As filed with the Securities and Exchange Commission on August 17, 2001
Securities Act File No. [333-____]
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________
[ ] Pre-Effective Amendment No.[ ] Post-Effective Amendment No.
(Check appropriate box or boxes)
__________________
SUNAMERICA INCOME FUNDS
(Exact Name of Registrant as Specified in its Charter)
__________________
1-800-858-8850
(Area Code and Telephone Number)
__________________
733 Third Avenue
Third Floor
New York, NY 10017
(Address of Principal Executive Offices:
Number, Street, City, State, Zip Code)
__________________
Robert M. Zakem, Esq.
c/o SunAmerica Asset Management Corp.
733 Third Avenue
Third Floor
New York, NY 10017
(Name and Address of Agent for Service)
__________________
Copies to:
Counsel for the Fund:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Attention: Joel H. Goldberg, Esq.
__________________
Approximate Date of Proposed Public Offering:
As soon as practicable after the Registration Statement becomes effective under
the Securities Act of 1933.
Title of Securities Being Registered: Shares of Beneficial Interest, Par Value
$.01 per share.
No filing fee is required because of reliance on Section 24(f) under the
Investment Company Act of 1940, as amended.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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NORTH AMERICAN FUNDS
Core Bond Fund
High Yield Bond Fund
Municipal Bond Fund
Strategic Income Fund
U.S. Government Securities Fund
286 Congress Street
Boston, Massachusetts 02210
__________________
NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
__________________
TO BE HELD ON NOVEMBER 7, 2001
To our Shareholders:
Notice is Hereby Given that a joint special meeting of shareholders (the
"Meeting") of the Core Bond Fund (the "NAF Core Bond Fund"), High Yield Bond
Fund (the "NAF High Yield Bond Fund"), Municipal Bond Fund (the "NAF Municipal
Bond Fund"), Strategic Income Fund (the "NAF Strategic Income Fund") and U.S.
Government Securities Fund (the "NAF U.S. Government Securities Fund," and
together with the NAF Core Bond Fund, NAF High Yield Bond Fund, NAF Municipal
Bond Fund and NAF Strategic Income Fund, the "Acquired Funds") of North American
Funds will be held at the principal executive offices of the North American
Funds, 286 Congress Street, Boston, Massachusetts 02210 on November 7, 2001 at
10:00 a.m. Eastern Time, for the following purposes:
(1) (a) All Acquired Funds: to approve or disapprove a new investment advisory
agreement (the "New Investment Advisory Agreement") between American General
Asset Management Corp. ("AGAM") and North American Funds on behalf of each of
the Acquired Funds, the terms of which are the same in all material respects to
the previous investment advisory agreement with AGAM;
(b) All Acquired Funds: to approve or disapprove a new Subadvisory
agreement (the "New Subadvisory Agreement") between AGAM and American General
Investment Management, L.P. ("AGIM") or an affiliate thereof (collectively, "New
AGIM"), the terms of which are similar in all material respects to the previous
Subadvisory agreement between AGAM and AGIM;
(2) (a) NAF Core Bond Fund: to approve or disapprove an Agreement and Plan of
Reorganization (the "Core Bond Funds Agreement and Plan") providing for the
acquisition of substantially all of the assets, and assumption of substantially
all of the liabilities, of the NAF Core Bond Fund by the SunAmerica Core Bond
Fund (the "SunAmerica Core Bond Fund" or an "Acquiring Fund") of SunAmerica
Income Funds, solely in exchange for an equal aggregate value of newly issued
shares of the SunAmerica Core Bond Fund, as described in the accompanying proxy
statement and prospectus. The SunAmerica Core Bond Fund is a newly created
series of SunAmerica Income Funds, created for the purpose of receiving the
assets from the NAF Core Bond Fund. The Core Bond Funds Agreement and Plan also
provides for distribution of the shares of the SunAmerica Core Bond Fund to
shareholders of the NAF Core Bond Fund. A vote in favor of this proposal will
constitute a vote in favor of the termination of the NAF Core Bond Fund as a
separate investment portfolio of North American Funds;
(b) NAF High Yield Bond Fund: to approve or disapprove an Agreement and
Plan of Reorganization (the "High Yield Bond Funds Agreement and Plan")
providing for the acquisition of substantially all of the assets, and assumption
of substantially all of the liabilities, of the NAF High Yield Bond Fund by the
SunAmerica High Income Fund (which will be renamed the SunAmerica High Yield
Bond Fund) of SunAmerica Income Funds (the
"SunAmerica High Yield Bond Fund" or an "Acquiring Fund"), solely in exchange
for an equal aggregate value of newly issued shares of the SunAmerica High Yield
Bond Fund, as described in the accompanying proxy statement and prospectus. The
High Yield Bond Funds Agreement and Plan also provides for distribution of such
shares of the SunAmerica High Yield Bond Fund to shareholders of the NAF High
Yield Bond Fund. A vote in favor of this proposal will constitute a vote in
favor of the termination of the NAF High Yield Bond Fund as a separate
investment portfolio of North American Funds;
(c) NAF Municipal Bond Fund: to approve or disapprove an Agreement and Plan
of Reorganization (the "Municipal Bond Funds Agreement and Plan") providing for
the acquisition of substantially all of the assets, and assumption of
substantially all of the liabilities, of the NAF Municipal Bond Fund by the
SunAmerica Tax Exempt Insured Fund of SunAmerica Income Funds (the "SunAmerica
Tax Exempt Insured Fund" or an "Acquiring Fund"), solely in exchange for an
equal aggregate value of newly issued shares of the SunAmerica Tax Exempt
Insured Fund, as described in the accompanying proxy statement and prospectus.
The Municipal Bond Funds Agreement and Plan also provides for distribution of
such shares of the SunAmerica Tax Exempt Insured Fund to shareholders of the NAF
Municipal Bond Fund. A vote in favor of this proposal will constitute a vote in
favor of the termination of the NAF Municipal Bond Fund as a separate investment
portfolio of North American Funds;
(d) NAF Strategic Income Fund: to approve or disapprove an Agreement and
Plan of Reorganization (the "Strategic Income Funds Agreement and Plan")
providing for the acquisition of substantially all of the assets, and assumption
of substantially all of the liabilities, of the NAF Strategic Income Fund by the
SunAmerica Diversified Income Fund (which will be renamed the SunAmerica
Strategic Income Fund) of SunAmerica Income Funds (the "SunAmerica Strategic
Income Fund" or an "Acquiring Fund"), solely in exchange for an equal aggregate
value of newly issued shares of the SunAmerica Strategic Income Fund, as
described in the accompanying proxy statement and prospectus. The Strategic
Income Funds Agreement and Plan also provides for distribution of such shares of
the SunAmerica Strategic Income Fund to shareholders of the NAF Strategic Income
Fund. A vote in favor of this proposal will constitute a vote in favor of the
termination of the NAF Strategic Income Fund as a separate investment portfolio
of North American Funds;
(e) NAF U.S. Government Securities Fund: to approve or disapprove an
Agreement and Plan of Reorganization (the "U.S. Government Securities Funds
Agreement and Plan") providing for the acquisition of substantially all of the
assets, and assumption of substantially all of the liabilities, of the NAF U.S.
Government Securities Fund by the SunAmerica U.S. Government Securities Fund of
SunAmerica Income Funds (the "SunAmerica U.S. Government Securities Fund" or an
"Acquiring Fund"), solely in exchange for an equal aggregate value of newly
issued shares of the SunAmerica U.S. Government Securities Fund, as described in
the accompanying proxy statement and prospectus. The U.S. Government Securities
Fund's Agreement and Plan also provides for distribution of such shares of the
SunAmerica U.S. Government Securities Fund to shareholders of the NAF U.S.
Government Securities Fund. A vote in favor of this proposal will constitute a
vote in favor of the termination of the NAF U.S. Government Securities Fund as a
separate investment portfolio of North American Funds; and
(3) To transact such other business as properly may come before the Meeting or
any adjournment thereof.
The Board of Trustees of North American Funds has fixed the close of
business on September 17, 2001 as the record date for the determination of
shareholders entitled to notice of, and to vote at, the Meeting or any
adjournment thereof.
A complete list of the shareholders of each of the Acquired Funds entitled
to vote at the Meeting will be available and open to the examination of any
shareholders of each Acquired Fund for any purpose germane to such Meeting
during ordinary business hours from and after October 24, 2001 at the offices of
North American Funds, 286 Congress Street, Boston, Massachusetts and at the
Meeting.
You are cordially invited to attend the Meeting. Shareholders who do not
expect to attend the Meeting in person are requested to complete, date and sign
the enclosed respective form of proxy and return it promptly in the postage-paid
envelope provided for that purpose. Alternatively, you may vote your shares by
calling a specially designated telephone number (toll free 1-888-850-2811) or
via the Internet at
http:proxy.____.com. Each of the enclosed proxies is being solicited on behalf
of the Board of Trustees of North American Funds.
The Board of Trustees of North American Funds unanimously recommends that
the shareholders of each Acquired Fund approve the New Investment Advisory
Agreement, the New Subadvisory Agreement and the respective Agreement and Plan
of Reorganization.
By Order of the Board of Trustees,
John I. Fitzgerald
Secretary, North American Funds
Boston, Massachusetts
Dated: September __, 2001
SUBJECT TO COMPLETION
COMBINED PROXY STATEMENT AND PROSPECTUS
SUNAMERICA INCOME FUNDS
NORTH AMERICAN FUNDS
___________________
JOINT SPECIAL MEETING OF SHAREHOLDERS OF
CORE BOND FUND
HIGH YIELD BOND FUND
MUNICIPAL BOND FUND
STRATEGIC INCOME FUND
AND
U.S. GOVERNMENT SECURITIES FUND
OF
NORTH AMERICAN FUNDS
__________________
NOVEMBER 7, 2001
This Proxy Statement and Prospectus describes a proposal to approve or
disapprove (i) a new investment advisory agreement (the "New Investment Advisory
Agreement") between American General Asset Management Corp. ("AGAM") and North
American Funds on behalf of your Fund, the terms of which are the same in all
material respects as the previous investment advisory agreement with AGAM (the
"Previous Investment Advisory Agreement") and (ii) a new Subadvisory agreement
(the "New Subadvisory Agreement") between AGAM and American General Investment
Management, L.P. ("AGIM") or an affiliate thereof (collectively, "New AGIM"),
the terms of which are the same in all material respects to the previous
Subadvisory agreement between AGAM and AGIM (the "Previous Subadvisory
Agreement").
The Board of Trustees (the "NAF Board") of North American Funds, a
Massachusetts business trust, is seeking your proxy to vote in favor of this
proposal at the Joint Special Meeting of Shareholders (the "Meeting") to be held
on November 7, 2001.
In addition, the Meeting also has been called to approve or disapprove the
proposed Agreement and Plan of Reorganization (each a "Plan" and collectively,
the "Plans") between North American Funds on behalf of each of its investment
portfolios set forth below (each an "Acquired Fund" and collectively, the
"Acquired Funds") and SunAmerica Income Funds, a Massachusetts business trust,
on behalf of each of its respective investment portfolios set forth below (each
an "Acquiring Fund," and collectively, the "Acquiring Funds"):
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Acquired Fund Acquiring Fund
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Core Bond Fund (the "NAF Core Bond Fund") SunAmerica Core Bond Fund (together with the NAF Core Bond
Fund, the "Core Bond Funds" and following the applicable
Reorganization, the "Core Bond Combined Fund.")
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High Yield Bond Fund (the "NAF High Yield Bond Fund") SunAmerica High Income Fund (to be renamed SunAmerica High
Yield Bond Fund) (together with the NAF High Yield Bond Fund,
the "High Yield Bond Funds" and following the applicable
Reorganization, the "High Yield Bond Combined Fund.")
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Municipal Bond Fund (the "NAF Municipal Bond Fund") SunAmerica Tax Exempt Insured Fund (together with the NAF
Municipal Bond Fund, the "Municipal Bond Funds" and following
the applicable Reorganization, the "Tax Exempt Insured
Combined Fund.")
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________
The Date of this Proxy Statement and Prospectus is September __, 2001.
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Strategic Income Fund (the "NAF Strategic Income Fund") SunAmerica Diversified Income Fund (to be renamed SunAmerica
Strategic Income Fund) (together with the NAF Strategic Income
Fund, the "Strategic Income Funds" and following the
applicable Reorganization, the "Strategic Income Combined
Fund.")
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U.S. Government Securities Fund (the "NAF U.S. Government SunAmerica U.S. Government Securities Fund (together with the
Securities Fund") NAF U.S. Government Securities Fund, the "U.S. Government
Securities Funds" and following the applicable Reorganization,
the "U.S. Government Securities Combined Fund.")
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Each Plan provides for the acquisition by an Acquiring Fund of
substantially all of the assets, and assumption of substantially all of the
liabilities, of the respective Acquired Fund, solely in exchange for an equal
aggregate value of newly issued shares (the "Corresponding Shares") of such
Acquiring Fund (each a "Reorganization" and collectively, the
"Reorganizations"). Immediately thereafter, and as part of the respective
Reorganization, such Acquired Fund will distribute the Corresponding Shares
received in such Reorganization to its shareholders. The consummation of one
Reorganization is not conditioned upon the consummation of any other
Reorganization.
You will receive the same class of Corresponding Shares as the shares of
your Fund held by you immediately prior to the applicable Reorganization.
(However, if you own Class C shares or Institutional Class II shares of an
Acquired Fund, you will receive Class II shares or Class Z shares, respectively,
of the respective Acquiring Fund.) The aggregate net asset value of the
Corresponding Shares will equal the aggregate net asset value of your shares of
the respective Acquired Fund. This means that you may end up with a different
number of shares compared to what you originally held, but the total dollar
value of your shares will remain the same.
The Acquired Funds and the Acquiring Funds sometimes are referred to herein
collectively as the "Funds" and individually as a "Fund," as the context
requires. The Acquiring Funds following the Reorganizations sometimes are
referred to herein collectively as the "Combined Funds" and individually as a
"Combined Fund."
There can be no assurance that, after the Reorganizations, the Combined
Funds will achieve their respective investment goals.
This Proxy Statement and Prospectus serves as a prospectus of SunAmerica
Income Funds under the Securities Act of 1933, as amended (the "Securities
Act"), in connection with the issuance of the Corresponding Shares by the
Acquiring Funds to the Acquired Funds pursuant to the terms of the
Reorganizations.
Both North American Funds and SunAmerica Income Funds are open-end series
management investment companies organized as Massachusetts business trusts. The
SunAmerica Core Bond Fund is newly created and has not yet commenced operations.
Information about the Acquired Funds and the Acquiring Funds is available
in other documents that have been filed with the Securities and Exchange
Commission (the "Commission"). These other documents are available without
charge by writing North American Funds at 286 Congress Street, Boston,
Massachusetts 02210, or by calling toll-free 1-800-872-8037 if they relate to
the Acquired Funds or by writing SunAmerica Income Funds at The SunAmerica
Center, 733 Third Avenue, New York, New York 10017 or by calling toll-free 1-
800-858-8850 if they relate to the Acquiring Funds. These documents are:
. The preliminary prospectus relating to the Acquiring Funds, subject to
completion, dated August 14, 2001 (the "Acquiring Funds Prospectus").
(1)(2)
. The Annual Report to Shareholders of the Acquiring Funds for the year
ended March 31, 2001. (1)(2)
. The current prospectuses relating to the Acquired Funds, each dated
March 1, 2001, as supplemented (the "Acquired Funds Prospectuses").
(2)
. A preliminary statement of additional information relating to the
Acquiring Funds, subject to completion, dated August 14, 2001 (the
"Acquiring Funds Statement").
. A statement of additional information relating to the Acquired Funds,
dated March 1, 2001, as supplemented (the "Acquired Funds Statement").
. The Annual Report to Shareholders of the Acquired Funds for the year
ended October 31, 2000 and the Semi-Annual Report to Shareholders of
the Acquired Funds for the six month period ended April 30, 2001.
(1) A copy is included in the package of documents that you received with
this Proxy Statement and Prospectus.
(2) The document is incorporated herein by reference (legally considered
to be part of this Proxy Statement and Prospectus).
This Proxy Statement and Prospectus sets forth concisely the information
about an Acquiring Fund that shareholders of the respective Acquired Fund should
know before considering the applicable Reorganization and should be retained for
future reference. The Acquired Funds have authorized the solicitation of
proxies solely on the basis of this Proxy Statement and Prospectus and the
accompanying documents.
Additional information contained in a statement of additional information
relating to this Proxy Statement and Prospectus (the "Statement of Additional
Information"), including pro forma financial statements of each Combined Fund
giving effect to the consummation of the applicable Reorganization, is on file
with the Commission. The Statement of Additional Information is available
without charge, upon request by calling one of the toll free numbers set forth
below or by writing North American Funds or SunAmerica Income Funds at the
addresses set forth below. The Statement of Additional Information, dated
[September __, 2001] is incorporated by reference into this Proxy Statement and
Prospectus.
The Commission maintains a web site (http://www.sec.gov) that contains the
Statement of Additional Information, the Acquiring Funds Prospectus, the
Acquired Funds Prospectuses, the Acquiring Funds Statement, the Acquired Funds
Statement, other material incorporated by reference and other information
regarding the Funds.
The address of the principal executive offices of SunAmerica Income Funds
is The SunAmerica Center, 733 Third Avenue, New York, New York 10017, the
telephone number is 1-800-858-8850 and the web address is
http://www.sunamericafunds.com. The address of the principal executive offices
of North American Funds is 286 Congress Street, Boston, Massachusetts 02210, the
telephone number is 1-800-872-8037 and the web address is
http://www.northamericanfunds.com.
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TABLE OF CONTENTS
Page
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INTRODUCTION........................................................................................... 1
SUMMARY................................................................................................ 2
THE MERGER AND THE NEW INVESTMENT ADVISORY AND SUBADVISORY AGREEMENTS.................................. 2
THE REORGANIZATIONS.................................................................................... 3
FEE TABLES........................................................................................ 6
EXAMPLES.......................................................................................... 13
THE FUNDS......................................................................................... 21
Business of the Acquired Funds.................................................................... 21
Business of the Acquiring Funds................................................................... 21
Comparison of the Funds........................................................................... 21
PRINCIPAL RISK FACTORS AND SPECIAL CONSIDERATIONS...................................................... 27
RISKS OF INVESTING IN THE FUNDS .................................................................. 27
All Funds......................................................................................... 27
Core Bond Funds, High Yield Bond Funds and Strategic Income Funds................................. 28
Municipal Bond Funds and U.S. Government Securities Funds......................................... 28
PROPOSAL NO. 1(a)-(b):................................................................................. 29
APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT AND THE NEW SUBADVISORY AGREEMENT.................... 29
THE MERGER AND THE NEW INVESTMENT ADVISORY AND SUBADVISORY AGREEMENTS.................................. 29
Board Considerations.............................................................................. 29
Description of the New Investment Advisory Agreement.............................................. 30
Additional Information About AGAM................................................................. 31
Description of the New Subadvisory Agreement...................................................... 33
PROPOSALS NOS. 2(a)--(e): APPROVAL OF THE PLANS....................................................... 34
COMPARISON OF THE FUNDS........................................................................... 34
Investment Policies............................................................................... 34
Management Arrangements........................................................................... 39
Distribution and Shareholder Servicing Arrangements............................................... 41
Other Service Agreements with Affiliates.......................................................... 42
Purchase, Exchange and Redemption of Shares....................................................... 42
Performance....................................................................................... 46
Shareholder Rights................................................................................ 51
Tax Information................................................................................... 51
Portfolio Transactions............................................................................ 51
Portfolio Turnover................................................................................ 51
Additional Information............................................................................ 51
THE REORGANIZATIONS.................................................................................... 53
General........................................................................................... 53
Terms of the Plans................................................................................ 54
NAF Board Considerations: Potential Benefits to Shareholders as a Result of the Reorganizations.. 55
Federal Income Tax Consequences of the Reorganizations............................................ 58
Capitalization [Update]........................................................................... 60
GENERAL................................................................................................ 62
INFORMATION CONCERNING THE MEETING..................................................................... 62
Date, Time and Place of Meeting................................................................... 62
Solicitation, Revocation and Use of Proxies....................................................... 62
Record Date and Outstanding Shares................................................................ 62
Security Ownership of Certain Beneficial Owners and Management of the Funds....................... 63
Voting Rights and Required Vote................................................................... 63
ADDITIONAL INFORMATION................................................................................. 64
i
LEGAL PROCEEDINGS...................................................................................... 65
LEGAL OPINIONS......................................................................................... 65
EXPERTS................................................................................................ 65
SHAREHOLDER PROPOSALS.................................................................................. 65
EXHIBIT IA............................................................................................. IA-1
EXHIBIT IB............................................................................................. IB-1
EXHIBIT II............................................................................................. II-1
ii
INTRODUCTION
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This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Trustees of North American
Funds for use at the Meeting to be held at the principal executive offices of
North American Funds, 286 Congress Street, Boston, Massachusetts 02210, on
November 7, 2001, at 10:00 a.m., Eastern Time. The mailing address for the
Acquired Funds is 286 Congress Street, Boston, Massachusetts 02210. The
approximate mailing date of this Proxy Statement and Prospectus is September
[27], 2001.
The shareholders solicited and entitled to vote on Proposals 1a, 1b, 2a,
2b, 2c, 2d and 2e of this Proxy Statement and Prospectus are outlined in the
following table:
Proposal Fund
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1. (a) Approval of New Investment Advisory Agreement All Acquired Funds, each voting separately
(b) Approval of New Investment Subadvisory All Acquired Funds, each voting separately
Agreement
2. (a) Approval of Plan relating to the Core Bond NAF Core Bond Fund
Funds
(b) Approval of Plan relating to the High Yield NAF High Yield Bond Fund
Bond Funds
(c) Approval of Plan relating to the Municipal NAF Municipal Bond Fund
Bond Funds
(d) Approval of Plan relating to the Strategic NAF Strategic Income Fund
Income Funds
(e) Approval of Plan relating to the U.S. NAF U.S. Government Securities Fund
Government Securities Funds
SUMMARY
-------
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus (including documents incorporated by
reference) and is qualified in its entirety by reference to the more complete
information contained in this Proxy Statement and Prospectus and in the New
Investment Advisory Agreement, the New Subadvisory Agreement and in the form of
the Plans, attached hereto as Exhibits IA, IB and II, respectively.
In this Proxy Statement and Prospectus, the term "Reorganization" refers to
(i) the acquisition of substantially all of the assets, and assumption of
substantially all of the liabilities, of an Acquired Fund by the respective
Acquiring Fund solely in exchange for an equal aggregate value of the
Corresponding Shares of such Acquiring Fund, and (ii) the subsequent
distribution of such Corresponding Shares to the shareholders of the Acquired
Fund. The consummation of one Reorganization is not conditioned on the
consummation of any other Reorganization.
THE MERGER AND THE NEW INVESTMENT ADVISORY AND SUBADVISORY AGREEMENTS
On ____________, 2001, American International Group, Inc. ("AIG"), the
parent company of SunAmerica Asset Management Corp. ("SAAMCo"), acquired
American General Corporation ("American General"), the parent company of AGAM
and AGIM (the "Merger"). As a result of the Merger, AGAM became a subsidiary of
AIG.
As required by the Investment Company Act of 1940, as amended (the
"Investment Company Act"), both the Previous Investment Advisory Agreement and
the Previous Subadvisory Agreement (collectively, the "Previous Agreements")
provided for automatic termination upon assignment. The consummation of the
Merger constituted an assignment, as that term is defined in the Investment
Company Act, of the Previous Agreements, and, consequently, their termination.
At a meeting of the NAF Board held on July 16-17, 2001, the NAF Board,
including all of the Trustees who are not "interested persons" (within the
meaning of Section 2(a)(19) of the Investment Company Act) ("NAF Independent
Trustees") unanimously approved an interim investment advisory agreement (the
"Interim Investment Advisory Agreement") between AGAM and North American Funds
with respect to the Acquired Funds in order to allow AGAM to continue to serve
as investment adviser for the Acquired Funds after the Merger. Pursuant to the
terms of the Interim Investment Advisory Agreement, AGAM is responsible for the
management of the investment portfolio of each Acquired Fund and for providing
certain administrative services to each Acquired Fund. The NAF Board, including
all of the Independent Trustees, also unanimously approved an interim
Subadvisory agreement (the "Interim Subadvisory Agreement") between AGAM and New
AGIM, an affiliate of AGAM, in order to allow New AGIM to continue to serve as
the subadviser for the applicable Acquired Funds after the Merger. Pursuant to
the terms of the Interim Subadvisory Agreement, New AGIM is responsible for
managing the investment and reinvestment of the assets of each Acquired Fund,
subject to the supervision of the NAF Board. The terms of the Interim
Investment Advisory Agreement and Interim Subadvisory Agreement are similar in
all material respects to those of the Previous Investment Advisory Agreement and
previous Subadvisory Agreement, respectively. Under the Investment Company Act,
however, AGAM and New AGIM may continue to serve as the investment adviser and
subadviser for each Acquired Fund beyond an interim period of 150 days only if
shareholders of such Acquired Fund approve a new investment advisory agreement
with AGAM and a new Subadvisory agreement with New AGIM. Consequently, the NAF
Board unanimously approved, and recommended shareholder approval of, the New
Investment Advisory Agreement and New Subadvisory Agreement (collectively, the
"New Agreements") on July 16-17, 2001. The New Agreements, if approved by
shareholders, would take effect immediately upon such approval. The terms of
each New Agreement, including advisory fees, are the same in all material
respects as those of the Previous Agreements. See "Proposal No. 1(a): Approval
of the New Investment Advisory Agreement -- The Merger and the New Investment
Advisory Agreement Description of the New Investment Advisory Agreement" below
for a description of the New Investment Advisory Agreement and the services to
be provided by AGAM thereunder, and "Proposal No. 1(b): Approval of the New
Subadvisory Agreement -- The New Subadvisory Agreement -- Description of the New
Subadvisory Agreement" below for a description of the New Subadvisory Agreement
and the services to be provided by AGIM thereunder.
-2-
In connection with its approval of the New Agreements, the NAF Board
received a presentation relating to AIG and SAAMCo, as well as a presentation
from AGAM and AGIM. The NAF Board considered that the Merger did not involve any
changes in the overall form of the advisory or Subadvisory contracts, the
advisory fees, or any of the Acquired Funds' objectives or policies. As part of
their deliberations, the NAF Board also took into account the following, among
other factors: the nature and quality of the services provided or reasonably
anticipated to be provided and the results achieved or reasonably anticipated to
be achieved by AGAM and/or New AGIM; the amount and structure of investment
advisers' fees generally and the fees payable under the New Agreements; the
financial strength of AIG, the management, personnel and operations of AIG and
SAAMCo; the commitment of AIG to the financial services industry, and the
structure of the Merger.
In addition, the NAF Board considered the fact that at some point after
consummation of the Merger, the operations of AGIM might be consolidated with
those of another affiliate within the AIG group of companies to eliminate
duplication and attempt to create economies of scale within the organization.
The NAF Board was assured that any such internal reorganization would not result
in a change in the personnel responsible for providing services to the
applicable Acquired Funds or in the nature or quality of those services.
Accordingly, the NAF Board approved each of the Interim Subadvisory Agreement
and the New Subadvisory Agreement with AGIM or an affiliate that in the future
conducts the advisory business previously conducted by AGIM (previously defined
as "New AGIM").
AGAM and AGIM are wholly owned subsidiaries of American General. Prior to
the Merger, American General was a part of one of the nation's largest
diversified financial services organizations with assets of approximately $128
billion and market capitalization of $23 billion at June 30, 2001. SAAMCo is
the investment adviser for the Acquiring Funds. SAAMCo has been in the business
of investment management since 1982 and as of June 30, 2001, managed, advised
and/or administered approximately $28.5 billion of assets. AIG, SAAMCO's
parent, a Delaware corporation, is a holding company which through its
subsidiaries is engaged in a broad range of insurance and insurance-related
activities and financial services in the United States and abroad.
THE REORGANIZATIONS
On August 2, 2001, the NAF Board unanimously approved, subject to
shareholder approval and completion of the Merger, a proposal that each
Acquiring Fund acquire substantially all of the assets, and assume substantially
all of the liabilities, of the respective Acquired Fund solely in exchange for
an equal aggregate value of such Acquiring Fund's Corresponding Shares to be
distributed to the shareholders of such Acquired Fund. Shareholders holding
Class A, Class B, Class C, Institutional Class II and Institutional Class I
shares of an Acquired Fund will receive Class A, Class B, Class II, Class Z and
Class I shares, respectively, of the respective Acquiring Fund. For the
avoidance of confusion, Institutional Class II with respect to the Acquired
Funds is pronounced "Class Double Eye," while Class II with respect to the
Acquiring Funds is pronounced "Class 2." See "Proposals Nos. 2(a) - (e):
Approval of the Plans -- Comparison of the Funds Purchase, Exchange and
Redemption of Shares" below, "Shareholder Account Information" in the Acquiring
Funds Prospectus and "Section III: Investing in the North American Funds" in the
Acquired Funds Prospectuses for a description of these share classes. No sales
charges will be imposed on the Corresponding Shares issued in connection with
the Reorganizations. Each Reorganization has been structured with the intention
that it qualify for Federal income tax purposes as a tax-free reorganization
under the Internal Revenue Code of 1986, as amended (the "Code"). See "Proposals
Nos. 2(a) - (e): Approval of the Plans -- The Reorganizations -- NAF Board
Considerations: Potential Benefits to Shareholders as a Result of the
Reorganizations" for more detailed info regarding the net assets of each Fund.
See "Proposals Nos. 2(a) - (e): Approval of the Plans -- The Reorganizations --
NAF Board Considerations: Potential Benefits to Shareholders as a Result of the
Reorganizations" for more detailed information regarding the net assets of each
Fund. With respect to the High Yield Bond Combined Fund, this increase in net
assets may cause a lower advisory fee rate to apply in accordance with the
advisory fee breakpoint schedule applicable to such Acquiring Fund. See
"Proposals Nos. 2(a) - (e): Approval of the Plans -- Comparison of the Funds --
Management Arrangements -- Comparison of Management and Administrative
Arrangements and Fees -- Comparison of the NAF Investment Advisory Agreement and
SunAmerica Investment Advisory Agreement."
In approving the Reorganizations, based upon their evaluation of all
relevant information, and after meeting with counsel to the NAF Independent
Trustees regarding the legal issues involved, the NAF Board identified and
considered certain potential benefits to shareholders that are likely to result
from the Reorganizations. The NAF Board also considered that, following each
Reorganization, shareholders of an Acquired Fund will remain invested in a
mutual fund which has substantially the same investment objective and similar,
though not identical, investment techniques. An advantage to shareholders
identified by the NAF Board relates to the potential for reduced operating
expenses due to economies of scale. The net assets of each Acquiring Fund (other
than the SunAmerica Core Bond Fund, which has not yet commenced operating) will
increase by the amount of the net assets of each of the respective Acquired
Funds at the time of the Reorganizations. Since the fixed expenses of the
Combined Funds (other than the Core Bond Combined Fund) will be spread over a
larger asset base, management anticipates that shareholders of these Funds are
likely to benefit from reduced overall operating expenses over time as a result
of economies of scale expected after the Reorganizations. Because SunAmerica has
broad distribution channels,
-3-
it is possible that the asset base for all Combined Funds (including the Core
Bond Combined Fund) will increase over the long term, which would tend to result
in a lower overall operating expense ratio. Of course, there is no guarantee
that such increases in asset base would in fact occur. See "Proposals Nos.
2(a) -(e): Approval of the Plans -- The Reorganizations -- NAF Board
Considerations: Potential Benefits to Shareholders as a Result of the
Reorganizations" for more detailed information regarding the net assets of each
Fund. Since the fixed expenses of the Combined Funds (other than the Core Bond
Combined Fund) will be spread over a larger asset base, management anticipates
that shareholders of these Funds are likely to benefit from reduced overall
operating expenses over time as a result of economies of scale expected after
the Reorganizations. See "--Fee Tables" and "Proposals Nos. 2(a) - (e): Approval
of the Plans -- The Reorganizations -- NAF Board Considerations: Potential
Benefits to Shareholders as a Result of the Reorganizations" for additional
information regarding the total and net operating expenses, as a percentage of
net assets, for the Combined Funds, on a pro forma basis, assuming the
Reorganizations had been completed on March 31, 2001. In addition, although the
operating expenses of certain Combined Funds on a pro forma basis (as though the
Reorganizations were completed on March 31, 2001) are higher than those of the
respective Acquired Fund, this is after taking into account certain fee waivers
and expense reimbursements that benefit the NAF Funds and are in place with
respect to the Acquired Funds through February 28, 2002. There can be no
assurance that AGAM would continue with these waivers and reimbursements past
that date.
With respect to the NAF High Yield Bond Fund and NAF Strategic Income Fund,
the NAF Board considered that the respective Acquiring Fund will change its
investment objective and policies to more closely resemble those of each
Acquired Fund, and will retain New AGIM as subadviser, subject to approval by
the shareholders of such Acquiring Funds. As a condition to each applicable
Reorganization, the respective Acquiring Fund will seek shareholder approval of
a change in investment objective to align the investment strategies and
techniques of the High Yield Bond and Strategic Income Combined Funds to those
of the respective Acquired Funds. The Board of Trustees of SunAmerica Income
Funds (the "SunAmerica Board") has already approved the necessary changes.
In addition, the SunAmerica Board has approved the retention of New AGIM to
serve as subadviser to the Tax Exempt Insured Combined Fund upon consummation of
the Reorganization applicable, subject to approval of the shareholders of the
SunAmerica Tax Exempt Insured Fund.
The NAF Board, including all of the NAF Independent Trustees, has
determined that each Reorganization is in the best interests of the respective
Acquired Fund and its shareholders. In addition, the NAF Board, including all
of the NAF Independent Trustees, has determined that the interests of existing
shareholders of each Acquired Fund will not be diluted as a result of effecting
the respective Reorganization because each such shareholder will receive
Corresponding Shares of the Acquiring Fund having an aggregate net asset value
equal to the aggregate net asset value of his or her shares of the Acquired Fund
outstanding as of the Valuation Time (as defined herein). Although, as a result
of the Reorganizations, a shareholder of an Acquired Fund (other than the NAF
Core Bond Fund) may receive shares of the respective Acquiring Fund which
represent a smaller percentage of ownership in the respective Acquiring Fund
than he or she held in that Acquired Fund prior to the respective
Reorganization, the total dollar value of the shares will be the same.
The NAF Board unanimously recommends that you vote FOR the Plan relating to
the Reorganization involving your Fund. Your Board has based this
recommendation on its consideration of the principal reasons underlying each
Reorganization, including the following: the fact that following each
reorganization, shareholders of each Acquired Fund would remain invested in a
mutual fund having substantially the same investment objective and similar
investment techniques; the fees and expenses of the Acquired Funds, the
Acquiring Funds and the Combined Funds; potential benefits to shareholders
likely to result from each Reorganization, such as the potential for reduced
operating expenses over time due to economies of scale; and the fact that the
Reorganizations will not result in dilution of the interests of Acquired Fund
shareholders. For a more detailed discussion of the factors considered by your
Board in
-4-
approving the Reorganizations, see "Proposals Nos. 2(a) - (e): The
Reorganizations - NAF Board Considerations: Potential Benefits to Shareholders
as a result of the Reorganizations" below.
If all of the requisite approvals are obtained and certain conditions are
either met or waived, it is anticipated that (i) AGAM will continue to serve as
the investment adviser of the Acquired Funds and New AGIM will serve as
subadviser to each of the Acquired Funds until the closing of the
Reorganizations (which is currently anticipated to occur during the fourth
calendar quarter of 2001), (ii) the Reorganizations will occur as soon as
practicable thereafter, provided that the Funds have obtained prior to that time
an opinion of counsel concerning the tax consequences of the Reorganizations as
set forth in the Plans, and (iii) after the consummation of the Reorganizations,
SAAMCo will manage the assets of the Acquired Funds as part of the Combined
Funds, and New AGIM will serve as subadviser to the Core Bond, High Yield Bond,
Tax Exempt Insured and Strategic Income Combined Funds (subject to shareholder
approval of the respective Acquiring Funds). The Plans may be terminated, and
the Reorganizations abandoned, whether before or after the requisite approval by
the shareholders of the Acquired Funds, at any time prior to the Closing Date
(as defined herein), (i) by mutual agreement of the NAF Board and the SunAmerica
Board; (ii) by an Acquired Fund if any condition to such Acquired Fund's
obligations has not been fulfilled or waived; or (iii) by an Acquiring Fund if
any condition to such Acquiring Fund's obligations has not been fulfilled or
waived.
-5-
FEE TABLES
Actual Fee Table for Shareholders of each of the Acquired Funds+, and each of
the Acquiring Funds (as of March 31, 2001) and Proforma Fee Table for each of
the Combined Funds as of (March 31, 2001)
NAF Core Bond Fund SunAmerica Core Bond Fund
Class Class Class Institutional Class Class Class Class Class
----- ----- ----- ----------------- ----- ----- ----- ----- -----
A B C Class I Class II A B II I Z
----- ----- ----- ------- -------- ----- ----- ----- ----- -----
Shareholder Fees (fees paid directly from
your investment):
Maximum Sales Charge (Load) Imposed on ...... 4.75% None None None None 4.75% None 1.00% None None
Purchases (as a percentage of offering
price)(1)
Maximum Deferred Sales Charge (Load) (as a .. None 5.00% 1.00% None None None 5.00% 1.00% None None
percentage of original purchase price or
redemption price, whichever is lower)(2)
Maximum Sales Charge (Load) Imposed on ...... None None None None None None None None None None
Reinvested Dividends
Redemption Fee(3) ........................... None None None None None None None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
(expenses that are deducted from Fund
assets):
Management Fees ........................... 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60%
Distribution and/or Service (12b-1) Fees(4) 0.35% 1.00% 1.00% None None 0.35% 1.00% 1.00% None None
Other Expenses ............................ 0.38% 0.38% 0.38% 0.63% 0.38% 0.57% 0.59% 0.62% 0.67% 0.13%
Total Annual Fund Operating Expenses Before . 1.33% 1.98% 1.98% 1.23% 0.98% 1.52% 2.19% 2.22% 1.27% 0.73%
Expense Reimbursement
Expense Reimbursement(5)(6) ................. -- -- -- -- -- 0.19% 0.21% 0.24% 0.04% --
Net Expenses ................................ 1.33% 1.98% 1.98% 1.23% 0.98% 1.33% 1.98% 1.98% 1.23% 0.73%
Pro Forma Core Bond Combined Fund*
Class Class Class Class Class
------ ----- ----- ----- -----
A B II I** Z**
------ ----- ----- ----- -----
Shareholder Fees (fees paid directly from
your investment):
Maximum Sales Charge (Load) Imposed on ...... 4.75% None 1.00% None None
Purchases (as a percentage of offering
price)(1)
Maximum Deferred Sales Charge (Load) (as a .. None 5.00% 1.00% None None
percentage of original purchase price or
redemption price, whichever is lower)(2)
Maximum Sales Charge (Load) Imposed on ...... None None None None None
Reinvested Dividends
Redemption Fee(3) ........................... None None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
(expenses that are deducted from Fund
assets):
Management Fees ........................... 0.60% 0.60% 0.60% 0.60% 0.60%
Distribution and/or Service (12b-1) Fees(4) 0.35% 1.00% 1.00% None None
Other Expenses ............................ 0.57% 0.59% 0.62% 0.67% 0.13%
Total Annual Fund Operating Expenses Before . 1.52% 2.19% 2.22% 1.27% 0.73%
Expense Reimbursement
Expense Reimbursement(5)(6) ................. 0.19% 0.21% 0.24% 0.04% --
Net Expenses ................................ 1.33% 1.98% 1.98% 1.23% 0.73%
-6-
NAF High Yield Bond Fund SunAmerica High Income Fund
Class Class Class Institutional Class Class Class
A B C Class I Class II A B II
------- ------- ------- -------- -------- -------- -------- -------
Shareholder Fees (fees paid directly from your
investment):
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)(1) ........... 4.75% None None None None 4.75% None 1.00%
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption price, whichever is lower)(2) ......... None 5.00% 1.00% None None None 5.00% 1.00%
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends ........................................ None None None None None None None None
Redemption Fee(3) ................................. None None None None None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets) (expenses
that are deducted from Fund assets):
Management Fees ................................. 0.83% 0.83% 0.83% 0.83% 0.83% 0.75% 0.75% 0.75%
Distribution and/or Service (12b-1) Fees(4) ..... 0.35% 1.00% 1.00% None None 0.35% 1.00% 1.00%
Other Expenses .................................. 0.39% 0.39% 0.39% 0.64% 0.39% 0.45% 0.43% 0.48%
Total Annual Fund Operating Expenses Before Expense
Reimbursement .................................... 1.57% 2.22% 2.22% 1.47% 1.22% 1.55% 2.18% 2.23%
Expense Reimbursement(5)(6) ....................... -- -- -- -- -- -- -- 0.13%
Net Expenses(7) ................................... 1.57% 2.22% 2.22% 1.47% 1.22% 1.55% 2.18% 2.10%
Pro Forma High Yield Bond Combined Fund*
Class Class Class Class
A B II Class I** Z**
----- -------- -------- --------- -------
Shareholder Fees (fees paid directly from your
investment):
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)(1) ........... 4.75% None 1.00% None None
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption price, whichever is lower)(2) ......... None 5.00% 1.00% None None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends ........................................ None None None None None
Redemption Fee(3) ................................. None None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets) (expenses
that are deducted from Fund assets):
Management Fees ................................. 0.75% 0.75% 0.75% 0.75% 0.75%
Distribution and/or Service (12b-1) Fees(4) ..... 0.35% 1.00% 1.00% None None
Other Expenses .................................. 0.45% 0.43% 0.48% 1.06% 0.20%
Total Annual Fund Operating Expenses Before Expense
Reimbursement .................................... 1.55% 2.18% 2.23% 1.81% 0.95%
Expense Reimbursement(5)(6) ....................... -- -- -- 0.36% --
Net Expenses(7) ................................... 1.55% 2.18% 2.23% 1.45% 0.95%
-7-
NAF Municipal Bond Fund SunAmerica Tax Exempt Insured Fund
Class A Class B Class C Class A Class B Class II
------- ------- ------- ---------- ---------- -----------
Shareholder Fees (fees paid directly from
your investment):
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering
price)(1)................................ 4.75% None None 4.75% None 1.00%
Maximum Deferred Sales Charge (Load) (as
a percentage of original purchase price
or redemption price, whichever is
lower)(2)................................ None 5.00% 1.00% None 5.00% 1.00%
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends..................... None None None None None None
Redemption Fee(3)......................... None None None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
(expenses that are deducted from Fund
assets):
Management Fees......................... 0.60% 0.60% 0.60% 0.50% 0.50% 0.50%
Distribution and/or Service (12b-1)
Fees(4)................................ 0.15% 1.00% 1.00% 0.35% 1.00% 1.00%
Other Expenses.......................... 0.68% 0.68% 0.68% 0.41% 0.47% 2.04%
Total Annual Fund Operating Expenses
Before Expense Reimbursement............. 1.43% 2.28% 2.28% 1.26% 1.97% 3.54%
Expense Reimbursement(5)(6)............... -0.38% -0.38% -0.38% -- -- 1.59%
Net Expenses(7)........................... 1.05% 1.90% 1.90% 1.26% 1.97% 1.95%
Pro Forma Tax Exempt Insured Combined Fund*
Class A Class B Class II
------- ------- --------
Shareholder Fees (fees paid directly from
your investment):
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering
price)(1)................................ 4.75% None 1.00%
Maximum Deferred Sales Charge (Load) (as
a percentage of original purchase price
or redemption price, whichever is
lower)(2)................................ None 5.00% 1.00%
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends..................... None None None
Redemption Fee(3)......................... None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
(expenses that are deducted from Fund
assets):
Management Fees......................... 0.50% 0.50% 0.50%
Distribution and/or Service (12b-1)
Fees(4)................................ 0.35% 1.00% 1.00%
Other Expenses.......................... 0.40% 0.45% 0.62%
Total Annual Fund Operating Expenses
Before Expense Reimbursement............. 1.25% 1.95% 2.12%
Expense Reimbursement(5)(6)............... -- -- --
Net Expenses(7)........................... 1.25% 1.95% 2.12%
-8-
Actual and Pro Forma Fee Table for Shareholders of each of the Acquired Funds,
each of the Acquiring Funds and each of the Combined Funds on a pro forma basis,
each as of March 31, 2001
NAF Strategic Income Fund SunAmerica Diversified Income Fund
Institutional
Class A Class B Class C Class I Class A Class B Class II
------- ------- ------- -------------- ------- ------- --------
Shareholder Fees (fees paid directly from your
investment):
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering
price)(1)..................................... 4.75% None None None 4.75% None 1.00%
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption price, whichever is lower)(2)...... None 5.00% 1.00% None None 5.00% 1.00%
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends.......................... None None None None None None None
Redemption Fee(3).............................. None None None None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
(expenses that are deducted from fund assets):
Management Fees.............................. 0.74% 0.74% 0.74% 0.74% 0.65% 0.65% 0.65%
Distribution and/or Service (12b-1) Fees(4).. 0.35% 1.00% 1.00% None 0.35% 1.00% 1.00%
Other Expenses............................... 0.86% 0.86% 0.86% 1.11% 0.54% 0.57% 0.94%
Total Annual Fund Operating Expenses Before
Expense Reimbursement......................... 1.95% 2.60% 2.60% 1.85% 1.54% 2.22% 2.59%
Expense Reimbursement(5)(6).................... -0.38% -0.38% -0.38% -0.38% -- -- 0.44%
Net Expenses(7)................................ 1.57% 2.22% 2.22% 1.47% 1.54% 2.22% 2.15%
Pro Forma Strategic Income Combined Fund*
Class A Class B Class II Class I**
------- ------- -------- --------
Shareholder Fees (fees paid directly from your
investment):
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering
price)(1)..................................... 4.75% None 1.00% None
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption price, whichever is lower)(2)...... None 5.00% 1.00% None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends.......................... None None None None
Redemption Fee(3).............................. None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
(expenses that are deducted from fund assets):
Management Fees.............................. 0.65% 0.65% 0.65% 0.65%
Distribution and/or Service (12b-1) Fees(4).. 0.35% 1.00% 1.00% None
Other Expenses............................... 0.54% 0.57% 0.60% 1.09%
Total Annual Fund Operating Expenses Before
Expense Reimbursement......................... 1.54% 2.22% 2.25% 1.74%
Expense Reimbursement(5)(6).................... -- -- -- 0.30%
Net Expenses(7)................................ 1.54% 2.22% 2.25% 1.44%
-9-
NAF U.S. Government Securities Fund SunAmerica U.S. Government
Institutional Securities Fund
Class A Class B Class C Class I Class A Class B Class II
------- ------- ------- -------------- ------- ------- --------
Shareholder Fees (fees paid directly from your
investment):
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering
price)(1)..................................... 4.75% None None None 4.75% None 1.00%
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption price, whichever is lower)(2)...... None 5.00% 1.00% None None 5.00% 1.00%
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends.......................... None None None None None None None
Redemption Fee(3).............................. None None None None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
(expenses that are deducted from Fund assets):
Management Fees.............................. 0.60% 0.60% 0.60% 0.60% 0.75% 0.75% 0.75%
Distribution and/or Service (12b-1) Fees(4).. 0.35% 1.00% 1.00% None 0.35% 1.00% 1.00%
Other Expenses............................... 0.59% 0.59% 0.59% 0.84% 0.39% 0.42% 1.63%
Total Annual Fund Operating Expenses Before
Expense Reimbursement......................... 1.54% 2.19% 2.19% 1.44% 1.49% 2.17% 3.38%
Expense Reimbursement(5)(6).................... -0.24% -0.24% -0.24% -0.24% -- -- 1.18%
Net Expenses................................... 1.30% 1.95% 1.95% 1.20% 1.49% 2.17% 2.20%
Pro Forma U.S. Government Securities
Combined Fund*
Class A Class B Class II Class I**
------- ------- -------- ---------
Shareholder Fees (fees paid directly from your
investment):
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering
price)(1)..................................... 4.75% None 1.00% None
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or
redemption price, whichever is lower)(2)...... None 5.00% 1.00% None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends.......................... None None None None
Redemption Fee(3).............................. None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
(expenses that are deducted from Fund assets):
Management Fees.............................. 0.64% 0.64% 0.64% 0.64%
Distribution and/or Service (12b-1) Fees(4).. 0.35% 1.00% 1.00% None
Other Expenses............................... 0.38% 0.41% 0.51% 0.63%
Total Annual Fund Operating Expenses Before
Expense Reimbursement......................... 1.37% 2.05% 2.15% 1.27%
Expense Reimbursement(5)(6).................... 0.05% 0.05% 0.10% 0.05%
Net Expenses................................... 1.32% 2.00% 2.05% 1.22%
-10-
__________________
+ As reflected in the Acquired Funds Prospectus.
* "Other Expenses," "Total Annual Fund Operating Expenses Before Expense
Reimbursement" and "Expense Reimbursement" in connection with each of the
Acquiring Funds and each of the Combined Funds have been estimated.
** Each Combined Fund will commence offering Class I shares upon completion of
the applicable Reorganization. In addition, the SunAmerica Core Bond Fund
and the SunAmerica High Yield Bond Fund will commence offering Class Z
shares upon completion of their respective Reorganizations.
(1) The front-end sales charge on Class A shares decreases with the size of the
purchase to 0% for purchases of $1 million or more.
(2) With respect to the Acquired Funds, (i) purchases of Class A shares of $1
million or more are subject to a CDSC of 1.00% on redemptions made within
one year of purchase, (ii) the CDSC on Class B shares applies only if
shares are redeemed within six years of their purchase in accordance with
the Acquired Funds' CDSC schedule set forth under "Proposals Nos. 2(a) -
(e): Approval of the Plans--Comparison of the Funds -- Purchase, Exchange
and Redemption of Shares," and (iii) the CDSC on Class C shares applies
only if shares are redeemed within one year of their purchase. See the
Acquired Funds Prospectuses for more information regarding the CDSCs
applicable to the Acquired Funds. The CDSC schedules applicable to Class B
and Class C shares of an Acquired Fund will continue to apply to the
respective Corresponding Shares received in the applicable Reorganization
by shareholders of a Combined Fund who were shareholders of the
corresponding Acquired Fund as of the date of the closing of such
Reorganization (even if you exchange your shares for shares of another fund
distributed by SACS). Future purchases of Class A, Class B or Class II
shares of a Combined Fund will be subject to the CDSC schedule applicable
to the Combined Fund.
With respect to the Acquiring Funds (and to future purchases of Class A,
Class B or Class II shares of the Combined Funds after the closing of the
Reorganizations), (i) purchases of Class A shares over $1 million are
subject to a CDSC on redemptions made within two years of purchase (1.00%
on shares sold within one year of purchase and 0.50% on shares sold after
the first year and within the second year after purchase), (ii) the CDSC on
Class B shares applies only if shares are redeemed within six years of
their purchase in accordance with the Acquiring Funds' CDSC schedule set
forth under "Proposals Nos. 2(a) - (d): Approval of the Plans -- Comparison
of the Funds -- Purchase, Exchange and Redemption of Shares," and (iii) the
CDSC on Class II shares applies only if shares are redeemed within eighteen
months of their purchase. See the Acquiring Funds Prospectus for more
information about the CDSCs applicable to the Acquiring Funds and the
Combined Funds.
(3) In the case of the Acquiring Funds (and hence the Combined Funds) a $15.00
fee may be imposed on wire and overnight mail redemptions.
(4) Because these fees are paid out of a Fund's assets on an on-going basis,
over time these fees will increase the cost of your investment and may cost
you more than paying other types of sales charges.
(5) With respect to each Acquired Fund, amounts reflect AGAM's contractual
obligation to waive, and to the extent necessary, reimburse certain fees
and expenses of such Acquired Fund through February 28, 2002. If
shareholders do not approve the Reorganizations, there is no assurance AGAM
would continue to provide such fee reductions and expense reimbursements
past such date.
(6) With respect to certain classes of shares of the Acquiring Funds and the
Combined Funds, the SunAmerica Board, including a majority of the Trustees
who are not "interested persons" (within the meaning of Section 2(a)(19) of
the Investment Company Act (the "SunAmerica Independent Trustees"),
approved the Acquiring Funds' and the Combined Funds Investment Advisory
and Management Agreement with SAAMCo subject to the net expense ratios set
forth above. SunAmerica may not increase such ratios, which are
contractually required by agreement with the SunAmerica Board, without the
approval of the SunAmerica Board, including a majority of the SunAmerica
Independent
-11-
Trustees. The expense waivers and fee reimbursements will continue
indefinitely, subject to termination by the SunAmerica Board, including a
majority of the SunAmerica Independent Trustees.
(7) SAAMCo is voluntarily waiving fees and/or reimbursing expenses so that the
total net expense ratios for Class II shares of the following Combined
Funds do not exceed the amount set forth below:
Strategic Income Combined Fund, .................... 2.22%
High Yield Bond Combined Fund, ..................... 2.18%
Tax Exempt Insured Combined Fund, .................. 1.95%
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder bears directly or indirectly as compared
to the costs and expenses that would be borne by such investors on a pro forma
basis taking into account the consummation of the Reorganizations. All pro
forma amounts are based on what the estimated expenses of the Pro Forma Combined
Fund would be assuming the Reorganizations were completed on March 31, 2001.
-12-
These examples are intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds.
EXAMPLES:
Cumulative Expenses Paid for the Period of:
--------------------------------------------
1 Year 3 Years 5 Years 10 Years(3)
------ ------- ------- -----------
An investor would pay the following expenses on a $10,000 investment and
assuming (1) the Total Annual Fund Operating Expenses set forth in the
table above for the relevant Fund and (2) a 5% annual return throughout
the period:
Expenses if you did redeem your shares at the end of the period:
---
NAF Core Bond Fund
(Class A shares)..................................................... $604 $ 876 $1,169 $2,000
(Class B shares)..................................................... 701 1,021 1,268 2,136
(Class C shares)..................................................... 301 621 1,068 2,306
(Institutional Class I shares)....................................... 125 390 676 1,489
(Class II shares).................................................... 100 312 542 1,201
SunAmerica Core Bond Fund
(Class A shares)(1).................................................. $604 $ 876 $1,169 $2,000
(Class B shares)(1).................................................. 701 921 1,268 2,139
(Class II shares)(1)................................................. 399 715 1,157 2,383
(Class I shares)(1).................................................. 125 390 676 1,489
(Class Z shares)..................................................... 75 233 406 906
Pro Forma Core Bond Combined Fund*
(Class A shares)(1).................................................. $604 $ 876 $1,169 $2,000
(Class B shares)(1).................................................. 701 921 1,268 2,139
(Class II shares)(1)................................................. 399 715 1,157 2,383
(Class I shares)(1).................................................. 125 390 676 1,489
(Class Z shares)..................................................... 75 233 406 906
NAF High Yield Bond Fund
(Class A shares)..................................................... $627 $ 947 $1,290 $2,254
(Class B shares)..................................................... 725 1,094 1,390 2,388
(Class C shares)..................................................... 325 694 1,190 2,554
(Institutional Class I shares)....................................... 150 465 803 1,757
(Class II shares).................................................... 124 387 670 1,477
SunAmerica High Income Fund
(Class A shares)..................................................... $625 $ 941 $1,280 $2,233
-13-
Cumulative Expenses Paid for the Period of:
--------------------------------------------
1 Year 3 Years 5 Years 10 Years(3)
------ ------- ------- -----------
An investor would pay the following expenses on a $10,000 investment and
assuming (1) the Total Annual Fund Operating Expenses set forth in the
table above for the relevant Fund and (2) a 5% annual return throughout
the period:
Expenses if you did redeem your shares at the end of the period:
---
(Class B shares)..................................................... $721 $ 982 $1,369 $2,354
(Class II shares)(1)................................................. 424 790 1,283 2,639
Pro Forma High Yield Bond Combined Fund*
(Class A shares)..................................................... $625 $ 941 $1,280 $2,233
(Class B shares)..................................................... 721 982 1,369 2,354
(Class II shares)(2)................................................. 424 790 1,283 2,639
(Class I shares)(1).................................................. 148 459 792 1,735
(Class Z shares)..................................................... 97 303 526 1,166
NAF Municipal Bond Fund(1)
(Class A shares)..................................................... $577 $ 870 $1,185 $2,076
(Class B shares)..................................................... 693 1,076 1,386 2,372
(Class C shares)..................................................... 293 676 1,186 2,586
SunAmerica Tax Exempt Insured Fund
(Class A shares)..................................................... $597 $ 856 $1,134 $1,925
(Class B shares)..................................................... 700 918 1,262 2,112
(Class II shares)(1)................................................. 396 706 1,142 2,352
Pro Forma Tax Exempt Insured Combined Fund*
(Class A shares)..................................................... $596 $ 853 $1,129 $1,915
(Class B shares)..................................................... 698 912 1,252 2,094
(Class II shares)(2)................................................. 413 757 1,228 2,527
NAF Strategic Income Fund(1)
(Class A shares)..................................................... $627 $1,023 $1,444 $2,613
(Class B shares)..................................................... 725 1,172 1,546 2,748
(Class C shares)..................................................... 325 772 1,346 2,906
(Institutional Class I shares)....................................... 150 545 965 2,138
-14-
Cumulative Expenses Paid for the Period of:
--------------------------------------------
1 Year 3 Years 5 Years 10 Years(3)
------ ------- ------- -----------
An investor would pay the following expenses on a $10,000 investment and
assuming (1) the Total Annual Fund Operating Expenses set forth in the
table above for the relevant Fund and (2) a 5% annual return throughout
the period:
Expenses if you did redeem your shares at the end of the period:
---
SunAmerica Diversified Income Fund
(Class A shares)..................................................... $624 $ 938 $1,275 $2,222
(Class B shares)..................................................... 725 994 1,390 2,383
(Class II shares)(1)................................................. 416 766 1,243 2,558
Pro Forma Strategic Income Combined Fund*
(Class A shares)..................................................... $624 $ 938 $1,275 $2,222
(Class B shares)..................................................... 725 994 1,390 2,383
(Class II shares)(2)................................................. 426 796 1,293 2,659
(Class I shares)(1)..................................... ............ 147 456 787 1,724
NAF U.S. Government Securities Fund(1)
(Class A shares)..................................................... $601 $ 916 $1,253 $2,203
(Class B shares)..................................................... 698 1,062 1,353 2,340
(Class C shares)..................................................... 298 662 1,153 2,505
(Institutional Class I shares)....................................... 122 432 764 1,704
SunAmerica U.S. Government Securities Fund
(Class A shares)..................................................... $619 $ 933 $1,250 $2,170
(Class B shares)..................................................... 720 979 1,364 2,331
(Class II shares)(1)................................................. 421 781 1,268 2,609
Pro Forma U.S. Government Securities Combined Fund*(1)
(Class A shares)..................................................... $603 $ 873 $1,164 $1,990
(Class B shares)..................................................... 703 927 1,278 2,152
(Class II shares).................................................... 406 736 1,192 2,455
(Class I shares)..................................................... 124 387 670 1,477
-15-
- ------------------------
* Assuming the Reorganization had taken place on March 31, 2001.
(1) Expenses used for the example include fee waivers and expense
reimbursements described in footnotes (5) and/or (6) above under "-- Fee
Tables."
(2) SAAMCo is voluntarily waiving fees and/or reimbursing expenses for Class II
shares of the following Combined Funds. However, this fee waiver and/or
expense reimbursement is not reflected in the example above. The following
are your costs after these fee waivers and/or expense reimbursements:
1 year 3 years 5 years 10 years
High Yield Bond Combined Fund................................. 418 775 1,258 2,588
Tax Exempt Insured Combined Fund.............................. 396 706 1,142 2,352
Strategic Income Combined Fund................................ 423 787 1,278 2,629
(3) Class B shares generally convert to Class A shares approximately eight
years after purchase. Therefore, expense information for years 9 and 10 is
the same for both Class A and Class B shares.
-16-
Cumulative Expenses Paid for the Period of:
-------------------------------------------
1 Year 3 Years 5 Years 10 Years(3)
------ ------- ------- -----------
An investor would pay the following expenses on a $10,000 investment and
assuming (1) the Total Annual Fund Operating Expenses set forth in the
table above for the relevant Fund and (2) a 5% annual return throughout
the period:
Expenses if you did not redeem your shares at the end of the period:
-------
NAF Core Bond Fund
(Class A shares)..................................................... $604 $ 876 $1,169 $ 2,000
(Class B shares)..................................................... 201 621 1,068 2,136
(Class C shares)..................................................... 201 621 1,068 2,306
(Institutional Class I shares)....................................... 125 390 676 1,489
(Class II shares).................................................... 100 312 542 1,201
SunAmerica Core Bond Fund
(Class A shares)..................................................... $604 $ 876 $1,169 $ 2,000
(Class B shares)..................................................... 201 621 1,068 2,139
(Class II shares).................................................... 299 715 1,157 2,383
(Class I shares)..................................................... 125 390 676 1,489
(Class Z shares)..................................................... 75 233 406 906
Pro Forma Core Bond Combined Fund*(1)
(Class A shares)..................................................... $604 $ 876 $1,169 $ 2,000
(Class B shares)..................................................... 201 621 1,068 2,139
(Class II shares).................................................... 299 715 1,157 2,383
(Class I shares)..................................................... 125 390 676 1,489
(Class Z shares)..................................................... 75 233 406 906
NAF High Yield Bond Fund
(Class A shares)..................................................... $627 $ 947 $1,290 $ 2,254
(Class B shares)..................................................... 225 694 1,190 2,388
(Class C shares)..................................................... 225 694 1,190 2,554
(Institutional Class I shares)....................................... 150 465 803 1,757
(Class II shares).................................................... 124 387 670 1,477
SunAmerica High Income Fund
(Class A shares)..................................................... $625 $ 941 $1,280 $ 2,233
-17-
Cumulative Expenses Paid for the Period of:
--------------------------------------------
1 Year 3 Years 5 Years 10 Years(3)
------ ------- ------- -----------
An investor would pay the following expenses on a $10,000 investment and
assuming (1) the Total Annual Fund Operating Expenses set forth in the
table above for the relevant Fund and (2) a 5% annual return throughout
the period:
Expenses if you did not redeem your shares at the end of the period:
-------
(Class B shares)..................................................... $221 $ 682 $1,169 $ 2,354
(Class II shares).................................................... 311 751 1,218 2,507
Pro Forma High Yield Bond Combined Fund*(1)
(Class A shares)..................................................... $625 $ 941 $1,280 $ 2,233
(Class B shares)..................................................... 221 682 1,169 2,354
(Class II shares)(2)................................................. 324 790 1,283 2,639
(Class I shares)..................................................... 148 459 792 1,735
(Class Z shares)..................................................... 97 303 526 1,166
NAF Municipal Bond Fund
(Class A shares)..................................................... $577 $ 870 $1,185 $ 2,076
(Class B shares)..................................................... 193 676 1,186 2,372
(Class C shares)..................................................... 193 676 1,186 2,586
SunAmerica Tax Exempt Insured Fund
(Class A shares)..................................................... $597 $ 856 $1,134 $ 1,925
(Class B shares)..................................................... 200 618 1,062 2,112
(Class II shares).................................................... 296 706 1,142 2,352
Pro Forma Tax Exempt Insured Combined Fund*(1)
(Class A shares)..................................................... $596 $ 853 $1,129 $ 1,915
(Class B shares)..................................................... 198 612 1,052 2,094
(Class II shares)(2)................................................. 313 757 1,228 2,527
NAF Strategic Income Fund
(Class A shares)..................................................... $627 $1,023 $1,444 $ 2,613
(Class B shares)..................................................... 225 772 1,346 2,748
(Class C shares)..................................................... 225 772 1,346 2,906
(Institutional Class I shares)....................................... 150 545 965 2,138
-18-
Cumulative Expenses Paid for the Period of:
--------------------------------------------
1 Year 3 Years 5 Years 10 Years(3)
------ ------- ------- -----------
An investor would pay the following expenses on a $10,000 investment and
assuming (1) the Total Annual Fund Operating Expenses set forth in the
table above for the relevant Fund and (2) a 5% annual return throughout
the period:
Expenses if you did not redeem your shares at the end of the period:
-------
SunAmerica Diversified Income Fund
(Class A shares)..................................................... $624 $ 938 $1,275 $ 2,222
(Class B shares)..................................................... 225 694 1,190 2,383
(Class II shares).................................................... 316 766 1,243 2,558
Pro Forma Strategic Income Combined Fund*(1)
(Class A shares)..................................................... $624 $ 938 $1,275 $ 2,222
(Class B shares)..................................................... 225 694 1,190 2,383
(Class II shares)(2)................................................. 326 796 1,293 2,659
(Class I shares)..................................................... 147 456 787 1,752
NAF U.S. Government Securities Fund
(Class A shares)..................................................... $601 $ 916 $1,253 $ 2,203
(Class B shares)..................................................... 198 662 1,153 2,340
(Class C shares)..................................................... 198 662 1,153 2,505
(Institutional Class I shares)....................................... 122 432 764 1,704
SunAmerica U.S. Government Securities Fund
(Class A shares)..................................................... $619 $ 933 $1,250 $ 2,170
(Class B shares)..................................................... 220 679 1,164 2,331
(Class II shares).................................................... 321 781 1,268 2,609
Pro Forma U.S. Government Securities Combined Fund*(1)
(Class A shares)..................................................... $603 $ 873 $1,164 $ 1,990
(Class B shares)..................................................... 203 627 1,078 2,152
(Class II shares).................................................... 306 736 1,192 2,455
(Class I shares)..................................................... 124 387 670 1,477
-19-
- ------------
* Assuming the Reorganization had taken place on March 31, 2001.
(1) Expenses used for the example include fee waivers and expense
reimbursements described in footnotes (5) and (6) above under "-- Fee
Tables."
(2) SAAMCo is voluntarily waiving fees and/or reimbursing expenses for Class II
shares of the following Acquiring Funds. However, this fee waiver and/or
expense reimbursement is not reflected in the example above. The following
are your costs after these fee waivers and/or expense reimbursements:
1 year 3 years 5 years 10 years
High Yield Bond Combined Fund................................. 318 775 1,258 2,588
Tax Exempt Insured Combined Fund.............................. 296 706 1,142 2,352
Strategic Income Combined Fund................................ 323 787 1,278 2,629
(3) Class B shares generally convert to Class A shares approximately eight
years after purchase. Therefore, expense information for years 9 and 10 is
the same for both Class A and Class B shares.
The Examples set forth above assume reinvestment of all dividends and
distributions and utilize a 5% annual rate of return as mandated by Commission
regulations. The Examples should not be considered a representation of past or
future expenses or annual rates of return, and actual expenses or annual rates
of return may be more or less than those assumed for purposes of the Examples.
See "Proposals Nos. 2(a) - (e): Approval of the Plans -- The Reorganizations --
Potential Benefits to Shareholders as a Result of the Reorganizations,"
"Proposals Nos. 2(a) - (e): Approval of the Plans -- Comparison of the Funds --
Management Arrangements," and "-- Purchase, Exchange and Redemption of Shares."
-20-
THE FUNDS
Business of the Acquired Funds
Each Acquired Fund is a separate investment portfolio or series of North
American Funds, a Massachusetts business trust, which was established on
September 28, 1988 pursuant to its Declaration of Trust.
Business of the Acquiring Funds
Each Acquiring Fund is a separate investment portfolio or series of
SunAmerica Income Funds, a Massachusetts business trust, which was established
on April 24, 1986 pursuant to a Declaration of Trust. The SunAmerica Core Bond
Fund is newly created and has not yet commenced operations.
Comparison of the Funds
A discussion of the investment objectives and principal investment policies
of the Funds is set forth below. Those objectives and policies that are
identified as fundamental may not be changed without shareholder approval. Each
of the Funds is diversified. The investment objective of each Acquiring Fund is
fundamental. The investment objective of each Acquired Fund is fundamental
except for the NAF High Yield Bond Fund.
As a condition to the Reorganizations involving the High Yield Bond Funds
and the Strategic Income Funds, the respective Acquiring Funds must obtain
shareholder approval to change the investment objective of the respective
Acquiring Fund to resemble more closely that of the Acquired Fund. Accordingly,
the comparisons of these Funds assumes that shareholders of the Acquiring Funds
have approved the necessary changes and reflects a comparison of the Acquired
Fund and the respective Combined Fund.
Core Bond Funds
Investment Objectives
- ---------------------
The investment objective of the NAF Core Bond Fund is to provide a high level of
current income consistent with the maintenance of principal and liquidity. The
Core Bond Combined Fund will have the same investment objective as the NAF Core
Bond Fund.
Investment Policies
- -------------------
Strategies. Both Core Bond Funds pursue their respective investment objectives
by investing primarily in a combination of fixed-income securities, including in
securities issued or guaranteed by the U.S. Government, mortgage-backed or
asset-backed securities and U.S. dollar-denominated fixed-income securities
issued by foreign issuers.
Foreign Securities. The NAF Core Bond Fund may invest up to 35% of its assets
in foreign securities pursuant to a non-fundamental investment restriction.
High Yield Bond Funds
Investment Objectives
- ---------------------
The investment objective of the NAF High Yield Bond Fund is to seek the highest
possible total return consistent with conservation of capital. The investment
objective of the High Yield Combined Fund will be to seek a high level of total
return. These objectives are substantially similar.
-21-
Investment Policies
- -------------------
Strategies. Both High Yield Bond Funds pursue their respective investment
objectives by investing primarily in high-yield, high-risk corporate bonds
(commonly referred to as junk bonds), generally with relatively low duration.
High Yield Bonds. High-yield bonds are those rated below investment grade --
rated "Baa" or lower by Moody's Investors Service, Inc., ("Moodys") or "BBB" or
lower by Standard & Poor's Corporation ("S&P"), or; if unrated, determined to be
of equivalent quality by the subadviser.
Municipal Bond Funds
Investment Objectives
- ---------------------
The investment objective of the NAF Municipal Bond Fund is to achieve a high
level of current income that is exempt from regular federal income taxes. The
NAF Municipal Bond Fund is also particularly concerned with preserving capital.
The investment objective of the SunAmerica Tax Exempt Insured Fund is to seek as
high a level of current income exempt from federal income taxes as is consistent
with preservation of capital. Accordingly, the investment objectives of the NAF
Municipal Bond Fund and the Tax Exempt Insured Fund are similar.
Investment Policies
- -------------------
Strategies. The NAF Municipal Bond Fund and the SunAmerica Tax Exempt Insured
Fund each invests in a portfolio comprised primarily of municipal fixed income
securities exempt from federal income taxes. Specifically, the NAF Municipal
Bond Fund invests at least 80% of total assets in investment grade municipal
fixed-income securities, such as municipal bonds, municipal notes and other
municipal obligations. The SunAmerica Tax Exempt Insured Fund will invest,
under normal market conditions, at least 80% of its total assets in municipal
bonds, the income of which is exempt from federal income taxes, and at least 65%
of its total assets in municipal bonds that, in addition to having income exempt
from federal income tax, are insured as to the scheduled payment of principal
and interest for as long as such bonds are held by the Fund, without regard to
the maturities of such securities.
Strategic Income Funds
Investment Objectives
- ---------------------
The investment objective of the NAF Strategic Income Fund is to seek a high
level of total return consistent with preservation of capital. The investment
objective of the Strategic Income Combined Fund will be to seek a high level of
total return. These objectives are substantially similar.
Investment Policies
- -------------------
Strategies. Both Strategic Income Funds pursue their respective investment
objectives by investing primarily in a broad range of fixed-income securities,
including investment grade bonds, U.S. Government and agency obligations,
mortgage-backed securities, and U.S. and foreign high-risk, high-yield bonds.
U.S. Government Securities Funds
Investment Objectives
- ---------------------
The investment objective of the NAF U.S. Government Securities Fund is to obtain
a high level of current income consistent with preservation of capital and
maintenance of liquidity. The investment objective of the SunAmerica U.S.
Government Securities Fund is high current income consistent with relative
safety of capital. Accordingly, the investment objective of the two Funds are
substantially similar.
-22-
Investment Policies
- -------------------
Strategies. The NAF U.S. Government Securities Fund and the SunAmerica U.S.
Government Securities Fund each invests in a portfolio comprised primarily of
securities issued by the U.S. Government.
All Funds
Principal Risk Factors
- ----------------------
For a discussion of the principal risks of investing in each Fund, see
"Principal Risk Factors and Special Considerations."
Trustees and Officers
- ---------------------
Each of North American Funds and SunAmerica Income Funds is governed by a
Board of Trustees that meets regularly to review its respective Funds'
investments, performance, expenses, and other business affairs. Each Board of
Trustees elects its respective Funds' officers.
Management Arrangements
- -----------------------
Comparison of Management and Administrative Arrangements and Fees. AGAM
serves as the investment adviser for the Acquired Funds and SAAMCo serves as the
investment adviser for the Acquiring Funds. Each of AGAM and SAAMCo is
responsible for the management of the investment portfolio of each Acquired Fund
and Acquiring Fund, respectively, and for providing certain administrative
services to such Fund. See "Proposals Nos. 2(a) - (e): Approval of the Plans --
Comparison of the Funds -- Management Arrangements -- Comparison of Management
and Administrative Arrangements and Fees" for more detailed information
regarding the advisory arrangements of the Funds.
The table below sets forth the fees, as a percentage of average daily net
assets, payable by each Acquired Fund to AGAM for its management and
administrative services:
- ---------------------------------------------------------------------------------------------------------------------------
Acquired Fund: Advisory Fee:
- ---------------------------------------------------------------------------------------------------------------------------
First $50 Million Between $50 Between $200 Excess over $500
Million and Million and Million
$200 Million $500 Million
- ---------------------------------------------------------------------------------------------------------------------------
NAF Core Bond Fund 0.600% 0.600% 0.525% 0.475%
- ---------------------------------------------------------------------------------------------------------------------------
NAF High Yield Bond Fund 0.825% 0.825% 0.725% 0.675%
- ---------------------------------------------------------------------------------------------------------------------------
NAF Municipal Bond Fund 0.600% 0.600% 0.600% 0.600%
- ---------------------------------------------------------------------------------------------------------------------------
NAF Strategic Income Fund 0.750% 0.700% 0.650% 0.600%
- ---------------------------------------------------------------------------------------------------------------------------
NAF U.S. Government Securities Fund 0.600% 0.600% 0.525% 0.475%
- ---------------------------------------------------------------------------------------------------------------------------
-23-
The table below sets forth the fees, as a percentage of average daily net
assets, payable by each Acquiring Fund to SAAMCo for its management and
administrative services:
- ------------------------------------------------------------------------------------------------------------------
Acquiring Fund: Advisory Fee
- ------------------------------------------------------------------------------------------------------------------
SunAmerica Core Bond Fund Same as NAF Core Bond Fund
- ------------------------------------------------------------------------------------------------------------------
SunAmerica High Income Fund 0.75% of average daily net assets up to $200 million; 0.72% of the next
$200 million; and 0.55% of average daily net assets in excess of $400
million.
- ------------------------------------------------------------------------------------------------------------------
SunAmerica Tax Exempt Insured Fund 0.50% of average daily net assets up to $350 million; and 0.45% of
average daily net assets in excess of $350 million.
- ------------------------------------------------------------------------------------------------------------------
SunAmerica Diversified Income Fund 0.65% of average daily net assets up to $350 million; and 0.60% of
average daily net assets in excess of $350 million.
- ------------------------------------------------------------------------------------------------------------------
SunAmerica U.S. Government Securities 0.65% of average daily net assets up to $200 million; 0.62% of the next
Fund $200 million; and 0.55% of average daily net assets in excess of $400
million.
- ------------------------------------------------------------------------------------------------------------------
SunAmerica Core Bond Fund is a newly created investment portfolio and will
commence operations upon consummation of the respective Reorganization.
The advisory fee rate payable by each Combined Fund after consummation of
the Reorganizations will be the same as the advisory fee rates currently paid by
the Acquiring Funds. After the Reorganizations, the net assets of each Combined
Fund will increase by the amount of the net assets of the respective Acquired
Fund. With respect to the High Yield Combined Fund, this increase in net assets
may cause a lower advisory fee rate to apply in accordance with the break point
schedule referenced above. The table below sets forth the pro forma effective
fee rate of each Combined Fund as of March 31, 2001, as a percentage of average
daily net assets, assuming the Reorganizations had been completed as of such
date:
Combined Fund: Pro Forma Effective Advisory Fee Rate:
- ------------------------------------------------------------------------------------------------------------------
Core Bond Combined Fund 0.60%
- ------------------------------------------------------------------------------------------------------------------
High Yield Bond Combined Fund 0.75%
- ------------------------------------------------------------------------------------------------------------------
Tax Exempt Insured Combined Fund 0.50%
- ------------------------------------------------------------------------------------------------------------------
Strategic Income Combined Fund 0.65%
- ------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Combined Fund 0.64%
- ------------------------------------------------------------------------------------------------------------------
The Core Bond Combined Fund will pay advisory fees at the same annual rate as
the NAF Core Bond Fund. The High Yield Bond, Tax Exempt Insured and Strategic
Income Combined Funds will pay advisory fees at a lower annual rate than the
respective Acquired Fund. The U.S. Government Securities Combined Fund will pay
advisory fees at a higher annual rate than the respective Acquired Fund.
-24-
Investment Advisory Agreements. The investment advisory agreement between
SunAmerica Income Funds on behalf of the Acquiring Funds and SAAMCo (the
"SunAmerica Investment Advisory Agreement") is similar to both the New and
Previous Investment Advisory Agreements applicable to the Acquired Funds
(collectively, the "NAF Investment Advisory Agreement"), except for certain
matters including the advisory fees, the effective dates, and the identity of
the adviser. See "Proposals Nos. 2(a) - (e): Approval of the Plans --
Comparison of the Funds -- Management Arrangements -- Comparison of Management
and Administrative Arrangements and Fees --Comparison of the NAF Investment
Advisory Agreement and SunAmerica Investment Advisory Agreement" for further
discussion regarding these agreements.
Subadvisory Arrangements. New AGIM currently serves as subadviser to each
of the Acquired Funds. After the Core Bond Funds, High Yield Bond Funds,
Municipal Bond Funds, and the Strategic Income Funds Reorganizations, and
subject to approval of shareholders of the respective Acquiring Fund, New AGIM
will serve as the subadviser to these Funds pursuant to a new Subadvisory
agreement with SAAMCo (the "SunAmerica Subadvisory Agreement"). The SunAmerica
Subadvisory Agreement is similar to both the New and Previous Subadvisory
Agreements applicable to the respective Acquired Funds (collectively, the "NAF
Subadvisory Agreement"), except for certain matters including the effective
dates and the identity of the investment adviser. See "Proposals Nos. 2(a) -
(e): Approval of the Plans -- Comparison of the Funds -- Management Arrangements
- -- Comparison of Management and Administrative Arrangements and Fees --
Comparison of the NAF Subadvisory Agreement and SunAmerica Subadvisory
Agreement") for further discussion regarding these agreements. See "Proposals
Nos. 2(a) - (e): Approval of the Plans -- Comparison of the Funds -- Management
Arrangements -- Comparison of Management and Administrative Arrangements and
Fees -- Comparison of the NAF Subadvisory Agreement and SunAmerica Subadvisory
Agreement" for further discussion regarding these agreements.
Distribution and Shareholder Servicing Arrangements
- ---------------------------------------------------
Distributor. American General Funds Distributors, Inc. ("AGFD" or the "NAF
Distributor"), an affiliate of AGAM, acts as the distributor of the shares of
the Acquired Funds. SunAmerica Capital Services, Inc. ("SACS" or the
"SunAmerica Distributor"), an affiliate of SAAMCo, acts as the distributor of
the shares of the Acquiring Funds. See "Proposals Nos. 2(a) - (e): Approval of
the Plans -- Comparison of the Funds -- Distribution Arrangements" for
additional information regarding the Funds' distribution arrangements.
Shareholder Servicing Fees for Class I. AGAM provides certain
recordkeeping and shareholder services to retirement and employee benefit plans
and certain asset allocation funds of North American Funds that invest in
Institutional Class I shares of the Acquired Funds. SACS will provide these
services after the Reorganization with respect to Class I shares of the Combined
Funds. See "Proposals Nos. 2(a)-(e): Approval of the Plans -- Comparison of
the Funds -- Distribution and Shareholder Servicing Arrangements -- Shareholder
Servicing Fee for Class I" for additional information regarding these services.
Other Service Agreements with Affiliates
- ----------------------------------------
SunAmerica Fund Services, Inc. ("SAFS"), an affiliate of SAAMCo, acts as a
servicing agent assisting State Street Bank and Trust Company ("State Street"),
the transfer agent and custodian of the Acquiring Funds, in connection with
certain services offered to the shareholders of the Acquiring Funds. See
"Proposals Nos. 2(a) - (e): Approval of the Plans -- Comparison of the Funds --
Other Service Agreements with Affiliates" for additional information regarding
these service agreements.
Other
- -----
Shares. As with all mutual funds, investors purchase shares when they
invest in the Funds. Share certificates are not generally issued.
Each full share and fractional share entitles the shareholder to receive a
proportional interest in the respective Fund's capital gain distributions and
cast one vote per share on certain Fund matters, including the election of
trustees, changes in fundamental policies, or approval of changes in investment
advisory agreements.
-25-
Class Structure. Each of the Acquired Funds currently offers Class A, Class
B, Class C shares, and except for the NAF Municipal Bond Fund, each of the
Acquired Funds currently offers Institutional Class I shares. In addition, the
NAF Core Bond Fund and the NAF High Yield Bond Fund currently offer
Institutional Class II shares. Each of the Acquiring Funds (except the
SunAmerica Core Bond Fund) currently offers three classes of shares (Class A,
Class B and Class II). After consummation of the Reorganization, the Core Bond
Combined Fund will offer Class A, Class B and Class II shares. After
consummation of the Reorganizations, each Combined Fund (except the Tax Exempt
Insured Combined Fund) will also offer Class I shares and the Core Bond Combined
Fund and the High Yield Bond Combined Fund will offer Class Z shares. For the
avoidance of confusion, Class II with respect to the Acquired Funds is
pronounced "Class Double Eye," while Class II with respect to the Acquiring
Funds is pronounced "Class 2."
Purchase of Shares. The procedures for purchasing shares are similar, but
not identical, for all Funds. See "Proposals Nos. 2(a) - (e): Approval of the
Plans -- Comparison of the Funds -- Purchase, Exchange and Redemption of Shares"
below, "Investing in the North American Funds" in the Acquired Funds
Prospectuses and "Shareholder Account Information" in the Acquiring Funds
Prospectus.
Redemption of Shares. The procedures for redeeming shares are similar, but
not identical, for all Funds. See "Comparison of the Funds -- Purchase,
Exchange and Redemption of Shares" below, "Investing in the North American
Funds" in the Acquired Funds Prospectuses and "Shareholder Account Information"
in the Acquiring Funds Prospectus.
Exchanges of Shares. The procedures for exchanging shares are similar, but
not identical, for all Funds. See "Comparison of the Funds -- Purchase,
Exchange and Redemption of Shares" below, "Account Services" and "Section III:
Investing in the North American Funds Institutional Classes of Shares" in the
Acquired Funds Prospectuses and "Transaction Policies" in the Acquiring Funds
Prospectus.
Dividends. The Funds currently have the same policies with respect to
dividends. See "Proposals Nos. 2(a) - (e): Approval of the Plans -- Comparison
of the Funds -- Dividend Distribution and Account Policies -- Dividends" below,
"Pricing of Shares" and "Dividends and Distributions from North American Funds"
in the Acquired Funds Prospectuses and "Dividend Distribution and Account
Policies" in the Acquiring Funds Prospectus.
Net Asset Value. The price at which each Fund's shares are purchased or
redeemed is the Fund's next determined net asset value per share afer receipt
of the purchase or redemption order. The net asset value per share is calculated
once daily as of the close of regular trading on the New York Stock Exchange
("NYSE") (currently 4:00 p.m., Eastern time). For further discussion on net
asset value and how it is determined, see "Proposals Nos. 2(a) - (e): Approval
of the Plans -- Comparison of the Funds -- Purchase, Exchange and Redemption of
Shares -- Dividend Distribution and Account Policies-- Valuation of Fund Shares"
below, "Pricing of Fund Shares" in the Acquired Funds Prospectuses and
"Transaction Policies" in the Acquiring Funds Prospectus.
Tax Considerations. The tax consequences associated with an investment in
shares of an Acquired Fund are substantially the same as the tax consequences
associated with an investment in shares of the respective Acquiring Fund. See
"Taxes" in the Acquired Funds Prospectuses and "Dividend, Distribution and
Account Policies" in the Acquiring Funds Prospectuses.
For a more detailed discussion regarding potential tax consequences of the
Reorganizations, see "Proposals Nos. 2(a) - (e): Approval of the Plans -- The
Reorganizations -- Federal Income Tax Consequences of the Reorganizations."
-26-
PRINCIPAL RISK FACTORS AND SPECIAL CONSIDERATIONS
-------------------------------------------------
RISKS OF INVESTING IN THE FUNDS
Many of the investment risks associated with an investment in an Acquired
Fund are substantially the same as those associated with an investment in the
respective Acquiring Fund. A discussion of certain risks of investing in the
Funds is set forth below. See the Acquired Funds Prospectuses, the Acquiring
Funds Prospectus, the Acquired Funds Statement and the Acquiring Funds Statement
for more detailed discussions of investment risks associated with an investment
in the Funds. There is no guarantee that the investment objective of a Fund will
be achieved or that the value of a shareholder's investment in the Fund will not
decrease.
As a condition to the Reorganizations involving the High Yield Bond Funds
and the Strategic Income Funds, the respective Acquiring Funds must obtain
shareholder approval to change the investment objective of the respective
Acquiring Fund to conform to that of the Acquired Fund. Accordingly, the
comparisons of the risks of investing in these Funds assumes that shareholders
of the Acquiring Funds have approved the necessary changes and reflects a
comparison of the Acquired Fund and the respective Combined Fund.
All Funds
Bond Market Volatility
- ----------------------
As with any bond fund, each Fund is subject to the risk that bond markets as a
whole could go up or down (sometimes dramatically). This could affect the value
of the securities in a Fund's portfolio.
Credit Quality Risk
- -------------------
Each Fund is subject to credit quality risk, which is the risk that the issuers
in which the Funds invest, or with which it does business, will fail financially
or otherwise fail to honor their financial obligations. This risk is heightened
for the High Yield Bond Funds, which invest primarily in lower quality bonds.
Interest Rate Fluctuations
- --------------------------
Volatility in the bond market is due principally to changes in interest rates.
As interest rates rise, bond prices typically fall; and as interest rates fall,
bond prices typically rise. Longer-term and lower coupon bonds tend to be more
sensitive to changes in interest rates. Each Fund is susceptible to this risk.
Illiquidity Risk
- ----------------
Each Fund is subject to the risk that certain securities may be difficult or
impossible to sell at the time and the price that the seller would like.
Securities Selection Risk
- -------------------------
Each Fund is subject to the risk that a strategy used by a Fund, or securities
selected by its portfolio manager, may fail to produce the intended return.
Derivatives
- ------------
Each Fund may invest in derivatives which are subject to general risks related
to heightened sensitivity to market volatility, interest rate fluctuations,
illiquidity and creditworthiness of the counterparty to the derivatives
transactions.
-27-
Hedging
- -------
Each Fund may employ a hedging strategy in which it uses a derivative security
to reduce certain risk characteristics of an underlying security or portfolio of
securities. While hedging strategies can be very useful and inexpensive ways of
reducing risk, they are sometimes ineffective due to unexpected changes in the
market. Moreover, while hedging can reduce or eliminate losses, it can also
reduce or eliminate gains.
Core Bond Funds, High Yield Bond Funds and Strategic Income Funds
Foreign Investment Risk
- -----------------------
Each Fund is subject to the risk that the value of the Fund's foreign
investments will decline as a result of foreign political, social or economic
changes. Furthermore, there may be less publicly available information about a
foreign company and it may not be subject to the same uniform accounting,
auditing and financial reporting standards as U.S. companies. Foreign
governments may not regulate securities markets and companies to the same degree
as the U.S. government. Consequently, foreign securities may be less liquid,
more volatile and more difficult to price than U.S. securities. These risks are
heightened when the issuer is in an emerging market.
In addition, a principal risk is that fluctuations in the exchange rates between
the U.S. dollar and foreign currencies may negatively affect an investment.
Municipal Bond Funds and U.S. Government Securities Funds
Prepayment
- ----------
The Funds are subject to the risk that the principal of the loans underlying
mortgage-backed or other asset-backed securities may be prepaid at any time. As
a general rule, prepayments increase during a period of falling interest rates
and decrease during a period of rising interest rates. As a result of
prepayments, in periods of declining interest rates a Fund may be required to
reinvest its assets in securities with lower interest rates. In periods of
increasing interest rates, prepayments generally may decline, with the effect
that the securities subject to prepayment risk held by the Fund may exhibit
price characteristics of longer-term debt securities.
-28-
PROPOSALS NOS. 1(a)-(b):
------------------------
APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT
-------------------------------------------------
AND THE NEW SUBADVISORY AGREEMENT
---------------------------------
THE MERGER AND THE NEW INVESTMENT ADVISORY AND SUBADVISORY AGREEMENTS
Board Considerations
On _________, 2001, the Merger, pursuant to which AIG acquired American
General, was consummated. As a result of the Merger, AGAM became a subsidiary
of AIG.
As required by the Investment Company Act, the Previous Investment Advisory
Agreement provided for automatic termination upon its assignment. The
consummation of the Merger constituted an assignment, as that term is defined in
the Investment Company Act, of the Previous Investment Advisory Agreement, and,
consequently, its termination.
At a meeting held on July 16-17, 2001, the NAF Board, including all of the
NAF Independent Trustees, unanimously approved the Interim Investment Advisory
Agreement and Interim Subadvisory Agreement (collectively the "Interim
Agreements") pursuant to Rule 15a-4 under the Investment Company Act in order to
allow AGAM and New AGIM to continue to serve as investment adviser and
subadviser respectively for the Acquired Funds after the Merger. This Rule,
allows under certain circumstances, interim advisory agreements to take effect,
and to remain in effect for up to 150 days, without receiving prior shareholder
approval, as long as the fees payable under such agreement do not exceed the
fees payable under the predecessor agreement that had been approved by the
shareholders and certain other contractual provisions are included in the
interim agreement. The Interim Agreements require all fees earned by AGAM and
New AGIM to be escrowed pending shareholder approval of the New Agreements. If
the New Agreements are not approved, AGAM and New AGIM will be entitled to
receive from escrow the lesser of any costs incurred in performing the Interim
Agreements (plus interest earned on the amount while in escrow), and the total
amount in the escrow account (plus interest earned). The Interim Agreements
will terminate on the earlier of the effective date of the New Agreements or
150 days after the completion of the Merger.
Pursuant to the terms of the Interim Investment Advisory Agreement, AGAM is
responsible for the management of the investment portfolio of each Acquired Fund
and for providing certain administrative services to each Acquired Fund.
Pursuant to the terms of the Interim Subadvisory Agreement, New AGIM is
responsible for managing the investment and reinvestment of the assets of each
Acquired Fund, subject to the supervision of the NAF Board. The terms of the
Interim Investment Advisory Agreement and Interim Subadvisory Agreement are
similar in all material respects as those of the Previous Investment Advisory
Agreement and Previous Subadvisory Agreement, respectively. The Interim
Investment Advisory Agreement differs from the Previous Investment Advisory
Agreement only with respect to the effective date, the term, and the escrow
provisions relating to AGAM's fees (as described above). Under the Investment
Company Act, however, AGAM and AGIM may continue to serve as the investment
adviser or subadviser for each Acquired Fund beyond an interim period of 150
days only if shareholders of such Acquired Fund approve a new investment
advisory agreement with AGAM and Subadvisory agreement with AGIM. Consequently,
the NAF Board unanimously approved, and recommended shareholder approval of, the
New Agreements on July 16-17, 2001. The New Agreements, if approved by
shareholders, would take effect immediately upon such approval. The terms of
each New Agreement, including advisory fees, are the same in all material
respects as those of the respective Previous Agreement. The New Investment
Advisory Agreement differs from the Previous Investment Advisory Agreement only
with respect to its effective date. See "-- Description of the New Investment
Advisory Agreement" below for a description of the New Investment Advisory
Agreement and the services to be provided by AGAM thereunder.
In connection with its approval of the New Agreements, the NAF Board
received a presentation from representatives of AIG and SAAMCo, as well as from
AGAM and AGIM. The NAF Board considered that the Merger did not involve any
changes in the overall form of the advisory or Subadvisory contracts, the
advisory fees, or any of the Acquired Funds' objectives or policies.
-29-
As part of their deliberations, the NAF Board also took into account the
following, among other factors: the nature and quality of the services provided
or reasonably anticipated to be provided and the results achieved or reasonably
anticipated to be achieved by AGAM and/or New AGIM; the amount and structure of
investment advisers' fees generally and the fees payable under the New
Agreements; the financial strength of AIG; the management, personnel and
operations of AIG and SAAMCo; the commitment of AIG to the financial services
industry; and the
structure of the Merger.
In addition, the NAF Board considered the fact that at some point after
consummation of the Merger, the operations of AGIM might be consolidated with
those of another affiliate within the AIG group of companies to eliminate
duplication and attempt to create economies of scale within the organization.
The NAF Board was assured that any such internal reorganization would not result
in a change in the personnel responsible for providing services to the Acquired
Funds or in the nature or quality of those services. Accordingly, the NAF Board
approved each of the Interim Subadvisory Agreement and the New Subadvisory
Agreement with New AGIM.
Section 15(f) of the Investment Company Act provides that an investment
adviser (such as AGAM or New AGIM) to a registered investment company, and the
affiliates of such adviser, may receive any amount or benefit in connection with
a sale of any interest in such investment adviser which results in an assignment
of an investment advisory contract if the following two conditions are
satisfied: (1) for a period of three years after such assignment, at least 75%
of the board of directors of the investment company are not "interested persons"
(within the meaning of Section 2(a)(19) of the Investment Company Act) of the
new investment adviser or its predecessor; and (2) no "unfair burden" (as
defined in the Investment Company Act) may be imposed on the investment company
as a result of the assignment or any express or implied terms, conditions or
understandings applicable thereto. Consistent with the first condition of
Section 15(f), AIG advised the NAF Board that for a period of three years after
the Merger, it will not take or recommend any action that would cause more than
25% of the NAF Board (or SunAmerica Board) to be interested persons of SAAMCo,
AGAM or New AGIM. With respect to the second condition of Section 15(f), an
"unfair burden" on an investment company is defined in the Investment Company
Act to include any arrangement during the two-year period after any such
transaction occurs whereby the investment adviser or its predecessor or
successor, or any interested person of such adviser, predecessor or successor,
receives or is entitled to receive any compensation of two types, either
directly or indirectly. The first type is compensation from any person in
connection with the purchase or sale of securities or other property to, from or
on behalf of the investment company, other than bona fide ordinary compensation
as principal underwriter for such company. The second type is compensation from
the investment company or its security holders for other than bona fide
investment advisory or other services. AIG advised the NAF Board that it will
not take or recommend any action that would constitute an unfair burden on North
American Funds (or the Acquiring Funds) within the meaning of Section 15(f).
Proposal No. 1(a)
NEW INVESTMENT ADVISORY AGREEMENT
Description of the New Investment Advisory Agreement
As a proposal separate from the proposal to approve a Reorganization,
shareholders of each Acquired Fund are being asked to approve the New Investment
Advisory Agreement with AGAM to cover the period subsequent to the shareholder
approval and prior to consummation of the Reorganization (which is currently
anticipated to occur during the fourth calendar quarter of 2001). The terms of
the New Investment Advisory Agreement are the same in all material respects as
those of the Previous Investment Advisory Agreement. The New Investment
Advisory Agreement differs from the Previous Investment Advisory Agreement only
with respect to the effective date. The Previous Investment Advisory Agreement
is dated June 1, 2000 and was last approved by the shareholders of the Acquired
Funds at a meeting held on the same date in connection with its initial
approval. A description of the New Investment Advisory Agreement and the
services to be provided by AGAM is set forth below. This description is
qualified in its entirety by reference to the form of the New Investment
Advisory Agreement attached to this Proxy Statement and Prospectus as Exhibit
IA.
As compensation for its services under the New Investment Advisory
Agreement, the Acquired Funds will pay to AGAM the same fee, as a percentage of
average daily net assets, that was payable to AGAM under the Previous Investment
Advisory Agreement. Such fee will be payable monthly and accrued daily. See
"Summary --
-30-
The Funds -- All Funds -- Management Arrangements" for a description of the Fee
payable to AGAM under the Previous Investment Advisory Agreement.
AGAM has agreed, until February 28, 2002, to reduce fees payable to it by,
or reimburse expenses to, the Acquired Funds. See "Summary -- Fee Tables" or
"Proposals Nos. 2(a)-(e): Approval of the Plans -- The Reorganizations -- NAF
Board Considerations: Potential Benefits to Shareholders as a Result of the
Reorganizations."
For the fiscal year ended October 31, 2000, North American Funds paid total
advisory fees to AGAM of $7,339,733. Of such amount, $663,440, $170,074,
$763,875, $322,001 and $300,110 were attributable to the NAF Core Bond Fund, the
NAF High Yield Bond Fund (for the period from July 7, 2000 to October 31, 2000),
the NAF Municipal Bond Fund, the NAF Strategic Income Fund and the NAF U.S.
Government Securities Fund, respectively. From November 1, 1999 to July 7,
2000, the Variable Annuity Life Insurance Company ("VALIC"), an affiliate of
AGAM, served as investment advisor to the NAF High Yield Bond Fund. During this
period, North American Funds paid total advisory fees to VALIC of $540,574. Of
such amount, $310,091 was attributable to the NAF High Yield Bond Fund. These
amounts do not reflect certain fee waivers and expense reimbursements for which
the Acquired Funds were reimbursed.
The Board of Trustees of North American Funds unanimously recommends that
the shareholders of each Acquired Fund approve the New Investment Advisory
Agreement. If the New Investment Advisory Agreement is not approved by
shareholders of an Acquired Fund, the NAF Board will determine the appropriate
actions in the best interests of shareholders to be taken with respect to such
Acquired Fund's advisory arrangements at that time.
Additional Information About AGAM
General
-------
CypressTree Investments, Inc. ("CypressTree") and its affiliates were
formed in 1996 to acquire, advise and distribute mutual funds through broker-
dealers and other intermediaries. CypressTree Asset Management Corporation,
Inc. ("CAM") was CypressTree's wholly owned advisory subsidiary and CypressTree
Funds Distributors, Inc. ("CFD") was CypressTree's wholly owned distribution
subsidiary. On March 10, 2000, CypressTree sold substantially all of its
assets, including all of the stock of CAM and CFD, to American General.
Thereafter, CAM was renamed American General Asset Management Corp. and CFD was
renamed American General Funds Distributors, Inc. Pursuant to the Previous
Advisory Agreement, AGAM oversaw the administration of all aspects of the
business and affairs of the Acquired Funds, and selected, contracted with and
compensated Subadvisers to manage the assets of the Acquired Funds. AGAM has
continued to perform these functions under the Interim Investment Advisory
agreement since the completion of the Merger.
AGAM is located at 286 Congress Street, Boston, Massachusetts 02210. Prior
to the Merger, AGAM and AGIM were wholly owned by American General, which is
located at 2929 Allen Parkway, Houston, Texas 77019. As a result of the Merger,
American General is wholly owned by AIG. The principal address of AIG is 70
Pine Street, New York, New York 10270 .
The directors and principal executive officer of AGAM, their business
addresses, position(s) with AGAM and a description of their principal
occupations are set forth below.
Name and Address Position with AGAM and Principal Occupation(s)
- ------------------------------------------------------------------------------------------------------------------
Alice T. Kane Chief Executive Officer, President and Chairman of the Board of
390 Park Avenue Directors; Executive Vice President, American General Fund
New York, NY 10022 Group; Executive Vice President, the Variable Annuity Life
Insurance Company and American General Annuity Insurance
Company. Ms. Kane also serves as the Chairman of the Board,
Trustee and President of North American Funds.
- ------------------------------------------------------------------------------------------------------------------
John A. Graf Senior Vice Chairman, Asset Accumulation, American General.
2929 Allen Parkway
Houston, TX 77019
- ------------------------------------------------------------------------------------------------------------------
-31-
Name and Address Position with AGAM and Principal Occupation(s)
- ------------------------------------------------------------------------------------------------------------------
Kent E. Barrett Director and Treasurer; Senior Vice President and General
2929 Allen Parkway Auditor, American General.
Houston, TX 77019
- ------------------------------------------------------------------------------------------------------------------
In addition, the following officers of North American Funds also are
employees of AGAM:
Thomas J. Brown, Treasurer and Vice President of North American Funds and
Chief Financial Officer and Chief Administrative Officer of AGAM.
John I. Fitzgerald, Secretary and Vice President of North American Funds
and Assistant Secretary and Counsel of AGAM.
John N. Packs, Vice President of North American Funds and Director of
Research of AGAM.
Additional Payments to AGAM and its affiliates by Acquired Funds
----------------------------------------------------------------
The Previous Investment Advisory Agreement provided for reimbursement to
AGAM for various expenses related to financial, accounting and administrative
services provided to the Acquired Funds. For the fiscal year ended October 31,
2000, North American Funds paid in the aggregate $1,387,842 to AGAM for such
services. Of such amount, $130,390, $21,839, $19,678, $70,665 and $81,338 were
attributable to the NAF Core Bond Fund, the NAF High Yield Bond Fund, the NAF
Municipal Bond Fund, the NAF Strategic Income Fund and the NAF U.S. Government
Securities Fund, respectively. From November 1, 1999 to July 7, 2000, VALIC, an
affiliate of AGAM, provided accounting services for the NAF High Yield Bond Fund
under an accounting services agreement. For this period, the North American
Funds paid VALIC, in the aggregate, $27,375 for these services. Of such amount,
$13,289 was attributable to the NAF High Yield Bond Fund.
For the fiscal year ended October 31, 2000, AGAM was paid fees on Class I
shares under the NAF Services Agreement (as defined below) of $12,555, $85, $0,
$1,662 and $0 by the NAF Core Bond Fund, the NAF High Yield Bond Fund, the NAF
Municipal Bond Fund, the NAF Strategic Income Fund and the NAF U.S. Government
Securities Fund, respectively.
For the fiscal year ended October 31, 2000, the Acquired Funds paid the NAF
Distributor the following distribution and service fees:
Distribution and Service Fees
-----------------------------
Class A Class B Class C
----------------- ----------------- -----------------
NAF Core Bond Fund $ 12,104 $ 44,808 $ 35,079
NAF High Yield Bond Fund* 281 4,873 744
NAF Municipal Bond Fund 7,687 46,249 30,606
NAF Strategic Income Fund 26,192 180,981 165,037
NAF U.S. Government Securities Fund 110,086 98,571 87,079
* For period July 7, 2000 to October 31, 2000.
For the period November 1, 1999 to July 7, 2000, the NAF Distributor and
the Underwriter to the VALIC Funds received underwriting commissions of
$307,778. Of such amount, $9,565 was attributable to the NAF High Yield Bond
Fund. Of the underwriting commissions received during this period, $32,166 was
retained by the NAF Distributor. The balance of such commissions was paid to
American General Financial Advisors, Inc., an affiliated broker-dealer. During
this period, the NAF Distributor did not receive directly or indirectly from the
NAF High Yield Bond Fund any compensation on the redemption or repurchase of
Fund Shares, brokerage commissions or other underwriting compensation.
For the fiscal year ended October 31, 2000, the Acquired Funds did not pay
brokerage commissions to any affiliated brokers.
-32-
Proposal No. 1(b)
THE NEW SUBADVISORY AGREEMENT
Description of the New Subadvisory Agreement
As a proposal separate from the proposal to approve the New Investment
Advisory Agreement and a Reorganization, shareholders of each Acquired Fund are
being asked to approve the New Subadvisory Agreement between AGAM and New AGIM
to ensure that the Acquired Funds receive Subadvisory services during the period
prior to consummation of the Reorganization. The terms of the New Subadvisory
Agreement are the same in all material respects as those of the Previous
Subadvisory Agreement. The New Subadvisory Agreement differs from the Previous
Subadvisory Agreement only with respect to the effective date and the potential
for the Subadvisory services to be rendered by an affiliate through New AGIM.
The Previous Subadvisory Agreement is dated June 1, 2000 and was last approved
by the shareholders of the Acquired Funds at a meeting held on the same date in
connection with its initial approval. A description of the New Subadvisory
Agreement and the services to be provided by New AGIM is set forth below. This
description is qualified in its entirety by reference to the form of the New
Subadvisory Agreement attached to this Proxy Statement and Prospectus as Exhibit
IB.
Under the terms of the New Subadvisory Agreement between AGAM and New AGIM,
New AGIM will manage the investment and reinvestment of the assets of each of
the Acquired Funds, subject to the supervision of the NAF Board. New AGIM will
formulate a continuous investment program for each Acquired Fund consistent with
its investment objectives and policies. New AGIM will also implement such
programs by purchases and sales of securities and will regularly report to AGAM
and the NAF Board with respect to their implementation.
As compensation for its services under the New Subadvisory Agreement, New
AGIM will receive a fee, as a percentage of average daily net assets, payable
monthly and accrued daily as set forth in the table below. This fee is payable
by AGAM at no additional cost to Acquired Fund shareholders.
Acquired Fund: Subadvisory Fee:
- -------------------------------------------------------------------------------------------------------------------------
First $50 Million Between $50 Million Between $200 Excess Over
and $200 Million Million and $500 Million
$500 Million
- -------------------------------------------------------------------------------------------------------------------------
NAF Core Bond Fund 0.250% 0.250% 0.200% 0.150%
- -------------------------------------------------------------------------------------------------------------------------
NAF High Yield Bond Fund 0.450% 0.450% 0.350% 0.300%
- -------------------------------------------------------------------------------------------------------------------------
NAF Municipal Bond Fund 0.250% 0.250% 0.220% 0.150%
- -------------------------------------------------------------------------------------------------------------------------
NAF Strategic Income Fund 0.350% 0.350% 0.250% 0.200%
- -------------------------------------------------------------------------------------------------------------------------
NAF U.S. Government Securities Fund 0.225% 0.225% 0.150% 0.100%
- -------------------------------------------------------------------------------------------------------------------------
For the fiscal year ended October 31, 2000, AGAM paid total Subadvisory
fees to AGIM of $3,194,477. Of such amount, $265,944, $91,401 (for the period
July 7, 2000 to October 31, 2000), $31,952, $150,251 and $112,544 were
attributable to the NAF Core Bond Fund, the NAF High Yield Bond Fund, the NAF
Municipal Bond Fund, the NAF Strategic Income Fund and the NAF U.S. Government
Services Fund, respectively. From November 1, 1999 to July 7, 2000, VALIC, an
affiliate of AGAM, served as investment advisor for the NAF High Yield Bond
Fund. During this period, VALIC paid total Subadvisory fees of $276,034. Of
such amount, $199,342 was attributable to the NAF High Yield Bond Fund.
The Board of Trustees of North American Funds unanimously recommends that
the shareholders of each Acquired Fund approve the New Subadvisory Agreement.
If the New Subadvisory Agreement is not approved by shareholders of an Acquired
Fund, the NAF Board will determine the appropriate actions to be taken with
respect to such Acquired Fund's Subadvisory arrangements at that time.
-33-
AGIM also manages the investment portfolios of the Core Bond Fund of North
American Funds Variable Products II (the "NAFVPII Core Bond Fund") and the High
Yield Bond Fund of North American Funds Variable Products II (the "NAFVPII High
Yield Bond Fund"), mutual funds with substantially similar investment objectives
to the NAF Core Bond Fund and the NAF High Yield Bond Fund, respectively. As
compensation for its advisory services in connection with the NAFVPII Core Bond
Fund and the NAFVPII High Yield Bond Fund, AGIM receives advisory fees of 0.50%
and 0.70%, respectively, of average daily net assets payable monthly and accrued
daily. For the fiscal year ended August 31, 2000, AGIM received total advisory
fees of $13,058 and $24,888 in connection with the NAFVPII Core Bond Fund and
the NAFVPII High Yield Bond Fund, respectively.
Additional Information About AGIM
AGIM has been the subadviser to the NAF Core Bond Fund, the NAF Municipal
Bond Fund, the NAF Strategic Income Fund and the NAF U.S. Government Securities
Fund since March 2000, and the NAF High Yield Bond Fund since its inception.
AGIM was formed in 1998 as a successor to the investment management division of
American General. Pursuant to the Previous Subadvisory Agreement, AGIM managed
the investment and reinvestment of the assets of each Acquired Fund subject to
the supervision of the NAF Board. AGIM has continued to perform these functions
under the Interim Subadvisory Agreement since the completion of the Merger.
AGIM is located at 2929 Allen Parkway, Houston, Texas 77019. The directors
and principal executive officer of AGIM, their position(s) with AGIM and a
description of their principal occupations are set forth below. Unless
otherwise indicated, the business address of each is 2929 Allen Parkway,
Houston, Texas 77019.
- ------------------------------------------------------------------------------------------------------------------
Name and Address Position with AGIM and Principal Occupation(s)
---------------- ----------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Richard W. Scott Director, President and Chief Executive Officer
[Principal occupations to come].
- ------------------------------------------------------------------------------------------------------------------
Albert Gutierrez Director and Executive Vice President
(Since April 2000); prior to working at AGIM,
Mr. Gutierrez was Senior Vice President responsible
for non-equity research, trading and various
insurance company portfolios with Conseco Capital
Management from 1987 to 2000.
- ------------------------------------------------------------------------------------------------------------------
PROPOSALS NOS. 2(a)--(e): APPROVAL OF THE PLANS
------------------------------------------------
COMPARISON OF THE FUNDS
Investment Policies
In addition to the principal investment policies set forth under "Summary -
- - The Funds -- Comparison of the Funds" above, the Funds may also employ the
following investment policies.
As a condition to the Reorganizations involving the High Yield Bond Funds
and the Strategic Income Funds, the respective Acquiring Funds must obtain
shareholder approval to change the investment objective of the respective
Acquiring Fund to more closely resemble that of the Acquired Fund. Accordingly,
the comparisons of these Funds assumes that shareholders of the Acquiring Funds
have approved the necessary changes and reflects a comparison of the Acquired
Fund and the respective Combined Fund.
All Funds
- ---------
Lending. The Funds may not make loans, except through repurchase agreements and
the purchase of portfolio securities consistent with a Fund's investment
objectives and policies. In addition, each Fund may lend portfolio securities
subject to comparable limitations.
-34-
Illiquid Securities. As a non-fundamental restriction, no Fund may invest more
than 10% of its net assets (15% for the Core Bond Funds, High Yield Bond Funds
and Strategic Income Funds) in illiquid securities.
Short Sales. As a non-fundamental policy, no Fund may engage in short sales,
except short sales "against the box." A short sale is against the box to the
extent that the Fund contemporaneously owns, or has the right to obtain without
payment, securities identical to those sold short.
Core Bond Funds
---------------
Borrowing. Each Core Bond Fund may borrow for temporary or emergency purposes
and in connection with reverse repurchase agreements, mortgage rolls and similar
transactions. The Funds are subject to similar limitations on borrowing. Each
Fund's policy regarding the use of leverage is a fundamental policy.
High Yield Bond Funds
---------------------
Borrowing. The NAF High Yield Bond Fund may not borrow from banks or enter into
reverse repurchase agreements, or employ similar investment techniques, and
pledge its assets in connection therewith, unless immediately after each
borrowing there is asset coverage of 300%. The High Yield Bond Combined Fund
may borrow up to 33 1/3% of the value of its total assets (not including amounts
borrowed) less liabilities (other than borrowing). The High Yield Bond Combined
Fund may borrow money to purchase securities in amounts not exceeding 50% of its
net assets and pledge its assets to secure such borrowings. The High Yield Bond
Combined Fund may also pledge up to 5% of its assets in connection with
interest rate swaps. Each Fund's policy regarding the use of leverage is a
fundamental policy.
Tax Exempt Insured Funds
------------------------
Borrowing. Each Tax Exempt Insured Fund may borrow for temporary or emergency
purposes and the NAF Municipal Bond Fund may also borrow in connection with
reverse repurchase agreements, mortgage rolls and similar transactions. When
borrowing for temporary or emergency purposes, the NAF Municipal Bond Fund may
borrow up to 33% of the value of its respective total assets (including amounts
borrowed) less liabilities (other than borrowing) while the SunAmerica Tax
Exempt Insured Fund may borrow up to 5% of the value of its respective total
assets (valued at the lower of cost or current value not including borrowings).
Both Tax Exempt Insured Funds may pledge their respective assets to secure such
borrowings. Each Fund's policy regarding the use of leverage is a fundamental
policy.
Strategic Income Funds
----------------------
Borrowing. Each Strategic Income Fund may borrow for temporary or emergency
purposes and may also borrow in connection with reverse repurchase agreements,
mortgage rolls and similar transactions. When borrowing for temporary or
emergency purposes, the two Funds are subject to comparable limitations. In
addition, the Strategic Income Combined Fund may borrow money to purchase
securities in amounts not exceeding 50% of its net assets and pledge its assets
to secure such borrowings. The Strategic Income Combined Fund may also pledge up
to 5% of its assets in connection with interest rate swaps. Each Fund's policy
regarding the use of leverage is a fundamental policy.
U.S. Government Securities Funds
--------------------------------
Borrowing. Each U.S. Government Securities Fund may borrow for temporary or
emergency purposes and the NAF U.S. Government Securities Fund may also borrow
in connection with reverse repurchase agreements, mortgage rolls and similar
transactions. When borrowing for temporary or emergency purposes, the NAF U.S.
Government Securities Fund may borrow up to 33% of the value of its respective
total assets (including amounts borrowed) less liabilities (other than
borrowing) while the SunAmerica U.S. Government Securities Fund may borrow up to
5% of the value of its respective assets (valued at the lower of cost or current
value not including borrowings). Both U.S. Government Securities Funds may
pledge their assets to secure such borrowings. Each Fund's policy regarding the
use of leverage is a fundamental policy.
Trustees and Officers
SunAmerica Income Funds is governed by the SunAmerica Board which currently
consists of five individuals, four of whom are SunAmerica Independent Trustees.
-35-
The SunAmerica Board is responsible for the overall supervision of
SunAmerica Income Funds and performs various duties imposed on trustees of
investment companies by the Investment Company Act and under Massachusetts law.
Trustees and officers of SunAmerica Income Funds are also trustees and officers
of some or all of the other investment companies managed, administered or
advised by SAAMCo, and distributed by SACS and other affiliates. The SunAmerica
Board elects the Acquiring Funds' officers. See "Trustees and Officers" in the
Acquiring Funds Statement.
The following table lists the Trustees and executive officers of SunAmerica
Income Funds, their ages and principal occupations during the past five years.
The business address of each Trustee and executive officer is The SunAmerica
Center, 733 Third Avenue, New York, New York 10017-3204. For the purposes of
this Proxy Statement and Prospectus, the SunAmerica Mutual Funds ("SAMF")
consist of SunAmerica Equity Funds, SunAmerica Income Funds, SunAmerica Money
Market Funds, Inc., SunAmerica Style Select Series, Inc. and SunAmerica
Strategic Investment Series, Inc. An asterisk indicates that the Trustee is an
interested person of SunAmerica Income Funds within the meaning of Section
2(a)(19) of the Investment Company Act.
Name, Age and Address Position Principal Occupations
with the Trust During Past 5 Years
- ----------------------------------------------------------------------------------------------------------------------
S. James Coppersmith, 68 Trustee Retired; formerly, President and General Manager,
WCVB-TV, a division of the Hearst Corp. (1982 to
1994); Director/Trustee of SAMF and Anchor Series
Trust ("AST").
- ----------------------------------------------------------------------------------------------------------------------
Samuel M. Eisenstat, 60 Chairman of the Board Attorney, solo practitioner; Chairman of the Boards of
Directors/Trustees of SAMF and AST.
- ----------------------------------------------------------------------------------------------------------------------
Stephen J. Gutman, 58 Trustee Partner and Managing Member of B.B. Associates LLC
(menswear specialty retailing and other activities)
since June 1988; Director/Trustee of SAMF and AST.
- ----------------------------------------------------------------------------------------------------------------------
Peter A. Harbeck*, 47 Trustee and President Director and President, SAAMCo, since August 1995;
Director, AIG Asset Management International, Inc.
("AIGAMI") since February 2000; Managing Director,
John McStay Investment Counsel, L.P. ("JMIC") since
June 1999; Director, SACS, since August 1993; Director
and President, SunAmerica Fund Services, Inc.
("SAFS"), since May 1988; President, SAMF and AST.
- ----------------------------------------------------------------------------------------------------------------------
Sebastiano Sterpa, 72 Trustee Founder and Chairman of the Board of the Sterpa Group
(real estate) since 1962; Director, Real Estate
Business Service and Countrywide Financial;
Director/Trustee of SAMF.
- ----------------------------------------------------------------------------------------------------------------------
J. Steven Neamtz, 42 Vice President Executive Vice President, SAAMCo since April 1996;
Director and Chairman of the Board, AIGAMI, since
February 2000; Vice President, SAMF, since November
1999; Director and President, SACS, since April 1996.
- ----------------------------------------------------------------------------------------------------------------------
Peter C. Sutton, 36 Treasurer Senior Vice President, SAAMCo since April 1997; Vice
President, AIGAMI, since February 2000; Treasurer and
Controller of Seasons Series Trust ("Seasons"),
SunAmerica Series Trust ("SAST") and Anchor Pathway
Fund ("APF") since February 2000; Treasurer of SAMF
and AST since February 1996; Vice President of SAST
and APF since 1994; formerly Assistant Treasurer of
SAST and APF from 1994 to February 2000; Vice
President, Seasons, since April 1997; formerly Vice
President, SAAMCo, from 1994 to 1997.
- ----------------------------------------------------------------------------------------------------------------------
-36-
- ----------------------------------------------------------------------------------------------------------------------
Robert M. Zakem, 43 Secretary and Chief Senior Vice President and General Counsel, SAAMCo,
Compliance Officer since April 1993; Vice President, General Counsel and
Assistant Secretary, AIGAMI, since February 2000;
Executive Vice President, General Counsel and
Director, SACS, since August 1993; Vice President,
General Counsel and Assistant Secretary, SAFS, since
January 1994; Vice President, SAST, APF and Seasons;
Assistant Secretary, SAST and APF, since September
1993; Assistant Secretary, Seasons, since April 1997.
- ----------------------------------------------------------------------------------------------------------------------
At a meeting of the SunAmerica Board held on August 22, 2001, the
SunAmerica Board elected Dr. Judith L. Craven and William F. Devin to the
SunAmerica Board, effective on or about November 9, 2001. Dr. Craven and Mr.
Devin are currently members of the NAF Board. Dr. Craven and Mr. Devin would
join the SunAmerica Board as SunAmerica Independent Trustees and as members of
the Audit and Nominating Committees.
-37-
The following table lists the ages, business addresses and principal
occupations during the past five years of Dr. Craven and Mr. Devin.
Dr. Judith L. Craven, 55 Retired Administrator. Trustee, North American
3212 Ewing Street Funds Variable Product Series II, 15 investment
Houston, TX 77004 portfolios (November 1998 to present); Director,
North American Funds Variable Product Series I, 21
investment portfolios (August 1998 to present);
Director, USLIFE Income Fund, Inc. (November 1998
to present); Director, Compaq Computer Corporation
(1992 to present); Director, A.G. Belo Corporation,
a media company (1992 to present); Director, Sysco
Corporation, a food marketing and distribution
company (1996 to present); Director, Luby's Inc., a
restaurant chain (1998 to present); Director,
University of Texas Board of Regents (May 2001 to
present). Formerly, Director, CypressTree Senior
Floating Rate Fund, Inc. (June 2000 to May 2001);
Formerly, President, United Way of the Texas Gulf
Coast, a not for profit organization (1992-1998);
Formerly, Director, Houston Branch of the Federal
Reserve Bank of Dallas (1992-2000); Formerly, Board
Member, Sisters of Charity of the Incarnate World
1996-1999).
- --------------------------------------------------------------------------------------------------------
William F. Devin, 63 Member of the Board of Governors, Boston Stock
44 Woodland Road Exchange (1985 to present); Formerly, Executive
Braintree, MA 02184 Vice President, Fidelity Capital Markets, a
division of National Financial Services Corporation
(1966-1996); Formerly, Director, CypressTree Senior
Floating Rate Fund, Inc. (October 1997 to May 2001).
- --------------------------------------------------------------------------------------------------------
SunAmerica Income Funds pays each SunAmerica Independent Trustee annual
compensation in addition to reimbursement of out-of-pocket expenses in
connection with attendance at meetings of the SunAmerica Board. Specifically,
each SunAmerica Independent Trustee received a pro rata portion (based upon the
SunAmerica Income Funds' net assets) of an aggregate of $40,000 in annual
compensation for acting as director or trustee to SAMF. In addition, each
SunAmerica Independent Trustee received $20,000 in annual compensation for
acting as trustee to AST. Beginning January 1, 2001 each SunAmerica Independent
Trustee of the retail funds in SAMF receives an additional $2,500 per quarterly
meeting. In addition, Mr. Eisenstat receives an aggregate of $2,000 in annual
compensation for serving as Chairman of the Boards of the retail funds in SAMF.
Officers of SunAmerica Income Funds receive no direct remuneration in such
capacity from SunAmerica Income Funds or any of the Acquiring Funds.
In addition, each SunAmerica Independent Trustee also serves on the Audit
Committee of the SunAmerica Board. The Audit Committee is charged with
recommending to the full SunAmerica Board the engagement or discharge of
SunAmerica Income Funds' independent accountants; directing investigations into
matters within the scope of the independent accountant's duties; reviewing with
the independent accountants the audit plan and results of the audit; approving
professional services provided by the independent accountants and other
accounting firms; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; and preparing and submitting
Committee minutes to the full SunAmerica Board. Each member of the Audit
Committee receives an aggregate of $5,000 in annual compensation for serving on
the Audit Committee of SAMF and AST. With respect to SunAmerica Income Funds,
each member of the Committee receives a pro rata portion of the $5,000
-38-
annual compensation, based on the relative net assets of SunAmerica Income
Funds. SunAmerica Income Funds also has a Nominating Committee, comprised solely
of SunAmerica Independent Trustees, which recommends to the SunAmerica Board
those persons to be nominated for election as Trustees by shareholders and
selects and proposes nominees for election by Trustees between shareholders'
meetings. Members of the Nominating Committee serve without compensation.
The Trustees (and Directors) of SAMF and AST have adopted the SunAmerica
Disinterested Trustees' and Directors' Retirement Plan (the "Retirement Plan")
effective January 1, 1993 for the SunAmerica Independent Trustees. The
Retirement Plan provides generally that if a SunAmerica Independent Trustee who
has at least 10 years of consecutive service as a disinterested Trustee of any
of SAMF or AST (an "Eligible Trustee") retires after reaching age 60 but before
age 70 or dies while a Trustee, such person will be eligible to receive a
retirement or death benefit from each SAMF with respect to which he or she is an
Eligible Trustee. With respect to Sebastiano Sterpa, the SunAmerica Independent
Trustees have determined to make an exception to existing policy and allow Mr.
Sterpa to remain on the SunAmerica Board past age 70, until he has served for
ten years. Mr. Sterpa will cease accruing retirement benefits upon reaching age
70, although such benefits will continue to accrue interest as provided for in
the Retirement Plan. As of each birthday, prior to the 70th birthday, each
Eligible Trustee will be credited with an amount equal to (i) 50% of his or her
regular fees (excluding committee fees) for services as a disinterested Trustee
of each SAMF for the calendar year in which such birthday occurs, plus (ii) 8.5%
of any amounts credited under clause (i) during prior years. An Eligible
Trustee may receive any benefits payable under the Retirement Plan, at his or
her election, either in one lump sum or in up to fifteen annual installments.
The following table sets forth information summarizing the aggregate
compensation of each SunAmerica Independent Trustee for his services as a member
of the SunAmerica Board for the fiscal year ended March 31, 2001. Neither the
Trustees who are interested persons of SunAmerica Income Funds nor any officers
of SunAmerica Income Funds receive any compensation.
Pension or
Aggregate Retirement Estimated Annual Total Compensation
Compensation from Benefits Accrued Benefits Upon From Registrant and
Trustee Registrant as Part of Trust Retirement** Fund Complex Paid to
Expenses* Trustees*
- -------------------------------------------------------------------------------------------------------------------------
S. James Coppersmith $4,025 $51,702 $29,670 $67,500
- -------------------------------------------------------------------------------------------------------------------------
Samuel M. Eisenstat $4,246 $44,289 $46,089 $71,500
- -------------------------------------------------------------------------------------------------------------------------
Stephen J. Gutman $4,025 $45,567 $60,912 $67,500
- -------------------------------------------------------------------------------------------------------------------------
Sebastiano Sterpa*** $4,196 $ 9,623 $ 7,900 $45,833
- -------------------------------------------------------------------------------------------------------------------------
* Information is as of March 31, 2001 for the five investment companies in
the complex that pay fees to these directors/trustees. The complex consists
of SAMF and AST.
** Assuming participant elects to receive benefits in
15 yearly installments.
*** Mr. Sterpa is not a trustee of AST.
Management Arrangements
Comparison of Management and Administrative Arrangements and Fees
-----------------------------------------------------------------
AGAM serves as the investment adviser for the Acquired Funds and SAAMCo
serves as the investment adviser for the Acquiring Funds. Each of AGAM and
SAAMCo is responsible for the management of the investment portfolio of each
Acquired Fund and Acquiring Fund, respectively (except to the extent delegated
to a subadviser), and for providing certain administrative services to such
Fund.
AGAM was organized as a Delaware corporation in 1996 and is located at 286
Congress Street, Boston, Massachusetts, 02210. Prior to the Merger, AGAM and
the NAF Distributor were both wholly owned subsidiaries of American General.
Prior to the Merger, American General was one of the nation's largest
diversified financial services organizations with assets of approximately $128
billion and market capitalization of $23 billion at June 30,
-39-
2001. AGAM is now a subsidiary of AIG. The principal executive offices of AIG
are located at 70 Pine Street, New York, New York 10270.
SAAMCo was organized as a Delaware corporation in 1982 and is located at
The SunAmerica Center, 733 Third Avenue, New York, NY 10017-3204. SAAMCo is a
wholly owned subsidiary of SunAmerica Inc., which in turn is a wholly owned
subsidiary of AIG. AIG, a Delaware corporation, is a holding company which
through its subsidiaries is engaged in a broad range of insurance and insurance-
related activities and financial services in the United States and abroad.
AIG's primary activities include both general and life insurance operations.
Other significant activities include financial services and asset management.
As of June 30, 2001, SAAMCo managed, advised and/or administered more than $28.5
billion of assets.
Comparison of the NAF Investment Advisory Agreement and SunAmerica
Investment Advisory Agreement. The SunAmerica Investment Advisory Agreement is
similar to the NAF Investment Advisory Agreement, except for certain matters,
including the advisory fees, the effective dates and the identity of the
adviser.
The advisory fees payable by the Acquired Funds to AGAM are discussed above
under "Proposal No. 1(a): Approval of the New Investment Advisory Agreement --
Description of the New Investment Advisory Agreement."
The Core Bond Combined Fund will pay advisory fees at the same annual rate
as the NAF Core Bond Fund. The High Yield Bond, Tax Exempt Insured and
Strategic Income Combined Funds will pay advisory fees at a lower annual rate
than the respective Acquired Fund. The U.S. Government Securities Combined Fund
will pay advisory fees at a higher annual rate than the respective Acquired
Fund.
See "Proposals Nos. 2(a)-(e): Approval of the Plans The Reorganizations --
NAF Board Considerations: Potential Benefits to Shareholders as a Result of the
Reorganizations."
The effective advisory fee rate payable by each Combined Fund after
consummation of the Reorganizations will be the same as the advisory fee rates
payable by the Acquiring Funds. After the Reorganizations, the net assets of
each Combined Fund will increase by the amount of the net assets of the
respective Acquired Fund. With respect to the High Yield Bond Combined Fund,
this increase in net assets may cause a lower advisory fee rate to apply in
accordance with the advisory fee breakpoint schedule applicable to such
Acquiring Fund. The pro forma effective fee rate of each Combined Fund, as a
percentage of average daily net assets, after taking into account the completion
of the Reorganizations is shown above under "Summary The Funds Management
Arrangements."
The SunAmerica Investment Advisory Agreement provides that in the absence
of willful misfeasance, bad faith, gross negligence or reckless disregard of
SAAMCo's (and its affiliates') obligations or duties thereunder ("disabling
conduct"), SAAMCo is not subject to liability to an Acquiring Fund (or to any
shareholder thereof) for any act or omission in the course of rendering services
to such Acquiring Fund (except to the extent specified in the Investment Company
Act concerning loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services). The SunAmerica Investment Advisory
Agreement also provides that except for such disabling conduct, an Acquired Fund
will indemnify SAAMCo (and its affiliates) from any liability arising from
SAAMCo's conduct under the SunAmerica Investment Advisory Agreement. The NAF
Investment Advisory Agreement does not contain similar provisions.
Both the NAF Investment Advisory Agreement and the SunAmerica Investment
Advisory Agreement provide that the adviser may, at its own cost and expense and
subject to the requirements of the Investment Company Act, retain one or more
Subadvisers to manage all or a portion of the investment portfolio of an
Acquired Fund or Acquiring Fund, respectively.
Comparison of Subadvisory Arrangements. Under the terms of each of the
Subadvisory Agreements between AGAM and New AGIM (the "Subadvisory Agreements"),
New AGIM manages the investment and reinvestment of the assets of each Acquired
Fund, subject to the supervision of the NAF Board. New AGIM formulates a
continuous investment program for each Acquired Fund consistent with its
investment objectives and policies. New AGIM implements such programs by
purchases and sales of securities and regularly reports to AGAM and the NAF
Board with respect to their implementation.
-40-
As compensation for its services, New AGIM receives fees from AGAM computed
separately for each Acquired Fund. Such fees are paid out of AGAM's advisory
fee at no additional cost to the Acquired Funds or their shareholders. The
Subadvisory fees payable by the AGAM to New AGIM are discussed above under
"Proposal No. 1(b): Approval of the New Investment Subadvisory Agreement --
Description of the New Investment Subadvisory Agreement."
For the fiscal year ended October 31, 2000, AGAM paid Subadvisory fees to
AGIM as follows; $265,944, $91,401, $31,952, $150,251 and $112,544 were
attributable to the NAF Core Bond Fund, the NAF High Yield Bond Fund (for the
period from 7/7/01-10/31/01), the NAF Municipal Bond Fund, the NAF Strategic
Income Fund and the NAF U.S. Government Securities Fund, respectively.
After the Reorganization, New AGIM will serve as the subadviser to the Core
Bond Combined Fund, the High Yield Bond Combined Fund, the Tax Exempt Insured
Combined Fund and the Strategic Income Combined Fund pursuant to the SunAmerica
Subadvisory Agreement subject to shareholder approval of the respective
Acquiring Fund. The terms of the NAF Subadvisory Agreement and the SunAmerica
Subadvisory Agreement are similar all material respects, including Subadvisory
fee rates.
The SunAmerica Subadvisory Agreement provides that in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of New
AGIM's (and its affiliates') obligations or duties thereunder ("disabling
conduct"), AGIM is not subject to liability to an Acquiring Fund (or to any
shareholder thereof) for any act or omission in the course of rendering services
to such Acquiring Fund (except to the extent specified in the Investment Company
Act concerning loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services). The SunAmerica Subadvisory Agreement
also provides that except for such disabling conduct, New AGIM will indemnify
SAAMCo (and its affiliates) from any liability arising from AGIM's conduct under
the SunAmerica Subadvisory Agreement. With respect to the indemnification the
NAF Subadvisory Agreement does not contain a similar provision.
Distribution and Shareholder Servicing Arrangements
Distributor
-----------
American General Funds Distributors, Inc. (previously defined as "AGFD" or
the "NAF Distributor"), an affiliate of AGAM, acts as the principal distributor
of the shares of the Acquired Funds. SunAmerica Capital Services, Inc.
(previously defined as "SACS" or the "SunAmerica Distributor"), an affiliate of
SAAMCo, acts as the distributor of the shares of the Acquiring Funds. As
compensation for their respective services, AGFD and SACS receive the initial
and deferred sales charges in respect of the Acquired Funds and Acquiring Funds,
respectively. In addition, AGFD and SACS receive fees under each respective
Acquired Fund's and Acquiring Fund's plan pursuant to Rule 12b-1 under the
Investment Company Act. The address of the NAF Distributor is 286 Congress
Street, Boston, Massachusetts 02210. The address of the SunAmerica Distributor
is The SunAmerica Center, 733 Third Avenue, New York, New York 10017-3204.
After consummation of the Reorganizations, the SunAmerica Distributor will
continue to provide distribution services to each Combined Fund.
Distribution and Service (12b-1) Fees
-------------------------------------
Each of the Acquired Funds and Acquiring Funds have adopted a plan under
Rule 12b-1 under the Investment Company Act that allows it to pay distribution
and other fees for the sale and distribution of its shares. Class A, Class B
and Class C shares of each Acquired Fund and Class A, Class B and Class II
shares of each Acquiring Fund are subject to the same respective distribution
and account maintenance and service fees pursuant to a plan under Rule 12b-1.
The table below sets forth the distribution and account maintenance and service
fees for each of these classes.
-41-
Acquired Acquiring Account Maintenance
Fund Class Fund Class Distribution Fee and Service Fee
---------- ---------- ---------------- -------------------
A A 0.10% 0.25%
B B 0.75% 0.25%
C II 0.75% 0.25%
Because these fees are paid out of a Fund's assets on an ongoing basis,
over time they will increase the cost of your investment and may cost you more
than paying other types of sales charges.
Shareholder Servicing Fee for Class I
-------------------------------------
The Acquired Funds have entered into a Services Agreement (the "NAF
Services Agreement") with AGAM for the provision of recordkeeping and
shareholder services to retirement and employee benefit plans and certain asset
allocation funds of North American Funds that invest in Institutional Class I
shares of the Acquired Funds. Under the NAF Services Agreement, as compensation
for services rendered, AGAM receives a fee on Institutional Class I shares of
each Acquired Fund equal to .25% of average net assets of such class. SACS will
provide these services after the Reorganizations with respect to Class I shares
of the Combined Funds for the same fee.
Other Service Agreements with Affiliates
SAFS acts as a servicing agent assisting State Street in connection with
certain services offered to the shareholders of each of the Acquiring Funds
pursuant to the terms of a Service Agreement (the "SunAmerica Service
Agreement"). Under the SunAmerica Service Agreement, as compensation for
transfer agency services rendered, SAFS receives a fee from each Acquiring Fund,
computed and payable monthly based upon an annual rate of .22% of average daily
net assets of each Acquiring Fund with respect to Class A, Class B and Class II
shares. Upon completion of the Reorganizations, SAFS will receive the same fee
with respect to Class I shares of each Acquiring Fund. For Class Z shares, SAFS
receives reimbursements from the Funds of its costs, which include all direct
transfer agency fees and out-of-pocket expenses allocated to providing services
to Class Z shares. From this fee, SAFS pays a fee to State Street, and its
affiliate, National Financial Data Services. In addition, pursuant to the
Service Agreement, SAFS may receive reimbursement of its costs in providing
shareholder services on behalf of the Acquiring Funds. SAFS is located at The
SunAmerica Center, 733 Third Avenue, New York, New York 10017-3204.
Purchase, Exchange and Redemption of Shares
The following chart highlights the purchase, redemption and exchange
features of the Acquired Funds as compared to such features of the Acquiring
Funds.
Purchase, Redemption
and Exchange Features Acquired Funds Acquiring Funds
--------------------- -------------- ----------------
Minimum initial investment . non-retirement accounts: $1,000 . non-retirement accounts: $500
. retirement accounts: $50 . retirement accounts: $250
. automatic investment . dollar cost averaging: $500 to
programs: $50 open
Class B shares are available for
purchases of $250,000 or less.
Class C shares are available for
purchases under $1 million.
-42-
Purchase, Redemption
and Exchange Features Acquired Funds Acquiring Funds
- ------------------------------------ -------------------------------------- --------------------------------------
Institutional Class I shares are
available for purchases of $1 million
or more
Minimum subsequent investments $50 . non-retirement account: $100
. retirement account: $25
. dollar cost averaging: you must
invest at least $25 per month
Initial Sales Charge Class A: 4.75% Class A: 4.75%
(as a percentage of offering price) Class B: None Class B: None
Class C: None Class II: 1.00%
Institutional Class I: None Class I: None(a)
Purchases over $1 million are sold Initial sales charge is waived for
without an initial sales charge certain investors
Deferred Sales Charge Class A: Purchases of shares worth Class A: Purchases of Class A shares
over $1 million that are sold without over $1 million that are redeemed
an initial sales charge and redeemed within a certain period of time are
within 1 year are subject to a 1% subject to a CDSC (1% for redemptions
CDSC at redemption within one year of purchase and 0.50%
for redemptions after the first year
Class B: Shares redeemed within 6 and within the second year of
years are subject to a CDSC(b)(c) purchase)
Class C: Shares redeemed within one Class B: Shares redeemed within 6
year are subject to a 1% CDSC(c) years are subject to a CDSC(b)(c)
Institutional Class I: None Class II: Shares redeemed within 18
months after purchase are subject to
a 1% CDSC(c)
Class I: None
Purchases By mail (check), wire or through By mail (check), wire or through a
broker-dealers broker or financial advisor
Redemption Class A, B and C: By mail, wire (if Class A, B and II: By mail, wire
a minimum of $1,000), telephone or (any amount for requests by mail and
through broker-dealers less than $100,000 for requests by
telephone), telephone (for amounts
Institutional Class I: Contact the less than $100,000) or through a
financial intermediary or other broker or financial advisor
organization from whom shares were
purchased Class I: Contact the financial
intermediary or other organization
from whom shares were purchased
Conversion Class B shares automatically convert Class B shares automatically convert
into Class A shares eight years after into Class A shares approximately
purchase eight years after purchase
Exchanges Shares of an Acquired Fund may be Shares of an Acquiring Fund may be
exchanged for shares of the same exchanged for shares of the same
-43-
Purchase, Redemption
and Exchange Features Acquired Funds Acquiring Funds
- ------------------------------------ -------------------------------------- --------------------------------------
class of any other Acquired Fund or class of any other fund distributed
other series of North American Funds by SACS
For Institutional Class I shares, all
or part of an existing plan balance
may be exchanged from one investment
option to another if permitted by an
employer retirement plan
_________________
(a) Although not currently offered by the Acquiring Funds, Class I shares will
be offered by the Combined Funds upon consummation of the Reorganizations.
(b) The CDSC of Class B shares of the Acquiring Funds is either the same as or
less than the CDSC relating to Class B shares of the Acquired Funds. The
table below sets forth the schedule of Class B CDSC for all Funds.
CDSC on shares being sold
---------------------------------------------------------------------
Years after Purchase Acquired Funds Acquiring Funds
- ------------------------------ ---------------------------------------- ---------------------------------
1st year 5.00% 5.00%
2nd year 5.00% 4.00%
3rd year 4.00% 3.00%
4th year 3.00% 3.00%
5th year 2.00% 2.00%
6th year 1.00% 1.00%
7th year and thereafter None None
(c) The CDSC schedules applicable to Class B and Class C shares of an Acquired
Fund will continue to apply to the respective Corresponding Shares received
in the applicable Reorganization by shareholders of a Combined Fund who
were shareholders of the respective Acquired Fund as of the date of the
closing of such Reorganization (even if you exchange your shares for shares
of another fund distributed by SACS). Each CDSC is based on the original
purchase cost or the current market value of the shares being sold,
whichever is less. Future purchases of Class A, Class B or Class II Shares
of a Combined Fund will be subject to the CDSC schedule applicable to the
Combined Fund. There is no CDSC on Combined Fund shares that are purchased
through reinvestment of dividends. In the case of a partial redemption of
Combined Fund shares, those shares in the shareholder's account that are
not subject to a CDSC will be sold first. If there are not enough of these
shares available, shares that have the lowest CDSC will be sold next.
Dividend Distribution and Account Policies
------------------------------------------
The following is a summary of the dividend distribution and account
policies of each of the Funds and is qualified in its entirety by the more
complete information contained in the Acquired Funds Prospectuses, Acquiring
Funds Prospectuses, Acquired Funds Statement and Acquiring Funds Statement.
Valuation of Fund Shares. The net asset value per share for each Fund and
class is determined once daily as of the close of regular trading on the New
York Stock Exchange (generally 4 p.m. Eastern time) by dividing the net assets
(the value of all assets less liabilities) of each class by the number of its
shares outstanding. See "Purchase, Redemption and Pricing -- Determination of
Net
-44-
Asset Value" in the Acquired Funds Statement and "Determination of Net Asset
Value" in the Acquiring Funds Statement.
Buy and Sell Prices. When you buy shares of a Fund, you pay the net asset
value plus any applicable sales charges. When you sell shares of a Fund, you
receive the net asset value minus any applicable CDSCs.
Dividends. Each of the Acquired Funds declares income dividends daily and
pays capital gains and income dividends, if any, annually. Income dividends, if
any, are declared daily and paid monthly by Acquiring Funds. Capital gains
distributions, if any, are paid annually by the Acquiring Funds. See "Pricing
of Fund Shares" in the Acquired Funds Prospectus and "Dividends, Distributions
and Taxes -- Dividends and Distributions" in the Acquiring Funds Statement.
Dividend Reinvestments. The policy relating to dividend reinvestments is
substantially the same for all Funds. Unless cash payment is requested (and
such payment is more than $10 in the case of the Acquiring Funds), all dividends
and distributions, if any, will be reinvested. Alternatively, in the case of
the Acquiring Funds, dividends and distributions may be reinvested in any fund
distributed by SACS. See "Pricing of Fund Shares" in the Acquired Funds
Prospectus and "Dividends, Distributions and Taxes -- Dividends and
Distributions" in the Acquiring Funds Statement.
Redemptions-in-kind. Each Acquired Fund reserves the right to pay
redemption proceeds in whole or in part by a distribution "in kind" of
securities held by the Acquired Fund, subject to the limitation that each
Acquired Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Acquired Fund during any 90-day
period for any one account. Subject to this same limitation, each Acquiring
Fund also may pay redemption proceeds by a distribution "in kind" of securities
held by the Acquiring Fund, if it determines that it would be detrimental to the
best interests of the remaining shareholders of the Acquiring Fund to make
payment of redemption proceeds wholly or partly in cash. See "Purchase
Redemption and Pricing -- Redemption in Kind" in the Acquired Funds Statement
and "Additional Information Regarding Redemption of Shares" in the Acquiring
Funds Statement.
Payment Following Redemption. Each Fund will normally send the proceeds
from a redemption (less any applicable CDSC) on the next business day, but may
delay payment for up to seven days. Payment may be delayed if the shares to be
redeemed were purchased by a check that has not cleared. During periods of
extreme volatility or market crisis, each Fund may temporarily suspend the right
to redemption and may postpone the payment of proceeds, as allowed by the
federal securities laws. See "Shareholder Account Information -- Transaction
Policies" and "Additional Information Regarding Redemption of Shares" in the
Acquiring Funds Prospectus and Acquiring Funds Statement, respectively, and
"Section III: Investing in the North American Funds" and "Purchase, Redemption
and Pricing -- Payment for the Shares Presented" in the Acquired Funds
Prospectuses and Acquired Funds Statement, respectively.
Programs that Reduce Sales Charges. Each of the Funds offer programs
pursuant to which shareholders pay reduced sales charges. With respect to the
Acquiring Funds, these programs are only applicable to purchases of Class A
shares. Under the Rights of Accumulation program, a shareholder pays the sales
charge applicable to the shareholder's total account balance in all classes of
shares. Under a Letter of Intent (or statement of intention), a shareholder
agrees to invest a certain amount over 13 months and will pay the sales charge
based on the shareholder's goal. In addition, the Acquiring Funds also offer
reduced sales charges for group purchases, pursuant to which members of
qualified groups may purchase Class A shares of an Acquiring Fund under the
Rights of Accumulation program described above. The Acquiring Funds also offer
a Combined Purchase Privilege, pursuant to which certain persons may qualify for
sales charge reductions or elimination by combining purchases of Acquiring Fund
shares into a single transaction. See "Section III: Investing in the North
American Funds" in the Acquired Funds Prospectuses and "Additional Information
Regarding Purchase of Shares" in the Acquiring Funds Statement for more
information regarding these programs.
Reinstatement Privileges. Each of the Funds offers a reinstatement
privilege. In the case of the Acquired Funds, if a shareholder redeems Class A
shares (under $1 million) and reinvests within 90 days, the shareholder will not
have to pay a sales charge. If a shareholder redeems Class A shares over $1
million, or Class B or Class C shares and pays a CDSC and then reinvests within
90 days, the shareholder's account will be credited the amount of
-45-
the CDSC. In the case of the Acquiring Funds, a shareholder may redeem shares of
an Acquiring Fund and within one year after the sale invest some or all of the
proceeds in the same share class of the same Acquiring Fund without a sales
charge. A shareholder may use the reinstatement privilege only one time after
redeeming such shares. If a shareholder paid a CDSC on the redemption of his or
her shares, the shareholder's account will be credited with the dollar amount of
the CDSC at the time of redemption. See "Account Services" in the Acquired Funds
Prospectus relating to Class A, Class B, and Class C shares and "Shareholder
Account Information" in the Acquiring Funds Prospectus for more information
regarding this privilege.
Other Shareholder Services. Each of the Acquired Funds and Acquiring Funds
offers other shareholder services which are similar, although not identical,
such as automatic investment plans and systematic withdrawal plans. In
addition, Anchor National Life Insurance Company offers an Asset Protection Plan
to certain investors in the Acquiring Funds, which provides for benefits payable
at death that relate to the amounts paid to purchase Acquiring Fund shares (and
not subsequently redeemed prior to death) and to the value of Acquiring Fund
shares held for the benefit of insured persons. Anchor National Life Insurance
company charges a premium for this coverage. For additional information
regarding these additional shareholder services, see "Account Services" in the
Acquired Funds Prospectuses and "Shareholder Account Information" and
"Additional Information Regarding Purchase of Shares" in the Acquiring Funds
Prospectus and Acquiring Funds Statement, respectively.
Small Accounts. The Acquired Funds require that you maintain a minimum
account balance of $500, or $50 for retirement plans and other automatic
investing programs. The Acquiring Funds require that you maintain a minimum
account balance of $500, or $250 for retirement plan accounts. If your account
with an Acquiring Fund falls below the minimum requirement due to withdrawals,
you may be asked to purchase more shares within 60 days. If you do not take
action, the Acquiring Fund may close out your account and mail you the proceeds.
Alternatively, you may be charged a $2.00 monthly charge to maintain your
account with an Acquiring Fund. Your account with an Acquiring Fund will not be
closed if its drop in value is due to performance of the Acquiring Fund or the
effects of sales charges.
Performance
General
-------
The following tables provide performance information for shares of the
Funds for the periods indicated. Past performance is not indicative of future
performance.
The SunAmerica Core Bond Fund has been recently created and has not yet
commenced operations; consequently, it does not have an investment performance
record. After the Reorganization, the Core Bond Combined Fund, as the successor
to the NAF Core Bond Fund, will assume and publish the investment performance
record of the NAF Core Bond Fund. See Performance Information in the Acquired
Fund's Statement for information about the NAF Core Bond Fund's performance.
In addition, after the Reorganizations, the High Yield Bond and Strategic
Income Combined Funds will assume and publish the investment performance records
of the NAF High Yield Bond Fund and NAF Strategic Income Fund, respectively.
See Performance Information in the Acquired Fund's Statement for information
about the NAF High Yield Bond Fund's and NAF Strategic Income Fund's
performance.
There have been no sales of Class I shares of the NAF U.S. Government
Securities Fund. Accordingly, no performance information is shown.
Important information about the Acquiring Funds is also contained in
management's discussion of each Acquiring Fund's performance contained in the
Annual Report to shareholders of the Acquiring Funds for the year ended March
31, 2001, which accompanies this Proxy Statement and Prospectus.
Average annual total return is determined separately for each Class in
accordance with a formula specified by the Commission. Average annual total
return is computed by finding the average annual compounded rates of
-46-
return for the 1-, 5-, and 10-year periods or for the lesser included periods of
effectiveness. The calculation assumes that:
(a) The maximum sales load (i.e., either the front-end sales load or the CDSC
that would be applicable to a complete redemption of the investment at the
end of the specified period) is deducted from the initial $1,000 purchase
payment;
(b) All dividends and distributions are reinvested at net asset value; and
(c) Complete redemption occurs at the end of the 1-, 5-, or 10-year periods or
fractional portion thereof with all nonrecurring charges deducted
accordingly.
-47-
Average Annual Total Returns
-----------------------------------------
(periods ended June 30, 2001)
-----------------------------------------
NAF High Yield Bond Fund* SunAmerica High Income Fund
------------------------------- ------------------------------
Institutional Institutional
Class A Class B Class C Class I Class II Class A Class B Class II
------------ ---------- ---------- ------------- ------------- ---------- --------- ---------
Year to Date -2.35% -2.82% 1.18% 2.58% 2.48% -5.68% -6.38% -3.41%
One year -7.72% -8.73% N/A -3.11% -3.08% -15.53% -16.27% -13.57%
Three year N/A N/A N/A N/A N/A -7.16% -7.22% -6.50%
Five year N/A N/A N/A N/A N/A 1.04% 0.98% N/A
Ten year N/A N/A N/A N/A N/A 6.57% N/A N/A
Since Inception -1.55% -2.03% -6.20% 0.35% 0.54 5.78% 2.22% -5.08%
(since 11/2/98)(since 11/2/98) (since 8/21/00) (since 11/2/98) (since 11/2/98)
Average Annual Total Returns
-----------------------------------------
(periods ended June 30, 2001)
-----------------------------------------
NAF Municipal Bond Fund SunAmerica Tax Exempt Insured Fund
---------------------------------------------- -------------------------------------
Class A Class B Class C Class A Class B Class II
-------------- -------------- -------------- ------------- ------------ ---------
Year to Date -2.85% -3.43% 0.57% -2.89% -3.39% -0.38%
One year 3.56% 2.81% 6.80% 3.85% 3.25% 6.21%
Three year 1.84% 1.38% 2.65% 2.29% 2.34% N/A
Five year 4.56% 4.38% 4.71% 4.46% 4.45% N/A
Ten year N/A N/A N/A 5.07% N/A N/A
Since Inception 4.24% 5.02% 5.02% 5.97% 4.09% 3.47%
(since 7/6/93) (since 4/1/94) (since 4/1/94)
-48-
NAF Strategic Income Fund SunAmerica Diversified Income Fund
------------------------------------------------------------------ -------------------------------------
Institutional
Class A Class B Class C Class I Class A Class B Class II
--------------- -------------- -------------- --------------- ------------- ---------- ----------
Year to Date -1.98% -2.42% 1.58% 2.99% -5.21% -5.72% -2.70%
One year -0.38% -1.05% 2.94% N/A -9.18% -9.73% -6.81%
Three year 0.30% -0.03% 1.29% N/A -2.81% -2.81% N/A
Five year 4.36% 4.37% 4.71% N/A 2.60% 2.61% N/A
Ten year N/A N/A N/A N/A N/A 3.65% N/A
Since Inception 5.15% 6.16% 6.16% 4.22% 2.79% 3.63% 0.17%
(since 11/1/93) (since 4/1/94) (since 4/1/94) (since 7/10/00)
______________________
* AGAM has waived certain fees in respect of the Acquired Funds. Absent such
waivers, the returns for the Acquired Funds shown above would be lower.
-49-
Average Annual Total Returns
----------------------------------------------
(for the periods ended June 30, 2001)
----------------------------------------------
NAF U.S. Government Securities Fund SunAmerica U.S. Government Securities Fund
------------------------------------------------- ---------------------------------------------
Class A Class B Class C Class A Class B Class II
----------------- -------------- -------------- --------------- ----------------------------
Year to Date -2.12% -2.44% 1.56% -2.76% -3.35% -0.35%
One year 4.29% 3.79% 7.79% 5.61% 5.12% 8.00%
Three year 3.31% 3.17% 4.41% 3.69% 3.77% N/A
Five year 5.09% 5.13% 5.46% 5.20% 5.21% N/A
Ten year 6.01% N/A N/A N/A 5.39 N/A
Since Inception 6.39% 5.41% 5.41% 5.05% 5.95% 5.55%
(since 8/28/1989)(since 4/1/94) (since 4/1/94)
-50-
Shareholder Rights
Shareholders rights are the same in all of the funds. Each full share and
fractional share of a Fund entitles the shareholder to receive a proportional
interest in the respective Fund's capital gain distributions and cast one vote
per share on certain Fund matters, including the election of directors, changes
in fundamental policies, or approval of changes in the Fund's investment
advisory agreement. Corresponding Shares issued in the Reorganizations will be
fully paid and nonassessable and will have no preemptive rights. In the event of
the liquidation of a Fund, shareholders of such Fund are entitled to share pro
rata in the net assets of such Fund available for distribution to shareholders.
The Funds are not required to hold annual meetings and do not intend to do
so except when certain matters, such as a change in a Fund's fundamental
policies, are to be decided. In addition, shareholders representing at least
10% of all eligible votes may call a special meeting if they wish, for the
purpose of voting on the removal of any Fund trustee.
Tax Information
The tax consequences associated with an investment in shares of an Acquired
Fund are substantially the same as the tax consequences associated with an
investment in shares of the respective Acquiring Fund. See "Taxes" in the
Acquired Funds Prospectuses and "Dividend, Distribution and Account Policies" in
the Acquiring Funds Prospectus.
Portfolio Transactions
The procedures for engaging in portfolio transactions are generally the
same for the Acquired Funds and the Acquiring Funds. Each of the Acquired
Funds' Subadvisers and SAAMCo may consider the nature and extent of research
services provided when brokers are selected and may cause a Fund to pay such
broker-dealer's commissions that exceed those that other broker-dealers may have
charged, if in their view the commissions are reasonable in relation to the
value of the brokerage and/or research services provided. For further
discussion of these procedures, see "Portfolio Brokerage" in the Acquired Funds
Statement and "Portfolio Transactions and Brokerage" in the Acquiring Funds
Statement.
Portfolio Turnover
None of the Funds has placed a limit on its portfolio turnover and
portfolio changes are made when the Fund's investment adviser (or Subadviser)
believes they are advisable, usually without reference to the length of time
that a security has been held.
Additional Information
Independent Auditors
--------------------
Currently ___________________ serve as the independent auditors of the
Acquired Funds (except the NAF High Yield Bond Fund for which ____________ serve
as the independent auditors) and also serves as the independent auditors of the
Acquiring Funds. If the Reorganizations are completed, it is currently
anticipated that ___________________ will serve as the independent auditors of
the Combined Funds. The principal business address of ___________________ is
-51-
Custodian
---------
State Street acts as the custodian of the assets of the Acquired Funds and
Acquiring Funds. If the Reorganizations are completed, it is currently
anticipated that State Street will continue to serve as the custodian of the
Combined Funds. The principal business address of State Street is 1776 Heritage
Drive, North Quincy, Massachusetts 02171.
Transfer Agent
--------------
Boston Financial Data Services, Inc., 66 Brooks Drive, Braintree,
Massachusetts 02184 serves as the transfer agent with respect to each Acquired
Fund. State Street, 1776 Heritage Drive, North Quincy, MA 02171 serves as the
transfer agent with respect to each Acquiring Fund. Transfer agent functions
are performed for State Street by National Financial Data Services, P.O. Box
219572, Kansas City, MO 64121-5972, an affiliate of State Street. Each transfer
agent is responsible for the issuance, transfer and redemption of shares and the
opening, maintenance and servicing of shareholder accounts for the respective
Fund. If the Reorganizations are completed, it is currently anticipated that
State Street will continue to serve as the transfer agent of the Combined Funds.
Capital Stock
-------------
Each Acquired Fund is authorized to issue an unlimited number of full and
fractional shares of beneficial interest, par value $0.01 per share, divided
into classes as follows:
- ------------------------------------------------------------------------------------------------------------------
Fund Classes Offered
- ------------------------------------------------------------------------------------------------------------------
NAF Core Bond Fund A, B, C, Institutional Class II and Institutional Class I
- ------------------------------------------------------------------------------------------------------------------
NAF High Yield Bond Fund A, B, C, Institutional Class II and Institutional Class I
- ------------------------------------------------------------------------------------------------------------------
NAF Municipal Bond Fund A, B and C
- ------------------------------------------------------------------------------------------------------------------
NAF Strategic Income Fund A, B, C and Institutional Class I
- ------------------------------------------------------------------------------------------------------------------
NAF U.S. Government Securities Fund A, B, C and Institutional Class I
- ------------------------------------------------------------------------------------------------------------------
Each Acquiring Fund is authorized to issue an unlimited number of full and
fractional shares of beneficial interest, par value $0.01 per share, divided
into classes as follows:
- ------------------------------------------------------------------------------------------------------------------
Fund Classes Offered
- ------------------------------------------------------------------------------------------------------------------
SunAmerica Core Bond Fund A, B, II, Z and I
- ------------------------------------------------------------------------------------------------------------------
SunAmerica High Income Fund A, B, II, Z and I
- ------------------------------------------------------------------------------------------------------------------
SunAmerica Tax Exempt Insured Fund A, B and II
- ------------------------------------------------------------------------------------------------------------------
SunAmerica Diversified Income Fund A, B, II and I
- ------------------------------------------------------------------------------------------------------------------
SunAmerica U.S. Government Securities Fund A, B, II and I
- ------------------------------------------------------------------------------------------------------------------
-52-
See "-- Shareholder Rights" above and "Capital Stock" in the North American
Funds Statement and "Description of Shares" in the SunAmerica Income Funds
Statement for further discussion of the rights and preferences attributable to
shares of each Acquired Fund and each Acquiring Fund, respectively. See
"Summary -- Fee Tables" above and "Section II: Fees and Expenses" (in the case
of Class A, Class B and Class C shares), "Section II: Fees and Expenses of the
North American Funds -- Institutional Class I Shares" (in the case of
Institutional Class I shares) and "Section II: Fees and Expenses of the North
American Funds --Class II Shares" (in the case of Class II shares) in the
Acquired Funds Prospectuses and "Fund Highlights -- What are the Fund's
Expenses?" in the Acquiring Funds Prospectus for further discussion on the
expenses attributable to shares of the Acquired Funds and the Acquiring Funds,
respectively. See "-- Terms of the Plans -- Issuance and Distribution of
Corresponding Shares" for a description of the classes of Corresponding Shares
to be issued in the Reorganizations.
Each of North American Funds and SunAmerica Income Funds is an entity of
the type commonly known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Declaration of Trust of each of North American Funds and SunAmerica
Income Funds contains an express disclaimer of shareholder liability for acts or
obligations of each Acquired Fund and Acquiring Fund, respectively, and provides
for indemnification and reimbursement of expenses out of that Fund's property
for any shareholder held personally liable for the obligations of that Fund.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Funds themselves
would be unable to meet their obligations. Given the above limitations on
shareholder personal liability and the nature of the Fund's assets and
operations, the possibility that a Fund would be unable to meet its obligations
is remote and each of North American Funds and SunAmerica Income Funds believes
the risk of personal liability to shareholders is also, therefore, remote.
Shareholder Inquiries
---------------------
Shareholder inquiries with respect to the Acquired Funds may be addressed
to each Acquired Fund at 286 Congress Street, Boston, Massachusetts 02210 or by
calling toll free 1-800-872-8037. Shareholder inquiries with respect to the
Acquiring Funds may be addressed to each Acquiring Fund at The SunAmerica
Center, 733 Third Avenue, New York, NY 10017-3204 or by calling toll free 1-800-
858-8850.
THE REORGANIZATIONS
General
Under each Plan, the applicable Acquiring Fund will acquire substantially
all of the assets, and assume substantially all of the liabilities, of the
respective Acquired Fund solely in exchange for an equal aggregate value of
Corresponding Shares of such Acquiring Fund. Upon receipt by an Acquired Fund
of Corresponding Shares, such Acquired Fund will distribute such Corresponding
Shares to its shareholders, as described below. All issued and outstanding
shares of the Acquired Funds will be cancelled, and each Acquired Fund's
existence as a separate investment portfolio of North American Funds will be
terminated as soon as practicable following consummation of the respective
Reorganization.
Generally, the assets transferred by an Acquired Fund to the respective
Acquiring Fund will include all investments of such Acquired Fund held in its
portfolio as of the Valuation Time (as defined in the Plans) and all other
assets of such Acquired Fund as of such time.
In the course of each Reorganization, each holder, if any, of Class A,
Class B, Class C, Institutional Class II and Institutional Class I shares of an
Acquired Fund will receive Class A, Class B, Class II, Class Z and Class I
Corresponding Shares, respectively, of the respective Acquiring Fund. No sales
charges will be imposed on the Corresponding Shares issued in connection with
the Reorganizations.
Each Acquired Fund will distribute the Corresponding Shares received by it
in connection with its Reorganization pro rata to its shareholders in exchange
for such shareholders' proportional interests in such Acquired Fund. The
Corresponding Shares received by an Acquired Fund's shareholders will have the
same
-53-
aggregate net asset value as each such shareholder's interest in such
Acquired Fund as of the Valuation Time. See "-- Terms of the Plans -- Valuation
of Assets and Liabilities" for information concerning the calculation of net
asset value.
Since the Corresponding Shares will be issued at net asset value in
exchange for the net assets of an Acquired Fund having a value equal to the
aggregate net asset value of the shares of such Acquired Fund as of the
Valuation Time, the net asset value per share of the respective Acquiring Fund
should remain virtually unchanged solely as a result of the applicable
Reorganization. Thus, the Reorganizations should not result in dilution of the
net asset value of the Acquired Funds or the Acquiring Funds immediately
following consummation of the Reorganizations. However, as a result of the
Reorganizations, a shareholder of an Acquired Fund would hold a smaller
percentage of ownership in the respective Acquiring Fund than he or she did in
the Acquired Fund prior to the Reorganizations. In addition, a shareholder of
an Acquired Fund may end up with a different number of shares compared to what
he or she originally held, but the total dollar value of shares held will remain
the same.
If the shareholders of the Acquired Funds approve the Reorganizations at
the Meeting, all required regulatory approvals are obtained, and certain
conditions are either met or waived, it is expected that the Reorganizations
will take place during the fourth calendar quarter of 2001. One Reorganization
is not dependent on the consummation of any other Reorganization. If an
Acquired Fund's shareholders do not approve the respective Reorganization, the
NAF Board will consider other possible courses of action which may be in the
best interests of shareholders.
Terms of the Plans
The following is a summary of the significant terms of the Plans. This
summary is qualified in its entirety by reference to the Plans, a form of which
is attached hereto as Exhibit II.
Valuation of Assets and Liabilities
-----------------------------------
The respective assets and liabilities of the Acquired Funds and the
Acquiring Funds will be valued as of the Valuation Time. The assets in each
Fund will be valued according to the procedures set forth under "Transaction
Policies--Valuation of Shares" and "Determination of Net Asset Value" in the
Acquiring Funds Prospectus and the Acquiring Funds Statement, respectively.
Purchase orders for an Acquired Fund's shares which have not been confirmed as
of the Valuation Time will be treated as assets of such Acquired Fund for
purposes of the respective Reorganization; redemption requests with respect to
an Acquired Fund's shares which have not settled as of the Valuation Time will
be treated as liabilities of such Acquired Fund for purposes of the respective
Reorganization.
Issuance and Distribution of Corresponding Shares
-------------------------------------------------
On the next full business day following the Valuation Time (the "Closing
Date"), each Acquiring Fund will issue to the respective Acquired Fund a number
of full and fractional Corresponding Shares the aggregate net asset value of
which will equal the aggregate net asset value of shares of such Acquired Fund
as of the Valuation Time. Such Acquired Fund will then distribute the
Corresponding Shares received by it pro rata to its shareholders of record as of
the Valuation Time in exchange for such shareholders' proportional interests in
such Acquired Fund. Such issuance and distribution will be done as follows:
each holder, if any, of Class A, Class B, Class C, Institutional Class II and
Institutional Class I shares of an Acquired Fund will receive Class A, Class B,
Class II, Class Z and Class I Corresponding Shares, respectively, of the
respective Acquiring Fund. The Corresponding Shares received by an Acquired
Fund's shareholder will have the same aggregate net asset value as such
shareholder's interest in such Acquired Fund as of the Valuation Time.
Expenses
--------
All costs of the Reorganizations will be borne by AIG or an affiliate
thereof, regardless of whether the Reorganizations are consummated. No portion
of the expenses of the Reorganizations will be borne directly or indirectly by
the Funds or their shareholders.
-54-
Required Approvals
------------------
The completion of each Reorganization is conditioned upon, among other
things, the receipt of certain regulatory approvals. In addition, the
Declaration of Trust of North American Funds (as amended to date) requires
approval of each Reorganization by the affirmative vote of the respective
Acquired Fund's shareholders representing no less than a majority of the
outstanding voting securities of that Fund, voting together as a single class,
cast at a meeting at which a quorum is present. "Majority" for this purpose
under the Investment Company Act means the lesser of (i) more than 50% of the
outstanding shares of the applicable Acquired Fund and (ii) 67% or more of the
shares of that Acquired Fund represented at the Meeting if more than 50% of such
shares are represented.
Amendments and Conditions
-------------------------
The Plans may be amended at any time prior to the Closing Date with respect
to any of the terms therein. The obligations of each Acquired Fund and
Acquiring Fund pursuant to the respective Plan are subject to various
conditions, including the requisite approval of the respective Reorganization by
such Acquired Fund's shareholders, the receipt of an opinion of counsel as to
tax matters and the confirmation by the respective Acquired Fund and Acquiring
Fund of the continuing accuracy of their respective representations and
warranties contained in such Plan.
Termination, Postponement and Waivers
-------------------------------------
Each Plan may be terminated, and the respective Reorganization abandoned at
any time, whether before or after adoption thereof by the respective Acquired
Fund's shareholders, prior to the Closing Date or the Closing Date may be
postponed: (i) by mutual agreement of the NAF Board and the SunAmerica Board;
(ii) by an Acquired Fund if any condition to such Acquired Fund's obligations
has not been fulfilled or waived; or (iii) by an Acquiring Fund if any condition
to such Acquiring Fund's obligations has not been fulfilled or waived.
NAF Board Considerations: Potential Benefits to Shareholders as a Result of the
Reorganizations
In approving the Reorganizations, based upon their evaluation of all
relevant information, and after meeting with counsel to the NAF Independent
Trustees regarding the legal issues involved, the NAF Board considered that,
following each Reorganization, shareholders of an Acquired Fund will remain
invested in a mutual fund which has substantially the same investment objective
and similar, though not identical, investment techniques. In addition, the NAF
Board considered the following, among other things:
. Terms and conditions of the Reorganizations.
. The fact that the Acquiring Funds will assume substantially all the
liabilities of the respective Acquired Funds.
. The historical performance records of the Acquired Funds and Acquiring
Funds.
. The gross and net expense ratios of the Acquired Funds and the Acquiring
Funds before the Reorganizations and the estimated expense ratios of the
Combined Funds on a pro forma basis after the Reorganizations.
. The relative annual rates of advisory fees payable by the Acquired and
Acquiring Funds.
. The fact that the Reorganizations would not result in dilution of Acquired
Fund shareholders' interests.
. The fact that AGAM has agreed to waive fees or reimburse expenses for the
Acquired Funds, but there is no assurance that the current fee waivers and
expense reimbursements would continue after February 28, 2002.
-55-
. The fact that SAAMCo has contractually agreed to waive fees or reimburse
expenses for certain classes of Acquiring Fund shares.
. The investment experience, expertise and resources of SAAMCo and other
service providers to the Acquiring Funds in the areas of distribution,
investment, and shareholder services.
. The service and distribution resources available to the Acquiring Funds and
compatibility of the Funds' service features available to shareholders.
. The fact that each Reorganization has been structured with the intention
that it qualify for Federal income tax purposes as a tax-free reorganization
under the Code.
. The fact that AIG or an affiliate thereof will bear all expenses relating to
the Reorganizations.
. The effect of the Reorganizations on Acquired Fund shareholders and the
value of their interests.
. Alternatives available to Acquired Fund shareholders, including the ability
to redeem their shares.
With respect to the NAF High Yield Bond Fund and NAF Strategic Income Fund,
the NAF Board considered that the respective Acquiring Fund will change its
investment objective and policies to more closely resemble those of each
Acquired Fund, and will retain New AGIM as subadviser, subject to approval by
Acquiring Fund shareholders. As a condition to each Reorganization, the
respective Acquiring Fund will seek shareholder approval of a change in
investment objective to align the investment strategies and techniques of the
High Yield Bond and Strategic Income Combined Funds to those of the respective
Acquired Funds. The SunAmerica Board has already approved the necessary
changes.
In addition, the SunAmerica Board has approved the retention of New AGIM to
serve as subadviser to the Tax Exempt Insured Combined Fund upon consummation of
the applicable Reorganization, subject to approval of the shareholders of the
SunAmerica Tax Exempt Insured Fund.
In addition, the NAF Board considered the potential for reduced operating
expenses due to economies of scale following the Reorganizations. The net assets
of each Acquiring Fund (other than the Corebond Combined Fund) will increase by
the amount of the net assets of each of the respective Acquired Funds at the
time of the Reorganizations. Since the fixed expenses of the Combined Funds
(other than the Core Bond Combined Fund) will be spread over a larger asset
base, management anticipates that shareholders of these Funds are likely to
benefit from reduced overall operating expenses over time as a result of
economies of scale expected after the Reorganizations. With respect to the High
Yield Bond Combined Fund, this increase in net assets may cause a lower advisory
fee rate to apply in accordance with the applicable advisory fee break point
schedule. Although the operating expenses of certain Combined Funds on a pro
forma basis (as though the Reorganizations were completed on March 31, 2001) are
higher than those of the respective Acquired Fund, this is after taking into
account certain fee waivers and expense reimbursements that are in place with
respect to the Acquired Funds through February 28, 2002. There can be no
assurance that AGAM would continue with these waivers and reimbursements past
that date.
The table below sets forth the total net assets of each of the Acquiring
Funds and each of the Acquired Funds, in each case as of March 31, 2001, as well
as the net assets of each of the Combined Funds, on a pro forma basis, assuming
the Reorganizations had been completed on such date. The SunAmerica Core Bond
Fund is newly created and has not yet commenced operations. Accordingly, it had
not net assets as of such date.
-56-
Total Net Assets
as of March 31, 2001
NAF Core Bond Fund SunAmerica Core Bond Fund Pro Forma Core Bond Combined Fund
Class A $4,515,465 Class A N/A Class A $4,515,465
Class B $4,249,519 Class B N/A Class B $4,249,519
Class C $3,013,782 Class II N/A Class II $3,013,782
Institutional Class I N/A Class I $22,083,376
Class I $22,083,376 Class Z N/A Class Z $321,862,517
Class II $321,862,517 Total N/A Total $355,724,659
Total $355,724,659
NAF High Yield Bond Fund SunAmerica High Yield Bond Fund Pro Forma High Yield Combined Fund
Class A $509,518 Class A $52,966,252 Class A $53,475,770
Class B $3,054,455 Class B $67,138,966 Class B $70,193,451
Class C $1,006,996 Class II $20,382,737 Class II $21,389,733
Institutional Total $140,487,955 Class I $ 2,138,250
Class I $2,138,250 Class Z $62,945,618
Class II $62,945,618 Total $210,142,822
Total $69,654,837
NAF Municipal Bond Fund SunAmerica Tax Exempt Insured Fund Pro Forma Tax Exempt Insured Combined Fund
Class A $8,591,093 Class A $72,393,871 Class A $80,952,650
Class B $7,979,498 Class B $16,301,949 Class B $24,251,433
Class C $4,092,241 Class II $720,950 Class II $4,797,799
Total $20,662,832 Total $89,416,770 Total $110,001,882
NAF Strategic Income Fund SunAmerica Diversified Income Fund Pro Forma Strategic Income Combined Fund
Class A $7,497,415 Class A $30,923,542 Class A $38,420,957
Class B $13,313,079 Class B $16,741,565 Class B $30,054,644
Class C $12,646,764 Class II $4,020,990 Class II $16,667,754
Institutional Total $51,686,097 Class I $2,729,718
Class I $2,729,718 Total $87,873,073
Total $36,189,976
NAF U.S. Government Securities SunAmerica U.S. Government Securities Pro Forma U.S. Government Securities
Fund Fund Combined Fund
Class A $33,746,846 Class A $169,523,987 Class A $203,242,514
Class B $9,485,878 Class B $32,085,141 Class B $41,563,059
Class C $7,443,184 Class II $3,302,887 Class II $10,739,825
Institutional Total $214,912,015 Class I $ 0
Class I $0 Total $255,545,398
Total $50,675,908
In addition to the potential economies of scale which may be realized
through combination of the Funds, the NAF Board also considered the advantage of
eliminating the competition and duplication of effort inherent in marketing
funds having similar investment objectives.
The NAF Board considered that certain fixed costs, such as printing of
prospectuses and reports sent to shareholders, legal and audit fees, and
registration fees would be spread across a larger asset base (except for the
Core Bond Combined Fund). Over time, this would tend to lower the expense ratio
borne by shareholders of both the Acquiring Funds and the Acquired Funds. To
illustrate potential benefits to the Acquired Funds as a result of the
Reorganizations, including potential economies of scale, see the total and net
operating expenses, as a percentage of net assets, for the Acquired Funds and
the Acquiring Funds as of March 31, 2001, and the total and net operating
-57-
expenses, as a percentage of net assets, for the Combined Funds, on a pro forma
basis, assuming the Reorganizations had been completed as of such date, under
"Fee Tables" above. In addition, because SunAmerica has broad distribution
channels, it is also possible that the asset base for the Combined Funds will
increase over the long term, which would tend to result in a lower overall
operating expense ratio. Of course, there is no guarantee that such increases
in asset base would in fact occur.
AGAM is contractually obligated to provide the fee reductions and expense
reimbursements referenced in footnote 4 under "Fee Tables" above through
February 28, 2002. If shareholders do not approve the Reorganizations, each
Acquired Fund will continue with its current fee structure except that there is
no assurance that AGAM would continue to provide such fee reductions and
reimbursements past this date. If shareholders approve the Reorganizations, the
respective Combined Funds' expense structure will apply.
Based on the foregoing, together with other factors and information
considered to be relevant and recognizing that there can be no assurance that
any operating efficiencies or other benefits will in fact be realized, the NAF
Board concluded that the Reorganizations present no significant risks or costs
(including legal, accounting and administrative costs) that would outweigh the
benefits discussed above. In connection with the approval of the
Reorganizations, the NAF Board also approved directed brokerage arrangements
with certain brokers to reduce the costs that might otherwise be incurred to
align the portfolios of each of the Acquired Funds with those of the respective
Acquiring Funds to facilitate a smooth transition upon consummation of the
Reorganizations. Because the Acquired Funds and Acquiring Funds have
substantially similar investment objectives and similar investment strategies,
it is not anticipated that the securities held by an Acquired Fund will be sold
in significant amounts in order to comply with the objectives and investment
practices of the respective Acquiring Fund in connection with the applicable
Reorganization. The Acquired Funds will not dispose of assets to an extent or
in a manner that would jeopardize the tax-free nature of the Reorganizations
under the Code. However, the disposition of assets by an Acquired Fund may
result in the realization of taxable gains or losses by Acquired Fund
shareholders.
In approving the Reorganizations, the NAF Board, including all of the NAF
Independent Trustees, determined that each Reorganization is in the best
interests of the respective Acquired Fund and its shareholders. In addition,
the NAF Board, including all of the NAF Independent Trustees, also determined
that the net asset value of the Funds, and therefore the interests of the
shareholders of each Acquired Fund would not be diluted as a result of effecting
the respective Reorganizations, because each such shareholder will receive
Corresponding Shares of the Acquiring Fund having an aggregate net asset value
equal to the aggregate net asset value of his or her shares of the Acquired Fund
outstanding as of the Valuation Time. Consequently, the NAF Board approved the
Plans and directed that each Plan be submitted to the shareholders of each
respective Acquired Fund for approval.
The Board of Trustees of North American Funds unanimously recommends that
the shareholders of each Acquired Fund approve the respective Plan.
The SunAmerica Board has also approved the Plans on behalf of the Acquiring
Funds.
Federal Income Tax Consequences of the Reorganizations
General
-------
Each Reorganization has been structured with the intention that it qualify
for Federal income tax purposes as a tax-free reorganization under Section
368(a) of the Code. As a condition to the closing of each Reorganization, each
of the Acquired Funds and Acquiring Funds will receive an opinion of Shearman &
Sterling, counsel to the Acquiring Funds, substantially to the effect that,
among other things, for Federal income tax purposes, upon consummation of each
Reorganization (i) no gain or loss will be recognized by an Acquired Fund or an
Acquiring Fund as a result of its respective Reorganization, (ii) no gain or
loss will be recognized by a shareholder of an Acquired Fund upon his or her
receipt of Corresponding Shares in the respective Reorganization solely in
exchange for his or her shares of such Acquired Fund, (iii) each Acquired Fund
and each Acquiring Fund will be a "party to a reorganization," (iv) the holding
period of the assets of an Acquired Fund acquired by the respective Acquiring
Fund will include the period during which such assets were held by the Acquired
Fund, (v) the holding period for Corresponding Shares of an Acquiring Fund
received by each shareholder of the respective Acquired Fund in
-58-
exchange for its shares in the Acquired Fund will include the period during
which such shareholder held shares of the Acquired Fund (provided the Acquired
Fund shares were held as capital assets on the date of the exchange), and (vi)
immediately after a Reorganization, the tax basis of the Corresponding Shares
received by shareholders of the respective Acquired Fund in the Reorganization
will be equal, in the aggregate, to the tax basis of the shares of such Acquired
Fund surrendered in exchange therefor. Shearman & Sterling's opinion will be
based upon certain representations made by the parties to the Reorganizations.
An opinion of counsel does not have the effect of a private letter ruling
from the Internal Revenue Service ("IRS") and is not binding on the IRS or any
court. If a Reorganization is consummated but fails to qualify as a
reorganization within the meaning of Section 368 of the Code, the Reorganization
would be treated as a taxable sale of assets followed by a taxable liquidation
of the respective Acquired Fund, and Acquired Fund shareholders would recognize
a taxable gain or loss equal to the difference between their basis in the
Acquired Fund shares and the fair market value of the Corresponding Shares
received.
To the extent an Acquiring Fund has unrealized capital gains at the time of
the respective Reorganization, the respective Acquired Fund's shareholders may
incur taxable gains in the year that such Acquiring Fund realizes and
distributes those gains. This will be true notwithstanding that the unrealized
gains were reflected in the price of such Acquiring Fund's shares at the time
they were exchanged for assets of such Acquired Fund in the respective
Reorganization. Conversely, shareholders of an Acquiring Fund would share in
unrealized capital gains of the respective Acquired Fund after the respective
Reorganization and bear a tax consequence on the subsequent realization of such
gains. Shareholders should consult their tax advisers regarding the effect of
the Reorganizations in light of their individual circumstances. As the
foregoing relates only to Federal income tax consequences, shareholders also
should consult their tax advisers as to the foreign, state, local and other tax
consequences of the Reorganizations.
Status as a Regulated Investment Company
----------------------------------------
The Acquired Funds, the SunAmerica High Income Fund, the SunAmerica Tax
Exempt Insured Fund, the SunAmerica Diversified Income Fund and the SunAmerica
U.S. Government Securities Fund have elected and qualified and the SunAmerica
Core Bond Fund intends to elect and qualify to be taxed as regulated investment
companies under Sections 851-855 of the Code, and, after the Reorganizations,
the Combined Funds intend to continue to operate or continue to operate so as to
qualify as regulated investment companies. An Acquired Fund's existence as a
separate investment portfolio of North American Funds will be terminated as soon
as practicable following the consummation of the applicable Reorganization.
-59-
Capitalization
The following table sets forth the capitalization of each Acquired Fund and
each Acquiring Fund as of March 31, 2001, and the capitalization of each
Combined Fund, on a pro forma basis, as if the Reorganizations had occurred on
that date. As a newly created series of SunAmerica Income Funds, the SunAmerica
Core Bond Fund had no assets as of March 31, 2001.
NAF Core Bond Fund SunAmerica Core Bond Fund
Institutional
Class A Class B Class C Class I Class II Class A Class B Class II Class I Class Z
---------- ---------- ---------- ------------- ------------- ----------- ----------- ----------- -------------------
Total Net
$4,515,465 $4,249,519 $3,013,782 $22,083,376 $321,862,517 N/A N/A N/A N/A N/A
Shares
Outstanding
457,086 430,487 305,287 2,227,897 32,558,483 N/A N/A N/A N/A N/A
Net Asset Value
Per Share
$ 9.88 $ 9.87 $ 9.87 $ 9.91 $ 9.89 N/A N/A N/A N/A N/A
Pro Forma Core Bond Combined Fund
Class A Class B Class II Class I Class Z
---------- ---------- ---------- ------------- -------------
Total Net Shares
$4,515,465 $4,249,519 $3,013,782 $22,083,376 $321,862,517
Shares
Outstanding
457,086 430,487 305,287 2,227,897 32,558,483
Net Asset Value
Per Share
$ 9.88 $ 9.87 $ 9.87 $ 9.91 $ 9.89
NAF High Yield Bond Fund SunAmerica High Income Fund
Institutional Institutional
Class A Class B Class C Class I Class II Class A Class B Class II
---------- ---------- ---------- ------------- ------------- ----------- ------------- ------------
Total Net Shares
$ 509,518 $3,054,455 $1,006,996 $ 2,138,250 $ 62,945,618 $52,966,252 $67,138,996 $20,382,737
Shares
Outstanding
101,296 607,248 199,405 425,099 12,514,039 10,532,517 13,341,244 4,039,070
Net Asset Value
Per Share
$ 5.03 $ 5.03 $ 5.05 $ 5.03 $ 5.03 $ 5.03 $ 5.03 $ 5.05
Pro Forma High Yield Combined Fund
Class A Class B Class II Class I Class Z
----------- ----------- ----------- ---------- -----------
Total Net Shares
$53,475,770 $70,193,451 $21,389,733 $2,138,250 $62,945,618
Shares
Outstanding
10,633,813 13,948,492 4,238,475 425,099 12,514,039
Net Asset Value
Per Share
$ 5.03 $ 5.03 $ 5.05 $ 5.03 $ 5.03
Pro Forma Tax Exempt
NAF Municipal Bond Fund SunAmerica Tax Exempt Insured Fund Insured Combined Fund
Class A Class B Class C Class A Class B Class II Class A Class B Class II
---------- ----------- ----------- ------------- ---------- ----------- ----------- ---------- -----------
Total Net Shares
$8,591,093 $ 7,979,498 $ 4,092,241 $72,393,871 $ 16,301,949 $ 720,950 $80,952,650 $24,251,433 $4,797,799
Shares
Outstanding
857,262 795,479 407,967 5,560,423 1,251,982 55,383 6,217,779 1,862,541 368,505
Net Assets Value
Per Share
$ 10.02 $ 10.03 $ 10.03 $ 13.02 $ 13.02 $ 13.02 $ 13.02 $ 13.02 $ 13.02
-60-
NAF Strategic Income Fund SunAmerica Diversified Income Fund
Institutional
Class A Class B Class C Class I Class A Class B Class II
---------- ----------- ----------- ------------- ----------- ----------- ----------
Total Net Shares
$7,497,415 $13,313,079 $12,646,764 $ 2,729,718 $30,923,542 $16,741,565 $4,020,990
Shares
Outstanding
2,224,752 3,938,781 3,741,646 810,005 9,178,230 4,959,910 1,190,805
Net Asset Value
Per Share
$ 3.37 $ 3.38 $ 3.38 $ 3.37 $ 3.37 $ 3.38 $ 3.38
Pro Forma Strategic Income Combined Fund
Class A Class B Class II Class I
----------- ----------- ----------- ------
Total Net Shares
$38,420,957 $30,054,644 $16,667,754 $2,729,718
Shares
Outstanding
11,402,982 8,898,691 4,932,451 810,005
Net Asset Value
Per Share
$ 3.37 $ 3.38 $ 3.38 $ 3.37
NAF U.S. Government Securities Fund SunAmerica U.S. Government Securities Fund
Institutional
Class A Class B Class C Class I Class A Class B Class II
---------- ----------- ----------- ------------- ----------- ----------- ----------
Total Net Shares
$33,746,846 $9,485,878 $7,443,184 N/A $169,523,987 $32,085,141 $3,302,887
Shares
Outstanding
3,434,666 965,374 757,505 N/A 19,032,935 3,602,311 370,663
Net Asset Value
Per Share
$ 9.83 $ 9.83 $ 9.83 N/A $ 8.91 $ 8.91 $ 8.91
Pro Forma U.S. Government Securities Combined Fund
Institutional
Class A Class B Class II Class I
---------- ----------- ----------- -------------
Total Net Shares
$203,242,514 $41,563,059 $10,739,825 N/A
Shares
Outstanding
22,817,281 4,666,050 1,205,336 N/A
Net Asset Value
Per Share
$ 8.91 $ 8.91 $ 8.91 N/A
The table set forth above should not be relied upon to reflect the number
of shares to be received in the Reorganizations; the actual number of shares to
be received will depend upon the net asset value and number of shares
outstanding of each Fund at the time of the applicable Reorganization.
-61-
GENERAL
-------
INFORMATION CONCERNING THE MEETING
Date, Time and Place of Meeting
The Meeting will be held on November 7, 2001, at the principal executive
office of North American Funds, 286 Congress Street, Boston, Massachusetts 02210
at 10:00 a.m., Eastern time.
Solicitation, Revocation and Use of Proxies
A shareholder executing and returning a proxy has the power to revoke it at
any time prior to its exercise by executing a superseding proxy (i.e., later-
dated and signed), by submitting a notice of revocation to the Secretary of
North American Funds or by subsequently registering his or her vote by telephone
or via the Internet. In addition, although mere attendance at the Meeting will
not revoke a proxy, a shareholder present at the Meeting may withdraw his or her
proxy and vote in person.
All shares represented by properly executed proxies received at or prior to
the Meeting, unless such proxies previously have been revoked, will be voted at
the Meeting in accordance with the directions on the proxies; if no direction is
indicated on a properly executed proxy, such shares will be voted "FOR" approval
of the New Investment Advisory Agreement, the New Subadvisory Agreement and the
respective Plan.
It is not anticipated that any matters other than the approval of the New
Investment Advisory Agreement, the New Subadvisory Agreement and approval of the
respective Plan will be brought before the Meeting. If, however, any other
business properly is brought before the Meeting, proxies will be voted in
accordance with the judgment of the persons designated on such proxies.
Record Date and Outstanding Shares
Only holders of record of shares of the Acquired Funds at the close of
business on September 17, 2001 (the "Record Date") are entitled to vote at the
Meeting or any adjournment thereof. The following chart sets forth the shares
of each class of the Acquired Funds issued and outstanding and entitled to vote
at the close of business on the Record Date.
NAF Fund Class A Shares Class B Shares Class C Shares Class II Shares Institutional
Class I Shares
- --------------------------------------------------------------------------------------------------------------------------
NAF Core Bond
Fund
- --------------------------------------------------------------------------------------------------------------------------
NAF High Yield
Bond Fund
- --------------------------------------------------------------------------------------------------------------------------
NAF Municipal N/A N/A
Bond Fund
- --------------------------------------------------------------------------------------------------------------------------
NAF Strategic N/A
Income Fund
- --------------------------------------------------------------------------------------------------------------------------
NAF U.S. N/A
Government
Securities Fund
- --------------------------------------------------------------------------------------------------------------------------
-62-
Security Ownership of Certain Beneficial Owners and Management of the Funds
To the knowledge of each Fund, as of the August 31, 2001, the following
shareholders, if any, owned more than 5% of the outstanding voting securities of
such Fund:
Name of Fund Name and Address Percentage and type of Percentage of class of
of Shareholder ownership shares after the
Reorganization on a pro
forma basis*
NAF Core Bond Fund [Insert [Insert % and type of [Insert %]
shareholder(s)] ownership]
NAF High Yield Bond Fund [Insert [Insert % and type of [Insert %]
shareholder(s)] ownership]
NAF Municipal Bond Fund [Insert [Insert % and type of [Insert %]
shareholder(s)] ownership]
NAF Strategic Income Fund [Insert [Insert % and type of [Insert %]
shareholder(s)] ownership]
NAF U.S. Government Securities [Insert [Insert % and type of [Insert %]
Fund shareholder(s)] ownership]
Sun America High Income Fund [Insert [Insert % and type of [Insert %]
shareholder(s)] ownership]
SunAmerica Tax Exempt Insured [Insert [Insert % and type of [Insert %]
Fund shareholder(s)] ownership]
SunAmerica Diversified Income [Insert [Insert % and type of [Insert %]
Fund shareholder(s)] ownership]
SunAmerica U.S. Government [Insert [Insert % and type of [Insert %]
Securities Fund shareholder(s)] ownership]
*Assuming that [shareholder] owns the same number of shares of the [Fund]
on the date of consummation of the applicable Reorganization as on August 31,
2001, [shareholder] will own of record, on a pro forma basis, ______ shares of
the [Fund] after completion of such Reorganization.
At August 31, 2001, the directors and officers of North American Funds as a
group (___ persons) owned an aggregate of less than 1% of the outstanding shares
of each Acquired Fund and owned an aggregate of less than 1% of the outstanding
shares of common stock of North American Funds. [confirm]
At August 31, 2001, the directors and officers of SunAmerica Income as a
group (8 persons) owned an aggregate of less than 1% of the outstanding shares
of each Acquiring Fund and owned an aggregate of less than 1% of the outstanding
shares of common stock of SunAmerica Income Funds. [confirm]
Voting Rights and Required Vote
Each share of an Acquired Fund is entitled to one vote, with fractional
shares voting proportionally. Shareholders of each Acquired Fund vote
separately on whether to approve the New Investment Advisory
-63-
Agreement and approval with respect to one Acquired Fund is not dependent on
approval with respect to any other Acquired Fund. Shareholders of each Acquired
Fund also vote separately on whether to approve the New Subadvisory Agreement
and approval with respect to one Acquired Fund is not dependent upon approval
with respect to any other Acquired Fund. Approval of the Plan with respect to
one Acquired Fund is not dependent on approval of the Plan with respect to any
other Acquired Fund. Approval of the New Investment Advisory Agreement and each
Plan with respect to an Acquired Fund requires the affirmative vote of a
majority of the outstanding voting securities of that Fund, voting together as a
single class, cast at a meeting at which a quorum is present. "Majority" for
this purpose under the Investment Company Act means the lesser of (i) more than
50% of the outstanding shares of the applicable Acquired Fund and (ii) 67% or
more of the shares of that Acquired Fund represented at the Meeting if more than
50% of such shares are represented.
Broker-dealer firms holding shares of any of the Acquired Funds in "street
name" for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares before
the Meeting. Broker-dealer firms will not be permitted to grant voting
authority without instructions with respect to the approval of the Plans. Each
of the Acquired Funds will include shares held of record by broker-dealers as to
which such authority has been granted in its tabulation of the total number of
shares present for purposes of determining whether the necessary quorum of
shareholders exists. Properly executed proxies that are returned but that are
marked "abstain" or with respect to which a broker-dealer has declined to vote
on any proposal ("broker non-votes") will be counted as present for the purposes
of determining a quorum. Assuming the presence of a quorum, abstentions and
broker non-votes will have the same effect as a vote against approval of the New
Investment Advisory Agreement or of the applicable Plan, as the case may be.
A quorum for each Acquired Fund for purposes of the Meeting consists of
thirty percent of the shares of such Acquired Fund entitled to vote at the
Meeting, present in person or by proxy. If, by the time scheduled for each
Meeting, a quorum of the applicable Acquired Fund's shareholders is not present
or if a quorum is present but sufficient votes in favor of approval of the New
Investment Advisory Agreement or of the applicable Plan are not received from
the shareholders of the respective Acquired Fund, the persons named as proxies
may propose one or more adjournments of such Meeting to permit further
solicitation of proxies from shareholders. Any such adjournment will require
the affirmative vote of less than thirty percent of the shares of the applicable
Acquired Fund present in person or by proxy and entitled to vote at the session
of the Meeting to be adjourned. The persons named as proxies will vote in favor
of any such adjournment if they determine that adjournment and additional
solicitation are reasonable and in the interests of the shareholders of such
Acquired Fund.
The votes of shareholders of the Acquiring Funds are not being solicited by
this Proxy Statement and Prospectus and are not required to carry out the
respective Reorganizations.
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form of
proxy, the accompanying Notice and this Proxy Statement and Prospectus will be
borne by AIG or an affiliate thereof. Such expenses are currently estimated to
be approximately $______ in the aggregate.
AIG or an affiliate thereof will reimburse banks, brokers and others for
their reasonable expenses in forwarding proxy solicitation materials to
beneficial owners of the Acquired Funds and will reimburse certain persons that
it may employ for their reasonable expenses in assisting in the solicitation of
proxies from such beneficial owners.
In order to obtain the necessary quorums at the Meetings, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview by
officers of the Acquired Funds. North American Funds has retained Georgeson
Shareholder, 17 State Street, New York, New York 10004 to aid in the
solicitation of proxies at a cost estimated not to exceed $16,600, plus out-of-
pocket expenses. The cost of soliciting proxies will be borne by AIG.
This Proxy Statement and Prospectus does not contain all of the information
set forth in the registration statements and the exhibits relating thereto which
North American Funds and SunAmerica Income Funds have filed
-64-
on behalf of their respective Funds with the Commission under the Securities Act
and the Investment Company Act, to which reference is hereby made.
The Funds are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the Investment Company Act, and in
accordance therewith file reports and other information with the Commission.
Proxy material, reports and other information filed by the Funds (or by North
American Funds on behalf of the Acquired Funds or SunAmerica Income Funds on
behalf of the Acquiring Funds) can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the New York Regional Office of the Commission at
Seven World Trade Center, New York, New York 10048. Copies of such materials
also can be obtained by mail from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a web
site (http://www.sec.gov) that contains the Statements of Additional Information
and Prospectuses of the Acquired Funds and Acquiring Funds, as well as other
material incorporated by reference and other information regarding the Funds.
LEGAL PROCEEDINGS
There are no material legal proceedings to which any of the Funds is a
party.
LEGAL OPINIONS
Certain legal matters in connection with the issuance of Corresponding
Shares have been passed upon by Robert M. Zakem, Esq., General Counsel for
SAAMCo. Certain tax matters in connection with the Reorganizations will be
passed upon for the Funds by Shearman & Sterling, 599 Lexington Avenue, New
York, New York 10022, counsel for the Acquiring Funds.
EXPERTS
The financial highlights of the Acquired Funds and Acquiring Funds included
in this Proxy Statement and Prospectus have been so included in reliance on the
reports of ________________________, independent auditors (and _____ for the NAF
High Yield Bond Fund), given on their authority as experts in auditing and
accounting. The principal business address of ________________________ is
_____________________ .
SHAREHOLDER PROPOSALS
A shareholder proposal intended to be presented at any subsequent meeting
of shareholders of an Acquired Fund must be received by such Acquired Fund in a
reasonable time before the solicitation by the Board of Trustees of North
American Funds relating to such meeting is to be made in order to be considered
in such Acquired Fund's proxy statement and form of proxy relating to the
meeting. If proposals Nos. 2(a) - (e) are approved at the Meeting, there will
likely not be any future shareholder meetings of the Acquired Funds.
By Order of the Board of Trustees of North
American Funds
John I. Fitzgerald
_____________________________________
Secretary, North American Funds
-65-
SUBJECT TO COMPLETION
STATEMENT OF ADDITIONAL INFORMATION
SUNAMERICA INCOME FUNDS
733 Third Avenue, Third Floor
New York, NY 10017
(800) 858-8850
_________
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Proxy Statements and Prospectuses (the "Proxy
Statements and Prospectuses"), each dated September __, 2001, which have been
filed with the Securities and Exchange Commission by SunAmerica Income Funds
(sometimes referred to herein as the "Registrant") with respect to the matters
described in "General Information" below. Copies of the Proxy Statements and
Prospectuses may be obtained at no charge upon request by writing to the
Registrant at the address indicated above or by calling toll-free 1-800-858-
8850. This Statement of Additional Information has been incorporated by
reference into each Proxy Statement and Prospectus.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Proxy Statements and
Prospectuses.
Further information about the Acquiring Funds is contained in the Acquiring
Funds' Preliminary Prospectus and Preliminary Statement of Additional
Information, each subject to completion and dated August 14, 2001, and the
Annual Reports to Shareholders of the Existing Acquiring Funds (as defined
below) for the year ended March 31, 2000 and the Semi-Annual Report to
Shareholders of the Existing Acquiring Funds for the six months ended September
30, 2001. Further information about the Acquired Funds is contained in the
Acquired Funds' Prospectuses and Statement of Additional Information, each dated
March 1, 2001, the Annual Report to Shareholders of the Acquired Funds for the
year ended October 31, 2000 and the Semi-Annual Report to Shareholders of the
Acquired Funds for the six months ended April 30, 2001.
The following documents are incorporated herein by reference and accompany
this Statement of Additional Information:
. The Statement of Additional Information of the Acquiring Funds, dated
September [20], 2001.
. The Annual Report of the Existing Acquiring Funds for the year ended
March 31, 2001.
. The combined Statement of Additional Information of the Acquired Funds,
dated March 1, 2001.
. The Annual Report to Shareholders of the Acquired Funds for the year
ended October 31, 2000.
. The Semi-Annual Report to Shareholders of the Acquired Funds for the six
months ended April 30, 2001.
The date of this Statement of Additional Information is September __,
2001.
The Securities and Exchange Commission maintains a web site
(http://www.sec.gov) that contains the prospectuses and combined statements of
additional information of the Funds, other material incorporated by reference
and other information regarding the Funds.
TABLE OF CONTENTS
General Information......................................................... B-3
Financial Statements........................................................ B-4
NAF Strategic Income Fund and SunAmerica Diversified Income Fund
Pro Forma Combined Statement of Assets and Liabilities (unaudited) as of
March 31, 2001........................................................... B-5
Pro Forma Combined Statement of Operations (unaudited) as of
March 31, 2001........................................................... B-7
Pro Forma Combined Schedule of Investments (unaudited) as of
March 31, 2001........................................................... B-8
Notes to Pro Forma Financial Statements................................... B-15
NAF High Yield Bond Fund and SunAmerica High Income Fund
Pro Forma Combined Statement of Assets and Liabilities (unaudited) as of
March 31, 2001........................................................... B-18
Pro Forma Combined Statement of Operations (unaudited) as of
March 31, 2001........................................................... B-20
Pro Forma Combined Schedule of Investments (unaudited) as of
March 31, 2001........................................................... B-21
Notes to Pro Forma Financial Statements................................... B-28
NAF Municipal Bond Fund and SunAmerica Tax Exempt Insured Fund
Pro Forma Combined Statement of Assets and Liabilities (unaudited) as of
March 31, 2001........................................................... B-31
Pro Forma Combined Statement of Operations (unaudited) as of
March 31, 2001........................................................... B-33
Pro Forma Combined Schedule of Investments (unaudited) as of
March 31, 2001........................................................... B-34
Notes to Pro Forma Financial Statements................................... B-38
NAF U.S. Government Securities Fund and SunAmerica U.S. Government Securities
Fund
Pro Forma Combined Statement of Assets and Liabilities (unaudited) as of
March 31, 2001........................................................... B-40
Pro Forma Combined Statement of Operations (unaudited) as of
March 31, 2001........................................................... B-42
Pro Forma Combined Schedule of Investments (unaudited) as of
March 31, 2001........................................................... B-43
Notes to Pro Forma Financial Statements................................... B-48
GENERAL INFORMATION
The shareholders of each separate investment portfolio of North American
Funds, a Massachusetts business trust set forth below, (each an "Acquired Fund",
collectively, the "Acquired Funds"), are being asked to approve or disapprove a
new investment advisory agreement (the "New Investment Advisory Agreement")
between American General Asset Management Corp. ("AGAM") and North American
Funds on behalf of each of the Acquired Funds, the terms of which are the same
in all material respects as the previous investment advisory agreement with
AGAM. In addition, shareholders of each Acquired Fund are being asked to approve
or disapprove an Agreement and Plan of Reorganization (each a "Plan") between
each of the Acquired Funds and the respective investment portfolio of SunAmerica
Income Funds, a Massachusetts business trust, set forth below (each an
"Acquiring Fund," and collectively, the "Acquiring Funds"):
Acquired Fund Acquiring Fund
- ------------------------------------------------------- ---------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Core Bond Fund (the "NAF Core Bond Fund") New SunAmerica Core Bond Fund
- ------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund (the "NAF High Yield Bond Fund") SunAmerica High Income Fund
- ------------------------------------------------------------------------------------------------------------------
Municipal Bond Fund (the "NAF Municipal Bond Fund") SunAmerica Tax Exempt Insured Fund
- ------------------------------------------------------------------------------------------------------------------
Strategic Income Fund (the "NAF Strategic Income Fund") SunAmerica Diversified Income Fund
- ------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund
(the "NAF U.S. Government Securities Fund") SunAmerica U.S. Government Securities Fund
- ------------------------------------------------------------------------------------------------------------------
The SunAmerica High Income Fund, SunAmerica Tax Exempt Insured Fund,
SunAmerica Diversified Income Fund and SunAmerica U.S. Government Securities
Fund of SunAmerica Income Funds are sometimes referred to herein as the
"Existing Acquiring Funds."
Each Plan provides for the acquisition by an Acquiring Fund of
substantially all of the assets, and assumption of substantially all of the
liabilities, of the respective Acquired Fund, solely in exchange for an equal
aggregate value of newly issued shares (the "Corresponding Shares") of such
Acquiring Fund. Each such transaction is referred to herein as a
"Reorganization" and collectively, as the "Reorganizations." Immediately
thereafter, and as part of the respective Reorganization, such Acquired Fund
will distribute the Corresponding Shares received in such Reorganization to its
shareholders. The consummation of one Reorganization is not conditioned upon
the consummation of any other Reorganization. The Acquired Funds and the
Acquiring Funds are sometimes collectively referred to herein as the "Funds."
Shareholders will receive the same class of Corresponding shares as the
shares of the respective Acquired Fund held by them immediately prior to the
applicable Reorganization although the name of the class may be different. For
example, if a shareholder owns Class C or Institutional Class II shares of an
Acquired Fund, he or she will receive Class II or Class Z shares of the
respective Acquiring Fund. The aggregate net asset value of the Corresponding
Shares will equal the aggregate net asset value of a shareholder's Acquired Fund
shares. This means that a shareholder may end up with a different number of
shares compared to the number that he or she originally held, but the total
dollar value of the shares will be the same.
A Joint Special Meeting of the Acquired Funds' shareholders to consider the
New Investment Advisory Agreement and the Reorganizations will be held at the
principal executive offices of North American Funds, 286 Congress Street,
Boston, Massachusetts 02210 on November 7, 2001, at 10:00 a.m., Eastern Time.
The approximate mailing date of the Proxy Statement and Prospectus is September
[27], 2001.
B-3
For further information about the Reorganizations, see the Proxy Statements and
Prospectuses.
FINANCIAL STATEMENTS
Unaudited Pro forma financial statements reflecting consummation of each
Reorganization are included herein.
Acquired Funds
Audited financial statements and accompanying notes for the fiscal year
ended October 31, 2000 for the Acquired Funds and the independent auditor's
report thereon are incorporated herein by reference from the Acquired Funds'
Annual Report to Shareholders, which accompanies this Statement of Additional
Information. Unaudited financial statements and accompanying notes for the six
months ended April 30, 2001 for the Acquired Funds are incorporated herein by
reference from the Acquired Funds' Semi-Annual Report to Shareholders, which
accompanies this Statement of Additional Information.
Audited financial statements and accompanying notes for the fiscal year
ended March 31, 2000 for the Acquiring Funds and the independent auditor's
report thereon are incorporated herein by reference to SunAmerica Income Fund's
Annual Report to Shareholders, which accompanies this Statement of Additional
Information.
Acquiring Funds
Audited financial statements and accompanying notes for the fiscal year
ended March 31, 2001 for the Existing Acquiring Funds and the independent
auditor's report thereon are incorporated herein by reference from the Existing
Acquiring Funds' Annual Report to Shareholders, which accompanies this Statement
of Additional Information.
B-4
SUNAMERICA INCOME FUNDS DIVERSIFIED INCOME FUND@
NORTH AMERICAN FUNDS STRATEGIC INCOME FUND
PRO FORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2001
(unaudited)
North American Fund SunAmerica Income Funds
Strategic Income Diversified Income
Fund Fund
-------------------- ------------------------
<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:
C-1
by the Trustees, by a majority vote of a quorum which consists of
Trustees who were not parties to the action, suit or proceeding; or
if the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion; or
by the Shareholders.
(3) Notwithstanding the provisions of Section 5.1 of the
Registrant's By-Laws, no person shall be entitled to indemnification for any
liability, whether or not there is an adjudication of liability, arising by
reason of willful malfeasance, bad faith, gross negligence or reckless disregard
of duties as described in Section 17(h) and (i) of the Investment Company Act
("Disabling Conduct"). A person shall be deemed not liable by reason of
Disabling Conduct if, either:
(i) a final decision on the merits is made by a court or other body
before whom the proceeding was brought that the person to be indemnified
("Indemnitee") was not liable by reason of Disabling Conduct; or
(ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the Indemnitee was not liable by
reason of Disabling Conduct, is made by either:
(A) a majority of a quorum of Trustees who are neither
"interested persons" of the Registrant, as defined in
section 2(a)(19) of the Investment Company Act, nor
parties to the action, suit or proceeding;
(B) an independent legal counsel in a written opinion.
Expenses, including attorneys' fees, incurred by a Trustee, officer, employee or
agent of the Registrant in defending a civil or criminal action, suit or
proceeding may be paid by the Registrant in advance of the final disposition
thereof if:
(1) authorized in the specific case by the Trustees; and
(2) the Registrant receives an undertaking by or on behalf of the
Trustee, officer, employee or agent of the Registrant to repay the
advance if it is not ultimately determined that such person is
entitled to be indemnified by the Registrant; and
(3) either,
(i) such person provides a security for his undertaking; or
(ii) the Registrant is insured against losses by reason of any lawful
advances; or
C-2
(iii) a determination, based on a review or readily available facts,
that there is reason to believe that such person ultimately will be found
entitled to indemnification, is made by either
(A) A majority of a quorum which consists of Trustees who are
neither "interested persons" of the Registrant, as defined
in section 2(a)(19) of the Investment Company Act, nor
parties to the action, suit or proceeding; or
(B) an independent legal counsel in a written opinion.
The indemnification provided by Section 5.1 of the Registrant's By-Laws shall
not be deemed exclusive of any other rights to which a person may be entitled
under any by-law, agreement, vote of Shareholders or disinterested Trustees or
otherwise, both as to action in his official capacity and as to action in
another application while holding office, and shall continue as to a person who
has ceased to be a Trustee, officer, employee or agent and inure to the benefit
of the heirs, executors and administrators of such person; provided that no
person may satisfy any right of indemnity or reimbursement granted herein or to
which he may be otherwise entitled except out of the property of the Registrant,
and no Shareholder, as such, shall be personally liable with respect to any
claim for indemnity or reimbursement or otherwise.
The Registrant may purchase and maintain insurance on behalf of any person who
is or was a Trustee, officer, employee or agent of the Registrant, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such. However, in no event will the Registrant pay
that portion of insurance premiums, if any, attributable to coverage which would
indemnify any officer or Trustee against liability for Disabling Conduct.
Nothing contained in Section 5.1 of the Registrant's By-laws shall be construed
to protect any Trustee or officer of the Registrant against any liability to the
Registrant or to its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Reference is made to Section 5.3 of the Registrant's Declaration of
Trust which provides that Trustees shall provide for indemnification by the
Registrant of any person who is, or has been a Trustee, officer, employee or
agent of the Registrant against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee, officer, employee or agent and against amounts
paid or incurred by him in the settlement thereof, in such manner as the
Trustees may provide from time to time in the By-Laws of the Registrant.
The words "claim," "action," "suit" or "proceeding" shall apply to all
claims, actions, suits or proceedings (civil, criminal or other, including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
Reference is made to Section 5 of the Distribution Agreement (the
"Distribution Agreement") between SunAmerica Capital Services, Inc. (the
"Distributor") and the Registrant which is set forth below:
C-3
(a) The Registrant will indemnify and hold harmless the Distributor
and each person, if any, who controls the Distributor within the meaning of
the Investment Company Act against any losses, claims, damages or
liabilities to which the Distributor or such controlling person may become
subject, under the Investment Company Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registrant's Registration
Statement, Prospectus or Statement Additional Information or any other
written sales material prepared by the Registrant or the separate
investment portfolios of the Registrant (the "Funds") which is utilized by
the Distributor in connection with the sale of shares of beneficial
interest of a Fund (the "Shares") or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or (in the case of the Registrant's Registration
Statement, Prospectus and Statement of Additional Information) necessary to
make the statement therein not misleading or (in the case of such other
sales material) necessary to make the statements therein not misleading in
the light of the circumstances under which they were made; and will
reimburse the Distributor and each such controlling person for any legal or
other expenses reasonably incurred by the Distributor or such controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Registrant or the
Funds will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made
in such Registration Statement, Prospectus or Statement of Additional
Information in conformity with written information furnished to the
Registrant by the Distributor specifically for use therein; and provided,
further, that nothing in the Distribution Agreement shall be so construed
as to protect the Distributor against any liability to the Registrant or
the Funds, or the security holders of the Funds to which the Distributor
would otherwise be subject by reason of Disabling Conduct. This indemnity
provision will be in addition to any liability which the Registrant may
otherwise have.
(b) The Distributor will indemnify and hold harmless the Registrant,
each of its Trustees and officers and each person, if any, who controls the
Registrant within the meaning of the Investment Company Act, against any
losses, claims, damages or liabilities to which the Registrant or any such
Trustee, officer or controlling person may become subject under the
Investment Company Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registrant's Registration Statement, Prospectus or
Statement of Additional Information or any sales material not prepared by
the Registrant or the Funds which is utilized in connection with the sale
of the Shares or arise out of or are based upon the omissions or the
alleged omission to state therein a material fact required to be stated
therein or (in the case of the Registrant's Registration Statement,
Prospectus and Statement of Additional Information) necessary to make the
statement therein not misleading or (in the case of such other sales
material) necessary to make the statement therein not misleading in the
light of the circumstances under which they were made, in the case of the
Registrant's Registration Statement, Prospectus and Statement of Additional
Information to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in conformity with written information furnished to the
C-4
Registrant by the Distributor specifically for use therein; and the
Distributor will reimburse any legal or other expensed reasonably incurred
by the Registrant or any such Trustee, officer or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action. This indemnity provision will be in addition to any
liability which the Distributor may otherwise have.
Reference is made to Section 7 of the Investment Advisory and
Management Agreement (the "Advisory Agreement") between the Registrant and
SunAmerica Asset Management Corp. ("SAAMCo") which is set forth below.
7. Liability of Adviser. In the absence of Disabling Conduct on the
part of SAAMCo (and its officers, directors, agents, employees, controlling
persons, shareholders and any other person or entity affiliated with SAAMCo)
SAAMCo shall not be subject to liability to the Registrant or to any shareholder
of the Registrant for any act or omission in the course of, or connected with,
rendering services under the Advisory Agreement, including without limitation,
any error of judgment or mistake of law or for any loss suffered by any of them
in connection with the matters to which the Advisory Agreement relates, except
to the extent specified in Section 36(b) of the Investment Company Act
concerning loss resulting from a breach of fiduciary duty with respect to the
receipt of compensation for services. Except for such Disabling Conduct, the
Registrant shall indemnify SAAMCo (and its officers, directors, partners,
agents, employees, controlling persons, shareholders and any other person or
entity affiliated with SAAMCo) (collectively, the "Indemnified Parties") from
any liability arising from SAAMCo's conduct under the Advisory Agreement.
Indemnification to SAAMCo or any of its personnel or affiliates shall
be made when (i) a final decision on the merits rendered, by a court or other
body before whom the proceeding was brought, that the person to be indemnified
was not liable by reason of Disabling Conduct or, (ii) in the absence of such a
decision, a reasonable determination, based upon a review of the facts, that the
person to be indemnified was not liable by reason of Disabling Conduct, by (a)
the vote of a majority of a quorum of the Trustees who are neither "interested
persons" of the Registrant as defined in section 2(a)(19) of the Investment
Company Act nor parties to the proceeding ("disinterested, non-party Trustees")
or (b) an independent legal counsel in a written opinion. The Registrant may, by
vote of a majority of the disinterested, non-party Trustees advance attorneys'
fees or other expenses incurred by an Indemnified Party in defending a
proceeding upon the undertaking by or on behalf of the Indemnified Party to
repay the advance unless it is ultimately determined that he is entitled to
indemnification. Such advance shall be subject to at least one of the following:
(1) the person to be indemnified shall provide a security for his undertaking,
(2) the Registrant shall be insured against losses arising by reason of any
lawful advances, or (3) a majority of a quorum of the disinterested, non-party
Trustees or an independent legal counsel in a written opinion, shall determine,
based on a review of readily available facts, that there is reason to believe
that the person to be indemnified ultimately will be found entitled to
indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act") may be permitted to
Trustees, officers and controlling persons of the Registrant and the principal
underwriter pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than
C-5
the payment by the Registrant of expenses incurred or paid by a Trustee,
officer, or controlling person of the Registrant and the principal underwriter
in connection with the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person or the principal
underwriter in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
ITEM 16. EXHIBITS
Exhibit No.
- -----------
1. (a) Declaration of Trust of the Registrant, as ammended. (1)
2. By-laws of the Registrant. (1)
3. Not applicable.
4. Form of Agreement and Plan of Reorganization (4).
5. Instruments defining rights of shareholders (incorporated by reference
to Exhibits 1 and 2 above).
6. Investment Advisory and Management Agreement between the Registrant
and SunAmerica Asset Management Corp. (2)
7. (a) Distribution Agreement between the Registrant and SunAmerica
Capital Services, Inc. (2)
(b) Form of Dealer Agreement. (3)
8. Directors'/Trustees' Retirement Plan. (3)
9. Custody Agreement between the Registrant and State Street Bank and
Trust Company. (3)
10. (a) Form of Distribution Plan pursuant to Rule 12b-1 (Class A
shares). (2)
(b) Form of Distribution Plan pursuant to Rule 12b-1 (Class B
shares). (2)
(c) Form of Distribution Plan pursuant to Rule 12b-1 (Class II
shares). (2)
(d) Plan pursuant to Rule 18f-3. (3)
11. Opinion and consent of Robert M. Zakem, Esq.(4)
12. (a) Opinion and consent of Shearman & Sterling, counsel to the
Registrant, regarding certain tax matters relating to the
Reorganization between the
C-6
Core Bond Fund of North American Funds and the SunAmerica Core
Bond Fund of SunAmerica Income Funds. (4)
(b) Opinion and consent of Shearman & Sterling, counsel to the
Registrant, regarding certain tax matters relating to the
Reorganization between the High Yield Bond Fund of North American
Funds and the SunAmerica High Income Bond Fund of SunAmerica
Income Funds. (4)
(c) Opinion and consent of Shearman & Sterling, counsel to the
Registrant, regarding certain tax matters relating to the
Reorganization between the Municipal Bond Fund of North American
Funds and the SunAmerica Tax Exempt Insured Fund of SunAmerica
Equity Funds. (4)
(d) Opinion and consent of Shearman & Sterling, counsel to the
Registrant, regarding certain tax matters relating to the
Reorganization between the Strategic Income Fund of North
American Funds and the SunAmerica Diversified Income Fund of
SunAmerica IncomeFunds. (4)
(e) Opinion and consent of Shearman & Sterling, counsel to the
Registrant, regarding certain tax matters relating to the
Reorganization between the U.S. Government Securities Fund of
North American Funds and the SunAmerica U.S. Government
Securities Fund of SunAmerica Income Funds. (4)
13. (a) Transfer Agency and Service Agreement between the
Registrant and State Street Bank and Trust Company. (3)
(b) Service Agreement, as amended, between the Registrant and
SunAmerica Fund Services, Inc. (1)
14. (a) Auditor's Consent. (4)
(b) Auditor's Consent. (4)
15. Not applicable.
16. Power of Attorney.(4)
17. (a) Prospectus, dated September [20], 2001 of SunAmerica Income
Funds (Class A shares, Class B shares, Class II shares,
Class I shares and Class Z shares). (5)
(b) Prospectus dated March 1, 2001 of North American Funds
(Class A shares, Class B shares and Class C shares). (6)
(c) Prospectus dated March 1, 2001 of North American Funds
(Institutional Class I shares). (6)
(d) Prospectus dated March 1, 2001 of North American Funds
(Institutional Class I). (6)
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(e) Statement of Additional Information, dated September [20],
2001 of SunAmerica Income Funds. (5)
(f) Combined Statement of Additional Information dated March 1,
2001 of North American Funds. (6)
(g) Statement of Additional Information dated February 28, 2001
of SunAmerica Style Select Series, Inc. (7)
(h) Combined Semi-Annual Report to Shareholders of North
American Funds for the six-month period ended April 30,
2001. (7)
(i) Combined Annual Report to Shareholders of SunAmerica Income
Funds for the year ended March 1, 2001. (8)
(j) Combined Annual Report to Shareholders of North American
Funds for the year ended October 31, 2000. (9)
(k) President's Letter. (4)
(l) Q&A. (4)
(m) Form of Proxy Cards.*
* Filed herewith.
(1) Previously filed with Post-Effective Amendment No. 20 to the Registrant's
Registration Statement on Form N-1A (File No. 33-6502) on Jyly 27, 1995,
and incorporated herein by this reference.
(2) Previously filed with Post-Effective Amendment No. 6 to the Registrant's
Registration Statement on Form N-1A (File No. 33-6502) on June 1, 1999, and
incorporated herein by this reference.
(3) Previously filed with Post-Effective Amendment No. 19 to the Registrant's
Registration Statement on Form N-1A (File No. 33-6502) on July 19, 1996,
and incorporated herein by this reference.
(4) To be filed by amendment.
(5) Previously filed with Post-Effective Amendment No. 29 to the Registrant's
Registration Statement on Form N-1A (File No. 33-6502) on September [20],
2001, and incorporated herein by this reference.
(6) Previously filed with Post-Effective Amendment No. 35 to North American
Funds' Registration Statement on Form N-1A (File No. 33-27958) on March 1,
2001, and incorporated herein by this reference.
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(7) Previously filed on Form N-30D of North American Funds (File No. 811-05797)
on July 3, 2001, and incorporated herein by this reference.
(8) Previously filed on Form N-30D of SunAmerica Income Funds (File No. 811-
04708) on May 30, 2001, and incorporated herein by this reference.
(9) Previously filed on Form N-30D of North American Funds (File No. 811-05797)
on January 17, 2001, and incorporated herein by this reference.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant agrees to prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this Registration Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(b) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (a) above will be filed as part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act, each post-
effective amendment shall be deemed to be a new registration statement for the
securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
(c) The undersigned Registrant undertakes to file, by post-effective
amendment, the opinions of counsel received as to certain tax matters, within a
reasonable time after receipt of such opinion.
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SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the city of New York, and State of
New York, on the 16th day of August, 2001.
SUNAMERICA INCOME FUNDS
(Registrant)
By: /S/ Peter A. Harbeck
----------------------
Peter A. Harbeck,
President and Trustee
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signatures Title Date
- ---------- ----- ----
/S/ Peter A. Harbeck President and Trustee (Principal Executive Officer) August 16, 2001
- ---------------------------
Peter A. Harbeck
/S/ Peter C. Sutton Treasurer (Principal Financial and Accounting Officer) August 16, 2001
- ---------------------------
Peter C. Sutton
Trustee
- ---------------------------
S. James Coppersmith
/S/ Samuel M. Eisenstat Trustee August 16, 2001
- ---------------------------
Samuel M. Eisenstat
/S/ Stephen J. Gutman Trustee August 16, 2001
- ---------------------------
Stephen J. Gutman
/S/ Sebastiano Sterpa Trustee August 16, 2001
- ---------------------------
Sebastiano Sterpa
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EXHIBIT INDEX
Exhibit No.
- -----------
17. (m) Form of Proxy Cards.