
distribution of the shares of the SunAmerica Core Bond Fund to shareholders
of the NAF Core Bond Fund. A vote in favor of this proposal will constitute
a vote in favor of the termination of the NAF Core Bond Fund as a separate
investment portfolio of North American Funds;
(b) NAF High Yield Bond Fund: to approve or disapprove an Agreement and
Plan of Reorganization (the "High Yield Bond Funds Agreement and Plan")
providing for the acquisition of substantially all of the assets, and
assumption of substantially all of the liabilities, of the NAF High Yield
Bond Fund by the SunAmerica High Income Fund (which will be renamed the
SunAmerica High Yield Bond Fund) of SunAmerica Income Funds (the
"SunAmerica High Yield Bond Fund" or an "Acquiring Fund"), solely in
exchange for an equal aggregate value of newly issued shares of the
SunAmerica High Yield Bond Fund, as described in the accompanying proxy
statement and prospectus. The High Yield
Bond Funds Agreement and Plan also provides for distribution of the shares
of the SunAmerica High Yield Bond Fund to shareholders of the NAF High
Yield Bond Fund. A vote in favor of this proposal will constitute a vote in
favor of the termination of the NAF High Yield Bond Fund as a separate
investment portfolio of North American Funds;
(c) NAF Municipal Bond Fund: to approve or disapprove an Agreement and
Plan of Reorganization (the "Municipal Bond Funds Agreement and Plan")
providing for the acquisition of substantially all of the assets, and
assumption of substantially all of the liabilities, of the NAF Municipal
Bond Fund by the SunAmerica Tax Exempt Insured Fund of SunAmerica Income
Funds (the "SunAmerica Tax Exempt Insured Fund" or an "Acquiring Fund"),
solely in exchange for an equal aggregate value of newly issued shares of
the SunAmerica Tax Exempt Insured Fund, as described in the accompanying
proxy statement and prospectus. The Municipal Bond Funds Agreement and Plan
also provides for distribution of the shares of the SunAmerica Tax Exempt
Insured Fund to shareholders of the NAF Municipal Bond Fund. A vote in
favor of this proposal will constitute a vote in favor of the termination
of the NAF Municipal Bond Fund as a separate investment portfolio of North
American Funds;
(d) NAF Strategic Income Fund: to approve or disapprove an Agreement and
Plan of Reorganization (the "Strategic Income Funds Agreement and Plan")
providing for the acquisition of substantially all of the assets, and
assumption of substantially all of the liabilities, of the NAF Strategic
Income Fund by the SunAmerica Diversified Income Fund (which will be
renamed the SunAmerica Strategic Bond Fund) of SunAmerica Income Funds (the
"SunAmerica Strategic Bond Fund" or an "Acquiring Fund"), solely in
exchange for an equal aggregate value of newly issued shares of the
SunAmerica Strategic Bond Fund, as described in the accompanying proxy
statement and prospectus. The Strategic Income Funds Agreement and Plan
also provides for distribution of the shares of the SunAmerica Strategic
Bond Fund to shareholders of the NAF Strategic Income Fund. A vote in favor
of this proposal will constitute a vote in favor of the termination of the
NAF Strategic Income Fund as a separate investment portfolio of North
American Funds;
(e) NAF U.S. Government Securities Fund: to approve or disapprove an
Agreement and Plan of Reorganization (the "U.S. Government Securities Funds
Agreement and Plan") providing for the acquisition of substantially all of
the assets, and assumption of substantially all of the liabilities, of the
NAF U.S. Government Securities Fund by the SunAmerica U.S. Government
Securities Fund of SunAmerica Income Funds (the "SunAmerica U.S. Government
Securities Fund" or an "Acquiring Fund"), solely in exchange for an equal
aggregate value of newly issued shares of the SunAmerica U.S. Government
Securities Fund, as described in the accompanying proxy statement and
prospectus. The U.S. Government Securities Fund Agreement and Plan also
provides for distribution of the shares of the SunAmerica U.S. Government
Securities Fund to shareholders of the NAF U.S. Government Securities Fund.
A vote in favor of this proposal will constitute a vote in favor of the
termination of the NAF U.S. Government Securities Fund as a separate
investment portfolio of North American Funds; and
(3) To transact such other business as properly may come before the
Meeting or any adjournment thereof.
The Board of Trustees of North American Funds has fixed the close of
business on September 17, 2001 as the record date for the determination of
shareholders entitled to notice of, and to vote at, the Meeting or any
adjournment thereof.
A complete list of the shareholders of each of the Acquired Funds entitled
to vote at the Meeting will be available and open to the examination of any
shareholders of each Acquired Fund for any purpose germane to such Meeting
during ordinary business hours from and after October 24, 2001 at the offices
of North American Funds, 286 Congress Street, Boston, Massachusetts and at the
Meeting.
2
You are cordially invited to attend the Meeting. Shareholders who do not
expect to attend the Meeting in person are requested to complete, date and sign
the enclosed respective form of proxy and return it promptly in the postage-
paid envelope provided for that purpose. Alternatively, you may vote your
shares by calling a specially designated telephone number (toll free 1-888-221-
0697) or via the Internet at http://www.proxyweb.com. Each of the enclosed
proxies is being solicited on behalf of the Board of Trustees of North American
Funds.
The Board of Trustees of North American Funds unanimously recommends that
the shareholders of each Acquired Fund approve the New Investment Advisory
Agreement, the New Subadvisory Agreement and the respective Agreement and Plan
of Reorganization.
By Order of the Board of Trustees,
/s/ John I. Fitzgerald
Secretary, North American Funds
Boston, Massachusetts
Dated: October 1, 2001
3
COMBINED PROXY STATEMENT AND PROSPECTUS
SUNAMERICA INCOME FUNDS
NORTH AMERICAN FUNDS
---------------
JOINT SPECIAL MEETING OF SHAREHOLDERS OF
CORE BOND FUND
HIGH YIELD BOND FUND
MUNICIPAL BOND FUND
STRATEGIC INCOME FUND
AND
U.S. GOVERNMENT SECURITIES FUND
OF
NORTH AMERICAN FUNDS
---------------
NOVEMBER 7, 2001
This Proxy Statement and Prospectus is furnished to you because you are a
shareholder of one or more of the North American Funds referenced above. The
Funds are holding a Joint Special Meeting of Shareholders (the "Meeting") on
November 7, 2001 to consider the proposals described in this Proxy Statement
and Prospectus.
This Proxy Statement and Prospectus describes a proposal to approve or
disapprove (i) a new investment advisory agreement with American General Asset
Management Corp. ("AGAM") for your Fund, and (ii) a new subadvisory agreement
between AGAM and American General Investment Management, L.P. ("AGIM") or an
affiliate thereof (collectively, "New AGIM") for your Fund. The terms of the
new investment advisory and subadvisory agreement are the same in all material
respects as your Fund's current agreements.
Your Board of Trustees is seeking your proxy to vote in favor of these
proposals.
In addition, your Board of Trustees is seeking your approval of a
transaction involving your Fund. Under the proposal, your Fund would
reorganize with a comparable portfolio of SunAmerica Income Funds, as set
forth in the chart below. If this reorganization is approved by shareholders,
you will become a shareholder of the SunAmerica fund listed opposite your
Fund's name.
Your Fund SunAmerica Fund
--------- ---------------
Core Bond Fund SunAmerica Core Bond Fund
High Yield Bond Fund SunAmerica High Income Fund (to be renamed
SunAmerica High Yield Bond Fund)
Municipal Bond Fund SunAmerica Tax Exempt Insured Fund
Strategic Income Fund SunAmerica Diversified Income Fund (to be renamed
SunAmerica Strategic Bond Fund)
U.S. Government Securities Fund SunAmerica U.S. Government Securities Fund
This Proxy Statement and Prospectus serves as a prospectus of SunAmerica
Income Funds under the Securities Act of 1933, as amended (the "Securities
Act"), in connection with the issuance of shares to you pursuant to the terms
of the reorganizations.
Both North American Funds and SunAmerica Income Funds are open-end series
management investment companies organized as Massachusetts business trusts.
The SunAmerica Core Bond Fund is newly created and has not yet commenced
operations.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT AND PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The Date of this Proxy Statement and Prospectus is October 1, 2001.
The following documents are included in the package of documents that you
received with this Proxy Statement and Prospectus:
. The prospectus relating to SunAmerica Income Funds, dated July 27, 2001,
as supplemented (the "Acquiring Funds Prospectus"). This document is
incorporated herein by reference (legally considered to be part of this
Proxy Statement and Prospectus).
. The Annual Report to Shareholders of SunAmerica Income Funds for the year
ended March 31, 2001. This document is incorporated herein by reference
(legally considered to be part of this Proxy Statement and Prospectus).
Additional information contained in a statement of additional information
relating to this Proxy Statement and Prospectus (the "Statement of Additional
Information"), including pro forma financial statements giving effect to the
consummation of a reorganization, if applicable, is on file with the Securities
and Exchange Commission (the "Commission"). The Statement of Additional
Information is available without charge, upon request by calling one of the
toll free numbers set forth below or by writing North American Funds or
SunAmerica Income Funds at the addresses set forth below. The Statement of
Additional Information, dated October 1, 2001 is incorporated by reference into
this Proxy Statement and Prospectus.
Other documents containing information about the Funds have been filed with
the Commission. These other documents are available without charge by writing
to the address or calling the toll free number set forth below:
If they relate to North
American Funds: If they relate to SunAmerica Income Funds:
North American Funds SunAmerica Income Funds
286 Congress Street The SunAmerica Center
Boston, Massachusetts 02210 733 Third Avenue
1-800-872-8037 New York, New York 10017
1-800-858-8850
These documents are:
. A statement of additional information relating to SunAmerica Income
Funds, dated July 28, 2001, as supplemented (the "Acquiring Funds
Statement").
. The preliminary prospectus relating to SunAmerica Income Funds, subject
to completion and dated August 14, 2001, as supplemented.
. The preliminary statement of additional information relating to
SunAmerica Income Funds, subject to completion and dated August 14, 2001,
as supplemented.
. The prospectuses relating to the North American Funds, each dated March
1, 2001, as supplemented (the "Acquired Funds Prospectuses"). These
documents are incorporated herein by reference (legally considered to be
a part of this Proxy Statement and Prospectus).
. A statement of additional information relating to North American Funds,
dated March 1, 2001, as supplemented (the "Acquired Funds Statement").
. The Annual Report to Shareholders of North American Funds for the year
ended October 31, 2000 and the Semi-Annual Report to Shareholders of
North American Funds for the six month period ended April 30, 2001.
This Proxy Statement and Prospectus sets forth concisely the information
about SunAmerica Income Funds that you should know before considering a
reorganization and should be retained for future reference. North American
Funds has authorized the solicitation of proxies solely on the basis of this
Proxy Statement and Prospectus and the accompanying documents.
The Commission maintains a web site (http://www.sec.gov) that contains the
Statement of Additional Information, the Acquiring Funds Prospectus, the
Acquired Funds Prospectuses, the Acquiring Funds Statement, the Acquired Funds
Statement, other material incorporated by reference and other information
regarding the Funds.
The address of the principal executive offices of SunAmerica Income Funds is
The SunAmerica Center, 733 Third Avenue, New York, New York 10017, the
telephone number is 1-800-858-8850 and the web address is
http://www.sunamericafunds.com. The address of the principal executive offices
of North American Funds is 286 Congress Street, Boston, Massachusetts 02210,
the telephone number is 1-800-872-8037 and the web address is
http://www.northamericanfunds.com.
Proposal Fund
-------- ----
1. (a) Approval of New Investment Advisory All North American Funds referenced
Agreement above, each voting separately
(b) Approval of New Investment
Subadvisory Agreement All Funds, each voting separately
2. (a) Approval of Agreement and Plan of Core Bond Fund
Reorganization relating to Core
Bond Funds
(b) Approval of Agreement and Plan of High Yield Bond Fund
Reorganization relating to High
Yield Bond Funds
(c) Approval of Agreement and Plan of Municipal Bond Fund
Reorganization relating to
Municipal Bond Funds
(d) Approval of Agreement and Plan of Strategic Income Fund
Reorganization relating to
Strategic Income Funds
(e) Approval of Agreement and Plan of U.S. Government Securities Fund
Reorganization relating to U.S.
Government Securities Funds
----------------
TABLE OF CONTENTS
Page
----
INTRODUCTION............................................................. 2
SUMMARY.................................................................. 4
THE AIG MERGER AND THE NEW INVESTMENT ADVISORY AND SUBADVISORY
AGREEMENTS.............................................................. 4
THE REORGANIZATIONS...................................................... 5
FEE TABLES AND EXAMPLES.................................................. 7
THE FUNDS................................................................ 23
Business of the Acquired Funds......................................... 23
Business of the Acquiring Funds........................................ 23
Comparison of the Funds................................................ 23
PRINCIPAL RISK FACTORS AND SPECIAL CONSIDERATIONS........................ 30
PRINCIPAL RISKS OF INVESTING IN THE FUNDS................................ 30
All Funds.............................................................. 30
Core Bond Funds........................................................ 30
Strategic Income Funds................................................. 31
Strategic Income Funds and High Yield Bond Funds....................... 31
PROPOSALS NOS. 1(a)-(b): APPROVAL OF THE NEW INVESTMENT ADVISORY
AGREEMENT AND THE NEW SUBADVISORY AGREEMENT............................. 32
THE AIG MERGER AND THE NEW INVESTMENT ADVISORY AND SUBADVISORY
AGREEMENTS.............................................................. 32
Board Considerations................................................... 32
Description of the New Investment Advisory Agreement................... 34
Additional Information About AGAM...................................... 35
Description of the New Subadvisory Agreement........................... 37
Additional Information About AGIM...................................... 38
PROPOSALS NOS. 2(a)-(e): APPROVAL OF THE PLANS........................... 39
COMPARISON OF THE FUNDS.................................................. 39
Investment Policies.................................................... 39
Trustees and Officers.................................................. 40
Management Arrangements................................................ 44
Distribution and Shareholder Servicing Arrangements.................... 45
Other Service Agreements with Affiliates............................... 46
Purchase, Exchange and Redemption of Shares............................ 47
Performance............................................................ 50
Shareholder Rights..................................................... 53
Tax Information........................................................ 53
Portfolio Transactions................................................. 53
Portfolio Turnover..................................................... 53
Additional Information................................................. 54
THE REORGANIZATIONS...................................................... 56
General................................................................ 56
Terms of the Plans..................................................... 57
i
Page
----
NAF Board Considerations: Potential Benefits to Shareholders as a Result
of the Reorganizations................................................. 58
Federal Income Tax Consequences of the Reorganizations.................. 62
Capitalization.......................................................... 63
GENERAL................................................................... 64
INFORMATION CONCERNING THE MEETING........................................ 64
Date, Time and Place of Meeting......................................... 64
Solicitation, Revocation and Use of Proxies............................. 64
Record Date and Outstanding Shares...................................... 64
Security Ownership of Certain Beneficial Owners and Management of the
Funds.................................................................. 65
Voting Rights and Required Vote......................................... 70
ADDITIONAL INFORMATION.................................................... 71
LEGAL PROCEEDINGS......................................................... 71
LEGAL OPINIONS............................................................ 71
EXPERTS................................................................... 71
SHAREHOLDER PROPOSALS..................................................... 72
EXHIBIT IA................................................................ IA-1
EXHIBIT IB................................................................ IB-1
EXHIBIT II................................................................ II-1
ii
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Trustees of North American
Funds (the "NAF Board") for use at the Meeting to be held at the principal
executive offices of North American Funds, 286 Congress Street, Boston,
Massachusetts 02210, on November 7, 2001, at 10:00 a.m., Eastern Time. The
mailing address for North American Funds is 286 Congress Street, Boston,
Massachusetts 02210. The approximate mailing date of this Proxy Statement and
Prospectus is October 5, 2001.
Before we describe the proposals any further, we need to define certain
words or phrases that are used in this Proxy Statement and Prospectus:
Acquired Fund: Your Fund, which is a portfolio of North American Funds.
Acquiring Fund: The portfolio of SunAmerica Income Funds that is
acquiring a comparable portfolio of North American Funds.
Combined Fund: The Acquiring Fund after completion of the
Reorganization.
Core Bond Funds: The Core Bond Fund of North American Funds and the
SunAmerica Core Bond Fund.
Core Bond Combined Fund: The SunAmerica Core Bond Fund after the
Reorganization.
Fund: Either the Acquired Fund or Acquiring Fund, depending on the
context.
High Yield Bond Funds: The High Yield Bond Fund of North American Funds
and the SunAmerica High Income Fund.
High Yield Bond Combined Fund: The SunAmerica High Income Fund after the
Reorganization.
Investment Company Act: The Investment Company Act of 1940, as amended.
Municipal Bond Funds: The Municipal Bond Fund of North American Funds
and the SunAmerica Tax Exempt Insured Fund.
NAF Core Bond Fund: The Core Bond Fund of North American Funds.
NAF High Yield Bond Fund: The High Yield Bond Fund of North American
Funds.
NAF Municipal Bond Fund: The Municipal Bond Fund of North American
Funds.
NAF Strategic Income Fund: The Strategic Income Fund of North American
Funds.
NAF U.S. Government Securities Fund: The U.S. Government Securities Fund
of North American Funds.
Plan: The Agreement and Plan of Reorganization, which sets forth the
terms of each Reorganization and is being submitted for shareholder
approval.
Reorganization: The transaction through which an Acquired Fund will be
acquired by an Acquiring Fund and shareholders of an Acquired Fund will
become shareholders of an Acquiring Fund.
Strategic Income Funds: The Strategic Income Fund of North American
Funds and the SunAmerica Diversified Income Fund.
Strategic Combined Fund: The SunAmerica Diversified Income Fund after
the Reorganization.
2
Tax Exempt Insured Combined Fund: The SunAmerica Tax Exempt Insured Fund
after the Reorganization.
U.S. Government Securities Funds: The U.S. Government Securities Fund of
North American Funds and the SunAmerica U.S. Government Securities Fund.
U.S. Government Securities Combined Fund: The SunAmerica U.S. Government
Securities Fund after the Reorganization.
The shareholders solicited and entitled to vote on Proposals 1a, 1b, 2a, 2b,
2c, 2d and 2e of this Proxy Statement and Prospectus are outlined in the
following table:
Proposal Fund
-------- ----
1. (a) Approval of New Investment Advisory All North American Funds referenced
Agreement above, each voting separately
(b) Approval of New Investment
Subadvisory Agreement All Funds, each voting separately
2. (a) Approval of Agreement and Plan of Core Bond Fund
Reorganization relating to Core
Bond Funds
(b) Approval of Agreement and Plan of High Yield Bond Fund
Reorganization relating to High
Yield Bond Funds
(c) Approval of Agreement and Plan of Municipal Bond Fund
Reorganization relating to
Municipal Bond Funds
(d) Approval of Agreement and Plan of Strategic Income Fund
Reorganization relating to
Strategic Income Funds
(e) Approval of Agreement and Plan of U.S. Government Securities Fund
Reorganization relating to U.S.
Government Securities Funds
3
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus (including documents incorporated by
reference) and is qualified in its entirety by reference to the more complete
information contained in this Proxy Statement and Prospectus and in the forms
of the New Investment Advisory Agreement, the New Subadvisory Agreement and the
Plans, attached hereto as Exhibits IA, IB and II, respectively.
THE AIG MERGER AND THE NEW INVESTMENT
ADVISORY AND SUBADVISORY AGREEMENTS
On August 29, 2001, American International Group, Inc. ("AIG") acquired
American General Corporation ("American General"), the parent company of AGAM
and AGIM (the "AIG Merger"). As a result of the AIG Merger, AGAM and AGIM each
became subsidiaries of AIG. AIG is also the parent company of SunAmerica Asset
Management Corp. ("SAAMCo").
As a result of the AIG Merger, applicable law requires shareholder approval
of a new investment advisory agreement (the "New Investment Advisory
Agreement") and a new subadvisory agreement (the "New Subadvisory Agreement")
for your Fund. The terms of the New Investment Advisory Agreement and New
Subadvisory Agreement (the "New Agreements") are the same in all material
respects as those of your Fund's previous investment advisory agreement (the
"Previous Investment Advisory Agreement") and those of the previous subadvisory
agreement between AGAM and AGIM (the "Previous Subadvisory Agreement"),
respectively. See "Proposal No. 1(a): Approval of the New Investment Advisory
Agreement" below for a description of the New Investment Advisory Agreement and
the services to be provided by AGAM thereunder, and "Proposal No. 1(b):
Approval of the New Subadvisory Agreement" below for a description of the New
Subadvisory Agreement and the services to be provided by New AGIM thereunder.
In connection with its approval of the New Agreements, the NAF Board
received a presentation relating to AIG and SAAMCo, as well as a presentation
from AGAM. The NAF Board considered that the AIG Merger did not involve any
changes in the overall form of the advisory or subadvisory contracts, the
advisory fees, or any of the Acquired Funds' objectives or policies. The NAF
Board also considered that AGAM and SAAMCo had indicated that while they
intended to propose the Reorganizations to the NAF Board at a subsequent
meeting, until such Reorganizations were approved and consummated, SAAMCo and
AIG represented there would be no material change in the nature and quality of
services provided by AGAM. As part of its deliberations, the NAF Board also
took into account the following, among other factors: the nature and quality of
the services provided or reasonably anticipated to be provided and the results
achieved or reasonably anticipated to be achieved by AGAM and/or New AGIM; the
amount and structure of investment advisers' fees generally and the fees
payable under the New Agreements; the financial strength of AIG; the
management, personnel and operations of AIG and SAAMCo; the commitment of AIG
to the financial services industry, and the structure of the AIG Merger.
In addition, the NAF Board considered the fact that at some point after
consummation of the AIG Merger, the operations of AGIM might be consolidated
with those of another affiliate within the AIG group of companies to eliminate
duplication and attempt to create economies of scale within the organization.
The NAF Board was assured that any such internal reorganization would not
result in a change in the personnel
4
responsible for providing services to the Acquired Funds or in the nature or
quality of those services. Accordingly, the NAF Board approved the New
Subadvisory Agreement with AGIM or an affiliate that in the future conducts the
advisory business previously conducted by AGIM (previously defined as "New
AGIM").
AGAM and AGIM are wholly owned subsidiaries of American General. Prior to
the AIG Merger, American General was a part of one of the nation's largest
diversified financial services organizations with assets of approximately $128
billion and market capitalization of $23 billion at June 30, 2001. SAAMCo is
the investment adviser for the Acquiring Funds. SAAMCo has been in the business
of investment management since 1982 and as of June 30, 2001, managed, advised
and/or administered approximately $28.5 billion of assets. AIG, SAAMCo's
parent, a Delaware corporation, is a holding company which through its
subsidiaries is engaged in a broad range of insurance and insurance-related
activities and financial services in the United States and abroad.
THE REORGANIZATIONS
What Shareholders of an Acquired Fund Will Receive in a Reorganization
If shareholders approve their Fund's Reorganization and the Reorganization
takes place:
. The Acquiring Fund will acquire substantially all of the assets and
assume substantially all of the liabilities of the Acquired Fund;
. Shareholders of the Acquired Fund will become shareholders of the
Acquiring Fund;
. Shareholders holding Class A, Class B, Class C, Institutional Class I and
Institutional Class II shares of the Acquired Fund will receive Class A,
Class B, Class II, Class I and Class Z shares, respectively, as
applicable, of the Acquiring Fund (the "Corresponding Shares"); and
. Corresponding Shares received by shareholders of the Acquired Fund will
have the same aggregate net asset value as the shares of the Acquired
Fund held immediately prior to the Reorganization.
No sales charges will be imposed on the Corresponding Shares issued in
connection with the Reorganizations. Each Reorganization has been structured
with the intention that it qualify for Federal income tax purposes as a tax-
free reorganization under the Internal Revenue Code of 1986, as amended (the
"Code"). This means that, in the opinion of counsel, no gain or loss will be
recognized by a shareholder of an Acquired Fund for Federal income tax purposes
as a result of a Reorganization.
Reasons for the Reorganizations
On August 2, 2001, the NAF Board unanimously approved each Reorganization,
subject to shareholder approval and completion of the AIG Merger. The NAF
Board, including all of the NAF Independent Trustees (as defined below), has
determined that each Reorganization is in the best interests of the respective
Acquired Fund and its shareholders. In addition, the NAF Board, including all
of the NAF Independent Trustees, has determined that the interests of existing
shareholders of each Acquired Fund will not be diluted as a result of effecting
the respective Reorganization because each such shareholder will receive
Corresponding Shares of the Acquiring Fund having an aggregate net asset value
equal to the aggregate net asset value of his or her shares of the Acquired
Fund outstanding as of the Valuation Time (as defined in the Plans). Although,
as a result of the Reorganizations, a shareholder of an Acquired Fund may
receive Corresponding Shares which represent a smaller percentage of ownership
in the respective Acquiring Fund than he or she held in that Acquired Fund
prior to the respective Reorganization, the total dollar value of the shares
will be the same. The NAF Independent Trustees are the Trustees who are not
"interested persons" of North American Funds (within the meaning of the
Investment Company Act).
5
The NAF Board unanimously recommends that you vote FOR the Plan relating to
the Reorganization involving your Fund. Your Board has based this
recommendation on its consideration of the principal reasons underlying each
Reorganization, including the following:
. the fact that following each Reorganization, shareholders of each
Acquired Fund would remain invested in a mutual fund having substantially
the same or a similar investment objective and similar investment
techniques;
. the fees and expenses of the Acquired Funds, the Acquiring Funds and the
Combined Funds;
. potential benefits to shareholders likely to result from each
Reorganization, such as the potential for reduced operating expenses over
time due to economies of scale (except with respect to the Core Bond
Funds Reorganization); and
. the fact that the Reorganizations will not result in dilution of the
interests of Acquired Fund shareholders.
For a more detailed discussion of the factors considered by your Board in
approving the Reorganizations, see "Proposals Nos. 2(a)-(e): The
Reorganizations" below.
If all of the requisite approvals are obtained and certain conditions are
either met or waived, it is anticipated that (i) AGAM will continue to serve as
the investment adviser of the Acquired Funds and New AGIM will serve as
subadviser to each of the Acquired Funds until the closing of the
Reorganizations (which is currently anticipated to occur during the fourth
calendar quarter of 2001), (ii) the Reorganizations will occur as soon as
practicable thereafter, provided that the Funds have obtained prior to that
time an opinion of counsel concerning the tax consequences of the
Reorganizations as set forth in the Plans, and (iii) after the consummation of
the Reorganizations, SAAMCo will manage the assets of the Acquired Funds as
part of the Combined Funds, and New AGIM will serve as subadviser to the Core
Bond, High Yield Bond, Tax Exempt Insured and Strategic Income Combined Funds
(subject to shareholder approval of the respective Acquiring Funds). The Plans
may be terminated, and the Reorganizations abandoned, whether before or after
the requisite approval by the shareholders of the Acquired Funds, at any time
prior to the Closing Date (as defined herein), (i) by mutual agreement of the
NAF Board and the Board of Trustees of SunAmerica Income Funds ("the SunAmerica
Board"); (ii) by an Acquired Fund if any condition to such Acquired Fund's
obligations has not been fulfilled or waived; or (iii) by an Acquiring Fund if
any condition to such Acquiring Fund's obligations has not been fulfilled or
waived.
6
FEE TABLES AND EXAMPLES
Actual Fee Table for Shareholders of each of the Acquired Funds+
and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table
for each of the Combined Funds (as of March 31, 2001)*
Class A Shares Class B Shares Class C/Class II Shares
------------------------------ ------------------------------ ------------------------------
Actual Pro Forma Actual Pro Forma Actual Pro Forma
-------------------- --------- -------------------- --------- -------------------- ---------
NAF SunAmerica Core Bond NAF SunAmerica Core Bond NAF SunAmerica Core Bond
Core Bond Core Bond Combined Core Bond Core Bond Combined Core Bond Core Bond Combined
Fund Fund Fund Fund Fund Fund Fund Fund Fund
--------- ---------- --------- --------- ---------- --------- --------- ---------- ---------
Shareholder Fees (fees
paid directly from your
investment):
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of offering
price)(1)............... 4.75% 4.75% 4.75% None None None None 1.00% 1.00%
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption price,
whichever is lower)(2).. None None None 5.00% 5.00% 5.00% 1.00% 1.00% 1.00%
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends.... None None None None None None None None None
Redemption Fee(3)....... None None None None None None None None None
Annual Fund Operating
Expenses (as a
percentage of average
net assets) (expenses
that are deducted from
Fund assets):
Management Fees........ 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60%
Distribution and/or
Service (12b-1)
Fees(4)................ 0.35% 0.35% 0.35% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses......... 0.38% 0.57% 0.57% 0.38% 0.59% 0.59% 0.38% 0.62% 0.62%
Total Annual Fund
Operating Expenses
Before Expense
Reimbursement........... 1.33% 1.52% 1.52% 1.98% 2.19% 2.19% 1.98% 2.22% 2.22%
Expense
Reimbursement(5)(6)..... -- 0.19% 0.19% -- 0.21% 0.21% -- 0.24% 0.24%
Net Expenses............ 1.33% 1.33% 1.33% 1.98% 1.98% 1.98% 1.98% 1.98% 1.98%
7
Actual Fee Table for Shareholders of each of the Acquired Funds+
and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table
for each of the Combined Funds (as of March 31, 2001)*
Institutional Class I/Class I Institutional Class II/Class Z
Shares Shares
-------------------------------- --------------------------------
Actual Pro Forma** Actual Pro Forma**
-------------------- ----------- -------------------- -----------
NAF SunAmerica Core Bond NAF SunAmerica Core Bond
Core Bond Core Bond Combined Core Bond Core Bond Combined
Fund Fund Fund Fund Fund Fund
--------- ---------- ----------- --------- ---------- -----------
Shareholder Fees (fees
paid directly from your
investment):
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of offering
price)(1)............... None None None None None None
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption price,
whichever is lower)(2).. None None None None None None
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends.... None None None None None None
Redemption Fee(3)....... None None None None None None
Annual Fund Operating
Expenses (as a
percentage of average
net assets) (expenses
that are deducted from
Fund assets):
Management Fees........ 0.60% 0.60% 0.60% 0.60% 0.60% 0.60%
Distribution and/or
Service (12b-1)
Fees(4)................ None None None None None None
Other Expenses......... 0.63% 0.67% 0.67% 0.38% 0.13% 0.13%
Total Annual Fund
Operating Expenses
Before Expense
Reimbursement........... 1.23% 1.27% 1.27% 0.98% 0.73% 0.73%
Expense
Reimbursement(5)(6)..... -- 0.04% 0.04% -- -- --
Net Expenses............ 1.23% 1.23% 1.23% 0.98% 0.73% 0.73%
8
These examples are intended to help you compare the cost of investing in the
Core Bond Funds with the cost of investing in other mutual funds.
Examples:
An investor would pay the following expenses on a $10,000 investment,
assuming (1) the Total Annual Fund Operating Expenses set forth in the table
above for the relevant Fund and (2) a 5% annual return throughout the period.
Cumulative Expenses Paid
for the Period of:
-----------------------------------
1 Year 3 Years 5 Years 10 Years(11)
------ ------- ------- ------------
Expenses if you did redeem your shares at
the end of the period:
Class A
NAF Core Bond Fund...................... $604 $ 876 $1,169 $2,000
SunAmerica Core Bond Fund(8)............ 604 876 1,169 2,000
Pro Forma Core Bond Combined
Fund***(8)............................. 604 876 1,169 2,000
Class B
NAF Core Bond Fund...................... $701 $1,021 $1,268 $2,139
SunAmerica Core Bond Fund(8)............ 701 921 1,268 2,139
Pro Forma Core Bond Combined
Fund***(8)............................. 701 921 1,268 2,139
Class C/Class II
NAF Core Bond Fund(8)................... $301 $ 621 $1,068 $2,306
SunAmerica Core Bond Fund(8)............ 399 715 1,157 2,383
Pro Forma Core Bond Combined
Fund***(8)............................. 399 715 1,157 2,383
Institutional Class I/Class I
NAF Core Bond Fund(8)................... $125 $ 390 $ 676 $1,489
SunAmerica Core Bond Fund(8)............ 125 390 676 1,489
Pro Forma Core Bond Combined
Fund***(8)............................. 125 390 676 1,489
Institutional Class II/Class Z
NAF Core Bond Fund(8)................... $100 $ 312 $ 542 $1,201
SunAmerica Core Bond Fund............... 75 233 406 906
Pro Forma Core Bond Combined Fund***.... 75 233 406 906
Cumulative Expenses Paid
for the Period of:
-----------------------------------
1 Year 3 Years 5 Years 10 Years(11)
------ ------- ------- ------------
Expenses if you did not redeem your shares
at the end of the period:
Class A
NAF Core Bond Fund(8)................... $604 $876 $1,169 $2,000
SunAmerica Core Bond Fund............... 604 876 1,169 2,000
Pro Forma Core Bond Combined
Fund***(8)............................. 604 876 1,169 2,000
Class B
NAF Core Bond Fund(8)................... $201 $621 $1,068 $2,139
SunAmerica Core Bond Fund............... 201 621 1,068 2,139
Pro Forma Core Bond Combined
Fund***(8)............................. 201 621 1,068 2,139
Class C/Class II
NAF Core Bond Fund(8)................... $201 $621 $1,068 $2,306
SunAmerica Core Bond Fund............... 299 715 1,157 2,383
Pro Forma Core Bond Combined
Fund***(8)............................. 299 715 1,157 2,383
Institutional Class I/Class I
NAF Core Bond Fund(8)................... $125 $390 $ 676 $1,489
SunAmerica Core Bond Fund............... 125 390 676 1,489
Pro Forma Core Bond Combined
Fund***(8)............................. 125 390 676 1,489
Institutional Class II/Class Z
NAF Core Bond Fund(8)................... $100 $312 $ 542 $1,201
SunAmerica Core Bond Fund............... 75 233 406 906
Pro Forma Core Bond Combined Fund***.... 75 233 406 906
9
Actual Fee Table for Shareholders of each of the Acquired Funds+
and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table
for each of the Combined Funds (as of March 31, 2001)*
Class A Shares Class B Shares Class C/Class II Shares
------------------------------- ------------------------------- -------------------------------
Actual Pro Forma Actual Pro Forma Actual Pro Forma
--------------------- --------- --------------------- --------- --------------------- ---------
High High High
SunAmerica Yield SunAmerica Yield SunAmerica Yield
NAF High Bond NAF High Bond NAF High Bond
High Yield Income Combined High Yield Income Combined High Yield Income Combined
Bond Fund Fund Fund Bond Fund Fund Fund Bond Fund Fund Fund
---------- ---------- --------- ---------- ---------- --------- ---------- ---------- ---------
Shareholder Fees (fees
paid directly from your
investment):
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of offering
price)(1).............. 4.75% 4.75% 4.75% None None None None 1.00% 1.00%
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption price,
whichever is
lower)(2).............. None None None 5.00% 5.00% 5.00% 1.00% 1.00% 1.00%
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends... None None None None None None None None None
Redemption Fee(3)...... None None None None None None None None None
Annual Fund Operating
Expenses (as a
percentage of average
net assets) (expenses
that are deducted from
Fund assets):
Management Fees....... 0.83% 0.75% 0.75% 0.83% 0.75% 0.75% 0.83% 0.75% 0.75%
Distribution and/or
Service (12b-1)
Fees(4)............... 0.35% 0.35% 0.35% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses........ 0.39% 0.45% 0.45% 0.39% 0.43% 0.43% 0.39% 0.48% 0.48%
Total Annual Fund
Operating Expenses
Before Expense
Reimbursement.......... 1.57% 1.55% 1.55% 2.22% 2.18% 2.18% 2.22% 2.23% 2.23%
Expense
Reimbursement(5)(6)(7).. -- -- -- -- -- -- -- 0.13% --
Net Expenses........... 1.57% 1.55% 1.55% 2.22% 2.18% 2.18% 2.22% 2.10% 2.23%
10
Actual Fee Table for Shareholders of each of the Acquired Funds+
and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table
for each of the Combined Funds (each as of March 31, 2001)*
Institutional Class I/Class I Institutional Class II/Class Z
Shares Shares
-------------------------------- --------------------------------
Actual Pro Forma Actual Pro Forma
---------------------- --------- ---------------------- ---------
High High
SunAmerica Yield SunAmerica Yield
NAF High Income Bond NAF High Income Bond
High Yield Bond Combined High Yield Bond Combined
Bond Fund Fund Fund** Bond Fund Fund Fund**
---------- ----------- --------- ---------- ----------- ---------
Shareholder Fees (fees
paid directly from your
investment):
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of offering
price)(1)............... None N/A None None N/A None
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption price,
whichever is lower)(2).. None N/A None None N/A None
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends.... None N/A None None N/A None
Redemption Fee(3)....... None N/A None None N/A None
Annual Fund Operating
Expenses (as a
percentage of average
net assets) (expenses
that are deducted from
Fund assets):
Management Fees........ 0.83% N/A 0.75% 0.83% N/A 0.75%
Distribution and/or
Service (12b-1)
Fees(4)................ None N/A None None N/A None
Other Expenses......... 0.64% N/A 1.06% 0.39% N/A 0.20%
Total Annual Fund
Operating Expenses
Before Expense
Reimbursement........... 1.47% N/A 1.81% 1.22% N/A 0.95%
Expense
Reimbursement(5)(6)..... -- N/A 0.36% -- N/A --
Net Expenses............ 1.47% N/A 1.45% 1.22% N/A 0.95%
11
These examples are intended to help you compare the cost of investing in the
High Yield Bond Funds with the cost of investing in other mutual funds.
Examples:
An investor would pay the following expenses on a $10,000 investment,
assuming (1) the Total Annual Fund Operating Expenses set forth in the table
above for the relevant Fund and (2) a 5% annual return throughout the period.
Cumulative Expenses Paid for the
Period of:
-----------------------------------
1 Year 3 Years 5 Years 10 Years(11)
------ ------- ------- ------------
Expenses if you did redeem your shares at
the end of the period:
Class A
NAF High Yield Bond Fund(8)............. $627 $ 947 $1,290 $2,254
SunAmerica High Income Fund(8).......... 625 941 1,280 2,233
Pro Forma High Yield Bond Combined
Fund***................................ 625 941 1,280 2,233
Class B
NAF High Yield Bond Fund(8)............. $725 $1,094 $1,390 $2,388
SunAmerica High Income Fund............. 721 982 1,369 2,354
Pro Forma High Yield Bond Combined
Fund***................................ 721 982 1,369 2,354
Class C/Class II
NAF High Yield Bond Fund(8)............. $325 $ 694 $1,190 $2,554
SunAmerica High Income Fund(8).......... 411 751 1,218 2,507
Pro Forma High Yield Bond Combined
Fund***(9)............................. 424 790 1,283 2,639
Institutional Class I/Class I
NAF High Yield Bond Fund(8)............. $150 $ 465 $ 803 $1,757
Pro Forma High Yield Bond Combined
Fund***(8)............................. 148 459 792 1,735
Institutional Class II/Class Z
NAF High Yield Bond Fund(8)............. $124 $ 387 $ 670 $1,477
Pro Forma High Yield Bond Combined
Fund***................................ 97 303 526 1,166
Cumulative Expenses Paid for the
Period of:
-----------------------------------
1 Year 3 Years 5 Years 10 Years(11)
------ ------- ------- ------------
Expenses if you did not redeem your shares
at the end of the period:
Class A
NAF High Yield Bond Fund................ $627 $947 $1,290 $2,254
SunAmerica High Income Fund(8).......... 625 941 1,280 2,233
Pro Forma High Yield Bond Combined
Fund***................................ 625 941 1,280 2,233
Class B
NAF High Yield Bond Fund................ $225 $694 $1,190 $2,388
SunAmerica High Income Fund............. 221 682 1,169 2,354
Pro Forma High Yield Bond Combined
Fund***................................ 221 682 1,169 2,354
Class C/Class II
NAF High Yield Bond Fund................ $225 $694 $1,190 $2,554
SunAmerica High Income Fund(8).......... 311 751 1,218 2,507
Pro Forma High Yield Bond Combined
Fund***(10)............................ 324 790 1,283 2,639
Institutional Class I/Class I
NAF High Yield Bond Fund................ $150 $465 $ 803 $1,757
Pro Forma High Yield Bond Combined
Fund***(8)............................. 148 459 792 1,735
Institutional Class II/Class Z
NAF High Yield Bond Fund(8)............. $124 $387 $670 $1,477
Pro Forma High Yield Combined Fund***... 97 303 526 1,166
12
Actual Fee Table for Shareholders of each of the Acquired Funds+
and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table
for each of the Combined Funds (as of March 31, 2001)*
Class A Shares Class B Shares Class C/II Shares
------------------------------- ------------------------------- -------------------------------
Actual Pro Forma Actual Pro Forma Actual Pro Forma
-------------------- ---------- -------------------- ---------- -------------------- ----------
SunAmerica Tax Exempt SunAmerica Tax Exempt SunAmerica Tax Exempt
NAF Tax Exempt Insured NAF Tax Exempt Insured NAF Tax Exempt Insured
Municipal Insured Combined Municipal Insured Combined Municipal Insured Combined
Bond Fund Fund Fund Bond Fund Fund Fund Bond Fund Fund Fund
--------- ---------- ---------- --------- ---------- ---------- --------- ---------- ----------
Shareholder Fees (fees
paid directly from your
investment):
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of offering
price)(1).............. 4.75% 4.75% 4.75% None None None None 1.00% 1.00%
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption price,
whichever is
lower)(2).............. None None None 5.00% 5.00% 5.00% 1.00% 1.00% 1.00%
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends... None None None None None None None None None
Redemption Fee(3)...... None None None None None None None None None
Annual Fund Operating
Expenses (as a
percentage of average
net assets) (expenses
that are deducted from
Fund assets):
Management Fees....... 0.60% 0.50% 0.50% 0.60% 0.50% 0.50% 0.60% 0.50% 0.50%
Distribution and/or
Service (12b-1)
Fees(4)............... 0.15% 0.35% 0.35% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses........ 0.68% 0.41% 0.40% 0.68% 0.47% 0.45% 0.68% 2.04% 0.62%
Total Annual Fund
Operating Expenses
Before Expense
Reimbursement.......... 1.43% 1.26% 1.25% 2.28% 1.97% 1.95% 2.28% 3.54% 2.12%
Expense
Reimbursement(5)(6)(7).. 0.38% -- -- 0.38% -- -- 0.38% 1.59% --
Net Expenses........... 1.05% 1.26% 1.25% 1.90% 1.97% 1.95% 1.90% 1.95% 2.12%
13
These examples are intended to help you compare the cost of investing in the
Municipal Bond Funds with the cost of investing in other mutual funds.
Examples:
An investor would pay the following expenses on a $10,000 investment,
assuming (1) the Total Annual Fund Operating Expenses set forth in the table
above for the relevant Fund and (2) a 5% annual return throughout the period.
Cumulative Expenses Paid for the Period of:
---------------------------------------------------
1 Year 3 Years 5 Years 10 Years(11)
--------- ----------- ----------- --------------
Expenses if you did redeem
your shares at the end of
the period:
Class A
NAF Municipal Bond
Fund(8)................ $577 $ 870 $1,185 $2,076
SunAmerica Tax Exempt
Insured Fund........... 597 856 1,134 1,925
Pro Forma Tax Exempt
Insured Combined
Fund***................ 596 853 1,129 1,915
Class B
NAF Municipal Bond
Fund(8)................ $693 $1,076 $1,386 $2,372
SunAmerica Tax Exempt
Insured Fund........... 700 918 1,262 2,112
Pro Forma Tax Exempt
Insured Combined
Fund***................ 698 912 1,252 2,094
Class C/Class II
NAF Municipal Bond
Fund(8)................ $293 $676 $1,186 $2,586
SunAmerica Tax Exempt
Insured Fund(8)........ 396 706 1,142 2,352
Pro Forma Tax Exempt
Insured Combined
Fund***(9)............. 413 757 1,228 2,527
Cumulative Expenses Paid for the Period of:
--------------------------------------------------
1 Year 3 Years 5 Years 10 Years(11)
--------- ---------- ----------- ---------------
Expenses if you did not
redeem your shares at the
end of the period:
Class A
NAF Municipal Bond
Fund(8).................. $ 577 $ 870 $ 1,185 $ 2,076
SunAmerica Tax Exempt
Insured Fund............. 597 856 1,134 1,925
Pro Forma Tax Exempt
Insured Combined
Fund***.................. 596 853 1,129 1,915
Class B
NAF Municipal Bond
Fund(8).................. $ 193 $ 676 $ 1,186 $ 2,372
SunAmerica Tax Exempt
Insured Fund............. 200 618 1,062 2,112
Pro Forma Tax Exempt
Insured Combined
Fund***.................. 198 612 1,052 2,094
Class C/Class II
NAF Municipal Bond
Fund(8).................. $ 193 $ 676 $ 1,186 $ 2,586
SunAmerica Tax Exempt
Insured Fund(8).......... 296 706 1,142 2,352
Pro Forma Tax Exempt
Insured Combined
Fund***(10).............. 313 757 1,228 2,527
14
Actual Fee Table for Shareholders of each of the Acquired Funds+
and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table
for each of the Combined Funds (each as of March 31, 2001)*
Class A Shares Class B Shares Class C/Class II Shares
------------------------------- ------------------------------- -------------------------------
Actual Pro Forma Actual Pro Forma Actual Pro Forma
--------------------- --------- --------------------- --------- --------------------- ---------
NAF NAF NAF
Strategic SunAmerica Strategic Strategic SunAmerica Strategic Strategic SunAmerica Strategic
Income Diversified Combined Income Diversified Combined Income Diversified Combined
Fund Income Fund Fund Fund Income Fund Fund Fund Income Fund Fund
--------- ----------- --------- --------- ----------- --------- --------- ----------- ---------
Shareholder Fees (fees
paid directly from your
investment):
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of offering
price)(1).............. 4.75% 4.75% 4.75% None None None None 1.00% 1.00%
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption price,
whichever is
lower)(2).............. None None None 5.00% 5.00% 5.00% 1.00% 1.00% 1.00%
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends... None None None None None None None None None
Redemption Fee(3)...... None None None None None None None None None
Annual Fund Operating
Expenses (as a
percentage of average
net assets) (expenses
that are deducted from
Fund assets):
Management Fees....... 0.74% 0.65% 0.65% 0.74% 0.65% 0.65% 0.74% 0.65% 0.65%
Distribution and/or
Service (12b-1)
Fees(4)............... 0.35% 0.35% 0.35% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses........ 0.86% 0.54% 0.54% 0.86% 0.57% 0.57% 0.86% 0.94% 0.60%
Total Annual Fund
Operating Expenses
Before Expense
Reimbursement.......... 1.95% 1.54% 1.54% 2.60% 2.22% 2.22% 2.60% 2.59% 2.25%
Expense
Reimbursement(5)(6)(7).. 0.38% -- -- 0.38% -- -- 0.38% 0.44% --
Net Expenses........... 1.57% 1.54% 1.54% 2.22% 2.22% 2.22% 2.22% 2.15% 2.25%
15
Actual Fee Table for Shareholders of each of the Acquired Funds+
and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table
for each of the Combined Funds (each as of March 31, 2001)*
Institutional Class I/Class I
Shares
-------------------------------
Actual Pro Forma
--------------------- ---------
NAF
Strategic SunAmerica Strategic
Income Diversified Combined
Fund Income Fund Fund**
--------- ----------- ---------
Shareholder Fees (fees paid directly from your
investment):
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering
price)(1)..................................... None N/A None
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption price, whichever is lower)(2)...... None N/A None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends.......................... None N/A None
Redemption Fee(3)............................. None N/A None
Annual Fund Operating Expenses (as a
percentage of average net assets) (expenses
that are deducted from Fund assets):
Management Fees.............................. 0.74% N/A 0.65%
Distribution and/or Service (12b-1) Fees(4).. None N/A None
Other Expenses............................... 1.11% N/A 1.09%
Total Annual Fund Operating Expenses Before
Expense Reimbursement......................... 1.85% N/A 1.74%
Expense Reimbursement(5)(6)................... 0.38% N/A 0.30%
Net Expenses.................................. 1.47% N/A 1.44%
16
These examples are intended to help you compare the cost of investing in the
Strategic Income Funds with the cost of investing in other mutual funds.
Examples:
An investor would pay the following expenses on a $10,000 investment,
assuming (1) the Total Annual Fund Operating Expenses set forth in the Table
above for the relevant Fund and (2) a 5% annual return throughout the period.
Cumulative Expenses Paid
for the Period of:
---------------------------------
3 5
1 Year Years Years 10 Years(11)
------ ------ ------ ------------
Expenses if you did redeem your shares at
the end of the period:
Class A
NAF Strategic Income Fund(8).............. $627 $1,023 $1,444 $2,613
SunAmerica Diversified Income Fund........ 624 938 1,275 2,222
Pro Forma Strategic Combined Fund***...... 624 938 1,275 2,222
Class B
NAF Strategic Income Fund(8).............. $725 $1,172 $1,546 $2,748
SunAmerica Diversified Income Fund........ 725 994 1,390 2,383
Pro Forma Strategic Combined Fund***...... 725 994 1,390 2,383
Class C/Class II
NAF Strategic Income Fund(8).............. $325 $ 772 $1,346 $2,906
SunAmerica Diversified Income Fund(8)..... 416 766 1,243 2,558
Pro Forma Strategic Combined Fund***(9)... 426 796 1,293 2,659
Institutional Class I/Class I
NAF Strategic Income Fund(8).............. $150 $ 545 $ 965 $2,138
Pro Forma Strategic Combined Fund***(8)... 147 456 787 1,724
Cumulative Expenses Paid
for the Period of:
---------------------------------
3 5
1 Year Years Years 10 Years(11)
------ ------ ------ ------------
Expenses if you did not redeem your shares
at the end of the period:
Class A
NAF Strategic Income Fund(8).............. $627 $1,023 $1,444 $2,613
SunAmerica Diversified Income Fund........ 624 938 1,275 2,222
Pro Forma Strategic Combined Fund***...... 624 938 1,275 2,222
Class B
NAF Strategic Income Fund(8).............. $225 $ 772 $1,346 $2,748
SunAmerica Diversified Income Fund........ 225 694 1,190 2,383
Pro Forma Strategic Combined Fund***(8)... 225 694 1,190 2,383
Class C/Class II
NAF Strategic Income Fund(8).............. $225 $ 772 $1,346 $2,906
SunAmerica Diversified Income Fund(8)..... 316 766 1,243 2,558
Pro Forma Strategic Combined
Fund***(8)(10)........................... 326 796 1,293 2,659
Institutional Class I/Class I
NAF Strategic Income Fund(8).............. $150 $ 545 $ 965 $2,138
Pro Forma Strategic Combined Fund***(8)... 147 456 787 1,724
17
Actual Fee Table for Shareholders of each of the Acquired Funds+
and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table
for each of the Combined Funds (as of March 31, 2001)*
Class A Shares Class B Shares Class C/Class II Shares
-------------------------------- -------------------------------- --------------------------------
Actual Pro Forma Actual Pro Forma Actual Pro Forma
--------------------- ---------- --------------------- ---------- --------------------- ----------
NAF SunAmerica U.S. NAF SunAmerica U.S. NAF SunAmerica U.S.
U.S. U.S. Government U.S. U.S. Government U.S. U.S. Government
Government Government Securities Government Government Securities Government Government Securities
Securities Securities Combined Securities Securities Combined Securities Securities Combined
Fund Fund Fund Fund Fund Fund Fund Fund Fund
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Shareholder Fees
(fees paid directly
from your
investment):
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of
offering price)(1).. 4.75% 4.75% 4.75% None None None None 1.00% 1.00%
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
price, whichever is
lower)(2)........... None None None 5.00% 5.00% 5.00% 1.00% 1.00% 1.00%
Maximum Sales Charge
(Load) Imposed on
Reinvested
Dividends........... None None None None None None None None None
Redemption Fee(3)... None None None None None None None None None
Annual Fund
Operating Expenses
(as a percentage of
average net assets)
(expenses that are
deducted from Fund
assets):
Management Fees.... 0.60% 0.75% 0.64% 0.60% 0.75% 0.64% 0.60% 0.75% 0.64%
Distribution and/or
Service (12b-1)
Fees(4)............ 0.35% 0.35% 0.35% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Other Expenses..... 0.59% 0.39% 0.38% 0.59% 0.42% 0.41% 0.59% 1.63% 0.51%
Total Annual Fund
Operating Expenses
Before Expense
Reimbursement....... 1.54% 1.49% 1.37% 2.19% 2.17% 2.05% 2.19% 3.38% 2.15%
Expense
Reimbursement(5)(6).. 0.24% -- 0.05% 0.24% -- 0.05% 0.24% 1.18% 0.10%
Net Expenses........ 1.30% 1.49% 1.32% 1.95% 2.17% 2.00% 1.95% 2.20% 2.05%
18
Actual Fee Table for Shareholders of each of the Acquired Funds+
and each of the Acquiring Funds (as of March 31, 2001) and Pro Forma Fee Table
for each of the Combined Funds (as of March 31, 2001)*
Institutional Class I/Class I
Shares
--------------------------------
Actual Pro Forma
--------------------- ----------
NAF SunAmerica U.S.
U.S. U.S. Government
Government Government Securities
Securities Securities Combined
Fund Fund Fund**
---------- ---------- ----------
Shareholder Fees (fees paid directly from
your investment):
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering
price)(1).................................... None N/A None
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption price, whichever is lower)(2)..... None N/A None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends......................... None N/A None
Redemption Fee(3)............................ None N/A None
Annual Fund Operating Expenses (as a
percentage of average net assets) (expenses
that are deducted from Fund assets):
Management Fees............................. 0.60% N/A 0.64%
Distribution and/or Service (12b-1)
Fees(4)..................................... None N/A None
Other Expenses.............................. 0.84% N/A 0.63%
Total Annual Fund Operating Expenses Before
Expense Reimbursement........................ 1.44% N/A 1.27%
Expense Reimbursement(5)(6).................. 0.24% N/A 0.05%
Net Expenses................................. 1.20% N/A 1.22%
19
These examples are intended to help you compare the cost of investing in the
U.S. Government Securities Funds with the cost of investing in other mutual
funds.
Examples:
An investor would pay the following expenses on a $10,000 investment,
assuming (1) the Total Annual Fund Operating Expenses set forth in the Table
above for the relevant Fund and (2) a 5% annual return throughout the period.
Cumulative Expenses Paid
for the Period of:
-----------------------------------
1 Year 3 Years 5 Years 10 Years(11)
------ ------- ------- ------------
Expenses if you did redeem your shares at
the end of the period:
Class A
NAF U.S. Government Securities Fund(8).. $601 $ 916 $1,253 $2,203
SunAmerica U.S. Government Securities
Fund................................... 619 933 1,250 2,170
Pro Forma U.S. Government Securities
Combined Fund***(8).................... 603 873 1,164 1,990
Class B
NAF U.S. Government Securities Fund(8).. $698 $1,062 $1,353 $2,340
SunAmerica U.S. Government Securities
Fund................................... 720 979 1,364 2,331
Pro Forma U.S. Government Securities
Combined Fund***(8).................... 703 927 1,278 2,152
Class C/Class II
NAF U.S. Government Securities Fund(8).. $298 $ 662 $1,153 $2,505
SunAmerica U.S. Government Securities
Fund(8)................................ 421 781 1,268 2,609
Pro Forma U.S. Government Securities
Combined Fund***(8).................... 406 736 1,192 2,455
Institutional Class I/Class I
NAF U.S. Government Securities Fund(8).. $122 $ 432 $ 764 $1,704
Pro Forma U.S. Government Securities
Combined Fund***(8).................... 124 387 670 1,477
Cumulative Expenses Paid
for the Period of:
-----------------------------------
1 Year 3 Years 5 Years 10 Years(11)
------ ------- ------- ------------
Expenses if you did not redeem your shares
at the end of the period:
Class A
NAF U.S. Government Securities Fund(8).. $601 $916 $1,253 $2,203
SunAmerica U.S. Government Securities
Fund................................... 619 933 1,250 2,170
Pro Forma U.S. Government Securities
Combined Fund***(8).................... 603 873 1,164 1,990
Class B
NAF U.S. Government Securities Fund(8).. $198 $662 $1,153 $2,340
SunAmerica U.S. Government Securities
Fund................................... 220 679 1,164 2,331
Pro Forma U.S. Government Securities
Combined Fund***(8).................... 203 627 1,078 2,152
Class C/Class II
NAF U.S. Government Securities Fund(8).. $198 $662 $1,153 $2,505
SunAmerica U.S. Government Securities
Fund(8)................................ 321 781 1,268 2,609
Pro Forma U.S. Government Securities
Combined Fund***(8).................... 306 736 1,192 2,455
Institutional Class I/Class I
NAF U.S. Government Securities Fund(8).. $122 $432 $ 764 $1,704
Pro Forma U.S. Government Securities
Combined Fund***(8).................... 124 387 670 1,477
20
--------
+ As reflected in the Acquired Funds Prospectuses.
* "Other Expenses," "Total Annual Fund Operating Expenses Before Expense
Reimbursement" and "Expense Reimbursement" in connection with the
SunAmerica Core Bond Fund and each of the Combined Funds have been
estimated.
** Each Combined Fund (except the Tax Exempt Insured Combined Fund) will
commence offering Class I shares upon completion of the applicable
Reorganization. In addition, the SunAmerica Core Bond Fund and the
SunAmerica High Income Fund will commence offering Class Z shares upon
completion of their respective Reorganizations.
*** Assuming the Reorganization had taken place on March 31, 2001.
(1) The front-end sales charge on Class A shares decreases with the size of
the purchase to 0% for purchases of $1 million or more.
(2) With respect to the Acquired Funds, (i) purchases of Class A shares of $1
million or more are subject to a CDSC of 1.00% on redemptions made within
one year of purchase, (ii) the CDSC on Class B shares applies only if
shares are redeemed within six years of their purchase in accordance with
the Acquired Funds' CDSC schedule set forth under "Proposals Nos. 2(a)-
(e): Approval of the Plans," and (iii) the CDSC on Class C shares applies
only if shares are redeemed within one year of their purchase. See the
Acquired Funds Prospectuses for more information regarding the CDSCs
applicable to the Acquired Funds. The CDSC schedules applicable to Class
A, Class B and Class C shares of an Acquired Fund will continue to apply
to the respective Corresponding Shares received in the applicable
Reorganization by shareholders of a Combined Fund who were shareholders of
the corresponding Acquired Fund as of the date of the closing of such
Reorganization (even if you exchange your shares for shares of another
fund distributed by SACS (as defined below). Future purchases of Class A,
Class B or Class II shares of a Combined Fund will be subject to the CDSC
schedule applicable to the Combined Fund.
With respect to the Acquiring Funds (and to future purchases of Class A,
Class B or Class II shares of the Combined Funds after the closing of the
Reorganizations), (i) purchases of Class A shares of $1 million or more are
subject to a CDSC on redemptions made within two years of purchase (1.00%
on shares sold within one year of purchase and 0.50% on shares sold after
the first year and within the second year after purchase), (ii) the CDSC on
Class B shares applies only if shares are redeemed within six years of
their purchase in accordance with the Acquiring Funds' CDSC schedule set
forth under "Proposals Nos. 2(a)-(d): Approval of the Plans," and (iii) the
CDSC on Class II shares applies only if shares are redeemed within eighteen
months of their purchase. See the Acquiring Funds Prospectus for more
information about the CDSCs applicable to the Acquiring Funds and the
Combined Funds.
(3) In the case of the Acquiring Funds (and hence the Combined Funds) a $15.00
fee may be imposed on wire and overnight mail redemptions.
(4) Because these fees are paid out of a Fund's assets on an ongoing basis,
over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
(5) With respect to each Acquired Fund, amounts reflect AGAM's contractual
obligation to waive, and to the extent necessary, reimburse certain fees
and expenses of such Acquired Fund through February 28, 2002. If
shareholders do not approve the Reorganizations, there is no assurance
AGAM would continue to provide such fee reductions and expense
reimbursements past such date.
( 6) With respect to certain classes of shares of the Acquiring Funds and the
Combined Funds, the SunAmerica Board, including a majority of the
Trustees who are not "interested persons" (within the meaning of Section
2(a)(19) of the Investment Company Act) of SunAmerica Income Funds (the
"SunAmerica Independent Trustees"), approved the Acquiring Funds' and the
Combined Funds' Investment Advisory and Management Agreement with SAAMCo
subject to the net expense ratios set forth above. SunAmerica may not
increase such ratios, which are contractually required by agreement with
the SunAmerica Board, without the approval of the SunAmerica Board,
including a majority of the SunAmerica Independent
21
Trustees. The expense waivers and fee reimbursements will continue
indefinitely, subject to termination by the SunAmerica Board, including a
majority of the SunAmerica Independent Trustees.
(7) SAAMCo is voluntarily waiving fees and/or reimbursing expenses so that
the total net expense ratios for Class II shares of the following
Combined Funds do not exceed the amounts set forth below:
High Yield Bond Combined Fund........................................ 2.18%
Tax Exempt Insured Combined Fund..................................... 1.95%
Strategic Combined Fund.............................................. 2.22%
These waivers and reimbursements will continue indefinitely, but may be
terminated at any time.
(8) Expenses used for the example include fee waivers and expense
reimbursements described in footnotes (5) and/or (6) above under "--Fee
Tables."
(9) SAAMCo is voluntarily waiving fees and/or reimbursing expenses for Class
II shares of the following Combined Funds. However, this fee waiver
and/or expense reimbursement is not reflected in the example above. These
waivers and reimbursements will continue indefinitely, but may be
terminated at any time. The following are your costs after these fee
waivers and/or expense reimbursements:
1 year 3 years 5 years 10 years
------ ------- ------- --------
High Yield Bond Combined Fund.............. 418 775 1,258 2,588
Tax Exempt Insured Combined Fund........... 396 706 1,142 2,352
Strategic Combined Fund.................... 423 787 1,278 2,629
(10) SAAMCo is voluntarily waiving fees and/or reimbursing expenses for Class
II shares of the following Acquiring Funds. However, this fee waiver
and/or expense reimbursement is not reflected in the example above.
These waivers and reimbursements will continue indefinitely, but may be
terminated at any time. The following are your costs after these fee
waivers and/or expense reimbursements:
1 year 3 years 5 years 10 years
------ ------- ------- --------
High Yield Bond Combined Fund.............. 318 775 1,258 2,588
Tax Exempt Insured Combined Fund........... 296 706 1,142 2,352
Strategic Combined Fund.................... 323 787 1,278 2,629
(11) Class B shares generally convert to Class A shares approximately eight
years after purchase. Therefore, expense information for years 9 and 10
is the same for both Class A and Class B shares.
-------
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder bears directly or indirectly as compared
to the costs and expenses that would be borne by such investors on a pro forma
basis taking into account the consummation of the Reorganizations. All pro
forma amounts are based on what the estimated expenses of the Pro Forma
Combined Fund would be assuming the Reorganizations were completed on March
31, 2001.
The Examples set forth above assume reinvestment of all dividends and
distributions and utilize a 5% annual rate of return as mandated by Commission
regulations. The Examples should not be considered a representation of past or
future expenses or annual rates of return, and actual expenses or annual rates
of return may be more or less than those assumed for purposes of the Examples.
See "Proposals Nos. 2(a)-(e): Approval of the Plans."
22
THE FUNDS
Business of the Acquired Funds
Each Acquired Fund is a separate investment portfolio or series of North
American Funds, a Massachusetts business trust, which was established on
September 28, 1988 pursuant to its Declaration of Trust.
Business of the Acquiring Funds
Each Acquiring Fund is a separate investment portfolio or series of
SunAmerica Income Funds, a Massachusetts business trust, which was established
on April 24, 1986 pursuant to its Declaration of Trust. The SunAmerica Core
Bond Fund is newly created and has not yet commenced operations.
Comparison of the Funds
A discussion of the investment objectives and principal investment policies
of the Funds is set forth below. Those objectives and policies that are
identified as fundamental may not be changed without shareholder approval. Each
of the Funds is diversified.
As a condition to the Reorganizations involving the High Yield Bond Funds
and the Strategic Income Funds, the respective Acquiring Funds must obtain
shareholder approval to change the investment objective of the respective
Acquiring Fund to resemble more closely that of the Acquired Fund. Accordingly,
the comparisons of these Funds assumes that shareholders of the Acquiring Funds
have approved the necessary changes and reflects a comparison of the Acquired
Fund and the respective Combined Fund. The investment objective of each
Acquiring Fund (except the SunAmerica Core Bond Fund) is fundamental.
Shareholders of the SunAmerica Diversified Income Fund, SunAmerica High Income
Fund and SunAmerica Tax Exempt Insured Fund are currently being asked to vote
on a proposal to make their respective investment objectives non-fundamental.
The investment objective of each Acquired Fund is fundamental except for the
NAF High Yield Bond Fund.
The main differences in the principal investment strategies of the Funds,
each of which is discussed in more detail below, are as follows:
With respect to the Core Bond Funds,
. that the NAF Core Bond Fund may invest up to 35% of its assets in foreign
securities pursuant to a non-fundamental investment restriction, while
the SunAmerica Core Bond Fund is not similarly restricted.
With respect to the Municipal Bond Funds,
. that the SunAmerica Tax Exempt Insured Fund will invest, under normal
market conditions, at least 65% of its total assets in municipal bonds
that, in addition to having income exempt from federal income tax, are
insured as to the scheduled payment of principal and interest for as long
as such bonds are held by the Fund, without regard to the maturities of
such securities, while the NAF Municipal Bond Fund is not similarly
restricted.
Core Bond Funds
Investment Objectives
The investment objective of the NAF Core Bond Fund is to provide a high
level of current income consistent with the maintenance of principal and
liquidity. The SunAmerica Core Bond Fund has the same investment objective as
the NAF Core Bond Fund.
23
Investment Policies
Strategies. Each of the Core Bond Funds pursues or will pursue its
respective investment objective by investing primarily in a combination of
fixed-income securities, including in securities issued or guaranteed by the
U.S. Government, mortgage-backed or asset-backed securities and U.S. dollar-
denominated fixed-income securities issued by foreign issuers.
Foreign Securities. The NAF Core Bond Fund may invest up to 35% of its
assets in foreign securities pursuant to a non-fundamental investment
restriction. The SunAmerica Core Bond Fund is not similarly restricted.
High Yield Bond Funds
Investment Objectives
The investment objective of the NAF High Yield Bond Fund is to seek the
highest possible total return consistent with conservation of capital. The
investment objective of the High Yield Combined Fund will be to seek a high
level of total return. These objectives are substantially similar.
Investment Policies
Strategies. Both High Yield Bond Funds pursue their respective investment
objectives by investing primarily in high-yield, high-risk corporate bonds
(commonly referred to as junk bonds), generally with relatively low duration.
The SunAmerica High Income Fund currently pursues its investment objective by
investing, under normal market conditions, at least 65% of its assets in bonds
as described in the Acquiring Funds Prospectus. Beginning on July 31, 2002, the
Fund will adopt a policy of investing, under normal market conditions, at least
80% of its assets in such securities. For purposes of this policy, bonds
include fixed-income securities other than short-term commercial paper and
preferred stock.
High Yield Bonds. High-yield bonds are those rated below investment grade--
rated below "Baa" by Moody's Investors Service, Inc. ("Moodys") or below "BBB"
by Standard & Poor's Corporation ("S&P"), or, if unrated, determined to be of
equivalent quality by the subadviser.
Municipal Bond Funds
Investment Objectives
The investment objective of the NAF Municipal Bond Fund is to achieve a high
level of current income that is exempt from regular federal income taxes. The
NAF Municipal Bond Fund is also particularly concerned with preserving capital.
The investment objective of the SunAmerica Tax Exempt Insured Fund is to seek
as high a level of current income exempt from federal income taxes as is
consistent with preservation of capital. Accordingly, the investment objectives
of the NAF Municipal Bond Fund and the Tax Exempt Insured Fund are
substantially similar.
Investment Policies
Strategies. The NAF Municipal Bond Fund and the SunAmerica Tax Exempt
Insured Fund each invests in a portfolio comprised primarily of municipal fixed
income securities exempt from federal income taxes. Specifically, the NAF
Municipal Bond Fund invests at least 80% of total assets in investment grade
municipal fixed-income securities, such as municipal bonds, municipal notes and
other municipal obligations. The SunAmerica Tax Exempt Insured Fund will
invest, under normal market conditions, at least 80% of its total assets in
municipal bonds, the income of which is exempt from federal income taxes, and
at least 65% of its total assets in municipal bonds that, in addition to having
income exempt from federal income tax, are insured as to the scheduled payment
of principal and interest for as long as such bonds are held by the Fund,
without regard to the maturities of such securities. The NAF Municipal Bond
Fund is not similarly restricted.
24
Strategic Funds
Investment Objectives
The investment objective of the NAF Strategic Income Fund is to seek a high
level of total return consistent with preservation of capital. The investment
objective of the Strategic Combined Fund will be to seek a high level of total
return. These objectives are substantially similar.
Investment Policies
Strategies. Both Strategic Income Funds pursue their respective investment
objectives by investing primarily in a broad range of fixed-income securities,
including investment grade bonds, U.S. Government and agency obligations,
mortgage-backed securities, and U.S. and foreign high-risk, high-yield bonds.
The SunAmerica Diversified Income Fund currently pursues its investment
objective by investing, under normal market conditions, at least 65% of its
assets in bonds as described in the Acquiring Funds Prospectus. Beginning on
July 31, 2002, the Fund will adopt a policy of investing, under normal market
conditions, at least 80% of its assets in such securities. For purposes of this
policy, bonds include fixed-income securities other than short-term commercial
paper and preferred stock.
U.S. Government Securities Funds
Investment Objectives
The investment objective of the NAF U.S. Government Securities Fund is to
obtain a high level of current income consistent with preservation of capital
and maintenance of liquidity. The investment objective of the SunAmerica U.S.
Government Securities Fund is high current income consistent with relative
safety of capital. Accordingly, the investment objective of the two Funds are
substantially similar.
Investment Policies
Strategies. The NAF U.S. Government Securities Fund and the SunAmerica U.S.
Government Securities Fund each invests in a portfolio comprised primarily of
securities issued by the U.S. Government, or any agency or instrumentality
thereof.
All Funds
Principal Risk Factors
For a discussion of the principal risks of investing in each Fund, see
"Principal Risk Factors and Special Considerations."
Trustees and Officers
Each of North American Funds and SunAmerica Income Funds is governed by a
Board of Trustees that meets regularly to review its respective Funds'
investments, performance, expenses, and other business affairs. Each Board of
Trustees elects its respective Funds' officers.
Management Arrangements
Comparison of Management and Administrative Arrangements and Fees. AGAM
serves as the investment adviser for the Acquired Funds and SAAMCo serves as
the investment adviser for the Acquiring Funds. Each of AGAM and SAAMCo is
responsible for the management of the investment portfolio of each Acquired
Fund and Acquiring Fund, respectively, and for providing certain administrative
services to such Fund. See "Proposals Nos. 2(a)-(e): Approval of the Plans--
Comparison of Management and Administrative Arrangements and Fees" for more
detailed information regarding the advisory arrangements of the Funds.
25
The table below sets forth the fees, as a percentage of average daily net
assets, payable by each Acquired Fund and each Acquiring Fund to AGAM and
SAAMCo, respectively, for their respective management and administrative
services:
Advisory Fee:
----------------------------------------------------------------------------
Between Between Between Between
$50 Million $200 Million $350 Million $400 Million Excess
First and and and and over
Acquired Fund $50 Million $200 Million $350 Million $400 Million $500 Million $500 Million
------------- ----------- ------------ ------------ ------------ ------------ ------------
NAF Core Bond Fund...... 0.600% 0.600% 0.525% 0.525% 0.525% 0.475%
SunAmerica Core Bond
Fund................... 0.600% 0.600% 0.525% 0.525% 0.525% 0.475%
NAF High Yield Bond
Fund................... 0.825% 0.825% 0.725% 0.725% 0.725% 0.675%
SunAmerica High Income
Fund................... 0.750% 0.750% 0.720% 0.720% 0.550% 0.550%
NAF Municipal Bond
Fund................... 0.600% 0.600% 0.600% 0.600% 0.600% 0.600%
SunAmerica Tax Exempt
Insured Fund........... 0.500% 0.500% 0.500% 0.450% 0.450% 0.450%
NAF Strategic Income
Fund................... 0.750% 0.700% 0.650% 0.650% 0.650% 0.600%
SunAmerica Diversified
Income Fund............ 0.650% 0.650% 0.650% 0.600% 0.600% 0.600%
NAF U.S. Government
Securities Fund........ 0.600% 0.600% 0.525% 0.525% 0.525% 0.475%
SunAmerica U.S.
Government Securities
Fund................... 0.650% 0.650% 0.620% 0.620% 0.550% 0.550%
The schedule of fees payable by SunAmerica U.S. Government Securities Fund
set out above will become effective on November 9, 2001 if the shareholders in
the Fund approve the U.S. Government Securities Funds Reorganization.
SunAmerica Core Bond Fund is a newly created investment portfolio and will
commence operations upon consummation of the respective Reorganization.
The advisory fee rate payable by each Combined Fund after consummation of
the Reorganizations will be the same as the advisory fee rates currently paid
by the Acquiring Funds. After the Reorganizations, the net assets of each
Combined Fund will increase by the amount of the net assets of the respective
Acquired Fund. With respect to the High Yield Bond Combined Fund, this increase
in net assets may cause a lower advisory fee rate to apply in accordance with
the break point schedule referenced above. The table below sets forth the pro
forma effective fee rate of each Combined Fund as of March 31, 2001, as a
percentage of average daily net assets, assuming the Reorganizations had been
completed as of such date:
Pro Forma
Effective
Advisory Fee
Combined Fund: Rate:
-------------- ------------
Core Bond Combined Fund...................................... 0.60%
High Yield Bond Combined Fund................................ 0.75%
Tax Exempt Insured Combined Fund............................. 0.50%
Strategic Combined Fund...................................... 0.65%
U.S. Government Securities Combined Fund..................... 0.64%
The Core Bond Combined Fund will pay advisory fees at the same annual rate
as the NAF Core Bond Fund. The High Yield Bond, Tax Exempt Insured and
Strategic Combined Funds will pay advisory fees at a lower annual rate than the
respective Acquired Fund. The U.S. Government Securities Combined Fund will pay
advisory fees at a higher annual rate than the respective Acquired Fund.
Investment Advisory Agreements. The investment advisory agreement between
SunAmerica Income Funds on behalf of the Acquiring Funds and SAAMCo (the
"SunAmerica Investment Advisory Agreement") is
26
similar to both the New and Previous Investment Advisory Agreements applicable
to the Acquired Funds (collectively, the "NAF Investment Advisory Agreement"),
except for certain matters including the advisory fees, the effective dates,
and the identity of the adviser. See "Proposals Nos. 2(a)-(e): Approval of the
Plans" for further discussion regarding these agreements.
Subadvisory Arrangements. New AGIM currently serves as subadviser to each of
the Acquired Funds. After the Core Bond Funds, High Yield Bond Funds, Municipal
Bond Funds, and the Strategic Income Funds Reorganizations, and subject to
approval of shareholders of the respective Acquiring Fund (as necessary) New
AGIM will serve as the subadviser to these Funds pursuant to a new subadvisory
agreement with SAAMCo (the "SunAmerica Subadvisory Agreement"). The SunAmerica
Subadvisory Agreement is similar to both the New and Previous Subadvisory
Agreements applicable to the respective Acquired Funds (collectively, the "NAF
Subadvisory Agreement"), except for certain matters including the effective
dates and the identity of the investment adviser.
Distribution and Shareholder Servicing Arrangements
Distributor. American General Funds Distributors, Inc. ("AGFD" or the "NAF
Distributor"), an affiliate of AGAM, acts as the distributor of the shares of
the Acquired Funds. SunAmerica Capital Services, Inc. ("SACS" or the
"SunAmerica Distributor"), an affiliate of SAAMCo, acts as the distributor of
the shares of the Acquiring Funds. See "Proposals Nos. 2(a)-(e): Approval of
the Plans" for additional information regarding the Funds' distribution
arrangements.
Shareholder Servicing Fees for Class I. AGAM provides certain recordkeeping
and shareholder services to retirement and employee benefit plans and certain
asset allocation funds of North American Funds that invest in Institutional
Class I shares of the Acquired Funds. SACS will provide these services after
the Reorganization with respect to Class I shares of the Combined Funds. See
"Proposals Nos. 2(a)-(e): Approval of the Plans" for additional information
regarding these services.
Other Service Agreements with Affiliates
SunAmerica Fund Services, Inc. ("SAFS"), an affiliate of SAAMCo, acts as a
servicing agent assisting State Street Bank and Trust Company ("State Street"),
the transfer agent and custodian of the Acquiring Funds, in connection with
certain services offered to the shareholders of the Acquiring Funds. See
"Proposals Nos. 2(a)-(e): Approval of the Plans" for additional information
regarding these service agreements.
Other
Shares. As with all mutual funds, investors purchase shares when they invest
in the Funds. Share certificates are not generally issued.
Each full share and fractional share entitles the shareholder to receive a
proportional interest in the respective Fund's capital gain distributions and
cast one vote per share, with fractional shares voting proportionally, on
certain Fund matters, including the election of trustees, changes in
fundamental policies, or approval of changes in investment advisory agreements.
27
Class Structure. The following chart illustrates the classes of shares
currently offered by the Acquired Funds and the Acquiring Funds as well as the
classes of shares to be offered by the Combined Funds after consummation of the
respective Reorganizations:
Fund: Classes Offered:
----- ------------------------------------------
NAF Core Bond Fund A, B, C, Institutional I, Institutional II
SunAmerica Core Bond Fund* A, B, II, I, Z
Core Bond Combined Fund A, B, II, I, Z
NAF High Yield Bond Fund A, B, C, Institutional I, Institutional II
SunAmerica High Income Fund A, B, II
High Yield Bond Combined Fund A, B, II, I, Z
NAF Municipal Bond Fund A, B, C
SunAmerica Tax Exempt Insured
Fund A, B, II
Tax Exempt Insured Combined
Fund A, B, II
NAF Strategic Income Fund A, B, C, Institutional I
SunAmerica Diversified Income
Fund A, B, II
Strategic Combined Fund A, B, II, I
NAF U.S. Government
Securities Fund A, B, C, Institutional I
SunAmerica U.S. Government
Securities Fund A, B, II
U.S. Government Securities
Combined Fund A, B, II, I
* The SunAmerica Core Bond Fund has not yet commenced operations and
therefore has not yet issued shares of any class.
Purchase of Shares. The procedures for purchasing shares are similar, but
not identical, for all Funds. See "Proposals Nos. 2(a)-(e): Approval of the
Plans--Purchase, Exchange and Redemption of Shares" below, "Investing in the
North American Funds" in the Acquired Funds Prospectuses and "Shareholder
Account Information" in the Acquiring Funds Prospectus.
Redemption of Shares. The procedures for redeeming shares are similar, but
not identical, for all Funds. See "Comparison of the Funds--Purchase, Exchange
and Redemption of Shares" below, "Investing in the North American Funds" in the
Acquired Funds Prospectuses and "Shareholder Account Information" in the
Acquiring Funds Prospectus.
Exchanges of Shares. The procedures for exchanging shares are similar, but
not identical, for all Funds. See "Comparison of the Funds" below, "Account
Services" and "Section III: Investing in the North American Funds Institutional
Classes of Shares" in the Acquired Funds Prospectuses and "Transaction
Policies" in the Acquiring Funds Prospectus.
Dividends. The Funds currently have the same policies with respect to
dividends. See "Proposals Nos. 2(a)-(e): Approval of the Plans--Dividends"
below, "Pricing of Shares" and "Dividends and Distributions from North American
Funds" in the Acquired Funds Prospectuses and "Dividend Distribution and
Account Policies" in the Acquiring Funds Prospectus.
Net Asset Value. The price at which each Fund's shares are purchased or
redeemed is the Fund's next determined net asset value per share after receipt
of the purchase or redemption order. The net asset value per share is
calculated once daily as of the close of regular trading on the New York Stock
Exchange ("NYSE") (currently 4:00 p.m., Eastern Time). For further discussion
on net asset value and how it is determined, see "Proposals Nos. 2(a)-(e):
Approval of the Plans--Valuation of Fund Shares" below, "Pricing of Fund
Shares" in the Acquired Funds Prospectuses and "Transaction Policies" in the
Acquiring Funds Prospectus.
28
Tax Considerations. The tax consequences associated with an investment in
shares of an Acquired Fund are substantially the same as the tax consequences
associated with an investment in shares of the respective Acquiring Fund. See
"Taxes" in the Acquired Funds Prospectuses and "Dividend, Distribution and
Account Policies" in the Acquiring Funds Prospectuses.
Each Reorganization has been structured with the intention that it qualify
for Federal income tax purposes as a tax-free reorganization under the Code.
This means that, in the opinion of counsel, no gain or loss will be recognized
by a shareholder of an Acquired Fund for Federal income tax purposes as a
result of a Reorganization. For a more detailed discussion regarding potential
tax consequences of the Reorganizations, see "Proposals Nos. 2(a)-(e): Approval
of the Plans."
29
PRINCIPAL RISK FACTORS AND SPECIAL CONSIDERATIONS
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
Many of the investment risks associated with an investment in an Acquired
Fund are substantially the same as those associated with an investment in the
respective Acquiring Fund. A discussion of the principal risks of investing in
the Funds is set forth below. See the Acquired Funds Prospectuses, the
Acquiring Funds Prospectus, the Acquired Funds Statement and the Acquiring
Funds Statement for more detailed discussions of investment risks associated
with an investment in the Funds. There is no guarantee that the investment
objective of a Fund will be achieved or that the value of a shareholder's
investment in the Fund will not decrease.
As a condition to the Reorganizations involving the High Yield Bond Funds
and the Strategic Income Funds, the respective Acquiring Funds must obtain
shareholder approval to change the investment objective of the respective
Acquiring Fund to conform more closely to that of the Acquired Fund.
Accordingly, the comparisons of the risks of investing in these Funds assumes
that shareholders of the Acquiring Funds have approved the necessary changes
and reflects a comparison of the Acquired Fund and the respective Combined
Fund. The principal risks of the Funds are substantially similar.
All Funds
Bond Market Volatility
As with any bond fund, each Fund is subject to the risk that bond markets as
a whole could go up or down (sometimes dramatically). This could affect the
value of the securities in a Fund's portfolio.
Credit Quality Risk
Each Fund is subject to credit quality risk, which is the risk that the
issuers in which the Funds invest, or with which it does business, will fail
financially or otherwise fail to honor their financial obligations. This risk
is heightened for the High Yield Bond Funds, which invest primarily in lower
quality bonds.
Interest Rate Fluctuations
Volatility in the bond market is due principally to changes in interest
rates. As interest rates rise, bond prices typically fall; and as interest
rates fall, bond prices typically rise. Longer-term and lower coupon bonds tend
to be more sensitive to changes in interest rates. Each Fund is susceptible to
this risk.
Securities Selection Risk
Each Fund is subject to the risk that a strategy used by a Fund, or
securities selected by its portfolio manager, may fail to produce the intended
return.
Core Bond Funds
Prepayment Risk
The Funds are subject to the risk that the principal of the loans underlying
mortgage-backed or other asset-backed securities may be prepaid at any time. As
a general rule, prepayments increase during a period of falling interest rates
and decrease during a period of rising interest rates. As a result of
prepayments, in periods of declining interest rates a Fund may be required to
reinvest its assets in securities with lower interest rates. In periods of
increasing interest rates, prepayments generally may decline, with the effect
that the securities subject to prepayment risk held by the Fund may exhibit
price characteristics of longer-term debt securities.
30
Strategic Income Funds
Foreign Investment Risk
Each Fund is subject to the risk that the value of the Fund's foreign
investments will decline as a result of foreign political, social or economic
changes. Furthermore, there may be less publicly available information about a
foreign company and it may not be subject to the same uniform accounting,
auditing and financial reporting standards as U.S. companies. Foreign
governments may not regulate securities markets and companies to the same
degree as the U.S. government. Consequently, foreign securities may be less
liquid,
more volatile and more difficult to price than U.S. securities. These risks are
heightened when the issuer is in an emerging market.
In addition, a principal risk is that fluctuations in the exchange rates
between the U.S. dollar and foreign currencies may negatively affect an
investment.
Strategic Income Funds and High Yield Bond Funds
Junk Bond Risk
The Strategic Income Funds may, and the High Yield Bond Funds will, invest
in "junk bonds," which are considered speculative. Junk bonds carry a
substantial risk of default or may already be in default. The market price for
junk bonds may fluctuate more than higher-quality securities and may decline
significantly, and it may be more difficult for a Fund to dispose of junk bonds
or to determine their value. Junk bonds may contain redemption or call
provisions that, if exercised during a period of declining interest rates, may
force a Fund to replace the security with a lower yielding security, which
could decrease the return on such Fund.
31
PROPOSALS NOS. 1(a)-(b):
APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT
AND THE NEW SUBADVISORY AGREEMENT
THE AIG MERGER AND THE NEW INVESTMENT ADVISORY AND SUBADVISORY AGREEMENTS
Board Considerations
On August 29, 2001, AIG acquired American General in the AIG Merger. As a
result of the AIG Merger, AGAM and AGIM each became a subsidiary of AIG.
As required by the Investment Company Act, the Previous Investment Advisory
Agreement and Previous Subadvisory Agreement (collectively, the "Previous
Agreements") provided for automatic termination upon "assignment." Under the
Investment Company Act, a change of control of an investment adviser (or
subadviser) constitutes an "assignment." The consummation of the AIG Merger
resulted in the assignment of the Previous Agreements and their automatic
termination. Therefore, as described below, shareholders are being asked to
approve the New Agreements.
At a meeting held on July 16-17, 2001, the NAF Board, including all of the
NAF Independent Trustees, unanimously approved an interim investment advisory
agreement (the "Interim Investment Advisory Agreement") between AGAM and North
American Funds with respect to the Acquired Funds and an interim subadvisory
agreement (the "Interim Subadvisory Agreement" and, together with the Interim
Investment Advisory Agreement, the "Interim Agreements") between AGAM and New
AGIM, an affiliate of AGIM, with respect to the Acquired Funds pursuant to Rule
15a-4 under the Investment Company Act. This allowed AGAM and New AGIM to
continue to serve as investment adviser and subadviser, respectively, for the
Acquired Funds after the AIG Merger. This Rule allows, under certain
circumstances, interim advisory agreements to take effect, and to remain in
effect for up to 150 days, without receiving prior shareholder approval, as
long as the fees payable under such agreement do not exceed the fees payable
under the predecessor agreement that had been approved by the shareholders and
certain other contractual provisions are included in the interim agreement. The
Interim Agreements require all fees earned by AGAM and New AGIM to be escrowed
pending shareholder approval of the New Agreements. If the New Agreements are
not approved, AGAM and New AGIM will be entitled to receive from escrow the
lesser of any costs incurred in performing the Interim Agreements (plus
interest earned on the amount while in escrow), and the total amount in the
escrow account (plus interest earned). The Interim Agreements will terminate on
the earlier of the effective date of the New Agreements or 150 days after the
completion of the AIG Merger.
Pursuant to the terms of the Interim Investment Advisory Agreement, AGAM is
responsible for the management of the investment portfolio of each Acquired
Fund and for providing certain administrative services to each Acquired Fund.
Pursuant to the terms of the Interim Subadvisory Agreement, New AGIM is
responsible for managing the investment and reinvestment of the assets of each
Acquired Fund, subject to the supervision of the NAF Board. The terms of the
Interim Investment Advisory Agreement and Interim Subadvisory Agreement are
similar in all material respects as those of the Previous Investment Advisory
Agreement and Previous Subadvisory Agreement, respectively. The Interim
Agreements differ from the Previous Agreements only with respect to the
effective date, the term, and the escrow provisions relating to fees (as
described above). Under the Investment Company Act, however, AGAM and New AGIM
may continue to serve as the investment adviser or subadviser for each Acquired
Fund beyond an interim period of 150 days only if shareholders of such Acquired
Fund approve a new investment advisory agreement with AGAM and subadvisory
agreement with New AGIM. Consequently, the NAF Board unanimously approved, and
recommended shareholder approval of, the New Agreements on July 16-17, 2001.
The New Agreements, if approved by shareholders, would take effect immediately
upon such approval. The terms of each New Agreement, including advisory fees,
are the same in all material respects as those of the respective Previous
Agreement. Each New Agreement differs from the respective Previous
32
Agreement only with respect to its effective date. See "--Description of the
New Investment Advisory Agreement" below for a description of the New
Investment Advisory Agreement and the services to be provided by AGAM
thereunder and "--Description of New Subadvisory Agreement" below for a
description of the New Subadvisory Agreement and the services to be provided by
New AGIM thereunder.
In connection with its approval of the New Agreements, the NAF Board
received a presentation from representatives of AIG and SAAMCo, as well as from
AGAM. The NAF Board considered that the AIG Merger did not involve any changes
in the overall form of the advisory or subadvisory contracts, the advisory
fees, or any of the Acquired Funds' objectives or policies. The NAF Board also
considered that AGAM and SAAMCo had indicated that while they intended to
propose the Reorganizations to the NAF Board at a subsequent meeting, until
such Reorganizations were approved and consummated, SAAMCo and AIG represented
there would be no material change in the nature and quality of services
provided by AGAM or New AGIM. As part of their deliberations, the NAF Board
also took into account the following, among other factors: the nature and
quality of the services provided or reasonably anticipated to be provided and
the results achieved or reasonably anticipated to be achieved by AGAM and/or
New AGIM; the amount and structure of investment advisers' fees generally and
the fees payable under the New Agreements; the financial strength of AIG; the
management, personnel and operations of AIG and SAAMCo; the commitment of AIG
to the financial services industry; and the structure of the AIG Merger.
In addition, the NAF Board considered the fact that at some point after
consummation of the AIG Merger, the operations of AGIM might be consolidated
with those of another affiliate within the AIG group of companies to eliminate
duplication and attempt to create economies of scale within the organization.
The NAF Board was assured that any such internal reorganization would not
result in a change in the personnel responsible for providing services to the
Acquired Funds or in the nature or quality of those services. Accordingly, the
NAF Board approved each of the Interim Subadvisory Agreement and the New
Subadvisory Agreement with New AGIM.
Section 15(f) of the Investment Company Act provides that an investment
adviser (such as AGAM or New AGIM) to a registered investment company, and the
affiliates of such adviser, may receive any amount or benefit in connection
with a sale of any interest in such investment adviser which results in an
assignment of an investment advisory contract if the following two conditions
are satisfied: (1) for a period of three years after such assignment, at least
75% of the board of directors of the investment company are not "interested
persons" (within the meaning of Section 2(a)(19) of the Investment Company Act)
of the new investment adviser or its predecessor; and (2) no "unfair burden"
(as defined in the Investment Company Act) may be imposed on the investment
company as a result of the assignment or any express or implied terms,
conditions or understandings applicable thereto. Consistent with the first
condition of Section 15(f), AIG advised the NAF Board that for a period of
three years after the AIG Merger, it will not take or recommend any action that
would cause more than 25% of the NAF Board (or SunAmerica Board) to be
interested persons of SAAMCo, AGAM or New AGIM. With respect to the second
condition of Section 15(f), an "unfair burden" on an investment company is
defined in the Investment Company Act to include any arrangement during the
two-year period after any such transaction occurs whereby the investment
adviser or its predecessor or successor, or any interested person of such
adviser, predecessor or successor, receives or is entitled to receive any
compensation of two types, either directly or indirectly. The first type is
compensation from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the investment company,
other than bona fide ordinary compensation as principal underwriter for such
company. The second type is compensation from the investment company or its
security holders for other than bona fide investment advisory or other
services. AIG advised the NAF Board that it will not take or recommend any
action that would constitute an unfair burden on North American Funds (or the
Acquiring Funds) within the meaning of Section 15(f).
33
PROPOSAL NO. 1(a)
NEW INVESTMENT ADVISORY AGREEMENT
Description of the New Investment Advisory Agreement
As a proposal separate from the proposal to approve a Reorganization,
shareholders of each Acquired Fund are being asked to approve the New
Investment Advisory Agreement with AGAM to cover the period subsequent to the
shareholder approval and prior to consummation of the Reorganization (which is
currently anticipated to occur during the fourth calendar quarter of 2001). If
this proposal is approved by the shareholders of an Acquired Fund, but a
Reorganization is not approved, AGAM will continue to serve as that Acquired
Fund's adviser under the New Investment Advisory Agreement. The terms of the
New Investment Advisory Agreement are the same in all material respects as
those of the Previous Investment Advisory Agreement. The New Investment
Advisory Agreement differs from the Previous Investment Advisory Agreement only
with respect to the effective date. The Previous Investment Advisory Agreement
is dated June 1, 2000 and was last approved by the shareholders of the Acquired
Funds at a meeting held on the same date in connection with its initial
approval. A description of the New Investment Advisory Agreement and the
services to be provided by AGAM is set forth below. This description is
qualified in its entirety by reference to the form of the New Investment
Advisory Agreement attached to this Proxy Statement and Prospectus as Exhibit
IA.
As compensation for its services under the New Investment Advisory
Agreement, the Acquired Funds will pay to AGAM the same fee, as a percentage of
average daily net assets, that was payable to AGAM under the Previous
Investment Advisory Agreement. Such fee will be payable monthly and accrued
daily. See "Summary--Management Arrangements" for a description of the Fee
payable to AGAM under the Previous Investment Advisory Agreement.
AGAM has agreed, until February 28, 2002, to reduce fees payable to it by,
or reimburse expenses to, the Acquired Funds. See "Summary--Fee Tables" or
"Proposals Nos. 2(a)-(e): Approval of the Plans--NAF Board Considerations:
Potential Benefits to Shareholders as a Result of the Reorganizations."
For the fiscal year ended October 31, 2000, North American Funds paid total
advisory fees to AGAM of $7,339,733. Of such amount, $663,440, $170,074,
$76,875, $322,001 and $300,110 were attributable to the NAF Core Bond Fund, the
NAF High Yield Bond Fund (for the period from July 7, 2000 to October 31,
2000), the NAF Municipal Bond Fund, the NAF Strategic Income Fund and the NAF
U.S. Government Securities Fund, respectively. From November 1, 1999 to July 7,
2000, The Variable Annuity Life Insurance Company ("VALIC"), an affiliate of
AGAM, served as investment adviser to the NAF High Yield Bond Fund. During this
period, North American Funds paid total advisory fees to VALIC of $540,574. Of
such amount, $310,091 was attributable to the NAF High Yield Bond Fund. These
amounts do not reflect certain fee waivers and expense reimbursements for which
the Acquired Funds were reimbursed.
The Board of Trustees of North American Funds unanimously recommends that
the shareholders of each Acquired Fund approve the New Investment Advisory
Agreement. Shareholders of each Acquired Fund vote separately on the approval
of the New Investment Advisory Agreement. Approval of the New Investment
Advisory Agreement by one Acquired Fund is not contingent upon approval of the
New Investment Advisory Agreement by any other Acquired Fund. If the New
Investment Advisory Agreement is not approved by shareholders of an Acquired
Fund, the NAF Board will determine the appropriate actions in the best
interests of shareholders to be taken with respect to such Acquired Fund's
advisory arrangements at that time.
34
Additional Information About AGAM
General
CypressTree Investments, Inc. ("CypressTree") and its affiliates were formed
in 1996 to acquire, advise and distribute mutual funds through broker-dealers
and other intermediaries. CypressTree Asset Management Corporation, Inc.
("CAM") was CypressTree's wholly owned advisory subsidiary and CypressTree
Funds Distributors, Inc. ("CFD") was CypressTree's wholly owned distribution
subsidiary. On March 10, 2000, CypressTree sold substantially all of its
assets, including all of the stock of CAM and CFD, to American General.
Thereafter, CAM was renamed American General Asset Management Corp. and CFD was
renamed American General Funds Distributors, Inc. Pursuant to the Previous
Advisory Agreement, AGAM oversaw the administration of all aspects of the
business and affairs of the Acquired Funds, and selected, contracted with and
compensated subadvisers to manage the assets of the Acquired Funds. AGAM has
continued to perform these functions under the Interim Investment Advisory
agreement since the completion of the AIG Merger.
AGAM is located at 286 Congress Street, Boston, Massachusetts 02210. Prior
to the AIG Merger, AGAM and AGIM were wholly owned by American General, which
is located at 2929 Allen Parkway, Houston, Texas 77019. As a result of the AIG
Merger, American General is wholly owned by AIG. The principal address of AIG
is 70 Pine Street, New York, New York 10270.
The directors and principal executive officer of AGAM, if any, their
business addresses, position(s) with AGAM and a description of their principal
occupations are set forth below.
Name and Address Position with AGAM and Principal Occupation(s)
---------------- ----------------------------------------------
John A. Graf ...... Senior Vice Chairman, Asset Accumulation, American
2929 Allen Parkway General.
Houston, TX 77019
Kent E. Barrett ... Director and Treasurer; Senior Vice President and General
2929 Allen Parkway Auditor, American General
Houston, TX 77019
In addition, the following officers of North American Funds also are
employees of AGAM:
Thomas J. Brown, Treasurer and Vice President of North American Funds and
Chief Financial Officer and Chief Administrative Officer of AGAM.
John I. Fitzgerald, Secretary and Vice President of North American Funds and
Assistant Secretary and Counsel of AGAM.
John N. Packs, Vice President of North American Funds and Director of
Research of AGAM.
Additional Payments to AGAM and its Affiliates by Acquired Funds
The Previous Investment Advisory Agreement provided for reimbursement to AGAM
for various expenses related to financial, accounting and administrative
services provided to the Acquired Funds. For the fiscal year ended October 31,
2000, North American Funds paid in the aggregate $1,387,842 to AGAM for such
services. Of such amount, $130,390, $21,839, $19,678, $70,665 and $81,338 were
attributable to the NAF Core Bond Fund, the NAF High Yield Bond Fund, the NAF
Municipal Bond Fund, the NAF Strategic Income Fund and the NAF U.S. Government
Securities Fund, respectively. From November 1, 1999 to July 7, 2000, VALIC, an
affiliate of AGAM, provided accounting services for the NAF High Yield Bond Fund
under an accounting services agreement. For this period, the North American
Funds paid VALIC, in the aggregate, $27,375 for these services. Of such amount,
$13,289 was attributable to the NAF High Yield Bond Fund.
35
For the fiscal year ended October 31, 2000, AGAM was paid fees on
Institutional Class I shares under the NAF Services Agreement (as defined
below) of $12,555, $85, $0, $1,662 and $0 by the NAF Core Bond Fund, the NAF
High Yield Bond Fund, the NAF Municipal Bond Fund, the NAF Strategic Income
Fund and the NAF U.S. Government Securities Fund, respectively.
For the fiscal year ended October 31, 2000, the Acquired Funds paid the NAF
Distributor the following distribution and service fees:
Distribution and Service
Fees
--------------------------
Class A Class B Class C
-------- -------- --------
NAF Core Bond Fund.................................. $ 12,104 $ 44,808 $ 35,079
NAF High Yield Bond Fund*........................... 281 4,873 744
NAF Municipal Bond Fund............................. 7,687 46,249 30,606
NAF Strategic Income Fund........................... 26,192 180,981 165,037
NAF U.S. Government Securities Fund................. 110,086 98,571 87,079
* For period July 7, 2000 to October 31, 2000.
For the period November 1, 1999 to July 7, 2000, the NAF Distributor and the
Underwriter to the VALIC Funds received underwriting commissions of $307,778.
Of such amount, $9,565 was attributable to the NAF High Yield Bond Fund. Of the
underwriting commissions received during this period, $32,166 was retained by
the NAF Distributor. The balance of such commissions was paid to American
General Financial Advisors, Inc., an affiliated broker-dealer. During this
period, the NAF Distributor did not receive directly or indirectly from the NAF
High Yield Bond Fund any compensation on the redemption or repurchase of Fund
Shares, brokerage commissions or other underwriting compensation.
For the fiscal year ended October 31, 2000, the Acquired Funds did not pay
brokerage commissions to any affiliated brokers.
36
PROPOSAL NO. 1(b)
THE NEW SUBADVISORY AGREEMENT
Description of the New Subadvisory Agreement
As a proposal separate from the proposal to approve a Reorganization,
shareholders of each Acquired Fund are being asked to approve the New
Subadvisory Agreement between AGAM and New AGIM to ensure that the Acquired
Funds receive subadvisory services during the period prior to consummation of
the Reorganization. The approval of the New Subadvisory Agreement is contingent
upon approval of the New Investment Advisory Agreement, and accordingly, will
not take effect if the New Investment Advisory Agreement is not approved. If
Proposals Nos. 1(a) and (b) are approved, but a Reorganization is not approved
by the shareholders of an Acquired Fund, New AGIM will continue to serve as
that Acquired Fund's subadviser under the New Subadvisory Agreement. The terms
of the New Subadvisory Agreement are the same in all material respects as those
of the Previous Subadvisory Agreement. The New Subadvisory Agreement differs
from the Previous Subadvisory Agreement only with respect to the effective date
and the potential for the subadvisory services to be rendered by an affiliate
of AGIM through New AGIM. The Previous Subadvisory Agreement is dated June 1,
2000 and was last approved by the shareholders of the Acquired Funds at a
meeting held on the same date in connection with its initial approval. A
description of the New Subadvisory Agreement and the services to be provided by
New AGIM is set forth below. This description is qualified in its entirety by
reference to the form of the New Subadvisory Agreement attached to this Proxy
Statement and Prospectus as Exhibit IB.
Under the terms of the New Subadvisory Agreement between AGAM and New AGIM,
New AGIM will manage the investment and reinvestment of the assets of each of
the Acquired Funds, subject to the supervision of the NAF Board. New AGIM will
formulate a continuous investment program for each Acquired Fund consistent
with its investment objectives and policies. New AGIM will also implement such
programs by purchases and sales of securities and will regularly report to AGAM
and the NAF Board with respect to their implementation.
As compensation for its services under the New Subadvisory Agreement, New
AGIM will receive a fee, as a percentage of average daily net assets, payable
monthly and accrued daily as set forth in the table below. This fee is payable
by AGAM at no additional cost to Acquired Fund shareholders.
Subadvisory Fee:
--------------------------------------------------
Between Between
$50 Million $200 Million Excess
First and and Over
Acquired Fund: $50 Million $200 Million $500 Million $500 Million
-------------- ----------- ------------ ------------ ------------
NAF Core Bond Fund......... 0.250% 0.250% 0.200% 0.150%
NAF High Yield Bond Fund... 0.450% 0.450% 0.350% 0.300%
NAF Municipal Bond Fund.... 0.250% 0.250% 0.220% 0.150%
NAF Strategic Income Fund.. 0.350% 0.350% 0.250% 0.200%
NAF U.S. Government
Securities Fund........... 0.225% 0.225% 0.150% 0.100%
For the fiscal year ended October 31, 2000, AGAM paid total subadvisory fees
to AGIM of $3,194,477. Of such amount, $265,944, $91,401 (for the period July
7, 2000 to October 31, 2000), $31,952, $150,251 and $112,544 were attributable
to the NAF Core Bond Fund, the NAF High Yield Bond Fund, the NAF Municipal Bond
Fund, the NAF Strategic Income Fund and the NAF U.S. Government Services Fund,
respectively. From November 1, 1999 to July 7, 2000, VALIC, an affiliate of
AGAM, served as investment adviser for the NAF High Yield Bond Fund. During
this period, VALIC paid total subadvisory fees of $276,034. Of such amount,
$199,342 was attributable to the NAF High Yield Bond Fund.
AGIM also manages the investment portfolios of the Core Bond Fund of North
American Funds Variable Products II (the "NAFVPII Core Bond Fund") and the High
Yield Bond Fund of North American Funds
37
Variable Products II (the "NAFVPII High Yield Bond Fund"), mutual funds with
substantially similar investment objectives to the NAF Core Bond Fund and the
NAF High Yield Bond Fund, respectively. As of August 31, 2001, the total net
asset value of the NAFVPII Core Bond Fund and the NAFVPII High Yield Bond Fund
was $31,198,945 and $17,046,920, respectively. As compensation for its advisory
services in connection with the NAFVPII Core Bond Fund and the NAFVPII High
Yield Bond Fund, AGIM receives advisory fees of 0.50% and 0.70%, respectively,
of average daily net assets payable monthly and accrued daily. For the fiscal
year ended August 31, 2001, AGIM received total advisory fees of $54,049 and
$51,707 in connection with the NAFVPII Core Bond Fund and the NAFVPII High
Yield Bond Fund, respectively. No fees were waived with respect to these Funds.
The Board of Trustees of North American Funds unanimously recommends that
the shareholders of each Acquired Fund approve the New Subadvisory Agreement.
Shareholders of each Acquired Fund vote separately on the approval of the New
Subsidiary Agreement. Approval of the New Subadvisory Agreement by one Acquired
Fund is not contingent upon approval of the New Subadvisory Agreement by any
other Acquired Fund. If the New Subadvisory Agreement is not approved by
shareholders of an Acquired Fund, the NAF Board will determine the appropriate
actions to be taken with respect to such Acquired Fund's subadvisory
arrangements at that time.
Additional Information About AGIM
AGIM has been the subadviser to the NAF Core Bond Fund, the NAF Municipal
Bond Fund, the NAF Strategic Income Fund and the NAF U.S. Government Securities
Fund since March 2000, and the NAF High Yield Bond Fund since its inception.
AGIM was formed in 1998 as a successor to the investment management division of
American General. Pursuant to the Previous Subadvisory Agreement, AGIM managed
the investment and reinvestment of the assets of each Acquired Fund subject to
the supervision of the NAF Board. AGIM has continued to perform these functions
under the Interim Subadvisory Agreement since the completion of the AIG Merger.
As of September 20, 2001 AGIM had approximately $1.45 billion in assets under
management.
AGIM is located at 2929 Allen Parkway, Houston, Texas 77019. The directors
and principal executive officer of AGIM, their position(s) with AGIM and a
description of their principal occupations are set forth below. Unless
otherwise indicated, the business address of each is 2929 Allen Parkway,
Houston, Texas 77019.
Name and Address Position with AGIM and Principal Occupation(s)
---------------- ----------------------------------------------
Richard W. Scott..... Director, President and Chief Executive Officer; Senior
Managing Director and head of U.S. Fixed Income for AIG
Global Investment Corp.; formerly Vice Chairman,
Investment Management for American General.
Albert Gutierrez..... Director and Executive Vice President (since April 2000);
prior to working at AGIM, Mr. Gutierrez was Senior Vice
President responsible for non-equity research, trading
and various insurance company portfolios with Conseco
Capital Management from 1987 to 2000.
38
PROPOSALS NOS. 2(a)-(e): APPROVAL OF THE PLANS
COMPARISON OF THE FUNDS
Investment Policies
In addition to the principal investment policies set forth under "Summary--
Comparison of the Funds" above, the Funds may also employ the following
investment policies.
As a condition to the Reorganizations involving the High Yield Bond Funds
and the Strategic Income Funds, the respective Acquiring Funds must obtain
shareholder approval to change the investment objective of the respective
Acquiring Fund to more closely resemble that of the Acquired Fund. In addition,
these Acquiring Funds are seeking shareholder approval of a proposal to change
their investment restrictions on borrowing. Accordingly, the comparisons of
these Funds assumes that shareholders of the Acquiring Funds have approved
these changes and reflects a comparison of the Acquired Fund and the respective
Combined Fund.
The principal difference in the investment policies of the Acquired Funds
vis-a-vis the corresponding Acquiring Funds relates to their respective
borrowing policies, which are discussed in more detail below.
All Funds
Lending. The Funds may not make loans, except through repurchase agreements
and the purchase of portfolio securities consistent with a Fund's investment
objectives and policies. In addition, each Fund may lend portfolio securities
subject to comparable limitations.
Illiquid Securities. Each Acquiring Fund (except the SunAmerica Core Bond
Fund) currently may invest up to 10% of its net assets in illiquid securities.
Each Acquired Fund and the SunAmerica Core Bond Fund may invest up to 15% of
its net assets in illiquid securities, and, if the respective reorganization is
approved, upon consummation of the reorganization each of the Combined High
Yield Bond Fund, Combined Municipal Bond Fund and Combined Strategic Fund may
invest up to 15% of its net assets in illiquid securities.
Short Sales. As a non-fundamental policy, no Fund may engage in short sales,
except short sales "against the box." A short sale is against the box to the
extent that the Fund contemporaneously owns, or has the right to obtain without
payment, securities identical to those sold short.
Core Bond Funds
Borrowing. Each Core Bond Fund may borrow for temporary or emergency
purposes and in connection with reverse repurchase agreements, mortgage rolls
and similar transactions. The Core Bond Funds are subject to similar
limitations on borrowing. Each Fund's policy regarding the use of leverage is a
fundamental policy.
High Yield Bond Funds
Borrowing. The NAF High Yield Bond Fund may not borrow from banks or enter
into reverse repurchase agreements, or employ similar investment techniques,
and pledge its assets in connection therewith, unless immediately after each
borrowing there is asset coverage of 300%. In other words, the NAF High Yield
Bond Fund may borrow up to 33 1/3% of its total assets. The High Yield Bond
Combined Fund may borrow up to 33 1/3% of the value of its total assets (not
including amounts borrowed) less liabilities (other than borrowing). The High
Yield Bond Combined Fund may borrow money to purchase securities in amounts not
exceeding 50% of its net assets and pledge its assets to secure such
borrowings. The High Yield Bond Combined Fund may also pledge up to 5% of its
assets in connection with interest rate swaps. Each Fund's policy regarding the
use of leverage is a fundamental policy.
Municipal Bond Funds
Borrowing. Each Municipal Bond Fund may borrow for temporary or emergency
purposes and the NAF Municipal Bond Fund may also borrow in connection with
reverse repurchase agreements, mortgage rolls and
39
similar transactions. When borrowing for temporary or emergency purposes, the
NAF Municipal Bond Fund may borrow up to 33 1/3% of the value of its total
assets (including amounts borrowed) less liabilities (other than borrowing)
while the SunAmerica Tax Exempt Insured Fund may borrow up to 5% of the value
of its respective total assets (valued at the lower of cost or current value
not including borrowings). Both Municipal Bond Funds may pledge their
respective assets to secure such borrowings. Each Fund's policy regarding the
use of leverage is a fundamental policy.
Strategic Income Funds
Borrowing. Each Strategic Income Fund may borrow for temporary or emergency
purposes and may also borrow in connection with reverse repurchase agreements,
mortgage rolls and similar transactions. When borrowing for temporary or
emergency purposes, the two Funds are subject to comparable limitations. In
addition, the Strategic Combined Fund may borrow money to purchase securities
in amounts not exceeding 50% of its net assets and pledge its assets to secure
such borrowings. The Strategic Combined Fund may also pledge up to 5% of its
assets in connection with interest rate swaps. Each Fund's policy regarding the
use of leverage is a fundamental policy.
U.S. Government Securities Funds
Borrowing. Each U.S. Government Securities Fund may borrow for temporary or
emergency purposes and the NAF U.S. Government Securities Fund may also borrow
in connection with reverse repurchase agreements, mortgage rolls and similar
transactions. When borrowing for temporary or emergency purposes, the NAF U.S.
Government Securities Fund may borrow up to 33 1/3% of the value of its
respective total assets (including amounts borrowed) less liabilities (other
than borrowing) while the SunAmerica U.S. Government Securities Fund may borrow
up to 5% of the value of its respective assets (valued at the lower of cost or
current value not including borrowings). Both U.S. Government Securities Funds
may pledge their assets to secure such borrowings. Each Fund's policy regarding
the use of leverage is a fundamental policy.
Trustees and Officers
SunAmerica Income Funds is governed by the SunAmerica Board which currently
consists of five individuals, four of whom are SunAmerica Independent Trustees.
The SunAmerica Board is responsible for the overall supervision of
SunAmerica Income Funds and performs various duties imposed on trustees of
investment companies by the Investment Company Act and under Massachusetts law.
Trustees and officers of SunAmerica Income Funds are also trustees and officers
of some or all of the other investment companies managed, administered or
advised by SAAMCo, and distributed by SACS and other affiliates. The SunAmerica
Board elects the Acquiring Funds' officers. See "Trustees and Officers" in the
Acquiring Funds Statement.
40
The following table lists the Trustees and executive officers of SunAmerica
Income Funds, their ages and principal occupations during the past five years.
The business address of each Trustee and executive officer is The SunAmerica
Center, 733 Third Avenue, New York, New York 10017-3204. For the purposes of
this Proxy Statement and Prospectus, the SunAmerica Mutual Funds ("SAMF")
consist of SunAmerica Equity Funds, SunAmerica Income Funds, SunAmerica Money
Market Funds, Inc., SunAmerica Style Select Series, Inc. and SunAmerica
Strategic Investment Series, Inc. An asterisk indicates that the Trustee is an
interested person of SunAmerica Income Funds within the meaning of Section
2(a)(19) of the Investment Company Act.
Position with the
Name, Age and Address Trust Principal Occupations During Past 5 Years
--------------------- ----------------- -----------------------------------------
S. James Coppersmith, Trustee Retired; formerly, President and General
68..................... Manager, WCVB-TV, a division of the Hearst
Corp. (1982 to 1994); Director/Trustee of
SAMF and Anchor Series Trust ("AST").
Samuel M. Eisenstat, Chairman of the Attorney, solo practitioner; Chairman of
60..................... Board the Boards of Directors/Trustees of SAMF
and AST.
Stephen J. Gutman, 58... Trustee Partner and Managing Member of B.B.
Associates LLC (menswear specialty
retailing and other activities) since June
1988; Director/Trustee of SAMF and AST.
Peter A. Harbeck*, 47... Trustee and Director and President, SAAMCo, since
President August 1995; Director, AIG Asset Management
International, Inc. ("AIGAMI") since
February 2000; Managing Director, John
McStay Investment Counsel, L.P. ("JMIC")
since June 1999; Director, SACS, since
August 1993; Director and President,
SunAmerica Fund Services, Inc. ("SAFS"),
since May 1988; President, SAMF and AST.
Sebastiano Sterpa, 72... Trustee Founder and Chairman of the Board of the
Sterpa Group (real estate) since 1962;
Director, Real Estate Business Service and
Countrywide Financial; Director/Trustee of
SAMF.
J. Steven Neamtz, 42.... Vice President Executive Vice President, SAAMCo, since
April 1996; Director and Chairman of the
Board, AIGAMI, since February 2000; Vice
President, SAMF, since November 1999;
Director and President, SACS, since April
1996.
Peter C. Sutton, 36..... Treasurer Senior Vice President, SAAMCo, since April
1997; Vice President, AIGAMI, since
February 2000; Treasurer and Controller of
Seasons Series Trust ("Seasons"),
SunAmerica Series Trust ("SAST") and Anchor
Pathway Fund ("APF") since February 2000;
Treasurer of SAMF and AST since February
1996; Vice President of SAST and APF since
1994; formerly Assistant Treasurer of SAST
and APF from 1994 to February 2000; Vice
President, Seasons, since April 1997;
formerly Vice President, SAAMCo, from 1994
to 1997.
41
Position with the
Name, Age and Address Trust Principal Occupations During Past 5 Years
--------------------- ----------------- -----------------------------------------
Robert M. Zakem, 43..... Secretary and Chief Senior Vice President and General Counsel,
Compliance Officer SAAMCo, since April 1993; Vice President,
General Counsel and Assistant Secretary,
AIGAMI, since February 2000; Executive Vice
President, General Counsel and Director,
SACS, since August 1993; Vice President,
General Counsel and Assistant Secretary,
SAFS, since January 1994; Vice President,
SAST, APF and Seasons; Assistant Secretary,
SAST and APF, since September 1993;
Assistant Secretary, Seasons, since April
1997.
At a meeting of the SunAmerica Board held on August 22, 2001, the SunAmerica
Board elected Dr. Judith L. Craven and William F. Devin to the SunAmerica
Board, effective on or about November 9, 2001. Dr. Craven and Mr. Devin are
currently members of the NAF Board. Dr. Craven and Mr. Devin would join the
SunAmerica Board as SunAmerica Independent Trustees and as members of the Audit
and Nominating Committees.
The following table lists the ages, business addresses and principal
occupations during the past five years of Dr. Craven and Mr. Devin.
Dr. Judith L. Craven, Retired Administrator. Trustee, North American Funds
55..................... Variable Product Series II, 15 investment portfolios
3212 Ewing Street (November 1998 to present); Director, North American
Houston, TX 77004 Funds Variable Product Series I, 21 investment portfolios
(August 1998 to present); Director, USLIFE Income Fund,
Inc. (November 1998 to present); Director, Compaq
Computer Corporation (1992 to present); Director, A.G.
Belo Corporation, a media company (1992 to present);
Director, Sysco Corporation, a food marketing and
distribution company (1996 to present); Director, Luby's
Inc., a restaurant chain (1998 to present); Director,
University of Texas Board of Regents (May 2001 to
present). Formerly, Director, CypressTree Senior Floating
Rate Fund, Inc. (June 2000 to May 2001); Formerly,
President, United Way of the Texas Gulf Coast, a not for
profit organization (1992-1998); Formerly, Director,
Houston Branch of the Federal Reserve Bank of Dallas
(1992-2000); Formerly, Board Member, Sisters of Charity
of the Incarnate Word 1996-1999).
William F. Devin, 63.... Member of the Board of Governors, Boston Stock Exchange
44 Woodland Road (1985 to present); Formerly, Executive Vice President,
Braintree, MA 02184 Fidelity Capital Markets, a division of National
Financial Services Corporation (1966-1996); Formerly,
Director, CypressTree Senior Floating Rate Fund, Inc.
(October 1997 to May 2001).
SunAmerica Income Funds pays each SunAmerica Independent Trustee annual
compensation in addition to reimbursement of out-of-pocket expenses in
connection with attendance at meetings of the SunAmerica Board. Specifically,
each SunAmerica Independent Trustee received a pro rata portion (based upon the
SunAmerica Income Funds' net assets) of an aggregate of $40,000 in annual
compensation for acting as director or trustee to SAMF. In addition, each
SunAmerica Independent Trustee received $20,000 in annual compensation for
acting as trustee to AST. Beginning January 1, 2001 each SunAmerica Independent
Trustee of the retail funds in SAMF receives an additional $2,500 per quarterly
meeting. In addition, Mr. Eisenstat receives an aggregate of $2,000 in annual
compensation for serving as Chairman of the Boards of the retail
42
funds in SAMF. Officers of SunAmerica Income Funds receive no direct
remuneration in such capacity from SunAmerica Income Funds or any of the
Acquiring Funds.
In addition, each SunAmerica Independent Trustee also serves on the Audit
Committee of the SunAmerica Board. The Audit Committee is charged with
recommending to the full SunAmerica Board the engagement or discharge of
SunAmerica Income Funds' independent accountants; directing investigations into
matters within the scope of the independent accountant's duties; reviewing with
the independent accountants the audit plan and results of the audit; approving
professional services provided by the independent accountants and other
accounting firms; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; and preparing and submitting
Committee minutes to the full SunAmerica Board. Each member of the Audit
Committee receives an aggregate of $5,000 in annual compensation for serving on
the Audit Committee of SAMF and AST. With respect to SunAmerica Income Funds,
each member of the Committee receives a pro rata portion of the $5,000 annual
compensation, based on the relative net assets of SunAmerica Income Funds.
SunAmerica Income Funds also has a Nominating Committee, comprised solely of
SunAmerica Independent Trustees, which recommends to the SunAmerica Board those
persons to be nominated for election as Trustees by shareholders and selects
and proposes nominees for election by Trustees between shareholders' meetings.
Members of the Nominating Committee serve without compensation.
The Trustees (and Directors) of SAMF and AST have adopted the SunAmerica
Disinterested Trustees' and Directors' Retirement Plan (the "Retirement Plan")
effective January 1, 1993 for the SunAmerica Independent Trustees. The
Retirement Plan provides generally that if a SunAmerica Independent Trustee who
has at least 10 years of consecutive service as a disinterested Trustee of any
of SAMF or AST (an "Eligible Trustee") and retires after reaching age 60 but
before age 70 or dies while a Trustee, such person will be eligible to receive
a retirement or death benefit from each SAMF with respect to which he or she is
an Eligible Trustee. With respect to Sebastiano Sterpa, the SunAmerica
Independent Trustees have determined to make an exception to existing policy
and allow Mr. Sterpa to remain on the SunAmerica Board past age 70, until he
has served for ten years. Mr. Sterpa ceased accruing retirement benefits upon
reaching age 70, although such benefits will continue to accrue interest as
provided for in the Retirement Plan. As of each birthday, prior to the 70th
birthday, each Eligible Trustee will be credited with an amount equal to (i)
50% of his or her regular fees (excluding committee fees) for services as a
disinterested Trustee of each SAMF for the calendar year in which such birthday
occurs, plus (ii) 8.5% of any amounts credited under clause (i) during prior
years. An Eligible Trustee may receive any benefits payable under the
Retirement Plan, at his or her election, either in one lump sum or in up to
fifteen annual installments.
The following table sets forth information summarizing the aggregate
compensation of each SunAmerica Independent Trustee for his services as a
member of the SunAmerica Board for the fiscal year ended March 31, 2001.
Neither the Trustees who are interested persons of SunAmerica Income Funds nor
any officers of SunAmerica Income Funds receive any compensation.
Total
Pension or Compensation
Retirement Estimated From
Aggregate Benefits Annual Registrant
Compensation Accrued as Benefits and Fund
from Part of Upon Complex Paid
Trustee Registrant Trust Expenses* Retirement** to Trustees*
------- ------------ --------------- ------------ ------------
S. James Coppersmith..... $4,025 $51,702 $29,670 $67,500
Samuel M. Eisenstat...... $4,246 $44,289 $46,089 $71,500
Stephen J. Gutman........ $4,025 $45,567 $60,912 $67,500
Sebastiano Sterpa***..... $4,196 $ 9,623 $ 7,900 $45,833
--------
* Information is as of March 31, 2001 for the five investment companies in the
complex that pay fees to these directors/trustees. The complex consists of
SAMF and AST.
** Assuming participant elects to receive benefits in 15 yearly installments.
*** Mr. Sterpa is not a trustee of AST.
43
Management Arrangements
Comparison of Management and Administrative Arrangements and Fees
AGAM serves as the investment adviser for the Acquired Funds and SAAMCo
serves as the investment adviser for the Acquiring Funds. Each of AGAM and
SAAMCo is responsible for the management of the investment portfolio of each
Acquired Fund and Acquiring Fund, respectively (except to the extent delegated
to a subadviser), and for providing certain administrative services to such
Fund.
AGAM was organized as a Delaware corporation in 1996 and is located at 286
Congress Street, Boston, Massachusetts, 02210. Prior to the AIG Merger, AGAM
and the NAF Distributor were both wholly owned subsidiaries of American
General. Prior to the AIG Merger, American General was one of the nation's
largest diversified financial services organizations with assets of
approximately $128 billion and market capitalization of $23 billion at June 30,
2001. AGAM is now a subsidiary of AIG. The principal executive offices of AIG
are located at 70 Pine Street, New York, New York 10270.
SAAMCo was organized as a Delaware corporation in 1982 and is located at The
SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204. SAAMCo is a
wholly owned subsidiary of SunAmerica Inc., which in turn is a wholly owned
subsidiary of AIG. AIG, a Delaware corporation, is a holding company which
through its subsidiaries is engaged in a broad range of insurance and
insurance-related activities and financial services in the United States and
abroad. AIG's primary activities include both general and life insurance
operations. Other significant activities include financial services and asset
management. As of June 30, 2001, SAAMCo managed, advised and/or administered
more than $28.5 billion of assets.
Comparison of the NAF Investment Advisory Agreement and SunAmerica
Investment Advisory Agreement. The SunAmerica Investment Advisory Agreement is
similar to the NAF Investment Advisory Agreement, except for certain matters,
including the advisory fees, the effective dates and the identity of the
adviser. The advisory fees payable by the Acquired Funds to AGAM are discussed
above under "Proposal No. 1(a): New Investment Advisory Agreement" and
"Summary-Management Arrangements."
The Core Bond Combined Fund will pay advisory fees at the same annual rate
as the NAF Core Bond Fund. The High Yield Bond, Tax Exempt Insured and
Strategic Combined Funds will pay advisory fees at a lower annual rate than the
respective Acquired Fund. The U.S. Government Securities Combined Fund will pay
advisory fees at a higher annual rate than the respective Acquired Fund. See
"Proposals Nos. 2(a)-(e): Approval of the Plans--NAF Board Considerations:
Potential Benefits to Shareholders as a Result of the Reorganizations."
The advisory fee rate payable by each Combined Fund after consummation of
the Reorganizations will be the same as the advisory fee rates payable by the
Acquiring Funds. After the Reorganizations, the net assets of each Combined
Fund (except the Core Bond Combined Fund, which currently has no assets) will
increase by the amount of the net assets of the respective Acquired Fund. With
respect to the High Yield Bond Combined Fund, this increase in net assets may
cause a lower advisory fee rate to apply in accordance with the advisory fee
breakpoint schedule applicable to such Acquiring Fund. The pro forma effective
fee rate of each Combined Fund, as a percentage of average daily net assets,
after taking into account the completion of the Reorganizations, is shown above
under "Summary."
The SunAmerica Investment Advisory Agreement provides that in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of
SAAMCo's (and its affiliates') obligations or duties thereunder ("disabling
conduct"), SAAMCo is not subject to liability to an Acquiring Fund (or to any
shareholder thereof) for any act or omission in the course of rendering
services to such Acquiring Fund (except to the extent specified in the
Investment Company Act concerning loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services). The SunAmerica
Investment Advisory Agreement also provides that except for such disabling
conduct, an Acquired Fund will indemnify SAAMCo (and its affiliates) from any
44
liability arising from SAAMCo's conduct under the SunAmerica Investment
Advisory Agreement. The NAF Investment Advisory Agreement does not contain
similar provisions.
Both the NAF Investment Advisory Agreement and the SunAmerica Investment
Advisory Agreement provide that the adviser may, at its own cost and expense
and subject to the requirements of the Investment Company Act, retain one or
more subadvisers (each, a "Subadviser") to manage all or a portion of the
investment portfolio of an Acquired Fund or Acquiring Fund, respectively.
Comparison of Subadvisory Arrangements. Under the terms of each of the
Subadvisory Agreements between AGAM and New AGIM (the "Subadvisory
Agreements"), New AGIM manages the investment and reinvestment of the assets of
each Acquired Fund, subject to the supervision of the NAF Board. New AGIM
formulates a continuous investment program for each Acquired Fund consistent
with its investment objectives and policies. New AGIM implements such programs
by purchases and sales of securities and regularly reports to AGAM and the NAF
Board with respect to their implementation.
As compensation for its services, New AGIM receives fees from AGAM computed
separately for each Acquired Fund. Such fees are paid out of AGAM's advisory
fee at no additional cost to the Acquired Funds or their shareholders. The
Subadvisory fees payable by AGAM to New AGIM are discussed above under
"Proposal No. 1(b): Approval of the New Investment Subadvisory Agreement--
Description of the New Investment Subadvisory Agreement."
For the fiscal year ended October 31, 2000, AGAM paid subadvisory fees to
AGIM as follows; $265,944, $91,401, $31,952, $150,251 and $112,544 were
attributable to the NAF Core Bond Fund, the NAF High Yield Bond Fund (for the
period from July 7, 2000 to October 31, 2000), the NAF Municipal Bond Fund, the
NAF Strategic Income Fund and the NAF U.S. Government Securities Fund,
respectively.
After the Reorganization, New AGIM will serve as the subadviser to the Core
Bond Combined Fund, the High Yield Bond Combined Fund, the Tax Exempt Insured
Combined Fund and the Strategic Combined Fund pursuant to the SunAmerica
Subadvisory Agreement subject to shareholder approval of the respective
Acquiring Fund, as necessary. The terms of the NAF Subadvisory Agreement and
the SunAmerica Subadvisory Agreement are similar all material respects,
including subadvisory fee rates.
The SunAmerica Subadvisory Agreement provides that in the absence of
disabling conduct (i.e., willful misfeasance, bad faith, gross negligence or
reckless disregard of New AGIM's (and its affiliates') obligations or duties
thereunder), New AGIM is not subject to liability to an Acquiring Fund (or to
any shareholder thereof) for any act or omission in the course of rendering
services to such Acquiring Fund (except to the extent specified in the
Investment Company Act concerning loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services). The SunAmerica
Subadvisory Agreement also provides that except for such disabling conduct,
SAAMCo will indemnify New AGIM (and its affiliates) from any liability arising
from New AGIM's conduct under the SunAmerica Subadvisory Agreement. If SAAMCo
were required to indemnify New AGIM under the SunAmerica Subadvisory Agreement,
it would in turn seek indemnification for such expenditure from the applicable
Acquiring Fund(s). The NAF Subadvisory Agreement does not contain similar
provisions.
Distribution and Shareholder Servicing Arrangements
Distributor
American General Funds Distributors, Inc. (previously defined as "AGFD" or
the "NAF Distributor"), an affiliate of AGAM, acts as the principal distributor
of the shares of the Acquired Funds. SunAmerica Capital Services, Inc.
(previously defined as "SACS" or the "SunAmerica Distributor"), an affiliate of
SAAMCo, acts as the distributor of the shares of the Acquiring Funds. As
compensation for their respective services, AGFD and SACS receive the initial
and deferred sales charges in respect of the Acquired Funds and Acquiring
Funds,
45
respectively. In addition, AGFD and SACS receive fees under each respective
Acquired Fund's and Acquiring Fund's plan pursuant to Rule 12b-1 under the
Investment Company Act. The address of the NAF Distributor is 286 Congress
Street, Boston, Massachusetts 02210. The address of the SunAmerica Distributor
is The SunAmerica Center, 733 Third Avenue, New York, New York 10017-3204.
After consummation of the Reorganizations, the SunAmerica Distributor will
continue to provide distribution services to each Combined Fund.
Distribution and Service (12b-1) Fees
Each of the Acquired Funds and Acquiring Funds have adopted a plan under
Rule 12b-1 under the Investment Company Act that allows it to pay distribution
and other fees for the sale and distribution of its shares. Class A, Class B
and Class C shares of each Acquired Fund and Class A, Class B and Class II
shares of each Acquiring Fund are subject to the same respective distribution
and account maintenance and service fees pursuant to a plan under Rule 12b-1.
The table below sets forth the distribution and account maintenance and service
fees for each of these classes.
Acquired Acquiring Distribution Account Maintenance
Fund Class Fund Class Fee and Service Fee
---------- ---------- ------------ -------------------
A A 0.10% 0.25%
B B 0.75% 0.25%
C II 0.75% 0.25%
Because these fees are paid out of a Fund's assets on an ongoing basis, over
time they will increase the cost of your investment and may cost you more than
paying other types of sales charges.
Shareholder Servicing Fee for Class I
The Acquired Funds have entered into a Services Agreement (the "NAF Services
Agreement") with AGAM for the provision of recordkeeping and shareholder
services to retirement and employee benefit plans and certain asset allocation
funds of North American Funds that invest in Institutional Class I shares of
the Acquired Funds. Under the NAF Services Agreement, as compensation for
services rendered, AGAM receives a fee on Institutional Class I shares of each
Acquired Fund equal to .25% of average net assets of such class. SACS will
provide these services after the Reorganizations with respect to Class I shares
of the Combined Funds for the same fee.
Other Service Agreements with Affiliates
SAFS acts as a servicing agent assisting State Street in connection with
certain services offered to the shareholders of each of the Acquiring Funds
pursuant to the terms of a Service Agreement (the "SunAmerica Service
Agreement"). Under the SunAmerica Service Agreement, as compensation for
transfer agency services rendered, SAFS receives a fee from each Acquiring
Fund, computed and payable monthly based upon an annual rate of .22% of average
daily net assets of each Acquiring Fund with respect to Class A, Class B and
Class II shares. Upon completion of the Reorganizations, SAFS will receive the
same fee with respect to Class I shares of each Acquiring Fund. For Class Z
shares, SAFS receives reimbursements from the Funds of its costs, which include
all direct transfer agency fees and out-of-pocket expenses allocated to
providing services to Class Z shares. From this fee, SAFS pays a fee to State
Street, and its affiliate, National Financial Data Services. In addition,
pursuant to the Service Agreement, SAFS may receive reimbursement of its costs
in providing shareholder services on behalf of the Acquiring Funds. SAFS is
located at The SunAmerica Center, 733 Third Avenue, New York, New York 10017-
3204.
46
Purchase, Exchange and Redemption of Shares
The following chart highlights the purchase, redemption and exchange
features of the Acquired Funds as compared to such features of the Acquiring
Funds.
Purchase, Redemption and
Exchange Features Acquired Funds Acquiring Funds
------------------------ -------------- ---------------
Minimum initial .non-retirement accounts: .non-retirement accounts:
investment $1,000 $500
.retirement accounts: $50 .retirement accounts: $250
. automatic investment . dollar cost averaging:
programs: $50 $500 to open
Class B shares are available
for purchases of $250,000 or
less
Class C shares are available
for purchases under $1
million
Institutional Class I shares
are available for purchases
of $1 million or more
Minimum subsequent $50 . non-retirement account:
investments $100
. retirement account: $25
. dollar cost averaging: at
least $25 per month
Initial Sales Charge (as Class A: 4.75% Class A: 4.75%
a percentage of
offering price)
Class B: None Class B: None
Class C: None Class II: 1.00%
Institutional Class I: None Class I: None (a)
Institutional Class II: None Class Z: None (a)
Purchases over $1 million Initial sales charge is
are sold without an initial waived for certain investors
sales charge
Deferred Sales Charge Class A: Purchases of shares Class A: Purchases of Class
worth $1 million or more A shares of $1 million or
that are sold without an more that are redeemed
initial sales charge and within a certain period of
redeemed within 1 year are time are subject to a CDSC
subject to a 1% CDSC at (1% for redemptions within
redemption (c) one year of purchase and
0.50% for redemptions after
the first year and within
the second year of purchase)
(c)
Class B: Shares redeemed Class B: Shares redeemed
within 6 years are subject within 6 years are subject
to a CDSC (b)(c) to a CDSC (b)(c)
Class C: Shares redeemed Class II: Shares redeemed
within one year are subject within 18 months after
to a 1% CDSC (c) purchase are subject to a 1%
CDSC (c)
Institutional Class I: None Class I: None (a)
Institutional Class II: None Class Z: None (a)
Purchases By mail (check), wire or
By mail (check), wire or through a broker or
through broker-dealers financial advisor
47
Purchase,
Redemption and
Exchange Features Acquired Funds Acquiring Funds
----------------- -------------- ---------------
Redemption Class A, B and C: By mail, Class A, B and II: By mail
wire (if a minimum of (any amount), wire,
$1,000), telephone or telephone (for amounts less
through broker-dealers than $100,000) or through a
broker or financial advisor
Institutional Class I and Class I and Class Z: Contact
Institutional Class II: the financial intermediary
Contact the financial or other organization from
intermediary or other whom shares were
organization from whom purchased (a)
shares were purchased
Conversion Class B shares automatically Class B shares automatically
convert into Class A shares convert into Class A shares
eight years after purchase approximately eight years
after purchase
Exchanges Shares of an Acquired Fund Shares of an Acquiring Fund
may be exchanged for shares may be exchanged for shares
of the same class of any of the same class of any
other Acquired Fund or other other fund distributed by
series of North American SACS
Funds
For Institutional Class I
shares, all or part of an
existing plan balance may be
exchanged from one
investment option to another
if permitted by an employer
retirement plan
--------
(a) Although not currently offered by the respective Acquiring Funds, Class I
shares will be offered by the High Yield Bond, Strategic Income and U.S.
Government Securities Combined Funds upon consummation of the
Reorganizations, and Class Z shares will be offered at that time by the
High Yield Bond Combined Fund. All share classes of the Core Bond Fund
will be offered after it commences operations.
(b) The CDSC of Class B shares of the Acquiring Funds is either the same as or
less than the CDSC relating to Class B shares of the Acquired Funds. The
table below sets forth the schedule of Class B CDSC for all Funds.
CDSC on shares being sold
------------------------------
Years after Purchase Acquired Funds Acquiring Funds
-------------------- -------------- ---------------
1st year................................... 5.00% 5.00%
2nd year................................... 5.00% 4.00%
3rd year................................... 4.00% 3.00%
4th year................................... 3.00% 3.00%
5th year................................... 2.00% 2.00%
6th year................................... 1.00% 1.00%
7th year and thereafter.................... None None
(c) The CDSC schedules applicable to Class A, Class B and Class C shares of an
Acquired Fund will continue to apply to the respective Corresponding
Shares received in the applicable Reorganization by shareholders of a
Combined Fund who were shareholders of the respective Acquired Fund as of
the date of the closing of such Reorganization (even if you exchange your
shares for shares of another fund distributed by SACS). Each CDSC is based
on the original purchase cost or the current market value of the shares
being sold, whichever is less. Future purchases of Class A, Class B or
Class II Shares of a Combined Fund will be subject to the CDSC schedule
applicable to the Combined Fund. There is no CDSC on Combined Fund shares
that are purchased through reinvestment of dividends. In the case of a
partial redemption of Combined Fund shares, those shares in the
shareholder's account that are not subject to a CDSC will be sold first.
If there are not enough of these shares available, shares that have the
lowest CDSC will be sold next.
48
Dividend Distribution and Account Policies
The following is a summary of the dividend distribution and account policies
of each of the Funds and is qualified in its entirety by the more complete
information contained in the Acquired Funds Prospectuses, Acquiring Funds
Prospectuses, Acquired Funds Statement and Acquiring Funds Statement.
Valuation of Fund Shares. The net asset value per share for each Fund and
class is determined once daily as of the close of regular trading on the New
York Stock Exchange (generally 4 p.m. Eastern Time) by dividing the net assets
(the value of all assets less liabilities) of each class by the number of its
shares outstanding. See "Purchase, Redemption and Pricing--Determination of Net
Asset Value" in the Acquired Funds Statement and "Determination of Net Asset
Value" in the Acquiring Funds Statement.
Buy and Sell Prices. When you buy shares of a Fund, you pay the net asset
value plus any applicable sales charges. When you sell shares of a Fund, you
receive the net asset value minus any applicable CDSCs.
Dividends. Each of the Acquired Funds declares income dividends daily and
pays capital gains and income dividends, if any, annually. Income dividends, if
any, are declared daily and paid monthly by Acquiring Funds. Capital gains
distributions, if any, are paid annually by the Acquiring Funds. See "Pricing
of Fund Shares" in the Acquired Funds Prospectus and "Tax, Dividends,
Distributions and Taxes--Dividends and Distributions" in the Acquiring Funds
Statement.
Dividend Reinvestments. The policy relating to dividend reinvestments is
substantially the same for all Funds. Unless cash payment is requested (and
such payment is more than $10 in the case of the Acquiring Funds), all
dividends and distributions, if any, will be reinvested. Alternatively, in the
case of the Acquiring Funds, dividends and distributions may be reinvested in
any fund distributed by SACS. See "Pricing of Fund Shares" in the Acquired
Funds Prospectus and "Tax, Dividends, Distributions and Taxes--Dividends and
Distributions" in the Acquiring Funds Statement.
Redemptions-in-kind. Each Acquired Fund reserves the right to pay redemption
proceeds in whole or in part by a distribution "in kind" of securities held by
the Acquired Fund, subject to the limitation that each Acquired Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Acquired Fund during any 90-day period for any one
account. Subject to this same limitation, each Acquiring Fund also may pay
redemption proceeds by a distribution "in kind" of securities held by the
Acquiring Fund, if it determines that it would be detrimental to the best
interests of the remaining shareholders of the Acquiring Fund to make payment
of redemption proceeds wholly or partly in cash. See "Purchase Redemption and
Pricing--Redemption in Kind" in the Acquired Funds Statement and "Additional
Information Regarding Redemption of Shares" in the Acquiring Funds Statement.
Payment Following Redemption. Each Fund will normally send the proceeds from
a redemption (less any applicable CDSC) on the next business day, but may delay
payment for up to seven days. Payment may be delayed if the shares to be
redeemed were purchased by a check that has not cleared. During periods of
extreme volatility or market crisis, each Fund may temporarily suspend the
right to redemption and may postpone the payment of proceeds, as allowed by the
federal securities laws. See "Shareholder Account Information--Transaction
Policies" and "Additional Information Regarding Redemption of Shares" in the
Acquiring Funds Prospectus and Acquiring Funds Statement, respectively, and
"Section III: Investing in the North American Funds" and "Purchase, Redemption
and Pricing--Payment for the Shares Presented" in the Acquired Funds
Prospectuses and Acquired Funds Statement, respectively.
Programs that Reduce Sales Charges. Each of the Funds offer programs
pursuant to which shareholders pay reduced sales charges. With respect to the
Acquiring Funds, these programs are only applicable to purchases of Class A
shares. Under the Rights of Accumulation program, a shareholder pays the sales
charge applicable to the shareholder's total account balance in all classes of
shares. Under a Letter of Intent (or statement of intention), a shareholder
agrees to invest a certain amount over 13 months and will pay the sales charge
based on the shareholder's goal. In addition, the Acquiring Funds also offer
reduced sales charges for
49
group purchases, pursuant to which members of qualified groups may purchase
Class A shares of an Acquiring Fund under the Rights of Accumulation program
described above. The Acquiring Funds also offer a Combined Purchase Privilege,
pursuant to which certain persons may qualify for sales charge reductions or
elimination by combining purchases of Acquiring Fund shares into a single
transaction. See "Section III: Investing in the North American Funds" in the
Acquired Funds Prospectuses and "Additional Information Regarding Purchase of
Shares" in the Acquiring Funds Statement for more information regarding these
programs.
Reinstatement Privileges. Each of the Funds offers a reinstatement
privilege. In the case of the Acquired Funds, if a shareholder redeems Class A
shares (under $1 million) and reinvests within 90 days, the shareholder will
not have to pay a sales charge. If a shareholder redeems Class A shares over $1
million, or Class B or Class C shares and pays a CDSC and then reinvests within
90 days, the shareholder's account will be credited the amount of the CDSC. In
the case of the Acquiring Funds, a shareholder may redeem shares of an
Acquiring Fund and within one year after the sale invest some or all of the
proceeds in the same share class of the same Acquiring Fund without a sales
charge. A shareholder may use the reinstatement privilege only one time after
redeeming such shares. If a shareholder paid a CDSC on the redemption of his or
her shares, the shareholder's account will be credited with the dollar amount
of the CDSC at the time of redemption. See "Account Services" in the Acquired
Funds Prospectus relating to Class A, Class B, and Class C shares and
"Shareholder Account Information" in the Acquiring Funds Prospectus for more
information regarding this privilege.
Other Shareholder Services. Each of the Acquired Funds and Acquiring Funds
offers other shareholder services which are similar, although not identical,
such as automatic investment plans and systematic withdrawal plans. In
addition, Anchor National Life Insurance Company offers an Asset Protection
Plan to certain investors in the Acquiring Funds, which provides for benefits
payable at death that relate to the amounts paid to purchase Acquiring Fund
shares (and not subsequently redeemed prior to death) and to the value of
Acquiring Fund shares held for the benefit of insured persons. Anchor National
Life Insurance company charges a premium for this coverage. For additional
information regarding these additional shareholder services, see "Account
Services" in the Acquired Funds Prospectuses and "Shareholder Account
Information" and "Additional Information Regarding Purchase of Shares" in the
Acquiring Funds Prospectus and Acquiring Funds Statement, respectively.
Small Accounts. The Acquired Funds require that you maintain a minimum
account balance of $500, or $50 for retirement plans and other automatic
investing programs. The Acquiring Funds require that you maintain a minimum
account balance of $500, or $250 for retirement plan accounts. If your account
with an Acquiring Fund falls below the minimum requirement due to withdrawals,
you may be asked to purchase more shares within 60 days. If you do not take
action, the Acquiring Fund may close out your account and mail you the
proceeds. Alternatively, you may be charged a $2.00 monthly charge to maintain
your account with an Acquiring Fund. Your account with an Acquiring Fund will
not be closed if its drop in value is due to performance of the Acquiring Fund
or the effects of sales charges.
Performance
General
The following tables provide performance information for shares of the Funds
for the periods indicated. Past performance is not indicative of future
performance.
The SunAmerica Core Bond Fund has been recently created and has not yet
commenced operations; consequently, it does not have an investment performance
record. After the Reorganization, the Core Bond Combined Fund, as the successor
to the NAF Core Bond Fund, will assume and publish the investment performance
record of the NAF Core Bond Fund. See Performance Information in the Acquired
Funds Statement for information about the NAF Core Bond Fund's performance.
50
In addition, after the Reorganizations, the High Yield Bond and Strategic
Combined Funds will assume and publish the investment performance records of
the NAF High Yield Bond Fund and NAF Strategic Income Fund, respectively. See
Performance Information in the Acquired Funds Statement for information about
the NAF High Yield Bond Fund's and NAF Strategic Income Fund's performance.
There have been no sales of Institutional Class I shares of the NAF U.S.
Government Securities Fund. Accordingly, no performance information is shown.
Important information about the Acquiring Funds (other than SunAmerica Core
Bond Fund) is also contained in management's discussion of each Acquiring
Fund's performance contained in the Annual Report to Shareholders of the
Acquiring Funds for the year ended March 31, 2001, which accompanies this Proxy
Statement and Prospectus.
Average annual total return is determined separately for each Class in
accordance with a formula specified by the Commission. Average annual total
return is computed by finding the average annual compounded rates of return for
the 1-, 5-, and 10-year periods or for the lesser included periods of
effectiveness. The calculation assumes that:
(a) The maximum sales load (i.e., either the front-end sales load or the
CDSC that would be applicable to a complete redemption of the investment at
the end of the specified period) is deducted from the initial $1,000
purchase payment;
(b) All dividends and distributions are reinvested at net asset value;
and
(c) Complete redemption occurs at the end of the 1-, 5-, or 10-year
periods or fractional portion thereof with all nonrecurring charges
deducted accordingly.
51
Average Annual Total Returns*
(periods ended June 30, 2001)
SunAmerica
NAF High Yield Bond Fund** High Income Fund
------------------------------------------------------------------------------- --------------------------
Institutional Institutional
Class A Class B Class C Class I Class II Class A Class B Class II
--------------- --------------- --------------- --------------- --------------- -------- -------- --------
Year to Date.... (2.35)% (2.82)% 1.18% 2.58% 2.48% (5.68)% (6.38)% (3.41)%
One year........ (7.72)% (8.73)% N/A (3.11)% (3.08)% (15.53)% (16.27)% (13.57)%
Three year...... N/A N/A N/A N/A N/A (7.16)% (7.22)% (6.50)%
Five year....... N/A N/A N/A N/A N/A 1.04% 0.98% N/A
Ten year........ N/A N/A N/A N/A N/A 6.57% N/A N/A
Since
Inception...... (1.55)% (2.03)% (6.20)% 0.35% 0.54% 5.78% 2.22% (5.08)%
(since 11/2/98) (since 11/2/98) (since 8/21/00) (since 11/2/98) (since 11/2/98)
Average Annual Total Returns
(periods ended June 30, 2001)
SunAmerica Tax Exempt
NAF Municipal Bond Fund** Insured Fund
-------------------------------------------- ------------------------
Class A Class B Class C Class A Class B Class II
-------------- -------------- -------------- ------- ------- --------
Year to Date............ (2.85)% (3.43)% 0.57% (2.89)% (3.39)% (0.38)%
One year................ 3.56% 2.81% 6.80% 3.85% 3.25% 6.21%
Three year.............. 1.84% 1.38% 2.65% 2.29% 2.34% N/A
Five year............... 4.56% 4.38% 4.71% 4.46% 4.45% N/A
Ten year................ N/A N/A N/A 5.07% N/A N/A
Since Inception......... 4.24% 5.02% 5.02% 5.97% 4.09% 3.47%
(since 7/6/93) (since 4/1/94) (since 4/1/94)
SunAmerica Diversified
NAF Strategic Income Fund** Income Fund
------------------------------------------------------------- ------------------------
Institutional
Class A Class B Class C Class I Class A Class B Class II
--------------- -------------- -------------- --------------- ------- ------- --------
Year to Date............ (1.98)% (2.42)% 1.58% 2.99% (5.21)% (5.72)% (2.70)%
One year................ (0.38)% (1.05)% 2.94% N/A (9.18)% (9.73)% (6.81)%
Three year.............. 0.30% (0.03)% 1.29% N/A (2.81)% (2.81)% N/A
Five year............... 4.36% 4.37% 4.71% N/A 2.60% 2.61% N/A
Ten year................ N/A N/A N/A N/A N/A 3.65% N/A
Since Inception......... 5.15% 6.16% 6.16% 4.22% 2.79% 3.63% 0.17%
(since 11/1/93) (since 4/1/94) (since 4/1/94) (since 7/10/00)
Average Annual Total Returns
(for the periods ended June 30, 2001)
SunAmerica
U.S. Government
NAF U.S. Government Securities Fund** Securities Fund
----------------------------------------------- ------------------------
Class A Class B Class C Class A Class B Class II
----------------- -------------- -------------- ------- ------- --------
Year to Date............ (2.12)% (2.44)% 1.56% (2.76)% (3.35)% (0.35)%
One year................ 4.29% 3.79% 7.79% 5.61% 5.12% 8.00%
Three year.............. 3.31% 3.17% 4.41% 3.69% 3.77% N/A
Five year............... 5.09% 5.13% 5.46% 5.20% 5.21% N/A
Ten year................ 6.01% N/A N/A N/A 5.39% N/A
Since Inception......... 6.39% 5.41% 5.41% 5.05% 5.95% 5.55%
(since 8/28/1989) (since 4/1/94) (since 4/1/94)
--------
* The SunAmerica Core Bond Fund has been recently created and has not
commenced operations; consequently it does not have an investment
performance record.
** AGAM has waived certain fees in respect of the Acquired Funds. Absent such
waivers, the returns for the Acquired Funds shown above would be lower.
52
Shareholder Rights
Shareholders rights are the same in all of the Funds. Each full share and
fractional share of a Fund entitles the shareholder to receive a proportional
interest in the respective Fund's capital gain distributions and to cast one
vote per share, with fractional shares voting proportionally, on certain Fund
matters, including the election of directors, changes in fundamental policies,
or approval of changes in the Fund's investment advisory agreement.
Corresponding Shares issued in the Reorganizations will be fully paid and
nonassessable and will have no preemptive rights. In the event of the
liquidation of a Fund, shareholders of such Fund are entitled to share pro rata
in the net assets of such Fund available for distribution to shareholders.
The Funds are not required to hold annual meetings and do not intend to do
so except when certain matters, such as a change in a Fund's fundamental
policies, are to be decided. In addition, shareholders representing at least
10% of all eligible votes may call a special meeting if they wish, for the
purpose of voting on the removal of any Fund trustee.
Tax Information
The tax consequences associated with an investment in shares of an Acquired
Fund are substantially the same as the tax consequences associated with an
investment in shares of the respective Acquiring Fund. See "Taxes" in the
Acquired Funds Prospectuses and "Dividend, Distribution and Account Policies"
in the Acquiring Funds Prospectus.
Portfolio Transactions
The procedures for engaging in portfolio transactions are generally the same
for the Acquired Funds and the Acquiring Funds. Each of the Acquired Funds'
Subadvisers and SAAMCo may consider the nature and extent of research services
provided when brokers are selected and may cause a Fund to pay such broker-
dealer's commissions that exceed those that other broker-dealers may have
charged, if in their view the commissions are reasonable in relation to the
value of the brokerage and/or research services provided. For further
discussion of these procedures, see "Portfolio Brokerage" in the Acquired Funds
Statement and "Portfolio Transactions and Brokerage" in the Acquiring Funds
Statement.
Portfolio Turnover
None of the Funds has placed a limit on its portfolio turnover and portfolio
changes are made when the Fund's investment adviser (or Subadviser) believes
they are advisable, usually without reference to the length of time that a
security has been held.
The table below sets forth the portfolio turnover rates for the Acquired
Funds and the Acquiring Funds for the fiscal years ended October 31, 2000 and
March 31, 2001, respectively. The SunAmerica Core Bond Fund has been recently
created and has not yet commenced operations; consequently, it does not have
portfolio turnover figures. Some of these portfolio turnover rates exceed 100%.
A 100% portfolio turnover rate would occur if all of the securities in the
portfolio were replaced during the period. Higher portfolio turnover rates
increase the brokerage costs a Fund pays and may adversely affect its
performance. Higher portfolio turnover may also result in an increased
proportion of capital gains constituting short-term capital gains instead of
long-term capital gains. If a Fund realizes capital gains when it sells
portfolio investments, it generally must pay those gains out to shareholders,
increasing their taxable distributions. This may adversely affect the after-tax
performance of a Fund for shareholders with taxable accounts.
NAF SunAmerica
NAF High SunAmerica SunAmerica NAF NAF U.S. U.S.
Core SunAmerica Yield High NAF Tax Exempt Strategic SunAmerica Government Government
Bond Core Bond Bond Income Municipal Insured Income Diversified Securities Securities
Fund Fund* Fund Fund Bond Fund Fund Fund Income Fund Fund Fund
---- ---------- ----- ---------- --------- ---------- --------- ----------- ---------- ----------
94% N/A 57% 119% 48% 24% 46% 57% 193% 1,561%**
--------
* The SunAmerica Core Bond Fund has not yet commenced operations.
** SunAmerica U.S. Government Securities Fund's holdings of "TBA" securities
during the year ended March 31, 2001 was a substantial factor in the higher
portfolio turnover rate for the Fund for such fiscal period.
53
Additional Information
Independent Auditors
Currently PricewaterhouseCoopers LLP serves as the independent auditors of
the Acquired Funds and also serves as the independent auditors of the Acquiring
Funds. If the Reorganizations are completed, it is currently anticipated that
PricewaterhouseCoopers LLP will serve as the independent auditors of the
Combined Funds. The principal business address of PricewaterhouseCoopers LLP is
1177 Avenue of the Americas, New York, New York 10036.
Custodian
State Street acts as the custodian of the assets of the Acquired Funds and
Acquiring Funds. If the Reorganizations are completed, it is currently
anticipated that State Street will continue to serve as the custodian of the
Combined Funds. The principal business address of State Street is 1776 Heritage
Drive, North Quincy, Massachusetts 02171.
Transfer Agent
Boston Financial Data Services, Inc., 66 Brooks Drive, Braintree,
Massachusetts 02184, serves as the transfer agent with respect to each Acquired
Fund. State Street, 1776 Heritage Drive, North Quincy, MA 02171, serves as the
transfer agent with respect to each Acquiring Fund. Transfer agent functions
are performed for State Street by National Financial Data Services, P.O. Box
219572, Kansas City, MO 64121-5972, an affiliate of State Street. Each transfer
agent is responsible for the issuance, transfer and redemption of shares and
the opening, maintenance and servicing of shareholder accounts for the
respective Fund. If the Reorganizations are completed, it is currently
anticipated that State Street will continue to serve as the transfer agent of
the Combined Funds.
Capital Stock
Each Acquired Fund is authorized to issue an unlimited number of full and
fractional shares of beneficial interest, par value $0.001 per share, divided
into classes as follows:
Fund Classes Offered
---- ---------------
A, B, C, Institutional Class II
NAF Core Bond Fund and Institutional Class I
A, B, C, Institutional Class II
NAF High Yield Bond Fund and Institutional Class I
NAF Municipal Bond Fund A, B and C
NAF Strategic Income Fund A, B, C and Institutional Class I
NAF U.S. Government Securities Fund A, B, C and Institutional Class I
Each Acquiring Fund is authorized to issue an unlimited number of full and
fractional shares of beneficial interest, par value $0.01 per share, divided
into classes as follows:
Classes Offered
(upon
consummation of
the
Fund reorganization)
---- ---------------
SunAmerica Core Bond Fund A, B, II, Z and I
SunAmerica High Income Fund A, B, II, Z and I
SunAmerica Tax Exempt Insured Fund A, B and II
SunAmerica Diversified Income Fund A, B, II and I
SunAmerica U.S. Government Securities Fund A, B, II and I
54
See "--Shareholder Rights" above and "Capital Stock" in the North American
Funds Statement and "Description of Shares" in the SunAmerica Income Funds
Statement for further discussion of the rights and preferences attributable to
shares of each Acquired Fund and each Acquiring Fund, respectively. See
"Summary" above and "Section II: Fees and Expenses" (in the case of Class A,
Class B and Class C shares), "Section II: Fees and Expenses of the North
American Funds--Institutional Class I Shares" (in the case of Institutional
Class I shares) and "Section II: Fees and Expenses of the North American
Funds--Class II Shares" (in the case of Class II shares) in the Acquired Funds
Prospectuses and "Fund Highlights--What are the Fund's Expenses?" in the
Acquiring Funds Prospectus for further discussion on the expenses attributable
to shares of the Acquired Funds and the Acquiring Funds, respectively. See
"Issuance and Distribution of Corresponding Shares" for a description of the
classes of Corresponding Shares to be issued in the Reorganizations.
Each of North American Funds and SunAmerica Income Funds is an entity of the
type commonly known as a "Massachusetts business trust." Under Massachusetts
law, shareholders of such a trust may, under certain circumstances, be held
personally liable as partners for its obligations. However, the Declaration of
Trust of each of North American Funds and SunAmerica Income Funds contains an
express disclaimer of shareholder liability for acts or obligations of each
Acquired Fund and Acquiring Fund, respectively, and provides for
indemnification and reimbursement of expenses out of that Fund's property for
any shareholder held personally liable for the obligations of that Fund. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Funds themselves would be
unable to meet their obligations. Given the above limitations on shareholder
personal liability and the nature of the Funds' assets and operations, the
possibility that such a Fund would be unable to meet its obligations is remote
and each of North American Funds and SunAmerica Income Funds believes the risk
of personal liability to shareholders is also, therefore, remote.
Shareholder Inquiries
Shareholder inquiries with respect to the Acquired Funds may be addressed to
each Acquired Fund at 286 Congress Street, Boston, Massachusetts 02210 or by
calling toll free 1-800-872-8037. Shareholder inquiries with respect to the
Acquiring Funds may be addressed to each Acquiring Fund at The SunAmerica
Center, 733 Third Avenue, New York, NY 10017-3204 or by calling toll free 1-
800-858-8850.
55
THE REORGANIZATIONS
General
Under each Plan, the applicable Acquiring Fund will acquire substantially
all of the assets, and assume substantially all of the liabilities, of the
respective Acquired Fund solely in exchange for an equal aggregate value of
Corresponding Shares of such Acquiring Fund. Upon receipt by an Acquired Fund
of Corresponding Shares, such Acquired Fund will distribute such Corresponding
Shares to its shareholders, as described below. All issued and outstanding
shares of the Acquired Funds will be cancelled, and each Acquired Fund's
existence as a separate investment portfolio of North American Funds will be
terminated as soon as practicable following consummation of the respective
Reorganization.
Generally, the assets transferred by an Acquired Fund to the respective
Acquiring Fund will include all investments of such Acquired Fund held in its
portfolio as of the Valuation Time and all other assets of such Acquired Fund
as of such time.
In the course of each Reorganization, each holder, if any, of Class A, Class
B, Class C, Institutional Class II and Institutional Class I shares of an
Acquired Fund will receive Class A, Class B, Class II, Class Z and Class I
Corresponding Shares, respectively, of the respective Acquiring Fund. No sales
charges will be imposed on the Corresponding Shares issued in connection with
the Reorganizations.
Each Acquired Fund will distribute the Corresponding Shares received by it
in connection with its Reorganization pro rata to its shareholders in exchange
for such shareholders' proportional interests in such Acquired Fund. The
Corresponding Shares received by an Acquired Fund's shareholders will have the
same aggregate net asset value as each such shareholder's interest in such
Acquired Fund as of the Valuation Time. See "--Terms of the Plans--Valuation of
Assets and Liabilities" for information concerning the calculation of net asset
value.
Since the Corresponding Shares will be issued at net asset value in exchange
for the net assets of an Acquired Fund having a value equal to the aggregate
net asset value of the shares of such Acquired Fund as of the Valuation Time,
the net asset value per share of the respective Acquiring Fund should remain
virtually unchanged solely as a result of the applicable Reorganization. Thus,
the Reorganizations should not result in dilution of the net asset value of the
Acquired Funds or the Acquiring Funds immediately following consummation of the
Reorganizations. However, as a result of the Reorganizations, a shareholder of
an Acquired Fund may hold a smaller percentage of ownership in the respective
Acquiring Fund than he or she did in the Acquired Fund prior to the
Reorganizations. In addition, a shareholder of an Acquired Fund may end up with
a different number of shares compared to what he or she originally held, but
the total dollar value of shares held will remain the same.
If the shareholders of the Acquired Funds approve the Reorganizations at the
Meeting, all required regulatory approvals are obtained, and certain conditions
are either met or waived, it is expected that the Reorganizations will take
place during the fourth calendar quarter of 2001. One Reorganization is not
dependent on the consummation of any other Reorganization. If an Acquired
Fund's shareholders do not approve the respective Reorganization, the NAF Board
will consider other possible courses of action which may be in the best
interests of shareholders.
56
Terms of the Plans
The following is a summary of the significant terms of the Plans. This
summary is qualified in its entirety by reference to the Plans, a form of which
is attached hereto as Exhibit II.
Valuation of Assets and Liabilities
The respective assets and liabilities of the Acquired Funds and the
Acquiring Funds will be valued as of the Valuation Time. The assets in each
Fund will be valued according to the procedures set forth under "Transaction
Policies--Valuation of Shares" and "Determination of Net Asset Value" in the
Acquiring Funds Prospectus and the Acquiring Funds Statement, respectively.
Purchase orders for an Acquired Fund's shares which have not been confirmed as
of the Valuation Time will be treated as assets of such Acquired Fund for
purposes of the respective Reorganization; redemption requests with respect to
an Acquired Fund's shares which have not settled as of the Valuation Time will
be treated as liabilities of such Acquired Fund for purposes of the respective
Reorganization.
Issuance and Distribution of Corresponding Shares
On the Closing Date (as defined in the Plans), each Acquiring Fund will
issue to the respective Acquired Fund a number of full and fractional
Corresponding Shares the aggregate net asset value of which will equal the
aggregate net asset value of shares of such Acquired Fund as of the Valuation
Time. Such Acquired Fund will then distribute the Corresponding Shares received
by it pro rata to its shareholders of record as of the Valuation Time in
exchange for such shareholders' proportional interests in such Acquired Fund.
Such issuance and distribution will be done as follows: each holder, if any, of
Class A, Class B, Class C, Institutional Class II and Institutional Class I
shares of an Acquired Fund will receive Class A, Class B, Class II, Class Z and
Class I Corresponding Shares, respectively, of the respective Acquiring Fund.
The Corresponding Shares received by an Acquired Fund's shareholder will have
the same aggregate net asset value as such shareholder's interest in such
Acquired Fund as of the Valuation Time.
Expenses
All costs of the Reorganizations will be borne by AIG or an affiliate
thereof, regardless of whether the Reorganizations are consummated. No portion
of the expenses of the Reorganizations will be borne directly or indirectly by
the Funds or their shareholders.
Required Approvals
The completion of each Reorganization is conditioned upon, among other
things, the receipt of certain regulatory approvals, including the receipt of
an order from the Commission pursuant to Section 17(b) of the Investment
Company Act. An application for such order has been filed with the Commission;
however, there is no assurance that it will be received. In addition, the
Declaration of Trust of North American Funds (as amended to date) requires
approval of each Reorganization by the affirmative vote of the respective
Acquired Fund's shareholders representing no less than a majority of the
outstanding voting securities of that Fund, voting together as a single class,
cast at a meeting at which a quorum is present. "Majority" for this purpose
under the Investment Company Act means the lesser of (i) more than 50% of the
outstanding shares of the applicable Acquired Fund and (ii) 67% or more of the
shares of that Acquired Fund represented at the Meeting if more than 50% of
such shares are represented.
As a condition to the Reorganizations involving the High Yield Bond Funds
and the Strategic Income Funds, the respective Acquiring Funds must obtain
shareholder approval to change the investment objective of the respective
Acquiring Fund to resemble more closely that of the Acquired Fund.
57
Amendments and Conditions
The Plans may be amended at any time prior to the Closing Date with respect
to any of the terms therein. The obligations of each Acquired Fund and
Acquiring Fund pursuant to the respective Plan are subject to various
conditions, including the requisite approval of the respective Reorganization
by such Acquired Fund's shareholders, the receipt of an opinion of counsel as
to tax matters and the confirmation by the respective Acquired Fund and
Acquiring Fund of the continuing accuracy of their respective representations
and warranties contained in such Plan.
Termination, Postponement and Waivers
Each Plan may be terminated, and the respective Reorganization abandoned at
any time, whether before or after adoption thereof by the respective Acquired
Fund's shareholders, prior to the Closing Date or the Closing Date may be
postponed: (i) by mutual agreement of the NAF Board and the SunAmerica Board;
(ii) by an Acquired Fund if any condition to such Acquired Fund's obligations
has not been fulfilled or waived; or (iii) by an Acquiring Fund if any
condition to such Acquiring Fund's obligations has not been fulfilled or
waived.
NAF Board Considerations: Potential Benefits to Shareholders as a Result of the
Reorganizations
In approving the Reorganizations, based upon their evaluation of all
relevant information, and after meeting with counsel to the NAF Independent
Trustees regarding the legal issues involved, the NAF Board considered that,
following each Reorganization, shareholders of an Acquired Fund will remain
invested in a mutual fund which has substantially the same or a similar
investment objective and similar, though not identical, investment techniques.
In addition, the NAF Board considered the following, among other things:
. Terms and conditions of the Reorganizations.
. The fact that the Acquiring Funds will assume substantially all the
liabilities of the respective Acquired Funds.
. The historical performance records of the Acquired Funds and the
Acquiring Funds (other than SunAmerica Core Bond Fund).
. The gross and net expense ratios of the Acquired Funds and the Acquiring
Funds before the Reorganizations, the anticipated gross and net expense
ratios of the SunAmerica Core Bond Fund and the estimated expense ratios
of the Combined Funds on a pro forma basis after the Reorganizations.
. The relative annual rates of advisory fees payable by the Acquired and
Acquiring Funds.
. The fact that the Reorganizations would not result in dilution of
Acquired Fund shareholders' interests.
. The fact that AGAM has agreed to waive fees or reimburse expenses for the
Acquired Funds, but there is no assurance that the current fee waivers
and expense reimbursements would continue after February 28, 2002.
. The fact that SAAMCo has contractually and voluntarily agreed to waive
fees or reimburse expenses for certain classes of Acquiring Fund shares.
. The investment experience, expertise and resources of SAAMCo and other
service providers to the Acquiring Funds in the areas of distribution,
investment, and shareholder services.
. The service and distribution resources available to the Acquiring Funds
and compatibility of the Funds' service features available to
shareholders.
58
. The fact that each Reorganization has been structured with the intention
that it qualify for Federal income tax purposes as a tax-free
reorganization under the Code.
. The fact that AIG or an affiliate thereof will bear all expenses relating
to the Reorganizations.
. The effect of the Reorganizations on Acquired Fund shareholders and the
value of their interests.
. Alternatives available to Acquired Fund shareholders, including the
ability to redeem their shares.
With respect to the NAF High Yield Bond Fund and NAF Strategic Income Fund,
the NAF Board considered that the respective Acquiring Fund will change its
investment objective and policies to more closely resemble that of each
Acquired Fund, and will retain New AGIM as Subadviser, subject to approval by
Acquiring Fund shareholders. As a condition to each Reorganization, the
respective Acquiring Fund will seek shareholder approval of a change in
investment objective to align the investment strategies and techniques of the
High Yield Bond and Strategic Combined Funds to those of the respective
Acquired Funds. The SunAmerica Board has already approved the necessary
changes.
In addition, the SunAmerica Board has approved the retention of New AGIM to
serve as Subadviser to the Tax Exempt Insured Combined Fund upon consummation
of the applicable Reorganization, subject to approval of the shareholders of
the SunAmerica Tax Exempt Insured Fund.
In addition, the NAF Board considered the potential for reduced operating
expenses due to economies of scale following the Reorganizations. The net
assets of each Acquiring Fund (other than the Core Bond Combined Fund) will
increase by the amount of the net assets of each of the respective Acquired
Funds at the time of the Reorganizations. Since the fixed expenses of the
Combined Funds (other than the Core Bond Combined Fund) will be spread over a
larger asset base, management anticipates that shareholders of these Funds are
likely to benefit from reduced overall operating expenses over time as a result
of economies of scale expected after the Reorganizations. With respect to the
High Yield Bond Combined Fund, this increase in net assets may cause a lower
advisory fee rate to apply in accordance with the applicable advisory fee break
point schedule. Although the operating expenses of certain Combined Funds on a
pro forma basis (as though the Reorganizations were completed on March 31,
2001) are higher than those of the respective Acquired Fund, this is after
taking into account certain fee waivers and expense reimbursements that are in
place with respect to the Acquired Funds through February 28, 2002. There can
be no assurance that AGAM would continue with these waivers and reimbursements
past that date.
59
The table below sets forth the total net assets of each of the Acquiring
Funds and each of the Acquired Funds, in each case as of March 31, 2001, as
well as the net assets of each of the Combined Funds, on a pro forma basis,
assuming the Reorganizations had been completed on such date. The SunAmerica
Core Bond Fund is newly created and has not yet commenced operations.
Accordingly, it had no assets as of such date.
Total Net Assets
as of March 31, 2001
SunAmerica Core Bond Pro Forma Core Bond
NAF Core Bond Fund Fund Combined Fund
Class A $ 4,515,465 Class A N/A Class A $ 4,515,465
Class B $ 4,249,519 Class B N/A Class B $ 4,249,519
Class C $ 3,013,782 Class II N/A Class II $ 3,013,782
Institutional Class I N/A Class I $ 22,083,376
Class I $ 22,083,376 Class Z N/A Class Z $321,862,517
Institutional
Class II $321,862,517 Total N/A Total $355,724,659
Total $355,724,659
SunAmerica High Pro Forma High Yield
NAF High Yield Bond Fund Income Fund Bond Combined Fund
Class A $ 509,518 Class A $ 52,966,252 Class A $ 53,475,770
Class B $ 3,054,455 Class B $ 67,138,996 Class B $ 70,193,421
Class C $ 1,006,996 Class II $ 20,382,737 Class II $ 21,389,733
Institutional Total $140,487,955 Class I $ 2,138,250
Class I $ 2,138,250 Class Z $ 62,945,618
Institutional
Class II $ 62,945,618 Total $210,142,792
Total $ 69,654,837
SunAmerica Tax Exempt Pro Forma Municipal
NAF Municipal Bond Fund Insured Fund Bond Combined Fund
Class A $ 8,591,093 Class A $ 72,393,871 Class A $ 80,984,964
Class B $ 7,979,498 Class B $ 16,301,949 Class B $ 24,281,447
Class C $ 4,092,241 Class II $ 720,950 Class II $ 4,813,191
Total $ 20,662,832 Total $ 89,416,770 Total $110,079,602
SunAmerica Diversified Pro Forma Strategic
NAF Strategic Income Fund Income Fund Combined Fund
Class A $ 7,497,415 Class A $ 30,923,542 Class A $ 38,420,957
Class B $ 13,313,079 Class B $ 16,741,565 Class B $ 30,054,644
Class C $ 12,646,764 Class II $ 4,020,990 Class II $ 16,667,754
Institutional Total $ 51,686,097 Class I $ 2,729,718
Class I $ 2,729,718 Total $ 87,873,073
Total $ 36,186,976
SunAmerica U.S. Pro Forma U.S.
NAF U.S. Government Government Securities Government Securities
Securities Fund Fund Combined Fund
Class A $ 33,746,846 Class A $169,523,987 Class A $203,270,833
Class B $ 9,485,878 Class B $ 32,085,141 Class B $ 41,571,019
Class C $ 7,443,184 Class II $ 3,302,887 Class II $ 10,746,071
Institutional Total $204,912,015 Class I $ 0
Class I $ 0 Total $255,587,923
Total $ 50,675,908
60
In addition to the potential economies of scale which may be realized
through combination of the Funds, the NAF Board also considered the advantage
of eliminating the competition and duplication of effort inherent in marketing
funds that have similar investment objectives.
The NAF Board considered that certain fixed costs, such as printing of
prospectuses and reports sent to shareholders, legal and audit fees, and
registration fees would be spread across a larger asset base (except for the
Core Bond Combined Fund). Over time, this would tend to lower the expense ratio
borne by shareholders of both the Acquiring Funds and the Acquired Funds. To
illustrate potential benefits to the Acquired Funds as a result of the
Reorganizations, including potential economies of scale, see the total and net
operating expenses, as a percentage of net assets, for the Acquired Funds and
the Acquiring Funds as of March 31, 2001, and the total and net operating
expenses, as a percentage of net assets, for the Combined Funds, on a pro forma
basis, assuming the Reorganizations had been completed as of such date, under
"Fee Tables" above. In addition, because SunAmerica has broad distribution
channels, it is also possible that the asset base for the Combined Funds will
increase over the long term, which would tend to result in a lower overall
operating expense ratio. Of course, there is no guarantee that such increases
in asset base would in fact occur.
AGAM is contractually obligated to provide the fee reductions and expense
reimbursements referenced in the "Fee Tables" above through February 28, 2002.
If shareholders do not approve the Reorganizations, each Acquired Fund will
continue with its current fee structure except that there is no assurance that
AGAM would continue to provide such fee reductions and reimbursements past this
date. If shareholders approve the Reorganizations, the respective Combined
Funds' expense structure will apply.
Based on the foregoing, together with other factors and information
considered to be relevant and recognizing that there can be no assurance that
any operating efficiencies or other benefits will in fact be realized, the NAF
Board concluded that the Reorganizations present no significant risks or costs
(including legal, accounting and administrative costs) that would outweigh the
benefits discussed above. In connection with the approval of the
Reorganizations, the NAF Board also approved directed brokerage arrangements
with certain brokers to reduce the costs that might otherwise be incurred to
align the portfolios of each of the Acquired Funds with those of the respective
Acquiring Funds to facilitate a smooth transition upon consummation of the
Reorganizations. Because the Acquired Funds and Acquiring Funds have
substantially the same or similar investment objectives and similar investment
strategies, it is not anticipated that the securities held by an Acquired Fund
will be sold in significant amounts in order to comply with the objectives and
investment practices of the respective Acquiring Fund in connection with the
applicable Reorganization. The Acquired Funds will not dispose of assets to an
extent or in a manner that would jeopardize the tax-free nature of the
Reorganizations under the Code. However, the disposition of assets by an
Acquired Fund may result in the realization of taxable gains or losses by
Acquired Fund shareholders.
In approving the Reorganizations, the NAF Board, including all of the NAF
Independent Trustees, determined that each Reorganization is in the best
interests of the respective Acquired Fund and its shareholders. In addition,
the NAF Board, including all of the NAF Independent Trustees, also determined
that the interests of the shareholders of each Acquired Fund would not be
diluted as a result of effecting the respective Reorganization, because each
such shareholder will receive Corresponding Shares of the Acquiring Fund having
an aggregate net asset value equal to the aggregate net asset value of his or
her shares of the Acquired Fund outstanding as of the Valuation Time.
Consequently, the NAF Board approved the Plans and directed that each Plan be
submitted to the shareholders of each respective Acquired Fund for approval.
The Board of Trustees of North American Funds unanimously recommends that
the shareholders of each Acquired Fund approve the respective Plan. Approval of
the respective Plan by one Acquired Fund is not contingent upon approval of the
respective Plan by any other Acquired Fund.
The SunAmerica Board has also approved the Plans on behalf of the Acquiring
Funds.
61
Federal Income Tax Consequences of the Reorganizations
General
Each Reorganization has been structured with the intention that it qualify
for Federal income tax purposes as a tax-free reorganization under Section
368(a) of the Code. This means that, in the opinion of counsel, no gain or loss
will be recognized by a shareholder of an Acquiring Fund for Federal income tax
purposes as a result of a Reorganization.
As a condition to the closing of each Reorganization, each of the Acquired
Funds and Acquiring Funds will receive an opinion of Shearman & Sterling,
counsel to the Acquiring Funds, substantially to the effect that, among other
things, for Federal income tax purposes, upon consummation of each
Reorganization (i) no gain or loss will be recognized by an Acquired Fund or an
Acquiring Fund as a result of its respective Reorganization, (ii) no gain or
loss will be recognized by a shareholder of an Acquired Fund upon his or her
receipt of Corresponding Shares in the respective Reorganization solely in
exchange for his or her shares of such Acquired Fund, (iii) each Acquired Fund
and each Acquiring Fund will be a "party to a reorganization" under Section
386(b) of the Code, (iv) the holding period of the assets of an Acquired Fund
acquired by the respective Acquiring Fund will include the period during which
such assets were held by the Acquired Fund, (v) the holding period for
Corresponding Shares of an Acquiring Fund received by each shareholder of the
respective Acquired Fund in exchange for his or her shares in the Acquired Fund
will include the period during which such shareholder held shares of the
Acquired Fund (provided the Acquired Fund shares were held as capital assets on
the date of the exchange), and (vi) immediately after a Reorganization, the tax
basis of the Corresponding Shares received by shareholders of the respective
Acquired Fund in such Reorganization will be equal, in the aggregate, to the
tax basis of the shares of such Acquired Fund surrendered in exchange therefor.
Shearman & Sterling's opinion will be based upon certain representations made
by the parties to the Reorganizations.
An opinion of counsel does not have the effect of a private letter ruling
from the Internal Revenue Service ("IRS") and is not binding on the IRS or any
court. If a Reorganization is consummated but fails to qualify as a
reorganization within the meaning of Section 368 of the Code, the
Reorganization would be treated as a taxable sale of assets followed by a
taxable liquidation of the respective Acquired Fund, and Acquired Fund
shareholders would recognize a taxable gain or loss equal to the difference
between their basis in the Acquired Fund shares and the fair market value of
the Corresponding Shares received.
To the extent an Acquiring Fund has unrealized capital gains at the time of
the respective Reorganization, the respective Acquired Fund's shareholders may
incur taxable gains in the year that such Acquiring Fund realizes and
distributes those gains. This will be true notwithstanding that the unrealized
gains were reflected in the price of such Acquiring Fund's shares at the time
they were exchanged for assets of such Acquired Fund in the respective
Reorganization. Conversely, shareholders of an Acquiring Fund would share in
unrealized capital gains of the respective Acquired Fund after the respective
Reorganization and bear a tax consequence on the subsequent realization of such
gains. This paragraph is not relevant for the NAF Core Bond Fund because its
Acquiring Fund is newly formed.
To the extent that an Acquired Fund has loss carryforwards at the time of
the respective Reorganization, Acquired Fund shareholders may not be able to
benefit from such loss carryforwards after the Reorganizations.
Shareholders should consult their tax advisers regarding the effect of the
Reorganizations in light of their individual circumstances. As the foregoing
relates only to Federal income tax consequences, shareholders also should
consult their tax advisers as to the non-United States, state, local and other
tax consequences of the Reorganizations.
Status as a Regulated Investment Company
The Acquired Funds, the SunAmerica High Income Fund, the SunAmerica Tax
Exempt Insured Fund, the SunAmerica Diversified Income Fund and the SunAmerica
U.S. Government Securities Fund have elected and qualified and the SunAmerica
Core Bond Fund intends to elect and qualify to be taxed as regulated investment
companies under Sections 851-855 of the Code, and, after the Reorganizations,
the Acquiring Funds intend to continue to operate or continue to qualify as
regulated investment companies. An Acquired Fund's existence as a separate
investment portfolio of North American Funds will be terminated as soon as
practicable following the consummation of the applicable Reorganization.
62
Capitalization
The following table sets forth the capitalization of each Acquired Fund and
each Acquiring Fund as of March 31, 2001, and the capitalization of each
Combined Fund, on a pro forma basis, as if the Reorganizations had occurred on
that date. As a newly created series of SunAmerica Income Funds, the
SunAmerica Core Bond Fund had no assets as of March 31, 2001.
NAF Core Bond Fund SunAmerica Core Bond Fund
------------------------------------------------------------ ----------------------------------------
Institutional Institutional
Class A Class B Class C Class I Class II Class A Class B Class II Class I Class Z
---------- ---------- ---------- ------------- ------------- ------- ------- -------- ------- -------
Total Net
Assets.......... $4,515,465 $4,249,519 $3,013,782 $22,083,376 $321,862,517 N/A N/A N/A N/A N/A
Shares
Outstanding..... 457,086 430,487 305,287 2,227,897 32,558,483 N/A N/A N/A N/A N/A
Net Asset Value
Per Share....... $ 9.88 $ 9.87 $ 9.87 $ 9.91 $ 9.89 N/A N/A N/A N/A N/A
Pro Forma Core Bond Combined Fund
---------------------------------------------------------
Class A Class B Class II Class I Class Z
---------- ---------- ---------- ----------- ------------
Total Net
Assets.......... $4,515,465 $4,249,519 $3,013,782 $22,083,376 $321,862,517
Shares
Outstanding..... 457,086 430,487 305,287 2,227,897 32,558,483
Net Asset Value
Per Share....... $ 9.88 $ 9.87 $ 9.87 $ 9.91 $ 9.89
NAF High Yield Bond Fund SunAmerica High Income Fund
--------------------------------------------------------- -----------------------------------
Institutional Institutional
Class A Class B Class C Class I Class II Class A Class B Class II
-------- --------- ---------- ------------- ------------- ----------- ----------- -----------
Total Net
Assets.......... $509,770 3,055,963 $1,007,493 2,139,306 62,926,703 $52,966,252 $67,138,966 $20,382,737
Shares
Outstanding..... 61,382 368,456 121,476 258,058 7,611,784 10,532,517 13,341,244 4,039,070
Net Asset Value
Per Share....... $ 8.30 $ 8.29 $ 8.29 $ 8.29 $ 8.27 $ 5.03 $ 5.03 $ 5.05
Pro Forma High Yield Bond Combined Fund
----------------------------------------------------------
Class A Class B Class II Class I Class Z
----------- ----------- ----------- ---------- -----------
Total Net
Assets.......... $53,475,770 $70,193,421 $21,389,733 $2,138,250 $62,945,618
Shares
Outstanding..... 10,633,813 13,948,492 4,238,475 425,099 12,514,039
Net Asset Value
Per Share....... $ 5.03 $ 5.03 $ 5.05 $ 5.03 $ 5.03
SunAmerica Tax Exempt Insured Pro Forma Municipal Bond Combined
NAF Municipal Bond Fund Fund Fund
-------------------------------- -------------------------------- ----------------------------------
Class A Class B Class C Class A Class B Class II Class A Class B Class II
---------- ---------- ---------- ----------- ----------- -------- ----------- ----------- ----------
Total Net Assets... $8,591,093 $7,979,498 $4,092,241 $72,393,871 $16,301,949 $720,950 $80,984,964 $24,281,447 $4,813,191
Shares
Outstanding........ 857,262 795,479 407,967 5,560,423 1,251,982 55,383 6,217,779 1,862,541 368,505
Net Asset Value Per
Share.............. $ 10.02 $ 10.03 $ 10.03 $ 13.02 $ 13.02 $ 13.02 $ 13.02 $ 13.02 $ 13.02
NAF Strategic Income Fund SunAmerica Diversified Income Fund
------------------------------------------------ ----------------------------------
Institutional
Class A Class B Class C Class I Class A Class B Class II
---------- ----------- ----------- ------------- ----------- ----------- ----------
Total Net
Assets.......... $7,509,117 $13,333,858 $12,666,503 $2,733,978 $30,923,542 $16,741,565 $4,020,990
Shares
Outstanding..... 934,033 1,658,275 1,575,224 339,570 9,178,230 4,959,910 1,190,805
Net Asset Value Per Share.. $ 8.04 $ 8.04 $ 8.04 $ 8.05 $ 3.37 $ 3.38 $ 3.38
Pro Forma Strategic Combined Fund
----------------------------------------------
Class A Class B Class II Class I
----------- ----------- ----------- ----------
Total Net
Assets.......... $38,420,957 $30,054,644 $16,667,754 $2,729,718
Shares
Outstanding..... 11,402,982 8,898,691 4,932,451 810,005
Net Asset Value Per Share.. $ 3.37 $ 3.38 $ 3.38 $ 3.37
SunAmerica U.S. Government
NAF U.S. Government Securities Fund Securities Fund
----------------------------------------------- -----------------------------------
Institutional
Class A Class B Class C Class I Class A Class B Class II
----------- ---------- ---------- ------------- ------------ ----------- ----------
Total Net
Assets.......... $33,746,846 $9,485,878 $7,443,184 N/A $169,523,987 $32,085,141 $3,302,887
Shares
Outstanding..... 3,434,666 965,374 757,505 N/A 19,032,935 3,602,311 370,663
Net Asset Value
Per Share....... $ 9.83 $ 9.83 $ 9.83 N/A $ 8.91 $ 8.91 $ 8.91
Pro Forma U.S. Government Securities
Combined Fund
--------------------------------------------
Class A Class B Class II Class I
------------ ----------- ----------- -------
Total Net
Assets.......... $203,270,883 $41,571,019 $10,746,071 N/A
Shares
Outstanding..... 22,817,281 4,666,050 1,205,336 N/A
Net Asset Value
Per Share....... $ 8.91 $ 8.91 $ 8.91 N/A
The table set forth above should not be relied upon to reflect the number of
shares to be received in the Reorganizations; the actual number of shares to
be received will depend upon the net asset value and number of shares
outstanding of each Fund at the Valuation Time. A stock split of 1.650255775,
1.648086922, 1.641518889, 1.647300219 and 1.644034959 for NAF High Yield Bond
Fund Class A, Class B, Class C, Institutional Class I and Institutional Class
II, respectively, is assumed to have occurred prior to the Reorganization. A
stock split of 2.381877541, 2.375227733, 2.375310530 and 2.385385462 for NAF
Strategic Income Fund Class A, Class B, Class C and Institutional Class I,
respectively, is assumed to have occurred prior to the reorganization.
63
GENERAL
INFORMATION CONCERNING THE MEETING
Date, Time and Place of Meeting
The Meeting will be held on November 7, 2001, at the principal executive
office of North American Funds, 286 Congress Street, Boston, Massachusetts
02210 at 10:00 a.m., Eastern Time.
Solicitation, Revocation and Use of Proxies
A shareholder executing and returning a proxy has the power to revoke it at
any time prior to its exercise by executing a superseding proxy (i.e., later-
dated and signed), by submitting a notice of revocation to the Secretary of
North American Funds or by subsequently registering his or her vote by
telephone or via the Internet. In addition, although mere attendance at the
Meeting will not revoke a proxy, a shareholder present at the Meeting may
withdraw his or her proxy and vote in person.
All shares represented by properly executed proxies received at or prior to
the Meeting, unless such proxies previously have been revoked, will be voted at
the Meeting in accordance with the directions on the proxies; if no direction
is indicated on a properly executed proxy, such shares will be voted "FOR"
approval of the New Investment Advisory Agreement, the New Subadvisory
Agreement and the respective Plan.
It is not anticipated that any matters other than the approval of the New
Investment Advisory Agreement, the New Subadvisory Agreement and approval of
the respective Plan will be brought before the Meeting. If, however, any other
business properly is brought before the Meeting, proxies will be voted in
accordance with the judgment of the persons designated on such proxies.
Record Date and Outstanding Shares
Only holders of record of shares of the Acquired Funds at the close of
business on September 17, 2001 (the "Record Date") are entitled to vote at the
Meeting or any adjournment thereof. The following chart sets forth the shares
of each class of the Acquired Funds issued and outstanding and entitled to vote
at the close of business on the Record Date.
Institutional Institutional Total Shares
NAF Fund Class A Shares Class B Shares Class C Shares Class II Shares Class I Shares for each Fund
-------- -------------- -------------- -------------- --------------- -------------- ---------------
NAF Core Bond Fund...... 585,319.3610 733,014.6370 458,926.0800 31,828,093.3140 2,230,188.3110 35,835,541.7030
NAF High Yield Bond
Fund................... 87,499.2410 392,563.0120 294,784.3630 8,048,542.4980 388,650.5310 9,212,039.6450
NAF Municipal Bond
Fund................... 835,944.7210 571,660.7380 220,451.6550 N/A N/A 1,628,057.1140
NAF Strategic Income
Fund................... 992,521.1010 1,534,273.5080 1,550,765.8110 N/A 355,550.9740 4,363,111.3940
NAF U.S. Government
Securities Fund........ 3,577,239.9830 860,369.8060 729,899.8580 N/A N/A 5,167,509.6470
64
Security Ownership of Certain Beneficial Owners and Management of the Funds
To the knowledge of each Fund, as of the August 31, 2001, the following
shareholders, if any, owned more than 5% of the outstanding voting securities
of such Fund:
Percentage of
Class
of Shares of
Combined
Fund After the
Percentage of Reorganization on
Name and Address Class of Shares and a Pro Forma
Name of Fund of Shareholder Type of Ownership Basis*
------------ ---------------- ------------------- ----------------
NAF Core Bond Fund Aggressive 9.39% of 9.39% of Class I
Growth LifeStyle Institutional
Fund Class I, owned
c/o VALIC of record
2919 Allen Pkwy
#L7-01
Houston TX 77019
Moderate Growth 34.83% of 34.83% of Class
LifeStyle Fund Institutional I
c/o VALIC Class I, owned
2919 Allen Pkwy of record
#L7-01
Houston TX 77019
Bear Sterns 54.59% of Class 54.59% of Class
Securities Corp B, beneficially B
FBO 044-51064-12 owned
1 Metrotech
Center
Brooklyn NY
11201
Bear Sterns 9.07% of Class 9.07% of Class B
Securities Corp B, beneficially
FBO 046-55300-12 owned
1 Metrotech
Center North
Brooklyn NY
11201-3870
Bear Sterns 8.99% of Class 8.99% of Class A
Securities Corp A, beneficially
FBO 220-59840-12 owned
1 Metrotech
Center North
Brooklyn NY
11201-3870
SSBT-FBO 7.42% of Class 7.42% of Class A
Spousal IRA A, beneficially
Dewey J. James owned
7728 S. Bennett
Ave.,
Chicago, IL
60649-4606
Donaldson Lufkin 35.84% of Class 35.84% of Class
Jenrette C, owned of II
Securities record
Corporation,
Inc.,
PO Box 2052
Jersey City, NJ
07303-2052
SSBT-FBO 11.61% of Class 11.61% of Class
Shirley Einhorn C, beneficially II
IRA owned
R/O IRA,
10662 SW 79
Terr,
Miami Fl 33173-
2913
SSBT-FBO 10.06% of Class 10.06% of Class
Ronald Cruz IRA C, beneficially II
R/O Ronald C. owned
Cruz
3913 Crestmont
Dr.
Santa Maria, CA
93455-3027
65
Percentage of
Class
of Shares of
Combined
Fund After the
Percentage of Reorganization on
Name and Address Class of Shares and a Pro Forma
Name of Fund of Shareholder Type of Ownership Basis*
------------ ---------------- ------------------- ----------------
Conservative 42.02% of 42.02% of Class
Growth Lifestyle Institutional I
Fund Class I, owned
c/o VALIC of record
Attn: Greg
Seward
2919 Allen Pkwy
#L7-01
Houston TX 77019
Valic Trust FBO 5.05% of 5.05% of Class I
Def. Comp. Plan Institutional
Attn: Kathleen Class I,
Janos, beneficially
2929 Allen owned
Parkway
#L3-00
Houston, TX
77019-7100
American General 100.00% of 100.00% of Class
Beth Dobbs Plan Institutional Z
Admin, Class II, owned
2929 Allen of record
Parkway
#L3-00
Houston, TX
77019-7100
NAF High Yield Bond American General 99.98% of 99.98% of Class
Fund Beth Dobbs Plan Institutional Z
Admin, Class II,
2929 Allen owned of record
Parkway
#L3-00
Houston, TX
77019-7100
Moderate Growth 85.23% of 85.23% of Class
Lifestyle Fund Institutional I
c/o VALIC Class I, owned
Attn: Greg of record
Seward
2919 Allen Pkwy
#L7-01
Houston, TX
77019
INVESCO FBO AG 25.89% of 25.89% of Class
Employees Thrift Institutional I
& Incentive Plan Class I,
#001248 beneficially
PO Box 4054 owned
Concord, CA
94524-4054
Louise Kritic 12.43% of Class 0.13% of Class A
UMT Robert A,
Kristic, owned of record
Myra Bortoli
PO Box 772
Ferndale, CA
95536-0772
SSBT FBO 10.42% of Class 0.11% of Class A
Shirley C A, beneficially
Karfunkle owned
106 Doe Ln,
Kennet Sq, PA
19348-2722
Kenneth Royce 9.11% of 0.10% of Class A
Barrett Class A,
& Ariel Cecil owned of record
Barrett TOD,
2160 Swift Blvd,
Houston, TX
77030-1216
66
Percentage of
Class
of Shares of
Combined
Fund After the
Percentage of Reorganization on
Name and Address Class of Shares and a Pro Forma
Name of Fund of Shareholder Type of Ownership Basis*
------------ ---------------- ------------------- ----------------
Stifel Nicolaus 7.03% of Class 0.08% of Class A
& Co. Inc. A/C A, beneficially
7017-4242 owned
Lucretia L Reno
Trust, 501 North
Broadway,
St Louis, MO
63102-2188
Donna R. Labadie 6.93% of Class 0.07% of Class A
8811 Gallant A,
Dr., Huntington owned of record
Beach, CA 92646-
4625
Roy E. Diemer 5.51% of Class 0.06% of Class A
8021 Christian A,
CT owned of record
#306,
Oxmoor Lodge,
Louisville, KY
40222
Bear Sterns FBO 5.60% of Class 0.23% of Class B
046-07518-29 B,
1 Metrotech beneficially
Center North, owned
Brooklyn, NY
11201-3870
SSBT FBO 8.91% of Class 0.89% of Class
Mary Ann Shutes C, II
69253 Parkside beneficially
Dr., Dsrt owned
Hot Spgs,
CA 92241-8205
Elva C. Black 7.84% of Class 0.78% of Class
TOD Douglas C. C, II
Black, Dennis E. owned of record
Black,
27100 W 107th
St.,
Olathe, KS
66061-7488
Peggy J. Davis 7.02% of Class 0.70% of Class
TTTEE C, II
Peggy J Davis owned of record
Trust,
DTD 12/30/97,
2010 W 93rd St.
Lenexa, KS
66220-3664
Jon W. Davis 7.02% of Class 0.70% of Class
TTTEE C, II
John W Davis owned of record
Trust, DTD
12/30/97,
20100 W 93rd St,
Lenexa, KS
66220-3664
NAF Municipal Bond VALIC Seed 30.04% of Class 3.14% of Class A
Fund Account, Attn: A,
Greg Kingston, owned of record
2912 Allen Pkwy
#L7-01,
Houston, TX
77019-2142
VALIC Seed 43.36% of Class 13.12% of Class
Account, Attn: B, owned of B
Greg Kingston, record
2912 Allen Pkwy
#L7-01,
Houston, TX
77019-2142
67
Percentage of
Class
of Shares of
Combined
Fund After the
Percentage of Reorganization on
Name and Address Class of Shares and a Pro Forma
Name of Fund of Shareholder Type of Ownership Basis*
------------ ---------------- ------------------- ----------------
Roselyn 5.13% of Class 1.55% of Class B
Indictor, B,
Tod Penny & beneficially
Craig Indictor owned
402 Slema
Street,
Philadelphia, PA
19116-2754
Claire Koh 33.00% of Class 18.87% of Class
963C Heritage C, II
Hills Drive, owned of record
Somers, NY
10589-1913
NFSC FBO 10.02% of Class 5.73% of Class
Scott B. C, II
Huchingson, owned of record
Christine A
Huchinson, 12843
Westledge Ln,
St. Louis, MO
63131-2237
Donaldson Lufkin 6.84% of Class 3.91% of Class
Jenrette C, II
Securities owned of record
Corporation
Inc.,
PO Box 2052,
Jersey City, NJ
07303-2052
Louise T. 5.23% of Class 2.99% of Class
Futrell C, II
PO Box 1314 owned of record
Southern Pines,
NC 28388-1314
NAF Strategic VALIC Seed 15.47% of Class 3.22% of Class A
Income Fund Account A, owned of
Attn: Greg record
Kingston,
2919 Allen Pkwy
#L7-01,
Houston, TX
77019-2142
VALIC Seed 7.84% of Class 3.18% of Class B
Account B, owned of
Attn: Greg record
Kingston,
2919 Allen Pkwy
#L7-01,
Houston, TX
77019-2142
VALIC Seed 100.00% of 100.0% of Class
Account Institutional I
Attn: Greg Class I, owned
Kingston, of record
2919 Allen Pkwy
#L7-01,
Houston, TX
77019-2142
Bear Sterns 7.23% of Class 2.93% of Class B
Securities Corp- B, beneficially
FBO 044-51064-12 owned
1 Metrotech
Center North,
Brooklyn, NY
11201-3870
NAF U.S. Government Paine Webber- 5.30% of Class 0.96% of Class A
Securities Fund FBO First A, beneficially
Federal Savings owned
Attn: Walter
Manijak, 633
Lasalle Street,
Ottowa, IL
61350-2931
68
Percentage of
Class
of Shares of
Combined
Fund After the
Percentage of Reorganization on
Name and Address Class of Shares and a Pro Forma
Name of Fund of Shareholder Type of Ownership Basis*
------------ ---------------- ------------------- ----------------
SSBT-FBO 7.03% of Class 4.80% of Class
Rollover IRA C, beneficially II
Carole A. owned
Eisenstein
122 Totowa Road,
Totowa, NJ
07512-2709
Paget Partners 6.30% of Class 4.51% of Class
L.P. C, owned of II
PO Box 5430, record
Incline VLG, NV
89450-5430
SunAmerica Core None N/A N/A
Bond Fund**
Sun America High None N/A N/A
Income Fund
SunAmerica Tax Merrill Lynch, 23.26% of Class 16.21% of Class
Exempt Insured Pierce, Fenner & B, owned of B
Fund Smith, Inc., record
Attn: Service
Team
Sec # 97MD7
4800 Deer Lake
Dr. East
Jacksonville, FL
32246
Donaldson Lufkin 5.52% of Class 3.85% of Class B
Jenrette B,
Securities owned of record
Corporation
Inc.,
PO Box 2052
Jersey City, NJ
07303
SunAmerica Asset 12.26% of Class 5.66% of Class
Management Corp II, owned of II
Attn: Frank record
Carram
The SunAmerica
Center
733 Third Ave.
4th Floor
New York, NY
10017
First Clearing 11.49% of Class 5.31% of Class
Corp., Robert P. II, owned of II
Mayhoffer, record
A/C 5493-7235
10164 Empire
Road Lafayette,
CO 80026
Donaldson Lufkin 31.30% of Class 14.46% of Class
Jenrette II, owned of II
Securities record
Corporation
Inc.,
PO Box 2052
Jersey City, NJ
07303
SunAmerica Merrill Lynch, 6.60% of Class 3.93% of Class B
Diversified Income Pierce, Fenner & B,
Fund Smith, Inc., owned of record
Attn: Service
Team
Sec # 97MD7
4800 Deer Lake
Dr. East
Jacksonville, FL
32246
SunAmerica U.S. Merrill Lynch, 6.34% of Class 4.90% of Class B
Government Securities Fund Pierce, Fenner & B,
Smith, Inc., owned of record
Attn: Service
Team
Sec # 97OK6
4800 Deer Lake
Dr. East
Jacksonville, FL
32246
Merrill Lynch, 11.06% of Class 3.73% of Class
Pierce, II, owned of II
Fenner & Smith, record
Inc.,
Attn: Service
Team
Sec # 97MD4
4800 Deer Lake
Dr. East
Jacksonville, FL
32246
69
--------
* Assuming that the value of the shareholder's interest in the Fund on the
date of consummation of the applicable Reorganization was the same as on
August 31, 2001.
** The SunAmerica Core Bond Fund has not yet commenced operations.
At August 31, 2001, the directors and officers of North American Funds as a
group (13 persons) owned an aggregate of less than 1% of the outstanding shares
of each Acquired Fund and owned an aggregate of less than 1% of the outstanding
shares of common stock of North American Funds.
At August 31, 2001, the directors and officers of SunAmerica Income Funds as
a group (8 persons) owned an aggregate of less than 1% of the outstanding
shares of each Acquiring Fund and owned an aggregate of less than 1% of the
outstanding shares of common stock of SunAmerica Income Funds.
Voting Rights and Required Vote
Each share of an Acquired Fund is entitled to one vote, with fractional
shares voting proportionally. Shareholders of each Acquired Fund vote
separately on whether to approve the New Investment Advisory Agreement and
approval with respect to one Acquired Fund is not dependent on approval with
respect to any other Acquired Fund. Shareholders of each Acquired Fund also
vote separately on whether to approve the New Subadvisory Agreement and
approval with respect to one Acquired Fund is not dependent upon approval with
respect to any other Acquired Fund. Approval of the Plan with respect to one
Acquired Fund is not dependent on approval of the Plan with respect to any
other Acquired Fund. Approval of the New Investment Advisory Agreement and each
Plan with respect to an Acquired Fund requires the affirmative vote of a
majority of the outstanding voting securities of that Fund, voting together as
a single class, cast at a meeting at which a quorum is present. "Majority" for
this purpose under the Investment Company Act means the lesser of (i) more than
50% of the outstanding shares of the applicable Acquired Fund and (ii) 67% or
more of the shares of that Acquired Fund represented at the Meeting if more
than 50% of such shares are represented.
Broker-dealer firms holding shares of any of the Acquired Funds in "street
name" for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares before
the Meeting. Broker-dealer firms will not be permitted to grant voting
authority without instructions with respect to the approval of the Plans. Each
of the Acquired Funds will include shares held of record by broker-dealers as
to which such authority has been granted in its tabulation of the total number
of shares present for purposes of determining whether the necessary quorum of
shareholders exists. Properly executed proxies that are returned but that are
marked "abstain" or with respect to which a broker-dealer has declined to vote
on any proposal ("broker non-votes") will be counted as present for the
purposes of determining a quorum. Assuming the presence of a quorum,
abstentions and broker non-votes if applicable will have the same effect as a
vote against approval of the New Investment Advisory Agreement, New Subadvisory
Agreement, or the applicable Plan, as the case may be.
A quorum for each Acquired Fund for purposes of the Meeting consists of
thirty percent of the shares of such Acquired Fund entitled to vote at the
Meeting, present in person or by proxy. If, by the time scheduled for each
Meeting, a quorum of the applicable Acquired Fund's shareholders is not present
or if a quorum is present but sufficient votes in favor of approval of the New
Investment Advisory Agreement or of the applicable Plan are not received from
the shareholders of the respective Acquired Fund, the persons named as proxies
may propose one or more adjournments of such Meeting to permit further
solicitation of proxies from shareholders. An affirmative vote of less than
thirty percent of the shares of the applicable Acquired Fund present in person
or by proxy and entitled to vote at the session of the Meeting will suffice for
any such adjournment. The persons named as proxies will vote in favor of any
such adjournment if they determine that adjournment and additional solicitation
are reasonable and in the interests of the shareholders of such Acquired Fund.
The votes of shareholders of the Acquiring Funds are not being solicited by
this Proxy Statement and Prospectus and are not required to carry out the
respective Reorganizations.
70
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form of
proxy, the accompanying Notice and this Proxy Statement and Prospectus will be
borne by AIG or an affiliate thereof. Such expenses are currently estimated to
be approximately $250,000 in the aggregate.
AIG or an affiliate thereof will reimburse banks, brokers and others for
their reasonable expenses in forwarding proxy solicitation materials to
beneficial owners of the Acquired Funds and will reimburse certain officers or
employees that it may employ for their reasonable expenses in assisting in the
solicitation of proxies from such beneficial owners.
In order to obtain the necessary quorums at the Meetings, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview by
officers of the Acquired Funds. North American Funds has retained Georgeson
Shareholder, 17 State Street, New York, New York 10004 to aid in the
solicitation of proxies at a cost estimated not to exceed $16,600, plus out-of-
pocket expenses. The cost of soliciting proxies will be borne by AIG or an
affiliate thereof.
This Proxy Statement and Prospectus does not contain all of the information
set forth in the registration statements and the exhibits relating thereto
which North American Funds and SunAmerica Income Funds have filed on behalf of
their respective Funds with the Commission under the Securities Act and the
Investment Company Act, to which reference is hereby made.
The Funds are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the Investment Company Act, and in
accordance therewith file reports and other information with the Commission.
Proxy material, reports and other information filed by the Funds (or by North
American Funds on behalf of the Acquired Funds or SunAmerica Income Funds on
behalf of the Acquiring Funds) can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such materials also can be obtained by mail
from the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549, at
prescribed rates. The Commission maintains a web site (http://www.sec.gov) that
contains the Statements of Additional Information and Prospectuses of the
Acquired Funds and Acquiring Funds, as well as other material incorporated by
reference and other information regarding the Funds.
LEGAL PROCEEDINGS
There are no material legal proceedings to which any of the Funds is a
party.
LEGAL OPINIONS
Certain legal matters in connection with the issuance of Corresponding
Shares have been passed upon by Robert M. Zakem, Esq., General Counsel for
SAAMCo. Certain tax matters in connection with the Reorganizations will be
passed upon for the Funds by Shearman & Sterling, 599 Lexington Avenue, New
York, New York 10022, counsel for the Acquiring Funds.
EXPERTS
The financial highlights of the Acquired Funds and Acquiring Funds (other
than the SunAmerica Core Bond Fund) incorporated by reference into this Proxy
Statement and Prospectus have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent auditors, given on their authority as
experts in auditing and accounting. The principal business address of
PricewaterhouseCoopers LLP is 1177 Avenue of the Americas, New York, New York
10036.
71
SHAREHOLDER PROPOSALS
A shareholder proposal intended to be presented at any subsequent meeting of
shareholders of an Acquired Fund must be received by such Acquired Fund in a
reasonable time before the solicitation by the Board of Trustees of North
American Funds relating to such meeting is to be made in order to be considered
in such Acquired Fund's proxy statement and form of proxy relating to the
meeting. If proposals Nos. 2(a)-(e) are approved at the Meeting, there will
likely not be any future shareholder meetings of the Acquired Funds.
By Order of the Board of Trustees of
North American Funds
/s/ John I. Fitzgerald
John I. Fitzgerald
Secretary, North American Funds
72
EXHIBIT IA
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT made as of this day of , 2001,
between NORTH AMERICAN FUNDS, a Massachusetts business trust (the "Trust"), and
AMERICAN GENERAL ASSET MANAGEMENT CORP., a Delaware corporation (the
"Adviser"). In consideration of the mutual covenants contained herein, the
parties agree as follows:
1. APPOINTMENT OF ADVISER
The Trust hereby appoints the Adviser, subject to the supervision of the
Trustees of the Trust and the terms of this Agreement, as the investment
adviser for each of the portfolios of the Trust specified in Appendix A to this
Agreement (the "Funds"). The Adviser accepts such appointment and agrees to
render the services and to assume the obligations set forth in this Agreement
commencing on its effective date. The Adviser will be an independent contractor
and will have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent unless expressly authorized in this Agreement or
another writing by the Trust and Adviser.
2. DUTIES OF THE ADVISER
a. Subject to the general supervision of the Trustees of the Trust and
the terms of this Agreement, the Adviser will at its own expense select,
contract with, and compensate investment subadvisers ("Subadvisers") to
manage the investments and determine the composition of the assets of the
Funds; provided, that any contract with a Subadviser (the "Subadvisory
Agreement") shall be in compliance with and approved as required by the
Investment Company Act of 1940, as amended ("Investment Company Act").
Subject always to the direction and control of the Trustees of the Trust,
the Adviser will monitor compliance of each Subadviser with the investment
objectives and related investment policies, as set forth in the Trust's
registration statement as filed with the Securities and Exchange
Commission, of any Fund or Funds under the management of such Subadviser,
and review and report to the Trustees of the Trust on the performance of
such Subadviser.
b. The Adviser will oversee the administration of all aspects of the
Trust's business and affairs and in that connection will furnish to the
Trust the following services:
(1) Office and Other Facilities. The Adviser shall furnish to the Trust
office space in the offices of the Adviser or in such other place as may be
agreed upon by the parties hereto from time to time and such other office
facilities, utilities and office equipment as are necessary for the Trust's
operations.
(2) Trustees and Officers. The Adviser agrees to permit individuals who
are directors, officers or employees of the Adviser to serve (if duly
elected or appointed) as Trustees or President, Vice President, Treasurer
or Secretary of the Trust, without remuneration from or other cost to the
Trust.
(3) Other Personnel. The Adviser shall furnish to the Trust, at the
Trust's expense, any other personnel necessary for the operations of the
Trust.
(4) Financial, Accounting, and Administrative Services. The Adviser
shall maintain the existence and records of the Trust; maintain the
registrations and qualifications of Trust shares under federal and state
law; and perform all administrative, financial, accounting, bookkeeping and
recordkeeping functions of the Trust except for any such functions that may
be performed by a third party pursuant to a custodian, transfer agency or
service agreement executed by the Trust. The Trust shall reimburse the
Adviser for its expenses associated with all such services, including the
compensation and related personnel expenses and expenses of office space,
office equipment, utilities and miscellaneous office expenses, except any
such expenses directly attributable to officers or employees of the Adviser
who are serving as President, Vice President, Treasurer or Secretary of the
Trust. The Adviser shall determine the expenses to be reimbursed by the
Trust pursuant to expense allocation procedures established by the Adviser
in accordance with generally accepted accounting principles.
IA-1
(5) Liaisons with Agents. The Adviser, at its own expense, shall
maintain liaison with the various agents and other persons employed by the
Trust (including the Trust's transfer agent, custodian, independent
accountants and legal counsel) and assist in the coordination of their
activities on behalf of the Trust. Fees and expenses of such agents and
other persons will be paid by the Trust.
(6) Reports to Trust. The Adviser shall furnish to or place at the
disposal of the Trust such information, reports, valuations, analyses and
opinions as the Trust may, at any time or from time to time, reasonably
request or as the Adviser may deem helpful to the Trust, provided that the
expenses associated with any such materials furnished by the Adviser at the
request of the Trust shall be borne by the Trust.
(7) Reports and Other Communications to Trust Shareholders. The Adviser
shall assist the Trust in developing (but not pay for) all general
shareholder communications including regular shareholder reports.
3. EXPENSES ASSUMED BY THE TRUST
In addition to paying the advisory fee provided for in Section 4, the Trust
will pay all expenses of its organization, operations and business not
specifically assumed or agreed to be paid by the Adviser as provided in this
Agreement, by a Subadviser as provided in a Subadvisory Agreement, or by the
Distributor as provided in the Distribution Agreement. Without limiting the
generality of the foregoing, the Trust, in addition to certain expenses
described in Section 2 above, shall pay or arrange for the payment of the
following:
a. Custody and Accounting Services. All expenses of the transfer,
receipt, safekeeping, servicing and accounting for the Trust's cash,
securities, and other property, including all charges of depositories,
custodians and other agents, if any;
b. Shareholder Servicing. All expenses of maintaining and servicing
shareholder accounts, including all charges of the Trust's transfer,
shareholder recordkeeping, dividend disbursing, redemption, and other
agents, if any;
c. Shareholder Communications. All expenses of preparing, setting in
type, printing, and distributing reports and other communications to
shareholders;
d. Shareholder Meetings. All expenses incidental to holding meetings of
Trust shareholders, including the printing of notices and proxy material,
and proxy solicitation therefor;
e. Prospectuses. All expenses of preparing, setting in type, and
printing of annual or more frequent revisions of the Trust's prospectus and
statement of additional information and any supplements thereto and of
mailing them to shareholders;
f. Pricing. All expenses of computing the net asset value per share for
each of the Funds, including the cost of any equipment or services used for
obtaining price quotations and valuing its investment portfolio;
g. Communication Equipment. All charges for equipment or services used
for communication between the Adviser or the Trust and the custodian,
transfer agent or any other agent selected by the Trust;
h. Legal and Accounting Fees and Expenses. All charges for services and
expenses of the Trust's legal counsel and independent auditors;
i. Trustees and Officers. Except as expressly provided otherwise in
paragraph 2.b.(2), all compensation of Trustees and officers, all expenses
incurred in connection with the service of Trustees and officers, and all
expenses of meetings of the Trustees and Committees of Trustees;
j. Federal Registration Fees. All fees and expenses of registering and
maintaining the registration of the Trust under the Investment Company Act
and the registration of the Trust's shares under the Securities Act of
1933, as amended (the "1933 Act"), including all fees and expenses incurred
in connection with the preparation, setting in type, printing and filing of
any registration statement and prospectus under the 1933 Act or the
Investment Company Act, and any amendments or supplements that may be made
from time to time;
IA-2
k. State Registration Fees. All fees and expenses of qualifying and
maintaining qualification of the Trust and of the Trust's shares for sale
under securities laws of various states or jurisdictions, and of
registration and qualification of the Trust under all other laws applicable
to the Trust or its business activities (including registering the Trust as
a broker-dealer, or any officer of the Trust or any person as agent or
salesman of the Trust in any state);
l. Issue and Redemption of Trust Shares. All expenses incurred in
connection with the issue, redemption, and transfer of Trust shares,
including the expense of confirming all share transactions, and of
preparing and transmitting certificates for shares of beneficial interest
in the Trust;
m. Bonding and Insurance. All expenses of bond, liability and other
insurance coverage required by law or regulation or deemed advisable by the
Trust's Trustees including, without limitation, such bond, liability and
other insurance expense that may from time to time be allocated to the
Trust in a manner approved by its Trustees;
n. Brokerage Commissions. All brokers' commissions and other charges
incident to the purchase, sale, or lending of the Trust's portfolio
securities;
o. Taxes. All taxes or governmental fees payable by or with respect to
the Trust to federal, state, or other governmental agencies, domestic or
foreign, including stamp or other transfer taxes, and all expenses incurred
in the preparation of tax returns;
p. Trade Association Fees. All fees, dues, and other expenses incurred
in connection with the Trust's membership in any trade association or other
investment organization; and
q. Nonrecurring and Extraordinary Expenses. Such nonrecurring expenses
as may arise, including the costs of actions, suits, or proceedings to
which the Trust is, or is threatened to be made, a party and the expenses
the Trust may incur as a result of its legal obligation to provide
indemnification to its Trustees, officers, agents and shareholders.
4. COMPENSATION OF ADVISER
The Adviser will pay the Subadviser with respect to each Fund the
compensation specified in Appendix A to this Agreement (the "Compensation").
5. NON-EXCLUSIVITY
The services of the Adviser to the Trust are not to be deemed to be
exclusive, and the Adviser shall be free to render investment advisory or other
services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that the directors, officers, and
employees of the Adviser are not prohibited from engaging in any other business
activity or from rendering services to any other person, or from serving as
partners, officers, directors, trustees or employees of any other firm or
corporation, including other investment companies.
6. SUPPLEMENTAL ARRANGEMENTS
The Adviser may enter into arrangements with other persons affiliated with
the Adviser to better enable it to fulfill its obligations under this Agreement
for the provision of certain personnel and facilities to the Adviser.
7. CONFLICTS OF INTEREST
It is understood that Trustees, officers, agents and shareholders of the
Trust are or may be interested in the Adviser as directors, officers,
stockholders, or otherwise; that directors, officers, agents and stockholders
of the Adviser are or may be interested in the Trust as Trustees, officers,
shareholders or otherwise; that the Adviser may be interested in the Trust; and
that the existence of any such dual interest shall not affect the validity
hereof or of any transactions hereunder except as otherwise provided in the
Agreement and Declaration of Trust of the Trust and the Articles of
Incorporation of the Adviser, respectively, or by specific provision of
applicable law.
IA-3
8. REGULATION
The Adviser shall submit to all regulatory and administrative bodies having
jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
The Adviser will comply in all material respects with Rule 17j-1 under the
Investment Company Act.
9. DURATION AND TERMINATION OF AGREEMENT
Unless sooner terminated, this Agreement will continue in effect for a
period more than two years from the date of its execution only so long as such
continuance is specifically approved at least annually either by the Trustees
of the Trust or by a majority of the outstanding voting securities of each of
the Portfolios, provided that in either event such continuance shall also be
approved by the vote of a majority of the Trustees of the Trust who are not
interested persons (as defined in the Investment Company Act) of any party to
this Agreement cast in person at a meeting called for the purpose of voting on
such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees of the Trust, by the vote of a majority of the
outstanding voting securities of the Trust, or with respect to any Fund by the
vote of a majority of the outstanding voting securities of such Fund, on sixty
days' written notice to the Adviser, or by the Adviser on sixty days' written
notice to the Trust. This Agreement will automatically terminate, without the
payment of any penalty, in the event of its assignment (as defined in the
Investment Company Act).
10. PROVISION OF CERTAIN INFORMATION BY ADVISER
The Adviser will promptly notify the Trust in writing of the occurrence of
any of the following events:
a. the Adviser fails to be registered as an investment adviser under the
Investment Advisers Act or under the laws of any jurisdiction in which the
Adviser is required to be registered as an investment adviser in order to
perform its obligations under this Agreement;
b. the Adviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry or investigation, at law or in equity, before or
by any court, public board or body, involving the affairs of the Trust; and
c. the chief executive officer or controlling stockholder of the Adviser
or the portfolio manager of any Fund changes.
11. AMENDMENTS TO THE AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by the vote of a majority of the outstanding voting
securities of each of the Funds affected by the amendment and by the vote of a
majority of the Trustees of the Trust who are not interested persons of any
party to this Agreement cast in person at a meeting called for the purpose of
voting on such approval. The required shareholder approval shall be effective
with respect to any Fund if a majority of the outstanding voting securities of
the series of shares of that Fund vote to approve the amendment,
notwithstanding that the amendment may not have been approved by a majority of
the outstanding voting securities of (a) any other Fund affected by the
amendment or (b) all the Funds of the Trust.
12. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
13. HEADINGS
The headings in the sections of this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
IA-4
14. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust or Adviser
in person or by registered mail or a private mail or delivery service providing
the sender with notice of receipt. Notice shall be deemed given on the date
delivered or mailed in accordance with this section.
15. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void in
law or in equity, the Agreement shall be construed, insofar as is possible, as
if such portion had never been contained herein.
16. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of The Commonwealth of Massachusetts, or any of the
applicable provisions of the Investment Company Act. To the extent that the
laws of The Commonwealth of Massachusetts, or any of the provisions in this
Agreement, con-flict with applicable provisions of the Investment Company Act,
the latter shall control.
17. LIMITATION OF LIABILITY
The Declaration of Trust establishing the Trust, dated September 29, 1988,
as amended and restated February 18, 1994, a copy of which, together with all
amendments thereto (the "Declaration"), is on file in the office of the
Secretary of The Commonwealth of Massachusetts, provides that the name "North
American Funds" refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of the Trust shall be held to any personal
liability, nor shall resort be had to their private property, for the
satisfaction of any obligation or claim, in connection with the affairs of the
Trust or any Fund thereof, but only the assets belonging to the Trust, or to
the particular Fund with which the obligee or claimant dealt, shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
North American Funds
By: _________________________________
American General Asset Management
Corp.
By: _________________________________
IA-5
NORTH AMERICAN FUNDS EXHIBIT IB
SUBADVISORY AGREEMENT
AGREEMENT made as of , 2001, between AMERICAN GENERAL ASSET MANAGEMENT
CORP., a Delaware corporation (the "Adviser"), AND AMERICAN GENERAL INVESTMENT
MANAGEMENT L.P. (or an affiliate), a Delaware limited partnership (the
"Subadviser"). In consideration of the mutual covenants contained herein, the
parties agree as follows:
1. APPOINTMENT OF SUBADVISER
The Subadviser undertakes to act as investment subadviser to, and, subject
to the supervision of the Trustees of North American Funds (the "Trust") and
the terms of this Agreement, to manage the investment and reinvestment of the
assets of the series of the Trust specified in Appendix A to this Agreement as
it shall be amended by the Adviser and the Subadviser from time to time (the
"Funds"). The Subadviser will be an independent contractor and will have no
authority to act for or represent the Trust or Adviser in any way except as
expressly authorized in this Agreement or another writing by the Trust and
Adviser.
2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST
a. Subject always to the direction and control of the Trustees of the
Trust, the Subadviser will manage the investments and determine the
composition of the assets of the Funds in accordance with the Funds'
registration statement, as amended. In fulfilling its obligations to manage
the investments and reinvestments of the assets of the Funds, the
Subadviser will:
i. obtain and evaluate pertinent economic, statistical, financial
and other information affecting the economy generally and individual
companies or industries the securities of which are included in the
Funds or are under consideration for inclusion in the Funds;
ii. formulate and implement a continuous investment program for each
Fund consistent with the investment objectives and related investment
policies for each such Fund as described in the Trust's registration
statement, as amended;
iii. take whatever steps are necessary to implement these investment
programs by the purchase and sale of securities including the placing
of orders for such purchases and sales;
iv. regularly report to the Trustees of the Trust with respect to
the implementation of these investment programs;
v. provide assistance to the Trust's Custodian regarding the fair
value of securities held by the Funds for which market quotations are
not readily available for purposes of enabling the Trust's Custodian to
calculate net asset value; and
vi. vote proxies in accordance with the Proxy Voting Policy of the
Trust.
b. The Subadviser, at its expense, will furnish (i) all necessary
investment and management facilities, including salaries of personnel
required for it to execute its duties faithfully, and (ii) administrative
facilities, including bookkeeping, clerical personnel and equipment
necessary for the efficient conduct of the investment affairs of the Funds
(excluding determination of net asset value and shareholder accounting
services).
c. The Subadviser will select brokers and dealers to effect all
transactions subject to the following conditions: The Subadviser will place
all orders with brokers, dealers, or issuers, and will negotiate brokerage
commissions if applicable. The Subadviser is directed at all times to seek
to execute brokerage transactions for the Funds in accordance with such
policies or practices as may be established by the Trustees and described
in the Trust's registration statement as amended. The Subadviser may pay a
broker-dealer which provides research and brokerage services a higher
spread or commission for a particular
IB-1
transaction than otherwise might have been charged by another broker-
dealer, if the Subadviser determines that the higher spread or commission
is reasonable in relation to the value of the brokerage and research
services that such broker-dealer provides, viewed in terms of either the
particular transaction or the Subadviser's overall responsibilities with
respect to accounts managed by the Subadviser. The Subadviser may use for
the benefit of the Subadviser's other clients, or make available to
companies affiliated with the Subadviser or to its directors for the
benefit of its clients, any such brokerage and research services that the
Subadviser obtains from brokers or dealers.
d. On occasions when the Subadviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other clients of
the Subadviser, the Subadviser to the extent permitted by applicable laws
and regulations, may, but shall be under no obligation to, aggregate the
securities to be purchased or sold to attempt to obtain a more favorable
price or lower brokerage commissions and efficient execution. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Subadviser in the
manner the Subadviser considers to be the most equitable and consistent
with its fiduciary obligations to the Fund and to its other clients.
e. The Subadviser will maintain all accounts, books and records with
respect to the Funds as are required of an investment adviser of a
registered investment company under the Investment Company Act of 1940, as
amended (the "Investment Company Act") and Investment Advisers Act of 1940,
as amended (the "Investment Advisers Act") and the rules thereunder.
f. The Subadviser agrees to observe and comply with Rule 17j-1 under the
Investment Company Act and its Code of Ethics (which shall comply in all
material respects with Rule 17j-1, as the same may be amended from time to
time). On a quarterly basis, the Subadviser will either (i) certify to the
Adviser that the Subadviser and its Access Persons have complied with the
Subadviser's Code of Ethics with respect to the Fund or (ii) identify any
material violations which have occurred with respect to the Fund. In
addition, the Subadviser will report at least annually to the Adviser
concerning any other violations of the Subadviser's Code of Ethics which
required significant remedial action and which were not previously
reported.
3. COMPENSATION OF SUBADVISER
The Adviser will pay the Subadviser with respect to each Fund the
compensation specified in Appendix A to this Agreement.
During the term of this Agreement, the following conditions apply:
a. The fee shall be held in an interest-bearing escrow account with
State Street Bank and Trust Company;
b. If a majority of a Covered Fund's outstanding voting securities
approve a new investment sub-advisory agreement (the "New Sub-Advisory
Agreement") with the SUB-ADVISER within 150 days after the date hereof, the
amount in the escrow account (including interest earned thereon) with
respect to such Covered Fund shall be paid to the SUB-ADVISER; and
c. If a majority of a Covered Fund's outstanding voting securities do
not approve a New Sub-Advisory Agreement with the SUB-ADVISER within such
150-day period, the SUB-ADVISER shall be paid from the escrow account, the
lesser of an amount equal to
(i) any costs incurred in performing this Agreement (plus interest
earned on that amount in the escrow account); or
(ii) the total amount in the escrow account (plus interest earned
thereon).
IB-2
4. LIABILITY OF SUBADVISER
Neither the Subadviser nor any of its employees shall be liable to the
Adviser or Trust for any loss suffered by the Adviser or Trust resulting from
any error of judgment made in the good faith exercise of the Subadviser's
investment discretion in connection with selecting Fund investments except for
losses resulting from willful misfeasance, bad faith or gross negligence of, or
from reckless disregard of, the duties of the Subadviser or any of its partners
or employees; and neither the Subadviser nor any of its employees shall be
liable to the Adviser or Trust for any loss suffered by the Adviser or Trust
resulting from any other matters to which this Agreement relates (i.e., those
other matters specified in Sections 2 and 8 of this Agreement), except for
losses resulting from willful misfeasance, bad faith, or gross negligence in
the performance of, or from disregard of, the duties of the Subadviser or any
of its partners or employees.
5. SUPPLEMENTAL ARRANGEMENTS
The Subadviser may enter into arrangements with other persons affiliated
with the Subadviser to better enable it to fulfill its obligations under this
Agreement for the provision of certain personnel and facilities to the
Subadviser.
6. CONFLICTS OF INTEREST
It is understood that trustees, officers, agents and shareholders of the
Trust are or may be interested in the Subadviser as trustees, officers,
partners or otherwise; that directors, officers, agents and partners of the
Subadviser are or may be interested in the Trust as trustees, officers,
shareholders or otherwise; that the Subadviser may be interested in the Trust;
and that the existence of any such dual interest shall not affect the validity
hereof or of any transactions hereunder except as otherwise provided in the
Agreement and Declaration of Trust of the Trust and the Certificate of
Incorporation of the Subadviser, respectively, or by specific provision of
applicable law.
7. REGULATION
The Subadviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
8. DURATION AND TERMINATION OF AGREEMENT
Unless sooner terminated, this Agreement will continue in effect for a
period more than two years from the date of its execution only so long as such
continuance is specifically approved at least annually either by the Trustees
of the Trust or by a majority of the outstanding voting securities of each of
the Portfolios, provided that in either event such continuance shall also be
approved by the vote of a majority of the Trustees of the Trust who are not
interested persons (as defined in the Investment Company Act) of any party to
this Agreement cast in person at a meeting called for the purpose of voting on
such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees of the Trust, by the vote of a majority of the
outstanding voting securities of the Trust, or with respect to any Portfolio by
the vote of a majority of the outstanding voting securities of such Portfolio,
on sixty days' written notice to the Adviser and the Subadviser, or by the
Adviser or Subadviser on sixty days' written notice to the Trust and the other
party. This Agreement will automatically terminate, without the payment of any
penalty, in the event of its assignment (as defined in the Investment Company
Act) or in the event the Advisory Agreement between the Adviser and the Trust
terminates for any reason; provided that the termination of the Interim
Investment Advisory Agreement between the Trust and the Adviser pursuant to
Rule 15a-4 under the Investment Company Act upon shareholder approval of a
definitive Investment Advisory Agreement with respect to a Portfolio shall not
result in the termination of this Agreement as to such Portfolio.
IB-3
9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER
The Subadviser will promptly notify the Adviser in writing of the occurrence
of any of the following events:
a. the Subadviser fails to be registered as an investment adviser under
the Investment Advisers Act or under the laws of any jurisdiction in which
the Subadviser is required to be registered as an investment adviser in
order to perform its obligations under this Agreement;
b. the Subadviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry or investigation, at law or in equity, before or
by any court, public board or body, involving the affairs of the Trust; and
c. any change in actual control or management of the Subadviser or the
portfolio manager of any Fund.
10. PROVISION OF CERTAIN INFORMATION BY THE ADVISER
The Adviser shall furnish the Subadviser with copies of the Trust's
Prospectus and Statement of Additional Information, and any reports made by the
Trust to its shareholders, as soon as practicable after such documents become
available. The Adviser shall furnish the Subadviser with any further documents,
materials or information that the Subadviser may reasonably request to enable
it to perform its duties pursuant to this Agreement.
11. SERVICES TO OTHER CLIENTS
The Adviser understand, and has advised the Trust's Board of Trustees, that
the Subadviser now acts, or may in the future act, as an investment adviser to
fiduciary and other managed accounts and as investment adviser or subadviser to
other investment companies. Further, the Adviser understands, and has advised
the Trust's Board of Trustees that the Subadviser and its affiliates may give
advice and take action for its accounts, including investment companies, which
differs from advice given on the timing or nature of action taken for the Fund.
The Subadviser is not obligated to initiate transaction for the Portfolio in
any security which the Subadviser, its principals, affiliates or employees may
purchase or sell for their own accounts or other clients.
12. AMENDMENTS TO THE AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by the vote of a majority of the outstanding voting
securities of each of the Funds affected by the amendment and by the vote of a
majority of the Trustees of the Trust who are not interested persons of any
party to this Agreement cast in person at a meeting called for the purpose of
voting on such approval. The required shareholder approval shall be effective
with respect to any Fund if a majority of the outstanding voting securities of
that Fund vote to approve the amendment, notwithstanding that the amendment may
not have been approved by a majority of the outstanding voting securities of
(a) any other Fund affected by the amendment or (b) all the series of the
Trust.
13. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
14. HEADINGS
The headings in the sections of this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
IB-4
15. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust or
applicable party in person or by registered mail or a private mail or delivery
service providing the sender with notice of receipt. Notice shall be deemed
given on the date delivered or mailed in accordance with this paragraph.
16. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void in
law or in equity, the Agreement shall be construed, insofar as is possible, as
if such portion had never been contained herein.
17. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of The Commonwealth of Massachusetts, or any of the
applicable provisions of the Investment Company Act. To the extent that the
laws of The Commonwealth of Massachusetts, or any of the provisions in this
Agreement, conflict with applicable provisions of the Investment Company Act,
the latter shall control.
18. LIMITATION OF LIABILITY
The Amended and Restated Agreement and Declaration of Trust dated February
18, 1994, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of The Commonwealth
of Massachusetts, provides that the name "North American Funds" refers to the
Trustees under the Declaration collectively as Trustees, but not as individuals
or personally; and no Trustee, shareholder, officer, employee or agent of the
Trust shall be held to any personal liability, nor shall resort be had to their
private property, for the satisfaction of any obligation or claim, in
connection with the affairs of the Trust or any portfolio thereof, but only the
assets belonging to the Trust, or to the particular portfolio with which the
obligee or claimant dealt, shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
American General Asset Management
Corp.
By: _________________________________
American General Investment
Management, L.P.
By: _________________________________
IB-5
EXHIBIT II
Agreement and Plan of Reorganization
Dated as of September 28, 2001
Table of Contents
Page No.
--------
1.Defined Terms; Sections and Exhibits; Miscellaneous Terms........... 2
a.Definitions....................................................... 2
b.Use of Defined Terms.............................................. 6
c.Sections and Exhibits............................................. 6
d.Miscellaneous Terms............................................... 6
2.The Reorganization(s)............................................... 6
a.Transfer of Assets................................................ 6
b.Assumption of Liabilities......................................... 6
c.Issuance and Valuation of Corresponding Shares in the
Reorganization..................................................... 6
d.Distribution of Corresponding Shares to the Acquired Fund
Shareholders....................................................... 7
e.Interest; Proceeds................................................ 7
f.Valuation Time.................................................... 7
g.Evidence of Transfer.............................................. 7
h.Termination....................................................... 7
i.Separate Agreements; Reorganizations Not Conditioned on One
Another............................................................ 7
3.Representations and Warranties of the Acquired Fund................. 7
a.Formation and Qualification....................................... 7
b.Licenses.......................................................... 8
c.Authority......................................................... 8
d.Financial Statements.............................................. 8
e.Semi-Annual Report to Shareholders................................ 8
f.Prospectus and Statement of Additional Information................ 8
g.Litigation........................................................ 8
h.Material Contracts................................................ 9
i.No Conflict....................................................... 9
j.Undisclosed Liabilities........................................... 9
k.Taxes............................................................. 9
l.Assets............................................................ 9
m.Consents.......................................................... 9
n.N-14 Registration Statement....................................... 9
o.Capitalization.................................................... 10
p.Books and Records................................................. 10
4.Representations and Warranties of the Acquiring Fund................ 10
a.Formation and Qualification....................................... 10
b.Licenses.......................................................... 10
c.Authority......................................................... 10
d.Financial Statements.............................................. 11
e.Intentionally Left Blank.......................................... 11
f.Prospectuses and Statements of Additional Information............. 11
g.Litigation........................................................ 11
h.Material Contracts................................................ 11
i.No Conflict....................................................... 11
j.Undisclosed Liabilities........................................... 11
k.Taxes............................................................. 11
l.Consents.......................................................... 12
m.N-l4 Registration Statement....................................... 12
n.Capitalization.................................................... 12
o.Corresponding Shares.............................................. 12
i
Page No.
--------
5.Covenants of the Acquired Fund and the Acquiring Fund............... 12
a.Special Shareholders' Meeting..................................... 12
b.Unaudited Financial Statements.................................... 13
c.Share Ledger Records of the Acquiring Fund........................ 13
d.Conduct of Business............................................... 13
e.Termination of the Acquired Fund.................................. 13
f.Filing of N-14 Registration Statement............................. 13
g.Corresponding Shares.............................................. 13
h.Tax Returns....................................................... 13
i.Combined Proxy Statement and Prospectus Mailing................... 14
j.Confirmation of Tax Basis......................................... 14
k.Shareholder List.................................................. 14
6.Closing Date........................................................ 14
7.Conditions of the Acquired Fund..................................... 14
a.Representations and Warranties.................................... 14
b.Performance....................................................... 14
c.Shareholder Approval.............................................. 15
d.Approval of Board of Trustees..................................... 15
e.Deliveries by the Acquiring Fund.................................. 15
f.No Material Adverse Change........................................ 15
g.Absence of Litigation............................................. 16
h.Proceedings and Documents......................................... 16
i.N-14 Registration Statement; Acquiring Fund Post-Effective
Amendment.......................................................... 16
j.Compliance with Laws; No Adverse Action or Decision............... 16
k.Commission Orders or Interpretations.............................. 16
8.Conditions of the Acquiring Fund.................................... 16
a.Representations and Warranties.................................... 16
b.Performance....................................................... 16
c.Shareholder Approval.............................................. 16
d.Approval of Board of Trustees..................................... 17
e.Deliveries by the Acquired Fund................................... 17
f.No Material Adverse Change........................................ 17
g.Absence of Litigation............................................. 17
h.Proceedings and Documents......................................... 17
i.N-l4 Registration Statement; Acquiring Fund Post-Effective
Amendment.......................................................... 17
j.Compliance with Laws; No Adverse Action or Decision............... 17
k.Commission Orders or Interpretations.............................. 18
l.Dividends......................................................... 18
9.Termination, Postponement and Waivers............................... 18
a.Termination of Agreement.......................................... 18
b.Commission Order.................................................. 18
c.Effect of Termination............................................. 18
d.Waivers; Non-Material Changes..................................... 19
10.Survival of Representations and Warranties......................... 19
11.Other Matters...................................................... 19
a.Obligations....................................................... 19
b.Further Assurances................................................ 19
c.Notices........................................................... 19
d.Entire Agreement.................................................. 20
e.Amendment......................................................... 20
f.Governing Law..................................................... 20
ii
Page No.
--------
g.Assignment......................................................... 20
h.Costs of the Reorganization........................................ 20
i.Severability....................................................... 20
j.Headings........................................................... 20
k.Counterparts....................................................... 20
iii
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the 28th day of September 2001, by and between NORTH AMERICAN FUNDS, a
Massachusetts business trust, on behalf of each Acquired Fund (as defined
herein), each a separate investment portfolio of North American Funds, and
SUNAMERICA INCOME FUNDS, a Massachusetts business trust, on behalf of each
Acquiring Fund (as defined herein), each a separate investment portfolio of
SunAmerica Income Funds.
PLANS OF REORGANIZATION
WHEREAS, this Agreement constitutes a separate agreement and plan of
reorganization between North American Funds on behalf of each of its separate
investment portfolios (each an "Acquired Fund," and collectively, the "Acquired
Funds") and SunAmerica Income Funds on behalf of each of its separate
investment portfolios (each an "Acquiring Fund," and collectively, the
"Acquiring Funds") set forth below:
Acquired Fund: Acquiring Fund:
-------------- ---------------
High Yield Bond Fund (the "NAF High Yield
Bond Fund")................................. SunAmerica High Income Fund, to
be renamed SunAmerica High
Yield Bond Fund (the
"SunAmerica High Yield Bond
Fund")
U.S. Government Securities Fund (the "NAF
U.S. Government Securities Fund")........... SunAmerica U.S. Government
Securities Fund (the
"SunAmerica U.S. Government
Securities Fund")
Municipal Bond Fund (the "NAF Municipal Bond
Fund")...................................... SunAmerica Tax Exempt Insured
Fund (the "SunAmerica Tax
Exempt Insured Fund")
Core Bond Fund (the "NAF Core Bond Fund").... SunAmerica Core Bond Fund (the
"SunAmerica Core Bond Fund")
Strategic Income Fund (the "NAF Strategic
Income Fund")............................... SunAmerica Diversified Income
Fund, to be renamed SunAmerica
Strategic Income Fund (the
"SunAmerica Strategic Income
Fund")
WHEREAS, each Acquired Fund owns securities that generally are assets of the
character in which the respective Acquiring Fund is permitted to invest;
WHEREAS, each reorganization will consist of (i) the acquisition of an
Acquired Fund's Assets (as defined herein), and assumption of that Acquired
Fund's Assumed Liabilities (as defined herein), by the respective Acquiring
Fund solely in exchange for an aggregate value of newly issued shares of
beneficial interest, $.01 par value per share, of such Acquiring Fund (the
"Shares"), equal to the net asset value of such Acquired Fund's Assets
determined in accordance with Section 2(c) hereof, and (ii) the subsequent
distribution by that Acquired Fund of the Shares to its shareholders in
liquidation of the Acquired Fund, all upon and subject to the terms hereinafter
set forth (each a "Reorganization," and collectively, the "Reorganizations");
WHEREAS, in the course of each Reorganization, shares of an Acquiring Fund
will be issued to an Acquired Fund and distributed to the shareholders thereof
as follows: each holder, if any, of Class A, Class B, Class C, Institutional
Class I and Institutional Class II Shares of an Acquired Fund will be entitled
to receive Class A, Class B, Class II, Class I and Class Z Shares, respectively
(the "Corresponding Shares"), of the respective Acquiring Fund on the Closing
Date (as defined herein);
WHEREAS, the aggregate net asset value of the Corresponding Shares to be
received by each shareholder of an Acquired Fund will equal the aggregate net
asset value of the respective Acquired Fund shares owned by such shareholder as
of the Valuation Time (as defined herein);
WHEREAS, it is intended that each Reorganization described herein shall be
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and any successor provision and the
parties intend, by executing this Agreement, to adopt a plan of reorganization
within the meaning of Section 368(a) of the Code; and
WHEREAS, the consummation of one Reorganization is not conditioned upon the
consummation of any other Reorganization.
AGREEMENT
NOW, THEREFORE, in order to consummate each Reorganization and in
consideration of the premises and the covenants and agreements hereinafter set
forth, and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, and intending to be legally bound, each
Acquired Fund and Acquiring Fund hereby agrees as follows:
1. Defined Terms; Sections and Exhibits; Miscellaneous Terms.
a. Definitions. As used herein the following terms have the following
respective meanings:
"Acquired Fund" has the meaning ascribed thereto under the heading
"Plans of Reorganization." For purposes of this Agreement, the term
"Acquired Fund" shall refer to the NAF High Yield Bond Fund in respect of
the High Yield Bond Funds Reorganization, the NAF U.S. Government
Securities Fund in respect of the U.S. Government Securities Funds
Reorganization, the NAF Municipal Bond Fund in respect of the Municipal
Bond Funds Reorganization, the NAF Core Bond Fund in respect of the Core
Bond Funds Reorganization, and the NAF Strategic Income Fund in respect of
the Strategic Income Funds Reorganization.
"Acquiring Fund" has the meaning ascribed thereto under the heading
"Plans of Reorganization." For purposes of this Agreement, the term
"Acquiring Fund" shall refer to the SunAmerica High Yield Bond Fund in
respect of the High Yield Bond Funds Reorganization, the SunAmerica U.S.
Government Securities Fund in respect of the U.S. Government Securities
Funds Reorganization, the SunAmerica Tax Exempt Insured Fund in respect of
the Municipal Bond Funds Reorganization, the SunAmerica Core Bond Fund in
respect of the Core Bond Funds Reorganization, and the SunAmerica Strategic
Income Fund in respect of the Strategic Income Funds Reorganization.
"Acquiring Fund Post-Effective Amendment" has the meaning ascribed
thereto in Section 5(l) hereof.
"Agreement" has the meaning ascribed thereto in the introduction hereof.
"Assets" has the meaning ascribed thereto in Section 2(a) hereof. For
purposes of this Agreement, the term "Assets" shall refer to Assets of (i)
the NAF High Yield Bond Fund in the case of the High Yield Bond Funds
Reorganization, (ii) the NAF U.S. Government Securities in the case of the
U.S. Government Securities Funds Reorganization, (iii) the NAF Municipal
Bond Fund in the case of the Municipal Bond Funds Reorganization, (iv) the
NAF Core Bond Fund in the case of the Core Bond Funds Reorganization, and
(v) the NAF Strategic Income Fund in the case of the Strategic Income Funds
Reorganization.
"Assumed Liabilities" has the meaning ascribed thereto in Section 2(b)
hereof. For purposes of this Agreement, the term "Assumed Liabilities"
shall refer to the Assumed Liabilities of (i) the NAF High Yield Bond Fund
in the case of the High Yield Bond Funds Reorganization, (ii) the NAF U.S.
Government Securities Fund in the case of the U.S. Government Securities
Funds Reorganization, (iii) the NAF Municipal Bond Fund in the case of the
Municipal Bond Funds Reorganization, (iv) the NAF Core Bond in the case of
the Core Bond Funds Reorganization, and (v) the NAF Strategic Income Fund
in the case of the Strategic Income Funds Reorganization.
"Closing Date" has the meaning ascribed thereto in Section 6 hereof.
2
"Code" has the meaning ascribed thereto under the heading "Plans of
Reorganization."
"Commission" shall mean the Securities and Exchange Commission.
"Core Bond Funds Reorganization" consists of (i) the acquisition of the
NAF Core Bond Fund's Assets, and assumption of the NAF Core Bond Fund's
Assumed Liabilities, by the SunAmerica Core Bond Fund solely in exchange
for an aggregate value of Corresponding Shares of the SunAmerica Core Bond
Fund, equal to the net asset value of the NAF Core Bond Fund's Assets
determined in accordance with Section 2(c) hereof, and (ii) the subsequent
distribution by the NAF Core Bond Fund of such Corresponding Shares to its
shareholders in proportion to such shareholders' interest in the NAF Core
Bond Fund in liquidation of the NAF Core Bond Fund.
"Corresponding Shares" has the meaning ascribed thereto under the
heading "Plans of Reorganization." For purposes of this Agreement, the term
"Corresponding Shares" shall refer to the Corresponding Shares of (i) the
SunAmerica High Yield Bond Fund in the case of the High Yield Bond Funds
Reorganization, (ii) the SunAmerica U.S. Government Securities Fund in the
case of the U.S. Government Securities Funds Reorganization, (iii) the
SunAmerica Tax Exempt Insured Fund in the case of the Municipal Bond Funds
Reorganization, (iv) the SunAmerica Core Bond Fund in the case of the Core
Bond Funds Reorganization, and (v) the SunAmerica Strategic Income Fund in
the case of the Strategic Income Funds Reorganization.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Governmental Authority" shall mean any governmental or quasi-
governmental authority, including, without limitation, any Federal, state,
territorial, county, municipal or other governmental or quasi-governmental
agency, board, branch, bureau, commission, court, arbitral body, department
or other instrumentality or political unit or subdivision, whether domestic
or foreign.
"High Yield Bond Funds Reorganization" consists of (i) the acquisition
of the NAF High Yield Bond Fund's Assets, and assumption of the NAF High
Yield Bond Fund's Assumed Liabilities, by the SunAmerica High Yield Bond
Fund solely in exchange for an aggregate value of Corresponding Shares of
the SunAmerica High Yield Bond Fund, equal to the net asset value of the
NAF High Yield Bond Fund's Assets determined in accordance with Section
2(c) hereof, and (ii) the subsequent distribution by the NAF High Yield
Bond Fund of such Corresponding Shares to its shareholders in proportion to
such shareholders' interest in the NAF High Yield Bond Fund in liquidation
of the NAF High Yield Bond Fund.
"Investment Company Act" shall mean the Investment Company Act of 1940,
as amended.
"Investments" shall mean, with respect to any Person, (i) the
investments of such Person shown on the schedule of its investments as of
the date set forth therein, with such additions thereto and deletions
therefrom as may have arisen in the course of such Person's business up to
such date; and (ii) all other assets owned by such Person or liabilities
incurred as of such date.
"Licenses" has the meaning ascribed thereto in Section 3(b) hereof.
"Lien" shall mean any security agreement, financing statement (whether
or not filed), mortgage, lien (statutory or otherwise), charge, pledge,
hypothecation, conditional sales agreement, adverse claim, title retention
agreement or other security interest, encumbrance, restriction, deed of
trust, indenture, option, limitation, exception to or other title defect in
or on any interest or title of any vendor, lessor, lender or other secured
party to or of such Person under any conditional sale, lease, consignment
or bailment given for security purposes, trust receipt or other title
retention agreement with respect to any property or asset of such Person,
whether direct, indirect, accrued or contingent.
"Majority Shareholder Vote" shall mean
3
the lesser of (i) more than 50% of the outstanding shares of the Acquired
Fund and (ii) 67% or more of the shares of the Acquired Fund represented at
the special shareholders' meeting referenced in Section 5(a) hereof if more
than 50% of such shares are represented.
"Material Adverse Effect" shall mean, with respect to any Person, any
event, circumstance or condition that, individually or when aggregated with
all other similar events, circumstances or conditions could reasonably be
expected to have, or has had, a material adverse effect on: (i) the
business, property, operations, condition (financial or otherwise), results
of operations or prospects of such Person or (ii) the ability of such
Person to consummate the transactions contemplated hereunder in the manner
contemplated hereby, other than, in each case, any change relating to the
economy or securities markets in general.
"Municipal Bond Funds Reorganization" consists of (i) the acquisition of
the NAF Municipal Bond Fund's Assets, and assumption of the NAF Municipal
Bond Fund's Assumed Liabilities, by the SunAmerica Tax Exempt Insured Fund
solely in exchange for an aggregate value of Corresponding Shares of the
SunAmerica Tax Exempt Insured Fund, equal to the net asset value of the NAF
Municipal Bond Fund's Assets determined in accordance with Section 2(c)
hereof, and (ii) the subsequent distribution by the NAF Municipal Bond Fund
of such Corresponding Shares to its shareholders in proportion to such
shareholders' interest in the NAF Municipal Bond Fund in liquidation of the
NAF Municipal Bond Fund.
"NAF Core Bond Fund" has the meaning ascribed thereto under the heading
"Plans of Reorganization."
"NAF High Yield Bond Fund" has the meaning ascribed thereto under the
heading "Plans of Reorganization."
"NAF Municipal Bond Fund" has the meaning ascribed thereto under the
heading "Plans of Reorganization."
"NAF Strategic Income Fund" has the meaning ascribed thereto under the
heading "Plans of Reorganization."
"NAF U.S. Government Securities Fund" has the meaning ascribed thereto
under the heading "Plans of Reorganization."
"North American Funds Declaration of Trust" shall mean the Amended and
Restated Agreement and Declaration of Trust of North American Funds dated
as of February 18, 1994, as amended or supplemented from time to time.
"North American Funds Prospectuses" shall mean the prospectuses relating
to the Acquired Funds each dated March 1, 2001, in each case as amended or
supplemented.
"North American Funds Statement of Additional Information" shall mean
the statement of additional information relating to the Acquired Funds,
dated March 1, 2001, as amended or supplemented.
"N-14 Registration Statement" has the meaning ascribed thereto in
Section 3(n) hereof.
"Permitted Liens" shall mean, with respect to any Person, any Lien
arising by reason of (i) taxes, assessments, governmental charges or claims
that are either not yet delinquent, or being contested in good faith for
which adequate reserves have been recorded, (ii) the Federal or state
securities laws, and (iii) imperfections of title or encumbrances as do not
materially detract from the value or use of the Assets or materially affect
title thereto.
"Person" shall mean any individual, corporation, limited liability
company, limited or general partnership, joint venture, association, joint
stock company, trust, unincorporated organization, or government or any
agency or political subdivision thereof.
"Reorganization" has the meaning ascribed thereto in the third paragraph
under the heading "Plans of Reorganization" hereof. For purposes of this
Agreement, the term "Reorganization" shall refer to the High Yield Bond
Funds Reorganization, the U.S. Government Securities Funds Reorganization,
the
4
Municipal Bond Funds Reorganization, the Core Bond Funds Reorganization or
the Strategic Income Funds Reorganization, as the context requires.
"RICs" has the meaning ascribed thereto in Section 3(b) hereof.
"Rule 17a-8(a)" shall mean Rule 17a-8(a) under the Investment Company
Act.
"S&S" shall mean Shearman & Sterling, counsel to SunAmerica Income Funds
and the Acquiring Funds.
"Section 17 Order" shall mean an order obtained from the Commission
pursuant to Section 17(b) of the Investment Company Act to exempt
consummation of a Reorganization from the prohibitions of Section 17(a) of
such Act.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares" has the meaning ascribed thereto under the heading "Plans of
Reorganization. "
"Strategic Income Funds Reorganization" consists of (i) the acquisition
of the NAF Strategic Income Fund's Assets, and assumption of the NAF
Strategic Income Fund's Assumed Liabilities, by the SunAmerica Strategic
Income Fund solely in exchange for an aggregate value of Corresponding
Shares of the SunAmerica Strategic Income Fund, equal to the net asset
value of the NAF Strategic Income Fund's Assets determined in accordance
with Section 2(c) hereof, and (ii) the subsequent distribution by the NAF
Strategic Income Fund of such Corresponding Shares to its shareholders in
proportion to such shareholders interest in the NAF Strategic Income Fund
in liquidation of the NAF Strategic Income Fund.
"SunAmerica Core Bond Fund" has the meaning ascribed thereto under the
heading "Plans of Reorganization."
"SunAmerica High Yield Bond Fund" has the meaning ascribed thereto under
the heading "Plans of Reorganization."
"SunAmerica Income Funds Declaration of Trust" shall mean the
Declaration of Trust of SunAmerica Income Funds, dated as of April 24,
1996, as amended or supplemented from time to time.
"SunAmerica Income Funds Prospectuses" shall mean the prospectuses
relating to the Acquiring Funds, (other than the SunAmerica Core Bond Fund)
dated July 27, 2000 in the case of Class A, Class B and Class II Shares and
the preliminary prospectus contained in the Acquiring Fund Post-Effective
Amendment in the case of Class I and Class Z Shares, in each case as
amended or supplemented.
"SunAmerica Income Funds Statements of Additional Information" shall
mean the statement of additional information relating to the Acquiring
Funds, dated July 28, 2000 in the case of Class A, Class B and Class II
Shares and the preliminary statement of additional information contained in
the Acquiring Fund Post-Effective Amendment in the case of Class I and
Class Z Shares, in each case as amended or supplemented.
"SunAmerica Proxy Proposals" shall mean the proposals contained in that
certain proxy statement mailed, or to be mailed, to shareholders of
SunAmerica High Yield Bond Fund, SunAmerica Strategic Income Fund and
SunAmerica Tax Exempt Insured Fund on or about October 5, 2001. These
proposals relate to the approval of a new subadvisory agreement for all
such funds and approval of changes in the investment objectives and
fundamental policies with respect to the SunAmerica High Yield Bond Fund
and SunAmerica Strategic Income Fund.
"SunAmerica Strategic Income Fund" has the meaning ascribed thereto
under the heading "Plans of Reorganization."
"SunAmerica Tax Exempt Insured Fund" has the meaning ascribed thereto
under the heading "Plans of Reorganization."
"SunAmerica U.S. Government Securities Fund" has the meaning ascribed
thereto under the heading "Plans of Reorganization."
5
"U.S. Government Securities Funds Reorganization" consists of (i) the
acquisition of the NAF U.S. Government Securities Fund's Assets, and
assumption of the NAF U.S. Government Securities Fund's Assumed
Liabilities, by the SunAmerica U.S. Government Securities Fund solely in
exchange for an aggregate value of Corresponding Shares of the SunAmerica
U.S. Government Securities Fund, equal to the net asset value of the NAF
U.S. Government Securities Fund's Assets determined in accordance with
Section 2(c) hereof, and (ii) the subsequent distribution by the NAF U.S.
Government Securities Fund of such Corresponding Shares to its shareholders
in proportion to such shareholders' interest in the NAF U.S. Government
Securities Fund in liquidation of the NAF U.S. Government Securities Fund.
"Valuation Time" has the meaning ascribed thereto in Section 2(f)
hereof.
b. Use of Defined Terms. Any defined term used in the plural shall refer to
all members of the relevant class, and any defined term used in the singular
shall refer to any one or more of the members of the relevant class. The use of
any gender shall be applicable to all genders.
c. Sections and Exhibits. References in this Agreement to Sections, Exhibits
and Schedules are to Sections, Exhibits and Schedules of and to this Agreement.
The Exhibits and Schedules to this Agreement are hereby incorporated herein by
this reference as if fully set forth herein.
d. Miscellaneous Terms. The term "or" shall not be exclusive. The terms
"herein," "hereof," "hereto," "hereunder" and other terms similar to such terms
shall refer to this Agreement as a whole and not merely to the specific
article, section, paragraph or clause where such terms may appear. The term
"including" shall mean "including, but not limited to."
2. The Reorganization(s).
a. Transfer of Assets. Subject to receiving the requisite approval of the
shareholders of the Acquired Fund, and to the other terms and conditions
contained herein and on the basis of the representations and warranties
contained herein, on the Closing Date, the Acquired Fund shall convey, transfer
and deliver to the Acquiring Fund, and the Acquiring Fund shall purchase,
acquire and accept from the Acquired Fund, free and clear of all Liens (other
than Permitted Liens), all of the property and assets (including cash,
securities, commodities, interests in futures and dividends, any deferred or
prepaid expenses and interest accrued on debt instruments, in each case as of
the Valuation Time) owned by the Acquired Fund (as to each Acquired Fund, such
assets are collectively referred to herein as the "Assets").
b. Assumption of Liabilities. Subject to receiving the requisite approval of
the shareholders of the Acquired Fund, and to the other terms and conditions
contained herein and on the basis of the representations and warranties
contained herein, on the Closing Date, the Acquiring Fund will assume and agree
to pay, perform and discharge when due all of the obligations and liabilities
of the Acquired Fund then existing, whether absolute, accrued, contingent or
otherwise (as to each Acquired Fund, such liabilities are collectively referred
to herein as the "Assumed Liabilities").
c. Issuance and Valuation of Corresponding Shares in the
Reorganization. Full Corresponding Shares, and to the extent necessary, a
fractional Corresponding Share, of an aggregate net asset value equal to the
net asset value of the Assets (after deducting the Assumed Liabilities)
acquired by the Acquiring Fund hereunder, determined as hereinafter provided
shall be issued by the Acquiring Fund to the Acquired Fund in exchange for such
Assets. The net asset value of each of the Acquired Fund's Assets and the
Acquiring Fund's Corresponding Shares shall be determined in accordance with
the procedures described in the SunAmerica Income Funds Prosepectuses and the
SunAmerica Income Funds Statements of Additional Information as of the
Valuation Time. Such valuation and determination shall be made by the Acquiring
Fund in cooperation with the Acquired Fund.
6
d. Distribution of Corresponding Shares to the Acquired Fund
Shareholders. Pursuant to this Agreement, as soon as practicable after the
Valuation Time, the Acquired Fund will distribute all Corresponding Shares
received by it from the Acquiring Fund in connection with the Reorganization to
its shareholders in proportion to such shareholders' interest in the Acquired
Fund. Such distribution shall be accomplished by the opening of shareholder
accounts on the share ledger records of the Acquiring Fund in the amounts due
the shareholders of the Acquired Fund based on their respective holdings in the
Acquired Fund as of the Valuation Time.
e. Interest; Proceeds. The Acquired Fund will pay or cause to be paid to the
Acquiring Fund any interest or proceeds it receives on or after the Closing
Date with respect to its Assets.
f. Valuation Time.
i. The Valuation Time shall be the close of the New York Stock Exchange
(generally 4:00 P.M., New York time) on November 9, 2001, or such earlier
or later day and time as may be mutually agreed upon in writing between the
parties hereto (the "Valuation Time").
ii. In the event that at the Valuation Time (a) the New York Stock
Exchange or another primary trading market for portfolio securities of the
Acquiring Fund or the Acquired Fund shall be closed to trading or trading
thereon shall be restricted; or (b) trading or the reporting of trading on
said Exchange or elsewhere shall be disrupted so that accurate appraisal of
the value of the net assets of the Acquiring Fund or the Acquired Fund is
impracticable, the Valuation Time shall be postponed until the close of the
New York Stock Exchange on the first business day after the day when
trading shall have been fully resumed and reporting shall have been
restored.
g. Evidence of Transfer. The Acquiring Fund and the Acquired Fund will
jointly file any instrument as may be required by the Commonwealth of
Massachusetts to effect the transfer of the Assets to the Acquiring Fund.
h. Termination. The Acquired Fund's existence as a separate investment
portfolio of North American Funds will be terminated as soon as practicable
following the consummation of the applicable Reorganization by making any
required filings with the Commonwealth of Massachusetts, as provided in Section
5(e) hereof.
i. Separate Agreements; Reorganizations Not Conditioned on One Another. Each
of the respective parties hereto hereby agrees that this Agreement shall
constitute a separate agreement and plan of reorganization as to each of (i)
the High Yield Bond Funds Reorganization, (ii) the U.S. Government Securities
Funds Reorganization, (iii) the Municipal Bond Funds Reorganization, (iv) the
Core Bond Funds Reorganization, and (v) the Strategic Income Funds
Reorganization. The parties further agree that the consummation of one
Reorganization shall not be conditioned on the consummation of any other
Reorganization.
3. Representations and Warranties of the Acquired Fund.
The Acquired Fund represents and warrants to the Acquiring Fund as follows:
a. Formation and Qualification. The Acquired Fund is a separate investment
portfolio of North American Funds, a business trust duly organized, validly
existing and in good standing in conformity with the laws of the Commonwealth
of Massachusetts, and the Acquired Fund has all requisite power and authority
to own all of its properties or assets and carry on its business as presently
conducted. North American Funds is duly qualified, registered or licensed to do
business and is in good standing in each jurisdiction in which the ownership of
its properties or assets or the character of its present operations makes such
qualification, registration or licensing necessary, except where the failure to
so qualify or be in good standing would not have a Material Adverse Effect on
the Acquired Fund.
7
b. Licenses. The Acquired Fund (or North American Funds on behalf of the
Acquired Fund) holds all permits, consents, registrations, certificates,
authorizations and other approvals (collectively, "Licenses") required for the
conduct of its business as now being conducted; all such Licenses are in full
force and effect and no suspension or cancellation of any of them is pending or
threatened; and none of such Licenses will be affected by the consummation of
the transactions contemplated by this Agreement in a manner that would have a
Material Adverse Effect on the Acquired Fund. North American Funds is duly
registered under the Investment Company Act as an open-end management
investment company (File No. 811-05797), and such registration has not been
suspended, revoked or rescinded and is in full force and effect. The Acquired
Fund has elected and qualified for the special tax treatment afforded regulated
investment companies ("RICs") under Sections 851-855 of the Code at all times
since its inception and intends to continue to so qualify for its current
taxable year.
c. Authority. North American Funds, on behalf of the Acquired Fund, has full
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary action on the part of the Acquired Fund and
no other proceedings on the part of North American Funds or the Acquired Fund
are necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby, except for the approval of the Acquired Fund
shareholders as provided in Section 7(c) hereof. This Agreement has been duly
and validly executed by North American Funds, on behalf of the Acquired Fund,
and, subject to receipt of the requisite shareholder approval, and assuming due
authorization, execution and delivery of this Agreement by the Acquiring Fund,
this Agreement constitutes a legal, valid and binding obligation of the
Acquired Fund enforceable against the Acquired Fund in accordance with its
terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto and the remedy of specific
performance and injunctive and other forms of equitable relief.
d. Financial Statements. The Acquiring Fund has been furnished with an
accurate, correct and complete statement of assets and liabilities and a
schedule of Investments of the Acquired Fund, each as of October 31, 2000, said
financial statements having been audited by PricewaterhouseCoopers LLP,
independent public accountants. Such audited financial statements fairly
present in all material respects the financial position of the Acquired Fund as
of the dates and for the periods referred to therein and in conformity with
generally accepted accounting principles applied on a consistent basis.
e. Semi-Annual Report to Shareholders. The Acquiring Fund has been furnished
with the Acquired Fund's Semi-Annual Report to Shareholders for the six months
ended April 30, 2001, and the unaudited financial statements appearing therein
fairly present in all material respects the financial position of the Acquired
Fund as of the dates and for the periods referred to therein and in conformity
with generally accepted accounting principles applied on a consistent basis.
f. Prospectus and Statement of Additional Information. The Acquiring Fund
has been furnished with the North American Funds Prospectuses and the North
American Funds Statement of Additional Information, and insofar as they relate
to the Acquired Fund, said Prospectuses and Statement of Additional Information
do not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
g. Litigation. There are no claims, actions, suits or legal, administrative
or other proceedings pending or, to the knowledge of the Acquired Fund,
threatened against the Acquired Fund that could reasonably be expected to have
a Material Adverse Effect on the Acquired Fund. The Acquired Fund is not
charged with or, to its knowledge, threatened with any violation, or
investigation of any possible violation, of any provisions of
8
any Federal, state or local law or regulation or administrative ruling relating
to any aspect of its business that could reasonably be expected to have a
Material Adverse Effect on the Acquired Fund.
h. Material Contracts. There are no material contracts outstanding to which
North American Funds on behalf of the Acquired Fund is a party that have not
been disclosed in the N-14 Registration Statement, the North American Funds
Prospectuses or the North American Funds Statement of Additional Information.
i. No Conflict. The execution and delivery of this Agreement by North
American Funds on behalf of the Acquired Fund and the consummation of the
transactions contemplated hereby will not contravene or constitute a default
under or violation of (i) North American Funds' Declaration of Trust or by-
laws, each as amended, supplemented and in effect as of the date hereof, (ii)
any agreement or contract (or require the consent of any Person under any
agreement or contract that has not been obtained) to which North American Funds
on behalf of the Acquired Fund is a party or to which its assets or properties
are subject, or (iii) any judgment, injunction, order or decree, or other
instrument binding upon the Acquired Fund or any of its assets or properties,
except where such contravention, default or violation would not have a Material
Adverse Effect on the Acquired Fund.
j. Undisclosed Liabilities. The Acquired Fund has no material liabilities,
contingent or otherwise, other than those shown on its statements of assets and
liabilities referred to herein, those incurred in the ordinary course of its
business since April 30, 2001, and those incurred in connection with the
Reorganization.
k. Taxes. The Acquired Fund has filed (or caused to be filed), or has
obtained extensions to file, all Federal, state and local tax returns which are
required to be filed by it, and has paid (or caused to be paid) or has obtained
extensions to pay, all taxes shown on said returns to be due and owing and all
assessments received by it, up to and including the taxable year in which the
Closing Date occurs. All tax liabilities of the Acquired Fund have been
adequately provided for on its books, and no tax deficiency or liability of the
Acquired Fund has been asserted and no question with respect thereto has been
raised by the Internal Revenue Service or by any state or local tax authority
for taxes in excess of those already paid, up to and including the taxable year
in which the Closing Date occurs.
l. Assets. The Acquired Fund has good and marketable title to the Assets,
free and clear of all Liens, except for Permitted Liens. The Acquired Fund is
the direct sole and exclusive owner of the Assets. At the Closing Date, upon
consummation of the transactions contemplated hereby, the Acquiring Fund will
have good and marketable title to the Assets, free and clear of all Liens,
except for Permitted Liens.
m. Consents. No filing or registration with, or consent, approval,
authorization or order of, any Person is required for the consummation by the
Acquired Fund of the Reorganization, except for (i) such as may be required
under the Securities Act, the Exchange Act, the Investment Company Act or state
securities laws (which term as used herein shall include the laws of the
District of Columbia and Puerto Rico), (ii) a Majority Shareholder Vote, and
(iii) if necessary, receipt of a Section 17 Order.
n. N-14 Registration Statement. The registration statement filed, or to be
filed, by SunAmerica Income Funds on Form N-14 relating to the Corresponding
Shares to be issued pursuant to this Agreement, which includes the proxy
statement of the Acquired Fund and the prospectus of the Acquiring Fund with
respect to the transactions contemplated hereby, and any supplement or
amendment thereto or to the documents therein (as amended and supplemented, the
"N-14 Registration Statement"), on the effective date of the N-14 Registration
Statement, at the time of the shareholders' meeting referred to in Section 5(a)
hereof and on the Closing Date, insofar as it relates to the Acquired Fund (i)
complied, or will comply, as the case may be, in all material respects, with
the applicable provisions of the Securities Act, the Exchange Act and the
Investment Company Act and the rules and regulations promulgated thereunder,
and (ii) did not, or will not, as the case may be, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
9
o. Capitalization. Under the Declaration of Trust of North American Funds,
the Acquired Fund is authorized to issue an unlimited number of full and
fractional shares of beneficial interest, par value $0.001 per share, divided
into three classes designated Class A, Class B and Class C in the case of the
NAF Municipal Bond Fund, four classes designated Class A, Class B, Class C and
Institutional Class I in the case of the NAF Strategic Income Fund and the NAF
U.S. Government Securities Fund, and five classes designated Class A, Class B,
Class C, Institutional Class I and Institutional Class II in the case of the
NAF Core Bond Fund and the NAF High Yield Bond Fund. All issued and outstanding
shares of the Acquired Fund are duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights. Except for (i) the right of Class
B Shares of the Acquired Fund to automatically convert to Class A Shares of the
Acquired Fund eight years after the purchase thereof, or (ii) in connection
with any automatic dividend reinvestment plan available to the Acquired Fund
shareholders, there are no options warrants, subscriptions, calls or other
rights, agreements or commitments obligating the Acquired Fund to issue any of
its shares or securities convertible into its shares.
p. Books and Records. The books and records of the Acquired Fund made
available to the Acquiring Fund and/or its counsel are substantially true and
correct and contain no material misstatements or omissions with respect to the
operations of the Acquired Fund.
4. Representations and Warranties of the Acquiring Fund.
The Acquiring Fund represents and warrants to the Acquired Fund as follows:
a. Formation and Qualification. The Acquiring Fund is a separate investment
portfolio of SunAmerica Income Funds, a business trust duly organized, validly
existing and in good standing in conformity with the laws of the Commonwealth
of Massachusetts, and the Acquiring Fund has all requisite power and authority
to own all of its properties or assets and carry on its business as presently
conducted. SunAmerica Income Funds is duly qualified, registered or licensed as
a foreign corporation to do business and is in good standing in each
jurisdiction in which the ownership of its properties or assets or the
character of its present operations makes such qualification, registration or
licensing necessary, except where the failure to so qualify or be in good
standing would not have a Material Adverse Effect on the Acquiring Fund. The
SunAmerica Core Bond Fund has not yet commenced operations, and the only shares
issued have been to an initial seed investor.
b. Licenses. The Acquiring Fund (or SunAmerica Income Funds on behalf of the
Acquiring Fund) holds all Licenses required for the conduct of its business as
now being conducted; all such Licenses are in full force and effect and no
suspension or cancellation of any of them is pending or threatened; and none of
such Licenses will be affected by the consummation of the transactions
contemplated by this Agreement in a manner that would have a Material Adverse
Effect on the Acquiring Fund. SunAmerica Income Funds is duly registered under
the Investment Company Act as an open-end management investment company (File
No. 811-4708), and such registration has not been revoked or rescinded and is
in full force and effect. The Acquiring Fund has elected and qualified for the
special tax treatment afforded to RICs under Sections 851-855 of the Code at
all times since its inception (if applicable) and intends to continue to so
qualify both until consummation of the Reorganization and thereafter.
c. Authority. SunAmerica Income Funds, on behalf of the Acquiring Fund, has
full power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary action on the part of
the Acquiring Fund and no other proceedings on the part of the Acquiring Fund
are necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed by SunAmerica Income Funds, on behalf of the Acquiring Fund, and
assuming due authorization, execution and delivery of this Agreement by the
Acquired Fund, this Agreement constitutes a legal, valid and binding obligation
of the Acquiring Fund enforceable against the Acquiring Fund in accordance with
its terms, subject to the effects of bankruptcy, insolvency, moratorium,
fraudulent conveyance and similar laws relating to or affecting creditors'
10
rights generally and court decisions with respect thereto and the remedy of
specific performance and injunctive and other forms of equitable relief.
d. Financial Statements. Other than in the case of the Core Bond Funds
Reorganization, the Acquired Fund has been furnished with an accurate, correct
and complete statement of assets and liabilities and a schedule of Investments
of the Acquiring Fund, each as of March 31, 2001, said financial statements
having been audited by PricewaterhouseCoopers LLP, independent public
accountants. Such audited financial statements fairly present in all material
respects the financial position of such Acquiring Fund as of the dates and for
the periods referred to therein and in conformity with generally accepted
accounting principles applied on a consistent basis.
e. Intentionally Left Blank.
f. Prospectuses and Statements of Additional Information. The Acquired Fund
has been furnished with the SunAmerica Income Funds Prospectuses and the
SunAmerica Income Funds Statements of Additional Information, and insofar as
they relate to the Acquiring Fund, said Prospectuses and Statements of
Additional Information do not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
g. Litigation. There are no claims, actions, suits or legal, administrative
or other proceedings pending or, to the knowledge of the Acquiring Fund,
threatened against the Acquiring Fund that could reasonably be expected to have
a Material Adverse Effect on the Acquiring Fund. The Acquiring Fund is not
charged with or, to its knowledge, threatened with any violation, or
investigation of any possible violation, of any provisions of any Federal,
state or local law or regulation or administrative ruling relating to any
aspect of its business that could reasonably be expected to have a Material
Adverse Effect on the Acquiring Fund.
h. Material Contracts. There are no material contracts outstanding to which
SunAmerica Income Funds on behalf of the Acquiring Fund is a party that have
not been disclosed in the N-14 Registration Statement, the SunAmerica Income
Funds Prospectuses, or the SunAmerica Income Funds Statements of Additional
Information.
i. No Conflict. The execution and delivery of this Agreement by SunAmerica
Income Funds on behalf of the Acquiring Fund and the consummation of the
transactions contemplated hereby will not contravene or constitute a default
under or violation of (i) the SunAmerica Income Funds Declaration of Trust or
by-laws, each as amended, supplemented and in effect as of the date hereof,
(ii) any agreement or contract (or require the consent of any Person under any
agreement or contract that has not been obtained) to which SunAmerica Income
Funds on behalf of the Acquiring Fund is a party or to which its assets or
properties are subject, or (iii) any judgment, injunction, order or decree, or
other instrument binding upon the Acquiring Fund or any of its assets or
properties, except where such contravention, default or violation would not
have a Material Adverse Effect on the Acquiring Fund.
j. Undisclosed Liabilities. Other than in the case of the Core Bond Fund's
Reorganization, the Acquiring Fund has no material liabilities, contingent or
otherwise, other than those shown on its statements of assets and liabilities
referred to herein, those incurred in the ordinary course of its business as an
investment company since March 31, 2001 and those incurred in connection with
the Reorganization.
k. Taxes. Other than in the case of the Core Bond Funds Reorganization, the
Acquiring Fund has filed (or caused to be filed), or has obtained extensions to
file, all Federal, state and local tax returns which are required to be filed
by it, and has paid (or caused to be paid) or has obtained extensions to pay,
all taxes shown on said returns to be due and owing, and all assessments
received by it, up to and including the taxable year in which the Closing Date
occurs. All tax liabilities of such Acquiring Fund have been adequately
provided for on its books, and no tax deficiency or liability of such Acquiring
Fund has been asserted and no question with
11
respect thereto has been raised by the Internal Revenue Service or by any state
or local tax authority for taxes in excess of those already paid, up to and
including the taxable year in which the Closing Date occurs.
l. Consents. No filing or registration with, or consent, approval,
authorization or order of, any Person is required for the consummation by the
Acquiring Fund of the Reorganization, except for (i) such as may be required
under the Securities Act, the Exchange Act, the Investment Company Act, or
state securities laws (which term as used herein shall include the laws of the
District of Columbia and Puerto Rico) (ii) such actions as shall be necessary
to have the Acquiring Fund establish and offer Class A, Class B, Class II,
Class I Shares and/or Class Z Shares, as applicable, and (iii) if necessary,
receipt of a Section 17 Order.
m. N-14 Registration Statement. The N-14 Registration Statement, on its
effective date, at the time of the shareholders' meeting referred to in Section
5(a) hereof and on the Closing Date, insofar as it relates to the Acquiring
Fund (i) complied, or will comply, as the case may be, in all material
respects, with the applicable provisions of the Securities Act, the Exchange
Act and the Investment Company Act and the rules and regulations promulgated
thereunder, and (ii) did not, or will not, as the case may be, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
n. Capitalization. Under the Declaration of Trust of SunAmerica Income
Funds, the Acquiring Fund is authorized to issue an unlimited number of full
and fractional shares of beneficial interest, par value $0.01 per share,
divided into five classes designated Class A, Class B, Class II, Class I, and
Class Z in the case of the SunAmerica High Yield Bond Fund and the SunAmerica
Core Bond Fund, four classes designated Class A, Class B, Class II, and Class I
in the case of the SunAmerica Strategic Income Fund, and three classes
designated Class A, Class B and Class II in the case of the SunAmerica U.S.
Government Securities (if any) Fund and the SunAmerica Tax Exempt Insured Fund.
All issued and outstanding shares of the Acquiring Fund are duly authorized,
validly issued, fully paid and non-assessable and free of preemptive rights.
Except for (i) the right of Class B Shares of the Acquiring Fund to
automatically convert to Class A Shares of the Acquiring Fund approximately
eight years after the purchase thereof or (ii) in connection with any automatic
dividend reinvestment plan available to the Acquiring Fund shareholders, there
are no options, warrants, subscriptions, calls or other rights, agreements or
commitments obligating the Acquiring Fund to issue any of its shares or
securities convertible into its shares.
o. Corresponding Shares.
i. The Corresponding Shares to be issued by the Acquiring Fund to the
Acquired Fund and subsequently distributed by the Acquired Fund to its
shareholders as provided in this Agreement have been, or will be, as
applicable, duly and validly authorized and, when issued and delivered
pursuant to this Agreement, will be legally and validly issued and will be
fully paid and nonassessable and will have full voting rights, and no
shareholder of the Acquiring Fund will have any preemptive right of
subscription or purchase in respect thereof.
ii. At or prior to the Closing Date, the Corresponding Shares to be
issued by the Acquiring Fund to the Acquired Fund on the Closing Date will
be duly qualified for offering to the public in all states of the United
States in which the sale of shares of the Acquiring Fund presently are
qualified, and there are a sufficient number of such shares registered
under the Securities Act, the Investment Company Act and with each
pertinent state securities commission to permit the Reorganization to be
consummated.
5. Covenants of the Acquired Fund and the Acquiring Fund.
a. Special Shareholders' Meeting. The Acquired Fund agrees to call a special
meeting of its shareholders to be held as soon as practicable after the
effective date of the N-14 Registration Statement for the purpose of
considering the Reorganization as described in this Agreement and to take all
other action necessary to obtain shareholder approval of the transactions
contemplated herein.
12
b. Unaudited Financial Statements.
i. The Acquired Fund hereby agrees to furnish or cause its agents to
furnish to the Acquiring Fund, at or prior to the Closing Date, for the
purpose of determining the number of Corresponding Shares to be issued by
the Acquiring Fund to the Acquired Fund pursuant to Section 2(c) hereof, an
accurate, correct and complete unaudited statement of assets and
liabilities of the Acquired Fund with values determined in accordance with
Section 2(c) hereof and an unaudited schedule of Investments of the
Acquired Fund (including the respective dates and costs of acquisition
thereof), each as of the Valuation Time. Such unaudited financial
statements will fairly present in all material respects the financial
position of the Acquired Fund as of the dates and for the periods referred
to therein and in conformity with generally accepted accounting principles
applied on a consistent basis.
ii. The Acquiring Fund hereby agrees to furnish or cause its agents to
furnish to the Acquired Fund, at or prior to the Closing Date, for the
purpose of determining the number of Corresponding Shares to be issued by
the Acquiring Fund to the Acquired Fund pursuant to Section 2(c) hereof, an
accurate, correct and complete unaudited statement of assets and
liabilities of the Acquiring Fund with values determined in accordance with
Section 2(c) hereof and an unaudited schedule of Investments of the
Acquiring Fund (including the respective dates and costs of acquisition
thereof), each as of the Valuation Time. Such unaudited financial
statements will fairly present in all material respects the financial
position of the Acquiring Fund as of the dates and for the periods referred
to therein and in conformity with generally accepted accounting principles
applied on a consistent basis.
c. Share Ledger Records of the Acquiring Fund. The Acquiring Fund agrees, as
soon as practicable after the Valuation Time, to open shareholder accounts on
its share ledger records for the shareholders of the Acquired Fund in
connection with the distribution of Corresponding Shares by the Acquired Fund
to such shareholders in accordance with Section 2(d) hereof.
d. Conduct of Business. The Acquired Fund and the Acquiring Fund (except the
SunAmerica Core Bond Fund) each covenants and agrees to operate its respective
business in the ordinary course as presently conducted between the date hereof
and the Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
e. Termination of the Acquired Fund. North American Funds agrees that as
soon as practicable following the consummation of the Reorganization, it will
terminate the existence of the Acquired Fund in accordance with the laws of the
Commonwealth of Massachusetts and any other applicable law.
f. Filing of N-14 Registration Statement. SunAmerica Income Funds, on behalf
of the Acquiring Fund, will file or cause its agents to file the N-14
Registration Statement with the Commission and will use its best efforts to
cause the N-14 Registration Statement to become effective as promptly as
practicable after the filing thereof. The Acquired Fund and the Acquiring Fund
agree to cooperate fully with each other, and each will furnish to the other
the information relating to itself to be set forth in the N-14 Registration
Statement as required by the Securities Act, the Exchange Act, the Investment
Company Act, and the rules and regulations thereunder and the state securities
or blue sky laws (if applicable).
g. Corresponding Shares. The Acquired Fund will not sell or otherwise
dispose of any of the Corresponding Shares to be received by it from the
Acquiring Fund in connection with the Reorganization, except in distribution to
the shareholders of the Acquired Fund in accordance with the terms hereof.
h. Tax Returns. Other than in the case of the Core Bond Funds
Reorganization, the Acquired Fund and the Acquiring Fund each agrees that by
the Closing Date all of its Federal and other tax returns and reports required
to be filed on or before such date shall have been filed and all taxes shown as
due on said returns either shall have been paid or adequate liability reserves
shall have been provided for the payment of such taxes. In connection with this
provision, the Acquiring Fund and the Acquired Fund agree to cooperate with
each other in filing any tax return, amended return or claim for refund,
determining a liability for taxes or a right to a refund of taxes or
participating in or conducting any audit or other proceeding in respect of
taxes.
13
i. Combined Proxy Statement and Prospectus Mailing. The Acquired Fund agrees
to mail to its shareholders of record entitled to vote at the special meeting
of shareholders at which action is to be considered regarding this Agreement,
in sufficient time to comply with requirements as to notice thereof, a combined
Proxy Statement and Prospectus which complies in all material respects (except
as to information therein relating to the Acquiring Fund) with the applicable
provisions of Section 14(a) of the Exchange Act and Section 20(a) of the
Investment Company Act, and the rules and regulations promulgated thereunder.
j. Confirmation of Tax Basis. The Acquired Fund will deliver to the
Acquiring Fund on the Closing Date confirmations or other adequate evidence as
to the tax basis of each of the Assets delivered to the Acquiring Fund
hereunder.
k. Shareholder List. As soon as practicable after the close of business on
the Closing Date, the Acquired Fund shall deliver to the Acquiring Fund a list
of the names and addresses of all of the shareholders of record of the Acquired
Fund on the Closing Date and the number of shares of the Acquired Fund owned by
each such shareholder as of such date, certified to the best of its knowledge
and belief by the transfer agent or by North American Funds on behalf of the
Acquired Fund.
l. Class I Shares and New Series. SunAmerica Income Funds on behalf of the
Acquiring Fund shall (i) cause a post-effective amendment to its Registration
Statement on Form N-1A (the "Acquiring Fund Post-Effective Amendment") to be
filed with the Commission in a timely fashion to register the Class A, Class B,
Class II, Class I and Class Z Shares of the SunAmerica Core Bond Fund in the
case of the Core Bond Funds Reorganization, and Class I Shares of the Acquiring
Fund in the case of each other Reorganization (other than the Tax Exempt
Insured Funds Reorganization and the U.S. Government Securities Funds
Reorganization) in each case for sale under the Securities Act prior to the
Closing Date, and (ii) prior to the Closing Date, amend the Acquiring Fund's
plan under Rule 18f-3 under the Investment Company Act to reflect the addition
of such shares and take such other steps as may be necessary to establish a new
class of shares of such Acquiring Fund.
m. SunAmerica Income Funds. On behalf of the respective Acquiring Funds,
shall cause a proxy statement to be filed with the Commission and then mailed
to shareholders to seek shareholder approval of the SunAmerica proxy proposals.
6. Closing Date.
The closing of the transactions contemplated by this Agreement shall be at
the offices of Shearman & Sterling, 599 Lexington Avenue, New York, NY 10022
after the close of the New York Stock Exchange on November 9, 2001, or at such
other place, time and date agreed to by the Acquired Fund and the Acquiring
Fund. The date and time upon which such closing is to take place shall be
referred to herein as the "Closing Date." To the extent that any Assets, for
any reason, are not transferable on the Closing Date, the Acquired Fund shall
cause such Assets to be transferred to the Acquiring Fund's custody account
with State Street Bank and Trust Company at the earliest practicable date
thereafter.
7. Conditions of the Acquired Fund.
The obligations of the Acquired Fund hereunder shall be subject to the
satisfaction, at or before the Closing Date (or such other date specified
herein), of the conditions set forth below. The benefit of these conditions is
for the Acquired Fund only and, other than with respect to the condition set
forth in Section 7(c) hereof, may be waived, in whole or in part, by the
Acquired Fund at any time in its sole discretion.
a. Representations and Warranties. The representations and warranties of the
Acquiring Fund made in this Agreement shall be true and correct in all material
respects when made, as of the Valuation Time and as of the Closing Date all
with the same effect as if made at and as of such dates, except that any
representations and warranties that relate to a particular date or period shall
be true and correct in all material respects as of such date or period.
14
b. Performance. The Acquiring Fund shall have performed, satisfied and
complied with all covenants, agreements and conditions required to be
performed, satisfied or complied with by it under this Agreement at or prior to
the Closing Date.
c. Shareholder Approval. (i) This Agreement shall have been adopted, and the
Reorganization shall have been approved, by a Majority Shareholder Vote.
(ii) In the case of the High Yield Bonds Funds Reorganization and Strategic
Income Funds Reorganization, the SunAmerica proxy proposals with respect to
each such Acquiring Fund changing its respective investment objective shall
have been adopted by the requisite vote of shareholders of the Acquiring Fund.
d. Approval of Board of Trustees. This Agreement shall have been adopted and
the Reorganization shall have been approved by the Board of Trustees of
SunAmerica Income Funds, on behalf of the Acquiring Fund, including a majority
of the Trustees who are not "interested persons" of North American Funds or
SunAmerica Income Funds as defined in Section 2(a)(19) of the Investment
Company Act, which shall have found, as required by Rule 17a-8(a), that (i)
participation in the Reorganization is in the best interests of the Acquiring
Fund and (ii) the interests of the existing shareholders of the Acquiring Fund
will not be diluted as a result of the Reorganization.
e. Deliveries by the Acquiring Fund. At or prior to the Closing Date, the
Acquiring Fund shall deliver to the Acquired Fund the following:
i. a certificate, in form and substance reasonably satisfactory to the
Acquired Fund, executed by the President (or a Vice President) of
SunAmerica Income Funds on behalf of the Acquiring Fund, dated as of the
Closing Date, certifying that the conditions specified in Sections 7(a),
(b), (d) and (f) have been fulfilled;
ii. the unaudited financial statements of the Acquiring Fund required by
Section 5(b)(ii) hereof; and
iii. an opinion of S&S, in form and substance reasonably satisfactory to
the Acquired Fund, to the effect that, for Federal income tax purposes, (i)
the transfer of the Assets to the Acquiring Fund in return solely for the
Corresponding Shares and the assumption by the Acquiring Fund of the
Assumed Liabilities as provided for in the Agreement will constitute a
reorganization within the meaning of Section 368(a) of the Code, and
assuming that such transfer, issuance and assumption qualifies as a
reorganization within the meaning of Section 368(a) of the Code, the
Acquired Fund and the Acquiring Fund will each be deemed to be a "party to
a reorganization" within the meaning of Section 368(b) of the Code; (ii) in
accordance with Sections 357 and 361 of the Code, no gain or loss will be
recognized to the Acquired Fund as a result of the Asset transfer solely in
return for the Corresponding Shares and the assumption by the Acquiring
Fund of the Assumed Liabilities or on the distribution (whether actual or
constructive) of the Corresponding Shares to the Acquired Fund shareholders
as provided for in the Agreement; (iii) under Section 1032 of the Code, no
gain or loss will be recognized to the Acquiring Fund on the receipt of the
Assets in return for the Corresponding Shares and the assumption by the
Acquiring Fund of the Assumed Liabilities as provided for in the Agreement;
(iv) in accordance with Section 354(a)(1) of the Code, no gain or loss will
be recognized to the shareholders of the Acquired Fund on the receipt
(whether actual or constructive) of Corresponding Shares in return for
their shares of the Acquired Fund; (v) in accordance with Section 362(b) of
the Code, the tax basis of the Assets in the hands of the Acquiring Fund
will be the same as the tax basis of such Assets in the hands of the
Acquired Fund immediately prior to the consummation of the Reorganization;
(vi) in accordance with Section 358 of the Code, immediately after the
Reorganization, the tax basis of the Corresponding Shares received (whether
actually or constructively) by the shareholders of the Acquired Fund in the
Reorganization will be equal, in the aggregate, to the tax basis of the
shares of the Acquired Fund surrendered in return therefor; (vii) in
accordance with Section 1223 of the Code, a shareholder's holding period
for the Corresponding Shares will be determined by including the period for
which such shareholder held the shares of the Acquired Fund exchanged
therefor,
15
provided the Acquired Fund shares were held as a capital asset; (viii) in
accordance with Section 1223 of the Code, the Acquiring Fund's holding
period with respect to the Assets acquired by it will include the period
for which such Assets were held by the Acquired Fund; and (ix) in
accordance with Section 381(a) of the Code and regulations thereunder, the
Acquiring Fund (except the SunAmerica Core Bond Fund) will succeed to and
take into account certain tax attributes of the Acquired Fund, subject to
applicable limitations, such as earnings and profits, capital loss
carryovers and method of accounting.
f. No Material Adverse Change. There shall have occurred no material adverse
change in the financial position of the Acquiring Fund since March 31, 2001
other than, if applicable, changes in its portfolio securities since that date,
changes in the market value of its portfolio securities or changes in
connection with the payment of the Acquiring Fund's customary operating
expenses, each in the ordinary course of business.
g. Absence of Litigation. There shall not be pending before any Governmental
Authority any material litigation with respect to the matters contemplated by
this Agreement.
h. Proceedings and Documents. All proceedings contemplated by this
Agreement, the Reorganization, and all of the other documents incident thereto,
shall be reasonably satisfactory to the Acquired Fund and its counsel, and the
Acquired Fund and its counsel shall have received all such counterpart
originals or certified or other copies of such documents as the Acquired Fund
or its counsel may reasonably request.
i. N-14 Registration Statement; Acquiring Fund Post-Effective Amendment. The
N-14 Registration Statement and Acquiring Fund Post-Effective Amendment each
shall have become effective under the Securities Act, and no stop order
suspending such effectiveness shall have been instituted or, to the knowledge
of the Acquiring Fund or the Acquired Fund, contemplated by the Commission.
j. Compliance with Laws; No Adverse Action or Decision. Since the date
hereof, (i) no law, statute, ordinance, code, rule or regulation shall have
been promulgated, enacted or entered that restrains, enjoins, prevents,
materially delays, prohibits or otherwise makes illegal the performance of this
Agreement, the Reorganization or the consummation of any of the transactions
contemplated hereby and thereby; (ii) the Commission shall not have issued an
unfavorable advisory report under Section 25(b) of the Investment Company Act,
nor instituted or threatened to institute any proceeding seeking to enjoin
consummation of the Reorganization under Section 25(c) of the Investment
Company Act, and (iii) no other legal, administrative or other proceeding shall
be instituted or threatened by any Governmental Authority which would
materially affect the financial condition of the Acquiring Fund or that seeks
to restrain, enjoin, prevent, materially delay, prohibit or otherwise make
illegal the performance of this Agreement, the Reorganization or the
consummation of any of the transactions contemplated hereby or thereby.
k. Commission Orders or Interpretations. The Acquired Fund shall have
received from the Commission such orders or interpretations, including a
Section 17 Order, as counsel to the Acquired Fund deems reasonably necessary or
desirable under the Securities Act and the Investment Company Act in connection
with the Reorganization; provided that such counsel shall have requested such
orders or interpretations as promptly as practicable, and all such orders shall
be in full force and effect.
8. Conditions of the Acquiring Fund.
The obligations of the Acquiring Fund hereunder shall be subject to the
satisfaction, at or before the Closing Date (or such other date specified
herein), of the conditions set forth below. The benefit of these conditions is
for the Acquiring Fund only and, other than with respect to the condition set
forth in Section 8(c) hereof, may be waived, in whole or in part, by the
Acquiring Fund at any time in its sole discretion.
a. Representations and Warranties. The representations and warranties of the
Acquired Fund made in this Agreement shall be true and correct in all material
respects when made, as of the Valuation Time and as of the Closing Date all
with the same effect as if made at and as of such dates, except that any
representations and
16
warranties that relate to a particular date or period shall be true and
correct in all material respects as of such date or period.
b. Performance. The Acquired Fund shall have performed, satisfied and
complied with all covenants, agreements and conditions required to be
performed, satisfied or complied with by it under this Agreement at or prior
to the Closing Date.
c. Shareholder Approval. (i) This Agreement shall have been adopted, and
the Reorganization shall have been approved, by a Majority Shareholder Vote.
(ii) In the case of the High Yield Bond Funds Reorganization and
Strategic Income Funds Reorganization, the SunAmerica Proxy Proposals with
respect to each such Acquiring Fund changing its respective investment
objective shall have been adopted by the requisite vote of the shareholders
of the Acquiring Fund.
d. Approval of Board of Trustees. This Agreement shall have been adopted
and the Reorganization shall have been approved by the Board of Trustees of
North American Funds, on behalf of the Acquired Fund, including a majority of
the Trustees who are not "interested persons" of North American Funds or
SunAmerica Income Funds within the meaning of Section 2(a)(19) of the
Investment Company Act, which shall have found, as required by Rule 17a-8(a),
that (i) participation in the Reorganization is in the best interests of the
Acquired Fund and (ii) the interests of the existing shareholders of the
Acquired Fund will not be diluted as a result of the Reorganization.
e. Deliveries by the Acquired Fund. At or prior to the Closing Date, the
Acquired Fund shall deliver to the Acquiring Fund the following:
(i.) a certificate, in form and substance reasonably satisfactory to the
Acquiring Fund, executed by the President (or a Vice President) of North
American Funds on behalf of the Acquired Fund, dated as of the Closing
Date, certifying that the conditions specified in Sections 8(a), (b), (c),
(d) and (f) have been fulfilled;
(ii.) the unaudited financial statements of the Acquired Fund required
by Section 5(b)(i) hereof; and
(iii.) an opinion of S&S, in form and substance reasonably satisfactory
to the Acquiring Fund, with respect to the matters specified in Section
7(e)(iii) hereof.
f. No Material Adverse Change. There shall have occurred no material
adverse change in the financial position of the Acquired Fund since April 30,
2001 other than changes in its portfolio securities since that date, changes
in the market value of its portfolio securities or changes in connection with
the payment of the Acquired Fund's customary operating expenses, each in the
ordinary course of business. The Acquired Fund reserves the right to sell any
of its portfolio securities in the ordinary course of business, but will not,
without the prior written consent of the Acquiring Fund, acquire any
additional securities other than securities of the type in which the Acquiring
Fund is permitted to invest.
g. Absence of Litigation. There shall not be pending before any
Governmental Authority any material litigation with respect to the matters
contemplated by this Agreement.
h. Proceedings and Documents. All proceedings contemplated by this
Agreement, the Reorganization, and all of the other documents incident
thereto, shall be reasonably satisfactory to the Acquiring Fund and its
counsel, and the Acquiring Fund and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as the
Acquiring Fund or its counsel may reasonably request.
i. N-l4 Registration Statement; Acquiring Fund Post-Effective
Amendment. The N-14 Registration Statement and Acquiring Fund Post-Effective
Amendment each shall have become effective under the Securities Act, and no
stop order suspending such effectiveness shall have been instituted or, to the
knowledge of the Acquired Fund or the Acquiring Fund, contemplated by the
Commission.
17
j. Compliance with Laws; No Adverse Action or Decision. Since the date
hereof, (i) no law, statute, ordinance, code, rule or regulation shall have
been promulgated, enacted or entered that restrains, enjoins, prevents,
materially delays, prohibits or otherwise makes illegal the performance of this
Agreement, the Reorganization or the consummation of any of the transactions
contemplated hereby and thereby; (ii) the Commission shall not have issued an
unfavorable advisory report under Section 25(b) of the Investment Company Act,
nor instituted or threatened to institute any proceeding seeking to enjoin
consummation of the Reorganization under Section 25(c) of the Investment
Company Act; and (iii) no other legal, administrative or other proceeding shall
be instituted or threatened by any Governmental Authority which would
materially affect the financial condition of the Acquired Fund or that seeks to
restrain, enjoin, prevent, materially delay, prohibit or otherwise make illegal
the performance of this Agreement, the Reorganization or the consummation of
any of the transactions contemplated hereby or thereby.
k. Commission Orders or Interpretations. The Acquiring Fund shall have
received from the Commission such orders or interpretations, including a
Section 17 Order, as counsel to the Acquiring Fund deems reasonably necessary
or desirable under the Securities Act and the Investment Company Act in
connection with the Reorganization; provided that such counsel shall have
requested such orders or interpretations as promptly as practicable, and all
such orders shall be in full force and effect.
l. Dividends. Prior to the Closing Date, if applicable, the Acquired Fund
shall have declared a dividend or dividends which, together with all such
previous dividends, shall have the effect of distributing to its shareholders
all of its investment company taxable income as of the Closing Date, if any
(computed without regard to any deduction for dividends paid), and all of its
net capital gain, if any, realized as of the Closing Date.
9. Termination, Postponement and Waivers.
a. Termination of Agreement. Notwithstanding anything contained in this
Agreement to the contrary, subject to Section 10 hereof, this Agreement may be
terminated and the Reorganization abandoned at any time (whether before or
after approval thereof by the shareholders of the Acquired Fund) prior to the
Closing Date, or the Closing Date may be postponed, by notice in writing prior
to the Closing Date:
(i) by the Acquired Fund or the Acquiring Fund if:
(1) the Board of Trustees of North American Funds and the Board of
Trustees of SunAmerica Income Funds so mutually agree in writing; or
(2) any Governmental Authority of competent jurisdiction shall have
issued any judgment, injunction, order, ruling or decree or taken any
other action restraining, enjoining or otherwise prohibiting this
Agreement, the Reorganization or the consummation of any of the
transactions contemplated hereby or thereby and such judgment,
injunction, order, ruling, decree or other action becomes final and
non-appealable; provided that the party seeking to terminate this
Agreement pursuant to this Section 9(a)(i)(3) shall have used its
reasonable best efforts to have such judgment, injunction, order,
ruling, decree or other action lifted, vacated or denied;
(ii) by the Acquired Fund if any condition of the Acquired Fund's
obligations set forth in Section 7 of this Agreement has not been fulfilled
or waived by it; or
(iii) by the Acquiring Fund if any condition of the Acquiring Fund's
obligations set forth in Section 8 of this Agreement has not been fulfilled
or waived by it.
b. Commission Order. If any order or orders of the Commission with respect
to this Agreement, the Reorganization or any of the transactions contemplated
hereby or thereby shall be issued prior to the Closing Date and shall impose
any terms or conditions which are determined by action of the Board of Trustees
of North American Funds and the Board of Trustees of SunAmerica Income Funds to
be acceptable, such terms and conditions shall be binding as if a part of this
Agreement without further vote or approval of the
18
shareholders of the Acquired Fund, unless such terms and conditions shall
result in a change in the method of computing the number of Corresponding
Shares to be issued by the Acquiring Fund to the Acquired Fund in which event,
unless such terms and conditions shall have been included in the proxy
solicitation materials furnished to the shareholders of the Acquired Fund prior
to the meeting at which the Reorganization shall have been approved, this
Agreement shall not be consummated and shall terminate unless the Acquired Fund
promptly shall call a special meeting of shareholders at which such conditions
so imposed shall be submitted for approval and the requisite approval of such
conditions shall be obtained.
c. Effect of Termination. In the event of termination of this Agreement
pursuant to the provisions hereof, the same shall become null and void and have
no further force or effect, and there shall not be any liability on the part of
either the Acquired Fund or the Acquiring Fund, North American Funds or
SunAmerica Income Funds, or Persons who are their directors, trustees,
officers, agents or shareholders in respect of this Agreement.
d. Waivers; Non-Material Changes. At any time prior to the Closing Date, any
of the terms or conditions of this Agreement may be waived by the party that is
entitled to the benefit thereof if such action or waiver will not have a
material adverse effect on the benefits intended under this Agreement to the
shareholders of such party on behalf of which such action is taken. In
addition, each party has delegated to its investment adviser the ability to
make non-material changes to this Agreement if such investment adviser deems it
to be in the best interests of the Acquired Fund or Acquiring Fund for which it
serves as investment adviser to do so.
10. Survival of Representations and Warranties.
The respective representations and warranties contained in Sections 3 and 4
hereof shall expire with, and be terminated by, the consummation of the
Reorganization, and neither the Acquired Fund nor the Acquiring Fund nor any of
their officers, trustees, agents or shareholders shall have any liability with
respect to such representations or warranties after the Closing Date. This
provision shall not protect any officer, trustee or agent of the Acquired Fund
or the Acquiring Fund, or of North American Funds or SunAmerica Income Funds
against any liability to the entity for which such Person serves in such
capacity, or to its shareholders, to which such Person would be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties in the conduct of such office.
11. Other Matters.
a. Obligations. Copies of the North American Funds Declaration of Trust and
SunAmerica Income Funds Declaration of Trust are on file with the Secretary of
State of the Commonwealth of Massachusetts and notice is hereby given that this
instrument is executed on behalf of the Trustees of North American Funds on
behalf of the Acquired Fund and on behalf of the Trustees of SunAmerica Income
Funds on behalf of the Acquiring Fund, as trustees and not individually, and
that the obligations of or arising out of this instrument are not binding upon
any of the trustees, officers, employees, agents or shareholders of North
American Funds or SunAmerica Income Funds individually, but are binding solely
upon the assets and property of the Acquired Fund and the Acquiring Fund,
respectively.
b. Further Assurances. Each party hereto covenants and agrees to provide the
other party hereto and its agents and counsel with any and all documentation,
information, assistance and cooperation that may become necessary from time to
time with respect to the transactions contemplated by this Agreement.
c. Notices. Any notice, report or other communication hereunder shall be in
writing and shall be given to the Person entitled thereto by hand delivery,
prepaid certified mail or overnight service, addressed to the Acquired Fund or
the Acquiring Fund, as applicable, at the address set forth below. If the
notice is sent by certified mail, it shall be deemed to have been given to the
Person entitled thereto upon receipt and if the notice is sent by overnight
service, it shall be deemed to have been given to the Person entitled thereto
one (1) business day after it was deposited with the courier service for
delivery to that Person. Notice of any change in any address listed below also
shall be given in the manner set forth above. Whenever the giving of notice is
required, the giving of such notice may be waived by the party entitled to
receive such notice.
19
If to the Acquired Fund, to: North American Funds
286 Congress Street
Boston, MA 02210
Attention: Nori Gabert, Esq.
With a copy to: Sullivan & Worcester LLP
1025 Connecticut Avenue, N.W.
Suite 1000
Washington, DC 20036
Attention: David M. Leahy, Esq.
If to the Acquiring Fund, to: SunAmerican Income Funds
733 Third Avenue, Third Floor
New York, NY 10017
Attention: Robert M. Zakem, Esq.
With a copy to: Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Margery K. Neale, Esq.
d. Entire Agreement. This Agreement contains the entire agreement between
the parties hereto with respect to the matters contemplated herein and
supersedes all previous agreements or understandings between the parties
related to such matters.
e. Amendment. Except as set forth in Section 9(d) hereof, this Agreement may
be amended, modified, superseded, canceled, renewed or extended, and the terms
or covenants hereof may be waived, only by a written instrument executed by all
of the parties hereto or, in the case of a waiver, by the party waiving
compliance; provided that, following the meeting of shareholders of the
Acquired Fund pursuant to Section 5(a) hereof, no such amendment may have the
effect of changing the provisions for determining the number of Corresponding
Shares to be issued to the Acquired Fund shareholders under this Agreement to
the detriment of such shareholders without their further approval. Except as
otherwise specifically provided in this Agreement, no waiver by either party
hereto of any breach by the other party hereto of any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
a similar or dissimilar provision or condition at the same or at any prior or
subsequent time.
f. Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of New York applicable to agreements made and to be performed in
said state, without giving effect to the principles of conflicts of law
thereof.
g. Assignment. This Agreement shall not be assigned by any of the parties
hereto, in whole or in part, whether by operation of law or otherwise, without
the prior written consent of the other party hereto. Any purported assignment
contrary to the terms hereof shall be null, void and of no effect. Nothing
herein expressed or implied is intended or shall be construed to confer upon or
give any person, firm, or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement.
h. Costs of the Reorganization. All costs of the Reorganization shall be
borne by American International Group, Inc. or an affiliate thereof, regardless
of whether the Reorganization is consummated.
i. Severability. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms and
provisions of this Agreement in any other jurisdiction.
20
j. Headings. Headings to sections in this Agreement are intended solely for
convenience and no provision of this Agreement is to be construed by reference
to the heading of any section.
k. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be deemed to be
an original but all such counterparts together shall constitute but one
instrument.
21
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
Attest: North American Funds on behalf of
High Yield Bond Fund
U.S. Government Securities Fund
By: _________________________________ Municipal Bond Fund
Name: Core Bond Fund
Title: Strategic Income Fund
By: __________________________________
Attest: Name:
SunAmerica Income Funds on behalf of
Title:
SunAmerica High Income Fund
SunAmerica U.S. Government Securities
By: _________________________________ Fund
Name: SunAmerica Tax Exempt Insured Fund
Title: SunAmerica Core Bond Fund
SunAmerica Diversified Income Fund
By: __________________________________
Name:
Title:
22
STATEMENT OF ADDITIONAL INFORMATION
SUNAMERICA INCOME FUNDS
733 Third Avenue, Third Floor
New York, NY 10017
(800) 858-8850
----------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Proxy Statement and Prospectus (the "Proxy
Statement and Prospectus"), dated October 1, 2001, which has been filed with
the Securities and Exchange Commission by SunAmerica Income Funds (sometimes
referred to herein as the "Registrant") with respect to the matters described
in "General Information" below. Copies of the Proxy Statement and Prospectus
may be obtained at no charge upon request by writing to the Registrant at the
address indicated above or by calling toll-free 1-800-858-8850. This Statement
of Additional Information has been incorporated by reference into the Proxy
Statement and Prospectus.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Proxy Statement and
Prospectus.
Further information about the Acquiring Funds is contained in the Acquiring
Funds' Preliminary Prospectus and Preliminary Statement of Additional
Information, each subject to completion and dated August 14, 2001, and the
Annual Reports to Shareholders of the Existing Acquiring Funds (as defined
below) for the year ended March 31, 2001 and the Semi-Annual Report to
Shareholders of the Existing Acquiring Funds for the six months ended September
30, 2001. Further information about the Acquired Funds is contained in the
Acquired Funds' Prospectuses and Statement of Additional Information, each
dated March 1, 2001, the Annual Report to Shareholders of the Acquired Funds
for the year ended October 31, 2000 and the Semi-Annual Report to Shareholders
of the Acquired Funds for the six months ended April 30, 2001.
The following documents are incorporated herein by reference and accompany
this Statement of Additional Information:
. The Statement of Additional Information of the Acquiring Funds, dated
July 28, 2001, as supplemented.
. The Annual Report of the Existing Acquiring Funds for the year ended
March 31, 2001.
. The Statement of Additional Information of the Acquired Funds, dated
March 1, 2001, as supplemented.
. The Annual Report to Shareholders of the Acquired Funds for the year
ended October 31, 2000.
. The Semi-Annual Report to Shareholders of the Acquired Funds for the six
months ended April 30, 2001.
The Securities and Exchange Commission maintains a web site
(http://www.sec.gov) that contains the prospectuses and combined statements of
additional information of the Funds, other material incorporated by reference
and other information regarding the Funds.
The date of this Statement of Additional Information is October 1, 2001.
B-1
TABLE OF CONTENTS
General Information........................................................ B-3
Financial Statements....................................................... B-4
NAF Strategic Income Fund and SunAmerica Diversified Income Fund
Pro Forma Combined Statement of Assets and Liabilities (unaudited) as of
March 31, 2001.......................................................... B-5
Pro Forma Combined Statement of Operations (unaudited) as of March 31,
2001.................................................................... B-7
Pro Forma Combined Schedule of Investments (unaudited) as of March 31,
2001.................................................................... B-8
Notes to Pro Forma Financial Statements.................................. B-15
NAF High Yield Bond Fund and SunAmerica High Income Fund
Pro Forma Combined Statement of Assets and Liabilities (unaudited) as of
March 31, 2001.......................................................... B-18
Pro Forma Combined Statement of Operations (unaudited) as of March 31,
2001.................................................................... B-20
Pro Forma Combined Schedule of Investments (unaudited) as of March 31,
2001.................................................................... B-21
Notes to Pro Forma Financial Statements.................................. B-28
NAF Municipal Bond Fund and SunAmerica Tax Exempt Insured Fund
Pro Forma Combined Statement of Assets and Liabilities (unaudited) as of
March 31, 2001.......................................................... B-31
Pro Forma Combined Statement of Operations (unaudited) as of March 31,
2001.................................................................... B-33
Pro Forma Combined Schedule of Investments (unaudited) as of March 31,
2001.................................................................... B-34
Notes to Pro Forma Financial Statements.................................. B-38
NAF U.S. Government Securities Fund and SunAmerica U.S. Government
Securities Fund
Pro Forma Combined Statement of Assets and Liabilities (unaudited) as of
March 31, 2001.......................................................... B-40
Pro Forma Combined Statement of Operations (unaudited) as of March 31,
2001.................................................................... B-42
Pro Forma Combined Schedule of Investments (unaudited) as of March 31,
2001.................................................................... B-43
Notes to Pro Forma Financial Statements.................................. B-48
B-2
GENERAL INFORMATION
The shareholders of each separate investment portfolio of North American
Funds, a Massachusetts business trust, set forth below (each an "Acquired
Fund," collectively, the "Acquired Funds"), are being asked to approve or
disapprove a new investment advisory agreement (the "New Investment Advisory
Agreement") between American General Asset Management Corp. ("AGAM") and North
American Funds on behalf of each of the Acquired Funds, the terms of which are
the same in all material respects as the previous investment advisory agreement
with AGAM. The shareholders also are being asked to approve or disapprove a new
subadvisory agreement (the "New Sub-Advisory Agreement") between AGAM and
American General Investment Management, L.P. (or an affiliate) on behalf of the
Acquired Funds, the terms of which are the same in all material respects as the
previous subadvisory agreements for the Funds. In addition, shareholders of
each Acquired Fund are being asked to approve or disapprove an Agreement and
Plan of Reorganization (each a "Plan") between each of the Acquired Funds and
the respective investment portfolio of SunAmerica Income Funds, a Massachusetts
business trust, set forth below (each an "Acquiring Fund," and collectively,
the "Acquiring Funds"):
Acquired Fund Acquiring Fund
------------- --------------
Core Bond Fund (the "NAF Core Bond
Fund")............................ SunAmerica Core Bond Fund
High Yield Bond Fund (the "NAF High
Yield Bond Fund")................. SunAmerica High Income Fund
Municipal Bond Fund (the "NAF
Municipal Bond Fund")............. SunAmerica Tax Exempt Insured Fund
Strategic Income Fund (the "NAF
Strategic Income Fund")........... SunAmerica Diversified Income Fund
U.S. Government Securities Fund
(the "NAF U.S. Government
Securities Fund")................. SunAmerica U.S. Government Securities Fund
The SunAmerica High Income Fund, SunAmerica Tax Exempt Insured Fund,
SunAmerica Diversified Income Fund and SunAmerica U.S. Government Securities
Fund of SunAmerica Income Funds are sometimes referred to herein as the
"Existing Acquiring Funds."
Each Plan provides for the acquisition by an Acquiring Fund of substantially
all of the assets, and assumption of substantially all of the liabilities, of
the respective Acquired Fund, solely in exchange for an equal aggregate value
of newly issued shares (the "Corresponding Shares") of such Acquiring Fund.
Each such transaction is referred to herein as a "Reorganization" and
collectively, as the "Reorganizations." Immediately thereafter, and as part of
the respective Reorganization, such Acquired Fund will distribute the
Corresponding Shares received in such Reorganization to its shareholders. The
consummation of one Reorganization is not conditioned upon the consummation of
any other Reorganization. The Acquired Funds and the Acquiring Funds are
sometimes collectively referred to herein as the "Funds."
Shareholders will receive the same class of Corresponding Shares as the
shares of the respective Acquired Fund held by them immediately prior to the
applicable Reorganization although the name of the class may be different. For
example, if a shareholder owns Class C or Institutional Class II shares of an
Acquired Fund, he or she will receive, respectively, Class II or Class Z shares
of the respective Acquiring Fund since the Acquiring Funds do not have classes
of shares called Class C or Institutional Class II. The aggregate net asset
value of the Corresponding Shares will equal the aggregate net asset value of a
shareholder's Acquired Fund shares. This means that a shareholder may end up
with a different number of shares compared to the number that he or she
originally held, but the total dollar value of the shares will be the same.
A Joint Special Meeting of the Acquired Funds' shareholders to consider the
New Investment Advisory Agreement and the Plans will be held at the principal
executive offices of North American Funds, 286 Congress Street, Boston,
Massachusetts 02210 on November 7, 2001, at 10:00 a.m., Eastern Time. The
approximate mailing date of the Proxy Statement and Prospectus is October 5,
2001.
For further information about the Reorganizations, see the Proxy Statement
and Prospectus.
B-3
FINANCIAL STATEMENTS
Unaudited Pro Forma financial statements reflecting consummation of each
Reorganization (except the Core Bond Fund Reorganization) are included herein.
Unaudited Pro Forma financial statements reflecting consummation of the
Reorganization relating to the SunAmerica Core Bond Fund are not included
because the SunAmerica Core Bond Fund is a newly created investment portfolio
of the SunAmerica Income Funds.
Acquired Funds
Audited financial statements and accompanying notes for the fiscal year
ended October 31, 2000 for the Acquired Funds and the independent auditor's
report thereon are incorporated herein by reference from the Acquired Funds'
Annual Report to Shareholders, which accompanies this Statement of Additional
Information. Unaudited financial statements and accompanying notes for the six
months ended April 30, 2001 for the Acquired Funds are incorporated herein by
reference from the Acquired Funds' Semi-Annual Report to Shareholders, which
accompanies this Statement of Additional Information.
Acquiring Funds
Audited financial statements and accompanying notes for the fiscal year
ended March 31, 2001 for the Existing Acquiring Funds and the independent
auditor's report thereon are incorporated herein by reference from the Existing
Acquiring Funds' Annual Report to Shareholders, which accompanies this
Statement of Additional Information.
B-4
SUNAMERICA INCOME FUNDS DIVERSIFIED INCOME FUND
NORTH AMERICAN FUNDS STRATEGIC INCOME FUND
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2001
(unaudited)
North American Fund SunAmerica Income Funds
Strategic Income Diversified Income
Fund Fund
-------------------- ------------------------
<s><c>
ASSETS:
Investment securities, at value (identified cost $36,939,945,
$54,975,452 and $91,915,397, respectively) $ 35,072,278 $ 47,488,132
Repurchase agreements (cost equals market) 710,000 3,567,000
Cash 163 1,187
Foreign cash 257,394 --
Receivable for investments sold 951,627 139,898
Receivable for shares of beneficial interest sold 5,000 298,505
Interest and dividends receivable 773,965 1,122,908
Receivable from investment adviser -- 42
Receivable for foreign tax withholding reclaims 10,013 --
Prepaid expenses and other assets 115,260 968
-------------- -------------
Total assets 37,895,700 52,618,640
-------------- -------------
LIABILITIES:
Payable for investments purchased 1,264,575 453,897
Payable for shares of beneficial interest redeemed 28,267 182,554
Dividends payable 157,819 154,555
Investment advisory and management
fees payable 8,469 28,698
Distribution and service maintenance
fees payable 25,628 27,293
Other accrued expenses 143,734 85,546
Custodian and transfer agent fees 23,389 --
Dividend and withholding tax 363 --
-------------- -------------
Total liabilities 1,652,244 932,543
-------------- -------------
Net assets $ 36,243,456 $ 51,686,097
============== =============
NET ASSETS WERE COMPOSED OF:
Common Stock, $.0001, $.01, and $.01, par value $ 4,507 $ 153,289
Paid-in capital 46,432,583 96,984,465
-------------- -------------
46,437,090 97,137,754
Accumulated undistributed net
investment income (loss) (181,694) 80,693
Accumulated undistributed net realized
gain (loss) on investments, foreign
currency, and other assets and liabilities (8,123,399) (38,045,030)
Net unrealized appreciation (depreciation) on
investments (1,867,667) (7,487,320)
Net unrealized appreciation (depreciation) of foreign
currency, and other assets and liabilities (20,874) ----
Net assets $ 36,243,456 $ 51,686,097
============== =============
Pro Forma
Pro Forma Combined
Adjustments (Note 1)
-------------- ---------------
<s><c>
ASSETS:
Investment securities, at value (identified cost $36,939,945,
$54,975,452 and $91,915,397, respectively) -- $ 82,560,410
Repurchase agreements (cost equals market) -- 4,277,000
Cash -- 1,350
Foreign cash -- 257,394
Receivable for investments sold -- 1,091,525
Receivable for shares of beneficial interest sold -- 303,505
Interest and dividends receivable -- 1,896,873
Receivable from investment adviser -- 42
Receivable for foreign tax withholding reclaims -- 10,013
Prepaid expenses and other assets (56,480)(A) 59,748
------------- --------------
Total assets (56,480) 90,457,860
------------- --------------
LIABILITIES:
Payable for investments purchased -- 1,718,472
Payable for shares of beneficial interest redeemed -- 210,821
Dividends payable 312,374
Investment advisory and management
fees payable -- 37,167
Distribution and service maintenance
fees payable -- 52,921
Other accrued expenses -- 229,280
Custodian and transfer agent fees -- 23,389
Dividend and withholding tax -- 363
------------- --------------
Total liabilities 0 2,584,787
------------- --------------
Net assets ($ 56,480) $ 87,873,073
============= ==============
NET ASSETS WERE COMPOSED OF:
Common Stock, $.0001, $.01, and $.01, par value $ 102,645 260,441
Paid-in capital (102,645) 143,314,403
------------- --------------
-- 143,574,844
Accumulated undistributed net
investment income (loss) (56,480)(A) (157,481)
Accumulated undistributed net realized
gain (loss) on investments, foreign
currency, and other assets and liabilities -- (46,168,429)
Net unrealized appreciation (depreciation) on
investments -- (9,354,987)
Net unrealized appreciation (depreciation) of foreign
currency, and other assets and liabilities -- (20,874)
------------- --------------
Net assets ($ 56,480) $ 87,873,073
============= ==============
B-5
SUNAMERICA INCOME FUNDS DIVERSIFIED INCOME FUND@
NORTH AMERICAN FUNDS STRATEGIC INCOME FUND
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2001
(unaudited)
North American Funds SunAmerica Income Funds
Strategic Income Diversified Income
Fund Fund
--------------------- ------------------------
<s><c>
Class A:
Net assets $ 7,509,117 $ 30,923,542
Shares outstanding 934,033 9,178,230
Net asset value and redemption price per
share $ 8.04 $ 3.37
Maximum sales charge (4.75% of offering
price) 0.40 0.17
------------ ------------
Maximum offering price to public $ 8.44 $ 3.54
============ ============
Class B:
Net assets $ 13,333,858 $ 16,741,565
Shares outstanding 1,658,275 4,959,910
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) $ 8.04 $ 3.38
============ ============
Class II:
Net assets -- $ 4,020,990
Shares outstanding -- 1,190,805
Net asset value and redemption price per
share (excluding any applicable contingent
deferred sales charge) -- $ 3.38
Maximum sales charge (1.00% of offering
price) -- 0.03
------------ ------------
Maximum offering price to public -- $ 3.41
============ ============
Class C:
Net assets $ 12,666,503 --
Shares outstanding 1,575,224 --
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) $ 8.04 --
============ ============
Class I:
Net assets $ 2,733,978 --
Shares outstanding 339,570 --
Net asset value, offering and redemption
price per share $ 8.05 $ 3.37
============ ============
Pro Forma
Pro Forma Combined
Adjustments (Note 1)
--------------- ----------------
<s><c>
Class A:
Net assets ($11,702)(A) $ 38,420,957
Shares outstanding 1,290,719 (B) 11,402,982
Net asset value and redemption price per
share -- $ 3.37
Maximum sales charge (4.75% of offering
price) -- 0.17
--------------- --------------
Maximum offering price to public -- $ 3.54
=============== ==============
Class B:
Net assets ($20,779)(A) $ 30,054,644
Shares outstanding 2,280,506 (C) 8,898,691
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) -- $ 3.38
=============== ==============
Class II:
Net assets $12,646,764 (A) $ 16,667,754
Shares outstanding 3,741,646 (F) 4,932,451
Net asset value and redemption price per
share (excluding any applicable contingent
deferred sales charge) -- $ 3.38
Maximum sales charge (1.00% of offering
price) -- 0.03
--------------- --------------
Maximum offering price to public -- $ 3.41
=============== ==============
Class C:
Net assets ($12,666,503)(A) $ 0
Shares outstanding (1,575,224)(D)(F) 0
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) -- --
=============== ==============
Class I:
Net assets ($ 4,260)(A) $ 2,729,718
Shares outstanding $ 470,435 (E) 810,005
Net asset value, offering and redemption
price per share -- $ 3.37
=============== ==============
@ To be renamed the SunAmerica Income Funds Strategic Income Fund
(A) To adjust for the remaining balances of any prepaid expenses on the North
American Funds Strategic Income Fund to be expensed prior to the
reorganization
(B) Prior to the merger North American Funds Strategic Income Class A
shareholders will receive 2.381877541 shares for every one share previously
held
(C) Prior to the merger North American Funds Strategic Income Class B
shareholders will receive 2.375227733 shares for every one share previously
held
(D) Prior to the merger North American Funds Strategic Income Class C
shareholders will receive 2.375310530 shares for every one share previously
held
(E) Prior to the merger North American Funds Strategic Income Class I
shareholders will receive 2.385385462 shares for every one share previously
held
(F) Class C shares of North American Funds Strategic Income will be
redesignated Class II shares
See Notes to Pro Forma Financial Statements
B-6
SUNAMERICA INCOME FUNDS DIVERSIFIED INCOME FUND@
NORTH AMERICAN FUNDS STRATEGIC INCOME FUND
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 2001
(unaudited)
North American Funds SunAmerica Income Funds
Strategic Income Diversified Income
Fund Fund
----------------------------------------------
<s><c>
INVESTMENT INCOME:
Income:
Interest $ 3,797,106 $ 5,313,227
Dividends 41,850 287,194
----------- -----------
Total investment income 3,838,956 5,600,421
----------- -----------
Expenses:
Investment advisory and management fees 266,369 333,983
Distribution and service maintenance fees
Class A 25,634 103,166
Class B 131,551 194,577
Class II 0 24,482
Class C 123,082 0
Class I 6,821 0
Transfer agent fees and expenses 106,059 0
Class A 0 81,077
Class B 0 56,105
Class II 0 6,818
Class I 0 0
Registration fees 26,182 0
Class A 0 13,194
Class B 0 10,726
Class II 0 10,555
Class I 0 0
Accounting/administration 37,910 0
Custodian fees and expenses 68,546 66,803
Audit and legal fees 16,600 35,502
Miscellaneous expenses 22,192 16,224
----------- -----------
Total expenses 830,946 953,212
Less: expenses waived/reimbursed by investment adviser (112,959) (10,804)
Less: custody credits earned on cash balances 0 (3,243)
----------- -----------
Net expenses 717,987 939,165
----------- -----------
Net investment income (loss) 3,120,969 4,661,256
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments (750,988) (5,741,341)
Net realized gain (loss) on foreign currency and other assets and
liabilities (39,479) 0
Net change in unrealized appreciation/depreciation of
investments 236,205 (765,053)
Net change in unrealized appreciation/depreciation on foreign
currency and other assets and liabilities 28,931 0
----------- -----------
Net realized and unrealized gain on investments, foreign currency
and other assets and liabilities (525,331) (6,506,394)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS: $ 2,595,638 ($1,845,138)
=========== ===========
Pro Forma
Pro Forma Combined
Adjustments (Note 1)
------------- ---------------
<s><c>
INVESTMENT INCOME:
Income:
Interest $ 0 $ 9,110,333
Dividends 0 329,044
----------- -----------
Total investment income 0 9,439,377
----------- -----------
Expenses:
Investment advisory and management fees (35,518)(G) 564,834
Distribution and service maintenance fees
Class A 0 128,800
Class B 0 326,128
Class II 123,082 (F) 147,564
Class C (123,082)(F) 0
Class I 0 6,821
Transfer agent fees and expenses (106,059)(G) 0
Class A 20,507 (G) 101,584
Class B 38,150 (G) 94,255
Class II 35,694 (G) 42,512
Class I 9,004 (G) 9,004
Registration fees (26,182)(G) 0
Class A 3,806 (G) 17,000
Class B 6,274 (G) 17,000
Class II 3,445 (G) 14,000
Class I 8,500 (G) 8,500
Accounting/administration (37,910)(G) 0
Custodian fees and expenses (65,349)(G) 70,000
Audit and legal fees (17,102)(H) 35,000
Miscellaneous expenses (18,416)(H) 20,000
----------- -----------
Total expenses (181,156) 1,603,002
Less: expenses waived/reimbursed by investment adviser 100,821 (I) (22,942)
Less: custody credits earned on cash balances 0 (3,243)
----------- -----------
Net expenses (80,335) 1,576,817
----------- -----------
Net investment income (loss) 80,335 7,862,560
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 0 (6,492,329)
Net realized gain (loss) on foreign currency and other assets and
liabilities 0 (39,479)
Net change in unrealized appreciation/depreciation of
investments 0 (528,848)
Net change in unrealized appreciation/depreciation on foreign
currency and other assets and liabilities 0 28,931
----------- -----------
Net realized and unrealized gain on investments, foreign currency
and other assets and liabilities 0 (7,031,725)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS: $ 80,335 $ 830,835
=========== ===========
(F) Class C shares of North American Funds Strategic Income will be
redesignated Class II shares
(G) Reflects adjustments to expenses based on fee schedules and combined net
assets for the reorganized fund
(H) Reflects the elimination of duplicate services or fees
(I) Reflects adjustments to expenses waived/reimbused by investment adviser
based on pro forma expenses
See Notes to Pro Forma Financial Statements
B-7
SunAmerica Income Funds Diversified Income Fund
North American Funds Strategic Income Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
------------------------------------------------------
Strategic Diversified Pro Forma
Income Income Combined Description Coupon
---------------- -------------- ---------------- -----------------------------------------------------------------------------
<s><c>
CORPORATE BONDS & NOTES
Aerospace & Military Technology
50,000 50,000 BE Aerospace, Inc. 9.50
30,000 30,000 Dunlop Standard Aerospace Holdings PLC 11.88
50,000 50,000 Sequa Corp. (3) 8.88
Apparel & Textiles
175,000 175,000 Galey & Lord Inc. 9.13
Automotive
500,000 500,000 Breed Technologies, Inc. 9.25
50,000 50,000 Prestolite Electric, Inc. 9.63
275,000 275,000 Stanadyne Automotive Corp. 10.25
Banks
30,000 30,000 Western Financial Bank 8.88
Broadcasting
750,000 750,000 Big City Radio, Inc. 11.25
1,000,000 1,000,000 Chancellor Media Corp. 8.00
25,000 25,000 Coaxial Communications of Central Ohio Inc. 10.00
290,000 290,000 Cumulus Media Inc. 10.38
750,000 750,000 Radio one, Inc. 12.00
100,000 100,000 Shop At Home, Inc. 11.00
Business Services
100,000 100,000 Cendant Corp 7.75
25,000 25,000 Condor Systems, Inc. 11.88
250,000 250,000 Iron Mountain, Inc. 10.13
25,000 25,000 National Equipment Services, Inc., Series B 10.00
25,000 25,000 National Equipment Services, Inc., Series C 10.00
Cable
46,998 46,998 Adelphia Communications (6) 9.50
1,250,000 1,250,000 Adelphia Communications Corp. 8.13
500,000 500,000 Echostar Communications Corp. 4.88
750,000 750,000 Echostar DBS Corp. 9.25
400,000 400,000 Frontiervision Holdings LP 11.88
750,000 750,000 Mediacom LLC/Capital Corp. 8.50
1,500,000 1,500,000 UIH Australia Pacific, Inc. (1) 0.00
1,000,000 1,000,000 UnitedGlobalCom, Inc. (1) 0.00
Cellular
250,000 250,000 Airgate PCS, Inc. (1)(2) 0.00
100,000 100,000 AT&T Wireless Services, Inc (2)(3) 7.88
1,250,000 1,250,000 Leap Wireless International, Inc. (1) 0.00
750,000 750,000 McCaw International Ltd. (1) 0.00
750,000 750,000 Nextel Communications Inc (1) 0.00
50,000 50,000 Spectrasite Holdings Inc. 10.75
600,000 600,000 Spectrasite Holdings Inc. (1) 0.00
900,000 900,000 Spectrasite Holdings, Inc. (1) 0.00
Chemicals
250,000 250,000 Borden Chemicals & Plastics 9.50
20,000 20,000 GEO Specialty Chemicals, Inc. 10.13
Conglomerate
175,000 175,000 Grove Worldwide LLC (5) 9.25
Consumer Goods
250,000 250,000 Penhall International, Inc. 12.00
750,000 750,000 Polymer Group, Inc. 9.00
Consumer Services
750,000 750,000 Allied Waste North America, Inc. 7.63
160,000 160,000 Allied Waste North America, Inc. 10.00
300,000 300,000 Rent-A-center, Inc. 11.00
Strategic Diversified Pro Forma
Description Maturity Date Income Income Combined
--------------------------------------------------------------------------------------------------------------
<s><c>
CORPORATE BONDS & NOTES 51.7% 42.1% 46.2%
Aerospace & Military Technology 0.4% 0.0% 0.2%
BE Aerospace, Inc. 11/1/08
Dunlop Standard Aerospace Holdings PLC 5/15/09
Sequa Corp. (3) 4/1/08
Apparel & Textiles 0.3% 0.0% 0.1%
Galey & Lord Inc. 3/1/08
Automotive 0.7% 0.0% 0.3%
Breed Technologies, Inc. 4/15/08
Prestolite Electric, Inc. 2/1/08
Stanadyne Automotive Corp. 12/15/07
Banks 0.1% 0.0% 0.0%
Western Financial Bank 8/1/07
Broadcasting 1.1% 4.2% 2.9%
Big City Radio, Inc. 3/15/05
Chancellor Media Corp. 11/1/08
Coaxial Communications of Central Ohio Inc. 8/15/06
Cumulus Media Inc. 7/1/08
Radio one, Inc. 5/15/04
Shop At Home, Inc. 4/1/05
Business Services 1.1% 0.0% 0.5%
Cendant Corp 12/1/03
Condor Systems, Inc. 5/1/09
Iron Mountain, Inc. 10/1/06
National Equipment Services, Inc., Series B 11/30/04
National Equipment Services, Inc., Series C 11/30/04
Cable 1.2% 8.5% 5.5%
Adelphia Communications (6) 2/15/04
Adelphia Communications Corp. 7/15/03
Echostar Communications Corp. 1/1/07
Echostar DBS Corp. 2/1/06
Frontiervision Holdings LP 9/15/07
Mediacom LLC/Capital Corp. 4/15/08
UIH Australia Pacific, Inc. (1) 5/15/06
UnitedGlobalCom, Inc. (1) 2/15/08
Cellular 2.5% 2.6% 2.6%
Airgate PCS, Inc. (1)(2) 10/1/09
AT&T Wireless Services, Inc (2)(3) 3/1/11
Leap Wireless International, Inc. (1) 4/15/10
McCaw International Ltd. (1) 4/15/07
Nextel Communications Inc (1) 2/15/08
Spectrasite Holdings Inc. 3/15/10
Spectrasite Holdings Inc. (1) 3/15/10
Spectrasite Holdings, Inc. (1) 4/15/09
Chemicals 0.3% 0.0% 0.1%
Borden Chemicals & Plastics 5/1/05
GEO Specialty Chemicals, Inc. 8/1/08
Conglomerate 0.0% 0.0% 0.0%
Grove Worldwide LLC (5) 5/1/08
Consumer Goods 0.7% 0.7% 0.7%
Penhall International, Inc. 8/1/06
Polymer Group, Inc. 7/1/07
Consumer Services 1.3% 1.4% 1.4%
Allied Waste North America, Inc. 1/1/06
Allied Waste North America, Inc. 8/1/09
Rent-A-center, Inc. 8/15/08
Market Value
---------------------------------------------------
Strategic Diversified Pro Forma
Description Income Income Combined
-------------------------------------------------------------------------------- ----------------
<s><c>
CORPORATE BONDS & NOTES
Aerospace & Military Technology
BE Aerospace, Inc. 51,375 - 51,375
Dunlop Standard Aerospace Holdings PLC 31,950 - 31,950
Sequa Corp. (3) 50,188 - 50,188
Apparel & Textiles
Galey & Lord Inc. 117,250 - 117,250
Automotive
Breed Technologies, Inc. 2,500 - 2,500
Prestolite Electric, Inc. 22,500 - 22,500
Stanadyne Automotive Corp. 239,250 - 239,250
Banks
Western Financial Bank 28,988 - 28,988
Broadcasting
Big City Radio, Inc. - 352,500 352,500
Chancellor Media Corp. - 1,036,250 1,036,250
Coaxial Communications of Central Ohio Inc. 24,813 - 24,813
Cumulus Media Inc. 270,425 - 270,425
Radio one, Inc. - 787,500 787,500
Shop At Home, Inc. 98,500 - 98,500
Business Services
Cendant Corp 100,570 - 100,570
Condor Systems, Inc. 18,500 - 18,500
Iron Mountain, Inc. 262,500 - 262,500
National Equipment Services, Inc., Series B 20,875 - 20,875
National Equipment Services, Inc., Series C 20,875 - 20,875
Cable
Adelphia Communications (6) 45,706 - 45,706
Adelphia Communications Corp. - 1,215,625 1,215,625
Echostar Communications Corp. - 442,500 442,500
Echostar DBS Corp. - 746,250 746,250
Frontiervision Holdings LP 400,000 400,000
Mediacom LLC/Capital Corp. - 701,250 701,250
UIH Australia Pacific, Inc. (1) - 825,000 825,000
UnitedGlobalCom, Inc. (1) - 480,000 480,000
Cellular
Airgate PCS, Inc. (1)(2) - 148,750 148,750
AT&T Wireless Services, Inc (2)(3) 100,005 - 100,005
Leap Wireless International, Inc. (1) - 331,250 331,250
McCaw International Ltd. (1) - 480,000 480,000
Nextel Communications Inc (1) 506,250 - 506,250
Spectrasite Holdings Inc. 43,500 - 43,500
Spectrasite Holdings Inc. (1) 264,000 - 264,000
Spectrasite Holdings, Inc. (1) - 405,000 405,000
Chemicals
Borden Chemicals & Plastics 90,000 - 90,000
GEO Specialty Chemicals, Inc. 17,400 - 17,400
Conglomerate
Grove Worldwide LLC (5) 15,750 - 15,750
Consumer Goods
Penhall International, Inc. 246,250 - 246,250
Polymer Group, Inc. - 360,000 360,000
Consumer Services
Allied Waste North America, Inc. - 730,313 730,313
Allied Waste North America, Inc. 163,000 163,000
Rent-A-center, Inc. 303,000 303,000
B-8
SunAmerica Income Funds Diversified Income Fund
North American Funds Strategic Income Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
------------------------------------------------------
Strategic Diversified Pro Forma
Income Income Combined Description Coupon
---------------- -------------- ---------------- -----------------------------------------------------------------------------
<s><c>
Energy
500,000 500,000 Costilla Energy, Inc. 10.25
200,000 200,000 Frontier Oil Corp. 11.75
25,000 25,000 Grey Wolf, Inc. 8.88
50,000 50,000 HS Resources, Inc. 9.25
250,000 250,000 HS Resources, Inc. 9.25
250,000 250,000 Tesoro Petroleum Corp. 9.00
Energy Services
160,000 1,000,000 1,160,000 AES Corp. 8.75
250,000 250,000 AmeriGas Partners LP/AmeriGas Eagle Finance Corp (2)(3) 10.00
500,000 500,000 CMS Energy Corp 8.50
50,000 50,000 Key Energy Services, Inc. (3) 8.38
300,000 300,000 Gulfmark Offshore, Inc. 8.75
500,000 500,000 Western Gas Resources, Inc. 10.00
Financial Services
200,000 200,000 Alamosa Delaware, Inc (3) 12.50
750,000 750,000 Americredit Corp. 9.88
25,000 25,000 AmeriCredit Corp. 9.25
50,000 50,000 Caithness Coso Funding Corp. 9.05
1,200,000 1,200,000 Commercial Mortgage Asset Trust 7.35
9,443,818 9,443,818 DLJ Commercial Mortgage Corp. (strips) 0.69
7,420,820 7,420,820 DLJ Commercial Mortgage Corp. (strips) 0.83
973,014 973,014 GE Capital management Services, Inc. 6.75
407,923 407,923 PNC Mortgage Securities Corp. 6.74
339,041 339,041 PNC Mortgage Securities Corp. 6.75
489,271 489,271 PNC Mortgage Securities Corp. 6.77
459,283 459,283 PNC Mortgage Securities Corp. 6.84
436,711 436,711 PNC Mortgage Securities Corp. 6.91
238,747 238,747 First Union Residential Securities 7.00
Food, Beverage & Tobacco
300,000 300,000 Agrilink Foods, Inc. 11.88
Forest Products
285,000 285,000 Bear Island Paper Co LLC 10.00
125,000 125,000 Fibermark, Inc. 9.38
Gaming
1,000,000 1,000,000 MGM Grand, Inc. 6.95
400,000 400,000 Hollywood Casino Shreveport/Shreveport Capital Corp. 13.00
25,000 25,000 Isle of Capri Casinos, Inc 8.75
320,000 320,000 Riviera Black Hawk Inc. 13.00
Health Services
1,000,000 1,000,000 Fresenius Medical Care Capital Trust I 9.00
50,000 50,000 LifePoint Hospitals Holdings, Inc. 10.75
135,000 135,000 IASIS Healthcare Corp. 13.00
250,000 250,000 Manor Care, Inc 7.50
1,000,000 1,000,000 Tenet Healthcare Corp. 8.00
350,000 350,000 Universal Hospital Services 10.25
Housing
25,000 25,000 Beazer Homes USA, Inc. 8.88
25,000 25,000 Beazer Homes USA, Inc. 9.00
125,000 125,000 Lennar Corp 9.95
1,247,091 1,247,091 Mid-State Trust 7.34
Leisure & Tourism
100,000 100,000 Cinemark USA, Inc. 9.63
100,000 100,000 HMH Properties, Inc. 7.88
300,000 300,000 Courtyard BY Marriott 01 10.75
350,000 350,000 Speedway Motorsports, Inc. 8.50
Strategic Diversified Pro Forma
Description Maturity Date Income Income Combined
-------------------------------------------------------------------------------------------------------------------------------
<s><c>
Energy 2.2% 0.0% 0.9%
Costilla Energy, Inc. 10/1/06
Frontier Oil Corp. 11/15/09
Grey Wolf, Inc. 7/1/07
HS Resources, Inc. 11/15/06
HS Resources, Inc. 11/15/06
Tesoro Petroleum Corp. 7/1/08
Energy Services 1.3% 4.5% 3.2%
AES Corp. 12/15/02
AmeriGas Partners LP/AmeriGas Eagle Finance Corp (2)(3) 4/15/06
CMS Energy Corp 4/15/11
Key Energy Services, Inc. (3) 3/1/08
Gulfmark Offshore, Inc. 6/1/08
Western Gas Resources, Inc. 6/15/09
Financial Services 14.4% 1.8% 7.0%
Alamosa Delaware, Inc (3) 2/1/11
Americredit Corp. 4/15/06
AmeriCredit Corp. 2/1/04
Caithness Coso Funding Corp. 12/15/09
Commercial Mortgage Asset Trust 8/17/13
DLJ Commercial Mortgage Corp. (strips) 6/10/31
DLJ Commercial Mortgage Corp. (strips) 11/12/31
GE Capital management Services, Inc. 11/25/28
PNC Mortgage Securities Corp. 7/25/28
PNC Mortgage Securities Corp. 5/25/28
PNC Mortgage Securities Corp. 3/25/29
PNC Mortgage Securities Corp. 5/25/28
PNC Mortgage Securities Corp. 4/25/29
First Union Residential Securities 8/25/28
Food, Beverage & Tobacco 0.7% 0.0% 0.3%
Agrilink Foods, Inc. 11/1/08
Forest Products 1.1% 0.0% 0.4%
Bear Island Paper Co LLC 12/1/07
Fibermark, Inc. 10/15/06
Gaming 2.1% 1.9% 2.0%
MGM Grand, Inc. 2/1/05
Hollywood Casino Shreveport/Shreveport Capital Corp. 8/1/06
Isle of Capri Casinos, Inc 4/15/09
Riviera Black Hawk Inc. 5/1/05
Health Services 2.0% 4.0% 3.3%
Fresenius Medical Care Capital Trust I 12/1/06
LifePoint Hospitals Holdings, Inc. 5/15/09
IASIS Healthcare Corp. 10/15/09
Manor Care, Inc 6/15/06
Tenet Healthcare Corp. 1/15/05
Universal Hospital Services 3/1/08
Housing 4.1% 0.0% 1.7%
Beazer Homes USA, Inc. 4/1/08
Beazer Homes USA, Inc. 3/1/04
Lennar Corp 5/1/10
Mid-State Trust 7/1/35
Leisure & Tourism 3.2% 1.8% 2.4%
Cinemark USA, Inc. 8/1/08
HMH Properties, Inc. 8/1/08
Courtyard BY Marriott 01 2/1/08
Speedway Motorsports, Inc. 8/15/07
Market Value
---------------------------------------------------
Strategic Diversified Pro Forma
Description Income Income Combined
--------------------------------------------------------------------------------------------------- ----------------
<s><c>
Energy
Costilla Energy, Inc. 0 - 0
Frontier Oil Corp. 208,500 - 208,500
Grey Wolf, Inc. 25,250 - 25,250
HS Resources, Inc. 51,250 - 51,250
HS Resources, Inc. 258,750 - 258,750
Tesoro Petroleum Corp. 254,375 - 254,375
Energy Services
AES Corp. 162,400 1,015,000 1,177,400
AmeriGas Partners LP/AmeriGas Eagle Finance Corp (2)(3) 248,773 - 248,773
CMS Energy Corp - 488,380 488,380
Key Energy Services, Inc. (3) 51,449 - 51,449
Gulfmark Offshore, Inc. - 300,750 300,750
Western Gas Resources, Inc. - 530,000 530,000
Financial Services
Alamosa Delaware, Inc (3) - 198,500 198,500
Americredit Corp. - 742,500 742,500
AmeriCredit Corp. 24,500 - 24,500
Caithness Coso Funding Corp. 45,500 - 45,500
Commercial Mortgage Asset Trust 1,253,505 - 1,253,505
DLJ Commercial Mortgage Corp. (strips) 351,055 - 351,055
DLJ Commercial Mortgage Corp. (strips) 348,065 - 348,065
GE Capital management Services, Inc. 941,810 - 941,810
PNC Mortgage Securities Corp. 382,187 - 382,187
PNC Mortgage Securities Corp. 317,602 - 317,602
PNC Mortgage Securities Corp. 473,668 - 473,668
PNC Mortgage Securities Corp. 436,223 - 436,223
PNC Mortgage Securities Corp. 412,285 - 412,285
First Union Residential Securities 228,734 - 228,734
Food, Beverage & Tobacco
Agrilink Foods, Inc. 252,000 - 252,000
Forest Products
Bear Island Paper Co LLC 261,844 - 261,844
Fibermark, Inc. 121,250 - 121,250
Gaming
MGM Grand, Inc. - 995,900 995,900
Hollywood Casino Shreveport/Shreveport Capital Corp. 428,000 - 428,000
Isle of Capri Casinos, Inc 22,625 - 22,625
Riviera Black Hawk Inc. 320,000 - 320,000
Health Services
Fresenius Medical Care Capital Trust I - 1,012,500 1,012,500
LifePoint Hospitals Holdings, Inc. 55,500 - 55,500
IASIS Healthcare Corp. 144,450 - 144,450
Manor Care, Inc 250,905 - 250,905
Tenet Healthcare Corp. - 1,025,000 1,025,000
Universal Hospital Services 287,000 - 287,000
Housing
Beazer Homes USA, Inc. 24,250 - 24,250
Beazer Homes USA, Inc. 24,688 - 24,688
Lennar Corp 134,063 - 134,063
Mid-State Trust 1,289,567 - 1,289,567
Leisure & Tourism
Cinemark USA, Inc. 78,000 - 78,000
HMH Properties, Inc. 95,250 - 95,250
Courtyard BY Marriott 01 306,750 - 306,750
Speedway Motorsports, Inc. 354,375 - 354,375
B-9
SunAmerica Income Funds Diversified Income Fund
North American Funds Strategic Income Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
------------------------------------------------------
Strategic Diversified Pro Forma
Income Income Combined Description Coupon
---------------- -------------- ---------------- ------------------------------------------------------------------------------
<s><c>
950,000 950,000 ITT Corp. 6.75
325,000 325,000 True Temper Sports, Inc. 10.88
Manufacturing
600,000 600,000 Pentacon, Inc. 12.25
Media
280,000 280,000 Benedek Communications Corp. 13.25
175,000 175,000 Century Communications Corp. 8.88
50,000 50,000 Susquehanna Media Co. 8.50
400,000 400,000 Charter Communications Holdings LLC 10.75
35,000 35,000 Pegasus Communications Corp. 9.75
400,000 400,000 Golden Sky DBS, Inc. (1) 0.00
1,000,000 1,000,000 Orion Network Systems, Inc. (1)(2) 0.00
625,000 625,000 Park-N-View, Inc. (4)(5) 13.00
Medical Products
150,000 150,000 PSS World Medical, inc. 8.50
Metals & Minerals
1,000,000 1,000,000 Acme Metals, Inc. (4)(5) 12.50
100,000 100,000 Renco Steel Holdings, Inc. 10.88
500,000 500,000 Schuff Steel Co. 10.50
275,000 275,000 WCI Steel Inc. 10.00
Pharmaceuticals
50,000 50,000 Express Scripts, Inc. 9.63
20,000 20,000 ICN Pharmaceuticals, Inc.(2)(3) 8.75
150,000 150,000 ICN Pharmaceuticals, Inc.(3) 9.75
325,000 325,000 Pharmacia, Inc. 8.38
Real Estate
700,000 700,000 LNR Property Corp 10.50
135,000 135,000 Omega Healthcare Investors, Inc. 6.95
Retail
125,000 125,000 Big 5 Corp. 10.88
100,000 100,000 PEP Boys-Manny Moe & Jack 6.52
Telecommunications
100,000 100,000 Allegiance Telecommunications, Inc 12.88
150,000 150,000 Concentric Network Corp./XO Communications, Inc. 12.75
350,000 350,000 Crown Castle International Corp. (1) 0.00
1,000,000 1,000,000 Frontier Corp. 7.25
160,000 800,000 960,000 Globix Corp. 12.50
1,000,000 1,000,000 IMPsat Fiber Networks Corp. 12.38
750,000 750,000 Intermedia Communications, Inc. 8.88
500,000 500,000 Level 3 Communications, Inc. 11.00
550,000 550,000 Level 3 Communications, Inc. (1) 0.00
325,000 325,000 Microcell Telecommunications (1) 0.00
800,000 800,000 Mpower Communications Corp. 13.00
100,000 100,000 NTL Communications Corp. 11.50
500,000 500,000 PSINet, Inc. 11.50
15,000 15,000 PSINet, Inc. (5) 11.00
200,000 200,000 Williams Communications Group 11.70
Utilities
150,000 150,000 Avista Corp. (3) 9.75
100,000 100,000 BRL Universal Equipment LP, Series A (3) 8.88
200,000 200,000 Leviathan Gas Pipeline Partners 10.38
Total Corporate Bonds & Notes
(cost $20,114,429; $26,927,872; $47,042,311)
FOREIGN BONDS & NOTES
Broadcasting
Strategic Diversified Pro Forma
Description Maturity Date Income Income Combined
--------------------------------------------------------------------------------------------------------------------------------
<s><c>
ITT Corp. 11/15/05
True Temper Sports, Inc. 12/1/08
Manufacturing 0.0% 0.5% 0.3%
Pentacon, Inc. 4/1/09
Media 3.1% 0.6% 1.6%
Benedek Communications Corp. 5/15/06
Century Communications Corp. 1/15/07
Susquehanna Media Co. 5/15/09
Charter Communications Holdings LLC 10/1/09
Pegasus Communications Corp. 12/1/06
Golden Sky DBS, Inc. (1) 3/1/07
Orion Network Systems, Inc. (1)(2) 1/15/07
Park-N-View, Inc. (4)(5) 5/15/08
Medical Products 0.3% 0.0% 0.1%
PSS World Medical, inc. 10/1/07
Metals & Minerals 0.8% 1.9% 1.4%
Acme Metals, Inc. (4)(5) 8/1/02
Renco Steel Holdings, Inc. 2/1/05
Schuff Steel Co. 6/1/08
WCI Steel Inc. 12/1/04
Pharmaceuticals 1.4% 0.0% 0.6%
Express Scripts, Inc. 6/15/09
ICN Pharmaceuticals, Inc.(2)(3) 11/15/08
ICN Pharmaceuticals, Inc.(3) 11/15/08
Pharmacia, Inc. 4/1/08
Real Estate 0.3% 1.4% 0.9%
LNR Property Corp 1/15/09
Omega Healthcare Investors, Inc. 6/15/02
Retail 0.5% 0.0% 0.2%
Big 5 Corp. 11/15/07
PEP Boys-Manny Moe & Jack 7/16/07
Telecommunications 3.2% 6.3% 5.1%
Allegiance Telecommunications, Inc 5/15/08
Concentric Network Corp./XO Communications, Inc. 12/15/07
Crown Castle International Corp. (1) 5/15/11
Frontier Corp. 5/15/04
Globix Corp. 2/1/10
IMPsat Fiber Networks Corp. 6/15/08
Intermedia Communications, Inc. 11/1/07
Level 3 Communications, Inc. 3/15/08
Level 3 Communications, Inc. (1) 3/15/10
Microcell Telecommunications (1) 6/1/09
Mpower Communications Corp. 4/1/10
NTL Communications Corp. 10/1/08
PSINet, Inc. 11/1/08
PSINet, Inc. (5) 8/1/09
Williams Communications Group 8/1/08
Utilities 1.3% 0.0% 0.5%
Avista Corp. (3) 6/1/08
BRL Universal Equipment LP, Series A (3) 2/15/08
Leviathan Gas Pipeline Partners 6/1/09
Total Corporate Bonds & Notes
(cost $20,114,429; $26,927,872; $47,042,311)
FOREIGN BONDS & NOTES 29.5% 16.7% 22.0%
Broadcasting 0.0% 0.7% 0.4%
Market Value
---------------------------------------------------
Strategic Diversified Pro Forma
Description Income Income Combined
------------------------------------------------------------------------------------------------- ----------------
<s><c>
ITT Corp. - 937,127 937,127
True Temper Sports, Inc. 331,500 - 331,500
Manufacturing
Pentacon, Inc. - 240,000 240,000
Media
Benedek Communications Corp. 187,600 - 187,600
Century Communications Corp. 164,500 - 164,500
Susquehanna Media Co. 50,625 - 50,625
Charter Communications Holdings LLC 426,000 - 426,000
Pegasus Communications Corp. 33,425 - 33,425
Golden Sky DBS, Inc. (1) 248,000 - 248,000
Orion Network Systems, Inc. (1)(2) - 265,000 265,000
Park-N-View, Inc. (4)(5) - 62,500 62,500
Medical Products
PSS World Medical, inc. 123,750 - 123,750
Metals & Minerals
Acme Metals, Inc. (4)(5) - 550,000 550,000
Renco Steel Holdings, Inc. 42,000 - 42,000
Schuff Steel Co. - 430,000 430,000
WCI Steel Inc. 239,250 - 239,250
Pharmaceuticals
Express Scripts, Inc. 53,625 - 53,625
ICN Pharmaceuticals, Inc.(2)(3) 19,800 - 19,800
ICN Pharmaceuticals, Inc.(3) 148,125 - 148,125
Pharmacia, Inc. 281,937 - 281,937
Real Estate
LNR Property Corp - 703,500 703,500
Omega Healthcare Investors, Inc. 120,243 - 120,243
Retail
Big 5 Corp. 115,000 - 115,000
PEP Boys-Manny Moe & Jack 83,000 - 83,000
Telecommunications
Allegiance Telecommunications, Inc 98,000 - 98,000
Concentric Network Corp./XO Communications, Inc. 105,000 - 105,000
Crown Castle International Corp. (1) 245,000 - 245,000
Frontier Corp. - 988,750 988,750
Globix Corp. 48,000 232,000 280,000
IMPsat Fiber Networks Corp. - 510,000 510,000
Intermedia Communications, Inc. - 735,000 735,000
Level 3 Communications, Inc. - 390,000 390,000
Level 3 Communications, Inc. (1) 225,500 - 225,500
Microcell Telecommunications (1) 195,000 - 195,000
Mpower Communications Corp. - 328,000 328,000
NTL Communications Corp. 89,000 - 89,000
PSINet, Inc. - 45,000 45,000
PSINet, Inc. (5) 1,350 - 1,350
Williams Communications Group 157,000 - 157,000
Utilities
Avista Corp. (3) 149,502 - 149,502
BRL Universal Equipment LP, Series A (3) 103,250 - 103,250
Leviathan Gas Pipeline Partners 213,750 - 213,750
--------------- -------------- ----------------
Total Corporate Bonds & Notes 18,781,050 21,767,595 40,548,645
--------------- -------------- ----------------
(cost $20,114,429; $26,927,872; $47,042,311)
FOREIGN BONDS & NOTES
Broadcasting
B-10
SunAmerica Income Funds Diversified Income Fund
North American Funds Strategic Income Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
------------------------------------------------------
Strategic Diversified Pro Forma
Income Income Combined Description Coupon
---------------- -------------- ---------------- ----------------------------------------------------------------------------
<s><c>
1,000,000 1,000,000 Central European Media Enterprises Ltd. 9.38
Building Materials
500,000 500,000 Ainsworth Lumber Ltd. (6) 12.50
Cable
500,000 500,000 Australis Holdings Property Ltd. (4)(5) 15.00
750,000 750,000 Callahan Nordrhein Westfalen (1)(3) 0.00
210,000 210,000 Callahan Nordrhein-Westfalen (3) 14.00
600,000 600,000 Diamond Cable Communications PLC 13.25
500,000 500,000 Diamond Holdings PLC 9.13
500,000 500,000 Telewest Communications PLC (1) 11.00
1,000,000 1,000,000 Multicanal Participacoes SA, Series B 12.63
Cellular
750,000 750,000 Celcaribe SA 14.50
1,250,000 1,250,000 Occidente Y Caribe Celular SA 14.00
250,000 250,000 United Pan-Europe Communications N.V. (1) 11.25
Electrical Equipment
60,000 60,000 Flextronics International Ltd. 8.75
135,000 135,000 Flextronics International Ltd. 9.88
Energy Services
1,000,000 1,000,000 Statia Terminals International NV 11.75
Energy
500,000 500,000 PennzEnergy Co. 10.25
Food Retail
1,000,000 1,000,000 Bepensa SA 9.75
Financial Services
600,000 600,000 Ono Finance (2) 13.00
Forest Products
500,000 500,000 APP International Finance Co. BV (5) 11.75
Government Agency
350,000 350,000 Brazilian Government International Bond 12.25
600,000 600,000 Federal Republic of Brazil (7) 8.00
1,493,700 1,231,410 2,725,110 Federal Republic of Brazil (7) 8.00
110,000 110,000 Federal Republic of Germany 4.00
200,000 200,000 Federal Republic of Germany 4.25
120,000 120,000 Federal Republic of Germany 5.27
125,000 125,000 Government of France 5.50
4,000,000 4,000,000 Kingdom of Norway 5.75
80,000 80,000 Kingdom of Spain 6.15
800,000 800,000 Kingdom of Sweden 10.25
400,000 400,000 National Republic of Bulgaria 3.00
144,000 144,000 Republic of Argentina 7.62
800,000 800,000 Republic of Ecuador 4.00
146,735 146,735 Republic of Greece 8.80
110,000 110,000 Republic of Italy 5.25
1,400,000 1,400,000 Republic of Peru 3.75
3,500,000 3,500,000 Republic of South Africa 12.00
3,500,000 3,500,000 Republic of South Africa 13.00
619,045 619,045 Republic of Venezuela 7.63
1,000,000 1,000,000 Russian Federation (3) 5.00
1,400,000 1,400,000 United Mexican States 6.25
250,000 250,000 United Mexican States 6.25
Media
130,000 130,000 Ekabel Hessen (3) 14.50
Packaging
1,000,000 1,000,000 Vicap SA 11.38
Telecommunications
Strategic Diversified Pro Forma
Description Maturity Date Income Income Combined
----------------------------------------------------------------------------------------------------------------------
<s><c>
Central European Media Enterprises Ltd. 8/15/04
Building Materials 0.0% 0.8% 0.5%
Ainsworth Lumber Ltd. (6) 7/15/07
Cable 1.9% 4.6% 3.5%
Australis Holdings Property Ltd. (4)(5) 11/1/02
Callahan Nordrhein Westfalen (1)(3) 7/15/10
Callahan Nordrhein-Westfalen (3) 7/15/10
Diamond Cable Communications PLC 9/30/04
Diamond Holdings PLC 2/1/08
Telewest Communications PLC (1) 10/1/07
Multicanal Participacoes SA, Series B 6/18/04
Cellular 0.2% 2.8% 1.8%
Celcaribe SA 3/15/04
Occidente Y Caribe Celular SA 3/15/04
United Pan-Europe Communications N.V. (1) 2/1/10
Electrical Equipment 0.5% 0.0% 0.2%
Flextronics International Ltd. 10/15/07
Flextronics International Ltd. 7/1/10
Energy Services 0.0% 2.0% 1.2%
Statia Terminals International NV 11/15/03
Energy 1.6% 0.0% 0.7%
PennzEnergy Co. 11/1/05
Food Retail 0.0% 1.9% 1.1%
Bepensa SA 9/30/04
Financial Services 1.3% 0.0% 0.5%
Ono Finance (2) 5/1/09
Forest Products 0.0% 0.2% 0.1%
APP International Finance Co. BV (5) 10/1/05
Government Agency 22.5% 1.8% 10.3%
Brazilian Government International Bond 3/6/30
Federal Republic of Brazil (7) 4/15/12
Federal Republic of Brazil (7) 4/15/14
Federal Republic of Germany 7/4/09
Federal Republic of Germany 11/26/04
Federal Republic of Germany 1/4/28
Government of France 4/25/29
Kingdom of Norway 11/30/04
Kingdom of Spain 1/31/13
Kingdom of Sweden 5/5/03
National Republic of Bulgaria 7/28/12
Republic of Argentina 3/31/05
Republic of Ecuador 8/15/30
Republic of Greece 6/19/07
Republic of Italy 11/1/29
Republic of Peru 3/7/17
Republic of South Africa 2/28/05
Republic of South Africa 8/31/10
Republic of Venezuela 3/31/07
Russian Federation (3) 3/31/30
United Mexican States 12/31/19
United Mexican States 12/31/19
Media 0.4% 0.0% 0.1%
Ekabel Hessen (3) 9/1/10
Packaging 0.0% 1.5% 0.9%
Vicap SA 5/15/07
Telecommunications 1.1% 0.4% 0.7%
Market Value
---------------------------------------------------
Strategic Diversified Pro Forma
Description Income Income Combined
---------------------------------------------------------------------------------- ----------------
<s><c>
Central European Media Enterprises Ltd. - 352,500 352,500
Building Materials
Ainsworth Lumber Ltd. (6) - 412,500 412,500
Cable
Australis Holdings Property Ltd. (4)(5) - 10,000 10,000
Callahan Nordrhein Westfalen (1)(3) - 352,500 352,500
Callahan Nordrhein-Westfalen (3) 212,100 212,100
Diamond Cable Communications PLC - 585,000 585,000
Diamond Holdings PLC - 407,500 407,500
Telewest Communications PLC (1) 488,750 - 488,750
Multicanal Participacoes SA, Series B - 1,020,000 1,020,000
Cellular
Celcaribe SA - 547,500 547,500
Occidente Y Caribe Celular SA - 912,500 912,500
United Pan-Europe Communications N.V. (1) 85,000 - 85,000
Electrical Equipment
Flextronics International Ltd. 57,000 - 57,000
Flextronics International Ltd. 130,950 - 130,950
Energy Services
Statia Terminals International NV - 1,025,000 1,025,000
Energy
PennzEnergy Co. 581,280 - 581,280
Food Retail
Bepensa SA - 950,000 950,000
Financial Services
Ono Finance (2) 468,000 - 468,000
Forest Products
APP International Finance Co. BV (5) - 100,000 100,000
Government Agency
Brazilian Government International Bond 309,750 - 309,750
Federal Republic of Brazil (7) 423,780 - 423,780
Federal Republic of Brazil (7) 1,163,442 946,573 2,110,015
Federal Republic of Germany 92,461 - 92,461
Federal Republic of Germany 176,028 - 176,028
Federal Republic of Germany 109,174 - 109,174
Government of France 110,534 - 110,534
Kingdom of Norway 427,043 - 427,043
Kingdom of Spain 76,084 - 76,084
Kingdom of Sweden 86,579 - 86,579
National Republic of Bulgaria 301,520 - 301,520
Republic of Argentina 121,104 - 121,104
Republic of Ecuador 328,000 - 328,000
Republic of Greece 155,399 - 155,399
Republic of Italy 90,226 - 90,226
Republic of Peru 868,000 - 868,000
Republic of South Africa 441,090 - 441,090
Republic of South Africa 454,778 - 454,778
Republic of Venezuela 510,712 - 510,712
Russian Federation (3) 402,500 - 402,500
United Mexican States 1,267,000 - 1,267,000
United Mexican States 222,188 - 222,188
Media
Ekabel Hessen (3) 127,400 - 127,400
Packaging
Vicap SA - 787,500 787,500
Telecommunications
B-11
SunAmerica Income Funds Diversified Income Fund
North American Funds Strategic Income Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
------------------------------------------------------
Strategic Diversified Pro Forma
Income Income Combined Description Coupon
---------------- -------------- ---------------- ------------------------------------------------------------------------------
<s><c>
150,000 150,000 GT Group Telecom, Inc. 13.25
300,000 300,000 Netia Holdings BV 13.13
150,000 150,000 VersaTel Telecom International N.V. 13.25
50,000 50,000 VersaTel Telecom International N.V. 13.25
500,000 500,000 Worldwide Fiber, Inc. 12.50
Total Foreign Bonds & Notes
(cost $11,481,953; $10,732,917; $22,214,870)
U.S. GOVERNMENT AND AGENCIES
U.S. Government Agencies
117,111 117,111 Federal Home Loan Mortgage Corp. 11.57
181,039 181,039 Federal Home Loan Mortgage Corp. 10.00
217,998 217,998 Federal Home Loan Mortgage Corp. 8.50
196,531 196,531 Federal Home Loan Mortgage Corp. 7.00
135,965 135,965 Federal Home Loan Mortgage Corp. 6.50
33,000 33,000 Federal National Mortgage Association 13.00
43,965 43,965 Federal National Mortgage Association 10.40
279,815 279,815 Federal National Mortgage Association 8.80
403,668 403,668 Federal National Mortgage Association 8.00
241,575 241,575 Federal National Mortgage Association 7.50
490,167 490,167 Federal National Mortgage Association 7.50
3,275 3,275 Federal National Mortgage Association 7.39
2,000,000 2,000,000 Federal National Mortgage Association 6.63
438,441 438,441 Federal National Mortgage Association 5.50
45,354 45,354 Federal National Mortgage Association 5.50
5,489,905 5,489,905 Federal National Mortgage Association (interest only) 1.59
6,074,989 6,074,989 Federal National Mortgage Association (interest only) 1.03
4,493,783 4,493,783 Federal National Mortgage Association (interest only) 0.53
12,498,895 12,498,895 Federal National Mortgage Association (interest only) 0.50
244,510 244,510 Government National Mortgage Association 7.50
59,550 59,550 Government National Mortgage Association 7.50
220,071 220,071 Government National Mortgage Association 7.50
U.S Treasury Bonds
500,000 500,000 United States Treasury Bonds 6.13
500,000 500,000 United States Treasury Bonds 6.25
500,000 500,000 United States Treasury Bonds 5.38
U.S Treasury Notes
2,000,000 2,000,000 United States Treasury Notes 4.75
2,000,000 2,000,000 United States Treasury Notes 6.00
4,000,000 4,000,000 United States Treasury Notes 5.88
1,000,000 1,000,000 United States Treasury Notes 5.75
1,000,000 1,000,000 United States Treasury Notes 5.00
Total U.S. Government and Agencies
(cost $4,564,902; $13,539,149; $18,104,051)
Loan Agreements
540,000 540,000 Algeria Tanche III 6.38
323,810 323,810 Kingdom of Morrocco Tranche A 6.84
Total Loan Agreements
(cost $604,244; $0; $604,244)
PREFERRED STOCK
Apparel & Textiles
15,487 15,487 Anvil Holdings, Inc. 13% (6)
Cable
2,500 2,500 Adelphia Communications Corp. 13%
Strategic Diversified Pro Forma
Description Maturity Date Income Income Combined
----------------------------------------------------------------------------------------------------------------------------
<s><c>
GT Group Telecom, Inc. 2/1/10
Netia Holdings BV 06/15/2009
VersaTel Telecom International N.V. 5/15/08
VersaTel Telecom International N.V. 5/15/08
Worldwide Fiber, Inc. 12/15/05
Total Foreign Bonds & Notes
(cost $11,481,953; $10,732,917; $22,214,870)
U.S. GOVERNMENT AND AGENCIES
U.S. Government Agencies 11.1% 4.1% 7.0%
Federal Home Loan Mortgage Corp. 6/15/21
Federal Home Loan Mortgage Corp. 5/15/20
Federal Home Loan Mortgage Corp. 5/1/08
Federal Home Loan Mortgage Corp. 6/1/29
Federal Home Loan Mortgage Corp. 5/1/29
Federal National Mortgage Association 11/15/15
Federal National Mortgage Association 4/25/19
Federal National Mortgage Association 1/25/19
Federal National Mortgage Association 11/1/28
Federal National Mortgage Association 9/1/30
Federal National Mortgage Association 1/1/30
Federal National Mortgage Association 8/17/03
Federal National Mortgage Association 9/15/09
Federal National Mortgage Association 6/1/29
Federal National Mortgage Association 1/1/29
Federal National Mortgage Association (interest only) 2/25/35
Federal National Mortgage Association (interest only) 6/25/38
Federal National Mortgage Association (interest only) 3/17/20
Federal National Mortgage Association (interest only) 10/17/36
Government National Mortgage Association 10/15/27
Government National Mortgage Association 10/15/27
Government National Mortgage Association 7/15/27
U.S Treasury Bonds 0.0% 3.1% 1.8%
United States Treasury Bonds 11/15/27
United States Treasury Bonds 5/15/30
United States Treasury Bonds 2/15/31
U.S Treasury Notes 0.0% 20.1% 11.8%
United States Treasury Notes 2/15/04
United States Treasury Notes 8/15/09
United States Treasury Notes 11/15/04
United States Treasury Notes 8/15/10
United States Treasury Notes 2/15/11
Total U.S. Government and Agencies
(cost $4,564,902; $13,539,149; $18,104,051)
Loan Agreements 2.0% 0.0% 0.8%
Algeria Tanche III 3/4/10
Kingdom of Morrocco Tranche A 1/1/09
Total Loan Agreements
(cost $604,244; $0; $604,244)
PREFERRED STOCK 1.5% 5.6% 3.9%
Apparel & Textiles 0.8% 0.0% 0.3%
Anvil Holdings, Inc. 13% (6)
Cable 0.7% 2.8% 1.9%
Adelphia Communications Corp. 13%
Market Value
--------------------------------------------------
Strategic Diversified Pro Forma
Description Income Income Combined
------------------------------------------------------------------------------------------------ ----------------
<s><c>
GT Group Telecom, Inc. 57,000 - 57,000
Netia Holdings BV 231,000 - 231,000
VersaTel Telecom International N.V. 96,000 - 96,000
VersaTel Telecom International N.V. 30,500 - 30,500
Worldwide Fiber, Inc. - 200,000 200,000
--------------- -------------- ----------------
Total Foreign Bonds & Notes 10,702,372 8,609,073 19,311,445
--------------- -------------- ----------------
(cost $11,481,953; $10,732,917; $22,214,870)
U.S. GOVERNMENT AND AGENCIES
U.S. Government Agencies
Federal Home Loan Mortgage Corp. 21,578 - 21,578
Federal Home Loan Mortgage Corp. 191,335 - 191,335
Federal Home Loan Mortgage Corp. 229,030 - 229,030
Federal Home Loan Mortgage Corp. 199,171 - 199,171
Federal Home Loan Mortgage Corp. 135,667 - 135,667
Federal National Mortgage Association 38,950 - 38,950
Federal National Mortgage Association 48,059 - 48,059
Federal National Mortgage Association 295,555 - 295,555
Federal National Mortgage Association 418,170 - 418,170
Federal National Mortgage Association 247,043 - 247,043
Federal National Mortgage Association 500,887 - 500,887
Federal National Mortgage Association 3,268 - 3,268
Federal National Mortgage Association - 2,126,240 2,126,240
Federal National Mortgage Association 414,598 - 414,598
Federal National Mortgage Association 42,888 - 42,888
Federal National Mortgage Association (interest only) 259,967 - 259,967
Federal National Mortgage Association (interest only) 266,519 - 266,519
Federal National Mortgage Association (interest only) 79,468 - 79,468
Federal National Mortgage Association (interest only) 78,986 - 78,986
Government National Mortgage Association 250,774 - 250,774
Government National Mortgage Association 61,076 - 61,076
Government National Mortgage Association 225,709 - 225,709
U.S Treasury Bonds
United States Treasury Bonds - 533,515 533,515
United States Treasury Bonds - 549,295 549,295
United States Treasury Bonds - 493,595 493,595
U.S Treasury Notes
United States Treasury Notes - 2,020,000 2,020,000
United States Treasury Notes - 2,138,740 2,138,740
United States Treasury Notes - 4,180,000 4,180,000
United States Treasury Notes - 1,054,680 1,054,680
United States Treasury Notes - 1,005,160 1,005,160
--------------- -------------- ----------------
Total U.S. Government and Agencies 4,008,698 14,101,225 18,109,923
--------------- -------------- ----------------
(cost $4,564,902; $13,539,149; $18,104,051)
Loan Agreements
Algeria Tanche III 426,600 - 426,600
Kingdom of Morrocco Tranche A 285,762 - 285,762
--------------- -------------- ----------------
Total Loan Agreements 712,362 - 712,362
--------------- -------------- ----------------
(cost $604,244; $0; $604,244)
PREFERRED STOCK
Apparel & Textiles
Anvil Holdings, Inc. 13% (6) 298,125 - 298,125
Cable
Adelphia Communications Corp. 13% 250,625 - 250,625
B-12
SunAmerica Income Funds Diversified Income Fund
North American Funds Strategic Income Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
------------------------------------------------------
Strategic Diversified Pro Forma
Income Income Combined Description
---------------- -------------- ---------------- ----------------------------------------------------------------
<s><c>
13,028 13,028 CSC Holdings, Inc. 11.13% (6)
Cellular
836 836 Nextel Communications, Inc. 11.13% (6)
Telecommunications
650 650 Broadwing Communications, Inc. 12.50%
1,250 1,250 Global Crossings Ltd. 7.00% (3)
150 150 Global Crossing Ltd. 6.75%
Other
570 570 TCR Holdings, Class B +
314 314 TCR Holdings, Class C +
827 827 TCR Holdings, Class D +
1,711 1,711 TCR Holdings, Class E +
Total Preferred Stock
(cost $540,069; $2,987,884; $3,527,953)
COMMON STOCK
Cellular
84,603 84,603 International Wireless Communications Holdings, Inc. +(4)
Energy Services
5,689 5,689 Frontline Ltd. +
Financial Services
100 100 Ono Finance (3)
Total Common Stock
(cost $0; $784,774; $784,774)
RIGHTS +
Conglomerate
2,000 2,000 Terex Corp. (3)
WARRANTS +
Cable
1,500 1,500 Knology Holdings, Inc. (4)
1,000 1,000 UIH Australia Pacific, Inc. (4)
Cellular
500 500 Leap Wireless International, Inc.
350 350 Leap Wireless International, Inc.
7,250 7,250 Occidente Y Caribe Celular SA (3)(4)
Forest Products
500 500 Berry Plastics Corp.
Media
625 625 Park-N-View, Inc. (4)
Telecommunications
150 150 GT Group Telecommunications, Inc.
Utilities
1,000 1,000 In-Flight Phone Corp.
Total Warrants
(cost $7,176; $2,856; $10,031)
PUT OPTIONS
Real Estate Investment trust
326,000 326,000 Meditrust Exercisable Put Options Securities Trust (3)
Total Investment Securities
(cost $36,939,945; $54,975,452; $91,915,397)
REPURCHASE AGREEMENTS
Strategic Diversified
Description Coupon Maturity Date Income Income
-----------------------------------------------------------------------------------------------------------------------------
<s><c>
CSC Holdings, Inc. 11.13% (6)
Cellular 0.0% 1.2%
Nextel Communications, Inc. 11.13% (6)
Telecommunications 0.0% 1.6%
Broadwing Communications, Inc. 12.50%
Global Crossings Ltd. 7.00% (3)
Global Crossing Ltd. 6.75%
Other 0.0% 0.0%
TCR Holdings, Class B +
TCR Holdings, Class C +
TCR Holdings, Class D +
TCR Holdings, Class E +
Total Preferred Stock
(cost $540,069; $2,987,884; $3,527,953)
COMMON STOCK 0.0% 0.2%
Cellular 0.0% 0.0%
International Wireless Communications Holdings, Inc. +(4)
Energy Services 0.0% 0.2%
Frontline Ltd. +
Financial Services 0.0% 0.0%
Ono Finance (3)
Total Common Stock
(cost $0; $784,774; $784,774)
RIGHTS + 0.1% 0.0%
Conglomerate 0.1% 0.0%
Terex Corp. (3)
WARRANTS + 0.0% 0.0%
Cable 0.0% 0.0%
Knology Holdings, Inc. (4)
UIH Australia Pacific, Inc. (4)
Cellular 0.0% 0.0%
Leap Wireless International, Inc.
Leap Wireless International, Inc.
Occidente Y Caribe Celular SA (3)(4)
Forest Products 0.0% 0.0%
Berry Plastics Corp.
Media 0.0% 0.0%
Park-N-View, Inc. (4)
Telecommunications 0.0% 0.0%
GT Group Telecommunications, Inc.
Utilities 0.0% 0.0%
In-Flight Phone Corp.
Total Warrants
(cost $7,176; $2,856; $10,031)
PUT OPTIONS 0.8% 0.0%
Real Estate Investment trust 0.8% 0.0%
Meditrust Exercisable Put Options Securities Trust (3) 7.11 8/15/04
Total Investment Securities 96.7% 91.9%
(cost $36,939,945; $54,975,452; $91,915,397)
REPURCHASE AGREEMENTS 2.0% 6.9%
Market Value
---------------------------------------------------
Pro Forma Strategic Diversified Pro Forma
Description Combined Income Income Combined
------------------------------------------------------------------------------------------------------ ----------------
<s><c>
CSC Holdings, Inc. 11.13% (6) - 1,416,795 1,416,795
Cellular 0.7%
Nextel Communications, Inc. 11.13% (6) - 610,280 610,280
Telecommunications 1.0%
Broadwing Communications, Inc. 12.50% - 663,000 663,000
Global Crossings Ltd. 7.00% (3) - 158,594 158,594
Global Crossing Ltd. 6.75% - 23,588 23,588
Other 0.0%
TCR Holdings, Class B + 6 - 6
TCR Holdings, Class C + 3 - 3
TCR Holdings, Class D + 8 - 8
TCR Holdings, Class E + 17 - 17
--------------- -------------- ----------------
Total Preferred Stock 548,784 2,872,256 3,421,040
--------------- -------------- ----------------
(cost $540,069; $2,987,884; $3,527,953)
COMMON STOCK 0.1%
Cellular 0.0%
International Wireless Communications Holdings, Inc. +(4 - 8,460 8,460
Energy Services 0.1%
Frontline Ltd. + - 99,185 99,185
Financial Services 0.0%
Ono Finance (3) 4,013 - 4,013
--------------- -------------- ----------------
Total Common Stock 4,013 107,645 111,658
--------------- -------------- ----------------
(cost $0; $784,774; $784,774)
RIGHTS + 0.0%
Conglomerate 0.0%
Terex Corp. (3) 35,250 - 35,250
--------------- -------------- ----------------
WARRANTS + 0.0%
Cable 0.0%
Knology Holdings, Inc. (4) - 15 15
UIH Australia Pacific, Inc. (4) - 10,000 10,000
Cellular 0.0%
Leap Wireless International, Inc. - 15,000 15,000
Leap Wireless International, Inc. - 5,250 5,250
Occidente Y Caribe Celular SA (3)(4) - 73 73
Forest Products 0.0%
Berry Plastics Corp. - - -
Media 0.0%
Park-N-View, Inc. (4) - - -
Telecommunications 0.0%
GT Group Telecommunications, Inc. 4,279 - 4,279
Utilities 0.0%
In-Flight Phone Corp. - - -
--------------- -------------- ----------------
Total Warrants 4,279 30,338 34,617
--------------- -------------- ----------------
(cost $7,176; $2,856; $10,031)
PUT OPTIONS 0.3%
Real Estate Investment trust 0.3%
Meditrust Exercisable Put Options Securities Trust (3) 275,470 - 275,470
--------------- -------------- ----------------
Total Investment Securities 93.9% 35,072,278 47,488,132 82,560,410
--------------- -------------- ----------------
(cost $36,939,945; $54,975,452; $91,915,397)
REPURCHASE AGREEMENTS 4.9%
B-13
SunAmerica Income Funds Diversified Income Fund
North American Funds Strategic Income Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
------------------------------------------------------
Strategic Diversified Pro Forma
Income Income Combined Description Coupon
---------------- -------------- ---------------- ------------------------------------------------------------------------------
<s><c>
3,567,000 3,567,000 State Street Bank & Trust Co. Repurchase Agreement 6.35
710,000 710,000 State Street Bank & Trust Co. Repurchase Agreement 4.50
Total Repurchase Agreements
(cost $710,000; $3,567,000; 4,277,000)
TOTAL INVESTMENTS
(cost $37,649,945; $58,542,452; $96,192,397)
Other assets less liabilities (8)
NET ASSETS
Strategic Diversified Pro Forma
Description Maturity Date Income Income Combined
---------------------------------------------------------------------------------------------------------------------------
<s><c>
State Street Bank & Trust Co. Repurchase Agreement 4/2/01
State Street Bank & Trust Co. Repurchase Agreement 4/2/01
Total Repurchase Agreements
(cost $710,000; $3,567,000; 4,277,000)
TOTAL INVESTMENTS 98.7% 98.8% 98.8%
(cost $37,649,945; $58,542,452; $96,192,397)
Other assets less liabilities (8) 1.3% 1.2% 1.2%
----------- ------------ ------------
NET ASSETS 100.0% 100.0% 100.0%
=========== ============ ============
Market Value
---------------------------------------------------
Strategic Diversified Pro Forma
Description Income Income Combined
------------------------------------------------------------------------------------------------ ----------------
<s><c>
State Street Bank & Trust Co. Repurchase Agreement 3,567,000 3,567,000
State Street Bank & Trust Co. Repurchase Agreement 710,000 710,000
--------------- -------------- ----------------
Total Repurchase Agreements 710,000 3,567,000 4,277,000
--------------- -------------- ----------------
(cost $710,000; $3,567,000; 4,277,000)
TOTAL INVESTMENTS 35,782,278 51,055,132 86,837,410
--------------- -------------- ----------------
(cost $37,649,945; $58,542,452; $96,192,397)
Other assets less liabilities (8) 461,178 630,965 1,035,663
--------------- -------------- ----------------
NET ASSETS $36,243,456 $51,686,097 $87,873,073
=============== ============== ================
+ Non-income producing security
(1) Represents a zero coupon bond which will convert to an interest-bearing
security at a later date
(2) Bond issued as part of a unit which includes an equity component
(3) Resale restricted to qualified institutional buyers
(4) Fair valued security
(5) Bond in default
(6) PIK ("Payment-in-Kind") payment made with additional shares in lieu of
cash
(7) Variable rate security; rate as of March 31, 2001
(8) To adjust ($56,480) for prepaid expenses on the North American Funds
Strategic Income Fund to be expensed prior to the reorganization
Management does not anticipate having to sell any securities as a result of the
reorganization, however, securities may be sold due to differing portfolio
management style.
See Notes to Pro Forma Financial Statements
B-14
SUNAMERICA INCOME FUNDS DIVERSIFIED INCOME FUND
NORTH AMERICAN FUNDS STRATEGIC INCOME FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
March 31, 2001
(unaudited)
1. BASIS OF COMBINATION
The Pro Forma Combined Statement of Assets and Liabilities, including
the Portfolio of Investments at March 31, 2001, and related Statement of
Operations ("Pro Forma Statements") for the twelve months ended March 31, 2001,
reflect the accounts of the Diversified Income Portfolio ("Diversified Income")
a separately managed portfolio of SunAmerica Income Funds, and Strategic Income
Fund ("Strategic Income") a separately managed portfolio of North American
Funds. Strategic Income will be reorganized into Diversified Income Fund (to be
renamed the SunAmerica Strategic Income Fund). However, based on generally
accepted accounting principles, from a financial reporting standpoint, Strategic
Income is the surviving entity in this reorganization. Accordingly, the Pro
Forma Combined Statement of Assets and Liabilities reflect a stock split of
2.381877541, 2.375227733, 2.375310530, and 2.385385462 for Strategic Income
Class A, Class B, Class C, and Class I, respectively. The stock split is assumed
to have occurred prior to the reorganization. Strategic Income Class C will be
redesignated Class II. The Pro Forma Combined Statement of Assets and
Liabilities has been restated to reflect an exchange of shares as of the close
of business on March 31, 2001. Notwithstanding the foregoing, Diversified Income
is the surviving entity in the transaction for legal and tax reporting purposes.
American International Group, Inc. will pay the cost of the reorganization.
The Pro Forma Statements should be read in conjunction with the
historical financial statements of Diversified Income and Strategic Income
included in their respective Statements of Additional Information.
2. VALUATION
Securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed by the
Adviser to be over-the-counter, are valued at the quoted bid price provided by
principal market markers. Securities listed on the New York Stock Exchange
("NYSE") or other national securities exchanges, are valued on the basis of the
last sale price on the exchange on which they are primarily traded. If there is
no sale on that day, then securities are valued at the closing bid price on the
NYSE or other primary exchange for that day. However, if the last sale price on
the NYSE is different than the last sale price on any other exchange, the NYSE
price is used. Securities that are traded on foreign exchanges are ordinarily
valued at the last quoted sale price available before the time when the assets
are valued. If a security's price is available from more than one foreign
exchange, a Portfolio uses the exchange that is the primary market for the
security. Values of portfolio securities primarily traded
B-15
on foreign exchanges are already translated into U.S. dollars when received from
a quotation service. Options traded on national exchanges are valued as of the
close of the exchange on which they are traded. Futures and options traded on
commodities exchanges are valued at their last sale price as of the close of
such exchange. The Portfolios may make use of a pricing service in the
determination of their net asset values. Securities for which market quotations
are not readily available and other assets are valued at fair value as
determined pursuant to procedures adopted in good faith by the Directors. Short-
term securities which mature in less than 60 days are valued at amortized cost,
if their original maturity was 60 days or less, or by amortizing their value on
the 61st day prior to maturity, if their original term to maturity exceeded 60
days.
3. CAPITAL SHARES
The pro forma combined net asset value per share assumes the issuance
of additional shares of Strategic Income which would have been issued at March
31, 2001 in connection with the proposed reorganization. The amount of
additional shares assumed to be issued was calculated based on the March 31,
2001 net asset value (after the aforementioned stock split and redesignation of
shares) of Strategic Income Class A ($3.37), Class B ($3.38), Class II ($3.38),
and Class I ($3.37).
The pro forma number of shares outstanding are as follows:
Class A Class B Class II Class I
----------------------------------- ---------------- ----------------- --------------- ----------------
<s><c>
Shares of Strategic Income 2,224,752 3,938,781 3,741,646 810,005
----------------------------------- ---------------- ----------------- --------------- ----------------
Additional Shares assumed to be
issued to Diversified Income 9,178,230 4,959,910 1,190,805 0
----------------------------------- ---------------- ----------------- --------------- ----------------
Pro Forma
Shares outstanding 11,402,982 8,898,691 4,932,451 810,005
----------------------------------- ---------------- ----------------- --------------- ----------------
These pro forma financial statements assume that all shares of
Diversified Income Class A, Class B, and Class II outstanding on March 31, 2001
were exchanged for Strategic Income Class A, Class B, and Class II shares,
respectively. Class I shares were not affected by the combination.
4. PRO FORMA OPERATING EXPENSES
The Pro Forma Statement of Operations assumes expense adjustments based
on the agreements of Diversified Income. Certain accounts have been adjusted to
reflect the expenses of the combined entity more closely. Pro forma operating
expenses include the expenses of Diversified Income and Strategic Income
combined, adjusted for certain items which are factually supportable. Advisory
fees have been charged to the combined
B-16
entity based upon the contract in effect for Diversified Income at the level of
assets of the combined fund for the stated period.
B-17
SUNAMERICA INCOME FUNDS HIGH INCOME FUND@
NORTH AMERICAN FUNDS HIGH YIELD BOND FUND
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2001
(unaudited)
North American Funds SunAmerica Equity Funds
High Yield Bond High Income
Fund Fund
--------------------- -----------------------
<s><c>
ASSETS:
Investment securities, at value (identified cost $71,636,616,
$167,455,685, and $239,092,301, respectively) $ 65,692,944 $ 134,110,526
Short-term securities (identified cost $0, $1,736,569,
and $1,736,569, respectively) -- 1,732,500
Repurchase agreements (cost equals market) 3,908,000 --
Receivable for investments sold 782,312 1,927,262
Receivable for shares of beneficial interest sold 57,986 1,788,944
Interest and dividends receivable 1,763,149 3,533,864
Receivable from investment adviser -- 1,726
Receivable for foreign tax withholding reclaims 80 --
Prepaid expenses and other assets 62,479 1,826
------------- -------------
Total assets 72,266,950 143,096,648
------------- -------------
LIABILITIES:
Payable for investments purchased 1,834,155 500,000
Payable for shares of beneficial interest redeemed 627,796
Dividends payable 635,764 520,337
Investment advisory and management
fees payable 23,000 96,143
Distribution and service maintenance
fees payable 3,504 94,875
Other accrued expenses 81,292 144,916
Due to custodian bank -- 8,141
Loan payable -- 616,455
------------- -------------
Total liabilities 2,577,715 2,608,663
------------- -------------
Net assets $ 69,689,235 $ 140,487,985
============= =============
NET ASSETS WERE COMPOSED OF:
Common Stock, $0.001, $.01, and $.01 par value $ 8,421 $ 279,128
Paid-in capital 81,782,337 228,872,011
------------- -------------
81,790,758 229,151,139
Accumulated undistributed net
investment income (loss) 213,551 233,766
Accumulated undistributed net realized
gain (loss) on investments, foreign
currency, and other assets and liabilities (6,371,402) (55,547,692)
Net unrealized appreciation (depreciation) on
investments (5,943,672) (33,349,228)
------------- -------------
Net assets $ 69,689,235 $ 140,487,985
============= =============
Pro Forma
Pro Forma Combined
Adjustments (Note 1)
----------------- -----------
<s><c>
ASSETS:
Investment securities, at value (identified cost $71,636,616,
$167,455,685, and $239,092,301, respectively) -- $ 199,803,470
Short-term securities (identified cost $0, $1,736,569,
and $1,736,569, respectively) -- 1,732,500
Repurchase agreements (cost equals market) -- 3,908,000
Receivable for investments sold -- 2,709,574
Receivable for shares of beneficial interest sold -- 1,846,930
Interest and dividends receivable -- 5,297,013
Receivable from investment adviser -- 1,726
Receivable for foreign tax withholding reclaims -- 80
Prepaid expenses and other assets ($34,398)(A) 29,907
------------- -------------
Total assets (34,398) 215,329,200
------------- -------------
LIABILITIES:
Payable for investments purchased -- 2,334,155
Payable for shares of beneficial interest redeemed -- 627,796
Dividends payable -- 1,156,101
Investment advisory and management
fees payable -- 119,143
Distribution and service maintenance
fees payable -- 98,379
Other accrued expenses -- 226,208
Due to custodian bank -- 8,141
Loan payable -- 616,455
------------- -------------
Total liabilities 0 5,186,378
------------- -------------
Net assets ($34,398) $ 210,142,822
============= =============
NET ASSETS WERE COMPOSED OF:
Common Stock, $0.001, $.01, and $.01 par value 130,050 417,599
Paid-in capital (130,050) 310,524,298
------------- -------------
0 310,941,897
Accumulated undistributed net
investment income (loss) (34,398)(A) 412,919
Accumulated undistributed net realized
gain (loss) on investments, foreign
currency, and other assets and liabilities -- (61,919,094)
Net unrealized appreciation (depreciation) on
investments -- (39,292,900)
------------- -------------
Net assets ($34,398) $ 210,142,822
============= =============
B-18
SUNAMERICA INCOME FUNDS HIGH INCOME FUND@
NORTH AMERICAN FUNDS HIGH YIELD BOND FUND
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2001
(unaudited)
North American Funds SunAmerica Equity Funds
High Yield Bond High Income
Fund Fund
------------------------- ----------------------------- -
<s><c>
Class A:
Net assets $ 509,770 $ 52,966,252
Shares outstanding 61,382 10,532,517
Net asset value and redemption price per
share $ 8.30 $ 5.03
Maximum sales charge (4.75% of offering
price) 0.41 0.25
----------- --------------
Maximum offering price to public $ 8.71 $ 5.28
=========== ==============
Class B:
Net assets $ 3,055,963 $ 67,138,996
Shares outstanding 368,456 13,341,244
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) $ 8.29 $ 5.03
=========== ==============
Class II:
Net assets -- $ 20,382,737
Shares outstanding -- 4,039,070
Net asset value and redemption price per
share (excluding any applicable contingent
deferred sales charge) -- $ 5.05
Maximum sales charge (1.00% of offering
price) -- 0.05
----------- --------------
Maximum offering price to public -- $ 5.10
=========== ==============
Class C:
Net assets $ 1,007,493 --
Shares outstanding 121,476 --
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) $ 8.29 --
=========== ==============
Class I:
Net assets $ 2,139,306 --
Shares outstanding 258,058 --
Net asset value, offering and redemption
price per share $ 8.29 --
=========== ==============
Class II:
Net assets $62,976,703 --
Shares outstanding 7,611,784 --
Net asset value, offering and redemption
price per share $ 8.27 --
=========== ==============
Class Z:
Net assets -- --
Shares outstanding -- --
Net asset value, offering and redemption
price per share -- --
=========== ==============
Pro Forma
Pro Forma Combined
Adjustments (Note 1)
--------------------- --------------------
<s><c>
Class A:
Net assets ($252)(A) $53,475,770
Shares outstanding 39,914 (B) 10,633,813
Net asset value and redemption price per
share -- $ 5.03
Maximum sales charge (4.75% of offering
price) -- 0.25
--------------- -----------
Maximum offering price to public -- $ 5.28
=============== ===========
Class B:
Net assets ($1,508)(A) $70,193,451
Shares outstanding 238,792 (C) 13,948,492
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) -- $ 5.03
=============== ===========
Class II:
Net assets $1,006,996 (C) $21,389,733
Shares outstanding 199,405 (H) 4,238,475
Net asset value and redemption price per
share (excluding any applicable contingent
deferred sales charge) -- $ 5.05
Maximum sales charge (1.00% of offering
price) -- 0.05
--------------- -----------
Maximum offering price to public -- $ 5.10
=============== ===========
Class C:
Net assets ($1,007,493)(A)(H) $ 0
Shares outstanding (121,476)(D)(H) 0
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) -- --
=============== ===========
Class I:
Net assets ($1,056)(A) $ 2,138,250
Shares outstanding 167,041 (E) 425,099
Net asset value, offering and redemption
price per share -- $ 5.03
=============== ===========
Class II:
Net assets ($62,976,703)(A) $ 0
Shares outstanding (7,611,784)(F)(G) 0
Net asset value, offering and redemption
price per share -- --
=============== ===========
Class Z:
Net assets $62,945,618 (A) $62,945,618
Shares outstanding 12,514,039 (G) 12,514,039
Net asset value, offering and redemption
price per share -- $ 5.03
=============== ===========
@ To be renamed the SunAmerica Income Funds High Yield Bond Fund
(A) To adjust for the remaining balances of any prepaid expenses on the North
American Funds High Yield Bond Fund to be expensed prior to the
reorganization
(B) Prior to the merger North American Funds High Yield Bond Class A
shareholders will receive 1.650255775 shares for every one share previously
held
(C) Prior to the merger North American Funds High Yield Bond Class B
shareholders will receive 1.648086922 shares for every one share previously
held
(D) Prior to the merger North American Funds High Yield Bond Class C
shareholders will receive 1.641518889 shares for every one share previously
held
(E) Prior to the merger North American Funds High Yield Bond Class I
shareholders will receive 1.647300219 shares for every one share previously
held
(F) Prior to the merger North American Funds High Yield Bond Class II
shareholders will receive 1.644034959 shares for every one share previously
held
(G) Class II shares of North American Funds High Yield Bond will be redesignated
Class Z shares
(H) Class C shares of North American Funds High Yield Bond will be redesignated
Class II shares
See Notes to Pro Forma Financial Statements
B-19
SUNAMERICA INCOME FUNDS HIGH INCOME FUND@
NORTH AMERICAN FUNDS HIGH YIELD BOND FUND
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 2001
(unaudited)
North American Funds SunAmerica Income Funds
High Yield Bond High Income
Fund Fund
-------------------- -----------------------
<s><c>
INVESTMENT INCOME:
Income:
Interest $ 7,835,798 $ 17,883,356
Dividends 78,000 908,633
------------ ------------
Total investment income 7,913,798 18,791,989
------------ ------------
Expenses:
Investment advisory and management fees 565,659 1,110,891
Distribution and service maintenance fees
Class A 1,731 206,332
Class B 24,449 747,281
Class II 0 144,388
Class C 13,749 0
Class I 4,673 0
Transfer agent fees and expenses 113,761 0
Class A 0 161,289
Class B 0 190,154
Class II 0 36,764
Class I 0 0
Class Z 0 0
Registration fees 45,056 0
Class A 0 12,634
Class B 0 13,099
Class II 0 10,751
Class I 0 0
Class Z 0 0
Accounting/administration 73,965 0
Custodian fees and expenses 37,963 73,095
Audit and legal fees 29,583 39,385
Miscellaneous expenses 30,604 124,433
------------ ------------
Total expenses 941,193 2,870,496
Less: expenses waived/reimbursed by investment adviser (108,097) (19,084)
Less: custody credits earned on cash balances 0 (9,390)
------------ ------------
Net expenses 833,096 2,842,022
------------ ------------
Net investment income (loss) 7,080,702 15,949,967
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments (4,239,102) (16,143,908)
Net realized gain (loss) on foreign currency and other assets and liabilities 0 (8,968)
Net change in unrealized appreciation/depreciation of
investments 352,120 (11,854,643)
------------ ------------
Net realized and unrealized gain (loss) on investments, foreign currency
and other assets and liabilities (3,886,982) (28,007,519)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS: $ 3,193,720 ($12,057,552)
============ ============
Pro Forma
Pro Forma Combined
Adjustments (Note 1)
------------------------ --------------------
<s><c>
INVESTMENT INCOME:
Income:
Interest $ 0 $ 25,719,154
Dividends 0 986,633
------------ ------------
Total investment income 0 26,705,787
------------ ------------
Expenses:
Investment advisory and management fees (56,428)(I) 1,620,122
Distribution and service maintenance fees
Class A 0 208,063
Class B 0 771,730
Class II 13,749 (H) 158,137
Class C (13,749)(H) 0
Class I 0 4,673
Transfer agent fees and expenses (113,761)(I) 0
Class A 1,335 (I) 162,624
Class B 6,112 (I) 196,266
Class II 3,987 (I) 40,751
Class I 6,542 (I) 6,542
Class Z 24,952 (I) 24,952
Registration fees (45,056)(I) 0
Class A 2,366 (I) 15,000
Class B 3,901 (I) 17,000
Class II 1,249 (I) 12,000
Class I 8,500 (I) 8,500
Class Z 15,000 (I) 15,000
Accounting/administration (73,965)(I) 0
Custodian fees and expenses (3,681)(I) 107,377
Audit and legal fees (33,968)(J) 35,000
Miscellaneous expenses (25,037)(J) 130,000
------------ ------------
Total expenses (277,952) 3,533,737
Less: expenses waived/reimbursed by investment adviser 99,894 (K) (27,287)
Less: custody credits earned on cash balances 0 (9,390)
------------ ------------
Net expenses (178,058) 3,497,060
------------ ------------
Net investment income (loss) 178,058 23,208,727
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 0 (20,383,010)
Net realized gain (loss) on foreign currency and other assets and liabilities 0 (8,968)
Net change in unrealized appreciation/depreciation of
investments 0 (11,502,523)
------------ ------------
Net realized and unrealized gain (loss) on investments, foreign currency
and other assets and liabilities 0 (31,894,501)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS: $ 178,058 ($ 8,685,774)
============ ============
(H) Class C shares of North American Funds High Yield Bond will be redesignated
Class II shares
(I) Reflects adjustments to expenses based on fee schedules and combined net
assets for the reorganized fund
(J) Reflects the elimination of duplicate services or fees
(K) Reflects adjustments to expenses waived/reimbused by investment adviser
based on pro forma expenses
See Notes to Pro Forma Financial Statements
B-20
SunAmerica Income Funds High Income Fund
North American Funds High Yield Bond Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
-----------------------------------------------------------
High Yield High Pro Forma
Bond Income Combined Description Coupon
---------------- ----------------------- --------------------------------------------------------------- ---------
<s><c>
CORPORATE BONDS & NOTES
Aerospace & Military Technology
130,000 - 130,000 BE Aerospace Inc. 9.50
700,000 - 700,000 K & F Industries Inc. 9.25
100,000 - 100,000 Sequa Corp. 8.88
Apparel & Textiles
300,000 - 300,000 Anvil Knitwear Inc. 10.88
675,000 - 675,000 Galey & Lord Inc. 9.13
Automotive
250,000 - 250,000 Diamond Triumph Auto Glass Inc. 9.25
800,000 - 800,000 Prestolite Electric Inc. 9.63
750,000 - 750,000 Stanadyne Automotive Corp. 10.25
Banks
500,000 - 500,000 Western Financial Bank 8.50
Broadcasting
- 1,600,000 1,600,000 Big City Radio, Inc. 11.25
- 375,000 375,000 CD Radio, Inc. (1)(2) 0.00
600,000 - 600,000 Coaxial Communications of Central Ohio, Inc. 10.00
870,000 - 870,000 Cumulus Media, Inc. 10.38
- 1,000,000 1,000,000 Radio One, Inc., Series B 12.00
750,000 1,500,000 2,250,000 Shop At Home, Inc. 11.00
300,000 - 300,000 STC Broadcasting, Inc. 11.00
- 1,000,000 1,000,000 XM Satellite Radio, Inc. 14.00
Business Services
1,500,000 - 1,500,000 Anthony Crane Rental L.P. 10.38
- 1,750,000 1,750,000 Earthwatch, Inc. (1) 0.00
300,000 - 300,000 Integrated Electrical Services 9.38
Cable
- 3,925,000 3,925,000 Adelphia Communications Corp., Series B 8.13
- 1,625,000 1,625,000 Comcast UK Cable Partners Ltd. 11.20
- 1,500,000 1,500,000 Echostar Communications Corp. 4.88
- 2,000,000 2,000,000 Echostar DBS Corp. 9.25
1,000,000 - 1,000,000 Frontiervision Holdings LP 0.00
- 2,500,000 2,500,000 Mediacom LLC/Capital Corp., Series B 8.50
- 2,750,000 2,750,000 UIH Australia Pacific, Inc., Series B (1) 0.00
- 2,775,000 2,775,000 UnitedGlobalCom, Inc., Series B (1) 0.00
Cellular
900,000 1,000,000 1,900,000 Airgate PCS, Inc. (1)(2) 0.00
525,000 - 525,000 American Cellular Corp. 9.50
250,000 - 250,000 AT&T Wireless Services, Inc. (2) 7.88
- 4,500,000 4,500,000 Leap Wireless International, Inc. (1) 0.00
- 3,750,000 3,750,000 McCaw International Ltd. (1) 0.00
350,000 - 350,000 Nextel Communications, Inc. 9.38
- 1,000,000 1,000,000 SBA Communications Corp. (2) 10.25
75,000 - 75,000 Spectrasite Holdings Inc. 10.75
1,000,000 - 1,000,000 Spectrasite Holdings Inc. (1) 0.00
- 1,500,000 1,500,000 Spectrasite Holdings Inc. (1) 0.00
175,000 - 175,000 Triton PCS, Inc. 9.38
Chemicals
1,000,000 - 1,000,000 Borden Chemicals & Plastics (6) 9.50
350,000 - 350,000 GEO Specialty Chemicals 10.13
- 500,000 500,000 Hercules, Inc. (2)(3) 11.13
- 2,000,000 2,000,000 Huntsman Corp. (3)(4) 9.45
350,000 - 350,000 Koppers Industries, Inc. 9.88
500,000 - 500,000 Royster-Clark, Inc. 10.25
Conglomerate
SunAmerica Income Funds High Income Fund
North American Funds High Yield Bond Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
High Yield High Pro Forma
Description Maturity Date Bond Income Combined
------------------------------------------------- ---------------- ---------- ---------- ------------
CORPORATE BONDS & NOTES 83.3% 69.8% 74.3%
Aerospace & Military Technology 1.4% 0.0% 0.5%
BE Aerospace Inc. 11/01/08
K & F Industries Inc. 10/15/07
Sequa Corp. 4/1/08
Apparel & Textiles 1.1% 0.0% 0.4%
Anvil Knitwear Inc. 3/15/07
Galey & Lord Inc. 3/1/08
Automotive 1.8% 0.0% 0.6%
Diamond Triumph Auto Glass Inc. 4/1/08
Prestolite Electric Inc. 2/1/08
Stanadyne Automotive Corp. 12/15/07
Banks 0.7% 0.0% 0.2%
Western Financial Bank 7/1/03
Broadcasting 3.5% 2.8% 3.1%
Big City Radio, Inc. 3/15/05
CD Radio, Inc. (1)(2) 12/1/07
Coaxial Communications of Central Ohio, Inc. 8/15/06
Cumulus Media, Inc. 7/1/08
Radio One, Inc., Series B 5/15/04
Shop At Home, Inc. 4/1/05
STC Broadcasting, Inc. 3/15/07
XM Satellite Radio, Inc. 3/15/10
Business Services 1.4% 1.1% 1.2%
Anthony Crane Rental L.P. 8/1/08
Earthwatch, Inc. (1) 7/15/07
Integrated Electrical Services 2/1/09
Cable 1.5% 9.8% 7.0%
Adelphia Communications Corp., Series B 7/15/03
Comcast UK Cable Partners Ltd. 11/15/07
Echostar Communications Corp. 1/1/07
Echostar DBS Corp. 2/1/06
Frontiervision Holdings LP 9/15/07
Mediacom LLC/Capital Corp., Series B 4/15/08
UIH Australia Pacific, Inc., Series B (1) 5/15/06
UnitedGlobalCom, Inc., Series B (1) 2/15/08
Cellular 3.2% 4.1% 3.8%
Airgate PCS, Inc. (1)(2) 10/1/09
American Cellular Corp. 10/15/09
AT&T Wireless Services, Inc. (2) 3/1/11
Leap Wireless International, Inc. (1) 4/15/10
McCaw International Ltd. (1) 4/15/07
Nextel Communications, Inc. 11/15/09
SBA Communications Corp. (2) 2/1/09
Spectrasite Holdings Inc. 3/15/10
Spectrasite Holdings Inc. (1) 3/15/10
Spectrasite Holdings Inc. (1) 4/15/09
Triton PCS, Inc. 2/1/11
Chemicals 2.0% 1.5% 1.6%
Borden Chemicals & Plastics (6) 5/1/05
GEO Specialty Chemicals 8/1/08
Hercules, Inc. (2)(3) 11/15/07
Huntsman Corp. (3)(4) 7/1/07
Koppers Industries, Inc. 12/1/07
Royster-Clark, Inc. 4/1/09
Conglomerate 0.5% 0.0% 0.2%
Market Value
------------------------------------------------------
High Yield High Pro Forma
Description Bond Income Combined
------------------------------------------------- ---------------- -------------- ----------------
CORPORATE BONDS & NOTES
Aerospace & Military Technology
BE Aerospace Inc. 133,575 - 133,575
K & F Industries Inc. 721,000 - 721,000
Sequa Corp. 100,375 - 100,375
Apparel & Textiles
Anvil Knitwear Inc. 285,000 - 285,000
Galey & Lord Inc. 452,250 - 452,250
Automotive
Diamond Triumph Auto Glass Inc. 220,000 - 220,000
Prestolite Electric Inc. 360,000 - 360,000
Stanadyne Automotive Corp. 652,500 - 652,500
Banks
Western Financial Bank 486,625 - 486,625
Broadcasting
Big City Radio, Inc. - 752,000 752,000
CD Radio, Inc. (1)(2) - 146,250 146,250
Coaxial Communications of Central Ohio, Inc. 595,500 - 595,500
Cumulus Media, Inc. 811,275 - 811,275
Radio One, Inc., Series B - 1,050,000 1,050,000
Shop At Home, Inc. 738,750 1,479,375 2,218,125
STC Broadcasting, Inc. 282,000 - 282,000
XM Satellite Radio, Inc. - 550,000 550,000
Business Services
Anthony Crane Rental L.P. 663,750 - 663,750
Earthwatch, Inc. (1) - 1,502,550 1,502,550
Integrated Electrical Services 291,375 - 291,375
Cable
Adelphia Communications Corp., Series B - 3,817,063 3,817,063
Comcast UK Cable Partners Ltd. - 1,462,500 1,462,500
Echostar Communications Corp. - 1,332,750 1,332,750
Echostar DBS Corp. - 1,990,000 1,990,000
Frontiervision Holdings LP 1,000,000 - 1,000,000
Mediacom LLC/Capital Corp., Series B - 2,350,000 2,350,000
UIH Australia Pacific, Inc., Series B (1) - 1,512,500 1,512,500
UnitedGlobalCom, Inc., Series B (1) - 1,332,000 1,332,000
Cellular
Airgate PCS, Inc. (1)(2) 535,500 595,000 1,130,500
American Cellular Corp. 506,625 - 506,625
AT&T Wireless Services, Inc. (2) 250,012 - 250,012
Leap Wireless International, Inc. (1) - 1,192,500 1,192,500
McCaw International Ltd. (1) - 2,400,000 2,400,000
Nextel Communications, Inc. 296,188 - 296,188
SBA Communications Corp. (2) - 950,000 950,000
Spectrasite Holdings Inc. 65,250 - 65,250
Spectrasite Holdings Inc. (1) 440,000 - 440,000
Spectrasite Holdings Inc. (1) - 675,000 675,000
Triton PCS, Inc. 168,000 - 168,000
Chemicals
Borden Chemicals & Plastics (6) 360,000 - 360,000
GEO Specialty Chemicals 304,500 - 304,500
Hercules, Inc. (2)(3) - 505,000 505,000
Huntsman Corp. (3)(4) - 1,540,000 1,540,000
Koppers Industries, Inc. 329,000 - 329,000
Royster-Clark, Inc. 400,000 - 400,000
Conglomerate
B-21
SunAmerica Income Funds High Income Fund
North American Funds High Yield Bond Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
-----------------------------------------------------------
High Yield High Pro Forma
Bond Income Combined Description Coupon
---------------- ----------------------- ------------------------------------------------------------- ---------
<s><c>
900,000 - 900,000 Grove Worldwide LLC (6) 9.25
300,000 - 300,000 Penhall International, Inc. 12.00
Consumer Goods
- 3,000,000 3,000,000 Evenflo Co., Inc., Series B 11.75
- 2,300,000 2,300,000 Polymer Group, Inc., Series B 9.00
- 1,500,000 1,500,000 Polymer Group, Inc., Series B 8.75
Consumer Services
540,000 - 540,000 Allied Waste North America, Inc. 10.00
- 3,000,000 3,000,000 Allied Waste North America, Inc., Series B 7.63
1,000,000 - 1,000,000 KinderCare Learning Centers 9.50
300,000 - 300,000 Rent-A-Center, Inc. 11.00
Electrical Equipment
750,000 - 750,000 Metromedia Fiber Network, Inc. 10.00
150,000 - 150,000 Viasystems, Inc. 9.75
Energy
850,000 - 850,000 Frontier Oil Corp. 11.75
135,000 - 135,000 Grey Wolf, Inc. 8.88
625,000 - 625,000 HS Resources, Inc. 9.25
650,000 - 650,000 HS Resources, Inc. 9.25
550,000 - 550,000 KCS Energy, Inc. 8.88
- 3,250,000 3,250,000 P&L Coal Holdings Corp., Series B 8.88
315,000 - 315,000 Triton Energy Ltd. 9.25
Energy Services
150,000 2,000,000 2,150,000 AES Corp. 8.75
525,000 - 525,000 AmeriGas Partners LP/AmeriGas Eagle
Finance Corp. (2)(3) 10.00
- 1,500,000 1,500,000 CMS Energy Corp 8.50
90,000 - 90,000 Grant Prideco, Inc. (2)(3) 9.63
- 1,000,000 1,000,000 Gulfmark Offshore, Inc. 8.75
110,000 - 110,000 Key Energy Services, Inc. (3) 8.38
- 1,500,000 1,500,000 Key Energy Services, Inc., Series B 14.00
- 1,000,000 1,000,000 R&B Falcon Corp. 6.95
25,000 - 25,000 R&B Falcon Corp. 9.50
- 1,500,000 1,500,000 R&B Falcon Corp. 12.25
50,000 - 50,000 Swift Energy Co. 10.25
- 2,250,000 2,250,000 Western Gas Resources, Inc. (3) 10.00
Financial Services
- 1,000,000 1,000,000 Alamosa Delaware, Inc. (3) 12.50
625,000 1,500,000 2,125,000 Americredit Corp. 9.25
- 500,000 500,000 Americredit Corp., Series B 9.88
- 2,000,000 2,000,000 Bank United Capital Trust (5) 10.25
800,000 - 800,000 Caithness Coso Funding Corp. 9.05
80,000 - 80,000 Charter Communications Holdings Capital Corp. 10.75
500,000 - 500,000 Charter Communications Holdings Capital Corp. 11.13
600,000 - 600,000 Insight Capital, Inc. (2)(3) 10.50
555,000 1,750,000 2,305,000 LaBranche & Company, Inc. 12.00
250,000 - 250,000 Nexstar Finance LLC/Nexstar Finance, Inc. (3) 12.00
530,000 - 530,000 Telewest Finance Ltd. (3) 6.00
300,000 - 300,000 Unilab Finance Corp. 12.75
250,000 1,500,000 1,750,000 Western Financial Savings Bank 8.88
Food, Beverage & Tobacco
1,000,000 - 1,000,000 Agrilink Foods, Inc. 11.88
500,000 - 500,000 Fleming Cos., Inc. 10.63
Forest Products
1,200,000 - 1,200,000 Bear Island Paper Co. LLC 10.00
300,000 - 300,000 Fibermark, Inc. 9.38
750,000 - 750,000 Packaged Ice, Inc. 9.75
High Yield High Pro Forma
Description Maturity Date Bond Income Combined
----------------------------------------------- ---------------- ---------- ---------- ------------
Grove Worldwide LLC (6) 5/1/08
Penhall International, Inc. 8/1/06
Consumer Goods 0.0% 2.9% 1.9%
Evenflo Co., Inc., Series B 8/15/06
Polymer Group, Inc., Series B 7/1/07
Polymer Group, Inc., Series B 3/1/08
Consumer Services 2.6% 2.1% 2.2%
Allied Waste North America, Inc. 8/1/09
Allied Waste North America, Inc., Series B 1/1/06
KinderCare Learning Centers 2/15/09
Rent-A-Center, Inc. 8/15/08
Electrical Equipment 1.0% 0.0% 0.3%
Metromedia Fiber Network, Inc. 12/15/09
Viasystems, Inc. 6/1/07
Energy 4.6% 2.4% 3.1%
Frontier Oil Corp. 11/15/09
Grey Wolf, Inc. 7/1/07
HS Resources, Inc. 11/15/06
HS Resources, Inc. 11/15/06
KCS Energy, Inc. 1/15/06
P&L Coal Holdings Corp., Series B 5/15/08
Triton Energy Ltd. 4/15/05
Energy Services 1.4% 8.3% 6.0%
AES Corp. 12/15/02
AmeriGas Partners LP/AmeriGas Eagle
Finance Corp. (2)(3) 4/15/06
CMS Energy Corp 4/15/11
Grant Prideco, Inc. (2)(3) 12/1/07
Gulfmark Offshore, Inc. 6/1/08
Key Energy Services, Inc. (3) 3/1/08
Key Energy Services, Inc., Series B 1/15/09
R&B Falcon Corp. 4/15/08
R&B Falcon Corp. 12/15/08
R&B Falcon Corp. 3/15/06
Swift Energy Co. 8/1/09
Western Gas Resources, Inc. (3) 6/15/09
Financial Services 6.4% 5.7% 6.0%
Alamosa Delaware, Inc. (3) 2/1/11
Americredit Corp. 2/1/04
Americredit Corp., Series B 4/15/06
Bank United Capital Trust (5) 12/31/26
Caithness Coso Funding Corp. 12/15/09
Charter Communications Holdings Capital Corp. 10/1/09
Charter Communications Holdings Capital Corp. 1/15/11
Insight Capital, Inc. (2)(3) 11/1/10
LaBranche & Company, Inc. 3/2/07
Nexstar Finance LLC/Nexstar Finance, Inc. (3) 4/1/08
Telewest Finance Ltd. (3) 7/7/05
Unilab Finance Corp. 10/1/09
Western Financial Savings Bank 8/1/07
Food, Beverage & Tobacco 1.9% 0.0% 0.6%
Agrilink Foods, Inc. 11/1/08
Fleming Cos., Inc. 7/31/07
Forest Products 2.9% 0.0% 1.0%
Bear Island Paper Co. LLC 12/1/07
Fibermark, Inc. 10/15/06
Packaged Ice, Inc. 2/1/05
Market Value
------------------------------------------------------
High Yield High Pro Forma
Description Bond Income Combined
----------------------------------------------- ---------------- -------------- ----------------
Grove Worldwide LLC (6) 81,000 - 81,000
Penhall International, Inc. 295,500 - 295,500
Consumer Goods
Evenflo Co., Inc., Series B - 2,250,000 2,250,000
Polymer Group, Inc., Series B - 1,104,000 1,104,000
Polymer Group, Inc., Series B - 690,000 690,000
Consumer Services
Allied Waste North America, Inc. 550,125 - 550,125
Allied Waste North America, Inc., Series B - 2,910,000 2,910,000
KinderCare Learning Centers 950,000 - 950,000
Rent-A-Center, Inc. 303,000 - 303,000
Electrical Equipment
Metromedia Fiber Network, Inc. 615,000 - 615,000
Viasystems, Inc. 94,500 - 94,500
Energy
Frontier Oil Corp. 886,125 - 886,125
Grey Wolf, Inc. 136,350 - 136,350
HS Resources, Inc. 640,625 - 640,625
HS Resources, Inc. 672,750 - 672,750
KCS Energy, Inc. 514,250 - 514,250
P&L Coal Holdings Corp., Series B - 3,388,125 3,388,125
Triton Energy Ltd. 327,600 - 327,600
Energy Services
AES Corp. 152,250 2,030,000 2,182,250
AmeriGas Partners LP/AmeriGas Eagle
Finance Corp. (2)(3) 522,422 - 522,422
CMS Energy Corp - 1,465,140 1,465,140
Grant Prideco, Inc. (2)(3) 94,500 - 94,500
Gulfmark Offshore, Inc. - 1,002,500 1,002,500
Key Energy Services, Inc. (3) 113,187 - 113,187
Key Energy Services, Inc., Series B - 1,755,000 1,755,000
R&B Falcon Corp. - 1,019,155 1,019,155
R&B Falcon Corp. 29,375 - 29,375
R&B Falcon Corp. - 1,946,250 1,946,250
Swift Energy Co. 52,625 - 52,625
Western Gas Resources, Inc. (3) - 2,385,000 2,385,000
Financial Services
Alamosa Delaware, Inc. (3) - 992,500 992,500
Americredit Corp. 612,500 1,470,000 2,082,500
Americredit Corp., Series B - 495,000 495,000
Bank United Capital Trust (5) - 1,700,000 1,700,000
Caithness Coso Funding Corp. 728,000 - 728,000
Charter Communications Holdings Capital Corp. 85,200 - 85,200
Charter Communications Holdings Capital Corp. 536,250 - 536,250
Insight Capital, Inc. (2)(3) 639,000 - 639,000
LaBranche & Company, Inc. 621,600 1,960,000 2,581,600
Nexstar Finance LLC/Nexstar Finance, Inc. (3) 247,500 - 247,500
Telewest Finance Ltd. (3) 417,503 - 417,503
Unilab Finance Corp. 333,750 - 333,750
Western Financial Savings Bank 241,563 1,449,375 1,690,938
Food, Beverage & Tobacco
Agrilink Foods, Inc. 840,000 - 840,000
Fleming Cos., Inc. 500,000 - 500,000
Forest Products
Bear Island Paper Co. LLC 1,102,500 - 1,102,500
Fibermark, Inc. 291,000 - 291,000
Packaged Ice, Inc. 648,750 - 648,750
B-22
SunAmerica Income Funds High Income Fund
North American Funds High Yield Bond Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
-----------------------------------------------------------
High Yield High Pro Forma
Bond Income Combined Description
---------------- ----------------------- ---------------------------------------------------------------------------
<s><c>
Gaming
- 1,500,000 1,500,000 Circus Circus Enterprises, Inc.
1,000,000 - 1,000,000 Hollywood Casino Shreveport
500,000 - 500,000 Horseshoe Gaming LLC
450,000 - 450,000 Isle of Capri Casinos Inc
- 3,500,000 3,500,000 MGM Grand, Inc.
790,000 - 790,000 Riviera Black Hawk Inc.
- 1,500,000 1,500,000 Station Casinos, Inc.
Housing
350,000 - 350,000 Beazer Homes USA, Inc.
450,000 - 450,000 Beazer Homes USA, Inc.
Household Products
750,000 - 750,000 Sealy Mattress Co. (1)
200,000 - 200,000 Sleepmaster LLC (3)
Health Services
- 1,750,000 1,750,000 Fresenius Medical Care Capital Trust I
- 1,750,000 1,750,000 Fresenius Medical Care Capital Trust II
200,000 - 200,000 Healthsouth Corp
460,000 - 460,000 IASIS Healthcare Corporation
230,000 - 230,000 LifePoint Hospitals Holdings, Inc.
250,000 - 250,000 Manor Care Inc (OLD)
500,000 - 500,000 Omega Healthcare Investors, Inc.
- 3,250,000 3,250,000 Tenet Healthcare Corp.
1,000,000 - 1,000,000 Universal Hospital Services, Inc.
Leisure & Tourism
800,000 - 800,000 Cinemark USA, Inc.
800,000 - 800,000 Courtyard By Marriott, Inc.
500,000 - 500,000 Felcor Lodging LP
150,000 - 150,000 Felcor Lodging LP (3)
- 1,500,000 1,500,000 Felcor Suites LP
- 2,000,000 2,000,000 HMH Properties, Inc., Series A
- 1,000,000 1,000,000 ITT Corp.
500,000 - 500,000 Pinnacle Entertainment, Inc.
350,000 - 350,000 Pinnacle Entertainment, Inc.
750,000 - 750,000 True Temper Sports, Inc
700,000 - 700,000 YankeeNets LLC (3)
Machinery
200,000 - 200,000 Calpine Corp
400,000 - 400,000 Lennar Corp
Manufacturing
- 2,600,000 2,600,000 Pentacon, Inc., Series B
- 500,000 500,000 Terex Corp. (2)(3)
Media
- 3,400,000 3,400,000 Orion Network Systems, Inc. (1)(2)
- 2,000,000 2,000,000 Park-N-View, Inc., Series B (5)(6)
250,000 - 250,000 Pegasus Communications Corp.
Medical Products
500,000 - 500,000 PSS World Medical, Inc.
Metals & Mining
- 1,500,000 1,500,000 Acme Metals, Inc. (5)(6)
- 3,000,000 3,000,000 Armco, Inc.
50,000 - 50,000 California Steel Industries, Inc.
- 2,000,000 2,000,000 Kaiser Aluminum & Chemical Corp.
- 3,000,000 3,000,000 Metal Management, Inc. (6)
300,000 - 300,000 Metals USA, Inc.
300,000 - 300,000 National Steel Corp.
High Yield High
Description Coupon Maturity Date Bond Income
------------------------------------------------------------- --------- ---------------- ---------- ----------
Gaming 4.0% 4.6%
Circus Circus Enterprises, Inc. 6.45 2/1/06
Hollywood Casino Shreveport 13.00 8/1/06
Horseshoe Gaming LLC 9.38 6/15/07
Isle of Capri Casinos Inc 8.75 4/15/09
MGM Grand, Inc. 6.95 2/1/05
Riviera Black Hawk Inc. 13.00 5/1/05
Station Casinos, Inc. 9.88 7/1/10
Housing 1.1% 0.0%
Beazer Homes USA, Inc. 9.00 3/1/04
Beazer Homes USA, Inc. 8.88 4/1/08
Household Products 1.2% 0.0%
Sealy Mattress Co. (1) 0.00 12/15/07
Sleepmaster LLC (3) 11.00 5/15/09
Health Services 3.6% 4.8%
Fresenius Medical Care Capital Trust I 9.00 12/1/06
Fresenius Medical Care Capital Trust II 7.88 2/1/08
Healthsouth Corp 10.75 10/1/08
IASIS Healthcare Corporation 13.00 10/15/09
LifePoint Hospitals Holdings, Inc. 10.75 5/15/09
Manor Care Inc (OLD) 7.50 6/15/06
Omega Healthcare Investors, Inc. 6.95 6/15/02
Tenet Healthcare Corp. 8.00 1/15/05
Universal Hospital Services, Inc. 10.25 3/1/08
Leisure & Tourism 6.3% 3.1%
Cinemark USA, Inc. 9.63 8/1/08
Courtyard By Marriott, Inc. 10.75 2/1/08
Felcor Lodging LP 9.50 9/15/08
Felcor Lodging LP (3) 9.50 9/15/08
Felcor Suites LP 7.38 10/1/20
HMH Properties, Inc., Series A 7.88 8/1/05
ITT Corp. 6.75 11/15/05
Pinnacle Entertainment, Inc. 9.25 2/15/07
Pinnacle Entertainment, Inc. 9.50 8/1/07
True Temper Sports, Inc 10.88 12/1/08
YankeeNets LLC (3) 12.75 3/1/07
Machinery 0.9% 0.0%
Calpine Corp 7.75 4/15/09
Lennar Corp 9.95 5/1/10
Manufacturing 0.0% 1.1%
Pentacon, Inc., Series B 12.25 4/1/09
Terex Corp. (2)(3) 10.38 4/1/11
Media 0.3% 0.8%
Orion Network Systems, Inc. (1)(2) 0.00 1/15/07
Park-N-View, Inc., Series B (5)(6) 13.00 5/15/08
Pegasus Communications Corp. 9.75 12/1/06
Medical Products 0.6% 0.0%
PSS World Medical, Inc. 8.50 10/1/07
Metals & Mining 2.6% 5.2%
Acme Metals, Inc. (5)(6) 12.50 8/1/02
Armco, Inc. 8.88 12/1/08
California Steel Industries, Inc. 8.50 4/1/09
Kaiser Aluminum & Chemical Corp. 12.75 2/1/03
Metal Management, Inc. (6) 10.00 5/15/08
Metals USA, Inc. 8.63 2/15/08
National Steel Corp. 9.88 3/1/09
Market Value
------------------------------------------------------
Pro Forma High Yield High Pro Forma
Description Combined Bond Income Combined
----------------------------------------------- -------- ---------------- -------------- ----------------
Gaming 4.4%
Circus Circus Enterprises, Inc. - 1,397,070 1,397,070
Hollywood Casino Shreveport 1,070,000 - 1,070,000
Horseshoe Gaming LLC 515,000 - 515,000
Isle of Capri Casinos Inc 407,250 - 407,250
MGM Grand, Inc. - 3,485,650 3,485,650
Riviera Black Hawk Inc. 790,000 - 790,000
Station Casinos, Inc. - 1,548,750 1,548,750
Housing 0.4%
Beazer Homes USA, Inc. 345,625 - 345,625
Beazer Homes USA, Inc. 436,500 - 436,500
Household Products 0.4%
Sealy Mattress Co. (1) 646,875 - 646,875
Sleepmaster LLC (3) 184,500 - 184,500
Health Services 4.4%
Fresenius Medical Care Capital Trust I - 1,771,875 1,771,875
Fresenius Medical Care Capital Trust II - 1,697,500 1,697,500
Healthsouth Corp 212,500 - 212,500
IASIS Healthcare Corporation 492,200 - 492,200
LifePoint Hospitals Holdings, Inc. 255,300 - 255,300
Manor Care Inc (OLD) 250,905 - 250,905
Omega Healthcare Investors, Inc. 445,345 - 445,345
Tenet Healthcare Corp. - 3,331,250 3,331,250
Universal Hospital Services, Inc. 830,000 - 830,000
Leisure & Tourism 4.2%
Cinemark USA, Inc. 624,000 - 624,000
Courtyard By Marriott, Inc. 818,000 - 818,000
Felcor Lodging LP 515,470 - 515,470
Felcor Lodging LP (3) 155,250 - 155,250
Felcor Suites LP - 1,462,845 1,462,845
HMH Properties, Inc., Series A - 1,935,000 1,935,000
ITT Corp. - 986,450 986,450
Pinnacle Entertainment, Inc. 495,000 - 495,000
Pinnacle Entertainment, Inc. 347,375 - 347,375
True Temper Sports, Inc 765,000 - 765,000
YankeeNets LLC (3) 690,375 - 690,375
Machinery 0.3%
Calpine Corp 194,514 - 194,514
Lennar Corp 429,000 - 429,000
Manufacturing 0.7%
Pentacon, Inc., Series B - 1,040,000 1,040,000
Terex Corp. (2)(3) - 505,000 505,000
Media 0.6%
Orion Network Systems, Inc. (1)(2) - 901,000 901,000
Park-N-View, Inc., Series B (5)(6) - 200,000 200,000
Pegasus Communications Corp. 238,750 - 238,750
Medical Products 0.2%
PSS World Medical, Inc. 412,500 - 412,500
Metals & Mining 4.4%
Acme Metals, Inc. (5)(6) - 825,000 825,000
Armco, Inc. - 2,790,000 2,790,000
California Steel Industries, Inc. 45,750 - 45,750
Kaiser Aluminum & Chemical Corp. - 1,720,000 1,720,000
Metal Management, Inc. (6) - 75,000 75,000
Metals USA, Inc. 213,000 - 213,000
National Steel Corp. 111,000 - 111,000
B-23
SunAmerica Income Funds High Income Fund
North American Funds High Yield Bond Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
-----------------------------------------------------------
High Yield High Pro Forma
Bond Income Combined Description Coupon
---------------- ----------------------- --------------------------------------------------------------------------- --------
<s><c>
50,000 - 50,000 PMD Group, Inc. (2)(3) 11.00
1,150,000 - 1,150,000 Renco Metals, Inc. (6) 11.50
300,000 - 300,000 Renco Steel Holdings, Inc. 10.88
300,000 - 300,000 Russel Metals, Inc. 10.00
- 2,250,000 2,250,000 Schuff Steel Co. 10.50
1,000,000 - 1,000,000 WCI Steel, Inc. (2) 10.00
Pharmaceuticals
200,000 - 200,000 Caremark Rx, Inc. 7.38
600,000 - 600,000 Express Scripts, Inc. 9.63
250,000 - 250,000 ICN Pharmaceuticals, Inc. 9.25
1,425,000 - 1,425,000 ICN Pharmaceuticals, Inc. (3) 9.75
100,000 - 100,000 ICN Pharmaceuticals, Inc. (2)(3) 8.75
220,000 - 220,000 King Pharmaceuticals, Inc. 10.75
750,000 - 750,000 PharMerica, Inc. 8.38
Real Estate
650,000 - 650,000 La Quinta Properties, Inc. 7.51
- 1,450,000 1,450,000 LNR Property Corp. 10.50
300,000 - 300,000 WCI Communities, Inc. (3) 10.63
Restaurants
300,000 - 300,000 Domino's, Inc. 10.38
Retail
250,000 - 250,000 Big 5 Corp., Series B 10.88
110,000 - 110,000 PEP Boys-Manny Moe & Jack 6.63
430,000 - 430,000 PEP Boys-Manny Moe & Jack 6.52
Telecommunications
- 1,750,000 1,750,000 AMSC Acquisition Co., Inc., Series B 12.25
150,000 - 150,000 Arch Communications, Inc. 12.75
1,350,000 - 1,350,000 Benedek Communications Corp. (1) 13.25
1,170,000 - 1,170,000 Concentric Network Corp. 12.75
500,000 - 500,000 Condor Systems, Inc. 11.88
350,000 - 350,000 Crown Castle International Corp. (1) 0.00
350,000 - 350,000 Crown Castle International Corp. (1) 0.00
310,000 - 310,000 Exodus Communications, Inc. 11.63
- 1,250,000 1,250,000 Flag Telecom Holdings Ltd. 8.25
- 1,250,000 1,250,000 Flag Telecom Holdings Ltd. 11.63
1,205,000 3,575,000 4,780,000 Globix Corp. 12.50
900,000 - 900,000 Golden Sky DBS, Inc. (1) 0.00
- 1,750,000 1,750,000 ICG Services, Inc. (1) 0.00
- 2,000,000 2,000,000 Intermedia Communications, Inc., Series B 8.88
500,000 2,500,000 3,000,000 Level 3 Communications, Inc. 11.00
750,000 - 750,000 Level 3 Communications, Inc. (1) 0.00
300,000 - 300,000 McLeodUSA Inc 11.38
1,500,000 - 1,500,000 Microcell Telecommunications (1) 0.00
- 1,850,000 1,850,000 Mpower Communications Corp. 13.00
150,000 - 150,000 Netia Holdings BV 13.13
250,000 - 250,000 Netia Holdings BV 10.25
500,000 - 500,000 Netia Holdings BV (1) 0.00
- 1,000,000 1,000,000 Nextel Partners, Inc. 11.00
- 1,000,000 1,000,000 Nextel Partners, Inc. 11.00
700,000 - 700,000 NTL Communications Corp. 11.50
400,000 1,500,000 1,900,000 NTL, Inc., Series B (1) 0.00
500,000 - 500,000 Orbcomm Global LP (6) 14.00
- 1,750,000 1,750,000 Primus Telecommunications, Inc. 12.75
280,000 - 280,000 PSINet, Inc. 11.00
- 1,500,000 1,500,000 PSINet, Inc. 11.50
- 1,500,000 1,500,000 Telehub Communications Corp. 1.00
High Yield High Pro Forma
Description Maturity Date Bond Income Combined
-------------------------------------------------------------- ---------------- ---------- ---------- ------------
PMD Group, Inc. (2)(3) 2/28/11
Renco Metals, Inc. (6) 7/1/03
Renco Steel Holdings, Inc. 2/1/05
Russel Metals, Inc. 6/1/09
Schuff Steel Co. 6/1/08
WCI Steel, Inc. (2) 12/1/04
Pharmaceuticals 5.0% 0.0% 1.7%
Caremark Rx, Inc. 10/1/06
Express Scripts, Inc. 6/15/09
ICN Pharmaceuticals, Inc. 8/15/05
ICN Pharmaceuticals, Inc. (3) 11/15/08
ICN Pharmaceuticals, Inc. (2)(3) 11/15/08
King Pharmaceuticals, Inc. 2/15/09
PharMerica, Inc. 4/1/08
Real Estate 1.1% 1.0% 1.1%
La Quinta Properties, Inc. 9/26/03
LNR Property Corp. 1/15/09
WCI Communities, Inc. (3) 2/15/11
Restaurants 0.4% 0.0% 0.2%
Domino's, Inc. 1/15/09
Retail 1.0% 0.0% 0.3%
Big 5 Corp., Series B 11/15/07
PEP Boys-Manny Moe & Jack 5/15/03
PEP Boys-Manny Moe & Jack 7/16/07
Telecommunications 11.1% 8.5% 9.3%
AMSC Acquisition Co., Inc., Series B 4/1/08
Arch Communications, Inc. 7/1/07
Benedek Communications Corp. (1) 5/15/06
Concentric Network Corp. 12/15/07
Condor Systems, Inc. 5/1/09
Crown Castle International Corp. (1) 11/15/07
Crown Castle International Corp. (1) 5/15/11
Exodus Communications, Inc. 7/15/10
Flag Telecom Holdings Ltd. 1/30/08
Flag Telecom Holdings Ltd. 3/30/10
Globix Corp. 2/1/10
Golden Sky DBS, Inc. (1) 3/1/07
ICG Services, Inc. (1) 5/1/08
Intermedia Communications, Inc., Series B 11/1/07
Level 3 Communications, Inc. 3/15/08
Level 3 Communications, Inc. (1) 3/15/10
McLeodUSA Inc 1/1/09
Microcell Telecommunications (1) 6/1/09
Mpower Communications Corp. 4/1/10
Netia Holdings BV 6/15/09
Netia Holdings BV 11/1/07
Netia Holdings BV (1) 11/1/07
Nextel Partners, Inc. 3/15/10
Nextel Partners, Inc. 3/15/10
NTL Communications Corp. 10/1/08
NTL, Inc., Series B (1) 4/1/08
Orbcomm Global LP (6) 8/15/04
Primus Telecommunications, Inc. 10/15/09
PSINet, Inc. 8/1/09
PSINet, Inc. 11/1/08
Telehub Communications Corp. 7/31/05
Market Value
------------------------------------------------------
High Yield High Pro Forma
Description Bond Income Combined
-------------------------------------------------------------- ---------------- -------------- ----------------
PMD Group, Inc. (2)(3) 52,000 - 52,000
Renco Metals, Inc. (6) 112,125 - 112,125
Renco Steel Holdings, Inc. 126,000 - 126,000
Russel Metals, Inc. 280,500 - 280,500
Schuff Steel Co. - 1,935,000 1,935,000
WCI Steel, Inc. (2) 870,000 - 870,000
Pharmaceuticals
Caremark Rx, Inc. 188,000 - 188,000
Express Scripts, Inc. 643,500 - 643,500
ICN Pharmaceuticals, Inc. 253,750 - 253,750
ICN Pharmaceuticals, Inc. (3) 1,407,188 - 1,407,188
ICN Pharmaceuticals, Inc. (2)(3) 99,000 - 99,000
King Pharmaceuticals, Inc. 234,850 - 234,850
PharMerica, Inc. 650,625 - 650,625
Real Estate
La Quinta Properties, Inc. 491,288 - 491,288
LNR Property Corp. - 1,399,250 1,399,250
WCI Communities, Inc. (3) 309,750 - 309,750
Restaurants
Domino's, Inc. 304,500 - 304,500
Retail
Big 5 Corp., Series B 230,000 - 230,000
PEP Boys-Manny Moe & Jack 91,300 - 91,300
PEP Boys-Manny Moe & Jack 356,900 - 356,900
Telecommunications
AMSC Acquisition Co., Inc., Series B - 743,750 743,750
Arch Communications, Inc. 51,000 - 51,000
Benedek Communications Corp. (1) 904,500 - 904,500
Concentric Network Corp. 819,000 - 819,000
Condor Systems, Inc. 370,000 - 370,000
Crown Castle International Corp. (1) 290,500 - 290,500
Crown Castle International Corp. (1) 245,000 - 245,000
Exodus Communications, Inc. 244,900 - 244,900
Flag Telecom Holdings Ltd. - 1,125,000 1,125,000
Flag Telecom Holdings Ltd. - 975,000 975,000
Globix Corp. 361,500 1,036,750 1,398,250
Golden Sky DBS, Inc. (1) 558,000 - 558,000
ICG Services, Inc. (1) - 96,250 96,250
Intermedia Communications, Inc., Series B - 1,960,000 1,960,000
Level 3 Communications, Inc. 390,000 1,950,000 2,340,000
Level 3 Communications, Inc. (1) 307,500 - 307,500
McLeodUSA Inc 295,500 - 295,500
Microcell Telecommunications (1) 900,000 - 900,000
Mpower Communications Corp. - 758,500 758,500
Netia Holdings BV 115,500 - 115,500
Netia Holdings BV 170,000 - 170,000
Netia Holdings BV (1) 295,000 - 295,000
Nextel Partners, Inc. - 865,000 865,000
Nextel Partners, Inc. - 875,000 875,000
NTL Communications Corp. 623,000 - 623,000
NTL, Inc., Series B (1) 240,000 862,500 1,102,500
Orbcomm Global LP (6) 8,125 - 8,125
Primus Telecommunications, Inc. - 490,000 490,000
PSINet, Inc. 25,200 - 25,200
PSINet, Inc. - 135,000 135,000
Telehub Communications Corp. - - -
B-24
SunAmerica Income Funds High Income Fund
North American Funds High Yield Bond Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
-----------------------------------------------------------
High Yield High Pro Forma
Bond Income Combined Description Coupon
---------------- ----------------------- --------------------------------------------------------------------------- --------
<s><c>
450,000 - 450,000 Williams Communications Group 11.70
275,000 - 275,000 WinStar Communications Inc. (6) 12.75
750,000 - 750,000 WinStar Communications Inc. (6) 14.75
Transportation
800,000 - 800,000 Aircraft Service International Group, Inc. 11.00
225,000 - 225,000 Atlas Air, Inc. 9.25
414,820 - 414,820 Atlas Air, Inc. 8.77
200,000 - 200,000 Atlas Air, Inc. 9.70
200,000 - 200,000 Decrane Aircraft Holdings, Inc. 12.00
Utilities
700,000 - 700,000 Avista Corp. (1) 9.75
200,000 - 200,000 BRL Universal Equipment LP, Series A (1) 8.88
560,000 - 560,000 Leviathan Gas Pipeline Partners, Inc. 10.38
400,000 - 400,000 Tesoro Petroleum Corp. 9.00
300,000 - 300,000 WCG Note Trust Corp. (3) 8.25
500,000 - 500,000 XO Communications, Inc. (1) 0.00
Total Corporate Bonds & Notes
(cost $63,045,705; $119,630,631;
$182,676,336 )
FOREIGN BONDS & NOTES
Aerospace & Military Technology
200,000 - 200,000 Dunlop Standard Aerospace Holdings PLC 11.88
Broadcasting
- 3,050,000 3,050,000 Central European Media Enterprises Ltd. 9.38
Building Materials
- 2,350,000 2,350,000 Ainsworth Lumber Ltd. (7) 12.50
Business Services
100,000 - 100,000 Pierce Leahy Command Co. 8.13
Cable
- 1,000,000 1,000,000 Australis Holdings Property Ltd. (5)(6) 15.00
- 1,500,000 1,500,000 Callahan Nordrhein Westfalen (1)(3) 0.00
165,000 - 165,000 Callahan Nordrhein-Westfalen (3) 14.00
- 1,000,000 1,000,000 Diamond Cable Communications PLC 13.25
- 1,500,000 1,500,000 Diamond Holdings PLC 9.13
400,000 - 400,000 Telewest Communications PLC 11.00
- 2,000,000 2,000,000 Telewest Communications PLC 11.25
- 750,000 750,000 Telewest Communications PLC (1) 0.00
1,400,000 - 1,400,000 United Pan-Europe Communications NV (1) 0.00
Cellular
- 1,250,000 1,250,000 Celcaribe SA 14.50
- 1,750,000 1,750,000 Occidente Y Caribe Celular SA, Series B 0.00
Electrical Equipment
605,000 - 605,000 Flextronics International Ltd 9.88
Energy
150,000 - 150,000 AES Drax Energy Ltd. (2)(3) 11.50
- 2,000,000 2,000,000 Baytex Energy Ltd. 10.50
Energy Services
- 3,625,000 3,625,000 Statia Terminals International NV, Series B 11.75
Financial Services
750,000 - 750,000 Ono Finance 13.00
Manufacturing
- 2,000,000 2,000,000 Filtronic PLC 10.00
- 2,000,000 2,000,000 International Utility Structures, Inc. 10.75
Telecommunications
630,000 - 630,000 Ekabel Hessen 14.50
600,000 - 600,000 Esat Holdings Ltd. 0.00
High Yield High Pro Forma
Description Maturity Date Bond Income Combined
------------------------------------------------------------ ---------------- ---------- ---------- ------------
Williams Communications Group 8/1/08
WinStar Communications Inc. (6) 4/15/10
WinStar Communications Inc. (6) 4/15/10
Transportation 2.8% 0.0% 0.9%
Aircraft Service International Group, Inc. 8/15/05
Atlas Air, Inc. 4/15/08
Atlas Air, Inc. 1/2/11
Atlas Air, Inc. 1/2/08
Decrane Aircraft Holdings, Inc. 9/30/08
Utilities 3.4% 0.0% 1.1%
Avista Corp. (1) 6/1/08
BRL Universal Equipment LP, Series A (1) 2/15/08
Leviathan Gas Pipeline Partners, Inc. 6/1/09
Tesoro Petroleum Corp. 7/1/08
WCG Note Trust Corp. (3) 3/15/04
XO Communications, Inc. (1) 12/1/09
Total Corporate Bonds & Notes
(cost $63,045,705; $119,630,631;
$182,676,336 )
FOREIGH BONDS & NOTES 9.0% 16.5% 14.0%
Aerospace & Military Technology 0.3% 0.0% 0.1%
Dunlop Standard Aerospace Holdings PLC 5/15/09
Broadcasting 0.0% 0.8% 0.5%
Central European Media Enterprises Ltd. 8/15/04
Building Materials 0.0% 1.4% 0.9%
Ainsworth Lumber Ltd. (7) 7/15/07
Business Services 0.1% 0.0% 0.1%
Pierce Leahy Command Co. 5/15/08
Cable 1.5% 3.8% 3.0%
Australis Holdings Property Ltd. (5)(6) 11/1/02
Callahan Nordrhein Westfalen (1)(3) 7/15/10
Callahan Nordrhein-Westfalen (3) 7/15/10
Diamond Cable Communications PLC 9/30/04
Diamond Holdings PLC 2/1/08
Telewest Communications PLC 10/1/07
Telewest Communications PLC 11/1/08
Telewest Communications PLC (1) 2/1/10
United Pan-Europe Communications NV (1) 2/1/10
Cellular 0.0% 1.6% 1.0%
Celcaribe SA 3/15/04
Occidente Y Caribe Celular SA, Series B 3/15/04
Electrical Equipment 0.9% 0.0% 0.3%
Flextronics International Ltd 7/1/10
Energy 0.2% 1.4% 1.0%
AES Drax Energy Ltd. (2)(3) 8/30/10
Baytex Energy Ltd. 2/15/11
Energy Services 0.0% 2.6% 1.8%
Statia Terminals International NV, Series B 11/15/03
Financial Services 0.9% 0.0% 0.3%
Ono Finance 5/1/09
Manufacturing 0.0% 2.0% 1.4%
Filtronic PLC 12/1/05
International Utility Structures, Inc. 2/1/08
Telecommunications 3.9% 2.9% 3.2%
Ekabel Hessen 9/1/10
Esat Holdings Ltd. 2/1/07
Market Value
-----------------------------------------------------
High Yield High Pro Forma
Description Bond Income Combined
------------------------------------------------------------ --------------- -------------- ----------------
Williams Communications Group 353,250 - 353,250
WinStar Communications Inc. (6) 90,750 - 90,750
WinStar Communications Inc. (6) 97,500 - 97,500
Transportation
Aircraft Service International Group, Inc. 904,000 - 904,000
Atlas Air, Inc. 225,000 - 225,000
Atlas Air, Inc. 442,994 - 442,994
Atlas Air, Inc. 211,566 - 211,566
Decrane Aircraft Holdings, Inc. 192,250 - 192,250
Utilities
Avista Corp. (1) 697,676 - 697,676
BRL Universal Equipment LP, Series A (1) 206,500 - 206,500
Leviathan Gas Pipeline Partners, Inc. 598,500 - 598,500
Tesoro Petroleum Corp. 407,000 - 407,000
WCG Note Trust Corp. (3) 298,779 - 298,779
XO Communications, Inc. (1) 155,000 - 155,000
Total Corporate Bonds & Notes
--------------- -------------- ----------------
(cost $63,045,705; $119,630,631;
$182,676,336 ) 58,058,600 98,025,923 156,084,523
--------------- -------------- ----------------
FOREIGH BONDS & NOTES
Aerospace & Military Technology
Dunlop Standard Aerospace Holdings PLC 213,000 - 213,000
Broadcasting
Central European Media Enterprises Ltd. - 1,075,125 1,075,125
Building Materials
Ainsworth Lumber Ltd. (7) - 1,938,750 1,938,750
Business Services
Pierce Leahy Command Co. 98,500 - 98,500
Cable
Australis Holdings Property Ltd. (5)(6) - 20,000 20,000
Callahan Nordrhein Westfalen (1)(3) - 705,000 705,000
Callahan Nordrhein-Westfalen (3) 166,650 - 166,650
Diamond Cable Communications PLC - 975,000 975,000
Diamond Holdings PLC - 1,222,500 1,222,500
Telewest Communications PLC 391,000 - 391,000
Telewest Communications PLC - 2,010,000 2,010,000
Telewest Communications PLC (1) - 427,500 427,500
United Pan-Europe Communications NV (1) 476,000 - 476,000
Cellular
Celcaribe SA - 912,500 912,500
Occidente Y Caribe Celular SA, Series B - 1,277,500 1,277,500
Electrical Equipment
Flextronics International Ltd 586,850 - 586,850
Energy
AES Drax Energy Ltd. (2)(3) 164,250 - 164,250
Baytex Energy Ltd. - 1,970,000 1,970,000
Energy Services
Statia Terminals International NV, Series B - 3,715,625 3,715,625
Financial Services
Ono Finance 585,000 - 585,000
Manufacturing
Filtronic PLC - 1,540,000 1,540,000
International Utility Structures, Inc. - 1,300,000 1,300,000
Telecommunications
Ekabel Hessen 617,400 - 617,400
Esat Holdings Ltd. 604,563 - 604,563
B-25
SunAmerica Income Funds High Income Fund
North American Funds High Yield Bond Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
-----------------------------------------------------------
High Yield High Pro Forma
Bond Income Combined Description Coupon
---------------- ----------------------- --------------------------------------------------------------------------- --------
<s><c>
1,000,000 - 1,000,000 Global Crossing Holdings Ltd. 9.63
- 2,000,000 2,000,000 Global Crossing Holdings Ltd. 9.13
1,400,000 2,000,000 3,400,000 GT Group Telecom, Inc. (1) 1.00
- 1,000,000 1,000,000 Poland Telecom Finance BV, Series B (5)(6) 14.00
- 3,500,000 3,500,000 Worldwide Fiber, Inc. 12.50
Utilities
650,000 - 650,000 VersaTel Telecom International NV 13.25
150,000 - 150,000 VersaTel Telecom International NV 13.25
500,000 - 500,000 VersaTel Telecom International NV 11.88
Total Foreign Bonds & Notes
(cost $7,206,484; $30,655,488; $37,861,972)
PREFERRED STOCK
Apparel & Textiles
25,812 - 25,812 Anvil Holdings Inc. 13% (7)
Business Services
- 96,895 96,895 Earthwatch, Inc., Series C 8.50% (3)(5)(7)
Cable
6,000 - 6,000 Adelphia Communications Corp. 13%
49,974 49,974 CSC Holdings, Inc. 11.13% (7)
Cellular
- 2,899 2,899 Nextel Communications, Inc. 11.13% (7)
Telecommunications
- 3,700 3,700 Broadwing Communications, Inc. 12.50%
- 3,100 3,100 Global Crossing Ltd. 6.75% (3)
- 2,600 2,600 Global Crossings Ltd. 7.00%
- 10,000 10,000 Mpower Communications Corp. 7.25%
Total Preferred Stock
(cost $1,090,991; $13,133,022; $14,224,013)
COMMON STOCK
Cellular
- 157,119 157,119 International Wireless Communications Holdings, Inc. +(5)
Energy Services
- 25,290 25,290 Frontline Ltd. +
Gaming
- 241 241 Capital Gaming International, Inc. +(5)
Total Common Stock
(cost $0; $3,369,159; $3,369,159 )
WARRANTS +
Broadcasting
- 1,000 1,000 XM Satellite Radio, Inc.
Cable
- 4,500 4,500 Knology Holdings, Inc. (5)
- 1,000 1,000 UIH Australia Pacific, Inc. (5)
Cellular
- 2,250 2,250 Leap Wireless International, Inc. (3)
- 1,950 1,950 Leap Wireless International, Inc. (3)
- 7,750 7,750 Occidente Y Caribe Celular SA (5)
Energy Services
- 1,900 1,900 Key Energy Services, Inc.
Financial Services
500 - 500 Ono Finance
Media
High Yield High Pro Forma
Description Maturity Date Bond Income Combined
------------------------------------------------------------ ---------------- ---------- ---------- ------------
Global Crossing Holdings Ltd. 5/15/08
Global Crossing Holdings Ltd. 11/15/06
GT Group Telecom, Inc. (1) 2/1/10
Poland Telecom Finance BV, Series B (5)(6) 12/1/07
Worldwide Fiber, Inc. 12/15/05
Utilities 1.2% 0.0% 0.4%
VersaTel Telecom International NV 05/15/2008
VersaTel Telecom International NV 05/15/2008
VersaTel Telecom International NV 07/15/2009
Total Foreign Bonds & Notes
(cost $7,206,484; $30,655,488; $37,861,972)
PREFERRED STOCK 1.6% 8.7% 6.3%
Apparel & Textiles 0.7% 0.0% 0.2%
Anvil Holdings Inc. 13% (7)
Business Services 0.0% 0.0% 0.0%
Earthwatch, Inc., Series C 8.50% (3)(5)(7)
Cable 0.9% 3.9% 2.9%
Adelphia Communications Corp. 13%
CSC Holdings, Inc. 11.13% (7)
Cellular 0.0% 1.5% 1.0%
Nextel Communications, Inc. 11.13% (7)
Telecommunications 0.0% 3.3% 2.2%
Broadwing Communications, Inc. 12.50%
Global Crossing Ltd. 6.75% (3)
Global Crossings Ltd. 7.00%
Mpower Communications Corp. 7.25%
Total Preferred Stock
(cost $1,090,991; $13,133,022; $14,224,013)
COMMON STOCK 0.0% 0.3% 0.2%
Cellular 0.0% 0.0% 0.0%
International Wireless Communications Holdings, Inc. +(5)
Energy Services 0.0% 0.3% 0.2%
Frontline Ltd. +
Gaming 0.0% 0.0% 0.0%
Capital Gaming International, Inc. +(5)
Total Common Stock
(cost $0; $3,369,159; $3,369,159 )
WARRANTS + 0.1% 0.2% 0.2%
Broadcasting 0.0% 0.0% 0.0%
XM Satellite Radio, Inc.
Cable 0.0% 0.0% 0.0%
Knology Holdings, Inc. (5)
UIH Australia Pacific, Inc. (5)
Cellular 0.0% 0.1% 0.1%
Leap Wireless International, Inc. (3)
Leap Wireless International, Inc. (3)
Occidente Y Caribe Celular SA (5)
Energy Services 0.0% 0.1% 0.1%
Key Energy Services, Inc.
Financial Services 0.0% 0.0% 0.0%
Ono Finance
Media 0.0% 0.0% 0.0%
Market Value
------------------------------------------------------
High Yield High Pro Forma
Description Bond Income Combined
------------------------------------------------------------ ---------------- -------------- ----------------
Global Crossing Holdings Ltd. 942,500 - 942,500
Global Crossing Holdings Ltd. - 1,885,000 1,885,000
GT Group Telecom, Inc. (1) 532,000 760,000 1,292,000
Poland Telecom Finance BV, Series B (5)(6) - 10,000 10,000
Worldwide Fiber, Inc. - 1,400,000 1,400,000
Utilities
VersaTel Telecom International NV 416,000 - 416,000
VersaTel Telecom International NV 91,500 - 91,500
VersaTel Telecom International NV 295,000 - 295,000
Total Foreign Bonds & Notes
---------------- -------------- ----------------
(cost $7,206,484; $30,655,488; $37,861,972) 6,180,213 23,144,500 29,324,713
---------------- -------------- ----------------
PREFERRED STOCK
Apparel & Textiles
Anvil Holdings Inc. 13% (7) 496,881 - 496,881
Business Services
Earthwatch, Inc., Series C 8.50% (3)(5)(7) - 969 969
Cable
Adelphia Communications Corp. 13% 601,500 - 601,500
CSC Holdings, Inc. 11.13% (7) - 5,434,672 5,434,672
Cellular
Nextel Communications, Inc. 11.13% (7) - 2,116,270 2,116,270
Telecommunications
Broadwing Communications, Inc. 12.50% - 3,774,000 3,774,000
Global Crossing Ltd. 6.75% (3) - 487,475 487,475
Global Crossings Ltd. 7.00% - 329,875 329,875
Mpower Communications Corp. 7.25% - 73,750 73,750
Total Preferred Stock
---------------- -------------- ----------------
(cost $1,090,991; $13,133,022; $14,224,013) 1,098,381 12,217,011 13,315,392
---------------- -------------- ----------------
COMMON STOCK
Cellular
International Wireless Communications Holdings, Inc. +(5) - 15,712 15,712
Energy Services
Frontline Ltd. + - 440,920 440,920
Gaming
Capital Gaming International, Inc. +(5) - 2 2
Total Common Stock
-------------- ----------------
(cost $0; $3,369,159; $3,369,159 ) - 456,634 456,634
-------------- ----------------
WARRANTS +
Broadcasting
XM Satellite Radio, Inc. - 3,000 3,000
Cable
Knology Holdings, Inc. (5) - 45 45
UIH Australia Pacific, Inc. (5) - 10,000 10,000
Cellular
Leap Wireless International, Inc. (3) - 67,500 67,500
Leap Wireless International, Inc. (3) - 29,250 29,250
Occidente Y Caribe Celular SA (5) - 77 77
Energy Services
Key Energy Services, Inc. - 150,404 150,404
Financial Services
Ono Finance 20,062 - 20,062
Media
B-26
SunAmerica Income Funds High Income Fund
North American Funds High Yield Bond Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
-----------------------------------------------------------
High Yield High Pro Forma
Bond Income Combined Description Coupon
---------------- ----------------------- --------------------------------------------------------------------------- --------
<s><c>
- 2,000 2,000 Park-N-View, Inc. (5)
Telecommunications
1,400 2,000 3,400 GT Group Telecom, Inc. (3)(5)
- 3,650 3,650 KMC Telecom Holdings, Inc. (3)(5)
- 1,750 1,750 Motient Corp. (3)
- 1,000 1,000 Poland Telecom Finance BV (2)(3)(5)
- 1,500 1,500 Telehub Communications Corp. (3)(5)
Total Warrants
(cost $67,479; $667,385; $734,864)
PUT OPTIONS
350,000 - 350,000 Meditrust Exercisable Put Options Securities Trust + 7.11
(cost $225,957; $0; $225,957)
Total Investment Securities -
(cost $71,636,616; $167,455,685; $239,092,301)
SHORT-TERM SECURITIES
Gaming
- 600 600 Capital Gaming International Inc. 12.00
Telecommunications
- 1,750,000 1,750,000 Vialog Corp 12.75
Total Short-Term Securities
(cost $0; $1,736,569; $1,736,569)
REPURCHASE AGREEMENT
3,908,000 - 3,908,000 State Street Bank & Trust Repurchase Agreement 5.25
(cost $3,908,000; $0; $3,908,000)
TOTAL INVESTMENTS
(cost $75,544,616; $169,192,254; $244,736,870)
Other assets less liablities (8)
NET ASSETS
High Yield High Pro Forma
Description Maturity Date Bond Income Combined
------------------------------------------------------------ ---------------- ---------- ---------- ------------
Park-N-View, Inc. (5)
Telecommunications 0.1% 0.0% 0.0%
GT Group Telecom, Inc. (3)(5)
KMC Telecom Holdings, Inc. (3)(5)
Motient Corp. (3)
Poland Telecom Finance BV (2)(3)(5)
Telehub Communications Corp. (3)(5)
Total Warrants
(cost $67,479; $667,385; $734,864)
PUT OPTIONS 0.4% 0.0% 0.1%
Meditrust Exercisable Put Options Securities Trust + 8/15/04
(cost $225,957; $0; $225,957)
Total Investment Securities 94.3% 95.5% 95.1%
(cost $71,636,616; $167,455,685; $239,092,301)
SHORT-TERM SECURITIES 0.0% 1.2% 0.8%
Gaming 0.0% 0.0% 0.0%
Capital Gaming International Inc. 5/28/01
Telecommunications 0.0% 1.2% 0.8%
Vialog Corp 11/15/01
Total Short-Term Securities
(cost $0; $1,736,569; $1,736,569)
REPURCHASE AGREEMENT 5.6% 0.0% 1.9%
State Street Bank & Trust Repurchase Agreement 4/2/01
(cost $3,908,000; $0; $3,908,000)
TOTAL INVESTMENTS 99.9% 96.7% 97.8%
(cost $75,544,616; $169,192,254; $244,736,870)
Other assets less liablities (8) 0.1% 3.3% 2.2%
---------- ---------- ------------
NET ASSETS 100.0% 100.0% 100.0%
========== ========== ============
Market Value
------------------------------------------------------
High Yield High Pro Forma
Description Bond Income Combined
------------------------------------------------------------ ---------------- -------------- ----------------
Park-N-View, Inc. (5) - - -
Telecommunications
GT Group Telecom, Inc. (3)(5) 39,938 20 39,958
KMC Telecom Holdings, Inc. (3)(5) - 37 37
Motient Corp. (3) - 6,125 6,125
Poland Telecom Finance BV (2)(3)(5) - - -
Telehub Communications Corp. (3)(5) - - -
Total Warrants
---------------- -------------- ----------------
(cost $67,479; $667,385; $734,864) 60,000 266,458 326,457
---------------- -------------- ----------------
PUT OPTIONS
Meditrust Exercisable Put Options Securities Trust + 295,750 - 295,750
---------------- -------------- ----------------
(cost $225,957; $0; $225,957)
Total Investment Securities 65,692,944 134,110,525 199,803,469
---------------- -------------- ----------------
(cost $71,636,616; $167,455,685; $239,092,301)
SHORT-TERM SECURITIES
Gaming
Capital Gaming International Inc. - - -
Telecommunications
Vialog Corp - 1,732,500 1,732,500
Total Short-Term Securities
---------------- -------------- ----------------
(cost $0; $1,736,569; $1,736,569) - 1,732,500 1,732,500
---------------- -------------- ----------------
REPURCHASE AGREEMENT
State Street Bank & Trust Repurchase Agreement 3,908,000 - 3,908,000
---------------- -------------- ----------------
(cost $3,908,000; $0; $3,908,000)
TOTAL INVESTMENTS 69,600,944 135,843,025 205,443,969
(cost $75,544,616; $169,192,254; $244,736,870)
Other assets less liablities (8) 88,291 4,644,960 4,698,853
---------------- -------------- ----------------
NET ASSETS $69,689,235 $140,487,985 $210,142,822
================ ============== ================
+ Non-income producing security
(1) Represents a zero coupon bond which will convert to an interest bearing
security at a later date
(2) Bond issued as part of a unit which includes an equity component
(3) Resale restricted to qualified institutional buyers
(4) Variable rate security; rate as of March 31, 2001
(5) fair valued security
(6) Bond in default
(7) PIK ("payment-in-kind") payment made with additional shares in lieu of cash
(8) To adjust ($34,398) for prepaid expenses on the North American Funds
High Yield Bond Fund to be expensed prior to the reorganization
Management does not anticipate having to sell any securities as a result of
the reorganization, however, securities may be sold due to differing portfolio
management style.
See Notes to Pro Forma Financial Statements
B-27
SUNAMERICA INCOME FUNDS HIGH INCOME FUND
NORTH AMERICAN FUNDS HIGH YIELD BOND FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
March 31, 2001
(unaudited)
1. BASIS OF COMBINATION
The Pro Forma Combined Statement of Assets and Liabilities, including
the Portfolio of Investments at March 31, 2001, and related Statement of
Operations ("Pro Forma Statements") for the twelve months ended March 31, 2001,
reflect the accounts of the High Income Portfolio ("High Income") a separately
managed portfolio of SunAmerica Income Funds, and High Yield Bond Fund ("High
Yield Bond") a separately managed portfolio of North American Funds. High Yield
Bond will be reorganized into High Income Fund (to be renamed the SunAmerica
High Yield Bond Fund). However, based on generally accepted accounting
principles, from a financial reporting standpoint, High Yield Bond is the
surviving entity in this reorganization. Accordingly, the Pro Forma Combined
Statement of Assets and Liabilities reflect a stock split of 1.650255775,
1.648086922, 1.641518889, 1.647300219, and 1.644034959 for High Yield Bond Class
A, Class B, Class C, Class I and Class II, respectively. The stock split is
assumed to have occurred prior to the reorganization. High Yield Bond Class C
and Class II will be redesignated Class II and Class Z, respectively. The Pro
Forma Combined Statement of Assets and Liabilities has been restated to reflect
an exchange of shares as of the close of business on March 31, 2001.
Notwithstanding the foregoing, High Income is the surviving entity in the
transaction for legal and tax reporting purposes. American International Group,
Inc. will pay the cost of the reorganization.
The Pro Forma Statements should be read in conjunction with the
historical financial statements of High Income and High Yield Bond included in
their respective Statements of Additional Information.
2. VALUATION
Securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed by the
Adviser to be over-the-counter, are valued at the quoted bid price provided by
principal market markers. Securities listed on the New York Stock Exchange
("NYSE") or other national securities exchanges, are valued on the basis of the
last sale price on the exchange on which they are primarily traded. If there is
no sale on that day, then securities are valued at the closing bid price on the
NYSE or other primary exchange for that day. However, if the last sale price on
the NYSE is different than the last sale price on any other exchange, the NYSE
price is used. Securities that are traded on foreign exchanges are ordinarily
valued at the last quoted sale price available before the time when the assets
are valued. If a security's price is available from more than one foreign
exchange, a Portfolio uses the exchange that is the primary market for the
security. Values of portfolio securities primarily traded
B-28
on foreign exchanges are already translated into U.S. dollars when received from
a quotation service. Options traded on national exchanges are valued as of the
close of the exchange on which they are traded. Futures and options traded on
commodities exchanges are valued at their last sale price as of the close of
such exchange. The Portfolios may make use of a pricing service in the
determination of their net asset values. Securities for which market quotations
are not readily available and other assets are valued at fair value as
determined pursuant to procedures adopted in good faith by the Directors. Short-
term securities which mature in less than 60 days are valued at amortized cost,
if their original maturity was 60 days or less, or by amortizing their value on
the 61st day prior to maturity, if their original term to maturity exceeded 60
days.
3. CAPITAL SHARES
The pro forma combined net asset value per share assumes the issuance
of additional shares of High Yield Bond which would have been issued at March
31, 2001 in connection with the proposed reorganization. The amount of
additional shares assumed to be issued was calculated based on the March 31,
2001 net asset value (after the aforementioned stock split and redesignation of
shares) of High Yield Class A ($5.03), Class B ($5.03), Class II ($5.05), Class
I ($5.03) and Class Z ($5.03).
The pro forma number of shares outstanding are as follows:
Class A Class B Class II Class I Class Z
----------------------------------- ---------------- ----------------- --------------- ---------------- -----------------
<s><c>
Shares of High Yield Bond 101,296 607,248 199,405 425,099 12,514,039
----------------------------------- ---------------- ----------------- --------------- ---------------- -----------------
Additional Shares assumed to be
issued to High Income 10,532,517 13,341,244 4,039,070 0 0
----------------------------------- ---------------- ----------------- --------------- ---------------- -----------------
Pro Forma
Shares outstanding 10,633,813 13,948,492 4,238,475 425,099 12,514,039
----------------------------------- ---------------- ----------------- --------------- ---------------- -----------------
These pro forma financial statements assume that all shares of High
Income Class A, Class B, and Class II outstanding on March 31, 2001 were
exchanged for High Yield Bond Class A, Class B, and Class II shares,
respectively. Class I and Class Z were not affected by the combination.
4. PRO FORMA OPERATING EXPENSES
The Pro Forma Statement of Operations assumes expense adjustments based
on the agreements of High Income. Certain accounts have been adjusted to reflect
the expenses of the combined entity more closely. Pro forma operating expenses
include the expenses of High Income and High Yield Bond combined, adjusted for
certain items which are factually supportable. Advisory fees have been charged
B-29
to the combined entity based upon the contract in effect for High Income at the
level of assets of the combined fund for the stated period.
B-30
SUNAMERICA INCOME FUNDS TAX EXEMPT INSURED FUND
NORTH AMERICAN FUNDS MUNICIPAL BOND FUND
PROFORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2001
(unaudited)
North American Funds SunAmerica Income Funds
Municipal Bond Tax Exempt Insured
Fund Fund
--------------------- -------------------------
<s><c>
ASSETS:
Investment securities, at value (identified cost $21,586,687,
$79,449,448, and $101,036,135, respectively) $ 22,156,887 $ 86,314,394
Short-term securities (identified cost $38,104, $3,100,000, and
$3,138,104, respectively) 38,104 3,100,000
Cash 266 71,310
Receivable for investments sold 1,100,312 --
Receivable for shares of beneficial interest sold -- 27,801
Interest and dividends receivable 248,620 1,418,942
Prepaid expenses and other assets 115,699 1,021
------------- -------------
Total assets 23,659,888 90,933,468
------------- -------------
LIABILITIES:
Payable for investments purchased 2,863,933 --
Payable for shares of beneficial interest redeemed -- 1,206,989
Dividends payable 60,955 135,331
Investment advisory and management
fees payable 919 37,360
Distribution and service maintenance
fees payable 11,477 34,928
Other accrued expenses 59,772 102,090
------------- -------------
Total liabilities 2,997,056 1,516,698
------------- -------------
Net assets $ 20,662,832 $ 89,416,770
============= =============
NET ASSETS WERE COMPOSED OF:
Common Stock, $.001, $.01, and $.01, par value $ 2,061 $ 68,678
Paid-in capital 20,362,190 84,924,283
------------- -------------
20,364,251 84,992,961
Accumulated undistributed net
investment income (loss) -- 28,741
Accumulated undistributed net realized
gain (loss) on investments, foreign
currency, and other assets and liabilities (271,619) (2,469,878)
Net unrealized appreciation (depreciation) on
investments 570,200 6,864,946
------------- -------------
Net assets $ 20,662,832 $ 89,416,770
============= =============
Pro Forma
Pro Forma Combined
Adjustments (Note 1)
-------------- -------------------
<s><c>
ASSETS:
Investment securities, at value (identified cost $21,586,687,
$79,449,448, and $101,036,135, respectively) -- $ 108,471,281
Short-term securities (identified cost $38,104, $3,100,000, and
$3,138,104, respectively) -- 3,138,104
Cash -- 71,576
Receivable for investments sold -- 1,100,312
Receivable for shares of beneficial interest sold -- 27,801
Interest and dividends receivable -- 1,667,562
Prepaid expenses and other assets (77,720)(A) 39,000
------------- -------------
Total assets (77,720) 114,515,636
------------- -------------
LIABILITIES:
Payable for investments purchased -- 2,863,933
Payable for shares of beneficial interest redeemed -- 1,206,989
Dividends payable -- 196,286
Investment advisory and management
fees payable -- 38,279
Distribution and service maintenance
fees payable -- 46,405
Other accrued expenses -- 161,862
------------- -------------
Total liabilities 0 4,513,754
------------- -------------
Net assets ($77,720) $ 110,001,882
============= =============
NET ASSETS WERE COMPOSED OF:
Common Stock, $.001, $.01, and $.01, par value $13,749 (B) 84,488
Paid-in capital (13,749)(B) 105,272,724
------------- -------------
0 105,357,212
Accumulated undistributed net
investment income (loss) (77,720)(A) (48,979)
Accumulated undistributed net realized
gain (loss) on investments, foreign
currency, and other assets and liabilities -- (2,741,497)
Net unrealized appreciation (depreciation) on
investments -- 7,435,146
------------- -------------
Net assets ($77,720) $ 110,001,882
============= =============
B-31
SUNAMERICA INCOME FUNDS TAX EXEMPT INSURED FUND
NORTH AMERICAN FUNDS MUNICIPAL BOND FUND
PROFORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2001
(unaudited)
North American Funds SunAmerica Income Funds
Municipal Bond Tax Exempt Insured
Fund Fund
-------------------- -----------------------
<s><c>
Class A:
Net assets $ 8,591,093 $ 72,393,871
Shares outstanding 857,262 5,560,423
Net asset value and redemption price per
share $ 10.02 $ 13.02
Maximum sales charge (4.75% of offering
price) 0.50 0.65
----------- --------------
Maximum offering price to public $ 10.52 $ 13.67
=========== ==============
Class B:
Net assets $ 7,979,498 $ 16,301,949
Shares outstanding 795,479 1,251,982
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) $ 10.03 $ 13.02
=========== ==============
Class II:
Net assets -- $ 720,950
Shares outstanding -- 55,383
Net asset value and redemption price per
share (excluding any applicable contingent
deferred sales charge) -- $ 13.02
Maximum sales charge (1.00% of offering
price) -- 0.13
----------- --------------
Maximum offering price to public -- $ 13.15
=========== ==============
Class C:
Net assets $ 4,092,241 --
Shares outstanding 407,967 --
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) $ 10.03 --
=========== ==============
Pro Forma
Pro Forma Combined
Adjustments (Note 1)
--------------- -----------
<s><c>
Class A:
Net assets ($32,314)(A) $80,952,650
Shares outstanding (199,906)(B) 6,217,779
Net asset value and redemption price per
share -- $ 13.02
Maximum sales charge (4.75% of offering
price) -- 0.65
----------- -----------
Maximum offering price to public -- $ 13.67
=========== ===========
Class B:
Net assets ($30,014)(A) $24,251,433
Shares outstanding (184,920)(B) 1,862,541
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) -- $ 13.02
=========== ===========
Class II:
Net assets $4,076,849 (C) $ 4,797,799
Shares outstanding 313,122 (B)(C) 368,505
Net asset value and redemption price per
share (excluding any applicable contingent
deferred sales charge) -- $ 13.02
Maximum sales charge (1.00% of offering
price) -- 0.13
----------- -----------
Maximum offering price to public -- $ 13.15
=========== ===========
Class C:
Net assets ($4,092,241)(A)(C) $ 0
Shares outstanding (407,967)(B)(C) 0
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) -- --
=========== ===========
(A) To adjust for the remaining balances of any prepaid expenses on the
North American Funds Municipal Bond Fund to be expensed prior to the
reorganization
(B) To adjust for a tax free exchange of North American Funds Municipal Bond
Fund shares for shares of SunAmerica Income Funds Tax Exempt Insured
(C) Class C shares of North American Funds Municipal Bond will receive Class II
shares of SunAmerica Income Funds Tax Exempt Insured
See Notes to Pro Forma Financial Statements
B-32
SUNAMERICA INCOME FUNDS TAX EXEMPT INSURED FUND
NORTH AMERICAN FUNDS MUNICIPAL BOND FUND
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 2001
(unaudited)
North American Funds SunAmerica Income Funds
Municipal Bond Tax Exempt Insured
Fund Fund
---------------------------- --------------------------
<s><c>
INVESTMENT INCOME:
Income:
Interest $ 982,046 $ 4,787,224
----------- -----------
Expenses:
Investment advisory and management fees 117,385 421,750
Distribution and service maintenance fees
Class A 12,630 242,251
Class B 74,279 145,428
Class II 0 5,943
Class C 37,160 0
Transfer agent fees and expenses 76,990 0
Class A 0 173,999
Class B 0 36,781
Class II 0 2,744
Registration fees 15,477 0
Class A 0 13,963
Class B 0 11,026
Class II 0 8,560
Accounting/administration 21,192 0
Custodian fees and expenses 10,838 70,120
Audit and legal fees 8,353 33,820
Miscellaneous expenses 12,259 17,937
----------- -----------
Total expenses 386,563 1,184,322
Less: expenses waived/reimbursed by investment adviser (89,414) (9,477)
Less: custody credits earned on cash balances 0 (1,690)
----------- -----------
Net expenses 297,149 1,173,155
----------- -----------
Net investment income (loss) 684,897 3,614,069
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments (3,392) 542,824
Net realized gain (loss) on futures and options contracts 0 15,412
Net change in unrealized appreciation/depreciation of
investments 205,287 3,771,709
----------- -----------
Net realized and unrealized gain (loss) on investments, foreign currency
and other assets and liabilities 201,895 4,329,945
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS: $ 886,792 $ 7,944,014
=========== ===========
Pro Forma
Pro Forma Combined
Adjustments (Note 1)
----------------------- ---------------------
<s><c>
INVESTMENT INCOME:
Income:
Interest $ 0 $ 5,769,270
----------- -----------
Expenses:
Investment advisory and management fees (19,557)(D) 519,578
Distribution and service maintenance fees
Class A 0 254,881
Class B 0 219,707
Class II 37,160 (C) 43,103
Class C (37,160)(C) 0
Transfer agent fees and expenses (76,990)(D) 0
Class A 9,021 (D) 183,020
Class B 18,570 (D) 55,351
Class II 11,891 (D) 14,635
Registration fees (15,477)(D) 0
Class A 2,037 (D) 16,000
Class B 1,974 (D) 13,000
Class II 440 (D) 9,000
Accounting/administration (21,192)(D) 0
Custodian fees and expenses (10,838)(D) 70,120
Audit and legal fees (7,173)(E) 35,000
Miscellaneous expenses (10,196)(E) 20,000
----------- -----------
Total expenses (117,491) 1,453,395
Less: expenses waived/reimbursed by investment adviser 91,563 (F) (7,328)
Less: custody credits earned on cash balances 0 (1,690)
----------- -----------
Net expenses (25,927) 1,444,377
----------- -----------
Net investment income (loss) 25,927 4,324,893
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 0 539,432
Net realized gain (loss) on futures and options contracts 0 15,412
Net change in unrealized appreciation/depreciation of
investments 0 3,976,996
----------- -----------
Net realized and unrealized gain (loss) on investments, foreign currency
and other assets and liabilities 0 4,531,840
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS: 25,927 $ 8,856,733
=========== ===========
(C) Class C shares of North American Funds Municipal Bond will receive Class II
shares of SunAmerica Income Funds Tax Exempt Insured
(D) Reflects adjustments to expenses based on surviving fund's fee schedules
and combined net assets
(E) Reflects the elimination of duplicate services or fees
(F) Reflects adjustments to expenses waived/reimbused by investment adviser
based on pro forma expenses
See Notes to Pro Forma Financial Statements
B-33
SunAmerica Income Funds Tax Exempt Insured Fund
North American Funds Municipal Bond Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
---------------------------------------------------
Municipal Tax Exempt Pro Forma
Bond Insured Combined Description
--------------- -------------- ---------------------------------------------------------------------------------------------------
<s><c>
MUNICIPAL BONDS
Alabama
130,000 - 130,000 Alabama Housing Finance Authority Single Family Mortgage Revenue Collateralized
Home Mortgage Program, Series B-2 (1)
Alaska
- 545,000 545,000 Alaska State Housing Finance Corp., Series A-2 (1)
615,000 - 615,000 Anchorage, Alaska, Lease Revenue Bonds (1)
Arizona
1,000,000 - 1,000,000 Maricopa County, AZ, Industrial Development Authority (2)
Arkansas
- 110,000 110,000 Arkansas State Development Finance Authority, Single Family Mortgage Revenue (1)
250,000 - 250,000 Camden, Arkansas, Pollution Control, (International Paper Company Project)
California
- 1,500,000 1,500,000 Anaheim, California Public Financing Authority, Revenue, Series A (1)
1,000,000 - 1,000,000 California Housing Finance Agency Home Ownership & Home Improvement
1,000,000 - 1,000,000 California State Public Works Board, (Regents Univ.), Series A
1,000,000 - 1,000,000 Los Angeles, CA, Department of Water, Series A (1)
Colorado
- 2,500,000 2,500,000 Denver Colorado City & County School District Number 1 (1)
750,000 - 750,000 Denver, Colorado, City & County Airport
2,000,000 - 2,000,000 El Paso County, Colorado, Single Family Prerefunded
- 1,960,000 1,960,000 Highlands Ranch Metropolitan District, Colorado General Obligation (1)
Delaware
750,000 - 750,000 Delaware Valley Regioinal Financial Authority
District of Columbia
650,000 - 650,000 District of Columbia Refunding (1)
Georgia
- 1,500,000 1,500,000 Municipal Electric Authority, Georgia Special Obligation, Series Y (1)
- 1,250,000 1,250,000 Municipal Electric Authority, Georgia Special Obligation, Series Y (1)
Idaho
- 825,000 825,000 Idaho Housing & Finance Association, Single Family Mortgage
Illinois
- 2,000,000 2,000,000 Chicago Illinois Board Of Education, General Obligation (1)
450,000 - 450,000 Chicago, Illinois, Water Revenue (1)
- 1,600,000 1,600,000 Cook & Du Page Counties, Illinois High School, District Number 210, General
Obligation (1)
- 4,000,000 4,000,000 Cook County, Illinois Community College, District Number 508 (1)
- 3,400,000 3,400,000 Illinois Health Facilities Authority, Lutheran General Health Systems (1)
225,000 - 225,000 Illinois State Highway Authority Toll, Series A (1)
Indiana
250,000 - 250,000 Elkhart County, Indiana, Hospital Authority
Kansas City
225,000 - 225,000 Wyandotte County, Kansas City, Unified Government (1)
150,000 - 150,000 Wyandotte County, Kansas City, Unified Government Utility System Revenue (1)
Kentucky
- 3,500,000 3,500,000 Louisville & Jefferson County, Kentucky Regional Airport Authority, Series A (1)
Louisiana
250,000 - 250,000 Louisiana Public Facilities Authority Hospital Revenue Refunding
- 2,500,000 2,500,000 New Orleans, Louisiana, Revenue Refunding (1)
Municipal
Description Coupon Maturity Date Bond
------------------------------------------------------------------------------------------- --------------- ------------
<s><c>
MUNICIPAL BONDS 107.2%
Alabama 0.6%
Alabama Housing Finance Authority Single Family Mortgage Revenue Collateralized
Home Mortgage Program, Series B-2 (1) 6.40 04/01/25
Alaska 3.3%
Alaska State Housing Finance Corp., Series A-2 (1) 7.50 12/01/15
Anchorage, Alaska, Lease Revenue Bonds (1) 5.88 02/01/13
Arizona 4.8%
Maricopa County, AZ, Industrial Development Authority (2) 3.75 11/01/14
Arkansas 1.3%
Arkansas State Development Finance Authority, Single Family Mortgage Revenue (1) 9.00 06/01/14
Camden, Arkansas, Pollution Control, (International Paper Company Project) 5.70 09/01/12
California 15.2%
Anaheim, California Public Financing Authority, Revenue, Series A (1) 0.00 09/01/18
California Housing Finance Agency Home Ownership & Home Improvement 6.15 08/01/16
California State Public Works Board, (Regents Univ.), Series A 5.25 06/01/13
Los Angeles, CA, Department of Water, Series A (1) 5.38 07/01/18
Colorado 8.7%
Denver Colorado City & County School District Number 1 (1) 5.00 12/01/23
Denver, Colorado, City & County Airport 6.00 11/15/15
El Paso County, Colorado, Single Family Prerefunded 0.00 09/01/15
Highlands Ranch Metropolitan District, Colorado General Obligation (1) 6.50 06/15/09
Delaware 3.8%
Delaware Valley Regioinal Financial Authority 5.50 08/01/28
District of Columbia 3.4%
District of Columbia Refunding (1) 5.50 06/01/09
Georgia 0.0%
Municipal Electric Authority, Georgia Special Obligation, Series Y (1) 6.40 01/01/13
Municipal Electric Authority, Georgia Special Obligation, Series Y (1) 6.40 01/01/09
Idaho 0.0%
Idaho Housing & Finance Association, Single Family Mortgage 5.63 07/01/15
Illinois 3.8%
Chicago Illinois Board Of Education, General Obligation (1) 6.75 12/01/11
Chicago, Illinois, Water Revenue (1) 6.50 11/01/15
Cook & Du Page Counties, Illinois High School, District Number 210, General
Obligation (1) 0.00 12/01/12
Cook County, Illinois Community College, District Number 508 (1) 7.70 12/01/07
Illinois Health Facilities Authority, Lutheran General Health Systems (1) 7.00 04/01/08
Illinois State Highway Authority Toll, Series A (1) 5.50 01/01/15
Indiana 1.1%
Elkhart County, Indiana, Hospital Authority 5.25 08/15/28
Kansas City 1.7%
Wyandotte County, Kansas City, Unified Government (1) 4.50 09/01/28
Wyandotte County, Kansas City, Unified Government Utility System Revenue (1) 5.75 09/01/24
Kentucky 0.0%
Louisville & Jefferson County, Kentucky Regional Airport Authority, Series A (1) 6.50 07/01/17
Louisiana 1.1%
Louisiana Public Facilities Authority Hospital Revenue Refunding 5.50 08/15/19
New Orleans, Louisiana, Revenue Refunding (1) 5.50 12/01/21
Tax Exempt Pro Forma
Description Insured Combined
---------------------------------------------------------------------------------- -------------- -------------
<s><c>
MUNICIPAL BONDS 96.5% 98.6%
Alabama 0.0% 0.1%
Alabama Housing Finance Authority Single Family Mortgage Revenue Collateralized
Home Mortgage Program, Series B-2 (1)
Alaska 0.6% 1.1%
Alaska State Housing Finance Corp., Series A-2 (1)
Anchorage, Alaska, Lease Revenue Bonds (1)
Arizona 0.0% 0.9%
Maricopa County, AZ, Industrial Development Authority (2)
Arkansas 0.1% 0.4%
Arkansas State Development Finance Authority, Single Family Mortgage Revenue (1)
Camden, Arkansas, Pollution Control, (International Paper Company Project)
California 0.7% 3.4%
Anaheim, California Public Financing Authority, Revenue, Series A (1)
California Housing Finance Agency Home Ownership & Home Improvement
California State Public Works Board, (Regents Univ.), Series A
Los Angeles, CA, Department of Water, Series A (1)
Colorado 5.3% 5.9%
Denver Colorado City & County School District Number 1 (1)
Denver, Colorado, City & County Airport
El Paso County, Colorado, Single Family Prerefunded
Highlands Ranch Metropolitan District, Colorado General Obligation (1)
Delaware 0.0% 0.7%
Delaware Valley Regioinal Financial Authority
District of Columbia 0.0% 0.6%
District of Columbia Refunding (1)
Georgia 3.6% 2.9%
Municipal Electric Authority, Georgia Special Obligation, Series Y (1)
Municipal Electric Authority, Georgia Special Obligation, Series Y (1)
Idaho 0.9% 0.8%
Idaho Housing & Finance Association, Single Family Mortgage
Illinois 13.5% 11.7%
Chicago Illinois Board Of Education, General Obligation (1)
Chicago, Illinois, Water Revenue (1)
Cook & Du Page Counties, Illinois High School, District Number 210, General
Obligation (1)
Cook County, Illinois Community College, District Number 508 (1)
Illinois Health Facilities Authority, Lutheran General Health Systems (1)
Illinois State Highway Authority Toll, Series A (1)
Indiana 0.0% 0.2%
Elkhart County, Indiana, Hospital Authority
Kansas City 0.0% 0.3%
Wyandotte County, Kansas City, Unified Government (1)
Wyandotte County, Kansas City, Unified Government Utility System Revenue (1)
Kentucky 4.4% 3.6%
Louisville & Jefferson County, Kentucky Regional Airport Authority, Series A (1)
Louisiana 3.0% 2.6%
Louisiana Public Facilities Authority Hospital Revenue Refunding
New Orleans, Louisiana, Revenue Refunding (1)
Market Value
----------------------------------------------
Municipal Tax Exempt Pro Forma
Description Bond Insured Combined
---------------------------------------------------------------------------------- - -------------- --------------- ---------------
<s><c>
MUNICIPAL BONDS
Alabama
Alabama Housing Finance Authority Single Family Mortgage Revenue Collateralized
Home Mortgage Program, Series B-2 (1) 131,395 - 131,395
Alaska
Alaska State Housing Finance Corp., Series A-2 (1) - 545,485 545,485
Anchorage, Alaska, Lease Revenue Bonds (1) 676,992 - 676,992
Arizona
Maricopa County, AZ, Industrial Development Authority (2) 1,000,000 - 1,000,000
Arkansas
Arkansas State Development Finance Authority, Single Family Mortgage Revenue (1) - 111,275 111,275
Camden, Arkansas, Pollution Control, (International Paper Company Project) 265,747 265,747
California
Anaheim, California Public Financing Authority, Revenue, Series A (1) - 613,380 613,380
California Housing Finance Agency Home Ownership & Home Improvement 1,047,810 - 1,047,810
California State Public Works Board, (Regents Univ.), Series A 1,079,370 - 1,079,370
Los Angeles, CA, Department of Water, Series A (1) 1,023,460 - 1,023,460
Colorado
Denver Colorado City & County School District Number 1 (1) - 2,449,350 2,449,350
Denver, Colorado, City & County Airport 813,855 - 813,855
El Paso County, Colorado, Single Family Prerefunded 985,360 - 985,360
Highlands Ranch Metropolitan District, Colorado General Obligation (1) - 2,268,641 2,268,641
Delaware
Delaware Valley Regioinal Financial Authority 791,175 - 791,175
District of Columbia
District of Columbia Refunding (1) 705,074 - 705,074
Georgia
Municipal Electric Authority, Georgia Special Obligation, Series Y (1) - 1,753,935 1,753,935
Municipal Electric Authority, Georgia Special Obligation, Series Y (1) - 1,429,278 1,429,278
Idaho
Idaho Housing & Finance Association, Single Family Mortgage - 850,443 850,443
Illinois
Chicago Illinois Board Of Education, General Obligation (1) - 2,394,740 2,394,740
Chicago, Illinois, Water Revenue (1) 533,219 - 533,219
Cook & Du Page Counties, Illinois High School, District Number 210, General
Obligation (1) - 918,832 918,832
Cook County, Illinois Community College, District Number 508 (1) - 4,846,320 4,846,320
Illinois Health Facilities Authority, Lutheran General Health Systems (1) - 3,945,564 3,945,564
Illinois State Highway Authority Toll, Series A (1) 243,063 - 243,063
Indiana
Elkhart County, Indiana, Hospital Authority 221,687 - 221,687
Kansas City
Wyandotte County, Kansas City, Unified Government (1) 199,507 - 199,507
Wyandotte County, Kansas City, Unified Government Utility System Revenue (1) 159,234 - 159,234
Kentucky
Louisville & Jefferson County, Kentucky Regional Airport Authority, Series A (1) - 3,957,170 3,957,170
Louisiana
Louisiana Public Facilities Authority Hospital Revenue Refunding 238,585 - 238,585
New Orleans, Louisiana, Revenue Refunding (1) - 2,659,725 2,659,725
B-34
SunAmerica Income Funds Tax Exempt Insured Fund
North American Funds Municipal Bond Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
---------------------------------------------------
Municipal Tax Exempt Pro Forma
Bond Insured Combined Description
--------------- -------------- ---------------------------------------------------------------------------------------------------
<s><c>
Maine
- 1,700,000 1,700,000 Maine State Housing Authority Mortgage Purchase (1)
25,000 - 25,000 Maine State Housing Authority Mortgage Purchase, Revenue Series A-4
Maryland
250,000 - 250,000 Maryland State Transit Authority, Facility Projects Revenue Board
Massachusetts
200,000 - 200,000 Massachusetts State Health & Educational Facilities, Partners Healthcare System
- 875,000 875,000 Massachusetts State Housing Finance Agency, Insured Rental, Series A (1)
- 1,000,000 1,000,000 Massachusetts State Port Authority Revenue (1)
1,000,000 - 1,000,000 Massachusetts State Turnpike Authority
Michigan
- 2,000,000 2,000,000 Detroit Michigan Sewage Disposal Revenue (1)
- 2,735,000 2,735,000 Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government
Loan (1)
- 2,875,000 2,875,000 Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government
Loan (1)
250,000 - 250,000 Michigan State Hospital Finance Authority, Ascension Health Credit Service (1)
- 1,000,000 1,000,000 Michigan State Hospital Finance Authority, Revenue, Series A (1)
Minnesota
- 2,100,000 2,100,000 Minneapolis & St. Paul Minnesota, Metropolitan Airports, Revenue, Series B (1)
Missouri
200,000 - 200,000 Missouri Higher Education Loan Authority (2)
- 5,000,000 5,000,000 Sikeston, Missouri Electric, Revenue (1)
Nevada
- 1,500,000 1,500,000 Clark County, Nevada Public Facilities, General Obligation, Series C (1)
- 4,945,000 4,945,000 Nevada Housing Division, Single Family Mortgage Revenue, Series A (1) (2)
225,000 - 225,000 Nevada Housing Division, Single-Family Revenue Program, B-2
285,000 - 285,000 Nevada Housing Division, Single-Family Revenue Program, Issue C (1)
New Jersey
800,000 - 800,000 New Jersey State Highway, Garden State Parkway (1)
- 2,500,000 2,500,000 New Jersey State Transportation Trust Fund Authority, Transportation Systems
Revenue, Series B (1)
New Mexico
- 80,000 80,000 New Mexico Mortgage Finance Authority, Single Family Mortgage Revenue,
Series C (1)
New York
345,000 - 345,000 New York Mortgage Agency
225,000 - 225,000 New York Mortgage Agency
- 3,000,000 3,000,000 New York State Dormitory Authority Revenue (1)
250,000 - 250,000 New York State Dormitory Authority
480,000 - 480,000 New York State Environmental Facilities Corp.
750,000 - 750,000 New York, New York, Series B, General Obligation
- 445,000 445,000 Niagara Falls, New York, General Obligation (1)
- 555,000 555,000 Niagara Falls, New York, General Obligation (1)
North Carolina
- 2,000,000 2,000,000 North Carolina Housing Finance Agency, Revenue, Home Ownership, Series 8A
North Dakota
640,000 - 640,000 North Dakota State Water Commission Facilities Authority Revenue, Series A (1)
Ohio
- 2,885,000 2,885,000 Lucas County, Ohio Hospital Revenue, St. Vincent Medical Center (1)
- 1,000,000 1,000,000 Woodridge, Ohio Local School District, General Obligation (1)
Description Coupon Maturity Date
----------------------------------------------------------------------------------------------- ---------- ---------------
<s><c>
Maine
Maine State Housing Authority Mortgage Purchase (1) 5.95 11/15/20
Maine State Housing Authority Mortgage Purchase, Revenue Series A-4 6.38 11/15/12
Maryland
Maryland State Transit Authority, Facility Projects Revenue Board 6.80 07/01/16
Massachusetts
Massachusetts State Health & Educational Facilities, Partners Healthcare System 5.13 07/01/19
Massachusetts State Housing Finance Agency, Insured Rental, Series A (1) 6.60 07/01/14
Massachusetts State Port Authority Revenue (1) 6.25 07/01/17
Massachusetts State Turnpike Authority 5.00 01/01/13
Michigan
Detroit Michigan Sewage Disposal Revenue (1) 5.00 07/01/27
Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government
Loan (1) 0.00 05/01/16
Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government
Loan (1) 0.00 05/01/17
Michigan State Hospital Finance Authority, Ascension Health Credit Service (1) 5.25 11/15/09
Michigan State Hospital Finance Authority, Revenue, Series A (1) 6.25 11/15/14
Minnesota
Minneapolis & St. Paul Minnesota, Metropolitan Airports, Revenue, Series B (1) 5.63 01/01/14
Missouri
Missouri Higher Education Loan Authority (2) 3.65 03/01/20
Sikeston, Missouri Electric, Revenue (1) 6.20 06/01/10
Nevada
Clark County, Nevada Public Facilities, General Obligation, Series C (1) 5.00 06/01/24
Nevada Housing Division, Single Family Mortgage Revenue, Series A (1) (2) 8.63 04/01/16
Nevada Housing Division, Single-Family Revenue Program, B-2 6.95 10/01/26
Nevada Housing Division, Single-Family Revenue Program, Issue C (1) 6.35 10/01/12
New Jersey
New Jersey State Highway, Garden State Parkway (1) 5.25 01/01/18
New Jersey State Transportation Trust Fund Authority, Transportation Systems
Revenue, Series B (1) 6.50 06/15/10
New Mexico
New Mexico Mortgage Finance Authority, Single Family Mortgage Revenue,
Series C (1) 8.63 07/01/17
New York
New York Mortgage Agency 6.35 04/01/21
New York Mortgage Agency 4.70 04/01/11
New York State Dormitory Authority Revenue (1) 4.75 08/01/27
New York State Dormitory Authority 6.00 02/15/07
New York State Environmental Facilities Corp. 7.13 07/01/12
New York, New York, Series B, General Obligation 5.75 08/01/14
Niagara Falls, New York, General Obligation (1) 7.50 03/01/13
Niagara Falls, New York, General Obligation (1) 7.50 03/01/14
North Carolina
North Carolina Housing Finance Agency, Revenue, Home Ownership, Series 8A 6.20 07/01/16
North Dakota
North Dakota State Water Commission Facilities Authority Revenue, Series A (1) 6.00 08/01/12
Ohio
Lucas County, Ohio Hospital Revenue, St. Vincent Medical Center (1) 6.50 08/15/07
Woodridge, Ohio Local School District, General Obligation (1) 6.80 12/01/14
Municipal Tax Exempt Pro Forma
Description Bond Insured Combined
--------------------------------------------------------------------------------- ------------ -------------- -------------
<s><c>
Maine 0.1% 2.0% 1.6%
Maine State Housing Authority Mortgage Purchase (1)
Maine State Housing Authority Mortgage Purchase, Revenue Series A-4
Maryland 1.4% 0.0% 0.3%
Maryland State Transit Authority, Facility Projects Revenue Board
Massachusetts 6.0% 2.3% 3.0%
Massachusetts State Health & Educational Facilities, Partners Healthcare System
Massachusetts State Housing Finance Agency, Insured Rental, Series A (1)
Massachusetts State Port Authority Revenue (1)
Massachusetts State Turnpike Authority
Michigan 1.3% 6.2% 5.3%
Detroit Michigan Sewage Disposal Revenue (1)
Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government
Loan (1)
Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government
Loan (1)
Michigan State Hospital Finance Authority, Ascension Health Credit Service (1)
Michigan State Hospital Finance Authority, Revenue, Series A (1)
Minnesota 0.0% 2.5% 2.0%
Minneapolis & St. Paul Minnesota, Metropolitan Airports, Revenue, Series B (1)
Missouri 1.0% 6.4% 5.4%
Missouri Higher Education Loan Authority (2)
Sikeston, Missouri Electric, Revenue (1)
Nevada 2.6% 7.3% 6.4%
Clark County, Nevada Public Facilities, General Obligation, Series C (1)
Nevada Housing Division, Single Family Mortgage Revenue, Series A (1) (2)
Nevada Housing Division, Single-Family Revenue Program, B-2
Nevada Housing Division, Single-Family Revenue Program, Issue C (1)
New Jersey 3.9% 3.3% 3.4%
New Jersey State Highway, Garden State Parkway (1)
New Jersey State Transportation Trust Fund Authority, Transportation Systems
Revenue, Series B (1)
New Mexico 0.0% 0.1% 0.1%
New Mexico Mortgage Finance Authority, Single Family Mortgage Revenue,
Series C (1)
New York 10.5% 4.5% 5.7%
New York Mortgage Agency
New York Mortgage Agency
New York State Dormitory Authority Revenue (1)
New York State Dormitory Authority
New York State Environmental Facilities Corp.
New York, New York, Series B, General Obligation
Niagara Falls, New York, General Obligation (1)
Niagara Falls, New York, General Obligation (1)
North Carolina 0.0% 2.4% 1.9%
North Carolina Housing Finance Agency, Revenue, Home Ownership, Series 8A
North Dakota 3.4% 0.0% 0.7%
North Dakota State Water Commission Facilities Authority Revenue, Series A (1)
Ohio 0.0% 4.8% 3.9%
Lucas County, Ohio Hospital Revenue, St. Vincent Medical Center (1)
Woodridge, Ohio Local School District, General Obligation (1)
Market Value
---------------------------------------------
Municipal Tax Exempt Pro Forma
Description Bond Insured Combined
--------------------------------------------------------------------------------- ------------- --------------- ---------------
<s><c>
Maine
Maine State Housing Authority Mortgage Purchase (1) - 1,766,793 1,766,793
Maine State Housing Authority Mortgage Purchase, Revenue Series A-4 25,612 - 25,612
Maryland
Maryland State Transit Authority, Facility Projects Revenue Board 297,555 - 297,555
Massachusetts
Massachusetts State Health & Educational Facilities, Partners Healthcare System 188,990 - 188,990
Massachusetts State Housing Finance Agency, Insured Rental, Series A (1) - 924,053 924,053
Massachusetts State Port Authority Revenue (1) - 1,089,680 1,089,680
Massachusetts State Turnpike Authority 1,050,780 - 1,050,780
Michigan
Detroit Michigan Sewage Disposal Revenue (1) - 1,932,620 1,932,620
Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government
Loan (1) - 1,277,519 1,277,519
Michigan Municipal Bond Authority, Revenue Capital Appreciation, Local Government
Loan (1) - 1,264,856 1,264,856
Michigan State Hospital Finance Authority, Ascension Health Credit Service (1) 265,103 - 265,103
Michigan State Hospital Finance Authority, Revenue, Series A (1) - 1,109,500 1,109,500
Minnesota
Minneapolis & St. Paul Minnesota, Metropolitan Airports, Revenue, Series B (1) - 2,208,696 2,208,696
Missouri
Missouri Higher Education Loan Authority (2) 200,000 - 200,000
Sikeston, Missouri Electric, Revenue (1) - 5,745,950 5,745,950
Nevada
Clark County, Nevada Public Facilities, General Obligation, Series C (1) - 1,455,435 1,455,435
Nevada Housing Division, Single Family Mortgage Revenue, Series A (1) (2) - 5,060,911 5,060,911
Nevada Housing Division, Single-Family Revenue Program, B-2 233,825 - 233,825
Nevada Housing Division, Single-Family Revenue Program, Issue C (1) 293,430 - 293,430
New Jersey
New Jersey State Highway, Garden State Parkway (1) 806,448 - 806,448
New Jersey State Transportation Trust Fund Authority, Transportation Systems
Revenue, Series B (1) - 2,954,025 2,954,025
New Mexico
New Mexico Mortgage Finance Authority, Single Family Mortgage Revenue,
Series C (1) - 80,177 80,177
New York
New York Mortgage Agency 357,068 - 357,068
New York Mortgage Agency 226,413 - 226,413
New York State Dormitory Authority Revenue (1) - 2,773,380 2,773,380
New York State Dormitory Authority 275,385 - 275,385
New York State Environmental Facilities Corp. 488,568 - 488,568
New York, New York, Series B, General Obligation 816,143 - 816,143
Niagara Falls, New York, General Obligation (1) - 566,623 566,623
Niagara Falls, New York, General Obligation (1) - 711,060 711,060
North Carolina
North Carolina Housing Finance Agency, Revenue, Home Ownership, Series 8A - 2,128,020 2,128,020
North Dakota
North Dakota State Water Commission Facilities Authority Revenue, Series A (1) 719,232 - 719,232
Ohio
Lucas County, Ohio Hospital Revenue, St. Vincent Medical Center (1) - 3,054,667 3,054,667
Woodridge, Ohio Local School District, General Obligation (1) - 1,226,380 1,226,380
B-35
SunAmerica Income Funds Tax Exempt Insured Fund
North American Funds Municipal Bond Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
---------------------------------------------------
Municipal Tax Exempt Pro Forma
Bond Insured Combined Description
--------------- -------------- ---------------------------------------------------------------------------------------------------
<s><c>
Oklahoma
- 1,500,000 1,500,000 Grand River Dam Authority, Oklahoma Revenue Refunding (1)
250,000 - 250,000 Oklahoma Development Finance Authority, Public Service of Oklahoma Project (2)
Oregon
225,000 - 225,000 Port Portland Oregon Airport Revenue Bonds, Portland International Airport,
Series 12B
Pennsylvania
- 120,000 120,000 Pennsylvania Housing Finance Agency, Multi-Family Mortgage (1)
450,000 - 450,000 Philadelphia, Pennsylvania, Water & Wastewater Revenue (1)
300,000 - 300,000 Pine Richland School District, Series A
South Carolina
1,000,000 - 1,000,000 Greenville, South Carolina, Hospital Systems Facility
250,000 - 250,000 South Carolina State Public Revenue
South Dakota
- 2,120,000 2,120,000 South Dakota St. Health & Educational Facilities Authority, Revenue (1)
Tennessee
450,000 - 450,000 Humphreys County, Tennessee, Industrial Development Board Solid Waste Disposal
Revenue
Texas
270,000 - 270,000 Argyle, Texas, Independent School District
400,000 - 400,000 Austin, Texas, Water & Wastewater (1)
- 2,000,000 2,000,000 Bexar County, Texas Health Facilities Development Corp., Hospital Revenue (1)
- 1,050,000 1,050,000 Harris County Texas Hospital District Mortgage Revenue (1)
- 1,450,000 1,450,000 Harris County Texas Hospital District Mortgage Revenue (1)
- 5,000,000 5,000,000 Houston, Texas Independent School District, General Obligation
- 1,250,000 1,250,000 Houston, Texas Water Conveyance Systems Contract, Series J, Certificates of
Participation (1)
200,000 - 200,000 Kerrville, Texas, Independent School District (1)
200,000 - 200,000 Lower Colorado River Authority, Texas Prerefunded
250,000 - 250,000 Lower Colorado River Authority, Texas Revenue (1)
900,000 - 900,000 Port Arthur, Texas, Navigation District
- 2,700,000 2,700,000 San Antonio, Texas, Hotel Occupancy, Revenue (1)
65,000 - 65,000 Texas State Veterans Housing Assistance, General Obligation
Virginia
- 1,000,000 1,000,000 Virginia State Housing Development Authority, Multi-Family, Series H,
Washington
225,000 - 225,000 Central Puget Sound, Washington, Regional (1)
- 2,000,000 2,000,000 Washington State Housing
Wisconsin
55,000 - 55,000 Wisconsin Housing & Economic Development Authority Home Ownership Revenue,
Series D (1)
500,000 - 500,000 Wisconsin State Health & Educational Facilities Authority Revenue, Mercy Hospital
of Janesville, Inc.
Wyoming
140,000 - 140,000 Green River-Sweetwater County, Wyoming (1)
Total Investment Securities
(cost $21,586,687; $79,449,448; $101,036,135)
SHORT-TERM SECURITIES
Nevada
- 1,100,000 1,100,000 Clark County Nevada School District
Texas
Description Coupon Maturity Date
---------------------------------------------------------------------------------- ---------- ---------------
<s> <c>
Oklahoma
Grand River Dam Authority, Oklahoma Revenue Refunding (1) 6.25 06/01/11
Oklahoma Development Finance Authority, Public Service of Oklahoma Project (2) 4.88 06/01/14
Oregon
Port Portland Oregon Airport Revenue Bonds, Portland International Airport,
Series 12B 5.25 07/01/11
Pennsylvania
Pennsylvania Housing Finance Agency, Multi-Family Mortgage (1) 9.38 08/01/28
Philadelphia, Pennsylvania, Water & Wastewater Revenue (1) 6.25 08/01/12
Pine Richland School District, Series A 0.00 09/01/23
South Carolina
Greenville, South Carolina, Hospital Systems Facility 5.50 05/01/26
South Carolina State Public Revenue 5.63 01/01/13
South Dakota
South Dakota St. Health & Educational Facilities Authority, Revenue (1) 6.25 07/01/10
Tennessee
Humphreys County, Tennessee, Industrial Development Board Solid Waste Disposal
Revenue 6.70 05/01/24
Texas
Argyle, Texas, Independent School District 0.00 08/15/14
Austin, Texas, Water & Wastewater (1) 6.50 05/15/05
Bexar County, Texas Health Facilities Development Corp., Hospital Revenue (1) 6.75 08/15/19
Harris County Texas Hospital District Mortgage Revenue (1) 7.40 02/15/10
Harris County Texas Hospital District Mortgage Revenue (1) 7.40 02/15/10
Houston, Texas Independent School District, General Obligation 5.00 02/15/19
Houston, Texas Water Conveyance Systems Contract, Series J, Certificates of
Participation (1) 6.13 12/15/08
Kerrville, Texas, Independent School District (1) 6.00 08/15/13
Lower Colorado River Authority, Texas Prerefunded 5.25 01/01/15
Lower Colorado River Authority, Texas Revenue (1) 6.00 05/15/10
Port Arthur, Texas, Navigation District 0.00 03/01/10
San Antonio, Texas, Hotel Occupancy, Revenue (1) 0.00 08/15/17
Texas State Veterans Housing Assistance, General Obligation 6.80 12/01/23
Virginia
Virginia State Housing Development Authority, Multi-Family, Series H, 5.50 05/01/13
Washington
Central Puget Sound, Washington, Regional (1) 5.25 02/01/13
Washington State Housing 6.00 07/01/15
Wisconsin
Wisconsin Housing & Economic Development Authority Home Ownership Revenue,
Series D (1) 6.10 07/01/24
Wisconsin State Health & Educational Facilities Authority Revenue, Mercy Hospital
of Janesville, Inc. 6.60 08/15/22
Wyoming
Green River-Sweetwater County, Wyoming (1) 4.50 03/01/14
Total Investment Securities
(cost $21,586,687; $79,449,448; $101,036,135)
SHORT-TERM SECURITIES
Nevada
Clark County Nevada School District 3.85 04/02/01
Texas
Municipal Tax Exempt Pro Forma
Description Bond Insured Combined
--------------------------------------------------------------------------------- ------------ -------------- -------------
<s><c>
Oklahoma 1.2% 1.9% 1.8%
Grand River Dam Authority, Oklahoma Revenue Refunding (1)
Oklahoma Development Finance Authority, Public Service of Oklahoma Project (2)
Oregon 1.2% 0.0% 0.2%
Port Portland Oregon Airport Revenue Bonds, Portland International Airport,
Series 12B
Pennsylvania 3.0% 0.1% 0.7%
Pennsylvania Housing Finance Agency, Multi-Family Mortgage (1)
Philadelphia, Pennsylvania, Water & Wastewater Revenue (1)
Pine Richland School District, Series A
South Carolina 6.3% 0.0% 1.2%
Greenville, South Carolina, Hospital Systems Facility
South Carolina State Public Revenue
South Dakota 0.0% 2.7% 2.2%
South Dakota St. Health & Educational Facilities Authority, Revenue (1)
Tennessee 2.4% 0.0% 0.4%
Humphreys County, Tennessee, Industrial Development Board Solid Waste Disposal
Revenue
Texas 9.5% 14.1% 13.3%
Argyle, Texas, Independent School District
Austin, Texas, Water & Wastewater (1)
Bexar County, Texas Health Facilities Development Corp., Hospital Revenue (1)
Harris County Texas Hospital District Mortgage Revenue (1)
Harris County Texas Hospital District Mortgage Revenue (1)
Houston, Texas Independent School District, General Obligation
Houston, Texas Water Conveyance Systems Contract, Series J, Certificates of
Participation (1)
Kerrville, Texas, Independent School District (1)
Lower Colorado River Authority, Texas Prerefunded
Lower Colorado River Authority, Texas Revenue (1)
Port Arthur, Texas, Navigation District
San Antonio, Texas, Hotel Occupancy, Revenue (1)
Texas State Veterans Housing Assistance, General Obligation
Virginia 0.0% 1.2% 1.0%
Virginia State Housing Development Authority, Multi-Family, Series H,
Washington 1.2% 2.6% 2.3%
Central Puget Sound, Washington, Regional (1)
Washington State Housing
Wisconsin 2.7% 0.0% 0.5%
Wisconsin Housing & Economic Development Authority Home Ownership Revenue,
Series D (1)
Wisconsin State Health & Educational Facilities Authority Revenue, Mercy Hospital
of Janesville, Inc.
Wyoming 0.7% 0.0% 0.1%
Green River-Sweetwater County, Wyoming (1)
Total Investment Securities 107.2% 96.5% 98.6%
(cost $21,586,687; $79,449,448; $101,036,135)
SHORT-TERM SECURITIES 0.2% 3.5% 2.8%
Nevada 0.0% 1.2% 1.0%
Clark County Nevada School District
Texas 0.0% 2.3% 1.8%
Market Value
---------------------------------------------
Municipal Tax Exempt Pro Forma
Description Bond Insured Combined
---------------------------------------------------------------------------------------------- --------------- ---------------
<s><c>
Oklahoma
Grand River Dam Authority, Oklahoma Revenue Refunding (1) - 1,734,780 1,734,780
Oklahoma Development Finance Authority, Public Service of Oklahoma Project (2) 252,285 - 252,285
Oregon -
Port Portland Oregon Airport Revenue Bonds, Portland International Airport,
Series 12B 239,258 - 239,258
Pennsylvania
Pennsylvania Housing Finance Agency, Multi-Family Mortgage (1) - 121,566 121,566
Philadelphia, Pennsylvania, Water & Wastewater Revenue (1) 520,596 - 520,596
Pine Richland School District, Series A 91,245 - 91,245
South Carolina
Greenville, South Carolina, Hospital Systems Facility 1,020,760 - 1,020,760
South Carolina State Public Revenue 272,215 - 272,215
South Dakota
South Dakota St. Health & Educational Facilities Authority, Revenue (1) - 2,413,578 2,413,578
Tennessee
Humphreys County, Tennessee, Industrial Development Board Solid Waste Disposal
Revenue 490,689 - 490,689
Texas
Argyle, Texas, Independent School District 139,841 - 139,841
Austin, Texas, Water & Wastewater (1) 441,656 - 441,656
Bexar County, Texas Health Facilities Development Corp., Hospital Revenue (1) - 2,237,980 2,237,980
Harris County Texas Hospital District Mortgage Revenue (1) - 1,217,559 1,217,559
Harris County Texas Hospital District Mortgage Revenue (1) - 1,704,141 1,704,141
Houston, Texas Independent School District, General Obligation - 4,920,200 4,920,200
Houston, Texas Water Conveyance Systems Contract, Series J, Certificates of
Participation (1) - 1,399,975 1,399,975
Kerrville, Texas, Independent School District (1) 223,540 - 223,540
Lower Colorado River Authority, Texas Prerefunded 212,286 - 212,286
Lower Colorado River Authority, Texas Revenue (1) 281,373 - 281,373
Port Arthur, Texas, Navigation District 600,417 - 600,417
San Antonio, Texas, Hotel Occupancy, Revenue (1) - 1,163,052 1,163,052
Texas State Veterans Housing Assistance, General Obligation 67,975 - 67,975
Virginia
Virginia State Housing Development Authority, Multi-Family, Series H, - 1,043,660 1,043,660
Washington
Central Puget Sound, Washington, Regional (1) 239,276 - 239,276
Washington State Housing - 2,283,420 2,283,420
Wisconsin
Wisconsin Housing & Economic Development Authority Home Ownership Revenue,
Series D (1) 56,244 - 56,244
Wisconsin State Health & Educational Facilities Authority Revenue, Mercy Hospital
of Janesville, Inc. 506,960 - 506,960
Wyoming
Green River-Sweetwater County, Wyoming (1) 140,186 - 140,186
------------- --------------- ---------------
Total Investment Securities 22,156,887 86,314,394 108,471,281
------------- --------------- ---------------
(cost $21,586,687; $79,449,448; $101,036,135)
SHORT-TERM SECURITIES
Nevada
Clark County Nevada School District - 1,100,000 1,100,000
Texas
B-36
SunAmerica Income Funds Tax Exempt Insured Fund
North American Funds Municipal Bond Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
---------------------------------------------------
Municipal Tax Exempt Pro Forma
Bond Insured Combined Description Coupon
--------------- -------------- ----------------------------------------------------------------------------------------------
<s><c>
- 2,000,000 2,000,000 North Central Texas Health Facility Development Corp., Revenue 3.90
Other
38,104 - 38,104 SSGA Municipal Money Market Fund
Total Short-Term Securities
(cost $38,104; $3,100,000; $3,138,104)
TOTAL INVESTMENTS
(cost $21,624,791; $82,549,448; $104,174,239)
Other assets less liabilities (3)
NET ASSETS
Municipal Tax Exempt Pro Forma
Description Maturity Date Bond Insured Combined
----------------------------------------------------------------- --------------- ------------ -------------- -------------
<s><c>
North Central Texas Health Facility Development Corp., Revenue 04/02/01
Other 0.2% 0.0% 0.0%
SSGA Municipal Money Market Fund
Total Short-Term Securities
(cost $38,104; $3,100,000; $3,138,104)
TOTAL INVESTMENTS 107.4% 100.0% 101.4%
(cost $21,624,791; $82,549,448; $104,174,239)
Other assets less liabilities (3) (7.4)% 0.0% (1.4)%
------------ -------------- -------------
NET ASSETS 100.0% 100.0% 100.0%
============ ============== =============
Market Value
---------------------------------------------
Municipal Tax Exempt Pro Forma
Description Bond Insured Combined
------------------------------------------------------------------------------ --------------- ---------------
<s><c>
North Central Texas Health Facility Development Corp., Revenue - 2,000,000 2,000,000
Other
SSGA Municipal Money Market Fund 38,104 - 38,104
------------- --------------- ---------------
Total Short-Term Securities 38,104 3,100,000 3,138,104
------------- --------------- ---------------
(cost $38,104; $3,100,000; $3,138,104)
TOTAL INVESTMENTS 22,194,991 89,414,394 111,609,385
(cost $21,624,791; $82,549,448; $104,174,239) - - -
Other assets less liabilities (3) (1,532,159) 2,376 (1,607,503)
------------- --------------- ---------------
NET ASSETS $20,662,832 $89,416,770 $110,001,882
============= =============== ===============
(1) All or part of this security is insured by the Government National Mortgage
Association ("GNMA"), Financial Security Assurance ("FSA"), Federal Housing
Administration ("FHA"), Financial Guarantee Insurance Corp. ("FGIC"),
Municipal Bond Insurance Association ("MBIA"), Permanent School Fund
("PSF") or American Municipal Bond Assurance Corp. ("AMBAC") ($6,939,798 or
33.6% of Net Assets; $70,106,577 or 78.4% of Net Assets; $77,046,375 or
70.0% of Net Assets)
(2) Variable rate security; rate as of March 31, 2001
(3) To adjust ($77,720) for prepaid expenses on the North American Funds
Municipal Bond Fund to be expensed prior to the reorganization
Management does not anticipate having to sell any securities as a result of the
reorganization, however, securities may be sold due to differing portfolio
management style.
See Notes to Pro Forma Financial Statements
B-37
SUNAMERICA INCOME FUNDS TAX EXEMPT INSURED FUND
NORTH AMERICAN FUNDS MUNICIPAL BOND FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
MARCH 31, 2001
(unaudited)
1. BASIS OF COMBINATION
The Pro Forma Combined Statement of Assets and Liabilities, including
the Portfolio of Investments at March 31, 2001, and related Statement of
Operations ("Pro Forma Statements") for the twelve months ended March 31, 2001,
reflect the accounts of the Tax Exempt Insured Fund ("Tax Exempt Insured") a
separately managed portfolio of SunAmerica Income Funds, and Municipal Bond Fund
("Municipal Bond") a separately managed portfolio of North American Funds. The
Pro Forma Combined Statement of Assets and Liabilities has been restated to
reflect a tax free exchange of Municipal Bond Class A, Class B and Class C
shares as of the close of business on March 31, 2001. American International
Group, Inc. will pay the cost of the reorganization.
The Pro Forma Statements give effect to the proposed transfer of all
assets and liabilities of Municipal Bond in exchange for shares of Tax Exempt
Insured. In conjunction with the reorganization, Tax Exempt Insured is the
surviving fund.
The Pro Forma Statements should be read in conjunction with the
historical financial statements of Tax Exempt Insured and Municipal Bond
included in their respective Statements of Additional Information.
2. VALUATION
Securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed by the
Adviser to be over-the-counter, are valued at the quoted bid price provided by
principal market markers. Securities listed on the New York Stock Exchange
("NYSE") or other national securities exchanges, are valued on the basis of the
last sale price on the exchange on which they are primarily traded. If there is
no sale on that day, then securities are valued at the closing bid price on the
NYSE or other primary exchange for that day. However, if the last sale price on
the NYSE is different than the last sale price on any other exchange, the NYSE
price is used. Securities that are traded on foreign exchanges are ordinarily
valued at the last quoted sale price available before the time when the assets
are valued. If a security's price is available from more than one foreign
exchange, a Portfolio uses the exchange that is the primary market for the
security. Values of portfolio securities primarily traded on foreign exchanges
are already translated into U.S. dollars when received from a quotation service.
Options traded on national exchanges are valued as of the close of the exchange
on which they are traded. Futures and options traded on commodities exchanges
are valued at their last sale price as of the close of such exchange. The
Portfolios may make use of a pricing service in the determination of their net
asset
B-38
values. Securities for which market quotations are not readily available and
other assets are valued at fair value as determined pursuant to procedures
adopted in good faith by the Directors. Short-term securities which mature in
less than 60 days are valued at amortized cost, if their original maturity was
60 days or less, or by amortizing their value on the 61st day prior to maturity,
if their original term to maturity exceeded 60 days.
3. CAPITAL SHARES
The pro forma combined net asset value per share assumes the issuance
of additional shares of Tax Exempt Insured which would have been issued at March
31, 2001 in connection with the proposed reorganization. The amount of
additional shares assumed to be issued was calculated based on the March 31,
2001 net asset value of Tax Exempt Insured Class A ($13.02), Class B ($13.02),
and Class II ($13.02). The Class C shares of Municipal Bond will receive Class
II shares of Tax Exempt Insured.
The pro forma number of shares outstanding are determined as follows:
Class A Class B Class II
----------------------------------- ---------------- ----------------- ---------------
<s><c>
Shares of Tax Exempt Insured
5,560,423 1,251,982 55,383
----------------------------------- ---------------- ----------------- ---------------
Additional Shares to be issued to
Municipal Bond 657,356 610,559 313,122
----------------------------------- ---------------- ----------------- ---------------
Pro Forma
Shares outstanding 6,217,779 1,862,541 368,505
--------------------------------------------------------------------------------------
These pro forma financial statements assume that all shares of
Municipal Bond Class A, Class B and Class C outstanding on March 31, 2001 were
exchanged, tax free, for Tax Exempt Insured Class A, Class B, and Class II
shares, respectively.
4. PRO FORMA OPERATING EXPENSES
The Pro Forma Statement of Operations assumes expense adjustments based
on the agreements of Tax Exempt Insured, the surviving entity. Certain accounts
have been adjusted to reflect the expenses of the combined entity more closely.
Pro forma operating expenses include the expenses of Tax Exempt Insured and
Municipal Bond combined, adjusted for certain items which are factually
supportable. Advisory fees have been charged to the combined entity based upon
the contract in effect for Tax Exempt Insured at the level of assets of the
combined fund for the stated period.
B-39
NORTH AMERICAN FUNDS U.S. GOVERNMENT SECURITIES FUND
SUNAMERICA INCOME FUNDS U.S. GOVERNMENT SECURITIES FUND
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2001
(unaudited)
North American Funds SunAmerica Income Funds
U.S. Government U.S. Government
Securities Fund Securities Fund
-------------------------- -----------------------
<s><c>
ASSETS:
Investment securities, at value (identified cost $49,283,651,
$204,215,882, and $253,499,533, respectively) $ 49,972,658 $ 204,371,607
Short-term securities (identified cost $0, $24,831,303, and
$24,831,303, respectively) -- 24,831,303
Repurchase agreements (cost equals market) 4,123,000 27,983,000
Cash 860 --
Receivable for investments sold 7,984 11,274,404
Receivable for shares of beneficial interest sold 1,002,685 689,487
Interest and dividends receivable 374,507 1,653,907
Receivable from investment adviser -- 13
Prepaid expenses and other assets 117,636 2,327
------------- -------------
Total assets 55,599,330 270,806,048
------------- -------------
LIABILITIES:
Payable for investments purchased 4,343,454 50,621,508
Payable for securities loaned -- 11,302,500
Payable for shares of beneficial interest redeemed 4,945 3,113,150
Dividends payable 431,104 343,793
Investment advisory and management
fees payable 13,697 127,495
Distribution and service maintenance
fees payable 24,134 76,419
Other accrued expenses 106,088 237,091
Due to custodian bank -- 72,077
------------- -------------
Total liabilities 4,923,422 65,894,033
------------- -------------
Net assets $ 50,675,908 $ 204,912,015
============= =============
NET ASSETS WERE COMPOSED OF:
Common Stock,$.001, $.01, and $.01 par value $ 5,158 $ 230,059
Paid-in capital 52,820,107 227,565,797
------------- -------------
52,825,265 227,795,856
Accumulated undistributed net
investment income (loss) (469,209) 60,202
Accumulated undistributed net realized
gain (loss) on investments, foreign
currency, and other assets and liabilities (2,369,155) (23,099,768)
Net unrealized appreciation (depreciation) on
investments 689,007 155,725
------------- -------------
Net assets $ 50,675,908 $ 204,912,015
============= =============
Pro Forma
Pro Forma Combined
Adjustments (Note 1)
-------------------- ---------------------
<s><c>
ASSETS:
Investment securities, at value (identified cost $49,283,651,
$204,215,882, and $253,499,533, respectively) -- $ 254,344,265
Short-term securities (identified cost $0, $24,831,303, and
$24,831,303, respectively) -- 24,831,303
Repurchase agreements (cost equals market) -- 32,106,000
Cash -- 860
Receivable for investments sold -- 11,282,388
Receivable for shares of beneficial interest sold -- 1,692,172
Interest and dividends receivable -- 2,028,414
Receivable from investment adviser -- 13
Prepaid expenses and other assets (42,525)(A) 77,438
------------- -------------
Total assets (42,525) 326,362,853
------------- -------------
LIABILITIES:
Payable for investments purchased -- 54,964,962
Payable for securities loaned -- 11,302,500
Payable for shares of beneficial interest redeemed -- 3,118,095
Dividends payable -- 774,897
Investment advisory and management
fees payable -- 141,192
Distribution and service maintenance
fees payable -- 100,553
Other accrued expenses -- 343,179
Due to custodian bank -- 72,077
------------- -------------
Total liabilities 0 70,817,455
------------- -------------
Net assets ($ 42,525) $ 255,545,398
============= =============
NET ASSETS WERE COMPOSED OF:
Common Stock,$.001, $.01, and $.01 par value $51,670 (B) 286,887
Paid-in capital (51,670)(B) 280,334,234
------------- -------------
0 280,621,121
Accumulated undistributed net
investment income (loss) (42,525)(A) (451,532)
Accumulated undistributed net realized
gain (loss) on investments, foreign
currency, and other assets and liabilities -- (25,468,923)
Net unrealized appreciation (depreciation) on
investments -- 844,732
------------- -------------
Net assets ($ 42,525) $ 255,545,398
============= =============
B-40
NORTH AMERICAN FUNDS U.S. GOVERNMENT SECURITIES FUND
SUNAMERICA INCOME FUNDS U.S. GOVERNMENT SECURITIES FUND
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2001
(unaudited)
North American Funds SunAmerica Income Funds
U.S. Government U.S. Government
Securities Fund Securities Fund
---------------------- -----------------------
Class A:
Net assets $ 33,746,846 $ 169,523,987
Shares outstanding 3,434,666 19,032,935
Net asset value and redemption price per
share $ 9.83 $ 8.91
Maximum sales charge (4.75% of offering
price) 0.49 0.44
------------ ---------------
Maximum offering price to public $ 10.32 $ 9.35
============ ===============
Class B:
Net assets $ 9,485,878 $ 32,085,141
Shares outstanding 965,374 3,602,311
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) $ 9.83 $ 8.91
============ ===============
Class II:
Net assets -- $ 3,302,887
Shares outstanding -- 370,663
Net asset value and redemption price per
share (excluding any applicable contingent
deferred sales charge) -- $ 8.91
Maximum sales charge (1.00% of offering
price) -- 0.09
------------ ---------------
Maximum offering price to public -- $ 9.00
============ ===============
Class C:
Net assets $ 7,443,184 --
Shares outstanding 757,505 --
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) $ 9.83 --
============ ===============
Class I:
Net assets -- --
Shares outstanding -- --
Net asset value, offering and redemption
price per share -- --
============ ===============
Pro Forma
Pro Forma Combined
Adjustments (Note 1)
------------------ -------------
Class A:
Net assets ($ 28,319)(A) $203,242,514
Shares outstanding 349,680 (B) 22,817,281
Net asset value and redemption price per
share -- $ 8.91
Maximum sales charge (4.75% of offering
price) -- 0.44
-------------- ------------
Maximum offering price to public -- $ 9.35
============== ============
Class B:
Net assets ($ 7,960)(A) $ 41,563,059
Shares outstanding 98,365 (B) 4,666,050
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) -- $ 8.91
============== ============
Class II:
Net assets $ 7,436,938 (D) $ 10,739,825
Shares outstanding 834,673 (B)(D) 1,205,336
Net asset value and redemption price per
share (excluding any applicable contingent
deferred sales charge) -- $ 8.91
Maximum sales charge (1.00% of offering
price) -- 0.09
-------------- ------------
Maximum offering price to public -- $ 9.00
============== ============
Class C:
Net assets ($ 7,443,184)(A)(D) $ 0
Shares outstanding (757,505)(B)(D) 0
Net asset value, offering and redemption
price per share (excluding any applicable
contingent deferred sales charge) -- --
============== ============
Class I:
Net assets -- --
Shares outstanding -- --
Net asset value, offering and redemption
price per share -- $ 8.91 (C)
============== ============
(A) To adjust for the remaining balances of any prepaid expenses on the North
American Funds U.S. Government Securities Fund to be expensed prior to the
reorganization
(B) To adjust for a tax free exchange of North American Funds U.S. Government
Securities Fund shares for shares of SunAmerica Income Funds U.S.
Government Securities Fund
(C) Class I shares will be offered on SunAmerica Income Funds U.S. Government
Securities and will assume the net asset value of Class A
(D) Class C shares of North American Funds U.S. Government Securities Fund will
receive Class II shares of SunAmerica Income Funds U.S. Government
Securities Fund
See Notes to Pro Forma Financial Statements
B-41
NORTH AMERICAN FUNDS U.S. GOVERNMENT SECURITIES FUND
SUNAMERICA INCOME FUNDS U.S. GOVERNMENT SECURITIES FUND
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 2001
(unaudited)
North American Funds SunAmerica Income Funds
U.S. Government U.S. Government
Securities Fund Securities Fund
-------------------- ----------------------
INVESTMENT INCOME:
Income:
Interest $ 3,176,412 $ 12,703,624
------------ ------------
Expenses:
Investment advisory and management fees 291,743 1,408,067
Distribution and service maintenance fees
Class A 111,431 547,430
Class B 95,420 299,456
Class II 0 13,977
Class C 72,443 0
Transfer agent fees and expenses 116,418 0
Class A 0 417,133
Class B 0 83,281
Class II 0 5,090
Registration fees 32,363 0
Class A 0 12,870
Class B 0 8,768
Class II 0 16,079
Accounting/administration 51,121 0
Custodian fees and expenses 26,909 76,312
Audit and legal fees 20,634 38,420
Miscellaneous expenses 24,309 112,141
------------ ------------
Total expenses 842,791 3,039,024
Less: expenses waived/reimbursed by investment adviser (109,345) (16,427)
Less: custody credits earned on cash balances 0 (3,737)
------------ ------------
Net expenses 733,446 3,018,860
------------ ------------
Net investment income (loss) 2,442,966 9,684,764
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 513,044 6,314,865
Net change in unrealized appreciation/depreciation of
investments 620,353 6,463,195
------------ ------------
Net realized and unrealized gain (loss) on investments, foreign currency
and other assets and liabilities 1,133,397 12,778,060
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS: $ 3,576,363 $ 22,462,824
============ ============
Pro Forma
Pro Forma Combined
Adjustments (Note 1)
------------ ---------
INVESTMENT INCOME:
Income:
Interest $ 0 $ 15,880,036
------------ ------------
Expenses:
Investment advisory and management fees (174,281)(E) 1,525,529
Distribution and service maintenance fees
Class A 0 658,861
Class B 0 394,876
Class II 72,443 (D) 86,420
Class C (72,443)(D) 0
Transfer agent fees and expenses (116,418)(E) 0
Class A 85,961 (E) 503,094
Class B 26,718 (E) 109,999
Class II 23,906 (E) 28,996
Registration fees (32,363)(E) 0
Class A 4,130 (E) 17,000
Class B 3,232 (E) 12,000
Class II (6,079)(E) 10,000
Accounting/administration (51,121)(E) 0
Custodian fees and expenses (8,671)(E) 94,550
Audit and legal fees (24,054)(F) 35,000
Miscellaneous expenses (21,450)(F) 115,000
------------ ------------
Total expenses (290,490) 3,591,325
Less: expenses waived/reimbursed by investment adviser 3,263 (G) (122,509)
Less: custody credits earned on cash balances 0 (3,737)
------------ ------------
Net expenses (287,227) 3,465,079
------------ ------------
Net investment income (loss) 287,227 12,414,957
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 0 6,827,909
Net change in unrealized appreciation/depreciation of
investments 0 7,083,548
------------ ------------
Net realized and unrealized gain (loss) on investments, foreign
currency and other assets and liabilities 0 13,911,457
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS: $ 287,227 $ 26,326,414
============ ============
(D) Class C shares of North American Funds U.S. Government Securities Fund will
receive Class II shares of SunAmerica Income Funds U.S. Government
Securities Fund
(E) Reflects adjustments to expenses based on surviving fund's fee schedules
and combined net assets
(F) Reflects the elimination of duplicate services or fees
(G) Reflects adjustments to expenses waived/reimbursed by investment adviser
based on pro forma expenses
See Notes to Pro Forma Financial Statements
B-42
SunAmerica Income Funds U.S. Government Securities Fund
North American Funds U.S. Government Securities Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
----------------------------------------------------------
North American SunAmerica
U.S. Government U.S. Government Pro Forma
Securities Securities Combined Description Coupon
---------------------- ------------- --------------- ----------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.
2,000,000 - 2,000,000 Federal Home Loan Mortgage Corp. 5.63
500,000 - 500,000 Federal Home Loan Mortgage Corp. 5.88
- 6,842,632 6,842,632 Federal Home Loan Mortgage Corp. 6.00
2,800,000 - 2,800,000 Federal Home Loan Mortgage Corp. 6.50
7,500,000 - 7,500,000 Federal Home Loan Mortgage Corp. 6.88
- 10,000,000 10,000,000 Federal Home Loan Mortgage Corp. 6.88
1,000,000 - 1,000,000 Federal Home Loan Mortgage Corp. 7.00
593,677 - 593,677 Federal Home Loan Mortgage Corp. 7.50
861,580 - 861,580 Federal Home Loan Mortgage Corp. 7.50
446,166 - 446,166 Federal Home Loan Mortgage Corp. 7.50
1,028,758 - 1,028,758 Federal Home Loan Mortgage Corp. 7.50
- 315,018 315,018 Federal Home Loan Mortgage Corp. 7.50
222,364 - 222,364 Federal Home Loan Mortgage Corp. 8.00
1,299,104 - 1,299,104 Federal Home Loan Mortgage Corp. 8.00
378,537 - 378,537 Federal Home Loan Mortgage Corp. 8.00
98,974 - 98,974 Federal Home Loan Mortgage Corp. 8.00
72,719 - 72,719 Federal Home Loan Mortgage Corp. 8.25
378,880 - 378,880 Federal Home Loan Mortgage Corp. 8.50
1,640,779 - 1,640,779 Federal Home Loan Mortgage Corp. 8.50
335,588 - 335,588 Federal Home Loan Mortgage Corp. 8.50
4,143,643 - 4,143,643 Federal Home Loan Mortgage Corp. 8.50
100,709 - 100,709 Federal Home Loan Mortgage Corp. 8.50
88,685 - 88,685 Federal Home Loan Mortgage Corp. 8.50
186,815 - 186,815 Federal Home Loan Mortgage Corp. 8.50
96,920 - 96,920 Federal Home Loan Mortgage Corp. 8.50
- 731,878 731,878 Federal Home Loan Mortgage Corp. 9.50
- 2,382,187 2,382,187 Federal Home Loan Mortgage Corp. 10.00
- 3,871,228 3,871,228 Federal Home Loan Mortgage Corp. 10.00
30,009 - 30,009 Federal Home Loan Mortgage Corp. 11.75
- 5,615,443 5,615,443 Federal Home Loan Mortgage Corp. 12.50
- 1,944,376 1,944,376 Federal Home Loan Mortgage Corp. 13.50
Total Federal Home Loan Mortgage Corp.
(cost $26,288,190; $34,202,624; $60,490,815)
FEDERAL NATIONAL MORTGAGE ASSOCIATION
1,000,000 - 1,000,000 Federal National Mortgage Association 5.50
500,000 - 500,000 Federal National Mortgage Association 5.50
260,000 - 260,000 Federal National Mortgage Association 5.69
- 5,900,725 5,900,725 Federal National Mortgage Association 6.00
- 16,847,917 16,847,917 Federal National Mortgage Association 6.00
2,750,000 - 2,750,000 Federal National Mortgage Association 6.53
1,708,583 - 1,708,583 Federal National Mortgage Association (1) 6.54
North American SunAmerica
U.S. Government U.S. Government Pro Forma
Description Maturity Date Securities Securities Combined
------------------------------------------------------------------ ------------------- ------------------- -------------
FEDERAL HOME LOAN MORTGAGE CORP. 52.8% 16.7% 23.9%
Federal Home Loan Mortgage Corp. 03/20/06
Federal Home Loan Mortgage Corp. 03/21/11
Federal Home Loan Mortgage Corp. 11/01/13
Federal Home Loan Mortgage Corp. TBA
Federal Home Loan Mortgage Corp. 01/15/05
Federal Home Loan Mortgage Corp. 09/15/10
Federal Home Loan Mortgage Corp. TBA
Federal Home Loan Mortgage Corp. 07/01/15
Federal Home Loan Mortgage Corp. 12/01/15
Federal Home Loan Mortgage Corp. 01/01/16
Federal Home Loan Mortgage Corp. 02/01/16
Federal Home Loan Mortgage Corp. 06/01/25
Federal Home Loan Mortgage Corp. 06/01/30
Federal Home Loan Mortgage Corp. 12/01/30
Federal Home Loan Mortgage Corp. 01/01/31
Federal Home Loan Mortgage Corp. 06/01/08
Federal Home Loan Mortgage Corp. 07/01/06
Federal Home Loan Mortgage Corp. 04/01/30
Federal Home Loan Mortgage Corp. 05/01/30
Federal Home Loan Mortgage Corp. 06/01/30
Federal Home Loan Mortgage Corp. 09/01/30
Federal Home Loan Mortgage Corp. 10/01/30
Federal Home Loan Mortgage Corp. 05/01/08
Federal Home Loan Mortgage Corp. 06/01/25
Federal Home Loan Mortgage Corp. 12/01/29
Federal Home Loan Mortgage Corp. 04/01/20
Federal Home Loan Mortgage Corp. 01/01/17
Federal Home Loan Mortgage Corp. 08/01/21
Federal Home Loan Mortgage Corp. 08/01/13
Federal Home Loan Mortgage Corp. 01/01/16
Federal Home Loan Mortgage Corp. 02/01/19
Total Federal Home Loan Mortgage Corp.
(cost $26,288,190; $34,202,624; $60,490,815)
FEDERAL NATIONAL MORTGAGE ASSOCIATION 27.7% 13.5% 16.3%
Federal National Mortgage Association 03/16/06
Federal National Mortgage Association 03/15/11
Federal National Mortgage Association 01/23/06
Federal National Mortgage Association 10/01/28
Federal National Mortgage Association 12/01/28
Federal National Mortgage Association 05/25/30
Federal National Mortgage Association (1) 12/28/28
Market Value
---------------------------------------------------------
North American SunAmerica
U.S. Government U.S. Government Pro Forma
Description Securities Securities Combined
---------------------------------------------------------------------- ------------------ ------------------
FEDERAL HOME LOAN MORTGAGE CORP.
Federal Home Loan Mortgage Corp. 2,007,180 - 2,007,180
Federal Home Loan Mortgage Corp. 494,610 - 494,610
Federal Home Loan Mortgage Corp. - 6,834,079 6,834,079
Federal Home Loan Mortgage Corp. 2,834,132 - 2,834,132
Federal Home Loan Mortgage Corp. 7,962,900 - 7,962,900
Federal Home Loan Mortgage Corp. - 10,815,600 10,815,600
Federal Home Loan Mortgage Corp. 1,013,130 - 1,013,130
Federal Home Loan Mortgage Corp. 611,297 - 611,297
Federal Home Loan Mortgage Corp. 887,151 - 887,151
Federal Home Loan Mortgage Corp. 459,409 - 459,409
Federal Home Loan Mortgage Corp. 1,059,292 - 1,059,292
Federal Home Loan Mortgage Corp. - 322,203 322,203
Federal Home Loan Mortgage Corp. 229,520 - 229,520
Federal Home Loan Mortgage Corp. 1,340,908 - 1,340,908
Federal Home Loan Mortgage Corp. 390,718 - 390,718
Federal Home Loan Mortgage Corp. 101,908 - 101,908
Federal Home Loan Mortgage Corp. 74,989 - 74,989
Federal Home Loan Mortgage Corp. 395,457 - 395,457
Federal Home Loan Mortgage Corp. 1,712,563 - 1,712,563
Federal Home Loan Mortgage Corp. 350,270 - 350,270
Federal Home Loan Mortgage Corp. 4,324,927 - 4,324,927
Federal Home Loan Mortgage Corp. 105,115 - 105,115
Federal Home Loan Mortgage Corp. 92,201 - 92,201
Federal Home Loan Mortgage Corp. 197,849 - 197,849
Federal Home Loan Mortgage Corp. 101,160 - 101,160
Federal Home Loan Mortgage Corp. - 765,266 765,266
Federal Home Loan Mortgage Corp. - 2,607,732 2,607,732
Federal Home Loan Mortgage Corp. - 4,214,064 4,214,064
Federal Home Loan Mortgage Corp. 33,832 - 33,832
Federal Home Loan Mortgage Corp. - 6,388,915 6,388,915
Federal Home Loan Mortgage Corp. - 2,298,116 2,298,116
------------------ ------------------ ------------------
Total Federal Home Loan Mortgage Corp. 26,780,518 34,245,975 61,026,493
------------------ ------------------ ------------------
(cost $26,288,190; $34,202,624; $60,490,815)
FEDERAL NATIONAL MORTGAGE ASSOCIATION
Federal National Mortgage Association 1,005,160 - 1,005,160
Federal National Mortgage Association 490,625 - 490,625
Federal National Mortgage Association 260,894 - 260,894
Federal National Mortgage Association - 5,764,301 5,764,301
Federal National Mortgage Association - 16,458,393 16,458,393
Federal National Mortgage Association 2,800,257 - 2,800,257
Federal National Mortgage Association (1) 1,745,250 - 1,745,250
B-43
SunAmerica Income Funds U.S. Government Securities Fund
North American Funds U.S. Government Securities Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
----------------------------------------------------------
North American SunAmerica
U.S. Government U.S. Government Pro Forma
Securities Securities Combined Description Coupon
---------------------- ------------- --------------- ----------------------------------------------------------------
521,814 - 521,814 Federal National Mortgage Association (1) 6.78
5,500,000 - 5,500,000 Federal National Mortgage Association 7.13
74,698 - 74,698 Federal National Mortgage Association 7.50
756,842 - 756,842 Federal National Mortgage Association 7.50
304,895 - 304,895 Federal National Mortgage Association 7.50
- 2,068,209 2,068,209 Federal National Mortgage Association 7.50
7,099 - 7,099 Federal National Mortgage Association 8.00
- 1,905,790 1,905,790 Federal National Mortgage Association 8.00
- 1,379,845 1,379,845 Federal National Mortgage Association 8.00
11,705 - 11,705 Federal National Mortgage Association 8.50
261 - 261 Federal National Mortgage Association 11.00
124,681 - 124,681 Federal National Mortgage Association 11.50
Total Federal National Mortgage Association
(cost $13,776,181; $27,966,724; $41,742,905)
FEDERAL HOME LOAN BANK
1,500,000 - 1,500,000 Federal Home Loan Bank 5.80
275,000 - 275,000 Federal Home Loan Bank 6.70
Total Federal Home Loan Banks
(cost $1,849,282; $0; $1,849,282)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
- 10,000,000 10,000,000 Government National Mortgage Association (1) 6.00
- 20,000,000 20,000,000 Government National Mortgage Association 6.00
- 2,488,126 2,488,126 Government National Mortgage Association 7.00
- 580,969 580,969 Government National Mortgage Association 7.00
- 791,234 791,234 Government National Mortgage Association 7.00
- 3,987,230 3,987,230 Government National Mortgage Association 7.00
- 372,806 372,806 Government National Mortgage Association 7.00
- 71,494 71,494 Government National Mortgage Association 7.00
37,255 - 37,255 Government National Mortgage Association 7.50
- 140,772 140,772 Government National Mortgage Association 7.50
- 2,047,282 2,047,282 Government National Mortgage Association 7.50
- 6,207,733 6,207,733 Government National Mortgage Association 7.50
- 31,915 313,915 Government National Mortgage Association 7.50
28,834 - 28,834 Government National Mortgage Association 7.75
8,644 - 8,644 Government National Mortgage Association 8.00
11,187 - 11,187 Government National Mortgage Association 8.00
516,530 - 516,530 Government National Mortgage Association 9.00
2,438 - 2,438 Government National Mortgage Association 11.00
2,611 - 2,611 Government National Mortgage Association 11.00
2,406 - 2,406 Government National Mortgage Association 11.00
3,687 - 3,687 Government National Mortgage Association 11.25
North American SunAmerica
U.S. Government U.S. Government Pro Forma
Description Maturity Date Securities Securities Combined
--------------------------------------------------------------------- ------------------- ------------------- ------------
Federal National Mortgage Association (1) 01/17/03
Federal National Mortgage Association 02/15/05
Federal National Mortgage Association 07/01/15
Federal National Mortgage Association 08/01/15
Federal National Mortgage Association 10/01/15
Federal National Mortgage Association 07/01/26
Federal National Mortgage Association 08/01/04
Federal National Mortgage Association 12/01/22
Federal National Mortgage Association 01/01/23
Federal National Mortgage Association 08/01/02
Federal National Mortgage Association 02/01/15
Federal National Mortgage Association 09/01/19
Total Federal National Mortgage Association
(cost $13,776,181; $27,966,724; $41,742,905)
FEDERAL HOME LOAN BANK 3.5% 0.0% 0.7%
Federal Home Loan Bank 09/02/08
Federal Home Loan Bank 05/07/03
Total Federal Home Loan Banks
(cost $1,849,282; $0; $1,849,282)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 2.9% 22.8% 18.9%
Government National Mortgage Association (1) TBA
Government National Mortgage Association TBA
Government National Mortgage Association 11/20/30
Government National Mortgage Association 07/15/23
Government National Mortgage Association 10/15/23
Government National Mortgage Association 09/15/25
Government National Mortgage Association 03/20/29
Government National Mortgage Association 06/20/29
Government National Mortgage Association 04/15/02
Government National Mortgage Association 04/15/17
Government National Mortgage Association 08/15/23
Government National Mortgage Association 09/15/23
Government National Mortgage Association 10/15/23
Government National Mortgage Association 04/15/04
Government National Mortgage Association 11/15/06
Government National Mortgage Association 02/15/08
Government National Mortgage Association 12/15/16
Government National Mortgage Association 11/20/14
Government National Mortgage Association 08/20/15
Government National Mortgage Association 09/20/15
Government National Mortgage Association 10/20/15
Market Value
--------------------------------------------------------
North American SunAmerica
U.S. Government U.S. Government Pro Forma
Description Securities Securities Combined
--------------------------------------------------------------------- ------------------ ------------------
Federal National Mortgage Association (1) 524,425 - 524,425
Federal National Mortgage Association 5,890,170 - 5,890,170
Federal National Mortgage Association 76,892 - 76,892
Federal National Mortgage Association 779,070 - 779,070
Federal National Mortgage Association 313,850 - 313,850
Federal National Mortgage Association - 2,116,688 2,116,688
Federal National Mortgage Association 7,194 - 7,194
Federal National Mortgage Association - 1,965,346 1,965,346
Federal National Mortgage Association - 1,422,965 1,422,965
Federal National Mortgage Association 11,817 - 11,817
Federal National Mortgage Association 296 - 296
Federal National Mortgage Association 142,604 - 142,604
----------------- ------------------ ------------------
Total Federal National Mortgage Association 14,048,504 27,727,693 41,776,197
----------------- ------------------ ------------------
(cost $13,776,181; $27,966,724; $41,742,905)
FEDERAL HOME LOAN BANK
Federal Home Loan Bank 1,516,410 - 1,516,410
Federal Home Loan Bank 275,558 - 275,558
----------------- ------------------ ------------------
Total Federal Home Loan Banks 1,791,968 - 1,791,968
----------------- ------------------ ------------------
(cost $1,849,282; $0; $1,849,282)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
Government National Mortgage Association (1) - 9,800,000 9,800,000
Government National Mortgage Association - 19,650,000 19,650,000
Government National Mortgage Association - 2,516,117 2,516,117
Government National Mortgage Association - 590,044 590,044
Government National Mortgage Association - 803,593 803,593
Government National Mortgage Association - 4,049,511 4,049,511
Government National Mortgage Association - 377,000 377,000
Government National Mortgage Association - 72,298 72,298
Government National Mortgage Association 37,667 - 37,667
Government National Mortgage Association - 144,291 144,291
Government National Mortgage Association - 2,098,464 2,098,464
Government National Mortgage Association - 6,362,926 6,362,926
Government National Mortgage Association - 321,763 321,763
Government National Mortgage Association 29,682 - 29,682
Government National Mortgage Association 9,029 - 9,029
Government National Mortgage Association 11,715 - 11,715
Government National Mortgage Association 546,907 - 546,907
Government National Mortgage Association 2,669 - 2,669
Government National Mortgage Association 2,882 - 2,882
Government National Mortgage Association 2,649 - 2,649
Government National Mortgage Association 4,040 - 4,040
B-44
SunAmerica Income Funds U.S. Government Securities Fund
North American Funds U.S. Government Securities Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
----------------------------------------------------------
North American SunAmerica
U.S. Government U.S. Government Pro Forma
Securities Securities Combined Description
---------------------- ------------- --------------- ---------------------------------------------------------
31,971 - 31,971 Government National Mortgage Association
39,739 - 39,739 Government National Mortgage Association
102,688 - 102,688 Government National Mortgage Association
43,487 - 43,487 Government National Mortgage Association
14,613 - 14,613 Government National Mortgage Association
22,865 - 22,865 Government National Mortgage Association
16,304 - 16,304 Government National Mortgage Association
15,549 - 15,549 Government National Mortgage Association
32,488 - 32,488 Government National Mortgage Association
13,183 - 13,183 Government National Mortgage Association
1,315 - 1,315 Government National Mortgage Association
11,613 - 11,613 Government National Mortgage Association
11,842 - 11,842 Government National Mortgage Association
2,102 - 2,102 Government National Mortgage Association
6,766 - 6,766 Government National Mortgage Association
7,454 - 7,454 Government National Mortgage Association
12,140 - 12,140 Government National Mortgage Association
2,218 - 2,218 Government National Mortgage Association
20,390 - 20,390 Government National Mortgage Association
23,175 - 23,175 Government National Mortgage Association
6,468 - 6,468 Government National Mortgage Association
11,700 - 11,700 Government National Mortgage Association
37,929 - 37,929 Government National Mortgage Association
16,516 - 16,516 Government National Mortgage Association
16,098 - 16,098 Government National Mortgage Association
2,885 - 2,885 Government National Mortgage Association
869 - 869 Government National Mortgage Association
10,799 - 10,799 Government National Mortgage Association
1,469 - 1,469 Government National Mortgage Association
2,754 - 2,754 Government National Mortgage Association
1,208 - 1,208 Government National Mortgage Association
17,402 - 17,402 Government National Mortgage Association
2,207 - 2,207 Government National Mortgage Association
6,997 - 6,997 Government National Mortgage Association
107,129 - 107,129 Government National Mortgage Association
8,960 - 8,960 Government National Mortgage Association
Total Government National Mortgage Association
(cost $1,431,502; $46,546,088; $47,977,590)
U.S GOVERNMENT AGENCIES
500,000 - 500,000 Federal Farm Credit Bank
200,000 - 200,000 Federal Farm Credit Bank
500,000 - 500,000 Federal Farm Credit Bank
North American SunAmerica
U.S. Government U.S. Government
Description Coupon Maturity Date Securities Securities
-------------------------------------------------------------------------------------------- ------------------- -----------------
Government National Mortgage Association 11.50 03/15/13
Government National Mortgage Association 11.50 06/15/13
Government National Mortgage Association 11.50 08/15/13
Government National Mortgage Association 11.50 07/20/14
Government National Mortgage Association 11.50 05/20/15
Government National Mortgage Association 11.50 07/20/15
Government National Mortgage Association 11.50 09/20/15
Government National Mortgage Association 12.50 09/15/14
Government National Mortgage Association 13.00 01/15/11
Government National Mortgage Association 13.00 02/15/11
Government National Mortgage Association 13.00 03/15/11
Government National Mortgage Association 13.00 04/15/11
Government National Mortgage Association 13.00 02/15/12
Government National Mortgage Association 13.00 01/15/13
Government National Mortgage Association 13.00 09/15/13
Government National Mortgage Association 13.00 10/15/13
Government National Mortgage Association 13.00 11/15/13
Government National Mortgage Association 13.00 01/15/14
Government National Mortgage Association 13.00 10/20/14
Government National Mortgage Association 13.00 01/15/15
Government National Mortgage Association 13.00 02/20/15
Government National Mortgage Association 13.00 06/15/15
Government National Mortgage Association 13.25 07/15/14
Government National Mortgage Association 13.50 01/15/12
Government National Mortgage Association 13.50 02/15/13
Government National Mortgage Association 15.00 07/15/11
Government National Mortgage Association 15.00 08/15/11
Government National Mortgage Association 15.00 11/15/11
Government National Mortgage Association 15.00 01/15/12
Government National Mortgage Association 15.00 02/15/12
Government National Mortgage Association 15.00 05/15/12
Government National Mortgage Association 15.00 06/15/12
Government National Mortgage Association 15.00 09/15/12
Government National Mortgage Association 15.50 08/15/11
Government National Mortgage Association 15.50 09/15/11
Government National Mortgage Association 16.00 01/15/11
Total Government National Mortgage Association
(cost $1,431,502; $46,546,088; $47,977,590)
U.S GOVERNMENT AGENCIES 10.4% 22.2%
Federal Farm Credit Bank 6.30 12/03/13
Federal Farm Credit Bank 6.00 03/07/11
Federal Farm Credit Bank 5.64 04/04/11
Market Value
---------------------------------------------------------
North American SunAmerica
Pro Forma U.S. Government U.S. Government Pro Forma
Description Combined Securities Securities Combined
------------------------------------------------------------------- ------------------ ------------------ ------------------
Government National Mortgage Association 35,815 - 35,815
Government National Mortgage Association 44,305 - 44,305
Government National Mortgage Association 115,034 - 115,034
Government National Mortgage Association 48,338 - 48,338
Government National Mortgage Association 16,304 - 16,304
Government National Mortgage Association 25,576 - 25,576
Government National Mortgage Association 18,237 - 18,237
Government National Mortgage Association 17,796 - 17,796
Government National Mortgage Association 37,824 - 37,824
Government National Mortgage Association 15,348 - 15,348
Government National Mortgage Association 1,531 - 1,531
Government National Mortgage Association 13,521 - 13,521
Government National Mortgage Association 13,796 - 13,796
Government National Mortgage Association 2,419 - 2,419
Government National Mortgage Association 7,887 - 7,887
Government National Mortgage Association 8,689 - 8,689
Government National Mortgage Association 14,152 - 14,152
Government National Mortgage Association 2,587 - 2,587
Government National Mortgage Association 23,306 - 23,306
Government National Mortgage Association 26,920 - 26,920
Government National Mortgage Association 7,492 - 7,492
Government National Mortgage Association 13,652 - 13,652
Government National Mortgage Association 43,488 - 43,488
Government National Mortgage Association 18,978 - 18,978
Government National Mortgage Association 18,915 - 18,915
Government National Mortgage Association 3,446 - 3,446
Government National Mortgage Association 1,030 - 1,030
Government National Mortgage Association 12,897 - 12,897
Government National Mortgage Association 1,754 - 1,754
Government National Mortgage Association 3,289 - 3,289
Government National Mortgage Association 1,452 - 1,452
Government National Mortgage Association 20,782 - 20,782
Government National Mortgage Association 2,653 - 2,653
Government National Mortgage Association 8,328 - 8,328
Government National Mortgage Association 127,516 - 127,516
Government National Mortgage Association 10,791 - 10,791
------------------ ------------------ ------------------
Total Government National Mortgage Association 1,433,088 46,786,007 48,219,095
------------------ ------------------ ------------------
(cost $1,431,502; $46,546,088; $47,977,590)
U.S GOVERNMENT AGENCIES 19.8%
Federal Farm Credit Bank 513,334 - 513,334
Federal Farm Credit Bank 202,062 - 202,062
Federal Farm Credit Bank 490,625 - 490,625
B-45
SunAmerica Income Funds U.S. Government Securities Fund
North American Funds U.S. Government Securities Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
Principal/Shares
----------------------------------------------------------
North American SunAmerica
U.S. Government U.S. Government Pro Forma
Securities Securities Combined Description
---------------------- ------------- --------------- ------------------------------------------------------------------
350,000 - 350,000 International Bank for Reconstruction & Development
- 10,000,000 10,000,000 Private Export Funding Corp.
- 5,222,343 5,222,343 Small Business Administration
500,000 30,000,000 30,500,000 Student Loan Marketing Association
3,250,000 - 3,250,000 Tennessee Valley Authority
Total U.S. Government Agencies
(cost $5,290,133; $45,067,243; $50,357,376)
U.S. TREASURY BONDS
600,000 - 600,000 United States Treasury Bonds
- 22,000,000 22,000,000 United States Treasury Bonds
Total U.S Treasury Bonds
(cost $648,361; $21,832,812; $22,481,176)
U.S. TREASURY NOTES
- 9,000,000 9,000,000 United States Treasury Notes
- 19,000,000 19,000,000 United States Treasury Notes
Total U.S. Treasury Notes
(cost $0; $28,600,391; $28,600,301)
Total Investment Securities
(cost $49,283,651; $204,215,882; $253,499,533)
SHORT-TERM SECURITIES
- 5,000,000 5,000,000 Federal National Mortgage Association Discount Notes (3)
- 20,000,000 20,000,000 International Bank for Reconstruction & Development Discount Notes
Total Short-Term Securities
(cost $0; $24,831,303; $24,831,303)
REPURCHASE AGREEMENTS
4,123,000 - 4,123,000 State Street Bank & Trust Co. Repurchase Agreemment
- 7,983,000 7,983,000 State Street Bank & Trust Co. Repurchase Agreemment (3)
- 20,000,000 20,000,000 UBS Warburg LLC Repurchase Agreement (4)
Total Repurchase Agreements
(cost $4,123,000; $27,983,000; $32,106,000)
TOTAL INVESTMENTS
(cost $53,406,651; $257,030,185; $310,436,836)
Liabilities in excess of other assets (5)(6)
NET ASSETS
North American SunAmerica
U.S. Government U.S. Government
Description Coupon Maturity Date Securities Securities
-------------------------------------------------------------------------------------------- ------------------- ----------------
International Bank for Reconstruction & Development 5.00 03/28/06
Private Export Funding Corp. 5.87 07/31/08
Small Business Administration 6.30 06/01/18
Student Loan Marketing Association 5.25 03/15/06
Tennessee Valley Authority 5.63 01/18/11
Total U.S. Government Agencies
(cost $5,290,133; $45,067,243; $50,357,376)
U.S. TREASURY BONDS 1.3% 10.6%
United States Treasury Bonds 6.13 08/15/29
United States Treasury Bonds 5.38 02/15/31
Total U.S Treasury Bonds
(cost $648,361; $21,832,812; $22,481,176)
U.S. TREASURY NOTES 0.0% 13.9%
United States Treasury Notes 5.75 11/15/05
United States Treasury Notes 5.00 02/15/11
Total U.S. Treasury Notes
(cost $0; $28,600,391; $28,600,301)
Total Investment Securities 98.6% 99.7%
(cost $49,283,651; $204,215,882; $253,499,533)
SHORT-TERM SECURITIES 0.0% 12.1%
Federal National Mortgage Association Discount Notes (3) 4.38 09/13/01
International Bank for Reconstruction & Development Discount Notes 4.73 04/27/01
Total Short-Term Securities
(cost $0; $24,831,303; $24,831,303)
REPURCHASE AGREEMENTS 8.1% 13.7%
State Street Bank & Trust Co. Repurchase Agreemment 5.25 04/02/01
State Street Bank & Trust Co. Repurchase Agreemment (3) 5.15 04/02/01
UBS Warburg LLC Repurchase Agreement (4) 5.28 04/02/01
Total Repurchase Agreements
(cost $4,123,000; $27,983,000; $32,106,000)
TOTAL INVESTMENTS 106.7% 125.5%
(cost $53,406,651; $257,030,185; $310,436,836)
Liabilities in excess of other assets (5)(6) (6.7)% (25.5)
------------------- ----------------
NET ASSETS 100.0% 100.0%
=================== ================
Market Value
---------------------------------------------------------
North American SunAmerica
Forma U.S. Government U.S. Government Pro Forma
Description Combined Securities Securities Combined
-------------------------------------------------------------------------- ------------------ ------------------ -----------------
International Bank for Reconstruction & Development 346,580 - 346,580
Private Export Funding Corp. - 10,150,000 10,150,000
Small Business Administration - 5,212,122 5,212,122
Student Loan Marketing Association 499,845 29,990,700 30,490,545
Tennessee Valley Authority 3,221,790 - 3,221,790
------------------ ------------------ -----------------
Total U.S. Government Agencies 5,274,236 45,352,822 50,627,058
------------------ ------------------ -----------------
(cost $5,290,133; $45,067,243; $50,357,376)
U.S. TREASURY BONDS 8.7%
United States Treasury Bonds 644,345 - 644,345
United States Treasury Bonds - 21,718,180 21,718,180
------------------ ------------------ -----------------
Total U.S Treasury Bonds 644,345 21,718,180 22,362,525
------------------ ------------------ -----------------
(cost $648,361; $21,832,812; $22,481,176)
U.S. TREASURY NOTES 11.2%
United States Treasury Notes - 9,442,890 9,442,890
United States Treasury Notes - 19,098,040 19,098,040
------------------ ------------------ -----------------
Total U.S. Treasury Notes - 28,540,930 28,540,930
------------------ ------------------ -----------------
(cost $0; $28,600,391; $28,600,301)
Total Investment Securities 99.5% 49,972,659 204,371,607 254,344,266
------------------ ------------------ -----------------
(cost $49,283,651; $204,215,882; $253,499,533)
SHORT-TERM SECURITIES 9.7%
Federal National Mortgage Association Discount Notes (3) - 4,899,625 4,899,625
International Bank for Reconstruction & Development Discount Notes - 19,931,678 19,931,678
------------------ ------------------ -----------------
Total Short-Term Securities - 24,831,303 24,831,303
------------------ ------------------ -----------------
(cost $0; $24,831,303; $24,831,303)
REPURCHASE AGREEMENTS 12.6%
State Street Bank & Trust Co. Repurchase Agreemment 4,123,000 - 4,123,000
State Street Bank & Trust Co. Repurchase Agreemment (3) - 7,983,000 7,983,000
UBS Warburg LLC Repurchase Agreement (4) - 20,000,000 20,000,000
------------------ ------------------ -----------------
Total Repurchase Agreements 4,123,000 27,983,000 32,106,000
------------------ ------------------ -----------------
(cost $4,123,000; $27,983,000; $32,106,000)
TOTAL INVESTMENTS 121.8% 54,095,659 257,185,910 311,281,569
(cost $53,406,651; $257,030,185; $310,436,836)
Liabilities in excess of other assets (5)(6) (21.8)% (3,419,751) (52,273,895) (55,736,171
--------- ------------------ ------------------ -----------------
NET ASSETS 100.0% $50,675,908 $204,912,015 $255,545,398
========= ================== ================== =================
B-46
SunAmerica Income Funds U.S. Government Securities Fund
North American Funds U.S. Government Securities Fund
Pro Forma Combined Portfolio of Investments
As of March 31, 2001
(unaudited)
TBA Securities purchased on a
forward commitment basis with an
approximate principal amount and no
definitive maturity date. The
actual principal and maturity date
will be determined upon settlement
date.
(1) TBA mortgage-backed dollar rolls
(2) The security or portion thereof is out on loan
(3) The security or portion thereof represents
collateral for the open TBA mortgage-backed dollar rolls
(4) Includes cash received as
collateral for securities out on
loan in the amount of $11,302,500
(5) Includes a liability for fully
collateralized securities on loan
(6) To adjust ($42,525,) for
prepaid expenses on the North
American Funds U.S. Government
Securities Fund to be expensed
prior to the reorganization
Management does not anticipate
having to sell any securities as a
result of the reorganization,
however, securities may be sold due
to differing portfolio management
style.
See Notes to Pro Forma Financial Statements
B-47
SUNAMERICA INCOME FUNDS U.S. GOVERNMENT SECURITIES FUND
NORTH AMERICAN FUNDS U.S. GOVERNMENT SECURITIES FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
MARCH 31, 2001
(unaudited)
1. BASIS OF COMBINATION
The Pro Forma Combined Statement of Assets and Liabilities, including
the Portfolio of Investments at March 31, 2001, and related Statement of
Operations ("Pro Forma Statements") for the twelve months ended March 31, 2001,
reflect the accounts of the U.S. Government Securities Fund ("SunAmerica U.S.
Government Securities") a separately managed portfolio of SunAmerica Income
Funds, and U.S. Government Securities Fund ("U.S. Government Securities") a
separately managed portfolio of North American Funds. The Pro Forma Combined
Statement of Assets and Liabilities has been restated to reflect a tax free
exchange of U.S. Government Securities Class A, Class B and Class C shares as of
the close of business on March 31, 2001. American International Group, Inc. will
pay the cost of the reorganization.
The Pro Forma Statements give effect to the proposed transfer of all assets
and liabilities of U.S. Government Securities in exchange for shares of
SunAmerica U.S. Government Securities. In conjunction with the reorganization,
SunAmerica U.S. Government Securities is the surviving fund.
The Pro Forma Statements should be read in conjunction with the
historical financial statements of SunAmerica U.S. Government Securities and
U.S. Government Securities included in their respective Statements of Additional
Information.
2. VALUATION
Securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed by the
Adviser to be over-the-counter, are valued at the quoted bid price provided by
principal market markers. Securities listed on the New York Stock Exchange
("NYSE") or other national securities exchanges, are valued on the basis of the
last sale price on the exchange on which they are primarily traded. If there is
no sale on that day, then securities are valued at the closing bid price on the
NYSE or other primary exchange for that day. However, if the last sale price on
the NYSE is different than the last sale price on any other exchange, the NYSE
price is used. Securities that are traded on foreign exchanges are ordinarily
valued at the last quoted sale price available before the time when the assets
are valued. If a security's price is available from more than one foreign
exchange, a Portfolio uses the exchange that is the primary market for the
security. Values of portfolio securities primarily traded on foreign exchanges
are already translated into U.S. dollars when received from a quotation service.
Options traded on national exchanges are valued as of the close of the exchange
on which they are traded. Futures and options traded on commodities
B-48
exchanges are valued at their last sale price as of the close of such exchange.
The Portfolios may make use of a pricing service in the determination of their
net asset values. Securities for which market quotations are not readily
available and other assets are valued at fair value as determined pursuant to
procedures adopted in good faith by the Directors. Short-term securities which
mature in less than 60 days are valued at amortized cost, if their original
maturity was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their original term to maturity exceeded 60 days.
3. CAPITAL SHARES
The pro forma combined net asset value per share assumes the issuance
of additional shares of SunAmerica U.S. Government Securities which would have
been issued at March 31, 2001 in connection with the proposed reorganization.
The amount of additional shares assumed to be issued was calculated based on the
March 31, 2001 net asset value of SunAmerica U.S. Government Securities Class A
($8.91), Class B ($8.91), and Class II ($8.91). Class I shares will be offered
on SunAmerica U.S. Government Securities and will assume the net asset value of
Class A. The Class C shares of U.S. Government Securities will receive Class II
shares of SunAmerica U.S. Government Securities.
The pro forma number of shares outstanding are determined as follows:
Class A Class B Class II Class I
----------------------------------- ---------------- ----------------- --------------- -------------
Shares of SunAmerica U.S.
Government Securities 19,032,935 3,602,311 370,663 0
----------------------------------- ---------------- ----------------- --------------- -------------
Additional Shares to be issued to
U.S. Government Securities 3,784,346 1,063,739 834,673 0
----------------------------------- ---------------- ----------------- --------------- -------------
Pro Forma
Shares outstanding 22,817,281 4,666,050 1,205,336 0
----------------------------------- ---------------- ----------------- --------------- -------------
These pro forma financial statements assume that all shares of U.S.
Government Securities Class A, Class B, and Class C outstanding on March 31,
2001 were exchanged, tax free, for SunAmerica U.S. Government Securities Class
A, Class B, and Class II shares, respectively.
4. PRO FORMA OPERATING EXPENSES
The Pro Forma Statement of Operations assumes expense adjustments based
on the agreements of SunAmerica U.S. Government Securities, the surviving
entity. Certain accounts have been adjusted to reflect the expenses of the
combined entity more closely. Pro forma operating expenses include the expenses
of SunAmerica U.S. Government
B-49
Securities and U.S. Government Securities combined, adjusted for certain items
which are factually supportable. Advisory fees have been charged to the combined
entity based upon the contract in effect for SunAmerica U.S. Government
Securities at the level of assets of the combined fund for the stated period.
B-50
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Reference is made to Section 5.1 of the Registrant's By-Laws which is set
forth below.
5.1 Indemnification of Trustees, Officers, Employees And Agents
The Registrant shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Registrant or any of its
shareholders) by reason of the fact that he is or was a Trustee, officer,
employee or agent of the Registrant. The indemnification shall be against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him in connection with the
action, suit or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendre or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
The Registrant shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or on behalf of the Registrant or any of its shareholders to obtain a
judgment or decree in its favor by reason of the fact that he is or was a
Trustee, officer, employee or agent of the Registrant. The indemnification
shall be against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of the action or
suit, if acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Registrant; except that such
indemnification shall preclude payment upon any liability, whether or not there
is an adjudication of liability, arising by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of duties as described in
Section 17(h) and (i) of the Investment Company Act of 1940 (the "Investment
Company Act").
To the extent that a Trustee, officer, employee or agent of the Registrant
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsections (a) or (b) or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
therewith.
(1) Unless a court orders otherwise, any indemnification under subsections
(a) or (b) above may be made by the Registrant only as authorized in the
specific case after a determination that indemnification of the Trustee,
officer, employee or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in subsections (a) or (b).
(2) The determination shall be made:
(i) by the Trustees, by a majority vote of a quorum which consists of
Trustees who were not parties to the action, suit or proceeding; or
(ii) if the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion; or
(iii) by the Shareholders.
C-1
(3) Notwithstanding the provisions of Section 5.1 of the Registrant's By-
Laws, no person shall be entitled to indemnification for any liability, whether
or not there is an adjudication of liability, arising by reason of willful
malfeasance, bad faith, gross negligence or reckless disregard of duties as
described in Section 17(h) and (i) of the Investment Company Act ("Disabling
Conduct"). A person shall be deemed not liable by reason of Disabling Conduct
if, either:
(i) a final decision on the merits is made by a court or other body
before whom the proceeding was brought that the person to be indemnified
("Indemnitee") was not liable by reason of Disabling Conduct; or
(ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the Indemnitee was not liable by
reason of Disabling Conduct, is made by either:
(A) a majority of a quorum of Trustees who are neither "interested
persons" of the Registrant, as defined in section 2(a)(19) of the
Investment Company Act, nor parties to the action, suit or proceeding;
(B) an independent legal counsel in a written opinion.
Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Registrant in defending a civil or criminal action,
suit or proceeding may be paid by the Registrant in advance of the final
disposition thereof if:
(1) authorized in the specific case by the Trustees; and
(2) the Registrant receives an undertaking by or on behalf of the Trustee,
officer, employee or agent of the Registrant to repay the advance if it is not
ultimately determined that such person is entitled to be indemnified by the
Registrant; and
(3) either,
(i) such person provides a security for his undertaking; or
(ii) the Registrant is insured against losses by reason of any lawful
advances; or
(iii) a determination, based on a review or readily available facts,
that there is reason to believe that such person ultimately will be found
entitled to indemnification, is made by either
(A) a majority of a quorum which consists of Trustees who are
neither "interested persons" of the Registrant, as defined in
section 2(a)(19) of the Investment Company Act, nor parties to the
action, suit or proceeding; or
(B) an independent legal counsel in a written opinion.
The indemnification provided by Section 5.1 of the Registrant's By-Laws
shall not be deemed exclusive of any other rights to which a person may be
entitled under any by-law, agreement, vote of Shareholders or disinterested
Trustees or otherwise, both as to action in his official capacity and as to
action in another application while holding office, and shall continue as to a
person who has ceased to be a Trustee, officer, employee or agent and inure to
the benefit of the heirs, executors and administrators of such person; provided
that no person may satisfy any right of indemnity or reimbursement granted
herein or to which he may be otherwise entitled except out of the property of
the Registrant, and no Shareholder, as such, shall be personally liable with
respect to any claim for indemnity or reimbursement or otherwise.
The Registrant may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee or agent of the Registrant, against
any liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such. However, in no event will the Registrant pay
that portion of insurance premiums, if any, attributable to coverage which
would indemnify any officer or Trustee against liability for Disabling Conduct.
C-2
Nothing contained in Section 5.1 of the Registrant's By-laws shall be
construed to protect any Trustee or officer of the Registrant against any
liability to the Registrant or to its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Reference is made to Section 5.3 of the Registrant's Declaration of Trust
which provides that Trustees shall provide for indemnification by the
Registrant of any person who is, or has been a Trustee, officer, employee or
agent of the Registrant against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit
or proceeding in which he becomes involved as a party or otherwise by virtue of
his being or having been a Trustee, officer, employee or agent and against
amounts paid or incurred by him in the settlement thereof, in such manner as
the Trustees may provide from time to time in the By-Laws of the Registrant.
The words "claim," "action," "suit" or "proceeding" shall apply to all
claims, actions, suits or proceedings (civil, criminal or other, including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
Reference is made to Section 5 of the Distribution Agreement (the
"Distribution Agreement") between SunAmerica Capital Services, Inc. (the
"Distributor") and the Registrant which is set forth below:
(a) The Registrant will indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor within the meaning of the
Investment Company Act against any losses, claims, damages or liabilities
to which the Distributor or such controlling person may become subject,
under the Investment Company Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registrant's Registration Statement,
Prospectus or Statement Additional Information or any other written sales
material prepared by the Registrant or the separate investment portfolios
of the Registrant (the "Funds") which is utilized by the Distributor in
connection with the sale of shares of beneficial interest of a Fund (the
"Shares") or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
(in the case of the Registrant's Registration Statement, Prospectus and
Statement of Additional Information) necessary to make the statement
therein not misleading or (in the case of such other sales material)
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse the
Distributor and each such controlling person for any legal or other
expenses reasonably incurred by the Distributor or such controlling person
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Registrant or the Funds
will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made
in such Registration Statement, Prospectus or Statement of Additional
Information in conformity with written information furnished to the
Registrant by the Distributor specifically for use therein; and provided,
further, that nothing in the Distribution Agreement shall be so construed
as to protect the Distributor against any liability to the Registrant or
the Funds, or the security holders of the Funds to which the Distributor
would otherwise be subject by reason of Disabling Conduct. This indemnity
provision will be in addition to any liability which the Registrant may
otherwise have.
(b) The Distributor will indemnify and hold harmless the Registrant,
each of its Trustees and officers and each person, if any, who controls the
Registrant within the meaning of the Investment Company Act, against any
losses, claims, damages or liabilities to which the Registrant or any such
Trustee, officer or controlling person may become subject under the
Investment Company Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registrant's Registration Statement, Prospectus or
Statement of Additional Information or any sales material not prepared by
the
C-3
Registrant or the Funds which is utilized in connection with the sale of
the Shares or arise out of or are based upon the omissions or the alleged
omission to state therein a material fact required to be stated therein or
(in the case of the Registrant's Registration Statement, Prospectus and
Statement of Additional Information) necessary to make the statement
therein not misleading or (in the case of such other sales material)
necessary to make the statement therein not misleading in the light of the
circumstances under which they were made, in the case of the Registrant's
Registration Statement, Prospectus and Statement of Additional Information
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
conformity with written information furnished to the Registrant by the
Distributor specifically for use therein; and the Distributor will
reimburse any legal or other expenses reasonably incurred by the Registrant
or any such Trustee, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action. This indemnity provision will be in addition to any liability which
the Distributor may otherwise have.
Reference is made to Section 7 of the Investment Advisory and Management
Agreement (the "Advisory Agreement") between the Registrant and SunAmerica
Asset Management Corp. ("SAAMCo") which is set forth below.
7. Liability of Adviser. In the absence of Disabling Conduct on the part
of SAAMCo (and its officers, directors, agents, employees, controlling
persons, shareholders and any other person or entity affiliated with
SAAMCo) SAAMCo shall not be subject to liability to the Registrant or to
any shareholder of the Registrant for any act or omission in the course of,
or connected with, rendering services under the Advisory Agreement,
including without limitation, any error of judgment or mistake of law or
for any loss suffered by any of them in connection with the matters to
which the Advisory Agreement relates, except to the extent specified in
Section 36(b) of the Investment Company Act concerning loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services. Except for such Disabling Conduct, the Registrant shall indemnify
SAAMCo (and its officers, directors, partners, agents, employees,
controlling persons, shareholders and any other person or entity affiliated
with SAAMCo) (collectively, the "Indemnified Parties") from any liability
arising from SAAMCo's conduct under the Advisory Agreement.
Indemnification to SAAMCo or any of its personnel or affiliates shall be
made when (i) a final decision on the merits rendered, by a court or other
body before whom the proceeding was brought, that the person to be
indemnified was not liable by reason of Disabling Conduct or, (ii) in the
absence of such a decision, a reasonable determination, based upon a review
of the facts, that the person to be indemnified was not liable by reason of
Disabling Conduct, by (a) the vote of a majority of a quorum of the
Trustees who are neither "interested persons" of the Registrant as defined
in section 2(a)(19) of the Investment Company Act nor parties to the
proceeding ("disinterested, non-party Trustees") or (b) an independent
legal counsel in a written opinion. The Registrant may, by vote of a
majority of the disinterested, non-party Trustees advance attorneys' fees
or other expenses incurred by an Indemnified Party in defending a
proceeding upon the undertaking by or on behalf of the Indemnified Party to
repay the advance unless it is ultimately determined that he is entitled to
indemnification. Such advance shall be subject to at least one of the
following: (1) the person to be indemnified shall provide a security for
his undertaking, (2) the Registrant shall be insured against losses arising
by reason of any lawful advances, or (3) a majority of a quorum of the
disinterested, non-party Trustees or an independent legal counsel in a
written opinion, shall determine, based on a review of readily available
facts, that there is reason to believe that the person to be indemnified
ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to
Trustees, officers and controlling persons of the Registrant and the
principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or
C-4
paid by a Trustee, officer, or controlling person of the Registrant and the
principal underwriter in connection with the successful defense of any
action, suit or proceeding) is asserted by such Trustee, officer or
controlling person or the principal underwriter in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
C-5
ITEM 16. EXHIBITS
Exhibit No.
-----------
1. (a) Declaration of Trust of the Registrant, as amended. (1)
(b) Amendment to Declaration of Trust of Registrant.*
2. By-laws of the Registrant. (1)
3. Not applicable.
4. Form of Agreement and Plan of Reorganization (filed herewith as
Exhibit II to the Proxy Statement and Prospectus contained in
this Registration Statement).
5. Instruments defining rights of shareholders (incorporated by
reference to Exhibits 1 and 2 above).
6. Amended and Restated Investment Advisory and Management Agreement
between the Registrant and SunAmerica Asset Management Corp. (2)
7. (a) Distribution Agreement between the Registrant and SunAmerica
Capital Services, Inc. (2)
(b) Form of Dealer Agreement. (3)
8. Directors'/Trustees' Retirement Plan. (3)
9. Custody Agreement between the Registrant and State Street Bank
and Trust Company. (3)
10. (a) Form of Distribution Plan pursuant to Rule 12b-1 (Class A
shares). (2)
(b) Form of Distribution Plan pursuant to Rule 12b-1 (Class B
shares). (2)
(c) Form of Distribution Plan pursuant to Rule 12b-1 (Class II
shares). (2)
(d) Plan pursuant to Rule 18f-3. (3)
11. Opinion and consent of Robert M. Zakem, Esq.*
12. (a) Opinion and consent of Shearman & Sterling, counsel to the
Registrant, regarding certain tax matters relating to the
Reorganization between the Core Bond Fund of North American
Funds and the SunAmerica Core Bond Fund of SunAmerica Income
Funds. (4)
(b) Opinion and consent of Shearman & Sterling, counsel to the
Registrant, regarding certain tax matters relating to the
Reorganization between the High Yield Bond Fund of North
American Funds and the SunAmerica High Income Bond Fund of
SunAmerica Income Funds. (4)
(c) Opinion and consent of Shearman & Sterling, counsel to the
Registrant, regarding certain tax matters relating to the
Reorganization between the Municipal Bond Fund of North
American Funds and the SunAmerica Tax Exempt Insured Fund of
SunAmerica Equity Funds. (4)
(d) Opinion and consent of Shearman & Sterling, counsel to the
Registrant, regarding certain tax matters relating to the
Reorganization between the Strategic Income Fund of North
American Funds and the SunAmerica Diversified Income Fund of
SunAmerica Income Funds. (4)
(e) Opinion and consent of Shearman & Sterling, counsel to the
Registrant, regarding certain tax matters relating to the
Reorganization between the U.S. Government Securities Fund of
North American Funds and the SunAmerica U.S. Government
Securities Fund of SunAmerica Income Funds. (4)
13. (a) Transfer Agency and Service Agreement between the Registrant
and State Street Bank and Trust Company. (3)
(b) Service Agreement, as amended, between the Registrant and
SunAmerica Fund Services, Inc. (1)
14. (a) Consents of PricewaterhouseCoopers LLP.*
(b) Consent of Ernst & Young LLP.*
15. Not applicable.
16. Power of Attorney.*
17. (a) Prospectus, dated July 27, 2001 of SunAmerica Income Funds,
as supplemented. (5)
(b) Prospectus dated March 1, 2001 of North American Funds (Class
A shares, Class B shares and Class C shares). (6)
C-6
Exhibit No.
-----------
(c) Prospectus dated March 1, 2001 of North American Funds
(Institutional Class I shares). (6)
(d) Prospectus dated March 1, 2001 of North American Funds
(Institutional Class II shares). (6)
(e) Statement of Additional Information, dated July 28, 2001 of
SunAmerica Income Funds, as supplemented. (5)
(f) Combined Statement of Additional Information dated March 1,
2001 of North American Funds. (6)
(g)
(h) Combined Semi-Annual Report to Shareholders of North American
Funds for the six-month period ended April 30, 2001. (7)
(i) Combined Annual Report to Shareholders of SunAmerica Income
Funds for the year ended March 1, 2001. (8)
(j) Combined Annual Report to Shareholders of North American Funds
for the year ended October 31, 2000. (9)
(k) President's Letter.*
(l) Question and Answer Sheet.*
(m) Form of Proxy Cards.*
(n) Form of Investment Advisory Agreement between North American
Funds and American General Asset Management Corp. (filed
herewith as Exhibit I(a) to each Proxy Statement and
Prospectus contained in the Registration Statement).
(o) Form of Investment Subadvisory Agreement between American
General Asset Management Corp. and American General Investment
Management, L.P. (filed herewith as Exhibit I(b) to each Proxy
Statement and Prospectus contained in this Registration
Statement).
--------
* Filed herewith.
(1) Previously filed with Post-Effective Amendment No. 20 to the Registrant's
Registration Statement on Form N-1A (File No. 33-6502) on July 27, 1995,
and incorporated herein by this reference.
(2) Previously filed with Post-Effective Amendment No. 6 to the Registrant's
Registration Statement on Form N-1A (File No. 33-6502) on June 1, 1999, and
incorporated herein by this reference.
(3) Previously filed with Post-Effective Amendment No. 19 to the Registrant's
Registration Statement on Form N-1A (File No. 33-6502) on July 19, 1996,
and incorporated herein by this reference.
(4) To be filed by amendment.
(5) Previously filed with Post-Effective Amendment No. 28 to the Registrant's
Registration Statement on Form N-1A (File No. 33-6502) on July 20, 2001,
and incorporated herein by this reference.
(6) Previously filed with Post-Effective Amendment No. 35 to North American
Funds' Registration Statement on Form N-1A (File No. 33-27958) on March 1,
2001, and incorporated herein by this reference.
(7) Previously filed on Form N-30D of North American Funds (File No. 811-05797)
on July 3, 2001, and incorporated herein by this reference.
(8) Previously filed on Form N-30D of SunAmerica Income Funds (File No. 811-
04708) on May 30, 2001, and incorporated herein by this reference.
(9) Previously filed on Form N-30D of North American Funds (File No. 811-05797)
on January 17, 2001, and incorporated herein by this reference.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant agrees to prior to any public reoffering of
the securities registered through the use of a prospectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(b) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (a) above will be filed as part of an amendment to the
Registration Statement and will not be used until the amendment is
C-7
effective, and that, in determining any liability under the Securities Act,
each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering of
them.
(c) The undersigned Registrant undertakes to file, by post-effective
amendment, the opinions of counsel received as to certain tax matters, within a
reasonable time after receipt of such opinion.
C-8
SIGNATURES
As required by the Securities Act of 1933, this Pre-Effective Amendment No.
1 to the Registration Statement has been signed on behalf of the Registrant, in
the City of New York, and State of New York, on the 28th day of September,
2001.
SunAmerica Income Funds (Registrant)
/s/ Peter A. Harbeck
By: _________________________________
Peter A. Harbeck, President and
Trustee
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Peter A. Harbeck President and Trustee September 28, 2001
______________________________________ (Principal Executive
Peter A. Harbeck Officer)
* Treasurer (Principal
______________________________________ Financial and Accounting
Peter C. Sutton Officer)
* Trustee
______________________________________
S. James Coppersmith
* Trustee
______________________________________
Samuel M. Eisenstat
* Trustee
______________________________________
Stephen J. Gutman
* Trustee
______________________________________
Sebastiano Sterpa
/s/ Peter A. Harbeck September 28, 2001
*By: _________________________________
(Peter A. Harbeck,
Attorney-in-Fact)
C-9
EXHIBIT INDEX
Exhibit No.
-----------
1(b). Amendment to Declaration of Trust of
Registrant
11. Opinion and Consent of Robert M.
Zakem, Esq.
14. (a) Consents of PricewaterhouseCoopers
LLP
(b) Consent of Ernst & Young LLP
16. Power of Attorney
17. (k)President's Letter
(l)Question and Answer Sheet
(m)Form of Proxy Cards