<PAGE> 1
As filed with the Securities and Exchange Commission on February 29, 1996
File Nos. 2-86188; 811-3836
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 25 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
Amendment No. 25 [X]
(Check appropriate box or boxes)
ANCHOR SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
The SunAmerica Center
733 Third Avenue - 3rd Floor
New York, NY 10017-3204
(Address of Principal Executive Office)(Zip Code)
Registrant's telephone number, including area code: (800) 858-8850
Robert M. Zakem, Esq.
Senior Vice President and General Counsel
SunAmerica Asset Management Corp.
The SunAmerica Center
733 Third Avenue - 3rd Floor
New York, NY 10017-3204
(Name and Address of Agent for Service)
Copy to:
Susan L. Harris, Esq.
SunAmerica Inc.
1 SunAmerica Center, Century City
Los Angeles, CA 90067-6022
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant [ ] on (date) pursuant
to paragraph (b) to paragraph (b)
[ ] 60 days after filing pursuant [ ] on (date) pursuant to
to paragraph (a) paragraph (a) of Rule 485
--------------------
The Registrant has elected to register an indefinite number of shares of
beneficial interest, par value $.01 per share, under the Securities Act of 1933
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended.
The Rule 24f-2 Notice for the Registrant's fiscal year ended December 31, 1995
was filed on February 5, 1996.
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ANCHOR SERIES TRUST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number
in Form N-1A Caption
<S> <C> <C>
PART A - PROSPECTUS
1. Cover Page Cover Page
2. Synopsis - Fee Table *
3. Condensed Financial Financial Highlights
Information
4. General Description of The Trust, Investment Objectives and
Registrant Policies; Investment Restrictions;
Special Considerations; and
Description of the Trust
5. Management of the Fund Management of the Trust
5A. Management's Discussion of Cover Page
Fund Performance
6. Capital Stock and Other The Trust; Description of the Trust
Securities
7. Purchase of Securities The Trust; Net Asset Value; Being
Offered Distribution and Redemption of
Shares; Inquiries
8. Redemption or Repurchase The Trust; Distribution and
Redemption of Shares; Inquires
9. Pending Legal Proceedings *
PART B - STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and The Trust; General Information;
History Ownership of Shares
13. Investment Objectives Investment Objectives and Policies
14. Management of the Fund SunAmerica Asset Management Corp.;
Officers and Trustees of the Trust
15. Control Persons and Ownership of Shares
Principal Holders of Securities
16. Investment Advisory and SunAmerica Asset Management Corp.
Other Services and Wellington Management Company;
Custodian
17. Brokerage Allocation Portfolio Transactions and Brokerage
18. Capital Stock and Other General Information
Securities
19. Purchase, Redemption and Net Asset Value
Pricing of Securities
Being Offered
20. Tax Status Dividends, Distributions and Taxes
21. Underwriters *
22. Calculation of Yield Quotations Net Asset Value
of Money Market Funds
23. Financial Statements Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
* Omitted from the Prospectus or Statement of Additional Information
because the item is not applicable.
<PAGE> 3
PROSPECTUS -- FEBRUARY 29, 1996
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ANCHOR SERIES TRUST
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P.O. BOX 54299
LOS ANGELES, CALIFORNIA, 90054-0299
(800) 445-7862
Anchor Series Trust (the "Trust") is an open-end diversified management
investment company. The Trust includes twelve Portfolios, each of which has its
own investment objective and policies.
Shares of the Trust are issued and redeemed only in connection with
investments in and payments under variable annuity contracts and variable life
insurance policies. The contracts involve fees and expenses not described in
this Prospectus and may also involve certain restrictions or limitations on the
allocation of purchase payments or contract values to one or more series of the
Trust. Certain Portfolios of the Trust may not be available in connection with a
particular contract. See the applicable contract prospectus for information
regarding contract fees and expenses and any restrictions or limitations.
The twelve Portfolios of the Trust are as follows:
The FOREIGN SECURITIES PORTFOLIO seeks long-term capital appreciation
through investment primarily in equity securities issued by foreign companies.
The CAPITAL APPRECIATION PORTFOLIO seeks long-term capital
appreciation.This Portfolio invests in growth equity securities which are widely
diversified by industry and company and may engage in transactions involving
stock index futures and options thereon as a hedge against changes in market
conditions.
The GROWTH PORTFOLIO seeks capital appreciation primarily through
investments in growth equity securities. This Portfolio may engage in
transactions involving stock index futures and options thereon as a hedge
against changes in market conditions.
The NATURAL RESOURCES PORTFOLIO seeks a total return in excess of the U.S.
rate of inflation as represented by the Consumer Price Index. This Portfolio
invests primarily in equity securities of U.S. or foreign companies which are
expected to provide favorable returns in periods of rising inflation.
The GROWTH AND INCOME PORTFOLIO (formerly, the Convertible Securities
Portfolio) seeks to provide high current income and long-term capital
appreciation by investing primarily in securities that provide the potential for
growth and offer income, such as dividend-paying stocks and securities
convertible into common stock.
The STRATEGIC MULTI-ASSET PORTFOLIO seeks high long-term total investment
return by investing in equity securities, aggressive growth equity securities,
international equity securities, investment grade bonds, high-yield, high-risk
bonds and money market instruments.
The list of Portfolios continues on the next page.
As a result of the market risk inherent in any investment, there is no
assurance that the investment objective of any of the Portfolios will be
realized. INVESTMENTS IN A PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT OR ANY OTHER ENTITY OR PERSON.
This Prospectus sets forth concisely the information that a prospective
investor ought to know before investing in the Trust. Please read it carefully
and retain it for future reference. Further information about the performance of
the Portfolios is contained in the Trust's Annual Report to Shareholders. A
Statement of Additional Information dated February 29, 1996 has been filed with
the Securities and Exchange Commission. The Annual Report to Shareholders and
the Statement of Additional Information may be obtained upon request and without
charge by writing to the Trust at the above address or by calling (800)
445-7862.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------------------------
<PAGE> 4
The MULTI-ASSET PORTFOLIO seeks long-term total investment return
consistent with moderate investment risk by investing in equity securities,
convertible securities, investment grade fixed income securities and money
market securities.
The HIGH YIELD PORTFOLIO seeks to produce high current income. A secondary
investment objective is capital appreciation. The Portfolio invests in
high-yielding, high-risk, income producing corporate bonds. IN ADDITION TO OTHER
RISKS, THESE HIGH-YIELD, HIGH-RISK BONDS TYPICALLY ARE SUBJECT TO GREATER MARKET
FLUCTUATIONS AND RISK LOSS OF INCOME AND PRINCIPAL DUE TO DEFAULT BY THE ISSUER
THAN ARE INVESTMENTS IN LOWER-YIELDING, HIGHER-RATED BONDS. SEE "RISK
FACTORS -- HIGH YIELD BONDS" UNDER "HIGH YIELD PORTFOLIO" FOR A DISCUSSION OF
THE RISKS ASSOCIATED WITH HIGH-YIELD, HIGH-RISK SECURITIES.
The TARGET '98 PORTFOLIO seeks a predictable compounded investment return
for the specified time period, consistent with preservation of capital by
investing primarily in zero coupon securities and current interest-bearing,
investment grade debt obligations which are issued by the U.S. Government, its
agencies and instrumentalities, and both domestic and foreign corporations.
The FIXED INCOME PORTFOLIO seeks a high level of current income consistent
with preservation of capital and invests primarily in investment grade, fixed
income securities.
The GOVERNMENT AND QUALITY BOND PORTFOLIO seeks relatively high current
income, liquidity and security of principal. This Portfolio invests in
obligations issued, guaranteed or insured by the U.S. Government, its agencies
or instrumentalities and in corporate debt securities rated Aa or better by
Moody's Investors Service, Inc. or AA or better by Standard and Poor's Ratings
Services.
The MONEY MARKET PORTFOLIO seeks current income consistent with stability
of principal through investment in a diversified portfolio of money market
instruments maturing in 397 days or less. THE MONEY MARKET PORTFOLIO SEEKS TO
MAINTAIN A STABLE PRICE PER SHARE, BUT THERE IS NO ASSURANCE THAT THIS PORTFOLIO
WILL CONTINUE TO MAINTAIN SUCH STABILITY.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
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<S> <C>
FINANCIAL HIGHLIGHTS.................................................................................. 2
THE TRUST............................................................................................. 5
INVESTMENT OBJECTIVES AND POLICIES.................................................................... 5
Equity Portfolios................................................................................. 5
Foreign Securities Portfolio.................................................................... 5
Capital Appreciation Portfolio.................................................................. 7
Growth Portfolio................................................................................ 8
Natural Resources Portfolio..................................................................... 8
Growth and Income Portfolio..................................................................... 10
Managed Portfolios................................................................................ 11
Strategic Multi-Asset Portfolio................................................................. 11
Multi-Asset Portfolio........................................................................... 12
Income Portfolios................................................................................. 12
High Yield Portfolio............................................................................ 12
Target '98 Portfolio............................................................................ 14
Fixed Income Portfolio.......................................................................... 15
Government and Quality Bond Portfolio........................................................... 16
Money Market Portfolio............................................................................ 17
Repurchase Agreements............................................................................. 18
Illiquid Securities............................................................................... 18
Hedging and Income Enhancement Strategies......................................................... 19
INVESTMENT RESTRICTIONS............................................................................... 20
SPECIAL CONSIDERATIONS................................................................................ 21
MANAGEMENT OF THE TRUST............................................................................... 21
The Trustees...................................................................................... 21
SAAMCo............................................................................................ 21
Wellington Management Company..................................................................... 22
Portfolio Management.............................................................................. 23
Custodian, Transfer and Dividend Paying Agent..................................................... 23
Expenses of the Trust............................................................................. 24
PORTFOLIO TRANSACTIONS................................................................................ 24
NET ASSET VALUE....................................................................................... 24
DIVIDENDS, DISTRIBUTIONS AND TAXES.................................................................... 25
DESCRIPTION OF THE TRUST.............................................................................. 25
REPORTS AND INDEPENDENT ACCOUNTANTS................................................................... 26
DISTRIBUTION AND REDEMPTION OF SHARES; INQUIRIES...................................................... 26
APPENDIX A
</TABLE>
(i)
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FINANCIAL HIGHLIGHTS*
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ANCHOR SERIES TRUST
The following selected Financial Highlights have been audited by Price
Waterhouse LLP, independent accountants, whose unqualified report for the 5
years in the period ended December 31, 1995 is included in the Trust's Annual
Report. This information should be read in conjunction with the financial
statements and notes thereto, which are included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
DIVIDENDS
NET REALIZED DECLARED DIVIDENDS NET
NET ASSET NET & UNREALIZED FROM NET FROM NET ASSET
VALUE INVEST- GAIN (LOSS) TOTAL FROM INVEST- REALIZED VALUE
YEAR BEGINNING MENT ON INVESTMENT MENT GAIN ON END OF TOTAL
ENDED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign Securities Portfolio
3/23/87-
12/31/87 $10.00 $ 0.02+ $ (1.22) $ (1.20) $(0.02) $-- $ 8.78 (13.1)%
12/31/88 8.78 0.11+ 1.82 1.93 (0.08) -- 10.63 22.0
12/31/89 10.63 0.13 2.96 3.09 (0.02) -- 13.70 29.1
12/31/90 13.70 0.18 (1.88) (1.70) (0.30) (1.45) 10.25 (12.8)
12/31/91 10.25 0.07 (0.09) (0.02) (0.12) -- 10.11 (0.3)
12/31/92 10.11 0.13 (1.43) (1.30) (0.06) (0.28) 8.47 (13.1)
12/31/93 8.47 0.05 2.50 2.55 (0.09) -- 10.93 30.2
12/31/94 10.93 0.11 (0.46) (0.35) (0.03) -- 10.55 (3.2)
12/31/95 10.55 0.13 1.19 1.32 (0.05) (0.01) 11.81 12.6
Capital Appreciation Portfolio
3/23/87-
12/31/87 10.00 0.03+ (1.69) (1.66) (0.04) (0.35) 7.95 (16.5)
12/31/88 7.95 0.09 1.64 1.73 (0.05) -- 9.63 21.1
12/31/89 9.63 0.18 2.23 2.41 (0.01) -- 12.03 25.0
12/31/90 12.03 0.13 (2.04) (1.91) (0.29) (0.02) 9.81 (16.2)
12/31/91 9.81 0.09 5.41 5.50 (0.01) (0.07) 15.23 56.1
12/31/92 15.23 0.01 3.70 3.71 (0.07) (1.12) 17.75 25.9
12/31/93 17.75 (0.03) 3.73 3.70 (0.01) (1.16) 20.28 21.1
12/31/94 20.28 (0.02) (0.71) (0.73) -- (2.04) 17.51 (3.8)
12/31/95 17.51 0.06 6.00 6.06 (0.15) (0.20) 23.22 34.6
Growth Portfolio
12/31/86 13.01 0.28 0.93 1.21 (0.18) (0.05) 13.99 9.3
12/31/87 13.99 0.25 (0.04) 0.21 (0.48) (1.27) 12.45 0.6
12/31/88 12.45 0.22 1.37 1.59 -- -- 14.04 12.8
12/31/89 14.04 0.31 3.91 4.22 (0.29) -- 17.97 30.1
12/31/90 17.97 0.27 (0.50) (0.23) (0.56) (1.72) 15.46 (1.6)
12/31/91 15.46 0.22 6.05 6.27 (0.12) (0.21) 21.40 40.8
12/31/92 21.40 0.09 0.99 1.08 (0.19) (0.62) 21.67 5.4
12/31/93 21.67 0.05 1.60 1.65 (0.08) (0.92) 22.32 7.8
12/31/94 22.32 0.05 (1.03) (0.98) (0.05) (3.11) 18.18 (4.7)
12/31/95 18.18 0.11 4.62 4.73 (0.05) (3.38) 19.48 26.3
Natural Resources Portfolio
12/31/88 10.00 0.33+ 0.84 1.17 (0.17) -- 11.00 11.7
12/31/89 11.00 0.39 1.63 2.02 (0.12) -- 12.90 18.3
12/31/90 12.90 0.33 (2.10) (1.77) (0.61) (0.80) 9.72 (15.0)
12/31/91 9.72 0.26 0.21 0.47 (0.13) -- 10.06 4.9
12/31/92 10.06 0.21 0.05 0.26 (0.39) -- 9.93 2.5
12/31/93 9.93 0.15 3.42 3.57 (0.17) -- 13.33 36.2
12/31/94 13.33 0.23 (0.09) 0.14 (0.09) (0.09) 13.29 1.0
12/31/95 13.29 0.18 2.15 2.33 (0.21) (0.29) 15.12 17.5
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES TO INCOME TO PORTFOLIO
YEAR PERIOD AVERAGE NET AVERAGE NET TURNOVER
ENDED (000'S) ASSETS ASSETS RATE
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<S> <C> <C> <C> <C>
Foreign Securities Portfolio
3/23/87-
12/31/87 $ 12,284 1.8%#+ 0.3% 85.0%
12/31/88 16,785 1.7+ 1.1+ 79.5
12/31/89 45,261 1.8 1.1 61.8
12/31/90 34,237 1.7 1.3 75.1
12/31/91 30,823 1.4 0.7 64.2
12/31/92 29,204 1.3 1.4 144.2
12/31/93 72,579 1.3 0.5 47.7
12/31/94 68,641 1.2 1.0 73.9
12/31/95 53,609 1.2 1.2 33.0
Capital Appreciation Portfolio
3/23/87-
12/31/87 7,849 1.5#+ 0.5#+ 115.0
12/31/88 19,976 1.1 1.0 30.3
12/31/89 35,951 1.0 1.6 30.9
12/31/90 27,568 1.0 1.2 37.2
12/31/91 45,976 1.0 0.7 72.9
12/31/92 83,414 0.9 0.1 92.9
12/31/93 182,515 0.9 (0.2) 111.2
12/31/94 229,544 0.8 (0.1) 64.0
12/31/95 356,218 0.8 0.3 60.1
Growth Portfolio
12/31/86 211,211 0.9 2.1 33.7
12/31/87 210,736 0.9 1.6 81.6
12/31/88 195,105 1.0 1.6 37.6
12/31/89 171,593 1.0 1.8 26.9
12/31/90 151,527 0.9 1.6 22.2
12/31/91 231,857 0.9 1.2 36.9
12/31/92 279,291 0.9 0.5 37.9
12/31/93 311,050 0.9 0.2 66.3
12/31/94 246,149 0.8 0.2 74.8
12/31/95 307,857 0.9 0.6 92.1
Natural Resources Portfolio
12/31/88 12,324 1.6+ 3.2+ 20.0
12/31/89 16,971 1.5 3.3 38.2
12/31/90 14,954 1.4 3.0 26.6
12/31/91 9,407 1.2 2.5 2.6
12/31/92 8,796 1.3 2.1 18.7
12/31/93 18,255 1.1 1.3 34.5
12/31/94 21,230 1.0 1.7 36.0
12/31/95 28,941 1.0 1.3 32.0
# Annualized.
+ Net of expense reimbursement.
* Selected data for a share of beneficial interest outstanding throughout each period (calculated based upon average shares
outstanding).
</TABLE>
2
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FINANCIAL HIGHLIGHTS* (CONTINUED)
- --------------------------------------------------------------------------------
ANCHOR SERIES TRUST
<TABLE>
<CAPTION>
DIVIDENDS
NET REALIZED DECLARED DIVIDENDS NET
NET ASSET NET & UNREALIZED FROM NET FROM NET ASSET
VALUE INVEST- GAIN (LOSS) TOTAL FROM INVEST- REALIZED VALUE
YEAR BEGINNING MENT ON INVESTMENT MENT GAIN ON END OF TOTAL
ENDED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth and Income Portfolio
1/23/87-
12/31/87 $10.00 $ 0.42+ $ (1.56) $ (1.14) $(0.42) $-- $ 8.44 (12.6)%
12/31/88 8.44 0.57 0.65 1.22 (0.55) -- 9.11 14.5
12/31/89 9.11 0.57 0.77 1.34 -- -- 10.45 14.7
12/31/90 10.45 0.63 (0.98) (0.35) (1.34) -- 8.76 (3.8)
12/31/91 8.76 0.64 1.70 2.34 (0.12) -- 10.98 26.8
12/31/92 10.98 0.65 1.50 2.15 (0.64) -- 12.49 20.1
12/31/93 12.49 0.61 2.11 2.72 (0.55) (0.08) 14.58 22.0
12/31/94 14.58 0.66 (1.96) (1.30) (0.52) (1.20) 11.56 (9.7)
12/31/95 11.56 0.61 1.29 1.90 (0.83) (0.62) 12.01 16.6
Strategic Multi-Asset Portfolio
1/13/87-
12/31/87 10.00 0.25 (0.97) (0.72) (0.25) (0.03) 9.00 (7.8)
12/31/88 9.00 0.36 0.98 1.34 (0.28) -- 10.06 14.9
12/31/89 10.06 0.41 1.58 1.99 (0.05) -- 12.00 19.8
12/31/90 12.00 0.38 (1.26) (0.88) (0.83) (0.12) 10.17 (7.8)
12/31/91 10.17 0.26 2.20 2.46 -- -- 12.63 24.2
12/31/92 12.63 0.23 0.25 0.48 (0.34) (0.32) 12.45 3.9
12/31/93 12.45 0.21 1.68 1.89 (0.28) -- 14.06 15.3
12/31/94 14.06 0.24 (0.53) (0.29) (0.20) (2.28) 11.29 (2.6)
12/31/95 11.29 0.32 2.18 2.50 (0.23) (1.78) 11.78 22.8
Multi-Asset Portfolio
3/23/87-
12/31/87 10.00 0.33 (0.76) (0.43) (0.33) (0.05) 9.19 (4.9)
12/31/88 9.19 0.44 0.44 0.88 (0.42) -- 9.65 9.6
12/31/89 9.65 0.48 1.42 1.90 (0.01) -- 11.54 19.7
12/31/90 11.54 0.48 (0.30) 0.18 (1.03) -- 10.69 1.6
12/31/91 10.69 0.45 2.45 2.90 (0.06) -- 13.53 27.3
12/31/92 13.53 0.41 0.67 1.08 (0.47) (0.35) 13.79 8.2
12/31/93 13.79 0.36 0.63 0.99 (0.44) (0.46) 13.88 7.3
12/31/94 13.88 0.39 (0.60) (0.21) (0.47) (1.49) 11.71 (1.7)
12/31/95 11.71 0.40 2.47 2.87 (0.49) (1.05) 13.04 24.9
High Yield Portfolio
12/31/86 10.00 1.01 0.65 1.66 -- -- 11.66 5.1
12/31/87 11.66 1.15 (1.51) (0.36) (1.48) (0.02) 9.80 1.7
12/31/88 9.80 1.23 0.17 1.40 (1.18) -- 10.02 14.3
12/31/89 10.02 1.27 (1.53) (0.26) (0.07) -- 9.69 (2.8)
12/31/90 9.69 0.99 (1.85) (0.86) (2.87) -- 5.96 (10.8)
12/31/91 5.96 0.81 1.16 1.97 (0.05) -- 7.88 33.1
12/31/92 7.88 0.81 0.28 1.09 (0.58) -- 8.39 13.9
12/31/93 8.39 0.79 0.79 1.58 (0.54) -- 9.43 19.1
12/31/94 9.43 0.15 (0.56) (0.41) (1.15) -- 7.87 (4.5)
12/31/95 7.87 0.77 0.67 1.44 (0.98) -- 8.33 18.8
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES TO INCOME TO PORTFOLIO
YEAR PERIOD AVERAGE NET AVERAGE NET TURNOVER
ENDED (000'S) ASSETS ASSETS RATE
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<S> <C> <C> <C> <C>
Growth and Income Portfolio
1/23/87-
12/31/87 $ 14,577 1.2%# 5.6%# 81.3%
12/31/88 17,653 1.0 6.1 52.8
12/31/89 19,027 1.0 5.6 77.0
12/31/90 13,352 1.1 6.6 107.0
12/31/91 14,551 1.1 6.4 109.0
12/31/92 23,723 1.0 5.6 86.5
12/31/93 41,555 0.9 4.4 86.2
12/31/94 34,995 0.9 4.9 50.7
12/31/95 32,008 0.9 5.2 88.8
Strategic Multi-Asset Portfolio
1/13/87-
12/31/87 65,066 1.5# 3.4# 68.9
12/31/88 83,479 1.4 3.7 37.4
12/31/89 108,434 1.4 3.7 36.6
12/31/90 87,329 1.4 3.4 28.0
12/31/91 88,585 1.3 2.3 42.0
12/31/92 79,621 1.3 1.8 57.5
12/31/93 76,466 1.3 1.2 73.9
12/31/94 65,357 1.3 1.8 63.7
12/31/95 64,026 1.3 2.7 36.9
Multi-Asset Portfolio
3/23/87-
12/31/87 130,684 1.2# 4.5# 58.5
12/31/88 161,622 1.2 4.5 30.8
12/31/89 168,986 1.2 4.4 36.9
12/31/90 151,329 1.2 4.4 48.7
12/31/91 177,429 1.2 3.8 50.7
12/31/92 207,533 1.1 3.1 38.6
12/31/93 208,900 1.1 2.6 48.2
12/31/94 164,159 1.1 3.0 82.5
12/31/95 168,243 1.1 3.2 85.9
High Yield Portfolio
12/31/86 54,124 1.0 9.6 71.7
12/31/87 52,783 0.9 9.9 71.3
12/31/88 57,916 0.9 11.4 41.5
12/31/89 33,430 1.0 12.2 43.9
12/31/90 20,695 1.0 13.2 50.9
12/31/91 33,046 1.0 11.3 54.9
12/31/92 47,140 0.9 9.7 134.9
12/31/93 79,303 0.9 8.5 121.1
12/31/94 48,057 0.9 9.0 97.9
12/31/95 46,817 0.9 9.2 68.1
# Annualized.
+ Net of expense reimbursement.
* Selected data for a share of beneficial interest outstanding throughout each period (calculated based upon average shares
outstanding).
</TABLE>
3
<PAGE> 8
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS* (CONTINUED)
- --------------------------------------------------------------------------------
ANCHOR SERIES TRUST
<TABLE>
<CAPTION>
DIVIDENDS
NET REALIZED DECLARED DIVIDENDS NET
NET ASSET NET & UNREALIZED FROM NET FROM NET ASSET
VALUE INVEST- GAIN (LOSS) TOTAL FROM INVEST- REALIZED VALUE
YEAR BEGINNING MENT ON INVESTMENT MENT GAIN ON END OF TOTAL
ENDED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME INVESTMENTS PERIOD RETURN
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Target '98 Portfolio
5/2/88-
12/31/88 $10.00 $ 0.49+ $ 0.23 $ 0.72 $(0.16) $-- $ 10.56 7.9%
12/31/89 10.56 0.84 0.99 1.83 (0.05) -- 12.34 17.3
12/31/90 12.34 0.87 (0.12) 0.75 (1.54) (0.08) 11.47 1.7
12/31/91 11.47 0.83 1.33 2.16 -- -- 13.63 18.9
12/31/92 13.63 0.82 0.16 0.98 (0.79) (0.25) 13.57 7.2
12/31/93 13.57 0.82 0.71 1.53 (0.93) (0.23) 13.94 11.2
12/31/94 13.94 0.83 (1.39) (0.56) (1.11) (0.07) 12.20 (4.1)
12/31/95 12.20 0.86 0.88 1.74 (1.30) -- 12.64 14.6
Fixed Income Portfolio
12/31/86 12.75 0.95 0.75 1.70 (0.35) (0.01) 14.09 13.6
12/31/87 14.09 1.01 (1.10) (0.09) (1.51) (0.11) 12.38 0.8
12/31/88 12.38 0.98 (0.11) 0.87 (1.14) -- 12.11 7.0
12/31/89 12.11 0.98 0.58 1.56 -- -- 13.67 12.6
12/31/90 13.67 0.96 0.01 0.97 (2.07) -- 12.57 7.9
12/31/91 12.57 0.96 0.95 1.91 (0.05) -- 14.43 15.2
12/31/92 14.43 0.98 (0.04) 0.94 (1.06) -- 14.31 6.5
12/31/93 14.31 0.95 0.19 1.14 (0.91) -- 14.54 8.0
12/31/94 14.54 0.89 (1.36) (0.47) (1.17) -- 12.90 (3.2)
12/31/95 12.90 0.90 1.52 2.42 (1.16) -- 14.16 19.2
Government and Quality Bond Portfolio
12/31/86 12.77 1.17 0.11 1.28 (0.33) 0.02 13.70 10.3
12/31/87 13.70 1.11 (1.01) 0.10 (1.83) -- 11.97 1.6
12/31/88 11.97 1.13 (0.08) 1.05 (1.43) -- 11.59 8.8
12/31/89 11.59 1.10 0.71 1.81 -- -- 13.40 15.6
12/31/90 13.40 1.05 (0.09) 0.96 (2.30) -- 12.06 7.8
12/31/91 12.06 1.00 1.08 2.08 (0.11) -- 14.03 17.3
12/31/92 14.03 1.02 (0.05) 0.97 (1.07) -- 13.93 6.9
12/31/93 13.93 0.90 0.25 1.15 (0.86) -- 14.22 8.3
12/31/94 14.22 0.86 (1.30) (0.44) (0.73) (0.19) 12.86 (3.1)
12/31/95 12.86 0.90 1.55 2.45 (1.08) -- 14.23 19.4
Money Market Portfolio
12/31/86 1.00 0.06 -- 0.06 (0.06) -- 1.00 --
12/31/87 1.00 0.06 -- 0.06 (0.06) -- 1.00 --
12/31/88 1.00 0.07 -- 0.07 (0.07) -- 1.00 --
12/31/89 1.00 0.08 -- 0.08 (0.08) -- 1.00 8.2
12/31/90 1.00 0.07 -- 0.07 (0.07) -- 1.00 7.4
12/31/91 1.00 0.06 -- 0.06 (0.06) -- 1.00 5.6
12/31/92 1.00 0.03 -- 0.03 (0.03) -- 1.00 3.4
12/31/93 1.00 0.02 -- 0.02 (0.02) -- 1.00 2.0
12/31/94 1.00 0.04 -- 0.04 (0.04) -- 1.00 3.8
12/31/95 1.00 0.05 -- 0.05 (0.05) -- 1.00 5.6
<CAPTION>
NET RATIO OF NET
ASSETS RATIO OF INVESTMENT
END OF EXPENSES TO INCOME TO PORTFOLIO
YEAR PERIOD AVERAGE NET AVERAGE NET TURNOVER
ENDED (000'S) ASSETS ASSETS RATE
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Target '98 Portfolio
5/2/88-
12/31/88 $ 5,718 0.8%#+ 7.8% 13.0%
12/31/89 15,385 1.1 7.3 21.9
12/31/90 14,614 1.0 7.5 6.8
12/31/91 12,553 1.0 6.9 14.4
12/31/92 19,227 0.9 6.0 37.3
12/31/93 20,500 0.9 5.7 20.8
12/31/94 19,194 0.8 6.5 9.2
12/31/95 12,774 0.9 6.7 38.6
Fixed Income Portfolio
12/31/86 88,924 0.8 7.5 42.8
12/31/87 56,410 0.8 7.4 57.0
12/31/88 48,044 0.8 7.6 45.6
12/31/89 42,512 0.9 7.6 34.0
12/31/90 34,392 0.9 7.5 52.2
12/31/91 37,887 0.9 7.2 55.3
12/31/92 40,001 0.8 6.8 31.8
12/31/93 41,116 0.8 6.3 45.9
12/31/94 28,582 0.8 6.5 56.5
12/31/95 27,975 0.8 6.5 76.7
Government and Quality Bond Portfolio
12/31/86 238,701 0.8 9.2 28.0
12/31/87 267,091 0.8 8.7 36.0
12/31/88 195,984 0.8 8.9 120.5
12/31/89 163,082 0.8 8.6 71.8
12/31/90 155,522 0.8 8.5 63.3
12/31/91 197,463 0.8 7.8 87.5
12/31/92 207,860 0.8 7.3 76.4
12/31/93 264,660 0.7 6.2 93.2
12/31/94 232,530 0.7 6.4 117.6
12/31/95 225,579 0.7 6.5 135.2
Money Market Portfolio
12/31/86 41,771 0.7 5.9 --
12/31/87 83,360 0.7 6.4 --
12/31/88 171,364 0.7 7.2 --
12/31/89 248,774 0.7 8.6 --
12/31/90 181,956 0.7 7.6 --
12/31/91 119,855 0.7 5.7 --
12/31/92 127,262 0.6 3.3 --
12/31/93 99,309 0.6 2.7 --
12/31/94 126,004 0.6 3.8 --
12/31/95 93,692 0.6 5.5 --
# Annualized.
+ Net of expense reimbursement.
* Selected data for a share of beneficial interest outstanding throughout each period (calculated based upon average shares
outstanding).
</TABLE>
4
<PAGE> 9
- --------------------------------------------------------------------------------
THE TRUST
- --------------------------------------------------------------------------------
ANCHOR SERIES TRUST (the "Trust") is an open-end diversified management
investment company. This Prospectus includes the twelve separate portfolios of
the Trust which are the: Foreign Securities Portfolio, Capital Appreciation
Portfolio, Growth Portfolio, Natural Resources Portfolio, Growth and Income
Portfolio (formerly, the Convertible Securities Portfolio), Strategic
Multi-Asset Portfolio, Multi-Asset Portfolio, High Yield Portfolio, Target '98
Portfolio, Fixed Income Portfolio, Government and Quality Bond Portfolio, and
Money Market Portfolio (each a "Portfolio" and collectively the "Portfolios").
The Trust issues a separate series of shares for each Portfolio, which in some
instances have rights separate from other series of shares. The Trustees may
provide for additional portfolios from time to time. The Declaration of Trust
permits the Trustees to issue an unlimited number of full or fractional shares
of each series of shares. (See "Dividends, Distributions and Taxes.")
SunAmerica Asset Management Corp. ("SAAMCo" or the "Adviser"), an indirect
wholly owned subsidiary of SunAmerica Inc., serves as investment adviser for all
the portfolios of the Trust. (See "SAAMCo.") Wellington Management Company
("WMC" or the "Sub-Adviser") serves as sub-adviser for all the Portfolios of the
Trust. (See "Wellington Management Company.") When referred to collectively
herein, SAAMCo and WMC shall be referred to as the "Advisers."
Shares of the Portfolios are issued and redeemed only in connection with
investments in and payments under variable annuity contracts and variable life
insurance policies ("Variable Contracts") of Anchor National Life Insurance
Company, First SunAmerica Life Insurance Company, Phoenix Mutual Life Insurance
Company and Presidential Life Insurance Company (the "Life Companies"). Certain
series of the Trust may not be available in connection with a particular
contract. Anchor National Life Insurance Company and First SunAmerica Life
Insurance Company are under common control with, and therefore are affiliated
with, the Adviser. Phoenix Mutual Life Insurance Company and Presidential Life
Insurance Company are not affiliates of the Adviser. The Trust does not foresee
a disadvantage to contract owners arising out of the fact that the Trust offers
its shares for Variable Contracts other than those offered by life insurance
companies affiliated with the Adviser. Nevertheless, the Trust's Board of
Trustees intends to monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response thereto. If such a conflict were to occur,
one or more insurance company separate accounts might withdraw their investments
in the Trust. This might force the Trust to sell portfolio securities at
disadvantageous prices.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
Each Portfolio of the Trust has a different investment objective which it
pursues through separate investment policies as described below. Each Portfolio
is managed separately and the risks and opportunities of each Portfolio should
be examined separately. The differences in objectives and policies among the
Portfolios can be expected to affect the investment return of each Portfolio and
the degree of market and financial risk of each Portfolio. The investment
objective of each Portfolio stated below may not be changed without the approval
of the holders of the outstanding shares of each Portfolio affected. There is no
assurance that the investment objectives of the various Portfolios will be met.
EQUITY PORTFOLIOS
FOREIGN SECURITIES PORTFOLIO
The investment objective of this Portfolio is long-term capital
appreciation through investment in a diversified portfolio of primarily equity
securities issued by foreign companies and primarily denominated in foreign
currencies. When, in the opinion of the Sub-Adviser, non-U.S. dollar denominated
fixed income securities offer attractive capital appreciation potential, the
Portfolio may invest up to 20% of its assets in such securities issued by
domestic and foreign companies, foreign governments and their agencies and
instrumentalities and supranational agencies. Investments will cover a broad
range of companies and industries in a number of foreign countries. The
Sub-Adviser anticipates that, under normal market conditions, the Portfolio will
diversify its investments among a minimum of five countries.
5
<PAGE> 10
Securities will be selected on the basis of fundamental analysis to
identify those companies which, in the judgment of the Sub-Adviser, possess
above-average capital appreciation potential. In addition to fundamental
analysis of companies and their industries, the Sub-Adviser evaluates the
economic and political climate of the country in which the company is located
and the principal securities markets in which such securities are traded. The
Sub-Adviser believes that fundamental analysis coupled with diversification
among a number of countries and among a broad range of companies may serve to
lessen the risks which may be associated with investing in foreign securities.
By investing in foreign securities, the Portfolio attempts to take
advantage of differences between economic trends and the performance of
securities markets in various countries. To date, the market values of
securities of companies located in many countries have moved relatively
independently of each other and during certain periods the return on equity
investments in some countries has exceeded the return of similar investments in
the United States. It may be possible to obtain significant appreciation from a
portfolio of foreign investments and also achieve increased diversification. The
Portfolio achieves increased diversification by combining securities from
various countries that offer different investment opportunities and are affected
by different economic trends. International diversification reduces the effect
that events in any one country will have on overall investment returns. Of
course, negative movement by investments in one foreign market represented in
the Portfolio may offset gains from investments in another country's markets.
Depending upon market conditions, the Portfolio may be invested primarily
in foreign securities. All or a portion of the foreign securities purchased by
the Portfolio may be in the form of American Depositary Receipts ("ADRs") or
Global Depositary Receipts ("GDRs"). ADRs are typically issued by a U.S. bank or
trust company, and evidence ownership of underlying securities issued by a
foreign corporation. GDRs are issued globally, and evidence a similar ownership
arrangement. Generally, ADRs are designed for trading in the United States
securities markets, and GDRs are designed for trading in non-U.S. securities
markets.
A significant portion of the Portfolio's equity investments are expected to
be in securities which are not listed for trading on domestic securities
exchanges and, although publicly traded, may be less liquid than securities
issued by larger, more seasoned companies which trade on domestic securities
exchanges. The Portfolio's policy of investing in smaller, less seasoned
companies will subject the Portfolio to greater risk than may be involved in
investing in securities which are not selected for such growth characteristics.
The Portfolio may invest up to 10% of its assets in securities which are
illiquid due to restrictions as to resale under the Securities Act of 1933, as
amended (the "1933 Act") or for which market quotations are not readily
available. To the extent such investments are made, the Portfolio may have less
freedom of disposition at possibly less favorable prices than would be the case
for securities not subject to such restrictions. This limitation does not apply
to securities that are eligible for resale in accordance with Rule 144A under
the 1933 Act and that have legal or contractual restrictions on resale but have
a readily available market and therefore are not considered illiquid by the
Sub-Adviser. (See "Illiquid Securities" below and in the Statement of Additional
Information.)
The Sub-Adviser will not attempt to actively time either short-term market
trends or short-term currency trends in any market. The Portfolio may enter into
forward foreign exchange contracts to protect against uncertainty in the future
value of foreign currencies relative to the U.S. dollar and to facilitate the
settlement of purchase and sale transactions. A forward foreign exchange
contract involves the future obligation to purchase or sell a specific currency
on a specified date and at a specified price determined at the time of entering
into the contract. It should be recognized that the use of foreign currency
contracts to protect the value of the Portfolio's assets against a decline in
the value of a currency does not eliminate fluctuations in the value of the
Portfolio's underlying security holdings. In addition, although the use of
foreign exchange contracts can minimize the risk of loss due to a decline in
value of the foreign currency, the use of such contracts will tend to limit any
potential gain resulting from an increase in the relative value of the foreign
currency to the U.S. dollar.
In addition to the capital appreciation opportunities which may exist,
investments in foreign markets involve special risks and considerations not
typically associated with investing in the United States. Such risks and
considerations may include political and economic instability, differing
accounting and financial reporting standards, higher commission rates on foreign
portfolio transactions, less readily available public information regarding
issuers, potential adverse changes in tax and exchange control regulations, and
the potential for restrictions on the flow of international capital. Although
income is not an objective of this Portfolio, many foreign countries impose
withholding taxes on income from investments in such countries which may not be
recoverable by the Portfolio. Also,
6
<PAGE> 11
the value of foreign currencies relative to the U.S. dollar will fluctuate and
will therefore affect, either favorably or unfavorably, the value of the
underlying securities which the Portfolio owns.
The Portfolio may engage in options transactions and may purchase and sell
futures contracts and options thereon to reduce certain risks of its investments
and to attempt to enhance income. (See "Hedging and Income Enhancement
Strategies.")
The Portfolio intends, except under unusual market conditions or to meet
liquidity needs, to remain fully invested in foreign equity securities. However,
the Portfolio may invest in short-term money market instruments denominated in
U.S. dollars, including repurchase agreements, which are authorized for purchase
by the Money Market Portfolio. (See "Money Market Portfolio" and "Repurchase
Agreements.") In addition, the Portfolio may purchase when-issued securities.
(See "When-Issued Securities" in the Statement of Additional Information.)
CAPITAL APPRECIATION PORTFOLIO
The investment objective of this Portfolio is to seek long-term capital
appreciation primarily through investments in growth equity securities which are
widely diversified by industry and company. In contrast to the majority of
growth equity securities which will be selected for the Growth Portfolio, the
Capital Appreciation Portfolio will generally consist of a greater proportion of
securities of smaller companies which may be newer and less seasoned, companies
which represent new or changing industries, and those which, in the opinion of
the Sub-Adviser, represent special situations, the potential future value of
which has not been recognized by other institutional investors. In seeking to
achieve its objective, the Portfolio will invest primarily in U.S. common stocks
and may sell covered call options on certain of such stocks on U.S. exchanges,
purchase call and put options and combinations of such options on U.S. exchanges
and enter into closing transactions with respect to certain of its option
positions on the exchanges. In addition, the Portfolio may invest in debt
securities and preferred stocks that are convertible into, or that carry
warrants to purchase, common stocks or other equity interests. The Portfolio
also may engage in transactions involving stock index futures and options
thereon for income enhancement or as a hedge against changes in market
conditions. (See "Hedging and Income Enhancement Strategies.") In addition, the
Portfolio may invest up to 25% of its total assets in foreign securities. (See
the discussion under "Foreign Securities Portfolio" above and "Foreign
Securities" in the Statement of Additional Information.)
A significant portion of the Portfolio's equity investments are expected to
be in securities which are not listed for trading on domestic securities
exchanges and, although publicly traded, may be less liquid than securities
issued by larger, more seasoned companies which trade on domestic securities
exchanges. The Portfolio may invest up to 10% of its assets in securities which
are illiquid due to restrictions as to resale under the 1933 Act or for which
market quotations are not readily available. To the extent such investments are
made, the Portfolio may have less freedom of disposition at possibly less
favorable prices than would be the case for securities not subject to such
restrictions. This limitation does not apply to securities that are eligible for
resale in accordance with Rule 144A under the 1933 Act and that have legal or
contractual restrictions on resale but have a readily available market and
therefore are not considered illiquid by the Sub-Adviser. (See "Illiquid
Securities" below and in the Statement of Additional Information.)
As a result of its investment policies, the Portfolio's securities can be
expected on average to exhibit greater volatility than the equity markets as a
whole as measured by the price movement of the Standard & Poor's 500 Composite
Stock Index. The relative position size of each security holding within the
Portfolio may be determined, in part, by the relative capitalization of the
issue in the equity markets as a whole. Therefore, highly capitalized companies
may be allowed a larger position in the Portfolio than smaller capitalized
companies. As a result, the overall diversification of the Portfolio's holdings
may serve to reduce the specific risk associated with investments in any one
issuer.
The Portfolio may also invest in short-term money market instruments,
including repurchase agreements, authorized for purchase by the Money Market
Portfolio. (See "Money Market Portfolio" and "Repurchase Agreements.") In
addition, the Portfolio may purchase when-issued securities. (See "When-Issued
Securities" in the Statement of Additional Information.)
7
<PAGE> 12
GROWTH PORTFOLIO
The investment objective of this Portfolio is to seek capital appreciation
primarily through investments in growth equity securities. Growth equity
securities include seasoned companies with proven records and above-average
earnings growth, and smaller companies with outstanding growth records and
potential. Growth equity securities tend to have above-average price/earnings
ratios and less-than-average current yield. The Portfolio's investments will be
widely diversified by industry and company. The Portfolio may also engage in
transactions involving stock index futures and options thereon for income
enhancement or as a hedge against changes in market conditions. (See "Hedging
and Income Enhancement Strategies.")
The majority of the Portfolio's equity investments are securities listed on
the New York Stock Exchange and other domestic securities exchanges. The
Portfolio also invests in unlisted securities, but these are generally
securities that have an established over-the-counter market, although the depth
and liquidity of that market may vary from time to time and from security to
security. In addition, the Portfolio may invest up to 25% of its total assets in
foreign securities. (See the discussion under "Foreign Securities Portfolio" and
"Foreign Securities" in the Statement of Additional Information.) The Portfolio
may invest up to 10% of its assets in securities which are illiquid due to
restrictions as to resale under the 1933 Act or for which market quotations are
not readily available. To the extent such investments are made, the Portfolio
may have less freedom of disposition at possibly less favorable prices than
would be the case for securities not subject to such restrictions. This
limitation does not apply to securities that are eligible for resale in
accordance with Rule 144A under the 1933 Act and that have legal or contractual
restrictions on resale but have a readily available market and therefore are not
considered illiquid by the Sub-Adviser. (See "Illiquid Securities" below and in
the Statement of Additional Information.)
Convertible securities may constitute up to 20% of the Portfolio's net
assets, and may be used for defensive purposes or when they are an attractive
alternative to the underlying common stock. In seeking to achieve its objective
the Portfolio will primarily invest in U.S. common stocks and may sell covered
call options on certain of such stocks on U.S. exchanges, purchase call and put
options and combinations of such options on U.S. exchanges, and enter into
closing transactions with respect to certain of its option positions on the
exchanges.
The Portfolio's policy of investing in seasoned companies with proven
records and above-average earnings growth, other companies with changing or
accelerating growth profiles and smaller companies with outstanding growth
records and potential will subject the Portfolio to greater risk than may be
involved in investing in securities which are not selected for such growth
characteristics.
The Portfolio intends, except under unusual market conditions or to meet
liquidity needs, to remain fully invested in equity securities. However, the
Portfolio may invest in short-term money market instruments, including
repurchase agreements, authorized for purchase by the Money Market Portfolio.
(See "Money Market Portfolio" and "Repurchase Agreements.") In addition, the
Portfolio may purchase when-issued securities. (See "When-Issued Securities" in
the Statement of Additional Information.)
NATURAL RESOURCES PORTFOLIO
The investment objective of this Portfolio is to provide a total return in
excess of the U.S. rate of inflation as represented by the Consumer Price Index.
The Portfolio will invest primarily in equity securities of companies which are
expected to benefit from rising inflation, because they own or control assets
which appreciate in inflationary periods, or because of increased activity
during these periods of inflation, and in debt obligations and fixed income
securities which are expected to provide favorable returns in periods of rising
inflation. The Portfolio will invest in domestic securities and foreign
securities. Securities issued by foreign issuers may be denominated in U.S.
dollars or foreign currencies.
Investments will be chosen primarily based on their historical and
projected relationship with inflation. The Portfolio will invest in securities
issued by companies engaged in exploration, mining, fabrication, processing or
trading in gold, and other precious metals and minerals including diamonds, and
natural resources including oil, timber, and agricultural commodities; real
estate investment trusts (REITs); and other investments which are expected to
provide a hedge against anticipated inflation. The Portfolio will concentrate
its investments in the securities of companies in gold-related industries,
including exploration, mining, fabrication, processing and trading in gold. In
addition, the Portfolio may invest in securities (including debt securities and
preferred stock) the terms of which are related to the market value of gold and
other natural resource assets, and may also invest its assets in short-term
investments including non-dollar denominated instruments. The Portfolio may also
invest up to 10% of its
8
<PAGE> 13
assets in the securities of investment companies (including foreign investment
companies) which make investments that are expected to provide a hedge against
anticipated inflation. However, the Portfolio will not invest more than 5% of
its assets in any single investment company and will not purchase more than 3%
of the voting stock of an investment company. In addition, the Portfolio will
not purchase the securities of any closed-end investment company which would
result in the funds which are advised by the Adviser or by the Sub-Adviser
owning, in the aggregate, more than 10% of the voting stock of the closed-end
investment company. If the Portfolio invests in investment companies, the
Portfolio's shareholders will bear not only their proportionate share of
expenses of the Portfolio, but also indirectly will bear similar expenses of the
underlying investment company.
Investments in securities related to gold or other precious metals and
minerals are considered speculative and are impacted by a host of world-wide
economic, financial and political factors. Prices of gold and other precious
metals may fluctuate sharply over short time periods due to: changes in
inflation or expectations regarding inflation in various countries; metal sales
by governments, central banks or international agencies; investment speculation;
changes in industrial and commercial demand; and governmental prohibitions or
restrictions on the private ownership of certain precious metals or minerals.
The Portfolio's concentration in gold related industries exposes it to greater
risk than a portfolio less concentrated in a group of related industries.
The value of equity investments related to other natural resources such as
oil, timber, and agricultural commodities will fluctuate pursuant to market
conditions, generally, as well as the market for the particular natural resource
in which the issuer is involved. The Sub-Adviser believes that the values of
natural resources fluctuate differently with respect to different stages of the
inflationary cycle. In addition, the values of natural resources are subject to
numerous factors including events of nature and international politics. The
Sub-Adviser will seek securities that are attractively priced relative to the
intrinsic value of the relevant natural resource, or that are of companies which
are positioned to benefit during particular portions of the inflationary cycle.
It is expected that the market price of securities, the principal amount,
redemption terms, or conversion terms of which are related to the market price
of a natural resource asset, will fluctuate on the basis of the natural resource
on which such security is based. However, there may not be a perfect correlation
between the movements of the asset-based security and the underlying natural
resource asset. Further, such securities typically bear interest or pay
dividends at below market rates, and in certain cases at nominal rates.
The Portfolio's investment in REITs may be subject to certain risks
associated with the direct ownership of real estate. These risks include:
declines in the value of real estate; risks related to general and local
economic conditions; overbuilding and increased competition; increases in
property taxes; and operating expenses and variations in rental income.
Generally, increases in interest rates will decrease the value of high yielding
securities and increase the costs of obtaining financing, which could decrease
the value of the Portfolio's investment.
In addition, "equity REITs" may be affected by changes in the value of the
underlying property owned by the trusts, while "mortgage REITs" may be affected
by the quality of credit extended. Equity and mortgage REITs are dependent upon
management skill. They are not diversified and are subject to the risks of
financing projects. Such trusts are also subject to heavy cash flow dependency,
defaults by borrowers, self liquidation, and the possibility of failing to
qualify for tax-free pass-through of income under the Internal Revenue Code of
1986, as amended (the "Code") or to maintain exemption from the Investment
Company Act of 1940, as amended (the "1940 Act").
Depending upon market conditions, the Portfolio may be invested primarily
in foreign securities. All or a portion of the foreign securities purchased by
the Portfolio may be in the form of ADRs or GDRs. ADRs are typically issued by a
U.S. bank or trust company, and evidence ownership of underlying securities
issued by a foreign corporation. GDRs are issued globally, and evidence a
similar ownership arrangement. Generally, ADRs are designed for trading in the
United States securities markets, and GDRs are designed for trading in non-U.S.
securities markets.
Investments in foreign markets involve special risks and considerations not
typically associated with investing in the United States. Such risks and
considerations may include political and economic instability, differing
accounting and financial reporting standards, higher commission rates on foreign
portfolio transactions, less readily available public information regarding
issuers, potential adverse changes in tax and exchange control regulations, and
potential for restrictions on the flow of international capital. Although income
is not an objective of this Portfolio, many foreign countries impose withholding
taxes on income from investments in such countries which may not be recoverable
by the Portfolio. Also, the value of foreign currencies relative to the U.S.
dollar will fluctuate and will therefore affect the value of the underlying
securities which the Portfolio owns. The Portfolio may enter into forward
foreign exchange contracts to facilitate the settlement of purchase and sale
transactions and on occasion to
9
<PAGE> 14
protect against uncertainty in the future value of foreign currencies relative
to the U.S. dollar. A forward foreign exchange contract involves the future
obligation to purchase or sell a specific currency on a specified date and at a
specified price determined at the time of entering into a contract. It should be
recognized that the use of foreign currency contracts to protect the value of
the Portfolio's assets against a decline in the value of a currency does not
eliminate fluctuations in the value of the Portfolio's underlying security
holdings. In addition, although the use of foreign exchange contracts can
minimize the risks of loss due to a decline in the value of foreign currency,
the use of such contracts will tend to limit any potential gain resulting from
an increase in the relative value of the foreign currency to the U.S. dollar.
The Portfolio may invest in short-term money market instruments denominated
in U.S. dollars, including repurchase agreements, which are authorized for
purchase by the Money Market Portfolio. (See "Money Market Portfolio" and
"Repurchase Agreements.") In addition, the Portfolio may purchase when-issued
securities. (See "When-Issued Securities" in the Statement of Additional
Information.)
The Portfolio may write covered call options on stocks, purchase put and
call options and combinations of such options, and enter into closing
transactions with respect to such options. The Portfolio also may engage in
transactions involving stock index futures contracts and options thereon and in
transactions involving the future delivery of fixed income securities
("Financial Futures Contracts") and options thereon for income enhancement or as
a hedge against changes in market conditions. (See "Hedging and Income
Enhancement Strategies.")
GROWTH AND INCOME PORTFOLIO
The investment objective of this Portfolio is to provide high current
income and long-term capital appreciation. The Portfolio will seek to achieve
its objective by investing, under normal market conditions, at least 65% of its
total assets in securities that provide the potential for growth and offer
income, such as dividend-paying common stocks and securities convertible into
common stock. The portion of the Portfolio's assets invested in equity
securities and debt securities may vary from time to time due to changes in
interest rates and economic and other factors. This Portfolio is not designed
for investors seeking a steady flow of income distributions. Rather, the
Portfolio's policy of investing in income-producing securities is intended to
provide investors with a greater consistency of investment return than may be
achieved by investing solely in growth stocks.
The equity securities purchased for the Portfolio will generally be issued
by publicly-held corporations. However, the Sub-Adviser may select equity
securities for the Portfolio without regard to the size or established history
of the issuer. Generally, the prices of equity securities may be affected by
such factors as a change in a company's earnings; fluctuations in interest
rates; or changes in the rate of economic growth. Further, to the extent the
Portfolio invests in issuers with small market capitalizations, the Portfolio
would be subject to greater risk than may be involved in investing in securities
of issuers with larger market capitalizations. The securities of small
capitalization issuers typically include those of newer or less seasoned
companies, and may be more speculative than securities issued by larger, more
well-established issuers. Other risks associated with smaller or newer issuers
include less publicly-available information about the issuer; the absence of a
business history or historical pattern of performance; and the normal risks
which accompany the development of new products, markets or services.
The convertible securities in which the Portfolio may invest are not
subject to any limitations as to ratings and may include high, medium, lower and
unrated securities. However, the Portfolio may not invest more than 20% of its
total assets in convertible securities rated below "Baa" by Moody's Investors
Service, Inc. ("Moody's") or "BBB" by Standard and Poor's Ratings Services, A
Division of The McGraw-Hill Companies Inc. ("Standard and Poor's") (including
convertible securities that have been downgraded), or in unrated convertible
securities that are of comparable quality as determined by the Sub-Adviser.
Convertible securities rated lower than "Baa" by Moody's or "BBB" by Standard
and Poor's or unrated securities of comparable quality, commonly referred to as
"junk bonds" or "high yield securities," are speculative and generally involve a
higher risk of loss of principal and income than higher-rated securities. See
"High Yield Portfolio" below and the Statement of Additional Information for a
discussion of the risks associated with lower-rated, high-yield securities.
The Portfolio may also invest up to 20% of its total assets in equity
securities of foreign companies in developed countries which are traded on a
recognized domestic or foreign securities exchange. Although such foreign
securities may be denominated in foreign currencies, the Portfolio anticipates
that the majority of its foreign investments will be in ADRs or GDRs. See
"Foreign Securities Portfolio" for a discussion of these types of securities.
The Portfolio may enter into forward currency contracts to protect against
uncertainty in the level of future exchange rates.
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<PAGE> 15
However, the Sub-Adviser will not actively attempt to time either short-term
market trends or short-term currency trends in any market. See "Hedging and
Income Enhancement Strategies" below.
In addition to the equity and convertible securities described above, the
Portfolio may invest up to 35% of its total assets in the following instruments:
short-term money market instruments denominated in U.S. dollars including
repurchase agreements and Section 4(2) commercial paper, which are authorized
for purchase by the Money Market Portfolio (see "Money Market Portfolio" and
"Repurchase Agreements"); fixed-income securities, including obligations issued
or guaranteed as to principal and interest by the U.S. government, its agencies
or instrumentalities, including mortgage-related securities; high quality debt
securities issued by foreign sovereigns; corporate debt securities rated at
least "BBB" by Standard and Poor's or "Baa" by Moody's, commonly known as
"investment grade securities," or unrated securities that are deemed to be of
comparable quality by the Sub-Adviser; and equity and convertible securities of
issuers that are not paying a dividend, if there exists the potential for growth
of capital or future income. See the Statement of Additional Information
concerning these securities. It is the Portfolio's policy to attempt to sell,
within a reasonable time period, a debt security which has been downgraded below
investment grade (other than convertible securities), provided that such
disposition is in the best interests of the Portfolio and its shareholders. See
Appendix A for a description of corporate bond ratings.
Finally, the Portfolio may enter into contracts on financial futures or
stock index futures, or options thereon, for enhancement or hedging purposes.
See "Hedging and Income Enhancement Strategies" below. The Portfolio may also
make loans of portfolio securities and invest in securities issued on a
"when-issued" or "delayed delivery" basis. (See "When-Issued Securities" and
"Loans of Portfolio Securities" in the Statement of Additional Information.) In
addition, in any period of market weakness or of uncertain market conditions,
the Portfolio may establish a temporary defensive position to preserve capital
by investing up to 100% of total assets in cash, cash equivalents or high
quality short-term fixed-income securities.
MANAGED PORTFOLIOS
STRATEGIC MULTI-ASSET PORTFOLIO
The investment objective of this Portfolio is to seek high long-term total
investment return. Total investment return consists of dividends, interest and
other income, and net realized and unrealized appreciation and depreciation in
the value of the Portfolio's security holdings. This Portfolio will invest in a
diversified group of securities consisting of the asset classes described below
and, although it is designed to offer the potential for higher investment return
than the Multi-Asset Portfolio, it can be expected to result in greater price
volatility and potentially greater risk of loss than the Multi-Asset Portfolio.
The asset allocation of the Portfolio will be actively managed among the
following asset categories: equity securities, including the securities of
smaller companies which may be newer and less seasoned, international
securities, investment grade bonds, high-yield, high-risk bonds and money market
instruments. (See the discussion under "Foreign Securities Portfolio" and "Fixed
Income Portfolio," and "Foreign Securities" in the Statement of Additional
Information.)
Asset allocation decisions will be based upon the same type of fundamental
analysis as for the Multi-Asset Portfolio and the Sub-Adviser will not attempt
to make short-term market timing decisions. Although the Portfolio is expected
to have some portion of its assets in equities, fixed income securities and
money market instruments at all times, investments in each sub-sector (e.g.
domestic or international equities) may vary substantially based upon the
Sub-Adviser's fundamental analysis of the relative attractiveness and potential
risks of each sector. The Portfolio does not have percentage limitations on the
amount allocated to each market sector or sub-sector and may emphasize such
sectors or sub-sectors indicated by the Sub-Adviser's analysis and judgment.
The Portfolio may sell (write) covered call options on stocks, purchase put
and call options and combinations of such options, and enter into closing
transactions with respect to such options. The Portfolio also may engage in
transactions involving stock index futures contracts and options thereon and
Financial Futures Contracts and options thereon for income enhancement or as a
hedge against changes in market conditions. (See "Hedging and Income Enhancement
Strategies.") In addition, the Portfolio may purchase when-issued securities.
(See "When-Issued Securities" in the Statement of Additional Information.)
The Portfolio may invest in short-term money market instruments denominated
in U.S. dollars, including repurchase agreements and Section 4(2) commercial
paper, which are authorized for purchase by the Money Market Portfolio. (See
"Money Market Portfolio" and "Repurchase Agreements.")
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<PAGE> 16
MULTI-ASSET PORTFOLIO
The investment objective of this Portfolio is to seek long-term total
investment return consistent with moderate investment risk. Total investment
return consists of dividends, interest and other income and net realized and
unrealized appreciation and depreciation in the value of the Portfolio's
investments. The Portfolio's investments will be actively managed and allocated
among the following asset categories: equity securities, convertible securities,
investment grade fixed income securities and money market securities. (See
"Fixed Income Portfolio").
The Sub-Adviser will actively manage the allocation of assets among market
sectors based upon its judgment of the projected investment environment for
financial assets, relative fundamental values and attractiveness of each sector,
and expected future returns of each sector. The Sub-Adviser will base its asset
allocation decisions on fundamental analysis and will not attempt to make
short-term market timing decisions among market sectors. As a result, shifts in
asset allocation are expected to be gradual and continuous and the Portfolio
will normally have some portion of its assets invested in each market sector at
all times. The Portfolio does not have percentage limitations on the amount
allocated to each market sector and may emphasize such sectors indicated by the
Sub-Adviser's analysis and judgment.
The Portfolio may sell (write) covered call options on stocks, purchase put
and call options and combinations of such options, and enter into closing
transactions with respect to such options. The Portfolio also may engage in
transactions involving stock index futures contracts and options thereon and
Financial Futures Contracts and options thereon for income enhancement or as a
hedge against changes in market conditions. (See "Hedging and Income Enhancement
Strategies.") In addition, the Portfolio may purchase when-issued securities.
(See "When-Issued Securities" in the Statement of Additional Information.) The
Portfolio also may invest in foreign securities. (See "Foreign Securities
Portfolio" above, and "Foreign Securities" in the Statement of Additional
Information.)
The Portfolio may invest in short-term money market instruments denominated
in U.S. dollars, including repurchase agreements and Section 4(2) commercial
paper, which are authorized for purchase by the Money Market Portfolio. (See
"Money Market Portfolio" and "Repurchase Agreements.")
INCOME PORTFOLIOS
HIGH YIELD PORTFOLIO
The primary objective of this Portfolio is to produce high current income.
A secondary investment objective is capital appreciation. The Portfolio will
seek its objectives by investing, except for temporary defensive purposes, at
least 65% of its assets in high-yielding, high-risk, income producing corporate
bonds, also known as "junk bonds." Although these securities can be expected to
provide higher yields, they may be subject to greater market fluctuations and
the risk of loss of income and principal, than lower yielding, higher-rated
fixed-income securities. The Portfolio may invest up to 10% of its assets in
securities which are subject to restrictions as to resale or for which market
quotations are not readily available. To the extent such investments are made,
the Portfolio may have less freedom of disposition and receive possibly less
favorable prices than would be the case for securities not subject to such
restrictions.
Because investment in such high-yield, high-risk securities entails greater
risks, an investment in the Portfolio should not constitute a complete
investment program and may not be appropriate for all investors. The investments
of the Portfolio will be subject to greater market fluctuations and risk of loss
of income and principal due to default by an issuer than are investments in
higher rated bonds.
Generally, bonds providing the highest yield carry lower ratings (Baa or
lower by Moody's or BBB or lower by Standard and Poor's than those assigned by
Moody's or Standard and Poor's to investment grade bonds, or are unrated.
Descriptions of the Moody's and Standard and Poor's rating categories are set
forth in Appendix A. In general, these credit ratings represent only a portion
of the data analyzed by the Sub-Adviser when evaluating bonds for purchase or
sale in the Portfolio. In many instances, the rating agencies are not able to
reflect changes in value of high-yield, high-risk bonds in a timely manner and
are therefore valuable only so much as they can be employed as one source of
credit quality data in the Portfolio's overall investment strategy.
12
<PAGE> 17
As of December 31, 1995 the Portfolio held securities of 110 corporate
issuers, and the Portfolio's holdings for the fiscal year 1995 had on average
the following credit quality characteristics:
<TABLE>
<CAPTION>
PERCENTAGE
OF
INVESTMENT NET ASSETS
---------------------------------------------------------------------- ----------
<S> <C>
Cash and Cash Equivalents............................................. 5%
Corporate Bonds
BBB................................................................. 1%
BB.................................................................. 39%
B+.................................................................. 17%
B................................................................... 17%
B-.................................................................. 16%
CCC................................................................. 1%
Non-rated........................................................... 2%
Other................................................................. 2%
----------
100.0%
========
</TABLE>
The Portfolio will invest in a variety of fixed-income instruments which
are rated less than investment grade or are unrated but are of comparable
quality as determined by the Sub-Adviser. It can be expected that a majority of
securities selected and held will have a relatively high current yield, when
compared to investment grade fixed-income securities. The Portfolio will also
utilize other types of securities such as discount bonds, zero coupon bonds,
convertible bonds, straight and convertible preferred stocks, warrants and
common stocks. For a more complete description of the characteristics and risks
involved in investing in these securities see the Statement of Additional
Information. For a more complete discussion of the risks involved in zero coupon
bond investments see the description of the Target '98 Portfolio. To the extent
that warrants and common stocks are used there may be some additional investment
risk and countervailing opportunity. These securities will be selected and held
when, in the opinion of the Sub-Adviser, the less than highest available current
yield is more than offset by prospects for capital appreciation. The Portfolio
in the future will utilize such securities as from time to time may be created
and which the Adviser and Sub-Adviser deem suitable and appropriate.
The Portfolio may invest, without limit, in unrated securities if such
securities offer, in the opinion of the Sub-Adviser, a relatively high yield
without undue risk. Although the Portfolio will invest primarily in lower-rated
securities, it will not invest in securities in the lowest rating categories (Ca
for Moody's and CC for Standard and Poor's) unless the Sub-Adviser believes that
the financial condition of the issuer or the protection afforded to the
particular securities is stronger than would otherwise be indicated by such low
ratings.
When changing economic conditions and other factors cause the yield
difference between lower-rated and higher-rated securities to narrow, the
Portfolio may purchase higher-rated securities if the Sub-Adviser believes that
the risk of loss of income and principal may be substantially reduced with only
a relatively small reduction in yield. In addition, under unusual market or
economic conditions, the Portfolio, for temporary defensive purposes, may invest
up to 100% of its assets in cash, securities issued or guaranteed by the U.S.
Government or its instrumentalities or agencies, certificates of deposit,
bankers' acceptances and other bank obligations, commercial paper rated in the
highest category by an established rating agency, or other fixed-income
securities deemed by the Sub-Adviser to be consistent with a defensive posture.
The yield on such securities may be lower than the yield on lower-rated fixed-
income securities. The Portfolio may also invest in high yield bonds issued by
foreign corporations which are denominated in U.S. or foreign currencies. (See
"Foreign Securities Portfolio.")
The Portfolio may invest in short-term money market instruments denominated
in U.S. dollars, including repurchase agreements, which are authorized for
purchase by the Money Market Portfolio. (See "Money Market Portfolio" and
"Repurchase Agreements.") In addition, the Portfolio may purchase when-issued
securities. (See "When-Issued Securities" in the Statement of Additional
Information.)
The Portfolio may sell (write) covered call options on stocks, purchase put
and call options on stocks and combinations of such options listed on U.S.
exchanges, and enter into closing transactions with respect to such options
positions. The Portfolio may also enter into Financial Futures Contracts and
options thereon for income enhancement or hedging positions. (See "Hedging and
Income Enhancement Strategies.")
13
<PAGE> 18
RISK FACTORS -- HIGH YIELD BONDS
The values of lower-rated securities, also referred to as "junk bonds,"
generally fluctuate more than those of higher-rated securities. In addition, a
lower rating can reflect a greater possibility of an adverse change in financial
condition affecting the ability of an issuer to make payments of interest or
principal. Because the Portfolio invests primarily in securities in lower-rated
categories, the achievement of the Portfolio's goals is more dependent on the
Sub-Adviser's ability than would be the case if the Portfolio were investing in
securities in the higher-rated categories. Investors should carefully consider
their ability to assume the risks involved before making an investment in this
Portfolio.
The market value of the Portfolio's investments will change in response to
changes in interest rates and the relative financial strength of each issuer.
During periods of falling interest rates, the values of long-term fixed-income
securities generally rise. Conversely, during periods of rising interest rates
the value of such securities generally decline. Changes in the financial
strength of an issuer or changes in the ratings of any particular security may
also affect the value of these investments. The value of high-yield, high-risk
bonds may also be influenced by the bond market's perception of an issuer's
credit quality or its outlook for economic growth. In times where economic
conditions appear to be deteriorating, lower-rated bonds may decline in market
value primarily due to investor's heightened concern over an issuer's credit
quality and its ability to make timely interest and principal payments. In such
periods of real or perceived economic downturn the secondary market for
high-yield, high-risk bonds may become thin and liquidity may be significantly
reduced. This may lead to increased volatility and sudden price movements in the
secondary market.
In a volatile market the Portfolio may find it difficult to value its
securities accurately. During such times the responsibility of the Adviser and
Sub-Adviser to value Portfolio securities becomes more difficult and judgment
plays a greater role in valuation because there is less reliable, objective data
available. Fluctuations in the value of Portfolio securities will not affect
cash income but will be reflected in the Portfolio's net asset value.
TARGET '98 PORTFOLIO
The investment objective of this Portfolio is to seek a predictable
compounded investment return for the specified time period, consistent with
preservation of capital. The Portfolio will invest primarily in zero coupon
securities and current interest-bearing, investment grade debt obligations which
are issued by the U.S. Government, its agencies and instrumentalities, and both
domestic and foreign corporations. These investments will generally mature no
later than November 15, 1998 (the "Maturity Date"). Upon maturity, the Portfolio
will be converted to cash.
While there is no assurance that the Portfolio will succeed in achieving
its objective, it seeks capital preservation for investors who hold their
investment until maturity. In addition, the Portfolio seeks to provide investors
with a sum at the Maturity Date (the "Maturity Value") which, together with the
reinvestment of all dividends and distributions, exceeds their original
investment in the Portfolio by a relatively predictable amount. Investors are
more likely to receive the expected Maturity Value if they retain their
participation in the Portfolio until the Maturity Date. Any investor who redeems
his or her participation prior to the Maturity Date is likely to achieve a
different investment result than the return that was predicted on the date
investment was made, and may even suffer a loss.
The Portfolio will invest in both zero coupon securities and current
interest-bearing debt obligations generally maturing not later than the Maturity
Date. Zero coupon securities are non-interest bearing debt obligations which are
payable in full at maturity, and which typically trade at a substantial or deep
discount from their value at maturity. Thus, the return on these instruments is
known at the time of investment, making them suitable for this Portfolio.
However, the value of zero coupon securities, and therefore the value of the
Portfolio, may be subject to greater market fluctuations from changing interest
rates prior to maturity than the value of debt obligations of comparable
maturities that bear interest currently.
The Portfolio will invest in current interest-bearing debt obligations in
order to provide cash to pay the Portfolio's expenses, to provide liquidity and
to meet transfer and redemption requests. By managing the Portfolio to try to
match current income with expenses, the Portfolio may reduce its reinvestment
risk. Reinvestment risk is the risk that future payments cannot be reinvested at
interest rates that are as high or higher than needed to achieve the Portfolio's
predicted compounded investment return. As zero coupon securities do not pay
interest currently, they present no reinvestment risk to the Portfolio.
14
<PAGE> 19
Zero coupon securities are generally stripped obligations of the U.S.
Government. They are also offered, to a limited extent, by corporate issuers.
The Portfolio is authorized to invest in both government and corporate zero
coupon securities. The current interest-bearing debt obligations in which the
Portfolio is authorized to invest may be offered by domestic or foreign issuers
and may be principally traded in the U.S. or foreign markets. All debt
obligations in which the Portfolio invests will be dollar denominated. Corporate
obligations must be rated at the time of purchase, within the four highest
categories assigned by Moody's or by Standard and Poor's (see Appendix A).
While the creditworthiness of corporate issuers will be carefully
considered, investors bear the risk that these issuers will fail to make
payments of principal or interest when due. This credit risk cannot be
eliminated. If an issuer defaults on its obligations, the value of the Portfolio
may be adversely affected.
Investing in obligations of foreign issuers or obligations of domestic
issuers that trade in foreign markets involves special risks and considerations
not typically associated with investing in the United States. Such risks and
considerations may include political and economic instability, differing
accounting and financial reporting standards, higher commission rates on foreign
portfolio transactions, less readily available public information regarding
issuers, potential adverse changes in tax and exchange control regulations, and
the potential for restrictions on the flow of international capital. Many
foreign countries impose withholding taxes on income from investments in such
countries which may not be recoverable by the Portfolio. Also, the value of
foreign currencies relative to the U.S. dollar will fluctuate and will therefore
affect, either favorably or unfavorably, the value of the underlying securities
which the Portfolio owns. By investing in dollar-denominated foreign securities,
the Portfolio may reduce the risk associated with fluctuations in the value of
foreign currencies relative to the U.S. dollar.
The Portfolio is also permitted to invest in high quality short-term money
market instruments and repurchase agreements such as those invested in by the
Money Market Portfolio. (See "Money Market Portfolio" and "Repurchase
Agreements".) As the Maturity Date approaches, the Portfolio will invest in more
short-term, highly liquid investments to preserve capital. In addition, the
Portfolio may purchase when-issued securities. (See "When-Issued Securities" in
the Statement of Additional Information.) The Portfolio may also engage in
transactions involving Financial Futures Contracts and options thereon for
income enhancement and hedging purposes. (See "Hedging and Income Enhancement
Strategies.")
Generally, the market value of the underlying securities in the Portfolio
will vary inversely with changes in interest rates. This means that the value of
a share of the Portfolio will tend to rise as interest rates decline, and
decline as interest rates rise. While the risk of these fluctuations in value is
greater when the period to maturity is longer, they tend to diminish as the
Maturity Date approaches. Accordingly, investors are more likely to receive
their Maturity Value if they retain their investment in the Portfolio until the
Maturity Date. Nevertheless, although investors can redeem shares at the current
net asset value at any time, the value of the shares may be higher or lower than
when purchased. An investment in the Portfolio is not suited to frequent
purchases and sales in response to short-term fluctuations in the Portfolio's
net asset value.
The Internal Revenue Service has ruled that the owner of zero coupon
securities, for Federal income tax purposes, realizes taxable interest each year
equal to a portion of the difference between the face value of the zero coupon
securities and their purchase price. Similarly, the cash distributions received
from current interest-bearing debt obligations are realized as income each year.
The net investment income of the Portfolio will equal the sum of the imputed
interest earned on its zero coupon securities and the interest upon its current
interest-bearing debt obligations, less the Portfolio's expenses.
FIXED INCOME PORTFOLIO
The investment objective of this Portfolio is to seek a high level of
current income consistent with preservation of capital. The Portfolio will
invest primarily in investment grade fixed-income securities. Portfolio
management will emphasize sector analysis, call protection and credit research,
and will attempt to maintain a high, steady and possibly growing income stream.
The Portfolio will invest at least 80% of the value of its total assets,
taken at market value at the time of investment, in one or more of the
following:
(1) Marketable debt securities of domestic issuers, and of foreign
issuers rated at the time of purchase within the four highest grades
assigned by Moody's (Aaa, Aa, A or Baa) or by Standard and Poor's (AAA, AA,
A or BBB);
15
<PAGE> 20
(2) Securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, including mortgage-backed securities (see
"Government and Quality Bond Portfolio");
(3) Commercial paper rated at the time of purchase Prime-1 by Moody's
or A-1 by Standard and Poor's;
(4) Obligations of banks having total assets in excess of $1 billion.
The balance of the Portfolio's investments will include: other debt
securities (including those convertible into, or carrying warrants to purchase,
common stocks or other equity interests, and privately placed debt securities);
preferred stocks (including those convertible into, or carrying warrants to
purchase, common stocks or other equity interests); and marketable common stocks
which WMC considers likely to yield relatively high income in relation to
alternative investments. Debt securities are sometimes offered with warrants for
the purchase of common stock of the issuer of the debt security. These may be
purchased by the Portfolio only when the debt security meets the Portfolio's
investment criteria and the value of the warrants is relatively small. If the
warrant becomes valuable it will ordinarily be sold rather than exercised. It is
anticipated that no more than 20% of the assets of the Portfolio will be held in
convertible securities, and that no more than 10% of the assets of the Portfolio
will constitute warrants. To the extent that warrants are used, there may be
some additional investment risk, and countervailing opportunity, depending upon
the extent to which the underlying common stock price fluctuates.
Consistent with the Portfolio's investment objective, the Portfolio may
have up to 20% of its assets invested in instruments which are not investment
grade, including preferred stocks, when individually attractive yields offset
lower credit quality. (See "Risk Factors -- High Yield Bonds" under "High Yield
Portfolio.") See Appendix A for a description of corporate bond ratings.
The Portfolio may invest in short-term money market instruments denominated
in U.S. dollars, including repurchase agreements, which are authorized for
purchase by the Money Market Portfolio. The Portfolio may also engage in
transactions involving Financial Futures Contracts and in options thereon for
income enhancement or hedging purposes. (See "Hedging and Income Enhancement
Strategies.") In addition, the Portfolio may purchase when-issued securities.
(See "When-Issued Securities" in the Statement of Additional Information.)
Bonds and debt securities with the lowest rating of the four investment
grade categories, BBB or Baa, may have speculative characteristics. Changes in
economic conditions or other circumstances are likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
rated bonds and debt instruments.
GOVERNMENT AND QUALITY BOND PORTFOLIO
The investment objective of this Portfolio is relatively high current
income, liquidity and security of principal. The Portfolio will seek to achieve
its objective by investing in obligations issued, guaranteed or insured by the
U.S. Government, its agencies or instrumentalities ("government securities"),
corporate debt securities rated Aa or better by Moody's or AA or better by
Standard and Poor's ("high quality corporate bonds") and U.S. dollar denominated
foreign government and corporate debt securities of comparable quality. It is
currently anticipated that the Portfolio will have the majority of its assets
invested in government securities since the Trust is permitted to treat each
U.S. agency or instrumentality as a separate issuer for purposes of determining
compliance with diversification standards imposed by Section 817(h) of the Code.
(See "Special Considerations.")
The Portfolio may invest in mortgage-backed securities known as Ginnie Maes
("GNMA Securities"). GNMA Securities represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veterans Administration. The Government
National Mortgage Association ("GNMA") guarantees the timely payment of
principal and interest on modified pass-through certificates when such payments
are due, whether or not these amounts are collected by the issuer of these
certificates on the underlying mortgages. The Portfolio may also invest in
similar mortgage-backed securities with differences in timing of payment and
pool structure, and other forms of GNMA Securities which are developed from time
to time if they are consistent with the investment objective of the Portfolio.
Mortgages included in single family or multi-family residential mortgage
pools backing an issue of GNMA Securities have a maximum maturity of up to 40
years. Scheduled payments of principal and interest are made to the registered
holders of GNMA Securities (such as the Portfolio) each month. Unscheduled
prepayments of mortgages included in these pools occur as a result of payment or
refinancing by homeowners or as a result of a default. Prepayments are passed
through to the registered holders of GNMA Securities with the regular monthly
payments of principal and interest. This has the effect of reducing future
payments on such GNMA Securities.
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<PAGE> 21
The Portfolio will also invest in high quality corporate bonds. High
quality corporate bonds may include straight debt securities of corporate or
trust issuers which are rated in the two highest rating categories by Moody's or
Standard and Poor's or, if not rated, determined by the Sub-Adviser to be of
comparable quality. At least 80% of the Portfolio will be invested in government
securities and high quality corporate bonds, except for temporary defensive
purposes. Up to 20% of the Portfolio may be invested in bonds rated as low as A
by Moody's or Standard and Poor's or, if not rated, determined by the
Sub-Adviser to be of comparable quality. See Appendix A for a description of
corporate bond ratings.
The Portfolio may also invest in other obligations issued, guaranteed or
insured by the United States, its agencies or instrumentalities. Some
obligations issued or guaranteed by agencies of the U.S. Government are backed
by the full faith and credit of the United States; others are backed only by the
rights of the issuer to borrow from the U.S. Treasury, such as Federal Mortgage
Association Securities. Insured obligations are generally backed by a fund
established by the agency to provide for losses. The GNMA Securities acquired by
the Portfolio have historically involved little risk of loss of principal if
held to maturity. However, if interest rates fluctuate or there are prepayments
on securities purchased at a premium, the market value of the securities may
vary.
The Portfolio may invest in short-term money market instruments denominated
in U.S. dollars, including repurchase agreements, which are authorized for
purchase by the Money Market Portfolio. (See "Money Market Portfolio" and
"Repurchase Agreements.") In addition, the Portfolio may invest in when-issued
securities. (See "When-Issued Securities" in the Statement of Additional
Information.)
MONEY MARKET PORTFOLIO
The investment objective of this Portfolio is current income consistent
with stability of principal. The Portfolio intends to comply with SEC
regulations under the 1940 Act applicable to money market funds. These
regulations impose certain quality, maturity and diversification guidelines on
the Portfolio's investments. Under these regulations, the Portfolio will invest
in a diversified portfolio of money market instruments maturing in 397 days or
less. Further, the Portfolio will maintain a dollar-weighted average portfolio
maturity of not more than 90 days.
The Portfolio will be invested in obligations denominated in U.S. dollars
which, at the time of investment, are "eligible securities" as defined in the
regulations. Under these regulations, an eligible security is an instrument that
is rated (or that has been issued by an issuer rated with respect to other
short-term debt of comparable priority and security) by at least two nationally
recognized statistical rating organizations ("NRSRO") (or if only one such
organization has issued a rating, by that organization) in one of the two
highest rating categories for short-term debt obligations, or an unrated
security which is determined to be of comparable quality under procedures
established by the Board of Trustees. Securities in which the Portfolio may
invest include: (i) commercial paper and other short-term obligations of U.S.
and foreign corporations; (ii) obligations (including certificates of deposit,
time deposits, and bankers' acceptances) of U.S. savings and loan institutions,
U.S. commercial banks (including foreign branches of such banks), and U.S. and
London branches of foreign banks, provided that such institutions (or, in the
case of a branch, the parent institution) have total assets of $500 million or
more as shown on their last published financial statements at the time of
investment; (iii) obligations issued or guaranteed as to principal and interest
by the U.S. Government or the agencies or instrumentalities thereof; (iv)
short-term obligations issued by state and local governmental issuers; (v)
obligations of foreign governments, including Canadian and Provincial Government
and Crown Agency Obligations; (vi) securities that have been structured to be
eligible money market instruments such as participation interests in special
purpose trusts that meet the quality and maturity requirements in whole or in
part due to arrangements for credit enhancement or for shortening effective
maturity; and (vii) repurchase agreements. Obligations which are rated in the
second highest rating category by any NRSRO will be limited to 5% of the
Portfolio's total assets and further limited by issuer to 1% of the Portfolio's
total assets. Descriptions of bond ratings are set forth in Appendix A.
In addition, the Portfolio may invest in commercial paper issued in
reliance on the exemption from registration afforded by Section 4(2) of the 1933
Act. Section 4(2) commercial paper is restricted as to disposition under federal
securities law, and is generally sold to institutional investors, such as the
Portfolio, who agree that they are purchasing the paper for investment purposes
and not with a view to public distribution. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) commercial paper is normally resold to
other institutional investors like the Portfolio through or with the assistance
of the issuer or investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity. The Portfolio's Board of Trustees believes that
in many cases Section 4(2) commercial paper meets its criteria for liquidity and
is quite liquid and has delegated to the
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Adviser the authority to make such a determination of liquidity. The Portfolio
intends, therefore, in those cases, to treat Section 4(2) commercial paper as
liquid and not subject to the investment limitation applicable to illiquid
securities. (See "Illiquid Securities" below and in the Statement of Additional
Information.) The Portfolio may also invest in when-issued securities. (See
"When-Issued Securities" in the Statement of Additional Information.)
Certain obligations purchased by the Portfolio may be variable or floating
rate instruments, may involve a demand feature and may include variable amount
master demand notes. Variable or floating rate instruments bear interest at a
rate which varies with changes in market rates. The holder of an instrument with
a demand feature may tender the instrument back to the issuer at par value prior
to maturity.
Although the Portfolio seeks to maintain a net asset value of $1.00 per
share for purposes of purchases and redemptions, there can be no assurance that
the net asset value will not vary. (See "Net Asset Value.") The Portfolio will
be affected by general changes in interest rates resulting in increases or
decreases in the value of the obligations held by the Portfolio. The value of
the securities in the Portfolio can be expected to vary inversely to the changes
in prevailing interest rates. Thus, if interest rates have increased from the
time a security was purchased, such security, if sold, might be sold at a price
less than its purchase cost. Similarly, if interest rates have declined from the
time a security was purchased, such security, if sold, might be sold at a price
greater than its purchase cost. In either instance, if the security were held to
maturity, no loss or gain would normally be realized as a result of these
fluctuations. Redemptions of shares could require the sale of investments at a
time when such a sale might not otherwise be desirable.
REPURCHASE AGREEMENTS
All Portfolios may enter into repurchase agreements (commonly called
"repos") with banks and dealers in U.S. Government securities. Under a
repurchase agreement, a Portfolio may acquire an underlying debt instrument for
a relatively short period, subject to an obligation of the seller to repurchase
and the Portfolio to resell the instrument at a fixed price and time, thereby
determining the yield during the Portfolio's holding period. This results in a
fixed rate of return insulated from market fluctuations during such period.
Under the 1940 Act, repurchase agreements are considered loans by the
Portfolios. The total amount received on repurchase would exceed the price paid
by the Portfolio, reflecting an agreed upon rate of interest for the period from
the date of the repurchase agreement to the settlement date, and would not be
related to the interest rate on the underlying securities. The difference
between the total amount to be received upon the repurchase of the securities
and the price paid by the Portfolio upon the acquisition is accrued daily as
interest. In the event of a default by an institution, the Portfolio may incur
certain costs in liquidating the collateral, and could also incur a loss if the
proceeds realized upon sale of the underlying obligations are less than the
repurchase price. In addition, if bankruptcy proceedings are commenced with
respect to the seller, realization on the collateral by a Portfolio may be
delayed or limited and the Portfolio may incur additional costs. In such case,
the Portfolio will be subject to risks associated with changes in the market
value of the collateral securities. In order to limit the risks associated with
entry into repurchase agreements, the Trustees have adopted procedures to
monitor and evaluate the creditworthiness of institutions with which it proposes
to engage in repos. The Portfolios will always obtain collateral in proper form
having a market value of not less than 102% of the purchase price. Such
collateral will be U.S. Government obligations and will be in the actual or
constructive possession of the Portfolio.
ILLIQUID SECURITIES
Each of the Portfolios may invest no more than 10% of the value of its net
assets in securities which are illiquid, including repurchase agreements
providing for settlement in more than seven days after notice. For this purpose,
not all securities which are restricted are deemed to be illiquid. For example,
restricted securities which the Board of Trustees, or the Adviser or Sub-Adviser
pursuant to guidelines established by the Board of Trustees, has determined to
be marketable, such as securities eligible for sale under Rule 144A promulgated
under the 1933 Act or certain private placements of commercial paper issued in
reliance on an exemption from the 1933 Act pursuant to Section 4(2) thereof,
will not be deemed to be illiquid for purposes of this restriction. This
investment practice could have the effect of increasing the level of illiquidity
in a Portfolio to the extent that qualified institutional buyers (as defined in
Rule 144A) become for a time uninterested in purchasing these restricted
securities. In addition, a repurchase agreement which by its terms can be
liquidated before its nominal fixed-term on seven days or less notice is
regarded as a liquid instrument. Subject to the applicable limitation on
illiquid securities investments, a Portfolio may acquire securities issued by
the U.S. Government, its agencies or instrumentalities in a private placement.
See "Illiquid Securities" in the Statement of Additional Information for a
further discussion of investments in such securities.
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HEDGING AND INCOME ENHANCEMENT STRATEGIES
Each Portfolio (other than the Money Market Portfolio) may each engage in
various portfolio strategies to reduce certain risks of its investments and to
attempt to enhance income. These strategies include the use of options and
futures contracts and options thereon. A Portfolio's ability to use these
strategies may be limited by market conditions, regulatory limits and tax
considerations and there can be no assurance that any of these strategies will
succeed. See "Investment Objectives and Policies" in the Statement of Additional
Information. New financial products and risk management techniques continue to
be developed and each Portfolio may use these new investments and techniques to
the extent consistent with its investment objectives and policies.
OPTIONS TRANSACTIONS
A Portfolio may purchase and write (i.e., sell) put and call options on
securities and financial indices that are traded on securities exchanges or in
the over-the-counter market to enhance income or to hedge its portfolio. These
options may be on debt securities, aggregates of debt securities, financial
indices (e.g., Standard and Poor's 500 Composite Stock Index) and U.S.
Government securities and may be traded on securities exchanges or over-the-
counter. A Portfolio may write covered put and call options to generate
additional income through the receipt of premiums, purchase put options in an
effort to protect the value of a security that it owns against a decline in
market value and the simultaneous purchase of a call option and sale of a put
option with identical strikes price and expiration dates to protect against a
change in the price. A Portfolio may also purchase put and call options to
offset previously written put and call options of the same series. See
"Investment Objectives and Policies -- Call and Put Options on Securities" in
the Statement of Additional Information.
INDEXED COMMERCIAL PAPER
Each Portfolio (other than the Money Market Portfolio) may invest in
commercial paper which is indexed to certain specific foreign currency exchange
rates. The terms of such commercial paper provide that its principal amount is
adjusted upwards or downwards (but not below zero) at maturity to reflect
changes in the exchange rate between two currencies while the obligation is
still outstanding. A Portfolio will purchase such commercial paper with the
currency in which it is denominated and, at maturity, will receive interest and
principal payments thereon in that currency, but the amount of principal payable
by the issuer at maturity will change in proportion to the change (if any) in
the exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. A Portfolio will
establish a segregated account with respect to its investments in this type of
commercial paper and maintain in such account cash or liquid high-grade debt
obligations having a value at least equal to the aggregate principal amount of
outstanding commercial paper of this type that it holds. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables the Portfolio
to hedge (or cross-hedge) against a decline in the U.S. dollar value of
investments dominated in foreign currencies while providing an attractive money
market rate of return. See "Investment Objectives and Policies -- Foreign
Currency Exchange Transactions" in the Statement of Additional Information.
FUTURES CONTRACTS AND OPTIONS THEREON
Each Portfolio (other than the Money Market Portfolio) may purchase and
sell financial futures contracts and options thereon which are traded on a
commodities exchange or board of trade for certain hedging, return enhancement
and risk management purposes in accordance with regulations of the Commodity
Futures Trading Commission. These futures contracts and related options will be
on debt securities, aggregates of debt securities, financial indices and U.S.
Government securities and include futures contracts and options thereon which
are linked to the London Interbank Offered Rate (LIBOR).
A Portfolio may not purchase or sell futures contracts and related options
if immediately thereafter the sum of the amount of initial margin deposits on
such Portfolio's existing futures and options on futures and premiums paid for
such related options would exceed 5% of the market value of the Portfolio's
total assets.
A Portfolio's successful use of futures contracts and related options
depends upon the investment adviser's ability to predict the direction of the
market and is subject to various additional risks. The correlation between
movements in the price of a futures contract and the price of the securities
being hedged is imperfect and there is a risk that the value of the securities
being hedged may increase or decrease at a greater rate than a specified futures
contract resulting in losses to a Portfolio.
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A Portfolio's ability to enter into futures contracts and options thereon
may also be limited by the requirements of the Code for qualification as a
regulated investment company. See "Investment Objectives and Policies --
Financial Futures Contracts on Fixed Income Securities -- Characteristics and
Risks" and "Options on Financial Futures Contracts" in the Statement of
Additional Information.
SPECIAL RISKS OF HEDGING AND INCOME ENHANCEMENT STRATEGIES
Participation in the options or futures markets involves investment risks
and transaction costs to which a Portfolio would not be subject absent the use
of these strategies. If an Adviser's prediction of movements in the direction of
the securities and interest rate markets is inaccurate, the adverse consequences
to a Portfolio may leave the Portfolio in a worse position that if such
strategies were not used. Risks inherent in the use of options and futures
contracts and options on futures contracts include (1) dependence on the
Adviser's ability to predict correctly movements in the direction of interest
rates and securities prices; (2) imperfect correlation between the price of
options and futures contracts and options thereon and movements in the prices of
the securities being hedged; (3) the fact that skills needed to use these
strategies are different from those needed to select portfolio securities; (4)
the possible absence of a liquid secondary market for any particular instrument
at any time; (5) the possible need to defer closing out certain hedged positions
to avoid adverse tax consequences; and (6) the possible inability of a Portfolio
to purchase or sell a portfolio security at a time that otherwise would be
favorable for it to do so, or the possible need for a Portfolio to sell a
portfolio security at a disadvantageous time, due to the need for a Portfolio to
maintain "cover" or to segregate securities in connection with hedging
transactions.
FORWARD COMMITMENTS
Each Portfolio may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward commitments")
if a Portfolio holds, and maintains until the settlement date in a segregated
account, cash or high-grade debt obligations in an amount sufficient to meet the
purchase price, or if a Portfolio enters into offsetting contracts for the
forward sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in the value of a Portfolio's other assets.
Where such purchases are made through dealers, a Portfolio relies on the dealer
to consummate the sale. The dealer's failure to do so may result in the loss to
a Portfolio of an advantageous yield or price. Although a Portfolio will
generally enter into forward commitments with the intention of acquiring
securities for its portfolio or for delivery pursuant to options contracts it
has entered into, a Portfolio may dispose of a commitment prior to settlement if
the Sub-Adviser deems it appropriate to do so. A Portfolio may realize
short-term profits or losses upon the sale of forward commitments.
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INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment policies set forth above, certain additional
restrictive policies relating to the investment of assets of the Portfolios have
been adopted by the Trust. The Investment Restrictions of the Trust are deemed
fundamental policies and may not be changed without the approval of the holders
of a majority of the outstanding voting shares of each Portfolio affected, which
for this purpose and under the 1940 Act means the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding shares
are represented or (ii) more than 50% of the outstanding shares. A change in
policy affecting only one Portfolio may be effected with the approval of a
majority of the outstanding shares of such Portfolio. Details as to such
policies are set forth in the Statement of Additional Information.
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SPECIAL CONSIDERATIONS
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The Code imposes certain diversification standards on the underlying assets
of Variable Contracts held in the Portfolios of the Trust. The Code provides
that a Variable Contract shall not be treated as an annuity contract or life
insurance for any period for which the investments are not adequately
diversified, in accordance with regulations prescribed by the Treasury
Department. Disqualification of the Variable Contract as an annuity contract or
life insurance would result in imposition of Federal income tax on the Contract
Owner with respect to earnings allocable to the Variable Contract prior to the
receipt of payments under the Variable Contract. The Code contains a safe harbor
provision which provides that contracts such as the Variable Contracts meet the
diversification requirements if, as of the close of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than 55% of the total assets consists of cash, cash items, U.S.
Government securities and securities of other regulated investment companies.
The Treasury Department has issued Regulations (Treas. Reg. Section
1.817-5), which establish diversification requirements for the investment
portfolios underlying variable contracts such as the Variable Contracts. The
Regulations amplify the diversification requirements for variable contracts set
forth in the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations, an investment portfolio will be deemed
adequately diversified if, at the close of each calendar quarter, (i) no more
than 55% of the value of the total assets of the portfolio is represented by any
one investment; (ii) no more than 70% of the value of the total assets of the
portfolio is represented by any two investments; (iii) no more than 80% of the
value of the total assets of the portfolio is represented by any three
investments; and (iv) no more than 90% of the value of the total assets of the
portfolio is represented by any four investments. For purposes of these
regulations all securities of the same issuer are treated as a single
investment.
The Technical and Miscellaneous Revenue Act of 1988 provides that for
purposes of determining whether or not the diversification standards imposed on
the underlying assets of variable contracts by Section 817(h) of the Code have
been met, "each United States government agency or instrumentality shall be
treated as a separate issuer."
It is intended that each Portfolio of the Trust underlying the Contracts
will be managed in such a manner as to comply with these diversification
requirements.
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MANAGEMENT OF THE TRUST
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THE TRUSTEES
The Trust is organized as a Massachusetts business trust. The overall
responsibility for the supervision of the affairs of the Trust is vested in the
Trustees. The Trustees meet periodically to review the affairs of the Trust and
to establish certain guidelines which the Adviser and Sub-Adviser are expected
to follow in implementing the investment policies and objectives of the Trust.
SAAMCO
The Trust, on behalf of each Portfolio, has entered into an Investment
Advisory and Management Agreement (the "Agreement") with SAAMCo to handle the
Trust's day-to-day affairs.
SAAMCo, located at The SunAmerica Center, 733 Third Avenue, New York, New
York 10017-3204, is a corporation organized in 1982 under the laws of the State
of Delaware. SAAMCo is an indirect wholly owned subsidiary of SunAmerica Inc.,
an investment-grade financial services company. In addition to serving as
adviser to the Trust, the Adviser and its affiliates serve as adviser, manager
and/or administrator for Anchor Pathway Fund, SunAmerica Equity Funds,
SunAmerica Income Funds, SunAmerica Money Market Funds, Inc. and SunAmerica
Series Trust. The Adviser and its affiliates managed, advised and/or
administered assets of approximately $7.6 billion as of December 31, 1995 for
investment companies, individuals, pension accounts, and corporate and trust
accounts. SAAMCo provides investment advisory services, office space, and other
facilities for the management
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of the affairs of the Trust, and pays all compensation of officers and Trustees
of the Trust who are affiliated persons of SAAMCo.
The annual rate of the investment advisory fees which apply to each
Portfolio, are as follows:
Foreign Securities Portfolio pays a fee of .90% of Assets per annum;
Capital Appreciation Portfolio pays a fee of .75% of Assets per annum; Growth
Portfolio pays a fee of .75% of Assets per annum; Natural Resources Portfolio
pays a fee of .75% of Assets per annum; Growth and Income Portfolio pays a fee
of .70% of Assets per annum; Strategic Multi-Asset Portfolio pays a fee of 1% of
Assets per annum; Multi-Asset Portfolio pays a fee of 1% of Assets per annum;
High Yield Portfolio pays a fee of .70% per annum on the first $250 million of
Assets and .60% per annum over $250 million of Assets; Target '98 Portfolio pays
a fee of .625% of Assets per annum; Fixed Income Portfolio pays a fee of .625%
of Assets per annum; Government and Quality Bond Portfolio pays a fee of .625%
of Assets per annum; and Money Market Portfolio pays a fee of .50% of Assets per
annum.
The investment management fees set out above are higher than those paid by
many other investment companies with similar investment objectives.
Notwithstanding the foregoing, SAAMCo has agreed to waive a portion of its fees
to reflect a fee schedule based on the asset size of a given portfolio. As a
result, in certain cases, the fees actually collected with respect to a
portfolio may be less than those set forth above. More complete information
concerning the fee waivers is contained in the Statement of Additional
Information.
The term "Assets" means the average daily net assets of the Portfolio. The
Investment Advisory fees are accrued daily and paid monthly.
SAAMCo has agreed that, in the event the expenses of one or more of the
Portfolios exceeds applicable state law expense limitations, it will waive its
fees under the Investment Advisory and Management Agreements to the extent
necessary to reduce the expenses of the affected Portfolio(s) so as not to
exceed such limitation(s). No such waiver shall result in the obligation
(contingent or otherwise) of the affected Portfolio(s) to repay SAAMCo in any
fiscal year any such amounts waived in previous fiscal years. Such agreements
with respect to expense limitations do not require SAAMCo to additionally
reimburse any Portfolio in the event the waivers are insufficient to reduce such
Portfolio's expenses to the applicable limitations.
For the year ended December 31, 1995, SAAMCo received fees equal to the
following percentages of Assets: Foreign Securities Portfolio, 0.90%; Capital
Appreciation Portfolio, 0.69%; Growth Portfolio, 0.74%; Natural Resources
Portfolio, 0.75%; Growth and Income Portfolio, 0.70%; Strategic Multi-Asset
Portfolio, 1.00%; Multi-Asset Portfolio, 1.00%; High Yield Portfolio, 0.70%;
Target '98 Portfolio, 0.63%; Fixed Income Portfolio, 0.62%; Government and
Quality Bond Portfolio, 0.62%; and Money Market Portfolio, 0.50%.
WELLINGTON MANAGEMENT COMPANY
WMC acts as Sub-Adviser to each Portfolio of the Trust, pursuant to a
Sub-Advisory Agreement with SAAMCo to manage the investment and reinvestment of
the assets of such Portfolios. WMC is independent of SAAMCo and discharges its
responsibilities subject to the policies of the Trustees and the oversight and
supervision of SAAMCo, which pays WMC's fees.
WMC is a professional investment counseling firm which provides investment
services to investment companies, employee benefit plans, endowments,
foundations, and other institutions and individuals. As of December 31, 1995,
WMC had discretionary management authority with respect to approximately $109.2
billion of assets.
WMC is a Massachusetts partnership of which the following persons are
managing partners: Robert W. Doran, Duncan M. McFarland and John R. Ryan. The
principal business address of WMC is 75 State Street, Boston, Massachusetts
02109.
The portion of the investment advisory fees received by SAAMCo and paid to
WMC are as follows:
Foreign Securities Portfolio -- .40% per annum on the first $50 million of
Assets, .275% per annum on the next $100 million, .20% per annum on the next
$350 million, and .15% per annum over $500 million; Capital Appreciation
Portfolio -- .375% per annum on the first $50 million of Assets, .275% per annum
on the next $100 million, .20% per annum on the next $350 million, and .15% per
annum over $500 million; Growth Portfolio -- .325% per annum on the first $50
million of Assets, .225% per annum on the next $100 million, .20% per annum on
the next $350 million, and .15% per annum over $500 million; Natural Resources
Portfolio -- .35% per annum on the first $50 million of Assets, .25% per annum
on the next $100 million, .20% per annum on the next $350 million, and
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.15% per annum over $500 million; Growth and Income Portfolio -- .325% per annum
on the first $50 million of Assets, .225% per annum on the next $100 million,
.20% per annum on the next $350 million, and .15% per annum over $500 million;
Strategic Multi-Asset Portfolio -- .300% per annum on the first $50 million of
Assets, .200% per annum on the next $100 million, .175% per annum on the next
$350 million, and .15% per annum over $500 million; Multi-Asset
Portfolio -- .250% per annum on the first $50 million of Assets, .175% per annum
on the next $100 million, .150% per annum over $150 million; High Yield
Portfolio -- .30% per annum on the first $50 million of Assets, .225% per annum
on the next $100 million, .175% per annum on the next $350 million, and .15% per
annum over $500 million; Target '98 Portfolio -- .225% per annum on the first
$50 million of Assets, .15% per annum on the next $50 million, .10% per annum on
the next $400 million and .05% per annum over $500 million; Fixed Income
Portfolio -- .225% per annum on the first $50 million of Assets, .125% per annum
on the next $50 million, and .10% per annum over $100 million; Government and
Quality Bond Portfolio -- .225% per annum on the first $50 million of Assets,
.125% per annum on the next $50 million, and .10% per annum over $100 million;
and Money Market Portfolio -- .075% per annum on the first $500 million of
Assets, and .020% per annum over $500 million.
For the year ended December 31, 1995, SAAMCo informed the Trust that WMC
received fees equal to the following percentages of daily net assets: Foreign
Securities Portfolio, 0.38%; Capital Appreciation Portfolio, 0.26%; Growth
Portfolio, 0.23%; Natural Resources Portfolio, 0.35%; Growth and Income
Portfolio, 0.32%; Strategic Multi-Asset Portfolio, 0.28%; Multi-Asset Portfolio,
0.19%; High Yield Portfolio, 0.30%; Target '98 Portfolio, 0.22%; Fixed Income
Portfolio, 0.23%; Government and Quality Bond Portfolio, 0.13%; and Money Market
Portfolio, 0.08%.
PORTFOLIO MANAGEMENT
The following individuals are primarily responsible for the day-to-day
management of the particular portfolios as indicated below.
WMC's Global Equity Strategy Group, headed by Trond Skramstad, has been
responsible for managing the FOREIGN SECURITIES PORTFOLIO since 1994.
Robert D. Rands has served as the portfolio manager for the CAPITAL
APPRECIATION PORTFOLIO since its inception in 1987. Mr. Rands is a Senior Vice
President of WMC and joined the company in 1978.
WMC's Growth Investment Team, comprised of Frank V. Wisneski, Senior Vice
President; Matthew E. Megargel, Senior Vice President; and John J. Harrington,
Vice President, has been responsible for managing the GROWTH PORTFOLIO since
1995.
Ernst H. von Metzsch has served as the portfolio manager for the NATURAL
RESOURCES PORTFOLIO since October 24, 1994. Mr. von Metzsch is a Senior Vice
President, Partner and energy analyst at WMC and joined the company in 1973.
Laura J. Allen has served as the portfolio manager for the GROWTH AND
INCOME PORTFOLIO since 1996. Ms. Allen is a Vice President of WMC and joined the
company in 1981, and became a portfolio manager in 1984.
Deborah L. Allinson has served as the portfolio manager for the STRATEGIC
MULTI-ASSET PORTFOLIO since its inception in 1987, and the MULTI-ASSET PORTFOLIO
since its inception in 1987. Ms. Allinson is a Senior Vice President of WMC and
joined the company in 1972.
Catherine A. Smith has served as the portfolio manager for the HIGH YIELD
PORTFOLIO since 1992. Ms. Smith is a Senior Vice President of WMC and joined the
company in 1984.
Thomas L. Pappas has served as the portfolio manager for the TARGET '98
PORTFOLIO since 1992 and the FIXED INCOME PORTFOLIO since 1995. Mr. Pappas is a
Senior Vice President of WMC and joined the company in 1987.
John C. Keogh has served as the portfolio manager for the MONEY MARKET
PORTFOLIO since 1992 and for the GOVERNMENT AND QUALITY BOND PORTFOLIO since
March 31, 1994. Mr. Keogh is a Senior Vice President of WMC and joined the
company in 1983.
CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT
State Street Bank and Trust Company, Boston, Massachusetts, acts as
Custodian of the Trust's assets as well as Transfer and Dividend Paying Agent
and in so doing performs certain bookkeeping, data processing and administrative
services.
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EXPENSES OF THE TRUST
In addition to the investment advisory fee, the Trust incurs expenses,
including legal, auditing and accounting expenses, Trustees' fees and expenses,
insurance premiums, brokers' commissions, taxes and governmental fees, expenses
of issue or redemption of shares, expenses of registering or qualifying shares
for sale, reports and notices to shareholders, and fees and disbursements of
custodians, transfer agents, registrars, shareholder servicing agents and
dividend disbursing agents, and certain expenses with respect to membership fees
of industry associations.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------
All purchase and sale orders of securities are placed on behalf of the
Trust by WMC for all the Portfolios. If the securities in which a particular
Portfolio invests are traded primarily in the over-the-counter market, then WMC
may deal directly with the broker-dealers who make a market in the securities
involved unless better prices and execution are available elsewhere. These
brokers may also furnish brokerage and research services, including advice as to
the advisability of investing in securities, securities analysis and reports.
Broker-dealers involved in the execution of portfolio transactions on
behalf of the Trust are selected on the basis of their professional capability
and the value and quality of their services. In selecting such broker-dealers,
WMC will consider various relevant factors, including, but not limited to, the
size and type of the transaction; the nature and character of the markets in
which the security can be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer; the
broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions.
The Trust reserves the right to effect portfolio transactions through a
broker affiliated with SAAMCo, acting as agent and not as principal, provided
that any commissions, fees or other remuneration received by such broker are
within the limitations set forth in the 1940 Act and are reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on an exchange during a comparable period of time.
Subject to applicable laws and regulations, the Advisers may also consider
the willingness of particular brokers to sell the Variable Contracts or
affiliated SunAmerica mutual funds as a factor in the selection of brokers for
executing portfolio transactions on behalf of the Trust.
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NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value of the shares of each Portfolio is computed once daily
at the close of regular trading of the New York Stock Exchange ("NYSE") (which
is currently 4:00 p.m., New York time), on days the New York Stock Exchange is
open for trading which are Monday through Friday, except for New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas Day, and other such days as may be determined from
time to time by the NYSE.
The net asset value of a share of each Portfolio is calculated by adding
the value of all securities and other assets, deducting its accrued liabilities,
and dividing the remainder by the number of shares outstanding. Except with
respect to securities held by the Money Market Portfolio, securities of each
Portfolio are valued as follows: Equity securities which are traded on domestic
stock exchanges are valued at the last sale price as of the close of business on
the day the securities are being valued, or lacking any sales, at the closing
bid price. Equity securities traded in the over-the-counter market are valued at
the closing bid price or yield equivalent as obtained from one or more dealers
that make markets in the securities. Equity securities which are traded both in
the over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market. Bonds and other fixed income securities
may be valued on the basis of prices provided by a pricing service when such
prices are believed to reflect the fair market value of such securities. The
prices provided by a pricing service may be determined without regard to bid or
last sale prices but take into account institutional size trading in similar
groups of securities and any developments related to specific securities.
Securities not priced in this manner are valued at the most recent quoted bid
price. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Trustees of the Trust.
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<PAGE> 29
Short-term investments that mature in less than sixty (60) days are valued at
amortized cost unless the Trustees determine that amortized cost or value does
not represent fair value, in which case fair value is determined as described
above.
Securities of the Money Market Portfolio are valued using the amortized
cost method. The amortized cost method initially values a security at its cost
and thereafter assumes a constant amortization to maturity of any premium or
discount regardless of market fluctuations. This method is designed to stabilize
the net asset value at $1.00 per share. The Board of Trustees will monitor
closely the stabilization of the net asset value at $1.00 per share and has
adopted procedures to facilitate such stabilization. (See "Net Asset Value" in
the Statement of Additional Information.)
Securities which are traded on foreign exchanges are ordinarily valued at
the last quoted sales price available before the time when the assets are
valued. If a security's price is available from more than one foreign exchange,
the 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.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
Each Portfolio of the Trust intends to continue to qualify as a "Regulated
Investment Company" under certain provisions of the Code. Each Portfolio of the
Trust will be treated as a separate entity for Federal income tax purposes.
While qualified as a regulated investment company, each Portfolio of the Trust
will not be subject to Federal income taxes on net investment income and net
capital gains, if any, realized during any year provided all such net investment
company taxable income and net capital gains are distributed to its
shareholders.
Dividends on the Money Market Portfolio will be declared daily and
reinvested monthly in additional full and fractional shares of the Portfolio.
Dividends and distributions consisting of substantially all net investment
income and net realized capital gains from Growth, Capital Appreciation, Foreign
Securities, Growth and Income, Fixed Income, Government and Quality Bond, High
Yield, Natural Resources, Multi-Asset, Strategic Multi-Asset and Target '98
Portfolios will be declared and reinvested at least annually in additional full
and fractional shares of the respective Portfolios.
- --------------------------------------------------------------------------------
DESCRIPTION OF THE TRUST
- --------------------------------------------------------------------------------
The Trust was organized under the laws of the Commonwealth of Massachusetts
on August 26, 1983, as an unincorporated voluntary association, commonly known
as a business trust. Its offices are at The SunAmerica Center, 733 Third Avenue,
New York, New York 10017-3204. The Trust currently consists of twelve separate
investment series, each with its own investment objective. Certain series of the
Trust may not be available in connection with a particular annuity contract.
All shares of the Trust are owned by separate accounts of the Life
Companies. Pursuant to current interpretations of the 1940 Act, the Life
Companies will solicit voting instructions from Variable Contract Owners with
respect to any matters that are presented to a vote of shareholders.
On any matter submitted to a vote of shareholders, all shares of the Trust
then issued and outstanding and entitled to vote shall be voted in the aggregate
and not by series except for matters concerning only a series. Certain matters
approved by a vote of all shareholders of the Trust may not be binding on a
Portfolio whose shareholders have not approved such matters. The holders of each
share of beneficial interest of the Trust shall be entitled to one vote for each
full share and a fractional vote for each fractional share of beneficial
interest. Shares of one series may not bear the same economic relationship to
the Trust as shares of another series.
The Trustees of the Trust have been elected by the shareholders of the
Trust. The Trustees themselves have the power to alter the number and the terms
of office of the Trustees, and they may at any time lengthen their own terms or
make their terms of unlimited duration (subject to certain removal procedures)
and appoint their own successors, provided that always at least a majority of
the Trustees have been elected by the shareholders of the Trust. The voting
rights of shareholders are not cumulative, so that holders of more than 50% of
the shares voting
25
<PAGE> 30
can, if they choose, elect all Trustees being selected, while the holders of the
remaining shares would be unable to elect any Trustees. The Trust is not
required to hold Annual Meetings of Shareholders. The Trustees may call Special
Meetings of Shareholders for action by shareholder vote as may be required by
the 1940 Act or the Declaration of Trust. The Declaration of Trust provides that
shareholders can remove Trustees by a vote of two-thirds of the vote of the
outstanding shares and the Declaration of Trust sets out the procedures to be
followed.
Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared by the respective Portfolio and in net
assets of such Portfolio upon liquidation or dissolution remaining after
satisfaction of outstanding liabilities. The shares of each Portfolio have no
preference, pre-emptive, conversion, exchange or similar rights, and will be
freely transferable. Under certain circumstances Trust shareholders may have a
potential liability for the obligations of the Trust.
- --------------------------------------------------------------------------------
REPORTS AND INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The Trust will furnish audited annual and unaudited semi-annual reports to
its shareholders. Price Waterhouse LLP, New York, New York, serves as the
independent accountants to the Trust.
- --------------------------------------------------------------------------------
DISTRIBUTION AND REDEMPTION OF SHARES; INQUIRIES
- --------------------------------------------------------------------------------
Shares are only sold to separate accounts of the Life Companies at net
asset value. Redemptions will be effected by the separate accounts to meet
obligations under the Variable Contracts. Variable Contract Owners do not deal
directly with the Trust with respect to acquisition or redemption of shares.
Inquiries regarding the Trust should be directed to P.O. Box 54299, Los
Angeles, California, 90054-0299; telephone number: 800-445-7862.
26
<PAGE> 31
- --------------------------------------------------------------------------------
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
- --------------------------------------------------------------------------------
Moody's Investors Service, Inc. rates the long-term debt securities issued
by various entities from "Aaa" to "C". Aaa -- Best quality. These securities
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a larger, or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of these issues. Aa -- High quality by all
standards. They are rated lower than the best quality bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
that make the long-term risks appear somewhat greater. A -- Upper medium grade
obligations. These bonds possess many favorable investment attributes. Factors
giving security to principal and interest are considered adequate, but elements
may be present that suggest a susceptibility to impairment sometime in the
future. Baa -- Medium grade obligations. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well. Ba -- Have speculative elements; future
cannot be considered as well assured. The protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Bonds in this class are characterized by
uncertainty of position. B -- Generally lack characteristics of the desirable
investment; assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small. Caa -- Of
poor standing. Issues may be in default or there may be present elements of
danger with respect to principal or interest. Ca -- Speculative in a high
degree; often in default or have other marked shortcomings. C -- Lowest rated
class of bonds; can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Standard and Poor's Ratings Services, A Division of The McGraw-Hill
Companies, Inc. rates the long-term securities debt of various entities in
categories ranging from "AAA" to "D" according to quality. AAA -- Highest
rating. Capacity to pay interest and repay principal is extremely strong.
AA -- High grade. Very strong capacity to pay interest and repay principal.
Generally, these bonds differ from AAA issues only in a small degree. A -- Have
a strong capacity to pay interest and repay principal, although they are
somewhat more susceptible to the adverse effects of change in circumstances and
economic conditions than debt in higher rated categories. BBB -- Regarded as
having adequate capacity to pay interest and repay principal. These bonds
normally exhibit adequate protection parameters, but adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal than for debt in higher rated categories. BB, B,
CCC, CC, C -- Regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While this debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. C1 -- Reserved for income bonds on which
no interest is being paid. D -- In default and payment of interest and/or
repayment of principal is in arrears.
<PAGE> 32
Please forward a copy (without charge) of the Statement of Additional
Information concerning Anchor Series Trust to:
(Please print or type and fill in all information.)
- ------------------------------------------------------------------------------
Name
- ------------------------------------------------------------------------------
Address
- ------------------------------------------------------------------------------
City/State/Zip
- ------------------------------------------------------------------------------
Date: Signed:
Return to: Anchor National Life Insurance Company, Annuity Service Center, P.O.
Box 54299, Los Angeles, California 90054-0299.
<PAGE> 33
STATEMENT OF ADDITIONAL INFORMATION
ANCHOR SERIES TRUST
The SunAmerica Center
733 Third Avenue
New York, New York 10017-3204
(800) 858-8850
THIS IS NOT A PROSPECTUS. This Statement of Additional Information
should be read in conjunction with the Prospectus for Anchor Series
Trust, which is referred to herein.
Capitalized terms used herein but not defined have the same
meanings assigned to them in the Prospectus.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE
INVESTOR SHOULD KNOW BEFORE INVESTING. FOR A COPY OF THE
PROSPECTUS DATED FEBRUARY 29, 1996 CALL OR WRITE THE TRUST AT:
P.O. BOX 54299
LOS ANGELES, CALIFORNIA 90054-0299
(800) 445-7862.
Dated: February 29, 1996
<PAGE> 34
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . B-3
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . B-3
Objectives. . . . . . . . . . . . . . . . . . . . . . . B-3
Foreign Money Market Instruments. . . . . . . . . . . . B-3
Variable and Floating Rate Instruments. . . . . . . . . B-4
Government Agencies Obligations . . . . . . . . . . . . B-4
When-Issued Securities. . . . . . . . . . . . . . . . . B-5
Illiquid Securities . . . . . . . . . . . . . . . . . . B-6
Foreign Securities. . . . . . . . . . . . . . . . . . . B-7
Call and Put Options on Securities. . . . . . . . . . . B-8
Absence of Liquid Secondary Options Market. . . . . . . B-11
Regulation of Futures Contracts and Options Thereon . . B-11
Financial Futures Contracts on Fixed Income
Securities - Characteristics and Risks . . . . . . B-11
Options on Financial Futures Contracts. . . . . . . . . B-15
Index Warrants. . . . . . . . . . . . . . . . . . . . . B-17
Stock Index Futures and Options Thereon . . . . . . . . B-18
Stock Index Futures Characteristics and Risks . . . . . B-18
Options on Stock Index Futures and Risks. . . . . . . . B-21
Limitations on Stock Index Futures and Related
Options Transactions . . . . . . . . . . . . . . . B-23
Foreign Currency Exchange Transactions. . . . . . . . . B-23
Loans of Portfolio Securities . . . . . . . . . . . . . B-26
Interest Rate Swap Transactions . . . . . . . . . . . . B-27
Description of Commercial Paper Ratings . . . . . . . . B-27
Discount Bonds, Convertible Bonds and Preferred Stocks. B-28
Certain Risk Factors Relating to High-Yield
(High-Risk) Bonds. . . . . . . . . . . . . . . . . B-28
Further Information About the Target '98 Portfolio. . . B-29
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . B-30
SUNAMERICA ASSET MANAGEMENT CORP.. . . . . . . . . . . . . . B-33
Personal Securities Trading . . . . . . . . . . . . . . B-36
WELLINGTON MANAGEMENT COMPANY. . . . . . . . . . . . . . . . B-37
OFFICERS AND TRUSTEES OF THE TRUST . . . . . . . . . . . . . B-37
CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . B-41
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . B-41
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . B-41
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . B-44
NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . B-44
Foreign Securities Portfolio. . . . . . . . . . . . . . B-45
Money Market Portfolio. . . . . . . . . . . . . . . . . B-46
DIVIDENDS, DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . B-47
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . B-50
OWNERSHIP OF SHARES. . . . . . . . . . . . . . . . . . . . . B-50
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . B-50
</TABLE>
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<PAGE> 35
THE TRUST
The Trust, organized as a Massachusetts business trust on
August 26, 1983, is an open-end management investment company. The
Trust is comprised of twelve separate Portfolios. Shares of the
Trust are issued and redeemed only in connection with investments
in and payments under variable annuity contracts and variable life
insurance policies of Anchor National Life Insurance Company, First
SunAmerica Life Insurance Company, Phoenix Mutual Life Insurance
Company and Presidential Life Insurance Company (see "The Trust" in
the Prospectus).
On December 1, 1992, the Board of Trustees of the Trust
approved a change of the names of the Aggressive Growth Portfolio
and the Aggressive Multi-Asset Portfolio to the Capital
Appreciation Portfolio and the Strategic Multi-Asset Portfolio,
respectively.
On February 16, 1995, the Board of Trustees of the Trust
approved a change of the name of the Convertible Securities
Portfolio to the Growth and Income Portfolio.
INVESTMENT OBJECTIVES AND POLICIES
Objectives
For a description of the objectives of the Portfolios, see
"Investment Objectives and Policies" in the Prospectus. The
following information is provided for those investors wishing to
have more comprehensive information than that contained in the
Prospectus.
Foreign Money Market Instruments
The Money Market Portfolio will be diversified among issuers
and among industries with the exception of the banking industry and
obligations of the U.S. Government, its agencies and
instrumentalities. The Money Market Portfolio reserves the right
to concentrate its investment in U.S. dollar denominated
obligations of foreign branches of U.S. banks, London and U.S.
branches of foreign banks, and commercial paper of foreign
corporations, when the yields available on such obligations exceed
the yields available on obligations otherwise permitted for
investment by the Portfolio and when it is believed that the
relative return from such investments compared with the relative
risk, marketability and quality of such obligations appears to
warrant such concentration. Concentration in this context means
the investment of more than 25% and up to 100% of the Portfolio's
assets. These investments will meet the quality criteria described
above, but they may present investment risks in addition to those
involved in obligations of domestic banks and corporations.
B-3
<PAGE> 36
Investment risks associated with investments in obligations of
foreign branches of U.S. banks, London and U.S. branches of foreign
banks, short-term obligations and commercial paper of foreign
corporations include future political and economic developments,
the possible imposition of withholding taxes on interest income
payable on such obligations, the possible seizure or
nationalization of foreign deposits, the possible establishment of
exchange controls or the adoption of other government restrictions.
Generally, the foreign branches of the U.S. banks and the London or
U.S. branches of foreign banks are subject to fewer regulatory
restrictions than are applicable to domestic banks, and foreign
branches of U.S. banks may be subject to less stringent reserve
requirements than domestic banks. The London or U.S. branches of
foreign banks, the foreign branches of U.S. banks and foreign
corporations may provide less public information than, and may not
be subject to the same accounting, auditing and financial
record-keeping standards as, domestic banks.
Variable and Floating Rate Instruments
Certain obligations purchased by the Portfolios of the Trust
may be variable or floating rate instruments, involve a demand
feature and include variable amount master demand notes. Variable
or floating rate instruments bear interest at a rate which varies
with changes in market rates. The holder of an instrument with a
demand feature may tender the instrument back to the issuer at par
prior to maturity.
A variable amount master demand note is issued pursuant to a
written agreement between the issuer and the holder, its amount may
be increased by the holder or decreased by the holder or issuer, it
is payable on demand and the rate of interest varies based upon an
agreed formula. The quality of the underlying credit must be
equivalent to the long-term bond or commercial paper ratings
applicable to permitted investment for the Money Market Portfolio.
The Sub-Adviser will monitor on an ongoing basis the earning power,
cash flow and liquidity ratios of the issuers of such instruments,
and will similarly monitor the ability of an issuer of a demand
instrument to pay principal and interest on demand.
Government Agencies Obligations
All Portfolios may invest, to varying degrees, in government
obligations. Obligations issued by the U.S. Treasury are backed by
the full faith and credit of the U.S. Government. Obligations
issued by governmental agencies may be supported by varying levels
of guarantee as to repayment of principal and interest.
Agencies of the United States Government include, among
others, Export Import Bank of the United States, Farmers Home
Administration, Federal Farm Credit Bank, Federal Housing
Administration, Government National Mortgage Association, Maritime
B-4
<PAGE> 37
Administration, Small Business Administration and the Tennessee
Valley Authority. The Portfolios may purchase securities
guaranteed by the Government National Mortgage Association which
may represent participations in Veterans Administration and Federal
Housing Administration backed mortgage pools. Obligations of
instrumentalities of the United States Government include
securities issued by, among others, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks, Federal National Loan Mortgage
Association and the United States Postal Service. Some of these
securities are supported by the full faith and credit of the United
States Treasury (e.g., Government National Mortgage Association),
others are supported by the right of the issuer to borrow from the
Treasury (e.g., Federal Farm Credit Bank) and still others are
supported only by the credit of the instrumentality (e.g., Federal
National Mortgage Association). Guarantees of principal by
agencies or instrumentalities of the U.S. Government may be
guarantees solely of payment at the maturity of the obligation so
that in the event of a default prior to maturity there might be no
market and thus no means of realizing on the obligation prior to
maturity.
When-Issued Securities
Each Portfolio may invest in securities issued on a
when-issued or delayed delivery basis at the time the purchase is made.
When-issued or delayed-delivery transactions arise when securities
are purchased or sold by a Portfolio with payment and delivery
taking place a month or more in the future in order to secure what
is considered to be an advantageous price and yield to the
Portfolio at the time of entering into the transaction. Each
Portfolio generally would not pay for such securities or start
earning interest on them until they are issued or received.
However, when a Portfolio purchases debt obligations on a
when-issued basis, it assumes the risks of ownership, including the risk
of price fluctuation, at the time of purchase, not at the time of
receipt. Failure of the issuer to deliver a security purchased by
a Portfolio on a when-issued basis may result in a Portfolio's
incurring a loss or missing an opportunity to make an alternative
investment. When a Portfolio enters into a commitment to purchase
securities on a when-issued basis, it establishes a segregated
account with its custodian consisting of cash or liquid high-grade
debt securities equal to the amount of the Portfolio's commitment,
which is valued at fair market value. If on any day the market
value of this segregated account falls below the value of a
Portfolio's commitment, the Portfolio will be required to deposit
additional cash or qualified securities into the account equal to
the value of the Portfolio's commitment. When the securities to be
purchased are issued, a Portfolio will pay for the securities from
available cash, from the sale of securities in the segregated
account, from sales of other securities and/or, if necessary, from
the sale of the when-issued securities themselves, although
B-5
<PAGE> 38
this is not ordinarily expected. Securities purchased on a
when-issued basis are subject to the risk that yields available in the
market, when delivery takes place, may be higher or lower than the
rate to be received on the securities a Portfolio has committed to
purchase. After a Portfolio is committed to purchase when-issued
securities, but prior to the issuance of the securities, it is
subject to adverse changes in the value of these securities based
upon changes in interest rates, as well as changes based upon the
public's perception of the issuer and its creditworthiness. Sale
of securities in the segregated account or other securities owned
by a Portfolio and when-issued securities may cause the realization
of a capital gain or loss.
Illiquid Securities
Each of the Portfolios may invest no more than 10% of its net
assets, determined as of the date of purchase, in illiquid
securities including repurchase agreements which have a maturity of
longer than seven days or in other securities that are illiquid by
virtue of the absence of a readily available market or legal or
contractual restrictions on resale. Historically, illiquid
securities have included securities subject to contractual or legal
restrictions on resale because they have not been registered under
the 1933 Act, securities which are otherwise not readily marketable
and repurchase agreements having a maturity of longer than seven
days. Repurchase agreements subject to demand are deemed to have
a maturity equal to the notice period. Securities which have not
been registered under the 1933 Act are referred to as private
placements or restricted securities and are purchased directly from
the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale
and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them, resulting in additional
expense and delay. There generally will be a lapse of time between
a mutual fund's decision to sell an unregistered security and the
registration of such security promoting sale. Adverse market
conditions could impede a public offering of such securities. When
purchasing unregistered securities, the Portfolios will seek to
obtain the right of registration at the expense of the issuer.
In recent years, a large institutional market has developed
for certain securities that are not registered under the 1933 Act,
including repurchase agreements, commercial paper, foreign
securities, municipal securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market
in which the unregistered security can be readily resold or on
B-6
<PAGE> 39
an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of
the liquidity of such investments.
Restricted securities eligible for resale pursuant to Rule
144A under the 1933 Act for which there is a readily available
market will not be deemed to be illiquid. The Portfolios'
Sub-Adviser will monitor the liquidity of such restricted securities
subject to the supervision of the Board of Trustees of the Trust.
In reaching liquidity decisions, the Sub-Adviser will consider,
inter alia, pursuant to guidelines and procedures established by
the Trustees, the following factors: (1) the frequency of trades
and quotes for the security; (2) the number of dealers wishing to
purchase or sell the security and the number of other potential
purchasers; (3) dealer undertakings to make a market in the
security; and (4) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of the
transfer).
The Money Market, Multi-Asset, Strategic Multi-Asset and
Growth and Income Portfolios may invest in commercial paper issued
in reliance on the so-called private placement exemption from
registration which is afforded by Section 4(2) of the 1933 Act
("Section 4(2) paper"). Section 4(2) paper is restricted as to
disposition under the federal securities laws in that any resale
must similarly be made in an exempt transaction. Section 4(2)
paper is normally resold to other institutional investors through
or with the assistance of investment dealers who make a market in
Section 4(2) paper, thus providing liquidity. Section 4(2) paper
that is issued by a company that files reports under the Securities
Exchange Act of 1934 is generally eligible to be sold in reliance
on the safe harbor of Rule 144A described above. The Money Market,
Multi-Asset and Strategic Multi-Asset Portfolios' 10% limitation on
investments in illiquid securities includes Section 4(2) paper
other than Section 4(2) paper that the Adviser has determined to be
liquid pursuant to guidelines established by the Trustees. The
Portfolios' Board of Trustees delegated to the Adviser the function
of making day-to-day determinations of liquidity with respect to
Section 4(2) paper, pursuant to guidelines approved by the Trustees
that require the Adviser to take into account the same factors
described above for other restricted securities and require the
Adviser to perform the same monitoring and reporting functions.
Foreign Securities
The Foreign Securities, Growth and Income, Growth, Capital
Appreciation, Natural Resources, Fixed Income, Government and
Quality Bond, Multi-Asset, and Strategic Multi-Asset Portfolios may
invest in foreign debt and equity securities. The High Yield and
Target '98 Portfolios may invest in foreign debt securities.
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Investment in securities issued by companies whose principal
business activities are outside the United States may involve
significant risks not present in domestic investments. For
example, there is generally less publicly available information
about foreign companies, particularly those not subject to the
disclosure and reporting requirements of the U.S. securities laws.
Foreign issuers are generally not bound by uniform accounting,
auditing, and financial reporting requirements and standards of
practice comparable to those applicable to domestic issuers.
Investments in foreign securities also involve the risk of possible
adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal
of funds or other assets of the Portfolios, political or financial
instability or diplomatic and other developments which could affect
such investments. Further, economies of particular countries or
areas of the world may differ favorably or unfavorably from the
economy of the United States.
It is anticipated that in most cases the best available market
for foreign securities will be on exchanges or in over-the-counter
markets located outside of the United States. Foreign stock
markets, while growing in volume and sophistication, are generally
not as developed as those in the United States, and securities of
some foreign issuers (particularly those located in developing
countries) may be less liquid and more volatile than securities of
comparable U.S. companies. In addition, foreign brokerage
commissions are generally higher than commissions on securities
traded in the United States and may be non-negotiable. In general,
there is less overall governmental supervision and regulation of
securities exchanges, brokers, and listed companies than in the
United States.
Call and Put Options on Securities
The Growth, Capital Appreciation, Growth and Income, Fixed
Income, High Yield, Multi-Asset, Strategic Multi-Asset and Natural
Resources Portfolios may write covered call options to attempt to
realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. The Portfolios do not
presently intend to write put options but may purchase put and call
options. The Portfolios intend to use covered call options both to
increase return on the securities of the Portfolios and for
defensive or hedging purposes. It is anticipated that the maximum
percentage of the Portfolios' securities subject to options
primarily for income purposes will be 30%, that the maximum
percentage used primarily for defensive and hedging strategies will
be 50% and that in no event will the aggregate exceed the latter
percentage.
A call option is a short-term contract (typically having a
duration of nine months or less). A call option gives the
purchaser, in exchange for a premium paid, the right for a
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specified period of time to purchase the securities subject to the
option at a specified price (the "exercise price" or "strike
price"). The writer of a call option, in return for the premium,
has the obligation, upon exercise of the option, to deliver,
depending upon the terms of the option contract, the underlying
securities or a specified amount of cash to the purchaser upon
receipt of the exercise price. When a Portfolio writes a call
option, the Portfolio gives up the potential for gain on the
underlying securities or currency in excess of the exercise price
of the option during the period that the option is open.
A put option gives the purchaser, in return for a premium
paid, the right for a specified period of time, to sell the
securities subject to the option to the writer of the put at the
specified exercise price. The writer of the put option, in return
for the premium, has the obligation, upon exercise of the option,
to acquire the securities underlying the option at the exercise
price. The Portfolio might, therefore, be obligated to purchase
the underlying securities for more than their current market price.
A call option is "covered" if the Portfolio owns the
underlying security covered by the call or has an absolute and
immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a
segregated account by its custodian). A call option is also
covered if the Portfolio holds on a share-for-share basis a call on
the same security as the call written where the exercise price of
the call held is equal to or less than the exercise price of the
call written if the difference is maintained by the Portfolio in
cash, Treasury bills or other high grade short-term obligations in
a segregated account with its custodian, or else holds on a
share-for-share basis a put on the same security as the put written where
the exercise price of the put held is equal to or greater than the
exercise price of the put written.
The premium paid by the purchaser of an option will be
determined by, among other things, the relationship of the exercise
price to the market price and volatility of the underlying
security, the remaining term of the option, supply and demand, and
interest rates.
The writer of an option wishing to terminate a position may
effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously sold.
The effect of the purchase is that the writer's position will be
canceled by the clearing corporation. However, a writer may not
effect a closing purchase transaction after being notified of the
exercise of an option. Likewise, an investor who is the holder of
an option may liquidate a position by effecting a "closing sale
transaction." This is accomplished by selling an option of the
same series as the option previously purchased.
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There is no guarantee that either a closing purchase or a
closing sale transaction can be effected. Effecting a closing
transaction in the case of a written call option will permit the
Portfolio to write another call option on the underlying security
with either a different exercise price or expiration date or both.
Also, effecting a closing transaction will permit the cash or
proceeds from the concurrent sale of any securities subject to the
options to be used for other Portfolio investments. If the
Portfolio desires to sell a particular security on which it has
written a call option, it will effect a closing transaction prior
to or concurrent with the sale of the security.
The Portfolio will realize a profit from a closing transaction
if the price of the transaction is less than the premium received
from writing the option or is more than the premium paid to
purchase the option. Conversely, the Portfolio will realize a loss
from a closing transaction if the price of the transaction is more
than the premium received from writing the option or is less than
the premium paid to purchase the option. Because increases in the
market price of a call option will generally reflect increases in
the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned
by the Portfolio.
An option position may be closed out on an exchange which
provides a secondary market for an option of the same series.
Although the Portfolio will generally purchase or write those
options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange
will exist for any particular option, or at any particular time,
and for some options no secondary market on an exchange may exist.
In such event it might not be possible to effect closing
transactions in particular options, with the result that a
Portfolio would have to exercise its options in order to realize
any profit and would incur brokerage commissions upon the exercise
of call options and upon the subsequent disposition of underlying
securities acquired through the exercise of call options. If the
Portfolio, as a covered call option writer, is unable to effect a
closing purchase transaction in a secondary market, it will not be
able to sell the underlying security until a closing purchase
transaction can be executed. See below for reasons why a liquid
secondary options market may not exist.
There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of
customers' orders. However, the Options Clearing Corporation,
based on forecasts provided by the U.S. Exchanges, believes that
its facilities are adequate to handle the volume of reasonably
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anticipated options transactions, and such exchanges have advised
such clearing corporation that they believe their facilities will
also be adequate to handle reasonable anticipated volume.
Absence of Liquid Secondary Options Market
Reasons for the absence of a liquid secondary market on an
options exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions
may be imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal operation on an
exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series
of options), in which event the secondary market on that exchange
(or in the class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued
by a clearing corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms.
Regulation of Futures Contracts and Options Thereon
The use of futures contracts and options thereon by the
Portfolios is subject to regulation by various governmental bodies,
including the Securities and Exchange Commission and the Commodity
Futures Trading Commission ("CFTC"). Each of the Portfolios has
represented to the CFTC that it will use futures contracts and
options on futures contracts in bona fide hedging transactions and
under other circumstances permitted by the CFTC, provided that, for
non-hedging transactions, it will not enter into futures contracts
or options thereon for which the sum of the initial margin deposits
on futures contracts and related options and premiums paid for
related options exceed 5% of the fair market value of a Portfolio's
assets.
Financial Futures Contracts on Fixed Income Securities -
Characteristics and Risks
Each Portfolio (other than the Money Market Portfolio) may
enter into contracts for the future delivery of fixed income
securities ("Financial Futures Contracts"). This investment
technique will be used to hedge (i.e., to endeavor to protect)
against anticipated future changes in interest rates or other
market factors which otherwise might adversely affect the value of
each Portfolio's securities.
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A "sale" of a Financial Futures Contract means entering into
a contractual obligation to deliver the securities called for by
the contract at a specified price on a specified date. A
"purchase" of a Financial Futures Contract means entering into a
contractual obligation to acquire the securities at a specified
price on a specified date. Typically on a daily basis, adjustments
are made to recognize differences in value arising from the
delivery of securities with a different interest rate than that
specified in the contract. In some cases, securities called for by
a Financial Futures Contract may not have been issued at the time
the contract was written.
Unlike the sale or purchase of a fixed income security by a
Portfolio, no price is paid or received by the Portfolio upon the
purchase or sale of a Financial Futures Contract. Initially, the
Portfolio will be required to deposit with the Trust's Custodian,
State Street Bank and Trust Company, an amount of cash or U.S.
Treasury obligations equal to a percentage of the contract amount.
This amount is known as initial margin. The nature of initial
margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a
performance bond or good faith deposit on the contract which is
returned to the Portfolio upon termination of the futures contract
assuming all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the
broker, will be made on a daily basis as the price of the
underlying fixed income security fluctuates making the long and
short positions in the futures contract more or less valuable, a
process known as marking to market. For example, when the
Portfolio has purchased a Financial Futures Contract and the price
of the underlying fixed income security has risen, that position
will have increased in value and the Portfolio will receive from
the broker a variation margin payment equal to that increase in
value. Conversely, where the Portfolio has purchased a Financial
Futures Contract and the price of the underlying fixed income
security has declined, the position would be less valuable and the
Portfolio would be required to make a variation margin payment to
the broker. At any time prior to the expiration of the futures
contract, the Portfolio may elect to close the position by taking
an opposite position in the futures contract. During the time the
Portfolio has entered into such Financial Futures Contract the
Portfolio will maintain in a segregated account with its custodian,
liquid assets at least equal to the value of the contract.
There are several risks in connection with the use of
Financial Futures Contracts by a Portfolio as a hedging device.
One risk arises because of the imperfect correlation between
movements in the price of the Financial Futures Contract and
movements in the price of the securities which are the subject of
the hedge. The price of the Financial Futures Contract may move
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more than or less than the price of the securities being hedged.
If the price of the Financial Futures Contract moves less than the
price of the securities which are the subject of the hedge, the
hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, the
Portfolio would be in a better position than if it had not hedged
at all. If the price of the securities being hedged has moved in
a favorable direction, this advantage will be partially offset by
the losses on the futures position. If the price of the futures
contract moves more than the price of the securities being hedged,
the Portfolio will experience either a loss or a gain on the
futures position which will not be completely offset by movements
in the price of the securities being hedged. Conversely, the
Portfolio may buy or sell fewer Financial Futures Contracts if the
historical volatility of the price of the Financial Futures
Contracts being hedged is more than the historical volatility of
the securities.
Where futures contracts are purchased to hedge against a
possible increase in the price of fixed income securities before a
Portfolio is able to invest its cash (or cash equivalents) in fixed
income securities in an orderly fashion, it is possible that the
market may decline instead; if the Portfolio then concludes not to
invest in fixed income securities at that time because of concern
as to possible further market decline or for other reasons, the
Portfolio will realize a loss on the futures contract that is not
offset by a reduction in the price of securities purchased.
Although Financial Futures Contracts by their terms call for
the actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the contract
without having to make or take delivery of the security. The
offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange, an
identical Financial Futures Contract calling for delivery in the
same month. Such a transaction, which is effected through a member
of an exchange, cancels the obligation to make or take delivery of
the securities. All transactions in the futures market are made,
offset or fulfilled through a clearing house associated with the
exchange on which the contracts are traded.
A Portfolio may purchase Financial Futures Contracts in
anticipation of a significant market advance (for example due to a
decline in interest rates). The purchase of a Financial Futures
Contract affords a hedge against not participating in such advance
at a time when the Portfolio is not fully invested. Such purchase
of a futures contract would serve as a temporary substitute for the
purchase of individual fixed income securities which may then be
purchased in an orderly fashion. As such purchases are made, an
equivalent amount of Financial Futures Contracts would be
terminated by offsetting sales. Similarly Financial Futures
Contracts may be purchased to maintain the desired percentage of
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the Portfolio invested in fixed income securities in the event of
a large cash flow into the Portfolio. As the cash flow is invested
in individual fixed income securities an equivalent amount of
Financial Futures Contracts would be sold.
A Portfolio may sell Financial Futures Contracts in a general
market decline (for example due to an increase in interest rates)
that may adversely affect the aggregate market value of the fixed
income securities held in the Portfolio or in anticipation of such
a decline in aggregate market value. To the extent that changes in
the Portfolio's market value correlate with the changes in the
price of a given security, the sale of futures contracts on that
fixed income security would substantially reduce the risk to the
Portfolio of a market decline and, by so doing, provide an
alternative to the liquidation of fixed income securities positions
in the Portfolio with resultant transaction costs. In the event of
large cash redemptions, the Portfolio may sell an equivalent amount
of Financial Futures Contracts to maintain the desired percentage
of the Portfolio invested in fixed income securities. This would
facilitate an orderly sale of individual securities and, as such
sales were made, an equivalent amount of Financial Futures
Contracts would be terminated.
A Portfolio will incur brokerage fees when it purchases or
sells Financial Futures Contracts, and it will be required to
maintain margin deposits. In addition, Financial Futures Contracts
entail risks. Although the Trustees believe that use of such
contracts will benefit the Portfolios, if investment judgment about
the general direction in interest rates is incorrect, the overall
performance may be poorer than if such contracts had not been used.
One risk in employing Financial Futures Contracts to protect
against cash market price volatility is the prospect that futures
prices will correlate imperfectly with the behavior of cash prices.
The ordinary spreads between prices in the cash and futures market
are subject to margin deposit and maintenance requirements. Rather
than meeting additional margin deposit requirements, investors may
close futures contracts through offsetting transactions which could
distort the normal relationship between the cash and futures
markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to
make or take delivery, liquidity in the futures market could be
reduced, thus producing distortion. Third, from the point of view
of speculators, the deposit requirements in the futures market are
less onerous than margin requirements in the securities market.
Therefore increased participation by speculators in the futures
market may cause temporary price distortions. Due to the
possibility of distortion, a correct forecast of general interest
trends may still not result in a successful transaction. Also,
under certain conditions it may not be possible for the Portfolio
to make closing purchase or sale transactions in Financial Futures
Contracts due to the potential absence of a secondary market.
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Positions in Financial Futures Contracts may be closed out
only on an exchange or board of trade which provides a secondary
market for such futures. Although each Portfolio intends to
purchase or sell futures only on exchanges or boards of trade where
there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange or board of
trade will exist for any particular contract or at any particular
time. In such event, it may not be possible to close a futures
position, and in the event of price movements causing adverse
changes in the value of the futures position, the Portfolio would
continue to be required to make daily cash payments of variation
margin. In such circumstances, an increase in the price of the
fixed income securities, if any, may partially or completely offset
losses on the futures contract. However, there is no guarantee
that the price of the fixed income securities will, in fact,
correlate with the price movements in the futures contract and thus
provide an offset to losses on a futures contract.
Successful use of Financial Futures Contracts by a Portfolio
is also subject to the ability to correctly predict movement in the
direction of the market. For example, if the Portfolio has hedged
against the possibility of a decline in the market value of its
fixed income securities and fixed income security prices increased
instead, the Portfolio will lose part or all of the benefit of the
increased value of its fixed income securities which it has hedged
because it will have offsetting losses in its futures positions.
In addition, in such situations, if the Portfolio has insufficient
cash, it may have to sell fixed income securities to meet the daily
variation margin requirements. Such sales of fixed income
securities may be, but will not necessarily be, at increased prices
which reflect the rising market. The Portfolio may have to sell
securities at a time when it may be disadvantageous to do so.
A Portfolio will limit use of futures contracts so that the
value of all futures contracts will not exceed 30% of its total
assets. With the assistance of the Custodian, a segregated asset
account will be maintained consisting of cash or cash equivalent
securities in an amount that will cover obligations with respect to
Financial Futures Contracts.
Options on Financial Futures Contracts
Each Portfolio (other than the Money Market Portfolio) may
purchase and write options on Financial Futures Contracts which are
traded on an exchange, in order to hedge against adverse price
movements, and enter into closing transactions with respect to such
options to terminate an existing position. An option on a
Financial Futures Contract gives the purchaser the right, in return
for the premium paid, to assume a position in a Financial Futures
Contract (a long position if the option is a call and a short
position if the option is put) at a specified exercise price at any
time during the period of the option. Upon exercise of the option,
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the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the Financial
Futures Contract at the time of exercise exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of
the option on the Financial Futures Contract. Writing a call
option would provide a partial hedge against declines in the value
of the fixed income securities the Portfolio owns (but would also
limit potential capital appreciation in the fixed income
securities.) In addition, writing an option would provide a
Portfolio with income in the form of the option premium.
The purchase of protective put options on a Financial Futures
Contract is analogous to the purchase of protective puts on
individual fixed income securities, where a level of protection is
sought below which no additional economic loss would be incurred by
the Portfolio. Put options on Financial Futures Contracts may also
be purchased to hedge a portfolio of fixed income securities.
The purchase of a call option on a Financial Futures Contract
represents a means of obtaining temporary exposure to anticipated
increases in the price of fixed income securities (for example due
to decreases in interest rates) at limited risk. It is analogous
to the purchase of a call option on an individual fixed income
security which can be used as a substitute for a position in the
security itself. Depending on the pricing of the option compared
to either the price of the future upon which it is based, or the
price of the underlying fixed income security itself, it may be
less risky than the ownership of the Financial Futures Contract or
the underlying security. Like the purchase of a Financial Futures
Contract, the Portfolio would purchase a call option on a Financial
Futures Contract to hedge against an increase in the price of fixed
income securities (for example, due to a decline in interest rates)
when the Portfolio is not fully invested.
As with options on securities, the holder of an option may
terminate his position by selling an identical option. There is,
however, no guarantee that such closing transactions can be
effected. Positions in options on Financial Futures Contracts may
be closed out only on an exchange or board of trade which provides
a secondary market for such options. Although each Portfolio
intends to purchase or sell options only on exchanges or boards of
trade where there appears to be an active secondary market, there
can be no assurance that a liquid secondary market will exist for
any particular option or at any particular time. In such event, it
may not be possible to close out an option position, and if the
Portfolio was the writer of the option, in the event of price
movements causing adverse changes in the value of the option
position, the Portfolio would continue to be required to make daily
cash payments of variation margin.
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The ability to establish and close out positions on such
options will be subject to the availability of a liquid secondary
market. A Portfolio will not purchase options on Financial Futures
Contracts on any exchange unless and until, in the opinion of WMC,
the market for such options has developed sufficiently that the
risks in connection with options on Financial Futures Contract
transactions are not greater than the risks in connection with
Financial Futures Contract transactions. Compared to the use of
Financial Futures Contracts, the purchase of options on Financial
Futures Contracts involves less potential risk to the Portfolio
because the maximum amount at risk is the premium paid for the
option (plus transaction costs). However, there may be
circumstances when the use of an option on a Financial Futures
Contract would result in a loss to the Portfolio when the use of a
Financial Futures Contract would not, such as when there is no
movement in the level of interest rates.
Index Warrants
A Portfolio may purchase put warrants and call warrants whose
values vary depending on the change in the value of one of more
specified securities indices ("index warrants"). Index warrants
are generally issued by banks or other financial institutions and
give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the
time of exercise. In general, if the value of the underlying index
rises above the exercise price of the index warrant, the holder of
a call warrant will be entitled to receive a cash payment from the
issuer upon exercise based on the difference between the value of
the index and the exercise price of the warrant; if the value of
the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon the
exercise based on the difference between the exercise price of the
warrant and the value of the index. The holder of a warrant would
not be entitled to any payments from the issuer at any time when,
in the case of a call warrant, the exercise price is greater than
the value of the underlying index, or, in the case of a put
warrant, the exercise price is less than the value of the
underlying index. If a Portfolio were not to exercise an index
warrant prior to its expiration, then the Portfolio would lose the
purchase price paid for the warrant.
A Portfolio will normally use index warrants in a manner
similar to its use of options on securities indices. The risk of
a Portfolio's use of index warrants are generally similar to those
relating to its use of index options. Unlike most index options,
however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by
the credit of the bank or other institution which issues the
warrant. Also, index warrants generally have longer terms than
index options. Although a Portfolio will normally invest only in
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exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing
agency. To the extent such an investment is deemed to be illiquid
by the Sub-Adviser, it will be subject to the Portfolio's 10%
limitation on illiquid investments. In addition, the terms of
index warrants may limit a Portfolio's ability to exercise the
warrants at such time, or in such quantities, as a Portfolio would
otherwise wish to do.
Stock Index Futures and Options Thereon
Each Portfolio (other than the Money Market Portfolio) may
purchase and sell stock index futures contracts and options thereon
as a hedge against changes in market conditions in accordance with
the strategies more specifically described below. Each of these
Portfolios presently intends to limit use of futures contracts so
that the aggregate market value of all futures contracts does not
exceed 30% of the Portfolio's total assets.
Stock Index Futures Characteristics and Risks
A Portfolio may purchase stock index futures contracts in
anticipation of a significant market or market sector advance. The
purchase of a stock index futures contract affords a hedge against
not participating in such advance at a time when the Portfolio is
not fully invested. Such purchase of a futures contract would
serve as a temporary substitute for the purchase of individual
stocks which may then be purchased in a orderly fashion. As such
purchases are made, an equivalent amount of stock index futures
contracts would be terminated by offsetting sales. Similarly stock
index futures contracts may be purchased to maintain the desired
percentage of the Portfolios invested in stocks in the event of a
large cash flow into the Portfolio. As cash flow is invested in
individual stocks an equivalent amount of stock index futures
contracts would be sold.
A Portfolio may sell stock index futures contracts in
anticipation of or in a general market or market sector decline
that may adversely affect the aggregate market value of the
securities held in the Portfolio. To the extent that changes in
the Portfolio's market value correlate with changes in a given
stock index, the sale of futures contracts on that index would
substantially reduce the risk to the Portfolio of a market decline
and, by so doing, provides an alternative to the liquidation of
securities positions in the Portfolio with resultant transaction
costs. In the event of large cash redemptions, the Portfolio may
sell an equivalent amount of stock index futures contracts to
maintain the desired percentage of the Portfolio invested in
stocks. This would facilitate an orderly sale of individual stocks
and, as such sales were made, an equivalent amount of stock index
futures contracts would be terminated.
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A Portfolio will incur brokerage fees when it purchases or
sells stock index futures contracts, and it will be required to
maintain margin deposits. In addition, stock index futures
contracts entail risks. Although the Trustees believe that use of
such contracts will benefit the Portfolios, if investment judgment
about the general direction in equity prices is incorrect, the
overall performance may be poorer than if such contracts had not
been used.
Currently, stock index futures contracts can be purchased or
sold with respect to several indices, including the Standard and
Poor's 500 Stock Index on the Chicago Mercantile Exchange, the New
York Stock Exchange Composite Index on the New York Futures
Exchange and the Value Line Composite Stock Index on the Kansas
City Board of Trade.
Unlike the sale or purchase of a security by a Portfolio, no
price is paid or received by the Portfolio upon the purchase or
sale of a stock index futures contract. Initially, the Portfolio
will be required to deposit with the Trust's Custodian an amount of
cash or U.S. Treasury bills equal to a percentage of the contract
amount. This amount is known as initial margin. The nature of
initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin
does not involve the borrowing of funds by the customer to finance
the transactions. Rather, the initial margin is in the nature of
performance bond or good faith deposit on the contract which is
returned to the Portfolio upon termination of the futures contract
assuming all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the
broker, will be made on a daily basis as the price of the
underlying stock index fluctuates making the long and short
positions in the futures contract more or less valuable, a process
known as marking to market. For example, when the Portfolio has
purchased a stock index futures contract and the price of the
underlying stock index has risen, that position will have increased
in value and the Portfolio will receive from the broker a variation
margin payment equal to the increase in value of the position.
Conversely, where the Portfolio has purchased a stock index futures
contract and the price of the underlying stock index has declined,
the position would be less valuable and the Portfolio would be
required to make a variation margin payment to the broker. At any
time prior to expiration of the futures contract, the Portfolio may
elect to close the position by taking an opposite position which
will operate to terminate the Portfolio position in the futures
contract.
There are several risks in connection with the use of stock
index futures in a Portfolio as a hedging device. One risk arises
because of the imperfect correlation between movements in the price
of the stock index future and movements in the price of the
securities which are the subject of the hedge. The price of the
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stock index future may move more than or less than the price of the
securities being hedged. If the price of the stock index future
moves less than the price of the securities which are the subject
of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in a unfavorable
direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the securities being hedged
has moved in a favorable direction, this advantage will be
partially offset by the losses on the futures position. If the
price of the futures contract moves more than the price of the
securities being hedged, the Portfolio will experience either a
loss or a gain on the futures position which will not be completely
offset by movements in the price of the securities which are the
subject of the hedge. To compensate for the imperfect correlation
of movements in the price of securities being hedged and movements
in the price of the stock index futures, the Portfolio may buy or
sell stock index futures contracts in a greater dollar amount than
the dollar amount of securities being hedged if the historical
volatility of the prices of such securities has been greater than
the historical volatility of the futures contract. Conversely, the
Portfolio may buy or sell fewer stock index futures contracts if
the historical volatility of the price of the securities being
hedged is less than the historical volatility of the futures
contract.
Where futures are purchased to hedge against a possible
increase in the price of stock before the Portfolio is able to
invest its cash (or cash equivalents) in stock (or options) in an
orderly fashion, it is possible that the market may decline
instead; if the Portfolio then concludes not to invest in stock or
options at that time because of concern as to possible further
market decline or for other reasons, the Portfolio will realize a
loss on the futures contract that is not offset by a reduction in
the price of securities purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the
stock index futures contract and the portion of the Portfolio being
hedged, the price of stock index futures may not correlate
perfectly with movement in the stock index due to certain market
distortions. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather
than meeting additional margin deposit and maintenance
requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship
between the index and futures markets. Secondly, from the point of
view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures
market may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market and because
of the imperfect correlation between movements in the stock index
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futures, a correct forecast of general market trends may still not
result in a successful hedging transaction over a very short time
frame.
Positions in stock index futures may be closed out only on an
exchange or board of trade which provides a secondary market for
such futures. Although each Portfolio intends to purchase or sell
futures only on exchanges or boards of trade where there appears to
be an active secondary market, there is no assurance that a liquid
secondary market on an exchange or board of trade will exist for
any particular contract or at any particular time. In such event
it may not be possible to close a futures position, and in the
event of adverse price movements, the Portfolio would continue to
be required to make daily cash payments of variation margin. In
such circumstances, an increase in the price of the securities, if
any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that
the price of the securities will, in fact, correlate with the price
movements in the futures contract and thus provide an offset to
losses on a futures contract.
The Portfolios intend to purchase and sell futures contracts
on the stock index for which they can obtain the best price with
consideration also given to liquidity and the correlation of the
index to the particular securities being hedged.
Successful use of stock index futures by a Portfolio is also
subject to the ability to predict correctly movements in the
direction of the market. For example, if the Portfolio has hedged
against the possibility of a decline in the market adversely
affecting stocks held in its Portfolio and stock prices increase
instead, the Portfolio will lose part or all of the benefit of the
increased value of its stocks which it has hedged because it will
have offsetting losses in its futures positions. In addition, in
such situations, if the Portfolio has insufficient cash, it may
have to sell securities to meet the daily variation margin
requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising
market. The Portfolio may have to sell securities at a time when
it may be disadvantageous to do so.
Options on Stock Index Futures and Risks
In connection with the Portfolios' hedging strategies, each
Portfolio (other than the Money Market Portfolio) may purchase and
write options on stock index futures which are traded on a U.S.
exchange or board of trade, in order to hedge against adverse price
movements, and enter into closing transactions with respect to such
options to terminate an existing position. Options on stock index
futures are similar to options on stocks except that an option on
a stock index future gives the purchaser the right, in return for
the premium paid, to assume a position in a stock index futures
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contract (a long position if the option is a call and short
position if the option is put), rather than to purchase or sell
stock, at a specified exercise price at any time during the period
of the option. The purchase of protective put options on a stock
index futures contract is analogous to the purchase of protective
puts on individual stocks, where a level of protection is sought
below which no additional economic loss wold be incurred by the
Portfolio. Put options on stock index futures may also be
purchased to hedge a Portfolio of stocks. Writing a call option on
stock index futures would provide a partial hedge against declines
in the value of the securities the Portfolio owns (but would also
limit potential capital appreciation in the securities). In
addition, writing an option would provide a Portfolio with income
in the form of the option premium.
The purchase of a call option on a stock index future
represents a means of obtaining temporary exposure to anticipated
market appreciation at limited risk. It is analogous to the
purchase of a call option on an individual stock, which can be used
as a substitute for a position in the stock itself. Depending on
the pricing of the option compared to either the price of the
futures contract upon which it is based, or the price of the
underlying stock index itself, it may be less risky than the
ownership of the stock index futures or the underlying stocks.
Like the purchase of a stock index future, the Portfolio would
purchase a call option on a stock index future to hedge against a
market advance when the Portfolio is not fully invested.
Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option
will be accompanied by delivery of the accumulated balance in the
writer's futures margin account which represents the amount by
which the market price of the stock index futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the
case of a put, the exercise price of the option on the stock index
future.
As with options on securities, the holder of an option may
terminate his position by selling an identical option. There is,
however, no guarantee that such closing transactions can be
effected. Positions in options on stock index futures contracts
may be closed out only on an exchange or board of trade which
provides a secondary market for such options. Although each
Portfolio intends to purchase or sell options only on exchanges or
boards of trade where there appears to be an active secondary
market, there can be no assurance that a liquid secondary market
will exist for any particular option or at any particular time. In
such event, it may not be possible to close out an option position,
and, if the Portfolio was the writer of the option, in the event of
price movements causing adverse changes in the value of the option
position, the Portfolio would continue to be required to make daily
cash payments of variation margin.
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The ability to establish and close out positions on such
options will be subject to the availability of a liquid secondary
market. A Portfolio will not purchase options on stock index
futures on any exchange unless and until, in the opinion of WMC,
the market for such options has developed sufficiently that the
risks in connection with options on futures transactions are not
greater than the risks in connection with stock index futures
transactions. Compared to the use of stock index futures, the
purchase of options on stock index futures contracts involves less
potential risk to the Portfolio because the maximum amount at risk
is the premium paid for the options (plus transactions costs).
However, there may be circumstances when the use of an option on a
stock index future would result in a loss to the Portfolio when the
use of a stock index future would not, such as when there is no
movement in the level of the index.
Limitations on Stock Index Futures and Related Options Transactions
Each Portfolio authorized to invest in these instruments will
not engage in transactions in stock index futures contracts or
related options for speculation but only as a hedge against changes
resulting from market conditions in the values of securities held
in the Portfolio or which it intends to purchase and where the
transactions are economically appropriate to the reduction of risks
inherent in the ongoing management of the Portfolio. Each
Portfolio authorized to invest in these instruments presently
intends to limit its transactions so that the aggregate market
value of all futures contracts does not exceed 30% of the
Portfolio's total assets. In instances involving the purchase of
stock index futures contracts by those Portfolios, an amount of
cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the
Portfolio's Custodian or in a margin account with a broker to
collateralize the position and thereby ensure that the use of such
futures is unleveraged. (See "Stock Index Futures and Options
Thereon" for the Portfolios authorized to purchase and sell stock
index futures contracts and options.)
Foreign Currency Exchange Transactions
Since investments in companies whose principal business
activities are located outside of the United States will frequently
involve currencies of foreign countries, and since assets of
certain Portfolios may temporarily be held in bank deposits in
foreign currencies during the completion of investment programs,
the value of the assets of a Portfolio as measured in U.S. dollars
may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations. Although
the Portfolio values its assets daily in terms of U.S. dollars, it
does conduct its foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market or through entering into contracts to
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purchase or sell foreign currencies at a future date (i.e., a
"forward foreign currency" contract or "forward" contract). It
will convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the
"spread") between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign
currency at one rate, while offering a lesser rate of exchange
should the Portfolio desire to resell that currency to the dealer.
The Portfolios do not intend to speculate in foreign currency
exchange rates or forward contracts, but they are permitted to make
prudent investments.
A forward contract involves an obligation to purchase or sell
a specific currency at a future date, which may be any fixed number
of days from the date of the contract, agreed upon by the parties,
at a price set at the time of the contract. These contracts are
traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no
commissions are charged for trades.
The Portfolios may enter into forward contracts only under two
circumstances. First, when a Portfolio enters into a contract for
the purchase or a sale of security denominated in a foreign
currency, it may purchase or sell, for a fixed amount of U.S.
dollars, the amount of foreign currency involved in the underlying
security transaction. The Portfolio will be able to protect itself
against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is
purchased or sold and the date on which payment is made or
received.
Second, when the Sub-Adviser believes that the currency of a
particular foreign country may suffer a substantial decline against
the U.S. dollar it may enter into a forward contract to sell, for
a fixed amount of U.S. dollars, the amount of foreign currency
approximating the value of some or all of the Portfolio's
securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future
value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date
it matures. The projection of short-term hedging strategy is
highly uncertain. The Portfolios will not enter into such forward
contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate a Portfolio to deliver
an amount of foreign currency in excess of the value of its
securities or other assets denominated in that currency. Under
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normal circumstances, consideration of the prospect for
currency parities will be incorporated in the longer term
investment decisions made with regard to overall diversification
strategies. However, it is important to have the flexibility to
enter into such forward contracts when the best interests of the
Portfolio will be served. The Custodian will maintain, in a
segregated account, an amount of cash, U.S. government securities
or other liquid high-grade debt securities equal to the Portfolio's
commitments under forward contracts. If the value of the
securities declines, additional cash or securities will be
segregated on a daily basis so that the value will equal the amount
of the Portfolio's commitments with respect to such contracts.
The Portfolios generally will not enter into a forward
contract with a term of greater than one year. At the maturity of
a forward contract, a Portfolio may either sell the portfolio
security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract
with the same currency trader obligating it to purchase, on the
same maturity date, the same amount of the foreign currency.
It is impossible to forecast with precision the market value
of portfolio securities at the expiration of the contract.
Accordingly, if a decision is made to sell the security and make
delivery of the foreign currency it may be necessary to purchase
additional foreign currency on the spot market (and bear the
expense of such purchase), if the market value of the security is
less than the amount of foreign currency the Portfolio is obligated
to deliver. Conversely, it may be necessary to sell on the spot
market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of
foreign currency the Portfolio is obligated to deliver.
If the Portfolio retains the portfolio security and engages in
an offsetting transaction, the Portfolio will incur a gain or loss
(as described below) to the extent that there has been movement in
forward contract prices. If the Portfolio engages in an offsetting
transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline during
the period between entering into a forward contract for the sale of
the foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, the Portfolio
will realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Portfolio will
suffer a loss to the extent that the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed
to sell.
The Portfolios are not required to enter into such
transactions with regard to its foreign currency-denominated
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securities and will not do so unless deemed appropriate by the
Sub-Adviser. It also should be realized that this method of protecting
the value of securities against a decline in the value of a
currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange which
one can achieve at some future point in time. Additionally,
although such contracts tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time, they
tend to limit any potential gain which might result should the
value of such currency increase.
American Depositary Receipts ("ADRs"), Global Depositary
Receipts ("GDRs"), and other forms of depositary receipts for
securities of foreign issuers provide an alternative method for the
Portfolios to make foreign investments. These securities will not
be denominated in the same currency as the securities into which
they may be converted. Generally, ADRs, in registered form, are
designed for use in U.S. securities markets and GDRs, in bearer
form, are designed for use in non-U.S. securities markets. ADRs
are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities. GDRs are Global
receipts evidencing a similar arrangement.
Loans of Portfolio Securities
Consistent with applicable regulatory requirements, the Growth
and Income Portfolio may lend portfolio securities in amounts up to
33% of total assets to brokers, dealers and other financial
institutions, provided, that such loans are callable at any time by
the Portfolio and are at all times secured by cash or equivalent
collateral that is equal to at least the market value, determined
daily, of the loaned securities. In lending its portfolio
securities, the Portfolio receives income while retaining the
securities' potential for capital appreciation. The advantage of
such loans is that the Portfolio continues to receive the interest
and dividends on the loaned securities while at the same time
earning interest on the collateral, which will be invested in
short-term obligations. A loan may be terminated by the borrower
on one business day's notice or by the Portfolio at any time. If
the borrower fails to maintain the requisite amount of collateral,
the loan automatically terminates, and the Portfolio could use the
collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with
any extensions of credit, there are risks of delay in recovery and
in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans
of portfolio securities will only be made to firms deemed by the
Sub-Adviser to be creditworthy. On termination of the loan, the
borrower is required to return the securities to the Portfolio; and
any gain or loss in the market price of the loaned security during
the loan would inure to the Portfolio. The Portfolio will pay
reasonable finders', administrative and custodial fees in
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connection with a loan of its securities or may share the
interest earned on collateral with the borrower.
Since voting or consent rights which accompany loaned
securities pass to the borrower, the Portfolio will follow the
policy of calling the loan, in whole or in part as may be
appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Portfolio's investment
in the securities which are the subject of the loan.
Interest-Rate Swap Transactions
The Growth and Income Portfolio, Fixed Income Portfolio,
Foreign Securities Portfolio, High Yield Portfolio, Natural
Resources Portfolio, Multi-Asset Portfolio and Strategic
Multi-Asset Portfolio may each enter into interest rate swaps. Interest
rate swaps involve the exchange by a Portfolio with another party
of their respective commitments to pay or receive interest, for
example, an exchange of floating rate payments for fixed-rate
payments. A Portfolio expects to enter into these transactions
primarily to preserve a return or spread on a particular investment
or portion of its portfolio or to protect against any increase in
the price of securities a Portfolio anticipates purchasing at a
later date. A Portfolio intends to use these transactions as a
hedge and not as a speculative investment. The risk of loss with
respect to interest rate swaps is limited to the net amount of
interest payments that the portfolio is contractually obligated to
make and will not exceed 5% of a Portfolio's net assets. The use
of interest rate swaps may involve investment techniques and risks
different from those associated with ordinary portfolio
transactions. If the Adviser is incorrect in its forecast of
market values, interest rates and other applicable factors, the
investment performance of the Portfolio would diminish compared to
what it would have been if the investment technique was never used.
Description of Commercial Paper Ratings
The following descriptions of commercial paper ratings have
been published by Standard and Poor's and Moody's,
respectively.
Commercial paper rated A by Standard and Poor's is regarded by
Standard and Poor's as having the greatest capacity for timely
payment. Issues rated A are further refined by use of the numbers
1+, 1, 2, and 3 to indicate the relative degree of safety. Issues
rated A-1+ are those with an "overwhelming degree" of credit
protection. Those rated A-1 reflect a "very strong" degree of
safety regarding timely payment. Those rated A-2 reflect a
"strong" degree of safety regarding timely payment but not as high
as A-1.
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Moody's employs designations to indicate the relative
repayment capacity of rated issuers as follows:
Prime-1 Highest Quality
Prime-2 Higher Quality
Discount Bonds, Convertible Bonds and Preferred Stocks
Discount bonds are bonds issued below par, or trading below
par, where the yield to maturity is greater than the current yield.
Zero coupon bonds are bonds which pay no current coupon, but where
income is accrued during the passage of time and the bond, as a
result of this accrued interest, should increase in value from
purchase price to maturity value. The sale of a zero coupon bond
on an interim basis, between purchase and maturity, may result in
a cash gain or loss depending on market conditions; and payment of
any cash return depends on the issuer's ability to meet maturity
requirements on maturity date.
Convertible bonds and preferred stocks are fixed-income
instruments which provide for the regular payment of a coupon or
dividend, but which also allow the holder to convert the holding
into shares of the underlying common stock. Thus the valuation of
prospective return of these instruments is some combination of the
current yield resulting from coupon or dividend payment, and
capital appreciation (or depreciation) resulting from movement of
the underlying common stock and market evaluation of conversion
features. Certain issuers issue bonds or preferred stocks with
warrants, enabling the holder to purchase the issuer's common stock
or other securities. These "synthetic convertibles" will be used
when the Sub-Adviser finds the combination of current return and
capital appreciation potential relatively attractive. Warrants and
common stocks are intended for purchase only where fixed-income
securities of the issuer are also owned or expected to be purchased
by the Portfolio.
Certain Risk Factors Relating to High-Yield (High-Risk) Bonds
The descriptions below are intended to supplement the material
in the Prospectus under "Investment Objectives and Policies."
Sensitivity to Interest Rate and Economic Changes - High-yield
bonds are very sensitive to adverse economic changes and
corporate developments. During an economic downturn or
substantial period of rising interest rates, highly leveraged
issuers may experience financial stress that would adversely
affect their ability to service their principal and interest
payment obligations, to meet projected business goals, and to
obtain additional financing. If the issuer of a bond
defaulted on its obligations to pay interest or principal or
entered into bankruptcy proceedings, the Portfolio may incur
losses or expenses in seeking recovery of amounts owed to it.
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In addition, periods of economic uncertainty and change can be
expected to result in increased volatility of market prices of
high-yield bonds and the Portfolio's net asset value.
Payment Expectations - High-yield bonds may contain redemption
or call provisions. If an issuer exercised these provisions
in a declining interest rate market, the Portfolio would have
to replace the security with a lower yielding security,
resulting in a decreased return for investors. Conversely, a
high-yield bond's value will decrease in a rising interest
rate market, as will the value of the Portfolio's assets. If
the Portfolio experiences unexpected net redemptions, this may
force it to sell high-yield bonds without regard to their
investment merits, thereby decreasing the asset base upon
which expenses can be spread and possibly reducing the
Portfolio's rate of return.
Liquidity and Valuation - There may be little trading in the
secondary market for particular bonds, which may affect
adversely the Portfolio's ability to value accurately or
dispose of such bonds. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of high-yield bonds,
especially in a thin market.
Further Information about the Target '98 Portfolio
As stated in the Prospectus, the objective of the Target '98
Portfolio is to achieve a predictable compounded investment return
for a specified period of time, consistent with the preservation of
capital. This discussion provides a more detailed explanation of
the investment policies that will be employed to manage this
Portfolio.
If the Target '98 Portfolio held only stripped securities that
were obligations of the United States Government, maturing on the
Maturity Date, the compounded investment return of the Portfolio
from the date of initial investment until the Maturity Date could
be calculated arithmetically with a relatively high degree of
accuracy. However, by (i) including stripped corporate obligations
and current interest bearing debt obligations; (ii) permitting
investment in highly liquid short-term debt obligations; and (iii)
actively managing the Portfolio, the accuracy of the predicted
investment return is reduced somewhat. The reduction in accuracy
is mitigated by: targeting the maturity dates of the Portfolio's
investments to its Maturity Date; purchasing call-protected
securities; and performing fundamental credit analysis to reduce
credit risk.
The receipt of the current income introduces reinvestment
risk. Reinvestment risk is the risk that the payments received
will not be reinvested at interest rates that are as high or higher
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than needed to achieve the predicted compounded investment return.
Because the Portfolio employs a policy of utilizing current income
to meet its expenses, reinvestment risk is reduced. If the
Portfolio were comprised only of zero coupon securities, principal
would have to be liquidated to meet expenses, thereby compromising
the objective of providing a predictable compounded investment
return.
The Sub-Adviser's goal in selecting current interest bearing
debt obligations for the Portfolio is to seek to maximize call
protection and to minimize the risk that the issuers of portfolio
securities will default on their obligation to pay or that the
securities rating will be downgraded by Moody's or Standard and
Poor's. Accordingly, the Sub-Adviser intends to select
investment-grade debt obligations with call protection. The Portfolio is
limited to investments in obligations within the four highest
categories assigned by Moody's or by Standard and Poor's.
Nevertheless, credit risks cannot be completely eliminated. If an
issuer defaults on its obligation to pay principal or interest, the
Portfolio's value may be adversely affected.
As stated in the Prospectus, the Portfolio is authorized to
invest in dollar denominated obligations of foreign issuers or
obligations or domestic issuers that trade in foreign markets. The
risks of investing outside of the United States are highlighted in
the Prospectus and explained herein under the following sections:
Foreign Money Market Instruments, Foreign Securities and Foreign
Currency Exchange Transactions.
INVESTMENT RESTRICTIONS
The Trust has adopted the following restrictions relating to
the investment of assets of the Money Market, Fixed Income,
Government and Quality Bond, High Yield, Target '98, Growth and
Income, Foreign Securities, Growth, Capital Appreciation, Natural
Resources, Multi-Asset and Strategic Multi-Asset Portfolios. These
are fundamental policies and may not be changed without the
approval of the holders of a majority of the outstanding voting
shares of each Portfolio affected (which for this purpose and under
the 1940 Act, means the lesser of (i) 67% of the shares represented
at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares). A
change in policy affecting only one Portfolio may be effected with
the approval of a majority of the outstanding shares of such
Portfolio. Except as otherwise indicated, none of the twelve
Portfolios may:
1. Purchase any security (other than obligations of the U.S.
Government, its agencies or instrumentalities) if as a
result more than 5% of the Portfolio's total assets
(taken at current value) would then be invested in
securities of a single issuer, or more than 25% of its
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total assets (taken at current value) would then be
invested in a single industry with the exception of the
Money Market Portfolio which intends to concentrate its
investments in the banking industry, and the Natural
Resources Portfolio which intends to concentrate its
investments in the securities of companies in
gold-related industries.
2. Purchase securities on margin (but the Trust may obtain
such short-term credits as may be necessary for the
clearance of purchases and sales of securities).
3. Make short sales of securities or maintain a short
position.
4. Purchase any security if, as a result, the Portfolio
would then hold more than 10% of the outstanding voting
securities of an issuer.
5. Purchase any security, if as a result, the Portfolio
would then have more than 5% of its total assets (taken
at current value) invested in securities of companies
(including predecessors) that are less than three years
old.
6. Purchase or retain securities of any company if, to the
knowledge of the Trust, Officers and Trustees of the
Trust and officers and directors of WMC or SAAMCo who
individually own more than 1/2 of 1% of the securities of
that company together own beneficially more than 5% of
such securities.
7. Buy or sell commodities or commodity contracts (except
financial futures as described herein) or, with the
exception of the Natural Resources Portfolio, real estate
or interests in real estate, although a Portfolio may
purchase and sell securities which are secured by real
estate and securities of companies which invest or deal
in real estate.
8. Act as underwriter except to the extent that, in
connection with the disposition of portfolio securities,
a Portfolio may be deemed to be an underwriter under
certain Federal securities laws.
9. Make investments for the purpose of exercising control or
management.
10. Purchase any security restricted as to disposition under
Federal securities laws, if as a result, a Portfolio
would have more than 10% of its total assets (taken at
current value) invested in securities for which market
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quotations are not readily available and in repurchase
agreements with a maturity of longer than seven days.
11. Invest in securities of other investment companies,
except as part of a merger, consolidation or other
acquisition, with the exception of the Natural Resources
Portfolio.
12. With the exception of the Natural Resources Portfolio,
invest in interests in oil, gas or other mineral
exploration or development programs, although to the
extent consistent with its investment objectives and
policies, a Portfolio may invest in the publicly traded
securities of companies which invest in or sponsor such
programs.
13. Make loans, except through (a) the purchase of bonds,
debt obligations such as GNMA securities, debentures,
commercial paper, corporate notes, and similar evidences
of indebtedness of a type commonly sold to financial
institutions (subject to the limitation in paragraph 11
above); and (b) repurchase agreements (subject to the
limitation in paragraph 11 above). The purchase of a
portion of an issue of securities described under (a)
above distributed publicly, whether or not the purchase
is made on the original issuance, is not considered the
making a loan.
14. Borrow money or pledge Portfolio assets except for
temporary or emergency purposes and then only in an
amount not in excess of 10% of the value of its assets in
which case it may pledge, mortgage or hypothecate any of
its assets as security for such borrowing, but not to an
extent greater than 5% of the value of the assets, except
with respect to the Foreign Securities Portfolio or
Natural Resources Portfolio which may borrow money or
pledge its assets in an amount not in excess of 20% of
the value of its assets. No more than 5% of the assets
of each Portfolio may be borrowed from non-banks.
(Neither the deposit in escrow of underlying securities
in connection with the writing of call options, nor the
deposit of U.S. Treasury bills in escrow in connection
with the writing of put options, nor the deposit of cash
and cash equivalents in a segregated account with the
Trust's Custodian or in a margin account with a broker in
connection with futures, or related options transactions
or in connection with the writing of call and put options
in spread transactions, is deemed to be a pledge.)
15. Write, purchase or sell puts, calls or combinations
thereof on stocks, except as described under Investment
B-32
<PAGE> 65
Objectives and Policies with respect to the Growth,
Capital Appreciation, Growth and Income, Fixed
Income, High Yield, Multi-Asset, Strategic Multi-Asset
and Natural Resources Portfolios.
SUNAMERICA ASSET MANAGEMENT CORP.
SunAmerica Asset Management Corp. ("SAAMCo"), The SunAmerica
Center, 733 Third Avenue, New York, New York 10017-3204, has been
retained pursuant to an Investment Advisory and Management
Agreement (the "Advisory Agreement") to supervise the management
and investment programs of the Foreign Securities, Capital
Appreciation, Growth, Natural Resources, Growth and Income, High
Yield, Target '98, Fixed Income, Government and Quality Bond,
Strategic Multi-Asset, Multi-Asset, and Money Market Portfolios of
the Trust.
The Advisory Agreement continues in effect from year to year,
in accordance with its terms, only so long as such continuance is
specifically approved at least annually by the Board of Trustees or
by vote of a majority of the outstanding voting securities of the
Trust. The Advisory Agreement may be terminated, as to any
Portfolio named therein at any time, without the payment of any
penalty, by the Trustees or by a vote of a majority of the
outstanding shares of the Trust or of any Portfolio of the Trust,
on not less than thirty (30) days or more than sixty (60) days'
prior written notice to SAAMCo, or by SAAMCo, on ninety (90) days'
prior written notice to the Trust. The Advisory Agreement
terminates automatically in the event of its assignment.
SAAMCo is engaged in providing investment advice and
management services to the Trust, other mutual funds, pension
funds, and related assets and programs offered by the affiliated
companies of SunAmerica Inc. SAAMCo also provides investment
advice to individual companies and clients. As of December 31,
1995, SAAMCo and its affiliates manage, advise and/or administer
approximately $7.6 billion of assets. SAAMCo provides investment
advisory services, office space, and other facilities for the
management of the Trust's affairs, and pays all compensation of
officers and Trustees of the Trust who are "interested persons" of
SAAMCo. The Trust pays all other expenses incurred in the
operation of the Trust, including fees and expenses of
disinterested Trustees of the Trust, except those affirmatively
undertaken by SAAMCo or WMC.
The Advisory Agreement provides that SAAMCo shall act as
investment adviser to the Trust, manage the Trust's investments,
administer its business affairs, furnish offices, necessary
facilities and equipment, provide clerical, bookkeeping and
administrative services, and permit any of SAAMCo's officers or
employees to serve without compensation as Trustees or officers
B-33
<PAGE> 66
of the Trust if duly elected to such positions. Under the
Advisory Agreement, the Trust agrees to assume and pay certain
charges and expenses of its operations, including: the compensation
of the Trustees (other than those affiliated with SAAMCo or WMC),
the charges and expenses of independent accountants, legal counsel,
expenses of registering or qualifying shares for sale, any transfer
or dividend disbursing agent, any registrar of the Trust, the
Custodian (including fees for safekeeping of securities), costs of
calculating net asset value, all costs of acquiring and disposing
of portfolio securities, interest (if any) on obligations incurred
by the Trust, membership dues in the Investment Company Institute
or any similar organization, reports and notices to shareholders,
miscellaneous expenses and all taxes and fees to Federal, state or
other governmental agencies.
Each Portfolio pays its actual expenses for custodian services
and a portion of the Custodian's costs determined by the ratio of
portfolio assets to the total assets of the Trust, brokerage
commissions or transaction costs, and registration fees. Subject
to supervision of the Board of Trustees, fees for independent
accountants, legal counsel, costs of reports of notices to
shareholders will be allocated based on the relative net assets of
each Portfolio. With respect to audit or legal fees clearly
attributable to one Portfolio, they will be assessed, subject to
review by the Board of Trustees, against that Portfolio.
With respect to the investment advisory fees, SAAMCo has
agreed to waive its fees to the extent necessary so that the fees
actually collected reflect the fee schedules set forth below at the
following annual percentages of each portfolio's average daily net
assets (other than the Natural Resources Portfolio, for which no
fee waiver is in effect):
<TABLE>
<CAPTION>
Average Daily Management
Portfolio Net Assets Fee
<S> <C> <C>
Foreign Securities $0-$100 million .900%
> $100 million .825%
> $250 million .750%
> $500 million .700%
Capital Appreciation $0-$100 million .750%
> $100 million .675%
> $250 million .625%
> $500 million .600%
Growth $0-$250 million .750%
> $250 million .675%
> $500 million .600%
</TABLE>
B-34
<PAGE> 67
<TABLE>
<CAPTION>
Average Daily Management
Portfolio Net Assets Fee
<S> <C> <C>
Growth and Income $0-$100 million .700%
> $100 million .650%
> $250 million .600%
> $500 million .575%
Strategic Multi-Asset,
Multi-Asset $0-$200 million 1.000%
> $200 million .875%
> $500 million .800%
High Yield $0-$250 million .700%
> $250 million .575%
> $500 million .500%
Target '98 $0-$100 million .625%
> $100 million .570%
> $250 million .525%
> $500 million .500%
Government & Quality Bond,
Fixed Income $0-$200 million .625%
> $200 million .575%
> $500 million .500%
Money Market $0-$150 million .500%
> $150 million .475%
> $250 million .450%
> $500 million .425%
</TABLE>
SAAMCo has agreed that, in the event the expenses of one
or more of the Portfolios exceeds applicable state law expense
limitations, it will waive its fees under the Advisory Agreement to
the extent necessary to reduce the expenses of the affected
Portfolio(s) so as not to exceed such limitation(s). No such
waiver shall result in the obligation (contingent or otherwise) of
the affected Portfolio(s) to repay SAAMCo in any fiscal year any
such amounts waived in previous fiscal years. Such agreements with
respect to expense limitations do not require SAAMCo to
additionally reimburse any Portfolio in the event the waivers are
insufficient to reduce such Portfolio's expenses to the applicable
limitations. Presently, the most restrictive expense limitation
requires that the Trust's aggregate annual expenses shall not
normally exceed 2.5% of the first $30 million of average net
assets, 2% of the next $70 million of average net assets and 1.5%
of the remaining average net assets.
The following table sets forth the total advisory fees earned
by the Adviser from each Portfolio pursuant to the Advisory
B-35
<PAGE> 68
Agreement for the fiscal years ended December 31,1995, 1994, and
1993.
Advisory Fees
<TABLE>
<CAPTION>
Fund 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C>
Foreign Securities Portfolio $ 525,490 $ 683,712 $ 416,985
Capital Appreciation Portfolio $1,992,705 $1,416,274 $ 875,342
Growth Portfolio $2,044,069 $1,991,742 $2,176,093
Natural Resources Portfolio $ 195,327 $ 162,953 $ 102,366
Growth and Income Portfolio $ 229,671 $ 284,177 $ 230,593
Strategic Multi-Asset Portfolio $ 640,025 $ 713,262 $ 771,597
Multi-Asset Portfolio $1,671,735 $1,840,983 $2,104,656
High Yield Portfolio $ 346,773 $ 408,977 $ 505,526
Target '98 Portfolio $ 98,847 $ 127,107 $ 133,731
Fixed Income Portfolio $ 174,815 $ 213,577 $ 265,583
Government and Quality Bond
Portfolio $1,346,394 $1,554,525 $1,426,880
Money Market Portfolio $ 569,193 $ 662,202 $ 581,734
</TABLE>
Personal Securities Trading
The Trust and the Adviser have adopted a written Code of
Ethics (the "Code of Ethics") which prescribes general rules of
conduct and sets forth guidelines with respect to personal
securities trading by "Access Persons" thereof. An Access Person
as defined in the Code of Ethics is an individual who is a trustee,
director, officer, general partner or advisory person of the Trust
or the Adviser. Among the guidelines on personal securities
trading include; (i) securities being considered for purchase or
sale, or purchased or sold, by any Investment Company advised by
the Adviser, (ii) Initial Public Offerings, (iii) private
placements, (iv) blackout periods, (v) short-term trading profits,
(vi) gifts, and (vii) services as a director. These guidelines are
substantially similar to those contained in the Report of the
Advisory Group on Personal Investing issued by the Investment
Company Institute's Advisory Panel.
Finally, the Sub-Adviser has adopted a written Code of Ethics,
the provisions of which are materially similar to those in the
Adviser's Code of Ethics, and has undertaken to comply with the
provisions of the Adviser's Code of Ethics to the extent such
provisions are more restrictive. Further, the Sub-Adviser
B-36
<PAGE> 69
reports to the Adviser, on a quarterly basis, as to whether
there were any Code of Ethics violations by employees thereof who
may be deemed Access Persons of the Trust. In turn, the Adviser
reports to the Board of Trustees as to whether there were any
violations of the Code of Ethics by Access Persons of the Trust or
the Adviser.
WELLINGTON MANAGEMENT COMPANY
Wellington Management Company serves as Sub-Adviser for all of
the Portfolios of the Trust, pursuant to the Sub-Advisory Agreement
approved by shareholders of each of the Portfolios at a meeting
held on February 13, 1990. (See "Wellington Management Company" in
the Prospectus for additional information concerning the Sub-Adviser.)
The following table sets forth the total sub-advisory fees
received by WMC, as reported to the Trust by SAAMCO, for each Portfolio
pursuant to the Sub-Advisory Agreement for the fiscal years ended
December 31, 1995, 1994, and 1993.
Sub-Advisory Fees
<TABLE>
<CAPTION>
Fund 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C>
Foreign Securities Portfolio $223,066 $271,412 $180,215
Capital Appreciation Portfolio $736,837 $559,914 $375,432
Growth Portfolio $637,763 $622,372 $676,713
Natural Resources Portfolio $ 91,152 $ 76,045 $ 47,771
Growth and Income Portfolio $106,633 $131,939 $107,061
Strategic Multi-Asset Portfolio $178,005 $192,652 $204,319
Multi-Asset Portfolio $325,760 $351,373 $392,941
High Yield Portfolio $148,328 $168,345 $200,343
Target '98 Portfolio $ 35,585 $ 45,759 $ 48,143
Fixed Income Portfolio $ 62,934 $ 76,888 $ 95,610
Government and Quality Bond
Portfolio $291,764 $327,961 $305,762
Money Market Portfolio $ 85,379 $ 99,364 $ 87,260
</TABLE>
OFFICERS AND TRUSTEES OF THE TRUST
The following table lists the Trustees and executive officers
of the Trust, their ages, business addresses and principal
B-37
<PAGE> 70
occupations during the past five years. The SunAmerica Mutual
Fund Family consists of SunAmerica Equity Funds, SunAmerica Income
Funds and SunAmerica Money Market Funds, Inc. (the "SunAmerica
Mutual Funds"). An asterisk indicates those Trustees who may be
deemed to be "interested persons" of the Trust as that term is
defined in the 1940 Act.
<TABLE>
<CAPTION>
Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
<S> <C> <C>
S. James Coppersmith, 63 Trustee Formerly, President and
7 Elmwood Road General Manager, WCVB-TV,a
Marblehead, MA 01945 division of the Hearst
Corporation from 1982 to
1994 (retired);
Director/Trustee of the
SunAmerica Mutual
Funds.
Samuel M. Eisenstat, 55 Trustee and Attorney in private
430 East 86 Street Chairman of practice; Trustee of RPS
New York, NY 10028 the Board Realty Trust since
December 1988; Director
of Volt Information
Sciences Funding, Inc., a
subsidiary of Volt
Information Sciences,
Inc. since October 1993;
Director/Trustee and
Chairman of the Boards of
the SunAmerica Mutual
Funds.
Stephen J. Gutman, 52 Trustee Chairman of the Board,Chief
340 East 79 Street Operating and Executive
New York, NY 10021 Officer of Beau Brummel
Casuals Limited, Inc., a
menswear special retailer
since May 1989;
Director/Trustee of the
SunAmerica Mutual
Funds.
</TABLE>
B-38
<PAGE> 71
<TABLE>
<CAPTION>
Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
<S> <C> <C>
Peter A. Harbeck*, 42 Trustee and President, SunAmerica Asset
The SunAmerica Center President Management Corp. ("SAAMCo")
733 Third Avenue and SunAmerica Capital
New York, NY 10017-3204 Services, Inc. ("SACS")
since August, 1995;
Director and Chief
Operating Officer of SAAMCo
and President of SunAmerica
Fund Services,Inc.,("SAFS")
since May 1988; President
of SunAmerica Mutual
Funds; Executive Vice
President of SAAMCo, from
May 1988 to August 1995;
Executive Vice President,
SACS, from November 1991 to
August 1995; and Director,
Resources Trust
Company.
Nancy Kelly, 45 Vice Vice President and Head
The SunAmerica Center President Trader, SAAMCo, since April
733 Third Avenue 1994; formerly, Vice
New York, NY 10017-3204 President, Whitehorne & Co.
Ltd. (1991-1994); Sales
Trader, Lynch Jones & Ryan
(1992-1994).
Peter C. Sutton, 31 Treasurer Vice President, SAAMCo,
The SunAmerica Center since September 1994;
733 Third Avenue Treasurer SunAmerica Mutual
New York, NY 10017-3204 Funds (since February
1996); formerly,
Controller, (March 1993 -
February 1996) and
Assistant Controller (1990-
1993), SunAmerica Mutual
Funds.
</TABLE>
B-39
<PAGE> 72
<TABLE>
<CAPTION>
Position Principal Occupations
Name, Age and Address with the Fund During Past 5 Years
<S> <C> <C>
Robert M. Zakem, 38 Secretary Senior Vice President and
The SunAmerica Center General Counsel of SAAMCo,
733 Third Avenue since April 1993; Executive
New York, NY 10017-3204 Vice President and
Director, SACS, since
February 1993; and Vice
President of SAFS, since
January 1994; Formerly,
Vice President and
Associate General Counsel,
SAAMCo, from March 1992 to
April 1993; Associate,
Piper & Marbury from 1989
to 1992.
</TABLE>
Each of the non-affiliated Trustees is entitled to
compensation from the Trust consisting of an annual fee of $20,000
in addition to reimbursement of out-of-pocket expenses in
connection with attendance at meetings of the Trustees. In
addition, Mr. Eisenstat receives an aggregate of $2,000 in annual
compensation for serving as Chairman of the Board of the Trust.
These expenses are allocated on the basis of the relative net
assets of each Portfolio. Officers are compensated by SAAMCo or
its affiliates and receive no compensation from the Trust.
In addition, each non-affiliated Trustee also serves on the
Audit Committee of the Board of Trustees. Each member of the Audit
Committee receives an aggregate of $5,000 in annual compensation
for serving on the Audit Committees of all of the SunAmerica
Mutual Funds and the Trust. With respect to the Trust, each member
of the Audit Committee receives a pro rata portion of the $5,000
annual compensation, based on the relative net assets of the Trust.
The Trust also has a Nominating Committee, comprised solely of
non-affiliated Trustees, which recommends to the Trustees 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 the SunAmerica Mutual Funds
and the Trust have adopted the SunAmerica Disinterested Trustees'
and Directors' Retirement Plan (the "Retirement Plan") effective
January 1, 1993 for the unaffiliated Trustees. The Retirement Plan
provides generally that if a non-affiliated Trustee who has at
least 10 years of consecutive service as a non-affiliated Trustee
of any of the SunAmerica Mutual Funds (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 SunAmerica mutual fund with respect to
which he or she is an Eligible Trustee. 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
B-40
<PAGE> 73
excluding committee fees) for services as a Disinterested Trustee
of each SunAmerica mutual fund 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.
As of January 31, 1996, the Trustees and officers of the Trust
owned in the aggregate, less than 1% of the Trust's total
outstanding shares.
The following table sets forth information summarizing the
compensation of each disinterested Trustee for his services as
Trustee for the fiscal year ended December 31, 1995. Neither the
Trustees who are interested persons of the Trust nor any officers
of the Trust receive any compensation.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Pension or Total
Retirement Compensation
Aggregate Benefits from Registrant
Compensation Accrued as and Fund
from Part of Fund Complex Paid to
Trustee Registrant Expenses* Trustees*
- ------- ------------ ------------ ---------------
<S> <C> <C> <C>
S. James Coppersmith $22,235 $32,550 $65,000
Samuel M. Eisenstat $24,235 $12,940 $65,000
Stephen J. Gutman $22,235 $13,955 $65,000
</TABLE>
* Information is as of December 31, 1995 for the four investment companies in
the complex which pay fees to these directors/trustees. The complex consists
of the SunAmerica Mutual Funds and Anchor Series Trust.
CUSTODIAN
State Street Bank and Trust Company ("State Street"), 225
Franklin Street, Boston, Massachusetts is the Custodian of the
Trust. As Custodian, State Street holds all securities and cash
owned by the Trust, and receives for the Trust all payments of
income, payments of principal or capital distribution received by
it with respect to securities owned by the Trust and receives the
payment for the shares issued by the Trust. The Custodian releases
and delivers securities and cash upon proper instructions from the
Trust.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New York,
New York, serves as independent accountants to the Trust and, in
that capacity, audits the annual financial statements of the Trust.
B-41
<PAGE> 74
PORTFOLIO TRANSACTIONS AND BROKERAGE
All purchase and sale orders of securities for the Portfolios
are placed on behalf of the Trust by the Sub-Adviser. If the
securities in which a particular Portfolio invests are traded
primarily in the over-the-counter market, then the Portfolio may
deal directly with the broker-dealers who make a market in the
securities involved unless better prices and execution are
available elsewhere. These brokers may also furnish brokerage and
research services, including advice as to the advisability of
investing in securities, securities analysis and reports.
Broker-dealers involved in the execution of portfolio
transactions on behalf of the Trust are selected on the basis of
their professional capability and the value and quality of their
services. In selecting such broker-dealers, the Sub-Adviser will
consider various relevant factors, including, but not limited to,
the size and type of the transaction; the nature and character of
the markets in which the security can be purchased or sold; the
execution efficiency, settlement capability, and financial
condition of the broker-dealer; the broker-dealer's execution
services rendered on a continuing basis; and the reasonableness of
any commissions.
The Trust reserves the right to effect portfolio transactions
through broker-dealers affiliated with the Adviser, acting as agent
and not as principal, provided that any commissions, fees or other
remuneration received by affiliated brokers are within the
limitations set forth in the 1940 Act and are reasonable and fair
compared to the commissions, fees or other remuneration paid to
other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a
comparable period of time. The Adviser, subject to applicable laws
and regulations, may also consider the willingness of particular
brokers to sell the Variable Contracts as a factor in the selection
of brokers for its portfolio transactions.
Brokers may be selected to provide brokerage or research
services to the Trust or other accounts over which WMC or SAAMCo
exercises investment discretion. Such service may include advice
concerning the value of securities; the advisability of investing
in, purchasing or selling securities; the availability of
securities or the purchasers or sellers of securities; furnishing
analysis and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and performance of
accounts; and effecting securities transactions and performing
functions incidental thereto, such as clearance and settlement.
The receipt of research from brokers may be useful in
rendering investment management services to the Trust and other
B-42
<PAGE> 75
clients of WMC and SAAMCo; conversely, such information provided by
brokers who have executed transaction orders on behalf of other
clients may be useful in carrying out obligations to the Trust.
The receipt of such research will not be substituted for
independent research and the expenses of WMC or SAAMCo will not
necessarily be reduced as a result of the receipt of such
supplemental information. The Sub-Adviser may effect individual
securities transactions at commission rates in excess of the
minimum commission rates available, if WMC determines in good faith
that such amount of commission is reasonable in relation to the
value of the brokerage or research services provided by the broker
or dealer, viewed in terms of either that particular transaction or
WMC's overall responsibilities with respect to the accounts as to
which it exercises investment discretion.
Some securities considered for investment by the Trust may
also be appropriate for other clients served by the Sub-Adviser.
There may be occasions when the Trust and one or more of the other
clients advised by WMC will find themselves contemporaneously
engaged in purchasing or selling the same securities from or to
third parties. When this occurs, the transactions will be averaged
as to price and allocated as to amounts in accordance with an
allocation policy, which has been reviewed by the Board of Trustees
and considered to be equitable to the portfolios involved. It is
recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as the Trust
is concerned. However, it is the judgment of the Board of Trustees
of the Trust that the desirability of its advisory arrangement with
SAAMCo and the sub-advisory arrangement with WMC outweighs any
disadvantages that may result from such contemporaneous
transactions.
The Board of Trustees periodically reviews performance of
responsibilities in connection with the placement of portfolio
transactions on behalf of the Trust and reviews the prices and
commissions, if any, paid by the Trust to determine if they are
reasonable in relation to the benefits to the Trust.
The following tables set forth the aggregate brokerage
commissions paid by the Portfolios and the amounts of the brokerage
commissions which were paid to Royal Alliance Associates,
Inc.("Royal Alliance"), an affiliated broker-dealer, for the fiscal
years ended December 31, 1995, 1994, and 1993.
B-43
<PAGE> 76
<TABLE>
<CAPTION>
1995 Brokerage Commissions
Percentage of
Aggregate Amount Commissions
Brokerage Paid to Royal Paid to Royal
Portfolio Commissions Alliance Alliance
- --------- ----------- ------------- -------------
<S> <C> <C> <C>
Growth Portfolio $690,845 $49,609 7.2%
Strategic Multi-Asset
Portfolio $85,024 $3,341 3.9%
Multi-Asset Portfolio $55,803 $6,145 11.0%
Capital Appreciation
Portfolio $378,644 $35,445 9.4%
Natural Resources Portfolio $39,262 $21,897 55.8%
</TABLE>
1994 Brokerage Commissions
<TABLE>
<CAPTION> Percentage of
Aggregate Amount Commissions
Brokerage Paid to Royal Paid to Royal
Portfolio Commissions Alliance Alliance
- --------- ----------- ------------- -------------
<S> <C> <C> <C>
Growth Portfolio $494,221 $63,701 12.9%
Strategic Multi-Asset
Portfolio $141,655 $5,650 4.0%
Multi-Asset Portfolio $125,278 $20,574 16.4%
Capital Appreciation
Portfolio $342,247 $34,099 10.0%
Foreign Securities Portfolio $367,927 $600 .16%
Natural Resources Portfolio $29,961 $8,412 28.1%
</TABLE>
1993 Brokerage Commissions
<TABLE>
<CAPTION> Percentage of
Aggregate Amount Commissions
Brokerage Paid to Royal Paid to Royal
Portfolio Commissions Alliance Alliance
- --------- ----------- ------------- -------------
<S> <C> <C> <C>
Growth Portfolio $376,002 $47,357 12.6%
Strategic Multi-Asset
Portfolio $135,024 $2,360 1.75%
Multi-Asset Portfolio $129,078 $34,270 26.5%
Capital Appreciation
Portfolio $289,279 $59,975 20.7%
Natural Resources Portfolio $28,726 $1,800 6.3%
</TABLE>
B-44
<PAGE> 77
PORTFOLIO TURNOVER
Although the Portfolios, except for the Money Market
Portfolio, do not invest for short-term trading purposes, Portfolio
securities may be sold from time to time without regard to the
length of time they have been held. A Portfolio's turnover
rate is the percentage computed by dividing the lesser of Portfolio
purchases or sales (excluding all securities whose maturities at
acquisition were one year or less) by the average value of the
Portfolio (excluding all securities whose maturities at acquisition
were one year or less). To the extent a Portfolio has a higher
portfolio turnover rate (e.g., over 100%), brokerage commissions
and other transaction costs, which are borne directly by the
Portfolio, will be correspondingly higher. See the Financial
Highlights table in the Prospectus for Portfolio Turnover
Rates.
NET ASSET VALUE
The net asset value of the shares of each Portfolio will be
computed once daily at the close of regular trading of the New York
Stock Exchange (which is currently 4:00 p.m., New York time), on
days the New York Stock Exchange is open for trading which are
Monday through Friday, except for New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The Portfolios will not
calculate such price on each other day in which no orders to
purchase, sell or redeem shares have been received or days on which
changes in the value of the Trust's portfolio securities do not
materially affect the net asset value.
The net asset value of a share of each Portfolio is calculated
by adding the value of all securities and other assets, deducting
its accrued liabilities, and dividing the remainder by the number
of shares outstanding. Except with respect to securities held by
the Money Market Portfolio, securities of each Portfolio are valued
as follows: Equity securities which are traded on domestic stock
exchanges, are valued at the last sale price as of the close of
business on the day the securities are being valued, or lacking any
sales, at the closing bid price. Securities traded in the
over-the-counter market are valued at the closing bid price or yield
equivalent as obtained from one or more dealers that make markets
in the securities. Portfolio securities, which are traded both in
the over-the-counter market and on a stock exchange, are valued
according to the broadest and most representative market. Bonds
and other fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed
to reflect the fair market value of such securities. The prices
provided by a pricing service may be determined without regard to
B-45
<PAGE> 78
bid or last sale prices but take into account institutional size
trading in similar groups of securities and any developments
related to specific securities. Securities not priced in this
manner are valued at the most recent quoted bid price. Securities
and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by or under
the direction of the Board of Trustees of the Trust. Short-term
securities, other than GNMA securities, with maturities of sixty
(60) days or less will be valued at amortized cost.
Foreign Securities Portfolio
The Portfolio's securities are valued by appraising securities
at the last sale price, or, if no sale, at the closing bid price,
if traded on an exchange, and if not so traded, on the basis of
closing over-the-counter bid prices, if available. Dividend income
from portfolio securities is recorded on the ex-dividend date,
except that, if the ex-dividend date has passed, certain dividends
from foreign securities are recorded as soon as the Portfolio is
informed of the dividend after the ex-dividend date.
Valuations of foreign securities are furnished by a quotation
service and are already translated into U.S. dollars. The methods
used by the quotation service and the quality of valuations so
established are reviewed by officers of the Trust under the general
supervision of the Trustees. A security which is listed or traded
on more than one exchange is valued at the quotation on the
exchange determined to be the primary market for such security.
Short-term obligations that mature in 60-days or less are valued at
amortized cost, provided that such value constitutes fair value as
determined in good faith by the Board of Trustees.
Generally, all trading in foreign securities, as well as
corporate bonds, U.S. Government securities, money market
instruments, and repurchase agreements, is substantially completed
each day at various times prior to the close of the New York Stock
exchange. The values of any such securities held by the Portfolio
are determined as of such times for the purpose of computing the
net asset value. The procedures set forth above need not be used
to determine the value of debt securities owned by the Trust if, in
the opinion of the Board of Trustees, some other method (e.g.,
based on closing over-the-counter bid prices in the case of debt
instruments traded on an exchange) would more accurately reflect
the fair market value of such debt securities. Foreign currency
exchange rates are also generally determined prior to the close of
the New York Stock Exchange. If an extraordinary event occurs,
which is expected to materially affect the value of a security,
then the security will be valued at fair value as determined in
good faith under the direction of the Trustees.
B-46
<PAGE> 79
Money Market Portfolio
Securities of the Money Market Portfolio are valued by the
amortized cost method under Rule 2a-7 of the 1940 Act, which
involves valuing a security at its cost on the date of purchase and
thereafter (absent unusual circumstances) assuming a constant
amortization to maturity of any discount or premium, regardless of
the impact of fluctuations in general market rates of interest on
the value of the instrument. While this method provides certainty
in valuation, it may result in periods during which value, as
determined by this method is higher or lower than the price the
Portfolio would receive if it sold the securities.
The use of this valuation method is continuously reviewed and
the Board of Trustees will make such changes as may be necessary to
assure that the assets of the Portfolio are valued fairly as
determined by the Trustees in good faith, as a particular
responsibility within the overall duty of care owed to the
shareholders, to establish procedures reasonably designed, taking
into account current market conditions and the Portfolio's
investment objectives, to stabilize the net asset value per share
as computed for the purpose of distribution and redemption at $1.00
per share. The Trustees' procedures include periodically
monitoring as they deem appropriate and at such intervals as are
reasonable in light of current market conditions, the relationship
between the amortized cost value per share and the net asset value
per share based upon available indications of market value. The
Trustees will consider what steps should be taken, if any, in the
event of a difference of more than 1/2 of 1% between the two. The
Trustees will take such steps as they consider appropriate, (e.g.,
selling securities to shorten the average portfolio maturity) to
minimize any material dilution or other unfair results which might
arise from differences between the two. The Rule requires that the
Portfolio limit its investments to instruments which the Trustees
determine will present minimal credit risks and which are of high
quality as determined by at least one major rating agency, or, in
the case of any instrument that is not so rated, of comparable
quality as determined by the Trustees. It also calls for the
Portfolio to maintain a dollar weighted average portfolio maturity
(not more than 90 days) appropriate to its objective of maintaining
a stable net asset value of $1.00 per share and precludes the
purchase of any instrument with a remaining maturity of more than
397 calendar days. Should the disposition of a portfolio security
result in a dollar weighted average portfolio maturity of more than
90 days, the Portfolio will invest its available cash in such
manner as to reduce such maturity to 90 days or less as soon as
reasonably practicable.
It is the normal practice of the Portfolio to hold portfolio
securities to maturity. Therefore, unless a sale or other
disposition of a security is mandated by redemption requirements or
other extraordinary circumstances, the Portfolio will realize the
B-47
<PAGE> 80
par value of the security. Under the amortized cost method of
valuation traditionally employed by institutions for valuation of
money market instruments, neither the amount of daily income nor
the net asset value is affected by any unrealized appreciation or
depreciation of the Portfolio. In periods of declining interest
rates, the indicated daily yield on shares of the Portfolio as
computed by dividing the annualized daily income of the Portfolio
by the net asset value will tend to be higher than if the valuation
was based upon market prices and estimates. In periods of rising
interest rates, the indicated daily yield on shares of the
Portfolio as computed by dividing the annualized daily income of
the Portfolio by the net asset value will tend to be lower than if
the valuation was based upon market prices and estimates.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio is qualified and intends to remain qualified
and elect to be treated as a regulated investment company under
Subchapter M under the Code. To remain qualified as a regulated
investment company, a Portfolio must, among other things, (a)
derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale or
other disposition of stocks, securities or foreign currencies, or
other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business
of investing in such stocks, securities or currencies; (b) derive
less than 30% of its gross income from the sale or other
disposition of stock or securities or certain foreign currencies
(or options, futures or forward contracts thereon) held less than
3 months (foreign currency gains, including those derived from
options, futures and forward contracts, will not, in any event, be
characterized as short-short gains if they are directly related to
the registered investment company's investment in stocks, options
or futures thereon); and (c) diversify its holdings so that, at the
end of each fiscal quarter, (i) 50% of the market value of the
Portfolio's assets is represented by cash, government securities
and other securities limited in respect of any one issuer to 5% of
the Portfolio's net assets and to not more than 10% of the voting
securities of any one issuer (other than government
securities).
Income received by a Portfolio from sources within foreign
countries may be subject to withholding and other taxes imposed by
such countries. Income tax treaties between certain countries and
the United States may reduce or eliminate such taxes. It is
impossible to determine in advance the effective rate of foreign
tax to which a Portfolio will be subject, since the amount of that
Portfolio's assets to be invested in various countries is not
known. Shareholders are urged to consult their tax advisors
regarding specific questions as to Federal, state and local taxes.
B-48
<PAGE> 81
It is the Trust's intention to distribute substantially all
the net investment income, if any, of each Portfolio. For dividend
purposes, net investment income of each Portfolio, other than the
Money Market Portfolio, will consist of all payments of dividends
or interest received by such Portfolio less the estimated expenses
of such Portfolio (including fees payable to SAAMCo). Net
investment income of the Money Market Portfolio consists of (i)
interest accrued or discount earned; (ii) plus or minus all
realized gains and losses on the Portfolio securities; (iii) less
the estimated expenses of the Portfolio applicable to that dividend
period.
Dividends on the Money Market Portfolio will be declared daily
and reinvested monthly in additional full and fractional shares of
the respective Portfolio. Dividends from the Growth, Fixed Income,
Capital Appreciation, Foreign Securities, Growth and Income,
Multi-Asset, Strategic Multi-Asset, Government and Quality Bond, High
Yield, Natural Resources and Target '98 Portfolios will be declared
and reinvested at least annually in additional full and fractional
shares of the respective Portfolios.
All net realized capital gains of each Portfolio of the Trust,
if any, are declared and distributed annually to the shareholders
of the Portfolio to which such gains are attributable.
At December 31, 1995, the Portfolios of the Trust had the
following capital loss carryovers and related years of
expiration:
B-49
<PAGE> 82
Capital Loss Carryover
<TABLE>
<CAPTION>
Amount and Year of Expiration
-------------------------------------------------------------------------------------------------------------
TOTAL 1996 1997 1998 1999 2000 2001 2002 2003
----------- -------- -------- -------- ------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Income
Portfolio $2,616,922 $626,361 $391,804 $558,735 $0 $0 $0 $0 $1,040,022
Foreign
Securities
Portfolio 2,575,439 0 0 0 0 678,508 1,596,931 0 0
Growth and
Income
Portfolio 1,470,924 0 0 0 0 0 0 0 1,470,924
High Yield
Portfolio 14,696,667 0 5,210,616 4,038,418 2,784,801 0 0 1,020,475 1,597,357
Target 98
Portfolio 254,450 0 0 0 0 0 0 27,017 227,433
</TABLE>
B-50
<PAGE> 83
GENERAL INFORMATION
Under Massachusetts law, shareholders of a Massachusetts business trust
may, under certain circumstances, be held personally liable as partners for
the obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Trust and
requires that notices of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the Trust or the
Trustees. The Declaration of Trust provides for indemnification out of the
Trust property for any shareholders held personally liable for the
obligations of the Trust, and also provides that the Trust shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust and satisfy any judgment thereon. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be
unable to meet its obligations. The Declaration of Trust further provides
that the Trustees will not be liable for errors of judgment or mistakes of
fact or law; but nothing in the Declaration of Trust protects a Trustee
against any liability 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.
The Trust shall be of unlimited duration subject to the provisions in
the Declaration of Trust concerning termination by action of the
shareholders.
OWNERSHIP OF SHARES
As of the date of this Statement of Additional Information, shares of
the Trust are offered only to the separate accounts of the Life Companies.
In turn, these separate accounts fund variable annuity contracts and variable
life insurance policies issued by those insurance companies.
FINANCIAL STATEMENTS
Set forth following this Statement of Additional Information are the
financial statements of the Trust with respect to the fiscal year ended
December 31, 1995.
B-51
<PAGE> 84
- ---------------------
ANCHOR SERIES TRUST
MONEY MARKET PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM SECURITIES -- 96.4% AMOUNT VALUE
<S> <C> <C>
-----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
BANK NOTES -- 12.8%
Bank of New York Co., Inc. 5.52% due 5/22/96........................ $ 3,000,000 $ 2,999,086
Chase Manhattan Corp. 5.77% due 4/15/96............................. 3,000,000 3,000,000
First Bank of SD, (N.A.) 5.91% due 1/17/96(1)....................... 3,000,000 2,999,801
First National Bank of Maryland 5.75% due 5/01/96................... 3,000,000 3,000,430
------------
TOTAL BANK NOTES (cost: $11,999,317)................................ 11,999,317
------------
CORPORATE SHORT-TERM NOTES -- 69.7%
American General Finance Corp. 5.70% due 1/18/96.................... 1,600,000 1,595,693
American Home Products Corp. 5.66% due 3/07/96...................... 3,000,000 2,968,870
Asset Securitization Cooperative Corp. 5.70% due 1/23/96............ 3,000,000 2,989,550
Associates Corp. of North America 5.70% due 1/19/96................. 3,000,000 2,991,450
BCI Funding Corp. 5.71% due 2/16/96................................. 3,000,000 2,978,112
BHF Finance (DE), Inc. 5.64% due 3/04/96............................ 2,000,000 1,980,260
Burlington Northern Santa Fe Corp. 5.90% due 2/28/96................ 1,000,000 990,494
CIT Group Holdings, Inc. 5.70% due 1/24/96.......................... 3,000,000 2,989,075
Commerzbank U.S. Finance, Inc. 5.70% due 1/12/96.................... 1,305,000 1,302,727
CoreStates Capital Corp. 5.86% due 1/05/96(1)....................... 4,000,000 4,000,000
ESC Securitization, Inc. 5.68% due 2/22/96.......................... 3,000,000 2,975,387
Ford Motor Credit Co. 5.68% due 1/25/96............................. 3,000,000 2,988,640
General Electric Capital Corp. 5.60% due 4/03/96.................... 3,000,000 2,956,600
General Motors Acceptance Corp. 5.78% due 2/12/96................... 3,000,000 2,979,770
Hitachi America Ltd. 5.72% due 1/12/96.............................. 1,260,000 1,257,798
Household International, Inc. 5.65% due 3/08/96..................... 3,000,000 2,968,454
Kredietbank N.A. Finance Corp. 5.70% due 3/01/96.................... 3,000,000 2,971,500
McKenna Triangle National Corp. 5.74% due 1/11/96................... 3,000,000 2,995,217
PNC Funding Corp. 5.75% due 2/05/96................................. 2,885,000 2,868,872
Preferred Receivables Funding Corp. 5.87% due 1/18/96............... 985,000 982,269
Riverwoods Funding Corp. 5.68% due 2/15/96.......................... 3,000,000 2,978,700
Sears Roebuck Acceptance Corp. 5.70% due 2/22/96.................... 3,000,000 2,975,300
Toshiba America, Inc. 5.65% due 1/12/96............................. 3,000,000 2,994,821
Transamerica Finance Corp. 5.71% due 1/11/96........................ 2,670,000 2,665,765
Westpac Banking Corp. 5.53% due 4/30/96............................. 3,000,000 2,944,700
------------
TOTAL CORPORATE SHORT-TERM NOTES (cost: $65,290,024)................ 65,290,024
------------
FEDERAL AGENCY OBLIGATIONS -- 10.7%
Student Loan Marketing Association 5.24% due 1/02/96(1)
(cost: $10,000,000)............................................... 10,000,000 10,000,000
------------
</TABLE>
---------------------
3
<PAGE> 85
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM SECURITIES (continued) AMOUNT VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
MISCELLANEOUS -- 3.2%
SMM Trust 5.99% due 1/03/96 (cost: $3,000,000)*(1).................. $ 3,000,000 $ 3,000,000
-----------
TOTAL SHORT-TERM SECURITIES (cost: $90,289,341)..................... 90,289,341
-----------
TOTAL INVESTMENTS --
(cost: $90,289,341) 96.4% 90,289,341
Other assets less liabilities -- 3.6 3,402,342
----- -----------
NET ASSETS -- 100.0% $93,691,683
===== ===========
</TABLE>
-----------------------------
* Resale restricted to qualified institutional buyers
(1) Variable rate security - the rate reflected is as of December
31, 1995; maturity date reflects next reset date
See Notes to Financial Statements
- ---------------------
4
<PAGE> 86
- ---------------------
ANCHOR SERIES TRUST
GOVERNMENT & QUALITY BOND
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 89.5% AMOUNT VALUE
<S> <C> <C>
------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
AUTOMOTIVE -- 2.1%
Daimler-Benz Vehicle Trust 5.95% 2000............................... $ 2,203,228 $ 2,206,068
Premier Auto Trust 4.65% 1999....................................... 2,584,781 2,554,537
-------------
4,760,605
-------------
FINANCE -- 11.6%
Beneficial Corp. 5.20% 1999(1)...................................... 5,000,000 4,929,700
Ford Motor Credit 5.37% 1999(1)..................................... 5,000,000 4,969,995
General Reinsurance Corp. 9.00% 2009................................ 5,000,000 6,186,250
Morgan (J.P.) & Co., Inc. 6.25% 2005................................ 5,000,000 4,990,850
Stanford University 6.88% 2024...................................... 5,000,000 5,103,500
-------------
26,180,295
-------------
RETAIL -- 3.7%
McDonald's Corp. 7.05% 2025......................................... 3,300,000 3,380,335
Wal-Mart Stores, Inc. 6.75% 2023.................................... 5,000,000 5,063,700
-------------
8,444,035
-------------
TRANSPORTATION -- 2.7%
United Parcel Service of America, Inc. 8.38% 2020................... 5,000,000 6,037,500
-------------
U.S. GOVERNMENT & AGENCIES -- 62.3%
Federal Home Loan Mortgage Corp. 6.00% 2008 - 2011.................. 9,900,005 9,791,698
Federal Home Loan Mortgage Corp. 6.50% TBA.......................... 15,000,000 15,079,650
Federal Home Loan Mortgage Corp. 7.29% 2004......................... 20,000,000 20,343,800
Federal Home Loan Mortgage Corp. 14.75% 2010........................ 195,888 232,249
Federal National Mortgage Association 7.50% 2023 - 2025............. 4,814,259 4,933,074
Federal National Mortgage Association 8.00% 2023.................... 14,116,652 14,619,487
Government National Mortgage Association 6.50% 2023 - 2024.......... 24,755,913 24,554,647
Government National Mortgage Association 7.50% 2022................. 8,921,467 9,198,478
Government National Mortgage Association 9.50% 2016 - 2017.......... 3,352,675 3,629,001
Government National Mortgage Association 10.00% 2013 - 2017......... 3,282,793 3,572,505
Government National Mortgage Association 11.50% 2014................ 24,321 27,605
Government National Mortgage Association 12.00% 1999 - 2016......... 204,685 217,750
Government National Mortgage Association 12.75% 2014................ 81,050 93,816
Government National Mortgage Association 13.25% 1999 - 2014......... 21,697 24,733
Government National Mortgage Association 13.50% 2014................ 11,874 14,115
Government National Mortgage Association 13.75% 2014................ 2,640 3,056
United States Treasury Bonds 10.38% 2012............................ 16,500,000 22,811,250
United States Treasury Notes 7.50% 2005............................. 10,000,000 11,334,400
-------------
140,481,314
-------------
UTILITIES -- 2.6%
Hydro Quebec Electric 8.40% 2022.................................... 5,000,000 5,781,050
-------------
</TABLE>
---------------------
5
<PAGE> 87
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES: ELECTRIC, GAS & TELEPHONE -- 4.5%
Southern California Edison Co. 9.25% 2020........................... $ 5,000,000 $ 5,205,850
US West Communications, Inc. 6.88% 2033............................. 5,000,000 4,905,100
-------------
10,110,950
-------------
TOTAL INVESTMENT SECURITIES (cost: $194,935,330).................... 201,795,749
-------------
<CAPTION>
REPURCHASE AGREEMENT -- 16.2%
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement Account (See Note 3)
(cost: $36,575,000)............................................... 36,575,000 36,575,000
------------
TOTAL INVESTMENTS --
(cost: $231,510,330) 105.7% 238,370,749
Liabilities in excess of other assets -- (5.7) (12,792,021)
----- ------------
NET ASSETS -- 100.0% $225,578,728
----- ============
</TABLE>
-----------------------------
(1) Variable rate security - the rate reflected is as of December
31, 1995; maturity date reflects next reset date
TBA - Securities purchased on a forward commitment basis with an
approximate principal amount and no definitive maturity
date. The actual principal amount and maturity date will be
determined upon settlement.
See Notes to Financial Statements
- ---------------------
6
<PAGE> 88
- ---------------------
ANCHOR SERIES TRUST
FIXED INCOME PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 97.7% AMOUNT VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
ASSET-BACKED SECURITIES -- 1.5%
Discover Card Trust Series A 5.50% 1998............................. $ 416,667 $ 415,754
------------
FINANCE -- 28.1%
Abbey National First Capital 8.20% 2004............................. 500,000 567,060
Ahmanson (H.F.) & Co. 8.25% 2002.................................... 500,000 553,390
Bank of New York, Inc. 7.63% 2002................................... 500,000 540,280
Beneficial Finance Co. 9.40% 1997................................... 225,000 236,516
Chemical Banking Corp. 6.63% 1998................................... 750,000 764,467
Citicorp 8.63% 2002................................................. 1,000,000 1,137,960
First Bank Systems, Inc. 8.00% 2004................................. 500,000 557,885
First National Bank of Boston 8.00% 2004............................ 1,000,000 1,108,520
First Union Bancorp. 7.50% 2035..................................... 400,000 442,940
General Motors Acceptance Corp. 8.50% 2003.......................... 500,000 564,670
Norwest Corp. Bank 7.65% 2005....................................... 500,000 553,745
Sun Canada Financial Co. 7.25% 2015................................. 300,000 302,522
Transamerica Financial Group, Inc. 9.25% 1998....................... 500,000 535,255
------------
7,865,210
------------
INDUSTRIAL & COMMERCIAL -- 14.3%
British Petroleum America Inc. 9.88% 2004........................... 500,000 623,770
Cablevision Systems Corp. 9.25% 2005................................ 25,000 25,969
Coastal Corp. 8.75% 1999............................................ 500,000 539,510
Columbia University Trustees 8.62% 2001............................. 500,000 561,540
Comcast Corp. 9.13% 2006............................................ 50,000 52,000
Container Corp. 9.75% 2003.......................................... 50,000 48,750
du Pont E.I. de Nemours & Co. 6.75% 2002............................ 493,000 515,249
Ford Motor Co. 9.00% 2001........................................... 500,000 565,760
Rockwell International Corp. 7.88% 2005............................. 500,000 564,120
Time Warner, Inc. 9.13% 2013........................................ 450,000 507,127
------------
4,003,795
------------
RETAIL -- 1.8%
Wal-Mart Stores, Inc. 5.88% 2005.................................... 500,000 492,675
------------
TRANSPORTATION -- 2.0%
CSX Corp. 9.50% 2000................................................ 500,000 569,485
------------
</TABLE>
---------------------
7
<PAGE> 89
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT & AGENCIES -- 40.4%
Federal Home Loan Mortgage Corp. 6.50% 2025......................... $ 496,767 $ 491,333
Federal Home Loan Mortgage Corp. 7.00% 2025......................... 992,383 1,001,374
Federal Home Loan Mortgage Corp. 6.50% TBA.......................... 1,000,000 994,370
Federal Home Loan Mortgage Corp. 7.00% TBA.......................... 500,000 509,685
Federal Home Loan Participation 7.50% 2007.......................... 826,333 837,083
Federal Home Loan Participation 9.75% 2002.......................... 500,053 551,618
Federal Home Loan Participation 11.00% 2000......................... 12,962 13,602
Government National Mortgage Association 7.50% 2023 - 2025.......... 970,371 998,269
Government National Mortgage Association 10.00% 2000................ 35,278 37,230
Government National Mortgage Association 11.25% 1998................ 9,010 9,421
Government National Mortgage Association 13.25% 1999................ 1,948 2,041
Government National Mortgage Association 7.50% TBA.................. 1,000,000 1,028,750
United States Treasury Bonds 7.25% 2016............................. 1,600,000 1,826,992
United States Treasury Bonds 10.75% 2003............................ 700,000 913,388
United States Treasury Bonds 12.00% 2013............................ 1,350,000 2,080,053
------------
11,295,209
------------
UTILITIES -- 9.6%
BellSouth Telecommunications 6.25% 2003............................. 500,000 508,065
Hydro Quebec 8.05% 2024............................................. 450,000 513,792
Niagara Mohawk Power Corp. 5.88% 2002............................... 750,000 727,882
Southern California Edison Co. 7.50% 1999........................... 500,000 524,370
Tele Communications, Inc. 9.80% 2012................................ 350,000 419,710
------------
2,693,819
------------
TOTAL INVESTMENT SECURITIES (cost: $25,724,672)..................... 27,335,947
------------
<CAPTION>
REPURCHASE AGREEMENT -- 0.5%
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement Account (See Note 3)
(cost: $145,000).................................................. 145,000 145,000
-----------
TOTAL INVESTMENTS --
(cost: $25,869,672) 98.2% 27,480,947
Other assets less liabilities -- 1.8 493,855
----- -----------
NET ASSETS -- 100.0% $27,974,802
===== ===========
</TABLE>
-----------------------------
TBA - Securities purchased on a forward commitment basis with an
approximate principal amount and no definitive maturity
date. The actual principal amount and maturity date will be
determined upon settlement.
See Notes to Financial Statements
- ---------------------
8
<PAGE> 90
- ---------------------
ANCHOR SERIES TRUST
GROWTH PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK -- 99.1% SHARES VALUE
<S> <C> <C>
------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
CONSUMER DISCRETIONARY -- 10.1%
Apparel & Textiles -- 0.5%
Nine West Group, Inc. .............................................. 40,000 $ 1,500,000
Retail -- 9.6%
Arbor Drugs, Inc. .................................................. 75,000 1,575,000
AutoZone, Inc.+..................................................... 100,000 2,887,500
Barnes & Noble, Inc.+............................................... 70,000 2,030,000
Gymboree Corp.+..................................................... 64,000 1,320,000
Home Depot, Inc. ................................................... 120,000 5,745,000
May Department Stores Co. .......................................... 140,000 5,915,000
MSC Industrial Direct, Inc., Class A................................ 25,100 690,250
Rite Aid Corp....................................................... 100,000 3,425,000
Sports Authority, Inc.+............................................. 90,800 1,850,050
Talbots, Inc. ...................................................... 57,000 1,638,750
Wal-Mart Stores, Inc. .............................................. 110,000 2,461,250
-------------
31,037,800
-------------
CONSUMER STAPLES -- 7.5%
Food, Beverage & Tobacco -- 3.7%
Canandaigua Wine, Inc., Class A+.................................... 40,000 1,305,000
Mondavi (Robert) Corp., Class A..................................... 24,400 674,050
PepsiCo, Inc. ...................................................... 110,000 6,146,250
Sara Lee Corp. ..................................................... 100,600 3,206,625
Household Products -- 3.8%
Armor All Products Corp. ........................................... 45,000 815,625
Bush Boake Allen, Inc.+............................................. 59,000 1,615,125
Kimberly-Clark Corp. ............................................... 37,800 3,127,950
Procter & Gamble Co. ............................................... 75,000 6,225,000
-------------
23,115,625
-------------
ENERGY -- 6.6%
Energy Services -- 0.5%
Input/Output, Inc.+................................................. 30,000 1,732,500
Energy Sources -- 6.1%
Amoco Corp. ........................................................ 100,000 7,187,500
Barrett Resources Corp.+............................................ 70,000 2,056,250
Burlington Resources, Inc. ......................................... 64,000 2,512,000
Unocal Corp. ....................................................... 185,000 5,388,125
Vastar Resources, Inc. ............................................. 50,000 1,587,500
-------------
20,463,875
-------------
FINANCE -- 13.8%
Banks -- 5.1%
Associated Banc Corp. .............................................. 30,000 1,228,125
Bancorp Hawaii, Inc. ............................................... 40,000 1,435,000
First Bank System, Inc. ............................................ 70,000 3,473,750
First Commercial Corp. ............................................. 37,450 1,235,850
Morgan (J.P.) & Co., Inc. .......................................... 36,000 2,889,000
State Street Boston Corp. .......................................... 123,900 5,575,500
</TABLE>
---------------------
9
<PAGE> 91
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE (continued)
Financial Services -- 5.0%
American Express Co. ............................................... 90,000 $ 3,723,750
Federal National Mortgage Association............................... 75,000 9,309,375
Morgan Stanley Group, Inc. ......................................... 28,000 2,257,500
Insurance -- 3.7%
American International Group, Inc. ................................. 52,500 4,856,250
American Reinsurance Corp. ......................................... 30,000 1,226,250
Frontier Insurance Group, Inc. ..................................... 37,000 1,184,000
General Re Corp. ................................................... 26,000 4,030,000
-------------
42,424,350
-------------
HEALTHCARE -- 9.2%
Drugs -- 5.4%
Alza Corp. ......................................................... 28,000 693,000
Pfizer, Inc. ....................................................... 70,000 4,410,000
Rhone Poulenc Rorer, Inc. .......................................... 130,000 6,922,500
Zeneca Group PLC ADR................................................ 80,000 4,670,000
Health Services -- 1.2%
American Medical Response, Inc.+.................................... 45,000 1,462,500
Beverly Enterprises, Inc.+.......................................... 195,000 2,071,875
Medical Products -- 2.6%
Abbott Laboratories................................................. 100,000 4,175,000
Biomet, Inc.+....................................................... 91,400 1,633,775
Datascope Corp. .................................................... 55,000 1,320,000
Life Technologies, Inc. ............................................ 35,000 953,750
-------------
28,312,400
-------------
INDUSTRIAL & COMMERCIAL -- 8.5%
Business Services -- 2.1%
Dames & Moore, Inc. ................................................ 75,000 909,375
G & K Services, Inc., Class A....................................... 65,000 1,657,500
Sysco Corp. ........................................................ 110,000 3,575,000
Tetra Tech, Inc. ................................................... 15,000 341,250
Electrical Equipment -- 2.2%
Hubbell, Inc. ...................................................... 57,000 3,747,750
Juno Lighting, Inc. ................................................ 80,000 1,280,000
Littelfuse, Inc. ................................................... 52,000 1,911,000
Machinery -- 3.1%
Donaldson Co., Inc. ................................................ 73,000 1,834,125
MFS Communications, Inc.+........................................... 75,000 3,993,750
Minnesota Mining & Manufacturing Co. ............................... 55,000 3,643,750
Transportation -- 1.1%
Air Express International Corp. .................................... 60,000 1,380,000
Airborne Freight Corp. ............................................. 45,000 1,198,125
Werner Enterprises, Inc. ........................................... 40,000 810,000
-------------
26,281,625
-------------
</TABLE>
- ---------------------
10
<PAGE> 92
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
INFORMATION & ENTERTAINMENT -- 12.5%
Broadcasting & Media -- 7.9%
Advo, Inc. ......................................................... 53,000 $ 1,378,000
Comcast Corp., Special Class A...................................... 125,000 2,273,438
Dun & Bradstreet Corp. ............................................. 41,000 2,654,750
Gannett Co., Inc. .................................................. 70,000 4,296,250
Houghton Mifflin Co. ............................................... 44,000 1,892,000
Viacom, Inc., Class B+.............................................. 171,537 8,126,565
Vodafone Group PLC ADR.............................................. 100,000 3,525,000
Entertainment Products -- 1.5%
Coleman Company, Inc. .............................................. 44,000 1,545,500
Harley-Davidson, Inc.+.............................................. 56,000 1,610,000
Speedway Motorsports, Inc. ......................................... 52,000 1,560,000
Leisure & Tourism -- 3.1%
Landry's Seafood Restaurants, Inc. ................................. 55,000 938,437
McDonald's Corp. ................................................... 115,000 5,189,375
Southwest Airlines Co. ............................................. 150,000 3,487,500
-------------
38,476,815
-------------
INFORMATION TECHNOLOGY -- 20.1%
Communication Equipment -- 3.8%
Cisco Systems, Inc.+................................................ 80,000 5,970,000
General Instrument Corp.+........................................... 140,000 3,272,500
Nokia Corp. ADR..................................................... 63,400 2,464,675
Computers & Business Equipment -- 5.0%
Compaq Computer Corp.+.............................................. 130,000 6,240,000
Hewlett-Packard Co. ................................................ 91,600 7,671,500
Sensormatic Electronics Corp. ...................................... 80,000 1,390,000
Electronics -- 2.0%
AMP, Inc. .......................................................... 100,000 3,837,500
Dallas Semiconductor Corp. ......................................... 69,000 1,431,750
Silicon Valley Group, Inc. ......................................... 34,000 858,500
Software -- 9.3%
American Management Systems, Inc. .................................. 63,000 1,890,000
Automatic Data Processing, Inc. .................................... 61,000 4,529,250
BISYS Group, Inc.+.................................................. 60,000 1,845,000
BMC Software, Inc.+................................................. 125,000 5,343,750
Cognos, Inc. ....................................................... 70,000 3,123,750
DST Systems, Inc.+.................................................. 49,400 1,407,900
First Data Corp. ................................................... 35,000 2,340,625
Microsoft Corp.+.................................................... 40,000 3,510,000
Policy Management Systems Corp.+.................................... 70,000 3,333,750
Systems & Computer Technology Corp.+................................ 66,000 1,311,750
-------------
61,772,200
-------------
MATERIALS -- 6.3%
Chemicals -- 4.8%
Air Products & Chemicals, Inc. ..................................... 60,000 3,165,000
Engelhard Corp. .................................................... 149,925 3,260,869
Morton International, Inc. ......................................... 110,000 3,946,250
Nalco Chemical Co. ................................................. 80,000 2,410,000
Schulman A., Inc. .................................................. 91,000 2,047,500
Paper Products -- 1.5%
Bemis Co., Inc. .................................................... 60,000 1,537,500
International Paper Co. ............................................ 80,000 3,030,000
-------------
19,397,119
-------------
</TABLE>
---------------------
11
<PAGE> 93
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
REAL ESTATE -- 0.6%
Real Estate Companies -- 0.6%
Doubletree Corp.+................................................... 70,000 $ 1,837,500
-------------
UTILITIES -- 3.9%
Telephone -- 3.9%
AT & T Corp. ....................................................... 90,000 5,827,500
Century Telephone Enterprises, Inc. ................................ 46,000 1,460,500
MCI Communications Corp. ........................................... 180,000 4,702,500
-------------
11,990,500
-------------
TOTAL INVESTMENT SECURITIES (cost: $250,040,267).................... 305,109,809
-------------
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT -- 1.1% AMOUNT
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joint Repurchase Agreement Account (See Note 3)
(cost: $3,325,000)................................................ $ 3,325,000 3,325,000
-------------
TOTAL INVESTMENTS --
(cost: $253,365,267) 100.2% 308,434,809
Liabilities in excess of other assets -- (0.2) (577,365)
------ -------------
NET ASSETS -- 100.0% $307,857,444
===== ==============
</TABLE>
-----------------------------
+ Non-income producing securities
ADR - American Depositary Receipts
See Notes to Financial Statements.
- ---------------------
12
<PAGE> 94
- ---------------------
ANCHOR SERIES TRUST
HIGH-YIELD PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 91.5% AMOUNT VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
CABLE -- 5.6%
Cablevision Systems Corp. 9.25% 2005................................ $ 350,000 $ 363,563
Comcast Corp. 9.38% 2005............................................ 350,000 370,125
Continental Cablevision, Inc. 11.00% 2007........................... 500,000 558,750
Marcus Cable Operating Co. L.P. zero coupon 2004(1)................. 350,000 263,375
Tele-Communications, Inc. 9.25% 2023................................ 500,000 545,790
Videotron Ltd. 10.25% 2002.......................................... 500,000 525,000
------------
2,626,603
------------
CHEMICALS -- 5.4%
Agriculture Minerals & Chemicals 10.75% 2003........................ 500,000 552,500
Arcadian Partners L.P. 10.75% 2005.................................. 500,000 552,500
General Chemical Corp. 9.25% 2003................................... 250,000 251,250
PMI Acquisition Corp. 10.25% 2003................................... 500,000 513,750
Rexene Corp. 11.75% 2004............................................ 100,000 104,750
Sherritt Gordon, Ltd. 10.50% 2014................................... 500,000 540,000
------------
2,514,750
------------
COMMUNICATIONS & MEDIA -- 9.6%
EZ Communications, Inc. 9.75% 2005.................................. 500,000 504,375
Granite Broadcasting Corp. 10.38% 2005.............................. 250,000 256,250
Granite Broadcasting Corp. 12.75% 2002.............................. 350,000 388,500
Heritage Media Services, Inc. 11.00% 2002........................... 375,000 398,437
Mobilemedia Corp. 9.38% 2007........................................ 350,000 360,500
Paging Network, Inc. 10.13% 2007.................................... 200,000 216,500
SFX Broadcasting, Inc. 11.38% 2000.................................. 250,000 262,500
Turner Broadcasting Systems, Inc. 8.40% 2024........................ 500,000 500,060
World Color Press, Inc. 9.13% 2003.................................. 750,000 772,500
Young Broadcasting, Inc. 11.75% 2004................................ 750,000 840,000
------------
4,499,622
------------
CONSUMER STAPLES -- 4.1%
American Safety Razor Co. 9.88% 2005................................ 250,000 254,375
Gruma SA de CV 9.75% 1998*.......................................... 250,000 243,438
Jordan Industries, Inc. 10.38% 2003................................. 350,000 311,500
Sweetheart Cup, Inc. 10.50% 2003.................................... 600,000 604,500
Westpoint Stevens, Inc. 8.75% 2001.................................. 500,000 500,000
------------
1,913,813
------------
ENERGY -- 5.7%
Energy Ventures, Inc. 10.25% 2004................................... 500,000 527,500
Oryx Energy Co. 8.13% 2005.......................................... 350,000 358,096
Plains Resources, Inc. 12.00% 1999.................................. 250,000 259,375
Santa Fe Energy Resources, Inc. 11.00% 2004......................... 500,000 547,500
Seagull Energy Corp. 8.63% 2005..................................... 500,000 485,000
YPF Sociedad Anonima 8.00% 2004..................................... 500,000 470,000
------------
2,647,471
------------
FINANCE -- 2.5%
Anchor Bancorp, Inc. 8.94% 2003..................................... 250,000 258,750
Dime Bancorp, Inc. 10.50% 2005...................................... 500,000 550,000
Imperial Credit Industries, Inc. 9.75% 2004......................... 400,000 368,000
------------
1,176,750
------------
</TABLE>
---------------------
13
<PAGE> 95
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
FOOD & LODGING -- 2.7%
Hammons (John Q.) Hotels L.P. 8.88% 2004............................ $ 250,000 $ 247,500
La Quinta Inns, Inc. 9.25% 2003..................................... 500,000 530,000
Red Roof Inns, Inc. 9.63% 2003...................................... 150,000 147,000
Specialty Equipment Cos., Inc. 11.38% 2003.......................... 350,000 355,250
------------
1,279,750
------------
GAMING -- 0.5%
GB Property Funding Corp. 10.88% 2004............................... 250,000 219,375
------------
GROCERY -- 1.4%
Big V Supermarkets, Inc. 11.00% 2004................................ 500,000 405,000
Dominicks Finer Foods, Inc. 10.88% 2005............................. 225,000 239,063
------------
644,063
------------
HEALTHCARE -- 2.9%
OrNda Healthcorp 11.38% 2004........................................ 500,000 562,500
Quorum Health Group, Inc. 8.75% 2005................................ 175,000 180,906
Tenet Healthcare Corp. 9.63% 2002................................... 325,000 357,500
Tenet Healthcare Corp. 10.13% 2005.................................. 225,000 250,313
------------
1,351,219
------------
INDUSTRIAL & COMMERCIAL -- 21.6%
American Standard, Inc. zero coupon 2005(1)......................... 750,000 643,125
Bell & Howell Co. zero coupon 2005(1)............................... 1,000,000 630,000
Bell & Howell Co. 9.25% 2000........................................ 250,000 256,875
Calmar, Inc. 11.50% 2005............................................ 400,000 406,000
Coltec Industries, Inc. 9.75% 2000.................................. 375,000 386,250
Day International Group, Inc. 11.13% 2005........................... 250,000 251,250
Digital Equipment Corp. 7.75% 2023.................................. 500,000 497,225
Dominion Textile USA, Inc. 8.88% 2003............................... 150,000 145,500
EnviroSource, Inc. 9.75% 2003....................................... 500,000 440,000
Essex Group, Inc. 10.00% 2003....................................... 500,000 490,000
Exide Corp. 10.75% 2002............................................. 50,000 54,250
Graphic Controls Corp. 12.00% 2005(2)............................... 225,000 232,875
Great Lakes Carbon Corp. 10.00% 2006(2)............................. 500,000 512,500
Howmet Corp. 10.00% 2003............................................ 500,000 523,750
Interlake Corp. 12.13% 2002......................................... 500,000 475,000
K & F Co. 11.88% 2003............................................... 150,000 161,250
K & F Industries, Inc. 13.75% 2001.................................. 407,000 422,262
Lear Seating Corp. 8.25% 2002....................................... 250,000 245,000
Overhead Door Corp. 12.25% 2000(2).................................. 500,000 485,000
Portola Packaging, Inc. 10.75% 2005................................. 150,000 155,250
Rohr, Inc. 11.63% 2003.............................................. 500,000 536,250
Silgan Corp. 11.75% 2002............................................ 150,000 160,500
Silgan Holdings, Inc. zero coupon 2002(1)........................... 250,000 238,125
UCAR Global Enterprises, Inc. 12.00% 2005........................... 200,000 231,000
Walbro Corp. 9.88% 2005............................................. 350,000 349,125
Westinghouse Electric Corp. 8.38% 2002.............................. 200,000 206,280
Westinghouse Electric Corp. 8.88% 2001.............................. 200,000 211,640
Wyman-Gordon Co. 10.75% 2003........................................ 750,000 787,500
------------
10,133,782
------------
</TABLE>
- ---------------------
14
<PAGE> 96
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
METALS & MINERALS -- 7.6%
A.K. Steel Corp. 10.75% 2004........................................ $ 350,000 $ 388,500
Armco, Inc. 9.38% 2000.............................................. 750,000 742,500
Bethlehem Steel Corp. 10.38% 2003................................... 500,000 527,500
GS Technologies, Inc. 12.25% 2005................................... 150,000 149,438
Haynes International, Inc. 13.50% 1999.............................. 250,000 156,250
Magma Copper Co. 12.00% 2001........................................ 250,000 278,437
South Dakota Warren Co. 12.00% 2004................................. 275,000 303,187
Weirton Steel Corp. 10.88% 1999..................................... 300,000 300,000
Wheeling Pittsburgh Corp. 9.38% 2003................................ 750,000 708,750
------------
3,554,562
------------
NON-U.S. GOVERNMENT OBLIGATIONS -- 1.9%
Republic of Argentina 8.38% 2003.................................... 750,000 631,875
Republic of Brazil 6.00% 2013....................................... 500,000 280,000
------------
911,875
------------
PAPER PRODUCTS -- 8.7%
Container Corp. America 9.75% 2003.................................. 500,000 487,500
Container Corp. America 11.25% 2004................................. 450,000 463,500
Domtar, Inc. 11.75% 1999............................................ 500,000 560,000
Fort Howard Corp. 9.25% 2001........................................ 750,000 761,250
Rainy River Forest Products, Inc. 10.75% 2001....................... 500,000 550,000
Repap New Brunswick, Inc. 9.88% 2000................................ 500,000 501,250
Repap Wisconsin, Inc. 9.25% 2002.................................... 250,000 237,500
Stone Container Corp. 11.88% 1998................................... 500,000 521,250
------------
4,082,250
------------
REAL ESTATE -- 1.9%
Continental Homes 12.00% 1999....................................... 500,000 540,000
Webb (Del) Corp. 9.00% 2006......................................... 350,000 332,500
------------
872,500
------------
RETAIL -- 0.4%
Payless Cashways, Inc. 9.13% 2003................................... 250,000 192,500
------------
SERVICES -- 1.3%
Penda Corp. 10.75% 2004(2).......................................... 750,000 622,500
------------
TRANSPORTATION -- 1.0%
USAir, Inc. 10.38% 2013............................................. 500,000 465,000
------------
UTILITIES -- 6.7%
Cabot Safety Acquisition Corp. 12.50% 2005*......................... 350,000 371,875
Cleveland Electric Illuminating Co. 9.50% 2005...................... 500,000 517,500
First PV Funding Corp. 10.15% 2016.................................. 500,000 511,250
Niagara Mohawk Power Corp. 6.63% 2005............................... 500,000 447,845
Telefonica de Argentina SA 11.88% 2004.............................. 500,000 505,000
Texas-New Mexico Power Co. 10.75% 2003.............................. 500,000 545,710
Transportadora De Gas Delaware 7.75% 1998*.......................... 250,000 240,000
------------
3,139,180
------------
TOTAL BONDS & NOTES (cost: $41,538,638)............................. 42,847,565
------------
</TABLE>
---------------------
15
<PAGE> 97
<TABLE>
<CAPTION>
COMMON STOCK -- 0.1% SHARES VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
INDUSTRIAL & COMMERCIAL -- 0.1%
Triangle Wire and Cable, Inc.+(2)(3) (cost: $330,000)............... 31,667 $ 47,500
------------
<CAPTION>
PREFERRED STOCK -- 1.0%
----------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE -- 0.6%
California Federal Bank Los Angeles 10.63%.......................... 2,500 271,250
------------
<CAPTION>
<S> <C> <C>
MATERIALS -- 0.4%
BCP Essex Holdings, Preferred Series B.............................. 8,000 202,000
------------
TOTAL PREFERRED STOCK (cost: $455,392).............................. 473,250
------------
TOTAL INVESTMENT SECURITIES (cost: $42,324,030)..................... 43,368,315
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT -- 5.0% AMOUNT
<S> <C> <C>
-----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Joint Repurchase Agreement Account (See Note 3)
(cost: $2,340,000)................................................ $ 2,340,000 2,340,000
------------
TOTAL INVESTMENTS --
(cost: $44,664,030) 97.6% 45,708,315
Other assets less liabilities -- 2.4 1,108,423
----- ------------
NET ASSETS -- 100.0% $46,816,738
===== =============
</TABLE>
-----------------------------
+ Non-income producing securities
* Resale restricted to qualified institutional buyers
(1) Represents a zero-coupon bond which will convert to an
interest-bearing security at a later date
(2) Fair valued security; see Note 2
(3) At December 31, 1995 the Portfolio held restricted securities
amounting to 0.1% of net assets. The Portfolio will not bear
any costs, including those involved in registration under the
Securities Act of 1933, in connection with the disposition of
the security:
<TABLE>
<CAPTION>
VALUATION
DATE OF UNIT AS OF
DESCRIPTION ACQUISITION SHARES COST 12/31/95
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------
Triangle Wire and Cable, Inc. 3/21/94 10,556 $ 10.72 1.50
Triangle Wire and Cable, Inc. 3/24/94 21,111 10.27 1.50
</TABLE>
See Notes to Financial Statements
- ---------------------
16
<PAGE> 98
- ---------------------
ANCHOR SERIES TRUST
STRATEGIC MULTI-ASSET
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK -- 38.0% SHARES VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
CAPITAL APPRECIATION -- 11.2%
Apparel & Textiles -- 0.2%
Fila Holding S.p.A., ADR............................................ 1,000 $ 45,500
Tommy Hilfiger Corp.+............................................... 1,700 72,037
Broadcasting & Media -- 3.2%
American Radio Systems Corp., Class A+.............................. 2,000 56,000
Central European Media Enterprises, Ltd., Class A+.................. 5,000 102,500
E-Z Communications, Inc.+........................................... 8,000 144,000
Emmis Broadcasting Corp., Class A+.................................. 3,100 96,100
Evergreen Media Corp.+.............................................. 7,840 250,880
Gaylord Entertainment Co., Class A.................................. 1,365 37,879
International Cabletel, Inc.+....................................... 4,000 98,000
Jacor Communications, Inc.+......................................... 10,500 183,750
LodgeNet Entertainment Corp.+....................................... 8,000 76,000
Saga Communications, Inc., Class A+................................. 8,875 144,218
Scholastic Corp.+................................................... 1,200 93,300
Scripps (E.W.) Co., Class A......................................... 2,000 78,750
SFX Broadcasting, Inc.+............................................. 7,000 211,750
Valuevision International, Inc., Class A+........................... 5,500 30,594
Viacom, Inc. Class A+............................................... 320 14,680
Viacom, Inc. Class B+............................................... 2,424 114,837
Vodafone Group PLC ADR.............................................. 1,500 52,875
Westwood One, Inc.+................................................. 8,000 113,000
Young Broadcasting, Inc.+........................................... 5,000 141,250
Business Services -- 0.1%
DST Systems, Inc.+.................................................. 2,400 68,400
Communication Equipment -- 0.6%
California Microwave, Inc.+......................................... 2,000 33,250
Cisco Systems, Inc.+................................................ 500 37,313
General Instrument Corp.+........................................... 1,000 23,375
MobileMedia Corp., Class A+......................................... 4,500 100,125
Nokia Corp. ADR..................................................... 2,500 97,187
Shiva Corp.+........................................................ 1,000 72,750
Computers & Business Equipment -- 0.1%
Business Objects SA ADR+............................................ 900 43,537
Plaintree Systems, Inc.+............................................ 5,000 30,000
Sensormatic Electronics Corp. ...................................... 1,500 26,063
Drugs -- 1.0%
Alpharma, Inc., Class A............................................. 5,500 143,687
Genetics Institute, Inc.+........................................... 1,000 53,500
Hafslund Nycomed, Series B ADR...................................... 1,200 31,500
Immunex Corp.+...................................................... 9,000 148,500
Rhone - Poulenc Rorer, Inc. ........................................ 3,000 159,750
Zeneca Group PLC ADR................................................ 4,500 87,044
Electrical Equipment -- 0.2%
York International Corp. ........................................... 3,000 141,000
</TABLE>
---------------------
17
<PAGE> 99
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL APPRECIATION (continued)
Electronics -- 0.1%
Cyrix Corp.+........................................................ 3,000 $ 69,000
Energy Services -- 0.2%
ENSCO International, Inc.+.......................................... 2,000 46,000
Input/Output, Inc.+................................................. 2,000 115,500
Energy Sources -- 0.7%
Barrett Resources Corp.+............................................ 3,000 88,125
Noble Affiliates, Inc. ............................................. 3,000 89,625
Union Pacific Resources Group, Inc. ................................ 1,800 45,675
Unocal Corp. ....................................................... 4,000 116,500
Vastar Resources, Inc. ............................................. 3,000 95,250
Entertainment Products -- 0.1%
Philips Electronics N.V., ADR....................................... 1,500 53,813
Financial Services -- 0.2%
Imperial Credit Industries, Inc.+................................... 5,000 108,750
Food, Beverage & Tobacco -- 0.2%
Canandaigua Wine Co., Inc., Class A+................................ 1,000 32,625
Pete's Brewing Co.+................................................. 5,400 75,600
Health Services -- 0.5%
American Medical Response, Inc.+.................................... 3,000 97,500
Beverly Enterprises, Inc.+.......................................... 3,000 31,875
FHP International Corp.+............................................ 1,300 37,050
Grancare, Inc.+..................................................... 5,000 72,500
IDX Systems Corp.+.................................................. 3,000 104,250
Insurance -- 0.6%
Allstate Corp. ..................................................... 2,500 102,812
American Reinsurance Corp. ......................................... 2,000 81,750
Amerin Corp.+....................................................... 2,800 74,900
Home State Holdings, Inc.+.......................................... 4,800 44,550
Transatlantic Holdings, Inc. ....................................... 900 66,038
Leisure & Tourism -- 0.4%
America West Airlines, Inc., Class B+............................... 4,000 68,000
Royal Caribbean Cruises Ltd. ....................................... 4,000 88,000
Tabcorp Holdings Ltd. ADR*.......................................... 1,800 50,880
Trans World Airlines, Inc.+......................................... 7,300 75,738
Machinery -- 0.1%
Precision Castparts Corp. .......................................... 2,200 87,450
Medical Products -- 0.1%
Haemonetics Corp. Massachusetts+.................................... 4,500 79,875
Metals & Minerals -- 0.0%
Usinor Sacilor...................................................... 2,400 31,734
Retail -- 0.4%
Bed Bath & Beyond, Inc.+............................................ 1,000 38,813
Gymboree Corp.+..................................................... 3,000 61,875
Mercantile Stores Co., Inc. ........................................ 1,300 60,125
Sports Authority, Inc.+............................................. 3,700 75,387
</TABLE>
- ---------------------
18
<PAGE> 100
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL APPRECIATION (continued)
Software -- 1.7%
BISYS Group, Inc.+.................................................. 4,500 $ 138,375
BMC Software, Inc.+................................................. 5,000 213,750
Boole & Babbage, Inc. .............................................. 1,500 36,750
Cheyenne Software, Inc.+............................................ 3,500 91,437
Cognos, Inc. ....................................................... 2,500 111,562
CompuWare Corp.+.................................................... 3,000 55,500
Cooper & Chyan Technology, Inc.+.................................... 6,000 94,500
FTP Software, Inc.+................................................. 4,500 130,500
Parametric Technology Corp.+........................................ 1,000 66,500
Policy Management Systems Corp.+.................................... 1,500 71,438
Softkey International, Inc.+........................................ 1,500 34,688
Spectrum Holobyte, Inc.+............................................ 5,000 32,500
Systems & Computer Technology Corp.+................................ 1,000 19,875
Transportation -- 0.5%
AMR Corp.+.......................................................... 1,500 111,375
Continental Airlines, Inc., Class B+................................ 2,800 121,800
Werner Enterprises, Inc. ........................................... 3,000 60,750
------------
7,213,746
------------
CORE EQUITY -- 26.8%
Banks -- 1.9%
Crestar Financial Corp. ............................................ 5,000 295,625
First Bank System, Inc. ............................................ 6,000 297,750
Fleet Financial Group, Inc. ........................................ 6,500 264,875
Republic New York Corp. ............................................ 6,000 372,750
Broadcasting & Media -- 3.3%
Capital Cities/ABC, Inc. ........................................... 2,500 308,437
Comcast Corp., Special Class A...................................... 12,500 227,344
Gannett Co., Inc. .................................................. 5,000 306,875
Gaylord Entertainment Co., Class A.................................. 7,870 218,393
Scholastic Corp.+................................................... 4,500 349,875
U.S. West Media Group............................................... 8,000 152,000
Viacom, Inc. Class B+............................................... 6,800 322,150
Vodafone Group PLC ADR.............................................. 7,000 246,750
Business Services -- 0.4%
Sysco Corp. ........................................................ 8,000 260,000
Chemicals -- 1.7%
Air Products & Chemicals, Inc. ..................................... 5,500 290,125
Engelhard Corp. .................................................... 15,000 326,250
Loctite Corp. ...................................................... 4,000 190,000
Minerals Technologies, Inc. ........................................ 7,500 273,750
Communication Equipment -- 0.4%
General Instrument Corp.+........................................... 10,000 233,750
Computers & Business Equipment -- 0.4%
Hewlett-Packard Co. ................................................ 3,000 251,250
Drugs -- 2.9%
Genetics Institute, Inc.+........................................... 7,000 374,500
Perrigo Co.+........................................................ 20,000 237,500
Pfizer, Inc. ....................................................... 9,000 567,000
Warner-Lambert Co. ................................................. 2,300 223,388
Zeneca Group PLC ADR................................................ 7,500 437,812
</TABLE>
---------------------
19
<PAGE> 101
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CORE EQUITY (continued)
Electrical Equipment -- 0.9%
Emerson Electric Co. ............................................... 3,000 $ 245,250
York International Corp. ........................................... 7,000 329,000
Electronics -- 0.3%
AMP, Inc. .......................................................... 5,500 211,063
Energy Services -- 1.0%
Dresser Industries, Inc. ........................................... 18,000 438,750
Schlumberger Ltd. ADR............................................... 3,000 207,750
Energy Sources -- 2.1%
Amoco Corp. ........................................................ 5,000 359,375
Exxon Corp. ........................................................ 7,000 560,875
Unocal Corp. ....................................................... 15,000 436,875
Financial Services -- 1.0%
American Express Co. ............................................... 6,000 248,250
Federal National Mortgage Association............................... 3,000 372,375
Forest Products -- 0.5%
International Paper Co. ............................................ 8,000 303,000
Household Products -- 1.6%
Colgate-Palmolive Co. .............................................. 4,000 281,000
Gillette Co. ....................................................... 5,000 260,625
Kimberly-Clark Corp. ............................................... 6,000 496,500
Insurance -- 1.7%
ACE Ltd. ........................................................... 7,000 278,250
American International Group, Inc. ................................. 4,500 416,250
American Reinsurance Corp. ......................................... 9,000 367,875
Machinery -- 1.1%
Illinois Tool Works, Inc. .......................................... 4,000 236,000
Ingersoll-Rand Co. ................................................. 4,000 140,500
Minnesota Mining & Manufacturing Co. ............................... 5,000 331,250
Medical Products -- 0.6%
Abbott Laboratories................................................. 9,000 375,750
Retail -- 1.8%
Home Depot, Inc. ................................................... 6,000 287,250
May Department Stores Co. .......................................... 8,000 338,000
Talbots, Inc. ...................................................... 8,000 230,000
Wal-Mart Stores, Inc. .............................................. 14,000 313,250
Software -- 1.2%
Automatic Data Processing, Inc. .................................... 5,000 371,250
BMC Software, Inc.+................................................. 5,000 213,750
Microsoft Corp.+.................................................... 2,000 175,500
Telephone -- 1.0%
AT&T Corp. ......................................................... 5,600 362,600
U.S. West, Inc. .................................................... 8,000 286,000
Transportation -- 1.0%
AMR Corp.+.......................................................... 3,000 222,750
Canadian Pacific Ltd. .............................................. 17,000 308,125
Werner Enterprises, Inc. ........................................... 5,600 113,400
------------
17,146,587
------------
TOTAL COMMON STOCK (cost: $17,319,776).............................. 24,360,333
------------
</TABLE>
- ---------------------
20
<PAGE> 102
<TABLE>
<CAPTION>
PREFERRED STOCK -- 0.1% SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL APPRECIATION -- 0.1%
Broadcasting & Media -- 0.1%
News Corp., Ltd. ADR (cost: $34,729)................................ 2,000 $ 38,500
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 28.6% AMOUNT
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
CONSUMER STAPLES -- 0.3%
Sweetheart Cup, Inc. 10.50% 2003.................................... $ 200,000 201,500
------------
ENERGY -- 1.0%
Phillips Petroleum Co. 9.18% 2021................................... 250,000 292,755
Santa Fe Energy Resources, Inc. 11.00% 2004......................... 150,000 164,250
YPF Sociedad Anonima 8.00% 2004..................................... 200,000 188,000
------------
645,005
------------
FINANCE -- 0.2%
Dime Bancorp 10.50% 2005............................................ 100,000 110,000
------------
HEALTHCARE -- 0.3%
OrNda Healthcorp 11.38% 2004........................................ 150,000 168,750
------------
INDUSTRIAL & COMMERCIAL -- 1.2%
American Standard, Inc. zero coupon 2005(1)......................... 150,000 128,625
Cabot Safety Acquisition Corp. 12.50% 2005.......................... 100,000 106,250
Exide Corp. 10.75% 2002............................................. 100,000 108,500
Graphic Controls Corp. 12.00% 2005(2)............................... 50,000 51,750
K & F Industries, Inc. 13.75% 2001.................................. 129,000 133,837
Rohr, Inc. 11.63% 2003.............................................. 125,000 134,062
Ucar Global Enterprises, Inc. 12.00% 2005........................... 55,000 63,525
USAir, Inc. 10.38% 2013............................................. 60,000 55,800
------------
782,349
------------
INFORMATION & ENTERTAINMENT -- 0.8%
Cablevision Systems Corp. 9.25% 2005................................ 150,000 155,812
Granite Broadcasting Corp. 10.38% 2005.............................. 100,000 102,500
MCI Communications Corp. 7.13% 2000................................. 90,000 93,771
Paging Network, Inc. 10.13% 2007.................................... 25,000 27,063
Young Broadcasting, Inc. 11.75% 2004................................ 100,000 112,000
------------
491,146
------------
INFORMATION TECHNOLOGY -- 0.2%
Digital Equipment Corp. 7.75% 2023.................................. 150,000 149,168
------------
MATERIALS -- 2.6%
A.K. Steel Corp. 10.75% 2004........................................ 100,000 111,000
Arcadian Partners L.P. 10.75% 2005.................................. 250,000 276,250
Armco, Inc. 9.38% 2000.............................................. 275,000 272,250
Container Corp. of America 10.75% 2002.............................. 225,000 228,375
Domtar, Inc. 11.75% 1999............................................ 100,000 112,000
Fort Howard Corp. 9.25% 2001........................................ 150,000 152,250
GS Technologies, Inc. 12.25% 2005................................... 50,000 49,813
Magma Copper Co. 12.00% 2001........................................ 50,000 55,687
Rexene Corp. 11.75% 2004............................................ 31,000 32,472
South Dakota Warren Co. 12.00% 2004................................. 100,000 110,250
Stone Container Corp. 9.88% 2001.................................... 75,000 72,938
Wheeling Pittsburgh Corp. 9.38% 2003................................ 175,000 165,375
------------
1,638,660
------------
</TABLE>
---------------------
21
<PAGE> 103
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES (continued) AMOUNT VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
NON-U.S. GOVERNMENT OBLIGATIONS -- 0.2%
Republic of Argentina 8.38% 2003.................................... $ 150,000 126,375
------------
REAL ESTATE -- 0.2%
Webb (Del) Corp. 9.00% 2006......................................... 150,000 142,500
------------
U.S. GOVERNMENT & AGENCIES -- 21.6%
Government National Mortgage Association 6.00% 2009................. 208,085 206,589
Government National Mortgage Association 6.50% 2008................. 1,097,485 1,107,428
Government National Mortgage Association 6.50% 2009................. 213,215 215,147
Government National Mortgage Association 6.50% 2009................. 28,920 29,182
Government National Mortgage Association 7.00% 2024................. 250,045 253,013
Government National Mortgage Association 7.50% 2022................. 468,990 483,552
Government National Mortgage Association 7.50% 2023................. 456,510 469,635
Government National Mortgage Association 7.50% 2024................. 467,172 480,603
Government National Mortgage Association 8.50% 2024................. 889,802 934,292
United States Treasury Bonds 6.25% 2023............................. 1,000,000 1,028,910
United States Treasury Bonds 9.25% 2016............................. 800,000 1,099,624
United States Treasury Notes 5.63% 1998............................. 1,250,000 1,260,350
United States Treasury Notes 5.63% 2000............................. 250,000 252,265
United States Treasury Notes 5.88% 2005............................. 750,000 766,875
United States Treasury Notes 6.25% 2003............................. 750,000 782,460
United States Treasury Notes 7.25% 2004............................. 250,000 278,007
United States Treasury Notes 7.50% 2001............................. 1,000,000 1,101,410
United States Treasury Notes 7.75% 1999............................. 500,000 541,795
United States Treasury Notes 7.88% 1999............................. 500,000 543,595
United States Treasury Notes 7.88% 2004............................. 1,000,000 1,157,500
United States Treasury Notes 8.50% 2000............................. 750,000 835,778
------------
13,828,010
------------
TOTAL BONDS & NOTES (cost: $16,659,425)............................. 18,283,463
------------
<CAPTION>
FOREIGN SECURITIES -- 29.6% SHARES
----------------------------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA -- 0.2%
Buenos Aires Embotelladora SA ADR (Consumer Staples)+............... 3,000 61,875
Telefonica de Argentina SA ADR (Utilities).......................... 1,500 40,875
------------
102,750
------------
AUSTRALIA -- 1.4%
Advance Bank (Australia) (Finance).................................. 7,783 62,361
Amcor Ltd. (Materials).............................................. 25,446 179,677
Australia & New Zealand Bank Group (Finance)........................ 53,772 252,194
Broken Hill Proprietary Ltd. ADR (Materials)........................ 19,162 270,609
National Australia Bank Ltd. (Finance).............................. 9,424 84,756
Qantas Airways Ltd. ADR (Information & Entertainment)*.............. 3,200 53,320
------------
902,917
------------
AUSTRIA -- 0.3%
Evn Energie-Versorgung Niederoesterreich AG (Utilities)............. 1,300 178,648
------------
BELGIUM -- 0.2%
Delhaize Le Lion SA (Consumer Discretionary)........................ 2,800 116,072
------------
</TABLE>
- ---------------------
22
<PAGE> 104
<TABLE>
<CAPTION>
FOREIGN SECURITIES (continued) SHARES VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
BRAZIL -- 0.2%
Centrais Eletricas Brasileiras SA - ELETROBRAS ADR (Utilities)...... 5,500 $ 74,414
Usinas Siderurgicas de Minas Gerais SA - USIMINAS ADR (Materials)... 4,000 32,512
------------
106,926
------------
CANADA -- 0.5%
Canadian Pacific Ltd. (Industrial & Commercial)..................... 17,000 308,125
------------
CHILE -- 0.1%
Compania De Telefonos Chile SA ADR (Utilities)...................... 1,000 82,875
------------
DENMARK -- 0.6%
Tele Danmark A/S ADR (Utilities).................................... 12,500 345,312
Unidanmark A/S (Finance)............................................ 1,250 61,909
------------
407,221
------------
FINLAND -- 0.4%
Metsa-Serla Oy (Materials).......................................... 2,700 83,184
Nokia Corp. ADR (Information Technology)............................ 2,000 77,750
Unitas Ltd. (Finance)............................................... 40,000 101,163
------------
262,097
------------
FRANCE -- 2.2%
Banque Nationale de Paris (Finance)................................. 3,000 135,328
Canal Plus SA (Information & Entertainment)......................... 329 61,675
Cie de St. Gobain (Materials)....................................... 1,681 183,307
Euro RSCG Worldwide SA (Information & Entertainment)................ 1,101 89,932
Peugeot SA (Consumer Discretionary)................................. 400 52,767
Renault SA (Consumer Discretionary)................................. 4,550 131,009
Rhone Poulenc SA (Health Care)...................................... 8,000 171,370
Societe Generale (Finance).......................................... 1,382 170,739
Societe Nationale Elf Aquitaine (Energy)............................ 1,200 88,414
Technip SA (Industrial & Commercial)................................ 1,150 79,140
Total SA, Series B (Energy)......................................... 3,790 255,788
------------
1,419,469
------------
GERMANY -- 1.5%
Bayer AG (Health Care).............................................. 750 197,891
Beiersdorf AG (Consumer Staples).................................... 100 70,059
Daimler-Benz AG (Consumer Discretionary)............................ 100 50,331
Degussa AG (Industrial & Commercial)................................ 300 99,965
Deutsche Bank AG (Finance).......................................... 2,500 118,456
Karstadt AG (Consumer Discretionary)................................ 250 101,952
Mannesmann AG (Industrial & Commercial)............................. 537 170,964
Veba AG (Utilities)................................................. 4,000 169,816
------------
979,434
------------
HONG KONG -- 1.2%
China Light & Power Co., Ltd. (Utilities)........................... 30,000 138,118
Hong Kong Telecommunications, Ltd. (Utilities)...................... 65,051 116,095
Hutchison Whampoa Ltd. (Real Estate)................................ 21,000 127,915
Sun Hung Kai Properties (Real Estate)............................... 18,000 147,236
Swire Pacific Ltd., Class A (Real Estate)........................... 34,000 263,821
------------
793,185
------------
INDONESIA -- 0.1%
PT Jaya Real Property (Real Estate)*................................ 29,000 78,636
PT Semen Gresik (Materials)*........................................ 6,000 16,794
------------
95,430
------------
</TABLE>
---------------------
23
<PAGE> 105
<TABLE>
<CAPTION>
FOREIGN SECURITIES (continued) SHARES VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
ITALY -- 0.9%
Banca Commerciale Italiana S.p.A. (Finance)......................... 60,000 $ 128,076
De Rigo S.p.A. ADR (Health Care).................................... 2,400 54,600
Gucci Group N V (Consumer Discretionary)............................ 600 23,325
STET (Utilities).................................................... 122,000 344,922
------------
550,923
------------
JAPAN -- 8.2%
Chichibu Onoda Cement Co., Ltd. (Materials)......................... 30,000 160,097
Chugai Pharmaceutical Co., Ltd. (Health Care)....................... 5,000 47,893
Dai Nippon Printing Co., Ltd. (Industrial & Commercial)............. 11,000 186,441
Home Wide Corp. (Consumer Discretionary)............................ 3,000 35,448
Ito-Yokado Co. (Consumer Discretionary)............................. 2,000 123,196
Kajima Corp. (Industrial & Commercial).............................. 25,000 246,973
Kawasaki Heavy Industries Ltd. (Industrial & Commercial)............ 20,000 92,010
Keio Teito Electric Railway Co., Ltd. (Consumer Discretionary)...... 12,000 69,850
Kyocera Corp. (Information Technology).............................. 1,000 74,286
Kyoritsu Air Technology (Industrial & Commercial)................... 3,000 32,542
Matsushita Electric Industrial Co., Ltd. (Information &
Entertainment).................................................... 10,000 162,712
Minebea Co., Ltd. (Information Technology).......................... 19,000 159,361
Mitsubishi Bank Ltd. (Finance)...................................... 7,000 164,746
Mitsubishi Corp. (Industrial & Commercial).......................... 14,000 172,203
Murata Manufacturing Co. (Information Technology)................... 2,000 73,608
Nihon Jumbo Co., Ltd. (Materials)................................... 2,000 69,927
Nippon Express Co., Ltd. (Information & Entertainment).............. 14,000 134,779
Nippon Telegraph & Telecommunications Corp. (Information &
Entertainment).................................................... 10 80,872
NKK Corp. (Materials)............................................... 89,000 239,632
Nomura Securities International, Inc. (Finance)..................... 8,000 174,334
Orix Corp. (Industrial & Commercial)................................ 5,000 205,811
Riso Kagaku Corp. (Information Technology).......................... 1,000 84,358
Sakura Bank Ltd. (Finance).......................................... 13,000 164,939
Sanyo Shinpan Finance Co. (Finance)................................. 2,000 164,649
Sankyo Co., Ltd. (Health Care)...................................... 13,000 292,107
Sanwa Bank Ltd. (Finance)........................................... 3,000 61,017
Secom Co. (Industrial & Commercial)................................. 3,000 208,620
Sekisui Chemical Co., Ltd. (Consumer Discretionary)................. 1,000 14,722
Seven-Eleven Japan Co., Ltd. (Consumer Discretionary)............... 4,000 282,034
Shimamura Co. (Consumer Discretionary).............................. 3,000 115,932
Showa Corp. (Consumer Discretionary)................................ 18,000 137,898
Sony Corp. (Information & Entertainment)............................ 3,000 179,855
Sumitomo Marine & Fire Insurance Co., Ltd. (Finance)................ 20,000 164,262
Sumitomo Realty & Development Co., Ltd. (Real Estate)............... 25,000 176,755
Sumitomo Trust & Banking Co., Ltd. (Finance)........................ 6,000 84,843
Toda Construction Co.. (Industrial & Commercial).................... 6,000 52,010
Tohoku Electric Power Co., Inc. (Utilities)......................... 2,000 48,232
Tokio Marine & Fire Insurance Co., Ltd. (Finance)................... 20,000 261,501
Tsutsumi Jewelry Co. (Consumer Discretionary)....................... 500 25,036
------------
5,225,491
------------
</TABLE>
- ---------------------
24
<PAGE> 106
<TABLE>
<CAPTION>
FOREIGN SECURITIES (continued) SHARES VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
MALAYSIA -- 0.3%
Resorts World Bhd (Information & Entertainment)..................... 34,000 $ 182,069
------------
MEXICO -- 0.4%
Cemex SA (Materials)................................................ 15,000 49,579
Fomento Economico Mexicano SA de CV (Consumer Staples).............. 17,000 38,208
Grupo Carso SA de CV (Consumer Staples)............................. 9,500 51,225
Kimberly-Clark Corp. (Materials).................................... 4,000 60,350
Transportacion Maritima Mexicana SA de CV ADR (Industrial &
Commercial)....................................................... 4,900 36,750
------------
236,112
------------
NETHERLANDS -- 1.1%
Elsevier NV (Information & Entertainment)........................... 15,000 200,037
Internationale Nederlanden Groep NV (Finance)....................... 4,253 284,117
Vendex International NV (Consumer Discretionary).................... 5,000 148,626
Ver Ned Uitgevers (Information & Entertainment)..................... 700 96,099
------------
728,879
------------
NEW ZEALAND -- 0.5%
Air New Zealand Ltd. (Information & Entertainment).................. 18,027 61,284
Brierley Investments Ltd. (Finance)................................. 151,000 119,450
Carter Holt Harvey Ltd. (Materials)................................. 65,000 140,233
------------
320,967
------------
NORWAY -- 1.3%
Christiania Bank Og Kreditkasse (Finance)*.......................... 18,400 42,992
Hafslund Nycomed, Series A ADR (Health Care)........................ 5,615 146,711
Kvaerner AS (Industrial & Commercial)............................... 5,500 194,503
Orkla AS (Consumer Staples)......................................... 5,000 248,654
Saga Petroleum (Energy)............................................. 14,000 186,767
------------
819,627
------------
PHILIPPINES -- 0.3%
Philippine National Bank (Finance).................................. 4,000 44,224
Pilipino Telephone (Utilities)...................................... 160,900 162,556
------------
206,780
------------
PORTUGAL -- 0.2%
Portugal Telecom SA ADR (Utilities)................................. 6,300 119,700
------------
SINGAPORE -- 1.2%
Development Bank of Singapore (Finance)............................. 27,500 342,171
Keppel Corp. Ltd. (Industrial & Commercial)......................... 33,000 293,955
Overseas Chinese Banking Corp. Ltd. (Finance)....................... 4,000 50,053
United Overseas Bank Ltd. (Finance)................................. 9,000 86,532
------------
772,711
------------
SPAIN -- 1.4%
Acerinox SA (Materials)............................................. 1,250 126,443
Banco Bilbao Vizcaya (Finance)...................................... 9,500 342,250
Repsol SA ADR (Energy).............................................. 10,000 328,750
Telefonica de Espana SA (Utilities)................................. 7,500 103,875
------------
901,318
------------
SWEDEN -- 0.6%
Astra AB, Series A (Health Care).................................... 4,000 159,646
Avesta Sheffield (Materials)........................................ 7,500 66,080
BT Industries AB (Industrial & Commercial)*......................... 7,900 86,856
Stora Kopparbergs (Materials)....................................... 7,000 82,232
------------
394,814
------------
</TABLE>
---------------------
25
<PAGE> 107
<TABLE>
<CAPTION>
FOREIGN SECURITIES (continued) SHARES VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
SWITZERLAND -- 1.2%
Ciba-Geigy AG (Health Care)......................................... 300 $ 263,979
Nestle SA (Consumer Staples)........................................ 340 376,108
Sulzer AG (Health Care)............................................. 200 106,632
------------
746,719
------------
THAILAND -- 0.1%
Bangkok Bank Public Co., Ltd. (Finance)............................. 3,500 42,517
Bangkok Metropolitan Bank PCL (Finance)............................. 57,000 53,176
------------
95,693
------------
UNITED KINGDOM -- 3.0%
Bass PLC (Consumer Staples)......................................... 21,000 234,330
BET PLC (Industrial & Commercial)................................... 167,000 329,384
Body Shop International PLC (The) (Consumer Staples)................ 17,400 41,345
British Steel PLC (Materials)....................................... 50,000 126,378
British Telecommunications PLC (Utilities).......................... 38,000 208,325
Northern Foods PLC (Consumer Staples)............................... 13,000 34,928
PowerGen PLC (Utilities)............................................ 15,183 125,444
Rank Organisation PLC (Information & Entertainment)................. 25,000 180,929
Royal Insurance Holdings PLC (Finance).............................. 35,000 207,369
Tomkins PLC (Consumer Staples)...................................... 52,000 227,333
Vodafone Group PLC ADR (Information & Entertainment)................ 50,000 179,375
------------
1,895,140
------------
TOTAL FOREIGN SECURITIES (cost: $16,395,500)........................ 18,952,092
------------
TOTAL INVESTMENT SECURITIES (cost: $50,409,430)..................... 61,634,388
------------
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT -- 3.3% AMOUNT
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joint Repurchase Agreement (See Note 3)
(cost: $2,135,000)................................................ $2,135,000 2,135,000
------------
TOTAL INVESTMENTS --
(cost: $52,544,430) 99.6% 63,769,388
Other assets less liabilities -- 0.4 256,472
----- ------------
NET ASSETS -- 100.0% $64,025,860
===== =============
</TABLE>
-----------------------------
+ Non-income producing securities
* Resale restricted to qualified institutional buyers
ADR - American Depositary Receipts
(1) Represents a zero coupon bond which will convert to an
interest bearing security at a later date
(2) Fair valued security; see Note 2
<TABLE>
<CAPTION>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1995
----------------------------------------------------------------------------------------------------
CONTRACT IN DELIVERY GROSS UNREALIZED
TO DELIVER EXCHANGE FOR DATE DEPRECIATION
<S> <C> <C> <C>
------------------------------------------------------------------
FRF 1,956,160 USD 400,000 5/10/96 $ (142)
==============
FRF -- French Franc
USD -- United States Dollar
</TABLE>
See Notes to Financial Statements
- ---------------------
26
<PAGE> 108
- ---------------------
ANCHOR SERIES TRUST
MULTI-ASSET PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK -- 57.7% SHARES VALUE
<S> <C> <C>
------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
CONSUMER DISCRETIONARY -- 4.9%
Automotive -- 0.9%
Ford Motor Co. ..................................................... 48,981 $ 1,420,449
Retail -- 4.0%
Home Depot, Inc. ................................................... 30,000 1,436,250
May Department Stores Co. .......................................... 50,000 2,112,500
Talbots, Inc. ...................................................... 50,000 1,437,500
Wal-Mart Stores, Inc. .............................................. 80,000 1,790,000
-------------
8,196,699
-------------
CONSUMER STAPLES -- 3.5%
Household Products -- 3.5%
Colgate-Palmolive Co. .............................................. 22,000 1,545,500
Gillette Co. ....................................................... 24,000 1,251,000
Kimberly-Clark Corp. ............................................... 38,000 3,144,500
-------------
5,941,000
-------------
ENERGY -- 6.7%
Energy Services -- 5.4%
Amoco Corp. ........................................................ 30,000 2,156,250
Dresser Industries, Inc. ........................................... 105,000 2,559,375
Exxon Corp. ........................................................ 38,000 3,044,750
Schlumberger Ltd. .................................................. 20,000 1,385,000
Energy Sources -- 1.3%
Unocal Corp. ....................................................... 75,000 2,184,375
-------------
11,329,750
-------------
FINANCE -- 8.8%
Banks -- 4.0%
Crestar Financial Corp. ............................................ 32,000 1,892,000
First Union Corp. .................................................. 20,000 1,112,500
Fleet Financial Group, Inc. ........................................ 37,000 1,507,750
Republic New York Corp. ............................................ 36,206 2,249,298
Financial Services -- 1.6%
American Express Co. ............................................... 40,000 1,655,000
Bancorp Hawaii, Inc. ............................................... 30,000 1,076,250
Insurance -- 3.2%
ACE Ltd. ........................................................... 30,000 1,192,500
American International Group, Inc. ................................. 22,500 2,081,250
American Reinsurance Corp.+......................................... 50,000 2,043,750
-------------
14,810,298
-------------
HEALTHCARE -- 7.6%
Drugs -- 5.5%
Johnson & Johnson Co. .............................................. 24,000 2,055,000
Pfizer, Inc. ....................................................... 50,000 3,150,000
Warner-Lambert Co. ................................................. 15,000 1,456,875
Zeneca Group PLC ADR................................................ 45,100 2,632,712
</TABLE>
---------------------
27
<PAGE> 109
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE (continued)
Medical Products -- 2.1%
Abbott Laboratories................................................. 55,000 $ 2,296,250
Perrigo Co.+........................................................ 100,000 1,187,500
-------------
12,778,337
-------------
INDUSTRIAL & COMMERCIAL -- 5.9%
Business Services -- 0.8%
Sysco Corp. ........................................................ 40,000 1,300,000
Electrical Equipment -- 2.2%
Emerson Electric Co. ............................................... 20,000 1,635,000
York International Corp. ........................................... 45,000 2,115,000
Machinery -- 1.8%
Illinois Tool Works, Inc. .......................................... 17,000 1,003,000
Minnesota Mining & Manufacturing Co. ............................... 30,000 1,987,500
Transportation -- 1.1%
Canadian Pacific Ltd. .............................................. 65,000 1,178,125
Werner Enterprises, Inc. ........................................... 37,700 763,425
-------------
9,982,050
-------------
INFORMATION & ENTERTAINMENT -- 6.7%
Broadcasting & Media -- 4.7%
Capital Cities/ABC, Inc. ........................................... 13,000 1,603,875
Comcast Corp., Class A.............................................. 75,000 1,364,062
Gannett Co., Inc. .................................................. 30,000 1,841,250
Gaylord Entertainment Co., Class A.................................. 45,225 1,254,994
Viacom, Inc.+....................................................... 40,000 1,895,000
Entertainment Products -- 1.4%
Scholastic Corp.+................................................... 30,000 2,332,500
Leisure & Tourism -- 0.6%
AMR Corp.+.......................................................... 14,000 1,039,500
-------------
11,331,181
-------------
INFORMATION TECHNOLOGY -- 5.1%
Communication Equipment -- 0.7%
General Instrument Corp.+........................................... 50,000 1,168,750
Computers & Business Equipment -- 0.9%
Hewlett-Packard Co. ................................................ 18,000 1,507,500
Electronics -- 0.7%
AMP, Inc. .......................................................... 30,000 1,151,250
Software -- 2.8%
Automatic Data Processing, Inc. .................................... 30,000 2,227,500
BMC Software, Inc. ................................................. 35,000 1,496,250
Microsoft Corp.+.................................................... 12,000 1,053,000
-------------
8,604,250
-------------
MATERIALS -- 4.8%
Chemicals -- 3.6%
Air Products & Chemicals, Inc. ..................................... 34,000 1,793,500
Engelhard Corp. .................................................... 83,000 1,805,250
Loctite Corp. ...................................................... 24,000 1,140,000
Minerals Technologies, Inc. ........................................ 36,600 1,335,900
</TABLE>
- ---------------------
28
<PAGE> 110
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
MATERIALS (continued)
Forest Products -- 1.2%
International Paper Co. ............................................ 50,000 $ 1,893,750
-------------
7,968,400
-------------
U.S. GOVERNMENT & AGENCIES -- 1.3%
U.S. Government & Agencies -- 1.3%
Federal National Mortgage Association............................... 17,000 2,110,125
-------------
UTILITIES -- 2.4%
Telephone -- 2.4%
AT & T Corp. ....................................................... 33,000 2,136,750
SBC Communications, Inc. ........................................... 33,000 1,897,500
-------------
4,034,250
-------------
TOTAL COMMON STOCK (cost: $67,399,463).............................. 97,086,340
-------------
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 33.5% AMOUNT
------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCE -- 7.2%
Bank Of Boston Corp. 6.63% 2004..................................... $ 1,500,000 1,523,340
BankAmerica Corp. 6.06% 1996(1)..................................... 1,000,000 1,002,231
Bankers Trust New York Corp. 8.25% 2005............................. 1,500,000 1,683,684
Beneficial Corp. 5.20% 1996(1)...................................... 1,500,000 1,478,910
Citicorp 6.75% 2005................................................. 1,500,000 1,518,405
Daimler-Benz Vehicle Trust 5.95% 2000............................... 660,968 661,820
Discover Card Trust, Series D 5.50% 1996(1)......................... 416,667 415,754
Fleet Mortgage Group, Inc. 6.50% 2000............................... 1,500,000 1,529,850
IBM Credit Receivables Lease Asset Master Trust 4.55% 2000.......... 715,842 710,323
Nissan Auto Receivables Grantor Trust 6.45% 1999.................... 773,534 780,472
Premier Auto Trust 4.65% 1999....................................... 775,435 766,361
-------------
12,071,150
-------------
INDUSTRIAL & COMMERCIAL -- 1.7%
Mobil Oil Corp. 9.17% 2000.......................................... 634,625 683,231
Niagara Mohawk Power Corp. 5.88% 2002............................... 1,250,000 1,213,138
Penney (J.C.), Inc. 7.38% 2004...................................... 1,000,000 1,081,470
-------------
2,977,839
-------------
NON-U.S. GOVERNMENT OBLIGATIONS -- 1.9%
Quebec Province Canada 8.80% 2003................................... 1,500,000 1,717,515
Republic of Italy 6.88% 2023........................................ 1,500,000 1,464,825
-------------
3,182,340
-------------
U.S. GOVERNMENT & AGENCIES -- 22.7%
Federal Home Loan Mortgage Corp. 8.50% 2001......................... 1,500,000 1,550,834
Federal Home Loan Mortgage Corp. 6.50% TBA.......................... 5,000,000 5,026,550
Federal National Mortgage Association 7.50% 2022 - 2025............. 1,915,552 1,964,008
Government National Mortgage Association 6.50% 2023 - 2024.......... 10,862,972 10,774,656
United States Treasury Bonds 10.38% 2012............................ 11,200,000 15,484,000
United States Treasury Notes 7.50% 2005............................. 3,000,000 3,400,320
-------------
38,200,368
-------------
TOTAL BONDS & NOTES (cost: $54,373,690)............................. 56,431,697
-------------
</TABLE>
---------------------
29
<PAGE> 111
<TABLE>
<CAPTION>
PRINCIPAL
CONVERTIBLE SECURITIES -- 1.8% AMOUNT VALUE
<S> <C> <C>
------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
CONVERTIBLE BONDS -- 0.7%
Leisure & Tourism -- 0.2%
AMR Corp. 6.13% 2024................................................ $ 400,000 $ 414,000
Medical Products -- 0.5%
McKesson Corp. 4.50% 2004........................................... 800,000 753,000
-------------
1,167,000
-------------
<CAPTION>
SHARES
------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCK -- 1.1%
Energy Sources -- 0.2%
Unocal Corp. $3.50*................................................. 6,000 320,250
Real Estate Companies -- 0.9%
Security Capital Pacific Trust Series A $1.75....................... 60,000 1,470,000
-------------
1,790,250
-------------
TOTAL CONVERTIBLE SECURITIES (cost: $2,928,441)..................... 2,957,250
-------------
TOTAL INVESTMENT SECURITIES (cost: $124,701,594).................... 156,475,287
-------------
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT -- 9.7% AMOUNT
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joint Repurchase Agreement Account (See Note 3)
(cost: $16,315,000)............................................... $16,315,000 16,315,000
-------------
TOTAL INVESTMENTS --
(cost: $141,016,594) 102.7% 172,790,287
Liabilities in excess of other assets -- (2.7) (4,547,479)
------ -------------
NET ASSETS -- 100.0 $168,242,808
====== ==============
</TABLE>
-----------------------------
+ Non-income producing securities
* Resale restricted to qualified institutional buyers
ADR - American Depositary Receipts
(1) Variable rate security - the rate reflected is as of December
31, 1995; maturity date reflects next reset date
TBA - Securities purchased on a forward commitment basis with an
approximately principal amount and no definitive maturity
date. The actual principal amount and maturity date will be
determined upon settlement.
See Notes to Financial Statements
- ---------------------
30
<PAGE> 112
- ---------------------
ANCHOR SERIES TRUST
CAPITAL APPRECIATION
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK -- 92.1% SHARES VALUE
<S> <C> <C>
-----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
CONSUMER DISCRETIONARY -- 7.2%
Apparel & Textiles -- 2.7%
Fila Holding S.p.A., ADR............................................ 120,000 $ 5,460,000
Gucci Group N.V.+................................................... 20,600 800,825
Tommy Hilfiger Corp.+............................................... 78,100 3,309,487
Retail -- 4.5%
Bed Bath & Beyond, Inc.+............................................ 70,000 2,716,875
Gymboree Corp.+..................................................... 265,000 5,465,625
Mercantile Stores Co., Inc. ........................................ 90,000 4,162,500
Sports Authority, Inc.+............................................. 190,000 3,871,250
-------------
25,786,562
-------------
CONSUMER STAPLES -- 1.5%
Food, Beverage & Tobacco -- 1.5%
Canandaigua Wine Co., Inc., Class A+................................ 85,000 2,773,125
Pete's Brewing Co.+................................................. 168,300 2,356,200
-------------
5,129,325
-------------
ENERGY -- 7.6%
Energy Services -- 1.4%
Input/Output, Inc.+................................................. 90,000 5,197,500
Energy Sources -- 6.2%
ENSCO International, Inc.+.......................................... 100,000 2,300,000
Noble Affiliates, Inc. ............................................. 160,000 4,780,000
Union Pacific Resources Group, Inc.+................................ 83,000 2,106,125
Unocal Corp. ....................................................... 115,000 3,349,375
Vastar Resources, Inc. ............................................. 157,600 5,003,800
Barrett Resources Corp.+............................................ 150,000 4,406,250
-------------
27,143,050
-------------
FINANCE -- 5.6%
Financial Services -- 0.8%
Imperial Credit Industries, Inc.+................................... 130,000 2,827,500
Insurance -- 4.8%
Allstate Corp. ..................................................... 170,000 6,991,250
American Reinsurance Corp.+......................................... 80,000 3,270,000
Amerin Corp.+....................................................... 113,000 3,022,750
Home State Holdings, Inc.+.......................................... 107,100 994,022
Transatlantic Holdings, Inc. ....................................... 38,900 2,854,287
-------------
19,959,809
-------------
HEALTHCARE -- 14.8%
Drugs -- 7.7%
Alpharma, Inc., Class A............................................. 125,700 3,283,913
Genetics Institute, Inc.+........................................... 109,700 5,868,950
Hafslund Nycomed, Series B ADR...................................... 137,318 3,604,597
Immunex Corp.+...................................................... 200,000 3,300,000
Rhone-Poulenc Rorer, Inc. .......................................... 160,000 8,520,000
Zeneca Group PLC ADR................................................ 150,000 2,901,460
</TABLE>
---------------------
31
<PAGE> 113
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE (continued)
Health Services -- 5.6%
American Medical Response, Inc.+.................................... 130,000 $ 4,225,000
Beverly Enterprises, Inc.+.......................................... 225,000 2,390,625
De Rigo S.p.A. ADR+................................................. 93,000 2,115,750
FHP International Corp.+............................................ 64,300 1,832,550
GranCare, Inc.+..................................................... 141,000 2,044,500
IDX Systems Corp.+.................................................. 125,300 4,354,175
Vencor, Inc.+....................................................... 85,000 2,762,500
Medical Products -- 1.5%
Biomet, Inc.+....................................................... 100,000 1,787,500
Haemonetics Corp. .................................................. 200,000 3,550,000
-------------
52,541,520
-------------
INDUSTRIAL & COMMERCIAL -- 9.1%
Business Services -- 0.7%
DST Systems, Inc.+.................................................. 81,500 2,322,750
Electrical Equipment -- 1.1%
York International Corp. ........................................... 85,000 3,995,000
Machinery -- 1.0%
Precision Castparts Corp. .......................................... 91,000 3,617,250
Metals -- 0.3%
Usinor Sacilor+..................................................... 80,200 1,060,435
Transportation -- 6.0%
America West Airlines, Inc., Class B+............................... 150,000 2,550,000
AMR Corp.+.......................................................... 95,000 7,053,750
Continental Airlines, Inc., Class B+................................ 110,400 4,802,400
Swift Transportation Co., Inc. ..................................... 109,500 1,669,875
Trans World Airlines, Inc.+......................................... 351,800 3,649,925
Werner Enterprises, Inc. ........................................... 85,000 1,721,250
-------------
32,442,635
-------------
INFORMATION & ENTERTAINMENT -- 23.6%
Broadcasting & Media -- 20.1%
American Radio Systems Corp., Class A............................... 140,000 3,920,000
Central European Media Entertainment Light, Ltd., Class A........... 170,000 3,485,000
E-Z Communications, Inc.+........................................... 145,000 2,610,000
Emmis Broadcasting Corp., Class A+.................................. 108,600 3,366,600
Evergreen Media Corp.+.............................................. 268,200 8,582,400
Gaylord Entertainment Co., Class A.................................. 138,285 3,837,409
International Cabletel, Inc.+....................................... 146,666 3,593,317
Jacor Communications, Inc.+......................................... 169,500 2,966,250
LodgeNet Entertainment Corp.+....................................... 150,000 1,425,000
News Corp., Ltd. ADR................................................ 220,000 4,235,000
Renaissance Communications Corp.+................................... 120,000 2,655,000
Saga Communications, Inc., Class A+................................. 156,250 2,539,063
Scholastic Corp.+................................................... 35,000 2,721,250
Scripps (E.W.) Co., Class A......................................... 85,000 3,346,875
SFX Broadcasting, Inc., Class A+.................................... 190,000 5,747,500
Valuevision International, Inc., Class A+........................... 200,000 1,112,500
Viacom, Inc. Class A+............................................... 11,200 513,800
Viacom, Inc., Class B+.............................................. 94,861 4,494,040
Vodafone Group PLC ADR.............................................. 75,000 2,643,750
Westwood One, Inc.+................................................. 205,000 2,895,625
Young Broadcasting, Inc., Class A+.................................. 175,000 4,943,750
</TABLE>
- ---------------------
32
<PAGE> 114
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
INFORMATION & ENTERTAINMENT (continued)
Entertainment Products -- 1.2%
Philips Electronics N.V. ADR........................................ 115,000 $ 4,125,625
Leisure & Tourism -- 2.3%
Royal Caribbean Cruises Ltd. ....................................... 135,000 2,970,000
Starbucks Corp.+.................................................... 161,600 3,393,600
Tabcorp Holdings Ltd. ADR*.......................................... 70,830 2,002,145
-------------
84,125,499
-------------
INFORMATION TECHNOLOGY -- 22.7%
Communication Equipment -- 7.5%
BroadBand Technologies, Inc.+....................................... 70,000 1,137,500
California Microwave, Inc.+......................................... 100,000 1,662,500
Cisco Systems, Inc.+................................................ 75,000 5,596,875
General Instrument Corp.+........................................... 140,000 3,272,500
MobileMedia Corp. .................................................. 249,300 5,546,925
Nokia Corp. ADR..................................................... 130,000 5,053,750
Shiva Corp. ........................................................ 60,000 4,365,000
Computers & Business Equipment -- 1.1%
Business Objects SA ADR+............................................ 39,400 1,905,975
Plaintree Systems, Inc.+............................................ 125,000 750,000
Sensormatic Electronics Corp. ...................................... 85,000 1,476,875
Electronics -- 0.8%
Cyrix Corp.+........................................................ 120,000 2,760,000
Software -- 13.3%
BISYS Group, Inc.+.................................................. 200,000 6,150,000
BMC Software, Inc.+................................................. 155,100 6,630,525
Cheyenne Software, Inc.+............................................ 185,000 4,833,125
Cognos, Inc. ....................................................... 125,000 5,578,125
Compuware Corp.+.................................................... 125,000 2,312,500
Cooper & Chyan Technology, Inc.+.................................... 50,000 787,500
FTP Software, Inc.+................................................. 225,000 6,525,000
Parametric Technology Corp.+........................................ 75,000 4,987,500
Policy Management Systems Corp.+.................................... 75,000 3,571,875
Softkey International, Inc.+........................................ 70,000 1,618,750
Spectrum Holobyte, Inc.+............................................ 270,000 1,755,000
Systems & Computer Technology Corp.+................................ 130,000 2,583,750
-------------
80,861,550
-------------
TOTAL INVESTMENT SECURITIES (cost: $259,666,326).................... 327,989,950
-------------
<CAPTION>
PRINCIPAL
SHORT-TERM SECURITIES -- 0.2% AMOUNT
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCIES -- 0.2%
United States Treasury Bills 5.53% due 3/21/96 (cost: $790,560)..... $ 800,000 790,925
-------------
</TABLE>
---------------------
33
<PAGE> 115
<TABLE>
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT -- 8.9% AMOUNT VALUE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Joint Repurchase Agreement Account (See Note 3)
(cost: $31,635,000)............................................... $ 31,635,000 $ 31,635,000
-------------
TOTAL INVESTMENTS --
(cost: $292,091,886) 101.2% 360,415,875
Liabilities in excess of other assets -- (1.2) (4,197,836)
------ -------------
NET ASSETS -- 100.0% $356,218,039
===== =============
</TABLE>
-----------------------------
+ Non-income producing securities
* Resale restricted to qualified institutional buyers
ADR - American Depositary Receipts
See Notes to Financial Statements
- ---------------------
34
<PAGE> 116
- ---------------------
ANCHOR SERIES TRUST
CONVERTIBLE SECURITIES
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
CONVERTIBLE BONDS -- 61.4% AMOUNT VALUE
<S> <C> <C>
-----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
CONSUMER DISCRETIONARY -- 2.5%
Retail -- 2.5%
Rite Aid zero coupon 2006(1)........................................ $ 1,500,000 $ 798,750
------------
ENERGY -- 2.9%
Energy Sources -- 2.9%
Pennzoil Co. 6.50% 2003............................................. 750,000 941,250
------------
FINANCE -- 14.9%
Banks -- 4.7%
Fifth Third Bancorp. 4.25% 1998..................................... 1,000,000 1,170,000
J.G. Summit, Inc. 3.50% 2003*....................................... 470,000 345,450
Financial Services -- 3.9%
Legg Mason, Inc. 5.25% 2003......................................... 800,000 919,000
MBL International Finance Bermuda Trust 3.00% 2002.................. 268,000 314,900
Insurance -- 6.3%
Nac Reinsurance Corp. 5.25% 2002.................................... 1,000,000 975,000
Royal Insurance Holding Corp. 7.25% 2007............................ 500,000 1,015,297
Swiss Refinance Bermaud Ltd. 2.00% 2000*............................ 35,000 41,497
------------
4,781,144
------------
HEALTHCARE -- 13.3%
Drugs -- 5.2%
Alza Corp. zero coupon 2014(1)...................................... 1,500,000 611,250
Sandoz Capital BVI Ltd. 2.00% 2002*................................. 1,110,000 1,048,950
Health Services -- 4.9%
Beverly Enterprises Inc. 5.50% 2018................................. 800,000 756,000
Pharmaceutical Marketing Services 6.25% 2003*....................... 880,000 809,600
Medical Products -- 3.2%
McKesson Corp. 4.50% 2004........................................... 1,100,000 1,035,375
------------
4,261,175
------------
INDUSTRIAL & COMMERCIAL -- 3.3%
Business Services -- 3.3%
Fisher Scientific International Co., Inc. 4.75% 2003(2)............. 1,000,000 1,065,000
------------
INFORMATION & ENTERTAINMENT -- 6.6%
Broadcasting & Media -- 6.6%
Comcast Corp. 1.13% 2007............................................ 1,000,000 507,500
International Cabletel, Inc. 7.25% 2005*............................ 225,000 241,875
LDDS Communications, Inc. 5.00% 2003................................ 600,000 633,000
Scandinavian Broadcasting Systems 7.25% 2005........................ 700,000 715,750
------------
2,098,125
------------
</TABLE>
---------------------
35
<PAGE> 117
<TABLE>
<CAPTION>
PRINCIPAL
CONVERTIBLE BONDS (continued) AMOUNT VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
INFORMATION TECHNOLOGY -- 6.3%
Communication Equipment -- 2.7%
General Instrument Corp. 5.00% 2000................................. $ 800,000 $ 879,000
Software -- 3.6%
First Financial Management Corp. 5.00% 1999......................... 450,000 718,650
Spectrum Holobyte, Inc. 6.50% 2002*................................. 575,000 418,313
------------
2,015,963
------------
MATERIALS -- 4.3%
Chemicals -- 2.7%
RPM, Inc. zero coupon 2012.......................................... 2,000,000 857,500
Forest Products -- 1.6%
Cemex SA 4.25% 1997*................................................ 600,000 505,500
------------
1,363,000
------------
REAL ESTATE -- 3.9%
Real Estate Companies -- 2.4%
Hong Kong Land Co. 4.00% 2001....................................... 500,000 421,250
Liberty Property Ltd. 8.00% 2001.................................... 350,000 359,625
Real Estate Investment Trusts -- 1.5%
IRT Property Co. 7.30% 2003......................................... 500,000 475,000
------------
1,255,875
------------
SERVICES -- 3.4%
Transportation -- 3.4%
AMR Corp. 6.13% 2024................................................ 1,050,000 1,086,750
------------
TOTAL CONVERTIBLE BONDS (cost: $19,660,377)......................... 19,667,032
------------
<CAPTION>
CONVERTIBLE PREFERRED STOCK -- 35.5% SHARES
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER DISCRETIONARY -- 2.7%
Automotive -- 2.7%
General Motors Corp., Series C $3.25................................ 12,000 879,000
------------
CONSUMER STAPLES -- 1.0%
Food, Beverage & Tobacco -- 1.0%
RJR Nabisco Holdings, Series C 9.25%................................ 50,000 318,750
------------
ENERGY -- 8.6%
Energy Services -- 2.5%
Occidental Petroleum Corp. $3.88*................................... 15,000 817,500
Energy Sources -- 6.1%
Ashland Oil Co. $3.13............................................... 17,600 1,036,200
Unocal Corp. 7.00%*................................................. 17,000 907,375
------------
2,761,075
------------
FINANCE -- 14.2%
Banks -- 3.7%
Ahmanson (H.F.) & Co. 6.00%......................................... 20,000 1,182,500
</TABLE>
- ---------------------
36
<PAGE> 118
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK (continued) SHARES VALUE
<S> <C> <C>
-----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
FINANCE (continued)
Insurance -- 10.5%
Allstate Corp. 6.76%................................................ 20,000 $ 820,000
Conseco, Inc. 6.50%................................................. 10,000 530,000
Jefferson Pilot Corp. 7.25%......................................... 13,000 950,625
Kemper Corp., Series E 5.75%*....................................... 20,000 1,052,500
------------
4,535,625
------------
HEALTHCARE -- 1.2%
Medical Products -- 1.2%
US Surgical Corp. 9.76%............................................. 15,000 378,750
------------
INDUSTRIAL & COMMERCIAL -- 1.5%
Transportation -- 1.5%
Continental Airlines Finance Trust 8.50%(3)*........................ 9,000 481,500
------------
INFORMATION & ENTERTAINMENT -- 2.6%
Broadcasting & Media -- 2.6%
Cablevision Systems Corp., Series I 8.50%........................... 30,000 817,500
------------
REAL ESTATE -- 3.7%
Real Estate Investment Trusts -- 3.7%
Security Capital Pacific Trust, Series A 7.00%...................... 48,000 1,176,000
------------
TOTAL CONVERTIBLE PREFERRED STOCK (cost: $10,798,080)............... 11,348,200
------------
TOTAL INVESTMENT SECURITIES (cost: $30,458,457)..................... 31,015,232
------------
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT -- 5.2% AMOUNT
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement Account (See Note 3)
(cost: $1,665,000)................................................ $ 1,665,000 1,665,000
------------
TOTAL INVESTMENTS --
(cost: $32,123,457) 102.1% 32,680,232
Liabilities in excess of other assets -- (2.1) (671,959)
------ ------------
NET ASSETS -- 100.0% $32,008,273
====== =============
</TABLE>
-----------------------------
* Resale restricted to qualified institutional buyers
(1) Represents a zero coupon bond which will convert to an
interest bearing security at a later date
(2) Security will convert to 6.75% beginning 3/01/96
(3) Fair Valued Security; see Note 2
See Notes to Financial Statements.
---------------------
37
<PAGE> 119
- ---------------------
ANCHOR SERIES TRUST
FOREIGN SECURITIES
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK -- 90.2% SHARES VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
ARGENTINA -- 0.4%
Buenos Aires Embotelladora SA ADR (Consumer Staples)+............... 6,000 $ 123,750
Telefonica de Argentina SA ADR (Utilities).......................... 4,000 109,000
------------
232,750
------------
AUSTRALIA -- 4.4%
Advance Bank (Australia) (Finance).................................. 21,807 174,728
Amcor Ltd. (Materials).............................................. 93,964 663,489
Australia & New Zealand Bank Group (Finance)........................ 81,693 383,145
Broken Hill Proprietary Ltd. ADR (Materials)........................ 46,600 658,094
National Australia Bank Ltd. (Finance).............................. 45,183 406,358
Qantas Airways Ltd. ADR (Information & Entertainment)*.............. 5,600 93,310
------------
2,379,124
------------
AUSTRIA -- 0.8%
EVN Energie-Versorgung Niederoesterreich AG (Utilities)............. 2,900 398,522
------------
BELGIUM -- 0.7%
Delhaize Le Lion SA (Consumer Discretionary)........................ 9,000 373,089
------------
BRAZIL -- 0.2%
Centrais Eletricas Brasileiras SA - ELETROBRAS ADR (Utilities)...... 9,000 121,768
------------
CANADA -- 1.5%
Canadian Pacific Ltd. (Industrial & Commercial)*.................... 45,000 815,625
------------
CHILE -- 0.3%
Compania de Telefonos Chile SA ADR (Utilities)...................... 2,000 165,750
------------
DENMARK -- 1.6%
Tele Danmark A/S ADR (Utilities).................................... 26,000 718,250
Unidanmark A/S (Finance)............................................ 2,500 123,818
------------
842,068
------------
FINLAND -- 1.2%
Metsa-Serla Oy (Materials).......................................... 5,000 154,044
Nokia Corp. ADR (Information Technology)............................ 9,000 349,875
Unitas Ltd. (Finance)............................................... 58,600 148,205
------------
652,124
------------
FRANCE -- 6.2%
Banque Nationale de Paris (Finance)................................. 3,000 135,328
Canal Plus SA (Information & Entertainment)......................... 400 74,985
Cie de St. Gobain (Materials)....................................... 4,797 523,095
Euro RSCG Worldwide SA (Information & Entertainment)................ 3,470 283,439
Groupe Danone (Consumer Staples).................................... 2,033 335,443
Renault SA (Consumer Discretionary)................................. 16,600 477,966
Rhone Poulenc SA, Series A (Healthcare)............................. 6,000 128,528
</TABLE>
- ---------------------
38
<PAGE> 120
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
FRANCE (continued)
Societe Generale (Finance).......................................... 3,240 $ 400,286
Technip SA (Industrial & Commercial)................................ 4,100 282,152
Total SA, Series B (Energy)......................................... 9,782 660,190
------------
3,301,412
------------
GERMANY -- 3.9%
Bayer AG (Healthcare)............................................... 2,600 686,023
Daimler-Benz AG (Consumer Discretionary)............................ 300 150,993
Degussa AG (Industrial & Commercial)................................ 200 66,644
Deutsche Bank AG (Finance).......................................... 6,500 307,985
Mannesmann AG (Industrial & Commercial)............................. 1,300 413,880
VEBA AG (Utilities)................................................. 11,000 466,992
------------
2,092,517
------------
HONG KONG -- 4.0%
Hong Kong Telecommunications, Ltd. (Utilities)...................... 240,362 428,968
Hutchison Whampoa Ltd. (Real Estate)................................ 130,000 791,852
Sun Hung Kai Properties Ltd. (Real Estate).......................... 20,000 163,595
Swire Pacific Ltd., Class A (Real Estate)........................... 100,000 775,946
------------
2,160,361
------------
INDIA -- 0.4%
ITC Ltd. GDR (Consumer Staples)*.................................... 20,000 142,758
Reliance Industries GDS (Materials)*................................ 5,000 70,000
------------
212,758
------------
INDONESIA -- 0.4%
PT Jaya Real Property (Real Estate)*................................ 57,000 154,559
PT Semen Gresik (Materials)*........................................ 19,000 53,182
------------
207,741
------------
ITALY -- 1.6%
Banca Commerciale Italiana S.p.A. (Finance)......................... 110,000 234,805
STET (Utilities).................................................... 224,000 633,300
------------
868,105
------------
JAPAN -- 25.7%
Chichibu Onoda Cement Co., Ltd. (Materials)......................... 120,000 640,387
Chugai Pharmaceutical Co., Ltd. (Healthcare)........................ 12,000 114,944
Dai Nippon Printing Co., Ltd. (Industrial & Commercial)............. 30,000 508,475
Home Wide Corp. (Consumer Discretionary)............................ 11,000 129,976
Ito-Yokado Co., Ltd. (Consumer Discretionary)....................... 10,000 615,981
Kawasaki Heavy Industries Ltd. (Industrial & Commercial)............ 82,000 377,240
Keio Teito Electric Railway Co., Ltd. (Consumer Discretionary)...... 19,000 110,596
Kyocera Corp. (Information Technology).............................. 3,000 222,857
Kyoritsu Air Technology (Industrial & Commercial)................... 7,000 75,932
Mabuchi Motor Co., Ltd. (Industrial & Commercial)................... 6,000 373,075
Minebea Co., Ltd. (Information Technology).......................... 52,000 436,145
Mitsubishi Bank Ltd. (Finance)...................................... 13,000 305,956
Mitsubishi Corp. (Industrial & Commercial).......................... 48,000 590,412
Mitsui Petrochemical (Materials).................................... 40,000 327,361
Murata Manufacturing Co. (Information Technology)................... 8,000 294,431
Nihon Jumbo Co., Ltd. (Materials)................................... 6,000 209,782
Nippon Express Co., Ltd. (Industrial & Commercial).................. 20,000 192,542
Nippon Telegraph & Telecommunications Corp. (Information &
Entertainment).................................................... 51 412,446
NKK Corp. (Materials)............................................... 89,000 239,632
Nomura Securities International, Inc. (Finance)..................... 29,000 631,961
Orix Corp. (Industrial & Commercial)................................ 10,000 411,622
</TABLE>
---------------------
39
<PAGE> 121
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
JAPAN (continued)
Riso Kagaku Corp. (Information Technology).......................... 2,000 $ 168,717
Sakura Bank Ltd. (Finance).......................................... 30,000 380,630
Sankyo Co., Ltd. (Healthcare)....................................... 33,000 741,501
Sanwa Bank Ltd. (Finance)........................................... 8,000 162,712
Sanyo Shinpan Finance Co. (Finance)................................. 8,500 699,758
Secom Co. (Industrial & Commercial)................................. 10,000 695,400
Seven-Eleven Japan Co., Ltd. (Consumer Discretionary)............... 7,000 493,559
Shimamura Co. (Consumer Discretionary).............................. 17,000 656,949
Shohkoh Fund & Co. (Finance)........................................ 1,000 187,894
Showa Corp. (Consumer Discretionary)................................ 21,000 160,881
Sony Corp. (Information & Entertainment)............................ 9,000 539,564
Sumitomo Realty & Development Co., Ltd. (Real Estate)............... 88,000 622,179
Sumitomo Trust & Banking Co., Ltd. (Finance)........................ 10,000 141,404
Toda Construction Co. (Industrial & Commercial)..................... 12,000 104,019
Tokio Marine & Fire Insurance Co., Ltd. (Finance)................... 50,000 653,753
Tsutsumi Jewelry Co. (Consumer Discretionary)....................... 2,400 120,174
------------
13,750,847
------------
MALAYSIA -- 1.7%
Resorts World Bhd (Information & Entertainment)..................... 73,000 390,913
Sime Darby Bhd (Industrial & Commercial)............................ 198,000 526,243
------------
917,156
------------
MEXICO -- 0.9%
Cemex SA (Materials)................................................ 10,000 33,053
Fomento Economico Mexicano SA de CV, Series B (Consumer Staples).... 19,000 42,704
Grupo Carso SA de CV, Series A (Consumer Staples)................... 22,000 118,626
Kimberly-Clark Corp., Series A (Materials).......................... 15,000 226,312
Transportacion Maritima Mexicana SA de CV ADR (Industrial &
Commercial)....................................................... 10,900 81,750
------------
502,445
------------
NETHERLANDS -- 4.9%
Elsevier NV (Information & Entertainment)........................... 35,000 466,754
Internationale Nederlanden Groep NV (Finance)....................... 13,906 928,973
Unilever NV (Consumer Staples)...................................... 5,200 730,728
Vendex International NV (Consumer Discretionary).................... 16,000 475,603
------------
2,602,058
------------
NEW ZEALAND -- 1.9%
Air New Zealand Ltd. (Information & Entertainment).................. 36,053 122,565
Brierley Investments Ltd. (Finance)................................. 643,000 508,649
Carter Holt Harvey Ltd. (Materials)................................. 189,000 407,754
------------
1,038,968
------------
NORWAY -- 3.7%
Christiania Bank Og Kreditkasse (Finance)*.......................... 96,800 226,179
Kvaerner AS (Industrial & Commercial)............................... 15,000 530,462
Orkla AS (Consumer Staples)......................................... 12,000 596,770
Saga Petroleum (Energy)............................................. 47,000 627,003
------------
1,980,414
------------
PHILIPPINES -- 0.4%
Philippine National Bank (Finance).................................. 18,460 204,095
------------
PORTUGAL -- 0.7%
Portugal Telecom SA ADR (Utilities)................................. 19,800 376,200
------------
</TABLE>
- ---------------------
40
<PAGE> 122
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
SINGAPORE -- 3.5%
Development Bank of Singapore (Finance)............................. 46,250 $ 575,469
Keppel Corp. Ltd. (Industrial & Commercial)......................... 76,000 676,988
Overseas Chinese Banking Corp. Ltd. (Finance)....................... 35,000 437,964
United Overseas Bank Ltd. (Finance)................................. 20,000 192,294
------------
1,882,715
------------
SPAIN -- 4.8%
Acerinox SA (Materials)............................................. 1,250 126,443
Banco Bilbao Vizcaya (Finance)...................................... 21,000 756,554
Empresa Nacional de Electricidad ADR (Utilities).................... 4,500 257,625
Iberdrola SA (Utilities)............................................ 70,000 640,560
Repsol SA ADR (Energy).............................................. 20,000 657,500
Telefonica de Espana SA (Utilities)................................. 10,000 138,500
------------
2,577,182
------------
SWEDEN -- 1.2%
Avesta Sheffield (Materials)........................................ 26,700 235,244
BT Industries AB (Industrial & Commercial)*......................... 19,100 209,995
Stora Kopparbergs, Series A (Materials)............................. 18,000 211,455
------------
656,694
------------
SWITZERLAND -- 3.8%
Ciba-Geigy AG (Healthcare).......................................... 850 747,941
Nestle SA (Consumer Staples)........................................ 1,050 1,161,508
Sulzer AG (Healthcare).............................................. 280 149,285
------------
2,058,734
------------
THAILAND -- 0.6%
Bangkok Bank Public Co., Ltd. (Finance)............................. 6,000 72,886
Bangkok Metropolitan Bank PCL (Finance)............................. 103,000 96,090
Siam Commercial Bank Public Co., Ltd. (Finance)..................... 10,000 131,798
------------
300,774
------------
UNITED KINGDOM -- 8.8%
Bass PLC (Consumer Staples)......................................... 39,500 440,763
BET PLC (Industrial & Commercial)................................... 513,000 1,011,819
Body Shop International PLC (The) (Consumer Staples)................ 58,000 137,816
British Steel PLC (Materials)....................................... 135,000 341,221
British Telecommunications PLC (Utilities).......................... 102,000 559,186
Northern Foods PLC (Consumer Staples)............................... 38,000 102,097
PowerGen PLC (Utilities)............................................ 24,293 200,712
Rank Organisation PLC (Information & Entertainment)................. 80,000 578,972
Royal Insurance Holdings PLC (Finance).............................. 80,000 473,987
Tomkins PLC (Consumer Staples)...................................... 80,000 349,744
Vodafone Group PLC (Information & Entertainment).................... 140,000 502,252
------------
4,698,569
------------
TOTAL COMMON STOCK (cost: $44,213,711).............................. 48,370,565
------------
<CAPTION>
PREFERRED STOCK -- 0.3%
----------------------------------------------------------------------------------------------------
<S> <C> <C>
BRAZIL -- 0.3%
Brasmotor SA (Consumer Discretionary)............................... 240,000 47,654
Centrais Eletricas Brasileiras SA-Electrobras, Series B
(Utilities)....................................................... 350,000 94,702
------------
TOTAL PREFERRED STOCK (cost: $145,329).............................. 142,356
------------
TOTAL INVESTMENT SECURITIES (cost: $44,359,040)..................... 48,512,921
------------
</TABLE>
---------------------
41
<PAGE> 123
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM SECURITIES -- 0.9% AMOUNT VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C>
United States Treasury Bills 5.18% due 3/21/96 @ (cost: $494,244)... $ 500,000 $ 494,328
------------
<CAPTION>
REPURCHASE AGREEMENT -- 8.3%
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Repurchase Agreement @ (See Note 3)
(cost: $4,450,000)................................................ 4,450,000 4,450,000
------------
TOTAL INVESTMENTS --
(cost: $49,303,284) 99.7% 53,457,249
Other assets less liabilities -- 0.3 152,214
------ ------------
NET ASSETS -- 100.0% $53,609,463
====== =============
</TABLE>
-----------------------------
+ Non-income producing securities
* Resale restricted to qualified institutional buyers
ADR - American Depositary Receipts
GDR - Global Depositary Receipts
GDS - Global Depositary Shares
@ The security or a portion thereof represents collateral for the
following open futures contracts:
<TABLE>
<CAPTION>
OPEN FUTURES CONTRACTS
<S> <C> <C>
----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION VALUE AS OF APPRECIATION/
CONTRACTS DESCRIPTION DATE DECEMBER 31, 1995 (DEPRECIATION)
<C> <S> <C> <C> <C>
----------------------------------------------------------------------------------------------------
3 Long Deutsche Terminboerse Dax Stock Index
Future.............................. March 1996 $ 477,573 $ (972)
8 Long Hang Seng Index Future -- Hong Kong
Futures............................. January 1996 524,558 10,657
47 Long IBEX 35 Future -- Mercado de Opciones
y Futures Financieras............... January 1996 141,099 3,874
50 Long IBEX 35 Future -- Mercado de Opciones
y Futures Financieras............... January 1996 150,105 4,039
50 Long IBEX 35 Future -- Mercado de Opciones
y Futures Financieras............... January 1996 150,105 3,998
4 Long Tokyo Stock Exchange Topix Future..... March 1996 610,334 13,380
4 Long Ft-Se 100 Stock Index Future -- London
International Financial Futures &
Options Exchange.................... March 1996 574,928 6,639
10 Long Marche A Terme International de France
CAC 40 Stock Index Future........... March 1996 773,131 5,214
7 Long All ordinaries share price Stock Index
Future -- Sydney Futures Exchange... March 1996 290,567 (1,094)
3 Long Toronto 35 Index Future -- Toronto
Futures Exchange.................... March 1996 275,277 (1,509)
-------------
Net Unrealized Appreciation............................................ $44,226
==============
</TABLE>
- ---------------------
42
<PAGE> 124
<TABLE>
<CAPTION>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1995
----------------------------------------------------------------
<CAPTION>
CONTRACT IN DELIVERY GROSS UNREALIZED
TO DELIVER EXCHANGE FOR DATE APPRECIATION
<S> <C> <C> <C>
---------------------------------------------------------------------------
USD 290,000 AUD 395,149 3/29/96 $ 2,426
USD 270,000 CAD 369,846 3/29/96 800
USD 470,000 DEM 679,338 3/29/96 5,710
USD 420,000 ESP 52,416,000 3/29/96 8,253
USD 730,000 FRF 3,645,401 3/29/96 15,504
USD 560,000 GBP 368,227 3/29/96 10,638
----------------
43,331
----------------
</TABLE>
<TABLE>
<CAPTION>
GROSS UNREALIZED
DEPRECIATION
<S> <C> <C> <C>
---------------------------------------------------------------------------
FRF 4,890,400 USD 1,000,000 5/10/96 $ (355)
USD 600,000 JPY 59,814,000 3/29/96 (13,171)
NLG 962,070 USD 600,000 3/27/96 (2,590)
CHF 918,560 USD 800,000 3/27/96 (3,704)
----------------
(19,820)
----------------
Net Appreciation............................. $ 23,511
==============
AUD -- Australian Dollar
CAD -- Canadian Dollar
CHF -- Swiss Franc
DEM -- Deutsche Mark
ESP -- Spanish Peseta
FRF -- French Franc
GBP -- Pound Sterling
JPY -- Japanese Yen
NLG -- Netherlands Guilder
USD -- United States Dollar
</TABLE>
See Notes to Financial Statements
---------------------
43
<PAGE> 125
- ---------------------
ANCHOR SERIES TRUST
NATURAL RESOURCES
PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK -- 95.6% SHARES VALUE
<S> <C> <C>
-----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
ENERGY -- 26.1%
Energy Sources -- 26.1%
Amerada Hess Corp. ................................................. 17,390 $ 921,670
Amoco Corp. ........................................................ 9,000 646,875
Anadarko Petroleum Corp. ........................................... 10,000 541,250
Anderson Exploration Ltd. .......................................... 32,844 336,738
Barrett Resources Corp.+............................................ 20,000 587,500
Canadian Natural Resources Ltd. ADR................................. 30,000 436,653
Enron Oil And Gas Co. .............................................. 9,600 230,400
Exxon Corp. ........................................................ 10,000 801,250
Northstar Energy Corp. ............................................. 30,000 310,326
PanCanadian Petroleum Ltd. ADR...................................... 20,000 768,949
Poco Petroleum Ltd. ADR+............................................ 40,000 296,595
Santa Fe Energy Resources, Inc. .................................... 30,000 288,750
Talisman Energy, Inc. .............................................. 27,000 546,228
Unocal Corp. ....................................................... 29,020 845,208
------------
7,558,392
------------
INDUSTRIAL & COMMERCIAL -- 1.9%
Transportation -- 1.9%
Canadian Pacific Ltd. ADR........................................... 30,000 543,750
------------
MATERIALS -- 67.6%
Forest Products -- 18.4%
Boise Cascade Corp. ................................................ 28,500 986,812
Bowater, Inc. ...................................................... 7,000 248,500
International Paper Co. ............................................ 20,000 757,500
Longview Fibre Co. ................................................. 30,000 487,500
Rayonier, Inc. ..................................................... 10,000 333,750
Temple-Inland, Inc. ................................................ 14,500 639,813
Weyerhaeuser Co. ................................................... 30,000 1,297,500
Willamette Industries, Inc. ........................................ 10,000 562,500
Metals & Minerals -- 49.2%
Agnico Eagle Mines Ltd. ............................................ 16,000 202,000
Alcan Aluminum Ltd. ................................................ 20,000 622,500
Alcan Australia..................................................... 144,000 353,204
Algoma Steel, Inc. ................................................. 170,000 637,500
Alumax, Inc.+....................................................... 9,200 281,750
Aluminum Co. of America............................................. 13,600 719,100
Barrick Gold Corp. ................................................. 29,800 785,975
Carbide/Graphite Group, Inc.+....................................... 21,100 303,313
Commonwealth Aluminum Corp. ........................................ 3,550 55,025
Dominion Mining Ltd. ADR............................................ 698,400 142,753
Easco, Inc. ........................................................ 59,000 508,875
Freeport McMoRan Copper & Gold, Inc. ............................... 36,700 1,027,600
Hecla Mining Co. ................................................... 17,300 118,938
Homestake Mining Co. ............................................... 19,685 307,578
J & L Specialty Steel, Inc. ........................................ 23,600 442,500
</TABLE>
- ---------------------
44
<PAGE> 126
<TABLE>
<CAPTION>
COMMON STOCK (continued) SHARES VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
MATERIALS (continued)
Metals & Minerals (continued)
Newcrest Mining Ltd. ADR............................................ 93,148 $ 391,867
Newmont Gold Co. ................................................... 22,600 988,750
Newmont Mining Corp. ............................................... 10,150 459,287
Noranda, Inc. ...................................................... 30,000 615,159
North Flinders Mines Ltd. .......................................... 66,400 370,644
Pegasus Gold, Inc. ................................................. 10,000 138,750
Phelps Dodge Corp. ................................................. 12,000 747,000
Placer Dome, Inc. .................................................. 20,000 482,500
Poseidon Gold Ltd. ADR.............................................. 157,405 313,546
RTZ Corp. PLC....................................................... 20,000 290,728
Santa Fe Pacific Gold Corp. ........................................ 64,000 776,000
Sons of Gwalia Ltd. ADR............................................. 133,000 731,530
Usinor Sacilor...................................................... 31,100 411,216
Western Mining Corp. Holdings Ltd. ADS.............................. 160,000 1,027,501
------------
19,566,964
------------
TOTAL INVESTMENT SECURITIES (cost: $23,834,314)..................... 27,669,106
------------
<CAPTION>
PRINCIPAL
REPURCHASE AGREEMENT -- 7.9% AMOUNT
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joint Repurchase Agreement Account (See Note 3)
(cost: $2,275,000)................................................ $ 2,275,000 2,275,000
------------
TOTAL INVESTMENTS --
(cost: $26,109,314) 103.5% 29,944,106
Liabilities in excess of other assets -- (3.5) (1,002,735)
----- ------------
NET ASSETS -- 100.0% $28,941,371
===== =============
</TABLE>
-----------------------------
+ Non-income producing securities
ADR - American Depositary Receipts
ADS - American Depositary Shares
See Notes to Financial Statements
---------------------
45
<PAGE> 127
- ---------------------
ANCHOR SERIES TRUST
TARGET '98 PORTFOLIO INVESTMENT PORTFOLIO -- DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
BONDS & NOTES -- 98.2% AMOUNT VALUE
<S> <C> <C>
----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
FINANCE -- 13.6%
American General Corp. 9.70% 1998................................... $ 250,000 $ 269,535
Household Finance Corp. 9.80% 1998.................................. 250,000 271,127
International Lease Finance Corp. 7.50% 1999........................ 250,000 262,343
Japan Financial Corp. 9.25% 1998.................................... 300,000 327,054
Morgan (J.P.) & Co., Inc. zero coupon 1998.......................... 450,000 396,040
United Virginia Bankshares, Inc. 8.63% 1998......................... 200,000 211,846
------------
1,737,945
------------
SUPRANATIONALS -- 3.8%
International Bank for Reconstruction & Development zero coupon
1998.............................................................. 550,000 485,239
------------
U.S. GOVERNMENT & AGENCIES -- 74.8%
Federal Judiciary Office Building zero coupon 1998.................. 1,000,000 870,160
Federal National Mortgage Association zero coupon 1998.............. 2,000,000 1,737,298
Government Trust Certificates Series 3D zero coupon 1998............ 1,500,000 1,287,525
Government Trust Certificates Series T zero coupon 1998............. 2,600,000 2,231,710
Tennessee Valley Authority zero coupon 1998......................... 1,000,000 846,960
Treasury Investment Growth Receipts zero coupon 1998................ 1,000,000 861,040
United States Treasury Note Strip zero coupon 1998.................. 500,000 430,880
United States Treasury Note Strip Prior zero coupon 1998............ 1,500,000 1,292,460
------------
9,558,033
------------
UTILITIES -- 6.0%
Michigan Bell Telephone Co. 9.25% 1998.............................. 300,000 328,476
Quebec Hydroelectric 9.55% 1998..................................... 100,000 106,867
Virginia Electric & Power Co. 9.38% 1998............................ 300,000 325,068
------------
760,411
------------
TOTAL INVESTMENT SECURITIES (cost: $11,855,719)..................... 12,541,628
------------
<CAPTION>
REPURCHASE AGREEMENT -- 1.7%
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joint Repurchase Agreement Account (See Note 3)
(cost: $225,000).................................................. 225,000 225,000
------------
TOTAL INVESTMENTS --
(cost: $12,080,719) 99.9% 12,766,628
Other assets less liabilities -- 0.1 7,557
------ ------------
NET ASSETS -- 100.0% $12,774,185
======= =============
</TABLE>
See Notes to Financial Statements
- ---------------------
46
<PAGE> 128
(INTENTIONALLY LEFT BLANK)
<PAGE> 129
- ---------------------
ANCHOR SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
MONEY GOVERNMENT & FIXED
MARKET QUALITY BOND INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment securities at value*............................. $ -- $201,795,749 $27,335,947 $305,109,809
Short-term securities*...................................... 90,289,341 -- -- --
Repurchase agreements*...................................... -- 36,575,000 145,000 3,325,000
Cash........................................................ 1,745 2,034 4,149 --
Foreign currency............................................ -- -- -- --
Receivables for --
Sales of investments...................................... 3,047,073 -- 2,504,538 607,171
Fund shares sold.......................................... 483,735 298,309 18,364 59,977
Dividends and interest.................................... 121,994 2,266,766 518,310 359,079
Variation margin on future contracts...................... -- -- -- --
Receivable for foreign currency contracts sold.............. -- -- -- --
Prepaid expenses............................................ 17,817 39,845 8,231 36,607
Unrealized appreciation of foreign currency contracts....... -- -- -- --
--------------------------------------------------------
Total assets....................................... 93,961,705 240,977,703 30,534,539 309,497,643
--------------------------------------------------------
LIABILITIES:
Payables for --
Purchases of investments.................................. -- 15,046,042 2,501,302 844,335
Fund shares redeemed...................................... 183,824 126,389 22,292 223,889
Management fees........................................... 40,317 118,448 14,717 190,721
Foreign currency contracts................................ -- -- -- --
Due to custodian bank..................................... -- -- -- 236,579
Other accrued expenses...................................... 45,881 108,096 21,426 144,675
Unrealized depreciation of foreign currency contracts....... -- -- -- --
--------------------------------------------------------
Total liabilities.................................. 270,022 15,398,975 2,559,737 1,640,199
--------------------------------------------------------
NET ASSETS:................................................. $93,691,683 $225,578,728 $27,974,802 $307,857,444
========================================================
Shares of beneficial interest outstanding (unlimited shares
authorized)............................................... 93,691,683 15,853,025 1,976,278 15,804,750
Net asset value per share................................... $ 1.00 $ 14.23 $ 14.16 $ 19.48
========================================================
COMPOSITION OF NET ASSETS:
Capital paid in............................................. $93,691,683 $204,166,066 $27,090,425 $237,393,719
Accumulated undistributed net investment income (loss)...... 721 14,101,885 1,886,024 1,525,191
Accumulated undistributed net realized gain (loss) on
investments, futures contracts and options contracts...... (721) 450,358 (2,612,922) 13,868,992
Unrealized appreciation of investments and short-term
securities................................................ -- 6,860,419 1,611,275 55,069,542
Unrealized foreign exchange gain (loss) on other assets and
liabilities............................................... -- -- -- --
Unrealized appreciation on futures contracts................ -- -- -- --
-------------------------------------------------------
$93,691,683 $225,578,728 $27,974,802 $307,857,444
=======================================================
---------------
*Cost
Investment securities...................................... $ -- $194,935,330 $25,724,672 $250,040,267
=======================================================
Short-term securities and repurchase agreements............ $90,289,341 $36,575,000 $ 145,000 $ 3,325,000
=======================================================
</TABLE>
See Notes to Financial Statements
- ---------------------
47
<PAGE> 130
<TABLE>
<CAPTION>
STRATEGIC CAPITAL CONVERTIBLE FOREIGN NATURAL
HIGH YIELD MULTI-ASSET MULTI-ASSET APPRECIATION SECURITIES SECURITIES RESOURCES TARGET '98
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$43,368,315 $61,634,388 $156,475,287 $327,989,950 $31,015,232 $48,512,921 $27,669,106 $12,541,628
-- -- -- 790,925 -- 494,328 -- --
2,340,000 2,135,000 16,315,000 31,635,000 1,665,000 4,450,000 2,275,000 225,000
184 1,689 936 -- 3,256 1,131 2,724 4,736
-- 730 -- -- -- 23 -- --
129,270 67,268 -- -- -- 97,162 -- --
254 3,120 15,024 220,264 1,228 45,827 33,598 734
1,048,127 390,043 739,347 72,627 308,086 225,338 33,634 32,126
-- -- -- -- -- 3,400 -- --
-- 135,908 -- 1,059,813 -- 154,966 401,392 --
8,578 13,165 27,170 8,233 3,079 3,602 1,538 674
-- -- -- -- -- 43,331 -- --
----------------------------------------------------------------------------------------------------------------
46,894,728 64,381,311 173,572,764 361,776,812 32,995,881 54,032,029 30,416,992 12,804,898
----------------------------------------------------------------------------------------------------------------
-- 95,357 5,015,347 3,224,337 894,442 58,395 998,066 --
16,636 14,417 102,490 859,051 47,103 85,031 32,380 6,954
27,775 54,332 142,913 204,116 19,311 40,644 18,184 6,770
-- 135,825 -- 1,058,157 -- 155,523 400,393 --
-- -- -- 53,512 -- -- -- --
33,579 55,378 69,206 159,600 26,752 63,153 26,598 16,989
-- 142 -- -- -- 19,820 -- --
----------------------------------------------------------------------------------------------------------------
77,990 355,451 5,329,956 5,558,773 987,608 422,566 1,475,621 30,713
----------------------------------------------------------------------------------------------------------------
$46,816,738 $64,025,860 $168,242,808 $356,218,039 $32,008,273 $53,609,463 $28,941,371 $12,774,185
======================================================================================================================
5,618,366 5,435,876 12,901,232 15,340,737 2,665,182 4,537,636 1,914,023 1,010,380
$ 8.33 $ 11.78 $ 13.04 $ 23.22 $ 12.01 $ 11.81 $ 15.12 $ 12.64
======================================================================================================================
$55,823,789 $47,268,718 $121,349,884 $270,779,204 $31,187,505 $50,930,931 $24,446,526 $11,139,562
4,658,768 1,761,777 5,315,320 918,755 1,734,211 738,683 325,546 1,203,164
(14,710,104) 3,768,451 9,803,919 16,195,459 (1,470,237) (2,288,863) 334,238 (254,450)
1,044,285 11,224,958 31,773,693 68,323,989 556,775 4,153,965 3,834,792 685,909
-- 1,956 (8) 632 19 30,521 269 --
-- -- -- -- -- 44,226 -- --
----------------------------------------------------------------------------------------------------------------
$46,816,738 $64,025,860 $168,242,808 $356,218,039 $32,008,273 $53,609,463 $28,941,371 $12,774,185
======================================================================================================================
$42,324,030 $50,409,430 $124,701,594 $259,666,326 $30,458,457 $44,359,040 $23,834,314 $11,855,719
======================================================================================================================
$ 2,340,000 $2,135,000 $16,315,000 $32,425,560 $1,665,000 $4,944,244 $2,275,000 $ 225,000
======================================================================================================================
</TABLE>
---------------------
48
<PAGE> 131
- ---------------------
ANCHOR SERIES TRUST
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
GOVERNMENT
&
MONEY QUALITY FIXED
MARKET BOND INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Income:
Interest..................................................... $6,871,195 $15,722,556 $2,043,953 $ 681,522
Dividends*................................................... -- -- -- 3,196,331
---------------------------------------------------
Total income.......................................... 6,871,195 15,722,556 2,043,953 3,877,853
---------------------------------------------------
Expenses:
Investment management fees................................... 569,193 1,346,394 174,815 2,044,069
Custodian fees............................................... 41,865 99,995 31,520 112,190
Audit and tax consulting fees................................ 22,695 45,840 12,090 61,440
Reports to Investors......................................... 5,340 65,125 1,070 87,955
Trustees' fees............................................... 9,544 17,844 1,239 20,300
Insurance expense............................................ 2,951 5,882 766 6,640
Legal fees................................................... 1,175 3,020 -- 4,325
Other expenses............................................... 4,363 6,344 1,870 6,388
---------------------------------------------------
Total expenses........................................ 657,126 1,590,444 223,370 2,343,307
---------------------------------------------------
Net Investment income.......................................... 6,214,069 14,132,112 1,820,583 1,534,546
---------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN
CURRENCIES:
Net realized gain (loss) on investments........................ -- 8,288,042 450,299 13,885,804
Net realized foreign exchange gain (loss) on other assets and
liabilities.................................................. -- -- -- 1,682
Net realized loss on futures contracts......................... -- -- -- --
Change in unrealized appreciation/depreciation of
investments.................................................. -- 16,257,191 2,644,460 48,038,490
Change in unrealized foreign exchange gain (loss) on other
assets and liabilities....................................... -- -- -- --
Change in unrealized appreciation/depreciation on futures
contracts.................................................... -- -- -- --
---------------------------------------------------
Net realized and unrealized gain on investments and
foreign currencies........................................... -- 24,545,233 3,094,759 61,925,976
---------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $6,214,069 $38,677,345 $4,915,342 $63,460,522
======================================================
</TABLE>
- ---------------
* Net of foreign withholding taxes of $46,220; $64,926; $14,210; $77,691;
$185,443; and $13,460 on Growth, Strategic Multi-Asset, Multi-Asset,
Capital Appreciation, Foreign Securities and Natural Resources,
respectively.
See Notes to Financial Statements
- ---------------------
49
<PAGE> 132
<TABLE>
<CAPTION>
STRATEGIC CAPITAL CONVERTIBLE FOREIGN NATURAL
HIGH YIELD MULTI-ASSET MULTI-ASSET APPRECIATION SECURITIES SECURITIES RESOURCES TARGET '98
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$4,933,551 $1,766,450 $5,153,507 $1,954,396 $1,088,553 $ 181,384 $ 105,518 $1,194,014
44,509 764,239 1,932,926 1,242,798 886,033 1,236,785 484,777 --
--------------------------------------------------------------------------------------------------------
4,978,060 2,530,689 7,086,433 3,197,194 1,974,586 1,418,169 590,295 1,194,014
---------------------------------------------------------------------------------------------------------
346,773 640,025 1,671,735 1,992,705 229,671 525,490 195,327 98,847
47,710 130,500 69,005 114,510 29,665 155,500 38,565 23,025
15,640 18,360 36,570 70,015 12,695 16,380 12,575 9,540
1,605 2,490 6,585 104,535 1,605 3,025 8,650 535
3,881 4,999 13,338 20,914 1,400 4,757 1,551 1,188
1,219 1,703 4,334 5,948 949 1,965 596 456
-- 640 2,045 3,825 -- 961 -- --
666 2,634 4,892 4,934 2,003 2,640 1,587 1,605
---------------------------------------------------------------------------------------------------------
417,494 801,351 1,808,504 2,317,386 277,988 710,718 258,851 135,196
---------------------------------------------------------------------------------------------------------
4,560,566 1,729,338 5,277,929 879,808 1,696,598 707,451 331,444 1,058,818
--------------------------------------------------------------------------------------------------------
(574,848) 3,804,739 9,801,363 16,341,623 (605,935) 3,192,282 765,009 (73,496)
-- 62,813 54,742 45,778 (843) 177,598 (594) --
-- -- -- (49,594) -- -- -- --
4,437,941 7,569,691 22,147,546 63,564,898 3,911,087 2,451,554 3,011,630 1,322,217
-- (45,810) 12 639 32 (113,395) 342 --
-- -- -- 96,925 -- 44,226 -- --
---------------------------------------------------------------------------------------------------------
3,863,093 11,391,433 32,003,663 80,000,269 3,304,341 5,752,265 3,776,387 1,248,721
--------------------------------------------------------------------------------------------------------
$8,423,659 $13,120,771 $37,281,592 $80,880,077 $5,000,939 $6,459,716 $4,107,831 $2,307,539
=========================================================================================================
</TABLE>
---------------------
50
<PAGE> 133
- ---------------------
ANCHOR SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
GOVERNMENT & FIXED
MONEY MARKET QUALITY BOND INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.................................. $ 6,214,069 $ 14,132,112 $1,820,583 $ 1,534,546
Net realized gain (loss) on investments................ -- 8,288,042 450,299 13,885,804
Net realized foreign exchange gain (loss) on other
assets and liabilities............................... -- -- -- 1,682
Net realized loss on futures contracts................. -- -- -- --
Change in unrealized appreciation/depreciation of
investments.......................................... -- 16,257,191 2,644,460 48,038,490
Change in unrealized foreign exchange gain (loss) on
other assets and liabilities......................... -- -- -- --
Change in unrealized appreciation/depreciation on
futures contracts.................................... -- -- -- --
-----------------------------------------------------------
Net increase in net assets resulting from operations... 6,214,069 38,677,345 4,915,342 63,460,522
-----------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS PAID TO SHAREHOLDERS:
Dividends from net investment income................... (6,214,069) (15,800,000) (2,175,000) (600,000)
Distributions from net realized gains on investments... -- -- -- (45,075,000)
-----------------------------------------------------------
Total Dividends........................................ (6,214,069) (15,800,000) (2,175,000) (45,675,000)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold.............................. 174,371,348 82,378,525 3,593,837 134,319,676
Proceeds from shares issued for reinvestment of
dividends and distributions.......................... 6,214,069 15,800,000 2,175,000 45,675,000
Cost of shares repurchased............................. (212,898,151) (128,007,378) (9,116,475) (136,071,781)
-----------------------------------------------------------
Net increase (decrease) in net assets resulting from
capital share transactions........................... (32,312,734) (29,828,853) (3,347,638) 43,922,895
-----------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................ (32,312,734) (6,951,508) (607,296) 61,708,417
NET ASSETS:
Beginning of period.................................... 126,004,417 232,530,236 28,582,098 246,149,027
-----------------------------------------------------------
End of period.......................................... $ 93,691,683 $225,578,728 $27,974,802 $307,857,444
===============================================================
---------------
Undistributed net investment income.................... $ 721 $ 14,101,885 $1,886,024 $ 1,525,191
===============================================================
Shares issued and repurchased:
Sold................................................... 174,371,348 5,911,036 260,087 6,859,732
Issued in reinvestment of dividends and
distributions........................................ 6,214,069 1,159,208 160,992 2,382,629
Repurchased............................................ (212,898,151) (9,292,985) (660,807) (6,977,008)
-----------------------------------------------------------
Net increase (decrease)................................ (32,312,734) (2,222,741) (239,728) 2,265,353
===============================================================
</TABLE>
See Notes to Financial Statements
- ---------------------
51
<PAGE> 134
<TABLE>
<CAPTION>
STRATEGIC CAPITAL CONVERTIBLE FOREIGN NATURAL
HIGH YIELD MULTI-ASSET MULTI-ASSET APPRECIATION SECURITIES SECURITIES RESOURCES TARGET '98
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 4,560,566 $ 1,729,338 $ 5,277,929 $ 879,808 $ 1,696,598 $ 707,451 $ 331,444 $1,058,818
(574,848) 3,804,739 9,801,363 16,341,623 (605,935) 3,192,282 765,009 (73,496)
-- 62,813 54,742 45,778 (843) 177,598 (594) --
-- -- -- (49,594) -- -- -- --
4,437,941 7,569,691 22,147,546 63,564,898 3,911,087 2,451,554 3,011,630 1,322,217
-- (45,810) 12 639 32 (113,395) 342 --
-- -- -- 96,925 -- 44,226 -- --
---------------------------------------------------------------------------------------------------------------------
8,423,659 13,120,771 37,281,592 80,880,077 5,000,939 6,459,716 4,107,831 2,307,539
---------------------------------------------------------------------------------------------------------------------
(5,345,000) (1,125,000) (5,910,000) (2,145,000) (2,059,675) (279,273) (365,000) (1,285,000)
-- (8,585,000) (12,550,000) (2,960,000) (1,515,325) (55,727) (510,000) --
---------------------------------------------------------------------------------------------------------------------
(5,345,000) (9,710,000) (18,460,000) (5,105,000) (3,575,000) (335,000) (875,000) (1,285,000)
29,986,515 4,822,892 20,218,971 288,502,705 4,402,376 31,832,730 27,421,662 1,032,164
5,345,000 9,710,000 18,460,000 5,105,000 3,575,000 335,000 875,000 1,285,000
(39,650,684) (19,275,150) (53,417,004) (242,708,947) (12,390,422) (53,323,700) (23,817,885) (9,759,706)
---------------------------------------------------------------------------------------------------------------------
(4,319,169) (4,742,258) (14,738,033) 50,898,758 (4,413,046) (21,155,970) 4,478,777 (7,442,542)
---------------------------------------------------------------------------------------------------------------------
(1,240,510) (1,331,487) 4,083,559 126,673,835 (2,987,107) (15,031,254) 7,711,608 (6,420,003)
48,057,248 65,357,347 164,159,249 229,544,204 34,995,380 68,640,717 21,229,763 19,194,188
---------------------------------------------------------------------------------------------------------------------
$46,816,738 $64,025,860 $168,242,808 $356,218,039 $32,008,273 $53,609,463 $28,941,371 $12,774,185
============================================================================================================================
$ 4,658,768 $ 1,761,777 $ 5,315,320 $ 918,755 $ 1,734,211 $ 738,683 $ 325,546 $1,203,164
============================================================================================================================
3,623,914 408,481 1,590,143 13,911,588 362,321 2,954,097 1,917,837 80,359
669,800 853,251 1,463,918 213,867 302,453 29,698 56,379 104,727
(4,777,982) (1,615,387) (4,174,813) (11,890,507) (1,026,033) (4,950,332) (1,657,363) (748,356)
---------------------------------------------------------------------------------------------------------------------
(484,268) (353,655) (1,120,752) 2,234,948 (361,259) (1,966,537) 316,853 (563,270)
============================================================================================================================
</TABLE>
---------------------
52
<PAGE> 135
- ---------------------
ANCHOR SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
GOVERNMENT &
MONEY MARKET QUALITY BOND FIXED INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)............................. $ 5,053,075 $ 16,092,101 $ 2,210,718 $ 589,312
Net realized gain (loss) on investments.................. -- (7,986,242) (1,301,569) 45,029,897
Net realized foreign exchange gain (loss) on other assets
and liabilities........................................ -- -- -- (2,613)
Net realized loss on futures contracts................... -- -- -- (60,773)
Change in unrealized appreciation/depreciation of
investments............................................ -- (16,641,129) (2,198,588) (59,903,478)
Change in unrealized foreign exchange gain (loss) on
other assets and liabilities........................... -- -- -- --
Change in unrealized appreciation/depreciation on futures
contracts.............................................. -- -- -- 109,200
------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations............................................. 5,053,075 (8,535,270) (1,289,439) (14,238,455)
------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS PAID TO SHAREHOLDERS:
Dividends from net investment income..................... (5,053,075) (13,100,000) (2,700,000) (651,000)
Distributions from net realized gains on investments..... -- (3,391,923) -- (37,838,174)
------------------------------------------------------------
Total dividends and distributions paid to shareholders... (5,053,075) (16,491,923) (2,700,000) (38,489,174)
------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold................................ 322,223,508 129,783,476 7,041,126 114,004,262
Proceeds from shares issued for reinvestment of dividends
and distributions...................................... 5,053,075 16,491,923 2,700,000 38,489,174
Cost of shares repurchased............................... (300,580,693) (153,377,529) (18,285,252) (164,666,850)
------------------------------------------------------------
Net increase (decrease) in net assets resulting from
capital share transactions............................. 26,695,890 (7,102,130) (8,544,126) (12,173,414)
------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................. 26,695,890 (32,129,323) (12,533,565) (64,901,043)
NET ASSETS:
Beginning of period...................................... 99,308,527 264,659,559 41,115,663 311,050,070
------------------------------------------------------------
End of period............................................ $ 126,004,417 $ 232,530,236 $ 28,582,098 $246,149,027
===========================================================
---------------
Undistributed Net Investment Income...................... $ -- $ 15,789,649 $ 2,166,226 $ 588,113
===========================================================
Shares issued and repurchased:
Sold..................................................... 322,223,508 9,507,500 499,156 5,504,059
Issued in reinvestment of dividends and distributions.... 5,053,075 1,289,439 209,465 2,070,424
Repurchased.............................................. (300,580,693) (11,332,089) (1,320,604) (7,970,971)
------------------------------------------------------------
Net increase (decrease).................................. 26,695,890 (535,150) (611,983) (396,488)
============================================================
</TABLE>
See Notes to Financial Statements
- ---------------------
53
<PAGE> 136
<TABLE>
<CAPTION>
STRATEGIC CAPITAL CONVERTIBLE FOREIGN NATURAL
HIGH YIELD MULTI-ASSET MULTI-ASSET APPRECIATION SECURITIES SECURITIES RESOURCES TARGET '98
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------
$ 5,240,121 $ 1,306,606 $ 5,471,540 $ (204,197) $ 2,001,673 $ 795,683 $ 359,570 $1,320,838
(1,823,863) 8,365,992 13,105,843 5,912,034 748,435 6,316,998 340,375 33,190
-- (23,792) (113,378) (30,358) 690 648,570 (23,942) --
-- (14,492) (18,332) (672,334) -- -- -- --
(6,331,551) (11,630,124) (22,083,098) (12,793,677) (6,810,303) (11,076,911) (1,087,698) (2,240,674)
-- 64,785 364 (7) 283 172,636 (95) --
-- 150 450 (7,350) -- -- -- --
-------------------------------------------------------------------------------------------------------------------
(2,915,293) (1,930,875) (3,636,611) (7,795,889) (4,059,222) (3,143,024) (411,790) (886,646)
-------------------------------------------------------------------------------------------------------------------
(6,300,000) (976,000) (6,102,000) -- (1,537,000) (212,000) (175,000) (1,650,000)
-- (11,425,149) (19,208,777) (22,323,210) (3,502,058) -- (166,804) (110,379)
-------------------------------------------------------------------------------------------------------------------
(6,300,000) (12,401,149) (25,310,777) (22,323,210) (5,039,058) (212,000) (341,804) (1,760,379)
-------------------------------------------------------------------------------------------------------------------
67,332,548 9,928,946 20,436,178 278,365,698 13,449,452 77,332,563 27,993,570 5,380,948
6,300,000 12,401,149 25,310,777 22,323,210 5,039,058 212,000 341,804 1,760,379
(95,663,040) (19,107,059) (61,540,644) (223,541,035) (15,949,592) (78,128,558) (24,606,646) (5,800,361)
-------------------------------------------------------------------------------------------------------------------
(22,030,492) 3,223,036 (15,793,689) 77,147,873 2,538,918 (583,995) 3,728,728 1,340,966
-------------------------------------------------------------------------------------------------------------------
(31,245,785) (11,108,988) (44,741,077) 47,028,774 (6,559,362) (3,939,019) 2,975,134 (1,306,059)
79,303,033 76,466,335 208,900,326 182,515,430 41,554,742 72,579,736 18,254,629 20,500,247
-------------------------------------------------------------------------------------------------------------------
$ 48,057,248 $ 65,357,347 $164,159,249 $ 229,544,204 $ 34,995,380 $ 68,640,717 $ 21,229,763 $19,194,188
===================================================================================================================
$ 5,338,966 $ 1,069,869 $ 5,902,500 $ -- $ 2,089,605 $ 188,634 $ 358,400 $1,278,815
===================================================================================================================
7,532,098 756,391 1,559,801 14,852,505 953,509 7,099,164 2,029,112 396,096
793,451 1,067,225 2,137,735 1,248,502 408,021 19,099 24,088 142,772
(10,628,944) (1,472,803) (4,727,375) (11,993,003) (1,185,606) (7,256,217) (1,825,654) (435,632)
-------------------------------------------------------------------------------------------------------------------
(2,303,395) 350,813 (1,029,839) 4,108,004 175,924 (137,954) 227,546 103,236
==================================================================================================================
</TABLE>
---------------------
54
<PAGE> 137
- ---------------------
ANCHOR SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION: Anchor Series Trust (the "Trust") was organized as a
business trust under the laws of the Commonwealth of Massachusetts on August 26,
1983. The Trust is registered under the Investment Company Act of 1940, as
amended, as an open-end diversified management investment company. Effective
December 1, 1992, the Aggressive Growth Portfolio and Aggressive Multi-Asset
Portfolio changed their names to the Capital Appreciation Portfolio and the
Strategic Multi-Asset Portfolio, respectively.
Prior to January 18, 1990, all of the shares of the Trust were owned by
certain separate accounts of Integrated Resources Life Insurance Company ("IR
Life"), The Capitol Life Insurance Company ("Capitol Life"), and Presidential
Life Insurance Company. On that date, Anchor National Life Insurance Company
("Anchor National") acquired, on an assumption reinsurance basis, all of the
variable annuity and variable life insurance contracts issued by IR Life,
including certain variable annuity contracts which had been assumed previously
by IR Life from Capitol Life. In connection with these transactions, all of the
separate accounts of IR Life and Capitol Life that previously owned shares of
the Trust were transferred to Anchor National. Anchor National is an indirect
wholly owned subsidiary of SunAmerica Inc. ("SunAmerica"). Phoenix Mutual Life
Insurance Company ("Phoenix") subsequently acquired on an assumption reinsurance
basis, all of Anchor National's variable life contracts and, accordingly,
certain separate accounts of Anchor National owning shares of the Trust were
transferred to Phoenix. On September 3, 1992, First SunAmerica Life Insurance
Company ("First SunAmerica"), an indirect wholly owned subsidiary of SunAmerica
Inc., commenced sales of variable annuity contracts funded through the Trust.
Therefore, certain shares of the Trust are owned by a First SunAmerica separate
account.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES: Following is a summary of significant
accounting policies consistently followed by the Trust in the preparation of its
financial statements.
SECURITY VALUATIONS: Stocks are stated at value based upon closing sales prices
reported on recognized securities exchanges or, for listed securities having no
sales reported and for unlisted securities, upon last-reported bid prices.
Bonds, debentures, and other long-term debt securities are valued at prices
obtained for the day of valuation from a bond pricing service of a major dealer
in bonds when such prices are available; however, in circumstances where the
investment adviser deems it appropriate to do so, an over-the-counter or
exchange quotation at the mean of representative bid or asked prices may be
used. Securities traded primarily on securities exchanges outside the United
States are valued at the last sale price on such exchanges on the day of
valuation, or if there is no sale on the day of valuation, at the last reported
bid price. Except for the Money Market Portfolio, short-term securities with
original or remaining maturities in excess of 60 days are valued at the mean of
their quoted bid and ask prices. Discounts or premiums on short-term securities
with 60 days or less to maturity are amortized to maturity. Discounts and
premiums are determined based upon the cost of the securities to the Trust if
acquired within 60 days of maturity or, if already held by the Trust on the 60th
day, are amortized to maturity based on the value determined on the 61st day.
Securities for which quotations are not readily available are valued at fair
value as determined in good faith under the direction of the Trust's Trustees.
For the Money Market Portfolio, securities are valued at amortized cost, which
approximates market value. The amortized cost method involves valuing a security
at its cost on the date of purchase and thereafter assuming a constant
amortization to maturity of any discount or premium.
REPURCHASE AGREEMENTS: The Trust's custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to assure that the value, including
accrued interest, is at least 102% of the repurchase price. In the event of
default of the obligation to repurchase, the Trust has the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. If the
seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Trust may be delayed or limited.
FOREIGN CURRENCY TRANSLATION: The books and records of the Trust are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at
published rates on the following basis:
(i) market value of investment securities, other assets and liabilities at the
prevailing rate of exchange on the valuation date.
(ii) purchases and sales of investment securities, income and expenses at the
rate of exchange prevailing on the respective dates of such transactions.
Assets and liabilities denominated in foreign currencies and commitments under
forward foreign currency contracts are translated into U.S. dollars at the mean
of the quoted bid and asked prices of such currencies against the U.S. dollar.
- ---------------------
55
<PAGE> 138
The Trust does not isolate that portion of the results of operations arising
as a result of changes in the foreign exchange rates from the changes in the
market prices of securities held at fiscal year-end. The Trust does not isolate
the effect of changes in foreign exchange rates from the changes in the market
prices of portfolio securities sold during the year.
Realized foreign exchange gain (loss) on other assets and liabilities and
change in unrealized foreign exchange gain (loss) on other assets and
liabilities include realized foreign exchange gains and losses from currency
gains or losses realized between the trade and settlement dates of securities
transactions, the difference between the amounts of interest, dividends,
discount and foreign withholding taxes recorded on the Trust's books and the
U.S. dollar equivalent amounts actually received or paid and changes in the
unrealized foreign exchange gains and losses relating to other assets and
liabilities arising as a result of changes in the exchange rate.
FUTURES CONTRACTS: A futures contract is an agreement between two parties to
buy and sell a security at a set price on a future date. Upon entering into such
a contract the Trust is required to pledge to the broker an amount of cash or
U.S. government securities equal to the minimum "initial margin" requirements of
the exchange on which the futures contract is traded. The contract amount
reflects the extent of a portfolio's exposure in these financial instruments. A
portfolio's participation in the futures markets involves certain risks,
including imperfect correlation between movements in the price of futures
contracts and movements in the price of the securities hedged or used for cover.
The Trust's activities in futures contracts are conducted through regulated
exchanges which do not result in counterparty credit risks. Pursuant to a
contract the portfolios agree to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as "variation margin" and are recorded by the portfolios as
unrealized appreciation or depreciation. When a contract is closed, the
portfolios record a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed.
SECURITIES TRANSACTIONS, DIVIDENDS, INVESTMENT INCOME AND EXPENSES: As is
customary in the mutual fund industry, securities transactions are accounted for
on the date the securities are purchased or sold. Interest income is accrued
daily except when collection is not expected. Dividend income is recorded on the
ex-dividend date except for certain dividends from foreign securities which are
recorded as soon as the Fund is informed after the ex-dividend date. The Trust
does not amortize premiums or accrete discounts on fixed income securities,
other than short-term securities, except those original issue discounts for
which amortization is required for federal income tax purposes; gains and losses
realized upon the sale of such securities are based on their identified cost.
Portfolios which earn foreign income and capital gains may be subject to
foreign withholding taxes at various rates.
Common expenses incurred by the Trust are allocated among the series based
upon relative net assets. In all other respects, expenses are charged to each
series as incurred on a specific identification basis.
The Trust records dividends and distributions to its shareholders on the
ex-dividend date.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION: The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
STATEMENT OF POSITION 93-2: The Trust follows Statement of Position 93-2
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies.
Accordingly, the amount of dividends and distributions from net investment
income and net realized capital gains are determined and presented in accordance
with federal income tax regulations, which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment income
and net realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent
distributions exceed current and accumulated earnings and profits for federal
income tax purposes, they are reported as distributions of paid-in capital. Net
investment income/loss, net realized gain/loss, and net assets were not
affected.
---------------------
56
<PAGE> 139
For the year ended December 31, 1995, the reclassification arising from
book/tax differences resulted in increases (decreases) to the components of net
assets as follows:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
UNDISTRIBUTED UNDISTRIBUTED PAID
NET REALIZED NET REALIZED IN
INCOME/LOSS GAIN/LOSS CAPITAL
<S> <C> <C> <C>
---------------------------------------------
Money Market Portfolio........................................................ $ 721 $ (721) $ --
Government & Quality Bond Portfolio........................................... (19,876) 19,876 --
Fixed Income Portfolio........................................................ 74,215 (44,792) (29,423)
Growth Portfolio.............................................................. 2,532 (19,630) 17,098
High Yield Portfolio.......................................................... 104,236 (104,236) --
Strategic Multi-Asset Portfolio............................................... 87,570 (87,570) --
Multi-Asset Portfolio......................................................... 44,891 (44,891) --
Capital Appreciation Portfolio................................................ 2,183,947 (2,183,947) --
Convertible Securities Portfolio.............................................. 7,683 (7,683) --
Foreign Securities Portfolio.................................................. 121,871 (121,871) --
Natural Resources Portfolio................................................... 702 (702) --
Target '98 Portfolio.......................................................... 150,531 (150,531) --
</TABLE>
NOTE 3. JOINT REPURCHASE AGREEMENT ACCOUNT: The Trust transfers uninvested cash
balances into a single joint account, the daily aggregate balance of which is
invested in one or more repurchase agreements collateralized by U.S. Treasury or
federal agency obligations. As of December 31, 1995, the undivided interest in a
repurchase agreement in the joint account of each portfolio of the Trust was as
follows: Money Market Portfolio, 0.0%; Government and Quality Bond Portfolio,
36.2%; Fixed Income Portfolio, 0.1%; Growth Portfolio, 3.3%; High Yield
Portfolio, 2.3%; Strategic Multi-Asset Portfolio, 2.1%; Multi-Asset Portfolio,
16.1%; Capital Appreciation Portfolio, 31.3%; Convertible Securities Portfolio,
1.7%; Foreign Securities Portfolio, 4.4%; Natural Resources Portfolio, 2.3% and
Target '98 Portfolio, 0.2%. The undivided interest for the Trust represented
$101,085,000 in principal amount. As of such date the repurchase agreement in
the joint account and the collateral therefore was as follows:
Lehman Brothers Repurchase Agreement, 5.93% dated 12/29/95, in the principal
amount of $101,085,000 repurchase price $101,151,604 due 1/2/96 collateralized
by $96,140,000 U.S. Treasury Strip due 2/15/08, $14,405,000 U.S. Treasury Strip
due 2/15/98 and $164,595,000 U.S. Treasury Strip due 8/15/17, approximate
aggregate value $103,656,969.
NOTE 4. FEDERAL INCOME TAXES: It is the Trust's policy to meet the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income to shareholders. Therefore, no federal
income tax provision is required. Each portfolio is considered a separate entity
for tax purposes.
At December 31, 1995, the cost of investments for federal income tax purposes
and aggregate gross unrealized gains and losses for each portfolio were as
follows:
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
GROSS GROSS UNREALIZED CAPITAL
UNREALIZED UNREALIZED GAIN (LOSS) COST OF LOSS
GAIN LOSS NET INVESTMENTS CARRYOVER EXPIRATION
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Money Market Portfolio............ $ -- $ -- $ -- $ 90,289,341 $ -- --*
Government & Quality Bond
Portfolio....................... 7,095,847 (235,428) 6,860,419 231,510,330 -- --
Fixed Income Portfolio............ 1,620,086 (8,811) 1,611,275 25,869,672 2,616,922 1996-2002
Growth Portfolio.................. 60,652,359 (5,633,319) 55,019,040 253,415,769 -- --
High Yield Portfolio.............. 1,798,659 (767,811) 1,030,848 44,677,467 14,696,667 1997-2003
Strategic Multi-Asset Portfolio... 12,148,039 (925,349) 11,222,690 52,546,698 -- --
Multi-Asset Portfolio............. 32,803,803 (1,030,110) 31,773,693 141,016,594 -- --
Capital Appreciation Portfolio.... 83,370,473 (15,109,971) 68,260,502 292,155,373 -- --
Convertible Securities
Portfolio....................... 1,733,826 (1,177,051) 556,775 32,123,457 1,470,924 2003
Foreign Securities Portfolio...... 6,239,243 (2,098,702) 4,140,541 49,316,708 2,275,439 2000-2001
Natural Resources Portfolio....... 4,411,160 (808,511) 3,602,649 26,341,457 -- --*
Target '98 Portfolio.............. 725,285 (39,376) 685,909 12,080,719 254,450 2002-2003
</TABLE>
The Government & Quality Bond, Fixed Income and Foreign Securities utilized
capital loss carryover of $6,177,631, $183,473 and $3,191,390, respectively, to
partially offset the portfolios' net taxable gains realized and recognized in
the year ended December 31, 1995.
* Post 10/31 Capital Loss Deferrals: Money Market $721 and Natural Resources
$386.
NOTE 5. INVESTMENT MANAGEMENT AGREEMENTS: The Trust has entered into an
Investment Advisory and Management Agreement (the "Management Agreement") with
SunAmerica Asset Management Corp. ("SAAMCo") with respect to each portfolio.
SAAMCo serves as manager for each of the portfolios. SAAMCo has entered into
Subadvisory Agreements (the "Subadvisory Agreement") with Wellington Management
Company ("WMC") to manage the investments of each portfolio.
- ---------------------
57
<PAGE> 140
The Trust pays SAAMCo a monthly fee calculated daily at the following annual
percentages of each portfolio's average daily net assets:
<TABLE>
<CAPTION>
AVERAGE DAILY MANAGEMENT AVERAGE DAILY MANAGEMENT
PORTFOLIO NET ASSETS FEE PORTFOLIO NET ASSETS FEE
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------- --------------------------------------------------------
Money Market $0-$150 million .500% Capital Appreciation $0-$100 million .750%
> $150 million .475% > $100 million .675%
> $250 million .450% > $250 million .625%
> $500 million .425% > $500 million .600%
Government & Quality
Bond/ $0-$200 million .625% Convertible Securities $0-$100 million .700%
Fixed Income > $200 million .575% > $100 million .650%
> $500 million .500% > $250 million .600%
Growth $0-$250 million .750% > $500 million .575%
> $250 million .675% Foreign Securities $0-$100 million .900%
> $500 million .600% > $100 million .825%
High Yield $0-$250 million .700% > $250 million .750%
> $250 million .575% > $500 million .700%
> $500 million .500% Natural Resources > $ 0 .750%
Strategic Multi-Asset/ $0-$200 million 1.000% Target '98 $0-$100 million .625%
Multi-Asset > $200 million .875% > $100 million .570%
> $500 million .800% > $250 million .525%
> $500 million .500%
</TABLE>
The portion of the investment advisory fees received by SAAMCo which are paid
to WMC are as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY WMC AVERAGE DAILY WMC
PORTFOLIO NET ASSETS ALLOCATION PORTFOLIO NET ASSETS ALLOCATION
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------- --------------------------------------------------------
Money Market $0-$500 million .075% Multi-Asset $0-$ 50 million .250%
> $500 million .020% > $ 50 million .175%
Government & Quality
Bond/ $0-$ 50 million .225% > $150 million .150%
Fixed Income > $ 50 million .125% Capital Appreciation $0-$ 50 million .375%
> $100 million .100% > $ 50 million .275%
Growth/ $0-$ 50 million .325% > $150 million .200%
Convertible Securities > $ 50 million .225% > $500 million .150%
> $150 million .200% Foreign Securities $0-$ 50 million .400%
> $500 million .150% > $ 50 million .275%
High Yield $0-$ 50 million .300% > $150 million .200%
> $ 50 million .225% > $500 million .150%
> $150 million .175% Natural Resources $0-$ 50 million .350%
> $500 million .150% > $ 50 million .250%
Strategic Multi-Asset $0-$ 50 million .300% > $150 million .200%
> $ 50 million .200% > $500 million .150%
> $150 million .175% Target '98 $0-$ 50 million .225%
> $500 million .150% > $ 50 million .150%
> $100 million .100%
> $500 million .050%
</TABLE>
The Management Agreements provide that SAAMCo shall act as investment adviser
to the Trust; manage the Trust's investments; administer its business affairs;
furnish offices, necessary facilities and equipment; provide clerical,
bookkeeping and administrative services; and permit any of its officers or
employees to serve, without compensation, as trustees or officers of the Trust,
if duly elected to such positions.
SAAMCo has agreed that, in the event the expenses of one or more of the
portfolios exceeds applicable state law expense limitations, it will waive its
fees under the Management Agreements to the extent necessary to reduce the
expenses of the affected portfolio(s) so as not to exceed such limitation(s). No
such waiver shall result in the obligation (contingent or otherwise) of the
affected portfolio(s) to repay SAAMCo in any fiscal year any such amounts waived
in previous fiscal years. Such agreements with respect to expense limitations do
not require SAAMCo to additionally reimburse any portfolio in the event the
waivers are insufficient to reduce such portfolio's expenses to the applicable
limitations. For the year ended December 31, 1995, no such waiver was required.
For the year ended December 31, 1995, SAAMCo received fees of $9,835,044 from
the Trust, of which SAAMCo informed the Trust that $6,911,838 was retained and
$2,923,206 was allocated to WMC.
---------------------
58
<PAGE> 141
NOTE 6. SECURITIES TRANSACTIONS: The portfolios had the following purchases and
sales of long-term securities for the year ended December 31, 1995:
<TABLE>
<CAPTION>
GOVERNMENT
&
MONEY QUALITY FIXED STRATEGIC
MARKET BOND INCOME GROWTH HIGH YIELD MULTI-ASSET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------
Purchases............................... $ -- $280,032,787 $20,860,594 $262,173,263 $30,599,223 $22,851,783
Sales................................... -- 319,238,312 23,327,396 244,236,382 33,330,959 34,094,940
U.S. Government Securities included
above were as follows:
Purchases of U.S. Government
Securities............................ -- 263,098,087 11,564,048 -- -- 4,101,742
Sales of U.S. Government Securities..... -- 299,853,282 11,726,301 -- -- 3,828,801
<CAPTION>
CAPITAL CONVERTIBLE FOREIGN NATURAL
MULTI-ASSET APPRECIATION SECURITIES SECURITIES RESOURCES TARGET '98
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Purchases.............................. $139,974,072 $211,172,139 $26,873,342 $18,097,416 $11,845,411 $ 5,922,737
Sales.................................. 171,221,554 155,259,628 30,571,746 40,402,804 7,777,269 14,366,747
U.S. Government Securities included
above were as follows:
Purchases of U.S. Government
Securities............................ 112,921,487 -- -- -- -- 5,470,722
Sales of U.S. Government Securities..... 124,978,381 -- -- -- -- 12,257,075
</TABLE>
NOTE 7. TRANSACTIONS WITH AFFILIATES: The Trust has executed purchases and
sales of securities through Royal Alliance Associates, Inc. ("Royal"), a
broker/dealer which is affiliated with SAAMCo. For the year ended December 31,
1995, the following portfolios of the Trust paid brokerage commissions to Royal
of:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Growth Portfolio.............................................................. $ 49,609
Strategic Multi-Asset Portfolio............................................... 3,341
Multi-Asset Portfolio......................................................... 6,145
Capital Appreciation Portfolio................................................ 35,445
Natural Resources Portfolio................................................... 21,897
--------
$116,437
=========
</TABLE>
NOTE 8. FINANCIAL INVESTMENTS WITH OFF-BALANCE SHEET RISK: At December 31, 1995,
the Strategic Multi-Asset, Capital Appreciation, Foreign Securities and Natural
Resources Portfolios had outstanding forward foreign currency exchange contracts
("forward contracts") as a hedge against changes in future foreign exchange
rates. Forward contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Trust bears the risk
of an unfavorable change in the foreign exchange rate underlying the forward
contract.
NOTE 9. TRUSTEES RETIREMENT PLAN: The Trustees (and Directors) of the
SunAmerica Family of Mutual Funds have adopted the SunAmerica Disinterested
Trustees' and Directors' Retirement Plan (the "Retirement Plan") effective
January 1, 1993 for the unaffiliated Trustees. The Retirement Plan provides
generally that if an unaffiliated Trustee who has at least 10 years of
consecutive service as a Disinterested Trustee of any of the SunAmerica mutual
funds (an "Eligible Trustee") retires after reaching age 60 but before age 70 or
dies while a Trustee, such person will be eligible to receive a retirement or
death benefit from each SunAmerica mutual fund with respect to which he or she
is an Eligible Trustee. As of each birthday, prior to the 70th birthday, but in
no event for a period greater than 10 years, each Eligible Trustee will be
credited with an amount equal to 50% of his or her regular fees (excluding
committee fees) for services as a Disinterested Trustee of each SunAmerica
mutual fund for the calendar year in which such birthday occurs. In addition, an
amount equal to 8.5% of any amounts credited under the preceding clause during
prior years, is added to each Eligible Trustee's account until such Eligible
Trustee reaches his or her 70th birthday. An Eligible Trustee may receive
benefits payable under the Retirement Plan, at his or her election, either in
one lump sum or in up to fifteen annual installments. As of December 31, 1995,
the Trust had accrued $51,696 for the Retirement Plan, which is included in
accrued expenses on the Statement of Assets and Liabilities and for the year
ended December 31, 1995, expensed $31,701 for the Retirement Plan, which is
included in Trustee fees and expenses on the Statement of Operations.
- ---------------------
59
<PAGE> 142
- ---------------------
ANCHOR SERIES TRUST
FINANCIAL HIGHLIGHTS*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
REALIZED
& DIVIDENDS DIVIDENDS
UNREALIZED TOTAL DECLARED FROM NET
NET ASSET NET GAIN FROM FROM NET REALIZED NET ASSET
VALUE INVEST- (LOSS) INVEST- INVEST- GAIN ON VALUE
PERIOD BEGINNING MENT ON MENT MENT INVEST- END OF TOTAL
ENDED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME MENTS PERIOD RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Money Market Portfolio
12/31/91 $ 1.00 $ 0.06 $ -- $ 0.06 $ (0.06) $ -- $ 1.00 5.6%
12/31/92 1.00 0.03 -- 0.03 (0.03) -- 1.00 3.4
12/31/93 1.00 0.02 -- 0.02 (0.02) -- 1.00 2.0
12/31/94 1.00 0.04 -- 0.04 (0.04) -- 1.00 3.8
12/31/95 1.00 0.05 -- 0.05 (0.05) -- 1.00 5.6
Government & Quality Bond Portfolio
12/31/91 12.06 1.00 1.08 2.08 (0.11) -- 14.03 17.3
12/31/92 14.03 1.02 (0.05) 0.97 (1.07) -- 13.93 6.9
12/31/93 13.93 0.90 0.25 1.15 (0.86) -- 14.22 8.3
12/31/94 14.22 0.86 (1.30) (0.44) (0.73) (0.19) 12.86 (3.1)
12/31/95 12.86 0.90 1.55 2.45 (1.08) -- 14.23 19.4
Fixed Income Portfolio
12/31/91 12.57 0.96 0.95 1.91 (0.05) -- 14.43 15.2
12/31/92 14.43 0.98 (0.04) 0.94 (1.06) -- 14.31 6.5
12/31/93 14.31 0.95 0.19 1.14 (0.91) -- 14.54 8.0
12/31/94 14.54 0.89 (1.36) (0.47) (1.17) -- 12.90 (3.2)
12/31/95 12.90 0.90 1.52 2.42 (1.16) -- 14.16 19.2
Growth Portfolio
12/31/91 15.46 0.22 6.05 6.27 (0.12) (0.21) 21.40 40.8
12/31/92 21.40 0.09 0.99 1.08 (0.19) (0.62) 21.67 5.4
12/31/93 21.67 0.05 1.60 1.65 (0.08) (0.92) 22.32 7.8
12/31/94 22.32 0.05 (1.03) (0.98) (0.05) (3.11) 18.18 (4.7)
12/31/95 18.18 0.11 4.62 4.73 (0.05) (3.38) 19.48 26.3
High Yield Portfolio
12/31/91 5.96 0.81 1.16 1.97 (0.05) -- 7.88 33.1
12/31/92 7.88 0.81 0.28 1.09 (0.58) -- 8.39 13.9
12/31/93 8.39 0.79 0.79 1.58 (0.54) -- 9.43 19.1
12/31/94 9.43 0.15 (0.56) (0.41) (1.15) -- 7.87 (4.5)
12/31/95 7.87 0.77 0.67 1.44 (0.98) -- 8.33 18.8
Strategic Multi-Asset Portfolio
12/31/91 10.17 0.26 2.20 2.46 -- -- 12.63 24.2
12/31/92 12.63 0.23 0.25 0.48 (0.34) (0.32) 12.45 3.9
12/31/93 12.45 0.21 1.68 1.89 (0.28) -- 14.06 15.3
12/31/94 14.06 0.24 (0.53) (0.29) (0.20) (2.28) 11.29 (2.6)
12/31/95 11.29 0.32 2.18 2.50 (0.23) (1.78) 11.78 22.8
<CAPTION>
RATIO OF
NET
RATIO OF INVESTMENT
NET EXPENSES INCOME
ASSETS TO TO
END OF AVERAGE AVERAGE PORTFOLIO
PERIOD PERIOD NET NET TURNOVER
ENDED (000'S) ASSETS ASSETS RATE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Money Market Portfolio
12/31/91 $ 119,855 0.7% 5.7% --%
12/31/92 127,262 0.6 3.3 --
12/31/93 99,309 0.6 2.7 --
12/31/94 126,004 0.6 3.8 --
12/31/95 93,692 0.6 5.5 --
Government & Quality Bond Portfolio
12/31/91 197,463 0.8 7.8 87.5
12/31/92 207,860 0.8 7.3 76.4
12/31/93 264,660 0.7 6.2 93.2
12/31/94 232,530 0.7 6.4 117.6
12/31/95 225,579 0.7 6.5 135.2
Fixed Income Portfolio
12/31/91 37,887 0.9 7.2 55.3
12/31/92 40,001 0.8 6.8 31.8
12/31/93 41,116 0.8 6.3 45.9
12/31/94 28,582 0.8 6.5 56.5
12/31/95 27,975 0.8 6.5 76.7
Growth Portfolio
12/31/91 231,857 0.9 1.2 36.9
12/31/92 279,291 0.9 0.5 37.9
12/31/93 311,050 0.9 0.2 66.3
12/31/94 246,149 0.8 0.2 74.8
12/31/95 307,857 0.9 0.6 92.1
High Yield Portfolio
12/31/91 33,046 1.0 11.3 54.9
12/31/92 47,140 0.9 9.7 134.9
12/31/93 79,303 0.9 8.5 121.1
12/31/94 48,057 0.9 9.0 97.9
12/31/95 46,817 0.9 9.2 68.1
Strategic Multi-Asset Portfolio
12/31/91 88,585 1.3 2.3 42.0
12/31/92 79,621 1.3 1.8 57.5
12/31/93 76,466 1.3 1.2 73.9
12/31/94 65,357 1.3 1.8 63.7
12/31/95 64,026 1.3 2.7 36.9
</TABLE>
- ---------------
* Selected data for a share of beneficial interest outstanding throughout each
period (calculated based upon average shares outstanding)
---------------------
60
<PAGE> 143
- ---------------------
ANCHOR SERIES TRUST
FINANCIAL HIGHLIGHTS*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
REALIZED
& DIVIDENDS DIVIDENDS
UNREALIZED TOTAL DECLARED FROM NET
NET ASSET NET GAIN FROM FROM NET REALIZED NET ASSET
VALUE INVEST- (LOSS) INVEST- INVEST- GAIN ON VALUE
PERIOD BEGINNING MENT ON MENT MENT INVEST- END OF TOTAL
ENDED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME MENTS PERIOD RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Multi-Asset Portfolio
12/31/91 $ 10.69 $ 0.45 $ 2.45 $ 2.90 $ (0.06) $ -- $ 13.53 27.3%
12/31/92 13.53 0.41 0.67 1.08 (0.47) (0.35) 13.79 8.2
12/31/93 13.79 0.36 0.63 0.99 (0.44) (0.46) 13.88 7.3
12/31/94 13.88 0.39 (0.60) (0.21) (0.47) (1.49) 11.71 (1.7)
12/31/95 11.71 0.40 2.47 2.87 (0.49) (1.05) 13.04 24.9
Capital Appreciation Portfolio
12/31/91 9.81 0.09 5.41 5.50 (0.01) (0.07) 15.23 56.1
12/31/92 15.23 0.01 3.70 3.71 (0.07) (1.12) 17.75 25.9
12/31/93 17.75 (0.03) 3.73 3.70 (0.01) (1.16) 20.28 21.1
12/31/94 20.28 (0.02) (0.71) (0.73) -- (2.04) 17.51 (3.8)
12/31/95 17.51 0.06 6.00 6.06 (0.15) (0.20) 23.22 34.6
Convertible Securities Portfolio
12/31/91 8.76 0.64 1.70 2.34 (0.12) -- 10.98 26.8
12/31/92 10.98 0.65 1.50 2.15 (0.64) -- 12.49 20.1
12/31/93 12.49 0.61 2.11 2.72 (0.55) (0.08) 14.58 22.0
12/31/94 14.58 0.66 (1.96) (1.30) (0.52) (1.20) 11.56 (9.7)
12/31/95 11.56 0.61 1.29 1.90 (0.83) (0.62) 12.01 16.6
Foreign Securities Portfolio
12/31/91 10.25 0.07 (0.09) (0.02) (0.12) -- 10.11 (0.3)
12/31/92 10.11 0.13 (1.43) (1.30) (0.06) (0.28) 8.47 (13.1)
12/31/93 8.47 0.05 2.50 2.55 (0.09) -- 10.93 30.2
12/31/94 10.93 0.11 (0.46) (0.35) (0.03) -- 10.55 (3.2)
12/31/95 10.55 0.13 1.19 1.32 (0.05) (0.01) 11.81 12.6
Natural Resources Portfolio
12/31/91 9.72 0.26 0.21 0.47 (0.13) -- 10.06 4.9
12/31/92 10.06 0.21 0.05 0.26 (0.39) -- 9.93 2.5
12/31/93 9.93 0.15 3.42 3.57 (0.17) -- 13.33 36.2
12/31/94 13.33 0.23 (0.09) 0.14 (0.09) (0.09) 13.29 1.0
12/31/95 13.29 0.18 2.15 2.33 (0.21) (0.29) 15.12 17.5
Target '98 Portfolio
12/31/91 11.47 0.83 1.33 2.16 -- -- 13.63 18.9
12/31/92 13.63 0.82 0.16 0.98 (0.79) (0.25) 13.57 7.2
12/31/93 13.57 0.82 0.71 1.53 (0.93) (0.23) 13.94 11.2
12/31/94 13.94 0.83 (1.39) (0.56) (1.11) (0.07) 12.20 (4.1)
12/31/95 12.20 0.86 0.88 1.74 (1.30) -- 12.64 14.6
<CAPTION>
RATIO OF NET
INVESTMENT
RATIO OF INCOME
NET EXPENSES (LOSS)
ASSETS TO TO
END OF AVERAGE AVERAGE PORTFOLIO
PERIOD PERIOD NET NET TURNOVER
ENDED (000'S) ASSETS ASSETS RATE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Multi-Asset Portfolio
12/31/91 $ 177,429 1.2% 3.8% 50.7%
12/31/92 207,533 1.1 3.1 38.6
12/31/93 208,900 1.1 2.6 48.2
12/31/94 164,159 1.1 3.0 82.5
12/31/95 168,243 1.1 3.2 85.9
Capital Appreciation Portfolio
12/31/91 45,976 1.0 0.7 72.9
12/31/92 83,414 0.9 0.1 92.9
12/31/93 182,515 0.9 (0.2) 111.2
12/31/94 229,544 0.8 (0.1) 64.0
12/31/95 356,218 0.8 0.3 60.1
Convertible Securities Portfolo
12/31/91 14,551 1.1 6.4 109.0
12/31/92 23,723 1.0 5.6 86.5
12/31/93 41,555 0.9 4.4 86.2
12/31/94 34,995 0.9 4.9 50.7
12/31/95 32,008 0.9 5.2 88.8
Foreign Securities Portfolio
12/31/91 30,823 1.4 0.7 64.2
12/31/92 29,204 1.3 1.4 144.2
12/31/93 72,579 1.3 0.5 47.7
12/31/94 68,641 1.2 1.0 73.9
12/31/95 53,609 1.2 1.2 33.0
Natural Resources Portfolio
12/31/91 9,407 1.2 2.5 2.6
12/31/92 8,796 1.3 2.1 18.7
12/31/93 18,255 1.1 1.3 34.5
12/31/94 21,230 1.0 1.7 36.0
12/31/95 28,941 1.0 1.3 32.0
Target '98 Portfolio
12/31/91 12,553 1.0 6.9 14.4
12/31/92 19,227 0.9 6.0 37.3
12/31/93 20,500 0.9 5.7 20.8
12/31/94 19,194 0.8 6.5 9.2
12/31/95 12,774 0.9 6.7 38.6
</TABLE>
- ---------------
* Selected data for a share of beneficial interest outstanding throughout each
period (calculated based upon average shares outstanding)
- ---------------------
61
<PAGE> 144
- ---------------------
ANCHOR SERIES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of Anchor Series Trust
In our opinion, the accompanying statements of assets and liabilities, including
the investment portfolios, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Money Market Portfolio, the
Government & Quality Bond Portfolio, the Fixed Income Portfolio, the Growth
Portfolio, the High Yield Portfolio, the Strategic Multi-Asset Portfolio, the
Multi-Asset Portfolio, the Capital Appreciation Portfolio, the Convertible
Securities Portfolio, the Foreign Securities Portfolio, the Natural Resources
Portfolio and the Target '98 Portfolio (constituting Anchor Series Trust,
hereafter referred to as the "Trust") at December 31, 1995, the results of each
of their operations for the year then ended, the changes in each of their net
assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
February 15, 1996
1177 Avenue of the Americas
New York, New York 10036
---------------------
62
<PAGE> 145
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The following financial statements are included in Part A of
the Registration Statement:
Condensed Financial Information
The following financial statements are included in Part B of
the Registration Statement.
Financial Statements for Anchor Series Trust -- with
respect to Registrant's fiscal year ended December 31,
1995.
(b) Exhibits
<TABLE>
<S> <C>
(1) Declaration of Trust, as Amended Previously Filed
(2) By-Laws Previously Filed
(3) Voting Trust Agreement Not Applicable
(4) Share of Beneficial Interest Not Applicable
(5) (a) Investment Advisory and Previously Filed
Management Agreements
(b) Sub-Advisory Agreements Previously Filed
(6) Distribution Agreement Not Applicable
(7) Bonus, Profit Sharing, Previously Filed
Pension or Similar Contracts
(8) Custodian Agreement Previously Filed
(9) Form of Fund Participation Agreement Filed Herewith
(10) Opinion and Consent of Counsel Not Applicable
(11) Consent of Accountants Filed Herewith
(12) Financial Statements Omitted from Item 23 Not Applicable
(13) Initial Capitalization Agreement Not Applicable
(14) Model Plan Not Applicable
(15) Rule 12b-1 Plan Not Applicable
(16) Persons under Common Control with Previously Filed
Registrant
(17) Performance Computations Previously Filed
(18) Powers of Attorney Filed Herewith
(27) Financial Data Schedule Filed Herewith
</TABLE>
All previously filed exhibits are specifically incorporated
herein by reference.
Item 25. Persons Controlled by or Under Common Control with
Registrant
Previously Filed.
1
<PAGE> 146
Item 26. Number of Holders of Securities
As of February 26, 1996, the number of record holders of
Anchor Series Trust was as follows:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Shares of Beneficial Interest 5*
</TABLE>
* Held by the separate accounts of Anchor National Life
Insurance Company, Phoenix Mutual Life Insurance Company,
Presidential Life Insurance Company and First SunAmerica
Life Insurance Company.
Item 27. Indemnification
The Declaration of Trust (Section 5.3) provides that "each
officer, Trustee or agent of the Trust shall be indemnified by
the Trust to the full extent permitted under the General Laws
of the State of Massachusetts and the Investment Company Act
of 1940, as amended, except that such indemnity shall not
protect any such person against any liability to the Trust or
any shareholder thereof to which such person 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 ("disabling conduct")."
The Investment Advisory and Management Agreements and
Sub-Advisory Agreements each provide in essence that under certain
circumstances the Investment Adviser or the Sub-Adviser (and
their officers, directors, agents, employees, controlling
persons, shareholders and any other person or entity
affiliated with the Investment Adviser or Sub-Adviser to
perform or assist in the performance of its obligations under
each Agreement) shall not be subject to liability to the Trust
or to any shareholder of the Trust for any act or omission in
the course of, or connected with, rendering services,
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 each Agreement relates, except to
the extent specified in Section 36(b) of the Investment
Company Act of 1940 concerning loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for
services.
SunAmerica Inc., the parent of Anchor National Life Insurance
Company, provides, without cost to the Fund, indemnification
of individual trustees. By individual letter agreement,
SunAmerica Inc. indemnifies each trustee to the fullest extent
permitted by law against expenses and liabilities (including
damages, judgments, settlements, costs, attorney's fees,
charges and expenses) actually and reasonably incurred in
connection with any action which is the subject of any
threatened, asserted, pending or completed action, suit or
proceeding, whether civil, criminal, administrative,
investigative or otherwise and whether formal or informal to
which any trustee was, is or is threatened to be made a party
by reason of facts
2
<PAGE> 147
which include his being or having been a
trustee, but only to the extent such expenses and liabilities
are not covered by insurance.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the Registrant
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 Act and is therefore
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted against
the Registrant by such director, officer or controlling person
in connection with the securities 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 Act and will be governed by the final adjudication of such
issue.
Item 28. Business and other Connections of Investment Adviser
Information concerning the business and other connections of
SAAMCo is incorporated herein by reference from SAAMCo's Form ADV
(File No. 801-19813) and information concerning the business and
other connections of Wellington is incorporated herein by reference
from Wellington's Form ADV (File No. 801-15908), which are
currently on file with the Securities and Exchange Commission.
Item 29. Principal Underwriters
There is no Principal Underwriter for the Registrant.
Item 30. Location of Accounts and Records
State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, acts as Custodian, Transfer Agent
and Dividend Paying Agent. It maintains books, records and
accounts pursuant to the instructions of the Fund.
SunAmerica Asset Management Corp., the Investment Adviser, is
located at 733 Third Avenue, New York, New York 10017-3204.
It maintains the books, accounts and records required to be
maintained pursuant to Section 31(a) of the Investment Company
Act of 1940 and the rules promulgated thereunder.
Wellington Management Company, the Sub-Adviser, is located at
75 State Street, Boston, Massachusetts 02109. It maintains
the books, accounts and records required to be maintained
3
<PAGE> 148
pursuant to Section 31(a) of the Investment Company Act of
1940 and the rules promulgated thereunder.
Item 31. Management Services
None.
Item 32. Undertakings
(c) Registrant hereby undertakes to furnish an investor
to whom a prospectus is delivered with a copy of
Registrant's latest annual report to shareholders, upon
request and without charge.
4
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that
it meets all of the requirements for effectiveness of this
Post-Effective Amendment No. 25 to the Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. 25 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, and State of New York, on the
26th day of February, 1996.
ANCHOR SERIES TRUST
By:/s/Peter A. Harbeck
Peter A. Harbeck
President
Pursuant to the requirements of the Securities Act of 1933
this Post-Effective Amendment No. 25 to the Registration Statement
has been signed below by the following persons in the capacities
and on the date indicated.
<TABLE>
<S> <C> <C>
/s/Peter A. Harbeck President and Trustee February 26, 1996
Peter A. Harbeck (Principal Executive
Officer)
* Treasurer February 26, 1996
Peter C. Sutton (Principal Financial
and Accounting Officer)
* Trustee February 26, 1996
S. James Coppersmith
* Trustee February 26, 1996
Samuel M. Eisenstat
* Trustee February 26, 1996
Stephen J. Gutman
*By:/s/Robert M. Zakem
Attorney-in-Fact
Robert M. Zakem
</TABLE>
<PAGE> 150
ANCHOR SERIES TRUST
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Name
<S> <C>
9 Form of Fund Participation Agreement
11 Consent of Price Waterhouse
18 Powers of Attorney
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 9
FUND PARTICIPATION AGREEMENT
AGREEMENT, made on this 1st day of August, 1992, between ANCHOR
NATIONAL LIFE INSURANCE COMPANY ("Anchor"), a life insurance
company organized under the laws of the State of California, on
behalf of itself and on behalf of VARIABLE SEPARATE ACCOUNT (f/k/a
"AMERICAN PATHWAY II - SEPARATE ACCOUNT OF ANCHOR NATIONAL LIFE
INSURANCE COMPANY," ("Variable Account"), a separate account of
Anchor existing pursuant to the laws of the State of California,
and ANCHOR SERIES TRUST ("Fund"), an open-end management investment
company established pursuant to the laws of the Commonwealth of
Massachusetts under a Declaration of Fund dated August 26, 1983,
and amended as of September 1, 1988, and January 19, 1990, which is
composed of multiple investment series ("Portfolios").
WITNESSETH:
WHEREAS, Anchor, by resolution, has established the Variable
Account on its books of account for the purpose of funding certain
variable annuity contracts issued by it; and
WHEREAS, the Variable Account is divided into various
portfolios ("Divisions") under which the income, gains and losses,
whether or not realized, from assets allocated to each such
Division are, in accordance with the applicable variable annuity
contracts, credited to or charged against such Division without
regard to any income, gains or losses of other Divisions or
separate accounts of Anchor; and
WHEREAS, the Variable Account is registered with the Securities
and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940 ("Act"); and
WHEREAS, the Fund, a registered, open-end, diversified
management investment company, is divided into various Portfolios,
each Portfolio being subject to separate investment objectives and
restrictions which may not be changed without a majority vote of
the shareholders of each such Portfolio; and
WHEREAS, the Variable Account desires to purchase shares of
the Fund in connection with the issuance of certain variable
annuity contracts to be marketed under the name Polaris
(collectively with other contracts and policies that may be funded
through the Fund, "Contracts"); and
WHEREAS, the Fund agrees to make shares of certain of its
Portfolios available to serve as underlying investment media for
the corresponding Divisions of the Variable Account; and
1
<PAGE> 2
WHEREAS, SUNAMERICA SECURITIES, INC., and ROYAL ALLIANCE
ASSOCIATES, INC. (collectively, "Distributors"), which serve as the
distributors for the Contracts funded in the Variable Account
pursuant to an agreement with Anchor on behalf of itself and the
Variable Account are each a broker-dealer registered as such under
the Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc.;
WHEREAS, the Fund's shares are available for investment by
separate accounts of other insurance companies, which may or may
not be affiliated persons (as that term is defined in the Act) of
Anchor; and
WHEREAS, the Fund has undertaken that its Board of Trustees
("Board") will monitor the Fund for the existence of material
irreconcilable conflicts that may arise between the Contract owners
of separate accounts of insurance companies that invest in the
Fund, for the purpose of identifying and remedying any such
conflict;
NOW, THEREFORE, in consideration of the foregoing and of
mutual covenants and conditions set forth herein and for other good
and valuable consideration, Anchor (on behalf of itself and the
Variable Account) and the Fund hereby agree as follows:
1. The Contracts funded by the Variable Account will provide
for the allocation of net amounts among certain Divisions of the
Variable Account for investment in the shares of the particular
portfolio of the Fund underlying each such Division. The selection
of a particular Division is to be made (and such selection may be
changed) in accordance with the terms of the applicable Contract.
2. No representation is made as to the number or amount of
such Contracts to be sold. Anchor, pursuant to its agreement with
Distributors, will make reasonable efforts to market those
Contracts it determines from time to time to offer for sale and,
although it is not required to offer for sale new Contracts, Anchor
will accept payments and otherwise service existing Contracts
funded in the Variable Account.
3. Fund shares to be made available to the respective
Divisions of the Variable Account shall be sold by each of the
respective Portfolios of the Fund and purchased by Anchor for that
Division at the net asset value next computed after receipt of each
order, as established in accordance with the provisions of the then
current prospectus of the Fund. Shares of a particular Portfolio
of the Fund shall be ordered in such quantities and at such times
as determined by Anchor to be necessary to meet the requirements of
those Contracts having amounts allocated to the Division for which
the Fund Portfolio shares serve as the underlying investment
medium. Orders and payments for shares purchased will be sent
promptly to the Fund and will be made payable in the manner
2
<PAGE> 3
established from time to time by the Fund for the receipt of such
payments. The Fund reserves the right to delay transfer of its
shares until the payment check has cleared. The Fund has the
obligation to insure that its shares to be made available to the
appropriate Division(s) under the Contracts are registered at all
times under the Securities Act of 1933 ("1933 Act").
4. The Fund will redeem the shares of the various Portfolios
when requested by Anchor on behalf of the corresponding Division of
the Variable Account at the net asset value next computed after
receipt of each request for redemption, as established in
accordance with the provisions of the then current prospectus of
the Fund. The Fund will make payment in the manner established
from time to time by the Fund for the receipt of such redemption
requests, but in no event shall payment be delayed for a greater
period than is permitted by the Act.
5. Transfer of the Fund's shares will be by book entry only.
No stock certificates will be issued to the Variable Account.
Shares ordered from a particular Portfolio to the Fund will be
recorded in an appropriate title for the corresponding Division of
the Variable Account.
6. The Fund shall furnish notice promptly to Anchor of any
dividend or distribution payable on its shares which are subject to
this Agreement. All of such dividends and distributions as are
payable on each of the Portfolio shares in the title for the
corresponding Division of the Variable Account shall be
automatically reinvested in additional shares of that Portfolio of
the Fund. The Fund shall notify Anchor of the number of shares so
issued.
7. All expenses incident to the performance of the Fund
under this Agreement shall be paid by the Fund. The Fund shall
ensure that all of its shares which are subject to this Agreement
are registered and authorized for issue in accordance with
applicable federal and state laws prior to their purchase by the
Variable Account. Anchor shall bear none of the expenses for the
cost of registration of the Fund's shares, preparation of the
Fund's prospectuses, proxy materials and reports, the distribution
of such items to shareholders, the preparation of all statements
and notices required by any federal or state law or any taxes on
the issue or transfer of the Fund's shares subject to this
Agreement.
8. Anchor, either directly or through Distributors, shall
make no representations concerning the Fund's shares which are
subject to this Agreement other than those contained in the then
current prospectus of the Fund and in printed information
subsequently issued by the Fund as supplemental to such prospects.
3
<PAGE> 4
9. Anchor shall provide pass-through voting privileges to
all variable Contract owners so long as the U.S. Securities and
Exchange Commission continues to interpret the Act to require
pass-through voting privileges for variable Contract owners. Anchor
shall be responsible for assuring that the Variable Account
calculates voting privilege in a manner consistent with separate
accounts of other insurance companies that are invested in the
Fund, which other insurance companies may or may not be affiliated
with Anchor (collectively with Anchor, "Participating Insurers"),
as determined by the Board. Anchor will vote shares for which it
has not received voting instructions in the same proportion as it
votes shares for which it has received instructions.
10. Anchor will report to the Board any potential or existing
conflicts of which it is or becomes aware between any of its
Contract owners or between any of its Contract owners and Contract
owners of other Participating Insurers. Anchor will be responsible
for assisting the Board in carrying out its responsibilities to
identify material conflicts by providing the Board with all
information available to it that is reasonably necessary for the
Board to consider any issues raised, including information as to a
decision by Anchor to disregard voting instructions of its Contract
owners.
11. The Board's determination of the existence of an
irreconcilable material conflict and its implications shall be made
known promptly by it to Anchor and other Participating Insurers.
An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state
insurance tax, or securities laws or regulations, or a public
ruling, private letter ruling, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in
which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by variable annuity
Contract owners and variable life insurance Contract owners or by
Contract owners of different Participating Insurers; or (f) a
decision by a Participating Insurer to disregard the voting
instructions of variable Contract owners.
12. If it is determined by a majority of the Board or a
majority of its disinterested Trustees that a material
irreconcilable conflict exists that affects the interests of Anchor
Contract owners, Anchor shall, in cooperation with other
Participating Insurers whose Contract owners' interests are also
affected by the conflict, take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, which
steps could include: (a) withdrawing the assets allocable to the
Variable Account from the Fund or any portfolio and reinvesting
such assets in a different investment medium, including another
Portfolio of the Fund, or submitting the question of whether such
4
<PAGE> 5
segregation should be implemented to a vote of all affected
Contract owners and, as appropriate, segregating the assets of any
particular group (e.g., annuity Contract owners or life insurance
Contract owners) that votes in favor of such segregation, or
offering to the affected Contract owners of the option of making
such a change; and (b) establishing a new registered management
investment company or managed separate account. Anchor shall take
such steps at its expense if the conflict affects solely the
interests of the owners of Anchor Contracts, but shall bear only
its equitable portion of any such expense if the conflict also
affects the interest of the Contract owners of one or more
Participating Insurers other than Anchor, provided: that this
sentence shall not be construed to require the Fund to bear any
portion of such expense. If a material irreconcilable conflict
arises because of Anchor's decision to disregard Contract owner
voting instructions and that decision represents a minority
position or would preclude a majority vote, Anchor may be required,
at Fund's election, to withdraw the Variable Account's investment
in the Fund, and no charge or penalty will be imposed against the
Variable Account as a result of such a withdrawal. Anchor agrees
to take such remedial action as may be required under this
paragraph 12 with a view only to the interests of its Contract
owners. For purposes of this paragraph 12, a majority of the
disinterested members of the Board shall determine whether or not
any proposed action adequately remedies any irreconcilable
conflict, but in no event will Fund be required to establish a new
funding medium for any variable Contracts. Anchor shall not be
required by this paragraph 12 to establish a new funding medium for
any variable Contract if an offer to do so has been declined by
vote of a majority of affected Contract owners.
13. In discharging its responsibilities under paragraphs 9,
10 and 12 hereinabove, Anchor will cooperate and coordinate, to the
extent necessary, with the Board and other participating Insurers.
The Fund agrees that it will require, as a condition to
participation, that all Participating Insurers shall have
obligations and responsibilities regarding conflicts of interest
corresponding to those that are agreed to herein by Anchor pursuant
to such paragraphs 9, 10 and 12 and pursuant to this paragraph 13.
14. This Agreement shall terminate:
(a) at the option of Anchor or the Fund upon 60 days'
advance written notice to all other parties to this
Agreement; or
(b) at the option of Anchor if any of the Fund's shares
are not reasonably available to meet the
requirements of the Contracts funded in the
Variable Account as determined by Anchor. Prompt
notice of election to terminate shall be furnished
by Anchor; or
5
<PAGE> 6
(c) at the option of Anchor upon institution of formal
proceedings against the Fund by the Securities and
Exchange Commission; or
(d) upon the vote of Contract owners having an interest
in a particular Division of the Variable Account to
substitute the shares of another investment company
for the corresponding Fund Portfolio shares in
accordance with the terms of the Contracts for
which those Fund shares had been selected to serve
as the underlying investment medium. Anchor will
give 30 days' prior written notice to the Fund of
the date of any proposed action to replace the
Fund's shares; or
(e) in the event the Fund's shares are not registered,
issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of
such shares as the underlying investment medium of
the Contracts funded in the Variable Account.
Prompt notice shall be given by each party to all
other parties in the event that the conditions
stated in subsections (b), (c) or (d) of this
paragraph 14 should occur.
15. Notwithstanding any other provisions of this Agreement,
the obligations of the Fund hereunder are not personally binding
upon any of the trustees, shareholders, officers, employees or
agents of the Fund; resort in satisfaction of such obligations
shall be had only to the assets and property of the Fund and not to
the private property of any of such Fund's trustees, shareholders,
officers, employees or agents.
16. This Agreement shall be construed in accordance with the
laws of the State of California.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ANCHOR NATIONAL LIFE INSURANCE COMPANY
By:/s/ Robert P. Saltzman
Robert P. Saltzman
President and Chief Executive Officer
VARIABLE SEPARATE ACCOUNT
(f/k/a AMERICAN PATHWAY II - SEPARATE
ACCOUNT OF ANCHOR NATIONAL LIFE INSURANCE
COMPANY)
BY: ANCHOR NATIONAL LIFE INSURANCE
COMPANY
By: /s/ Robert P. Saltzman
Robert P. Saltzman
President and Chief Executive Officer
ANCHOR SERIES TRUST
By: /s/ Robert M. Zakem
Robert M. Zakem
Secretary
Acknowledged and Agreed:
ROYAL ALLIANCE ASSOCIATES, INC.
By:/s/Gary W. Krat Dated: September 15, 1992
Gary W. Krat
SUNAMERICA SECURITIES, INC.
By:/s/Gary W. Krat Dated: September 15, 1992
Gary W. Krat
7
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 25 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 15, 1996, relating to the financial statements and financial
highlights of Anchor Series Trust, which appears in such Statement of
Additional Information, and to the incorporation by reference of our report
into the Prospectus which constitutes part of this Registration Statement.
We also consent to the references to us under the headings "Financial
Statements" and "Independent Accountants" in such Statement of Additional
Information and to the references to us under the headings "Financial
Highlights" and "Reports and Independent Accountants" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
117 Avenue of the Americas
New York, New York 10036
February 15, 1996
<PAGE> 1
EXHIBIT 18
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers
and trustees of Anchor Series Trust do hereby severally constitute
and appoint Peter A. Harbeck, Peter C. Sutton and Robert M. Zakem
or any of them, the true and lawful agents and attorneys-in-fact of
the undersigned with respect to all matters arising in connection
with the Registration Statement on Form N-1A and any and all
amendments (including post-effective amendments) thereto, with full
power and authority to execute said Registration Statement for and
on behalf of the undersigned, in our names and in the capacities
indicated below, and to file the same, together with all exhibits
thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned hereby give to
said agents and attorneys-in-fact full power and authority to act
in the premises, including, but not limited to, the power to
appoint a substitute or substitutes to act hereunder with the same
power and authority as said agents and attorneys-in fact would have
if personally acting. The undersigned hereby ratify and confirm
all that said agents and attorneys-in-fact, or any substitute or
substitutes, may do by virtue hereof.
WITNESS the due execution hereof on the date and in the
capacities set forth below.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/Peter A. Harbeck Trustee and President November 30, 1994
Peter A. Harbeck (Principal
Executive Officer)
/s/Peter C. Sutton Controller November 30, 1994
Peter C. Sutton (Principal Financial
and Accounting Officer)
/s/S. James Coppersmith Trustee November 30, 1994
S. James Coppersmith
/s/Samuel M. Eisenstat Trustee November 30, 1994
Samuel M. Eisenstat
/s/Stephen J. Gutman Trustee November 30, 1994
Stephen J. Gutman
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> ANCHOR SERIES TRUST MONEY MARKET
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 90,289,341
<INVESTMENTS-AT-VALUE> 90,289,341
<RECEIVABLES> 3,652,802
<ASSETS-OTHER> 17,817
<OTHER-ITEMS-ASSETS> 1,745
<TOTAL-ASSETS> 93,961,705
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 270,022
<TOTAL-LIABILITIES> 270,022
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 93,691,683
<SHARES-COMMON-STOCK> 93,691,683
<SHARES-COMMON-PRIOR> 126,004,417
<ACCUMULATED-NII-CURRENT> 721
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (721)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 93,691,683
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,871,195
<OTHER-INCOME> 0
<EXPENSES-NET> (657,126)
<NET-INVESTMENT-INCOME> 6,214,069
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,214,069
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,214,069)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 174,371,348
<NUMBER-OF-SHARES-REDEEMED> (212,898,151)
<SHARES-REINVESTED> 6,214,069
<NET-CHANGE-IN-ASSETS> (32,312,734)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 569,193
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 657,126
<AVERAGE-NET-ASSETS> 113,838,657
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> GOVERNMENT AND QUALITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 231,510,330
<INVESTMENTS-AT-VALUE> 238,370,749
<RECEIVABLES> 2,565,075
<ASSETS-OTHER> 39,845
<OTHER-ITEMS-ASSETS> 2,034
<TOTAL-ASSETS> 240,977,703
<PAYABLE-FOR-SECURITIES> 15,046,042
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 352,933
<TOTAL-LIABILITIES> 15,398,975
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 204,166,066
<SHARES-COMMON-STOCK> 15,853,025
<SHARES-COMMON-PRIOR> 18,075,767
<ACCUMULATED-NII-CURRENT> 14,101,885
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 450,358
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,860,419
<NET-ASSETS> 225,578,728
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15,722,556
<OTHER-INCOME> 0
<EXPENSES-NET> (1,590,444)
<NET-INVESTMENT-INCOME> 14,132,112
<REALIZED-GAINS-CURRENT> 8,288,042
<APPREC-INCREASE-CURRENT> 16,257,191
<NET-CHANGE-FROM-OPS> 38,677,345
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (15,800,000)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,911,036
<NUMBER-OF-SHARES-REDEEMED> (9,292,985)
<SHARES-REINVESTED> 1,159,208
<NET-CHANGE-IN-ASSETS> (6,951,508)
<ACCUMULATED-NII-PRIOR> 15,789,649
<ACCUMULATED-GAINS-PRIOR> (7,857,560)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,346,394
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,590,444
<AVERAGE-NET-ASSETS> 216,764,088
<PER-SHARE-NAV-BEGIN> 12.86
<PER-SHARE-NII> .90
<PER-SHARE-GAIN-APPREC> 1.55
<PER-SHARE-DIVIDEND> (1.08)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.23
<EXPENSE-RATIO> .73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> FIXED INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 25,869,672
<INVESTMENTS-AT-VALUE> 27,480,947
<RECEIVABLES> 3,041,212
<ASSETS-OTHER> 8,231
<OTHER-ITEMS-ASSETS> 4,149
<TOTAL-ASSETS> 30,534,539
<PAYABLE-FOR-SECURITIES> 2,501,302
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 58,435
<TOTAL-LIABILITIES> 2,559,737
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,090,425
<SHARES-COMMON-STOCK> 1,976,278
<SHARES-COMMON-PRIOR> 2,216,006
<ACCUMULATED-NII-CURRENT> 1,886,024
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,612,922)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,611,275
<NET-ASSETS> 27,974,802
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,043,953
<OTHER-INCOME> 0
<EXPENSES-NET> (223,370)
<NET-INVESTMENT-INCOME> 1,820,583
<REALIZED-GAINS-CURRENT> 450,299
<APPREC-INCREASE-CURRENT> 2,644,460
<NET-CHANGE-FROM-OPS> 4,915,342
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,175,000)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 260,087
<NUMBER-OF-SHARES-REDEEMED> (660,807)
<SHARES-REINVESTED> 160,992
<NET-CHANGE-IN-ASSETS> (607,296)
<ACCUMULATED-NII-PRIOR> 2,166,226
<ACCUMULATED-GAINS-PRIOR> (3,018,429)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 174,815
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 223,370
<AVERAGE-NET-ASSETS> 27,970,469
<PER-SHARE-NAV-BEGIN> 12.90
<PER-SHARE-NII> .90
<PER-SHARE-GAIN-APPREC> 1.52
<PER-SHARE-DIVIDEND> (1.16)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.16
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 253,365,267
<INVESTMENTS-AT-VALUE> 308,434,809
<RECEIVABLES> 1,026,227
<ASSETS-OTHER> 36,607
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 309,497,643
<PAYABLE-FOR-SECURITIES> 844,335
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 795,864
<TOTAL-LIABILITIES> 1,640,199
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 237,393,719
<SHARES-COMMON-STOCK> 15,804,750
<SHARES-COMMON-PRIOR> 13,539,397
<ACCUMULATED-NII-CURRENT> 1,525,191
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,868,992
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 55,069,542
<NET-ASSETS> 307,857,444
<DIVIDEND-INCOME> 3,196,331
<INTEREST-INCOME> 681,522
<OTHER-INCOME> 0
<EXPENSES-NET> (2,343,307)
<NET-INVESTMENT-INCOME> 1,534,546
<REALIZED-GAINS-CURRENT> 13,887,486
<APPREC-INCREASE-CURRENT> 48,038,490
<NET-CHANGE-FROM-OPS> 63,460,522
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (600,000)
<DISTRIBUTIONS-OF-GAINS> (45,075,000)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,859,732
<NUMBER-OF-SHARES-REDEEMED> (6,977,008)
<SHARES-REINVESTED> 2,382,629
<NET-CHANGE-IN-ASSETS> 61,708,417
<ACCUMULATED-NII-PRIOR> 588,113
<ACCUMULATED-GAINS-PRIOR> 45,076,136
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,044,069
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,343,307
<AVERAGE-NET-ASSETS> 275,131,552
<PER-SHARE-NAV-BEGIN> 18.18
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 4.62
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> (3.38)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.48
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> HIGH YIELD PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 44,664,030
<INVESTMENTS-AT-VALUE> 45,708,315
<RECEIVABLES> 1,177,651
<ASSETS-OTHER> 8,578
<OTHER-ITEMS-ASSETS> 184
<TOTAL-ASSETS> 46,894,728
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 77,990
<TOTAL-LIABILITIES> 77,990
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 55,823,789
<SHARES-COMMON-STOCK> 5,618,366
<SHARES-COMMON-PRIOR> 6,102,634
<ACCUMULATED-NII-CURRENT> 4,658,768
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (14,710,104)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,044,285
<NET-ASSETS> 46,816,738
<DIVIDEND-INCOME> 44,509
<INTEREST-INCOME> 4,933,551
<OTHER-INCOME> 0
<EXPENSES-NET> (417,494)
<NET-INVESTMENT-INCOME> 4,560,566
<REALIZED-GAINS-CURRENT> (574,848)
<APPREC-INCREASE-CURRENT> 4,437,941
<NET-CHANGE-FROM-OPS> 8,423,659
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,345,000)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,623,914
<NUMBER-OF-SHARES-REDEEMED> (4,777,982)
<SHARES-REINVESTED> 669,800
<NET-CHANGE-IN-ASSETS> (1,240,510)
<ACCUMULATED-NII-PRIOR> 5,338,966
<ACCUMULATED-GAINS-PRIOR> (14,031,020)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 346,773
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 417,494
<AVERAGE-NET-ASSETS> 49,538,993
<PER-SHARE-NAV-BEGIN> 7.87
<PER-SHARE-NII> .77
<PER-SHARE-GAIN-APPREC> .67
<PER-SHARE-DIVIDEND> (.98)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.33
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> ANCHOR SERIES TRUST STRATEGIC MULTI ASSET
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 52,544,430
<INVESTMENTS-AT-VALUE> 63,769,388
<RECEIVABLES> 596,339
<ASSETS-OTHER> 13,165
<OTHER-ITEMS-ASSETS> 2,419
<TOTAL-ASSETS> 64,381,311
<PAYABLE-FOR-SECURITIES> 95,357
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 260,094
<TOTAL-LIABILITIES> 355,451
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,268,718
<SHARES-COMMON-STOCK> 5,435,876
<SHARES-COMMON-PRIOR> 5,789,531
<ACCUMULATED-NII-CURRENT> 1,761,777
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,768,451
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,226,914
<NET-ASSETS> 64,025,860
<DIVIDEND-INCOME> 764,239
<INTEREST-INCOME> 1,766,450
<OTHER-INCOME> 0
<EXPENSES-NET> (801,351)
<NET-INVESTMENT-INCOME> 1,729,338
<REALIZED-GAINS-CURRENT> 3,867,552
<APPREC-INCREASE-CURRENT> 7,523,881
<NET-CHANGE-FROM-OPS> 13,120,771
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,125,000)
<DISTRIBUTIONS-OF-GAINS> (8,585,000)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 408,481
<NUMBER-OF-SHARES-REDEEMED> (1,615,387)
<SHARES-REINVESTED> 853,251
<NET-CHANGE-IN-ASSETS> (1,331,487)
<ACCUMULATED-NII-PRIOR> 1,069,869
<ACCUMULATED-GAINS-PRIOR> 8,573,469
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 640,025
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 801,351
<AVERAGE-NET-ASSETS> 64,002,491
<PER-SHARE-NAV-BEGIN> 11.29
<PER-SHARE-NII> .32
<PER-SHARE-GAIN-APPREC> 2.18
<PER-SHARE-DIVIDEND> (.23)
<PER-SHARE-DISTRIBUTIONS> (1.78)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.78
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> MULTI-ASSET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 141,016,594
<INVESTMENTS-AT-VALUE> 172,790,287
<RECEIVABLES> 754,371
<ASSETS-OTHER> 27,170
<OTHER-ITEMS-ASSETS> 936
<TOTAL-ASSETS> 173,572,764
<PAYABLE-FOR-SECURITIES> 5,015,347
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 314,609
<TOTAL-LIABILITIES> 5,329,956
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 121,349,884
<SHARES-COMMON-STOCK> 12,901,232
<SHARES-COMMON-PRIOR> 14,021,984
<ACCUMULATED-NII-CURRENT> 5,315,320
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,803,919
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31,773,685
<NET-ASSETS> 168,242,808
<DIVIDEND-INCOME> 1,932,926
<INTEREST-INCOME> 5,153,507
<OTHER-INCOME> 0
<EXPENSES-NET> (1,808,504)
<NET-INVESTMENT-INCOME> 5,277,929
<REALIZED-GAINS-CURRENT> 9,856,105
<APPREC-INCREASE-CURRENT> 22,147,558
<NET-CHANGE-FROM-OPS> 37,281,592
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,910,000)
<DISTRIBUTIONS-OF-GAINS> (12,550,000)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,590,143
<NUMBER-OF-SHARES-REDEEMED> (4,174,813)
<SHARES-REINVESTED> 1,463,918
<NET-CHANGE-IN-ASSETS> 4,083,559
<ACCUMULATED-NII-PRIOR> 5,902,500
<ACCUMULATED-GAINS-PRIOR> 12,542,705
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,671,735
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,808,504
<AVERAGE-NET-ASSETS> 167,173,453
<PER-SHARE-NAV-BEGIN> 11.71
<PER-SHARE-NII> .40
<PER-SHARE-GAIN-APPREC> 2.47
<PER-SHARE-DIVIDEND> (.49)
<PER-SHARE-DISTRIBUTIONS> (1.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.04
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> CAPITAL APPRECIATION PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 292,091,886
<INVESTMENTS-AT-VALUE> 360,415,875
<RECEIVABLES> 1,352,704
<ASSETS-OTHER> 8,233
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 361,776,812
<PAYABLE-FOR-SECURITIES> 3,224,337
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,334,436
<TOTAL-LIABILITIES> 5,558,773
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 270,779,204
<SHARES-COMMON-STOCK> 15,340,737
<SHARES-COMMON-PRIOR> 13,105,789
<ACCUMULATED-NII-CURRENT> 918,755
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16,195,459
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 68,324,621
<NET-ASSETS> 356,218,039
<DIVIDEND-INCOME> 1,242,798
<INTEREST-INCOME> 1,954,396
<OTHER-INCOME> 0
<EXPENSES-NET> (2,317,386)
<NET-INVESTMENT-INCOME> 879,808
<REALIZED-GAINS-CURRENT> 16,337,807
<APPREC-INCREASE-CURRENT> 63,662,462
<NET-CHANGE-FROM-OPS> 80,880,077
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,145,000)
<DISTRIBUTIONS-OF-GAINS> (2,960,000)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,911,588
<NUMBER-OF-SHARES-REDEEMED> (11,890,507)
<SHARES-REINVESTED> 213,867
<NET-CHANGE-IN-ASSETS> 126,673,835
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,001,599
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,992,705
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,317,386
<AVERAGE-NET-ASSETS> 287,168,314
<PER-SHARE-NAV-BEGIN> 17.51
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 6.00
<PER-SHARE-DIVIDEND> (.15)
<PER-SHARE-DISTRIBUTIONS> (.20)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.22
<EXPENSE-RATIO> .81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> CONVERTIBLE SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 32,123,457
<INVESTMENTS-AT-VALUE> 32,680,232
<RECEIVABLES> 309,314
<ASSETS-OTHER> 3,079
<OTHER-ITEMS-ASSETS> 3,256
<TOTAL-ASSETS> 32,995,881
<PAYABLE-FOR-SECURITIES> 894,442
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 93,166
<TOTAL-LIABILITIES> 987,608
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,187,505
<SHARES-COMMON-STOCK> 2,665,182
<SHARES-COMMON-PRIOR> 3,026,441
<ACCUMULATED-NII-CURRENT> 1,734,211
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,470,237)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 556,794
<NET-ASSETS> 32,008,273
<DIVIDEND-INCOME> 886,033
<INTEREST-INCOME> 1,088,553
<OTHER-INCOME> 0
<EXPENSES-NET> (277,988)
<NET-INVESTMENT-INCOME> 1,696,598
<REALIZED-GAINS-CURRENT> (606,778)
<APPREC-INCREASE-CURRENT> 3,911,119
<NET-CHANGE-FROM-OPS> 5,000,939
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,059,675)
<DISTRIBUTIONS-OF-GAINS> (1,515,325)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 362,321
<NUMBER-OF-SHARES-REDEEMED> (1,026,033)
<SHARES-REINVESTED> 302,453
<NET-CHANGE-IN-ASSETS> (2,987,107)
<ACCUMULATED-NII-PRIOR> 2,089,605
<ACCUMULATED-GAINS-PRIOR> 658,937
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 229,671
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 277,988
<AVERAGE-NET-ASSETS> 32,810,069
<PER-SHARE-NAV-BEGIN> 11.56
<PER-SHARE-NII> .61
<PER-SHARE-GAIN-APPREC> 1.29
<PER-SHARE-DIVIDEND> (.83)
<PER-SHARE-DISTRIBUTIONS> (.62)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.01
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> ANCHOR SERIES TRUST FOREIGN SECURITIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 49,303,284
<INVESTMENTS-AT-VALUE> 53,457,249
<RECEIVABLES> 526,693
<ASSETS-OTHER> 46,933
<OTHER-ITEMS-ASSETS> 1,154
<TOTAL-ASSETS> 54,032,029
<PAYABLE-FOR-SECURITIES> 58,395
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 364,171
<TOTAL-LIABILITIES> 422,566
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 50,930,931
<SHARES-COMMON-STOCK> 4,537,636
<SHARES-COMMON-PRIOR> 6,504,173
<ACCUMULATED-NII-CURRENT> 738,683
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,288,863)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,228,712
<NET-ASSETS> 53,609,463
<DIVIDEND-INCOME> 1,236,785
<INTEREST-INCOME> 181,384
<OTHER-INCOME> 0
<EXPENSES-NET> (710,718)
<NET-INVESTMENT-INCOME> 707,451
<REALIZED-GAINS-CURRENT> 3,369,880
<APPREC-INCREASE-CURRENT> 2,382,385
<NET-CHANGE-FROM-OPS> 6,459,716
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (279,273)
<DISTRIBUTIONS-OF-GAINS> (55,727)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,954,097
<NUMBER-OF-SHARES-REDEEMED> (4,950,332)
<SHARES-REINVESTED> 29,698
<NET-CHANGE-IN-ASSETS> (15,031,254)
<ACCUMULATED-NII-PRIOR> 188,634
<ACCUMULATED-GAINS-PRIOR> (5,481,145)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 525,490
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 710,718
<AVERAGE-NET-ASSETS> 58,387,797
<PER-SHARE-NAV-BEGIN> 10.55
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> 1.19
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> (.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.81
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> NATURAL RESOURCES PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 26,109,314
<INVESTMENTS-AT-VALUE> 29,944,106
<RECEIVABLES> 468,624
<ASSETS-OTHER> 1,538
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<TOTAL-ASSETS> 30,416,992
<PAYABLE-FOR-SECURITIES> 998,066
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<OTHER-ITEMS-LIABILITIES> 477,555
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<PAID-IN-CAPITAL-COMMON> 24,446,526
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<SHARES-COMMON-PRIOR> 1,597,171
<ACCUMULATED-NII-CURRENT> 325,546
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 334,238
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,835,061
<NET-ASSETS> 28,941,371
<DIVIDEND-INCOME> 484,777
<INTEREST-INCOME> 105,518
<OTHER-INCOME> 0
<EXPENSES-NET> (258,851)
<NET-INVESTMENT-INCOME> 331,444
<REALIZED-GAINS-CURRENT> 764,415
<APPREC-INCREASE-CURRENT> 3,011,972
<NET-CHANGE-FROM-OPS> 4,107,831
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (365,000)
<DISTRIBUTIONS-OF-GAINS> (510,000)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,917,837
<NUMBER-OF-SHARES-REDEEMED> (1,657,363)
<SHARES-REINVESTED> 56,379
<NET-CHANGE-IN-ASSETS> 7,711,608
<ACCUMULATED-NII-PRIOR> 358,400
<ACCUMULATED-GAINS-PRIOR> 80,525
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 195,327
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 258,851
<AVERAGE-NET-ASSETS> 26,043,547
<PER-SHARE-NAV-BEGIN> 13.29
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> 2.15
<PER-SHARE-DIVIDEND> (.21)
<PER-SHARE-DISTRIBUTIONS> (.29)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.12
<EXPENSE-RATIO> .99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> TARGET '98 PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 12,080,719
<INVESTMENTS-AT-VALUE> 12,766,628
<RECEIVABLES> 32,860
<ASSETS-OTHER> 674
<OTHER-ITEMS-ASSETS> 4,736
<TOTAL-ASSETS> 12,804,898
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,713
<TOTAL-LIABILITIES> 30,713
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,139,562
<SHARES-COMMON-STOCK> 1,010,380
<SHARES-COMMON-PRIOR> 1,573,649
<ACCUMULATED-NII-CURRENT> 1,203,164
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (254,450)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 685,909
<NET-ASSETS> 12,774,185
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,194,014
<OTHER-INCOME> 0
<EXPENSES-NET> (135,196)
<NET-INVESTMENT-INCOME> 1,058,818
<REALIZED-GAINS-CURRENT> (73,496)
<APPREC-INCREASE-CURRENT> 1,322,217
<NET-CHANGE-FROM-OPS> 2,307,539
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,285,000)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 80,359
<NUMBER-OF-SHARES-REDEEMED> (748,356)
<SHARES-REINVESTED> 104,727
<NET-CHANGE-IN-ASSETS> (6,420,003)
<ACCUMULATED-NII-PRIOR> 1,278,815
<ACCUMULATED-GAINS-PRIOR> (30,423)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 98,847
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 135,196
<AVERAGE-NET-ASSETS> 15,815,607
<PER-SHARE-NAV-BEGIN> 12.20
<PER-SHARE-NII> .86
<PER-SHARE-GAIN-APPREC> .88
<PER-SHARE-DIVIDEND> (1.30)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.64
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
